Expensive healthcare, Part 1

What are the real problems with health care in this country?

We know the usual litany of problems people list. Major ones include high and rising costs, a lack of affordable insurance and difficulty getting coverage for pre-existing conditions.

The first of these is urgently in need of addressing, but focusing on the second one has actually exacerbated the problem of rising costs, as I’ll demonstrate. High and rising costs can be best addressed by measures that will increase the supply of health care and decrease the demand for it.

The third problem has only arisen because of a basic misunderstanding about insurance that our current system has spawned, as I’ll explain next week.

I’d like to begin my discussion of the true problems with health care by focusing on policies that restrict the supply of health care, leaving aside for the moment those policies that drive up demand.

The two main factors that restrict the supply of health care are both well-intentioned, but misguided government policies.

The first, far from being considered problematic, is usually touted as one of the great advancements of American government: the Food and Drug Administration’s policy of prohibiting the sale of any medication not approved by its bureaucrats.

Many people buy the standard argument that, if not for the FDA, we would be able to have little confidence in the safety of our medicines. Unfortunately, they overlook the fact that while it does sometimes save lives by keeping dangerous drugs off the market, the FDA much more frequently causes unnecessary deaths by delaying safe drugs from coming to the market.

We know this because the FDA faces heavily skewed incentives that lead it to exercise far too much caution when considering approvals. When an unsafe new drug is approved, the people who die from it are easy to identify as victims of FDA carelessness, but when people die as a result of the FDA’s excessive caution in approving a safe drug, the government’s culpability goes unnoticed.

As former FDA commissioner Alexander M. Schmidt explained in 1974, “In all of FDA’s history, I am unable to find a single instance where a congressional committee investigated the failure of FDA to approve a new drug. But, the times when hearings have been held to criticize our approval of new drugs have been so frequent that we aren’t able to count them. ... The message to FDA staff could not be clearer.”

One of the more prominent examples of the FDA’s deadly caution is the case of beta-blockers, which help prevent secondary heart attacks. Although the drugs were widely used outside the United States throughout the 1970s, the FDA didn’t approve them until 1981. When the agency did so, proclaiming that the drugs would save up to 17,000 lives per year, some observers correctly noted what that statement really amounted to: an admission of responsibility for more than 100,000 deaths during the course of a decade.

The other main supply-restricting policy the government has imposed is the requirement that people wishing to practice medicine be licensed by the state. This policy, coupled with the requirement that doctors be licensed in each state in which they wish to practice, contributes massively to high costs.

As with the FDA problem, this notion prompts many to object that without state-mandated licensure, the quality of health care professionals would plummet. On the contrary, the primary effect of eliminating these restrictions would be to free consumers to seek care from providers who are nearly as skilled as doctors but less expensive.

My personal experience receiving excellent care from nurse practitioners at the IU Health Center makes me confident that many people could get a lot more of their care from less heavily educated professionals for far less money than they currently do.

It is also important to remember that, with the current system, there are still some bad doctors and that will probably always be the case. In the absence of restrictions on entry into the medical field, more people — both capable and less so — will be able to offer their services, placing significant downward pressure on prices.

As long as consumers continue to demand high-quality care, however, we need not worry that our doctors will suddenly become incompetent once the state gets out of their way.

Tune in next week for an examination of how inflated demand drives up costs as well.


E-mail: jarlower@indiana.edu