Why Health Care Is Expensive

With the whole country talking about the crisis in health care and Congress debating massive new programs, I feel the need to speak out. I’ve thought a lot about this issue over the years and I don't think most people are analyzing the situation very well. For that reason I would like to share some insights that I don’t often hear expressed in the national debate. I’ve said much of this before, in a long comment on another blog last year. It seems timely today to repeat it.

Complaints about health care in the U.S. are frequent and loud. The two that figure most prominently in today’s debate are that it is too expensive and not everyone has access to it. I would quibble a bit on the second point and say that everyone in this country has equal access to health care; they just don't have equal ability to pay. So it boils down to one major complaint: health care is too expensive. What I want to ask then is, why? Popular opinion tends to blame corporate greed, but this is, at most, a minor contributor.

Let's take pharmaceutical companies, for instance. How can they possibly justify charging as much as $200 a dose for some new drugs? Surely it is due to rapacious profits! It turns out that's not the main driver. Now, there's no doubt that the pharmaceutical industry has much higher profit margins than many other industries. In recent years they have averaged a net profit margin of about 25%. That's pretty high. Many other industries average well under 10%.

But there’s nothing nefarious about these high profits. Profits naturally tend to be higher in industries that are driven by technological innovation. In fact, high profits are what drive the innovation. No investor will settle for low returns in a risky, capital-intensive industry. Fortunately, companies can charge more for products that are new, unique, and dramatically better than what was available previously. In contrast, profits are low in industries that produce commodities. Innovation is also slower. In a commodity market companies can only compete on price and service because the products they sell are no different than their competitors. In the modern world health care is definitely a high tech industry.

Now let's suppose the pharmaceutical companies decided to operate as non-profits. What would that do to drug prices? Take away the profit margin and the price of that $200 drug would decline by 25%, but I think we would all agree that $150 a dose is still extremely expensive. So where is all that money going? It turns out that new drugs are exceedingly expensive to develop and bring to market. These companies spend billions on R&D, and many of the drugs they develop never even make it to market because they fail to meet the FDA's safety and efficacy standards.

Now let's take a step back and try to look at the big picture. What is driving the health care cost spiral? It’s our collective demand for better health care. The bottom line is that everybody wants the best possible health care they can get. There's no such thing as "good enough" when it comes to me or my loved ones. This understandable desire has driven astonishing advances in medicine over the past few decades, and nowhere is that more true than in the United States. As a people we have gotten wealthier and healthier. There are so many more treatments available now than there were, say, when our grandparents were children. And many of those treatments involve sophisticated, high tech equipment or drugs that cost billions to develop. So if you look at the really big picture the reason health care costs so much more than it used to is that there is so much more of it. If everything your doctor could do for you would still fit in a little black bag he brought to your house, I can assure you there would be no crisis in health care costs.

The dilemma we face is that the total societal cost of providing the best available health care to all our citizens is growing at a pace that outstrips even the sizable growth in our societal wealth. Therefore health care accounts for a large and ever growing percentage of our GDP. At some point that trend is unsustainable. It doesn't matter how we structure the system, our society will simply not be able to afford to pay for the best available health care for everyone. Many of you probably think some form of government administered universal health care is the "answer". That will redistribute the cost, but it doesn't change the cost. Taxes and insurance premiums will need to rise dramatically to cover all the people who are not currently getting the best available treatment. And they will have to continue rising as the state of the art in health care advances.

Another alternative is to ration health care. This is effectively what other countries do with their universal health care systems. I am not familiar with every system, but I have talked to friends who are from Canada and the U.K. What they describe are ever lengthening waiting lists for non-emergency surgery and ever tightening requirements to qualify for expensive treatments. Some very expensive treatments are effectively unavailable in these countries. Even routine services are in short supply. A colleague of mine in the U.K. recently went to his doctor about a knee injury. He was told that he will have to wait months just to get an x-ray!

I know this sounds really depressing. I have thought about this a lot and personally I don't think there are any easy answers. There are some things we can do to help the situation, perhaps, but nothing that will satisfy everybody. I think the politicians are being egregiously deceptive on this topic. The easy sound bites are nothing more than lies. So what to do?

We should definitely try to improve the efficiency of the system, of course. The question is how. One thing I would definitely NOT do is give the government a bigger role. That's the last thing you should do if efficiency is your goal. Among the other proposals I’ve heard recently, tort reform stands out in my mind as one item with the potential for substantially reducing costs. I’m not sure how much interstate competition in health insurance would help, but it can’t hurt.

The most important thing, however, is figuring out how to incentivize the industry to focus more R&D on developing cheaper, as opposed to better, treatments. I’m not sure how you do that, but part of the answer is putting more of a price signal back into the health care market. One way to do that is to make sure everybody pays something for their health care, even if they can’t afford to pay much. Another way is to get rid of fixed co-pays and go back to having patients pay a fixed percentage of the cost. Yes, that would often force some painful, difficult choices. But as a society, that’s exactly what we’re facing. And I would rather make my own difficult choices than cede that role to a faceless bureaucrat.

Faithful Fathers

Yesterday we took our youngest son to college at the University of Texas at Austin. It is quite an operation to receive all the new freshmen and to deposit them and all their stuff in their dorm rooms. I was quite impressed with how well the dorm staff had organized the activity. After checking in you were given a number and waited pleasantly in the cafeteria before it was your time to drive up to the curb to unload all your stuff. Students and staff members helped unload everything, put it on carts and haul it to the student’s assigned room. While everyone waited their turn the cafeteria staff even served complimentary drinks and snacks. I had plenty of time to look around at the other families who were bringing their children to college. One surprising observation struck me. I saw students of every hue and description, but each one was accompanied by an intact family: father and mother, and in many cases siblings as well.

If you are familiar with colleges in Texas, you will no doubt realize that the University of Texas at Austin is the highest ranked and most selective public university in the state. It is no mean feat to be admitted to UT Austin. Around us yesterday were some of the best students in Texas. Knowing the statistics for single-parent households, it was no surprise to see each student accompanied by his or her mother. But I was amazed and gratified to see, in every case, the father there as well.

This can be no accident, I’m sure. All the statistics also point out that an involved father is one of the most important contributors to successful and well adjusted children. Now I’m sure that some of the families I saw yesterday were blended families. But in every one there was still a man who was willing to step up and be a father to the children in his home – whether they were his flesh and blood or not.

We often hear the phrase “faithful husband” but it is just as important to be a faithful father as well. When will the men in our society wake up? When will they accept their God-given responsibility? How long must the social devastation of their selfishness continue? I am proud to be a faithful father to my two sons. If God gives them families of their own I hope they continue that legacy. I pray that they will.

Too Far From the Farm

Several lines of thought lately have led me to contemplate the impact on our society of the decline in rural life. I’m talking about the fact that fewer and fewer people live on a farm anymore, and fewer and fewer city dwellers know anyone who does. This has changed our culture in many ways. But the particular effect that has intrigued me lately is a modern city dweller’s relationship to nature.

Urbanites typically have one of several attitudes toward nature. Some simply want nothing to do with it. The local park is about all of it they’re interested in experiencing, or perhaps the zoo. Otherwise they are happy to live in high rise apartments and work in office buildings and spend their leisure hours in clubs or museums or theatres.

Then there are the outdoor sports enthusiasts. For them, nature is something to conquer, as in climbing a mountain or snowmobiling through Yellowstone National Park. These people sometimes cross paths with another group, the wilderness lovers, but they’re very different in their outlook toward nature. The wilderness lovers worship those remnants of nature untouched by humans. They long for nothing more than to experience such places, but they feel their own presence there is an intrusion – and they resent the presence of the sports enthusiasts, who don’t share their reverence.

None of these has the same perspective on nature as the farmer. He enjoys the outdoors like the sports enthusiast, and he loves nature like the wilderness lover. But his love for it is more intimate and more connected than the others because he is part of it, not an invader or outside observer. The farmer gives his time and labor to the land and receives back from it his livelihood. He participates fully in the natural cycle.

The city dweller is part of this cycle, too, but feels disconnected from it. He drinks water from a river or well he might never have seen. He eats produce that he wouldn’t recognize if he saw it growing in a field. He likes meat but doesn’t like to think about how it got to his table. To the disinterested city dweller nature is a distant memory. To the sports enthusiast it is a playground, and to the wilderness lover it is an icon of lost innocence. But for the farmer nature is a resource. It is also his home.

I was fortunate enough to have grandparents who lived in the country and my favorite thing to do as a child was to visit them. My grandparents grew up in rural East Texas, but when they got married in 1925 they moved to Houston. He became a shop foreman for Hughes Tool making drill bits for the Texas oil fields. She raised their three daughters. When he retired they moved back to the farm she grew up on, and began to practice all the skills they had learned growing up but had long left behind. They planted a garden. It was almost an acre and my grandfather plowed it with a tractor. They raised cattle and pigs and chickens. My grandmother canned the fruits and vegetables they raised. She even tried her hand a few times at churning butter and making lye soap, but it was so much easier to drive into town and go to the grocery store for some things. During the summer weeks I spent with them I got to experience all aspects of rural life.

I think the general lack of such experiences today has some disturbing consequences. For one, we have become squeamish. People don’t like to get their hands dirty. Kids won’t pick up a caterpillar. Parents are embarrassed if their children see one dog mounting another. Many adults decide to become vegetarians.

This last observation is emblematic of the transformation I’m talking about. It is perfectly natural for humans to kill and eat animals. It’s been going on for all of human history. And for almost all that time, if you ate it you probably killed it and cleaned it. Our grandfathers moved to the city and started buying their meat at the butcher’s shop, but they remembered where steaks and fried chicken came from. Their children knew this too, but not having grown up with it weren’t comfortable thinking about it. Their grandchildren are so removed from it some think it is evil and have decided not to eat meat at all.

I remember when I was about ten there was a calf on my grandparent’s farm whose mother for some reason couldn’t suckle it. They bottle-fed it until it could be weaned. My grandmother even named it: Carnation. My sister and I enjoyed feeding and petting Carnation. Then one weekend we went to visit them and Carnation was gone. I remember how my sister reacted when she learned where the steaks we were eating had come from. My grandparents tried to console her, but to no avail.

Attitudes towards guns have undergone a similar transformation. As they became less familiar to people they seemed at first scary, and then later evil. I contrast this again with my own experience. When we used to visit my grandparent’s farm there was always a loaded .22 rifle leaning in the corner of their bedroom. There were other guns, too. They were used for hunting birds or deer, so there was no reason to keep them loaded. The .22 was sometimes used for squirrel hunting, but it was kept loaded and handy to dispatch certain nuisance animals that occasionally made their appearance. Armadillos would dig up the yard and the garden. Raccoons would rip open every ear of corn in an entire row and only eat a few bites. Rattlesnakes were dangerous to people and livestock.

No one gave a thought to the danger of having a loaded rifle there with kids in the house, because we had all been taught to handle guns and shoot from an early age. I don’t remember a time when I didn’t know how to shoot a gun. My grandfather taught each of his grandkids how to shoot that .22 as soon as we were old enough to hold it. I must have been only three or four years old. We would sit on the back porch and shoot at a tin can resting against an old tree stump in the yard. It was absolutely my favorite thing to do. When I was little he would always be sitting right at my elbow. But by the time I was eleven or twelve he would let me shoot it by myself.

Part of the problem with guns in the city today is that kids know only a Hollywood fantasy of them, not the reality of them. Guns are the forbidden fruit that adults tell them never to touch. But that rifle leaning in the corner of the bedroom wasn’t dangerous to anyone because, first of all, we all knew proper gun safety. We had an excellent appreciation for what a gun can do to a person or an animal. Secondly, I knew that if I ever wanted to shoot it all I had to do was ask. It was as familiar to me as my baseball glove. I taught my kids to shoot a pellet gun when they were little because I wanted them to have the same familiarity and healthy respect that I had. I wonder if accidental shootings wouldn’t be rarer if more parents did that.

If you grew up on a farm or knew someone who did, you realize that nature doesn’t have to be kept completely pristine, either. It is a resource without which humanity couldn’t survive. We must care for it and be good stewards of it, but the idea of leaving all of it completely untouched is, literally, suicidal for the human race. Between the extremes of destroying it and not touching it there is plenty of room for developing it and benefiting from it responsibly.

In East Texas we have oil wells. My grandparents weren’t fortunate enough to have one on their property, but many of their neighbors and kin did. Back in the sixties, the oilmen sometimes made a mess when they drilled a well, and they didn’t always clean up after themselves perfectly, either. They’re much better now, of course. But even then the land recovered and nothing was permanently destroyed. All of us as a society have benefited from the oil pumped out of those wells, and the landowners benefited financially as well. It would have been silly to leave it all in the ground.

Growing up in Houston, we have often gone to the beach in Galveston and seen the oil rigs offshore. It never bothered me to see them. It didn’t spoil the experience for me. It was kind of cool, actually. Sometimes tar balls washed up on the beach and that wasn’t pleasant. But again, they’re much more careful about it now, and in any case the benefits to everyone far outweighed the inconvenience to a few. I don’t think most people minded that much. Nobody has to freeze in the dark on our account.

As I reflect on all these things I realize that it is the typical urban attitudes toward nature that are unrealistic and unsustainable, not the attitudes of those who would cultivate it as a resource. Whatever ideals we might hold about nature, the very cities we live in would be impossible without the large scale transformation of the land that farming, ranching, mining and other productive activities entail. And you know what? It’s not all that bad. There is a beauty to a well-tended world as well as to the pristine wilderness. We can have both. It is God’s gift to us. We are not alien to nature; we are part of it. We cannot deny our dependence on it and our inevitable effect on it. Let us both embrace it and harvest from it, without apologies.

Born to Believe

I have mentioned before that belief in God is an almost universal element of human culture. As the pastor of my church has said, we are all born to belief. It takes years of training to become an atheist. When secular scientists note this tendency they remark at how evolution has disposed us to believe such things, and they debate the survival value of such beliefs. But I ask, isn’t it just possible that our first instincts are correct, and that they are instilled by God?

Now a new study has been published which says that humans may be naturally disposed to believe in Creation. More precisely, these psychologists have discovered that everyone has an instinctive tendency to ascribe a sense of purpose to the events around them. They have discovered (surprise!) that it is not normal to believe life is a random chain of natural causes with no purpose, no meaning and no direction. Again, they have found that the most highly educated people are the ones least likely to make this "mistake." Yes, they directly call it a mistake. You can almost hear the condescension dripping from their statements. We who are educated "know" that this is a foolish misconception. Naturally, they lump children, the religious and the uneducated together, noting that they are more inclined to this "erroneous" thinking.

I don't have access to the original paper, but in the New Scientist article I linked to above not once do these scientists speak to the possibility that the inborn belief in purpose might be correct. Nor do they realize when they have stepped outside of their field and are discussing philosophy and theology rather than science. It is a testament to their own indoctrination into a particular worldview that they overlook these things. It is more evidence, if we needed any, that the prevailing intellectual mindset today has completely confused natural science with philosophical materialism, according the latter an unassailable position as "fact" that it does not deserve.