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Drug costs eating into greater share of income

Written by Diane Archer

A new paper by Dean Baker at the Center for Economic and Policy Research explains that an increasing and substantial share of our national income goes to paying for prescription drugs. And, most of us likely do not realize it because insurance companies pay for a good chunk of these costs.  If we don’t address the monopoly pricing power we confer on pharmaceutical companies through patents, drug costs will eat into a still greater share of our income.

Data from the U.S. Centers for Medicare and Medicaid Services reveals that, in the twenty years between 1960 and 1980, we spent about one percent of our salaries and wages on prescription drugs.  And, indeed our wages were increasing at a faster rate than our spending on drugs, So, by 1979, we spent 0.86 percent of our income on prescription drugs.

After 1980 and until 2007, our spending on prescription drugs rose more quickly than wages every year. During the Great Recession in 2007 until 2010, drug spending increases were less than wage increases. But, in 2010, that changed again, with drug spending increasing four percent more than wage increases.

We have spent about three percent of our annual income on drugs in the last 40 years, costing each household an average of about $2,400 a year, and drug spending is projected to consume a greater portion of our income in the coming years.  By 2025, spending on prescription drugs will be more than five percent of income and wages.

Yes, we are getting older as a nation, which explains a bit about why prescription drug spending has increased so much. But, between 1960 and 2015, the percent of people over 65 has risen from 9.2 percent to 14.8 percent.

The vast majority of the increase in drug spending stems from the drug companies’ monopoly power to set drug prices sky high, through the patents granted them for new drugs. That’s the principal reason that we are spending eight times more on drugs today than we did in 1980, adjusted for inflation.

We need to reconsider the patent protections the U.S. government awards drug companies. Without these protections, we could be paying about 20 percent of what we currently pay for drugs.

If you want Congress to rein in drug prices, please sign this petition.

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1 Comment

  • We notice. Insurance companies pass the increased costs for prescription drugs on to us by increasing the co-pays, moving the prescription to a higher tier which can dramatically increase the co-pay, no longer covering an expensive drug, and/or increasing our premiums. I have taken several meds that are no longer covered and would have cost up to $400/month if I had continued to take them. Some of them even helped.
    And, I had one doctor who acted like he had stock in a pharmaceutical company because the last two times I visited him he prescribed non-covered meds that had bad side effects and were not covered and were extremely expensive. Needless to say, I will not be going back.

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