CBO: Obamacare costs revised downward, again. Finds lower than expected premiums.

[sunmaster14]

This is one of those topics that makes me have to check my fiscal conservative card. I'm all for making a profit. I'm all for capitalism (I believe it's a more efficient and responsive economy than any other currently described). But I'm not for exploitation.

What exploitation? Exploitation involves coercion rather than allowing voluntary choices. For example, I think there is a coercive element in getting somebody addicted to a drug and then jacking up the price once they're hooked. But creating a new drug and pricing it high is not exploitation. People have more options than they did before the drug was invented. It is often a choice as to whether or not to pay for it. Even for poor people, expensive drugs are usually within reach if they're willing to forego other luxuries and make the right decisions.

A lot of the profiteering in the medical industry is just that - exploitation. Yes, profit leads to innovation - capital is necessary to allow for an increased risk appetite. Excessive profit, in my opinion, tends to lead to exploitation. It leads companies to develop treatments but not cures. It leads them to price life-saving treatments at a level that guarantees a large number will die... then leverages the onus of their deaths to spread the cost-burden of their exorbitant pricing across society because insurance companies simply cannot deny access to life saving treatment solely because of cost. Of course, that means that a large number of people who don't have insurance, or who have very lean benefits, die anyway because the costs are ridiculous. But hey - they get to make their profit so it's all good.

What you call profiteering or exploitation, I might call price discrimination. It is often the case that there are limited resources, and some type of rationing is necessary. You can ration by government bureaucrats (as in Britain) or you can ration by waiting time (as in Canada to a larger extent), or you can ration by price. Rationing by price not only maximizes utility overall, but it incentivizes the production of more resources.

When the companies doing the innovating are making 25% to 35% profit margins consistently, after having accounted for contributions to R&D, there's something wrong.

Profit margin is a completely meaningless measure for comparing companies across different industries. It is marginally useful for comparing companies within the same industry. I have no idea if 25% to 35% is too high, or even compared to what. Actually, the profit margins for the big pharma companies is more like 18-20%, which is comparable to Apple. Regardless, it is a meaningless measure and is completely devoid of any ethical or moral implications. What do you think J. K. Rowling's profit margin was for writing Harry Potter books?

Then I feel like a dirty commie or something and I have to go wash my brain out.

Well, I don't think it's a question of dirty ideas, but rather a lack of knowledge. The pharmaceutical industry is a highly competitive and free market. If companies were earning such fantastic risk-adjusted returns on capital, more investors would enter the space, which would reduce those risk-adjusted returns. Actually, I just found a pharmaceutical company index on Bloomberg. Since the beginning of 2000 until the end of last month, the average annual return has been 5.03%, with dividends reinvested in the index, and only 3.92% with no reinvesting. That's hardly anything to write home about, especially given how risky the sector is (just ask shareholders in Valeant Pharmaceuticals).

 

[jimbob]

In the UK, NICE do it with the QALY


It's not perfect, and there are sometimes newspaper stories of outraged relatives angry that their mum/child/grandparent is on the wrong side of the line (it's not framed that way, of course). The line sometimes moves in response, I believe.

Yes and my sig... slightly out of date now shows the efficiency in the NHS

 

[sunmaster14]

I agree that my costs are subsidized by my employer and the government, but even then, and you can look this up, the total health care expenditure per capita, including what the government spends, what employers spend and what individuals spend, is less than half what the USA spends. And the people live longer too.

Asian-Americans live longer than Asians or Japanese. There is strong evidence that the relatively low life expectancy of Americans is not due to a poorly functioning health care system.

(snipped for brevity)

Well middlemen might be a bit of an oversimplification, but in fact, as I stated above Japan does spend less than half what the USA does (per capita). If you look at it as a ratio to GDP, Japan's is 10.1% to 17.1% in the United States. And the median person here is older. Because their system is much more logical and economically rational that that in the USA.

Maybe, maybe not. My guess is that genetics, culture, and, in particular, diet have a great deal to do with the difference in spending. We have an obesity epidemic in the US, and that causes all kinds of expensive health problems. I can't see any reason why the health care system bears any responsibility for obesity, although it does bear the cost of it.

<snip>

Other countries control the cost of pharmaceuticals. You don't have these sociopaths like Shkreli jacking up the prices by 5000% just because they can.

Shkreli, and people like him, do not contribute materially to our high health care costs. The biggest driver is the lack of direct incentive for the ultimate health care consumer to curtail his spending.

 

[sunmaster14]

Yes and my sig... slightly out of date now shows the efficiency in the NHS

And oranges are easier to peel than apples. Therefore, they have superior efficiency.

 

[jimbob]

And oranges are easier to peel than apples. Therefore, they have superior efficiency.

Maybe, but given that the US governmental health care systems are far from universal, it's pretty poor that in
2011, 8.5% of US GDP was spent on healthcare via taxes compared to 7.8% in the UK.

The US model has massive inefficiencies compared to the systems in other wealthy countries. Many of which are insurance-based.

 

[sunmaster14]

Maybe, but given that the US governmental health care systems are far from universal, it's pretty poor that in
2011, 8.5% of US GDP was spent on healthcare via taxes compared to 7.8% in the UK.

The US model has massive inefficiencies compared to the systems in other wealthy countries. Many of which are insurance-based.

We have a much higher GDP per capita too, so we're clearly spending a lot more money per capita on health care than the UK is. How much of that is due to inefficiency is unclear. Certainly a lot of it has to do with the fact that US taxpayers and consumers are footing the lion's share of the bill for medical R&D. You guys, with your government controlled prices and artificially restricted demand, are getting a free ride. A little gratitude would be nice, but I'm not holding my breath.

 

[twinstead]

We have a much higher GDP per capita too, so we're clearly spending a lot more money per capita on health care than the UK is. How much of that is due to inefficiency is unclear. Certainly a lot of it has to do with the fact that US taxpayers and consumers are footing the lion's share of the bill for medical R&D. You guys, with your government controlled prices and artificially restricted demand, are getting a free ride. A little gratitude would be nice, but I'm not holding my breath.

You can spin it any way you want, but Americans are paying WAY too much money for healthcare. You can spend all the time you want rationalizing it and blaming other countries because of their "free ride", but IMO what most Americans want is a solution, not excuses.

 

[jimbob]

The supposed free ride incudes allowing our healthcare providers to use their bulk buying power to negotiate good prices with the drugs companies as opposed to preventing this with legislation.

It also includes not spending about 30% on administration and marketing.

 

[jimbob]

when I am not on my phone I will have a look for my sources

 

[mikado]

I would imagine the U.S. being the U.S. factors into things too. Japanese people are overall skinnier and eat healthier than Americans. Plus, the government (I believe) owns the tobacco companies, so the same entity who provides healthcare also profits from those who smoke. I believe these nuances in other societies make a difference when it comes to government run healthcare.

I've also stated in other threads that physicians in other countries do not have to go hundreds of thousands of dollars into debt to complete med school. Who is going to do that only to come out and be paid Medicare rates?

wonder what countries that is? most would have to have a significant debt.

reading this thread makes me so grateful for the health care system we have in Australia.

and yet when you tell an American about it, they almost make the sign of the cross and start muttering about the evils of socialised medicine.

I always say, NO just decent and ethical medical care for taxpayers and citizens.

 

[sunmaster14]

You can spin it any way you want, but Americans are paying WAY too much money for healthcare. You can spend all the time you want rationalizing it and blaming other countries because of their "free ride", but IMO what most Americans want is a solution, not excuses.

Well, you can't really formulate an effective solution until you understand the problem. For example, one way to reduce our health care costs is to say to drug and medical device companies "you are not allowed to sell your product in other countries for lower than you sell your product in the US." That will prevent other countries from free-riding off of the US market. In some cases, it will mean more people die in those countries, but in some cases, those countries will be forced to pay up and actually help to defray their fair share of R&D costs.

 

[sunmaster14]

The supposed free ride incudes allowing our healthcare providers to use their bulk buying power to negotiate good prices with the drugs companies as opposed to preventing this with legislation.

Right. To somebody who understands economics, that's called getting a free ride. If the US did the same thing, investments in medical R&D would dry up because investors would know that, even in the unlikely event they create a blockbuster drug, their profit would be constrained by politics.

It also includes not spending about 30% on administration and marketing.

Administration and marketing is the cost of having a free market with competition. You could say the same thing about other areas of the economy. A lot of money could be saved if we only had one car company, or one computer software company, or one smartphone company. Think about all of the duplicated effort in creating iOS and Android. Or Apple OS and Windows. The average corporation in the developed world spends over 10% of revenues on sales and marketing. Microsoft spends close to 20%. Marketing is an important part of a free market. It seems like a waste of resources, but it both informs the consumer and provides a platform for competition. In fact, studies have shown that in markets where advertising is restricted, prices are higher than in markets where advertising isn't restricted (in apples to apples comparisons).

 

[twinstead]

Well, you can't really formulate an effective solution until you understand the problem. For example, one way to reduce our health care costs is to say to drug and medical device companies "you are not allowed to sell your product in other countries for lower than you sell your product in the US." That will prevent other countries from free-riding off of the US market. In some cases, it will mean more people die in those countries, but in some cases, those countries will be forced to pay up and actually help to defray their fair share of R&D costs.

Some people suspect that companies are including things in "R&D costs" that shouldn't be there. This was an interesting article about that kind of stuff.

 

[sunmaster14]

Some people suspect that companies are including things in "R&D costs" that shouldn't be there. This was an interesting article about that kind of stuff.

Did you read the reply from the author of the Forbes article that was being criticized? It seems to me he had the much better argument. The merger and acquisition data in the pharmaceutical market tell the true story. You can see how much the big companies expect to pay for R&D by seeing how much they are willing to pay for startup companies, or larger companies with promising drugs coming through the pipeline.

Here is an example of a new startup close to me. The company is essentially starting from scratch to develop a new idea for cancer immunotherapy, yet it is getting $55 million of venture capital financing. They'll blow through that pretty quickly and have to come back for more within a couple of years. If they're moderately successful, they'll be acquired for $1-2 billion by a big pharmaceutical company, which will then spend hundreds of millions more dollars (or billions) pushing the product through the last clinical trials and then to market.

 

[Emily's Cat]

I'm sure you are an expert in your field, I don't question that, but from the perspective of keeping costs under control, the USA's system is demonstrably the worst, and Obamacare was like a bandaid when the patient needs a tourniquet.

Lol, ACA wasn't even a band-aid. At least a band-aid has the possibility of stanching blood-flow if it's not too big a scratch. ACA has absolutely nothing in it which addresses cost. Not one thing. There's a v ague hand-wavey assumption that somehow a new and different kind of thing that's almost exactly like an early 80s HMO only more restrictive will magically result in costs being lower because reasons.

But not a single thing in that bill addresses actual cost.

And yes, USA's approach to cost control (which is none at all and a free-for-all with patents to boot) is probably the worst possible way to go about it.

That however, isn't explicitly caused by middlemen . It's caused by perfectly rational things like Medicare being forbidden by law from negotiating drug prices with manufacturers on behalf of Medicare patients.





+++++
This is me being sarcastic. I know I don't do it particularly well, thus the explanation.

 

[Emily's Cat]

Clearly? Not, it wasn't clearly tongue in cheek.



Yes, it does. And the alternative to profit-driven industry is one where new cures aren't developed as quickly, leading to more deaths in the long run.



Why not?



The former, obviously. Again, the comparison only makes sense if we have some say in the matter, which means we can affect whether or not the planet gets smashed by an asteroid. If we cannot affect whether the planet gets smashed by an asteroid, then there cannot be an ethical evaluation of the situation. Ethics simply isn't relevant in any situation where choice plays no role.

Ziggurat, you might consider doing a bit of reading on what constitutes ethics.

 

[Emily's Cat]

Isn't being charged a lot to not die still preferable to not being able to buy the drug at any price?

Isn't signing over your entire life savings in order to not be killed preferable to not being able to not be killed at any price?

Core concepts:
Coercion
Exploitation
Ethics

For a start, at least.

 

[Ziggurat]

Ziggurat, you might consider doing a bit of reading on what constitutes ethics.

And this reading is supposed to tell me how ethics is relevant to situations where you have no choice and can do nothing?

 

[jimbob]

We have a much higher GDP per capita too, so we're clearly spending a lot more money per capita on health care than the UK is. How much of that is due to inefficiency is unclear. Certainly a lot of it has to do with the fact that US taxpayers and consumers are footing the lion's share of the bill for medical R&D. You guys, with your government controlled prices and artificially restricted demand, are getting a free ride. A little gratitude would be nice, but I'm not holding my breath.

Not true - the NHS negotiate bulk discounts as a large customer, but private medical care is available here.

The supposed free ride incudes allowing our healthcare providers to use their bulk buying power to negotiate good prices with the drugs companies as opposed to preventing this with legislation.

Right. To somebody who understands economics, that's called getting a free ride. If the US did the same thing, investments in medical R&D would dry up because investors would know that, even in the unlikely event they create a blockbuster drug, their profit would be constrained by politics.

It also includes not spending about 30% on administration and marketing.

Administration and marketing is the cost of having a free market with competition. You could say the same thing about other areas of the economy. A lot of money could be saved if we only had one car company, or one computer software company, or one smartphone company. Think about all of the duplicated effort in creating iOS and Android. Or Apple OS and Windows. The average corporation in the developed world spends over 10% of revenues on sales and marketing. Microsoft spends close to 20%. Marketing is an important part of a free market. It seems like a waste of resources, but it both informs the consumer and provides a platform for competition. In fact, studies have shown that in markets where advertising is restricted, prices are higher than in markets where advertising isn't restricted (in apples to apples comparisons).

Are private healthcare providers getting a free ride when they negotiate bulk discounts?

All the NHS (and the healthcare providers in other rich countries are doing) is using the fact that they are large customers to negotiate a good deal.

Here's a paper detailing some of the US inefficiencies:

http://www.ncbi.nlm.nih.gov/pubmed/15088673

Abstract

A decade ago, U.S. health administration costs greatly exceeded Canada's. Have the computerization of billing and the adoption of a more business-like approach to care cut administrative costs? For the United States and Canada, the authors calculated the 1999 administrative costs of health insurers, employers' health benefit programs, hospitals, practitioners' offices, nursing homes, and home care agencies; they analyzed published data, surveys of physicians, employment data, and detailed cost reports filed by hospitals, nursing homes, and home care agencies; they used census surveys to explore time trends in administrative employment in health care settings. Health administration costs totaled at least dollar 294.3 billion, dollar 1,059 per capita, in the United States vs. dollar 9.4 billion, dollar 307 per capita, in Canada. After exclusions, health administration accounted for 31.0 percent of U.S. health expenditures vs. 16.7 percent of Canadian. Canada's national health insurance program had an overhead of 1.3 percent, but overhead among Canada's private insurers was higher than in the U.S.: 13.2 vs. 11.7 percent. Providers' administrative costs were far lower in Canada. Between 1969 and 1999 administrative workers' share of the U.S. health labor force grew from 18.2 to 27.3 percent; in Canada it grew from 16.0 percent in 1971 to 19.1 percent in 1996. Reducing U.S. administrative costs to Canadian levels would save at least dollar 209 billion annually, enough to fund universal coverage.
PMID: 15088673 [PubMed - indexed for MEDLINE]

And an editorial from the CMAJ about this subject - interesting because Canada moved away form a very similar system to the US and its costs diverged at that time:

http://www.cmaj.ca/content/179/9/916.full

Lol, ACA wasn't even a band-aid. At least a band-aid has the possibility of stanching blood-flow if it's not too big a scratch. ACA has absolutely nothing in it which addresses cost. Not one thing. There's a v ague hand-wavey assumption that somehow a new and different kind of thing that's almost exactly like an early 80s HMO only more restrictive will magically result in costs being lower because reasons.
But not a single thing in that bill addresses actual cost.

And yes, USA's approach to cost control (which is none at all and a free-for-all with patents to boot) is probably the worst possible way to go about it.

That however, isn't explicitly caused by middlemen . It's caused by perfectly rational things like Medicare being forbidden by law from negotiating drug prices with manufacturers on behalf of Medicare patients.





+++++
This is me being sarcastic. I know I don't do it particularly well, thus the explanation.

Yes

 

[Wudang]

Certainly a lot of it has to do with the fact that US taxpayers and consumers are footing the lion's share of the bill for medical R&D.

Evidence?