 Professor Epstein is the James Parker Hall Distinguished Service Professor of Law and a Senior Lecturer at the University of Chicago Law School. He taught at Chicago for 38 years and now is holding the Lawrence Tisch Professor of Law designation at NYU and the Peter and Kirsten Bedford Senior Fellow at the Hoover Institute at Stanford. Professor Epstein has written or contributed to, I want you to hear this, at least 132 books and about 500 law journal articles. A study published by the Journal of Legal Studies identified Professor Epstein as the 12th most cited legal scholar of the 20th century. You should see what happened to the other 11. And another study identified Richard as the third most cited scholar in the past decade. Professor Epstein's books, as I say among many, include overdose, how excessive government regulation stifles pharmaceutical innovation and also mortal peril, our inalienable right to health care. Richard has edited the Journal of Legal Studies and the Journal of Law and Economics. He was elected a member of the American Academy of Arts and Sciences. He's been a faculty here at the McLean Center since 1981. In fact in 1981 he and I started this first lecture series which was entitled Medical Innovation in Bad Outcomes. And since then we've had 38 consecutive years of lecture series and this is the 38th year with value in the U.S. health care system. Today's talk by Professor Epstein is entitled, Richard you'll correct me. I'm just reading it. The perils of, yes, look at it, perils of mandating excessive minimum benefits under the Affordable Care Act. Professor Epstein. First of all what I want to assure you of is the immense level of preparation and detailed examination I made from this talk. I woke up this morning at, is it on? At eight o'clock and I was told that I had to be here at noon in order to give a talk. And I called Mark up in desperation. I said what did I agree to talk about? He told me the topic and I gave an enormous sigh of relief because I actually picked something that I know something about to talk about. And so it's very hard to hear by the way over that. I mean is this a little better? I could be a rock and roll crooner if you'd like. If you could turn that air conditioning down you might have an even chance. But anyhow it's now or never. And so what I'm supposed to do is to talk about this question and let me start about it in the most general form of what you do. That is the health care system essentially is one of many sets of institutions which makes the fundamental choice that we can figure out the package of goods and services that are going to be supplied in a given trade independent of the supply and demand factors that would otherwise govern these kinds of trades. And so if you see the word minimum there, you should understand that these sort of mandated minimums apply virtually everywhere throughout the particular legal system. Does this thing is terrible? Do you like to make it? Is this better? Okay. So now I can be a true rock and roll singer. So what happens is if you want to find the most general way in which to do this, what you simply do is to think of the minimum wage as a classic illustration of the way in which the government can decide that when it comes to the exchange of services for money that there's a minimum amount that must necessarily be paid. And the way in which the argument starts to work with respect to the minimum wage is essentially a very accurate foretelling of what happens when you try to do the same thing with respect to health care benefits. The first thing that you have to understand is that you have to know where the minimum is relative to where the market turns out to be with respect to any particular kind of good. So it turns out that you're an extremely clever person and you set the minimum wage level below the market level, then at least in the short run it's not going to influence exchanges because what happens is everybody can trade exactly the same way they did before. So if the minimum wage is $10 and the market wage is $13, it turns out that nobody is going to alter their kind of behavior. Does this mean that the statute is of no harm or no benefit? It is still of a harm, but it's of a contingent nature because if the labor market should collapse as it does in certain kinds of areas, it turns out that the $10 figure may come back into play. It is also the case that there are many sub-markers and even if 90% of the trades are $13 or over, there may well be one or two for which the market wage turns out to be seven or eight. And so what you will do is you'll have a selective effect of what's going on. But as that number starts to go higher and higher, all of a sudden what happens is it starts to get into the real conflict zone and you start to see two kinds of adaptations that always take place. So if it turns out that the minimum wage is now above the market wage, there are two things that you can do. Thing number one that you can do is to simply change the terms of the employment contract which are not associated with price so as to essentially make the package less attractive to workers than it previously would have been. And to give you one very simple kind of illustration about the way in which this particular situation works is that it turns out that normally an employer will let a worker work one eight-hour shift because of the convenience to them, but if the minimum wage intercedes, say, no, I need you in two four-hour shifts where the demand is higher, otherwise it turns out that I cannot satisfy what's going on. And so you start to see all sorts of variations in non-price terms in an effort. I know the system disagrees with me. In an effort to make sure that you can both survive as a market and do things and then in other cases where it turns out the disparity is sufficiently large, what happens is you simply start to shed jobs. So there was a recent editorial in the Wall Street Journal the other day talking about what happened to restaurant jobs in New York City as the minimum wage law starts to move up to $15 per hour and it turns out there's a very powerful response in that particular case indicating a job will offer somewhere between six and 10% of jobs in an industry like that because it turns out the short-term adaptations do not work. This is exactly the same thing that you have to worry about with respect to health care benefits. It is no great secret to you that I'm not a particular fan of the Obamacare legislation, but the impulse behind it was the same progressive impulse that was behind the minimum wage and the question was then how do we reconcile our intervention with the market with the ability to preserve some degree of discretion in the way in which these programs are going to work and the way in which the health care system starts to do that is through the metallic scandals that they have, they have gold, they have platinum and things of that sort but the key feature to understand is that the dispersion that you start to see with respect to these particular elements is relatively small. If you want to think about this in terms of the dispersion that you see with respect to cars, you can think of the Obamacare plans as raising on the top to a Rolls-Royce on the one hand down to a small Mercedes Benz on the other hand but they're large parts of the market which were never represented in that particular case. And so what happens is now when you start putting these minimum benefits into place the question is what kinds of adaptations are you going to start to see taking place in response to the particular statutory commands that were put on there. Well the first thing again you have to do is as with the minimum wage is to ask yourself exactly what are the mandates that are put in these particular programs and here is an initial point I would like to sort of make a simple division between two kinds of benefits one of the sorts of benefits that you see nowhere on the face of the globe in any voluntary private health care plan anywhere and then there are those which you see in various quantities in some health care plans but not another. As a rule of thumb if you know that you're most sophisticated most talented, most learned individuals if you know that these people are often represented by skilled brokers in the particular field who know what's going on and everybody decides that a particular benefit is not worthy of a conclusion in this particular case and then the conclusion that you should reach modestly is if nobody wants it in a voluntary market we should not require everybody to have it in a compulsory market and that the dislocations are going to simply be too great and so to give what one example of how that works there is something under the Obamacare legislation known as habilitative care which essentially means care for healthy people which is designed to keep them in a healthy fashion and these things are generally not regarded as insurable risk in any voluntary market because you don't have any sure question or search criteria to tell you whether or not a particular expenditure is or is not in response to a compensable event and the whole theory about an insurance is you pick out those particular things that are sufficiently draconian and sufficiently harmful they represent a sufficiently large change in lifestyle and that people want to smooth out their consumption over that particular variable how do you do that? if it turns out your income is savage because you cannot work for a month or a year you can get various kinds of waste supplements so as to keep your consumption patterns smoother even as your income patterns turn out to be less smooth if you try to apply that logic to something like habilitative care it doesn't work because those expenditures are generally pretty smooth over the entire life cycle anyhow so all you're doing is you're getting somebody else to pay for something but what you're not doing is trying to deal with radical changes in the level of healthcare stability that you're otherwise going to get and generally speaking if it turns out that there's zero uncertainty with respect to a given class of payments and you decide that you're going to quote on quote write insurance for them it's not insurance at all it's simply a prepayment system in which what you do is you pay $100 today and then few years from now you'll get $107 worth of benefits and the issue is why would you want to run this particular kind of benefit through the other sort of system and there is none what was absolutely characteristic and typical of the way in which the debates over the Obamacast system were played out in 2010 is that nobody was prepared to ask this fundamental question whether or not if you understood the characteristics of voluntary insurance markets are you going to put your interventions in in those cases where it's thought that the level of coverage that you were going to give was the most important and this essentially is a sure sign that there's something deeply wrong with what is going on so that turns out to be the first problem with respect to these benefits the second problem that you have is I think every bit is important and let me see if I could explain it to you in a reasonably coherent way what happens is insurance plans insurance plans when they are used in a private market have the following function they are designed to take individuals and to allow them to even out their risk over on certain states of the world on the grounds that you would rather have on a consumption function 10, 10, 10 and 10 instead of 0, 20, 0, 20 of course you could starve in two of the four periods and you have a surplus in the other period this is a perfectly sensible thing that you want to do social insurance is a very different attitude from market insurance because it is not only concerned with the smoothing out of risk for individuals it is also concerned with the question of whether or not we are going to have transfer payments from one group of plan participants to another group of plan participants that is whether or not you are going to create cross subsidies as a matter of general economics if you try to get a plan to work through voluntary contributions it will always fail if it turns out that you are building cross subsidies into the particular program at the front end so if you imagine you have 10 people each of whom can contribute $10 to a particular plan of health but they have different health situations so it is known that of those 10 people 5 will only recover $5 and the other 5 people will recover $15 ignoring administrative expenses the safe group will essentially be giving up 50% of its wealth to the other group why would you ever want to enter into a plan where the benefits that you get are going to be 5 if the cost that you get are 10 so in a voluntary market what would happen is if that premium structure were offered those individuals who are at the low end would simply exit from the program they would then join another program with homogenous risk takers all of whom it will turn out essentially pay 5 to get 5 at this point the other group who is sitting there paying 10 getting 15 can no longer survive because what they have to do is now find a way to bring out $75 worth of benefits that's 15 times 5 out of $50 worth of contributions 5 times 10 and the $25 loss is not sustainable so what happens is when the first group starts to move out of the particular program then the second group turns out not to be self-sufficient so what markets do essentially is they require that you make sure that for each and every voluntary participant the set of inco-hate benefits that you get none of the administrative expenses are worth more to you than the fixed payments that you pay in over the life of the program and if you do not satisfy that condition then the whole thing is going to blow up the Obama pair people sort of knew that this kind of thing would happen and the question then is what were they prepared to do about it there are two strategies that you could take for this one of course they did not take and the other they did take with semi-disasterous results the strategy that you could take is you say look we want high-risk people with pre-existing conditions to get something at $10 even though it's going to cost 15 we can't expect random individuals in a given health group to pay those costs what we will do is we will go into the public treasury and we will give a supplement of $5 per person $25 in total so that when you take their own private contribution of $10 and the subsidy of $5 and put it together you are now permissible to cover the cost the question is how is this going to be greeted in order to make this work what you have to do is to provide incentive for the public to say we wish to generally put in tax of this particular amount funding it out of general revenues to help this particular group so at this point the subsidized group of individuals who have exited the plan it would be the population at large one of the central theorems of political economy turns out to be there is generally speaking more resistance in the political arena to explicit wealth transfer cases of this particular sort then there is to a system which essentially doesn't require the government to pay but imposes regulations that secures the enforcement of the transfer payment from the group that you wish to make the payment in question so when the issue came up in connection with Obamacare the decision was made not to put any public subsidies at least of explicit nature in the program at the front end although when the losses became sufficiently large there were other kinds of subsidies that were put in but only through indirection they were never put in by way of general tax basis and then you had to figure out how to keep everybody in the program well the device that they hit upon designed by clever people at MIT as an oxymoron but the MIT guys do not agree with me was to say that what we have to do is to charge you an exit fee if you want to get out of the program and so if you want to see the way this thing starts to work is if you look at somebody who's at the $5 level and you tell them ah you want to get out of this program what we're going to tell you is it's going to cost you $5 to leave so now your mask will stay in the plan at 10 as opposed to getting out of the plan at 10 and if you calibrate the numbers correctly essentially what happens is you will keep plan integrity by having an explicit cross subsidy the problem of course is that individual mandates like that become extremely unpopular in a whole variety of ways and the obvious point that somebody says why the world are you making me purchase health insurance are you doing it for my benefit or for anybody else's and if you start listening to the rhetoric at that particular time it was absolutely two faces the eminent authorities author what's the name of the former pen guy went to NYU I suppress his name well he's a famous ethicist but they say there are two things that are what you remember Odd Kaplan Arch non-economist of the highest order and what you do is you then give two inconsistent rationales one of them is you give a paternalist rationale you young people do not realize how risky it is for you to do this you think you're only getting $5 worth of benefits but we know that you're getting a lot more so that when we force you to do this stuff there's no form of redistribution whatsoever it's simply satisfying your real preferences rather than your dubious preferences the problem is the kids got it right and it turns out that the professor got it wrong they were correct on the valuations in question and the other argument that you made is that well there's a sacred duty of redistribution it is the public duty of young people as part of the overall social contract to make sure that they put in more because 20, 50, 30 years later whatever it is they will get more in return by being able to milk everybody else in the generation behind them these kinds of concy schemes always start to blow up and it's sure out this one did and so in the debates over the individual mandate the original requirement was to put a number on this thing which was sufficiently large so that the exit option would be staunched this became politically unsalable so what they did is they put in a number that was too little in the supreme court case the NFIB case that justice Roberts wrote of holding this particular individual mandate he said it solved the problem but like most chief justices he is not an actuary and he did not understand that the numbers that were there were not sufficient to keep the thing going in addition it turned out on one Friday afternoon around 2013 or so these things were mysteriously waived so that you kept the rest of the program in place and you didn't keep the mandate in place and now there is a completely perverse loss of being brought by saying since the mandate was the root of the whole program and you repealed it Obamacare is unconstitution I don't want to go into that thing but suffice it to say one of the real risks that you take when you have very fancy economics is it leads to very distorted changes along the way which is something that you have to deal with in all these particular cases so you have this particular problem and then the question is how else does this particular problem manifest itself and what are the kinds of political responses to it that you're going to try and see in the web and I'm going to talk here a little bit about something which probably most of you don't know about but it was one of my many ill-fated consultant operations trying to figure out how it is that you could avoid the benefits program associated with Obamacare in a case that involved Idaho care the effort of the government in the state of Iowa on behalf of Brukros, Idaho in order to try to create a system which would allow the system to stabilize itself given the fact that the level of cross subsidies that it had in it turned out to be relatively unsustainable precisely because you ask everybody to pay more than what they wanted to and in order to put this in perspective there are two elements that you have to take into account in the way in which you look at these plans one of them is a community rating program and the other turns out to be pre-existing conditions if you look this morning for example in the Wall Street Journal with Jason Riley he echoes the common wisdom that I do not share is that everybody loves to have insurance with respect to pre-existing conditions politically it is immensely popular but it turns out it's extremely hard to try to fund in many many ways and so what is it that's at stake well if you start looking at community rating and since I spend enough time in Dr. Siggler's office in other capacities what I can start to tell you with complete confidence is I see it doctor more when I'm 75 than I did when I was 25 and if you actually were to do this generalizable across all individuals the rough rule of thumb is that when you start to deal with people who are in the just pre-medicaid age say 55 to 65 is against those people who are much younger the actual risk differential is something like 5 to 1 in terms of the appropriate cost associated with the coverage and if you think that's a big number you are right if you think that the number is a fake number you are wrong you just look at anybody's medical charts and all the cumulative illustrations become greater as to the diseases I'm a great clinician as you tell general health opportunistic infections and other things become more serious to treat than they would be if they were alone condition and in the end by the time most people are 80 or 90 or whatever it is the odds are stacked against them and they perish this is just on a border so it's a 5 to 1 ratio the healthcare folks said no we don't want it to be a 5 to 1 ratio we would like it to be a 3 to 1 ratio and what happens is if you start looking at the way in which the numbers come out on this there's an enormous difference so what happens is under the 3 to 1 ratio the old folks put in $75 and the young guys put in $25 and then if you try to figure out what the benefits coming out from this particular program are they are going to be 5 to 1 it's going to be an $80 number on the one side and it's going to be a $20 number coming out on the other side and so then what you start to do is rather that's 5 to 1 sorry it's going to be 3% and 16 and 2 3rd percent what you then do is you just look at the position from the point of view of somebody at 25 they're putting in basically a 25% they're taking out 16% you can do the division but essentially 50% of the premium that they pay under this community rating system is essentially medical care for somebody else that is not a sustainable ratio in the long run and so when you start looking at the system which is a kind of a bellwether republican state their blue cross plans discovered that they had systematic exit from younger people they had to boost up the premiums that they charged the older people the premiums now gave you exactly the same problem you double the premiums and people who are willing to stay and at half may now be willing to leave so you drive more and more people out of the system you get more and more unhealthy people remaining in the system and eventually the whole thing starts to blow up so what these guys wanted to do was to get some relaxation of this in order to be able to work the second problem that you have is one that starts to deal with pre-existing conditions and the Obamacare people when they put this into place were perfectly confident that the issue of moral hazard was one which a transcendent kind of public personality would never allow to take over and what do I mean by that is they said that nobody would try to gain the particular system and their advantage with pre-existing conditions because everybody understands that healthcare resources are sourced why should they get their disproportionate fashion and how does the thing then start to work well the way in which it starts to work quite simply is this I'm feeling a little bit down I've got some kind of condition and I know that I'm going to need a surgery one form or another you name what the surgery is it really doesn't matter what role in the plan I then pay my standard premium and then after the post-operative care is over I withdraw from the plan so what happens is I am putting in a standard premium of let's say $1000 and I'm getting out $5000 worth of services well the question is how powerful is this force and one of the many things that was underestimated by the planners was they assumed that these would only be individual actors making these kinds of choices so that the information would not be readily available and so therefore this would be a containable problem when I spoke to Ralph Muller a name reasonably well down here Ralph said that's just not the way the thing works Richard I said well what's going on here he says well you have to remember for every disease there's a disease entity of one kind or another an interest group a lobby group and so if it turns out you're running the diabetic association what you do is you instruct all of your potential members on how it is that you could start the game the system so you're not talking about the fuse and erratic information of given individuals you're talking about what trade associations family blocks and other kinds of people can put together and so actually the rate of opportunism in this system does not decline with time if anything it starts to grow with time and you therefore have a system in which it turns out the program is unsustainable well now what happens is you start looking at the situation with respect to the medical benefits under Obama camp and you understand that the cardinal principle of this particular system is there's no freedom of contract in the way in which you can do it essentially what you have to do is to buy into the plan in the way in which it's put or you have to forever hold your peace and that situation was leading systematically to the loss of several hundred thousand people from the Blue Cross programs many of whom were not eligible for Medicaid because they had their own income so you had this population which lost every which way the Blues are not a for profit organization what they do is they reinvest their dividends but you know when you say you're not a profit organization you can't be a sustainable loss organization because you go bankrupt so what they did is they went to the state and they got the governor and the insurance commission to try to let them offer an alternative plan that they thought would be able to meet the problems that they faced and the first part of this particular plan was to relax the community rating stuff they didn't perhaps go back to five to one but even if you move it back to four to one and so forth you're gonna reduce the flow out pretty powerfully and then what you try to do is to put a series of conditions on the way in which when you look at these kinds of things what happens is you can't enter and exit a plan with quite the rapidity that you could under the Obama situation where joining and not joining individual option with no further complication and what happens is you then start to run into the proverbial buzzsaw in dealing with these kinds of things the first thing that comes up is you get a large number of very prominent insurance commissioners from very large and powerful democratic states and then you get a bunch of congressmen and senators also from democratic states and what they do is they denounce this scheme on the grounds that what it is is an effort to dismantle and to circumvent the basic situation that you have under Obamacare and that they would never tolerate it in their particular states because every American is entitled to the full suite of benefits that you're gonna get when it turns out there are no perils to mandating very high minimums with respect to the operations of these system and so all of a sudden what happens is you're sitting there in Idaho and your governor doesn't quite join the crowd but now you have to go to the center of Medicare and Medicaid in order to get a waiver and this starts to put things in a very kind of complicated position first off it turns out that two kinds of waivers that you can start to get one of those which are officially designated through the program with a lot of hoops and ladders that you have to run through and essentially those particular statutory waivers could not be obtained but the whole problem with respect to Obamacare had given rise to another class of waivers of an informal nature because in time after time people found in individual settings that various markets would collapse unless they receive some kind of waivers from the system so in about 2011 I wrote a little article called Government by Waiver and the basic thesis of the argument when something as follows what happens is what you do is you pose an excessive set of requirements on somebody it turns out that the industry cannot live with it then what the administrator does is unilaterally say I'm gonna waive some of these requirements for some of you particular people and I dare anybody to challenge me in court and how does this tend to play out generally speaking it plays out fairly well if there are no political forces to the contract first of all the people who receive the waivers are not gonna go to court say you illicitly gave me a waiver which allowed me to stay into business they're just gonna take the money and run or take the benefit and run as long as they can and then the second part of the situation is those people who wish to attack the waiver will be told when they go to court you have no standing you have no interest in this particular case it's a benefit that starts to send to somebody else so you're not in a position to stop it so if in fact you can get the waiver through the kind of agency you'll get enough deference in the court that you'll probably make it work the question then comes at who gets the waiver how much how long and so forth and these are not perfectly obvious they're just gonna give you a perpetual waiver because that looks to be too inconsistent with the statute how many years how many conditions who gets it and so when you started to talk for example about these many medical plans that didn't meet the requirements associated with the Obamacast standards they were too light and these were done for workers who turned over to very high rates so they're high risks of insurance and so forth people who are day workers at McDonald's and so on what you could say about those plans they would be covered at very powerful and attractive rates and it may not protect you from everything but certain kinds of major health risks would in fact be covered and by and large the people would be better off at the inferior healthcare plan than they would be with no healthcare plan at all all these companies say we're gonna take advantage of the opt-out option under Obamacast and offer no healthcare plan at all you're looking at a democratic government or party workers who are gonna be shut out so they give it some to the corporate guys but they give more of them to the union guys you can figure out what the logic of that is so one of the consequences that you start to get in a situation in which there is an extremely inefficient kind of mandate is that they get waived they get waived selectively they get waived erratically you never know from one end of the day how long it's going to last and it removes the waiver so what you do is you create a situation which is marginally better but there's so much regulatory uncertainty that people are going to be unwilling to invest in the long run with respect to the kinds of coverages that you start to have so it was these informal kinds of waivers and that the folks from Idaho wanted to put forward and then what they had to do is to go forward to the center for CMS I guess it's the center for Medicare and they have this lady who's in charge of it and she's a free market type so called and sure enough free market type said I can't do this at least until I got the approval from other people in HHS so what happens is I was hired to write the position paper to explain why it was not a happy that either you allow waivers of this particular sort of the whole plan will start to clamp if you wanted to have a comprehensive system of reform obviously any waivers that you would give would be essentially subservient to that reform but in the middle what you have to do is to worry about a genuine human health crisis of larger proportions and exactly what happened in that case happens in every case whenever I'm hired to do something for anybody on anything so at the same time I was also working on a complicated foreign tax transaction and what happens is people are perfectly willing to let you an academic write the position papers and negotiate with the folks at the IRS or CMS or any other organization the industry people start to take over and you are promptly deposed and fired now what happens is it's generally speaking in my view a very risky thing I think you'd want to have the academic at the table because you have a set of arguments that they don't always have and at least you give them some kind of cover an important cover by saying here's an independent person who's willing to put his reputation on the line and if you don't have it so what happens is the whole thing starts to get stalled out and eventually it starts to die because the waiver system cannot be done well then what's the next step and I'm not going to go too much longer because I would like to take question is you get the following sort of ambiguity alright you've now failed on that you still have the fundamental structural weaknesses associated with Obamacare I mentioned pre-existing conditions I mentioned the community rating there are lots of other things having to do with the transfer payments between various plans coverage programs that are too rich what are you going to do about this well you then try your luck and you hire your random republican congressman and this is an exercise in futility of the highest order because there are two ways in which you can start to do this one of them is you can say let's start all over again and get ourselves a plan that's a little bit pro-market oriented that is an approach which I'm in favor of that's something that David Hyman and I wrote to widespread neglect and no acclaim said that the way in which you handle the health care problem is you start looking at all the impediments that were put in the place of health care over the last 30 years and then start to remove them and the voluntary market will full up again is this fantasy no if you go back 30 years ago and you looked at an employer based plans they generally covered 60% of the labor market then they go down to 50% on 150 million people that turns out to be a loss of 15 million people in coverage that turns out to be about 37% of the 40 million people who are going without health care plan so a lot of this kind of stuff turns out to be healthy care people who can't get it because of the way in which the state health care plans keeping more and more things into the system and what happens with each additional element that is added you could be perfectly confident that it's a negative value to the company because if it were a positive value it would have done so voluntarily and what you then do is run a comparison between the net surplus that customers get and then it gets shipped away by each of these things until you come to a point where there's no market anymore because the collective burdens from the excess burden of these requirements takes away all the gain that the two sides thought that they would be able to get from the exchange market so the market basically starts to collapse and you're out these people and that was I think the correct way to go but that didn't happen so the second best solution is what you have to do in my judgment is to look at every single weak point associated with the plan and see what kind of fix that you can make at a modest level in order to do it and very high on your list would be the sorts of things that the folks at Idaho try to do with respect to their Blue Cross plans more generally but if all you have is the argument we're going to repeal and replace and we'll tell you what we're going to replace this is after we repeal the statute that's a recipe for political disaster and in fact the Republicans have lost quite heavily in this thing there's now a majority of the people in this country who are in favor of Obamacare plan and a minority against it largely because they think that being for the plan protects you from mad Republicans being against the plan invites a total deracination of a system and it's much harder to remove a system once it's in place than it is to prevent it from being put into place in the first time and the Republicans simply do not register this particular situation so to sum up what can we say are the particular perils of excessive minimum benefits well they start off inside the market and what typically has is the benefits become too rich the size of the contribution and the voluntary market start to go down and this was true with private healthcare plans under the mandates prior to Obamacare and then continue so under the Obamacare type situation so it's fair to say that the enrollment projections that were put out in the year 2010 there's always been a consistent shortfall since that time because these plans are simply not attractive enough to take into the system those people who are March and then there's going to be heretic political efforts to get around it you repeal the mandate not a very bad idea perhaps but it certainly makes things if anything a little bit more precarious then what you do is you get medical waivers of one kind or another then you get wholesale efforts going into CMS to try to do this then you get constitutional attacks on the system and so what happens is you have to understand that once you start messing around with the system and you get it completely wrong it's extremely difficult the cabin in the consequences to simply narrow financial consequences it also turns out to have larger political consequences and ironically in the current debate given the position that the republicans state the common man today starts to think the problem with Obamacare is we have not gone far enough and what we have to do is to go much further and if you start looking what's going to happen you now see programs widely disastrous I think and you could talk about them the question period if you want about Medicare for all which essentially is a program in which you want to say everybody gets essentially speaking in Medicare gets a subsidy of about 75% of their expenses paid by somebody else either general revenues or other people within the program and if you have Medicare for all it cannot be that you can subsidize everybody it's going to have a huge tax increase huge consequences and so forth so the short-term consequences are bad and the long-term consequences could easily turn out to be disastrous anyhow end of sob story thank you thank you for your remarks so what do the low-risk individual who chooses not to buy insurance has a catastrophic medical event and goes to the emergency room and ends up getting $100,000 worth of services and pays nothing because that person has no net assets to do the right question and this is the mtala question which was asked 30 years ago mtala you remember is the emergency medical care and child and active labor act and the University of Chicago for example is one of the hospitals on the net receiving end and large numbers of people with catastrophic accidents and really complicated pregnancies and we were required to take care of them it turned out we wanted to shut down our emergency room if you recall and there were these very painful discussions when Ralph Muller and Arthur Rubenstein was still here and I said we can't run this what we will do is you run an emergency room at some hospital I think it was Providence which is a little bit further west but we will not take the financial risk associated with this situation so we've already quote-unquote answered that question once you answer that question you then have of course the exact moral problem that you're talking about before it's precisely because people know that the catastrophic losses are covered whether or not they take out Obamacare it's yet another reason not to take out any short-term insurance policy because you get the rest of it so then you try to figure out well what's the next thing that you can do and you can ask you made your own bed you made a bed of nails you lied a bed of nails and you die young man at which point after the first death the entire system goes into complete pandemonium and you're not there so this becomes the argument for doing it through the compulsory system and understand the power and the danger of the argument is you're going to say that you have to subsidize the catastrophic loss and that means you have to put the entire system on some kind of help because you have to be able to get that revenue from somewhere else either through general revenues or something else and what happens typically is the great crisis here is nobody ever tries to put a financial price tag on any of the particular programs in question so you can have an informed subsidy of what is going on so what will happen is exactly what has happened the number of emergency rooms in the country has gone down to facilities the numbers that are run by government has started to go up because the private sector doesn't supply it and then in effect it becomes a direct tax on revenue on revenues right on public revenues and maybe that's quote-unquote the best situation I imposed all of these other statutes there's a nice piece done by David Hyman on a narrative trying to say that the number of cases that were actually turned away under extremists before the adoption of this act looking back over a very real time was a grand total of one case and even that case was misunderstood and misinterpreted what happens is the voluntary hospitals in my judgment they understand the catastrophic risk they understand the PR relationships so what they do is they do less but they do much let me give you an illustration of what the ambiguity is you have some people they get various benefits they take themselves they get good and drunk and then they want to dry out and then they get the next set of benefits good and drunk and they come a second time if you have a government program you have to take them in one, two, three, four and five you have a private program you just tell them we'll do it this time but don't come back another time and after a while you get a registry and they will die or they will reform and the question is do you prefer the tough love situation not to the acquiescent situation I tend to be more in the former camp but I think I would rather have hospital administrators decide whom to take in and whom to leave out than to have it as an ironclad command by the public government but essentially this problem is going to remain no matter what you do because even if you put these people into a required plan and it was at one of these levels and you needed more when you got to the emergency room you're still going to get it so Obamacare will not solve that problem tough love and better management there's a shot at it but there's going to be no easy ends David you look very unhappy and you should be I'm just going to ask a couple questions so there are two basic narratives of US health policy one is that we have a whole series of market failures and needs or desires for redistribution and we need government to go in and address these problems and the other is that we have a whole bunch of regulations that prevent the market from going beautifully to solve these problems part of the latter story the one you've emphasized is that a whole series of regulations have come into existence that we shouldn't have had I suspect you would be of the school that special interests have played a role in those special interests? it's a straight public choice game yes so one of my questions is given that we do have a political system of some type where we don't have a dictator but a bunch of bodies that make decisions how would you imagine restructuring either the political system or health policy in such a way as to minimize the accumulation of legislation that is driven by special interests? now this is a small question which accomplishes the entire world let me tell you in 1985 I wrote a book called Takings which I said essentially if you look at the way in which the power nor shall private property be taken for public use without just compensation work it applied to takings by way of regulation to takings by way of taxation and then what you did is you had yourself a fairly strong constitutional prohibition against random redistributions and the open question from rich to poor you can understand what they're doing but from rich farmers or from poor farmers from poor laymen to rich farmers try to get rid of all that particular stuff and so essentially what you try to do is rely on the courts to put some kind of moxie behind it now you say well this is impossible well it was not impossible for a very long period of time essentially the current constitutional regime comes in one huge lump in 1937 when the Supreme Court essentially capitulates to the New Deal and we've been on that deferential task ever before before that time we had almost none of these kinds of redistribution programs except you had a county war to which anybody could come in the event that they were sick and then you start to look at what the consequences have been of the two system and let me just ask you most of you do not know what the life expectancy figures start to look like but the period of greatest improvement in human health took place in the tough love period between 1870 roughly in 1940 life expectancy goes up from around 43 to around 60 something or rather income goes up in a dramatic fashion much of the gain is with childhood industries but some of it is with long age if you go in the recent period the most extensive expenditures are by and large on the last years of life and I'm not the only one who has made the judgment I do it in the most rigorous empirical matter possible put my thumb to the sky and conclude that this doesn't work but people like Amy Finkelstein right they win the John Bates Cock Prize because they actually do it quantitatively and the net increase that we've had in life expectancy I think from all the medical interventions conditional upon reaching age 65 in the last essentially 70 years has been four years the total increase was at one point larger than the opioid crisis and other things in the aid crisis come in so the curve is actually bending slightly backwards but there is no question that the tough love period induces a agenda for most people to take better care of themselves so as to reduce the probability that they have to be dependent upon aid and ironically one of the things that we do know is that even independent of what the law is there's actually something you can do in an emergency room to help somebody you're going to increase the moral hazard no matter what the legal regime if people knew by God if you get yourself into a diabetic coma there's nothing they can do for you even if they spend all the money in the world it's not so better in healthcare is part of the problem weak constitutional system is part of the problem I don't want to get rid of better healthcare the chances of having a major reform on the political front and it's a kind of complicated issue but if you want to know why was all the shrieking and yelling about Neil Gorsuch and our good friend Brett Kavanaugh the issue was the degree of discretion that you give to administrative agencies in the implementation of their own statutes the modern view dating somewhere between 1944 and 1984 big administrative law problem is the agencies more or less get their way whether you're running something with environmental protection healthcare, labor markets and so forth both Gorsuch in particular and Kavanaugh largely believe that that degree of administrative discretion should be curbed so that if you get a statute you cannot expand this interpretation by administrative rule that itself is like a mini constitutional revolution you can change the statutes but you can change their scope and then you just have to ask me I'm going to take David, you do the hard work I just do the theory exactly how much expansion and coverage do you get through administrative extensions as opposed to getting it through legislative changes I would guess that the difference is probably it's about even 50-50 so I think if you get the administrative law thing into place that will make a very substantial difference in the way that virtually all of these programs work you can bet your bottom dollar that if the Supreme Court comes out and we sharply curtail there will immediately be a movement in Congress to reverse that decision by progressive Democrats to keep the general status quo anti by and large it's the Democrats that prefer the discretion why is that because when legislation gets passed if you recall the debates over Medicare Bob Dole gets up there says we're going to look at any one of these expenditures with green eye shades we're going to really be scrutinizing this money and one of those constraints disappear through administrative fiat and so you get to the current situation where these programs are largely over half now taxpayer funded and it's exactly that kind of dynamic that these guys are trying to stop and I'm not sure enough that the esteemed Supreme Court by a 5-4 majority can actually do something which will keep the political forces at bay particularly given the if you have a Democratic president they're going to want to expand the discretion be up and beyond what we have and the problem that you face as a hospital now will be squared by the time this thing is done it's going to be a very serious situation so maybe the question that you ought to ask being very pessimistic in my judgment about this is how can we keep what few restraints that are now in place here or are we going to have a political wins in which everything is going to be even more comprehensive you know as well as I do there's no coherent way under current budgetary constraints you could run a Medicare for all program no coherent way that you could run a system which abolishes private insurance you take people like Kamala Harris and Bernie Sanders combined economic intelligence 0.00 and they are willing to advocate these things without any awareness of the enormous difficulties that they do okay next question somebody else or is it time to end could you comment on the child the age of the child and your yes there is a program now which is immensely popular and what it says is if you get private health care insurance your insurance company has to agree to ensure your unmarried children I believe it is up to the age of 26 and then they give some small additional premium and it turns out that this program is so popular that most voluntary programs once they saw it figured out what the premiums would be they adopted it anyhow so that's a classic case in which you mandate somebody to do something which they're perfectly happy to do in any event so I don't regard those programs as a regulatory triumph I regard it as a cross between regulation pushing the market a little bit faster than it would want to go but it's going to end up going in the direction that it wants to be anyhow that's not where the problem is we understand that 21 to 26 and the real problem is 60 to 65 which is expensive and you know if you're ignorant of the actuarial possibilities what will happen is you won't fund these programs so the United States will do exactly what Russia does we have a very strong set of positive entitlements everybody knows what they are you can't deny them you got a right to this, a right to that a right to the other thing and so what happens is everything becomes acute and you know I get that experience again on the phone to make a complaint with the bank and you have to spend 40 minutes before you can get through to somebody that's exactly what's going to happen in this particular system queuing is the invisible way of trying to adjust supply and to demand it has additional loss because you have labor for standing on lines and so forth in addition to everything else but I think that that will be it's quite likely to be what the situation is going to be in the next generation there's a serious chance of turning anything back remember you got a democrat, a republican president if he knows what parties he's in if he knows anything who is pretty much a populace on a lot of these issues if you look at the Romney campaign in 2012 he goes down to Florida and he has only two words in front of him on the speaker and you know what those two words were preserved Medicare he knows what he's doing the political forces here are so powerful that it's extremely difficult to do anything and that's exactly what Idaho Blue Cross and the Idaho state legislature ran into as a serious problem when they tried to give this second tier program they'd offer everything that was required and people who flunked out the first one would come into the second one they made it so there would be enough money to be put into the assigned risk insurance pool and so forth to keep that actuarially neutral it was actually a very sophisticated program and it was shouted down because it was essentially in violation of the obvious command and you had to make all of these second tier arguments and when you got to a determined opposition by the Trump administration there was absolutely nothing that anybody could do to overcome it and so it turned out I lost a very interesting somewhat profitable gig which is the major social loss associated with the failure to adopt these programs okay we done just one o'clock thank you