We know the prices of goods and services are determined by supply and demand. Health care is no different. The greater the supply of anything, the lower its price, other factors being equal. The higher the demand, the higher the price. We learned that the first day in economics class, in my day.
Our rigged health care system has all sorts of artificial forces skewing both supply and demand. Most of this is government interference, augmented by the usual crony capitalist rent seeking I talked about in my previous chapter, on economics. Simply put, those forces artificially increase demand and artificially limit supply to an exponentially greater degree than in most other industries. The result is wildly disproportionate increases in price for health care goods and services compared to most other industries.
You might be inclined to think demand for health care “is what it is.” After all, nobody wants to go to the doctor or the hospital. When they get sick or injured, they need to go. That’s true. But demand isn’t just the desire or willingness to buy a product at a certain price point. It’s also the ability to buy that product at that price point. A teenage cashier at a fast-food restaurant making minimum wage might want a Lamborghini. But no economist would count that person as demand for a Lamborghini because the cashier doesn’t have the ability to buy one at the current market price.
The trillions of dollars the federal and state governments spend on health care entitlement programs artificially and significantly increase demand. The subsidies create a much larger pool of money available for health care spending than would exist naturally. That puts tremendous upward pressure on price that does not exist for other goods and services.
In 2015, Medicare and Medicaid alone accounted for almost 40 percent of all health care spending in the United States.8 Total health care spending was $3.2 trillion. That means those two programs alone redirected more than a trillion dollars away from taxpayers toward paying the health care expenses of other people.
Let me ask you something. If the government suddenly decided to spend a trillion dollars per year on cars, would the price of cars go up or down? You don’t have to be an economist to figure that one out.
That doesn’t mean Michael Savage believes some people should just go without health care. On the contrary, I believe most health care providers are grossly overpaid. Because they have no incentive to deliver their products at a price most of their customers can afford, they don’t innovate. Yes, technology in medicine has advanced enormously, but the business model of running a medical practice has not.
That doesn’t necessarily mean the doctors themselves should be paid like lower-skilled workers. The physician’s salary is just one expense among many in delivering health care services to patients. It’s the average medical practice as a whole that is grossly inefficient.
As just one example, think about the last time you went for a doctor’s appointment. They asked you for your insurance identification number when making the appointment on the phone. Then they ask you to write it down again when you get there. What are they going to do with that paper form? Is someone going to key it into their system, even though they already captured it before even granting you the appointment? Every other business in the world captures unique information once and stores it in only one place in their database. That way, if there is an error, it only has to be corrected in one place. That’s data management 101.
So, you’ve already encountered gross inefficiency by the time you arrive in the waiting room, before you’ve even seen the nurse. That’s just the tip of the iceberg. My point is medical practices, hospitals, and other care providers have no incentive to control costs because in an environment where health care is considered a “right,” demand is unlimited. And if demand is unlimited, all other things being equal, the price will go up indefinitely, until demand becomes limited.
When Medicare and Medicaid go bankrupt, demand will suddenly be limited. The spigot will be turned off and health care providers will have to find ways to deliver high-quality care at lower prices or they will go out of business. That doesn’t mean there will be no more doctors or hospitals. They were around for thousands of years before Lyndon Johnson and they will be around for a long time after his disastrous programs are forgotten.
Does that mean I’m saying Trump should try to abolish Medicare and Medicaid? No. The political climate would not allow it. But we do need to understand they are an integral part of why health care is so expensive. When you significantly increase demand, price significantly increases. It’s not rocket science.
One thing Trump can try to get through Congress is raising the eligibility age for Medicare to at least decrease the program’s bleeding somewhat. If we raised the eligibility age for Medicare by two years and put a $20 co-pay on physician visits, we could save hundreds of billions of dollars every year on this program.
It’s just more simple economics. If you give a person unlimited health care for any specialty and an unlimited amount of visits, tell them it’s their right, their duty, an entitlement, etc., then of course they’re going to go to the doctor a lot more often. It’s not uncommon for retired people to have three or four physician visits every week. Do some of them need that many? Yes, but I’d be willing to wager the number of visits would go down significantly with just a $20 co-pay, without affecting health care outcomes negatively at all.
While increasing demand on one hand, the government also artificially and significantly limits supply through its regulatory state. This includes overly burdensome medical licensing requirements, regulations on the way hospitals and practices are run, and the U.S. Food and Drug Administration (FDA). All the above are just like the regulations on other businesses I talked about in the economics chapter. They purport to protect public safety but in reality are a hodgepodge of protections for corporate interests against competition.
Let’s look at the FDA, just as an example. What does the FDA do? In theory, it protects the public from unsafe or ineffective drugs. In practice, it grossly limits the supply of drugs due to a combination of government incompetence, corruption, and politicized science. All the familiar aspects of crony capitalism I previously discussed are present and on steroids when it comes to the FDA.
You may remember the scandal last year over the EpiPen. The epinephrine injection device cost about $93 in 2007, when the company that makes it was acquired. In the ensuing nine years, the cost went from under $100 to over $600.9 There was a lot of grandstanding by politicians and media about evil Mylan, the company that acquired Merck’s generic drug unit, which included the EpiPen. But very few people asked the key question: Why was there no competition for EpiPen?
Well, there is only one way to enter the drug market in this country and that’s through the FDA. And lo and behold, a number of products that would have offered direct competition to the EpiPen were kept off the market by this abominable agency.10 If Mylan had even two or three other competitors, do you think they would have been able to raise the price of the EpiPen more than 540 percent in nine years? Of course not.
The problem is most people believe the EpiPen example is the outlier rather than the norm. It’s not. As of last July, the FDA had more than 4,000 generic drugs awaiting approval. That’s compared to just 24 on the European Medicines Agency’s waiting list! The EMA is Europe’s version of the FDA.11 How could Europe possibly be so much better at this than the United States?
The FDA claims it’s just a matter of manpower. Every time a government agency fails, it wants more funding. Well, I have news for you. The EMA’s annual budget is €322.1 million,12 which is a little over $342 million in U.S. dollars. By comparison, the FDA’s annual budget was $4.9 billion in fiscal year 2016.13 That means the FDA spent 14 times more money to have a drug waiting list 168 times the size of Europe’s!
Even the government isn’t that inefficient. To produce results that bad, some of it must be intentional. Do you think the pharmaceuticals don’t have lobbyists? All over the drug industry, there are artificial mo
nopolies or near monopolies because legitimate competition is waiting years, sometimes decades, for approval by the FDA. If you believe that’s all just our saintly government inspectors erring on the side of public safety, you need your head examined. They certainly don’t err on the side of public safety when it comes to all the dangerous drugs they allow to flood the markets.
They release tons of OxyContin and other dangerous opioids without any consideration of what it might be doing to the population. Has the FDA erred on the side of public safety when it comes to this problem? Of course not. There’s too much lobbyist money behind those drugs. That’s why Trump’s appointee to run the FDA is so important. If he puts another front man for the pharmaceutical companies in that position, all is lost. We hear quite a bit about the so-called Drug War. Well, the real war should be waged against the drug companies which are doing more damage than narcotic drug dealers.
In addition to limiting competition for specific drugs, the FDA is also waging a war against natural supplements and remedies,14 a subject I happen to know a little about. I have a Ph.D. in nutritional ethnomedicine and can speak as an expert on traditional medicines. Of course, the agency has a cover story about every natural remedy it attacks. There is always some ingredient they claim could be dangerous, although opium apparently doesn’t fit into that category, at least when it’s sold by one of their multibillion-dollar pharmaceutical multinationals.
It’s just another way the government limits the supply of health care. Remember, the competition for a television show isn’t just other television shows. The show also competes with movies, concerts, plays, and other forms of entertainment. If there is nothing good on television, a person may even go bowling. It’s the same with natural remedies. They are an alternative to drugs a patient may choose if the drug isn’t working or the side effects are too adverse.
Again, if you believe the pharmaceutical lobby has nothing to do with this attack on natural supplements, you belong in the think tank all Obama’s sorority sisters ended up in after we kicked them out of Washington. The pharmaceutical industry lobbyists spent between $186 million and $273 million per year over the past ten years.15 They didn’t spend that money to increase competition and lower drug prices. They did it to get the government to artificially improve their bottom lines, like the lobbies in every other industry.
I could write a whole book on what’s wrong with the health care industry. But one of Donald Trump’s key campaign slogans says it perfectly. It’s rigged. It’s rigged for special interests and connected multinational corporations. Combine that with insane liberal ideas about health care being a right and you get the kind of bizarre price behavior we’ve seen in health care goods and services since long before Obamacare. Any Republican solution must recognize and address these fundamental problems or it will fail.
BREAKING EVEN ON HEALTH CARE SAVINGS IS NOT ENOUGH
As late as September 2015, months after he had announced his candidacy, Donald Trump was still saying he wanted to replace Obamacare with a plan that covered everyone. Asked who would pay for such a plan, he said, “[T]he government’s gonna pay for it. But we’re going to save so much money on the other side.”16
I have news for the new president. Breaking even on overall spending by increasing health care and saving money in other places isn’t going to cut it. We have a national debt that’s doubled under the last two presidents and is shaping up to do so again if the RINOs get their way. Trump is going to have to reduce spending significantly in all areas, including health care. The government is an old dog that is going to have to learn a new trick: spending less than it takes in.
The national debt got virtually no airplay during the presidential campaign, unless you were tuned in to The Savage Nation. Right up to the election, I was saying our fight wouldn’t be over just because Trump won. And I listed the national debt as one of the major reasons. Trump may not have been the one who put us into this position, but he’s going to have to be the one to get us out of it. That’s not fair, but who said the presidency was fair?
According to President Obama’s 2016 budget report,17 the federal government paid $229 billion in interest in 2015. That’s about 6 percent of the $3.7 trillion the government spent that year. That doesn’t sound that ominous, until you consider why the number was that low. The Federal Reserve has kept interest rates artificially low since the financial crisis in 2008. Grandma Yellen has been pursuing the same inflationary policies that created the housing bubble in the first place, in order to prop up Obama’s fake recovery.
That’s another booby trap Obama left for Trump and, sometime during Trump’s presidency, he’s going to have a war with the Federal Reserve on his hands to both depoliticize it and narrow its mandate. Trying to achieve “full employment” through the central bank has been a disaster. It should stick to stabilizing the dollar. In any case, nominal interest rates for the ten-year Treasury bond were at or below 2 percent during all of 2015. That made excessive debt manageable for the federal government.
What happens if they return to their historical average of 4–6 percent and overall interest on the debt doubles? Had that happened in 2015, interest alone would have been over $550 billion, making it the second-largest line item on the budget. And as the debt grows larger, even if interest rates remain the same, the annual interest payments continue to grow. And interest rates have nowhere to go but up.
Don’t be fooled by what our former Liar in Chief tells you about deficits. He likes to tout the fact that federal deficits were lower for the past four years than they were during his first term. But that’s only because he ran them to such insanely high levels during his first term. The deficit was over $1 trillion for each of Obama’s first four years in office.18 Unprecedented is not an adequate word for how high they were.
During his second term, even with Republicans in control of the House for all four years and the Senate for two of them, deficits still averaged over $500 billion. Obama likes to use those numbers to say he cut the deficit in half. That’s true, but it was his own outrageous deficits that he reduced to merely egregious. His lowest deficit is still higher than in any year during the Bush administration, although in fairness, Bush’s TARP bailout contributed to the deficits during Obama’s first year in office.
But don’t get confused when politicians trumpet a reduction in the deficit. The debt and the deficit are two different things. The deficit is merely the difference between the amount of money the government spent and the amount it collected in taxes and other revenue in a given year. The debt is the total amount the federal government owes at any given time.
So, even if the government reduces the deficit by 90 percent, it is still adding to the national debt, because it is still paying out more than it takes in and borrowing the difference. The government has to run a surplus, meaning it takes in more revenue than it spends, in order to reduce the debt.
Trump has to do something the federal government hasn’t done since the first year of this century. He’s going to have to find a way to cut spending below what the government collects in revenue. His directive to cut “some departments” as much as 10 percent and the federal workforce by 20 percent19 is a step in the right direction. But just to illustrate how deep the hole Trump’s predecessors have dug is, let’s apply those numbers to the 2015 budget we looked at before.
During fiscal year 2015, the government spent $3.75 trillion and ran a $583 billion deficit.20 Assuming Trump cut all spending by 10 percent that year, instead of just some departments, that would have meant the government spent $375 billion less but it would not have eliminated the entire $583 billion deficit. It would still have added $208 billion to the national debt. Do you see what we’re up against?
Don’t misunderstand me. I applaud Trump for even suggesting real cuts. Presidents normally abuse the English language by calling a reduction in projected spending increases a cut. In other words, if spending were projected to go up $15 billion the next year for a particula
r program and it only went up $10 billion, in Washington-speak that’s a $5 billion cut, even though the program spent $10 billion more than it did the year before. That kind of logic is what got us into this mess.
But with a $20 trillion total debt, we can’t afford to play those games anymore. The Coalition for Fiscal and National Security, chaired by retired Navy Admiral Mike Mullen, called the national debt “the single greatest threat to our national security.”21 Why? Because the very realistic combination of higher interest rates and a larger debt courtesy of continuing deficits could easily push annual interest over $1 trillion in a very short time. The more money the federal government must spend paying interest, the less it has to spend on security.
The U.S. Government Accountability Office said the current federal spending trends are unsustainable. If spending patterns don’t change, they say the national debt “could expand to three times gross domestic product by 2090.”22 I believe it could grow much faster. Let’s not forget the government always predicts higher economic growth and lower spending increases in its projections. That’s why even well-meaning government accountability departments are usually wrong.
Trump is going to have to find a way to cut entitlement spending as well as the departments he’s already targeting to bring spending below revenue. And whatever he replaces Obamacare with must be spending neutral at the very least. He’s going to have to overcome resistance from liberals, neocons, RINOs, and his own liberal instincts on health care to do so.
A REALISTIC PLAN TO REPLACE OBAMACARE
Despite everything I’ve just written, we still have political reality to deal with. Any president doing 100 percent of what really needs to be done in Washington would never get reelected. He’d be lucky to make it out of his first term without being impeached on some trumped-up charge, no pun intended. And the reality is that if people who have come to depend upon subsidized insurance through Obamacare are left without insurance again, they will likely vote against Trump in the next election. Obama has bought enough votes with his welfare program to make a Republican victory almost impossible without them.
Trump's War Page 5
