The Unreasonable Economics of EpiPens.
There was a time I expected better from Reason and their on-line Reason.com, but times have changed. Still I was surprised by a piece by Ira Stoll about how EpiPens are “Not overpriced” as the headline shouts.
Stoll says they are not overpriced because “nearly 90 percent of EpiPen buyers have paid less than $100 per box because of insurance, discounts or coupons.” I don’t see a breakdown by Stoll of how much of this is paid by insurance, but that is important.
It’s not the writing that is the problem, it’s the reasoning. One of the biggest myths in economics comes from shortsighted people who assume the cash price they pay for something is the cost. For instance, they will argue government schools are “free” because they don’t write out tuition checks, while private schools are not. But, “public” education is not free; in fact it’s very expensive. According to the National Center for Education Statistics the average cost for a grade school student is the U.S. is $12,509 per year!
Yet, the average cost for private school tuition in the United States is $10,003 per year, or about $2,506 cheaper than “free” public education.
The basic discrepancy in perceptions is parents pay directly for private schools and indirectly for public schools. What has changed is how the bills are paid and who is forced to cover the cost.
Stoll is like the parents who mistakenly think government schools — the more expensive option — are free.
Stoll compounds the error by using his own anecdote:
“I know something about this because I happen to have a family member who needs one of these things. This year, I was the one who went to the pharmacy to have the prescription filled. The price I paid out of pocket was less than it has been in years past and indeed, was less than $100 for the box of two.
So, at least in my personal experience, the Times headline is inaccurate.”
Stoll ridicules a New York Times piece by Charles Duhigg about the cost of EpiPens because he said, in another piece of anecdotal evidence that “I would still need to pay $609 for a box of two EpiPens.”
To prove his case Stoll wants to know why “Duhigg’s health insurance is such that he has to pay $609 instead of the less than $100 that I paid.”
In other words, when Stoll says EpiPens are not overpriced he isn’t looking at the actual price at all. He’s comparing out-of-pockets cost ONLY! It’s the same fallacy as parents who think government schooling is “free” because they don’t write out a check for tuition. A fallacy this obvious and blatant should never have gotten past the editors at Reason. Stoll’s logic is even worse on his own conservative site where he claims EpiPens are “underpriced.” Apparently he doesn’t know the meaning of underpriced or overpriced.
If they were underpriced there would be a natural shortage in a competitive market, if they were overpriced there would be a surplus. But, we don’t actually have a market in EpiPens; we have a state imposed monopoly.
Mr. Stoll may praise capitalism, but his understanding of it seems rather juvenile. The out-of-pocket cost for the EpiPens his relative purchased was only a partial cost. The insurance company paid the rest. On his own site Stoll whines about of insurance premiums going through the roof. Does he not think one reason for the price increases is because of government-imposed monopolies on products such as EpiPen? No, those two pens didn’t cost under $100 for the two, they cost that plus what the insurance company forked out, which means the price was hidden in the insurance premiums, just as the cost of public education is hidden in taxes.
Stoll’s entire argument is based on the illusion EpiPens are cheaper than $100 because that is the out-of-pocket cost, and he excludes insurance costs entirely from the equation. It’s convenient for his premise, but not good economics.
Stoll gets even dumber by saying they are underpriced because a higher price “would create more incentives for competitors to enter the market with alternatives. Competition, after all, is a good thing…” Duh! Yes, of course competition is a good thing, but Stoll ignorantly leaves out how the FDA has stifled competition. Higher consumer prices don’t budge bureaucrats very much; they still move at glacial speeds at best. If you have a government created hurdle hampering the market, a higher price is not necessarily a solution — something an advocate of “free” markets should understand. The regulatory hurdles prevent market prices from working!
Let’s start with a safe assumption. When government limits competition the price for a product is almost always higher than what would occur in a normal, depoliticized market. Government restrictions drive up costs. EpiPen has no competitors in the United States because the FDA has blocked them. That tells us; contrary to the nonsense Stoll wrote in Reason, the product in question is almost certainly OVERpriced, not underpriced.
There is a competitor used in the United States, but only within the U.S. military. They alone were given FDA permission to use the product. Competitors from Europe, which have been proven safe for use in Europe repeatedly are denied permits for the United States because the FDA has to approve things all over again — apparently they think American “science” is somehow different from European science. The problem is the FDA is a slow bureaucracy with a huge backlog of applications pending.
The longer the FDA takes to allow competition the longer the producer of EpiPen earns windfall profits created by regulatory restrictions. That’s important to know, the greatest share of the profit on EpiPens is not a result of a superior product, it’s the result of regulations preventing competition and forcing desperate people to buy an over-priced product.
It’s pathetic when five U.S. Senators writing the FDA, had more insight into the problem than a writer in Reason.
“We are concerned that Mylan (maker of the EpiPen) has not faced much competition for its product,” five U.S. senators wrote Aug. 24 to FDA Commissioner Dr. Robert Califf, adding that one of EpiPen’s nongeneric competitors, Auvi-Q, was recalled in October, granting Mylan a near monopoly. “News reports indicate that generic versions of the EpiPen have been subject to additional questioning by the FDA and have yet to be approved.”
Several alternatives to EpiPen are legally available to consumers and prices have been dropping:
The costs of many drugs in Europe, on the other hand, have been under pressure. For instance the U.K.’s National Health Service pays about 48 pounds for two of Alk-Abello’s Jext injectors, down about 17 percent since 2013, according to Niegel. Jext first went on sale in Europe in 2011. Across the continent, average wholesale prices have slumped more than 10 percent over the past three or four years, squeezing margins.
“In Europe, it’s getting to the point where it’s simply not a sustainable business anymore,” said health economics specialist Karl Claxton, “So it has to go the other way.” So, with one fundamental choice, Americans pay through the nose, directly and indirectly. In Europe if EpiPen sold for the prices it does in the U.S., consumers could buy FastJekt, or Jext. If neither of those are priced low enough they can look at Altellus, Anapen or Emerade. In America, the land of free to choose, they are free to choose EpiPen, EpiPen or EpiPen. That’s why, yes, Mr. Stoll, EpiPen is overpriced.