Why American Health Care Is a “Broken System”

Hosts

Derek ThompsonDerek Thompson

About the episode

Summary

• 0:46

  Read the full transcript from this episode of Plain English below.

  Derek Thompson: Today, the myths and the realities of American health care. Last week, as you surely know, UnitedHealthcare CEO Brian Thompson was murdered outside a hotel in Manhattan. The killer wrote, “Deny, delay, and depose” on the bullet casings, and in his purported manifesto said that the killing was motivated by rage at the insurance industry, rage that is clearly felt widely. In the aftermath of the killing, many people seem to delight in this man’s assassination. Jia Tolentino, a writer at The New Yorker, captured the gleeful response of many Americans this way.

  “The jokes came streaming in on every social-media platform, in the comments underneath every news article. ‘I’m sorry, prior authorization is required for thoughts and prayers,’ someone commented on TikTok, a response that got more than fifteen thousand likes. … On LinkedIn, where users post with their real names and employment histories, UnitedHealth Group had to turn off comments on its post about Thompson’s death—thousands of people were liking and hearting it.”

  As awful as this is, it is worth paying attention to, because the same way that a fun-house mirror is a grotesque reflection of a very real person standing before it, this online reaction was a grotesque illustration of something very real. There’s an enormous amount of anger and frustration about the state of American health care, and there ought to be. The U.S. is the most expensive health-care system in the world, while for many people it delivers bad care at exorbitant prices. But anger is not always a sign of accuracy. And while some of the most popular reasons to be furious at American health are based on truth, many are based on misunderstandings and myths, especially about the insurance system.

  So what I wanted to do this week was to present a calm and informed conversation with a health-care expert to walk me through what I consider the biggest health-care questions of the moment. Why are American health-care costs so high? How much are insurers to blame? How do other countries handle health insurance differently? What can we learn from them? And what, if anything, should make us optimistic about the future of American health care? Today, we have two guests. First, we have Jonathan Gruber, an economics professor at MIT and a key architect of several health-care laws, including the 2006 Massachusetts health-care reform and the Affordable Care Act. Jon walks me through the key drivers of health inflation and American anger at the health-care system.

  Second, David Cutler is an economics professor at Harvard who served as senior health-care adviser under Barack Obama. He helps us think comparatively about the weaknesses and strengths of the U.S. system compared to Canada and what reforms could help Americans live longer and healthier lives. 

  I’m Derek Thompson. This is Plain English. Jonathan Gruber, welcome to the podcast.

• 4:27

  Jonathan Gruber: Great to be here, Derek.

  Thompson: I want to talk to you about why American health care is so expensive and so frustrating and so aggravating, but I’d like to start with a thesis statement on your part. You are one of the most preeminent economists and policy architects for health care in America. And I’m curious how you’d handle a big, honking, unsophisticated question like “What’s our biggest problem?” 

  So let’s just start there. What do you think is the single biggest problem with American health care?

  Gruber: I would handle it like any academic and say there’s two answers to your question. One is the enormous disparities in our health-care system. Derek, I’m here in Sweden. A white child born in America today has as much chance of seeing their first birthday as one born here in Sweden. A Black child has a lower chance than one born in Barbados. That’s a fundamental challenge with our system. 

  The other is prices. We spend more on health care than any other country in the world, and as we’ll talk about later, the main culprit is the enormously high prices we pay for health-care services.

  Thompson: So maybe the most famous fact about American health care is precisely that, that America spends more money than any nation in the developed world on a per capita basis and in total on our health-care system. And what I’d really like to do is structure the rest of our conversation around three stories, three explanations for the phenomenon of high health-care costs, and then use those stories to guide our tour of the state of American health care, including the story of the moment, which is clearly the American insurance industry. 

  Let’s start with the first story, which is also the worst story—by which I mean the most bloodlessly unsatisfying explanation for why American health care is so expensive, a story that will please nobody.

  And that is, American health care is expensive because America is rich. And rich people in a technologically advanced country spend a lot of money, have a lot of extra money to spend, spend a lot of money when they make deep contact with their health-care providers at a hospital or make contact with technologically sophisticated equipment. Whether it’s a hospital or outpatient clinic or buying drugs, we spend the most because we use the most. How far does this explanation take us? How much truth is there to this being the top story for American health costs?

  Gruber: Well, Derek, I think a useful way to think about it in all these contexts is compared to other countries. And we are the richest country, and so we should spend the most as a share of our economy on health care. Health care is what we call a non-tradable good. And as countries get richer, they spend more and more of their economy on non-tradable goods. So we should spend a lot. The difference is, if you look at what we should spend relative to our income, we still spend about a third more than we should. So income is not the story.

  Now, part of what’s going on here is we’re using a lot more care. A lot of it is very productive, but a lot of it isn’t. Here’s two ways to think about it. In 1950, we spent 4 percent of our economy on health care. Today, it’s 18 percent. And you know what? It’s been worth it. Health care sucked in 1950. Babies were four times as likely to die before they reached their first birthday. If you hurt your knee skiing, you were in the hospital for a week, you were on crutches for six weeks, you had arthritis the rest of your life. Today, you’re scoped, you’re back on the slopes a week later. Health care is 18 percent of GDP. We’re a better off country, given the health improvement we’ve had, than we were with the crappy health care we had spending 4 percent.

  At the same time, we waste about a third of what we spend. Now how are those two things consistent with each other? They’re consistent because the other two-thirds has been awesome. We have had incredibly miraculous developments in health care that have been wonderful for our health. The problem is, at the same time, we spend a lot of money on things that don’t actually improve our health. And that is the conundrum that’s leading to excessive health-care utilization. That excessive health-care utilization is fundamentally a lot of the story, but it sort of isn’t the best answer. Because then you have to ask, “Why do we have excessive utilization?” That just begs the question of where it comes from.

  Thompson: Is excessive utilization or wasted spending something that we can see beforehand, such that there’s a formula to tell doctors and patients and insurance companies, “This is the thing that is wasteful, this is the thing that’s excessive”? Or is there a funny way in which excessive spending is past tense for treatment? Right? You can only see that it was excessive after you’ve spent it.

  Gruber: Derek, a great way to think about that is to think about spending at the end of life. A lot of people talk about how much money we spend in the last six months of life. Of all the money a typical person spends over their life, they’ll spend something like one-eighth of it in the last six months of life. And you might say, “Gee, that’s ridiculous. We’re spending all that money.” But it’s ridiculous after people have died. But in fact, if someone’s dying, they’re exactly the person you want to spend a lot of money on. So the question is, how much of that spending do we know in advance was wasteful? And the answer is relatively little.

  So the answer is, you’re exactly at the right point, Derek. It’s easy to look back. There are some things we know. We’re on a sports network. Let’s talk about back surgery. We know for most people, back surgery is wasteful. For most people with most back ailments, other nonsurgical options are better. Yet we continue to do, a growing share of individuals continue to get back surgery. But that’s a tiny piece of the puzzle. Most of what is excessive we only see looking back over time, and it’s hard to know what to do about that.

  Thompson: Let’s move to the second story, which is that the U.S. health-care system is more expensive than other countries because of greed, that America’s prestigious hospitals charge more for the same service than less prestigious hospitals because they’re greedy. The pharmaceutical prices are higher in the U.S. because Big Pharma is greedy. This is a moment right now where there are a lot of people who I think are angry and aggravated about the state of American health care, and they’re hitting on this concept of greed. And greed is not a piece of the typical economist vocabulary. So I’m interested in how you think about this narrative, this attempt at explaining higher American health-care prices—that it’s fundamentally a story about greed.

  Gruber: I mean, ultimately, Derek, economists don’t like that term, and we don’t like putting morality on what we call profit maximization. If someone is offered an opportunity to make money in a legal way and it’s not harming anyone and they decide to do it, we don’t call that greed; we call that profit maximization. And basically, the fundamental problem in the U.S. health-care system—look, there’s a lot of fraud that needs to be addressed. But that’s not the majority of the story. The majority of the story is completely legal profit making that is explained because we have a broken health-care market. And that is the key to the story.

  So if you look at health-care economics, the founding document of health-care economics was an article in 1963 by Kenneth Arrow, who was a Nobel Prize–winning economist. And what Kenneth Arrow said in that article was health-care markets are fundamentally broken. What does that mean? That means that they’re not like the markets for apples. Think about the market for apples. When you want to go buy an apple, you have a sense of what an apple should cost and what a good apple looks like and tastes like because you shop for apples a lot and you have a sense of how that should work. But when you’re shopping for heart replacement or pneumonia care or things like that, how the hell are you supposed to know what it’s supposed to cost or what good care looks like? You have no idea.

  Moreover, when you shop for apples, you have a multitude of options that have to compete with each other. Your supermarket can’t charge you 10 bucks an apple, because you can go a mile away and buy an apple for a buck. OK? That’s not true with health care. With health care, first of all, we have situations where there’s literally no competition. Take a hospital on Nantucket Island in Massachusetts. If you have a heart attack, you go in there. OK, that’s it. Full stop. 

  Second, and here’s one of my favorite health-care stories, there can also be monopolies that come from reputation. Once again, return to sports. When our beloved Big Papi was shot in the Dominican Republic, did he go to the flagship hospital of the Boston Red Sox and one of the top 10 hospitals in the country, Beth Israel Deaconess Medical Center? No. He went to Mass General Hospital, probably the no. 1 hospital in the country, because that was slightly better. Because it was slightly better, because he was Big Papi, he goes to the best. Basically, Mass General Hospital, of course, finally charges a ton more than Beth Israel charges, even though they’re both amazing hospitals. The point is that we have a fundamentally broken health-care market.

  Thompson: And many people at the moment are saying, on top of that, we have a broken private insurance industry that is so consumed with the goal of profit maximization that it has no compunctions about ruining people’s lives by denying claims and driving up their own operating income, right? That’s the claim that’s live right now in the discourse. But for the moment, I want to juxtapose that claim with a fact, which is that the U.S. private insurance industry actually is significantly less profitable than most large publicly traded firms. UnitedHealthcare’s profit margin is about half the S&P 500’s average. Cigna’s profit margin, my insurance company, is about 2 or 3 percent. That’s quite low.

  And I wonder, without simping for the insurance industry, what you think is the smart way to think about that statistic: that insurance companies, while despised by the public for being unusually rapacious, are often less profitable than the typical large, publicly traded firm?

  Gruber: Look, insurance companies, I hate—people are not going to like hearing this. Insurance companies are not the bad guy here. And I am, quite frankly, a bit sickened by the humor that’s gone around the shooting of the United CEO. Insurance companies are just middlemen who are taking a slice of the pie along the way. They’re just saying, “Doctors are going to charge a certain amount, employers are willing to pay a certain amount, I’m going to take my slice along the way.” Could their slice be smaller? Maybe, but not that much smaller, as you point out, Derek.

  Fundamentally, if you should criticize insurance companies for anything, it’s being a little bit lazy. I think they’re not as innovative as they could be in trying to find ways to really manage our health care and make us healthier. They’re really just middlemen between a health-demanding public and employers and a health-supplying provider sector, and they take their slice along the way.

  Thompson: If the system is broken and you wouldn’t like to blame insurance companies as much as the prevailing wisdom would like to blame them at the moment, where does the blame ultimately lie, do you think?

  Gruber: I think, ultimately, the blame lies in the fact that our health-care services are overpriced. So if you compare us to other countries for a typical drug, for a typical surgery, et cetera, we pay much, much more than any other country on earth. And the insurers are the middlemen passing those high costs on to consumers. Now, one thing insurers do to try to fight that is they try to manage your care. They will say, “You can’t have this care. Denied.” Or they will limit where you can go to the doctor as a way to try to get prices down. Those are things which make people unhappy, and they’re mad at insurers.

  But ultimately, if they didn’t do them, prices would just be higher. I think the best way to think about this, Derek, is to think about airline deregulation. You are too young to remember when flying was a wonderful experience. When I was a kid, the seats were huge. There was real silverware. This is in economy class, OK? You got free booze, break meals, et cetera. Then what happened? What happened was the government deregulated the airline industry. They said airlines had to compete. And how did airlines compete? By lowering prices and giving you shitty service. And guess what? That’s what the people wanted. If people really wanted nice flights at higher prices, they could have them. They could create airlines.

  JetBlue did this for a while. Now JetBlue is kind of mediocre as well. But while JetBlue was nicer, there was higher levels of service. But you know what? People would rather have crappy flights at low prices. That’s what the people want. And at the end of the day, there are options out there: You can have a health insurance plan that won’t limit your care, that lets you go to any doctor you want. They exist today. They’re often Blue Cross plans. But you know what? People don’t want them because they’re more expensive.

  Thompson: The obvious follow-up question here is going to be, well, if the problem is prices, how do we think about solutions to prices? But I want listeners, who have that question top of mind, to understand I’m going to get to solutions right after we go through this final story. Because I do think there’s one more narrative approach to the question of high health-care costs in America that’s worth getting into. We’ve talked about the utilization story. We’ve talked about the greed story. Let’s talk about the waste story.

  The waste narrative is that American health care is expensive in large part because of administrative waste. That our private insurance system requires—forces—a huge amount of paperwork onto doctors, onto hospitals, onto patients, onto insurers. In the absence of any single payer or centralized system, we are simply drowning in paperwork that is making people’s lives hell and meaningfully raising the cost of health care, because you need to hire a bunch of administrators to handle all of this paperwork. How do you feel about the administrative bloat story about high health-care costs?

  Gruber: Look, I think there’s a lot to it. And this comes to the big topic that’s on everyone’s mind, which is single payer. What does single payer bring you? It brings you universal coverage. And if you want to learn more about coverage, you can watch my TED Talk online, where I talk more about that. It brings you regulated prices, and we’re going to come back to that as a solution I think we need for health care. And it brings you reduced administration, through having one payer. That’s great. But like your first story, Derek, it’s a small piece of the puzzle. Let me explain how to think about this.

  If the U.S. does nothing to control health-care costs, our country will be spending more than a third of our entire economy on healthcare by the year 2100. OK? Let’s say we could get our insurance administrative costs down to the level of Europe. Then our country will spend 33 percent of GDP on health care at the end of the 21st century, plus one year. The point is, health-care costs are rising at 7 percent a year. If you cut health-care costs by 7 percent, who gives a shit? OK? Basically, it’s the growth that matters. It’s the unsustainably rapid growth of 7 percent a year we’ve seen historically. That’s what’s going to bankrupt us as a country. So if I cut the administrative costs, that’s great. That’ll help some. But it’s not going to solve our long-run problem.

  Thompson: In your view, what are the most important political, psychological, industry-incumbent barriers to bringing a European, Canada-style single-payer health-care system to America?

  Gruber: I think there’s fundamentally three barriers. The first barrier is how we pay for our health insurance. So if we had single payer, you’d pay what we call an explicit tax. You’d literally dedicate how much tax you’d pay, and that would finance single-payer health care. Once again, I’m here in Sweden. They pay a 25 percent payroll tax and a 50 percent income tax. OK? They get a lot of benefits, one of which is single-payer health care. Okay? In the U.S. today instead, you get health care from your employer. Now, how does your employer pay for that? They pay for that, not out of the goodness of their heart, but by lowering your wages. OK?

  MIT spends about $18,000 a year on my health insurance. They basically pay me $18,000 less a year to make up for it. That’s what we call a hidden tax. So the first problem with single payer would be moving from a hidden tax, which no one sees, to an overt tax, which people see. That’s politically challenging. That’s problem one. That’s the least of the problems. 

  Problem two is about 90 percent of Americans today have health insurance, 92 percent, and they’re by and large satisfied with it. Sure, they don’t like it. They’re upset about things. But what I mean by “they’re satisfied” is they’re not going to be very happy if the government rolls in and says, “Hey, you should give this up for some new thing called BernieCare. And don’t worry, it’ll be good enough.” That’s going to be very difficult to sell.

  Just to make a point, under the Affordable Care Act, which I worked very closely on, we addressed the fact that fewer than 3 million Americans had basically crap insurance that didn’t really cover them. If you went to the hospital, they didn’t really cover the hospital, et cetera. We said, “You can’t have that insurance anymore.” And as a result, those people had to pay more for what amounts to real insurance coverage. Literally every single one of them sent me an email saying, “How dare you take away my valuable insurance coverage?” And this insurance coverage wasn’t even real. Imagine now you have 200-plus million Americans, and we’re trying to take away what they have. That’s a nightmare. OK? So that’s problem two.

  Problem three, and sadly probably the most important—here’s where the insurance industry is the bad guy—is we have a $1 trillion insurance industry, and they’re not going to say, “OK, it’s been a good run. Off we go. Have fun.” They’re going to fight. The profit margins may be small, but they’re not zero, OK? The CEOs get paid a lot, and they’re going to fight to keep a multi-payer system in America. I’m not saying single payer is impossible. I’m just saying that I like to think of the famous joke told among health economists. The health economist dies and goes to heaven. God says you can ask one question, and the health economist says, “God, will there ever be single-payer health care in America?” And God says, “Yes, but not in my lifetime.”

  Thompson: I want us to spend a roughly equal amount of time on possible solutions here. So let’s talk about several paths forward. You said there are three roads we can take toward curtailing rising health-care costs. First, the government can restrain demand growth. Second, it can limit supply when that adds to costs. And third, it can regulate prices. Let’s do that one, two, three. What do those three paths forward look like?

  Gruber: So what I mean on demand is quite simply that all health care should not be free. That health care is a good we consume and make decisions on. And that those decisions can lead us to sometimes consume too much, and that the way that the free market system battles that is by charging us prices to make sure we don’t consume too much. Let me give you one example. I hurt my knee playing tennis. Two weeks later, it was still hurting. My wife was sick of me whining. She said, “Why don’t you go to the emergency room, get it looked at.” I went to the emergency room. They gave me an MRI. They looked at it, they said, “Stop being a whiny bitch. Go home. It’s fine.” Two weeks later, I was good. That cost me 50 bucks, OK? That cost my insurer $1,000. That’s ridiculous.

  It should have cost me a lot more money. I’m a person who could afford it. And as a result, I would’ve thought harder about whether I could go. Individuals who can afford it need to have skin in the game in health care. Not everyone. Someone who’s very poor, $50 is backbreaking. And if they really needed health care, they wouldn’t get it. What we set up in the Affordable Care Act and we should do more of is income-related out-of-pocket cost sharing. What that means is poor people get care for free. As you get richer, you pay more and more of your costs. That’s not rationing. That’s just saying that if people are going to make health-care decisions and they can afford to bear the consequences, they should.

  Thompson: And what does restraining growth on the supply side look like?

  Gruber: Yeah, that’s a real challenge. It actually bleeds into the next answer. But the main thing is, you don’t want to just willy-nilly say, “We’ve decided there should be x MRI machines” or “I don’t like the look of this surgery, I like the look of that surgery.” There’s a framework you can use. And that framework is called comparative effectiveness. It’s a big term, but it basically means just do stuff that’s worth it, not stuff that’s not, and don’t pay more than things are worth. 

  What does that mean in practice? What that means in practice is, for a given medical procedure or drug, we evaluate the value of health it delivers. Basically, here’s how much it improves your health. We have a value on that improvement of health, and we say, “This is what it’s worth, and this is what we should pay.” And if we’re paying that much and people want to provide a lot of it, great, there’s no reason to stop it.

  So let’s take, for example, a particular intervention, a particular surgery. And we say, “Look, we’ve calculated the value of health it improves. It improves health. The value of health it improves is $4,000. This surgery is worth $4,000. We will pay $4,000 for it.” People want to do it all the time, $4,000. God bless them. As long as on the demand side, they are bearing the cost to the extent that they can. And as long as we’re providing information about what works and what doesn’t, it’s not hurting people. But I don’t think the answer is to say, “We want this many MRI machines.” The answer is to say, “Here is the value the services deliver, and let’s set the prices to be tied to that value.”

  Thompson: All right. We’ve held you off long enough. I think it’s finally time to unleash you on the concept of price regulation. And maybe the right way for you to go at it here for our purposes is to make some kind of international comparison. Because I think it’d be useful for people to understand the difference in the way that the U.S. does not entirely regulate prices. And the truth is, to a certain extent, there are prices set by the federal government. There are reimbursement rates that are set under Medicare and Medicaid. But the U.S. largely doesn’t regulate prices. How is it useful to think about America in comparison to another country that is much more aggressive about regulating prices on behalf of patients and doctors and hospitals?

  Gruber: Well, one thing. Derek, I’m just looking right here at the data. You can look at the data. So if you look at the cost of a hip replacement—and this data is a little out of date, but this was a few years ago. In the U.S., it costs about $32,000. In the average developed, wealthy developed country, it costs about half that, about $16,000. And in the lowest-cost, yet still wealthy country, it costs about $6,000. You can do these same calculations with everything from C-sections to common drugs. You take the drug Humira. It costs almost $5,000 in the U.S. It costs less than $2,000 in the average wealthy country, and as low as below a thousand in the lowest-cost wealthy country.

  We are just paying much, much higher prices for all these services. And it’s not surprising. What’s stopping the high prices? Derek, what stops prices for apples from being out of control or cars from being out of control? Because we know what we’re shopping for, we have lots of competition, and we shop with full information. That’s not true. You don’t sit in the back of the ambulance and say, “Wait a second, that hospital is too expensive. Take me over there.” And even if you did that, you wouldn’t know how much it costs because it’s not transparent. This is a market where standard economic models of perfect competition do not work. Every other country in the world’s recognized that; we haven’t.

  Thompson: So let’s say you are made health-care czar. You’re in the health-care czar office of the next Democratic presidential administration, and you say, “We’re going to experiment with some price regulations. We’re going to take the cost of”—let’s keep with your example—“hip replacements, and we’re going to bring it down to the OECD average.” So whoof, with a wave of my hand, we’ve just cut $16,000 from every single hip replacement. Who’s going to scream? I would imagine maybe the doctors would scream. I’d imagine maybe people who are making parts that are used in hip replacements would scream because there might be less demand for new versions of that technology.

  But who is being—someone’s going to be hurt if we change a multitrillion-dollar system in this way. Who, in your mind, is getting the money taken out of their pockets such that we would expect them to be the ones to scream the most? Is it insurers? Is it doctors? Is it other providers?

  Gruber: Yeah, that’s a great question. And I think that, ultimately, it’s providers. First of all, if I was the health-care czar, I wouldn’t just pay what Europe pays. I would do a study of what’s the value of a hip replacement, and I’d pay according to that study. Answer one. Answer two is, who’s going to scream? It’s going to be providers, in particular the specialists and the hospitals. And let me tell you a story that illustrates that, Derek. If you get a shot, a drug injected at the doctor—not one you buy at the pharmacy, but an injectable drug, like for cancer, at the doctor—the way the government reimburses you under Medicare, that’s our universal coverage for the elderly, is the doctor gets paid 7.5 percent of the cost of the drug.

  So if I give you a shot, Derek, that costs $100, I get $7.50. If I give you a shot that costs $1,000, same effort, same risk of carpal tunnel, I get $75. That’s stupid. That makes no sense. So 20 senators wrote a letter to President Obama saying, “Look, the system’s broken, we should fix it.” So President Obama and his advisers came up with a new system where doctors would largely be paid a flat amount per shot. Budget neutral. We paid the same amount of money to doctors in total, but you get a flat amount per shot. Shortly thereafter, 80 senators, including most of the original 20, wrote a letter to him saying, “How dare you propose this radical revitalization American health care? You must stop this at once. It’s socialism.”

  What happened? Well, the oncologists, the cancer doctors, are the ones that give the $1,000 shots, and they got upset and they lobbied. That is the challenge, Derek. That’s why I have difficulty—let’s say you talk them from single payer into something smaller. This is not small. What I’m talking about is massive, OK? We have taken a step in that direction. And President Biden, the Inflation Reduction Act, it’s the first step towards real price regulation, and it’s on drugs. And the reason we came for the drugs first is because the price is the most transparent and those goddamn ads. People are sick of the ads.

  Derek, you might have been—you’re my kids’ age, roughly. You might’ve asked your dad while watching football, “Dad, why does the guy keep throwing that football through that tire swing all the time in the Viagra ad?” And your dad had to cover up in embarrassment. Actually, true story, my friend is a doctor in Lexington, Massachusetts. This is totally true. An 8-year-old came in and said, “I’d like to talk to you about Cialis,” the erectile dysfunction drug. And the doctor said to the 8-year-old, “Why do you want to talk to me about Cialis?” And the 8-year-old said, “Well, I was watching football with my dad and they said, ‘Talk to your doctor about Cialis,’ so I’m talking to you about it.”

  So people are mad at the drug companies, and that’s who to come for first. The Democrats originally proposed that we would regulate the price of the 250 most expensive drugs under Medicare. That led to a huge fight, which resulted in passing the fact we regulate only the most expensive 10. But even those 10 saved the government $6 billion. So it’s a step in the right direction. We’re going to incrementally get there.

  Thompson: Well, I hope we get there, Jon. Let me tell you, I’m a generally optimistic person, and I’m about to throw some pessimism at you. But I’m just framing the pessimism under the fact that I am generally optimistic. So the same week that Brian Thompson was murdered, there was another piece of very loud news in American health care, and that is that the American Society of Anesthesiologists, a lobbying organization, sharply criticized the insurance company Blue Cross Blue Shield for a policy that would’ve curtailed reimbursements for anesthesia care that went beyond a certain level.

  And so this policy is announced, and the internet loses its mind. You have people screaming at Blue Cross, saying, “You’re going to get people killed for profit.” And so the insurance company backs off and cancels this policy. And it made me think this. America is furious about high health-care prices, but we are often even more furious when insurance companies take steps or the government takes steps that would restrain price growth, because those steps feel like limiting freedom and endangering patients. I mean, in a way, what Blue Cross was doing here was price regulation. They were setting a price ceiling on certain kinds of reimbursements, and people lost their mind.

  And so I raised this point not to mock Blue Cross’s critics—they might’ve had a point—but rather to point out that it seems to me a very deep problem with health-care economics: that Americans hate both the disease of health inflation and the cure to that disease. They want whatever their doctor orders; they want it at an affordable price. And the issue is, if you scale that across an economy, what you get is insurance premiums skyrocketing because every procedure has to be covered. So to turn things over to you. You’ve been in the trenches, Jon, you’ve been in the political trenches. Am I wrong, or is this a very live issue, this fact that—or this possibility that—the medicine for rising health-care costs is often much more unpopular than the fact of rising costs themselves?

  Gruber: Oh, you’re absolutely right. It’s tremendously live. Like I said, it was a miracle we got a bill through that regulated the price of the 10 most expensive drugs, and that’s only because people hate the drug companies. They don’t feel that way about their doctors and hospitals. So this is an enormous battle. And people are mad at the insurance companies. And like I said, the insurance companies are by and large not the bad guys here. They do some bad things. But by and large, they’re not the bad guys here. They’re just pass-through agents who are occasionally trying to get costs under control. And when they do, they get slapped and yelled at.

  Look, let’s look at the history in the U.S. In the 1990s, health-care costs grew very slowly. Why did that end? Well, that ended because people got mad at HMOs for limiting their care. And state legislatures passed laws which handcuffed the ability of HMOs to limit care, and costs went back through the roof. OK? Basically, it’s like my flight example. You can’t have cheap flights and free booze, OK? You’ve got to choose. And ultimately, the problem is the person who says that is unpopular. That’s why people don’t like economists. They’re called the “dismal science” because we tell people you’ve got to make these tough choices.

  Here’s, I think, the answer, Derek. The answer is to worry less about what we pay today and more and more about the future. We spend 18 percent of GDP on health care. You know what? We can afford that. We’re a wealthy country. We can’t afford to spend a third. So you take those doctors making $500,000, $1 million dollars a year, who are going to go crazy when we try to cut, and say, “You know what? Great. You keep that $1 million a year, but it can’t grow by 10 percent a year anymore. It’s got to grow by 3 percent a year. It’s got to grow at the rate of the economy.” To your point about status quo bias, it’s hard to cut, but can you limit growth? Can you, in some sense, take this status quo bias and backward looking in each of our systems and use it to your advantage by saying, “Look, we don’t care. We’re not going to go back to 10 percent of GDP, we just don’t want it to be 30. So let’s grow it slower so it settles down and stays below 20. We can afford that.”

  And I think that’s the only answer that’s really going to work. I think we’re not going to dive in and really start to cut costs a ton.

  Thompson: Maybe the single starkest American health-care fact to me is that, if you compare the U.S. to other countries and you break America into two different countries—one country that is all the college graduates in America and one country in this distribution of line graphs of longevity over time that’s non-college-educated Americans—Americans with a BA are living about as long as anybody in the world. We’re right up there with Northern Europe and the Scandinavian countries that we think of as being the healthiest places to live in on the planet.

  But if you look at the line of Americans without a bachelor’s degree, they’re not just dying about a decade earlier compared to college graduates, they’re dying about six years younger than the average person living in just about any European country, any developed European country, Australia, Portugal, Sweden, and so forth. And to go back to the very first point you made about disparity, the two biggest problems with American health care are disparity and prices. These folks without a college degree do seem to be getting the worst of several worlds. They’re living in an unhealthy country. And the only health-care system they can legally buy into just happens to be the most expensive health-care system in the world. What fix would you push for these folks that would be especially helpful?

  Gruber: You’re absolutely right. It’s even starker than that, Derek. Many people remember the Freddie Gray riots in Baltimore a number of years ago, when the police killed a Black suspect in a car and there were riots in Baltimore. If you look at Freddie Gray’s neighborhood versus a neighborhood three miles away, in the neighborhood three miles away, the average life expectancy is 84 years, which is above U.S. average. In Freddie Gray’s neighborhood three miles away, it was 64 years, which is below North Korea. OK? Basically, these disparities are enormous. What can you do about it?

  Well, the first thing you can do is what I’m very proud we did in the Affordable Care Act, which is level the playing field in terms of access to care. We tried to reform health care for 100 years before the Affordable Care Act. And the mistake we kept making was saying you have to tackle access and costs at the same time. The answer is you don’t. We need to get everyone access. We are a country too rich to have those disparities, and we’re a country too rich to be the country we were before the Affordable Care Act, where insurance companies really were bad guys in many ways and could deny people coverage just because they were sick, or charged them more because they were women, or excluded a preexisting condition.

  We’ve gotten rid of that. It’s very important, especially given the recent election: We cannot go backward. We have to go forward. And the fundamental attack on disparities can be getting people insurance coverage. We are saving tens and hundreds of thousands of lives since we passed the Affordable Care Act by getting more people health insurance coverage. That said, once they’re in the system, we then have the price problem, and it becomes unaffordable. And so really in some sense, I think the lesson of the Affordable Care Act and the lesson I take is to think of these as two separate issues. One is a moral imperative: It’s outrageous that someone—because they’re born in the wrong circumstances or with the wrong genes—has such a shorter life expectancy. We need to address that.

  The second is for everyone: getting the cost down. I think that people who don’t really want to do anything about health care in the U.S. try to link them together, and that’s their way of getting nothing done. We need to recognize that you can deal with disparities even when health care is expensive. It’s just morally repugnant. The lines you described are morally repugnant in a country as wealthy as ours.

  Thompson: To end on what may be a brighter note, I did promise you that if you came on this show, I would allow you to talk about one of your favorite sports teams on a Ringer podcast. So my question is going to be about your beloved New York Knicks. How do you like the new lineup, and how do you think KAT is fitting into the team?

  Gruber: I think that KAT was a great trade. Love the trade. Obviously, I’m not saying anything new if I say that KAT has been terrific on offense and bad on defense. I think that, look, if you knew you were going to get KAT, you re-sign [Isaiah] Hartenstein, you don’t trade for Mikal Bridges. I mean, basically, I think the Mikal Bridges trade was not great. It’s looking worse in retrospect. And the answer is, KAT cannot be the 5. You need another big man in there. Then hopefully, when [Mitchell] Robinson comes back, that will help solve the problem.

  But at the end of the day, I think that if they knew they were going to get KAT, they should have re-signed Hartenstein and not gone and gotten Bridges. I think that would’ve been better. I think I’m still optimistic that when Robinson comes back, they can compete with the Celtics. I think they’re really, I mean, KAT is amazing. [Jalen] Brunson is amazing. I love OG [Anunoby]. So I think they’ve got a real shot to be competitive. But yeah, they’re going to need a lot of minutes out of Robinson.

  Thompson: Jonathan Gruber, thank you for your basketball analysis, and more importantly, thanks for this. I really learned a lot in this Health Care 101. I thought it was great. Thank you.

  Gruber: You bet. It’s my pleasure.

• 43:20

  Thompson: That was our interview with Jonathan Gruber of MIT. Next up, we have David Cutler, a health economist at Harvard University, talking about insurance and the future of American health care. David Cutler, welcome to the podcast.

  David Cutler: It’s great to be with you.

  Thompson: So I want to use our time to talk a little bit about international comparisons, America’s health-care system versus other health-care systems. I want to talk a little bit about the future of American health care as you see it. But before we get to those topics, I would love to give you an opportunity to talk a little bit about the state of American insurance and the anger that Americans feel or seem to feel toward insurance companies at this very moment in time. And I think one way to set you up is this. I was reading a quote from The New York Times columnist Michelle Goldberg, who said something that I think is quite representative of the moment.

  She said, “Whenever I’ve had a health scare, or am waiting for the results of routine tests like mammograms, I tend to be as panicked about all the potential paperwork as about, you know, dying. And the thing is, these companies are purely extractive. Relative to a single-payer system, they create no value whatsoever.”

  Is she right that these companies are purely extractive? How do you feel about assessing the rapacious nature of insurance companies in the broader context of all the problems of the American health-care system?

  Cutler: Yes. So let me say, right in part and not right in part. Americans hate the health-care system. And insurance companies are right up there with what they hate. To be fair, one of the big problems in health care is that someone has to say “No.” And that someone can be the government, either no on an individual basis, or “No, we’re not going to pay more for more hospitals or doctors.” It could be the patient who has a lot of costs at stake and can’t afford it, or it could be the insurer who says no. Whoever it is that has to say no, people are mad about that situation. They’re mad if it’s the government; they’re mad if it’s the private insurer; they’re mad if their insurer makes them pay money, and they can’t afford it and therefore they say no.

  So for that part they’re being unnecessarily blamed. Because in other countries, like if you had a single-payer system and we just didn’t have the services, people would blame the government. The sense in which she’s right is that the whole point of private insurance is that choice and competition is supposed to work better, and we’re supposed to have a better health-care system if we involve the private sector than if we don’t involve the private sector, and all those sorts of wonderful benefits of having all that stuff. And people don’t experience that at all. And so what people experience is not “Oh, here’s a health-care system that’s working for me, that’s really looking out for me, that’s trying to balance my cost and my access, and I’m comfortable that they’re looking out for me.” What they’re experiencing is something like “I have no idea why they make those decisions, and I don’t understand when things are yes and when things are no, and is the no just because they don’t want to pay for me, not because it’s not clinically indicated?” And people don’t want to feel that way, and they shouldn’t have to feel that way about their health care, but they do. And that’s a really big problem.

  Thompson: It seems like it’d be very useful in this very moment to compare the U.S. health-care system, in which it’s private insurers who are saying no, with a single-payer system, where it’s the government that is saying no. And in some cases, to use a term—which I think your friend Jonathan Gruber, who I’ve also interviewed for this show, said you don’t like—the term rationing. But I’m just going to use it in this space. Sometimes, governments do ration care to a certain extent. Let’s compare the U.S. health-care system and Canada.

  In the U.S., you have private insurance. In Canada, you have a single-payer system. It’s the government that’s saying no. And if people are going to be mad, they’re going to be mad at the government, and often they are mad at the government. Walk me through the biggest differences for patients and doctors between the U.S. health-care system and the Canadian health-care system.

  Cutler: So let’s start with the saying no part. So in the U.S., as you know, the saying no is either the insurance company looks at you and says, “I’m not going to approve this,” or the insurance company says, “Well, whatever, I’ll approve it. But there’s high cost sharing, so you have to be prepared to pay a lot for it.” 

  In Canada, it’s very different. So in Canada, what happens is, the government sets a limit on the total supply of services. So just to give you an example of that, there are more MRI facilities in Massachusetts than there are in all of Canada. And so literally, you just could not physically do as many images in Canada as you do in the U.S.

  What happens is not that the government says, “David, you get an MRI. And Derek, you don’t,” and so on. The government just says to the doctors, “Here’s the facilities you have to work with. And so you doctors figure out how to prioritize people.” And sometimes, the doctors do that great, and people don’t notice that things are rationed. And sometimes, they don’t do it that well, or the constraints really are binding. And so then people have to wait awhile. And so the tighter the constraints in other countries, the longer people have to wait. On net, it works out better in other countries. So on net, people are happier because, in exchange for that, you don’t have to make the patient pay much, because you’re not using price to limit spending, you’re using the total supply.

  So people like it because there’s no chance you’ll go bankrupt. Because you’re in the system, there’s no administrative hassle. But the fear in countries—which is not as big as the fear in the U.S. that I’ll go bankrupt and my loved one will die—but the fear is the service may not be there when I really need it. So when my mother needs the care, is it going to be there, or will there be a waiting list? Americans tend not to have that fear. They have the fear “Oh my God, how can I afford to get my child health care? Is this going to bankrupt me and my child will die anyway?” So the fear is bigger in the U.S., but it’s not all—it’s better in other countries, but it’s not fear-free.

  Thompson: Would it be helpful to ground the U.S. versus Canadian approach in two very different examples of patients making contact with the health-care system? Maybe can you explain how they differ in the case of, say, a primary care office visit versus an advanced surgical operation that involves complex technology that might otherwise be somewhat rationed in Canada? Can we describe the way the Canadian and U.S. approach would play out in these two very different approaches?

  Cutler: Yes. Let me give you a slightly different example. Let’s say you go to the doctor and you have back pain, lower back pain, which is a very common symptom. And most cases of back pain actually will resolve themselves. Maybe you need a little physical therapy, maybe ibuprofen, and so on. But basically, in most cases, it will resolve itself. In Canada, coming back to where the imaging is limited, they don’t want to do MRIs on the backs of those patients because that would just fill up the MRI, and they need the MRI for other stuff. So literally, in Ontario, the radiologist sent a letter to the primary care doctor saying, “Please do not refer those patients to us. We’re not going to image them. It’s just a waste. Don’t do that.”

  In the U.S., a lot of primary care doctors say, “Well, I’d kind of like some help managing that patient, and so I want to send that patient to an orthopedist.” But the orthopedist wants the MRI because the orthopedist wants to know what’s going on. And in fact, sometimes, the orthopedist won’t even see the patient until they’ve had the MRI. So I feel like I should order an MRI for this patient, even though I know that the evidence is that, for this patient, the MRI is not going to do anything good. I don’t dispute that evidence, but either because the patient needs it or because the doctor wants it or because of whatever else, you wind up with the MRI, and that’s much more expensive.

  And so one of the reasons why it’s more expensive in the U.S. is because that MRI is done in the U.S. and it’s not done in Canada. And it doesn’t need to be done. That’s an example where it doesn’t need to be done. But the biggest source of the cost difference is that the administrative cost of doing all that is so much higher. So in Canada, there’s no administrative cost. You don’t have to appeal to any government or insurer to do that. The doc, if the doc wants the MRI, just refers you to the MRI. In the U.S., if the primary care doc wants an MRI, the doc has to get approval from the insurer, and the insurer is like, “Well, why are you doing this?” 

  “Well, because the patient’s had back pain.” 

  “OK, send us the documentation.” 

  “Well, have you tried ibuprofen?” 

  “Well, yes, I have.” 

  “OK, well, let me see that.”

  And so there’s just all this back-and-forth. How much are we going to pay for it, and who’s going to get paid, and where is it going to be done? And so the single biggest part is actually the administrative cost of doing it. But then there is also the fact that the MRI happens in the U.S., and it’s not happening in that circumstance in Canada.

  Thompson: I love that example. Because to me, it touches on so many things that have been floating around in my head that I haven’t been able to ground in a concrete example, which is higher utilization, higher administrative costs, and the origins of our hatred of private insurance. Because it seems like what you’re saying is, you could take the same individual in parallel universes, Earth 1, Earth 2, and that individual says the exact same words to a doctor in America and a doctor in Canada. And a doctor in America is going to invite them, entreat them to higher utilization, right? They’re going to entreat them into an MRI, entreat them to a referral to the orthopedic surgeon or the orthopedist. That’s higher utilization. That’s more costs, higher administrative burdens in order to figure out exactly who’s going to go where and who’s going to pay for what.

  But it also introduces the possibility that a private insurer is going to say, “This is ridiculous. Derek’s back pain is not very serious. We’re not going to pay you $1,000 in order to image someone who just needs two Tylenol and a weekend on the couch watching Netflix.” So the structure of the American system in the story that you’ve described, which is really nice, both explains the higher prices and the mode of aggravations that Americans feel, because higher utilization means more things that private insurers can say no to after they’ve gone through the work of all this administrative box checking. It’s a really nice example.

  Are there ways that you would say, “Look, the story I just told shows why people lose their minds about the state of American health care, but there’s lots of ways in which American health care is best in class—for many types of people with some types of conditions, the best health care in the world.” I mean, are there ways in which American health care, despite the incredibly aggravating story that you just told, is best in the world?

  Cutler: Yeah, there are absolutely ways in which American health care is the best in the world. Probably the most important of those is if you have a particularly, let’s say, rare condition for which a particular expertise is desperately needed, you’re more likely to find that expertise in the U.S. than elsewhere. Not exclusively. There are great docs in every country. But there are probably a greater preponderance of folks. So if you need a rare kind of surgery for something or an experimental test for something, that will often be easier to obtain, easier to find the person in the U.S.

  So the way I think about it is, the typical person with a typical set of health needs would be better off in another system than the U.S. when that means less expensive pharmas, costs are cheaper, easier to get to a doctor without the administrative hassles, and so on. But for some circumstances, you would want to be in the U.S. And people worry about that. Again, they sort of say, “Well, if we had a Canadian-style system or European-style system, what would happen to clinical trials and what would happen to experimental surgeries and all sorts of things like that?” And there absolutely is a role for those, too, and one shouldn’t neglect the importance of that in health care also.

  Thompson: I want to spend the rest of our time talking about your work and your thinking about the future of American health. You said in a recent talk that the U.S. health-care system is about as unstable as it’s been in some time. What did you mean by that?

  Cutler: It was very clear, even before the recent events, that people were very unhappy with health care, that the costs of health care are really high, and yet people care about health care enormously. So I think it’s very difficult to be operating a system that’s so hated and underperforms in so many ways and yet that people care about enormously. And that’s the sense in which things are unstable. Because people are right to be very, very upset. And when people are upset, they often lash out, and that’s totally fine. But sometimes, that lashing out can be harmful. Sometimes, it’s ill thought out. Sometimes, it’s beneficial. But it just creates a situation where you’re not dealing from a position of rationality; you’re dealing from a position of whatever happens to come across the plate.

  And what the recent events have shown is how much people are upset, and they truly, truly are upset. I think it’s far better to think systematically about what we should do. For example, how can we get rid of the administrative costs, and how can we lower pharma prices? And do that in a more rational, sustained way than it is to respond to whatever is the thing of the moment and just lash out and do stuff, because you don’t always get that right.

  Thompson: I actually didn’t have this question written down, but it’s something that I’ve always been very interested in. So I’m interested to get in your brain on it. I’m very interested in getting pharmaceutical prices down. And at the same time, I think that medical innovation is one of the most important things in the world. What are some of the most important parts of human progress in the last 150 years? You could not possibly put together a plausible list without medical breakthroughs like penicillin, types of anesthesia, cures, statins, all of the work that we’ve done to reduce the mortality of cardiovascular disease.

  And so I am concerned about finding ways to reduce drug prices without getting pharmaceutical companies to reduce the research and development, which is clearly the water and fertilizer that gives us the medical innovations that allow us to live longer. What are some of the more interesting ideas that you’ve thought about recently to keep the bowling ball between those lanes, to reduce prices for consumers on the one hand, while also encouraging biotech companies to invest in the technology that will allow us to live healthier lives?

  Cutler: So it’s a great issue. And there are a couple of thoughts that I have on it. One is, the trade-offs that we’ve made as a society are in fact not ones that are being upheld. So let me give you an example. Patent lengths for drugs are 20 years. But many companies, for an enormous share of drugs, when their first patent is coming towards its end, they get another patent or a different formulation so that the effective patent life turns out to be more than 20 years. Now, I don’t know if 20 years is the right length or the wrong length, but I do know that if we decided it should be 20 years, we should stick to 20 years.

  And so part of it is just that, that some of the spending is ways to extract money. And you don’t need that. Like in a blockbuster, great. There’s a lot of money from the blockbuster. But that doesn’t mean that forever you should get to charge blockbuster fees for it. So actually having a system that you stick to. I think my second answer is that, in addition to high prices of drugs, the other thing that’s really, really notable is that the cost of developing drugs is very expensive. There are ways that we can reduce the cost through things like smarter clinical trials and a bunch of technical things we can do to reduce the cost of trials.

  Everything that you do that reduces the cost of discovering drugs means you don’t have to pay as much on the back end. And so I think a very robust commitment to figuring out how to reduce the cost of discovering things so that then we can say we don’t have to pay as much on the back end would be just a wonderful trade-off for us.

  Thompson: To take one more stab at this, I’m also very interested in the general question of how we bring down the truly exorbitant cost of developing drugs. Because now, I haven’t seen the latest data, but it is something like billions of dollars to develop some of these blockbuster drugs. And it does make some kind of intuitive sense, that if instead of costing $3 billion to develop a drug, it costs $500 million to develop a drug, you wouldn’t need to price your drugs at the same level in order to pay for the expectation that all of your drugs are going to cost this much to develop.

  What’s one cool idea that you’ve heard for how we could make it essentially easier to do the science necessary to take a drug from discovering a molecule, to putting it in a rat, to finally testing it in people in phase-three clinical trials before FDA approval?

  Cutler: So just to clean up one thing first, if the cost of discovering drugs is lower, that would be great. Companies wouldn’t price any lower. They’re pricing at monopoly prices or whatever price the market will bear. So they would just make more money if all you did was lower the price. It would allow you to feel better about regulating prices lower. So just to give you a sense of that, if I discovered the next great molecule for whatever, it doesn’t really matter whether I discovered it cheaply or expensively, I should charge what the market will bear for it. But let me come to your question about how to do that.

  So think about, let’s say, a clinical trial for a moderately rare condition, not super rare, but not a super common condition. Literally just enrolling the patients takes a long time. Not every patient out there in the country or in the world is seeing a doctor who enrolls them and so on and so forth. Well, imagine if what we had was a registry of people with various conditions. And so then we knew who has that condition. And then when a new drug comes along, we could say, “Hey, look, here are 500 people who might be really appropriate for this drug. Let’s just contact them and see, would you like to be part of a clinical trial?” And they can say yes. They can say no. A lot of them will say yes. And then we can enroll people quickly.

  So instead of years of waiting for someone to come into the clinic and then getting referred, we could actually just quickly go through and just say, “OK, great. Let’s start this trial.” And not only that, you have this natural control group, which is people who you didn’t randomly choose. So you don’t have to then take your 500 people and say, “Half of them, I’m not going to treat.” So it just becomes a lot easier if you think, not about starting over every time, but about having an ongoing process for a particular condition.

  Thompson: So if I’m hearing you right, the federal government could theoretically say, “Here’s a deal that we’re offering you,” various pharmaceutical companies in the world, or more specifically, those based in America. “We’re going to help put together a kind of bank, a kind of registry of all sorts of patients.” Maybe let’s start with just cancer. Right? All patients who go to their doctor and are diagnosed with cancer are invited to do a bunch of tests, liquid biopsies and saliva tests and maybe a genetic screen, and they’re told all of this information is going to be privatized and anonymized and encrypted and kept in a government database.

  And maybe the individuals are even paid to do it. As a patient, you’re paid to do this. You’re put in this government database. The government says, “Guess what, pharmaceutical companies? You can pay for access to this database. You can give us some money for this database.” Or actually, no, the database is free. “If you use it, we can regulate you. You can have access to this database that’s going to be incredibly valuable to you. But if you access it, you agree that we have a certain say on the price of drugs that are developed based on the use of this registry.” And that seems to be how you’re getting your two birds with one stone. You are accelerating drug discovery on the one hand by making clinical trials go faster. But on the other hand, you’re allowing the drugs to be sold cheaper because governments are regulating the product of the registry’s work. Is that the big deal?

  Cutler: You can do it in different ways. So you could say, “Yes, in exchange for getting into this, there’s some limit on the price.” Or you could say, “We’re going to deal with the price in a different fashion, but we want you to help pay for establishing the registry and the upkeep of the registry.” Since we’re all going to benefit from this and we need money to do it, let’s just raise money in the same way that the pharmaceutical companies pay to have additional examiners at the FDA so that things go faster. The NIH is starting to do that a little bit, but not as much as it should.

  So it’s starting like, there’s a long COVID registry that it’s thinking of. And we do keep a lot of data on cancer folks, but it hasn’t then been used. It’s been used to evaluate ex post how things are working, but not ex ante to see who should be part of clinical trials and stuff. But yes, you can imagine, you’re going to need a government to do this because you need something central to do this. And then once you have that, then you can really speed up a lot of this. So it’s not like rocket science to figure out how to do a lot of this. It’s just like applications of stuff we know, but with an eye toward how do we do everything possible to make it as cheap and easy as we can.

  Thompson: Are there analogies to a policy like this, either in American history or around the world? It sounds a little bit similar to the way that childhood leukemia trials were bundled in the 1950s through 1990s that allowed us to have real, huge advances on treating childhood leukemia. The U.K. has their bank of biomarkers. There might be some other examples that are better, but is there someone somewhere, either distributed around the world in 2024 or distributed throughout history, where you say, “Ah, that is the perfect example for this policy that could make a huge impact on both prices and extending American lives”?

  Cutler: Yeah. So some of the examples you gave are correct ones. That is, for childhood cancers, there was this big centralization, and all sorts of pediatric oncologists would then take part in the clinical trials and so on. The U.K. has their biobank that they’re working with. What happens a lot now is clinical trials are being outsourced to other countries because it’s cheaper to do them in other countries. And so other countries have put in place systems to do that. China and Thailand and other kinds of countries are fairly good at that, and it’s cheaper to do it often in other countries than it is in the U.S. So we wind up doing the outsourcing even though there may be differences across populations that you need to take into account when you look at things.

  So certainly there are examples there. I would say another example is worldwide efforts to, say, eradicate polio, where we just said, “Look, we’re just going to get together and we’re just going to do this, and we’re not going to rely on whatever. But we’re just going to. This is a world goal, and it’s going to happen. And we’re going to go in every remote village, and we’re going to treat people and vaccinate them and get rid of polio.” And so that’s another example where when you set your mind to it, you can do wonderful things that you can’t do if you’re just haphazardly doing it.

  Thompson: We have a little bit of time left, and I want to touch on two predictions that you’ve made that I think are really provocative and interesting. One of them is that you think that we’re moving toward a future with fewer and fewer hospitals, even as we become a country, throughout this century and probably every century after that, that’s going to be older and older. And I heard this prediction. At first, I was like, “This makes no sense. How is an aging and aging country going to have fewer hospitals going forward?” But help make it make sense. Why do you think we’ll have fewer hospitals in the future?

  Cutler: We will have fewer hospitals just because so much can be done outside the hospital. It used to be that surgery for almost anything was several days in the hospital and maybe a week, 10 days in a hospital with intense anesthesia and so on. Now, the classic example was half a century ago, cataract surgery was a week in the hospital with your head between bags of sand so that it didn’t move. And now, it’s 10 minutes in a doctor’s office, outpatient. So all those patients who are in the hospital for cataract surgery don’t need to be there, and knee replacements and routine surgeries of all kinds. So we basically don’t need the hospital, which is great.

  So all these things we can do outpatient or we can avoid entirely because, for example, we take statin drugs and so we don’t have as many heart attacks and we don’t have as many strokes because we’re taking antihypertensives. And so all those things are great, and they really cut back on our need for hospitals. So hospital occupancy rates are still pretty low. There’s clearly more hospital beds in most areas than we need. The biggest issue is going to be that many rural hospitals don’t have enough patients to fill them up. The really biggest issue is going to be, when you get rid of the hospital, do you get rid of the emergency care, and do you get rid of the ability to do things like see a doctor if you have a severe condition that doesn’t need hospitalization?

  So we’ve got to figure out how to make sure that access to a hospital is not the same thing as access to specialists. Because people do need specialists; they just don’t need to physically be in the hospital as much.

  Thompson: What happens in this future to hospitals themselves if some of these surgeries are moving to outpatient centers and hospitals are more likely where only the sickest patients, who still actually do need a bed for one to 10, 20 days need to be? How does that change the future of American hospitals, in your estimation?

  Cutler: Originally, hospitals were places where people went to die, and that’s why they were religiously affiliated, because people wanted death to be in a setting consistent with their religion, which totally makes sense. They will return, not to places necessarily that you go to die, but places where people are very, very sick, as you said, people with multiple chronic conditions that can’t be seen at home or in another place and so on. That’s going to change the economics. It’s going to mean that the hospital is no longer the big moneymaker for the health system, but it’s a place for people who are very sick. We’re going to have to pay more per patient, but we’re going to save money overall because all those people who are in the hospital now who don’t need to be there will be at home or in outpatient centers.

  It’ll cost less in total. But to be sure, each hospital stay will cost more. So the hospitals will have to be reimbursed more per patient, even as we save money overall. And I think we’ll have to think about the health system as not being centered around these big institutions, but rather more diffuse. And those institutions are just one particular thing that sometimes you use rather than the center of where the medical world resides.

  Thompson: I live in Chapel Hill, North Carolina, and at every single strip mall, there’s a UNC clinic for, center for X hospital term or X medical term. And so the UNC hospital system, well, the UNC hospital exists. It’s a place you can drive to. My wife is there all the time. But you can also make contact with the UNC hospital system by going to Starbucks and then going next door or driving to the restaurant and going next door. It is distributed throughout the metro area. 

  Very last question for you. Because after going through everything that’s wrong with the American health-care system, especially with Jon in our first interview, I would definitely love to end on a note of optimism. And I wonder if there’s one thing that you’re most optimistic about when it comes to American health care. What is that?

  Cutler: I think about it as you only have to get things right once, and then you’ve got it right forever. So think about some of the great innovations. You mentioned penicillin. All we had to do is discover it once, and then it’s there. Sulfa drugs, and even more recently, say, antihypertensives, cholesterol-lowering medications, drugs for diabetes, drugs for mental health. These things can do enormous good. They can literally change the entire system. They can change what diseases people have and how much it costs to see people and so on.

  And so progress can be rapid, both technologically and economically. That allows you to make really big, favorable changes, because once you know how to do it, you know how to do it. And so that’s just a great thing here. So it’s not like every year we have to reinvent penicillin.

  Thompson: What piece of that makes you optimistic about the—I mean, are you optimistic, therefore, that we’re likely to discover similarly powerful drugs and molecules in the future, or is the root of your optimism the fact that medicine and medical research gives us access to the kind of breakthroughs that if you discover them once, the lever that they have on progress in the future is so massive?

  Cutler: So it’s both that they keep on giving, they’re gifts that keep on giving, but also—and it’s not just the technology, it’s not just the pills or the surgery—it’s also the way of structuring the system. So once you figure out how to do it once so that you get people safely out of the hospital and in better forms of care, then you don’t have to redo that because you’ve now got a new kind of system in place. So think about people’s desire to be treated at home instead of in institutions. Once we get it together to figure out how to do that, then that’s going to be just a huge breakthrough, because all sorts of people will be recovering at home rather than recovering in institutions.

  And when you figure out how to use AI systems to reduce administrative costs, take a nonclinical example, then once you’ve got that, then you no longer have those administrative costs ever. So you’ve got just a lot of stuff that if you attack it piece by piece, once you’ve discovered it, you don’t need to keep rediscovering it.

  Thompson: David Cutler, thank you very much.

  Cutler: Pleasure to be with you.

  Thompson: Thank you for listening. Plain English is hosted, written, and researched by me, Derek Thompson, produced by Devon Baroldi. In 2025, we are coming back to you with our regular schedule of two-ish episodes per week. We’ve got some awesome features cooking. We’re very excited to share them with you. Thanks for listening, as always. And if you like what you hear, give us five stars on whatever podcast platform you listen to. Talk to you soon.

  This transcript was edited for clarity. Listen to the episode here and follow the Plain English feed on Spotify.