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European
Care for the Elderly 2016
By Michael
Hudson
May 13,
2016 "Information
Clearing House"
- The most obvious approach to look at how
European care for the elderly will evolve is to
project technological trends and the costs of people
living longer as diagnostic equipment, drug
treatments and other medical science continues to
improve. This kind of projection shows a rising cost
to society of pensions and health care, because a
rising proportion of the aging population is
retiring. How will economies pay for it?
I want to
point to some special problems that are looming on
the political front. I assume that the reason you
have invited me from America is that my country has
been doing just about everything wrong in its health
care. Its experience may provide an object lesson
for what Europe should avoid (and indeed, has
avoided up to this point).
For
starters, privatization is much more expensive than
European-style Single Payer public health care.
Monopoly prices also are higher. And of course,
fraud is a problem.
America’s
Obamacare and health insurance laws have been
written by political lobbyists for special
interests. So has the TTIP: Transatlantische
Handelsabwollen. Since George W. Bush, the U.S.
Government has been prohibited from bargaining for
low bulk prices from the pharmaceutical companies.
Most Americans think that Health Management
Organizations (HMOs) are rife with corruption and
billing fraud. The insurance sector has made a
killing by spending a great deal of money on
bureaucratic techniques to reject patients who seem
likely to require expensive health care.
Doctors
need to hire specialists working full time just to
fill out the paperwork. Error is constant, and any
visit to the doctor, even for a simple annual
checkup, requires many hours by most patients on the
phone with their insurance company to correct
over-billing.
The dream
of U.S. “free market” lobbyists to shift the costs
of health care onto its users instead of as a public
program. According to current plans backed both by
the Republicans and by much of the Democratic Party
leadership, these user costs ideally would be paid
by pre-saving in special “health savings” accounts,
to be managed by Wall Street banks as a kind of
mutual fund (with all the financial risks this
entails – the same kind of risks that are troubling
most U.S. pension funds today).
The reason
why the U.S. discussion of health care for the
elderly is so relevant for Europeans is that the
Transatlantic Trade and Investment Partnership
(TTIP) that President Barack Obama pushed on German
Chancellor Angela Merkel two weeks ago. It poses a
far-reaching threat to European policies.
The
agreement has been drawn up in secret, and has only
been available to Congressmen in a special room as a
read-only copy. Not even Congressional staff have
been permitted to see the details. The reason is
that the terms of the TTIP are so awful that it
could never be approved by voters. That is why the
lobbyists for banks, insurance companies, drug
companies, oil and gas companies and other special
interests that wrote the law are trying to bypass
democratic government and going directly to Brussels
– and in the United States to the Executive Branch
of government.
The aim of
the TTIP is to replace the application of national
laws with special courts of referees nominated by
the special interests. This includes the
organization of health care. Last week Britain’s
main labor union, Unite, warned that the TTIP would
mean that the National Health Service would have to
be wound down and privatized.[1]
Although “Austria, Germany, Greece and Italy do have
explicit reservations in the TTIP text to protect
existing rules relating to healthcare,” the
privatization lobbyist strategy is to have the
treaty “provisionally applied” to force matters, by
backing compliant politicians. Objections will be
sidestepped as the “provisional’ law becomes a fait
accompli.
I think
that the best perspective that I can give you is to
discuss how the various interest groups are working
to shape political decisions regarding the public
and private role of health care. This is an area I
have been involved with for forty years. In 1976, I
contributed the economic section for two reports by
The Futures Group in Glastonbury, Connecticut for
the National Science Foundation analyzing the
economic and financial consequences of life
extending technology: When We Live Longer –
Prospects for America (with Herb Gurjuoy et al.,
1977) and A Technology Assessment of Life-Extending
Technologies (Vol. 5: Demography, Economics and
Aging, 1977). I believe these were the first reports
to pinpoint the implications for the Social Security
system of an aging population and its
inter-generational financial tensions.
American
politicians and economic futurists were concerned
with the effect on public health budgets of a rising
proportion of the population able to live out the
maximum present human lifespan of 125 years (called
“squaring” the life expectancy curve). What is the
best public response to what should be a dream being
realized? More to the point, how should governments
cope with special interests seeking merely to
profiteer from such breakthroughs – and use their
promise in an extortionate manner?
Every
interest group has its own perspective. Most
politicians in the United States are lawyers, and
they worried that the Social Security, pension and
health care contracts were a legal right that could
not be broken or modified. President Eisenhower had
called Social Security the “third rail” of American
politics – meaning that any politician or party that
sought to downgrade its promises would quickly be
voted out of office.
It was
obvious that a population living longer would
receive more Social Security and pension payments,
and that a rising proportion of national income
would be spent on their health care. Some of the
politicians I talked to were so pessimistic about
the costs involved that one said that he was sorry
that kidney dialysis procedures had been invented,
because with so many people having kidney problems,
it would cost a fortune to provide this service to
everyone who medically needed it.
Some
politicians sought ways to not to fund expensive
medical technologies – on the ground that if these
were developed, the government might have an
obligation to supply the most expensive technologies
(especially dialysis and organ transplants) to the
population at large. The costs of doing this would
absorb nearly all the economic growth.
One set of
futures envisioned that the more costly medical
treatments might become available only on islands –
in the Caribbean, for instance. After all, did not
Hippocrates practice on the island of Cos?
As forecast
decades ago, health care is the most sharply rising
cost in the United States. What none of us were
cynical enough to forecast was the corrupt role
played by special interests in maximizing the costs
by treating each element of health care as a profit
center – indeed, as an opportunity to extract
monopoly rent.
Privatization of health insurance under Obamacare
has been a bonanza for the financial sector and the
insurance industry. Initially a Republican “free
market” proposal, it required the Democratic Party
in power to disable popular pressure for “Medicare
for all” in the form of single payer public health
care. No discussion within Congress was even
permitted to favor public health care. (I was
economic advisor to Presidential candidate Dennis
Kucinich, whom the Democratic Party leadership
blocked from even discussing a public option in the
Congressional debate.)
The
enormous power of lobbyists from the pharmaceutical
industry bought the loyalty of politicians who
blocked anti-trust laws from being applied against
the drug companies. As I noted earlier, these
lobbyists even succeeded in blocking the government
from negotiating directly with the drug companies
over prices.
I mention
these points because the U.S. solution should serve
as an object lesson for what European and other
countries should avoid in managing their care for
the elderly. This is especially important to Europe,
because its neoliberal policies favoring the
financial sector imply a slow economic crash
squeezing household and employer budgets. Five
concerns are paramount.
1. Triage: restricting the most
expensive health care only to the wealthy
Lower incomes lead to shorter lifespans as a result
of worse health, and also suicides. Marriage and
birth rates also are lower as economies polarize and
growth slows. Russia, Ukraine, Latvia and other
post-Soviet states show this – and it may be a
forecast of European experience. This raises the
ratio of elderly to working-age populations. A
slowly growing labor force must support more and
more retirees.
Studies in almost every country have shown that
health standards and lifespans are polarizing
between wealthy and poor. A recent U.S. study notes:
“The life-expectancy gap between rich and poor in
the United States is actually accelerating. Since
2001, American men among the nation’s most affluent
5 percent have seen their lifespans increase by more
than two years. American women in that bracket have
registered an almost three-year extension to their
life expectancy. Meanwhile, the poorest five percent
of Americans have seen essentially no gains at all.”[2]
This has
important implications regarding recent proposals to
raise the retirement age at which people can qualify
for Social Security. Only the well to do are living
longer, not blue-collar labor. Raising the
retirement age would deprive the latter of the
retirement years that better-paid individuals enjoy
as a result of their healthier lives.
I mentioned
above one scenario drawn by futurists: that the best
medical care might only be available in “medical
islands” or their equivalent in the United States,
called “Cadillac health insurance plans.”
2. Blaming the victims for their
unhealthy environment as the problem were their
“personal responsibility.”
George W. Bush recommended that the poor simply
should go to hospital emergency wards when they get
sick. This obviously is the most expensive approach.
Prevention is by far more economical. But public
moves along this line are being fought tooth and
nail by the tobacco and soft-drink industries, and
other purveyors of bad health.
Better
health and longer lifespans are achieved not only by
advanced medical technology, but by better public
health standards, and personal diets and exercise.
The most serious behaviors impairing health and
longevity are smoking cigarettes, drinking alcohol
and eating junk foods to the point of obesity. In
the United States, childhood diabetes is rising
sharply, especially among racial and ethnic
minorities, and the poor in general.
An obvious
way to keep down health expenditures is to lead a
more healthy life. In New York City, Mayor Bloomberg
sought to ban the sale of large sugar-drink
servings. Lawyers for the junk-food industry,
supported by fast food restaurants and movie
theaters, blocked his initiative. And an even more
powerful legal tool to block public health warnings
is contained in the Trans-Pacific Trade Agreement
and its European counterpart, the Transatlantic
Trade and Investment Partnership. These proposed
treaties follow the earlier North American Free
Trade Agreement (NAFTA) in levying enormous fines on
government who warn populations of the dangers of
smoking or other unhealthy behavior that is highly
profitable to cigarette companies, soft drink “sugar
water” makers, and fast food restaurants selling
food-like substances that give little nourishment.
Under the
proposed neoliberal agreement being put in the hands
of Brussels politicians by American lobbyists,
government warnings of the health hazards of smoking
will require these governments to pay the tobacco
companies what they would have earned if cigarette
sales had not declined as a result of these
warnings! Fines already have been levied against
Australia for seeking to improve public health by
requiring such warnings on cigarette packages. A
recent Australian report concludes:
Tobacco
policies implemented in the past have been
effective at decreasing overall rates of
smoking, but new and innovative interventions
will be needed in the future to affect change in
all populations.
Six chapters were identified with potential to
limit governments’ ability to implement tobacco
control policies. The key chapters are:
investment, particularly the ISDS
mechanism; rules related to trademarks in
intellectual property, regulatory
coherence, cross-border services and technical
barriers to trade. … Multiple chapters may also
interact with the potential for amplified
effects on tobacco control. Various provisions
in these parts of the TPP may provide the
tobacco industry with greater influence over
policymaking and more avenues to contest tobacco
control measures, as well as preventing
governments from introducing new policies.[3]
Last week
the European Court of Justice upheld the 2014
Tobacco Products Directive against challenges from
British-American Tobacco (BAT) and Philip Morris.
Like similar laws in other countries, the European
law called for public warnings on cigarette packs
telling smokers that nicotine kills. But the tobacco
companies vowed to fight back, and the TTIP is now
their major hope.
3. Dangers of privatization of health
law under the TTIP
A recent British article lays out the problem:
A
salient goal of TTIP is to shadow the
Investor-State Dispute Settlement system (ISDS),
an instrument of public international law
granting firms the right to raise an action in a
tribunal on the basis that a state’s policies
have harmed their commercial interests. … The
economist Max Otte has called ISDS ‘a complete
disempowerment of politics’. The tribunals are
confidential, as is usual in arbitration.
Negotiations over ISDS within TTIP are also
secret, the aim being to get the ink dry on the
agreement before it can provoke opposition by
being made public. …
As the Economist put it, ‘if you wanted to
convince the public that international trade
agreements are a way to let multinational
companies get rich at the expense of ordinary
people, this is what you would do.’[4]
4. Dangers of financialization
The most efficient way to finance care for the
elderly – and pensions – remains pay-as-you-go
planning. This is becoming difficult in a neoliberal
political environment with shrinking economic growth
and consequent demographic shrinkage. The horror
story today is a Ukraine-like situation where the
labor force has fled, leaving the elderly to be
supported without much of a social budget. That is
becoming the post-Soviet model, from East Germany to
the Baltics.
The
American situation is worse, because Social
Security, Medicare and pensions are front-loaded by
being financialized – paid for in advance. For
decades, savings have been set aside in the form of
stock and bond purchases. The problem is that when
more workers retire than are contributing to the
pension plan or similar plans, their prices will
decline. This will leave the retirement plan
under-funded.
As interest
rates have been reduced to nearly zero since 2008 by
Quantitative Easing by the U.S. Federal Reserve and
now European Central Bank, pension funds and
insurance companies have become desperate to meet
their statistically required targets. They have
turned to gambling on complex financial derivatives
– and have lost heavily, because their managers are
no match for Wall Street sharpies.
It may be
appropriate here to note the monetary madness of the
eurozone not having a central bank to monetize
budget deficits to spend into the economy to help it
grow. That is the proper function of a real central
bank, from the Bank of England to the U.S. Federal
Reserve System. European voters are being frightened
by junk economics claiming that only commercial
banks should create money and credit, not central
banks. The reality is that central banks can create
the money to fund health programs without inflating
the economy. What would inflate health care costs,
especially proper care for the elderly, would be
privatization and a relinquishing of health policy
to the large corporations best in a position to
profiteer.
5. Danger of trade agreements raising
the cost of drugs and medical technology
The technological medical revolution involves high
rent-extracting opportunities, especially in
treating the elderly. The Australian study cited
above notes the dangers posed by the TPP (and hence
also by its European version) to public health
expenditure, especially health costs for the
elderly. Designed largely to protect “intellectual
property rights,” the proposed treaty aims to
increase monopoly rent extraction by the
pharmaceutical sector.
Provisions
proposed for the TPP that have the potential to
limit implementation of new food labelling
requirements in Australia include the ISDS
mechanism; the regulatory coherence chapter and
technical barriers to trade chapter. Provisions in
these parts of the TPP have the potential to
restrict policymakers to regulate using the most
effective public health nutrition instruments. For
example, the food industry could argue that
introduction of mandatory front-of-pack nutrition
labelling would be a technical barrier to
trade. Without strong compensatory intervention to
improve consumer awareness of the relative
healthfulness of foods, it is likely that there will
be no change to current high rates of obesity,
metabolic syndrome and non-communicable diseases.
This would have a negative impact on health,
particularly for vulnerable populations.
For
starters, the trade agreement limits the ability of
public or community pharmacies to bargain for lower
drug prices. Also, any attempt at anti-monopoly
legislation would require governments to pay the
foreign producers or investors as much money as they
would have earned if no “interference with markets”
(that is, regulation of monopoly prices) had
existed. This would sharply increase the cost of
healthcare, and “many TPP provisions proposed during
the negotiations are likely to be harmful to
health.”
There is
sufficient evidence which show that increases in the
cost of medicines lead to greater patient
co-payments through the PBS, and that increases in
patient co-payments lead to lower rates of
prescription use. Changes to prescription costs
impact particularly on vulnerable populations who
have less capacity to accommodate increased
out-of-pocket expenses such as women, elderly
adults, cultural and linguistic minorities, and
low-income populations; people with chronic
disease; geographically remote communities; and
Aboriginal and Torres Strait Islander populations.
Many
provisions proposed for the TPP had the potential to
increase the cost of medicines. These were
identified in leaked drafts of the intellectual
property chapter; the healthcare transparency
annex; and the investment chapter, which includes an
investor-state dispute settlement (ISDS) mechanism.
These provisions, if adopted, could be expected to
lead to an increase in the costs of managing the PBS
by delaying the availability of generic medicines,
and constraining the ability of the PBS to contain
costs. An increase in the cost of the PBS to
government would be likely to lead to higher
co-payments for patients.
Summary
European sponsors of U.S.-style neoliberalism pose a
threat of transforming European politics, and with
it the structure of economies and society. Enormous
sums of money are being spent on public relations,
and to support politicians willing to shepherd
corporate monopoly power against that of democratic
government and voters. The most serious threat to
European health care and care for the aging
population in general is pressure from U.S. firms
and diplomats to ram through the TTIP.
It is much
more than a free trade agreement. Its “investor
dispute” mechanism threatens to disenfranchise
governments. The intent is to block them from
protecting Europe’s economy, population and basic
social philosophy that has developed over the past
century of social democracy.
That is why
so many of us in the United States also are fighting
against this agreement. It has been a major issue in
this year’s presidential campaign. Republican
nominee Donald Trump has affirmed that the public
option is by far the most economic. And Democratic
contender Bernie Sanders has opposed Hillary
Clinton’s support for her patrons on Wall Street and
in the pharmaceutical monopolies. I hope that a
similar fight will be waged in Europe.
Michael Hudson is President of The Institute for the
Study of Long-Term Economic Trends (ISLET), a Wall
Street Financial Analyst, Distinguished Research
Professor of Economics at the University of
Missouri, Kansas City and author of
Killing the Host (2015), The
Bubble and Beyond (2012), Super-Imperialism: The
Economic Strategy of American Empire (1968 & 2003),
Trade, Development and Foreign Debt (1992 & 2009)
and of The Myth of Aid (1971), amongst
many others.
Footnotes
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