Universal Health-Care Debate

[ewmayer]

In the wake of today's Congressional Budget Office statement to the effect that the Obama universal-health-care plan (as currently proposed) does nothing whatsoever to reduce the skyrocketing costs of health care (and quite possibly would do the opposite), the following op-ed on the subject seems timely. Its author is an avowed free-marketeer, and makes some very good points (and at least as importantly, makes them in a very cutting-wittily fashion). I agree that the arguments that modern drugs and care are grossly overpriced is somewhat of a myth, though there needs to be much more profit-sharing with the government on the part of drug companies who use public-funded research to develop wonder drugs ... my main beef with the current U.S. health care system (and the obvious cost-saving-proposal ensues) is with the incredibly amount of money wasted on useless/redundant/gratuitous/false-positive-prone/overpriced diagnostic tests, the grossly disproportionate amount of money spent on the last few weeks of life (e.g. keeping moribund patients on life support at all costs), and the disincentives for health-care-insurance shoppers to seek out more cost-effective care plans.

A "Criminally Insane" Cliff Asness Takes On Health Care Mythology And Pretty Much Everything Else

AQR`s Cliff Asness, a hedge fund manager (and ex-Goldmanite) who recently achieved public acclaim by lashing out quite vocally against some of the administration`s tyrannical practices, yet stands to lose some of that new found populist credibility by being one of the first "scholars" supporting the petition to limit oversight and visibility of the "independent" Goldman-enhanced Federal Reserve, has just hit the road with another piece of a Hunter S. Thompson-esque Op-Ed. The whole piece, captured below, is a must read, and while Asness astutely provides the following legal disclaimer

"AQR`s legal department would like me to add that I am criminally insane and barred by an order of rhetoric protection from speaking on AQR`s behalf. Anyone trading on my advice, or a client, consultant, employee or Iraqi insurgent thinking he has been wronged by my attitudes or opinions can have a $250 out-of-court settlement right now if you`ll sign a waiver, otherwise we`ll break you. Oh, and we lied about the $250, but seriously, we will break you. Please note, nobody can predict where markets will go in the short-run and sometimes even the long-run. When I point out individual things in the marketplace that I think are strange, or wrong, it doesn`t mean I have the perfect answer or can easily make money from it for my clients, for myself, or certainly for you reading this essay! Furthermore, if you read one guy`s opinion and do anything based solely on that, you are an idiot. Next, as the legalese above alludes to, the actual funds and accounts AQR manages are run using models that may or may not agree with what I`m writing herein, particularly as our models will generally have a shorter time horizon than the things I`ll be writing about. Listen to me at your own risk! "

his writing style is certain to not make him many new friends in high places (Zero Hedge sympathizes).

Some key excerpts from Asness` op-ed:

On "Soaring health care costs":

Myth #1 Health Care Costs are Soaring

No, they are not. The amount we spend on health care has indeed risen, in absolute terms, after inflation, and as a percentage of our incomes and GDP. That does not mean costs are soaring.

You cannot judge the “cost” of something by simply what you spend. You must also judge what you get. I’m reasonably certain the cost of 1950’s level health care has dropped in real terms over the last 60 years (and you can probably have a barber from the year 1500 bleed you for almost nothing nowadays). Of course, with 1950’s health care, lots of things will kill you that 2009 health care could prevent. Also, your quality of life, in many instances, would be far worse, but you will have a little bit more change in your pocket as the cost will be lower. Want to take the deal? In fact, nobody in the US really wants 1950’s health care (or even 1990’s health care). They just want to pay 1950 prices for 2009 health care. They want the latest pills, techniques, therapies, general genius discoveries, and highly skilled labor that would make today’s healthcare seem like science fiction a few years ago. But alas, successful science fiction costs a lot.

On the "Canadian cheap-drug 'miracle':"

Myth #2 The Canadian Drug Story

Ah … one of the holy myths of the “US health care sucks” crowd. This should be fun.

The general story is how you can buy many drugs in Canada cheaper than you can buy them in the US. This story is often, without specifically tying the logic together, taken as an obvious indictment of the US’s (relatively) free market system. This is grossly misguided.

Here’s what happens. We have a (relatively) free market in the US where drug companies spend a ton to develop new wonder drugs, a non-trivial amount of which is spent to satisfy regulatory requirements. The cost of this development is called a “fixed cost.” Once it’s developed it does not cost that much to make each pill. That’s called a “variable cost.” If people only paid the variable cost (or a bit more) for each pill the whole thing would not work. You see, the company would never get back the massive fixed cost of creating the drug in the first place, and so no company would try to develop one. Thus, companies have to, and do, charge more than the variable cost of making each pill.[2] Some look at this system and say to the drug companies “gee, it doesn’t cost you much to make one more pill, so it’s unfair that you charge much more than your cost.” They are completely wrong and not looking at all the costs.

So, let’s bring this back to our good natured friends to the North (good natured barring hockey when they’ll kill you as soon as look at you[3]). They have socialized medicine and they bargain as the only Canadian buyer for drugs, paying well below normal costs. Drug companies that spent the enormous fixed costs to create new miracles are charging a relatively high cost in the free and still largely competitive world (the US) to recoup their fixed cost and to make a profit. But socialist societies like Canada limit the price they are allowed to charge. The US-based company is then faced with a dilemma. What Canada will pay is not enough to ever have justified creating the miracle pill. But, once created, perhaps Canada is paying more than the variable cost of each pill. Thus, the company can make some money by also selling to Canada at a lower price as it’s still more than it costs them to make that last pill.

However, this is an accident of Canada being a less-free country than the US, able to bargain as one nation, much smaller, and next door. If we all tried to be Canada it’s a non-working perpetual motion machine and no miracle pills ever get made because there will be nobody to pay the fixed costs. I’m a big fan of Canadians in general (particularly Wayne Gretzky and Mario Lemieux, who if healthy probably would have eclipsed Gretzky – but I digress), but when it comes to pharmaceuticals they are lucky parasitic hosers. Drug companies in general sell their products to Canada at low prices, making a little profit, and reducing slightly the amount they need to charge other North Americans. This does create the silly illusion that the Canadian system is somehow better than ours because our own drugs are cheaper there. They are only cheaper to the extent we are subsidizing them by paying their portion of drug development costs and, unfortunately, we cannot subsidize ourselves (or we go blind).[4]

So, what is the purpose behind those who tell tales of these cheap Canadian drugs? Obviously they seek to ridicule our freer system by putting the parasitic and socialist system on a pedestal. They seek to imply that our system is broken, and delivers only expensive drugs, when the socialist Canadian system delivers the goods for its people. Thus, they implicitly argue that we need to have socialism here. It’s not complicated.

So, repeat after me. We could go with the Canadian system and have super cheap drugs, if only we can find a much bigger, much more medically advanced, much freer country right next to us to make miracle drugs for themselves, and then we insist that we pay them only a bit above their variable cost for our share, and then they in turn agree to let us be their parasite. Mexico, would you mind helping us out?

On the alleged successes of socialized medicine:

Myth #3 Socialized Medicine Works In Some Places

This is a corollary to the “Canada as parasite” parable above. The funny part is socialized medicine has never been truly tested. Those touting socialism’s success have never seen a world without a relatively (for now) free US to make their new drugs, surgical techniques, and other medical advancements for them. When (and I hope this doesn’t happen) the US joins in the insanity of socialized medicine we will see that when you remove the brain from the body, the engine from a car, the candy from the striper, it just does not work.

[ewmayer]

[cont.]

On the alleged ability of a "public option" to co-exist with a "private option":

Myth #4 A Public Option Can Co-Exist with a Private Option

The government does not co-exist or compete fairly with private enterprise. It does not play well with others. The regulator cannot be a competitor at the same time. It cannot compete fairly while it owns the armed forces and courts. Finally, it cannot be a fair competitor if when the “public option” screws up (can’t pay its bills), the government implicitly or explicitly guarantees its debts. We have seen what happens in that case and don’t need a re-run.

The first thing the government does is underprice the private system. You can easily be forgiven for thinking this is a good thing. Why not, cheaper is better right? Wrong. They will underprice private enterprise by charging less to the purchaser of health insurance, not by actually creating it cheaper. Who makes up the difference? Well, you and your family do if you pay taxes, or your kids will pay taxes, or their kids will pay taxes. The government can always underprice competition, not through the old fashioned way of doing it better, they never do that, but by robbing Peter to pay for Paul. They are taking money from your left pocket and giving you a small portion of it back in your right pocket. They do it every day before breakfast, and take a victory lap for the small portion they return.

...

Perhaps the best example of the destructive “public option” is our nation’s schools. Here we clearly have a government provided “public option” competing with (and in fact dominating in size) private schooling. But, is it fair? Does it work well? Not by a long-shot. To send your kids to private school (i.e., a school that competes with the government) you need to first pay your taxes. Absent vouchers or tax credits, the bête noirs of the “socialism in education” set, if you eschew the “public option” you have to pay for education twice. Double payment is not only unfair, but the quality of the product without competition is inhuman and a catastrophe to a generation of children the Left weeps tears over, but actively works to destroy (after all, the Left needs future customers). That the schools provided by the government pale next to the private options, which themselves pale next to what we would have with a full private system (even if publicly funded) is beyond sad, but not the direct point here. The direct point is a “public option” cannot exist without cheating – in this case making you pay for it even if you don’t use it (I’m pretty sure if a private company tried that it would be called stealing).

With a “public option” things inevitably would go the horrific way of our public schools. Instead of existing to please customers (patients and students respectively) the “public option” in schools exists largely to benefit empowered stakeholders of the system (health administrators and unionized school employees respectively), who will shamelessly pretend to give a darn about sick people and children.

On helath-care rationing:

Myth #5 We Can Have Health Care Without Rationing

Rationing has to occur. This sounds cold and cruel, but it is reality. A=A. If you have a material good or service, like health care, that is ever increasing in quality, and therefore cost, there is no way everyone on Earth can have the best at all times (actually the quality increases are not necessary for rationing to be needed, it just makes the example clearer). It’s going to be rationed by some means. The alternatives come down to the marketplace or the government. To choose between those alternatives you judge on morality and efficacy.

Everyone on both sides seems to hate the rationing word. People favoring free markets point to the explicit rationing that occurs in other countries with glee, while those favoring socialism point to the number of uninsured who get their health care through emergency rooms and the like (a form of rationing). Both sides are wrong to complain about rationing per se, that’s a fact of life. But there are differences.

It is an uncomfortable truth that tough choices will have to be made. There is no system that provides for unlimited wants with limited resources. Our choice is whether it should be rationed by free people making their own economic calculations or by a bureaucracy run by Congressional committee (whose members, like the Russian commissars, will, I guarantee you, still get the best health care the gulag hospitaligo can provide). Free people making their own choices only consume what they value above price, using funds they have earned or been given voluntarily. With socialized medicine health care is rationed by committees of politicians trying to get re-elected and increase their own power, and people consume as much of it as the commissars deem permissible. I do not find these tough alternatives to choose between.

By the way, nothing says that part of this rationing cannot include large amounts of charity, privately or even (and the libertarian in me quakes) publicly, but that still involves rationing. Sorry, we can’t suspend the laws of physics and arithmetic.

So, why do they lie about rationing, other than habit? Well, rationing isn’t pleasant news for those who don’t get that 2+2 will always equal 4. Telling optimistic innumerates that your plan does not include rationing wins support.

On "the right to health care":

Myth #6 Health Care is A Right

Nope, it’s not. But we are at the nuclear bomb of the discussion. The one guaranteed to get me yelled at or perhaps picketed by a mob waving signs printed up with George Soros’s money. Those advocating socialized medicine love to scream “health care is a right.” They are loud, they are scary, but they are wrong about rights (as the 1980 kid in me resists the temptation to type “TO PARTY” – you had to be there).

This is more philosophy than economics, and I'm not a philosopher. But, luckily it doesn't take a superb philosopher to understand that health care simply is not a “right” in the sense we normally use that word. Listing rights generally involves enumerating things you may do without interference (the right to free speech) or may not be done to you without your permission (illegal search and seizure, loud boy-band music in public spaces). They are protections, not gifts of material goods. Material goods and services must be taken from others, or provided by their labor, so if you believe you have an absolute right to them, and others don’t choose to provide it to you, you then have a “right” to steal from them. But what about their far more fundamental right not to be robbed?

And in conclusion...

And In Conclusion

At this point you might accuse me of offering only complaints about the Administration's plans, without constructive suggestions of my own. There is truth to that. But I make no apologies. If people believe crazy things it’s first and foremost important to change that before progress can be made. But also, I think we're doing okay enough without radical changes, certainly not hastily panicked changes towards socialism, and also because I lack the expertise to recommend the detailed practical steps that would be productive (in contrast it requires no expertise to see that the myths above are indeed lunacy).

I do understand people are frustrated at many aspects of the current system, and it is tempting to tear it all down and build something that looks shiny and new and perfect in the advertisement. Many of the complaints concern the complexity of getting insurance, treatment and reimbursement. I blame this mostly on excessive regulation, a complex employment-based insurance system strongly encouraged by tax law, and litigation for the benefit of trial lawyers rather than patients or anyone else. We do not need a single payer (socialized medicine) system to cut confusion and inefficiency. On the contrary we need unfettered competition and clear legal standards. Another major concern is provision of basic healthcare to the needy. This is an important issue, but not an expensive one in the scheme of things, and not one that should drive the trillion-dollar healthcare debate. You do not reorganize the entire housing industry and tax policy around the need for homeless shelters, you just build enough shelters and let the market take care of, and discipline, the people who can pay for their own housing. Finally there is the concern that healthcare costs make US workers too expensive to compete in global markets. As long as workers get full value for their healthcare dollars, it shouldn't matter whether companies pay in cash or in health benefits. The competitiveness issue is an important one, but healthcare costs versus wages versus taxes to pay for public health care is a minor detail in it. The main thing is not how it’s divided up but total costs, and total value received by the worker. Costs are minimized, and value received maximized, by open competition. I recognize these are general prescriptions rather than specific healthcare reform proposals, but you don't have to be a weatherman to know which way the wind blows (are non-Leftists allowed to quote Dylan?).

Let the impassioned discussion begin!

[Fusion_power]

Buffet says that healthcare is a "moral imperative".

No impassioned debate is needed on my side. I just want my healthcare to cost as little as possible. If someone else is willing to pick up the tab, so much the better. Given that my company still subsidizes my healthcare, but I haven't been to a doctor in 7 years and my only dental care is twice yearly cleaning, I can safely say that I am cheap to maintain.

Of all the statements in the above, one thing gleams through. We have a seriously messed up regulatory system. Did anything the government takes over ever get cheaper?

DarJones

[CRGreathouse]

Originally Posted by Fusion_power

Buffet says that healthcare is a "moral imperative".

Personally, I don't see health care as special. It is no more a moral imperative than any other wealth transfer. I wouldn't mind some kind of welfare (I would prefer a negative income tax rather than our current system), but that's beside the point.

Originally Posted by Fusion_power

No impassioned debate is needed on my side. I just want my healthcare to cost as little as possible. If someone else is willing to pick up the tab, so much the better. Given that my company still subsidizes my healthcare, but I haven't been to a doctor in 7 years and my only dental care is twice yearly cleaning, I can safely say that I am cheap to maintain.

I'm with you on that. I hate that the debate is framed as the problem of health insurance rather than the problem of healthcare -- insurance seems to be a bad way to handle it.

Originally Posted by Fusion_power

Of all the statements in the above, one thing gleams through. We have a seriously messed up regulatory system. Did anything the government takes over ever get cheaper?

I'm not fan of government inefficiencies, but perhaps the Post Office? Admittedly it's hard to compare it to FedEx (etc.), what with its government monopoly and all...

[garo]

I must challenge the assertion that healthcare is not grossly overpriced in the US. Do we really need drug companies to come up with "new and improved" drugs every couple of years to protect their patents. I think a lot of drug research is totally unnecessary and at least some of the drugs produced are worse if not the same as the previous generation. We had a big discussion about this in the whisky thread.

Also, his talk about comparing healthcare now and in the 1950s in order to show that we get more for our money today is suspiciously similar to the hedonistic adjustment that the US Bureau of Statistics makes to show CPI numbers way below they actually are. Standards of care in the US haven't really improved that much in the past 20 years to justify the astronomical rate of health care spend growth. Bringing the 1950s in is unnecessary. Most of this balloon was inflated in the past two decades.

[rogue]

Maybe the new program should be called "Wealth Care Reform", since it will be designed to control wealth by taking from those who have more to give to those who have less.

[ewmayer]

Originally Posted by garo

I must challenge the assertion that healthcare is not grossly overpriced in the US. Do we really need drug companies to come up with "new and improved" drugs every couple of years to protect their patents. I think a lot of drug research is totally unnecessary and at least some of the drugs produced are worse if not the same as the previous generation. We had a big discussion about this in the whisky thread.

I expect the "new and improved" formulations (e.g. Ambien CR, a time-release version of the now-generic Ambien sleep medication) cost far less than the initial drug development does, but yes, overprescription of drugs of all kinds (think of the % of TV commercials for prescription drugs these days) is at least as big a problem as overuse of diagnostic tests. But I have little confidence in a government-run program which effectively addresses these problems, based on e.g. the AARP-pushed Medicare prescription drug benefit, which is experiencing exploding costs and has built-in provisions which appear to have been written by pharmaceutical industry lobbyists - oh wait, it *was* written by pharmaceutical industry lobbyists masquerading as U.S. lawmakers:

By the design of the program, the federal government is not permitted to negotiate prices of drugs with the drug companies, as federal agencies do in other programs. The Veterans Administration, which is allowed to negotiate drug prices and establish a formulary, pays 58% less for drugs, on average, than Medicare Part D.[31] For example, Medicare pays $785 for a year's supply of Lipitor (atorvastatin), while the VA pays $520. Medicare pays $1,485 for Zocor, while the VA pays $127. Former Congressman Billy Tauzin, R-La., who steered the bill through the House, retired soon after and took a $2 million a year job as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the main industry lobbying group. Medicare boss Thomas Scully, who threatened to fire Medicare Chief Actuary Richard Foster if he reported how much the bill would actually cost, was negotiating for a new job as a pharmaceutical lobbyist as the bill was working through Congress.[32][33]

In response, the Manhattan Institute, a free-market think tank funded in part by pharmaceutical companies,[citation needed] issued a report by Frank Lichtenberg, a business professor at Columbia University, that said the VA National Formulary excludes many new drugs. Only 38% of drugs approved in the 1990s and 19% of the drugs approved since 2000 are on the formulary. He also argues that the life expectancy of veterans "may have declined" as a result.[34] However, Lichtenberg has not published these results in the peer-reviewed medical literature.[35]

Paul Krugman came to the opposite conclusion, by comparing patients in the Medicare Advantage plans, which are administered by private contractors with a subsidy of 11% over traditional Medicare, to the VA system. Mortality rates in Medicare Advantage plans are 40% higher than mortality of elderly veterans treated by the V.A., said Krugman, citing the Medicare Payment Advisory Commission.[36]

Originally Posted by garo

Also, his talk about comparing healthcare now and in the 1950s in order to show that we get more for our money today is suspiciously similar to the hedonistic adjustment that the US Bureau of Statistics makes to show CPI numbers way below they actually are. Standards of care in the US haven't really improved that much in the past 20 years to justify the astronomical rate of health care spend growth. Bringing the 1950s in is unnecessary. Most of this balloon was inflated in the past two decades.

Ahem, it's "hedonic adjustments" ... and I'd like to see some data backing up your "standards of care" assertion - for instance survival rates of cancer and heart disease patients. It might be true, but show us the numbers.

[AES]

The current legislation pertains to health care INSURANCE. AFIK, it contains no provisions to lower the cost of the provided services.

Maybe Congress should examine the mandates placed on insurance providers, tax laws pertaining to doctors claiming unpaid bills as losses, and legislation to deter addicts from visiting emergency centers in search of narcotics. They could also address the tort reform that psysicitans have been screaming about for years.

[__HRB__]

Proponents of public health care could argue that economies of scale will make health care more efficient, since there will be more demand if, e.g. health insurance is mandatory, but this means reducing overall competition, since health care providers are in competition with all other providers of consumable goods.

For example, you can either buy medicine to reduce your blood-pressure or buy a faster computer to find primes. Which of the two you should choose, depends completely on your personal preferences, not on what society thinks you should consume.

Q: Is increasing the probability of living longer worth more or less than increasing the probability of finding a record prime?

A: It depends!

But the real deal-breakers are the pseudo-scientific arguments proponents of public health care employ to achieve a re-distribution of resources from the two minorities 'the wealthy' and 'the yet-to-be-born' (public budgets have a strong bias to eventually be financed by debt and hoping that everybody is dead when the minimum payments have to be made):

Since a person can be excluded from consuming health care he doesn't pay for, health care is not a http://en.wikipedia.org/wiki/Public_good.

Here's Samuelson's paper on The Pure Theory of Public Expenditure
http://www.ses.unam.mx/docencia/2007..._Samuelson.pdf

The proponents of public health care are essentially assuming that every $ spent on health care represents a $ in several citizens utility function, which is factual nonsense since several people cannot take the same pill/use an OR at the same time.

[cheesehead]

Originally Posted by AES

They could also address the tort reform that psysicitans have been screaming about for years.

Will you please explain at more length what tort reform you mean?

Here in Wisconsin there was tort reform about 20 years ago. As a result, when a doctor committed malpractice on me, I learned that the maximum award I could receive if I sued for malpractice was to recover my out-of-pocket costs (but not court costs!) -- no punitive damages award at all to motivate that doctor to change his ways.

Is that the sort of tort reform you mean? I'm sure physicians would scream to have that sort of tort reform, but that doesn't mean it was a good idea if you're a patient of an incompetent doctor.

[AES]

Originally Posted by cheesehead

Will you please explain at more length what tort reform you mean?
[...]

Any or all reforms that are legal and could reduce the liability for legal fees when physicians are found not liable for medical malpractice should at least be considered. I have no specific agenda in the matter. I just think it should be considered by lawmakers.

IMO, family law needs reform as well. It has grown to weaponizing children against their parents after the true contractual details have been settled in a divorce.