will be the usual drill because i don't sense that anyone has made the sort of strategic decisions that would be required to do anything other than the usual drill in response to a north korea and nuclear test. >> north koreans have happened of -- habit of bluffing, but at the same time they usually do what they announced that what they will do. maybe not exactly in the same way that the project, but they will. so we don't know when it will be, but they will probably follow through on that.

there are, of course, speculations and from the arm -- from their own point of view there are pluses and minuses what they would do, partly in their relations with china. and so somebody in north korea or some group is thinking about the strategic and tactical implications of whatever they do, and they obviously have some kind of a roadmap which they are going to follow through. but the problem is that, short

of complete turnaround by china, even though china is gradually inching towards putting more pressure on north korea, i think our reaction at the u.n. or other collective reaction, or individual reaction, would not be much more than the usual drill that we have to. >> i'm sorry. let me just make one comment about the test. we placed enormous importance to the fact of testing. we think as if it is by testing north korea comes to have this big nuclear weapon that they did

not have before or something. but that tends to mislead ourselves to think that by preventing them from the fourth test we have not done a great deal, and i think there's a danger to putting too much emphasis on it. >> to follow-up on the the question of game changer versus sort of same old drill, is there perhaps a perverse valley in north korea's testing, either missiles or nuclear devices, in that it leads china step-by-step to conclude that their strategy is not working, that the north koreans are playing them, and they need to consider some other approach? one that sort of punishes north korea more than it's already done so and does so in a more

significant way. >> maybe. i don't see much evidence that we've concluded that we in the u.s. because we continue to warn against the test. if we wholeheartedly endorse that in the interest of open diplomacy, we should be urging them on, more tests. >> jessica mathews. >> thank you. jessica mathews. sometimes bargaining chips, if they never get spent, presumably have very little value. has there ever been a time in your opinions when it would have made sense for the united states to say yes, the war is over, or is there such a time in the foreseeable future? >> is that for either or for both of those? >> yes. >> my own personal view at some

point if we could reach her we're sort of the point where we were at in 2005 with a joint statement they came out of the early workings of the six-party talks, that yes, we should say we don't want you to have nuclear weapons and just sort of agreed that you won't. we need a peace regime to replace the armistice. yes, let's work on that. we need diplomatic relations between all countries concerned and some countries need energy and economic assistance, so let's work on that agenda. we've never been able to work out the problem of sequencing. i don't know many people in the u.s. who would argue that we shouldn't move toward an end of the war, which has now been going on for more than half a century, but when to do that is a big question and how do you sequence that with meaningful north korean commitments on

denuclearization. and the six-party talks really broke down, in my judgment, over the inability of a participant to come up with a sequence of actions and events that all parties would agree to. clearly the north koreans want to move denuclearization to the back of the train. we want to make it leaving the train. this is not without some possibly of compromise on all sides -- leading the train. i continue to think you're not going to reach a compromise on any of those issues if we are not talking to come and i think we have to talk to my question assumes or presents is without debt and saving in a pretty well -- [inaudible] >> well, give without yet at the same time, i mean, physical

capabilities in north korea being what they are, they can barely carry on negotiations on one set of these issues much less all of them simultaneously. i'm not sure the u.s. is any better off quite frankly. so you have to have some agreement on when you get in when you get. i think yes, within reasonablreasonabl e bounds it's probably in our long-term interest to give something more, in the shorter term than did something a little bit on. this is the dilemma, came up with this formulation of give before getting in effect and do the easy stuff first and push the hard stuff off until the end. well, south korean politics being what it was, that didn't prove to be sustainable in the longer term. we have the same dilemma.

>> sung-joo, any comments or? >> i think unilateral concessions would make sense if there is a willingness on both sides to give and take ultimately. and that cannot engage on negotiated settlement, negotiated give-and-take because of a lack of trust or the habit of doing that. in this case i don't think this is the case previously between the united states and the soviet union. i think there is some willingness to reach give-and-take, mostly in the form of reducing their nuclear weapons, for example, but in

this particular sense north koreans feel that they need nuclear weapons, they want to use all kinds of excuses and opportunities to keep doing that. and so unfortunately, unilateral concession or give would not be precipitated. so that is a formula we have to think about very carefully. >> just add one thing to add to jessica's very sensible and insightful question. i continue, i believe strongly that by focusing as closely on the nuclear issue as we are now we are ignoring as been suggested by some here and others, we are ignoring the long-term considerations that are of great importance.

i come back to the question that was raised about railways between south korea, north korea, russia, et cetera, and there was an allusion in there to the flow of natural gas perhaps along the korean peninsula. my view is that in the longer-term, starting now, the best way to deal with north korea is not to focus just on their nuclear capability, although that is obviously of great concern but the focus on what i think is the underlying problem of very seriousness which is the inherent weakness of north korea. and as long as they are as weak as they are perceived as the art, in their calculus, the only way of dealing with that is to be able to pose a threat to the other countries in the region. my answer to that would be all right, let's tie them in to a meaningful network of regional economic engagements and energy, given my express from the korean

peninsula organization and dealing with our efforts to build nuclear plants. energy is probably the most pressing economic needs that the north koreans days. if you could tie them in through their own self interest into a network of, involving the flow of natural gas down from russia into the korean peninsula, i think the benefits from that medium and long-term could be quite substantial because it would give them a stake in stability and now they really don't have a stake in stability. they get most when they just threaten to raise the roof. >> jonathan pollack. >> jonathan pollack from brookings. this is directed primarily to sung-joo, but either can address it. i think steve's last comments about trying to think about

north korea's future in a wider context are very, very relevant. in this aspect, sung-joo, i would be very interested in your thoughts about the very dynamic quality now of the china-rok relationship to after all, madame parkas had a state visit to beijing after her visit to the united states. kim jong-un has not made any travel plans of which we are unaware. china now does has access to hundred $51 a year in trade with your country, which is about more than 40 times that the navy with north korea. at trends over time are even more in those directions. eon this, the fact that the chinese in my judgment at least, by doing what they have not done, have in some sense distance themselves in some measure politically, the fact, from north korea. the fact that the international department of the party, which

used to the primary responsibility here, does not anymore, the only visit from china to north korea that we are aware of over a period of time to have been foreign ministry officials. with all due respect, diplomats, it's not the most -- so my question, and i see richard waving his hands, is there some other story, is there a different dynamic here, particularly as a lick about how china ways it's longer-term interest in korea, the city of shandong and seoul? >> -- pyongyang and seoul spent i think the chinese are talking among themselves, thinking about this issue. and as you know they are allowing meetings, for example, in beijing to talk about the future of asia and a euphemistic

way. and so both in the person of xi jinping and within the leadership, there is soul-searching of what to do with north korea, as opposed to until now when china always has clear thought of keeping north korea afloat beyond all other issues. and so we have also lived of opening there. in that regard it will be relationship between south korea and china as a positive thing where everybody not only south korea itself but including the united states as well.

>> we have time for one more brief question. right over here. >> picking up ambassador bosworth's comment earlier about north korea being in fact a de facto nuclear state. have we developed an arrangement with them as a pragmatic matter as we did with the soviet union, the cold war, to guard against false launches? >> it would be some magical solution if we had because i'm not aware. we don't talk to them. >> it does raise an interesting question. have the chinese talk to them about it? >> well, one would hope. >> i think we've come to the end of our time. thank you very much for your

attention. thank you for you questions. please join me in thanking stephen bosworth and han sung-joo. [applause] >> we will leave the last few moments of this with a reminder you can see it all at c-span.org. we'll take you live now to the american enterprise institute were a discussion on implementing the health care law including how the law has been modified during the process had a different states have responded. it that the interconnectedness is a dude just getting underway live here on c-span2. >> for at least a couple of reasons. one is that apparently we have the latest statistics on how many people signed up. of course, there's no reason to know what those numbers mean. the administration says 8 million people. so they feel that they have reached an important milestone. and the other auspicious aspect of this is about congress is not

in session so we didn't have much competition. let me introduce the first panel and we will get rolling here. the first speaker is jim capretta. jim is with the american enterprise institute and the ethics and public policy center. he spent a good long time on the hill and at the office of management and budget, and will have some positive things to say about reform. not necessarily the current one. tim jost is the robert will let family professor of law at washington lee university, and tim actually is well known for writing virtually on a daily basis blogs in the health

affairs website, explaining the incredible details of the latest incomprehensible regulations that hhs puts out. ideally we won't get that deep into it today, but who knows. and then mark pauly is a professor at the wharton school at the university of pennsylvania. mark is well known to aei audiences and has written many papers for us and looking forward to what he has to say. so with that let's start. >> good morning. this is a great time to sort of take a snapshot at what's going on with the health care law. i think i would agree though with some of the commentators i've read recently, some of whom are very strong supporters of the law that it's going to take much longer than the three months we been into this to really understand full

implications of this. probably be a two or three-year process before you can really figure out whether it's change the interest landscape in a way that's positive or negative, at a cost structure of the country and positive or negative ways. we are very early into this to make judgments, but we work at a think tank and we do cover decided to go. we are going to do anyway. i read, apologize for the smalltalk, too much to cover in this. i weeded out to you, but i was very struck by a column written by our colleague here at aei who wrote, summed up by thinking about is pretty succinct. he said is this a success story or is it a story of survival? and i do think it really is much more a story of survival than is a success story so far. so the thought process is let's look back, think about if you're

talking about the prospect of health care law a year ago and someone described to you a series of events that kind of goes as follows, that the obama administration over the course of a one year period would unilaterally delay the employer mandates not once but twice, we take unilateral action to announce the not enforcement of insurance rolls on several million individually issued in insurance policies, not once but twice, no there won't be a quote subject to an enforcement of the law for a three-year period, whatever that means. issued a series of exemptions to the individual mandate that are so vague and without meaning that it would appear to allow just about anything to be exempt. that was coincidental with the

two-month period where a multibillion-dollar project to build a federal website and state exchanges essentially collapsed for 60 days, and then later became partially functional through a series of workarounds initiated by people who are not under federal contract but just kind of got flown in to help resuscitate the project. the backend still doesn't work and can't be used today subsidy payments to the insurance plan, after a taxpayer investment as i said, probably in the range of about $2 billion. brief state exchanges are so dysfunctional that they're on the verge of having been the plug pulled on them after an investment of federal dollars of upwards of several hundred million dollars from $309 i believe alone in oregon. a little more than 2% of the

u.s. population -- $300 million. has enrolled into insurance through these exchanges are a program that would be smaller than schip, and about maybe a third of them are on the target population of people who were supposedly so bad off that theyr previously uninsured because of previous arrangements. will the congressional budget office issued new estimates of the labor market affect of the law indicating that in a 10 year period of time, frankly within a few years, 2.59 americans were dropped out of the workforce because of the incentive structures of the law and thus shrink the size of the working population -- 2.2.5 million americans. by a noticeable percentage, health spending commensurate with the launch of the law would

return to a pattern that looked like it was previous to the prerecession 2009 -- excuse me, late 2007 through may 2009. the latest estimates are that health spending grow in the fourth quarter of 2013 at a rate of about 5.6%, 5.3%. and in the period of february 2014 relative to the prior year of about 6.7%. this is the rate of growth the fastest in many years, and there's lots of evidence now coming forward that we're in a period of pretty rapid health spending escalation. then maybe the kicker really is just the ongoing evidence of what this means from a public perspective.

just some of the more recent polling data would indicate that the one measure of this would be, this can be asked and a whole bunch of different ways, you will see all kinds of different polling data the one i think is most indicative and really what's going on on the ground is you are asking americans come to you have come hold a very favorable or very unfavorable view of the law. the very unfavorable in a very recent poll was 38%. in the very favorable was 21%. those are the people that are most likely to act on their point of view politically one way or the other. so if one were to describe the health care law with these kinds, if you had looked ahead a year ago and said that this was how the for she was going to look for the law, would this be viewed as a smashing success and everything was going great, or

would you view it as, well, it's off to a bit of a rostov -- rough start but maybe it has survived so far. the administration has done a very good job of essentially lowering the bar of success, jumping over it and then celebrating with an exaggerated, you know, a three-week long dance. so there's a lot more to be done here to see whether this is working or not and it's going, as i said at the beginning it's going to take a couple of years to peace through all of that. the second point i want to make has to do with what lies ahead in terms of what has been promised to the public in terms of what the law is going to deliver on. these are cbo's latest estimates of coverage estimates for implementation choose between

21432016 to end what is going to mean for sorting out people's insurance coverage status. first thing to note is that the congressional budget office latest estimates issued a couple weeks ago, the numbers were probably, to be fair to them, develop six weeks or so ago. they estimated that in 2014 the reduction in the uninsured would be about 12 million people. that is comprised of a number of ups and downs but they estimate the number of people in the exchanges will be about 6 million people. this pub going to be about where it ends up on average 30 year. remember they may be at about 8 million now but that includes a lot of folks are likely not to pay their premiums throughout the forger. it also in any given year you will have turnover in the interest system as people go and find a job with employment-based coverage and, therefore, leave

the exchanges. the entry into the exchanges will be less rapid than the exits from them because of the rules that are set up for open enrollment. so you're likely to see that number shran shrink a little bih month over time, on average throughout the year 6 million is not a bad guess still. medicaid, they have as 7 million person increase relative to what it would have been absent the law. there's so much and what in the medicaid number it's hard to tell at the moment if they are quite at that point. i think they're pretty well shy of it myself. if you look at the data as of the spring of this year it was probably an increase of three or 4 million people relative to what would've happened otherwise. by the way, many of those people are in states that didn't even expand medicaid. in other words, there were people who are eligible for medicaid anyway, but now signed up because of the outreach

advertisement, the general informational overload that's come about through the application of the law, more people have into that signing up for medicaid even in states with her never even the program. so 7 million, they have a lot of work to do to get the 7 million still. they expect the employer based system be essentially unchanged. they could be off on that one by a fair amount, that there might be some data coming forward saying that to avoid individual mandate tax, there's been little bit of a sorting out where people could go into the employer based system, have done so to avoid the tax. that number may go up by a fairly large number. and then none group coverage, reduction of 1 million. again that one will have to wait

to see. there's been a lot of cancellations, a lot of sorting out going into the exchanges. there was continuations because of the president's last minute changes. it's going to take a while for that number to sort out as well. looking ahead to 2016 i think the really important thing are two numbers. obviously the bar that changes the most in a two-year period, they're expecting that the success of the exchanges is such that by 2016 an additional 18 million people would've signed up in the exchanges on average relative to 2014. that's a big change. that's a big change. i know they will refer and simple, this is what happened in massachusetts, et cetera but still that will take a lot of work to get that many people to go into the exchanges. the premiums, offerings in the exchanges would have to be pretty attractive to get that many people into the program. they also are promising a

25 million personal reduction in uninsured in a two-year period. again that will be a big shift and will take a lot of additional sign-ups to make that happen. by the way, in the pursuing years the enrollment season won't be six-month long attracted process. it will be probably a 45 day or so processed at most instances. now, maybe the most important thing to think about with respect to all this is the individual mandate tax. this is again i think from the perspective of both supporters of the law as well as proponents probably one of the key provisions and still a little bit unknown exactly how it's going to play out. do with congressional budget office estimated the bill may be out of the way it plays out,

which is that the public perceives this as a new legal requirement that they have to sign up for health insurance, that the country is now enacted a law that says, hey, if you don't sign up for health insurance you are sort of acting lawlessly. you have to pay a penalty. the other way to view the individual mandate tax and the way john roberts wrote it up and allowed it to continue ford was as an optional tax. you have two choices. you can either buy insurance that the government says is approved insurance, or you can pay the tax instead as an option. a lot depends on how the public eventually perceives this thing. does the public view it as, hey, now i really have to do this, otherwise i am acting lawlessly and, therefore, there is this aura of obligation that kind of comes around with the individual mandate tax. or does the public say, this is not worth it for me to pay the

future premiums. i'll pay the tax instead. that's perfectly acceptable and a fine thing to do. a lot depends on it because for a lot of people if they think about it as the latter choice, paying the tax instead, they would save a lot of money. the question is whether they feel like it's wasted money and they would rather just get health insurance instead. so a lot depends on how that's perceived, and the numbers that cbo has reflected on this chart and in a sense assume this or of compliance is going to sweep over and nobody will eventually sign up for coverage that didn't in 2014. and so we will see. it's a big question. but one of the implications really is for 2014, just look at the numbers again, think about those numbers. if you have about, cbo estimates about 42 million people remain uninsured in 2014 and that will

result in a payment of the uninsured tax of about $2 billion in the 2015 tax filing season. now, the uninsured tax doesn't apply to non-filers of income tax but if your income is so low, below about rough terms, $10,000 for an individual, $20,000 for a joint filing household, you don't pay income taxes and, therefore, the mandate tax doesn't apply to you. moreover, if he would've been eligible for medicaid in a non-expansion state they would exempt you from the individual mandate tax. we have all those other exemptions i mentioned but didn't describe earlier. also of course it doesn't apply to people that are in the country illegally and, therefore, not really in the tax compliance system anyway. so there's a large number of that 42 million who won't be subject to the individual mandate tax but is still in the

many millions and millions of people who are uninsured and have a high enough income to file taxes and pay the tax next year. i think a very big question, i don't know th the exact number d i'm trying to ascertain what it is, but just an eyeball of the way it looks, it could be in the range of 10, 15 million people who are subject to the individual mandate tax for calendar year 2014. that's an awful lot of people who are going to now be subject to a 1% building on their household income, or $95 for adults if lower. so where does this come out? i find, i do think this is a sleeper political issue that will play out over the spring, summer and fall as people sort of dawned on people, wait a second, i got have a lot of constituents will end up paying this tax next spring and they may or may not realize that this

is about to happen to them, and how much it's going to cost, et cetera, and given the pattern of them if i had to describe the way the obama administration has approached implementation it is trying to take every difficult political issue they can off the table. and so i think, keep your eye out, months and months ago he said, i think they will exempt everybody from individual mandate tax just after open enrollment season closes. right clicks which would be the most politically active way to go about this picture everybody they're going to apply to them to make them sign up for health insurance and after the open room at season say, oh, by the way, you're all except they should because it's the first year and we're just getting started, et cetera, et cetera. keep your eye on that because i think it has big implications both for the midterm election as well as 2015 and 16 and whether

the individual mandate, whether they really have the wherewithal to follow through and apply the individual mandate tax to tens of millions of people. i think i will stop there. thanks. >> thanks, jim. there's another reason why this is a badger to try to collect vat tax, and that is that according to the law, you've heard of that, the tax is supposed to be applied to anybody who doesn't have insurance for three months or more. okay, so the administration was selling insurance in april and that insurance you bought in april, he wasn't going to start and tell me. the way i count the calendar, they have already innocents exempted everybody if it can't apply the tax to people who they said come on and later, we will let you sign up. i think this is one of the many

ethical these but there are plenty of others. tim, take it away. >> thank you. and thank you for inviting me. i am not, i think i'm here as the supporter of the affordable care act. i'm not going to argue with jim on a point by point basis. i agree with him on a lot of what he said. i disagree on other things and probably on an overall perspective, but i'm going to actually talk about something a little different. the affordable care act as is often denoted is a very lengthy and complex piece of legislation. the senators that drafted the affordable care act, this included republicans as well as democrats, there were over 100 minutes offered by republicans that were accepted in committee, but these senators saw this as their only chance in a generation to really reform the health care system so there's a great deal in this statute that we're not going to be talking about today, reform of medicare, medicaid, fraud and abuse,

provisions, quality provisions, long-term care, many other things were addressed by the statutes. i think it's fair to say the people who drafted the affordable care act, their main goal was to expand coverage to americans who lacked a secure source of insurance coverage. nearly 50 million americans lacked insurance coverage in 2009-2010 when the statute was adopted and congress intended to give them an opportunity to get covered. the legislation was based on four assumptions about health care coverage that i believe to be objectively true, although there are probably some in this room who disagree with me. the first is that health care is on the whole beneficial. people are better off with it than without it. secondly, is the assumption that people with health insurance, either public or private, have better access to health care than those who lack insurance. a third assumption was that

health care costs are heavily concentrated in a small number of people in any given year and that ensures in unregulated markets will avoid covering these people if they can or at least write them up to try to cover the risk. the fourth assumption, given the distribution of income and wealth in the united states and the cost of health care, private health insurance is simply unaffordable to many americans. affordable care act attempted to make health insurance and thus health care available to all american citizens and legal aliens. in part this was done through the expansion of medicaid coverage for low-income americans although a remarkable exercise of judicial activism on the part of the supreme court has blocked medicaid expansion in about half the states. but expansion of insurance coverage is also being accomplished by the revolutionizing of the nature of private health insurance. private health insurance in the

united states historically has been sold in three markets, large group, small group and the non-group or individual market. many americans, particularly in large groups, are covered by self-insured plans which are technically not insurance but which most employees i think believe to be insurance. a large group was functioning very well for most people covered by it before reform. costs were high and coverage was always precarious because loss of employment meant loss of coverage but as long as an individual was covered, coverage was reasonably comprehensive to a small group markets function less well, particularly were some very small groups, and the individual market was dysfunctional for many participants. the aca will affect all insurance markets but, in fact, insurance market will continue to evolve and would have even without the aca. health care costs will continue to increase driving premiums up,

employers will continue to move towards higher cost sharing and imposing wellness programs on employees, and don't get me started on wellness programs, and perhaps moving increasingly to private exchanges. network provider networks may well move up from exchanges to employer coverage and all of these changes will have significant effects on employees as well as on providers who care for them. the greatest impact of the aca, however, will be on the individual market. historically the individual market has been a residual market for those unable to obtain employer or private coverage. it has been characterized by health status underwriting with denials of coverage or upgrading of premiums for those with health problems and preexisting conditions exclusions, very high deductible, transitory coverage with 60% losing coverage in any given year, high administrative costs, annual and lifetime limits, and limited coverage for some benefits.

it also is a very small market, counting only for about 4% of the total revenue of america's largest publicly traded ensures. some of you probably have more to lose from the failure of states to expand medicaid than they do from anything that happened in the individual market because of the affordable care act. the aca has changed the individual market dramatically. in 2010, the aca restricted annual and lifetime dollar limits required coverage for preventive services and required interval and external review for coverage of denials. in 2011, medical loss ratio went into effect. but the biggest changes came in 2014 with the essential health benefits coverage requirement, a ban on manual limits, ban on health status, gender and generational understand and limits on age and tobacco underwriting and a ban on preexisting condition

exclusions. these changes of course were supplement by the individual responsibility requirement, the provision that premium tax credits and cost-sharing production credits, and opportunity to purchase health insurance through the exchanges. these changes have given access to the individual market for persons who were never able to access it before, either because of pre-existing medical conditions that exclude them from coverage or because they simply could not afford coverage. the individual market including exchange, 2013 window and grandfathered plans has grown significantly over the past year and will presumably continue to grow. many participants in the individual market have reportedly phased increase premiums. for some of them, insurance coverage has become less supportable. in fact, a fact that has received wide coverage in the media. it is important ugly to understand why premiums have increased and will continue to

increase. increased premiums are due in part to a richer mandated benefit package. i do not believe that in those states this is really a significant factor. most of the 10th essential health benefits that are covered under the affordable care act were, in fact, covered by most individual insurance policies prior to 2014. including the benefit of categories that account for almost all of the expenditures, inpatient and outpatient care, tests, imaging, prescription drugs. pediatric dental and vision and rehabilitation care were not covered by many plans in the individual market prior to 2014 but these are very small ticket items. ..

>> found that over half of the pols in the individual market prior to 2014 were what he then called tin plans, what are now being dignified to copper plans which is plans that have higher cost sharing than bronze plans. the higher actuarial value required by the aca increases premiums, but it also increases coverage. so for some people this is a move in a positive direction, for others it increases their costs. part of the increases imposed by the affordable care act come from increased fees. the reinsurance 90/10 and

exchange user fees. these impose a significant cost on health plans across the market, ten billion this year for the reinsurance fee, eight billion for the 90/10 fee, but they vary by carrier and market, and most of these are not be borne by the individual market. a much bigger factor increasing premiums is the change in the nature of underwriting. the end of health status underwriting and pre-existing exclusions and the elimination of gender limits on underwriting. this will, obviously, increase premiums for young people, could decrease premiums for older people, but it really increases premiums for everybody, because you have people coming into the market who were not in the market before, people who were on cobra, people who were in high risk pools or uninsured people who simply couldn't get insurance because of their health status. the impact on the market varies from state to state depending on their pre-existing rating

requirements, but undoubtedly this is a big factor driving increases. and then finally, medical trend is going to continue to be probably the biggest factor, one of the biggest factors driving increases. medical trend has been growing at historically low rates for the last three or four years, probably the lowest rates in my lifetime, but it is now picking up. and there are a lot of reasons for this. just one factor, toe, that i -- though, that i think is worth recognizing is the cost of the hep c drug that has just gone onto the market. united healthcare spent $100 million on that drug in the fist quarter, and right now there's only about 1% of the people with hepatitis c who are being treated. $1,000 a pill, $84,000 for a course of treatment. i calculate that the cost of city valuety for this year is probably going to be about half

the cost of resphurns in 90/10 fees. so, you know, do we want to do that? should we maybe control the price of drugs? that's a discussion we need to have, but let's not just say the aca is the only thing driving up premiums. of course, other features of the aca make health insurance more affordable. the premium tax credits dramatically reduce the cost of health insurance and health care for many people. narrowing in provider networks and reduction in provider payments will reduce the cost of many plans, increase competition this some markets, and there's a lot of noise about more insurers wanting to get into the exchanges next year may reduce the cost in others. reinsurance reduces the cost significantly in the individual market. it's probably going to for this year at least decrease the cost of coverage by 10-15%. in the long run at least, insurers will face lower administrative costs because

they don't have to underwrite anymore, and their marketing costs should decrease as well. the aca also, i believe, has the potential to stabilize the nongroup market. the market has historically been highly unstable and will continue to be as people move into and out of the nongroup market from medicaid, from the employer market. but the combination of the premium tax credits, individual mandate and open enrollment periods could make individual health insurance more of a long-term home for people who do not have other coverage opportunities. opportunities. this could expand the market potentially, eventually resulting this the movement of americans from the group to the individual market, a move that some in this room have advocated the for a long time. the aca's strategy of commandeering private markets to serve public ends, however, is fraught with danger, and i think a lot of the litany of problems that jim went through in the first, in his presentation

reflects this. insurers naturally resist taking on risk. it's just like gravity, and they're endlessly creative in their approaches to avoiding it. we're already seeing insurers designing benefit and cost-sharing packages to deter high cost enrollees from enrolling, imposing tighter medical management techniques to avoid paying claims and offering aca-accepted products such as short-term limited duration or fixed-dollar indemnity packages which sarah cliff wrote about this morning to try to get around the aca. i believe that the premium's stabilization programs are going to have a major effect on punishing insurers who try to avoid risk or rewarding insurers who embrace it, but making these programs work is going to be very, very difficult. we also see insurers turning to narrow networks to reduce their costs and possibly deter high cost enrollees and addressing this is going to require further

regulation which the naic where with i spent a lot of time is actively talking about right now as well as requiring greater transparency. the most important point to me, however, is that the aca is, in fact, working as spended. it is causing significant redistribution in insurance markets, to some extent from men to women and young to old, but primarily from unhealthy to -- from healthy people to up healthy people -- unhealthy people and from higher income people to lower income people. this is what it was supposed to do. the repeal and replace proposals so far proposed would not do that. in fact, some of them, i believe, would move resources in the other direction from the unhealthy to the healthy and from lower income people to higher income people. health savings accounts, association health plans, sale across state lines, malpractice reforms, none of these proposals would really address the problems that the aca is

intended to address. distributional questions have lots of ramifications for public health, for opportunity, for productivity, but ultimately, i believe, they raise questions of equity, of fairness, of morality. should everyone only be responsible for tear own risk at any -- their own risk at any given moment or do we have obligations to each for mutual aid? the aca says we're all in this together. this presents us with a number of questions; can you turn an underwritten insurance market into a social insurance program? would we be better off with a real social insurance program? are there ways of structuring the changed markets that provide broader benefits, perhaps structuring cost sharing so that those with lower medical costs see more benefits while those with higher medical costs are protected? maybe we need to create a doughnut hole. or are we better off with the old system that simply excluded

one-sixth of the population? the debate about reform, i believe, needs to move beyond anecdotes and address these questions. i am hoping that as millions of americans become covered through exchanges in medicaid, we will have an opportunity to do so, and i thank you for allowing me to share my thoughts on this. >> thanks, tim. mark? >> thank you. well, i, i think i volunteered, but somebody had to do it, to talk about the aca and obamacare not in this year or next year, but what i call the moderate future, and i guess if you nailed me down to dates, i'd say something like 2016-2020, i'm going to talk about that. and there's my rhetorical title, "armageddon, nirvana or

bureaucratic backwater," because you need a bad guy when you give a talk. i'm actually going to pump for bureaucratic backwater as the most likely outcome of obamacare, neither armageddon, nor nirvana. i do not think that it represents government takeover of one-fifth or even one-sixth of the economy. i also do not think, as some people have alleged, that it represents a total transformation of the u.s. health insurance program from a wholesale to a retail level or, as my colleague zeke emanuel suggests, that it's going to wipe out group insurance for all but 20% of the largest firms. i think it's going to be a much smaller deal, and i will try to offer the reasons why. so this is, i guess, basically what i just said, but as a professor, you always have to write down what you're planning to say so the students don't come up afterwards and ask you

what did you say? [laughter] so here's what i'm going to say and will say. so i'll show you the numbers in a minute. i think they're striking. a fraction of the u.s. population directly affected by the, what i regard as the core parts of the aca, the subsidy and insurance reform parts, is actually quite small. slovenly journalists can always write millions of americans are affected, or if they want to be cautious, tens of thousands of americans are affected which is certainly true, but relative to the number who are not directly affected, that number is quite small. i'm not going to talk about medicare. i think the parts of the aca that deal with medicare would have happened anyway, had to have happened anyway without the rest of the aca, so i'm not going to talk about that. i might also mention just to make tim feel better, i am also a supporter of the affordable

care act, or i should say a qualified supporter. my view is we're better off with it than the status quo ante, but i think there are a lot of things in it, some of which are meritorious, one of which i'll talk about, but some of which are the dumbest possible way to do a good thing. and so that's the qualification, but i still think we're better off with it than without it. and so i don't know about repeal and replace, but i do think revision, well, it's already happening de facto on the part of the administration as jim mentioned, most of the revisions the administration have made are actually ones i would favor, and so bring it on. but my, back to my main target, the proportion is relatively unaffected, and at least the argument i'll make, my econometrics professor said when you make a forecast, you can stay a number, you can say a date, just don't say them in the same sentence. but i'm going to stick my neck

out a little bit more here and say -- and i'll give you a little bit of the reason why in a minute -- i think at least for the state-based exchanges, and who knows for the federal exchange, i think in the future the core parts of the affordable care act, the subsidies and at least insurance provided by the exchanges will look very much like medicaid looks like, has a lot of the characteristics. and as i've said, as i wrote down here, it looks to me like medicaid light. i've studied medicaid a good bit through my whole career along with tom, and i characterize it as a modest but modestly irritating government program, and i think that's maybe what the aca will look like. having said that, though, as a professor and as an economist, i'm required to say on the other hand, a few features may be a bigger deal. one is the cadillac tax, and the other is what i call nonneutral

effects on employment-based coverage, and i'll try to be an equal opportunity insulter here and criticize private exchanges as well as public exchanges. here are the numbers. my assistant put these together in the best way she could, but you really should look at the bottom line literally where we tried to discuss kind of the maximum potential fraction of the population who could be directly affected by the aca, the potential. and then maximum and minimum in the short run, that's like 2014. those are the numbers jim was talking about depending on whether you believe the cbo or some of the other estimates. and then that long run thing was by attempt to come up with round numbers. they actually come pretty close to those cpo numbers -- cbo numbers which i actually didn't look at. but i'll talk about the largest fraction of the population. well, there are really two categories; 40 million uninsured people taking out the illegal aliens who are not allowed to

participate and then, again, we don't really know surprisingly how many people bought individual insurance, but 15 million seem to be a reasonably goodell ballpark number -- good ballpark number. 17% of the population. and if you go to the minimum estimates of who will end up participating and actually paying for their insurance in 2014, you're down to 5.5%, a long run equilibrium number, percentage of the population who would be directly affected. i wrote down 12%. i'd say plus or minus 2%. but as a reasonable guess. depending, fundamentally the most important thing here is whether the fraction of the uninsured, whether it'll be cut by a half, 40% or 60%, i don't really have a personal prediction there. one other thing i'll mention, i couldn't quite fit it on this

chart, but i think it's kind of important, we hear, probably hear a lot more real numbers today, that's why i come to washington, that the people participating in the federal exchanges, the great bulk of them are receiving subsidies. the unsubsidized individually insured are not participating in exchanges, they're going to the alternative individual market, and some are just keeping the coverage they already had if they were allowed to do it, and others are buying there. and so i think that group is kind of in between. it's affected, of course, by the community rating and the minimum medical loss ratio rules, but it's not affected by the other things that exchanges may or may not be doing, so that's kind of an intermediate group. but the group that's most directly affected are the exchanges. and kids, it should have quotes around it, those are kids from 21-26 who got on their parents' plan.

okay -- >> [inaudible] >> right. [laughter] so here is what looks, part of the background for this is a meeting we had at wharton, a joint venture actually between wharton and the law school at penn where we're studying the federal -- not the federal, we're studying the exchange, the whole process of insurance exchanges, and we had, i think, about ten people from different states come and talk about what's going on. and as i said, i've studied medicaid a lot, and i was just sitting there thinking these all sound like medicaid people, all the sorts of things they talk about almost for the entire part sounded like medicaid kinds of considerations. now, that may be a selective sample and, again, we're not quite sure what the federal exchanges were doing, but it sure sounded like medicaid to me. and, of course, indeed many of them either had come from the medicaid bureaucracy or were on loan from the medicaid bureaucracy which kind of makes sense. medicaid in states is charged

with doing things like determining income levels for eligibility, and that's part of what has to happen in exchanges. so if anybody knows how -- it's not clear anybody does, but if anybody knows how to do it for the new population, they do. a second characteristic that's maybe a little too snarky on my part but the impression i got, was the way they talked about the people that were signing up were kind of a master puppeteer perspective. we want to get these people to do what we know they ought to do. i guess the antithesis would be what my wharton marketing colleagues would talk about, these are our customers, we want to please them, we want to choose a set of offerings that will be highly attractive to them so that they'll want to go get it and spend their own money, not that we have to somehow trick them into it or drag them into it or reach out to them in additional ways.

we're going to persuade them to take a product rather than have a product that sells itself. another characteristic tim mentioned in the as well are -- this as well are many of the products that are offered in exchanges are narrow network products. probably narrower network products. i know they're spreading everywhere, but they seem much more stark than the network products being offered in the rest to have private market. and for all sorts of reasons, and part of this is the reason for the narrow network, it's designed to keep payment levels down and to keep costs down, particularly to keep physician reimbursement down. so that's what it looked like. what's new, nothing is perfectly parallel, so there are larger doses of federal funding that are part and parcel of health reform for the newly-enrolled in medicaid, a much larger federal share at least in the short run

and has been true of traditional medicaid, and substantially larger federal subsidies to the people participating in exchanges than the federal subsidy that was represented by the tax exclusion. so there's a lot more federal money sloshing around. and then, of course, the money sloshing around to make the master puppeteers be able to put on their show which jim already mentioned. what is, so these are narrow networks, not medicaid. i guess my view of what's going on here goes something like this: under old medicaid, fee-for-service medicaid, payment levels were set low, people eligible for medicaid had nominal coverage that was the west of my -- the best of any person in the country, virtually no out-of-pocket payment. but they had to find a doctor that would treat them. supply side cost sharing was quite substantial, and they add to go find some doctors who would treat them, a narrow

network in my conceptualization identifies the doctors willing to take medicaid-type payments and at least makes it easier then for insurance to find the people who would be willing to see them for whatever kind of care they're going to be willing to provide for that kind of money. this is a fear of worsening physician shortage. i know a lot of points of the d opponents of the aca are worried about that. i just wanted to say here, i'm going to give you some things to worry about, but i don't lay awake nights worrying about physician shortage affecting me. particularly if they take the form of narrow networks, the people in exchanges will then only be clogging up the practices of those doctors who are part of the narrow networks, and since i don't plan to be part of a narrow network, i'm going to be fine until i go on medicare. then i'm terrified, but that's for a different reason. [laughter] we also know, actually, that medicaid managed care doesn't seem to make much of a

difference compared to medicaid fee-for-service. my colleague, mark duggan, shows that. but there is going to be a difference, certainly, for people in the exchanges to the extent that especially that they choose bronze and silver policies. they're still going to be, i think, on the part of the exchanges in the people who run them a desire that the plans emphasize coordinated care, patient-centered medical homes and all that sort of thing. and here is something to worry about, how do you coordinate care in the face of relatively high consumer out-of-pocket payments? effectively, an out-of-pocket payment is a bribe to the patient not to be adherent to what the doctor recommended if what the doctor recommended is expensive -- [laughter] and so this is going to kind of double up the problem of care coordination. i actually believe there's a lot of imaginative solutions to that, but it's really an interesting problem. i've mentioned about the solicitation of new customers. we know, though, from the state medicaid programs that their

desire to sign up or retain people ebbs and flows depending on the state of their fiscal status, and so one might expect the same thing to happen. and then finally, this last point is kind of important. the exchanges, i think, arguably will have a view, and do view their obligation as one of holding down spending growth and, of course, there's also the provision in the law that allows people to challenge unreasonable increases in premiums. and we're, at least i think that the main driver of spending growth and the main reason it's slowed down lately has been because of the introduction or nonintroduction of beneficial but costly new technology. in the heydey, particularly in the pharma sector in the 1990s, new products were coming out all over the place. they were expensive, of course, because they were

patent-protected, that ooh's what patents are for. but until the hepatitis c drug showed up, we were in a dry period in the pharma sector, and pharmaceutical spending growth dropped like a stone. that's the good news. the bad news, of course, is there weren't many good products, so you have to be careful what you wish for. okay. i want to say a couple of -- just make a couple of quick comments about some other dimensions. so this is the cadillac tax and employer behavior, and just to get down into the weeds a little bit, of course, the benchmark numbers here -- which i have to write down so i can remember -- are in 2018 you'll have this 40% excise tax imposed on group insurance if the premium for an individual is higher than $10,200 and family $27,500. in a somewhat complicated way, though, that's tied to the consumer price index which is a little weird because premiums are not a price, they're price times quantity of care that the insureds are receiving.

but still, if you are a believer as some people are that we have a new normal, you might think that the slowdown at least that we thought we were seeing might mean that the cadillac tax will become less material, and it might be, but on the other hand, it might speed up. still and all there's a couple of comments, some comments i think that are important to make about it. the first is what economists believe and what most other people don't, but we still think it's important to say. although the tax is nominally imposed on insurers, then presumably will get shifted back to employers, economists believe the tax will come out of worker wages, though in a much less well designed way than if you just capped the value of the cax exclusion. i do have to say that. i say that at every speech i give. so i do have to say that. the initial reports is going to be on a small number of employed people, but if the premium

growth grow withs much more rapidly than the cpi, it will eventually affect a much larger number of people, and that's why there's a lot of wailing and gnashing of teeth. but the future be impact does depend on whether the growth does or does not outpace that cpi target. so, again, if you believed in the new normal and you thought spending growth had slowed, we know health care spending growth has slowed -- i mean, everything has slowed in the recession, but it actually did slow relative to xdp, so then maybe we don't have to worry about the cadillac tax. but if we're back in the trajectory that jim talked about of rapid growth, then high-priced patent technology will continue to grow and is not available in exchanges. so the question to be raised here is, will the cadillac tax cause people to shift away from group insurance to exchanges? and i guess my, my belief is

probably not for two reasons. first, the dollar amount of the tax savings from getting a tax exclusion for a middle income and upper middle income person compared to getting no subsidy if they went to an exchange is quite substantial and is not going to be changed by whether or not the tax hits. that would just enhance the subsidy even further if it weren't there, but at least whatever is currently offering incentives for people to take group insurance rather than go to exchanges, that dollar amount is not going to go down. it just might not go up as much as it otherwise would. creative accountants might find a way to allow people to get some of the tax exclusion advantages in exchanges, but that would just make it neutral. perhaps more importantly, though, if we do have an acceleration of growth because of beneficial but costly new

technology, a key issue will be will the exchanges be willing to offer that new technology on terms that consumers will find attractive? and i suspect they won't because their job, number one, is to keep their premiums down. so the perp's choice may be -- person's choice may be between continuing with group coverage which may continue the technology and switching to a new exchange which won't pay for the new technology, and i think health is more important than wealth, so i think middle income people will probably not be attracted to an exchange because it's cheap if it doesn't offer them the kinds of access to new technology that they prefer. this -- sorry, i'm just going to talk about the last point. the last point is a more serious issue, and then i'll wrap up. that has bothered me for a long time, and i have -- had a piece last summer in the new england

journal discussing in this. the issue is what about group insurance generally? first, so you don't have to worry all that much, there has, of course, been some discussion by some employers about how they're going to change part-time versus full-time workers in order to avoid the penalties that are imposed by the employer mandate. the employer mandate, of course, has been postponed, and if it never comes back, as far as i'm concerned, that'll be too a soon. but nevertheless, even if it does, according to our calculations, it would only affect the lower income -- uninsured workers, rather, in large firms, because those are the only ones who will be affected. there's only about five million of those. millions of americans, of course, but a tiny fraction of the total population and a tiny fraction of the population getting group insurance. so that's the good news. there's, of course, some issues if you are a stockholder in walmart or darden restaurants or firms that employ a lot of

low-wage, uninsured part-timers or potential part-timers, but overall that part's not much of a big deal. what is a much bigger deal, however, is reflected in the datum that there are 50 million lower income people who are getting their insurance in large firms, currently getting as a tax break only the paltry tax exclusion on a $4,000 policy, that'd be about $600, whereas if they could go to an exchange, say, at 200% of the poverty line, they could get a $2500 subsidy. $600 subsidy if i'm the janitor at microsoft, $2500 subsidy if i can somehow get to an exchange and qualify. it seems to me that's a terribly destabilizing thing. from a political point of view, we've already seen the union health and welfare if fund saying, well, why can't our people get the big subsidies when they're low income because, after all, we're not greedy

capitalists, we're nice unions, and we're providing insurance coverage so why limit snit there'll be that kind of pressure, and there'll also be the economic pressure to carve out into low-wage firms those workers who are currently, basically, being mistreated by the asymmetry of the subsidies that we provide to lower, middle income workers. because have tenure, my solution to this problem is to make generous subsidies available to all middle income workers, but that's nevertheless, i think, very important. so to sum up, i think the issues largely speaking that are associated with the affordable care act will not appreciably touch the great bulk of americans. the president would have been right if he'd been a little less precise and said you can probably keep kind of your

insurance if you like it as opposed to saying period, but that's -- at least it looks to me -- roughly true. there may be some changes that are associated with the implementation of the cadillac tax. i have to say beneficial changes from the viewpoint of economic efficiency because it may help to avoid overly lavish plans. there may also be some destabilizing, and i think, dysfunctional changes associated with the difference cial subsidization of lower, middle income people in exchanges relative to the purchase at the group. one last comment. what could, of course, make my predictions wrong about the relative stability of employment-based coverage is if the exchanges actually were terrific in terms of the opportunities they offered. and that could be the case. if uncle billy ran your benefits department at your firm and it was all messed up, it's possible

that an exchange may do much better. but i have a feeling both with regard to public exchanges and to private exchanges there's an awful lot of the pixie the u.s. hypothesis going on -- dust hypothesis going on where we imagine they'll just be a wonderful thing, and people will find them so much more attractive than what's currently available at a well-run department at a large firm keeping their employees happy, and i guess i remain a skeptic whether there's that much likelihood of a substantial improvement. thank you. >> thanks, mark. uncle billy, well, i think i've met him. why don't we see if panelists have any comments they'd like to make, and then we'll go to the audience. so, jim? >> very interesting conversation. thanks to the, to tim and mark. they both made excellent

comments. i guess i want to mention a couple things about the, what tim mentioned a little bit about the debate of the original enactment and what the goal was and replace plans and whether they would meet the goal of some of the things that the authors of bill were seeking to do in a better way or worse way, etc. i think it's important to remember that, first of all, there's a lot of hyperbole around the issue of the uninsured that no matter how many times we say it, we still have to kind of come back to it which is tim mentioned one-sixth of the population was, quote, left out of the situation. obviously, a much more complicated situation than that. the 50 million people that are measured by the census bureau as being uninsured, first of all, is not a static number. if you actually look at the number of people that are uninsured over a long period of time, the number is much smaller. so there's a fair amount of churn that's going on in the

insurance system. moreover, there's a number of illegal immigrants that are counted if the 50 million number -- in the 50 million number. moreover, there's probably about ten million people that are eligible already for medicaid, they just haven't signed up for medicaid. and if they ever had a major medical event, they would have signed up for medicaid. for whatever reason they haven't, they're hard-to-reach people, their situation is such that they don't interact with the medical system as much as others, etc. so, and then there's an awful lot as we can see from the current push of young, healthy people who are uninsured. and so the question is what kind of contortions do we need to go through to get them signed up for insurance coverage? so the number of people that were really in the sympathetic group of low income people, moderate income people, people with a health problem in insecure or inadequate coverage was, as mark mentioned, millions and millions of people. but relative to the size of the u.s. population, far less than

one-sixth of the country. and the question is what to do about that. another observation i'd make is that when -- you might recall a lot of this was contended in the 2008 campaign where the president had an approach to covering people with insurance, and his opponent had an approach to covering people with insurance. which i would argue was a universal coverage plan just as much as what was enacted. probably even more so. and the president, then-senator obama, eviscerated it with very serious political attacks, spent $100 million attacking that approach to providing insurance coverage. most of which was, in my view, over the top in misleading rhetoric. so there's a lot of water under this bridge about how to cover people with insurance, and i'd say that it's just not the case that a replacement plan couldn't do better on most of the major

metrics of the current law. the proposal be from senators burr, coburn and hatch, though not perfect, i think, embodies at least some of the thinking that could go into a replace plan that would do far better with much less of the baggage associated with the current law in meeting the objectives of covering the people that need to have coverage for insurance, stabilizing the incentives to stay insured and doing so at a fraction of the cost of the law that passed and a fraction of the disruption and, candidly, a fraction of the bureaucracy. the, you know, one of the main, one issue that really needs to be put front and center is that the law was an opportunity for the folks who wrote the law to write it in a way that they wanted to write it, and it involved a huge amount of transfer of power and authority from various actors in the

health system to the federal government. now, much of that authority has been exercised in a modest way so far, but that doesn't mean it won't be expanded and grown upon and built upon in future years. i fully expect it will. including things that were enacted in the medicare program that mark says he supports. much of that i don't support. and so i think a lot of this is going to remain contentious, unfortunately, going forward in part because of the way the haw was birthed and the -- the law was birthed and the nature of the debate going forward. so i don't see any particular optimism around reconciliation around the current law and just accepting it as it is. i think it's going to be, continue to be something that'll be contested at least for the next, you know, two election cycles. >> when well, let me start by saying i agree with that. it's not going to settle down anytime soon, and i don't think we're going to know the extent

to which it succeeds in the goals that it set out to serve for some time. in terms of the number of uninsured, i agree that it probably isn't 50 million people who are hard core uninsured. i hi it's a very large -- i think it's a very large number and that they are, i think, survey after survey and study after study, i should say, shows that those people have been badly underserved, that they have suffered greatly financially as well as in their health and that there was a very serious need there that needed to be filled. in terms of the number of people who remain uninsured, i think a very important provision of the statute that has not been much discussed is a provision which allows hospitals to determine presumptive eligibility for medicaid. i think there are going to be a lot of people who are not going to be immediately covered by the statute, but they basically have

a catastrophic coverage that if they show up at a hospital with a serious problem are, they will immediately go onto medicaid. now, that's in states that expand medicaid because a large proportion of the uninsured would be eligible for medicaid. so i think that probably we're overcounting the -- we're probably overcounting the number of uninsured who were uninsured before, but we're also overcounting the number of ininsured -- uninsured who will be uninsure after ward. people who get sick and are not eligible for medicaid may qualify for a special enrollment period that they certainly would be able to sign up at the next open enrollment period. in terms of, you know, how well this thing has worked, i agree. it's not gone so well so far. but it was an incredibly complicated law, tar more complicated -- far more than it probably had to be for all kinds of political reasons. and it is, it is struggling

along and, hopefully, will at some point get up on its feet. i believe that it will. as far as the administration's efforts to make that happen, i think the problem is what do you do when you have a congress that is absolutely dysfunction bal, cannot do anything? then do you say, okay, well, the law says this, and good-bye, or do you try to figure out some way to work within the law, maybe even push the boundaries of the law a little bit to make it work? previous administrations have done that in other circumstances. this administration has done it in this circumstance, and i think that the changes, some of them i disagree with, but i think that the things that the administration has done to try to introduce some flexibility in the law have by and large probably been for the good. one final thing, and that is there's a lot of rhetoric about how medicaid is a failure and medicaid is a terrible problem, people on medicaid can't get care. it's, and it's something i've been looking at recently.

it's true that if you're on medicaid, you have a harder time access ising care than if you're -- accessing care than if you're on private insurance. although there again, what do you mean by private? okay. if you're on medicaid, you have a harder time accessing care than if you have a cadillac blue cross blue shield plan through your employer, yes. but it reminds me kind of mark pauly's research on individual health insurance that he at one point said that people say, you know, they do these surveys where you call up five insurers and say i've got such and such a condition, will you insure me, and they say, no, and then you say, you know, you can't get health insurance. well, but people do. they keep working at it until they get health insurance. and the studies that have been done show that people on medicaid actually do a whole lot better than people who are uninsured on accessing providers s most of the part-time -- and most of the time, you know, maybe you have to call two doctors instead of one doctor,

but most of the time you can get coverage, and once you get a provider to take care of you, continue i knewty of care is very good. so medicaid is not a great program. i'd rather not be on medicaid, but it's a whole lot better than being uninsured. so i'd like to say that to the extent we end up looking like medicaid, maybe that's not the worst thing. >> [inaudible] >> two comments. one of my sons is a history professor, and i tease him by saying, matt, your problem is you don't have a control group. [laughter] but i do, i do think that history is important here even to think about things going forward, and one thing -- and this is actually related to some research we're doing, so i'm partly going to raise the question, which is what was individual insurance coverage like? i was presupposed to agree with john gable that it's tin coverage because, well, in my group coverage at penn, our

administrative cost is less than 5%, and then i get an enormous tax break. so the negative -- there's a negative net cost to me of buying the most expensive plan which i do. but in individual coverage the loading is much higher, and it makes sense to buy less generous coverage, more catastrophic coverage when you're paying a higher load. having said all that, we've been looking at data on the out-of-pocket payments by the individually insured pre-aca, and we're not finding large out-of-pocket payments. in fact, it looks like the generosity of coverage as measured by out-of-pocket payments relative to premiums is in the individual market, we've looked so far at california and 36 states with federal exchanges, looks to be somewhere between bronze and silver. not quite as good as silver, but better than bronze. so it's still while i don't know if bronze is a precious metal, but we're not, at least in those

states it didn't hook like tin. the other -- look like tin. the other thing i would say since i made the remark, i might as well give you exhibit a. so exhibit a of the dumbest possible way to do a good thing in my point of view is community rating with no pre-existing exclusions. i agree we need to subsidize people who are high risk and low to moderate income especially if it's no fault of their own or maybe even if it's, but using excess charges on other insureds while at the same time trying to persuade them to buy the overpriced insurance seems to me to be foolish compared to what was actually done in the first few years of the aca, financing a high risk pool with general revenue taxes imposed in the least distortive way on the people who can most afford to pay it. i think we're all in this together as a person who's been relatively lucky in life. i'd like to make a much larger

contribution tan i'm going to be asked to do so under the aca and have my princess ballerina granddaughter make a much smaller contribution than she would be asked to do if she bought individual insurance. i just think there's a much percent way. of course, the objection is if you allow subsidy of high risk people to be a political choice, the taxpayers or their elected representatives decided they didn't want to spend so much. that's democracy for you. ..

professional doctors, things done by doctors now being done by other professionals and becoming more about professional qualifications. a further bureaucracy of medicine not only due to federal panels and the affordable care act but the many hospital requirements now, quality and also the fact that so many doctors will be working for hospitals rather than independent group practices. i think that all that will be owned by the affordable care act even though much of it is not caused by it and i wonder, my question is actually not necessary about the details but what do you think that's going to have on the political framework in the future, those kinds of changes that many people won't like at the same time that the affordable care

act is coming out? some of the caused by the affordable care act related to it much of the time. >> i guess i would say, number one, much of it's not. this is probably where we were going in any event. the other thing is, i just wouldn't believe, i hear this all the time but i really believe it's understated. i think doctors have said this forever. there are some real changes going on but it's not like, medical schools are not like law schools. they're not running out of people to want to go there. i think a lot of people still want to be doctors, still a very well-paid profession and still a profession that is highly respected and has a lot of flexibility, a lot of discretion. is probably going to be some shake outs i think as a profession it has a good future ahead of it. and also think it's going to be more involvement of

professionals other than physicians and patient care. that probably would have happened anyway, and should happen. i agree with you it's a problem, but i think it's probably overstated and that things will go on. >> to repeat a look at what i said. i think both the use of medicaid and it's unfair to use of narrow networks in exchange plans isolates the problem of the surge in demand in terms of its impacts on the population in general, and for that matter in terms of its impact on the physician population in general, only those doctors and those non-medicaid people who sure doctors with large medicaid populations or large narrow network populations are likely to be directly affected.

that's not a solution to some doctors are going to be really miserable but it does mean that it's not necessarily a problem for everyone. and i do have to say though there has been some research that looked at the question of what happened in medicaid programs when medicaid expanded. did it reduce access for the pre-existing set of medicaid beneficiaries? and the general result it did not appreciably. so what went on, programs say perhaps they hired a lot of nurses and especially if that limited by scope of practice lost to expand the productivity of primary care. i put a lot of money on that and a lot of emotion on that, but i think that's likely to be the sensible response of any practice that is faced with a surge in demand. i guess a third question is,

what are you going to do? at least for the people are formally -- formerly uninsured, and i agree, something is better than, it's not the things that they got when they were uninsured that it was nothing with no dignity and now it's something with some dignity and i count that as a step forward. the rest of us may, those of us who are physicians or who married a doctor's daughter may just have to face up to the fact that you can't get something for nothing, including improvements in quality and outcomes in health care. >> just one observation quickly on this. some of the frustrations that are occurring in the community are related i think to the provisions of the law. the law as an addition to the photo, get much more involved through the medicare program and how physicians and organize --

hospitals organized. some the changes are anticipation of future changes down the road. moreover, some of the frustrations that are boarding up now are related to things the federal government did to the medicare program years ago. just to take one example, in 1989 a lot of people trace the physician fee schedule to 1987. it was enacted in 1989 in an updated rebate in 1997. was enacted in 1989 they thought was going to encourage pay for time spent by physician in front of a patient but that was the whole point of it was to say we want to value the actual time physicians spend in front of the patient taking to the needs and addressing their concerns, et cetera, et cetera. the enactment of the medicare fee schedule in 1989 that exactly the opposite effect. it's one cautionary tale of, an

important one, about the long tail of a federal policy decision from many decades ago and how it has big ramifications and is very difficult on what i would probably about to do 10 more of those in the next five years because the law authorized it. >> we have time for probably want extremely short question and want extremely short answer. i have to ask people who i don't normally see, so raise your hand and let me see who you are. how about this gentleman back here? >> i just have to quickly correct jim on one of the things he said, even though i agree with most of your statement that this law creates a lot of confusion and should be reconsidered whether people want to be a guinea pig or not. so that decision should be made

in my opinion, in the next election. so that we don't continue to suffer the economics, economics of this aca. just a comment, you mentioned the illegal aliens always don't pay, are not part of the tax system. that is not too. irs has a provision for illegal aliens to get not a social security number but a tax identification number. a lot of the illegal aliens to pay into it hoping some amnesty will, for that would add up so -- >> okay, thanks. let's get a question. let's get a question. question right here. except you have to wait. and just a question. no long startup. >> this is directed at tim. alluding to long-term care coverage, the patients with

long-term problems, they will be insured by the insurance may not pay for their medicare, is that correct, because managed care, government care, recommended care model and is not economic payment goals? were you alluding to the? >> i'm not sure what you're referring to. i mean, there is high cost-sharing under this legislation for people who don't qualify, who have incomes above 200% of poverty. >> the people or expensive patients, who want the patients who used to max out of the insurance company, coverage. they will, are not guaranteed insurance but that insurance may be rationed to them, is that to? >> no. i mean -- >> because like the target of the cost-containment -- >> i see what you're saying. i mentioned high cost care case mention. insurers are going to try to figure out to manage their cost and in some instances that may mean denying care.

it may mean channeling patients in certain directions. that's always been true with insurance and that will continue. there are of course not internal and external appeals that i think will mitigate that, that i was just pointing out that insurers are infinitely creative in trying to avoid risk and they will figure things out like that. >> one of the limitations is that that was the so-called medical loss ratio. there's a limitation on how much interest can put into case management. which is i think one of the problems, pick a number, you end up having to live with. >> bobbies walked out of the so let's have one more quick question. john, did you have a question? >> the gentleman in front of you. quick. please. >> jim mentio mentioned somethii thought was interesting in that essentially consumers have a

choice, purchase coverage or pay a tax. and the coverage we expect my become rather expensive been on the level of the plan. would it be possible for an insurers to bring to offer a substandard plan and tax support in the premium quick somebody could go to the individual market, by a less than excellent product and part of the tax they would incur would be paid in their premium. >> yes, i do expect to see that. the statute allows insurers to continue to sell excepted benefits include what's called a fixed dollar indemnity policy which we call a mini med. those continue to be sold, and some insurers are pushing them pretty aggressively and i will not be surprised when some ensure says, and we will pay the penalty. it's 2.5% of income, probably not, but there might be some

accommodation there. >> okay. the second panel is going to be cut short because bob is still not here. one more question. here's a lady right here, quickly, quickly. >> and if bob shows up, i'm cutting you off spent look, just for those of us who are approaching 65 and also concerned about the health of the government budget, you both talked about medicare or other to do it. could you give us just a really quick comment on the impact of the law, the most support aspects and what you're so afraid of? >> i guess i'm the senior person here so that maybe, in addition to pre-rights on the bus and free rides on the bus, i might as will take the privilege of it. domain, a lot of features but

the main motivating factor behind the medicare part part o cut the rate of growth of medicare spending. period, to paraphrase the president. and the main vehicle for that, there are two main vehicles of the. one is just to pay less on a fee-for-service basis, particularly the hospitals because doctors have managed to lobby for reversal by the hospital will be paid a lot less. the other vehicle is this aco model where a lease in my vision of it and had jim has his own views which i more or less agree with, the painting is it's kind of a medicare managed care plan, favored by democrats rather than republicans, that is going to be faced with a capitation program tailored to the federal budget where the government is saying to the plan for the elderly people that belong to your plan, here's how much money you can have next year, do the best you

can. and i guess that's what i'm worried if i get into the plan. there's also some features where if not careful i could be in the plant without knowing it. >> thanks very much. please join me in thanking the panel. [applause] [inaudible conversations]

[inaudible conversations] >> okay, the panel is ready so if you will take your seat i'd like to get started right away. okay, but i have your attention, please? we would like to get started. welcome to the second session near, the design of this to

session meeting today was to have the first panel discuss sort of the existing situation with the affordable care act, and for this panel to look at the future. you've already heard a good bit of discussion about the future and so on, but this panel is designed to go into some specific areas of the health care system, states and the employment sector. we've got some very well-qualified people to discuss this. i'm not going to go over all of their credentials and so on. you have those in front of you. with one exception. i wanted to mention that alan weil has now been selected as new editor of health affairs which he will start in june, june the first we hope.

anyway, let me just say this briefly. this is -- they're sort of a common statement, that nobody can predict the future. well, i think what people really mean by that statement is that nobody can be assured that the prediction is actually going to occur, but i've always said, predicting the future is easy. people do it all the time. the tough part is for you and me to decide which of these many predictions we want to believe. now, there are ways that people go about talking about the future, you know. some people just casual remarks, but other people use lots of data, sophisticated actuarial economic models and so on. but in all of these cases i think it's important for whoever is talking about what's going to happen, in this case, that they come with a sort of sense of

history, that they are aware that lots of predictions in the past haven't worked out as people thought. so the important thing i think for you in terms of thinking about what's can do happened in this sector is to sort of what's the probability of these unexpected things that might affect these predictions. so i know that sort of abstract but i wanted to say. we have decided to go in the order listed. so jeff, we will start with you. >> thank you very much. there is. good morning, everyone. it's great to be here. i don't get to washington very much, and i'm here on this panel as a representative of the groups that have benefited the most from health reform process so much, which is a health care consulting community. [laughter] the people who build all the

defective exchange, the people are advising, the person does consulting. the people are helping hospitals build acos, sort of in and out of my managed care. those are consultants. this has been the golden age for our industry and we are delighted to be here to talk to you. if you spend your entire career in washington you think that medicare policy, you are sort of running the health system, i think that's an illusion. medicare represents maybe 22% of total health spending in the country at max, at full funding the affordable care act will be putting about $250 billion a year into the health care system that by the time we get to 2023 will probably be $5 trillion in scale, maybe 5% of the total thing. so from a standpoint of just the sheer scale of the enterprise i think people who work in washington to realize we are

dealing with something that is the size of a nation. our health care system is bigger than france, it's bigger than russia. i am confident that we will defeat germany to $4 trillion. 16 million people work in it. seven out of the 10 smartest kids in the high school graduating class work and our health care system somewhere. so when people in washington bravely talk about reforming the health care system, the degrees of difficulty or its magnitude, this is way harder than iraq. is like invading a country the size of germany, and i think that's a little bit what is happening now. the main feature of this health economy for most of the last five years has been disinflation. frankly, something no one, including the futurists predicted, in 2009 our health system arrived at a rate of increase in health spending that we haven't seen in this country since dwight eisenhower was

president of the united states. five years before medicare, and we stayed at that level of maybe 3.8, 3.9% increase in spending for five long years. the economists who believe this was a product of the recession will have trouble explaining why per capita medicare spending has trended down towards zero during the same period of time, 85% of the beneficiary population protected from costs by supplement insurance and medicaid or employer coverage, and why medicaid spending has trended down towards zero where people have essentially free care. so clearly something larger is going on than merely a macroeconomic response to slow down in our economy. i think the two big things that have brought this aircraft carrier enterprise to a slow glide, mark pauly over to one of

them, which was this industry doesn't have a lot of new products to sell the public. if you look at the hospital of 2013, technologically it's pretty much identical to the hospital of 1998. device innovation, new technologies for ambulatory. there really aren't a lot of new technologies in the hospital sector. and this recent reacceleration of cost i think a lot of people really point to the fact that, i me, only in health care is that somehow bad news. okay, or something to really worry about, we have effectively cured hepatitis c, arguably our third most significant chronic disease risk after diabetes and alzheimer's disease. but, you know, when you look at the deflection points in spending for the fairest sectors in the health system, they go back in some cases as far as 15

years. pharmaceutical spending went downward in 1990. imaging spending, $200 billion business that was growing at 15% a year didn't downward and almost came to a halt starting in 2006. hospital outpatient volume trended downwards started in 1995 and was only growing at about 1% a year by 2010 or 2011. hospital inpatient utilization trended downward 11 years ago in 2003. as you follow the industry, i hear all this stuff about the reacceleration of cost and hospital cost. according to my friends at citigroup, hospitals lost about 4% of their admissions last year and there's some and investor owned firms that lost more than 11% of their admissions in a single year. and, finally, physician visits were bent downwards in 2005 and

have since fallen about 12% according to imf health, maybe 3% growth and physician visits in the last six months. but i think the other factor that has contributed to the slow down in cost in addition to the fact that there just aren't a lot of new products is the question of affordability. think about this, add up these numbers. 48 million plus or minus to this last january uninsured, maybe 30-40 million more people who, while there are number of injured, don't have any cash. so they don't really have that money to pay the co-payments that are required on a high deductible plan. they tried to avoid using the health care system, and just mark alluded to, and when they do use it they don't pay their bills. than 53 million people on medicaid. you add up those three numbers, it's half the country. half the country cannot afford to use our health system without

massive public subsidies. it's not bullish short or long term for any industry if half the nation's citizens can't afford to use its products. that issue of affordability really hasn't gone away at all. we are going to give people access to health care but for the significant number of people who get it through private exchanges, they're facing a deductible of anywhere from 2500-$5000. i heard paul at mckinsey talk yesterday, every penny of that $5000 is going to have to be paid before there's a single dollar of insurance coverage for the emergency room visit for that hospitalization. so very significant barriers to increasing demand, even with the advance -- advent of this new coverage. the hospital interest is the largest single piece over health care systems infrastructure, roughly $900 billion industry. and the most interesting thing going on in this space, two

things, there's a wave of merger and acquisition activity. the most fortunate beneficiaries of this new regime have been the investment bankers and dealmakers better after brokering a lot of mergers and creation of large health care enterprises. the theory is that they will have market power that will enable them to extract the rent from the health insurers in the communities and get higher rates from health plans. and yet a wave of layoffs has hit our hospital industry, and the pattern is absolutely fascinating. because as is the market-leading institution, that allegedly had achieved that a mass in the scale and, therefore, bargaining leverage with health plans they are laying people off. the list is impressive. vanderbilt university in nashville, the cleveland clinic, the closest thing we have to a machine in health care delivery.

offered buyouts to 3000 of its workers and over 300 of its physicians staff. indiana university in indianapolis, the two dominant players in health system, thousand person layoff. wake forest baptist university hospital in north carolina just announced what's going to in the thing about 1000 person live but it's a very long list. portland, maine, the washington hospital center here in washington, sort of dominant actors. evanston northwestern. avastin northshore in chicago. all of these folks are laying off people. when you talk to their ceos, what they are seeing is an double-digit revenue growth. it's like three, four, 5% revenue growth. they're spending is growing faster and so they're trying to adjust to this uncertainty and that's what i think this lies principally brought to the

health system. this massive cloud of confusion and this threat that the world is going to change to respond to uncertainty by trying to reduce the momentum in their own spending and lay off workers. someone alluded in the question period on the first day of the physician sector. i spent most of the last three years studying the physician business and sort o of the futue medical practice in this country. i don't think there's any question but that a hidden effect, not only of the law, but of the regulatory regime that preceded the law is to drive the independent medical practitioner out of business and into the hands of corporate owners. the principle movement in this space has been at the hospital employment which has grown by roughly 15% in the last decade. it's actually, the numbers you've seen in the generals are probably wrong.

maybe 120,000 of the 700,000 practicing physicians in the country, if you don't count the interns and residents have been all along are now hospital employees. and i think, and the economics of that employment is will be interesting. if you believe the medical group that reference most of those hospital sponsored groups, the average hospital employee doctor is losing the hospital. about $206,000 a year. that is the difference between what they collecting fees for the services and what they pay out in salary and what they spend to support their practice. why are hospitals doing that? well, it's because they are able thereby to redirect all the diagnostic activity to laboratories, the radiology person, the high-tech imaging like mri and ct scans as well as the ambulatory surgery, from

much lower cost freestanding institutions to the hospital which may charge anywhere from three to five times as much as the organizations that are losing the patronage of those employed doctors. so if there is an underlying driving force ocean costs up in addition to chairing hepatitis c, i believe movement of doctors to salary employer is certainly one of them. and, of course, that is being supported by medicare policy that enables the hospital to charge a technical feat for positions visit in addition to the professional fee that that position would've gotten in office practice. so from a policy standpoint i think we're making a mistake. we are sort of lighting a fire under our toes here by giving hospitals and incentive to employ docks and making the implication that physician services are worth more in the hospital setting than they are in private practice.