+1 on the cost of healthcare to the economy. I think lately business leaders, who are intrinsically anti government intervention (aside from subsidies and protections for themselves) have realized that the current system is a huge burden to every business except the health insurance industry.

On your second point I would like to note that almost all countries respect drug patents so this cannot account for the difference. In the case of drug costs it is more that other countries use the negotiating power of the health plan to pay lower prices. Also I suspect that most of the drugs under patent are unnecessary in most cases but people get them anyway.

Great stuff, Dean--my friend Bob Somerby likes to post this: Total spending on health care, per person, 2007
United States: $7290
France: $3601. If the drug premium is something like $800 per person, can we quantify any other large sources of our overpayment? Thanks.

Your own source only claims an average increase of 4 times:

"By contrast, the average increase in price for
pharmaceuticals due to patent protection is probably close to 400 percent, with the gap in
many cases exceeding 1000 percent of the marginal cost."
http://www.cepr.net/documents/publications/intellectual_property_2004_09.pdf

Wait, you say that "Bu (sic) the biggest error is imagining that the high cost of health care in the United States has anything to do with the market."

So, are you saying that government nonintervention in the marketplace would be one solution to the high cost problem or is too late for that?

If this passes we will have begun to reform health INSURANCE. We will have done nothing to reform health CARE.

Why do we keep going back to having health care "insurance" offered via employers? I agree that eliminating pre-existing exclusions will certainly make the economny work better since people with pre-existing conditions will no longer be trapped in their current employer based health plans along with their current jobs, but it seems to me we should be moving away from employer sponsored plans and moving towards a direct purchase model. We should also consider letting health insurers cross state lines. With today's technology they should be able to cypher up the actuarial figures nationwide so they can still make their margins.

C'mon, Dean...do you know of any market-based health system that really works?

Andrew,

you're right, I originally thought, based on evidence that i had at the time, that the patent mark-up was only about 4 to 1. When Wal-Mart started selling hundreds of generics for $4 per prescription, I looked at more data. If you look at the average price of a generic prescription, it is less than 1/4th the price of a brand drug. And generic prices are driven up by a 6-month period of exclusivity for generics when they first enter a market.

So, I think the ratio of 10 to 1 is likely much closer to the mark. Wal-Mart is not a charitable outfit, last I looked. If they can sell a wide variety of drugs at $4.00 per prescription, this must be very close to covering their costs. (They may lose some money to bring people into the store.)

The protectionism that drives up health care costs goes way beyond things like drug patents. The law puts a very high fence around the very practice of medicine--lacking credentials that take 10 or 12 (high cost!) years to obtain, a person is forbidden to practice medicine at all. These barriers to entry are so sacrosanct that calling them into question is not even given discussion room. But removing them is the only path to dispelling the oppressive orthodoxy that excludes many available innovations.

In addition to John's point, we could also allow foreign-trained doctors who pass American medical licensing exams, and who would probably be happy to work for half of what US doctors make, to immigrate. That would be allowing the "free market" to allow competitive salary savings and to relieve a shortage of physicians.

the health insurance market is inherently different from the market for other products or services because it requires risk shifting to work. if my neighbor buys a mini cooper it does not affect the price of the mercedes i want to buy. if my neighbor only needs a mini cooper health insurance policy and buys one and i need a mercedes policy, the cost of my policy goes up because the has not overpaid for his policy.
finally-moving from an employer based system to a direct purchase system will result in a huge increase in the number of uninsured and underinsured. most people will have no idea what they are buying and many will end up either underinsured or without insurance altogether. many will not be able to afford the policies they need. hospitals and doctors will be awash in unpaid bills. we will have single payer in six months.

you give brooks too much credit

he is dissembling

he acknowledges that the reform proposals are well-meaning and address a "social" problem

he says

"Reform would make us a more decent society, but also a less vibrant one. It would ease the anxiety of millions at the cost of future growth.

It would heal a wound in the social fabric while piling another expensive and untouchable promise on top of the many such promises we’ve already made. America would be a less youthful, ragged and unforgiving nation, and a more middle-aged, civilized and sedate one."

brooks is still wrong, he is not half-right

How can we reduce health care costs when people are so unhealthy? Americans eat junk and too much of it and how can costs associated with heart disease and obesity be reduced when people continue to lead unhealthy lives? This is just one example of American behavior that dictates costs more than insurance companies; other countries spend less because they need less.

I agree for the most part with Dean's post but have 3 quibbles:

1. He wrote:
health care was already a huge drain on the economy (ever hear of General Motors or Chrysler?).

But because GM and Chrysler were paying well above minimum wage and had horrendously bad management you cannot blame their demise on health care costs. IMO horrendously bad management was the only cause for their demise. Rational management could have provided insurance with high deductibles ($10,000/year or higher), at least to those employees making more than $40,000/year. Or provided cash to the employees and let the unions to provide health insurance. Etc. etc..

2. Drugs are only about 12% of all health-care spending. Excessive licensing is a much bigger problem.

3. Prohibiting all discrimination based on pre-existing conditions could drive high deductible insurance out of existence. Since people will get as much as they can for as little effort as possible people may elect very high deductible insurance and switch to low deductible if they get a chronic illness and with low deductibles they will not economize. IMO there are better ways to deal with the preexisting condition problem. Like maybe force the insurance company of record at diagnosis to pay for all future charges due to the illness.

Actually the health bills may well lower health security for some poor people. The costs of mandated insurance will at least partly come out of pocket, and thus lower already unsatisfactory qualities of living. The increased costs of Medicaid will injure other state and local programs. The restricted access to specialized care will hurt some people. And the simple compulsion which some patients will be under to join ACOs is likely to lead to worse treatment for some.

Dean, thank you for linking your report again. I think you need to keep doing that every time.

But you need to make more honest statements along with linking it. The system which I had thought of independently and advocated is almost identical to Kremer's. Now that I am aware of your report, I don't need to explain it to you. In short, the patent system does not need to be thrown out, -and- you are aware of it. So why do you insist on misrepresenting the situation? Yes, you need to be somewhat concise, but you need to present the situation more correctly rather than only presenting the Kucinich model (or Hollis if that is what you prefer, which I had also considered).

I am in favor of the Kremers model, and applying the Hollins model specifically to cases where there is not enough private market incentive. In short: when the patent is worth less than the government's valuation of public interest, the company gets the latter.

And, there is no reason that the current government funded research needs to decrease. I should point out that at universities, professors get government funded research, but they have the opportunity to patent research (with their university) and gain some royalties -- effectively this is the Kucinich system already.

I am glad that you are aware of the other models, so let's keep the debate honest and open rather than insinuating that patents -in of themselves- are bad.

As a small side question, I could not figure out why Kremer gets a 3 for adequate financing. I saw the line in the report about possibly less income from patents, but that was all I saw.

Aditya,

I didn't say that we have to get rid of patents. I said that we could get rid of patents, as I point out in the paper.

My reason for believing that the Kremer system could lead to inadequate funding is that in his system, all drugs do sell for their marginal cost. In a context where all competing drugs are selling for their marginal cost, a patent might have relatively little value (what's the value of a patent on a calcium channel blocker if the next 3 will be sold as generics?).

anyhow, my main point is the people complaining about health care costs should be discussing this issue. They aren't.

Hi Dean,

Thanks for replying about Kremer's system. I think dropping that grade to a 3 is too much, but ok the grading is only qualitative.

What I was referring to was your statements like the following:

"The protections that drive up prices..."

"...patent monopolies for prescription drugs raise drug prices by a factor of ten.."

"...never mentions the incentives given by patent protection for this sort of corruption."

I think all of the above statements are misleading. Your report however was great and I will share it with others! But for those statements, it is not *patents* or *protections* that are the problem, it is only our PRESENT patent culture -- in which the government (and charities) are not buying up patents -- where there is a problem. Which is why I am complaining heavily about your wording.

In any case, I COMPLETELY agree with your point, that these things SHOULD be in the national discussion.

AND I should mention that I as an American was very happy with your congressional panel testimony recently regarding TARP. Thank you for that, too.

Thanks Aditya,

points well taken -- have a good Thanksgiving.

Dean

Brooks' column is a masterpiece of uninformed journalism. To say it is half right is way too kind. Take this pearl of an aphorism:
"The unregulated market wants to direct capital to the productive and the young."

Like million dollar bonuses for incompetent, middle-aged bank executives? That's the Free Market at we love it!

It is somewhat interesting that Brooks claims civilization and capitalism are mutually exclusive concepts. That is actually an old story line of socialist propaganda, except that Brooks seems to be genuinely undecided whether we shouldn't after all forgo civilization.

Brooks: "In every place where reforms have been tried — from Massachusetts to Switzerland — people come to cherish their new benefits. The new plans become politically untouchable.

But, alas, there would be trade-offs. Instead of reducing costs, the bills in Congress would probably raise them. They would mean that more of the nation’s wealth would be siphoned off from productive uses and shifted into a still wasteful health care system."

Since he chose to mention Switzerland, he should be interested in how much wealth was "siphoned off from productive uses" in that country after reform was enacted in 1996. The answer (
http://www.irdes.fr/EcoSante/DownLoad/OECDHealthData_FrequentlyRequestedData.xls) is (of course) that Switzerland's health expenditures grew much slower than the United States', less than one percentage point of GDP vs. three percentage points in the US. One must marvel at this coldblooded hypocrisy. Dishonesty no doubt has become the defining characteristic of modern American conservatism.

Again the link: http://www.irdes.fr/EcoSante/DownLoad/OECDHealthData_FrequentlyRequestedData.xls

Dean, here is a reference with a very fresh perspective on both health and health care. The author, Amory Lovins, is the famous (and brilliant) energy-efficiency guru.

= = = = =
Health Care: Some Analogies, Lessons, and Ideas from Energy
AUTHOR: Lovins, Amory
DOCUMENT ID: M07-01
YEAR: 2007
DOCUMENT TYPE: Presentation
PUBLISHER: RMI

In this 2007 address to the Institute for Healthcare Improvement, Amory Lovins suggests connections between the lessons of whole systems thinking, energy efficiency, and healthcare. Lovins applies ideas such as end-use/least-cost to health care. He argues that problems in healthcare systems, like problems in energy systems, are caused by failure to apply knowledge, not by a lack of knowledge. Lovins argues that the current healthcare system is flawed and misdirected, in part because it measures means and not ends. Instead of the conventional approach to healthcare, Lovins suggests an integrated approach to medicine. He also draws on RMI's work with the Built Environment to explain improved environmental health options in health facilities using integrated design techniques.
DownloadDownload 3631KB
= = = = =

Woops, looks like the download link didn't make it through in active form.

Here's an explicit link to where the active link is.

Trying yet again:

http://www.rmi.org/rmi/Library/M07-01_HealthCareAnalogiesLessons

Why are health care costs exploding? Every stakeholder blames someone else. We physicians deserve some of the blame, but we can be a critical part of the solution. After all, we're the ones who order every prescription, x-ray, CAT scan, specialty consultation and hospitalization. Why do we do more of these things than we should? See www.MDWhistleblower.blogspot.com

We really need to embrace the exploding cost of health care and the rapid expansion of the medical industrial complex. This is the profound insight behind the current health care payment reform movement.

This large and growing sector of our economy will save us because:

* it's a bubble we can trust -- even though asset prices skyrocket, they will never return to earth because you cannot resell your health once you've invested in it.

* the government is on the hook to fund this bubble with NO cost controls AND a moral imperative to continue it forever

* health care is not a drag on the economy, it IS the economy. everyone will continue to need health care no matter what.