Why America's Health Care Is Still Going To Be Ridiculously Expensive

Dean Baker:

The passage of President Obama’s health care reform will make a difference in the live of tens of millions of people. The subsidies will make insurance affordable to millions of families who could not pay the unsubsidized rate. More importantly, by prohibiting insurers from discriminating against people with serious health conditions, those who are currently covered will have real insurance for the first time. People will no longer have to worry that a serious illness will cause them to lose their job and then their insurance.

This is real progress, but the bill does little to change the fact that health care in the United States is ridiculously expensive and, if current trends continue, will grow more unaffordable through time. While many issues on controlling costs are complicated, some are very simple. At the top of the list is bringing the price of drugs, medical equipment, and medical supplies down to their competitive market price.

Under the current system, patent monopolies allow drug companies and the manufacturers of medical equipment and supplies to charge prices that are often several thousand percent above the free market price. In the case of prescription drugs, the vast majority of drugs could be sold profitably as generics for just a few dollars per prescription, if there were no patent protection. Instead these drugs can sell for hundreds of dollars or even thousands of dollars per prescription.

The huge gap between the patent protected price and the market price leads to the sort of corruption predicted by economic theory. Pharmaceutical companies mislead doctors and the public about the effectiveness and safety of the drug. They give kickbacks and even bribes to doctors for prescribing their drugs in addition to spending vast sums on marketing. And they spend a fortune lobbying Congress to get their patent monopolies extended and strengthened.

The Obama administration took a pass in confronting the pharmaceutical industry. As a result, we will spend about $2 trillion more than necessary on prescription drugs over the next decade. This is money that gives us worse, not better, health care. Remove the corruption and we are more likely to get pills that are actually good for our health.

We are also stuck with an insurance industry that will likely be more profitable and powerful than ever. The multi-millionaire wimps who run the insurance companies were terrified by the prospect of having to compete with a government-run plan. So people will not be able to buy into a Medicare-type public plan. The administrative waste in the private sector plans is equivalent to a tax of around $100 billion a year on our health care.

We are also stuck with an over-supply of highly paid medical specialists, many of whom draw salaries in the range of $500,000 a year. We will not be able to support these people in the style to which they have become accustomed indefinitely.

Because of the enormous power that these interest groups wield in Congress it is unlikely that they will be effectively challenged through legislative measures any time soon. Our best hope for reining in their power actually lies with the market: specifically through medical tourism.

We are the only country in the world that is saddled with such a corrupt and dysfunctional health care system. As a result there are enormous potential savings from taking advantage of more efficient health care systems elsewhere.

There are now facilities in India and Thailand that provide top quality medical care at prices that are often less than one-tenth as high as what people will pay in the United States. For medical procedures that can cost more than $100,000 or even $200,000, the gap is large enough to allow a patient, as well family members, to travel great distances and recuperate abroad, and still save enormous amounts of money.

As a result, medical tourism is a rapidly growing industry. This should be encouraged. Progressives should embrace free trade and the market. We can give all the proponents off "free trade" and market fundamentalism the opportunity to be true to their principles. Public and private health care plans can be opened up to allow patients to get medical care that meets U.S. standards in other countries.

We can yap all we want about health care reform, but the reality is that Washington is a cesspool. The special interests own the place and there is no plausible story in which legislation that seriously challenges the interests of the medical industrial complex has a prayer of passage any time soon.

The only serious way to defeat the drug companies, insurance companies, medical specialists and their partners in crime is to go around them. Let them charge whatever price they want, as long as no one actually has to pay it. It’s absurd that people have to go half away around the world to get decent medical care, but when special interests control the government to the extent they do in Washington, there is no alternative.