Ethical Questions in the Reform of Health and Medical Care

Published June 26, 2008

President's Council on Bioethics

By James C. Capretta

 EPPC Fellow James C. Capretta presented at a June 26, 2008 session of the President’s Council on Bioethics in Chicago, Illinois.  The Council held the session to explore the relative merits of alternative health care reform plans.  Mr. Capretta presented the reasons policymakers should implement a reform program based on consumer choice and market competition.

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Session 3: Ethical Questions in the Reform of Health and Medical Care

Stephanie Woolhandler, M.D., Harvard Medical School

Len Nichols, Ph.D., New America Foundation

James Capretta, Ethics and Public Policy Center

CHAIRMAN PELLEGRINO: Thank you again to the Council members for appearing on time. It affords our speakers your maximum attention, at least temporally. This afternoon we’re going to look at the ethical questions from the point of view of people who are involved in designing and propagating and thinking about various programs to which we referred. As you know, we’ve had a number of presentations of a variety of proposals over the years.

We’re going to proceed as follows: We’ll ask our three speakers to make their presentations, then give you an opportunity to raise questions with them, then a break, and after the break we’ll return and they will direct themselves to what they take to be the moral issues and the way they see it with reference to the kinds of programs and the broader issues in the healthcare and medical care question and problem.

So we’re going to start first with Steffie Woolhandler from Harvard Medical School , who will talk about a single-payer system. That will be the general direction of that first presentation. Dr. Woolhandler .

DR. WOOLHANDLER: Well, thanks for having me. I’m not a medical ethicist. I’m a primary care doctor, and the way I think about health policy in this context is in terms of the issue of placebos. That is, for us as doctors it’s unethical to prescribe a placebo when there’s an effective therapy.

And I’m going to argue today that many of the current proposals are, in fact, placebo reforms and that they’re unethical to endorse because, actually, effective reform exists.

The problem: We’ve got 47,000,000 uninsured Americans generating about 18,000 excess deaths among adults each year. So that’s a problem. As we sit here over the next two days, 100 people will die in the United States for lack of health insurance. That’s the core ethical problem we’re trying to face here.

But there’s also the issue about Americans being impoverished by paying for illness. That is, they do get the care, but they’re impoverished. And this is actually a Mike Luckovich cartoon — he’s a Pulitzer Prize-winning cartoonist — that came out when we published a paper showing that about half of US bankruptcies are due at least in part to medical illnesses or medical bills. And this poor woman is saying, “Curses! My plot to get sick and go deeply into debt to avoid paying off my credit cards has been foiled.”

Now, it turns out that medical bankruptcy is, as I said, half of all personal bankruptcies. Millions of people each year are affected by medical bankruptcy, but 76 percent of people who were in medical bankruptcy in our study had health insurance at the onset of the illness that bankrupted them.

So insured people have an issue, too, if they have a prolonged, serious illness. They can’t work. They have lots of co-payments, lots of deductibles. They can end up in bankruptcy, as well.

This is because families simply don’t have assets to pay deductibles. This is extremely important as we hear about so-called consumer-directed high-deductible plans, which are a very prominent piece of many of the new policy proposals, including those of John McCain, including that of the new Massachusetts law, high-deductible plans; President Bush, high-deductible plans, $5,000 deductible, typically.

But 40 percent of the US population does not have total financial assets of $5,000. Total financial assets, less than $5,000, so that families simply can’t pay the deductibles. They end up not getting care or getting the care and going into bankruptcy.

In addition, we know that from the Rand health insurance experiment that co-payments reduce both useful care and useless care, and that’s why our organization advocates a national health program with no co-payments, no deductibles and opposes high-deductible plans, consumer-directed healthcare, cost-sharing, all the different names that are used for these underinsurance, this inadequate insurance that is increasingly put forward as a new policy placebo.

We’ve also spoken a lot within our organization of tremendous bureaucratization in healthcare. It’s a growth of physicians in yellow on the bottom, growth of administrators in the top in blue, and that is not a mistake on the y axis. It is 2,500 percent growth in health administrators.

Of course, the administrators are very involved in managed care, and, again, managed care is a very prominent part of many of the proposals for privatization of Medicare, for instance, HMOs. Despite the fact that we know from the Rand health insurance experiment that among people with even mild chronic illnesses three to five years of HMO care leads to an elevated risk of dying due primarily to an elevated diastolic blood pressure.

So we do know, and we knew before we started down the road to HMOs, based on randomized control trial, that people with chronic illnesses do poorly in the HMO setting.

We also know that the investor-owned HMOs provide consistently lower quality care than their nonprofit counterparts. This is some data we published in the JAMA showing that on every one of the 14 HEDIS measures then available, the investor-owned HMOs had lower quality than their nonprofit counterparts.

I think this is due, at least in part, to the very high overhead in the for-profit HMOs. I’ve sort of listed the market leaders here. Twenty-three, 21, 20 percent overhead. What that means is that for every dollar that is paid in as premium, either by the individual or in the case of Medicare by Medicare — every dollar that’s paid in, only about 77 cents actually comes out to pay a nurse, a doctor, a drug company.

Twenty-three cents stays right there with Aetna to pay for their overhead and profit. So a very simple-minded view of why HMO care does cause problems in terms of care of the chronically ill is that too much of the money is diverted away from care and toward overhead and profit, including the CEO pay and stockholdings, 2005, most recent date I could fine.

And I just love to pick on Jack Rowe , number three. He’s a former colleague of mine at Harvard . He worked for Aetna for just under five years and earned about half a billion dollars. And to give you some sense of how much that is, Jack was earning $220,000. That is $220,000 per day for every day he worked at Aetna , including weekends and holidays. So that’s money that’s diverted away from patient care toward his exorbitant salary, also overhead and profit.

Now, let’s talk economics. I actually have an economics degree, and when my friends want to tease me they make this nasty joke that an economist is someone who didn’t have the personality to become an accountant. But, of course, you have to understand economics to understand what’s really possible and what’s not.

And the US is already spending — these are figures from a couple of years ago — by far the most of any nation on earth on healthcare. The US is on the bottom. On the top I’ve listed total health expenditures in other developed nations. For the US at the bottom I’ve listed total per capita health expenditures divided into the publicly funded and the privately funded share.

And in publicly funded I’ve included not just Medicare, Medicaid, VA, but also the benefit cost of public employees like schoolteachers and FBI agents, also, so-called tax subsidy to private health insurance. And when defined in that way, I want you to just look and see where that yellow bar ends. Look where the yellow bar ends.

That is, we are already through our taxes paying the full price of national health insurance in this country, and then we take an additional $2,500 out of our pockets and pay privately, and we still have the circumstance of 47,000,000 uninsured people, millions more forced into medical bankruptcy.

Now, what do we get for the extra money? And in this set of slides I’ve got the US in yellow, the other countries in green. What do we get? We do not get longer life expectancy compared to other nations. We do not get lower infant mortality than other nations. In fact, our infant mortality is twice that of the world leaders.

We don’t get more days in the hospital. We send patients out of the hospital quicker and sicker. We don’t even get more innovation, more science. And I know one of the speakers brought that up earlier.

When you look at medical journal articles on a per-capita basis (and you get the same results if you look at total scientific output on a per-capita basis_, the United States is not a world leader. So our extra spending is not generating more in the way of science when we look at it on a per-capita basis. That is a myth.

Even for certain high-technology treatments such as bone-marrow transplants, the United States is just in the middle of the pack. Where we do lead the world is in our insurance overhead and our administrative costs. And this is expressed on a per-capita basis for every man, woman, and child in the United States .

We lead the world in insurance overhead. We lead the world in difficulties getting care. This is people are asked, percent, finding it extremely, very, or somewhat difficult to get needed care. We lead the world. This is just the English-speaking world.

Now, what is single-payer national health insurance? And, of course, many people were kind of surprised when they heard that a large group of physicians, our group, Physicians for a National Health Program, could recruit about 15,000 physician members to advocate for an increased government role in healthcare.

I mean, people were shocked that 15,000 physicians would do that. And the editor of the Berkshire Eagle made this joke: “Physicians for a National Health Program. That’s sort of like furriers for animal rights.”

But we do find an increasing number of physicians willing to join our group and join with us in really advocating for single-payer national health insurance. It’s not because the physicians will be better off, though we don’t think we’ll be worse off either. That’s not what it’s about. It’s because we find increasingly we just can’t take care of our patients.

But in Canada they have a program that’s got — and this is from the Canada Health Act — universal coverage that does not impede either directly or indirectly, whether by charges or otherwise reasonable access. And historically that’s meant if it’s covered, it’s free, no co-pays, no deductibles. The last year, too, that’s changed, but historically everything that’s covered is free.

Portability from province to province — if you’re from Ottawa , you get stuck in Victoria , you’re covered. In fact, if you get sick in Florida , you’re covered, too, if you were just visiting Florida .

Coverage for all medically necessary services — and, again, traditionally that’s meant everything but cosmetic surgery and certain psychological services that are considered elective. And a publicly administered nonprofit program — that’s both for fairness and for efficiency, to gain the administrative efficiencies that allows you to take the money now wasted in administration and use that for care.

Cost outcomes — prior to implementation of Canada ‘s national health program, the two cost curves in the countries were on top of each other, but there’s been tremendous divergence over the decades since Canada started their national health program.

I do want to point out in the 1990s where the spending in Canada went down. There were very conservative governments in power in Canada . They opposed social spending, and they really suppressed the budgets of the national health insurance system. There was a lot of dissatisfaction. There were, indeed, waiting lists.

But in the 2000s, the budgets have been expanded again. More liberal governments have come into power, and those waiting lists have, in fact, evaporated. You don’t need to trust me on that. You can go on the website of most of the Canadian provinces and they’ll tell you on the website how long you’d have to wait if you signed up for a prostate surgery tomorrow. It turns out it’d be less than a week in the Canadian provinces last time I looked. I was doing a paper for a urology journal. I’m not planning prostate surgery.

Differences in health spending per capita, US versus Canada . If we take the entire difference as a giant pie it turns out nearly half of the spending differences between the two countries are due to differences in bureaucracy and administrative cost.

Now, I want to talk a little bit about some of these other placebo reforms because there’s been a lot of talk about how successful we are in Massachusetts , and I do think, in fact, it is a placebo reform. I’m just going to talk briefly about the new coverage provisions.

For people less than 150 percent of poverty they expanded Medicaid but added some co-payments. That I like. I like covering everybody with Medicaid who’s poor. Between 150 and 300 percent of poverty there were partial subsidies, but people still had to take some money out of their own pocket, and there were more in the way of co-payments.

Above 300 percent of poverty, it’s buy your own. You’re on your own. There’s a mandate out there. You’re on your own. You have to buy the coverage. Three hundred percent of poverty is $31,000 for a single person. Massachusetts is a very high-cost state. Believe me, at $31,000 a year you do not have a lot of cash left over to go out and buy a policy. In this case, the cheapest one available is about $400 a month, and you would get a $2,000 deductible with that.

Now, if you don’t buy the policy you can be fined, and, you know, crime and punishments, violation of the child labor law — it’s a $50 fine. But being uninsured in Massachusetts , the law authorizes a fine up to about $2,000. So far they’re talking about a $1,000 fine on the uninsured themselves who won’t go out and buy this very expensive policy, which many can’t afford.

Consequently, I went onto the Internet the night before last to tell you how many people have signed up, and among people less than 150 percent of poverty, the blue is who signed up. Things look pretty good. The free coverage — there’s very good uptake on that.

Do I need to tell you that virtually all of those people in that group were covered by Massachusetts free care pool, so they could get free care already. It wasn’t insurance, but they could get free care at my hospital and many others in the state. But now they have an insurance card. Some are better; some are worse.

Among people 150 to 300 percent of poverty, only 22 percent have signed up for the insurance through the Connector. And among those over 300 percent of poverty, the ones who have to buy their own, the ones who are really subjected to the mandate, according to the Connector, only 7 percent have signed up for government-sponsored insurance.

Now, there’s rumor out there that more of them have somehow signed up for employer-sponsored coverage. That is not verifiable at this time. It may be true. So it may be that of that 93 percent who still look like they’re uninsured, 10, 20, even 30 percentage points of those may have signed up for private coverage. But no one is speculating that more than half of that group is now covered.

So that’s how it works, and I would postulate that it’s in fact an experiment with a Medicaid expansion. And if you take a Medicaid expansion, you pour a billion dollars extra into the state as Massachusetts did, yes, you can expand Medicaid. You can cover some people.

Is that sustainable in the long run? History would suggest that it’s not. I want to tell you that this mandate model for reform is an old one. It’s been around since Richard Nixon . The mandate model — the government uses its coercive power to make people buy private health insurance. That’s what a mandate model is. That’s the definition of a mandate model.

Typically the mandate model would have expanded Medicaid-like programs as I’ve described, free for the poor, subsidies for low income, with or without buy-in for other people. It’s accompanied by the mandate, either employer or an employer and an individual mandate, and they’ve always involved some managed care or care management. And as you know, Obama only has a mandate for employers and people’s children.

Now, the problems with the mandate model: The first one is there’s no cost control. There’s no cost control. So over the long run, expanded coverage becomes unaffordable. The computers, care management, prevention may be great things. We have no evidence from anyone that you can control costs through computers. Mandate model adds administrative complexity and cost, retains the wasteful private insurers who keep breaking off that overhead so that the money is not there to care for patients.

They have impeccable political logic. You know, the employers like them sometimes. They like the one in Massachusetts . In any event, the insurance companies like them. The doctors like them. They may have political logic. They’re economic nonsense. You can’t just keep pouring money into the same system and get to universal healthcare in any affordable way.

And to just give you some historical evidence in this, the first enactment of a mandate model, which was still experimental at that point, was Governor Michael Dukakis on the eve of his presidential bid, universal healthcare based on a mandate model. He celebrated it. The New York Times celebrated it.

But if you look at what happened to the number of uninsured in the state as a percentage of the state’s population, really no progress whatsoever, no sustained progress, other than, as you can see in the middle where we did a little Medicaid expansion, we got a couple of percentage points of progress, I think similar to what’s going on now.

Oregon , 1992 — they actually passed a full mandate model very similar to what we have now in Massachusetts . Again, the governor crowed about it. The Washington Post said it was going to work. You know, no effect on the number of uninsured. Washington state, a virtually identical model to what we have in Massachusetts now, a mandate model — The New York Times again saying universal healthcare in Washington state . No net effect, because they were not affordable. Over the long run the legislature can pass this thing, but when they see the price tag, they pull back from the Medicaid expansions. They pull back from the mandates. They say, “We can’t impose this on industry and individuals.”

Minnesota in 1992-93, another state-based reform. Again, no effect on the number of uninsured. Maine , 2003, the so-called Dirigo plan, wasn’t really a mandate, but it had one of these connector things, coordinator things to help people get care. Again, no effect on care.

Now, why do we see this over and over? I just want to say there’s an 800-pound gorilla in the middle of this room that none of us are talking about, and that’s the private health insurance industry. And that’s why no one is proposing single-payer national health insurance.

Single-payer national health insurance has a track record in other countries of covering people, of improving health, of getting the job done. It has a track record of allowing patients and actually providers considerable clinical freedom. That’s the track record.

And the reason all these other mandate things are on the table has got nothing to do with their effectiveness because we have no evidence they’re effective. It’s the power of the insurance industry.

I live in Cambridge . If you look over the Charles River, the two tallest buildings in Boston is the John Hancock tower on your left and the Prudential tower on your right. They tower above us. They tower above political debate. But we’re an ethics group. I’m a medical group. You’re an ethics group. It’s our job to get the patients cared for and to really speak truth to power, and that’s what we’re talking about here.

Finally, I just want to mention that John McCain is not a proponent of mandates. I’m not sure he’s a proponent of universal healthcare. It’s been a little unclear. But he’s basically talked about continuation of the Bush health agenda, including the accelerated privatization of Medicare. He’d like to accelerate that.

The skimpier consumer-directed insurance policies, which I don’t think work — and he has new tax credit proposals but has not put forward a plan about how to finance them, raising the question does he have any intention of ever financing them or ever enacting them. I don’t know. But he has proposed tax credit proposals but has refused to say how he would ever pay for them.

Now, I’ll just talk briefly about the public: What does the public want? Because, again, in ethics it’s not just for us in this room to decide; it has to do with what the public expects.

And in the latest poll I could find on this, an ABC News poll/ USA Today /Kaiser survey, people were asked, “Would you prefer the current health insurance system or a universal coverage program like Medicare that is government-run and financed by taxpayers?”

It’s a pretty fair description, only I want to say that a single payer is not exactly universal Medicare. It’s universal Medicare without co-payments and deductibles. So for those of you who work in health finance, we have a term for people, dual eligibles, who get Medicare and Medicaid, who get Medicare coverage, only everything is free.

So single payer is kind of like Medicare for all or Medicare dual eligibility for all. All effective treatments are, in fact, free, as they are in much of northwestern Europe and Canada .

Well, it turns out even with this question, a clear majority of Americans endorse the idea of a tax-funded system. In fact, when people are asked, “Which do you think is more important, providing healthcare for all or holding down taxes,” a majority of Americans feel that it’s more important to get healthcare for all.

Again, a bit of a loaded question because other countries have single-payer systems that are, in fact, cheaper than what we have. You might have to raise taxes, but then you would lower people’s out-of-pocket payments and the amount of money deducted from their income for their employee benefits.

Finally, we did survey a random sample of Massachusetts physicians. We got the random sample from the AMA master file to ask, “Which of the following three structures would offer the best healthcare to the greatest number of people for a fixed amount of money?”

And, again, asking doctors, “What do you recommend? Not necessarily what you support, but what do you recommend as best for your patients?” By more than two to one, single payer beat out all the other alternatives, existing fee-for-service or managed care systems.

I know I’ve gone very fast through these slides. I had an old mentor who used to tell me that you have to read every word on the slide, and I didn’t do that for the group, but you can go to our website, Physicians for a National Health Program. I have made these slides available to all of you, or you’re welcome to e-mail me through the Harvard Medical School website. My e-mail is up there, somewhat foolishly, I’m afraid. But it is up there, and you can reach me through that site.

Anyway, I think it’s about time to stop. I didn’t mind the lady in the back looking at her watch, but then she started to shake it. And I look forward to your questions later.

CHAIRMAN PELLEGRINO: Thank you very, very much. We’ll move on to our second speaker, Dr. Len Nichols of the New America Foundation, who will talk about mixed government and market reform programs.

DR. NICHOLS: Well, thank you, Mr. Chairman. I must say Steffie is a hard act to follow. I’ve been accused of many things in my life but never of being a placebo before, so that’s a whole new scientific dimension for me. I’ll be sure and tell my brothers, who won’t believe it.

What I want to talk about is what I would call the middle way, I would say the way that’s actually feasible, and in my argumentation I will argue it’s actually the best because it’s sustainable over time.

It’s probably worth saying just a word about New America because we’re not exactly a household name. We are a 501(c )( 3) nonprofit, nonpartisan research institute and think tank in Washington , DC .

But we really were created because the people who started it about ten years ago figured out that Washington was so hopelessly polarized, we needed something to try to create space for a bipartisan conversation, because it turns out, certainly what I learned — if you read my background you know I was part of the Clinton effort, and I’m not ashamed of that. We tried. I don’t like every single word in the 1,500-page bill, but I’m not ashamed of having tried.

But the thing I took away from that experience is we’re not going to do this as a nation unless we do it on a bipartisan basis. It cannot be a single-party margin. So I say my job is to create space for that bipartisan conversation.

Now, you know there are people in Washington who make a very fine living and have had long, distinguished careers who pretend to believe things that are not true. And there are people in Washington who have had long, distinguished careers and make a very fine living who demand things that cannot be.

On some level my job is to make them both mad every day but to keep them talking to each other because it is in talking to each other that we have a chance.

I want to say just a little bit about why I think we’re having this conversation as a nation right now, what has driven it to the forefront. I’ll lay out my vision of the elements of reform, a political pathway to get us there, and then after Jim does his talking we’ll take a break. We’ll talk about the moral justifications.

I think there are two big reasons and two smaller but growing reasons. The first one is premium as a fraction of income. You go back and look at the run-up to the ’93, ’94 era, that ’92 campaign. Remember? It was the economy, stupid. That was about the recession that was very deep that actually probably is what cost Bush I the election.

And in that time period a lot of people were being restructured in the rust belt and white-collar people were losing their jobs. There was fear of affordability of healthcare because of a recession. You can actually track the monthly polling results in support of a Clinton plan. It went down as the economy recovered.

So fear of affordability then was driven by the recession. Once the recession went away, support for reform dissipated. Today, fear of affordability is driven by cost. A premium for a family used to cost 7 percent of median family income. Today it’s 17.

And that’s just another way of saying healthcare costs are growing so much faster than economy-wide productivity that it’s becoming unaffordable for a larger and larger fraction of our population. Again, this is corroborated by a lot of the data Steffie just talked about.

The second big reason is international competition. You might remember there was life before NAFTA, and what used to be true is that American corporations could simply shift very high, fast-growing premium growth into prices. They can’t do that anymore because of China and India and the competition from the Europeans.

And, similarly, they can’t push it backward into wages quickly enough. They try, but they can’t push it backward into wages quickly enough. So part of it is being borne by profit, and that’s partly why those corporations are coming to Washington and grabbing politicians by the lapels and saying, “Quit this Kabuki dance. Solve this problem.” And those business coalitions are really what’s driving the conversation behind closed doors.

I won’t go through the details. This just shows what American per hour cost in healthcare and manufacturing, $2.38 an hour here versus 96 cents for trade-weighted average partners, which is an albatross we bear.

Now, the third big reason is there’s way more awareness of the linkages among the problems. I would say we know a lot more about the cost of spotty quality. We’ve had a lot of great research in the last 15 years, talking about medical errors and so forth.

And I think we know more about being uninsured. We did not have the Institute of Medicine reports that 18,000 Americans die, as Stephanie told us about. We did not know the economic cost of that lost productivity and that premature death and premature mortality was as high as it is, in fact, as high as it probably would cost to cover that. We didn’t know that.

And then finally I would say the system stresses are appearing more unsustainable. I believe it was Professor Dresser who talked about waiting in an emergency room. I mean, fundamentally what’s happening is our capacity is being strained, and that is becoming more and more noticeable to the middle class in lots of ways.

And, of course, the point that I should have on here but did not is it’s a fundamental reason — it’s in your background paper that was prepared by your very able staff. The single biggest reason we have fiscal stress at the local, state, and federal levels is because of the projections of healthcare costs. So we’ve got to solve this problem.

So what are the necessary goals of sustainable reform? I start with the premise it’s not going to work unless it’s bipartisan , I mean, not just practically and technically. I mean politically it’s got to be sustainable that way.

In my view, for it to work and for it to be bipartisan it’s got to cover everybody, but it also has to pay a lot of attention to improving the delivery system. One quibble I would have with Stephanie is that I think there is actually a lot more attention devoted to delivery system efficiency things than is typically the case in a presidential campaign, anyway, and I would say in particular in what’s going on in Congress right now.

And that leads me to conclude it is possible to achieve something I call practical idealism, which is how we can, indeed, cover every American and make our system sustainable in the long run in a politically sustainable way, and that means in a bipartisan way.

So what does bipartisan really mean? Well, for Democrats, of course, it means cover everybody, and it means pay particular attention to taking care of the low income and the truly vulnerable, the sick. For Republicans it means you’ve got to use markets, you’ve got to use incentives, and you have to have a real budget constraint. We are not going to write a blank check to cover 47,000,000 Americans. It’s not going to happen. I would argue nor should we, and therefore you’ve got to have a budget constraint.

Now, how do you cover all in a bipartisan way? And here we get to what Stephanie called the placebo effect, but I submit to you you’ve got to start with what markets are not working now. And it seems like it’s fairly easy to reach a conclusion, a consensus, that the individual market right now is not working very well except for the relatively healthy who are relatively well off.

So some self-employed are there, maybe half, but for most people who don’t have a lot of money or who have a health condition, the individual market cannot work. So you’ve got to change that marketplace.

Similarly, small businesses. You know, the head of NFIB will tell you the single greatest impediment to business formation in our nation is worry about how I’m going to be able to get healthcare for my workers because they’ve got to compete with larger firms who have an easier time.

So we’ve got to make a market work. Well, how do you make a market work? And it’s kind of interesting, I would say. In a sense, we need smart regulation. I know for some people that’s a contradiction in terms. But I would also say it’s better than dumb regulation. Let me lay out how this could work.

What you want is a market that works for everybody that’s also efficient. So to work for everybody you have to have guaranteed issue. You absolutely cannot discriminate on the basis of health status. You could have, instead of pure community rating — although that’s what some would recommend. You could have age rating, something like that.

But what you want to do to get at some of those very high costs Stephanie talked about, you want to reduce the incentive to perform those tasks. The reason insurers spend all that money on underwriting and marketing is because they have to decide how much more to charge me than to charge Tom . There’s just no other way around the way — they’re not charities. They have to do this right now.

If you made guaranteed issue the law of the land and you made modified community rating the law of the land, then a lot of that money spent on administration would go away because there would be no incentive to do it. But in my technical opinion you can’t do that.

You can’t put those rules on insurers unless you also have an individual mandate to force everyone into the market so that you make the market the population. If you don’t do that, you’re going to have adverse selection. You’re going to have very much risk of only the unhealthy coming to buy. If you have a rule that says you must sell to all but no mandate, then what you will get is a very unhealthy pool, and that will drive the average premium up.

The Massachusetts experience is that if you have this mandate and you get a lot of people in — in fact, the risk pool has gotten better, and I think there’s evidence that’s just come out fairly recently that the average premium per person for the same policy is lower now than it was before the reform, and that’s solely due to the risk pool being better over time. At least, that’s what John Kingsdale , who runs the Connector, seems to think.

Obviously, you would never put a mandate in place unless you’re willing to make the social commitment to make it feasible for people to buy. You have to make it affordable for the low income. Otherwise it would be unconscionable to mandate it.

And so you’ve got to then think about what should that minimum benefit package be, and I do think that’s probably one of the more difficult ethical issues. My economist solution is to punt on that and to not define it but to let there be an actuarial value target.

And by that I mean pick a number that’s some fraction of some benefit package that everyone knows. Let the market give you different alternatives but have the minimum be that actuarial value, which will reduce adverse selection and prevent you from having to decide whether you cover chiropracty or plastic surgery.

In my view you don’t have to organize a market at the national level. In fact, the one thing I’ve learned in my career in looking at healthcare markets is that healthcare markets are local just like politics. They’re very different. It’s a big diverse country. You probably want those market loci to be as close to local as possible. That may mean in some cases statewide, but it could also certainly be below that.

And, finally, my view as an economist going back to the international competition point, we have to think about ways to reduce the employer role over time. It turns out, as I think Jim is going to talk about, one of the ways you can finance this is to use the current tax expenditure we now have.

That is to say, we exempt from income all the employer premium payments. If you use that money to turn around and turn it into subsidies and finance people, (A), it’s cheaper; (B), it allows you to reduce the employer role over time, and I submit to you that’s the best way we have to guarantee middle-class jobs going forward. And there are some bills in Congress that talk about that.

Now, I would be remiss to not point out that none of this is, in my view, wise, unless we simultaneously begin to address delivery system inefficiencies. We absolutely positively cannot ignore this because if we don’t, none of us is going to be able to afford healthcare very much longer.

Delivery system efficiencies are the key to making this reform sustainable and believable, and I would submit to you there are basically three big pieces here. We need an information system, electronic records accessible by all physicians.

We need realigned incentives. If you gave an economics grad student class the assignment of finding the piece of the American economy where the incentives were the worst, the answer would be the American healthcare system. We pay people for doing stuff. We don’t pay them for keeping people healthy. We don’t know what we’re buying.

And, finally, we need to really increase best practice information production. That is to say, we need to improve the science base so that more clinician/patient encounters can be the beneficiary of best knowledge. And, of course, the information system allows that knowledge to be transmitted quicker if you have the right incentives in both patient and provider.

And then we have to be mindful of the fact — and I think, again, the Massachusetts experience has shown this — if you give people coverage and you don’t increase the primary care physician workforce, there’s a shortage of primary care. You might have heard this rumor. We have to fundamentally think about turning that battleship, as well, over time.

Basically I think I just went through this. We need electronic records. They have to be accessible. We’ve got to have a researchable database. And the piece of electronic system that’s more than just records, let me just hasten to add, is decision support tools.

It turns out when people are presented with a very balanced appraisal of what their prognosis is — maybe that’s done by a videotape, maybe it’s done by consultation with an expert or whatever. Often, families, clinicians will make decisions that are different than they would in the absence of that information, and it seems to me as an ethical matter we need to make sure every decision has that.

Realigned incentives — well, you know, I’m an economist, so I’m going to tell you payment is going to rule the world. But I will say we have to move away from fee-for-service medicine. There is no question in my mind or I think a lot of people’s minds that fee-for-service is part of the problem.

It was probably the right thing to do when we knew almost nothing. That is to say, you don’t want the incentive to do less if you don’t know what’s going on. But it seems to me we’re far enough advanced now in appraising quality and appraising best practice that we can move away from this.

And that means some combination, and I don’t in any way have a blueprint here to tell you what we’ve got to do is a bunch of experiments to get better at this. And some of the recent work in the CMS, in the Medicare Modernization Act, which Jim had a lot to do with getting passed, started us down those roads. But basically a medical home — the concept there is you actually want people to connect to a primary care base from which they sprang into the system. That home becomes an agent for them and helps them, but you’ve got to pay that home. You’ve got to pay the primary care docs to actually be able to provide more coordinated care.

You could imagine a world in which we share savings with them against a baseline that had too much hospitalization and so forth. But ultimately we’re going to have to figure out how to bundle payment across sites of care because you can’t just turn primary care docs against the hospital industry. You’ve got to figure out a way to make this win-win. In fact, there’s some very interesting experiments going on as we speak.

Value-based cost-sharing. What I mean here is that it seems to me it makes sense that if proper evidence would suggest you don’t need an MRI for this particular condition and you want one because your cousin got one, you can have one. It’s America . You get to pay for it. We’ve got to stop collective financing of low-value care.

Similarly, you can imagine behavioral incentive-based premiums in some of the recent legislation, which I’ll talk about in a moment. There’s some ideas of giving Medicare beneficiaries, but you can do it across the board, a premium reduction if they agree to join a medical home, if they agree to put themselves in a situation where they have a better chance of getting coordinated care. And you can do the same thing for weight loss and smoking and so forth.

And, finally, there’s no question, we can’t move forward as a nation in this arena unless we take malpractice reform seriously. That doesn’t mean that I know exactly what to do. I will just say it seems to me some combination of safe harbor for following best practice.

We’ve probably got to revisit anti-trust law because a lot of reporting isn’t done out of fear of anti-trust reprisal. And we’ve got to probably think about damage limits, although I leave that to experts to work out the details.

For best practice, this is where I get controversial, if I haven’t already, and that is to say, here are the two numbers that really worry me. We spend 28 billion dollars as a nation searching for serendipity at NIH. We spend 15 million trying to decide the best practice, the comparative effectiveness information.

I can’t tell you what truth is, but I can tell you both those numbers are wrong. We ought to spend less on serendipity and more on comparative effectiveness because that will enable us to get far more efficient.

I think there is no reason not to have public and private funding of that comparative effectiveness funding. You’re going to have to have a very credible — I say quasi-independent. I mean independent government. You’ve got to have a credible body that sets research priorities.

And I would submit the fundamental fear of this shift in resources will come from the med schools. So you want to reward med schools who are willing to do this. You’re going to have to raise the prestige — let’s be frank — of comparative effectiveness kinds of research as opposed to the serendipity research, which is what the research apparatus has always gone for.

Workforce — we clearly need to emphasize primary care and not forget we need more nurses because we are aging. It’s not just about docs.

Okay. Now, take a deep breath. Here’s the good news. If you look at the campaigns like I do, the good news is the Democrats have discovered markets. You know , if you go back and look at campaigns past, every single time some of the major candidates always propose what Steffie just proposed, and that is a government-run system, which would work, technically, but would have some issues that we’ll talk about a little bit later.

This time, only Kucinich proposed it, and Kucinich was the first one to drop out. So that says to me the Democrats are starting to get the memo that if you talk about markets and you talk about emphasizing both, getting everybody covered and delivery system reform, you can actually be more credible.

And the good news on the other side is Republicans have acknowledged that people can’t afford health insurance. McCain has gone so far as to say, “You know what? We need to think about the supply side, too.” He’s got pay for performance, transparency, Medicare payment reform. These are things the American Medical Association is not keen on. Whatever else may be true, McCain is still a maverick in healthcare, and I would give him high marks there.

I don’t know if you got a chance to see Huckabee’s speech before he dropped out, but it’s the best one on this topic. If Huckabee was giving this talk he would say: “If we were having this meeting 40 years ago, half of you would be smoking, and the other half wouldn’t care,” and he would be right.

And his point is we can change the way we think about our own responsibility for our own health. We can change the way we think about behavior. And he also would go on to say: “If we don’t change the way we think about our own responsibility for our own health and we don’t change our behavior, it doesn’t matter what the economists work out on financing, we’re not going to be able to afford this.”

Finally, I would say Romney in many ways made this national conversation possible when he was governor. If you go back, there was not a comprehensive proposal on the table until Romney did this. And I submit to you the following: You had a Republican presidential aspirant willing to use the word ” all,” and you had a Democratic legislature, arguably the second-most liberal on the planet, excelled only by California , willing to accept the word “limit.” That’s not an entitlement up there. That’s an appropriation bill. Republican, “all;” Democrat, “limit.” We can work with this. We can make this happen. That’s exactly what I’m talking about.

Meanwhile, back in Washington , Massachusetts and California got noticed, and there were some strange coalitions that got formed. The most interesting one is this one, Better Healthcare Together, because on the stage in Washington in January of ’07, about two weeks after Schwarzenegger announced his plan in California to try to mimic Romney, Lee Scott from Wal-Mart and Andy Stern from SEIU shook hands on the stage.

And you know those are people who spend millions of dollars every year attacking each other. Their constituencies, trust me, were quite upset that they were willing to go public and shake hands and agree to work together to try to solve the healthcare problem.

Lee Scott ‘s part in the drama was to say, “You know what? We’ve got to work together, and we’re going to need more government.” And Andy Stern ‘s part of the drama was, “And we can’t just tax business to pull this off. We have got to figure out a better way to do this.” So, again, I consider that progress.

Trade associations, a lot of them here. The most interesting one is the Federation of American Hospitals, the for-profit hospital association. Executive director is Chip Kahn. Chip Kahn invented Harry and Louise back in the day. Chip is on our side now.

Chip has figured out that, in fact, a new market, individual mandates, subsidies for low income — all that stuff is a way to solve the problem and, in fact, is consistent with Republican values, which is the key, and here is the real interesting thing going on in Congress right now.

A truth-in-advertising, I helped Senator Wyden , and I’ll be glad to talk about that in detail later. But here’s what’s good about this bill: not the specifics, per se, but the fact that it’s got 14 co-sponsors, seven Republican, seven Democrat. We looked. We cannot find another example in history where you had bipartisan support for covering all Americans. And now we’ve got actually four versions of that same kind of idea. And the idea is basically the placebo model.

It is mandates, new markets, subsidies for low income, phasing down the employer role, using regulation, and using incentives to try to make the system far more efficient.

You’re going to hear a lot of talk and a lot of debates and a lot of words, and here is what I would say you need to prepare for: You’re going to hear, “We can’t afford it,” whatever “it” is. You’re going to hear, “We can’t afford to cover seven more people. We’ve got to cut Medicare.” You’re going to hear that. I submit to you we can’t afford not to. We can talk about why later.

My favorite phrase from Ronald Reagan , you’re going to hear, “Trust, but verify.” What is that about? That is about we’re going to demand and finally get transparency of price and comparative quality. We’re going to know that market outcomes have to be monitored, and we’re going to have to agree to evaluate government programs because they’re not all working as well as some of the advocates would indicate.

You’re going to hear, I think, a big debate about whether shared responsibility is also the American way. There’s no question our country was founded upon and was made great by and will always be served by individual personal responsibility.

But there’s also no question in my mind, anyway, and I think in a lot of people’s mind, it’s not possible to empower individuals unless the community takes an active role in making it possible for every individual to reach their potential.

And that’s really what the mutual obligation is about, and that’s where I get my stuff from the Bible. Part of the shared responsibility is making this system sustainable, and that’s what I mean by stewardship.

And, finally, I’ll remind you the cost of doing nothing is high. You go back to those 18,000 lives. If you count every year since 1994 until now, multiply 14 years times 18,000 — it’s a hard thing to multiply — it’s a quarter of a million people.

If we had told our nation on the floor of the Senate when we stopped debating the Clinton business, “We’ll wait until a quarter of million Americans die before we talk about this again,” I think we would have kept the debate going, and we should have, and we can do better next time.

Let me stop here, and then we’ll talk about the moral stuff a little bit later on.

CHAIRMAN PELLEGRINO: Thank you very much. Our next speaker is Dr. James Capretta , Ethics and Public Policy Center, speaking of tax code.

MR. CAPRETTA: Thank you very much, Dr. Pellegrino . I am not a doctor in either sense of the word, but I’m just a fellow and someone who worked in government for about 15 years, mainly in the healthcare arena. Two hard acts to follow, of course, but I’ll do my best.

I want to start with just a little bit of background about where we are and why I see the debate involving episodic pressures to change. And I think we can trace our modern story really back to World War II when the federal government during the war allowed employers to offer health benefits as compensation to their workers when there were war-time wage controls. And the IRS soon followed by saying those would be tax-exempt.

That was sort of the two pieces needed to have a springboard to widespread employer-based health insurance coverage. And it started slow but really took off in the ’60s and ’70s and became very widespread.

So the sort of current status remains pretty much as it was, which is that those kinds of arrangements remain tax-preferred, that is, all the premiums paid by an employer do not count as compensation to a worker. And in general, premiums paid privately on your own do not receive the same treatment.

So by definition it became much more preferable for everyone to get their coverage that way. It became the way of choice, and in some ways it works pretty well. But it does mean that other ways of getting health insurance have not formed, and that has led to some of the pressure points, which are leading to our kind of debate today.

How much is this tax expenditure worth? It’s going to be more than that now a couple of years later, but in 2006 it was worth about 201 billion dollars all in. That was federal income taxes not paid, payroll taxes not paid, and also state income taxes not paid. So this is a very sizeable incentive with lots of financial consequences.

Now, what are the advantages of this? The advantages are you can sell relatively stable risk pools with relatively low administrative costs in one sale, in a sense. You know, an insurance company — you can go to a big employer and say, “I will cover all your people with one policy.” They make one sale. That’s it.

And by and large — this may not always be the case, but by and large, especially large employers, one would not expect, on average, for them to be atypical in terms of their risk profile. So in general, if you’re looking for randomly applied risk, going to employers in some sense is a good proxy for that. So the pools of risk for large employers in particular worked fairly well from an insurance perspective.

Disadvantages: Obviously, the employer owns the insurance. So if an employee leaves, they don’t take the insurance with them. That’s a big issue. Obviously, when people are in-between jobs, they aren’t employed for a period of time, they leave the workforce for whatever reason, they have trouble getting coverage.

The dominance of employer-based risk pools also made it difficult for other risk pools to form because people found them less favorable. They didn’t want to be part of that risk pool. They’d rather be part of a large employer risk pool. And so it became difficult and is difficult for other kinds of pools to form.

Economic inefficiency associated with job lock: People say in their jobs sometimes just to get the health insurance. Now, we have probably the most flexible labor markets in the world, the United States does, but even here this is still an issue. Especially in a time of global economic competition and trade pressures, mobility of the workforce is still very, very important.

The distribution of this tax subsidy is regressive. That is to say, more benefits go to people in the higher income brackets than in the lower income brackets. This chart just basically shows that in 2004 — it’s a little bit dated, but the point still holds — people above $100,000 a year got about $2,800 worth in tax benefit from this. And take, for instance, the lower middle class, $30,000 to $40,000 only got $1,200 out of this kind of a tax benefit on average per household.

So the upshot of this is that when we built an employer-based health insurance system, it basically works well for people that are going from large employer to large employer, working for big companies, working for big institutional firms.

But for people in the small employment sector or otherwise not employed, it’s unstable and insecure. This shows particularly the relationship between firm size and being either in public insurance or being uninsured. Obviously, if you’re in a firm of under ten, the probability of being uninsured is three times as high as if you’re in a large firm.

Cost pressure: I’ll argue in a minute that this is very much related to the tax preference as it currently exists. But if you just do a straight calculation of per-capita cost divided by household median income — this is not adjusted for the size of households changing over time, but it’s close enough — you just see that by definition incomes are not growing as fast as health costs. I think this is a point we all understand already.

So back to the same point Len made, which is what’s really at the bottom of all this? Well, the root of all of this is the general agreement that there’s widespread inefficiency in how healthcare is delivered. This is not a knock on all the physicians in the room. This is a knock really on systematic and disorganizational issues associated with connections between different providers.

We have a fragmented system with a lack of clear use of clinical data to try to figure out what best practices are. So there’s huge and widespread variation in how medical care is practiced. Wennberg and others have popularized this data very well, New York Times stories every other month about it showing that essentially without differences in health outcomes, large variations in how medicine is practiced in South Florida versus Minnesota versus Salt Lake City and lots of unexplained reasons for that.

Now, one argument here, though, that is quite important is that the tax benefit itself is contributing to the cost pressure. That is, to some extent the argument is that when you have a tax-preferred fringe benefit like this that is without limit, on the margins employees have a preference for taking more health insurance versus more cash because it’s not taxed. And then when you have more health insurance versus not as much health insurance, you also have lower cost-sharing. So there’s a pressure to use more services.

The follow on point, which is that you could reform this and retain the tax preference or alter it in some fashion so that it was no longer open-ended, maybe at the margins, then saying that the choice between cash and insurance would be more neutral; therefore, employees and consumers would maybe select, perhaps, more cash income and not as much insurance, with favorable effects on the cost side.

I argue that even with all these points about the problems in healthcare we ought to be taking measured steps. That is, I think one of the lessons of the Clinton effort in the early ’90s was that this system is very complex and there are a lot of embedded arrangements, some of which are working pretty well.

And the fastest way to lose an effort is to start disrupting things that are perhaps not ideal but at least working okay. And we can, I think, address this tax issue without disrupting coverage for the vast majority of Americans that are enrolled in large employer plans and generally like it.

So there’s a sense in the country, of course, that there needs to be some change, especially on the delivery side. But at the same time, if you ask people that are working for large employers with employer-provided coverage, “Would you rather trade that in for something else,” I think at the end of the day a lot of them are going to say, “Probably not.” They’d want to take a look at what this other thing was, but they’re likely to answer that they’d rather just stay with this and see how the thing plays out.

And so one aspect of reform I think we need to keep in mind is to address this tax question without undoing the whole thing and trying to have 170,000,000 Americans switch out of what they have today into something different.

So what would I do? This is a four-point plan. Maybe it could be 16, I don’t know. What I would do is I would say let’s start with the large employer plans and put a tax cap on it. Let’s put a limit on how much can be tax-preferred, but let’s not repeal it entirely so that people still, by and large, in large firms get their health insurance, at least for the time being, through their place of work.

That then sort of leads to additional cost consciousness for the HR departments and the employees of those firms, but it doesn’t take them out of that coverage and try to invent a new way to give them health insurance.

For people not in large employer plans I think we’ve got to move toward a refundable tax credit. That is, for people in small firms and individuals not otherwise getting their private coverage through the employer, instead of giving them a tax preference the way we do it now, we ought to give them an actual almost like a voucher of some dollar amount that they can use to buy their coverage.

This is not all that unlike what they’re doing in Massachusetts . It could be run through that kind of a mechanism. It wouldn’t have to be.

The next step is really the critical one, which is who is going to help administer all this for these people getting coverage in a new way. I think we should leave that to the states. I think decentralization of this is critical. Trying to run it all through a national exchange would be a mistake.

And as Len pointed out, this is a big, diverse country, and even state by state is almost too centralized, frankly. States could do things like an exchange at the state level, although I think there are any number of different models this could envision. The main point is that the states will be in charge of establishing and enforcing some stabilization of the risk pools for people not in the large employer plans.

There would have to be some kind of rule-based system so that people would know they’re in this pool and their premiums would be shared with this group of people and their tax credit would be used to buy this kind of coverage offered in the same pool.

Finally, I think the missing 800-pound gorilla in all of this is Medicare. I was struck by a — which is really not the subject of your deliberations today. People in Medicare are covered, right? So maybe we ought to just stop there. But in some ways the entire health delivery system takes its cues from Medicare. Medicare is the biggest payer, the biggest purchaser in most markets. It is a fee-for-service program, by and large. And if you had to pick one reason — it’s not the only reason, but one reason why the delivery structure looks the way it does today, one would probably pick Medicare, that people organize themselves in a sense to be responsive to the Medicare payment structure.

And to my mind, if one is worried about efficiency in how healthcare is delivered, then one is going to have to probably look at how Medicare is buying care. And the Medicare Payment Advisory Commission just put out a lengthy report two weeks ago on this exact subject. Len kind of touched on it.

Lots of recommendations about bundled payments, trying to get physicians and hospitals to start accepting episodic payments or payments for a whole episode of care that is larger than our current DRG system.

So there’s lots of creative things that could be done there, but I think lots of hard thinking is going to have to be done in this area for us to really make progress on the cost side.

Finally, I want to commend you. Truth in advertising, I stole a lot of this from Stuart Butler, who is an excellent analyst at the Heritage Foundation, and his paper is cited here at the bottom of this slide for those who would like to read on further. Thank you.

CHAIRMAN PELLEGRINO: Thank you very much, Mr. Capretta . I appreciate all of you speaking so that we are right on time, in addition, of course, to the content of your talks.

We can open up the questioning period by the members of the Council, following which after the break we’ll have a return of our panelists who will speak about the moral dimensions of each of their plans.

Would someone like to open the question?

DR. CARSON: I just want to thank all three panelists for that. But I’d like to ask a question which could maybe help solidify our thinking, and that is we’ve noticed one commonality there is the enormous cost that we are putting into healthcare and the small benefit we’re getting back.

What would you say are the two or three biggest things that drive our cost to the point where they are? Because I know a lot of people think that it’s because physicians in this country make too much money. But only 19 cents on the healthcare dollar goes to pay professional fees. That clearly is not what is driving it. And if you could maybe clarify that for us.

DR. WOOLHANDLER: I think there’s two big drivers. One is administrative costs. Administrative costs in our complicated multi-payer system are about 31 percent of total health spending. Administrative costs are about half that level in Canada , about 16 percent of healthcare spending. So that’s one big driver. The second big driver is overtreatment and treating people who don’t need treatment in the first place or treating people with very expensive treatments who could be treated with very simple treatments.

And the example I’ve been talking about the most lately is cardiac stents. We now estimate that at least half and perhaps as many as 80 percent of all cardiac stents placed in the United States are completely unnecessary. They’re placed in people with chronic stable heart disease in whom stents have never been shown to be effective. That’s a 20-billion-dollar industry right there, that one piece.

So those two things, administrative costs and overtreatment. The single-payer system does address the issue of administrative costs because you simplify the system, make it one system, everybody automatically eligible, every effective treatment automatically covered.

In terms of overtreatment, the way that the single payer really works is a little analogous to trying to stop the flow of water through 1,500 or 300,000,000 different faucets versus having just one faucet, the single payer. It’s just a whole lot easier.

You have a much stronger lever to reduce spending, to cut out unnecessary care if you have control of that one faucet versus all these thousands or millions of individual faucets, shipping money or, if you will, funds into the healthcare system.

CHAIRMAN PELLEGRINO: Thank you very much. Next question?

DR. NICHOLS: I would suggest it’s very useful to distinguish between what drives our level of cost being so high and what drives the rate of growth over time. I mean, I would certainly agree that administrative cost is the reason our level is high.

And while it did have that increase in the early ’90s as the country moved to far more managed care and far more administrative activity within insurance companies, it’s been pretty stable since about ’95.

So that’s not what’s driving cost growth. What’s driving cost growth is the overutilization, and that comes back to the incentives. It comes to the lack of incentives. We have to be prudent on both the provider and the patient side.

But then I would say I think the fundamental driver, which has a fairly wide consensus among us, at least in the economic community, for what that’s worth, is technology. Now, we’re way better at fixing hips and hearts, even broken hearts, than we were 30 years ago, and that’s a good thing. But it takes resources to do some of that, and I would say our fundamental problem comes back to incentives. We overuse good technology.

The stents are really helpful for a small fraction of the population. Vioxx was really helpful for a small fraction of the population. But it was used far more broadly than it ever should have been, and that’s kind of almost a metaphor for the system.

MR. CAPRETTA: I very much agree with what Len just said. The only other thing I would add to that is that the United States does have some unique issues associated with a big country. We’re very diverse. But sometimes our health system is asked to do so much more than other countries’ health systems that some of those costs also spill into our healthcare system that they don’t have to deal with as much.

We have a lot more social problems that end up in our healthcare system. International comparisons can be a little dicey. I mean, we do spend more than other countries, no doubt about it, but part of it is that people don’t usually realize that a lot of it is associated with we have far more trauma showing up in our emergency rooms than other countries do from things like car accidents and gunshot wounds. And we also have a system that is picking up and referring people for chronic conditions at a rate that is much higher than other countries. That’s somewhat still unexplained, but it has to do, I think, a little bit with just the intensity of use that we’re used to here.

And, you know, our physicians are picking up earlier chronic conditions and getting people into more intensive therapy and care than they are in other countries. Now, whether or not that’s leading to better health outcomes for those people I think probably remains an open question. But, anyway, we have a lot more people getting care in those kinds of conditions.

CHAIRMAN PELLEGRINO: Thank you, Mr. Capretta . Questions? Dr. Dresser ?

PROF. DRESSER: I’d like all three of you to talk about this really tough issue of coverage, what to cover. Does anyone in the US do a good job on it? My impression is even Medicare doesn’t do such a hot job on it.

I mean, things like covering a cancer drug that extends life for two months in 50 percent of the people — in your notions of a better system, would that be covered? If not, who’s going to have sort of the willpower to really enforce that?

And then even sort of less pointed cases like so many technologies, drugs and so forth — there’s sort of a gray area of patient who might benefit some. And, you know, it seems to me every system has to get a handle on that. So who’s going to decide what to cover, and how is that going to be enforced?

CHAIRMAN PELLEGRINO: Any of the panel?

DR. WOOLHANDLER: Well, we believe that all effective treatments must be free, okay? There’s two pieces to it. One is it’s free, no co-payments or deductibles. The other is that word, effective. And if something is not effective it should not be covered, no matter how much someone is willing to pay.

I actually think the gray area is smaller than you think. I think you can say to a cancer patient, “Here’s the data. This medication is very toxic. You’re going to get a lot of side effects. You’re going to have an average four extra weeks of life if you do it,” and let them make the decision.

The decision is made very poorly in the current system because of the incentives we’ve given to oncologists to overtreat patients. The oncologists get paid a fee not just for the consultation but for running an infusion center so that oncologists are now the highest-paid US physicians, on average earning more than half a million dollars a year, by and large because they’re doing all these infusions.

Consequently, according to an article in the Journal of the American Medical Association , you can take cancers and divide them into ones that are chemo-responsive and ones that are chemo-nonresponsive, ones that need chemo, ones that don’t respond to chemo. It turns out in the US a patient with a chemo-nonresponsive cancer, one that won’t respond, is just as likely to get chemo as someone with a responsive cancer.

Now, that’s a violation of effectiveness. The doctors are not communicating with the patients. The patients aren’t understanding it because no one in their right mind would choose chemo, I think, if it’s going to be ineffective, yet they get it just as much as other patients. So this gray area — a lot has been created because it’s become profitable to overtreat people. If we take it from a scientific point of view, the gray area is much smaller than you might think.

DR. NICHOLS: I would certainly agree with that. I would say you’ve asked, though, I think, the question that is really hard. And I think I answered it sort of in one of the papers we sent. And that is, the fundamental moral question here is are the people going to believe who has to say no? How do you accept that? And it seems to me, therefore, you need public processes.

By the way, I would just take this opportunity to say whatever statement you all end up making will be important, and it will be read because I deal with members of Congress on a daily basis. And I will tell you, they are grasping for wisdom and leadership on this matter, and you have a standing that very few other groups do. So I encourage you to pursue this.

But let me just say on the public processes it seems to me there has to be credible scientific evidence, as Steffie talked about. You’ve got to fundamentally get the word out. To me that means it’s got to emanate from and reside from a combination of public and academic and — it’s got to be blue ribbon.

But then you’re going to have to work it through every clinician/patient encounter. At the end of the day you are not going to be able, in my view, to draw a line in Baltimore or Washington or Peoria or Springfield and say, “We’re not going to do this. We’re going to give you the options. We’re going to give you the information. We may give you a co-pay schedule that reflects our best judgment and the collective budget we agree to set, let us not forget. We’re not going to write a blank check.”

But I would certainly agree with Steffie, if you go back and look at all the excess use that is out there now — I mean, very different people from very different methodologies estimate it’s as much as a third of our healthcare dollar. There is so much fruit that’s hanging fairly low. We’re a long way from what I will call serious rationing issues. We could adopt them if we choose to. We don’t have to.

CHAIRMAN PELLEGRINO: Mr. Capretta ?

MR. CAPRETTA: Thank you. I agree with Len’s last statement. To my mind, there are so many other things to work on in healthcare delivery that kind of going right to the hard cases is probably just not worth the political energy, that I’d try to leave most of that decentralized.

And if you get the incentives right, the provider, hospital, physician, outpatient clinic, lab systems will, in a sense, reorganize themselves to start handling those cases with patients more systematically and perhaps, hopefully, more scientifically. That’s the idea of reform, in any event, under our competitive structure or perhaps under a single-payer structure.

I’m very worried about going right to centralizing decisions about hard cases at the national level. I think that would be a huge mistake. I, for one, wouldn’t trust it. I don’t think a lot of Americans would trust it. There isn’t enough of a common value base to cede those decisions to bureaucracy at this point. That’s my own opinion.

DR. NICHOLS: I would just hasten to add, we’ve already heard from Oliver Wendell Holmes once today, I believe. I’d like to add another one: Hard cases made bad law.

CHAIRMAN PELLEGRINO: Dr. Hurlbut ?

DR. HURLBUT: I can’t seem to find what I’m looking for in your paper. I think you mentioned something about the system in the United Kingdom where there’s private availability at the same time as somehow eroding the national health service . Have I got that right?

DR. WOOLHANDLER: Yes. Our group has advocated the model that they have traditionally had in Canada . They actually have similar models in some other northwest European countries where there’s a single public system. There’s not competing private insurance.

In fact, competing private insurance is banned in Canada . That’s not un-American. We actually have the same rule within our Medicare program. That is, we cannot sell private insurance that competes directly with Medicare in this country. There’s obviously recently a whole range of privatization options, but traditionally you couldn’t sell it.

The reason we do that is in countries that have a private system and a public system, the private system tends to erode the public system, and that’s what we saw in Great Britain where I believe the British National Health Service has been woefully underfunded.

And part of why it was underfunded was that rich people like Margaret Thatcher could always opt out. They didn’t have to wait in the queue to get their gallbladder operated on. Margaret Thatcher could go, jump the queue by going to a private clinic, and get her gallbladder out. So the rich people had no particular reason to assure an adequate level of funding for the poor people.

And I think the exact same process is seen in the Medicaid program in this country. No one rich gets Medicaid, so rich people have no real personal incentive, other than charity, but they have no real personal incentive to make sure that Medicaid funding is adequate. If it’s a program for poor people, it’s a poor program. The trick to getting a program to work is to make it universal, rich people, poor people, same program, same rules, same access to care. That way the rich people will use their political power to make sure that the plan has adequate funding. And I do think that’s what happened in Canada and northwestern Europe .

DR. HURLBUT: Well, let me now ask my question, having clarified that that’s what you say. Are you saying that basically people that are very wealthy would now have access only to the same care that everybody else had? I mean, you spoke about — I can’t remember what your phrase was, the impeccable logic but the failure of political — I can’t remember what your phrase was.

But in any case, it sounds a little unrealistic to me. I live in a very wealthy community where a lot of dot-com people live, and there are now boutique medical practices with people just paying whatever they need to, basically, to get the best possible care. Are you saying that wouldn’t be part of your system? And wouldn’t that, in fact, encourage a lot of — if it were that mandatory, wouldn’t it encourage outsourcing to other countries for superior care, and wouldn’t it be kind of an odd thing to human nature, maybe economically impeccable but politically unrealistic to expect really wealthy people not to seek out what are considered superior offerings?

DR. WOOLHANDLER: I just want to point again to the Medicare program. You cannot opt out of Medicare in this country. I mean, when Ted Kennedy got his brain surgery at Duke, Medicare was the first payer. No matter how much money he may want to pay out of pocket, want to use to buy his way out of the system, that hospital was primarily paid by Medicare. Now, he can have wraparound insurance, but he cannot purchase a private health insurance policy that substitutes for Medicare. That’s why Medicare has historically maintained adequate funding over the years, that actually, you know, as a doc I was happy to see a patient had Medicare. It meant I was going to get reimbursed well.

And that’s because rich people and poor people had to rely on it. Ted Kennedy legally had to rely on Medicare. Now, if he wanted to go to Riyadh , Saudi Arabia , or something and get his care he could pay out of pocket. But if he wanted to get care in the United States it had to be paid for by Medicare. I think that’s politically completely realistic.

DR. HURLBUT: Well, take the question that Rebecca asked you earlier and take, for example, the case of in vitro fertilization. I’ve been following that a little bit in the United Kingdom , and it’s created quite a lot of controversy because there are considerable restrictions on it. For example, there are now discussions, I think, of implementation of restrictions on people who are obese from getting in vitro fertilization cycles because their outcomes are not as high.

Now, somehow it sounds very problematic. You’re going to essentially not even offer what the United Kingdom does by way of a private option. You’re going to sort of mandate that everybody gets what everybody else gets.

DR. WOOLHANDLER: That’s true. I’m following the same law that we’ve had in the Medicare program on the books since 1966. And, again, to quote Len here, you know, hard cases make bad law. I don’t want to go into the obesity-related issues of in vitro fertilization here, but we’ve had this law my entire practice lifetime, that there’s no insurance that competes with Medicare.

Now, our Medicare program is only for people over 65 and some of the disabled. It was not a 100-percent coverage program. It only pays a little more than half of the healthcare costs of the elderly. So I’m not advocating exactly the Medicare program, but I’m just saying in terms of the legality of saying that we’re not going to allow private insurance to compete, that’s been on the books since ’65, implemented in 1966 with the Medicare law.

CHAIRMAN PELLEGRINO: Dr. Meilaender ?

PROF. MEILAENDER: This is just a brief sort of follow-up on Bill ‘s question for you, Dr. Woolhandler . Would you think maybe we should reason in the same way about higher education in this country? Private options diminish the quality of public, you get quite different sorts of education. People’s resources make different things possible. Would you like the same kind of reasoning to apply there in that area of life?

DR. WOOLHANDLER: Well, by way of disclosure, next year I’m going to be paying $50,000 to each of Yale and Princeton for my two daughters. But I do live in a state where I feel like the private education has eroded public education. I think if I lived in the state of California , it’s very likely my kids would be going to Berkeley or UCLA and I’d be saving a lot of money. I’d be very happy about it.

But our state system in Massachusetts , while it’s got a lot of positive things about it, has been weakened by the strength of private universities: Harvard , MIT, et cetera. So I think it’s not particularly fair that my kids can go to Yale and Princeton because I can pay for it.

As a parent I’m willing to do that, but as a moral person, as an ethical person, I don’t actually think my kids should have any more right to go than a poor person’s kids who was equally qualified.

PROF. MEILAENDER: You actually think that what you’re doing is wrong, then?

DR. WOOLHANDLER: No, I actually don’t. We’re talking about a policy situation. Once the policy is in place, you make your individual decisions based on what’s going on. It’s not wrong for me to take a payment from Blue Cross even, as I say, that the payment from Blue Cross should not be higher than a payment for a poor person who is now uninsured. But we to change the policy so everyone has equal access to education, a policy so that everyone has an equal right to health care.

CHAIRMAN PELLEGRINO: Other questions? Yes, Professor Gómez-Lobo .

PROF. GÓMEZ-LOBO: This is a very brief question. Can I buy Harvard shares?

DR. WOOLHANDLER: Are you asking if you can buy the physical chair or the chair —

PROF. GÓMEZ-LOBO: Shares in the market.

DR. WOOLHANDLER: Shares.

PROF. GÓMEZ-LOBO: Shares. I’m sorry. I apologize. The reason, of course, is that my understanding was that these are non-for-profit organizations. I mean, we can’t compare them to the insurance companies, can we? I mean, I can buy Prudential shares any minute. And may I address a quick —

CHAIRMAN PELLEGRINO: Absolutely.

PROF. GÓMEZ-LOBO: One of the questions I have in the back of my mind is if I bought shares from Prudential or Aetna or any of the other ones, what I would want to happen is that they not sell policies to people who are high risk and concentrate on the nicest all-American people they can. So the question is really what are the incentives there such that they don’t go against the very basic idea of a health system?

MR. CAPRETTA: Private insurers — what incentive do they have to take on unhealthy people? Well, I’ve never advocated an unregulated private insurance market. I think we do need to have risk pools and people need to be able to enter into risk pools under certain circumstances.

I mean, ideally, if you had everybody in some kind of insurance from day one, then, you know, you’re always insuring against unknowable risk. The problem is that you have a situation now where people can present themselves with known risk. And insurers in a private insurance model, you can’t have premiums that are not covering a known risk because you by definition are going to lose money.

So you have to either pool that known risk with lots of other people with known good risks, or you have to have some kind of way of transitioning from risk pool to risk pool so that people can still have access, even as insurers get a large portion of good risk with bad risk.

So there’s a rule-making aspect of this that’s critical. I don’t deny that at all. I think it’s one of the thornier parts of any reform, no matter which direction you go.

DR. NICHOLS: I would just add that part of what the reform conversation is about is about setting the rules so that these markets work in different ways. And what I find is intriguing, if you look at the California discussion, which I find instructive even though they decided not to do it, you had six insurers there that agreed to the rules I laid out: Sell to everybody, modify community rating, and mandate so the pool would be the population as opposed to just the sick.

Six insurers, three nonprofit, three for-profit, agreed to this. But one big for-profit opposed it. It turns out the six that decided to do it are actually already investing in information systems and provider network that they think they can actually value to people’s lives by managing care, by coordinating care, by giving us better health outcomes.

The one that didn’t want to play along is the one that wanted to hold to the old model of making money. It’s just like you described. Those are two different business models. I submit to you that value added through care management is the future if we want to make our system efficient. The risk-selection model is the past, and that’s what we’ve got to change the rules to move away from.

CHAIRMAN PELLEGRINO: Dr. Rowley , and this will be the last comment before the break.

DR. ROWLEY: I was struck by Dr. Woolhandler ‘s graphs on the uninsured in various states that have gone to some kind of, quote, universal or at least paying for insurance for underinsured people. And every single one of the — over a number of years the graphs saved close to 10 percent.

So my question is actually to Len. How would you interpret that? You’re proposing some form of — my assumption is that you’re proposing something akin to Massachusetts or whatever in terms of modified plans and helping the uninsured pay for insurance.

And yet if her graphs are really correct, and I have no idea whether they are or not, but one state after another that has had some form of this hasn’t changed the percent of uninsured at all over time. So what is it you’re proposing to do that’s going to make it different?

DR. NICHOLS: Great question, and let me first say I trust Stephanie ‘s numbers. She’s a very intellectually honest person. I have no quibble with the numbers, but I do have a quibble with the interpretation of all those states as being implementing, if you will, my plan.

In the one case where they’ve actually imposed an individual mandate, that is, Massachusetts , they’ve reduced the uninsured by half. That’s what the people who measure those folks up there in Massachusetts are telling us in lots of different ways.

So there — and I would say the penalty at the moment that’s in place is a kind of gentle one. It is one that is meant to be politically palatable in the transition phase. It is roughly now one-fourth the price of an insurance policy.

So a lot of young and immortals are still paying the penalty and not buying the policy. If you changed the penalty, life would be different. And that penalty, by the way, applies to people who have, by definition in Massachusetts , the income to afford it.

In the Maine , et cetera, cases — in the Massachusetts case in the past, the Dukakis was an employer mandate, and it never really got passed. It never got implemented. In Washington there was an employer mandate, and they repealed it before they implemented it. In Oregon , same thing.

So what happened was people talked about the mandate, and I think it’s fair to say in the Washington , Oregon cases they thought national reform was coming. They thought the national reform would take the form of the Clinton plan, which also had an employer mandate, and they frankly thought there would be federal cover to maintain the state employer mandate.

Guess what? The cavalry didn’t come, and they all got repealed, and nothing happened. So the data are true, but they’re not reflective of what the policy would be.

DR. ROWLEY: What’s your response?

DR. WOOLHANDLER: Well, the data is from the census bureau, from the March CPS. So you can reproduce that data and that data is, of course, correct. We haven’t had the Massachusetts bill around long enough to see the census data. There’s a lag time on it.

It seems like Len and perhaps a whole group is going to hang your whole argument that this is something other than a placebo on the success of Massachusetts . But I want to tell you that those of us on the ground in Massachusetts are not convinced.

I mean, John Kingsdale is a very nice guy, and he puts a very persuasive case together about how great things are. But in my institution, the Cambridge City Hospital , the number of people showing up seeking free care has actually gone up by 1 percent in the last year.

When we looked at EDs at safety net hospitals there’s been about a 3-percentage-point drop in uninsured people showing up. So places where they saw 20 percent uninsured they’re now seeing 17 percent uninsured. But we’re not seeing evidence of a 50-percent improvement in access to care.

So I’m expecting when the Census Bureau numbers come out we will see a modest improvement because we did a huge Medicaid expansion with one billion dollars in new money going into the system. I do think we’ll see that, but I don’t think we’re on the road to universal health care based on what I’m seeing on the ground.

I do want to add, just in terms of making the premiums go down and the administrative costs go down, there’s really very, very little evidence on that one. The connector, the board that puts people together with the private insurances, they are going to fund themselves with a surcharge of four to five percent on an insurance policy. So that’s an additional four to five percent on top of administrative costs, so it’s very hard for me to believe that somehow we’re going to make that up somehow and end up with lower administrative costs.

CHAIRMAN PELLEGRINO: Mr. Capretta , a brief comment.

MR. CAPRETTA: Thank you, Doctor. He’s indulging me for a minute. We’re over time. Just on the empirical basis of the uninsured, no doubt Dr. Woolhandler ‘s data is correct. There are lots of other studies, though, that did go another level on this, which I think is worth mentioning so that people get their same baseline.

In some ways the data that looks at a point in time as both — you know, overstates and understates the problem. You have lots of data that shows upwards of 85,000,000 people have at least some month without insurance over a multiple-year period of time. So there’s lots more than just 47,000,000 who go uninsured. But many of them are in hiatus from insurance because they’re in between jobs, largely.

And it turns out a lot of times it’s the same people over and over and over again, and it’s the same people that I showed on my graph. They’re working for small firms. They’re unemployed. They’re employed. They’re on public insurance. They go off public insurance. There’s a lot of churning on the low end of our market.

These other state efforts never really got at the issue of can we find a way to give those people insurance even as their life circumstances change. They get married. They get divorced. They get a job. They lose a job. They work seasonally. That’s where all the churn is. That’s where all the uninsurance is .

Second point is that there’s huge numbers in the uninsured data of people under the age of 30. I think we have to have a real question about what do we need to do for those people. I mean, it’s upwards of 30 to 40 percent of the uninsured. Correct me if I’m wrong, but that’s about right.

So I think there’s a real question about how to handle insurance for that population. It’s not necessarily the same answer as everybody else. Then there’s the question that’s going to be vexing for our country, which is why this is an important issue, which is noncitizens. What is our obligation to noncitizens? How do we handle them? How do we give them healthcare? All of those complicate this debate.

CHAIRMAN PELLEGRINO: Thank you very much. We’ll extend our break to 3:55 . Please be back promptly because we have an important discussion after the break.