Retreat from the cliff

America spends nearly 17.4% of it’s GDP on healthcare. The Netherlands is second with 12%. America spends $7,538 per person which is 50% more than Norway’s second place with $5,003.

Now, if America’s healthcare were that much better, it might just be acceptable, but that’s not the case.

Rumor has it that this has got the attention of the most senior politician in America. Apparently he’s actually done something about it, although some of his opponents are not happy about the solution. Nor are they proposing a better idea.

If the healthcare in America isn’t better than other countries, then why are the costs so much higher?

It seems that the cost of the medication is part of the reason. When a drug company creates a new drug, it invests a great deal of money into R&D, and the company files a patent to protect that investment. So far, so fair.

The protection lasts for 16 years, during which time the company effectively has a monopoly, and can charge what it thinks the market will bear. Once the patent expires, other manufacturers can produce the drug under a generic name, but not the brand name that the public is familiar with. The price for the generic product is usually a fraction of the cost for the branded product.

The problem is that if you’re insured, you don’t know, and may not even care that the branded product costs $668, and the generic equivalent is $50. So to give you a clue the medical insurers created copays, where the the patient is obliged to contribute a small proportion of the price. After the introduction of copays, the costs started to drop, and by 2003 more that 50% of the drugs people picked up were generics.

In 2007 the drug companies took action. They introduced the Patient Access Card. Patients with the card have to copay the same amount on the branded drug as the generic, and the drug company picks up the rest. So patients can’t tell which drug is more expensive.

Another reason for high costs is administration. The coding of the treatments is so complicated that doctors complain that 25% of their billing costs go into that part of administration. That can be fixed.

There are other things driving up the cost of healthcare. In the 1980s, Jack Wennberg proved that 25% of the procedures in Vermont and Maine were unnecessary. Often the doctors are not the ones at fault.

We want the best healthcare, but what is best? When we know the doctor, and there is a relationship of trust, we usually go with her advice. When we’re in the emergency in a foreign town, and the visible signs don’t look good, and the doctor looks awfully young, trust is not going to help with the decision making, and that’s when it can get really expensive.

Litigation also drives up costs. It’s helped to reduce malpractice, but not efficiently. In other countries, the professional bodies that suspend bad doctors from practice is a lot less costly, and just as effective.

Hopefully these issues will be getting a lot of attention in the coming months.

More at:
Who’s Going Broke? Comparing Growth in Healthcare Costs in Ten OECD Countries
OECD Health Data 2011
Evaluating medical treatments Evidence, shmevidence
Health Care Spending in the United States and Selected OECD Countries April 2011
Waiting for Robbo
Obamacare and the Supreme Court A guide to the health-care case

Since this was originally published:
Can statistics cut the cost of US healthcare?
Health-care spending

Heading towards the fiscal cliff

The “fiscal cliff” is a term that’s creeping into the lexicon of economic journalists. It refers to that bizarre political product borne of the negotiations to the increase America’s debt ceiling in 2011. It is designed to inflict the worst case scenario that either of the parties could conceive, imagining that this would deter the partisan bickering that has brought decision making to a standstill since the beginning of 2011.

At the heart of the problem is the huge government deficit and an inability to agree on a course of action to fix it. So the parties agreed to create a sword of Damocles, hanging over the economy, deferred until after the election on November 6, triggered to fall on December 31. They have seven weeks in which to come up with a solution.

That period is a bad time to make any decisions, let alone ones of such consequence.

Should the sword fall, estimates of the damage to the economy range between of 4% to 6% of GDP.

It is right now that these issues should be addressed. It’s also a good measure of candidacy for the presidency.

Politicians are expert procrastinators. The proficiency on display in Europe is impressive. Hopefully the voters in America won’t be as easily beguiled as those in Europe.

More at:
America’s economy Fiscal cliffs, multipliers, and the myth of central bank independence
The high price of tax breaks Not so easy Closing loopholes is politically painful
Harvard’s gloomy graduates
The cloud of uncertainty Dithering in the dark Quantifying the effect of political uncertainty on the global economy
America’s budget woes Shift this cliff
Fiscal policy Cliff-diving
CBO: Coming Fiscal Cliff Will Devastate The Economy
Fiscal policy Spending by any other name
America’s economy The two Americas
America’s economy A response from Edward Luce
Barack Obama and the economy The choice
Fiscal policy What the Fed fears
Legal language The hardest sentence in the tax code
Collateral damage