Healthcare: Understanding the Status Quo

The upcoming decision on healthcare reform is possibly the most important decision America has seen for decades. If "reform" as it is currently seen is continued, dramatic effects could be seen for all Americans. But is it the right reform? No one denies that the status quo in medical care is subpar; however, many believe the direction the Federal Government is taking in this issue will only make matters worse. In order to understand this direction of increased government control over healthcare, one must first understand the reasons why the industry is in its current state.

Two primary subjects are the focus of the modern healthcare debare: drugs and insurance. Both will be covered in short order.

The often enormous expenses of prescription and over-the-counter drugs means they are often out of reach for lower and middle-class individuals. There are three main reasons for these costs: first, the large investment necessary to research and manufacter those drugs; second, the overbearing regulations of the FDA; and thirdly, the groups of lobbyists pressuring public officials in Washington.

The first reason is simply a fact of the industry; no amount of reform, whether government-based or market-based, will be able to overcome it. Pharmaceutical companies invest millions or even billions, to research vaccines and medicines, then invest even more to manufacture them on a larger scale. When these companies are successful and make enormous profits, cries and complaint go out, claiming that the companies have extorted consumers. But why? Why shouldn't a company that has taken great risks to provide such a necessary product as medicine receive a hefty reward for its investment? The United States leads the world in pharmaceutical research; reducing the likelihood of high returns for investors and entrepeneurs would severely decrease research in the United States.

The second reason for high drug prices, on the other hand, is changeable and is not simply a reality that must be accepted. The Food and Drug Administration (hereafter the FDA) is the government agency responsible for the regulation and approval of drugs. To understand how this body restricts the availability of drugs, consider two examples. In the first example, imagine there is a drug fully tested by the pharmaceutical company that created it. However, the drug must undergo even more testing from the FDA, despite the fact that the company has already tested it under pressure from the fact that future sales will decrease sharply if the drug is ineffective or dangerous. This added testing means several more months or even years before the drug is available to the public. In the second example, imagine there is a new cancer treatment that is cheaper to use than chemotherapy or radiation and doesn't come with the common side effects of either. However, this treatment has a 1% chance that its use will result in fatal heart problems later on, and FDA bans it. Even if the drug had a mere 3% success rate it would have ultimately saved far more people than it killed. The FDA regulation saved one person, but killed three. In both cases government regulation kept effective drugs off the market for longer than necessary, if it even let them on the market at all, wasting time and effort and therefore increasing the cost of the drug.

The third reason for high drug prices is the presence of large groups of lobbyists from major pharmaceutical companies in Washington, D.C.. While the root of this problem may appear to be the enormous power and money possessed by corporations that allow them to influence policy decision, it is actually that there is too much power concentrated in Congress. The more power to regulate, tax, and subsidize vested in Congress, the more special interest groups are drawn to it so they can take advantage of it. As power is concentrated, so is corruption. If the power the government wields were severely diminished, the corruption that accompanies it would also subside.

So, in summary, three major reasons for the expense of drugs are large investments, overprotective regulations, and corrupted power.

The cost of insurance is the other main concern in the debate. While many lament lower coverage of health benefits, it seems as though the solution to higher costs and lower availability of insurance may actually be decreasing coverage.

John Stossel had an excellent analogy to the current American healthcare situation that may explain this apparent paradox. What if there was a company that offered grocery insurance? This grocery insurance program starts by simply providing coverage for rare, severe cases such as when there's a local famine of some sort (if shipping non-local food is not available) or the consumer loses their job. This works out fine because everyone is under almost-equal risk of having a famine or job loss (illness), and the system works by having those who are more fortunate pay for those who are less fortunate; everyone involved has decided to pay the moderate cost of insurance rather than risk paying a larger cost at some point or another.

But what if this grocery insurance policy expands so that all groceries are covered? The incentive to economize is lost. In the first situation, with limited coverage, people made do when they could, but let insurance take care of everything when they couldn't. In the second situation, with full coverage, people say, "Why should I buy chicken? I can buy filet mignon for dinner because my insurance takes care of it." The result of this is increased consumption on all fronts, and increased consumption must be accompanied by increased costs.

While one may say, "This is ludicrous! Why would anyone participate in this system?", this is the reality of modern health insurance. Because supply and demand are skewed, the value of any one treatment becomes unknown. When the collective is paying for a product or service, anyone can take advantage of that collective and those who do not abuse the system are left with the bill.

Now the reasons for the current healthcare situation in the U.S. should be clear. In the next few articles, the issues specifically accompanying universal government-run healthcare will hopefully be clarified as well.