D.J. Tice: Beware the side effects of health care policy

Health care can be hazardous to a political party's health — a timely reminder, perhaps, as the 2020 presidential campaign heats up, fueled not least by feverish health care debates.

In 1992, Bill Clinton was elected president along with Democratic majorities in both houses of Congress, restoring full Democratic control in Washington for the first time in 12 years. Clinton unsuccessfully pushed a major health care restructuring.

Democrats lost the House two years later and didn't regain complete control in Washington until 2009.

Then came Obamacare — which inspired the "Tea Party" rebellion in 2010. Democratic dominance ended again.

And in 2016, Donald Trump led (or dragged) Republicans to full control in Washington for the first time in a decade. They tried to dismantle Obamacare, a cause that had served them well as a political battle cry.

Their failed attempt to make good on the promise helped end the GOP's winning streak in 2018.

But if health care policymaking is politically treacherous, simply talking big about what's wrong with U.S. health care, naming the villains and oversimplifying the issues, remains an irresistible political wonder drug.

Among the Democratic presidential hopefuls, we hear very big health care talk indeed from the prophets of Medicare-for-All single-payer health care, which we're told will cover everyone, lower costs and improve quality. Democratic moderates warn about the political hazards of too sweeping a change. They urge more incremental efforts to expand insurance coverage and such reforms as allowing existing Medicare to negotiate drug prices — long one of progressives' favorite proposals.

Trump also understands that punishing prescription drug prices are a widespread source of indignation. He has attempted or promised a number of executive actions and legislative proposals to restrain prices. Not much has resulted so far, but he keeps promising, despite the political risks.

Most recently, Trump has announced an intention to allow re-importation of drugs from other countries, such as Canada, that pay less for pharmaceuticals because of their centralized, single-payer purchasing. This too is an idea that's been advanced for years.

Many of these big or durable ideas may have some merit. But there really are complexities that may limit what any of them accomplish — or at least impose costly trade-offs — all of which politicians seldom want to discuss.

Analysts and scholars, though, frequently discuss them.

For example, the respected Congressional Budget Office sent a letter on May 17 to Sen. Chuck Grassley, R-Iowa, reiterating its assessment of the value of allowing drug price negotiations by the existing Medicare program. The letter notes that CBO has been offering this same perspective to Congress for more than a decade.

Basically, CBO "concluded that … broad negotiating authority by itself would likely have a negligible effect …" unless it was "accompanied by some source of pressure on drug manufacturers to secure price concessions. For example, authority to establish a formulary…"

A "formulary" is an insurer's list of the drugs it covers. Currently, the plans through which Medicare recipients receive drug coverage (which do negotiate) are sharply restricted in their ability to deny or limit coverage of drugs that are too pricey — which is the principle "source of pressure" in such negotiations.

But limiting coverages to extract lower prices would be a trade-off — and might not prove popular. So it's seldom mentioned.

But what of negotiations under a single-payer, Medicare-for-All plan? Or at least tapping into Canada's single-payer power via re-importation?

In a new paper titled "The Opportunities and Limitations of Monopsony Power in Health Care," published by the National Bureau of Economic Research, four Northwestern University scholars explore some of the issues.

A "monopsony" is like a monopoly, only involving a buyer, not a seller. It exists when there's only one buyer for a commodity. That's the case in health care in Canada and other countries that have single-payer systems.

The Northwestern researchers set out to analyze how Canadian officials actually wield their monopsony negotiating clout — to see what real-world trade-offs even those officials feel constrained by. They found that Canada's system drives a very hard bargain indeed with drug companies, but puts only a mild squeeze on the wages of doctors, nurses and other health care workers.

Canadian prescription drug prices are about half the U.S. level, the study reports, while Canada's general price level is only slightly below America's. Meanwhile, Canadian doctors and nurses earn only modestly less than comparably educated Canadians who work outside the health care industry. (Canadian doctors earn a good deal less than their American counterparts — but so do all highly skilled Canadians.)

Why do Canada's "monopsonists" squeeze drug prices so much harder than health care wages — especially when wages drive far more of the total cost of health care? Simply put, the researchers believe, it's because they can do so with fewer undesirable trade-offs.

Canada's health care system is a huge force within the Canadian labor market. Pushing down salaries for doctors and nurses would produce big distortions and over time could lead to shortages of talent in health care. So Canadian officials, apparently, choose not to risk that.

But Canada is only a tiny player in the global prescription drug market. Its demand that drug companies accept low prices and small profits in Canada doesn't reduce the industry's eagerness to invest in new drugs.

But the Northwestern economists note that while Canada represents less than 3% of the global drug market, in the U.S. "a Medicare-for-all purchaser would account for 36.9 percent of global pharmaceutical spending. … Suppression of prices by such a large monopsonist would meaningfully impact profits and therefore suppress global investments in research and development for new pharmaceuticals."

Because of such trade-off concerns, these scholars predict significant limitations in how much cost savings an American single-payer system would actually extract.

And meanwhile, one might wonder whether, to the extent that re-importing drugs through Canada enlarged the global impact of the Canadian drug market, it might undermine the very thing that allows Canada to suppress drug costs and boost prices in Canada more than it lowers them in the United States.

D.J. Tice is at Doug.Tice@startribune.com.