Your Lying Eyes

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30 July 2009

The U.S. Health Care System

According to census data, 77% of Americans are covered by employer-provided health insurance or medicare. While all these people might not be thrilled with their coverage, it's a reasonable assumption that they would be disinclined to support health care reform that ends up costing them more money or threatens to limit their care. Thus, Obama's harping on reducing overall health care costs as critical to the survival of the nation is a pretty dumb strategy, as Mickey Kaus effectively documents.

By far the most common health insurance program is managed care. Managed care can be viewed as having two distinct funding arrangements: 1) a consumer union which negotiates lower fees among health care providers on behalf of its members and pools members' contributions to pay for routine care; and 2) health insurance to cover unexpected and expensive medical treatment, but also utilizing the negotiated-fee structure to hold down claim expense.

People seem to be relatively satisfied with managed care but have serious concerns. It's hard to find any good detailed surveys on health care - they may be out there but my googling is inadequate - so I'll propose some hypotheses here. My guesses are these:
  • Following the arcane managed-care rules can be stressful
  • Concern that in-network providers are sub-par
  • Fear of being saddled with a large hospital bill due to failure to carefully follow the insurer's rules to a 'T'
  • Concern that experimental treatments in desperate cases will not be allowed.
Now the question is how badly do we want to eliminate these issues? These hurdles are put there as a way of controlling costs (and preserving profit). Removing them it akin to telling people they can go to any doctor anytime they want for whatever reason - the kind of behavior that tends to push up health care costs. The only way around it is enforced - i.e., government mandated - rationing. That would allow for reduced administrative overhead and direct control of costs.

So the way I see it is either we keep the system pretty much the way it is now (sure we could tweak it a little) or we go to a federal government controlled system. If you've got decent coverage now the latter is probably not your preferred choice, and the vast majority of Americans have decent coverage. On the other hand, I never hear anyone (I mean real people I know) from Canada or Europe complaining about their single-payer system - they seem quite satisfied as well. But of course I hasten to add that the U.S. population does not consist entirely of Swedes or Germans or even Canadians.


Anonymous Dano said...

Today's Wall Street Journal has an editorial on the cost to taxpayers in added payroll taxes to implement Obama's plan. Not the wealthy, but the Joe the plumber's of the USA.
Given the whole month of August to educate people on the bill it seems unlikely the Senate will go along with this, knowing November is around the corner.

July 30, 2009 3:03 PM  
Blogger Tino said...

One thing no one mentions is that Europe/Canada/Japan are free-riding on American health care spending. This is most obvious for drugs, that accounts for 15% of spending, but also true elsewhere. Essentially American consumers are first-users that pay for the development of new technology, which the rest of the world after a while gets for closer to production cost (which is very low for most drugs).

To give a simple example: Albania has a life expectancy close to as Western Europe (77.6 years). They spend very little on health care. But even Albania can buy generic heart medicine - that is better than anything you could have had in 1995 - for almost free. Not in a hundred years could Albania have developed this on their own: They free ride.

The same is true for dialysis technology, new innovations in surgery that their doctors can read about or learn through visiting other countries etc.
The ironi is that Europe is rooting for the US to go public. I sort of hope we do, just for the spite of it.

July 30, 2009 8:50 PM  
Blogger gcochran said...

Willem Kolff invented the first functional artificial kidney (for dialysis) in Holland during World War Two - working in the Resistance at the same time.

Typical European parasite.

July 30, 2009 9:06 PM  
Blogger ziel said...

Sure...but what have they done for us lately?

July 30, 2009 9:21 PM  
Blogger gcochran said...

34 fundamentally new drugs (keyword = new molecular entities) were approved by the FDA in 2008: 18 were developed outside the United States. However, a true evaluation would to weight them by their importance and that would take time and thought. And I'd have to go back a few years for better stats.

Generally drug innovation has slowed down: the idea that the huge profits flowing into big pharma have sped up drug development is clearly false.

The real reaso0n that poor countries can have high life high expectancies is that the most effective steps in improving humans health are cheap and always have been: chlorinated water, DDT versus mosquitoes, vaccines, and antibiotics. Expensive, high-tech medicine has not extended life much. The life expectancy of a US billionaire is only 3 years more than average - and I suspect most of that is due to healthy, energetic people being more likely to become billionaires in the first place.

July 30, 2009 11:20 PM  
Blogger ziel said...

I guess Tino would argue that even if they're developed outside the United States, are these drugs marketed and sold in the U.S. - then they would still take advantage of the U.S. profit-friendly system.

Still, I personally have serious doubts generally about the cause-and-effect between the opportunity to make gazillions of dollars and the pace of innovation. I'm pretty certain that when you can't make any money, outside of some unusual motivating force like a life-or-death war, there is little innovation. But my guess is the correlation goes up steeply at first but flattens out at some point below the level of filthy-rich.

It certainly seems we made a lot of progress in this country in the 50's and 60's when marginal tax rates were much higher.

July 30, 2009 11:37 PM  
Anonymous Ian said...

My impression of Obama's health care reform is that it is yet one more socialist way to subsidize the expanding population numbers of certain less productive sectors of society, by appropriating from those who are more productive but with declining population numbers ...

July 31, 2009 3:51 AM  
Blogger ziel said...

Yes, I agree this is Obama's view, and it probably explains why he's having such a hard time connecting with the American people on health reform - he looks at it from an "economic justice" angle. He also fears that the continued rise in general health care costs will limit the ability of the productive classes to provide care for the non-productive classes.

What Obama still hasn't grasped is that this vast wealth he saw a few years ago doesn't actually exist anymore - it never did, really - it was a charade. His propping up of Goldman and co. is just part of his effort to ensure this never ending gravy train is there to feed the ever-growing herd in need of social justice.

July 31, 2009 7:31 AM  
Blogger Tino said...

1. About half the global pharmaceutical market is American, even though the US has far less than half the developed world population. The US spends almost 50% more than Europe, despite having a smaller population. This is what the free-riding consists of, not doing your full share, as opposed to doing nothing. Clearly American consumers also get a huge benefit from having a larger market than only the US, in drugs as in any other tradable. I didn’t know I needed to make such an obvious point explicit…

2. Your figures have the US at 47%. Total drug patents are about 60% American (These are U.S patents, I don’t know if that’s different from world patents). The US share of developed world population is 30%. I would say an overrepresentation. (at any case, as the blogger reader noted, my argument about profits would hold even in 100% of patents came from outside, as long as they were disproportionally made for the US market).

3. “Willem Kolff invented the first functional artificial kidney (for dialysis) in Holland during World War”

At first one might think the example is just irrelevant, but really it’s instructive. Dialysis became widely used over two decades years later, in the US, through the American mix of private but non-profit and pure profit system (an expanded even more through generous non-rationed public finance a la US) Which serves to illustrate: Invention and mass consumption are not the same.

One of the worlds currently leading dialysis firms is Swedish Gambro. Which has 2/3 of it’s sales and probably an even larger share of profits from the US market. These are typical figures.
I would actually expect Europe scientists to come up with new technologies as a higher rate than the US, since Europe has a larger population (in fact they don’t even seem to manage that, which the massive overrepresentation in Nobel prizes is an indication of, but that’s another argument). The question is also the degree in which ideas turn into products.

“the idea that the huge profits flowing into big pharma have sped up drug development is clearly false.”

Other factors, such as simply the state of science, determine development than profits alone.
Maybe the low hanging fruits have been picked for our state (this certainly also goes for general growth in the 1950s and 1960s).

The relevant question is what development would be with smaller profits. You think it will be higher? R&D input has gone up a lot, following profits (in absolute terms, and as a share of revenue). I assume the relationship between input and output is positive. It could be zero. (it could also be negative, but you would need a sophisticated argument for that than correlation over time).

August 01, 2009 9:41 PM  
Blogger Tino said...

57% of European firm’s revenue came from the US (percent of EU+US, not of total). Only 24% of American firm’s profit comes from Europe.

Again: Free-riding.

European consumers buy the same drugs cheaper, since firms make their profits in the US market, they don't have to face the same tradeoff: They get the drugs anyway. The US could use this levrege (for example tax foreign firms that sell at higher prices in US market) , but doesn’t.

The paper also shows that R&D spending in real terms grew from 25 billion 1993 to 67 billion 2004.

August 01, 2009 10:03 PM  
Blogger gcochran said...

Big Pharma in the US is accomplishing less and less over time: the number of new molecular entities licensed by the FDA is running about 40% of what it was in the 70s.

Much of the reason seems to be a number of research fads that didn't work. Research approaches that do work can still become unfashionable to the point of being generally abandoned.

And, of course, management now routinely endorses dishonesty, such as paying off researchers to lie, faking results, even pushing drugs such as Vioxx known to have net negative results.

It's possible that routine dishonesty interferes with genuine innovation.

August 02, 2009 2:45 PM  

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