Economists Krugman, Butler On Funding Health Care

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Economists Krugman, Butler On Funding Health Care

TERRY GROSS, host:

This is FRESH AIR. I’m Terry Gross.

One of the obstacles that’s holding up health-care reform is how to pay for it.
My guests are two economists who have been thinking a lot about that question.
Paul Krugman is a Nobel Prize-winning economist, a columnist for the New York
Times, and a professor at Princeton University. Stuart Butler is Vice President
of Domestic and Economic Policy Studies at the conservative think tank, The
Heritage Foundation.

Paul Krugman, Stuart Butler, welcome to FRESH AIR. Let’s start with something I
think you both agree on, which is that we need to reform the system. So let’s
start with the reason why. Stuart Butler, let’s start with you. You’ve been
writing about the economics of the health-care system for decades.

Mr. STUART BUTLER (The Heritage Foundation): Yes, and I think there are some
basic problems that we’ve got to solve. One is, of course, that there are
millions of Americans who literally don’t have adequate access to the health-
care system because they don’t have insurance coverage.

Even those with insurance in the United States are often very nervous that they
are going to lose that insurance if they change their jobs, maybe if their
child graduates college and doesn’t have a job, then they can’t be a dependent,
so they’re not under the family plan. So even people with insurance are
nervous.

And I’d say thirdly that the cost of coverage, the cost of medical care in this
country is enormous, compared with what we spend on other things and what other
countries do, and yet we don’t seem to get the value for money.

So I think it’s value for money, I think it’s uncertainty for people who’ve got
coverage, and gaps in coverage. Those are the three big things that we’ve got
to solve.

GROSS: Paul Krugman, why do you think we need reform?

Professor PAUL KRUGMAN (Princeton University): First of all, I’m shocked that
Stuart didn’t say anything I can disagree with right there. We do have an
extremely expensive system by international standards, and one that leaves a
lot of people without health-insurance coverage, and it leaves a lot of people
who do have it worried. And there’s something else, which is that those defects
are getting worse.

Our system is kind of held together with Scotch tape and chewing gum, by a
variety of regulations, tax breaks and so on, which worked when health care was
relatively cheap. But now as the cost of health care keeps on rising, mainly
because of medical innovation, it is gradually coming apart.

You see a declining number of employers offering health insurance to their
workers. You see the defects of the system growing worse. And of course the
cost, which was, you know, around five percent of gross domestic product when
John F. Kennedy was president, is now 16 and rising.

So all of the problems we have, which were possibly tolerable 20 years ago, are
intolerable given where we are right now.

GROSS: Stuart Butler, your views are based, in part, on spending the first 30
years of your life in England under the National Health Service. I should
mention you’re now an American citizen. What are some of the lessons you think
we should learn from England’s National Health Service?

Mr. BUTLER: Well, I think there’s some very important lessons, actually, and
one of the most profound, in a way, is that Britain, as a society, made some
very basic decisions about things like putting a budget on health care, making
it open and virtually free to everybody.

Also in Britain, when I was brought up there, we didn’t worry about the cost of
health care to us. Also, it wasn’t affected by which job my father was in or I
was in as to what kind of coverage we got. Those are the good things.

Of course, on the other side of the equation, somebody made decisions about
what health care we would get and continue to do so. My brother, for example,
right now – my older brother in England has congestive heart disease. He gets
pills, but he won’t get surgery for that. He won’t get a heart transplant or
anything like that. A decision has been made about limiting. And so I think
that it’s important to kind of understand all the features of a system where
somebody makes major decisions for you about what health care you get, and
that’s something that Americans have just not quite got to grips with, in terms
of should somebody else make decisions for them. Who’s going to make decisions
about that?

GROSS: If you’re just joining us, my guests are Paul Krugman, Nobel Prize-
winning economist, Princeton professor and New York Times columnist; and Stuart
Butler, Vice President of Domestic and Economic Policy Studies at Heritage
Foundation, and we’re talking about reforming the health-care system.

We have an employee-based system now for health insurance. Most people get
their health insurance where they work, and if you don’t, then you have to pay
really high fees because you’re not in a group plan, unless you have some kind
of alternative for a group plan. Should we be transitioning out of an employee-
based system? Paul Krugman?

Prof. KRUGMAN: Ideally, yes, but you really have to be careful about what the
alternative is. The employee-based system is a, very much, a second-best
arrangement. It’s not the way you would have set up a health-care system if you
could have designed it from scratch, but it does have some desirable features.

Under employee-based plans, there’s no discrimination based on pre-existing
medical conditions. The administrative costs of the employee plans, the ones
that are run through a company to an insurance company, are relatively low
compared with individual insurance, because the insurance company is just
making a deal with the company as a whole. It’s not screening each individual
applicant to see whether they’re a high-risk client and so on.

So yeah, I don’t think it’s a system we should have, but it’s not something you
want to ditch until you have a well-established, well-functioning alternative.

GROSS: Stuart Butler, what do you think?

Mr. BUTLER: Well, I actually do agree with Paul on this very much. I think,
like a lot of people who look at the American system, who come from another
country, especially, they scratch their head, wondering why anybody’s health
care should depend on where they work. And there are many features about the
employment-based system, which – there are good features, as Paul said, and I
think those of us who want to reform the system want to look at group insurance
in a different mode, dealing with pre-existing conditions and so on.

But I think it’s important to understand the features of the employment-based
system that is the root of much of the problem. Clearly, if you move from one
job to another in America, then your insurance does change, or you lose it if
you go to an employer that doesn’t provide coverage. So that’s clearly a
problem.

There’s also a problem – the cost of health care and the decisions made are
hidden in the employment-based system. When I went to see a doctor in Britain,
decisions were made about whether I went to see a specialist and so on based on
budgets and so on.

In the United States, when I go see a doctor here, and the doctor says maybe
you ought to go and get a certain test, or maybe you ought to go and see a
specialist, the cost of all that is hidden within the employment system.

What actually then happens is, the cost of that insurance in the employment-
based system squeezes down my cash earnings. It’s all part of my compensation.

So part of the problem here is we have a sort of an open checkbook via the
place of work, so you have employers trying to hold their costs down, squeezing
down on earnings for their employees, and that sort of compounds the whole
problem that people see in America.

So I think the employment-based system, quite frankly, has got to go. It’s got
to go in stages, I think for the very reasons that Paul mentioned. I think we
ought to start with smaller firms and say let’s create a different way of
getting group insurance with the same kind of subsidies, no pre-existing
condition, and gradually allow people to migrate into that over time - larger
and larger firms. But I certainly think that the employment-based system is one
of the fundamental problems with the existing system here, which will always
make it impossible to solve unless we ultimately move away from that system.

GROSS: So briefly, do you think the proposals being discussed now in the House
and the Senate are a way of transitioning out of the employer-based health-
insurance system?

Mr. BUTLER: Well, I think they are a way. They are certainly, I think, a very
problematic way. But I think part of the thing which troubles me about so much
of the conversation here is that the profound changes, the things that we’ve
got to get to grips with as a country - which they did in 1947 and 1948 in
Britain; we had a national conversation in Britain about what should the
health-care system look like - that is buried in the existing system.

You have the president getting up and saying oh, this is an issue between blue
pills and red pills, and the red pill is cheaper and does the same thing. What
a facile way of trying to talk about what are profound decisions.

If we’re going to move away from the employment-based system in this country,
we ought to be discussing that with Americans. If we’re going to have a
different system that says, just because you and your doctor want you to get
this test or that test, and it isn’t really that cost-effective, we’re going to
have a system to basically make it not possible for you to have that test.
We’ve got to discuss that with Americans.

My concern is that we are sort of moving towards making profound decisions yet
actually not having a national discussion, a true national discussion, about
what the basic questions are we’ve got to resolve.

Prof. KRUGMAN: There actually has been an extensive discussion among health
reformers, among health-care economists, of what the possibilities are. It’s
not being articulated very well on the national stage, but that’s not something
I think you can lay, or certainly can’t lay primarily, at the feet of President
Obama.

It’s very hard – Bill Clinton tried to have a national discussion, tried to lay
out a comprehensive reform that would control costs and guarantee coverage, and
the response of opponents of reform was a tremendous amount of fear-mongering,
a tremendous amount of, you know, Harry-and-Louise-type ads.

This time around, Democrats have decided that their best bet is something
that’s a very incremental reform, something that allows people to keep a lot of
what they have, that tries to allay the fears by promising not too much change,
at least in the short run.

You have to say: Can you blame them? Is it even conceivable that we can do a
major reform all at one giant leap into a completely different system? I guess
I’m in the camp of pragmatists here. I think that what we have on the table
will not be the end of the story, but it is, at least, a beginning on
(unintelligible) the transition to a better system.

GROSS: We’re talking about how to pay for healthcare reform. My guests are Paul
Krugman, Nobel Prize-winning economist, Princeton professor and New York Times
columnist; and Stuart Butler, Vice President of Domestic and Economic Policy
Studies at the conservative think-tank, the Heritage Foundation. We’ll talk
more about the economics of health-care reform after a break. This is FRESH
AIR.

(Soundbite of music)

GROSS: We’re talking about how to pay for health-care reform. My guests are
Paul Krugman, Nobel Prize-winning economist, Princeton professor and New York
Times columnist; and Stuart Butler, vice president for domestic and economic
policy studies at the conservative think-tank, the Heritage Foundation.

Well, since we’ve been talking about employer-based health insurance, let’s
look at the employer mandate, which is under discussion in the proposed
legislation, and this means employers would have to either provide health
insurance for their employees, or they’d have to pay basically a fee or a tax
if they didn’t provide insurance, and that money would go toward the larger
pool for health insurance. Do I have that right?

Prof. KRUGMAN: Yeah, and let me say why this is essential. We actually already
know this because we’ve been having a series of scorings by the CBO, estimates
of the budget impact of different bills, and the CBO actually scored some
incomplete bills that didn’t have the employer mandate. So we have an idea, at
least, of what the Congressional Budget Office thinks is the impact.

If you’re going to try to do the other things that are part of the proposed
health reform, which is to provide subsidies to lower-income families to help
them buy insurance and at the same time put regulations on insurance companies
so that they can’t deny insurance based on medical history, if you don’t have
the employer mandate, what happens is that a lot of employers who are currently
offering coverage drop it, pushing a lot more people into the pool that have to
be recipients of federal subsidies, have to be covered, in effect, at taxpayer
expense - which means that the on-budget cost of health-care reform escalates
enormously. A lot of this money you’re spending at the federal level is simply
replacing insurance that was previously provided by employers.

Now, from a national point of view, that may not be such a bad thing. Does it
really matter whether an employer is coughing up the money or someone is, you
know, paying a tax that ends up paying for the health care? But given the
politics of it, given the concern about what does this do to federal spending,
it becomes tremendously important. And you know, in the end, if we believe that
everyone should be covered, that means that everyone has to make some
contribution to the cost of paying for coverage. So in the end, the employer
mandate, one way or another, everybody, including small businesses, is going to
be paying for national health care.

GROSS: Stuart Butler, does that sound fair to you?

Mr. BUTLER: Well, I think it sounds very problematic to me. For one thing, as
we’ve said before, this idea of a mandate on employers continues the
employment-based system with all its problems, rather than actually making a
decision to really move away from it.

Secondly, if an employer is required to provide certain coverage, then the
question arises, sort of, who makes decisions about what coverage they’re going
to provide and what’s going to influence that? And my fear about that is that
kind of mandate, you will see the various interest groups pressing Congress to
make sure they’re included in the mandated benefits.

We see that at the state level already all over the country. So you start to
add costs, essentially, to employers, and you also restrict their flexibility
about looking for good ways to cover people.

The other thing, if it’s a mandate to provide coverage or pay a tax, in both
cases, let’s be aware – and I hate to argue or at least to sound like I’m
arguing with a Nobel economist here, but – employers, when they are required to
pay for something for their employees, a tax on their employees or providing
benefits, I can assure you that they are not the ones who are ultimately paying
it. It’s showing up in terms of the cash income of their employees.

The more benefits grow, the more those requirements are there, the more they’re
imposed, the less cash that means that goes to their employees. So it’s not a
free lunch.

I mean, I think there’s this illusion that you can just sort of pass costs to
the employer, tell the employer to pay something, and then the employees, then,
don’t pay it. So that, then, raises all sorts of questions about fair is that,
how regressive is it? Low-income people end up finding their salaries, their
hourly earnings, slow down if you impose these kinds of mandates.

So I want to get away from this completely. I think we ought to be
systematically moving away from the employer-based system.

GROSS: Are you confident that if employers didn’t have the mandate, and they
didn’t have to pay health insurance, that that extra money would show up as
higher wages for employees, as opposed to just profits?

Mr. BUTLER: Well, I think for two reasons I am. One is I think, you know,
markets generally do operate that way. Remember that no employer has to provide
coverage today, yet most do. And there’s a reason for that, and that is that
employees demand it, unions demand it and so on.

So I don’t think it’s a question of saying that just, it’s suddenly going to
disappear, and even if you thought that, you could have what you call in the
trade a maintenance-of-effort requirement. You can say if you’re going to
reduce or eliminate a package as an employer, then you are required to cash
that out to the employee, at least for the first year or so, so that you can’t
just sort of surreptitiously do that.

Prof. KRUGMAN: I mean, I do agree that someone will pay, and it won’t be, in
the end, for the most part, the businesses that are obliged to extend coverage
to their employees. It will show up possibly in lower wages, possibly in higher
prices for the products that these firms produce.

We’re not talking big numbers here. We’re talking relatively small numbers, and
the really important thing to understand is that if our goal is to provide
insurance coverage to everyone, then we’re going to have to pay for that
somewhere, whether it’s through higher – essentially an employment tax that
will be extended more broadly or through other taxes.

So it’s going to be paid by someone. To complain about the fact that, well,
this is going to cut some wages or raise some prices is basically saying you
want this expansion of coverage without it being paid for anywhere.

I would just also add that yes, of course, there will be lobbying. There will
be interest groups. If you can come up with any kind of reform in the real
world that will not produce lobbying, will not produce influence of interest
groups, I’d like to see it.

GROSS: Let’s get to the question of whether medical benefits should be taxed,
which is again one of the questions on the table now in the reform bills. So
Paul Krugman, explain what the issue is.

Prof. KRUGMAN: Okay, right now, if your employer provides an insurance plan to
all of its employees, the benefit, the premiums that are paid by the employer,

are not considered taxable income, which is one of the reasons we have an
employment-based system.

It’s a system in which there’s a big tax advantage to getting insurance through
your employer rather than buying it yourself because if you buy it yourself,
you have to go out, earn the income, you get taxed on that, and then you have
to spend the money buying an insurance policy.

This is not something that would ordinarily make sense. You would say, you
know, this is a form of compensation. Why shouldn’t it be taxed like other
forms of compensation? In fact, it’s worked to our advantage for much of the
past 50 years because by encouraging employment-based insurance, the tax break
encourages insurance that’s delivered under the rules under which employment-
based insurance has to work, which is that you offer the same plan to all of
your employees, you do not discriminate based on pre-existing medical
conditions. You can’t offer a deluxe plan for a few employees and no insurance
for the rest, because if you do that, you lose the tax break.

So in a way, we’ve channeled this employer-based system into being something
closer to the way a health-insurance system ought to operate, through the tax
break. And on the specific issue of should we be willing to tax gold-plated
insurance plans, should we put some limit on the tax deduction, I’m okay with
that. I don’t think there’s a problem, as long as we maintain, while we are
still in this world of imperfect systems, while we are still trying to
transition to the ultimate system, we need to retain the basic tax
deductibility of employment-based plans.

GROSS: Stuart Butler, what do you think about the issue of medical benefits
being taxed?

Mr. BUTLER: I agree that there ought to be a limit on the tax-free status of
employment-based coverage. The fact is that when something is tax-free without
limit, people tend to want a lot of it, particularly if they don’t really see a
direct connection between what they’re getting and the cost of that.

You know, I don’t think almost anybody – well, nobody is required in America,
no employer is required to actually even show people on, say, their W-2 forms
they get at the end of the tax year, how much of their compensation was in the
form of health insurance.

So there’s a terrible sort of inflationary pressure as a result of the system.
So I agree in limiting it, in the same way, say, that we limit contributions to
401(K) plans, at least the tax-free status of that. I think that’s critically
important to get people to start to question how much their health insurance is
that they get from their employer.

GROSS: My guests are Stuart Butler, Vice President for Domestic and Economic
Policy Studies at the conservative think-tank, the Heritage Foundation; and
Paul Krugman, Nobel Prize-winning economist, Princeton professor and New York
Times columnist. We’ll talk more about the economics of health-care reform
after a break. This is FRESH AIR.

(Soundbite of music)

GROSS: This is FRESH AIR. I’m Terry Gross.

Let's get back to our conversation about how to pay for health care reform. My
guests are Paul Krugman and Stuart Butler. Krugman won the Nobel Prize in
economics last year. He's a New York Times columnist and a professor at
Princeton University.

Stuart Butler is the vice president of domestic and economic policy studies at
the conservative think tank the Heritage Foundation.

Let's get to something I suspect you might disagree on, and that is should
there be a public option for health insurance. Stuart Butler, what do you
think?

Mr. BUTLER: I think that’s a very, very disturbing piece of the equation,
particularly in terms of what it means in order to get a consensus to take the
important steps forward, and also because the details of what people mean by a
public plan is very different depending who you talk to.

Some people clearly see a public plan as a sort of a thin end of the wedge or a
Trojan Horse, as some people say, towards getting essentially a single pay type
of system like we have in Britain or like the VA here. And I think that's
clearly causing an enormous backlash, not just from insurers, but also from
people, quite frankly, like myself, who are very worried about that kind of
system, how it would operate and whether Americans really want that kind of
system.

Prof. KRUGMAN: Well, just to weigh in - single payer is not the same as
socialized medicine, it is always important to say. We have a single payer
system in this country. It's called Medicare. That's a single payer system. The
government is the sole provider. And it's true, some people see the public
option as an eventual route towards a Medicare-like system for everybody.

I don't think something that looks like British NHS is on the table at all, so
your relevant comparison should be do you want a Medicare-like system for all
of America?

Mr. BUTLER: Well, I'm not sure that that is the case, I mean that that's
necessarily the right way of looking at what’s going on. The debate over
exactly what the single payer system should look like is a pretty vigorous
debate, as you know, Paul.

I mean there are people who look at the Canadian system, there are people who
look at Medicare in particular and have quite different views. But my point is
that it’s clear that strategically some people see a single payer with that
purpose, and those same people want to have rules, the rules of the competition
in terms of how a public plan might compete with others.

They want to have the Congress of the United States both designing the public
plan and also designing the rules by which public plan competes with other
plans. And I know enough about American sports, having been here for 30 years,
to know that if the umpire of a game is also the team manager of one of the
teams, then you don't really have a true competition taking place on that ball
field.

And so I think it's very - there's a lot of concern about both what is the
purpose of the public plan and also whether you can in fact have a level
playing field between that government-sponsored plan and other plans in a true
competition. And that’s why there is so much pushback on this idea of a public
plan. Not because people necessarily hate Medicare or anything like that, but
because they don't - because they envision a gradual trend, a gradual change in
the system which is very much in contradiction to how it's being advertised.

Prof. KRUGMAN: Let me describe how I see the public plan's role. What we’re
heading towards, if anything like the health care reform that's on the table
succeeds, what we’re heading for is a system in which private insurers will
deliver most of the health insurance in this country, but they will do so
heavily regulated by the federal government in terms of who they, you know, not
being allowed to discriminate based on medical history. We'll have a bunch of
subsidies to help people afford it. We'll basically have private insurers
operating with a lot of federal oversight, which is fine.

Then you - the obvious question you have to ask is, what exactly are the
private insurers doing? What role are they playing? Is this going to be
something like the student loan program where we know that we've been
subsidizing private lenders to provide student loans and they don't actually
add anything? It's actually taxpayer money anyway, so - and it turns out that
the private insurers are doing nothing but, and this is the case of student
loans, the student loan providers are adding no value. They're just collecting
fees along the way.

Now, the defenders of the private insurance industry will say, no, we do add
value, we manage costs better, we actually provide oversight. My answer to that
is: prove it. And how do you prove it? You prove it by having a level playing
field in which they compete with a simple plan offered by the federal
government that people can buy into that does not involve the private insurers.

Now, we have some experience. We have Medicare Advantage, which is the
possibility of people getting their Medicare run through a private insurance
company rather than directly from the U.S. government. And the history of that
is that the Medicare Advantage plans are unable to compete against the
straightforward government option unless they are in effect subsidized, so
right now they're paid around 13 or 14 percent more per recipient than straight
Medicare recipients are.

This is at least a suggestion that maybe the private insurers don’t add value.
But all that the advocates of a public option are calling for is let's have
that public option on the table. Let's offer people the choice between buying
insurance through the government or buying it through a private insurer and
let's see if the private insurers are actually delivering the social value they
claim to be delivering.

GROSS: So are you saying, Paul Krugman, you're asking the question, do we
really need the big insurance companies, and if we do, let them prove it? Is
that what you're saying?

Prof. KRUGMAN: Yeah. Exactly. I mean I – now, notice that the, that I'm
offering the choice here. I'm not saying, look, we’re going to decree from the
beginning that the private insurance industry will go away. I'm not even sure
it will, because I think there is some question about whether the private
insurers do have a significant amount to offer. But I'm saying let's have the
choice.

Whereas the opponents of a public option are saying, well, we’re going to
decree that even though ultimately taxpayers are going to be on the hook to
make sure that everybody has insurance, even though we’re going to heavily
regulate to make sure that insurance is not denied to anybody, nonetheless -
essentially we’re going to take the decision about who's going to have
insurance, whether they're going to be able to afford it, out of the hands of
the private insurance companies, but nonetheless we’re going leave the private
insurance companies in there actually running the system, actually
administering it.

Why should we make that a necessary condition? Why not actually have a genuine
competition to see whether the private insurance industry is worth what we pay
it?

GROSS: Isn't it likely that the public option would be a very bare bone
insurance plan and if you wanted more than that, you'd be buying through one of
the private companies?

Prof. KRUGMAN: Well, that's up in the air, but you know, if that's the way at
least initially it comes out, that's fine. I mean America's situation is so
bad, we have so much - if I can say - sheer brutality in our system with
insurance coverage entirely denied to large numbers of people, that even having
a bare bones basic insurance plan that is available to those people who are
currently excluded from our system would be a big improvement on where we are
now.

GROSS: Now, President Obama has said for those of you who like your plans, you
can keep them. What do you think the odds are that once the insurance, once the
health care and insurance industry is reformed to some degree, that the health
insurance plan that I have or that you have will stay the same?

Mr. BUTLER: I think it’s very questionable as to what will happen. Indeed, in
order to try to get costs down - I mean part of the equation here is how do we
get these long run cost down? One strategy, of course, is to have a public plan
out there which pays lower rates to people, which Medicare does, and has
various restrictions on it and so on, but anyway is a bare bones operation, and
then try to push people into it in some way, to try to get them to do that.

Well, the fact is, if you're an employer and there's a very low cost public
plan out there and you can make decisions about who's going - what kind of
coverage you're going to be in, a lot of employers are going to start to say,
well, if I can just sort of put my employees into that plan, I can really get
my costs down. That, of course, then it means that a lot of people who are
happy with coverage that they have today could easily end up finding things
changing quite dramatically and they end up in a bare bones public plan.

Indeed, estimates vary about how many employers would do that, but most recent
estimates that we've seen from Lewin Group show that maybe as many as 80 to 85
million Americans might wake up, as it were, and discover their employers have
basically decided that they should go into the exchange system and the public
plan is going to be the option that they will actually end up in.

So this change in the system is part of the equation that we've got to get
right if were going to start to say to people, if you're happy with what you
have, nothing's going to change. You cannot then simultaneously have a powerful
public plan that is bare bones and low cost that employers then start moving
their people into.

And as I said before, I think a lot of this boils down in any case as to
whether you can have a level playing field, fair competition and so on, when
the Congress and the government is both setting the rules and designing one of
the plans.

Prof. KRUGMAN: I think it's almost certain that if we look two or three years
out, you or I, you know, the three of us who are all presumably covered by
employer-based large organization systems, will be able to keep basically what
we have right now. There isn't going to be any change. If we look 10 years out,
nobody's going to able to keep the coverage they have. The very important thing
in all of this is to understand that the system we now have is tottering
towards extinction.

Health insurance premiums have doubled over the last decade. They are now - a
family insurance policy of employer-based is now - now costs about 30 percent
of the earnings of the average worker in America. Take that forward another
decade and it's just going to fall apart for very large numbers of people. So
sure, if we look ahead to the year 2019 and ask what it's going to be like, a
lot of people are not going to have the same kind of coverage they have now.
The only question is whether they're going to have any form of coverage, decent
coverage at all. The public option makes it more likely that they will.

GROSS: My guests are Paul Krugman, Nobel Prize-winning economist, Princeton
professor and New York Times columnist; and Stuart Butler, vice president for
domestic and economic policy studies at the conservative think tank, the
Heritage Foundation.

We'll talk more about the economics of health care reform after a break. This
is FRESH AIR.

(Soundbite of music)

GROSS: If you're just joining us, we’re talking about the economics of health
care reform. My guests are Stuart Butler, vice president of domestic and
economic policy studies at the Heritage Foundation, and Paul Krugman, a Nobel
Prize winning economist, Princeton professor and New York Times columnist.

We’re hearing a lot about how fee-for-service should be changed because a lot
of doctors do procedures maybe the patient doesn’t need but it's profitable for
the doctor. So the idea is to, you know, cut back on or eliminate fee-for-
service and have it more be a salaried position, where doctors are paid a
salary so that there aren’t financial incentives to do MRIs or extra
colonoscopies or whatever.

Now, I’d like to hear both of your opinions about whether you think - you're
economists, you're not doctors. Do you think financially that this would
actually be an effective way to reform the system?

Mr. BUTLER: Well, I think, you know, we’re economists who know doctors and
actually go to doctors, so I suppose in that sense we have some understanding
of how doctors are. I think over the long run, and I suspect Paul would agree
with me on this, that both as a business model and as a way of getting cost-
effective medicine, the simple fee-for-service system is really almost the last
system you would set up. You're right. It pays doctors to do more, to repeat
tests, and so on.

Some doctors do that to maximize their earnings, other doctors do it because
maybe they can spend, they can order a test that might just increase the
probability of getting the diagnosis a little bit more and they feel that they
should do that for their patient. But this fee-for-service system, I think it's
going to gradually evolve into a much team-based system. We can loosely call it
managed care, but I think teams of doctors operating together and being paid in
that way – now, whether they're on salary, which is true at some places like
the Mayo and others, or whether it’s a different kind of reimbursement system -
the Geisinger system has a combination of salaries and really payments for good
performance. They are all kinds of ways of doing this. But I think we do have
to move towards a system where, when I as an individual get health care, I do
it through an organized group, an organized system in some way that is making
internal decisions.

And I think ultimately my choice should be between those competing groups,
competing to show good value for money to me, and I do that rather than
individual doctors charging me fees and me going from one to the other. So I
think moving in that moving in that direction is absolutely the right way to
go. Moving towards teams of doctors, which is really where we are seeing the
system moving.

Prof. KRUGMAN: You don't want to be too hard-line about this. I mean if you
look at the world right now, France has a largely fee-for-service system that
is - nonetheless delivers excellent care at much, much lower cost than the U.S.
system. Canada is a fee-for-service system. It has its problems, but actually
seems to deliver an overall level of care roughly comparable to that of the
United States at little bit more than half the cost. So fee-for-service is not
at this point an absolutely terrible useless system. But clearly their big
disadvantages to fee-for-service that are growing over time. The direction of
change in medical practice has been towards more use of technology, more kinds
of things where it’s all too easy for the personal financial motives of the
physician to distort the nature of care. And, yeah, I think we’re agreed that
one way or another a generation from now there won’t be a lot of fee-for-
service medicine in America.

GROSS: Paul Krugman, in a column, I think a couple of months ago, you gave two
pieces of advice to Congress. Don’t trust the insurance industry and don’t
trust the insurance industry. When you look at the medical industrial complex,
as you call it, you say they’re trying to shape health care reform rather than
block it, because they know it’s going to happen, so they want to shape it. So
when you look at the lobbies for various parts of the medical industry, what
are you most concerned about?

Prof. KRUGMAN: Well, first of all, although I was pretty confident there, I’m
not entirely sure they’re going to get health reform, alright? It might fail,
though I still think probably something will be passed this year. And what I
think we have to worry about is that we have a deal that locks in the
inefficiencies, that we have a system which does not have a public option,
which gives very little ability to do cost saving. And you know, it’s in some
ways, I guess what we’re concerned – we have a kind of role model, which has
got both good and bad features, which is Massachusetts.

Massachusetts passed a health reform a few years ago which in some ways is a
dress rehearsal for what we’re looking at in the national level. Does not have
a public option but it does have the other stuff. It does have mandates, it
does have subsidies. It’s supposed to achieve universal coverage, though - and
it’s getting a significant part of the way there. It has no cost control. And
it has no cost control because the insurance companies more or less made sure
that it didn’t. And as a result, it is turning out to be expensive.

I still think it was worth doing because among other thinks the fact that it’s
running ahead of projected costs is now forcing Massachusetts to look very
seriously at real measures to bring in costs, including trying to move away
from fee-for-service medicine. But that’s what I’m afraid of right now, that
we’ll get a national plan that is more expensive, less effective than it should
be, because we’re busy protecting the interests of the insurance industry.

GROSS: We’re kind of out of time, but I would just like to squeeze this in. If
what Congress passes, if indeed they pass anything, is basically a series of
half-measures, is that still a good thing because it gets us a step closer to
more meaningful reform? Or do you fear that half measures will be expensive and
get us nowhere and be a dead end?

Mr. BUTLER: I think it depends on which half you get. If you get an avoidance
of all the important things we have to do, the decisions we have to make, and
you simply just increase the cost, then I think we will be in a worse situation
in the future. If on the other hand they do take some steps down the right road
and begin to make some important changes, I think it could be helpful.

Prof. KRUGMAN: I think, again, on the words I agree with Stuart. It does depend
on which half. But look, I’m willing to accept a very, very imperfect health
care reform because I think it will, first of all, it’s just an outrage that
we’ve these large numbers of Americans without insurance. And so anything that
makes a big dent in that population of uninsured is important to do, even if
it’s not done in the ideal way.

And I think if we do establish the idea of health care reform, the idea that
we’re going to cover everybody, that we’re going to try to tackle costs, then
over time we will gradually do it better. The important thing is to get, take a
step along the way. The next step will be easier if we can step that first
step.

GROSS: I want to thank you both very much for talking with us. Paul Krugman and
Stuart Butler, thank you.

Prof. KRUGMAN: Thank you.

Mr. BUTLER: Thank you.

GROSS: Paul Krugman is a professor of economics at Princeton University, a New
York Times columnist, and the winner of last year’s Nobel Prize in economics.
Stuart Butler is the vice president of Domestic and Economic Policy studies at
the Heritage Foundation.
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‘Going Away’ From Excess With The Fiery Furnaces

TERRY GROSS, host:

Our rock critic, Ken Tucker, has a review of the new album, “I’m Going Away.”
It’s The Fiery Furnaces’ eighth album since 2003. The prolific brother-sister
team of Matthew and Eleanor Friedberger is always unpredictable. Their album
“Rehearsing My Choir” used their grandmother as one of the lead vocalists. And
their live album, “Remember,” had a staggering 49 songs. Rock Critic Ken Tucker
says “I’m Going Away” is unpredictable in a new way – in the brevity and
directness of its dozen new songs.

(Soundbite of song, “I’m Going Away”)

THE FIERY FURNACES (Group): (Singing) I’m going away, I’m going away. I’ll be
back some old day. I’ll be back some old day. I’ll be back some old day. I’m
going away, I’m going away. I’ll be back some old day. I’ll be back some old
day. I’ll be back some old day. Please tell me man what more can I do. Please
tell me man what more can I do. Lord knows I can’t get along with you.

KEN TUCKER: America’s favorite art-rock band, well, mine anyway, for sure, has
come up with a dozen new songs that are as close to pop songs as The Fiery
Furnaces are likely to get, which means only that the compositions are a bit
shorter than usual. Mathew and Eleanor Friedberger have always written lovely
melodies, sometimes two or three distinct ones within a single song, which
tends to throw some people off and to send other listeners into a state of
happy bliss. Brother and sister seem incapable of cheap irony or facile joking.

Their song “The End Is Near” really is about everything coming to an end. The
human brain, if not the Earth itself, grinding to a halt. I might try to
reminisce, sings Eleanor. Then she immediately utters a flat no - no, she will
not reminisce, thank you.

(Soundbite of song, “The End Is Near”)

THE FIERY FURNACES: (Singing) The end is near. The end is near, the time has
come. There ain’t no way. Nobody will save you now. The end is near. The end is
near, the time has come. Don’t even think that there’s a way out of this. Down
the road and up the creek, it’s over. It’s such a clear and certain hell of a
thing, it’s over.

TUCKER: One of the most attractive songs on “I’m Going Away” is “Drive to
Dallas,” which is all about not driving to Dallas. It’s an anti-road song,
about not going the distance to see a lover the singer would just as soon never
see again. The music surrounding this sentiment is gorgeous, a languid ballad
in which piano and guitar flirt with a jazzy discursiveness that erupts at
various points with a whiplash intensity. No matter what the music is doing,
however, Eleanor’s voice remains serenely insistent in its unadorned
directness.

(Soundbite of song, “Drive to Dallas”)

THE FIERY FURNACES: (Singing) If I see you tomorrow I don’t know what I will
do. If I see you tomorrow I don’t know what I will do. I’m not going to cut my
hair or run around the block. I’m not going to drive to Dallas with blurry eyes
ever again. With windshield wipers that can’t wipe away my tears. And
everything I own piled up in the backseat. With a speeding ticket from that
speed trap town. The one that got my license revoked. But I never got pulled
over. Never got questioned. No, I never got pulled over. Never got questioned.
But I still drove all around, all around, all around without it.

TUCKER: The Friedbergers, in this series of mostly upbeat melodies about
negation, denial and avoidance, address our current state. Or as they say in a
statement released with this album, times are tough. And they take the word
economy seriously, cutting down the size and shapes of their songs. Then
there’s what I think of as their Bob Dylan song, a Bob Dylan song as Matt and

Eleanor would write and perform it. One called “Even in the Rain,” as though it
was pouring cats and dogs out on Highway 61.

(Soundbite of song, “Even in the Rain”)

THE FIERY FURNACES: (Singing) You wore your wrestling badge from your wrestling
match. You wore a t-shirt over your suit that says you just won State. I guess
I still don’t mind that you’re late. I guess we must have done a lot of
kissing. I must have known not what we were missing. She followed us to the
motel and I lied all the way. I rode on the back of your bike all the way to
Lake Geneva. I let you wear the helmet even though you never offered anyway.
Even in the rain.

TUCKER: That statement I mentioned earlier also contains a striking observation
that suggests The Fiery Furnaces are their own best rock critics. The dramatic
setting of the music isn’t provided by the story or image of the given act or
band they write. It’s provided by the lives of the people who use, listen to,
the music. That is pop music’s promise and problem, or danger, unquote. Yes,
just so, The Fiery Furnaces fill their songs with opportunities for us to enter
the environments they create. As listeners of “I’m Going Away,” we choose not
to go away but to stay and complete the experience by assigning our own
meanings and emotions to The Fiery Furnaces’ free play of sounds and ideas.

GROSS: Ken Tucker is editor-at-large for Entertainment Weekly. He reviewed,
“I’m Going Away” by The Fiery Furnaces.

(Soundbite of music)

GROSS: You can download podcasts of our show on our Web site, freshair.npr.org.

I’m Terry Gross.
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