The graphs in Figures 1 and 2 point to a disturbing trend: prescription medications are rising at rates that can be small, but noticeable to many. The general rise in drug prices can be attributed to a variety of factors. Although common factors like inflation can play a role in increasing drug prices, others are less well-known to the general population. Unfortunately, these factors result in massive information asymmetry, resulting in consumers not knowing why their medications increased dramatically over the course of several years. Several major factors will be discussed in this section.
5.1. Direct to Consumer Advertising
One major factor that can help explain the increased price of prescription medications is the increased presence of …show more content…
Insurance
Although the availability of insurance may soften the effects of high costs of prescription drugs, most notably through little to no co-payments, the concept in practice actually leads to higher costs for everyone. Baoping Shang and Dana Goldman note in their article “Prescription Drug Coverage and Elderly Medicare Spending” that having coverage through insurance, like Medicare Part D, actually increases drug prices for consumers. In their study, Shang and Goldman note that the increase in cost due to insurance was $157 for Medicare recipients (24-25).
This type of increase can be explained by the introduction to what insurers called “preferred drugs.” In this category, insurers offer certain pharmaceutical companies deep discounts on several types of medications while choosing to not cover others. As a result, the prices for any other drug not in this category will …show more content…
This is most likely the result of coverage from Medicare Part D, an optional prescription drug insurance coverage. Although many seniors are happy to be insured for essential medications, they might be unaware of the underlying costs associated with having the insurance. Shang and Goldman also reported in their study that while prescription drug prices have increased, inpatient and outpatient costs have decreased hundreds of dollars (46). This means that the government goal of reducing hospital and doctor costs have succeeded. When more senior citizens bought the Part D plan, they decided to treat themselves with medication instead of staying at costly hospitals and visiting expensive doctors. Although this did decrease other healthcare costs, it greatly expanded the demand for prescription medications. As a result, due to supply and demand, pharmaceutical companies had to increase prices to account for the new costs. Since there are about 55 million seniors on government health insurance and 39 million on Medicare Part D in 2015 (CMS par. 5), one could imagine the increased cost for everyone a decade or two later. It is saddening to see many citizens unable to find any alternatives any expensive medications covered by their insurance. Many senior citizens who were born before the age of technology and the