i hope the chinese will be will inclined to ask or we will behave very nicely so that they continue to do that. . .

and what it does is something i like. they take the premium an employer pays for a family plus the and we e.'s contribution to that premium and at the out-of-pocket spending of the family to get a sort of total average bill of health spending for typical american family of four, averaged over i believe a data database at least 10 million families, this is an interesting number. and that grew from i think, i can't read it but i remember something like 8114 to something like 16,700 now and it will be 18,000 next year at 8% and the average compound growth rate was 8.7%. now, rule of thumb is it doubled. health spending for an average

american family tends to double every decade. so double 18,000, and you get 36,000, right? that's what we are talking about, ten years now is for an average american family of fort it will cost $36,000, and this excludes the elderly. this is for normal elderly commercially insured. so that is one slide. here i have the income distribution. the money income distribution i think is 20 of seven data on the census i get a foot note, you can google this yourself and its mauney income so in a way its disposable income. and the green at the bottom are people we do help all lot, medicaid, food stamps, housing subsidies. but the blue is the people whom we have never held at all. they are making more than 20,000, but less than 55,000, they are the cab drivers, the

home depot workers, the waiters and waitresses, even airline stewards, they don't make of that much money. >> [inaudible] >> pilots make a little bit more, except commuter airlines. [laughter] commuter airlines i shocked, you get what you pay for. [laughter] know, i mean, i think when you realize how hard these pilots work for so little you get fatigued pilots and that's what you get at these airlines. it's a miracle that so little happens. you have to admire these people but i was shocked to think these people actually crash and lousy hotels, don't really have the kind of rest that the pilots for big companies have. it's a scary i think. so the blues are the ones i worry about, the middle class, and what is their fate.

and up at the top you have a little bar, to be a health policy you must be in the top bar. [laughter] and all of us at this table are comfortably in the top bar and the reason that is we must be totally parcel -- in partial and if you were among the blue as you might have a conflict of interest. [laughter] you might for example favor universal coverage, stuff like that. [laughter] okay. i'm actually not trying to be funny, this is just true. now the next slide -- i am now singing think of a family with a gross wage base of 70,000 now. gross wage base to an economist means the total debt to pay world expense an employer makes supplier to any infringes paid by an employee prior to any taxes paid and then of course the family comes out of that

too. so that has grown in the past decade about 3% per year. we are lucky if it would grow this fast in the coming decade but right now is probably not growing, even falling in some instances. let us not to we are in massachusetts. let's think the trend line is only 8% a year and based on $18,000 then look what will happen to this family. as i recall the baseline, the wage base of 70 cows and will grow 3% to 94,010 years from now. the health spending will grow i think to 38 something. using next year 3% compound growth and then get ten years from now the 41% of that

families wage base that is before fringes, before anything will be set aside just for health care and what is left over the other 60% has to pay all the fringes, of texas, schooling, housing, food, etc.. that's the picture we are looking at. now this is a beautiful nichm slide from a great report of the uninsured that nancy and her staff produced, and i like it because it shows very clearly how being uninsured is related to income levels. so far, the middle and upper middle class there are some uninsured but it's not a big phenomenon yet. but what i am thinking as and it's coming decade the status of being uninsured, absent health reform will creep up this income distribution very fast and the very people who are now bickering should there be public or not, should it be

1.6 trillion, those very people will be on insured and if they get sick they will be in very dire street and by trying to figure out whether i should feel sorry for them. because if they don't support health reform now i will write down that i won't be sorry for them. [laughter] they, however, will be very sorry. now, i do need to set aside. how much -- the choice americans face in health care now is to fold. either we need to raise taxes to be our brothers and sisters keepers, those in the lower and middle class in the years ahead. and here i would remind you if you google osd tax revenue different countries you will discover we are the least taxed nation in the industrialized world. japan is with us, but everyone

else pays a lot more. so this bellyaching that we are overtaxed may convince us but not necessarily bader. we are the least tax in that regard. [laughter] or the alternative which i believe we might very well do is ration health care by income class and that can be done quite elegantly. it's not don't get care and you will get care. we wouldn't do that. but what we would do is reference pricing for everything. we have that already in drugs. say you get a generic but if you want a brand name drug pay the difference out of pocket. that's reference price. we could do this for doctors. local doctors, we pay that. local hospitals, you want to have your baby we pay that fully. you want to go to a more costly ones you pay the difference out of pocket. you see how you could ration in a way that you never have to use

r word. so that's possible. now how much would universal coverage costs? i.t. all loveless are basing our estimates on a really splendid paper and health affairs play jack hadley, and who are the others, you probably know them by heart i shouldn't put you on the spot, but they were a bunch of urban institute crowds basically employees and this is a super study the way they did it and everyone uses it as a benchmark and they started out singing if you took fully private insured people in 2008 and looked what was spent on their name, it was $3,900. and if you took similar, the same demographic makeup, similar people who were uninsured, we spent, what, something like 18 -- 1700. so about 43%. so what if we argue we are not

rationing that is just a joke. that is rationing unless you say the whole difference was waste we must have already been rationing. so basically what jack hadley and colleagues to basically say we have to top this off. if we insure than they behave like the others 3900, and i think that in the end because some people were uninsured the whole year only part of the year what they come up with it will add about 122 billion to health spending in 2008 had we had everyone insured. and i think no one has fought with this number at all. as the gold standard we all use. so if you now use this i would say okay suppose we had full coverage in 2010 that would probably add 150 billion to national health spending may be. and the government what may be paid 125 billion of that because

some of it might still be coerced out of the people under a mandate. but that would grow. i had let this grow here at only 5%, which as i already assumed everything president obama is dreaming of what have come to pass. in fact, probably none of it will but i just. [laughter] secure that's 1.57 trillion. very close to the 6 billion the cbo, 1.6 trillion. everyone knows this number. you name it, this is the number. now if it grows at eight it will be 1.8 trillion. so it will be somewhere between 1.5 trillion or 1.2 trillion to do the whole thing, to have real universal coverage like they have in europe. now is that a lot of money, 1.6 trillion? that depends how you look at

this. first of all, if you divide by ten, 10 billion, you get 160. that means you could build 160 princeton's because our endowment is 10 billion. you could buy about 180 harvards, right? [laughter] he is on the board of harvard. we are more cost-effective. so then it seems like my god that so much money but if you actually related to health spending how much would that raise health spending over the decade. now again, health spending over the decade will be $40 trillion. that's already on the books now. so it's a 4% increase over what it would be. but cms says. is that big enough, 4%? every year health care has gone up six to 7% and we always took it with grace, six, seven. usa today health spending rose

only 6% last year. they use only for that, so therefore for doesn't blow me over. gdp is about 1% of gdp roughly because the gdp is now 14 trillion in your mind every one relates to 1.6 trillion to 14 trillion. but that's wrong. you have to relate to ten years of gdp. that will be somewhere between 150 trillion to 170 trillion so we are talking about 1% of gdp. so, has looked at that way, not the way bob did, bob is quite legitimate, that's another story but look at the point of view from the nation you could say well it's not that it's not even lost gdp because health care is part of gdp. it's just in spending it on something else than spending it on health care for people who are now uninsured. whether that is a good deal or not depends what is the other

thing. if the other thing is investment in productive capital u.k. a gross price for that. if its hamburgers or fast food this is not in the short run just reallocate its gdp. it doesn't make it all. one could make the case and christie romer made that case if it cannot productive investment it would dampen the growth, and restoring is true but it is a big if. all consumption comes at the expense of something else and if that is something else productive investment. but if it's houses or strip malls we don't need that's called investment the have ordered up some you have to be even more careful there but i am

telling you the one thing where i think you have a reduction in gdp is what the bankers did to us. imagine what gdp would have done if those guys had behaved and imagine what it will be and take the difference. i have not actually done this. have you? it could be 5 trillion for all you know. it would easily add up. laughter. i don't know either. but when gdp growth was down 6% at leal were now we left a huge number of trillions of gdp on the table because of the these guys did and what really hurts on top of what they caused us in on employment of these people not working, the factory is not being built, on top of all of that we are giving them trillions to compensate them for their losses which of course comes from other use is we would

have had. so relative to that i am just not blown over by the 1.6 trillion. the problem is the one that bob talked about is the government doesn't have that money. it's one thing to say the nation has the money. but how does president obama get his hand on that kind that of course brings us back to bob, that is his department. i believe we might think of a sales-tax earmarks for health care, be your brother's keeper tax or something like that. 1% would bring consumption must be 10 trillion a year so 1% would give 100 billion right now per year, so the taxable capacity is there. i wouldn't take it by adding increasing corporate income tax. i think that could hurt growth but if you did a sales tax it would not so as bob properly said it depends how you finance this thing. ideally we should be able to

carve out of health care itself, and we will until long run but the next five years i am also sure. you gave hope, you people in the middle, that maybe something can be done. [laughter] but the bus kills sit at either end. [laughter] and say hey, this will take some time. but anyway, that's the picture. we will get through this but if i were middle class i would be worried. i would be really worried about what will pass or not pass this year. thank you. [applause] >> thank you, uwe. now we will open up to questions. we have a microphone here or if he would like to turn in your yellow cards to judy and carolyn are walking through.

and while we wait why don't we go down the panel and handicap the chances for health care reform? and i'm not going to put you on the spot, while i won't put you on the spot first bob because you showed something while we were waiting. what's the smart money? you have to tell the group while talking about. >> there is a website on which economists generally but the public at large can express their opinions by buying shares of various from, you know, what economic growth and while i was sitting here and got an e-mail from a friend with the latest quote on significant health care reform and of being enacted by the end of 2009 and the price is 35% at this point, the person that sent to me because i was quoted in "the washington post" saying somewhere between

one-third and 40% earlier. i won't say whether i actually said that, but the person said you really are a market economist after all. >> i think there will be health reform and one only hopes that it does something positive instead of something negative especially from the perspective of the coverage resolution whatever that is. i think that we will see more affordable health care because, you know, in the case of massachusetts we started what we did for reasons that we think are very valid before this kind of big conversation about extending coverage to the nation, and if you are a blue cross plan for example and take a look at the kind of numbers i mentioned earlier, you just can't explain to anybody why you would do anything other than take the kind of steps that we

are taking. and don't forget it's not just the money, it's not just the cost. it's the lives of our members at risk in the system. it's the harm. and if you're sitting in an office kind of like mind and body care for those members and know that the consequences of your behavior might be the kind of numbers that pop up in the institute of medicine report, it doesn't take long to figure out you need to do a much better job, and i think all blue cross plans for example are coming to understand this. it has been difficult for us to do much more because of the market conditions. i think medicare moving with us in this direction could have immense impact on affordability. so i think we are going to move down that road and in that direction that is consistent with the values of the american people as we do that. >> over in recent weeks as i have spoken to the leaders of

health plans, hospital systems i find they are much more optimistic at the chance for reform than people i talk to in washington. and i think probably -- and actually wall street analysts. they keep saying 40%, kind of consistent with bob. and i think the dynamic is interest in reform is enormous now. but you know, the history of health care reform has been the inability to compromise. overreaching saying i won't support unless it has this, and i see a big risk of that happening and i think that's the biggest obstacle to reform its just the dynamics of the decision makers willingness to compromise or hold out for what they think is a really critical way to do reform rights. >> when i look at the question

whether we will get reform i look back at this discussion on having with the health system ceo in minnesota and the fact that they will come to the table and say there is waste. they know there is waste they want to make the change, they don't want to make the change without the payment reform happening in sync. they don't want to be at risk for this change. the payment reform has to be packaged with their changing the system so those are the kind of things i hope reform project. i think there will be reform. i obviously hope it doesn't come with a public option because we are showing in minnesota already that these can be done by the private-sector. we have examples and we are already heading down the path of reforming the system ourselves. >> i don't think i have anything to add to the odds from what you all have already heard. but i do think it's unclear at this point if there's going to be a major reform bill that will

cover every one or almost everyone with a that will be primarily democratic bill or one that will have some significant bipartisan elements and bipartisan support. the difficulty with doing something that's more democrat only is not only trying to get the democrats unified behind the bill and there's diversity of opinions, but also it creates a real opportunity for political criticism. as you heard, there are no easy ways to get coverage for everyone and no easy way to pay for it. that would tend to support i think bipartisan approach and talking with senator daschle and senator dole, they highlighted the value for major national policy issues like this of having leaders from both parties standing behind and meeting the criticism and helping get through the inevitable challenges of implementation and the inevitable difficulties of taking steps that are not always going to be easy.

but it's not clear that is going to come together either as an alternative i certainly think this delivery system reforms, payment reforms, things like that are likely to happen and there will be significant health care legislation this year. the president stick to much on this. there needs to be medicare reform to pay for physicians starting next year, something major is going to happen i just not sure it is going to get all the way to covering everyone, but i hope we can find a good way forward there, too and to pick up on some of uwe's points on that. >> i would think the chance of having really universal coverage even phased in i feel i would give that even lower than 40%. i think they will sort of stick around the 1 trillion number for the tenure cost and for that you can do probably 50 to 60% of the uninsured which would certainly be a huge improvement over what we have now and i would call that a loan, significant health

legislation. then there are these other things that could even be legislated outside of the coverage bill. i wonder sometimes whether you couldn't separate and have it in one bill. but they could for the expansion of 1 trillion-dollar expansion they could use budget reconciliation alone. i think that would fly or they could even get bipartisan support for something like that. whether there will be a public plan or not i think that's very uncertain. and it's not even clear how important to everyone how important that actually is. and then the insurance market reform. they are actually far more to the drastic both senator coburn and burr have considerable reform. they want to guarantee issue and no pricing on health status. well, if you have those to you must have a mandate because if

you have only the to you get new jersey, which is what we have. [laughter] we have guaranteed issue and a cumulatively rating but not a mandate to buy insurance, and therefore only sick people in the end stayed in the pool and the healthy don't buy it. that i think will not work in fact i think that most economists would argue against it. than you might as well that is a big thing to chew off. wants the fine print is out there for people in the individual market to price their product and that structure from health status will be a brand new experience. so we will see if that comes about. but it is interesting that senator coburn had it in his bill and obama, bachus, everyone else and the house has, and i think you're bipartisan thing has that said there is at least across party lines and agreement

that market as it functions is dysfunctional and needs to be reformed. and something maybe later could be built around that so maybe it doesn't all have to be done and one chunk, but i cannot imagine that nothing would happen this year that wouldn't happen. >> great. thank you for your perspectives. let me go with the first question which is given the urgency, how quickly do you think medicare payment physicians and hospitals will be changed? it doesn't have a name but mark, i'm going to start with you because you probably know more than anyone about this question. >> there are changes taking place now and we talked to some of the demonstration programs and steps medicare is taking on their payments now that are for reporting on quality of payment coming for not just having health i.t. in your office or in your hospital but actually demonstrating that your using it to improve care. so there's steps already happening in this direction and

i think the chance of legislation passing will take major further steps in this direction and medicare this year is 100%. there's a lot behind it and medicare legislation as i said before is going to pass this year. >> great. >> add to what mark said it's changed what's happened the past two years as far as people's interest and coming together on payment reform and how important. and certainly some of the changes to fix up the existing fee-for-service system won't take very long to do. and i think -- i think the more ambitious change as market is saying there will be steps towards them, but i think it is going to be many years before we get to the point they have reached their potential and fact we had an impact on cost in the aggregate. >> there's another part to the question which is for pat. how will aamc be treated in the drive for efficient providers? the medical center's, the

academic medical centers. >> the question is -- >> how well with the academic medical centers be treated in the drive to efficient providers, how do you deal with this kind of tough question where do you have a strong brand hospital and how do you work them into an efficient network. >> in particular in our state for example the system is internationally known academic medical center, and we have had conversations with them and even a contract with them that creates a role for their participation and kind of our transformation and move towards global payment. they have been helpful because they have a database and experience that is very rich and i think they have participated very effectively as we move along the road. i think the other way we think about it is a lot of change we are talking about, a look of things that would be