Plain English with Derek Thompson Episode: Why Do Americans Pay So Much for Drugs? Release Date: May 13, 2025

Derek Thompson, a seasoned writer for The Atlantic covering technology, culture, and politics, delves into the complex and contentious issue of high drug prices in the United States in the latest episode of his podcast, Plain English. Joined by health economist Jason Abeluck from Yale University and Nathan Hubbard, the conversation navigates the multifaceted landscape of pharmaceutical pricing, innovation, and the societal impacts of America's unique healthcare system.

1. The Premise: High Drug Prices in America

The episode kicks off by framing the central question: Why do Americans pay so much for drugs? Thompson references a 2024 RAND study highlighting that while Americans spend three to four times more on new branded drugs compared to European countries, they simultaneously spend a third less on generic medications. This dichotomy sets the stage for exploring the underlying factors contributing to these disparities.

Notable Quote:

Derek Thompson [10:29]: "There's a 2024 RAND study that found that Americans do in fact spend three to four times more for new drugs than most European countries, but we also spend a third less on generics."

2. Fragmentation of the U.S. Pharmaceutical Market

Jason Abeluck explains that the high costs for new drugs in the U.S. stem from a fragmented insurance market. Unlike European countries with centralized negotiations, the U.S. has multiple private insurers each negotiating separately with pharmaceutical companies, resulting in weaker bargaining power and higher prices.

Notable Quote:

Jason Abeluck [11:28]: "In the US, we have a bunch of fragmented private insurance companies that are each separately negotiating with pharmaceutical companies for branded drugs. And they each have less negotiating power than the government as a whole would have."

3. Impact on Consumers and the Economy

The discussion shifts to how these high drug prices affect different segments of the American population. While over 90% of prescriptions cost patients less than $20, nearly 80 million prescriptions cost more than $125, disproportionately impacting older and sicker Americans. Additionally, the higher costs are indirectly borne through increased insurance premiums and taxes.

Notable Quote:

Derek Thompson [15:32]: "It's paid indirectly, either via premiums or via taxation."

4. The Trade-Off Between Price Controls and Innovation

A key debate in the episode revolves around the tension between lowering drug prices and maintaining incentives for pharmaceutical innovation. Abeluck references a RAND study suggesting that a 20% cut in drug prices could result in a loss of 0.7 life years per person by 2050, illustrating the potential negative impact on drug development and public health.

Notable Quote:

Jason Abeluck [24:25]: "There is really something to this argument that if we give pharmaceutical companies a lot less money overall, it would be very bad for society because drugs are super duper valuable."

5. Potential Solutions: Push Funding, Pull Funding, and Global Coordination

Thompson outlines three potential strategies to address high drug prices while preserving innovation:

• Push Funding: Increasing public funding for basic research through institutions like the NIH. Abeluck emphasizes the high return on investment from such funding.

  Notable Quote:

  Nathan Hubbard [42:38]: "Every dollar of NIH funding is $1.40 in terms of patents."

• Pull Funding: Implementing prizes and rewards for developing specific drugs, akin to the successful Operation Warp Speed for COVID-19 vaccines. However, Abeluck cautions about the risks of setting overly precise targets that might misdirect research efforts.

  Notable Quote:

  Jason Abeluck [49:17]: "If you get the prize a little bit wrong, you can sort of set people off on the wrong path."

• Negotiated Global Coordination: Moving away from Trump's proposed Most Favored Nation (MFN) agreements, which tie U.S. drug prices to those in other countries in a way that often backfires, leading to higher prices elsewhere without significant reductions in the U.S.

  Notable Quote:

  Nathan Hubbard [52:06]: "Most Favored Nations Agreements... Mostly it's not going to have much impact on the US Price because the United States is so big."

6. Philosophical Considerations and Fairness

The conversation delves into the philosophical aspects of fairness in drug pricing. Abeluck argues against localized notions of fairness that overlook the broader global implications, suggesting that optimal resource allocation requires considering multiple domains simultaneously.

Notable Quote:

Nathan Hubbard [32:17]: "It's generally a mistake to think about fairness like one narrow domain at a time."

7. Future Directions: Enhancing R&D Efficiency

In addressing the efficiency of medical research and development (R&D), Abeluck questions the premise that R&D has become significantly less efficient. He proposes ideas like creating centralized databases where pharmaceutical companies can share research findings to prevent redundant or misguided efforts.

Notable Quote:

Nathan Hubbard [64:16]: "Imagine that what had happened was Pfizer had decided to abandon a promising drug, but if that information was centralized, another company could take it forward."

8. Conclusion: Balancing Innovation and Affordability

The episode concludes by reiterating the complex balance between ensuring drug affordability and maintaining robust incentives for pharmaceutical innovation. Thompson and Abeluck emphasize that while there are no easy answers, a combination of increased public funding, strategic incentives, and thoughtful global coordination may offer pathways to a more equitable and efficient pharmaceutical landscape.

Final Thoughts:

Derek Thompson [65:14]: "To me, the simplest answer is that the US Gives drug makers more power to set prices rather than using the state to negotiate or cap prices... Europe has much more market shaping at the end, in part because the state has this market shaping power to essentially say, I am the universal insurer of everybody."

Key Takeaways:

1. Fragmented Negotiations Lead to High Prices: The U.S. healthcare system's fragmentation hampers effective negotiation, driving up prices for new drugs.
2. Dual Pricing Reality: Americans face high costs for innovative, branded drugs while benefitting from lower prices for generics.
3. Economic and Health Trade-Offs: Reducing drug prices could hinder pharmaceutical innovation, potentially leading to fewer life-saving drugs.
4. Multi-Faceted Solutions Needed: A combination of increased public research funding, strategic prizes, and global pricing coordination may help balance affordability with innovation.
5. Global Implications: U.S. drug pricing strategies have significant global repercussions, effectively subsidizing pharmaceutical development worldwide.

This comprehensive exploration provides listeners with a nuanced understanding of why drug prices in the United States are markedly higher than in other countries, the implications of these costs, and potential strategies to navigate this intricate issue.