Drug Habits

People looking for encouraging precedents for heavy government involvement in health care may want to give Ireland a miss.

One of the big stories in the news, for more than a week now, is about a dispute between the government's health agency and the country's pharmacies, which has resulted a lot of pharmacies closing their doors, depriving people of medicines, even if they are willing to pay cash. A lot of people get their medicines paid for by the government, but because of the budget crisis spurred by the current recession, the government has slashed what it pays pharmacists to dispense the drugs. Irate, many pharmacists are refusing to dispense the drugs, and in some cases it is easier for them to close their doors altogether rather than deal with angry participants in various government drug plans.

It is a right mess and not at all encouraging for people who think that a "public option" will sort out the problem of health care costs. Of course, Ireland isn't a particularly useful case study for deciding what might happen in the U.S. because the countries are so different. Ireland is much smaller, culturally more homogenous and it has ceded its central banking powers to the European Union. It does not have the option of running up massive budget deficits, as the U.S. can and does, to get through tough times. But it can still give some insight as to the relative pros and cons of government programs versus free-market systems.

About a third of the Irish are government wards, for medical purposes. These include people who have what is called a full medical card (qualifying through unemployment or low income or other reasons), which pays all medical expenses, as well as people who have a GP visit card (with more liberal income limits), which is strictly for doctor visits. These programs equate more or less to a combination of the U.S. Medicare and Medicaid programs. The rough Irish equivalent of the "public option" would be VHI Healthcare, which is a government-owned insurance company, set up in 1957 as a monopoly. Interestingly, in recent years Irish politicians have nudged things in a direction completely opposite of that of today's political majorities in Washington. The insurance market was opened up to competition in 1996 with the idea that VHI might, at some point, be privatized, similar to what has happened to the government-owned telephone company (Eircom) and the government-owned airline (Aer Lingus).

Once you have a government monopoly, however, it can be hard to undo. The couple of private insurance companies that have entered the market have managed to offer lower premiums for their customers, partly through efficiencies and partly because they tend to attract a younger, healthier client base. When the government noticed this, it legislated a requirement that the private companies share some of their profits with VHI, in a plan called "risk equalization." The immediate result was that the main private company, the UK's Bupa Healthcare, immediately pulled out. Meanwhile, the premiums VHI charges have been reliably increasing from year to year. So much for a public option lowering costs.

Why would Ireland be trying to move toward less government involvement in health care anyway? Maybe it has something to do with an article last month in The Irish Independent, in which the paper detailed its own investigation into how the government health service was overpaying for drugs to the tune of 98 million euro per year. This doesn't really surprise Americans who have heard countless stories about, say, military orders for $640 toilet seats.

The basic problem is that any time large amounts of money are passing through large organizations, there is going to be a certain level of inefficiency and favoring. If the organization in question is a private company, one hopes that one or more government agencies might keep abuses to a minimum. When the organization in question actually is a government agency and subject to the whims of politicians, it gets harder. This is why, when the U.S. government decided to set up companies to be the ultimate housing lenders (Fannie Mae and Freddie Mac), they were essentially directed to make getting mortgages as easy as possible for people in the home districts, thereby contributing to the housing market meltdown. That is why, when the Pentagon says that it really doesn't need the F-22 stealth fighter plane, some politicians (like Pennsylvania military contractors' best friend John Murtha and my own senator Patty Murray) still fight tooth and nail to keep funding them because it helps, economically, folks back home and, indirectly, themselves. Can anybody doubt that, under a regime of greater government involvement in health care, there won't be members of Congress angling to get lucrative pharmaceutical contracts and other advantages for their constituents? To think otherwise represents a triumph of hope over experience.

Just as President Bush was silly to emphasize private accounts more than long-term solvency when he tried tackling Social Security, President Obama and his party are disingenuous to focus almost exclusively on insurance industry "reforms" and a public insurance option rather than actual, real ways to reign in healthcare costs, which is what most people actually care about.