But the President and Congress MEANT Well

by Don Boudreaux on August 7, 2011

in Health, Other People's Money, Reality Is Not Optional, Seen and Unseen

There’s a shortage today of low-priced, life-saving drugs for cancer patients.  And the cause – surprise, surprise – is the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  Ezekiel Emanuel, an oncologist teaching at the University of Pennsylvania, explains why in this op-ed appearing in today’s New York Times.

Here’s are the central paragraphs:

The underlying reason for this [failure of the laws of supply and demand to keep these drugs in adequate supply] is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.

Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

The result is clear: in 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211. (These numbers include noncancer drugs as well. )

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{ 87 comments }

Kirby August 7, 2011 at 9:35 am

I just read this in the Economist and knew it would be here.

Krishnan August 7, 2011 at 10:18 am

“unintended consequences” … Just about everything these statists and control freaks do has “unintended consequence” and yet they continue to do it and make things worse … but yea, as you noted “they meant well” – so the dying public – the cancer patients who cannot get their medicines – should feel better that someone out there meant well …

I do not think these are “unintended” consequences – unless the President and the Congress (yea, both – Republicans/Democrats) are indeed so dumb and stupid that they do not know or imagine what happens when price controls are put in place … AND YET THEY REFUSE TO LEARN OR worse – they just do not give a d&^% because they are so filled with hate towards any company that makes a profit … and have NO idea what it actually takes to develop a drug, produce it safely and improve the lives of many …

Can we sue the President(s) and the Congress(es) for the thousands (or more ) of (in)voluntary manslaughter? It is easy to make an argument that a) they did know what will happen and/or b) they SHOULD have known what will happen because of price controls

Don Boudreaux August 7, 2011 at 10:28 am

I believe that these consequences are unintended in the sense that no one in politics bothers to think about the likelihood that such consequences will come to pass. The reason for this failure to think about such matters is that politics is today largely theater, an attempt to put on performances that the public will enjoy at least enough to return the current actors to the stage for another round of performances.

If enough of the general public are enchanted by politicians’ claims that “new law” A will result in marvelous outcome X, the audience will reward the scriptwriters and actors who produce X with an extended stay in the theater. (And, regrettably, too many critics of this species of theater are so ignorant of economics and of history that they, in fact, are largely duped and bedazzled by even the most absurd plot lines.)

What’s intended are plot lines and scenes that result in re-election. Actual consequences are of only secondary, or even tertiary, significance.

DG Lesvic August 7, 2011 at 10:35 am

Wow, that’s our Professor Don at his best, and, just think, without the eqation of exchange.

Krishnan August 7, 2011 at 10:47 am

What is really scary is that even such clear outcomes, “unintended consequences” (if they choose) will not change their minds …

The last two paragraphs are revealing ….

“A more radical approach would be to take Medicare out of the generic cancer drug business entirely. Once a drug becomes generic, Medicare should stop paying, and it should be covered by a private pharmacy plan. That way prices can better reflect the market, and market incentives can work to prevent shortages”

So, perhaps he believes in the power of the market and market incentives? I do not believe him. This CYA behavior. And then he concludes

“Scare-mongering about death panels and health care reform has diverted attention from real issues in our health care system. Shortages in curative cancer treatments are completely unacceptable. We need to stop the political demagoguery and fix the real rationing problem”

And how will HE fix it? Does he have a solution? If indeed he believes in “markets” and “private” plans – Why did he lobby so hard to pass ObamaCare that will indeed make things a LOT WORSE?

The market is already responding to the possibility that Obamacare will be in force by 2014 and things are already getting worse out there …

Perhaps our political system (like so many) will crash because of the inability of people (or their refusal) to understand basic economics and learn from history …

Where is “Galt’s Gulch”??

Ghengis Khak August 7, 2011 at 11:59 am

‘If enough of the general public are enchanted by politicians’ claims that “new law” A will result in marvelous outcome X, the audience will reward the scriptwriters and actors who produce X with an extended stay in the theater.’

Should this not read, ‘…the audience will reward the scriptwriters and actors who produce A…’?

It is often the law itself that is viewed as the accomplishment. How many times do you hear a politician boast in campaign that that they passed some gun control law or longer prison sentences for drug users?

Dan J August 7, 2011 at 12:45 pm

Legislation like this one was written for later years consequences. By then, the politicians who authored, sponsored, or voted for it are gone or the trail that leads to their responsibility grows cold (see CRA and govt interventionism of housing).
Just as there is ten years of tax collection to offset 6 years of costs and pushing of full implementation until after an assumed re-election.
Frank and Dodd escaped unharmed from their malfeasance in relation to the housing boondoggle and the GSE’s Fan/Fred as every year that passes bread crumb trail they left is consumed by confusion and pundit whitewashing.

Ron H August 7, 2011 at 12:51 pm

Perhaps such predictable outcomes should no longer be referred to as “unintended consequences”.

Stone Glasgow August 7, 2011 at 6:45 pm

Brilliant.

WhiskeyJim August 8, 2011 at 7:02 am

I agree that the analogy of theater is appropriate for politicians.

At the same time, it is not politicians who write these laws. It is overwhelmingly academics and other highly educated folks trying to ‘solve’ universally accessible health care.

These experts well understand both supply and demand and the ability of markets to drive prices down, and many Progressives must at least give a nod to market innovation.

Therefore by their own reasoning they must see the value and difference of subsidizing individuals in a market (like say, food stamps for health care) and controlling the whole industry including payments. But they do NOT support such a system, which would at least have the benefit of allowing markets to work.

I therefore believe most of these people view industry as unethical, or they believe they can substitute thousands of market decisions and hard work with their own brilliant ideas. It is no mistake or misunderstanding, or misguided well intentioned motive. They understand markets and truly disdain them; they are not hierarchical enough.

Daniel Kuehn August 7, 2011 at 10:41 am

I think we need to be careful about calling these “price controls”. It’s an acquisition policy for Medicare. No one is saying this has to be the price.

When I’m on travel for work I can’t fly first class and order fancy meals. We have acquisition policies. Medicare, of course, has substantial market power so it’s acquisition policies can have real consequences.

I imagine this sort of thing is going to get adjusted as these unintended consequences come to light. But nobody is price fixing here.

I agree with Don that these are entirely unintended consequences. You have a pretty depressing view of your fellow human beings. I don’t think anyone involved with Part D wanted to kill people in order to stick it to drug companies. I’m guessing they just didn’t anticipate the lag in market price data.

Krishnan August 7, 2011 at 10:58 am

Re: Kuehn – If Medicare has “substantial market” power and they set the price changes, it IS price control. Sorry, I cannot see it any other way. It is not as if the cancer patients and physicians have much of a choice.

I agree that it is quite depressing to imagine politicians/others wanting harm to come to anyone – but the reality is that they cause harm everytime they claim to “do something good” – They see the “good” (concentrated benefits) and either do not know OR worse ignore the “dispersed costs” of their policies ideas.

And it is not like they are never warned of “unintended consequences” – they do it anyway – since what they care about is “plot lines and scenes that result in re-election”. yea, it is quite depressing … and there is so much more to come ….

Seth August 7, 2011 at 11:11 am

“it restricted the price from increasing by more than 6 percent every six months”

How is this not a price control?

Slocum August 8, 2011 at 7:33 am

It’s not a price control in the sense that drug companies are still legally allowed to charge higher prices to other buyers. However, Medicare is such a dominant buyer that its ‘acquisition policies’ function as de facto price controls. There’s not much practical difference between government monopsony and legal price controls.

Kirby August 8, 2011 at 11:57 am

It isn’t a price control because the buyer is setting the price, but there is no monopoly or forced buying.

Dan J August 7, 2011 at 1:05 pm

Maybe, they should try to find ways to get govt lessen the govt role in influencing the market or causing their unintended consequences. Like getting out of the way.

kyle8 August 8, 2011 at 8:06 am

Yes I DO have a low opinion of some of my fellow humans. Because dear sir, I have seen this sort of thing over and over again. Maybe the do-gooders did not intend that people die, but they had a casual disregard for the health of others or else they would never have thought themselves so clever that they could destroy the market and monkey around with people’s health care with nary a negative consequence.

Criminality or willful ignorance? Or perhaps overweening arrogance mixed with disregard for others? You make the call.

yreg August 7, 2011 at 10:55 am

Post hoc, ergo propter hoc.

Don Boudreaux August 7, 2011 at 12:42 pm

Accusing someone of committing the post-hoc fallacy usually involves pointing out that the accused offered no serious hypothesis to support his or her argument. Correct or incorrect, Dr. Emanuel does offer a plausible hypothesis.

Just because it’s fallacious to assume that simply because B temporally followed A that A caused B does not mean that a B that temporally follows A is always caused by something other than A.

DG Lesvic August 7, 2011 at 12:59 pm

While you’re teaching logic, how about teaching some to Greg?

DG Lesvic August 7, 2011 at 2:06 pm

I hasten to add that I would never presume to tell you what to do, but, since you had undertaken to correct illogicality, I assumed that you would surely not wish to overlook the most egregious example of it.

Ken August 7, 2011 at 4:24 pm

I see you think this blog is all about you.

Stay classy, DG.

Regards,
Ken

DG Lesvic August 7, 2011 at 5:18 pm

Ken,

Don raised the issue of logic.

Rag on him.

DG Lesvic August 7, 2011 at 5:20 pm

And, Ken, no matter what you say, I’m not going to answer you back. You win the argument.

Greg Webb August 7, 2011 at 6:16 pm

Ken, thanks for pointing out DG’s continuing testament to his despicable and disingenuous behavior. He just can’t help himself. Bless his heart! :)

DG Lesvic August 7, 2011 at 7:07 pm

Greg,

At a previous post, when I asked you to discuss economics, you said it would be rude to our hosts to digress from their topics.

Was the character of DG Lesvic their topic?

How come you’re always ready to digress for that but never for economics?

Stop! in the name of Logic, before you break my heart…..

Greg Webb August 7, 2011 at 8:37 pm

DG, you are the one who should stop. You first said, “While you’re teaching logic, how about teaching some to Greg?” For someone who wants this to stop, you should understand that logic dictates that you quit mentioning me in your silly, childish comments.

Then, I responded with, “Ken, thanks for pointing out DG’s continuing testament to his despicable and disingenuous behavior. He just can’t help himself. Bless his heart! It is logical for me to respond to your silly, childish comment.

Then, you said, “Stop! in the name of Logic…”. And, that DG is illogical, despicable, and disingenuous.

So, stop it already!

I doubt that you will stop, which is probably why Ken called you a “clown.” The only problem with that is that you are not funny.

Ken August 7, 2011 at 9:30 pm

DG,

“And, Ken, no matter what you say, I’m not going to answer you back.”

And yet, you always do. How many comments did you post in our last exchange? I left five comments to you, yet you felt compelled to leave me eight.

Regards,
Ken

DG Lesvic August 7, 2011 at 9:45 pm

Greg,

As I’ve said before, when you’re ready to discuss economics, I’d be happy to oblige you. In the meantime, why do you keep breaking your promise not to engage in any more of this squabbling?

Because DG made you do it?

Do I really have such power over you, and you so little over yourself?

DG Lesvic August 7, 2011 at 10:01 pm

And, by the way, Greg, what set you off was my suggestion that Don examine your logic. Since it would be in contrast to my own, that was really asking him to examine both of ours.

Since I’m the one that wants the examination and you’re the one who doesn’t, it certainly seems as though I have more confidience in my logic than you in yours.

If that is not the case, if you have as much confidence in your own, surely you’ll join my request that Don examine it.

Prediction: you won’t do so. You’ll squirm and squeal like a stuck pig, but will never ask Don to examine your logic.

Never. I repeat. Never.

Is that enough nevers?

And, by the way, John, this isn’t arrogance, just confidence.

Well, perhaps just a bit, but how could one not be at all arrogant towards a character like that?

Greg Webb August 8, 2011 at 12:09 pm

DG, I am always pleased to hear constructive criticism from someone intelligent like Don Boudreaux. So, Don, if you have time, and want to do so, please do as DG requests even though he would not, of course, ever tell you what to do…though that is exactly what he is doing.

I did not make a promise DG. And, if you continue making idiotic comments where you mention my name, I will point out your illogical, despicable, and disingenuous behavior, although I may stop because I am starting to realize that everyone seem to already know you from your previous bad behavior.

You talk a lot about economics but you don’t seem to know any. And, you seem to quote a great man like Mises because you want people to think that you are similarly intelligent. But, you prove otherwise because you quote Mises out of context and say other stupid, silly things.

Richard Stands August 7, 2011 at 1:22 pm

This is another preview into how the political theater “sells out”, night after night. While some audiences applaud the title and move on before the show ends, as described upthread, other audiences see all scenes as disconnected sound bites. This scene surely isn’t the denouement of an ongoing plot, unfolded scene by scene, in story after predictable story. It just happened. The original actors were all wearing white hats, after all!

DG Lesvic August 7, 2011 at 2:26 pm

And the rest of you cheap pot-shotters out there better beware that from now on you won’t just have old DG but Chairman Don himself on your case.

Greg Webb August 7, 2011 at 3:34 pm

LOL!

Kirby August 8, 2011 at 11:52 am

No! Kuomintang for life!

Greg Webb August 7, 2011 at 3:05 pm

Meow! :)

morganovich August 7, 2011 at 11:35 am

this mechanism has been at work in lots of drugs, particularly pediatrics where 50% of US kids are on medicare.

we were involved with a company that made a drug for infantile spacticity (a tiny indication). they had to pay medicare a 105% rebate on all drugs sold. yes, 105%. they had -5% margin even before cost of goods sold. this sort of thing is VERY common in pediatrics.

imagine how attractive that makes serving that market or developing a new drug for it.

other than orphan indications, this has pretty much frozen pediatric drug research.

muirgeo August 7, 2011 at 2:27 pm

Is there a way drug companies could make enough profit to keep the industry viable while the price of drugs reaches a level where they don’t need to be rationed or delayed in their adoption to make them affordable? I understand a significant part of the high cost of drugs is the money spent on R&D that must be recouped before the drug goes generic.

tdp August 7, 2011 at 2:28 pm

??? I don’t think this is muirgeo.

Ken August 7, 2011 at 4:25 pm

I don’t see a picture of FDR looking a lot like The Penguin, so I’m guessing it’s not.

Regards,
Ken

jjoxman August 7, 2011 at 8:38 pm

Is that what the picture is? I thought it was W.C. Fields, to assure us he was only here as comic relief.

brotio August 7, 2011 at 10:55 pm

If Yasafi had posited the question, it would have read as follows:

Drug cumpanees shood have there proffets takun frum them! Their proffets arr obseen! I herd that won of they’re exzekyutives is planing a trip to the Doluhmitez. Noone in the helth care industree shud make enuff money to go to the Doluhmitez! Besidez theenk uv the carbun beeing spyood in to Mother Gaia’s atmusfeer!

Economiser August 8, 2011 at 11:50 am

>> Is there a way drug companies could make enough profit to keep the industry viable while the price of drugs reaches a level where they don’t need to be rationed or delayed in their adoption to make them affordable?

Allow me to rephrase:

>> Is there a way TECHNOLOGY companies could make enough profit to keep the industry viable while the price of SMARTPHONES reaches a level where they don’t need to be rationed or delayed in their adoption to make them affordable?

New products are expensive to develop. That cost has to be passed on to someone. Usually it’s done by charging high prices at first, which passes the cost to those most willing to bear it. Over time, the cost comes down and the market grows. If you mandate that new products cannot be sold until everyone can afford them, you’ll wind up with no new products.

The economics are the same whether you’re talking about a smartphone or a life-saving drug.

morganovich August 7, 2011 at 11:41 am

“When I’m on travel for work I can’t fly first class and order fancy meals. We have acquisition policies. Medicare, of course, has substantial market power so it’s acquisition policies can have real consequences.”

this is not precisely true.

try not selling to them. you’ll have the FDA all over you, be pilloried in public, and good luck ever getting anything else approved again.

i watched a company do this, and saw the coercive force of the government come down on them like a hammer. suddenly the FDA wanted phase 4 trials, they were having repeated harassment inspections of their manufacturing, there were lawsuits threatened, and scads of bad publicity. hospitals were pressured (with threats of withdrawals of grant money) to take the drug off formulary. the company would have gone out of business had they not capitulated.

it’s not just the carrot of a big customer, it is the redwood tree sized stick of government coercion as well.

being free to take the federal price or go out of business due to harassment is hardly a free choice.

Krishnan August 7, 2011 at 12:19 pm

Re: morganovich: so true … they set up the system in such a way that there is simply no choice … And when the Government gets mad, it gets worse – some constituent somewhere may complain to their senator/congressman about how their child is suffering or how their grandparent cannot get this drug/that drug – and there will be hearings and drama and all these BIG BAD pharma executives will be brought to DC and yelled at for not serving the public and blah blah blah – that what Government has done to make things worse will never be acknowledged – NEVER. Since “they mean well”.

And ofcourse because of all this, some crony will step up and lobby Congress to pass legislation to give THEIR company exclusive rights to manufacture this/that for a “modest” profit (it will not be called profit) that will magically keep expanding every year and ehrich their company – in the end, Government (tax payers) will pay more by claiming they are paying less – and so on and so on … the vicious cycle continues -

Dan J August 7, 2011 at 6:05 pm

Anecdotal, but to the power of govt coercion, have you ever heard from Judge Andrew Napolitano back during TARP issuance when several financial institutes said “no thanks”, Napolitano offered up how his friend has received several phone calls whereas the only option was to accept or see the institute pushed out of business by litigation, use of IRS, revoking privileges, etc.,…
And, yet another one on the lone holdout with the GM bondholders. The lone Bondholder was holding out and after a weekend of special phone calls he conceded.
Govt used force to make people abide to govt will.
In Brian and the Judge radio show archives 2009. Now, Andrew Napolitano has a reputation which I am under the impression he protects and deems, too important, to foolishly piss away. Make of it what you will.

Mike M August 7, 2011 at 11:57 am

As Dr. Emanuel describes, the unintended consequences of government intervention resulted in this problem. Yet – being an ardent supporter of socialized medicine – his schizophrenic answer is some “new” set of government interventions. The fundamental flaw of all of these plans involving government intervention is that the urge of those supporting a central planner to have the government tweak its interventions in order to “fix” the unintended consequences of its actions, rather than backing off and letting the market make its own tweaks, always results in a new set of unintended consequences.

Richard Stands August 7, 2011 at 1:35 pm

“It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

Abraham Maslow

But of course, it’s not the only tool he has. It’s just the only tool that he can lobby others to use forcefully on his behalf. And nailing things together is an easier concept to understand than allowing the gravity of their concerns to draw them together.

Rayray August 7, 2011 at 12:18 pm

Well, this bit of central planning didn’t work, but the next one will. Guaranteed!

Krishnan August 7, 2011 at 12:21 pm

Re: rayray – “Because we simply did not have the right people to do this”

anthonyl August 10, 2011 at 11:23 am

It just wasn’t big enough!

vikingvista August 7, 2011 at 12:20 pm

Government is deadly.

Greg Webb August 7, 2011 at 3:06 pm

And, stupid!

Dan J August 7, 2011 at 6:28 pm

Malfeasant

Kirby August 8, 2011 at 11:56 am

Maleficient

vikingvista August 8, 2011 at 11:49 pm

Malodorant.

Dan J August 9, 2011 at 12:03 am

Malefactor

Dan J August 7, 2011 at 12:38 pm

Dr. Ezekiel Emanuel has an infamous brother. The good Dr. Published in the JAMA his opinion about medical costs and opined on a cut in payments to a particular group of people that could be linked with throwing grandma off the cliff. Patients whose condition is unlikely reversible and likely to die from it should not have money, time, or effort dedicated to them. Hence Obamas statement in 2009 about giving grandma painkillers to ease the pain and go with dignity. Hence, also, the Obamacare provisions to rip out $ 500 billion from Medicare, set up an unelected panel of experts to ration out services to our unproductive seniors. Then proceed to label those who would wind down the monstrosity as tossing granny off a cliff. He and Tom Daschle were the advisors in constructing Obamacare provisions in rationing medical services and the brains behind a govt panel to decide fates of those on govt plans, which ultimately would be every man, woman, and child after the insurance programs implode from HHS mandates on unsustainable coverages.
http://online.wsj.com/article/SB10001424052970203706604574374463280098676.html

Chucklehead August 7, 2011 at 3:55 pm

What else do you expect for Rahm’s brother.

arbitrage789 August 7, 2011 at 1:11 pm

Many look upon price controls (on the Pharma companies) as a “free lunch”.

Price controls, if imposed, would mean less money going into R&D, and a slower place of drug discovery.

If we as a country make the choice to accept a slower place of drug discovery in exchange for lower drug prices, then so be it.

But the choice really should be an informed one, not based on what a few politicians tell us… politicians who care only about the next election.

Richard Stands August 7, 2011 at 1:42 pm

True enough. Except that “we as a country” did not actually choose to accept anything.

vikingvista August 7, 2011 at 4:37 pm

Only individuals make choices. To say a country makes a choice is usually to mean that a few politically powerful individuals devise a small set of questions in such a way that an imposed vote will grant them legal power to impose their choices upon everyone.

Jack W August 7, 2011 at 1:26 pm

Let’s remember that the prior system was even worse in terms of distorting the market price of the drugs. The “buy and bill” arrangement was overpricing the drugs and forcing huge subsidies to be paid by the government (i.e. by taxpayers). At least the 2003 bill was intended to push the cost of the drugs down based on “actual” prices and some form of competition among the insurers selling coverage to seniors buying drugs. Indeed, the total cost of this program turned out to be less than the original price quoted by the CBO, which is very unusual for any piece of legislation. While I would favor legistation that does not distort prices in any manner, I would rather have legislation that promotes prices based on something at least close to a market price, as opposed to the made up prices charged under the buy and bill system.

kyle8 August 8, 2011 at 8:10 am

So the previous statist distortion was even worse than this Byzantine statist distortion eh? So should we applaud it? Why is it that neither party could come up with anything even resembling a market based solution?

Jack August 8, 2011 at 9:05 am

I didn’t say applaud it; I would be careful to denigrate the new policy over the old policy when the older policy was worse. Between the two policies, the latter policy was, I believe, the better policy. That diesn’t mean I regard either policy as optimal. And in politics, that is the dilemma; choosing the better of two evils…

anthonyl August 10, 2011 at 11:30 am

Now people will die, but as long as no one makes an obscene profit it’s alright.
By the way, obscene profit is really the only way we can really know something has value and is worth doing. The profit comes in many forms.

Fearsome Tycoon August 10, 2011 at 11:46 am

What this shows is that government diktats can’t replace markets. Either the government pays way too much, resulting in enormous distortions, or it refuses to pay enough…resulting in enormous distortions.

Dan J August 7, 2011 at 1:28 pm

WSJ published an article recently on FDA and big pharma. The synopsis is that the FDA requirements should be trimmed to make the process less costly allowing for more medicines to be introduced. The article’s author stated that only the largest of companies with tens of millions or hundreds of millions can possibly entertain the idea of producing a new medicine. And, should the medicine not show possibility of making millions within the first few years, they forgo continuing regardless of the benefit for people for whom the medicine would help. These beneficial losses are not to be blamed on the big pharma, which I agree, but on the process and costs imposed.

tdp August 7, 2011 at 3:00 pm

This should be done in conjunction with other reforms to fix healthcare

1) Get rid of mandates and let people “pick and choose” what they want covered. Make companies fully disclose their policies in plain English and if people don’t read the fine print before they buy, tough shit.

2) Let people buy insurance across state lines

3)End the tax preference for employer provided insurance and encourage purchase of HSAs and “consumer-directed healthcare”

4) Turn Medicare and Medicaid into voucher systems, with poorer and sicker people getting bigger vouchers. The vouchers are tied to the average cost of a basic insurance policy on the private market. Medicaid could include a small “disaster fund” for people who get cancer or whatnot that would, along with the vouchers, be the entirety of the program.

5) Means-tested vouchers for people with “pre-existing conditions”, to cover the difference in cost between the market value of a policy providing the coverage these people would require and the value of basic coverage.

6) Enroll everyone who qualifies for Medicaid but isn’t on it (1/3 of the uninsured in the US).

7) Means-test Medicare (no benefits unless your income is below a certain level) and raise the eligibility age.

Now there is no excuse for not having insurance, the free market is preserved, there are no price controls, and the total cost of the vouchers is far less than the cost of Obamacare or the current costs of Medicare and Medicaid.

Chucklehead August 7, 2011 at 4:24 pm

“encourage purchase of HSAs and “consumer-directed healthcare” is a subsidy and distort the market as does a price control. The same is true for means test. Means testing, say excluding millionaires, saves little because they are such a small population. Plus, if you are making a million bucks, you are paying $20,000 a year in medicare taxes.

vikingvista August 7, 2011 at 4:45 pm

It distorts the market only because non-HSA purchase choices are relatively discouraged by taxes. But HSAs add some new free market components without adding any new distortions. That is, it appears to be a reasonable way to transition toward a free society.

Chucklehead August 7, 2011 at 5:31 pm

I am not against HSAs, but “encourage” is Government speak for subsidize. I would not want to see a direct subsidy on top of the HSAs. As you correctly point out they already come pre-subsidized by their pretax status.

Dan J August 7, 2011 at 6:18 pm

Not collecting tax on monies directed at a savings plan as subsidized? I guess, but there is no money collected from others to go directly into your account as incentive. A deduction is a deduction, a subsidy is a subsidy.
From what I understand HSA’s were wildly successful for Indiana govt employees and for Whole Foods employees. And, for Whole Foods employees, money saved over a particular amount after a few years was available for withdrawal, taxed upon withdrawal, as a reward for their spendthrift ways.

vikingvista August 7, 2011 at 6:45 pm

HSA’s are definitely NOT subsidies. I thought my response made that clear. But they ARE market distorting relative to a free market.

vikingvista August 7, 2011 at 6:48 pm

Actually, it is correct instead to say that the taxes on everything else are market distorting.

Dan J August 7, 2011 at 7:23 pm

I am assuming that it is a less influential market distortion. But, is one I would think is likely to have less negative effects. The incentive to not use so that money saved can be extracted and used for other uses. Govt programs have always incentives overconsumption, while this one woyld seem to incentivize frugal consumption for later consumption on other products and services.

Dan J August 7, 2011 at 7:26 pm

Assuming any unlikely move to a free market in the medical industry, HSA’s would seem to be a viable option with the least amount of govt interventionism.

vidyohs August 7, 2011 at 5:15 pm

“Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.”

What is an inflated, essentially made-up “average wholesale price”, when customers are buying (for whatever reason) at the price?

Krishnan August 7, 2011 at 5:42 pm

Re: vidyohs – See, he now knows that the price set by medicare was too low (because the drugs started disappearing – and in his mind the cause was the medicare price controls). but he also claims that what the companies used to charge was too high – why? Well, because he said so … I mean, he is a doctor who treats cancer patients and knows everything about everything – but he cannot bring himself to say “Fine, let’s forget about price controls and let the companies charge what they want to – so old drugs will be available and newer ones be developed”

He still wants any/all drugs available today, he wants the companies to develop new drugs – but is uninterested in what it takes for a company to develop new drugs and produce them safely – all he knows is that “they charged too much” so “we ought to restrict what they can charge” – but still “they must give us whatever drugs we need, develop new drugs and help the people no matter what we do to your business” (no, he has not quite said that, but THAT is what people like him say – “You do what we tell you to do” “or else”)

He does not care what it takes to run a business or what it costs to create drugs and produce them – he does not really care … he demands that those that can should produce and make for those that demand …

Jack W August 7, 2011 at 8:39 pm

The problem with this system was that the “consumers” were too far removed from the seller. And the middleman was the government. So, the true consumer was the taxpayer, as opposed to the person actually consuming the drugs. And taxpayers have a very difficult time making any kind of influence on the cost of anything that the government purchases.

steve August 7, 2011 at 8:25 pm

“The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share.”

What is wrong with these markets that they lead to prices falling so low that they cannot make a profit? If companies are making the drug, and making a profit, when a shortage occurs they should still make the same amount of money per unit, even if they cannot raise prices.

Steve

Steve

Dan J August 8, 2011 at 1:00 am

Could it be that the R&D and FDA approval process is so damn costly, that a geneic brand in competition does not have to cover these costs, cutting the overhead dramatically?
I dont imagine the ingredients in most medicines being costly, but the cost of finding the formula that works and leaping thru FDA’s hurdles is biggs cost. Once a competitor has he formula and can manufacture, the highest costs to making of medicine are not in their overhead.
Valley fever – active ingredient is indeed costly. But, thru lab engineering, they have constructed a replacement, dramatically reducing overall cost, and ultimately, the retail price. consumers win, but had the lab creation occurred quickly after original medicine was available, the pharma co. Would have been at a loss on their efforts for the original product, unable to recoup any time soon.
FDA needs to be examined to find if there is a way to reduce a companies cost thru them. The other part is for the companies to reduce compensations for those who develop medicines.

Gil August 7, 2011 at 8:49 pm

All I got from this is the same as D. Keuhn: there a shortage of supercars to the masses but little shortage of ordinary commuting cars. Likewise the latest cancer treatment drugs are expensive but cold and flu medicines are as cheap as chips.

Dan J August 7, 2011 at 11:52 pm

Cold and flu medicine treat symptoms of a virus(es) that are common and unlikely to have dire consequences.
Cancer treatments have only been to poison the mutated cells and the consequences usually result in death.
Which is in higher demand? Doesn’t demand help to dictate price?

Grosh August 8, 2011 at 12:24 am

This bill limits the drug buying for certain ppl, it seems like congress and the president have other financial motives when making these bills!!

bFran August 8, 2011 at 12:38 am

I agree with Steve with the comment above^^^

These markets are wrong that they lead to prices falling so low that they cannot make a profit, which is quiet hard to realize. If companies are making the drug, and making a profit, when a shortage occurs they should still make the same amount of money per unit, even if they cannot raise prices. Which is difficult to explain when the make the same money, even if they have nothing wrong/different about them making the drug….

John Sullivan August 8, 2011 at 8:59 am

There is a way these types of dramas can be addressed that will eliminate the unintended consequences that make for the political theatre described in some of the posts above, as well as the theatre of these opinions.

If we are going to offer ‘welfare’ in any form, it should never consist of goods and services. It should always be a monetary figure payable to a defined class of people, who must prove to qualify. The monetary amount can be calculated and budgeted for, such as a payment toward drugs, not the drugs themselves. Offering a benefit is tantamount to giving a blank check, when what need need is an amount written on them. The benefit is also a subsidy to the industries that provide the goods, which shouldn’t be forgotten.

If goods and services are offered, the policy will vastly increase the demand for those prodcuts, since they are thought to be free, and capital mal-investment will flow into those markets robbing the markets that the investments would have been made in otherwise.

If a qualifying person receives a welfare check and decides to use it differently, so be it, but there is no way a central authority will ever be able to efficiently provide goods and services to select portions of society without impoverishing the nation along the way.

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