Obamacare 5 years later. Crow, anyone?

[Architect]

No, it is not free market economics for an entire country to negotiate a single price. How would you distinguish that from Communism, where a central bureaucracy sets prices? Free markets refers to delegating purchase decisions to as low a level as possible, so that the prices are as close to weighted averages of individual preferences as possible. In a free market, there would be continuous supply and demand curves. If the price of Gleevac were $40,000 per person per year, there would still be significant demand for it in the UK. The way it is now, the government forces demand to be zero.

Well for a start, you need to be aware that each of the UK home nations have different versions of NHS, which in turn take their own views on costs.

So, for example, the Scottish Medicines Consortium uses the Detailed Advice Document as a basis for comparison between competitor products . In England (and I suspect Wales) there are seperate negotiating instruments which it think involve both statutory and voluntary schemes.

On that basis, it is already being deal with at a comparatively local level. Moreover in terms of "customer base", NHS Scotland only deals with some 5.5m people. I would suggest to you that this is likely to be of an order comparable to private sector purchasers (i.e. healthcare insurers) in the US.

You also overlook the fact that there is a seperate private sector health industry here in the UK which would not be subject to any restrictions imposed by negotiation (or statute, if that were the way of it) re: the NHS.

Incidentally Imatinib (Glivec) is accepted for restricted use within NHS Scotland. I have no idea about England as I don't live there.

 

[twinstead]

No, the effect of the US paying high prices is not so much that other countries can pay low prices. It is that the effect of the US paying high prices incentivizes drug companies to invest in more R&D. If the US started paying artificially lower prices, investment in R&D would diminish, and the whole world would suffer, Americans included.

Personally the thought that I am paying through the nose for medical care so the drug companies can make enough money to give them incentive to invest in R&D (and make massive profits because they can then charge more for the new products because they need money to develop new products) isn't very comforting.

We pay more to allow them to develop more stuff that we have to pay more for? And, if we don't keep paying through the nose for medical care the whole world will suffer?

 

[sunmaster14]

Personally the thought that I am paying through the nose for medical care so the drug companies can make enough money to give them incentive to invest in R&D (and make massive profits because they can then charge more for the new products because they need money to develop new products) isn't very comforting.

We pay more to allow them to develop more stuff that we have to pay more for? And, if we don't keep paying through the nose for medical care the whole world will suffer?

Well, if we had a more free market system, then you could always decide for yourself how much you were willing to pay for any particular drug (or for any particular formulary when you are purchasing health insurance). Your discomfort though probably comes from the very human cognitive bias of taking things for granted.

For example, most people think that the price of Gleevac, which two years ago was about $90,000 per year (it is partially coming off patent this year in the US, so the price has probably dropped dramatically), is ridiculously high. But that price is a bargain compared to what the price was 20 years ago. N.B. That price was infinite.

 

[twinstead]

Well, if we had a more free market system, then you could always decide for yourself how much you were willing to pay for any particular drug (or for any particular formulary when you are purchasing health insurance). Your discomfort though probably comes from the very human cognitive bias of taking things for granted.

In other words in a more free market system, I would decide how much I was willing to pay for any particular drug, and if I couldn't afford it I'd just have to do without?

 

[DavidJames]

In other words in a more free market system, I would decide how much I was willing to pay for any particular drug, and if I couldn't afford it I'd just have to do without?

well duh...but you should get some comfort in knowing your (and millions others) death will ultimately result in another savvy capitalist recognizing the demand for a lower cost drug and starting the decades long process of R&D which will ultimately save the lives of your children. (assumes of course you lived long enough to reproduce).

 

[sunmaster14]

In other words in a more free market system, I would decide how much I was willing to pay for any particular drug, and if I couldn't afford it I'd just have to do without?

Right. Although in reality, you would probably be deciding whether to pay a higher premium for an insurance plan that had that drug in its formulary. Of course, you would have to make that decision before you knew you needed the drug.

No doubt this offends your sense of morality, but people are forced to choose between life/health/safety and money all the time, and they usually never even think twice about it.

 

[Nihilianth]

If the price of Gleevac were $40,000 per person per year, there would still be significant demand for it in the UK. The way it is now, the government forces demand to be zero.

Which tells me that it is a completely unnecessary drug, that you want snake oils salesmen to pressure doctors to push on unsuspecting patients.

Thing is, it is still being used in the UK very selectively. So obviously, the demand isn't "ZERO."

The government can also negotiate a much more affordable price than 40k! And how is collectivization for negotiating purposes "communism?" I don;t even know why you are even supporting these rich-ass drug companies to begin with. Are you an investor? If so, boo f'n hoo! The people have the "right to assemble." Meaning, they have the right to get together in groups. They also have the right to get together and negotiate for things. In this case with the national government, the people have the right to get the feds to negotiate collectively for them.

There is nothing more "free" than that! If you are saying that this cannot or should not be done, you have no sense of "freedom" whatsoever.

Oh, and "communism." I don't think that means what you think it means.

 

[Nihilianth]

Right. Although in reality, you would probably be deciding whether to pay a higher premium for an insurance plan that had that drug in its formulary. Of course, you would have to make that decision before you knew you needed the drug.

No doubt this offends your sense of morality, but people are forced to choose between life/health/safety and money all the time, and they usually never even think twice about it.

<SNIP>

Edited by jsfisher: 

Membership Agreement violation removed.

Sorry, but that is not how "freedom" works. Here in the USA, you have the right to "life, liberty, and the pursuit of happiness."

You have the right to life! Someone else has the right to make profits. One right is trumping another right. The way this works here in the USA, the right that is deemed more essential to society is the right that "wins out."

Example: You have the right to free speech, but the public has the right to be safe when going out for the evening.

Your right to freedom of speech does not trump the public's right to safely attend an event at a theater. Yelling "fire" will end you up with a fine. You are telling a dangerous lie. You do not have that right.

Therefore, one CEO or companie's right to reap huge profits off of people's health, does not trump the right of the public access to the best healthcare. Not to mention, the people have the both right to petition government, and to organize for better benefits.

You're system of "total capitalism," restricting the peoples' right to organize, borders on totalitarianism. (Yes, I will accuse you of being a totalitarian, because you are accusing this of being "communist.")

 

[sunmaster14]

Which tells me that it is a completely unnecessary drug, that you want snake oils salesmen to pressure doctors to push on unsuspecting patients.

I don't quite follow you here. Gleevec's efficacy is not in question in the slightest. The controversy is about its exorbitant price.

Thing is, it is still being used in the UK very selectively. So obviously, the demand isn't "ZERO."

Right, but the UK (or rather the NHS in each individual country, as Architect pointed out) bottlenecks demand in order to negotiate a better price with the manufacturer. For example, it's quite possible that the vast majority of the English population would be willing to pay an extra few pounds in taxes per year in order to add Gleevec to the formulary without restrictions. But there is no market mechanism to see if that is true. Instead, a handful of bureaucrats decide what the English people, collectively, are willing to pay. And, maybe, after a few years, the political process causes adjustments to that price to be made. But the political process hardly maximizes utility as quickly and efficiently as a free market mechanism would.

The government can also negotiate a much more affordable price than 40k! And how is collectivization for negotiating purposes "communism?"

And how is the government setting the price different from communism? You can call it a "negotiation," but no doubt in the Soviet Union there was some negotiation between industry and the government as to what the proper prices were for various products. The bottom line, however, is when you have a monopsony (i.e. a monopoly buyer), you don't have a free market, and the price is determined by something other than a weighted average of millions of individual preferences. One of the reasons that communism doesn't work is that it is virtually impossible for a centralized bureaucracy to get the "price" right. The free market does a better job.

For your further education, which you desperately need, I refer you to this wonderful lecture by Milton Friedman about the price of a pencil.

I don;t even know why you are even supporting these rich-ass drug companies to begin with. Are you an investor? If so, boo f'n hoo! The people have the "right to assemble." Meaning, they have the right to get together in groups. They also have the right to get together and negotiate for things. In this case with the national government, the people have the right to get the feds to negotiate collectively for them.

I didn't consent to the government negotiating on my behalf. Do I have the right to withdraw from this assembly?

There is nothing more "free" than that! If you are saying that this cannot or should not be done, you have no sense of "freedom" whatsoever.

Oh, and "communism." I don't think that means what you think it means.

I'm still waiting for your answer as to what it is about communism that you don't think works. Why don't you want the government to negotiate the price of oil or of computer memory chips or flat panel displays or various parts of a car?

 

[sunmaster14]

You're completely insane, you know that?

Sorry, but that is not how "freedom" works. Here in the USA, you have the right to "life, liberty, and the pursuit of happiness."

You have the right to life! Someone else has the right to make profits. One right is trumping another right. The way this works here in the USA, the right that is deemed more essential to society is the right that "wins out."

Example: You have the right to free speech, but the public has the right to be safe when going out for the evening.

Your right to freedom of speech does not trump the public's right to safely attend an event at a theater. Yelling "fire" will end you up with a fine. You are telling a dangerous lie. You do not have that right.

Therefore, one CEO or companie's right to reap huge profits off of people's health, does not trump the right of the public access to the best healthcare. Not to mention, the people have the both right to petition government, and to organize for better benefits.

You're system of "total capitalism," restricting the peoples' right to organize, borders on totalitarianism. (Yes, I will accuse you of being a totalitarian, because you are accusing this of being "communist.")

I haven't tried to make a moral argument in favor of property rights and free markets, only a utilitarian one. I think that adhering to free market principles will maximize utility overall and over time.

However, I'd like to explore your moral argument. This is actually based on a true story that happened to a friend of mine. This friend found out he had pancreatic cancer and his only hope for survival was to have something called a Whipple procedure, which is an extremely complicated surgery that only a handful of surgeons in the world were qualified to do (at least at the time, which was 15 years ago). Time was of the essence, but the foremost expert in the world, who was at Sloan-Kettering was going on vacation for two weeks. My friend had to wait until he got back. As it turns out, when the surgery actually happened, they realized that the cancer had spread, so they just closed him up and gave him 4 months to live (which was pretty accurate). Now, I'm not saying my friend would have been saved if the surgeon had canceled his vacation, but clearly there was a non-zero probability he would have been. Do you think the surgeon had an obligation to cancel his vacation? Did my friend's right to life (or rather a higher chance at life) trump the doctor's right to take a vacation?

This is not just some crazy example. Every medical service that you consume involves taking somebody else's property or labor. If you have the government do that for you in an exchange (presumably for monetary compensation) that that person would not willingly accept, then you are exploiting that person. Where would you draw the line? Would you enslave a doctor in order to save your own life?

 

[Border Reiver]

I haven't tried to make a moral argument in favor of property rights and free markets, only a utilitarian one. I think that adhering to free market principles will maximize utility overall and over time.

However, I'd like to explore your moral argument. This is actually based on a true story that happened to a friend of mine. This friend found out he had pancreatic cancer and his only hope for survival was to have something called a Whipple procedure, which is an extremely complicated surgery that only a handful of surgeons in the world were qualified to do (at least at the time, which was 15 years ago). Time was of the essence, but the foremost expert in the world, who was at Sloan-Kettering was going on vacation for two weeks. My friend had to wait until he got back. As it turns out, when the surgery actually happened, they realized that the cancer had spread, so they just closed him up and gave him 4 months to live (which was pretty accurate). Now, I'm not saying my friend would have been saved if the surgeon had canceled his vacation, but clearly there was a non-zero probability he would have been. Do you think the surgeon had an obligation to cancel his vacation? Did my friend's right to life (or rather a higher chance at life) trump the doctor's right to take a vacation?

This is not just some crazy example. Every medical service that you consume involves taking somebody else's property or labor. If you have the government do that for you in an exchange (presumably for monetary compensation) that that person would not willingly accept, then you are exploiting that person. Where would you draw the line? Would you enslave a doctor in order to save your own life?

How does a government run healthcare system "enslave" doctors?

In Canada doctors are either:

a. employed by the hospitals which recieve their funding from the provincial governments;
b. in private practice, meaning they bill the provincial government based on a fee schedule set by the province; or
c. generally in private practice, but have privileges at hospitals (and are therefore a blend of the two).

All that system does is ensure that doctors are paid for services rendered, it does not compel them to surrender their vacations to perform services.

 

[Architect]

For example, it's quite possible that the vast majority of the English population would be willing to pay an extra few pounds in taxes per year in order to add Gleevec to the formulary without restrictions. But there is no market mechanism to see if that is true. Instead, a handful of bureaucrats decide what the English people, collectively, are willing to pay. And, maybe, after a few years, the political process causes adjustments to that price to be made. But the political process hardly maximizes utility as quickly and efficiently as a free market mechanism would.



And how is the government setting the price different from communism? You can call it a "negotiation," but no doubt in the Soviet Union there was some negotiation between industry and the government as to what the proper prices were for various products. The bottom line, however, is when you have a monopsony....snip

But the NHS isn't a monopoly. There is a private UK health sector. People can pay extra, if they choose.

As an aside, NHS Scotland do offer the Whipple Procedure.

 

[sunmaster14]

How does a government run healthcare system "enslave" doctors?

In Canada doctors are either:

a. employed by the hospitals which recieve their funding from the provincial governments;
b. in private practice, meaning they bill the provincial government based on a fee schedule set by the province; or
c. generally in private practice, but have privileges at hospitals (and are therefore a blend of the two).

All that system does is ensure that doctors are paid for services rendered, it does not compel them to surrender their vacations to perform services.

I wasn't arguing that it does. I just wanted to explore Nihilianth's idea that there is some sort of right to life that is being violated if we don't provide whatever is needed to a sick person. I think, for example, your right to life has been infringed if somebody fatally stabs you or shoots you when you are just minding your own business. I don't think your right to life has been infringed however just because somebody refuses to give you something you require to survive. Even so-called Duty to Rescue Laws impose very minor obligations and have very minor penalties in most jurisdictions.

 

[Francesca R]

I really don't understand this point about early adopters benefiting from the willingness of others to be late adopters. I can see that happening in the case of new technologies which are production limited (e.g. the Apple watch), but how does it work in the case of new drugs?

Well I can't prove it but the idea is that one needs differential compensation (rather than a certain absolute level) to be motivated in many walks of life. Including inventing new drugs. Reasonable people may disagree. To use Henry Ford's example (which almost everyone misuses in my view), he would not have been able to achieve higher worker productivity--or at least would have achieved much less of it--if every auto maker had matched his increase in wages. Ford benefited because other firms didn't copy. Perhaps the car industry even benefited because others didn't follow. In a broader sense, inequality is a net force for goodness--at least up to some level. I don't think this is controversial at all myself. A pharma industry where every buyer pays the same would be a more mediocre one across many levels.

The cost differential today can't have anything to do with the speed of adoption. It almost certainly has to do with the willingness of the UK to deny the drug to some of its citizens.

This runs directly counter to your idea that the US is "subsidising" other countries, not sure if you appreciated that. More towards my suggestion that the "subsidy" is actually a small part of the cost differential.

By the way I agree that the UK (and UHS countries in general, and Obamacare) deny stuff. I care not if you call it rationing. You can even call it "death panels". It's real enough. And a moment's thought should reveal that universal health insurance could never and should never be unbounded--that would be utterly stupid. It is a nonsensical criticism (IE not a criticism) that universal health insurance denies some cover.

 

[Francesca R]

I don't think you understand what volatility is, since volatility is usually matched to a particular time period your point makes no sense.

Standard deviation of percent changes, often annualised.

What are health care costs "highly positively correlated" to?

Other individuals' health care costs.

I know exactly what these mean.

 

[sunmaster14]

But the NHS isn't a monopoly. There is a private UK health sector. People can pay extra, if they choose.

Yes, I know. And all of the people I know who can afford it think it's great. Definitely much closer to a free market than the US system. I haven't heard anything about the relative prices for drugs in that system though. I've only seen data for what the NHS pays.

As an aside, NHS Scotland do offer the Whipple Procedure.

Well, my point was that it's a surgical technique which is so difficult that there are huge differences in mortality rates between experienced surgeons (who are very rare) and not-so-experienced surgeons. When an experienced surgeon goes on vacation, he is necessarily raising the probability of death for anybody in need of the surgery at that time. And yet it is untenable to impose an obligation on him to value somebody else's right to life above his own leisure time.

 

[Francesca R]

Yes, I know. And all of the people I know who can afford it think it's great.

I can afford it but don't think it is good value insurance so I don't buy it. It gets better value if you have a large corporation buying insurance and passing it on to employees as a benefit in kind, but that is right back to the collective bargaining you are complaining about. (I don't know why, very few markets are competitive enough so that nobody has or can have any bargaining power, health insurance certainly isn't one. Anywhere. So why hand all the bargaining power to sellers and strip buyers of it?)

Incidentally most folks who do have private top-up insurance do get it as a job benefit and lack an option to take cash instead, which skews their decision and their appreciation of the value in a distinctly non free way. Off the shelf individual policies are generally considerably pricier (than the value of these benefits in kind) for the same cover.

 

[sunmaster14]

Well I can't prove it but the idea is that one needs differential compensation (rather than a certain absolute level) to be motivated in many walks of life. Including inventing new drugs. Reasonable people may disagree. To use Henry Ford's example (which almost everyone misuses in my view), he would not have been able to achieve higher worker productivity--or at least would have achieved much less of it--if every auto maker had matched his increase in wages. Ford benefited because other firms didn't copy. Perhaps the car industry even benefited because others didn't follow. In a broader sense, inequality is a net force for goodness--at least up to some level. I don't think this is controversial at all myself. A pharma industry where every buyer pays the same would be a more mediocre one across many levels.

I don't understand your argument here. It's the first I've heard of the Henry Ford example, but I imagine that with the highest wages, he attracted the best workers. That doesn't strike me as remarkable, nor does it strike me as relevant to selling drugs.

This runs directly counter to your idea that the US is "subsidising" other countries, not sure if you appreciated that. More towards my suggestion that the "subsidy" is actually a small part of the cost differential.

I guess I don't appreciate it. You don't think the fact that a drug company can earn such huge profits in the US incentivizes more investment in R&D? The studies I cited claim that a 1% increase in drug industry revenues corresponds to a 3% increase in R&D investment. Clearly, everybody benefits from that, but the US is paying the lion's share, and the US is not just paying a premium to be first in line.

By the way I agree that the UK (and UHS countries in general, and Obamacare) deny stuff. I care not if you call it rationing. You can even call it "death panels". It's real enough. And a moment's thought should reveal that universal health insurance could never and should never be unbounded--that would be utterly stupid. It is a nonsensical criticism (IE not a criticism) that universal health insurance denies some cover.

Healthcare has to be rationed because the demand is almost infinite, and the supply is very limited. You can ration by bureaucratic tribunal, by waiting time, or by price. A free-market system would ration by price alone, and the government run health systems ration by the other two methods. The advantages of rationing by price are two-fold:

(1) people can make optimal choices according to their individual preferences (so, for example, the couch potato who doesn't play tennis will forego surgery to repair his knee, while the avid tennis player will choose to pay for it); and

(2) the price mechanism will work to stimulate supply for those health related goods and services for which there is an increase in demand.

 

[sunmaster14]

I can afford it but don't think it is good value insurance so I don't buy it. It gets better value if you have a large corporation buying insurance and passing it on to employees as a benefit in kind, but that is right back to the collective bargaining you are complaining about. (I don't know why, very few markets are competitive enough so that nobody has or can have any bargaining power, health insurance certainly isn't one. Anywhere. So why hand all the bargaining power to sellers and strip buyers of it?)

Incidentally most folks who do have private top-up insurance do get it as a job benefit and lack an option to take cash instead, which skews their decision and their appreciation of the value in a distinctly non free way. Off the shelf individual policies are generally considerably pricier (than the value of these benefits in kind) for the same cover.

I'm certainly not against voluntary collective bargaining. I don't think tying health insurance to employment makes sense though. I thought it was a quirk of the US market, but apparently our insanity has spread across the pond.

As for the people I know who like the private market, they're the types for whom cost is really not a consideration. They like the fact that they're able to purchase premium services. It's actually not as easy to do in the US. The system is sort of set up to treat everybody equally, rich and poor alike, assuming they have health insurance. That's changing now. For example, I just signed up with a concierge medical office which charges me a subscription of $199 per year that I pay out of pocket (www.onemedical.com). I've been really happy with it.

 

[Emily's Cat]

But the health costs of both have common drivers, it is not that they drive each other. Same with financial assets. You just said what two of them are (age and geography)

This is clearly me lacking the right words

Underlying cost structure and age are one thing. But GIVEN all of that, if Bob experiences a high claim year (his claims end up with either higher than normal frequency or higher than normal severity or both), there is NOT CHANGE in the likelihood of Joe having higher than normal claims.

Consider that the annual claim distribution changes every year, and reflects the ages, illnesses, and doctor's charges for that year. If Bob ends up further to right on the distribution, out in the tail... that has absolutely no bearing on where Joe is likely to end up.

Bob and Joe's frequency and severity experience in a given year are NOT related to each other.