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Can Liberalism Fix America's Healthcare System?
65 Plays1 year ago
We have a thought provoking discussion with Michael Cannon, Director Of Health Policy Studies At The Cato Institute, about his new book "Recovery" that outlines a roadmap to fixing America's broken healthcare system.
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Transcript
Introduction and Guest Introduction
00:00:08
Speaker
Welcome to the Project Liberal podcast. I am your host, Joshua Echol. He joined as always by my co-host and co-founder of Project Liberal, Jonathan Casey. Hello, Jonathan. Hello.
00:00:20
Speaker
It is a terribly dreary Friday in Nashville. I don't know how it is in Texas or DC where I think you are based out of Michael. But today we are joined by Michael Cannon. Michael Cannon is the Director of Health Policy Studies at the Cato Institute. And Michael, we appreciate you making time for us to chat.
00:00:40
Speaker
Very happy to be here. Yeah. Yeah.
Overview of 'Recovery' and US Healthcare Misconceptions
00:00:42
Speaker
So the context of the conversation, just to frame everything, is there's been a new book released. Michael just released the book called Recovery. And this book is basically a guide to reforming the US US health sector in a nutshell. One of the things I really liked about the book.
00:00:57
Speaker
is it doesn't necessarily spend a bunch of time, you know, talking about problems as much as it ties problems directly to solutions. It's a very solution oriented book. And I think one of the things that John and I are passionate about is showing people about how classical liberal ideas or liberal ideas
00:01:17
Speaker
They are very solution-oriented, and liberals have a lot of solutions to the problems that plague society. So one of the things that I was hoping we could get in with you, Michael, is just some of the stuff that you talked about in your book, and some of the classical liberal solutions to health care issues in the United States. So if that's okay with you, then I think we just jump straight into it.
00:01:39
Speaker
Let's do it. All right. So, um, one of the things I think is a huge misconception. I actually, before I jump into the misconceptions, I just want to take a step back. So when I talk to young people, um, about healthcare in the United States, the narrative that we hear over and over and over again, as it's a bunch of greedy capitalists, greedy capitalist system, and it needs to be torn down and replaced with a big government, uh, you know, universal healthcare government administered model.
00:02:07
Speaker
And one of the things I think you clearly outlined in your book was that it is not a free market or capitalist system by any means. In fact, it's actually the opposite in many ways. And so I just kind of wanted to see how you, as somebody who spends all their time thinking about this issue, address that narrative, maybe to kick us off, about whether or not our system is capitalist or not and where the lines are drawn there.
Government's Role in US Healthcare
00:02:35
Speaker
So there is this persistent myth that the US health sector is somehow this bastion of free market liberalism. And that's why everything is so miserable. That's why prices are so high. That's why insurance companies deny coverage to people. And that is why health insurance is so insecure. And it just doesn't fit with the data. I have in the book,
00:03:06
Speaker
two graphs that present data that I haven't seen any other healthcare publication, book, blog post, anything published anywhere. Although I get it from the OECD, I haven't even seen the OECD put up a graph with all of these data that they have buried on their website. And what these data show, and I presented these two graphs in the book,
00:03:29
Speaker
is that government exerts as much control over healthcare spending in the United States as in any other advanced country.
00:03:39
Speaker
it's about 84% of health spending in the United States is money that the government controls. And while that's not the highest level in any OECD country, the highest is like 85 or 87, we're within like 3 percentage points of the Czech Republic, which I believe is where the government controls the highest share of health spending. But you know where,
00:04:09
Speaker
where that percentage is higher in the United States than other countries that might surprise you like the United Kingdom and Canada and the OECD average were eighth highest in terms of government control of health spending here in the United States. That's more than countries like Canada and the United Kingdom that have explicitly socialized systems. That's more than about 30 other advanced countries. And so if you think
00:04:38
Speaker
that giving government control over the health sector is going to deliver this utopian system where we eliminate all unmet medical need. Why hasn't that happened already? It hasn't happened because government does not make very good decisions with all the power that we give it. In Germany, the government has a similar amount of control over health spending. It makes different decisions though, so they get a different set of perverse outcomes.
00:05:07
Speaker
But the decisions that the government makes in the United States with all of that control end up being decisions that uniformly drive up healthcare prices, drive up healthcare spending, wasteful healthcare spending, subsidizing low quality care, penalizing high quality care, subsidizing low quality health insurance and penalizing high quality health insurance. And those are the root causes of all of the dysfunction and dissatisfaction that we see in the US health sector.
00:05:38
Speaker
Okay. How does government raise, you said that government raises costs and lowers quality. What are some of the areas that you can demonstratively show, these are the areas that when government does these things, the results are worst care, higher prices. So most of these things are indirect. Most of the effects that I'm talking about are the unintended consequences, but very real consequences of ways that government has gotten involved
00:06:07
Speaker
in the health sector either to reduce the cost of care or to improve the quality of care or just got involved by accident. And let's start with that last category. The biggest way that the government has gotten involved in healthcare by accident and the most harmful thing that the federal government does in healthcare happened back about a hundred years ago. In 1913, Congress created the income tax. At the time, there was really no such thing as health insurance.
00:06:36
Speaker
And there wouldn't be health insurance, at least not modern health insurance, for another 15, 20 years. But in the interim, the Treasury bureaucrats who are implementing this new income tax, which by the way, the statute said nothing about employer sponsored health benefits because they didn't exist. The Treasury bureaucrats who are implementing this law said, you know what, we will not count as income, as taxable income, insurance, the group insurance that employers provide to their workers.
00:07:05
Speaker
So life insurance or whatever, as long as it was a group policy, they're not gonna count it as an income. They said that's an expenditure toward company efficiency, not compensation. Well, what ended up happening was once health insurance came on the scene and employers started offering that, that tax preference became a penalty on every dollar, turned the income tax into a penalty on every dollar that you did not take in the form of health benefits. So when the government
00:07:35
Speaker
wasn't intending to affect health care at all, the unintended consequences of its intervention into the economy by the creation of an income tax distorted the market for health insurance, something that didn't even exist yet, and the market for health care, because when the government penalizes you, if you spend money on things other than health insurance, you're gonna spend more money on health insurance.
Impact of Employer-Provided Insurance and Licensing Issues
00:08:00
Speaker
And when you spend more money on health insurance,
00:08:03
Speaker
That means that when you go to consume medical care, you're gonna have more insurance, that's gonna insulate you from the cost of that medical care, and you're gonna care about prices less. And when the consumer cares about prices less, that means the producers can charge higher prices, and they do. And we know this not only because of the trajectory of health care prices in the United States,
00:08:24
Speaker
But also, employers, and I have data on this in the book, employers have done experiments where they said, what if we gave people less insurance? You know what happened when they gave people less insurance? Prices fell. Prices fell dramatically. For complicated procedures like hip and knee replacements, they fell by 37% at high price hospitals in these experiments. That's $16,000 per procedure. What that tells you is, and these were employer sponsored health insurance plans, what that tells you is,
00:08:54
Speaker
that when the government encouraged employer-sponsored insurance and encouraged more insurance than people would have purchased anyway,
00:09:01
Speaker
that those interventions are driving up prices right now. The excessive prices that you're facing in healthcare right now are happening because the government did this weird thing a hundred years ago that it didn't even mean to do and it has taken a hundred years to fix and still hasn't done it. It's still failing to do that. So there we've talked about just one way that government increases healthcare prices. That same intervention though,
00:09:28
Speaker
increases the quality of health insurance and the quality of health care. It reduces the quality of health insurance because the government is penalizing you unless you enroll in a form of insurance that kicks you out when you change jobs. That has fueled the problem that makes health insurance less secure. Who in their right mind would buy health insurance that kicks you out when you change jobs
00:09:51
Speaker
unless the government were penalizing you otherwise. The U.S. workers changed jobs a dozen times by the time they hit their mid-50s. No one would buy that sort of health insurance, but the government penalizes you unless you do, unless you enroll in low-quality health insurance. And that same price insensitivity, tilts that I mentioned before, tilts the playing field toward certain types of health insurance,
00:10:15
Speaker
and away from other types of health insurance that offer electronic health records and coordinate care and provide all sorts of conveniences. And as a result, the price insensitivity that the government created also reduced quality by tilting the playing field away from those plans that provide those dimensions of quality. I talk about that a lot in the book too.
00:10:39
Speaker
Yeah. Okay. So again, one of the more powerful things to think about the book is you don't just identify the problem. You actually do chart a path to a solution to many of the challenges that you rightfully diagnosed. John, there's a chart. Can you throw this chart up for me real quick?
00:10:54
Speaker
Michael this not this one the other one So I'm sure you've seen this chart a million times Michael One of the reasons I wanted to pull this up Was because I see this chart all the time online and it actually speaks to what you were just what you were just saying The United States has a huge amount of expense with a low amount of quality at least that's what this chart seems to To show and I might point out that the number in Michael's book the number for the US spending on health care is
00:11:21
Speaker
something over $13,000 per person, whereas this chart almost goes up to 9,000. So there seems to be better numbers coming from Michael's book, especially since I forget 2014 that this chart was released. So it's only gotten worse. And I know that life expectancy has gone down over the past few years. Yeah, go for it, John. I think you were about to go where I was going next.
00:11:49
Speaker
So when we look at this chart, we look at, you know, how do we get from this chart that goes, you know, that has this hockey stick angle off to the right, and how do we correct that back up to these other nations? These other nations that we would look at and we go, well, these have, you know, these have stereotypical socialist healthcare systems, that we think of socialist healthcare systems, is the answer to go to the European model, go that more centralized control. How do we correct it?
00:12:18
Speaker
Well, can I ask you, John, to go back to the graph that you threw up just momentarily from my book, because I think it could help to answer that question. What this graph shows is the same OECD data, but instead of health government control of health spending as a share of health spending, you know, the share of health spending that government control is, this shows government controlled health spending versus voluntary health spending as a share of GDP.
00:12:44
Speaker
And what you notice here is that the United States, we all knew that the United States spends a larger share of GDP on healthcare than any other country, but it's about 18%. But what this graph shows is that about 16 percentage points of that is compulsory.
00:13:03
Speaker
16 percentage points of GDP in the United States is compulsory health spending, health spending that the government controls, that it requires us to spend that money on health care. That is a larger share of your GDP than total health spending in any other country. I think the second country on that graph, it changes from year to year. Again, Germany,
00:13:27
Speaker
And compulsory health spending consumes a larger share of US GDP than total health spending in Germany does. So if you wanna know on that other graph that you showed, why is it that health spending in the United States is so far out of line with other countries? Why do we spend so much more than other countries do on healthcare? It's because the government compels us to spend more money than other countries do, okay? So in that sense,
00:13:55
Speaker
because the government doesn't compel those other countries to spend so much of their GDP on healthcare, they might have more health freedom, more freedom to choose whether or not to spend their money on healthcare. They may have less freedom, maybe the government compels them to spend that money on other things, because tax rates are generally higher in other countries. But the government of the United States is compelling us to spend a lot more of GDP on healthcare. Now, what does that have to do with the y-axis in that other graph you mentioned? Well, healthcare is not the only thing that,
00:14:24
Speaker
influences health. There are a lot of other things that influence health and influence that life expectancy measure from that other graph. There are things like nutrition and education and housing that have causal effects on health outcomes. And if the government says, no, no, no, you can't take your money and spend it on those things, you have to spend it on health care.
00:14:47
Speaker
And we have a health sector where the best available evidence suggests that we waste about a third of health spending on medical care that doesn't improve health or make the patients any happier.
00:15:01
Speaker
In a $4 trillion sector of the economy, you're talking about more than a trillion dollars. That's a trillion dollars that we can't spend on those other things that could be improving our health more if we shifted them over there. So no one really knows the answer.
00:15:17
Speaker
to why it is that life expectancy, I don't think anyone knows the answer, is why life expectancy in the United States is lagging behind other countries and exactly what is the relationship that health spending has.
00:15:36
Speaker
could be one potential reason is that the government is requiring us to spend more money on health care and we're wasting therefore on low value or zero value health care resources that could be improving health more if we left people free to spend those resources on what they want.
00:15:55
Speaker
All that makes sense. So then I think this would be a good time to talk about how you kind of get to that point. So I think one of the first recommendations you made in the book was around licensing. And I'm curious if we can kind of break into that a little bit more. One of the things that you said was that
00:16:12
Speaker
We should effectively eliminate all government licensing of medical professionals as one of the first steps we could take to kind of bring it back into more into a free market environment. I'm curious as to whether you could talk a little bit about how you feel like licensing plays a role in lowering the quality of care, increasing costs, and why that would work, why that would have a positive impact. So a friend recently said, use this analogy, and I really like it.
00:16:38
Speaker
He said that when you tell people that you want to get rid of clinician licensing, for example, they envision themselves sitting on a chair and you're pulling the chair out from underneath them and telling them, don't worry, the market will take care of it. And I think that's right. But I think that the analogy that a lot of people believe that that's how it would work. I think the analogy is more like this. You're sitting on a chair and between you and that chair, there's a piece of paper.
00:17:08
Speaker
I think getting rid of clinician licensing is just taking away that piece of paper. The chair is still going to be there. It wasn't the piece of paper from the government that was protecting you. It was all sorts of things that are happening right now in the market that are already protecting you right now and that would continue to protect you, even if we got rid of this form of regulation, which, as you say, is really just increasing prices and reducing quality. I'll have more to say about that in a moment.
00:17:35
Speaker
But there are all sorts of things that are protecting you from low quality care that would still be there if we eliminated licensing. There is hospital credentialing, there's board certification, there is the medical malpractice liability system, so the threat of being able to sue
00:17:57
Speaker
uh, healthcare providers leads them to improve the quality of the services so that they won't get sued and the medical malpractice liability insurance market
00:18:09
Speaker
translates that the incentives the liability system creates into better higher quality care for doctors so that you wanna reduce your med mal liability premiums, fine. You take these steps to improve the quality of care and you'll pay less, you can save money on your medical malpractice liability insurance. There are all these and other quality protections, including reputation and quality competition among providers,
00:18:38
Speaker
exist and they are the chair that is providing you what protection you have right now from low quality care. Licensing is not providing that protection at all. I discussed some of the evidence for that in the book. If you eliminate licensing, you're just removing a piece of paper that you're sitting on.
00:18:56
Speaker
and the chair is still going to be there. But licensing is worse than that because it also increases prices. Well, I should say where I should start is the worst part about licensing is it takes away your healthcare rights. It takes away your most important healthcare right, which is your right to make your own health decisions, including which clinicians you're going to see. I believe at least one of you is in Texas. Jonathan, aren't you in Texas? I am.
00:19:22
Speaker
the God, fear, and conservative government-limiting state of Texas, which is one of the worst offenders in the country when it comes to violating people's rights to choose their own clinicians. In Texas, nurse practitioners cannot prescribe, they cannot practice independently, and there's no such thing as a dental therapist because Texas completely prohibits them from practicing at all. What does this do? This means that if I want to see a nurse practitioner for my primary care or my kid's primary care,
00:19:51
Speaker
a nurse practitioner who can provide that care just as well as a physician can at a price that's 35% less, I can't do that because the state of Texas makes that illegal. It takes away my right to choose my provider and it leaves me paying higher prices because I have to go to a doctor to get those services.
00:20:09
Speaker
Same thing with dental therapists. Dental therapists, there's something in between, somewhere between a dental hygienist and a dentist, they can do a cleaning like a hygienist can, they can do extractions and fillings like a dentist can, but because they haven't gone all the way through dental school,
00:20:25
Speaker
They don't have all the student loans that a dentist does. They can charge lower prices for those services and dentists can, but it is illegal for you to for one of them to set up a shingle in Texas, and for you to choose that to to patronize a dental therapist in Texas.
00:20:42
Speaker
because of clinician licensing, because of these rules that we've been talking about, which take away your right to choose your health care provider and leave you going to a dentist to pay dentist prices for your fillings and extractions, rather than lower prices from a dental therapist for the same quality of care.
00:21:03
Speaker
And it gets worse than that because licensing then also reduces the quality of care. I mentioned before how there are certain types of health plans that integrate care, provide coordinated care, that provide electronic health records and have been doing so for decades. My sister-in-law recently had brain surgery to remove a benign tumor.
00:21:24
Speaker
She got her health insurance from one of these plans, the only one that has been able to break through all the regulatory barriers the government has put in its way. We call it Kaiser Permanente. I don't even know if it exists where you guys live, because it only exists in certain parts of the country. But she lives in the DC area. She enrolled in Kaiser Permanente through her employer, and she required brain surgery, not only brain surgery, but a caesarean section, not at the same time.
00:21:49
Speaker
She said she loved her coverage for both services, not just because the out-of-pocket exposure was low, but also because it was so much more convenient than what everyone else has to go through. If they had a question for a specialist, that specialist was down the hall. They would just walk down the hall and ask the specialist. If she had to fill a prescription, it was on the next floor in the same building. She would go there and fill the prescription. Instead of having to make separate appointments and go all over town,
00:22:17
Speaker
So it just made these very complicated procedures so much easier for her, reduced her stress so much, saved her so much time. But licensing, ever since state government started passing licensing laws, the physician lobby has used those powers to block competition from these sorts of plans, to block coordinated care and electronic health records and all the conveniences that they offer.
00:22:38
Speaker
And as a result, we have a health sector where the number of people who say die from medical errors every year is somewhere between a hundred and 250 or 400,000 people preventable medical errors because in part because clinician licensing has blocked health plans that face unique incentives to reduce medical errors and limited the competition that other health insurance
00:23:05
Speaker
plans and health care providers face from those plans. So I get that repealing clinician licensing probably isn't politically feasible right now. I mean, we're having a hard enough time allowing nurse practitioners to practice independently in some states.
Proposed Reforms for Better Access and Quality
00:23:22
Speaker
But that's why the book also has recommendations that would expand your right to choose your clinician without
00:23:30
Speaker
going all the way to repealing clinician licensing, just recognize licenses from other states. Some states have done this. Arizona has done it. Florida has passed the law. Let people with licenses from other states practice in your state, either through telehealth or coming to your state and hanging out a shingle as long as they can show they've got a license from some states somewhere. This would be particularly helpful for
00:23:55
Speaker
uh military families so that you know military spouses don't have to go through the licensing process in every new state where where they move uh but it would also it would also be incredibly valuable to low-income people there is because clinician licensing literally prevents competent medical professionals from giving away free health care to low-income patients
00:24:19
Speaker
There's a group called Remote Area Medical. It goes and puts on clinics in low-income parts of the country. And every clinic they put together, they get volunteer docs from around the country. Every clinic they have, they have to turn people away because they couldn't get enough clinicians to come in because of the licensing barriers that each state faces. Texas says, I don't know if Texas has passed a lot of fixes. It used to say.
00:24:42
Speaker
that if you have a license from Vermont or Oregon or New York or California, it doesn't matter. You can't come and give away for your healthcare to the poor. If you eliminate licensing, that's no longer a barrier. But if you recognize licenses from other states, you also get rid of that barrier and bring healthcare within the reach of the people we're most concerned about.
00:25:02
Speaker
When Texas had that massive ice storm blow through, there were burst water pipes everywhere. In fact, it was so bad that Texas lifted its pasta bill that said, hey, if you're an out-of-state plumber and your license is good in those states, you can come in and work. And they've since removed that. And it makes no sense. If they're licensed in other states, almost everyone would say, yes, of course, I'd be fine with them working on my home.
00:25:26
Speaker
Another example I'd like to give of this is that for a while I ran a small 25-person business and the insurance requirements were what made us worry about worker safety. Not that we weren't worried about our friends, but that the insurance company was the one coming in and inspecting our tools to make sure that we had the proper safety equipment on our electrical tools, that our ladders weren't damaged. At one point, one of our guys had a ladder with the board on the side of it to hold it together like, no.
00:25:54
Speaker
go buy a new ladder because, again, it's the insurance company saying, no, we're not going to insure you or we're going to raise your rates really high if you don't take care of these issues, if you don't reduce the risk factor to your workers. You state a lot that the
00:26:11
Speaker
that there's a strong correlation between people being able to make choices and actually being impacted by the cost of their medical care. Why is there such a strong correlation between people being able to choose their medical care and the cost to them of that medical care? Why does that make such a big difference?
00:26:35
Speaker
Uh, why are people who are spending their own money more price conscious? Well, it's a pretty, pretty, uh, simple reason because it's their money. And if they waste it, then they lose. If I'm spending your money, if I'm in an open bar, then I'm going to drink a lot more than I am. If I'm at a cash bar where it's my money that I'm spending.
00:27:01
Speaker
And that happens in healthcare across the board. Every $10 that US patients spend on healthcare comes from someone other than the patient. And so they consume a lot more healthcare. This is because the tax code encourages more health insurance. It's because Congress creates this Medicare program that it fashioned
00:27:26
Speaker
after the sort of overly comprehensive health insurance that the tax code encouraged. So the Medicare program also encourages excessive insurance and the Medicaid program does and the CHIP program does and all these.
00:27:38
Speaker
mandates that states and the federal government pass that require people to buy more insurance than they would have purchased otherwise, further require more insurance, and it causes prices to soar. I didn't put this graph in this book, but in another study that I did for the Cato Institute, we present data on what happened to prices for hormones and oral contraceptives after Obamacare mandated 100% coverage for hormones and oral contraceptives.
00:28:02
Speaker
Before that mandate took effect, prices for hormones and oral contraceptives were kind of, where they were falling relative to inflation, they were falling in real terms.
00:28:11
Speaker
But as soon as that mandate took full effect, those prices shot up. The prices for hormones and oral contraceptives, which are prescription-only items, were tracking the prices for over-the-counter medications where people were paying themselves. Paying with their own money, and so they're price-sensitive, and you get price competition. But as soon as Obamacare made them price-insensitive,
00:28:35
Speaker
Producers, the manufacturers of these items got the message and they started jacking up prices. They've surpassed the price increases for other prescription medications. And so now, because Obamacare encouraged full coverage for contraceptives, prices for hormones and oral contraceptives are twice what they were before Congress passed Obamacare.
00:28:59
Speaker
And there are data in the book that are consistent with that, that series of experiments that I mentioned earlier, where the employers gave their workers less insurance, and then the workers, because they were less heavily insured, they shopped around, and prices fell. Did I mention this? I'm not sure if I mentioned this. No, I don't think yet.
00:29:21
Speaker
Insurance companies and employers, like the California Public Employee Retirement System, which is one of the largest purchasers of healthcare services in the world, with all their purchasing power, they could not get the prices for hip and knee replacements down at some California hospitals because those hospitals had monopolies. Some hospitals are only charging $12,000, but the ones with monopolies are charging $60,000. Why? Because they could.
00:29:49
Speaker
If the insurance companies that sell to CalPERS, to California employees, tried to get those prices down by excluding those hospitals, then the California state employees would rebel and be angry and switch to other insurance companies because it seemed like they're spending their employers' money, not their own, so why not? So they tried something novel. They said, all right, look, look, look, look, this is crazy.
00:30:10
Speaker
Those price differences are not, don't bear any relation to quality. You don't need more than $30,000 to provide a quality hip or knee replacement. So we're just gonna pay $30,000 wherever you go. You can pick whatever hospital you want. But if they charge more than $30,000, you're on the hook for the balance. If you pick the $60,000 hospital, you're paying $30,000, that last $30,000 yourself.
00:30:33
Speaker
As soon as they gave their enrollees less insurance, they said, we're not going to pay 60, we're going to pay 30. That's giving them less insurance. As soon as they made them price sensitive by putting them on the hook for 100% of the marginal cost of these procedures, you know what happened? Stuff that's not supposed to happen in healthcare because markets don't work in healthcare.
00:30:55
Speaker
The consumers started shopping around. They started demanding price information. They started getting price information. They started changing their behavior and switching to the lower price providers. And then those high price providers started dropping their prices.
00:31:09
Speaker
They dropped their prices, prices came down so much that at the high price hospitals, they fell 37% in two years. When do you ever hear about prices falling in healthcare? They don't because the government is just encouraging higher and higher prices. But when you pare back the comprehensiveness of health insurance, you use the market mechanisms of price sensitive consumers and price competition and choice.
00:31:34
Speaker
you get price competition in healthcare, you see prices falling in healthcare dramatically. That was, that 37% represents about a $16,000 reduction in price. Those sorts of price reductions are gonna have an impact on health insurance premiums and make health insurance more affordable for people as well. So, and the reason that consumers shopped around was because they got to see the savings. If they were, before that, the savings would go to,
00:32:03
Speaker
an insurance company, and then maybe the state of California, and then maybe it would come back to me in my paycheck. I mean, economic theory says that that's what would happen is ultimately workers will see the savings because they bear the cost of employer sponsored health insurance in the form of lower wages. But that's not salient to them. So that had nothing to do with their decision making.
00:32:24
Speaker
As soon as you made the savings salient to them, they changed their behavior and prices fell. And if you care about making health care more universal, falling prices should be your obsession because that is how we make health care. That's how we make everything more universal. That's how food became more universal and how we've been able to keep 8 billion people alive on this planet at once. It wasn't government subsidies. It was falling prices for food. And we need the same process to make health care more universal.
00:32:53
Speaker
That's extremely powerful. Everyone wants universal health care. Just some of us realize we won't get there through government intervention.
Critique of Current Insurance and Regulatory Practices
00:33:01
Speaker
Yeah, well, and even at another exclamation point to that, I mean, a lot of people, especially young people on the left, see, you know, government mandates or government provided solutions or, you know, they're kind of these major programs as the way to fight greed, right? And the way to kind of fight these entities that are screwing over little guy in reality, when you introduce those massive systems that take away all the market signals,
00:33:25
Speaker
you're actually incentivizing those third parties to enrich themselves at the cost effectively in the aggregate to the consumer. It's like the actual opposite is true. The government intervention is feeding the greed. If we got government out of it, the greed of the customers, as Milton Friedman would say, he never said greed is good, I don't think, but the greed of the customers would be, again, I'm using greed quotation, the greed of the customers would say, we want better prices.
00:33:55
Speaker
Yeah, exactly. You mentioned that prices are so hard to come by. You've got people trying to shop around. Sometimes it's almost impossible to find out what a hospital is actually charging for something. Literally, in many cases, you do not know until you open the hospital bill what something will cost. How can that be fixed? Again, it's important to understand the cause.
00:34:18
Speaker
because of that price opacity is government intervention. I mentioned before that the tax code creates a situation where people buy more and more insurance, they care less about the price themselves. And I sort of hinted at why insurers can't get those prices down because the savings from those strategies of excluding that hospital are not salient to me, the insurance,
00:34:44
Speaker
enrollee, the customer, and so I'm going to probably switch plans if the savings are not selling to me in the form of lower premiums, and they're not because the employer is paying the premiums, not me, and choosing the plan for that matter. So now that I've mentioned that, Jonathan, repeat your question if you could for me, please.
00:35:06
Speaker
I forgot what the preference was referencing. You've explained why prices were so hidden and then how do we fix that? Sure. The game that hospitals and other healthcare providers end up playing is this. You've got these great big purchasers, these health insurance companies that are buying more healthcare than they should be purchasing and they're not very price sensitive. You are a hospital. You want to maximize revenue because you're greedy.
00:35:32
Speaker
And how do you do that? Well, the way you do that is by getting the highest price you can out of every payer based on their willingness to pay. Economists call that price discrimination. And the best way the hospitals, we didn't know because they all do this, is they set a very high list price. They call it a charge master price in healthcare, but it's like a sticker price on a car or a list price. They say the price for hip and knee replacements is going to be $100,000.
00:36:01
Speaker
And then you negotiate discounts for each payer, each insurance company or cash payers or what have you, based on how little a discount off of that list price you have to give them. So for some of them, it might end up for CalPERS or Anthem or participating CalPERS, it might be a 40% discount, you're only paying $60,000.
00:36:24
Speaker
but they might actually charge a cash patient a lot less if they're willing to do that for cash patients. If there's a bigger insurance company, they might charge them less because that larger insurance company has more sway. But what you're doing is you're starting to offer as small a discount as you can for each payer based on their willingness to pay, which then means you can get the highest price out of them that you possibly can. And for this scheme to work,
00:36:51
Speaker
You can't let anyone know what are the prices. First of all, you don't have one market clearing, marginal cost equals marginal benefit price. That is not the game we're playing here. That's what happens in a competitive market where
00:37:05
Speaker
where consumers care about the money they're spending or the price sensitive. That's not the market we're talking about. We're talking about a market with rampant price discrimination. And in order for the price discrimination to work, they have to keep those prices opaque. The only one that lets you see is this phony baloney charge master price that
00:37:22
Speaker
they don't really expect to collect from anybody. The only time anyone sees it is in an explanation of benefits or if they don't have health insurance and there's really unethical hospital decides to come after an uninsured person for that charge master price. You can see why it's so hard when you go to the hospital to find out what's the price going to be for this or even a doctor's office because doctor's offices do this as well. What's the price for this thing that I want?
00:37:50
Speaker
They have no idea because the people who are setting or determining those prices are the bean counters who do the negotiations with the drug companies and then put those prices in a contract. And I don't know what your insurance company is. I'm not even out of the operation. I just, I just perform the procedures.
00:38:07
Speaker
I don't even know who to call over there because no one asks that. You're the rare patient who asks that. If more patients ask, we might have a process for that, but they don't because you're also insulated from the cost of your care, then not enough patients ask that. Even if they did, we couldn't tell you until you told us what your insurance is. If you're a cash-paying patient,
00:38:31
Speaker
wow, all bets are off. They might really not want to let you know what the price is until you've already had the procedure and then it might be that charge master price. The reason for all this price opacity is government intervention. It's government intervention that encourages excessive insurance and makes it in the hospital's interest to play this price discrimination game instead of doing what hospitals and those experiments that I mentioned had to do, which was
00:38:59
Speaker
drop their prices or else they would lose market share. And make them transparent. Yeah. You mentioned a lot about the negative feedback loop that happens when employers are providing health insurance.
00:39:17
Speaker
How can we fix that? How do we say, employees, stop asking your healthcare or your employers to provide healthcare. How do we create, how do we fix that negative, or that positive feedback loop where it's just kind of, the companies realize that the employees want this healthcare from them. So that's because it's tax-free, subject to the income tax. How do we fix that loop? You have to understand what's happening
00:39:46
Speaker
before you can know how to fix it. To understand what's happening is this.
00:39:53
Speaker
The money, so the tax code says every dollar that you take in health insurance from your employer is totally exempt, actually excluded from both the income tax and the payroll tax, which means that at the margin, you are avoiding a 33% tax on every dollar that you take in,
00:40:19
Speaker
in employer-sponsored health insurance. If you take that dollar as cash instead, you lose a third of it. That's the average marginal tax rate. Think about it. This isn't just a dollar that we're talking about. When it comes to the average family plan, the premium for that average family plan is $24,000. This is a lot of money. If you take that $24,000 as health insurance, you pay no taxes on it.
00:40:50
Speaker
You have to let your employer control that money and choose your health plan. And it has to be a lousy health plan that disappears when your job disappears.
00:40:57
Speaker
But if you sign up for that, you don't pay any taxes on that $24,000. But if you want to enroll in a health plan that meets your needs, say a health plan that doesn't cover contraceptives or abortion if you're a practicing Catholic, or a health plan that just doesn't disappear when your job does, you say to your employer, I want to take that $24,000 as cash and I want to buy my own health plan, you lose $8,000 of it to taxes.
00:41:22
Speaker
That $8,000 tax bill that you have to pay if you want to control your own health decisions, it's a penalty, an implicit penalty the government imposes on people who want to make their own health decisions. It is no different functionally, substantively from Obamacare's individual mandate because either you enroll in a type of health insurance that the government specifies or you pay more money to the IRS. And in fact, the penalties that,
00:41:51
Speaker
The implicit penalty is that result from not enrolling in employer sponsored insurance are bigger and more coercive than Obamacare's penalties ever were. So that's what's happening. The tax code is coercing people into letting their employer control $24,000 of their earnings and choose their health plan. And because it doesn't, that's $24,000 that generally doesn't even enter their salary numbers. They don't even know that it's their money.
00:42:19
Speaker
But that's the problem. There's a penalty on controlling your own money and therefore your employer controls it. So the solution is Congress needs to eliminate that penalty and let workers control that money as quickly as possible. And the solution, the reform that I propose in the book and have talked about elsewhere is expanding, creating a type of health, tax-free savings account that allows you to take all $24,000
00:42:47
Speaker
or at least the 16 or $17,000 that your employer now controls that you never see. There's usually what they call or the employee usually make some payment toward the premium.
00:43:00
Speaker
but the bulk of it is like $17,000 that the employer pays. It never enters your salary, and so you don't even know it's yours. They would let workers take at least all of that and put it into a savings account without any tax consequences, tax-free. So there's no penalty, but a savings account that lets you control that money.
00:43:20
Speaker
and lets you use that to purchase a health insurance plan tax-free. It could be your employer planning to say that or another one that doesn't disappear when your job does. That lets you make your own health decisions. This would have a lot of similarities to health savings accounts as they exist right now, but it would get rid of the worst, keep the best parts of health savings accounts and get rid of the worst parts. And if you do this, the money that you would be shifting from employer to control to workers would be a huge effective tax cut. Workers would get to control
00:43:49
Speaker
$1.3 trillion of their earnings every year that the government now lets employees control. That's a larger share of the economy than the Reagan tax cuts returned to the people who earned that money.
00:44:02
Speaker
It would be 4% of the economy as opposed to 3% with the regular tax cuts. And it would be a progressive tax cut, progressive in the sense that it would mean more to low-income people than to high-income people. Because if you let a low-income person control $17,000 of their earnings, that means a lot more to them than letting someone who makes six figures control $17,000 of their earnings, even though it means a lot to them too. And when they do that, when you let people control this money, not only do they get to pick better health insurance,
00:44:32
Speaker
But you're also making them price-sensitive in a way that's gonna cause prices to plummet and make healthcare more universal than it is right now, precisely because prices would fall, like we saw in those experiments I mentioned. And again, if universal healthcare is your thing, falling prices should be your obsession. And this sort of reform should be your obsession as well.
00:44:52
Speaker
I like it. There are a couple quick ones, because I know we have a hard stop in a little bit over five minutes, but there were a couple items that I've heard thrown around many times that I think are interesting and low-hanging fruit reforms, one of which is, and I hear that, I think Rand Paul was the one that I think I heard talking about this the other day, was allowing people to buy insurance across state lines. That seems like a pretty simple reform from a federal level, right? I mean, what led to the, the real question is what led to the situation where we can't do it,
00:45:20
Speaker
And how would that, I mean, I think inherently I could see why that would help in competitive market, but like kind of, you know, what would you think the impact of that be directly? Everything that we've said about, first you have to understand is everything we've said about clinician licensing, state licensing of medical professionals, also applies to health insurance because states license health insurers and health insurance plans. If you want to sell health insurance to someone in that state, you have to get a license from that state.
00:45:47
Speaker
Which means they're taking away your freedom to purchase health insurance from another state. You have a fundamental human right to engage in that economic transaction with an insurance company in Maine or in Minnesota or in Arizona. But if you live in Texas, Texas says, no, you can't do that. You have to buy something that we license and it complies with our regulations. You know who likes that? A lot.
00:46:11
Speaker
Texas insurance companies, because that reduces its competition for them. So for decades, I have, and other free market advocates, we're talking about letting people purchase insurance from other states, across state lines, because there's enough variation in insurance levels, or in the intensity of insurance regulation from state to state, that you can get a better deal on insurance if you lived in, say, Maryland and bought insurance
00:46:39
Speaker
the state of Idaho license because Idaho had fewer regulations. And certainly if you lived in New York or Massachusetts, you could get a much better deal because they had an awful set of price controls and still do. The problem now is that Obamacare has made all those regulations, including those awful price controls, national. They've applied them to all 50 states. So you don't get that variation in regulations if you buy it from other states. But
00:47:07
Speaker
There is still variation.
00:47:10
Speaker
would you incorporate US territories? In 2014, the Obama administration said all of these awful regulations that Obamacare imposes on every state, this thick, warm blanket of consumer protection that Obamacare layered over all 50 states, those don't apply in the territories. One reason is because they were causing the health insurance markets to collapse. So they said, all right, well, we won't do it in the territories.
00:47:38
Speaker
What that means is that in the territories right now, it is possible to buy plans that are not ACA compliant, that don't use those price controls, that don't have all of those mandated benefits. While letting people purchase insurance from another state is not going to make any difference in their health insurance premiums, if a state allowed its residents to purchase health insurance from the US Virgin Islands,
00:48:04
Speaker
They could save 50% or more on their health insurance and buy secure lifelong health insurance. And it could even improve the performance of Obamacare. So that's what I advocated the book, is not so much letting people purchase insurance across state lines, although that would be fine if we got rid of Obamacare.
00:48:21
Speaker
but letting them purchase insurance from US territories, from insurance companies like United Healthcare and Cigna and the Blues and Humana that do business there and already have networks where you live, because that would make health insurance more affordable for people who can't even afford the Affordable Care Act's affordable coverage.
00:48:40
Speaker
Very interesting, very interesting. In the last couple minutes, I have one more question for you on another reform I hear a lot about, which is certificate of need laws. Can you tell us what a certificate of need law is and why they're terrible? How they could be fixed in reform? So the history of health care, of health policy and
00:49:04
Speaker
and help form in the United States is a history of the United States making one mistake, or the US government or state governments intervening in markets, doing a lot of damage, and then rather than rolling back those interventions after they surveyed that damage, they say, you know what, we need to do, we need to intervene more to solve all the problems that we just caused. And then when they do that, they create even more problems and more problems. And they never go back and fix the original
00:49:34
Speaker
government intervention that caused all these problems in the first place. It's like the old woman who swallowed the fly. I've already talked about how the tax code led to higher prices and insecure insurance and led Congress to create the Medicare program because for 40 years, the government had been penalizing people unless they enroll in a form of health insurance that kicks them out when they retire.
00:49:54
Speaker
Well, after Congress, so Medicare is the response to government failure. It's government intervention to fix the unintended consequences of a past government intervention. Well, when Medicare came on the scene, healthcare prices and spending exploded because of the Medicare program.
00:50:13
Speaker
The healthcare spending and the cost of the Medicare program to taxpayers grew so rapidly that Congress said, whoa, whoa, whoa, we got to do something about this. We will place conditions on the money that we spend through the Medicare program that says, or the Medicaid program that says to states,
00:50:31
Speaker
If you want to keep getting these subsidies, you have to enact these so-called certificate of need laws that will limit entry into markets for hospitals and other health care facilities. Because we think the problem is there's too many hospitals out there. And that is why health care spending is so high. Not the fact that we're flooding the market with subsidies. It's that there are too many people to receive those subsidies. So they encourage states to create barriers to entry into the market called certificate of need regulations.
00:51:01
Speaker
that they get their name because you had to go to the government. You still, in many states, 36 or so states, have to go to the government to get permission to enter the market for hospital services or ambulatory surgical centers, or even just to add beds at your hospital or purchase a magnetic resonance imager or some other piece of technology. You had to go to the government, get permission, and to get permission, you had to prove to them that this community needs those services, needs those facilities or capital investments.
00:51:30
Speaker
Well, on the day that the government panel has this hearing where you go to prove that the community needs you, you know who else shows up? All of the other hospitals, all of your competitors who argue the exact opposite. No, no, no, we've got all of the need taken care of. There's no need to provide them a certificate of need. Everything's fine, nothing to see here. And even when you don't,
00:51:56
Speaker
even in the rare cases where the state were willing to issue those certificates, the barrier of having to go through all the rigmarole of getting them.
00:52:06
Speaker
effectively prohibited or blocked entry. And when you block entry into markets like that, prices don't go down, they both went up. And that's what the economic literature has shown, that the supposed cost containment measures haven't contained prices, they haven't contained spending. All they've done is protect the market for high cost, low quality incumbents. Some states are gradually repealing these, Nikki Haley,
00:52:34
Speaker
former governor of South Carolina a couple debates ago said we need to do something about this. When she's running for president, the president doesn't have anything to do with this anymore because Congress repealed that incentive for states to create these laws. South Carolina was a certificate of needs state when she became governor and still when she left the governor's mansion, she didn't do anything about it when she was the governor. It would have been nice to have Nikki Haley as governor or other more governors making voices about this.
00:52:59
Speaker
I think South Carolina either has or is close to repealing its certificate of need laws. Now, all states should, there are horrible, horrible laws that violate your healthcare rights and make healthcare worse and more expensive. Yeah, I couldn't imagine if that same logic applied to any other industry. And if you wanted to open a gas station or a restaurant or whatever, a drug store or something, and you have to go and argue to the government among your competitors,
00:53:26
Speaker
as to why it's required. I could not imagine the chilling effect that would have on any other industry and just it's absolutely mind boggling that those laws will exist. Uber would not have gotten a certificate of deed. Exactly. Great example. Microsoft and Apple would not have gotten a certificate of deed. Spotify would not have gotten a certificate of deed.
00:53:45
Speaker
Makes you wonder how much innovation has been left on the table, right? And how much we're behind because of that. That's very, very interesting. It is mind-blowing and heart-rending. When you look across the vast sweep of all these government regulations and perverse incentives that the government creates through the tax code and so forth,
00:54:05
Speaker
just how much innovation must be out there that the government is crushing and all of the human suffering that results from it. Yeah, it's a tragedy that in industry like healthcare where you're literally, if the innovation can save human lives, you're seeing the most chilling effect on innovation. I mean, I'd rather see this innovation in this sector than in smartphones, for example.
00:54:30
Speaker
Well, how much, you know, just think about if we, if we had a free market system where you didn't have all these costs that posed by government, how much more would we be willing to spend on research? We're willing to spend this massive amount of money on our healthcare. And yet most of it goes to waste. Most of it is thrown away. A lot of it's thrown away on things that are really just these, these, this government, uh, government intervention, you know, causing these perverse incentives.
00:54:57
Speaker
that really take money out of people's pockets and throws it out to whoever can lobby the government for whatever their business needs. So Michael, we're about at the end of our time here. So I don't know if you have anything you want to leave our audience with or any commentary. I mean, we can plug the book again. You maybe tell people where they can find it. Recovery by Michael Cannon. But the floor is yours if you have anything you want to leave our audience
Conclusion and Book Promotion
00:55:24
Speaker
with.
00:55:24
Speaker
So the subtitle of the book is a guide to reforming the US health sector. And it really is that. I try to incorporate for every corner, every aspect of the health sector, what a free market or libertarian approach would be. So it covers, as we have, clinician licensing and health insurance regulation and certificate of need in the tax code. We talk much about Medicare or Medicaid and SCHIP, but those are in there as well. But also the medical malpractice system and the
00:55:54
Speaker
veterans' health administration and veterans' benefits more broadly, which might rival the tax code and the disturbing effect that it has had because that
00:56:08
Speaker
that part of the health sector, or really the way that Congress pays for veterans' health benefits and other benefits, not only results in probably higher costs and lower quality care for veterans, but also completely distorts US foreign policy and puts soldiers and sailors' lives at risk
00:56:30
Speaker
creating, encouraging more unnecessary wars, putting US lives at risk and creating more dead and disabled veterans because it hides what is the largest fiscal cost of war and therefore makes it easier for policymakers to go to war and stay in wars longer than they should. So maybe we'll have to have a conversation about that issue some other time, but it's an example of
00:56:56
Speaker
The fact that this is not a Republican book or a Democratic book. This is not a right or left book. This is a book about restoring people's right to make their own health decisions and restoring their liberty more broadly. There are things in this book.
00:57:11
Speaker
that the right is going to love and the left is going to hate and vice versa. There are things that the left is going to love, like reforming veterans benefits in a way that is anti-war, that reduces US adventurism abroad and encourages diplomacy over war making.
00:57:32
Speaker
I highly recommend people read the book because I think that, you know, you talk about left and right, progressives don't have a solution to our healthcare crisis. Conservatives don't have a solution. They talk a lot of good games sometimes, but they really, like you said, with Nikki Haley, they don't actually follow through on a lot of it. And I think it's really important that we show people that, hey, the free market actually works. It will reduce healthcare costs. It'll put more people in front of doctors.
00:57:54
Speaker
It will allow more people to make those health care choices for themselves. And at the end of the day, it's not only an issue that we all have to be worried about. It might be one of the most important issues of our time because it is, I mean, people literally die because of the cost of health care, because of these government interventions. It's an extremely important topic.
00:58:15
Speaker
Thank you again for joining us, Michael. And for anyone who wants to maybe learn more about Michael's perspective, you can follow him on X, Twitter, whatever it's called now, MFCannon. The book recovery is on Amazon. You can find it at Barnes and Noble, Apple Ebooks. Thank you again, Michael, for making time. I really enjoy, I always enjoy the conversation. So we really appreciate it. I enjoyed it. Thank you guys. Have a great day. See you guys. You too.