LS 65 - Fixing the Healthcare System with Avik Roy

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Welcome to the Longevity show, informing listeners on the important aspects of health, wealth and happiness to ensure you live life to its fullest. With fascinating interviews with top authors and gurus in the field, along with the latest news in the science and technology of longevity, we're going to reveal expert advice and amazing secrets of living a longer and now, here's your host, Jason Hartman.

It's my pleasure to introduce Avik Roy. He is the Forbes acclaimed and influential opinion editor. He's also senior editor of the Apothecary blog on healthcare and entitlement reform. He was an advisor to Marco Rubio and Rick Perry, former healthcare policy advisor to mitt Romney in 2012. He's author of three great books entitled Transcending Obamacare, A Patient Centered Plan for Near Universal Coverage and Permanent Financial Solvency. Also How Medicaid Fails the Poor and the Case Against Obamacare. Avik, welcome. How are you?

Hey, I'm fine. How are you? Jason, thanks for having me.

It's good to have you on. And I just want to say for the listeners, in case they look you up, your name is spelled a V I K, but pronounced Ovik with an as an O.

That's right.

Well, it's great to have you. So, obviously, tons of debate about these issues. What is your thought on this? You say near universal plan, but hopefully it would include fiscal solvency, which we desperately need.

I'm obviously a Republican, I'm a conservative. I spent a lot of time advising Republican presidential candidates, and one of the things that I've argued as a response to Obamacare and as a response to, in general, the challenges we have with health care is to make the point to conservative audience. I think there's a perception out there, and you hear Republican politicians say this, that Obamacare is the government takeover of the health care system. You'll hear people say that all the time. And the point I try to make is that if you look at government spending on health care in the United States prior to the passage of the Affordable Care act, the US Was spending more than almost any other country in the world, government spending on health care alone, let alone private sector spending. But government spending was the third highest in the world prior to the ACA going into effect. Now, we'll probably go up in those rankings, but the point is, if you're concerned about our deficit and our debt problems, those are entirely driven by the growth in federal health care spending and the growth in federal health care spending, in turn, is driven almost entirely by Medicare, Medicaid, and to a lesser degree, Obamacare. So if we want to solve the problem of the deficit and the debt, which to me is the most important economic problem we face, then we've got to address profoundly inefficient way we provide health coverage through the federal and state governments.

So how do we solve the problem? I mean, we know that the old system doesn't work. I think those of us in the know know that the ACA isn't going to work because that'll just diminish the quality of doctors. It has all sorts of bad side effects. What is the solution? I mean, when this debate was raging, my thoughts were the first thing you could do is at least take this incrementally and just allow insurers to provide coverage across state lines so the market becomes more competitive. If I was in charge, that would have been my first step. I never saw a reason why you couldn't do that. And then I would have looked at it after that, let that play out for a couple of years and see if it gets more competitive. But, I mean, health care costs are just. There's a skyrocketing. It's amazing. Since the aca, my own personal cost in my company has increased about 33, 35%.

Well, you've asked a lot of questions there or made a lot of points that I should respond to. So let me try to unpack them and all very important points. The first thing I would say, and this was the core idea behind transcending Obamacare, my health reform plan that we published through the Manhattan Institute, which is a think tank in New York that I'm a senior fellow at the central point of transcending Obamacare was to say, look, we spend in America, in terms of, again, government spending on health care, more than one and a half trillion dollars a year subsidizing health care, which is more than any other country in the world by far on a per capita basis. Even so, if you take that money and you actually take the money we already spend on health care, we could actually spend less than we spend today and cover more people if we actually restructured the health care entitlement system in a way to really, truly provide a safety net to the people who need the help and let everyone else participate in a freer market than we have today. That's the kind of the core idea. And then. So how would you actually achieve that? So you brought up buying insurance across state lines. Well, that would help to a degree, because then you can create a more national competition or interstate competition among insurers. But one thing that's very important to understand is really, it's not so much about buying health insurance across state lines that will solve the problem that might reduce the cost of healthcare or health insurance by about 9%, according to the best economic work on that subject. Where you really need to unlock competition is not among health insurers, but among the providers of health care services. So, for example, a big problem in America right now is the increasing rise of regional hospital monopolies. So your local hospital buys up the hospital next door, and then all of a sudden, if you live in that metropolitan area or that part of the country, you have no choice but to go to a hospital of a particular brand. So, for example, in Connecticut, where I went to medical school, Yale New Haven Hospital system owns almost the entire suite of hospitals in the state of Connecticut. So that means that it doesn't matter how many insurers are competing. If the hospital is a monopoly, they dictate the prices. And so if you have a stroke and you live in Hartford, Connecticut, you're stuck. You have to go to a Yale New Haven hospital, and they'll charge whatever they want to charge, and that ends up appearing on your insurance bill. So one of the real things we have to do is ensure that doctors and hospitals and pharmaceutical companies and medical device companies are competing for your business, and that's what's going to really drive down the cost of health coverage and health care. And also that insurers are competing for your business so that you have real choice among how you buy insurance and what kind of insurance you buy?

Sure, very good points. So 9%. If the insurance companies compete, that's a start. But what do you think it would be with these little regional monopolies that we have? Because we have them here in Scottsdale, Arizona, too. I mean, there's these big players, and you really don't get around them too easily. They're everywhere.

The best research on this topic, there's a scholar at the University of California named Jamie Robinson who's done some really good work on this, and he's shown that if you look at regions of the country that have more monopolized or concentrated hospital markets, and you compare them to other parts of the country that have more competitive hospital markets, you just split the entire country into two buckets. Those parts of the country with competitive markets and those parts of the country with monopolized markets or oligopolized Markets, markets, the more concentrated markets where one or two hospital systems control everything, charge on average 44% more for health care.

Unbelievable.

And that's on average? Right? So in some cases it's like 5x6x7x. So that means a knee replacement might cost you, you know, 5,000 bucks in a competitive area and 25,000 bucks in a non competitive area.

That's just insane. I mean, this is like the government student loan debt industrial complex, you know.

I mean, it's exactly like that.

Colleges have these kind of monopolies. It's absur that they do when the cost of delivering education has gotten so much cheaper. I assume that's the same for health care. I mean, technology has made everything less expensive except college and healthcare. And maybe the legal system arguably too.

It's very, very similar in the sense that what happens is we subsidize student loans by requiring the government takeover, low interest rates, all that. And what's the end result? The end result is colleges and universities jack up their tuition because they know that consumers are less sensitive to the price that colleges and universities charge. And that's what happens with healthcare.

The consumer is not attached whatsoever. I last week got an mri and in booking the appointment, I said, I want to know how much this costs. And of course the clerk says, your insurance is paying for it. And I said, I don't care, I want to know what they're paying. I have no concept, patients have no concept of what their insurance company is paying. At the very least, if the patient is not going to pay even 1% of the bill, at least the patient should sign a document saying that they saw the bill so they know you know. So there's some consciousness of, boy, this is my insurance company is spending.

Well, this goes to the other core problem with our healthcare system, that in transcending Obamacare, we talk about a lot, which is that unlike with auto insurance or homeowners insurance or life insurance or any other insurance product you might buy, we don't buy health insurance directly. 90% of Americans either get their health insurance from their employer who chooses it on their behalf, or the government who chooses it on their behalf. So very few of us are actually shopping for health insurance or health care on our own. And the simple fact of economics is if you're spending someone else's money or someone else is spending your money, they're not going to be a good steward of that money. They're going to spend it in ways that are wasteful and there's not going to be any Accountability, the only way for health care costs to go down in the end of the day, you could do it one of two ways. You can have a government driven system in which there's rationing and price controls. That's the British model, shall we say. Or you can have it in a market based way where patients and individuals, consumers, families are choosing the kind of health insurance they want, they're choosing what types of health care they want to pay for directly out of pocket and those which they'll say, you know what, I want my insurance to pay for that, I want to pay a monthly premium to cover those costs, like if I get hit by a bus or I have a stroke or I have cancer, what have you. That system is not what we have today. And the irony is that Obamacare's exchanges, in terms of at least the government based system of health care are the most market oriented part of the government health care system. So Medicare, Medicaid, These are traditional 1965 vintage government programs in which you don't really get to have a lot of choice as to what your health insurance should be. The more we can move to a model where people are choosing their own health insurance, whether it's in the employer based system, the individual based system or the government based system, the better off we'll be. All of our reform efforts should be around that. Give people more options to choose the kind of health insurance they want and that will help the market start to work.

Couldn't agree more, couldn't agree more. Okay, so tell us about Medicaid a little bit if you would.

Sure.

Your book Medicaid fails the poor. What's going on in that sector of the health care nightmare?

Well, one of the most remarkable things about Medicaid, we spend as a country 450 billion billion a year on Medicaid, which makes it the second or third largest entitlement in the country, depending on how you count it. And Obamacare, Half of the coverage expansion that Obamacare is supposed to achieve is achieved through an expansion of Medicaid. So what is Medicaid? So Medicaid and Medicare, sometimes these terms, people get them mixed up. Medicare A R E is the federal entitlement that LBJ passed to provide government sponsored single payer health care to the elderly to people who are over the age of 65. Broadly speaking, Medicaid aid is the program for people who are, broadly speaking, are indigent or poor. So it's meant for people who are at the bottom end of the income scale. So the problem with Medicaid is that Medicaid was designed to be jointly administered by the states and the federal government. And so what happens is the federal government and the states both try to game the system. The federal government tries to offload the cost of the program onto states, and the states try to offload costs of the program under the federal government. The end result is that nobody's in charge and it's profoundly mismanaged. And what ends up happening is, as the costs of the Medicaid program have spiraled out of control, what states have done to try to control the cost of those programs. Because states can't issue treasury bonds when states have run budget deficits, they have to take that money out of education, out of highways, out of police forces, things like that. So as Medicaid has eaten up more and more of state budgets, states have generally not wanted to throw Medicaid recipients off the rolls because then the politicians feel bad about that. So what they've done instead is told hospitals and doctors, we're just going to pay you less to provide the same amount of care you were providing before. The end result of that has been a lot of doctors don't accept Medicaid.

So if you are, I remember seeing that on the inside of the door of one of my doctor's offices. This was maybe a year and a half ago. I'm at the doctors and waiting in the room by myself. And inside the door there's this notice right at eye level that says, you know, we're not doing it. Yeah, why would they? I mean, these people don't understand how free markets work, do they? They just don't get it.

It goes even further than that. It's actually a dogma, kind of the central dogma of the liberal view of health care or the left wing view of health care. The progressive view of health care is that markets cannot work in health care. And that's why the government has to be in control of it. But unfortunately for them, and unfortunately for all of us, that's not the case. Economics is economics. The laws of economics don't get magically suspended the moment you walk into a doctor's office. And so what ends up happening is these doctors get paid less and less to provide the same amount of care. And what do they do? They drop out of the program. So today, the way it works across the country on average, is that for every dollar that a private insurance company might pay a doctor to care for someone, Medicaid pays 58 cents. In some states like California, it's 29 cents.

And guess what? You have the typical socialist communist government problem. It leads to shortages.

Right.

And that's exactly what you're probably going to say next, I'm guessing.

Yeah. No, again, it's entirely predictable for those of us who have, let's call it a classical view of how economics works. But that's the fundamental error we keep making over and over again. You'll see these headlines in the newspaper. So and so millions of people now have coverage thanks to Obamacare. What they don't tell you is that piece of paper says Medicaid on it. And so you have quote unquote coverage. And that's great for the statistics, but if you can't actually get a doctor's appointment when you need a doctor's appointment, you don't actually do any better. And so the point of the book, how Medicaid Fails the Poor that you start your question with wiz is that if you actually do studies of health outcomes of people on Medicaid versus having no insurance, do they live longer, do they have less diabetes, is their high cholesterol managed better? All those kinds of basic things.

Heart attacks or don't forget this one. Or do they die waiting in line?

That's the problem with the Veterans Administration, which is a fully socialized system.

And England and Canada, you know, lots of stories like that coming out of those places.

That's been the astonishing thing that actually the medical literature shows that people on Medicaid do no better than, and in some cases worse than those with no insurance at all. So I started writing about this in 2010 and I got so much pushback from the Paul Krugmans of the world who were saying this is totally dishonest and terrible and whatnot. But more and more studies came out showing this. So I wrote how Medicaid Fails a Poor to kind of walk people through why this actually makes sense in our heads. It seems crazy. How could we spend $450 billion a year on a program that doesn't make people better off? But it's again, it's not that surprising to those of us who have a classical view of economic because we see this not just with Medicaid. We see this with the war on poverty where poverty rates are stagnant even though we're spending more and more money every year, about $900 billion a year on means tested anti poverty programs and having little impact on intergenerational poverty rates. The people who have been whose parents are poor, their grandparents are poor, their great great grandparents were poor, a lot of that of those people in those situations are not doing any better. So it's the same that's true in healthcare. And why? Because the government basically creates disincentives for people to get the health care they need. And the irony is, if we had a market based health care system, all of the attention from entrepreneurs, from inventors, from innovators would be, how do I deliver the most important necessary care in the cheapest possible way? And that's the system we ought to have. And we would have if the government were to reorient its role to providing subsidies for those who need it, but letting people shop for the insurance they want. Think about what we do with food stamps, right? We don't create government grocery stores and government farms. We give people food stamps and say, buy the food you need. So we could do the same thing with health care very easily.

Right, right. And we could do it with school choice too, God forbid.

Absolutely, absolutely.

We could do it with everything. Let's just switch gears here for a moment. Before you go, I've got to ask you about the election. You know, what do you think of the various candidates? Interestingly, as much as everybody on the left loves to vilify Trump, he's pretty liberal on some things. I mean, I don't know. I don't really know what to make of him sometimes, but I'm sure a lot of people share that sentiment. What are your thoughts?

I think the best way to understand Trump is he is a nationalist in the classic 20th century European sense of the term. What do I mean by that? A nationalist is somebody who's an economic nationalist as well as a cultural nationalist. So the thing about the United States that's been idiosyncratic is that cultural nationalism has been as more of a conservative Republican idea, being more restrictive on immigration, being more patriotic, et cetera, whereas economic nationalism, being opposed to free trade, being opposed to jobs, quote, unquote, being shipped, shipped overseas, things like that. Economic nationalism has been more province of the Democratic Party in Europe. You see those two ideas or two concepts fused into one movement. So the Jean Marie Le Pen, the UKIP and et cetera, whatever one thinks of those movements, plus or minus, that's what they tend to be. They tend to be both economically nationalist and culturally nationalist. So I think that's the thing that I think a lot of people miss about Trump is that they look at kind of the intemperate way he says things and the kind of erratic way he says things and the fact that he doesn't seem to know a lot about policy and what people miss through all that noise is that underneath it all, there is a coherent worldview. And the coherent worldview is economic and cultural nationalism. There has been a strain of that in American politics for a very long time. If you think about Pat Buchanan, if you think about Ross Perot, you could go back to the Pre World War II Republican Party, right? The Hawley Smoot tariffs and the isolationism and things like that. The Republican Party prior to World War II was much more of a nationalist party than it has been today. The Reagan Democrats were arguably nationalists. So that trend has been there. And I think the big reason why Trump is appealing to so many people is because nationalists who are both economic and cultural nationalists have not really had a home in either party. They've had to pick a side. Are you? It's kind of the opposite of libertarians, right? So libertarians think of themselves as maybe culturally liberal and economically conservative. Well, these are voters who are economically liberal and culturally conservative. And there's a lot more of them, it turns out, than libertarians.

Very interesting. You know what's interesting to me about the Trump debate is that liberals love to hate him because they call him racist and oh my God, you shouldn't build a wall. That's awful. Countries don't have the right to protect their borders. Of course, they never say that, but that's what it means. But interestingly, those are the same people that want $15 an hour minimum wage wage. And just by natural market forces, Trump's sort of nationalistic take on things will increase wages just automatically. I mean, if you stem the fact that we're importing deflation from Mexico and Mexico's exporting poverty to the US you're going to naturally see wages rise if the border is finally controlled. It never has been, or at least not in my lifetime.

Well, this is why a lot of people on the hard left opposed immigration reform in the 90s and 2000s. You know, Bernie Sanders, in fact, has expressed his opposition to the Gang of Eight immigration bill because of that fact. He said that he's very concerned about how low wage unskilled workers from Mexico will affect the prospects for blue collar workers in the United States. So absolutely, there is, there's an overlap there. And it goes to the point I was making before, which is that economic and cultural nationalism, that's a very coherent worldview that is, that is quite prevalent in Western European democracies. And it's actually just kind of an idiosyncrasy of our particular two party system that we haven't seen a lot of it.

Here it is. It's funny how that, I don't know, I see it on the Republican side too, but I see it so much more on the left that they just contradict their own ideas all the time. Kind of blows my mind.

The fact is that's human nature, right? I mean, a lot of us as.

People, yeah, we're all hypocrites to some extent.

We want the government to spend more money but not tax us that much. And that leads to a lot of contradictory statements from politicians because at the end of the day, they respond to what we tell them to.

Yeah, very interesting, Avik. Give out your website. Tell people where they can find out more about you.

The easiest way to follow my stuff, if you use Twitter is My Twitter account is Avik. And you can also find my writing at Forbes most easily through facebook, actually facebook.com forbesaroy or@www.forbes.com opinion fantastic.

Any closing thoughts you'd like to leave us with?

I would just say if they're interested in the topic of health care and how to reform the health care system, to download from the Manhattan Institute's websites, Transcending Obamacare. That's my magnum opus, if you will, on health care reform. And I walk through a lot of the statistics and a lot of the challenges that we face if we want to make our healthcare system better. And I do think if you care about the deficit and debt as fundamental problems with our economy, we've got to tackle the health care system more than any other problem we have.

Avik Roy, thank you so much for joining us.

Thanks for having me.

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