 I will say that this is one of my favorite talks to give at Mises U. I've given a variant on this talk for some years. I've had family members in the medical profession, and my earliest interest in economics was partly about the monetary issues, but partly about healthcare policy. So, I've enjoyed over the years being able to follow what's happened in medical care, but I have not enjoyed the trend toward greater government involvement in medical care. I think that that's been damaging to health. I think it's been damaging to our economy, and I hope to show you a few reasons why I think that here in this short talk. I want to say a few things first about statistics. There is a common caricature of Austrian economists that we don't like statistics or that we don't like numbers, that we've got some kind of aversion to looking at data. And I'd like to dispel that, that's not the case. We do use data, numerical data, quantitative data, but we're very careful about it, and we are cognizant of the limitations of statistics. There are plenty of Austrian economists who without becoming heretics or something have used statistical information, but we're aware that there are some problems, especially when you start aggregating, and then if you're not very careful with what you're doing when you're aggregating, you can lead your readers to some pretty bad conclusions. So, I'd like to give you an example of this, I'll use something that came up in a talk that I heard earlier this year at my college, at Woffin College. This is something you may have seen in one form or another yourself. There's a common criticism of American medical care that our infant mortality rates are high compared to other countries and our life expectancies are low compared to other countries that are of a similar economic stratum. So you'll see information like this here. These are some OECD countries, more or less in our economic neighborhood, and you can see the life expectancy at birth in 2013 in the left-hand column and then infant mortality per thousand live births. They're in the middle column and then the percentage of the population over 65 in the right-hand column. So what you see here is life expectancy is 78.8 in the United States. That is the lowest life expectancy in this list, lower by about two and a half years than the OECD median life expectancy. The infant mortality rate per thousand live births in 2013 was 6.1. OECD median is 3.5 and I think we are in this list the highest rate of infant mortality. We can't explain this life expectancy problem by looking at the age of the population is not like we've got an unusually elderly population. In fact we've got compared to many of these other countries we've got a fairly low population over 65. So critics of the market approach to medical care will say, we'll see here we've got this relatively free market American medical care system and it's failing us. So we've got a high level of infant mortality, we've got a low life expectancy and therefore compared to some other countries that have more single-payer systems or have more government involvement than we do in the United States we're not doing well. So let's think about this one kind of disclaimer I want to make here. First of all is I am not going to make the argument that the United States is some sort of free market medical care system. It is not. It is far from it and has been for a long time. This is not just a product of the Affordable Care Act. This is a long time involvement of government in medical care picking up significantly in the 1960s but we've seen some steps in that direction since that time as well. So I'm not trying to paint some sort of here's the free market American medical care system versus all those socialist people in other countries that have their single-payer systems and so forth. That's not what we're looking at. But let's think about these statistics here and I think this will give you an idea of some of the problems we face in trying to do some research on this kind of issue. Let's suppose we were to look at the rate of survival of patients of a highly skilled and experienced, highly reputed surgeon in some field. What would you expect the survival rate for patients of that highly regarded surgeon to be compared to other surgeons? Lower? Why? If they take the harder patients, more difficult cases, that would tend to make their survival rates lower, not higher. So you can't assume that the highly skilled surgeon is seeing the exact same sort of cases that a fresh graduate out of medical school is going to see or out of some surgery residency is going to see. The person who has the reputation for higher skill is probably going to be the person to whom people take their more difficult cases. So looking at the survival rate of patients of a very skilled surgeon would not be the only thing you would want to look at when trying to determine whether that surgeon is a good surgeon or not. It would be one thing you'd look at, but not the only thing. I think a similar problem is happening here when we look at infant mortality statistics. Are we counting the same things? Are American hospitals more likely to treat a premature baby, for example? So in a 2008 study, Joy Lawn estimated that a full three-fourths of the world's neonatal deaths are counted only through highly unreliable five-yearly retrospective household surveys instead of being reported at the time by hospitals and health care professionals as in the United States. Moreover, the most premature babies, those with the highest likelihood of dying, are the least likely to be recorded in infant and neonatal mortality statistics in other countries. Compounding that difficulty in other countries, the underreporting is greatest for deaths that occur very soon after birth. Since the earliest deaths make up 75% of all neonatal deaths, underreporting by other countries often misclassifying what were really live births as fetal demise or stillbirths would falsely exclude most neonatal deaths. This is Scott Atlas now, not Joy Lawn. Any assumption that the practice of underreporting is confined to less developed nations is incorrect. In fact, a number of published peer-reviewed studies show that underreporting of early neonatal deaths has varied between 10% and 30% in highly developed Western European and Asian countries. The United States strictly adheres to the World Health Organization definition of live birth and uses a strictly implemented linked birth and infant death data set. Many other nations, including highly developed countries in Western Europe, use far less strict definitions, all of which underreport the live births of more fragile infants who soon die. As a consequence, they falsely report more favorable neonatal and infant mortality rates. And I would go on, you can read more about this elsewhere if you want more information on this. But this has generated a kind of apples and oranges problem in looking at something as critical as infant mortality rates. Infant mortality rates are very important for life expectancy numbers because if you have an infant death, you're essentially adding a zero into your average. So if someone dies at three days old, you're losing 80-something years perhaps of life expectancy. If someone dies at age 75, you're losing whatever life expectancy is. It's not exactly the average amount of 75 because a person aged 75 has a longer life expectancy because they've already survived a lot of the things that'll kill you when you're younger. But you're not losing as many life years, expected life years. I know this can be taken as kind of a morbid discussion here, but I hope you understand the importance of getting our numbers right and comparing the right thing. If you're comparing the U.S. infant mortality numbers to a country in Western Europe that has a more straightforwardly socialist medical system, we have to be sure that we're counting the same things. And in fact, we are not. The United States also is more aggressive about resuscitating very premature infants, meaning that very premature infants are even more likely to be categorized as live births in the United States even though they have a small chance of surviving. There are some other factors, population heterogeneity in the United States that really don't have anything to do with the medical care system or how much government is involved in the medical care system. It has a lot to do with who we try to save and what the demographics are. If you use National Center for Health Statistics and European Perinatal Health Report data, even if you don't count the population differences, demographic differences, risk factor differences that tend to weigh against the United States, we have in the United States superior infant mortality statistics or rates, rather, for premature and low birth weight babies. So I start this presentation and devote a few minutes to this because it's important to understand that when we are having a discussion about medical care and someone who favors more government involvement in medical care says to you, well, just look at the numbers. We're not doing very well in the United States. Our system is broken. It seems to work better in France or pick some other country. Why don't we move towards something like what France is doing? And I think there are some real problems with that. And you need to be aware that those numbers are not telling a straightforward story. So when we're looking at statistics, we need to be careful of what we're actually measuring. When I went to this talk, I got interested in this, again, kind of a renewal of concern about this issue. And I looked at some other factors that maybe this is something else that might affect our life expectancy statistics in the United States. So, for example, suicide rates, suicide tends to be a cause of mortality that disproportionately affects younger people and therefore, again, takes more potential years of life out of your average. Our rates are, it appears, slightly higher than the average. If you look at 2014 data, which I have here for countries that, again, are roughly in our economic neighborhood, we see that the United States rate is slightly higher than average. It's not some kind of below average number that would reduce our life expectancy statistics. This is probably not a big reason for that gap that you see between the United States and the OECD median for life expectancy. This one might be, though. Motor vehicle crash deaths tend to affect younger people more than older people. And the United States has a pretty high motor vehicle crash death rate compared to many countries that are in our economic neighborhood. Part of this may be that we drive more miles on the highway. But this is not something that can be laid entirely at the feet of the medical care system. And if we have a larger proportion of Americans who are getting hurt and killed in car accidents, we can't say, well, you know, that's because we have markets that are relatively more influential in our medical care system in the United States. Now, we do have a very high cost. And this is another kind of leg of that argument that is commonly advanced against the market as a mechanism for providing medical care. There are a couple of reasons that we might see this sort of high expenditure. One is maybe we're getting better medical care. Maybe we're getting more out of this. And I think there is an argument to be made that some of that medical expenditure is, in fact, purchasing better medical care. On the other hand, perhaps we're seeing elevated costs for other reasons that are not so beneficial to American health. Vijay Boyapati points out four reasons for rising medical costs in the United States. One is, he says, employer provided health insurance, which came as a result of high tax rates during World War II and the effort of employers to provide employees with a non-taxable benefit. And courts ruled in the 1940s that if an employer provides medical care or medical insurance to an employee, that is not a taxable benefit. So that means that in order to avoid taxes, employers have an incentive to provide a lot of health insurance. This is a third-party payer, and we'll get back to that later. If you have someone else paying your medical bills, how careful are you going to be about costs? Answer, not very. A second reason is medical licensure. We'll talk about that as well. Third, the obesity epidemic. And fourth, he says intellectual property, that is patents on drugs and other medical equipment and devices. If you look at some of the arguments about health care cost growth, many of them have to do with a kind of a moral hazard problem. And that is if someone else is paying your bills, either government or an insurance company or a charity, then you are not going to be as careful about your medical costs. For example, a number of years ago I was having some back trouble, went to a doctor about it. The doctor said, I'd like you to get an MRI, and so I said okay. And I called either that day or the next day and scheduled an MRI within a day or two. Try that in some countries. And I got an MRI. I didn't ask what the cost was going to be. I looked at my bill later and it was several thousand dollars for the MRI. My out-of-pocket cost was maybe a hundred or something. It was trivial compared to the total cost. I didn't know about the cost of the MRI. If I'd had to pay even a slightly higher out-of-pocket cost for that diagnostic procedure, then I might have said hey doc, can you get by with an X-ray? You really have to have the MRI. My back pain is, my back is bothering me that it's not crippling. Maybe you can get by with an X-ray instead. But I didn't really pay attention to the price because I had very little incentive to. So if medical insurance, private medical insurance or something like Medicaid or Medicare picks up the tab, then that means you've got patients that really don't care very much about the cost. But there's another kind of problem here which is that sometimes you can spend more money on medical care and not get an improved outcome. This might be because a lot of our expenditures in medical care are going to things that really don't generate much impact. Could be because you've got a lobbying organization that has pushed for widespread medical, early medical testing for some disease. And so you get piles of money flowing into this diagnostic procedure that really aren't generating very much in the way of improvements in health. So this has been referred to as flat of the curve medicine where you're spending more on medical care but the additional gains from that spending are very low or nonexistent. There's a famous experiment conducted about five years ago in Oregon where they randomly assigned increased medical benefits, Medicaid benefits, to 10,000 individuals. Kind of a lottery. If your name gets drawn, then you get the extra medical benefits. If your name doesn't get drawn, you don't. And then they looked at the differences in medical or health outcomes between those two groups. And they found that in fact the expanded Medicaid coverage generated no significant improvements in health outcomes in the first two years, despite increased use of prescription drugs, office visits, preventive care services including mammograms and annual spending per individual in excess of $1,100. So it's possible to spend more money and not get much of a result. The answer to health problems is not necessarily to go to the doctor. Sometimes health care is, or health is achievable through other means. And whenever you throw more money at medical care, you're inevitably taking it away from something else that might actually be more beneficial to you as a person. So increased medical spending is not necessarily welfare enhancing. I'm skipping over some of this in the interest of time, but we can end up kind of spinning our wheels with buying new technology and making doctor visits more available to people and not getting something that is helpful. Fundamentally, we could end up spending a lot of money on insurance that causes people to go visit the doctor more often or take advantage of diagnostic techniques and end up not really improving our health. But I think a key part of understanding the medical cost increases in the United States is our third-party medical care system. And again, we've seen this since the 1940s, expanded in the 1960s with the advent of Medicare and Medicaid, which puts an intermediary, either the government or an insurance company, in between the patient and the care provider. So the care providers, doctors, nurses, whoever else is trying to help is perhaps paying more attention, or at least is incentivized to pay more attention to the bureaucrat or the representative of the third-party payer than to the patient. The bureaucrat is maybe a thousand miles away and gets a summary of the interaction between the patient and the doctor. So you go to the doctor, the doctor writes a few things down, or more often now is typing them down into a form. And that form with the stripped-down information about the patient and the symptoms and the proposed treatment ends up going off to this office somewhere where somebody far removed from actually laying eyes on the patient and hearing exactly what the doctor hears and all the nonverbal communications going on. That bureaucrat is then going to look at this very abridged record of that visit and then make a determination about whether the doctor did the right thing. This is one of the reasons that doctors do not appreciate in many cases electronic medical records. It's not that they are opposed to technology per se, it's that very often electronic medical records, for which there's been a really big push in recent years, are aggravating this kind of illusion that the bureaucrat has enough information to make this kind of decision about whether the doctor did the right thing or not and made the correct diagnosis, suggested the right treatment and so on. So that's a real problem when you've got a care provider who can be ultimately prosecuted and maybe have a license removed for doing something that makes sense when you consider the full range of information that the doctor has when talking to the patient, but that's not really reflected in the stripped down medical record provided to Medicaid or provided to an insurance company. So as a result of this, we've seen, well partly as a result of this, we've seen an increase in medical care costs and this is a diagram that's getting a little bit out of date because it goes only as far as 2012, but you can see at least over a 20 year period medical care costs have increased at a far more rapid pace than inflation in general. Inflation being measured by something like consumer price index, which we understand there are problems with that too, but medical care increases at a rapid rate. Now tomorrow I'm giving a talk on the crises in higher education and I'm going to point out something very similar with higher education and actually the reasons are connected. Who's been funding more and more of the cost of higher education? Government. So third parties are paying, government's paying the bill, you don't care as much about the cost. Now toward the bottom of this is a purple line indicating cosmetic services. This is not Mary Kay, this is cosmetic surgery and that sort of thing. And you notice there that cosmetic services, that subset of medical services has increased at a rate about half that of inflation overall. Why would that be? Why would we see such a low rate of increase in the cost of cosmetic services as opposed to medical care in general or physician services in general? And perhaps that it has something to do with the fact that insurance companies, Medicaid, Medicare, etc. do not pay for elective cosmetic procedures. So you are on your own, you're paying out of your own pocket for those kinds of things, which makes you a better shopper or a more careful shopper. It means that you're going to avoid unnecessarily expensive procedures. There's some other things going on here too, maybe some technology has improved in that area compared to some other parts of medical care. But if you look at cosmetic services, that has, that I think reflects the benefits of direct pay. I've talked a bit about the competing standards in medical care. The patient is in this mix with a lot of other institutions. The employer is selecting an insurance plan. The insurance company is providing some direction, for better or worse, to the medical provider. And it's also lobbying the government. It would be great if an insurance company could get the government to mandate its services, wouldn't it? Wouldn't that be fantastic if you're an insurance company, you can get the government to require people to buy what you have to offer? So then the government regulates the care provider and regulates and regulates and regulates, as well as regulating the insurance companies. Insurance companies, in exchange for getting their product mandated, also are required to provide different bundles of insurance than was perhaps once the case. So the patient gets kind of lost in this, and especially once you consider where the money is coming from. These percentages may be a little bit off now, they're several years old. But it's clear that the majority of the money that's going to a doctor or hospital or other medical provider is not coming directly from the patient. And so when the doctor or hospital is paying attention to where the dollars are coming from, that rarely includes the patient. The patient is unfortunately sometimes lost in this process. And then we have the Affordable Care Act. And this is, I had this original diagram and then I started drawing all these other things on there to try to show how this works. And it's come out quite complex because, of course, it is complex. And so the federal government mandates patients to get medical insurance. And if they don't get it through an employer or privately, they go through a state exchange or a federal exchange. There have been a few changes in how this has administered over the last year or so, but states can't be required to expand their Medicaid eligibility and so forth. But the end of the process is this moral hazard problem. The mandate that was supposed to ensure that more Americans get medical insurance, which is not the same as medical care, that mandate has resulted in some increases in costs of insurance. And we'll look at some of the reasons for that in a minute. So this is all kind of boiling down to a moral hazard problem, which is that the insured person is going to behave differently than the insured person would behave if paying out of pocket. I have insurance on my car. I know that if my car is damaged, I will only pay whatever my deductible is, which I think is $500 or something I don't remember. And if the car is totally destroyed, I still only pay $500. I might see an increase in my future premiums, but the vast majority of that cost would be absorbed by my insurance company. So I'm more likely to leave my car parked on the street where it's more likely to get sideswiped by another vehicle. I'm more likely to leave my car parked in the driveway instead of the garage where hail could damage my car, which in fact did happen. And I'm more likely to leave it unlocked with the increased potential that it could get stolen. I'm careful about it, but I'm not as careful as I would be if I didn't have insurance. Now there are some market-oriented ways to avoid this problem. Insurance, conventional medical insurance as we've known it in the United States for a long time, is a kind of a use it or lose it proposition, which means if you don't use the benefit that your insurance company would pay for, you don't get anything. If you pay out-of-pocket for the majority of medical services, then anything that you don't spend, you keep. So that's why your incentives are different with out-of-pocket pay. But of course, we know that out-of-pocket pay could get very expensive very fast if something serious happens. So we do have certain risks that we would want to have insurance for. And that's where a health savings account is helpful. I read yesterday that Congress is considering an expansion of the availability of health care savings accounts. I'm not familiar with all the details. This is all very much in flux right now. I just read a few sentences yesterday in a brief news story on this. But apparently this is coming up for discussion as something that we might expand. I would regard that as a good thing because that puts more control in the hands of the patient. It makes the patient a typically better shopper because the patient is the person who is able to keep whatever is not spent on medical care. I pay an insurance premium. I'm never going to see that money again unless I get sick. If I contribute to a health care savings account and I don't get sick, I keep the money, essentially. So there are some advantages to this. I won't go into all the details here. But there is still a role for insurance, but it's not that very low deductible insurance that we typically see in the U.S. where your deductible is $300 or $500 or something like that, which means that the trigger on filing a claim is very low. It doesn't take very many pounds of pressure to get that insurance company involved. If you have a high deductible on insurance, say $2,500 or something, then if something really bad happens to you, insurance picks up the tab. But for the vast majority of your run-of-the-mill medical services that you demand every year, that would come out of this health care savings account. You contribute to that sort of like you do with an insurance premium, except that, again, if you don't use it, you get to keep it. And that makes people better shoppers. It removes that third-party payer somewhat from the decision process. Let me just say a couple of things more on the medical costs and whether they're worthwhile. So there was a study in health affairs several years ago by Phillips and Eber at all, about seven authors there. But what they say, and here's the abstract for their study, they say the United States spends more on health care than other developed countries, but some argue that U.S. patients do not derive sufficient benefit from this extra spending. We studied whether higher U.S. cancer care costs, compared with those of 10 European countries, were worth it by looking at the survival differences for cancer patients in those countries compared to the relative cost of cancer care. We found that U.S. cancer patients experienced greater survival gains than their European counterparts. Even after considering higher U.S. costs, this investment generated about $600 billion of additional value for U.S. patients. The value was highest for prostate cancer patients, breast cancer patients, and they do not seem to have been driven solely by earlier diagnosis. So this is one indication that perhaps, at least in some parts of medical care, the costs that we are paying have been worthwhile. If you look at the added years of life, added quality of life, perhaps we may see some gains. The survival benefits are worth something. So it might sound like I'm contradicting myself here. So in some places, in parts of my talk, I've been saying that medical expenses are triggered by an over-reliance on third-party payers, and perhaps in some cases they're not generating the kind of medical outcomes or health outcomes that we would like. There's the Argon experiment, which shows that you can give people better insurance or more insurance, and they're not necessarily going to get healthier. And then on the other hand, I've got this study here that's indicating that if you spend the extra money, you do get better outcomes. You get greater survival rates and so forth. So what's going on? Okay, this is a huge topic, and the healthcare is wide-ranging from Botox to open-heart surgery, and some of our technology, some of our interventions, medical interventions, have been useful in extending life. Others have not, and others are simply high-risk. You spend a lot of money per year of life saved. Doesn't mean we shouldn't try them, but it does mean that when we look at those statistics on life expectancy, that aggregate statistic is concealing a lot of detail that is quite important in this area. I always like to quote from Yuri Maltsev's article on Soviet medicine. Yuri Maltsev, for those of you that don't know, is an Austrian economist who teaches, I think, in Wisconsin now, and he defected from the Soviet Union in the 1980s and came to the United States and has been a strong advocate of markets ever since. And he pointed out that if you're looking at medical care in the United States versus some other countries like Great Britain, which is a common comparison country for us or Canada, in fact, we do pretty well. He said in his article, which is linked there, if you want the presentation, I can send that to you later, so you can have all these links. He says, the Brookings Institution found that every year 7,000 Britons in need of hip replacements between 4,000 and 20,000 in need of coronary bypass surgery and some 10,000 to 15,000 in need of cancer chemotherapy are denied medical attention in Britain. In Canada, the population is divided into three age groups in terms of their access to health care. Below 45, 45 to 65 and over 65. And he said, needless to say, the first group enjoys priority treatment. The American Medical Association in a report on insurance and denial of insurance claims found that Medicare denied nearly 7% of its claims higher than any private insurer. We see in some countries greater access to medical technology like MRIs. Sometimes that's good. Sometimes it just, again, spins our wheels with more expense for not much additional health. But that's another benefit of having a relatively free market medical care system. If you look at cost containment, how does Medicare and Medicaid stack up compared to every other kind of medical provision? Medicare and Medicaid patients end up paying more than other patients. So if you want to contain medical costs, expansion of existing government programs or creation of new ones may not be the way to go. Here's some more up-to-date numbers. Maltseff's numbers were a few years old, but if you look at availability of diagnostic technology like MRI machines or CT scanners or PET scanners, we see that in, again, nations in our economic neighborhood, we have typically far greater availability of these diagnostic procedures in the United States while I was able to call a few years ago an MRI place and get an MRI within a couple of days at low cost to me. So if you look at CT exams per thousand people, we have 240 compared to the OECD median of 136. If you look at mammography machines, this is a very politicized kind of industry, so I'm not trying to say that this is some sort of unadulterated endorsement of markets as an expander of medical technology. The whole breast cancer industry has been heavily politicized, but you can see that in the United States, which is on the far right of that diagram there right next to Korea, the diamond there is the total number of mammography machines per million inhabitants. These are 2015 numbers. And so we've got the technology. Sometimes, again, we're spending the money on the technology without huge gains in health, but it is the high medical costs that we're spending are buying us greater access, at least to diagnostic technology and some other things. It's also buying us shorter wait times. You can pay in dollars or you can pay in your wait time. And if you've got a very serious medical condition, you know that wait times can be literally painful and also lead to an exacerbation or aggravation of your condition. So if you have to wait a long time to see a specialist, that is definitely not to your advantage. You might be cheaper, but if you have to wait and your condition becomes more serious, you might have wished that you could have paid more and gotten seen faster. I am out of time. I had 45 minutes, but thank you very much for attending and I'll be happy to answer.