JOHN KERRY AND HEALTH CARE RATIONING

By Burke J. Balch, J.D.
Director, NRLC's Robert Powell Center for Medical Ethics

Health care proposals by presidential candidate John Kerry, by severely limiting the right of Americans to spend their own money to save their own lives, would impose government rationing on lifesaving medical treatment, while depriving both the nation and the world of access to new lifesaving drugs.

Your Money Or Your Life

Kerry's rhetoric and proposals focus sharply on limiting by law the amount of money Americans spend on health care. While playing to the fact that no one likes to spend money, the unspoken consequence of the Kerry position is to deprive people of the right to spend what they can afford on medical treatment and drugs they need to stay alive and to maintain or improve their health.

There's an old joke about the man confronted by a brigand who pulls a gun and demands, "Your money or your life!" The man replies, "Take my life; I'm saving my money for my old age." Obviously, it does little good to preserve your nest egg if you're not around to enjoy it. Similarly, it is a fool's bargain to limit people's ability to buy essential health care on the grounds you are "protecting" them from having to pay for it.

A Government-Rationed Plan

A centerpiece of the Kerry health care plan is to "open" the health insurance system for federal government employees to all citizens - - sold as "provid[ing] all Americans with access to the same coverage that members of Congress give themselves." The objective, like that of the Bill and Hillary Clinton Health Care Plan, defeated in 1994, would be to move all Americans into a government-run health insurance system.

Under the federal employee insurance system, individuals do indeed get to pick among different insurance plans, with the opportunity to pay more for plans that are less likely to ration care. What may not be widely known, however, is that the premiums for these plans - - even the higher-value ones - - are tightly price-controlled by the government Office of Personnel Management. Insurance plans unwilling to offer coverage at a price acceptable to the government are excluded from competing.

The underlying assumption is that individual Americans and their families cannot be trusted to strike the right balance between cost and benefit in choosing among competing plans - - that government bureaucrats must protect them from paying too much, even if that means they are deprived of necessary lifesaving treatment.

Drastic Cutback in Lifesaving Drug Research

Another centerpiece of Kerry's health care position is his opposition to the Medicare reform, including a prescription drug program, proposed by President Bush and enacted with bipartisan support last year. That bill permits those eligible for Medicare voluntarily to supplement government payments for health insurance premiums with their own funds, if they wish, in order to obtain plans less likely to ration treatment - - both plans for basic medical treatment and, shortly, for prescription drugs. Competing prescription drug plans negotiate prices with drug providers - - and older Americans may annually pick among the competing prescription drug plans.

Kerry vigorously opposes this approach. He promises to replace it with one that "[i]s run by [government] Medicare, not private insurance companies that can charge seniors whatever they want." Kerry says that rather than allowing the price of drugs for older Americans to be established by the market, it should be "negotiated" - - a euphemism for set - - by the federal government. In practice, Kerry would impose drug price controls, which have a devastating effect on the development of new lifesaving drugs.

Research and development is financed by investors who buy stock or provide venture capital. Investment in pharmaceutical development is risky. Many promising leads fail to work out and never make it to the market. On average, of 5,000 potential new drugs tested, only one is eventually approved for patient use. Of all new drugs brought to market, only 30% recover their research and development costs.

A 2003 study by the Tufts University Center for the Study of Drug Development determined that the average pre-tax cost of new drug development is $802 million. The prospect of a high return, if they do invest wisely and luckily, is the only thing that induces investors to face such a risk.

If there is a $100 lottery with a ticket price of $1 and 100 to 1 odds against winning, you may buy the ticket despite the odds because of the possibility of the high payoff. However, if the prize in a 100 to 1 odds lottery with a ticket price of $1 is only $2 or $3, you are very unwise if you buy a ticket! Few would do so.

Those who say drugs are overpriced often compare the high price of an innovative, breakthrough drug with the low cost of its production. They conclude that, even taking into account the cost of research and development for that particular drug, the patient is being gouged to produce windfall profits. This perspective, however, fails to recognize that it is only the possibility of that high rate of return that can induce investors to invest, despite the high odds against any given potential drug ever getting to the market and then actually making money.

A detailed study by Frank Lichtenberg, associated with the National Bureau of Economic Research, found that when one compares increases in longevity for those with diseases for the 21 years from 1970 through 1991 during which the mean age at death increased 5.4 years, the 19 diseases with the highest use of new drugs saw a reduction of life-years lost of 72.7% - - over 5 times the 13% reduction for the 19 diseases with the lowest use of new drugs. The average new drug introduced in that period saved 18,800 life-years in 1991 - - and is assumed to be doing so each year since. Adoption of the Kerry position on prescription drugs would help foreclose the prospect of saving countless lives for decades into the future.

Saving the Lives of Low-Income Americans

Some argue that if middle-income Americans are allowed to pay for lifesaving health care, that is unfair to lower-income Americans who can't afford it. In effect, they believe the only fair result is to force middle-income Americans to die at the same rate as those with lower incomes.

In fact, however, this "solution" actually INCREASES the death rate for those who are poor. Here's why.

When middle-income Americans voluntarily choose to pay what they can afford in order to get unrationed care, that puts more money into the health care system than if the government limited what they were allowed to spend on health care. These funds help cover the administrative and other fixed costs for hospitals and doctors, which makes health care providers more able to offer free or reduced-rate health care to those who cannot otherwise afford it.

Indeed, numerous studies show that those who are poor get better health care under systems that do not limit what middle- and higher-income individuals can pay than under systems that, in the name of "equality," strictly limit what can be spent on health care by those who can afford it.

Many who are pro-life have understandably focused on the threat pro-abortion Senator Kerry, if President, would pose to the lives of the unborn. Similarly ominous, however, is the health care rationing with which Kerry's proposals would threaten the lives of uncountable millions in this and future generations.