An Interview with Kaiser Permanente CEO George Halvorson: Part I

Ezra Klein

On Friday, I sat down with George Halvorson, CEO of Kaiser Permanente, the largest managed-care organization in the United States. The interview is long, so I'm transcribing it in parts. The first piece focuses on the role of private insurers, why America pays so much more for health care than any other country, and what we can do about it.

Why do we need private insurance at all? Other countries have national health-care systems. What value do private insurers add to the equation?

All of the European countries, just about, use private insurance. The Netherlands is all private insurance. There’s no government health care. The exceptions are the Swedes, Danes and Norwegians.

But the French have public insurance as the base in their model, for instance.

Still, 92 percent of their people have private insurance. The French public system pays only half the cost of specialty care. But Germany, Netherlands, Switzerland, Austria, Belgium, all those countries are all private coverage. The companies compete based on service, satisfaction, health programs all of that. There’s not one single person in Switzerland who has any government coverage at all. Not poor people, no one. They do a very good job subsidizing coverage. If you look at the ad campaigns in Switzerland, they look just like American ad campaigns for health plans.

Only Canada has a single-payer system that outlaws private coverage. And even in Canada they actually have health plans, because Canada doesn’t cover prescription drugs. What Canada does, instead, is a really good job negotiating drug prices, so drugs are very affordable. But everybody else, every other country has fairly robust private insurance. Some are not for profit, some are for profit.

But on the philosophical level, why should we have our system or the Swedish system as opposed to a single-payer system?

Because, if you have a private insurance system, you’re likely to have competition in a number of areas you won’t have in a single-payer system. Countries with more insurance companies have more CT scanners, more MRIs, more tests. Countries that are a single source of funds for everything tend to have a less robust care infrastructure. There are more CT scans in St. Paul than in all of Canada, or at least there were a couple years ago.

Do we have a competitive insurance market in the US?

We need to do three things. Cover everyone. Fix care, focusing on the patients with chronic care. But the third thing is we have the highest prices in the world. The unit prices here are a multiple of any other country. Look at this. (pdf)

For someone who loves graphs as much as I do. This is beautiful.

It shows you why the public plan is so attractive. When you look at other countries, you can also see what Medicare pays. On bypass surgery, all these other countries under $15,000. The United States is $50,000 and up. And Medicare is $22,000.

Why is this? What people say is that you want a single-payer system because you need a large, central buyer to secure these prices. But in these other countries, as you say, you still have competing insurers, and they’re still getting better prices.

One of the reasons is that in the Netherlands, in Germany, the government sets the fee. In Canada, the government sets the fee. Each of those countries has basically said we’ll have a single fee schedule.

So these private insurers don’t set the prices?

Right. If you’re in Paris, there’s a fee schedule for doctor’s offices.

That’s why the U.S. has a much larger range of prices among different insurance plans for the same services?

Yes. This is the difference in price between us and them. If you take U.S. care delivery and price it to the Canadian model – same care, same drug, same office treatment, same duration of stay – but price it at the Canadian fee schedule, we go from spending 17.6 percent of GDP on health care to 11.5. If you just put us in a single-payer system, we go from 17.6 to 16.9.

You’re saying as compared to when the difference isn’t price, but administrative costs?

Right. But this is complicated. There are more office visits in Europe. The length of stay in Europe is longer. Every country in Europe has a hospital day cost of $1,000 or less. Every state in the U.S. has an average cost that’s $3,000 or more. So you’re charging three times as much, care outcomes are about the same, length of stay is a little more in Europe, and half the hospitals in America lost money last year. There’s no gouging going on. Literally half lost money.

So when you say that we should have a public plan with Medicare rates, Karen Ignagni, who represents an organization you’re part of, says no, the only reason Medicare can pay so little is because we pay so much. But Europe doesn’t pay that much.

All the hospitals believe firmly that they lose money on Medicare and Medicaid. And I’ve run enough hospitals to know that’s probably true. And there will be some cost-shift. The other thing that’s happening is we have the lowest hospital days in the world, but we have increases the rate of spending per day.

We can’t jump from here to Europe. If they’re charging this much and we make them take that much, they all go out of business. But what I recommend we do is reduce the rate of increase in fees for a number of years.

The other argument you hear is that America’s overspending is subsidizing worldwide innovation. The only reason Europe can have the modern health care they enjoy, critics say, is because we’re putting up the money for research and development.

I just did a talk in Portland and a drug company executive made that argument. I said, ‘give me a formula that identifies with a lot of transparency what your research costs are, and it may be appropriate to add that explicitly to your American price structure. But there hasn’t been the transparency we might like. They’re making money in each of those other countries. They’re selling drugs below cost in some countries in Africa, but when you look at Europe, there’s no way in the world they’re selling that drug at that price and losing money on it. So when you take that price and add research, does that triple the price? Let’s do the math. Let’s do the accounting. Let’s figure out the real numbers and factor that into the equation instead of having a debate that’s entirely rhetorical.