Health Costs

Since drug costs are a huge component of the price of health care, price controls would almost certainly come into effect under a centralized US system. The US is the main country where drug companies are able to recoup their research costs. In most other countries they only recover a slight amount more than their per unit immediate production costs.

So price controls in the US are likely to lead to a dramatic decline in private research spending. (Which unfortunately is to say the research spending that tends to lead to the development of new drugs. I wish it were true that government research is good at creating new drugs, but it isn’t.)

Furthermore we should note that in the heart attack or car accident case, even non-citizens without health insurance still get their life saving treatment from our hospitals. I’m not sure if you were suggesting otherwise above, but it is important to remember. The main gap for the uninsured is in routine maintainence matters. If we decided to remedy that, we don’t need centralized health care, we need a safety net.

There are, indeed, lots of things to control for in any comparison of EU/Oceanic health and the US(income inequality, demographics, immigration, total level of GDP). I find these data fascinating and weird. Proponents of market-based care need to address the questions they raise. But the rush to cite these and other data as definitive *proof* of the inefficiency of the US health industry strikes me (and others) as transparently bogus and polemical. I’ll bet the US spends more $ per capita on law enforcement than EU countries, but has higher crime. Inefficient policing, no doubt.

Here is what the IMF has to say about it:
“The Medicare trust fund begins to run into deficit in 2016, and the unfunded actuarial liability (in net present value terms) has been estimated at 130 percent of current GDP. This raises the question of whether it would have been prudent to defer an extension of benefits, including to cover prescription drugs, until credible measures to address the system’s longer-term financial problems are established. Indeed, the broader weakness of the U.S. health care system—which has left health care spending the highest among OECD countries (relative to GDP), without a commensurately high ranking in public health indicators suggests that more sweeping reforms of the system may be needed.”
Suggestions?

You know, there aren’t price caps in the Australian system, so I’ve really got no idea where all this talk of compulsory price caps comes in.

To be sure, there are caps on how much Medicare will pay for things, and a fair chunk of the population uses Medicare and Medicare only, but many people (including most rich people, who are going to be the ones spending above a cap anyway) use private insurance which is somewhat more generous.

Besides, it is incredibly hard to believe that the American health care system, as currently constituted, is the most efficient way of supporting drug research. That could be true, but my prior for it is somewhere around 0.

edge is exactly right: pharmaceutical companies now spend far more on marketing than research, thanks to the massive relaxation of restrictions on DTC advertising. So to say that drug-cos should be allowed to gouge the market in order to recoup the costs of researching that patentable-near-copy of Viagra is just hogwash: they gouge the market to be able to recoup the cost of advertising that patentable-near-copy of Viagra.

In fact, if you look at the ‘research’ of most leading pharmaceutical companies in relation to marketing, it’s clear to see that the ad dollars are going behind what could be called ‘patentable generics’ — that’s to say, products that essentially replicate existing drugs, but can be patented — and tweaks on existing drugs, such as time-release formulations.

And the ‘main gap’ isn’t ‘routine maintenance’ so much as preventative healthcare and the pre-emptive treatment of conditions that can become chronic and debilitating if left untreated. Right now, far too many uninsured people will not go to a doctor for fear of that horror of horrors, the diagnosis of a ‘pre-existing condition’ that will make getting insurance in the future that much harder and more expensive.

My wife has had joint pain and inflammation since her teenage years — she’s in her mid-20s now. She won’t see a doctor because she doesn’t want a ‘pre-existing condition’ on her records. Which means that for temporary relief, she has to scrounge from her sister’s prescriptions for Mobic (both have the same problem), and is reduced to asking friends who are doctors if they have samples lying around.

When obtaining anti-inflammatory medicines is more furtive than trying to score some crack, then you know that there’s a problem with the system.

’emergency room treatment of the uninsured absorb a lot of public money,’

Yes and also the money of the uninsured. That’s one aspect that gets overlooked a lot. It’s not the case that all the uninsured are flat broke – to put it mildly. Health insurance is extremely expensive (gosh, really?) now, there are plenty of people (I have no idea what the numbers are though – by ‘plenty’ I mean – er, whatever I say it means) who do have assets but can’t afford to buy insurance and don’t get it through work. They’re much worse off than the flat-broke uninsured, in a way, because if they do get sick, they get cleaned out. This does happen – in fact it’s the largest cause of bankruptcies in the US.

There’s no controls for anything here, so many of those factors will matter. And they could explain all of the divergence in costs. Whether they do or not is miles beyond my expertise – I was just shocked at how large the difference is between what the US spends and what everyone else spends, and at how small the difference is between what the US govt spends and what other govts spend. Beyond that I was just at the comparing-anecdotes stage. All the factors you raise will make it more expensive to run a decent health care system in America than in other countries. As I said, whether they account for all of the extra cost in the US is a hard question, not one we’re likely to solve on a blog. My suspicion is that they won’t – as I noted previously it’s not just America but every private system that seems to run excessive expenses – but obviously something more subtle than a raw comparison of numbers is needed to make precise decisions.

I compiled links to posts based on health statistics and expenditure data on my main page: More On USA’s Inefficient Health Care

Whoops, link didn’t work. This is it.

“pharmaceutical companies now spend far more on marketing than research,”

No, those often quoted statistics are for Marketing and Administration and Advertising. This silly statistic comes from this Families USA report and has been flying around the internet. You are counting all the drug company secretaries and file clerks in that amount. You are counting the administrative costs of continuing compliance with the FDA in that cost. You are counting a million other things that fall in the catch-all ‘administration’ there. You are failing to differentiate between marketing (much of which we would see as completely legitimate teaching) and advertising.

There are further methodological problems with this report. There method of comparing profits to research are snapshot oriented like: “Merck’s profits were nearly three times the amount the company spent on R&D in 2001” What? You only want to talk about the good years? Does pharmaceutical companies only spend money on research on the good years? If you want to look at an industry with a 10 year development window you have to compare over the whole period. And if you want to count the industry as a whole you have to take into account all the research companies that fail when their drugs dont pan out. Living in San Diego I could name four that effected my personal friends. Pharma research has to be particularly profitable because it is particularaly risky. If it weren’t profitable people would do less risky things to earn money. That is why their Table 8 is so stupid.

Hmm, I suspect I’m going to regret pointing out the methodological flaws, because all I’ve done is further publicize an awful report.

The American system tends to be very good at the expensive, innovative interventions. If you’ve got something rare or something difficult to treat then the States is the place to go. They are also willing to spend big money at the end of life. However, these kinds of interventions apart from being extremely expensive don’t tend to lead to a whole lot extra in terms of extra years lived.
On the other hand, the cheaper interventions–such as regular doctor visits–are relatively more inaccessible to more people than in countries with universal care and tend to be the things that really make a difference, population-wise, to health.

I don’t understand Sebastian’s point. Let’s say that health care research is extraordinarily costly. Still, the benefit of that research is, supposedly, that it finds cures for illnesses. But if that benefit has to be weighed against the fact that, to pay for those cures, a large segment of the population can’t afford the cures or treatments that are out there, you don’t get a net benefit. In fact, you would get more of a benefit from public research, which is not as successful for very non-mysterious reasons — that is, that researchers can get very rich from going into private research. They will only make a standard, comfortable, above 200 thousand dollars working in public research. Although that is tragic, there’s still no reason to coddle pharma companies by disallowing the one thing capitalism does really well: allowing competition. As in making the period of time that the research company can get a ‘fair” return on its products much shorter, so generics can take over.
This might in fact split pharmaceuticals into those that market and those that research. A long overdue destructuring of a way too fat and lazy industry.

Another point regarding drug company research. It is not chosen to solve the problems that would most improve some metric of health, it is chosen to maximize the profits of the drug companies. Courtesy of private free market research plus the U.S. patent system we have the recently publicized research experimenting with a (patentable) “good cholesterol” deduced from a long-lived Italian family’s mutated cholesterol chemistry that proved to reduce arterial clogging significantly. But there is no research plan to study (unpatentable) common ordinary good cholesterol because to do so would not result in a profitable patentable drug.

Just look at WHO’s statistics: the US not only spends more per person than anywhere, the casre delivered isnt’ close to that of other major industrial nations (infant mortality, morbitity, longevity, etc).

I agree with Ophelia Benson that not all the uninsured are destitute, but disagree that they are not necessarily offered insurance through their employers or can’t afford it. About six years ago, I worked for a construction company that offered insurance to all its employees. The minimum wage paid by this company was ten dollars an hour and most employees worked 45-50 hours week (overtime after 40). The company picked up 60% of health insurance costs. For a single person in Texas, this meant health insurance cost $35/month to the employee. The company ended up having to stop offering insurance to Texas employees because the insurance company required that 40% of all employees offered insurance accept it or provide proof of coverage elsewhere. The company couldn’t meet the goal, only 25% took the policy. This was not due to the cost of for family policies being higher ($85/month to the employee), since 72% of the Texas employees were single, and 62% were single parents/had dependents, and 60% of those with families/dependents did take the policy. Of those who took the policy, most were switching from their spouses coverage because this was less expensive.
The only way the employees who refused the policy would have accepted the insurance was if it were free. And even then, they didn’t like having co-pays on doctor or emergency room visits. In meetings to convince employees to take the insurance, they claimed they could go to the emergency room for free anyway, so why get insurance? (I assume they were just planning to never pay the bill.) I am not sure that offering universal care (that required a copay) would change their attitudes at all. That means that the argument for early and less expensive care through universal health insurance would not apply to this particular population of indivduals. (Approximately 300 employees.)

Should read 62% were NOT single parents/had dependents

Don’t believe the hype about welfare state based healthcare being the best solution: people are dying in Scandinavia because they can’t get the health care they need in time. The system is so overburdened that countries often export their patients to other countries to relieve the pressure.

Should that happen in the US, the people responsible would be singled out faster than you can say “lawsuit!” But as the state is responsible for everything in Scandinavia, the possibilities for redress – and reform – are quite limited.

Even the media in Scandinavia plays along, usually burying the stories – and the issues they raise – into innocuous articles about unfortunate incidences.

Yes, people fall through the cracks in a national health care system, too: the dead. At least in the US, the ones that are outside the system… still have a voice.

Some more data missing here: long-term time series on health care spending as % of GDP, and in constant dollars per capita, for the industrialized countries. Many of the socialist systems in other countries have been around for many decades now, longer than health care costs have been a big issue in the US; surely people have been keeping records on this stuff for a long time. It would be very useful to see whether the gap in spending levels existed in, say, 1964 (and what the life expectancies, infant mortalities, etc. were at that time, too), and how it’s changed since then.

It is at least plausible that the US has high costs partly as a result of being, perhaps for cultural reasons, an “early adopter” nation when it comes to health care. Early adopters of any sort of thing tend to pay much more and get less than those who wait for the cheap mass-market versions. And in the last couple of decades there’s been a whole lot of stuff to adopt early.

Also, this is interesting –

“Don’t believe the hype about welfare state based healthcare being the best solution:”

I’m always fascinated by rhetoric. The ‘hype’? What hype? Surely in the US there is far more ‘hype’ about the evils of ‘socialized medicine’ than there is about its virtues. Am I wrong about that? And if I am – if there is more hype in favour of a national health than there is against it – why don’t we have it?

Is there a current authoritative book that examines, in depth and impartially, the differences in health care cost, quality, and quantity across countries?

Kevin Brancato asked for a source that looks at health costs and quality across countries. See http://content.healthaffairs.org/cgi/reprint/19/3/150.pdf

hope: thanks (even though I’m not Kevin). That goes a long way toward filling some of the gaps I’ve mentioned in earlier comments. Mmm, tasty data.

The 1960 numbers are, as I expected, interesting and relevant. US per-capita health care spending then was much higher in dollar terms, but not so much as a % of GDP; the US was near the top in % of GDP but not nearly so far out of line with everyone else as it is now.

Now in 1960 the US had what by today’s standards is a pretty completely free-market health care system. At least some of the other countries in the comparison already had socialist systems. So these historical data argue against the proposition that a private system must necessarily impose a much heavier economic burden than a socialist one.

Also noteworthy is that in the more recent data sets, reflecting the availability of new medical technology, richer nations (Germany, US, Switzerland) tend to be near the top of the %-of-GDP numbers. Perhaps as nations grow richer, their peoples tend more and more to demand, in effect, luxury healthcare: extraordinary end-of-life interventions, cutting-edge technology, surgery with no waiting list. This sort of stuff costs a lot of money but tends not to show up in the aggregate quality measures beloved of the advocates of socialism. Access to MRIs, for example, does nothing to improve infant mortality and probably doesn’t do much for life expectancy at birth. On those measures where it *does* show up, the US indeed beats out the rest: the report gives two examples, life expectancy at 80 and waiting times.

All of which serves to reinforce my skepticism about the degree to which socialist health care would reduce costs in the US, even compared to our current sorry semi-private mockery of a system. The popular demand for expensive stuff would still be there, and socialism would remove the last obstacles to foisting the costs of said expensive stuff off on other people.

There’s a fascinating book by a Canadian researcher, Edward Shorter, on the ‘sensitivization’ of the patient body. According to Shorter, who is working with doctor’s interviews with patients over the last fifty years, we passed from a stage, in the fifties and sixties, when Doctors were briefly seen as demi-gods (the golden age of medicine, according to Jame Le Fanu — the age when the basis of contemporary medicine, from heart surgery to antiobiotics, was laid down) to a period of patient liberation, so to speak, when the patient became impatient of pain.

Hence, the interesting myth of the queue. Of course, in the US, queueing is done by simply avoiding medical care because it is unaffordable. When a system — like the vastly superior Canadian system or Swedish — is posited on “universal care,” that previously hidden queue, household by household, is revealed.

Those people who defend the U.S. healthcare system as one in which the market allocates health care are usually very ignorant of the particulars of the health care market — and in particular, the transformation of health care into a compensation package offered by employers. This is a classical instance of what Joseph Stiglitz won the Nobel Prize for — asymmetrical information. It certainly doesn’t make for a free market. It probably couldn’t — the ROI on medical care, without the insurance companies and the monopolistic grip of Big Pharma and the rest of it — that is, a truly competitive system, taken away from its biggest client base, the corporation — would collapse.

What we need is a robustly socialist health care system, combined with a robustly private health care system — something like what we have with the mail system, with Fed-ex’s competing with the Post Office to provide a delivery service that has the scale to accomodate the poorest and the private businesses to accomodate the richest.

It won’t be a perfect system, God knows — but there is no perfect system. And it would be much better than the patchwork of government interventions and private markets existing today.