Most people plan on having a lower cost of living in retirement, which doesn’t always pan out as well as expected.
In most cases, the difference can be attributed to medical bills, which are obviously more costly for older retirees than healthy 20- and 30-somethings.
This might not be true any more. Medical costs are in backwardation.
Prescription Revenues in Decline
A heart attack may set you back $40,000 in emergency medical bills, but by far the biggest drain on retirement costs is regular, maintenance spending on prescriptions.
According to an article on Boston.com, pharmaceuticals representing $255 billion in global sales will soon lose their patent protection by 2016.
The list of expiring drugs includes Lipitor, Plavix, Lexapro, and a slew of other drugs for all kinds of uses. High blood pressure, mood swings, and other medical problems won’t set you back $200 at the counter. Nope, according to industry data, the cost of generic drugs is usually one-third that of a protected pharmaceutical.
Drugs expiring in order of their patent date:
|Drug Name||Expiration Year||2010 Sales|
Reversing a Trend in Rising Costs
This chart of the GAO’s Usual and Customary Drug Index – which includes the 100 most commonly used prescription drugs – shows how pharmaceutical prices change over time. Brand name drug prices soared 6.6% annually from 2006-2010, greater than the 3.8% increase in the broader consumer price index measurement of medical goods and services.
Interestingly the price of generic prescriptions fell during the same period. I have a two guesstimates as to why this is the case:
- Four dollar drugs – Major retailers promote cheap generics to bring people into their stores with regularity. Walmart, Target, and presumably others have programs for cheap generics. The timeline for this new deal corresponds with the change in drug prices over time.
- Opportunity costs – Finding new drugs is expensive. Why stuff billions of dollars into R&D when you can use previously patented drug recipes for a guaranteed return? Several companies (Pfizer especially) are cutting back on R&D to find immediate income streams. More competition equals lower prices.
Trickle Down Savings
The statistics suggest that 15% of Americans take one or more of the patent-protected drugs slated to expire in 2012. The cost savings won’t only register for those 15% of Americans, but also the other 85% who subsidize their expenses through a health insurance plan.
We all pay for each other’s medical treatment with government programs like Medicare and Medicaid, as well as through our own private insurance at the workplace. Group rate insurance through an employer should decline dramatically as the most costly and regular expenses (monthly prescriptions) see falling prices.
Can you dig cheap drugs?
Do you pay out the wazzoo for name brand prescriptions like I do?
How much credit do you think so-called “Obamacare” will accept for this non-correlated decline in prescription drug prices?