Michael Tanner

Well, thank you very much. I really appreciate it. I have to say that I think Hobart and William Smith Colleges are just beautiful up here, and so I really appreciate the opportunity to get up here and see a little of downtown Geneva. I got in today, and the lake…I have to tell you, I'm thrilled to be here, I really am. You shouldn't necessarily let that go to your heads, however, for I not only live but I work in Washington D.C., so I'm always thrilled to be somewhere else. I also have to say, the last time you were supposed to have me here, a couple months ago, nature dumped 32 inches of snow on me the night before I was supposed to be here, so I'm very grateful that I'm actually able to be here tonight, instead of that.

It is, I have to say, one of the real perks of my job that I get to travel to colleges and elsewhere and speak about health care. In the past five years, I've been in 49 states to talk about health care. But I also get to travel a great deal overseas and to look at health care systems in other countries, and talk to officials in those countries, and medical personnel, and see a little bit of what goes on with health care in other countries. Last year, I was in Britain, over there doing a little research on the National Health Service, and doing some other things while I was there, and I had some time off while I was in London.

I'm a runner, so I was going to do a run in Hyde Park, and I have to say, if anyone gets a chance to go to London, you've got to go to Hyde Park. It is one of the most beautiful parks, I think, in the entire world. One of the interesting things about it is that there is one place in Hyde Park where they actually have a soap box built into the sidewalk, a speaker's corner. Anyone can come along, and you can get up on that soapbox and you can just start talking. You can talk for as long as you want, and you don't even have to know what you're talking about. Kind of just like Congress. As I came running up, there was quite a crowd that had gathered around. There was a gentleman up on the soapbox, and he was in mid-speech by the time I got there, and he was saying, "When the common man takes over, we'll all be drinking champagne." But at the very back of the crowd, this little man spoke up, and said, "Yeah, but me and me mates, we kinda likes our brew." Well, the speaker just ignored that and he went on and said, "When the common man takes over, we'll all be wearing tuxedos." The little man in the back spoke up once again and he said, "Yeah, but me and my mates, we kinda likes our tweed." The speaker was getting upset now, you could see him getting a little bit red in the face and everything, but he went on and said, "When the common man takes over, we'll all be smoking big cigars." And, you guessed it, in the back of the crowd that little man speaks up again and says, "Yeah, but me and my mates, we kind of likes our pipe." Well, the speaker jumped down off the soapbox, pushed his way through the crowd, found that little man, and he grabbed him by the lapels and he said, "When the common man takes over, you'll do as you're told." It seemed really appropriate to me in the context of the whole health care debate, because we're told that what health care is about, is about helping the common man. It's about helping those people in our society that really need help. But when you get down into the details of the legislation, what you find is a new health care system in which we're all going to end up doing as we're damn well told.

So what I'd like to do tonight is, after I could set a little context for this, I'd like to take you into what's actually in the health care reform bill that has just been passed, and maybe talk a little bit about what I see as some of the consequences that are going to be as a result of that bill, maybe anticipate some of the questions that are asked fairly frequently asked, and then open it up to you folks to talk about whatever it is you want to talk about. You should feel free to throw any questions you might have at me or anything else you might have close at hand as we get going.

So let me see if I can set some context for this, because I think that one of the things that is left out of the health care debate is the fact that, despite all the problems that the U.S. health care system has -- and we have some very significant problems that I'm going to talk about in detail coming up -- but despite all those problems, I still think we have, in many ways, the finest health care system in the world. Certainly we lead the world when it comes to innovation in health care. Of the last 25 Nobel Laureates in medicine, 18 are either U.S. citizens or those who did their research here in the United States. Of all the pharmaceutical products that have been introduced worldwide over the last 50 years, more than half are patented in the U.S. And of non-pharmaceutical medical breakthroughs, things that range from MRIs to transplants, fully 80 percent were introduced first in the United States. That means that when it comes to the innovation in new technology, it is introduced here first in the United States and then goes out to the rest of the world where it raises life expectancies and quality of life for everybody around the world. But it starts here.

Second, we have a lot more choice in this country than they do in a lot of other places. Now, we have nowhere near enough choice as I would like to see, but we do have more choice than others do. Do you know that there are some countries, Spain for example, Italy, some others, where your doctor is assigned to you based on your street address? You move into a house and there is an address for that house and there is a doctor who is the general practitioner for that address, and that is the doctor you go to. In this country we have the phenomenon where people move to get to a better school district; in some countries people move to get a better doctor district. So we have more choice of doctor, more choice of hospital, more choice of treatment within that hospital, more choice of even how you pay for it. I think that choice is important to people.

And then finally, and this is going to be a lot more controversial, I think we have the best quality of health care in the world. I know that today, this is a little more controversial, if anybody watched a very funny movie by Michael Moore, "Sicko," he cites in there a World Health Organization study that when it comes to quality of health care in this country, we actually rank 37th in the world. Right there above Slovenia. Well, that study is out there by the WHO. It has a couple of problems, however. For example, it has nothing to do with health care. In that study, the U.S. is actually marked down because we don't have a sufficiently progressive income tax in this country. We also lose points in that study for not having an aggressive enough national anti-smoking campaign. Actually, in that study we did rank No. 1 when it came to outcomes in patient satisfaction, but that only counted for 15 percent of the grading in the study. So you have to put that in context. In fact, even when they use more solid numbers, I still think there are a lot of problems. Here are some of the numbers they use, and what you hear in other contexts a lot, if you listen to the health care debate; you hear, repeated over and over again, that other countries must have better health care systems than us because people live longer in those countries. People have a longer life expectancy in Canada and Britain than they do in the United States, and therefore they must have a better health care system, except any health care economist will tell you that longevity is a terrible measure of the quality of a health care system. Because there are too many outside, what an economist would call "exogenous," factors that figure into longevity and life expectancies, things like murder rates, suicides, auto accidents, all things where the U.S. tends to lead the world. These things affect life expectancy, as does lifestyle. How you eat, smoke and so on. In fact, if life expectancy was the measure of a health care system, how do you account for the fact that people in Utah live three years longer than people in Nevada? And they have essentially the same health care system.

Similarly, the other figure that people use all the time is that people will talk about infant mortality. They'll say that other countries have a lower infant mortality rate than the U.S. and therefore they must have a better health care system. But even the organization that collects the data, the Organization for Economic Cooperation and Development, the OECD suggests that you can't really compare one country with another on infant mortality rates because the definitions are very different. In the U.S., for example, if a child is born, takes one breath and then dies, it is considered a live birth and is part of our infant mortality statistic. In some countries in Europe, a child can live several hours, die, and is still statistically considered a stillbirth and is not included in their statistics. You also have to look at things like abortion rates. Some countries that have very low infant mortality rates -- Cuba, for example, which is always cited as having a marvelously low infant mortality rate -- have very high abortion rates because problem pregnancies are almost always aborted. Nearly half of all pregnancies in Cuba are aborted, and problem pregnancies are almost all aborted, whereas in the U.S. they may be brought to term, and then the child dies and goes into our infant mortality statistic. So you have to take all of those things into account.

I think a much better measure of the quality of a health care system is what happens when you're actually sick. That's really what the health care system is about. Here, we know that people vote with their feet. When they get sick around the world, they come to the United States for treatment. A couple of years ago, Silvio Berlusconi, the Italian Prime minister, needed heart surgery. Bouncing around with 18 year-old models was a little taxing, so he needed to get his heart fixed. He didn't stay in an Italian hospital. He didn't go to Canada. He didn't even go down to Cuba with Michael Moore. Instead, he went to the Cleveland Clinic in Ohio. Beverly Stronic, the Canadian Minister of Human Resources, came down with breast cancer, and she got it treated at the University of San Francisco Hospital in California. Just a couple of months ago, the Premier of Newfoundland -- I'm sorry, but his name escapes me at the moment -- he also needed heart surgery, so he had it done at the University of Miami Hospital in Florida. They're just following in the footsteps of tens of thousands of people around the world who come to this country every year for care, because they know that your chances for survival, if you're sick, are much higher in the U.S. than they are anywhere else in the world. The British Medical Journal, The Lancet, published last year the 5-10-20 year survival rates for all different kinds of cancers combined for different countries, for men and for women. Which country do you think was number one with the 5-10-20 year survival rates? For both men and women, it was the United States, by several percentage points over the next country, which was actually different for men and women. We beat them by several percentage points by survival rates in terms of cancer. You can find similar statistics for heart disease, AIDS, pneumonia; pick your illness. If you're sick, this is the place you really want to be.

So I think that whenever we set out to reform health care, we have to make sure the health care reform that we do doesn't undermine those things that are good about our system in terms of innovation, choice and quality. Now that doesn't mean that we don't have some significant problems in our health care system. We have, for example, the most expensive health care system in the world. By far, we spend a third more than the next highest spending country in the world, which is France. We spend double the average of industrialized countries around the world when it comes to health care. Now, a little caveat here: We spend more on everything in this country than anywhere else in the world. Little know fact: we spend twice as much as the next highest country when it comes to running shoes. No one yet has approached me about the great running shoe crisis facing America today.

See, health care, from an economist's point of view, is what's called a "normal good." All that means is that as incomes rise, expenditures on that "good" rise. We are a very wealthy nation, and we all want to live forever. So as a nation, we end up choosing to spend a lot of our extra income on health care as opposed to spending it on refrigerators or toasters or automobiles or some other goods or services. Now, another way to look at this is Uwe Reinhardt, who is sort of the "dean" of health care economists -- he's at Princeton -- suggests that 60 percent of the difference between our health care spending and that of other countries is solely a factor of GDP per capita: solely a fact that we are wealthier than other nations and then can spend more on health care. Another way to look at this is that we spend about 17.5 percent of our GDP on health care in this country. That is a lot, again, far and way more than any other country, and people generally suggest when I talk about this that that is too much. Okay. What is the right percentage? What is the precise percentage of GDP that a country should spend on health care? 16.1. Anybody like 15.75? Surely there must be someone out there who wants 14.213. The point is, I haven't a clue, and neither does anyone else. I'm pretty sure we don't want to spend 1 percent of our GDP on health care like say, Bangladesh; no one has been pushing the Bangladeshi health care system recently. But the right percentage? That's what markets are all about in the end. How much do you want to spend on health care versus how much you want to spend on refrigerators or toasters or automobiles or something else?

Now we do have a problem in this country in that, No. 1, we don't really have a functioning marketplace for health care, so we don't know how much we want to spend on it versus refrigerators, toasters, cars or whatever. If we had a market, maybe we would find out that you're right; we don't want to spend this much on health care and we want to spend it on something else. Maybe we decide yeah, we really do want to live forever and we'll spend whatever it takes. But if we had a market we'd know. Second, there is a distribution of cost problem that means that some people can't afford the health care that they want or need, but that's a question of income, not just saying "Oh, we spend too much." So I think we need to be a little bit careful when we start saying "Oh, we spend a little too much on health care."

The second problem is related to that, and that is the problem of access. The simple fact is that we have too many people in this country who don't have health insurance. But again, I would add some cautions here. The numbers that you hear thrown around are misleading, to say the least. It's hard not to hear a speech being made by some politician without them mentioning the 50 million Americans without health insurance. Well, not quite. You see, of those 50 million Americans without health insurance, 14 million of them are currently eligible for Medicaid, SCHIP or other government programs and have simply not signed up for those programs. In fact, about half have previously enrolled and have dropped out for one reason or another. Now, we can have a pretty good debate, an interesting debate on whether or not we want to get those people enrolled, or how we get them enrolled or whatever, but it raises the question: do we need another giant government program to get people to enroll in the giant government program that they didn't enroll in the first time? Second, when we hear "50 million Americans without health insurance," well, no, about 12 million of them aren't Americans. They're non-citizens, about 6 million legal immigrants and about 6 million illegal immigrants who are not enrolled. Since non-legal immigrants are not included under this bill, you have at least 6 million, and there will be a lot more, I'll show you in a minute, who are not going to be covered anyway. It, of course, raises the question -- even if you wanted to cover them, how do you go out and find people who, by their very nature, are living under the radar screen and are not rushing to sign up with federal agents for programs?

Third, when we think of these 50 million people without health insurance, we tend to think that they're poor and therefore can't afford health insurance. Of course, the poor in this country are eligible for Medicaid. If you look at the uninsured, 43 percent of them have incomes 250 percent above the poverty line. Fifteen percent of them have incomes above $75,000 a year. Many of these people are those who could afford health insurance and, for one reason or another, have chosen to go without it. Finally, when we hear about these 50 million people without health insurance, we sort of have this vision that they're born without health insurance and 80 years later they die without health insurance, and in between they've never seen a doctor because they've never been insured. Of course, seeing a doctor and having health insurance are two entirely different things. We know that being uninsured is not a good thing, but you still do see a doctor, and in fact, in dollar amounts, we spend about two-thirds as much on the uninsured as we do on the insured. Of course, you see the doctor later, you don't get the follow-up care, you don't get the preventative care, it's not a good thing to be uninsured, but that doesn't mean you don't ever see a doctor. We also know that putting a magic piece of paper in people's hands that suddenly says you have insurance doesn't mean you do get to see a doctor. There are national health care systems around the world that say people have coverage as long as they don't get sick and need to see a doctor. Right now as we speak there are 750,000 people awaiting admission to National Health Services hospitals in Britain. Every year there are 50,000 cancelled surgeries in Britain because the patient got too sick on the waiting list to go ahead with the procedure. If you have cancer in Britain, you have a 40 percent chance of actually seeing an oncologist. In Canada today there are 800,000 people on the waiting list for care. In the Canadian Supreme Court, hardly known as a right-wing bastion, when it struck down part of Canada's National Health Care law in 2005, Chief Justice Beverly Mclachlin, writing for the court, wrote that it was undisputed that many of the people on the waiting list were in chronic pain, and that some would die while awaiting care. So simply saying you have health insurance isn't a guarantee of a doctor.

But more than that, when we have that long vision of people without health insurance, 50 million people without health insurance, what we're doing is talking about a snapshot in time. We're saying that today they don't have health insurance. That tells us nothing about whether they had health insurance yesterday or whether they will have health insurance tomorrow. In fact, 40 percent of the uninsured are uninsured for four months or less. Only 15 percent of the uninsured are uninsured for two years or longer. Essentially what you have is the working poor, because we link health insurance in this country to employment, the working poor who cycle in and out of the job market also cycle in and out of the insurance market. Today they have a job and health insurance, they lose that job and they lose their health insurance. They're uninsured until they get a new job and can get health insurance again, and then they have that until they lose that job, and then they're uninsured again and they're constantly moving in and out of the insurance market, particularly among the working poor. Now that's a really serious problem, and one we need to fix, but that's different. It might provide a different solution than if we just think of these 50 million people out there who never see a doctor because they can never get insurance. Then finally, for all the talk I did about the quality of the health care in this country, the ceiling of health care in this country, that quality is uneven. There is no guarantee when you go to the doctor that you're going to get that high quality of care. In fact, in one study published in Health Affairs, it suggested that when you walk into a hospital, you have a 55 percent chance of getting the standard of care for whatever it is that ails you. That was totally regardless of what kind of insurance you had or even if you had insurance. Didn't matter if you were on Medicare, Medicaid, uninsured, HMO, fee-for-service, PPO, didn't matter. You had the same 55 percent chance of getting the standard of care. So we need to work on quality, or at least threading that quality throughout our health care system.

So the question is, how do we fix these problems of quality, access and cost without undermining what is good in our system in terms of choice, innovation and quality? Does the health care bill we just passed do that? Well, this is the health care bill: it ran 2,409 pages, and of course that wasn't enough so then they added 153 pages to it in the reconciliation package. It was 477,520 words, or as I like to think of it, $1.2 million per word. They added another 34,000 to it in the reconciliation package so you're a little over 2,500, almost 2,600 pages and about 500,000 words to reform our health care system. As a result of that, as a result of all this work, this is the new health care system we have today. That is the health care system in the aftermath of the bill. The beige boxes are new agencies, commissions or organizations that were created as a result of this bill -- I think there are 99 of them. The other boxes are existing agencies that, for one reason or another, were changed, given new responsibilities or things of that nature. As you can see, it's a piece of cake, going to be incredibly simple to navigate, certainly not going to create any confusion as we implement this.

The key components of the health care bill; most people know them, but I'm going to walk through them; maybe I'll have a different take on some of them. The first is the individual mandate, a requirement that everyone must have insurance. If you don't -- this begins in 2014 -- you will start to pay a penalty that begins with 1 percent of your income or $95. It then goes up, 2 percent or $395, and then to $695 or to 2.5 percent of your income by 2016, that you would have to pay if you fail to buy insurance. Now most people think that this only affects people who are uninsured: "I already have insurance, this mandate doesn't bother me, doesn't affect me." Well, not quite, because in order to say that there is a mandate where people have to buy insurance, you have to say what is insurance. I'm pretty sure my policy with the million dollar deductible isn't going to qualify. In fact, the bill goes to great length to specify what is insurance. It can't have lifetime caps, it can only have deductibles of a certain amount, it can only have co-pays of a certain amount; there are all sorts of specifications and those things. Then there is a great deal of specification about what benefits it must cover. It must cover prescription drugs, it must cover mental health benefits, it must cover drug and alcohol rehabilitation -- something that is good on every college campus -- it must cover vision care, it must cover dental care, and it goes on and on. If that's not enough, the bill even creates a special commission, headed by the secretary of the HSS that can come up with additional benefits that must be included in the health insurance in order to meet the mandate. So what happens if you have health insurance today, but it doesn't cover everything the government says you need to have? Well, I will say this bill is improved from earlier versions in that you are grandfathered in. So if you have insurance today and it doesn't cover prescription drugs to the degree to which they want them covered, you can keep your current insurance, as long as you make no changes whatsoever to that insurance. As soon as you make any change, you must get the whole range of what the government says in order to qualify under the mandate. The insurance plans that are grandfathered? You can stay in it, but they're not allowed to enroll anyone else in that plan. And since they can't enroll any new people in that plan, what's going to happen is that over time that plan is going to go away, the insurance companies are no longer going to offer it, and then you will have to switch to plan that has all the benefits that the government wants you to have, even if the new plan is more expensive, or has benefits you don't want, or even has benefits you're morally opposed to, you will have to get it.

Second, there is an employer mandate that businesses with more than 50 employees -- if you're under 50 you don't have to meet this mandate -- if you have more than 50 employees, you have to provide insurance to your workers. If you fail to do so, there is a penalty of $2,000 per worker that you will have to pay for not doing so. Now I think there are a couple of problems with an employer mandate. The first of these is that it sort of flunks Economics 101. The employer cares about the total cost of employing a worker, what the total cost of compensation for that worker is. They don't care how it's divided up. It's how much it costs them to employ that worker, whether it's wages or taxes or health insurance or retirement fund or free parking space; it's all the same to the employer. So what you're doing when you say they have to offer health insurance, and not just any health insurance by the way -- like with the individual plan it has to be health insurance that meets all the government's requirements, all the mandates and so one for benefits -- when you say they have to offer it, you're simply making it more expensive for them to hire that worker, and they're going to have to offset that cost in some way. They could offset that by reducing wages, and they won't cut wages, but what they'll do is not give you that raise you were otherwise going to get next year. Or they can cut other benefits: they can stop making a match to your 401(k), or cut back on your vacation time, or not give you holidays off, or whatever it is. Or they could stop hiring workers. You know, we do have a minor unemployment problem going on right now. Somehow making it more expensive to hire people doesn't strike me as being the best way to answer that unemployment problem. So I think that this is simply an economic failure. Second, making an employer mandate locks us even more tightly into a system in which health insurance is based on employment.

And why? You know, when you think about it, what logical reason is there for you to get health insurance at work? You don't get your homeowner's policy on the job, you don't get your auto insurance or life insurance from work; why should you get health insurance at work? Well, it turns out that this is an historical accident. What happened was that back during WWII you had two problems simultaneously. No. 1 was that you had a labor shortage because all the guys were over at the front. At the same time you had wage price controls so businesses couldn't compete for the remaining workers by raising wages. They got around the wage controls by offering fringe benefits like health insurance. Then along came the IRS in 1953, and it ruled that health insurance was a tax-free benefit. So now, if an employer gives you $50,000 in wages and a $10,000 insurance plan, you only pay taxes on the $50,000 in wages. If the same employer gave you $60,000 in wages and told you to buy your own insurance, you'd have to pay taxes on all $60,000, so you'd be worse off. The employer is the same: he's paying $60,000 no matter what; he doesn't care. But you, as a worker, would be worse off if he gave you the money instead of the insurance, so the incentive is to give the insurance instead of wages, and that ties us into the system. But the result of that system is, No. 1 -- your boss gets to pick your insurance and not you, even though you might have a doctor that you want to see, but your boss wants to save money so he gets into this new HMO over here that doesn't include that doctor; well too bad for you, you don't get any say in that. Second, it means, as I said earlier, for these people who lose their jobs, they lose their insurance. They don't lose their auto insurance when they lose their jobs, they don't lose their homeowner's policy, but they lose their health insurance because that's tied to employment. We should be moving away from that, and instead the employer mandate links us ever more tightly to it.

Third, there's a whole host of new insurance regulations in the bill. Now in particular, the one you hear about all the time, and I understand and sympathize with this one, this is the one talking about pre-existing conditions. "We're going to prohibit insurance companies from denying coverage to people with pre-existing conditions." Now, we should really remember what this really is. When we say pre-existing conditions, we're talking about people who are already sick. So what we're saying is that insurance companies cannot deny coverage to people who apply for coverage but who are already sick. Now, it's a little bit like being able to drive your car into a tree and picking up your phone and saying, "Hey Geico? You know I've been meaning to buy that auto insurance policy, now seems like a good time." But let's leave that aside. We're going to do that. We're going to prohibit the insurance company from turning people down even if they walk in, they've got four months to live, stage four cancer, they still have to be insured. If you're going to do that you also have to do something called community rating. New York already has this, of course, and this is the requirement that not only do you have to sell it to them, but you have to charge the same premium to people regardless if they're in good health or if they're sick. Otherwise they'll say "Oh, we'll sell it to them, but it'll cost them a million dollar premium." You can't do that; you have to charge them the same premium as people who are healthy. Well, what happens when you do that is that you bring down the premiums for people who are older and sick, their premiums come down, but for young people, students, your premiums have to go up to offset that loss. When New York State did this, the average premium for someone the age of a student here went up about $500 a year. It's estimated now New York already has community ratings so it won't affect students here -- but across the country young people could see their premiums rise as much as 75 percent as a result of the community ratings provision.

Fourth is the insurance exchange. Now, the insurance exchange sounds all complicated, but I have to tell you that I sometimes marvel at the brilliance in Congress. People think Congress isn't right. No, no, no no. Just imagine the people who came up with this. Now try to wrap yourself around this concept. This is an idea. They are going to create a place where buyers and sellers can come together. The buyers will have money, and the sellers will have a product. They'll exchange the money for the product. Can you imagine that? How have we ever survived without Congress? Now, it's a little bit more than that; it's supposed to be like a giant Esurance. You're supposed to be able go online and it will help you compare apples to oranges and things like that. Okay, okay. We're making a big deal out of something that isn't going to be a huge to-do in all of this, in the end.

Finally, there's going to be a lot of subsidies and a big expansion of Medicaid program, which will cost your state more and you more in state taxes, and we're going to bring single, childless men into the Medicaid program, which I think is very problematic. Then we're going to demand subsidies, specifically for people who earn up to 400 percent of the poverty level, about $88,000 for a family of four, will receive partial subsidies limiting how much they pay for health insurance. If you're at the top of that $88,000, you won't have to spend more than 8.5 percent of your income on health insurance; it'll be capped under a very complicated schedule at that amount. For someone earning about $30,000 a year, they will be capped at about 4 percent of their annual income, which are still fairly substantial payments.

That's essentially the bill. For all the 2,500 pages, that's really what the bill boils down to. Let me see if I can take you through a couple things on that. Does it achieve universal coverage? That's what the whole debate was about if you remember for a long time, those 50 million uninsured people. Were we going to get universal coverage out of this? Not even close. This is the congressional budget office estimate that we have about 50 million uninsured right now, by 2019 we'll take that down to 23 million. Now that is an improvement, I have to say. It is a substantial reduction, but it is nowhere near universal coverage. Those 23 million will be, by and large, younger and healthier than the population as a whole, and younger and healthier than the uninsured today. So the idea that this was going to bring young, healthy people into the insurance pool, that's not going to occur. We're spending a lot of money on this bill, and we're not getting a lot of bang for our buck when it comes to reducing the uninsured. Can you keep your current insurance plan? Remember, I did mention this thing with the mandates, and how that's going to work and how you may not be able to keep your insurance there. If you currently have a health savings account, or a flexible spending account, you will find new limits on those plans. On the flexible savings account, instead of the $5,000 you used to be able to contribute to it, that's down to $2,500, and there are new limits on what you can spend it on, you can't spend it on over-the-counter medications for example, and a number of other things restricting that. You will also find, if you had a health savings account, they are going to go away under this bill. They are not prohibited, but there are limits put on the high deductible insurance plan that you have to combine with it, it looks like those high deductible plans will not be able to continue to exist, they're not prohibited, but there is no way to design one that could meet all the provisions of the bill and possibly be profitable. High deductible policies will probably go away, and if the high deductible policies go away, you can no longer make tax-free contributions to your health savings account, so people with health savings accounts will probably lose them.

Finally, 1 in 5 seniors currently gets their Medicare through the Medicare Advantage program; those programs also will begin going away. In about two years they'll be phased out. Again, not prohibited, what they're going to do is change the reimbursement formula. Right now, insurance companies are paid about 16 percent per patient more than traditional Medicare reimburses for the same patient. They're going to eliminate that over payment, the insurance companies have said that because Medicare Advantage offers benefits that traditional Medicare doesn't offer --dental care, vision care, no donut hole in the prescription drugs, and a number of other things -- that they will not be able to offer those programs, so they have said in essence that they will stop offering the Medicare Advantage program. Seniors who are currently in Medicare Advantage will have to go back into the traditional Medicare program under this bill. So, for millions of people, they are likely to not be able to continue their current plan.

How much is the bill going to cost? I could just stop the lecture here and just say "a lot," but we should probably go into a little bit more detail than that. It is going to cost, according to the Congressional Budget office, about $950 billion. They were thrilled, by the way, in Washington, that they got the cost down to $950 billion; they were patting themselves on the back for that. I actually remember when $950 billion was a lot of money. Now I realize today it's sort of a rounding error in the latest bailout, but it still adds up to real money. The simple fact is, it's not even close to being $950 billion. There is a host of significant accounting gimmicks employed to hide the actual cost of this bill. Let me give you just one of them. There is something called the "Doc fix;"you may have heard about this. Now what this is is to get the $950 billion cost of this bill. They assumed that next year, Medicare would be cut by 23 percent. Now, no one believes that it's actually going to be cut by 23 percent. In fact, this Medicare cut is supposed to have been taking place since 2001. Every year, Congress, not being entirely suicidal, looks at this and says "we're not going to cut Medicare by 23 percent" and postpones that cut. Well, the bill assumes that next year, for the very first time, they are actually going to make that cut, and cut Medicare by 23 percent. Then, not to say that they're cynical or anything, they simultaneously introduce a bill repealing the 23 percent cut. They said, "Oh, but that's a whole different bill. Yes, that cost $250 billion, but that's not part of the health care reform bill. We don't have to count that cost. That's over here, not part of this one." Just think, for all the students over here, how much better your monthly budget would be if beer was a whole separate cost, you didn't have to count it. It's over here. That's what they did. If you add that in, you know they say, "This is going to reduce the budget deficit by $130 billion." I said, "Wow, that's almost half of the budget deficit we ran in February." The fact is, if you add that $250 billion in, it doesn't reduce the budget deficit; it actually increases it. Beyond that, this illustrates the other problem, this chart.

You know, I think the Congressional Budget office does a terrific job. They score these things the best they can, they're non-partisan, but they play within the four corners of the field they're given. One of the rules they have to abide by is that they give a 10-year budget score. That means with a bill like this, they start at 2010 and go to 2019, how much is it going to cost? They say over that 10 years it's going to cost $950 billion. Well, true. But if you look at this chart, they don't start spending any money until 2013, and they don't really spend any money until 2014. So what you've got is a 10 year score for a bill that's only six years long. No wonder it looks cheap. Again, if you took your household budget and just dropped out a week, you'd be a lot better off, right? That's what they're doing here. This is the same thing with total spending. You can see that the spending starts at 2014 and goes up and up and up, and then oh, we get to 2019 and it stops because they can only do a ten year score. But look at the trajectory. Look where it's headed, beyond 2019, beyond that 10-year budget window. It isn't coming down. And finally, what I did is I said "Okay, let's play a little bit fair. Let's look at the bill as if it actually existed for 10 years. Let's start at 2014 and go to 2023." Well, how much would it cost then? Not $950 billion, but about $1.8 trillion over that period of time. Look at the trajectory at that point. It's still not coming down. So this bill is going to cost a lot. They're going to pay for it with a lot of new taxes. There's a host of new taxes in here, I'm not going to run through them all, the one you've heard a lot about is the "Cadillac insurance tax," that's a tax if you have a health insurance plan that the government thinks provides too many benefits. Beginning in 2018, they will tax you unless you have a union plan, in which case they won't for a number of years. Eventually, everyone will get taxed on that if it's considered too generous a plan. There is a tax on investment income. They are going to apply the Medicare payroll tax now to investments, including capital gains, because clearly what we have in this country is too much investment, so we need to punish it by taxing it a little bit more. By the way, that capital gains tax also applies to real estate, so if you sell your house and get more than $250,000 for it, you will have to pay this tax as well, and we know the real estate market is doing so well, so I'm sure that that won't hurt. They're going to raise the payroll tax as well on individuals earning more than $200,000, $250,000 as a family; they're going to raise the Medicare payroll tax on that, by the way. Combine those two things in New York State and the marginal tax rate will go over 50 percent. So people in the top bracket would pay more than half their income. Certain manufacturers and insurers, particularly the medical device insurers, would see a 2.5 percent sales tax on medical devices. A medical device is pretty much anything, ranges from CT MRI units to surgical scissors to condoms. They're all considered medical devices, and there will be a 2.5 percent federal tax on those. New hospital taxes, new pharmaceutical taxes and so on, all of which will be passed on down to consumers, so in the first 10 years we'll pay about $500 billion in new taxes under the bill. Insurance premiums: we're also going to pay more in terms of insurance premiums.

Now, the Congressional Budget office said that if we did not pass this bill, if we did nothing, did no health care reform whatsoever, in the next 6-10 years, insurance premiums would double. Now think of how much you're paying, and imagine that that is going to double. That is a very real problem. The CBO also said that if we pass this bill, in the next 6-10 years insurance premiums will double. It will not make any difference. They did say that if you work for a large business, a big business, then your insurance premiums will either double, just like they were, or you might see about a 3 percent savings out of that doubling, so it might be 3 percent than it would otherwise be if we didn't pass the bill. So if you work for a big business, it'll be about the same, or maybe a little bit of savings. If you work for a small business, you'll see no change, to perhaps a 1 percent savings. If you buy your plan on the individual market, if you don't get your plan at work, if you go out and buy it on your own, then your premiums will go up 13 percent more than they would have if we had done nothing. So on top of the doubling that's going to occur, you'll pay 13 percent more in the individual market than you would otherwise. These are averages, so if you're older or sicker, your premiums are probably going to be less than this, and if you're young and healthy your premiums are going to go up, and as they say somewhere between 75 percent – 95 percent outside of New York, which already has some of these regulations. We're still going to see some rise for young and healthy people here, but in some other states you're going to see as much as a 75 percent – 95 percent rise for young, healthy people in these markets.

So in the end, we're going to pay more in taxes, we're going to pay more in debt, and we're going to pay more in premiums as a result of this bill. Here's a quick timeline of what's going to happen with this bill. Anyone who thinks that there is going to be enormous changes in the health care system tomorrow, for good or bad, is mistaken. For all the opponents who think the system is going to come crashing down tomorrow: no, it's not. It's not going to be Armageddon. On the other hand, people who think that wonderful things are going to happen because we passed this bill, no they're not. All the problems are still going to remain. The very first thing that happens under this bill is that we're going to mail a $250 check to every senior citizen in America. "Why," you might ask. Well, there's an election coming up. And the bill is unpopular with senior citizens, so of course we're going to mail them a check just before the election. Makes sense to me.

We're going to ban pre-existing conditions only for children this year, starting in September. Now a lot of people, at every campaign event, people who supported the bill would bring someone up on stage who had cancer, and they just lost their health insurance, and their job, and their house had been foreclosed on, so their four special needs children were all out in the street, while their husband was in Iraq, where his leg had just been shot off. That person is still not able to get insurance under this bill. The change is only for children this year. In the meantime, they're going to create something called high-risk pools, which is supposed to help people who have pre-existing conditions who can't find insurance because they haven't changed the law. This is an idea that the Republicans have actually put forward; they want to keep it as permanent. The Democrats are going to try and do it on a sort of piecemeal basis; we'll see how that works out. Beginning this year, you can't have a lifetime cap on what insurance pays out, which sounds very good, but in reality, about 40 percent of insurance plans don't have any cap at all, and the average cap for insurance plans that have them is between $5 - 8 million. Very few people actually run up against this cap, but for those few who do, there won't be a cap anymore and so that's probably a good thing. Also beginning this year, restaurants will have to post calorie counts for all their food that goes into effect this year as part of the health care bill. Then finally, starting this year, the very first tax that goes into effect this year is a tax on tanning booths, the "George Hamilton tax." It actually replaced the "Botax," the original bill called for a tax on cosmetic surgery. The cosmetic surgeons had better lobbyists than the tanning salons, the tanning salons lost out, and so there will be a 5 percent federal sales tax on tanning beds from now on.

A small business tax credit will begin next year. It's up to $2,000. You qualify if you're a small business that provides insurance to its workers, and you must pay 50 percent of the cost of that insurance and, if you do, you can be reimbursed for up to a third; it depends on the number of workers you have and the amount you pay them, but up to a third of the 50 percent that you pay, up to $2,000 maximum. So it's still going to cost a lot to offer insurance to your workers, but it will be partially offset. Those cuts in the Medicare advantage program that I mentioned begin, the Medicaid expansion begins next year, the flexible spending account limit goes into effect, and they tell us there's going to be a 23 percent cut in Medicare, and we'll see. In 2012, the tax on investment income goes into effect, the payroll tax hike goes into effect, the medical equipment tax hike, and, here's an interesting one, they're going to cap the deduction for your medical expenses on your income tax. Right now, medical expenses over 7.5 percent of your income; you can deduct that on your income taxes. They're going to raise that to a 10 percent level before you can deduct it. That goes into effect in 2012. In 2014, that's when the mandate starts, the individual mandate and the employer mandate go into effect in 2014. The penalty phases in over the next couple of years but it starts then. The subsidies also go into effect in 2014. Again, all those people who couldn't afford insurance, we're not giving them anything to help them afford insurance next year. They're not getting any subsidy until 2014. The pre-existing condition for adults kicks in then, as do the restrictions on how deductible policies will limit and wipe out health savings accounts starts in 2014.

In 2015, something called IMAC goes into effect. IMAC is an interesting idea. It is designed to cut Medicare and is called the Independent Medical Advisory Commission. What it says is that this commission, every year, will make recommendations for how to reduce spending on Medicare and Congress can overrule those recommendations on Medicare. But if Congress doesn't act, then the recommendations go into effect automatically. Now the idea behind this is, look, Medicare is $50-100 trillion -- that's trillion with a "T" -- $50-100 trillion in debt, depending on which accounting measure you want to use. Even take the low one, $50 trillion. That's real money. Medicare cannot possibly pay the benefits it has promised in the future. Now, one of the most ridiculous spectacles of this whole health care debate, very illustrative of the whole thing, was watching this. The Democrats were making some cuts, little itty bitty cuts in Medicare in this bill, and then denying that they were making them. The Republicans were criticizing them for making them. This is a program that is $50 trillion in debt and the Republicans were running around saying, "My god, they want to cut it." Thank god somebody wants to cut it. It's the only thing we can do. The reality is, nobody believes they'll actually make them. So they created this Independent Medical Advisory Commission to sort of force them into making them. Congress won't actually have to vote on it, so they can blame someone else. The only problem is, they then put in a bunch of restrictions saying, "Oh, the IMAC can make these cuts, but they can't actually cut any benefits. They can't increase co-payments. They can't reduce any services that are offered." What's that leave them? Oh yeah, they can cut reimbursements to doctors and hospitals. That's it. And Medicare already under-reimburses doctors and hospitals; they only pay 80 cents on the dollar to doctors and hospitals. Basically, doctors and hospitals take Medicare patients on, lose money on them, and pass the cost onto the rest of us in higher insurance premiums. The only thing they can do is cut back those reimbursements still more? That's going to lead to the type of rationing that exists in other countries. Then finally, in 2018, the last thing that goes into effect is this "Cadillac insurance tax" that I talked about.

What's next? Well, we have a number of lawsuits pending. Thirteen states are suing right now on the individual mandate. I think that's touch-and-go; we'll have to see what comes of that. I do think there's a case to be made on that which we can talk about. We have the elections this fall. Expect this to be in every campaign. I expect health care to be an issue. The Republicans seem determined to run on the idea of repeal. It seems to have a great deal of public support. The last Erasmus poll I saw has 56 percent of the public favoring repeal, so I think there's going to be a fair amount of support for it. Then the question is, would they actually repeal it if they won, having run on repeal? My answer is probably not. Repeal just isn't realistic. Politically, even if the Republicans were to take both the House and the Senate, they're not going to have 60 votes in the Senate to shut off a Democratic filibuster. They're not going to have two-third votes in both chambers to override a presidential veto, so the chances of actual repeal are pretty limited. There are some interesting things they could do, however. For example, if they took over the House, the House has "the Power of the Purse," and they could refuse to fund the bill, which might be interesting. Under the bill, for example, the IRS has requested $10 billion to hire between 5,000 and 16,000 new IRS agents to enforce the individual mandate. They could simply refuse to fund those positions and things like that. So we'll have to see what the future holds. The one thing that I do predict is that those 2,500 pages that exist -- that's not going to be the bill a year from now. It will be vastly different in some way.

Let me close with this. Let's sort of summarize my beliefs on health care reform, and that is that it all boils down to a single question, and I think it is the same question that all politics boils down to, and that is the question of who decides. Just look at anything in politics; look at all the political "isms:" Conservatism, Liberalism, Libertarianism, Socialism, Marxism. Pick your "ism" or pick your issue, whatever that issue is. Now, who decides where your kids are going to go to school? Is that your choice or someone else's? How about what charity you're going to support? Do you make that choice or does someone else? Or how you're going to save for your retirement: is that up to you or someone else? How about who you're going to marry? Do you get to pick, or does someone else get interfere in that decision? Or in health care, some of the most personal, private, and important decisions in your life: do you decide with your doctor, or is someone else going to make those decisions for you? I think that when you come to the answer on that question, you come to a lot of the answers on health care reform. Anyway, I thank you all very much. I appreciate it.


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