Avik Roy on Healthcare, Debt, and the Math Washington Won’t Touch

Speaker A: Avoc Roy is one of the sharpest policy minds in America on health care and our national debt. And he's one of the few willing to say what neither party wants to hear. He's also the president of freeop, a former advisor to three Republican presidential campaigns, and a leading voice for market based universal coverage. Today we're getting into the math. Nobody in Washington will touch what's actually driving our debt. While health care is the real fiscal crisis and what it would take to fix it without blowing the whole thing up, there's a lot to cover, so let's get to it. Avik, Roy, welcome to the Puck.

Speaker B: Thanks, Jim.

Speaker A: So I'm looking forward to getting into it far away. Last time I checked, we're running these trillion dollar deficits, you know, at a time when our economy is supposed to be doing well. And you know, most people talk about healthcare kind of as a social issue or a right, and they don't really focus on the economics all that much. I mean, are we just diagnosing the problem wrong?

Speaker B: A lot of people have a lot of different ideas about what's wrong with health care and about what's driving the deficit and the debt. I think one of the things that's really important to understand is that it's not necessarily true in an industrialized country that a single payer system or universal health care or free market health care system has to lead to massive budget deficits. That's, uh, a U.S. specific problem. And it's specific to some decisions we made in the middle of the 20th century that have put us on this path. So there's this debate we have in the US about health care. Some people want a more single payer style system, some people want a more free market system. What people I think fail to appreciate is we have neither of those today. We don't have a free market healthcare system today. We don't have a socialist system today. We kind of have the worst of both worlds, and it's because we have the worst of both worlds that healthcare is the biggest driver of the rising deficit and debt. Uh, other than interest, of course. I think a big part of the problem too is it's kind of like if you smoke, you know, if you're a lifetime smoker, you smoke two packs a day and everyone says, oh, that's terribly unhealthy, but you're like, I'm fine, what's the big deal? And then one day you have chronic obstructive pulmonary disease, or you have lung cancer and then you're like, oh, yeah. I guess I shouldn't have been smoking my whole life. It's kind of like that, where we don't appreciate that the end is nigh. And the end really, uh, we're getting to the end game of our ability to run these debts. I think that's something that is not well appreciated because over the last 40 years, we've run these big deficits, we run these big debts. The economy seems to be, in general, okay. So we're like, all these people are complaining about the debt. What are they complaining about? Everything seems to be okay. And I truly believe, based on economic projections that we've run at my think tank, the foundation for Research on Equal Opportunity, that we have at most 20 years before the sand in the hourglass runs out, before we are literally unable to borrow the money to finance the government. And when that happens, it's going to be really, really bad. And we can get into how, if you want.

Speaker A: When you say how, go for it.

Speaker B: Sure. So, you know, uh, one way to think about it is, you know, if you or I or anyone else who's listening to this podcast goes out to buy a house and ask the bank for money, right? Go to Chase or you go to Wells Fargo, you'd say, hey, I'd like to buy this house. The house cost me, you know, know $400,000, and I want to borrow 85% of that to buy the house. And, you know, the Chase or Wells Fargo or Bank of America will look at your credit history, see what risk you are of defaulting on that, welching on your loan. And if they think you're not going to default on the loan, or they decide on some number of, what probability is that you'll default on the loan, they'll offer you an interest rate. If they think your rate of default is low, they'll offer you a low interest rate. If they. If you think you're likely to welch, they'll offer you either a high interest rate or they won't offer you the loan at all. And that's how borrowing works for most of us. Now, if you need to borrow $39 trillion. Unfortunately, Chase and Wells Fargo don't have $39 trillion lying around to lend to you. So if you're the US Government, how do you actually borrow money? And the way the US Government borrows money and other large governments borrow money is you slice that $39 trillion into little bits. 1,000 here, 10,000 there, 100,000 here, into these securities, these small bits called treasury securities, treasury bonds, bills, or Notes. And what happens is when you buy a Treasury bond, you're basically lending money to the US Government over a period of time. There's different ranges of maturity. Some are really short term, a year, two years, five years, 10 years. And you lend money to the U.S. government at a certain interest rate. And if there was a free market for the way these treasury bonds were priced, as there are with many corporate, most corporate bonds, the way it works is similar. Like if people really believe you're not going to welch on the loan, then you can, uh, say, well, I want to borrow money at 0% or 1% or 2%. People will lend you the money because they're like, you're good for it. You're the United States or you're France. But as you become less credit worthy, um, people are less likely to lend you money. And as a result, the demand for your bonds, the demand to lend you money goes down, which means the bond prices have to go down, which means the interest rate basically goes up. If you want to borrow money, if you're more credit worthy, you can borrow money at lower interest rates if you want to. But if you have poor credit worthiness, if people think you're Greece, say 15 years ago, you have to borrow money at higher interest rates. Now. The weird thing about the US is that, you know, from the financial crisis to Covid, we basically set interest rates at zero. Now what does that mean to set interest rates to zero? How are we able to borrow money at 0% from 2008 to 2022 when we're racking up these debts? You know, and a lot of pundits said, well, this must mean the US Is still an attractive borrower and that people just want to lend us money. That's not exactly right, because we have this really interesting magic trick that we've been able to pull in the early 21st century that most countries aren't able to pull. And that involves the Federal Reserve. The Federal Reserve has this amazing ability to say, okay, if China, if Russia, if other countries don't want to lend us money for whatever reasons, geopolitical or economic, what are we going to do? Normally, what would happen is bond prices would go down and interest rates would go up. But in the case of the U.S. the Federal Reserve was able to say, well, the world doesn't want to lend us as much money as they did before. And normally that would mean interest rates would go up. Well, we don't want interest rates to go up, so how can we solve this puzzle? And they figured out A way to do it, which is to create more US Dollars out of thin air and lend them to the US government. So imagine if, if you know, I'm, I want to borrow, um, I want to, don't want to buy a $400,000 house. I want to buy a $4 million house, but I don't have the money to do it. So I could create new dollars out of thin air and lend them to myself. That's effectively what the Federal Reserve did. In 2001, there were about US$5 trillion in circulation. By 2020 there were about $22 trillion in circulation. So they quadrupled the number of dollars in circulation. All else being equal, that means each dollar is worth a quarter of what it was worth before. And how does that filter into the economy? It filters into the economy by asset prices. So your home price has gone up, the stock market, the s and P500 has gone up, venture capital valuations have gone up. All these things skyrocket. Because when the Federal Reserve creates these new dollars, where do they go? They go to financial institutions. That's the first recipient of, ah, of Federal Reserve new money. And then those financial institutions invest the money. And I bring all this up to say we've, we, the U.S. government has suppressed U.S. interest rates by creating new dollars out of thin air, filtering those into the economy. And so instead of having high interest rates, which they worried would crash the economy, we have high asset prices, inflation of things that are investable. And inflation is bad. Right. And when you, when you see people who own a home, if you have a 401k, if you have a nice portfolio of venture capital investments, you're doing great over the last 25 years. But if you're the kind of person that didn't have any savings, if you're living paycheck to paycheck, your health care prices are going up, Ah, it's harder and harder to own a home, rent prices are going up. And uh, all those things that we normally think of as part of the American dream become increasingly out of reach. The picture I'm trying to paint is that what we have seen, what we've observed in the last 25 years looks like prosperity, but it's prosperity for people who are already rich and not for people who are living paycheck to paycheck. And at the point where the musical chair stops and we can't keep printing more and more US dollars and giving them M and lending money to the US because the rate of creation of those dollars has to be so Rapid, because the debt is increasing and increasing. That's when the bond market fails and we stop being able to borrow money. And there's really no way to predict what will happen next. But what we can predict with some certainty is that will be a serious, serious economic crisis like the US has not ever faced before.

Speaker A: So I, I love your description. And we've actually had several discussions dealing with what I consider this existential threat, the debt. But I want to go back to something you said, which was that you think it's 20 years away. I think we're already seeing air come out of the bubble. I think we're seeing a lot of leaking already in terms of quote, unquote, real inflation. We've had asset inflation. Healthcare has doubled, college has doubled, housing has doubled. The 2% figure is wildly manipulated and so forth. So from my perspective, we're already seeing private credit starting to crack. We're, we're seeing Bitcoin down dramatically. We're seeing liquidity tighten up. So I, what I want to hearken back to is you said this could be 20 years. Why do you think we can keep doing this for another 20 years?

Speaker B: Well, just to be clear, I think 20 years is the maximum. I think we have no more than 20 years. The crisis could happen a lot sooner than 20 years. But the way I think about it, from a planning standpoint, both from a, just a fiscal projection standpoint and also from like how do I deal with my kids. I think about my kids future. My kids are 9 and 8 years old. This is going to be their entire adult lives, this crisis. 20 years may seem like a long time, but for them it's their entire adult lives. So even 20 years is not that great. And as, as you know, rightly, the likelihood is that the crisis happens earlier. And the reason I say 20 years is because, uh, we've done a reverse engineering of the Congressional Budget Office's projection. So the Congressional Budget Office, as uh, some of your viewers will know, is the official nonpartisan scorekeeper in Washington. The kind of the Supreme Court of Fiscal Policy, you could say, that, uh, offers these official projections of what the federal debt and deficit will look like going forward. But their projections are flawed in some understandable ways and some kind of puzzling ways. The understandable way is one thing they project is they say, well, these are projections based on the laws on the books today. Meaning if laws change in the future, if Congress decides to spend more money or change tax policy in ways that we can't predict today, who knows? But this is based on the laws on the books today. So that's number one. And what we find, the history of the US Is Congress passes laws that increase the deficit routinely over time, either by spending more money than the CBO projected or by perhaps cutting taxes or preserving tax cuts in a way that, uh, reduces revenue, at least to some degree. The other piece of it is, you know, when you have a war, when you have a pandemic, when you have a financial crisis, these emergencies lead to a lot of increased spending. So those are. None of those things are accounted for in the CBO's projection. But we don't. In our version of fiscal projections, we don't even worry about that. We say, okay, let's stipulate that there are no crises ever in the next 20 years. But this is where we get to the real kicker, the CBO. The CBO's projections are still wildly optimistic because they assume that the economy, measured by GDP, grows at 3.6% a year forever. The CBO's projections assume that we can borrow money at 4.5 to 5% forever. And that's not going to happen. You're not going to have 3.6%, which is very healthy GDP growth forever. You're going to have recessions, you're going to have crises. You're going to have a situation where as the debt gets bigger and bigger, you're not going to be able to borrow money at 4.5% to 5%, absent the interventions I was describing earlier. You're going to have to borrow at 6%, 7%, 8% in the 70s. For those who are old enough to remember the 70s, we had to borrow at much higher rates, like close to 20 and briefly above 20%. So the idea that we're going to be able to borrow it at 4 to 5% with the debt that we're running, it's a fantasy. And so we basically modeled out, if you say that GDP growth is only 3% a year, growing at 3% a year, rather than 3.6% a year, so 60 basis points less, year after year after year. And we say that the borrowing costs go up by 5 basis points a year, so 5.05, 5.10, 5.15%. If you just model those two things, which are pretty subtle and conservative changes in the CBO's projections, uh, at the end of that 20 years, the debt to GDP ratio is 600%, which is 3x worse than Japan. It's basically functionally insolvent. And there's no way, when we're at a, uh, 600% debt to GDP ratio that the bond market doesn't fail without massive hyperinflation and just basically manipulating the currency in almost a Weimar style way. So it's a big problem. And, uh, to the point you started with, people are not aware of how bad it is. And yes, you know, certain, uh, asset prices are up and down and fluctuating based on, you know, near term, what's going on with Iran, what's going on in the, in the near term macroeconomic picture. But if you zoom out and you say, okay, 5, 10, 15, 20 years down the road, how's this going to look? It's going to look really, really bad for, for the US dollar and for the US economy.

Speaker A: So I think that now brings us back to healthcare because we're not going to be smart enough to exactly predict when and how this happens. But I think we're in agreement that there's going to be some type of crisis that, you know, again, we're going to try all sorts of things to stave off the crisis. We're going to, you know, continue to try to, uh, print money, we're going to try to raise taxes on the rich, we're going to try all sorts of stuff. But at the end of the day, when you look at the bell curve and the aging population and the birth rates and everything else, it seems to me we're in agreement that the real place to go is health care. And so it's like, hey guys, like, what are we going to do to kind of get back into balance? And so from that perspective, I think you talk about things like catastrophic care, you talk about HSAs, more consumer driven care. I mean, how do you bring that down and make it real to the average American in terms of how it's going to change their life on a Tuesday?

Speaker B: Yeah. So at Freeop M, my think tank, we've worked on this issue for a long time and we've been blessed that there have been a number of members of Congress who've been champions of our ideas. And so there's actually a bill that's been introduced in Congress called the Fair Care act, both in the House and the Senate, that's based on our ideas. And I would describe it in this way. Uh, let's step back. Why is healthcare expensive in America? The reason why, you know, in order to solve the problem, you first have to understand the root cause of the problem. It's like, you know, as someone who went to med school, you if you're going to Treat a disease, you got to know what caused the disease in the first place. You can treat the symptoms, but that may not actually cure the underlying disease. Right? You got to know what the underlying disease is first. So what have we done wrong? What is the reason why we have the most expensive healthcare in the world? And by the way, one thing that a lot of people don't appreciate is, is that healthcare in America is not only expensive from the standpoint of how much of a percentage of GDP we spend on it, uh, or how much of a percentage of household income we spent at. Those are both very high, highest in the world. We also subsidize healthcare per capita more than any other country in the world. So when people say we can't afford universal coverage, that's not true. The vast majority of industrial countries, in fact, all the countries in the industrialized world that have universal healthcare have done so subsidizing it, uh, less per capita than we do. So if we actually just magically switched out the US Healthcare system for the system of any country in Western Europe that you want, I would pick Switzerland. Some might pick the uk. Whichever country you want, the subsidies per capita would be less than they are in the US today. So why is it that, uh, why is it that we have this incredibly expensive system? And, uh, it all starts with World War II, where in World War II, the Roosevelt administration was very concerned that with all the young men going off to war, that there would be a labor shortage and that businesses in the US Would be competing for scarce labor by raising their wages. And higher wages would lead to higher prices for goods and services. Economists call this a wage price spiral. And this would lead to inflation and a big economic crisis. So the Roosevelt administration literally put out a, A list like, you can download it, where it's like, this is how much you can pay a car mechanic per hour. This is how much you can pay a barber per hour. They listed every single occupation and what that hourly wage could be. But employers are clever, and they eventually figured out that, okay, I can only pay that car mechanic, uh, 45 cents an hour in $1940. $1941. But what I can do to get around that is I can offer fringe benefits like health insurance. Those are not part of the wage control scheme. And so employers started offering health insurance as a way of competing against their competitors to recruit the best talent. And so we went from in 1940, having 1 million Americans with health insurance to in uh, 1945, having 30 million Americans with health insurance, which was roughly 30% of the population at that point in terms of households. So there was a dramatic increase in the number of people with health insurance. And the war ends, the wage controls are lifted. But there had been, you know, the government, the Congress and the White House had to figure out, okay, what do we do with this thing now? Now all these people have health insurance. The value of this health insurance is pretty significant. There's this new thing that we've passed called the progressive income tax. And so a lot of people are paying high tax rates and so they're getting a huge tax break because this, we don't know if this health insurance counts as income or not. And so in 1952, Congress passes a law saying, well, you know, gosh, if we say that this, this health insurance that you've been getting since the war is now taxable income and everyone has this giant tax bill, then we're going to get kicked out of office. So let's not do that. And so they say health insurance and the value of the economic value of that health insurance is excluded from all taxation. It was excluded from income taxes at the federal, state and local level and also from Social Security taxes. And so what did that mean? That meant that for every dollar of wages that, that you received as an ordinary American, let's say a third of that went to the government in the form of taxes. So you kept 67 cents. But if I gave you that same dollar in the form of health insurance, you keep a dollar of value. And so that's basically a 50% subsidy for steering your income from disposable income that you can use to buy a car or a house or a TV to healthcare. And so what happens over the next several decades? We decide that more and more things should be lumped into health insurance. So instead of health insurance just covering those catastrophic episodes like, you know, you have a stroke, you have cancer, you get hit by a bus, it starts to cover your primary care visits, your ordinary lab tests, all these things that normally we would pay for out of pocket, the same way we pay for an oil change or gas at the pump at the neighborhood gas station. That's why we don't have catastrophic health insurance. And then in 1965, when we passed Medicare and Medicaid, LBJ was then the president said, okay, let's build Medicare, uh, off of the employer based system and say, require that the Medicare plan cover the same things that your typical Blue Cross employer based plan covers in the private sector. And so we not only, we, we not only doubled down on that system, we Basically turbocharged it and made it basically impossible for anyone to get health insurance any other way than in this kind of all you can eat buffet, or as I like to call it, the open bar of healthcare, where we just go to the open bar. And if you're at the open bar, you're not looking for the Bud Light, you're looking for the single malt scotch because you're not paying for it. Why would you settle for a Bud Light when you can get anything you want? And, and uh, the bill is paid for. And so we all grew up with this assumption that we go to the doctor, we have this piece of paper that says we have health insurance and everything is paid for. And not only do we as patients not think about how much anything costs, but the doctors don't think about how much it costs. In fact, the doctors are positively incentivized to offer you the most expensive treatment because they often get a commission when they offer you the most expensive treatment, particularly when it comes to pharmaceuticals. They can get basically kind of a 6% commission if they offer you the most expensive drug for your condition instead of the least expensive one. And that's the system we have today. And that's why not only is healthcare the most expensive in the world, but also the cost of subsidizing it is the most expensive. Because if healthcare costs twice as much as any other country, then subsidizing the care for people also costs twice as much as it does in, uh, any other country. And so that's why we have the worst of all worlds. In the countries that have single payer, they'll say, okay, we'll subsidize the care, but we're going to restrict prices, we're going to have price controls and we're also going to ration care. We're going to restrict your ability to use high cost services. And that system fiscally works whether you like it or not as a, uh, as a way to do health care fiscally. The math adds up. So that's one way to, to have a healthcare system that's universal, that is also fiscally solvent. The other way to do it is to model healthcare after the rest of the economy where you have competition and you have innovation and you have the consumer say, I'm gonna shop for the insurance plan that best fits my need. It has the lowest premium but the highest quality coverage that I can get. Ah, and let consumers decide and let insurers compete for those consumers by negotiating with tough deals with the hospitals and the doctors and the lab companies, and thereby you have an affordable system. We do neither of those things because the vast majority of Americans don't choose their own health insurance. It's handed to them either by the government or by their employer.

Speaker A: So I think it was Ronald Reagan who said, if you want, you know, immortality, just look at a government program. I mean, how without a major crisis, do we tackle this? That's the first part. And then again, if, if we do tackle it, what is it that you think is we transition to for 330 million Americans? I mean, what is something that you can sell to the American people and more importantly to congressmen, you know, Democrats and Republicans alike, that they can sell to their constituents? I mean, how, how do we fix this so that your kids, My kids, don't have a catastrophic problem?

Speaker B: Yeah. I think the most important thing to know, Jim, is that there are no magic bullets. There are no quick fixes. Because like any system that a lot of people have grown attached to, dependent on, reliant on, you know, uh, we spend several trillion dollars a year subsidizing healthcare. If you add it all up, it's about probably 3 trillion a year we spend subsidizing healthcare. We spend about 5 trillion total on our health care system. And so it's like cutting spending in any other section of the economy. The people who are the recipients of that spending are going to cry bloody murder. Right? So it's very hard to bring the cost down because the people who are the beneficiaries of those inflated prices will claim that, gosh, I need to be paid 3x what people in other countries are going to get paid, because otherwise there won't be any cures for new diseases. There will be no innovation if we stop subsidizing everything in healthcare. That's what you hear argued in Silicon Valley and in the Route 128 corridor, uh, in Boston, but it's not true. The fact is, in the rest of the economy, if you ask Apple, would Apple say, well, I have to charge $100,000 for an iPhone or I'll never be able to fund innovation? They'd be laughed out of the room. Their charge is to deliver the next iPhone at the same price, or ideally a lower price, but with more features and faster chips and, uh, and everything else than, than the previous version. Right? That's how innovation works in the rest of the economy. Innovation delivers a better product at a lower price. That's the whole point of innovation. Only in healthcare have we come to believe that innovation, we deserve some sort of subsidy where we can charge whatever we want instead of delivering that, that higher, that better outcome for patients at a lower cost. So that mentality has been completely corroded or corrupted by this 3 trillion a year subsidy. So it's very hard to fix. But I think that at free up we've landed on a way to do it that is politically viable. And what are the contours of that? The first thing is, as I mentioned, there's no quick fix. You're not going to fix uh, a $3 trillion or $5 trillion problem overnight. You've got to have a kind of a 20 to 30 year time horizon where you say we're going to bend the cost curve. We're going to gradually migrate people from this crony a system, the open bar system where you get, you get paid regardless of whether you offer a cost effective solution or not to something more like the rest of the economy. So you have to have a gradual off ramp into that more competitive system. That's number one. Number two, we have to have a progressive approach to subsidies. And what do I mean by that? Right now Jim, you and I pay taxes so that Warren Buffett and Mitt Romney and as Bernie Sanders would say, the millionaires and billionaires get subsidized healthcare. Now Bernie is all in favor of those millionaires and billionaires getting subsidized healthcare. But the rest of us would be like, why should we pay taxes so that millionaires and billionaires have subsidized healthcare? We should have a system in uh, which the financial assistance that the government provides goes to people who need it, not to people who don't need it. People who are worth $100 million, $50 million, a billion dollars, they have enough money to save for their own health care. What if we had a system where we simply said if you're in the top 5% from a net worth standpoint, we're not going to subsidize your health care anymore. Whether it's employer based or Medicare or whatever it is, you're going to buy your own health care. Not only would that be save an enormous amount of money, but it would also create an innovative ecosystem for those individuals to, to come up with new modalities to get their health care that could then filter into the rest of the system. But more broadly, one really simple thing that we can do, at least intellectually simple thing that we can do to save money to reduce the deficit and the debt is to have more means testing where we subsidize rich people. Not at all. We Subsidize upper middle class people less. And we focus financial assistance on people in the lower and middle parts of the economic spectrum. So that's one big element, reform. So point one, gradual, point two, means testing, stop subsidizing the wealthy, subsidize lower income people more than higher income people. And then the third piece is to reduce the underlying cost of health care so that the cost of subsidizing the healthcare is less. And there are a lot of different tools in the toolbox for unleashing competition, innovation and reducing over regulation, at least creating a balanced regulatory burden because we have to have some regulation healthcare, but to have it so that it's not unnecessarily layering on additional costs to, to the delivery of healthcare and the development of innovative new treatments. So you could have to do those three things, it has to be gradual, has to be means tested, and we have to lower the underlying cost of care. And if you do those three things, and again, there are a lot of tools in the toolbox to do it, you can spend a lot less than we do. And the country that I would point to, as I alluded to earlier, is Switzerland. In Switzerland they have universal healthcare, but it's done in an entirely private sector system. There's no Medicare, there's no Medicaid, there's no government run healthcare. In Switzerland, every insurance plan that a Swiss citizen buys is a private insurance plan. You have choice among dozens of different plans and there are subsidies to help lower income people afford the coverage. But as you go up the income scale, those subsidies phase out. So if you're a really wealthy Swiss person, you get no subsidy at all. If you're lower to middle income, you might get some subsidy, and if you're low income, you might get a full ride. And in that way, because the system is subsidized less, and because you're shopping for that coverage yourself, the insurers have an incentive to deliver the insurance plan at the lowest possible, lowest feasible price. So I give all that background to say, okay, so then how would we fix the system today? I think the key reform, the most important reform, and again, there's lots of things to fix. But the core reform, the fulcrum, the kind of the 80, 20 that starts the ball rolling in the right direction, is to get more and more Americans to choose their own health insurance plan. So again, the mistake people make today is they say we have a free market health care system because a lot of it's delivered by the private sector. It's not a Free market. If it were a free market, I wouldn't be handed an insurance card by my employer. I would take my salary and then shop for a plan that suits my needs. Now, how do we flip that script? In the past, what Republicans used to propose is when let's end the tax break for employer sponsored insurance and instead give people a kind of a tax credit or a subsidy to shop for coverage. John McCain proposed that in 2008. Barack Obama, or then Senator Obama, attacked him relentlessly for it, spent $150 million on a TV ad campaign saying that John was this terrible person for proposing this and Obama became president. And so people have been scarred by that and say, well, you know, we can't really. How do we reform this? We can't reform it. If we reform it, we're going to get killed politically. There is a way to fix it, and President Trump landed on it in his first term. What did he do? He proposed and enacted regulatory reforms to make this the law of the land. Where right now, as I mentioned, you get this infinite tax break if you offer employer sponsored coverage. It's not taxed in terms of income taxes, it's not taxed in terms of Social Security or Medicare taxes. It's totally tax free. So what Trump said is keep the tax break the same, but allow employers to say, you know what, instead of buying insurance for all our employees as one group, what if we give employers the ability, it's optional, but what if we give them the ability to give that money directly to the worker to shop for their own coverage so the value of the tax break stays the same, but instead of the employer deciding on the insurance for you, what if the employer gave you the money, the $5,000, the $7,000? The employer can pick the number, but they give that to you as the worker to shop for the coverage you want. The reason why that's a powerful reform and why it can be strengthened through legislation that actually requires that startups and newer businesses use that as their default approach, is that gradually, over time, you move the system from a system in which, again, you're handed a benefit. You have this defined benefit, oh, here's your health insurance card, go to town. And instead you get a defined contribution, this amount of money that you use to shop for your own coverage. We know how this works in pensions. We went from defined benefits to defined contributions in the pension world. And this led to the 401k revolution, which completely transformed the American economy in so many ways that you're very familiar with. We can do Something similar with health care where instead of the defined benefit of this card that you got from your employer but had no role in choosing for yourself, you give them the money to buy their own health coverage. And if they find a plan that's cheaper than what you funded, then they can keep the savings and use that for their co pays or their coinsurance or any other healthcare needs they have. And it's not an overnight switch, it doesn't fix everything overnight, but over a, ah, 10, 20, 30 year period as those startups become the Facebooks and Googles of the future, it starts to cover um, more and more the workforce. And all of a sudden Instead of having 20 million people or 15 million people out of 330 million buying their own health insurance, you have 60, 80, 100 million people buying their own health insurance. And then it really starts to drive everything else in the healthcare ecosystem. And you know, we talked before about how we have 20 years before the fiscal crash really happens. This is one way to avert that disaster. Because if you start to move to a system in which people are controlling those health care dollars themselves and therefore are uh, driving savings in the system because they will not put up with overpriced health insurance, overpriced health care again, that drives the cost of subsidizing the health care down. That starts to make those charts look a lot more favorable. And then the bond markets can have confidence that, that, that you're actually getting your fiscal house in order and you can borrow money at lower rates and start to not have that disaster in 2046.

Speaker A: I'm starting to understand. I think you're optimistic, but also realistic approach which is again, you started out by talking about that we have this 20 years to fix the debt. And then you also said, oh, and we have a gradual approach to fixing health care. And so I, I, I see where without a crisis you're basically saying, hey guys, I'm giving you an off ramp if you choose to take it. But, but as we're sitting here today, are there people taking the off ramp? I mean, are we making progress in these areas?

Speaker B: We're making some progress. So the, the, some progress is behind the scenes, right? So I mentioned that we have this legislation called the Fair Care act that's been progressed, proposed, it's been introduced in Congress. As time goes on, more and more members of Congress are familiarizing themselves with it. There's you know, gradually more and more co sponsors. It's still a small number, but what we observe, if you look through the history of Congress, you look through the history of government, what happens, right, is people work on these issues like, like me and like my team behind the scenes, it's on a slow burn. Then there's a crisis, and then people are flailing during the crisis saying, okay, what do we do now? Bond market's failing or healthcare is skyrocketing. We gotta pull something off the shelf. Well, what's on the shelf when you have to pull things off the shelf. So part of the job of a person in my position is to be ready for that moment. You never know when that window is gonna come. When Washington says, okay, we've got to do something and we've got to do it yesterday. What are your best ideas? And we can say, actually, sir, here's some legislation that's been introduced in the last several Congresses that would address all these issues, abcde. And you know, it may not get passed in its exact form or maybe people take certain bits of it and not the whole thing. But the ideas are modular enough. Yes, they work best in combination, but the ideas are modular enough that you can take some of them, like this one I was mentioning around shopping for your own insurance, funded by your employer. But I think, you know, as an investor, you have to have as a base case scenario that Congress is not going to get its house in order. I think this is a mistake that a lot of investors make. I spent a dozen years of my life on Wall street before becoming a public policy guy. And I think one of the things that I often heard from my investor colleagues was this sense of, well, they'll eventually get together and work out a deal. Because that's what happens in the business world, right? When you have a crisis, when you're running out of money, people are pragmatic, they get together and whatever stubborn priors they come into the situation with, they eventually bow to reality and figure it out. But government doesn't work like that because it is easier in the context of government to stick your head in the sand and hope that the Federal Reserve will print enough dollars to get you out of bail you out of the situation, like they've done so many times. And people have political interests, their voters don't necessarily want them to do the thing that involves short term M pain for long term gain. Unfortunately, that is a powerful incentive in democracy. So the incentives are just very different in politics than they are in the business world. And so I think, if anything, I think financial M markets are far too optimistic about the likelihood of things being fixed. But in my role as a Policy guy. I'm working as hard as I can to create a politically pragmatic off ramp so that we have those ideas on the shelf. When the crisis comes, people can pull the ideas off the shelf, break glass in case of emergency, and we can find a way out of this crisis. But I do fear that it will involve at least a partial default on US treasury securities, which will mean bank collapses left and right because every bank is basically basing their entire balance sheet on treasury bonds being solvent forever. And I think that's going to turn out to be a big mistake.

Speaker A: Let's stay on this optimistic thing for a second. I just want to understand something. You talked about Trump's first term and what he tried to do, and then you had the big, beautiful bill, you, uh, had control, you know, of the House and the Senate. Why didn't we get more done? I hate to say that the answer is it's going to take a crisis. But if you help us understand why we didn't get there earlier, that might kind of lead us to, you know, where, where we're going in terms of this.

Speaker B: Well, boy, I think, Jim, we'd have to have a whole other podcast on what happened in 2017 and why it went wrong. And there are a bunch of reasons for it. I think there were, the core reasons were, number one, we weren't going to solve the whole thing. In Trump's first term, Trump was opposed to changes in Medicare and Medicaid, so that, you know, and Social Security. So that took a lot of things off the table that you would need to at least try to try to work on. And then the so called repeal and replace effort spearheaded by Paul Ryan was governed by several fundamental mistakes. Uh, the first mistake was, I think Paul was overconfident in terms of what he thought he could get 50 votes in the Senate for. For reasons that basically, you know, they passed a lot of messaging bills when they were out of power and they thought, well, once we get in power, we'll just pass these bills again. Not appreciating that once you're firing with live bullets and the other side is going to oppose you and the New York Times is going to write critical op EDS about you, and the airwaves are going to be filled with lots of people talking about all the poor people are going to be thrown on the street based on your youth, your terrible plan. It's not going to be the same as it was when you were just, you, uh, know, filing messaging bills that nobody cared about when you were out in the minority, he underestimated that problem. He also underestimated the problem of the fact that Obamacare was passed with 60 votes in the Senate. Six, zero, not five, zero, but six zero. Because the Democrats briefly had 60 senators, including Bernie Sanders as an, technically as an independent. And so you couldn't fully repeal Obamacare with just 50 votes. You needed 60. And so the approach they should have taken from the beginning was let's have a bipartisan approach that gets most of what we want, but not all of it in exchange for something that's more lasting and fiscally sustainable. Because frankly, there are a lot of Democrats who are just as concerned, arguably more concerned than some Republicans about fiscal responsibility, about fiscal sustainability and lowering the cost of healthcare. And there was a deal to be had. But when you commit to using the reconciliation process, you, you basically are committing to a partisan, a party line approach rather than a, uh, bipartisan approach. And I think Paul just didn't understand that, that that was going to work against him. And unfortunately that's, that's one he had to learn the hard way as opposed to avoiding the mistake in the first place. But all this to say that I think, you know, one of the, one of the things that Republicans get wrong. Democrats have their own problems, of course, but where Republicans fail on health care most importantly is they don't know what their North Star is. They don't say, okay, you know, they're often fighting these rear guard, short term messaging fights of like, oh, we hate Obamacare. If you got 10 Republicans in a room and ask them, if you had to whiteboard the US health care system, what should it look like? You'd get a bunch of blank stares. They would not know how to answer the question. They would literally look like deer in the headlights. Whereas Democrats all have an answer. Their answers may vary somewhat, but all of them would say, my goal as a Democrat is that every American have high quality, affordable health care. Uh, for some that might mean single payer. For some that m might mean a more private sector based system or a hybrid like the system we have today. But they'd all say the goal is everyone should have access to affordable, high quality health care. Republicans should have the same goal. It should be the Republican goal, the conservative goal, to strive for every American having affordable, high quality healthcare. Um, in this exactly the same way that any Republican would say, I believe every American should have access to an affordable, high quality education. I believe every American should have access to a high quality, good paying job. If they work hard and play by the rules. All Republicans would say that, uh, so why are they so afraid to say that they want all Americans to have affordable, high quality health care? They've been conditioned to believe that if you say that all Americans should have health insurance, that's somehow left wing, but it's not. Some of the most free market countries in the world, the ones that rank the highest in economic freedom scores around the world, like Switzerland, like Singapore, like Ireland, they have universal health insurance and they've done it in m many cases through a, uh, private sector market based system. So we have models out there. And so if Republicans could actually agree that the goal is a fiscally sustainable universal system in which competent competition and innovation drive prices down, that's a pretty good message. But they have not unified around that message. And if you don't have that goal, that endpoint in mind, it's hard to design the policies and the strategy that get you to that endpoint. And that's what we've done at freeop. At freeop, uh, we've said, you know, all of our work involves expanding liberty and furthering free enterprise and technological innovation, but doing so in a way that improves the lives of Americans on the bottom half of the ladder. And when that comes to healthcare, the whole idea there is every American should have affordable health insurance, but let's use competition and innovation to achieve it.

Speaker A: You talked about 2017, but even most recently with the big beautiful bill, I mean the Republicans did have another chance to take a run at this, and it didn't seem like they made any progress this time either.

Speaker B: I think that 2017 experience really scarred them. Most Republicans who were around for that, of course there are always new members every cycle. But the ones who were around for 2017 and 2018 when they lost their majorities to the Democrats, and they certainly believe that they lost that election in 2018 because of what happened in 2017, quote, unquote, you know, they tried to pass these, these repeal and replace bills that were described as taking health insurance away from 20 million Americans. People didn't like that, understandably and unsurprisingly, uh, I should say. And, and they lost. And so that's led them to lack confidence when it comes to healthcare. They're all worried because they don't spend enough time on the issue to begin with. Most of them are worried that, well, I know healthcare is important and I know healthcare is expensive and I know healthcare is driving the deficit. We see all the same charts that you see ovic, but I just don't want to touch healthcare. And you uh, know, lose an election over it. I think the median Republican member of Congress, that's their view. They're just scared. It's like they stuck their hand on the stove and they never want to be around a stove ever again. Right now that's not true of every Republican. That's not true of every member of Congress. There are members of Congress, they're the ones who aren't on TV every day for the most part, who are doing the hard work, who do understand that there are solutions. And the way I've tried to coach them, uh so to speak, is to say, look, build your confidence slowly. You know, you're obviously not going to solve everything at the first go, but if you actually do these handful of smaller solutions and that start to bring premiums down, that start to expand choice and you see that those policies work and they have the results that you said they were going to have and people actually like those results and start voting for you because of those results, then you start to build up confidence to say, hey, I can actually do this, I can actually do health care. And then you can start to be more ambitious.

Speaker A: Now, uh, Obik, it's, it's as we're talking about this, you know, and I'm thinking about history and I'm thinking about our ability to self correct and you know, make these changes. And you know, at the end of the day, we've always had a fear of too much debt and Ross Perot got involved and we had the whole fear over, even the Reagan tax cuts. And there was this, there was always this give and take, but there was, there was a certain fear that both parties had of letting spending get out of control. I go back to my interview with Chris Leonard about Ben Bernanke and Tom Hoenig's conversation in 2010 about quantitative easing. Ben won out and Tom lost. But the issue was once you start quantitative easing, once you stop start monetizing your debt, you'll never be able to stop. And I wish I didn't feel so strongly that the way the puck is going is that until Americans wake up to the fact that we really, really have this kind of uncontrollable inflation because we're in this catch 22 and that we've got to go through some kind of austerity, both parties are just going to keep doing the same thing over and over again. I just, I don't think anybody has the fortitude to really make these tough decisions because they bought into this fantasy that mmt, you know, m modern, you know, Monetary theory that, that somehow we can do this, you know, forever. And we've been doing it for 15 years now. And so I really think until the Bond vigilantes show up, you're going to have to be patient. I think your ideas are fabulous. I'd love to see them taken off the shelf tomorrow, but I think it's going to take a crisis.

Speaker B: Well, Chris, uh, Leonard's book the Lords of Easy Money is a fantastic book. I highly recommend it to anyone who you haven't already recommended it to. And I wrote an essay on a related theme for national affairs called Bitcoin and the US Fiscal Reckoning, which is about this issue of why we've been able to run these giant deficits over the last several decades. I argue in that essay that it really starts with the severance of the relationship between dollar and Gold in 1971, because the Ross Perots, the people of that era who were used to the value of the dollar being tied to a, uh, certain amount of gold, you couldn't run deficits in that environment because you run out of gold. That has happened throughout history with severe consequences for the country to whom it happened. But that was always the governor. The thing that actually prevented you from running the giant deficits and debt that we're running up is the fact that you would run out of gold. And we were literally running out of Gold in 1970, 71. Countries were sending their, their battleships and their destroyers to get their gold out, out of the US and bring it back to their home countries. And Nixon's like, well, we can't run out of gold. That would be bad. So let's suspend the relationship between the dollar and gold. And of course, that suspension has remained with us for now 55 years. And the dollar's value has, uh, has floated freely, as with every other currency. And those of us who are young. I'm 53, so I've lived most of mine almost my entire life under this. In fact, my entire life under this system. You know, for us, it seems normal that you travel abroad, these currencies fluctuate, and that seems perfectly normal. And what people I think don't appreciate is actually, it's an unprecedented monetary experiment for there to be this approach to, uh, the way money works. And that has been the biggest driver of why we've been able to run this deficit and debt. Because we severed the relationship between the dollar and gold at a time when we were the world's premier superpower. And that has been what's allowed us to borrow and borrow and borrow. But economic gravity, the laws of economic gravity don't change. And I feel fear that because we've been so used to being the world's top dog and having this ability to borrow in our own currency that we are very, very unprepared for what happens next. Let's just hope that we solve the problem before it gets there. And that's why you have your podcast and why people like me try to

Speaker A: do the work that we do well. Well, um, said it was a pleasure having you on. You are definitely a kindred spirit. The puck that Venture Capital and beyond is brought to you by CMEG Advisors. If you enjoyed the conversation today and haven't yet subscribed to our show, you can find us on YouTube, iTunes, Apple Podcasts and SoundCloud. Feel free to leave a review while you are there and maybe even a five star rating. You can also follow us on TikTok, Instagram, LinkedIn and YouTube for updates, highlights and more content from our team. Thanks for listening. We'll be back soon with a new episode.