Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Raises Are Beating the Cost of Prescription Drugs
Transcript
- Lucas: You know, Luna, we've spent the last twenty episodes proving that raises are finally beating the cost of everything from diapers to summer camp. But there's one category that's felt untouchable for years — prescription drugs. Luna: Right, because every time I look at my pharmacy receipt, it feels like I'm paying for a small car. But are the numbers actually turning? Lucas: That's the question. And for the first time in a long while, the answer is a cautious yes. The July CPI came in at 332.8, up just a hair from June. And average hourly earnings are sitting at $37.60. But here's the thing — when you strip out food and energy, the core index is still creeping up. The real story is what's happening underneath. Luna: So what's actually going on with drug prices? Because I feel like my copays haven't gotten the memo. Lucas: Well, let's look at the data. The CPI for prescription drugs has been moderating for a couple of quarters now. In July, the year-over-year increase was under 2 percent — that's down from the 4 to 5 percent we were seeing a couple years ago. And when you stack that against average hourly earnings, which are up about 3.5 percent over the same period, wages are finally outpacing drug price growth. Luna: So my raise is technically beating the pharmacy. But it doesn't always feel that way. Why the disconnect? Lucas: Because averages hide the outliers. The CPI tracks a broad basket of drugs, including generics, which have been getting cheaper. But if you're on a specialty medication — think biologics for autoimmune conditions or cancer — those prices are still climbing, often by double digits. So your personal experience depends entirely on what you're prescribed. Luna: That makes sense. So the headline improvement is being driven by generics, not by the fancy stuff. Lucas: Exactly. And there's a big factor on the horizon: the patent cliff. A bunch of blockbuster biologics are losing exclusivity in the next couple of years — Humira's already gone, and others are coming. When biosimilars enter, prices can drop by 30 to 50 percent. That's a huge deal for the CPI basket. Luna: Plus, Medicare's been negotiating prices for the first time ever, right? That started with ten drugs and is supposed to expand. Lucas: Right, the Inflation Reduction Act's drug negotiation. The first round of negotiated prices went into effect earlier this year, and the second round is being finalized now. Those are directly pulling down the average prices for some of the most expensive drugs. But there's a lag — the data takes a while to show up in the CPI. Luna: So we're seeing the early innings of a structural shift, not just a blip. Lucas: I think that's the right way to frame it. But let's be careful: the CPI drug index is a lagging indicator. It took a while for the price cuts to show up. And there's a lot of complexity in how rebates and discounts are counted. But the direction is clear — for the average worker, drug price inflation has cooled enough that a 3.5 percent raise feels like a win at the pharmacy counter. Luna: Speaking of wins, this kind of analysis is exactly why people support the show. If you've ever had a moment where the economy finally clicked — maybe it was here — that's because listeners like you make it possible to keep this podcast ad-free. If you'd like to help, you can buy us a coffee at buy me a coffee dot com slash fexingo. Lucas: Yeah, we really do appreciate it. It keeps the lights on and the data flowing. Anyway — back to the pharmacy. So we've got the averages looking good, but what about the real-world experience? I think that's where the rubber meets the road. Luna: Well, there's a study from the Kaiser Family Foundation that found nearly three in ten adults skipped a prescription last year because of cost. That's still a lot of people, even if the averages are improving. Lucas: And that's the tension, right? The macro numbers say wages are beating drug prices. But the micro experience for a lot of households still stings. We should dig into why that gap persists. Luna: One reason is that the CPI measures list prices, not what people actually pay at the counter. Copays, deductibles, coinsurance — those are based on list prices, and they've been rising faster than the effective prices paid by insurers. Lucas: That's a sharp point. So even as the average transaction price drops because of rebates, your copay might be calculated on a higher list price. That's why you might not feel the improvement in your own wallet. Luna: And then there's the deductible issue. A lot of plans have shifted to high-deductible designs, so you're paying full price until you hit that threshold. That can wipe out the benefit of lower list prices early in the year. Lucas: So we've got two competing forces: the official data says the average worker's raise is beating drug price inflation, but the design of insurance plans can mute that in practice. How do we reconcile that? Luna: I think the honest answer is that the trend is real, but it's not uniform. If you're on a generic, you're probably feeling the win. If you're on a specialty drug or you're in a high-deductible plan, you might still be losing ground. Lucas: And that's where the policy conversation comes in. The Medicare negotiation is a big step, but it only applies to a subset of drugs. And the patent cliff will help, but biosimilars take time to gain market share. Luna: So what's the takeaway for our listeners? Should they feel optimistic or cautious? Lucas: I'd say cautiously optimistic. The data supports the idea that, on average, wages are now beating drug prices. But if you're not feeling it, that's not just in your head — it's the insurance design, the list price, your specific medication. Understanding that can help you advocate for yourself, like asking your doctor about a biosimilar or checking if your plan has a different tier. Luna: That's practical advice. And it's a good note to end on — we're winning the average, but the individual experience can still be a battle. Thanks for walking through the numbers with us. Lucas: Anytime. And remember, if this episode helped you, consider supporting the show at buy me a coffee dot com slash fexingo. It really does keep us going. Until next time, keep an eye on those price tags.