A comment I made on this post:
Well, I actually thought the president's speech was pretty good. I thought the most noteworthy thing the president said was:
"Despite all this, the insurance companies and their allies don't like this idea. They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I've insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects." (emphasis mine)
For months now I and others have been arguing that the public option is not fair competition and would drive the private insurers out of business, but nobody in support of the public option would directly address this issue (e.g. I don't believe Robert Reich has ever directly addressed the unfair competition via subsidies issue). And now, in front of the whole country and world, the man at the top directly admits in clear language that this is true. So that should be some vindication for us who have argued so.
So if President Obama is being honest, he is saying that this public option will essentially be just like a non-profit health insurance company, not getting any taxpayer subsidies. But still, even without direct taxpayer subsidies there is still importantly the indirect subsidy (i.e. the market's belief that Uncle Sam will step in to save the day if things go awry, just like what happened to Fannie and Freddie). And how can we ensure that this new public option will really and truly have to stand on its own from now on --- several years from now the political climate could change and the public option could get direct subsidies. Would it be possible to write the legislation to really rule this out? And where is it going to get its initial seed money to start up --- who is going to provide this?
So in the end if we do create this public option and it honestly does not get any direct taxpayer subsidies, it will still have the indirect, implied backing of the government subsidy, which is substantial I think. Also, maybe it will be more cost efficient than private insurers (e.g. less administrative overhead, smaller salaries for its workers, etc.) But then again, if guaranteed coverage and no recission (and everybody is required to have coverage) are all part of the plan, as is most likely, then the adminstrative costs of all the private insurers will also go down (no use spending resources on recission when its against the law). So maybe in the end the public option wouldn't really have that much lower costs. I guess we'll see. It will probably have the scale to negotiate prices for drugs, doctors, and other services, which the establishment hates. I guess this negotiating power makes it still worth it to the president. But it won't be as bad as some of us had feared I guess.
Friday, September 11, 2009
Thursday, September 10, 2009
THOUGHTS ON WHY HEALTH CARE LOGICALLY SHOULD BE THE MOST EXPENSIVE SERVICE OR PRODUCT THERE IS
Health care professions are among the most intellectually demanding. Becoming a doctor is arguably more difficult, time consuming, and expensive than any other profession. Only a very small percentage of the population has the brainpower or stamina to become a doctor, whereas, no disrespect intended, anyone can become a janitor or work at a convenience store, etc. Doctors must spend years and decades in difficult pre-med programs, medical school, and finally lengthy residences before they can go into practice; and they rack up large debt in America during all this education. And similarly for other health care professions (e.g. drug researchers must spend years in Ph.D. programs and post docs, etc.) Also, there is so much uncertainty in health care. The human body is the most complex machine in the universe and we only really have a small, partial understanding of it to use in medicine. Thus often the processes (i.e. treatments) that we use to try to affect cures are inherently inefficient and costly, sometimes “groping in the dark”. This is most acute in drug research, where a drug company must fail with upwards of thousands of dead end drug candidates for each successfully approved drug. All these failures cost considerable time, money, and resources and it is these failures that you are really paying for when you buy the small percentage of successful drugs. Many people don’t appreciate this fact.
Thus, it could be argued that health care is inherently one of the most supply limited services there is. And on the demand side, even assuming there is no government mandate for universal coverage, maintaining your health is one of the most core things people care about and thus demand for health care services can be argued to be among the highest of any services or products. From these two facts, it is clear that the market clearing price for health care will be among the highest (if not the highest) of any service or product; this is a consequence of simple supply and demand.
Also, medical knowledge (i.e. the knowledge that all doctors must learn and know) is greatly expanding year after year, and this further depresses the supply level of doctors. For example, while a large percentage of the population could likely have mastered the medicine of 100 or even 75 years ago and become doctors, a much much smaller percentage today have the intellectual capacity and perseverance to master modern medicine and thus supply level as a percentage of population should decrease as time goes on. This could be an important reason health care prices are expanding faster than inflation, as supply is further and further constrained as time goes on while demand keeps going up and up. Thus we must conclude that health care is inherently expensive and there will be limits to how far we can reasonably reduce costs.
THOUGHTS ON THE PUBLIC OPTION
One of the core suggestions for fixing health care is the start up of a “public option” health care plan to “compete” with the private insurers. Compete is in quotes because this competition would not be fair competition. This public option would certainly enjoy subsidies, possibly just implicit at first but likely explicit tax dollars later, and this would likely eventually cause the private insurers to be crowded out of the market and the “public option” would in effect become the only option and we would have arrived at a single payer system like most other countries in the world have. The “public option”, as the only competitor left standing, would have monopsony bargaining power with health care suppliers, i.e. it would essentially dictate the price it is willing to pay and health care providers would simply be forced to accept that price if they wanted to supply their product.
While this might on the surface seem like a good thing and would hold down health care costs, consider what basic supply and demand implies about this price setting. Again, we can simply find the point on the supply curve where this dictated price falls and there will be a corresponding willing supply level at this price point on the supply curve. This willing supply level will almost certainly be much lower than the value demanded (i.e. maximum demand since everyone must be covered). While in the short term the willing (grudgingly willing more like it) supply will be higher (since health care providers will simply have to take what they can get in the short term), in the long term equilibrium the supply will be lower and will most likely not match demand (i.e. some or many of the health care providers will redeploy their time and resources into more rewarding endeavors and industries).
The end result of this will be unavoidable forced rationing of health care, i.e. the willing supply is not enough to meet the maximal demand and many consumers will effectively not be able to consume (since the supply isn’t there) or will have to wait a long time to consume. Is this really a better outcome than if we simply let the market run its normal course? I.e. in both situations some consumers will effectively be shut out of the market with the only difference being that in the true free market system price will dictate who goes without while in the universal health care model this decision will be arbitrary or random (dictated by health care bureaucrats in government, for example). Maybe some would argue that in the former system it is the more well-to-do who will receive the service/product and the poor shut out and this is unfair, but so what, and why should we regard any one group as more deserving? And the health care quality level under the former system will be much higher, which will benefit everyone. Thus, unfortunately, there is no free lunch. You get what you pay for, and if you are not willing to pay the true free market price then you will get shortchanged (shoddy, postponed, and/or no care).
Note also that this supply-demand argument-based result about dictated costs causing lower supply (and thus rationing) is borne out in practice by the socialized medicine countries; it is well known that wait times are so long in Canada, for example. For example, see this article describing how extremely long it can take to find a primary care doctor in Canada. And, in fact, we already DO have this problem in the United States with our current “public option”, i.e. medicare for seniors. So this result is borne out in practice.
While this might on the surface seem like a good thing and would hold down health care costs, consider what basic supply and demand implies about this price setting. Again, we can simply find the point on the supply curve where this dictated price falls and there will be a corresponding willing supply level at this price point on the supply curve. This willing supply level will almost certainly be much lower than the value demanded (i.e. maximum demand since everyone must be covered). While in the short term the willing (grudgingly willing more like it) supply will be higher (since health care providers will simply have to take what they can get in the short term), in the long term equilibrium the supply will be lower and will most likely not match demand (i.e. some or many of the health care providers will redeploy their time and resources into more rewarding endeavors and industries).
The end result of this will be unavoidable forced rationing of health care, i.e. the willing supply is not enough to meet the maximal demand and many consumers will effectively not be able to consume (since the supply isn’t there) or will have to wait a long time to consume. Is this really a better outcome than if we simply let the market run its normal course? I.e. in both situations some consumers will effectively be shut out of the market with the only difference being that in the true free market system price will dictate who goes without while in the universal health care model this decision will be arbitrary or random (dictated by health care bureaucrats in government, for example). Maybe some would argue that in the former system it is the more well-to-do who will receive the service/product and the poor shut out and this is unfair, but so what, and why should we regard any one group as more deserving? And the health care quality level under the former system will be much higher, which will benefit everyone. Thus, unfortunately, there is no free lunch. You get what you pay for, and if you are not willing to pay the true free market price then you will get shortchanged (shoddy, postponed, and/or no care).
Note also that this supply-demand argument-based result about dictated costs causing lower supply (and thus rationing) is borne out in practice by the socialized medicine countries; it is well known that wait times are so long in Canada, for example. For example, see this article describing how extremely long it can take to find a primary care doctor in Canada. And, in fact, we already DO have this problem in the United States with our current “public option”, i.e. medicare for seniors. So this result is borne out in practice.
THOUGHTS ON BASIC SUPPLY AND DEMAND CONSIDERATIONS OF HEALTCARE
Let’s try to understand the health care crisis in the simplest possible terms, from the elementary level of supply and demand. Recall from basic economics that in any free market, the market will clear at a price where willing supply at that price equals willing demand at that price. For example, if suppliers are willing to supply 100 units of some product at price X and there is demand for 100 units of that product at price X, then the market price of that product will be X. Also, importantly, note that consumers who aren’t willing to or cannot pay price X (i.e. their maximum price is something lower than X) are effectively shut out of the market, i.e. they cannot and do not purchase and consume the product. Supply and demand is the most fundamental and accepted principle of economics.
Most of the time our society is perfectly happy with this outcome for most commodity and consumer products. For example, while everyone would love to have a top-of-the-line 54 inch LCD HDTV, not everyone can afford the around $3000 price tag and thus some must go without having this product. We regard this outcome as perfectly acceptable and normal; such consumers are expected to just be content with not owning such a high end product (they would rather use their limited funds elsewhere where they get better value, for example), or to be content with less expensive alternatives (smaller screen size, not HDTV, etc.)
While this model of markets applies to most products, such as TVs above, cars, etc., it most certainly is not how we as a society want health care to work. It is an implicit assumption of our society and the health care debate going on now that everyone must be fully covered, i.e. everyone in our society should have access to top-notch health care and all efforts should be expended towards treating and saving the lives of patients. In other words, the best health care is a right of all. This is a moral issue --- society as a whole generally feels it is morally correct that everyone should have health care. I personally agree with this from a moral perspective as most people would. Unfortunately, markets are stubborn things and this general moral desire of the people runs into serious trouble in the reality of the marketplace.
Consider the outcome if markets for health care worked the same as markets for HDTVs as above. For example, say the service to be supplied is “lifesaving heart bypass surgery” and we are considering this purely from the perspective of supply and demand. Let’s say the market clearing price for this service is $8000, so anyone willing and able to pay $8000 can receive a heart bypass surgery and have their lives saved. For people who cannot afford to pay this much, well, that’s just tough luck, you’re shut out of the market and so you die. Society rightfully regards this as morally reprehensible, but unfortunately this is how markets work and free market capitalism, even though it isn’t perfect, is the best economic system mankind has discovered and this is the logical conclusion in a pure market system.
Let’s consider how enforcing society’s moral imperative of health care for all skews the marketplace. Essentially, if we decree health care for all then demand will always take on its maximum value --- i.e. everyone who gets some sickness or health problem (e.g. the need for a heart bypass surgery) MUST have access to the best health care to solve their health problem. In other words, while the normal demand curve goes up as price goes down (and goes down as price goes up), by enforcing the right of everyone to have access to health care we are essentially forcing the demand curve to be a flat line where the quantity demanded is the maximum possible --- i.e. we are saying as a society that, at any price, everyone must be able to consume. Note first that, in effect, the market clearing price will thus be MUCH HIGHER than if we simply let the market run the same as we do for TVs and such. Because the demand curve is now flat and at its maximum demand level, the price where the supply curve intersects this high, flat demand curve (i.e. the market clearing price) will now be much higher. This is because supply curves are the opposite of demand curves, i.e.the level of willing supply goes up as price goes up (and decreases as price goes down), so price must go up a lot for there to be enough supply to service the maximal demand.
Most of the time our society is perfectly happy with this outcome for most commodity and consumer products. For example, while everyone would love to have a top-of-the-line 54 inch LCD HDTV, not everyone can afford the around $3000 price tag and thus some must go without having this product. We regard this outcome as perfectly acceptable and normal; such consumers are expected to just be content with not owning such a high end product (they would rather use their limited funds elsewhere where they get better value, for example), or to be content with less expensive alternatives (smaller screen size, not HDTV, etc.)
While this model of markets applies to most products, such as TVs above, cars, etc., it most certainly is not how we as a society want health care to work. It is an implicit assumption of our society and the health care debate going on now that everyone must be fully covered, i.e. everyone in our society should have access to top-notch health care and all efforts should be expended towards treating and saving the lives of patients. In other words, the best health care is a right of all. This is a moral issue --- society as a whole generally feels it is morally correct that everyone should have health care. I personally agree with this from a moral perspective as most people would. Unfortunately, markets are stubborn things and this general moral desire of the people runs into serious trouble in the reality of the marketplace.
Consider the outcome if markets for health care worked the same as markets for HDTVs as above. For example, say the service to be supplied is “lifesaving heart bypass surgery” and we are considering this purely from the perspective of supply and demand. Let’s say the market clearing price for this service is $8000, so anyone willing and able to pay $8000 can receive a heart bypass surgery and have their lives saved. For people who cannot afford to pay this much, well, that’s just tough luck, you’re shut out of the market and so you die. Society rightfully regards this as morally reprehensible, but unfortunately this is how markets work and free market capitalism, even though it isn’t perfect, is the best economic system mankind has discovered and this is the logical conclusion in a pure market system.
Let’s consider how enforcing society’s moral imperative of health care for all skews the marketplace. Essentially, if we decree health care for all then demand will always take on its maximum value --- i.e. everyone who gets some sickness or health problem (e.g. the need for a heart bypass surgery) MUST have access to the best health care to solve their health problem. In other words, while the normal demand curve goes up as price goes down (and goes down as price goes up), by enforcing the right of everyone to have access to health care we are essentially forcing the demand curve to be a flat line where the quantity demanded is the maximum possible --- i.e. we are saying as a society that, at any price, everyone must be able to consume. Note first that, in effect, the market clearing price will thus be MUCH HIGHER than if we simply let the market run the same as we do for TVs and such. Because the demand curve is now flat and at its maximum demand level, the price where the supply curve intersects this high, flat demand curve (i.e. the market clearing price) will now be much higher. This is because supply curves are the opposite of demand curves, i.e.the level of willing supply goes up as price goes up (and decreases as price goes down), so price must go up a lot for there to be enough supply to service the maximal demand.
Another comment on Robert Reich post "The Public Option's Last Stand, and the Public's"
This is another comment I made to Robert Reich's post:
Well, I've been thinking about my own question from my previous comment: why isn't competition among the private insurers enough? Why do we need a public option to engender competition?
It seems the answer might be the
"McCarran-Ferguson Act". There doesn't seem to be much talk about this, but here is some stuff I found about it:
http://www.mydd.com/story/2009/8/17/21730/8042
http://blog.nj.com/njv_johnbury/2009/08/debating_sarah_palin.html
I'm not sure we need a public option, but I'm pretty sure we do need real honest competition and we don't seem to be getting it.
So as an alternative to the public option, how about repealing McCarran-Ferguson?
Well, I've been thinking about my own question from my previous comment: why isn't competition among the private insurers enough? Why do we need a public option to engender competition?
It seems the answer might be the
"McCarran-Ferguson Act". There doesn't seem to be much talk about this, but here is some stuff I found about it:
http://www.mydd.com/story/2009/8/17/21730/8042
http://blog.nj.com/njv_johnbury/2009/08/debating_sarah_palin.html
I'm not sure we need a public option, but I'm pretty sure we do need real honest competition and we don't seem to be getting it.
So as an alternative to the public option, how about repealing McCarran-Ferguson?
Comment on Robert Reich post "The Public Option's Last Stand, and the Public's"
I posted the following comment to this post by Robert Reich on his blog:
You wrote "There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option".
But what about the insurance companies competing among themselves, does that not count as real competition? Everyone keeps talking about this need for a public option to provide competition for the private insurers, implying that currently there is no competition at all (or not enough anyway), which just doesn't seem to be true.
Why does the government have to go to all the trouble of starting and managing a public option health care plan just to engender competition? If honest competition is really what is desired, wouldn't it be better to change regulation and laws to create a better, more equal playing field on which private insurers would need to compete? Isn't that really the core role of government, i.e. to set up the ground rules under which commerce proceeds and enforce them?
Greg Mankiw made the good point in a NY Times piece he did in June ("The Pitfalls of the Public Option") that, if the public option really were to not enjoy any special advantages (e.g. tax funds, other subsidies, etc.) over private insurers, as its supporters claim, then there is nothing stopping anyone from creating such an option right now --- it would simply be another non-profit health insurer. Do you not agree with this? Or are you just being disingenuous (i.e. "yes, of course, the public option will enjoy benefits that the private insurers don't, eventually driving them out of business --- that's the whole point and the roundabout way we get to single payer! But we can't say that out loud and we must respect current political realities to get there.")
Please tell us, what is different about the competition we would get from a public option versus the competition that the private insurers are giving us?
You wrote "There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option".
But what about the insurance companies competing among themselves, does that not count as real competition? Everyone keeps talking about this need for a public option to provide competition for the private insurers, implying that currently there is no competition at all (or not enough anyway), which just doesn't seem to be true.
Why does the government have to go to all the trouble of starting and managing a public option health care plan just to engender competition? If honest competition is really what is desired, wouldn't it be better to change regulation and laws to create a better, more equal playing field on which private insurers would need to compete? Isn't that really the core role of government, i.e. to set up the ground rules under which commerce proceeds and enforce them?
Greg Mankiw made the good point in a NY Times piece he did in June ("The Pitfalls of the Public Option") that, if the public option really were to not enjoy any special advantages (e.g. tax funds, other subsidies, etc.) over private insurers, as its supporters claim, then there is nothing stopping anyone from creating such an option right now --- it would simply be another non-profit health insurer. Do you not agree with this? Or are you just being disingenuous (i.e. "yes, of course, the public option will enjoy benefits that the private insurers don't, eventually driving them out of business --- that's the whole point and the roundabout way we get to single payer! But we can't say that out loud and we must respect current political realities to get there.")
Please tell us, what is different about the competition we would get from a public option versus the competition that the private insurers are giving us?
Saturday, September 05, 2009
Big Pharma's perspective on health care reform.
The CEO of Eli Lilly wrote an op-ed piece a few months ago on health care reform that I thought was good:
http://online.wsj.com/article/SB124227053842018311.html
http://online.wsj.com/article/SB124227053842018311.html
Emailing my thoughts on healthcare reform and the public option.
In July I emailed some family and friends with some of my thoughts on healthcare, and I thought I'd reproduce that email here:
I've been reading articles about health care reform this last weekend and thought I'd forward some of the good ones I found. The key issue is whether to have a "public option" and here are some PRO articles:
http://www.nytimes.com/2009/06/05/opinion/05krugman.html
http://online.wsj.com/article/SB124580516633344953.html
and here are some CON articles:
http://online.wsj.com/article/SB124597297859757163.html
http://www.nytimes.com/2009/06/28/business/economy/28view.html
Anyway, thought you might enjoy reading these as well to get informed about this very important current issue. I personally find the CON articles more persuasive although maybe that is at least partly because I work in an industry that stands to be profoundly changed by
any new healthcare reform (or as Al Gore quoted in his movie about climate change: "It is hard to get a man to understand something when his livelihood depends on him not understanding it" --- maybe that's me to some extent although I think I'm being objective here).
But basically the CON argument is that the public option would have unfair advantages over private insurance plans (implicit government backing at first, later direct tax subsidies likely) and would eventually squeeze out other plans and become essentially a single payer system which would have monopoly bargaining power for health care services and drugs. This will therefore cause prices for health care services and drugs to be cut to the bone. On the surface this seems like a good thing --- costs would be lowered and more people could be covered. But this would very adversely affect long term innovation (new drug research, etc.) and the level of care --- there would be fewer doctors (smart people would tend to go into other professions that paid more, etc.) and fewer new medical breakthroughs since you would be less likely to recoup large upfront R&D costs.
Basically, we would be trading quality for quantity --- everyone would be covered, but the the quality would go down. Probably that is the better outcome morally --- better to have everyone at least have basic health care coverage rather than only some having top notch care, but that is probably the choice we face. And if you think care in countries with national health care is so great, you should honestly look at Canada as an example. Hehsun's family has often complained to us that it is hard to see doctors there and they often try a string of cheaper alternatives before really addressing your core problem --- they have to triage care and make you wait a long time before you can have an appointment whereas here, if you have coverage and pay your co-pay you can be seen within a day or so.
And depending on how you look at it, it really isn’t true that health care is worse in America. You can’t just somehow compare the “average health” of Americans and Europeans, say, but you need to be comparing “apples to apples”. Americans are generally unhealthier (overweight,
bad eating habits, etc.) and this needs to be considered when comparing. An economics blog by Greg Mankiw that I read argues that the real fair comparison would be, say, people with similar attributes who both suffer from the same disease (say some kind of cancer) — in which country is survivability better? In this regard, survivability is better in America and by this measure American health care is better.
Also, at least for drug research (and other medical products and services that can be sold across borders), the US has essentially been subsidizing the rest of the world. Most of the rest of the world has national health insurance and essentially dictates drug prices, so the US market is the only one where R&D costs can be recouped (since it is the most market based of them all). I've seen estimates that over 50% of drug R&D costs are borne by the US. If the US goes to a national plan, this core source of recouping R&D costs will be gone. So I think one maybe unintended consequence of national health care in America could be that costs will rise in the rest of the world to compensate at least somewhat. That’s probably a good thing — time for the rest of the world to subsidize OUR health care (or at least pay their fair share)! Anyway, just thought I'd throw this out. I'd be curious what you all think.
I've been reading articles about health care reform this last weekend and thought I'd forward some of the good ones I found. The key issue is whether to have a "public option" and here are some PRO articles:
http://www.nytimes.com/2009/
http://online.wsj.com/article/
and here are some CON articles:
http://online.wsj.com/article/
http://www.nytimes.com/2009/
Anyway, thought you might enjoy reading these as well to get informed about this very important current issue. I personally find the CON articles more persuasive although maybe that is at least partly because I work in an industry that stands to be profoundly changed by
any new healthcare reform (or as Al Gore quoted in his movie about climate change: "It is hard to get a man to understand something when his livelihood depends on him not understanding it" --- maybe that's me to some extent although I think I'm being objective here).
But basically the CON argument is that the public option would have unfair advantages over private insurance plans (implicit government backing at first, later direct tax subsidies likely) and would eventually squeeze out other plans and become essentially a single payer system which would have monopoly bargaining power for health care services and drugs. This will therefore cause prices for health care services and drugs to be cut to the bone. On the surface this seems like a good thing --- costs would be lowered and more people could be covered. But this would very adversely affect long term innovation (new drug research, etc.) and the level of care --- there would be fewer doctors (smart people would tend to go into other professions that paid more, etc.) and fewer new medical breakthroughs since you would be less likely to recoup large upfront R&D costs.
Basically, we would be trading quality for quantity --- everyone would be covered, but the the quality would go down. Probably that is the better outcome morally --- better to have everyone at least have basic health care coverage rather than only some having top notch care, but that is probably the choice we face. And if you think care in countries with national health care is so great, you should honestly look at Canada as an example. Hehsun's family has often complained to us that it is hard to see doctors there and they often try a string of cheaper alternatives before really addressing your core problem --- they have to triage care and make you wait a long time before you can have an appointment whereas here, if you have coverage and pay your co-pay you can be seen within a day or so.
And depending on how you look at it, it really isn’t true that health care is worse in America. You can’t just somehow compare the “average health” of Americans and Europeans, say, but you need to be comparing “apples to apples”. Americans are generally unhealthier (overweight,
bad eating habits, etc.) and this needs to be considered when comparing. An economics blog by Greg Mankiw that I read argues that the real fair comparison would be, say, people with similar attributes who both suffer from the same disease (say some kind of cancer) — in which country is survivability better? In this regard, survivability is better in America and by this measure American health care is better.
Also, at least for drug research (and other medical products and services that can be sold across borders), the US has essentially been subsidizing the rest of the world. Most of the rest of the world has national health insurance and essentially dictates drug prices, so the US market is the only one where R&D costs can be recouped (since it is the most market based of them all). I've seen estimates that over 50% of drug R&D costs are borne by the US. If the US goes to a national plan, this core source of recouping R&D costs will be gone. So I think one maybe unintended consequence of national health care in America could be that costs will rise in the rest of the world to compensate at least somewhat. That’s probably a good thing — time for the rest of the world to subsidize OUR health care (or at least pay their fair share)! Anyway, just thought I'd throw this out. I'd be curious what you all think.
Another (unpublished) comment I made on Bryan Young's article.
I posted the following comment to this article by Bryan Young on Huffington Post but it wasn't published (don't know why, so reproducing it here):
Do you know anything about the pharma industry? You seem to be pretty ignorant of it and have a seething hatred of it by your post which clouds any objective reasoning. It seems a pretty low blow to call pharma companies "con artists". These are companies that have brought us life saving medicines to lower cholesterol, fight depression, and battle many many other ailments.
Where do you think drugs come from? Do you think they just grow on trees and should be sold just like some commodity product? NO. It takes years of research and up to a billion dollars of costs, with many failures along the way, to come up with a single new marketable drug. And then once they come up with a new drug, they only have about 10 years to recoup the large R&D costs and make a profit before it goes generic. It is a very risky business and as a glaring example of failure, a couple of years ago Pfizer took a potential successor to Lipitor all the way to the last stage of clinical testing only to have it fail. And they spent almost a billion dollars on that failure. Here are some details:
http://pipeline.corante.com/archives/2006/12/03/the_torcetrapib_catastrophe.php
When you buy a drug, you aren't paying just for that drug but for all the failures that came before it too.
Do you know anything about the pharma industry? You seem to be pretty ignorant of it and have a seething hatred of it by your post which clouds any objective reasoning. It seems a pretty low blow to call pharma companies "con artists". These are companies that have brought us life saving medicines to lower cholesterol, fight depression, and battle many many other ailments.
Where do you think drugs come from? Do you think they just grow on trees and should be sold just like some commodity product? NO. It takes years of research and up to a billion dollars of costs, with many failures along the way, to come up with a single new marketable drug. And then once they come up with a new drug, they only have about 10 years to recoup the large R&D costs and make a profit before it goes generic. It is a very risky business and as a glaring example of failure, a couple of years ago Pfizer took a potential successor to Lipitor all the way to the last stage of clinical testing only to have it fail. And they spent almost a billion dollars on that failure. Here are some details:
http://pipeline.corante.com/archives/2006/12/03/the_torcetrapib_catastrophe.php
When you buy a drug, you aren't paying just for that drug but for all the failures that came before it too.
My comment on Bryan Young's "Is Obama Selling Us Down the River to Big Pharma?"
I posted the following comment to this article by Bryan Young on Huffington Post:
Have you ever asked yourself why drugs are cheaper in Canada and other socialized medicine countries, and the ramifications of this for drug costs in America? Basically, the socialized medicine countries are using us and taking us to the cleaners. They all have monopoly bargaining power and essentially dictate prices. The drug companies could never recoup costs if they had to sell to everyone at those prices, so they make it up in the American market. So basically the good old USA is subsidizing the drug costs for the rest of the world. Here is a blog post from a few years ago that explains this:
http://nolan.eakins.net/BlameCanada
Finally, drugs account for only 10% of overall health care costs, but they happen to be the one that is the most visible to people (since they often have to regularly pay a co-pay out of pocket for them) whereas other costs are unseen behind the scenes and paid by insurance but relatively larger. Pharma can be an easy target and scapegoat, but there are bigger fish to fry in reducing health care costs. So maybe the Obama administration is actually wise in this --- they are getting some signficant cost concessions and also, maybe more importantly, the backing and muscle of the pharma industry in helping to wrest savings out of the rest of the 90% health care pie.
Have you ever asked yourself why drugs are cheaper in Canada and other socialized medicine countries, and the ramifications of this for drug costs in America? Basically, the socialized medicine countries are using us and taking us to the cleaners. They all have monopoly bargaining power and essentially dictate prices. The drug companies could never recoup costs if they had to sell to everyone at those prices, so they make it up in the American market. So basically the good old USA is subsidizing the drug costs for the rest of the world. Here is a blog post from a few years ago that explains this:
http://nolan.eakins.net/BlameCanada
Finally, drugs account for only 10% of overall health care costs, but they happen to be the one that is the most visible to people (since they often have to regularly pay a co-pay out of pocket for them) whereas other costs are unseen behind the scenes and paid by insurance but relatively larger. Pharma can be an easy target and scapegoat, but there are bigger fish to fry in reducing health care costs. So maybe the Obama administration is actually wise in this --- they are getting some signficant cost concessions and also, maybe more importantly, the backing and muscle of the pharma industry in helping to wrest savings out of the rest of the 90% health care pie.
My comment on Truthout's 'Don't Get Sick'
This article on truthout was the most popular for a while, and I made a short comment on it:
You failed to mention Anne Doig's key quote: "We all agree that the system is imploding, we all agree that things are more precarious than perhaps Canadians realize," Doig told The Canadian Press. So Canada's doctors, the ones who would best know the true situation, agree that Canadian healthcare is imploding. Full article here: http://www.thestar.com/article/681882
You failed to mention Anne Doig's key quote: "We all agree that the system is imploding, we all agree that things are more precarious than perhaps Canadians realize," Doig told The Canadian Press. So Canada's doctors, the ones who would best know the true situation, agree that Canadian healthcare is imploding. Full article here: http://www.thestar.com/article/681882
Comments on Robert Reich blog post 3
I made several comments on this post by Robert Reich. Here is the last one:
Finally, why does everyone want to demonize the drug companies? Drugs account for only 10% of all healthcare spending but are one of the best ways to control chronic conditions and thus prevent much more expensive interventions later (i.e., they provide real value). And what other medical product or service can you say of them that “in 10 to 20 years after launch you will be able to buy this product at the cheapest price humanly possible”. In other words drugs go generic and are then available essentially just for the cost to manufacture them. Many stock analysts are decrying the upcoming “patent cliff” that many drugmakers will encounter in the next couple years when major blockbuster drugs go off patent and how this will adversely affect the stock prices of the drug companies. But think about this from the perspective of medical consumers --- in just a few short years you will be able to buy dirt cheap some of the most revolutionary medicines ever which cover some of the most common and expensive ailments (e.g. Lipitor and Plavix for cholesterol and heart problems will both very soon be available as generics). Has anyone investigated the likely consequence of these drugs going generic? I.e. they will be much more affordable and thus more people will be able to take advantage of them, greatly reducing the need for future more expensive interventions and this could be a real cost saver for health care.
The high costs you pay before drugs go generic allow drug companies to recoup their significant R&D expenditures. And if you don’t think it is significant, you are deluding yourself. Coming up with new drugs is a very risky and uncertain business, and when you buy one successful drug you are actually paying for a whole slew of failures before that. And it is only getting harder to develop new drugs, as much of the ‘low hanging fruit’ have already been taken (i.e. drugs for large scale health problems like high cholesterol are already widely available and there are numerous competitor drugs). As a concrete example of the risky nature of drug discovery, consider Pfizer’s Torcetrapib which was supposed to be the blockbuster followup to Lipitor, but they had to scrap it at the last moment after spending almost a billion dollars developing it:
http://pipeline.corante.com/archives/2006/12/03/the_torcetrapib_catastrophe.php
Finally, people complain that drug companies and other health care providers make too much profit and that is somehow evil, and profit should not be a motive in health care. Well, again, that is maybe a just moral stance but unfortunately idealistic and fails in the face of the reality of the market. The “risk/return tradeoff” is another core principle of economics --- the more risk you take on in your investment, the more return (i.e. profit) you will expect in order to be willing to take that risk. Again, drug discovery and likely a lot of other parts of healthcare, is a risky undertaking and people would not rationally do it unless they expected to get a commensurately larger return on it. If you think, e.g., drug companies and other healthcare providers should just be happy getting, say, 3 or 4 percent profit, well, what is the point of that --- better to just stick the money in a safe long term bond paying that much and not have to worry about all the aggravation of trying to discover new drugs or other new and innovative products!
Finally, why does everyone want to demonize the drug companies? Drugs account for only 10% of all healthcare spending but are one of the best ways to control chronic conditions and thus prevent much more expensive interventions later (i.e., they provide real value). And what other medical product or service can you say of them that “in 10 to 20 years after launch you will be able to buy this product at the cheapest price humanly possible”. In other words drugs go generic and are then available essentially just for the cost to manufacture them. Many stock analysts are decrying the upcoming “patent cliff” that many drugmakers will encounter in the next couple years when major blockbuster drugs go off patent and how this will adversely affect the stock prices of the drug companies. But think about this from the perspective of medical consumers --- in just a few short years you will be able to buy dirt cheap some of the most revolutionary medicines ever which cover some of the most common and expensive ailments (e.g. Lipitor and Plavix for cholesterol and heart problems will both very soon be available as generics). Has anyone investigated the likely consequence of these drugs going generic? I.e. they will be much more affordable and thus more people will be able to take advantage of them, greatly reducing the need for future more expensive interventions and this could be a real cost saver for health care.
The high costs you pay before drugs go generic allow drug companies to recoup their significant R&D expenditures. And if you don’t think it is significant, you are deluding yourself. Coming up with new drugs is a very risky and uncertain business, and when you buy one successful drug you are actually paying for a whole slew of failures before that. And it is only getting harder to develop new drugs, as much of the ‘low hanging fruit’ have already been taken (i.e. drugs for large scale health problems like high cholesterol are already widely available and there are numerous competitor drugs). As a concrete example of the risky nature of drug discovery, consider Pfizer’s Torcetrapib which was supposed to be the blockbuster followup to Lipitor, but they had to scrap it at the last moment after spending almost a billion dollars developing it:
http://pipeline.corante.com/archives/2006/12/03/the_torcetrapib_catastrophe.php
Finally, people complain that drug companies and other health care providers make too much profit and that is somehow evil, and profit should not be a motive in health care. Well, again, that is maybe a just moral stance but unfortunately idealistic and fails in the face of the reality of the market. The “risk/return tradeoff” is another core principle of economics --- the more risk you take on in your investment, the more return (i.e. profit) you will expect in order to be willing to take that risk. Again, drug discovery and likely a lot of other parts of healthcare, is a risky undertaking and people would not rationally do it unless they expected to get a commensurately larger return on it. If you think, e.g., drug companies and other healthcare providers should just be happy getting, say, 3 or 4 percent profit, well, what is the point of that --- better to just stick the money in a safe long term bond paying that much and not have to worry about all the aggravation of trying to discover new drugs or other new and innovative products!
Comments on Robert Reich blog post 2
I made several comments on this post by Robert Reich. Here is the next one:
And doesn't it make logical sense that health care should be the most expensive thing there is? It has maximal demand (your body is the most precious thing to you and you would do anything you can to save and heal it) and very constrained supply (becoming a doctor or other healthcare provider is one of the most difficult things to do --- decades of difficult schooling and many sleepless nights in residency, massive debt after finishing, etc.). And as medical progress continually advances, it becomes more and more difficult for someone to master it all and this further constrains supply (a smaller percentage of the population would be able to master the super advanced medicine of today versus the medicine of, say, 50 years ago and this further limits supply). So by basic economics it should rightfully be very expensive, if not the most expensive thing there is to buy. So why are we so surprised that healthcare is expensive?
I know we’d all ideally like to believe that ‘good healthcare is a right of all’ and morally that is a just stance. But unfortunately this desire runs headlong into some inconvenient truths that are just hard facts and cannot be legislated away --- basically, economic markets are just a fact of life whether you like them or not, and you get what you pay for. If the government wants to pay less as a way to hold healthcare costs down, well, they’re simply going to get less or less quality product. Some previous posters said they’d be more than happy to have a Canada like system even if they had to wait longer for care. And of course that is rational, if you can’t afford healthcare now and thus have nothing, even Canada’s flawed system is a godsend for you. But the flipside is that the people who have excellent care now will see the quality of their care erode --- so basically the people with great care and the people with no care will split the difference and meet in the middle and get lousy care. We will be trading quality off for quantity. If you are happy with that, then fine, but you should at least be honest about it; quality versus quantity seems to be our choice.
Real, true competition is the best way we know to get high quality at reasonable cost. This is the essence of capitalistic systems of which our country is the founding father. Why are we trying to forget this now in this debate about healthcare? Why don’t we instead embrace it and use it to its fullest. If there are barriers to real, true competition then take them down (e.g. repeal Mccarran- Ferguson, etc.) Don’t try to solve the problem instead by dictating prices, which will only lead to worse, rationed care.
And doesn't it make logical sense that health care should be the most expensive thing there is? It has maximal demand (your body is the most precious thing to you and you would do anything you can to save and heal it) and very constrained supply (becoming a doctor or other healthcare provider is one of the most difficult things to do --- decades of difficult schooling and many sleepless nights in residency, massive debt after finishing, etc.). And as medical progress continually advances, it becomes more and more difficult for someone to master it all and this further constrains supply (a smaller percentage of the population would be able to master the super advanced medicine of today versus the medicine of, say, 50 years ago and this further limits supply). So by basic economics it should rightfully be very expensive, if not the most expensive thing there is to buy. So why are we so surprised that healthcare is expensive?
I know we’d all ideally like to believe that ‘good healthcare is a right of all’ and morally that is a just stance. But unfortunately this desire runs headlong into some inconvenient truths that are just hard facts and cannot be legislated away --- basically, economic markets are just a fact of life whether you like them or not, and you get what you pay for. If the government wants to pay less as a way to hold healthcare costs down, well, they’re simply going to get less or less quality product. Some previous posters said they’d be more than happy to have a Canada like system even if they had to wait longer for care. And of course that is rational, if you can’t afford healthcare now and thus have nothing, even Canada’s flawed system is a godsend for you. But the flipside is that the people who have excellent care now will see the quality of their care erode --- so basically the people with great care and the people with no care will split the difference and meet in the middle and get lousy care. We will be trading quality off for quantity. If you are happy with that, then fine, but you should at least be honest about it; quality versus quantity seems to be our choice.
Real, true competition is the best way we know to get high quality at reasonable cost. This is the essence of capitalistic systems of which our country is the founding father. Why are we trying to forget this now in this debate about healthcare? Why don’t we instead embrace it and use it to its fullest. If there are barriers to real, true competition then take them down (e.g. repeal Mccarran- Ferguson, etc.) Don’t try to solve the problem instead by dictating prices, which will only lead to worse, rationed care.
My comment on Robert Reich blog post.
I made several comments on this post by Robert Reich. Here is the first one (others in following posts):
We already have a shortage of doctors in this country. Do you think paying them a lot less than they earn now would incentivize more people to become doctors? No, of course not, we would have fewer doctors, less quality, and the care they provide would of necessity be rationed. Doesn't it seem clear that this is exactly what is going to happen if we enact this public option? And this will be even further exacerbated by the need to cover the additional 45 million or so who will be added to the insurance rolls. Medicare is already doing this and it is causing many doctors to stop taking medicare patients because reimbursement rates are just too low:
http://www.nytimes.com/2009/04/02/business/retirementspecial/02health.html
http://www.bloomberg.com/apps/news?pid=20601070&sid=apv3pcTOWVjk
And the public option will do the exact same thing since it would basically just be medicare for the rest of us under 65! And with its implied or direct government subsidies, it will become the dominant player in the insurance industry --- no more cost shifting, doctors and other providers will just have to take the measly payments the government gives them or shove it. Well, I think a lot of doctors will probably just choose to shove it and leave medicine; and going forward not as many talented young people will go into medicine or health care, choosing more profitable endeavors instead (oh god, here comes more investment bankers!) And in the end we'll end up with something like this:
http://www.thestar.com/article/304134
http://www.thestar.com/article/681882
We already have a shortage of doctors in this country. Do you think paying them a lot less than they earn now would incentivize more people to become doctors? No, of course not, we would have fewer doctors, less quality, and the care they provide would of necessity be rationed. Doesn't it seem clear that this is exactly what is going to happen if we enact this public option? And this will be even further exacerbated by the need to cover the additional 45 million or so who will be added to the insurance rolls. Medicare is already doing this and it is causing many doctors to stop taking medicare patients because reimbursement rates are just too low:
http://www.nytimes.com/2009/04/02/business/retirementspecial/02health.html
http://www.bloomberg.com/apps/news?pid=20601070&sid=apv3pcTOWVjk
And the public option will do the exact same thing since it would basically just be medicare for the rest of us under 65! And with its implied or direct government subsidies, it will become the dominant player in the insurance industry --- no more cost shifting, doctors and other providers will just have to take the measly payments the government gives them or shove it. Well, I think a lot of doctors will probably just choose to shove it and leave medicine; and going forward not as many talented young people will go into medicine or health care, choosing more profitable endeavors instead (oh god, here comes more investment bankers!) And in the end we'll end up with something like this:
http://www.thestar.com/article/304134
http://www.thestar.com/article/681882
Thinking about healthcare reform
Well, recently, like a lot of Americans I've been following and thinking about health care reform. I've also been trying to participate in the discussion about it by posting comments on others' blog posts and articles, e.g. Paul Krugman, Robert Reich, Huffington Post, etc. I thought I'd post some more of my thoughts directly on my blog here, so I'll be doing that after this post. I am also going to repost some of my comments here since some of them have gotten lost. For example, I made numerous comments on Robert Reich's blog but he recently for some reason turned off his comments (fortunately I had saved my comments in a MS Word file).
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