Greetings, purveyors of risk-based policy analysis. Apologies for the delay in getting this latest edition of CoR up, but we ran into some unexpected html issues (mainly, I don't know anything about html). Hopefully, however, the content that follows will speak for itself and make up for my own incompetence. ENJOY!
"The Shrink" who blogs at Lake Cocytus explains his perception of how risk impacts his practice, especially when treating patients with dementia. Risk.
The Cato Institute's inestimable Michael Cannon points out that Medicare fraud is Tantamount to Corruption posted at Cato-at-liberty.
John Hempton, proprietor of Bronte Capital blog, shares a conversation he recently had with another blogger regarding insurance. He compares auto versus homeowners coverage to explain different kinds of risk, and how they're treated. Check out Risk Aversion - Berkshire Style.
Blogress Valeria Maltoni has an interesting take on how people perceive risk, and how it affects their organizations. See Risk Is Not A Four Letter Word.
Michael McCaughan, blogging at In Vivo, wonders whether the FDA's handling of risk is appropriate, and why that's important. A Better Way to do Risk/Benefit?
At the Alexph Blog, David Merkel reports on how risk management is changing in the lending industry, and what that portends for folks who need credit. Banking on Continued Risk In Lending Markets.
Nickel presents his take on FDIC Insurance Coverage: Limits and Strategies posted at fivecentnickel.com.
Jason Shafrin over at The Healthcare Economist writes on access to care in China and India. Mark Pauly claims that increased calls for "access to care" in China and India may actually increase insurance premiums and reduce insurance coverage for the poor. The Healthcare Economist investigates. Pauly on Health Insurance in India and China.
Is being "big" risky? InsureBlog's Bob Vineyard reports on some new government efforts to encourage folks to lose weight, by draining their wallets. Check out Carrot or Stick?
Louise at the Colorado Health Insurance Insider offers up her own version of Health Insurance 101.
Jim presents Credit Card Rental Car Insurance is Secondary Coverage!? posted at Blueprint for Financial Prosperity.
Joe Manausa presents How To Dispute Your Property Taxes posted at Tallahassee Real Estate Blog.
Yours truly, of Healthcare Manumission, wonders if Obama's brand of "change" is really that of a risky radical.
Thursday, August 28, 2008
Wednesday, August 27, 2008
A Status Quo We Can Believe In: Obama the Risky Radical? Been There and Done That.
For reasons I still don't quite understand, there exists an almost cult-like enthusiasm for the Junior Senator turned Presidential hopeful, Barack Obama. The sense of hope is palpable among the millions who dare to dream that it will be this man from Illinois who will finally deliver the "change we can believe in," as his campaign slogan, and the thousands of tee shirts I am seeing around town so proudly boast.
No where is this more apparent than in healthcare where, finally, there is bipartisan acknowledgment that grand reform is necessary and, as if cosmically ordained, there is a passionate young politico willing to take on the risks of fighting the established order in pursuit of a systemic overhaul. If only it really were that beautiful.
Mr. Obama, for all his rhetoric and promises, offers us no substantial departure, in theme, from the status quo. He does not seek to address the underlying causes that are at the root of our present quandary, but rather places his faith in the same tired themes of government expansion and influence that have been the modus operandi of health policy for the last 70 years. The man may be young, but his ideas are quite old, and have been a staple of left-wing politics for more than a century. In pursuing them as he does, he risks nothing, save running into the same snags that those who came before him met. In fact, any departure from these tired themes would be far more risky and radical. A post will follow shortly detailing how Mr. McCains healthcare Rx is far more radical than the Democratic brand.
It should be remembered: An aggressive perpetuation of existing themes does not demonstrate a commitment to reform, as we should properly understand the concept. Rather, it suggests a fear of change and an unwillingness to consider solutions that might lie outside the box of traditional political thinking.
"YOU ARE NOT SPECIAL" - Tyler Durden, Fight Club
The concept of universal healthcare, enforced by the state, is hardly radical. In point of fact, it has been the great ambition of progressive minds for more than a century now, most with exceptionally nefarious intentions. The clearest evidence of this can be traced to the "great" ideal of social insurance thought up in Germany under Otto von Bismark. The ulterior and altogether undiscussed motive however was control, an effort to make people feel dependent on the state. Any idea of cost sharing under Bismark's scheme was immediately dismissed by the Chancellor as, in his words, "if the worker must pay, the effect on him is lost," as he would then see that he himself had earned the money to pay for the benefits. Seemingly "free" sickness pay would, however, make workers grateful to the government. The entire scheme, it was believed, would be far easier to implement if people felt as if they had to look to the state for security.
As it turns out, this perception never quite took hold in America.
Be that as it may, American progressives envied what they saw as the benevolent European notion and adopted it as one of their most cherished and ambitious causes. Theodore Roosevelt himself, when running for President under the Progressive banner, endorsed compulsory health insurance as part of his platform in 1912. The scheme was famously defeated however through the cooperation of fraternal organizations, private insurers, labor unions, Christian Scientists, and physicians, albeit in some cases for wildly different reasons. What was shared, however, was that a usurpation of control over worker sovereignty in times of sickness was detrimental to all parties involved, be it union, doctors, insurers, and of course the workers themselves, the fear being that the government would begin to dictate the terms of treatment and the very definition of ailment, a theme rampant in the Medicare program.
What was shared among proponents of the measure was an effort to make individuals feel dependent on the state, and insecure in their own ability to provide for themselves, assuming they either could not or would not take on the responsibility.
The sentiment was not lost upon Franklin Delanor Roosevelt, the great champion of an expansion of the American state, who also endorsed universal health insurance. His administration, however, in the midst of an economic depression and dramatic regulatory reform of the economy, was want to throw all of it's weight behind the notion of universal health insurance, believing the American persistence for self-sustenance still too intact to be legitimately eroded by state-run medical dictates. This perception was made immeasurably clear during the discussions over the parameters of the Social Security Act. The same unlikely bedfellows that joined forces to defeat Teddy Roosevelt's ambitions reemerged, and voiced their opposition so boisterously that Edwin Witte, the Staff Director for FDR's Committee on Economic Stability was convinced that any health insurance amendment would "spell defeat for the entire program of Social Security." It seems the petulant American insistence on self determination was still to strong to be broken by the mere platitudes of eloquent politicians making grandiose promises.
This perception was also partly due to the fact that any such provision would be funded by a heavily regressive tax, much as it is today. Consider the following:
Health insurance premiums paid by an employer, mandatory or otherwise, are not subject to any tax. Thanks to our system of progressive taxation, this subsidy becomes increasingly valuable the higher tax bracket you are in. Speaking generally, if a rich individual, in a 50% tax bracket, were to have $1,000 put towards health insurance on his behalf, he would save $500. A poorer individual, however, in perhaps a 15% tax bracket, would save only $150 on that $1,000 contribution. Further, it is the wealthier individual who is more likely to have the more encompassing insurance policy, and thus more likely to save on the investment.
It was Lyndon Johnson who readopted the mantle of socialized medicine, more for the sake of the Democratic Party than for himself. Knowing that it was a prime goal of FDR, abandoned in the tumult of the Second World War and the death of the four-term President, and then picked up by the inauspicious Harry Truman in the post-war years, Truman was actually the guest of honor at the 1964 Medicare signing ceremony. In fact, it was Truman who received the very first Medicare Hospital Insurance Card, No. 001.
Some people might find it hard to swallow, rightly, that a wealthy ex-president would need a subsidy from working Americans to pay for his medical care, but so committed to the Progressive cause were they that not only were the Democrats not embarrassed, they were proud of their accomplishment, even as it soon became clear that the program was financially insolvent over the long term. This Robin Hood in reverse scheme however was exactly what the movement had been hoping for since the turn of the century: a step towards "universal coverage" through a system of European "social insurance" where everyone pays for everyone else's healthcare.
And once again, here we find ourselves. We are in a new century and a new breed of politician is advocating for the same ideas advocated by his progressive brethren of bygone eras. The Obama plan, it should be noted, does not call for an outright leap into a world of Bismark-ian social control. It is, however, the next link in the chain of events that has been forming over the last century or more and is leading us inexorably to the point of no return, where the government will be in charge of our healthcare, our independence broken, and our reliance on the state complete.
Is this really the kind of change we want to believe in?
No where is this more apparent than in healthcare where, finally, there is bipartisan acknowledgment that grand reform is necessary and, as if cosmically ordained, there is a passionate young politico willing to take on the risks of fighting the established order in pursuit of a systemic overhaul. If only it really were that beautiful.
Mr. Obama, for all his rhetoric and promises, offers us no substantial departure, in theme, from the status quo. He does not seek to address the underlying causes that are at the root of our present quandary, but rather places his faith in the same tired themes of government expansion and influence that have been the modus operandi of health policy for the last 70 years. The man may be young, but his ideas are quite old, and have been a staple of left-wing politics for more than a century. In pursuing them as he does, he risks nothing, save running into the same snags that those who came before him met. In fact, any departure from these tired themes would be far more risky and radical. A post will follow shortly detailing how Mr. McCains healthcare Rx is far more radical than the Democratic brand.
It should be remembered: An aggressive perpetuation of existing themes does not demonstrate a commitment to reform, as we should properly understand the concept. Rather, it suggests a fear of change and an unwillingness to consider solutions that might lie outside the box of traditional political thinking.
"YOU ARE NOT SPECIAL" - Tyler Durden, Fight Club
The concept of universal healthcare, enforced by the state, is hardly radical. In point of fact, it has been the great ambition of progressive minds for more than a century now, most with exceptionally nefarious intentions. The clearest evidence of this can be traced to the "great" ideal of social insurance thought up in Germany under Otto von Bismark. The ulterior and altogether undiscussed motive however was control, an effort to make people feel dependent on the state. Any idea of cost sharing under Bismark's scheme was immediately dismissed by the Chancellor as, in his words, "if the worker must pay, the effect on him is lost," as he would then see that he himself had earned the money to pay for the benefits. Seemingly "free" sickness pay would, however, make workers grateful to the government. The entire scheme, it was believed, would be far easier to implement if people felt as if they had to look to the state for security.
As it turns out, this perception never quite took hold in America.
Be that as it may, American progressives envied what they saw as the benevolent European notion and adopted it as one of their most cherished and ambitious causes. Theodore Roosevelt himself, when running for President under the Progressive banner, endorsed compulsory health insurance as part of his platform in 1912. The scheme was famously defeated however through the cooperation of fraternal organizations, private insurers, labor unions, Christian Scientists, and physicians, albeit in some cases for wildly different reasons. What was shared, however, was that a usurpation of control over worker sovereignty in times of sickness was detrimental to all parties involved, be it union, doctors, insurers, and of course the workers themselves, the fear being that the government would begin to dictate the terms of treatment and the very definition of ailment, a theme rampant in the Medicare program.
What was shared among proponents of the measure was an effort to make individuals feel dependent on the state, and insecure in their own ability to provide for themselves, assuming they either could not or would not take on the responsibility.
The sentiment was not lost upon Franklin Delanor Roosevelt, the great champion of an expansion of the American state, who also endorsed universal health insurance. His administration, however, in the midst of an economic depression and dramatic regulatory reform of the economy, was want to throw all of it's weight behind the notion of universal health insurance, believing the American persistence for self-sustenance still too intact to be legitimately eroded by state-run medical dictates. This perception was made immeasurably clear during the discussions over the parameters of the Social Security Act. The same unlikely bedfellows that joined forces to defeat Teddy Roosevelt's ambitions reemerged, and voiced their opposition so boisterously that Edwin Witte, the Staff Director for FDR's Committee on Economic Stability was convinced that any health insurance amendment would "spell defeat for the entire program of Social Security." It seems the petulant American insistence on self determination was still to strong to be broken by the mere platitudes of eloquent politicians making grandiose promises.
This perception was also partly due to the fact that any such provision would be funded by a heavily regressive tax, much as it is today. Consider the following:
Health insurance premiums paid by an employer, mandatory or otherwise, are not subject to any tax. Thanks to our system of progressive taxation, this subsidy becomes increasingly valuable the higher tax bracket you are in. Speaking generally, if a rich individual, in a 50% tax bracket, were to have $1,000 put towards health insurance on his behalf, he would save $500. A poorer individual, however, in perhaps a 15% tax bracket, would save only $150 on that $1,000 contribution. Further, it is the wealthier individual who is more likely to have the more encompassing insurance policy, and thus more likely to save on the investment.
It was Lyndon Johnson who readopted the mantle of socialized medicine, more for the sake of the Democratic Party than for himself. Knowing that it was a prime goal of FDR, abandoned in the tumult of the Second World War and the death of the four-term President, and then picked up by the inauspicious Harry Truman in the post-war years, Truman was actually the guest of honor at the 1964 Medicare signing ceremony. In fact, it was Truman who received the very first Medicare Hospital Insurance Card, No. 001.
Some people might find it hard to swallow, rightly, that a wealthy ex-president would need a subsidy from working Americans to pay for his medical care, but so committed to the Progressive cause were they that not only were the Democrats not embarrassed, they were proud of their accomplishment, even as it soon became clear that the program was financially insolvent over the long term. This Robin Hood in reverse scheme however was exactly what the movement had been hoping for since the turn of the century: a step towards "universal coverage" through a system of European "social insurance" where everyone pays for everyone else's healthcare.
And once again, here we find ourselves. We are in a new century and a new breed of politician is advocating for the same ideas advocated by his progressive brethren of bygone eras. The Obama plan, it should be noted, does not call for an outright leap into a world of Bismark-ian social control. It is, however, the next link in the chain of events that has been forming over the last century or more and is leading us inexorably to the point of no return, where the government will be in charge of our healthcare, our independence broken, and our reliance on the state complete.
Is this really the kind of change we want to believe in?
Friday, August 8, 2008
It Is The Policy Of The United States Government That We Do Not Negotiate With Prescription Drug Prices
First, I must apologize for the delay in posts in the last few weeks. I recently moved into a new house and things have been a bit hectic. Mea culpa.
The other day I received a comment to my post entitled Lisa Simpson and Prescription Drugs (if you have not read it yet I would recommend doing so be fore continuing).
It was well argued and used data to support its assertions, however, like so many other arguments of its nature, it fails under closer scrutiny. For this reason I'd like to take some time to respond. Please read the following comment:
July 24, 2008 3:30 PM
Anonymous said...
"Abroad, prescription drug companies are forced to contend and "negotiate" with socialized medical systems, which in turn impose price controls as the cost of access to their markets..."
...as opposed to in the US, where the PDIA legislation prohibits medicare for negotiating with drug companies for prices, which leads to massive profits for the companies and massive losses for the taxpayers.
...
"Dedicated to the idea that freedom, choice and COMPETITION represent the best prescription for healthcare reform."
Right.
The fact of the matter is that prescription drug companies enjoy some of the largest profit margins of any industry and do not plow as much of the profit back into R&D as some other industries, and not nearly as much as their PR campaigns would have you believe.
Consider Pfizer as an example. In 2008, this company reported 5-year average R&D expenses equivalent to less than 16% of revenues (and something like less than 40% of what they reported as net income.)
Their 5-year averaged profit margin is around 85%.
How much of that profit is drawn from non-negotiated prices charged to medicare (i.e., an opportunity cost to my bank account, and yours, and your neighbor's...)?
I'm sure you're aware that most other industries hover around 10 or 15% PM. (Other entities in healthcare, such as hospitals, operate on less than 5% PM, although they're frequently not responsible to shareholders.)
It seems that the high cost of R&D for prescription drugs is drastically overrated...
...just like your blog.
_________________________________________________
This line of reasoning makes a number of fundamental errors in it's approach.
First and foremost, the author makes the assumption that there is some "appropriate" level of reinvestment that drug companies should put towards research and development (R&D). The author provides figures for the pharmaceutical industry versus others and determines that the former is far too stingy when it comes to R&D.
Unfortunately, this is not something that any outsider can adequately assess. The market for pharmaceuticals, like nearly every other sect of healthcare, is terribly convoluted. Given all the variables involved (patent law, foreign markets, FDA approval trials, etc.), it would be difficult if not impossible for anyone not directly involved in the process to determine the marginal utility of any increase in R&D. Drug companies want to make a profit, and the development of newer and better drugs at lower prices is a surefire way of getting there.
Similarly, and contrary to the author's assertion, the Medicare Modernization Act of 2003 (MMA) did not write a blank check to pharmaceutical companies as the price of refraining from "negotiating" prices.
First, it must be remembered that the government does not, and has never, "negotiated" a price, for anything. The government sets prices. This is apparent in the Medicare FFS program, in which prices are bureaucratically set by CMS via a statistical algorithm, the Resource Based Relative Value Scale (RBRVS). There is no negotiation involved with physicians or hospitals. Every year prices are set for more than 7,000 procedures and providers are given a simple choice: take it or leave it. Furthermore, every year these prices are under threat of being cut so that Medicare spending can keep in line with the Statistical Growth Rate (SGR). The problem has gotten so bad that more and more doctors are refusing to accept new Medicare patients, creating access problems for our nations elderly. Does the author suggest we do the same for drugs?
A fundamental rule of economics is that price controls lead to shortages. Price controls for Medicare FFS are leading to a shortage of physicians, would the author be shocked when "negotiated" prices for drugs led to a shortage of prescription medicine, or foregone innovation in the future?
MMA is far from perfect, but it did introduce a complex system based on a simple premise, one far superior to the methodology of Parts A and B, which are notoriously inept at controlling costs: competition, even if it is limited, works better than government control.
MMA allows private companies to compete to get the lowest prices, often lower than drug companies would give if they had to set a single price, meaning that it is likely that the government could not do any better even if it were given the authority to "negotiate" prices. This view is shared by both CMS actuaries and Sec. Leavitt.
Currently there are more than 30 million seniors enrolled in Part D, with over 80% satisfied with the plan they chose. Furthermore, premiums are almost 35% lower than Congress initially expected, with seniors saving up to 72% on their drugs compared to those without coverage.
Many individuals have the mistaken belief that the reason prescription drugs cost so much is simply because we do not set prices as is done in other countries. The truth is far different.
The unbridled demand for pharmaceuticals due to cost insulation stemming from either Medicare or employer based insurance has lead to massive cost increases over the years. Similarly, that Americans are footing the bill for those countries that set prices is another reason for our higher costs.
Is the latter fair to Americans? No, but giving the government the power to set prices for prescription drugs is not the answer.
The other day I received a comment to my post entitled Lisa Simpson and Prescription Drugs (if you have not read it yet I would recommend doing so be fore continuing).
It was well argued and used data to support its assertions, however, like so many other arguments of its nature, it fails under closer scrutiny. For this reason I'd like to take some time to respond. Please read the following comment:
July 24, 2008 3:30 PM
Anonymous said...
"Abroad, prescription drug companies are forced to contend and "negotiate" with socialized medical systems, which in turn impose price controls as the cost of access to their markets..."
...as opposed to in the US, where the PDIA legislation prohibits medicare for negotiating with drug companies for prices, which leads to massive profits for the companies and massive losses for the taxpayers.
...
"Dedicated to the idea that freedom, choice and COMPETITION represent the best prescription for healthcare reform."
Right.
The fact of the matter is that prescription drug companies enjoy some of the largest profit margins of any industry and do not plow as much of the profit back into R&D as some other industries, and not nearly as much as their PR campaigns would have you believe.
Consider Pfizer as an example. In 2008, this company reported 5-year average R&D expenses equivalent to less than 16% of revenues (and something like less than 40% of what they reported as net income.)
Their 5-year averaged profit margin is around 85%.
How much of that profit is drawn from non-negotiated prices charged to medicare (i.e., an opportunity cost to my bank account, and yours, and your neighbor's...)?
I'm sure you're aware that most other industries hover around 10 or 15% PM. (Other entities in healthcare, such as hospitals, operate on less than 5% PM, although they're frequently not responsible to shareholders.)
It seems that the high cost of R&D for prescription drugs is drastically overrated...
...just like your blog.
_________________________________________________
This line of reasoning makes a number of fundamental errors in it's approach.
First and foremost, the author makes the assumption that there is some "appropriate" level of reinvestment that drug companies should put towards research and development (R&D). The author provides figures for the pharmaceutical industry versus others and determines that the former is far too stingy when it comes to R&D.
Unfortunately, this is not something that any outsider can adequately assess. The market for pharmaceuticals, like nearly every other sect of healthcare, is terribly convoluted. Given all the variables involved (patent law, foreign markets, FDA approval trials, etc.), it would be difficult if not impossible for anyone not directly involved in the process to determine the marginal utility of any increase in R&D. Drug companies want to make a profit, and the development of newer and better drugs at lower prices is a surefire way of getting there.
Similarly, and contrary to the author's assertion, the Medicare Modernization Act of 2003 (MMA) did not write a blank check to pharmaceutical companies as the price of refraining from "negotiating" prices.
First, it must be remembered that the government does not, and has never, "negotiated" a price, for anything. The government sets prices. This is apparent in the Medicare FFS program, in which prices are bureaucratically set by CMS via a statistical algorithm, the Resource Based Relative Value Scale (RBRVS). There is no negotiation involved with physicians or hospitals. Every year prices are set for more than 7,000 procedures and providers are given a simple choice: take it or leave it. Furthermore, every year these prices are under threat of being cut so that Medicare spending can keep in line with the Statistical Growth Rate (SGR). The problem has gotten so bad that more and more doctors are refusing to accept new Medicare patients, creating access problems for our nations elderly. Does the author suggest we do the same for drugs?
A fundamental rule of economics is that price controls lead to shortages. Price controls for Medicare FFS are leading to a shortage of physicians, would the author be shocked when "negotiated" prices for drugs led to a shortage of prescription medicine, or foregone innovation in the future?
MMA is far from perfect, but it did introduce a complex system based on a simple premise, one far superior to the methodology of Parts A and B, which are notoriously inept at controlling costs: competition, even if it is limited, works better than government control.
MMA allows private companies to compete to get the lowest prices, often lower than drug companies would give if they had to set a single price, meaning that it is likely that the government could not do any better even if it were given the authority to "negotiate" prices. This view is shared by both CMS actuaries and Sec. Leavitt.
Currently there are more than 30 million seniors enrolled in Part D, with over 80% satisfied with the plan they chose. Furthermore, premiums are almost 35% lower than Congress initially expected, with seniors saving up to 72% on their drugs compared to those without coverage.
Many individuals have the mistaken belief that the reason prescription drugs cost so much is simply because we do not set prices as is done in other countries. The truth is far different.
The unbridled demand for pharmaceuticals due to cost insulation stemming from either Medicare or employer based insurance has lead to massive cost increases over the years. Similarly, that Americans are footing the bill for those countries that set prices is another reason for our higher costs.
Is the latter fair to Americans? No, but giving the government the power to set prices for prescription drugs is not the answer.
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