A Perfect Storm: U.S. Health Care Spending with M. Kate Bundorf


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.

Daniel Yohans

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