Washington Post columnist Charles Lane took a story from a German TV show to lecture his readers about health care costs. According to Lane, the show featured a  German civil servant who had a daughter with a rare and fatal spinal condition. Her only hope was a $330,000 operation in a clinic in Colorado. Her German insurance company refused to pay for it, forcing the guy to try an on-line fundraiser, which also failed.

No reason to go any further with the TV show, but Lane's takeaway is that:

"neither Germany nor any other country on Earth, major or minor, does is 'guarantee' everyone health care, in the sense of assuring them all the care they want, at a price they can afford, no matter what.

"Trade-offs in health care are real and not merely the result of insurance company or drug company greed."

This is a warning against an expansive Medicare for All plan, such as the one being pushed by Bernie Sanders.

It's worth thinking about Lane's German TV show a bit more carefully. Let's ask why some medical treatments are very expensive, regardless of whether it is the government, private insurers, or the patient who pays.

A major reason that many treatments involving new drugs are expensive is that the government granted the companies patent monopolies. It is true that money had to be spent on the research, but at the point the drug is available to patients, that research was already done. In almost all cases the cost of manufacturing and distributing the drug would not require anyone to have an online fundraiser even in the absence of insurance.

We do have to pay for the research, but government-granted patent monopolies are an extremely inefficient mechanism. (See Rigged chapter 5, for a discussion of alternatives [it's free].) In addition to creating the horrible problem of making otherwise cheap drugs costly, patent monopolies also give companies an incentive to misrepresent the safety and effectiveness of their drugs in order to sell them as widely as possible. This is an important part of the story of the opioid epidemic.

There is a similar story with medical equipment. There are a whole range of treatments that are very costly, not because the equipment is expensive to manufacture, but because the manufacturer has a patent monopoly on it. If we didn't rely on patent monopolies to finance the development of this equipment, it would be cheap as well.

What about the poor German civil servant looking at a $330,000 bill for his daughter's operation. Well, Lane doesn't tell us much about the operation, so we don't know exactly what caused the high cost, but it is true that many specialists in the United States are very highly paid, earning $400k or $500k a year, or more. It is possible that this procedure involved a considerable amount of time from one or more of these highly paid specialists, which would make it expensive, although probably not get us to the $330,000 range. (Two full days of work from someone earning $500k a year would be just $4,000, assuming 250 workdays a year.)

But the fact that these specialists can get $500k a year is not an accident. We have rigged the market to ensure that they are in short supply and can set their own terms.

 

While trade policy has been designed to put U.S. manufacturing workers in direct competition with low paid workers in developing countries, with the predicted and actual result of driving down their pay. We have largely protected our most highly paid professionals, especially doctors, from similar foreign (and domestic) competition.

There are undoubtedly many highly qualified doctors in Europe and elsewhere who would be happy to work in the United States for half the pay our specialists receive. But we don't let them. This is a form of protectionism that folks like Charles Lane and the Washington Post are happy to preserve. As a result, our specialists get paid far more than if they faced the same competition as less highly educated workers.

That may sound bad, but wait, it gets worse. The exorbitant pay of specialists encourages them to develop procedures that may not be effective, just as patent monopolies encourage drug companies to push their drugs in contexts where they may not be appropriate.

It is very likely that the $330,000 operation for the civil servant's daughter would not have actually helped her. It was simply a ruse that some hack doctor in Colorado had developed to make themselves very rich. That is likely why the German insurance company refused to pay.

So, the real story here is not of a suffering person being denied medical treatment that could save her life. The story is of a sleazebag doctor taking advantage of the suffering of a dying person and their family to make themselves richer.

It's amazing the lessons on health care that you can learn from a German television show.