What's wrong with this picture? Healthcare abroad.
I wrote in a previous blog putting forth my arguments for a single payer healthcare system and in another critiquing lost healthcare dollars in the pharmaceutical industry. This will be a shorter blog, largely anecdotal, describing some of the realities of the current healthcare system in the US contrasted with Mexico, in which I'm currently travelling. I decided to extend my trip here from a 2 week jaunt to a 6 week trip after I arrived, necessitating getting some of my ongoing heart medications' prescriptions filled here in Mexico. Without further embellishment, here are the results of filling those four medications.
Medication cash price Mexico cash price US Copay US with my previous health plan
A $13 US $63 US $30 US
B $71 US $51 US $15 US
C $16 $12 US $15 US
D $36 $208 US $30 US
TOTAL COST/MO. $136 US $333 US $90 US
Disregarding import tariffs, (probably not a factor), distribution costs, and advertising costs, the differential between the monthly cost in the US and Mexico would indicate a Peso that contrary to reality, is stronger than the dollar. Alternatively, something else is amiss in this particular subsection of our health care 'system' and I'd be delighted to hear whatever explanation/rationalization anyone out there can offer to account for the supposed 'anomaly'. It's interesting that my insurance plan copays, (a plan for which I paid a monthly premium of $270, and was recently raised to $1700/mo), paid all but $46 of the cost of the same meds in Mexico. If I was a skeptic, I'd think somebody was trying to sharp me. For what it's worth, I should note that I filled these prescriptions without a physician's signature, thereby reducing the overall cost of supplying ongoing medications such as mine by reducing the number of patient-doctor visits. This also eliminates the ongoing Three-way conversation and expense between patient, physician, and pharmacist.
It is significant that the two medications that are still patent protected, (A & D), account for the biggest differentials in cost between the US and Mexico. Which leads me to conclude that the higher US price is due solely to an effort to maximize profits by extorting the highest price the market will bear in the US, while touting the benefits of the latest and the greatest of the industry's offerings. Many new drugs have had clinical trials suppressed in the medical literature in order to project a more 'marketable' picture of the new drugs.
Liability undoubtedly plays some role in cost discrepancies between the two countries though I doubt it could account for even a majority of the difference. Combining all health care under a single payer would reduce reduce overall physician, and potentially pharmacist liability insurance premiums by including all practitioners under a single, large, not for profit insurance pool much as it would reduce the patients' overall costs for the same reasons.
Add to all this the smoke and mirrors of insurance pricing and reimbursement, and the situation really paints the American public as a bunch of rubes. I first got hip to this 'tactic' of the insurance industry when I had a vehicle vandalized and made a claim. The insurance adjuster asked if I was going to "let the company handle the claim", whereby I would give my $500 deductable to the body shop and they insurer would pick up the balance due. I told him I would do it that way, and he wrote out a claim approval for $1450. Upon reviewing the adjuster's estimate, I noticed he had included a price of almost $500 for windshield replacement. I had recently replaced the same windshield for a total cost of $230, so on second thought, I elected to get the check for the amount of the claim, less my deductable, (balance=$950). I ended up having the work done for about $650, and pocketed the difference of $300. I have no coubt the real cost of the repair to the insurance company would have been about the same, and perhaps less. This same technique goes on in medical health insurance, where insurers negotiate lower prices from product and service suppliers than those quoted on your bill from those suppliers. Meanwhile our insurance premiums are sent in regularly to pick up any slack in the cash flow of those insurers. So it does seem like 'smoke and mirrors' or a game of three card monty, where the queen was never really on the table even though you played the game as if it were. For the record, let me say this again: The negotiated lower price of products and services tend to be lower in single payer systems, than in multi-payer systems such as the one in operation in the US.
We've made some serious financial trade-offs with our current health care 'system' that have left us open to inflated medical costs if not price gouging by pharmaceutical companies, pharmacies, and all in collaboration with insurance companies. There are estimates that place the waste in the pharmaceutical sector of the US health care system as high as $66 Billion per year. That is a lot of financial firepower to help outmaneuver the end users of the system, (that's you and me). The free market axiom of pricing products and services according to what the market will bear, must be taken hand in hand with the complimentary, cautionary axiom "Let the buyer beware". Unless we Americans let it be known that we won't stand for it, we are destined to continue financing corporate health care waste and profiteering.
Someone here, (Jolly?), once compared the mark up of health care products and services as the "vig", or vigorish. The vig is normally kept to single digits in terms of percentage points in the gambling business. In our health care industry the 'vig' expands to include not just ordinary profit margins, but all the advertising/marketing costs as well as all the normal overhead costs processing claims.The overhead costs for some insurers has been estimated to be as high as 30-50%. Waste in the system in the US has been estimated to be between $477Billion and $700B with pharmaceutical costs roughly 70% above prices in other nations. There are myriad avenues of waste I detailed in my previous blogs. Given the current state of the economy perhaps the question is not how long we'll continue to finance this health care system waste as: How can we afford NOT to change the fundamental structure of our insurance/health care system?
Biggest giveaway in us history. to the drug companies and rummmy was paid off. Good solid reporting from our Norte Americano friends.
March 2, 2009 10:19 PM | Reply | Permalink
Yup... We give and have given away a bailout worth of ineffectual 'economic stimulus' every year to various health care industries.
March 3, 2009 11:33 AM | Reply | Permalink
That sucks.
March 2, 2009 10:26 PM | Reply | Permalink
Too true. Just another strategy to remove net negatives from the insurer's rolls.
March 3, 2009 11:35 AM | Reply | Permalink
Very informative. I like the way you pull in the gambling terms. It reminds me of the blog on risk shifting. Totally different topic and concept. But still, you can see how the financials in the US are all based on some kind of shell game going on.
March 2, 2009 10:39 PM | Reply | Permalink
Insurance really is gambling when it's done for profit as in our current system, although it's based on all those actuarial tables, demographics, and predictors like smoking, etc. If the insurance pool is large enough it becomes less of a gamble and more of a statistical reality. The 'for profit' aspect of our system leads to just about all of the problems in our current system, by encouraging insurers, and pharmaceutical companies to game the system in order to maximize their particular piece of the profit pie, to the detriment of the larger pool of end users. In that part of the equation the system really is about gambling, (with the end users' health ultimately), in order to maximize corporate profits.
March 3, 2009 11:43 AM | Reply | Permalink
"I have no [d]oubt the real cost of the repair to the insurance company would have been about the same, and perhaps less."
It's called moral hazard. Safety nets get abused from all sides (tho' not by everyone).
Here is my favorite health insurance anecdote:
Friend gets outpatient hernia operation, 3hrs, walks out. Bill is over $20K. Doctor got $700. My friend paid $3K copay. Do you believe the insurance company paid $17K?
On a purely economics note, long-term contracts can create spot market price anomalies. Look at oil prices recently. The bulk of oil deliveries are not being made at the spot price just after a big price fall, they are being made at contract prices (or spot plus futures contract differences, the same thing). And airfares ... sometimes last minute seats are dirt cheap, sometimes through the roof, with many passengers making forward contracts weeks in advance.
March 3, 2009 2:39 AM | Reply | Permalink
Unfortunately your friend's anecdote isn't unique. Worst cases are emergency situations. Who's gonna go shopping for the best deal under those circumstances?
Interesting observation on the long term contract effect on healthcare pricing. Do you think the actual 'demand' on health care products and services fluctuates significantly enough to make this a factor?
March 3, 2009 11:53 AM | Reply | Permalink
Emergency room visits represent an extreme of "spot market" pricing. Everyone agrees this is far from the "forward contract" insurance pricing. And sometimes you can get a cheap rate below standard rates at the doctor's office if you will pay cash and the doctor has sympathy for you, so that's a kind of spot market pricing deviation.
But no, I don't see the larger market working quite like the oil market. Health care is a service, not an ordinary commodity. What HMOs and some insurance plans do is to try to turn it into a commodity. This treats humans as means rather than ends, which if you follow Kant is a no-no.
That said, I do see the market as a market, and it is subject to greed and fear, to rational expectation theory and irrational exuberance etc. so it is reasonable to look for parallels even if only to rule them out in a more informed and knowledgeable way.
March 3, 2009 6:09 PM | Reply | Permalink
My wife and I pay $459 per month for an HSA policy: $5000 deductible, and we pay essentially cash but at negotiated insurance rates for our health care processes. Basically, we pay $5508 per year for the privilege of paying insurance-company negotiated prices and catastrophic coverage.
Neither my wife (59 years old) nor I (52 years old) has any record of any existing condition other than my $4/month synthetic thyroid drugs.
We have never exceeded the deductible.
Nice profits... I am guessing that as individuals (both with independent businesses) we are members of some Anthem-defined risk group. I am certain that we don't have much negotiating power.
That's my complaint with advocates of "capitalism". They are really advocates of a field of economic competition where many people are individually and separately forced to compete against groups with highly concentrated influence. The playing field is tilted to the point where millions of productive people are simply sliding off into the abyss.
March 3, 2009 5:34 PM | Reply | Permalink
There are two competitions going on.
The insured compete against each other and the insurers compete against each other. Both have problematic aspects.
The other competition is the competition between insured and insurers in general, just like between producers and consumers in ordinary economics. This is inevitable as long as there is an economy.
Misunderstanding it is problematic, but it's also possible to convert from a trade economy to utilities, that health care becomes a utility (like most electric and natural gas is done) rather than an open market trade commodity. This leans towards single payer to some extent.
But a real component of high costs of insurance is that so few spend so much. Something like half of costs are spent in the last year of life, for instance, but everyone pays for that for their whole life. So your $5K/year or whatever is building up a nest egg for when you are dying, to pay $150K or whatever in the last few months of your deathbed life.
Something like that.
March 3, 2009 6:32 PM | Reply | Permalink
One other aspect of this that I didn't touch on is the fact that as Americans it is illegal for us to buy from Mexican or Canadian pharmacies. So while there has been all the clamor for free trade, (so long as it benefits manufacturers), this sector of the world economy, we find ourselves locked out of. Now why is that? This really does remind me of a shell game in which we're continually trying to figure out which cup the pea is under, when it was never even on the table since the first move. Isn't it time our congress critters started considering the needs of their constituents and not just those corporate interests donating the big bucks to their campaign war chests?
March 3, 2009 11:21 AM | Reply | Permalink
It's called Capitalism guys.
I"m neither endorsing nor deprecating it, it just happens to be the system under which we live and have since the Reformation ended the ability of the Church to require a "fair" price.Read Tawney.
Drug companies-tongue in cheek-defend the price/cost relationship - or lack thereof- as necessary to fund research.Nonesense. The rule in all pricing, irrespective of the product or its social utility, is "All the market will bear". If that means people die , who ever said life was fair, get over it.
We've tried other economic systems from time to time and the results haven't been outstanding.
The "Invisible Hand" is in many ways a failure. The "Heavy Hand is one in almost all ways.
We've also tried capitalism with a high level of state intervention in a variety of countries with results varying from New Zealand's failure to the decades of success in a variety of , in particular, European (not just Sweden)states.
Personally I've benefitted from the excellent altho misreported here medical systems in the UK and on the Continent.(The Sunday Times described the UK's long waits for service without pointing out that they were the direct result of saint Maggie's attempt to destroy the NHS and they've been eliminated by Blair/Brow . Maybe for them to continue to be excellent there, there has to be one country with a highly privatized medical system where overpaid drug companies and doctors create brilliant remedies and procedures from which the rest of the world can ultimately benefit. Pity that has to be us.
March 3, 2009 12:01 PM | Reply | Permalink
" Maybe for them to continue to be excellent there, there has to be one country with a highly privatized medical system where overpaid drug companies and doctors create brilliant remedies and procedures from which the rest of the world can ultimately benefit. Pity that has to be us."
My sentiments exactly. I'm truly tired of hearing the old saw that the fixing of high prices in the US is necessary to fund research and that we receive better services as a consequence. Research like any product or service is subject to cost benefit analysis. If there's a market for the end product, the research will be done, whether the end market value is inflated by market controls or falls within a more normal % profit.
March 3, 2009 12:47 PM | Reply | Permalink
Um, because the United States effectively subsidizes the entire rest of the world's healthcare because everywhere else is run as a government monopoly. Hence virtually all R&D spending worldwide is financed out of the U.S. market.
The cost "savings" is an illusion created by the fact that we're the last large wealthy nation that hasn't got a national healthcare system. If we go, the R&D goes with us.
I'm not trying to defend all pharma clinical practices, or deny that there are problems with drug marketing and drug testing. (I don't think prescription medications; controlled substances all, should be directly marketed to consumers at all) But lack of intelligent limits on drug company marketing and doctor codependence is not in any way part and parcel of a market system.
March 3, 2009 12:22 PM | Reply | Permalink
I agree that the lack of limitations on pharma direct to public marketing and MD/pharma relationships is not necessarily excluded by a 'market' system. That woould account for some distinct savings were such laws instituted. I don't think the R & D does go out the window if we go to a national health care system. So much of that research is directed at modifying existing drugs, with minor changes, and limited if any measurable benefit over existing drugs in order the regain patent protection and thus control market prices on the new drug. Research will still go on, but the profits will not be as 'stratospheric' as they have been. The pharmaceutical industry as a heavily regulated industry has had a rather insidious relationship with the government and its´regulatory agencies. That relationship while heavily restricting operational corporate activities, has allowed it to operate with little or no financial oversight regarding inflating prices here in the US. These corps have lobbied heavily for that as a kind of payback for the operational oversight they are forced to comply with.
March 3, 2009 1:11 PM | Reply | Permalink
I agree.
My point was that the purported benefits of nationalized medicine are basically a creature of uncaptured errors.
I think that the way patent protection of drugs is handled is the problem, along with the fact that other countries DO have national health care (which is, incidentally, a massive subsidy to their businesses - this ought to be a free trade issue). If there was a market in health care in France, Germany, Britain and Canada, then prices would fall in the United States, even without a change in our system.
March 3, 2009 4:56 PM | Reply | Permalink
Two comments:
1. That may be true ,
and if so that's a price that would be gladly paid by the uninsured now dying of conditions that could have been treated.
2. Or not
There didn't use to be an Airbus competing with Boeing a Toyota competing with Detroit or a USSR with matching our nuclear weapons and mssile programs. Nature abhors a vaccuum .
There will always be scientists and scientific inquiry. And governments have been known to do things right.
March 3, 2009 4:06 PM | Reply | Permalink
In reply to the above:
(1) Probably. Should they be allowed to determine policy based on their own narrow self-interest to the detriment of the remainder of the population and future generations?
(2) Government can make filling a vacuum illegal. Government can also make it unprofitable. The former may or may not stop the vacuum from being filled. The latter always will.
March 3, 2009 4:58 PM | Reply | Permalink
With respect to (1),people naturally want to stay alive and healthy, at least I do. If I were asked to vote on whether I would accept illness and premature death so that future generations could live better I'd vote no. I suspect in a democracy that would be the overall result.
With respect to(2) I suppose any government might act in a perverse way. In which case the voters are free to replace it.
I disagree with alwaysin your last sentence. The profit motive is very powerful. But so is the pure desire for knowledge which motivated ,say, Galilleo to pursue unprofitable indeed unwelcome research.
March 4, 2009 12:29 AM | Reply | Permalink