Statecraft Podcast with Santi Ruiz:
“How to Bring Down Healthcare Costs”
Guest: Anoop Malani (Chief Economist, CMS; Professor, University of Chicago)
Episode Date: October 2, 2025

Overview

In this episode, Santi Ruiz sits down with Anoop Malani, the first Chief Economist at the Centers for Medicare and Medicaid Services (CMS), to pick apart the sprawling complexity of the U.S. healthcare system. They dive into why American healthcare spending is so high, why that hasn't bought better life expectancies, the nuts and bolts of tackling Medicare fraud, the shifting economics as America ages, and how policymakers attempt to bend the healthcare cost curve. Practical, candid, and steeped in both academic and real-world experience, Malani walks listeners through the daunting mix of policy, economics, and organizational incentives shaping U.S. healthcare.

Key Discussion Points & Insights

1. Malani’s Role and Transition to CMS

[04:04 – 06:18]

• Malani is the inaugural Chief Economist at CMS, an agency overseeing $2 trillion or roughly 23% of the federal budget.
• His job blends three key tasks:
  • Prospective Decisions: Advising on imminent policy choices through research, quick calculations, and literature review.
  • Projects: Running discrete projects aimed at improving economic decision-making across CMS.
  • Economic Research: Analyzing past policies and prepping for future issues, even when not tied to concrete decisions.

“There’s no clear definition, so you have to make the job.”
—Anoop Malani [06:36]

• Malani stresses the importance of building trust with leadership and colleagues:

  “Trust is something you build up by doing a good job… If you want your work to have import, it’s got to be that the decision makers who take it as an input actually value it.” [07:13]

• He contrasts academic work—where time and question selection are luxuries—with government, where “almost every day there’s a decision that’s important. Any given week or month, every decision is more important than almost anything in academia.” [09:01]

2. Disconnect Between Academic Economics and Policy-Making

[11:00 – 15:36]

• Academics often don’t grasp the constraints real-world policymakers face: legal rules, slow regulatory processes, political pressure, limited human resources.
• Real-world implementation is slow; a “decision might take two years to actually take effect.” [11:38]
• Academic research should shift to more statecraft- and implementation-focused questions:

  “We need to think about the economics of implementation… decision making in the context of political coalition… personnel economics in the context of policy decision-making.” [14:45]

3. Why Does the U.S. Spend So Much Yet Lag in Longevity?

[15:36 – 23:12]

• U.S. spends about 20% of GDP on healthcare; that growth has plateaued in recent years.
• There’s no economic “natural rate” for healthcare spending—it may just be a normal good.
• Life expectancy isn’t explained only by healthcare systems; social factors, demographics, and personal choices play major roles.
• Malani references a paper by Alice Chen, Heidi Williams, and Emily Oster showing infant mortality differences arise in months 2–12, i.e., outside direct healthcare intervention—implying community factors are critical. [19:13]
• American diversity, geography, habits (risk tolerance, spread-out urban planning, etc.) also explain health outcome differences.

“Health is not the same thing as healthcare. When we want to figure out if our healthcare is doing a bad job, we need to actually look at places where healthcare is having an impact.”
—Anoop Malani [20:28]

4. Demographic & Fiscal Constraints

[23:43 – 28:43]

• Low fertility and an aging population mean funding Medicare/Medicaid gets harder:

  “As your population ages, your working population declines and it’s your working population that supplies tax revenue.” [25:24]

• Simply cutting benefits is generally politically unacceptable. The challenge is to make each dollar go further—to improve efficiency and productivity instead of slashing spending.

5. How CMS Tries to Improve the System

[28:46 – 36:23]

• CMS encompasses Medicare, Medicaid, and health insurance exchanges, together more than $2T in spend annually.

• Institutional levers to fight inefficiency vary:

  • Medicaid: States administer, Feds pay the bills—so perverse incentives abound.
  • Medicare:
    • Traditional Medicare: Government as insurer. History has moved from cost-plus reimbursement to prospective payments to Accountable Care Organizations (ACOs), all to check overspending.
    • Medicare Advantage (MA): Private insurance plans paid by government, plans incentivized to game risk adjustment scores.
  • Exchanges: Similar structures to MA, with private plans involved.

• Common Issue—Fraud:
  Historically addressed via slow, post-hoc litigation, CMS is turning to ex-ante data analysis to spot fraud before dollars go out the door.

“Dollars already went out. We want to switch to a program where before the dollars go out the door, we try to capture fraud.”
—Anoop Malani [35:39]

6. Tackling Fraud and Gaming in Medicare Advantage

[36:23 – 52:02]

• Fraud Defined:
  Fraud occurs when any mismatch among (1) what was promised, (2) what was done, and (3) what was reported occurs.

  • Upcoding: Billing for a higher-risk patient than warranted.
  • Medically unnecessary care: Doing/providing more than appropriate.
  • Substandard care: Billing for more, delivering less.

• Risk Adjustment Manipulation:

  • Insurers can “game” risk scores by ordering extra diagnostics or exaggerating claims to raise premiums paid by CMS.
  • CMS is engaged in a constant game of identifying and closing these loopholes.
  • Too little adjustment: leads to “cream skimming” (insurers avoid sicker patients). Too much: overcompensation and waste.

“It’s a back and forth… You close one loophole, the [insurance companies] find another.”
—Anoop Malani [50:09]

• Recent reforms attempt to tighten risk adjustment while also revising overall reimbursement rates—a complex balancing act, given the shifting health and risk profiles of MA’s population.

7. Comparing Medicare Advantage v. Traditional Medicare

[54:03 – 58:44]

• MA covers more services, has less patient cost sharing, and allows for allocation of financial risk between insurers and providers.
• Metrics are tricky: comparing federal spending per enrollee between MA and Traditional Medicare is an apples-to-oranges scenario due to differences in what’s included and division of costs between government and patients.

“If you just compare the total dollar amounts, it could look bigger in Medicare Advantage simply because the government’s accounting for a higher share.”
—Anoop Malani [57:41]

8. Strategies for Bending the Healthcare Cost Curve

[58:44 – 63:41]

• Static cost curve bending: Use existing technologies/therapies more efficiently (ex: “site neutrality,” paying the same for a given procedure no matter the setting).
• Sometimes higher payment is justified (e.g., true emergency settings), but often not (e.g., simple procedures in hospitals when outpatient is sufficient).
• Broader aim: “For a given level of quality and quantity, are you able to provide that care at a lower cost?” [63:24]

9. The Politics & Economics of Drug Pricing and Innovation

[63:41 – 72:56]

• Reducing prescription drug prices is bipartisan but complex.
• Counterintuitive complications:
  1. Intermediaries (PBMs, wholesalers): They may absorb some price cuts, so not all savings come at the expense of R&D.
  2. Global R&D burden-sharing: U.S. often pays more than other countries, bearing a disproportionate share of the R&D burden; changes might just shift cost abroad, not reduce innovation.
• To actively spur innovation beyond price-based incentives, policies might use government procurement, prizes, or direct subsidies (e.g., Operation Warp Speed).

10. Unlocking Health Data: The Push for Interoperability

[72:56 – 81:52]

• July 2025 White House announcement initiates protocols for patient/provider IDs and encryption.
• Goal: Create seamless, privacy-protected pathways for health data to move across providers and systems, enabling AI and analytics to improve care and efficiency.
• Malani’s vision: Government as convener, not builder. Getting private sector consensus on standards and protocols is the lynchpin.

“In order to do this digital revolution, you need to have access to data… Our big challenge is making data both protected but available.”
—Anoop Malani [74:02]

Notable Quotes & Memorable Moments

• On the challenge of real-world policy:
  “You bring a set of tools. For me, it’s economic analysis… that doesn’t give me authority to displace people’s preferences.” [07:57]

• On risk adjustment ‘gaming’: “Once you set the risk score function up, the insurance company manipulates; you discover what they’re doing, then you close that loophole, and they find another.” [50:09]

• On why U.S. health outcomes lag: “Health is not the same thing as healthcare… differences show up when the healthcare system is not operating.” [20:28]

• On fraud detection:
  “If a [provider’s] billing practice suggests that the person worked 5,000 hours in a year, probably fraud. We should at least investigate that.” [40:56]

• On changing how drug R&D is incentivized:
  “When you don’t know what you want, you offer a patent and say: We’ll give you a monopoly if you invent something useful.” [72:12]

• On health data interoperability:
  “It’s like the equivalent of building rails for railroads. But here, what you’re transporting is data.” [76:16]

Timestamps for Key Segments

• 04:05 — Malani’s role at CMS; structuring the Chief Economist position
• 11:00 — Why academic health economics misses the policy mark
• 15:36 — Why U.S. spends more, but doesn’t live longer
• 23:43 — Demographic time-bomb: Aging, low fertility, and healthcare finances
• 28:46 — The levers CMS can use to fight inefficiency, fraud, waste
• 36:23 — Defining and combating Medicare fraud
• 43:41 — How risk adjustment gets gamed & CMS’ response
• 54:03 — Medicare Advantage versus Traditional Medicare: apples to oranges
• 58:44 — The real levers for bending the cost curve
• 63:41 — Drug pricing, innovation, and perverse incentives
• 72:56 — Why data interoperability is critical for future health innovation

Tone & Style

The conversation keeps a collegial, sometimes wry tone, with Malani offering candid personal takes (“never skiing enough,” “too much squash, not enough skiing”), advisory-level clarity, and occasional callbacks to the discipline’s blind spots. Ruiz blends humility as a “remedial econ” student with policy wonk’s curiosity—creating a lively, approachable atmosphere even as technical details abound.

For more in-depth content or episode transcripts, visit www.statecraft.pub.