the real cost

[CaP'N GRuNGe]

The Democrats Rejoice

By DAVID BROOKS

Published: March 22, 2010

 

Parties come to embody causes. For the past 90 years or so, the Republican Party has, at its best, come to embody the cause of personal freedom and economic dynamism. For a similar period, the Democratic Party has, at its best, come to embody the cause of fairness and family security. Over the past century, they have built a welfare system, brick by brick, to guard against the injuries of fate.

 

If you grew up, as I did, with a Hubert Humphrey poster on your wall and a tradition of Democratic Party activism in your family, you recognize the Democratic DNA in the content of this bill and in the way it was passed. There was the inevitable fractiousness, the neuroticism, the petty logrolling, but also the basic concern for the vulnerable and the high idealism.

 

And there was also the faith in the grand liberal project. Democrats protected the unemployed starting with the New Deal, then the old, then the poor. Now, thanks to health care reform, millions of working families will go to bed at night knowing that they are not an illness away from financial ruin.

For apostates like me, watching this bill go through the meat grinder was like watching an old family reunion. One glimpse and you got the whole panoply of what you loved and found annoying about these people.

 

Barack Obama and Nancy Pelosi were fit to play the leading roles. They both embody the two great wings of the party, the high-minded aspirations of the educated class and the machinelike toughness of the party apparatus. Obama and Pelosi both possess the political tenaciousness that you only get if you live for government and believe ruthlessly in its possibilities. They could have scaled back their aspirations at any time but they hung tough.

Members of the Obama-Pelosi team have spent the past year on a wandering, tortuous quest — enduring the exasperating pettiness of small-minded members, hostile public opinion, just criticism and gross misinformation, a swarm of cockeyed ideas and the erroneous predictions of people like me who thought the odds were against them. For sheer resilience, they deserve the honor of posterity.

 

Yet I confess, watching all this, I feel again why I’m no longer spiritually attached to the Democratic Party. The essence of America is energy — the vibrancy of the market, the mobility of the people and the disruptive creativity of the entrepreneurs. This vibrancy grew up accidentally, out of a cocktail of religious fervor and material abundance, but it was nurtured by choice. It was nurtured by our founders, who created national capital markets to disrupt the ossifying grip of the agricultural landholders. It was nurtured by 19th-century Republicans who built the railroads and the land-grant colleges to weave free markets across great distances. It was nurtured by Progressives who broke the stultifying grip of the trusts.

 

Today, America’s vigor is challenged on two fronts. First, the country is becoming geriatric. Other nations spend 10 percent or so of their G.D.P. on health care. We spend 17 percent and are predicted to soon spend 20 percent and then 25 percent. This legislation was supposed to end that asphyxiating growth, which will crowd out investments in innovation, education and everything else. It will not.

 

With the word security engraved on its heart, the Democratic Party is just not structured to cut spending that would enhance health and safety. The party nurtures; it does not say, “No more.”

 

The second biggest threat to America’s vibrancy is the exploding federal debt. Again, Democrats can utter the words of fiscal restraint, but they don’t feel the passion. This bill is full of gimmicks designed to get a good score from the Congressional Budget Office but not to really balance the budget. Democrats did enough to solve their political problem (not looking fiscally reckless) but not enough to solve the genuine problem.

 

Nobody knows how this bill will work out. It is an undertaking exponentially more complex than the Iraq war, for example. But to me, it feels like the end of something, not the beginning of something. It feels like the noble completion of the great liberal project to build a comprehensive welfare system.

The task ahead is to save this country from stagnation and fiscal ruin. We know what it will take. We will have to raise a consumption tax. We will have to preserve benefits for the poor and cut them for the middle and upper classes. We will have to invest more in innovation and human capital.

The Democratic Party, as it revealed of itself over the past year, does not seem to be up to that coming challenge (neither is the Republican Party). This country is in the position of a free-spending family careening toward bankruptcy that at the last moment announced that it was giving a gigantic new gift to charity. You admire the act of generosity, but you wish they had sold a few of the Mercedes to pay for it.

[bpwallace49]

Other nations spend 10 percent or so of their G.D.P. on health care. We spend 17 percent and are predicted to soon spend 20 percent and then 25 percent.

 

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

[Azazello1313]

Perhaps Az has learned, as I recently have, that the CBO does not analyze bills against reality. I previously thought they acted as a 3rd party auditing party like those I deal with in business. They don't - their analysis is limted to the parameters outlined in any one piece of legislation. If cost assumptions or tax revenue collected are off in the proposed bill, the CBO analysis will be off in like measure.

 

Sadly, this means we shouldn't place much stock in numbers coming from the CBO in any case. Garbage in, garbage out.

 

well, there are some areas where their parameters can't really be danced around. like when they examine a president's entire proposed budget or an actual spending bill for the upcoming fiscal year. you can't really hide make-believe spending cuts in 2015 in your FY 2010 omnibus bill to improve the score. it's different with a bill like this, where obviously you CAN hide make-believe future spending cuts in 10+ year projections against current law.

 

now, if there were make-believe spending cuts in something like the bush 2003 tax cuts to give them a better CBO "score", and I trumpeted the resulting CBO score as proof that the bills would reduce the deficit, then I wound indeed be a hypocrite here. except I don't think that's possible, because as I recall, the people who wrote those bills didn't bother trying to fanagle a good CBO score. CBO said those bills would increase the deficit, so there was no good CBO score to trumpet. they just accepted the bad CBO score and said we should do it anyway. or they said, we disagree with the CBO assumptions and here's why, and people can decide accordingly.

 

I am always a fan of dissecting CBO analysis and looking at it closely to figure out what it truly represents, especially because their role IS so legislatively proscribed. I highly doubt you'll find an instance of me ever saying otherwise.

[Ursa Majoris]

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

The great unanswered question.

 

Edit: Unless you believe in the "it's all the fault of the lawyers" nonsense.

Edited March 23, 2010 by Ursa Majoris

[Azazello1313]

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

 

big part of the reason right here

[gbpfan1231]

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

Maybe I am missing what you are sying but can you explain to me how this new bill will reduce this 17% back to 10%?

[Azazello1313]

Maybe I am missing what you are sying but can you explain to me how this new bill will reduce this 17% back to 10%?

 

yeah, what is 17% plus $950 billion?

[Ursa Majoris]

big part of the reason right here

 

If that thesis is true, then why aren't the benefits subtracted from health care costs?

 

The gains from medical innovations are high. For instance, increases in life expectancy resulting from better treatment of cardiovascular disease from 1970 to 1990 have been conservatively estimated as bringing benefits worth more than $500 billion a year. And that is just for the United States.

 

And if that $500 billion is already in the GDP, then the 17% total cost argument holds true regardless of the benefits of innovation being counted back in.

[bpwallace49]

Maybe I am missing what you are sying but can you explain to me how this new bill will reduce this 17% back to 10%?

 

You are missing it because I never said it would.

[bpwallace49]

big part of the reason right here

 

Good article. I really liked the part that had 400K + non-US researchers working in the US simply because our medical system pays the most of any on the planet. Still doesnt say where we get a return on those investments with better health care though . . .

 

So again . . WHY are the prices so high? % of GDP is very telling, especially when we have one of the largest GDPs on earth.

[Azazello1313]

If that thesis is true, then why aren't the benefits subtracted from health care costs?

 

costs are costs. when they talk about total health care costs, they're not talking about net health care costs minus benefit received -- and that sort of thing is incredibly tough to value anyhow.

 

And if that $500 billion is already in the GDP, then the 17% total cost argument holds true regardless of the benefits of innovation being counted back in.

 

again for one thing, I don't think that sort of thing would be counted as economic activity and measured in GDP. if I have a medical procedure that increases my quality of life by, say, ending chronic pain I was having, that is something of enormous value and benefit to me, but it's hard to see how that benefit impacts GDP much at all.

 

Good article. I really liked the part that had 400K + non-US researchers working in the US simply because our medical system pays the most of any on the planet. Still doesnt say where we get a return on those investments with better health care though . . .

 

So again . . WHY are the prices so high? % of GDP is very telling, especially when we have one of the largest GDPs on earth.

 

well I think the point is, the rest of the world is basically freeloading off of the medical innovation taking place and being funded in the US. the most obvious illustration everyone is familiar with is the whole prescription drugs thing with canada. everybody knows you can buy them cheaper in canada, and the dumber folks will say hey, we need government price controls so WE can pay cheaper prices too! the pharmaceutical companies have to make a certain amount of money on a drug to fund further R&D into new drugs. if a country like canada says "we're only going to pay $40 a bottle for that drug", the drug maker can figure well, it's still worth it for us to sell it to them at that price, we'll just make it up by what we charge the private market in the US. canada reaps the benefit, and we reap the benefit too, but we bear the our share of the costs and theirs too. you asked why the more "socialized" spend less on health care with similar outcomes, well that right there is a huge reason.

 

of course, many will still say, well we need those kinds of government price controls too, because it's not fair we have to shoulder the burden, and the drug companies will still sell us existing drugs at those cheap prices and so on. and that is certainly a reasonable argument. but what that endangers is the new R&D. maybe that's what we need though....most breakthroughs in medical treatment are enormously expensive. do we value those breakthroughs enough to keep spending 17% of our GDP on that sector? perhaps we need to recalculate. but the point is, there IS some benefit to all that spending. whether it's worth it or not is another question, and a helluva tough one to answer.

[CaP'N GRuNGe]

An older article, but probably still relevant on the percentages of drug company spending on R&D versus Advertising I'd imagine...

 

http://www.consumerwatchdog.org/patients/a...62&bIndex=5

 

Drug Company Profiteering & Waste

Jerry Flanagan

 

Prescription drug expenditures have consistently been one of the fastest-growing components of health care spending. Over the last decade, prescription drug costs have increased at double-digit rates each year. Employers offering drug coverage to workers or retirees have been forced to increase co-payments and deductibles. As a result, consumers, whether insured or uninsured, are facing skyrocketing out-of-pocket costs for their prescription drugs.

 

Though drug companies often blame high research and development (R&D) costs for double-digit annual increases in drug expenditures, the fact is that drug companies spend two to three times more on advertising and marketing the newest drugs than they do on research and development.

 

- A 2001 report based on an analysis of companies' SEC filings and annual reports found that, on average, 11 percent of revenues went to research and development (R&D), and 27 percent went to marketing, advertising, and administration.

 

- Promotional costs (e.g., providing samples to doctors, sending representatives to doctors, advertising to consumers, advertising in medical journals) have nearly doubled since 1997, rising to $19.1 billion in 2001, according to a GAO analysis of industry data.

 

Drug companies spend five times as much on marketing to doctors than they do advertising to patients because they know their profits depend upon whether a doctor is motivated to prescribe the newest blockbuster.

 

- In 2000 drug companies spent $4.8 billion on "physician detailing" the practice of sending marketers to doctors' offices to encourage doctors to prescribe a company's drugs. In the same year, drug companies spent $2.4 billion on advertising to consumers.

 

- Total physician promotional spending in 2000 was $13.2 billion more than five times that spent on consumer advertising. Physician promotional activities include detailing and journal advertising.

 

The pharmaceutical industry has consistently recorded profits that are four to five times higher that of the average Fortune 500 firm.

 

- Between 1994 and 2001, pharmaceutical industry profitability ranged between 14 and 19 percent, while the median for all Fortune 500 firms ranged between 3 and 5 percent.

 

- In Fortune Magazine's survey of the top performing companies, the pharmaceutical industry ranked first on all three measures of profitability: return on revenues (18.5 percent); return on assets (16.3 percent), and return on shareholders' equity (33.2 percent).

 

The pharmaceutical industry contributed heavily to President Bush and Congress in preparation for the Medicare prescription drug debate.

 

- President Bush's re-election campaign received $1 million from pharmaceutical companies in the run-up to the 2004 presidential campaign while Senator Kerry's campaign received $570,000. Members of Congress received a total of $16 million.

 

- The Center for Responsive Politics reports that the pharmaceutical industry was the 9th-ranked industry in terms of total campaign contributions during 2002, contributing $23 million.

 

- During the debate on the Medicare prescription drug legislation, the drug companies and their trade association (PhRMA) employed 750 lobbyists, more than six for each member of the Senate, and more than one for each member of the House.

 

Pharmaceutical companies have taken advantage of loopholes in the 1984 federal Hatch-Waxman patent law in order to delay introduction of low-cost generics.

 

- In 2000, the average retail price of a prescription for a brand-name drug was more than three times the price of a generic drug ($65.29 vs. $19.33).

 

- The delay of the introduction of three new generic drugs Hytrin (hypertension), Cartizem CD (a heart drug), and K-Dur 20 (potassium supplement) cost consumers over $300 million in potential savings.

 

- Twenty-nine state attorneys general sued Bristol-Myers-Squibb (BMS) accusing the company of illegally blocking cheaper generic alternatives to its cancer drug, Taxol. The states claimed that BMS' anti-competitive practices caused them to pay more for the drug, and are seeking the return of $200 to $250 million in estimated overcharges.

 

Federally funded research has played a major role in private sector research and development, contributing to medicines for conditions including cancer and AIDS.

 

- As of 1997, 54 out of 84 cancer-fighting drugs approved by the FDA were the products of federal funding.

 

- In a 1995 study conducted at the M.I.T.'s Sloan School of Management, researchers found that 11 of the 14 drugs it identified as the most significant over the preceeding 25 years were developed or discovered using government funds.

[Azazello1313]

An older article, but probably still relevant on the percentages of drug company spending on R&D versus Advertising I'd imagine...

 

http://www.consumerwatchdog.org/patients/a...62&bIndex=5

 

yeah, a newer article would talk about how much they spent lobbying to get obamacare passed

 

Though drug companies often blame high research and development (R&D) costs for double-digit annual increases in drug expenditures, the fact is that drug companies spend two to three times more on advertising and marketing the newest drugs than they do on research and development.

 

yeah but the part of the equation that misses is, all the profit they make from something like viagra (they advertise so that they can sell more of it and get more profit) is what ends up funding the development of new drugs. to stay profitable, a drug company has to do two things: 1) effectively sell the drugs it already has, and 2) come up with new drugs people will want to buy. if the government increases their costs or decreases their benefit, they will change their behavior accordingly, it's pretty simple really.

 

why do you think most of the new drugs and technologies are developed here? and do you really think that won't be affected by government price-fixing?

[Jimmy Neutron]

What forecasts should we put stock in?

 

No-one is saying that CBO's economic projections are set in stone, but that doesn't justify ignoring something that has an accurate track record because its politically convenient or simply because you and some bloggers want to believe otherwise.

 

Does the CBO have an accurate track record?

 

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

 

Perhaps it has more to do with our health as Americans than our health care. Our collective gluttony and sedentary lifestyle is spendy to treat.

[wiegie]

This is the part that I still cant wrap my head around . . why do we pay such a disproportionate amount? Why do "socialized" health care systems pay less, and in many cases get better health care?

Because a large part of our insurance companies' expenses are to try to sort out high-risk insurance applicants from low-risk applicants and then cherry-pick the low-risk ones. (seriously)

[Azazello1313]

Because a large part of our insurance companies' expenses are to try to sort out high-risk insurance applicants from low-risk applicants and then cherry-pick the low-risk ones. (seriously)

 

if that's the true reason, then our health care costs should plummet to ~10% of GDP as soon the provisions of this bill outlawing such cherry picking go into effect.

 

would you care to make a wager?

[wiegie]

if that's the true reason, then our health care costs should plummet to ~10% of GDP as soon the provisions of this bill outlawing such cherry picking go into effect.

it's definitely part of the reason (are you truly suggesting it isn't?)

[paulzale]

Maybe someone can explain the math to me. I see 30 million uninsured Americans, which is less than 10% of the total population. We have all this wrangling and politicians looking for votes, but the people on medicare and medicaid don't understand that they are not getting the same plan I have as an employed person working for a fortune 500 company. Why is 10% of the population so important? They can get care at the hospital for serious issues.

 

Next is the 1 trillion in costs this will add to the deficit. If I take $1 trillion divided by 30 million people, the cost is $33.33 per uninsured person. How is it possible to provide health care for that? What am I missing?

[Azazello1313]

it's definitely part of the reason (are you truly suggesting it isn't?)

 

"cherry picking" allows them to charge lower risks less, sorta like with car insurance or life insurance or anything else in life. put everyone in the same risk pool by law...and you are suggesting that premiums will go down?

Edited March 23, 2010 by Azazello1313

[wiegie]

"cherry picking" allows them to charge lower risks less, sorta like with car insurance or life insurance or anything else in life. put everyone in the same risk pool by law...and you are suggesting that premiums will go down?

health costs will go down if we aren't wasting resources on cherry-picking anymore

 

(And premiums very well might go down if you have a mandate that people must buy insurance because this removes the adverse selection problem in the insurance market.)

[Azazello1313]

(And premiums very well might go down if you have a mandate that people must buy insurance because this removes the adverse selection problem in the insurance market.)

 

except that by making the fine smaller than the cost of a policy, the adverse selection problem is still there. very prominently, in fact when you consider the fact that it is now illegal to price for pre-existing conditions. that opens up a massive new adverse selection problem, since people can simply not get insurance, pay the relatively small penalty every year, and then if they get sick, simply go out and buy insurance when the need arises.

[bushwacked]

Does the CBO have an accurate track record?

 

In line with the Blue Chip Consensus Forecast. The insinuation that they are suddenly throwing out numbers willy nilly like is far fetched.

[Azazello1313]

The insinuation that they are suddenly throwing out numbers willy nilly like is far fetched.

 

:strawman:

[wiegie]

except that by making the fine smaller than the cost of a policy, the adverse selection problem is still there. very prominently, in fact when you consider the fact that it is now illegal to price for pre-existing conditions. that opens up a massive new adverse selection problem, since people can simply not get insurance, pay the relatively small penalty every year, and then if they get sick, simply go out and buy insurance when the need arises.

I agree that the fine should be larger.

[CaP'N GRuNGe]

Maybe someone can explain the math to me. I see 30 million uninsured Americans, which is less than 10% of the total population. We have all this wrangling and politicians looking for votes, but the people on medicare and medicaid don't understand that they are not getting the same plan I have as an employed person working for a fortune 500 company. Why is 10% of the population so important? They can get care at the hospital for serious issues.

 

Next is the 1 trillion in costs this will add to the deficit. If I take $1 trillion divided by 30 million people, the cost is $33.33 per uninsured person. How is it possible to provide health care for that? What am I missing?

 

Maybe a remedial math class?