Why American Healthcare is Headed for CollapseSeptember 2009
By William Faloon
While politicians debate a wide range of financial issues, the most dangerous threat to the United States economy is ignored as if it did not exist. The reason you don’t hear about this problem is that no one seems to know how to solve it.
I will briefly review this impending disaster and then provide some real world solutions. For the benefit of new members, the Life Extension Foundation® predicted today’s health care cost crisis back in the early 1980s. Our prophetic warnings were ridiculed at the time, but events over the past decade document the financial train wreck we fought so hard to prevent.
Discussions rage today about how to provide universal health care. Overlooked is the fact that the government will soon be unable to pay the medical costs it is already on the hook for. Not only do 40 million Americans depend on these government-funded programs, but these individuals have already paid for them with their Medicare tax dollars.
The Magnitude of This Issue
Very soon, Medicare will start paying out more in hospital bills than the premiums (taxes) it will collect. When that time arrives, the federal government will have to tap some other source to cover this gargantuan unfunded liability. One obstacle is that the federal government is over $11 trillion in debt and is projected to run trillion dollar deficits for the next several years. If these numbers sound high, they pale in comparison to Medicare’s unfunded liability of $34 trillion.
To put this in perspective, the government collects only about $2 trillion each year in total tax revenue (including Medicare premium taxes).1 There are virtually no reserve funds left to pay promised Medicare (and Medicaid) benefits. The government is relying on the money it takes in each day to cover its enormous Medicare cost burden.
As the country ages, Medicare will devour huge chunks of US economic output and eventually overwhelm every other item on the federal budget. While politicians stick their heads in the sand and disregard this issue, no one can argue against the math showing a financial disaster of unprecedented magnitude.
The government points to rampant fraud as one reason behind Medicare problems. It is estimated that 20% of every dollar Medicare pays out goes to criminals who submit claims for nonexistent or bogus services. For example, it was recently discovered that Medicare paid out $100 million for wheelchairs, canes, prescription drugs, and other items prescribed by dead doctors.2 In other words, people working at doctor’s offices pretended their doctors never died and falsely billed Medicare for medical treatments that were never rendered.
The government brags when it cracks down on Medicare fraud, but they only catch a fraction of the crimes perpetrated. The reality is that the living con artists defraud Medicare out of far more than dead doctors do.
What the government does not like to admit is that another 20% of Medicare dollars are paid out in the form of overpayments to those with political connections. What companies do is lobby Congress to enact legislation mandating that Medicare pay inflated prices for certain products and services that can be obtained for a fraction of the price on the free market. This enables those who are politically connected to grossly overcharge Medicare because Congress mandates the inflated expenditures.
How inflated are the monies Medicare pays out? Take for example, an oxygen concentrator, a device that delivers oxygen through a tube to patients with respiratory illness. You can buy one new on the open market for $600. By law, Medicare is only allowed to rent these devices at a price that winds up costing $7,142 over a 36-month period. Medicare covers 80%, so it spends $5,714, while the patient has to pay the other 20%, or $1,428.3 Under this absurd system, Medicare and patients can pay ten times the free market price it would cost to buy the device new! (Think how much money would be saved if the devices were bought used?)
Perhaps the most expensive politically-induced overcharge is for prescription drugs. Under the Medicare Prescription Drug Act that Life Extension® vehemently battled against, Medicare is required by law to pay full retail drug prices.4
The Medicare Prescription Drug Act was largely written by pharmaceutical companies and passed under intense pressure by pharmaceutical lobbyists (refer to the August 2007 issue of Life Extension® magazine for the sordid details).5 Medicare will pay out hundreds of billions of dollars for drugs that could be obtained for far less in a competitive-bidding system, something that the Medicare Prescription Drug Act prohibits.
The Generic Drug Rip Off
Once a brand drug comes off patent, generic equivalents emerge, but they cost far more than they need to because of FDA overregulation.
Take the drug finasteride (Proscar®), for example. It came off patent in the year 2006, but at the end of 2008 chain pharmacies were charging about $90 for 30 tablets (a one-month supply). All it takes to make this drug is to put 5 mg of finasteride into a tablet that dissolves in the stomach. Vitamin companies do this every day with nutrients, but the FDA does not allow them to freely do the same thing with drugs.
We checked on the cost of buying finasteride and making it into tablets. The free market price for 30 tablets is only $10.25, which includes independent assay of the ingredient quality, potency and tablet dissolution—and a reasonable profit margin. It is against the law, however, for GMP (Good Manufacturing Practices)-certified vitamin manufacturers to be able to offer low-cost generic drugs. This prohibition must be lifted as America can no longer afford to subsidize those who are politically connected while the country is driven into insolvency.
Finasteride is a drug that not only helps relieve benign prostate enlargement, but that may also reduce the risk prostate cancer.7-9 Widespread use could save Medicare lots of money in expensive prostate treatments. Those who follow Life Extension®’s other recommendations would be expected to reduce prostate cancer risk even more.
As evidence mounts about the prostate cancer risk reduction associated with drugs like finasteride, more companies are competing to make it, but its average price at chain pharmacies is around $86 a month—a staggering eight times higher than what its free market price would be!
Please note that generic prices tend to wildly fluctuate. In this case, as more competitors entered the market, chain pharmacies did not substantially lower the price of finasteride. In some cases, the opposite occurred, and by the time you read this, the price could be different.
Last month, I exposed how Americans are egregiously overpaying for generic drugs. I asked members to log on to our Legislative Action Website (www.lef.org/lac) to protest this fleecing of consumers’ wallets, private insurance, and Medicare by pharmaceutical interests. An overwhelming number of Life Extension® members sent letters to Congress urging that the law be changed to allow lower-cost generics to be sold in the United States.