Paging you economist types (updated)

Someone just told me that the Pharmaceutical Benefits Scheme “saves Australia over 1.5% GDP in health costs”.

Comments?

UPDATE:

When questioned regarding the 1.5% figure, the author said it represented…..

just the pharmaceutical costs saved.

If the PBS were removed, those that could afford to buy
drugs still would, but those that couldnt wouldnt simply not
buy any drugs, they’d buy cheaper, far less effective drugs
but in higher volumes.

The costs saved in that figure dont include, as you say, the
costs of keeping people out of hospital, nor does it include
the costs saved by keeping people out of GP clinics.But most
importantly, it doesnt include the costs saved by making
people healthier more quickly and cheaply,  thus allowing
them to get back to work/family life quicker.Those costs
saved alone are enormous.

The PBS is one of the best pieces of  public health policy
ever invented anywhere in the world at any time, by any
empirical measurement.

Feel free to add your own $0.02

69 thoughts on “Paging you economist types (updated)

  1. I would venture to say that a lot of these “savings”come from the shitty selection of drugs the “Committee for public safety” decides what is allowed into the country.

  2. I can comment.

    *Perhaps* it is entirely true. This may mean that the PBS is a “good thing” but it doesn’t mean it is anywhere near the best thing.

    Ask yourself; If pharmaceuticals were entirely deregulated, unsubsidised and a free market, how much GDP would we be saving then ? And how would the amount spent under free markets be different ?

    My guess – twice as beneficial under free trade.

  3. I have heard the argument presented as follows:

    The government negotiates with the drug companies over the price it will pay them for drugs admitted to the PBS. The drug companies are in a difficult situation – if they refuse the government’s price they will have to rely on non PBS (ie private) presciptions, meaning minimal sales. Admission to the PBS means potentially high sales. So they accept a price that is lower than they charge elsewhere in world.

    The government looks at the price of the drugs elsewhere in the world, compares it with the Australian price, and say, “Look what we’ve saved you.”

    The argument relies on public servant negotiators being better than drug company negotiators. Those who promote the argument are themselves public servants.

  4. If only we could get these clever government negotiators to negotiate more of our purchases. Imagine the savings.

  5. There is something approximating free trade in pharma in Thailand. As a result, the quality is dodgy and the pharmacist often tells the people what is wrong with them (rather than a doctor) and prescribes them more than they need.

    The pharmaceuticals are fairly cheap there, cheaper than OZ, often manufactured by German owned companies, but people die young and the money leaves the country. If you know a range of medical systems of knowledge (like I do) then you can work this situation to your health advantage, but if you dont then you are at risk and it is probably better if you go back to your state doctor in Australia.

    The regulation of medicine is a good thing in the way that the most apt scholars often study medicine and become doctors. The way the system falls down is when people pay for their medical degrees without having the abilities, they are then passed through their exams and their patients die from iatrogenesis. On the other hand, scholars who are too apt may be too conformist and unable to think outside the box and come up with a cure.

    If a drug has bad side effects then the state can take it off the market, the market cannot, people can continue to be fed bullshit that kills them if there is no regulation.
    You are getting stiffed on the price of medicine in Australia, through your taxes or directly as pharma companies treat you like a European country when you have half the GDP per capita that their other clients have. Euros often pay less than Australia in spite of being wealthier as they can buy in bulk for larger populations, sponsor the companies through their free university education programmes and have the factories within their borders.

  6. Jono — your argument makes no sense. The 1.5% saving is obviously compared with a free trade scenario.

    DaveL has it right. The situation is referred to as “monopsony” which is when you have only one buyer with signficant market power (as opposed to “monopoly” with only one seller). Because of the government’s buying power they are able to get PBS drugs cheaper than normal market rates. And because Australia is a relatively small player in international pharma the slightly lower price has insignificant impact on supply.

    The biggest problem with the PBS is that they don’t pass on price signals to the end-user and so end-users make inefficient choices regarding the drugs they use. For example, there may be one drug at $100 and one drug at $500 which do about the same thing… but both drugs will have a $20 price to the end-user. That means they don’t have an incentive to make an economising decision.

  7. “Monopsony” is a new word to me. Previously I would have used the word monopoly in both the buying and selling scenerio and would have let the context sort out the difference. I like the fact that it actually has it’s own word. Monopsony is what the government uses to ensure that teachers and nurses are baddly paid. Good for students and sick people (perhaps) or rather good for taxpayers but not so good for teachers and nurses. Monopsony is what gives rise to strong labour unions.

    I have visited the doctor and chemist a lot over the last few years (sick kids etc) and I note that the chemist routinely substitutes the cheaper but equivalent product these days even if the doctor prescribes the more expensive variety. As I understand it they do this because a few years ago the government passed some reforms, however I am vague on the details.

    The 1.5% of GDP implies a saving of about A$15 billion per annum. Does anybody know what this works out at as a percentage of PBS expenditure and if it looks credible?

  8. Monopsonies are ultimately not good for students and sick people, or taxpayers, because of their effect on supply.

    When the price is forced down due to dominance of the market by a single buyer (eg the government), suppliers seek alternative markets. Thus teachers go into IT and nurses become sales reps for drug companies where they are better paid.

    Eventually a shortage develops. That is what has occurred with nurses (exacerbated by the lack of a free market in health services generally) and has resulted in large numbers being brought in from overseas at greater expense to taxpayers. The health system in NSW is now heavily reliant on Irish nurses, for example.

    The situation with teachers is not as great due to the private school system reducing the monopsony effect.

  9. It is important to note the monopsony model the PBS is said to rely on isn’t actually a monopsony.

    Since a few firms hold advantages in producing certain types of drugs (knowledge, market share or patents) the situation arises where the buyer and seller are in a bilateral monopoly. The price is indeterminante and can vary from monopoly pricing to monopsony pricing.

    At best, excluding deadweight losses of taxation, the PBS probably has no net effect on drug prices.

  10. I believe the initial argument which this article rests upon is that since the Governemnt purchase system makes drugs “cheaper” it is a form of preventative medicine.

    But above it has been established at best, there is a negligible effect on prices.

  11. I wasn’t aware where or how they got the 1.5%. I was just guessing it was compared to a hypothetical scenario where there is *no* trade in pharmaceuticals.

    So I guess some regulated trade can always be shown to benefit GDP more than no trade at all.

  12. So… they got the 1.5% of GDP figure by comparing the cheaper prices obtained through government negotiations with some economist’s estimate of prices under the free market alternative?

  13. Like I said, this wrongly assumes there is a monopsony effect, not a bilateral monopoly effect or even a monopoly effect.

    What empirical research are they referring to?

  14. If so, the assumption underpinning the way the figure is being used by Tex’s friend is flawed.

    As Milton Friedman said, there’s no such thing as a free lunch. As with any form of price control motivated by good intentions there are always unintended consequences.

    The PBS is no different, as Brian Bedkober notes in this article.

    The figure could be correct, but that is irrelevant to a debate on whether the PBS is “best” policy.

    By that perverse reasoning a great many price controls are justifiable. One example – HECS is “saving” Australian university students plenty of %’s of GDP, but erm… sorry, we’ll have to make do with second-rate universities instead of having an Australian version of Harvard because the government has crowded out and suppressed private initiative.

    There is a cost to everything, and artificially altering that cost to win votes does not remove the underlying reality.

    Some examples:

    Minimum wages = increased unemployment

    Price controls on food = worsened famines

    Underpriced university education = second rate universities

    Underpriced water = resource misallocation

    OK, so we’re “saving” 1.5 of GDP, but who are politicians to interfere with the market prices of drugs?

    Why shouldn’t drug prices go up?

  15. In the Private Doctors article Sukrit links to, the PBS costs 4.6 billion.

    GDP was 867.8 billion AUD that year. PBS supporters infer a 13 billion saving (net benfit), or 17.6 billion gross benefit.

    I would like to know their methodology and their assumptions.

  16. The PBS doesn’t cost simply what the Federal Government pays to subsidise drugs at an agreed price. We forgot the f-Factor.

    “Factor (f) Scheme under the Pharmaceutical Industry Development Program”

    which is still in existence, described as by the 1996 IC report:

    “The Factor f scheme is a key element of the Pharmaceutical Industry
    Development Program adopted by the Commonwealth Government
    in 1987 to encourage the growth of the pharmaceutical industry in
    Australia. The scheme is designed to compensate companies for the
    effects of low prices of pharmaceuticals supplied under the
    Pharmaceutical Benefits Scheme (PBS). In return for higher
    notional prices on some of their PBS products, companies are
    required to increase their research and development (R&D)
    expenditure, as well as their domestic manufacturing and export
    activity in Australia.”

    Factor in deadweight losses of the revenue funding all of this and it becomes a bit more complex. So by not “screwing the prices down” at all, we engage in production distorting (lessening) industrial policy.

    Or we could not fund a direct subsidy and allow firms to operate on comparative advantages.

  17. Proponents of the PBS don’t get their free market estimate from a model, but from looking at the free pharma market in the US. The reality is that the Australia government does have monopsony power and this does translate into a lower price in Australia. I doubt the benefit is worth 1.5% of GDP… the author might have meant that we save 1.5% of pharma costs.

    While monopsony does harm the supplier, this isn’t particularly relevant with the PBS because the relevant suppliers are generally US companies and the Australian market makes up a relatively small addition to their sales.

    As for the author’s additional comments, it is true that more spending on pharmacuticals lead to better health outcomes… but it also leads to less spending on other things. The author is wrong to count the benefits (three times by repeating himself) but not the costs.

  18. Monopsony power can only be exercised by buying less!

    Some save?

    This isn’t saving us money. Its distorting the market by not leaving the consumer with the full costs. It costs taxpayer funds which has dead-weight loss.

    People think they are just so smart squeezing every last dollar out of the Americans but thats a dishonourable thing to do and it isn’t helping us.

    The estimate that its saving us money is hypothesised by people who will only look at THINGS SEEN and not by people who take conceptual knowledge to try and sort out those things that can’t be readily added up and have to be hypothesised.

    Such people may make passing accountants but they ought recuse themselves from the practise of economics which requires conceptual thought and imagination.

    But it would be worthwhile for some of you guys with the quantitative skills (I’m looking at you Humphreys) to put together another set of ballpark estimates to try and include a bunch of things in the costs that haven’t been included in the past.

    I’m confident we will find that this scheme is costing us money and a lot of it.

  19. “There is something approximating free trade in pharma in Thailand. As a result, the quality is dodgy and the pharmacist often tells the people what is wrong with them (rather than a doctor) and prescribes them more than they need.

    The pharmaceuticals are fairly cheap there, cheaper than OZ, often manufactured by German owned companies, but people die young and the money leaves the country.”

    Putting all the ridiculous bullshit speculation aside we can get much cheaper drugs if we open the purchase of them BY ADULTS up to all outlets everywhere and from all sources………

    And just have a small budget for quality control.

    It will save a lot more then this crazed tax-eater scheme which is probably bleeding us red ink every day.

  20. I plan on doing more work on the health economics this year, but I don’t have time at the moment.

    There are three distortions going on in the PBS. One is a price distortion (unambiguously bad), two is a subsidy (controversial) and three is monopsony power (generally considered a good thing for Australia).

    Monopsony power does not come from buying less… it comes from being the only buyer and therefore having a stronger bargaining power and converting some producer surplus (ie profit) to consumer surplus. Because of the subsidy, Australia probably buys more than we would without government involvement, not less.

    That doesn’t mean that the PBS is a good idea or that I’m defending it. I’m just pointing out that the pro-government group has a strong argument with monopsony and we can’t dismiss it as easily as other pro-government arguments.

  21. “The biggest problem with the PBS is that they don’t pass on price signals to the end-user and so end-users make inefficient choices regarding the drugs they use. For example, there may be one drug at $100 and one drug at $500 which do about the same thing… but both drugs will have a $20 price to the end-user.”

    I thought there was a mechanism in place that prevents this? Not sure of the details, but I believe that to get on the PBS you have to demonstrate better efficacy than a comparable drug already on it, which gets bumped. Mark, you should know, care to enlighten me?

  22. WHAT?

    You mean fatfingers that someone somewhere produces a FORM somewhere and some other bugger fills it in?

    Demonstrate efficacy?

    Try and say to yourself what that means in this world and not the magic-land you have going in your head.

    If you fund the provider or subsidise the product you are screwing the normal workings of the market.

    But if you cut taxes to the CONSUMER you aren’t.

    And some of these really old sick guys…. If you gave them cash and trashed the PBS that would distort the market somewhat less.

  23. “Monopsony power does not come from buying less… it comes from being the only buyer and therefore having a stronger bargaining power and converting some producer surplus (ie profit) to consumer surplus. Because of the subsidy, Australia probably buys more than we would without government involvement, not less.”

    Yeah actually you are right.

    Its more the CAPACITY to buy less that gives the bargaining power then the actuality of buying less.

    Quite true.

    But this is a dud scheme for sure.

    Its just incredible that they are only willing to add up that negotiating gain and then just assume they are coming out on top.

  24. Listen lads and ladettes, there is a reason studying economics, business or marketing at Woolloomooloo University on full fees requires a lower entrance score than studying hard and being trained at state expense to save lives as medical doctor at McWhirter Uni. That reason is not economic, the reason is that human life is the ultimate value, and the word value has been hijacked by ineffective terror units called tinkumtanks.

    Adam Smith was lacking hutzpah when he stated that labour was the ultimate value. When he made this statement, the Andersonian medical school had not been incorporated into the university where he worked. The two years of rounds which doctors must complete was initiated by this same university and became the European and world standard (except in Italy where you can go out practice on as soon as you have finished pretending to read the book). These rounds may cause medical students to commit suicide at a rate 5 to 10 times that of the general populus, but some of them drop out and sell double pronged instruments unlubricated from outlets on Oxbridge Street to privatised Birds as a method of satisfying the urge to splurge online.

  25. Graeme (not for the first time)… what? Do. You. Speak. English? Habla Ingles? Parlez vous Anglais? Must be a bad connection, because YOU MAKE NO SENSE AT ALL.

  26. fatfingers — you are partly right. In my original example the $500 drug will have additional benefits over the $100 drug. However, there will be many situations where a person only needs the $100 drug, but picks the $500 drug anyway because it’s the same price to the end user.

    Consider the same situation with the car market. The government sells all cars with a significant subsidy and all cars are the same price (say $2000). People aren’t going to make appropriate economising decisions because their is no price differentiation. If you value a car at $5000 you may as well get a $100,000 BMW because they’re all just $2000 for the end-user.

    The price mechanism is the fundamental difference between captialism and socialism. It efficiently allocates resources to their best uses and is a proxy for spreading information that could never be understood in any one mind or any government planning board. It is perhaps the best mechanism ever discovered for coordinating human behaviour and even if you want to keep PBS monopsony & subsidies, there is no need to abandon the price mechanism.

  27. In a normal market you have a spectrum of quality from top-of-the-range down to poor-substitue level.

    So that when TV’s first come out only the rich get them. But it is the rich getting them that kicks the process off.

    Then a better model comes out and another model, only a little better but perhaps using much of the old equipment that the first model used in its manufacture. And that mid-range model comes out cheaper then the first model.

    Then the market starts to broaden and deepen.

    Pretty soon the lowest working classes have, at very cheap prices, a product that is comparable to the upper-mid-range products of just ten or 15 years before.

    State insurance and PBS schemes and the non-price rationing of all these services buggers this process up.

    Under freedom, which includes the reform of a number of markets only tangentially related to medicine, we could have VERY CHEAP healthcare for the poor which compares favourably to the best or near-best that was on offer twenty years prior and that costs less then the rent of a studio apartment downtown now costs.

    Poor people only getting service that equates to nearly-the-best that was on offer a couple of decades prior might seem like some massive tragedy to some of you youngsters but its about the best we could hope for and a situation that would improve every year.

    In fact in almost no other area could a focused and aggressive libertarian party do more good.

    Since this market and the five or so other markets that influence medical costs are so supremely fucked up that we could have costs falling through the floor.

  28. John, I thought the price mechanism wasn’t being eliminated (except to the end user) in that the government still has to pay for the drugs?

  29. “John, I thought the price mechanism wasn’t being eliminated (except to the end user) in that the government still has to pay for the drugs?”

    WHAT?

    Thats like saying….. “Roger I thought the Nazis weren’t anti-semitic except to the extent that they wanted to kill Jews”

    Crikey fatfingers?

    What’s WRONG with you?

  30. “They are the ones making a decision about which drug to use.”

    Well ideally, but many people do what their doctor tells them. The doctors are often swayed by drug companies offering all expenses paid weekend “conferences” on Queensland islands with free take home towels and lobsters. They are good towels.

  31. That problem would be mitigated with a freeing up of the medical services market.

    Why go to the quack when some pharmacist or ex-biology student with smart-software can reccomend a range of drugs at all price levels for what ails you?

  32. Well GMB, why not go for a drug free cure and use the body’s own natural healing powers, that way you can have the lowest cost, most individual, most benefit and you can decide how regulated or free your own personal health market is according to your own philosophy.

    That way you dont have to micromanaged by communists in their current disguise as capitalist global corporations, and monopolistic professional guilds.

  33. Go on GMB, try aversion therapy, punch yourself in the face as hard a possible everytime you abuse someone online rather than take facts onboard and admit you are wrong.
    So wrong in fact that you cannot be classified as right wing. You have been working at Jason’s restaurant the Wrong Wing for quite a while now, he should move you to a paid position away from the front of house and bring some customers back.

  34. John

    Please ban, Parkos. He has never had anything worthwhile to say and most things denigrate to racism with this prick. He clogs up threads with useless drivel.

  35. You brought up racism and swore JC, chop one another one your own fingers off as a vendetta. By the end of the week you will have to move to speech recognition software.

  36. “Why go to the quack when some pharmacist or ex-biology student with smart-software can reccomend a range of drugs at all price levels for what ails you?”

    That’s all GPs do, and the actual pharma producers who know the ins and outs of clinical trials supply the info.

  37. “Why go to the quack when some pharmacist or ex-biology student with smart-software can reccomend a range of drugs at all price levels for what ails you?”

    This is called progress. There are efforts to develop software like this for both medicine and law. Maybe you won’t have to go to a legal service provider either! (Now that really is progress!)

  38. Precisely.

    If we go this way the services and drugs will just keep getting cheaper and therefore many lives will be saved.

    Some things don’t seem amenable to freeing up all the way though.

    LIke Heart Surgeon licenses and such.

    But we do what we can and in time we will find a way to even make that stuff free enterprise.

  39. There is no reason why heart surgeons should require licences. People can choose for themselves who they want for a heart surgeon. Getting rid of licences would in no way prevent surgeons from forming themselves into associations on the basis of learning and skills, and marketing themselves as such. I personally would want someone who had the imprimatur of the relevant guild, but heart surgery is an extreme case.

    If people are not smart enough to choose for themselves what transactions to enter into by way of the market, how can the same people be smart enough to choose, by way of the ballot box, to have officials over and above them to restrict their choices?

  40. graemebird, how about if the government came along and decided that only the producer of the first TV had the right to determine who can produce TVs. If anyone else wished to produce a TV, they are forced to negotiate with that initial producer.

    I am of course making the assumption that not all drugs are directly substitutable with an alternative drug.

  41. Well that wouldn’t be any good. But thats not what happens in either industry RIGHT.

    Now we can quibble about the length of time of the patent.

    But aside from such cosiderations what is your point?

  42. “There is no reason why heart surgeons should require licences. People can choose for themselves who they want for a heart surgeon.”

    Right.

    I agree.

    Ultimately it wouldn’t be government licensed one supposes.

    But if we make a bunch of changes all in one hit…. Then thats just one of the liberalisations that might be better left till later.

    Even some of the workplace safety.

    I think you want to be liberating at great speed.

    At great speed and in parallel.

    http://wordpress.com/
    But in the exitement you may to downtone

  43. So long as heart surgery is on the agenda I would just like to make a public service announcement.

    Girls in Australia are generally immunised against rubella. You can catch rubella and hardly know you have had it. However if you are pregnant at the time then there is a high risk of the unborn child developing abnormalities which may including heart problems (or deathness or blindness). After delivering a child hospitals routinely test that the mothers immunity is still good. After our second child the test came back good. After our third it came back bad. Some time after our second child was born immunity must have lapsed. Our third child has a heart condition that may in the future necessitate surgery (or it may not). Anyway the point is if you know anybody who is planning to have a child, or plans to have more children at some future date, then ask if she has had her rubella immunity retested.

  44. So if you were to say, abolish PBS and Medicare, how do you prevent a situation like the healthcare crisis in the US, or in other countries where there is no regulation of pharma?

  45. First you will need to explain exactly what crisis you’re worried about. People also talk about a “health crisis” in Australia when it’s politically convenient.

    And what is the crisis in the unregulated markets? Is that the crisis of people having easy and cheap access to pharmacuticuls without a bunch of bureaucrats first taking their money and telling them what to do?

  46. No regulation of pharma would be great. Costs would plummet.

    Production of soft drink isn’t regulated, but kept clean by the downside risk of litigation and product liability.

    As for the US healthcare crisis, see these links:

    http://divisionoflabour.com/archives/003463.php

    http://healthcare-economist.com/2006/07/27/medicares-true-administrative-costs/

    http://www.adamsmith.org/cissues/waiting-list.htm

    http://observer.guardian.co.uk/nhs/story/0,1480,1036970,00.html

    http://www.nationalreview.com/comment/murray200402190909.asp

  47. Hey Mark,

    But by the same token you have the banks here who are deregulated and shaft you with fees unless you have enough money to always have $1500 or so in your account. Prior to deregulation this did not happen. Now the poor get no interest on their money.

    Thanks for the links. The first link talks about crow-out, which means less people take up private health due to public health insurance take-up. But which came first? The gap in care from private (leading to some of the HMO horror stories I’ve seen) which led to the public insurance push or did public insurance cause all the problems?

    The second makes the case that private health is more cost effective than public health. Well I think we all know that public systems are never efficient; esp. with our money.

    The NHS, I know first hand is a horrible and wasteful system.

    My concern is the phenomenal price of health care in the US and the anecdotes I’ve heard of people being left behind by their HMOs.

    Any thoughts on this?

  48. But by the same token you have the banks here who are deregulated and shaft you with fees unless you have enough money to always have $1500 or so in your account. Prior to deregulation this did not happen. Now the poor get no interest on their money.

    So what? Banks are not charities.

    My concern is the phenomenal price of health care in the US and the anecdotes I’ve heard of people being left behind by their HMOs.

    As far as I can see, health care problems in the US have been caused by government intervention, not a lack thereof.

  49. Thanks Tex,

    I understand the banks are not charities. Prior to deregulation they were able to pay interest on all accounts and make profit. In most workplaces (if not all) you now need a bank account in order to be paid. Don’t you think that this kind of constitutes an unavoidable tax from the banks for no mutual benefit?

  50. The workplace benefits because they don’t need to transport large sums of cash for payroll. That is why they make having a bank account a condition of employment. So in essence it is your employer that is compelling you to pay.

  51. Thanks Terje,

    I understand that too. But it’s an example of removing regulation not being mutually beneficial. Is it because the banks are still too regulated so we don’t get enough competition amongst them? Sorry this is getting a little off topic but it’s something that troubles me.

  52. Maybe you need to shop around for a better bank? Like Bendigo, which doesn’t have fees on it’s personal accounts and no mionimum balance? Plus heaps of other good things. Bendigo is a market driven response to excesses by the big banks. (note to big banks – pissing off your customer base never a good long term strategy, even if the short term profits were worth it…)

  53. Some banks (eg Commonwealth) had a lot of reasons (short and long term) to piss off certain types of customers. The issue is partly about profits but it is also a lot about costs. The costs were always there but prior to deregulation the costs were passed on to morgage customer (ie the battlers). Now the costs are more generally passed to the actual user (ie account holder). The costs are generally less than having a mobile phone account which you never use and as such would seem to be in line with the normal cost of administering an account.

    Notionally the banks may have passed on the benefits to employers (lower cash handling costs) and those with a morgage (through lower rates). And they now pass the cost almost entirely to the individual account holder. However nobody can be certain that employers have not passed on the benefits in higher wages.

    In essence it is not really accurate to simply compare account keeping charges before and after deregulation and conclude that account holders are necessarily worse off as a result.

  54. “My concern is the phenomenal price of health care in the US and the anecdotes I’ve heard of people being left behind by their HMOs. ”

    The price of private healthcare is cheaper than Medicare. Not only did one of the links show that cost per paitient is 2.44 times higher in Medicare, but Medicare is paid out of payroll taxes.

    Here is how FICA works.

    http://en.wikipedia.org/wiki/FICA_tax

    This is the US national average wage

    http://www.ssa.gov/OACT/COLA/AWI.html

    This is what Medicare costs

    http://en.wikipedia.org/wiki/Medicare_%28United_States%29

    Now remember how in that Murray article, the uninsured are alrgely affluent young male professionals.

    Play around with this to make some comparisons:

    https://www.ehealthinsurance.com/ or any other similar online insurance market.

    As for crowding out: if private insurance is cheaper after people have paid out FICA taxes, then the public sector crowds out the private sector. Without FICA taxes, insurance would be a an even smaller component of disposable income than it is now. There in fact, was no gap to start with.

  55. Ben — since bank deregulation the amount of fees has gone up but the interest rate premium (the extra amount the bank charges over their borrowing rate — how they make money) has decreased. Consequently, the vaste majority of bank customers are better off under a deregulated system. It has certainly been win-win.

    It’s just that fees are more visible. But as Hazlett taught us in “economics in one lesson”, economics is the art of the unseen effects and unintended consequences.

    And Mark — why don’t you write a proper post on health economics.

  56. Friends of mine who work in the banking industry said that prior to deregulation banks charged higher rates because they could, with the increased competition their margins were basically halved so fees were inevitable. It is also worth remembering that banks now provide a range of services that would never have been possible in the “good ol’ days”. Nonetheless, some fees are over the top. Do what I did, change banks.

  57. Before banks introduced account keeping fees I made a hobby of collecting keycards (it seemed more interesting than stamps). I had a bank account with a balance of one dollar with every Australian bank that I could. When fees came in I had to go around and close all those accounts. It was a right royal pain. Many banks will only let you close your account at the branch where the account was opened so it involved a lot of commuting. I tend not to collect things these days although I have been tempted to collect old bank promisory notes (they still circulate in Scotland care of NAB and I regret not keeping any of those).

  58. Mark,

    Thanks for taking the time to dig out those links and make your point so well. Thanks to Dead Soul too for the insights on banking.

    These are some of the sticking points left over from my left is best days and I’ve not been able to grok them for myself.

    Cheers

  59. Ben — it’s good that you ask the questions and don’t simply take our word for it.

    In the foreward to Milton Friedman’s famous book “free to choose” he suggests to the reader to challenge the contents of the book and consider the ideas for a while. He worries that if a reader accepts what he says uncritically then they are likely to switch and also accept the next counter-argument put forward by whoever has a good way with words.

    In most arguments you’ll find a good counter-point and a good counter-counter-point etc. Keep digging and keep an open mind and I think you’ll find that freedom generally works best. But you’ll only be convinced if you get to the conclusion on your own.

  60. Thanks John.

    I’ve not made up my mind yet and never do, as a matter of fact. The only thing I do hold dear is to challenge everything. As the Buddhists say, the last step in self realization is to kill your teacher.

    I also take a perverse pleasure in playing the devils advocate and find myself arguing the neocon pov to lefty mates. It makes people think about their own pov critically. It’s also great for creating an air about yourself that doesn’t allow people to box you in as a certain type. If you are constantly arguing different sides of an argument they can’t discount you as a bleeding heart, fascist, etc et al and they can’t pre-judge what you have to say according to the core values to which they believe you subscribe.

    The premise of free will as a platform for realizing human potential is something that seems to make sense to me at the moment but I’ll never hold it close to my heart.

    If I find a compelling argument which states totalitarianism or worshipping lemmings on a Monday is the best way forward I will hitch my wagon to those beliefs.

    I am also a 29 year old man and if I haven’t learnt to not take what people tell me as gospel by this stage then I doubt I ever will.

    Thanks.

  61. The purported saving of PBS is the difference between the cost of production of the drug and the price that the Australian government pays, as a monopoly buyer. It is not really a saving – the free lunch is provided by consumers in other parts of the world, who disproportionally subsidize the research and development component of the cost.

    The disadvantage to the Australian patient/consumer is demonstrated in the scenario:

    I am a doctor treating a patient. There are two medications available. One is more effective, but not on PBS. The other is less effective but on PBS. The PBS system means that the patients tendency to make a rational choice is distorted by government subsidy.

    The PBS system disadvantageous to consumers both inside and outside Australia.

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