What’s the Big Deal About Drug Prices?

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David Blumenthal MDDavid Blumenthal, MD (pictured) says in this article that Americans believe in markets. Some think that markets should govern health care, just like other economic sectors. In fact, a common critique of the current health care system is that the government is too involved, and should get out of the way so free markets can work their magic on costs and quality of care. That’s one rationale for so-called consumer-directed health plans that impose high deductibles and copayments to make patients more cost-conscious.

So, what’s the big deal when a private company raises the price of a drug, or introduces a pricey new one? Imagine if John Deere marketed a new tractor for $100 million dollars each, or Intel a new chip for $1 billion a pop, or General Electric a new jet engine for $2 billion. Analysts might scoff at the company’s bad judgment. The product might not sell. Stock values might fall. CEOs—or more likely, some underlings—might get fired. But you wouldn’t hear politicians and editorial pages calling for the regulation of tractor or chip or jet engine prices, or for insurance to cover their escalating costs.

Why all the uproar about drug prices? The answer: humans. People feel differently about drugs, and many other health care products, than they do about the myriad of other things that get bought and sold, without controversy, in normal markets. Lots of Americans are just deeply uncomfortable with the idea that other humans could die or suffer needlessly because they couldn’t afford a pill—just a little pill, for heaven’s sake!—that could have made them better. (Some also really resent apparent profiteering by companies exploiting an unfair edge, but that is a slightly different issue.) When it comes to life, death, and suffering, many Americans act as if they think market efficiency is less important than caring for others.

And it’s precisely this attitude that has made many of the governmental programs involved in health care—Medicare, Medicaid, the VA health system, community health centers—so complicated and seemingly resistant to market-oriented reforms like raising Medicare premiums or introducing more cost-sharing into Medicaid. Government is involved in health care because Americans deeply desire the health care protections government provides.

Markets are a human creation, and humans can limit or disband them. When it comes to drugs—and health care goods and services generally—Americans seem willing to do just that.

Now there are some other reasons why drugs and their prices may be different from other products. One is patent law. New drugs often enjoy legal protections from competition if they can show that they meet certain standards for novelty and usefulness. These legal protections are time limited, but while in place, the resulting monopolies allow companies to charge pretty much whatever they want.

Sometimes other companies produce similar products based on different intellectual property (with their own patent protections) and competition works to bring prices down (though not necessarily make them affordable). But other times—and especially with complex new biological agents—these competing products don’t materialize, at least for some time.

Another difference between drugs and other products sold in free markets is the role of federally supported research. The federal government spends more than $30 billion annually on research and development fostering the discoveries that lead directly or indirectly to many of the new drugs marketed by private companies. Much of the federal money goes to universities and academic medical centers that are nonprofit and publish their results in scientific journals that are available for all to read virtually free of charge. Private companies use this new knowledge to inform drug development. Occasionally, academic inventions are licensed to private companies for additional development at little or no cost and modest future royalties for the academic centers. But in neither case are there provisions for assuring that public has access to the resulting drugs. Thus, the taxpayers who supported the critical R&D underlying some high-priced new drugs may be unable to afford the products that their investments helped to create. To many, this seems fundamentally unfair.

A third special characteristic of drugs is that government buys a lot of them for the elderly, disabled, poor, and veterans. This means that high prices could raise taxes.

Still, these three peculiarities of drugs and drug markets do not seem sufficient to explain the outrage that recent drug-pricing decisions have generated. After all, patents play a role in other economic sectors—in the chip and software markets, for example—without leading to calls for government intervention. The government supports R&D in the nonbiological sciences that result in new products as well.

The government’s role as a drug purchaser has also played a part in drug pricing discussions, and revived talk about allowing Medicare to negotiate better prices with drug companies. This is partly driven by concerns that the government may no longer be able to provide the drugs to all who need them.

In the end, the specialness of drugs comes down to how people feel about other people, and their own and their loved ones’ vulnerability to the killers and cripplers that we all fear. People are angry about drug prices because they think they’re just inhumane.

Don’t Leave Your Children Any Money

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Girl on BenchYou may be asking yourself why Tom Hegna, author, economist, and retirement expert, is telling us not to leave any money to our children. Perhaps this article will help answer your questions.

According to Tom, as 78 million baby boomers are marching headlong and headstrong into retirement, many of them are discussing how much money to leave their children. As the millennial generation moves out of the house and into the real world (at least for a few months), many boomers are looking to leave a little something to their children and grandchildren. Like Mark Twain says, “Thrift is a wonderful virtue, particularly in an ancestor.”

Estate planning is all about transferring your wealth and assets to your family (or favorite charity) in the most tax-efficient manner possible. Tom’s advice: Do not leave your children or grandchildren any money. He repeats, do NOT leave your children or grandchildren any money! Set up a life insurance policy to leave a legacy so that you can spend pennies and your heirs will get dollars.

Here are three reasons to leave your children life insurance rather than money:

Reason 1:

Avoid income and estate taxes. With life insurance, there is no income tax on the death benefit upon receiving it. Also, if structured properly, you can use gifting strategies and irrevocable life insurance trusts to avoid estate taxes. Each state is different, so make sure you understand exactly how it works for your community.

Reason 2:

Why spend $100,000 to leave $50,000? If you are able to put $100,000 into a policy, the policy would pay out a significant amount more.

Reason 3:

You have access to the cash value of your policy in case of emergencies.

With life insurance, you gain a tremendous leverage. For example, depending on age, gender, and health, instead of leaving children $100,000, mom and dad could put that $100,000 into a life insurance policy and leave Johnny and Susie $200,000, $300,000, or even $500,000, income tax free.

If the policy is set up properly, the money can remain estate tax free as well.

George Steinbrenner’s heirs were big beneficiaries — they inherited the New York Yankees and the rest of his financial empire was free from estate taxes.

Tom Hegna has been presenting financial estate planning to people all around the country and one slide that tends to stand out and resonate the most with attendees is the “Don’t live a just-in-case retirement” slide. Many seniors today are living a “just-in-case retirement” and not enjoying their Golden Years as much as they should be.

One of the key elements of this deals with leaving a legacy to children. Mom and dad live a diminished retirement because they want to leave something for Johnny and Susie. They don’t spend their money, then what happens? They die. What happens to the money? It goes to Johnny and Susie, who then use it for the reason their parents were saving it for — a new boat, the country club, a cruise, etc. This paradox can potentially be solved with life insurance.

If you decide up front how much you want to leave Johnny and Susie, you can use the money from a life insurance benefit to go to your children, estate and income tax free. Again, this gives them the freedom to spend the rest.

Tom’s books and articles often reference “the optimal solution.” Optimal may not always be the best, but it means, “The best more often than anything else and it will never be the worst.” With the power of life insurance, you can spend pennies and leave dollars. This is the optimal way to leave a legacy to the children. The baby boomer generation has been touted as a career-focused and workaholic generation. It is time for them to reap the benefits of their hard work.

Americans are widely underinsured and most have no idea of the benefits life insurance can offer. Make sure that you understand how securing life insurance will give you peace of mind to spend your hard earned money.

Don’t leave Johnny and Susie money, leave them life insurance. Hopefully, when the kids find out that they aren’t getting any money, they will finally move out.

Advocate for Alzheimer’s Research

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Dr. Maria CarrilloAs the baby boomers age, the increasing number of patients with Alzheimer’s disease will take a serious toll on caregivers and families, and the costs associated with that care are expected to weigh heavily on the nation’s health care system.

A new study projects that the disease will be responsible for 25 percent of all Medicare spending by 2040.

Alzheimer’s is the most common form of dementia, and the number of cases is expected to balloon as people live longer:  Today 5.1 million people 65 and older have it. By 2025, the number will rise to 7.1 million, a nearly 40 percent increase, the Alzheimer’s Association estimates. The projections have sounded an alarm amid a tightening federal budget and concerns that there won’t be enough nursing facilities to take care of patients. Researchers and health policy experts met in Washington at a major conference in July 2015 to discuss the impact of and efforts to combat the disease.

Dr. Maria Carrillo (pictured), chief scientific officer at the Alzheimer’s Association, which paid for the research on Medicare projections that was released at the conference, talked in an interview about what the growth of Alzheimer’s will mean for the nation. The interview has been edited for length and clarity.

Why is there such an increase in Alzheimer’s disease?

We know that it is an older disease; it affects people mainly over 65. And it has been less than 100 years that we’ve lived to 65 plus. The average life expectancy now is 83 plus, and that’s why the baby boomer number is so critical. They’ll be living to 90, and that puts them at more risk for Alzheimer’s.

The other piece is that we’re more educated than we were 40 years ago, more people have high school diplomas and people are living older in professional settings.  They are working until 70 plus with the full expectation that they will continue to have a sharp brain.

Compare this to someone who stays at home. My mother-in-law, who has Alzheimer’s, stayed at home to raise her family. Her early symptoms weren’t as apparent because she wasn’t doing anything that required her to make mistakes that were glaring. In a professional setting, if you can’t multitask, it’s more apparent.

Much research is going on right now to prevent or slow down Alzheimer’s. Where does the research stand? What would you hope to see in screening for Alzheimer’s?

The federal government is making investments in research today — $350 million has been included in an appropriations bill for the Congress this fall, and if it’s approved, it will improve the National Institutes of Health (NIH) research dollars for Alzheimer’s by 50 percent. We’d also like to see things like saliva and blood screening tests that could be done in our primary care physician offices. It’s the first place where a loved one would go [if they started having symptoms]. If they could have something quick and easy, like a finger prick that says things aren’t right, we could pass the patient on to do more extensive testing.

You’ve mentioned, though, that there is no cure for Alzheimer’s. Why would someone want to be screened with that kind of outlook?

The reality is that what we have to do today is develop screening and detection simultaneously with treatments and cures. We have medications that are approved for Alzheimer’s and dementia, but the effects don’t last as long as we’d like. We’re trying to develop screening tools in conjunction with therapeutics that can slow its progression or provide more symptomatic relief than are available today.

How do you think the health system is going to adapt to a larger population with Alzheimer’s?

We’re going to need more skilled nursing and home health aides, because we won’t have enough institutions to support people. And not everyone wants to put a loved one in an institution. Even today, many home health workers aren’t specifically trained for dementia.

Unless we change the trajectory of what’s happening today or delay or stop the disease, Medicare and our society will have to think about creating more support systems as these patients age. We’re talking about assisted living and transition living, and more training of professional caregivers. There are 13 million caregivers right now, and we’re going to have to quadruple that. And two-thirds of these caregivers are women that have to slow down their careers or stop work altogether [to provide help to family members].

Respite care [which is non-medical care for a patient to allow the caregiver rest and time away from the responsibilities of looking after the person with dementia] is not covered by Medicare. It is paid for by Medicaid. But that’s only available when families [have spent down nearly all their assets] and don’t have resources to pay.

What does current research show that might help slow Alzheimer’s?

There won’t be a silver bullet, but a combination of therapeutics. What research is showing will be a mix of pharmacological, anti-inflammatory and psychological drugs, layered on with exercise.

We used to think it was just Diabetes Type 1 that led to Alzheimer’s but we’re seeing that it’s also Diabetes Type 2. The longer you live with diabetes, the greater risk you have. There’s a an 80 percent increase [in the likelihood of getting] dementia, so we need to figure out what it is about Type 1 and 2 that makes them more vulnerable to cognitive decline.

Other risk factors include a sedentary lifestyle, watching a lot of TV, which tells us what we do early in life does impact us late in life and increases our risk. So there must be public messaging. We owe it to the public to let them know.

What is the experience of caring for someone with Alzheimer’s like?

My father-in-law has vascular dementia, and my mother-in-law has Alzheimer’s – both need 24-hour care. My father-in-law has had a slow decline over five years – he’ll be stable for a year and then his health will drop, usually spurred by a physical event like a stroke. He is mainly disoriented, but remembers who we are and how to do daily tasks.

My mother-in-law has had a continuous and quick decline in a few years:  she doesn’t recognize family, she’s forgotten how to get into a car – standing, turning and sitting down, so she crawls.

You can’t leave a loved one like this with a caregiver all the time, so my husband, sibling and I take turns being there, and we pay for the care out-of-pocket, which not everyone can do. My mother-in-law has forgotten how to walk, and she needs to be carried everywhere. She doesn’t recognize us or her grandchildren, and she has to be cared for like an infant, it’s a low quality of life. At first our family tried to remind her of things, and it just caused anxiety in her and the family. You just kind of have to go with the flow, and stay even with emotions. I think it’s hard for me to see my children not having a grandmother that can care for them, and they’re instead caring for her. It makes me more committed to this cause.

I didn’t come into this work having this experience with my family. But now when I see this, it reinforces my passion to find an answer. It turns you into a champion for those that don’t have a voice.