BUFFETT: Well, yeah, we're certainly paying for a lot of them. And they go to the emergency room and that becomes their primary visit. So there's--a lot of the costs of the uninsured is built into the system, there's no question about that. But we need different incentives. I mean, if you try something--we were--we were spending--in 1960, we were spending the equivalent of about $150 a person in the country, you know. It's getting up--it's well over $7,000 now. Incidentally, Switzerland was paying more in those days, but we've just soared past them. They've got more beds per person, they've got more doctors per person. But we--our costs have gone up far, far more. And when you've got a system that isn't working, you know, you just got to look at the components of it and say, `What the hell do we do about it?'

QUINTANILLA: When...

QUICK: There's a question that came...

QUINTANILLA: Sorry, Beck.

QUICK: Go ahead, Carl.

QUINTANILLA: I was just going to ask Warren, when they pull Angela Brawley in front of Congress, or when the president takes some of these insurers to task for raising premiums 39 percent, do those companies have a--have reason to complain about their own risk pools? Are those new premiums deserved?

BUFFETT: Well, they--the problem--the rhetoric has gotten tilted very big toward insurance. And incidentally, I'm not in the health insurance business. We do a little health reinsurance, but our business is property, casualty, and so we do not...

QUINTANILLA: But you--but you know how premiums work.

BUFFETT: Oh, sure. And the truth is the--insurance is not the problem.  The problem is incentives. And the problem is at the--is at--is at the care level. Hospitals in the United States, the American Hospital Association, you know, reports $700 billion. That's 5 percent of GDP just on hospital expenses. And like I say, we got way fewer beds per capita than many of the countries around the world. So insurance, if you look at the largest health insurers, you look at their profit margins, if you look at their return on equity, they're--it is--that is not the problem. You can find individual problems, I'm sure, with any--in any arena. But that is not the reason we have 17--or 16 or the 17 percent of our GDP going to health care.

QUINTANILLA: Yeah.

QUICK: What is the reason?

BUFFETT: Well, the reason--the reason is we're doing an awful lot of things that don't need to be done, probably.

KERNEN: Warren, what's the...

BUFFETT: And we're--we've got a--we've got payment--we've got payment for procedures and not payment for results, but...

KERNEN: What's your margins in property/casualty vs.--I've read that margins in some managed care. What--do you know what's the average margin in managed care and what's the average margin for property/casualty?

BUFFETT: I've seen numbers where--I've seen numbers on health care, I believe, where it's like 3 1/2 percent of revenues or something like that.

KERNEN: And what's profit--what's P and C?

BUFFETT: Well, that depends on the year a lot.

KERNEN: Right. It can be better than that, though, right?

BUFFETT: Yeah.

KERNEN: I mean, there's a lot of other parts of the health care--I mean, just no one is at 3 1/2 percent. That's about the lowest in health care, isn't it?

BUFFETT: Let--let's put it this way, Joe. I'm in the PC business and I'm not in the health care business. Draw your own conclusion.

KERNEN: Yeah. That's about all you'll say, yeah. Obviously, it's a little bit better than--well, then a lot of this rhetoric, I guess you need it, but it's not really maybe that helpful. I mean, you're--it's another example of any means to satisfy that end, you know. You lambaste an entire industry when it's really not relevant to do it that way, and not fair.

BUFFETT: No. The 2.3 trillion or whatever the number may be totally going into health care, I mean, the amount of that is insurance company profits is very, very little.

KERNEN: (Unintelligible)

BUFFETT: Yeah. If you're going to--but you--the problem you do have, whether it's 2.3 trillion or 2-4, the problem you have is every dollar of that has a constituency. And the big dollars are organized, and they're not going to want to change. I mean, it's very simple. It's like the tax code. I mean, every line of the tax code has a constituency, and the constituency for that line in the tax code is very focused on it. The fallout to the general public, you know, obody even knows about it.

QUICK: Right. Warren, very quickly, so a viewer wrote in, Greg Robinson from Portland, Oregon, on this subject, said, "Wouldn't a better fix for health care be a system similar to auto insurance? Could you give a specific--a simple scenario of how Geico would insure a large portion--population of people, perhaps having them pay a portion of the bill themselves so they will police the doctors? I'm a big believer in catastrophic care, but paying for your own maintenance." Does that sound like a feasible idea?

BUFFETT: Yeah, it probably does. But the truth is, I would get people that know a lot more about it than I do. And, I mean, it--if you get the fellow that's written on health care recently in the New Yorker, Gawande. I mean, he had--he had an article last summer that was absolutely magnificent.  My partner Charlie Munger sat down and wrote out a check for $20,000 to him and he's never met him, never had any correspondence with it, he just mailed it to the New Yorker and he said, `This article is so useful socially.' He says, `Just give this as a gift to the--to Dr. Gawande.' It compared medical costs in McAllen, Texas, to El Paso, and it just showed how, with no better results, that in McAllen they were, you know, they were spending close to twice as much per person. And you have these enormous variances around the country. And, you know, if you had some really smart people running it that knew a lot about medicine, they're going to--they could do a lot about it.

QUICK: All right, Warren, we've got a lot more questions that have come in from viewers as well, and we'll get to those in just a moment. First, though, why don't we get to Carl, who has a look at this morning's headlines.

(News headlines)

KERNEN: Comments, questions about anything you see here on SQUAWK, e-mail us at squawk@cnbc.com.  Still ahead on SQUAWK BOX, PepsiCo CEO Indra Nooyi--it's going to be a smackdown, yeah--joining Coke's largest shareholder, Warren Buffett.

QUINTANILLA: Isn't it true?

KERNEN: Yeah, to try to win him over. It's the true Pepsi challenge. The smartest names in business--not including me--are only on SQUAWK BOX. Stick around.

ANNOUNCER: Up next, the Oracle of Omaha answers your e-mail questions.  SQUAWK BOX, live from Omaha, continues after the break.

CLICK HERE FOR PART FOUR

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