 Well according to my My iPhone it is now 11 o'clock, so we're going to go ahead and start and I'm going to use probably every Single one of my 45 minutes here because this is a huge topic I Was trying to keep track this week of the various Debates on the Proposals for repealing and or replacing the Affordable Care Act and it's it's at this point looks like the Republicans, maybe you're going to pursue some kind of Skinny repeal. I think that's what they're Calling for something like that So I'm I'm actually not going to get into too much of the Current debates of the last few days Instead I'm going to look at some general principles about health care I don't really like the term health care because it What people mean by that is medical care But there are many many other paths to health besides what doctors nurses hospitals and so forth Can't accomplish so It's really we're talking about the medical care system Some of the biggest advances in human health came from things that we don't normally associate with doctors hospitals and so forth things like sewers and water systems that allowed people to get clean water and and Dietary improvements and other things that had a lot more to do with actually with with with markets and Economic progress in general. I want to cover a few topics and I'll just go through these as much as I Have time for the first thing I want to talk about here is drug costs You hear a lot of objections to Pharmaceutical companies that are charging what appears to be a huge amount of money for a medication Marginal cost producing this medication might be very low and Yet it looks like they you know, they did in fact raise the price to a Significant extent one of the examples of this is the EpiPen from last year Produced by a company called my land And if you start if you just look at the price increase on EpiPens From what used to be a what looks the most of us like a very reasonable price to what many people think of as an Unreasonable price you you see a lot of people saying well, you know This is the problem with the market see because you get you end up you see what free markets do you allow? Pharmaceutical companies to charge whatever they want and then they go and just jack up the price to this crazy level Well, if you do a little digging and you realize this is not really the market at work, right? This is this is something Totally different you read the details on this you see and this is from an article on the Libertarian Republic comm My land holds a patent On a type of design that meets specific legal Requirements, I think they mean foisted foisted upon schools for auto injectors Also, the FDA is reportedly barring competing companies that do manage to meet the same technical requirements By recalling their offerings based on higher Standards than that set for EpiPen or by asking them to undergo more arbitrary testing before true consideration is offered So there there are numerous barriers here to entry to competition in this market This is not a free market somehow resulting in these high prices This is a company that's managed to get itself established and trenched Thanks to government intervention like intellectual property laws the FDA and and in various requirements on schools Another case of this and this is one that I Have a I have a post on Mises org on this from a couple of years ago The pharmaceutical company Gilead which bought a patent for a hepatitis C cure called Sophos Bavir Which their marketing under the name Stavaldi they bought this patent for 11 billion dollars Basically buying the government's protection for their their for this product Protection against competition and they took the drug through the last stages of FDA approval And that they finished that up in 2013 and then made 12.4 billion dollars the next year from the drug now in the United States a course of treatment For this drug is $84,000 Now you you talk to Progressives about this kind of thing and they're just There's no shortage of outrage about it Jeffrey Sacks says Gilead should be held responsible Morally and legally for all of the HCV related illnesses and deaths that occur as a result of their unacceptable pricing policies Despite record-breaking profits Gilead continues to keep the price of Sophos Bavir so far above its modest production cost that millions of Individuals are unable to access the treatment they require This this is the kind of response you tend to get now what what Sacks is doing here He's not seeing patents as part of the problem intellectual property is being part of the problem He's he's basically saying well patents are basically a beneficial thing they encourage innovation But what we need to do then is use the patent as a kind of a leverage for the government to then Beat a company's prices down. Oh, you have a patent we gave you therefore You're going to lower your your prices Now what we find if we if we do a little digging on this is that in fact Innovation can be rewarded is rewarded in the absence of patent laws even where you have a Good that can be reverse engineered so a pharmaceutical company comes up with this chemical compound that they are then able to Test they test and they find out that this is this is useful in various therapies And what happens if somebody in another lab takes this this chemical compound breaks it down figures out What it is how to produce it and then comes up with a a substitute without having to invest all the hundreds of millions of dollars in Research that's kind of the argument that you see from for patent laws in this case Now there was a study In 2006 in the British Medical Journal Of the most noteworthy medical and pharmaceutical discoveries of history is just asking medical professionals What do you think is the most are the most? Important medical and pharmaceutical pharmaceutical discoveries, and this is the list that came up with things like Penicillin x-rays tissue culture ether anesthetic and so forth Only two of these Actually had anything to do with patents Thorazine as an antipsychotic drug sometimes use this to keep surgery patients calm going into surgery and Of course pill so this these are these are the only two out of the out of this list You can find more on this Mises.org there's this article by Nicolayson on on this point There was another study a Study done by the US Centers for Disease Control of the 10 most important medical discoveries of the 20th century None of them had anything to do with patents So why would this be I mean this it runs against what Most economists would think is is critical to innovation What we actually find is that there are some advantages to being the first Firm to come out with a new drug Nicolayson points out that large pharmaceutical companies may have a significant market share advantage after the introduction of Generics even after their patent expires after competing chemically Very close if not identical compounds come into the market. There are natural barriers to entry if you look at the survey of research and development labs 23 to 35 percent of the managers And company managers and R&D labs Said you know patent is is an effective way of getting a return on investment But 51 percent said it's trade secrets. That's really the important thing It's not necessarily easy to come up with a new production process on your own If that is guarded by trade secrets, even if you know the chemical compound producing this drug is not necessarily easy also a huge fraction of the returns sorry revenues from Pharmaceutical companies are coming from their marketing efforts not from their research and development wing So even if a competitor can manufacture a generic drug Very quickly it can be difficult to make a dent in the market dominance of an already established drug There's some data from India Which Nicolais and mentions which suggest that it takes about four years for generic drugs To enter the market. So that's a that's a significant period of time if you remember from the I think it was the Gilead instance with the hepatitis C drug In the first year after they acquired the patent they were able to recover all of their initial investment and and then some I Usually spend a lot more time on the FDA Then I will During the limited time I've got here, but I do want to mention this this very important barrier to entry in pharmaceuticals that has Resulted in higher prices in the industry If you go back to 1906 the only rule was that medications are not Contained substances harmful to health By 1938 the rules had changed to require that manufacturers had to demonstrate the drug was in fact safe and then in 1962 a very important change That drug manufacturers had to prove that the drug was safe and effective how safe how effective Well, that's up to the FDA to decide these things are not binary It's not that the drug is either going to kill you or it's going to cure you and most drugs have some kind of side effect That's important to consider so it's a judgment call really and leaving this to the FDA Means the FDA is incentivized to be over cautious in allowing you drugs onto the market They're subject to a lot of public criticism if they Admit a drug to the market that is that produces side effects But if they hold back a drug from entering the market It's hard to know exactly who would have been helped by that drug and therefore the Victims of their policies are harder to identify and have trouble Coming up with a kind of cohesive lobby against the FDA's restraint So prior to 1962 the FDA had to approve within a hundred eighty days Unless they were able to come up with some reason before then that the drug should not be allowed to the market but after 1962 the time constraint was removed and The drug approval process lengthened to something like eight to ten years in some cases Well meanwhile during this eight to ten year period people are suffering they're sometimes dying depending on the condition that the drug would have treated and So The testing cost went up drug companies now have to lay out hundreds and hundreds of millions of dollars to To test the drug to satisfy the FDA's requirements Most people will say well, you know, it's good to have safe drugs and not rat poison, but that's not really what's Being accomplished here Drug companies that sell rat poison would tend to go out of business Um very quickly Look at what happens to Chipotle when they have a small outbreak of norovirus among their restaurants and their stock tanks You don't need Government to make sure that Chipotle suffers from this kind of event. It's going to happen in the marketplace as it is Um a couple of examples of this kind of thing based on some studies One of these by a Nobel laureate george hitchings The antibiotic sceptra There was a five-year delay Introducing that to the u.s. Market. The estimate is that that cost about 80,000 lives People who would have been saved by this antibiotic During that five-year period who were not Beta blockers there's a an estimate that that lag and FDA approval may have cost a quarter of a million lives So this is not a trivial problem when the FDA Extends this testing period and increases the cost to introducing new drugs There are also other problems like its restrictions on existing drugs for which some new purpose might be found or new use might be found So for example aspirin A common pain reliever was found to Um Help prevent heart attacks, but the FDA says you can't publicize that you can't advertise that And they delayed the amount of time it took for aspirin to be Advertised as a potential help against heart attacks and that may have cost lives as well now most of us want to hear about the aca the affordable care act a misnomer I think but The affordable care act of course is in in all the news today and and it's it's a massive piece of of legislation So we need to understand a little bit about what it does Or what it tried to do First of all It says insurers have to cover all applicants without regard to medical history They have to set their premiums based mostly on geographic location called a community rating and age and not on gender and Importantly will come back to this not on most pre existing conditions It says everyone must obtain health insurance except those who are deemed unable to afford coverage and those religious groups that have had have obtained waivers Subsidies and state-based exchanges were supposed to help people in finding health insurance Employees employers with 50 or more employees had to provide coverage for employees working more than 30 hours a week or they had to face penalties Um, I talked to numerous people who say well, I can't work more than say 28 hours a week And my employer won't allow me to work more than 28 hours a week Uh, health insurance policies must cover certain services Um And may not have any cap on annual or lifetime benefits for an individual now, um The reason part let's work through the reasoning on this and and by the way bob murphy's got a great article On mises.org that you can actually he's got several on this topic, but there's one from about 2013. I think That gives you a good brief rundown of some of this All right, so if if you're going to be required to get insurance That's supposed to avoid this problem economists call adverse selection. So if I Hang out a sign and say health insurance for sale Here's the premium than people who are most in need of health insurance are going to be the ones who are first in line to sign up They are also likely to cost me the insurer the most money So i'm likely to go out of business very quickly unless I can sort this out somehow Uh, so if insurance companies must ensure everyone even those who are very expensive to cover Uh, then they would have to be required to cover certain things and not refuse To cover pre-existing conditions. This means that they have to Yeah, I mean you could say well i'm not going to cover expensive things. Um Uh, diabetes and multiple sclerosis and long-term kinds of conditions that that perhaps are are very costly, so that The law is trying to plug that whole Where an insurance company will say sure we'll we'll ensure everybody everybody without regard for Their um Their age or gender or whatever, but we just won't cover these very expensive things um So if if you require insurance companies to cover these things Then that would mean that the insurance companies if they're going to stay in business have to raise their premiums insurance then becomes very expensive So subsidies were built into the system Of course all of this, um It has become evident over the last few years if it weren't obvious before This has some unintended consequences first of all premiums went way up People said well given the the choice of paying this very expensive premium or this Somewhat less expensive penalty on my taxes. I think i'll choose the penalty and i'll go without insurance So you have some people particularly the healthiest individuals who said i'm out of here. I'm not gonna I'm not gonna uh take the insurance I'll just i'll just pay the penalty of course given that those are the healthiest people typically This means that the ones left who are being insured are Less healthy and therefore the insurance companies are facing an even worse sort of cost problem So the insurers began to pull out of the exchanges This is limited options in some cases There are in many cases there there's only one insurer left And it looks like in some cases that one remaining insurer may pull out. So If they find that they are unable to cover their costs, they'll just back out of the entire Market employers began to limit the number of workers working 30 or more hours per week in order to and and they Limited the absolute number of full-time employees in order to stay exempt from this requirement And as a result we've seen Some people who have been adversely affected either in reduced hours loss of insurance higher premiums And other problems as a result of this this law I was I can't say the new york times Quotes me very much But I was pleased to see brett sievens quote me and a former student of mine marine buff An article that we wrote for the journal of american physicians and surgeons a couple of years ago And stevens pointed out that the average family premium for well, he's quoting me here, I guess So I can say it the average family premium for employer sponsored coverage has risen by $3,671 And again, this article was written a couple of years ago. So it's gone up Still more after that point The benchmark Obamacare plan rose eight percent in 2016 21 percent in 2017 deductibles went up about 15 percent In some markets the premium increases skyrocketed up to 145 percent if you look at phoenix So this is this is not a not a small problem if you're trying to make health care affordable At least to some significant extent it's backfiring Of course the uh progressives are Very upset with any kind of effort to change the system Uh by backing off of of the affordable care act. So you have bernie sanders Tweeting that 36,000 people will die every year as a result of the repeal of the affordable care act Chuck schumer Says the republican plan to cut medicare medicaid and the aca will make america sick again And uh as as bob has said in in his Article of about three weeks ago on mises wire Libertarians don't really have to choose between property rights here and preventing widespread suffering The obamacare law actually caused more americans to die a lot of this that that um Bob used for for that article came from a study Uh by the manhattan institute by oran cas And cas says the best statistical estimate for the number of lives saved every year by the affordable care act is zero Zero, um, he says yes, it's led to some increases in medicaid enrollment But that has shown no effect on aggregate private insurance coverage A lower share of non-elderly americans had private insurance in 2015 than at the start of the recession in 2007-08 So okay, so medicare is expanded. Maybe that's a good thing, right? So i was um Watching a little discussion on facebook um trying to avoid getting into the discussion but watching it on Somebody talking an old friend of mine talking about medicaid and so forth and they were saying well, you know, this is this is good At least we've got more more people covered by medicaid if you start changing the law repealing replacing whatever then you're going to have problems with people dropping out of medicaid um However It doesn't appear that medicaid has had the kind of positive effect that we might assume Cas says where studies have found benefits from medicaid the effects appear for coverage given to expectant mothers and young children That could provide a strong argument for ensuring that those groups have access to medicaid coverage But the aca is not that policy Under the children's health insurance program those groups were already eligible for medicaid or a comparable program But in at the income levels to which the aca expanded coverage for other adults An identical 42.2 of children had public insurance coverage Before the aca's medicaid expansion in 2013 and afterward in 2015 The aca did not create access to health care for them nor would its repeal eliminate their access Now there's a there's a A lot of confusion I would say between medical care usage And health outcomes or health improvement Just because someone is going to the doctor or going to a hospital more often does not necessarily Translate into improved health and there are several reasons for this One is that medical care has Iotrogenic effects that is you go to the doctor The doctor can inadvertently let's hope do harm to you And we've seen this in In some cases where the medical profession has said well everybody ought to get tested for some, you know disease And a certain number of those tests are going to result in false positives They say you have the disease, but you really don't So the false positive you can't really tell that it's a false positive until you do something else And the more more Intrusive and invasive the testing and the therapy becomes the more likely you are to do harm So this has become a an important question for Broad testing for breast cancer or prostate cancer and so forth If you test a large number of people including people who are pretty unlikely to have that disease Then you're increasing the probability that you're going to do something invasive to either do a further diagnosis of biopsy or some treatment That could result in some kind of adverse outcome So that that's one possibility. Of course, every time you check into a hospital you're running at the risk of contracting something like MRSA or some other kind of infection And so that that's one kind of offsetting Factor also as I pointed out at the very beginning health is related to a lot of factors apart from medical care The more money you spend on hospitals doctors nurses testing Um therapies of various kinds diagnostic Approaches of various kinds the less money you have for some other things some of those other things would be beneficial to your health There's an opportunity cost there Um, so that's that's an important Consideration That the more we devote toward medical care the less we have for these other things There's a now infamous experiment Done a few years ago in aragon where aragon expanded their Medicaid service Um, but they didn't have enough money To expand it to everyone in the target group. So they they had a kind of a lottery where They enrolled um about 10 000 residents of the state And they then compared the health outcomes of those who were enrolled to the health outcomes of those in the same target group Who did not win the lottery and were not enrolled in medicaid? Um, and they found that indeed health care service increased, but there was no statistically significant impact on physical health measures Uh, they did find that it reduced financial strain for the lottery winners They did find that there was a lower rate of depression For those who were enrolled versus those who were not But it does not appear that the physical health of these individuals improved there may have been in fact better ways to accomplish the same Reduction and depression Been dominec managing editor of health care news and a heartland institute fellow Um commented that the moderate changes in depression found in the study from medicaid Could have been exceeded by having all of the patients adopt a pet Which significantly lowers depression? And reduces the risk of heart disease and also would have been a whole lot cheaper Um, I I have a couple of pets. Um I wouldn't say that they're cheap Every time I turn around we're paying somebody to cut the dog's hair or something but fur but It's uh, still I mean this is this is potentially cheaper with better results so Dominic actually said, you know, if you really want to care if you really care about people Being healthier not just feeling less depressed than one thing we could do is simply Make a cash transfer to these people And that might have a superior outcome to this this sort of heavily bureaucratized medicaid System I'm Getting this from bob murphy again. Thank you bob. I appreciate it. This is a Actually from the cdc originally but this shows the aca's expansion of coverage At the red line and the blue there is the age adjusted mortality rate per hundred thousand people from 2002 to 2015 The age adjusted part is us populations getting older and so For that reason alone you would expect to see an increase in the mortality rate So if you take that effect out, then what you're left with is a long term decline in the mortality rate Aca does not appear to have made a dent In fact, you see a slight uptick there at the at the end here And it's it's kind of hard to figure out what the ac might have done that's positive in terms of of mortality Let's talk about pre-existing conditions for a bit This is one of those things where in discussions that I have with With people about health care. They say well, you know, I'm I'm kind of pro market and so forth, but This thing about requiring insurance companies to cover people with pre-existing conditions that sounds like it Maybe that's maybe that's one government intervention that would be a good idea So let's think about that for for a bit. What is insurance? Insurance is a contract between Two people or between a person and a firm Um, where a pays b To take on some or all of the risk that a costly event will occur to a All right, so let's suppose there's a 50 50 chance that a will develop a medical condition costing a hundred thousand dollars A has an expected loss of fifty thousand dollars On average if you do this a lot of times a would have an expected loss of fifty thousand dollars So a might be willing to pay b More than fifty thousand dollars to take on that risk if a values risk reduction Economists would say if a is risk averse if a doesn't like taking chances Then a might be willing to pay more than that expected value So by ensuring a large number of a like individuals then b can pay out $100,000 to half of its clients paying zero to the other half and collecting the Additional amount that that the a crowd is willing to pay to avoid risk Uh, so on average b is paying out fifty thousand dollars per client and is being paid for the service of risk reduction um alleviating the risk of of catastrophe for the a group And in fact what we see with with private insurance is private insurance gets a pool of people together that Pool that got together for some reason other than to get health insurance like an employee a group of employees at a firm And that group of employees is going to have some people in it that are really healthy and won't Won't have a lot of medical costs and other people that are Commonly sick and have a lot of medical costs So you're going to have some people that are expensive some people that are not the insurance company contracts with the employer and says we're going to ensure your entire group For the average cost of Um of providing insurance or taking on that risk plus plus some And uh that way We have a risk pooling the insurance company plays the averages Now let's suppose there's a 70 30 chance that a will develop a medical condition costing hundred thousand dollars So a has an expected loss of seventy thousand dollars b would require at least seventy thousand dollars to take on that risk Since on average b is going to be paying out seventy thousand dollars per client They're still being paid for reducing that risk of catastrophe So maybe you see where i'm going with this What happens if it's a hundred percent chance? So in other words, it's certainty. We know that we're going to have to pay this money out Uh b is going to require at least a hundred thousand dollars To take on that chance. It's not really a chance. It's a certainty Okay So a pre-existing condition is certainty of payment So the premiums accordingly would be higher. And in fact, there would be no real purpose in A buying insurance From b it's not really even insurance anymore. It's a transfer Okay, why would I write you a check for a hundred thousand dollars so you can write a check to somebody else for a hundred thousand dollars on my behalf There's no risk to be transferred here So it's an uninsurable condition And this is where the language in the healthcare medical care debate Is a problem because people talk about insuring for pre-existing conditions. It's not insurance Okay So if we require an insurance company to take on certain payments without increasing the premiums accordingly That is forcing the insurance company to make a simple Transfer It is not insurance. It is a mandated payment So how does an insurance company stay afloat financially doing this? Well, they would have to raise premiums on those other Clients that do not have those pre-existing conditions Now that means that these other people who are now paying premiums to the insurance company are having to cover Not only their own actual risk, but an additional amount for this transfer to other individuals within that That group who have a pre-existing condition that in turn Makes insurance less attractive for the people without pre-existing conditions Which possibly induces the healthiest people to drop out So we're back to adverse selection by requiring this transfer payment to people with pre-existing conditions We have the result of some people backing out of insurance altogether You could think of this as a kind of a healthy tax okay now if If you want a visual for this How much would you have to be paid to ensure this house against loss by fire? That house has a pre-existing condition Now I mean you you find some humor in this and I I don't want to be callous, I mean If you have a pre-existing condition and chances are A number of you in this room do It's It's a tragic thing. It's it's not an easy thing to To sort out how how should policy change? How would markets handle this? Are you suggesting dr. Terrell that that we just kind of cast these people off into the into the wilderness and And Provide medical care only to those people fortunate enough to not have any kind of pre-existing conditions. Is that what you're suggesting? And of course, that's that's you know, that's kind of a straw man I'm not suggesting that But I do think there are there are ways for markets to handle this kind of problem In fact, we've seen this happen With various kinds of insurance It is possible For markets to handle this largely through this Guaranteed renewability concept Basically, you are insuring your insurability Okay, so david hinderson Wrote that under the individual insurance that existed before obama care beneficiaries could buy guaranteed renewable health insurance If they developed a condition while insured they could still buy health insurance At a premium that applied to the whole pool. They were in when they originally bought insurance So it's not that you are left out without Any hope of getting insurance if you have this Kind of guaranteed renewability. We do this with life insurance all the time As well, so you buy life insurance You can you can have a kind of a guaranteed renewability built into this So your your life insurance term expires and now you have to go out and buy more life insurance, but A new contract, but in the meantime you had a health problem Emerge that is going to shorten your life expectancy Does that mean you can't get life insurance? Well, not if you have guaranteed renewability, which is a Not a not a prohibitively expensive Add-on to this contract What about What about people that are that develop these conditions when they're very young? Before they're on their own before they're even buying health insurance for themselves. How do we handle that? There's no reason at all why parents couldn't buy insurability insurance for their children even before they're born You could markets conceivably could could handle this kind of process through a voluntary contract-based system And pre-existing conditions don't have to mean that a person is just condemned to be without insurance for Medical problems And of course I should mention charity which is perfectly consistent with a with a free market That is useful in filling in The gaps in this Michael cannon wrote that in fact what we're seeing with the Affordable Care Act is A reduction in coverage for people with some expensive conditions and this was from a February issue of the wall street journal Got the link here. You can take a look at that later and He found a new study by harvard and ut austin found that the rules of the affordable care act penalized high quality coverage for the sick Rewarded insurers that slashed coverage for the sick and left patients unable to obtain adequate insurance Now there there are several other topics. I wanted to mention the pre-existing condition issue At some length because it's it's so current but Let's look very briefly in a couple of minutes. I've got left at medical licensure I had a question after one of my talks earlier this week about what do you do about fraud about quacks about people who are foisting off some sort of Quack therapy on people for money and and how do you handle that? Don't we need some kind of government intervention perhaps to license physicians and other medical professionals to prevent quacks from selling Their services and taking advantage of people's ignorance Now if you look at the history of the medical profession you find that in fact medical licensure hasn't really been the source of Improved quality of medical care. It has driven up costs a great deal Ronald Hammelway in the Journal of Libertarian Studies many years ago pointed out that before the Before about 1865 the profession Medical profession was unlicensed in the United States. Anybody could say I'm a physician Um medical schools were in in great supply. Many of them were privately owned Um students could gain admission to the best of them without difficulty Large people entered a large numbers of people entered entered medical practice um What happened is that the The ease of of entering the profession Led to a lot of competition And the competition means we have people practicing sort of status quo Medical practice and then we have heterodox theories that are coming up Regular medicine in the early 19th century. Hammelway says relied heavily on symptomatic treatment consisting in the main of bloodletting blistering in the administration of massive doses of compounds of mercury Antimony and other mineral poisons as purgatives and emetics followed by arsenical compounds thought to act as tonics This certainly killed large numbers of patients Two sets eclecticism and homeopathy successfully competed with regular medicine And were in great part responsible for the repeal of medical licensing laws eclecticism completely repudiated the therapeutic arsenal of heroic medicine And injected much common sense into the care sick and ailing Um homeopathy suggested fresh air sunshine bed rest proper diet and personal hygiene At least you're not killing people by poisoning them if you're doing that. Maybe you're Maybe the help aspect is is positive aspect of that is slight, but at least you're not Bleeding them out and poisoning them Uh, so hammer. We points out that by the 1870s Mainstream medicine thanks to this competition from from outside thanks in large part to the free Entry into the medical profession Mainstream had changed in response bloodletting had had diminished arsenic Doses had diminished And they'd added a few of the therapy suggested by some of these other Other approaches I had tons more as you might imagine. This is an enormous topic, but I am out of time I'll respect that and I'll be happy to talk to you later in my office hours If there's something you wanted to discuss that I didn't get to thank you very much