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Insurance – Why Healthcare Isn't Econ 101 | Wharton Economist Mark Pauly
42 Plays28 days ago
In this episode, we’re speaking with Dr. Mark Pauly, - a founding figures of modern health economics - about how we can build a better healthcare and insurance system.
From the origins of moral hazard to the political journey of the individual mandate, Dr. Pauly explains how policy choices ripple across the system. He breaks down why healthcare markets defy Econ 101 logic, why costs feel higher even when spending has flattened, and how externalities, from contagion to altruism, justify public involvement. He also reveals why tax subsidies for employer insurance quietly distort the market more than most people realize, and why fixing incentives may matter more than any new program.
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Transcript
Introduction to Healthcare Theory Podcast
00:00:00
Speaker
Welcome to the Healthcare Theory Podcast. I'm your host, Nikhil Reddy, and every week we interview the entrepreneurs and thought leaders behind the future of healthcare care to see what's gone wrong with our system and how we can fix it.
00:00:14
Speaker
In
Introducing Dr. Mark Pauly
00:00:15
Speaker
today's episode, I'm speaking with Dr. Mark Pawley, widely considered to be one of the founding figures of modern health economics. He's the person who helped introduce concepts like moral hazard into healthcare, and working as a professor at Warden, he shaped the ideas that became the individual mandate.
00:00:31
Speaker
And in this
Foundations of Health Economics
00:00:32
Speaker
episode, we break down why healthcare markets don't behave like normal markets why insurance often leads to overuse, and the real drivers behind healthcare care costs before going into what an actually good healthcare system should look like.
00:00:45
Speaker
So Dr. Pauly, you're recognized as one of the nation's leading health economists. As people tend to really associate economics with inflation, monetary monetary policy, and big macro ideas, it's often a lot more than that.
00:00:58
Speaker
So to start, could you kind of share a bit about your background? What got you into health insurance and medical economics? It'd be great if you could share why is economics such an important toolkit to understanding these complex problems in healthcare? care Yeah, well, so when I was getting my PhD, I was interested in public finance and particularly government expenditure and its relationship to the private sector, as well as the public sector, the relative roles.
00:01:23
Speaker
That's what you talk about a lot in public finance, where government has to step in because of market failure and where markets have to step in because of government failure. There's plenty of blame to go around, especially these days.
00:01:37
Speaker
But ah so I was broadly interested in that question. And. I was present, I guess, at the creation of medical economics. Before I started working in the area, medical economics was a magazine that doctors got for free that told them where to invest their money for retirement homes.
Evolution of Health Economics
00:01:59
Speaker
ah so But it's come a long way since then.
00:02:02
Speaker
And I got into it because when Medicare was passed 60 years ago, ah the government also set up a research program that would provide grants, which was not going to snatch back like it's been doing lately, provide grants to researchers who wanted to study the health care system and ah particularly health economics. And so my thesis advisor said, why don't you write up a proposal ah to look at the health care system.
00:02:37
Speaker
what economics would say about the comparative roles of the public and private sector. So I did, and I got the reason and we got the we got to grant and that what that's what launched me on this particular area. So it was,
00:02:53
Speaker
my alternative was to write about the incidence of the corporate income tax. So I'm glad I didn't do that. I'm glad I picked what I did because ever since then, of course, healthcare has been ah a number one public policy issue. And it's also totally intriguing to an economist because the industry seems to not to fit what we teach in Econ
Understanding Moral Hazard in Insurance
00:03:15
Speaker
1. I mean, it's got all these peculiar characteristics, most especially the presence of health insurance that make it different from from almost any other industry.
00:03:27
Speaker
Right. i think around the 60s, it also saw a lot of free market economists really take precedence. But, of course, a lot of their ideas don't apply perfectly to health care insurance. not a perfect market there. And, I mean, one of your contributions around that time when you first getting into insurance was explaining moral hazard.
00:03:43
Speaker
And for listeners who listeners who aren't familiar, um can you please explain like what moral hazard moral hazard means in this context? I know it kind of sounds like it's about morality, but really it's about behavior. And we'd love to really hear on how it's impacting the way that you were first thinking about health insurance when you got involved and how policymakers think about that today. Well, it was also the name of a grunge band in Seattle, the Moral Hazards.
00:04:05
Speaker
Yeah. Yeah. But in in insurance or in insurance economics, which is where the term originated, it referred to the proposition that when insurance...
00:04:19
Speaker
um covers the losses that people incur, their behavior may change to make ah those losses greater than they would. So, and insurers thought they define moral hazards as any human aspect of human behavior that poses a problem for insurers.
00:04:39
Speaker
So they thought this was immoral for people who had insurance coverage to change behavior differently that would either increase the probability of a loss, like and not changing the battery in your smoke alarm, or increase the amount of the loss conditional on the occurrence of a bad event.
00:05:01
Speaker
Like what happens with medical care. It's okay, doc, the insurance will cover it. I don't need to care about the cost. So that's the idea. And one of my earliest contributions was to point out what seems obvious in retrospect that that this this kind of behavior works.
00:05:23
Speaker
people would probably react to it by seeking insurance that doesn't make them totally immune to the cost of the loss.
00:05:34
Speaker
So that complete insurance coverage that does make everything free may not be ah what people would choose for themselves, ah independent of of ah what public policy might be.
Insurance, Consumer Behavior, and Information Asymmetry
00:05:47
Speaker
So the theory of moral hazard is not a right wing plot duke ah to keep people away from health insurance. it's ah At least in my view, it's just, an it just um well, as I said in in my original contribution, it's just what what ah what happens when demand curves slope downward and to the right. And then health care, health insurance makes expensive things look cheap.
00:06:12
Speaker
And not surprisingly, people then engage in consuming more expensive things. And one thing that's interesting, of course, when demand slopes down, when things get cheaper, people can consume more of it. But it's not exactly like fire or insurance or something where it's easy, where oftentimes if you're misconsuming how those kind of incurrences, there could be some gross negligence. And then in health care, for example, it's really hard for people to tell whether their care they're using is good or bad, whether it's wasteful or not.
00:06:39
Speaker
So when you're first exploring this issue, i mean, how did you go about like defining what moral hazard was and research what exactly going on? Your intuition is right that information imperfections are all over the place here.
00:06:50
Speaker
Moral hazard comes about, though, because ah the person with insurance knows more about their health condition than the insurance company does.
00:07:01
Speaker
So it's an informational advantage to the insurance buyer who knows that their upset stomach is probably not anything serious. Right. But the insurance will pay for a visit to the ER. Now, of course, if you've ever visited the ER, you know they're going to make you pay an enormous time price there. You're going to sit around forever. But still, at the margin, why not have it checked out? My my belly's really hurting.
00:07:28
Speaker
and ah ah But I know that that it's probably just an upset stomach and not really worth $200 $300 visit to two hundred dollar three hundred dollars visit to the but the insurer doesn't know that yeah I could be dying. And so they'll pay the claim.
00:07:45
Speaker
ah they There's no way, at least it's very hard for them to prove that I wasn't really that sick. And that's the difference with fire insurance because fire insurance, if you've ever, well, I've been paying fire insurance for 70 years, 60 years now. And i'm the worst luck, I've never had a fire.
00:08:03
Speaker
I've never collected time. But if I did, The fire insurer sends somebody out to your place and estimates the value of the damage and ideally gives you a check for that amount.
00:08:16
Speaker
And unless you decided to throw you know all the things on under your burning house that you were ah going to get rid of anyway so you could juicer your claim, there's no moral hazard there, at least after the fact.
00:08:31
Speaker
Maybe, as I said before, maybe you didn't pay attention to your sprinkler system or your smoke detector, but ah but moral hazard, much less of a problem for fire insurance than it is for health insurance, because for fire insurance, the insurer can tell what happened, kind of what economic jargon, what the state of nature was.
00:08:55
Speaker
Whereas for health insurance, if I say my back is killing me, ah you know, nobody can prove me wrong. and And that's also, it's really interesting because it's kind of not exactly something that's present in the mind a lot of people. Like they don't really go into like when they use their care, they don't exactly know that there is this information going on.
00:09:16
Speaker
Yeah. So it's kind of an interesting combination of information and misinformation.
Cost-sharing and Healthcare System Dynamics
00:09:22
Speaker
We definitely know When things are made cheaper by insurance and health care, people use more of them.
00:09:28
Speaker
You're quite right that they don't necessarily know what the real benefit is of health care services. And you mentioned you'd interviewed Dr. Newhouse. He, of course, is most famous for the RAND health insurance experiment.
00:09:43
Speaker
And one of the parts of that experiment showed that when people were thinking about going to the ER, just the point I was making, they they were discerning if they had to pay out a pocket compared to free care.
00:09:55
Speaker
They didn't go in for an upset stomach. They didn't go in for a sore throat. They did go in, though, if they were coughing up blood. or comatose or something like that.
00:10:06
Speaker
So they actually made a distinction between severe illness ah that needed to be treated and moderate discomfort that, you know, take two aspirin and call me in the morning kind of thing.
00:10:19
Speaker
But once they got in the delivery system under in the clutches of doctors, then cost sharing didn't make any difference ah in terms of their choice of ah more or less effective care. So ah people are, um you know, somebody somebody's gotta make a judgment call here.
00:10:38
Speaker
People do seem to be able to intuit a fair amount about their need for benefit from medical care, but certainly it's far from perfect. ah On the other hand, who knows better, right? So, yeah, so that's the problem.
00:10:52
Speaker
Yeah. And maybe the best best of a bet makes the best, at least insurance, which has some cost sharing. For middle class people, I personally don't want poor people to have to pay out of pocket for medical care because they don't use enough health care as it is. But in my demographic, ah you know, we're all sort of hypochondriacs.
Healthcare Externalities and Public Intervention
00:11:16
Speaker
You need something to make you think twice. about contacting the healthcare care delivery system. Because as I said, Newhouse's RAND experiment shows once they get their colors once they get their claws into you, i you're going to find yourself lying on your back staring up the ceiling in a room with green painted walls in the hospital if you're not careful.
00:11:37
Speaker
And that's the difficult thing about insurance. It's so hard to, yeah, of course, understand um to be a good consumer of your own healthcare. And that's some of the main concepts like and moral hazard. Yeah. You and Dr. Newhouse focused on. That's what you go to the doctor for. Yeah. Find out how doc...
00:11:52
Speaker
How sick am I really? right What's a good treatment? But there's a ah problem for one thing that the doctor may not know. There's a lot of, they don't know a lot.
00:12:04
Speaker
A lot of times it's it's only God knows what's what's wrong with you. ah But also they have sort of incentives to tell you you're sicker than you think.
00:12:18
Speaker
if they're going to gain financially from subsequent treatments. So there's two ways. So i don't know, I'm getting my lecture out here, but there's two ways to control moral hazard at least.
00:12:29
Speaker
There's actually more, but one way is with patient cost sharing to make people think twice themselves about picking up the phone or jumping in the car and going to the ER. And the other way is by what's called supply side cost sharing, not paying the doctor so much money that the doctor will want to provide all services regardless of their cost, but instead will be more thoughtful about how much benefit there is.
00:12:56
Speaker
um My gripe as an economist is when I ask my doctor, ah doctor, what is the expected benefit from this treatment we've been talking about? they usually can't give you a straight answer.
00:13:09
Speaker
Right. And if that's a difficult one of the difficult issues. And I would also be really curious to hear, I mean, when you guys first started off, like exploring moral hazard and this misaligned incentives and often like murky incentives between physicians, patients, and kind of payers, what were some of the other concepts that you were excited about when you're first getting into medical economics and healthcare economics? I know adverse selection, there's a lot of other issues, but curious, what were you focusing on? Well, my original idea, I'd actually published a paper on education and public and private financing of education that built on the idea that there are externalities in education.
00:13:46
Speaker
Not, I believe, frankly, in college education, but in primary school education. we're I'm better off. if ah my neighbor's child can read one way, do not enter or something like that, you know, sort of basic educational skills.
00:14:02
Speaker
That's an externality. And I thought, well, for healthcare, there's actually two kinds of externalities. One is if you've got COVID,
00:14:14
Speaker
I can catch it from you. So contagious disease. But the other is if you've got cancer, I'm not going to catch cancer from you, but it'll really make me feel bad if you could be treated for your cancer, but can't afford it or don't choose to have it.
00:14:28
Speaker
ah This is kind of an altruistic Good specific externality. I don't care if you're happy or not. I just hate to see you suffering because, you know, I think that's a trait of most human beings, except maybe for Scrooge McDuck. But, you know, I don't know. for yeah Not necessarily everybody to the same extent.
00:14:49
Speaker
So that was sort of ah the original rationale I had for public intervention. And I'm still um of the belief that the primary reason why we have Medicaid for sure, and to some extent Medicare, is because of this concern for the health of our fellow citizens, ah like all sorts of those things.
00:15:14
Speaker
it's It doesn't extend to everybody in the world. it'ss It's not perfectly informed, but at least motivates people. ah And a lot of what happens in healthcare care can be explained by this altruistic externality motivation of middle class people who will actually have to pay for stuff for other people, which is a common characteristic of all healthcare systems, including the American healthcare system.
00:15:41
Speaker
Uh-huh. And it is really interesting how different healthcare systems, like they aren't something you can copy paste very easily. They really fit the values of the country that they're in. But before we get into that and what healthcare designs can and should look like within the United States, I would love to get your like overall opinion on kind of what healthcare costs, right? It's a huge question, a lot of reasons on why why it's going up. And would love to hear, like how much of that do you think is the way to like, because of how insurance works, for example, how versus other
Healthcare Costs and National Values
00:16:10
Speaker
factors? Yeah.
00:16:11
Speaker
I hate to play against type here and be an optimistic economist, but the share of GDP going into health care in 2023, which is last year for which we have data, official data, is the same as it was in 2009, I think. I think I got that right. At least more than 10 years before.
00:16:34
Speaker
right So what that tells you is that health care spending
00:16:40
Speaker
Although historically, it increased much more rapidly than GDP. For the last decade or more, it's kind of been going at more or less the same pace. Now, the projections are, say we're on a knife edge here, and when the 2024 data comes in, it's going to show an 8% increase in in healthcare care spending.
00:17:00
Speaker
with only a 5% increase in GDP, but I hope that won't happen. But that happens year, year, but it's recovery from COVID. At least that's the usual blame here.
00:17:11
Speaker
So, but the punchline is I'm not all that terribly worried about rising healthcare care spending period ah for two reasons. One is in the last 10 years, it hasn't been growing faster than GDP. So if GDP is of sort of crude measure of the economy's carrying capacity for healthcare spending, it's not like the government deficit, which would be going much faster than GDP.
00:17:40
Speaker
ah fine And then the second one is, ah well, you have you can't say healthcare care spending growth is bad until you know what the money went for. how Money goes, as far as we know, for two things mainly.
00:17:53
Speaker
One is on new treatments, new drugs we usually think of, but also um i angioplasty and things like that, new medical treatments to break up clots in your veins and all sorts of amazing miracle treatments.
00:18:12
Speaker
um And the research suggests in aggregate, they've been worth the what we spend on them.
00:18:19
Speaker
and And then the other thing that the money goes for, especially in the US, is um payments to other Americans. So my health care spending, very little of it goes to Saudi Arabia.
00:18:34
Speaker
Most of it goes to other Americans, the nice nurse that I saw yesterday. ah Of course, doctors with their Mercedes, but that's only a lot of it goes to, I mean, healthcare is...
00:18:51
Speaker
ah one of the A number one employers in the U.S. s economy and the only thing only place where you could get a decent job in the Great Recession, thank God for healthcare, care it gave people jobs and incomes.
00:19:04
Speaker
But that's the mirror image of rising healthcare costs. So, you know, if you want to take money away from nurses ah and think it should go somewhere else in the economy, that's fine, but I'm not going to do it.
00:19:19
Speaker
Yeah, and it's really interesting because there's a lot of like misconceptions about this. I'm sure you have like friends that aren't like all healthcare economists, but a lot of people think, I mean, even though healthcare has a percentage of GDP is not rising, people think healthcare care is getting more expensive, more burdensome.
00:19:35
Speaker
For example, Florida's importing drugs from Canada to make things cheaper. like What are some misconceptions? and why Yeah, well, nobody he wants to hear. Nobody wants. i mean, it's never good news when you have to use healthcare, right?
00:19:46
Speaker
Right. You're feeling like crap anyway. And now they tell you, oh oh, your insurance isn't going to cover that or you're going to have a $50 copay or whatever it might be. So doesn't it doesn't happen when you're in the best of all possible moods.
00:20:02
Speaker
Sure. You're told about the cost of it. but And most people think, ah ah get mad, most mad about drugs because that's the part of healthcare care where they actually have to hand over real money in real time. yeah there's a lot of salience there. It's covered pretty well by insurance now, but not as well as, say, hospital care. So people are more more sensitive about it.
00:20:26
Speaker
It's only depends on what metric you use with 10 to 15% of total health care spending. Most health care spending is and at still at the hospital. And the second largest category or doctor services and drugs are a third. So main reason why we have high health care costs compared to other countries because we pay people better who work in health care than other countries do.
00:20:50
Speaker
And the reason other countries don't pay them so well is because generally they have a the government controls the system. And so it can say, okay, doctor, sure. you You went to school you know for most of your life.
00:21:05
Speaker
Yeah. But but ah we're only going to pay you $50,000 $80,000 a year. It's not set in any market. And so they're able to have ah lower physician incomes and lower nursing incomes and lower incomes of phlebotomists and orderlies and technicians than in the U.S. And again, the economics of this is we we economists can't say which is better.
00:21:33
Speaker
You know, doctors deserve to be that much richer relative to the average person ah compared to what they are in Spain. <unk>re They're much less rich in Spain compared to the average person than in the US, s but it's a value to them.
00:21:50
Speaker
Yeah, and that's what's a difficult question is that healthcare care and making these decisions are all about trade-offs. For example, like sure, i mean in Germany, doctors might get paid a little less, but um in the US, we have like some of the best big i mean pharmaceutical industry in the world, like a lot of biologists coming out of here.
00:22:08
Speaker
there's a lot of trade-offs in that way. But I'd really love to get your kind of suggestions and pick your brand on how we can improve our system. so i mean Just kind of starting off, like what are the values that you'd provide and what are the high-level priorities you'd look for and a successful US healthcare system? Because of course, some people want innovation, like access, some have a mix of between them. But but are you what's your kind of take on what a good system would look like?
00:22:32
Speaker
so If I was in charge, I guess there's two things that that that I'd mainly do. The first one is, um and I'm a card-carrying health economist, we all have to say this, take away the current tax breaks to upper middle income people under the age of 65 when they get their health insurance through their job.
00:22:56
Speaker
So before I retired, um I got my health insurance as part of my compensation at Penn. um I didn't pay taxes on that. and And that means I figure on average, um Penn was putting something like $12,000 to $16,000 per worker.
00:23:17
Speaker
And you don't even pay taxes on the amount you pay explicitly. if You pay it you pay about usually about 20% of the premium for the health insurance you got through your job. Your employer is paying 80%.
00:23:29
Speaker
Even your 20% is tax shielded. And then you can have a flexible spending account and shield even more money from taxes and use it to pay for prescription sunglasses. Yeah. So all these tax breaks and there you know they're obviously bigger for people with higher marginal tax rates, the upper middle income people.
00:23:46
Speaker
And of course, it's not poor people that are driving rising health care costs in the US. It's middle and upper middle income people. And so I would take I would cap, limit, throw away, flush down the toilet these tax breaks, which, of course, they tried to do in the Affordable Care Act, and it was repealed before it could take effect. So it's not a politically popular thing to say, but it's what all almost all health economists believe.
00:24:13
Speaker
So that's number one. Number two is I would make sure that every citizen, at least every citizen I'm torn about non-citizens, but every citizen should have access to all cost-effective health care.
00:24:29
Speaker
ah We're almost there, only 8% of the population at this moment.
Ethics of the Individual Mandate
00:24:35
Speaker
doesn't have health insurance. ah People will say some people are underinsured, but that's kind of baloney, or at least it's a value judgment that you may or may not agree with.
00:24:45
Speaker
But at least some insurance, everybody ought to have some insurance, I believe. People shouldn't be allowed to run around without health insurance. It's kind of like if you were running around in the winter in your underwear.
00:24:56
Speaker
It's bad for you and embarrassing for the rest of us. And the same thing is true to help allow. Why? Why should people have a right to be uninsured when it comes to health care? I'm a very much a libertarian sort of person, but I think you have to draw some lines somewhere. So those would be the two things patch the holes.
00:25:16
Speaker
in Medicaid would be the simplest way to do it. Although there are other proposals that I've made and that other people have made or patch the holes in Obamacare i ah so that everybody has access to. um And this is important, though, cost effective care, not all care they think they need care that's cost effective.
00:25:37
Speaker
ah and take away the subsidy, which tempts people in my demographic to be overspending when it comes to trying to deal with an upset stomach.
00:25:51
Speaker
And I really want to dig into that like idea of like everyone being insured that individual mandate. I know you presented that idea to um George Bush in the early as a system for reform, which is really cool.
00:26:02
Speaker
We'd really love to hear. him and Can you tell us the story behind that? And especially like for a lot of people, they might think, like why does my insurance matter to the rest of society? Can you explain like why does people being insured really matter for the overall health care system and what really went on in that story?
00:26:18
Speaker
answered of your last question, which is insurance. The insurance you have matters to me because I don't want to see you going without effective health care. Yeah, like a moral kind of because it's an ethical, moral thing. It's not.
00:26:32
Speaker
I mean, I don't want to catch anything from you either, but that's that's a small part of total spending. So that that part sort of easy how how to do it is how to make sure this happens.
00:26:47
Speaker
But making sure also that people aren't incentivized to overuse care of low benefit relative to its cost is a much trickier question. But at least a version of it, which eventually ended up being Romneycare. It was invented for Republicans because, and I was part of the Caval, because the The idea was, well, George Bush, the first, had to come up with an alternative to Teddy Kennedy, who wanted national health insurance.
00:27:19
Speaker
So what's an alternative? Well, here's an alternative means tested insurance that's provided by private firms and runs through the private health care system, et cetera, et cetera. But making sure that there's a generous subsidy to low income or high risk people.
00:27:36
Speaker
So that was basically the idea. Your mother could have done um My mom said, that's nice to hear.
00:27:48
Speaker
and And the interesting thing is, it was originally a Republican idea. Then Mitt Romney as governor Massachusetts, put it in place. It became Romneycare. And then um basically the same thing was carbon copy turned into the Affordable Care Act, which now the Democrats were in favor of and the Republicans were opposed. Mm-hmm.
00:28:09
Speaker
So if you trusted the political system beforehand, you shouldn't have trusted it after you see how people totally switch positions ah politically. But ah but now it's called the Affordable Care Act.
00:28:24
Speaker
um I, frankly, um although I had to swallow hard, I'm in favor of it. But what is affordable is still a subjective judgment that at the moment people and Washington are fighting over.
00:28:39
Speaker
oh how How generous are they going to be? how generous will the subsidies be in the Obamacare exchanges? ah That's a subjective judgment. That's not an economic principle.
00:28:52
Speaker
Yeah, think that's really important. Anyway, so that's the story. and Other people had the same idea at the same time. It's like Priestley and Lavoisier. Nobody's had this idea from the beginning of time up to the present, and any idea you have or any idea I have, actually blame you. Some guy at the University of Chicago has just published a paper on it.
00:29:12
Speaker
Nobody ever thought of this ah in the whole history of the human race. Nobody's talking about it. And that's what happened here. Martin Feldstein had basically the same idea.
00:29:23
Speaker
So did people at the Heritage Foundation when Heritage wasn't quite so political. um And then so did Barack Obama. And so did John Gruber, who's the health economist at MIT, who was the architect of the Obamacare plan, who basically just took Romnicare and relabeled it and slapped a damn sticker on it and yeah it went.
00:29:49
Speaker
Yeah, and it's really interesting how it's like a question of moral values. It's not like a simple math equation. It's like how do we fix our health insurance system? It really depends, like, the moral values of what people want. And, I mean, the Affordable Care Act and Obamacare, i love to get into that. There's, ah course, kind of brought the individual mandate to America, but there was a lot of loopholes there.
00:30:09
Speaker
penalties and tax credits weren't always the most effective. But we'd love to get your opinion. like Where did the ACA succeed and where did it have its shortcomings? I can tell there's some things you like, some things you probably do not like, but we'd love to get your thoughts.
00:30:22
Speaker
I think it's been pretty much a success. Economists believe if you subsidize something, people will buy more of it. So the subsidized health insurance And people want more of it. So the proportion uninsured fell from like 18% to 8%. I personally favored and still favor the individual mandate because of the metaphor I just talked about a few minutes ago. I think it's embarrassing to have anybody running around without at least some health insurance.
00:30:51
Speaker
but And that would mop up those stragglers, the bottom 8%. that um actually about half of them are eligible for subsidized care, either in Medicaid or in the Obamacare exchanges.
00:31:06
Speaker
They just haven't gotten around to signing up for it. these are not the These are people with what we call in economics defective telescopic faculties.
00:31:18
Speaker
They don't think about the future all that much. And they're not sick at the moment, so who needs health insurance, right? so but so and and and And my view of the individual mandate was that that that actually was its main purpose, although it also helped to prevent adverse selection. But its main purpose was to kind of mop up these stragglers and these crazies who would try to take a chance that they weren't going to get sick this year, just so they could save a little bit of money on their health insurance premiums.
00:31:47
Speaker
But then they would get some of them would get sick and then everybody be ringing their hands about it. Yeah, and there's a lot of people I think the yeah Affordable Care Act, the overall design was just about perfect.
Challenges in Healthcare Funding
00:32:01
Speaker
ah You know, you're I'm an economist, so I could always make some suggestions for improvement, but it was pretty good. How generous were the political controversy at the moment is the subsidies to plans were greatly increased by Biden and during COVID, but those extra subsidies are due to expire at the end of, not the end of this year, later on this year.
00:32:28
Speaker
And whether they'll be renewed or not is a much more debatable question. I'm not sure whether they need to be renewed. to the same degree of generosity as Biden put them. but ah both But again, that's subjective judgment. It's very hard to invoke any kind of research that would give you the answer.
00:32:50
Speaker
Yeah, and it's interesting now. I mean, the main suggestions you had were get this individual mandate, like more, like but basically like make that work. And then, of course, like fix kind of the tax policy to make sure that we have the right incentives to incentivize the right utilization of health care. But I mean, that's not necessarily what's happening right now.
00:33:08
Speaker
in kind of the world. Like, it seems like the and NIH is going to cut a little bit. A lot of people are losing Medicaid. And I would love to get your perspective as you've seen the industry evolve since Medicaid and Medicare first were brought into the US.
00:33:20
Speaker
um Like, how do you think things will change in the future? I mean, like you said, those projections, it's kind of on the nose whether it outpaces GDP or not. But we'll have to get your perspective on how things are looking today and in the future. Yeah, well, the I mean, the big problem, of course, is that the government is broke.
00:33:38
Speaker
So that kind of makes it hard to fix things that cost money. And the Medicaid cuts, they're about a 10% cut, more or less,
00:33:51
Speaker
cutting Medicaid back to where it was before Biden entered office, went under the first Trump administration, because Biden, um God bless him, paid, had the government, even though it had didn't have the money, ah'll pay for expansion of Medicaid. but Many states took took him up on, although not all.
00:34:16
Speaker
So that's what's being removed. So in a sense, it's not going back to the dark ages, unless you view the first trump term of office as dark ages, some people would, but it it or the the level of subsidy under Obama and level of Medicaid under Obama.
00:34:36
Speaker
So it's a value judgment, again, not a matter of life and death, although it is a matter of life and death, although how much of ah of, of, uh, increase in, um,
00:34:49
Speaker
reduction in health there would be if people and ah in a how much me Medicaid cuts would influence that is now this is not the subjective issue.
00:35:00
Speaker
Somebody knows or somebody could tell the impact of this would be, but nobody does know it. So people are just spouting off about the Congressional Budget Office.
00:35:13
Speaker
Those are all my former students who have guns to their heads saying, You guys have to estimate what's going to happen with this legislation, even though nobody can ever know what's really going to happen for sure.
00:35:26
Speaker
but you But it's your job to come up with an estimate. So they come up an estimate. Yeah. And they they have an estimate. I don't remember the exact number, but it's something like 15 million people would stop taking health insurance if Medicaid were cut.
00:35:41
Speaker
Although that depends very much on, well, well as long as i'm I'm wholly forth on the subject. What's going to be cut under Medicaid are the Medicaid is a federal state program.
00:35:53
Speaker
The feds pay at a minimum 50% of the cost and 90% of the cost for these adults who were added during the Biden era and the states pay the rest.
00:36:07
Speaker
So, and it's the federal share federal money that's going to be cut. Now, if the states wanted, they could keep the program intact. Nobody would lose their insurance coverage and they just pay the extra money themselves.
00:36:25
Speaker
And I actually published a policy note saying that the rich states ought to do that. hi Connecticut's the richest state in the country. It's paying 50% of the cost of its Medicaid.
00:36:39
Speaker
I think it should pay like 60 or 65% of the cost of its Medicaid ah in order to keep benefits up to where they, if they really like them where they are now and are afraid people will die if they're cut back, don't cut them back.
00:36:54
Speaker
Just right tax your citizens. But state politicians don't like that as a solution. Yeah, they don't like taxes, so it's hard to get. That's the issue. It's like, again, ah give we're going back to this again. It's a moral thing. Like, what do we prioritize?
00:37:10
Speaker
And yeah
Dr. Pauly's Contributions to Healthcare Policy
00:37:11
Speaker
kind of my last question here is that, i mean, you've had a lot of experience, like, at research with Penn and other institutions, like, getting your voice out there through that. But also, I know you're consulted the Congressional Budget Office and worked with the 8th Department of HSS.
00:37:25
Speaker
And those roles outside of the research, like, what value have they provided to you? And what have you been able to do that's kind of significant to you. would' love to hear your thoughts and stories there. yeah well, I was always, as I mentioned, I got into this because I was interested in public policy and what the government should shouldn't do.
00:37:43
Speaker
So I was already subject to temptation, but, ah and, ah and um you know, I never, oh ah well, I worked in Washington for a summer, but that doesn't really count for much. I was never an administration official under any administration. So But I thought if I...
00:38:02
Speaker
I mean, partly it's just if you, but as I said, for the example with George Bush and Obamacare, if you're asked, if an economist is asked a question, we're supposed to be able to come up with answers.
00:38:17
Speaker
And there are so many questions about health care. It's hard not to take pleasure in being able to come up with answers to at least some of them, or at least things that might work or have to try or even more.
00:38:32
Speaker
to show to argue that what somebody else is proposing is the dumbest idea ever. ah And that's what we're especially good at. Yeah, and that's why I think this has been super helpful to understand, like, what is economics role in healthcare? And it seems like that's more multifaceted than just applying a supply and demand curve to different areas in healthcare and calling that a day.
00:38:53
Speaker
It's really nuanced. So I've really appreciated you kind of diving into these different concepts, like the ACA and the individual mandate and also moral hazard and all these different things we've explored over the past few years. It's been a huge help in understanding, like, what is the intersection between economics and healthcare?
00:39:10
Speaker
Okay. Happy to do it. Yeah, of course. Yeah. And I'll really appreciate it. And if anyone wants to learn more about Dr. Pauly's research, it's going to be down below with some links to find out, learn more about what he's been done in the past, has what he's done in the past. But um thanks everyone for listening.
00:39:27
Speaker
Thanks for listening to the Healthcare Theory. Every Tuesday, expect a new episode on the platform of your choice. You can find us on Spotify, Apple Music, YouTube, any streaming platform you can imagine.
00:39:39
Speaker
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