Is Healthcare Making Capitalism Sick? - ft. Zack Copper

I think if you went up to workers and said, you can have $10,000 or $5,000 next year, if you choose a plan with a narrow network, some folks would make that choice. And this sort of sets the stage for, I think, where we could go as a country from a policymaking perspective going forward. I'm Bethany McLean. Did you ever have a moment of doubt about capitalism and whether greed's a good idea? And I'm Luigi Zingales. We have socialism for the very rich, rugged individualism And Mrs. Capital isn't a podcast about what is working in capitalism. First of all, tell me, is there some society you know that doesn't run on greed? And most importantly, what isn't? We ought to do better by the people that get left behind. I don't think we should have killed the capital system in the process. A couple of weeks ago, the Stigler Center, which sponsors this podcast, had a conference on whether capitalists can be popular. There was one answer everybody agree on, the US Alcatel system is not working. It was really interesting. Healthcare came up on pretty much every panel. Labor economists agreed that it's a huge friction that prevents people from changing jobs. Others said that the lack of antitrust enforcement has enabled hospitals to raise prices without improving quality. And it contributes to income inequality. In fact, Zach Cooper, who is an associate professor of public health and economics at Yale, has argued that rising health spending in the United States since 1975 can explain roughly the same share of the growth in income inequality as increased trade, outsourcing or automation. There are problems with prevention, allocation of resources, oversubscription of drugs and procedures, and overpricing of nearly everything. To sort them out and to suggest some practical achievable steps we might be able to take. We decided to invite an expert in the growing field of healthcare economics, none other than Zach Cooper. In addition to his role at Yale, he is the director of the 1% Steps for Health Perform, a project that recognizes that high health care spending in the United States is a result of a myriad of small problems that all add up. The project works with leading scholars to identify these discrete problems and offer evidence-based steps to address them. In 1963, the Nobel Prize winner Canaro, who had previously proven the working on the invisible hand, argued that the invisible hand does not work in medical care industry. Can you explain our listeners why? I think he said it could. I think he said there are just a bunch of things in healthcare that potentially look very, very different. The first is just asymmetry of information. I default to my doctor to tell me where I should go, what I should need, and that ability to shape demand makes the market look very, very different. Second is entry and exit. I can't go have Zach's neurosurgery clinic next week if that's what I decide to do, and that's for very, very good reasons. We have a bunch of licensing and credentialing. Closing hospitals is a big deal. So information, we've got entry, exit issues. Quality is very, very tough to measure. I think my doctor's good, but how do I really know? And then there are all sorts of externalities. I do better when you and Bethany are getting medical care. Just take COVID as an example. And so in some ways, we underprice some of these services that have positive externalities in the healthcare sector. So it's tricky. It's pretty different than the market for screws or the market for tomatoes. I heard you talk in one place about your own personal evolution and how you thought about healthcare that you started, I think, with a much more standard view of how a market should work. And you've changed your mind over time. And I'd love for you to chart that evolution for our listeners. I think the big one for me has been my view on price transparency and the idea that consumerism is going to change things. So I think economists, for lots of reasons, like looking under the lamppost at demand. And we think that if you just have higher cost sharing and more consumer skin in the game, people are going to make better choices. And lo and behold, the market will become more efficient. And I was doing a series of papers looking at, of all things, MRI scans. So one of the graphs we have in the papers from Manhattan, there's literally 10x variation in the price of MRI scans in the city. And that's a little bizarre. And moreover, we saw really, really strange patterns. So the average patient was driving past six places between their home and where they got care. They were less expensive than where they ended up going. And so the question is, like, what's sort of driving this pattern? And so as an economist, we say, okay, well, maybe it's out of pocket costs. Folks making some sort of funny choices or folks who are over their deductibles. And it turned out not to be that. We tried to figure out if there were quality differences across MRI scanners. So we looked at the type of machines being used and whether people were having to repeat MRI scans. It wasn't that. It wasn't distance. And so what was it? It was a patient just sort of listening to where their doctors told them to go. And some of that is just habit. Maybe the doctor plays tennis with the person who's doing the imaging study. Some of it's related to what we'll probably talk about later, which is vertical integration. So we've seen this real wave of consolidation. The healthcare sector of the last 25 years. One of the big trends has been hospitals buying physician practices. And we know that when that happens, where physicians send their patients can shift. So that was my sort of big evolution. First, that you can give all of the pricing information you want. And it really isn't going to affect folks because they listen to their doctors. And second, I think cost sharing just doesn't really work. Hitting patients over the head with high out of pocket costs basically gets them to stop consuming care. But it doesn't make them consume it rationally. They don't differentiate between necessary and unnecessary services. And you actually see pretty market degradation in health. And I think that's something that, this is I think where people get pissed at economists. We, you know, folks like Leach and I probably wouldn't have been saying this 10 years ago. Everybody else in the country would have. And we've sort of been a little slow to the uptake to say that turns out healthcare, it's complicated. It's one of the things I've thought about from my perhaps superficial journalistic point of view is I think about the healthcare market as just that it is this really strange mixture of government incentives with private market incentives. And I wonder if those can ever work well or if they can work well, if they have to be structured differently than they are in healthcare. And is there is there an ideal mixture? So I want to just take a step back and say, look, there is actually evidence that markets do function in the healthcare sector. You know, I have a bunch of work that shows that when hospitals are exposed to competition, their death rates go down. Amy Finkelstein and Chad Cyberson, who's, you know, Luigi's colleague had really good work showing that good hospitals grow more quickly. So if you look at Soviet countries, companies in Soviet bloc countries, you actually find back in the day, they good firms didn't grow. Bad firms did. It's because like the czar's idiot nephew was running the bad firm and the money went there and the good firms weren't getting more capital. So I think markets can function. They just require a decent amount of scaffolding. I think if I were to start with a system, and this is just me, I think I would start with just one system for everybody. You know, I think this odd division that we have between old and young, rich and poor, self-employed, working for a company, it just doesn't, it doesn't make much sense. Then you have a choice about, in a sense, whether government should steer or row back to the old sort of Osborne and Gabler days. You know, I'm comfortable with something like private insurance companies offering different plans and competing against one another to offer coverage in one big unified market. There's some debate about that, but I think having differentiation of insurance products, so that each of us can choose something different, does make some sense. You know, I think a walk through TSA is a pretty good sort of advertisement for probably, probably don't want the government running your hospital. So I think we probably do want privately delivered healthcare. I think the big question is, do we want market determined rates? So we are the only country that allows hospitals and insurance companies to negotiate their prices. And so it isn't surprising that a hip replacement in the US is about $37,000. It's about $11,000 in Germany. The hospitals prices in the US have gone up since 2000, faster than prices in any other sector of the economy. So I think that we can have competition, we should have hospitals competing, but we do have to put up some structures to make those markets function better than they would sort of absent some form of regulation. I'm a center called the 1% Steps for Health Reform. And understand your philosophy is that there is no single culprit for high healthcare costs, is a lot of 1000 cuts. But if you had to name the three biggest costs for the inflated cost of US healthcare, as you said, basically here staff costs three times as much as in other developed countries. So where would you point your finger to? I think if there's one, let's say two sort of fundamental problems with the way we structure a healthcare system that makes us differentially high spending, the first is employer-sponsored health insurance and the tax exclusion that we get from employer-sponsored care. So taking a step back, it's late 1940s, fighting a war. And the country put in wage controls. And part of the reason they put them in is so that people weren't going to high paying jobs in the US, they were sort of more willing to go off and fight in Europe. And one of the ways the companies got around wage controls was by giving their workers more and more generous benefits. And eventually they passed a tax exclusion for workplace benefits. It's now the largest exclusion in the US tax code. And I think the downstream consequences of that 70 years later are pretty significant. I challenge you, Luigi and you, Bethany, what are your insurance premiums? Do you have any idea what you're paying a month for health insurance? I do because I work for myself. So you're not subject to Luigi. I understand in glory detail what my health insurance premiums are. I'll put some money down saying that you may not. I have an idea, but I don't know to the last stages. And so most people don't, in a sense, they're paying for it. And this is what a lot of my research thinks about it. They're paying for it in the form of foregone wages. So that's first. Second, because there's this tax exclusion, we sort of give people more generous health insurance coverage than I think we otherwise would without it. And there are all sorts of problems with giving people much more help, generous health insurance. And so I think that's probably the original problem in the US health care system. It's this employer-sponsored health insurance exclusion in the tax code. The second, getting people universal health care, having one system, is that it's not just about the health insurance, but about the health insurance. And so a lot of the countries that got to universal health care did it in the 20s, the 30s, and the 40s before health care spending was what it was today, which is roughly 8,000 to 10,000 dollars per person. And so once you have the universal system, you were much more, I think, anxious of cost control. And so I think that's the first thing that I think we need to do. And then I think the third is again this pricing issue, which is there are trade-offs, but we've allowed a system to become remarkably consolidated in virtually every quarter and then rely on those firms to negotiate prices. And lo and behold, in markets where there isn't much competition and you have negotiated rates, those rates turn out to be exceptionally expensive. I want to get to the consolidation, but you said two things that are in a tiny bit of conflict with each other. So from a behavioral economic standpoint, I wanted to tear them apart a little bit. And one is that earlier that it doesn't actually work to make people responsible for their health care spending because they tend to make bad decisions about it. I'm paraphrasing a little bit. But the second that you just said is that giving people access to unlimited health care essentially overpaying actually means that they tend to use too much of it. So is there a happy medium in there? And then actually I'm asking on a personal level too because I have a plan with an extremely high deductible in order to make my premium semi-affordable because I do have this very high deductible. And I think, yeah, I can manage this year without doing that thing. So what is there? Is there in general an ideal level of encouragement to utilize without over-utilizing? Well, I'm so grateful you made the distinction. So what I was talking about before was sort of out-of-pocket costs for the consumer. And I think people really struggle there. I think that's distinct from choosing which insurance plan they get. So I think if you went up to workers and said, look, you can have $10,000 or $5,000 next year if you choose a plan with a narrow network that doesn't include everybody, some folks would make that choice. And I think the challenge is we don't really allow people to make those decisions. So I wish people had more choice over the insurance products they chose. I don't think folks can choose which healthcare provider on the basis of price. I do think that if we sort of nudge people to have more choice over their insurance plans, that might do some good. And this sort of sets the stage for I think where we could go as a country from a policymaking perspective going forward. So there really are sort of two choices that we face. We're sort of coming up to a fork on the road. Every 20 years or so we get big healthcare reform in the US. And most of the ones that we sort of hear about that are successful are really about expanding coverage. And partly that's because governments are just better at solving problems of scarcity where the solutions are just due more. Now we're going to face this problem with affordability and that's really tough for democratic institutions because the outcomes we see aren't Pareto efficient, but we're going to end up taking away from somebody. And I think the choices are one or the other. One is saying look, we probably have to roll back employer-sponsored health insurance. We've got to dump more people into the exchanges. And what we know in these individual markets is people choose skimpier plans. When they have a choice of their insurance, they choose not to get these sort of gold-plated plans that include everybody. And they start sort of saying, okay, at the margins I'm willing to shift. So I think that's one avenue that we can pursue. The other is we can start thinking about expanding Medicare in one way, shape, or form. And I think the reason you do that isn't the Medicare for all bumper sticker, it's that Medicare has regulated prices. And in a sense, expanding the Medicare program in some way, shape, or form gets a bigger share of the public covered under regulated prices. So we seem to speak somewhat fondly of the health insurance business. So let me challenge you with the following. UnitedHealthcare has closed to 450 billion in premiums last year. 70% of these are paid in claims, meaning that there are many 30% are amnesty expenses and profits, which amounts to roughly 135 billion. UnitedHealthcare is a 16% market share. So if you assume that the ratio is the same for the industry, that's a bit of an heroic assumption, but this is saying that roughly 850 billion are sucked up by our ministry costs and profits. 150 billions are 2.8% of US GDP and almost three quarters of the difference between the cost of the health care in the United States and the cost in Germany, and the country that spend the most. Don't you think that the first culprit is the health insurance industry that suck up a lot of profits and spend a lot on amnesty expenses and by the way, does not do anything for prevented health care because it has no incentives to do so? First and foremost, I don't want to be an apologist for the insurance industry. There's a lot that they do that's deeply frustrating, but they do think we have the level set here. It's one thing to talk about the profits insurers make in absolute dollars and they're enormous. It's a small percentage of a big number. The reason insurers make big profits is because we spend a ton of health care domestically. I added to the profits just to make sure. I added to the profits also the administrative cost. And I want to talk about that. To take the profit margins of the big nationals, the Bucca plants, there's sort of 3-5%. And point in fact, they've actually gone down over the last 15 to 20 years. So profit margins at these companies are relatively low compared to other companies of that scale. They're going down over time. We think about the driver of the growth and health care spending and have some work on this going forward, excuse me, insurance premiums and have some work on this coming out in the fall. 92% of the growth in premiums is driven by growth and spending. So then, I don't think this is a super normal profit issue. Then we've got to move into this sort of question about administrative costs. Here's where things I think get very, very nuanced. It is one of the differences between the US and other countries. We do spend more on administration. And the question is like, what does the administration get you? When we look domestically, I think the best thing we can do is compare Medicare Advantage and Medicare fee for service. So remember Medicare prices are regulated. So the only thing that drives spending is quantities. How much people consume in different places. And when you drill down to it, Medicare Advantage plans, on average, spend less per person on health care than Medicare fee for service. And why do they do that? It's in a sense because of the administrative costs that you've cited. They do things like prior authorizations, which piss everybody off, but do manage to constrain quantities. They do disease management. It's kind of a pain, but it works. So they spend less per person, but federal spending on them is markedly higher. And why is that? Well, one, we as a government have chosen to subsidize them, which is a policy choice. Second, they gain risk adjustment. When you have insurers competing, the incentive is to compete over who you insure. I want to avoid the sick patients and focus on the low risk patients, give them a medical. I want that to happen. So now we risk adjust the payments we make to insurers. Turns out the insurers are pretty darn sophisticated at getting around that risk adjustment. And so they get massive bloated payments. So I think some of the admin costs do certainly go to the gaming. Some of it goes to, in a sense, making care more efficient. Now the question is, do we want insurance companies in the first place? And I think the debate here is let's sort of juxtapose what's happening in the U.S. with what's happening in England, where there largely isn't a sort of plurality on the purchaser side. They actually have started moving in that direction by basically giving purchasing power more and more locally, which is a sort of different form of insurance competition. But why do we want insurance competition? Different benefits designs. We want it for different ways to potentially control what gets spent to have competition over things like disease management and ways to manage care. And the question is, do the benefits of that competition outweigh, you know, I think, the other sort of waste that you get when you have insurance companies competing? Another way to think about the Medicare program. In Medicare fee for service, it's basically a check writing machine. If one of you submits a bill, Medicare pays. And so let's talk about skin substitutes. This is, for anybody listening out there, the most wild story of what goes wrong with regulated prices and why eyes and eyes economists do think we should probably move in that direction, but I want us to move there with a whole lot of trepidation. So, you know, somebody has diabetes, you can get these sort of ulcerative source. It's sort of gross. And they've come out with these sort of, think of them as like the world's most complicated band-aids. It's like 2018 federal spending on these things was like $300 million a year. No, not that big a deal. And there was a change in policy, which required that Medicare, when you hear this, it's going to sound as silly as it gets. Medicare basically pays a regulated rate, but the doctor gets 6% of whatever the prices of the product they use. And the rate that gets paid is quote unquote a market rate. And so the skin substitutes, the market rate gets determined the first year and they realize, well, wait a second, if we determine the rates in the first year, we can sort of set the rates at whatever we want. They set them really, really high because doctors get 6% of whatever they do. The doctors want to start using them. And eight years later, the federal government was spending $6, $7 billion, eventually up to $18 billion in these damn skin substitutes. But the surge in spending on these things was staggering. And the current administration came in, they changed the policy on skin substitutes. It's projected to save about $300 billion over 10 years. None of that was happening in the Medicare Advantage side, where there was just more flexibility. There was less lobbying over the fee schedule. So like every other economist, I do think there are trade-offs. There are a lot of virtues for having a larger role for the government. I think we should talk about it and expand it. But there are downsides and it's the lobbying, the capture, and the gaming of those fee schedules that you just do not see in the profit markets in the same sorts of ways. When the tragedy at UnitedHealthcare happened, I was shocked at the anger it ensures. And it's interesting hearing Luigi talk now, because I think during the course of my work on my last book, I had become angry at the hospitals for the way in which they have gained the system. Maybe that's too pejorative through mergers and through then forcing the insurers in order to accept much higher prices because of this idea of must-have hospitals in a network. And I know you focused a lot on the lack of antitrust enforcement in the hospital sector. So if you had to think about chicken and egg or original sin question, does it begin with the hospitals or does it begin with the insurers? And how do you think about that division of responsibility, or are they both playing a game that they have no choice but to play in order to contract the other's power? And somehow that's become a destructive game. Yeah. So first, Brian Thompson's murder. I mean, it's worth just saying. That was nothing other than dumb ass murder. There's nothing that can justify it. The guy who did it, if he's guilty, should go to jail. I think what's staggering was a 40% of folks under 30 thought the killing was justified. And I think we do have to listen to that. I think we have to sort of ask, certainly in the classrooms, what we're saying, but also just what the companies are doing and what's happening in the country that's gotten there. And in a world where insurance premiums are $27,000 for a family of four, out-of-pocket maximums are about $15,000, when the average family only has $8,000 in liquid assets, that's how we get here. And so I think in some ways it's a sort of barometer for the frustration and the discontent that's out there. I think one of the things that makes healthcare so important to talk about is the sort of chicken egg question that you bring up. I don't think either side has a monopoly on virtue or a monopoly on vice. And I think what's so frustrating is both seem to do well no matter what happens, as the American public suffers. That my work suggests that the rising cost of healthcare within the context of employer-sponsored health insurance makes it the leading driver of income inequality. So I don't know if there's a who's-to-blame sort of culprit. I think we're all in this together, and it doesn't feel like either of those groups in any way, shape, or form is really thinking about the best interests of the country or the American public. And you think about what happens in Capitol Hill. I got asked by a very, very wealthy philanthropist. They gave me a very large amount of money to fix healthcare. What would I do? And the number is like $300 million, so a lot. But not enough to, you're not going to create a new industry out of $300 million. And what I said is what we want to do is create a constituency for efficiency. If you're a staffer in D.C., you're inundated with lobbying from health insurance and from hospitals and from physicians. It turns out the healthcare sector spends more on lobbying than any other sector in the U.S. economy. There's nobody there who's sort of advocating for efficiency and saying, how do we rationalize this? And I think that's problematic. And often when we see reform, and I think that's actually a big risk right now, will we go after the parts of the system understandably that's the most frustrating? So prior authorization right now, that's what folks are talking about. And there are abuses of it. It's profoundly frustrating. But we also have to say at the same time that if we got rid of prior authorizations and we don't address things like the cost of care, what you're going to see is insurance premiums go up, not down. More people in this country priced out of healthcare services and more job losses that come from premiums going up. So you've done a lot of research on the effect of competition in the market for healthcare. And actually, I want to discuss a paper of yours that sounds very familiar to me because I have an insurance, a blue-clothed blue shield, that allows me to go wherever I want. But my general practitioner who used to belong to one particular network, whenever it was giving me recommendation, I saw something funny that she was printing sort of the schedule for all the recommendations etc. And then by hand, he was writing some other recommendation out of network. Then she changed network and now there is AI that listen to the conversation in order of course to improve medical care. And then what I discover is that she was unwilling to give recommendation out of network. I'm surprised. Can you explain to listeners how your paper is linked to this idea? So I think one of the things that's really surprising when you say it to doctors is that doctors are influenced by financial incentives. And so I've... The consolation, economists don't think they are affected by financial incentives in their research. No, I'm not at all. Maybe you are. It's not me. I'm purely for the love of the game. And so we look at what happens when... And I think this is the paper you're talking about. What happens when physicians get acquired? They merge with hospitals and how that shifts what they do. And it shifts it very, very markedly. So it takes cesarean sections as an example. The US has some of the highest cesarean rates globally. And there are lots of reasons why if mom's given birth, she may not want a cesarean section. It leads to some downstream consequences. It's a real medical procedure. And we've seen this literature develop about how this is pretty problematic for both mom and baby if it's not medically necessary. See a marked increase in the rates that the OB-GYNs are doing in cesarean sections when the ownership of their practice changes and they get bought by a hospital. Why? In a sense, it brings a whole lot more revenue to the hospitals themselves. We see that when physicians get bought by hospital practices, that's where they send their patients. And so I think incentives matter for physicians the same way they matter for economists and amazing journalists too. No, never. I am here as the driven snow. So Luigi's going to scream because I always have to find a way to work this question into basically every podcast we do. And so what I also is actually how I first encountered your work, which was your work on surprise billing, which was driven in part by the private equity acquisition of emergency care groups. And so how do you think about the infusion of private equity money into our system overall? Is that a good thing? Does it bring some of the efficiency we wanted? Or is there a place for what people would describe as capitalism on steroids in a business where the trade-offs are actually sometimes people's lives? So I'm going to give an answer that I think is different, potentially than you expected. You might frustrate Luigi a little bit and different folks. I'm not as worried as everybody else is about private equity. I think we talk a lot about private equity in healthcare because it's easier than talking about the real culprits that are raising the cost of healthcare. I think 40% of our healthcare spending in the privately insured happens in hospitals, 60 to 70% of hospitals are nonprofits. That's where the spending is. And that's just sort of a tough thing for us to talk about. And so, oh boy, it's easier to talk about the Vikings at Serb or something or Serb or Scapitol. I did a bunch of work on surprise medical bills and this is this weird phenomenon, uniquely American phenomena, where hospitals and physicians independently negotiate with insurance companies over network participation. And so it's an emergency. We're going to a hospital. It turns out you can go see a doctor in an emergency room who's not in the same network as the hospital where he or she is working, which is just bananas. And it's just a pure market failure. We're getting more and more into it. I read a paper first in the William and Jerome Medicine that found this was happening 20% of the time, which is nuts. Keep digging in. And it turned out two companies were behind the lion's share of this out of network billing. One was called Team Health and one was called Envision Healthcare. I'm involved in so much litigation around this that I'm just giving them more material now for when this eventually goes to trial if it ever gets that far. Both firms had sort of bounced around the public markets and private markets. Eventually they were owned by KKR and Blackstone. Look, in some ways, the worst of what they were doing is actually happening when they were publicly traded. And I think in some ways, what was astounding with private equity was that they bought them right before they circled the drain and went bankrupt. I sort of view private equity and surprise billing as evidence of, boy, these guys made some wildly stupid decisions about what to acquire. I think it was Envision. The bond yields were down at the living currency territory. It was like 83 cents on the dollar at some point. So there's a lot of research. I think since I did the surprise billing work, it's come out on private equity. Some of it's good. I think there's pretty good evidence in the nursing home space that private equity acquisitions don't lead to great outcomes. And I think there it makes a lot of sense. So that's a market that's dominated by public payers. The reimbursement rates are fixed. And so if you want to make money, you basically just have to lower costs. There's other work. I think, Luigi, this is a bit of an indictment of our profession, frankly. My work, it ended up in a top five. So it ended up in a good journal, lead story, the front page of the Times. And it led to a bit of a cottage industry of writing these types of papers going after particular companies because I think it was viewed by folks as having high returns within the profession. And there are some studies that just shouldn't have been published. And some of these are ones that I frankly can't replicate. And I'm doing a bunch actually looking at private equity now and the story is pretty mixed. On aggregate, I don't really find much. There are parts of the healthcare system where quality is really tough to measure and the folks accessing care are pretty vulnerable. I think I don't want turbocharged incentives for any entity, whether they're public or private. There are other parts of the system. So Amber Laforge is out of Berkeley and she's got some amazing work looking at the IVF industry where there actually has been a lot of private equity and she finds the quality gets better. And so I think, you know, big picture, like I don't stay up at night worrying about private equity. I sort of worry about why health spending is what it is and how I think it's undercutting the American dream. I don't think it gets back to each of your questions before the US healthcare was a country. It's the third largest country in the world in dollar terms. Right. It's just behind the US and China. It's bigger than the economy of Germany. There's dumb stuff that happens in dark alleys in Germany. And it turns out there's like dumb stuff that happens in dark alleys in the US healthcare system and private equity is doing some of it. Non-profits are doing some of it. And I think we got to tamp that out. But I don't think, you know, the one thing standing between us and greatness is the sort of ownership structure that we see on the provider side of them. Damn it. If only. Yeah, our jobs would be easy. I think that you're very wise in presenting these things. But on the other hand, the differences between the other countries and the United States are so stark in terms of cost and so terrible in terms of outcomes. And I saw this statistic comparing the life expectancy in the UK and US. And we all think that the UK has this terrible medical insurance. But even at the highest level of income, the US are below the UK, which is pretty remarkable. What you're raising, these are the key points. So by the way, this is like the most fun podcast. So this is like a Chicago seminar in podcast form. Life expectancy is different, but we got to be really clear about why it's different. So the US lags behind other countries. The chief causes are homicide rates, vehicular accidents, overdoses and suicides. A lot wrong in the US healthcare system. It isn't what's causing us to have highways. They're unsafe. You're a little bit too generous because number one, overdose. The healthcare system has a lot to do with it because the opioid crisis was created by healthcare and the healthcare system. And then I think, let's be honest, what it was caused by was the marketing of OxyCone, which planted the seeds of it. And then I think very fertile ground, which is in a sense profound income inequality in life that got very, very hard for basically folks without a college degree in the US. If we had had single payer, I don't think that's that's sort of stopping it. There are lots of reasons the US healthcare system needs to be fixed. I think we're going to be in a whole world of hurt if our goal for reform in the US healthcare system sector is fixing life expectancy. Let me stop you with a quick question there because I think that does contradict a little bit your earlier point, which is that the problems in healthcare have caused or have been a primary cause. Or a driver of income inequality. And if then income inequality is a driver of life expectancy and less happiness, then it does loop around in the end to the healthcare system. Yeah, and I think that's totally fair. So, you know, one of the things I talk a lot about, let's talk about the income inequality component. So, because I think the economics here are really, really fascinating. The wages vary a whole lot inside companies and premiums for health insurance don't. And so, you know, take an average college educated worker makes about $100,000 a year, let's say the premiums are $9,000. The average non college educated worker makes $50,000. They're also paying $9,000 in premiums. So, as healthcare gets more expensive, it's disproportionately more costly to ensure a low income. And so, different way to frame it is I can let $100,000 work or go and I can save $9,000 premiums, so $109,000 total. I can let two lower wage workers go, say $50,000 each in wages and $18,000 in premiums. So, you know, the sort of theory on that, you know, it's basically like a head tax. And, you know, we all think that head taxes are supremely regressive. It turns out employer sponsored health insurance is extremely regressive. And when you look at the growth in healthcare spending combined with employer sponsored health insurance, that's what's making it the leading driver of income inequality. I think the link between that and life expectancy is maybe a little more... A little more sort of nebulous, you know, but I'll give you a different version. You know, talking about the frustration that made us take us out of the American economic review version of the paper. But we traced through how hospital mergers affect wages and employment across the country. And what you see is that a sort of average merger is going to lead to huge numbers of job losses outside the healthcare sector because it makes insurance premiums more costly. When insurance premiums are more costly, it's more costly for employers to retain workers. The crazy part is we end up seeing that suicides and overdoses go up. And that's, in a sense, because losing your job is terrible. And particularly terrible for men. And, you know, so you see all this consolidation in the hospital sector, we show very, very clearly that merger and tarot hope that's going to go through this year is going to lead to about 800 job losses in this pretty smallish town or city in Indiana. It's going to lead to about two suicides or overdoses. And it's sort of deeply ironic that the institutions that we're turning to that are most vulnerable are, you know, to put it in delicately and kill in the public. I respect that. But I think that you are underplaying the role of the health insurance of the healthcare industry in life expectancy. Let me give you three examples. Number one, the World Health Organization as a measure of preventable death. And the country like Japan and Israel have 130 preventable death per 100,000. The United States has more than three times as much. And that's number one. Number two, you are talking about merger. We know that the industry for dialysis has consolidated excessively. And we know that when there is this consolidation, actually we observe an increase in death of patients that are on dialysis. Number three, the number of mother who die giving birth in this country is unbelievable, is at a sort of developing country level when in the other Cuba, which is not really a rich country, they do much better. So why this is not part of the healthcare industry responsibilities? Yeah, I mean, so first, I don't disagree with anything you said, let's call it a yes, but I don't disagree with anything you said vis-à-vis the burden of illness, maternal mortality. Where I guess we're seeing this slight division between the two of us is what we put under the sort of cultural aspects of the U.S. Our history of deeply problematic race relations in this country. So the wider world of health that we engage with and the healthcare system. And I sort of view the, it's just sort of, I think where one draws the boundaries for a healthcare system. So I don't disagree that all of those things matter. I think when it comes to, say, maternal health, where is the problem, is the genesis, what share is sort of culture and very real questions about trust for institutions. To what extent is it that versus the institutions themselves? And I think the answer is probably both. But I think it's more nuanced than saying if we got the English National Healthcare Center system and we sort of dumped it into Albany, Georgia, or dumped it into Swannay, Alabama, Florence, Alabama, that we're going to see maternal mortality look similar. So I think we have to address it. I think it's pretty darn complicated. I had a last question maybe for both of you and it might be outside the scope of this podcast, but it was something I was thinking about as we were talking that part of the conversation at the Stigler Center conference was about the growing number of jobs in healthcare and how to make those jobs good jobs. If those are going to be where a lot of jobs are in the future. But doesn't that run directly counter to cutting healthcare spending? In other words, if growing healthcare spending is this dramatic problem and we want to make it grow less, but we also want jobs in the healthcare sector, especially lower paid jobs, to be better and to pay more. How do we make that work? With great difficulty. I think this is the challenge the Architects of the Affordable Care Act wrestled with. They were in a massive recession, depression. The question was like if you really tightened up on healthcare spending, then what would you do to the rest of the economy? We see that a dollar increase in healthcare spending takes about $1.33 when it's driven by house emerges takes about $1.33 out of the rest of the economy. I think some of the growth we've seen lately in the labor market vis-à-vis healthcare has been carers. And I think that is different. So I think it's a question of what part of the healthcare system we see the labor market growth. What sort of scares me a little bit about the hospitals is we know where the money comes from and it's workers earning less than $100,000 who are paying for it with employment. I'm doing some work thinking about where it's going. It typically goes to the upper end of the income distribution at hospitals. That is a sort of recipe for disaster. I think long-term care, which is a huge issue we face domestically, is understaffed. I think those jobs do look different. And so I think there is scope for that to at least not drive up inequality, but be sort of more like jobs we think of in the service sector. I have a challenge and a suggestion. The challenge is you find a sponsor that does this field experiment in which we parachute free healthcare with Cuban doctors in Alabama or Georgia. And we look at mother mortality in delivery. And I am prepared to bet substantial amount of money that we reduce massively. You are saying no because it's a cultural issue, but I think that that's really an interesting challenge. The suggestion is when I was listening to your work and the problem of healthcare, I came of course from the financial world and I think that fiduciary responsibility is often used to reduce some of this problem. Not that it's perfect, but it is. And I think that one idea is why don't we impose on doctors if they do show responsibility that they should recommend whatever they will do for themselves. We have a very simple way because we can check what they do for themselves. So do I recommend the most expensive healthcare or if I do something else, why do I recommend to other? I recommend to go to that particular doctor, but I don't go to that doctor. So we have the record of how they treat their family and so that's a useful benchmark for how they treat their patients. I think it's a perfect question and done. So I would love to do that randomized trial and I don't disagree that we might see some life expectancy gains. I thought you were going in a different direction with the fiduciary obligation. It had me thinking and I actually think we ought to think and talk more about it. I want to see the fiduciary obligation towards employers and health insurance. I think the challenge when I think about doctors is what makes me really interested. So I went to UChicago for undergrad and it was not an econ major. I loved philosophy and that's sort of what I think piqued a lot of the interest in what I think about today. There are a lot of really challenging philosophical and moral questions in the healthcare sector and I think their intersection with economics is fascinating. One of the chief ones is what's good for individuals isn't necessarily good for everybody. The sort of world where we say doctors, whatever we do for you, we want you to do for everybody else, it's not always clear that what they do is evidence-based and that more is necessarily better. And somebody who's really, really high cost drugs. I think they provide a really good sort of answer to how we think about this, which is they extend life often by pretty marginal amounts at huge costs. And the question is like how do we think about who should make the decision over who gets what? And I think in many ways if you ask the doctors, they're going to make a decision about the person in front of them and that might be the right decision in that instance, but that isn't the right decision socially. In other countries, we're much more comfortable taking England as an example saying, look, we're not even going to let the doctors make those choices. A drug like Bevisithiuma, the Vastum, for certain types of lung cancer extends life by a month or two at costs of, of hundreds of thousands of dollars. We do it in the US, England initially, they said no. And I think it's confronting those sorts of tensions that make this work incredibly nuanced for me, fascinating, morally complex and what makes the study of the economics of healthcare different than a lot of the other topics that we all engage with in our day-to-day. And so I, again, at least vis-à-vis fiduciary obligations, I want to see them for insurers. You know, I think the thought exercise I give my students is what would happen if health insurers had to sell life insurance at the same time? How would that change what they did? And I think that's where I'd want to see some of the big changes in duties and obligations. If you're enjoying the discussions Luigi and I are having on this show, there's another University of Chicago podcast network show you should also check out. It's called Big Brains. Big Brains brings you the stories behind the pivotal breakthroughs that are reshaping our world. Change how you see the world and keep up with the latest academic thinking with Big Brains, part of the University of Chicago podcast network. I like his nuanced approach to things and I like his incremental attitude. I guess is frustrating in some ways because you want there to be some big, giant, wonderful fix to the problems that plague our healthcare system. But I think that there is not and that it's more practical to look at the small bites that he suggests. I am a bit frustrated by the incrementalist approach and maybe he's right and I'm too impatient. But also I'm a little bit frustrated by everybody in economics seems to blame the neighbor but not themselves. A couple of weeks ago we interviewed Steve Kaplan and Steve Kaplan said, oh, of course private equity is perfect. Finance is perfect, but healthcare, it may be screwed up. And then you interviews that Cooper and say, look, there are a lot of problems with mergers and they kill people because they kill people because they leave unemployment. But healthcare doesn't kill people. Everybody is very happy to find problems in the neighbor's yards but not in their own. But I did appreciate Zach's nuanced answers. For example, I would have thought that he would have been far more massively critical of the healthcare system. And I thought his point about there being underlying problems in America that have made healthcare more difficult here is actually very fair. There's a lot of truth in his nuance. There is a lot of truth, but I think he went overboard. At least in the area I know a little bit more, which is the one of opioids. You know that the opioid crisis mostly affected white people and not black people. Black people got unemployed too. So why only affected white people is because doctors tend to be racist and not prescribe opioids to black people because they naturally abuse them and prescribe them more massively to white people. As a result, once in a lifetime, black people were preserved by these races and the white people were affected. But this is to say that really the massive prescription of opioid is the major cause of the opioid epidemics. Of course, unemployment, all the other stuff did not help. But however, the massive things is there and just blaming unemployment, etc. I don't think it is fair. Yeah, I hear you, although the opioid crisis is its own ball of wax because there were so many cries to treat pain and then so much pressure on hospitals and doctors to prescribe things that would treat people's pain. Of course, all of that can be traced back to lobbying from Purdue and other companies. But I think the real thing to blame there might be corporate influence and power and greed rather than the healthcare system per se. I'm not sure most doctors and hospitals stood a chance against the combined onslaught of the opioid industry. I'm sorry to say that's part of the healthcare system that is very much for profit. And as a result, it's particularly sensitive to this lobbying. I'm not saying it's only fault of the healthcare system, but the healthcare system we have is really prone to these abuses in a massive way. Yeah, I'm not sure that the for-profit element of the healthcare system made that any worse or any better than it would have been because if the companies like Purdue had been selling their products into a non-for-profit system, Purdue made a lot of money on dispensing the opioids, but I don't know how much the hospital system made on dispensing the opioids. Actually, that's a really interesting question. And I've never seen those numbers where they prescribed it a huge markup so that hospitals made money too or was it just Purdue anyway? Certainly, I can tell you, certainly pharmacists, that's the reason why they got sued. The pharmacists had some responsibility in overseeing the prescription they handle. And there were internal memos, for example, at Walmart where low-level employees were signaling to the headquarter that there were some peel meals. There were some doctors that were offering thousands and thousands of prescriptions and they were reported by the low-level employee to the upper-level employee at Walmart. And the upper-level employees said, no, no, no, don't worry, we're here to sell stuff. I know, but that's not the hospital system. I mean, my turn to be pedantic, sorry. Is the health care system a pharmacy? Yeah, I know, but it's not hospitals and doctors. I hear you, I know. And we're just going down a little bit of a rabbit hole. Anyway, what else did you find interesting? The other thing that is pretty, makes me a little bit desperate. We interviewed Amy Philkistan last year. These are basically the two world experts in health care. If even the world experts don't have a solution, where are we? Yeah, I think, unfortunately, the system is going to have to completely head into crisis and then it will have to all get ripped out and replaced with something else. But I don't know that anything will get done unless there is an out-and-out crisis. I grew up in a family of doctors and my dad was a doctor, my grandfather was a doctor, my sister is a doctor. And when I was growing up, for sure, my dad would rant and rave about socialized medicine in Canada. And we lived in a small northern Minnesota town and people would come over the border from Canada to have their eye surgery, their cataract surgery done in the U.S. I would say both my father and my sister now argue in favor of socialized medicine because it's just been bastardized so badly by all the doctors. All the money people have taken out of it, whether it's the insurers or for-profit hospitals. And so to watch that switch over the course of my lifetime is really interesting and I think speaks to this broader idea that we talk about on this show, which is that people who want to defend capitalism should play the role in making the system more fair. Otherwise, they're going to find themselves the victims of their own or the very system they depend upon to make their money getting ripped out in front of them. And I think the healthcare system might be an example of that where even people who are rapidly against socialized medicine have just watched in horror the profit extraction over the last decades and have completely flipped on that. Yeah, but SAC defended even United Healthcare. Yeah, I mean, I don't know enough about United Healthcare. I only know what I read. I've never delved into it. I think there is this very underappreciated people tend to either pick United Healthcare as the bad guy or they tend to pick hospitals as the bad guy or they tend to pick private equity as the bad guy. I know which one do you pick? That's why I like I actually appreciated that not not playing into my preconceptions or my my desired answer. But but but it's it's it's the micro version of what you talked about at the beginning of this where you said that everybody points their finger at the healthcare system so that it's somebody else's problem. And I think when people look at healthcare, everybody tends to have their favorite villain and that allows that lets the other villains off off the hook. And I didn't take what's said so much as defending United Healthcare as I did him saying it's it's way more complicated than just pointing a finger at United Healthcare. I think you're right. However, my reaction and maybe it's unfair because I react to a group of people rather than just the poor as I act. My reaction is when you start saying it's complicated. It's also a code name to say we can't do anything and nobody is to blame and we should all be nice with each other. No, you're you're you're right. And I have often invoked that in different in different situations. And I agree with you that two curses in the modern world are saying it's complicated and saying we should start talking about X, Y and Z because talking about X, Y and Z never did anything and saying it's complicated. You're exactly right. It's it's it's it's a doc. It allows everybody off the hook. So I I I agree with you too. How's that? No, he's like in university, you know, when a dean or a president appoint a committee is because it doesn't want anything to be done. Because as as last pillow was saying, if you see a snake, you don't appoint a committee on kill his nakes, you kill the snake. Right. When a journalist writes, we need to start talking about X, Y and Z. You know that there are no good ideas to solve X, Y and Z because otherwise would do it instead of talking about it. Right. Absolutely. I think that the point and I'm being a bit unfair with that because the one point I agree 100% is that the origin of the scene is the fact that there was tax deduction for health care. And as a result, this there are two things. Number one, we buy too much of it. Number two, we're not sensitive to the price of it. The problem is if you eliminate immediately tax deduction, people would revolt. And if you start paying people or charging people directly, they will revolt. The only solution, at least temporarily is to say, we give you tax deduction, but the company has the freedom to offer you money and different health care plans. And then to offer everybody the option to buy into Medicare at a particular price. I think a lot of people would choose to buy into Medicare and to get the money in exchange. And that will break the system. I like that idea. I was going to take a much smaller piece of it, which is just getting rid of employer sponsored health care. Capital Isn't is a podcast from the Stiegler Center and the University of Chicago podcast network in collaboration with the Chicago Booth Review. If you haven't yet, you can now find our podcast as a video on YouTube. Don't forget to subscribe and leave a review wherever you get your podcasts. The show is produced by me, Matt Hodepp and Brittany Broders with production assistants from Andy Nazaro, Matt Lucky, Sebastian Berka, Julie Preps and Andy Shee. The podcast is partially supported by a generous contribution from Luis Munez and Cristani Medellus Munez. We are grateful for their commitment to advancing the thoughtful dialogue and scholarly engagement on our show. If you'd like to take the conversation further, also check out Promarket.org, a publication of the Stiegler Center, and subscribe to our newsletter. Sign up at chicagobooth.edu.