This is part three of the transcript and video of Warren Buffett's 'Ask Warren' appearance on CNBC's Squawk Box on Monday, March 1, 2010.
ANNOUNCER: This is a special edition of SQUAWK BOX, your chance to ask Warren Buffett your investment questions. We're live from Buffett's stomping ground in Omaha, Piccolo's restaurant. Buffett's thoughts on the economy, the future of Berkshire Hathaway and answers to the questions you submitted are just ahead. The second hour of SQUAWK BOX begins right now.
QUICK: Welcome back to SQUAWK BOX on CNBC. Good morning again, everyone. I'm Becky Quick and I am in Omaha, Nebraska, this morning at Piccolo Pete's restaurant. This is Warren Buffett's favorite eatery. Joe and Carl, of course, are holding down the fort back at CNBC headquarters. They've been playing in on this whole interview as well. And for the next two hours we're going to be speaking to the man himself, Warren Buffett, Berkshire Hathaway's Chairman and CEO. We've gotten a lot of ground covered already. But, Warren, we'd like to change the focus a little bit.
QUICK: We've covered ground looking at the economy and where things are headed. We've talked a little bit about Coca-Cola. What we have not touched on yet is where the government stands right now. We--you mentioned briefly about the jobs report, but there are so many other bills that are moving through that have captured the people's attention, including the health care bill and...
BUFFETT: Yeah. Or not moving through.
QUICK: Or not moving through. Nancy Pelosi said at this point she does not think that there's going to be any bipartisan support. What do you think about the idea of taking this into reconciliation and cramming it through?
BUFFETT: Well, the health--the health situation, what we have now is untenable over time. I mean, it--call what we're doing now plan A, and plan A has taken us from 5 percent of GDP to 17 or close to 17 percent of GDP. And that kind of a cost compared to the rest of the world is really a--it's like a tapeworm eating, you know, at our economic body. Every--everything we produce for export, everything we compete with that comes imported in this country, everything is bearing that cost, and it's a cost that the rest of the world isn't bearing. And the--tops around the world, you find 10 percent of GDP. We have fewer doctors than many--we have two and a half--a little over two and a half doctors per thousand, much of the world has well over three doctors. We have 11 nurses per thousand, much of the world has far more nurses per thousand. We have three beds per thousand, hospital beds per thousand, much of the world has six or seven beds per thousand. We have higher infant mortality than most places, or many places. We have higher--we have shorter overall mortality. So we have a health system that, in terms of costs, is really out of control. And if you take this line and you project what has been happening into the future, we will get less and less competitive. So we need something else. Unfortunately, we came up with a bill that really doesn't attack the cost situation that much. And we have to have a fundamental change. We have to have something that will end the constant increase in medical costs as a percentage of GDP.
QUICK: Then are you in favor of scrapping this and going back to start over?
BUFFETT: I would be--if I were President Obama, I would just show this chart of what's been happening and say this is the tapeworm that's eating at American competitiveness. And I would say that one way or another, we're going to attack costs, costs, costs, just like they talk about jobs, jobs, jobs in the...(unintelligible). It's cost, cost, cost on this side. That's a tough job. I mean, we're spending maybe $2.3 trillion on health care in the United States, and every one of those dollars is going to somebody and they're going to yell if that dollar becomes 90 cents or 80 cents. So it take--but I would--I would try to get a unified effort, say this is a national emergency to do something about this. We need the Republicans, we need the Democrats. We're going to cut off all the kinds of things like the 800,000 special people in Florida or the Cornhusker kickback, as they called it, or the Louisiana Purchase, and we're going to--we're going to get rid of the nonsense. We're just going to focus on costs and we're not going to dream up 2,000 pages of other things. And I would say, as president, `I'm going to come back to you with something that's going to do something about this, because we have to do it.'
QUICK: Just focus on cost, or focus on cost while insuring more people? Those are two different problems.
BUFFETT: Well, yeah, universality, I--no, I believe in insuring more people. But I don't believe in insuring more people till you attack the cost aspect of this. And there is no reason for us to be spending 17 percent or thereabouts when all--many other developed countries are spending, we'll say, 9 or 10. They have more beds, they have more nurses, they have more doctors, they even have more consultations by far. We have about four consultations per person in the United States with doctor interaction per year. Other countries have far more than that. I mean, we spend a lot of money on equipment here. I mean, if you want to get the very best, I mean, if you want to spend a million dollars to prolong your life another three months, you know, in some coma or something, you can probably do it better here in the United States than any place else. But we need a fundamental reform. And, you know, I admire people for tackling it, because it's so tough politically. But I would--I would like to see them really get the job done.
KERNEN: But I--can I follow up, Beck?
QUICK: Wait a second. This is different than what you've said--hold on one sec, Joe.
KERNEN: All right.
QUICK: This is different than what you've said when we've talked to you in the past. I mean, even a couple months ago when I sat down and talked to you, you said that you would vote, I believe, for the bill if it were in front of you.
BUFFETT: I--if it's a choice...
QUICK: When did you change your mind?
BUFFETT: No, if it was a choice today between plan A, which is what we've got, or plan B, what is in front of--the Senate bill, I would vote for the Senate bill. But I would much rather see a plan C that really attacks costs. And I think that's what the American public want to see. I mean, the American public is not behind this bill. And we need the American public behind the bill, because it's going to have to do some tough things. But in--if it doesn't bring down costs significantly--and you can say, well, you're bringing down costs by raising a tax over here or cutting--improving Medicare, but you can do those things anyway. That's got nothing to do with what's being proposed in the bill. So I--if the only choice I had in the world was the present system or the present bill, I would take the bill. But I think it'd be far better to say cost is it. We're going to go back and we're not going to come back to the American people until we have something that is going to take this 16 or fraction and it's going to bring it down somewhat toward what other countries are doing. Because otherwise, you remember when the auto companies said, `We've got $1500 of health care built into a car'?
BUFFETT: You're not going to sell cars against other people if you've got $1500 of extra costs. But you're not going to sell airplanes from Boeing and you're not going to sell all kinds of things if you have this huge cost which only the United States is incurring. We are not going to be competitive worldwide.
KERNEN: Yeah. Well, that--I was going to look at the--sort of the corollary of what you were saying, Warren, and that is if you look at the way that costs are rising now with Medicare or with some of the other entitlements, if you meet--what would be the consequence of adding 30 million people before you address a system that's already broken?
BUFFETT: That's why you want--you want to address costs. I agree with you. But I do think--you know, I--and maybe the very fact that 30 million more would be coming might--it should force people to think we've got to bring down the cost per capita. I mean, it--but I think those people should be covered, Joe. I--but I...
KERNEN: I--we all do. But...
BUFFETT: I like--I like--I like a plan C better than plan A and plan B.
KERNEN: Well, you know, you're kind of dancing around it.
BUFFETT: And plan...
KERNEN: But you're saying start over and do it on a bar--bipartisan basis is what you just said.
BUFFETT: I would--I would call in the smartest people in the health care field. I mean, you know, people like the fellow out of Kaiser Permanente or Mayos or this fellow the...
KERNEN: Mayo, Cleveland Clinic, Safeway...
BUFFETT: Or Gawande, the doctor--yeah, yeah. Cosgrove at...
KERNEN: Whole Foods.
BUFFETT: ...Cleveland Clinic and...
KERNEN: There's a bunch of smart--there's a bunch of people that have some great private market--or free market ideas. And to do it...
BUFFETT: I'd lock them--I'd lock them in a room, Joe, and I'd tell them, you know, come out when you figure out how--some way to get this going in the other direction toward 13 or 14 percent. And it can be done. It can be done.
BUFFETT: But it won't be done, you know, if you're trying to write a 2400-page bill that satisfies everybody in the world and all private...
BUFFETT: ...all these private groups.
QUINTANILLA: Warren, to what degree...
QUINTANILLA: ...to what degree is lowering cost based on bringing more--bringing the uninsured into coverage? Isn't part of expanding coverage part of the mission of lowering costs overall? We're all paying for them anyway.
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?'
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.
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?
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.
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.
KERNEN: Comments, questions about anything you see here on SQUAWK, e-mail us at email@example.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.
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