 Welcome to Free Thoughts, a podcast project of the Cato Institute's Libertarianism.org. Free Thoughts is a show about libertarianism and the ideas that influence it. I'm Aaron Powell, a research fellow here at Cato and editor of Libertarianism.org. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Healthcare is a frequent topic of policy debate, and for good reason. It's an enormous cost for one, and access to healthcare and the quality of that care can dramatically impact how well our lives go. So what role should the government play in the provision of healthcare, and what about free markets? Joining us to discuss this is our colleague Michael Cannon, director of health policy studies at the Cato Institute. We argue a lot about how much of a role the government should have in healthcare, how much of a role the market should have in healthcare. But is healthcare really the kind of thing we should even have those sorts of conversations about? Isn't it just so kind of central and important that we should just give people as much healthcare as they need, and not get involved in these fights about money and prices and political control? I'm not sure how you mean give people as much healthcare as they need, and then who are we? And so, I mean that's, and the premise of your question is that there is a we who should be giving people, who maybe should be giving people healthcare, and who is that we. Is it individuals acting voluntarily, market exchanges, charity, that sort of thing, or is it the political system, people acting collectively, coercively through government? And that's the whole debate. And there's, so I don't know, certainly I have a preference. I would prefer that it all be done voluntarily, but there are a lot of people who, a lot of people who disagree. Now, an interesting thing about the past couple of years is there's been a shift, and I think it's because of the debate over Obamacare. It's partly partisanship, but I think it's at least partly motivated by people learning about Obamacare and what government involvement in healthcare means. And that shift is that for 13 years or so now, Gallup has been asking people, should the government guarantee access to healthcare for everybody? And for a long time, the numbers were what you might expect them to be. It's like 60, 50, high 50, 60% saying yes, and maybe low, much lower, maybe even some cases, half of that saying no. But in the past three years, really since 2009, when Obamacare was introduced in Congress, those numbers have flipped. And at this point, and completely flipped. So you've got a strong majority now, somewhere in the 50s, high 50s saying no, the government should not guarantee access to healthcare for everyone, and a minority saying that they should. And that shift has happened among Republicans and among Democrats. I don't think it's entirely partisan, or I should say there's been a decline in support for that government guarantee among Democrats. So it's not entirely partisan. And of course, some of the people who say no, the government shouldn't guarantee access to healthcare for everyone are people who are on Medicare and like the guarantee that they're getting, but don't want other people to get it. But that has been an interesting shift. So the idea that it's a commodity, I mean, that's what I think Aaron's question was about, that it feels like the rules of economics shouldn't apply and don't really apply to healthcare in the sense that you don't shop around and the ambulance, you don't call people up. So isn't that where government should come in and make it not a commodity, but something where we figure out how much people are needed because the market can't do that? Well, another difficult concept in there, in addition to the we, is the concept of need. But putting that aside for a moment, what you're really asking is, isn't healthcare special? Isn't healthcare different from everything else? Isn't healthcare an area where markets don't work and we need the government to step in and do things? And I think that healthcare is special in some ways, but not in ways that make government better at doing healthcare than it is doing other things. Healthcare is special in one, here's one way in which healthcare is special. The threat, people are motivated by fear in a lot of cases, particularly in the political process. And the fear that people confront when it comes to healthcare is that I won't get the healthcare that I need when I need it, or my child won't. And that is, that's a more palpable fear, I think, than fears about other public policy issues, like global warming. That's a threat, but it's years off. It's years and years in the future. It might not happen to you. I can learn to swim between now and then. But you can get hit by a bus tomorrow or your child could. And so you'll notice that a lot of the debate over healthcare is people shouting at each other because they're afraid that someone's going to take, your policies are going to take away my healthcare. And that's what both sides are saying to one another. And so I think healthcare is special in that it really raises the temperature, that those fears raise the temperature of this issue. And related to that, healthcare is also special because I think it puts down people's critical thinking skills in a way that no other issue does. For example, you know, when you get hit by a bus and you're put in an ambulance and sent to a hospital, you're not in a position to... I mean, sometimes you might be able to, you know, pick the hospital. That does happen in ambulances. But oftentimes you're not in a position to do that. You're certainly not in a position to negotiate with the doctor or the hospital about the price. Yeah, they can hold you hostage, right? They can be like, hey, all right, you have a little bit more money here, right? Exactly. But when people throw out that example, they only think about this as a one iteration game. One time. They don't realize that if a hospital did that, if hospitals routinely ripped people off like that by taking advantage of them when they were in distress, never mind all the negative media and publicity that that hospital would suffer. But if you have a marketplace where there are low barriers to entry, where the government's not creating any barriers to entry, and you've got a hospital that's charging well above marginal costs in order to help sick people, that's a huge profit opportunity for someone to open another hospital across the street that doesn't do that. And so markets would, absent any government intervention that blocks competition or enables collusion between hospitals or that sort of thing, markets would prevent that sort of thing from happening. Not always, not 100% of the time, but it would be a rarity. So, and that's just an example, I think, of how healthcare is special that it does shut down people's critical thinking skills. So you mentioned the concept of need, though. I would like to go back to that when you said, and I said how much healthcare need, because I think what we're asking is the way most people feel about the idea of free market healthcare. And they say it shouldn't be a commodity. And they say there's some quantum of healthcare that people need. And we can figure that out and give them to them. And some people are taking too much and other people are not getting enough and we just got to distribute those packets of need. What's wrong with that? There's something yucky about someone getting the amount of healthcare that you're able to get if you're sick or hurt is somehow dependent on how much you can afford. That if you just don't have any money, then you're out of luck. As opposed to how much you need it. Right. And it's that issue is different in healthcare than it is in how nice of a car I can get or whether I can afford an ATV. And economists have a term for these sorts of goods. They call them merit goods because they're goods that where people have this preference that your access to that good should not be dependent on ability to pay. Now, as for the concept of need, the problem is that there is no objective way of, number one, there's no objective way of defining what people need. Do you need mammograms at age 50, from ages 50 to 70, or do you need or should we maybe be getting annual mammograms starting at age 40? There's actually, the data on this are unclear. But more importantly, what you're talking about there are probabilistic risks and benefits. And the right answer to the question of do you need a mammogram and annual mammogram between ages 40 and 50 depends on your preferences for risk. So there's really no – and those vary from person to person. There's no objective way of defining what people need. And so – and then the second problem is even if there were – why do we think the government would be a good mechanism for determining that? If you look at the Medicare program, which is held up by supporters of government-run healthcare as this wonderfully efficient safety net program – it's not really a safety net program, but a tight-knit program with guarantee of access to care for senior citizens and the disabled, Medicare does a pretty horrible job of meeting that definition of what people need or any reasonable definition of what people would need. Sure, it'll cover everything that you could possibly need, but Medicare also covers much, much more than people need. The best available evidence suggests that the one-third, one out of every $3 that Medicare spends, does absolutely nothing to make patients either healthier or happier. That's lots of extra tests, lots of extra procedures, lots of hospitalizations that don't extend life, that don't improve the quality of life, that don't make people any happier with the healthcare they're receiving. And so that's an incredible amount of money. We're talking over $100 billion a year that could be used for things that would make people happier, things that might even improve health more, things like better nutrition, education, and better housing and so forth. But it's being wasted really so – it's being wasted on healthcare that isn't making people any healthier. So I don't think that – so the second part of the answer is the government is a really bad tool for determining what it is that people need. Even if there was some objective determination or way of answering that question, I don't think government or the political process would be – is a good mechanism for arriving at that answer. But how would we decide it? Because it seems to me that if – you know, if we're talking about probabilities and whether a given treatment helps people, we're talking about aggregate numbers, right? And so even if that has a low probability of helping, it still is going to help likely someone, someone to be better off with it than without. And for something like healthcare where we're talking about people's health and potentially lives, doesn't it just make sense to always err on the side of if it might help we do it? Well, no, actually. And the reason is that – or one of the reasons is that healthcare is not only potentially beneficial. It's also potentially harmful. So if you put too many seniors or too many people with hypertension on blood pressure medication to reduce their blood pressure, there are certain people who are very high risk of cardiovascular events who will benefit from that and it's pretty clear that they'll benefit from that and the risks are very small. But if you go from people with very high blood pressure to moderately high blood pressure and say, okay, we're going to put them on the same medications, lower their blood pressure, the benefits are smaller and the risks are greater, and the more you prescribe stuff that might help to people with lower and lower blood pressure, the more you increase the risks of those adverse events, like lowering their blood pressure to the point where an 80-year-old, a 70-year-old or an 80-year-old passes out and falls and breaks a hip, in this case, there will be a lot of patients for whom that blood pressure medication was on that harmful rather than helpful. The question becomes, okay, where do we make these trade-offs? How do you make these trade-offs between the risk of cardiovascular event and the risk of passing out, falling and breaking a hip or injuring yourself in some other way or any other risks that might come along with these medications? And similar things happen with mammograms too, I think, too, right? There are a lot of false positives with mammograms. You get women are subjected to biopsies, and it's not just mammograms, it's all sorts of screenings, subjected to biopsies and the potential for infection and a lot of fear that's associated with a false positive. The question becomes, how do you make these trade-offs? Who decides at what point the benefits of blood pressure medication or a mammogram or any other sort of screening or preventive treatment or other forms of treatment? Who decides at what point the benefits outweigh the risks? And that's a question that can only be answered on an individual basis because people's individual risk preferences vary. And we are erring, in the United States at least, we are erring way on the side of over-diagnosis and over-treatment, and that's because the government has gotten involved in healthcare in this country in a way that just encourages more and more care. The Medicare program creates an unlimited entitlement to whatever care you and your doctor agree that he or she will deliver to you. In the market for people under age 65, well, in the Medicaid market for people at the lower end of the income scale, basically the same thing happens for people who are not on Medicare or Medicaid who have health insurance through the employer-based system the government created, you have much of the same incentive government is encouraging more and more consumption. I can imagine people listening to this and being a little bit skeptical about what you just said because we – outside of Medicare and Medicaid there's this sense that we've had a market in healthcare. You go to a private provider of insurance and you buy it and the hospitals aren't run by the government and your doctors aren't government employees and they charge you prices and you could go somewhere else but there's this sense that our healthcare system hasn't worked out that way. And so is that – So the problems you listed are market problems. Let me ask you, Aaron. I'll ask you, Aaron and Trevor. Assuming you're on the Cato Institute's health insurance plan, what's your premium? No idea. If this were a market, I mean if you would know that, wouldn't you? Well, okay, so that's one indication that maybe it's not a market. If you were choosing your own health plan, would you guys pick a health plan that would disappear the moment you got sick or injured and could no longer work? No. So consumer choice, as expressed in a market, probably wouldn't lead us to where we are right now in the United States where 90% of people with so-called private health insurance, you know, nominally private health insurance, don't get to choose their plan. They don't know the premium and their plan is this bizarre type of health insurance that doesn't actually provide long-term protection against the financial cost of illness. The reason for that, now there are, or I should say there were people, a few million, maybe 16 million people, 10% of those with private health insurance in the United States who did have that. That was what we called the individual market, people either without access to job-based coverage or who preferred the individual market because it had the following feature, bought health insurance there and they got coverage that protected them against the risk of their premiums going up or the risk that they would lose back up. It was health insurance that was not tied to a job so it didn't disappear when you got sick and couldn't work anymore and that as a result provided protection against the risk that you would suffer some sort of health episode that would cause your risk to go up and then make you medically uninsurable. When Obamacare started throwing people out of their health plans, there were people, cancer patients with stage 4 cancer who are complaining about being thrown out of these plans in the individual market, plans that the Obama administration had been bad-mouthing and saying are horrible. If they were horrible plans, why are cancer patients complaining about losing them? All of which is to say that what we call a private health insurance market in the United States is so heavily dominated by government but that's hidden from people's view by the fact that it's not actually the government providing it. I like to say that in the United States the greatest trick that advocates of socialized medicine have ever played was to convince the American people that we don't already have it. It does seem, I've made this comment before, it seems really weird that most of us are a huge percent of us get healthcare through our jobs. It's one of these things that seems normal and then you're thinking about it as like, well, no, why would that ever happen? Why would your healthcare ever be tied to your job in the way it is here? And I don't think it is that way in most other countries. Well, in Germany and some other countries it is, but we haven't touched on why it is. Yeah, why did that happen? So the reason is because you get a huge tax, there's a huge tax preference in the federal tax code for employer-sponsored insurance that is not available, that makes that more financially attractive, at least in the short term, compared to buying insurance directly from an insurance company through the individual market. So what you're saying is that if you take your wages you have to pay with taxed wages, right? Well, note that I did not say a tax break and I'll mention why. That tax preference works like this. If your employer gives you a dollar of health insurance, you get a dollar's worth of health insurance because it's not taxed. It's not subject to the payroll tax. It's not subject to the income tax even though it's compensation. It's not taxed. You get to keep it all. One dollar's worth. If it gives you a dollar's worth of cash wages, a dollar's worth of salary, well, then it's subject to the income tax and the payroll tax. You could face a marginal tax rate, say 40%. And so when he gives you that dollar, you actually only get 60 cents of it. And, you know, if you wanted to go, if you wanted to take that dollar of compensation as cash and go out and buy coverage in the individual market, it would cost you a lot more to buy coverage there because you don't get that tax... Because that dollar was taxed whereas the insurance that the employer provides you directly is not. So you can see how this tilts the playing field toward employer-sponsored insurance. Now... Why did that happen? Well, some people call that... Before I answer that, some people call that a tax break. I don't think it is because what ends up happening is that tax preference applies to the part of your premium that the employer pays. And the employer pays that part of your premium how? By taking it out of wages? No, they take it out of your wages. So the average person with an employer-sponsored family plan... That person's employer takes $10,000 out of their wages to put toward their health plan. So if you're making $50,000 a year and you've got an average family plan from an employer, you're actually earning... Your compensation is 60,000 or more. The employer is taking that $10,000 that he would give you in cash if not for this tax preference and using it to choose your health insurance plan for you. So it's not a tax break. It's more like a tax hike because someone else is getting to control $10,000 of your earnings and they're getting to choose your health plan that's a little more like socialized medicine than people in this country would like to admit. Now, why does that... How did that happen? Well, it's a funny thing when the government gets involved in one area of... When the government starts doing one thing it creates problems and the government has to get involved in another area and this is sort of an example of that. In World War II, labor was scarce because so many men were off fighting and employers had a hard time attracting workers for that reason. They also had a hard time attracting workers because the government slapped wage and price controls on the economy and with wage controls holding wages down, they couldn't increase wages in order to attract workers. But they got the government to agree, the IRS, to agree that the compensation provided to workers in the form of health benefits would not be subject to those wage and price controls. And so, I'm sorry, it wasn't the IRS but they got the government to agree to that. And so employers started offering health benefits. Which was just a way of raising compensation with that being in your income. It's a way of trying to get to that equilibrium level of compensation getting around the wage controls. Then what happened is the IRS got involved and the employers got the IRS to say, no, that doesn't count as taxable compensation under the income or payroll taxes. That's where things started getting really messy because once that tax preference was written into regulation, employers started using it, a constituency built up around it and then when the IRS tried to take that away in the 50s, Congress came back and said, employers lobbied to say, no, we want that tax preference. Congress came back and codified it. And so it was sort of this historical accident and now it's almost impossible to get rid of because, well, for reasons that I could get into, but it creates this system where even though most people think the United States has this free market health insurance system, someone else gets to control a huge chunk of your earnings and pick your health plan for you. You've said that government involvement in healthcare so both this messing with the private market and also in Medicare and Medicaid is deeply inefficient and just doesn't work very well. But a lot of people end up saying that, look, if you look at other countries that have straight up socialized medicines, single payer, they spend less per capita on healthcare than Americans do and they get better results than we do. So is that one, is that true? And if it is, why? This is another area where I think healthcare is special and shuts down people's critical thinking skills because think about the comparison that they're making there. They're saying other countries spend less and they still cover other people and they still cover everybody. So everybody has a guarantee of access to healthcare, which is not the same as having access to healthcare, but they have a guarantee. So they spend less, there's the guarantee and look on these health indicators. They live longer. Some countries appear, people appear to live longer. There's so many problems with looking at those facts and making this leap that those countries' systems are better than ours. Now, I'm not saying that they're not, but they're making huge logical leaps there. One of them is, let's look at the health outcomes. Usually when people say other countries do better on health outcomes, they're looking at things like infant mortality, life expectancy, things that are influenced by lots of stuff other than the performance of the healthcare sector. And when you look at different populations receiving different amounts of healthcare, it's really amazing how little of a difference it makes in mortality and life expectancy. Then let's look at the guarantee of the fact that people are spending less or that other countries are spending less on healthcare. That's not necessarily a good thing. Those countries could be spending less than is optimal on healthcare, or they could be spending it in inefficient ways. I don't, as for, let me put it this way, it's very difficult for people to know which country's healthcare sector is actually doing the most to promote health. There's actually a paucity of data on really reliable studies on looking at this country and trying to control for all relevant factors. The two countries try to control for all relevant factors and figuring out, okay, which healthcare system, healthcare sector, does the best job of promoting health. Before the whole Obamacare debate, I was close to publishing this paper by an adjunct of ours and a doctor that really tried to do a survey of the literature and find out, okay, which studies are actually reliable and compare the performance of different countries' healthcare sectors. What we'd agreed on for the title of that study was better, worse, both, neither. Because the United States did better in some areas than other countries, worse in some areas than other countries, none of them stood out in terms of health outputs. The only one that really stood out on one measure was the United States, and that was on medical innovation. This is an interesting part of this. Because our government subsidizes healthcare so heavily it does allow people to profit off of those subsidies, although question about whether that's profit or plunder, we see much more medical innovation in this country than other countries do. In fact, by some measures, we outperform all other countries in developing new medical devices, diagnostic techniques, new treatments, and so forth. And what's interesting about that is we spend more money on research in developing these things. We pay in this country the higher prices that help to bring those products to market, create the incentive to bring those products to market. But then once they're developed, those technologies are disseminated all over the world. So to the extent that they are improving lives and saving lives, all the costs of developing them count against the United States in that we spend so much more than the other world part of the comparison. While the benefits are being distributed all around the world and bringing up health outcomes in those other countries. So this is a very complicated issue. I think that it's entirely plausible that other countries provide, putting the medical innovations aside, that other countries' healthcare systems produce as much health as the United States does with less money. But it's not clear that that's because the government is involved there. The government is certainly very heavily involved here. And I think that one interesting theory is that one of the reasons that they might do as well on health outcomes when spending less money on healthcare is precisely because they spend less money on healthcare. And spend that money instead on other things that promote healthcare, that deliver more health than the marginal dollar on healthcare. Things like, as I mentioned before, education, housing, nutrition, that sort of thing. Before we move on to how you think we could fix healthcare or at least improve it quite a lot in this country, let's talk about the biggest recent attempt to fix it, Obamacare. Does any of that work? What did it try to do to address some of these problems and how has it succeeded or failed? Well, first, I'll start off by saying something nice about Obamacare. It tried to cut half a trillion dollars from Medicare over the next ten years. I think that's wonderful. I think the government should be doing that. In fact, I'd like to repeal the entire law, but if I were king for a day, I wouldn't actually repeal the entire law. I'd repeal just the new spending. I'd keep all those cuts in place. But the way that Obamacare tries to extend a government guarantee of access to care to everyone is really nothing—it's not really novel. It's not even the way that most people think Obamacare tries to do that. Most people think, oh, it's trying to do that through an individual mandate, forcing people to buy health insurance. And it's not—it's part of it, but the central piece of Obamacare is what people call guaranteed issue and community rating. Rules that tell insurance companies you have to sell to all comers and you can't charge sick people of a given age more than healthy people of the same age. What that really is is a government price control scheme. In a competitive market, people who ask the insurance companies to assume more risk, people who are older, people who have health conditions, higher risk of needing medical care, they would be charged higher premiums to reflect that higher risk if they're asking the insurance companies to assume. What Obamacare tries to do is say no. You have to charge the same premium for everyone regardless of risk so that people with very high risk will be able to get insurance at much lower prices. People at very low risk—who are very low risk have to pay more. And we've seen estimates and actually concrete examples of people who've seen their premiums— healthy people, young people who've seen their premiums double as a result of this price control scheme. It's because—now, that price control scheme does not, I would argue, does—it is not going to— there might be some people who benefit, but overall it's not going to expand access to healthcare. I think it's going to make that even more problematic for people and the losers will outnumber the winners. But that is actually the central part of Obamacare by which it tries to expand health coverage to almost everyone. It's really just a government price control scheme. And we've got thousands of years of experience with this that show that price controls don't make things better. They make things worse. And you can see how they make things worse in the rest of Obamacare because everything else that flows from that is just an attempt to fix the problems caused by those price controls. One of them I already mentioned. One of them is premiums go up for young and healthy people. Also the individual mandate. They have to get health insurance. Well, that's the thing. That's the thing. So when the price controls increase their premiums and tell insurance companies at the same time, you have to sell to all comers regardless of how sick they are. What are the incentives that those young and healthy people face? Well, my premium is just doubled and I don't have to buy insurance until I'm sick. Forget it. I'm not buying health insurance. That's why they included the individual mandate to force young and healthy people to pay those over— to buy that overpriced health insurance in order to subsidize people who are generally older than they are and have more money. But for low-income people, just forcing them to buy insurance that they can't afford is a non-starter. So then you get the next part of Obamacare, which are these enormous subsidies that it offers to help low and moderate-income households buy this very expensive health insurance. So just as we've seen problems flow from the wage and price controls that the government enacted during World War II and how that sort of messed up our health care sector, we're seeing the same thing happen here. Obamacare puts price controls in place and because of the problems that it causes, other government has to do this other thing which is force people to buy health insurance and because that causes problems, other government has to do this other thing which is subsidize people to buy health insurance. We've seen one of the problems from those subsidies in just the past couple of days. The Congressional Budget Office increased its estimate of the reduction in labor supply as a result of Obamacare from 800,000 people would stop working to 2.5 million people would stop working. The reason for that is those subsidies tell the equivalent of 2.5 million people, hey, you don't have to work anymore. We're going to pay for your health insurance for you and those subsidies disappear as their income rises. They have less of an incentive to climb the economic ladder. They just don't work. They just don't work. Not all of them don't work, but it's the equivalent of 2.5 million people not working and it just goes on from there. Those are the things that Obamacare has to do to fix the problems that the price controls create among healthy people. They also create problems for the sick including the stage 4 cancer patient who didn't want to give up her individual market coverage. Now she's in a plan where the insurance company can only charge her the same premium as everyone else. Let's say it's $10,000, which is well below her actual area of risk. The insurance company does not have the reserves built up that it did in the individual market to cover because she's probably only paying $10,000 before. The insurance company had reserves built up that covered the difference between the premium she was paying and her actual area of risk. They don't have that anymore. Let's say she's a million-dollar patient. I know a couple of them. Let's say her health care costs a million dollars a year and the insurance company can only charge her $10,000 a year in a market where people can switch between plans every year that creates a $900,000 incentive for the insurance company to skimp on care to her, to deny her care, to provide her lousy customer service, takes forever to pay claims, not have in-network the doctors that she needs so that she'll get so frustrated she'll go to another insurance company. The first insurance company will get that $900,000 liability off their books in the second one, and that'll end up on the books of one of their competitors. And in this way, Obamacare creates a race to the bottom among insurance companies to see who can avoid providing the best coverage to the most expensive, the most vulnerable patients. And so you see in Obamacare, they were aware of this. They knew this. What happened? You see in Obamacare all sorts of regulations dictating how insurance companies have to market their plan so they're not just marketing to the healthy, they have to market to the sick, they can't avoid the sick that way. They have rules about network adequacy. You have to have this many endocrinologists and they can't be too far away from the population that you're serving and you have to have so many hospitals in your network. We've heard a lot, actually, of losing access to their doctors when Obamacare took effect. That's partly because the insurance companies are saying if we limit coverage or we limit the doctors in our network, a lot of sick people will go away, and now the regulators are pushing back. It's because of these incentives that Obamacare creates for a race to the bottom among insurance companies. It then has to put in place all these regulations where government officials have to try to monitor the insurance companies to make sure they're not responding to the incentives that Obamacare itself created. You can say, oh, well, there will be oversight, but keep in mind this is oversight by the same people who brought us healthcare.gov. In this case, you're not going to be able to get onto the website for a little while. You might not be able to get healthcare for months or years. It seems like the issue, it's also working within a framework that you describe with you're not buying insurance company and you're not buying your insurance or you're not a customer there. This is before Obamacare and still is. You have no idea how much stuff costs. If you went to your doctor and said, hey, how much is a knee replacement? I think they might laugh in your face because the answer to that is very strange. So the prices seem to be really distorted or even non-existent and then Obamacare comes into a system that had no prices in it really and then calcifies all that same system of insurers and third-party payers and still people aren't the customers and that's what always struck me. Patients aren't the customers and if you've ever increasingly the story of American healthcare is going to the hospital with your dad and having to be there all the time because they keep trying to give him the wrong medicine or take him to get something amputated that wasn't supposed to be amputated. You have to watch them all the time. Why are patients so forgotten in this entire situation? You're talking about two different manifestations of the same problem. The problem is the patients aren't the ones controlling the money. Any economic system, communism, socialism, fascism, capitalism, any economic system you talk about is going to serve the people who control the money and the reason that in the U.S. healthcare sector we don't have, or I should say, drop the Wii. Consumers don't have access to prices. Prices are not transparent to consumers. The reason that your father's experience in the hospital is not, it does not cater to him and to keeping him safe and making sure that he's getting all the right stuff. I mean, certainly they try to do that but to some extent. But I get better stories of my vet. Right, but if you need to be there, you, who's an attorney and not a healthcare provider who's not an expert on medical care, there's a problem here. The system is not serving the consumers' needs and the reason for that is the consumer is not the one controlling the money. Price transparency is actually not a problem in the U.S. healthcare sector for people who are controlling the money. The government knows what the prices it's paying to Medicare and Medicaid providers in health insurance companies are. The government sets those prices. Private insurance companies know the prices that they are paying to doctors. They negotiate those via contract. They know how much they're paying. The reason that consumers don't get, people don't post prices for consumers is that consumers aren't the ones buying the care. I think the number is 15% or 15 cents out of every healthcare, a dollar spent on healthcare in the United States comes from the consumer and goes to the provider. The rest is all channeled through Medicare and Medicaid private insurance. So that means that even though people who are paying, who have high deductible health insurance, who are paying for their healthcare out of pocket could really use those prices, there's not much of an incentive for providers to post those prices because that's such a small share of the market. Particularly since, consider what would happen if they do post prices, that might make it difficult for them to negotiate these prices with insurance companies and provide them the smallest discounts possible. Charge them the highest prices. If they went ahead and posted what they're charging to some people, that might make it harder for them in negotiations with insurance companies or what have you to get the highest prices possible. So if you want consumers to have access to transparent prices, give them the money and those prices will emerge and we've seen that happen in places like retail clinics or as what they call consumer directed plans like health savings accounts with high deductible health plans have grown, we've seen more of this phenomenon when it comes to routine care. We've also seen that when insurance companies reveal to their enrollees in these plans, in these consumer directed plans, the price of the insurance is negotiated by insurance providers. And if you want the hospitals to provide a safer, more consumer centered experience for their patients, well you also want the patient to control the money rather than government or their employer controlling the money because what will happen then is, you and I both know there's a man named David Goldhill who's a television CEO who lost his father in hospital-born infection. Well, to a hospital-born infection, there's just a series of misadventures and then after Goldhill maintains that after the hospital killed his father, they sent the bill to Medicare and Medicare paid it. If that happened to you, I mean if they sent the bill to you or if they sent a bill for a 20% copay to you or a bill for a $2,000 deductible to you, there's no way you would have paid that. But they can only get rid of this outrageous behavior, get away with this outrageous behavior because it's not the consumer controlling the money. In this case, was a faceless, uncaring bureaucracy that routinely pays for harmful medical care. How then would this system of more markets in healthcare, so getting markets more involved and government less involved work on a large scale and particularly interested in how it would work for two groups of people. One is the poor who might have problems affording insurance in a totally private market and then also people with very expensive pre-existing conditions who may not be low income but if the prices aren't set at this community rating level that you discussed but instead can be adjusted based on the risk of the person might simply be priced out of adequate insurance. I think it's important to start with the understanding that there's no such thing as a perfect healthcare system. Because this is a human endeavor, there will always be people falling through the cracks and that's true under a free market. It is true under the U.S. healthcare system both before Obamacare and after Obamacare. It's true under every other advanced or developing nations' healthcare system. And so since perfection is not an option, what we have to be aiming for is not just the healthcare system that lets the fewest number of people fall through the cracks it catches the most of them but that also fills in those cracks over time so that we're doing better and better and preventing more and more people from falling through the cracks. My only claim, my claim is not that a market system would keep everyone from falling through the cracks. Not at all. There would be people falling through the cracks and they would likely be people with low incomes and people who, as you say, have a pre-existing condition or more precisely put, either didn't have the means to purchase health insurance before they became ill or who had the means and were irresponsible and didn't. Those two types of people, low income people and irresponsible people will exist and they are the folks who are most likely to fall through the cracks in a free market so I think we have to acknowledge that. My only claim is that in a market system you'll have far fewer people falling through the cracks than you have in any other system. And so how would that work? Well, what makes anything more accessible, broadens access to any consumer good or service is really two things, rising incomes and falling prices. Government provision of healthcare depresses incomes because all the taxes, and we're talking about in a two trillion dollar healthcare sector where the government is paying for half of it, you're talking about half a trillion dollars worth of taxes. We borrow a lot of that. But you're talking about a huge tax burden that inhibits economic growth and keeps incomes down. The CBO just mentioned that the fact that Obamacare is encouraging people not to work is probably the biggest, the CBO director testified before Congress that's the biggest factor in slowing economic growth in this country. So right off the bat, you've got something making it inhibiting income growth and which is one of the dynamics that would make healthcare more affordable or enable more people to buy it in a market system. But the really exciting stuff is on the other side, is the falling prices. There's evidence in healthcare that there are productivity increases, prices do fall. The big way this happens is when technology enables general practitioners to do something that only specialists could do before or that enables nurse practitioners and other mid-level clinicians to do things that only physicians could do before. Physician, GPs cost less than specialists. Nurse practitioners cost less than GPs. And that's the mechanism that really works in all sectors of the economy that makes stuff more affordable to people who... so that people can afford it today who couldn't afford it yesterday. And you can see some of this happening as in something I mentioned earlier, which is retail clinics. These are generally nurse practitioner staff clinics that are cropping up in CVS and Walmart and they provide basic medical care with posted prices at a much lower cost than physicians do. And that's sort of exactly why physicians have tried to use government licensing laws to restrict the services that nurse practitioners can provide through those clinics because they fear that they have an argument about quality that is meritless, but they fear that when you go to a retail clinic that's a trip you're not making to the physician's office. So that's one way that the government inhibits affordability in healthcare because it keeps prices high. But really the biggest factor in keeping prices high in healthcare, the biggest thing that's making healthcare inaccessible to the poor in the United States, is the fact that everyone is spending someone else's money. If instead of your employer spending that $10,000 on your behalf, to purchase health insurance on your behalf, if you were controlling that money you would probably buy less health insurance, you would have a higher deductible, more cost-sharing, and you would be, as a result, more cost-conscious at the moment at the point of service. And you would scrutinize the quality of the services you're receiving more, you would scrutinize the prices more, you would compare prices more, and that's sort of cost-conscious behavior and really more quality-conscious behavior. But that sort of cost-conscious behavior is what would force providers to reduce their prices and bring stuff within the reach of the poor, stuff that they couldn't afford earlier. Well, yeah, the world where cat scans cost $2 is, I mean, if we could get them to cost $2, then anyone could get a cat scan and it wouldn't break the barrier. And we'd all have cancer, that's exactly. But your point is taken, yes. If you want to make healthcare affordable for the poor, you want to drive down those prices. You want to be ruthless about driving down those prices. You want to eliminate government barriers to competition, and obviously you want 300 million Americans to start acting like cost-conscious consumers. Like, they care about prices. That is the number one difference, I think, between the healthcare sector that we had pre-imposed Obamacare and what a market system would look like. So it seems that even this would help with some of the pre-existing conditions element, because part of the problem is those pre-existing conditions are so expensive to treat. And if we could drive down some of the costs, then one thing is that people with pre-existing conditions wouldn't be as unattractive to insurance companies. So that would be one assistance. But how else would this help? Well, they still would. Well, we'll get to the question of attracting health insurance companies in a moment. But you're right. Falling prices just help everything else. They help solve every problem that you've got. People with pre-existing conditions are not attractive or they're not unattractive to insurance companies unless there's some limitation on what the insurance companies can charge them. So if insurers can charge an actually fair premium, then they have no reason not to make an offer of health insurance to someone with a pre-existing condition or if they can exclude coverage of that condition and just cover everything else. In which case, if you've got falling prices, that person still benefits. But that way that people could fall through the cracks if they didn't have the money to buy insurance or they weren't responsible enough to buy insurance before they needed it and then they have a pre-existing condition and they can't buy it. That's going to happen. Falling prices will help those people. It will not only help those people afford the care they need themselves. It will also make it easier for the rest of us to provide them charitable care because the prices are lower. So it will be a wealthier nation and will have more money to help those who can't help themselves. So the pre-existing condition problem will still exist but it will be much smaller than it is right now. And the reason is that more people will have that kind of coverage that people are buying in the individual market that doesn't disappear when they get sick and can't work anymore. In fact, there was a study done a couple of years ago that looked at people with high-cost medical conditions who had employer-sponsored insurance and had individual market insurance and then it looked at them a year later to see who still had coverage and who was uninsured. And you were more likely to be uninsured if you had employer-sponsored coverage versus coverage in the individual market. Some people still ended up uninsured in later years if they had individual market coverage but it was smaller. That means you're filling in those cracks. So if instead of this bizarre system in the United States there's a tax preference for employer-sponsored insurance so the employer takes $10,000 of your earnings buys you a crappy health plan that disappears when you can't work anymore. If instead of that, you got those $10,000 you got to pick your health plan. It doesn't disappear when you get sick and can't work. You'd have the pre-existing condition problem would be much smaller. What the employer-based system does is it pours gasoline on that problem. There's a problem of pre-existing conditions. That's what's fueling our pre-existing condition problem. There was a book written maybe 2007 to 2009 by Jonathan Cohn of the New Republic. It's called Sick. He had story after story of Americans who are without health insurance. They were without health insurance most of them because they had employer-sponsored insurance and then they lost it. Either they lost it because of health issues or the factory closed. Then they had a high-cost condition and they couldn't afford the premiums that a new insurance company would charge them because they didn't have a plan that protected them against their premiums going up like that. Michael Moore, if you ever saw his movie, Sicko, looked at, I think there were five, he took five 9-11 first responders down to Cuba for free health care. I talked to at least a few people and I talked to at least a couple of them. I forget how many were at the, he invited me to the screening. It was almost, I was a nearly important person for a day. And some of those first responders were there and I talked to them and it turned out they all had employer-sponsored health insurance but then lost it. And so here he was taking these victims of government involvement in health care down to Cuba for government as well. But that's another example of how government involvement in health care in the United States has fueled this problem of pre-existing conditions and I argue that problem would be much smaller if people were controlling their own money and making more rational decisions than the government makes it would be hard not to about what type of health insurance to buy. They would have much more secure health insurance so you'd have fewer pre-existing conditions. So we have a, a tax break that we mentioned previously that prefers getting it through your job because a lot of the uninsured, right, but what we talked about before on Obamacare were people who were between jobs or so, that employer-sponsored thing, as I said, it's really bizarre and the government prefers it so that was one thing we could do to get rid of that tax break. What other sort of simple fixes could we do to return some sanity to this? What about that seems simple to you? It's actually a really difficult, a really thorny problem. Yes, we need to get rid of that tax. Well, we need to get rid of the income tax and the payroll tax, but assuming those taxes are going to still be with us, we do need to get rid of this tax preference from employer-sponsored insurance but it's a really thorny issue because there are people like those factory workers in Jonathan Cohn's book and like the 9-11 first responders who have an expensive medical condition and have reasonable as long as they're employed or connected to an employer plan they have insurance. They have reasonably secure access to healthcare. If you eliminate the tax preference from employer-sponsored insurance then that might disappear. The healthy people in any employer pool might say, you know what, I'll take that $10,000 and I'll go buy insurance on the market. If enough of them do that the employer pool unravels and the premiums go up, you know, and then you only see people there, the employer drops the plan and then these older sicker people have to go buy coverage on the individual market and they're charging extra early fare premium and it's just going to be very expensive for them and some of them won't be able to afford it. So it's a really difficult problem if you think about it. You look back at the 2008 presidential campaign when Barack Obama and John McCain were debating healthcare. This is how Barack Obama beat up on John McCain. All John McCain was trying to do was change the tax preference that the government offers people so that it was a universal tax credit that leveled the playing field between employer-sponsored insurance and the individual market and Barack Obama hammered away at he's going to tax your employer health benefits he's going to take away your employer health benefits and you're not going to be able to afford coverage. This is the exact problem you're talking about. A problem with one of the things that makes it so difficult is almost every proposal that advocates of of reforming this tax exclusion from employer-sponsored health insurance have put forward doesn't do anything to get the workers at $10,000 immediately. There's no mechanism. Right. In a competitive labor market, the employer would have to cash you out that amount of money. But that's only over the long term. In the short term, the employer might keep $5,000 of it. Because really they didn't want you around very much anyway and maybe they thought this would be a good way to get you to go work for another employer. There's no mechanism to get the workers at money. If you get workers at money very quickly, then those individual market premiums are less scary. So it's a very thorny issue. It's very complicated. How do you get from where we are right now to a more market-based system because there will be people who in the transition will lose coverage. They will lose the reasonably secure access to care, the health insurance that they have right now. Which is why I think it's a mistake of opponents of Obamacare to say you should always be able to keep your health plan. Actually, if we had a more freer and more rational health care system, a lot of people would lose their health plans because they're lousy health plans. I just think that's a promise that people shouldn't make. In closing then, because this has been a lot of this has been pretty grim. Are there any rays of hope in the current health care debate? I think so. One of them is that I think Obamacare is still vulnerable to repeal. I really do. I'm not saying it's probable, but it's still possible. If that happens, there will be really a vacuum of ideas into which I think the only alternative will be steps toward less government involvement. That's exciting to me because if you look... I get the question all the time, is there a nation out there that has used market principles in health care? Whether you have a free health care market? Is there a nation out there that you look at to see what that would look like? The answer is unfortunately no. Every advanced nation has some government guarantee of access to health care and that basically gives away the whole ball game. But I like to say that the United States health care sector is worth anything. It is for this reason. It shows us that in certain corners of our health care sector where market forces have been given room to breathe, you see some pretty wonderful innovations. A couple of them already. Prices for basic care becoming more transparent and falling because of consumer directed health care, because of cost conscious consumers and suppliers responding to that. I'm talking about retail clinics and similar innovations. You can also look at areas where consumers are not covered by health insurance, where they control the money and you see prices falling while quality improves. Things like plastic surgery, laser eye surgery, these things are generally not covered by health insurance and so prices have been falling in real terms. Dramatically. And that's because consumers are cost conscious. But I think the most exciting stuff are innovations like you see it health plans like Kaiser Permanente group health cooperative of Puget Sound. Health plans that are structured differently than most what we call fee for service insurance providers. You've got the insurance company and the providers are both part of the same corporate entity. They face different incentives than other insurance companies and other healthcare providers and so they perform a lot better on dimensions of quality where U.S. healthcare is really lacking. Things like coordinated care. Having someone there in the hospital with you who will talk to the doctors and make sure that all of them are on the same page and that your dad is getting what he needs and not getting what he doesn't need. Things like electronic medical records so that we're not getting a lot of duplication because your radiologist gave you the films and then you left them on the bus and now you have to do that again. The totally bizarre thing happened this bizarre contrast where planes hit the twin towers. They went down not a single financial record was lost but when Hurricane Katrina swept through New Orleans thousands or hundreds or millions of people's medical records were destroyed because they were all on paper and they're not backed up anywhere. That's another sort of benefit of electronic medical records that we're not seeing because of a lot of government involvement. These health plans have and other health information technologies the ability to email your doctor. Kaiser Permanente of Hawaii found that when they just let patients email their doctors office visits went down by 25% which is wonderful because that means there's all sorts of time that people don't have to spend now they're saving the time that they were spending in waiting rooms and getting quicker answers from their doctors. These and lots of other innovations I think I should mention because I get so excited about this all sorts of things that the government is trying to promote through Obamacare accountable care organizations. Electronic records. Comparative effectiveness research reducing medical errors and so forth these are all things the government is trying to plan centrally from Washington that markets have already taken care of. They've already offered Kaiser Permanente is one of these accountable care organizations that's been around since the 1940s so the market beat the government by 70 years on that one. The problem is that and they've emerged in places like California and Washington state because of idiosyncratic things that that prevented the government from blocking entry by these health plans that generally state governments have various to entry that state governments have put in most other put in place in most other states so if we change who's controlling the money and eliminate a lot of these barriers to entry and competition we're going to see I think dramatic improvements not just in the cost of care with falling prices but also in the quality of care that people receive. If you have any questions or comments about today's episode you can find me on Twitter at A-R-O-S-P that's A-R-O-S-S-P and you can find me on Twitter at TC Burris, T-C-B-U-R-R-U-S and this is Michael you can find me at M-F-Cannon that's M-F-S-N-F-R-N-C-A-N-N-O-N Free Thoughts is a project of Libertarianism.org in the Cato Institute and is produced by Evan Banks To learn more about Libertarianism visit us on the web at www.libertarianism.org