 My name is Mark Siegler and on behalf of the McLean Center for Clinical Medical Ethics I welcome you to our lecture today in the series on ethical issues in health care reform Today's talk is the third talk this quarter that is co-sponsored With the Institute of Politics I have been very pleased with this new collaboration between the IOP and the McLean Center Darren Riesberg the Executive Director of the Institute of Politics is with us today. Darren, welcome Today's talk that the last talk in the autumn quarter Will be the 10th this year in a series of 28 Wednesday noon lectures on health reform We plan to resume the health reform lectures after the holidays on Wednesday, January 8 when Albert Wang Albert, are you in the audience? Yes, Albert is here Another talk co-sponsored with the IOP will speak on the impact of health reform on the doctor-patient relationship Now I'm delighted to introduce to you today's speaker Professor Austin Gulsby Professor Gulsby received his PhD from MIT in economics He's currently the Robert P. Gwynn professor of economics at the University of Chicago Booth School of Business Professor Gulsby is also a research associate for the National Bureau of Economic Research and an economics consultant for ABC News Professor Gulsby contributes regularly to the Wall Street Journal Slate the New York Times In fact, some of you may have seen this past Monday his article on the benefits of pre-kindergarten education An op-ed piece in the Wall Street Journal Quoting from that particular piece Professor Gulsby said quote there is one area where we ought to all agree Early childhood education Investments in pre-kindergarten education have among the highest payoffs of any government policy And whatever budget agreement emerges should restore the country's long-standing commitment to early education We'll see if he has the same things to say about health care From 2010 to 2011 Professor Gulsby served as chairman of President Obama's Council of Economic Advisers Earlier as chief economist and staff director of the president's economic recovery advisory board Professor Gulsby helped to guide the Obama administration's response to the economic crisis Professor Gulsby has been named one of the gurus of the future by the Financial Times and one of the 40 under 40 by Cranes business Chicago, but perhaps most important I learned last evening from one of Professor Gulsby's classmates at Yale that that Austin was known as one of the great improv comedians I didn't know that before today Professor Gulsby will be speaking on health care in the economy Please join me in giving him a warm welcome Okay, I hope I hope you're not Disappointed in the sense that I'm not a doctor. I'm not a health economist And I I only agreed to do this because dr. Chinn while giving me some other medical procedures said we really you know would like to Get a speaker and I said he and I he's been my doctor We since we both got to the university some many years ago And I agree to do it now I didn't know that the health plan was going to have rolled out and we would have whatever complications we've had a year ago when I agreed to do to do the talk, but that's fine I thought what I do is walk through a little bit how do economists and Particularly economists that are not specialized in health care. How do they think about the role of health care in the economy the various options that we entertain for for health reform and What has come out of the what what's come out of the Affordable Care Act? And what should we look forward to or what should we anticipate? Maybe look forward to is the wrong phrase Going into the future now there's a joke a Bad joke, but a recurrent joke in the economics profession every winter We have our job market that we do the interviews at the AEA meetings in the At the beginning of January and then for January February the people come in and they give the papers There's always at least one health economist in on the job market and some bozo on our faculty always says well, you know With 20 years from now every job candidate is going to be in health economics because the entire economy is going to be health and They say the same and it's always some junior faculty is a new guy. He tells us a joke. Yeah, haha That's what we've been saying that it for the last 10 15 years and so I would say the first characterization that most economists have not knowing that much detail about the About the medical system directly except as patients is That to them it's all about the money and it's all about the cost So I want to think through some of the budgetary Federal government and individual and business level budgetary implications of the health system But that's kind of this place where where their head comes from the Basic fact of the US economy is that from 1960 when health was a less than 5% of GDP To today where it's something like 18% of GDP There's never really been the rise of any sector of the economy at that kind of speed with that kind of persistence Even the much maligned and characterized rise of financial services as a share of GDP Was not as big as that so that's led to a major discussion within health economics Between two camps which are basically about well is that good money or is that bad money? Is it a terrible sign that we are spending that much of our economy on health care? And should we be trying to drive it down or is that the best money? We ever could have spent and so the types of evidence that the two camps use one camp says Compare the US to anybody else. We're way more expensive We get less bang for the buck than any other country and The other camp says Compare objectively what we get for what we pay for and it looks like it's worth it So the economists go study various kinds of Cardiological care and innovations and they back out. What's the implied? extra longevity cost And the answer is it costs something like 60 to $70,000 For an extra year of life and they say but what a bargain what over $60,000 to be able to live an extra year There's nothing that's the best deal that you could possibly get so That's the backdrop of what how the economists argue about the role of health care in the economy and then they start Depending which of those camps you're from that brings you into the debates about well, what health care reforms should we have? Did we have what will be the impact of those health care reforms? There's one group of economists and and I know that there are people who have debated it also in this room Who say well, why don't we just move to single-payer system that if we move to single-payer? It would be better for health terms it would cost less money etc And I think the tension with the single-payer Option or call it socialized medicine option. However, you want to think about it is that does two things at once one is it covers everybody and You essentially get free care The other is It affects the cost side of how much is it cost to actually provide it. I apologize if I look funny I've got those are tasty sandwiches, but they're coated in flour and so now I've got flour all over me To cover people depending on what you think of the evidence of how people respond to having free care Costs something like a hundred and fifty to two hundred billion dollars a year of medical additional medical cost and So the question is how do you pay for that and the advocates of single-payer say well But if you compare to countries where they have single-payer Costs are so much less that if we could have the cost structure that they have it would pay for 150 to 200 billion dollars The complications as you might imagine include We don't really know why are the costs lower so We do know that there's at least 15 percent administrative costs and profits for those that are for profits that come about on the insurance side and some of the Provision of medical care so presumably you get rid of that But our doctors are also paid substantially more than doctors in other countries And if you take measures of the view I've seen measures of what were people's? SAT scores of doctors in the relative ranking equivalent Okay, or IQ or whatever doctors tend to be and I'm not just buttering you up They tend to be very high test scoring very high IQ high intelligence. It's a Occupation that has a very high status in both income and quality of the inputs so In other as compared to other countries, so if you look at other countries It is not the case that doctors are as highly paid relative to the average person Nor is it the case that they tend to be as high in the in the class ranking As they are in the United States So if you were going to move to single-payer you got to come to some decision about that our doctors going to be paid Less do you care if you're getting a different type of student becoming a doctor? Medical medication costs are much higher in the United States than in other countries and You got to come to a decision. Okay, do you think that if the US went to single-payer? Would we be able to impose? Very strict price controls on Pharmaceuticals the way they do in other countries or are those countries largely free riding off of the R&D? That's taking place on medicines in the US Because if you got a lot less medicine that'd be problematic over the longer term They definitely have different Legal environments as relate to lawsuits against medical professionals My understanding from David Cutler is a leading health economist is that in if you compare Canada Visit to emergency room in Canada Guy says I have a pain in my chest. I feel terrible The probability that that person would receive to aspirin and be told come back in the morning If your chest or heart is way dramatically higher in Canada than in the US the outcomes Health-wise are not Obviously different for people coming in with with with the same Description of symptoms which might lead you to say whoa if we if we move to Doing angiogram doing bypass doing whatever we do maybe we have a lot of excessive procedures But if you mention these facts to doctors a lot of them will say What do you think would be the outcome if a guy came in and said I'm die of my chest is killing me if I gave him an Aspirin and he happened to die of heart attack overnight They'd say the guy came in he told you it was his chest was hurting and you sent him home with an aspirin so For a number of for a number of reasons I think There's still an open question if you're in the camp that say hey, why did why don't we just? Go ahead and have a government run healthcare system the way they do in other countries for that to work you have to also get the cost levels down in the United States and There are a variety of reasons as I outlined and you could probably think of others That we don't really know if you would be able to get the cost levels down in the United States in a way That would pay for that, but it does raise what for the economists is The most important economic consideration about the health care system, which is the Unbelievable rising cost of health care over time that's contributed a great deal to that rise as a share of GDP It's not just that we've gotten older and so we consume more. It's at the cost of every every single thing is as risen from 1965 to 2010 four and a half percentage points per year which have not into the compounding business with Compounding that adds up to a big big big increase two or three times the rate of inflation over that period and Boy if you continue at that rate, it's like College tuition or other things, you know you start making extrapolations and you get to very big numbers now this So health care cost inflation is the key factor as applies to the economy and as applies to the government budget as I outlined in a sec But it's worth emphasizing what a bizarro world the economy of the health care sector is compared with any others because We've got this a bizarro world of cream-skimming In the system that we have designed that is the central fact of health insurance is that people know about their conditions and Insurers don't and so it creates a cat-and-mouse game in which they're trying to shut out the guys who are the sickest and the people who know they have problems are trying to squeeze in through somewhere and the Economic theory tells you where you've got that kind of asymmetric information problem and where you allow cream-skimming You're gonna have massive market failure. You're gonna have a whole bunch of people that on average They would we would determine what the prices of health care would be and everybody would subscribe But because we have no way to have a veil of ignorance You're gonna have wide parts of the market that do not function in which they say we just won't serve People who have pre-existing conditions. We don't want people who come in you like the old Chicago thing We don't want anybody that nobody sent here We don't want to ensure anybody that doesn't have an employer group or that's not part of some bigger thing Because we don't have any idea what the real probabilities are that you have a very expensive condition That bizarro and unpleasant world Has characterized our system for 40 50 years And when spliced on to the rise of health care that the health care cost inflation rate I think you can see why Why there were a lot of people felt like we had to do something to try to address that We have seen a miraculous. I don't think is an exaggeration miraculous Decrease in the health care cost inflation rate in the last several years and now we're trying to figure out Economists as well as the entire health care industry. Why did that happen? And is it going to continue now? My dad's thing for all along was don't stop doing something just because you don't understand it and I like wise with this Well, look we're we're extremely happy that I told you from 1965 to 2010 health care inflation was four and a half percent a year From 2000 to 2007 so the tail end of that it slowed slightly to a little less than four percent But from 07 to 10 it was 1.8 percent and now from 2010 through 2013. It's been 1.3 percent a year Yeah, I just say okay, whatever it was 4.5 now. It's 1.3. That's the humongous tremendously giant difference and over 30 years That's the difference between the US government going bankrupt and Medicare basically stabilizes as a share of GDP So this could not be more important The same guy David Cutler that I told you about before did a study that said look if this continues at even half the rate If the decrease is even half permanent that implies something like 770 billion dollars of savings to businesses and individuals Over the next 10 years to say nothing about what the government's Deficit impact would be so we're trying to figure out what share of that slowdown of health care costs is just from the Business cycle and what shares from something fundamental? the business cycle side The highest estimates are up to three-quarters of it came from just a business cycle and they look back and they say hey when When times are bad people spend less on everything We've had a lot of debt people are spending less on health care just because they can't afford it And that's why it looks like inflation slowed down, but it's not really that it's just people can't afford health care on the other side They tend to look at the fact that the decreases have been even bigger in Medicare Where the people are retired so what? What sense would the recession have if you're seven years old to where whether you went to the doctor? So they point they know look there must be something more fundamental going on and Some of them some of that decrease they attribute to the affordable care act so they'll say look the affordable care act Dramatically reduces the amount of payments that you'll get for readmission to the hospital for example or for Infections from a from a catheter and Those areas where they decrease the payments for pay for mistakes If you want to think of it that way You've seen readmission rates to the hospital drop almost 10% in just the last couple years and those So I apologize if I don't have the medical term center line infections draft drop 40% in the last four years so For those people say hey, well, maybe that's just people responding to incentives maybe this proves hospitals and doctors respond to incentives and individuals are going to respond to incentives and If we could transform the health care cost inflation rate down to something like The rate of consumer price index inflation We could transform Medicare from a problem That's growing exponentially and destroying us to something. That's merely catastrophic like Social security that is we could transform it just to be in magnitude The aging of the population Okay, so if you talk to economists about social security they say yeah look so security has Has long-term sustainability issues, but it's a totally understandable size and it's totally doable If we sit down and in 20 minutes if we set around a table And I realize it'd be a big table But if we set around a table and we said what would work we could agree on social security What would work is okay, we can have some be higher taxes some be lower benefits Whatever, but we have an idea of it of how to do it and of what level of pain it would be That it would be significant, but not not really horrible Medicare and Medicaid have not had that because if they rise three times the rate of inflation They have the aging problem of social security Plus this compounding problem of cost inflation at the rates of slowdown that we've seen in the last three to five years That goes away The projections from the Congressional Budget Office are now that if this continues even if not fully if Partially this continues that they could stabilize Medicare as a share of GDP and turn it more into a social security size problem then the then the Medicare size problem that it has been Which brings us then to the Affordable Care Act in which there is a some group of people says This was all about coverage and not really about cost. I think that's not correct and I Wasn't that central in the design of the Affordable Care Act But I did observe the following There are at least seven Maybe six and a half depends how you want to count one of them. There are at least six and a half different camps Who believe what they know what the key to a health care cost inflation has been That's fundamentally what we have to figure out for the Affordable Care Act for the US government budget and for our individual and Business budget is why are health care cost been rising so much? Why are they slowing down? How do we keep them slow? one camp says That you can limit the growth of health care cost by Increasing out-of-pocket expenses that the root of the problem is nobody knows what the price of anything is They've got insurance they go to the doctor They don't know what the price and and the same price of the same thing is Can vary tremendously by whether you're insured or not insured or which hospital you go to and no nobody knows what the cost is So make people pay out-of-pocket and they will care about costs and you will see inflation come down a second group says Preventive care and chronic disease management are the fundamental keys to Slowing the growth of health care costs that if we would check people's blood pressure Regularly they look at very poor countries like Cuba or others where they've where they've had success with major Public health efforts where they don't have the money to actually provide procedures So they instead have people calling up. Did you take your medicine? Have you checked your blood pressure sugar levels today? You know whatever whatever it might be There's a comparative effectiveness camp, which is a lot of economists working with with doctors in this camp would say You can even controlling for the same person with the same diagnosis and the same conditions you walk into the hospital in Miami It costs three times more Than if the same type of looking person with the same condition and background goes into the hospital Minneapolis There's been a huge effort as you might have ended to try to figure out Well, is that because of unobservables of who the patients are or is it because of? They're choosing different procedures They're some economists who've gone and and they said well, you know compare Boston to San Francisco There's a 200% higher Expenditures in San Francisco on a health related outcomes and then they reveal we're talking about meat consumption They consume two and a half times more meat per person in San Francisco as in Boston So obviously that has nothing to do with the that has nothing to do with the health system There's just a bunch of unobservable factors across these places Though some of the latest research here being done by Matt Jen scow Who's here at University of Chicago and others they find? Individuals who move so the guys from you're from Minneapolis, and you move to Miami Well, it turns out 50% you bring 50% of your higher cost with you So at least half of the higher cost is from the patient But at least half I shouldn't say if both of them are at least half that it means they're exactly half So fine exactly half you bring with you But half is coming from you you come from Minneapolis You move to a high-cost place and suddenly your cost jumped by 50% of that difference There's a camp that says We need to introduce Information technology the way they say it we need to move the medical system into the 20th century of technology Not even a 21st, but of medical records of a bunch of these things They're in a lot of cases still paper-based And they say if we could start applying productivity growth rates like what's in the IT Industry or digital cameras or things that are that are centered on Semiconductors we could have massive improvements to costs in medical care There's a group that says as I told you incentives to hospitals are Tremendously important that as we move to these ACOs we try to get away from fee-for-service that'll control inflation There's a group that says it's about tort reform and there's a group that says no, it's not anything It's not really inflation. They're just better and better care. So that's that's the key I should have also added there's another group that says it's about market power And we need more command and control and have the government just impose You can't charge more you can't have profit rates more than than X you can't you have to spend X percent of your of the revenues you bring in on on patient care We're gonna negotiate harder on pharmaceuticals and stuff like that okay, so you got all of these camps and The second thing I learned is Every one of those camps hates every other one of those camps and they spend at least two-thirds of their time Bad-mouthing the other one is saying that is a bunch of baloney and don't listen to what they said and the two hate each other the Most are the out-of-pocket expense people and the preventive care people So the preventive care people say the stupidest thing you could ever do is make people pay $200 out-of-pocket every time they go to get their blood pressure checked because if you do that Nobody will get their blood pressure checked and you'll have raging high blood pressure problems And then you'll just have to pay more and more in Emergency rooms and in a bunch of you people have strokes and and this kind of thing and the out-of-pocket people say Preventive care cost money doesn't save money They say because everybody's going to get sick and die anyway And all you're doing is they were coming in and dying quickly and cheaply and now you're keeping them alive And they're going to be really expensive, but I'm like whoa wait Did he say that out loud like I don't think they want to say that but all of these camps The reason why people say the affordable care act did nothing about cost I think is because each of these camps are saying well They didn't do that much about mine and mine is the only thing that matters They did a bunch of stupid things for these other ones and those bozos don't know what they're talking about Okay, so the a lot of the doctors say go give me a break electronic medical records I don't even like my electronic medical records say that's not going to save any money and So What happened in the affordable care act on cost is The Washington way which is Washington can solve a problem where the correct answer is Everybody gets one-fifth of what they want and we make it a package Okay Now on the budget that should make you optimistic because that's basically the right answer What washington's not very effective at what in my view only the private sector's effective at is I'm giving you seven world views and you have to figure out which one of them is right and Now you have to gear the whole Organization around the one that's right Washington cannot do that That's what the situation is in health care. You got seven different camps of health care costs We don't really know which one is correct and we got to orient the thing around well Let's figure out what it is and let's do it. I would say the affordable care act Set up the equivalent of a series of pilot projects Experiments little things that if you were committed to go back and figure out from the evidence which ones worked You could do it it did some things on preventive care It did some things on out-of-pocket did some things on comparative effectiveness on Information technology a whole bunch of things and if we were living in an ideal world what would happen now is we'd say okay Let's do these for three or four years now. Let's go back. Let's check the evidence what worked and let's gear the whole thing Let's try to promote those now I think you recognize as well as I do they aren't going to do that they being Congress That's not going to happen no way on each of the things comparative effectiveness death panels Okay, whoa, whoa, wait, let's back up. We're not going to do that. Let's let's scale it down Preventive care. No, you know and in each one they're going to argue and we've gotten into a political dynamic in which we cannot adjust It's always been the case that when we pass big major bills We spend the next five years Correcting little things. Oh, we didn't know that was going to happen. We you know Oh, I didn't know that would start ringing if we push this button, you know, so we fix up the little glitches and We're not able to do that now on health care on financial regulatory reform on a number of major bills The political environment is one in which they cannot reopen anything because if they reopen it one size and look We're going to try to abolish it all did defund everything and the other side. No, no, no if they're going to do that We're never going to touch it. The Doctors will just have to be paid less or somebody else, you know medical device tax whatever it might be You're just going to have to get used to it The final thought that I will leave you with is So that I we need to develop the evidence of what has led to the slowdown of health care costs If it's from what's even partly what happened in the ACA we should do more of that If it's not if it's from something else, let's do more of that unless it's from having a recession Let's not do more of that if that's a little let's focus on the seven that I that I described but the last thing that I'll say is as regards the health plan roll out the glitches that they've had and the The way that this has distracted attention from what's the most important thing if you think about the economics of it the roll out the website if it doesn't work and My my belief is they're going to fix that if they haven't fixed it already I am we got it through the university. So I have no need to go on there. I've wondered whether the Fact that there were so many reporters going on there trying to type in their information is what brought down the system to begin with but The roll out of the website is not really what we're trying to figure out what we're trying to figure out is Will on these exchanges there be Good quality coverage For surprisingly little money. That's what they want to be the case and part of that The public perception is depends on whether they get the young invincibles to sign up Now I believe that's a little overstated for the following reason It is true. I told you the cream skimming is the Fundamental piece of the bizarro world of market failure in insurance markets that has characterized Everything up to when the ACA has passed and part of that is there are a bunch of healthy people who don't have insurance But the thing to remember is that most of the young invincibles don't have very much money either so If they subscribe they will get Substantial tax credits and subsidies from the government to participate and so the net Contribution that they make in monetary terms to the system may not be very high And if it's not very high then it actually doesn't matter that much whether they're signing up or not signing up in monetary terms What matters is Whether we're getting the people that were not signing up who have high incomes so that they become net payers into the system and I don't actually know whether there are that many high-income People who were not participating in the system so that in a way Makes me optimistic that the system is going to work as long as you keep Healthcare costs growing at a modest rate because fundamentally what's making the thing go is we're applying taxes and we're using the money to provide the subsidies that are getting everybody to participate and That's whether you get 30% 50% or 70% participation from the young invincibles is not going to make that much incremental difference on the cost in the world that I'm describing So we will see what happens But basically my summary is for the economists who are not experts in health care The whole thing centers around what's happening to the health care cost inflation rate. It's improved dramatically in the last five years Hopefully it's for reasons that we understand and if so We can keep doing those things. Okay, so that's that's what I had and we were gonna answer some questions if yet