 And, right now, I'd like to turn you over to Larry Reid. Thank you very much. Thank you. I may work my way up to that podium in a little bit, but at first, for first, or to start out rather, I have something on the overhead that I want to share with you. As all of you know, we are about to engage in a great national debate over government in health care, and there will be a plan put forth by the Clinton administration probably this fall that will likely involve proposals for considerable expansion of government influence and domination over health care. So we're going to be engaging in a great debate here fairly soon, which means I think to be prepared for that debate, we ought to understand some health care terms as the government might define these health care terms. So that's what I've got here for you. In fact, I've entitled this, Dr. Feds Glossary of Health Terms. Can you all see that all right in the back? I'll just run down the list here. You all know what an artery is, but under the new definition in government health care, that will become the study of paintings. Bacteria will mean the back door of a cafeteria. You've all heard of barium. That's what doctors do when a patient dies. Bowl, the new definition is a letter like A-E-I-O-R-U. Cessarian section, that's a neighborhood in Rome. Cat scan, that means searching for kitty. Maybe I could have put socks there, searching for socks. Cotter eyes, that means to make eye contact with her. Get it? Cotter eyes. Colic, that's a sheep dog. DNC, that's where Washington is. Dilate, means to live long. An enema is not a friend. That has a double meaning, doesn't it? Fester means quicker. Genital is not a Jew. A G.I. series is a soldier ball game. Hangnail, that's a coat hook. Impotent means distinguished or well-known. Impotent. Labor pain means getting hurt at work. Oops, I don't want you to see these too early here. Medical staff, that's a doctor's cane. Morbid, a higher offer. Morbid, get it? Nitrates, cheaper than day rates. That's one page. A few more here. Node, that means was aware of. Outpatient, here's one of my favorites. Outpatient, it's a person who fainted. Pelvis, cousin to Elvis. Postoperative, that's a letter carrier. Recovery room is a place to do upholstery. Oh, here's a great one. Rectum, means dang near killed him. Seizure, that's a Roman emperor. Tablet, that's a small table. Healing illness, means getting sick at the airport. Tumor, that's more than one, and two more. Urine, opposite of you're out. Urine, you're out. And varicose, that means nearby. Very close. Vain, means conceded. Better get used to those terms. Okay, with that as a preface, we will try to solve America's health care crisis. I'm going to come at this as, first of all as an economist, who when it comes to health care policy is still somewhat of a novice, a lay person. And if all I can do this morning is to get you thinking in a certain context, to raise certain questions that may not be raised in the forthcoming national debate, then maybe I can put you ahead of millions of Americans who will not know what to ask and not know how to analyze forthcoming proposals. So as I thought about America's health care crisis, and that's the way it's often sold, that's a phrase that has become almost hackneyed because it's used so often. We have a health care crisis, I ask myself, well what is the crisis? What is the nature of the crisis? What's the problem? And I thought, well could it be poor deteriorating quality? How many here would argue that that's what's happening to American health care? That that's the crisis, that the quality of care in America is poor or getting poor or poor, it's deteriorating. I see a few nods, but and I can see, I bet you're thinking of certain particular instances, which in most cases I can trace to some other bad policies that are producing that as an effect, but by and large when compared to the rest of the world, would you say that our health care is deteriorating or that other countries are surpassing us, that people are leaving America to get treatment in other countries? No, it's quite the opposite, isn't it? As a matter of fact, when it comes to new drugs and new technologies and medical advancements, in spite of many regulations that are preventing some of these from happening, we still leave the world, don't we? People are still coming here. In fact, I've given you an article that talks about Canada a little bit from an interesting perspective. We're often told that the Canadian system of free and universal care, national health insurance is something that we ought to emulate. Well, that little handout plus the book that Winston held up, this one, Twenty Myths About National Health Insurance, will explain why that is not the case. In fact, the article I gave you points out that the Premier of Quebec, Mr. Barrassa, where did he go for his recent major operation? Not to his own nation's free and universal system, he came to the United States. I think that speaks volumes about their system. We still leave the world in many medical areas. In fact, when it comes to the Nobel Prize in Medicine, consistently year after year, it's almost always won by an American. So I don't think that if there is a health care crisis that it is poor quality or deteriorating quality except in a few isolated cases that may have their own peculiar explanations. Well, what about unavailability or declining access? Is that part of the crisis? Are there more and more or large numbers of Americans who need care and aren't getting it? Well, maybe, but do you think, has that reached crisis proportions? Do you hear of people who need surgery but are being denied that surgery in America? Are those instances commonplace or becoming ever more common? I don't sense that that's the case. And I suppose if I had spent some time digging up some numbers, I could have documented that for you. So I'm really appealing to kind of a gut feeling here. I don't sense that that's the crisis in America. In fact, 88% of American hospitals are organized as nonprofit institutions. 12% are for-profit. And all of them accept a good number of charitable cases. Many, most doctors do that. I believe it's illegal, in fact, for a nonprofit hospital to deny someone needed care. So I don't think that that's the problem. I don't think that there are... When was the last time you heard of long lines of people in America? You hear about this in Canada and Great Britain where they've socialized medicine. But have you heard about eight month waiting lists in America to get a gallbladder operation? That's just unheard of. And I suspect that that's an intolerable condition that most Americans, if confronted with, would not stand for. But it is commonplace in much of the rest of the world. So I don't think that it's unavailability yet either. I don't think we have waiting lists and long lines and people needing surgery and being denied it. Maybe there's some things we can do to improve access, but I don't think that any problem in that area today is a crisis. Well, what about cost? The cost of health care. There we could probably make a pretty good case that something's going on, something needs attention. There I would say, yes, I think there is, if not a crisis, a problem to some degree or another. And it's probably becoming more acute. I could buy that and I judged by from some of the nods in the audiences that most of you would recognize that as a problem too. Whether or not you'd call it a crisis is maybe a subject for debate. But it is true that health care costs have been rising at about twice the general rate of price inflation as measured by the CPI, the Consumer Price Index. So some people may look at those numbers and say, well, that indicates something's wrong. There's where the problem is. The cost is getting out of hand. It's rising at about double the rate of general price inflation. Which then should lead us to ask some questions. As you can see, I'm just sort of strolling through this step by step to determine what is the crisis, what's caused it, and what might we do to address that. Why has this emerged as a problem? Health care costs. What makes health care costs rise? Well, I've got three or four things here I want to throw out to you as suggestions. What makes health care costs rise? The first point I'll give you is something that affects everybody and everything, and that is general price inflation. If health care costs are rising about twice that of the Consumer Price Index, then by definition you could say that about half of health care costs increases are attributable to general price inflation. About half. Well, of course we could get into a discussion of money and credit and the Federal Reserve and talk about where all that comes from. It gives you sense that that's an economy-wide problem and it stems from the fact that there is a single monopolist when it comes to the production of money and he's not doing a very good job at that. That's called the federal government with its deficits and its paper money and its Federal Reserve system. So there's one contributing factor that accounts for perhaps half of the increase in health care costs. Well, what about declining supply? Does it cause prices, all the things being equal to rise for any commodity? If its supply is declining for some reason and all other things remain equal, that tends to push price up. Is that a factor in health care costs rising? Well, I see some say yes, some say no. I'm going to argue later when I talk about some of the problems in health care that that is a factor in certain specific areas where there have been restrictions placed upon supply. That's a cardinal rule of economics. Anytime supply is restricted, supply declines for whatever reason, all of the things being equal, that tends to put upward pressure on price. So I think that yes, that's a factor and I'll give you reasons why a little later. What's another reason why prices or costs can rise? How about rising demand? Rising demand, all the things being equal can push prices or costs. After all, costs are somebody's prices, they're the same thing in a sense. That can push prices up. Let's examine health care. Have we had features or characteristics in the health care economy that have led to rising demand? I think so. I'll give you several examples. One is the desire for more and better health care. The desire for more and better health care that springs from our ever rising incomes. You hear people complain when they talk about this health care crisis, they say, isn't it a shame that in Canada they spend less of their GNP on health care than in America? And the fact that we spend more suggests automatically, it's prima facie evidence that we are spending too much. But keep in mind that as nations become wealthier, as people become wealthier, they do tend to spend a higher portion of their incomes on health care. How much do you think per capita they spend on health care, or as a portion of their income do they spend on health care in Uganda? They don't have time to think about that. They're too busy scraping by just for many people there for bear subsistence. As people become wealthier, we shouldn't be surprised that they decide they can afford to spend more for the avoidance of pain and for longer lives and for better health. I think we've had rising demand in part because we've had rising incomes as a people, and we seem to want to spend more because we have more to take care of our health. That's a factor. Another reason why demand has been rising is that because of tax and other policies I'll get into in a moment, many times in the health care economy you have people spending other people's money. There's an awful lot of that, isn't there, in the health care economy? Third party payments. In fact, do you know that now nearly half of all the dollars, the health care dollars that are spent in America, are spent by government? Whether it be Medicaid, Medicare, or other health related programs. Half of all the, almost half, it's like 48, 47 percent of all health care dollars spent in America are spent by governments, federal, state, or local. Well, by definition, even if you are a fan of all of those programs, by definition that's somebody spending somebody else's money and another cardinal rule of human action and of economics is, as Milton Friedman has put it, nobody spends somebody else's money as carefully as he spends his own. Nobody spends somebody else's money as carefully as he spends his own. I guarantee you that as frugal as I might be, if you give me your money, I will spend it differently than I spend my own. I will buy things that I wouldn't buy if I had to pay for them with my own money. And I think that's probably true for every one of you here. It's human nature. I don't see how that's possibly avoidable. It's a fact of life. And there's an enormous amount of this going on in the health care economy for various reasons and it is contributing to this rising demand which is assisting in the increase in health care costs. Another factor that explains rising demand in health care would be social and demographic changes or developments. Social and demographic changes such as the aging of the population. I'll give you some numbers here. The aging of the population. In 1960, 9.2% of Americans were aged 65 or over. 1960, there were 9.2% of Americans aged 65 or over. 9.2%. What was it in 1987? The most recent year for which I have figures. 12.2%. Why is that important? Because as a rule, the elderly tend to pay more or buy more health care. The aging of our population is a factor in rising demand. Also in America another feature in explaining rising health care demand is that we spend much more to help the elderly or to help premature babies. People that in many other countries would simply fall through the cracks. We spend enormous amounts of money and I'm not saying that that's bad. I'm just observing it. That's a subject for perhaps another discussion. But we spend enormous amounts of money on premature babies and the elderly. The extension of life sometimes with little regard for the quality of life. But that is a factor that helps explain rising demand for health care. Another factor that explains the rising demand, the last one I'll give you before I move on, would be regulations and mandates. Regulations and mandates. I don't want to get into these at the moment because I have them organized in another chunk of this talk. But for now, I think I just simply want to identify the fact that there are growing numbers of regulations coming from all levels of government, mandates coming from all levels of government that have contributed mightily to the increase in demand or the increase in costs for health care. Okay, moving along, having said all that and identified cost as, you know, if there is a health care crisis it's probably primarily if not exclusively a cost phenomenon. Now I want to raise this question. It seems to me that if we want to solve this problem there are basically, maybe this is oversimplification, but I don't think so. I think there are essentially two paradigms that we can consider embracing. Two paradigms, two systems, two directions that we can go in to address our health care crisis. One is to follow or try to develop market solutions, try to generate market solutions to health care problems, keep the market in charge or enhance its ability to resolve these health care problems or we can go the government route. And there's a range of ideas that have been thrown out on the table under that heading from national health insurance which preserves some elements of the private sector all the way to socialized medicine in which case your doctor becomes a government employee as they have in Great Britain. The market or the government, of course you might say, well isn't there a third paradigm, some mixture of the two? I suppose you could say so. But I don't think that's a new paradigm, it's just a combination of one of the other two. A very, usually a very unstable combination. In fact in market after market if you decide, well let's have a mix, let's have a little bit of socialism and a little bit of free enterprise, invariably that seems to put us on a path toward ever more socialism because each intervention by government that tends to cause problems becomes an excuse for the next intervention. So I would argue that there really are two paradigms and an unstable third perhaps that is nothing more than some combination of the first two, the market or government. Let's take a look at government in health care. Again we're going to be debating this as a nation. Not only the high school debate teams in the fall but the entire country is going to be addressing how much government do we want in health care. And there will be proposals in Washington to give us enormous expansions of government. In fact as the Clinton plan is taking shape it seems to be revolving around a managed competition plan. I'll get into that in more detail. And what is the criticism coming from a huge chunk of the Democratic Party already, led by Pete Stark of California. They're claiming that this is a betrayal, that in fact what they want is something like Canada or even Great Britain has. They want government to go whole hog and be in the driver's seat when it comes to health care. As we consider this question about do we want a massive expansion of government in health care we should be asking these kinds of questions. What evidence do we have that would suggest it would be wise to trust health care to the government? Now don't laugh. You might be tempted to think I'm government bashing here but no I'm raising a legitimate question. I think we ought to be asking this. What evidence do we have? After all this is a crucial aspect of our lives. This is life or death here that we're talking about. We shouldn't be deciding just willy-nilly without giving it a lot of thought to turn it over to government. We should be asking what evidence do we have to suggest that it would be wise to turn more chunks of our health care therefore our lives over to government. The kinds of questions that come to my mind would be this. Well, is government an expert in cost control? Do you think that's unreasonable to ask? I mean that's why we're getting into this big debate because everybody's saying cost is the problem. We need cost control. All right, is government an expert in cost control? Not the last I heard. I'll let you answer these by the way. I'm just rhetorically raising these questions but I think they should be asked. Does it manage its budget well? Before we ask it to manage the national health budget or your personal health budget or any hospital's health budget we ought to ask does it manage its budgets well? How about this? Is government in the forefront of generating medical advancements? Is government in the forefront of generating medical advancements, medical achievements? When you think of great discoveries and achievements in medicine do you think of bureaucracies or do you think of free people? The government sector or the private sector? Oh, here's a great question to ask. Does it have a lot of time and money on its hands? Because this is going to be a costly endeavor. They're already talking about the potential of massive tax increases to fund this new national plan. We should be asking, as taxpayers not just as people who are interested in solving the health care problem in this country does government have a lot of time and a lot of money on its hands? Another question. Could politicians be trusted to manage health care altruistically and not politicize the system? Altruistically. In other words, for the benefit of the nation selfishly, can we trust them to manage and direct health care or set up bureaucracies that will do it this way that will do so altruistically? In other words, thinking of you. Another question we ought to ask would be has government proven itself with its existing health care programs? Do we have reason to believe that what they have done in health care worked well enough that we can trust to them much greater chunks of this aspect of our lives? You know, the Detroit News recently just a month or two ago had a front page lead story headline that read Medicare to go bust by the year 2000. Medicaid, do you know any doctors or hospitals, health care providers who are happy with the Medicaid program? If you ever talk to them, what will they tell you? They'll tell you that the paperwork burden is monstrous. They'll tell you furthermore that the government consistently welches on its obligations that they don't reimburse at market rates that they cheat the doctors, they cheat the hospitals which ends up in cost shifting so that instead of Medicaid, Medicare paying for the costs of Medicaid and Medicare those costs are shifted to people who have private insurance. So I'm suggesting to you that there's enormous room for improvement in the way the government manages its existing health care programs. It seems to me that before you want to empower them to do so much more in health care we ought to say, hey, clean up your act. How about this question? This is one that's hardly raised any more on any proposed expansion of government. Does the Constitution direct the government to get into the health care business? Now there are lots of folks out there who would say, oh, ha, ha, right wing, you know. This guy's living in the dark ages, 200 years ago agricultural society. They're raising questions about that old document called the Constitution. We want to get the job done. What do we care about what the Constitution says? As Ron Paul, I think I mentioned this to you yesterday. You'll probably hear him later in the week make this argument. When he used to raise the question of is it in the Constitution? Can we do this when program after program came up? He was laughed at. What difference does that make? Why should that be a consideration? You know, maybe we haven't made this point strongly enough so far at this seminar but the whole purpose of a Constitution is to have a rule book, right? A book of rules. Can you imagine playing a game like Monopoly in which we tear up the rule book and just say, hey, anybody can do whatever they want. It'd be utter chaos. So we ought to be asking, does the Constitution grant the government to the power or the duty to get into the health care business? Oh, here's a great one too. I love this question. Does it run the post office well? Really, I think this is a relevant question because before we ask government to start managing CAT scans and technologies that are beyond its comprehension, we ought to ask has it figured out after 200 years of experience how to deliver the mail reliably and at a reasonable cost? Have postage costs stayed even with the general price index? Hey, there's a measure of government cost control, right? They run the show. You see what I'm getting at? Why on earth would anybody say hey, we have a health care problem, the government is the solution? When it comes to the post office, I remember Johnny Carson one time describing the three classes of mail. He said that first class is when you hang on to the letter you're going to send until the person you were going to mail it to comes to your house for a visit. Second class is when the post office stamps your package until it becomes a letter. And third class is when they hand your package to a blindfolded whinoe and spin them around and push them out the door. Now, don't think for a moment that I'm bashing people in the post office. They are well intentioned, good people who mean well. The great majority of cases are doing the best they can do, given the context of the system in which they work. You and I for the most part would behave no differently if we were to use of that same system. If it doesn't work, it's a systemic problem, not a people problem, because those very same people put to work in a private competitive enterprise system would probably behave much differently. But nonetheless it does give us a glimpse of what healthcare might look like if the government were to come to run it. A very notable popular national radio host recently when I turned it on had a little guest. He asked people to call up that day and he said, please give me a list. Tell me. A list of things that government does well. And it was really interesting to hear. You have to think about that by the way. Sit down sometime with a piece of paper and pencil and try to make a list of the things that you're confident government does well. And see how many you can come up with. Again, I'm not bashing people in government. I'm simply inferior to the nature of the system. Whereas the marketplace what if I asked you to make a list of things that the marketplace does well. How long would we be here? They make pretty good pictures, they make good tablecloths, tables, screens, projectors, they make cars, they make televisions, refrigerators. It's an endless list isn't it? And by and large anything the market tends to produce that doesn't satisfy the consumer is not long for this world is it? Doesn't fester as a chronic problem something to cost money that people keep making even though nobody wants it. Tends to go away because there's a natural building incentive for the market to meet consumer needs. Well enough said about the government raising those questions. Let's just say a few words about the market and then we'll move on towards what some solutions might be. What causes of the problem might be and then some solutions to it. What about the market? Why does it tend to be a mechanism that produces the greatest good for the greatest number? The kind of mechanism that I think we ought to maximize its employment the use of it in area after area. One is it's the arena of free and willing exchange. Nothing coerced and as a result of that you tend to get what you want and you want what you get and you tend to get what you pay for. I think that's true even in a socialized system by the way. People say in Canada well healthcare is free. In fact I visited Russia several times and they used to tell me the tour guides how wonderful it was that if any of us got sick we could get free healthcare and I heard about Russian healthcare and I thought well it's proof again you get what you pay for. I think that's true even in socialized arrangements. Well furthermore in the marketplace or when the marketplace governs there is competition which tends to evaporate the more you have government in charge. Competition I think we all understand that's a healthy thing. Supply and demand regulate prices instead of political edict so we don't have long lines of goods that aren't there supply and demand regulate prices and furthermore life is depoliticized activities are depoliticized Milton Friedman has put it this way he said can you imagine if automobiles were a government commodity produced by a government monopoly what would that engender well you'd probably have after all car production would have to compete with everything else in the federal budget right would only be allocated so much and it would have to compete for farm subsidies and foreign aid and all sorts of other things the government does a private car firm doesn't have to think about those things it makes cars but if it's part of the government budget it has to compete for all these other things that politicians want to spend money on alright and if that's the case it may be short changed at any given time well well back to the car example Friedman says if government made cars you'd probably have a bureaucracy that said well we're not going to waste a lot of money given consumers the choice of any color that they want and 500 different kinds of automobiles we're going to standardize this as government likes to do we're going to have half a dozen models and three or four colors and that's what you get to pick and we would have endless harangues about this you know people who wanted red cars instead of green ones that were offered this year would be picketing there would be conflict and strife every time you take matters and put them into the political arena faction praise upon faction political power and special interests take over and the end result is a lot of people don't get what they really want whereas in the marketplace you can shop around this competition you tend to get what you want seems to me that any rearrangement of the healthcare system ought to try to take advantage to the greatest extent possible of these virtues of the marketplace and not try to diminish them and speaking of politicization by the way you folks ought to understand this better than anybody how many people and answer honestly how many of you teachers believe that it has been a blessing for you to be overseen and supervised and budgeted by politicians how many of you enjoy dealing with them how many of you feel that that's the most effective way to deliver the service that we're all about here okay so think twice before you want the same folks to be running your healthcare well okay but you might say well but hasn't the market been in charge if we have a problem and a crisis can't we blame it on the market I mean you hear that all the time you have folks in Washington telling us that we must have much more government in healthcare because we've had too much of the market and it's caused the problem the problem has been the absence of government they tell us in healthcare and therefore the solution is more government in one form or another well let me discuss for you three or four ways in which and not the only ways but perhaps the only ones I have time for here the major ways in which government has been involved in the marketplace and has contributed to the problem first way is reimbursement policies which have essentially been for many many years cost plus cost plus reimbursement especially prior to 1983 what do I mean by this and keep in mind the government's reimbursement policies how it pays for the healthcare it buys through its programs it is going to have a major impact on the marketplace because it's got all these resources it can deficit spend if it has to and it can buy up these healthcare resources leaving the rest of us to have to bid higher prices to get what's left what it does because it's such a huge chunk nearly half of all that we spend on healthcare what it does has a profound impact on the cost and prices of healthcare for all of us well prior to 1983 the government's policy and through its Medicaid Medicare programs was essentially cost plus hey just tell us what your costs are add on a little bit and send us the bill isn't that an incentive to do what to raise costs find ways to pad your cost because there's this outfit out here that just says just send us the bill we'll write the check cost plus reimbursement by itself would have contributed to healthcare price inflation well above I'm sure the general price inflation in 1983 that policy began to change by the way but I don't think it did so for the better after having contributed mightily to the increase in healthcare costs with cost plus reimbursement policies in 1983 the government started to change it said hey we got too many other things in our budget we have to spend money for worry about we have to get these healthcare costs under control how did they do it through new regulations first the what is known as the DRGs in Medicare diagnostic related groups where they try to come up with this kind of like cookbook medicine saying you know well this is what we will pay here's what a gallbladder operation is worth various mechanisms that also price control mechanisms that also required vast new expansions of paperwork utilization review committees and all sorts of time consuming and expensive mechanisms upon hospitals and healthcare providers this was succeeded in the later in the 80s by RBRVS resource based relative value scale a kind of comparable worth scheme for doctors the heritage foundation has described this scheme this regulatory scheme which came about I think in 86 or 87 as the most dramatic expansion of healthcare regulations in the history of this country massive new costly regulations all designed to try to deal with the earlier problem that largely governments own reimbursement policies created these things have been a factor we've already had lots of regulations in healthcare we cannot claim that the market has been in charge that we've had an absence of government and therefore the only solution is more government a second intervention by government that has skewed the healthcare marketplace relates to tax policy and this really has its origins in the Second World War when we had price and wage controls on many things and many employers facing controls on wages how much they could offer and yet competing in the labor market had to try to attract workers they decided well if we can't pay more in wages because of the controls we'll throw in healthcare benefits as a way of competing in the marketplace so healthcare benefits employer provided became something we sort of take for granted today they're so commonplace they weren't before the 1940s before then typically almost everybody took care of their own healthcare needs it wasn't something that the employer provided but largely as a result of war time wage controls employer provided health insurance emerged and shortly thereafter the IRS rendered a ruling that said that employers could count healthcare expenses for their employees as a deductible expense in other words employers when they pay a dollar for healthcare on behalf of you they get a dollars worth of healthcare but that same tax advantage was not passed on to you in other words you as an individual when you go out into the marketplace and buy healthcare whether it be health insurance or actual healthcare you're spending not pre-tax dollars you're spending post-tax dollars right dollars on which you've already paid taxes when you add state and federal and local taxation the average Americans paying about forty three cents of every dollar he earns in taxes what that means with regard to healthcare is that if you've earned a dollar you can spend forty three cents of it when an employer buys healthcare because it's deductible he gets a dollars worth of healthcare for a dollar that he spends for you you've got to do with post-tax dollars what kind of incentive arrangement does that set up everybody wants to look for a way to have their healthcare paid for with somebody else with pre-tax dollars that was a vast encouragement to employer provided healthcare that's going to have pros and cons but one of the dramatic downsides of this is it distances the user of healthcare from the cost of healthcare it establishes this principle of third-party payment it means that you as a user of healthcare may not ever really know exactly what this stuff is costing that you're asking for more of and when that's the case you tend to want more of it it's very expensive to have third parties handle especially the smaller medical bills you know I mentioned to you yesterday that in Michigan we've had zero deductibles for state employees and for every twenty five dollar bottle of pills that probably cost fifty dollars in administrative expense wouldn't it be better if we had a system in which you were empowered to pay at least the smaller medical bills out of your pocket rather than some third party I just want to plant a seed because I'm going to suggest to you in a moment how we might do that but tax policy has shifted us in the direction of third-party payer sometimes first dollar and certainly low deductible policies health insurance policies because that's what makes sense economically you get sucked if you pay for it in post tax dollars but you get criticized because it's your money but at least it's favorably treated if it's purchased with pre-tax dollars well a third way in which government has interfered and helped to cause this problem we're talking about is its regulations I mentioned this earlier and said I'd come back to it I want to give you several examples one I've kind of given you already the DRGs the RBRVS these costly paperwork burdens every doctor can go on and on about and tell you how they're really raising his costs that he has to then pass on to you but there are other ways other regulations how many of you are aware of certificates of need this is a state regulation I'm sure you have them in Texas I shouldn't say that some states now are moving away from them so maybe you're one that's done away with them but most states have certificate of need regulations which says before a hospital or even a nursing home can expand its facilities add beds, add a new machine it must receive approval from some state appointed board now the intention here was we've got these costs going out of control so the way to do that is to make these institutions get approval before they can add to costs which is another way of saying adding to supply since when does adding to the supply of something raise its cost that usually is a way of helping to control costs now there have been many studies done including one from Northwest University that has been quite revealing indicating that the verdict of certificates of need is not a good one in fact they have actually contributed to rising health care costs one is they stifle competition between health care providers they stifle competition and secondly by denying sometimes capital acquisitions they deny the economies of scale and the efficiencies that can come about through such purchases many economists far more qualified than I am in this area have begun to document this and it's a major reason why states are beginning to withdraw from these regulations and that has been a major factor in raising health care costs another example would be state mandated health benefits or you are going to love this every state now has these these are required coverages that state governments have said health insurers must include in their policies if you are a health insurer you want to sell policies in this state you have to include coverages for the following things by the way in 1970 there were only 30 of these state mandates across the 50 states some states therefore didn't even have any it was a freedom of choice in the health insurance marketplace only 30 how many are there today over 1000 state mandated health benefits the list is long and getting longer some of them sound more reasonable than others in Michigan we require coverages which you as a health insurance will not pay for for mammograms and for alcohol and drug abuse treatment what's that mean by the way that means in my case I'll make it very personal I have no intention of ever becoming addicted to drugs ever using them I'm a health care nut I don't want to pay for insurance to cover me for those things I have confidence in my ability to avoid those problems doesn't matter I got to buy them anyway psychiatrists and consulting psychologists are commonly mandated now they are in my state by the way who lobbies for these things do you think consumers go to the capital and say please make me buy these things no these particular special interests who go to the legislature and they say hey you know maybe they just say this among themselves but they say we can get people to buy more of our services if we if we get the government to pass a law that says I'll give you some some really weird examples here by the way in Minnesota they require coverage for hair transplants in Minnesota it's cold there right in California California requires coverage for marriage counseling as a state mandated health benefit in Vermont and I don't know why somebody hasn't raised the constitutional the constitutional question about this they require pastoral counseling pastoral counseling Massachusetts requires coverage for deposits to a sperm bank so you may never oh and by the way in vitro fertilization is required coverage in five states acupuncture in four states the services of natural paths these are people who treat ailments with herbs are required in two or three states now I don't want to render a value judgment as to these particular services you know maybe these are good things what I'm raising is a question that has to do with freedom of choice in the health insurance marketplace why can't I purchase a health insurance policy that's tailored to my needs rather than somebody else's and don't forget every single one of these mandates has a cost attached to it and at NCPA the national center for policy analysis in Dallas, Texas they have done extensive studies and have determined that at a minimum 20% of the nation's 37 million uninsured don't have insurance simply because the cost of state mandated benefits have priced them out of the insurance market it's like saying mandating all these coverages would be like saying okay everybody if you want to buy a car it has to be a Cadillac what would be the result some people would have Cadillacs a lot of folks wouldn't have any car at all and of course freedom of choice is out the window just this one tiny area it's not even federal it's just state accounts for perhaps 20% or more of the uninsured at any given time in the hopper in our legislature and I think this is true in every state somebody, some legislator mandates they want to heap on healthcare consumers this particularly disadvantages small business by the way as you might imagine there is one way in which larger companies can escape many of these mandates by self-insuring but that even further disadvantages small businesses which create 75-80% of our new jobs it disadvantages individuals who can obviously self-insure have to go out and buy policies out of their own pocket well another way in which oh in fact no I need to I want to move on to some other things I'm going to stop that at that point you might be asking yourself well what about the uninsured we keep hearing about that isn't that a crisis I've given you one reason why they're uninsured 20% or more of them but this is a question that deserves a little bit more discussion I want to tell you something about who the 37 million uninsured are who are they is this a national crisis that requires government intervention half of all the uninsured lack insurance for 4 months or less typically because they are in between jobs half of all of the uninsured lack insurance for 4 months or less this isn't some massive chronic problem year after year for most people only 15% are uninsured for more than 15 months only 15% are uninsured for more than 15 months I can give you some other statistics I'll go through this fairly quickly 60% are young people under 30 for whom at today's costs healthcare doesn't seem like it's a very good deal they have their health and they've consciously decided many of them that although they may have the resources they're young they don't need it yet that may be an unwise choice but it is for many nonetheless a choice 46% of uninsured households have incomes above 20,000 17% have incomes above 40,000 so for some of the uninsured this isn't a poverty problem I think there's a lot that we can do by the way to bring the cost of health insurance down an awful lot we've done to make it more expensive I've given you some examples anything that raises the cost of health insurance whether it be state mandated benefits or something else in the health care field will tend to price some people out of the health insurance marketplace as much that we can do there I think if anything this uninsured problem has been vastly overblown and it's not been regarded for what it really is it's an affordability problem for some people an availability problem well what are some principles then that should govern health care reform moving us toward some brief description of what real solutions might involve what are the principles that we should use to govern health care reform one is I think we should make sure that we maximize competition let's not lose that along the wayside as we talk about what we want to do let's remember competition is important let's find ways to maximize it let's find ways to inform consumers some of the reform ideas I'll give you in a moment would help us do that let's inform consumers so they raise the right questions so that they can shop around in the medical marketplace let's find ways to encourage the user of health care to be the payer of health care to tighten that connection reduce the reliance upon third party arrangements in other words there are proposals that can help us do that encourage the user to be the payer again recognizing Friedman's principle that nobody spends somebody else's money as carefully as he spends his own so if we can tighten that connection up between user and payer we will help to some degree to solve the problem fourth point we need to remember as we fashion a health care plan is the economizer you must benefit from the economizing it's on this principle alone that I fear that the Clinton health care plan is likely to fail if it's adopted the economizer must benefit from the economizing in other words what if the government said to you that you could buy a Cadillac or a Chevy but if you chose a Chevy you'd have to give the savings to the government take the Cadillac every time if you don't benefit from the savings then what's that say about what you're going to ask for you'll want it all the economizer must benefit from the economizing there must be something in it for you if you're going to choose to do with less if you even have the choice to shop around and perhaps do with less I think furthermore another principle ought to be to avoid damaging tax increases that's really redundant avoid tax increases because we have to remember that tax increases destroy our economic base they hit small businesses the generator of the lion's share of new jobs tax increases isn't something that the American economy will benefit from if anything we are over governed and over tax I fear the costs of a national health care plan and what it will do to the state of the economy do we really advance health care reform if we throw people out of work if we prevent the creation of new businesses and self-reliant people I don't think so and that's what tax hikes will do and do more of it the bigger they are and I think furthermore we ought to find ways to improve access and control runaway costs and do it in a way that doesn't sacrifice quality or your choice but what are some of the proposals that are coming forth from the administration and others in Washington that personally I don't like and I'll give you some that I do run through these very quickly there are price controls being talked about as part of some plan price controls we have 40 centuries of price controls to tell us that they never work they lead to rationing, shortages of supplies people leaving that occupation black markets I don't think we want that another idea is global budgeting the Clinton administration is talking favorably about this where they say well we're just going to add up all health care spending put a ceiling on it and say that's the most America can spend which is another way of imposing ultimately rationing and price control they're also coming out with this notion of one size fits all they're talking about a plan in which the government will stipulate the health care benefits for every American one size fits all in fact there was a story in the Detroit news again a couple weeks ago headlined nobody opts out of Clinton program and they're talking about they've already made the decision that whatever package of benefits the government devises for you in this national plan they're not going to give people the option of bowing out of it companies will not be able to give you a cafeteria plan and multiple benefits they will not be able to vary wages with benefits in other words one size fits all should that surprise us by the way when the 500 plus member of Hillary's task force is almost all government employees the number of private sector people in that task force varies between two and four really the rest are government employees should it be surprising that they're coming up with new government schemes government programs managed competition it's another concept it's likely to be the pillar of the Clinton health care plan managed competition means they're going to take maybe a state at a time or perhaps by region and they're going to say that we're going to have a national health board of some sort or regional boards and in these various regions they will make sure that private insurers come to them before they can offer insurance to you that they meet all these government stipulations for this one size fits all package and that somehow that's going to control health care costs but by limiting your choices and putting government in charge of what you get and what you don't Ken Abramowitz the advisors to the Hillary task force has said this here's this condescending government knows all attitude that too often has been coming forth from Washington he says quote right now health care is purchased by 250 million morons called US citizens managed competition would move them out reduce their influence and let smart professionals buy it on their behalf I couldn't have said that in a more damaging way if I had written it to describe their thinking but this is Ken Abramowitz reported in the New York Times who's been advising the Hillary task force that's the thinking behind managed competition you dummies out there don't know how to take care yourself and we're going to have to do it for you well and then of course there are those who say we need a Canadian free system isn't that great they're all coming over here for health care and Great Britain socialized system as much I could say about both but I'll refer you to that 20 myths about national health insurance it'll tell you everything including how long are the waiting lines before you can even get your goldbladder out how many people die before they thousands before they can even get a simple operation in countries like that finally what are the market based solutions to this problem and leading up to this and here I am with hardly any time left to talk about 10 minutes great thank you let me give you some ideas here along the lines of market based solutions at least solutions that don't involve more government bureaucracy regulations controls and the kind of stuff that got us into this mess in the first place what are they but one is a promising concept called metasave accounts and there is some government involved in this but it's nothing like these other notions in fact it would lead to withdrawal of government but still some involvement metasave accounts sometimes are called medical IRAs medical IRAs patterned after the individual retirement accounts how would these work well right now the average employer in America is paying for the average employee on average $4,500 in health care costs for that person and his family $4,500 under the metasave concept employers could take say $3,000 of that and the numbers are whatever you want to pick they could take $3,000 of that metasave account which would be under your control like medical like IRAs are invested as you choose and you would then use that those funds to pay the smaller medical bills under $3,000 a year which means that the other $1,500 that employers are paying currently up to $4,500 on average they could use to simply buy catastrophic health insurance that would cover the expenses above $3,000 the vast majority of Americans health care needs in any given year could be handled by the metasave account monies and you would be in charge of them you would be empowered you would withdraw from that fund and by the way it would be portable you could take it with you so in between jobs you're not without capability of purchasing insurance to tide you over that would help solve part of the uninsured problem the point is you would be empowered to spend your money reduce that third party payment influence now maybe it's even more clearly seen if you're self employed it means you as an individual could put aside and this would be tax free incidentally and the benefits in it as it grows it would grow tax free you could put that aside for medical expenses so that you could handle those smaller medical bills that would allow you then to buy health insurance that had very high deductibles and everybody knows that that's a surefire way to bring down premiums today the average deductible is about $250 if you could raise that to $3,000 $4,000 because you've got a metasave account that allows you the wherewithal to take care of your smaller medical bills yourself you could enjoy enormous savings on the catastrophic health insurance that you buy and you can do that without a bureaucracy, no new department of metasave accounts required it's a bookkeeping entry essentially and there's a debate among free market community about this those who favor it as to should we allow people to use those metasave account monies for things other than medical care I'm one of those who would argue yes maximum freedom let people if near the end of the year they decide wow I had good health I didn't have to spend as much this year as I have put into that account I can take it out this year's metasave monies and spend it for something else I'd let people have that choice the economizer could benefit from the economizing which would cause people to think well do I really need that other bottle of pills do I need this extra run to see the doctor okay that in itself would do a lot I think to restrain health care expenses and would assist literally tens of millions of Americans in taking care of this problem what's another market oriented reform that we ought to be pursuing roll back those state mandated benefits why on earth are we talking about a massive expansion of government and health care when we know obviously that if we roll back many of the existing encroachments we could help solve this problem instead what they're talking about in Washington is literally superimposing upon all this costly stuff all these existing regulations a new body of government regulations I'd say let's deal with the problem as we've created it to date and part of that means rolling back the state mandated health benefits allow insurers to offer no frills basic policies if that's what people want or allow them if they want by free choice to load it up with these Christmas trees of benefits another aspect of reform is involves liability my lawyer friend bumper they disagree with me on this I don't know I think if we were to there are a couple ways to handle this one is to you're all aware of the problem of enormous damage awards that end up being factored into the costs of health care that's largely due to the costs of what is known as non-economic damages pain and suffering I don't think anybody would argue that government should limit what someone is entitled to in the way of economic damages of actual costs that they had to incur because of someone's negligence such as lost wages actual medical expenses you know they're entitled to that but when you get into this area nebulous area of pain and suffering I believe it's not an expansion of government but a limitation of government to put parameters around the law and say you know more blank checks no more arbitrary out of the out of the air one dollar one billion dollar settlements I mean we're going to put some parameters to the law in this nebulous difficult to define pain and suffering thing which might mean putting caps on it at some arbitrary level another way and maybe a more fundamental way is to reintroduce and enforce exculpatory clauses which we've largely done away with I believe where I could go in to contract maybe with a hospital with an insurer and say in advance I promise that the most I will ever sue for if something is some harm is done to me is actual monetary damages and some ceiling amount of pain and suffering how on earth can insurers insure for something if there's this vast area that they have no way of knowing in advance what it could end up being one dollar billion who knows these are totally arbitrary and extremely costly liability reform is needed Medicaid vouchers it's not the end of the road but it's a solution partial solution that might assist us in getting government out of this field it's kind of like a privatization of Medicaid for those who are of low income at least for the time being until we can fashion a truly market solution to these people transit from here to that market solution private charitable organizations what have you want to have Medicaid vouchers in which instead of paying the costs of medical care for the poor they simply are given a voucher which they can use to shop around and in the private marketplace by private health insurance it's a more cost effective way of doing it than we now do it with government and its Medicaid program although I don't think it's ultimately the final answer I would like to see government out of medicine altogether and the creation of more private charitable activity to care for those who need some assistance and I'm going to leave it at that so I can give you time for questions because I'm already over those are just some but not all of the solutions that might help us resolve this healthcare problem if nothing else I hope what I've done is to plant some questions in your mind that you might ask your legislators as we engage this national debate Ben thank you very much Ben this is the the control I believe it's the AMA over the supply of doctors and the licensing and all that I've always had the opinion that not as many doctors exist as would exist and there isn't the grade of doctors can you comment on that please yes I'm glad you brought that up in fact remember when I kind of rushed through that list of the ways in which governments involved that was the one I skipped that was the licensure which the American Medical Association of course has championed for years and if they had their way they'd tighten that up even further freedmen and other economists have shown time and time again that occupational licensure has the effect if not the actual original intent of restricting the supply of people in a profession and therefore raising the cost of those who are lucky to get there and that happens in a number of ways health care practitioners in doctors offices or in hospitals who could do more than they're presently allowed or licensed to do but by licensing they're restricted from engaging in that activity the end result of that is to raise cost the AMA is very much a kind of doctors labor union it functions that way it restricts the supply of physicians and therefore raises the price and by the way where do they get their power I would argue very strongly that the AMA isn't entirely or at least it doesn't derive its influence entirely from the marketplace it derives it from its influence over primarily state legislatures it has a very cozy relationship with most legislatures and has been in the forefront of devising laws, regulations licensing restrictions medical school entry requirements that have the effect of limiting those who can get into the profession or can practice but they largely derive their power from what they've been able to convince state governments to do on their behalf yes what's the likelihood that any of these free market approaches to the problem will ever get to the table or is this simply going to be something that's going to be cooked up and delivered by Hillary Clinton and Democratic Congress I thought maybe a few months ago that it was going to be really tough sledding that it back in like February or March when the administration was riding high and certainly had the Democratic Party in charge of both houses it looked like wow how are we going to overcome this when there's so much education that needs to be done I'm a lot more optimistic now I have seen a number of announcements along the way in the last few months of where they are backtracking I think their understanding that they may have tougher sledding getting this full blown socialized arrangement that they were first aiming for so I'm encouraged by that I'm also encouraged by the fact that more than 150 I think it's approaching 200 members of Congress now have cosponsored the medisave concept so there's growing awareness of that in Congress you know what ultimately happens is going to depend largely upon how well informed the American people are and are they going to be raising and asking these questions the ones that list I gave you about that we should ask about government you ought to be asking your representatives every time they come home and talk to their constituents you should be asking them these questions what are you doing about liability reform what are you doing about medisave accounts and why should we trust government to do all these things in healthcare when they haven't gotten their act together in every other area practically it's going to be a tough educational battle maybe the thing more than anything else that will help us in this debate is going to be that whatever Hillary comes up with is likely to have an enormous price tag and maybe that will prompt people to start looking for alternatives I hope so one more federal government has been running the federal administration health program for a long time the federal government has been running the veterans administration health program for a long time what are the results of that what is that for a vote or for a tell for a government major government expansion oh very good question what about the veterans administration veterans hospitals there's a case where government's been in charge you know veterans who are delighted with the veterans hospitals they make movies about how bad they are well I'm not here you may have had a very good experience but I don't know that that's the rule so I'm not an authority on the veterans hospitals but I get a very strong impression that there's lots of room for improvement that it's not a model that we should base the national health care system upon I guess I've run way over and he told me I could only take that one last one how about if you can ask him after the session are you running right off no I'll be here until about 1.30 thank you for being so attentive on a subject that can be offered technical thank you