Berkshire Hathaway 2018 Annual Meeting Audience Question # 12

Medical costs is a “tapeworm” of American businesses and its competitiveness

Warren Buffett:

OK. Station 4.

Audience Member:

Good morning, Charlie and Warren. I know that seems a little bit out of order, but I’m a huge fan of yours, Charlie, mostly for your 25 Cognitive Biases.

I’m from Seattle, Washington. I run a one-person digital marketing firm that specializes in Facebook ads and email marketing. I use these a lot. I… your breakdown of Coca-Cola was really, really solid.

And I use that as reference when looking to how to understand the mechanics of my clients’ products and how to promote them. So I’m fairly certain that your cognitive biases work for internet-related companies.

Now that you’re partnering with Amazon on health care, I’m curious, have you started to understand how to apply these biases to internet-related companies? Or is there another set of tools you use to decide if you understand a business? Because you guys talk a lot about not investing in businesses that you don’t understand.

Warren Buffett:

Well, health care is a… we don’t plan to start health care companies or, necessarily, insurers or anything. We simply have three organizations with leaders that I admire and trust. And we… mutually goes around all three.

And we hope to do something which Charlie correctly would probably say is almost impossible to change in some way a system which is… was taking 5 percent of GDP in 1960, and now is taking close to 18 percent.

And we have a hugely noncompetitive medical cost in American business, relating to any country in the world. The countries that… there were some countries that were around our 5 percent when we were at 5 percent. But we’ve managed to get to 18 without them going beyond 11 or so.

Literally, in 1960, we were spending $170 per capita on medical costs in the United States. And now we’re spending over 10,000.

And, you know, every dollar only has a hundred cents. So there is a cost problem. It is a tapeworm, in terms of American business and its competitiveness.

We don’t… we have fewer doctors per capita. We have fewer hospital beds per capita, fewer nurses per capita, than some of the other countries that are well below us.

And you’ve got a system that is delivering $3.3 trillion… that’s almost as much as the federal government raises… it’s delivering 3.3 trillion, or some number like that, to millions and millions and millions of people who are involved in the system. And every dollar has a constituency. It’s just like politics.

And whether we can find the chief executive, which we’re working on now, and which I would expect we would… we would be able to announce before too long… that… but that’s a key part of it.

And whether that person will have the imagination and support of people that will enable us to make any kinds of significant improvements in a system which everybody agrees is sort of out of control on cost, but what… but… but they all think it’s the other guy’s fault, generally… we’ll find out. It won’t be… it won’t be easy.

But it is not a… the motivations are not primarily profit-making. They’re… we want to deliver… we want our employees to get better medical service at a lower cost. We’re not going to… we’re certainly not going to come up with something where we think the service that they receive is inferior to what they’re getting now.

But we do think that there may be ways to make a real… significant changes… that could have an effect. And we know that the resistance will be unbelievable.

And if we fail, we’ve at least tried. And… but they… the idea is not that I will be able to contribute anything to, you know, in some breakthrough moment, by reading a few medical journals or something… changing something that is as embedded as the medical system.

But the idea is that maybe the three organizations, which employ over a million people and which, after we announced it, we had a flood of calls from people that wanted to join in, but
there isn’t anything to join into now. But they will if we have… come up with any ideas that are useful.

Whether we can… bring the resources, bring the person. And the CEO is terribly important. And then bring the person, support that person. And somehow, figure out a better way for people to continue to receive better medical care in the United States without that 8 percent… 18 percent… going to 20 or 22 percent, you know, in the lifetime of, you know, our children or something of the sort… because there are only a hundred cents in the dollar.

And we will see what happens. It’s… you know… if you were Ajit, actuarially figuring, it would not… you would not bet on us. But… I think there is some chance we will do something.

There’s a chance… nobody can quantify it… that we can do something significant. And we are positioned better than most people to try. And we’ve certainly got the right partners. So, we will give it a shot and see what happens.


Charlie Munger:

There is some precedent for success in this public service activity. If you go back many decades, John B. Rockefeller I, using his own money, made an enormous improvement in American medical care. Perfectly enormous. In fact, there’s never been any similar improvement done by any one man since that rivals it.

So Warren, having imitated Rockefeller in one way, is just trying another. And maybe it’ll work.

Warren Buffett:

Rockefeller, incidentally, lived a very long time. So I actually am trying to imitate him three ways there.

We’ll see what happens. But we are… we’re making a lot of progress. And I think we’ll probably have a CEO within a couple of months. But if we don’t have one, then we’re not going to pick somebody just because we want to meet any deadline or anything like that. We’ve got these wonderful partners.

We don’t have a partnership agreement among us. Somebody started drawing up one in a legal department and the CEO just put a stop to it.

They… you do have places that have a lot of resources. And while we all have our share of bureaucracy, we can cut through it if we’ve got something that we really think makes sense.

And we will get the support… we’ll get… we’ll get a lot of resistance, too. But we will get the support of a lot of American business, if we come up with something that makes sense.

But if it was easy, it would’ve already been done. There’s no question about that.

Charlie Munger:

It’s not easy.

Warren Buffett:

No. But it should be tried.

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