Berkshire Hathaway 2017 Annual Meeting Audience Question # 53

Will the American economy or Berkshire be better off if the Affordable Healthcare Act is repealed?

Warren Buffett:

OK. Andrew?

Andrew Ross Sorkin:

Hi. Warren, this is my final question.

In 2012, you were quoted as saying, “I think the health care problem in… is the number one problem of America and of American business. We have not dealt with that yet.”

Do you believe that the current administration’s plan to repeal and replace ACA will ultimately benefit the economy and Berkshire or not?

Warren Buffett:

Yeah. Well, I’ll answer… I’ll give you two answers here, the first one being that if you go back to 1960 or thereabouts, corporate taxes were about four percent of GDP. I mean, they bounced around some.

And, now, they’re about two percent of GDP. And at that time, health care was five percent of GDP. And now, it’s about 17 percent of GDP.

So when American business talks about taxes strangling our competitiveness or that sort of thing, they’re talking about something that, as a percentage of GDP, has gone down from four
to two while medical costs, which are borne to a great extent by business, have gone from five to 17 percent.

So medical costs are the tapeworm of economic… American economic competitiveness, I mean, if you’re really talking about it.

And that… and business knows that. They don’t feel they can do much about it, but it is not…

The tax system is not crippling Berkshire competitiveness around the world or anything of the sort. Our health costs have gone up incredibly and will go up a lot more. And if you look at the rest of the world, there were a half a dozen countries that were around our five percent if you go back to the early years.

And while we’re at 17, now, they’re at 10 or 11. So they have gained a five or six point advantage… the world… even in these countries with fairly high medical costs.

Charlie Munger:

And that’s with socialized medicine.

Warren Buffett:

Yeah. So it’s a huge… whatever I said then goes and is accentuated now. And that isn’t a problem…

I mean, that is a problem this society is having trouble with and is going to have more trouble with, and… regardless of which party’s in power or anything of the sort. It almost transcends that.

In terms of the new act that was passed a couple days ago versus the Obama administration act, it’s a very interesting thing.

All I can tell you is the net effect of that act on one person is that my taxes… my federal income taxes… would’ve gone down 17 percent last year, if the act… if what was proposed went into effect.

So, it is a huge tax cut for guys like me. And you’ll have to figure out the effects of the rest of the act.

But the one thing I can tell you is if it goes through the White House… put in, I mean, it… anybody with $250,000 a year of adjusted gross income and a lot of investment income is going to have a huge tax cut. And when there’s a tax cut, either the deficit goes up or they get the taxes from somebody else.

So, as it stands now, it is… that is the one predictable effect, if it should pass, as it… and it… the Senate will do something different and hold a conference. And who knows what happens? But that is in the law that was passed a couple days ago.


Charlie Munger:

Well, I certainly agree with you about the medical care. What I don’t like about the medical care is that a lot of… we’re getting too much medicine.

There’s too much chemotherapy on people that are all but dead, and all kinds of crazy things go on in Medicare and in other parts of the health system.

And every… there are so many vested interests that it’s very hard to change.

But I don’t think any rational person looking objectively from the outside of the American system of medical care… we all love all the new life-saving stuff, and the new chemotherapies, and the new drugs, and all that.

But, my God, the system is crazy. And the cost is just going wild. And it does put our manufacturers at a big disadvantage with other people where the government is paying the medical bills. And so, I agree with Warren totally.

Warren Buffett:

If you had to bet, 10 years from now, we’ll be higher or lower than 17 percent of GDP?

Charlie Munger:

Well, if present trends continue, it’ll get more and more. There are huge vested interests in having this thing continue the way it is. And they’re very vocal and active. And the rest of us are indifferent. So, naturally, we get a terrible result.

And I would say that on this issue, both parties hate each other so much that neither one of them can think rationally. And I don’t think that helps, either.

Warren Buffett:


It is kind of interesting that, you know, with… the federal government spends… or raises, we’ll say… 3 1/2 trillion or something like that… I mean, the degree of concern everybody has about that… although that’s stayed fairly steady in the 18 percent or so of GDP plus or minus a couple points… but three trillion-plus is spent on health care.

And everybody wants the best. And it’s perfectly understandable. But it’s a very, very… it’s a big number compared to the whole federal budget. I mean, there’s some overlap and all of that. But it’s…

If you talk about world competitiveness of American industry, it’s the biggest single variable where we keep getting more and more out of whack with the rest of the world.

And it’s very tough for political parties to attack it. Yet, it’s, you know, it… basically, it’s a political subject.

Charlie Munger:

A lot of it is deeply immoral. If you have a group of hospital people and doctors that are feasting like a bunch of jackals on the carcass of some dying person, it’s not a pretty sight.

Warren Buffett:

Tell them about that group out… in California that…

Charlie Munger:

Oh yes.

Warren Buffett:

Perfect… this is…

Charlie Munger:

This is Redding. This is one of my favorite stories. There are a bunch of very ambitious cardiologist and heart surgeons in Redding.

And they got the thought that, really, what a heart was was a “widowmaker.” So everybody… every patient that came in, they said, “You’ve got a widowmaker in your chest. And we know how to fix it.” And so they recommended heart surgery for everybody.

And, of course, they developed a huge volume of heart surgery. And they got very wonderful results because nobody comes through heart surgery better than the man who doesn’t need it at all.

And they made so much money that the hospital chain, which was Tenet, brought all its other hospitals… why can’t you be more like Redding? And this is a true story. And it went on and on and on.

And finally, there was some beloved Catholic priest. And they said, “You’ve got a widowmaker in your chest.” And he didn’t believe them. And he blew the whistle.

Warren Buffett:

He was a priest. You could see why he didn’t believe them.

Charlie Munger:

At any rate… well, when you get a routine, you just keep using it, you know. A heart is a widowmaker. It’s a widowmaker.

Later, I met one of the doctors who threw these people out of the medical profession. And I said to him, “In the end, did they think they were doing anything wrong?”

He said, “No, Charlie. They thought that what they were doing was good for people.” That is why it’s so hard to fix these things. The self… the delusion that comes into people as they make money and get more successful by doing God-awful things should never be underestimated.

And it’s… there’s a lot…

A lot of that goes on. And you’re (the sound in this part of the video is inaudible) such gross craziness. And you thought little Wells Fargo looks like innocence. He only has a little trouble with his incentive system.

But the heart surgery rate was 20 times normal or something. You’d think you’d notice if you’re running a hospital. And… but they did notice. They wanted the other hospitals to be more like it.

Warren Buffett:

They had a terrific success ratio.

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