PODCAST: David Gratzer transcript

Here’s the full transcript from the David Gratzer interview—if you prefer the podcast version I’ve linked to it here. There are lots of comments there too.

Matthew Holt: This is Matthew Holt, and we're back with another podcast on the Health Care Blog, and today my guest is David Gratzer. David is a psychiatrist who is still practicing psychiatry, but is also, part-time, a Fellow at the Manhattan Institute, and has written a new book called "The Cure", subtitled "How Capitalism Can Save American Health Care." David, welcome to the Health Care Blog.

David Gratzer: Good afternoon.

Matthew: Let me start off, David. Obviously, with your subtitle, you're a proponent of free markets in health care, but you come at this from a couple of interesting backgrounds. One is that you're a Canadian who has moved down to the U.S., to practice medicine down here. The other one, which I found was very interesting is, at the very start of the book, in the introduction, you raise the entire issue of what it's like to be somebody who has a relative, in this case your wife, who has no insurance in the U.S. and needs medical care. You raised the issue of your wife's treatment, and I hope she's fine now, without being overly personal about her, how did you end up in the situation that you were in the U.S. without insurance?

David: Well, it certainly was an unfortunate circumstance. A lot of people go without insurance for a variety of reasons. I had access to American health care, but not access to American health insurance. My wife had, as you know from the start of the book, injured her back on the bunny trail on a ski trip. She tells the story slightly differently involving a large mountain, gale-like winds, and heroic efforts on her part. But she had ruptured a disc in her back, and she, as a result, needed surgery. And I'd certainly read much about the American health care system, but what came across me then was not just the confusion about pricing, and I talk about the foot-and-a-half-long bill that I had received, which, as a doctor, I could see was completely inscrutable. But also just the issues around quality.

There we were, trying to find a neurosurgeon, and I went to the Internet and found no information. I went about calling neurologists and trying to get their opinions on neurosurgeons in western New York. So I have a greater appreciation of the frustration that millions of Americans, not just those, incidentally, without insurance. I think even if you're insured, health care is such a black box of uneven quality, of difficulty gathering basic information, and at the end of the day you're left with ever-rising prices, with inscrutable bills. I wanted to start the book that way because even though I think there's greatness in American medicine, and I think one should never lose sight of that, and there's never been a better time to be, frankly, a patient or a doctor than today, I also wanted to emphasize, literally from page one of the book, that there were huge problems with American health care. And, that even though I took a free market approach to looking at reforms, I wasn't going to undermine that or downplay that.

Matthew: And I understand that. Were you living in the U.S. as a resident at the time?

David: I was actually, as I am now, dividing my time. I opted not to get health benefits when I joined the Manhattan Institute. To provide the answer to the insurance question, that's why.

Matthew: The reason I raised that is, and to get to the nitty-gritty of it, you're not going to get any argument from me about the U.S. health care system having many, many problems, but you'll get an argument from me about the solution to that. But one of the things that I find curious, from those people that are on the right - the thinking libertarians, to tease my colleagues at the Cato Institute about being, and I think you voice a similar opinion in the book, is the solution to the problem of access. There are many different ways you can talk about solving the problem around pricing and transparency, and getting to understand what people are purchasing, and I think people agree that there needs to be more of that, however it comes out. But the question is, how do you get people to not be uninsured? And I think you're basically suggesting a voluntary solution here. Do you want to say a bit more about what you think the solution is to dealing with the lack of insurance?

David: I'm not sure I see it completely as a voluntary solution. I spent a whole chapter in my book talking about the uninsured. I think that so much of that debate is, unfortunately, dumbed down. I think people on the left are too quick to say: "46 million people lack health insurance, and as a result, the entire American health care system should be damned." And I think people on the right are too quick to say: "That figure is inflated, and as a result we don't have to pay attention to the issue."

As I point out in my book, there are people who fall through the cracks. What I argue, though, is that if you want to get the right treatment for a patient, you have to get the diagnosis right. And I point out that when you look at that "46 million uninsured" figure, it's somewhat misleading, that a third of the uninsured have family incomes in excess of $50,000 a year, a third already qualify for Medicaid, and that remaining third, many of them turn over within the course of a year. So I prescribe different solutions to those different groups.

For the people who have an income of 50,000 or more a year, I think we should make health insurance more of an attractive option, and that's why I talk about some of the disasters that State regulations have had in the availability and pricing of health insurance. With regard to the third that are already available for Medicaid, well, one simply needs to sign them up. With the remaining third, I think, are interesting, and I talk about the fact that there are a core group of uninsured Americans who fall through the cracks.

I also point out that the Federal and State governments spend billions of dollars a year already on the uninsured, but they do it, I think, in an unsatisfactory way, mainly by funding health bureaucracy in hospitals. I would actually turn over the money presently spent on uncompensated care by the Federal government to the states, let them experiment, and I think some states would simply expand Medicaid, I think that is probably a mistake, some states would be more innovative and probably buy private insurance, I think that's the way to go. But I'm not totally sure! I think that we should allow the states to experiment the way we allowed the states to experiment with welfare reform, and I think we got far more information through experimentation than in really clever people sitting in Washington churning out smart papers.

Matthew: Well, to a certain extent I agree with you, but I raise this because you seem to be the perfect example of someone who, I assume, was in that upper-income, when your wife had her issue, she was in that upper-income category.

David: Right.

Matthew: And it was decided, for whatever reasons, that insurance wasn't for you, even though and it has to be said at that time that in fact there were high-deductible policies available just as there are now, and I happen know this because I had one in 1997 and 1998. And people, for whatever reason, in that income group, which although it does make up a sizable chunk of the uninsured, it's actually a low share of that income group, and the number of uninsured below 50,000 is much higher. And as a share of those only below $50,000, the below $30,000 uninsured is a much higher percentage.

So I think it is primarily an issue for them but, even in that income group, people are not going to do that. And yet, we tend to see that if you want to expand Medicaid, which is for the lower chunk, although that has been happening at a fairly big rate, what we've seen as to the expansion of Medicaid, it has certainly been what people on the right would call a "crowding out" of private insurance, and what people on the left would call a "mopping up" from the decline of employer-sponsored insurance. So, you end up with the snapshot number of 46 million, or that number's 15%, or whatever that number happens to be.

But as you say, there's a huge churn within that entire number of people going from insurance to uninsurance. And it seems to be that we're playing a lottery system, where you end up with, if you're in that number and you don't have any need for care and it's not too big a deal. But if something bad happens, like you rupture a disc, then it becomes very serious all of a sudden, and most people cannot afford the care that comes up if they're uninsured. Now, it seems to me that you can argue that there are many different ways you could make insurance attractive, and I think that the path you've taken that argues there isn't any consequence from this, is essentially to say that you've got a broken insurance system. You're better off getting people into some level of catastrophic care and making that more attractive, but I don't see you actually saying you have to make that mandatory.

David: Right...

Matthew: As they're doing in Massachusetts.

David: Well, Massachusetts didn't quite do that. That's the way the Governor has sold his plan. In fact, what happens in Massachusetts is if you choose not to buy health insurance, you're just not eligible for a tax break. That's actually not quite an individual mandate. It is coercive, it's not an individual mandate.

What do I think about the concept of an individual mandate, which I guess is what you're driving at and what I should've picked up with your initial question... I'm still opposed to the idea. I think that it would be better off if more people were insured, but if you're well-incomed and you opt not to get health insurance, I think it's a mistake. That's my bias and my belief. But I also come out opposed to individual mandates because I don' think it gets us that much further ahead and I think one of the great things about America is you can make choices and live with the consequences of those choices.
Matthew: So, essentially, do you realistically think that without an individual mandate and without some particular program aimed at that middle third or even to expand the expansion of Medicaid or whatever, we're actually hearing... You say yourself in the book, there's still 7% who are kind of intractable to get at in terms of the uninsured, just over half of the uninsured.

Are you OK with America carrying a large number of uninsured people with the consequences that has for cost switching to the rest of the system, the consequences for the health of the uninsured and the knock on public health effects. Is that just basically OK with you?
David: I think that we need policies to get more people insured, but I think that certain people are going to game the system and I would prefer that they don't, but I think you've prevented them (from) employer based health insurance system. I think we're just going to have to live with that.

Now, I'm not totally sure with rising health costs in 10-15 years time we are going to have an employer-based health insurance system, but as long as you do people are going to leave jobs, in fact, the turnover rate amongst people working for small or medium-sized businesses approaches roughly every 15 months, right? And I think as a result there are just people who are going to go through periods of uninsurance.

Unless we're going to abandon the entire approach of employer-based insurance, unless you're going to put in an individual mandate, you're just going to have to accept that. Before I accept an individual mandate, I would like to make insurance as attractive as possible to as many people as possible and see what happens.

I think unfortunately, most states like New York, we've moved in the opposite direction, where we've so badly regulated the individual insurance market that it's made it difficult for people to opt for an individual policy, and as a result, you've more uninsured as a result.
Matthew: Lets get on to that issue because it seems to me that the majority of people who write about this... and you kind of go both ways on this in the book, but the majority of people claim that this is an issue of adding mandated benefits... of providers and others forcing their way into the state legislature to add treatments that are unnecessary or whatever, procedures as part of a mandated package. But the real reason is, for all I can see, that it's so expensive to buy individual insurance in New York or other regular states is because they have community rating.

Which would you say is the bigger problem, because if it's community rating, what you're essentially saying is that we can have relatively cheap health insurance, and you quote this eHealth insurance study in the book which says that, hey we can buy insurance in California for $150 a month, the same insurance is $400 or $500 in New York.

But if you say that, what you're also saying is that therefore, we're going to allow insurers to underwrite the cost to sick people in those other states, so, to my mind, in other words, we're only going to sell insurance to people that don't need it.

So, is that a fair reflection of your point of view, that community rating is in itself a bad thing?

David: Well, I think mandates are certainly part of the problem. I don't think they're the entire problem but I think community rating plus guaranteed issue laws are very problematic. I think you end up with this situation where you can buy health insurance after you get sick. I mean, if we did that with house insurance, you'd buy house insurance or a home ownership insurance after your house had caught fire.

I just don't think the principles of insurance work like that. You're right that some people then would have a difficult time buying insurance policies, and I think at that point, when you're looking at the chronically ill people who are more advanced in age, that might well be a reason to have a high-risk pool. I mean, a functional high risk pool, not the sort of high risk pool most states have. 

Matthew: Lets talk about that a little bit, because this is very similar to the point raised in the Hubbard book, to a certain extent although they didn't get very far with it, Michael Cannon's book from Cato, I think Arnold Kling raises the same thing, which is that the way to deal with the fact that if you're going to allow an individual market so that people can buy a $100 individual policy, which is a high deductible policy, the sick people can't. I think, that as you've probably seen my blog, I’ve been on both sides of this divide depending on which day the underwriters looked at my application—so you're going to end up with these high risk pools.

Why, given that they are going to have naturally have... You're legitimizing adverse selection of these pools, you're only going to let sick people in these pools, and given that there hasn't been much support from states for them, how do you realistically expect that to play out?
David: Well, I'm not sure there hasn't been that much support for them, I think some States like Minnesota probably do have pretty functional high risk pools. I will also point out that the ultimate high risk pool is employer-based health insurance, right? I mean, that is part of the problem that companies like Wal-Mart have.

Anyone in America can go work for Wal-Mart. You're qualified to work for Wal-Mart if you're a PhD nuclear engineer from Pakistan, or you dropped out of grade eight. And as a result, I think people sometimes now go work for companies simply for the health insurance. They're shopping for a good health insurance plan, not necessarily for a good company to work for.

Matthew: Still, there was an article in the New York Times today about people who are not retiring because they can't get health insurance in the individual market. It seems to me that that's the great argument with saying, well, employer-based healthcare doesn't work, we have a dysfunctional insurance market and we know it's going to be dysfunctional if we allow to people to voluntarily dip in when they want it, when they need it, but not when they don't need it.

And therefore the immediate answer is, well, in that case, lets force people to buy health insurance but at a community rated level so that you're not left with the problem of the people who are sick and who would be underwritten against in a voluntary market.

So I don't understand how you cure the problem of the chronic illness pool without creating a separate but equal system which in the end will get inevitably underfunded the way the Medicaid is.

David: Right, look, I suggest two general approaches. First of all, most of my book is talking about simple, practical ideas to make American healthcare better today, and I think if you get a more functional insurance market, millions more would sign up for insurance.

But the second point is, look, I'm not going to argue to you that the employer-based health insurance plans make sense, as I talk about them in my book, really the fact that employer's government scheme has to do with wage and price controls from the second World War and as a result, it's always going to be an unsatisfying system, particularly when you've a labor market that turns over as much as it does, I believe there’s a much more mobile workforce than we did sixty years ago in the United States.

With that in mind, at the very end of my book I do talk about what would a health insurance system look like if you didn't have it based on employers. Now you think that they way to go is... you're kind of outlining in your questions sort of a different system, where everyone has to buy insurance. It's community rated, and there's guaranteed issue, and people buy the plans and as a result there's no punishment if you're chronically ill. I'm not sure I buy into that model necessarily, I think it's an interesting model, I still think I would keep things voluntarily, I think if you wanted to get employers out of the game then you could tax reform which is on the table right now in Washington.

I think then I would want to make it easier for individuals to pool risk, that's ultimately what you're talking about, and I think I would allow people to pool risk on a voluntary basis, allow them to pool risk through churches and synagogues or associations or unions. And I think, ultimately, you would find that people would naturally do that. Younger people probably would be willing to pay a little bit more, and older people would best get subsidized, and the chronically ill would get subsidized if you could something into the market to increase choice.

Matthew: Let me stop it a second there, because that comes down to the key point about how people are going to buy insurance and whether there is a possibility of voluntarily pooling risk. Most Americans don't realize, I think, when they get insurance through their employer that they are pooling risk to a certain extent.

David: That's right.

Matthew: There are obviously bands within that for non-self-insured companies. The elderly people in the workforce are charged more, the company is charged more. But in the end, they understand that's how it's happening. When you put people into the individual market, you go to ehealthinsurance.com (which I happen to be a customer of, not a particularly satisfied one, but a customer nonetheless), you see very clearly, there's a huge distinction between both people in different age groups and people in different health status. Because there's different rates based on age and location. And once you get medically underwritten, there are massively different rates, and in many cases they won't insure you. Individual insurance carriers will not insure individuals with certain health conditions.

So you say that, but now you're going to tell me, "OK, I'm a 26 year old adult who feels pretty bullet-proof" and get a high deductible policy at the moment for $80 a month, so I'm kind of covering enough for myself, but I'm certainly not putting into a pool out of which somebody who is elderly or sick could draw out of, which is what we think of as insurance. Yet how are you going to encourage a 26 year old to be saying, "I should be paying $200 or $300 a month so that somebody who's in their 50's can be paying $400, not $900?"

David: Right. First of all, I think that pooling is an issue. I don't know if pooling is as big an issue if you have a lot more voluntary associations to offer health insurance. Why, look at the federal employees health insurance benefit plan. I mean, it's a very high participation rate. Undoubtedly if you are younger, you end up paying higher premiums than if you're older, because there's a certain amount of risk pooling.

Matthew: Yes, but that's paid out of employment. That's part of the cost of employment, not paid out of pocket. If you look at people who are actually buying their own insurance with their own dollars, I'm really struggling to suggest that they're going to visibly pool that. And almost, I would think, for many employers (that's not quite right), but if you offered the young people a larger slice of cash to not be in the employment pool, since more employers do that, there's a tradeoff they're prepared to make. Whereas older people in the workforce are much more interested in getting insurance. As you saw by the article in the Times today about people not wanting to give up a job because they want the insurance.

Maybe we just have to agree to disagree on this, but it strikes me that your asking people to go against the laws of economics, which doesn't sound like a very free market approach! [laughter].

David: Well, I would say the following. First of all, if health insurance moved more towards higher deductible plans, I think there's actually less of a difference between premiums, even between the extremes in the spectrum. Secondly, I think people would be happy to pool risk as long as they gain something from it. And I think we'll probably have to agree to disagree on that. But I think if you could, through your union, get a health insurance policy or get a menu of options of health insurance policies that were relatively affordably, you'd probably be more interested in that than trying to simply shop around. And that is, I think, probably the way to go with health insurance.

Now, you might passionately disagree with me, and you might think that pooling will never happen unless we have community rating and guaranteed issue. Well, I'm not so sure. But I still think... I mean if employer-based health insurance collapses in the United States, I still think you're better off than, and again, I don't quite agree with your biases, but I still think you're better off than with a Swiss-style system, which still gives individual choice and competition amongst health plans, than a single payer approach. So look. I won't agree with you, and we probably don't agree on our basic assumptions.

But maybe I'll meet you part of the way there. I think it's important for us to envision a health care system beyond employer-based health insurance. Because as you well know, in the last five years the number of American companies offering health insurance has dropped from 69% to 61%. And it turns out most large employers, where millions of people work, still offer health insurance. And as a result, the number of people who have lost health coverage as a result actually is smaller than that percentage drop would suggest if you just took a quick glance at the statistics.

Matthew: That's true mostly because Medicaid is picking up a lot of the slack there, if you look at the...

David: I'm not sure that's true. I mean, medically speaking, that's...

Matthew: I'm not making that up myself, but we can argue...

David: I'm not sure if Medicaid's picking up the slack. I'm also not convinced that Medicaid picking up a lot of kids is rushing to meet a market failure, or just politicians finding cheap people to sign up and looking politically good. I mean, I think there is a huge crowding out effect with Medicaid. Again, I wouldn't suggest it's 100%, but it's something between a quarter and a half of people historically who've been signed up for Medicaid as part of the recent expansion. So look, I think there is an issue here. I wouldn't junk the entire American health care system though because you think there are issues around pooling. I don't think those issues around pooling are as big an issue, or are as traumatic and vast as you do. But even if I did, I still think one could adopt some type of a giant risk pool approach as one sees with federal employees health benefits plan.

Matthew: Yeah, and I think realistically, politically, we'll end up with something that looks something like that. I think we'll just have to agree to disagree on the issue of whether the mandate is necessary or not.

One thing, though, that I've always wanted to sort of try to put people on the spot on and not always got there, is the concept that if you're talking about selling high deductible policies in basically a broken individual market, which is what we really are at the moment, I understand how you can cover more people by making it easy to buy high deductible policies. I think you'll actually end up getting more people out of low deductible policies into that market than getting uninsured into it, but I certainly understand how you can expand the insurance market doing that.

But what worries me, has always concerned me about this, is that if you get to essentially 100% of the population in a high deductible market in which the deductible, or the money they keep in a health savings account, is equivalent to essentially half of what they would have put into the pool in premium, then you end up... Let's say it was a $10,000 family premium and there's a $5,000 deductible which goes to a health savings account which people keep and $5,000 goes into the pool. On the 80/20 rule, you don't end up year one with enough money in the pool to fund the care of the sick people who actually need it. It strikes me that it works on the margins, but if you wanted to put this as a nationwide system—and there are some advocates of doing that—I don't see where you're not essentially handing money over to the healthier people, and therefore I don't understand why, how this could work on a system-wide basis without either the taxpayer, or maybe the providers or somebody providing extra money or extra work into the system for free. And that's fundamentally the struggle I've always had with providing high deductible policies as an overall solution. I understand on the margins they may get more people covered in a system that's broken anyway.

Is that something that you're advocating as a whole, or...

David: Well, look. I think Americans are over insured for historical reasons. I think employer-based coverage tends to cover much. And of course public coverage tends to cover. And I think as a result we confuse the concept of health insurance in the United States. Insurance as a general rule of thumb covers you for rare events or catastrophic events. You buy car insurance for, God forbid, the incident of having an accident. You don't buy car insurance to cover you for filling your tank with gas, or if you have trouble with your windshield wipers.

Matthew: No, no, no. I've heard this argument before so many times. But what I'm getting at is the fact that if I'm putting $10,000 into a premium which goes into a pool, and it encourages me to have a few more doctor visits at the margin or whatever, that's not going to change the basic facts, which is that there are few very sick people in the pool who are going to take all the money, or 80% of the money, as we know it's the 80/20 rule and it's the 10/50 rule so that most of the money goes on a very few people and they're going to be spending significantly. You know, if I've withdrawn from the pool $5,000 which goes into the health savings account which theoretically makes me a better spender at the margin on doctors and tests and that kind of stuff, I'm going to end up keeping the balance of that. Then it's not going to be available for those very sick people, and they're not going to be able to influence—I mean, you can argue back and forth—but most of their spending is not as influenced by their ability to  choose doctors and tests at the margin. Maybe they're over-insured at the catastrophic end, but most of their spending is going to be imposed upon them by the healthcare system.

David: Right. Undoubtedly, year-to-year you find a disproportionate number of people use... a small percentage of people use a disproportionately large amount of healthcare. I still think the high deductible plans make sense and I still think the basic concept of it makes sense, thought I don't particularly care for a lot of the restrictions and ideas that congress ended putting on it. It's a pretty rigid structure which comes out of the tax committee of congress and not out of mainstream America. But still, I think the basic concept is sound, I hear what you're saying that a lot of people are either going to have one-off expenses year to year and are going to use up much in the way of resources. Still, even with health dollars, getting them to ask questions of their providers, getting them to shop around, I think goes much further than a co-pay or a deductible would, and it gets them to think a little bit harder about where they're money is spent and gets them to ask harder questions as well, and I think that's part of the way you'll see more innovation in America today.

So, undoubtedly you're hit by a truck, you're not going to shop around, you're going to hit that high deductible pretty quick, but I still think separating out smaller expenses... discretionary spending, from catastrophic events, is an important thing.

You're right, we still have trouble on high expense and part of that might be addressed if people shopped around more. You can hit the catastrophic plan with the way congress set it up, at $1050 right now, right? It's really not a catastrophic event, in some parts of the country that's an MRI. But I still think that you're better off taking that path. That doesn't mean that we don't have some other fundamental issues, but I do see that as a step in the right direction.

Matthew: Well let's sort of migrate here to the other point I wanted to discuss because we're now going to start talking a little bit about what do you do about the care of the sick? And how do you constrain or contain costs on that? And this kind of migrates to the other areas where I've linked to some of your writing in the past and have found it most troubling, shall we say, which is around the international comparisons. I come from a country which clearly has a medical culture that says that we are going to do less rather than more, being a Brit. The Canadians are somewhere in the middle, but that gets decried immediately in the US as being “these people ration, they ration by waiting list and that's un-American and that's not acceptable for us”. And my sense is that you've got to somehow do as John Goodman was quoted this morning as saying in Health Affairs, you've got to ration care somehow, and he was arguing obviously for doing it by rationing it at the front end, by consumer pricing. But my sense is that you've got to figure out some way of controlling the cost spent on the very sick people, and that in some ways you've got to do that either by rationing the supply side, or by in some ways controlling what's done to people on some kind of cost-effectiveness basis, or something. You've got to try and do something, and in this country we really haven't done much of that so far.

You've been extremely critical of the Canadian system, and I want to come back to a couple of points about that, but what would be your point - what would be your way that uncontrolled... You know, the sort of flat of the curb medicine, the really expensive spending on people for whom it probably doesn't make much difference, would be controlled under a system that you propose?

David: Well, right now I think things are so absolutely chaotic and everyone would acknowledge that. I mean, one can simply look at Medicare spending statistics across the country that somebody in Florida can spend twice as much money as somebody in Minneapolis and there's no real difference in health outcomes.

Matthew: Of course, yes, of course.

David: So, what are ways of addressing that? Well, I mean again, I think part of the approach is to get people more involved in the care they receive, I think part of it is to take a good hard look at how we're spending money and what we're getting for it. I also think ultimately though, getting people more involved in the care they receive is the ultimate way to go. That might mean more cost sharing even on a high-deductible end. It might be companies taking more innovative approaches and providing more information and providing more choice to people. I mean, when you look at for instance John Wennberg's work, end-of-life care and Medicare, and you look at say Mount Sinai hospital spending twice as much as the Mayo Clinic, and yet people are less satisfied even for that expense.

I think given those sorts of options people might think twice, so I think part of it is to get consumers more involved in spending. I acknowledge that much of spending is actually on the catastrophic side. I think we need to experiment around with ideas about how to really approach that populate. But, I also think more information, more accountability, more transparency, would be useful as well.

I mean, we spend without very much satisfaction, right? And I think if people had more options and more choices, there was more transparency, they might make different sorts of choices.

Matthew: But, again... It's completely so un-American and un-apple-pie-ish to stand up and say that we shouldn't give people choices and options, but realistically, when you've been hit by a truck, when you have very advanced cancer, when you're one of those people in the ICU in Mount Sinai, we are so far from giving those people realistic choices as to what their care should be. I mean...

David: OK...

Matthew: I guarantee that nobody in that ICU knew that they were getting three times the services that they would've got had they been in the Mayo Clinic.

David: OK but that...

Matthew: I just don't understand how you get to that point.

David: With the ICU care it was end-of-life care, but look, I think undoubtedly we need to cost things out better, we need to provide people with more choices and more information. Are we still going to have issues on a catastrophic scale? We might, we also might get a little bit smarter about it, get companies to help inform patients better, have living wills and so on. I'm not sure that this is such an inscrutable issue. I'm not sure that the inevitable conclusion is we simply need to ration in Medicare. Again, I would rather move to more of a market for healthcare, get more transparency, have people more informed and see where the dust settles before I jump to the inevitable conclusion that you've jumped to.

Matthew: Well, that may be very well that we're going to have to agree to disagree. I'd also argue that this is very much to do with medical culture. If you go back to the classic Aaron & Schwartz book, The Painful Prescription they basically said “Hey, the Brits are rationing care, look at the amount of people they treat with kidney failure compared to everyone else in the world, look at what they do at the end of life, they basically don't do much, they leave them to die.” And yet, when they interviewed British physicians they felt they were taking very good palliative care of their patients, they felt that somebody who's 87 and had multiple morbidities shouldn't get more treatment. The pain versus the outcome wasn't worth it for them, and that was a different cultural thing. So, a lot of this, I would agree, is somewhat cultural. But on the other hand, we also have, as you know and maybe you can argue there are ways that we can construct a market-based technique for releasing this, we also have an entire health care industry which makes a lot of money out of providing what I call excessive services to the virtually dead. And it strikes me that without... I just don't know how you would rationally construct a system that transparently prevented that from a consumer basis without some third party, presumably the government, getting very highly involved, so maybe again, we'll just have to agree to disagree on that.

David: Again, I'm not so sure. Undoubtedly with aging demographics, in medical advances, we're seeing more pressure than ever before on Medicare. But I think we need a smarter system. We do have a medical culture in America, I wouldn't debate that. On the other hand, part of it is fueled by the fact that people pay so little out-of-pocket for healthcare spending, right? Fourteen cents on every healthcare dollar. And I think that is part of the issue as well. People do go to their family doctors often, they do want expensive diagnostic tests, but it's not quite clear to me that they want that because it's part of the culture and they simply demand it, or they want that because it seems reassuring, it buys them peace of mind, and also they're not really paying for it.

Now, you would obviously say the former. I'm not sure it's so much of a cultural issue so much as a payment issue. Certainly I'd like to see what would happen if you had more health savings accounts, if you had Medicare reform, where the dust settles down. Again, it might prove that these measures, in the overall scheme of things, touch on the margins -- that's your argument, I'm unconvinced. But I think this is a step in that direction.

I think even if we adopted your approach -- and as you know, we'll agree to disagree -- but even if we adopt your approach and eventually said, look, there are just decisions that are beyond the individual in Medicare, and we're going to need to ration, the way they do in Britain, because the British are a hardier lot, which is your perspective, not necessarily mine...

[Matthew laughs]

As a former colonialist rather than a citizen of her queen... But even if one were to take that approach, I still think we need far more health information. There were some exciting experiments in the public sector on that end, in New York State, for instance, looking at cardiac death after cardiovascular procedures. Suggests to me that, in fact, if you provide report cards, people do change their choices, and that's useful. You know what I'm referring to, of course?

Matthew: Yeah, and I don't think there's any disagreement from any thinking person that we need better information about what's going on. You just look at the Wennberg stuff, I mean...

David: Sure. I think we need more information. I don't think that's going to come about, though, until you have people with more -- to use the overworked expression -- "skin in the game." Until you have more people asking questions and more people getting answers around pricing and quality, I'm not really sure that you're going to have smart rationing. If that's what you want, and it seems that's what you want, you'll just have to do the random rationing that one sees in Canada and Britain, where you simply restrict on the supply side and hope that the sickest of the sick rise to the top of the waiting list.

Matthew: Well, let's talk about that for a minute, because this is where I have a real bone to pick with you. The chapter which you call "The Hip That Changed History," which is your chapter about international comparisons. I would argue that what you've done here is, you've picked two or three points in which the American system looks particularly good — and it tends to be around survival rates in cancer care -- from all the massed Commonwealth studies looking at different care in different countries and have essentially ignored the rest of the studies, which showed that in a lot of other areas, American care wasn't so good and was actually behind other countries, even though we spent a lot more money on it. You've ignored things like the World Health Organization saying that overall it was the 37th-best system, and all that other stuff. But...

David: Hold on, let me respond to that first.

Matthew: Yeah, go ahead and respond to that.

David: What I wanted to do was look at outcome measures that I thought were non-ideological, and that's why I drew from Datamonitor, and the Commonwealth Foundation, the WHO. What I said is, if you were sick, where should you be? So many of those other studies I think are ideological -- on the left and the right, OK?

The WHO study is the classic example of that. When they rank American healthcare 37th, it makes for a great sound bite, until you actually look at their study. They spend an enormous amount of time, as example, looking at smoking rates. They spend time looking at egalitarian values and so on. Timeliness of care and so on was actually relatively unimportant to them. In my mind, that's not a study, that's an opinion piece. A rather long opinion piece, but it's an opinion piece.

What I said was, there are huge problems with American healthcare; I spent an entire book writing about the problems with American healthcare. But I said, look, should we look at socialized medicine in Canada or Britain or some sort of a European country as some type of a model? And I said that people make arguments like that they spend less money and they get more for it, and if you look at crude indicators of health like life expectancy that seems to be true -- and I explained why life expectancy was so darn crude, as was infant mortality. And I said, but look, if you say somebody has a diagnosis, where do they do better? I looked at that particularly with cancer care, because I got pretty good data on that. I also looked at that in terms of cardiac care; there was a Canada/US study. I said, when you say somebody's sick, where do they get better care? I said, ultimately, it turns out to be the United States.

I'm not an apologist for the American healthcare system. I think there are huge problems with it. We disagree on where one would need to go, but as I started page one of the book by saying, I thought there were issues here. All that being said, I think that you have to be careful what you wish for. Americans who look north for answers, or look to Europe, I think do themselves a disservice. I think in those systems, you see rationing in a way that is unfortunate, and you see rationing in a way that does impact on people's quality of life, and probably even quantity of life. That's why, as well, I point out in that chapter -- and again, we'll have to probably agree to disagree -- in those countries there's so much talk about moving in the opposite direction.

Matthew: Well, let me stop you there, because there are two decided points here where I think this chapter is disingenuous -- disingenuous is a strong word -- leaves out some corresponding pieces. The first is, there was a series in the Wall Street Journal, 2003, 2002, I believe, really excellent series looking at Canadian healthcare and rationing and a number of issues, and it clearly showed... It had a very interesting example of how they rationed access to heart surgery in some of the major teaching hospitals in Canada. There was a nurse there whose job it was to get the sickest person to the top of the list at the right time, and how it worked as effectively as it could, given the constraints they had.

Now, the next article in the series was about the University of Texas at Galveston, and how they did exactly the same process of rationing, except that they weren't rationing based on who was the sickest, they were rationing based on whether you could afford it and how much insurance you had.

I'd argue that it's fine to say that the US spends a lot of money on high-end cancer care -- although there are people, by the way, who argue both that we do more diagnosis and we pick stuff up earlier, so the numbers are skewed in this—but to my mind it doesn't make much difference. But it's fine to argue that we do better in some things that we spend more money on. You can make a series of value judgments -- and in the UK the NICE, the National Institute for Clinical Excellence, makes specific value judgments about what's worth spending money on and what's not. But here we basically give 95-year-olds dual angioplasties, as President Ford had the other day at the Mayo Clinic. And it's fine to do that, but you've got to accept that there's another side to it.

The other side to that is that it's equally well-shown in exactly the same Commonwealth studies that this is the country in which there are 35-40% of the population who has trouble paying its medical bills, that we have a large number of bankruptcies. And you can argue back and forth about who you believe in that data, that bankruptcy's caused by medical care. The reason that people are looking to Canada, or looking to the UK, or looking to Europe, or looking to any other universal system, are not looking there because they believe necessarily that the quality of care is better -- although I think you could argue that's a wash -- but because they're not going to be exposed to the out-of-pocket costs or the risks of being uninsured because they lost their job or they chose their parents badly.

And I think that's the piece that... It's not fair. I've written, as you know, an article called "Oh Canada" about this, because I believe there are compromises everywhere, and we've made some compromises here that... Well, not made, but for historical reasons end up with these compromises, which to me look... It's all very well to say the Canadians are rationing care, or the Brits are rationing care, or the Swiss don't do it as well, or whatever, without showing that there's another part in the US, which is around rationing care based on access to insurance, based on income, which is a factor of things like education, which is a factor of things like who your parents were.
David: OK, Matthew, as I said at the start of the interview and as I'll say throughout, I'm not an apologist for American healthcare. I think here in the United States it's too expensive, I think that there's uneven quality throughout, I think that in many ways Americans might well be over-treated, and studies support that. I haven't read this Wall Street Journal piece on Canada...

Matthew: I'll get it to you. It's a great series of pieces.

David: I'll look it up. As you know, I was born and raised in Canada. I graduated from medical school and practiced in Canada. I think Canada is largely a chaotic system where many people fall through the cracks. As you're well aware, one of the things central planners did in the early 1990's was to cut down on medical schools. And as a result, you have chronic shortages of doctors right across the country. So much so, that in a couple of Canadian cities, people actually participate in lotteries to get appointments with physicians.

So I think you're quite right that there is rationing that goes on in every system. And I also think you quite right to say, and certainly I wrote a book about this, that there are problems with the American system. But to turn around and say "they've got problems, we got problems, it's a wash", to use your words, not mine. I think we can all agree to disagree on this point as well.

Matthew: Well let me get to the last point of that, which is I think without the benefit of speaking to you, if somebody read this chapter, "The Hit That Changed History" or read some of your op-eds that you've written on Canada and it's cancer and cardiac death rates...And by the way, I haven't looked at this for about 15 years, but the Japanese do a fabulous job with curing bowel cancer because they do all these early screenings using sigmoidoscopies; it sounds really unpleasant. I'm sure if we put their cancer rates of bowel cancer up against the US, they'd look better. But that's an aside as  I haven't looked at it for awhile.

But I think if one read this chapter, you would get the impression that Canadians and Brits are out there in the streets complaining about their system, and demanding it be changed to a privatized, US-style system. Let me just read you a quote, this was said by a leading conservative politician in the UK, the head of the Conservative Party. He says that, "I believe the creation of the NHS is one of the greatest achievements of the 20th century", blah, blah, blah.

David: Yeah, I've read what David Cameron had said.

Matthew: There's interest in being able to trade up. Yes, I don't want to wait in line. In the UK, they've had that since the start. The Canadians are not having it like that. But in the UK, you've always been able, if you had outside private insurance or money, to trade up and get to a private clinic. My father, bless his still beating heart, is a gynecologist. The fact that he has a nice retirement lifestyle is because he made his money off the private sector, as well as, the NHS. But there's no interest, as far as in those countries, in getting rid of the basic safety of the universal health system.

David: But you're putting words in my mouth.

Matthew: No, I'm saying if you read your chapter, that's what you would think was going on.

David: No, I said that in those countries like Canada, there's more talk about private health reforms. Canada is a country that until very recently, it was taboo to talk about the private sector and healthcare. You have a huge sea change in public opinion. In part, because even the Supreme Court of Canada has said that the healthcare system is a mess, right? This is arguably the most liberal Supreme Court in the Western world. This is a Supreme Court that says you have a constitutional right to marijuana if you're sick, allows gays to marry and federal prisoners the right to vote.

Those might be wrong decisions or they might be right decisions, but they're fairly liberal decisions. That court looks at this much vaulted healthcare system and says access to waiting lists is not access to healthcare. It strikes down key laws in Quebec; that's a monumental decision. A private clinic opens up at a rate of once a week in Canada. One of the foremost critics of Canadian socialized medicine is Dr. Brian Dehue who was just elected president of the Canadian Medical Association.

What I'm saying is that in Canada, the socialist utopia you've got people reconsidering the socialist paradise. There's that, and they're looking south and saying, "we want an American-style system and employer-based health insurance." No they're not, and I didn't say that in the chapter. In Britain again, you're seeing the Labour Party, which created the National Health Service saying there has to be more of a role for the private sector, and promising to triple the number of private sector surgeries over the next five years. In Sweden, you're again seeing some type of privatization, including St. George's in Stockholm, which is one of the largest hospitals in the country.

I'm not suggesting that in Sweden, they're sitting around saying that the United States is the answer when it comes to healthcare, and I'm not suggesting that of Britain either. But I am saying that when you're in the United States, and people tell you that life expectancy is better in Britain, costs are lower and people are generally more satisfied, that is disingenuous. And I'm also suggesting that those countries that are increasingly looking towards market reforms. I'm not suggesting that they're all sitting around reading Adam Smith, and their policies come directly from those pages, and that they'll outflank the United States on the right.

Matthew: Let me read you the last line of the chapter. It says, "In the streets of Stockholm and London, it's the ideas of Adam Smith that percolate."

David: In terms of market reforms.

Matthew: Well I may be taking it out of context there. But "Introduction to Market Reforms", which by the way, Thatcher talked about the same thing in the 1980's, and has been the stuff going on in many other countries.

David: Right.

Matthew: Everyone's going to try to figure out how do you do it more efficiently. It's clear that a single-state monolith with command and control isn't going to work in a more advanced civil society. You know, the one size fits all model from the 1940's and 1950's isn't going to work forever. But I'm glad you're on the record as saying that in those countries, they're not willing to abandon the concept of universal healthcare; this is the statement that Cameron said. You have the leading conservative politician in the UK basically saying that healthcare should remain free, affordable and everyone should have access to it, and we're going to make the system better.

David: I'm surprised that you would quote from David Cameron and cite him as an example. David Cameron as you know, wrote a very dogmatic and conservative manifesto for Michael Howard, when Michael Howard was leader of the Conservative Party. And when he lost, David Cameron went back and thought that he had to run center-left in order to win. David Cameron is 40 years of age and has suddenly become an environmentalist. That he pays lip service to the National Health Service, I'm not sure that one can cite that as an example.

Matthew: Well it does tell you what British political public opinion is, when he says that we need to be support it with funding, then we're going to make sure that the money is well spent.

David: Yeah. I think in socialist countries, it's easy to talk about the fact that you believe in socialism but you're against waste, fraud and abuse. But that doesn't necessarily mean that he's got an exciting policy for how to do that. Look, as I pointed out in the chapter, change in these countries is very modest, resistance is very strong and the government's role remains very large. I still think that you're still seeing discussion about free market reforms that you've never seen in any of those countries.

Thatcher never talked about privatizing surgeries. Thatcher talked about the fact that when you see your family doctor, maybe he, not you, should have incentives to shop around for specialist care, and some money should go there accordingly. Publicly, she would not have talked about privatizing surgeries the way Tony Blair has done.

Matthew: I say that she was certainly interested in encouraging the market for private insurance, and the continuance and expansion of that, and personally used it. That's been around since the start of NHS. It was part of the deal crafted to make sure that surgeons and specialists would stay in the system and not revolt. As we know in healthcare, you can't do too much in health reform without getting the doctors somewhat on your side, as Bill Clinton and many others in the past have found out.

Part of what's going on in the UK is that they've increased a lot of spending and they voluntarily increased the share of GDP going to healthcare. But because they haven't spent much money in the previous 20 years on infrastructure or training doctors, on the supply side, they had to find the supply from somewhere else, and have been paying it in India, France and wherever else.

David: Right.

Matthew: And I get that as an election tactic. Obviously, the whole argument about how you fund and organize healthcare is going to continue on; health reform is never going to end. A lot of it is going to be how much market yields, how much central planning and supply you use. But there is a fundamental difference when you say, we think everyone should be in the system and we're going to either do it on a tax basis, or a mandatory basis the way the Swiss do it, and everyone's going to have to pay in, but nobody is going to be exposed if they're not in the system but need care. And what we do in the US and I think the Europeans and Japanese and basically everyone else in the industrial world is on that side of the line, and if you look at the US, poll - now admittedly polling data is terrible - Harris Polls done over the years and an ABC poll done last week, when you ask people sort of on a theoretical level do you think that in the US - 60 to 70% say yeah we agree there should be a universal care system.

Now when you start through on the details it's very easy to derail reform from where we are now in terms of getting everyone into some kind of universal system. Because people start making remarks about well you won't be able to see your doctor or there will be rationing or whatever else. So I understand why reform isn't going to happen until life gets very bad at one end or the other.

But I do think that there are somewhat unusual anywhere in the Western world and there are people I think and I can probably put you in this category, who say that some of the things that go along with not having a universal healthcare system - like people being uninsured, people who are unlucky ending up for whatever reason having trouble getting insurance. or being uninsured who have need care, ending up with huge hospital bills can go bankrupt and can have all kinds of problems— are kind of worth dealing with for the right to have voluntary purchase of insurance and in some ways overuse of care or better care for cancer or whatever else. I think that's a pretty big sort of philosophical divide that I think still separates us and I think that is going to continue to come into play.

David: Well I do. Though one has to emphasize the extraordinary extent to which government colors American health care. And once you forget that with Medicare and Medicaid and VA consuming almost 50 cents on the dollar - but look I think the question is where to proceed. I think at some superficial level we can maybe even agree on our goals, right? We'd all want more coverage, we'd all want better quality, we'd all want more information.

But you're right there is a philosophical divide. You look at these things and you say look universality is the key and as a result you sound quite willing to make concessions on the quality and on the rationing end that I don't think I would be comfortable with. You say my statistics are skewed and you call me disingenuous. That's your take but fundamentally that's where you see the goals are. I think more people gaining coverage and so on is a good idea. I think to do that through socialized medicine is a mistake.

I just turn it around and ask you the following question. If you think that there are good things about the British system and you think they get more for less, let me ask you this: would you advocate them cutting in half the Medicare budget in the United States today?

Matthew: Politically, completely impossible. I think the US spends far too much money on health care so I wouldn't cut in half the Medicaid budget what I would do...

David: I said Medicare not Medicaid.

Matthew: Medicare, Medicare. What I would advocate is the creation of, and it would have to be in a uniquely American way and there would have to be room although - and frankly I'm not sure this is how we're going to end up. I think if you play the tape out things are going to get worse for another 15 years and we'll end up with a rationing single payer system by default. But that's my analysis rather than what I think ought to happen.

First of all, what I think ought to happen is that we ought to find a way that every American gets mandatory but also unthinking access to some level of health insurance which basically covers them for the financial risk of having problems because they can't get access to health care. But we pay for that by massively reducing what we do at the other end, which includes both saying no to a lot of the things that we say yes to now at the far end, which you would call rationing or which you say would reduce the amount of care, and also by frankly reducing the amount of money we spend on the people providing the care—whether it be physicians, hospitals or people who make stuff that goes into the system.

So you know once you start, if you have an honest conversation like that in America you'll last about 15 seconds. But I think that would be a better solution because it's better that people should have not have to worry about the financial side of getting sick, but get access to health care that's necessarily needed rather than have to be concerned about that all the time and how they're going to get insurance. But now if they are well insured they can get the nth round of chemotherapy which may prolong their life by a month. That's I think the choice we're making.

David: Right.

Matthew: You may fundamentally disagree about that but it's almost not worth discussing other than I think that choice hasn't been offered to the American people honestly and they may freak out if you did offer them that choice honestly.

David: Well I mean in some ways what you're simply saying is we over invest in Medicare, right? I mean some people would argue that we over invest in Medicare in part because it's a black box we just throw money in and we're not sure what we get for it. You're almost arguing that we over invest in Medicare because it's for the elderly. And you would rather say OK you're over 65 - life has been great for you, you've lived in a time of unparalleled peace and prosperity, you had grandkids, that's terrific. Now you're just going to have to die because young people need to see the doctor for...

Matthew: And you can say it that way  Obviously that's how people say it. But what I would say instead is that President Ford is 95 years old, he had two angioplasties last year at a cost of - make up a number 35, 40 thousand dollars. He may live another year and a half but probably you could argue his time had come. Now this is an argument you're not allowed to have in the US—unless it's about poor people in Oregon in which case you can have the argument—but that's the sort of rational argument that's all about resource allocation.

I would rather that his access to that kind of care was limited and that a mom living in South Central L.A. — or can I say a working mother in Ohio as the ABC News featured the other day — get access to pre-natal care. But she can't because she doesn't have a job which has insurance. She's a member of the working poor but earns too much for Medicaid. Call it a value judgment but I think that's the way you should put it.

And I'm not sure we'll ever get to have this argument in a rational political way what I think will happen is that there will be some...the people in the health care system now will continue to price themselves out and eventually the insurance system will collapse. There won't be a good adequate private sector individual market to replace it and you'll get some kind of New Deal-run health care, which will involve an expansion of Medicare to everybody. And after that the federal government will then be entirely consumed by Medicare costs and will start de facto rationing. So I think that's where we'll actually end up in the next 15 years. But who knows?


David: Who knows and I would agree on this point everything that we know about healthcare is about to go out the window. I don't even think it's 15 years I would say over the next seven years. We're already struggling to spend - pardon me we're already struggling to pay what we already are expected to right and which is about $2 trillion dollars. Each year's projections suggest that that'll double over the next seven years to about $4 trillion dollars or as a percentage of GDP will rise from 16% to 21%. So if you think we've got trouble paying for things now you ain't seen nothing yet.

And I think fundamentally we'll need to choose amongst one of three options. We'll either need to adopt some type of a socialized medicine system, option number two is we'll go back to managed care which actually did contain costs, maybe it was unpopular but it did what it was supposed to do at least in part, and option number three is to try more free market reforms which is what I wrote my book about.

Matthew: OK I think that's good use of each other's time and I think it's been an interesting discussion.

David: I enjoyed the discussion even if we didn't agree on much but I didn't think we'd agree on nearly as much at the beginning.

Matthew: It's a pity we haven't changed each other's minds but maybe it'll happen more.

David: Well good discussions come out of disagreement sometimes.

Matthew: My guest today has been David Gratzer, his book is "The Cure: How Capitalism Can Save American Health Care." It's available in stores and at Amazon and it's published by Encounter Books in New York and it's a very interesting read. I had plenty of sticky notes all over it which implied that it obviously got me thinking. So David, thank you very much for your time and look forward to discussing with you again.

David: A pleasure, cheers.