Healthcare and U.S. Global Competitiveness

David Blumenthal, president of the Commonwealth Fund, Steven Brill, author of America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System, and James Carpetta, visiting fellow at the American Enterprise Institute for Public Policy Research, join National Public Radio's Jessica Deahl to discuss the ramifications of the Affordable Care Act (ACA) and its implications for U.S. global competitiveness. The panelists additionally discuss the U.S. health care industry, and its transformation in the wake of the ACA.

DEAHL: All right. So I'd like to welcome everyone today to our Council on Foreign Relations meeting.

Just over five years ago, President Obama signed the Affordable Care Act into law. It's the biggest overhaul to the American health care system since the passage of Medicaid and Medicare some 50 years ago. And it ranks up there with the president's most significant actions in office.

So today we'll talk about that law, and this panel is billed as the Future of the Affordable Care Act and Its Implications for U.S. Competitiveness. But before we—we launch into the future, the panelists and I have discussed, you know, there's a lot of—in the short history of this law that's worth setting the table with.

So we'll start there and we three panelists exceptionally well-positioned to do that. On the far end, we have Dr. David Blumenthal, who is president of the Commonwealth Fund, which is a national philanthropy that does independent research on health and social policy issues.

He is also formerly a professor of medicine at Harvard Medical School. He practiced as a primary care physician for 35 years, if I remember correctly, from his residency until he was appointed by President Obama to be national coordinator for Health Information Technology, and he served in that role from 2009 to 2011.

And also worth mentioning and checking out is, he has an article today in the New England Journal of Medicine on this very topic, titled The Affordable Care Act at Five Years.

Steven Brill has a new book out, "America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Health Care System." He's an accomplished writer and editor and also the founder of Court TV and American Lawyer Magazine.

And our guest Jim Capretta has spent more than two decades studying American health care policy, most recently at the American Enterprise Institute, where he's a visiting fellow, and at the Ethics in Public Policy Center, where he's senior fellow.

He's also spent 16 years in senior positions in the executive and legislative branches of the federal government. From 2001 to 2004, he served as associate director at the White House Office of Management and Budget, where he was responsible for all health care, Social Security, and welfare issues.

So I'd like to welcome them all today. Thank you for joining us on the panel.

So I'd like to start, since it's just out today, David, your piece in the New England Journal of Medicine, you talk about three metrics that we can use to assess the—the success of the Affordable Care Act. And those are adequacy of access to care, cost of care, and quality of care.

So first, let's just briefly touched (sic) on—on that first metric. Can—can you just give us a sense for how successful the law has been in terms of expanding access to care?

BLUMENTHAL: Well, there have been—first of all, thanks for having me. It's delightful to be here. Different kind of audience for me. Used to speaking to domestic health care audiences, so it's a particular pleasure.

And this is an incredibly complicated law. Even people who study it full time have trouble grasping it, so it's really, really hard for a normal, even well-informed lay audience to get their head around it. So I'll try to keep it—try to keep it simple, at least my—my part of it.

And on the access side, the law creates a number of new programs that subsidize the purchase or acquisition of health insurance. And it has so far, I think by many independent measures, been successful in expanding the numbers of Americans who have protection against the cost of illness through health insurance.

It's done that through two principal devices. One is making Medicaid more accessible, and Medicaid is of course a health care program for the poor, and it's made it much—it's expanded Medicaid, though the states have discretion about whether to take advantage of that opportunity.

And it's also subsidized the purchase of private insurance for individuals through a new—marketplaces, online marketplaces that are available, one way or another, in all 50 states.

The latest data, two independent surveys, one by Gallup, the other by RAND, have shown a reduction in the number of uninsured Americans by about 16 million. They're both very close together. Others have come in at around 15 million, some at 11 and 10, but those are somewhat older surveys, so—and different ones.

So I think there's a—certainly, a consensus among independent observers that these efforts have worked to reduce the numbers of uninsured Americans.

DEAHL: And the—the second metric that you mentioned is cost. And, Steven, I know this is something that you've spent a lot of time thinking about, so can you talk a little bit about how in—you've done a lot of reporting on this, how you see health care costs changing for—for individuals, for Americans under the ACA?

BRILL: Sure. I'll just comment first...

DEAHL: Sure.

BRILL: ... on the numbers that David provided.

It's absolutely clear that those numbers are on the mark, no matter how you measure it. And I measure it in all the people I talk to who didn't have health care before, when I was doing the book, who now have access.

And the debate over that, because believe it or not, there's—there are still people debating it, sort of reminds me of the Japanese soldiers who were—who were captured on the—on the Philippine Islands, I think it was, in the 1960s who—who didn't believe the war was over.

That debate's over. The debate that goes on and is worth having is whether and to what extent the law does anything to—to tackle costs. And one way to answer that question is to do what actually isn't that impossible, which is read the bill, which embarrassed to say that I have, repeatedly.

And there really isn't much except at the margins that requires the cost be saved. There are voluntary programs that the Center for Medicaid and Medicare Services has initiated with mixed success that—that are aimed at tackling the care delivery issues associated with cost.

But if you look at the spectrum of, you know, where do the high costs come from, they come from so-called nonprofit hospitals making exorbitant profits. There's nothing in the law that does anything to change that in terms of what they can charge, and how they can overcharge.

They come from the exorbitant price of drugs in this country, different from every other country. There's zero in the law that does that. And they come from other costs and—and accountability issues related to medical devices, and there's really nothing in the law that does anything to attack that.

And as a result, what you've got—and the premise of the book is what you got in so-called health care reform, was exactly what passes for reform in Washington, which is it's the reform that the people who do the most lobbying and have the most power will let you have.

So, the coverage is the good news, and that's because what the law does in essence is it creates tens of millions, already 16 million new customers, who the government is going to subsidize so that they can pay the same exorbitant prices that all the rest of us are paying.

That's health care reform.

DEAHL: And just on the topic of—of cost, and I'll open this to whoever wants to address it. You know, with patients at this point bearing more of the cost of health care out of pocket, you know, we'd all be smart to be savvier shoppers, but it's still very difficult to be a consumer in this marketplace.

BRILL (?): Right. There isn't a way to be a savvy shopper...

DEAHL: It's...

BRILL (?): ... when someone says, you know...

DEAHL: Right.

BRILL (?): ... the cancer drug you need to stay alive is going to cost you $1,000 or $1,500 a pill, what do you do, say "Oh, thanks, I think I'll shop around and see what's—you know, what else is out there."

DEAHL: Right.

BRILL (?): Or, you know, the cost of, you know, going to the emergency rooms, you're being wheeled in. How much is this going to cost me? How much is my out-of-pocket going to be?

First of all, they don't know. Second, if they knew, they wouldn't tell you. And third, even after you get the bill, you still don't understand it, but it's not like you're going to go shop around and go across the street.

DEAHL: But and—and given that, what—what do any of the three of you think needs to change in order for us to become more educated consumers in this current reality?

CAPRETTA: Well I haven't had a chance to comment on some of the other things first, so let me—let me talk a little bit about coverage and then I'll answer your question, if that's all right with you.

DEAHL: Sure.

CAPRETTA: I think on the coverage side, as everything in health care, it's always more complicated than it appears on the surface.

The—the surveys are showing that there's about a—somewhere between 10, 15, maybe even more, millions of people who are in insurance coverage now than there were prior to enactment of the law.

There's a number of things going on. One is there are a fairly large number, several million people, who were low-income uninsured people and they were hard pressed to get insurance without a big new subsidy program coming their way. The law provided that to them.

That number is not going to be 16 million though, at the moment. That might grow over time. A large portion of the 16 million people who are actually being covered as—recorded as now insured that weren't previously, if you look at the health—the RAND survey that was (sic) been referenced, about 8 million of them are in employer plans.

These were people that were likely already eligible for coverage prior to enactment of the law. The individual mandate requirement had a lot of people then thinking, should I bring my spouse into my coverage, because currently he or she is uninsured? I have to file taxes if they show up as uninsured, I have to pay a penalty for them.

So there's a sorting going on in response to the new requirement. And about 8 million of them are probably in employer plans who already had coverage.

The second element to understand is that when they—prior to enactment of the ACA, the take-up rate of the Medicaid program was approximately 60 percent, by all credible estimates. So there were 40 percent of the people who were already eligible for Medicaid, but not signed up.

When you look at the enrollment numbers in new insurance coverage, a good portion of them are in states that actually didn't expand Medicaid.

So there are people who were already eligible for Medicaid, but because of the—a lot of media, a lot of attention around, you can get coverage now, you can get coverage now, the information campaigns with the exchanges, they signed up for coverage.

Approximately 6 million in the surveys are newly covered people in Medicaid. You know, maybe two-thirds of them are new expansion people and about one-third are probably people that were already eligible.

Finally, I think it's important to realize that in the exchanges, there's about 11 people at the moment. The surveys are indicating, as predictable from all economic literature prior to enactment that about 4 million or so of them were previously uninsured.

So the other 6 or 7 million people were coming out of some other coverage into the exchanges. It's called a "crowd-out rate." And they're being—a lot of them are getting, maybe justifiably so, large new federal subsidies to get into the coverage in the exchanges, but they did have previous coverage.

So I think it's important to understand the context of where we were prior to enactment of the ACA. Yeah, there's a lot of sorting going on based on the new incentives, but not all of the people that are in that 16 million are people who didn't have health—absolutely didn't have any basis for coverage prior.

Many of them probably had coverage; they just hadn't bothered to signed up for it.

DEAHL: Well, let's pause there, because I think we've got some responders in...

BRILL: This does—with all respect, I—I can't resist.

That's what I meant about the Japanese soldiers. None of those numbers are correct. None of them are real. I—you know, I can leave it to you to correct them, but I'll just give you one example.

A lot of people who aren't even counted as getting new coverage, got expanded Medicaid coverage in states like Kentucky that not only expanded, but improved the program and improved the coverage, so that more people signed up for Medicaid and got much better coverage, among lots of other things, which I'll leave to David.

You left that out, but that one just sticks out like a sore thumb.

BLUMENTHAL: Wait, I wasn't trying to—I—I'm not trying to create a—I—I think it's just important to have the context for it. I think there's a lot of people who are saying, you know, prior to the ACA, the numbers of people who actually were really hard pressed to—and usually a $50 million—million-person number, by the way.

New surveys indicate that the actual uninsured was not 50 million. It was probably about 40 million prior to enactment. And so there was—they—there was an overstatement of the problem. There's huge numbers of people in America that were low income, struggling to get health insurance.

That's absolutely true. But it wasn't 40 million people. And some of the sorting going on is about people that already had something, and are actually in the coverage they probably already had. That's only the point I'm trying to make.

BRILL (?): Well, prior to the enactment of the Affordable Care Act, a million new Americans became uninsured every year.

Any of you who have children who were—especially male children who were about 30 years old, who were not in an employer plan probably wondered whether they were going to get insurance, and many of you were probably in the—in the position of having to buy that insurance for them.

I certainly had that experience when my son graduated from college and went to work. And that is no longer a problem. Individuals can find affordable insurance in this country when they couldn't before, young individuals.

We had 40 million uninsured. We now have 24. You can point to who came from which source and whether—but this is all—implicitly, the argument is they weren't some way deserving of insurance, because they had access to it before.

BLUMENTHAL: I never said that.

BRILL: Well...

BLUMENTHAL: Don't put words in my mouth. I never said that.

BRILL: OK. But the fact is that the law has accomplished its fundamental purpose, which is to make more people who didn't have coverage, for whatever reason, insured and able to afford insurance.

Medicaid, there are 11 million new people signed up for Medicaid. There are 11.7 million new people signed up—not necessarily newly insured, signed up through exchanges. There are 3 million formerly uninsured young people signed up under insurance through their parents.

There are any number of—still difficult to account, of Americans who were unable to get insurance because of preexisting conditions.

We've all experience with relatives, friends who have had—been unable to get coverage, because of a history of a heart attack, a history of multiple sclerosis, a history of a tumor, or a history even of having physical therapy for a bad back. That is no longer a problem and those people, many of them now have insurance.

16 million is a bottom-line figure. Some may have been—had access to dependent coverage that wasn't affordable before. Some got access through Medicaid. But the fact is, there are more of them insurance and that—the topic here is American competitiveness.

And the fundamental question we face as a country is whether we think we are better off as a country if more people have access to health care, and whether we think it is appropriate that 40 million Americans be uninsured at any given time.

DEAHL: There's just—I want to hit very briefly on the—on the last metric and then we can toward sort of assessing future impact on competitiveness.

But—but, Jim, I—I want to turn this question also to you, because I know it's something that you—you've got thoughts on, on how—on quality of—of health care under the law, and I know you think that the government intervention into the—to the extent in the health care sphere has—has had negative consequences.

Do you want to talk a little bit about that and the examples that...

CAPRETTA: Well, look, I—I think the—the debate about the health care law really is a—as you can tell, it's a—it's a very longstanding, long-term struggle between two views about how to run the health system.

And one—one approach is—and it would be very consistent with our peer countries around the world, would be to have the government get a little more involved, have a regulatory structure that tried to control costs, insured some equity in terms of access to care through subsidies and other mechanisms.

Most other countries have been much more active governmentally in that process than the United States. And in a sense, the Affordable Care Act can be viewed as partially moving toward a market, but actually partially, in some ways, moving much more toward governmental intervention, both in the insurance side and the delivery side of medical care.

I think the—the partisan ideological tensions that everyone observes over their health care is about whether, you know, two sides of that debate, viewing it—whether that is a good idea or a bad idea.

And you know, my own judgement has always been that we can, in the United States, have a mixed approach, where it's very market-driven and less governmental than the other countries that we compare ourselves to on their health system, and still ensure a level of equity, even while we encourage more innovation and adaptation over time.

The question is, what happens next with the health care law. And I think it's—you know, my own thoughts are that it's likely to become—the government's going to get more involved on the cost side, and it's got a lot of authority in the law that it's used only partially to this point.

And it seems to me very likely, and—and just in a political economy kind of approach, that the next step is that policymakers are going to say now we need to control cost better, and they're going to have the government get more involved on the cost side.

And you know, and my own experience and judgment is that that's basically a bad idea. I think that they'll end—it'll end up, you know, diminishing the quality for everybody, not just for people that are on the subsidy programs.

And so, you know, that's a think that there—there's lots of disputes about and questions about, but you know, that's why we have these debates.

DEAHL: Steven, did you want to...

(CROSSTALK)

BRILL: Yeah. I just want to make one observation that I—I think the real problem that the opponents of Obamacare had on—on the conservative side, the Republican side of the fence, whichever it is. Take your pick.

The real problem is that Obamacare is a Republican plan. At its roots, it is a Republican plan. It is more conservative than something Richard Nixon proposed in the 1970s to head off a Ted Kennedy proposal, and much more conservative than what Governor Romney did in Massachusetts.

And it is, if you think about it, the ultimate Chamber of Commerce plan. Let's have the government give all these new customers money to buy from all these people who are making high profits in the private sector.

So, you know, the opponents really struggle and they come up with things like, this is, you know, the government interfering in your health care. One of—one of the commercials that the Koch brothers sponsored had this video of Uncle Sam, you know, getting between a woman and her doctor when she was being examined.

Well, Obamacare keeps the interference exactly where it is. It's now the insurance companies that get between that woman and their doctor, and nothing in Obamacare changes that. And the argument that I would make when it comes to cost is that, you have to change that because this is not a market good.

All the other countries in the world and we have tried an experiment. We were on one side. We tried the experiment of let's make believe it is a private market good. Everybody else said this can't be a private market good.

The consumers have no knowledge. They have no leverage the way they do if they're buying a cell phone or anything else. So what's the result of the experiment? We spend 50 to 100 percent more per capita on health care than any of those other countries do.

And then you could say well, that's because we get better care. But you know, guess what? As most who are in this room know, we don't get better care. Our results are no better. We just spend twice as much.

So we've done the market experiment. It hasn't worked.

BLUMENTHAL: I wonder if I could respond to that.

Yeah, I—I—I very much disagree with the characterization that what existed pre-ACA was a failure of the—you know, a market-based approach to health care. What we had...

BRILL: ... what I said.

BLUMENTHAL: No, you just we tried. We tried for a long time, that we had a market-based approach to health care.

BRILL: No, no, no. I said all—we have tried. That's what we do in this country, yes.

BLUMENTHAL: And I'm saying—I'm saying I disagree. I'm saying we—I disagree that we have—had or—and still have a market-based approach in the United States.

That right now, the vast, vast majority of Americans, 90 percent of them, basic—anybody with insurance, is in insurance that is heavily subsidized by the federal government, through the employer system, through Medicare and through Medicaid.

Basically, nobody in America isn't in health insurance, if it isn't been subsidized by the federal government. Hardly anybody's paying after-tax money—their own money for their health care. That includes the employer-based system, which has a massive tax subsidy associated.

The largest tax subsidy in the federal tax code is for employer-based health care. And it's open-ended. It allows people to buy any plan and the tax subsidy goes up, no matter how expensive the plan is.

If you want to why health care in the employer setting was very, very expensive, that would be, I would think, by every economist who has looked at it, that'd be reason number one.

And then of course on Medicare, you know, the—Medicare is the dominant player in most markets. It is not—it is not by any stretch a market-driven system. It's a heavily regulated system.

Maybe that's, you know, the way it should be, but I'm just saying to argue that that part of our health system as a market is just false. And it drives, frankly, the reimbursement structure for the entire system.

Medicare is the dominant player, by far, in the purchasing of health care. And every other entity is not big enough to really displace its dominance in how the system is organized.

So when a hospital runs its systems to maximize Medicare—Medicare reimbursement, they also do the same thing for employer payment and people paying of their own—out of their own money.

So I—I think this notion that, hey, we tried to market and it failed, or we tried to market and now we've doubled down in it, if that's your argument in the ACA, I think it's just false.

We've never had a marketplace in the United States. It's been dominated by the government activity in various ways for decades.

BLUMENTHAL: We could—I'll bet there—60 percent of this audience is now totally confused and—unless they're already health care experts, because these are debates that we in health care have endlessly and go back and forth on. And they're well-described arguments and talking points on both sides.

I do think it's fair to say that though we didn't have—we've never had a pure health care market, we rely more on markets than any other country in the world, except perhaps India and China, which are very much market-oriented in their health care, and we could debate the results of that.

Whatever we have here, market—it was a mixture of market and regulation, no question about that, it wasn't working. More and more people every year were losing insurance. Costs were going up at 2 to 3 percent faster than GDP, year-on-year. And that was making health care unaffordable and a threat to our international competitiveness.

We were devoting more and more of our productive resources to health care. If you look at the—data on employment during the last 15 to 20 years, you'll see that there was never a recession in health care.

Employment in the health care sector continued to go up at a rate that's completely unchanged from 2000 up to 2015, and wages also went up at rates that were completely unchanged. This is a sector of our economy which has been, for whatever reason, completely immune to the normal laws of economics when it comes cyclical changes. We can debate the reasons for that. There are many of them.

But the paradox of famine in the midst of plenty, people unable to buy insurance, unable to get insurance, while others were spending exorbitant amounts, often on an inefficient system, created a crisis that needed to be addressed, needed to be addressed—needed to be addressed, but not just for the health care system, but for the welfare of our country as a whole.

Now we have been trying since the time of Franklin Roosevelt to figure out how to cover Americans. Nixon had his plan, Carter had his plan, George H.W. Bush had his plan, Clinton had his plan. There has never been a perfect plan and there never will be a perfect plan.

We finally, through a very arcane and arguably less than advantageous—less than ideal process, enacted a piece of legislation that extends coverage, not to everyone, to maybe 25 million to 30 million Americans, at best, and despite Steve's appropriate points about cost remaining somewhat unaddressed, does more than we have ever done.

And if you want to find out what we've done, read my—some of what we've done, read my piece in the New England Journal. If you want to see the full list, look at the appendix, which has 30 or 40 individual specific programs initiated by the law intended to change the health care—the health care system.

It may not meet Steve's criteria for adequate intervention, but compared to what we've done before, it's an enormous step forward. It is governmentally-driven, but a lot of it is designed to develop I—develop models that can be implemented by the private sector.

So, you know, I think the question is, when is governmental intervention justified? When is change justified? When you're spending 17 percent of your wealth on a product and not getting a good deal for it, and there's no end to that in sight that was the situation we faced I think, when in 2008, when this law—2010, when this law was signed.

DEAHL: So we've—we've set the table with sort of assessments of—of how the law has done so far. We've yet to talk about the future and we've started to touch on impacts on U.S. competitiveness, so we'll open up for questions now.

So I'm going to invite you all to ask some questions. When I call on you, we'll have a microphone brought to you. Please just wait for the microphone, stand and state your name and affiliation. So we'll just start right over here.

QUESTION: Thank you very much. Very interesting and thank you for coming.

It's a—it's a mixture of morality and economics it seems to me. It isn't just one or the other. I taught health care economics at the—at the Medical College at Wisconsin for a while.

I came across a study of—of I think it was 50,000 women who had been diagnosed with breast cancer. Twenty-five of—they purposely did it so only half of them, 25,000 did not have health care coverage at the time of diagnosis, 25,000 did.

The women who did not have health care coverage were twice as likely to be dead five years later as those who did. So it isn't just economics. There's also a morality issue here.

I've also lived in Europe, where they're stunned at what we spend for—for health care coverage relative to what they have. And did you see a—thirdly (ph), I'll make—I'll quit right in moment.

There was a study in the New York Times—column (ph) in the New York Times about two months ago about—it implied (ph) about Romney-Care, which of course had—now has been in place for long enough to make some real decisions or tests.

The women who—the person, I'm sorry; that deployed Romney-Care were—it—they (ph) figured there'd be how many people over 65—I'm sorry; under 65, so they wouldn't have Medicare, were alive today versus what—versus the rest of the country beyond the—before (ph) in the United States.

But they were significantly more likely to be—to be alive in—in—in—in Massachusetts where Romney-Care had been (inaudible). And if you then applied that number to the whole nation, there would be 16,000 women alive today who are not, if you applied it.

Everybody had Romney-Care five years ago, from five years ago forward; there'd be 16,000 women still alive. So it is not just a huge cost issue. It's also a morality issue.

DEAHL: Does anybody want to respond to that.

(UNKNOWN): Want to come out against morality?

(LAUGHTER)

DEAHL: OK, up here.

QUESTION: Thank you very much. I'm Paula Stern (ph) and thank you for coming.

I'd like to talk about U.S. competitiveness and going forward, what the law implications will be, what, I guess the economists are saying with regard to the role of expenditures on health care nationally as a percentage of our GDP.

And if you could comment on where you have your favorite place to, if you will, save money and without sacrificing on quality, I would love to hear that, too.

DEAHL: Would you like to direct that to the...

QUESTION: Well, I'd like to hear from Dr. Blumenthal first, please.

BLUMENTHAL: Oh, I'm—I'm already miked. I don't need that.

So, you know, first of all, I should say I'm absolutely not an economist. I don't study international trade or competiveness, so this is a—you know, a—a country doctor's view of this—of this topic.

I think our very high expenditures on health care are a threat to our competitiveness, not necessarily because businesses pay a lot of them, but just because it diverts resources from what are more productive uses.

So, we did a little calculation of what—at the Commonwealth Fund, of what we could've saved if from 1980 to present, our rate of health care costs had gone up at the same rate as the Swiss system. And it came out to close to $20 trillion.

So for that amount of money, just think of what you could do with solar panels, or public health investment. We—we got all concerned about Ebola. Our public health system is really a shambles when it comes to dealing with that kind of illness. You could send 175 million Americans to college free with the $17 trillion.

So there's a lot of alternative uses that would, I think, advance our competitiveness. However, the question is, does the law make our competitiveness worse? And there you could debate back and forth. There are some aspects of the law that I think make it a lot easier for small businesses to build and survive.

One of the things that it does is ends what's called job-lock, which keeps a lot of people in large companies, so they can get insurance when they might prefer to be out there starting a new business themselves.

And that is a big boon to our competitiveness in the sense that small business and startups are important to our competitiveness. So I think you can go back—now, there's also a—a—criticism of the law that it taxes medical devices, which do get exported. We could talk about that in some detail.

But I don't think there's—one—one other thing I'd like to say is that most of the businesses that export goods in the United States, auto, computers. One exception is agriculture, but most businesses insure their employees, so they are basically unaffected by the law.

DEAHL: Steven, did you want to?

BRILL: Well, but they are affected by the continuing increase in costs. You asked what the—the first place someone could look.

It seems to me the—the easiest place to look, because it's in the newspapers every day, whether it's a $9 billion M&A deal or—or a story about, you know, the price of, you know, of—of one of the drugs in the $9 billion M&A deal, is the cost of prescription drugs in this country.

We're the only country that doesn't control those costs. All the drug companies make a lot of money selling drugs all over the world. One of the answers to that is, well, the drug companies need those profits that they get in the United States for R&D.

There are two answers to that. First is, I don't remember any of us in this room actually signing up for that mission to provide drugs around the world, when—when we have a cost problem.

But the second more important point, is that if you just look at the P&L statements of any of the major drug companies, R&D is typically less than administrative costs, and sales, and marketing.

And there is no company where the R&D they spend justifies the profit margins that they typically enjoy, which typically make a company like Apple, which the rest of us think is a pretty successful company—make a company like Apple look like a struggling pushcart. These drug companies are doing very well, and their stock prices reflect that.

Indeed, when you think of the pharmaceutical industry, Jim (ph), it is the one place where the free market in the United States has been allowed to be completely free, including in Medicare, where Congress, in its wisdom, passed a law that said Medicare, which you said dominates the pricing in everything else in health care.

Medicare is—which is the largest single consumer of prescription drugs, is not allowed even to negotiate the price it pays for those drugs. So that would be a good place to start with the free market, it seems to me.

CAPRETTA (?): Yeah and that—that drug benefit in Medicare that you mentioned is—is the exception in the Medicare program, actually. I agree with that.

And—but it's—it's spending has been very moderated, actually. I was been CBO's expectations, Congressional Budget Office's expectations of what it would spend were way, way above what it ended up being, in large part because the program incented a lot of movement out of—of brand name drugs into—into generics over time.

People say it would have happened anyway. I—I don't think the evidence really supports that, actually. It was part of—part of it—what happened was when you had to pick, and you had to pay more if you wanted a brand drug, consumers ended up switching because it was going to come out of their own pocket, in large numbers.

So, you know, I—I don't think the drug benefit actually is a knock on the free market. I think it actually has shown to be working fairly well. I think the—the question on pharmaceuticals is pretty—it's pretty obvious, really.

It's do you want to—how much risk do you want to take on with governmental intervention to hold prices down versus the argument that—I mean, it's basic economics that if you restrict price, supply lessens. It's just—it's just a truth of economics.

It's true in every—in every sector. It's true in health care, also. The question is, if you forcibly bring down the price, what is the response on the supply side? And you know, I mean a lot of people made a big argument about the—the latest hepatitis C drug. It was too expensive on a per-person basis.

But the—the pill, you know, was a huge advance over the previous treatment protocol. Nobody wanted to take the previous treatment protocol, because it was terrible and it was onerous. It went on for weeks and weeks and weeks. You felt terrible. And the success rate was not as high as it should have been.

So the—you know, through wonders, through 15 years, people researched and advanced science on how to do this in a single pill. They did it, and then they charged a lot for it. Yeah, but the people survived. They didn't have liver failure. It was a huge advance.

BRILL (?): Right. But...

CAPRETTA (?): The question is—the question is, if the government had said in advance, would—you know, this is a risk question. If you'd said in advance, we aren't going to let you charge any price you want. Your price will have to be X.

Would the effort have gone into developing it? It's an unknowable thing, but there's almost no question that if you do artificially set the price, there will be a restriction in supply eventually. It's just—it's just basic economics. You know, the question is how much risk do we want to take in terms of cutting the cost?

We have the most advanced biotech industry in the world. It's the most deregulated in the world. I don't think that's totally an accident.

BRILL (?): Well, the question is you know, let's unpack the pronouns you used.

They who developed it. They who developed it had nothing to do with setting the price for it, because they're company got bought.

CAPRETTA (?): That's correct.

BRILL (?): And when the company got bought...

CAPRETTA (?): They made a huge amount of money and the buying company made a...

BRILL (?): When the company got bought, they decided to raise the price and if you need just one illustration of how—you know, what the wild west is when it comes to drug prices, the company that was selling the drug didn't even have the courtesy to go through the pretense of saying, "Let's charge $989.26 a pill or let's charge $1,011.14."

It obviously was, you know, two guys on their way to the men's room who said, "You know, screw it. Let's charge $1,000." And next time it'll be $2,000 or $3,000. Would you put any limit on it? If they said $5,000 a pill and Medicare had to cover it, would you—would you put a limit on it?

CAPRETTA (?): I think it's pretty obvious that we—we put limits on it through a lot of indirect needs. So you had, immediately, in the months afterwards, lots of maneuvering by the payers to try to get the price down, and cost and hardly anybody's paying $1,000 a pill, candidly.

That's their sticker price, and then they end up in huge negotiations with the pharmaceutical benefit management companies to get to—I'm not defending what—what the—the company did in this case, but I—I think—I think it's very easy to just say hey, let's just put the—let's just lower the price on these things.

I mean does anybody think well, there might be a consequence if you just lower the price on...

BRILL (?): Well every other country in the world seems to think that's not a bad idea.

CAPRETTA (?): Well...

DEAHL: David would like to jump in?

BLUMENTHAL: So I think our audience should by now appreciate that the—I mean that this is about markets and government. It's about freedom and about regulation, or restriction of freedom.

And everyone has to decide whether the health care market is just like every other market, or whether it's somehow different. And I think the American people are genuinely divided on this, and individuals are divided within themselves.

So I think our—our natural instinct is to say, yeah, let's solve something through the market, 'cause that's what we do in—in the American—as Americans, but don't let anybody die. And that—that conflict, if you play them out, leads to the kinds of conversation we're having right now.

I would just add that whether you like markets or dislike markets; you can see down the line that, whether it's a result of regulation or not, we are heading toward a place in the pharmaceutical sector where we cannot afford the lifesaving treatments we're going to have available.

That's a tribute to the power of science. It flows to some degree out of—out of our public investment in biomedical research, the Genome—Human Genome Project, now Precision Medicine, another big investment.

And there's very little dispute, by the way, conservative or Democrat or (inaudible) about the government ought to be funding biomedical research (inaudible). We all acknowledge that markets fail to support adequate amounts of biomedical (inaudible).

But we are going to face a situation which is going to demand action. How we will respond and what we will propose will depend on whether we believe in unfettered markets or something else.

But you cannot—the amount of money that would have been spent on Sovaldi, this hepatitis C drug, for hepatitis C patients alone would have been the equivalent, in treating all patients for the Kaiser health plan, which insures about 9 million Americans, of all the money they spent on all other pharmaceuticals, just treating that one condition at the price that was charged.

Whether you think the price was fair or not, the consequences of it—and we talked about consequences, were that Kaiser could not have afforded to buy drugs for any other condition. That is not a tenable societal situation. What we do about will be, I guarantee you, hotly debated over the next 10, 15 years.

Science is driving us inevitably toward more and more effective drugs for smaller and smaller numbers of people. Cystic fibrosis now has an incredibly effective drug that treats about 1,400 people, keeps them alive, keeps them functioning, cures—basically cures the disease for 1,400 people at a cost of $220,000 a year per person, indefinitely.

That doesn't even cover all of cystic fibrosis. This is where we're heading, and we are in a path to have a solution to it.

DEAHL: I have a—move on to another question.

We'll go back here. And please remember to state your name and affiliation.

QUESTION: Emirif Kami (ph), George Washington University.

I'm wondering if our panelists can comment on two areas, one within cost, the other within the access and the implication of—of this law, and in terms of competitiveness and controlling costs.

One is in terms of the last few years of life, where the bulk of our health care costs are going into, and what this law is doing to reduce that or what it isn't doing.

And a second issue is an issue which I think Dr. Blumenthal, like myself thinks a lot about, which is graduate medical education, and the supply problem when it comes to physicians, specifically within the health care workforce.

As you know, the Institute of Medicine had a report out, it was about eight months ago, about the significant lack of physicians to meet the growing need of the population. So what is the law doing, and what is the implication of both of these for competitiveness?

BLUMENTHAL: Well, could you just, in a—in a couple words, repeat the first? I got distracted by...

QUESTION: Sure. Last—the last few years of life, where the bulk of our health care costs go into and—and what this law is doing to change that.

BLUMENTHAL: OK. It is true that—that from a statistical standpoint, if you look back at people who've died, you can see that they spent a lot of money in the six months before they died.

I have never found that particularly useful as a clinician. I've never found that a particularly useful piece of information, because I don't know who's going to die. And I also—and I—I have no algorithm that gives me a reliable prediction.

And what's more, I don't make those decisions myself. I make them with families. And families will hang on to very small probabilities of survival and demand care. So I don't see a policy intervention that flows out of that insight, one that's acceptable morally, ethically, politically.

There is, however, an area of policy we can all work on, which is to identify the sickest among us and the most costly, who, by the way, also are most subject to quality problems and safety of care problems.

And we can work to take care of them better, regardless of whether they're in the last six months, the last week or the—still have 10 years ahead of them. 50 percent of what we spend under Medicare is spent on five percent of people in the Medicare program.

There is a very, very high concentration of resources on a very small proportion of our population. We don't focus sufficiently on taking better care of those people. We can save a lot of money and do better for them than we currently do.

So that's what—that, for me, is the implication of that last six months of life figure. Find costly patients and take better care of them, period.

In terms of graduate medical education, I—I wrote the first academic paper I ever wrote on the supply of graduate medical education. And I have noticed that—that every 10 years or so, we go from surplus to deficit, and then to surplus and then back to deficit.

I concluded early on it wasn't a very fruitful place to spend my time, scholastically. We don't have very good analytic tools to predict workforce supply, and it's subject to all kinds of restraints. The law tried to address it in a couple of ways.

I won't get into great detail. If you're really interested, you can go look at the—the papers that—that we published. But it—this is something that not just we, but many much more government centralized systems struggle with and do—and struggle with in—with difficulty.

DEAHL: Yes, back here.

QUESTION: Hi. Tom Davis (ph), AmeriCap Group.

I come to health care kind of late in life. I was in the U.S. Army for 25 years, and that was a distorted market for health care, even if you walked into the clinic. But it was full access. We—we all got it.

I often say it was—you waited an hour to get your prescription filled, because there's an infinite demand on a free good. So it wasn't till I retired that ever heard the term co-pay. I didn't even know what that was until—someone had to explain it to me when I took health care with the company I joined.

(UNKNOWN): We were co-paying for you.

(LAUGHTER)

QUESTION: And still do, 'cause I've gone back to that system now, after my previous—I—question really is for—is for Jim Capretta. A lot of what I know about health care and the implications of the law and so forth are from discussions you have with various people.

I found one in particular very interesting. It was a discussion with my brother, who lives in Greenville, South Carolina. He lost his job in 2008, engineer, master's degree, very grounded citizen. Managed to have his health care coverage for 18 months after that under COBRA.

He had had a stent put in at one point, very simple procedure that I think Dr. Blumenthal referred to. But because of that, he could not get any health care coverage on the market after that, except there was some rather small South Carolina program, which was called High-Risk Health Market or something.

So he got into that, 'cause he had a son playing football. He paid $2,000 a month for health care coverage at a time where he's trying to get through other issues in life.

Once the Affordable Care Act went into effect and the marketplace was set up, he got an adequate policy, same as what he was getting before, for $600 a month.

The—the question is—is he tells me that every time there's an election in South Carolina, which they have every two years, that somebody comes and knocks on his door. And of course, if you're running for office in Greenville, South Carolina, you're probably going to be a conservative.

So they all knock on his door. First thing is, "My first job, once I get elected is I'm going to repeal Obamacare." His first question always is, "Let me tell you my story and what do you propose to do for me?"

So I—I think the question that I'd like to hear from your side is what would be, in your view, an adequate replacement? Because I have to tell you, from my rooted family in southwestern Kentucky, South Carolina, eastern Kentucky relatives and so forth, by and large, people feel that they got a pretty good deal out of this.

And the market that existed before was so highly distorted, that I don't know it was functioning.

CAPRETTA: Well, a couple things. One is, earlier David had mentioned that, you know, the system, as it was playing out in 2006, '07, '08, '09, as President Obama came to office, was inadequate and dysfunctional. And I agree with that. It needed to be substantially reformed.

So I didn't—I never was, never have been a defender of the pre-ACA system. It left a lot of people out.

It didn't treat people well who were continuously insured. It—basically, you know, the big problem was people between about 100 percent of the poverty line and 250 percent of the poverty line who have a lot of very modest income, struggling to pay premiums for a $10,000 policy is just not affordable on that kind of an income.

So there was going to have to be a major shift around. The question is how to do it, and you know, I—I'm a supporter of Senators Burr, Hatch and—and Upton. Congressman Upton had a plan that would substantially change what was enacted in the ACA.

A lot of people call it Obamacare-light, 'cause it has some similar structure to it. But it has a lot less federal control over the system. And that's basically how I would do it.

Now, how does it deal with preexisting conditions? It would treat someone like your brother in a different way than the Affordable Care Act. Instead of—instead of—what they did in the Affordable Care Act is essentially said insurance is no—no longer allowed, in any circumstance, to take into consideration someone's health status.

And this approach would say—and to make that work, you have the individual penalty requirement, the tax that's paid through the income tax for people that don't sign up for coverage.

The way the Burr-Hatch-Upton approach would do it, is to say, anyone who stays continuously insured, which presumably your brother and his family were, couldn't be charged any more based on their health status.

And they would get a subsidy if they weren't in the employer system. So everybody in America that wasn't in the employer system would also get a tax break, similar to the ACA. Frankly, they could be—it would actually, in some circumstances, be non-income tested (ph), so it'd go up the income scale.

So it would be less, though, in some circumstances than the ACA, be less expensive. I want to be honest with you about that. But it would still be something, so everybody would have at least catastrophic coverage.

So your particular case, the replacement program is to say, we need to make sure that if someone had to leave the employer system, go directly to the individual market, they wouldn't ever have to have their health status taken into account, based on their premium or their coverage levels.

I think that actually would basically work, as long as they were tax-subsidized in—in a—in a way that is similar to the employer system.

Now, am—am I a believer that we're going to get there for sure, if some different elected person gets into office? I have no idea. I don't know if—if the momentum of the ACA is such that any change in direction is possible at this point. I don't want to predict that it is or isn't.

But I think the idea that there wasn't any—that there has never been any viable alternatives or ways of thinking about this that were different from what got enacted in the ACA, I don't think it's actually true.

I think the one thing the president says that is true is that, hey, those people on the other side couldn't get a coalition together to pass what I did, something similar to what I did, and that, there is some validity to.

It was very hard on the conservative center right side to get a—a—a governing coalition together to pass a solution. You might recall that President Bush, in 2007, proposed a reform. I will tell you that in the days that President Bush was in office—I worked for President Bush; he proposed the same tax credit for people that are uninsured every year in his budget.

It basically went nowhere. He pushed it some—to some degree. But I got to tell you it was partisan then, too, because the opponents of it said we don't want to do a solution lookalike (ph). We want something much more comprehensive.

So some of the solutions that were more incremental and would have made a lot of progress 10, 15 years ago, also were heavily politicized debates and didn't happen.

So we got to where we were for a lot of reasons. A big solution got passed. It was only on one side of the aisle. I think that makes sense unstable politically. But you know, it may still be the—the way we go forward. It's hard to tell at this point.

DEAHL: All right, yes. Back here.

QUESTION: Hi. My name's Jacque Tellei. I work in the Senate doing health care reform, so—so I got a lot of inside information on some of this.

I just wanted to follow up on a comment that was made a moment ago. When you look at health care coverage, just have two basic things, right? How many healthy people and how many sick people? And you sort of, at the simplest level, divide those two numbers and you get an idea (inaudible).

I don't know if I understand the math that you just described. The eloquent question that was posed earlier, said that his brother would not—was part of a high risk—would have to have been part of a high-risk plan.

And that makes sense to me. But if you don't have that penalty of sorts, or some mechanism to get people to reduce the denominator to make it so you have a lot more healthy people in a plan. How do you ensure the same level of cost?

CAPRETTA: Well, it's a—it's a question of—if someone doesn't stay continuously insured, and then they want to get back into the health insurance system, what would happen? This is actually not that different, in some ways, from the individual mandate.

It just says that if someone decides to go uninsured and then wants to get back into the system, then they could be penalized for doing, so and their premium would be higher. So you have a very strong incentive to stay insured, actually, under that approach.

Now, you know, I think the big question—we're only—you know, we're really 15 months, really, and 16 months into enactment of the individual man—or implementation of the individual mandate under the ACA.

It's an open question. I think it may work, but it's an open question, five, 10 years from now, whether the penalties in the law are sizable enough to ensure that everyone stays insured, because the premiums will be far in excess of the penalties.

DEAHL: So we're—just let me interject quickly...

CAPRETTA: Let me just—answer the math...

DEAHL: ... to say we have five minutes left, so why don't—do you want to give quick response and we'll take one more question.

CAPRETTA: The reason you don't understand the math is that the math is not understandable.

(LAUGHTER)

Your brother was paying $600 a month under the plan that Senator—under the plan that he put forward and I'm just going to guess at his income. I won't put you on the spot, but he was probably getting a subsidy as part of that $600 if he was insuring the family.

That subsidy would probably go away and the premium would likely be $1,200, maybe $1,400 a month, not the $2,000 but not what it is now. And as a general matter, those plans, precisely because they don't account for what you're talking about, which is the encouragement of healthy people to get insurance, because there's no mandate.

But, A, the premiums are much higher. B, the cost to the taxpayers, although they deny it, is much higher. And C, the subsidies that—that everybody gets are cut off it at, what is it 250 percent of income instead of 400 percent?

(UNKNOWN): And that plan is 300.

CAPRETTA: OK, 300 instead of 400. That is a big group of people. That's basically everyone in this country, every family of four, making $72,240 a year and up, instead of $92,000. That's a big deal. That is a big swath of America that gets left out of that plan.

DEAHL: All right, I think we have maybe time for a very—one very quick question, down to our last few minutes.

QUESTION: Thank you. Craig Koi (ph).

I will ask a question, I think we're talking about competitiveness. I'm CEO of a—of a company that's trying to deal with the health care act. We are in physical security, security guards. Our average wage for the year is about $30,000, and I probably spent 20 or 30 percent of my last year trying to understand what I'm supposed to under the Affordable Care Act.

And because of the way it's set up, if I didn't offer any plan, I would have to pay a $2,000 penalty per employee, $10 million. I didn't think that was a very good idea, so I offered health care to our—our people. And a minimum essential coverage, we offered a plan; we subsidized it, which cost $6.78 per pay period, every two weeks, for people to have the minimum essential coverage.

Out of 5,000 people, we had about 300 people take it. They don't want it. They can't afford it. Even if—they want to keep their money all the way through.

And the challenge I have is that we are in, what I view as a health care death spiral, where the only people who are taking insurance are the people who really need it. And what happens is, when I go back for renewal, the health insurance companies look at my pool, and say you've got a bad pool, they're going to raise my rates.

And so I—I'm in this constant battle of trying to figure out how to get the coverage, how to offer the coverage and how to afford the coverage, and stay competitive in the marketplace. My suggestion is, that if something in the law could have addressed the way in which insurance companies bill their rates around the pooling, which is the problem.

By segmenting the pools into ever and ever smaller groups, they're able to target and price-point the different groups. If it was simply around a geographic area, where you are offering health insurance, everybody that's in this zip code or in this state or in this area, they have access to that entire population. Then you would have some degree of competitiveness in the—in the insurance side.

Could the panel address that, because I've heard the macro questions. I'm dealing with the micro questions.

DEAHL: I think we're actually at time, but if we have maybe just very quick thoughts to address that.

BLUMENTHAL: So what you're suggesting, if I understood it, is something called community rating, which is setting rates on the basis of geography rather than on the base of company.

The president, somewhat to his distress, promised that anyone who had insurance could keep it. And that meant that, if you had employer-based insurance that insurance would be left untouched. And so changing the way insurance companies rate employers would not have been a very wise thing to do in light of that promise.

He already took a bath over the fact that the individual market result - had some cancellations. I assure you, if he tried to regulate the way in which insurers set their rates for employers, there would have been massive dislocation and the insurance companies, by the way, would not have supported the law.

So I don't know what the solution to your particular problem is, and I don't write insurance as a business, so I'm not sure what all your options are. I—it—it does seem to me like there ought to be a way around the solution that you're—the problem you have, but it looks like you've already spent a long time on it.

QUESTION: Your lips to God's ears. The challenge is that...

DEAHL: I—I'm...

QUESTION: ... the law was written by insurance companies, you can't change the way insurance companies set the rates (inaudible) essentially, if you want to have a private employer be the conduit of insurance, you need to deal with that, otherwise just make it all public and leave me out of it...

DEAHL: All right. Well I think we're going to have to leave it there.

I—we thank you for coming to this on the record session. Lots to talk about, lots more from here, but thank you to our panelists. You all did a great job. Thank you for coming out.

END