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JONATHAN GRUBER: So
today, we're going
to have sort of a
different kind of class
since it's the last class.
Today, I'm going to talk
about essentially how
we bring to bear the set of
issues we've talked about
this semester to a
real-world topic,
and actually, how it plays
out in policy and practice.
And I'll draw on some
of my own experience,
having applied the kind
of tools we learned
in 14.01 to the field of health
care economics for 25 years,
and how that has led
me to be able to help
in the development of health
care policy in the US,
and talk about sort of where
health care policy stands
at this point.
So let's get a little
bit of background
about health care in the US.
Basically, when we're talking
about health care in the US,
we have to recognize that
the US spends, by far,
the most money on health
care of any developed
nation in the world.
We spend about 17 and 1/2%
of our gross domestic product
on health care.
That amounts to almost $10,000
per man, woman, and child--
every man, woman,
and child in America.
That dwarfs the
rest of the world.
The typical European nation
spends about 2/3 as much
as a percent of
GDP on health care.
England spends less than
half as much on health care.
So basically, we spend
a lot on health care
as a share of our economy.
And what do we get for it?
Well, the evidence here--
the first fact is clear.
The evidence that we get for
it is a little bit mixed.
So if you look at the
typical thing on the web,
you know, US health
care is terrible.
Our money's wasted.
You'll see that on things
like infant mortality,
we rate, like,
20th in the world.
Or life expectancy, we're,
like, 20th in the world.
So by those metrics,
we don't do very well.
But in fact, those metrics
are misleading because we also
have--
we have the most unequal health
care system in the world.
So the right way
to think about it
is to think about the
haves and the have-nots.
The haves, which is us and
most people in America,
people who are
well-insured in the system,
actually get probably
the best health care
in the world, Now that might
be disputed by many people.
But I think about
this like an economist
would think about it,
which is, how would you
decide whether you would prefer
product A versus product B,
whether they buy product
A versus product B?
Every year, one million
people come to the US
to get treated for their
health care problems.
No one leaves.
No one's going to
England for surgery.
No one's flying from the
US to England for surgery.
They're coming here.
If you're in the system, we
have the best health care
in the world.
Unfortunately, if you're
out of the system,
we have some of the worst
health care in the world.
So a white baby born
in America today,
there's roughly a slightly
more than 0.5% chance
the baby will die
in their first year.
That's comparable
to northern Europe.
If you look at a black
baby born in the US,
the odds they die
in the first year
are about twice that, which
is worse than Barbados.
So the problem in the US is
not that our outcomes are bad.
The problem is
they're very unequal--
that we're spending
all this money.
We're delivering good,
but not exceptional,
outcomes for people
in the system
and bad outcomes for
people out of the system.
So clearly, we're not
getting a lot of value--
it's not like we deliver
exceptionally good outcomes
to people in the system.
We're slightly better,
despite spending a lot more,
and we're worse for
many Americans who
are left out of the system.
So that's sort of the setup of
where we are, which is really,
you have two
fundamental problems
in health care in the US.
Our spending is too high, and
our access is too unequal.
Now so I want to focus today's
lecture on those two aspects
and think about how can we
bring the kind of lessons
we've learned in this course
to thinking about addressing
those problems.
So I'm going to focus on the
access problem and the cost
problem.
Let's start with
the access problem.
Now in America, before 2010,
we had about-- or before 2014,
we had about 50 million
uninsured Americans.
50 million people
who did not have
health insurance in the US.
We're the only
nation in the world--
only developed
nation in the world
with a significant
uninsured population.
Now the fact that 50 million
people are uninsured,
is that a problem?
On its face, if I just
said here's a fact.
50 million people in America
don't have health insurance.
Based on that fact
alone, can you
tell me whether there's
a problem or not?
You shook your head no.
Why not?
AUDIENCE: Because it might be
better for you not to have--
JONATHAN GRUBER: Yeah.
You know, many more people than
that don't have flat-screen TVs
and don't own homes.
Why do we think
that we should care
if people don't have something?
The answer would be, we
would only care if what?
Under what condition?
When do we-- yeah--
AUDIENCE: [INAUDIBLE]
JONATHAN GRUBER:
If-- well, they'd
be better off if
they did have it.
Now they could be better off
because they could be richer,
but that's not our problem.
Given their budget,
they're not buying it.
What-- under what condition
is the market not--
under what type of conditions
would the market not
deliver the best outcome?
AUDIENCE: If there's
a failure, like--
JONATHAN GRUBER: If
there's a market failure.
So the fact that
people aren't insured
doesn't matter except A, if
there's a market failure, or B,
for redistribution purposes.
Remember, that's
the two reasons we
want the government involved.
So if health insurance markets
were perfectly functioning
and people who were
uninsured were roughly
equally distributed in
income as everyone else,
there'd be no cause for worry.
But in fact, that's not true.
We've talked in
this class about why
markets like health insurance
won't function well,
which is a problem
of adverse selection.
The problem is
information failures
which will lead health insurance
markets not to function well.
And the people who
are uninsured tend
to be much poorer than the
people who are insured.
It's also
redistributional concern.
So the reason we care
about the uninsured
are both because
of market failures
and for redistribution, that
they tend to be lower-income.
What's interesting
is the uninsured
don't tend to be the
poorest in society.
They tend to be the near poor.
So here's the way sort of
health insurance coverage
works in the US.
For the vast majority
of Americans--
60% of American--
60% of Americans
have what's called
employer- sponsored insurance.
So like your most
of your parents,
like me, they get health
insurance from their employer.
The typical upper-income
American gets health insurance
from their employer.
The typical average-income
American does.
About 60% of Americans.
Then-- and I'm going to
do this sort of pre-ACA.
So before 2014,
before the big change
that was put in place by
the Affordable Care Act,
you had about another,
maybe, 6% that
bought into what we call
individual or non-group health
insurance.
That is, they went out on
their own and bought insurance.
But that's a tiny
market compared to ESI.
And the reason is because of
exactly the adverse selection
problem we talked about.
Think about yourself
as an insurer.
And you're worried about
yourself as an insurer.
And think about
what your goal is.
Your goal as an insurer
is to essentially absorb
risk in a way that allows
you to make a profit.
So what you want is
you want to live off
the law of large numbers.
You know that with a
large enough group,
you could be able to predict
what their costs will be.
And therefore, you can
just make a profit on top.
So insurers love-- when
MIT comes to an insurer,
they're delighted.
They're like, look, you got--
between MIT and Lincoln Labs,
you've got about
10,000 employees.
I, with great
certainty, can predict
what the costs will be next
year for a group of 10,000
employees.
And so I, as an
insurer, can know
I can just charge that, plus
X percent, and I'm golden.
But when Jon Gruber
walks in the door,
they're like, why are you
coming to me, individual?
Maybe because you know
you're sick, maybe
because you love skydiving.
I don't know.
But I'm wary of you, so I'm
to charge you a lot of money
to get health insurance.
As a result, most-- very few
people bought health insurance
on their own.
And in particular, the
reason they didn't is
because insurers would not
offer health insurance to people
if they were at all sick.
They would do things
like having what
we call pre-existing
conditions exclusions.
These were features of insurance
contracts which said, look,
you walked in the door, Jon,
and you want health insurance.
But I know, in the past, you've
had cancer or asthma or knee
surgery.
I'm going to tell you,
I'm going to insure you,
but not for any expenses that
might arise from recurrence
of those past injuries.
So you had cancer in the past.
Anything that comes up in the
future because you had cancer,
I'm not going to cover.
Anything that comes
up in the future
because you had knee surgery,
I'm not going to cover.
Anything that comes up in the
future because you had asthma,
I'm not going to cover it.
So I'm going to give you,
essentially, partial insurance.
So it's going to be
a market failure.
I'm going to insure you, but
only for part of what you need.
Alternatively, they could
use pre-existing condition
solutions-- they could
use what is called
medical underwriting,
which was basically saying,
OK, Jon, come in.
I'm going to give you an
exam, and if you look sick,
I'm going to deny you insurance.
Or if you look sick, I'm going
to charge you 100 times more
than someone else.
So these were not
illegal or even immoral.
These were just ways
insurers came up with
to try to deal with the
adverse selection problem.
As a result, this
was a market that
did not function very well.
Question about that?
AUDIENCE: [INAUDIBLE]
JONATHAN GRUBER: No, totally
legal in every state--
virtually every state,
totally legal and not immoral.
I mean, this is just they're
maximizing their profits.
It's what companies do.
And the point is that when
they did this, what this meant
was if you didn't have
employer-sponsored insurance
or insurance from the
government, which I'll
come to next, then you
were subject to the fact
that if you got
sick, you might not
be able to get insurance,
which is sort of weird.
Insurance is supposed
to cover if you're sick.
But in fact, if
you were sick, you
might not be able to get it.
So that was the fundamental
market failure we had here
through adverse selection.
Now we also-- that was
employer-sponsored insurance,
so that was about 2/3
of the population.
You also had on the order
of 15% of the population had
government-sponsored insurance--
probably more like 20%.
20% of the population
had government-sponsored.
Insurance.
The two big programs here are
called Medicare and Medicaid.
Now if you ever
take my 1441 class,
I will only hold you
responsible for one thing
if I ever meet you
10 years later, which
is remember the difference
between these two programs.
Medicare is health
insurance for the elderly.
Medicaid is health
insurance for the poor.
And those are our two big
public insurance programs.
And about 20-- and if
you're in those programs,
you're also set.
They don't have any
of these features.
If you're in, you're
covered for everything.
So about 20% of
people are there.
And then finally, if you add up
the numbers, we had about 15--
the numbers don't quite add
up, but you had about 15%
of the population was uninsured.
15% uninsured.
So you had about 2/3 private,
about one fifth public,
and about one sixth uninsured.
And those are individuals
who typically were not
the poorest because the
poorest people got Medicaid.
The typical uninsured
person is, like,
what we call the working
poor, someone who's got a job,
but it's a crappy job that
doesn't offer health insurance.
But they make enough
money that they
can't qualify for being
in the low-income program.
So your family is struggling at,
like, $40,000, $50,000 a year,
high enough income
that they're not
qualifying for Medicaid but not
in a good enough job they're
getting health insurance.
That's your typical
uninsured family.
2/3 of the uninsured
are in families
that are headed by a
full-time, full-year worker.
They're not typically the
unemployed down-on-their luck
people.
They typically
are the people who
are trying to play by the
rules, as they say in politics,
but typically can't get a
job with health insurance.
So that's your basic landscape.
And what we know
from that landscape
is that a lot of
the access problems
were because of this
group and this group
because the people who couldn't
get in this market, and as
a result, were often uninsured.
That was a lot of what
drove the access problems.
So that was sort of the first--
one of the two big problems
that faced our system.
And for many, many years,
we knew we had that problem.
And for about 100
years, we've tried
to reform health care in
the US to deal that problem.
And probably about
every 17 years,
on average, there was a big
attempt to reform health care,
and they always failed.
And they always
failed because they
failed between two extremes.
There were two extreme
views that could never quite
meet in the middle ground.
And they come to what I
talked about last time, which
is how do we solve the
problem of market failures
in insurance markets?
Well, one version of
solving that, I described,
was subsidization.
You could-- remember,
with my MIT program,
if I paid the healthy guys
$500, they'd all buy two,
and I'd solve the problem.
So one version
was subsidization.
The problem is
subsidization only works
if it's big enough to
overcome these problems.
And no one ever proposed
subsidization big enough
to overcome these problems.
In my MIT example,
I was going to give
$400 to every
healthy-- first of all,
it means giving money
to healthy people, which
is sort of
politically difficult.
Like, hey, the healthier you
are, the more money you get.
It seems a bit weird.
Also, it's just hard
to solve these problems
by just subsidizing people.
Insurance companies
are still too
good at trying to get
rid of the sick people.
And even if you subsidize
people who come in,
insurance companies will
always have an incentive.
They'll say, great, healthy
people come, we'll subsidize.
They'll still want
to avoid the sick.
So it doesn't solve the
problem in insurance companies.
I didn't talk about
this last time,
but as MIT's
insurance company, I
should try to shed
the sick people.
And that problem still
existed under this solution.
The other extreme, which is
sort of back in style again,
is the single-payer model,
which is saying, look,
let's just have the government
provide health insurance
to everyone.
We have the government provide
Social Security to everyone.
The government provides
health insurers
to every elderly in
America through Medicare.
Everyone over 65
in America, boom,
gets government-provided
health insurance.
Talk about socialism.
Every American gets that.
In Canada, everybody gets
government-provided health
insurance.
Why not just do it here?
Let's get rid of all the
crap with insurance companies
we don't like.
After all, insurance
company administrative costs
are about 15% of
medical spending.
So, boom, we could lower
15% of medical spending.
That is, you know, that's
like $500 billion a year.
Boom, it's gone.
So basically, why not-- so
single payer is something
a lot of people
have advocated for.
Let's just have one giant
universal health insurance
program.
Now the problem with this--
the problem with the
single-payer approach is
largely--
there's pros and cons to
the economics perspective.
But the problems here
are largely political,
which is that to make
single payer happen,
you have three enormous
political barriers,
which come back to economics.
Everything comes
back to economics,
but they play their way out
in the political system.
The first problem
is paying for it--
paying for it, which
is that single payer--
to have the government give
everyone health insurance
means a massive expansion
in the government, which
means a big increase in taxes.
And we know taxes
have deadweight loss.
We know taxes are
politically unpopular.
Now here's what's
misleading about that.
Here's the fundamental thing.
So I worked for the
state of Vermont.
The state of Vermont wanted to
do their own single-payer plan.
If any place can do
it, it's Vermont.
They're, like, super lefty.
They essentially have
one insurance carrier,
which is Blue Cross anyway.
They're a small state.
It seemed like if anyone
was going to do it,
Vermont was going to do it.
So I worked with them to
put the numbers together,
what it would cost them.
And I had good
news and bad news.
The good news was,
I said to Vermont,
if you do single payer you will
lower the cost of health care
in Vermont total by at
least 10%, at least.
That was conservative.
The bad news is to
pay for it, you're
going to have to more than
double the entire amount
of taxes collected
in state of Vermont.
And that second sentence
just killed everything.
What's the problem?
The problem is that right now
health insurance in America
is paid for by
essentially a hidden tax.
What's the hidden tax?
It's the fact that when
your employer gives you
health insurance, they pay
you less wages as a result.
Remember our tax
incidence discussion.
And we said that essentially
taxing the employer
falls on the
employer-employee depending
on basically elasticities.
Well, you can think of health
insurance the same way.
When your employer gives
you health insurance,
he doesn't just
eat the whole cost.
He says, look, I'm paying you
a total set of compensation,
part of which is
health insurance.
So I'm going to pass the
cost of that health insurance
on at least partially
to your wages.
That's essentially a hidden tax.
So at MIT-- right now, I
have a health insurance plan
through MIT, which costs about
$18,000 a year for my family.
I pay about $6,000 a
year out of my paycheck.
MIT pays $12,000.
But the truth is, MIT
pays me $12,000 less.
They don't just give me
that health insurance
out the goodness of their heart.
They take it out of
my wages, or least
partially out of my wages.
That's essentially a hidden tax
that Americans pay every year
to finance health insurance.
If we went to single payer,
that hidden tax would go away.
I would get a $12,000 raise.
That's great.
But I'd also face
a high new taxation
to pay for the
government-sponsored plan.
Now given that the total
cost would fall-- we
should be able to net this out
in a way that most people win.
The problem then
becomes the politics,
which is you're tracing a hidden
tax with a non-hidden tax.
And that's very
ugly politically.
So people don't believe their
employers will pay them more
if you don't make the employers
provide health insurers, like,
oh, the employers
will just pocket it.
And I could teach them tax
incidence till my face is blue,
but they just won't believe it.
They'll say employers
will just pocket it.
But I have to pay this
new tax for single payer.
So that's the first
problem single payer faces
is that people don't
really understand
that trade-off between
getting rid of the hidden tax
and adding a new non-hidden tax.
That's problem one.
Problem two is the problem
we talked a little bit
about, behavioral economics,
and about loss aversion.
There's a general feature,
what we call status quo
bias in human thinking.
Status quo bias, which
is, essentially, it
is harder for me to
give up what I'm used
to than to grab something new.
We talked about the mug example.
Remember, I talked about mugs.
So basically, you
had to pay me more
to get the mug away from me than
I was willing to pay to buy it.
That once you have something,
you value it more than
if you didn't have it yet.
Well, right now,
60% of Americans
have employer-sponsored
insurance.
And if we say to them, give
that up for Berniecare,
they're going to be,
like, eh, I don't know.
I kind of like my
employer-sponsored insurance.
You know, yeah,
you might tell me
Berniecare is
going to be better,
but that's just you talking.
I know what I have
right now, which I have
employer-sponsored insurance.
I don't want to move away
from that status quo.
So status quo bias makes
it hard, in general,
to do radical changes
on an economic system.
And this is a perfect example.
It's going to be hard
to get people to give up
what they have for something
that they don't really
know about yet.
That's the second problem.
The third problem is,
once again about money,
but really beyond the
scope of this course, which
is the problem of the insurance
companies and lobbying, which
is that the insurance business
is big business in America.
Health insurance companies
make about $900 billion a year.
If you said to them, hey,
health insurance companies,
would you guys mind just
giving up your $900 billion
to begin a single-payer
health care,
they'd actually say, yeah,
it's been a good run.
Go for it.
No.
They're going to lobby and
fight that because they
want to keep their business.
And that's going to be a
pretty hard force to overcome.
So single payer has
always struggled
with dealing with these
kinds of political problems.
And that's why we've been stuck.
We've been stuck between
one alternative, which
is subsidization, and the
other alternative, which
is single payer.
And that's where
economists have come in--
came in the 2000s,
folks like myself,
to talk about a
new alternative way
to do it, which was
essentially to try
to bring in some of the
best features of these two
approaches.
And the solution we proposed--
so if you want to
read more about this,
I've actually written a
comic book to explain it.
It's a graphic
novel, technically.
It's called Health Care Reform.
It's, like, $9 on Amazon.
And so I like to think of
everything in terms of images.
Now I'm not going to draw one.
I'm not going to try
to draw anything.
But the way I like to think
about this is the solution we
came up with, which we first
pioneered here in Massachusetts
and then brought to
the whole country
through the Affordable
Care Act, is
what we call a
three-legged-stool approach,
three-legged-stool approach.
Leg one is deal
with this problem.
Deal with the insurance
discrimination problem.
And so leg one is ban
insurer discrimination.
No more pre-existing conditions,
no more medical underwriting.
That is, if I walk in the door,
and you have offered anyone--
you have to offer me health
insurance at the average price
for my age.
And you have to offer it to me.
So any 40-year-old who walks
in the door wanting insurance,
you have to sell it to them,
and you to sell it to them
at a fixed 40-year-old price.
You can't say, you're sick.
I'm not going to sell it to you.
So the first step is to
ban insurer discrimination,
to try to solve that problem.
Now the problem this
raises is you have simply--
if you do this alone, you've
created a new problem, which
is if you tell insurers
they can't discriminate
against the sick, you don't
solve the adverse selection
problem.
You're just making
insurers go bankrupt.
Now here's the way I
like to think of it.
I'm sure none of you
ever gambled on sports.
But if you had
gambled on sports,
you might know the way
sports gambling works is
that there's a guy in the
middle, called the bookie.
And the bookie's
goal is to not--
is to get exactly the same
number of bets on either team.
So they take no risk, and just
make their profits off the top.
So what bookies do is
they set point spreads.
So the Patriots played the
Dolphins this past weekend.
I am-- sadly, I'm
a Dolphins fan.
The Patriots played
the Dolphins.
The point spread was
something like-- does
anyone know what the spread
was in the Patriots' game?
I think is was, like, 8 points.
So that spread was chosen.
The Patriots were favored by 8.
What that meant was
your bet was either
the Patriots win by either
more, or the Dolphins win,
or the Patriots win by
8, or by less than 8.
So one side is Patriots
win by 8 or more.
One side is Patriots win by
less than 8, or Dolphins win.
And the reason you
have that bias thing
is because people think
the Patriots are better.
They are better.
And as a result,
you want to get--
if you set an even bet,
Patriots win, Dolphins win,
everyone would bet
on the Patriots.
You'd lose money.
So you want an equal
distribution of risks.
So what you want is you
want to set the point
spread so the distribution
of risk is equal.
Then having done that, you just
make your money off the top.
Now imagine I passed a law
which said all sports books have
to reopen at halftime and make
the same bets available they
made before the game started.
Well, for those of you who
watched the exciting game
this weekend, you
realized at halftime,
it became pretty obvious
the Patriots weren't
going to win by 8, that
it was a lot closer game
than people thought.
So if they reopen
that, a bunch of people
would suddenly bet
against the Patriots.
The Patriots ended up
losing, and the insurers
would have gone bankrupt-- the
bookie would've gone bankrupt.
Insurers are just bookies.
That's all they are.
They just want a predictable
distribution of risks.
So if you tell them, you have
to offer health insurance
to everyone for the
same price, but only
the sick are going to buy,
they're going to lose money.
So that's why we need the
second leg of the stool, which
I talked about last time, which
was the individual mandate.
The individual mandate,
which is to say,
OK, insurers, if you offer
health insurance to everyone
at a fair price, we will,
as our part of the deal,
make sure everyone
buys health insurance.
So when the 40-year-old walks
into your office wanting
insurance, you can know it's
not because they're sick.
It's just because they have to.
So we say to insurers, you
price insurance fairly,
and in return, we'll
make sure you get
the fair distribution of risks.
So you say to me--
my MIT insurance,
you price insurance
at $1,500 and don't
try to keep out the sick,
I'll make sure everyone buys.
And you'll make
your $100 profit.
So that's-- the mandate was
essentially trying to bring--
was trying to allow--
get rid of discrimination
by bringing in the
entire pool of people
so insurers could fairly price.
The problem with that is you
can't mandate something people
can't afford.
So in Massachusetts,
where we were
creating this plan
in the mid 2000s,
the typical family
health insurance policy
was about $12,000 a year.
The poverty line for a
family was $22,000 a year.
We couldn't exactly
mandate people
that they spend 55% percent
of their income on health
insurance.
That was not really feasible.
So the third leg of the
stool we came up with
is subsidies to make health
insurance affordable,
saying, if you're
low-income, we will offset
the cost of your insurance just
like the subsidy approach here.
We'll offset the cost
of your insurance
to make it more affordable.
We'll do it on an
income-related basis,
so it doesn't cost so much.
So we're not going to
have to pay for everyone's
insurance like single payer.
Remember, single payer,
essentially taking
someone like me, who's
happy with my insurance,
swapping it out for new
government insurance.
This is saying, no, if you're
happy with your insurance,
stick with your insurance.
But if you're low-income and
can't access the employer
market, this gives
you a new place to go.
And that was the idea
that became Romneycare,
the plan here in Massachusetts,
and eventually then became
Obamacare, or the
Affordable Care Act.
So this is essentially
the idea of that plan.
Now, did it work?
Unambiguously, yes.
Now you won't find
anyone more biased
than me on this question.
But I think what--
I think if I've tried to teach
you one thing in this class,
it's that we need to rely on
real facts wherever possible.
And if not, we could
turn to theory.
But here we have a set of real
facts that we can turn to,
which is that
essentially what we
did in Massachusetts with this
law is we covered about 2/3
of the uninsured population.
At the federal level,
we covered about 45%
of the uninsured population.
It was a lower number because
the federal law did not
apply to undocumented
immigrants, which
are about a quarter
of the uninsured.
It's not an issue
in Massachusetts,
but a big issue in other places.
That's about a quarter
of the uninsured
because the federal
law did not apply
to undocumented immigrants.
So as a result, the
share cover was lower.
But a large number
aren't covered.
Yeah.
AUDIENCE: If there was
an initial mandate, then
how was there anyone
who was left uninsured?
JONATHAN GRUBER: Great question.
So there are three reasons why
people were left uninsured.
The first reason was a
quarter of the uninsured
were undocumented
immigrants, and the law
didn't apply to them.
So right now the upper bound
was 75%, just to start.
The second reason is that the
individual mandate contained
exemptions to make it both a
little more humane and, quite
frankly, politically feasible.
So if you could not
get-- if your income was
below the poverty
line, you were not
subject to the
individual mandate.
And if you could not get
insurance for less than 8%
of your income, you
were not subject
to the individual mandate.
So there were exemptions.
And the third thing was
the individual mandate
was not, like, we're going
to throw you in jail.
It was a tax penalty.
And many people decided they'd
rather just pay the penalty
than buy health insurance.
So for those three
reasons, a number of people
did not get health insurance
under the Affordable Care Act.
Now there's a bunch of
interesting questions,
like should the mandate
penalty be bigger?
How should we handle that?
There's a lot of--
I could go for hours on this.
But that's basically the
structure of what we had.
So basically, that worked.
It didn't get us to
universal coverage.
It wasn't as effective as
single payer would have been,
but it was the largest
single insurance
expansion in American history.
And the evidence is clear.
It brought many
people into insurance.
It improved people's
use of health care.
It improved health.
So basically, that was kind
of the step forward on access.
Now the problem with
this is it's only a step.
There's still many
uninsured, and this
has been politically really
challenging, because these two
answers are quite simple.
Just give people money or
just have single payer.
This is super complicated.
I can talk about these
in about 15 seconds each.
These took five
minutes to go through.
And people thought it
was just too complicated.
It didn't make sense.
Lots of reasons-- we could
talk lots reasons people
didn't like it.
So it's never really been
as politically successful
as people like myself,
who helped develop it,
would have hoped.
And it's left a lot
of people uninsured.
So we haven't solved
the access problem.
We made a big step forward,
but we haven't solved it.
And that's the ongoing debate
today we see, particularly
in the Democratic Party.
The Republican Party
really doesn't focus much
on insurance coverage.
But the Democratic Party does.
And they're-- that's why there's
a lot of energy behind single
payer right now is like, look,
you tried the kind of halfway
ground.
That kind of worked, but
didn't work all the way.
So let's just go all
the way to single payer.
Yeah.
AUDIENCE: The initial
mandate, does that--
I guess, for the
more people living
in poverty, does that work
together with Medicaid or--
JONATHAN GRUBER: Yeah.
Basically, a lot-- actually,
it's quite interesting.
It worked quite
well with Medicaid.
A lot of people
who aren't insured,
actually, are people
who are already
eligible for free
Medicaid coverage
and just don't take it.
Now we don't quite know why.
It could be language barriers.
They don't understand.
A lot of people-- a lot
of even legal immigrants
just don't understand
they're eligible.
It could be people just don't
want a government handout.
They're embarrassed taking
help from the government.
It could be people
think, I don't need it.
I'm never going to be sick.
We don't know why.
So part of what
the mandate did was
say, look, you already
have free health insurance.
Just pay attention and take it.
That's part of the effect it
had was bringing people in.
So a large part of
the coverage increase
is actually bringing in people
who were already eligible, just
weren't taking it up before.
So that's kind of where we are.
So where we stand
now in coverage
is we've taken a
giant step forward.
We've covered probably
about now, probably,
between a third and 40% of
the uninsured in America.
But we're sort of right now
kind of stuck at that point.
And the question is, do we
just sort of stick there,
or do we try something
more aggressive?
With the political
problems, I don't know.
But that's going to be the
challenge going forward.
So that's-- questions
about that--
because that's where we
are on problem number one,
which is access in coverage.
Now let's turn to problem
number two, which is cost.
Cost is way harder.
What I just did
was the easy part.
It's way harder to get
your health care costs,
and here's why.
Two facts that are seemingly
contradicted if you
think about it.
Fact one.
Since 1950, US
spending on health
care as a share of our
economy has quadrupled.
We've gone from--
more than quadrupled.
We've gone from 4% of our GDP
being health care to over 17%.
And it's been worth it.
If you look at the
improvements in our health,
and you value them in
the way economists do,
which is we have statistical
values of life we apply,
or statistical values in
improvement in health,
the improvement
in our health has
been worth the money
spent on health care.
You guys don't realize it.
Health care totally
sucked in 1950.
Babies born in 1950 were
four times as likely
to die before they reached
their first birthday.
If you had a heart
attack in 1950,
you were four times likelier
to die within the first year.
To put it in terms all young
healthy people care about,
if you hurt your knee skiing
in 1950, tore your ACL in 1950,
or tore your cartilage, you
were in the hospital for a week.
You were on crutches
for six weeks
and had arthritis the
rest of your life.
Today, you go to an
outpatient center.
You get arthroscopic surgery.
You're back on the slopes
a couple weeks later.
Health care is just way better,
and our health is way better.
America is a much better off
nation, spending 17% of GDP
on health with how healthy
we are than we were in 1950.
And once again, do
the economists tests.
No one ever advertises, hey,
would you like 1950s health
care at 1950s prices?
No one out there is offering
that because it's worth it.
That's fact one.
Fact two is we waste a huge
amount of money on health care.
By some estimates, about a third
of what we spend on health care
is totally wasteful, does
nothing to improve our health.
Now how can those two
facts be consistent?
It's worth it,
but it's wasteful.
Well, the answer is that the
other 2/3 is super awesome,
that basically the
increase in health care,
where it's been productive,
has been amazing.
But we dragged along all this
unproductive spending too.
So it's good news and bad news.
So the good news is,
well, that's great.
We just cut out the one
third that's unproductive,
we've solved our problem.
Literally, if we could
just simply cut out
the one third
that's unproductive,
we'd spend the same amount as
Europe does on health care.
We'd solve our entire
long-run fiscal problem.
The bad news is that it's
easy to look back and see
what the one third was.
It's hard to look forward and
say what it's going to be,
that health care comes with
a huge amount of uncertainty
about what's going to work and
what's going to be worth it.
And as a result, it is
very hard to say, OK, fine.
We'll cover this.
We won't cover
that, because it's
hard to know what's going
to work and what's not.
And so, essentially, you're
in this very difficult spot.
So what are the
kind-- that's the sort
of fundamental
trade-off that we face.
So what are the potential
solutions to this problem?
So essentially, there's a
couple of different solutions
to the problem, two different
paths we can follow.
Path one is the regulatory
path, which is basically
the path that Europe follows.
What Europe does is they
just much, much more heavily
regulate the delivery
of health care.
And they do that in two ways.
One is they actually have
regulations about what
health care you can get.
So for instance, England has
the euphemistically named NICE,
the National Institute for
Health and Care Excellence,
which actually tells people
they can't get some things.
It literally rations.
So for example, for many
years-- it's no longer true--
in England, if you're over 75,
you could not get a transplant.
They said, look, we got a
limited number of kidneys.
You're going to die soon anyway.
Let's give the kidney
to a young person.
Actually, kind of makes sense.
The idea is, look, we have
some limit on our kidneys.
Why should it be determined
by some random fact,
like when you got on line?
It should be
determined by who gets
the most value from the kidney.
It's going to be someone who's
30, not someone who's 75.
So one regular route
is to literally
have regulations like that.
That's actually pretty rare.
Most countries don't actually
regulate in that way.
Most countries kind of let
you get what your doctor says
you should get.
There's three routes.
So one route is
sort of regulatory.
The other route of regulate--
so one route is sort of what we
call sort of
regulating, you know--
I don't want to call
it access-- sort
of technological regulation,
regulating which technology you
can get.
The second kind of regulation
in Europe is supply regulation.
So they basically don't
let there be many doctors.
And there are not many
doctors and hospitals.
So there are as many
MRI machines in LA
as there are in Canada.
Basically, just not many place
to go get an MRI in Canada.
So if you' hurt
your knee in the US,
you go, you get an MRI,
like, the next day.
In Canada, you get
it six weeks later.
So the only way to control
it is to actually regulate
the supply of medical care.
Just give people less
stuff they can use.
And the third way to control--
the third regulatory mechanism,
and the most important,
is price regulation.
We are the only nation in
the world which essentially
lets the free market determine
the price of health care
services.
Every other nation
regulates the prices
that people pay for their
health care services.
Now the question we
have to ask is why?
Why does that make sense?
Well, the answer would
be that we think--
it would make sense if we think
there's a fundamental market
failure in the determination
of health care prices.
And in fact, it
turns out there are
numbers of market failures in
determination of health care
prices.
So one market
failure, for example,
is imperfect information.
I don't know--
I can't shop
effectively-- when I'm
in the back of the ambulance
dying from a heart attack,
I can't be, like, you know
that hospital looks expensive.
Take me over there.
I want to shop there.
You can't really shop.
It's a hard market to shop.
And if you could,
prices aren't posted.
You don't really
know what it costs
to get your heart attack
treated in different places.
So imperfect information.
There's also
imperfect competition,
which is if you have your
heart attack on Cape Cod,
there's, like, one--
or Nantucket, which is
an island, with no way
off but a ferry,
there's one place to go.
There's one hospital.
They have a perfect monopoly.
You can't get off the island.
You're going to die otherwise.
So it's imperfect competition.
There's even
imperfect competition
where you think the
competition might be perfect.
So take Boston.
There are so many
hospitals in Boston,
you cannot literally fall down
without hitting a hospital.
Yet there is an
enormous dispersion
in the prices hospitals charge.
In particular, the
very famous hospitals,
like Mass General
Hospital, charge
multiples of what less
famous hospitals charge,
even though less famous
hospitals are really nearby.
Why?
Well, because they
have essentially
what we call a reputational
monopoly, that even though they
don't have an actual physical
monopoly, people are like,
I want to go to MGH.
They're the best, even if
they're not necessarily
the best.
They just have this
view of being the best.
And they can charge
higher prices as a result,
even if their outcomes
aren't necessarily better.
In other markets, we
think perfect information
would allow us to get rid of
these kinds of inefficiencies.
It doesn't exist in health care.
As a result, perfect
competition simply
does not work in
health price setting.
And as a result,
all other countries
regulate health care prices--
and then not other countries--
even the US can
regulate health prices.
So the Medicare program
has regulated prices.
That covers millions
of Americans.
It's just for the
non-government, private health
insurance in the US, there's
non-regulated prices.
Now I am not, despite my tone,
saying that regulating prices
is the answer.
It's not clear.
Regulating prices comes
with a huge number
of additional problems
like we talked about.
We talked about
regulated monopolies,
which is the government may not
know the proper price to set.
The government may
do a terrible job.
They may get lobbied.
They may be corrupt.
Indeed, in the US, the
1970s, virtually every state
did regulate hospital prices.
And every state
went away from that
because they thought
the system was broken.
So it's not like
there's any-- it's not
like the European
solution's an easy answer.
That's why the other route that
people have been pushing lately
is a different route, which
is the incentives route, which
is basically to say,
look, we don't want
to regulate supply or prices.
What we're going to
do is we're going
to say, doctors and
hospitals, you get together
and form these units we
call Accountable Care
Organizations, ACOs.
This is a big innovation
of the Affordable Care Act
of Obamacare, set up these ACOs.
These are hospitals and
doctors all get together
to be basically,
like, soup to nuts,
all the health care
you need in one group.
And we say to them, we are
going to pay you one flat amount
of money to care for Jon.
And then within that,
you decide what he gets.
You decide what prices
everybody pays and makes.
You figure all that out.
But we're going to
give you a flat amount.
In particular, that flat amount
is not going to rise much.
And that's going to bring
the costs of health care
under control, where
basically every ACO will
get an amount that's
a flat amount,
and it just won't rise much.
And that's how we'll
bring health care
costs under control.
That has a number of
wonderful features.
First of all, it's
much less evil
sounding than things like
not letting [INAUDIBLE] rise
or regulating what prices.
Second of all, there's much
fewer regulatory tools.
We just say, here's a flat
amount we're giving you
per person, and we're done.
So that sounds great.
The problem is we haven't
been able to get it to work.
And that's because it turns out
doctors and hospitals aren't
very good at figuring out how
to set prices and set supplies.
They're just not--
they don't know
how to really figure this out.
And the ACOs so far have not
actually performed very well.
They've not saved much money.
So really, we're stuck
between a route which
seems a lot easier but we
haven't really figured out
how to make work,
and a route which
has worked all around the
world but seems politically
nightmarish.
And that's kind of
where we are right now
in terms of controlling costs.
And that difficulty is
what we find ourselves in.
But let me be clear.
This is not like, oh, that's
very interesting, Jon.
I'll go home and
forget about it now.
This is the entire future.
Health care costs are
the key to determine
the entire fiscal
future of the US.
As I mentioned last
lecture, the US
is currently estimated about
$75 trillion in deficit
over the long run.
$70 trillion of
that is health care.
Health care is the
single determinant
of the US fiscal
balance in the long run.
Literally, it's the single most
important government problem
facing-- health care cost
is the single most important
government problem
facing your generation
and the next generation.
I like to say that all
that matters when we think
about the future
is health care cost
and global warming because
either way we're under water.
Basically, those are
the two big issues
we have to face going forward.
So this is a serious issue
that your generation is going
to have to struggle with--
sorry-- as you go on.
So that's health care
in the US in 40 minutes.
So this class--
you know, there's
a famous skit from
Saturday Night
Live, which is what you remember
five years after college.
And it's five minutes, and 3
and 1/2 minutes of spring break.
I don't expect you to remember
the formula for-- if you're not
going on in economics,
I don't expect
you to remember the formula
for deriving cost function.
What I expect you to
get out of this class
is A, an interest in economics.
And I hope you'll go on.
I sincerely hope that.
And I'm available
to anyone who wants
to talk about the pros and
cons of going on in economics.
Obviously, I'm more pro.
But I'm happy to talk about it.
So always feel free to
reach out about that.
But B, even if you don't
go on in economics,
I want this to make you
a more educated consumer
of the newspaper.
This is-- we are in an era, as
I said in my very first lecture,
where truth and facts
and the scientific method
are, themselves, under attack.
And MIT is the last bastion
of fighting this war.
We are the place that explains
the scientific method, that
uses the scientific method.
And we need to use
the methods you've
learned here to
think intelligently--
whatever your conclusions--
but to think intelligently
about these economics topics.
And fundamentally, that
means being annoying.
And to illustrate that,
I'd like to end with a joke
that some of you may have heard.
Sorry, I apologize if you have.
So the joke is a doctor, a
priest, and an economist go
golfing.
They get on the golf course--
and they hit the golf
course, and they're
behind someone going
incredibly slowly.
I don't know if there are
any golfers among you,
but the idea is if
you're very slow,
you're supposed to allow
the people behind you
to play through and
get ahead of you.
This person won't let
anyone play through.
And he's, like, 50 shots a hole.
It's disgusting.
And there's, like, 50 people
lined up behind this guy.
And these folks
are so disgusted,
they quit after nine holes.
They go back to the clubhouse.
They're pounding their
beers like, what an asshole.
I can't believe he wouldn't
let us play through.
It ruined our day.
And someone comes up to
them and says, excuse me,
are you new to this club?
And they said, yes, we are.
He said, well, I can tell
you're new to the club
because if you weren't new, you
would have known the person you
were playing behind is blind.
And actually, it's
a miracle he can get
the ball in the hole at all.
And usually, it's an honor to
be on the same course as he is.
And the person walks away.
And there's, like,
a deadly silence.
And the people at the
table are like, wow.
I feel terrible.
And the doctor goes, I can't--
I feel terrible.
I can't believe I'm--
myself, a man of healing, would
be so insulting towards someone
who's blind.
I'm going to dedicate a wing
of my hospital to the blind.
And he turns to the priest.
And the priest says, I
can't believe myself,
a man of the cloth,
and that I'm supposed
to care for the less able
in society, would do this.
I'm going to set up a free
soup kitchen for the blind.
And they turn to the economist.
And the economist says, well, if
he's blind, why doesn't he just
play at night?
And-- makes sense, right?
And basically, the point is
that the job of the economist
is to sort of be
annoying and look
for the basic
flaws in arguments,
to understand them, to ask
the difficult questions,
but to have responsible answers.
And that's what I hope
you'll get out of this course
that I hope you'll
take forward with you.
So thank you very much
for sharing it with me.
And good luck on the final.
[APPLAUSE]
