penetration than most other parts of the country and we have medicaid that's huge. a third of californians are on medicaid. all of those reduce the out of pocket cost burden which i think tracks to satisfaction and we know when we break this out in our survey by class of insurance it is ironic that the people who skew more positively have public insurance, not private insurance. fewer people with commercial insurance are hopeful and as many are powerless. the numbers for public insurance, rather, tend to be slightly better on the positive side and less negative on the negative side, which may be a function of expectations. one of the things we know from

consume consumers. we have a very big sample in this survey. one thing we know about consumers that is sort of interesting. the role out of pocket costs play. 28% of americans have received a balanced bill for care they thought that was covered. if you are in that category, you have much less to say you are powerless, depressed and angry. a woman went to see her physician. he said, oh, yes, i can take care of that problem. she made sure. she had a ppo, went to choice, made absolutely sure the doctor was in network. she had this problem. he said, i can take care of that. go to my surgery center on the second floor where he suddenly was out of network and sent her a bill for $18,000. didn't resolve the problem clinically. she had to go to a hospital. this time she is really making sure that the surgeon is in network and the hospital is in

network only to find that the anesthesiologist and the second assistant surgeon were out of network. they sent her collective bills for $24,000, all perfectly legal. this has caused some states like new york to pass the no surprises law which tells you have to inform the patient in advance they are going to be screwed by the second assistant surgeon. i am sorry. transparency is not a solution here. that's wrong in my view. these hospitals are conspiring to defraud patients. i gotcha. so the other thing we found in our survey with regard to this out of pocket cost stuff, we found a group of patients, about 10% of the american public, who use the health system and have trouble paying for it. another word for them would be patients. almost anyone admitted to a hospital or has a serious procedure done and makes less than $150,000 a year is going to be in this category. again, they're not all on medicaid. in fact, fewer than average are on medicaid.

they are disproportionately uninsured to be true, but most of them have employer sponsored coverage. if you are in that category, you skew very heavily to the negative end of the spectrum of powerless, depressed and angry. what do consumers want? in a word, they want cheaper. we put them through a tradeoff exercise. i won't bore you with the detail, but basically you can have this or that. you can't have both. which do you prefer? you do that over a big enough sample and you reveal relative preferences. what they tell us is give me low premiums, low deductibles, low ko -- co-pays and i will trade off choice for cost. one of these things we found is the one thing that seems to have

bipartisan support amongst those that vote republican, democrat or much republican is reducing cost. that will be a focus if hillary clinton is elected president. i am not going to go into as much depth as the other stories. i want to hit on a few of the trends we think are important for the market to watch and have some implication for all of you and your roles. the first has to do with consolidation. we are seeing this at the health plan level, although i think one or two of these mergers might not be consummated because of resistance to the department of justice. i was talking to a liberal group of doctors a couple of months ago. i said, the good news for you liberals is we are going to have a single payer system.

the bad news is it is united health care. i'm not really that worried. the d.o.j. lawyers called me. i said, i don't have a problem with it. as long as there are three of them, it's fine. what i'm much more concerned about is what i see in every market i go to. i go to a lot of board retreats with a lot of hospital systems across the country. what we are seeing here is the creation of 200 large, regional, integrated delivery systems that are coming to dominate the landscape. when i say dominate, it doesn't mean everybody is going to work for them. certainly, we are seeing doctors running to hospitals to huddle for warmth. we are seeing hospitals consolidating regionally. we are seeing the role of for-profit and private equity money driving some of this. the bond market thinks it is a good idea. there is a positive up side from this integration, which is, if you think about a managerial success where you drive out inappropriate clinical variation and you improve quality and reduce cost, that would be a win for the world, a win for the health system. unfortunately, the data don't

support that much. the tendency is to use pricing power to raise prices rather than yield true efficiencies. by the way, this isn't going over well with the people who pay the bill. i don't just mean medicare and medicaid. the people that are the life blood, financial life blood of the american health care delivery system, are private employers. i'm an adviser to the pacific business group on health, which is a coalition of large employers. pacific is kind of a misnomer. it includes walmart and disney. their view of the world is not donald trump's increase view. their view is 4%, 2016, 4% increase. the good news about employers is that -- is good -- the good news is they are not leaving. they are not abandoning the field. it has been surprising positive effect of the affordable care act that the number of people with commercial health insurance

has remained relatively flat as the cbo predicted. what we track is the red line, which is the percent of american employers that say my company is actively exploring ways to get out of providing health insurance to our employees. you can see that red line. you don't have to read the numbers. it just went up and came down. the reason is that they took a look at private exchanges. they took a look at exiting the field. they made a determination that there was really fundamentally their responsibility to ensure their health employee's needs were met. that's the 87% number at the top. they are not leaving. that's the good news. the bad news for the delivery system is they are not leaving. they are going to be in the face of the delivery system going forward. that's what we have seen and hear anecdotally this year. employers putting pressure on their health plans to get zero premium increases or zero price increases from these provider systems.

but there is a mega trend that is still troubling and i don't think obama should be blamed for this. this is the progressive unaffordability of health care which reflects this, which is that over time we're seeing fewer and fewer workers covered by employee health benefits. the reason that is true is because of the progressive unaffordability of health care. look, i live in silicon valley. a lot of people work at google. not a lot of people work for google. the people cleaning the floors are contractors. they generally have less health benefits than the really sophisticated high-tech folk. the other trend that relates to this is employers experience of price. now, this is a sophisticated audience. you all know about the dartmouth atlas, which is the left-hand side view of this chart where

medicare spending mper capita hs been rigorously analyzed by the folks at dartmouth and the dark air -- areas of the country are expansiv expansive. the light areas are cheap. what you don't always see is the chart on the right-hand side, which is the smart alecs of harvard who did the same analysis but with self-employed insurance data. this explains the mystery for those that travel around the country.

you get states like wisconsin where hospitals are getting 300% of medicare in the private sector. there is huge variation across the country in the rates paid. even in my state, california, northern california has low utilization and very high prices. southern california, the other way around. that's why even in kaiser there is a $100 price per member between northern and southern california rates. this is the hardest data in america to get. so i just made it up. it is a little hard. the labels got squished. let me talk you through it. on the left-hand side. if you do coronary bypass surgery on an uninsured patient in northern california, you will get 7 cents back on the dollar. medicaid in my state pays 69% of the cost and medicare pace 89% of costs. so you don't have to be a rocket scientist or a futurist to figure out you are going to charge the private sector more if you are a provider.

on average around 150% of cost. the dream is to get the number on the right-hand side, which i call the demented saudi prince price. what would a saudi prince pay at johns hopkins? that's what cfos call the charge master. again, it is tough to see the labels here. what we did with exchanges is inserted another player in the mix. so every hospital board, this is the story you hear. this is in an expansion state. we have windfall profits on the in-patient side because their bad debt went way down, 6% to 4% for hospitals like that. it's true in many, many states across the country. the problem is you have now permanent impaired are mixing because you have way more medicaid patients. that's why over time we are going to see the slow deterioration of the finances in

those hospitals, many of whom were doing spectacularly well in 2015. i didn't really just make the data up. the american hospital association tracks this stuff. we are seeing a widening gap between what medicare and medicaid pace relative to cost and what private payers pay. this is a little bit of whining going on here. when these cfos say to me, medicare doesn't pay the true cost of care. medicare doesn't pay for the income aspirations for you and your people doing things exactly the same way, which doesn't sound so good. i know this is going to be painful. all of you in this room are feeling this sting. the pbgh board meeting, this is the number one issue for employers. i was with the ceo for care first. maryland is an odd state because it is an all pair rate setting state. for the first time, specialty

farm -- pharma now exceeds inpatient hospitals spent. pharma per member per month exceeds inpatient hospital for all carriers i have talked to.h. pharma per member per month exceeds inpatient hospital for all carriers i have talked to. it is going up dramatically. the entire pharmaceutical industry, including the old legacy players, are pivoting to large molecular biology indices with very high prices. it has gotten kind of ridiculous. hepc being the primary example. $84,000 in the u.s. and $900 in egypt. as we say in glasgow, half joking, full serious. it is cheaper for a self-insured

employer to send that patient for a three-month luxury vacation to egypt, put them up at the ritz-carlton, give them a meal allowance and take their friend or partner, fly them business class and tack on the niles spa cruise where you will be pampered to death for ten days and you would still save $30,000. that's nuts. that's why when we do surveys 72% of americans including a majority of republicans believe that price controls or caps on pharmaceuticals should be enacted. i think we will see action on this one way or the other. it is maybe the plot forming the trump administration too. the other thing we are seeing across the country is this migration to try and make volume to value real. the best estimate i can give you of how real this is, is from our survey of hospitals where we ask them, you know, you have to pick one of these options. on the left-hand side is the

least invasive, which is we have no plans to take risk beyond modest share savings and pay for performance, about a third. on the far right-hand side are hospitals who say we are committed to removing the majority of revenue loss fully at risk within five years. that's around 6% to 8%. the next to last is building an aco model that is capable of taking risk such as medicare advantage or employer direct contracting. i think that's about right. we ask another way. about 20% of health systems say they are going to have an insurance license within five years. i think this is a separation going on between the people who want no part of this, people in the middle who are sort of playing at it by doing a clinical integration strategy, and people that are serious about migrating more towards risk over time. the other thing that's reinforcing this is payments reforms from cms and private payers, including both bundles and the shift towards population health. i want to make a distinction between bundles and population health for a second.

a bundle, more is still better. it is not so alien to these providers. they are used to being in the growth business. it does encourage improvement across by putting an envelope further out around the continuum of care. not everything is easily bundled. i worry a lot that the sum of the bundles is going to be more than the current payment. the reason i say that is my good friend, pat fry, who ran sutter for many years, has a tendency for profanity, which i appreciate, said to me about bundles, screw me on the bundle, i'll screw you on the rest. you can grind me down on orthopedics but i will charge you more for stuff you can't bundle and come out the same. i think that's right. i think that's the way providers play the game. i'm a big fan of capitation, risk, accountable care, population health. it makes you think about the frequency of which you do things and the appropriateness. it will cause you to go up the food chain to focus on the

determinations of health. you will find a lot of the solutions. i am preaching to the converted. this is where you have been, looks more like social work than medical care. that epiphany is happening all over america with providers that are getting into the risk business. there is this mutual disrespect problem. everybody in american health care thinking everybody else's job is easy and anyone can do what an insurance company does. that's just not true. so what happens when you get in the risk business. well, what happens is you hire another smart alec consultant. they will run the numbers and you will find what is a law of physics that in any insurance poll 5% of patients account for 50% of costs. 1% account for 20%. the bottom 50% utilizers use next to nothing. what's in that 5%? well, what's typically in that 5% are hondas, as one key category. what's a honda? well, i'm a honda. i was denied coverage before obamacare saved my bacon in 2012 in the individual market in california. i was denied coverage not once, not twice but thrice. it was thrice denied, positively

biblical. the reason blue shield denied me is they said you are a honda, hypertensive, obese, noncompliant, diabetic, alcoholic, right? none of which is true but kind of directionally correct. the other thing you will find is behavioral health. 20% of americans of behavioral health problem, if you look at super utilizers, it's more like 85%. anyone who is in end of life care in the medicare population will be in that 5%. anyone with cancer, active cancer treatment, will be in it, the frail elderly population. social work, not medicare may be the solution. for any clinicians, if you prescribe one biological, you will automatically be in the top 5% high cost cases in the commercial market.

let me just close by telling a couple of stories and make a couple of observations about what this means for medicare. the stories basically are what i'm hearing, how these provider systems are responding to this new future. the story of the trap is this young hospitalist who -- a latino kid who went to ucsf and did well. he came back, wanted to serve his community in phoenix in a very low-income neighborhood with a horrible readmission rate. he told the ceo, i can cut this rate in half. he took his truck and he drove on his own time at night to see the family, took the discharge summary, gathered the family around, spoke to them in spanish about what grandma had done in the hospital, the meds she was on now, and what should happen going forward. he did. he cut the rate in half. you don't need a board certified ucsf trained hospitalist doing it.

you can have a kid with a clipboard or a checklist who spoke spanish or better yet a friend of the family. that is happening over in the country where health systems are getting on to this. the second example came from art gonzalez in denver health at the time. he told me the story of the number one frequent flyer patient they had. mrs. johnson, a brittle diabetic, constantly being readmitted in the e.r., in the hospital, not in control. despite the fact she was in a patient-centered medical home and the entire cast of grey's anatomy came around her every friday. it wasn't until some smart young nurse asked the question, mrs. johnson, why are you not taking your meds? she said, well, they have to be refrigerated. so? i don't have a fridge.

they bought her a fridge. she never came back. in a good way, she never came back. she was fine. final story told to me by bernard from kaiser, from 300 medicaid to a million users. it has a fantastic group visit program for diabetics, multi-disciplinary team, 20 patients. it's great. they were having this problem with the newly covered medicaid members who were not turning up for appointments. the doctor started getting all judgy about it. well, that's what happens when you start dealing with medicaid. what do you do with medicaid until some smart alec realized the reason was because the bus schedule didn't work. couldn't get there until 10:30. so they change the bus schedule. lo and behold it worked out. so those are the kinds of interventions across the

country, segmenting, using advanced analytics, patient registries and medical, upstream, understanding that they have to focus on the population and be more imaginative about how to resolve these problems going forward by partnering with ohs and that's what we're seeing. knew in group knows this, but a lot of people have to be reminded of it this notion that we overinvest in medical services in this country and underinvest in social services. the work has really underscored this. i go to france. the french are number one in all these international measures. an exposure to the medical system is bloody scruffy, i have to tell you. the reason they do well on every measure has nothing to do with medicare. it's because they walk, they drink red wine, and they get naked in the summer. nothing will keep your bmi down

better than getting naked in the summer. [ laughter ] >> and just one final point on population health. the single biggest determinate of life expectancy is income. this is what we call a straight line. turns out a massive study by stanford and harvard researchers. turns out, if you're going to be poor, better to be poor in places that aren't darwinian. there are lessons. i'll skip to the doctor stuff. here is the punch line for you all. medicaid is massive. it's bigger than france. 72.6 million americans by last count, as far as i'm aware. that is unbelievable how big this program is. i think it's a challenge for the country. partly because of the churn in and out of eligibility.

partly because of the question who is going to look after them, which providers are going to take them. it's a huge lift. this your world. i don't mean to be preachy here but it's covering kids, it's covering moms, it's covering expansion population. it supports dual eligible and default for most middle-class americans. i think your challenge, our challenge as a nation, is design financially stable delivery models for the future. i made that point. i think the way you do that is so innovate that scale. the problem right now we do a lot of tinkering. we're great at pilots. ceo, patient centered medical home it's like scout badges when you're in the scouts. i'll get that. have you got an accountable care organization? i've got three of them.

have you got diabetes disease register? absolutely. then you ask the follow-up question, what percentage of patients get that on a routine basis and the answer is square root of zero. we need to innovate that scale. i think there are three solutions going forward. managed medicaid, high deductible health care, medicare advantage aco risk. that's the game. it's going to require the delivery system to transform its self. the real question this election will decide is are rich people going to write a check for poor people.

there are really only three futures for health care, where we move to large integrated syste systems that transform to meet the triple aim spurred by payment reform by public and private payors. that's what i'm hoping for. i'm worried about darwinian consumerism of subsidies taken out and we have to live in a world of high deductibles and economic rationing. i worry about the left of the political spectrum taking over and grinding down on budgets and prices, locking in all the inefficiencies that currently exist in the system. what that means for medicaid, i think innovation on the one hand, about thinking creatively of combining social spending and various social initiatives in a more creative way. if it's darwinian we have to put the arm to take fair share, geographically discriminate

against people. i worry a bit about the price controls, how we maintain quality and appropriateness. you figure it out. these great colleagues here are going to tell us how it's going to work. i absolute you for what you do. it's incredibly important. the people of america who depend on you salute you for what you do and i thank you for your time and attention this morning. thank you. [ applause ] >> all right. thank you, ian. it is rare to see someone elicit so much laughter in a conversation around medicaid but we certainly appreciate that today. so you brought up a lot of points and images, some images especially around bmi comment i think we'll try to remove from our brains when this is over. but there's a lot to chew on there. so let me just move immediately to our experts who are grounded in the reality of the now and let's start with justin. in your experience in florida, what's your reaction to that? are these scenarios that you see or is he just way off for a

variety of reasons? >> no, i actually agree with the scenarios that he's laid out. i think the payment streams in particular are probably the ones that are going to survive. and also i'm optimistic just like him. i'm very optimistic about how things will go. i was in a doctor's office several years ago. the doctor's office, like many doctor's offices, never updated its magazine stack. i was reading an economist magazine from a couple years earlier that was talking about this new sony e-reader that had come out. they were kind of poopooing whether it would take off because it was big and clunky. in between reading, the ipad came out. every magazine, paper mill started to collapse as a result of an innovation. there's certain things out there we don't really know that's going to come down the pike.

one odd thing about hillary clinton is that innovation tends to make health care more expensive rather than cheaper in the short run and that poses a challenge.care more expensive r cheaper in the short run and that poses a challenghealth car rather than cheaper in the short run and that poses a challenge. we in florida have done our best to simplify our systems and focus on what we're trying to accomplish. coming up with shared definitions of success that go across the aisle and things we're trying to achieve. we're trying to do it in a way we set the incentives. so much of what we've done in united states and health care is get the incentives wrong. it has always been pay for volume with a lot of the biggest providers being shielded from their cost increases. they're paid based on their cost. what you end up with, if you set your system up like that, is a delivery system where americans

get more transcriptions than anyone else, more procedures than anyone else, and the coasts have gone through the roof. it only costs us about two or three years of life expectancy compared to our peer countries when it comes down to it. we've got to change the way we deliver health care in the country. we've really got to work at getting the incentives right and paying for value. that is a very difficult thing to do because it involves -- there are a lot of people in this room that make a lot of money off medicaid and medicare programs. they make a lot of money off of these funding streams. when you say you're going to save money -- when we say we're going to save money, what we're saying is we're going to reduce the amount of money we give you over time, and we are going to have higher expectations for what we get for that money. we're going to try to build the incentives that way. these are not cash assistance programs. you're speaking not to a room of poor people. you're speaking to a room of very wealthy people. i can only imagine what the average income is in the room or median income is in the room but

i'm sure it's much, much higher than the national average. we really need to think about that. we put so much pressure in the state government on other investments that the state officials would like to make, and they would love to make more investment in education. they would like to make more investment in trade and transportation infrastructure, but we start to swallow that up in health care. and you have to question the value of that investment over time. and we have done our best to try to become a smaller and smaller percentage of our state budget. we are a nonexpansion state. i think the states that made the expansion have made a jump, but they ultimately are trying to do the same thing in terms of becoming a smaller percentage once they captured that population. we've been successful for the last several years. we have combined a lot of different delivery systems into one. it is one of the funding streams that ian was talking about. we have medicaid managed care. that is the primary way we deliver services.

we would love to see provider innovations. in our program, we actually had a special spot reserved in our competitive procurement for managed care plans for provider-based managed care plans, ones that were owned and controlled in majority by providers. we had to give at least one slot in every region where we did a competitive bid. we had to give one slot to a provider service network. we did that. we awarded them. we had provider service networks bid in every state and we awarded them. there is not one provider service network in ft. lauderdale. every other one sold in six months to an hmo. by the way that feature in our statute and procurement next year, if you're thinking about forming a provider network and

bidding, nice way to make money, turn around and sell it in six months. we're wondering whether we're going to see a repeat of that in upco upcoming competitive procurement. all of these pressures, really need to think about the investments we're making. we really need to think about how to structure the system so the incentives are right and we're driving toward quality without being inflationary. >> thanks, justin. judy, thoughts from hawaii and procurement system. >> thank you. as i was listening to that and some issues of cost shift, et cetera, this has come up over the past few days. actually indirectly in one of the slides here. it was who is driving the costs. right? who is the uninsured. if you think about the medicaid program, it's the hondas, the

people with health challenges, much higher prevalence rates. it's poor people, who face many more challenges than anyone else, much more overcome by income disparities, lack of access to fresh foods, to lower levels -- having to do with the quality of education, et cetera. and so when medicaid isn't paying as much, it's also -- we're also working with some of the most -- some of the populations that have the most challenges in their life. so when we talk about the impact of social determinates and talk about the impact of not funding within those areas, that's where the conversation is going. there's -- that's why there's the cost shift. it's that when you say that there are rich people that need

to pay -- how much are they going to pay for the poor people, it's also what kinds of things are we going to do to invest in the so-called social determinates of health. where it is that we work, where it is that we live, where we play, how much education we have, what's our housing stability. when i first got to hawaii, i went there and they talked a lot about -- in hawaii they said, oh, we love what you did in oregon. we love the health system transformation and all your work there. we really want you to do that here. i'm thinking in my head, there's no way i'm going to do -- you can't replicate one to the other. as the saying goes, you've seen one medicaid program, you've seen one medicaid program in a state. each state is unique. every state has its own unique traits.

one of the first things i did is i spent time listening about what did the people want to see. one of the things that was so striking and so different from oregon is that in oregon health system delivery transformation systems were led by providers, led by health systems, by the ipas, coordinated care organizations, by the managed care plans. it was led by them. in hawaii i began to talk to people, health systems, primary care associations, the long-term care industry. what people said to me is the thing that is most important to us is creating a healthy hawaii, healthy communities, healthy families. that doesn't come from the health care delivery system. that comes from communities working together at the local

level, building and addressing the needs within that community. so what do we have? we have some of the most innovative federally qualified health centers. we have a hospital and health care system that is now trying to work together to address what people are recognizing as the social determinates of health. so after being there now for just over a year and a half, the interesting thing is that now people are talking about the social determinates of health. we're talking about how do we invest in young children and their families to prevent trauma so they can learn better in school, so that they can get employment, so that they're not on medicaid. that's the goal. how can we address the severe

homeless problem that we have in hawaii? in order to do that, you have to take a look at your behavior health, your substance use, that continuum of care, who is paying for it, how do you pay for it, how do you make it integrated with the medical health system. how do you partner with housing? i know more about section 8 and all those things than i ever did before. i've had to learn a whole new system of acronyms because housing matters. and then my poor housing people have now had to learn about medicaid. that's been delightful. so all these new partnerships are being formed. now we're having conversations with the health systems, with the managed care plans. because now the question is, all right, we're focusing on the social determinates of health,

what's health care's role? how far do you go? they are not going to be the social workers. but medicaid and the health system has a seat at the table. how are we going to play a role within that seat at the table? that's where i really see medicaid going. that's where i see the health system going in that if you're going to talk about adjusting the social determinates of health, then you have to create new partnerships, new connections, and you're going to have to think about how you provide the appropriate incentives. so now the questions are with the health care delivery systems, is how do we align the financial incentives so we're not paying for continued sick care instead of health care. how do we pay for incentivized health and where should we be spending our money? so those are the kind of conversations that we're having in hawaii that i'm actually

thrilled about because i think that is really where the direction of medicaid is going and where the direction of the health care area is going as well. >> great. thanks, judy. so with this, i kind of want to start peppering the group with some questions. so i want to sort of start where you left off and amplify what you are saying, but then also come back and link in a couple of slides that ian put up there, one of which was the chart that basically looks as any distribution you've got 1% of the population driving 20% of the costs and 5% driving 50. whether medicare, medicaid, commercial, you kind of see that i think it's fair to say within the medicaid world that 1% and 5% is much more expensive and much different and much more -- brings many more sort of challenges or opportunities than

in other payor mixes. does that then lead us naturally to your other chart where we're looking at the u.s. versus other countries where -- we're all kind of engrained into this statistic of the u.s. spends far more on health care per capita than any other country. but then when you kind of add in the social services, it's much more similar, although arguably our balance of that is off. so is the key for medicaid, to build on what judy is saying, to refashion the medical into more social, to get that correct balance? and then finally get at one of your last points, ian, which

is -- i don't know if i would phrase it as will the rich pay for the poor but given medicaid is a government program, is a public porogram -- is it dependent on taxpayers to sustain? how do we make this transition? ask it a couple ways. how do we change it? i'm thinking how do we also manage that change such that it is politically sustainable? by that i mean, you know, is there a political will for taxpayers -- there's a political will for taxpayers to be providing appendectomies for people who need them. is there a political will for government to be paying for refrigerators and apartments, et

cetera on a large scale? let me stop that question and just throw it back to the three of you. justin, i don't know if you want to go first. >> the answer to that question is yes and no. ultimately when we went to a managed care model, the greatest thing you get out of a managed care model is the flexibility. they are on the hook for the most expensive intervention at the end of the rainbow, so they will do things like buy a refrigerator or fix an air conditioner simply because they have a payment actuarial sound and it makes sense for them to use that kind of purchase versus paying for that. i would think if it's in my budget as a line item to buy refrigerators and air-conditions, it would be a real hot topic. the way we've set it up with managed care at risk for the full panoply of services you can do it. in fact, our managed care associations have added lots of benefits over and above what we offer under our state plan not built into their rates because we do know they make sense. so we would be giving people services in a place that makes the most sense. i think that taxpayers in general do support the program. you have to support the taxpayers, too. they certainly don't want to

feel like you're wasting their money. when they read a story in the paper about someone not getting a service they think they have already paid for and should be covered, the taxpayers get very angry about it. they also get very angry about waste. you have got to keep them both in balance, but they would support any expenditure that makes sense in a system that makes sense where they think you're driving towards a high-quality product. >> so i was thinking as you said that, i agree entirely with justin. i think the answer is yes and no. no, i'm not going to have a line item for refrigerator, tennis shoes, or an air conditioner,

but i do think -- i do think we should build in a way to account for those services, managed care rate, because eventually they will go down and down and down and there won't be anymore savings to have. a place i like to go a little bit more differently is to characterize i do think health care and medical system needs to become more engaged and more consumer focused as opposed to body part or provider. disease specific. at the same point, i think that it's not that we need to have a health care system that -- where we have doctors doing social work. i do not believe that is the model that i want to see or that i think is in any way effective. i would like physicians to be

more engaged, more able to actually listen and do those kinds of things, because then you get better outcomes with your health. but when it comes to the social determinates of health, i want the educators to be educating. i want that sort of social work aspect of it to come together. that gets to the point of something that we heard yesterday with the opening plenary session and that's that it actually, one, there's no easy solution. there's no silver bullet. it's going to take all of us working together. i think that's the other point i'd like to make in that it really is about community coming together and working together. so it's not that i have the expectation that we're going to pay for the runt or the

refrigerators, et cetera, from the health care system. it's a matter of reallocating and working together as a community to invest in what the community needs to create those healthy communities and healthy families. >> i agree with that completely. i actually trained in the u.k. and my graduate work was in newcastle, which was a working class town that went through massive deindustrialization in the '70s. we were doing what we called multiple deprivation scores, which was really a sort of cross-sectional look at lack of housing, education, employment, and so forth. and health was a tiny, tiny traction of that, so i completely agree with that. i was going to tell one anecdote which illustrates if i was in your shoes an opportunity. as i mentioned i was on the california health care foundation board. we had a retreat in fresno about four or five years ago.

and this city manager, young clovis, in one of the towns next to fresno, he and his wife had a baby and he was up in the middle of the night and he saw a pbs interview talking about hot spotting. so this guy got inspired and got the data from the ambulance service about emergency medical calls and hot spotted them. so we got in a bus with this guy with the board and our spouses and went on a tour of all the hot spots. the first hot spot was an assisted living facility whose idea of assistance was to call the fire department for assistance anytime anything happened. like a patient snored they would call the fire department. next thing they were in the er.

the next thing we went to was a slum landlord where there was multiple instances of kids with asthma, having life threatening asthma attacks and on and on and on. my wife is -- not old, seasoned emergency room nurse, analyst, and she asked the obvious question, well, how many fires did you have? he was going on 4,000 visits at $7,000 a pop, 7,000, 4,000, can't remember the right way around. ten. ten fires in a year, 7,000 of those events. so if i was doing customer focused analytics, i would like at where those hot spots are for all the spending streams within the purview of state/local government budgets and start with that pot of money and figure out a better way to deploy that pot of money because i think it's massive. i think it's massive. i think there's an enormous opportunity to enrich lives. maybe by giving them a job or check or something else. i keep coming back.

income and life expectancy, income and health status are perfectly correlated. i tell my kids all the time. be in the top 10%, you'll do just fine. >> justin, is that the answer? and judy, is that the answer? if so, how easy is it to actually do that? >> i think it's really hard to do. that type of thing is coming. getting that type of refined understanding of what's going on in the community at the community level and really putting out figurative fires, if not literal ones, i think health care is going to get more personal. the relationship, understanding of what's going on at the personal level, should become greater between the doctor's office and individual, health plan and individual. i think information sharing is going to become much stronger. there's just a lot of opportunities there. we've hit the edge of affordability and we've hit the

edge of affordability in all three future streams. the private pay, the state government pay, the federal pay. everybody has hit the edge of affordability. necessity is the mother of invention. there's a lot better ways to do it. at the same time we're at the point of a revolution in information that could help us get back from the brink and that is where we are. >> let me just reinforce what you said. hitting the edge of affordability, the woman who runs health benefits apple told me this story, when they were going to cost shift like usual to their employees, it went all the way to tim cook who said, no, we're not going to do it. because apple employs 100,000 people, 0% work in the stores. they don't make much money but they get good health benefits. it went to the top of the company. in so doing, partly because of that, partly was the apple watch wasn't selling very well, they put in a worldwide travel ban apple for nondiscretionary

travel. they have $300 billion in a bank in ireland for god's sake. if apple has hit the wall of >> within state budgets, medicaid doctors know, we've become an increasing part of the state budget. as justin noted earlier, that can't be. that cannot continue. we must have a change. must have it stop. government does invest in those social services and those things. i was at one of the sessions yesterday, also about public/private partnerships and investing in some of those social determinates of health. i think that's the other area we definitely need to start seeing

some of those things happen as well. but it's very much the case that we have reached the edge of affordability. i would like to note that the truth of the statement, at least in the health care industry, we talked about we're getting a lot better about, you know, information, et cetera. we're still in the -- we're still in the dark ages when it comes to that. and some of our privacy rules are that way, that make it so hard to share data, to put those things together. they kind of work against you when those things -- when you're trying to do some of those things. it's certainly possible, but we have a long ways to go in trying to pull those things together. i think those are some of the challenges coming in the next few years for sure.

>> let me build on the theme of affordability and take the question in a slightly different direction. thinking about the future, let's talk a little bit about the medicaid expansion itself and other types of ways in order to, you know, provide insurance to people who may not have it or are in the system. so you know, justin, you are in the state that has not done medicaid expansion. you're on the board in the south region where relatively few of the states have done it. judy, you have represented two states who have done the expansion and represent a region where not all but more have done it. what really do you think is the future of the medicaid expansion either in terms of more states coming on, states coming off, or finding different approaches to address the underlying issue? justin.

>> i think we're going to have a very prolonged period of time where there are a significant number of nonexpansion states. that is going to give those -- there's going to be data. you'll have to look at the effect that has over time. i would be very surprised if florida did it in the next few years. i'd be very surprised if texas did it in the next few years and many of the other southern states. you will get this opportunity to look and see what type of impact that has on unemployment, on the state's economy, on labor participation, on the uninsured rates and on public health. there will be basis of comparison. the one thing that has not happened with expansion states, they have not had to pay for it yet. they will have to start paying for it on january 1st of 2017. that's coming up in a few weeks. the amount they have to pay will incrementally go up for the next few years after that.

the other thing that hasn't happened since the expansion is there hasn't been a recession. if, in fact, they are driving down their labor participation rates and cutting into their revenue and driving up their costs by taking on the expense of the expansion, it will be very interesting to see what happens during first significant recession in those states. i think that we will have a prolonged period of time with non-expansion states and there probably will be a recession, perhaps even a significant one, where we will have to see what happens to the states that expand versus states that didn't and how they fare in that situation. because as we went through the last recession, our enrollment, it's a counter cyclical program. our enrollment spiked by a million people in a short period of time. that was a deep recession. all recessions we see several hundred thousand people added to the program. instantly your costs go way up at a time when your revenue is

dropping in the state. they have balanced budget, none can print money. so, that will be a very interesting inflection point in the coming ten years when the first recession hits for those states. we're looking at it. one thing that the supreme court did is they inadvertently created a work requirement to get insurance coverage. you have to get above 100% poverty and then able to purchase insurance on the exchange, the cost. in florida our minimum wage is higher than national minimum wage, you have to work 30-32 hours a week at minimum wage in order to get to silver plan. the majority of them purchased silver plans with cost wraps, below poverty. still looking at you're looking at significant drop. 500,000 people in the gap below

childless adults, below 100% of federal poverty a few years ago. now seems significantly less than that, less in 2014 and '15. looking at that over time and understanding the implications of that, it will factor into an expansion decision for any state, keeping in mind that we maybe have fallen into a situation where we get a significant reduction in unemployment rate and it's 100 pblgt federally financed. >> well, on this point justin and i don't agree. which probably doesn't come as a surprise.

i would use the same statements, what's going to happen when there's a recession. what's going to happen to those who find themselves uninsured, unem ploumed and below the poverty level and no access to health insurance? i've now worked in two states, both expanded but came from a different background, in their expansions and decisions how to cover people. oregon, while they did expand in a sense they had population up to 100% of poverty level, they also capped it. so i come from the state with infamous oregon health study. my takeaway from that is health insurance helps save lives. i did see that on a regular

basis. people who were uninsured who did not have access to health insurance, they were foregoing needed health care. they were coming in, and you know, stories, letters after oregon expanded. there were stories written -- you know, handwritten letters to us, to me as a medicaid doctor talking about how this health insurance saved their lives. so i approach it -- well, i appreciate the economic argument. i also approach it from a public health and from really a standpoint where health coverage and health insurance saves lives. does it have to be medicaid? no it does not have to be medicaid.

that's where hawaii, the only state in the country with erisa, prepaid health act. they have had 90, 95% health insurance rates for 40 years with a much higher proportion of people covered by employer-based insurance. so yes, we did have a medicaid expansion. but it didn't impact hawaii as much as it did in other states. so it does not have to be medicaid but i would challenge us and states and others to at least consider as a public health if we want to think about how it is you want to help keep your population healthy and have healthy communities, then how are you going to help make sure that your population has access

to health insurance, especially those who are low income, below 100% of the federal poverty level. we already talked about they are the ones who tend to have higher rates or prevalence rates of substance use, mental health, behavioral health needs, of chronic disease, of living in high stress areas of low income, et cetera. so i -- so that's where i come from when it comes to the medicaid expansion. i happen to agree with justin it's not likely that the states who have chosen not to expand, i probably believe there's probably going to be additional states that might choose to expand. i hope that's the case. i think there's other pathways to expansion and we could explore those as well.

>> i think it's a very useful kaiser family foundation preset came out 4.4 million uninsured in the 19 states not expanding. 2.6 of those are in the coverage gap. florida counts for half. i'm kind of with judy that i think it's pretty clear that, and certainly you talk to people who have gotten coverage, they feel relieved by that, so it does make a difference to people's health. i think that's unequivocal. the question is, can we do it. i want to underscore what they said about recession. we've had the longest expansion for a long time. we are way overdue for a downturn. that will put tremendous pressure on medicaid as both of you indicated. i think we've got to prepare our selves mentally for that. it's just asking too much for a continuous expansion. economies don't work that way.

i hate to be a buzz kill in that regard. i do think what's important is finding sustainable delivery models going forward despite this pressure. i think what we all agree that will require innovation from plans providing services to the states but also for provi r provide providers. i think in a lot of provider states, we have to put the arm on the provider states to take care of the uninsured. what we're seeing in texas cherry picking geography, that undermines of delivering on a charitable basis and we may have to legislate in some states. i think it's kind of nuts in texas. it's easier to get into princeton than get a medicaid card in texas maybe we should

loosen up a wee bit. >> all right, i want to leave with one quick question for all of you. medicaid is big. it's bigger than france. spend half a trillion dollars a year, it is complex. we cover births, long-term care, a lot of stuff in between. what should it look like thinking about the future of medicaid. obviously medicaid has a role in the health care system vis-a-vis all the players and dynamics you deal with. in one minute or less, i'll start with you, ian, what should medicaid look like? what should be done to make it better and more functional. >> i've been doing this for 30 years. i've had the same answer for 30 years. there should be a basic floor below which no american falls and there should be a guaranteed delivery system for folks.

i actually personally say we should fund delivery system that everyone has access to. if you want to trade up with your own money, knock your self out. but that delivery system should be paid for through tax supported financing. not a single payer system necessarily but funded delivery system. how we do that, whether we put the arm on delivery systems to take a certain requisite number of people or give people a block grant, i'm fine with that. the deal is nobody should be left at the bottom. if people want to trade up for a choice of providers, they look at models like australian system and others where there is lots of room for people to, you know, expand service offerings and pick stuff financed through supplementary insurance provided the base program covers most people and most people would be comfortable in that quality and service of that program. i think that's eventually what

we've got to get to. this categorical eligibility in and out is nuts, with all due respect. [ laughter ] >> judy and then finish with justin. >> okay. wow. okay. i'm still trying to think about that. i do think that the future of health care needs to become more simplified, that we've made it incredible administratively complex. i was oftentimes aca when you talk about medicaid, we simplified eligibility. for those of us who run medicaid eligibility and had to develop medicaid eligibility systems we know that is a fundamental lie. that is not the case. that is not what happened. but if we were actually able to

simplify, i'm not sure i would go all the way to getting rid of entirely the categorical probably going to continue to be some distinguishing, some tiering. at least some basic everybody gets below a certain level you need to get this basic coverage. i think that is a direction. i think for the health care delivery system, i think you're going to see -- for the medicaid program you're going to see medicaid playing a much larger role in that and partnering -- hopefully partnering more effectively with medicare in the future as well. that's a hard sell. that would be my hope on the health care delivery side of the innovations there. >> final word. >> you come to medicaid and it can be bewildering. we have tried to place the enrollees at the center of the system.

as they come in, they have a set of maybe four or five very clear choices of health plan with different service packages. we tried to create a situation where they compete for business based on benefits they provide, based on the customer service they provide, based on the networks they have put together and various other times the plans compete based on price as we make decisions around bringing them in. but that's what we -- we're trying to set up a system where the consumer is at the center of it and plans competing based on price and quality and consumer satisfaction and they are competing for enrollees. enrollees at the center of the system. i think providers have a place there, too. we still encourage providers to develop these systems either as subcontractors to our plans or to develop their own plan and to eventually become fully at risk and to innovate. ultimately it has to be about the patient and has to be about the consumer and they have to come in and feel like they are

in an understandable system that is going to successfully meet their health care needs. >> all right. i'm happy to end on that note with apologies to the panel because i had not vetted that last question with them beforehand. i think you did that remarkably well. join me in thinking ian, justin and judy. [ applause ] the supreme court recently heard oral argument in two consolidated cases brought by the city of miami against the bank of america and wells fargo. the court will decide if miami can sue the banks under the fair housing act under discriminatory acts that resulted in loan defaults and tax revenue for the city. watch at 8:00 p.m. eastern on c-span 2. we have a special web page

at c-span.org. select supreme court near the top of the page. once on the supreme court page, you will see four of the most recent oral arguments heard by the court this term. click on the view link to see them. in addition, you can find recent appearances by many justices or watch justices in their own words, including one-on-one interviews in the past few months with justice kagan, thomas and ginsburg. there's a calendar for this term, a list of all current justices with links to see all their appearances on c-span and videos available on demand. follow the supreme court at c-span.org. thomas reeder, the director of the pension benefit guarantee program and guarantees pensions of workers and retirees in benefit plans spoke at the

annual meeting of the american academy of actuaries in washington, d.c. this is just under 50 minutes. [ applause ] >> thanks, everybody. it's -- happy to be here. my colleagues will verify the fact that i'm more nervous than average about addressing actuaries because it is one of the groups, although it's important, it is one of the groups where i'm fairly confident that everybody or nearly everybody in the room knows more than i do. that's a nervous task. i also know that everybody in the room or nearly everybody in the room is either already

totally prepared for their retirement or on track to be so. so, i am -- when i talk about retirement security, i am really talking to the choir. pbec had a long close relationship with the academy and we want to continue to build on that relationship. and value and benefit from your contributions to pbgc in the form of detailed, clear, comments on proposals proposed regulations. the issue brief that tom mentioned on the multi system. there's lots of projects where we work closely with the academy and your members are among us.

we appreciate that very much. i think we may have a collection of the best actuaries in the world but maybe that's just me bragging and in that regard, i want to thank the academy for honoring with robert myers public service award. she is a remarkable public servant and serve the pbgc for nearly 20 years. she led our team of actuaries and not only had to understand everything that you do in the private sector regarding pensions, but had to calculate the benefits under arisa and was responsible for the single employer and multiemployer

liabilities reported in financial statements. that's no minor task and i understand she met that responsibility with grace and skill and worked with every pbgc director to meet the challenges that they faced. she is a exemplifies the public service that we -- that i have experienced at pbgc and everywhere i go, i hear about the quality of service that the pbgc provides and having, as tom explained earlier, i have worked in other agencies and we didn't have anywhere near the customer satisfaction that i -- that is documented and i hear about all the time that pbgc has.

and i am particularly proud of it. while going through the confirmation process of being director, many people ask me, many senators ask me, why would you want this job? usually, i thought they were asking it in jest. but, every now and then i would respond with a light hearted answer but one time, a very high level senator asked me, no! why would you want this job? he actually followed it by saying, i'm not sure i want to vote for anybody who wants this job. [ laughter ] >> and i -- i didn't have a really great answer for that. i mean most people in a job interview situation have answers for questions like that. but, once i understood the seriousness, i didn't have a great answer.

i can tell you one reason i wouldn't want the job is if i didn't have the quality of professionals we've got, like joan, at the pbgc. we are very proud of that tradition of service and i -- i can't tell you how irritated i get when i hear people bashing public servants. it's not justified and the folks at pbgc are evidence of that. i have been director a little over a year, just celebrated my one-year anniversary. i'm no longer on a honeymoon. people are starting to expect me to know answers. i'm looking forward to hearing your questions. we can't -- we can't do this job without interaction with groups

like you and so i'm looking forward to hearing the questions you have and attempting the answers. as many of you know, i am a great fan of the fine benefit plans. in that role, i feel a little bit like the black knight at the bridge in the monte python movie, the holy grail. i'm here to say that i'm not dead yet. and, the damage to defined benefit system is only a flesh wound. but, in all seriousness, i have to say, we are not blind to the economic trends and the risk management that cfos are undergoing on a daily basis and

the fact that they have competitive pressures on their company and that there is a trend to try to derisk or transfer the risk of the benefit plan and/or to terminate it. and, however, i do want to recognize that, at no time in our history has a majority of americans been covered by a pension plan. a lot of times people refer to the good old days when everybody had a plan. those good old days never existed. on the other side of the coin, there are lots of employ eyes who are actively accruing benefits today. probably 10 million of them. the employers of those 10

million folks often look to the defined benefit plan as a positive way to attract and retain a quality work force and we can't turn our backs on those employers and those employees who accrued those benefits. i think that the defined benefit plan is still the best way to provide guaranteed lifetime income that you can't outspend and can't outlive. a lot of folks have talked about leaving the defined benefit system but a lot of folks are talking about it but deciding to stay in. we at pbgc would like to do whatever we can to help that out. if you have heard me speak before, you have probably heard this reference before, but i'm

going to keep repeating it until everybody i ever talk to has heard it. that is, i urge you to go google twilight zone and shelter. what you'll come up with is an episode of the twilight zone, which gives you an idea of where i come from. and what i grew up with. and, it's a story about a family who is invited some friends over for dinner and they are enjoying dinner and it's a bit of a birthday celebration and little johnny comes running in about dessert time and says everyone should pay attention to the station. if you are my age, you know what that was, maybe it still exists, i don't think so. it's the station that comes on when something bad is going to

happen. sure enough, it come on and says there's a bomb coming and everyone should seek their shelter. the host of the event has a bomb shelter. none of the guests have a bomb shelter. the rest of the show talks about happens as the people with the bomb shelter are trying to keep the people without the bomb shelter out. because they only have enough room and food and supplies for themselves. and, by the end of the show, i don't mind giving away the end, but by the end of the show, the people who don't have a bomb shelter have torn up the guys house and they have a battery ram to get into the shelter and right about that time, the tv comes on and says it's a false

alarm. the guys with the shelter come out of their shelter and say, do we want to live in a society where some of the people have shelters and other people don't? the man who did twilight zone, he was interviewed a few weeks after the show came out and it was one of the most popular -- one of the most talked about episodes of the twilight zone. a few weeks later, he was interviewed. he actually said he was building a bomb shelter and after he did that episode of twilight zone, he stopped building the bomb shelter. i think it's a good analogy for a society where some of americans, some of us are prepared for retirement and others are not. we have to ask ourselves, do we

really want to live in a society where some people have enough for a dignified retirement and others don't? i don't think i have to talk too much about that in this room because i think most of the people, especially the people, the pension folks are focused on getting people prepared for retirement. but, i do think it is a good metaphor for analyzing the importance of it. as is already alluded to, i don't think i have to talk too much about the status of our pension programs at pbgc. we have two programs, the single employer program and the mul multiemployer program. both of them are in significant net deficit positions.

but the multiemployer program is in far more serious condition. in june, we sent our projections report to congress and that projection report indicated that the single employer program is likely but definitely not certain. y'all know what likely means. it's more likely than not to improve and probably be in a even position within the coming ten years. however, it's certainly not certain and right now, it's $25 billion deficit. so, if the walls caved in today, we would be $25 billion short in paying the benefits that are promised under the plans.

the multiemployer system is in far more dire situation. it's only about a third the size of the single employer system. 10 million folks versus a little over 30 million folks. but, it is -- it's deficit is more than double the deficit in the single employer system and it is more likely than not to be the pbgc multiemployer system is more likely than not to be insolvent within ten years. every time i say ten years in washington, those of you who are not from washington probably think ten years is a very short period of time. in washington, ten years is a geo logic era. ten years is five election

cycles for the house and nearly two for the senate. more than two for the president. congress is constantly dealing with tomorrow or this evening and when you tell them they have ten years to fix a problem, it's like telling them they have a longer vacation. it's -- they get a longer recess this year. however, i think most sensible folks, who know anything about pensions and who know anything about economy in general would recognize the fact that the longer you wait to fix a problem that's almost certain to happen, the harder it is to fix it. if the problem costs money, fixing it the day before it runs out of money is going to be a

lot more difficult than fixing it ten years before it runs out of money. in fact, one of the reasons it's in a deficit situation is because premiums have been so low for so long. congress passed the multiemployer pension reform act in 2014 mepra. many congressmen think they took care of the problem. they only added two years to the sol van si of the multiemployer program and, put simply, pbgc doesn't have the assets or incoming premiums to pay the financial systems at current level of guaranteed benefits. the current level of benefits on the multiemployer system doesn't light a candle to the guarantees

and the single employer system. a guaranteed -- the guarantee level is not easy to recite. in summary, for a 30-year employee, somebody who has been in the program for 30 years, their guaranteed benefit is a little under $13,000 a year. that's not much of a guarantee. if you are -- if you are in a plan for 20 years or ten years, the guarantee level is much lower than that. those guarantee levels will go down close to zero, not completely to zero, if the trust fund or the multiemployer system goes to zero. that's likely to happen, as i said, within ten years. more likely than not. there's about 1,400

multiemployer plans covering 10 million people, as i mentioned. so, when i talk about the insolvency of the program, i don't want to talk about dire straits for everybody because most of the people in the multiemployer system are in plans that are not likely to run out of money. they are not likely to rely on the pbgc for the guarantee. most of the folks 85-90% of them are in plans that are more likely than not to stay solvent. but, still, the ones that are going to be in plans, the ones that are in plans that will be insolvent that are relying on pbgc are 1 million to 1.5 million. that is not a population that americans normally want to turn their back on.

those folks are all over the country. those are just the number of participants and we are also talking about their families and their communities if their funds run short. and the -- the effect of such an insolvency has been illustrated in the recent situation with the central states teamster pension fund that attempted to reduce benefits not to the pbgc guarantee level, but down to some amount higher than the pbgc level and it was something that many folks, many congressmen, many senators and lots of participants had a big problem with. so, it's -- if -- if the pbgc

becomes insolvent and they are relying on them for the levels, it is going to be a lot worse. it's also important to note that thousands of employers participate in multiemployer plans. the poor funding levels and troubled multiemployer plans represent future costs to those employers, whether they continue in the plan or try to get out. this is a concern for businesses, not just employees. the pbgc is -- the administration has a proposal to address pbgcs issues with multiemployer plans and focuses mostly on increasing premiums that are paid by multiemployer plans to the pbgc. for several administrations, as

far back as i have worked, i worked for three administrations at the treasury and all three of those administrations proposed that the pbgc be permitted to set its own premiums. most insurance companies set their own premiums. it's every now and then, i talk to people who find out that the pbgc doesn't set its premiums and they are shocked. they often say how can you guarantee a statutory level of benefits when you can't set the premiums? that's a good question. however, no congress has yet decided to give up its right to set premiums to the pbgc or its board and having worked on capitol hill, i understand that it's not likely that that's ever

going to happen. congress doesn't often say give up powers that it has. it's unfortunate that the administration has to ask for premium increases that look like a tax increase. a lot of employers and plans view premiums as just taxes and a lot of people, a lot of congressmen have a hard time voting for increased premiums. >> the administration's budget would increase premiums by $15 billion over ten years and that would eliminate the probability the pbgc's program became insolvent within 20 years. and the structure, the structure of the premium would have to be

changed. a flat increase for everyone would be totally inappropriate. it would have to involve a variable premium. it would have to involve some form of exit premium and it would have to involve some form of pbgc discretion or relief for plans that were unable to afford an increased premium, otherwise, you could make the matter worse. if you levied the premiums in a way that didn't make the plan worse, you wouldn't have to levee as many premiums to make pbgc solvent. we are committed to working with congress and we will look forward to doing that in the coming year or two. pensions, as i know from

experience are a bipartisan issue. most congressmen are dedicated to strengthening retirement security and i don't think there's any congressman, certainly they wouldn't say it in public they would like to see the pbgc go under. multiemployer plans are not well understood on capitol hill. oftentimes when we talk about them to folks on the hill, their eyes glaze over. but, it's definitely getting more and more attention. the concept of insolvency. nobody wants the multiemployer system to become insolvent because of an action. in september, the senate finance committee held a mark up that -- that would have -- that would relieve pressures on a

significant multiemployer plan. the united mine workers. and that bill passed out of the senate finance committee. it's got bipartisan support in both houses. it's a priority of the administration. we are very optimistic it will get passed in the lame duck session. i have been asked to not refer to the lame duck session as such and pretend i didn't say that. i heard of someone who went to their halloween party as a lame duck. they had a crutch and a cast and dressed like a duck. the house of representatives and the education work force held a hearing on a new proposal to

allow a different type of multiemployer plan. there is definitely room for creative ideas and we are working closely with staff of both houses to analyze new ideas in the multiemployer world and however, we need to make sure that any new idea doesn't put existing legacy plans at further risk of insolvency. so, that's a lens we are going to look at, look at any new proposal through. the problems facing multiemployer plans are complex and they deserve adequate time for full consideration and an open process involving all the interested parties. the single employer system is, as i mentioned, is much more --

much less likely to run out of money and much less likely to become insolvent and one of the reasons is because of recent increases in the premiums. some of those premiums increased for reasons other than -- this is my editorial content here, other than pension policy. and having been on the hill, i understand and i think most people in washington understand that because the pbgc is on budget, that an increase in premiums is an increase in revenue and although those premiums come to the pbgc, they

are scored as revenue increases that can justify spending somewhere else. so, conceptually, we pave high ways and build missiles with pension premiums. not really, only conceptually. that's just the way scoring works on the hill. and, in another way of looking at revenue through a mirror, sort of, funding relief is also a revenue raiser. if you allow employers to put less money into their pension plans, then the economists say and we lawyers often disagree with them, the economists say they will have more profits or

give their employees more money. more profits orem ployees more money means higher taxes, so, pension relief, funding relief is revenue that can be used to pave highways and build missiles. people like to pave highways. so, there's been at least two highway bills that have been funded by funding relief and premium increases. it's difficult to take that off the table. it's difficult for a congressman to say, okay, we are not going to do that anymore. however, i do believe congress has gotten the message and the administration got the message that additional single employer premiums are not necessary and, in fact, unwise at this point. i suspect that's going to be the case for a long time.

or i hope it is. and, so i think -- i think the fear of future premium increases on the single employer side is unwarranted right now. the options to shore up the defined benefit system are not going to be ease se. all of them involve some form of pain. it's going to be premium increases. it's going to be benefit cuts. it's going to be higher contributions by employers or it's going to be some other kind of revenue from the government. none of those are things that congress likes to vote for. so, we need -- we need to work with congress and figure out a way to shore up the programs with the least amount of pain.

i welcome to hear your suggestions and the issue brief that you issued is a great resource for us and a great resource for the hill. it outlines the issues and outlines the options very well. we appreciate that very much. i think we have some time -- i hope i have said something that promoted some controversy or some questions in your mind. i hope that someone will come forward with come questions. [ applause ] >> good morning, thanks for being with us. i really appreciate your commentary on especially when we look at the way the highway bills have been funded by telling employers to put less in

their pension plans to lower the deductions, bring in revenue. the premiums are a big topic. like you, i'm a big believer in pensions. i get troubled seeing where we are going and where we are leaving individuals with a pool of money to figure out how long they are going to live and manage those resources. when i look at the amendments to increase a single employer premium, i say to my clients a lot, i compare it to car insurance. the fixed rate premium is just a baseline. the, you know, a good driver is going to have to pay something for insurance. the variable rate premium is the difference between good drivers and poor drivers. we have seen both of those going up 400%-450% between 2012 and scheduled to 2019. what i wonder, from your perspective, if congress missed the third piece of it, which is

the variable rate premium cap. and the cap has only gone up 25% and, to me, i say the cap is protecting the person who drives into a tree every weekend and so, therefore, are we protecting -- >> i like that. >> -- are we protecting by not increasing the premium cap, are we protecting the most troubled of plans from paying their fair share of premiums? >> no, i -- i -- i don't know that i'm going to weigh in with a personal view as to where the cap should be, but i agree with the sentiment. i don't think congress ignored it, but i do think that they constantly have to walk the line of making -- of whether or not they make the problem worse. i think -- i think if i were

dictator and i'm not, or if i was a magician, i'm neither, i'm working on the magic, but if i could redesign the pension system, i would certainly do it in a way that encourages people to fund up. if everybody is well funded, you don't need much of an insurance system. that's certainly true in the multi-employer system where there's no premium and there's much less incentive to fund up. so, i do think that -- i know the administration is focused more on premium designs that encourage people to fund up. if we view premiums as a tax, and i think a lot of people do, we should tax stuff that's good.

should not tax stuff that's good and we should tax stuff we don't want. tax people leaving the system. tax underfunding. tax things -- don't tax folks who are covering people in active plans and they're well funded. maybe those guys should pay the bare minimum like you mentioned in your analogy to car insurance, but they shouldn't -- if they are doing the right thing, they shouldn't have to pay the variable rate premium that somebody who is running their car into a tree every weekend. i like that. i'm going to use it. [ laughter ] >> thank you very much for very interesting comments. one thought. most of the time we are hearing of anything of general revenue going in to support the pbgc,

the argument is given those people who never had a pension plan are being taxed to subsidize those who do. has any thought been given to having participants who are covered by the pbgc such as the multiemployer system be taxed for the guarantee they receive? it is to the participant, not the plan. if you are covered by a multiemployee pension plan, whether you are active, retiree, you pay $10 a month to the pbgc to have the benefit guaranteed. that generates a billion dollars a year for the pbgc and tax the people getting the benefit. >> that's what i like about actuaries. they are revenue estimators on the spot. you are absolutely right. there is thought about a participant premium. and, it is along the lines that

you just expressed. not the amount, just the idea, but the reasoning is based on the reasons you just expressed. i don't think it would be appropriate if i said where i heard the idea, but i hear it often and in high places, both from advocate groups as well as folks on the hill. as i mentioned earlier, anything is going to involve some kind of pain. that wouldn't be painless, but may be appropriate. if you are talking shared pain, that may be a way to do it. i think everyone would regard that as was pointed out in your issue brief. i think everyone would regard that as a benefit cut. but, it's -- it's $10 a month or something on that order that you

mentioned, is not a huge cut. like has been discussed in other context. it may be appropriate, especially if the premium is based on the amount of benefit you get. there are some plans, like the coal miners where the benefits are not very high at all. there are other plans where the benefits are pretty significant and if a participant premium were based on the benefit they are going to receive, it might be more appropriate. there's also a discussion -- i know this was a big discussion when i was on the hill as to how far you can raise premiums either on participants or employers without a plan without raising the guarantee level. people might not be willing to pay much of a premium for a

guarantee that guarantees $12,000 or $13,000 a year. you are absolutely right, there are people on the hill and off the hill that are thinking about that very thing. i wouldn't be surprised to see it reduced to legislative language before the end of the year. yes. >> hi, there. first of all, i want to echo your comments we have really wonderful, dedicated employees working at the agencies that are pretty devoted -- >> at the irs, too. >> yes. [ laughter ] >> i think, particularly -- no, i'm just kidding. i do say that as a former employee, i get a little disappointed in the lack of appreciation, so i appreciate you bringing that up. but my question is, looking at not just the gb system which i'm a fan of, but the entire u.s.

retirement system is challenged and we are heading into waters that are troubled as well. we as the american academy of actuaries can do to better support you in your other peopl the different agencies and on the hill to try to solve this problem and move us towards something that's going to actually work. >> i think you're actually already pretty involved. but i do think that the education efforts of people like the academy in the value of lifetime benefits. i think, especially among millennials, i think there's an increasinged appreciation for retirement security. and there's been recent research on that issue and millennials

have expressed an interest in -- and a willingness for less cash compensation in favor of more retirement security. but i don't know that people understand that retirement security means more than just a pot of money when you retire. and it's very difficult for people to understand how much money is really necessary. and there's a lot of people who retire with $200,000 and think they're very wealthy and they're going to be fine. but they don't have a lifetime stream of income. i think that i'm experiencing this when dealing with parents and parents-in-law that you hit a certain age, and i'm getting closer to it. but you hit a certain age where it's very difficult to manage that money. and when i'm 85, i don't want to

be thinking about where my money should be invested or how much i should be taking out of my defined contribution plan. and so i'm looking forward to having some kind of an annuity that will last the rest of my life. i think tulacs are a very promising area and they haven't taken off, but i think in the next ten years, you'll see more activity in the qlac area. but i find even people at the ppgc don't have a real good understanding -- young people at the ppgc, don't have a real good understanding of what it means to have a lifetime income. there's a lot of people who say, when you -- you press them, cross-examine them. well, what if you have this pension, but when you're 40, you're in a hurricane and your roof blows off. shouldn't you be able to get some of that pension? they are like, yeah, you should be able to take some of that to take care of your roof. it's hard to argue with that.

i don't want to be too strong an arguer, but that's what's happened to i.r.a.s. the "i" in i.r.a. doesn't mean retirement because the list of exceptions of things you can take your i.r.a. for is long. and it's difficult for congress to turn them down. every year some new proposal of things you can draw your i.r.a. down for or your 401(k). and it's hard, when katrina wipes out new orleans, it's hard to say, you can't touch your i.r.a. or you'll have to pay a penalty. so the list is long. and i'm not sure how to get past that, but i do think that the defined benefit plan does it. so that's why i'm continuing to preach for defined benefit

plans, but i also know we have to have some other vehicle. so coming up with the other vehicle, and i was just listening to one just now, and where you get a defined -- a plan that the employer and the employee have some kind of a shared risk. we've talked a lot about derisking, but it's really risk transferring. and i think if we could transfer a little bit less risk to the employee and have some kind of a program where the employer and employee share the risk, i think that's got a lot more promise than either employer has all the risk or the employee has all the risk of outliving their income. >> we're going to have time for one more question. >> thank you for being here.

we talked a lot about policies and premium in particular. you don't have the ability to set your own premiums. the question is to what expeten can you influence your own policies, including that of setting premiums. and can that be enhanced, and how could it be enhanced given the complexities of capitol hill? >> well, we mainly have a lot of input in setting the administration's budget. so we are -- we play a role in establishing the administration's budgets with respect to ppgc issues and that include includes premiums. however, congress very rarely takes the president's budget and just enacts it. less than rarely. so it's pretty remote.

and i think the biggest tool we have in setting premiums is the tool to measure the risks, specially the pems model we use to evaluate the risk that we're going to run out of money. and i think congress is getting more and more trust in that modeling system. and they are -- they now rely on it. congressional budget office and joint committee on taxation, rely on our model in evaluating proposals on the hill. and i think that's the biggest tool we have to helping congress to realize the importance of premium setting.

but i keep coming back to the fact that congress sees premiums like a candy jar. and it's difficult to take the candy jar away. as many parents know, having gone through halloween, it's hard to just say, okay, you've earned all this candy, now i'm going to take it. so i don't have a lot of promise for getting it, but getting the power to set the premiums, although every time people complain about where the premiums are, i can say, if we're setting them, they wouldn't be where they are. of course, i'm not telling you where they would be. they wouldn't be where they are. okay. thank you.

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