Healthcare – double the inflation rate is unsustainable

I’m reading Stiglitz and Bilmes’ new book – The Three Trillion Dollar War. It sets out to show the cost to the USA of the Iraq war, and they go to lengths to be conservative in their calculations (the end number goes over $5bn, but I have not got there yet).

But that’s not the issue here. The authors mention en passant that:

Both scenarios predict that medical health care inflation will continue to increase at double the rate of general inflation, as it has for decades

I smell bad forecasting – Nobel prize (economics prize) winning Stiglitz is using standard projections for the cost increases, assuming that the future will be the same as the past.

as anyone offering securities for sale will tell you, past performance is no indicator of future returns. Or as I like to put it, when something is too good to be true, it isn’t.

With health care costs rising at a much greater rate then everything around, then the point of absurdity will be reached where health care costs subsume everything else. In reality things do not work that way, and the market is begging for a discontinuity to “fix” things.

So, in 2004 the USA spent 15.3% of its GDP on health care, rising from just 7% in the 1970. The CMS forecasts that the trend will continue, and we’ll see 20% GDP share, or $3.5 trillion dollars, or $12,300 per person, by 2015. That chart in the linked pdf just keeps rising, implying 30% in another 10 years beyond 2015.

That’s crazy, and it  reeks of opportunity.

While we do not know how and when, any number that big is begging for someone in a garage to reinvent the system. Medical doctors have moved from amongst the most highly paid in society to solidly middle class, while their prestige has also taken a hit. The money appears to go to hospital care, physician and clinical services, big Pharma, and so forth,  but the US health insurance industry and others are responsible for a tremendous amount of waste on the way through – 26% of costs are admin, versus 3-5% in France. Those big players are fat, happy and dicing with people’s lives – perfect targets for a discontinuity.

So – what are we waiting for? Here are 10 ideas for governments to pursue:

  1. Shift massively to preventative health care programs, which cost a lot less and are much more effective.
  2. Deregulate the pharmacy industry, removing the need for prescriptions for the top 80% of drugs. This will reduce the need to go to the doctor for simple cases, reduce admin costs and allow for proper online pharmacies. The entire “third world” operates this way, which is why I now do not stock up on drugs when I travel, but just buy then for pennies when I am there.
  3. Reduce the length of time that patents apply to newly invested drugs to one year. This will vastly reduce the cost of drugs as generic companies can get drugs to consumers orders of magnitude cheaper. Most new drugs, especially in dollar terms, are lifestyle rather than health drugs (think Viagra), anyway, so ignore the plaintive cries of big pharma who claim all development will stop.
  4. Nationalise health care in the USA – the current private system is woefully wasteful and misses vast sections of the population.
  5. Remove the industry barriers to certifying doctors and other medical professionals that qualify in other countries and jurisdictions.
  6. Remove mandatory FDA or similar testing of drugs, but mandate labeling. The FDA approval process adds years and huge amounts of cost to drug development. Allow companies to sell non-approved experimental drugs under the proviso that patients accept all risk, and that they pass basic “no obvious harm” tests. FDA approval should still exist, but would be instead a gold-stamp for safe drugs. This would reduce the development and retail costs of drugs, and allow the market to decide for themselves which drugs are the best
  7. Promote and pay for better food, better fitness, safer roads, (e.g. autonomous vehicles) and other basic life expectancy increasing efforts.
  8. Legalise and tax all “illicit” drugs, with the tax revenues going to rehab and medical costs
  9. Legalise and simply implement voluntary euthanasia, reducing care costs for the terminally ill.
  10. Legalize of sale of body parts such as kidneys, provided certain conditions are met (i.e, ensuring there is no extortion etc.). This will reduce waiting time, and carrying costs, for transplant recipients to essentially zero.

and some science fiction for the private sector – some of which may be more likely in the USA than some of the the politically unpalatable choices above. Actually none of these are beyond reason in the medium term, there is plenty of work on elements of each

  1. a DIY doctor kit that lets you perform most basic medical and surgical tasks
  2. a “doctor in the house” unit that will diagnose and fix almost all medical problems, right down to intensive surgical techniques. Simply install the unit, keep it stocked up and make sure each family member pops into it once a week for a check-up.
  3. Genetic modification – both before birth/conception and during life. Pop a pill and there goes that male pattern baldness, oh, and that nasty predisposition to cancer.

Published by Lance Wiggs


One reply on “Healthcare – double the inflation rate is unsustainable”

  1. Its incredibly refreshing to hear a perspective on healthcare from someone in the business community that is divergent from the hegemonic neoliberal one that dominates politial-economic discourse in New Zealand.

    As a left-libertarian, many of your proposals strike a chord with me.

    I’ve read his earlier book, Making Globalisation Work, and many of his policy prescriptions mirror yours, although he suffers from the same illusion as other social democrats, that the State always has the public good in mind and all problems can be solved by politicans and government bureacrats.

    I very much doubt that the US candidates will have the political drive to usher in such much needed reforms. From what I have seen American politics appears to be rather extreme, vacillating from the neo-con, “market fundamentalism” to social democratic “progressives” (Fabians).

    The future costs of healthcare began to concern me when I learnt of the “demographic bulge” of soon to be retiring babyboomers, after its reprecussions came to my attention, most notably its impact on housing prices and future helathcare costs.

    Many on the so-called “Left” most likely would denounce me, but I think we need to start managing people’s expectations about the benefits of public provided healthcare or risk it becoming an unsupportable burden. What we need in New Zealand is independant and non-ideological debate, but looking at the quality of debate on a variety of other important subjects, my hope will be likely in vain (education, the environment, trade etc).

    I found these articles on the topic interesting and thoughtprovoking and I trust you will find them to be the same.


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