Public support dropped for a Medicare prescription-drug law endorsed by President George W. Bush and passed by a Republican-controlled Congress following withering criticism from Democrats. Democrats were upset that the law prevented Medicare from negotiating lower prices from drug manufacturers and prohibited the purchase of cheaper medicines from Canada. The Congressional Budget Office projected the 10-year cost at $395 billion, but Medicare officials quickly raised that figure to $534 billion over ten years. Meanwhile, conservatives argued that expensive drug benefits will encourage employers to drop existing coverage for retirees.
A. Explain how Medicare prescription-drug benefits might have the unintended effect of increasing drug prices.
B. Explain how Medicare prescription-drug benefits might affect the supply of new and innovative drugs.