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An Open Letter to Harry Reid on Controlling Health Care Costs


Dear Senator,

I know you're in a tough spot. It would be bad enough if you only had to get Ben Nelson, Evan Bayh, Mary Landrieu, and Blanche Lincoln on board, but anyone who has to kiss Joe Lieberman's derriere deserves a congressional medal of honor.

But Harry, you really need to take on future health-care costs. The House bill fails to do this. The public option in the House bill is open only to people without employer-provided health insurance. That will be too small a number to have bargaining clout to get good deals from drug companies and medical providers. And it will mainly attract people who have more expensive medical needs, which is why the Congressional Budget Office decided it would cost more than it would save.

You also know a public insurance option that's open to everyone would cut future health costs dramatically by imposing real competition on private for-profit insurance plans. That's why the private insurers hate the idea. Even if states were allowed to opt out of this robust public option, the big states would almost certainly opt in, giving it the scale needed to negotiate great deals from drug companies and medical providers. This would put pressure on any state that opted out because their citizens would soon discover they're paying far more.

In addition to the House's weak public option, the deals the White House and Max Baucus made with the drug companies and the AMA will force Americans to pay even more. If, on the other hand, Medicare were allowed to negotiate lower drug prices, biotech drugs weren't granted a twelve-years monopoly, and doctors had to accept Medicare reimbursements in line with legislation enacted years ago, Americans would save billions.

You know all this but you're also trying to get 60 votes in order get any bill to the floor. You have my sympathies, but unless you get these reforms into the final Senate bill you're not really helping most Americans afford future health care.

So what do you do?

First, try for the "reconciliation" process, which requires only 51 votes. Every one of the reforms I mention above would fit under the Byrd rule.

If that doesn't work, wrap these reforms together -- a public option open to everyone (allow states to opt out of this if they dare), Medicare-negotiated drug benefits, no 12-year monopoly for new drugs, and a major squeeze on Medicare reimbursements for doctors -- and have CBO score the savings. I guarantee you, the number will be large. Then you should dare anyone, Democrat or Republican, to vote against saving Americans so much money in years ahead. How is Ben Nelson going to face voters in Nebraska who would have to pay, say, 20 percent more for health care in the future if Nelson refuses to go along?

If neither of these tactics work, then take whatever bill you must to the Senate floor. But then introduce this reform package as the very first amendment to the bill. Call it the "Ted Kennedy Amendment for Helping Middle Class Families Afford Health Care," and whip the hell out of the Democrats. Get the President to help you. Surely Joe Biden will. If you can't get 51 votes out of Dems for this, publish the list of Dems who vote against it, strip them of their committee chairs or sub-chairs, and make sure the Democratic Senate Campaign Committee gives them zilch when they're up for re-election.

Nobody promised you this would be easy, Harry. But, hell, why are you there, anyway? Your responsibility isn't just to pass whatever will muster 60 votes and that the President and Dems can later call "health care reform." It's to do the right thing by the American people and bring down future health-care costs. Don't cave in to Lieberman or Nelson or the drug companies or the private insurers or the AMA or anyone else. Lead the charge.

All best.

34 Comments

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Healthcare costs should be effected by the bill. Slow the increase by 15 to 20% according The Business Roundtable.

Of course there is nothing, that I'm aware of that'll ensure that savings will effect premiums.

That's probably why Goldman Sachs is liking the look of the future of stocks:

Goldman Sachs Report: Watered Down Senate Bill Would Lead To ‘Bull Case Scenario’ For Insurance Industry
http://wonkroom.thinkprogress.org/2009/11/13/goldman-insurers/

The worst case scenario — “where we introduce a government-run public plan that we assume would capture the majority of coverage expansion under reform as well as some of the industry’s current market-share in the [Middle market large employer] segment” — would produce revenue growth of just 2.4%, compared to 5.9% growth under the SFC and 6.2% growth without reform. Industry revenue would grow 6.9% from “more moderation of provisions in the current SFC plan or as a result of changes prior to the major implementation in 2013“:

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The act should be renamed:

The High Premium and High Deductible Insurance Act

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nice write up from the Wonk Room:

The CMS report confirms that the House health care bill is a fairly modest proposal that expands access to insurance and builds on what works in the current system. Now, honest lawmakers — who believe in health care reform — must ensure that reform also lowers costs for families and reduces long term health care spending.

Rather than complain about a fictitious government takeover of health care and rationing care to seniors, Sens. Olympia Snowe (R-ME), Susan Collins (R-ME), Joe Lieberman (I-CT) and other ‘moderate’ lawmakers should use this report to insert stringent cost-control mechanisms into the final bill. The report relieves them of their deepest fears (and Luntz-inspired talking points) and challenges them to address the real problems in the health care reform bill.


more here:
http://wonkroom.thinkprogress.org/2009/11/15/cms-report/

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I read the CMS report, and while much of its conclusions appear reasonable, it may significantly underestimate cost control mechanisms within the House Bill HR3962. For example, it estimates zero savings for Medicare pilot programs to examine the increased efficiency achievable from accountable care organizations, "medical homes", or other bundled payment mechanisms. It's certainly true that the pilot programs themselves would have negligible effects, but if their results are promising, based on examples already in existence in scattered regions of the country, extension to the patient population more generally could mediate substantial cost savings. That is the whole purpose of pilot programs.

They also state correctly that proposed enhancements of preventive care programs would have little net effect on national health expenditures, because the cost of screening many individuals would offset the savings resulting from reduced illness among only a few, even if the illnesses cost more per person. Technically, they are right, but even though the healthcare system would see little net benefit, the economy as a whole would benefit considerably from the reduced incidence of illness as a cause of lost worker productivity.

Their assumption that a public option, if included, would typically charge higher premiums than the average plan, may also be pessimistic, because the same type of potential mechanisms for increased efficiency I mention above - accountable care organizations, medical homes, etc. - would be available to control costs. The CMS estimate seems to have been borrowed wholesale from the earlier CBO analysis, based on the same questionable assumptions.

Overall, it's fair to say that the proposed legislation could do more to control costs within the healthcare system, but the mechanisms proposed are an important first step in that direction.

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you by far the least reliable and pro: "whatever, just call it healthcare reform" person on this site.

Excuse me, while I believe others work (like the fine people at the Center for American Progress and the CBO), and not yours (random guy on the internet).

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Robert Reich, You make total sense - it seems to me the obfuscation on health care reform is coming from insurance companies and those in Congress beholden to them.
Why are so many so concerned about insurance company profits?
Our elected officials are supposed to be serving the public not the corporations.

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Great letter Professor!

Too bad neither Reid nor the White House are in favor of the sensible measures you propose for benefiting the average American.

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I guess Robert Reich's heart is in the right place, but I'm not sure just where his mind has wandered off to with his latest suggestions on how to transform American healthcare into his utopian vision. A public option, for example, would be a valuable component of reform, but the notion that it would dramatically reduce healthcare costs bears no roots in reality. A far larger public option already exists - Medicare - and it hasn't done nearly as much as it might to constrain costs. If serious effort were put into using Medicare's leverage to do that, the effectiveness of that strategy would greatly exceed the power of a new public option to do the same. The reform proposals do offer new opportunities to Medicare to step up to the plate, and so we'll have to see whether that's what happens. The fate of a public option is of lesser significance.

Reich's scorched earth proposals for achieving the reform law he desires won't work and won't be tried, which is very fortunate. That's not to say that political pressures shouldn't be applied, but the threats of dire punishments (demotion from Committee chairmanships, denial of campaign support) would be counterproductive for many reasons.

The most important is this. Healthcare reform is not the most critical issue this Congress will face, and for which unified and willing Democratic support will be essential. That honor belongs to climate change legislation. Healthcare reform will only affect the life and health of several hundred million Americans for decades, whereas global warming and its consequences portend disaster for billions of humans and hundreds of billions of other species for millennia. It's true that what the U.S. does will be only a fraction of the global effort needed for effective climate change mitigation, but it is a defining fraction. Our leadership will permit all the other nations to undertake their own mitigation efforts, more by some than by others but all necessary. Our failure to lead will doom the global effort to an ineffective baby step unlikely to avert more than a small slice of the damage. If the world's worst contributor to the extra CO2 now in the atmosphere won't make even a few sacrifices to stop the pollution, why should those whose responsibility is far less assume all the burden by themselves?

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jesus Fred, talk about mind wandering off....

you complain that threats of dire punishment would be counterproductive for so many reasons, and then list ZERO of these reasons.

Then, you ramble on and on about something completely off topic, other than asserting the health of hundreds of millions of Americans is just not that big of a deal. Your callousness disgusts me.

Health-care insurance costs are eating up a larger and larger portion of our GDP, and an ever bigger portion of already stagnant incomes. That means most Americans won't have any disposable income, which will further crush our country's economy.

But I guess Fred Moolten has decided that this is no big deal because there is one other issue.

As old as you are, are you still so naive that you think America - the proud overconsumer - will ever do anything reasonable for the environment? LMAO. Obama is all about "clean coal" bullshit - and even worse Cap'n'Trade bullshit. The only climate bill we can expect is a bullshit one just
like this bullshit health insurance bill.

Robert is actually spot on with this for a village-free trader-DLC-hack-type, really he should just advocate a buy-in to Medicare - that is the only beginning of the solution for health insurance costs.

The reason a public option would help is that 30% overhead is consumed by for-profit corporations, and about 3% by Medicare (gov't run). So off the top, everybody could be saving ~25% of their current expenditures (>$7,000*person/yr). It could mean almost an additional two grand of income per person per year, when the average savings rate is currently negative.

So I guess since Fred Moolten wants a (meaningful) climate change bill which will never ever happen, we should all let health insurance costs destroy what is left of our tattered economy.

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Your data are incorrect.

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yet again you assert your opinion, state it as a fact, and provide zero evidence of what in the hell you are talking about.

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Healthcare reform is not the most critical issue this Congress will face, and for which unified and willing Democratic support will be essential. That honor belongs to climate change legislation.

Ok, Fred. Where does it say that problems have to be solved sequentially, in order of most importance?

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CVille - The Obama Administration appears to see a political virtue in the current sequence, and given campaign promises and public perceptions of importance, they may be right.

I'm an ardent supporter of the healthcare reform effort, but my point above is that it would be foolish to issue extreme threats to Democratic senators regarding healthcare reform components that are meaningful but not essential to a good reform result (in particular, the public option), when as much party unity as possible will be needed for the climate change debate.

Incidentally, I responded curtly above to someone named Obvious, but I think most people who have read my discussions of reform details are aware that I have addressed medical loss ratios in detail. His errors appear to involve confusion among different sources and values of overhead estimates.

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220 votes. Change anything and it will be 217.

Thirty years ago business people were reading "In search of excellence". It got one thing right

Do it. Fix it

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Robert, you know this is what Harry Reid would do if he cared about moving towards a solution to our problem with exploding health insurance costs.

Harry Reid is not concerned about that. He is concerned about his own power, enrichment, and maintaing the status quo of corporate control. Harry wants to lose some House and Senate seats so the farce that is the Democratic party is not so obvious.

This is similar to why Republicans will never repeal Roe v Wade, they would have nothing left to promise to their ignorant "base" voters.

I guarantee Harry Reid is more worried about being friends with his fellow millionare Joe Lieberman in their old age, and not upsetting the corporations that fund his plush lifestyle than the 122 people who die each day because of lack of healthcare in this country.

If he wasn't, he would have already acted as you describe, at a bare bare bare minimum.

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On another thread an international organization made the claim the CAT scans were far more expensive here than abroad, even for Medicare.

I wrote the head of the organization, Lord Fat Ass, for clarification but received no reply. So maybe someone here can come up with an answer.

A CAT Scan machine most probably costs less in the U.S. than abroad. So how can Europeans and others charge less for its use? There are only two answers I can come up with; the machines are used much more intensively, and they are used longer.

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Most medical equipment costs more in the U.S. than elsewhere, but the main reason for higher CT, MRI, and similar costs in the U.S. is less efficient utilization. This is particularly true where duplicate facilities exist within a small region, such that any one machine is idle much of the time.

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I think we perform something like 6 times the number of CAT scans performed elsewhere. If we are, despite that, less efficient in our utilization then we must buy something like 8 to 10 times the number of machines. So why are manufacturers able to charge us more per machine? The economics must be pretty strange.

Also, if we buy so many more machines the average age of the "fleet" must be considerably less - meaning we are, on average, using much better technology.

Right?

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Medical "prices" are generally higher in the U.S. - for both services and equipment. We do buy more equipment than other nations, and it contributes substantially to excess costs ("if we have it, we better use it to recoup our purchase cost"), but all the excess expenditure signifies is more machines per capita, not 8-10 times more.

The technology elsewhere is not demonstrably inferior in any way to ours, and as you may know, all the other industrialized democracies achieve better health outcomes than we do.

For additional data on costs, overutilization, and other relevant issues, see

http://www.oecd.org/dataoecd/5/34/43800977.pdf

and

http://dartmed.dartmouth.edu/spring07/html/atlas.php

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I chose to focus on CAT scans and CAT scanners in order to be factual. Without focus all we have is a cloud of propaganda.

It turns out to be extraordinarily difficult to get sales figures by country of the equipment. However, Chart 2 on page 14 or your first source will do. We purchase less than half the number of scanners per capita that Japan does but 3 to 5 times the number per capita purchased by the British, French, and Germans. Considering the relative population sizes we purchase more scanners than the entire OECD. We also do 4 to 5 times as many scans per capita as the 3 most populous countries which I mentioned.

So it looks to me as if our utilization is about the same as the OECD, roughly. But our equipment is certainly much newer, on average, and therefore rightly more expensive.

Not the conclusion you're promoting, Fred.

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The table doesn't provide the information you state. It tells us that we possess about twice as many CT or MRI machines plus or minus a fraction, than other comparable nations, not 8-10 times as many.

I found nothing about how many we purchase, but even if we bought these machines at only 50 percent higher frequency than other nations rather than 10 times the rate, they would take only about two years to accumulate the excess. If we bought at exactly the same rate, but kept them longer, we would also end up with more, so we can't exclude the possibility that we haven't bought any more at all, and that our equipment is older rather than newer than elsewhere. I assume that we probably have bought slightly more, but not the huge excess you suspected. There is no reason to assume the average age is much less here, because at least some of the nations started increasing their inventory later than we did. Given the modernity of most of the machines elsewhere, it's unlikely that ours is "much newer".

I don't understand your logic in suggesting earlier that if we buy more machines, the price should be lower. We buy more here because demand is higher here, as institutions compete for patients by offering more and more services. That competition to offer more equipment than the hospital around the corner drives prices up, and is almost unique to the U.S. In Europe, the authority to make these purchases is often limited, and in addition, the equipment purchase costs are often restricted. That keeps their prices lower.

Our utilization is hard to assess compared with other nations, because the data are fragmentary and are confounded by the omission of certain sources of use in some countries (e.g., public hospital patients). The table indicates we do about twice as many CT scans as the average elsewhere, not 6 times as many. Given the Dartmouth data and other similar data, that appears to be more than necessary. It is part of the pattern of excessive procedures that accounts for much cost excess in the U.S. with no improvement in health outcomes.

It may be true that our utilization per machine is comparable to that elsewhere, at least according to the oecd data, at least on average. However, data I've seen elsewhere indicates that while hospital utilization of these machines may be fully subscribed here as well as elsewhere, their use in many outpatient facilities is limited to the daytime hours during which the facilities operate, and so the machines are idle at night. That leads to higher charges to patients so that the facilities can recoup their costs. If I find quantitative data on that point, I'll provide them.

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The table doesn't provide the information you state

I've rearranged the table
----------------------------------------
CT Scanners/ CT scans/
million people thousand people
United States 34 228

Japan 93 ?
Australia 56 89
Korea 37 ?

UK 8 59
France 10 45
Germany 16 ?
Italy 30 ?
Poland 10 ?
Spain 15 70
----- ---- ----
Average/
Europe 12 65

Average 23 111
------------------------------------
You can clearly see that only 3 countries have a larger number of scanners per million, none in Europe.
In Europe, when you look at only those countries with large populations you see that we have a little more than twice the number of scanners/million people, but we are slightly more efficient in their use.
When you look at the average over all countries you can see that no weighting for population was done. In other words, this document is rife with propaganda.

I don't understand your logic in suggesting earlier that if we buy more machines, the price should be lower

Economies of scale. An old concept. It's also true that our government did attempt to limit purchase of these machines by requiring a "certificate of need". I don't know whether that's still in force.

What's clear is that the data aren't good enough to draw strong conclusions about anything. Since the question of CAT scanners and their use is simple, all conclusions about more complex issues are pretty much worthless.

much cost excess in the U.S. with no improvement in health outcomes

More misleading BS. The relation between health and health care is tenuous at best. Everywhere.

Health is attained by lifestyle, stimulation, exercise, decent food, management of stress; things which have almost nothing to do with health care...and which doctors know little about (although they claim they know a lot in order to charge for more services).

Health care is what happens when you are no longer healthy and fall into the clutches of professional thieves and fools...often to your everlasting sorrow.

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The facts fail to support your arguments. Of course we have more CT and MRI equipment - that is part of our excess, and we also pay more for it on a per item basis, which is another component of our excess. Equipment costs, including that of MRI and CT scanners, are higher in the U.S. because of higher demand. Facilities competing for patients will pay $3 million for an MRI suite here, whereas the other industrialized democracies pay lower costs because their regulations place limits on what's allowable, and the demand is less. The result is that they acquire the equipment at a much more favorable price. The mechanisms for cost control vary from country to country, but a typical example is the role of the Health Ministry in Japan -

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/interviews/ikegami.html

This is just one illustration of the basic problem of unrestrained excess in the U.S. that costs us about twice as much per capita and close to that same excess as a fraction of GDP than the other industrialized democracies, all of which surpass us in health outcomes as measured by the standard criteria of infant mortality and life expectancy.

The Dartmouth study, that I linked to earlier, confirms that it's possible within the U.S. to emulate other nations, because it's already being done in some regions. Unfortunately, our chaotic healthcare system, dominated by a fee for service paradigm that rewards excess, has failed to extend the lessons to the nation as a whole.

The proposed healthcare reform legislation, in addition to correcting unconsiconable inequities in the insurance sector, also takes steps to reform healthcare itself to rectify the excesses and inefficiencies. The proposed steps are small, but an important beginning in the effort to redirect a trajectory of rising costs that will soon become unsustainable.

Since I mentioned the Dartmouth study, I should cite the link again, because open-minded readers are likely to find it informative in characterizing many of the problems with current U.S. healthcare that need to be fixed -

http://dartmed.dartmouth.edu/spring07/html/atlas.php

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Here's one link to life expectancy and infant mortality data showing that we are not merely not at the top, but in fact at or near the bottom compared with the other major industrialized democracies even though our cost are close to twice theirs

http://www.infoplease.com/world/statistics/infant-mortality-life-expectancy.html

At this point, there is no longer much argument that we are behind, and the remaining areas of discussion revolve around how to make the dramatic improvements that we need for adequate healthcare to be affordable in the future for all, as it is in the other countries.

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Recent data showing the increasing disparity between healthcare costs in the U.S. and elsewhere are provided at this site

http://economix.blogs.nytimes.com/2009/07/08/us-health-spending-breaks-from-the-pack/

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Equipment costs, including that of MRI and CT scanners, are higher in the U.S. because of higher demand.

But Japan has twice -TWICE - the number of CAT scanners/million people as we do. So, by your logic, it should be paying far more per machine than we do.

The mechanisms for cost control vary from country to country, but a typical example is the role of the Health Ministry in Japan

So, the Ministry of Magic has managed to repeal the laws of supply and demand.

You're full of shit, Fred, rendered totally clueless by ideological bias.

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I have to admit, Spider, that I get a perverse satisfaction from being called names by someone in lieu of evidence, because that way of responding speaks for itself.

At this point, I'm content to invite any interested readers to review the discussion here, but more importantly, to visit the links demonstrating that our costs here are hugely in excess (including our increased payments for individual items of equipment although that's a minor part of the problem), and that we do worse that all the other industrialized nations in offering care to all members of society and achieving good outcomes, despite the much higher costs.

I'm confident they will make the proper judgments.

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This country is filled with grossly obese pigs.
It's almost impossible to find an adult in the United States who isn't addicted to a prescription drug, or several.
Psychoactive drugs and psychological helpers pollute our health care landscape.

The Europeans and the Japanese smoke like crazy but they aren't obese, and aren't addicted to psychologists and their drugs. Maybe that's why they spend so much less on health care. Maybe that's why they're much healthier than we are.

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America is like a Jack Benny character

America’s dilemma is like that in a Jack Benny skit where a mugger confronts him demanding, “your money or your life.” After a significant pause, the mugger repeats his demands, and Benny responds, “I’ thinking! , I’m thinking!” As America is being mugged, our government representatives are acquiescing to the muggers while our citizens are thinking and thinking, but can’t decide, what’s important – our life or our money.

Average Americans have a profound feeling that they do not matter. They are personally subordinate to their job, their boss, their bank, their doctor, their insurance company, the wall street wizards, experts in general and the government.

Believing in our own inferiority, we tolerate business corporations corrupting our government.

As a people, if we did not believe that we are inadequate when it comes to governing our own affairs, we would not tolerate for-profit businesses to dominating our health care industry. If we did not believe that we are inadequate when it comes to governing our own affairs, we would not tolerate profit-oriented bankers to issuing the nation’s money and establishing the nation’s monetary policy. As long as Americans have low self-esteem, believing our judgment to be inferior to that of elite experts, comforted by our ignorance of money and politics, convinced that any government we elect is inherently incompetent and putting ourselves at the mercy of business and the international free market, the mugging will continue.

If our government would honor its sovereign duty to issue the nation’s currency and use the money to pay for health care, we could have the best medical system in the history of the world, without taxes, without insurance premiums and without government debt.

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You are suffering from low selfestimitis (DSM IV-BS). Why don't you try self-esteem pills? I know they're vastly overpriced, and quite a few of the products don't work or have nasty side-effects, but think of the benefits if you're one of the lucky ones.

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...or you could join a revolutionary party. That way you could spout nonsense, wear bad clothes, play bad music, have bad B.O., and the girls would still love you...at least while you were young.

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Thank you for supporting my position: some are comfortable in their ignorance.

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