Merih Uctum
October 31, 2017

On October 2, 2017, the Graduate Center hosted a debate on healthcare policy with distinguished panelists: Jonathan Gruber, MIT, one of the main advisors on Obamacare, and the previous health reform known as Romneycare in Massachusetts; Dana Singiser, the Vice President for Public Policy and Government Affairs at the Planned Parenthood Federation of America; Avik Roy, the co-founder and President of the think tank the Foundation for Research on Equal Opportunity; and the Nobel Prize-winning economist, Paul Krugman, Distinguished Professor of Economics at the Graduate Center.  The discussion was moderated by the New York Times columnist Margot Sanger-Katz who covers health care for The Upshot and was sponsored by the Stone Center for Socioeconomic Inequality at the Graduate Center.

Where do we stand?
The discussants first summarized where we stand on this issue now and where they believe we will go. J. Gruber started by pointing out that the issues are difficult and the debate can be summarized by the 20/80 rule. First, 20% of Americans currently spend 80% of the healthcare dollars. Financing their healthcare costs is not possible for these 20%, so there has to be some risk-sharing. Second, 80% of Americans are satisfied with their health insurance. Given this, any change would require convincing them that a new program is superior to something with which they are pretty satisfied.

Singiser indicated that some issues are not being sufficiently emphasized in the dialogue about healthcare, particularly those that affect women. The efforts to repeal and replace Obamacare over the past few months have all included the defunding of Planned Parenthood. She pointed out that there are not always good options for women who utilize the services of Planned Parenthood, and states that did not allow it to operate saw a dramatic increase in unintended pregnancies, maternal mortality, and STDs. Singiser also underlined the innovative approaches that these health care centers have implemented using technology.

Roy stated that it is critical for any new approach to healthcare to focus on the needs of people with relatively low income. Single-payer systems have a role here as do more market-oriented universal healthcare approaches that stress competition, innovation, and private-sector consumer choice. The U.S. has the third highest per capita health care costs, with 18% of GDP being spent on health care compared to 9-11% in Europe. If we make health care more affordable and stop subsidizing the wealthy, we can cover more people and reduce costs.

Finally P. Krugman added his views on how we can go about covering as many people as possible. He indicated that there are two ways of doing it. First is the single payer. However, given the current US system and the difficulties of changing people’s opinion, he argued that this is not an easy option. The second way is to induce the private system to deliver the outcome of the single payer through a combination of regulation, subsidies, and mandates. The ACA attempted to combine both systems by expanding the Medicaid and creating a system of regulations, subsidies, and mandates, which had the disadvantage of being underfunded. The states that embraced this system reduced substantially the proportion of uninsured. He concluded that despite its flaws, the ACA gave the Americans the conviction that basic healthcare is something that everyone should have access to.

Why was it so hard to repeal and replace Obamacare?
Sanger-Katz said that various polls lead to somewhat conflicting results: a small majority of Americans looking favorably upon single payer yet many being happy with their existing arrangements; Republicans have many times tried and failed to muster the vote to repeal the Obamacare. She asked the panelists why was change so hard.

Roy argued that although Republicans had a unity around repealing the ACA, they did not have the same unity to replace it. Part of the difficulty is that large constituencies on the existing system were happy and not willing to see a change: those on Medicare, employer-based systems, including wealthy people who are over-subsidized, and Republican voters. But the existing system is costing the government $400-$500 billion in lost tax revenues and risks blowing up the budget.  If we don’t get health care expenditures in the form of Medicare and Medicaid under control, future cuts will ultimately hurt society’s most vulnerable people. The only way to prevent such hardship is to cut the health spending by subsidizing the poor and not the upper-income people.

Gruber reminded the audience that the Congressional Budget Office showed Americans that if you want to cover the sick, someone else has to pay; the Republicans were eager to cut funding for the ACA but not ready to replace it. The ACA brought the government, employers, and the individual mandate on healthy individuals to fund the system. They were not up to the challenge of replacing the individual mandate which maintains a common risk pool that allows insurers to price fairly. This is the most conservative way of covering as many people as possible without costing much more, and the reason why Republicans couldn’t replace Obamacare. Further, the ACA created some losers, about 3% of the population, the upper-income people who had to pay higher taxes, and some winners, about 17% who gained coverage but it didn’t affect about 80% of Americans.

Krugman brought up two facts about the Obamacare and its repercussions. The first was that since its implementation, the rate of increase in health care costs slowed down substantially with lower Medicare costs and private employer-based premiums, resulting in an improved forecast for the US budget outcome. The second was that the impact of the healthcare funding on the deficit matters for this administration.

Why does the US healthcare system have such high cost?
Sanger-Katz stated that as discussed before, the US is paying an ever-increasing share of its GDP to pay for health care expenses and asked why this is the case and what can be done about it.

Gruber confirmed that since the 1950s the health care spending in the US has quadrupled but its quality also increased compared to half a century ago. Although other countries with lower healthcare costs also saw improvements in their health care system, Gruber argued, one million visitors a year who come for a treatment here is evidence of the high quality of this system. Our excessive cost is due both to waste, in part because patients are over-treated, and simply that we pay too much for many features of our system.  .  We went from regulated hospital prices in the 1970s to a more managed competition model and this is where we are stuck.

Roy countered that the high costs are due to over-subsidizing the wrong people and he gave a historical assessment of how the American system ended up like this. In the World War II, labor shortages put an upward pressure on wages. Fearing massive inflation, the administration imposed wage controls but employers avoided them and competed for workers by offering health insurance. The administration later enacted a change in the tax system, which excluded employer-provided health benefits from an employee’s taxable wages. This led to increasingly higher prices charged by hospitals, doctors, and drug companies. Medicare in 1965 was built on this employer-based system. These policies had two implications. An entitlement system was created for the upper-middle class, creating $400 billion a year in lost revenue to the Treasury and the Medicare system that benefits many rich people. We could have the single-payer system where we regulate prices, access, limit costs and choice like in Canada. This would be fiscally more responsible than the system we have. Alternatively, we could have a market-based system where upper-middle class and rich people buy their own coverage and the government provides a safety net for the poor. This would reduce spending and control inflation.

Krugman disagreed strongly with A. Roy on two accounts. First, he maintained that the number of people who can pay for their own healthcare without government subsidy is about 2-3% of the population, which creates negligible savings for the Treasury. About 5% of patients account for about 50% of heath care expenditure but no individual knows when and if they will be in that 5%, and serious sickness can easily bankrupt even those in the upper-middle class. Private insurance markets don’t work unless they are heavily regulated with rules, subsidies, and mandates. Second, none of the other systems that are cheaper than us have a market-based structure but instead, have heavy government involvement. Our system has bad incentives for the providers and rewards doctors for expensive and unnecessary practice. This contrasts with Medicaid, which is more efficient and is more like other cheaper systems because it has more control over costs and a lot of bargaining power. Krugman finished his thought expressing optimism about achievements so far in terms of growth of costs.

Singiser observed that when women are able to control the timing and spacing of their families they are more likely to get education and be economically independent and rely less on Medicaid and other services. Although the economic advantage is undisputable, she added that what is important is that family planning allows women to have a say about their lives.

Panelist at this point started answering questions from the audience.  See the full report here