Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode! 

Dan Gorenstein: Amy Finkelstein has studied America’s health insurance system for more than 20 years. She’s conducted some of the most rigorous, most complex research on the topic — and she’s come to one very simple conclusion.

Amy Finkelstein: It’s just not a system that can work.

DG: Today, why one of the country’s leading economists says it’s time for a total overhaul — and what she believes we should build in its place.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

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Amy Finkelstein is a professor of economics at MIT. She’s won a MacArthur genius award and authored some of the most important health economics papers in the last 15 years.

MIT professor Amy Finkelstein’s new book “We’ve Got You Covered” comes out July 25.

Later this month, she’s publishing a short book called “We’ve Got You Covered” cowritten with Stanford economist Liran Einav.

So first of all, Amy, this book we’re talking about today is actually, I believe, the second book you published already this year on insurance. Is that right? And do you need some suggestions for hobbies? 

AF: Yes, I’m a self-proclaimed insurance geek, but this is my last book on insurance this year, so I’m weaning myself off the habit.

DG: You said this year…

AF: You’re quick. You caught me.

DG: So Amy, I’m not sure I know anyone more allergic to anecdotes than you. You’re all about the data. And one number jumped out at me early in your book. 

Many of us know about 10% of Americans — or 30 million people — are uninsured right now. But the number I’d never seen before is your estimate that over a two year period, 25% of Americans under 65 — one in four of us — will go without coverage at some point in that window. 

What does that number tell you about the health of our insurance system?

AF: That’s really just crazy if you think about it. The entire purpose of health insurance is to provide some modicum of stability in an unstable and uncertain world. And yet, perversely, health insurance coverage, what is supposed to provide that stability is itself highly uncertain. So right when you fall ill and need insurance most you can find yourself suddenly and unexpectedly uninsured.

DG: So for tens of millions of Americans, you’re saying Amy, health insurance is fundamentally broken. It’s failing to serve its basic purpose.

AF: Exactly. And those who are insured, even if they don’t lose their coverage, may find that coverage extremely inadequate when they actually get sick. There’s an enormous amount of medical debt in the United States. But something like three-fifths of that medical debt is incurred by people who have health insurance.

DG: And you make it clear from the start, you think the era of incremental improvements to our health insurance policies should end. You write that quote, “It’s time to build a new house from scratch.” In just a couple of sentences, sketch out your blueprint for that new house. 

AF: That’s the easy part. It can almost fit on a bumper sticker. It’s free, automatic basic health coverage for all with the option for people who can afford and want to to buy extra insurance. That’s it. Now, obviously, the devil is in the details there but at a high level, that’s the idea.

DG: When we hear these sorts of big ideas — blowing up the system, universal coverage — we’re looking for Bernie Sanders, not an MIT economist. But since you are an economist I’d like you to walk us through some of the evidence behind this bumper sticker solution that you’re proposing. Free, basic coverage for everyone with the option to buy more if you can afford it. 

Let’s kick off with this idea of universal coverage — that everyone should be automatically enrolled in the same basic thing. What data convinced you that’s the right move? 

AF: So one startling fact is that about six out of 10 of the currently uninsured individuals are actually already eligible for free or heavily discounted health insurance. They’re just not enrolled. Even making everyone eligible for free coverage — if it’s through a patchwork of programs like our current system — where there’s one program if you’re poor and one program if you’re disabled, people are always going to be unsure about which program they’re eligible for and people will slip through those gaps in the seams.

DG: You’ve talked about this patchwork for years and it seems like you really dug into its history in the book. You catalog how policymakers have continued to add new patches, new programs for people with COVID, postpartum moms on Medicaid low-income people with HIV…

And Amy, when you zoom out, what you see is a picture of a country that is actually trying — in a kind of super inefficient and ultimately inadequate way — to meet everybody’s basic medical needs.

AF: You know you still get a lot of care when you’re uninsured and you’re paying for only about 20 to 30 cents on the dollar. The rest is paid by some combination of the state or federal government or through unpaid medical debt from hospitals. But I hadn’t sort of put it together to realize, oh my goodness, that means like, we’ve kind of backed ourselves into attempting to do universal coverage. Now, of course, anyone familiar with the many problems in the U.S. health care system may say, “Oh, come on, we’re doing a terrible job,” and I think we are, but that illustrates our failure to live up to those commitments — not their absence. 

DG: So your point is basically, look, we’re already basically providing universal coverage. We don’t call it that. We don’t quite think of it that way, but it’s already there. So if we’re gonna do it, let’s do it well.

AF: Right, we’re trying to make sure that people don’t die in the streets, that everyone has access to essential medical care. We’re not succeeding. And once you realize that’s what we’re doing then it’s kind of obvious, you know, you do what every other high income country does and you give automatic, universal basic coverage. 

DG: Do you feel like you’re the first academics to sort of connect these dots like this? 

AF:  Oh, I’m sure we’re not. I mean, in some sense, I think the worst and the best thing you could say about our book is “duh,” right? 

DG: [Laughter] Okay, so Amy not only are you saying and again, I’m still looking for the Bernie Sanders hair coming out of your ears or whatever. Not only are you saying that everyone should get coverage, but you’re also saying that it should be free. Do they take away your economics card when you start talking like this? 

AF: [Laughter] Yeah, this is the point where we get kicked out of the academy. I mean, this is as close to — I’m not sure it’s going to be, you know, burned at the stake like Galileo — but this is as close to heresy as one comes in the economics profession. 

DG: And to this joke about being burned at the stake, right, like health economists have talked for years about the essential role that cost sharing these copays that we all have place this kind of like really important check on patients. Cost sharing stops people from getting too much care that they really don’t need. Your proposal flies in the face of this economic orthodoxy.  

AF: Yeah. And let me just double down on that and say Liran and I have been out there, you know, not only preaching that orthodoxy to generations of students, but contributing evidence to it. There is a huge body of evidence that shows incontrovertibly that if you make people pay something for their health care they use less medical care. And it makes sense, you know, when you make things less expensive, people buy more of it. The research was correct in terms of what it found. It’s the implication that we drew from it was wrong — at least when it comes in the context of universal coverage.

DG: So if copays work — get some waste out of the system — why wouldn’t you include them in your plan? What’s the problem with them?  

AF: The problem with copays is there will always be people who can’t manage even a $5 copay for a prescription drug. And that’s what we see in country after country — policymakers scrambling to create all kinds of exceptions for situations when even small copays are prohibitive. And so we have copays and then we have exceptions for the copays and then we have people having to know which exception they qualify for, and with all the complexity and the administrative costs, they end up saving almost no money and just creating a lot of headache and hassle.

DG: And for people who need help with their copays but can’t figure out how to get it, studies show that can have real, even deadly health consequences. They don’t just cut back on wasteful care but also on life saving stuff like drugs that prevent strokes and heart attacks.

After the break, Amy defends letting rich patients buy better access to care — and eats a slice of humble pie.

MIDROLL

DG: We’re back with MIT economist Amy Finkelstein whose new book, “We’ve Got You Covered,” lays out an evidence-based blueprint for fixing America’s health insurance system. 

So Amy, in your slim 194 page book you say it’s time for America to demolish its current system and build a new house from the ground up. Before the break you described what the floor — the foundation of the house would be – free, basic coverage that every American is automatically enrolled in. In practice, how would that basic coverage compare to what people have today?

AF: For the uninsured this is unambiguously better. For people with Medicaid — the health insurance for low income individuals — the coverage would probably look pretty similar. And then for about 70% of the population, so people with private insurance or Medicare, the basic coverage while it would be worse in some respects — in terms of flexibility of choice of doctor or wait times for non-urgent care — it would be much, much better in two very important respects. First, no risk of losing coverage. And second, it wouldn’t leave you at risk for massive medical expenses for essential medical care.

DG: Right and just how bare bones or how generous we want that coverage to be is both a political and a fiscal question. And in the book, you say that if we keep the floor pretty basic, we could pay for this whole proposal without raising taxes. And for people who want more than that floor — things like a private hospital room or access to an experimental cancer drug — they could buy extra so-called supplemental insurance. Obviously this part of your plan will be criticized particularly from the left — that it will only exacerbate the health inequities that already exist. 

Do you think that’s fair?

AF: So our embracing of this is not out of a lack of concern about those types of inequalities and inequities. It’s rather because what the data show very clearly is that for those who aspire admirably to reduce health inequality, the evidence is clear: Health insurance policy is not the right lever to lean on.

DG: Let’s go slow here, Amy, because I think you’re saying something that may surprise people: That health insurance can’t do much for our country’s vast health disparities. And one big reason for that is because of this point you made earlier that uninsured people in America already get a lot of care through this patchwork system we have — free clinics, emergency rooms. It’s far from ideal care, but it’s more than nothing.

AF: It sounds kind of crazy. Like, wait, are you actually, Amy Finkelstein, are you saying in the 21st century that medical care is not critical to health? The key point is, yes, medical care is critical to health. And yes, health insurance — the evidence is clear — gets you access to more medical care. But again, it goes back to that social contract that we’re not letting people die in the streets. So that when you think about health disparities, the key difference between rich and poor in their health, is not about the nature of the health insurance they have.

DG: So in other words here Amy, some people might not like your proposal to let richer people buy extra insurance because they think it’s unfair, but as a matter of outcomes it’s not gonna move the needle much in either direction.

AF: Exactly. What really clinched this for me is seeing the evidence that researchers had produced on countries like Sweden and Norway — two Nordic countries with universal health insurance as well as cradle to grave generous social safety nets. And even there you see differences in life expectancy between the richest and the poorest adults that are similar to those in the U.S. So it can’t be about access to medical care — and what health insurance does, as we’ve seen, is get you access to more medical care. But that’s not what’s really going to close these disparities. 

DG: Now granted, we can’t learn much about racial disparities in health from a place like Scandinavia but at least when it comes to income, even in countries where people have basically the same access to care — and it’s generous — there are still life expectancy inequities based on wealth. So what’s driving that is something other than health insurance. And other data you cite in the book suggest that something is what a lot of us now call the social determinants of health — the places we live, the stress we feel, the food we eat. 

And if we want to close those gaps, we should focus on policies that meet those social needs — not on just giving people more insurance.

AF: Right, and I have to say, these were again, facts that I kind of knew. I read the literature, but I hadn’t fully put it together with why this is related to why the solution on the health insurance front is so in some sense, breathtakingly simple. Yes, we need to worry about health inequality, but we don’t need to worry about it in the design of health insurance.

DG: Amy, I’m really curious, like why bother offering this extra tier? A lot of people will probably more quickly dismiss this as some ivory tower elite proposal where you and your co-author can take care of their families at MIT and Stanford and it’ll be fine. And it’s gonna screw over all these people who don’t have a lot of money.

AF: Practically speaking, the only places we know of that don’t allow for supplemental coverage are North Korea, Cuba and a few Canadian provinces. So every other universal coverage system allows some form of top up and we discuss the better ways of designing it.

We give the example of Israel, which introduced universal coverage in about 1995 with supplemental options. By the early 2000’s the quality of care in the basic system had been eroded considerably and so they undertook reforms. So, this isn’t glamorous and this is getting pretty wonky, but the history and examples of other countries suggests that this is a real thing to worry about — but there are solutions.

DG: In some ways this book is kind of one long admission that you, Amy Finkelstein, were wrong. That you thought health reform had to be this big complicated — as you put it, “Rube Goldberg machine” — the kind of thing President Clinton attempted in the 90s. But as you connected all the dots, you realized the evidence actually points to a pretty simple solution.

AF: Now, let me just say in the second half of the book, there’s a lot of nuance. There’s a lot of ways to do this. And we have views on which aspects and which countries have done it better or worse. But yeah, just because everyone has been saying for years — by which I mean everyone outside of the academic and policy world — the sort of intelligent layman who just says, “Come on, Amy, isn’t it obvious? Universal coverage for everyone!” And I sort of would smile and sort of feel condescendingly, “Well, it’s a lot more complicated than that.” Turns out it’s not.

DG: [Laughter] Is there part of you after writing this book where you feel a little humbled? 

AF: Oh, for sure. Yes, I do feel a little more than a little sheepish. But also I feel really empowered and excited. Like, you know, I have all kinds of simplistic ideas about things that I know nothing about, like how to achieve world peace. And I’m guessing most of those ideas are idiotic. It turns out this was an area where a lot of lay people had simplistic ideas that now a lot of, I think, careful and rigorous work shows is actually right. And we should, rather than pat them on the head or say, yes, it would be nice to buy everyone a pony like actually get down to brass tacks and get to business here.

DG: And Amy, when you talk about getting down to business, in recent years, when Democrats at least have tried to make progress on universal coverage it’s been incremental. Sure, the Affordable Care Act was very ambitious — but it also built on a system we already had.

For all the political capital and federal budget the ACA has consumed, to still have so many people with little, bad or no insurance at all, in your mind, was that a mistake? Or was it a necessary step to eventually get us to this much simpler solution?

AF: I don’t know. I think there are many paths to success and there are many paths to failure. All I’m doing is talking blue sky here. I don’t mean to denigrate the extremely valuable and hard work that people pushing for incremental reform have done, but I think one thing that comes out of this half century of these efforts is they all end up punching below their weight. 

Now, that doesn’t mean that when you’re faced with, “Can I get a little bit more coverage or none?” and you’re actually working in a policy environment, which I’m not, you shouldn’t go for it. But just if you ask me, as I’m often asked, “What is the solution?” It can’t be a few more patches just to get the remaining people covered. It won’t work.

DG: As we are beginning to sort of wind down, I’d like to ask you a personal question, Amy. Your solution — this blueprint that you’re proposing — as you’ve said, it’s going to upset a lot of people. It really turns some economic health policy orthodoxy on its head, and you’re going to perhaps be told by colleagues who you respect and care for that you’re stepping over the line. Why did you decide to do this?

AF: I think, first of all, at a very selfish level, I wanted to know. I wanted to see if I could answer the question for myself. But then I have to say that what is politically feasible when is very, very hard to predict. 

And so I think there’s a really important role to try to identify the North Star, like unconstrained from any current political issues, what should we be doing? And once we articulate that, then who knows when a policy window might open?

DG: Yeah, you quote the famous economist Milton Friedman that some day “the politically impossible might become the politically inevitable.”

AF: Right, but even if that day never comes, I think if we clarify what is the goal of health insurance reform and what is the ideal way to achieve it, then when the hard working men and women out there trying to make policy — when they’re thinking about what compromises they feel they need to make to get something accomplished, they can evaluate alternatives that may seem possible at the moment against that North Star.

DG: Amy, thanks so much for taking the time to talk to us on Tradeoffs. Really appreciate it.

AF: Thank you so much, Dan.

DG: I’m Dan Gorenstein. This is Tradeoffs.