Legal Commentary

Christmas for Drug Companies, Coal for OTC Consumers

By Jonathan H. Adler

Both the House and Senate health care bills contain an unwelcome surprise for those whose current health care plans allow ?flexible savings accounts? for out-of-pocket medical expenditures.  FSAs enable people to spend pre-tax dollars on medical expenditures, including doctor visit co-pays and drug costs.  Money is deducted from an employee?s paycheck, pre-tax, and placed in a separate account that can only be used to reimburse for medical expenses incurred over the course of a year.

In 2003, the federal government concluded that FSA dollars could be used for over-the-counter medicines.  This was a boon for consumers, and helped reduce health care costs by making it less expensive for many consumers to substitute less expensive OTC remedies for prescription drugs.  In my own case, it was much cheaper for me to use a prescription allergy medicine than an equally effective OTC drug because my drug co-pay was lower than the cost of the OTC product.  Allowing FSA reimbursement for OTC drugs helped close the gap.  It was also a major benefit for families, as expenditures on things like Pedialyte and pre-natal vitamins were also eligible.

This is all going to change if the current health care bills become law, however.  As John Berlau reports, both the House and Senate bills would restrict the use of FSAs (and Health Savings Accounts) to prescription drugs and insulin.  This will be a boon to drug makers insofar as prescription drugs are more profitable than OTC medicines, but could increase medical costs for many Americans ? and is also likely to increase health care costs overall.

This sort of thing is nothing new.  In 2005, Pfizer began supporting greater regulation of pseudophedrineto force it behind the pharmacist?s counter, just as it prepared to market products containing a less-effective alternativephenylephrine (PE) ahead of its competitors.  The profit motive may induce drug companies to develop life-saving (and profit-making) medicines ? and that?s a wonderful thing ? but it is also encourages efforts  to game the regulatory system.  In this case, a small shift in the rules for FSAs allows drug makers to gain at consumer expense.  Alas, I doubt it?s the only corporate goodie stuffed inside the health care overhaul.

Full post as published by The Volokh Conspiracy on December 26, 2009 (boomark / email).