Question: What inspired you to write your article on healthcare?

David Goldhill: I had always had like, like] many politically involved people, an interest in[ healthcare; it's obviously such an enormous part of our budget. And as a businessman, you can't help but have been aware over the last 15 years or so of running companies of the cost of healthcare, both to a company and to your employees. But I think for me the real catalyst is what happened to my father, because I had a lot of thoughts about what was right and wrong about our healthcare system.

My father is an 82-year-old man who walked into a hospital with pneumonia and like most men his age certainly was vulnerable. But what I saw in his five weeks in the hospital, five weeks that ended in his death, was very surprising to me. As a business person, as a very aware consumer at those moments, because obviously the care was so crucial to my father's hope of survival.

My father died of an infection he acquired in the hospital. That's not unusual; although, at the time, I didn't realize how ordinary that is. A few weeks after his death, Atul Gawande happened to publish a piece in the New Yorker in which he talked about the estimated hundred thousand deaths a year from infections.  The number just astonished me; I mean, a hundred thousand. You think of 5,000 people losing their lives in Iraq and Afghanistan and how big a number that feels. This is an annual loss of life in this country. I thought to myself, "That's extraordinary, that that's not a front and center of national debate. It's almost background noise."

But what his article is about was even more interesting. It was about a doctor who had developed a series of sterility protocols and was running around the country trying to convince hospitals to adopt them. They were basically costless:  a matter of how you organize work rather than any actual spending. He was having a hard time getting through hospital bureaucracies and their relationships with physicians. That's what really set me off because I had seen in the ICU of a well-regarded, non-profit hospital an enormous amount of sloppiness and poor use of technology--in some cases no use of technology. My father twice was actually taken for procedures meant for other patients. A few hours before he died, when he was unfortunately well beyond the hope of recovering and it was very clear that he had only a few hours left to live, they came in to do a blood test. I remember saying, "Why are you doing a blood test?" It was clear that it was auto-piloted. So much was auto-pilot. You understand that perhaps at a local Burger King, you really don’t understand that at a hospital dealing with life and death issues.

But getting back to Gawandi’s piece, I thought to myself, there’s got to be a business reason that this happens. You know, I’ve run a bunch of different types of businesses in technology and media, and in all of them, for bad things to persist, poor products, bad customer service, high prices, any of the realms of inefficiency, something needs to structural explain it, a lack of competitors, a company structure that favors management or employees over customers. And for it to occur in an entire industry, it’s got to tell you something about the incentives and relationships between employees, professionals if you will, in the provider world--the institutions and customers--because for this to persist for such a long time, from a businessman’s perspective, means there is something wrong in the underlying structure and the underlying incentives.

And so, I spent a lot of time, probably close to a year and a-half, thinking about our healthcare issues, the bigger ones and the smaller ones from that perspective. And it really is eye-opening when you step back from what I think is a lot of people’s perspective about healthcare, which is this is something we need; how do we get it? To looking at it as a series of businesses and asking how well do they serve the customer in terms of quality of care, accountability of care, basic service, and of course pricing? And what you see in almost all of those areas is very significant deterioration over the last 30 or 40 years.

And so, instead of doing the sort of detailed ‘what,’ that I think a lot of people who have devoted their lives to healthcare have been doing, and its of great value; I did a little more of a ‘why.’ And a ‘why’ from the perspective of a patient and a person who runs businesses outside of healthcare rather than as a perspective of a healthcare expert.

Question: What is the problem with the conventional wisdom on healthcare?

David Goldhill: I think the conventional wisdom on healthcare starts with a misconception that is probably 100 years old, which is--I think of it as the lump of healthcare fallacy, or the public policy model of healthcare--you get hit by a bus, you are diagnosed with cancer, you have a serious illness, you need care. There is an amount of care you need. And it starts from that. That’s a big fallacy, right? Because what has happened since that was, what drove a lot of us to look at ways outside of a market to finance healthcare, getting the states involved, insuring, and all of the rest, is that, in fact, a very large percentage of our lives have become medicalized. And it’s very hard not to see that what healthcare is today is this very broad spectrum that ranges from the absolutely urgent, the person genuinely hit by a bus, genuinely finding late state cancer, and the completely elective. And a broad spectrum in between not just in terms of the nature and illnesses but that in the alternative treatments and approaches to handling those illnesses. There’s an enormous amount of choice, options, and decisions made in everyday healthcare decisions, and everyday healthcare decisions are an increasing part of our lives. And when we start thinking about health insurance, most births and deaths were not medicalized. We are so used to every aspect of our lives, physical lives, having interaction with the healthcare system that we may have forgotten that the models in which we designed both insurance as a form of financing and often government aide as a form of financing existed in a very different world. Healthcare was a rare and small part of our lives. I think that's first.

I think the second misconception is that there is something inherent in healthcare that explains higher prices. That it is fundamentally different. I think perhaps the most sophisticated version of this is, new technologies have really created new products. So it's not so much that the price of things are going up, as [it is] that our ability to do things is expanding and that is drawing in more of our income to pay for those new and better things. And I think there's an important element of truth in that. I think the broader sense, or the political sense is that technology drives up prices. That when you move from more personal care, physician-oriented care, let's say, to big diagnostic machines, you inevitably have to have higher prices. That statement I think the rest of the economy shows isn't true, but I think it's an underlying assumption in the conventional wisdom.

I think a third aspect of that is, and it's interesting in healthcare and we never talk about prices, we talk about costs as if its – these are from the Moon rocks that we got, we have only a limited number of them and its somehow exogenous to the forces of supply and demand that work in every other industry. That's another issue. It's funny, you almost never hear anybody talk about healthcare prices. And the problem there is, in healthcare, ultimately every element of the price, or cost if you will, is somebody's paycheck or somebody’s dividend check. There really aren't moon rocks that we have only a limited supply of.

Every good in healthcare, whether it’s a new drug, or a new machine, or a physician services, or what we’re going to pay the Nurse’s Union, depends on how much revenue is coming in. Not on some element of cost that's independent of that. And I think that's been one of the big misunderstandings in healthcare, and probably related to the fact that most people who work on healthcare work just on healthcare and don't have what I call the perspective of the mainland, they just have the perspective of the island that healthcare has become in our economy.

Question: How are American lifestyles affecting the cost of healthcare?

David Goldhill: I think the reality is that we now have a situation where almost more than half of deaths every year occur for reasons that probably relate more to lifestyle than to healthcare. We’ve medicalized them. But fundamentally. to treat them, there has got to be changes to lifestyle, or influences [on] lifestyle.

I think nutrition is one, which Michael pointed out. And there are a variety of others, frankly, I mean there are all sorts of things that are environmental, that relate to our work lives, relate to our commutes, that relate to education, that impact health. And I think the broader point is a crucial one which is society has chosen for healthcare to be a favored good. Healthcare is not health. And in my article, I remind [readers that] my Grandmother always used to say, “Money is honey, but health is wealth.” And we’ve added a word to that, health care is wealth. And it may well be that in doing so, and making healthcare a favored good, we’ve changed people’s individual incentives to take care of themselves. Which is going to be fundamental to further advance this.

There’s been an extraordinary amount of advance, obviously, in healthcare in the last century and a-half. It’s enabled us to eliminate many infectious diseases, change both the incidence and probably results of things like heart attacks, and starting to have some impact on survivability from cancer. You can’t underestimate how important that has been to extending lives and improving of quality of lives. But it’s part of a much bigger issue. And it’s interesting when commentators point out that the United States ranks fairly low by most health statistics that you can do, whether it is lifespan, or preventable deaths, or others. Many traditional experts say, “Well, that’s not the problem of the healthcare system, that’s because we’re overweight, we’re live unhealthy lives, we don’t exercise...” and what have you. There’s an irony there, of course, which is the way that we try to fix all of that stuff is healthcare. One of the difficulties I have with a non-consumer based system, is I don’t know we’re making choices. How did we get to spend $2.5 trillion on healthcare? Who decided that was better than more parks, or a better environment, or more time off, or better educational system, or more recreational resources, or even more entertainment? Who made the decision that it was better for us – let’s narrow it. Who made the decision that it was better for our health? And the reality is, nobody did.

Question: What historical parallels are there to today’s healthcare crisis?

David Goldhill: You know, one of the parallels I see here, which is rarely remarked on because again, most people who look at healthcare look at just healthcare, is what happened in housing. It’s roughly the same time that the government said that housing is an undersupplied good that people can’t afford. Let’s help them afford it. And also engaged in a lot of different way of subsidizing housing, tax break of course we know about, creating Fannie and Freddie, and Ginny to give low-cost capital. Favoring loans made to construct house. Why am I discussing this? I am discussing this because what happened in housing is interesting. During the entire period that the government subsidized – almost the entire period – the price of housing kept going up. And every year Fannie and Freddie would come to Congress and say, we’re doing a great job of making housing more affordable, but the price of housing is going up, we need more subsidy. We need to secure more loans. Nobody every said, "Is it possible these things that we are doing to make housing more affordable is causing the price to go up?"

Now, in housing of course, we were capable of having a crash. At some point, the price of houses was beyond what the average person could afford. Even if you lent them more than 100% of the money, which is of course what we wound up doing. And there’s a lesson in that. Which is, we can see an undersupplied good, but if we create a system that endlessly subsidizes it and if we fix the negative results of that system by increasing the subsidy, and if we put the subsidy in a lot of different places, what we’re likely to do is no longer make the choice of, in that case, do we need more housing, or do we need more education, or recreation, or people living close to their jobs, or better transportation. And we’re doing the same thing in healthcare. We have gotten to 20% of our GEP without any mechanism for figuring out what would have been a better number. There are two mechanisms to do so. The government just mandates it, and I am skeptical that they can do a good job based on what we’ve seen in Medicare, or consumers do it by making the tradeoffs in their own lives. And we are not doing either system, and we are suffering as a result.

Question: How well did Obama address healthcare issues in his September 9th speech?

David Goldhill: Well, I think the President has an admirable and important objective at the core, which is to create a genuine safety net for all Americans, cradle-to-grave, to cover health catastrophes; those things that not just threaten our physical well-being in a serious way, but also threaten the financial stability of American families and households. And I think and I completely agree that that is the most essential element of healthcare policy. My concern is that I think our current system of allocating resources to healthcare, paying for them, and distributing them, if you will, among our population is inherently unsustainable. That at one, two, three percent increases greater than increases in income over that what's now almost four, almost five decades, you have something that just – you simply can't pay for. And those issues I believe or not inherent in healthcare, but in the way we have chosen to finance healthcare and the way we've chosen to account for how healthcare services deliver the quality and service aspects.

So, to me, most of the proposals that we see in politics are really about how many stories we should add to a collapsing building. Now it may be well intentioned and we may get to live in a stories for a year or two, but ultimately we haven't solved the problem which is our safety net is frayed in this country because healthcare is so expensive; and healthcare gets ever more expensive every year. And until we can get past that issue in a meaningful way, whatever additional access we bring to the system will be offset by the limits in that access once in the system.

So we can talk about ensuring the 45 million uninsured, that would be a terrific thing, but we have to recognize that unless we can control prices in healthcare, the cost of that is going to be the value of that net to each of us is going to be less. And if you’re employer covered already, you see that, right? You see higher co-pays, higher deductibles, more limits on coverage, and more pre-existing conditions making you an ineligible. Now, the President has proposed mandating that those things can’t happen. But, from an economic perspective, I view that sort of as squeezing on a balloon while blowing it up. You may well affect the shape of that balloon, but you're not going to affect the size. That money is going to have to come from somewhere, and out of somebody.

I think the best example is Medicare. The President presented Medicare as something that is successful and needs to be protected. And there is certainly an argument that Medicare has allowed for a much better medicine available to a much broader number of seniors. But we need some perspective on Medicare. The average senior citizen today pays a greater percent of his income out-of-pocket for his healthcare than the average senior citizen did in 1964. And I don't think you'll find many senior citizens today, in fact, I think in that town halls were seeing echoes of this, feel more secure about the possibility of needing to pay for large amounts of healthcare out of pocket than the senior citizen did in 1964. Now we've spent, I think it's now close to $6 trillion on Medicare. If that is the result of a successful program, how are we judging success? And how are we building on this structure based on what we've learned?

Question: Are you in favor of free-market competition among health insurers?

David Goldhill: The issue in the healthcare system I think is important as to how we use competition because we've decided on a private enterprise system, which, frankly I favor, I'm know there are others who don't, but private enterprise delivers most care, the public finance and somewhere between 45% and 50% depending on how you count, maybe even more if you count the tax credits and employer insurance. But this hybrid system I think combines the worst of both worlds because what you have is, you have the profit motive, you have private enterprise, you have organized interest groups, you don't have a lot of competition. I think most of us when – and by the way, that’s not just because of the industrial structure, it’s also because of the position we're in as consumers. Very few consumers are really incentivized to do the type of price shopping they do in almost anything else in their lives, even casual price shopping. And I'm as guilty of this as anybody because I've been uninsured for two episodes in my life, insured for the rest of it, and there's an enormous difference in the way I approach the price of my care when I was insured and uninsured. I consider myself a reasonably thoughtful consumer, but the reality is I was a pretty a dumb consumer when I was insured. I went wherever my physician referred me and I paid whenever the bill was, knowing very little of it was mine.

The core issues of how you bring in the type of discipline on price, but not just on price, also on quality and service that competition gives you is missing in our healthcare system. And one of the great ways to see the contrast is to look at those health services for which there is relatively little insurance coverage. If you look at cosmetic surgery, if you look at a lot of dental surgery, a lot of eye work, I mentioned LASIK in the article that I wrote. But you'll see it at – some rehabilitation work, there is an extraordinary difference, not just in the price competition you’ll see amongst providers there and their willingness to disclose prices and compete on price, but also almost everything about the look and feel of their service, right. There's no crowded waiting room when you go to see a cosmetic surgeon. Rarely is if you go see if eye surgeon. And why is that? Why is it when you see a GP or any other specialist you’re sitting in a waiting room for an hour? You don't even see that at the DMV anymore. It tells you something about how important competition for consumers, to get consumers is in the insured part of healthcare versus the less insured part of healthcare. It’s an important canary in our coal mine.

Question: Would nationalizing health care provide some benefit?

David Goldhill: I hear a lot of my very liberal friends saying, “We have been trying to get national health insurance in this country for almost 80 years and maybe we're finally going to get it.” You know, after 80 years you may want to question whether what you wanted is still what you should have. A lot of the things we tried to get in the 30s we don't want now, we shouldn't want now, and have nothing to do with the way we live now. My basic point is not that healthcare has become less important, but it's become bigger and more integrated in our lives. And it is impossible to finance it in an efficient way. Efficient both in terms of its own costs, and efficient in terms of the amount of societal resources it consumes without bringing elements of choice into the system, without having some mechanism for recognizing the trade-offs because healthcare is no longer just the, I got sick, I can't work, my income is suffering, my family is suffering. It is some of that. And it's interesting, whenever I have this conversation with someone who is more traditional about it, they always focus on the, ‘hey, nobody chooses to get cancer. How can you make this a consumer product?’ Of course, that's right. But interestingly, one of the things we have sacrificed in keeping this old concept of what healthcare is, is we can’t afford and haven’t built a real safety net for those people who suddenly find out that they have cancer.

Interestingly, in choosing to treat all healthcare as mattering equally, as being well-financed by insurance, what we've done is we haven't properly funded the true catastrophes – matter of fact, that had the chance of affecting all of us. So we've got this incredibly wide safety net with massive holes in it. And I guess what I'm saying is, you might be better having a narrower safety net that rests on firmer foundations, a little bit of a mixed metaphor, but I think you know what I mean.

Question: How do you suggest we reform healthcare?

David Goldhill: I think what I’m talking about is something that will take a generation to do. And I need to start there is that, if we are looking for a healthcare fix for something as complex, with the previous choices that we’ve made in healthcare that’s going to have a fundamental impact on our system, it’s hopeless. Too many of us depend on the current forms of financing, have spent our whole live participating in it for an instantaneous change, and frankly, the whole healthcare industry, which is almost a fifth of our economy has been set up with the existing system. So, the first thing you need is a generation[s] commitment. It’s taken roughly 50 years to create this mess. You’re not going to solve it in twelve. You’re really going to have to be committed to fundamental change over time. That’s a very hard thing for our, or frankly, any political system to do, other than accidentally. We did it accidentally with Medicare and Medicaid and company-funded insurance to do it intentionally is much harder. But that’s number one. It’s just a realistic sense of what it is going to take.

Beyond that, I think there are really three important elements. Number one, I believe, and I think many Americans do, that there really does need to be a true cradle-to-grave safety net for all Americans for catastrophic health, which is, really, the initial starting point of many of these debates and in some cases, over a hundred years ago in the developed world. We still don’t have that. And I think we’ll be up to near $2.5 trillion of spending next year. The number one question we need to ask ourselves is; how on earth do we spend $2.5 trillion on healthcare a year and not have a true safety net for health catastrophes for all Americans? That’s number one. And to me, what that’s about is catastrophic insurance. It actually is an insurable good, unlike so much of what isn’t insured in healthcare. And I start there and there needs to be a national pool because we can't get into the situation we see now where we have private insurers competing for profit growth in part on how successful they are on underwriting out the worst cases. You can't just let the public pay for the worst cases, is actually an extraordinarily inflationary approach to creating an insurance pool. But we need a national pool.

Beyond that though, we have to look at funding non-catastrophic care which does include late life care because it’s planable. Right? Unlike most insurance events, it's something that we can plan during our life and that we do fund during our life. But also a lot of disease management issues, and frankly, a lot of routine care in the ways we fund other things in our economy. How do we do that? We do that out of income, out of savings, out of credit against future savings. And so what I would like to see over time is a shift in the enormous resources that we currently pay to support the insurance system back to consumers to allow them both to fund their current medical expenses and to save for future ones.

It has a couple of benefits. Benefit number one, is it returns us to our role as consumers. We have to start with one, I think now, indisputable fact which is our 50-year reliance on employers, on insurers, on governments to control costs, have failed. All right? We will hear endless details on how we can do it better and this new regulation will finally do it. But if you followed the last 50 years of healthcare, we’ve tried a lot of different things that Medicare, Medicaid, and private insurance, and that theory that big will exercise leverage, and leverage will keep prices down – if 50 years of the past experience hasn’t taught us that doesn’t work, then I guess we’ll need more years, but I and at least many others, believe that at some point you say, okay, this doesn’t work what will? Well, the one thing we really haven’t tried is to do what works everywhere else, which is to have a mass of disaggregated thinking consumers pushing prices, forcing quality, forcing accountability. That’s number one. And I do want to come back to criticisms to that approach because I think there are some important criticisms to that approach. But that is where I start.

The second is, we have to avoid the "use it or lose it" approached financing healthcare. And reliance on insurance and on government programs mean that every dollar that we put into the system is going to be spent on healthcare. If you think about an individuals own life, you save money for rainy days, but if it doesn't rain you may not have bought an umbrella. The healthcare system doesn't quite work that way, right? A lot of the money that we take from people to pay for insurance premiums, Medicare tax, Medicare premiums down the road, is in case you need it. But the very fact it's there mean it will be spent on healthcare. Now, from an individual's perspective, that may seem irrelevant, from a society's perspective it's a real problem because at, coming up on it very soon our 20% of GDP, the dollars for spending on healthcare are things we can't spend the other good things in life. And you may be aware, in my article, I talk about how we don't even know if we're making the expenditures that are best for our health; we just know we're making expenditures that provide the most healthcare. Those are different things. Nobody can guess the question, would we, as a society, be better off all giving ourselves another week vacation, or spending another $150 billion in healthcare. They're almost treated differently, but they're not different of course.

We are at a point in our health where over 50% of annual deaths come from conditions or causes that have more to do with lifestyle. This is of course heart disease, diabetes, accident, suicide, and homicide, than they have to do with healthcare. We've done a great job in healthcare to get to that point but being at that point – if we’re interested in improving our health we don't know that these investments are better made in healthcare are in all the other aspects of health whether it's recreation, or environment, or new nutrition, or what have you that are being crowded out by society's decision to fund healthcare in a use it or lose it way. So this is less important for the individual perhaps, and more important for us as a society.

So what I'm seeking to do is I'm seeking to say, rather than look for a magic bullet single way to finance health care, which I think comes out of that early misconception I talked about that healthcare is sort of a lump, emergency, need it, we know what it is, pay for it. That’s not true anymore. It’s much more complex than that. We need to match the way we finance healthcare to how we use it. To what it is. There are emergencies that are catastrophic. Not all of us will have them. It is completely appropriate for insurance to finance them. Insurance is actually the most efficient way to finance them. Insurance is the least efficient, most costly, most distorted way of financing everything else. And so we need other ways to finance everything else.

Question: What are the criticisms of consumer-centric care?

David Goldhill: The first one is just a financial one. Just people saying, "I can't afford it."  I have enough trouble affording nondeductible. And they're right. The key to this is that generational shift that I talked about. Every year we need to reduce a bit our reliance on insurance and take some of the resources we use to pay those premiums and get them to consumers. We need to gradually over her a 20 year period, increased the deductible on insurance policies from what they are now to general catastrophic. What that will do is it will move more healthcare resources to individuals enabling them to finance their care. Now, the only good news about spending $2.5 trillion dollars on health care is that all of us, and I mean all of us, are spending an incredible amount of money on care. We may not be aware of it. We may think somebody else is paying for it, that's an illusion.

You know one of the things that I looked at in my article was, to hire a 23 year old today and he spends his entire career with my company and he has a spouse and a couple of kids in a few years, he retires at 65, and he lives until 80, what would the amount of money that goes into the system for the 23-year-old? Start him at an entry-level salary, $30,000 a year, which is roughly 60% of the average household income in our country, and have him grow – have his income grow 3% over the course of his life and he gets up to a salary of a little over $100,000 by the time he retires. And I made an assumption which hasn't been shrewd for 50 years which is, let's say the growth of all healthcare is only equal to the growth of income, of course, it's been running one or two points above income. The amazing thing is that the 23-year-old is looking at $1.7 million being spent on his or her behalf to fund his household to have medical care over their lives. That's everything. It's their own share of health insurance, their out-of-pocket, their Medicare premiums when they’re seniors, the stuff that they actually see. But it's also stuff they don't see, their employer paid on their behalf, their Medicare tax came out, and what's interesting is I realized later that I understated it because I didn't include the amount of general tax revenues that is subsidizing our healthcare, which is another big bite. But let's forget that for a moment. I think if you said that the average 23-year-old, you want to participate in this insurance system or do you want $1 million over your life to spend on your own care and if you don't spend it on your own care, you can put it away. The only thing them and ask you to do some going to insist that you buy catastrophic insurance. I don't think there's any question with the average 23-year-old is going to say. Now, say an average 23-year-old may not be smart enough to make that decision in the long term but let's look at the impact on everybody in this country of a healthcare system that costs the average employer who pays insurance 12 grand a year per employee. Twelve grand. So if you're earning the average income in this country, $50,000, your employer is paying $62,000, so forget about Social Security tax and Medicare tax for a moment, for the privilege of employing you and you're getting only 50 grand. That is an extraordinarily aggressive tax. The interesting thing is transferred that 12 grand to the average family they could buy catastrophic care for the whole family and have a significant amount of money left over for their health savings account every year.

So, you have to be willing to do both. You have to be willing to reduce the coverage of insurance, but transfer those resources to individuals. And if you’re not willing to do both, and people would be afraid that you are, of course you can’t have a consumer-driven system.

But the second concern I think a lot of people have is consumers aren’t wise enough, or smart enough, or capable of driving pricing and quality in our healthcare system. And I think, as a lot of fundamental reforms have to deal with, that seems to be comparing a proposed new approach with something that doesn't exist today. Consumers make all the decisions on their healthcare today. Not the negative ones. But you can't treat somebody without them choosing the treatment, without their agreeing to the treatment. I'm not proposing rid of doctors. I'm not saying let's take the professionals who advise you now out of the system and you design your own treatment and find someone to do it. What I'm saying is, right now we have a system where doctors advise, patients make the ultimate decisions subject to insurance company veto. I am removing the insurance company from that equation but I don't think that most consumers would say, “Well, that puts me in a terrible position, I rely on my insurance company to help me through my life's healthcare decisions."

There is another thing that I think again comes out of the island nature of healthcare. Very few of us are true active comparative shoppers in everything we buy. We all benefit from the existence of Wal-Mart, whether we shopped there or have never in our lives compare the price of toothpaste. What happens in a consumer driven economy isn't that every consumer after getting hit by the bus close to the Internet and calls up emergency surgeons to see who to hire and what price, what happens is, you benefit from the fact that the entire structure of providers is altered to attract consumers as opposed to serving insurers and governments. That's the dynamic I'm trying to capture in a consumer-centric approach, that dynamic of providers who answer to us, patient-consumers, and not to intermediaries. And if you spend time in the hospital watching it should be treated, not for a second can you forget that that patient isn't a customer of the hospital. You can't forget it. You see it in the care and in almost every element of the care. And if you've been in the rest of our economy and bought anything in the rest of the economy, you know that’s true and no where else. And that’s a crucial thing.

Question: Are there discussions in Congress about reforms similar to your proposal?

David Goldhill: Well, that’s an excellent question. I’m not sure there are many. I think some of the objectives that we’ve talked about today are things that people are increasingly aware and may matter in resolving this sort of trap that we are in of ever reducing access, every lower quality, and ever higher prices. I think one of them is there is an awareness that a lack of competition and a lack of price transparency makes it difficult for consumers to exercise any of the disciplinary force they do in most other industries. There’s been a movement in some states, certainly, for greater price transparency. Unfortunately, it’s not true price transparency. It’s list price, and of course, hospitals don’t charge those prices for anything. So, it’s been fairly meaningless but it is an understanding of the right direction.

One of the interesting things that’s occurring, and we’ve seen it occur in other government programs as well, is that there is the beginnings of something of a shadow economy in healthcare for people who are outside the system. For many of those who either don’t have access to health insurance, or can’t afford health insurance, there is increasingly a cash and credit based economy around healthcare services. There are parts of this country you can drive around and see services advertised on billboards on a cash only basis. You obviously see some of these clinics that have opened in Wal-Marts and CVS’s that get at one of the things that you would expect to see in a more consumer oriented system, which is real value services for some of the less complex, more easy to replicate treatment possibilities such as many in primary care.

But I think we have to be candid about the walls around the political process now. The reality is most Americans are happy with their health insurance. And I think some polls say it’s 55% or 60%, and probably a percentage of those who have health insurance, it may be even higher. And as long at that is the case, we’re not going to expect any politician to propose fundamental reform. They can’t. There are enormous interest groups that exist in the provision of healthcare who would be opposed to anything that affects the status quo negatively for them, and obviously anything that had real discipline on price would negatively affect the status quo for these interest groups. No politician is going to buck that for a public that believes it’s got a good deal. At 55% or 60% approval, you can’t go at the fundamental of the system.

Question: Why are so many people happy with a flawed system?

David Goldhill: You know, one of the things that I mentioned in my article, and one of the reasons I spend a lot of time on numbers, is that I think this is actually an illusion. I think much of healthcare policy has been about perpetuating this illusion that somebody else is magically paying for your care. One of these that I talk about is because very common among my fellow liberals is to say, well, if we eliminated advertising, or we eliminated the profit motive, the only things I mentioned in my articles is if you confiscated the profits of every single American company, forget about the drug companies, and the hospital companies, and the device manufacturers, just take every profit, every dollar of profit in the American economy, you’d pay for something like four or five months of our healthcare. At $2.5 trillion, we’re not there yet, we’ll be there next year, I think the number this year is likely to be between somewhere between 2.3 or 2.4, but at $2.5 trillion, the only people who can pay for healthcare, is all of us. And we’re paying for it in enormous amounts. Right? You hear people talk all the time, and one of the reasons I have so few friends left is one of the things I do at dinner parties is [when] people  mention the Healthcare Bill, I break it down. What do you think the costs of that are? But, you’ll see a $5,000 bill for something that probably had $500 or $600 of marginal cost, and you’ll recognize just how extraordinary the inflation is, but you’ll also recognize that what your friend was worried about was the $300 or $400 they had to pay against it. And the difference in that is costing us all a fortune. The moment at which everybody says, it’s kind of like having a credit card. I can go out and buy a $2,000 plasma television, not pay for it at that moment, and tell myself, hey, this plasma TV cost me nothing, it’s the damn credit card bill that is costing me a fortune. That’s what we’ve done in healthcare.

And unfortunately, we have divided the funding amongst so many different places, right? Ourselves, our employer in many cases, various targeted taxes, the government, general revenues, that people don’t sit there and say, “Wow, the average middle class family is probably looking at 20% or 30% of their income, somebody somewhere taking out and paying for healthcare.” That’s extraordinarily aggressive. And I think if there is awareness of that, or when there’s awareness of that, and it may take more time, and more spending, and more frayed safety net, and frankly, more people suffering and being hurt for us to get the realization that there is no free ride in healthcare. It is costing us all a fortune. And we’re all being hurt by the lack of discipline in the system. I think only then you’ll look at the true fundamental reform being politically possible. For politicians to take the enormous risk of saying to some of the interest groups in healthcare, “I’m sorry, but the pie isn’t going to get bigger.”

Question: What existing national healthcare models do you admire?

David Goldhill: I think the most interesting case study is Singapore, which has similar levels of income. Obviously [it is] a lot smaller from both a geographical and population point of view, but is spending under 4% of its GDP on healthcare, has a full national safety net, scores much higher than we do on almost any measure of care, and delivers very high tech care. Singapore has a parallel government and consumer based system, but the consumer-based system is genuinely consumer-based. And I think there offers some promise there. I understand as well that the first studies of how health savings accounts with high deductible insurance policies affect people’s choices of care have proved quite positive. Have proved there is a reduction of costs, a greater sensitivity to price without give up in some of the important measures of health. It may be too early to know. And there is a lot of resistance, I should point out, to that working. A lot of people, who are employed in the healthcare industry either as providers or as experts, don’t want to see that work, of course, because it does put pressure on prices. And it also puts pressure on one of the key elements of the consensus, which is that all healthcare is needed.

Question: Who has influenced your views on healthcare?

David Goldhill: I was very influenced by a book written by Shannon Brownlee called Overtreated, in which she makes an interesting argument that a substantial amount of American healthcare is excessive and wasteful, some of it for familiar reasons relating to defensive medicine liability, but a lot of it because there is a lack of choice in the system. One of the elements she adds that I think is most interesting and makes the book really worth thinking about, is that we think of this as a financial waste, but it’s also a medical issue. There’s not a single procedure in healthcare, not a single drug, not a single test that doesn’t involve some cost to your health. Whether it’s the low percentage of disastrous negative side effects that go with almost every procedure or test, or whether it’s the regular exposure to radiation we have now from all the MRI’s and that source that we get, and her point, which I think is interesting, is that – and she has a very different approach by the way to how she would fix it than I do, but I think her basic findings that there is an enormous amount of waste in the system and that a lot of the structural issues make it, wasted care, an actual too much excessive care, is something that is going to have to be addressed by anything that’s adopted that hopes to not, again, not just address pricing, but also address quality. There is real resistance to that concept that some healthcare may be negative. And I think we all know from our own lives but some healthcare is negative. There are some pills we think to ourselves, I'm not sure that’s really worth it. There is some tests we think, all right, if I took that test and found out I have a greater propensity to something, nothing changes. So why am I exposing myself to the x-ray's and having to test? And I think there's a question of how these HSA's combined with high deductible policies may get at that. I actually think the author of the book would disagree that they help, but there may be some evidence that they do.

Recorded on: September 11, 2009