tv Peter Van Doren Discusses Health Care Reform CSPAN February 21, 2017 11:36am-12:03pm EST
ly lyndon johnson but pennsylvania's james buchanan is ranked dead last and bad knew for andrew jackson, who found his overall rating dropping from number 13 to number 18. the survey had good news for outgoing president, barack obama, on his first time on the list, historians placed him at number 12 overall. george bush moved three spots up on the scale to 33 overall with big gains in public persuasion and relations with congress. how did our historians rate your favorite president? who were the leaders and the leezers in each of the ten categories. you can find all this and more on our website at c-span.org. what's going to happen to health care costs if the affordable care act is repealed? peter van doren tried to answer this question and tells us about
the possible impact of creating private health care systems. >> good afternoon, everybody. >> this is a capitol hill briefing entitled the economics of health insurance reform. the repeal and replacement of the affordable care act has dominated discussions. as we speak, republican lawmakers are huddling in philadelphia to chart a course for repairing the damage done to health insurance markets in recent years. despite the large array of replacement plans, when critics stated they don't have a plan, i suppose i'm being charitable. democrats are saying they don't have a politically viable one. some truth to that is any comprehensive replacement will require support from democrats. if the current, take no prisoners continues, they will
add to that. the president has promised an outline of his own, further complicating the endeavor but one that might bind the existing offer. time will tell. the pure libertarian p position requires no federal interference, prices are clear, innovation and quality is high and prices are low and entrepreneurship and competition would be minimal. the discipline of economics can prove insightful and can help steer lawmakers to policies less distortionary of market processes. understand the best available course in our presence circumstances, we need to have a better understanding of how health insurance markets work and how they relate to health care spending and the real world effects on a patient's held. i have asked peter van dorn to deliver his presentation today. he is a senior fellow at the
cato institute and the editor of the quarterly journal, "regulation." come to me after if you are not getting that. i will make sure you are on the list. he is an expert on the regulation of housing, land, energy, the environment, transportation and labor and much else. he has taught at the woodrow wilson school of public and international affairs at princeton, the school of organization and management and the university of north carolina at chapel hill, his writing has been published in the washington post, the "new york post" and he has appeared on cnbc, fox news and earned his masters from yale university. we will leave time for questions at the end. let's please welcome peter van dorn. >> i am not a podium kind of speeder. i like to wonder but the microphone confines me to be
here. i will move around and c-span will be ear tatirritated. i thought i would start with some humor. notice the first word in the outline. it is an adjective, modifying facts. well, this last couple of weeks, we have had some adjectives modifying facts. i'm using a term economists use. a colleague last week asked me, why do economists always use the term styleized fact. i had no idea. i looked up the origin. it comes from an article by nicholas caldur, nobel prize-winning economist, 1957. he used the term to refer to the results of analytic studies in
regression that is economists had come to accept as true. they are facts not in the two plus two equals four sort. they are facts from analytic studies and estimates and things like that that the economics profession comes to accept as true. bha what i thought i would do is that everything, all of you from congressional offices, anyone who claims to want to do something about health care. we first have to start with the facts. the facts about expenditures. that's what i want to start with. so you can read what i have written. the expenditures rise predictably with age. per capita from 2012 are about 3500 for under age 19, 4400 between 1944 and 9500 and so on and so on. finally, if you are over age 84,
the average health care expenditures on you in 2012 are $32,400. that's a lot of money. first of all, the average divided across the whole population is $10,000. so guess what? what we do is basically have endless, endless, endless fights over whether everybody pays $10,000 or some people pay less and some people pay more, right? that's pretty much it. if some people pay less than $10,000 a year, some people have to pay more and the parties fight over this and the people fight over this but in the end, we have got to pay $10,000 a year per capita. that's what we spend.
the second fact about health care expenditures is that they are extremely, i mean extremely, concentrated. most people aren't sick. in fact,fied a cumulative frequency distribution is what i want to draw. i want to rank order all americans, 330 million of us almost, 325 million americans, make-believe we put them all in a row from the lowest health care expenditures in a given year to the highest? there is a sickest american every year. we spend millions of dollars on
that person. then there is someone that spends zero, not only someone but if you look at the outline data i give you, the first 50% of that cumulative frequency distribution, something on the order of 160 million americans, they don't spend anything on the health care at all, hardly. they spend $264 a year. the sickest 1%, somewhere around 3 million people a year, we spend $107,000 a year on them. that accounts for almost a quarter of the aggregate u.s. health expenditures. the top 5%,
15 million out of 330 million people. 15 million people, the expenditures on them, that's half of health care spending right there. so figuring out what to do about, how to pay for, how to struggle with health care spending basically depends on figuring out what to do with the sickest people, right? i am going to try to argue that there are two papers that you have never heard of and never read and you should read them. i have been giving a version of this talk for 20 years, for 20 years. the first paper i'm getting ahead of the game here. the first paper i am going to
talk about was published in 1995. yet, i bet you, i bet you a lot of money none of you in this room who are congressional staffers have ever read that paper, even though it is your job to figure this out. >> how do insurance markets manage these styleized facts? very concentrated health care expenditures. the conventional wisdom posts affordable care act is that the only solution that all of you here who are healthy and young, you won't buy anything called health care insurance unless your employer provides it at a very subsidized rate, because you are healthy. you don't need it. then, that leaves sick people
and sick people, the mean expenditure for them is somewhere between $50,000 and $100,000 a year. the premiums would have to be that average. no one would want to and many couldn't afford to pay that. so the solution in the conventional wisdom is coercion, that you have to pool all of you here have to be forced to join a pool with all the sick people so that in the end somehow all of us end up paying $10,000 a year. somehow we have to pay $10,000 a year. the only question is, how? the conventional wisdom is that we need to use force. libertarians, we kind of worry. be careful.
don't think of it as your first solution. so the gentle word for force is community rating. language is nefeverything in politics. community rating sounds pretty benign. libertarians say, no, it is force. both are true. they are describing the same situation. now, here is the thing that's puzzled me, which is there is an alternative world. it did exist and it did work and somehow everyone denies that that occurred. i was at a health care conference. it was a little meeting in cato with zeke ezekiel iman well. i said, have you read the poly paper? he said, no. i said, then, stop talking. you can't talk about the possibility of individual guaranteed renewable health insurance, markets, unless you
have pred tread the poly paper. he said, i don't have to read it. he walked out. all i'm trying to do is not win you over, not to make you do anything. it is just to say, i think you owe yourself to read the two papers i'm going to describe because they say the world which cato describes, which allegedly can't exist, in fact, did exist. how is that possible? the key is that the cost is very concentrated. most people aren't suck. some people are. s so, therefore, health insurance contracts need to have two prices, two components. the first is the average health care cost of someone of your age
if you're normal and not sick and the way this is defined is all in comes from the medical cato regrets this of course but the government does keep good data, so the data for the studies i'm describing come from the data captured by medicare and medicaid, so we have a history of all americans for 25 years, so we know the probability of any -- for any given age group of reverting to a very sick condition for the next year and we know how long that lasts and know how much we're going to spend on it. so the key is the compatible
guaranteed renewable health insurance world what would induce everybody to sign up even those of you who are only spending $264 a year, those who aren't interacting with the health care system at all and the answer is if you're young it would have that base rate for what i spend and it's like $200 a year then we know diabetes, ms, cerebral palsy, we know all the probabilities of that occurring in every age group and know the cost of treating those diseases and how long they last. they don't last forever, the median time is four years. people either get better or they die. the good news is from health insurance perspective is that
there's an end to this high cost condition one way or the other, and we know the probabilities and thus we can just multiply how much we spend time the probabilities then add that to the normal very low cost premium that you would have if you had a term only non-renewable kind of health insurance and that would be the guaranteed renewable health insurance premium for you for that year. we can do this for 20 year olds, we can do this for 63 year olds. it would be more expensive, right? but we know the transition probabilities of any near of bad crap happening. and i give you some of the data outline heading approximately a quarter of male and females initially low risk at age 18 will become high risk by age 55.
and 40% will be high risk by age 64. but we know this in a very fine grained way so we can price all this, so here is what polydid. poll priced everything out and used real expenditure data, my insurance premiums for every age group would look like this, then went to health ninsurance companies and said what do you charge for your renewable health insurance contracts? and he found the premiums were more or less exactly what they predicted they would be given the health claims data, no gouging, no weirdness and he published this paper and said wow, look at this.
the most important paper you have never heard of, most important paper you have never read. second paper you have never heard of and not read is by senior fellow at cato john cochran an economist, he said here is a weird thing, guaranteed renewability makes consumers -- puts consumers in a bind. they have to trust that this life insurance, that this health insurance company they have signed a contract with will really come through if they're in a high-cost condition in the next n years whatever n is. and he said they're in a monopoly kind of setting in that they can't choose, so contachra
says they need a sack of money tied to their neck so that insurers would stopdy skr discriminating against people with existing conditions. he wrote an article called time consistent health insurance. we got him finally to do a version for cato in 2009 and that paper is available for you at the outside. so, bottom line, individual guaranteed renewable health insurance contracts did exist and did work. the claim that the individual health insurance market is incapable of existing and
working is incorrect. the problem is of course that most of us are an employer provided health insurance market. the set of people in the individual market is not a random sample of society thus the transitions between these two kind of ways of health insurance are difficult. so in the poly cochran world we would end employer coverage, end medicare, medicaid, have everyone finding their own insurance but they would have all of these little pockets of cash attached to them that would make insurers eager to find even the most sick of patients because they would leave the insured indifferent covering them because they come with the present value of all their future costs because we know all that from the data. the only trick is now we're in
kind of a backward induction game, suppose people don't buy this really neat product? suppose lots of people don't buy individual guaranteed renewable health insurance with a cochran health transition voucher attached to it. and the truth is i don't know what to do about that. we're back to subsidies or mandates or some combination of both or nothing at all, all right? those are the three choices and i'll leave that to political decision. so that's sort of part one of what i want to say i want to disabuse you of the notion that the cato world is la la land, not the movie, that the cato
world of people buying and selling and everyone being covered is somehow an imaginary world. it is not. very reputable people with data have shown that it did exist and can exist. you do not have to pool everyone in the same community rating system with a few plans that are all regulated. you can have gazillion insurance plans and people going for whatever they want as long as everyone comes with a pile of cash associated with themselves that's sufficient to pay for them if they become sick, which actually is very rare, okay, that's the importance to remember. i'm not saying that all the details have been worked out and all that, but if health insurance reform takes the premise that individual crac
contracts -- well, i want to put the individual contracts back on the table as an intellectual starting point and see it as intellectually unwarranted. that's the message today. now i want to switch and end with what i call the dartmouth evidence based portion of the program. for those of you who follow health care you know there's a line of work that says some of the middle class notions of what i call medical through-put which look a lot like defense through-put just like john mccain never raised a bill he didn't want to spend money on. many middle class voters, middle class advocates believe that you can't spend enough on stuff, you
can't do enough prevention, enough screening, we need to have screening for everything, for everybody, kumbaya, if you believe in science and evidence it's remarkable how thin the evidence is for that position. so what i want to do is my little tirade about the annual physical, early desk and mass screening may be entirely over hyped. first everyone -- well if you read "the new york times" prostate cancer screening probably isn't a good investment. prostate cancer is very rare. because we have detection regimes, cat scans we can find all sorts -- they have done this actually taken random samples of
people with some exhibiting health like back pain and others not exhibiting back pain and do cat scans on both, they find thing -- more things wrong with people without the back pain than with, when you find something in tell a patient you found something, they never say because they don't read the columns that i do -- they never say oh, i don't think we should do anything, which should be your model response to most of this stuff, they found a lump, they found this, they found that, most of us will die from whatever an image can find in us. people have cancer. much of it is of non-clinical significance. particularly prostate.
it gross slowly, bla, bla, bla bla bla, now some men die of cancer and it's not pretty, but to detect those through mass screening, i'll give you the numbers in the outline for every positive test that leads to a biopsy there's only a 2% chance of preventing deaths so talk about false positives right. so think about all the biopsies all unwarranted expenditure, chasing a needle in a haystack. one of the most interesting columns i ran in any journal regulation was searches for terrorists and -- people get hyped up and believe in mass screening for