Why do prescriptions cost so much?
Americans are spending far more on drugs than people in other countries.
It isn’t that we are using more prescription medications. In many cases, we are just paying more for the exact same drug sold in other countries.
Drug prices up
This is pretty routine. Every January drug companies raise their prices, and around July there’s another round of increases.
Employers expected prescription drug costs to rise an average of 8% in 2025, with some predicting increases as high as 11.4% for outpatient prescriptions.
In 2024, insulins and inhalers came down. The big insulin makers cut list prices by up to roughly 70%, and the major inhaler makers capped what many patients pay out of pocket at $35.
♦ A big factor behind those cuts was the American Rescue Plan, signed by President Biden in 2021. It was mostly a COVID-era stimulus bill, but it also changed how Medicaid drug rebates work.
Drugmakers that raise prices faster than inflation owe bigger Medicaid rebates. Those rebates used to be capped at the drug’s price. The Rescue Plan lifted that cap in 2024, so a drugmaker that jacks up prices can now owe Medicaid more than the drug sells for. Rather than pay up, drugmakers cut list prices or pulled some older medicines off the market.
♦ In 2022, President Biden signed the Inflation Reduction Act. It requires manufacturers to pay rebates when Medicare drug prices rise faster than inflation (starting in late 2022 for Part D and January 2023 for Part B). It also capped insulin at $35 a month and put a yearly cap on what Medicare patients pay out of pocket for drugs.
These savings are at risk now that the White House and Congress are all controlled by Republicans, many of whom are eager to implement Project 2025.
The Heritage Foundation has outlined a sweeping, far-right policy vision to put power—and profits—back in pharmaceutical companies’ hands. Project 2025 calls for repealing the Inflation Reduction Act.
The IRA hasn’t been repealed. But Republicans have already started chipping at it. The One Big Beautiful Bill Act, signed July 4, 2025, widened the exemption that keeps orphan (rare disease) drugs out of Medicare price negotiation and delayed negotiation for others. The Congressional Budget Office now estimates that change alone will cost Medicare $8.8 billion over ten years. Supporters say it encourages research on rare diseases. Critics point out that some of the drugs shielded are billion-dollar blockbusters.
♦ To be fair, the second Trump administration hasn’t ignored drug prices. It revived “most favored nation” pricing in 2025, and the White House says 26 drugmakers covering about 90% of the branded market have agreed to match the lowest prices paid in other wealthy countries, in exchange for a three-year break from threatened tariffs. A government website, TrumpRx, launched in February 2026 to sell some drugs at discounted cash prices.
Here’s the catch. The deals haven’t been made public, the savings numbers come from the White House itself, and handshake deals can be undone by the next administration.
• Price protections like the IRA’s mostly help people on Medicare. Everyone else still has to rely on their health plan to negotiate a fair price, if that is even possible.
• The industry always tries to claim that drug prices have been relatively flat. That’s a bit lame since increases have run well above inflation. They also like to point the finger at the middlemen.
• The insurance industry takes a different position. Its trade group, America’s Health Insurance Plans (AHIP), blames Big Pharma for raising costs for all Americans.
Lots of bills, little action
In 2019 alone, at least 50 bills were introduced in Congress to control drug prices, from speeding generics to market to legalizing imports from Canada. Almost none became law. The one small exception, the CREATES Act, makes it harder for brand-name drugmakers to block generic competitors. Helpful, but hardly a cure.
♦ Importing from Canada is still more promise than reality. The Trump administration opened a pathway in 2020, PhRMA sued, and the FDA finally approved Florida’s plan in January 2024. PhRMA called it “reckless” and lined up another lawsuit. Canada isn’t thrilled either, and has moved to block exports that could cause shortages there.
Click a link to jump ahead.
Odd laws in America inflate prices
Government funding doesn't help everyone
What if the government regulated prices?
People don't realize there is a crisis
How are drug prices decided?
In America, pharmaceutical companies can pretty much set their own prices. They can sell any drug the Food and Drug Administration (FDA) approves as safe and effective, even if the new drug is no better than one already on the shelf.
Canada and most European countries regulate drug prices to keep them from becoming unaffordable for their citizens. This matters most for chronic conditions where only a few drugs are available.
♦ Most of these countries have a government agency that decides whether a drug is worth paying for, and at what price. Many also have some form of national health insurance, so negotiating drug prices is critical to controlling their healthcare costs.
The drug still has to be approved as safe by a regulator first. Then the pricing agency asks the hard question: does this drug actually work better than what we already have? Lots of “new” drugs are just tweaks of older drugs designed to keep patent protection and prices high. If a new drug doesn’t beat the old one, these agencies won’t pay a premium for it. A drug company that wants a whole country’s patients has to come to the table.
• In America, nobody asks that question for most of the market. And how much a company actually spent on research and manufacturing a drug is treated as a corporate secret.
Medicaid has controls
Medicaid doesn’t haggle the way Medicare Part D plans do, but it has some of the strongest price controls in the country already built into law.
♦ For a drug to be covered by Medicaid, the manufacturer must join a national rebate program. Manufacturers must also sign a pricing agreement run by the Health Resources and Services Administration and a master agreement with the Secretary of Veterans Affairs.
Those rules work. In a 2021 report, the Congressional Budget Office (CBO) looked at 176 top-selling brand-name drugs. A month’s supply cost Medicaid $118 on average after rebates. Medicare Part D paid $343 for the same drugs. That’s nearly three times as much.
The difference comes down to rebates. Medicaid got rebates averaging 77% off the list price. Medicare Part D plans got about 35%.
In other words, if Medicare Part D got Medicaid-style rebates, taxpayers and seniors would save a fortune.
♦ The whole drug pricing process lacks transparency, inside Medicaid and out. That has led to a string of federal and state proposals to make accurate drug pricing information public.
Odd laws in America inflate prices
Some odd federal laws on the books strongly favor pharmaceutical companies and lead to higher prices.
♦ Medicare drug plans must cover “all or substantially all” drugs in six protected classes, including cancer, HIV and mental health drugs. That protects patients who rely on these medicines. It also hands drugmakers a guaranteed Medicare market for new drugs in these classes, even when they cost more and work no better. In 2018 the Trump administration proposed loosening the rule, but dropped the idea in 2019 after patient groups pushed back.
♦ By far the oddest law was the one that banned Medicare from negotiating drug prices at all. When Congress created the Part D drug benefit in 2003, it handed the job to private plans and wrote in a clause keeping the government out of the room.
• Advocates have long argued that Medicare, buying for tens of millions of seniors, is in a far stronger position to bargain than any private plan. Polls consistently find large majorities of Americans, Republicans and Democrats alike, agree. Republicans in Congress and the drug industry fought it for years.
♦ In August 2022, President Biden signed the Inflation Reduction Act, which finally gave Medicare some power to negotiate. Not a single Republican in the Senate voted for it.
It’s working, slowly. Negotiated prices for the first 10 drugs took effect January 1, 2026, with cuts ranging from 38% to 79% off list price. Prices for 15 more drugs, including Ozempic and Wegovy, kick in during 2027. Another 15, now including drugs given in a doctor’s office, were picked in January 2026 for 2028.
It’s still a small slice of the market, and it only helps Medicare. Nothing dramatic and nothing fast. But for the first time, someone is negotiating on behalf of seniors as a group.
♦ One more for the record: Trump’s first draft of the new NAFTA would have locked in 10 years of protection from cheaper competition for biologic drugs (super-expensive drugs made from living cells) across North America. Democrats in Congress raised a ruckus over the handout and got it stripped out in December 2019.
Government funding doesn't help everyone
The National Institutes of Health (NIH) has a budget of about $47 billion for 2026, and most of it goes to medical research, including a good chunk that leads to new drug treatments. Congress protected that money this year after the Trump administration proposed cutting NIH by roughly 40%. So where does all that money go?
♦ A lot of it doesn’t end up benefiting Americans at the pharmacy counter. Instead, it improves the profits of drug companies and major universities.
• Since the Bayh-Dole Act of 1980, universities and companies can own the patents on discoveries made with taxpayer money.
The hepatitis C drug sofosbuvir (Sovaldi) is a good example of how the system works. Its development traces back in part to research supported by federal grants.
By 2016, a 12-week course cost about $84,000 in the United States, $53,000 in the United Kingdom, $45,000 in Canada, and $483 in India. Prices here have come down since, but for years many Americans couldn’t afford a cure their own tax dollars helped create.
Most people should be disturbed by this, but it rarely makes the news.
In 2018, a nonprofit asked the government to investigate whether NIH funding was left off the sofosbuvir patent, which could have let the government take it over. The Trump administration sidelined the request.
What would happen if the U.S. government regulated prices?
If the U.S. had an oversight agency similar to what European countries have then prices would certainly come down.
It would likely result in health insurance premiums rising less drastically, lower out-of-pocket expenses for consumers and lower Medicare and Medicaid expenses.
So why don’t we do this?
Someone would have to make hard choices about which drugs are worth paying top dollar for, instead of leaving it to the drug companies. Drugmakers would have to justify their prices. And everyone who makes money along the drug supply chain would cry when they saw their profit margins shrink.
♦ It isn’t a far-fetched idea. The Veterans Health Administration (VHA) already negotiates drug prices. Government auditors found the VA paid about half what Medicare Part D did for the same drugs, 54% less on average.
• The VA also limits which drugs it covers, which is a point of contention.
♦ Pharmaceutical companies make a lot of money right now. Of course they’ll fight to keep it. That means a lot of money spent lobbying government officials to protect the status quo.
The pharmaceutical industry spent more than $372 million on federal lobbying in 2022, plus at least another $32 million lobbying state governments. Not all states report this type of lobbying.
♦ We need help now. About one in four Americans already has trouble paying for their prescriptions. It’s even worse for life-saving drugs, where the sky’s the limit on pricing.
Investors demand profits
Investors like pharmaceutical companies because they make a lot of money, and that money gets shared with shareholders. If the government controls prices, profits go down and investors look elsewhere.
♦ Drug companies argue that without reliable profits, they’d cut back on research. It is expensive and takes many years to bring a new drug to market. But the argument is a bit foggy.
A widely cited analysis found that 9 out of 10 big pharmaceutical companies spent more on sales and marketing than on research. (The industry disputes the math, since those numbers lump in general overhead.)
• By some estimates, most new drugs offer little or no real improvement over existing medications. The main goal often seems to be keeping patent protection and a monopoly on a particular treatment.
A huge chunk of research money goes to things wealthy consumers will pay a lot for, like treatments for hair loss, infertility, aging and obesity.
♦ Far less goes toward new antibiotics, which we desperately need. Why? A patient takes an antibiotic for a few days until the infection clears, and then never buys it again. Not much profit in that.
Costly research on life-saving drugs and rare diseases has the greatest potential for huge profits. And a lot of that research qualifies for government funding.
People don't realize there's a crisis
Many people don’t realize there’s a crisis until it hits them or someone close to them.
♦ People in good health, or with good insurance, often have no idea how much prescriptions cost. Then someone close to them needs an expensive antibiotic, or develops a serious illness that requires a specialty drug with an out-of-this-world sticker price, and suddenly they understand something is very wrong.
The news loves a scandal, like the 2016 uproar over the EpiPen two-pack hitting about $600. Less famous drugs don’t make the news, even though many brand-name prices have climbed year after year, well above inflation.
♦ Fortunately, the vast majority of prescriptions Americans fill are generics. But don’t assume cheap. Between rising generic prices, high deductibles and confusing drug tiers, plenty of people are getting stung even on generics. We dig into that in Why your “cheap” generic isn’t so cheap
Looking ahead
America is aging. Every year, more Americans are diagnosed with a chronic condition. Many of these conditions can never be cured, but they can be treated and bring some sense of normalcy to people’s lives.
The consensus keeps growing that something has to be done to rein in drug prices. Democrats point to Medicare negotiation. The Trump administration points to its most-favored-nation deals and TrumpRx. Either way, the question is whether those savings will reach ordinary people, and whether they’ll last.
People should not be forced to choose between paying for their medicines and paying for food or rent.
The moral conscience of America is being tested.
