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August 29, 2016 | Death Panel Discussion: Obamacare Costs Skyrocket; When Does It Stop?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Middle-class households are finding more of their Obamacare costs are coming out of their own pockets.

Self-covered individuals are hit hardest, but employers providing coverage have fought back against rising costs by reducing plan benefits.

Deductibles are up 67% since 2010. That’s seven times more than wages. And the cost of prescription drugs is out of sight.

Please consider Burden of Health-Care Costs Moves to the Middle Class

Overall, health-care spending across the economy reached 18.2% of gross domestic product as of June, up from 13.3% in 2000, according to Altarum Institute, a health research group.

David Cutler, a Harvard health-care economist, said this may be “a story of three Americas.” One group, the rich, can afford health care easily. The poor can access public assistance. But for lower middle- to middle-income Americans, “the income struggles and the health-care struggles together are a really potent issue,” he said.

Bigger Bite

The Kaiser Family Foundation, a health-care research nonprofit, found deductibles for individual workers have soared in the past five years, rising 67% since 2010 without adjusting for inflation, roughly seven times earnings growth over the same period. A separate Kaiser analysis of tens of millions of insurance claims found patient cost-sharing rose by 77% between 2004 and 2014, driven by a 256% jump in deductible payments.

Shifting Burdens

shifting burdens

In the 15 years since B.J. Welborn, 66, started taking the leukemia medication Gleevec, its list price has risen from under $24,000 for a year’s supply, to over $121,400, according to drugmaker Novartis. Now on Medicare, Ms. Welborn has a co-pay of $491 for a 30-day supply of Gleevec, seven times the co-pay on her old Blue Cross Blue Shield plan. She estimates she now pays between $11,000 and $12,000 a year for the drug.

Skyrocketing Drug Costs

My math says that if a one-month supply costs $491, a year’s supply costs $5892 not $11,000 to $12,000. However, even $5892 seems excessive. And it is. Blame regulation. Also blame fear of “death panels”.

Death Panel Discussion

Please consider Why Drugs Cost So Much.

ELI LILLY charges more than $13,000 a month for Cyramza, the newest drug to treat stomach cancer. The latest medicine for lung cancer, Novartis’s Zykadia, costs almost $14,000 a month. Amgen’s Blincyto, for leukemia, will cost $64,000 a month.

Why? Drug manufacturers blame high prices on the complexity of biology, government regulations and shareholder expectations for high profit margins. In other words, they say, they are hamstrung. But there’s a simpler explanation.

Companies are taking advantage of a mix of laws that force insurers to include essentially all expensive drugs in their policies, and a philosophy that demands that every new health care product be available to everyone, no matter how little it helps or how much it costs. Anything else and we’re talking death panels.

An article in The New England Journal of Medicine last fall focused on how companies buy up the rights to old, inexpensive generic drugs, lock out competitors and raise prices. For instance, albendazole, a drug for certain kinds of parasitic infection, was approved back in 1996. As recently as 2010, its average wholesale cost was $5.92 per day. By 2013, it had risen to $119.58.

Novartis, the company that makes the leukemia drug Gleevec, keeps raising the drug’s price, even though the drug has already delivered billions in profit to the company. In 2001 Novartis charged $4,540, in 2014 dollars, for a month of treatment; now it charges $8,488. In its pricing, Novartis is just keeping up with other companies as they charge more and more for their drugs. They know we can’t say no.

Just Say No

Supposedly we cannot say no because it will lead to charges of “death panels”.

Well, why can’t we say no? Do people have the right to demand $64,000 a month for Amgen’s Blincyto.

That sound amazing? A one year’s supply of Gleevec costs $121,400!

Why not $250,000 a month or $2,000,000 a month?

Where does it stop?

What If?

If Medicare and insurance companies came flat out and stated “the most we will pay for any drug is $500” an month, guess what would happen?

In case you do not know the answer here it is: No drug would cost more than $500 a month.

Such a rule does not demand drug manufacturers provide drugs, it simply states what government would pay. Might some people die as a result?

Perhaps. But perhaps not.

Would the manufacturers rather get $500 a month or nothing? Perhaps to make a point, drug manufacturers would rather get nothing, but that would make the pharmaceutical company the death panel, not the government.

I’m not saying $500 is the magic number. I just provided an example.

Case for Zero

  • Why should government guarantee any payment for drugs?
  • Why should government demand insurers provide coverage for every drug?
  • Why shouldn’t we allow drug imports from Canada and Mexico?
  • Why not try a free market and see what happens?

If Obamacare did not force insurers to provide coverage for every drug, and if Medicare put a cap on costs, prescription drug prices would crash.

The same applies to operations and every other aspect of health care. Government is the problem, not the solution.

Mike “Mish” Shedlock

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August 29th, 2016

Posted In: Mish Talk

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