Today I thought I would, as I'm sure everyone knows healthcare reform
is a very important and controversial topic right now.
And today,
what I wanted to do in this talk was kind of take step back a little bit.
To talk about what are the fundamental drivers of our healthcare system.
And if we have some time at the end, we can talk about putting, and
I'll try to do this as I go through the talk,
putting some of those drivers into the context of healthcare reform.
Hopefully this will give us all a better sense of how to put
some of the arguments floating around out there into context and kind of figure out
the real from the rhetoric in the context of healthcare reform.
So I thought I would talk about it in the context of the perfect storm.
Why is healthcare spending so high in the US?
And my overall take on this is that there's really no one reason why
healthcare spending is so high in the US.
We have a very complicated system and there are different points in the system
which contribute to our high overall levels of spending.
So in this talk we're going to think a little bit about how do we evaluate high
spending and what are the factors that lead to high spending.
Okay so let's just start at the very beginning.
These are data from OECD showing healthcare spending in the US and
other countries.
Probably many people are at least generally familiar with these statistics.
But this is per-capita spending, in the United States we're number one.
Right, so our healthcare spending is over now,
this was 2011, over $8,000 per person in the US per year.
If you compare this to other countries, obviously this is much higher, right?
So these are all the other OECD countries along the x-axis.
And healthcare spending, the next closest country is,
two countries are Norway and Switzerland at around $5,500.
These are what's called purchasing power parity adjusted.
So these are generally adjusted for
differences in kind of the spending power of people in different countries.
Norway and Switzerland are the next two countries, at just over $5,000 per person.
To make this even more striking, I've divided the spending bars into spending
financed by public programs, those are the dark blue bars at the bottom.
And spending financed privately by individuals and
private insurers, those are the lighter bars at the top.
Right, so in the US we have a much greater reliance on private spending.
Right, so our private spending bar is a bigger share of overall spending than
other countries do.
But the striking thing to me is when you look at spending in the US,
the amount per person that we spend through public programs
exceeds the entire spending of many other countries.
High income developed countries, Sweden, Australia, Ireland and the United Kingdom,
those are the ones I've highlighted here.
So just the amount we spend on our public programs,
which cover less than half of the population,
exceeds the entire spending of many other high-income countries.
Right, so to me in some ways, that's the most surprising thing.
Right, that kind of puts it into context.
Okay, so we clearly spend more on healthcare in the US than other counties,
and we're gonna talk about why that is.
But I want to make a couple important points first about
thinking about this higher spending.
And these points are related to the fact that, for some reasons,
healthcare spending should be higher in the US than in other countries.
One reason is that we are a high-income country.
And as people become wealthier,
they tend to spend a greater proportion of their budget on healthcare.
So as you become wealthier,
healthcare is something that becomes more important to you, to many people.
And they tend to spend a higher proportion of their budget.
This is holding other factors constant such as your health status, etc.
But an economist would call a normal good or you can think of it as a luxury good,
it's something that we want more of as we become higher income.
So because the US is a higher income country,
we would naturally spend more on healthcare than other countries.
The other point that's important, and I think is a little bit more subtle,
is that in the US, often we spend more on healthcare
because healthcare is a very labor intensive industry.
And in the US, we have very productive workers.
So our workers are productive, so
we need to pay them more to reflect their productivity.
In other industries, such as manufacturing,
we can kinda substitute between labor and capital, right?
So as workers become more productive and we pay them more,
we move more towards capital, machines and things in the context of production.
But we can't do that in healthcare so readily,
healthcare is a very labor intensive industry.
We have nurses, and physicians,
and home health aides who help us in the context of healthcare.
That means the healthcare industry is competing against other industries for
workers.
As a result of that, we have to pay those workers more.
Right, to make sure that we have high quality workers in the healthcare
industry, we need to pay those workers more.
So one of the reasons, and an important reason, why healthcare is more expensive
in the US than other countries is the productivity of our labor force and
the fact that healthcare is a very labor intensive industry.
This is a similar argument for why is a haircut more in the US than in China.
Right, so we pay our workers more in the US for
reasons related to their productivity.
Okay, so there are valid reasons why we would spend more on healthcare in the US.
People haven't done really comprehensive decompositions on the impact of these
factors, but we have a sense that this doesn't explain it all.
Even accounting for these things, which are important, we certainly spend more.
But this does raise a question, an important question, of how much is enough.
How much should we be spending on healthcare?
Is the amount that we're spending right, or is it too much, or is it too little?
Economists have a very
specific way of thinking about how much spending is enough.
And that is if the benefits of what we're getting from that spending
on healthcare exceeds the cost, then it's okay.
What we worry about is that we're devoting money to healthcare
on services for which the costs are greater than the benefits.
Those resources might be better off in some other sector of our economy.
We could devote them to education, we could devote them to more iPads,
we could spend it in other ways.
So that's the biggest concern, When we're thinking about overall spending.
We have evidence from lots of different types of studies that this is a problem
in the US.
Right, so researchers estimate that maybe between 20 and
30% of the amount that we spend on healthcare provides no health benefits.
Right, so that's a really important statement.
That's saying we're spending money and it's not obvious that we're getting a lot,
or getting anything in the form of improved health from that spending.
So when we think about is our healthcare spending too high,
to me this is the big argument.
Right, so we're spending money on the healthcare system in ways that are not
improving our health.
Okay so, to kind of put this into context or put this into real life, let's consider
the case of colorectal cancer screening, we'll come back to this as we go along.
So colorectal cancer screening,
there are a variety of different ways that we can screen for colorectal cancer.
And it turns out that those different ways of screening
have very different price tags associated with them.
So there are a variety of ways.
I'm gonna focus on two here, colonoscopy and fecal immunochemical testing,
most people refer to this as FIT as two examples.
These two tests, this is a much more invasive test.
You only have to do this once every 10 years.
It's recommended once every 10 years.
The price tag for this is $1,200.
Right, so every time you get a colonoscopy, it costs about $1,200.
That's how much the insurer would pay the physician performing the colonoscopy.
We have an alternative which is a fecal test.
It's recommended that if you're gonna go to this route that you should do it
annually.
We estimate by looking at insurance claims that the cost of that is
about $20 per year, right.
So, the colonoscopy you get it done in one shot, and it costs $1,200.
The FIT test you have to do it every year, $20 per year, so
that's gonna be about $200 over your 10 year period.
Most evidence we have on the effectiveness of these two tests
is that their effectiveness is about equal, right?
So at the end of the day, your health outcomes associated with these two
screening tests are gonna be about the same.
In the US, the vast majority of screening is colonoscopy.
So in the US, our system is set up to do colonoscopies.
Interestingly, other countries mostly use alternative tests.
Some use FIT, other uses different lower cost screening tests.
But our system kind of systematically steers people towards the most
expensive test.
One thing I like about this example, though,
is the price difference is very large.
So you think, oh, should we really be doing colonoscopies at $1,200,
versus FIT at 200 bucks.
But often when I'm doing this in class,
we're in Silicon Valley so we use our cell phones.
And we vote, right, with our cell phones, and
the results pop up right up here on the screen.
So when I do this with my students in the class, and
I say okay, you're gonna spend $1,200 on the colonoscopy.
Pretend you're 50 or older, or you can go $20 per year over ten years for the FIT,
many of the students do the FIT, but a subset always chooses the colonoscopy.
And you can think they're probably are valid reasons.
You only have to go in once every ten years.
It's a little more uncomfortable, but you only have to go in once every ten years.
So there are probably valid reasons some people might be willing to pay 1,200 for
a colonoscopy.
But many people, when faced with this price difference, would choose the FIT.
Okay, so why do we do so
many colonoscopies in the US rather than the FIT?
My thesis here is that there's not really one easy answer.
But there are kind of three major points or
junctures or pressure points in the US health care system, and
each of those points kind of encourage us to do more expensive things.
So what I'm gonna do now is kind of build up what I mean by the health care system,
talk about what each of those three points are, and
we'll put colonoscopies into that system.
So you can start by thinking about how do patients access care?
So we have patients.
They want healthcare services, or they need healthcare services.
And they go to providers, all right.
So here I'm thinking about providers very generally, physicians don't
usually like being called providers, they like being called physicians, but
I'm thinking about this a little bit more broadly.
I'm thinking about all different types of workers in the healthcare system who
provide different types of care.
Patients get services from providers, and
if we didn't have a healthcare system, they would pay them directly, right.
This isn't usually how it works, right?
When you go in to seek medical care,
you don't just pay that $1,200 for the colonoscopy.
It usually goes to your insurance.
Why do we have insurance?
Why do we have this more complicated system?
The reason we have insurance or the reason that our system is more
complicated is that there's an incredible financial risk associated with healthcare.
So it's not so obvious in the case of the simple colorectal cancer screening test,
but when you think about something like delivery, for example.
A woman could have a normal uncomplicated delivery,
and that would cost about $5,000.
She could have complications,
the infant could be admitted to the neonatal intensive care unit, and
that would cost hundreds of thousands of dollars, all right.
So by having insurance, we protect ourselves against the financial risk
associated with sickness or
health care events, that is important to folks.
So now we need to introduce an insurance setup.
So now instead of having patients, we have people.
We have the entire population, and instead of paying directly to providers,
now we're sending money into what I'll call payers.
Payers are health insurers.
These organizations that are set up very differently in different countries.
So in the US we have a lot of private insurers.
In other countries the government plays a much more active role in being
the health care insurer.
But people generally pay either taxes or
they pay health insurance premiums into payers.
Payers then turn around and make payments to the people who provide care.
So now instead of having the bulk of the payment go from the patient to
the provider, now we have a new channel.
People have paid money into these health insurers or payers.
The payers in turn make a payment to the provider when an individual seeks care.
And patients, as most of you are probably familiar with, often pay a little bit, or
some, or maybe sometimes what sometimes feels like a lot.
In addition to the payment that that health care provider is
receiving from an insurer.
So this is the basic outline of a health care system.
Obviously, it's much more complex, but
you can think about this as a stylized health care system.
Okay, so now that we have this system up and running,
we can really think about three pressure points in the system, three places in
which we can create incentives to provide high value as opposed to high cost care.
When I say high value care,
I'm thinking about care for which the benefits exceeds the cost.
So for people who would actually rather spend $200 over ten years for
FIT rather than colonoscopy, how can we create incentives for
that to happen in our system?
So one of these pressure points is the amount of money that people pay for
health insurance, right, and
this is actually becoming more important in the context of health care reform.
Right, and what I mean by this is if I were out shopping for a health insurance
premium, I would be comparing the premiums across different private health insurers.
A health insurer that really funnels people into using tests like FIT
as opposed to a colonoscopy is going to have much lower health insurance premiums.
Maybe colorectal cancer screening by itself
might not make that much of a difference.
But a health insurer that systematically is pushing or encouraging people
to use higher value care would likely have lower health insurance premiums.
So one way we can kind of create incentives for
using care more parsimoniously or focusing care on high value
care is by having people face health insurance premiums.
Lower premium plans will often be plans that, plans will then have an incentive To
structure their systems in a way that provide different types of care.
So health insurance premiums is one juncture, or one pressure point.
Another pressure point is the way we pay health care providers, right?
So you can think in the context of colonoscopy.
A physician who routinely sends people off to get a FIT test,
actually doesn't make that much money off that FIT test, right?
The test is pretty cheap, the physician doesn't have that much to do.
But physicians who provide colonoscopies,
colonoscopies are actually much more profitable by physicians,
when they are paid every time they do a colonoscopy, right.
So when you think about that,
now the physician, say the two tests are equally effective, now the physician
has a financial incentive to do a colonoscopy rather than a FIT.
You could change those payment incentives.
You could change the way providers are paid, and
turn those incentives upside down.
So for example, if the physicians were part of a large group, and
that group was paid what's called a capitated fee, a set amount for
providing care to a population over a particular time period,
now the physician's incentives are reversed, right?
So now the physician thinks,oh, if I steer the person away
from the really expensive test, [COUGH] excuse me.
If I steer that person away from the really expensive test,
then my organization will make more money because I won't have to pay for
that very, I actually lost my water here, going way over here to get my water.
I know I'm gonna cough more.
[COUGH] So now that I've capitated the group,
now the physician has very different incentives, right?
So now that the physicians have incentives to provide these lower cost tests.
In the case of a colorectal cancer screening,
I've said those tests are approximately equally effective.
So the physician is making this decision across a margin of equal effectiveness.
Let's go for the lower cost test.
So provider payments are another kind of pressure point in the system.
We have lots of evidence from research that says the way you pay physicians
really matters.
Okay, so our final kind of pressure point,
is the relationship between patients and providers.
The issue here is basically how much people pay out of pocket
when they seek care.
So when I told you about those different screening modalities,
one test was about $1,200, and the other test was about $200.
In the context of insurance for preventive services, usually those tests,
and specifically in this case,
always those tests are free at the point of service, right?
So if I think oh, the colonoscopy might be a little bit better, I have
no financial incentive to think about the cost difference between those two tests.
So when health policy folks talk about the role of cost sharing,
they're thinking about the incentives or
kind of the good role of cost sharing in context of the health care system.
They're thinking about those types of incentives, right.
When people have to pay some out of pocket for
the more expensive tests, then they have a greater incentive to really
think about the benefits of those tests relative to the costs.
Okay, so those are the three kind of pressure points in our healthcare system.
We can think about premiums and people shopping for different types of plans and
choosing lower premium plans.
We can thing about how providers are paid, and
we can also think about how patients pay for care when they seek services.
Okay, so now let's put this stylized system in the context of the U.S.
healthcare system.
Starting at that first pressure point,
are people sensitive to premiums when they choose among different plans?
When we look at overall rates of health insurance coverage in the U.S.,
about 30% of our population is covered by public programs.
Those are Medicare for older and
disabled folks, Medicaid, generally for low-income folks.
The other big payer is our employers, right?
So the bulk of the working population gets their health insurance through employers.
So now let's think about those premium incentives.
Where is the premium signal in those two ways of obtaining health insurance?
Starting with employer-sponsored health insurance,
employer-sponsored health insurance is really tricky, right?
So when you think about how people choose among different employer-sponsored plans,
when they have a choice, usually they're thinking about their out of
pocket payment that the employer requires of them when they enroll in the plan.
Usually that's a very small part of the premium, right.
So when people are choosing among different plans, they're not really,
usually thinking about the full cost consequences of their choice.
But there's actually a bigger issue here.
The bigger issue is that when people buy health insurance through their employer,
it turns out that that premium is subsidized through the tax system.
And the reason that it's subsidized through the tax system, is when I get my
health insurance through Stanford, I don't report that as my wage income.
And that's perfectly legal, right, so
you guys don't have to go tell anyone about that.
>> [LAUGH] >> [LAUGH] Everyone does it.
So by law it's counted as wage compensation for me or
anyone who gets health insurance through an employer, right?
So when I am thinking about oh, so
I have a family, so the health insurance premium for me is about $15,000.
That's an important distinction, right?
So I could get that $15,000 as cash compensation and pay taxes on it,
or I could get that $15,000 in the form of health insurance and not pay taxes on it.
For people with high marginal tax rates,
say 30, 40, 50%, that is a big price discount, right?
So think if cars were subsidised that way, maybe I wouldn't drive a Prius.
Maybe I'd have a Tesla, right?
If I could get that big discount on the Tesla, but
that's what health insurance looks like in the US.
So, and it's actually a very Interesting policy.
It creates an subsidy for health insurance, and
I think most people in the health policy world think that is good.
We actually want to encourage people to have some health insurance.
But the design of that subsidy is saying, we are going to give bigger subsidies to
higher income people and low or almost no subsidies to lower income people.
And that's because that tax exclusion is more valuable for high income folks.
Okay, so this is important from that perfect storm argument cuz that says those
people with employer-sponsored health insurance, they're getting kind of 30,
40, 50% off the price of health insurance.
That means they want generous health insurance.
They want the Tesla,
they don't want the Prius when they're buying health insurance.
What does generous health insurance mean?
That means health insurance that covers colonoscopies, right?
So a less generous plan would mean health insurance that really funnels people into
getting FIT.
If you want a colonoscopy,
you can get a colonoscopy in a more generous health plan.
Okay, so that's the employer-sponsored health insurance has these incentives for
kind of more care or less value conscious care.
Medicare has similar issues, Medicare and Medicaid,
but more Medicare, but the mechanism is a little bit different.
Usually when people think about Medicare
you don't think about your premium for coverage.
That's because Medicare is tax financed.
So we effectively lose that premium signal
in the context of Medicare because we're financing it through taxes.
The people who are financing Medicare, people who are using
the services now, when they were younger, they were paying into the Medicare system.
Young folks now, who are paying for
Medicare of the currently older population.
They're a large and diffuse group.
Right? So,
and my students, it's really hard to get them excited about Medicare reform even
though they're the ones paying for it.
Right? I keep trying that but
they're not really receptive.
But the point here is there really isn't a premium signal, right?
So we think that we need a premium premium signal to promote high value care.
But the people who are paying for Medicare at a given point in time, the tax payers,
are generally different than the people who are using the Medicare systems.
We've kind of lost that signal in the context of Medicare.
Okay, so let's think about the second pressure point in the system,
that's how providers are paid.
The example that I gave you, the providers and
physician incentives for doing colonoscopies versus recommending fit
were very different depending how they were paid.
When they got paid by fee-for-service, for example,
they had a very strong incentive to do the colonoscopy, but when they were paid that
capitated fee, they had a very strong incentive to move folks to fit.
It turns out in our healthcare system, we usually pay providers in ways
that promote higher cost care,
or promote providers, promote physicians to do more stuff, essentially.
We usually pay them by fee-for-service.
We give them a fee for every single thing we do.
In the context of hospitals we usually pay per admission.
So as long as the fee covers the cost associated with the admission,
physicians generally have incentive to admit people more often.
Admit people if you think there's any possibility that they need to be admitted.
Probably more controversial is you have very little incentive
as a hospital to make sure a person doesn't get readmitted, for example.
Right? So if something goes wrong,
the hospital actually makes more money if the person is readmitted down the road.
So many of our payment systems are geared towards doing more stuff.
I think this is related to our last point, right?
So we talked about how people have incentives to
buy more generous health insurance, or we have little incentives to make sure
health insurers are delivering care parsimoniously.
That translates into kind of little will to change payment systems.
Right? So now we all want the Tesla, so
we all want to make sure that we'll get admitted if there's any shadow of a doubt.
Okay, the third mechanism here is what economists,
or benefits folks, would call benefit design, right.
So how is the health insurance contract designed?
And I think this is a little bit nonintuitive,
what I'm about to say to folks, because I think there's a perception out there that
cost sharing has really increased a lot, right.
That people spend a lot out of pocket when they go in to seek healthcare.
But if you actually look at the long-term trend in out-of-pocket spending
as a proportion of total spending, it has consistently declined over time.
Right?
So in 1970, as a population we paid
about 35% of total health care spending out of pocket.
In 2011 we paid about 11% of total health care spending out of pocket, and
what's the source of disconnect between the perception and then the actual data?
The issue is that healthcare spending has increased so dramatically.
Right. So that 11% really feels like
a lot because the base is so high.
We spend a lot more on healthcare.
But the general issue is that cost sharing,
at least as a portion of total overall spending, has declined overtime.
In cost sharing we have lots of studies that show this is important for
how people make decisions at the point of care.
So this is equivalent to saying that,
if I charge people 10% of the price of the colonoscopy and
10% of the price of the fit, probably a lot more people would go with the fit as
opposed to the colonoscopy in the context of colorectal cancer screening.
Okay, so costs, so
in our health care system, folks who are health policy folks who say,
oh cost sharing needs to be higher, they're not necessarily mean, right?
They're basically saying we need more cost sharing in order to steer people to making
more value conscious choices in the health care system.
Okay, so that's the overall system, but one thing I want, or how the different
incentives that each of those pressure points, in my view,
are really kind of pushing us towards using more and using more expensive care.
I want to reinforce this idea that all those things work together.
The fact that we don't have these premium signals leads payers to pay
their providers in certain ways, in ways that don't promote high value care.
If people were more conscious of the premium, maybe they would purchase a plan
that creates strong incentives for providers to use different types of care.
But because many of us are getting that 50% discount and folks are on Medicare and
not paying for it directly,
there's not this ground swell of demand for more value conscious care.
Okay. How am I doing on time?
Okay. Okay.
So let's talk a little bit about healthcare reform and
how healthcare reform is going to hit our
three points.
Health care reform, in many ways, is really targeted or
the main purpose of healthcare reform, where healthcare reform is the strongest,
this is the Affordable Care Act that I'm sure you all have heard about,
especially in the last few weeks, as it's being implemented in many ways.
A lot of the Affordable Care Act was about expanding insurance coverage, right?
So that's really going to affect this area, right?
So as I showed you on the earlier slide,
we have about 15% of the population that's uninsured.
Many of the issues in the Affordable Care Act, many of the mechanisms
in the Affordable Care Act are intended to increase insurance coverage for that 15%.
One of the things that President Obama talked about when he passed the Act is if
you have health insurance now, it's not gonna change very much.
Right? So I just got through telling you that
many of the ways we provide health insurance
now are not promoting value conscious care.
So really the changes to the health insurance market aren't really intended
to promote more value conscious care, they're really intended to kind of bring
folks in to this existing health care system that we have.
The folks who get health insurance coverage, those going to the exchanges,
are actually going to see some premium differentials and
have some incentive to choose these lower cost plans,
but they're a relatively small proportion of the market.
Right, so
there's not a lot of action on the health insurance premium side in the law.
If we think about provider payments, most of the reforms that were
proposed as part of the Affordable Care Act were focused on the Medicare program.
And the reason for this is that, because the government runs Medicare,
the government has much more control over the Medicare,
how providers are paid in the context of Medicare.
That's important because a lot of provider revenue
comes from treating Medicare patients.
So there's a lot of experimentation in the context of Medicare right now.
And that kind of remains to be seen.
Some folks are skeptical that that will actually spread through the entire
healthcare system.
Other folks are concerned that it might not even make a big dent in the Medicare
program.
But I think the thing the Affordable Care Act did that was good in that context,
was really promote this type of experimentation, and
we'll have to watch that as we go along.
So I would say that incentives are not strong, but
it did put a mechanism in to kind of think about different ways of organizing care to
promote higher value care.
And in terms of cost sharing I think there wasn't a lot of action, there wasn't a lot
of push on promoting higher value care through higher cost sharing.
There might be that segment of the population which is newly insured, and
it is insured in a slightly different way through health insurance exchanges, that
might kind of be induced to enroll in plans that have higher
cost sharing because they're seeing the premium savings up front when they enroll.
But that is a relatively small segment of the population.
Okay, so let's go to conclusions.
Then we will have some time for some questions.
So I think that overall, if you look at the healthcare system there
really are incentives to promote high value care at those three critical points.
The point at which people are paying for health insurance premiums,
the point at which health insurers are paying providers, and
the point at which people are seeking care.
In our current healthcare system, we really have, the incentives are towards
doing more and doing more expensive things at each of those points.
So in order to get around this,
in order to really fundamentally change the incentives of the healthcare system,
we really need to think about reform at multiple points in that system.
So the pieces of the system work together.
The most important example being that when people had incentives on the premium front
for choosing lower cost plans, that gave health insurance providers incentives to
really change the way they pay health insurers for example, right.
So when we talk about how complex the healthcare system is and
whether the Affordable Care Act will fundamentally change it,
I think part of the complication here is that all these points in
the healthcare system work together.
And if you really want to reform it in a comprehensive way,
you have to think about those interactions.
Okay, thank you.
>> [APPLAUSE] >> Okay, let's see.
>> A couple questions.
>> Okay, I'll give you one and then I gotta go to these other guys, okay?
Is that okay?
>> Okay. >> Okay.
[LAUGH] >> Well, a while I go, I was curious about
what Kaiser would charge me if I didn't have Medicare.
>> Mm-hm. >> It was over 1,000 bucks.
>> That's good.
>> Now- >> [LAUGH]
>> Now I pay Kaiser 72 bucks a month.
Is Medicare paying over 900 for me?
>> Yes, Medicare is paying, so you're covered by Medicare.
Yes, if you're enrolled in a, let's go back here.
So if you are, there we go.
So the things that I was describing are more the,
what we call traditional Medicare.
Medicare pays your health providers.
If you're enrolled in what's called a Medicare managed care plan,
it works a little bit differently.
What happens in q Medicare managed care plan is that there's another step here.
This is the US government, this is the Medicare program.
The Medicare program pays a private insurer,
draw a little circle up here representing Kaiser.
Pays a private insurer a lot,
maybe 90% for your health insurance.
And then you pay maybe about 10% for that health care, right?
So, even when you're enrolled in a managed care plan in the context of Medicare,
the government is giving you a very large subsidy for that care.
As they should, because they promised you the care, right?
>> How much salary do the docs get?
>> Okay, I gave you one question, I gotta go.
Right, I'm in a medical school, it's a little sensitive, right.
[LAUGH] So I'm gonna go green up there in the back.
You didn't talk anything about the quality.
>> Yeah. >> What's the quality of
our outcomes versus other citizens?
>> Mm-hm.
>> And Isn't the issue not just bringing down our cost but improving our quality?
>> Absolutely, so quality is important and quality is very controversial.
And I think the reason for that is, in some contexts,
that the US is the best in the world, is true.
In other contexts, it's not, right.
So quality can be very variable across different settings and
even across different types of diseases, right?
So for example, what's a good quality example?
And it plays out in ways that you might not expect.
The example that I gave you, quality was kind of constant
across those two incentives, or those two different treatments.
If you think about, it turns out that we have, I think this one's good.
It turns out that probably one of the most frequently
cited quality metrics is infant mortality rates.
Right, so we spend a lot more on care and delivering babies,
and we don't actually have great outcomes in the context of infant mortality rates.
But it turns out if you look at the data more closely, if you are a premature
infant we have very good outcomes, conditional on being born premature.
We have fantastic neonatal intensive care units and
they have better outcomes than other countries.
Where things differ in the US is we have more babies who are born at
very low birth weight.
And then we have, I just saw some very interesting kind of new research,
presented at a conference, where they showed that the infant mortality
rates between six months and one year are actually worse in the US.
Right so I think that's one of those really interesting,
it's really hard to make a generalization based on infant mortality rates
because in some contexts our system is really good, right?
If you're born as a low birth weight infant,
you want to be in Stanford Hospital or an academic medical center.
But there are kind of funny things going on before the baby's born and
after the baby's born that maybe are not so good.
Red hat, that's everyone, oh my gosh.
>> [LAUGH] >> Red hat and blue jacket.
[LAUGH] >> So, are there any incentives
with the Obamacare Act that will push more people
out of employee based health care payments, and
into, paying insurers directly, and
is that something that would help the overall system?
>> Yeah so that's a really interesting question.
And I think that when- >> Could you repeat the question.
>> Sure.
So, the question has two parts, and it's about the incentives and
the Affordable Care Act in the context of employer sponsored systems.
The first part of the question is,
will the Affordable Care Act really push people out of employment based coverage,
and then the second part is is that a good thing or a bad thing?
So the first question, the answer to the first question is we don't know.
Right? And why don't we know?
Because it's actually a really hard problem
to know what is going on inside a firm and what employers are going to do.
And here's the issue.
The fundamental issue is that for high income workers,
high income workers still get that really big tax subsidy that I talked about
only by getting their health insurance through an employer.
So high income workers really want health insurance through employers.
Now low income workers, things have really changed for
them, especially in states that expanded Medicaid.
Right?
So now those low income workers get a much bigger subsidy
if their employer doesn't offer health insurance.
Right? They get a big subsidy if they go buy
their insurance through an exchange, if they're like a higher, low income worker,
and if they're a really low income worker then they are eligible for
a Medicaid expansion.
So now the employer is like, oh no, what do I do?
Right? So I have some low income workers,
and the best thing for them is for me to not offer them health insurance.
I have some high income workers, and the best thing for
me to do is to continue offering health insurance for them.
So that's why we don't know, because it kind of depends on how employers are gonna
respond to those trade offs.
And we've seen some really high profile examples in the news,
I think it was Trader Joe's and organizations like that,
who started at that part time worker distinction.
Not offering coverage for their part-time workers because, in fact,
it was better for them, most of them, to get coverage through an exchange.
So what are the cost implications of that?
I think the important point here is the cost implications of
moving people into exchange or subsidized coverage and out
of employment based coverage, that, turns out, is also a very interesting issue.
So let's pretend, maybe, it's possible, that people will be more price
sensitive when they get into the exchange and make more value conscious decisions.
We're not sure that that's gonna happen but let's just say that happens.
That's good for overall health care spending in the U.S.
and as long as those are high quality plans then we feel good about that.
On the flip side, that is going to dramatically increase government spending.
Right, cuz now all those people are gonna get a subsidy, and for
the low income folks, the subsidy is going to be larger than
what they would have had under an employer, so there's a really big tension.
I think this is an important distinction that people don't often make
when they're talking about the Affordable Care Act, is there are often very
different implications for government spending, which is very important, and
total healthcare spending, which is also very important.
Okay I'm going way over to the guy in the red sweatshirt.
With the [LAUGH] glasses.
Raising his hand really high.
Okay. >> My question is you did a good
job explaining the card system.
If you were to start with a blank slate,
taking into account realities of the world, and
US, what kind of system would you design?
[INAUDIBLE] at least an equally effective, if not a more effective,
health care outcome, and obviously cost us a lot less money.
What would you do?
>> Yeah, so this is a point where I really wish I'd written a book.
Right, so I could say, and, give my answer and then say, and, go buy my book.
Right? But I can't, so
I'm not gonna get any royalties from my statement, which is unfortunate.
I think the answer is- >> Could you repeat the questions?
>> I'm sorry the question.
So the question is like the eternal question.
What is the perfect, if I could start from scratch and
design a healthcare system, what would I do.
I think that it is difficult
to reform the US healthcare system because there are lots of vested interests.
That sounds a little negative but people who are accustomed to doing
things in a certain way and kinda like doing them that way.
So I think if I had to do it, I would have,
there are some things I like about the Affordable Care Act.
I think I would try to start here.
I would try to start by saying, okay, and
this is the, I am an economist and they call us the dismal science.
This is an example of why that is true.
So this is one of the most least popular policy prescriptions that
almost all economists agree would be a good thing.
I would get rid of that employer sponsored tax exclusion.
It seems like such a micro little problem.
Like in the tax code, all of our problems are driven by the tax code?
But I think it's important.
I think it's important that when people are choosing health insurance,
they have some sense.
I think even I am astounded, I spend my life studying this and I am astounded that
when I look at how much Stanford pays for health insurance for me, they're
paying about $15,000 for my healthy family and I to be covered by health insurance.
That seems like a lot.
I think that if people actually didn't have a big subsidy and
saw their health insurance premiums, plans, health insurance,
private health insurance plans in the U.S.
would have much stronger incentives to innovate in really interesting ways.
I also think that this is a pretty good time for
innovation in really interesting ways because my quality guy up here is right.
For plans to innovate in interesting ways, to keep them honest,
we really need good measures of quality.
If I'm gonna sign up for a cheaper plan, I want to know that that's a decent quality
plan, that I really am getting the Prius and I'm not getting the, what's the loop.
I'm from Detroit so I would have said the Chevy a few years ago but
I don't think I can really say that anymore, I think they've improved.
But I don't want to enroll in low quality.
I want to enroll in a low price plan that provides high quality care and
we need quality metrics in order to do that.
But I think data revolution, things are moving along on that front.
Okay, white jacket. >> I noticed that you haven't recommended
that the government take over the care system as exists in Europe.
Do you not like that system?
Do you feel doesn't work as well?
>> Yes.
I have not recommended that.
I have, for two reasons.
When I talked about how payers interact with providers, that's really important.
In that context, it's actually not obvious that public or
private payers, public governance, when I say private payers,
private insurers, have an advantage over you.
Either side has an advantage.
The types of things I'm talking about, what I mean by that,
is the types of things that I'm talking about, changing the way you pay providers
can be done either by private health insurance or by public programs, right.
So this is a matter of experimentation to figure out what works and making sure that
these payers have incentives to really drive efficient utilization of care.
So this is an area where I think we don't know exactly what the perfect
system looks like, but all the things that we have on the table,
are equally available to public or private insurers.
The thing that worries me about the one government system,
is the colonoscopy, right?
And so what I mean by that, is that if we had one government system,
we could say everyone should have Fit, right?
And we'll just do it that way.
And we'll encourage people through our coverage decision, into this test.
But remember when I said I kind of liked this example, because there are lots of
people out there who would be perfectly happy to pay $1200 for the colonoscopy.
And that's not obviously, not just this test, that's along many different margins.
All right, so I feel like we are a very heterogeneous country, and
the single payer, one size fits all might not be so good for us, right.
So I worry about that.
>> [INAUDIBLE] >> Oh, I got everyone going.
>> Can you explain the lower cost that exists within the governmental
care [INAUDIBLE] >> Yeah, often it's lower costs, but
sometimes, you know you get what you pay for, right?
So. >> [INAUDIBLE] funded healthcare.
[INAUDIBLE] funded public
healthcare, is terrible.
>> [INAUDIBLE] wouldn't provide assistance for the entire country.
>> [INAUDIBLE] >> Okay,
I'm gonna have to have you guys take this outside.
Take this outside, okay?
[LAUGH] We have lots more questions.
I'm gonna go for the guy standing in the back since he's been standing.
>> Thanks.
[INAUDIBLE] >> ACOs will succeed, if you think they
will, especially in the context of the HMO history in the past?
>> So the question is, why will ACO's exceed and
draw some parallels to the managed care in the past?
So, what is an ACO?
So, an ACO is an accountable care
organization, >> Oops.
An ACO is over here basically, and what an ACO is doing,
is an ACO as I said, reform is really focused on Medicare.
What Medicare is doing is basically encouraging Hospitals and
physicians to get together, and form kind of larger either contractually based or
actual really integrated organizations.
And then change the way they're paid.
And it's a little bit complicated.
The way that they're changing the payment, is they are saying that, organization,
we will tell you who is generally receiving care through your organization.
The patients who tend to usually seek care from physicians,
that you are grouped with now.
And then we're going to pay you a new way.
We are gonna predict how much it would cost under traditional medicare for
all the care for these patients.
And we'll give you a bonus, if you come in under that, right?
So it's called shared savings.
You provide care in more value conscious way, and you can earn some money and
Medicare will save some money.
I think that that's kind of a step in the right direction.
The problem in the context of Medicare is to make it politically valuable,
they really had to water it down a lot.
So there's not the magnitude of the shared savings, is not so great.
Many of you are probably enrolled in accountable care organizations and
have no idea.
The reason for that is, the accountable care organization can't
actually make you stay within it's network, Right.
To make a this a politically palatable reform,
because of our experience with managed care where it turned out that people
didn't really like to be restricted to a particular set of providers,
now in the context of ACO's, ACO's can't make that restriction.
So you have to be able to go anywhere you want.
So that kind of limits the ability of ACO's to really manage your care and
the relatively weakened financial incentives create weak incentives for
them to really even try.
So I feel a little bit skeptical on the ACO's.
Let's see, I'm gonna go with the gray, blonde hair.
Yep.
>> What about alternative modalities and vetted care?
Do you have any addition to how that might be worked in to
the system because it's not being used, it's not part of our current perspective.
>> Yeah so I. So I'm all for
preventive care, right, and preventative care and alternative modalities,
I think, you mean like alternative medicine, basically,
how do they fit into the healthcare system and what are the opportunities.
I think preventive care is obviously very important.
The evidence on the impact of preventative care on health care spending,
is that we actually aren't going to reduce our health care spending much,
if at all, by promoting more preventive care.
And, there are two things going on there.
Preventive care is good, because when it works, people won't get sick and
we like that.
One issue is that, if I look at all of you guys,
I'm not sure who's gonna get sick, right?
So I have to give preventative care to a lot of people
in order to prevent one person from getting sick.
And that makes it expensive.
It might be worth it, right, because we highly value the fact that that
one person, or those three people, or even those fifteen people, aren't going to get
that particular disease, but it does make it more expensive.
The way to make it more cost effective clearly, is to
figure out who might get sick and focus your preventative care spending that way.
And that's a good thing to the extent that we can do it.
But there are very few preventative interventions that literally save money.
Many of them are worth it, they're cheap ways to promote,
relatively cheaper ways to promote better health.
But it's not going to reduce healthcare spending.
Okay, I can't give you your followup because I have all these other questions.
I will stay after and answer people's questions.
I am gonna kind of, I'm going to go way over here in the corner.
>> About ObamaCare, there's a lot of speculation on the financial impact and
obviously it depends on a lot of things like his decision making and
execution of the program, but if you'd have to take a guess,
do you think it's going to raise our costs or lower our costs, [INAUDIBLE]?
>> Yes, if I were a betting woman, I would say it's going to raise our costs.
That's not a very risky statement for me to make, and
I don't actually like to bet, but when you look at, and this comes
back to a comment I made earlier about the cost to the government or total cost.
When you look at the Affordable Care Acts, when it was first passed when folks said
the Affordable Car Act will reduce heath care spending, or
at least be, not increase it.
They were talking about government spending and
there was a very specific reason for that because in order,
the way the act was passed, it had to be budget neutral, right.
So for every subsidy that they offered someone,
they had to figure out a way to reduce government healthcare spending.
And when the act, and this is over a ten year time period, right,
that the CBO, the Congressional Budget Office actually scores these things,
right, so when the act was passed, there were increases in government spending and
they were offset by reductions in spending.
Those are all estimates, of course.
And folks argued about whether those projections were correct, but
the CBO said, here's our best guess and we think it will be revenue neutral.
At the same time the centers for Medicaid and Medicare service,
the branch of the government that does the national health expenditures and forecasts
healthcare spending, clearly predicted that it would increase healthcare costs.
And the reason for that Is, as I said earlier,
we're bringing a bunch of people into health insurance.
We have 15% of our population at a given time doesn't have any health insurance.
We're the only high income country that leaves
a significant portion of the population out of health insurance schemes.
When you bring people into health insurance, they use more care, and
that costs money, right?
So that idea that healthcare reform was going to reduce healthcare spending,
was really focused on how much the government would pay
overall by bringing more people into health insurance.
It will likely increase healthcare spending.
There is a wildcard here.
The wild card is, remember I talked about all that experimentation that's
happening in the Medicare program.
If that expands, someone hits the jackpot in that experimentation, and
finds something that really works, maybe that will spread.
And the good thing that I think the Affordable Care Act did,
was create some mechanisms for that type of experimentation.
But that's, I think, more uncertain.
Okay, red blazer in the front.
>> In terms of high value versus lower cost,
people looked at the difference that the real need is for
innovation, not cost cutting, and that innovation can only come
trom suppliers and can't come from the buyer, the payer.
And John Goodman who did the health savings account said, I did it,
because I thought the cost would come down, but what really surprised
me was the innovations that hobbled up from the providers.
Now my question is,
do you think 50 million purchasers gave them $10,000 apiece,
would generate more innovation than taking the money from taxpayers and
then trying to put it out from one source with taxpayer money.
And it's not voluntary, instead of customer dollars, which are voluntary.
>> Yeah, so I think innovation is absolutely important, right?
And I think that innovation follows the dollars, right?
So innovating we're here in the valley, so innovation, people innovate,
and the innovations that people think of and
actually get to market are those that they think will sell, right?
So, in the health care system now, our incentives are not
geared towards promoting what I would call high value, low cost innovation, right?
So this fit test is actually a really good example.
So these You know, invaders came up with the fit test, and it's so
much less expensive and equally effective.
But they're having a hard time selling the thing, right,
because lots of people want their colonoscopies.
I would say, because they're really not, I'm probably the only person in
the United States of America who has said that phrase,
lots of people want colonoscopies.
[LAUGH] So if the health care system were redesigned in
some of the ways I think you're talking about,
if people had more incentives to choose these lower
cost plans which are providing fit types of tests,
I think it would fundamentally change the incentives for innovation.
It would be harder, this is actually another really
timely good example in the context of cancer drugs.
Spending on cancer drugs is, or spending on cancer treatment, in general,
is increasing very rapidly, and a lot of that is due to new biologics, new,
different types of cancer drugs which are very,
very expensive and kind of effective, right?
So maybe they increase life by three months on average for
the folks who are taking the drugs.
That is a very difficult decision, right?
Should we be spending tens of thousands of dollars per month for
these very high cost drugs, that have some, but
a limited effect on expected mortality in the overall population, all right?
So if the healthcare system clearly said, no, we're not gonna buy that stuff,
then I think pharmaceutical companies would stop bringing them to market, right?
If the health care assistant says, yes, we are gonna pay for that,
and then we're gonna see more of that type of innovation, right?
So I think the incentives really matter.
Black coat.
>> It seems to me that HSA, CDHP system helps to unite patient incentive and
the provider cost effectiveness.
What does ObamaCare say about the HSA?
>> So the question is about HSAs, which are health saving accounts,
which are paired with high deductible health plans.
Are they effective, and how will
the Affordable Care Act influence their use.
I think that HSAs are, they're going at this, right?
So the idea behind the HSA is if you buy a,
it's like a reward for putting yourself into a high deductible health plan.
So a high deductible health plan is a plan that has a high deductible.
You have to spend a lot of money out of your own pocket,
before your health insurance kicks in.
And the reward for enrolling in one of those plans is, you can set up a,
basically, a tax sheltered savings account.
They're really good deals.
If you guys look into those, those HSAs are a very good place to save your money.
So that's maybe the most important thing you've learned from my talk right now.
>> [LAUGH] >> But
so if you, in terms of their tax treatment.
Okay, so there's a carrot and
there's a stick, the stick is being in the high deductible health plan, and
the carrot is that you get to save your money in this incredibly tax favored way.
I generally think that that is a mechanism.
That's a mechanism that the way that we can promote people
to think about using higher value care.
And the overall evidence on the impact of high deductible health plans and
patient cost sharing, more generally,
is that people do indeed use less care when they are enrolled in those plans.
Of course the thing that we worry about is people are not gonna make the right
decisions, right?
So instead of choosing between colonoscopy and FIT, they're gonna do neither, right?
So that's essentially what we are worried about.
So that's the kind of the con, that's the thing that people worry about.
You know, one of the answers is, can we give folks in those kinds of plans
the right kind of decision support either through their physicians or
through new types of information tools in order to
help them make the right decisions in that type of environment?
What will the Affordable Care Act do to that?
I think it's still a little bit unclear.
I think there will be plans, and the issue here is that
under the Affordable Care Act, there's a minimum generosity level for
plans that plans have to meet, in order to be considered qualified coverage.
So you don't have to pay the individual mandate penalty.
And the question is, can you design a high deductible plan that qualifies you for
getting that nice health savings account, and still meets those qualifications
for the minimum benefit generosity?
And I think there have been some plans that have actually met that criteria.
So I think they will still stay around, and
it depends on people and how the Affordable Care Act shifts demand for
different types of coverage, whether they'll be popular.
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