 My name is Mark Siegler, and on behalf of the McLean Center for Clinical Medical Ethics, I welcome you to the seventh lecture in our series of 28 Wednesday noon lectures on ethical issues in health care reform. Today's lecture I want to highlight is cosponsored by chess, the Center for Health and the Social Sciences, as a Regis J. Fallon lecture on health and law. The Fallon lectures receive generous support from the University of Chicago alumnus Dr. Martin Friedlander and Dr. Sheila Fallon Friedlander in remembrance of Sheila's father, a labor lawyer and negotiator in the steel and aluminum industry. Since 2006, the Fallon lecture series has featured speakers who address the important issues at the interface of health and law and bring together students and experts from the campus for discussions across disciplines. Professor Anup Malani, raise your hand Anup, and Dr. David Meltzer are the organizers of the Regis Fallon lecture series. Just before I introduce today's speaker, I also want to call your attention to the McLean Center's 25th anniversary ethics conference that will meet this Friday and Saturday, both days at the University of Chicago Law School at 1111 East 60th Street. Conference brochures are available on the table in the back and I hope some of you will look at the brochures and sign up, it's free of charge, but register for the meeting. I'm delighted then to introduce today's speaker who is Professor Daniel Kessler from Stanford University. An expert on health policy and health care finance, Dan Kessler is a professor at the Stanford Graduate School of Business and at the Law School, is a senior fellow at Stanford's Hoover Institute and a research associate at the National Bureau of Economic Research. Professor Kessler received his JD from Stanford Law School and his PhD in economics at the Massachusetts Institute of Technology. His research interests include empirical studies in antitrust law, law and economics and the economics of health care. Professor Kessler's recent book entitled Healthy, Wealthy and Wise, Five Steps to a Better Health Care System outlines how market-based health care reform in the United States can help fix the system's current problems. Dan Kessler is also written extensively on health care reform for the Wall Street Journal and in health affairs and has won awards from Stanford, the National Institute for Health Care, National Institute for Health Economics Association and the International Health Economics Association. Today Professor Kessler will speak to us on the topic three principles of real health reform. Please join me in giving a warm welcome to Dan Kessler. Thank you, Mark, for a very kind introduction. I just hope you didn't set people's expectations too high. It's a real honor for me to be here being hosted not just by the McLean Center but also by the Center for Health and Social Sciences to give the Fallon Lecture and I really appreciate the invitation. The University of Chicago has a wonderful group of people, Mark, Anu, David and so many others, Casey Mulligan in the Economics Department who's working on issues of health policy reform who in fact was here just a couple of weeks ago. I can't go through the whole list of people because then I wouldn't have any time left to talk about what I came to talk about but this visit is a wonderful opportunity for me to get to see many of my old friends and learn what some new friends might be doing in this important area. The topic for my talk today is three principles for real health reform. Let me start by just defining what I mean by real health reform. I don't think this will be too controversial but it's I think worth spending a few moments on to make sure we're on the same page. Real health reform has got three parts. It will reduce, probably not eliminate spending on low value care which is one of the problems that we've got in this country. Second, it will expand coverage, another obviously another problem and third it will be self-financing. That is it's not going to kick the can down the road about how to pay for this any longer. That's what real health reform is. Real health reform encompasses lots of different things. Some people might want a lot of coverage expansion and be willing to take a lot of new taxes in order to pay for it. Some people might want less coverage expansion and be willing to take less new taxes to pay for it. Neither of these positions in my view is right or wrong. They're just putting different weights on these three elements of real reform. If you agree with me on that, translating these goals into policy that's the hard part and for that I'm going to offer you three principles and I'm going to talk through these in some detail in the time that I have here today. The first principle is difficult trade-offs. If you believe that those are the three things that we should be striving for in real health reform there's going to be difficult trade-offs and I'm going to talk about what I like to think of as an iron triangle of these trade-offs in more detail in a second. Second principle is more is not necessarily better. I think that follows from the broad view of real health reform that if you think we've got a lot of spending on low-value care, which I think pretty much everyone's in agreement that that's true, then more is not necessarily better because some of that stuff is not providing good value for the resources that it's consuming. The third principle is that everybody has to pay more. Everybody has to pay more at the point of service starting right now as much as they can stand. Everybody doesn't have to pay the same amount more because if you don't have any money, you can't pay as much more as, for example, I can afford to pay, but everybody has to pay more. We can't get away from this real principle and I'm going to I think talk through why I think that's true in a moment. Although my talk's not about the Affordable Care Act, I would like to spend some time contrasting these principles with the principles of the Affordable Care Act. The principles of the Affordable Care Act are everybody who likes their current insurance can keep it. Private insurance premiums are going to go down. We're going to extend coverage to roughly half of the uninsured. There's some discussion over how many people are forecast to be covered once the ACA is fully phased in, but it's roughly half of the uninsured. We're only going to increase taxes on people with high incomes and the budget deficit will fall. These are the stated principles of the Affordable Care Act, but unfortunately all of them can't be true at the same time. As the problem is, as we're now starting to see, it just can't be true. That's the first principle of real health reform is what I call the iron triangle. What's the iron triangle of trade-offs that real health reform has? As you want more of one of these things, you've got to accept sacrifice on one of the others. If you want more scope and magnitude of a coverage expansion, either you got to have higher taxes and more deficits or you got to have higher private insurance premiums and fewer benefits. If you want lower taxes and less deficits, that's okay too, but then you can't have as much coverage expansion and you can't have as generous private insurance benefits and as low private insurance premiums. It seems like this should make sense to most people that this is the fundamental basket of trade-offs that we've got to face, but the fundamental problem with the Affordable Care Act is that it's based on a denial of this reality. We can't have coverage for half the uninsured. Everybody gets to keep their insurance who likes it, lower private insurance premiums and only more taxes on high income people. It's not possible and I'm going to explain to you why that's true and this is important because the only way we can reach a national consensus on where we want to be on these difficult trade-offs and I don't pretend to have an answer to that. Who knows where we should be as a country, but the only way to reach a national consensus on this is for us to start having an honest discussion about them which unfortunately we haven't done. So let me talk about the private insurance premiums and benefits piece of the triangle for a second. One of the earliest selling points for the Affordable Care Act was that it would reduce private insurance premiums by $2,000 to $2,500 per family. This was a point that was sold. It was based on a back-of-the-envelope calculations that took a highly optimistic view of its cost control measures, cost control measures that were ultimately rejected by the CBO, but nonetheless are still being used by supporters of the law to convince people of the underlying principle that reform can pay for itself. So this claim, it's just incorrect. It's simply incorrect. For most of us, the Affordable Care Act will probably increase our insurance premiums a little bit, not a whole lot, a modest amount. If you have insurance from a large employer, you're going to have to pay some new taxes. There's taxes on health insurance. There's a tax on medical devices. There's a per capita reinsurance charge. I can go through the whole list of things. They're not that large, but collectively they might amount to a percentage point something in that ballpark. Then there's the fact that we're expanding demand for health services while keeping the supply, at least in the short run, relatively fixed. And that's also, that's okay, but when you do that, prices will rise. If you expand demand and supplies are relatively fixed, the price of the thing is going to go up, and so that's going to happen also. There's reasonable people can disagree on how large that is, and I don't have a specific number in mind. In addition, we're all going to have to pay a little bit more for our insurance to comply with new regulations that the Affordable Care Act imposes. Some of those might be good. Some of them we might think are not good, but there are a bunch of new regulations and they are cost-increasing ones. So collectively, for people with large employer, self-insured kinds of coverage, I would say you're going to have a small to modest increase in your premiums. For people on Medicare and Medicaid, I would say the Affordable Care Act is roughly a wash. For some people, it's going to be a minus. It's going to be a minus for Medicaid beneficiaries who now have to compete with a much larger pool of people who will also have Medicaid coverage, which at least in California is a very low-paying set of coverage. And so the product of having low Medicaid reimbursement is that Medicaid beneficiaries have to wait. They don't get as good a service as somebody who has very high-paying private insurance gets. And that varies across states. Some states have more versus less generous Medicaid. But certainly, when you expand the number of people on Medicaid, that's going to create a bind for the people who were already enrolled in it. Some Medicare beneficiaries are due to the Medicare cuts that are part of the Affordable Care Act are going to have decreases in services. That too, I'm not sure is a bad thing. Many of those cuts are going to come through payment reductions in the Medicare Advantage Program, payment reductions to plans that were paid well above the average fee-for-service cost in the areas that they were serving. Those extra payments were translated, at least in part, into more generous benefits for beneficiaries, which the beneficiaries liked, not surprisingly. And some of those are going to go away as a result of the Affordable Care Act. And again, that might be good. That might be bad. But there's going to be a bunch of people who either have to start paying more Medicare Advantage premiums are going to lose their Medicare Advantage plans, are going to lose a bunch of benefits. So they're going to be hurt, essentially, by it. Rest of Medicare we'll talk about in a second. The third group of people affected on the private insurance side are people in the small group and individual market. Those people are the ones who are going to be most affected by the Affordable Care Act because the act restructures those insurance markets. It left alone the large employer and self-insured markets. On the small group and individual market, it imposed a modified community rating guaranteed issue rules, effectively, that say that you can't turn down people or charge them based on their health status and limits what you can charge them based on their age. Well, so some people in the individual and small group market are going to see their premiums go down because of that. People who were ill or who had very high premiums will have a benefit. Some people are going to see their net premiums go down because they're going to now get an income-based subsidy as a result of the act. That's really not their premiums. That's they're getting a subsidy from the government to help defray the cost of their premiums. But it will be a benefit to them for sure because now they're going to get a transfer payment to help them afford their health insurance better. Some people, however, are not going to get a subsidy and are going to see their premiums go up a lot. And you're seeing that in the newspaper now. People getting their insurance canceled. This is totally foreseeable and indeed intended consequence of the Affordable Care Act because what we need to do in order to finance the expansion of community-rated coverage to people is to get the people who were paying less because they had relatively good health status to start paying more in the community-rated market to help subsidize the people who were having to pay a lot more in the experience-rated market. Anyway, the best that can be said is not that your premiums are going to go down. It's that your premiums are probably going to go up a little bit for most of you. If you have a low to moderate income, you're going to get a transfer payment and that's going to be good for you. But then there is a block of you, some number of millions of people whose premiums are going to go up a lot. And so that's sort of point number one in this difficult set of trade-offs is going to be a bit of a mixed bad. So let's talk about the second point here, the taxes and government deficits point. Probably the biggest selling point for the Affordable Care Act was that it was going to reduce the budget deficit. Or as that's presented by the law's supporter, it's going to save money. So this claim is still being made and it's the least credible claim in the process of selling the Affordable Care Act at all. Its basis is that when coupled with the increased taxes that are part of the act and the Medicare reimbursement reductions that are part of the act, the increase in government outlays from the coverage expansion are going to be more than covered by the extra taxes and the reductions in Medicare spending. And so that's going to reduce the deficit, right? Okay, well, yes, that depends on two assumptions. The first assumption is that the Medicare reimbursement reductions that are in the act are not going to get undone. Okay, they're not going to be undone by future Congresses because if they were, then of course you couldn't use them to finance the coverage expansion in the Affordable Care Act. The second assumption, assuming that those Medicare reimbursement reductions are not undone, is that the savings from them should be credited against the cost of the Affordable Care Act's coverage expansion, even though the Medicare program itself is in the long run insolvent. Okay, so if you want to say that the Affordable Care Act reduces the deficit, you have to believe those two assumptions. Just incidentally, the claim does not depend on assumptions about the revenues from the Affordable Care Act taxes or any reduction in the consumption of real resources because there's no way that the Affordable Care Act taxes and sort of reallocation of real resources can finance the coverage expansion. No one has ever claimed that. It's not even close. It's roughly half of it can be financed through the taxes on high-income people and the rest of it comes from these Medicare reductions. Well, so how can you see that these deficit claims are fundamentally not true? Well, what they're doing is allowing Congress to use Medicare savings to finance a new entitlement program even though Medicare itself is insolvent. If you believe this reasoning, then Congress could claim that a new war was deficit-neutral as long as the authorization for force was passed in the same bill as a Medicare reduction, right? But that's totally ridiculous. A war isn't deficit-neutral. The money has to come from somewhere. And of course, the same thing is true here. The fundamental problem is that the deficit-reduction claim is made relative to a future world that we know is never going to come to pass, okay? So how do we know that? Let's talk about the Medicare reimbursement rate reductions. The most notable example of Medicare reimbursement reductions is the DOC fix, the Sustainable Growth Rate fix. And this is this problem. It was passed in the Balanced Budget Act of 1997, I believe, which limits reimbursement to physicians in the Medicare program to GDP growth, some function of GDP growth of some sort. And it was enacted as part of the BBA to, as a way to control spending, perfectly sensible thing, you might think. But all but one Congress since then has undone the Sustainable Growth Rate limitations. And you understand why? Because certainly at this point, the SGR drop were to allowed to be imposed would be like a 25, I don't know what the exact number is, but something like a 25% reduction in compensation to physicians practicing in Medicare, which you just couldn't do that. I mean, or if you did, there would be big service consequences as a result. Now that's inside of the Affordable Care Act assumptions and the real deception of the SGR is the magic, it lies in the magic of compounding. So every year that we let this go, it compounds on itself and so the savings from not changing the DOC fix in out years of the Affordable Care Act is bigger, it gets bigger and bigger, right? Because every time we're sort of working off a smaller base and saying we're not gonna, we're gonna impose this cut on doctors that's been accumulating for years and years. And so of course we can't do that, but if we can't do that, then how is it that we're gonna use that money to offset the perhaps reasonable desire to expand coverage? Well, does this mean that the Affordable Care Act was the wrong thing to do? No, that's not what I'm saying here, not necessarily. You might believe that the redistribution inherent in the act is worth these costs and that's okay, but that's a very different argument than what the supporters have made, okay? It's a much more nuanced argument and if that's the argument, then that's what we need to have as a country. Okay, I'm gonna go back to my principles now, having talked about the Affordable Care Act a little bit. The more is not necessarily better as the second principle. So from a clinical perspective, I think people here probably agree that more is not always better, right? Treatments always involve risks as well as benefits. Risks of side effects, some risks that are unintended but probabilistically inevitable like the risk of medical errors. There's also the emotional cost of medical treatment to people which is often not counted but given this is an ethics series I think is important to think about and other factors like anxiety. Another thing that is worth thinking of is just a little advertisement for my friends at Dartmouth. The risks of more as they call it, the Dartmouth people have started a fascinating new project called Preventing Overdiagnosis where they're seeking to quantify the risks of more and if you go to their website, if you Google them you'll get to see this. It's a very long list that they're working on misuse of antipsychotics, misuse of narcotics, back surgeries, overuse of radiation intensive imaging, lots of interesting stuff from the Dartmouth people on this. So I think we can pretty much agree that more care is not necessarily better but the principle goes even further. Is more Medicaid better? Should we have a lot more Medicaid? Well, this summer researchers from Harvard Medical School gave us at least a partial answer to that when they evaluated a randomized trial of an expansion of Medicaid and Oregon. And what they found, I won't go into too much detail here because I assume folks here have looked at this paper but if you haven't it's a very interesting paper. It's a New England Journal article from this summer. What they did was they looked, in 2008 Oregon expanded its Medicaid program from lottery drawings on a waiting list because they had some extra funds but they had more people who wanted Medicaid than they could afford to provide it to so they had a lottery. And they followed the people that they gave Medicaid to and the people that they didn't give it to, that they denied access to the program randomly to because they didn't have the money to cover them. And what they found was no significant effect on any measures of physical health of the Medicaid beneficiaries who got the expanded coverage versus the people who didn't. Very disappointing, extremely disappointing result that the medical care being delivered was not in a randomized trial having measurable consequences for people's physical health. They did find that the Medicaid benefits reduced people's financial strain and reduced emotional problems associated with the financial strain but that might just be due to the financial support that the Medicaid benefit was providing and have nothing to do with the health insurance at all. They weren't able to distinguish whether it was the Medicaid or if it was just the act of giving something to somebody that's worth a couple of thousand dollars who has a very low income. So what do we make of this? Does this mean that Medicaid is a waste of money? That's what some people have said. No, it absolutely does not mean that, not necessarily. What it means is more Medicaid, expanding Medicaid, at least in terms of measurable health outcomes does not seem to be delivering terrific performance to us. What are some alternatives to this? Well, in San Francisco, we have a program called Healthy San Francisco, which is a non-Medicaid approach to providing a basic set of health services knit together from existing safety net programs for people who have low to moderate incomes. There's a very interesting article by Mark Hall, who's a law school professor in Health Affairs, I think it's in 2011, that looks at a bunch of programs like Healthy San Francisco, non-Medicaid programs that try to deliver services to people using existing safety net programs and knitting them together in a constructive way at a much lower cost than Medicaid. They find that these programs are successful and are able to do it much more cheaply. Those evaluations are not randomized trials, so it's always a tough nut to crack, to what extent is this just the people who go into this less acute safety net program, lower cost people than the folks who really need intensive care and have to go on Medicaid. Nonetheless, I think the results are very suggestive and super interesting in light of the very disappointing findings from the Oregon experiment. Okay, so that's my second principle of health reform. What about the third principle? So the third principle is everybody who can has to start paying more. And so if you agree that more of the same stuff is not necessarily better, then I think you gotta at least consider the possibility that everybody who can pay more has to start paying more. So paying more at the point of service is a proven way to reduce consumption of health services. There's a long line of research starting with the RAND experiment from the 1970s that shows that higher co-payments reduce people's consumption of health services. Now, making people pay more involves some trade-offs. So higher co-payments reduce the consumption of care that doesn't provide a lot of benefits, but sometimes it also reduces consumption of care that does provide benefits. It also reduces risk protection. It also has the potential to increase inequality. If you, certainly if you make everybody pay the same amount more, that's definitely gonna increase inequality. Now the fact that there's a trade-off here is often viewed as an indictment of this principle. But although there's reasonable concerns about the downsides to this that I just talked about, that doesn't mean that this is a bad idea. It means that there are reasonable concerns and that implementing it has to take account of those. My view is that we're so far out on the flat of the curve of health spending that any sensibly designed plan to change that has to make people pay more, especially people who can. Let me talk about some of the other reasons before I go to the administrative issue here. Let me talk about some of the other reasons why I think paying more is good. Reducing low value care, that's the sort of big thing, but there's lots of good things about people paying more. Another good thing about people paying more is it will help contain provider market power. Market power of doctors and especially hospitals and especially large hospitals is a real problem in this country. The prices of hospital services are going up faster than inflation and they're going up in places where markets are concentrated, where there's not good competition. One reason for that, and this is, I think, an interesting research question, but one reason for that I will hypothesize is that people aren't paying the full burden of these super competitive prices. And if people had to start to pay for more of it, there would be outrage. Things would happen, things would change, things would start to change. Pushback on provider market power, price transparency, everyone complains about how there's terrible price transparency in healthcare. I completely agree. Why is that? Well, part of it is that people aren't paying. And if people had to start to pay, there would be demand for price. People would demand transparency. I'll give you a story, which is a, it's not directly relevant, but it's an interesting story. So I had a sick dog, my last dog, old dog, very sweet animal, very sick. So I take, the dog is not doing well. I take the dog to the vet. And I say, she's listless, she's not, what do I do? What are we gonna do here? That says that's okay, hold on, let me get a nurse. Nurse comes out, looks over the dog, does an examination, four minutes later, comes back with an estimate. And I was kind of blown away. Literally it says, these are the things we think are wrong with your dog. The cost of caring for it is between something like 700 to $1,300 or something. These are the factors that we use to do this. Is this okay with you? And I said, yes, I mean, it didn't in the end really help that much, but I love the dog. And of course, if it were my mother, I mean, it would be a much harder conversation to have. I would probably go up, I'll go up a little bit from there. But the point of the story is that the idea that healthcare is too complicated and we just couldn't figure it out, I don't buy it. In some circumstances maybe, and those are tough. In a lot of circumstances, no. This was a complicated case. I mean, it was a complicated veterinary case indeed, but a complicated case. And the transparency, I was just blown away by how quickly and truthfully they were able to tell me what really was gonna go on here. Third reason I think we should think about paying more is that I think it will create a bottom-up demand for more effective forms of healthcare organization. Another complaint you hear, people say the fee-for-service system is terrible. Why can't providers integrate? Why can't we have more efficient forms of organization and compensation? Well, one of the reasons we don't is because nobody's paying for it. And if people had to start to pay, they would insist that doctors not reorder tests that already existed. They would insist that people keep track of stuff better than they do today. But in the absence of anybody paying, very tough, very tough. Okay, so I think I've tried to make at least some case for why people should pay more. One of the alternatives to paying more is we should have more administrative approaches like those used in other countries, like the UK. And I'm not sure that that's a bad idea or a good idea. I think there's a debate to be had about that. But what I'm quite confident of is that it's an unrealistic idea that in this country, there is no way we're going to have effective administrative cost control, at least from where we are at the present. In the future, potentially so, it's hard to say. The story that I like to tell about this is the Independent Payment Advisory Board, the IPAB, which is a 15-member panel, part of the Affordable Care Act, tasked with recommending ways to reduce cost in the Medicare program. And there are two striking things about IPAB. One is about how weak it is, and I've written about that. And that's not, I'm not the first or only person to have acknowledged this. This, I think, people pretty much agree. The second thing, which I was sort of surprised about, is that it's the only piece of the Affordable Care Act that has bipartisan support for its repeal. And that's true. The people who are in favor of repealing IPAB, there's a new, well, it's not new, there was a bill introduced in the House, Protecting Seniors to Medicare Act, that's HR 351. And the folks who have come out in favor of this range from Sarah Palin, whom I'm sure you all know, to Howard Dean, who was the senator from Vermont. I'm not kidding about Howard Dean, Google Howard Dean in IPAB, and you'll see, he says that IPAB is the wrong thing to do. Finally, I think if you're gonna talk about administrative approaches, you've gotta talk about them, how they actually work in practice, not how they work ideally. And when we talk about using prices to allocate health resources, we're concerned about inequality, and I think rightly so. But administrative approaches create their own inequalities. The idea that administrative approaches to cost control allocate treatments on the basis of need, rather than on the basis of socioeconomic status or income, that's just not true. In fact, there's a very interesting series of papers on this topic about the UK NHS, written by some economists. There's one in Journal of Health Economics that show that there's substantial inequality in waiting times in the UK NHS across areas based on the socioeconomic status of the people who live there. And so that's not saying that administrative approaches are bad necessarily, but just that to the extent one is concerned about inequality, you're not gonna solve that by not using prices. So very important, it's gonna be difficult. You can't demand the same point of service payment of everyone, and that's obviously true. But I think that as a starting point, we need policies that at least for privately insured, employed people, for people like that, those people need to start paying more at the point of service. And tax policies that encourage people to get more cost-conscious insurance are an excellent step in that direction. I've written a whole bunch of stuff about that. People wanna talk about it. Well, I think I'm about nearing my time. So let me sort of wrap up here. Just to summarize, whatever you think about our current path of health reform, getting ourselves out of the hole that we've dug for ourself in healthcare, it's been a long process to dig this hole, long series of policy choices over the past 40 or so years and it's gonna be tough to get out of. It's gonna involve a lot of difficult trade-offs. It's not gonna be done without sacrifice from people. And I think what we need to start thinking of is that more is not better, and that everybody has to start paying more at the point of service as much as they can. So that's what I have. And I'll stop there and take questions. Thank you. Thank you, I appreciate your talk. Your comments in response to the survey data from about a year ago that it showed a positive association between I think three states, both red and blue politically, Pennsylvania, New York and Arizona, associated with penetrated mortality benefit associated with Medicaid penetration. I'm sorry, I don't understand. I don't understand. So the survey data, and I saw this in the public media, a mortality benefit for states that had a larger percentage of Medicaid penetration and they were New York, Pennsylvania and I think Arizona. Oh, decreased mortality, that could be true. I'm not aware of this paper. I mean, there's a long series of papers that show an effect of insurance coverage on health based on observational data, of which this one sounds like it is a part. The problem with all those papers is that there's often other things going on at the same time that may lead both to the differences in insurance coverage and the differences in health outcomes. And so it's for that reason that experimental data, like the article published in the New England Journal, is so interesting and so illuminating. So I know there's a long series of papers that show insurance benefits health. The problem is there's unobserved factors that are going on and it's hard to know how important those are and it was this study that essentially answered that question. So sticking with that topic, I thought that study mimicked the RAM experiment finding which was essentially if you have lower co-pays, you use a lot more health services but you don't have a lot of health impact in some sense. And in regards to the health outcomes, why is that really an issue? Suppose I paid your house for you and you had a $200,000 house. I'm sure you have a nicer house, but let's say I have two. Well in California, you can't buy any house for $200,000. You get an outhouse for $200,000. You can't buy a parking space. So if I paid your house and you kept your house, you were about $200,000 better off when I did that. So why do I care where their health outcomes, if Medicaid beneficiaries are now not paying for their health insurance, they're approximately better off by how much you're paying for their health insurance. And why do I need a health effect for the success of the program? In fact, economists would say the less distortion there is by the program, the better. So you would actually want full crowd out. That's an ideal situation because you're not distorting their insurance choice. You're just giving them money for the same thing they're buying. So why isn't that the right way to think about the welfare effects of this program, as opposed to mortality or health outcomes? Yes, that's an excellent question. There are two reasons why that's not, why I don't think that's the right way to think about the program. The first and most important reason is that the way that it's sold is that Medicaid is necessary and insurance is necessary to improve people's health. That's how it's sold politically, that's how it's sold. And to the extent that there's no evidence for that, then that's not honest. That's not facing up to what the facts are. The second piece of this is that I do believe that Medicaid makes people better off because it's worth something. I mean, it's better than not having Medicaid for sure. But if what you wanna do is make low to moderate income people better off, then you should just give them the money, right? And by giving them Medicaid instead, you're creating an inefficiency because many of them would have preferred just to have the cash, right? I mean, that's what you're saying is why shouldn't we just give them the Medicaid if it makes them better off? Well, if the goal is solely to increase the living standards of the people in that income range, the most efficient way to do that is to give them the money, not to give them an in-kind benefit. And that is not an unreasonable thing to suggest. I mean, I definitely can see the argument for expanding transfers to low-income people. Some people like that, some people don't like that, but that's not the way this has been discussed. Actually, can I just follow up on that? Yeah, go ahead. I feel like I have to channel Casey Mulligan and ask how do you do helicopter drops to poor people, poor people that even might have serious health problems without distorting their behavior or their incentives to earn money? Well, you can't. And that's a cost of any means-tested transfer program, be it Medicaid, the earned income tax credit, anything. But that doesn't mean you shouldn't have means-tested transfer programs, right? Because I think most of us agree that there should be some safety net programs out there. The question is how big? And that's, you know, you have to trade off the budget cost, the labor market distortion against the improved equity that you get. That's just a fundamental trade-off. So your answer to Thomas is that it could be that Medicaid is a, we want to judge it on its distortive effects relative to other ways to help poor people in that context. Yeah, I mean, if the goal is to raise the incomes of low to moderate income people, then the best way to do that is to give them money, not to give them health insurance, unless you believe that the act of the health insurance makes them healthier or somehow makes them better off than giving them the money. Yes, that's certainly, it's certainly true that there are other reasons why you want in-kind benefits. Oh, yeah, I don't, I'm less a fan of that kind of thinking, personally, but. There are other reasons, put it that way. So there's many reasons why you might want to give in-kind with this cash. Given that we have an in-kind program. Right. They're better off by the amount you're giving them in the premium to start with, regardless of whether they're better health or not. Yeah, I tend to think people, even if you don't have a lot of money, you're probably the best judge of how to lead your own life. But other people disagree, I understand. This show on average in any kind of program. But what about? I mean, I think there's a lot of experiments in the Affordable Health Affordable Care Act, which are quite interesting about trying to get better value. I think accountable care organizations have some potential. They also have some risks to them. I think paying for performance in Medicare has a lot of potential. So I think there's some neat stuff in there. On the other hand, I think if we're really serious about getting better value, there has to be more demand side engagement. And again, it's tough because you can't do it at all points in the expenditure distribution. You can't do it for people who don't have any money to start with. But there's a lot of us for whom you can do it. And all you need for a market to work is enough people to be in there being conscientious. Every single person in every single decision doesn't have to be doing the perfect right thing. You just need some people that are forcing better value. And so that's where I'm coming from. The other finding, as I understand it, from the New England Journal article, or at least I know from the study itself, is that depression did actually go way down. And so I was curious why not mention that as well, but that's clearly a health benefit of being covered. I would think mental health benefits, not just physical, but mental health is, there was a significant difference in that randomized trial. Just to follow up on the other point as well, that the main value we get from insurance is financial protection. And they did get that. That was the other part of the finding, right? That people that were covered under Medicaid did better financially. I mean, I think that's the transfer that is talking about. So to say give them cash directly, they can go purchase individual health coverage, but it's not going to be nearly as affordable as purchasing, like in the Arkansas private option. If you want to give them cash, at least then give them access to a so-called pooled insurance marketplace where they can purchase affordable health coverage. So just curious what you think about that as well. You might be right. The experiment didn't say whether, so how much does Medicaid cost Oregon to give to people? I don't know what the number is. It's probably two or $3,000 per capita per year, something like that. In order to answer the question you're asking, what you'd have to do is randomly give people in the same circumstances a cash benefit of two to $3,000 and see if they're depression and their financial anxiety declined by the same amount or more or less. We don't know. The point that I'm making is that there's no evidence that it is the Medicaid that did that because we didn't compare it against giving people the money. And if the argument is that what we want to do is to increase transfers to low and moderate income people and the only political way to do that is by giving them health insurance regardless of its value relative to cash to them, that's okay. That's an argument. That's not the way, that's not the argument that's been made. One of my questions is how does, so a large part of the Affordable Care Act is trying to address not only things like the uninsured and healthcare inequality, but also health costs and inflation, particularly things like medical devices. How would that change your calculus of whether or not the act could pay for itself? What, can you tell me what elements of the act are reducing cost inflation and medical devices? I'm not aware of those. I don't know specifics, but I know that this is part of the Impotence for the Act is that health costs for the same services tend to rise year over year for certain things. For instance, the New York Times has been running articles on asthma inhalers and how the cost is going up and not down for the exact same inhalers. I'm certainly aware of the Times articles that I forget the reporter's name and they're excellent. Those are a wonderful series of pieces. I'm not aware of anything in the Affordable Care Act that's gonna change that, but I'm ready, if anybody knows of anything, you can tell me about it. I don't know of anything. Hypothetically, would that, could that change your calculus? I mean, if that were part of the Affordable Care Act, I'm sorry, I don't know the specifics of this. Sure, I mean, if it could, that'd be great. Unfortunately, I think part of the reason why we have all this price dispersion that the Times reporter is talking about, a very interesting series of articles, is because people aren't paying. And that when people started to pay, you'd get less price dispersion. If I could just follow up on this. That'd be my bet, I mean, I don't know. That's a hypothesis, not, I don't have evidence. So some of you people said, I didn't have will benefit costs for, can you tell us what you want tonight? Oh yeah, I don't think that's, I mean, I just don't think that's likely to happen. I mean, I've written about this, other people, a bunch of people have written about it. There's too many loopholes in the way that Congress can get around IPAB mandated reductions. And that was intentional on Congress's part. And in fact, I mean, the fact that we've got these bipartisan bills to get rid of the whole thing altogether when it hasn't even come into effect and hasn't even done anything yet. You never know, CBO's scored it as having essentially no effect. Maybe it'll happen, it'll be wonderful if it could work. I mean. We can take one more question and two, but one let's do one. I guess it's a little hard for me to wrap my head around the idea that making people pay more will make that much difference when there's more than a million people filing for bankruptcy because of medical costs. And two thirds of those people already have insurance and we already pay more out of pocket for a cost in America than anywhere else in the world. It just doesn't make a whole lot of sense to make us start paying more because presumably that's gonna increase the medical bankruptcies. It's gonna, you know, already put a strain on us as it is. You know, if there were a way to sort of get us out of this situation with no one having to sacrifice anything, that would be great. I just don't see where it's gonna come from. I mean, just wishing the problem would go away. I just don't see how that's gonna do it. And, you know, medical bankruptcies, I mean, that is, this is another downside to this. And I think the inequality at, those are serious concerns. They're not, they're not silly concerns. But I think the fact that we have let this problem get so out of control outweighs those concerns and those concerns can be addressed by, for example, helping people with low incomes who are in bad circumstances to make the payments that they need to make. I mean, obviously they should not be on the hook to the same extent that I am. But the fact that my parents in Medicare don't pay anything at point of service is, it just doesn't make any sense. Thank you. Could I ask you a political question? We're in the midst of the Accountable Care Act, Portable Care Act, and this version of health reform. Just as a political matter, how do we, as a society, move towards the gesture of three principles of reform when we're just beginning of this other reform effort? You know, it's, I don't know. I mean, we may have to let this play out for a while. I just don't know. I think the real sacrifice, and I've written about this, is got to come from people with employer-sponsored, big employer-sponsored insurance who need to be moved towards a higher co-payment, higher responsibility world. And, you know, that's a lot of people. That's most Americans. It's the plurality of Americans, and that's why politicians are very reluctant to do that. But I'm afraid, you know, that's beyond my pay grade. You know, a few weeks ago, Helen Darwin was here, speaking for the large employers. Very delighted that they were the ones who got the one-year delay in the implementation of the policy. And, seeming not too eager to head to the costs of their health insurance. Yeah. For your discussion with us. We have a very profitable medical system in our country. The McKinsey report from three or four years ago identified the sources of excess costs in our system compared to other industrialized countries, and found about two thirds of that was due to the rapid rise of ambulatory surges centers and other outpatient care because that gets away from the DRG cap. And then the other one-third comes from insurance companies and pharmaceuticals, and those are very profitable industries. So it seems to me, I do hear your acknowledgement that administrative approaches don't work, but it seems to me like that's the elephant in the room and it's a political third rail. And I think that's a place we need to talk about because when you talk about iron triangle, it assumes that nothing changes inside there. But those are things that could be changed. Right. There are things that could be changed, certainly. I mean, with regard to the growth in pharmaceutical spending, I mean, I think a lot of that is covered by what I'm saying. I mean, if people complain about Me Too drugs, about investments by drug companies in molecules that provide relatively minimal health benefits, but that then have these huge profits and huge... Well, why is it that that happens? If that's really true? Well, I mean, it happens because nobody's paying, right? If people were starting to pay, then people would say, I don't want the Me Too drug. I don't want Nexium. I'm not gonna pay for Nexium when I can have prolasec. People would raise more of a fuss. And until that happens, maybe we should try administrative approaches. I think there are trade-offs associated with those too. I'm not optimistic given the one attempt that we've had so far, which has gone, you know, not going so far. All right, well, I think we should wrap up Q and A. I know that Mark wants to go first. Thank you. I just wanted to thank everyone for coming and joining me. Thank you. Thank you.