Ezra Klein: Those Forward-Looking Insurers

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February 19, 2007

Those Forward-Looking Insurers

Tyler Cowen's argument against Medicare-For-All is really quite strange. He writes that "Private insurance has been covering prescription drugs for -- what -- about twenty-five years?...So when it comes to the one thing that really works, government insurance was twenty or more years behind private insurance." Let's argue this in a numbered, Cowen-esque way.

1) The example proves the point. Medicare was barred from covering prescription drugs -- and is currently kept from negotiating down their prices -- by the insurance and pharmaceutical companies, who spent hundreds of millions lobbying against Medicare's entrance into this most profitable market. Those millions, passed onto consumers through premiums and prices, added no value to the system, but kept the elderly from getting necessary drugs at affordable prices. This all goes to show the essential undesirability of a prviate insurance system, and the necessity of a Medicare-for-All structure.

2) Medicare's eventual entrance into prescription drugs, over the screeching opposition of the industry, was evidence of the insurers' failure to hold down the cost of drugs. As the recent Lewin Group report on American health care spending found, we overpay for prescription drugs by $66 billion. If you compare brand name drugs in the US and Canada, the same drug will cost you a full 60% more here. If you restrict that to the top selling drugs, you find we pay 230% more than anyone else. For generics, the difference evaporates. So on average, we overpay by 60-70% for pharmaceuticals. So somehow, all those other countries with systems more similar to Medicare-for-All were squeezing discounts of 50%-70% compared to America's private delivery systems. For years, domestic insurers were politically successful in blocking Medicare's entrance but absolutely incompetent at holding down costs. Eventually, their failure overwhelmed their political success.

3) Medicare Part D, which most everyone agrees is an oddly-designed program that sidesteps Medicare's natural economies of scale and bargaining power, has already scared insurers into providing better service, and so their premiums have clocked in below expectations. That's not only because the insurers fear the more aggressive entrance of Medicare, but because Medicare has been managing them. As Nobel Laureate Daniel McFadden found, "First, the success of Part D depends substantially on thoughtful and muscular management of the market...A health insurance market like Part D probably requires this level of active management to work well; after-the-fact oversight in the style of the SEC or FTC is inadequate. If privatization is going to work elsewhere in health care, active market management will be needed."

On no level, in no way, have private insurers proven uniquely or even particularly capable of effectively delivering pharmaceuticals at a low cost. Indeed, their basic strategy of simply channeling increases into premiums while ignoring the cost-savings offered by formularies and tough negotiations has allowed a flowering of me-too drugs and comparative gouging. Medicare's late entrance into the market was part and parcel of this inefficiency -- the insurers spent hundreds of millions in consumer dollars preventing it, eventually lost, and have been better behaved as the threat of government competition loomed larger. And even now, they are putting money and resources into preventing Medicare from bargaining down prices. Medicare's tardiness is not a lack of foresight, it's evidence of how the insurers are not working in the best interests of consumers.

February 19, 2007 in Health Care | Permalink

Comments

The structural point that you're missing is that the people who brought you Medicare without drugs are the same people who will bring you any new and expanded Medicare. The decision not to provide drug coverage was a political decision. Future decisions about Medicare will also be political decisions. They may not make precisely the same bad decision in the future, but they will make other, equally bad politically motivated decisions. Big government is rather predictable that way.

Posted by: ostap | Feb 19, 2007 12:41:43 PM

On no level, in no way, have private insurers proven uniquely or even particularly capable of effectively delivering pharmaceuticals at a low cost.

To be fair, you're criticizing them for failing to meet a goal they never had in the first place.

Posted by: Stephen | Feb 19, 2007 12:51:29 PM

I hate to do a "me too" but I am. You made your points well and I agree with them down the line. Private, for-profit insurance is designed and managed to benefit the shareholders and owners of the company first, foremost and exclusively. Why the same people who decry "big gubmint" and talk about private solutions don't see this is one of those classic libertarian blind spots. Spreading the risk should not be a revenue stream. It's really very simple, the problem is neutering the insurance companies.

Posted by: ice weasel | Feb 19, 2007 12:53:57 PM

Ostap: Is it, though? That's like saying because there was no Medicare due to AMA-lobbying for hundreds of years before Lyndon Johnson created the program in the 1960s, the program would be just as AMA-dominated and bad afterwards. Not so, of course. The history of social insurance programs in this country is intense opposition to their creation, largely because they become independent, popular, and politically bulletproof post-enaction.

Indeed, the trend of Medicare, Social Security, etc has been towards more progressivity, generosity, and usefulness, not less. Hell, Medicare Part D, which is working rather well for what it is, disproves this idea as well. Industry fights these programs because they can't beat them once they've been started.

Posted by: Ezra | Feb 19, 2007 12:59:42 PM

"Indeed, the trend of Medicare, Social Security, etc has been towards more progressivity, generosity, and usefulness, not less."

Funny things, perspectives. You see the growth as good. I see it as bad. To pick just one example, my dad, who's a wonderful guy, don't get me wrong, receives subsidized medical care between his trips around the world which are financed in part (obviously not completely) by the bonanza he's getting from social security. I see that increased "generosity" as ludicrous.

Posted by: ostap | Feb 19, 2007 2:07:51 PM

"On no level, in no way, have private insurers proven uniquely or even particularly capable of effectively delivering pharmaceuticals at a low cost."

Have you ever purchased a drug for cash? Do that and then see what your insurer would pay for the same drug. Then come back and correct yourself.

Posted by: Alex | Feb 19, 2007 3:21:18 PM

lower cost isn't the same thing as low cost Alex.

Posted by: BillCross | Feb 19, 2007 3:26:19 PM

I think Medicare can do a lot to force prices down on drugs; I'm not sure that's the same as saying that Medicare Part D is a great idea, or that, because Medicare Part D could fix prescription drug pricing, it naturally follows that "Medicare for All" is a good idea. Even if (or really when) Medicare gets the authotiry to negotiate on price, there's still a lot of questions about beaurocratic administration, confusing rules, and general dissatisfaction with a lot of Medicare's reimbursement policies to be dealt with. Further, while I see your point, I'd say insurers and HMOs have done some good work narrowing formularies and questioning pharmaceutical companies - they generally limit the use of too many "Me Too" drugs, look for lower cost alternatives where possible, and try to drive people toward generics in basic medicines. That's just good business for them in trying to control costs. That, too, seems like what we want in the end. I have yet to hear progressives with some knowledge in the health care debate really do a hard look at Medicare rather than this generalized "since Medicare already covers a lot of people and they seem to generally likie it, it should be expanded." There are hard questions to look at before jumping on this. At the very least, we should wait for what I suspect will be not nearly so simple revisions to Part D (remember, that "donut hole" and other provisions exist because without the costs blow up), as well as some equally tough questions about rising costs of Medicare overall that are becoming impossible to ignore (reimbursement rates have been frozen or barely raised for a number of years now, and health care providers - and a number of states - have been chafing over it). I tend to think once some of that is brought out into debate, Medicare is going to look less like a solution, and more like part of a more complicated problem than many - certainly Republicans, but also many Democrats - like to face.

Posted by: weboy | Feb 19, 2007 3:41:12 PM

"Those millions, passed onto consumers through premiums and prices, added no value to the system, but kept the elderly from getting necessary drugs at affordable prices."

Extremely high branded drug prices in US allow(ed) Pharma companies to recover very high research expenses. In the rest of the world they could charge marginal costs of production (very low fro drugs) plus profit.

And if a country (France, Canada, most of EU) would conduct tough negotiating, they will get drugs at a cost of production, a great deal.

In effect USA consumers pay/paid for the world pharma research.

Very good for the world, not fair to US consumers. Strange, as libertoads concern for consumers suddenly evaporates in this case.

However, there is some value in this arrangements, it makes it easier for Pharma to recover their huge research expenses, that, hopefully, should motivate them to invest more in research than they would do otherwise.

But they could get more reaserch recovery from other countries by just hanging tough during negotiations.

Posted by: mik | Feb 19, 2007 4:09:07 PM

Ok, for the first last and only: Pharma spends more money on marketing than it does on research; the most important medical advances do not come from pharma, but from government funded research at major institutions. The problem here is not the whole "if Americans pay less for drugs the whole system of pharmaceutical development will go under." The idea that pharma companies would just give up on research on the basis of expense is simply bad business, and unrealistic. Indeed, putting more of a check on pharma profits might well be the impetus for a number of the big companies to finally examine structural changes that would make their businesses operate better; pharma's executives are generally not the most dynamic leaders, since their happily profiting from their cash cows. They could stand some pressure to do business better and smarter. The problems around solving price problems in prescription drugs have to do with the complexities of our health care system and the high cost of care in general. Buying into the pharma line about "this will kill our research budget" is just accepting their PR without questions.

Posted by: weboy | Feb 19, 2007 4:48:05 PM

So if your insurer is giving you the drug for $40 (not counting your premiums, btw) and every other country is getting it for $18, you call that low cost?

The soft bigotry of low expectations indeed...

Posted by: Ezra | Feb 19, 2007 5:34:21 PM

I think mik's analysis has it about right. I'll add the following: First, the newer advanced biotech specialty drugs designed to treat cancer and other diseases are priced pretty much the same throughout the world. Second, according to the McKinsey study that Ezra linked to on an earlier thread, generic drugs in the U.S. range from 10% more expensive to 50% cheaper than elsewhere, so it looks like the market is doing a good job with those. Generics, by the way, now account for more than 50% of all prescriptions but only about 15% or so of the dollars spent on drugs. If NIH and other federal entities are doing such a wonderful job developing new drugs, they should strike a better licensing bargain with Big Pharma on behalf of American taxpayers.

With respect to the government negotiating drug prices, a European pharmaceutical executive told me that most countries allow two drugs per therapeutic category onto the formulary. One is chosen based on low price, and the other based on superior efficacy. On average, the better efficacy drug commands about a 10% price premium. At the end of the day, the industry has to make a high enough return to attract the capital it needs to sustain its business. Is there room to cut costs by cutting marketing or through mergers? Yes, absolutely. To date, however, other developed countries have largely been free riding on the higher prices drug companies are able to charge in the uncontrolled U.S. market.

Posted by: BC | Feb 19, 2007 5:38:35 PM

Correction: Other countries allow two drugs for each mission such as statins, beta blockers, ACE inhibitors, etc., not per therapeutic category (cardiology, oncology, etc.)

Posted by: BC | Feb 19, 2007 5:42:33 PM

Any analysis of the pharma industry should note that average profitability in the industry is about 50% higher than that in most other industries. That's what our current arrangements provide. There is no fundamental reason this cash cow should continue to be subsidised. Profits come after research costs, so you could cut industry average profits without ever touching research budgets and still have an industry that attracts investment.

Posted by: DD | Feb 19, 2007 6:17:21 PM

There are so many absurdities in his post, in addition to those discussed above. Until Medicare D was started, many Medicare beneficiaries received prescriptions thru secondary insurance--purchased from private insurance companies. If such private coverage was so great there would not have been need for a change.

While true that private insurances have included prescription coverage longer than Medicare, not all plans have coverage. Many that do have prescription coverage have also had greatly increasing copays in recent years to the point where many patients cannot afford their medications even with this suppposedly great private insurance. As Ezra suggests, the experience with prescription coverage indicates a need for a change, not for opposing consideration of Medicare for All.

More at Liberal Values: http://liberalvaluesblog.com/?p=1102

Posted by: Ron Chusid | Feb 19, 2007 6:35:23 PM

Profits come after research costs, so you could cut industry average profits without ever touching research budgets and still have an industry that attracts investment.

Assuming the risk isn't any higher.

Posted by: Sanpete | Feb 19, 2007 6:49:04 PM

Ezra, I'll defer to your numbers, though I've never seen a $40 co-pay on a drug formulary; the highest I saw was $30, maybe $35. But I agree that there's a fundamental shift that needs to happen in drug pricing. I question if Medicare Part D can really be the mechanism to achieve this, and I definitely question then leaping to the conclusion that any of this provides a better case for the "Medicare for all" folks. And I do think it would be worthwhile to acknowledge - to keep this honest, at least - that insurers do things to lower drug costs for people they cover. Not enough, but something.

Posted by: weboy | Feb 19, 2007 7:26:44 PM

Ok, for the first last and only: Pharma spends more money on marketing than it does on research;

Not true, Pharmaceutical companies actually spend about half as much on marketing as they do on R&D.

Posted by: Thorley Winston | Feb 19, 2007 7:42:40 PM

I've never seen a $40 co-pay on a drug formulary; the highest I saw was $30, maybe $35.

Until the beginning of this year, my employer's co-pay was 50% of cost for drugs bought at a retail pharmacy, but mail order co-pays were extremely low. Now, our highest tier at retail is a $45 maximum co-pay, while our mail order co-pay is $40 for brands and $20 for generics (for a 90 day supply). Ultra expensive biotech drugs are generally paid under the major medical policy and not the drug plan.

Separately, one thing both PBM's and retail drug chains both do very well is drive generic utilization. They make more money by doing so, and it saves money for the payers.

Posted by: BC | Feb 19, 2007 7:49:39 PM

Thorley, your own citation says that R&D and overall marketing costs (I would include sampling, I'm not sure why you wouldn't) are about even; I'd say that "administrative costs" that you don't want to associate with marketing would probably add to that. I also don't think pharmaceutical companies are very forthcoming about just how much they spend on advertising and marketing, and prefer to make the R&D numbers look good to bolster their PR argument. Even using your generous assessment doesn't make the case for massive R&D spending that would be lost by working more aggressively to lower drug costs.

BC, as I said, I'm willing to accept that Ezra's numbers and yours are the case now; I know that premiums and co-pays have been steadily rising, and I've been out of a position where I saw these things more directly for a couple of years. I just don't see Medicare for All as a realistic solution to these problems, and I think we will need to look at other alternatives.

Posted by: weboy | Feb 19, 2007 9:34:43 PM

If NIH and other federal entities are doing such a wonderful job developing new drugs, they should strike a better licensing bargain with Big Pharma on behalf of American taxpayers.

Um, I presume you know enough to realise that's misrepresenting the majority of research that's funded through the public purse.

Also, I believe BCBS has a standard $40 copay on formulary brand-names these days for its PPOs, with $60 for non-formulary and a few exceptions that aren't covered.

Posted by: pseudonymous in nc | Feb 19, 2007 9:38:31 PM

I just don't see Medicare for All as a realistic solution to these problems, and I think we will need to look at other alternatives.

I agree. I think we should look hard at a premium support or voucher approach funded by a combination of a dedicated payroll tax of, perhaps, 10% of wages up to $175K or so plus a value added tax in the 5%-6% range, also dedicated to health insurance.

For a detailed description of such a proposal (with VAT funding only), look here.

Posted by: BC | Feb 19, 2007 10:02:03 PM

Weboy: yes costs of care and drugs have been rising, and they are likely to continue to do so with a population that to some degree lives unhealthy lives (including stress), and also because new treatments for disease are available.

The real question, IMO, is how these costs should be spread. The highest-utilization population segment, by far, is those under 65 (covered by Medicare). Yet Medicare costs have not zoomed up faster than costs for the general (non-Medicare) population.

Recall that worker's payments for Medicare Part A (hospitalization) are paid during that person's working years through payroll deductions (like Social Security). Only the Part B and Part D (medical providers, and drug plan) are paid after retirement. So when someone says that Medicare costs are out of control, what are they referring to?

Certainly not Part B, which is self-funding by users - not appropriated government funds. Part D does contain government-appropriated funds, but it is a new program, so rising Medicare costs over the last 5 or 10 years can't be attributed to drugs. Is the rising cost of Medicare due to increased hospitalization costs? Or is it due to more patients being served (the population IS aging)?

My points: generalizations are not helpful on this topic; Medicare (all parts) has been a genuine social good, largely because the risk pool is very large and the costs are shared without adverse selection by insurers on a insure-everyone basis.

As a society, medical costs will go up, faster probably than inflation - because people need and want good medical care and it is available. We shouldn't look just at aggregate costs either, but look carefully at per-capita costs for various age groups.

If we can afford $500 billion for the costs of war in Iraq (with no tax increases), we surely can afford to provide health care for all on a shared risk basis. Ever other developed country has found a way to do this, and it is therefore imperative that we do so as well - whatever form this takes that preserves universality, maximum pooling of risk and world-class medical outcomes.

Posted by: JimPortlandOR | Feb 19, 2007 10:08:07 PM

"So if your insurer is giving you the drug for $40 (not counting your premiums, btw) and every other country is getting it for $18, you call that low cost?"

You said on no level and in no way. I think that is inaccurate. We get bilked, no question, but we could get bilked worse.

Posted by: Alex | Feb 20, 2007 12:32:10 AM

So when someone says that Medicare costs are out of control, what are they referring to?
Certainly not Part B, which is self-funding by users - not appropriated government funds. Part D does contain government-appropriated funds, but it is a new program, so rising Medicare costs over the last 5 or 10 years can't be attributed to drugs.

Jim PortlandOR,

Beneficiary premiums, by law, are set to cover 25% of the cost of Medicare Part B and Part D, not 100%. The other 75% is paid by general federal revenue. Part A is, as you say, paid by the Medicare portion of the payroll tax coming in from active workers. By the way, active federal employees also contribute 25% of the cost of their health insurance premiums with taxpayers covering the rest as part of the employees' compensation.

I recently learned from a Canadian friend that 44% of Canada's healthcare costs are attributable to the over 65 population while another 3% goes for infants under one year old. It is high utilization of services that is driving our costs up faster than GDP. This trend is exacerbated here by a culture of defensive medicine among the doctors who drive virtually all medical spending and more heroic services at the end of life and the very beginning of life. As the McKinsey study also pointed out, doctors earn considerably higher incomes here, so we pay more for services. Prescription drug costs (for brand name drugs) are also higher here because other countries are allowed to free ride on the uncontrolled U.S. market.

Posted by: BC | Feb 20, 2007 5:32:34 AM

"First, the newer advanced biotech specialty drugs designed to treat cancer and other diseases are priced pretty much the same throughout the world."

Yes, I heard about those. Probably they are so unique and cannot be substituted, companies have leverage in negotiating with foreign countries.

"Second, according to the McKinsey study that Ezra linked to on an earlier thread, generic drugs in the U.S. range from 10% more expensive to 50% cheaper than elsewhere"

When I was in that business, about 5 years ago, US was clearly the lowest cost market for generics.

Posted by: mik | Feb 20, 2007 6:53:04 AM

"Profits come after research costs, so you could cut industry average profits without ever touching research budgets and still have an industry that attracts investment."

You don't know much about investing, do you?

If profits are lower, industry is not as attractive to investors. Less investment, fewer reaserch projects.

You can argue about better healthcare delivery systems, you can demonize Pharma industry.

But the truth is Pharma is just like any other industry, run for benefit of management and investors.

And laws of profit vs investment are fundamental.

How come no one proposed to nationalize Pharma industry and cut marketing budget to zero and management salaries to $200K/year? Wouldn't that be great? :-)

Posted by: mik | Feb 20, 2007 7:02:38 AM

Jim - I don't think the argument is that Medicare serves no good purpose and let's get rid of it; the question is whether the Medicare model is the best model to apply across all health care. Just these things you describe - Part A, Part B, Part D - in all their complexities suggest something that's neither simple nor easily explained, and then "Medicare for All" proponents tend to suggest that these things can be easily transitioned to all. I just don't buy it. Second the Medicare system is an administrative system, so saying that their "administrative costs" are somehow far less than private insurers mystifies me.... what does Medicare do besides administer the program?

Finally, the fact that Merdicare's costs haven't risen as fast as other health care costs belies the fact that the two are in some ways tied to each other; Medicare's reimbursement rates have been frozen or locked into low increases for a number of years (thanks to Bush and a GOP congress that couldn't get budgeting together), and hospitals and other payment recipients have chafed under those low fees. That can't really hold up, and it's been driving a skyrocketing increase in costs for others to subsidize Medicare. Would "Medicare For All" fix that? Maybe, but it could also drive a new bifurcated system that many folks fear - where "government run" health care is poorly subsidized and horrible while the best care is provided tro those with a willingness to pay a lot extra. I think BC is onto something by suggesting a system that subsidizes greater access to insurance. The place it falls down, as proposed, is that Americans will probably never agree to a VAT.

Posted by: weboy | Feb 20, 2007 8:30:32 AM

Full disclosure: I work at a pharmaceutical company (but I'm a lowly engineer, I don't actually make the types of decisions I discuss below).

"If you compare brand name drugs in the US and Canada, the same drug will cost you a full 60% more here. If you restrict that to the top selling drugs, you find we pay 230% more than anyone else. For generics, the difference evaporates. So on average, we overpay by 60-70% for pharmaceuticals."

-As Mik explains, this is due to the economics of the pharma business. Essentially, R&D cost can be considered a capital cost. Once you invest the $1 billion to discover a drug (that number is about right), you make very high operating margins on actually selling the drug. Even under price controls, the marginal cost of manufacturing and selling a drug is lower than the marginal revenue, so it's worth your while to make a few extra pills and sell them in, say, price-controlled Canada (It turns out that the US is about 50% of the pharmaceutical market in terms of dollars; this is because the US is large, rich, and does not use price controls). However, the price controls reduce the overall return on investment to the pharma company (obviously bad for the pharma company, but I would argue bad for everyone else, in the long run). Here's an example: my $1 billion dollar investment makes, say, $2 billion in current revenue ("current" will mean that the total revenue over the life of the product has been discounted back properly to account for the time value of money; we'll also assume I can manufacture and sell the drugs at no cost), so my total return was something like ($2 billion - $1 billion) / ($1 billion) = 100%. Let's say that the product was sold over the course of 10 years, so my rate of return is somewhere in the neighborhood of 10.0% per year (I know these calculations aren't being done completely properly, but they're close enough). For most big companies, the hurdle rate (the rate of return that makes a project worth pursuing) is somewhere around 20%. So in the example above, that project could not be financially justified; that product wouldn't be funded and wouldn't come to market (too bad if you had the disease that would be treated by that drug). So in this scenario, I'm only willing to invest in a project with revenue of at least $3 billion . Also, I should point out that the vast majority of the R&D cost of a new drug (60-75% or something in that neighborhood) is clinical trials.

So, if you're a policy maker, here are the trade-offs you have to consider:
You can price control drugs now to make the current generation of drugs cheaper, but that will come at the expense of future drugs.
You can decrease the scope (and therefore cost) of clinical trials to decrease the cost of developing a drug, but that comes at the cost of drug safety.

One last thing: people love to quote the marketing/admin costs of pharma companies vs R&D outlays. (Somebody above writes: "Pharma spends more money on marketing than it does on research"). That fact is totally irrelevant. There's no magic ratio of investment that should be spent in R&D vs marketing. Pharma invests in marketing for the same reason that coke does: it works. Saying that R&D costs should be more than marketing costs is as sensible as saying that factory utility costs should be less than pi/3 times salary costs.

Posted by: ChE | Feb 20, 2007 11:10:52 AM

Surely those attributes are appropriate for the rest of the population as well. Whatever the real administrative costs of private insurance, there is no real argument that Medicare costs are not just less, but substanitally less (maybe 2-3% versus 10-14%).
You do realize that this isn’t even close to being true don’t you? Medicare reports having lower administrative costs because it doesn’t use the same accounting methods that private companies do – activities based costing. In ABC, to find out what the overhead or “administrative costs” are that support a program or activity, you find out what the cost drivers are and you assign the cost of supporting those programs or activities even if the cost is being paid by another department entirely. The private sector’s supposedly higher administrative costs are because it includes the cost of things like claims processing, premium collections, management, human resources, and the like. Medicare on the other hand doesn’t include those things in its “administrative costs” because they’re actually being paid out of other department’s budgets or passed along to the States and private sector (which BTW: is one reason why the actual cost of Medicare is much higher than what’s paid for by premiums and tax dollars).

Posted by: Thorley Winston | Feb 20, 2007 11:22:01 AM

Full disclosure: I work at a pharmaceutical company (but I'm a lowly engineer, I don't actually make the types of decisions I discuss below).

Posted by: ChE | Feb 20, 2007 11:56:13 AM

people love to quote the marketing/admin costs of pharma companies vs R&D outlays. (Somebody above writes: "Pharma spends more money on marketing than it does on research"). That fact is totally irrelevant.

True. That Big Pharma spends so much on advertising is a problem, but not for reasons explained in this thread. The ads and such more than pay for themselves; otherwise they wouldn't bother with them. The problems with the ads are two: they promote overuse of some drugs, and they distort the market and research to favor drugs that ads can sell effectively, especially the so-called lifestyle drugs. Whether they take money from the R&D needed for other, more important drugs is an open question. They may in fact subsidize those drugs, even if the cost is a lot of less useful drug development and use.

Posted by: Sanpete | Feb 20, 2007 12:18:45 PM

I can't get over how much I boy enjoy and am truly sickened at how some of you guys just banter around at what should be done with other peoples money.

It's not your money. Why are you trying to decide what to do with it? If you want to decide what to do with a pile of money, do it with your own. Why do you have to reach into someone else's pocket and tell them how they should be spending their money?

It's great that Hillary wants to go to the oil companies and "take those profits" but she should remember that we wouldn't have fuel for our cars if the oil company didn't think there was a chance of making those kind of profits.

The same with pharma. If they don't think they can make profits they won't do it. Why is this hard to grasp? Apparently society is doomed to repeat the mistakes of stalin and lenin ever 50 years as we have pie in the sky "do gooders" who will force feed society "medicines" for its own good...sigh.

Posted by: other peoples money | Feb 20, 2007 1:20:58 PM

The notion that insurance companies actually cover prescription drug costs these days can be kinda risible. Around here, for example, Big Blue ditched the idea of a copay (which made many generics, btw, more expensive to buy under an insurance plan than for cash) and went to 50% of price. For people who have any significant prescription bill, that's a huge hit, especially when it's 50% of an inflated retail price.

Posted by: paul | Feb 20, 2007 1:45:42 PM

OPM, sorry to sicken you, but you have very narrow views of who ought to have the money primarily received from or at least primarily built on the labor of others.

Posted by: Sanpete | Feb 20, 2007 2:31:43 PM

Sanpete,

Whats stopping "others" from getting "others" to volunteer to work for them and build up wealth for them? Last time I looked around the guy in the warehouse picking orders, the sales rep on the phone selling products and the guy in front of the computer making ads at my work all signed up of their own accord and all could leave at a moments notice and go start up their own empire and make lots of money if they're successful. Of course they could also fail and lose their home in the process.

I hope you don't mind if you give me access to your bank account this week so I can determine how you should spend you money and allocate the rest to me.

Biting the hand that feeds you...you work for a company. Their revenue/profits pay your bills and pay for your leisure time. You take their profits. They are less successful and employ less people. Thats simplified for sure, but your thought process seems to be:

Profits are good. But not too much. We decide whats too much based on what we decide when we decide it. What's left over we take and allocate toward different government programs because the poor schill down the street with cable tv and a playstation 3 can't afford to buy health care. He's just an abused worker after all.

Wow, please tell me how you don't sound like stalin? Do you have a fabulous 5 year plan and medical price fixing in store for us too?

Posted by: other peoples money | Feb 20, 2007 3:12:32 PM

OPM, it doesn't matter what prevents everyone from getting others to work for them (as though that were logically possible). What matters is that these others do work for them, and that the employers' wealth isn't only from his own labor. Not even remotely close to it. And even if he has no employees he still relies utterly on the work of others.

Rather than giving you individually access to my bank account, I have a more practical idea. We can elect representatives whom we will empower to compel me and you and others to part with some of our money to pay for projects affecting the common good. I have no objection to profit, which are a good things. I just favor common projects to accomplish common goals, and since we all benefit from them, I think all who can should contribute.

I have several important points of difference with Comrade Stalin, starting with the extent to which the state should own the means of production.

I suspect that these ideas aren't new to you, but that you just don't want to understand them or give them proper weight.

Posted by: Sanpete | Feb 20, 2007 5:41:50 PM

ChE - I'll second Sanpete, sort of (Dude!);) - I don't bring up advertising/ marketing costs to suggest that there's some magic ratio to R&D; my only point is that the claims that there's massive R&D spending that outweighs other spending by pharmaceuticals is mostly a claim the pharmas make themselves, as cover for the argument against srtronger pricing pressure ("If you force us to cut prices, we'll never innovate again!"). I just don't buy it. You could make other trade-offs (like seriously evaluating the effectiveness of DTC advertising, or using quite so many reps detailing out in the field) in marketing rather than cut R&D, just for starters. Having spent time in pharma marketing, I can tell you that there's tremendous waste and a lot of resistance to changing their models, which are not necessarily working (and it's not like ad agencies really want to ruffle the cash cow). Pharma doesn't like those points, mostly because they like the way they do things and haven't had to face the prospect of having to change, much; like the rich girls they are, they try to justify needing both the sable and the mink. That's the joy of selling a commodity people have to have, where the producer can set prices without having any real barrier to setting it as high as they like. That model can't hold up, whatever happens with Medicare Part D. If it's not Part D getting the power negotiate, I'd bet that private insurers aren't going to have much elsewhere to go in terms of trying to control costs but to push pharmaceuticals to price differently (the push to generics is a lot of this). At some point this becomes change or die. The rumblings about Part D are just warning signs. The question is whether anyone is pharma is paying attention.

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