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Insurance boosts health costs


Dear Readers:

Since December, I’ve received an avalanche of mail chastising me for recommending drug stocks, and for my endorsement of the drug sector because of the Medicare prescription bill.

I have been taken aback by the vitriol of these letters, each of which, very clearly, expressed dismay and despair that U.S. pharmaceutical companies charge “obscenely high prices” for myriad medications.  Most of those letters angrily pointed out that drug costs and overall health-care costs in other countries are much less than in the United States. Many letters commented that the net profit margins of Merck& Co. Inc., Eli Lilly and Co., Pfizer Inc. and Johnson & Johnson were “an unbelievable 16 percent to 18 percent on the back of the middle and lower class.”

I’ve decided to respond to those 140-plus letters with the following response.

Two of the worst things about our medical system are not having medical insurance and having medical insurance.

Without medical insurance, the costs of almost any incident that requires magnetic resonance imaging, an emergency room visit or medication can quickly change your place of residence to the “poorhouse.”

However, the fact that there is such a concept as medical insurance is the main reason costs are so high.  Imagine, if you will, that medical insurance companies (outfits with tens of billions of dollars of revenues) did not exist. Who would be able to afford $115 for a Vaniqua pill, $23 for Levitra or $20 for a single dose of Diflucan? Fewer than 2 percent of the population.  Water always seeks its own level, and I assure you that if medical insurance did not exist, the prices of those medications would fall. So would the cost of an MRI or an emergency room visit. And we wouldn’t be charged $15 for a single hospital aspirin.

I remember in the late 1940s the doctor would make a house call and charge Mom $5. Most of us could afford health care. A few years later, the doctor began to charge $8 a visit. When Mom asked why his charge increased by 60 percent, he replied, “I’ve got to hire an extra lady to complete these newfangled insurance claims.”

Meanwhile, your insinuations that pharmaceutical companies have excessive net profit margins between 16 percent and 18 percent are way off-base. The net profit margins of companies like Merck, Lilly, Pfizer and Johnson & Johnson have averaged over 22 percent a year over the past decade. That means for every dollar of sales after all costs (administration, sales, marketing, salaries, etc.) Merck, Lilly, Johnson & Johnson and Pfizer earn 22 cents. Thank you, Aetna! Thank you, UnitedHealthcare! Thank you, CNA! Thank you, Blue Cross! These “thank-yous” can go on for pages.

If folks living in Mexico, Israel, Canada, Cuba, Finland, Denmark, China, etc., had health insurance, they’d also be paying $20 or more for a single dose of Diflucan. Please, please be mindful of this.

In countries where profit is a dirty word, there are only two ways to alleviate the suffering of a seriously ill patient. One way is with drugs manufactured and discovered in the United States. In the past 20 years, perhaps 75 percent of all new drug discoveries were made by U.S. pharmaceutical companies. The other way is with a gun.

If profits were just an extra expense added to the production process, then countries like Russia, Poland, Estonia, Mexico, Liberia, etc., would have much lower manufacturing and production costs. However, World Bank statistics demonstrate that businesses that operate without profit incentives have significantly higher costs. Productivity is terribly lower, waste is pandemic, product quality is abysmal and unit performance is unacceptable.

Just look at the U.S. Congress. Huge government subsidies in those not-for-profit countries continue to drag down and bankrupt their currencies and economies. If excessive profit is the reason drugs cost so much, why don’t countries like Mexico, Canada, Poland, Saudi Arabia, India, China, Peru, etc., establish government-sponsored drug companies to make drugs less expensive?

It figuratively sears my soul when UnitedHealthcare is willing to give Walgreen’s $300 for 20 Imitrex pills or pay CVS $85 for a small tube of Renova. Like death and taxes, there’s very little that you or the government will do about it. When it comes to money, I learned a long time ago that if I can’t win a fight, then it’s either time to quit or join the other side.

So I have no problem recommending Pfizer, Merck, Lilly and Johnson & Johnson shares, which are owned by my clients and by me.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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