As any employer who gives his employees medical benefits can tell you, the price for prescription drugs can increased astronomically over the last 20 years. The number of filled prescriptions grew at an alarming rate; going form 13m prescriptions filled in 2002 to 22m filled in 2004 (What goes into the costs of Prescription Drugs?, Phrma org. PDF June 2005). Most Americans cannot afford to pay for the increasing number of prescription drugs they need as they get older, so medical insurance agencies foot the ever increasing bill. And since insurance costs go up, most people can only afford insurance through their employer. While for a long time American companies were able to easily afford a medical coverage plan, the increasing prices of the last decade dramatically hurt the bottom line of many corporations both large and small. The famous example is General Motors. Whose generous medical plans won decades earlier by the unions, now cost the company so much money that GM spends more money on health benefits for retirees than it does on steel for its cars (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/06/08/BUGKAD4U481.DTL). In short, the increasing cost of prescription drug prices is stifling business and leaving more and more Americans every year without health insurance.
So how does this problem relate to the topics discussed in Econ 204? In class we have looked at how networks grow from just a few nodes to hundreds more depending on the nature of the network. What we have not seen so far is how a network “unwires” itself. How a network loses nodes and grows ever smaller. It seems to be a paradox that as the healthcare industry is growing in terms of dollars spent, it is shrinking with the increasing number of American businesses canceling their health insurance policy. Ties between the medical insurance companies (sellers) and the everyday American companies (buyers) are breaking. Some ties are so strong from cooperation over the years that they cannot break, such as GM from their health insurer, unless restructuring is done. This unwiring of the network continues everyday, but recently some employers are trying a new tact on how to lower their medical expenses.
In a recent New York Times article, some employers are now giving free prescription drugs to employees (http://www.nytimes.com/2007/02/21/business/21free.html?hp=&pagewanted=all). They are doing this for two reasons. First is that employers know that if employees take their medicine like they are supposed to, most major and very expensive long-term complications can be avoided; saving the company a lot of money. The second reason is that employers are hoping to strengthen the ties between employees and their doctors. The companies know that this stronger tie will cause people to go to their doctor more often so that future problems can be detected early and avoided. If successful, this new method of combating high medical prices for companies will re-wire Americans to the medical network with stronger links between patients and their doctors, increasing the overall welfare of the American populace.