(00:00:01) I'm Pete Ankeny, and (00:00:02) it's a pleasure to welcome all of you to Minnesota meeting today. We also extend a welcome to the radio audience throughout the Upper Midwest. We're hearing this program on Minnesota public radio's midday program. Broadcast of Minnesota meeting are made possible by the law firm of Oppenheimer wolf and Donley with offices in the Minneapolis. St. Paul and other major cities in the United States and in Europe. Minnesota meeting is a public affairs form which brings National and international speakers to Minnesota. Members of Minnesota meeting represent this communities leaders from corporations government Academia and professions. Minnesota meeting is pleased to present today's speaker Stewart Butler who is director of domestic and economic policy studies of the Heritage Foundation. Dr. Butler will discuss how skyrocketing health care costs will dramatically affect businesses consumers and taxpayers in the next decade and what he believes must be done to prevent the financial and medical crisis likely to occur if current trends continue. After discussing how he sees the future of Health Care in America and under the current system. Dr. Butler will outline his free-market approach. Essentially his plan would eliminate employer-provided health insurance and instead provide all citizens with federal tax credits to buy Private health care coverage of their own choice. Dr. Butler strongly believes America should shun the Public Health Care Systems that currently exist in Canada and Europe as inefficient and unresponsive to Consumer demand. Dr. Butler was a British citizen is one of the best-known and frequently published Analyst at the Heritage Foundation, which is the conservative washington-based think tank generally credited as the intellectual center of the Reagan Revolution. His thoughts on politics and public policy appear on the opinion pages of newspapers across the country. Following his presentation questions will be addressed from the audience. Steve Young and attorney with Winthrop and Weinstein and Ken darling from Minnesota meeting will move among you to manage the question and answer period so now it is my pleasure to present Stewart Butler. Thank you very much indeed. And it's a great pleasure to be in Minnesota. I'm sorry to say I don't manage to get to this part of the country that often. However, as you may know we are on the East Coast spend much of our time listening to Prairie Home Companion. So I do feel that I am intimately knowledgeable about Minnesota. I'm also flattered that you feel that somebody given what's been going on in Washington DC with the budget Summit negotiations and the theater associated with the out. I'm flattered that you feel that anybody from Washington DC has anything of any value to say to whatsoever. But certainly the issues that we are looking at are crucially important to us in Washington DC as to you out here in Minnesota. I want to thank Minnesota meeting for inviting me up here. I also want to thank Mitch pearlstein and the center of the American experiment one of the youngest of the growing back. And of State based public policy organizations that are debating the kinds of issues at the state level that we do at the federal level. And I think that process of discussion and debate at the state level is really the Saving Grace in many ways of the of the political system in this country because it is really outside of Washington where the new ideas on a whole range of issues be it health care or welfare or lots of other areas are coming from and so that process of generation of public policy ideas is crucial not only to solving the problems locally but to getting the ideas that ultimately do manage to break through the Washington Beltway to those of us who live in the nation's capital and among those issues Health Care certainly is one that is one of the more pressing that we have to face in this country. The United States spends more than 600 billion dollars a year on health care. That's a incidentally higher than the gross national product of my own country. Britain it's more than two thousand dollars for every man woman and child in the country and yet surveys tell us in this country that about 90% of the population believe that the American Health Care System needs a major overhaul and you'd be hard-pressed to travel around the country the world and find anybody who would say, yes, we would rather have our system replaced with the u.s. System certainly not in Britain certainly not very far north from here in Canada. So we have a system that spends a vast amount of money and yet seems to lead to rather greater dissatisfaction among those that it's presumed to help and I'd like to share with you my ideas as to why this is the case and the suggest some possible solutions to this involving some strategic changes in the way. We do Health Care in this country. I think if you look beyond the basic dissatisfaction and say well, why are people dissatisfied why are they looking to She's like Canada and a few years ago to Britain for salvation in the area of Health Care. I think it's because of some very specific things that that characterize the American system one of the most obvious and distressing. I think for anybody viewing the American system is that there are as many as 37 million people in this country who had some time during the year lack at an adequate Health Care coverage for their needs people who walk the street knowing that if Calamity strikes they are not insured. These are not generally poor people. They're generally people who are working or are the dependence of people who are working average Americans. There's something fundamentally wrong with the system that allows that to continue. We also have even among those that do have sophisticated insurance and anxiety in this country, which you don't tend to find elsewhere which goes along lines of a my really covered for this eventuality, you know, will it run out people get nervous? Of us when they begin to feel sick in this country because they have to start looking at the details the footnotes at the policy. There is a general feeling that we can't trust the system here to actually Shield us from bankruptcy, even though we have undoubtedly the best medical system in the sense of the quality and availability of new technology and services. We also see increasing frustration of regulation in the medical profession itself and directed against insurers and directed against corporate business people in some instances who try to encourage providers of healthcare to be more economical. We see government officials being frustrated the doctors for not being economical and so forth. We also see, of course in this is very obvious for anybody in the business community that healthcare costs in this country are rapidly escalating running at about at least double the underlying right rate of inflation people in business. You have to face These costs in many industries of finding this the most rapid rapidly Rising aspects of their cost structure and in need the largest costs that they face in many areas. Now, why is this happening? It seems to me that there are a number of factors which affect it marginally some I think are given undue emphasis by those that are debating the issue but issues like the malpractice system in this country, undoubtedly pushes up costs the various other problems of this nature terms of Regulation and so forth do have effect on the cost and availability of healthcare, but I think the major cause of the problems that we face in this country with regard to healthcare actually stem from the foundations of the system itself in the sense of the way the tax system operates with regard to Healthcare in this country and I mean elaborate as to why I believe this to be the case for most people in this country. The primary tax benefit that they get in the health care area is the fact that if they have a plan provided through their place of employment. It is excluded from their taxable income doesn't appear on their W2 it's a fringe benefit this certainly and without question LED over the last four or five decades to a big increase in the coverage for people in this country. I wouldn't in any way dispute this you compare it's a with the 1930s or the wartime years, but it's also led to some other effects and I think these other effects explain the combination of enormous expenditures yet lack of satisfaction with the system in this country specifically the unlimited tax exclusion for company based healthcare plans has led first of all to a situation where the heaviest tax subsidies the biggest benefits basically go to the highest-earning people with the most generat benefit packages. Meanwhile, the people who tend generally have the lower incomes with very limited company based or maybe none at all company based plans get virtually no help whatsoever through the way the tax system operates. So you have for example, if you look at maybe a hyper very high-paid executive in this country. I was about to say such as Donald Trump, but I don't believe these days that really counts as one of the greater the Richmond of America, but say something like Lee Iacocca to pick a name from random somebody highly paid in a with a very generous package of health care benefits through his place of work gets an enormous tax subsidy through the tax code on the other hand. Look at somebody who maybe a part-time floor sweeper in a dealership for Chrysler and working for a small firm that doesn't have a company based plans if that person wants to buy Healthcare or by insurance. He pays an after-tax dollars. He gets Rich he gets no tax help whatsoever. So we have another words a situation in this country where the help that we try to give through the tax code goes disproportionately to those who really don't need it as much as those who are at the bottom end and it is no surprise. I think when you consider that why we have millions of Americans in low-paid jobs who are working for firms without coverage who lack Insurance whatsoever. It's no surprise at all. We're giving most help to those people who really don't need it. So the gaps I think I've explained by this aspect of the tax treatment. When you look at the other aspect of it for people who particularly those who are working for firms with so-called first dollar coverage where they pay no bills whatsoever directly or even those that only pay a little fraction you get the illusion of free health care in this country. It's an illusion that we in Britain also have incidentally but for different reasons the illusion that somehow you'll Sing something for nothing and human beings do tend to have a habit when they seem to be getting something which appears to be free to want a lot of it and not to question the relative costs involved. So there is little inclination in this country for people really foremost for the most part to question the cost of the health care that they're getting the company pays for its somebody else picks up the tab. And so there's an inclination to demand as much as possible and not to question costs not to challenge the bill. It's paid for by somebody else. Therefore not surprising in my mind that this leads to a rapid escalation, of course in this country and no great secret to that if people are not seeing what something costs they don't tend to consider the cost and they don't care if the costs rise company company officials May care, but the people actually going into hospital or seeing a doctor don't care they demand as much as possible and the greatest freedom of choice of possible without regard to costs and so this in my mind explains that Twin problems. If you like of the of the American system rapid inflation and yet huge gaps and yet also enormous amounts of money being spent both directly and indirectly through subsidies in the tax system. Now that analysis is not unique to me. There are many people who come to similar conclusions and offer various Solutions, and I just want to touch on some of them quickly because I think that some of the solutions that are fashionable today clearly will not solve these problems in ways that are acceptable to most Americans they will solve it in certain ways, but not in ways that are acceptable basically the solutions now being discussed widely in the media and in Washington essentially revolve around the idea of legislation, simply just simply declaring access to health care for certain people access to insurance and then making somebody pick up the tab in some way that that I think is the how to characterize it in the most simple. Forms, and there are two types of solutions that fall under this category one is the Canadian system and under the Canadian system has many of you. I'm sure know government raises the finance for virtually all Healthcare and pays the bills and pay specific providers and so forth government determines what services are going to be provided negotiate prices and so on the Canadian system despite the attempts of some Canadians to say otherwise is really very much similar to the British sis National Health System created after the second world war a system, which I lived under for 30 years, and I know intimately well and only narrowly survived but Essentially it is the same in the sense that it operates by government raising revenue deciding basically what budget there was going to be in the health care area making that fundamental decision and then allocating resources as it sees fit. It ceases most appropriate under that type of situation the effect of this approach is not surprising that the illusion of free care appears very quickly people do in fact demand Services heavily and don't particularly take into account. The real cost of those that was to in Britain is true in in in Canada government then has to react to this by controlling access in practice by rationing in some way and allocating resources within that system. And that is what you're seeing in the Canadian system implicitly. It may be that you feel the allocation is proper. It may be that you feel that they do a good job, but one of the other it becomes government itself that makes those decisions and we see in the Canadian system to aspects of this which I think should should lead to concern in this The first is the general tendency in those kinds of situations for government to use waiting lists and waiting lines as a way of discouraging demand and you see in a Canadian system as we see in the British system a growing prevalence of waiting periods for the things that in this country. Most people would demand immediately if they felt that there was a concern the Fraser Institute in Vancouver has just done a recent survey of British Columbia and looking at the typical the average waiting periods for certain procedures Mary surgical procedures in British Columbia, they find for example in the case of cataract removal surgery an average waiting period of 13 weeks. They find for coronary artery bypass surgery an average average waiting period of six months. These are not dissimilar from the kinds of patterns that you saw in the British system. Now what I want to emphasize here is that this is inevitable because of the process it may be acceptable to people Well in Canada as it is in Britain, but it is what you get with the Canadian system. The other thing that you get in the Canadian system as in the British system of government paying and distributing sources is that there's always some exit some safety valve for those who protest a lot or have the money to pay in the British system people go into private medical care, they buy private insurance for elective surgery. They opt out essentially still paying their taxes, but opted out of the National Health System in Canada. You will I'm sure know very well where Canadians go when they don't like the Canadian system or it doesn't work fast enough for it. I'm sure many hospitals here in Minneapolis have a good number of Canadians in their beds. And that is the United States has become the safety valve for the Canadian system because once you get that tightness of budgets that you get inevitably under this so-called solution people look for some alternative and use it and you get essentially a two-tier system. I just asked you in this audience that if you had a Canadian system In this country, where would the safety net be? Where would the safety valve be Mexico perhaps or I just leave that question dangling for you to consider over your dessert but that is an inevitable result. There was always going to be a two-tier system and some safety valve and you should consider that when you look at the that so-called solution. Another so-called solution is simply to mandate employers. This is gaining great deal of currency in Washington. It has the Great Value that you basically just say somebody else pays for this and you as a politician get all the benefits political benefits of having quote solved the problem much better than raising taxes or anything like that. So you just basically say we will make all employers either provide coverage for their employees or pay into a fund in some way to pick up coverage for them. Again the same kind of problems come with us essentially as in the Canadian system. Once you just simply pass the tab to somebody and say you will without limit have to picked up this Cost businesses understandably will take action to try and curb that cost and to avoid costs involved. So the person who poses a high potential medical costs to an employer suddenly finds himself an unemployable person under that type of arrangement. You will find selection in employment to avoid potentially high cost people indeed the pepper commission that reported just a short while ago the principal labor Economist on that commission John Cogan in California estimated that if it's specific sir conclusions were put into place and they're based on the idea of employer mandates, it could cost as many as between half a million and one and a half million jobs in this country. We have to realize in other words that if we move down that direction that you will see costs associated with that kind of procedure. There's no such thing as a free lunch in the health care area. Well if those kinds of solutions are not going to work if we're going to see the kinds Results that I think would be an acceptable to most Americans. It seems to me we've got to take a rather different approach and that is to say well, let's look at these underlying reasons, which I alluded to at the beginning in terms of the tax treatment of this of Health Care in this country and restructure that get the foundation's right and then you can begin to look at some of the more complex aspects of healthcare. But if you don't get the foundation's right and if you don't get the right conditions, then you are never going to solve the problems because they will reinforce all the problems any change that you make and I would argue that rather than this process of trying to search around for some foreign example that you can just simply import or some other approach is what you have to do is to look at legislation this country that would restructure fundamentally the tax treatment of Health Care and the tax subsidies which are enormous in this country to do two things one to give the bulk of tax help to people who need it. Most doesn't sound like a real Lucien we idea but we don't do it now do that and in addition structure the tax treatment of Health Care in this country in such a way that it encourages people consumers of healthcare to make rational decisions about their use of healthcare to consider relative costs to make some decisions sensible decisions along those lines, which in many cases they have no incentive to do it at the moment. How would you do this our proposal Heritage involves basically a two-step or two two elements in the broad strategy One deals with tax One deals with another aspect in terms of the text aspect. We would over a period of years phase out the exclusion from taxation of all a company based healthcare plans. Now what that means is not that companies would have to close them down or anything like that. But simply they would count as taxable income for the employee in other words a UAW worker for example who currently has a tax. Package generally approaching five to six thousand dollars worth for a very married man. That would appear on his W2 as taxable income you pay tax on that. That's the bad news. The good news is that in the personal income tax code we would phase in a system of tax credits for the purchase of insurance or direct Medical Care. These would be refundable tax credits, which means that if your tax bill your tax liability exceeded your income, you would get a if your credits rather exceeded your tax liability, you would get a check in the mail from the IRS. So you would get essentially a voucher it would also be something you would fold into the withholding system. So it would be not a complicated thing for most people but most important that all of all the tax credit system would be based on the amount of healthcare expenditures. You have as a head of household compared with your income. In other words people who faced high costs of Health Care insurance. Or direct service costs as a proportion of their income would get a much higher percentage credit than those who face low cost compared with their income immediately. This would mean that the bulk the biggest Health the biggest tax benefits would go to those who faced the highest costs compared with their income chiefly those at the lower end of the scale not those at the higher end of the scale the second element in our basic proposal is indeed to have a mandate but not on an employer's but on individuals heads of households to say you shall in this country be obliged to obtain basic coverage catastrophic and other basic elements through insurance for your family. That's is the law just as in some some states and cities you have to buy certain forms of car insurance. If you want to drive a car, it's your obligation. That would be an obligation under our proposal but in turn the government would guarantee either through the system of tax credits that I've outlined or To access to public systems for those who either have uninsurable medical conditions or are extremely extremely low income and poverty. They would have access to public system. So one way or the other the government would guarantee as part of its obligation to make sure that people did in fact have access in that way. Now, let me just touch on what this structural change would mean in practice because I think it's you'll see what may seem to be a rather east of tarek change in tax law. In fact would have enormous repercussions to the people today that we know don't have insurance or people who are anxious about the system the kind of people who are inclined to look at Canada salvation. It would have enormous enormous effects. First of all, By changing the tax system to really focus on those who need it most chiefly working people who lack insurance today. We would provide them directly with the kind of help. They need through the tax system through the refundable tax credits to obtain the coverage that today they get no help whatsoever to obtain. It wouldn't matter who they worked for. They could work for General Motors. They could work for Jose dry cleaners. They would have the same system of assistance through the tax system as opposed to what they have today and which is most inequitable in these kinds of situations. So we would have a situation where I think it is stroke. We would deal with the bulk of the problem of people who lack insurance today in this country. Secondly, we would do it in a way which has full recognition of precisely the kind of Edgecliff of the edge politics. That's now taking place over the deficit in Washington, DC. It would deal with the problem of uninsurance not by adding new taxes spending new money, but restructuring what we already do through the tax cut and it has a certain attraction to it in these days of deficit reduction and so forth. In fact, the Congressional budget office, which is the nonpartisan research arm within Congress and analyzes various kinds of proposals has done an analysis saying well what would happen if you did in fact and the tax exclusion for company based plans and gave people instead a flat 20 percent credit for their Healthcare expenditures. If you just replace one way out what would happen in terms of the revenues for the government and they discover that in fact, the federal government would be ahead of the game to the tune of 18 billion dollars per year. In other words. It's tax losses would be significantly reduced by just that simple change now, we're suggesting something more elaborate, but I mentioned the CBO because it indicates I think that we're talking about a Where we've got a lot of room for manoeuvre in terms of the budget constraints that we now have you could in other words have a system of rather more generous tax credits than the 20% that the CBO looked at flying to more people calculated in that way and still be within a situation where you're not talking about an enormous increase in the amount of expenditures going through the federal government an increase in the deficit or the spending level, and that's a very important political reality that we all have to take into account these days in addition by moving to this notion of obligations on individuals and giving individual heads of household the financial resources to obtain Insurance directly, and then paying the bills for that insurance albeit with a great deal of help from government. They now have a rather different perception and view of the costs associated with medical care than they did prior to this change today if you Nice enough as an employee of a large corporation to economize on Healthcare your employer saves money. It's very nice of you if you do that, but generally speaking you don't get much of the savings under our proposal with the individual getting the help to buy the insurance himself directly if he makes economies, if he gets this the minimum package at least that is required by law but shops around and maybe gives up something here or economizes here. He gets the savings or she gets the savings that would introduce a very different attitude in this country to the cost of Health Care and would encourage people to be a little bit more sensitive as consumers to the cost that they face rather than today where the general attitude is. Well the other guys paying the employers paying why should I economizing this way? So moving in the direction that I've suggested I believe would deal with the inherent problems of the American system and I believe their inherent systemic problems. That that emanates from the tax treatment of Health Care in a way that would deal with a very problems that we are acutely aware of of people lacking insurance and would introduce the kind of cost Consciousness in the American Health Care system that we expect elsewhere in the economy and leads to efficiency and to good value for mother for money in most of the other areas. Let me just end by looking at some of the concerns that people raised against a system of this kind I talked about this a good deal in in Washington itself in that strange world within the Beltway and a number of issues are brought up and they say fine this sounds all well and good in theory, but in practice there are all kinds of problems that you dr. Butler's system. Don't address. Let me just touch on two or three of them because I think we have addressed. The first thing people say is well, you know, it's all right to say well people should be consumers and encouraged to be consumers of healthcare, but most of us, Almost nothing about medical services and know precious little about differences of insurance. Surely. You don't want to just say you now have the obligation. He has some help through the federal tax code and here's a set of Yellow Pages, you know, good luck. We don't want to have somebody knocked down in the street when the ambulance pulls up and says Witch Doctor, you know, these are not understandably. These are not decisions. We wish to have to make under these circumstances well in practice, I think that even if you move to the kind of individual purchase of insurance that I've mentioned in practice people will form groups and join groups to get both the economies of scale that you get with groups to employers or to get the kind of package and earnings and the kind of services that they trust their group to work on their behalf and let me give you some examples of sort of groups. I mean trade Unions would be one obvious group. I think most people many employees. In in this country, which feel rather more optimistic that their Union representing them as individual members would negotiate the kind of services they want rather than in their employers who are under very different constraints as to what should be provided. I think in addition something like a national Farm Bureau or the State Farm bureau's would be an obvious group for people involved in rural employment or owner Farmers themselves groups of this kind I think would emerge very quickly to take the uncertainty out of an individual individual now empowered to make his own decisions under this the difference between what I proposed in this area and what currently is the arrangement is that they would be groups in both situations. The only thing today is that you only have one choice. The only the employer effectively is the group that can make decisions on your behalf and negotiate for you under our proposal. You would have alternative groups available to make those decisions. For you, so I think that when you look at that, very crucial issue that you see our proposal being very much sensitive to the fact that while on the one hand people want to have the right to choose people also are nervous about making choices in areas where they don't know a great deal about a second thing. I just wanted to touch on to end is that people say well, that's fine and it's good to have public policy organization such as Heritage foundation's thinking about these things but is it politically realistic? I mean are we really going to see changes of this nature? It's too radical to have a change of this kind. Well, let me just put it to you. First of all that if you think our proposal is radical implementing the Canadian system in this country would be radical to the extreme when in terms of its dislocation if you think our proposal is radical having a complete mandate on all employers with all the kinds of changes that would occur being about within the system is pretty radical two. So in the stakes for who's Radical I suspect that I was a sort of down the league there in terms of its of its of that political aspects. I think also we are seeing in the case of the politics of Health Care a growing recognition of the deficiencies of other very sweeping ideas such as the Canadian system and a growing interest in more technical ideas of the kind that I've suggested that might have very important long-term Dynamics in the health care area, the more people understand about the Canadian system. For example in Washington the less enthusiastic they seem to be about it because they begin to see the other side of the coin when you come to these kinds of proposals and moreover in terms of legislation that's being developed in Washington right now. The one major piece of legislation that is likely to become law this year is a proposal it is a is a is attached to the child care legislation that is currently being negotiated. Between the house and the Senate and it has a provision within that put there by Senator Benson the Democratic chairman of the Senate finance committee that would provide a tax credit a refundable tax credit to families who have children not covered under company plans. In other words, despite the apparent radical sound of our proposal Heritage. The one item that is going through Congress is in fact an element of our very proposal to introduce the notion of individual tax credits for people who currently do not have health care. So I think in the stakes as to what is politically feasible, I think that this idea of beginning to re-examine the tax treatment of Health Care in a way which could be budget neutral is gaining momentum and is likely to be the kind of thing that is taken far more seriously in future months and years. Just in conclusion. Let me say that no matter where we come from in the political Spectrum. We all agree that there's something fundamentally wrong in this in this country with regard to health care and that we must have as an end result a comprehensive healthcare system which assures access to everybody at reasonable cost to the society. There is no disagreement about that no matter which part of the political Spectrum you're coming from it's just that we argue but that Heritage and our proposal in shrines this that if you simply try to do that by saying let us legislate access and let's pass the bill either the government or to private companies. The result will be rapid escalation of costs followed by cutbacks in access to people that people in fact will not get what they were promised. And the what we should do instead is to introduce into Healthcare precisely the same kind of consumer driven decisions and decisions that are sensitive to price. And competition in the provision of Health Care that gives us the kind of efficiency and the kind of consumer driven benefits that make the rest of the economy other than Health Care the the kind of economy. That is something which the rest of the world tries to emulate let us do for health care what we have done for the rest of the US economy. Thank you very much. (00:35:58) Thank you very much. Dr. Stewart Butler of the Heritage Foundation for our radio audience. Again. This is a Minnesota meeting sponsored by the law firm of Oppenheimer wolf and Donnelly and co-sponsored by the center of the American experiment for those of you in the room here. You will see on your tables a program brochure for an upcoming program by the center on education not on Healthcare. And for those of you who are regular attenders, I will go around with Ken not only who is over there and we will take your questions. So please signal with your hand or your eye or gesture of outrage or appreciation that you would like to have a question or comment for our speaker. We have a question over here because over there Ken Anderson. Dr. Butler basic premise of your argument is that employer funded Healthcare programs provide employees with more health care benefits and they need and that by abolishing them. They will stop using the level of services that they presently do in the costs will go down. What's your evidence for that premise? (00:37:03) I think the very fact that you have in many Industries situations where employees have extremely generous health plans, but because they happen to have out of the ordinary being an astronaut any situation in terms of the health State condition of their family or their spouse that that particular service is not covered under there under their health get benefit package. In other words what we see routinely in the Health Care system in this country is that we find people in fact with generous health care benefits. It's just that the services within those benefits and the level of service in some instance. It's are not what the person would have chosen had they have the At the choice and that's why you get this Paradox of people who are heavily insured and yet you find that their dependents are not covered that is particularly true. For example in a lot of declining Industries where one of the first things that employers tried to achieve and sometimes achieve in cases through bitter strikes is to get dependence dropped from the company Bait Company paid portion of coverage often. The employees are allowed or invited to pick up extra coverage for their family some do some don't and so we have that situation of holes even in the most generous benefits. We often have in addition cases where very generous benefits are given for dental-flossing for regular check-ups and so on and yet there's no catastrophic coverage. So if the person which is an inexpensive incidentally, so the person may have all kinds of things covered but if they faced the worst situation then the insurance plan runs out of money. I just say incidentally thirdly that if people change jobs as I'm sure you well know and see it all the time often people with generous packages moving from one company to another suddenly find little things like pre-existing conditions become a concern that they find that thing's covered under one company are not covered under the generous plan of the second company that adds to the kinds of problems that you see in this country and people being locked into Employers in some cases rather than moving when it's in their interest. (00:39:09) Thank you. We have a question from John Dolan. Yes, I wonder if the solution that you're suggesting will not simply Drive some of the problems back to another area you mention difficulties of access under the presentation under the present system. You also made a brief allusion to a mandatory minimum of insurance that everyone must carry what how do you see your your system dealing with the difficulties that attend a person with severe medical disabilities or illness who is uninsured who the skimming problem in companies are now attempting to avoid covering the people who are in most in need of medical care and won't we won't isn't the likely outcome of your reform that will have a very small small package of rather minimum Health (00:40:03) Care available for those (00:40:04) people and the better the healthier people enjoying much better coverage (00:40:12) now, I don't That would be the result. In fact on the contrary. I think that the kind of proposal I put forward would in fact deal with a severely ill in a rather better way right now as I mentioned to one of the earlier questions that that people who have unusual medical situations or have a particular long history are not terribly employable people don't want to cover them or they face high costs for insurance. You don't tend to get good coverage for such people because in order to provide coverage for somebody with a chronic problem say diabetes or diabetic, for example, it does cost a lot of money and if that person doesn't have it available through their company and is paying directly. It's difficult for most people to afford the high costs of providing High service insurance plans under our proposal. Remember the the credit that would be available people would people would be based on their health care costs compared with their income. So the kind of individual you're talking about the person with a severe chronic medical problem who today faces an enormous problem of getting insurance. Would become more insurable because the insurance company would know that it could it could quote a price that was in line with the services and that that person would be getting the help. They need through two governments through the tax system to pay for that that premium. So what I think you would in fact see is a expansion of coverage and and insurance packages and health plans for the severely ill if you got some individuals and it may be a geographic issue, but if you get some individuals in some areas that even in that situation still cannot find services at a reasonable cost we would retain in our proposal the basic Medicaid and the pooling systems that are that occur at state level for subsidized care directly in these exceptional cases, but I think the number of those cases would decline dramatically under our (00:42:06) proposal. Thank you. Dr. Butler. We have a question from Max Limburger. Dr. Butler, could you (00:42:14) expand a little bit on the discussion you made about minimum standards. If this is going to be an insurance tax credit. Somebody must have had some idea of what a minimum health plan should be Yes, I'm a number of things that I think would be requirements the most basic of all would be what we Loosely call catastrophic coverage. The thing we are most concerned about in this country whether somebody's a middle class middle income person or a rich person or poor person is that they basically are ruined by the cost of health care. So I think that one of the things that that we would have as any basic package would be a genuine catastrophic coverage and it is not expensive. I purchased a catastrophic rider for a plan in addition to come for my family recently cost $50 a year. It's not expensive. Most people don't have that problem. So that would be one element. There was a lot of discussion about other elements. Some people say, well they ought to be regular check-ups and that sort of thing Wellness visits and so forth one dilemma you have here of course is that people do tend to want to have as many basic elements in a basic packages they can get and there are many Specialties in the medical profession that all Known for lobbying state legislators to in to require the inclusion of certain services within their package in the state of California of a sensible State as we all know, they including they now include marriage counseling as a medical requirement of insurance. It may be necessary in California, but it's not what most of us would consider. It's not what most of us would consider a basic medical service. The reason this happens is precisely because of the illusion of the free good that I mentioned at the beginning that when the company typically pays there is every encouragement for service providers to get state legislatures to add on these mandated services on insurers and every incentive on consumers to say sure it's I'd rather have something paid for that have to pay for it myself under our proposal remember that albeit with all the assistance that we talked about a bit of through the tax code. It is the individual head of household who is paying the insurance bill. And every addition to any unreasonable addition to the basic package of mandated on insurers would show up in a higher premium for that person that in my judgment would lead to a rather more sensible reaction by most people to the pressures that come to add on obscure expensive services to the basic package. So I think that one of the advantages in other in other words of our proposal is that it would tend to bring a little bit of Sanity back to that idea of what must be in a basic package as opposed to the insanity that is part of the reason why Casa being driven up so wrapped in this country through State mandates on insurance coverage. (00:45:06) Thank you. Dr. Butler and a question from Tom simple. Dr. Butler, could you expand a bit more on the incentive side of your plan in particular there seems to be a very clear movement in the Plans offered by employers to move back towards the standard 80/20 type of Indemnity plans. I'm not sure I see what is different or new in your incentive plan. That isn't in the standard coinsurance (00:45:37) plan. Well, I think the key difference is that our proposed I think would encourage the employees and consumers to be more inclined to accept that kind of change right. Now what you're seeing is over and over again labor disputes and Strikes over such so-called give Banks where the employers trying to get consumers trying to get employees to accept that kind of thing and they quite rationally say why should I pay for something which I'm getting now for free. It's estimated that something between 50 and 70 percent of Labor disputes. These days are over PSI. See that kind of attempt by employers to do what they have to do, which is to try and introduce cost Consciousness to people our proposal on the other hand would give an incentive for cost Consciousness by the employee in other words instead of having to accept higher costs or what they now have they would be given a choice of saying something like well by all means have a first dollar coverage in your in your plan puts as we all know with car insurance, no deductible equals High premium, or you can have a high deductible and low premiums, you know some combination and just we met Grumble about hell about car insurance, but we make that rational decision which we would prefer that is what we would introduce into this equation where somebody would gain directly for making sensible decisions of that nature saying well, I don't pay a little bit of a co-payment. I will pay a slightly higher deductible and I'll get a lower monthly premium. So I will be ahead or all that's the way I want to do it or whatever. So I think what we're doing would be To what's going on at the among employers, but I would just emphasize as I did in my remarks that what you're seeing is the more you move towards saying employers must pick up the tab and are responsible not only for their own employees, but also under the so-called pay-or-play ideas that they would have to pay a payroll tax to cover. Everybody else employers are going to its if you think it's bad enough being an employee today trying to negotiate those kind of give back to imagine what it would be if it was the law that you were obligated by law to provide certain services to everybody try and imagine the kind of disputes that would occur and the high rhetoric of Rights and so forth associated with us as you try to negotiate those kinds of rearrangements to being sensible cost Consciousness to employees, it would be horrendous and it will be if we move down that route. (00:48:01) Thank you. Dr. Butler. We have a question from James Vincent Toscano. Two questions one if you give your credits at a very high percentage or progressively would you not actually unleash more Demand on a system already a rather strained if you made the credits too low, would you not effectively deny care to the poor children the elderly second question know. Where do I hear anything about quality? Well with Excuse me about what quality called. (00:48:44) Just take the first question. Hi credits and Lopez. You're absolutely correct. If you set them too high, there's less is more demand than less cost Consciousness the too low you would deny services to poor. I don't dispute that at all. And one of the trade-offs in all of this kind of attempt to get the incentives right is always to say, how do we introduce a consciousness of cost and yet somehow don't make price a barrier to need and certainly among the individuals who faced very high costs with chronic medical conditions, for example compared with their income. It would indeed mean that there would be a tendency for them to demand more services than they may currently have available. Medically that may be the right thing to do because many people don't get the services because their employer or their insurer is trying to hold the line. So it may not be a bad thing that some people demand more services whilst other healthier people given the same incentive structure may decide to economize more Far as the so you know, it is a dilemma. I'm aware of but I think that the outcomes at the high-end are not necessarily bad at the low end clearly you would have to have credits high enough to make access not a barrier at the same time as you encourage some cost Consciousness the quality issue. You're right. I did slide over not so much bigger than think it's important. But because I think much of the quality issue is wound up in the very kind of incentive structure that we have under the current system. We have a sort of a perverse quality issue today where there's all kinds of incentives for very high technology in some cases indeed a surplus of high technology in some areas and yet in adequate provision of technology and some other areas particularly for low-income people. I think that once the consumer becomes more active in the whole Healthcare area once he has incentive to start looking much more carefully at quality compared with price once he has the ability to join groups other than his Who can who can in analyze the quality and the cost you would in fact see very positive incentives to look at the right combination of quality and cost. I mean, we can have extremely good quality if we're prepared to pay an infinite price and we can have a very cheap system. If we don't care about quality somewhere in between and it's my opinion that the way to get the right place to get has got to be something that comes out of people's individual decisions not some general decision by government for example to say this is the quality we will provide and that's it. Take it or leave it. (00:51:21) Thank you for our radio audience. Again. This is a Minnesota meeting with dr. Stewart Butler director of domestic policy for the Heritage Foundation in Washington DC. I think we have time for two perhaps three questions one from glorious eagle. Competition and marketing has not been very successful in holding down costs as we all know premiums have continued to increase. What is the incentive in your proposal for keeping a lid on cost of delivery of services. And what is the incentive to assure efficient and economic delivery system. (00:52:02) Well competition and marketing doesn't work too. Well, if the consumer does not gain by making sensible economies and what we've seen in this country is I'm sure you you see all the time is that because most people have their hospital bills paid by somebody else and they don't see a direct cost. Then you see hospitals competing in all kinds of strange ways my in Washington DC. I was having to go for hospital for minor procedure at one point and I was inundated with all kinds of leaflets about the gourmet meals. That were available at this Hospital in the insurance system and all kinds of other things of this nature which are not strictly Medical in other words you what you when you insulate the consumer for making this real decisions. Then competition has a perverse effect. It has all kinds of people compete in all kinds of different ways other than quality and price. So what what my proposal would do would be to add to the equation of competition that currently exist competition based on people looking for value for money rather than extra services that somebody else is going to pay for and that's what we drive it as it does in every other part of the economy with few exceptions. (00:53:22) Thank you. Dr. Graf's our last question here. Yes. I hope we have time for one more from David Hunt. Dr. Butler. You're a (00:53:29) proposal has I think much to recommend it on the other hand. I see two major problems with it. (00:53:35) The first is that your proposal deals essentially with the wrong (00:53:38) consumer that in the health care Market. It's clear that the physician not the average consumer is the direct purchaser of services. In fact The Physician is particularly the purchaser of service for big-ticket costly items research suggests that after inflation. It's increasing intensity of services per patient that's driving costs and clearly that's a physician driven phenomenon. So your proposal doesn't deal with the wide variation in position practice Styles. How would we get greater efficiency out of Physicians under your proposal? Secondly your proposal removes the only viable political interest group that's concerned enough about cost to do something about it employers. Would you comment On the first issue, you're quite right that under the existing Arrangement The Physician really is the determinant both of price and of what services are available. And I think as I tried to explain that's not a surprising result given the kind of incentive structure that we have. If on the other hand, you move to an incentive structure where the consumer as the buyer of health plans or the director of services now has a clear interest in seeing what the bottom line is on that hospital bill that physician bill you introduce a different Dynamic into it and that individual may do it as an individual if he's competent to do that or as part of a group that will challenge the cost. So I think that that shifting incentives in this way introduces the other half of the normal equation the consumer and finally when you when you say the we get rid of one of the interest groups, I don't think that's really true because in fact it seems to me that faced with the Alternatives that that employers now have of I either some kind of Channel system, which I think most employers understandably resist or some kind of mandate on employers to pick up the tab and be responsible. I think there is a an understandable and growing pressure from the business Community to look at precisely this kind of proposal. The change is the very responsibilities and dynamics of the system particularly one based on what businessmen no work in their own areas, which is informed consumers and competition leading to efficiency among providers. So I would disagree with you about ruling out one right now. The employer is only there because he's the Target and our proposal he would be there because he would see not only a good public interest in what we were doing but also see one where he would cease to be the target for political proposals. (00:56:14) Thank you. Dr. Butler perhaps you have given us a sword with which to cut the (00:56:18) gordian knot of Health Care. I hope so.