1 00:00:00,040 --> 00:00:02,460 The following content is provided under a Creative 2 00:00:02,460 --> 00:00:03,870 Commons license. 3 00:00:03,870 --> 00:00:06,910 Your support will help MIT OpenCourseWare continue to 4 00:00:06,910 --> 00:00:10,560 offer high quality educational resources for free. 5 00:00:10,560 --> 00:00:13,460 To make a donation or view additional materials from 6 00:00:13,460 --> 00:00:16,180 hundreds of MIT courses, visit mitopencourseware@ocw.mit.edu. 7 00:00:23,140 --> 00:00:25,870 PROFESSOR: So to review, what we've been doing in the last 8 00:00:25,870 --> 00:00:28,790 two lectures, we talked about equity versus efficiency, and 9 00:00:28,790 --> 00:00:31,070 the equity efficiency trade off. 10 00:00:31,070 --> 00:00:34,280 We then talked about redistribution and the leaky 11 00:00:34,280 --> 00:00:38,100 bucket, and basically how both taxation and distortions and 12 00:00:38,100 --> 00:00:40,890 welfare programs lead to leaks in the bucket. 13 00:00:40,890 --> 00:00:42,690 And we talked about we do in the US to 14 00:00:42,690 --> 00:00:44,330 try to transfer income. 15 00:00:44,330 --> 00:00:46,480 The last lecture, we focused on the fact that most of the 16 00:00:46,480 --> 00:00:48,900 US government transfers are not about just the rich to the 17 00:00:48,900 --> 00:00:51,590 poor, they're about fixing problems with our insurance 18 00:00:51,590 --> 00:00:54,930 markets in the form of social insurance. 19 00:00:54,930 --> 00:00:56,920 And we ended last time by talking about the nation's 20 00:00:56,920 --> 00:00:59,910 largest social insurance program, social security. 21 00:00:59,910 --> 00:01:04,180 What I want to talk about today is a particularly timely 22 00:01:04,180 --> 00:01:07,790 topic, which is the biggest single issue in social 23 00:01:07,790 --> 00:01:11,500 insurance, indeed the biggest single fiscal issue facing the 24 00:01:11,500 --> 00:01:14,480 US government over your lifetimes, 25 00:01:14,480 --> 00:01:17,820 which is health care. 26 00:01:17,820 --> 00:01:22,410 Health care in the US today consumes about 17% of our 27 00:01:22,410 --> 00:01:25,970 nation's income, so that one in every $6 28 00:01:25,970 --> 00:01:27,730 goes to health care. 29 00:01:27,730 --> 00:01:35,570 By 2075, so when you guys are elders, when I'm no longer 30 00:01:35,570 --> 00:01:38,610 with you and you guys are elders, health care will 31 00:01:38,610 --> 00:01:42,440 consume about 40% of our nation's product, so $4 in 32 00:01:42,440 --> 00:01:44,490 every $10 will go to health care. 33 00:01:44,490 --> 00:01:47,710 By 100 years later, when your grandkids are elders, health 34 00:01:47,710 --> 00:01:50,430 will consume 100% of our nation's product. 35 00:01:50,430 --> 00:01:52,695 That is literally if nothing's done, every single dollar we 36 00:01:52,695 --> 00:01:54,350 earn will go to health care. 37 00:01:54,350 --> 00:01:56,590 Now, obviously that is not sustainable. 38 00:01:56,590 --> 00:01:59,360 That's not a legitimate outcome to envision. 39 00:01:59,360 --> 00:02:03,780 So something must be done, and that has led to an enormous 40 00:02:03,780 --> 00:02:06,350 discussion about this area. 41 00:02:06,350 --> 00:02:09,300 Another way to think about this is, if you think about 42 00:02:09,300 --> 00:02:13,100 the US, we haven't talked about budgetary issues in this 43 00:02:13,100 --> 00:02:15,540 course, think about US government having a budget, 44 00:02:15,540 --> 00:02:18,040 money it collects through taxes and money it spends 45 00:02:18,040 --> 00:02:20,020 through revenues. 46 00:02:20,020 --> 00:02:22,250 We all know the US government has a big budget deficit right 47 00:02:22,250 --> 00:02:23,500 now, about $1.3 trillion. 48 00:02:26,750 --> 00:02:28,590 Another way to think about that is if you look at the US 49 00:02:28,590 --> 00:02:31,710 government and all the promises it's made to pay for 50 00:02:31,710 --> 00:02:34,930 health care alone, forget everything else, just for 51 00:02:34,930 --> 00:02:39,420 health care, we've promised to pay, above and beyond any 52 00:02:39,420 --> 00:02:43,680 taxes we're planning to collect, $100 trillion in 53 00:02:43,680 --> 00:02:46,830 health care promises to the Medicare and Medicaid program, 54 00:02:46,830 --> 00:02:48,700 above and beyond any taxes we'll collect. 55 00:02:48,700 --> 00:02:51,800 So if we do nothing, we're facing a $100 trillion long 56 00:02:51,800 --> 00:02:54,590 term deficit in health care. 57 00:02:54,590 --> 00:02:56,100 Now, a year ago, that would have sounded more stunning 58 00:02:56,100 --> 00:02:58,950 because a year ago, we didn't use to talk in trillions. 59 00:02:58,950 --> 00:02:59,860 We only talked in billions. 60 00:02:59,860 --> 00:03:01,420 Now, we're all talking trillions, so it doesn't sound 61 00:03:01,420 --> 00:03:04,650 that impressive, but believe me that's a big number. 62 00:03:04,650 --> 00:03:07,380 So basically, we've got enormous problem facing our 63 00:03:07,380 --> 00:03:10,420 country with health care, both in terms of the country's 64 00:03:10,420 --> 00:03:13,930 devotion of resources, and in terms of the government's 65 00:03:13,930 --> 00:03:15,820 devotion of its budget. 66 00:03:15,820 --> 00:03:17,580 Now, you might say, well, the government should just get out 67 00:03:17,580 --> 00:03:20,440 of this activity, but that goes back to the last lecture, 68 00:03:20,440 --> 00:03:22,240 which is why is government in this activity? 69 00:03:22,240 --> 00:03:24,420 Because there's a market failure for health insurance. 70 00:03:24,420 --> 00:03:27,150 We talked last time about adverse selection, and the 71 00:03:27,150 --> 00:03:28,690 problem that, if the government doesn't get 72 00:03:28,690 --> 00:03:32,510 involved, health insurance markets might fail, and in 73 00:03:32,510 --> 00:03:36,150 practice we've seen that in the United States. 74 00:03:36,150 --> 00:03:38,650 We've see a failure of health insurance markets. 75 00:03:38,650 --> 00:03:40,230 Now, most people get their health 76 00:03:40,230 --> 00:03:42,290 insurance through big companies. 77 00:03:42,290 --> 00:03:43,840 So I get mine through MIT. 78 00:03:43,840 --> 00:03:46,280 You get yours through MIT or through your parents and the 79 00:03:46,280 --> 00:03:48,850 big companies where they work. 80 00:03:48,850 --> 00:03:52,810 And in those markets, health insurance works well. 81 00:03:52,810 --> 00:03:55,400 And health insurance works well through a simple 82 00:03:55,400 --> 00:03:58,550 statistical fact many of us learned about in high school, 83 00:03:58,550 --> 00:04:01,220 which is the Law of Large Numbers. 84 00:04:01,220 --> 00:04:04,890 The Law of Large Numbers simply says that for most 85 00:04:04,890 --> 00:04:09,100 distributions we know, certainly normal distribution, 86 00:04:09,100 --> 00:04:12,930 as the sample gets large enough, the mean is 87 00:04:12,930 --> 00:04:17,620 predictable, and basically, that's the principle under 88 00:04:17,620 --> 00:04:19,220 which insurers operate. 89 00:04:19,220 --> 00:04:21,899 So I talked about you, last time, starting your MIT 90 00:04:21,899 --> 00:04:23,740 insurance company, where you would go 91 00:04:23,740 --> 00:04:25,515 and insure MIT graduates. 92 00:04:25,515 --> 00:04:29,300 Well, as long as you have a large sample of MIT graduates, 93 00:04:29,300 --> 00:04:31,870 and you knew they were all going to buy health insurance, 94 00:04:31,870 --> 00:04:34,820 then you could clearly predict what you'd have to spend, 95 00:04:34,820 --> 00:04:38,030 through the Law of Large Numbers, and you could have a 96 00:04:38,030 --> 00:04:40,060 functioning insurance market where you charge that plus a 97 00:04:40,060 --> 00:04:43,530 little money to make, to pay for your profits. 98 00:04:43,530 --> 00:04:45,030 And that's how large business works. 99 00:04:45,030 --> 00:04:48,960 So MIT has insurers, the MIT insurers know MIT has about 100 00:04:48,960 --> 00:04:52,125 10,000 employees altogether, 12,000 maybe. 101 00:04:52,125 --> 00:04:54,400 The insurers say, look, that's a large enough sample that we 102 00:04:54,400 --> 00:04:56,410 can basically predict what MIT is going to cost, and we can 103 00:04:56,410 --> 00:04:58,750 basically figure out what to charge them for premiums. MIT 104 00:04:58,750 --> 00:05:01,110 says, well gee, we wish it was less, but that's fair. 105 00:05:01,110 --> 00:05:04,200 We understand what health care costs, and we're done. 106 00:05:04,200 --> 00:05:06,030 That's not true if you don't work for a large firm, 107 00:05:06,030 --> 00:05:07,930 particularly for an individual. 108 00:05:07,930 --> 00:05:10,160 So let's say you've got your MIT health insurance company. 109 00:05:10,160 --> 00:05:12,300 You've graduated, you're successful, you set up a 110 00:05:12,300 --> 00:05:14,230 program insuring all MIT graduates. 111 00:05:14,230 --> 00:05:16,415 Let's say, MIT forces everyone to buy health insurance, so 112 00:05:16,415 --> 00:05:18,870 you've got a nice, predictable distribution of risks, and 113 00:05:18,870 --> 00:05:19,770 you're making your money. 114 00:05:19,770 --> 00:05:24,430 And then I walk in the door, and I don't have to buy health 115 00:05:24,430 --> 00:05:24,990 insurance from you. 116 00:05:24,990 --> 00:05:26,730 I'm just a regular guy off the street. 117 00:05:26,730 --> 00:05:28,100 I say, hey, I hear you've got this great 118 00:05:28,100 --> 00:05:28,890 health insurance product. 119 00:05:28,890 --> 00:05:30,290 I want in. 120 00:05:30,290 --> 00:05:32,900 And you look at me say, wait a second, why do you want in? 121 00:05:32,900 --> 00:05:35,500 You probably only want in because you're sick, and you 122 00:05:35,500 --> 00:05:36,815 know that you're going to need health care, and that's why 123 00:05:36,815 --> 00:05:37,390 you want to buy from me. 124 00:05:37,390 --> 00:05:39,960 So no I'm not going to sell to you. 125 00:05:39,960 --> 00:05:41,970 And that's the problem individuals face who want to 126 00:05:41,970 --> 00:05:44,520 buy health insurance on their own, is the problem of 127 00:05:44,520 --> 00:05:47,610 asymmetric information goes away when you've got a large 128 00:05:47,610 --> 00:05:49,900 pool of people who are all buying health insurance. 129 00:05:49,900 --> 00:05:52,790 For any one individual trying to walk in off the street, the 130 00:05:52,790 --> 00:05:54,420 problem of asymmetric information means that 131 00:05:54,420 --> 00:05:59,400 insurers will be unwilling to sell to them, and if insurers 132 00:05:59,400 --> 00:06:01,210 are unwilling to sell to them, those individuals 133 00:06:01,210 --> 00:06:03,390 might end up uninsured. 134 00:06:03,390 --> 00:06:06,500 Currently in the US, we have about 50 million uninsured 135 00:06:06,500 --> 00:06:09,290 people, so that about 18% of our non-elderly 136 00:06:09,290 --> 00:06:11,080 population is uninsured. 137 00:06:11,080 --> 00:06:13,400 Remember, the elderly, as I discussed last time, get 138 00:06:13,400 --> 00:06:16,290 universal health coverage through the Medicare program. 139 00:06:16,290 --> 00:06:18,690 But about 18% of our non-elderly population, around 140 00:06:18,690 --> 00:06:22,400 50 million people, are uninsured, and one of the 141 00:06:22,400 --> 00:06:24,160 reasons they're uninsured is because of this insurance 142 00:06:24,160 --> 00:06:26,430 market failure. 143 00:06:26,430 --> 00:06:28,150 And to see that insurance market failure, you can just 144 00:06:28,150 --> 00:06:30,430 look at what happens when people try to get health 145 00:06:30,430 --> 00:06:33,060 insurance outside of large employers, through what we 146 00:06:33,060 --> 00:06:36,470 call the non-group insurance market. 147 00:06:36,470 --> 00:06:39,090 In the non-group insurance market, when people try to get 148 00:06:39,090 --> 00:06:42,770 health insurance, it's typically incredibly expensive 149 00:06:42,770 --> 00:06:44,680 because insurers are worried you're sick, so they charge 150 00:06:44,680 --> 00:06:45,280 you a high price. 151 00:06:45,280 --> 00:06:47,170 I talked about that last time. 152 00:06:47,170 --> 00:06:49,470 That the lemons problem. 153 00:06:49,470 --> 00:06:52,050 Insurers also, in trying to deal with asymmetric 154 00:06:52,050 --> 00:06:54,020 information, the way they deal with it is by being 155 00:06:54,020 --> 00:06:55,520 discriminatory. 156 00:06:55,520 --> 00:06:58,340 So if you're an insurer who's allowed to, what you can do is 157 00:06:58,340 --> 00:07:01,980 to say, fine, I'm going to insure you, but I'm not going 158 00:07:01,980 --> 00:07:04,700 to insure you for any sickness you previously had because I 159 00:07:04,700 --> 00:07:06,250 know that's something that might flare up again. 160 00:07:06,250 --> 00:07:08,350 That's called a pre-existing condition. 161 00:07:08,350 --> 00:07:09,540 I'm not going to insure you for any 162 00:07:09,540 --> 00:07:10,950 pre-existing condition. 163 00:07:10,950 --> 00:07:13,400 Moreover, I'm going to go even further. 164 00:07:13,400 --> 00:07:15,870 If you get sick, I'm going to drop you. 165 00:07:15,870 --> 00:07:18,310 You might say, wait a second, the whole idea of insurance is 166 00:07:18,310 --> 00:07:21,120 you cover me if I get sick, but in fact, in most states' 167 00:07:21,120 --> 00:07:23,080 insurers, it's totally legal to do. 168 00:07:23,080 --> 00:07:24,690 Insurers can simply say we're not renewing you. 169 00:07:24,690 --> 00:07:27,100 You got sick. 170 00:07:27,100 --> 00:07:28,900 Well, that clearly is a problem. 171 00:07:28,900 --> 00:07:30,800 That clearly means that adverse selection's led to 172 00:07:30,800 --> 00:07:33,500 market failure because of what we discussed in the 173 00:07:33,500 --> 00:07:34,340 uncertainty lectures. 174 00:07:34,340 --> 00:07:35,730 You should go back and review that, in the uncertainty 175 00:07:35,730 --> 00:07:38,190 lecture, we talked about why individuals would value 176 00:07:38,190 --> 00:07:41,050 insurance, why they pay a risk premium for insurance, well, 177 00:07:41,050 --> 00:07:43,220 if insurers simply won't sell to them once they get sick, 178 00:07:43,220 --> 00:07:45,050 the individuals aren't getting something they value, and the 179 00:07:45,050 --> 00:07:46,900 market's failed. 180 00:07:46,900 --> 00:07:48,870 So we've got a situation in the US where we've got 181 00:07:48,870 --> 00:07:51,110 insurance that works for many, many people, those that work 182 00:07:51,110 --> 00:07:54,280 for large firms. But insurance markets that are failed for 183 00:07:54,280 --> 00:07:57,920 individuals, and small firms are sort of in between, and 184 00:07:57,920 --> 00:07:59,910 that leads to 50 million uninsured people. 185 00:07:59,910 --> 00:08:00,710 So we got this problem. 186 00:08:00,710 --> 00:08:04,690 We got all these uninsured people on the one hand. 187 00:08:04,690 --> 00:08:08,090 On the other hand, we have incredibly rapidly rising 188 00:08:08,090 --> 00:08:11,170 health care costs. 189 00:08:11,170 --> 00:08:12,720 We, by far, devote the largest share of our 190 00:08:12,720 --> 00:08:13,570 economy to health care. 191 00:08:13,570 --> 00:08:16,610 We're about twice the average of industrialized countries, 192 00:08:16,610 --> 00:08:18,695 and our costs are rising incredibly rapidly, although 193 00:08:18,695 --> 00:08:20,850 that's true around the world, as well. 194 00:08:20,850 --> 00:08:22,710 So that's the sort of situation we face ourselves 195 00:08:22,710 --> 00:08:26,460 in, and that's thte motivation that underlies the discussion 196 00:08:26,460 --> 00:08:28,320 you're hearing now about health care reform. 197 00:08:28,320 --> 00:08:30,900 And in particular, you're hearing a lot of discussion 198 00:08:30,900 --> 00:08:33,530 now about the Patient Protection and Affordable Care 199 00:08:33,530 --> 00:08:37,650 Act, which passed last March 23. 200 00:08:37,650 --> 00:08:40,870 This was the single most important piece of government 201 00:08:40,870 --> 00:08:45,330 legislation, perhaps, since World War II. 202 00:08:45,330 --> 00:08:47,530 Certainly, the most significant piece of domestic 203 00:08:47,530 --> 00:08:50,760 social policy legislation since Medicare was 204 00:08:50,760 --> 00:08:53,280 introduced in 1965. 205 00:08:53,280 --> 00:08:54,530 What does this bill do? 206 00:08:57,710 --> 00:08:59,960 Full disclaimer, I'm going to describe objectively, but I 207 00:08:59,960 --> 00:09:02,370 helped write it. 208 00:09:02,370 --> 00:09:04,320 I'll try to be objective, but just full disclaimer, I was 209 00:09:04,320 --> 00:09:05,640 involved with writing the legislation. 210 00:09:05,640 --> 00:09:09,620 So there is some bias involved here. 211 00:09:09,620 --> 00:09:12,090 But what does this piece of legislation try to do? 212 00:09:12,090 --> 00:09:16,620 What it tries to do is deal with the second of the 213 00:09:16,620 --> 00:09:19,610 problems I discussed, which is the insurance market failure, 214 00:09:19,610 --> 00:09:22,560 and it makes a vague stab at the first, which is the fact 215 00:09:22,560 --> 00:09:25,870 that health costs are getting very, very expensive. 216 00:09:25,870 --> 00:09:28,296 Since more economics is involved in that second, in 217 00:09:28,296 --> 00:09:30,230 the insurance market failure, let's talk about that. 218 00:09:30,230 --> 00:09:33,120 So how do you solve insurance market failure? 219 00:09:33,120 --> 00:09:35,770 You've got this problem that there are 50 million people 220 00:09:35,770 --> 00:09:40,550 without health insurance, often because this asymmetric 221 00:09:40,550 --> 00:09:42,550 information problem. 222 00:09:42,550 --> 00:09:45,350 50 million people without health insurance. 223 00:09:45,350 --> 00:09:47,980 Many more are in this market that sort of can drop you when 224 00:09:47,980 --> 00:09:50,140 you get sick. 225 00:09:50,140 --> 00:09:52,420 We discussed the reasons last time, so what are the two 226 00:09:52,420 --> 00:09:54,620 options we discussed last time for what the government might 227 00:09:54,620 --> 00:09:57,030 do if they want to solve this problem? 228 00:09:57,030 --> 00:09:57,530 Yeah. 229 00:09:57,530 --> 00:10:01,180 AUDIENCE: Subsidizing the insurance companies-- 230 00:10:01,180 --> 00:10:02,120 PROFESSOR: Subsidizing the people and 231 00:10:02,120 --> 00:10:02,760 the insurance companies. 232 00:10:02,760 --> 00:10:06,490 So one thing I could do is I could say, look, let's just 233 00:10:06,490 --> 00:10:08,980 make insurance free for everyone. 234 00:10:08,980 --> 00:10:12,120 That way everyone will sign up, and then insurance 235 00:10:12,120 --> 00:10:14,810 companies can offer fair prices. 236 00:10:14,810 --> 00:10:17,830 And that's a solution that's pursued by Canada. 237 00:10:17,830 --> 00:10:21,310 Canada has free universal health care coverage. 238 00:10:21,310 --> 00:10:24,440 Everyone in the country is covered by birth for their 239 00:10:24,440 --> 00:10:27,260 health insurance expenditures under one, single government 240 00:10:27,260 --> 00:10:28,530 insurance company. 241 00:10:28,530 --> 00:10:29,940 But it wouldn't have to be one, single government 242 00:10:29,940 --> 00:10:30,100 insurance company. 243 00:10:30,100 --> 00:10:31,680 That part's distinct. 244 00:10:31,680 --> 00:10:33,780 We could separate who provides insurance versus 245 00:10:33,780 --> 00:10:35,320 who pays for it. 246 00:10:35,320 --> 00:10:37,340 OK, so let's just focus on the who pays for it part. 247 00:10:37,340 --> 00:10:39,790 If we make health insurance free, sign up everyone from 248 00:10:39,790 --> 00:10:44,780 birth, then we've solved the adverse selection problem, but 249 00:10:44,780 --> 00:10:46,080 that costs a lot of money. 250 00:10:49,880 --> 00:10:54,310 To sign up everyone from birth and cover them with insurance 251 00:10:54,310 --> 00:10:56,750 at the full government cost, would cost on the order of $2 252 00:10:56,750 --> 00:10:59,520 trillion a year. 253 00:10:59,520 --> 00:11:02,210 That's a lot of money. 254 00:11:02,210 --> 00:11:06,210 That's pretty hard to imagine the US government raising 255 00:11:06,210 --> 00:11:10,070 taxes enough to cover that kind of new program. 256 00:11:10,070 --> 00:11:14,160 So the second solution we talked about was a mandate, 257 00:11:14,160 --> 00:11:17,860 was to say, OK fine, we can't make 258 00:11:17,860 --> 00:11:19,350 insurance free for everyone. 259 00:11:19,350 --> 00:11:23,230 What we can do is we make sure everyone buys, so that we 260 00:11:23,230 --> 00:11:24,850 fixed this adverse selection problem. 261 00:11:24,850 --> 00:11:28,060 So that insurers can know they are getting everyone, so they 262 00:11:28,060 --> 00:11:30,420 can price insurance fairly. 263 00:11:30,420 --> 00:11:33,200 And basically, that's what PPACA does. 264 00:11:33,200 --> 00:11:35,070 It does three things. 265 00:11:35,070 --> 00:11:39,000 The first thing is it says to insurance companies, we're 266 00:11:39,000 --> 00:11:41,530 going to give you an individual mandate. 267 00:11:41,530 --> 00:11:44,930 So starting 2014, every person in the US will have to buy 268 00:11:44,930 --> 00:11:47,001 health insurance. 269 00:11:47,001 --> 00:11:48,710 Now, it's not quite every person. 270 00:11:48,710 --> 00:11:50,220 There's exemptions. 271 00:11:50,220 --> 00:11:53,780 For example, it doesn't apply to illegal immigrants, it 272 00:11:53,780 --> 00:11:55,420 doesn't apply to people for whom health insurance is 273 00:11:55,420 --> 00:11:58,840 particularly expensive, et cetera. 274 00:11:58,840 --> 00:12:03,150 But the estimate is this mandate would cause about 60% 275 00:12:03,150 --> 00:12:04,530 of the uninsured get coverage. 276 00:12:04,530 --> 00:12:06,800 So about 47% of the uninsured will slip through the cracks, 277 00:12:06,800 --> 00:12:08,280 but about 60% will get coverage. 278 00:12:11,080 --> 00:12:14,090 The second thing it does, it says, OK, insurance companies, 279 00:12:14,090 --> 00:12:16,700 since we're giving you the mandate, we're going to say 280 00:12:16,700 --> 00:12:24,890 you can no longer discriminate in health insurance. 281 00:12:24,890 --> 00:12:26,760 OK, no more discrimination in health insurance, so what 282 00:12:26,760 --> 00:12:30,570 that's saying is, now, you can no longer, for example, drop 283 00:12:30,570 --> 00:12:32,260 people when they get sick. 284 00:12:32,260 --> 00:12:35,500 You can no longer exclude people for their pre-existing 285 00:12:35,500 --> 00:12:36,450 conditions. 286 00:12:36,450 --> 00:12:38,430 You have to basically offer insurance the way we described 287 00:12:38,430 --> 00:12:39,372 it when we talked about insurance in 288 00:12:39,372 --> 00:12:40,620 the uncertainty lecture. 289 00:12:40,620 --> 00:12:43,060 Once you get sick, you're covered, and anyone can get 290 00:12:43,060 --> 00:12:46,010 it, and it's priced fairly. 291 00:12:46,010 --> 00:12:48,530 So basically, the trade-off is we're saying, insurance 292 00:12:48,530 --> 00:12:50,950 companies, we'll give you a broad distribution of risks. 293 00:12:50,950 --> 00:12:52,480 On the other hand, you can't discriminate 294 00:12:52,480 --> 00:12:53,700 anymore in health insurance. 295 00:12:53,700 --> 00:12:55,530 Let's give everyone the same kind of health insurance that 296 00:12:55,530 --> 00:12:59,020 MIT gives people, that large companies give people. 297 00:13:01,880 --> 00:13:05,330 But then finally, the final thing the bill does is, to 298 00:13:05,330 --> 00:13:08,150 make that work, we have to recognize that you can't 299 00:13:08,150 --> 00:13:09,540 mandate people to buy health insurance if they 300 00:13:09,540 --> 00:13:11,220 can't afford it. 301 00:13:11,220 --> 00:13:12,800 Health insurance is pretty expensive. 302 00:13:12,800 --> 00:13:15,310 My MIT health insurance policy for my family cost about 303 00:13:15,310 --> 00:13:17,995 $14,000 a year. 304 00:13:17,995 --> 00:13:19,970 MIT pays about 10, I pay about four. 305 00:13:24,700 --> 00:13:26,440 Remember we talked about poverty. 306 00:13:26,440 --> 00:13:30,650 The poverty line now for a family is about $22,000. 307 00:13:30,650 --> 00:13:32,900 You can't take a family earning $22,000 and say I'm 308 00:13:32,900 --> 00:13:35,890 going to mandate you to spend $14,000 on health insurance. 309 00:13:35,890 --> 00:13:37,090 That's just impossible. 310 00:13:37,090 --> 00:13:38,440 They couldn't live. 311 00:13:38,440 --> 00:13:41,170 So the third thing the bill does is it introduces a whole 312 00:13:41,170 --> 00:13:44,530 bunch of subsidies, so in some sense, it uses both the 313 00:13:44,530 --> 00:13:46,490 solutions we talked about last time. 314 00:13:46,490 --> 00:13:49,140 Both making insurance cheap for people, so they can afford 315 00:13:49,140 --> 00:13:53,550 it, but instead of spending $2 trillion a year, it spends 316 00:13:53,550 --> 00:13:57,620 like $120 billion a year on this. 317 00:13:57,620 --> 00:14:01,260 So it just subsidizes the very poorest people, and mandates 318 00:14:01,260 --> 00:14:01,980 the other people to buy. 319 00:14:01,980 --> 00:14:03,550 So it's sort of a mixed solution. 320 00:14:03,550 --> 00:14:06,300 We talked about two solutions you could do to solve the 321 00:14:06,300 --> 00:14:07,960 asymmetric information problem. 322 00:14:07,960 --> 00:14:10,220 You could subsidize insurance and make it cheap, or you 323 00:14:10,220 --> 00:14:11,930 could mandate people to buy. 324 00:14:11,930 --> 00:14:13,340 This bill does both. 325 00:14:13,340 --> 00:14:15,850 It subsidizes it for the very lowest income people and 326 00:14:15,850 --> 00:14:17,590 mandates it for people who can afford it. 327 00:14:20,460 --> 00:14:26,250 So that's essentially what the bill does to try to solve this 328 00:14:26,250 --> 00:14:32,650 problem, and we don't know whether that will work. 329 00:14:32,650 --> 00:14:35,740 We have our best estimates, but this is a radical new 330 00:14:35,740 --> 00:14:37,410 intervention. 331 00:14:37,410 --> 00:14:40,480 The best estimates suggest it'll cover about 60% of the 332 00:14:40,480 --> 00:14:44,310 uninsured, but this is a pretty brand new intervention, 333 00:14:44,310 --> 00:14:47,250 so we'll have to see, actually, how that shakes out. 334 00:14:47,250 --> 00:14:50,540 But that's the basic structure of what the bill's trying to 335 00:14:50,540 --> 00:14:52,020 do to try to solve this 336 00:14:52,020 --> 00:14:53,940 asymmetric information problem. 337 00:14:53,940 --> 00:14:55,610 Are there questions about that, how it relates to what 338 00:14:55,610 --> 00:14:56,860 we learned in the last couple lectures? 339 00:15:00,780 --> 00:15:04,290 So that's one problem that we're trying to address with 340 00:15:04,290 --> 00:15:06,530 this legislation, is solving that asymmetric information 341 00:15:06,530 --> 00:15:09,335 problem using both the mandate and subsidy tools. 342 00:15:09,335 --> 00:15:11,230 And as I said, if you want to learn more, I talk a lot more 343 00:15:11,230 --> 00:15:14,490 about stuff like this in my course 14.41. 344 00:15:14,490 --> 00:15:17,170 This is sort of an example of how government can use its 345 00:15:17,170 --> 00:15:19,910 tools to address the kind of fundamental information 346 00:15:19,910 --> 00:15:23,020 failures that we talked about last time. 347 00:15:23,020 --> 00:15:27,000 But we don't get into, in this course, politics, but of 348 00:15:27,000 --> 00:15:29,940 course, we can't talk about a government intervention this 349 00:15:29,940 --> 00:15:32,510 massive without talking about politics for a minute, and 350 00:15:32,510 --> 00:15:38,130 recognize that this is going to involve some sacrifice. 351 00:15:38,130 --> 00:15:39,130 I made it sound pretty easy. 352 00:15:39,130 --> 00:15:40,490 Well, we've got this asymmetric information 353 00:15:40,490 --> 00:15:42,610 problem, we put in the solution, we're done. 354 00:15:42,610 --> 00:15:45,560 But there's two problems with the solution. 355 00:15:45,560 --> 00:15:47,160 The first problem is you've got to 356 00:15:47,160 --> 00:15:48,410 pay for these subsidies. 357 00:15:51,950 --> 00:15:53,690 And this comes back to our discussion of equity 358 00:15:53,690 --> 00:15:56,660 efficiency, the bill features an enormous tax increase on 359 00:15:56,660 --> 00:15:58,690 the wealthiest Americans. 360 00:15:58,690 --> 00:16:02,610 The bill raises about $450 billion over the next decade 361 00:16:02,610 --> 00:16:06,600 from the richest, about 5% of American families. 362 00:16:06,600 --> 00:16:09,160 So going back to our equity efficiency discussion, is that 363 00:16:09,160 --> 00:16:10,060 a good thing or bad thing? 364 00:16:10,060 --> 00:16:13,460 That depends on our social welfare function. 365 00:16:13,460 --> 00:16:17,250 If our social welfare function is very progressive, Rawlsian 366 00:16:17,250 --> 00:16:20,920 or some forms of utilitarian, that's probably OK. 367 00:16:20,920 --> 00:16:23,020 If it's not, if it's a Nozickian world, where we just 368 00:16:23,020 --> 00:16:26,970 think that people should just be left alone and not taking 369 00:16:26,970 --> 00:16:28,500 money away from the rich just because they're rich, then 370 00:16:28,500 --> 00:16:29,920 that's not OK. 371 00:16:29,920 --> 00:16:32,180 So that ties into our other discussion of equity 372 00:16:32,180 --> 00:16:33,040 efficiency. 373 00:16:33,040 --> 00:16:35,670 So we have to pay for this, but obviously, politically, 374 00:16:35,670 --> 00:16:38,080 that raises problems. That's going to upset a large set of 375 00:16:38,080 --> 00:16:39,490 people who are going to have to pay those taxes. 376 00:16:42,580 --> 00:16:45,610 The other issue of course this is with the mandate, we talked 377 00:16:45,610 --> 00:16:47,820 about, well gee, you can't do it by subsidies alone, that's 378 00:16:47,820 --> 00:16:48,290 too expense. 379 00:16:48,290 --> 00:16:48,940 You have to mandate. 380 00:16:48,940 --> 00:16:50,970 Well, the mandate isn't free either. 381 00:16:50,970 --> 00:16:54,990 The mandate basically amounts to a tax on people who don't 382 00:16:54,990 --> 00:16:56,970 want to buy health insurance. 383 00:16:56,970 --> 00:16:58,310 What's the mandate? 384 00:16:58,310 --> 00:17:00,900 A mandate is saying you didn't want to buy health insurance, 385 00:17:00,900 --> 00:17:02,350 and now you have to. 386 00:17:02,350 --> 00:17:04,640 That's going to upset a lot of people, as well. 387 00:17:04,640 --> 00:17:06,200 A lot of people out there don't want to buy health 388 00:17:06,200 --> 00:17:10,765 insurance, and you're telling them they have to. 389 00:17:10,765 --> 00:17:13,930 You don't make a change this big without causing some 390 00:17:13,930 --> 00:17:16,780 problems, and these are the problems that arise. 391 00:17:16,780 --> 00:17:21,140 This isn't a painless solution, and so that's, once 392 00:17:21,140 --> 00:17:22,790 again, why they call this the dismal science. 393 00:17:22,790 --> 00:17:25,319 We're all about the trade-offs, and the trade-offs 394 00:17:25,319 --> 00:17:28,650 here are, you fix the market failure that we learned about 395 00:17:28,650 --> 00:17:32,840 last lecture, but at, well, the potential cost of the 396 00:17:32,840 --> 00:17:35,960 inefficiency of taxing people. 397 00:17:35,960 --> 00:17:37,620 Whether that's a good thing or not depends on our social 398 00:17:37,620 --> 00:17:38,680 welfare function. 399 00:17:38,680 --> 00:17:41,520 And also the inequity, potentially, of forcing people 400 00:17:41,520 --> 00:17:44,270 to buy health insurance who didn't want it. 401 00:17:44,270 --> 00:17:44,660 Yeah. 402 00:17:44,660 --> 00:17:49,880 AUDIENCE: How do they suggest that you enforce the mandate? 403 00:17:49,880 --> 00:17:50,950 PROFESSOR: The mandate is enforced 404 00:17:50,950 --> 00:17:54,280 through a tax penalty. 405 00:17:54,280 --> 00:17:55,700 We actually have Massachusetts. 406 00:17:55,700 --> 00:17:57,430 We put in this system in Massachusetts a few years ago. 407 00:17:57,430 --> 00:17:59,200 We pioneered it, basically. 408 00:17:59,200 --> 00:18:03,630 And the way it works in Massachusetts is, every year, 409 00:18:03,630 --> 00:18:06,680 I get something called the 1099-HC from my insurance 410 00:18:06,680 --> 00:18:07,946 company, which says here's proof that 411 00:18:07,946 --> 00:18:08,650 you have health insurance. 412 00:18:08,650 --> 00:18:11,050 I attach that to my tax form, and I'm done. 413 00:18:11,050 --> 00:18:13,870 If you don't attach a 1099-HC, you have to pay a tax penalty. 414 00:18:13,870 --> 00:18:16,195 In Massachusetts, it's about $1,000 a year if you don't 415 00:18:16,195 --> 00:18:17,510 have health insurance. 416 00:18:17,510 --> 00:18:20,510 The federal tax penalty will be about $700 a year. 417 00:18:20,510 --> 00:18:22,010 So it's going to be enforced through a penalty if you don't 418 00:18:22,010 --> 00:18:25,970 show, on your taxes, that you have health insurance. 419 00:18:25,970 --> 00:18:29,760 Other questions about this? 420 00:18:29,760 --> 00:18:33,820 Now, of course, I haven't talked about the bigger 421 00:18:33,820 --> 00:18:39,720 problem, which is what about the fact that we have enormous 422 00:18:39,720 --> 00:18:41,270 cost control problem. 423 00:18:41,270 --> 00:18:43,800 Now, last time I talked about two kinds of asymmetric 424 00:18:43,800 --> 00:18:45,140 information, two problems in the 425 00:18:45,140 --> 00:18:46,800 social insurance trade-off. 426 00:18:46,800 --> 00:18:49,082 On the one hand, there's adverse selection, that fact 427 00:18:49,082 --> 00:18:51,870 that insurance markets might not fail, but I also talked 428 00:18:51,870 --> 00:18:53,120 about moral hazard. 429 00:18:56,730 --> 00:18:59,880 I also talk about moral hazard, and the fact that, if 430 00:18:59,880 --> 00:19:03,550 you insure individuals for adverse events, 431 00:19:03,550 --> 00:19:06,840 they will act adversely. 432 00:19:06,840 --> 00:19:11,600 Now, there's several kinds of moral hazard, and health care 433 00:19:11,600 --> 00:19:13,040 is rife with them. 434 00:19:13,040 --> 00:19:15,890 One kind of moral hazard is a type we talked about, which is 435 00:19:15,890 --> 00:19:21,240 the classic moral hazard, which is sort of individual 436 00:19:21,240 --> 00:19:23,160 precaution. 437 00:19:23,160 --> 00:19:26,400 So the story here is, if I have fire insurance for my 438 00:19:26,400 --> 00:19:28,890 house, I don't bother buying a fire extinguisher. 439 00:19:28,890 --> 00:19:31,480 Or if I have health insurance, I don't bother wearing a 440 00:19:31,480 --> 00:19:34,130 helmet when I bicycle. 441 00:19:34,130 --> 00:19:37,150 So these are basically individuals not taking caution 442 00:19:37,150 --> 00:19:39,760 because they're insured for this adverse event. 443 00:19:39,760 --> 00:19:41,260 We don't think that's that big a deal. 444 00:19:41,260 --> 00:19:43,370 I mean, we don't think that your decision about whether to 445 00:19:43,370 --> 00:19:45,080 wear a helmet or not is much affected by whether you have 446 00:19:45,080 --> 00:19:46,260 health insurance. 447 00:19:46,260 --> 00:19:47,930 It's probably not that big a deal. 448 00:19:47,930 --> 00:19:51,740 The bigger type of moral hazard is resource 449 00:19:51,740 --> 00:20:02,480 over-utilization, which is that, basically, because 450 00:20:02,480 --> 00:20:08,270 people are insured, they will overuse medical care. 451 00:20:08,270 --> 00:20:12,310 So basically, here's the way we think about that. 452 00:20:12,310 --> 00:20:16,740 It's a standard dead weight loss kind of argument. 453 00:20:16,740 --> 00:20:19,940 So think about the market for medical care. 454 00:20:19,940 --> 00:20:22,760 Think about the market for doctors visits. 455 00:20:22,760 --> 00:20:24,870 There's some quantity of doctor's visits and some price 456 00:20:24,870 --> 00:20:27,520 of doctor's visits. 457 00:20:27,520 --> 00:20:29,680 And let's say that there's a flat marginal 458 00:20:29,680 --> 00:20:30,880 cost of doctor's visit. 459 00:20:30,880 --> 00:20:35,240 Let's say delivering a doctor's visit costs $100. 460 00:20:35,240 --> 00:20:40,420 So delivering a doctor's visit costs $100. 461 00:20:40,420 --> 00:20:44,930 And let's say there's some demand for doctor's visits. 462 00:20:44,930 --> 00:20:47,910 And importantly, I'm going to make this downward sloping. 463 00:20:47,910 --> 00:20:48,850 Now, this is important. 464 00:20:48,850 --> 00:20:50,760 You might say, gee, wait a second, shouldn't the demand 465 00:20:50,760 --> 00:20:52,920 for doctor's visits be inelastic? 466 00:20:52,920 --> 00:20:54,510 Shouldn't people just go to the doctor when they're sick, 467 00:20:54,510 --> 00:20:55,180 and not when they're not? 468 00:20:55,180 --> 00:20:56,430 And why would the price matter? 469 00:21:00,510 --> 00:21:05,400 In fact, it's uncertain, from theory, whether this should be 470 00:21:05,400 --> 00:21:06,310 inelastic or elastic. 471 00:21:06,310 --> 00:21:08,430 It's uncertain how elastic demand should be, if people 472 00:21:08,430 --> 00:21:10,590 only go to the doctor when they're sick. 473 00:21:10,590 --> 00:21:12,400 I hope you understand, the thing about elasticity, it's a 474 00:21:12,400 --> 00:21:14,815 good thing to understand for basic principles, if people 475 00:21:14,815 --> 00:21:16,400 only go to the doctor when they're sick, that curve 476 00:21:16,400 --> 00:21:19,770 should be vertical because it shouldn't depend on price. 477 00:21:19,770 --> 00:21:22,130 But if people care about the price, and they decide to go 478 00:21:22,130 --> 00:21:24,840 to the doctor, then it could be downwards sloping. 479 00:21:24,840 --> 00:21:29,000 In fact, there's excellent evidence from a actual 480 00:21:29,000 --> 00:21:31,090 experiment that was run in the US. 481 00:21:31,090 --> 00:21:34,000 In the 1970s, there was something called the Rand 482 00:21:34,000 --> 00:21:35,250 Health Insurance Experiment. 483 00:21:39,870 --> 00:21:41,225 Rand is a company out in California, 484 00:21:41,225 --> 00:21:42,710 a consulting company. 485 00:21:42,710 --> 00:21:43,970 They ran a health insurance experiment where they 486 00:21:43,970 --> 00:21:46,800 literally, experimentally, gave people health insurance 487 00:21:46,800 --> 00:21:48,530 of different generosity. 488 00:21:48,530 --> 00:21:49,880 You've got to plan the coverage, everything, you've 489 00:21:49,880 --> 00:21:51,780 got to plan with a big deductible. 490 00:21:51,780 --> 00:21:53,560 So they gave people plans of different generosity and asked 491 00:21:53,560 --> 00:21:55,770 how much different medical care did they us. 492 00:21:55,770 --> 00:21:57,840 Remember when we talked about, when doing empirical work, 493 00:21:57,840 --> 00:22:01,210 what you'd like to do is think about a randomized trial. 494 00:22:01,210 --> 00:22:03,150 They essentially ran a randomized trial, where 495 00:22:03,150 --> 00:22:04,930 different people had different prices, and they found demand 496 00:22:04,930 --> 00:22:06,360 was downward sloping. 497 00:22:06,360 --> 00:22:07,870 People who were charged more for health care 498 00:22:07,870 --> 00:22:10,720 used less of it. 499 00:22:10,720 --> 00:22:13,410 So there is a downward-sloping demand. 500 00:22:13,410 --> 00:22:18,200 And so what that says is, if this is the marginal cost, and 501 00:22:18,200 --> 00:22:21,080 this is the marginal benefit of getting health care, then 502 00:22:21,080 --> 00:22:25,990 the optimal amount of doctors is just Q*, that basically, 503 00:22:25,990 --> 00:22:30,160 the socially efficient level of doctors is Q*. 504 00:22:30,160 --> 00:22:34,770 However, when they're insured, people don't face this $100. 505 00:22:34,770 --> 00:22:37,980 When you go to doctor, you just pay $10, typically. 506 00:22:37,980 --> 00:22:41,830 Well now, this is the social marginal cost, but your 507 00:22:41,830 --> 00:22:47,620 private marginal cost, what it costs you, is only $10. 508 00:22:47,620 --> 00:22:49,280 So what do you do? 509 00:22:49,280 --> 00:22:54,760 You use a level of health care, Q super p, for private. 510 00:22:54,760 --> 00:22:56,700 You use too much health care. 511 00:22:56,700 --> 00:22:59,450 You overuse the doctor's office. 512 00:22:59,450 --> 00:23:02,090 Now when you think of this intuitively, forgetting the 513 00:23:02,090 --> 00:23:04,830 graph, you just say intuitively, if a doctor's 514 00:23:04,830 --> 00:23:07,370 visit is going to cost $10 instead of the $100 it should, 515 00:23:07,370 --> 00:23:09,340 you use too many of them. 516 00:23:09,340 --> 00:23:12,005 But graphically, the point is that the underlying cost of 517 00:23:12,005 --> 00:23:16,040 the doctor's visit is $100, but because you're insured, 518 00:23:16,040 --> 00:23:20,300 and the marginal cost to you is only $10, you overuse the 519 00:23:20,300 --> 00:23:20,860 doctor's office. 520 00:23:20,860 --> 00:23:22,990 You use too many doctor's visits. 521 00:23:22,990 --> 00:23:27,110 This leads to a dead weight loss. 522 00:23:27,110 --> 00:23:30,680 This leads to a dead weight loss from people over using 523 00:23:30,680 --> 00:23:32,080 the doctor's office. 524 00:23:32,080 --> 00:23:34,430 OK And that the second kind of moral hazard, which is 525 00:23:34,430 --> 00:23:35,680 resource over-utilization. 526 00:23:39,280 --> 00:23:41,880 Questions about that? 527 00:23:41,880 --> 00:23:42,977 Yeah. 528 00:23:42,977 --> 00:23:45,959 AUDIENCE: How do you define too much? 529 00:23:45,959 --> 00:23:47,209 If everybody else-- 530 00:23:50,929 --> 00:23:55,235 you said Qp is just right, and Q* is like people go to the 531 00:23:55,235 --> 00:23:58,250 doctor too few times? 532 00:23:58,250 --> 00:23:59,540 PROFESSOR: That that's a great question. 533 00:24:03,690 --> 00:24:08,430 If everything is working perfectly, then Q* is, by 534 00:24:08,430 --> 00:24:09,680 definition, right. 535 00:24:12,780 --> 00:24:14,550 We talked about, earlier in this course, about how the 536 00:24:14,550 --> 00:24:18,060 private market competitive outcome is welfare maximizing. 537 00:24:18,060 --> 00:24:20,290 The private market competitive outcome is where marginal cost 538 00:24:20,290 --> 00:24:23,070 equals marginal benefit, supply equals demand. 539 00:24:23,070 --> 00:24:25,900 That's the optimal outcome if there's no 540 00:24:25,900 --> 00:24:28,960 other market failures. 541 00:24:28,960 --> 00:24:31,900 So in this course up to a few lectures ago, you shouldn't 542 00:24:31,900 --> 00:24:35,210 have even asked that question, we know Q* is optimal because 543 00:24:35,210 --> 00:24:37,290 we know the private market outcome's optimal. 544 00:24:37,290 --> 00:24:39,630 Now, you might say, OK well, there's lots of reasons to 545 00:24:39,630 --> 00:24:41,510 think Q* might not be optimal. 546 00:24:41,510 --> 00:24:43,590 For example, many people aren't fully informed about 547 00:24:43,590 --> 00:24:46,460 the right level of medical care to use. 548 00:24:46,460 --> 00:24:51,660 Then you're right, then it might be that Qp is optimal, 549 00:24:51,660 --> 00:24:56,750 but the point is, absent other market failures-- 550 00:24:56,750 --> 00:24:59,330 We know Q* is the socially maximizing point where 551 00:24:59,330 --> 00:25:01,170 marginal cost equals marginal benefits. 552 00:25:01,170 --> 00:25:02,430 We developed that earlier. 553 00:25:02,430 --> 00:25:04,410 So if people use more than that, that's inefficient. 554 00:25:07,750 --> 00:25:09,420 So you might say, well gee, how do we know? 555 00:25:09,420 --> 00:25:11,870 Well, actually it turns out we can tell. 556 00:25:11,870 --> 00:25:14,090 Let's go back the Rand Health Insurance experiment. 557 00:25:14,090 --> 00:25:15,520 Same person, see if you can figure it out. 558 00:25:15,520 --> 00:25:18,600 How could we use that same experiment to tell whether it 559 00:25:18,600 --> 00:25:23,340 was optimal that people used fewer or more doctor's visits? 560 00:25:23,340 --> 00:25:25,630 What could you do? 561 00:25:25,630 --> 00:25:26,590 Or anyone? 562 00:25:26,590 --> 00:25:30,740 What could you do using that same experiment to see whether 563 00:25:30,740 --> 00:25:33,230 Q* was optimal or Qp was optimal? 564 00:25:33,230 --> 00:25:33,585 Yeah. 565 00:25:33,585 --> 00:25:35,570 AUDIENCE: Take a look at who gets sick less. 566 00:25:35,570 --> 00:25:36,365 PROFESSOR: Look at their health. 567 00:25:36,365 --> 00:25:37,890 You've got a randomized experiment. 568 00:25:37,890 --> 00:25:39,650 Some people are at Q*. 569 00:25:39,650 --> 00:25:43,130 Some people randomly are moving to Qp. 570 00:25:43,130 --> 00:25:44,830 Look at their health. 571 00:25:44,830 --> 00:25:49,930 Well, it turns out, health is totally unaffected, that the 572 00:25:49,930 --> 00:25:52,295 health of people at Q* was the same as the health 573 00:25:52,295 --> 00:25:53,490 as people at Qp. 574 00:25:53,490 --> 00:25:55,780 People who had big deductibles and used health care a lot 575 00:25:55,780 --> 00:25:59,410 less were no sicker than people who used 576 00:25:59,410 --> 00:26:02,250 health care a lot. 577 00:26:02,250 --> 00:26:04,210 The answer is because in America, we 578 00:26:04,210 --> 00:26:05,590 overuse health care. 579 00:26:09,150 --> 00:26:11,300 We do know Qp is too much. 580 00:26:11,300 --> 00:26:15,730 In America, we overuse health care because it's so cheap, 581 00:26:15,730 --> 00:26:18,800 and so the way we can prove that, this experiment showed 582 00:26:18,800 --> 00:26:21,710 it, that we caused people to say stop overusing. 583 00:26:21,710 --> 00:26:24,110 I'll make you actually bear the full price. 584 00:26:24,110 --> 00:26:27,970 Do the Q*, people were no sicker, and they used less 585 00:26:27,970 --> 00:26:29,120 health care. 586 00:26:29,120 --> 00:26:30,640 And that was a striking finding out of this 587 00:26:30,640 --> 00:26:33,730 experiment, that in fact, we were overusing health care. 588 00:26:33,730 --> 00:26:36,650 There was a real problem of Qp being too big. 589 00:26:40,160 --> 00:26:41,570 That's not the only form of moral hazard. 590 00:26:41,570 --> 00:26:44,750 There's another one we even talked about, which is 591 00:26:44,750 --> 00:26:48,430 provider moral hazard. 592 00:26:48,430 --> 00:26:50,980 We've blamed everything so far on people, but doctors are 593 00:26:50,980 --> 00:26:52,420 people, too. 594 00:26:52,420 --> 00:26:54,890 And in fact, much of what's done to you was determined, 595 00:26:54,890 --> 00:26:59,230 not by your decision, but by your doctor's decision. 596 00:26:59,230 --> 00:27:01,095 So now we have to think about the doctors and 597 00:27:01,095 --> 00:27:02,345 how they make decisions. 598 00:27:04,840 --> 00:27:08,750 We can teach a whole course on that, but basically, if we 599 00:27:08,750 --> 00:27:11,820 think about doctors, we're going to recognize that what 600 00:27:11,820 --> 00:27:14,080 doctors primarily care about is making 601 00:27:14,080 --> 00:27:15,390 their patients better. 602 00:27:15,390 --> 00:27:17,480 But at the same time, doctors are people, too, and they also 603 00:27:17,480 --> 00:27:18,730 care about how much money they make. 604 00:27:22,350 --> 00:27:24,240 Let's say for example, doctors didn't care about how much 605 00:27:24,240 --> 00:27:24,750 money they make. 606 00:27:24,750 --> 00:27:27,780 All they care about is making their patients better. 607 00:27:27,780 --> 00:27:31,280 And let's say, I come into my doctor's office, and I've got 608 00:27:31,280 --> 00:27:32,900 a headache. 609 00:27:32,900 --> 00:27:34,390 I say, Doc, I've had a headache for like four days 610 00:27:34,390 --> 00:27:36,340 that's not going away. 611 00:27:36,340 --> 00:27:38,700 Well, the doctor says, well, there's a point 612 00:27:38,700 --> 00:27:42,290 0.0000000000001 chance you've got a brain tumor. 613 00:27:42,290 --> 00:27:45,710 I can find that with a CAT scan. 614 00:27:45,710 --> 00:27:49,830 Now, it's really so small, it's not worth it, but the 615 00:27:49,830 --> 00:27:51,370 same time, why not? 616 00:27:51,370 --> 00:27:52,300 It doesn't cost you anything. 617 00:27:52,300 --> 00:27:54,310 It just costs you Qp, which is $10. 618 00:27:54,310 --> 00:27:57,390 Just costs you $10, so you don't care about getting it, 619 00:27:57,390 --> 00:27:58,620 and I'll just order it. 620 00:27:58,620 --> 00:28:00,930 It's fine, why not? 621 00:28:00,930 --> 00:28:05,070 So because I'm over insured, that doesn't just cause me to 622 00:28:05,070 --> 00:28:07,950 demand more medical care, it causes my doctor to give me 623 00:28:07,950 --> 00:28:09,690 more medical care. 624 00:28:09,690 --> 00:28:12,400 Now, add on top of that the fact the doctor makes money 625 00:28:12,400 --> 00:28:13,710 off the MRI. 626 00:28:13,710 --> 00:28:17,010 The doctor makes money off the CAT scan. 627 00:28:17,010 --> 00:28:19,235 Now, he might say, gee, if it doesn't do you any good at 628 00:28:19,235 --> 00:28:20,485 all, I still might give it to you. 629 00:28:23,260 --> 00:28:24,910 If you're interested at all in health care, the first thing 630 00:28:24,910 --> 00:28:28,440 you have to read is a terrific article in the June 9, 2009, 631 00:28:28,440 --> 00:28:31,280 New Yorker by a guy name Atul Gawande, who's a practicing 632 00:28:31,280 --> 00:28:33,810 physician and excellent author, who wrote about a 633 00:28:33,810 --> 00:28:37,030 place called McAllen, Texas. 634 00:28:37,030 --> 00:28:40,200 McAllen, Texas, is the place in America that where people 635 00:28:40,200 --> 00:28:43,160 spend the single largest amount per person on health 636 00:28:43,160 --> 00:28:44,970 care in the Medicare program. 637 00:28:44,970 --> 00:28:48,520 He compared McAllen, Texas, to a nearby town, El Paso, Texas. 638 00:28:48,520 --> 00:28:52,090 Very similar demographically, very similar towns, but in 639 00:28:52,090 --> 00:28:54,410 McAllen, they spend twice as much on health care. 640 00:28:54,410 --> 00:28:55,420 Why? 641 00:28:55,420 --> 00:28:58,460 Because they get six times as many CAT scans, they have 642 00:28:58,460 --> 00:29:00,120 three times as many surgeries. 643 00:29:00,120 --> 00:29:02,330 Basically, doctors go nuts treating people in McAllen, 644 00:29:02,330 --> 00:29:04,750 Texas, and the doctors are really, really rich. 645 00:29:09,340 --> 00:29:10,660 They're not hurting people. 646 00:29:10,660 --> 00:29:11,550 There's no evidence that the over 647 00:29:11,550 --> 00:29:12,340 treatment is hurting people. 648 00:29:12,340 --> 00:29:14,070 There's just no evidence that it's helping them. 649 00:29:14,070 --> 00:29:15,770 So doctors are like why not? 650 00:29:15,770 --> 00:29:16,930 Doesn't cost the people anything, and I 651 00:29:16,930 --> 00:29:19,250 make money off it. 652 00:29:19,250 --> 00:29:21,180 So that's another kind of moral hazard. 653 00:29:21,180 --> 00:29:24,450 By providing insurance for medical care, we've induced 654 00:29:24,450 --> 00:29:27,610 this over provision of medical care, both because people want 655 00:29:27,610 --> 00:29:29,830 it because it's cheap, and because doctors want it 656 00:29:29,830 --> 00:29:32,110 because they get paid for it. 657 00:29:32,110 --> 00:29:34,780 And that's a lot of the problem in our health care 658 00:29:34,780 --> 00:29:38,180 system in the US. 659 00:29:38,180 --> 00:29:39,870 And once again, going back to the question back there, if 660 00:29:39,870 --> 00:29:42,580 you look at McAllen, Texas, where they spend twice as much 661 00:29:42,580 --> 00:29:46,350 on health care as El Paso, people are no healthier. 662 00:29:46,350 --> 00:29:47,520 They're no healthier despite the fact the 663 00:29:47,520 --> 00:29:50,680 spend twice as much. 664 00:29:50,680 --> 00:29:53,710 And indeed, based on facts such as this, the best 665 00:29:53,710 --> 00:29:57,630 estimates are that the US wastes about 1/3 of all of our 666 00:29:57,630 --> 00:30:00,020 medical spending, that we could literally 667 00:30:00,020 --> 00:30:03,130 spent 2/3 as much. 668 00:30:03,130 --> 00:30:05,190 Or literally, at this point, we could say we spend almost 669 00:30:05,190 --> 00:30:08,670 $1 trillion less per year on health care 670 00:30:08,670 --> 00:30:09,920 and be no less healthy. 671 00:30:12,570 --> 00:30:15,170 And that is the thing we have to grapple with now. 672 00:30:15,170 --> 00:30:17,880 It's the fact that if we can deal with that problem, we 673 00:30:17,880 --> 00:30:19,850 could solve this long-running cost growth problem, and our 674 00:30:19,850 --> 00:30:22,110 long-running fiscal problem, if we just stop doing health 675 00:30:22,110 --> 00:30:24,400 care that didn't make us any healthier. 676 00:30:24,400 --> 00:30:28,800 The problem is that's a lot easier said than done. 677 00:30:28,800 --> 00:30:32,620 It's easier said than done for two reasons. 678 00:30:32,620 --> 00:30:36,040 First reason is because people make money off that health 679 00:30:36,040 --> 00:30:38,790 care we don't need, so the first thing's political. 680 00:30:38,790 --> 00:30:40,630 The only way we're going to do that is to tell some people 681 00:30:40,630 --> 00:30:42,220 they can't make money they've been making. 682 00:30:42,220 --> 00:30:43,470 That's a hard thing to do politically. 683 00:30:45,830 --> 00:30:49,560 The second problem is scientific, which is we don't 684 00:30:49,560 --> 00:30:52,380 exactly know which is the 1/3rd of health care that's 685 00:30:52,380 --> 00:30:56,340 being wasted and which is the 1/3rd that's not. 686 00:30:56,340 --> 00:30:58,460 So let's put it another way. 687 00:30:58,460 --> 00:31:02,880 Since 1950, the share of our economy we spend on health 688 00:31:02,880 --> 00:31:04,580 care has more than tripled. 689 00:31:04,580 --> 00:31:05,670 But you know what? 690 00:31:05,670 --> 00:31:07,670 Health care is a ton better than 1950. 691 00:31:07,670 --> 00:31:09,910 Health care sucked in 1950. 692 00:31:09,910 --> 00:31:14,620 In 1950, the typical baby born had more than twice as high a 693 00:31:14,620 --> 00:31:17,230 chance of dying in the first year of life as today. 694 00:31:17,230 --> 00:31:20,190 Someone had a heart attack, lived 1/3rd as long after a 695 00:31:20,190 --> 00:31:21,690 heart attack as they do today. 696 00:31:21,690 --> 00:31:23,570 Or to put in terms young healthy people might care 697 00:31:23,570 --> 00:31:26,440 about, in 1950, if you hurt your knee skiing, if you tore 698 00:31:26,440 --> 00:31:30,020 your ACL skiing, you went into the hospital for a week, had 699 00:31:30,020 --> 00:31:33,080 major surgery, were on crutches for six weeks, 700 00:31:33,080 --> 00:31:35,720 couldn't really do sports or anything effective for about 701 00:31:35,720 --> 00:31:38,560 six months, and arthritis for the rest of your life. 702 00:31:38,560 --> 00:31:40,900 Today, if you hurt your knee skiing, you go to outpatient 703 00:31:40,900 --> 00:31:42,640 surgery for an hour and a half, you get it scoped, a 704 00:31:42,640 --> 00:31:44,950 little camera, they fix it, and then you're back skiing 705 00:31:44,950 --> 00:31:46,510 two weeks later. 706 00:31:46,510 --> 00:31:48,450 No permanent long run damage. 707 00:31:48,450 --> 00:31:51,050 Health care is just better today. 708 00:31:51,050 --> 00:31:51,770 It just is. 709 00:31:51,770 --> 00:31:54,110 That's why we don't see any health insurance plan saying 710 00:31:54,110 --> 00:31:58,160 we offer 1950s health care at 1950s prices because no one 711 00:31:58,160 --> 00:31:58,710 would want it. 712 00:31:58,710 --> 00:32:01,720 Even though it would be 1/10th as cheap, no one would want 713 00:32:01,720 --> 00:32:03,800 because it would suck. 714 00:32:03,800 --> 00:32:07,850 So basically the problem is health care's better over all, 715 00:32:07,850 --> 00:32:10,360 but at the same time, we're wasting a lot of money, and 716 00:32:10,360 --> 00:32:12,560 that's why health care cost control is really hard. 717 00:32:12,560 --> 00:32:15,930 That's because moral hazard is hard to deal with. 718 00:32:15,930 --> 00:32:18,380 Moral hazard is hard to deal with because it's hard to find 719 00:32:18,380 --> 00:32:22,030 because it's an information asymmetry. 720 00:32:22,030 --> 00:32:24,470 If every procedure had attached to it a magic 721 00:32:24,470 --> 00:32:27,270 identifier, which said this is a waste and this is not, we'd 722 00:32:27,270 --> 00:32:30,170 have no moral hazard. 723 00:32:30,170 --> 00:32:33,090 Imagine every procedure hospitals did had a magic 724 00:32:33,090 --> 00:32:35,630 identifier, which said this is worth it, this is not, then 725 00:32:35,630 --> 00:32:37,760 you could set up the optimal insurance company. 726 00:32:37,760 --> 00:32:40,310 You could simply say, for those that are worth it, we'll 727 00:32:40,310 --> 00:32:41,990 insure you. 728 00:32:41,990 --> 00:32:44,320 For those that aren't worth it, we won't, and you'd solve 729 00:32:44,320 --> 00:32:45,440 moral hazard. 730 00:32:45,440 --> 00:32:45,920 Then we could be fine. 731 00:32:45,920 --> 00:32:48,860 We could insure people, we'd solve both information 732 00:32:48,860 --> 00:32:49,230 problems. 733 00:32:49,230 --> 00:32:52,050 But of course, we don't know that. 734 00:32:52,050 --> 00:32:56,570 And so as we solve the first information problem, which is 735 00:32:56,570 --> 00:32:59,450 adverse selection, by getting more people health insurance, 736 00:32:59,450 --> 00:33:02,590 we're making the second problem worse, moral hazard, 737 00:33:02,590 --> 00:33:05,210 by putting more people into a system which wastes a lot of 738 00:33:05,210 --> 00:33:07,350 money because of these problems. And that's the 739 00:33:07,350 --> 00:33:10,040 difficult part about health care. 740 00:33:10,040 --> 00:33:11,310 So what do we do about that? 741 00:33:11,310 --> 00:33:13,580 Well, I told you what we do to solve the first problem. 742 00:33:13,580 --> 00:33:15,430 What to do to solve the second problem is a lot harder, and 743 00:33:15,430 --> 00:33:17,450 we don't really know. 744 00:33:17,450 --> 00:33:19,890 But we have some ideas about what might work. 745 00:33:22,410 --> 00:33:25,340 The first thing we know might work is a lot more work on 746 00:33:25,340 --> 00:33:27,930 what's call comparative effectiveness, which is a 747 00:33:27,930 --> 00:33:29,680 fancy way of saying understanding what works and 748 00:33:29,680 --> 00:33:31,670 what doesn't, and in particular, what works better 749 00:33:31,670 --> 00:33:32,770 than what else. 750 00:33:32,770 --> 00:33:34,810 Many of you know about the FDA, the Food and Drug 751 00:33:34,810 --> 00:33:36,110 Administration. 752 00:33:36,110 --> 00:33:39,970 They approve medical devices, so if you want to introduce a 753 00:33:39,970 --> 00:33:42,890 new drug or a new medical device, it has to be approved 754 00:33:42,890 --> 00:33:44,560 by the FDA. 755 00:33:44,560 --> 00:33:49,090 The way their approval runs is they say, is it effective in 756 00:33:49,090 --> 00:33:52,390 curing what it's supposed to cure, and if it is they 757 00:33:52,390 --> 00:33:53,580 approve it. 758 00:33:53,580 --> 00:33:56,290 They never say is it any more effective than something that 759 00:33:56,290 --> 00:34:02,040 already exists, or even more is it actually cost effective. 760 00:34:02,040 --> 00:34:06,000 So for example, in the treatment of prostate cancer 761 00:34:06,000 --> 00:34:08,750 over the last decade, we've moved to more and more 762 00:34:08,750 --> 00:34:11,500 expensive radioactive laser-based treatments for 763 00:34:11,500 --> 00:34:12,690 prostate cancer. 764 00:34:12,690 --> 00:34:14,739 We used to treat prostate cancer about a 10th the cost 765 00:34:14,739 --> 00:34:17,460 of treating it now with no evidence that we're actually 766 00:34:17,460 --> 00:34:19,980 doing men any good through these treatments. 767 00:34:19,980 --> 00:34:22,699 But they don't do harm, they work, they do what they're 768 00:34:22,699 --> 00:34:25,469 supposed to do, so the FDA keeps approving them. 769 00:34:25,469 --> 00:34:27,669 So comparative effectiveness will be to actually say we're 770 00:34:27,669 --> 00:34:29,510 only going to pay for what works better than something 771 00:34:29,510 --> 00:34:33,889 that exists already more effectively. 772 00:34:33,889 --> 00:34:36,920 That's one direction we can go in. 773 00:34:36,920 --> 00:34:40,750 The other direction we can go in is we can start working to 774 00:34:40,750 --> 00:34:43,150 change the financial incentives for both patients 775 00:34:43,150 --> 00:34:44,510 and providers. 776 00:34:44,510 --> 00:34:46,940 For patients, we can make them pay more of the cost of health 777 00:34:46,940 --> 00:34:50,679 care, so that they move back up this curve a little bit. 778 00:34:50,679 --> 00:34:53,460 Still insuring them, but making them pay more. 779 00:34:53,460 --> 00:34:56,739 So for example, we could move to systems where poor people 780 00:34:56,739 --> 00:34:58,340 are fully insured because they can't afford it. 781 00:34:58,340 --> 00:35:00,370 But someone who's higher income, they should have a 782 00:35:00,370 --> 00:35:02,090 high deductible, they should bear the cost some of their 783 00:35:02,090 --> 00:35:04,610 health care because they can afford it, and that will make 784 00:35:04,610 --> 00:35:08,050 them make their health care decisions more wisely. 785 00:35:08,050 --> 00:35:10,520 We can work on the individual moral hazard by making people 786 00:35:10,520 --> 00:35:12,440 pay more for their health care. 787 00:35:12,440 --> 00:35:15,370 We can work on the provider moral hazard by removing the 788 00:35:15,370 --> 00:35:18,180 financial incentives to providers to provide excessive 789 00:35:18,180 --> 00:35:25,700 care, and the way we do this is by something called 790 00:35:25,700 --> 00:35:27,175 prospective reimbursement. 791 00:35:37,580 --> 00:35:40,550 Prospective reimbursement is basically saying to providers, 792 00:35:40,550 --> 00:35:43,690 look, the way things work now is you do a CAT scan on the 793 00:35:43,690 --> 00:35:45,610 guy we pay you for the CAT scan on the guy. 794 00:35:45,610 --> 00:35:47,010 You do a surgery on the guy, we pay for your 795 00:35:47,010 --> 00:35:47,590 surgery on the guy. 796 00:35:47,590 --> 00:35:49,230 How about a different way to approach it? 797 00:35:49,230 --> 00:35:52,090 How about we say this guy is your patient? 798 00:35:52,090 --> 00:35:55,000 A guy like him, a 25 year old healthy guy costs, on average, 799 00:35:55,000 --> 00:35:56,780 $1,500 a year. 800 00:35:56,780 --> 00:35:59,720 We will give you, at the end the year, a check for $1,500. 801 00:35:59,720 --> 00:36:01,410 You do what you want. 802 00:36:01,410 --> 00:36:04,190 You do nothing, you keep the $1,500. 803 00:36:04,190 --> 00:36:06,770 You go crazy and you make 1,000 CAT scans and it costs 804 00:36:06,770 --> 00:36:09,210 $100,000, you eat the difference. 805 00:36:09,210 --> 00:36:12,140 You doctors bear the risk. 806 00:36:12,140 --> 00:36:15,190 Pros, instead of we, the public and the insurance 807 00:36:15,190 --> 00:36:18,120 companies and the individuals, bearing the costs when you 808 00:36:18,120 --> 00:36:21,430 give me an extra CAT scan, you, the doctor, bear the cost 809 00:36:21,430 --> 00:36:23,520 when you get the extra CAT scan. 810 00:36:23,520 --> 00:36:26,260 We've turned the financial incentives on their head. 811 00:36:26,260 --> 00:36:29,360 Now, instead of making money by giving CAT scans, you lose 812 00:36:29,360 --> 00:36:30,460 money by giving CAT scans. 813 00:36:30,460 --> 00:36:30,710 Yeah. 814 00:36:30,710 --> 00:36:34,302 AUDIENCE: But might that have some negative side effects on 815 00:36:34,302 --> 00:36:35,500 the health care of patients? 816 00:36:35,500 --> 00:36:37,654 Doctors are going to want to check how much they are going 817 00:36:37,654 --> 00:36:39,820 to make [INAUDIBLE] 818 00:36:39,820 --> 00:36:41,900 PROFESSOR: Great question, like the question before. 819 00:36:41,900 --> 00:36:43,480 How do we know that doesn't go too far? 820 00:36:46,860 --> 00:36:49,740 Right now, you could think about it, we're in a place for 821 00:36:49,740 --> 00:36:52,850 both patients and doctors where there is 822 00:36:52,850 --> 00:36:54,150 clearly over treatment. 823 00:36:57,190 --> 00:37:02,240 There, of course, exists under treatment as a problem, and we 824 00:37:02,240 --> 00:37:07,300 know that both making patients pay more and putting risk on 825 00:37:07,300 --> 00:37:10,286 providers, through making them bear the cost of CAT scans out 826 00:37:10,286 --> 00:37:12,430 of their pocket, will move us in this direction. 827 00:37:12,430 --> 00:37:15,680 The question is, does it move us past the happy medium, or 828 00:37:15,680 --> 00:37:18,070 does it just move us towards the happy medium? 829 00:37:18,070 --> 00:37:19,810 In the back was asked a question about patient 830 00:37:19,810 --> 00:37:21,990 payments, and here we know the answer, which is making 831 00:37:21,990 --> 00:37:24,670 patients pay more reduces utilization but still leaves 832 00:37:24,670 --> 00:37:26,950 us on the right side of a laughter curve if we come to 833 00:37:26,950 --> 00:37:28,120 our tax analysis. 834 00:37:28,120 --> 00:37:32,440 It still leaves us in the place where we're still, on 835 00:37:32,440 --> 00:37:35,050 average, still probably doing too much care, but 836 00:37:35,050 --> 00:37:36,450 less too much care. 837 00:37:36,450 --> 00:37:37,660 What about providers? 838 00:37:37,660 --> 00:37:40,440 Well, we have evidence on that, which is we've put in 839 00:37:40,440 --> 00:37:42,960 prospective payment systems in a number of different 840 00:37:42,960 --> 00:37:46,790 contexts, and typically we also find it does not hurt 841 00:37:46,790 --> 00:37:52,410 health, that providers still provide, if anything, too much 842 00:37:52,410 --> 00:37:54,500 care and not too little. 843 00:37:54,500 --> 00:37:56,060 Now, we've never put in a pure system of 844 00:37:56,060 --> 00:37:57,380 the kind I've described. 845 00:37:57,380 --> 00:37:59,220 We've always put in sort of mixed systems, where you get a 846 00:37:59,220 --> 00:38:01,690 $1,500 check, but if you do a lot of stuff, we'll also pay 847 00:38:01,690 --> 00:38:03,140 you extra, a little bit. 848 00:38:03,140 --> 00:38:04,735 So we've never put in a pure prospective system. 849 00:38:07,240 --> 00:38:10,440 So for example, we put in a system like this for Medicare, 850 00:38:10,440 --> 00:38:12,300 the way Medicare pays hospitals. 851 00:38:12,300 --> 00:38:14,550 Medicare use to pay hospitals, that when you went to the 852 00:38:14,550 --> 00:38:16,920 hospital, and the hospital billed Medicare, 853 00:38:16,920 --> 00:38:18,150 they just paid it. 854 00:38:18,150 --> 00:38:20,860 Medicare then put in something which said, look, if someone 855 00:38:20,860 --> 00:38:23,620 goes in the hospital with this given diagnosis, we'll pay you 856 00:38:23,620 --> 00:38:26,870 this fixed amount, so it's more prospective. 857 00:38:26,870 --> 00:38:29,660 What they found was an amazing reduction in how intensely 858 00:38:29,660 --> 00:38:30,980 elders were being treated. 859 00:38:30,980 --> 00:38:32,930 The average length of stay for an elderly person in the 860 00:38:32,930 --> 00:38:35,430 hospital fell 20% in one year. 861 00:38:35,430 --> 00:38:37,590 There's an enormous reduction in how long elders were kept 862 00:38:37,590 --> 00:38:40,090 in hospital and how intensely they were treated, yet elders 863 00:38:40,090 --> 00:38:42,110 were no worse off. 864 00:38:42,110 --> 00:38:45,290 So we moved in this direction, but we clearly haven't moved 865 00:38:45,290 --> 00:38:48,250 passed the middle. 866 00:38:48,250 --> 00:38:50,760 Questions about that? 867 00:38:50,760 --> 00:38:53,120 So basically, what the bill does is it tries to set up 868 00:38:53,120 --> 00:38:57,390 incentives, on both patients and providers, to behave more 869 00:38:57,390 --> 00:39:00,640 economically, but the answer is it's still very small. 870 00:39:00,640 --> 00:39:02,260 We're still years away from really putting those 871 00:39:02,260 --> 00:39:04,420 incentives in place in a major way, and that's sort of the 872 00:39:04,420 --> 00:39:08,600 next round of health care reform that has to go on. 873 00:39:08,600 --> 00:39:09,890 And that's all. 874 00:39:09,890 --> 00:39:11,520 I don't want to go on too long. 875 00:39:11,520 --> 00:39:15,190 I just wanted to give you an overview of one example of how 876 00:39:15,190 --> 00:39:18,120 we take a public policy tool and deal with these problems 877 00:39:18,120 --> 00:39:19,370 that we've raised earlier in the course.