 This is Think Tech Hawaii, Community Matters here. Aloha, and welcome to Hawaii Together. I'm Kayleigh Akina, your host, and although I'm a trustee in the Office of Hawaiian Affairs and the President and CEO of the Grassroot Institute, the comments you hear from me today and from my guests are purely our own, and that gives us the license to say anything we want, because we're just representing what we hope will be common sense. I think one of the things that comes to us in common sense is that we as Americans pay far too much for health care. Surprisingly, we may not always realize that, because at the point of sale, sometimes we get things free, it seems, or at very low cost. But when we really add everything up and keep in mind that there's no such thing as a free lunch, together we are all paying far more than we really need to pay. And that's a conclusion that has been reached by many experts across the country, and one in particular happens to be a professor of law at the University of Texas at Austin. He's a distinguished professor, indeed. He holds a chair there at that wonderful university, and he has written quite a bit on health care costs across the nation. In fact, you may know his recent book, Overcharged, Why Americans Pay Too Much for Health Care. We're going to dive right in and pick up a conversation that I began with him recently at the Cato Institute Summit on Health Care held in Austin, Texas. My guest today is Professor Charles Silver. Charlie, welcome to the program. Welcome. I wish I could welcome you live to Hawaii right now. Well, with luck, you'll have an opportunity to do that. But thank you very much for having me on, Kaylee. That's right. What's your temperature in the evening up there in Austin? It's beautiful. We're around 60 degrees today. It's been a delightful day. Well, that is very warm there for this time of year. And here in Hawaii, I don't want to make you too jealous. It's about 85 on the beach right now. But that's right. It's a great place to relax and to heal and to get well. We have a very healthy state population for the most part compared to other places. But to keep us healthy, we pay quite a bit of money. And this is something that is your expertise, your forte, so to speak. How did you get started studying and commenting on the costs of health care across the country? I started many years ago. I have a very large set of studies, empirical studies, using a big data set of medical malpractice litigation. And I worked with several professors on that, including one of whom is a professor of law and medicine at Georgetown University now. And he and I branched out and started writing about health care policy more generally, including medical ethics as well as contemplation arrangements for health care providers. You know, one of the things that we have enjoyed as Americans is fairly good access for most of us to medicine and to medical care as we've needed it. And we've kind of gotten used to getting quite a bit without really keeping track of the costs or even keeping in mind who's paying it and so forth. Do you think this is the plan, how it should be? Or is it some kind of conspiracy? You might say that it's a plan. If it isn't a plan, it certainly seems like one. We've now reached a point where the health care system is consuming $10,000 per person. So a family of four on average is spending $40,000 a year on medical treatments, which is an astonishing amount of money when you think about it. That's like buying a very nice new car every year. Now, of course, that is not very evenly distributed across the country. There are a lot of people who spend very little on health care in any given year. But then there are other people who seem to do nothing but use health care, very expensive, very sick people. But we've gotten ourselves into a situation where the costs are literally unsustainable. We spend so much that every available increase in wages, it seems like, is consumed by the health care system. Instead of take home pay going up, we wind up shipping more and more dollars to health care providers. Now, you're talking about the cost, which makes you sound like an economist when it comes to health care. But there are other values that people often hold in our country when it comes to health care. One of them is the democratization, the availability, the access of health care for everyone. In fact, there's a gentleman who, unfortunately for him, didn't become president of the United States. But he has a plan for the United States now. And it's called Medicare for All. And I know you've taken a careful look at this. This is Bernie Sanders' plan. It sounds so good. Let me tell you why. Because if you believe in FDR's vision, if you believe in LBJ's great society and in Medicare and that it's doing great things for many people, what could be bad with expanding Medicare? Medicare expansion, that's the term that I think Sanders uses. And that just sounds like it's more good for more people. And yeah, I don't think you take that perspective necessarily, do you, Professor? Well, no, but we should be clear about something. I am a Democrat. I'm not a Republican bashing Bernie Sanders. I am really concerned about Medicare for All, though, because I think that Medicare has greatly inflated our costs. And I fear that if we were to follow Senator Sanders' recommendation, the cost of the system would become so outrageous that it would just absolutely collapse. That said, I think that access to health care is very important. And I believe that we will always have to have a safety net. But I also believe that the only way to bring health care spending under control and also, frankly, to improve the quality of the health care that we receive, because people need to understand that a good deal of the health care that they receive at present is both mediocre and even dangerous. The only way to restore sanity to the health care system is for people to start paying for more of their medical treatments in the same way they pay for everything else, which is to say directly, when people pay their mortgages, they don't use insurance to pay for it. They don't use Medicare to pay for it. They pay for it themselves. The same thing goes for cars and groceries and pretty much everything else you can think of. And markets serve us very well in most of those areas. We don't have an automobile cost crisis. We don't have a cost crisis in almost any other area that you can think of. And that's for a straightforward reason. When people pay for things themselves, they demand good value for the dollar. And when we start doing that in health care, we'll get costs under control. Well, you know what I hear you saying, Professor Silver, is that we treat medical costs in a fashion different than we treat virtually everything else that we consume. And as a result, we have a system that is very disconnected from the reality in terms of the economics. And it has consequently become very inefficient. And perhaps as you and I can discuss later on, it has become fraudulent. But in lieu of having Bernie Sanders here, who was not able to make it, I wanted to read something that you passed to me as a quote from him, because I want us to make sure that our facts are correct, that this is really what Sanders and many in the party are promoting in terms of Medicare expansion. Sanders says this, or his actual plan on his website says this, Bernie's plan will cover the entire continuum of health care from inpatient to outpatient care, preventative to emergency care, primary care to specialty care, including long-term and palliative care, vision hearing and oral health care, mental health, substance abuse, as well as prescription medicines, medical equipment, supplies, diagnostics. And I'm going to stop it there, but jump to another quote and then let you respond. Quote, as a patient, all you need to do is go to the doctor and show your insurance card. Bernie's plan means no more co-pays, no more deductibles, and no more fighting with insurance companies when they fail to pay for charges. And then in a big banner, he says that it will save trillions of dollars. Now, that really sounds good. It does. It sounds wonderful. I wish we could have spent any hope of being true. And shouldn't you, as a Democrat, be touting and blowing this horn? But anyway, what are your thoughts about this? Is this correct what I've read? Is this actually what the plan would result in? It's hard to know where to begin. There are other estimates of the cost of Senator Sanders' plan. But the first thing to understand is when everything is free, it's greatly over-consumed. In fact, PGA O'Rourke had a wonderful line. But if you think health care is expensive now, wait until it's free. And that's the fundamental problem, is that we have empirical studies of the impact of insurance on health care consumption. And they all show that the more insurance people have for health care costs, the more medical treatments they use. So Senator Sanders' plan is a recipe for increasing the amount of health care that people consume. That is already one of the biggest problems that we have. People over-consume health care. We rely far too much on medical treatments to affect our health. And far too little on other things that turn out to be much less expensive than also offer much greater than for the buck. So Senator Sanders' plan would encourage people to continue to over-use and even increase over-use instead of getting people to do other things that would be better for them and cheaper for them. Now we're not trying to pick on Senator Sanders here, but we are focusing on Medicare. And someone may wonder why focus on Medicare when talking about cost to Americans. But as you point out, Medicare is actually pivotal in terms of setting the price points that go well beyond the Medicare system. And that's why we really have to bring about reform there if we want to see better economics in the system. Medicare is hugely important for a variety of reasons. One reason is it's just gigantic. It's over $600 billion, so by itself it's an 800-pound gorilla. But another thing is that private insurers have historically followed Medicare's lead. In fact, there are studies that show that when Medicare increases the payment for a service by a dollar, private insurers increase their payments by $1.35. So Medicare, you might say, is the sort of price center for the entire market. And as long as Medicare keeps spending more and more money, what historically it has done, private insurers are going to spend more too. Getting really one of the deep problems of Senator Sanders' idea of giving the federal government control over the entire healthcare economy is that there is no precedent for the federal government ever saving money on healthcare. We have had Medicare and Medicaid since the mid-1960s. So we have a very long track record, you know, 50 years of Medicare and Medicaid spending to look at. And what that track record shows is that every time the government wades into this slump, it just spends more and more and more money. We, you know, it's really hard to imagine how much growth has occurred in healthcare spending, but, you know, we started out in the 1960s spending something like $27 billion a year. And we're now up to 3.4 trillion. The average growth rate has been, I think over 9% a year since the 1960s. And the vast majority of that is driven by a combination of things like third-party payment, which would be Medicare and Medicaid and private insurance and tax breaks that encourage people to spend money on medical treatments instead of on other things. In fact, if we go back to direct payment and treat healthcare like everything else, this cost crisis really will end very quickly. In fact, you've shown and charted that every government intervention in the healthcare system has resulted not only higher prices within Medicare, but has resulted within higher prices across the American healthcare system. And so in many ways, government intervention at the heart of this is really what drives the cost up. And now we've got a couple, just a minute before we go to a break, but what quickly would be some of those factors that are responsible for the government's role being one that pushes prices up? The government responds to interest group pressure. So there's a straightforward cycle. The government spends money to the healthcare providers. The healthcare providers then use some of that money to funnel it back to the government to in the form of payment to lobbyists and in the form of political contribution. And we're constantly exerting pressure on our senators and congresspersons who give more money to the healthcare sector. And of course, the government is happy to oblige. Every so often, the government does cut back on things, but even when it cuts back, it usually adds some kind of a spending increase to offset whatever reduction it's seeming to impose. So as far as, I mean, the big problem is there's no real story here for why we should think that giving the government control of the healthcare economy would lead to a cost reduction. Cost reductions benefit consumers who are very widely distributed and disorganized, whereas the producers of healthcare are very concentrated, powerful industries that are able to exert much more focus pressure on government and money. Very good. When we come back from a break, what I'd like to ask you about is the role of fraud, waste and abuse in driving up our costs in the Medicare system. And then we'll finish off on your prescription for the American healthcare system. How's that sound? Very good. My guest today is Professor Charles Silver of the University of Texas at Austin Law School. We're talking about why Americans pay too much for healthcare. We'll be right back on the Think Tech Hawaii broadcast network. Now go. Aloha. My name is Mark Shklav. I'm the host of Think Tech Hawaii's Law Across the Sea. Law Across the Sea comes on every other Monday at 11 a.m. Please join us. I like to bring in guests that talk about all types of things that come across the sea to Hawaii, not just law, love, people, ideas, history. Please join us for Law Across the Sea. Aloha. You can be the greatest, you can be the best. You can be the king, come prayin' on your chest. You can be the world, you can be the war. You could talk to God, go prayin' on his door. I'm back with Charles Silver, Professor of Law at University of Texas in Austin. He's a specialist and one of our national experts on the rising costs of medical care for the American people, why we pay too much. And as we've been talking, we've been looking at some of the reasons that Medicare, which really drives the price structure of healthcare costs for everyone in the country, is really getting out of control. One of those reasons in particular has to do with efficiency and beyond efficiency, the presence of fraud, waste, and abuse. Professor Silver, do we have a system that has a good deal of fraud and waste and abuse in Medicare? Absolutely, the unfortunate truth is that about one out of every three dollars that passing through the healthcare system is wasted. So total spending is about 3.4 trillion. So we are annually wasting more than one trillion dollars. A large fraction of that money, exactly how much we can't say, but hundreds of billions of dollars each year, goes into the pockets of criminals. These are people who send in phony bills to the government, which the government then pays and then the criminals take the money and do what they will with it. They're a little hope of never getting any of it back. Well, now in all fairness, we need to let the government speak for itself and defend itself. According to official reports, there is only a measly 10% fraud taking place. But what is your thought about that? Measly is in the eye of the holder. The Medicare budget is about 600 billion and the Medicaid budget is over 500 billion. So 10% of 1.1 trillion is a measly 110 billion dollars. That's a lot of money, even off a low end estimate. And the government gets almost none of that back. The federal government recovers about three to four billion dollars a year. So they're net out of pocket, which I should say is our net out of pocket, right? Because this is all taxed by our money. It is in excess of 100 billion dollars, even using the government's low end estimate. Experts in the field put the estimate much higher. They put the estimate at somewhere around one third of all of Medicare's budget. Boy, at one third, now you're talking several hundred billion dollars a year from Medicare and Medicaid combined. Again, a tiny fraction of which is ever recovered. You know, there are so many opportunities for fraud in the system because there are so many moving parts. We could spend episode after episode talking about that and that's one of the things you do talk about in your book, Overcharge, Why Americans Pay Too Much for Healthcare. But I wanna switch for a moment to some of the social and psychological issues that really allow this system of healthcare to be fraudulent and to be inefficient. And one of them has to do with the fact that with Medicare and Medicaid, we create a point of sale and that is the point at which the consumer actually receives the services or the goods, which has an unrealistic low price attached to it. And what does that tell you in terms of what human nature will do with that low price attached to healthcare resources? The low price at the point of sale really is low. So the average person who's hospitalized might pay as little as 3% of the hospital bill at the point where the services are delivered. So the cost, the total cost is just greatly in excess of what the individual bears. This creates a simple moral hazard problem where people are willing to use medical treatments, the value of which does not actually exceed the cost, but it does exceed the small fraction of it that the consumer pays at the point of sale. That's corrosive of our judgment. That causes us to think about healthcare in the wrong way. We don't ask of healthcare the same questions that we ask when we buy cars, when we buy food, when we buy anything else. Namely, is the total thing that we're receiving worth the total cost that it incurs? So it's corrosive of our judgment. It also creates an environment in which fraud can flourish because what happens is that providers of all types basically bribe patients. If you're only paying 3 cents on the dollar for healthcare and the provider is making a big profit off the rest of the dollar, the provider can say to you, look, I'll give you 5 cents. So that covers your 3 cents and gives you 2 cents more to take this medical treatment. And then the provider makes the remaining 95 cents, which is very profitable. This practice actually happens all the time. For example, the drug companies today give people coupons. If you have insurance, they'll give you a coupon that will cover your co-pay for the drug. So you don't pay anything out of pocket. They get to keep the 95 cents or whatever it is after the coupon is used and they make out like bandits. And they're far from the only ones who use this strategy. In the beginning, when Medicare first was proper, the medical establishment was opposed to it. Doctors and hospitals didn't wanna see anything of the kind, but today they are amongst the biggest fans of Medicare. And I think this speaks to what you're talking about. There being so many moving pieces, there are opportunities at every level, particularly at the provider level, to be able to take advantage of what we might call incentives within the system. Well, studies of this are very clear that right after Medicare and Medicaid came online in the 1960s, providers figured out that they could raise their prices without any consequences because the government was footing the bills. So in the years succeeding of Medicare's inception, hospitals raised their prices, something like 15% a year. And physicians raised their prices, something like 7% a year. So they got no pushback on the prices, so the price increase has just kept continuing. That was the beginning of what I would call the end. We are in this very straightforward insurance driven car spiral and it will continue until we stop using insurance to pay for health care the way we are now. Well, your diagnosis of the American health care system differs greatly from that of your fellow Democrat, Bernie Sanders, and consequently your prescription for what should be done is not to expand Medicare, but quite the opposite. Let me ask you what your solution is and why don't you give us the pie in the sky first? We don't always get what we propose, but if you were the ruler of the universe, if you were the Lord God Almighty Himself, who by theot could change the American health care system and anything else you wanted to change, what would you do? Well, as I said at the beginning, I recognized the need for a safety net. So I wouldn't simply end public support for health care costs. But the first thing I would do would be to convert Medicare and Medicaid into cash grant programs. So instead of giving the money to health care providers, instead of buying services for people, I would give people the money. I would give senior citizens the money, and I would give poor people the money, and I would let them buy the services or the insurance that they think suits their needs best. And so what would happen is immediately the elderly and poor people would be in the driver's seat. They would be the ones making the purchasing decisions. And instead of treating the government like their customers, hospitals, doctors, and all other health care providers would have to start treating the patients like their customers. They would have to demonstrate to the patients, hey, our services are worth what they cost. And that would exert great pressure on them to do two things. One is to disclose their prices. Today, people don't even know what health care costs. They often don't even ask about it because they don't care. They're only paying three cents on the dollar, so it doesn't matter. So the first thing that would happen is that providers would have to be transparent about their costs because patients spending their own money would demand this information. The second thing that providers would have to do would be to compete on cost. If I'm a doctor and I'm treating a patient for diabetes or some other long-term illness, I would have to tell the patient, here's what I'm charging and the patient will be free to stay, but wait a minute, this other doctor is only charging 75% of that. Why are you charging so much? And if I didn't meet their cost, that patient would be free to go to another doctor or another clinic for management. So if we put the patients in the driver's seat by giving them the money, we would restore competition to the health care sector almost immediately. And I think in very short order, there will be a revolution among the providers. Now that's the pie in the sky that you asked for. Do I think the government's gonna do that? No, because the providers will never stand for it. They don't want to be subject to this pressure to compete. They don't wanna be subject to pressure to reduce their prices. So they'll pull out every stop in order to block it. Well, Charlie, we'll have to have you out in Hawaii. Perhaps there you can give us some short-term, immediate solutions that we could use in order to push the government in the right direction. But until that day, I wanna wish you and Aloha, and thank you for being with us today. Thank you. It would be my pleasure to visit anytime. Very good. My guest today has been Professor Charles Silver of the University of Texas at Austin School of Law. And I hope you'll get his book called Overcharged, Why Americans Pay Too Much for Health Care. Until next time on Hawaii Together, I'm Kaylee Eakina on the Think Tech Hawaii Broadcast Network. Aloha.