America, Freedom &The High Cost Of Healthcare


When I moved to New York in 2008, there were a number of things that I found confusing. There are many more options for, well, everything. This is especially noticeable at supermarkets, where every possible category of thing is serviced by innumerable brands and variants. (That’s why there is also so much advertising: to help you choose.)

The paradrops of choice. A selection of the different brands of eyedrops available.

It’s all a bit baffling, if you aren’t used to it.

But that’s nothing compared to how truly weird the American healthcare system is.

Medicare and Medicaid are 50 years old today, so this seems like a good time to look at some of that weirdness.

In some ways, the weirdness underlying American healthcare can be attributed to the same reasons there are so many brands.

There are a couple of core and very groovy values underlying the American Dream construct that, when taken to their logical extreme, kind of suck.

It’s problematic because the country — which is truly a beautiful, amazing, experiment in humanity, the likes of which we have never seen before — has paradoxes built into it that cause problems.

  1. Freedom is good.

No problem with that, you might think. Freedom is, we all pretty much agree, a good thing. Yes indeed. Not being free is bad, as we once and for all sorted out when slavery was abolished. But freedom is often conflated with choice in America.

I’m not sure this cover really conveys the idea you know. I mean, you’d obviously choose the golden egg wouldn’t you?

Freedom is equated to the freedom to choose: more choices = more freedom. But at some point there are too many choices…and it makes life worse, not better.

Barry Schwarz’s excellent book The Paradox of Choice makes the case for this better than I ever could.

(Not everyone agrees, but hey, that’s freedom for you.)

[The freedom paradox is at the heart of many modern civil issues.

There is a famous expressions of this:

“Your Liberty To Swing Your Fist Ends Just Where My Nose Begins,”

which is attributed to Lincoln and loads of people, but, like so many famous expressions of this nature, is what I call a fauxation. These fake quotes bubble up in culture and then get appended to famous people they seems to suit. Fauxtations have no textual referent that can be verified.

The point being, if everyone is free to act as they choose, everything gets messy really quickly, because your absolute freedom curtails mine — and vice becomes verse.

The essential basic social contract, all the way back to Hobbes and his Leviathan, is that in order to live in a civilized society we must agree to give up some freedoms, otherwise anarchy prevails and we live lives that are solitary, poor, nasty, brutish and short.

This is Hobbes’ Leviathan. Don’t worry, it’s a metaphor, not a monster.

This parenthesis is getting too long, but while we are at it, owning guns “as a right” is an aspect of this weird sense of personal freedom that is built into the fabric of America.

As Chris Addison once said, the right to bear arms is only slightly less ludicrous than the right to arm bears.

The obvious problem with the right to own guns, considering there has been a mass shooting in America EVERY SINGLE DAY THIS YEAR, is that it directly impacts the rights of other people to not get randomly shot.

See, mass shootings are so common in USA that they don’t make the news because, well, almost by definition, the news is stuff that is uncommon, not something that happens as frequently as the sun rising in the sky.

To paraphrase the fauxation:

Your Liberty To Shoot Your Gun Ends Just Where the Soft Tissue Our Children Begins

So, in this instance, the freedom to own a gun, is superseding the freedom of kids not to get shot. Which seems really, really stupid, to everyone in the rich part of the world outside of America. Just so you know.

Where was I?

Oh yes sorry, point 2.]

2. Everyone is equal, and anyone can achieve anything.

If you work hard you can be successful, no matter where you started, and people who work hard are rewarded for their efforts.

Again, this equal opportunities idea is very groovy. In fact, it is the founding principle of these United States of America:

“We hold these truths to be self-evident: that all men are created equal; that they are endowed…with certain unalienable rights; that among these are life, liberty, and the pursuit of happiness.”
The Declaration of Independence: America’s mission statement.

This is one of the most powerful, inspiring, and beautiful, fucking things ever written by human beings.

It is one of the many things about America that I love. Damn those guys could write.

I should probably make it clear, as I’m going to poke some holes here and there, that I really love the USA. It has many, many problems, but, and I’ve been to a lot of places, not most, for sure, but a lot, and still I think it’s amazing.

The very fact we can have the discussion about how the rich are basically buying elections now, and we are going to, if I get round to it, is testament to the good things about the country and that bit of paper that ushered in the modern world.

Did you know you can go to jail in Thailand for saying bad things about the king? It’s a groovy country, great food, land of smiles, but WTF?

And as for places like Saudi Arabia, are you kidding me? They will cut your head off for being gay. This is 2015. I mean, they don’t even do that in Game of Thrones FFS.

[Anyway. I do this out of love for America and its ideals. It’s because I hold the USA in such high esteem that some things make me really angry and sad. Remember that.]

BTW:

The Founding Fathers almost certainly got this idea and parts of this phraseology from the British philosopher John Locke.

Remember Hobbes and his Leviathan we mentioned above?

He thought people were animals and would tear each other apart if the state didn’t stop them.

Locke didn’t think that and instead he put forward the idea that all people have rights, where he said things like:

“All mankind… being all equal and independent, no one ought to harm another in his life, health, liberty or possessions.”

At the time this was a genuinely revolutionary idea, and it was probably at least an influence, let’s say.

Anyway, this is groovy, but it has various dark interpretations and ramifications.

For example, since people should be rewarded for hard work by success, there is a weird sense in USA that people who are successful or rich must deserve it.

This is almost certainly a logical fallacy of some kind, and it leads to a couple of weird things. People who aren’t rich sort of love the rich, and also think they can maybe become rich by working hard, which isn’t really true, unless they are stupendously, lottery winning odds lucky.

If you have really no money, you get stuck in a poverty trap, with no time or cognitive resources available to create an app or a social network and become a billionaire.

[Interestingly, whilst they may often be college dropouts, the great tech founders we all worship and adore are usually dropping out of the most expensive and prestigious colleges in the country. Not dropping out of working double shifts at McDonalds because there was no way they were ever going to be able to afford to go to college. And if they did, they would be trapped into a lifetime of debt that could never escape.

Did you know that? Student loans are the only kind of debt that you can’t default on, even if you go bankrupt.]

Anyway. Where were we? Oh yes, equality.

The idea that all men are created equal, and therefore start from equal footing in the pursuit of that elusive beast happiness, is encoded in this famous quote:

“In America, anybody can be president. That’s one of the risks you take.”

This would seem to be a clear expression of equality and democracy, but I can’t believe that anyone really believes it anymore, if they ever did.

Not when we have a 3rd Bush and a 2nd Clinton running for President.

Clearly, some families have more of a chance of producing presidents than others: rich ones, it would seem.

Further, the really dark face of the idea that people who work hard are rewarded with success is the belief that people who aren’t successfully are lazy, or it’s somehow their own fault.

This is a horrendous, horrible, horrific, idea, but it’s at least partially why there isn’t a robust social safety net in America.

Which brings us, almost, to the healthcare system.

America, because it believes in freedom, and choice as proxy thereof, and the free market as the systemic expression of that, has a private healthcare system.

Also there is this latent fear of communism in America, which is conflated with socialism, which people think means we shouldn’t have healthcare as basic human right but rather something you have to buy. Gun ownership = basic right, healthcare = not.

[Also, and I know, I make too many parenthetical tangents, but did you know Kinder Eggs, a brand of chocolate egg with a little plastic capsule inside, inside of which there is a toy, are banned in the USA? Because it’s dangerous for kids.

Again, not to hammer this point, but:

Kinder Eggs: illegal in USA because dangerous

Guns: a right in USA, you can buy them in stores, carry them around, leave them in places where your kids can shoot each other. This happens quite frequently.

So, that’s a bit weird right there.]

As I understand it, and please do jump in and help me if I’m getting it wrong, as an immigrant [I have a green card and everything] the American Healthcare System isn’t a system but more of a multiplex, of various interacting elements and interests, mostly privately owned.

So you buy healthcare like other goods. Since healthcare costs can spike dramatically if you get really sick, and since that happens to some people more than others (but it’s difficult to say who and when), it’s a ripe market for insurance. You can insure anything, but shared risk, where some people are going to need it more than others, is a defining element of something that you can easily insure, otherwise insurance companies wouldn’t do it. I think.

People are mostly insured through their employers, unless you own a company in the USA, like my wife and I do, when you have to pay it yourself.

Insurance is really, really, expensive in America, because healthcare is really, really expensive in America.

Medicare and Medicaid take up about 24% of the Federal budget.

To put this in perspective, America has the world’s largest military, and spends so much money on weapons, so consistently, they’ve been forced to equip local police officers with military grade weapons and tanks that were originally bought for the actual military in order to, well, keep buying more weapons?

Under the 1033 program, $5.1 bn of military equipment has been transferred to local police forces.

From the WaPo

So, small town American sheriffs, have the assault rifles and armored vehicles that had bought for use in wars. So that they can stop burglars and keep people from drinking outside.

It may not be a coincidence that policemen in America seem to shoot a lot of people. If you give someone an assault rifle, which they recognize from Call of Duty, it probably fucks with their reality.

[Should you wonder why this is happening, why the government just keeps buying more and more weapons, I refer you to Eisenhower’s amazing exit speech where he warns that the “military industrial complex” [he coined the term], necessarily built up for WWII, was a government/business hybrid that would need feeding and so would apply pressure — “economic, political, even spiritual” — to go to war a lot and buy loads of weapons.

He seems to have been somewhat prescient.]

So, guess how much of the Federal budget is spent on all the armies of the greatest military force the world has ever seen. Go on, guess.

17% on the military, 24% on healthcare.

That’s a bit weird, right? As in, how can America be spending SO. MUCH. MONEY. on healthcare?

The idea of a free market is that competitive pressures keep prices in check. Ultimately the invisible hand allocates resources efficiently without central control.

[Centrally controlled economies are a key characteristic of communism and we know now pretty clearly they don’t work. Except in China, and, well, that’s complicated, or complex, or whatever, since it’s now kind of a hybrid.]

This requires a couple of things, most importantly information in the market and agents that can act on this information. So, if some supplier is charging way too much for something, that market corrects for that by “encouraging” someone else to come in and offer it at a lower price, which takes market share, until the prices stabilize through competition.

At least, that’s how I understand it, I’m not an economist.

Now, let’s consider the American Healthcare market.

Firstly, no one has any idea how much things cost, or should cost.

This is totally fucked.

The same exact procedure might cost $8000 in one hospital, and $38,000 in another.

Doctors themselves have literally no idea how much the treatments they are recommending will cost but because there is a profit motive built into the system, consciously or not, American doctors tend to recommend way more expensive tests than in any other country.

Since prices are entirely opaque, they do not normalize and so we can gather, being amateur economists, that the market isn’t operating efficiently. Or, really, at all.

Wait, it gets better.

Medicare [that’s the one for old people] is the world biggest purchaser of drugs. Now, one of the other things that happens in free markets, that’s supposed to help make things fair, is that the more money you spend, the more clout you have. So, the more you buy, the more you can negotiate on price. Things like economies of scale and transaction costs and that mean that it makes sense for a supplier to discount prices for the biggest buyers, and if you are the biggest buyer, then you can push it even more because you represent so much scale.

Sadly, this is not the case with Medicare because Congress has barred it from negotiating.

WTF?! I know. Sounds insane. But it’s true.

This means that drug companies can charge the government whatever the hell they want. Unsurprisingly, they do.

Drug makers charge customers in the U.S. — especially the government — vastly more for the same drugs than they do in places like Canada and Europe, where government health plans bargain with the drug companies to protect their citizens.

Let me give you a personal example. I have asthma, and I use a relief inhaler that squirts a drug called Albuterol into my lungs, which means I can breathe. It’s a bronchodilator, which counteracts the spasms and inflammation that make it hard for me to breathe [that’s what asthma is].

It’s great, it really is. Not being able to breathe is both a terrible and terrifying feeling. Ventolin [the brand name] works in a second. It’s been around since the 1960s and is on the WHO’s list of Essential Medicines. It’s a little medical miracle I experience very frequently, for which I am grateful.

With my current insurance [because I have my own company I’m not part of a big company program to help assuage my insurance costs], I pay about $70 dollars co-pay for it. I need about one a month.

The cost in the UK is about $10, the cost in Mexico is about $4.

There is a company called Gilead Sciences, that bought the patents for two drugs that cure Hepatitis C. That’s the thing that Pamela Anderson got. It’s nasty, progressive, and will ultimate kill you by destroying your liver. And there is A CURE. An honest to goodness CURE, for a virus. This is HUGE. And Gilead knows it. There about about 150 million people in the world with Hep C. They are all SAVED! And they are an addressable market.

So, because they own the patent [to be clear: they didn’t do the R&D, the US government actually paid for most of it but they bought the patents from the private company that somehow got said patent] and it’s genuinely a miraculous cure, they charge $1000 per pill, which is $84,000 for a course that cures you.

The estimate mark up over costs is about 1000 to 1. Not 1000%. 1000 times the cost.

So insurance companies are refusing to pay it, unless you are almost dead. And this is all because, remember, they can charge the government, literally, anything they want.

So, both conditions that make a free market operate and in some ways a good thing, as we discussed above, are absent in the American healthcare market.

There is no information and agents aren’t allowed to act.

All of which is to say, there isn’t a free market operating for healthcare in America, there is a cabal that price gouges the citizens and the government, weirdly through the collusion of that same government. [Which is a whole different topic.]

I’ll finish this with some back of the blog post maths which shows very clearly that the supposed efficiencies of the free market and competition are very hard to discern in America.

[I’ve done some rounding to make it easier.]

The Cost of Healthcare in the USA vs UK

Total Budget for The National Health Service in the UK [2015 ]: $180 billion

Total Expenditure on Healthcare in the USA [2015 projection]: $4 trillion

Total Population of the UK: 65 million

Total Population of the USA: 320 million

180 billion divided by 65 million = $2,800 per person

4 trillion divided by 320 million = $12,500 per person

So total spend per capita in the USA is more than 4 times the amount it is in the UK — and in the UK, there is free universal healthcare [as in the government pays for it].

This is good because getting sick is the number one cause of bankruptcy in America, which is totally fucked.

Take a free market, and remove everything that makes it free. It’s like the USA opted for a system that blends absolute worst of both worlds.

“There’s nothing more important than our good health — that’s our principal capital asset.” Arlen Specter