With approximately 60% of prescription drugs coming from Europe, including major brands like Ozempic, Botox and Eliquis, many Americans are wondering if the 15% tariff established under Trump’s EU trade deal will make their medications more expensive. The answer is, unfortunately, not so straightforward.
While pharmaceutical companies enjoy generous profit margins on brand name drugs to potentially absorb Trump’s tariffs, margins on generics are much thinner. And it’s generics that account for 90% of prescriptions in the U.S., according to the United States Pharmacopeial Convention.
Meanwhile, the Trump administration is in ongoing talks with those companies to lower drug prices for U.S. consumers. Depending on how those talks go, any potential drop in prices could offset the possible tariff-related price hikes. Here’s a look at where things stand now and what to watch for going forward when it comes to the prices you pay for medication.
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Do drugmakers really need to raise prices in response to tariffs?
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For many medications sold in the United States, particularly those that are still under patent protection, profit margins are already generous. According to the Department of Health and Human Services, brand-name drugs are marked up 322% in the U.S. compared to other countries. The average markup across both brand name and generic medications is 278%.
In light of those markups, the 15% tariff would only be a slight dent in profit margins. It wouldn’t be unrealistic for a company to simply absorb the costs. Of course, just because a company could absorb the costs doesn’t mean it will.
Doing so may be in their best interest, however. President Trump has been putting increasing pressure on pharmaceutical companies to give the United States “most favored nation” pricing. That is, he wants the prices Americans pay to be the same as the lowest prices those pharmaceutical companies charge elsewhere in the world.
Tacking the 15% tariff upcharge onto the already high price Americans pay for medications could stoke the flames of those calls for dramatically lower drug prices.
That would, undoubtedly, be a bigger hit to profit margins than the tariffs. Despite only buying about 13% of the global prescription drug supply (by volume), Americans account for 50% of worldwide pharmaceutical sales revenue. Losing access to this market would be a substantial hit to drugmakers.
But so would acquiescing to Trump’s demands for lower drug prices. Given that the U.S. alone accounts for half of worldwide pharmaceutical revenue, bringing the prices Americans pay for medication in line with the rest of the world would be a major hit to revenue.
Can Trump force pharmaceutical companies to lower drug prices?
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President Trump issued an executive order on May 12 demanding pharmaceutical companies lower drug prices for U.S. consumers. Specifically, he asked for “most favored nation” (MFN) pricing on all prescription drugs. While the details on how that would be calculated came later, the idea was to make the prices Americans pay the same as the lowest price manufacturers charge for a given drug in other countries.
If drugmakers don’t comply, Trump threatened to “deploy every tool in our arsenal to protect American families.”
What are those tools exactly? Right now, there don’t seem to be many. The Department of Health and Human Services (HHS) has some authority to shape pricing for medications paid for through Medicare, Medicaid or the Children’s Health Insurance Program (CHIP). But it has no real authority to dictate the prices paid in the private health insurance market.
On July 31, Trump posted a letter on X that he sent out to 17 pharmaceutical companies. The demands here were notably softer than the May executive order. Instead of asking for MFN pricing on all prescription drugs, Trump demanded those rates only for Medicaid patients and only for new drugs.
The letter goes on to ask companies to raise prices in other companies to make up for lower drug prices by raising prices in other countries – noting that “U.S. trade policy will endeavor to support this.”
The softer demands and the language around using trade policy to help push higher drug prices in other countries suggests that the Trump administration is attempting to get drug companies to voluntarily lower prices, given its limited authority to enforce its demands.
However, just how much of an impact any of this will make on the cost of your medications is unclear. We’ll have to wait and see how negotiations with drug companies and pending trade deals with other countries play out.
What this policy battle over drug prices means for you
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The way things stand now, pharmaceutical companies appear to have five options:
- Pass the cost of tariffs on to customers, which could raise your out-of-pocket costs and, eventually, your premiums as your insurer passes those higher costs on to you. But this risks putting further pressure on U.S. policymakers to regulate drug prices.
- Pass the cost of relocating manufacturing to the U.S. to avoid tariffs on customers. Similar to the first option, this would mean you see a slight bump in out-of-pocket cost and, potentially, insurance premiums.
- Comply with Trump’s demand to give the U.S. “most favorable nation” (MFN) pricing, erasing the dramatic markup on drug prices. This would mean significantly lower out-of-pocket costs for you. But it seems unlikely without regulatory enforcement since this would also pose the biggest losses to pharmaceutical companies.
- Comply with Trump’s demand, but do so through a combination of lowering U.S. drug prices while raising prices in other countries. By raising up MFN prices, the revenue cut would be less sharp and at least some of the losses could be made up in the higher prices charged elsewhere. This would still likely mean lower out-of-pocket costs to you. But, whether or not this is possible depends on regulations and market conditions in other countries.
- Ignore Trump’s call for MFN pricing by the September 29 deadline and see what happens. As of now, it’s unclear what the administration can or would do to actually enforce these demands. For consumers, this would translate to costs staying about the same, or increasing slightly if companies choose to both ignore the demands and tack tariffs onto drug prices.
The actual response is likely to vary from one company to the next. But, from the perspective of preserving their bottom lines, it would make sense to absorb the current tariffs in an effort to avoid stoking the flames further on the drug pricing issue.
For consumers, then, a likely scenario is that drug prices remain relatively flat at least in the short term while pharmaceutical companies figure out what, if any, consequences there would be to ignoring Trump’s ultimatum.
What about generic medications?
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As mentioned earlier, about 90% of the prescription medications sold in the U.S. are generic. While officials said certain generics would be exempt from the tariffs in the announcement of the EU trade deal with the U.S., talks are still ongoing about which ones will make the list.
According to the United States Pharmacopeial Convention, only 18% of generic drugs are manufactured inside the EU. So this trade deal won’t make a significant impact on the majority of generics. Instead, you’ll want to watch for a trade deal with India, which produces 35% of generic medications.
With that said, the profit margins on generics are thin. One analysis from the USC Leonard D. Schaeffer Center for Health Policy & Economics found that they had an average return on investment of just 5%. With margins that thin, manufacturers would likely have to pass any tariffs on to customers to avoid losing money on generics.
How to plan for post-tariff medication prices
Since it’s still unclear what will happen with drug prices going forward, it’s hard to plan ahead properly. If you don’t pay out of pocket for any medications right now, then all you can really do is sit and wait to see how things play out.
If you do pay out of pocket for any of your prescriptions, consider asking your doctor to write you advance prescriptions so you can fill them at today’s prices. That way, you can buy yourself time while you wait to see what happens with drug prices in the future.