Profile: Princeton Economist Makes National Mark With Insights on Healthcare

Andrew Kitchenman | April 23, 2014 | Profiles
Reinhardt says NJ panel he headed outlined approach to hospitals that’s still important and relevant

Uwe Reinhardt
Name: Uwe Reinhardt

Job: James Madison Professor of Political Economy, Professor of Economics and Public Affairs, Woodrow Wilson School of Public and International Affairs, Princeton University

Background: Reinhardt lived in Germany until he was 17, when he moved to Canada. He’s taught at Princeton since 1970.

Why he matters: Reinhardt is an influential voice on how the economics of healthcare affects policy decisions. This led to him leading one of the more ambitious healthcare-focused efforts in New Jersey in recent years, the Commission on Rationalizing New Jersey’s Healthcare Resources, which became known as the “Reinhardt Commission.”

His experience on the commission: Reinhardt said he was initially hesitant when former Gov. Jon S. Corzine asked him to serve as chairman of the commission.

“Every time you work for government, you make a nice report and it goes into the trashcan,” Reinhardt explained. But when Corzine said he would ask Princeton’s president to pressure Reinhardt to lead the panel, the professor relented.

“Every commissioner wound up being first-rate — every one an expert, every one reasonable — we worked together so well,” said Reinhardt, adding that the commission was “one of the great, fun things I did in my life – every meeting was like a first-rate Princeton seminar.”

What the commission accomplished: Reinhardt is proud of at least one recommendation made by the commission – limiting how much uninsured patients with income up to 500 percent of the federal poverty line can be charged. The limit is the Medicare fee for the service, plus 15 percent.

“I think it makes New Jersey one of the more civilized states, where hospitals just cannot gouge patients like they can in New York and Connecticut,” Reinhardt said.

Commission recommendations that remain valuable: The commission developed a grid that included all New Jersey hospitals, and assessed them based on both their financial health and how essential the services they provide are, particularly to financially vulnerable residents. If hospitals are not essential, then the state shouldn’t provide financial bailouts to them, the commission said. But if they are essential, the state should provide assistance, while putting state officials on the hospital board to monitor its finances.

Reinhardt said Corzine used the grid to make decisions about hospitals. While he doesn’t know if Gov. Chris Christie also uses it, he said that the current governor should.

Why New Jersey’s low Medicaid fees ‘devalue’ the lives of recipients: New Jersey providers are paid only 45 percent of what they receive from Medicare] when they provide services to low-income Medicaid patients. That’s the second-lowest ratio in the country. Reinhardt sees this as a major problem.

“I talked to a group of state legislators and said, ‘Look at what you are actually doing: You’re telling a physician in Princeton that a poor kid is worth” a fraction of what the legislators’ own children are worth, Reinhardt said. “You’re signaling human value to that pediatrician . . . prices signal valuation… Pediatricians are not stupid, they see the signal you’re sending them. In Princeton, almost no pediatricians” accept Medicaid recipients. Reinhardt added that the problem is particularly disturbing because lower-income residents are more likely to have multiple chronic conditions than wealthier patients, requiring longer hospital stays and putting financial pressure on hospitals.

*How patients must make decisions “blindfolded:” Reinhardt said a debate that occurred in the 1990s about healthcare payments was depicted as a technical debate, but was really an ideological debate. Liberals wanted patients to make healthcare decisions based only on quality, with little out-of-pocket expense. Conservatives countered that if patients had financial “skin in the game,” they would make smarter choices about healthcare. Conservatives won the debate, as out-of-pocket expenses have soared in the form of higher deductibles and coinsurance — the share of healthcare costs paid by patients after their deductibles have paid.

“What is unfair about it is that the patients didn’t have the information they needed in order to be a rational consumer,” Reinhardt said, such as which providers are cost-effective. “Patients were not so much complaining about having to pay more out of pocket, but they had to make these decisions blindfolded.”

Reinhardt said with the large amount of money that government and foundations have spent on research, more should have been done to provide meaningful information to patients about healthcare quality and costs.

On being at Princeton: Reinhardt said the building he grew up in Germany was a “toolshed” with no heat or water. “Ending up in this town isn’t something that I ever dreamed of to achieve – it really doesn’t get better than this. The only thing I’m missing is a private jet.”

Why he left Germany: At 17, Reinhardt was drafted into the West German army. At the time, it was still led by generals who had been military leaders during World War II.

“I just didn’t want to serve under World War II German generals — it just upset me too much, so I left,” Reinhardt. He described the generals as having “held up the umbrella” for Nazi criminals.

“I think these generals should have rebelled against Hitler, even if it had cost their lives,” Reinhardt said.

While he said he’s changed his mind about some issues as he’s grown older, he’s never regretted the stand he took at age 17: “Some issues, you compromise. Some issues just bug you.”

He said his parents understood why he ran away to Canada. Reinhardt initially worked as a clerk in Montreal before attending the University of Saskatchewan because it was the cheapest college in Canada. From there, he went for his Ph.D. at Yale University before beginning to teach at Princeton in 1970.

The lesson he takes from these experiences: “Don’t think you’re a self-made man — it’s luck all the way, luck that you stayed healthy, luck you ran away.”

Why he chose to specialize in healthcare economics: Reinhardt originally wanted to do his doctoral thesis on the optimal toll prices for turnpikes and potentially have a career in finance, but was dissuaded by his adviser at Yale University, Professor Richard Ruggles. He spent time researching health economics and became fascinated “by this then growing and burgeoning sector… There were always new problems. I just stayed with it. I probably would have a private jet if I went into finance.”

His assessment of the Affordable Care Act: Reinhardt said the United States “went into healthcare reform the way we went into Iraq – totally unprepared.” Reinhardt said a chief problem with the ACA is the high amount of out-of-pocket expenses that patients will have to pay for plans purchased through the new federal health insurance marketplace. Even with subsidies for low-income residents, many residents will be paying a high percentage of their income for healthcare, after having paid for basic necessities.

“A European or Canadian or Taiwanese would look at this and say this isn’t universal health insurance, which of course it isn’t,” said Reinhardt. “I certainly wouldn’t go to Europe and brag — I apologize that it was the best you could get from the American people.”

His warning about the future: Reinhardt sees the United States eventually settling on a system in which upper-middle-class residents will have a separate healthcare system from lower-income residents. He described the argument he has made to policymakers in Washington, asking them to compare the situation they face if they had a sick child in a two-income household with a total income of $250,000 to that faced by a single mother who works as a waitress.

“Do you think they would make the same decisions about whether to see a doctor with their kid — the professional family wouldn’t even think about it,” while the single-mother would have to pay the out-of-pocket expenses she couldn’t afford, he said. “She’ll take a chance — that is what two-tier medicine is really about.”

Reinhardt said he would like to see elected leaders asked if they support such as a system, predicting that they would say no, “because publicly admitting that would be very damaging politically, but publicly they would not have a problem with signing bills raising out of pocket expenses for poor kids.”

He noted that even after the Children’s Health Insurance Program was enacted, there are still more than 7 million uninsured children in the country. He would like to see a national commitment for every American citizen to have a generous, adequate insurance policy until they turn 21.

“We have this fantasy of equal justice for all, but how could you possibly believe that?” Reinhardt asked.

Hobbies: Reinhardt said he enjoys writing about healthcare so much that it “is really like a hobby.” However, his experience watching Korean soap operas led him to lecture on the topic. The video went viral in both China and Korea. Its first paragraph captures his sense of humor:

“After the near‐collapse of the world’s financial system has shown that we economists really do not know how the world works, I am much too embarrassed to teach economics anymore, which I have done for many years. I will teach Modern Korean Drama instead.”