Click through to watch the video of Steve Forbes’ interview with Howard Dean.

Inside the Beltway

Steve Forbes: Governor, good to have you with us.

Howard Dean: Thanks for having me.

Forbes: well, let me do a quick political question – I can do this as a Republican. After the Democrats won in 2008, they kind of ran you out of town. You were the head of the DNC. now, two years later, they got a shellacking. any correlation?

Dean: oh, you noticed? thank you for noticing.

Forbes: any correlation? your absence and the shellacking?

Dean: well, you know, they had a few management problems in the White House. and hopefully, they’ve been fixed by now.

Forbes: Management problems?

Dean: Yeah.

Forbes: aside from not hiring you?

Dean: well, I don’t think I was going to end up in the White House. I mean the fundamental problem here I think has probably been misdiagnosed by most people who write about it, which is not a surprise given, inside the beltway, the shortness of perspective. the President ran promising change you could believe in. and a lot of Republicans and Independents voted for the President, which accounts for his huge margin.

And what I think most of the Independents and the Republicans and a fairly good number of Democrats really wanted was not so much health care reform — although, of course, the Democrats wanted that – but was a new way of doing business in Washington. and when the health care bill came along, first of all, it took 13 weeks to get it through. it wasn’t so much that it didn’t have the public option or it did have the public option. the real problem was that it was business as usual. They made deal with the insurance companies and the hospitals and the drug companies.

And then finally, $100 million in Nebraska and $300 million to Louisiana to get the bill passed, and people thought, “what? Didn’t we sign up for change you can believe in? where is the change?” and I think that was a product of having a staff that was inside the beltway. I think there was a loss of connection with what was going on elsewhere in America. and, of course, the terrible economy was a huge factor, probably the biggest factor of all.

But when you have a bad economy like that, you’ve really got to be out in front of everybody else, like Roosevelt was. I mean, Roosevelt had a terrible economy. he was reelected overwhelmingly in 1936, but he was way out in front.

Forbes: Although your state voted for the Republican.

Dean: They did. what is it? as Maine goes, so goes Vermont, right?

ObamaCare

Forbes: but talking about health care, you’ve been critical of what we’ll call Obama Care. what do you see as –

Dean: well, I don’t call it Obama Care.

Forbes: oh, you do the formal affordable blah, blah, blah. but what do you see as its weakness? what do you see as its strengths? and what do you see happening to it?

Dean: well, actually, I think some good things will happen as a result of this. First of all, the exchanges were actually a Mitt Romney idea. That is a very good idea. That will lend transparency to buying health insurance, no matter what happens to the rest of the system. Second of all, the insurance regulation is an improvement. It’s not nearly as much of an improvement as there should have been, but you will be able to get it. everybody who needs insurance will be able to buy insurance. Some of them will be subsidized.

It’s actually a free market plan, which is an odd thing. I know you probably don’t think that’s true. but it really is the opposite of a government takeover. and it’s one of the reasons the people in my end of the Democratic Party aren’t that enthusiastic about it. but what I think is going to happen, Steve, is that there’s going to be a lot of innovation in the states. and different states will do different things with the exchanges. They’ll give different kinds of choices to the consumers. and that’s probably not a bad thing. It’s better than having, I think, one gigantic federal attempt at trying to give health care to 300 million people.

Forbes: Getting to some of the specifics, it seems that the Secretary of Health and Human Services is backing off of the way they did long term care. Recognizing that’s a disaster. There’s a lot of upset about the 80-85% provision. That it’s hurting small insurers. That it’s requiring waivers, which involves politics, who gets them and who doesn’t.

Dean: the 80 to 85% rule was put in because they couldn’t get really good community rating. and that was because they didn’t give enough choices to people. look, here’s how I look at this: we already have a socialist system of medicine in this country. It’s called the Veteran’s Administration. 25 million people are in it. and it’s the highest-rated by its patients of any system in the country.

We already have a single payer in this country. It’s called Medicare. You have 50 million people in it. and most people like it. Even the Tea Party people don’t want to give up their Medicare. and then you have a very large private sector. so, why not give people the choice of being in those three when they go to the exchange? Let them choose what they want to be in. Then everybody has to compete with each other. Then you need a lot less regulation.

And I know, for a free marketeer like yourself, the idea of competing with the government is somewhat of an anathema. but if the rules are fair, you need a lot less regulation on insurance companies. so, the 80 to 85% return is simply a way of curtailing an insurance company’s profits. You can do that a lot better by having a very competitive market.

MediCare Reform

Forbes: well, talking about competition, first on Medicare; it is, in effect, subsidized by private patients because of the reimbursement formulas. How would you reform it so it truly is a private company?

Dean: what we’re probably going to end up doing in Vermont is I’m trying to get a blended rate for physicians, so that people will go into the exchange. the exchange will — basically, there may be Medicare, there may be Medicaid, there may be a private exchange company. but then the exchange will ultimately blend the rate. so, physicians will be paid a certain amount per capita.

The biggest thing that’s driving costs is not insurance companies or drug companies or doctors or any of that stuff. the thing that’s the most out of whack in this country is that we pay a fee for service. That is, I get paid to do as much as I possibly can to you, whether it works or not. and if I were paid on a per capita basis — something in this bill that I like a lot also is the accountable care organization. That is going to be a vertical integration from the bottom to the top.

The reason nobody ever does health care prevention seriously in this country — except for large companies that are self-insured, they do a pretty good job. the reason most everybody else doesn’t do it, is that the economic incentives push you away from doing that. but if you’re an accountable care organization and you get a certain amount of money and that’s all you get for the patient, you start figuring out how to invest in things that cost less.

And that is really what we have to do to bend the curve on health care costs. now, the entire mechanism for that is not in the bill. the capitated care is not a mechanism of the bill. but the foundation of an accountable care organization and the inclusion of exchanges, I think, will begin to give states and buyers in the private sector the ability to start to push back on pricing.

Forbes: well, how do you prevent Medicare from what it is today, in the sense that it’s like Fannie and Freddie? They have a government advantage and by golly that eventually drives everyone else out.

Dean: well, I don’t know if you saw the news today that the President’s actually getting serious about Fannie and Freddie. You may not think enough, but to go from 95% of insurance or ownership of mortgages to 40% is a big step forward in five or seven years. and I think cleaning up the Fannie/Freddie mess would be a big deal. I have no interest in privatizing Medicare, but I do have an interest in controlling costs.

Because, of course, Medicare is in much worse shape than the Social Security system is. and what I would do is use capitated payments. If you have enough accountable care organizations in the private sector, the delivery of health care, then you ought to be able to contract with Medicare for that. the State of Vermont under my Republican successor contracted with Medicaid for five years. we got $5 billion over five years. That’s all we got. and we got to manage how we were going to spend that Medicaid money within the rules of who’s eligible.

Shop Around

Forbes: so, why not allow nationwide shopping for health insurance?

Dean: well, the reason for that is I don’t want the insurance commissioner in Texas to be the de facto insurance commissioner in Vermont. You know, in my state, we’ve had universal insurance for kids under 18 for almost 20 years. If your kids are under 18, you can pay $450 to the state, unless you have no money, in which case you get Medicaid free, and your kid gets insurance.

We don’t have an individual mandate, which is another subject we can talk about, I’m sure we’re going to. but it’s very successful. 96% of all the kids in my state have had health insurance for the last 18 years. and we also have guaranteed issue. we did a much better job, frankly, than the Congress did, 18 years ago. If you’re a Vermont citizen and you’ve been there for 12 months, you can’t be denied insurance for any reason, except for nonpayment of premium.

And if you’re an insurance company, you can’t charge the sickest, oldest patient more than 20% above what you charge your cheapest patient. so, it’s community rating and guaranteed issue. and what that means is, we’ve had a fairly low number of uninsured people without the state putting any money in, for almost 20 years. I did that when I was first, first Governor.

Now, that’s a system that’s worked really well. If people could go by health care in Texas, the guaranteed issue and the community rating wouldn’t work. and our numbers would look more like Texas. Texas has about 25%, roughly, of its adults uninsured, about 20% of its children uninsured. we have about 8 or 9% of our adults uninsured and 4% of our children uninsured. I don’t want to look like Texas. and I’ve got to protect myself against their views of how insurance companies should be regulated.

Forbes: well, talking about guaranteed access and community rating, modified or however you want to call it. States that do have that, including New York, my home state of New Jersey — overall insurance costs are significantly higher than they are, say, in Pennsylvania or Wisconsin, which are not seen as backwater states. Why shouldn’t I as a consumer, if I can get a good policy in Wisconsin, why shouldn’t I be able to do it? I can buy a car in Wisconsin.

Dean: I think that’s fine. I don’t know why the rates are so high. I suspect their rates are very high in New York, because you have a very high concentration of teaching hospitals and medical schools, which are much more expensive as an addition to the infrastructure. and New Jersey actually has a fair number of teaching hospitals and medical schools, as well. and the ones that aren’t in New Jersey, the patients either go to New York or Philadelphia, which are high end, wonderful medical schools and teaching hospitals that are very, very expensive.

There are lots of reasons it’s expensive. it doesn’t necessarily have to do with community rating. our rates are in line with most other states or a little higher because they’re in the Northeast, but they’re nothing like Massachusetts, New York, and New Jersey. so, why shouldn’t you be able to buy health insurance in Wisconsin? because if you do, you’ll buy health insurance for a company that won’t cover women for pregnancy.

You’ll buy health insurance for a company that decides not to insure any sick people. and then you’ll have the same problem of skewing the insurance pool. Community rating, there are many who don’t believe in it. I’m a very strong believer in it, because I think everybody needs to be in the same pool. and I’m aware that it shifts costs of younger people from older people. but you have to decide what bad things you want to accept in order to make the market work. and I think it works better on community rating.

Forbes: because in states that do have it, the handful that do have it, the rates are significantly higher than the states generally that don’t have it. and as a result, the uninsured go up, precisely because for younger people it is very high.

Dean: we haven’t found that.

Forbes: Wouldn’t you think in an open, free market, that companies would figure out how you cover people better?

Dean: They don’t, though. the history –

Forbes: because you don’t have real free markets yet.

Dean: well, but you’ve had nothing like free markets and they’re getting less free. and I think that’s probably a good thing. Aetna, for example, kicked over 600,000 of its sickest patients off health insurance because they became sick. now, you can make a lot of money doing that, but I don’t think that’s exactly what we want for health insurance practices.

Horrifying Agreement

Forbes: well, this gets to the whole thing of employer-based insurance. First, before we get to that, you’ve said you wouldn’t mind starting with small businesses, seeing them, in effect, even with the fine, kick the people off.

Dean: I think that’s going to happen. I think we may have a point of common agreement, horrifying as that may be.

Forbes: What’s the world coming to?

Dean: I think both of us think that employer-based insurance is probably not a good thing. I think that. I mean, that’s what McCain was saying during the campaign. and I wouldn’t go about it the way he did. but the reason I think it’s not a good thing is because it puts our businesses at a competitive disadvantage. we already have enough trouble with labor costs in India and China. We’ve got a problem with health care costs.

Whatever you think, just using Canada as an example of the problem. Canadian costs are going up about the same rate as ours are from a lower base. but every time the Canadian rate goes up at three times the rate of inflation, the problem is spread across every tax payer in Canada. When the American rate goes up at three times rate of inflation, the business community pays the lion’s share of that, and the rest of it is paid for by the employees.

So, every year that goes by and we have an employer-based system, our business community, as a result, is less able to compete with our competitors in the developed world. the other problem is, of course, small businesses generate 80% of all the new jobs in the country that are created. and IBM and GE could be in two businesses, god knows they’re in eight businesses or eighty businesses. but a small business really has got to focus on doing what they do right or they don’t survive.

And you’re asking every business, not you, of course, but this current system essentially asks every business in America to be in two businesses. Health care and whatever it is they do to make money. That’s nuts. and a small business can’t afford the infrastructure to do it. so, I do expect a big migration, first out of the businesses of 50 and below — which doesn’t cost anything to migrate them into the exchanges — into the individual market, which will be much more fairly and transparently structured under the President’s bill, I think.

Then I think those under 200 and 300 will migrate and they’ll gladly pay the $2,000 fine, so as to get the heck out of the health insurance business. I think in terms of where that’s going to take America, that’s a good thing. Putting that choice in the individual hands and not in the hands of the businesses who then have to administer the whole thing.

Forbes: Let’s pretend it’s not World War II, where this system rose up from.

Dean: it did.

Forbes: Why can’t we do in health care what we do in food? we allow farmers to grow it, private companies to process it, trucks and others to deliver it, grocery stores and supermarkets and everything else to sell it. and if you can’t get it for whatever reason, we have everything from food banks to food stamps to deal with it. Why can’t we do the same thing in health care? Have it free market and then have high risk pools, subsidize the high risk pool? Instead of Medicaid and fee for service and everything else, same thing with –

Dean: well, for two reasons. First of all, food is not, if you thought about it, really what you would want to use as the example. Of course, because there’s tons of outrageous subsidies that go into corn and who knows what else.

Forbes: Even if you remove those subsidies, it is still far cheaper, in fact would be even cheaper, cheaper, if you didn’t have those subsidies. and it would be even a smaller part of people’s food budgets.

Dean: well, okay, so then we get to a different problem.

Forbes: Food’s more basic than health care. No food.

Dean: I would have to agree with that. No food and you don’t last very long, no matter what your health care, health insurance is. so, here’s the other problem, which is wrapped into the fact that free markets, at least as of now, have not worked in health care. and the reason is because A) the incentives are wrong. for example, if you go to buy a car and you can go to several dealerships. and then you wish you’d had this option, but you really can’t afford it. and sometimes you may even say, “well, you know, this is not the year for me to buy a car. These prices are too high. I’ll just exist on public transportation for a while.”

But if you come to see me and I’m your doctor, I tell you what you’re going to buy, and we send the bill to the third party. and everything that I tell you we’re going to buy, hopefully it’s good for you. but I have a huge incentive to tell you you’re going to buy as much as you possibly can, because I get paid based on what I do. and the more I do to you, whether you need it or not, the more I get paid. so, that’s the fee for service.

The other problem, of course, is you have a commodity that, like food, is essential. and so, you’re always going to have some kind of subsidy somehow. and the question is how are we going to do it. the way we do it now is incredibly un-transparent and shifts costs in ways that are somewhat insidious.

High Risk Pools

Forbes: I want to hit a few other things. but in terms of — what is wrong with high risk pools, where insurance is available and if somebody can’t get it, instead of having Medicaid, you do a subsidy. States that have those have the general insurance costs are less in states like my home state of New Jersey, highly expensive.

Dean: Very few people use them for reasons that are not entirely clear. They have high risk pools in the President’s bill and they’re underutilized. but they were underutilized in the states that had them before. Partly because the insurance is very, very expense and the states would prefer not to subsidize it to the degree they’re probably going to have to in order to get low-income people in it.

So, that’s really not a particularly great solution either. I think the problem is here that we have a series of band-aids that have gotten bigger and bigger and bigger. and as you pointed out, obliquely, this system is an insane system. it was only invented, essentially, to get around raging price controls, which we subsequently found out weren’t a good idea, either.

Forbes: now, two things in terms of health care. Lasik surgery for the eyes. Since you write the check, in real terms, it hasn’t gone up in ten years, the way the rest of health care has, because providers have every incentive to make it more attractive to you. and so, the system works. Same thing in cosmetic surgery. Unless it’s a result of disease or accident, even though it’s increased six fold, huge technological advances, because, again, you the provider, I mean, the provider knows who’s writing the check. therefore, you don’t have the kind of wild inflation. Why wouldn’t that work elsewhere in medicine?

Dean: well, for a couple reasons. First of all, of course, those are not necessary commodities. I wouldn’t get Lasik surgery, partly because I have astigmatism and it doesn’t work so well for people with a stigmatism. but even if I were interested in it, I could always get a pair of glasses a lot cheaper if I wanted to. and so, there’s an element of the health care that you’re talking about that is a necessary commodity.

And Lasik surgery and plastic surgery are not. so, they’re two kind of different markets, if you will. the other thing is how the market works in health care. and this is where things like HSA’s fall down. a health savings account works great if you are trying to decide whether to go to the doctor and you make the decision to ride a cold out for two more days and see if it really is the flu or not. and then you save $100 or whatever a doctor’s visit costs these days.

That’s fine. That’s not what’s driving the costs up. I’ve never in ten years that I practiced had a guy get up off the table with crushing substernal chest pain say, “Doc, the guy does it down the street $2,000 cheaper, I’ll see you later.” the market is different. When you’re going to go to buy the car we talked about earlier, you’re in your right mind. Of course, you would like this car, you’d like a Ferrari. but, you know, there’s a balanced, rational approach that you can take between that and your bank balance. but when you’re buying health care, I’m telling you what to get.

the Steve Jobs Of Health Care

Forbes: but in terms of the supply of health care. There is absolutely no incentive for providers to do what you do in cosmetic or in Lasik. and that is, how do we — for entrepreneurs — figure out how do you do it better? Even in India, there’s a guy there who does massive amounts of heart surgery that some of it’s very innovative for people who normally couldn’t get it at all. does it in a very affordable way. and you’re starting to see in some of these medical tourist hospitals, they’re coming up with some innovations, because they know they have to do it or else they’re not going to exist. Why can’t those same pressures exist in all of health care, where the Steve Jobs of the world will figure out? or the Henry Fords of the world will figure out.

Dean: They can.

Forbes: How can this be done better, differently?

Dean: That can happen.

Forbes: and I come to you, the insurer and the consumer, and say, “Boy, we can do more for less, because we’ve figured how to do delivery in ways that others haven’t done it.”

Dean: well, I think that can happen if we do two things. the first is to get the providers and the insurers, the risk takers, to be one company.

Forbes: Why wouldn’t you want many, so they don’t have a monopoly?

Dean: No, you can have multiple companies, but the idea is that the providers and the risk takers are integrated. Kaiser does this. so, you give Kaiser a lump sum, they take the risk and they make medical decisions. One of the things that frosts me about the existing system is I don’t want either Medicare bureaucrats or insurance companies bureaucrats. lately, the insurance companies, as far as doctors are concerned are much worse than Medicare. but I remember when I was practicing it was Medicare was worse.

So, we don’t want bureaucrats of either the private or the public sector making medical decisions for our patients. We’d like to do that. but obviously, you have to control the budget. so, suppose you could go on an exchange. and you saw that this company, this insurance/provider, this maybe a.C.O. with a risk function, would charge $5,000 a year per person in your family. We’re making this up. and the next one over here charged, say, $6,000, okay? so, you’re going to guide towards the $5,000.

But then you discover also, if you’re going to take this insurance, you have to be in the network. You don’t get any out of network care. so, you can go and there’s a menu of things, based on what you can afford. and my view is, you should be able to choose whatever you want.

Forbes: with nationwide shopping, wouldn’t the Internet have that information anyway?

Dean: You could have nationwide shopping, if you had uniform national insurance rules. but the states would be against that, as I would be, because we were able to get ahead of the country by 20 years in some of things we did. Massachusetts is ahead of the country by about four years and five years with what Governor Romney and his legislature did.

Forbes: Why have costs in Massachusetts spun out of control?

Dean: because there’s no cost control in the bill. and there’s not a whole lot in the President’s bill either. but there would be if you had capitated payments and global budgeting, as opposed to paying us for doing as much stuff as we possibly could with, you know, as you pointed out, no competition. There is a fix for this, but it’s probably not “Katie, bar the door” free market capitalism. It’s a different kind of free market capitalism.

Forbes: Sounds too Sovietesque, but –

Dean: well, it works for Kaiser.

Forbes: before we let you go, entitlements as you alluded to earlier. huge, huge budget drains. and what would you do on Social Security?

Dean: There are four pots of money. and what’s going on in Congress now is silly. It’s just ridiculous. I’ve had to really cut things, because I had a big fiscal crisis when I was governor. as many governors have. so, there are four pots of money, serious money. One, raise taxes. two, Social Security. Three, Medicare. and four, defense. You’ve got to get the money from all of them.

Now, this is not an ideological argument. we can leave aside what the tax rate should be. I happen to think the tax rate should be what it was when bill Clinton was in office. not higher, but not lower. but we’re going to leave aside the ideological argument about the Laffer curve and supply side and all that. from a political point of view, the Republicans would love to cut the entitlements. the Democrats would like to cut defense and raise taxes. I think you’ve got to do all four.

This is one of those things that is not going to get fixed unless everybody holds hands and jumps off the bridge together. because you wait and see what’s going to happen as a result of this Republican budget they’re proposing. the Democrats are going to get up there and talk about throwing old ladies under the bus and poor people and women and so forth and so on. There’s going to be a huge brouhaha. and they’re going to talk about it in the context of, “You gave millionaires a big, fat tax cut, and now you’re taking money away from working, middle class people.”

It may be fair or not fair, but that’s how the game is played. If the Democrats go after defense, the Republicans will say, “You are making our country weaker. this is the typical Democrats. That’s what you always do.” so, from just a political point of view, not arguing about the right and wrong, I think you go back to the Clinton tax rates. and then you go after entitlements. and you do have to make some really significant changes there. we can talk about what those might be if you want to. because I don’t believe we want to advance the retirement age. and then you’ve got to deal with defense. and Robert Gates, who I think is one of the best public servants in the last 50 years, has said, “Yes, you can take some money out of defense.”

Dean’s Plans

Forbes: love to continue this conversation on health care. and I look forward to doing it again. but one final thing. what are your plans?

Dean: well, I’m actually having a lot of fun. I do some part time work for a law firm in Washington, called McKenna/Long, which is actually a law firm, not a group of influence peddlers, so that’s kind of fun. I do a lot of work abroad for the National Democratic Institute, which is mostly funded by Congress. Run by Madeline Albright. and my area by default of specialty, and I don’t consider myself an expert is the Balkans. so, I’m back and forth there, trying to get their electoral process going, so eventually they can join the E.U. one day, I hope. and so, I’m kind of having fun in the quasi private sector.

Forbes: No run in 2012?

Dean: No.

Forbes: 2016?

Dean: well, you know, let’s not go too far ahead. I’ll have to eat my words if I change my mind.

Forbes: Governor, thank you.

Dean: thank you very much.

Click through to watch the video of Steve Forbes’ interview with Howard Dean.

Steve Forbes Interview: Dean On Health Care