Tags: medicaid | rebates | tax increase

Medicaid 'Rebates' Bill Is a Stealth Tax Increase

Medicaid 'Rebates' Bill Is a Stealth Tax Increase
Rep. Michael C. Burgess, R-Texas, at the Capitol in Washington, Monday morning March 11, 2019. (AP Photo/J. Scott Applewhite)

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Friday, 14 June 2019 12:41 PM Current | Bio | Archive

It's easy to be generous with other people's money!

Rep. Michael Burgess (R-TX) wants drug companies to sell to Medicaid patients at a loss, to save the government money. Who do you think is going to pay for that? The rest of us, on private plans, that's who.

Drug manufacturers already sell at a steep discount to Medicaid, which provides free healthcare for people with income, or lack thereof, below a poverty threshold. The cost of these involuntary discounts is roughly $24 billion a year, which is a staggering amount of money unless you're comparing it to the government's oceans of debt.

Under current law, there is an elaborate formula for calculating these rebates, which includes as a bedrock rule that they are capped at 100 percent of the "average manufacturer price." In other words, the government will take your lunch, and it will eat your lunch, but it draws the line at making you pay to watch it eat your lunch.

This is where Congressman Burgess enters the picture. Burgess has introduced a bill to remove this cap, allowing the rebates to exceed the price of the drug, in which case, drug companies would be paying the government to buy their drugs.

Milton Friedman said "there is no free lunch." Jonathan Swift said "she cannot have her cake and eat her cake." And I say there's no way the government can take $24 billion out of the economy to subsidize a poverty program without the rest of us having to pick up the check. (And that's before Burgess starts requiring companies to pay Uncle Sam for their drugs!)

It's simple economics — more freebies for Medicaid just shifts costs to the private sector, and we end up paying for it either via higher prices or scarcity. For this reason, it isn't a "cost-cutting" measure, it isn't a poverty assistance measure, it's just a stealth tax increase.

Republicans are supposed to be against tax increases, which makes you wonder why Burgess is proposing this in the first place. In his defense, the man is a former Democrat who's been in Washington nearly 20 years, so it's may be getting harder to remember what it's like to have to pay for things.

Just to take a step back, it's worth considering this in the larger scheme of things. Let's not be sanguine, the healthcare "sector" is no bastion of Austrian economics. Over the years, the government has gotten its grubby little fingers in just about every nook and cranny of the healthcare market, in the process making it one of the most dysfunctional parts of our economy.

However, even in the jaded world we live in, Burgess' proposal still rises above and demands our scorn and indignation, for several reasons.

First, "rebates" and other involuntary discounts are pretty common-place, a kind of go-to tool for Washington do-gooders who want to add a new special case to the existing library of federal codes. But making the discount-ee pay for the privilege is just wrong. Private companies should not have to sell their products to the government at a loss. It's just not done.

Secondly: it'd be one thing if this program were carefully tailored to ensure that the discounts were fully realized by patients, or otherwise that the benefits of the federal government's "free drugs" were channeled to the poverty-stricken widows, hurricane victims, and starving children it purportedly benefits.

For example, is there any requirement the government share the benefits of the program with Medicaid patients themselves? No, there is not. Economists predict it will generally hurt Medicaid patients by incentivizing drug companies away from medicines for diseases that are prevalent in the Medicaid population. So we'd actually be making it worse for them.

Third, expanding Medicaid, whether through surgical, revenue-neutral tax code changes or egregiously unfair involuntary discount scams, is a questionable proposition in general. Congressman Burgess can help explain:

“I mean, why in the world if you were going to reform health care from this country from soup to nuts would you expand Medicaid?" Burgess angrily demanded from MSNBC host Craig Melvin in 2013.

"Any doctor in Texas will tell you right now, Medicaid reimburses between 25 and 33 percent of the cost of delivering the care," Burgess added.

See, it's all a matter of perspective. 25-33 percent reimbursement: it sounds terrible if you are Congressman Michael Burgess six years ago and slightly less ensconced in the Washington Bubble. But completely taking a bath, and then some — Burgess has now realized it's no big deal! Besides, people on private health insurance can afford higher prices!

Sounds like Burgess needs some time in Texas to come back down to earth.

Steve Gruber is a conservative talk show host with 25 affiliates in Michigan. "The Steve Gruber Show" launched in 2012 with just four affiliates and has grown into the most powerful name in talk radio across Michigan. Steve has been named “Best Morning Personality” by the Michigan Association of Broadcasters five years in a row. His conservative, common-sense philosophy was developed during his time growing up in rural Michigan. Steve’s early career found him in several newsrooms including WILX, Lansing where he honed his investigative journalism and interviewing skills. He became the main news anchor of the station and before long was offered a job with NBC in Columbus, Ohio. While working for NBC, he covered the incredible launch of John Glenn, age 77, into space at Cape Canaveral, White Supremacists in Ohio, and the deadly game of selling prescription medication online. Steve was nominated for an Emmy in 2000. To read more of this reports — Click Here Now.

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It's easy to be generous with other people's money!
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