Posted by Karl Denninger
These cost savings are real. They will grow over time. And they will make U.S. businesses more competitive.
The bill President Obama signed into law last week helps avoid each of these equally unappealing options.
I understand that in these difficult economic times, the potential for any additional expense is not welcomed by American businesses. But in the long run, the health insurance reform law promises to cut health-care costs for U.S. businesses, not expand them.
In a word:
Let’s take a look at why we have a problem – we’ll look at the largest contributors to the mess, not the “little things.”
We will start with cost shifting.
This is one of the primary causes of health care “inflation” – in short, those who pay cover those who don’t have any money. The new law attempts to address this by forcing everyone to have insurance in some form or another. Or does it? In fact no, it does not.
Assuming that the mandate passes constitutional muster (and I don’t think it will) the problems remain. Specifically, illegal invaders still get emergency (including “planned emergencies” like childbirth) care at no cost to them – ever – and you get the bill.
But the cost-shifting doesn’t stop there. The worst part of the cost-shifting is in the medical device and pharmaceutical business. Other nations slap cost controls on pharmaceuticals, saying to the companies that they will pay “$X” for some device or medication – and if the drug company does not agree to sell for “$X” then the nation threatens to either not buy at all or break their patents and reproduce the drug or device within their borders, giving the company nothing.
The problem of course is that most pharmaceuticals and many devices have a cost structure that is more than a bit skewed. That is, the first pill may cost $1 billion – in development and testing expenses. Many drugs are “dry holes”; the company spends but the drug proves ineffective or even dangerous, and thus the money is lost.
Subsequent pills may cost $2 each to manufacture – once that first billion is spent.
Obviously, the drug companies must amortize that billion dollar development expense over the projected life and sales cycle for the drug. If they fail to do so they go out of business.
Everyone in the world who has access to that drug gets the benefit of the development. We in The United States get to pay the entire cost, because it is only here that we do not price-control drugs and threaten manufacturers with patent breaks if they don’t price “as we like it.”
This is responsible for most of the drug and device price inflation we have experienced – we are literally paying for the development of new treatments for more than 6.8 billion people yet there are only 330 million of us in the United States. That is, we bear twenty times our “fair share” of those development costs.
Medicare Part “D” is projected to be the fastest-growing deficit-generator; this should not surprise, given the gross and outrageously unfair means by which we literally absorb the entirety of worldwide drug development expense.
All of this, by the way, occurs due to government. Were government to refuse to protect those companies with laws that preempt the ordinary (and reasonable) presumption that a person who owns a thing may dispose of it as they see fit, cross-border trade flows would put tremendous pressure on these price disparities. Prices would fall here (a lot) and rise everywhere else (a good bit.) While the price-leveling would not be perfect by any means this much is certain – it is impossible for us to control the parabolic rise in drug expense when we’re bearing the burden of development for nearly 7 billion people on the backs of 330 million Americans.
We also cost-shift when it comes to illegal invaders. There is no agreement on exactly how many billions these illegals cost-shift to legal American citizens and residents – but that it amounts to tens of billions of dollars annually is not in dispute. There is no particular reason to allow that to occur – we could just as easily pass a law providing that hospitals and other emergency care providers send their bills for anyone with no insurance or money to the Federal Government, who then pays the bills immediately. The government then either turns the matter over to the IRS for collection (if a US Citizen or Resident) or bills it back to the foreign nation in the case of an illegal invader. This instantly stops all the cost-shifting for both the uninsured and the illegal invaders, and costs the government nothing!
There are many other factors in the health care cost explosion (with the disconnect in visibility between cost and your actual visibility of that expense being a big one) but until we get the cost shifting under control all other debates about how we’re going to “control costs” are a waste of time.
I wrote a four-point plan in September of last year that would have actually addressed costs by going after all of the major components that drive medical price ramps. It was faxed to all 535 fools in DC. It is particularly telling that not one of those points was addressed in the bill proffered and passed, proving that cost containment was never a goal of this legislation – instead, it was designed and executed to suit the lobbying interests who are simply trying to claw even more of your money into their pockets.
Wake up America – you’re being robbed – again – by both the Demoncrats and Rethuglicans.