Economist David Cutler says increased life expectancy comes at a price and we havent figured out how many more years we want to pay for

Harvard economist David M. Cutler’s new book, his first, has a catchy, if somewhat threatening, title: Your Money or Your Life. The subtitle promises “strong medicine for America’s health care system,” and the book delivers on that promise in a number of ways. But the real dose of castor oil Cutler dispenses is for the employers, insurers, government officials, and even consumers who howl about health care costs that are driving up premiums, state expenditures, and co-payments. Cutler’s cure for health care inflation: Get used to it.

That’s his message, Cutler says, because he’s done the math. Sure, spending on health care consumes almost 15 percent of the nation’s Gross Domestic Product, up from just 4 percent in 1950, crossing 10 percent in the mid-1980s and, after a brief leveling off in the mid-1990s, now hurtling, perhaps inexorably, toward one-fifth of the US economy. In 1950, medical spending was just $500 per person annually, adjusted for inflation; now, it is $5,000 per person. But Cutler asks, which would you rather have: today’s $5,000 treatment, or $4,500 in your pocket–but medical care at the standard of 1950?

For him, the question is more than rhetorical. By comparing other economic tradeoffs in the areas of health and safety, Cutler has put a price tag on an additional year’s worth of healthful life: $100,000. On that basis, he can determine whether the medical improvements that have driven up health care spending over the years have been worth what we’ve paid for them. Are we shelling out too much? Not by Cutler’s calculations. He says that improvements in life expectancy made possible by advances in care in just two areas, cardiovascular disease and low birth weight babies (three and a half years, out of an overall nine-year rise in longevity), are worth the entire increase in lifetime medical costs since 1950. And, he says, no need to stop there.

“I believe that we can afford additional medical spending, and further that it will be good for us as a society to do so,” writes Cutler.

Cutler’s been wrestling with health care costs and benefits for more than a decade, ever since his mentor, Lawrence Summers, now president of Harvard, pointed him in that direction. After receiving his Ph.D. from MIT in 1991, Cutler got a heavy dose of the political, as well as economic, realities of health care reform as part of the team that developed President Bill Clinton’s ill-fated health care plan in 1993. Cutler was also a health care advisor to former US senator Bill Bradley in his unsuccessful campaign for the Democratic presidential nomination in 2000. But mostly, Cutler churns out papers on the dollars-and-cents value of medical improvement by the ream for the National Bureau of Economic Research. Now, he gives us a book that tells us that the medical system is in “crisis,” but perhaps not quite the one we think it’s in.

“We worry far too much about wasting money on medicine,” writes Cutler. “The issue in spending is not how much we put in, but making sure we get value for our dollar.” I sat down with Cutler one morning last fall to talk about cost, value, and coverage in health care. What follows is an edited transcript of our conversation.

CommonWealth: Let’s get into the nature of the health care crisis at the present moment. We’ve gotten back to a point where health care costs are escalating at a rate that is well in excess of overall inflation. Premiums are increasing again at a double-digit rate. Employers are passing along more of their costs to the employees, and the numbers of the uninsured are on the rise once again. I can’t help but have a feeling of déjà vu. It seems very much the way things were in the early ’90s, the last time the health care crisis was acute. But at that point, we had this solution in the offing, namely managed care, which was ultimately embraced across the political spectrum as the solution for cost. So why are we back to square one again?

Cutler: Those who forget the past are destined to repeat it.

CommonWealth: In this case, whether we forget it or not.

Cutler: That’s right. Nothing in medical care ever looks so rosy as what you had a decade ago. I think there are a couple of issues. One is, I think the most fundamental thing is that we misdiagnosed the nature of the crisis, so we’re always trying to come up with a solution that is not appropriate for what the real problem is. Maybe I should expand on that for a minute. We pose the crisis as rising cost of medical care, and I think that’s our first big problem. Let’s say, instead: Was it a bad idea that we spent so much more on medical care over the past decade? Would it have been better if we had not spent the money that we did? If you look at it that way, we spent a lot more, but we’re really much better off for it, because what it’s done is it’s increased the length and the quality of life. And if you look back over the past several decades when people have been continually complaining about rising medical costs, not all of it has been worth it, but enough of it has, to where you’d say this was really a good thing for us to do, in total. So I think we get into trouble by saying we’ve got to control costs. It seems to me what that’s doing is substituting for two other things, and if we focused on those two other things, we would be much better off. The first is, there is certainly a lot of waste out there, and we would like to trim the waste, if we could. We’d like to use a scalpel to get rid of the fat in the system. So far, most of the things we’ve invented in the past, like managed care and whatever we’re thinking of now, are closer to meat cleavers than scalpels. If we use the meat cleaver on things when we really wanted the scalpel, we’re unhappy. So we have yet to figure out how to do that.

But, somewhat more fundamentally, the reason we’re scared by costs going up is that we’re afraid that’s going to push us out of insurance and into a situation where medical care is going to bankrupt us. Let me give you an analogy from another situation. Suppose that you didn’t have automobile insurance and, God forbid, you were in an automobile crash. You were fine, but your car was completely wrecked. Well, you need a car to get to work, and you need a car for your family and stuff. So, all of a sudden, you would be stuck with paying, out of pocket, $10,000 or $20,000 for a car. You haven’t saved the money for it. You’re not ready for it. Now, in that context, the things that add to the price of a car, like better safety features, new braking systems, and crumple zones, [might put a new car out of your reach]. So you would be afraid of a lot of the stuff that goes into making a car better, because when you really need a car, you might not be able to afford it. Fortunately, because we have auto insurance, when you’re buying a car, it’s more discretionary. So we don’t fear the innovations that come along in cars, because it’s never a situation where we have a life-or-death need to buy the car and we don’t have the money. We have put ourselves in a situation with health insurance where having it can mean life or death, but we don’t guarantee coverage. So that means that the things that make health care more expensive are things to be feared, rather than things to be welcomed. What people want is to make sure that they will be able to afford medical care at the time it’s needed, and that’s a statement about poor insurance coverage more than it is a statement that we are obviously spending too much on health care.

CommonWealth: You spend a good deal of your book trying to get a sense of whether the improvements in care that the medical field has given us over the years are worth the cost. I’d like you to walk me through the cost-benefit analysis that you do, because it’s a fascinating exercise.

Cutler: Thank you.

CommonWealth: And it’s one that’s based on a calculation of just what a year of life is worth.

Cutler: It’s about the most morbid thing one can do as an economist. It’s a conversation that necessarily makes people uncomfortable. But in order [to make judgments about] the medical system, you’ve got to be prepared to face up to certain things. And those involve a host of ethical choices, religious issues, legal issues, and political issues, in addition to economics.

When you say, “What’s the value of medical care?” a lot of people would say, “Well, suppose I had a heart attack, or suppose I was hit by a car on my way crossing the street in downtown Boston. What would it be worth to have access to medical care?” And the answer is, well, whatever you have in your wallet and whatever you can get your hands on. That’s not incredibly helpful, and it’s also not the way we want to think about things like this. Suppose you’re thinking about, let’s say, Medicare and what Medicare should cover. You’re not saying, my mother is sick, or my spouse is sick, what should Medicare cover? But really, what’s it right to cover? What do we think is appropriate to be covered? Should we cover in vitro fertilization in insurance policies? Should we cover extremely expensive care for low birth weight infants? Should we cover heroic end-of-life care? We know how much that will cost. How much is it worth to us?

Actually, in our daily lives, we frequently face issues like that [even if we don’t think about them that way]. For example, nowadays all new cars come with air bags. But if you go out and buy a used car, you’ll find choices between cars with air bags and cars without air bags. And the car with an air bag might sell for a few hundred dollars more than a car without air bags because it’s a safer car. People have to make that tradeoff about how much it is worth to them to have the air bag in the car or not. If an air bag costs $300, if the equivalent car with an air bag costs $300 more than one without an air bag, most people will be willing to pay that amount. If it were to cost $30,000 more, a lot of people would say, “I understand the value of that, but I just can’t afford to spend that amount of money.”

What the analysis in the book does is ask how good an investment a particular health care improvement is, based on how much people are willing to pay in comparable situations, such as air bags and other safety devices. How much more do people have to be paid to work in jobs that are riskier compared to jobs that are safer? There is a whole range of decisions that people make where health is one of the considerations. So it’s trying to put medical care into a context where health is one of the choices that we make and saying, “How does it fare?” When you put it in that framework, it actually fares very well. It’s a bit like a $300 air bag, which is to say, for the vast majority of people, that seems like a good thing, so most people would be happy to pay for it.

‘People value their health very highly.’

CommonWealth: Your chapter entitled “Pricing the Priceless” certainly seems to capture that issue, because it talks about what it’s worth–in broad societal terms, not individual–to generate the kinds of improvements in health care that our medical community is routinely doing these days. You actually come up with a price to compare those costs to: $100,000 for extending life expectancy by one year. Now, using this method, you determine that the benefits of improvements in just two areas–low birth weight babies, and the treatment of cardiovascular disease –in longer life expectancy are enough to justify all of the cost increases in all of the areas of medical treatment over the past 50 years. That’s fairly extraordinary.

Cutler: People value their health very highly. We’re fortunately in a situation where we can afford–at least as a society, not everybody individually–but the vast majority of people can afford the basic necessities of life. We have enough food for our families. We have enough clothing for our families. Shelter isn’t quite what we want, certainly not in the Boston area, but we have a reasonable amount. So, unlike the old days, when essentially all the money we had had to go to real necessities, now we have more discretionary income to think about. Some of what we’ve done is buy computers, and VCRs, and fancy TVs, and so on. But another thing that people want, that’s very high on their list, is they want to be healthy. They want to live longer lives and higher quality lives. What the calculations you’re describing basically reflect is that people are really saying that’s a very good use for my discretionary income. Therefore, when we wind up spending a lot more on medical care but it saves low birth weight infants, we say that’s really a good thing to do. Whereas, if this had been a century ago, we would say well, okay, but we have houses without running water and no heat. Maybe we need to spend the money there. In terms of cardiovascular disease, we’ve gotten a lot for the money we’ve spent. Now we can say that’s good, whereas a century ago we would have said, yes, but kids need things, too, and how are we going to ever pay for schools if we do that? So, as we’ve gotten richer, we can afford more. And as we get richer in the future, we’re going to want even more-improved health. I think that’s the biggest message that comes across, that things that improve our health, even if they’re expensive, are worth a lot…. All [my] calculation does is put dollars and cents on something that people know intuitively.

CommonWealth: And that’s what you do as an economist.

Cutler: That’s part of what the job is as an economist, to try to do that. If it didn’t resonate with what people were saying, you’d trust what people were saying more than the calculation.

CommonWealth: What you’re talking about is, in the broad sweep of society, what it’s worth to us as a people, a people with a certain amount of income, in terms of GDP, and how we can justify making this kind of investment in medical care. And you suggest that, as a society, we should be pretty satisfied with the value we’ve gotten and be willing to invest more still.

Cutler: Yes.

CommonWealth: But then when you get down to levels where people are actually allocating those dollars, things get much more contentious. I would have to say I know one person who would take issue with the idea that we should be content to be spending more and more dollars on health care, and that’s the state’s secretary of health and human services, Ron Preston. Increases in health costs, and especially increases in the Medicaid budget, are threatening to squeeze out spending on other social goods, like public education, roads and bridges, and all sorts of things. Preston regularly tells audiences that if Medicaid spending continues to grow on an unchecked basis, there will have to be a tax increase, not only this year, but next year, and the year after that, and the year after that. So what do you say to somebody like Ron Preston?

Cutler: Good luck. Nice to have met you. [Laughs] What do I say? [The problem is,] people have an unwillingness to think about the government getting bigger to pay for services that we want. A century ago, roughly the turn of the 20th century, government spending was about one in every $25 in the economy. Today, it’s about one in every $4 in the economy. So the government has expanded by a factor of eight. Why? It’s because there were things that only the government could provide us that we wanted to have, so we had to give the government more money. Social Security is an example. There was no Social Security a century ago. Unemployment insurance, there was none. Worker’s compensation, there was none. Medicare and Medicaid, there wasn’t any. Child care was very, very slight in the public sector. All of these things that over time we said we wanted we ultimately found a way to put them in [the public budget and] attach new revenues to them, because it would have been ludicrous to cut everything else government was paying for. The same will have to happen here, with health care. If we as a people want to have it, and it makes sense to do some of it through government, then we’re not going to get rid of everything else the government does. We’re going to create more revenue for it. Partly, I think that people get fooled by seeing government as sort of a black hole, that money goes in and nothing comes out. Ironically, the kinds of taxes that people don’t talk about cutting are things like the payroll tax for Social Security, and the payroll tax for Medicare, because it’s very clear that your money is going into some pot, and that pot is used to pay for those benefits. It’s not inconceivable to me that, to avoid crowding out education and so on, we will adopt the same strategy with regard to Medicaid, which is to have a dedicated stream of revenue that can only be used for that. If we want the government to do it, which I think we do, we will have to be willing to put up the money, and what we should think about are the systems of financing that make that the most transparent for people.

CommonWealth: Now, even as you defend the wisdom of medical spending, as tradeoffs go in our society, you don’t claim that every health dollar is well spent; far from it. You say that, even after more than a decade of managed care, we’re still paying for medical care largely on the basis of the intensity of the service rather than on its value in improving health. As a result, high intensity services, like coronary bypass surgery and cardiac catheterization–some might add Caesarian section to that list–are overused, if not misused, while low intensity services, such as management of blood pressure for patients with chronic hypertension, are still underutilized, even for those who have insurance. How do we get the incentives right?

Cutler: Economists spend a lot of time worrying about incentives–not that we do so productively, but we do spend a lot of time thinking about it. What I’m amazed by is how well one can understand what’s happening in the medical system by understanding the dollar flows. Not that dollar flows are everything. No physician that I know is motivated entirely by dollar flows; they’re motivated by a desire to help patients. But they’re constrained by the fact that the way the money flows has to influence what goes on; that is, you can’t do things that are unprofitable for too long, or you won’t be able to survive. The way that the money flows have traditionally worked in medical care is that we pay more based on the intensity. The bypass surgeon will earn $400,000 a year, potentially. The internist or family practitioner will earn $100,000 a year, because what they’re doing is less intensive. So payment by intensity leads to a lot of very intensive treatment.

To think about a different payment system, suppose that we took what we currently pay, and we don’t do anything major [to adjust that] at the moment, but all we do is introduce a bonus system that says if the doctor does the right thing, we’ll pay more, even if it’s for doing things that are not reimbursed very well now. For example, currently there is no money to pay doctors for actually controlling a patient’s blood pressure. There is money for seeing the patients, for recommending things, but a physician can’t go and follow up with a patient and get any reimbursement. Suppose we said, “Look, we’re going to measure how well your hypertensive patients do and if you’re doing well by them, you’ll get paid more,” so that there will be the money there to do that. We know that a lot of surgery is done in situations where it’s not appropriate, and we know by diagnostic criteria when a lot of those are. So we say, “We’ll reimburse less, if the surgery is done in situations where the literature doesn’t suggest it’s very valuable or where it’s against the guidelines of common medical practice.” Every time a doctor does something that is consistent with what the literature says is good, or is consistent with helping patients [with particular ailments], that would contribute to bonus points, and there would be no points for things that it’s not clear were really appropriate to do. And for things that are inappropriately done, you would actually lose points for that. Then you could add up, for each physician, how many bonus points they earn, and one could make additional payments on that basis. So it would be a step towards a system that rewards good stuff better than bad stuff, and effective stuff better than ineffective stuff, instead of intensive stuff more than less-intensive stuff.

‘Measuring things seems to be helpful.’

CommonWealth: Now, why hasn’t managed care been able to do that? That was part of the basis on which it was sold, as an approach not only to restraining costs, but to improving care. That is, it would place an emphasis on primary care, and on medical management rather than crisis management in acute care settings. It promised to hold doctors accountable to those dreaded bean counters–not to mention medical directors–who could say, “It seems like you’re doing an awful lot of procedures that we’re not sure are medically necessary.” Why haven’t we made more progress toward getting the incentives right after a decade and a half of managed care?

Cutler: That’s a good question. I think, partly, the ethos of a lot of the early managed care was really along those lines. What managed care became, particularly over the 1990s, was something that particularly employers were pushing for, saying, “It’s fine if you do this stuff, but show me the cost savings.” Whatever incentive there would have been to [restructure incentives to improve care] got subverted. The other thing is, one of the premises that we went into managed care with was that lower cost-sharing was the way to ensure [routine care]. That is, managed care noticed that a lot of people, for example, were not coming in to the doctor for diabetes care, people with high cholesterol were not coming in, and hypertensives were not coming in. So they said, “Look, we want to encourage that, so we’re going to have very, very low cost-sharing”–$5 to go to the doctor, $10 to go to the doctor. That did remove the disincentives for people to come into the system, people enrolled in indemnity policies who were discouraged by, say, a $200 deductible or a $500 family deductible. But even that was not enough. The system was so complicated that just having low or even zero monetary price didn’t make it that much better, because people would just get so frustrated.

CommonWealth: You tell a great story about the way that letting financial interests do their work in health care may drive costs up but, in fact, provide dramatic improvement in care for serious illness. The example you give is the treatment of depression, and the solution is that class of drugs of which Prozac is the most well known. The way you tell the story, no one knew how to treat depression very effectively. It was underdiagnosed, undertreated. Along come the pharmaceutical companies, which develop this class of drugs that is very effective at treating depression with few side effects, but in order for them to make money, doctors have to prescribe these drugs, and patients have to come forward for treatment. The pharmaceutical companies went to great expense to make sure that doctors knew about their cure and its effectiveness, but also, through direct advertising to consumers, to make potential patients aware that there is a treatment for what they’re feeling: Go to your doctor, and–as the commercials always say–ask your doctor about Prozac.

Cutler: Yes.

CommonWealth: Now, that same example has got all sorts of people fretting about the corrupting, as well as cost-driving, effects of direct-to-consumer advertising, as well as doctors getting their information about new drugs from manufacturers who stand to benefit. But you say that, in the case of depression, this all worked out pretty well.

Cutler: Yes. It was not the best we could possibly do, but your description was entirely accurate. Prozac was approved in 1987. If you go back in the early 1980s, it was clear from many, many research studies that depression was under-treated, underdiagnosed. Patients were not doing well. The estimates were that about 5 percent of patients with depression were effectively treated. The federal government had issued calls to action. There were journal articles about how we need to do better. There were professional conferences. Nothing seemed to work. What billions of dollars in advertising, both to physicians and to consumers, did, was it brought awareness [of the illness as a treatable condition], so that diagnosis of depression has doubled. We have also removed a lot of the stigma associated with it. Thomas Eagleton had to resign from being a vice presidential candidate because he admitted that he had been hospitalized for psychiatric disease. Today, if a presidential candidate admits that he’s receiving help, or has received help for a psychological problem, it would be nothing more than an item on the back page of the newspaper. So we’ve gotten rid of enormous amounts of stigma. We’ve made it possible for a lot of people to get better treatment. Those have all been very good. There have also been some drawbacks, in the sense that some people switched off effective medications, and into newer, more expensive medications, and some people on Prozac who don’t really need to be on Prozac. But you’ve got to temper that against the fundamental benefit of getting millions of people treated who would not have been treated. People do well in their lives who did not do well before, and a lot of that is the result of the billions of dollars that were spent.

CommonWealth: Absolutely. Now, the Prozac story makes me wonder, though, whether the sort of bonus system you talk about is a powerful enough mechanism. I mean, the remarkable thing about the Prozac story is that there were really immediate interests involved. There were big dollars at stake. I wonder if an end-of-the-year bonus is really enough to change the clinical practice of doctors. Is it enough to change institutional practices, in the case of hospitals? Is it enough to change insurer practices? I wonder, do you have enough incentives in this strategy?

Cutler: That’s a good question. I don’t know the answer for sure. I’m afraid of overdoing it at first, because like all great ideas, you want to see if it actually works. You know, there is a wonderful joke about economists: How does an economist on a desert island open a can of peas? Well, he assumes a can opener. So you need to be a little bit careful before you say, just because it seems right to me, we should do it wholesale. [Using measures of effectiveness to change incentives in medical care] is not just ivory tower economics, though. Probably the best established rating system now is a number of states–including Massachusetts, which is starting to do this–that are rating the quality of, say, bypass surgery done by hospitals. New York State has been doing this the longest. For close to 15 years, they’ve been rating the quality of all the providers, and then they release that rating publicly. That influences, to some extent, where patients go, what decisions hospitals make regarding who’s allowed to practice there–mixed evidence, but it seems that it’s been fairly beneficial. That’s an example of where actually measuring things, without even attaching dollars, seems to have been helpful. In Massachusetts, you can’t turn on the radio without hearing the insurance companies tell you about their ratings in various national quality assessments. It’s the same sort of thing, which is them saying, “People care about quality, and it influences whether employers are willing to contract with us or not. If I have good quality, I’m going to advertise that quite a lot.” So I think there is a sense that it’s enough of a thing that people care about [that using outcomes to drive institutional behavior is] likely to work.

CommonWealth: The other recurring challenge, if not the ongoing shame, of the American health care system is the lack of universal coverage. And that’s likely only to get worse as insurance premiums, and employee shares of those premiums, continue to rise. Your solution is to require individuals, indeed every individual, to purchase health insurance, with subsidies available for those who can’t afford it without help.

Cutler: Yes.

CommonWealth: This individual mandate stands in contrast to employer mandates, which would require employers to provide insurance to all their workers, and also to a single payer plan, which would replace private insurance with government coverage of all. Why do you see an individual mandate as a better way to get to universal coverage?

Cutler: That’s a very good question. Is health insurance a thing that gets better by tying it to your job? Not in any material way. If you change your job, do you really want to change your insurance, change your doctor, change the nature of what expenses you bear? If somebody loses a job, should they automatically lose their health insurance? It’s kind of like automobile insurance. Suppose that whenever you changed jobs, you had to change auto insurance. Or supermarkets. Obviously, that wouldn’t be as big an issue as changing health insurance, but you could see the frustration. Why can’t I go to my old supermarket? So this isn’t something that gets better by linking it to employment. Some things do get better when you link them to employment, like maybe a pension plan, or something about job safety. But this is not something that gets better by tying it to employment.

So I think that ultimately we’ve got to divorce health coverage from the employment situation. Then there are only two ways to do it. One is, you tell families that they have to have health insurance, and we’re going to make sure they will be able to afford it. It’s going to be their choice about where they go to get that insurance. If they want one plan versus another, we’re not going to have a strong say about that. The other way is, you tell people they’re going to be on whatever the public sector program is, and they’re going to pay taxes into the system to support this. I’m not a big fan of that, but not for the reasons [others give]. I mean, there is a debate out there about, is government good or is government bad, or the virtues of private markets, and on. I don’t think that’s the real issue here. When you look at single payer plans, either the Medicare plan in the US, Medicare in Canada, the Western European countries that have national health insurance systems–none of them do better on the kind of problems that we were talking about: the diabetic patients that are not getting care, the hypertensive patients that are not getting care. All of them pay more for intensity. Canada does that; Medicare does that. Most of the French system does that. Most of the systems that people think about–the German system–wind up that way. Even in those systems, while people have a lot of access to care–more than people in the States–they don’t wind up doing a lot better on some of those really crucial outcomes where we know the system fails. So I think we need something different from that. I think if one does it right, as we were talking about, that is, motivate the insurers to care more about [giving providers incentives to provide appropriate treatment], one could do it in the private sector. And the good features of being able to compare across lots of plans will really show us where improvement is possible and how we can do it. So that’s why I tend to favor [the individual mandate] solution.

CommonWealth: What I wonder about, in terms of the individual mandate, is–I guess there are a couple of issues. One is simply the novelty of it. As far as I know, there is no social benefit in this country that I can think of that essentially requires that people purchase something. You mention auto insurance, which is probably the closest parallel, but you always still have the option of not owning a car. Mandating that every individual and every family purchase something would be a new, and perhaps onerous, imposition. The other issue is, although I agree with you that we gain nothing, and in fact give up a lot, by tying health care to the employment situation, nonetheless, that is the prevailing way that privately employed people currently get their coverage. So, imposing a mandate on individuals to purchase insurance would disrupt the way most people now get their health care covered. And generally, as we’ve seen with managed care, as much as people complain about the health care system, the only thing they complain about more is any disruption in the way they are currently receiving health care.

Cutler: I wouldn’t actually tell employers they couldn’t pay for it, or tell people they couldn’t get insurance through their employer. So, for example, Harvard University, which offers extremely generous benefits, might very well decide to continue that and people could continue to purchase it here, or they could get it elsewhere. For a lot of people, that would be the least disruptive way [to maintain health coverage]. Suppose I described the system I have in mind the following way. What I want to do is take the tax cuts that the Bush administration generally directed to high-income individuals and here is what I want to do with it. Everybody who is really having a hard time making ends meet, I’m going to give them enough money so that they can buy health insurance. They’re going to get a refundable tax credit,…and the credit will be only for health insurance. The family would say, “I would like to enroll in the Cutler Health Plan,” and the government sends the [tax credit] money to the Cutler Health Plan for them. As one moves up the income scale, the tax credit is not for the full amount, but for a portion of it, depending on income, and you direct the money to whatever insurance plan you want. There is still a requirement that the individual pay for the rest, but because the family has enough resources they can do that. At very high incomes there is a small credit, because people deserve some help throughout the income distribution, but it’s a much smaller amount. So this would be a tax cut that is used for health insurance. That’s not so different from the other kinds of tax credits we have.

Meet the Author

CommonWealth: Now, in your proposal to use the president’s tax cuts to finance this expansion of health care coverage, you’re falling into line with a number of the Democratic presidential hopefuls. Do any of their plans align well with your thinking on health insurance for all, or any that simply sound good to you on their own terms?

Cutler: Let me make two comments about that. There is great virtue in the fact that all of the proposals this time around are very substantive, hardy, meaty proposals. This is in contrast to Vice President Gore’s proposal in the 2000 election, which was much, much smaller. Everything on the table now is much bigger than either [major party nominee] had at the time. So I’m enormously encouraged that people are thinking bigger rather than smaller, because this is an issue where one needs to think boldly rather than timidly. None of them are exactly what I’ve laid out here, so none of them get my A+ rating. [Still,] that’s a criterion that one doesn’t necessarily want to apply rigorously, in the sense of saying, if it’s not everything that one envisions, one is going to fail it, or something like that. Generally, I like combinations of them. And overall I like the spirit of where the debate is going, even if nobody is earning the top grade in my book.