Why American Health Care Is a "Broken System"

Summary

Plain English with Derek Thompson Episode: Why American Health Care Is a "Broken System"
Release Date: December 13, 2024

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Introduction

In this compelling episode of Plain English with Derek Thompson, the host delves deep into the intricacies of the American healthcare system, unraveling why it's often labeled as "broken." Through insightful conversations with esteemed healthcare economists Jonathan Gruber from MIT and David Cutler from Harvard, Thompson navigates the complex landscape of healthcare disparities, exorbitant costs, and potential avenues for reform.

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Tragic Catalyst and Public Outrage

[01:44] Derek Thompson opens the discussion by referencing the tragic murder of UnitedHealthcare CEO Brian Thompson. The perpetrator's manifesto, laden with anti-insurance sentiments, ignited a wave of public indignation and dark humor across social media platforms. Thompson remarks:

"Many people seemed to delight in this man's assassination... This online reaction was a grotesque illustration of something very real. There's an enormous amount of anger and frustration about the state of American healthcare." [01:44]

This incident serves as a stark reminder of the widespread dissatisfaction and rage towards the insurance industry and the broader healthcare system.

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Disparities and High Costs: Jonathan Gruber's Insights

[05:24] Jonathan Gruber, an MIT economics professor and a pivotal figure behind the Affordable Care Act, is introduced to dissect the core issues plaguing American healthcare.

1. Healthcare Disparities

Gruber identifies two paramount issues:

• Disparities in Healthcare Access and Outcomes:
  He highlights the stark differences in life expectancy based on race and socioeconomic status. For instance, a white child in America has similar survival odds to one in Sweden, whereas a Black child fares worse than one born in Barbados.

  "An enormous amount of anger and frustration about the state of American healthcare." [05:24]

• Exorbitant Healthcare Prices:
  The U.S. spends more on healthcare than any other developed nation, yet many receive subpar care. Gruber points out that the U.S. spends about 18% of its GDP on healthcare compared to 4% in 1950, leading to significant advancements but also considerable wasteful spending.

2. Why Are Costs So High?

Gruber structures the conversation around three primary narratives explaining high healthcare costs:

• Utilization Story:
  The U.S. uses more healthcare services than necessary, driven by the wealth of the nation allowing for extensive use of advanced medical technologies. However, a third of the spending is deemed wasteful.

  "We have had incredibly miraculous developments in health care that have been wonderful for our health. The problem is, at the same time, we spend a lot of money on things that don't actually improve our health." [06:28]

• Greed Narrative:
  While popular, Gruber challenges the notion that greed is the primary driver, emphasizing that the healthcare market is fundamentally broken. He cites Kenneth Arrow's 1963 work, asserting that healthcare markets lack competition and transparency, leading to monopolistic pricing.

• Administrative Waste Story:
  The complexity of the multi-payer system results in high administrative costs. Gruber argues that even significant reductions in administrative spending wouldn't suffice to curb the relentless growth of healthcare costs.

3. Potential Solutions

Gruber emphasizes a two-pronged approach:

• Addressing Access and Cost Separately:
  The Affordable Care Act successfully tackled disparities in access without initially addressing cost, leading to a significant improvement in coverage.

  "We have gotten rid of that, it's very important... Once they're in the system, we then have the price problem and it becomes unaffordable." [40:20]

• Price Regulation and Comparative Effectiveness:
  Implementing frameworks that assess the value of medical procedures and set prices accordingly can help manage costs without stifling necessary care. Gruber advocates for regulated pricing based on the health value delivered by services.

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Insurance Industry Under Scrutiny

[12:06] Derek Thompson brings up the prevalent belief that the insurance industry is inherently greedy, exacerbating healthcare issues. Surprisingly, he notes that U.S. private insurers have lower profit margins compared to typical large publicly traded firms.

Chris Vernon's Perspective (Attributed to Jonathan Gruber)

[15:59] Drawing parallels with airline deregulation, Gruber (misattributed as Chris Vernon) explains that insurance companies act as middlemen in a broken system where healthcare providers set exorbitant prices.

"It's an enormous battle... The answer is to worry less about we pay today and worry more about the Future." [16:49]

He argues that while insurers play a role in attempting to control costs, the root cause lies in the overpriced healthcare services. Gruber emphasizes that reducing administrative costs alone won't halt the unsustainable growth of healthcare spending.

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Comparing U.S. and Canadian Healthcare Systems: David Cutler's Insights

Transitioning to an interview with David Cutler, a Harvard health economist, Thompson explores the stark differences between the U.S. and Canadian healthcare systems.

1. Rationing Care: No vs. Government Control

• United States:
  Private insurers are the gatekeepers, often denying or limiting coverage based on profitability and administrative policies. This leads to frustration as individuals face unexpected "no" decisions after navigating cumbersome paperwork.

• Canada:
  The government controls the supply of healthcare services, leading to different forms of rationing, primarily through longer wait times rather than insurance denials. Patients don't face bankruptcy risks but may experience delays in receiving care.

2. Administrative Costs and Utilization

Cutler illustrates the inefficiencies in the U.S. system using the example of MRI referrals for back pain:

"In the US, if the primary care doc wants an MRI, the doc has to get approval from the insurer... that's all this back and forth." [54:37]

In contrast, Canada’s streamlined approach reduces administrative burdens but shifts rationing to service availability and wait times.

3. Potential Reforms and Future Directions

Cutler discusses innovative ideas to bridge cost reduction and medical advancement:

• Registry-Based Clinical Trials:
  Establishing comprehensive patient registries can expedite clinical trials, reduce costs, and enhance drug development efficiency.

• Balancing Price Regulation and Innovation:
  Ensuring that price controls do not stifle pharmaceutical innovation is crucial. Strategies include enforcing strict patent laws to prevent excessive extensions and investing in reducing drug development costs.

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Barriers to Reform and Political Realities

Gruber outlines three primary obstacles to implementing a single-payer system in the U.S.:

1. Transition from Employer-Based to Tax-Funded System:
   Moving from a hidden tax model to an overt taxation system poses significant political challenges.

2. General Satisfaction with Current Coverage:
   With 92% insured, convincing the majority to transition to a different system without disrupting their existing coverage is daunting.

3. Insurance Industry Resistance:
   The $1 trillion insurance sector resists changes that threaten its entrenched multi-payer structure, likening potential reforms to socialism in the eyes of opponents.

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Optimism Amidst Challenges

Despite the systemic issues, both Gruber and Cutler express cautious optimism:

• Technological and Systemic Innovations:
  Advances like outpatient surgeries, AI-driven administrative processes, and centralized patient registries can significantly reduce costs and improve care delivery.

• Ongoing Medical Breakthroughs:
  Continuous innovation in medical science promises ongoing improvements in health outcomes, potentially offsetting some cost burdens.

Cutler emphasizes that once effective systems and technologies are in place, they can yield long-lasting benefits without the need for constant reinvention.

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Conclusion

Derek Thompson's episode paints a comprehensive picture of the American healthcare system's flaws and the multifaceted challenges in reforming it. Through expert analyses, the episode underscores the urgent need to address both disparities and exorbitant costs while navigating political and institutional barriers. However, it also highlights pathways to progress, emphasizing the potential for innovation and systemic improvements to pave the way for a more equitable and sustainable healthcare future in the United States.

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Notable Quotes:

• "Health care is the most expensive health care system in the world, while for many people it delivers bad care at exorbitant prices." — Jonathan Gruber [05:24]

• "Healthcare economics...markets are fundamentally broken." — Jonathan Gruber [14:44]

• "Healthcare should not be free. Healthcare is a good you consume and make decisions on, and those decisions can lead us to sometimes consume too much." — Jonathan Gruber [24:45]

• "If we did nothing to control healthcare costs, our country will spend more than a third of our economy on healthcare by 2100." — Jonathan Gruber [19:58]

• "We have a $1 trillion insurance industry... they're just middlemen passing high costs on to consumers." — Jonathan Gruber [17:04]

• "Americans tend to prefer low-cost, lower-service options, similar to how they accept crappy flights at low prices." — Jonathan Gruber [18:48]

• "Once you figure out how to reduce administrative costs, you no longer have those costs ever." — David Cutler [77:40]

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This episode of Plain English with Derek Thompson offers a thorough examination of the American healthcare system's challenges, enriched by expert insights and real-world examples. It's an essential listen for anyone seeking to understand why the system struggles and what might lie ahead for healthcare in the U.S.

Transcript

[Chris Vernon]

What's up everybody? Chris Vernon here and welcome to a new season of the NBA and the Mismatch. And huge welcome as well to my new co host, Dave Jacoby.

[Dave Jacoby]

I can't wait to link with you.

[Chris Vernon]

Twice a week, every Tuesday and Friday.

[Dave Jacoby]

Right here on the Mismatch to break down everything that's happening in the league.

[Chris Vernon]

Who's playing well, who we loved, who we loathed, trade rumors, team dysfunction. We've got you covered right here. So follow us, subscribe and hit us with those five star ratings on Spotify or wherever you get your podcasts.

[Derek Thompson]

And also don't forget to follow us on social media. That's Ringer NBA.

[Dave Jacoby]

And check out the full Mismatch episodes with the two handsomest podcasters in the.

[Derek Thompson]

History of podcasting right on The Ringer NBA YouTube channel.

[Dave Jacoby]

This episode is brought to you by Amazon.

[Chris Vernon]

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[Dave Jacoby]

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[Chris Vernon]

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[Dave Jacoby]

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[Chris Vernon]

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[Chris Vernon]

Thanks to Amazon Pharmacy and Amazon One.

[Dave Jacoby]

Medical Healthcare just got less painful.

[Chris Vernon]

This episode is brought to you by Lifelock. The new year brings new health goals and wealth goals Protecting your identity is an important step. Lifelock monitors millions of data points per second. If your identity is stolen, LifeLock's restoration specialist will fix it, guaranteed, or your money back. Resolve to make identity, health and wealth part of your New year's goals. With LifeLock, save up to 40% your first year. Visit LifeLock.com podcast Terms apply today the.

[Derek Thompson]

Myths and the realities of American healthcare Last week, as you surely know, UnitedHealthcare CEO Brian Thompson was murdered outside a hotel in Manhattan. The killer wrote deny, delay and deposed on the bullet casings and in his purported manifesto, said that the killing was motivated by rage at the insurance industry, rage that is clearly felt widely in the aftermath of the killing. Many people seemed to delight in this man's assassination. Gia Tolentino, a writer at the New Yorker, captured the gleeful response of many Americans this the jokes came streaming in on every social media platform, in the comments, underneath every news article. I'm sorry, prior authorization is required for thoughts and prayers, someone commented on TikTok, a response that got more than 15,000 likes on LinkedIn, where users post with their real names and employment histories. UnitedHealth Group had to turn off comments on its post about Thompson's death thousands of people were liking and hearting it. As awful as this is, it is worth paying attention to, because the same way that a funhouse mirror is a grotesque reflection of a very real person standing before it, this online reaction was a grotesque illustration of something very real. There's an enormous amount of anger and frustration about the state of American healthcare. And there ought to be. The US Is the most expensive health care system in the world, while for many people it delivers bad care at exorbitant prices. But anger is not always a sign of accuracy. And while some of the most popular reasons to be furious at American health are based on truth, many are based on misunderstandings and myths, especially about the insurance system. So what I wanted to do this week was to present a calm and informed conversation with a healthcare expert to walk me through what I consider the biggest health care questions of the why are American health care costs so high? How much are insurers to blame? How do other countries handle health insurance differently? What can we learn from them? And what, if anything, should make us optimistic about the future of American healthcare? Today we have two guests. First, we have Jonathan Gruber, an economics professor at MIT and a key architect of several health care laws, including the 2006 Massachusetts Health Care reform and the Affordable Care Act. John walks me through the key drivers of health inflation and American anger at the health care system. Second, David Cutler is an economics professor at Harvard who served as senior health care advisor under Barack Obama. He helps us think comparatively about the weaknesses and strengths of the US System compared to Canada, and what reforms could help Americans live longer and healthier lives. I'm Derek Thompson. This is plain English. Jonathan Gruber, welcome to the podcast.

[Chris Vernon]

Great to be here, Derek.

[Derek Thompson]

I want to talk to you about why American healthcare is so expensive and so frustrating and so aggravating, but I'd like to start with a thesis statement on your part. You are one of the most preeminent economists and policy architects for health care in America, and I'm curious how you'd handle a big, honking, unsophisticated question like what's our biggest problem? So let's just start there. What do you think is the single biggest problem with American healthcare?

[Chris Vernon]

I would handle like any academic and say there's two answers to your question. One is the enormous disparities in our healthcare system. Derek, I'm here in Sweden. A white child born in America today has as much chance of seeing their first birthday as one born here in Sweden. A black child has a lower chance than one born in Barbados that's fundamental challenge with our system. The other is prices. We spend more on healthcare than any other country in the world. And as we'll talk about later, the main culprit is the enormously high prices we pay for our healthcare services.

[Derek Thompson]

So maybe the most famous fact about American healthcare is precisely that, that America spends more money than any nation in the developed, on a per capita basis and in total on our healthcare system. And what I'd really like to do is to structure the rest of our conversation around three stories, three explanations for the phenomenon of high healthcare costs, and then use those stories to guide our tour of the state of American healthcare, including the story of the moment, which is clearly the American insurance industry. So let's start with the first story, which is also the worst story, by which I mean the most bloodlessly unsatisfying explanation for why American healthcare is so expensive. A story that will please nobody. And that is American healthcare is expensive because America is rich. And rich people in a technologically advanced country spend a lot of money, have a lot of extra money to spend, spend a lot of money when they make deep contact with their healthcare providers at a hospital, make contact with technologically sophisticated equipment, or whether it's a hospital or outpatient clinic or buying drugs. We spend the most because we use the most. How far does this explanation take us? How much truth is there to this being the top story for American health costs?

[Chris Vernon]

Well, Derek, I think a useful way to think about it in all these contexts is to compare to other countries and we are the richest country. And as we should spend the most as a share of our economy on healthcare. Healthcare is what we call a non tradable good. And as countries get richer, they spend more and more of their economy on non tradable goods. So we should spend a lot. The difference is if you look at what we should spend relative to our income, we still spend about a third more than we should. So income is not the story. Now, part of what's going on here is we're using a lot more care. A lot of it is very productive, but a lot of it isn't. Here's two ways to think about it. In 1950, we spent 4% of our economy on healthcare. Today it's 18%. And you know what? It's been worth it. Healthcare sucked in 1950. 1950, babies were four times as likely to die before they reached their first birthday. If you hurt your knee skiing, you were in the hospital for a week, you were on crutches for six weeks, you had arthritis the rest of your life. Today you're scoped, you're back on the slopes. A week later. Health care is the 18% of GDP. We're a better off country, given the health improvement we've had, than we were with the crappy healthcare. We had spending 4%. At the same time, we waste about a third of what we spend. Now how are those two things consistent with each other? They're consistent because the other 2/3 has been awesome. We have had incredibly miraculous developments in health care that have been wonderful for our health. The problem is, at the same time, we spend a lot of money on things that don't actually improve our health. And that is the conundrum that's leading to excessive healthcare utilization. That excessive healthcare utilization is fundamentally a lot of the story, but it sort of isn't the best answer because then you have to ask, why do we have excessive utilization? That sort of just begs the question where it comes from.

[Derek Thompson]

Is excessive utilization or wasted spending something that we can see beforehand such that there's like a formula to tell doctors and patients and insurance companies, this is the thing that is wasteful. This is the thing that's excessive. Or is there a funny way in which excessive spending is past tense for treatment? Right. You can only see that it was excessive after you've spent it.

[Chris Vernon]

You know, Derek, a great way to think about that is to think about spending at the end of life. A lot of people talk about how much money we spend in the last six months of life. We spend probably of all the money a typical person spends over their life, they'll spend something like one eighth of it in the last six months of life. And you might say, gee, that's ridiculous. We're spending all that money. But it's ridiculous after people have died. But in fact, if someone's dying, they're exactly the person you want to spend a lot of money on. So the question is, how much of that spending do we know in advance was wasteful? And the answer is relatively little. So the answer is you're exactly at the right point, Derek. It's easy to look back. There are some things we know. We're on a sports network. Ultimately, let's talk about back surgery. Okay. We know for most people, back surgery is wasteful. For most people with most back ailments, other non surgical options are better. Yet we continue to do a growing share of individuals continue to get back surgery. But that's a tiny piece of the puzzle. Most of what is excessive we only see looking back over time. And it's hard to know what to do about that.

[Derek Thompson]

Let's move to the second story, which is that the US Healthcare system is more expensive than other countries because of greed. That America's prestigious hospitals charge more for the same service than less prestigious hospitals because they're greedy. That pharmaceutical prices are higher in the US Because Big Pharma is greedy. This is a moment right now where there's a lot of people who I think are angry and aggravated about the state of American healthcare and they're hitting on this concept of greed. And greed is not a piece of the typical economist vocabulary. So I'm interested in how you think about this narrative, this attempt at explaining higher American healthcare prices, that it's fundamentally a story about greed.

[Chris Vernon]

I mean, ultimately, Derek, economists don't like that term. And we don't like putting morality on what we call profit maximization. If someone is offered an opportunity to make money in a legal way and it's not harming anyone and they decide to do it, we don't call that greed. We call that profit maximization. And basically the fundamental problem in the US Healthcare system, look, there's a lot of fraud that needs to be addressed. But that's not the majority of the story. The majority of the story is completely legal profit making. That is explained because we have a broken health care market. And that is the key to the story. So if you look at healthcare economics, the founding document of healthcare economics was an article in 1963 by Kenneth Arrow, who was a Nobel Prize winning economist. And what Kenneth Arrow said in that article was, healthcare markets are fundamentally broken. What does that mean? That means that they're not like the markets for apples. Think about the market for apples. When you want to go buy an apple, you sort of have a sense of what an apple should cost and kind of what a good apple looks like and tastes like. Because you shop for apples a lot and you kind of have a sense of how that should work. But when you're shopping for heart replacement or pneumonia care or things like that, how the hell are you supposed to know what it's supposed to cost or what good care looks like? You have no idea. Moreover, when you shop for apples, you have a multitude of options that compete with each other. Your supermarket can't charge you 10 bucks an apple because you can go a mile away and buy an apple for a buck. Okay, that's not true with healthcare. Okay, with healthcare. First of all, we have situations where there's literally no competition. Take a hospital on Nantucket island in Massachusetts. If you have a heart attack, you're going there. That's it. Full stop. Second and here's one of my favorite healthcare stories. There can also be monopolies that come from reputation. Once again, let's return to sports. When our beloved Big Papi was shot in the Dominican Republic, did he go to the flagship hospital of the Boston Red Sox and one of the top 10 hospitals in the country, Beth Israel Deaconess Medical Center? No. He went to Mass General Hospital, probably the number one hospital in the country, because that was slightly better and so slightly better because he was big. Poppy. He goes to the best, basically. And Mass General Hospital correspondingly charges a ton more than Beth Israel charges, even though they're both amazing hospitals. The point is that we have a fundamentally broken health care market and many.

[Derek Thompson]

People at the moment are saying on top of that, we have a broken private insurance industry that is so consumed with the goal of profit maximization that it has no compunctions about ruining people's lives by denying claims and driving up their own operating income. That's the claim that's live right now in the discourse for the moment. I want to juxtapose that claim with a fact, which is that the US Private insurance industry actually is significantly less profitable than most large publicly traded firms. UnitedHealthcare's profit margin is about half the S&P 500's average Cigna's profit margin, my insurance company is about 2 or 3%. That's quite low. And I wonder, without simping for the insurance industry, what you think is the smart way to think about that statistic that insurance companies, while despised by the public for being unusually rapacious, are often less profitable than the typical large publicly traded firm.

[Chris Vernon]

Look, insurance companies I hate people are not going to like hearing this. Insurance companies are not the bad guy here. And I am sort of, quite frankly, a bit sickened by the humor that's gone around the shooting of the United CEO. Insurance companies are just middlemen who are taking a slice of the pie along the way. They're just saying doctors are going to charge a certain amount, employers are willing to pay a certain amount. I'm going to take my slice along the way. Could their slice be smaller? Maybe, but not that much smaller, should point out. Derek, Fundamentally, if you should criticize insurance companies for anything, it's being a little bit lazy. I think they're not as innovative as they could be in trying to find ways to really manage our healthcare and make us healthier. They're really just sort of middlemen between health demanding Public and employers and a health supplying provider sector and they take.

[Derek Thompson]

Their slice along the way if the system is broken. And you wouldn't like to blame insurance companies as much as the prevailing wisdom would like to blame them at the moment, where does the blame ultimately lie, do you think?

[Chris Vernon]

I think ultimately the blame lies in the fact that our healthcare services are overpriced. So if you compare us to other countries for a typical drug, for a typical surgery, et cetera, we pay much, much more than any other country on earth. And the insurers are the middlemen passing those high costs on to consumers. Now one thing insurers do to try to fight that is they try to manage your care. They will say you can't have this care denying or they will limit where you can go to the doctor as a way to try to get prices down. Those are things which make people unhappy and they're mad at insurers. But ultimately if they didn't do them, prices would just be higher. I think the best way to think about this, Derek, is to think about airline deregulation. You are too young to remember when flying was a wonderful experience. When I was a kid, the seats were huge, there was real silverware. This is an economy class, okay? You got free booze, great meals, et cetera. Then what happened? What happened was the government deregulated the airline industry. They said airlines had to compete. And how do airlines compete? By lowering prices and giving you shitty service. And guess what? That's what the people wanted. If people really wanted nice flights at higher prices, they could have them. They could create airlines. JetBlue did this for a while. Now JetBlue is kind of mediocre as well worthwhile. JetBlue was nicer. There's higher levels of service. But you know what? People would rather have crappy flights at low prices. That's what the people want. And at the end of the day there are options out there that you can have a health insurance plan that won't limit your care, that let you go to any doctor you want. They exist today. They're often Blue Cross plans. But you know what? People don't want them because they're more expensive.

[Derek Thompson]

The obvious follow up question here is going to be, well, if the problem is prices, how do we think about solutions to prices? But I want listeners who have that question top of mind, understand I'm going to get to solutions right after we go through this final story because I do think there's one more narrative approach to the question of high healthcare costs in America that's worth getting into. We've talked about the utilization story, we've talked about the greed story. Let's talk about the waste story. The waste narrative is that American healthcare is expensive in large part because of administrative waste that our private insurance system requires forces a huge amount of paperwork onto doctors, onto hospitals, onto patients, onto insurers and the absence of any single payer or centralized system. We are simply drowning in paperwork that is making people's lives hell and meaningfully raising the cost of healthcare. Because you need to hire a bunch of administrators to handle all of this paperwork. How do you feel about the administrative bloat story about high health care costs?

[Chris Vernon]

Look, I think there's a lot to it. And this comes to the big topic that's on everyone's mind, which is single payer. What does single payer bring you? It brings you universal coverage. And if you want to learn more about coverage, you can watch my TED Talk online where I talk more about that. It brings you regulated prices and we're going to come back to that as a solution. I think we need for health care. And it brings you reduced administration through having one payer. That's great, but like your first story, Derek, it's a small piece of the puzzle. Let me explain how to think about this. If the US does nothing to control healthcare costs, our country will be spending more than a third of our entire economy on healthcare by the year 2100. Okay, let's say we could get our insurance administrative costs down to the level of Europe. Then our country will spend 33% of GDP on health care in the year 2020 in at the end of the 21st century plus one year. The point is health care costs rising at 7% a year. If you cut health care costs by 7%, who gives a shit? Okay, basically it's the growth that matters. It's the unsustainably rapid growth of 7% a year we've seen historically. That's what's going to bankrupt us as a country. So if I cut it, if I cut the administrative cost, that's great, that'll help some, but it's not going to solve our long run problem.

[Derek Thompson]

In your view, what are the most important political, psychological, industry incumbent barriers to bringing a European Canada style single payer healthcare system to America?

[Chris Vernon]

I think there's fundamentally three barriers. The first barrier is how we pay for our health insurance. So if we had single payer, you'd pay what we call explicit tax. You'd literally, Derek, you'd have a tax, you'd Pay and that would finance a single payer healthcare. Once again, I'm here in Sweden. They pay a 25% payroll tax and a 50% income tax. Okay. They get a lot of benefits, one of which is single payer health care. Okay. In the US today, instead you get health care from your employer. Now how does your employer pay for that? They pay for that not out of the goodness of their heart, but by lowering your wages. Okay. MIT spends about $18,000 a year on my health insurance. They basically pay me $18,000 less a year to make up for it. That's what we call a hidden tax. So the first problem with single payers would be moving from a hidden tax which no one sees, to an overt tax, which people see. That's politically challenging. That's problem one. That's the least of the problems. Problem two is about 90% of Americans today have health insurance. 92%. And they're by and large satisfied with it. Sure, they don't like it, they're upset about things. But what I mean by they're satisfied is they're not going to be very happy if the government rolls and says, hey, you should give this up for some new thing called Bernie Care and don't worry, it'll be good enough. That's going to be very difficult to sell. Just to make a point, under the Affordable Care act, which I work very closely on, we addressed the fact that a fewer than 3 million Americans had basically crap insurance that didn't really cover them. If you went to the hospital, they didn't really cover the hospital, et cetera. We said, you can't have that insurance anymore. And as a result, those people had to pay more for what amount to real insurance coverage. Literally every single one of them sent me an email saying, how dare you take away my valuable insurance coverage. And this insurance coverage wasn't even real. Imagine now you have 200 plus million Americans who are trying to take away what they have. That's a nightmare. Okay? So that's problem two. Problem three, and sadly probably the most important is here's where the insurance industry is the bad guy, which is we have a $1 trillion insurance industry. And they're not going to say, okay, it's been a good run, off we go, have fun. They're going to fight. And yeah, the profit margins may be small, but they're not zero. Okay? And their CEOs get paid a lot and they're going to fight to keep a multi payer system in America. I'm not saying single payer is impossible. I'm just saying that I like to think of the famous joke told among health economists, which is the health economist dies and goes to heaven. And God says, you can have one question. And the health economist says, God, will we have our single payer healthcare in America? And God says, yes, but not in my lifetime.

[Derek Thompson]

I want us to spend a roughly equal amount of time on possible solutions here. So let's talk about several paths forward. You said there are three roads we can take toward curtailing rising health care costs. First, the government can restrain demand growth. Second, it can limit supply when it adds to costs. And third, it can regulate prices. Let's do that. 1, 2, 3. What do those three paths forward look like?

[Chris Vernon]

So what I mean on demand is quite simply that all healthcare should not be free. That healthcare is a good. We consume, we make decisions on, and that those decisions can lead us to sometimes consume too much. And that the way that the free market system battles that is by charging us prices to make sure we don't consume too much. Let me give you one example. I hurt my knee playing tennis. Two weeks later, it was still hurting. My wife was sick of me whining. She said, why don't you go to the emergency room, get it looked at. I went to the emergency room, they gave me an mri. They looked at it, they said, stop being a whiny bitch, go home, it's fine. Two weeks later I was good. That cost me 50 bucks. Okay? That cost my insurer $1,000. That's ridiculous. It should have cost me a lot more money. I'm a person who could afford it. And as a result I would have thought harder about whether I could go. Individuals who can afford it need to have skin in the game in healthcare. Not everyone. Someone who's very poor, $50 is backbreaking. And if they really needed health care, they wouldn't get it. What we set up in the Affordable Care act and we should do more of is income related out of pocket cost sharing. What that means is poor people get care for free. As you get richer, you pay more and more of your costs. That is something that's not rationing. That's just saying that if people are going to make health care decisions and they can afford to bear the consequences, they should.

[Derek Thompson]

And what does restraining growth on the supply side look like?

[Chris Vernon]

Yeah, that's a real challenge. It actually bleeds into the next answer. But the main thing is you don't want to willy nilly say we've decided there should be X MRI machines or I don't like the look of this surgery. I like to look at that surgery. There's a framework you can use, and that framework is called comparative effectiveness. It's a big term, but it basically means just do stuff that's worth it, not stuff that's not, and don't pay more than things are worth. What does that mean in practice? What that means in practice is for a given medical procedure or drug, we evaluate the value of health it delivers. We basically, here's how much it improves your health. We have a value on that improvement of health. And we say, this is what it's worth and this is what we should pay. And if we're paying that much and people want to provide a lot of it, great. There's no reason to stop it. So let's take, for example, a particular intervention, a particular surgery, and we say, look, we've calculated the value of health and improves. It improves health. The value of health that improves is $4,000. This surgery is worth $4,000. We'll pay $4,000 for it. People want to do it all the time. $4,000, God bless them. As long as on the demand side, they are bearing the cost to the extent that they can, and as long as providing information about what works and what doesn't, it's not hurting people. But I don't think the answer is to say we want this many MRI machines. The answer is to say here is what services, the value they deliver, and let's set the prices to be tied to that value.

[Derek Thompson]

All right, we've held you off long enough. I think it's finally time to unleash you on the concept of price regulation. And maybe the right way for you to go at it here, for our purposes, is to make some kind of international comparison, because I think it'd be useful for people to understand the difference between the way that the US does not entirely regulate prices. And the truth is, to a certain extent, there are prices set by the federal government. There are reimbursement rates that are set under Medicare and Medicaid, but the US Largely doesn't regulate prices. How would. How is it useful to think about America in comparison to another country that is much more aggressive about regulating prices on behalf of patients and doctors and hospitals?

[Chris Vernon]

Well, I mean, one thing, Derek, I'm just looking right here at the data. You can look at the data. So if you look at the cost of a hip replacement, and this data is a little out of date, but this, as of a few years ago in the US it costs about $32,000. In the average developed, wealthy, developed country, it cost about half that, about $16,000. And in the lowest cost yet still wealthy country, it cost about $6,000. You can do these same calculations with everything from C sections to common drugs. You take the drug humira, it costs almost $5,000 in the US it costs less than $2,000 on the average wealthy country and as low as below a thousand in the lowest cost wealthy country. We are just paying much, much higher prices for all these services. And it's not surprising. What's stopping the high prices, Derek? What stops prices for apples from being out of control or cars from being out of control? Because we know what we're shopping for. We have lots of competition and we shop with full information. That's not true. You don't sit in the back of the ambulance and say, wait a second, that hospital's too expensive. Take me over there. And even if you did that, you wouldn't know how much it costs because it's not transparent. This is a market where standard economic models of perfect competition do not work. Every other country in the world's recognized that. We haven't.

[Derek Thompson]

So let's say you're made healthcare czar. You're in the healthcare czar office of the next Democratic presidential administration, and you say, we're going to experiment with some price regulations. We're going to take the cost of, let's keep with your example, hip replacements, and we're going to bring it down to the OECD average. So whoop. With a wave of my hand, we've just cut $16,000 from every single hip replacement. Who's going to scream? I would imagine maybe the doctors would scream. I'd imagine maybe people who are making parts that are used in hip replacements would scream because there might be less demand for new versions of that technology. But who is being like, someone's going to be hurt if we change a multi trillion dollar system in this way? Who in your mind is getting the money taken out of their pockets such that we would expect them to be the ones to scream the most? Is it insurers? Is it doctors? Is it other providers?

[Chris Vernon]

Yeah, that's a great question. And I think that ultimately it's providers. First of all, if I was the healthcare czar, I wouldn't just pay what Europe pays. I would do a study of what's the value of a hip replacement and I'd pay according to that study. Answer one. Answer two is who's going to scream? It's going to be Providers, in particular the specialists and the hospitals. And let me tell you a story that illustrates that, Derek. If you get a shot at the doctor, a drug injected at the doctor, it's not when you buy at the pharmacy, but an injectable drug like for cancer at the doctor, the way the government reimburses you under Medicare, that's our universal coverage for the elderly, is the doctor gets paid seven and a half percent of the cost of the drug. So if I give you a shot, Derek, that costs $100, I get $7.50. If I give you a shot, that costs $1,000, same effort, same risk of carpal tunnels, I get $75. That's stupid. That makes no sense. So 20 senators wrote a letter to President Obama saying, look, the system's broken, we should fix it. So President Obama and his advisors came up with a new system where doctors would largely be paid a flat amount per shot. Budget neutral. We paid the same amount of money to doctors in total, but you get a flat amount per shot. Shortly thereafter, 80 senators, including most of the original 20, wrote a letter to him saying, how dare you propose this radical revitalization of American health care. You must stop this at once. It's socialism. What happened? Well, the oncologists, the cancer doctors are the ones who give the thousand dollar shots. And they got upset and they lobbied. That is the challenge, Derek. That's why, you know, I have difficulty your term. What say you talk to single payer to something smaller? This is not small. What I'm talking about is massive, okay? We have taken a step in that direction, okay? And President Biden Inflation Reduction Act. It's the first step towards real price regulation. And it's on drugs. And the reason we came for the drugs first is because the price is the most transparent. And those goddamn ads, okay? People are sick of the ads. Everyone. Derek, you might have been. You're my kid's age, roughly. You might have asked your dad, dad, while watching football, dad, why does the guy keep throwing that football through that tire swing all the time in the Viagra ad? And your dad had to cover that in embarrassment. Actually, true story. My friend's a doctor in Lexington, Massachusetts. This is totally true. An eight year old came in and said, I'd like to talk to you about Cialis, the erectile dysfunction drug. And the doctor said to the 8 year old, why do you want to talk about Cialis? And the eight year old said, well, I was watching football with my dad. And they said, talk to your doctor about Cialis. So I'm talking to you about it. So people are mad at the drug companies, and that's who come for first. The Democrats originally proposed that we would regulate the price of the 250 most expensive drugs under Medicare. That led to a huge fight which resulted in passing the fact we regulate only the most expensive 10. But even those 10 saved the government $6 billion. So it's a step in the right direction. We're going to incrementally get there.

[Derek Thompson]

Well, I hope we get there. John, let me tell you, I'm a generally optimistic person, and I'm about to throw some pessimism at you, but I'm just framing the pessimism under the fact that I am generally optimistic. So the same week that Brian Thompson was murdered, there was another piece of very loud news in American healthcare, and that is that the American Society of Anesthesiologists, a lobbying organization, sharply criticized the insurance company, Blue Cross Blue Shield, for a policy that would have curtailed reimbursements for anesthesia care that went beyond a certain level. And so this policy is announced and the Internet loses its mind. You have people screaming at Blue Cross, saying you're going to get people killed for profit. And so the insurance company backs off and cancels this policy. And it made me think this America is furious about high health care prices. But we are often even more furious when insurance companies take steps or government take steps that would restrain price growth, because those steps feel like limiting freedom and endangering patients. I mean, in a way, what Blue Cross was doing here was price regulation. They were setting a price ceiling on certain kinds of reimbursements, and people lost their mind. And so I raised this point not to mock Blue Cross's critics. They might have had a point, but rather to point out that it seems to me a very deep problem with healthcare economics, that Americans hate both the disease of health inflation and the cure to that disease. They want whatever their doctor orders. They want it at an affordable price. And the issue is, if you scale that across an economy, what you get is insurance premium skyrocketing because every procedure has to be covered. So to turn things over to you, you've been in the trenches, John. You've been in the political trenches. Am I wrong, or is this a very live issue, this fact that or this possibility that the medicine for rising healthcare costs is often much more unpopular than the fact of rising costs themselves?

[Chris Vernon]

Oh, you're absolutely right. It's tremendously live. Like I said, it was a miracle we got a bill through that regulated the price of the 10 most expensive drugs. And that's only because people hate the drug companies. They don't feel that way about their doctors and hospitals. So this is an enormous battle. And people are mad at the insurance companies. And like I said, the insurance companies are by and large not the bad guys here. They do some bad things, but by and large they're not the bad guys here. They're just pass through agents who are occasionally trying to get costs under control. And when they do, they get slapped and yelled at. Look, let's look at the history in the US in the 1990s, healthcare costs grew very slowly. Why did that end? Well, that ended because people got mad at HMOs for limiting their care. And state legislatures passed laws which handcuffed the ability of HMOs to limit care. And cost went back through the roof. Okay, Basically it's like my flight example. You can't have cheap flights and free booze, okay? You just gotta, you gotta choose. And ultimately the problem is the person who says that is unpopular. That's why people don't like economists. They're called the dismal science because we tell people you've gotta make these tough choices. Here is I think the answer, Derek, the answer is to worry less about we pay today and worry more about the Future. We spend 18% of GDP on health care. You know what, we can afford that. We're a wealthy country, we can't afford to spend a third. So you know, you take Those doctors making 500,000 million dollars a year who are going to go crazy, we try to cut and say, you know what? Great, you keep that million dollars a year, but it can't grow by 10% a year anymore. It's got to grow by 3% a year. It's got to grow at the rate of the economy. So I'm not basically to your point about status quo bias, it's hard to cut, but can you limit growth? Can you in some sense take this sort of status quo bias and backward looking nature of our system and use it to your advantage by saying, look, we don't care, we're not going to go back to 10% of GDP. We just don't want it to be 30, so let's grow it slower so it settles down and stays below 20? We can afford that. And I think that's the only answer that's really going to work. I think we're not going to dive in and really start to cut costs a ton.

[Derek Thompson]

Maybe the single starkest American healthcare fact to me is that if you compare the US to other countries and you break America into two different countries, one country that is all the college graduates in America and one country in this distribution of line graphs of longevity over time, that's non college educated Americans. Americans with a BA are living about as long as anybody in the world. We're right up there with northern Europe and the Scandinavian countries that we think of as being the healthiest places to live on the planet. But if you look at the line of Americans without a bachelor's degree, they're not just dying about a decade earlier compared to college graduates, they're dying about six years younger than the average person living in just about any European country, any developed European country, Australia, Portugal, Sweden, and so forth. And the concern here, to go back to the very first point you made about disparity, right. The two biggest problems with American health care are disparity and prices. These folks without a college degree do seem to be getting the worst of several worlds. They're living in an unhealthy country, and the only healthcare system they can legally buy into just happens to be the most expensive healthcare system in the world. What fix would you push for these folks that would be especially helpful?

[Chris Vernon]

You know, you're absolutely right. It's even starker than that. Derek, many people remember the Freddie Gray riots in Baltimore a number of years ago when the police killed a black suspect in a car and there were riots in Baltimore. If you look at Freddie Gray's neighborhood versus the neighborhood three miles away. In the neighborhood three miles away, the average life expectancy is 84 years, which is above US average. In Freddie Gray's neighborhood three miles away, it was 64 years, which is below North Korea. Okay, basically these disparities are enormous. What can you do about it? Well, the first thing you can do is what I'm very proud we did in the Affordable Care act, which is level the playing field in terms of access to care for many. We tried to reform health care for 100 years before the Affordable Care act. And the mistake we kept making was saying you have to tackle access and cost at the same time. The answer is, you don't. We need to get everyone access. We are a country too rich to have those disparities. And we're a country too rich to be the country we were before the Affordable Care act, where insurance companies really were bad guys in many ways and could deny people coverage just because they were sick or charged them more because they were women or exclude a pre existing condition. We've gotten rid of that, it's very important, especially given the recent election. We cannot go backwards. We have to go forward. And the fundamental attack on disparities can be getting people insurance coverage. We are saving tens and hundreds of thousands of lives since we passed the Affordable Care act by getting more people health insurance coverage. That said, once they're in the system, we then have the price problem and it becomes unaffordable. And so, really, in some sense, I think the lesson in the Affordable Care act and the lesson I take is to think of these as two separate issues. One is a moral imperative, which is it's outrageous that someone, because they're born in the wrong circumstances or with the wrong genes, has such a shorter life expectancy. We need to address that. The second is for everyone getting the cost down. I think that people who don't really want to do anything about healthcare in the U.S. try to link them together, and that's their way of getting nothing done. We need to recognize that you can deal with disparities even when healthcare is expensive. And we need to. It's just morally repugnant. The lines you described is morally repugnant in a country as wealthy as ours.

[Derek Thompson]

To end on what may be a brighter note, I did promise you that if you came on this show, I would allow you to talk about one of your favorite sports teams on a Ringer podcast. So my question is going to be about your beloved New York Knicks. How do you like the new lineup, and how do you think Kat is fitting into the team?

[Chris Vernon]

You know, I think that Cat was a great trade. Love the trade. Obviously. You know, I'm not saying anything new. If I say the Cat has been terrific on offense and bad on defense, I think that, look, if you knew you were going to get Cat, you resign. Hardenstein, you don't trade for Mikhail Bridges. I mean, basically, I think, you know, Mikhail Bridges trade was not great. It's looking worse in retrospect. And the answer is you need Cat cannot be the five. You need another big man in the world. And hopefully when Robinson comes back, that will help solve the problem. But at the end of the day, I think that if they knew they were going to get Cat, they should have resigned Hartenstein and not gone and get Bridges. I think that would be better. I think I'm still optimistic that when Robinson comes back, they can compete with the Celtics. I think they're really. I mean, Kat is amazing. Brunson's amazing. I love OG So I think they've got a real shot to be competitive, but they're going to need a lot of minutes out of Robinson.

[Derek Thompson]

Jonathan Gruber, thank you for your basketball analysis and more importantly, thanks for this. I really learned a lot in this healthcare 101. I thought it was great. Thank you.

[Chris Vernon]

You bet. It's my pleasure.

[Derek Thompson]

That was our interview with Jonathan Gruber of mit. Next up, we have David Cutler, a health economist at Harvard University, talking about insurance and the future of American healthcare. David Cutler, welcome to the podcast.

[Dave Jacoby]

It's great to be with you.

[Derek Thompson]

So I want to use our time to talk a little bit about international comparisons, America's healthcare system versus other healthcare systems. I want to talk a little bit about the future of American healthcare as you see it. But before we get to those topics, I would love to give you an opportunity to talk a little bit about the state of American insurance and the anger that Americans feel or seem to feel toward insurance companies at this very moment in time. And I think one way to set you up is this. I was reading a quote from the New York Times columnist Michelle Goldberg, who said something that I think is quite representative of the moment. She said, quote, whenever I've had a health scare or am waiting for the results of routine tests like mammograms, I tend to be about as panicked about the potential paperwork as about, you know, dying. And the thing is, these companies are purely extractive relative to a single payer system. They create no value whatsoever, end quote. Is she right? Is she right that these companies are purely extractive? How do you feel about assessing the rapacious nature of insurance companies in the broader context of all the problems of the American healthcare system?

[Dave Jacoby]

Yes. So let me say right in part and not right in part, Americans hate the health care system. And insurance companies are right up there with what they hate. To be fair, one of the big problems in healthcare is that someone has to say no. And that someone can be the government. Either no on an individual basis or no, we're not going to pay more for more hospitals or doctors. It could be the patient who has a lot of costs at stake and can't afford it, or it could be the insurer who says no. Whoever it is that has to say no. People are mad about that situation. They're mad if it's the government, they're mad. If it's the private insurer, they're mad if their insurer makes them pay money and they can't afford it and therefore they say no. So that part they're being sort of unnecessarily blamed. Because in other countries, like if you had a single payer system and you just, you know, we just didn't have the services. People would blame the government. The sense in which she's right is that like the whole point of private insurance is that like choice and competition is supposed to work better and we're supposed to have a better health care system if we involve the private sector than if we don't involve the private sector. And you know, all those sort of wonderful benefits of having, you know, all that stuff. And like people don't experience that at all. And so what people experience is not, oh, here's a healthcare system that's working for me, that's really looking out for me, that's you know, trying to balance my cost and, and my access and you know, you know, I'm sort of comfortable, they're looking out for me. What they're experiencing is something like, I have no idea why they make those decisions and I don't understand when things are yes and when things are no. And is the no just because they don't want to pay for me, not because it's not clinically indicated? And so that, and people don't want to feel that way and they shouldn't have to feel that way about their health care, but they do. And that's a really big problem.

[Derek Thompson]

It seems like it'd be very useful in this very moment to compare the US healthcare system in which it's private insurers who are saying no with a single payer system where it's the government that is saying no. And in some cases to use a term that I think your friend Jonathan Gruber, who I've also interviewed for this show, said they don't like the term. You don't like the term rationing, but I'm just going to use it in this space. Sometimes governments do ration care to a certain extent. Let's compare the US healthcare system and Canada. In the US you have private insurance. In Canada you have a single payer system. It's the government that's saying no. And if people are going to be mad, they're going to be mad at the government and often they are mad at the government. Walk me through the biggest differences for patients, doctors between the US healthcare system and the Canadian healthcare system.

[Dave Jacoby]

So let's start with the saying no part. So in the U.S. as you know, the, the saying no is either the insurance company looks at you and says I'm not going to approve this or the insurance company says, well whatever, I'll approve it. But there's a high Cost sharing. So you have to be prepared to pay a lot for it. In Canada it's very different. So in Canada, what happens is the government sets a limit on the total supply of services. So just to give you an example of that, there are more MRI facilities in Massachusetts than there are in all of Canada. And so like literally you just could not physically do as many images in Canada as you do in the U.S. what happens is that it's not that the government says, David, you get an mri and Derek, you don't. And so on. The government just says to the doctors, here's the facilities you have to work with. And so you doctors figure out how to prioritize people. And sometimes the doctors do that. Great. And like people don't notice that things are rationed and sometimes they don't do it that well or the constraints really are binding. And so, you know, then people have to wait a while. And so, you know, the tighter the constraints in other countries, the longer people have to wait. On net, it works out better in other countries. So on net people are happier because in exchange for that, you don't have to make the patient pay much because you're not using price to limit spending, you're using the sort of total supply. So people like it because there's no chance you'll go bankrupt because you're sort of in the system. There's no administrative hassle. But the fear in countries, which is not as big as the fear in the US that I'll go bankrupt and my loved one will die. But the fear is the service may not be there when I really need it. So when my mother needs the care, is it going to be there or will there be a waiting list? Americans tend not to have that fear. They have the fear, oh my God, how can I afford to get my child health care? Is this going to bankrupt me and my child will die anyways. So the fear is bigger in the US but it's not all. It's better in other countries, but it's not fear free.

[Derek Thompson]

Would it be helpful to ground the US versus Canadian approach in two very different examples of patients making contact with the healthcare system? Maybe. Can you explain how they differ in the case of say, a primary care office visit versus an advanced surgical operation that involves complex technology that might otherwise be somewhat rationed in Canada? Can we like describe the, the way the Canadian and US approach would play out in these two very different approaches?

[Dave Jacoby]

Let me give you. Yes, let me give you a slightly different example. Let's say you go to the Doctor and you have back pain, lower back pain, which is a very common symptom, and you're not. Most cases of back pain actually will resolve themselves. Maybe you need a little physical therapy, maybe, you know, ibuprofen and so on. But basically in most cases, it will resolve itself in Canada, come back to where the imaging is limited. In Canada, they don't want to do MRIs on the backs of those patients because that would just fill up the mri. And they need the MRI for other stuff. Literally. Like in Ontario, the radiologist sent a letter to the primary care doctor saying, please do not refer those patients to us. We're not going to image them. It's just a waste. Don't do that. In the us A lot of primary care doctors say, well, I'd like some help managing that patient. I want to send that patient to an orthopedist. But the orthopedist wants the MRI because the orthopedist wants to know what's going on. And in fact, sometimes the orthopedist won't even see the patient until they've had the mri. So I feel like I should order an MRI for this patient, even though I know that the evidence is that for this patient the MRI is not going to do anything good. I don't dispute that evidence. But either because the patient needs it or because the doctor wants it, or because of whatever else you wind up with the mri, and that's much more expensive. One of the reasons why it's more expensive in the US is because that MRI is done in the US and it's not done in Canada and it doesn't need to be done. That's an example where it doesn't need to be done. But the biggest source of the cost difference is that the administrative cost of doing all that is so much higher. So in Canada, there's no administrative cost. You don't have to appeal to any government or insurer to do that. The doc, if the doc wants the mri, just refers you to the mri. In the us, if the primary care doc wants an mri, the doc has to get approval from the insurer. And the insurer's like, well, why are you doing this? And, well, because the patient's had back pain. Okay, send us the documentation. Well, have you tried at ibuprofen? Well, yes, I have. Okay, well, let me see that. And so, like, there's just all this back and forth and how much are we going to pay for it and who's going to get paid and where's it going to be done. And so the single biggest part is actually the administrative cost of doing it. But then there is also the fact that the MRI happens in the US and it's not happening in that circumstance in Canada.

[Derek Thompson]

I love that example because to me, it touches on so many things that have been floating on in my. Floating around in my head that I haven't been able to ground in a concrete example, which is higher utilization, higher administrative costs, and the origins of our hatred of private insurance. Because it seems like what you're saying is you could take the same individual in parallel universes, Earth 1, Earth 2, and that individual says the exact same words to a doctor in America and a doctor in Canada, and a doctor in America is going to invite them and treat them to higher utilization. Right? They're going to entreat them into an MRI and treat them to referral to the orthopedic surgeon or the orthopedist. That's higher utilization. That's more costs, higher administrative burdens in order to figure out exactly who's going to go where and who's going to pay for what. But it also introduces the possibility that a private insurer is going to say, this is ridiculous. Derek's back pain is not very serious. We're not going to pay you $1,000 in order to image someone who just needs two Tylenol and a weekend on the couch watching Netflix. So the structure of the American system in the story that you've described, which is really nice, both explains the higher prices and the mode of aggravations that Americans feel because higher utilization means more things that private insurers can say no to after they've gone through the work of all this administrative box checking. It's a really nice example. Are there ways that you would say, look, the story I just told shows why people lose their minds about the state of American healthcare. But there's lots of ways in which American health care is best in class for many people. It might be, for many types of people with some types of conditions, the best health care in the world. Are there ways in which American health care, despite the incredibly aggravating story that you just told, is best in the world?

[Dave Jacoby]

Yeah, there are absolutely ways in which American healthcare is the best in the world. Probably the most important of those is if you have a particularly, let's say, rare condition for which a particular expertise is desperately needed, you're more likely to find that expertise in the US Than elsewhere. Not exclusively. There are great, great docs in every country, but they're probably a Greater preponderance of folks. So if you need a rare kind of surgery for something or an experimental test for something, that will often be easier to obtain, easier to find the person in the US So the way I think about it is the typical person with the typical set of health needs would be better off in another system than the US One that was less expensive. Pharma costs are cheaper, easier to get to a doctor without the administrative hassles and so on. But for some circumstances you would want to be in the US and people worry about that. Again, they sort of say, well, you know, if we had a Canadian style system or European style system, you know, what would happen to clinical trials and what would happen to, you know, experimental surgeries and all sorts of things like that. And there absolutely is a role for those too. And one shouldn't neglect the importance of that in healthcare.

[Derek Thompson]

Also, I want to spend the rest of our time talking about your work and your thinking about the future of American health. You said in a recent talk that the US healthcare system is about as unstable as it's been in some time. What did you mean by that?

[Dave Jacoby]

It was very clear even before the recent events that people were very unhappy with health care, that the costs of healthcare are really high, yet people care about healthcare enormously. So I think it's very difficult to be operating a system that's so hated and underperforms in so many ways, and yet that people care about enormously. And that's the sense in which things are unstable because, you know, people, people are right to be very, very upset. And when people are upset, they often lash out, and that's totally fine. But sometimes that lashing out can be harmful. Sometimes it's ill thought out, sometimes it's beneficial, but it just creates a situation where you're not dealing from a position of rationality, you're dealing from a position of whatever kind of happens to come across the plate. And that's, you know, and, you know, I mean, what the recent events have shown is how much people are upset and they truly, truly are upset. I think it's far better to think systematically about what we should do. Like, for example, how can we get rid of the administrative costs and how can we lower pharma prices and do that in a rational, sustained way than it is to respond to whatever is the thing of the moment and just lash out and do stuff, because you don't always get that right.

[Derek Thompson]

I actually didn't have this question written down, but it's something that I've always been Very interested in. So interested to get your brain on it. I'm very interested in getting pharmaceutical prices down. And at the same time, I think that medical innovation is one of the most important things in the world. If you were going to what are some of the most important parts of human progress in the last 150 years, you could not possibly put together a plausible list without medical breakthroughs like penicillin and types of anesthesia and cures, statins, all of the work that we've done to reduce the mortality of cardiovascular disease. And so I am concerned about finding ways to reduce drug prices without getting pharmaceutical companies to reduce the research and development which is clearly the water and fertilizer that gives us the medical innovations that allow us to, to live longer. What are some of the more interesting ideas that you've thought about recently? To keep the ball between those lanes. Right, Keep the bowling ball between those lanes to reduce prices for consumers on the one hand, while also encouraging biotech companies to invest in the technology that will allow us to live healthier lives.

[Dave Jacoby]

So it's a great issue and there are a couple of thoughts that I have on it. One is the, the, the trade offs that we implicitly have, that we've made as a society are in fact not ones that are being upheld. So let me give you an example. You know, patent lengths for drugs are 20 years. But many companies for an enormous share of drugs, when their first patents coming towards its end, they get another patent or a different formulation so that the effective patent life turns out to be more than 20 years. Now, I don't know if 20 years is the right length or the wrong length, but I do know that if we decided it should be 20 years, we should stick to 20 years. And so part of it is just that some of the spending is kind of ways to extract money. And it's not. You don't need that. Like, you don't. It's not like a blockbuster. Great. You know, there's a lot of money from the blockbuster. But like, that doesn't mean that forever you should get to charge blockbuster fees for it. So, like actually having a system that you stick to. I think my second answer is that in addition to high prices of drugs, the other thing that's really, really noticeable is that the cost of developing drugs is very expensive. There are ways that we can reduce the cost, you know, through things like smarter clinical trials and different sort of bunch of like technical things we can do to reduce the cost of trials. Everything that you do that reduces the cost of discovering Drugs means you don't have to pay as much on the back end. And so I think a very robust commitment to, to figuring out how to reduce the cost of discovering things so that then we can say we don't have to pay as much on the back end would be just a wonderful.

[Derek Thompson]

Trade off for us to take one more stab at this. I'm also very interested in the general question of how do we bring down the truly exorbitant cost of developing drugs? Because now I haven't seen the latest data, but it is something like billions of dollars to develop some of these blockbuster drugs. And it does make some kind of intuitive sense that if Instead of costing $3 billion to develop a drug, it costs $500 million to develop a drug, you wouldn't need to price your drugs at the same level in order to pay for the expectation that all of your drugs are going to cost this much to develop. What's one idea that you've heard? What's one cool idea that you've heard for how we could make it essentially easier to do the science necessary to take a drug from discovering a molecule to putting it in a rat, to finally testing it in people and phase three clinical trials before FDA approval?

[Dave Jacoby]

So just to clean up one thing first, if the cost of discovering drugs is lower, that would be great. Companies wouldn't price any lower. They're pricing at monopoly prices or whatever price the market will bear. So they would just make more money if all you did was lower the price. It would allow you to feel better about regulating prices lower. So just to give you a sense of that, if I discovered the next great molecule for whatever, it doesn't really matter whether I discovered it cheaply or expensively. I should charge what the market will bear for it. But let me come to your question about how to do that. So think about, let's say, a clinical trial for a moderately rare condition, not super rare, but, but not super common condition. Literally, just enrolling the patients takes a long time. Not every patient out there in the world, in the country or in the world, is seeing a doctor who enrolls them and so on and so forth. Well, imagine if what we had was a sort of registry of people with various conditions. And so then we kind of knew who has that condition. And then when a new drug comes along, we could say, hey, look, here are 500 people who might be really appropriate for this drug. Let's just contact them and see. Would you like to be part of a clinical trial? And they can say, yes, they can Say no. A lot of them will say yes. And then we can enroll people quickly. So instead of years of waiting for someone to come into the clinic and then getting referred and then checking if they got appropriate or inappropriate counter indications or so on, we could actually just like quickly go through and just say, okay, great, let's start this trial, and let's start this trial. And not only that, you have a natural control group, which is people who are not who you didn't randomly choose. So you don't have to then take your 500 people and say, half of them I'm not going to treat. So it just becomes a lot easier if you think not about starting over every time, but about having an ongoing process for a particular condition.

[Derek Thompson]

So if I'm hearing you right, the federal government could theoretically say, here's a deal that we're offering you. Various pharmaceutical companies in the world, or more specifically those based in America. We're going to help put together a kind of bank, a kind of registry of all sorts of patients. Maybe let's start with just cancer, right? All patients who go to their doctor and are diagnosed with cancer are invited to do a bunch of tests, liquid biopsies and saliva tests, and maybe a genetic screen. And they're told all of this information is going to be privatized and anonymized and encrypted and kept in a government database. And maybe the individuals are even paid to do it, right? As a patient, you're paid to do this. You're put in this government database, and the government says, guess what, pharmaceutical companies, you can pay for access to this database. You can give us some money for this database. And if, or actually no, the database is free. If you use it, we can regulate you. You can have access to this database that's going to be incredibly valuable to you. But if you access it, you agree that we have a certain say on the price of drugs that are developed based on the use of this registry. And that seems to be how you're getting your two birds with one stone. You're accelerating drug discovery on the one hand by making clinical trials go faster, but on the other hand, you're allowing the drugs to be sold cheaper because governments are regulating the product of the registry's work. Is that the big deal?

[Dave Jacoby]

You can do it in different ways. So you could say, yes, in exchange for getting into this, there's some limit on the price, or you could say, we're going to deal with the price in a different fashion, but we want you to help pay for Establishing the registry and the upkeep of the registry. Since we're all going to benefit from this and we need money to do it, let's just raise money in the same way that the fda, the pharmaceutical companies pay to have additional examiners at the FDA so that things go faster. The NIH is starting to do that a little bit, but not as much as it should. It's starting like there's a long Covid registry that it's thinking of and we do keep a lot of data on cancer folks, but not. But it hasn't then been used. It's been used to evaluate ex post how things are working, but not ex ante to see who should be part of clinical trials and stuff. But yes, you can imagine you're going to need a government to do this because you need something central to do this. And then once you have that, then you can really speed up a lot of this. So it's not that it's not like rocket science to figure out how to do a lot of this. It's just like applications of stuff we know, but with an eye towards how do we make sure, how do we do everything possible to make it as easy, as cheap and easy as we can.

[Derek Thompson]

Are there analogies to a policy like this either in American history or around the world? It sounds a little bit similar to the way that childhood leukemia trials were sort of bundled in the 1950s through 1990s that allowed us to have real huge advances on treating childhood leukemia. The UK has their bank of biomarkers. There might be some other examples that are better. But is there someone somewhere, either distributed around the world in 2024 or distributed throughout history where you say, ah, that is the perfect example for this policy that could make a huge impact on both prices and extending American lives?

[Dave Jacoby]

Yeah, so some of the examples you gave are correct ones. That is, for childhood cancers there was sort of this big centralization and all sorts of pediatric oncologists would then take part in the clinical trials and so on. The UK has their biobank that they're working with. What happens a lot now is clinical trials are being outsourced to other countries because it's cheaper to do them in other countries. And so other countries have put in place systems to do that. You know, China and Thailand and other kinds of countries are fairly good at that. And it's cheaper to do it often in other countries than it is in the us so we wind up doing the outsourcing, even though, like there may be differences across populations that you need to take into account when you, when you, when you look at things. So certainly there are examples there. I would say another example is worldwide efforts to, say, eradicate polio, where we just said, look, we're just going to get together and we're just going to do this, and we're not going to rely on whatever, but we're just going to, this is a world goal and it's going to happen. And we're going to go in every remote village and we're going to treat people and vaccinate them and get rid of polio. And so that's another example where, when you set your mind to it, you can do wonderful things that you can't do if you're just haphazardly doing it.

[Derek Thompson]

We only have a little bit of time left. And I want to touch on two predictions that you've made that I think are really provocative and interesting. One of them is that you think that we're moving toward a future with fewer and fewer hospitals, even as we become a country throughout this century and probably every century after that, that's going to be older and older. And I heard this prediction at first. I was like, this makes no sense. How is an aging and aging country going to have fewer hospitals going forward? But help make it make sense. Why do you think we'll have fewer hospitals in the future?

[Dave Jacoby]

We will have fewer hospitals because so much can be done outside the hospital. It used to be that surgery for most anything was several days in the hospital and maybe a week, 10 days in a hospital with intense anesthesia and so on. Now, the classic example was half century ago. Cataract surgery was a week in the hospital with your head between bags of sand so that it didn't move. And now it's 10 minutes in a doctor's office outpatient. All those patients who are in the hospital for cataract surgery don't need to be there, and knee replacements and routine surgeries of all kinds. So we basically don't need the hospital, which is great. So all these things we can do outpatient or we can avoid entirely because, for example, we take statin drugs. And so we don't have as many heart attacks and we don't have as many strokes because we're taking antihypertensives. And so all those things are great. And they really cut back on our need for hospitals. So hospital occupancy rates are still pretty low. There's clearly more hospital beds in most areas than we need. The biggest issue is going to be, you know, many rural Hospitals don't have enough patients to fill them up. The really biggest issue is going to be when you get rid of the hospital, do you get rid of the emergency care? And do you get rid of the ability to do things like see a doctor if you have a severe condition that doesn't need hospitalization? So we've got to figure out how to make sure that access to a hospital is not the same thing as access to specialists, because people do need specialists. They just don't need to physically be in the hospital as much.

[Derek Thompson]

What happens in this future to hospitals themselves if some of these surgeries are moving to outpatient centers and hospitals are more likely where only the sickest patients who still actually do need a bed for 1, 2, 10, 20 days need to be. How does that change the future of American hospitals in your estimation?

[Dave Jacoby]

Originally, hospitals were places where people went to die, and that's why they were religiously affiliated, because people wanted death to be in a setting consistent with their religion, which totally makes sense. They will return not to places necessarily that you go to die, but places where people are very, very sick, as you said, people with multiple chronic conditions that can't be seen at home or in another place and so on. That's going to change the economics. It's going to mean that the hospital is no longer the big money maker for health system, but it's a place for people who are very sick. We're going to have to pay more per patient, but we're going to save money overall, because all those people who are in the hospital now who don't need to be there will be at home or in outpatient centers. It'll cost less in total. But to be sure each hospital stay will cost more. The hospitals will have to be reimbursed more per patient. Even as we save money overall, I think we'll have to think about the health system as not being centered around these big institutions, but rather more diffuse. And those institutions are just one particular thing that sometimes you use rather than the center of where the medical world resides.

[Derek Thompson]

I live in Chapel Hill, North Carolina, and at every single strip mall, there's a UNC clinic for center for Ex hospital term or X medical term. And so the UNC hospital system, well, the UNC hospital exists. It's a place you. You can drive to. My wife is there all the time. But you can also make contact with the UNC hospital system by going to Starbucks and then going next door or driving to the restaurant, going next door. It is distributed throughout the metro area very Last question for you, because going through everything that's wrong with the American healthcare system, especially with John in our first interview, would definitely love to end on a note of optimism. And I wonder if there's one thing that you're most optimistic about when it comes to American healthcare. What is that?

[Dave Jacoby]

I sort of think about it as, you only have to get things right once and then you've got it right forever. So think about some of the great innovations you mentioned. Penicillin, all we had to do is discover it once and then it's there. Sulfa drugs, and even more recently, say antihypertensives, cholesterol lowering medications, drugs for diabetes, drugs for mental health. These things can do enormous good. They can literally change the entire system. They can change what diseases people have and how much it costs to see people and so on. And so progress can be rapid, both technologically and economically. That allows you to make really big favorable changes because once you know how to do it, you know how to do it. And so that's just a great thing here. So it's not like every year we have to reinvent penicillin.

[Derek Thompson]

What piece of that makes you optimistic about the future? I mean, are you optimistic therefore that we're likely to discover similarly powerful drugs and molecules in the future? Or is the root of your optimism the fact that that medicine and medical research gives us access to the kind of breakthroughs that if you discover them once, the lever that they have on progress in the future is so massive.

[Dave Jacoby]

So it's both that they keep on giving, they're gifts that keep on giving. But also, and it's not just the technology, it's not just the pills or the surgery, it's also the way of structuring the system. So once you figure out how to do it once so that you get people safely out of the hospital and in better forms of care, then you don't have to redo that because you've now got a new kind of system in place. So think about people's desire to be treated at home instead of in institutions. Once we get it together to figure out how to do that, then that's going to be just a huge breakthrough because all sorts of people will be recovering at home rather than recovering in institutions. When you figure out how to use AI systems to reduce administrative costs, take a non clinical example, then once you've got that, then you no longer have those administrative costs ever. So you've got just a lot of stuff that if you attack it piece by piece, once you've discovered it, you don't need to keep rediscovering it.

[Derek Thompson]

David Cutler, thank you very much.

[Dave Jacoby]

Pleasure to be with you.

[Derek Thompson]

Thank you for listening. Plain English is hosted, written and researched by me, Derek Thompson, produced by Devin Beraldi in 2025. We are coming back to you with our regular schedule of 2ish episodes per week. We've got some awesome features cooking. We're very excited to share them with you. Thanks for listening as always. And if you like what you hear, give us five stars on whatever podcast platform you listen to. Talk to you sa.