American Healthcare, part III: Why the market isn't helping
Good morning from Paris. Welcome back to our ongoing conversation with a public health expert in Europe. This is the final installment of a three part conversation on the American healthcare system. Today we discuss market regulated healthcare, its advantages (it does have some according to our expert!) disadvantages, and why Obama's plan is workable and realistic.
(These conversations were held in October at Mr. François Paris offices. I translated them for this blog).
Blevins: Why hasn't market regulated private healthcare worked in the US?
François: The big problem with private healthcare (and with McCain's plan) is that it not comprehensive enough, so it is ineffective.
Take the pharmaceutical industry for instance, its money is just like Wall Street's money, and just like what happened to Wall Street, speculation has driven prices up to artificially high levels. By this I mean the price that consumers pay is absolutely not justified by the cost of drug production, or by the return investment shareholders can reasonably expect, not even by the risks tied to production (i.e. for every drug you produce you have others that fail so you have to include this in the price of the successful drugs).
These factors do not really determine current prices at all. Rather, they are fixed by the demands of stockholders who, driven by a desire for profit, push the company to determine its prices based solely upon the material desires of the shareholders and the company's stock market value. So prices skyrocket because the real factors that should determine their value are discarded for the volatile and fabricated values of stock market demand. McCain doesn't seem to think it is a problem to divorce a product's price from concrete factors like the cost of its production or reasonable profit expectations. We have seen with the stock market that it can be a very big problem.
Blevins: So how is Obama's plan better ?
François: This is where the government has a role to play and this is something Obama and his advisors understand very well. The government doesn't have to control every aspect of healthcare, but it has to be able to regulate prices, so that the price of drugs and treatment always corresponds to the basic criteria that should go into determining the value of any product: its cost of production and the reasonable return on investment by shareholders. McCain doesn't address this issue at all in his plan. Obama does in a part of his plan called the Health Insurance Exchange.
Blevins: But how exactly does an Obama administration go about regulating healthcare and not just the pharmaceutical industry?
François: This is a good question and it hits at the heart of McCain and Obama's differences of perception. McCain recently wrote in a medical journal that healthcare should be deregulated. He got a lot of flak for that but if I understood him correctly, what he meant was that he wants healthcare policies to compete across state lines.
On the surface, this isn't a bad idea, but this kind of policy is doomed to failure for one essential reason: McCain is making a point that seems valid, but upon inspection, doesn't hold up or even make sense in this industry.
Let me explain: private healthcare does have a real benefit and McCain knows this very well. When you have identified a risk for the individual, say smoking for instance, only private insurance has the flexibility to force its policy holders to improve their health habits (i.e. if the individual continues to smoke the insurance company has the right to raise his or her premiums). McCain's desire to let insurance companies compete would seem to provide the necessary competition (thereby reducing premiums) while allowing insurance companies to more or less motivate healthy behavior.
But McCain and other healthcare providers for years have refused to face a simple reality: these cases of identifiable medical illnesses with 100 percent prediction of risk (the only ones that can be effectively controlled by market regulation of healthcare) are not statistically significant. The vast majority of health problems result from causes that are not known and thus not measurable by any objective criteria (accidents, various genetic problems that are currently undetectable before adulthood, most cancers) all these health risks are not measurable like you can measure the risks of smoking.
So McCain is essentially selling a healthcare plan based upon a theory that can apply to less than 10 percent of your country's medical problems. You have to provide some kind of minimal coverage that does not depend upon individual behavior if you want to avoid a massive breakdown in healthcare. This is precisely what US is now experiencing. Your technology has advanced, but your actual performance has been effectively blocked by market considerations, causing you to invest large amounts of money, even while you avoidable death rate rises at an alarming rate.
Let's hope your faith in the free market, which isn't entirely missplaced, can be tempered enough to allow you to implement an effective healthcare system.
In November, I will be blogging on the different Images of America that abound in Europe.
(These conversations were held in October at Mr. François Paris offices. I translated them for this blog).
Blevins: Why hasn't market regulated private healthcare worked in the US?
François: The big problem with private healthcare (and with McCain's plan) is that it not comprehensive enough, so it is ineffective.
Take the pharmaceutical industry for instance, its money is just like Wall Street's money, and just like what happened to Wall Street, speculation has driven prices up to artificially high levels. By this I mean the price that consumers pay is absolutely not justified by the cost of drug production, or by the return investment shareholders can reasonably expect, not even by the risks tied to production (i.e. for every drug you produce you have others that fail so you have to include this in the price of the successful drugs).
These factors do not really determine current prices at all. Rather, they are fixed by the demands of stockholders who, driven by a desire for profit, push the company to determine its prices based solely upon the material desires of the shareholders and the company's stock market value. So prices skyrocket because the real factors that should determine their value are discarded for the volatile and fabricated values of stock market demand. McCain doesn't seem to think it is a problem to divorce a product's price from concrete factors like the cost of its production or reasonable profit expectations. We have seen with the stock market that it can be a very big problem.
Blevins: So how is Obama's plan better ?
François: This is where the government has a role to play and this is something Obama and his advisors understand very well. The government doesn't have to control every aspect of healthcare, but it has to be able to regulate prices, so that the price of drugs and treatment always corresponds to the basic criteria that should go into determining the value of any product: its cost of production and the reasonable return on investment by shareholders. McCain doesn't address this issue at all in his plan. Obama does in a part of his plan called the Health Insurance Exchange.
Blevins: But how exactly does an Obama administration go about regulating healthcare and not just the pharmaceutical industry?
François: This is a good question and it hits at the heart of McCain and Obama's differences of perception. McCain recently wrote in a medical journal that healthcare should be deregulated. He got a lot of flak for that but if I understood him correctly, what he meant was that he wants healthcare policies to compete across state lines.
On the surface, this isn't a bad idea, but this kind of policy is doomed to failure for one essential reason: McCain is making a point that seems valid, but upon inspection, doesn't hold up or even make sense in this industry.
Let me explain: private healthcare does have a real benefit and McCain knows this very well. When you have identified a risk for the individual, say smoking for instance, only private insurance has the flexibility to force its policy holders to improve their health habits (i.e. if the individual continues to smoke the insurance company has the right to raise his or her premiums). McCain's desire to let insurance companies compete would seem to provide the necessary competition (thereby reducing premiums) while allowing insurance companies to more or less motivate healthy behavior.
But McCain and other healthcare providers for years have refused to face a simple reality: these cases of identifiable medical illnesses with 100 percent prediction of risk (the only ones that can be effectively controlled by market regulation of healthcare) are not statistically significant. The vast majority of health problems result from causes that are not known and thus not measurable by any objective criteria (accidents, various genetic problems that are currently undetectable before adulthood, most cancers) all these health risks are not measurable like you can measure the risks of smoking.
So McCain is essentially selling a healthcare plan based upon a theory that can apply to less than 10 percent of your country's medical problems. You have to provide some kind of minimal coverage that does not depend upon individual behavior if you want to avoid a massive breakdown in healthcare. This is precisely what US is now experiencing. Your technology has advanced, but your actual performance has been effectively blocked by market considerations, causing you to invest large amounts of money, even while you avoidable death rate rises at an alarming rate.
Let's hope your faith in the free market, which isn't entirely missplaced, can be tempered enough to allow you to implement an effective healthcare system.
In November, I will be blogging on the different Images of America that abound in Europe.
Advertisement
Well, I was awaiting this post, and I found it even more disappointing than Part II. Francois clearly has a poor understanding of the US healthcare system.
"These factors do not really determine current (medicine) prices at all. Rather, they are fixed by the demands of stockholders who, driven by a desire for profit, push the company to determine its prices based solely upon the material desires of the shareholders and the company's stock market value."
That is just simply not true. It is true that new drugs on the US market are expensive. However, if they just priced them at whatever they wished, no one would buy them. Insurance companies would simply not list them on their formularies. Patients would refuse to pay. Even prices for very expensive medications, like darbopoetin for example, are negotiated with insurance companies. No elderly patients could afford the over $1,000/month expense without help. However, George Bush famously has forbidden Medicare Part D from collective bargaining.
"McCain recently wrote in a medical journal that healthcare should be deregulated... he wants healthcare policies to compete across state lines.
On the surface, this isn't a bad idea..."
That is a horrible idea both on the surface and in depth. Anyone have any credit cards from banks based in Delaware? If so, you know what I mean.
Francois also seems to be totally unfamiliar with actuarial tables.
Nice try, but your expert let you down.
November 4, 2008 12:06 AM | Reply | Permalink