Big Pharma Gone Wild!

A liberal friend offers up two softballs for IdeasHatched, though he no doubt thinks he is throwing me a knuckler. Here is his e-mail, followed by my response:

So, I'll give you two easy starting lines for your Blog.
"The most intelligent liberal friend I have (and I do have some) asked me this question the other day..."
1. If private markets are so wonderful, how is it that the industrialized nation with the highest level of privately provided health care (the U.S.) has the most expensive health care and the lowest life expectancy among rich countries?
or
2. If Republicans are such good stewards of the economy, why is it that
among the 11 presidents our country has had since comprehensive quarterly
GDP first became available in 1946, Democratic presidents rank 1, 2, 3, 4,
and 6 in GDP growth during their terms while the Republicans rank 5, 7, 8,
9, 10, and 11?
"My answer to my friend the genius is..."

I only have time to answer the first question today, but I'll address the second question tomorrow, except to say that the fact the first question (and other similar questions) is asked often by Democrats is part of the answer to the second question. Democrats look at Cuba and say - everyone has healthcare insurance - whereas in the US people go without. See? The US is not so great after all. Of course, when these guys need an operation, you don't see them running to Cuba. But the fact that they ask questions like this make people nervous, and deservedly so.

That healthcare in the US is expensive is not in dispute, but you get what you pay for. If my liberal friend were, for example, to make the wise decision to get a labotamy, he could no doubt schedule that operation in a day, whereas in Canada or the UK, he'd be put on a long waiting list, both because there are more liberals there in need of such corrective procedures, and more importantly because their state-run systems are abonimably slow. And the likelihood that the lobotomy in the US would be successful is far higher; he may emerge from the Canadian operating room asking even sillier questions than this one.

You either allocate resources through the price mechanism, as a market based system does, or you put in price controls that have the effect of limiting the supply, and let people sit in line and hope they don't die before their number is called. The one system gives the bum and the benefactor the same chance of survival; the other doesn't. You decide which is more fair.

It is also true that healthcare is in fact a very regulated market, so it is a mistake to say that it is a free market. There are obvious hurdles that doctors have to clear in order to practice medicine. Such barriers to entry restrict supply and increase costs. Maybe the barriers are too high, although because it is hard for any customer to judge the quality of a doctor, it makes sense to set a barrier that improves the likelihood of competence in the profession. That is, there is some benefit to regulation in that market. But it is the regulation that increases costs. Comparatively speaking, we may set higher hurdles, which makes care more expensive but also higher quality.

Another reason US healthcare is so expensive: Big Pharma. I was once vacationing on a tropical island when I came across Big Pharma. Rich bastard. He was sitting amongst a harem of high-priced professional gals, all drinking pina coladas poolside; him with his gold chains and gaudy diamond rings on each and every finger. He had reserved an entire wing of the hotel we were staying at, piddling away the enormous profits he made on alcohol, drugs, rock&roll, and general debauchery. It was not hard to understand why US healthcare costs were so exhorbitant, given the display of conspicuous consumption Big Pharma was putting on. It was clear that he doesn't funnel any profits back into researching next generation pharmaceuticals. This leaves the fact -that virtually all great advancements in drug therapy come from the efforts of US companies (or the ability of foreign companies to sell into the unregulated US market) - one of those great mysteries of the universe. Thus, even if we put price controls in place like Canada, new more powerful drugs would continue to be developed out of thin air, as they apparently are today. So I agree with you here - we should put price controls in the drug market to reduce the cost of healthcare, and end Big Pharma's bacchanalia right now!

A third reason: John Edwards, and other similar trial lawyers. Want to know the cost of malpractice insurance, and from whence it stems? Do you think doctors pay this out of their own pocket rather than passing it off to you in the form of higher costs? My guess is that it is higher in the US than it is in other industrialized nations, but I am far too lazy to prove that. You'll just have to trust me.

So if the quality or our healthcare is better, why do we have a lower life expectancy? There is only so much even high quality healthcare can do. So we can look to factors outside of the quality of healthcare. Here is one - heart disease is the number one killer in the US, and obesity is a prime predictor of later heart disease. You want to know why there are no private charities advertising in the US to provide food to the hungry and impoverished within our borders? Because poor people in the US are obese! That says something, doesn't it - that the harshly capitalistic country we live in somehow finds a way to feed the poor a daily caloric intake that would satisfy Shaquille O'Neal. Want to improve life expectancy? Don't let people with foodstamps buy Doritos!