Give us an assessment. How is the U.S. health insurance system working overall?

Well, it's not in great shape, obviously. It's a chronic illness. ... People are anxious about it, and they're upset about it, and what they are mostly upset about, what really has driven this issue back to the forefront of the national agenda, [are] the worries people have about the cost of health care and the problems they have paying for health care and paying for health insurance. ...

And what's happened? Why has this system broken down or gotten in trouble?

It's a lot of things. ... [It's] the steady increase in the ranks of the uninsured. It's the slow fraying of the employment-based health insurance system, fewer people covered every year. It's the slow deterioration in the benefits that people get if they do get benefits in the employment-based health insurance system. But mostly it's just [that] people's wages have stayed relatively flat. ... So over a five-year period, for example, on average, people's premiums -- the part of the premiums that they pay -- go up by about 1,000 bucks. So if your wages are flat and you're paying more for your premiums -- and that doesn't even count your co-insurance and your deductibles -- ... it's a pocketbook issue for average working Americans who have health insurance, let alone the 45 or 47 million uninsured Americans we have who don't have health insurance protection. And of course they're the worst off.

So people are -- basically they feel OK about the providing of health care, the quality of health care in America, but it's the financing that scares them.

Yeah, it's really the affordability. That really is what has moved this issue back to the forefront. It's a pocketbook issue for people. When we ask people, you know, "What are you worried about these days?," the cost of health care, paying for health care and health insurance emerges as a top worry for average Americans. They're more worried about that than they are about -- think about this in today's times -- paying the rent, paying the mortgage, credit card debt, losing their job, being a victim of a terrorist attack.

... A different question is whether they vote on that concern. ...

Are they worried enough to support a significant change in the way we pay for health care?

Well, that's a much more complicated question, because people, if you ask them, they want a change. They want the problem solved. They want cost control. They want everybody covered. But where it all gets very complicated is that people don't really want to pay a lot of money to solve the problem because ... they feel they're already paying too much money for their health care. And we don't have anything even remotely resembling an agreement in our country about how to solve our health care problems or how to reform the health care system.

So everybody salutes the goal, and there's consensus about the goals, but there's nothing even resembling a consensus about how to pay or how to reform the health care system, and that's where we run right into a brick wall, which is this deep division between left and right, Republicans and Democrats, conservatives and liberals in our country.

It was really striking to me in 2008 when Congress and the president couldn't even agree on giving health insurance to 9 million children who aren't insured. You'd think at least they could agree on that.

... Sure. I think a lot of people said -- I certainly said -- when they couldn't get together on a reauthorization of Children's Health Insurance Program [CHIP], if they can't agree on covering kids, what can they agree on?

But now it's a new day. We're going to have a new president, we're going to have a new Congress, the health care issue is rising again, and so there will be a new opportunity in this next Congress. This is the next big opportunity for health reform, the first big opportunity for health reform since that great debate about the Clinton health reform plan in the early '90s. And a question is again, pointedly, whether we will blow the opportunity again this time or we will actually get it all done or get something significant done.

You've been talking about this as an economic concern for Americans, but in addition, hundreds of thousands of Americans go bankrupt every year because of medical bills, and about 20,000 die of treatable illness because they can't see a doctor in the richest country in the world. Do you think that moral concern for our fellow Americans might drive people to want change?

Well, it does drive people, and it should drive people. It certainly is a national shame that we have so many people without health insurance in our country, but if you break it down, and if you really look at what has moved this issue, it is much more the worries that working people have about paying for health care, paying for their health insurance, than it is the moral issue. ...

But if you look at the real politics of this issue, Democrats are much more moved by the moral issue and the challenge of covering the uninsured. Expanding coverage is what drives Democrats and liberals, but it's not what drives Republicans and independent voters. They're much more moved by the problem of the cost of health care and solving that problem.

So what brings everyone together, the unifying issue, is making health care more affordable for all Americans, which encompasses both helping people pay for their health insurance premiums and cover their health care costs and bringing the uninsured under the tent at the same time.

To me, that moral issue is pretty strong. We're a decent people. I'm wondering: Do you think most Americans know that tens of thousands die every year in our country because they can't afford to see a doctor?

I think there are a lot of things Americans don't know, and there also are a lot of misconceptions about why costs are as high as they are or who the uninsured are and what happens to people who are uninsured. But I also think that Americans are capable of lots of conflicting beliefs in their heads at the same time. ...

I think the bigger problem is the challenge of making sure that people understand what really does happen to the uninsured. So in an acute crisis, people often can get some care. The bigger problem is that people who are uninsured can't afford health care, and they delay care. So if they get it, by the time they get it they're sicker, and they're much more likely to suffer more adverse health consequences; they're more likely to die than people who are insured, people who do have health insurance. Their cases, as a result, are more costly for all of us at the end of the day.

And that's one of the things people have misconceptions about this. They say to themselves, but don't people who get hit by a truck go to the emergency room and get care? Yeah, by and large they do. That's not the problem. The problem is that they can't afford the care, so they don't want to be chased by the collection agency, so they delay care. They delay care, and they suffer, and we suffer financially as a country as a result. That's really the problem that we have. ...

Given the fact that America's health care costs are very high and our coverage is incomplete, which problem would you work on first: coverage or cost?

I think you've got to work on both of them together. There's no way to separate the two problems, and in fact, I think that if you work on the problem of expanding coverage alone, all plans that do that will fail. ...

Remember, again, the issue which has moved this back to the forefront are the worries that insured working Americans have about the costs that they're paying for their health insurance and their health insurance premiums. So the only way to really address this issue is to address the problems [of] affordability of care together at the same time [as] the problems that working Americans are having paying their health insurance and health insurance premiums and the problem of the uninsured.

We heard when we were traveling the world last year that many people said, well, first you get universal coverage, and then you have the political buy-in to make the tough decisions to control cost, because everybody has a stake. Does that make sense?

We have a hard time in our country with the tough decisions to control cost. I mean, there is a fundamental difference between all the other systems in the developing nations and ours, and that is that while they all do it differently -- Canada is different from Great Britain; it's different from Germany and Switzerland and so forth -- they all have a way to control the total amount of resources that go into their system, and then actually as a result of that, they leave their doctors and hospitals and patients relatively alone.

We have a completely fragmented system, and so we have no way to control the resources that go into our system. So we're [just not] set up ... [for] a complete overhaul of our system to make the kinds of decisions that they make. For example, the principal driver behind the rising rates of increase that we see in our country in health care costs are the advances in medical technology. So in some European countries, they've developed mechanisms to make judgments about which medical technologies actually bring new benefits for people and which ones just would bring new profits for whoever made them. We don't really have a way to do that in our country.

In addition, we really do have a different culture. So in America, technology is almost a religion, and the American people do want the latest and the best, and they want it now and want it in their community, down the street. So we have a hard time dealing with the drivers, fundamental drivers, behind the increases in costs that we have in our system both because of the kind of country and culture we are and because of the fragmented system we have. It just makes us very different from many other developed nations. ...

The high cost of American health care creates a competitive disadvantage for American industry. Do you think that would drive industry to see what we could change?

I think this is one of the big unknown questions as we head toward the next big debate toward health reform in a new Congress. In the past, American business has complained mightily about the cost of health care, especially in bad economies, but has never thrown its muscle behind any meaningful health reform plan, mostly because they have always felt that it has involved a bigger role for government than at the end of the day they have been comfortable with.

So, for example, in the Clinton health reform plan, to put it in plain English, you could not have done more to pay off big business to join in and support the Clinton health reform plan. But at the end of the day, they did not support the Clinton health reform plan. So the big question is, in this next round, will business be there, not just signing their name to full-page ads in The New York Times but actually adding their lobbying weight to whatever health reform legislation emerges in the new Congress? ...

There also is really no such thing as "business." There's big business and there's small business, ... and they have different interests, so you have to see how that shakes out as well. But I regard that as an open question. There always are leadership groups and leaders in the business community who play an important leadership role in health reform, but that's different from where will business as an organized enterprise be in the next health reform debate, and that one I think remains to be seen. ...

It's a very common American notion that the free-enterprise system, the private market, solves most problems better than big government does. Does that apply to health care?

This is exactly the issue that is being debated. There is one side that believes that a market system in which individuals behaving as prudent purchasers create a market, will buy the health plans that make the best sense for them, will use less health care overall and will reduce the cost of health care. And there's another side that believes that that approach will break down over time and that government needs to play a much bigger role and that we've got to get everyone under the same tent. ...

At the end of the day, I believe that if and when we get to a legislative debate in Congress in 2009, ultimately what we will arrive at, if we arrive at anything, is some kind of a combination or hybrid approach that borrows from elements favored by the left and right. ... And so it will either be a centrist deal -- and whether that is satisfying to purists on the right or the left -- or no deal at all. ...

Is the system of getting health insurance through your employer still OK, or is it declining?

Well, it's under tremendous pressure because of the rising cost of health care. You know, a premium now for family health insurance is closing in on 13,000 bucks a year. So if you just think about that, I mean, that's more than the cost of a lot of economy cars you could just go out and buy. So it's buying that economy car every year just to pay for the cost of health care for a family. That's tremendous pressure.

But what we're really seeing are two different stories. Big employers [are] under a lot of pressure, but they're hanging in. Small employers, it's a different story, and so slowly, over time, fewer and fewer small employers are able to provide health insurance coverage. ... If they provide coverage, they're providing coverage with very high deductibles, at least $1,000 or more. And of course many small employers can only provide coverage to the employee and not to the employee's family.

So increasingly, coverage provided in the smaller-employer market is starting to look more like coverage that individuals would get in what we call the non-group market, the individual market, and not like what has been employer coverage in the United States. ... And one of the big issues that's kind of hidden in the health reform debate I think is this giant question of, what do we want health insurance to be in our country? Do we want it to be comprehensive coverage -- front end and back end, preventive care, routine care and everything in the middle?

Dental, optical --

Or do we want instead to move health insurance to be less comprehensive coverage --what some people call "more skin in the game" -- on this theory that then people will use less care, will shop for the best price, and it will save the country money overall? ...

How about the outfit you're running here? How many people do you employ, and what size is your organization?

... We would define ourselves as a smaller employer. ... We have 120 people divided between our California headquarters and our Washington, D.C., building.

So how are you providing health insurance for your employees?

We are not immune from the problems that we study.

Oh, really? But you're America's leading expert on --

I know, and our being experts has helped us not at all.

What's happened?

... We offer our employees two choices of plans. One is a very high-end PPO [preferred provider organization], and the other one is an HMO [health maintenance organization] with a name that sounds a little like ours. And we are small enough that we know what's happening in the lives of our employees. And so last year we had an employee who happened to have a couple of very expensive premature babies, and the cost was in the millions of dollars. And I came in one day to learn that our premiums from the PPO had increased by 78 percent.

Almost doubled.

Now, of course I wasn't supposed to know which employee had what medical experience, but because we're small and we know what happens to our workers, ... there could have been no other reason. ...

We asked for justification. Under California law, we're not entitled to any information whatsoever.

So there we were, the most expert organization in the land on health insurance, helpless. What did we do? We did what the hardware store would do or the pizza place or the dry cleaner, the only thing we could do: We switched insurers. And so, you know, we live with this, too, just like everybody else lives with it. ...

It's a little bothersome. Your supplier raised the price from, say, $1,000 a month to $1,780 a month and won't tell you why?

Right. We were not entitled to know why. So what it speaks to is the need. If we're not going to regulate the industry, it does at least speak to the need for greater transparency with regard to explanation and information ... about why your rates have gone up.

And also, one would think that a 75 percent increase in premiums in one year is just unjustifiable. So we switched insurers, and, you know, on we went. I guess the basic point is, there we were, leading experts in the country on health insurance, and there wasn't a single thing we could do about it.

One of the proposed approaches we've heard about is the so-called parallel public program: Everybody can buy either a private insurance program, or if they want to, they can buy into Medicare. What do you think about that approach?

Well, that's an approach that many Democrats have favored. Frankly, many Democrats who would prefer a single-payer plan or a Medicare-for-all approach but believe that that just isn't politically in the cards now have advanced that as an alternative, so that there can be a public plan and let the market do its thing. And their argument is that we would learn over time how the private plans work against the public plan and see how many people go to one, go to the other. ...

Can you predict what would happen? Would everybody switch to Medicare, or would some people stick with the private plan?

I cannot know. And, you know, there will be statistical models that predict, but everyone should realize that what is predicted in these statistical models -- and we do them, too -- is the future behavior of people in organizations, and that's a really hard thing to predict. One should take the predictions that us modelers do with a very large grain of salt.

We talked to Karen Ignagni, [president and CEO of America's Health Insurance Plans], about this, and she said she thinks it would dry up private health insurance if that happened.

... We have no horse in that race, so I suppose the advocates of public plans would want to minimize the number of people who they say would enroll in it because they don't want it to look like this is going to take over the whole health care system right now. That might scare some people. The private-insurance folks would want to exaggerate it because they know that right now that might scare people and prevent it from happening. I think it's very hard to predict at this stage. But it is an interesting idea, because it creates a genuine market test. People would vote with their feet, you know, and we would learn over time which approach average Americans favor. ...

So if we go through these tiers of a big company, a small company, the individual market, and then people who can't buy insurance because they're sick or something, and some states have a high-risk pool to giving care, does it work?

Well, one of the biggest issues in the debate that's forming is whether we stick with most people getting their insurance through the employment-based system and public programs. We see a future in which many more people are purchasing insurance themselves in the so-called individual or non-group market. So if you see that future, then the question is, how do you make that market work, where people no longer have an employer running interference for them, and they're buying insurance themselves in the complicated world of individually purchased insurance? How do you organize that? ... Do we regulate it? How much do we regulate it? If not, do we backstop with high-risk pools? ... How do we establish rules so that the non-group insurance market ... really works for average Americans who now would be buying insurance on their own, especially people who are sick, who might be high-cost cases?

Any state done it right?

I'm not aware of a truly successful model, so this is a battleground issue for the health reform debate in the Congress in 2009, how to make the individual market work. ...

I buy auto insurance on my own; my company doesn't help me with that. But people don't want to go ahead and buy health insurance on their own?

Buying health insurance and buying a plasma screen online or a camera is just totally different. And why? Well, that's because the information about cost is so limited. The information about quality is so limited. And mostly it's because, who makes the decision anyway? Do you, or does your doctor? At best it's some combination of the two, but mostly it's your doctor. And even more fundamentally, the decisions that really matter are the ones that you make when you're sick and you're desperate. And so it is not the same as buying a camera or buying a car or buying a plasma screen. It's not a simple purchasing decision. It's very different.

So people want their employer backing them up?

Well, whether it's their employer or it's something else that is set up, or it's a set of rules that makes the system work, or it's finding some way to make high-risk pools work, whatever it is, there needs to be a way to make a world where individuals would be purchasing health insurance work. The debate is how to do that. But I don't think there's any debate that we have to do that.

And, you know, while there is a big movement in the country right now to develop better information on costs and better information on quality for average people, we are light years from making that information used and useful for just average people. ...

The thing that gets to me about it is this so-called asymmetry of information. If my doc says, "You need 500 milligrams of tetracycline," I'm not going say, "No, can't we do it with just 50?" How can you negotiate?

Well, it's a great thing that we have more empowered consumers, more information. The Web is a great tool for consumers, but that's really so consumers have more information, and that equips them to ask better questions and to deal with the medical system in a more empowered way. But that's a very different thing from saying that they have the cost information, the quality information, or [are] in a position to make prudent purchasing decisions all on their own with no help, with no regulations of the system. ...

You do a lot of polling. Are most people satisfied with the health insurance they've got?

Well, one of the really difficult dilemmas that you see in the polling ... is that people are really frustrated with the system. They'd like to see it changed. They're [just] not crazy about the idea of someone telling them they have to change what they have today.

And so the third rail in health reform has always been, change the system; solve the problems. We want the cost problems solved, we want the [un]insured covered, but don't tell me I have to change what I have today. Don't tell me I have to change my health insurance arrangements, and sure as hell don't tell me I have to change my doctor or my hospital. ... That scares them, and it scares them a lot.

So are you saying that the system has a lot of problems but not enough yet to drive change, and it's got to get worse before America --?

No, I would put it differently. People are seriously concerned and anxious about health care, and especially the cost of health care. That's what is really driving their concern. The level of concern that we see is about the same as what we saw in the early '90s, and I would not expect to see the American people get a whole lot more concerned in the next six to 12 months. So don't expect to see the American people storming the ramparts.

The challenge now is leadership. The big question is, what's going to happen at the top, not at the bottom? Is the president going to make health care an early priority and a top priority and really deal with the challenges [of] how we're going to pay and how we're going to bridge the ideological divide in the Congress and put a plan together that will really work? If the next president makes health care a top priority, there will be a big debate, and that will engage the public, and the issues will really rise. ...

But if the proposition is we need to wait for the American people to get even more concerned -- they're worried about a lot of other things; when they vote, they vote more on the candidate and their perceptions of the candidate's leadership qualities than they do on the issues; health care has to compete as an issue with a lot of other issues -- we're going be waiting a long time. So the question now is "What do leaders do?" more than "How do the Americans feel?" ...

You run probably America's leading think tank on health care and health insurance issues. Do you think our country is obliged to provide health care to every American who needs it?

I absolutely think that we need to do that. We should do that. But I'm also a realist, and the challenge is, how [are] we going [to] get there? And can we reach agreement as a country about how to do that?

We're obliged to do it. How confident are you that we will do it?

I'd like to think we're going to get there. I mean, I work in this field, and it would be hard to come to work every day if I didn't think we'd get there someday. But it's a big challenge. And the political scientist in me also says that the most likely outcome is not nothing, and it's not the whole enchilada in this next round. It's most likely something more modest or incremental in the middle. So if you're going [to] bet, that's what you've got to bet on every time. But that would be better than nothing.