 So we're to the main course, which is Dr. Gerald Friedman-Jerry. He's an economist from UMass Amherst. He's actually chairman of the department. He wants to throw around academic names. He's a Harvard-trained economist. He's also very, very charming. And he's been on the radio twice in the last two days, once on Mark Steiner talking about his study and again today on Dan Roderick's. And he also kind of went down to Annapolis with us and shared us a little bit with Peter Hammond. So I'm very pleased that he came down to talk to us about his study. And we're welcome. Thank you. Thank you all very much. Thank you, Eric. You've been a wonderful host. I've really enjoyed myself. As an economist, I should say we're usually unpopular. And coming after him, I can understand. And the reason we're unpopular goes back to a story told about... Well, there are several reasons. One is we have a lousy sense of humor, which you'll understand in a second because I'm going to tell you one of our jokes. We actually do have three jokes as a profession. And one of them goes back to this guy, George Stigler, Nobel Laureate and the $20 bill. Supposedly Stigler was walking down the street with a graduate student. The graduate student saw a $20 bill on the street and said, oh, Professor Stigler, hold up a second. Stigler waved him off and said, no, don't bother. If it were real, somebody would have picked it up already. I didn't say it was funny. I said it was a joke. Economists assume, not all economists, we're different at UMass, but most economists assume that if anything worthwhile could be done, it would have been done already because why wouldn't somebody do it? Therefore, we live in the best of all possible worlds and we should all just go home. Obviously, the people in this room have not been trained as economists, so you know better. I don't really believe it, but I'm heterodox. I would bend down to pick up money. I've actually done that. I picked up a nickel on the street today. It probably wasn't worth it. U.S. health care, there's a lot of money lying around. Billions and billions and billions and billions and billions of dollars. I'd say 13 billion just in Maryland, 500 billion or so nationally. And it comes from two fundamental problems with our health care system. We're going to run through some of the global, the big picture, and then get down to Maryland in particular. But private health care is increasingly expensive. Every year, the Commonwealth of Massachusetts sends me and everybody else this statement of how much money the Commonwealth is paying for benefits for me. So I'm supposed to feel grateful. Since we now pay 25% of our health insurance premiums and they've raised our co-pays and raised our co-pays and raised our co-pays, I'm not all that grateful. But still, my family coverage in Massachusetts is about $25,000. Ouch, right? Yeah, ouch. Yeah, now, okay, I'm a professor and da-da-da-da-da-da. But you apply that. We have had increases in health spending at a rate for the last 30 years of over 8% a year. That starts to add up. As Edward Dirksen said, a billion here, a billion there. So you don't have your money. And the increase is largely due to rising administrative expense, which I call waste. You could call it something worse because a lot of that administrative expense isn't just pouring money down the drain. It's using the money in a way to make people's lives less worse. And the second problem is we have reducing access. We're spending more and more and more and we're providing health care to fewer and fewer people. Here's Maryland's, this is from the report. This line, the red line shows the index from 1991 equals 100. We now are in the area of about 300. We're spending about three, in Maryland, about 350%, three and a half times as much on health care as in 1991. Her capital income is over here. It's barely doubled. Not even talking about the inequities and, you know, most of the increase has gone to the people at the very top, the average person. Todd probably hasn't seen an increase. Even using this average number, this is the excess health care burden. Health care is becoming a larger and larger share of our budget. Now, if we were doing well, it might be okay. This is the United States 2007. I could use 2010 numbers, 2009. It doesn't matter. It's all the same. Sorry. Back then we were spending $7,000 per person. Now we're spending $8,000 per person. Almost double the second country. We're spending almost twice as much as the average for rich countries. That wouldn't be so bad, except we're getting lousy coverage. Lousy care. You know, you've all seen things like this. This is health expenditures along here. Life expectancy for women. You know, you have to separate women from men, whatever. But the men's the same thing. 2004, because as I said, nothing much has changed. I haven't bothered updating this graph from a few years ago. This line is the average relationship between health expenditures and life expectancy. You spend more, you get better results on average, except in the United States. We're out here. If we had the average OECD, this Organization of Economic Cooperation Development, the Club of the Rich, if we acted like everybody else, we'd have four more years of life expectancy. That would be okay. I'd take that. On the other hand, if we're only going to have the life expectancy of a country like Portugal, nice country, but poor, then I want $6,000, $5,000 back. If we're only going to do as well as them, then we should have our money back. The problem is we treat healthcare like good seats at Camden Yards. A privilege. Here's Maryland healthcare spending. 44% is in private health insurance. Another 14% is out of pocket. You don't have the money. If you don't have a good job, if you can't afford it, you don't get it. Lack of insurance makes us sick. This is why we have lower life expectancy, because so many people who are uninsured, even many people who are insured, but especially the uninsured, they don't have a regular source of care or this one, they did not fill a prescription because of cost. Over a third of people who do not have insurance did not fill a prescription. I found out about this because we have a cat who is diabetes. What do you do? 12 years old, euthanized? Okay, so we got insulin without health insurance. Without health insurance for the cat, $140 out of pocket. Okay, plus we had to buy needles. Okay, we did it because I'm a professor, we have money. Think about if you have a regular... What do we have here? We have people who went to the doctor, the doctor prescribed the drug, and they don't take it because they can't afford it. Obviously, this is not good for their health. Here we have what economists call longitudinal information, or change over time. Because one thing you get when you show them people graphs like this is, oh, but the United States is different because we're all fat. You know, we all smoke. Well, actually we smoke less than we used to and we smoke less than other people. Oh, we were violent. Well, yeah, we are a little bit violent, but it doesn't... Okay, but before you get into those sorts of explanations, you say, okay, look, what has happened over time? Now, here we have France, my favorite country, I admit it. My first book was a history of French unions. France in 1971 was spending about $200 per capita on health care and their life expectancy of 76. Since then, they've increased their spending on health care and they're living longer, a lot longer. Sweden was spending more than the United States, had higher life expectancy and since then Sweden, same country, same, more or less, same eating patterns, cooking patterns, da-da-da, and they're living longer. Everybody is spending more, we're not the only ones spending more, and everybody's living longer, except look at this. We are the ones who are spending way, way more and we have had the smallest increase in life expectancy of these countries. We have an incredibly inefficient health care system. If we were as efficient as everyone else in terms of extra life for extra spending, we would have another five years of life expectancy. Or, given how much increase in life expectancy we've had, we could have bought that with $4,500 less per person. Using this, you would estimate that about half or over half of our expenditures are wasted. We should be able to buy the life expectancy of other affluent countries with a lot less money than we're spending, or we should be able to buy our life expectancy with even less money. If we spent money as fast as Canada, if we had increased our spending as fast as Canada did, we'd be spending $2,600 less per person. You get this sense that somewhere between $2,500 per person of waste and $5,000 per person of waste. All the ways of looking at it and getting to that. And we should have about five years, which gives us a measure. And this is a narrow measure because there's also pain and suffering, the value of lost lives. But just this narrow measure in terms of spending of the cost of our private health insurance system in wasted money, it's $3,000 per person, then you multiply $300 million and you can do the math, it's a big number. Add in 50,000, 100,000 lost lives, each valued at $3 million, the metric the government uses. You have a really horrible wasted system. Compared to Canada, just to take our neighbor who's so much like us that we can say, Of the increase in cost, 70% of the extra increase in cost between the United States and Canada is associated with the extra fast growth of administrative expense in the U.S. health care system. So you take those previous numbers we were talking about, multiply them by 70%, which is approximately the administrative waste, and you've got a really big number. We are spending all that money on administering the health care system, the health care finance system. What are we getting for it? Next time an insurance company executive goes up against you, ask him, what do we get for all the money we're giving you? Not even a positive thing because it's prescription drugs and the administration of the health care system is driving the cost increases in health care. I have this welled much on the prescription drug industry because you kind of all know how horrible that is. But when we get to the actual numbers for Maryland, you'll see we should be able to save billions of dollars in Maryland every year by driving down the cost of prescription drugs. McKinsey Global, not a heterodox economist group, kind of being capital type people. McKinsey Global estimates that drug prices in the United States are 60% higher than in other countries in the Organization of Economic Cooperation Development. If we were paying drug prices at European or Canadian rates, then we'd be saving billions and billions of dollars. So here's where we've got your money. Why don't we have single payer? Because a small group of people are making huge profits off of the current system. These five companies, SIGNA, United Health, it's at well point, $12 billion in profits in 2009. These five CEOs, $73 million in income in 2009. $73 million. How many people could get health insurance for that? Well, you can do them there. What do they add to the system? Real insurance, like Medicare or Medicare in Canada, pulls the risk, which is a good thing. It's a simple exercise for first year graduate students in microeconomics to show the benefits of insurance given diminishing marginal utility. If you want, I'll go over it with you. But we don't need to. Real insurance pulls resources to absorb risk. So if something really bad happens to you, you're compensated, and otherwise you chip something in to help everybody else. Private insurance companies make a profit by limiting their risk, the exact opposite of what we want. They limit the risk by restricting access for those who need it. They don't want you if you're likely to be expensive. Adverse selection dominates the profit motive for these companies. It goes back to the 70-10 rule. 70% of your costs in healthcare go to 10% of people. Most people are healthy, fortunately. That's why we live long. But when you're sick, it can start being really expensive. And they want to find you and get rid of you. Shoe companies profit by selling more shoes. I've got nice pair of shoes, clock shoes. I really like that company. And they try to be a good company so that I'll buy them and advertise them, and you'll buy them. Health insurance companies don't work that way. They only want the healthy people. They want to drive away the others. Find the 10% who are sick. Drive them out. Lemon dropping, they call it. They probably won't say, call it that in front of you. Cherry picking. They want to find you because you're healthy. And they want to get rid of me because I'm unhealthy. Lemon drop me, cherry pick you. They can be nice people. That, this summer, I debated James Roosevelt, the grandson of the president Roosevelt. I felt really bad about this. But it's okay. He said he supports single-payer. He said that he's the head of a health insurance company in Massachusetts. Tufts, I think. And he said that at the national health insurance companies, he filed a resolution to support single-payer. He did not get a second. It didn't go to the floor. You know, I mean, he basically argued for the president's Affordable Care Act for Romney Care, which is the same thing, although our former governor doesn't like to admit it. But the fact is that you can be a nice guy. And you're still going to do it. You're still going to cherry pick and lemon drop because if you don't, you're going to go bankrupt. Let's say you're a nice guy. You're going to face rising premiums because you have adverse selection. All the sick people go flocking to your health insurance company or your accountable care organization, which is what they're pushing in Massachusetts now, which means that the doctors will become the insurers, not the insurance companies. Yeah. You will find you've got more expensive people, higher premiums, healthy people. You cherry drop instead of cherry pick. You get rid of the healthy people. They opt out because, hey, this is an expensive plan. I don't want to be in this one. Your pool becomes more expensive. You have higher costs. You raise premiums more. And before you know it, you know where you are. You're dead. You're bankrupt. That's if you're nice. So you don't act nice. And if you do act nice, you're gone. And the company that replaces you is not nice. Cherry pick and lemon drop. Having been so depressing. I thought I'd give you this question. I admit it. I mean, health care would be a bureaucratic nightmare. Notice what's on the computer screens for all these people working for the health insurance. No, no, no. We're not covering that. We don't cover that. We don't cover that. Saving some single payer. This is for Maryland. As I said, $13 billion. I said we would anticipate for 2013. $3.1 billion would come from reducing the administrative cost that we now pay for private health insurance. Instead of a bunch of private health insurance companies, we would have it all administered by the Maryland Health Care Trust, which would operate at the efficiency of Medicare. $4.6 billion larger amounts. This is the largest single component would be savings in physician and hospital offices. My family doctor, a Columbia grad like me and the president has one person in his office. She does billing. The average physician in Massachusetts in private practice spends $80,000 on billing and insurance related activities. Those would mostly go away. Instead of having that billing person, instead of my friend, my doctor, spending Friday after dunes talking to the insurance company, instead of that, you'd go in, swipe your card, and that's billing and insurance. That would say $4.6 billion. Tomorrow they pass the law. Goes into effect January 1, 2013. We would anticipate about $13 billion, $13 billion, $200 million in savings. We'd also get the savings at Mass General Hospital, which last year I was talking in the legislature in Massachusetts, and I told them, and I was good because I said this is an old number, because in the mid-90s Mass General had some like 250 people in billing and insurance related activities. Toronto General at the time had two. Approximately the same number of patients and doctors. So I said that there's an old number. Somebody came up to me afterwards who worked at Mass General. And she said, no, you are way off. There are about twice as many people now. She didn't know about Toronto General, whether it had gone from two to three maybe. If they went from two to three it's because maybe they had to bill more Americans or something. More people from the United States. So anyway, that's $4.6 billion, $1.2 billion from government administration, which is mostly from savings in the Medicaid program, because they wouldn't be checking for income eligibility and all that stuff. They'd just be covering people. A billion from hospitals and durable equipment, market power. This number may be a little high for Maryland, because you have hospital rate setting by the state already. On the other hand, I'm assuming a 5% savings here, which is very low for Massachusetts, where there was a report by our Attorney General. Yes, the one who lost to Scott Brown. But she's actually a very good Attorney General. Anyway, she estimated that the Mass General, the charging event, double what everybody else does for the same bills. So maybe Johns Hopkins does better than that. Anyway, so that's a billion, and then $3.3 billion from pharmaceuticals. That's the money from driving drug prices down to the world levels. Note, we do not have anything here for the savings that employers would get by not having to deal with health insurance, which is very real. We have nothing here for the savings from reduced stress, from people living longer, from a more productive population, nothing from that. This is just kind of the administrative and market power savings. $13.2 billion, out of $54 billion. What would we do with that? Well, okay, here's lower billing costs, eliminate private insurance. Okay. And presumably, we'd have a healthier population. At a minimum, it would be a less stressful population, as you, providers, and consumers of health care know how horrible it is to deal with the insurance companies. Okay. Some of the savings will go back into health care. I mean, this is a decision you make. You have $13 billion in your pocket. I would suggest, I would assume, that some of it would go back into, well, in covering the uninsured. This is a fairly high number, because the uninsured tend to be healthier. In their study for Vermont, Shaw, and Gruber, assumed that the uninsured in Vermont would be 80% as expensive as the rest of the population. I'm assuming 100% here. Medicaid rate adjustment for $1 billion. Medicaid underpays. And Medicaid recipients have trouble finding providers. If Medicaid is folded into a single payer system, then you have to pay people the same. So that's going to be $1 billion. And we're assuming an increase in utilization. 3% for many activities, 20% for vision and dental, because a lot of people don't have that. And we're assuming a doubling in home health care. Assuming that that's a really largely unmet need that is covered by insurance now. The 3% figure comes from Canada. When Canada went on to Medicare, a universal single payer, there was a 3% bump in utilization, doctors visits, et cetera. That's in 1971. So that's where we got the 3% figure. The new system would be financed with existing monies. Medicare, Medicaid, SCHIP. We're not giving the federal government a break on these. We're saying, okay, you're going to keep contributing. Actually, we are giving them a break. There's some savings built in there for the federal government for administration of the Medicaid system. There's current state spending on the state's share of Medicaid and some other things. This does not include employer-provided health insurance for state workers, state or local workers. We're treating the state and localities and the federal government as private employers. So there's $23 billion. So that's already committed after taking account of the savings and after taking account of, well, we're leaving 20% out of pocket for health-related activities that maybe wouldn't be counted as health by our system. After taking account of the $6 billion that we're putting back into the healthcare system, you end up with, you need $23 billion. There are lots of ways to get $23 billion. I'm figuring a 10% payroll tax. The average employer in Maryland pays closer to 11% than 10%. So this is a savings built right in for employers. Small employers would get a much bigger savings because those who provide healthcare for their health insurance for their workers are paying closer to 20%. If any of you are small employees, a couple of people, you know how expensive it is to buy coverage for a small group plan. And we have a 12% tax on unearned, what I call unearned income, which is the term from the British tax system in land revenue, which is income from rents, dividends, profits, capital gains, and other sources that are not pensions, not social security, and are not wages and salaries. That gives us $24.3 billion as a billing margin. This is a conservative accounting exercise because the savings are probably understated. Certainly we're including, you know, probably more money here than we need. And we're not counting in here any of the economic benefits that Maryland would be getting from the system. No. The 10% payroll tax is less than employers are paying now. Maryland employers would get an economic advantage, a market advantage, against their competitors in Virginia, Delaware, Pennsylvania, and even the great state of Massachusetts. Businesses would come to Maryland because it would be easier to operate a business in Maryland and because it would be cheaper. That would turn into jobs. I would anticipate 70,000 additional jobs after taking account of losses in hospital administration, losses in some of these accountants and bill people would lose their jobs. They would perhaps be retrained and employed doing something useful like being physician's assistants or whatever. But after taking account of that, you'd end up with a net of 70,000 extra jobs largely because of saving the payroll tax. Those 70,000 jobs would turn into extra tax revenue in narrow ways. So this is a conservative exercise. Most Marylanders would save money except the losers would be the top 1%, the top 4%, the next 4%, and many in the next 15%. The bottom 80% of the population would save. Currently, healthcare is largely a fixed bill on households. Your health expenditures, your health needs, whether you're rich or poor, the rich do get a little bit more healthcare, especially glasses, teeth. There is some optional side to this. But largely, healthcare is a fixed amount. That means it's a heavy burden on poor people. The bottom 20% who have an average income around 16,000 pay are really screwed these days. Even if they're unmedicated, it doesn't cover all that much stuff. It doesn't cover a lot. So you're taking what is a fixed bill out of people's budgets, and instead you're putting a tax that is proportional to the income. It actually is a little bit progressive. The 10% payroll tax is proportional, 10% of whatever you earn, but the tax on unearned income, which only applies to income above $500 per person in a household, that's borne by the rich. After all, how do you get to have an income of $2.5 million? I would like to know, and then I'll do it. I had two kids in college. But you get $2.5 million by having, on average, salaried income of about $500,000 and about $2 million of capital gains, interest, dividends, et cetera. Mitt Romney last year earned only, I think it was $350,000 from his speaking fees, et cetera, and all the rest of his $21 million came from dividends, interest, et cetera. So these people up here, yeah, they're going to be paying a lot more. They're going to get about the same savings from getting rid of the medical expenses of the people down here again, but they're going to be paying a lot more taxes, and that's why their income would take about an 8% hit. How bad is the 8% hit that they're going to be getting? Well, with all due respect, these people's income has gone up like 10-fold in the last 40 years. So we're going to pull them down a little bit, but they'll still be earning a lot more than they earned even five years ago. Well, a lot more than they enjoyed. Okay. Good for patients, good for doctors. No bureaucrats standing between patients and the doctors. Wouldn't that be something? Imagine that. It's just you and your doctor, or you and your patients. You just treat the sick. You just do what you went to medical school to do. And when I go to you, I'll know that you're not doing it because it's what you think is good for my health. Continuity of care. The average American changes health insurance between every two or three years. That means nowadays, with health insurance piled into networks, it means you're changing a doctor every two or three years. That's bad. Everyone in. Those people in the homeless shelter, they'll get health care. I'll get health care. We'll all get health care. And it would put Maryland on a sustainable path, which goes back to the original issue. If you're just going to be a narrow-minded economist who doesn't care about people's health, doesn't care about whether people live, whatever, you'll still care about this, which is that the projection with this is with the president's bill. You go from 16% of Maryland's gross state income to 21% over the next 10 years. Note that on the president's bill, we'll have higher costs than currently because we will be insuring more people. On the other hand, I'm putting in here, I'm assuming no change in course. Now, the White House would like to say that the Accountable Care Act or whatever will bring down course, will bend the course curve. I would like to think so. I hope so. But the Congressional Budget Office says no. And the White House never put real numbers on the course savings because they know that there's nothing really in there that maybe some things will start to help, but yeah, yeah. So you've got rise in course, 21%. On the single payer, 14% now because it's less, that's the money, the $6 billion we're saving, the $7 billion we're saving will rise up to 15% of state income. I mean, it's still going up. Healthcare is a desirable thing. Every country in the world experiences rising costs in healthcare relative to income because people want more healthcare as they get richer. It's something we want. And as we get older, the success of healthcare helps people live longer and you get older, you just spend more. Senior citizens spend more than younger people. Middle-aged people spend more than young people. It just happens as we live longer as we have a successful healthcare system. It will cost more, but going from 14% to 15%, we can manage that. Going from 16% to 21%, we're already hearing pushback from politicians, from everybody, that we've got to find a way to economize on healthcare. And all they have is mess with the doctor-patient relationship. If we go to 21%, they're going to be coming into offices saying, don't do this, do this. Don't do an MRI, do a CAT scan. Don't do a CAT scan, do an X-ray. Don't do an X-ray, just feel around. Yeah. That's already what happens. It's going to get a lot worse because they'll be scrambling. If you don't touch administrative costs, and administrative costs continue to rise at 10%, 11%, 12% a year, then you can control healthcare costs only by reducing care. That will be the alternative. There we go. Thank you very much. So we have some time for questions. Thank you for coming and sharing your economic view point. I'd like you to expand a little bit on the idea of healthcare as a human right and healthcare for people, not for profits. And how the United States uses a capitalistic system to apply to medicine. And how that system... Well, you've got... Versus a society that values human life over a project. Once I said that... I went in someplace, I said that our healthcare system was failing. And somebody came up to me and said, you know, it's not failing. It works very well to make profits. And that's the purpose of it. It's not designed to provide care. It's not designed to make for a healthy population. It's not designed to provide human rights. And the health insurance companies will say, well, human rights is a business of the government. It's not our problem. Well, yeah, let's make it a business of the government and let's make healthcare a business of the government too. I just wanted to bring up also the point of bankruptcy because if we have a single-payer health program, nobody's going to go bankrupt because they have a medical illness or an accident. In Massachusetts, actually after they passed a bill very similar to the ACA, the number of bankruptcy and student medical costs actually went up. The percentage went down because the total number of bankruptcies went up because the absolute number actually went up. And I think that's an important thing for us to remember, too. What's silly is that the cost of healthcare at the individual level is not tied to your illness. Everybody pays into the system and the system is there for you. So if the sicker you are, it doesn't mean you have to pay more. And that's really a fundamental point. When you pick up the bankruptcy, one aspect that we didn't explore, we didn't push very much in this report, is the economic efficiency that we would get from a single-payer. Bankruptcies don't only hurt the person who goes bankrupt, which is a terrible thing, but they hurt the businesses and the banks and the property values and taxes. Getting a single-payer system and removing the employment link will allow people to strike out on their own, start small businesses, go get a better job, a job that fits better for them without having to change doctors, without having to risk, and will make the economy work, the labor market work more efficiently. I'd like to thank Dr. Friedman.