Do you want the Post Office to provide your healthcare?
Not in the alternate reality world of Sens. Bernie Sanders, D-Vt., and Elizabeth Warren, D-Mass. By advocating "Medicare for all," that’s pretty much what both are proposing.
Sanders says the government takeover will reduce trillions in costs by eliminating industry profits, and Warren says it will save hundreds of billions because the government is more efficient than private industry.
Last year total healthcare spending in the United States was about $3.5 trillion dollars.
Some will say it was bit more, or a bit less, but using that number it works out to about $11,100 bucks per person. That’s a lot of money for sure, but can we really "Feel the Bern" by sucking all the profit out of the industry?
Warning! Basic arithmetic ahead:
Let’s start with health insurance companies.
They won’t exist in the Sanders or Warren world. Forget about the tens of thousands of people that will lose their jobs when private health insurers are eliminated. Warren says she’ll provide job retraining and basic income for them to change their careers, but we’re getting ahead of ourselves. Eliminate the private insurers and you eliminate about $25 billion in combined annual profit from the system.
Next, let’s look at the purported enemy of the people — drug companies.
Bernie says they make about $100 billion per year in combined profits so let’s go with that number (forget about the fact that a lot of those profits come from selling drugs in other countries — details…).
Now to the arithmetic part. $3.5 trillion in total healthcare cost, minus insurer profits of $25 billion and drug company profits of $100 billion leaves us with $3.375 billion — that’s $10,727 per person.
Wow! That’s a lot of disruption to save just about $30 bucks a month per person.
But, Bernie isn’t finished. He’s also going to have his new government bureaucracy negotiate with drug companies for lower prices because, you know, the government is really good at buying things on the cheap — like the $10,000 toilet seat covers for military aircraft, or the $435 dollar hammers for maintenance employees.
There is another problem with the logic of attempting to negotiate lower prices for drugs.
The manufacturers have enormous investments in the research and development required to bring a new drug to market. And, rightfully so, that investment is protected for a period of time with a patent. The companies use that exclusive right to charge different prices in different markets. Bernie’s plan is to buy the same drugs from the same manufacturers only in Canada or Mexico where they sell for lower prices.
That just won’t work.
If most U.S. drug purchases start being made at the government’s behest in countries like Canada, the total revenue for drug companies will fall. Less high priced U.S. purchases and more low priced Canadian purchases means companies won’t make enough to cover their research and development costs.
The result will be two-fold.
First, drug companies will raise their prices worldwide and the price differences between countries will shrink or disappear. Second, companies will stop investing in expensive drug research since the returns will be diminished, and then we can forget about curing cancer.
But wait! Sen. Warren has a plan for this — just have the government manufacture the drugs. That’s not a misprint. Warren actually wants the government to manufacture drugs and compete with private industry when she thinks the price is too high.
Because, you know, the government is really good at doing things for a low cost and holding the line on price increases.
Why don’t we see if the government can really pull off what Warren says is easy-peasy.
Over the last decade the Postal Service rates for delivery have increased an average of 12.5% per year, while for the same period overall inflation averaged only about 2%.
But, maybe there was something unique happening in the shipping industry, right?
The largest private competitors to the Post Office, Fed-X and United Parcel Service – ones that also make profits by the way — had average annual increases of only about 7.5% during the past decade.
So much for the government producing a good or service for less than private industry. But, what about those drug prices?
Bernie and Liz say they’re skyrocketing.
Actually, they’re not.
The stories you hear of drug prices outpacing inflation are calculated by only averaging the cost of the drugs that increased prices. They ignore the thousands of drugs that had price reductions, or for which lower cost generics are now available.
It’s like saying that all of your groceries cost more because the price of bread increased.
The Bureau of Labor Statistics (BLS) CPI-RX, the measure of inflation in prescription drug prices, includes the cost changes for all drugs. Both increases and decreases are counted — it’s truly an index of overall drug price inflation.
And, what does it show?
How about an average annual increase for the past decade of about only 3% per year – just a little bit higher than the overall inflation rate, and even more significantly, during the past year drug prices actually increased less than one half percent!
We could keep piling on the statistics that show the government is not efficient in anything it does but you already know that.
Thinking that Medicare for all is a cost effective alternative to private healthcare is akin to thinking the Post Office, after almost 250 years to figure things out, is holding down shipping prices.
Now — let’s all go stand in that efficient DMV line.
Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.
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