[Senate Hearing 110-24]
[From the U.S. Government Publishing Office]
S. Hrg. 110-24
HEALTH CARE COVERAGE AND ACCESS: CHALLENGES AND OPPORTUNITIES
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE CHALLENGES AND OPPORTUNITIES RELATING TO HEALTH CARE FOR
ALL AMERICANS
__________
JANUARY 10, 2007
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
senate
U.S. GOVERNMENT PRINTING OFFICE
32-571 PDF WASHINGTON DC: 2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP,
Washington, DC 20402-0001
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico RICHARD BURR, North Carolina
PATTY MURRAY, Washington JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island LISA MURKOWSKI, Alaska
HILLARY RODHAM CLINTON, New York ORRIN G. HATCH, Utah
BARACK OBAMA, Illinois PAT ROBERTS, Kansas
BERNARD SANDERS (I), Vermont WAYNE ALLARD, Colorado
SHERROD BROWN, Ohio TOM COBURN, M.D., Oklahoma
J. Michael Myers, Staff Director and Chief Counsel
Katherine Brunett McGuire, Minority Staff Director
(ii)
C O N T E N T S
__________
STATEMENTS
WEDNESDAY, JANUARY 10, 2007
Page
Kennedy, Hon. Edward M., Chairman, Committee on Health,
Education, Labor, and Pensions, opening statement.............. 1
Prepared statement........................................... 3
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming,
opening statement.............................................. 1
McDonough, John, Executive Director, Health Care for All, Boston,
MA............................................................. 8
Stern, Andy, President, Service Employees International Union
(SEIU)......................................................... 9
Burton, Larry, Executive Vice President, The Business Roundtable,
Washington, DC................................................. 11
Combs, Pat Vredevoogd, National Association of Realtors, Owner,
Coldwell-Banker-AJS Realty, Grand Rapids, MI................... 13
Prepared statement........................................... 14
Meade, Peter, Executive Vice President, Blue Cross Blue Shield of
Massachusetts, Boston, MA...................................... 16
Prepared statement........................................... 17
Harbage, Peter, New America Foundation, Washington, DC........... 20
Antos, Joseph, Wilson H. Taylor Scholar in Health Care and
Retirement Policy at the American Enterprise Institute,
Washington, DC................................................. 22
Prepared statement........................................... 23
Goodman, John, President, National Center for Policy Analysis,
Dallas, TX..................................................... 28
Prepared statement........................................... 29
Davis, Karen, President, The Commonwealth Fund, New York, NY..... 48
Prepared statement........................................... 49
Ness, Debra, President, National Partnership for Women and
Families, Washington, DC....................................... 73
Prepared statement........................................... 75
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Clinton, Hon. Hillary Rodham, a U.S. Senator from the State
of New York, prepared statement............................ 93
Obama, Hon. Barack, a U.S. Senator from the State of
Illinois, prepared statement............................... 94
American College of Physicians (ACP)......................... 95
(iii)
HEALTH CARE COVERAGE AND ACCESS: CHALLENGES AND OPPORTUNITIES
----------
WEDNESDAY, JANUARY 10, 2007
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in
Room SD-430, Dirksen Senate Office Building, Hon. Edward M.
Kennedy, presiding.
Present: Senators Kennedy, Allard, Brown, Coburn, Enzi,
Hatch, Mikulski, Obama, Burr, Sanders, Roberts, Murkowski,
Isakson.
Opening Statement of Senator Enzi
Chairman Enzi. Would everyone please take their seats? And
you are at the meeting for the unofficial passing of the gavel.
Until conference has worked out everything and there's a
resolution approving the new Chairmen and Ranking Members,
technically I'm the Chairman, but Senator Kennedy will be
chairing, and I'll just pass the gavel to him.
Chairman Kennedy. There you go.
Chairman Enzi. And I appreciate his cooperation.
Opening Statement of Senator Kennedy
Chairman Kennedy. Oh, how we miss you as chairman.
[Laughter.]
Senator Enzi, let me thank you, first of all. At our
initial meeting here, I'd like to acknowledge the wonderful
chairmanship of Senator Enzi. He's my friend and colleague. And
over the period of the last 2 years, we had a remarkable
opportunity to find common ground in a wide range of different
issues--pension reform, many other different kinds of
questions. And we have valued each other's friendship, and have
our differences, but we've been able to work in a common
direction. And I want to thank him for his many courtesies.
I want to, just at the outset, recognize our newer members
that have joined the committee with us now.
And I'll, certainly, I think, thank Barack Obama, who's
joined our committee, and has had a long time interest in a
range of different issues. When he first was elected, I
remember talking with Barack Obama on so many different subject
matters, and he has had a lifetime of interest in young people,
in older people, in education and health issues, and we're
enormously thankful for his presence and his willingness to
join us.
I thank Sherrod Brown, who was very much on health issues
in the House, very knowledgeable. We had the chance to work
together, he in the House, and we, in the Senate, on a range of
different health issues. Our committee is enormously grateful
that he has been willing to join us. He has spoken about issues
on health and education over a lifetime of commitment. So, we
are going to benefit from his insights.
Bernie Sanders, from Vermont, has been a tireless advocate
of universal comprehensive health care, single-payer coverage,
as well as many other kinds of issues on health and education.
And we've enjoyed working together on many different items.
We're grateful for his presence, and we thank him for joining
with us.
Senator Murkowski, from Alaska, we met with earlier today.
I don't believe she's here right now. She was the first to show
up at our earlier meeting, and we're thankful for her interest
and her participation.
Senator Allard, who's from the State of Colorado, has had a
particular interest in the range of different areas of health
care, including public health. He was a veterinarian by
profession, a public health official. Our committee has a wide
area of jurisdiction and responsibility in these areas. He'll
be a great help to us.
Senator Coburn, as well, is a trained physician.
So, we thank all of our members, and we'll look forward to
getting on with the hearing.
Our committee gets information in a wide variety of
different ways, but one of the innovative ways that Senator
Enzi developed over his chairmanship was to try and have a
broad group of experts in a particular subject matter and to
try to have an extended conversation between these individuals
and the members of the committee. And this is such a hearing,
this morning. It's not the end, it's the beginning. We're
talking about health. We intend to do it on education next
week. And we intend to do it on what is happening to the middle
class, the working families of this country, the pressure
that's on them. How should we think about some of the
particular issues is obviously difficult because so many of
these matters are cross-referenced. But, nonetheless, we intend
to go in those directions while we are beginning to deal with
some of the particular responsibilities of reauthorization and
get to the business of No Child Left Behind, our education,
some of the other particular matters, stem cell research, and
minimum wage questions that are going to be on the floor. So,
we have found, under Senator Enzi's chairmanship, this type of
conversation to be very useful.
Rather than having the hearings on a particular approach,
we're going to try, this morning, to hear from those that have
represented consumers, the business community, those who have
represented the health professionals, and those that have
studied and been a part of the whole march to progress over a
long period of time. Karen Davis has testified as long as I've
been in the U.S. Senate. I'm always inspired or interested, as
someone who has followed health issues, really, over a very
long period of time, and many constructive suggestions for
Republican and Democratic administrations, alike, that, as we
move through these issues, we really try to develop some common
ground for our committee and for this Congress, to really deal
substantively with these issues. Obviously, we come to these
hearings with our own kinds of interests in these questions,
but I'd like for us to try and sort of open this up.
I'll just take 1 minute to remind us about what is
happening. That is, first of all, what we're spending on the
health care. If you look, 5 years ago, we were spending $1.3
trillion, now we're spending $2.2 trillion or $2.3 trillion on
the chart on the right. So, we have gone up in the amount we
are spending. From 2000 to 2007, we're spending almost a
trillion more dollars in health care. And yet, if you look at
the total number of people that are uninsured, you find those
numbers are going up. And if you ever took out the number of
children in the CHIP program, it would be going up even higher.
So, the indicators are all going the wrong direction. We're
spending much more, and the coverage is going down rather
dramatically. And we also find out, for working families, with
their incomes, that the costs have come up as well. So, the
indicators are all moving in directions that I think most of us
can understand are all in the wrong direction, and if they
continue along, given what the challenges are today, they're
going to be intensified. And the anxiety will continue to
increase. Every family in America today, at some time, is going
to think about health care either for their children or
themselves or about their parents. And we're not going to be
able to answer all of these issues or questions. But,
hopefully, as a result of this Congress, we can find, in this
committee, some pathways to try and deal with some of those
issues. And we'll hear from you this morning.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
It is an honor to welcome the members of our committee and
our distinguished witnesses to this initial session on the
fundamental issue of how to help the Nation's families afford
quality health care.
Following several productive roundtables convened by
Senator Enzi last Congress, we are using this format today so
we can allow for more discussion and to hear from a greater
array of perspectives. We request that participants make very
brief opening comments of no more than 3 minutes.
We have not required formal written statements, but
participants are welcome to submit them if they wish to do so.
The hearing record will be held open for 10 days. We will have
an open discussion, while making sure that any Senator who
wishes to speak will have ample opportunity to do so. In order
to keep the dialogue moving, we request that all participants
limit their responses to any question to 1 minute. If the need
arises, we may vary the format a little to fit the discussion.
I'm grateful to Senator Enzi for his help and the help of
his staff in putting this roundtable together. We look forward
to continuing the bipartisan partnership that he established as
Committee Chair. The Senate has not yet acted to make our
committee assignments ``official,'' but both Caucuses have made
their selections. Many are returning to the committee and we
welcome their continued commitment to health care. We are
delighted to be joined by several new Members--including
Senators Obama, Sanders, Brown, Coburn, Murkowski and Allard.
Today's session is the first inquiry into this issue in the
new Congress, but it will not be the last. In partnership with
Senator Enzi, and with all our colleagues, we'll do our best to
develop proposals on how best to see that the promise of this
new century of the life sciences reaches all Americans.
Members of the House and Senate have a guaranteed health
plan for ourselves and our families. It's time to provide the
same guarantee for every man, woman and child in the Nation.
The stakes couldn't be higher. Too many trends in health
care are going in the wrong direction. Insurance coverage is
down. Costs are up. And America is heading to the bottom of the
league of major Nations in important measures of the quality of
care.
Ask people what keeps them awake most at night and many
will tell you it's how to afford health care for their
families.
Ask companies what's high on their list of problems in
trying to compete in the global economy and they'll say it's
the cost of health care.
Even ask our military leaders how our troubled health care
system affects recruitment and therefore our national security.
They'll tell you that nearly 1 in 5 men and 2 out of 5 women of
recruiting age are ineligible for military service because
they're obese.
In family after family, community after community, business
after business, citizens see our health care system struggling.
They know that good, affordable care is less and less
available.
Nearly 47 million Americans lack even basic coverage, and
for tens of millions more, their coverage provides little help
if major illness strikes. They often learn that truth too late,
when bankruptcy results from massive bills their insurance
doesn't cover. Parents struggling to save a critically ill
child find themselves mortgaging their homes, maxing out their
credit cards, borrowing every dime they can. Even with health
insurance, they still stand to lose everything they've worked
for.
Costs are obviously heading in the wrong direction.
National health spending has grown from $1.35 trillion in 2000
to an estimated $2.3 trillion this year--a trillion dollars
more in less than a decade. Those aren't just numbers, they're
massive burdens for working families.
Health costs are threatening the livelihoods of millions of
families because insurance premiums are rising four and half
times faster than wages. Parents have to work longer hours and
spend less time with their children, trying to keep pace with
these rising costs.
Something is fundamentally wrong when our health system
puts more stress on working families, not less. We need to find
a solution in this Congress, so that every American has
guaranteed access to quality care by the end of the decade.
Many of us have views on how best to address the crisis. I
believe the right way is to extend the guarantee of Medicare to
all Americans. Senator Enzi and others have advanced proposals
to aid small businesses with the high cost of health care.
Others on our committee have good ideas as well.
We should discuss all these ideas and we should pay close
attention to the innovative solutions being tried in States
across the country.
Last year, in Massachusetts, something remarkable happened.
Patients and health professionals, business leaders and
community advocates, members of the Democratic State
legislature and Republican Governor Romney all rolled up their
sleeves and worked together to enact a State health plan that
put aside ideology and partisan divisions for the greater
common good--affordable, accessible health care coverage for
all the citizens of our Commonwealth.
It was fitting that the agreement reached was signed in
Faneuil Hall, one of the great birthplaces of the American
Revolution. In health reform, the Massachusetts plan is the
shot heard 'round the country.
The same spirit of cooperation that led to our success at
Faneuil Hall exists in Vermont, Illinois, Connecticut,
California, and many other States across the Nation where all
parts of the community are beginning to come together to find
solutions to the crisis. Yesterday Governor Schwarzenegger set
the admirable goal of universal coverage for the citizens of
California.
We must learn that lesson here in Washington. The need for
action has never been more urgent, and the consequences of
failure have never been more dire. I look forward to working
with the committee and with our witnesses here today to achieve
the success that's become so long overdue.
Chairman Kennedy. Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
And I, too, want to welcome the new members to the
committee. I want to thank the old members of the committee for
the tremendous cooperation and production that happened over
the last 2 years. And I want to thank Senator Kennedy for his
cooperation. And this roundtable is a demonstration of the
continuation of what we've been doing. We want to find out as
much information as possible before we make huge decisions. And
one of the best ways to do that is to get a group of experts
together, hear their opinions, and then have a little discourse
between them. And so, I really appreciate you, first of all,
getting busy so quickly, and also for using the roundtable
format so that we can get that 30,000-foot perspective on the
question that we're trying to deal with, which is how we can
bring down health care costs. And there are going to be some
more increased costs.
I know, from chairing the committee, that right now there
are 654 cancer drugs that are in clinical trials, which offers
a lot of hope for the future. Now, probably only a third of
those will make it through clinical trials, and each of those
drugs costs about a billion dollars to develop. So, two-thirds
of that money is going to just go down the drain, and it will
have to be picked up in some of the other drugs that do make it
through the process. So, the drugs are going to be more
expensive, but they'll get more results. And what we want are
people to have longer, higher quality, pain-free lives. And
we've got to find a mechanism for that to happen.
And, as Dr. Coburn will remind us, prevention is a good
part of that. We've had some good discussions on that.
And I'm pleased to have him as the Senate's doctor, on the
committee, as well as that, we also have one of the two
Senate's veterans, and also someone who has served as a public
health officer. All of them will lend a perspective here that
will be very helpful.
I've worked to try and find some short-term solutions, and
one of those has been to have market-based small business
pooling across State lines. I'm from a very rural State. We
don't have a big pool, to begin with. But if we can work across
State lines, we thought that businesses would be able to get
enough clout to be able to negotiate effectively with the big
insurance companies and bring the prices down. And also,
through such pooling, a big part of the savings is in
administrative costs. There's the possibility of bringing the
administrative cost down from 35 percent to about 12 percent,
which is a huge savings on health care. And every dollar that
we save in health care brings more people into the market--or
at least keeps more from leaving the market. Small business is
having a tremendous problem of figuring out how to do what they
want to do, which is to provide good health coverage for all of
their employees.
And so, hopefully, out of these discussions today at the
30,000-foot level, we can also get down to some specific areas
that we can agree on. There isn't just a Republican way and a
Democrat way. What we've got to do is find that third way to
come up with a solution that will help the most people in this
country, and hopefully, all people in this country.
Being from Wyoming, I do bring a rural approach to this,
but one thing I've noticed is that every State has rural parts.
In fact, even the District of Columbia thinks that there's some
rural area here. I haven't found it yet, unless it's Rock Creek
Park, but I'm willing to have everyone's cooperation to find
the rural solutions, as well as the urban solutions. And people
all live at the local level, so that's where we've got to find
the solutions.
So, again, Mr. Chairman, I thank you for holding this
roundtable today.
Chairman Kennedy. Thank you very much.
What I'll do is just introduce four witnesses at a time.
Our first witness is John McDonough, who's been the Executive
Director of Health Care For All, and a former Massachusetts
legislator. He has also been an outstanding spokesman for
consumer interest in the health care system. Then we'll hear
Andy Stern, President of the SEIU, who has worked hard to
improve health care for employees and also to try to find some
bipartisan way to work with business and other groups to try
and serve workers. Larry Burton, who is the Executive Director
of the Business Roundtable, can speak about the importance of
business and health care. And Pat Combs, recently the broker-
owner of AJS Realty, in Grand Rapids, is President of the
National Association of Realtors this year. I think you
understand what we're driving at. We want to hear from each of
you, for 3 or 4 minutes. If you would talk about your
perspectives, I think it would be helpful.
John.
STATEMENT OF JOHN McDONOUGH, EXECUTIVE DIRECTOR OF HEALTH CARE
FOR ALL, BOSTON, MA
Mr. McDonough. Thank you, Mr. Chairman.
My name is John McDonough. I'm Executive Director of Health
Care For All. We're a consumer health advocacy organization in
Massachusetts. And I want to thank both you, Senator Kennedy,
and Senator Enzi, for your leadership to improve health and
health care for all Americans. And thank you for the
opportunity to speak here today.
I'm here as a voice for consumers. Our special interest is
quality, affordable health care for all Americans. I'm also
from Massachusetts. And, as you know, we've been pretty busy in
Massachusetts over the past several years on the issue of
expanding affordable health care.
As a result of the health reform law that was signed in
Massachusetts last April 12th by Governor Romney, already today
more than 80,000 Massachusetts residents who were uninsured
last April now have quality, affordable health care. And by the
end of February, we estimate the number will be over 100,000,
and growing. So, we are on a path where we hope we will make a
dramatic difference in the lives of hundreds of thousands of
Massachusetts residents who go uncovered. And I have to note
the important and vital contributions of Senator Kennedy in
making that law happen. It would not have happened without your
leadership.
So, we're neck deep in the implementation, now, of a bold
and really unprecedented plan to attempt to cover all
Massachusetts residents with affordable, quality coverage
within a 3-year period. And many of the details of that law and
that blueprint are really not transferrable. Some of them are,
and many are not. But the political equation which made this
law possible, we think, is something that everyone should heed
and pay attention to.
The cornerstone of the new law, the bipartisan law that
passed last April, is shared responsibility. And by ``shared
responsibility,'' what we mean is that solving the problem of
the uninsured and the health care crisis in America requires a
willingness to take on new roles and new responsibilities on
the part of government, individuals, and employers. All three
have to be willing to step forward and accept new
responsibility. It takes all three. Two just won't do.
We are now, we believe, significantly, because of what
happened in Massachusetts, in the beginning stage of a new and
dynamic and hopeful period of experimentation by as many as two
dozen States. And many of those States are represented around
the table with the members of this committee. And we believe
that there are significant opportunities, because people's
ambitions have risen. People who assumed that this crisis was
insoluble, that there were no new ideas, that there were no new
ways to approach this, have now taken a fresh look, and we see,
almost daily in the newspapers, examples from State after State
who are taking a leadership role.
We think it's important that folks here in the Federal
Government, much as Senator Kennedy did in Massachusetts,
encourage, nurture, and support this trend of experimentation
to test new ideas, to try out new approaches, to start a
different kind of conversation in States that can then inform
the Congress on approaches that may, in fact, be transferrable
on a national level. So, this period of experimentation is a
way for the members of this committee, the Members of Congress,
and the whole Federal Government to have a great testing space
to see what new ideas actually will crash and burn, and which
ones will actually then take hold, take root, and actually then
lead to new approaches to expand coverage. We are part of that.
Vermont is part of that. There are a host of States right now
that are vigorously engaged in this.
And so, in the meantime, I guess I would have just a couple
of requests for Congress to think about, just very briefly.
First one is for us. The key challenge, the key
contribution that Congress can make this year involves SCHIP
and the State Children's Health Insurance Program. We hope that
you can reauthorize it and expand it to the maximum extent
possible. We'd invite you to think of SCHIP as a 10-year
experiment which has proved its concept. It is now covering
about 5 million lower-income children who would otherwise have
no coverage, and yet we still have 9 million uninsured kids in
the United States in need of coverage. And we would link, as
you think SCHIP reauthorization, to the experimentation going
on in the States right now, because, to the extent that you're
able to effectively expand SCHIP and kids' coverage, you take
kids out of the equation, and you make it significantly easier,
then, for States to address the issue of the uninsured working
adults, who are the largest and fastest growing part of the
uninsured population. So, a major significant contribution that
everyone around the country is looking at, in terms of what we
hope Congress can do this year, deals with SCHIP.
Just mention two other things very briefly. One is that we
hope that you will resist the temptation to pass laws at the
Federal level which will restrict the ability of States to
manage our own private insurance markets in ways that work to
the advantage of the kinds of experimentations we're doing.
There were measures considered by Congress in this last session
which, if passed, would have significantly impeded our ability
to enact the health reform law that we did, this past April.
The last thing I would just suggest is, as you look at the
ways that you can be helpful or not, that you are mindful of
the Federal ERISA law, because the Federal ERISA significantly
impedes the ability of States to engage employers who do not
provide coverage to their workers in this dialogue, this
conversation, this process of shared responsibility. It's a
significant cloud, a significant impediment, and that, in
particular, is one of the significant obstacles States face as
we look at trying to spread this important concept of shared
responsibility.
Thank you.
Chairman Kennedy. Thank you very much.
Andy.
STATEMENT OF ANDY STERN, PRESIDENT, SERVICE EMPLOYEES
INTERNATIONAL UNION (SEIU)
Mr. Stern. Thank you, Mr. Chairman. And good morning to
everyone.
I'm here today on behalf of the 1.9 million members of our
union, the largest union of health care workers in this
country, and, more importantly, on behalf of all the
hardworking people who showed up at work today.
Health care's been the most talked about, the most worried
about, the most studied, and the least acted-on issue, I think,
facing our country. As a result, America today doesn't have a
health care problem, we have a health care crisis, as your
chart showed. And obviously, it's getting worse. And the
solution is no longer really a matter of policy, it's a matter
of politics. And, as someone said earlier, we not only need an
urban solution and a rural solution, or a Democrat and a
Republican solution, or a labor and business solution, we need
an American solution, and we need it right now.
Many other people here remember the politics of 1994. We
tried to fix the health care system. We got pretty close. So,
as we begin to seek big solutions again, there's going,
inevitably, to be comparisons to 1994, especially by the timid
and the naysayers. But the reality, though, this is a very,
very different moment in America.
In 1994, there was a ripple of possibilities, led a lot by
a new committed President. But today there's actually a tidal
wave of demand throughout the entire country.
Second, today polls indicate that 89 percent of all
Americans are looking for fundamental, not incremental, change
anymore, very different than it was 12 years ago.
Sadly, what's different today than 1994 is that--a result
of all of this inaction--we're just a lot worse off for average
working Americans. We've all recognized today there are more
people uninsured, but we also need to realize what we learned
from a recent SEIU and Center for American Progress study, that
less than one-quarter--less than one in four--middle-class
families can now cope financially with a typical medical
emergency. More women went bankrupt last year than graduated
college, mostly due to uninsured health care claims. And what's
also different is not just the uninsured in trouble, it's the
insured, as well, as high copays and deductibles begin to take
hold and ripple through the system.
But, finally, and, I think, most profoundly for the
committee, this is not our father and grandfather's economy
anymore, this is no longer a national economy; it's an
international economy. Today, more people went to work in
retail than manufacturing in America. Last year, the world
produced more transistors than grains of rice, and the
transistor actually cost less. Wal-Mart, not GM, is the biggest
corporation in the world, and it has a larger GDP--larger sales
than the GDP of Venezuela, Singapore, and Ireland. And in 1994,
a ``blackberry'' was nothing more than a piece of fruit.
So, these global economic changes are literally
revolutionary, and they have enormous impact on America's
competitiveness. By 2008, according to McKinsey & Company, the
average Fortune 500 company will spend as much on health care
as they make in profit. And that's just crazy. Americans cannot
compete, and America cannot compete, in a global economy if
we're the only Nation on Earth that puts the price of health
care on the cost of the products, when our competitors don't.
We are in a race against time, because our health care system
is now morphing from comprehensive to catastrophic. Ever-
increasing costs are leading more and more business to shed
care. And I think it's time we declare that the employer-based
system--health care system is dead in America. It is a relic of
the industrial economy. It is a relic of a national economy.
And America will not compete in a global economy with an
employer-based system.
Now, that's, sort of, the discouraging part of what's
different. Here's the encouraging part. The winds of change in
America are blowing again, many coming from unlikely
directions. I think, and I hope we'll hear from the business
community, that people are beginning to appreciate that we need
to do something rather dramatic. Last year, I wrote an
editorial in the Wall Street Journal, sent a letter to all
Fortune 500 CEOs about ending the employer-based health care
system, and, much to my surprise, I got lots of positive
responses.
The insurance industry that we all remember in 1994,
through its ``Harry and Louise'' ad, helped defeat universal
health care, now has its own universal health care plan that
they put out several months ago, a far different situation than
1994. And around this table are all the States that are finding
new ways, common ground, to find solution, whether it's Maine's
plan in 2003, whether it's Illinois covering all children and
now talking about expansion, or Vermont, and obviously,
Massachusetts. And, just Monday, obviously, in the largest
State in our Nation, Governor Schwarzenegger produced a
universal health care plan, which is a huge step forward in
courage, and an opportunity for big change. We saw dozens of
congressional candidates run in 2006, leaders like Senator
Wyden and Congressman Conyers, and presidential candidates are
all now announcing with universal health care plans. I think
we'll see another two dozen States, as John said, come out with
some substantial increase in health care.
And, finally and most importantly, Americans want something
to happen, and they need it to happen now. Virtually none of
this was the case in 1994. Then, the forces who were defending
the system are now talking about changing the system. And I
think we have a unique opportunity.
We need leadership now from the Congress to bring health
care to every man, woman, and child in America. It is a moment,
a new moment, and I hope we have the courage and the wisdom to
seize it.
Thank you.
Chairman Kennedy. Mr. Burton.
STATEMENT OF LARRY BURTON, EXECUTIVE VICE PRESIDENT, THE
BUSINESS ROUNDTABLE, WASHINGTON, DC
Mr. Burton. Mr. Chairman, Senator Enzi, members of the
committee, I'm here representing The Business Roundtable, which
is an association of Chief Executive Officers of America's
leading corporations. All together, the revenue from the
corporations is about $4.5 trillion and covers 10 million
employees and 35 million retirees and dependents.
We appreciated working with you last year in a bipartisan
way to pass the Health Information Technology legislation that
got through the Senate, and we look forward to working with you
this year. It's a very important piece of legislation.
Today, however, my message is much broader and stronger. We
believe Congress must act urgently on comprehensive reforms so
that all Americans can have access to affordable health care.
The issues of the uninsured must be tackled. Health care costs
must be reduced for all Americans, for our economies, and for
our companies.
And for Business Roundtable CEOs, health care costs are the
No. 1 cost pressure facing them. It affects job creation, it
affects competing in global markets, it affects American
household economies, and it forces many Americans,
unfortunately, to go without health care coverage at all.
So, the CEOs of The Business Roundtable want to join with
traditional and nontraditional partners in what we call a
``call to action.'' We encourage congressional leaders to enact
legislation to reduce cost by bringing 21st-century technology
to our health care system in legislation that are going to
provide Americans with actionable information about cost and
quality in the health care services that they need.
Now, your request to us was for some specific
recommendations, and I'd like to go there.
First, SCHIP should be reauthorized. It provides low-income
children with access to health care coverage.
Second, Congress and State leaders should act on
legislation that removes statutory and regulatory barriers to
increase health insurance options for Americans who currently
don't have coverage.
Third, Senator Coburn, wellness is a very important piece
of this equation, and should be emphasized. Whether it's
through incentives or public/private programs, every American
should understand the importance of diet, exercise,
immunizations, and other disease-prevention activities and
health promotion programs.
Fourth, we believe consumer-centric health plans are an
important option for health care coverage.
Fifth, the Government should release information on the
comparative effectiveness of health care treatments, because
consumers have a right to know what treatments work and what
treatments don't work.
Sixth, every individual in America should have access to
information on cost and quality. We've talked about that for
the last couple of years. I believe Senator Gregg has a bill in
that we support.
Seventh, Congress should permit reimbursement of providers
by the Federal Government to be based on quality performance
and the use of health information technology by these
providers.
Eighth, we believe that all Americans should have access to
uniform, secure, interoperable, health care systems, and
provide administrative and confidential medical information.
And ninth--and you've heard this before, but I need to say
it--we believe that the medical liability laws should be
reformed.
So, we believe these are attainable goals. We believe that,
getting together with traditional and nontraditional partners,
we can move forward to get our health care system working
better for all Americans, including those who are uninsured.
Now, many of the efforts that I've talked about are aimed
at making the system efficient and providing effective
situations so that we can lower cost and provide better health
care. We want to work on these with you. We hope that we can
move forward now.
So, I look forward to the discussion today, and thank you
for the opportunity to be here.
Chairman Kennedy. Pat Combs.
STATEMENT OF PAT VREDEVOOGD COMBS, NATIONAL ASSOCIATION OF
REALTORS, OWNER, COLDWELL-BANKER-AJS REALTY, GRAND RAPIDS,
MICHIGAN
Ms. Combs. Chairman Kennedy, Ranking Member Enzi, and
members of the committee----
Chairman Kennedy. For the benefit of the members, we had,
sort of, hoped that we'd get through, you know, this in 45
minutes or so, so we could get conversation. I know some of our
colleagues are going to have to move along. So, if they have a
particular kind of question, they're not--we'll certainly
entertain it, but that it would be generally hoped--I think
we're making good progress, and this has been enormously
constructive, but if there are--any of our members feel that
they have to excuse themselves because of conflicts, we'll
certainly invite their questions to any of those that have
spoken or to those other members of the panel.
Thank you.
Ms. Combs. Thank you.
My name is Pat Vredevoogd Combs. I am vice president of AJS
Realty in Grand Rapids, Michigan, but I'm also President of the
National Association of Realtors, representing 1.3 million
members across this Nation.
I thank you for holding this session, and I appreciate the
opportunity to discuss the challenges the small business
community faces when looking for affordable health insurance.
I have been a real estate professional for more than 30
years. I know how hard it is to find health insurance when you
have no employer-provided coverage. I also know how hard it is
to provide affordable health coverage for my employees. My
company, which I sold in August, had 35 real estate agents
affiliated with the firm, and four salaried employees. With
just four employees, finding health coverage was a challenge
and very expensive. We did it, but we were the exception. Most
realty firms are not able to find affordable health insurance
for their employees. A salaried colleague, Lois, recently
looked into purchasing her own health care, and the lowest cost
plan she found for both she and her husband were $15,000 per
year. Sadly, Lois's experience is not uncommon. Many colleagues
face the same challenge. Their experience provides a good
example of the challenges encountered by small businesses.
You see, real estate agents are not employees of the
offices with which they're affiliated. They are independent
entities and their own bosses. They are the smallest of small
businesses. Real estate firms are also small employers,
typically with fewer than five employees. And like other small
businesses, they struggle to provide affordable health
insurance to their employees. As a result, most real estate
agents and employees, like Lois, must find coverage in the
individual insurance market, where there is no negotiating and
no leverage. You basically take or leave whatever coverage is
offered at whatever price is offered. Consequently, today more
than 28 percent of the Nation's 1.3 million realtors have no
health insurance. If we add family members to that tally, the
number of uninsured individuals in households associated with a
realtor organization totals 886,000.
Obviously, realtors are not alone in this struggle to
obtain affordable health care. More than 46 million Americans
find health insurance out of reach; 27 million of these
individuals work in small businesses. Without changes, the
number of uninsured can only grow, since small firms, and
especially self-employed individuals, are predicted to make up
an increasing portion of America's workplace.
In 2000, 30 percent of the American workforce was comprised
of nontraditional self-employed workers like realtors. By 2010,
some predict that figure will be 41 percent.
Let me close by reiterating, the current insurance delivery
system does not meet small firms' needs. Bring all of the
stakeholders to the table, let us work to find an acceptable
solution. The small business community is ready to do all we
can to contribute to such an effort.
Again, thank you for inviting me, and I'm happy to take any
questions.
[The prepared statement of Ms. Combs follows:]
Prepared Statement of Pat Vredevoogd Combs
Chairman Kennedy, Ranking Member Enzi, and members of the
committee, thank you for holding this roundtable and giving me the
opportunity to talk with you about the challenges that face the
Nation's small business community as they search for accessible and
affordable health insurance coverage.
My name is Pat Vredevoogd Combs. Until recently, I was the broker/
owner of AJS Realty in Grand Rapids, Michigan. My company had 35
independent contractor sales associates affiliated with the firm as
well as 4 salaried employees. I also have the honor of serving as the
2007 President of the National Association of REALTORS.
As a practicing real estate professional for more than 30 years, I
know very well how hard it is to find and keep health insurance when
you have no employer-
provided coverage. I also know how hard it is to find affordable health
coverage for your employees when you're the boss.
Having had both responsibilities, I can also tell you that while
governors, State insurance commissioners, and insurance industry
executives may talk about how well their State regulations or insurance
products serve the public's needs, those of us in small businesses who
are ``on the ground'' looking for health insurance don't see the health
insurance market in quite the same light. I sometimes wonder if these
officials and company executives were forced to shop for their own
insurance policy or a small group policy for their staff, would they
still feel the same?
My experience is shared not only by my real estate colleagues but
by the rapidly growing number of small businesses and self-employed
Americans who are part of every sector of our economy.
The real estate sales professionals' search for health coverage is
a perfect example of the challenges that the self-employed and small
business face today. Real estate agents are not employees of the realty
office with which they are affiliated. They are independent
contractors, a separate legal business entity--the smallest of small
firms. Real estate firms, the offices with which these independent
agents are affiliated, typically has fewer than five salaried
employees--a receptionist, office assistant, or, perhaps, a transaction
coordinator.
Today, in most States, real estate agents, other independent
contractors and even small firms are forced to look for insurance in
the individual insurance market--a market where you basically take or
leave whatever coverage is offered. There is no negotiating. There is
no leverage. In many cases, a small firm may also find the terms of
insurance coverage in the small group market no more favorable than
those offered in the individual market.
As the result of this industry structure and the current state of
health insurance regulations and industry practices, today 28 percent
of the Nation's 1.3 million
REALTORS do not have any health insurance. In a 7-year period, this
uninsured percentage doubled--going from a level of 13 percent in 1996
to 28 percent in 2004. That's over 336,000 uninsured working REALTORS.
If we add the number of associated, and likely uninsured, REALTOR
family members to that total, the total number of uninsured individuals
affiliated with the REALTOR organization is 886,000.
In the case of real estate firms, few firms offer health insurance
coverage to salaried employees. In 2004, only 13 percent of firms
offered coverage to salaried workers. In 1996, the percentage was 34
percent.
It's interesting to note that the percentage of uninsured REALTORS
is almost double that of the Nation as a whole. In 2004, for example,
the percent of the U.S. population without health insurance coverage
was estimated to be 15.7 percent.\1\
---------------------------------------------------------------------------
\1\ Carmen DeNavas-Walt, Bernadette D. Proctor, and Cheryl Hill
Lee, U.S. Census Bureau, Current Population Reports, P60-229, Income,
Poverty, and Health Insurance Coverage in the United States: 2004, U.S.
Government Printing Office, Washington, DC, 2005.
---------------------------------------------------------------------------
Finding a solution to the problem of the uninsured needs to be a
top priority for this Nation. It is a problem that affects over 46
million Americans today. Half of these individuals are the owners and
employees of small firms or the self-employed.\2\ These same small
operations have been widely recognized as the largest creators of new
American jobs. We believe that without change, problems with the
availability and affordability of small business health coverage will
increasingly threaten what has been the main source of job growth in
this Nation.
---------------------------------------------------------------------------
\2\ Employees Benefit Research Institute, ``The Working Uninsured:
Who They Are, How They Have Changed, and The Consequences of Being
Uninsured,'' EBRI Issue Brief No. 224 (August 31, 2000).
---------------------------------------------------------------------------
At the same time, as corporations have downsized and the economy
has evolved, the share of the U.S. workforce that is self-employed,
individual proprietors has grown. The Ford Foundation estimated in 1999
that the number of freelance, independent contractors and temporary
workers totaled 37 million individuals.\3\ More recently, the General
Accounting Office (GAO) estimated that 30 percent of the American
workforce in 2000 was comprised of these ``non-traditional''
workers.\4\ By way of comparison, the GAO estimated that manufacturing
employment totaled 18 million workers while an additional 20 million
worked for some government entity in this same year.
---------------------------------------------------------------------------
\3\ Elena Cabrel, ``Building Safety Nets for the New Workforce,''
Ford Foundation Report (Spring/Summer 1999).
\4\ General Accounting Office, ``Contingent Workers: Incomes and
Benefits Tend to Lag Behind Those in the Rest of the Workforce,''
report no. HEHS-00-76 (June 30, 2000).
---------------------------------------------------------------------------
Some have estimated that by 2010, 41 percent of the U.S. workforce
will be what David Pink has labeled ``free agent'' workers.\5\ In this
new world, a health coverage system of employer-provided health
insurance will be even less successful at providing American workers
with access to affordable care than it is currently.
---------------------------------------------------------------------------
\5\ David H. Pink, Free Agent Nation, (New York: Warner Books,
2001).
---------------------------------------------------------------------------
It is for this reason that I urge you to include representatives of
the small business community in any discussions or efforts to address
the solutions to the health care coverage crisis. These discussions
must include those familiar with each of the key constituencies that
will be impacted by any recommended changes.
I would like to close and let you know that finding a solution to
the health insurance access problem is a priority issue for the small
business community and the National Association of REALTORS. As the
2007 president of NAR, I can pledge to you that NAR stands ready to do
whatever we can to assist you in your efforts to address this very
important and growing problem.
Thank you for giving me the opportunity to share my thoughts. I am
happy to take any questions.
Chairman Kennedy. Thank you very much.
I'll introduce the next three witneses. One is Peter Meade,
who's an old friend. He's the Executive Vice President of Blue
Cross Blue Shield of Massachusetts, and was essential in
getting our health care reform passed in Massachusetts. And
through his leadership, Blue Cross has donated $50 million to
start experimental health IT programs in Massachusetts.
Peter Harbage is the senior program associate at the New
America Foundation. He's a key consultant to Governor
Schwarzenegger on the recent plan for health care for all
Californians.
Joseph Antos, the Wilson Taylor Scholar in Health Care and
Retirement Policy at the American Enterprise Institute, is a
nationally recognized economist and will speak of market
initiatives to improve health care.
Peter.
STATEMENT OF PETER MEADE, EXECUTIVE VICE PRESIDENT, BLUE CROSS
BLUE SHIELD OF MASSACHUSETTS, BOSTON, MASSACHUSETTS
Mr. Meade. Chairman Kennedy, Senator Enzi, members of the
committee, in 1932 Justice Louis Brandeis wrote,
``There must be power in States and the Nation to remold
through experimentation. Our practices and institutions must be
able to meet changing social and economic needs. It's one of
the happy incidents of the Federal system that a single
courageous State may, if its citizens choose, serve as a
laboratory and try novel social and economic experiments
without risk to the rest of the country.''
I'm not sitting here before you today to say Massachusetts
found ``the answer'' to health care. We believe we did not
discover the Rosetta Stone. We believe we have found an answer
that may, in fact, work for us. To understand why Massachusetts
seized this opportunity, it's important to note some things. We
had fewer uninsured than any other State. The employer coverage
in Massachusetts was already high, over 65 percent, as compared
to the rest of the Nation, at 56 percent. Even our dental,
there's a penetration of 71 percent of dental in Massachusetts,
versus 50 percent in the Nation. We were spending more, or, if
I could be more precise, misspending a billion dollars in our
uncompensated care pool that, if managed correctly, we thought
we could do more. We operate in what some may consider a highly
regulated market with requirements such as guaranteed issue and
community rating. There is also the looming threat of losing
over 385 million Federal dollars if our Medicaid waiver was not
renewed. These factors, along with a strong community and
political input, leaders who are willing to work across the
aisle, really did make a difference.
And I would be remiss if I didn't mention the role that was
played by the Chair of this committee. The law simply would not
have been enacted in Massachusetts if it was not for the
leadership of Senator Kennedy.
The law expands Medicaid eligibility. It offers subsidies
to help low-income people, those earning up to three times the
Federal poverty level. They will have assistance in purchasing
health assurance. The law put forth reform for the nongroup and
small-group market. Our actuaries estimate that the individual
market price will go down next year by 20 percent, the small-
group market will go up by 1\1/2\ to 3 percent, a significant
savings for the majority of people in that combined market.
There is a Healthcare Disparities Council that will piggyback
on the work done by the city of Boston on health care
disparities in our communities.
We believe that this law does make a difference, and can
make a difference, in Massachusetts. The law requires employers
with 11 or more full-time employees to offer health care
coverage. If they do not, they are subject to a $295-per-
employee-per-year assessment and may be billed for services
their uninsured employees receive. As John McDonough indicated,
to date, tens of thousands have already signed up for
commonwealth care, and groups estimated that, by the end of
February, there will be 100,000 people receiving health
insurance in Massachusetts who did not receive it last year.
Now, while there's no single answer to solving the Nation's
uninsured crisis, there are several things the Federal
Government can do to help families afford quality health care
and reduce health care costs.
First, use the Federal Government's influence as one of the
Nation's largest payers and providers of health insurance to
improve the quality of care that patients receive. By doing so,
we can save lives, as well as money. As a company, Blue Cross
of Massachusetts already spends several hundred million dollars
providing incentives, rewarding all those wonderful physicians
and hospitals that are working so hard to improve the quality
of care. We expect what we call our ``quality investment'' will
significantly increase and help reduce the misuse, overuse, and
underuse of health care. And we hope that the Federal
Government will continue in its efforts in this direction.
We believe that health information technology is also an
essential component of closing the gap between quality of care
that patients do receive and what they should receive. We, as a
company, Blue Cross Blue Shield of Massachusetts, have
committed $50 million for experimentation in Massachusetts to
move the ball forward. Three communities in Massachusetts are
already beginning processes of using eHealth as a way to
improve health care. We believe it will be more efficient and
it will improve the quality of health care we deliver.
We also believe that fully funding SCHIP, while protecting
and exploring successful expansion of Medicaid, is important.
Medicaid and SCHIP have been enormously successful in providing
high-quality accessible health care for the most vulnerable
amongst our Nation's vulnerable people, all of our children. We
also think you should consider the help you can give to States
as they implement their own health care reform.
Finally, do no harm. In our estimation, this means not
advancing legislation that would undermine the efforts of
States, like Massachusetts, California, Vermont, that are
trying to decrease costs, increase quality, and improve access
to health care.
Thank you very much.
[The prepared statement of Mr. Meade follows:]
Prepared Statement of Peter Meade
Mr. Chairman, Senator Enzi and members of the committee, I am
pleased to be here today on behalf of Blue Cross Blue Shield of
Massachusetts to discuss the challenges and opportunities to expand
coverage to quality health care for all Americans. I am Peter Meade,
Executive Vice President at Blue Cross Blue Shield of Massachusetts.
You have asked two very important questions:
1. What are major challenges facing health care today and best
options for expanding coverage to all Americans?
2. How can Congress help families afford quality health care and
reduce health care costs without diminishing the quality of care
provided to patients?
I hope that I can give you some insights as to how Massachusetts
approached the first question and also some thoughts on what Congress
can do to deal with the very important issue posed by the second.
background
In a 1932 opinion, U.S. Supreme Court Justice Louis Brandeis wrote,
``There must be power in the States and the Nation to remold,
through experimentation, our practices and institutions to meet
changing social and economic needs. It is one of the happy
incidents of the Federal system that a single courageous State
may, if its citizens choose, serve as a laboratory and try
novel social and economic experiments without risk to the rest
of the country.''
I am not standing before you today to say that Massachusetts came
up with THE answer to solving the uninsured crisis; instead we came up
with AN answer that we hope will succeed for Massachusetts.
Blue Cross Blue Shield of Massachusetts is a not-for-profit
organization that was founded 70 years ago by a group of community-
minded business leaders. Our history and our future is one of
collaboration with the community to improve the health and quality of
care that our members, and citizens of the Commonwealth, receive. As a
not-for-profit, we believe that our dividends are to the community.
Eighty-eight percent of the premiums we receive are returned through
member benefits. Our administrative costs of just over 10 percent
essentially allow us to break even in terms of operating margin, which
we have been able to do in recent years.
In addition to our corporate philanthropy, we have directed our
``community dividends'' to important initiatives that expand access to
quality health care. The most notable among these is our Foundation. In
2001, we established the Blue Cross Blue Shield of Massachusetts
Foundation as a contemporary expression of our historic commitment to
those in need. The Foundation's mission is to expand access to health
care. We provided an initial endowment of $55 million and have
continued to contribute to the Foundation, growing its endowment to
more than $90 million today. By the end of this year, the Foundation's
endowment is expected to top $100 million.
Likewise, our $50 million commitment to the Massachusetts eHealth
Collaborative (MAeHC), an initiative to establish a statewide
electronic health records system to enhance the quality, efficiency and
safety of care in Massachusetts, will make patient information, for
those communities selected to pilot the program, available to a
physician at the click of a mouse. Our $3 million commitment to
Massachusetts Hospitals and the Institute for Healthcare Improvement
(IHI), for programs focusing on issues such as clinical outcomes,
patient safety, patient satisfaction, office and hospital redesign,
health disparities and, of course, health care access, will also serve
to close the quality chasm and improve the health of our members.
For every man, woman and child and the economy that we support, it
is vital that we do health care right in Massachusetts. We are an
undisputed leader in medical care and research with world-class
hospitals, medical schools, research laboratories and life sciences
companies. We are fortunate to have first-rate community hospitals and
health centers all across the State and also share our marketplace with
world-class insurers--including Harvard Pilgrim HealthCare, Tufts
Health Plan to Fallon Community Health Plan. We are all among the top
10 health plans in the Nation according to U.S. News and World Report
and the National Committee for Quality Assurance.
When you consider what was at stake for Massachusetts, you can
appreciate why instituting comprehensive health reform was a priority
and why through the strong leadership of our President and CEO, Cleve
Killingsworth, that Blue Cross Blue Shield of Massachusetts was pleased
to be part of the process.
massachusetts health care reform
To understand why Massachusetts seized this historic opportunity,
it is important to understand the existing climate in the Commonwealth
that allowed health reform to take place. First, we have a relatively
low number of uninsured--as compared with other States. Employer
coverage in the State is already high (over 65 percent) as compared to
the rest of the Nation (56 percent). Even dental insurance has
penetrated the market to a greater degree in Massachusetts (71 percent)
versus the Nation (50 percent). We were spending (or more correctly,
misspending) over $1 billion annually on services for the uninsured and
underinsured. We already operate in what some may consider a highly
regulated market with requirements such as guaranteed issue and
community rating. There was also the looming threat of losing over $385
million Federal dollars if our Medicaid waiver was not renewed. These
factors, along with a strong community and political will of leaders
across the State created the dynamic that allowed health reform to
become a reality.
I would be remiss if I did not acknowledge the efforts of Senator
Kennedy, whose leadership was absolutely critical to the ultimate
passage of the legislation.
what did massachusetts do?
Despite the State's best efforts to reduce the number of uninsured,
Massachusetts still faced over 550,000 people without health insurance.
As of July 1, 2007, all residents of Massachusetts will be required to
have health insurance. There are several significant parts of the law:
the law expands Medicaid eligibility;
the law offers a subsidy program to help low-income people
(up to 300 percent Federal Poverty Level) purchase health insurance;
the law puts forth reforms for the non-group and small
group markets;
the law creates an individual mandate enforced by
financial penalties; and
the law requires employers with 11 or more full-time
employees to offer health coverage or be subject to a $295/per employee
assessment as well as face being billed for services their uninsured
employees receive.
To date, tens of thousands have already signed up for Commonwealth
Care (50,000 have been determined to be eligible--29,000 have signed
up).
what can be done at the federal level?
While there is no single answer to solving the Nation's uninsured
crisis, there are several things that the Federal Government can do to
help families afford quality health care and reduce health care costs
without diminishing the quality of care provided to patients.
First, use the Federal Government's influence as one of the
Nation's largest payors and providers of health care to improve the
quality of care that patients receive. By doing so, we can save lives
and money.
Researchers at the Rand Corporation tell us that patients fail to
receive recommended care half of the time. More than 1 in 10 are
receiving care that is not recommended or downright harmful.
The human cost of these failures is reason enough to act. But their
monetary cost is substantial as well. Experts say as many as 30 cents
out of every dollar spent on health care in the United States may be
wasted.
The Institute of Medicine calls it the ``quality chasm''--the gap
between the knowledge we possess and the care we actually deliver. In
Massachusetts we call it the excellence imperative--the gap between our
performance and our potential--our pride at doing well and our enduring
aspiration to ``do better.'' As a Company, we already spend several
hundred million dollars incenting those individual physicians and
institutions that are trying to ``do better.'' While we plan that our
``quality investment'' in those who are moving forward to reduce the
misuse, overuse and underuse of health care will significantly
increase, we also hope that the Federal Government will make strides in
this direction as well. Health information technology is also an
essential component to closing the gap between the quality of care that
patients do receive and what they should receive.
Each of us who is privileged to work with health care providers
knows that there is no profession more devoted. They already do all
they can with the tools they possess. For them to do better, the system
itself must change. Health care professionals work hard. Sweeping,
systemic change can empower them to work smarter.
The Federal Government can seek creative ways to: integrate safety
and reliability into the basic structure of the health care system;
harness technology to eliminate errors; empower doctors to spend more
time with patients and patients to make more informed decisions.
Together, we can do more to help the people of this great Nation live
longer and healthier lives.
This goal of delivering high quality, safe and effective health
care must engage the entirety of stakeholders--from living rooms to
hospital rooms, nurses, physicians and pharmacists alike, policymakers
as well as providers, consumers and, of course, insurers too. Because
medical care is only as good as the system that delivers it, we applaud
your early efforts in this area, but urge you to do more.
Second, fully fund SCHIP, while protecting and exploring successful
expansions of Medicaid. Medicaid and SCHIP have been enormously
successful in providing high quality, accessible health care for the
most vulnerable among us, our Nation's children. With fewer employers
offering coverage nationally, SCHIP and Medicaid remain critical to
ensuring children are able to maintain access to vital health care
coverage. While Massachusetts and New England have a long tradition of
covering our children, we are vulnerable to any action or inaction by
the Federal Government to live up to its shared responsibility.
Reauthorization of SCHIP and Medicaid appropriations will be before
this committee and the full Congress this year. The message on SCHIP
and Medicaid is simple. Pay now or pay much more later. The stakes are
high, our children's physical and mental health is at stake (New
England Alliance for Children's Health).
Third, consider the help you can give to States as they implement
their own health reform efforts. Whether in the form of providing for
reinsurance in recognition of the fact that the top 20 percent of
patients use more than 80 percent of the resources, or funding for
programs that help States subsidize health insurance, the Federal
Government can certainly play an important role in solving the Nation's
uninsured crisis.
Fourth, do no harm. In our estimation, this means not advancing
legislation that would undermine the efforts of States, like
Massachusetts, that are trying to decrease costs, increase quality and
improve access to health care. While well-intentioned, Association
Health Plans (AHPs) or legislation that fundamentally disrupts or
destabilizes the health insurance market is not the answer.
On behalf of my colleagues at Blue Cross Blue Shield of
Massachusetts, we look forward to working with the HELP Committee as it
addresses the important issues of improving access to quality health
care. Thank you again for the opportunity to testify. I look forward to
any questions you may have.
Chairman Kennedy. Thank you, Peter.
Peter Harbage.
STATEMENT OF PETER HARBAGE, NEW AMERICA FOUNDATION, WASHINGTON,
DC
Mr. Harbage. Mr. Chairman, Senator Enzi, thank you for
having me here today. It's a privilege.
My name is Peter Harbage. I'm with the New America
Foundation. It's a nonpartisan think-tank here in town that
prides itself on being neither right nor left.
We've heard, today, about the broken health care system and
the resulting toll. To fix this health care system, New America
has long supported the concept of shared responsibility based
on an individual mandate, the idea that all stakeholders in the
health care system have a responsibility to help make insurance
accessible and affordable, and then individuals have a
responsibility to obtain insurance.
With my time, I'd like to share how this concept has been
playing out, in California, where New America has been lucky
enough to be one of several entities advising the
Schwarzenegger administration.
Just 2 days ago, the Governor announced his fully financed
health reform plan. There's no other way to say it, the plan is
audacious. It presents a vision for how to reform the health
care system in California and create an efficient market. It
also marks a sincere effort to address the political needs of
both political parties.
Broadly, the plan offers comprehensive ideas on wellness,
prevention, and affordability. It has many, many moving parts.
What I'd like to do is just run through some of the highlights
of the Governor's coverage plan.
In trying to help cover California's 6 million or so
uninsured, the vast majority of whom are employed, Governor
Schwarzenegger has fully embraced shared responsibility, due,
in no small part, to Massachusetts' trailblazing.
Interestingly, though, is--Peter Meade went through why health
reform is a little bit easier in Massachusetts, because of
higher player participation, lower uninsured rate--by virtually
any such measure, California would be toward the bottom of the
scale, and certainly faces an uphill battle.
At the center of the Governor's plan is the individual, who
must purchase insurance. At the same time, government have a
responsibility to help make insurance affordable. The plan
calls for a major expansion of public programs, the creation of
a statewide purchasing pool, with subsidies available to those
up to 250 percent of poverty, and it calls for new tax breaks
to encourage health savings accounts.
But all other stakeholders have to do their part, as well.
Employers not offering insurance, with 10 or more employees,
will have to pay a fee of 4 percent of payroll. Health plans
have new rules to follow, including guarantee issue, modified
community rating. And the Governor has also called for an 85-
percent loss ratio. What this means is that, for health plans,
for every $100 they bring in, in premiums, $85 will actually
have to go toward the purchase of health benefits, leaving $15
out of that 100 to go toward overhead and profits. New wellness
activities will be required of all health plans, as well.
Doctors have new fees of 2 percent of revenue, and
hospitals have new fees of 4 percent of revenue.
These are the responsibilities--this is the hard part--the
responsibilities that have to be met in order to get to the
benefits. The top benefit that the Governor has articulated is,
he wants to see a healthier California. Universal coverage
means that Californians will be able to get the care that they
deserve. It also helps eliminate the hidden tax of cost-
shifting, where those with insurance are already paying to
cover those and help those who do not have insurance. Under the
Governor's plans, he estimates that providers, doctors and
hospitals, will see greater revenues, even with the new fees.
Now, will all Californians agree to this plan? No. It will
be an uphill battle. But the Governor has stated his
willingness, as have all the legislative leaders stated their
willingness, to work together to achieve change.
But, as with Massachusetts last year, California is certain
to spark debate among States. And yet, if we are ever to
achieve universal coverage here in the United States, States
cannot be left on their own. Leadership from the White House
and Congress is necessary, as well. Indeed, even California,
under its plan, is calling for Federal help. The Schwarzenegger
plan would enroll almost 1 million new people into Medicaid in
the State and Children--at the State Children's Health
Insurance Program, SCHIP. This is done under existing Federal
authority, and would not require any new waivers. But about
half of the plan's projected spending would come from Federal
dollars. Just under half.
In that vein, I'd just like to close by adding my voice to
what we have already on the reauthorization of SCHIP. The
reauthorization of SCHIP, and that--in fact, its expansion,
will be critical to helping States achieve coverage and to
supporting Governor Schwarzenegger in his effort.
Also, from the perspective of the New America Foundation, I
just want to close by saying that it'll be important to fully
understand the impact of the DRA citizenship requirements and
what those will mean to States, and the impact that those
requirements will have on making it more difficult for
Americans to get the health insurance that they need.
Hopefully, that's something the committee can consider this
year.
Thank you for your time.
Chairman Kennedy. Thank you very much.
Mr. Antos.
STATEMENT OF JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR IN HEALTH
CARE AND RETIREMENT POLICY AT THE AMERICAN ENTERPRISE
INSTITUTE, WASHINGTON, DC
Mr. Antos. Thank you, Mr. Chairman and Senator Enzi and
members of the committee. I'm Joe Antos, of the American
Enterprise Institute.
We have a real opportunity this year to improve the
functioning of the health insurance market and help make health
coverage more affordable for millions of Americans. We need to
build on the initiatives that the Federal Government has
already taken. We need to build on the initiatives that the
States are taking, and the initiatives the States will be
taking. We need to build on the initiatives that the private
sector is taking, as well. Let's not forget them.
As Senator Kennedy rightly pointed out, cost is a big issue
here. It's a big, big problem. Cost is probably the major
reason why there are so many uninsured Americans. Certainly,
high cost is a major reason why employers are having trouble
offering health coverage, especially small employers. So, we
need to do something about cost.
The positive side of that is that everybody recognizes that
cost is the problem, and so, that's motivating a lot of
activity in the private sector and the public sector to try to
get a handle on this, in small ways and large ways. And that's
a good thing. We need to build on those initiatives.
I would point to a couple of things. At the Federal level,
I think that the two most important Federal activities in the
last few years was the establishment of the health savings
account concept, which is a milestone, depending on how you
look at it. It is a milestone in the evolution of the insurance
market. Its intention is certainly to promote greater awareness
of cost on the part of everybody, not just patients, but also
practitioners. That's very important. They need to know that
what they do costs real money.
Perhaps the most important part of the HSA legislation was
to bring right to the forefront the idea that people actually
need information if they're going to make good decisions. And a
lot has happened in the last 3 years, and a lot will happen in
the next few years, to make that a reality.
The other major Federal initiative is to give greater
flexibility to the States, and States are taking it.
Massachusetts is a great example. California is on the verge of
possibly doing something big, as well.
I'm going to just make a few quick comments on
Massachusetts.
It's an innovative plan. As Peter and others said, it's
complicated. It's a mandate on individuals for coverage.
There's a subsidy to help low-income people afford that
coverage. And there is the remarkable connector that will, in
ways that we don't know yet, facilitate insurance purchasing by
a lot of people. That's the good news.
I think the plan has certain important principles that all
States should consider and the Federal should consider, and, in
particular, this idea of shifting away from large uninsured
patients pools to money targeted to individuals to buy health
insurance, I think, is a very good idea. ``Money follows the
individual,'' is a very important principle. And choice of
health insurance should also follow the individual. The
individual should be able to make up his or her own mind about
what to do. Understand that the mandate is an important tool,
as well.
Critical to all this is the ability of this system to
deliver affordable health insurance. I think there are some
real challenges there. Massachusetts is one of the most heavily
mandated--benefit-mandated States in the country. The
Massachusetts health care market is highly concentrated. And
so, an important assumption that was made in passing this
legislation was that many of these things could be overcome
over time; and, in particular, the idea that there could be
more efficient health care delivery in the State. That's a very
good goal in Massachusetts, and we all should work on that. But
I think the kinds of savings that were predicted early are
going to be hard to reach.
Another big problem which we're seeing already, the average
person is not necessarily going to buy the insurance, no matter
how well it's subsidized. There was a story last week in the
Boston Globe that said that, in the early rollout, with
multipremiums ranging from $18 to $58 a month, it's hard to
sell the product. So, that's going to be a really major
challenge.
And then, finally, the fiscal pressures that are going to
be in--that are developing in Massachusetts that will be caused
by this reform, which doesn't quite, you know, meet all of the
critical objectives that one might have, and there are a lot of
uncertainties--there are going to be fiscal pressures building
up, and those fiscal pressures are going to cause the State to
look again at, Where can they get the money, and what can they
do about reducing health care costs?
I agree with all the speakers who said that Congress has a
golden opportunity to make some real progress here. We need to
build on Medicaid/State flexibility. We need to, of course,
reauthorize SCHIP. We need to make sure that there's
flexibility in that reauthorization. The health information
technology bill is an important bill. We'll need to get that
out. We need to do something about making coverage affordable
for small businesses.
I think that Congress should send a signal to States that
if several States want to join together in a compact to reduce
some of the cross-border problems with selling insurance,
Congress should show at least a yellow light, if not a green
light.
It's a tight budget climate this year. It'll be tough to
make major expansions in Federal programs, but there are
opportunities.
Thank you.
[The prepared statement of Mr. Antos follows:]
Prepared Statement of Joseph R. Antos, Ph.D.
Mr. Chairman and members of the committee, it is a pleasure to
appear before you today. I am Joseph Antos, the Wilson H. Taylor
Scholar in Health Care and Retirement Policy at the American Enterprise
Institute, a Washington-based think tank. My testimony will address the
opportunities we have to improve the functioning of the health
insurance market and make health coverage more affordable for millions
of Americans.
The States, most notably Massachusetts, have launched bold
experiments that could improve access to private insurance and promote
more efficient health care delivery. The Federal Government has opened
the door to new types of health insurance, including high-deductible
plans coupled with Health Savings Accounts (HSAs). Congress has an
opportunity this year to build on these initiatives and make additional
progress on the problems of the uninsured.
insurance costs remain high despite recent slowdown
A recently-released study from the Centers for Medicare and
Medicaid Services (CMS) reports that runaway increases in the cost of
health care appear to have eased, at least temporarily. According to
the study, U.S. health spending in 2005 increased 6.9 percent to almost
$2.0 trillion.\1\ This is the third year in a row when national health
spending grew at a slower rate than the previous year. National health
spending grew 7.2 percent in 2004.
---------------------------------------------------------------------------
\1\ Aaron Catlin and others, ``National Health Spending in 2005:
The Slowdown Continues,'' Health Affairs, January/February 2007: 142-
153.
---------------------------------------------------------------------------
Although this is good news, it is tempered by the fact that health
costs continue to grow more rapidly than the economy. Over the past 35
years, health spending has grown at an average annual rate of 9.8
percent while GDP has grown at about 7.4 percent, both measured in
nominal terms. In 2005, the disparity in growth rates narrowed, but
health spending still outpaced the economy. A sharp slowdown in
prescription drug spending is the main factor driving the recent trend.
Notably, there has been no comparable slowdown in spending for hospital
care, which has grown at nearly an 8.0 percent growth rate for the last
few years.
Private health insurance premiums have also risen more slowly, but
those premiums remain expensive. According to CMS, premiums grew 6.6
percent in 2005, down from the 7.9 percent increase in 2004. A recent
survey of employer health benefits shows that the cost of family
coverage in employer-sponsored plans averaged $11,480 in 2006, up 7.7
percent from 2005.\2\ Small firms have faced more rapid cost escalation
than larger firms; the average premium for firms with fewer than 200
workers grew 8.8 percent in 2006 compared with 7.0 percent for larger
firms.
---------------------------------------------------------------------------
\2\ Kaiser Family Foundation (KFF) and Health Research and
Educational Trust (HRET), Employer Health Benefits: 2006 Annual Survey,
http://www.kff.org/insurance/7527/index.cfm.
---------------------------------------------------------------------------
Nearly all large firms offer health benefits, but only about 60
percent of small firms (with fewer than 200 employees) offered coverage
in 2006.\3\ Only two-thirds of workers in firms offering a health plan
are covered by that plan. Some of the workers who are not enrolled may
have coverage from some other source (such as a spouse), but some are
not eligible for coverage and others reject coverage even though they
are eligible.
---------------------------------------------------------------------------
\3\ KFF and HRET, 2006.
---------------------------------------------------------------------------
High cost is a major reason why an employer, and particularly a
small employer, might not offer health coverage to its workers. People
who do not have access to a health plan from an employer must purchase
coverage on the individual market, which typically means higher
premiums, more narrow benefits, or both. Moreover, those who buy health
insurance on the individual market generally cannot take advantage of a
major tax break: premiums paid for employer-sponsored health insurance
are excluded from taxable income.\4\ Without the benefits of group
purchasing or the tax preference, many people go without insurance
rather than pay unafford-
able premiums.
---------------------------------------------------------------------------
\4\ The self-employed receive a partial tax break. They may exclude
their premium payments from income subject to the personal income tax,
but not from the payroll tax. Others who purchase coverage on the non-
group market do not receive any tax benefits.
---------------------------------------------------------------------------
recent initiatives are promising
The high cost of health care is driving efforts in both the private
and public sectors to improve the performance of the health system.
Employers have taken steps to promote high-value health care and
information that can inform the purchase and use of health care. The
Leapfrog Group is a well-known example of such private sector activity.
Numerous initiatives also are underway in Federal and State health
programs to improve health care delivery and make limited funds go
further. Employers, insurers, and government programs are all involved
in testing and developing pay for performance, disease management,
improved consumer information, and a host of other new ideas.
The most important recent Federal initiatives to promote more
efficient and effective use of our health dollars are the enactment of
HSAs and the expanded flexibility given to States to reform their
Medicaid programs. The HSA provision in the Medicare Modernization Act
of 2003 is a milestone in the evolution of the insurance market.
Consumer-directed health plans, which combine high-deductible insurance
with health savings accounts, promote greater awareness of the cost of
care on the part of both consumers and providers. The HSA provision
extends a tax break for contributions to the accounts that partly
levels the field between insured health expenses and expenses that are
paid out of pocket.
According to a recent survey, 3.2 million people are covered by
HSA-compatible health plans as of January 2006.\5\ Although that
represents a small percentage of the entire insurance market, employers
and insurers appear interested in exploring the potential of such
insurance products to lower costs. Importantly, the introduction of
HSA-compatible insurance has focused attention on the fact that
consumers cannot become smarter purchasers without information about
their treatment alternatives, the quality of care offered by different
providers, and the price of care. Such data are needed by all patients,
not only those with consumer-directed health plans.
---------------------------------------------------------------------------
\5\ America's Health Insurance Plans (AHIP), January 2006 Census
Shows 3.2 Million People Covered By HSA Plans, http://
www.ahipresearch.org/pdfs/HSAHDHPReportJanuary2006.pdf.
---------------------------------------------------------------------------
State Medicaid programs also have been given greater flexibility to
innovate through the expanded use of Federal waivers. CMS introduced
the Health Insurance Flexibility and Accountability (HIFA) initiative
in 2001. HIFA allows States to restructure their Medicaid and State
Children's Health Insurance Programs, including modifying enrollment,
changing benefits, increasing beneficiary cost sharing, and providing
financial assistance for the purchase of private health insurance.\6\
The 2005 Deficit Reduction Act gave States even more flexibility to
redesign their Medicaid programs, including the ability to customize
benefits for different groups of beneficiaries.
---------------------------------------------------------------------------
\6\ Teresa A. Coughlin and others, ``An Early Look at Ten State
HIFA Medicaid Waivers,'' Health Affairs web exclusive, April 25, 2006:
W204-W216, http://content.healthaffairs.org/cgi/content/full/25/3/w204.
---------------------------------------------------------------------------
A number of States are introducing a stronger consumer focus to
their Medicaid programs through waivers and State plan amendments.\7\
For example, Florida is moving to a system of risk-adjusted subsidies
for individuals that can be used to enroll in a Medicaid managed care
plan or buy into an employer plan or purchase individual coverage.
Beneficiaries would also have healthy care accounts through which they
could earn additional contributions by adopting a healthy lifestyle.
Vermont has also adopted capitated payments for its Medicaid program.
Other States, including West Virginia and Kentucky, have created
benefit tiers, with more coverage for people with greater health needs.
---------------------------------------------------------------------------
\7\ Cindy Mann and Samantha Artiga, New Developments in Medicaid
Coverage: Who Bears Financial Risk and Responsibility?, Kaiser
Commission on Medicaid and the Uninsured, Issue Paper #7507, June 2006,
http://www.kff.org/medicaid/upload/7507.pdf.
---------------------------------------------------------------------------
innovative massachusetts plan faces challenges
The Massachusetts health reform signed into law by Governor Mitt
Romney in April 2006 has attracted national attention.\8\ The plan's
goal is health insurance for virtually all Massachusetts citizens, to
be achieved by a mandate on individuals to buy coverage and a subsidy
for low-income persons who otherwise could not afford it. The plan also
creates an insurance ``Connector'' which facilitates insurance pooling
and purchasing by individuals outside the workplace.
---------------------------------------------------------------------------
\8\ John E. McDonough and others, ``The Third Wave of Massachusetts
Health Care Access Reform,'' Health Affairs web exclusive, September
14, 2006: W420-W431, http://content.healthaffairs.org/cgi/reprint/25/6/
w420.
---------------------------------------------------------------------------
Agreement on the Massachusetts plan was reached because of a unique
set of circumstances. The State was faced with the loss of $385 million
in Federal funds for its uncompensated care pool unless a new approach
was developed to reduce the number of people without insurance. \9\ The
State's economy was in good shape, and the percentage of people without
coverage was low in comparison to other States--10.7 percent compared
with 15.7 percent nationwide over the period 2003 to 2005.\10\ The
State has a history of supporting insurance mandates, and consensus
emerged across political lines.
---------------------------------------------------------------------------
\9\ Edmund F. Haislmaier and Nina Owcharenko, ``The Massachusetts
Approach: A New Way to Restructure State Health Insurance Markets and
Public Programs,'' Health Affairs November/December 2006: 1580-1590.
\10\ Carmen DeNavas-Walt and others, Income, Poverty, and Health
Insurance Coverage in the United States: 2005, U.S. Census Bureau,
Current Population Report P60-231, August 2006.
---------------------------------------------------------------------------
There are a variety of attractive features of Massachusetts' plan.
Instead of paying hospitals for their uncompensated care, those funds
will be used to provide individual subsidies for the purchase of
insurance. Families with incomes up to the poverty level will receive
full subsidies, paying no premiums and responsible for modest
copayments. Higher-income families up to 300 percent of poverty will
receive a sliding-scale subsidy. This ``money follows the individual''
principle is an important element in assuring accountability in the
health system.
The Connector could simplify the purchase of health insurance for
individuals, providing a choice of health plans and offering tax
benefits for workers who do not have access to an employer-sponsored
health plan. Employers must offer insurance to their workers, but small
employers who do not offer coverage themselves can designate the
Connector as the source of insurance. Those employers must establish
section 125 cafeteria plans, allowing workers to pay premiums with
pretax dollars but otherwise not requiring an employer premium
contribution.
The Massachusetts reform plan is complex and faces many challenges
as it unfolds over the next few years. A critical factor in the success
of the plan is the ability to deliver affordable health insurance
coverage, as determined by the Connector. The high cost of health
insurance in the State, exacerbated by State mandates and market
conditions, makes achieving that goal a difficult challenge.
Massachusetts has some of the most costly mandated benefits in the
Nation, including coverage for infertility treatments and generous
mental health coverage.\11\ The health reform law did not remove those
mandates. The one exception is new insurance products designed
exclusively for 19- to 26-year olds with no employer-sponsored
coverage. Considering the difficulty of marketing to this small group
of low-income young people who typically have little interest in health
insurance, the narrow exemption on mandates is not likely to do much to
increase the purchase of insurance or make it affordable.
---------------------------------------------------------------------------
\11\ Jon Camire and Dianna Welch, ``Turning Debate Into Action:
Universal Health Care in Massachusetts,'' Contingencies, September/
October 2006: 32-39.
---------------------------------------------------------------------------
In addition, concentration in the Massachusetts health market keeps
health care costs high.\12\ The reform plan assumes that those costs
will be squeezed down by the use of ``value-driven'' networks of
providers and other changes, including additional cost-sharing by
beneficiaries. ``Any willing provider'' restrictions on health plans
are dropped, which could lead some insurers to direct their patients to
less expensive providers. However, the State may have been optimistic
in the savings possible through such mechanisms. According to early
estimates, the State expects monthly premiums in the small group market
to drop by as much as 55 percent, from $350 to $154.\13\ While not
impossible, such an improvement seems highly unlikely.
---------------------------------------------------------------------------
\12\ Tom Miller, ``Massachusetts: More Mirage Than Miracle,''
Health Affairs web exclusive, September 14, 2006: W450-W452, http://
content.healthaffairs.org/cgi/reprint/25/6/w450.
\13\ ``Massachusetts Health Care Reform,'' slide presentation by
Timothy R. Murphy, Massachusetts Secretary of Health and Human
Services, May 15, 2006.
---------------------------------------------------------------------------
Even if premiums could fall by such a large amount, it is not clear
that the average person in Massachusetts would regard health insurance
as affordable. There are some early signs that interest in obtaining
health insurance may not be high, particularly among low-income
workers. Many of them have relied on walk-in clinics and free emergency
room care, and they may not want to pay for care they previously
received at no cost.\14\ Even with subsidized monthly premiums ranging
from $18 to $58, the new coverage might look like a bad buy to people
in the lowest income range.
---------------------------------------------------------------------------
\14\ Jeffrey Krasner, ``Sign-Up Push is on the Health Coverage,''
Boston Globe, December 29, 2006.
---------------------------------------------------------------------------
The mandates on individuals and employers are unlikely to push up
enrollment in the face of high insurance premiums. The initial penalty
for individuals who do not have coverage is the loss of the personal
exemption under Massachusetts income tax, worth roughly $200 to
$400.\15\ The initial penalty for firms that do not offer health
insurance is an annual assessment of up to $295 per worker. Neither
penalty is likely to have much impact on insurance take-up. Although
steeper penalties are part of the Massachusetts plan, it remains to be
seen whether the legislature will allow them to stand if there is much
public opposition.
---------------------------------------------------------------------------
\15\ For 2006, the personal exemption is $3,850 for an individual
return and $7,700 for a couple filing jointly. The income tax rate is
5.3%. See http://www.mass.gov/?pageID=dorhomepage
&L=1&L0=Home&sid=Ador.
---------------------------------------------------------------------------
The Massachusetts plan is a bold initiative that intends to improve
the functioning of the private insurance market rather than replacing
it with government programs. The Connector gives residents one-stop
shopping for insurance and promotes more effective competition among
insurers and health plans, but it is only a first step. The recent
legislation can be criticized for failing to more aggressively address
the cost of health care in the State. Fiscal pressures in the coming
years are likely to cause Massachusetts to take another hard look at
its health reform and seek new ways to promote high-value, effective,
and appropriate health care.
new initiatives should be advanced
Although there are many reasons why someone might not have health
insurance, the high cost of coverage is the paramount factor. As the
latest national health spending data discussed earlier demonstrate, the
rising cost of health care is a systemwide problem and there are no
simple solutions. We need better information on what really works in
health care, delivery systems that operate efficiently, and improved
decisionmaking by patients, providers, and health plans.
Some policymakers advocate expanding Medicare eligibility as a way
of increasing access to insurance, but such a proposal would do nothing
to address the more fundamental issue of cost growth. Indeed, Medicare
spending has rarely deviated from the cost trends seen in the rest of
the health sector, once differences in benefits are taken into
account.\16\ That is hardly surprising: Medicare and private insurance
operate in the same health system and are affected similarly by
advances in health care, changes in consumer expectations, and other
forces affecting spending growth.
---------------------------------------------------------------------------
\16\ However, such adjustments are difficult to make; see Joseph R.
Antos, ``The Role of Market Competition in Strengthening Medicare,''
testimony before the Senate Select Committee on Aging, May 6, 2003,
http://www.aei.org/publications/filter.all,pubID.17131/pub_detail.asp;
Michael J. O'Grady, ``Health Insurance Spending Growth: How Does
Medicare Compare?,'' Joint Economic Committee, June 10, 2003.
---------------------------------------------------------------------------
No one has the complete answer to the health care cost problem, but
Federal, State, and private entities are busy developing policy options
that could help ameliorate the spending crisis.\17\ Congress should
promote further efforts by the States to shape their health programs to
meet the needs of their populations. The Massachusetts reform is not
for every State, but every State has the potential to develop its own
approach to improving the effectiveness of its Medicaid program.
---------------------------------------------------------------------------
\17\ Many of those efforts are discussed in Alice M. Rivlin and
Joseph R. Antos (eds.), Restoring Fiscal Sanity 2007: The Health
Spending Challenge, (Brookings Institution Press, forthcoming 2007).
---------------------------------------------------------------------------
The reauthorization of the State Children's Health Insurance
Program (SCHIP) can be an opportunity to enhance the flexibility States
have to make their SCHIP dollars go further. The health information
technology bill, which stalled in Congress last year, can promote the
adoption of a nationwide interoperable information system that could
help improve the quality of care and avoid unnecessary spending. The
challenges faced by small businesses in offering health benefits to
their workers should be addressed. Promising ideas include small
business health plans and widening access to insurance by reducing
disparities in State insurance regulation. Congress could encourage
States to form regional compacts that would reduce regulatory barriers
and promote competition in the insurance market.
Policymakers have an opportunity this year to help the uninsured.
In a tight budget climate, that does not mean a massive expansion of
Federal programs. Congress should look to prudent legislation to reduce
unnecessary spending, promote efficiency, and build on the innovative
ideas for real reform found at all levels in the health system.
Chairman Kennedy. Thank you very much.
Now our final witnesses. John Goodman is President and CEO
of the National Center for Policy Analysis. He's an economist,
who will speak on consumer-directed health care.
Karen Davis, President of the Commonwealth Fund, is a
nationally recognized economist, with a distinguished career in
public policy and research.
And my old friend, Debra Ness, is President of the National
Partnership for Women and Families. She led the initiative to
reduce health costs through better use of health IT, care
coordination, and rewarding high quality.
John.
STATEMENT OF JOHN GOODMAN, PRESIDENT, NATIONAL CENTER FOR
POLICY ANALYSIS, DALLAS, TX
Mr. Goodman. Senator Kennedy, members of the committee,
Professor Lawrence Kotlikoff, at Boston University, and his
colleagues have done a 10-country study projecting spending
into the future, based on the experience of the last 30 years,
and projected aging of the populations. They have concluded
that, by mid-century, when today's college students will be
reaching retirement age, that government at all levels in the
United States will be spending a third of the gross domestic
product on health care, principally on Medicare and Medicaid.
To put that into perspective, government at all levels today
spends on all of its programs a third of the gross domestic
product. So, we're on a course, by mid-century, for health care
to literally crowd out everything else that government is
doing.
Now, if the private sector keeps up with the government,
and, for the last 30 years, it's done a good job of doing that,
then, by mid-century, we would be spending two-thirds of the
gross domestic product on health care. And to put that into
perspective, two-thirds of GDP is roughly equal to all
consumption on everything today. So, what we're talking about
is a path that will take us, in another 50 years or so, to a
point where there's nothing but health care--no food, no
clothing, no housing. Not a pretty sight. And yet, that is the
path that we are on. And this is a straightforward forecast,
this isn't the type of thing that we see from the Medicare
trustees, which, bad enough as it is, has a lot of hope for
moderation involved. This is more consistent with the charts
you'll see from the Congressional Budget Office and the Concord
Coalition.
Now, what can be done about it? I don't have all of the
answers, but I am confident that nothing we're hearing on the
right or the left today is radical enough to seriously deal
with the problem that we're looking at. I'm also confident that
we're not going to get off the path we are on unless, on the
demand side, somebody has to choose between health care and
other uses of money. It can be government, it can be employers.
It won't surprise most of you to know that I would like to see
patients make as many of these decisions as possible. But
somebody has to choose.
And on the supply side, we're not going to get off of this
path unless we allow entrepreneurs to gain and make profits by
finding ways to produce care more efficiently, as, for example,
they're doing in the cosmetic surgery industry and in the laser
surgery industry, where the real price of health care has
actually been falling over the last decade.
Now, the path we are on is so overwhelming that, once you
start thinking about it, it's hard to think about anything
else. But, to the degree we do think about other things, I had
an idea that I proposed to Ira Magaziner many years ago, and
you didn't followup on it. And I took the same idea to Governor
Romney, and he built a health care reform plan around it. And
then, Governor Schwarz-
enegger took the same idea, but he added so many bells and
whistles onto it that it's just not recognizable anymore. But
the core idea was that we should take free health care dollars,
our charity-care dollars, instead of having those dollars
encourage people to drop their private coverage in order to get
the free care, we should use those dollars to subsidize people
so that they could have private insurance instead.
I think, or I propose that we need no new spending, and
Governor Romney agreed with me on this. There are enough
dollars in the system right now. I don't think we need new
mandates. He disagreed with me on that point. But the central
idea was that the dollars should follow the people. And if they
do, we eliminate perverse incentives for people to get care at
taxpayer expense. I think the same principles also apply to
Medicaid. And this is what's missing in the Massachusetts plan
and in the California plan. You still have this huge incentive
for people to drop their private coverage and get health care
at taxpayer expense. That's not a socially good thing, in my
opinion.
But the basic idea, to eliminate perverse incentives, let
dollars follow people, and especially to give low-income people
an opportunity to participate in the same health care system
all the rest of us are participating in, that remains, I think,
a good idea.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Goodman follows:]
Prepared Statement of John C. Goodman, Ph.D.
Mr. Chairman and members of the committee, I welcome the
opportunity to testify this morning about the challenges and
opportunities related to health care coverage and access. I am John
Goodman, President and CEO of the National Center for Policy Analysis,
a nonprofit, nonpartisan public policy research organization dedicated
to developing and promoting private alternatives to government
regulation and control, solving problems by relying on the strength of
the competitive, entrepreneurial private sector.
an unsustainable path
Government at all levels in the United States currently spends
about 7.2 percent of gross domestic product (GDP) on health care,
mainly on Medicare and Medicaid. Yet Christian Hagist and Laurence J.
Kotlikoff have shown that if benefits expand at the rate of the past 30
years and if the population ages the way demographers predict,
government health care spending will equal one-third of national income
by mid-century, when today's college students reach the retirement
age.\1\ If that is not immediately alarming, note that one-third of GDP
is about equal to all government spending for all purposes today. If
private spending on health care keeps up with public spending, the
Nation will devote about two-thirds of national income to health care
by mid-century--an amount roughly equal to the total consumption of all
goods and services today.
---------------------------------------------------------------------------
\1\ Christian Hagist and Laurence J. Kotlikoff, ``Health Care
Spending: What the Future will Look Like,'' National Center for Policy
Analysis, NCPA Policy Report No. 286, June 2006.
---------------------------------------------------------------------------
So in the public sphere, health care is on a course to crowd out
every other government program--from education and roads and bridges to
Social Security and national defense. And for the economy as a whole,
health care is on a course to crowd out every other form of
consumption, including food, clothing, housing, etc.
Clearly we are on an impossible path. And the longer we stay on it,
the more painful it will be to get off of it. Yet it is impossible to
get off of it unless someone is forced to choose between health care
and other uses of money. The question is: who will that someone be?
choosing between health care and other uses of money
Busy people are often unaware of how easy it is to spend other
people's money on health care. Let me give you a few examples. The
Cooper Clinic in Dallas offers an extensive checkup (with a full body
scan) for about $2,000 or more. Its clients include Ross Perot, Larry
King and other high-profile individuals. Yet if everyone in America
took advantage of this opportunity, we would increase our Nation's
annual health care bill by almost one-third. More than 1,000 diagnostic
tests can be done on blood alone; and one doesn't need too much
imagination to justify, say, $6,500 worth of tests each year. But if
everyone did so we would double the Nation's health care bill.
Americans purchase nonprescription drugs almost 12 billion times a year
and almost all of these are acts of self-medication. Yet if everyone
sought professional advice before making such purchases, we would need
25 times the number of primary care physicians we currently have.\2\
Some 1,100 tests can be done on our genes to determine if we have a
predisposition toward one disease or another. At a conservative
estimate of, say, $1,000 a test, it would cost more than $1 million for
a patient to run the full gamut. But if every American did so, the
total cost would run to about 30 times the Nation's annual output of
goods and services.
---------------------------------------------------------------------------
\2\ Simon Rottenberg, ``Unintended Consequences: The Probable
Effects of Mandated Medical Insurance,'' Regulation, Vol. 13, No. 2,
Summer 1990, pages 27-28.
---------------------------------------------------------------------------
Notice that in hypothetically spending all of this money we have
not yet cured a single disease or treated an actual illness. We are
simply collecting information. If in the process of searching we
actually found something that warranted treatment, we could spend even
more.
One of the cardinal beliefs of advocates of single-payer health
insurance is that health care should be free at the point of
consumption, regardless of willingness or ability to pay. But if health
care really were free, people would have an incentive to obtain each
and every service so long as it had any value at all to them. In other
words, everybody would have at least an economic incentive to get the
Cooper Clinic annual checkup, order dozens of blood tests, check out
all their genes and consult physicians at the drop of a hat. In short
order, unconstrained patients would attempt to spend the entire gross
domestic product on health care even though, as a practical matter,
that would be impossible.
To control the growth rate of health care spending, someone must
choose between health care and other uses of money. That is, someone
must decide that useful, beneficial health care procedures are not as
valuable as other goods and services that could be purchased with the
same funds. How can those decisions be made?
In principle there are only a limited number of ways choosing
between health care and everything else. Three especially interesting
approaches would have these choices made by: (a) government (national
health insurance), (b) employers and insurers (managed care) or (c)
patients in consultation with their doctors (consumer-driven health
care).
Given the large number of devotees of all three approaches, you
would think there would be a rich literature on how each allocates
resources by comparing the costs and benefits of different types of
care. In fact, the reverse is true. The very subject is virtually
taboo.\3\ Take positron emission tomography scanners, for example. At
last count there were more than one thousand in the United States, but
only three in Canada.\4\ So how did Canada decide that the benefits of
the 4th PET scanner (in terms of lives saved, diseases cured, etc.) was
not worth the monetary cost? Is there some cost-benefit comparison in a
paper or official document somewhere? None that I can find.
---------------------------------------------------------------------------
\3\ An exception is John C. Goodman, Gerald L. Musgrave and Devon
M. Herrick, Lives at Risk: Single-Payer National Health Insurance
Around the World (Lanham, MD: Rowman & Littlefield, 2004).
\4\ Of the 12 PET scanners in Canada, two are owned by private
providers and seven are available only for research and clinical
trials. See Laura Eggertson, ``Radiologists, physicians push for PET
scans,'' Canadian Medical Association Journal, Vol. 172, No. 13, June
21, 2005. Also see ; ``What is PET?'' Society of Nuclear Medicine,
2006.
---------------------------------------------------------------------------
The PET scan example is not unique. Around the world, managers of
government-run health care systems rarely discuss rationing decisions
and how they are made.\5\ The advocates of single-payer national health
insurance are even worse. Scan their literature and you will search in
vain for any discussion of how we should trade off health care benefits
against monetary costs.\6\
---------------------------------------------------------------------------
\5\ An exception is the Oregon Medicaid program, which prioritized
300 services and pledged to provide only those that the budget would
allow. See Martin A. Strosberg, Joshua M. Wiener, Robert Baker and I.
Alan Fein (editors) Rationing America's Medical Care: The Oregon Plan
and Beyond, edited by (Washington, D.C.: The Brookings Institution,
1992).
\6\ See Marcia Angell and the Physicians' Working Group, ``Proposal
of the Physicians' Working Group for Single-Payer National Health
Insurance,'' Physicians for a National Health Program, August 13, 2003.
---------------------------------------------------------------------------
The advocates of managed care are not much better. Think how many
trees have been felled to support the huge volume of literature on this
subject. But where in all this text is there a discussion of how
managed care organizations are suppose to make cost-benefit tradeoffs?
I have yet to find it.\7\
---------------------------------------------------------------------------
\7\ There is of course a large and growing literature on cost
effectiveness (e.g., how much does a procedure cost in terms of years
of life saved?). These studies can serve as the basis for
decisionmaking but they do not tell us how to make decisions.
---------------------------------------------------------------------------
Surprisingly, the advocates of consumer-driven health care (CDHC)
are also reluctant to broach this subject. In fact, some of the most
ardent supporters of Health Savings Accounts (HSAs) on Capitol Hill
flatly deny that their purpose is to facilitate choices between health
care and nonhealth care consumption. Indeed, this is the main reason
why the law discourages people from removing their end-of-year HSA
balances for nonhealth purposes.\8\
---------------------------------------------------------------------------
\8\ Withdrawals for nonhealth purposes are subject to income taxes
and a 10 percent penalty (before age 65). As a result, the tradeoff is
not on a level playing field. For a family in the 25 percent tax
bracket, $1 of health care trades against 65 cents of other goods, at
least in the current period.
---------------------------------------------------------------------------
There is, however, this difference: Whether the supporters admit it
or not, the United States is the first developed country to set up a
formal, institutional mechanism that allows people to choose between
health care and other uses of money on a rational basis.\9\ As such,
HSA accounts have the potential to revolutionize the health care
system. Yet they will succeed in doing so only if they free patients to
perform consumer functions that they have not been hitherto performing:
(1) make tradeoffs between health care and other goods and services;
(2) become savvy shoppers in the medical marketplace; and (3) become
managers of their own care.
---------------------------------------------------------------------------
\9\ Note, however, that South Africa's Medical Savings Accounts
were introduced more than a decade ago and Singapore's medisave
accounts are now two decades old. See Shaun Matisonn, ``Medical Savings
Accounts in South Africa,'' National Center for Policy Analysis, NCPA
Policy Report No. 234, June 2000; Thomas A. Massaro and Yu-Ning Wong,
``Medical Savings Accounts: The Singapore Experience,'' National Center
for Policy Analysis, NCPA Policy Report No. 203 April 1996.
---------------------------------------------------------------------------
patients as choosers
Critics of CDHC are fond of pointing out that there are times when
patient choice is not desirable or appropriate. They are, of course,
correct. We don't want a parent to choose not to have her child
vaccinated, or an at-risk expectant mother to avoid prenatal care, or a
heart patient to eschew aspirin or beta blockers. The reason: there is
overwhelming evidence that the social benefits of the care exceed the
social cost.\10\ Yet instances where we can be absolutely sure that we
know which alternative is the right choice are rarer than one might
suppose. At the other extreme, there are literally thousands of cases
where only the patient can make the right choice.
---------------------------------------------------------------------------
\10\ See Tammy O. Tengs et al., ``Five-Hundred Life-Saving
Interventions and Their Cost-Effectiveness,'' Risk Analysis, Vol. 15
No. 3, 1995; and David M. Eddy (editor), Common Screening Tests,
(Philadelphia: American College of Physicians, 1991).
---------------------------------------------------------------------------
Take arthritic pain relief. The annual cost of brand-name drugs
runs about $800 more than over-the-counter substitutes and they are
riskier (Vioxx and Bextra, for example, have been removed from the
market). Is the extra cost and risk worth the marginal improvement in
pain relief offered by a prescription drug? Since drugs affect
different people differently, we cannot determine for someone else
whether the tradeoff is worthwhile. So it is appropriate and desirable
for people to make these decisions themselves and reap the full
benefits and bear the full costs of decisions they make.
The problem with the current system is that all too often patients
have no opportunity to make such choices. The reason: most of the time
they are buying health care with someone else's money. Ironically, most
of the people who were taking Vioxx should not have been taking it; and
the best predictor of whether a patient was taking it was whether a
third-party was paying the bill.\11\ This example is far from unique.
For the health care system as a whole, patients pay only 14 cents out
of pocket every time they spend a dollar, on the average. So the
economic incentive is to spend on health care until its value to the
patient is only 14 cents on the dollar. It's hard to imagine a more
wasteful incentive structure.
---------------------------------------------------------------------------
\11\ A recent study found that two-thirds of patients on COX-2
inhibitors were not at risk for gastrointestinal conditions like ulcers
or bleeding, and most of them had not tried cheaper alternatives. See
Emily R. Cox et Al., ``Prescribing COX-2s for Patients New to Cyclo-
oxygenase Inhibition Therapy,'' American Journal of Managed Care, Vol.
9, No. 11, pp. 735-42, November 2003. A separate study found that
seniors with generous drug coverage but moderate risk of
gastrointestinal problems were more likely to be on a COX-2 inhibitor
than seniors with high gastrointestinal risk but no drug coverage. See
Jalpa A. Doshi, Nicole Brandt and Bruce Stuart, ``The Impact of Drug
Coverage on COX-2 Inhibitor Use In Medicare,'' Health Affairs, Web
Exclusive W4-94, February 18, 2004.
---------------------------------------------------------------------------
With HSAs, people will not spend a dollar on health care services
unless they get a dollar's worth of value. In this respect, HSAs
greatly improve patients' incentives. If there is a problem, however,
it is that the law is too rigid--requiring an across-the-board
deductible for all services, other than preventive services. The answer
to the critics is to allow plans to create high deductibles where the
exercise of patient discretion is both possible and desirable and
create low deductibles where discretion is not possible or, in any
event, not desirable.
How do patients react when they are asked to manage their own
health care dollars? We actually have far more experience with
consumer-directed health care than many scholars realize. For example,
we have more than a decade of experience with Medical Savings Accounts
(MSAs) in South Africa, and in this country 7 years experience with the
MSA pilot program, 4 years of experience with Health Reimbursement
Arrangements (HRAs) and 2\1/2\ years with HSAs. The problem is: the
data mainly resides with insurers who regard it as proprietary and,
therefore, the results are reported by entities with a financial self-
interest in the outcomes.
Even so, reported results of MSAs in South Africa (Discovery
Health) \12\ and HRAs in the United States (Aetna) \13\ are consistent
with common sense. Patients cut back in areas where there is presumed
to be a lot of waste and substitute less expensive treatment options
for more expensive ones. That is, there are fewer trips to primary care
physicians; brand-name drug purchases are down; generic purchases are
up, etc. These findings were also evident in an Employee Benefit
Research Institute study.\14\ Consumers were more cost-conscious--about
one-third of consumers with high-deductible or consumer-driven health
plans avoided or delayed seeking care.
---------------------------------------------------------------------------
\12\ Matisonn, ``Medical Savings Accounts in South Africa.''
\13\ ``Aetna HealthFund First-Year Results Validate Positive Impact
of Health Care Consumerism,'' Press Release, Aetna, June 24, 2004.
\14\ Paul Fronstin, and Sara R. Collins, ``Early Experience with
High-Deductible and Consumer-Driven Health Plans: Findings from the
EBRI/Commonwealth Fund Consumerism in Health Care Survey,'' Employee
Benefit Research Institute, Issue Brief No. 288, December 2005.
---------------------------------------------------------------------------
A McKinsey study (based on a year's experience with HSAs) found
that CDHC patients were twice as likely as patients in traditional
plans to ask about cost and three times as likely to choose a less
expensive treatment option. Further, chronic patients were 20 percent
more likely to follow treatment regimes very carefully.\15\ A South
African study suggests that CDHC patients can control drug costs as
well as managed care, but without the cost of managed care.\16\
---------------------------------------------------------------------------
\15\ Consumer-Directed Health Plan Report--Early Evidence Is
Promising,'' McKinsey & Company, North American Payor Provider
Practice, June 2005.
\16\ Shaun Matisonn, ``Medical Savings Accounts and Prescription
Drugs: Evidence from South Africa,'' National Center for Policy
Analysis, NCPA Policy Report No. 254, August 2002.
---------------------------------------------------------------------------
Early critics of CDHC worried adverse selection of young, healthy
workers would destroy traditional risk pools. Yet there is no evidence
that CDHC attracted disproportionate numbers of young people. When
adjusted for retirees who were not eligible, a recent GAO report of
government workers found those joining CDHC plans were about the same
age as enrolling in more traditional plans.\17\ Two additional GAO
reports came to similar conclusions.\18\ A recent survey by the health
insurance industry trade group found adult enrollees evenly distributed
with nearly one-quarter between the age of 40 and 49 and one quarter
above that age group and one-quarter below.\19\
---------------------------------------------------------------------------
\17\ GAO, ``Federal Employees Health Benefits Program: Early
Experience with a Consumer-
Directed Health Plan,'' U.S. Government Accountability Office,
Publication GAO-06-143, November 2005.
\18\ GAO, ``Federal Employees Health Benefits Program: First-Year
Experience with High-
Deductible Health Plans and Health Savings Accounts,'' U.S. Government
Accountability Office, Publication GAO-06-271, January 2006; GAO,
``Consumer-Directed Health Plans: Early Enrollee Experiences with
Health Savings Accounts and Eligible Plans,'' U.S. Government
Accountability Office, Publication GAO-06-798, August 2006.
\19\ Hannah Yoo and Teresa Chovan, ``January 2006 Census Shows 3.2
Million People Covered By HSA Plans,'' America's Health Insurance
Plans, AHIP Center for Policy and Research, 2006.
---------------------------------------------------------------------------
Assurant Health (formerly Fortis) reported on its enrollees with
health savings accounts in 2005. It found: \20\
---------------------------------------------------------------------------
\20\ ``Who's Taking Advantage of Health Savings Accounts (HSAs)?''
Assurant Health Quick Facts, 2006. Available. Internet. http://
www.assuranthealth.com/corp/ah/AboutAssurantHealth/HSAFactSheet.htm.
Accessed September 22, 2006.
Nearly one-third (30 percent) had less than $50,000
annually in family income.
About 44 percent had previously been uninsured shortly
before obtaining an HSA.
More than half (61 percent) were older than age 40.
More than two-thirds (69 percent) were families with
children.
The results on enrollee satisfaction have been mixed. A recent GAO
report found strong satisfaction \21\ as did reports by Lumenos \22\
and Aetna.\23\ However, reports by McKinsey and EBRI reported lower
satisfaction than those enrolled in traditional health plans.\24\ It's
not clear what this means. A study in the Annuals of Internal Medicine
found satisfactions is not related to quality.\25\ In fact, this
phenomenon is not uncommon among consumer goods. Satisfaction is
generally more closely related to good communication and met
expectations.\26\ Moreover, surveys where enrollees rate their CDHP
lower than managed care may be sampling unrepresentative enrollees or
people who perceived they've lost benefits when switched to a full-
replacement CDHC plan. \27\ Or it may point to the need to have better
consumer education and about the merits and uses of the plans in
addition to greater price transparency. \28\
---------------------------------------------------------------------------
\21\ GAO, ``Consumer-Directed Health Plans: Early Enrollee
Experiences with Health Savings Accounts and Eligible Plans,'' U.S.
Government Accountability Office, Publication GAO-06-798, August 2006.
\22\ ``Survey Reveals Lumenos Customers More Satisfied than Members
of Traditional Health Plans,'' Press Release, Lumenos, 2004.
\23\ About 90 percent of enrollees said plan met expectations and
would enroll again. See ``Aetna HealthFund Fact Sheet,'' Aetna, 2006.
Available at http://www.aetna.com/presscenter/kit/aetna_healthfund/
healthfund_factsheet.html. Accessed September 22, 2006.
\24\ Paul Fronstin, and Sara R. Collins, ``Early Experience with
High-Deductible and Consumer-Driven Health Plans: Findings from the
EBRI/Commonwealth Fund Consumerism in Health Care Survey,'' Employee
Benefit Research Institute, Issue Brief No. 288, December 2005.
``Consumer-Directed Health Plan Report--Early Evidence Is Promising,''
McKinsey & Company, North American Payor Provider Practice, June 2005.
\25\ John T. Chang, ``Patients' Global Ratings of Their Health Care
Are Not Associated with the Technical Quality of Their Care,'' Annals
of Internal Medicine, Vol. 144, No. 9, May 2, 2006.
\26\ Holman W. Jenkins, ``No, Consumer Theory Isn't a Cure-all for
Health Care,'' Wall Street Journal, September 20, 2006.
\27\ Devon Herrick, ``Experts Doubt Survey Findings on Health Plan
Owners' Satisfaction,'' Health Care News, February 1, 2006.
\28\ ``Brokers Predict Massive Change: Results from the 2006 NAHU/
Chapter House Benefit Buying Trends Study,'' National Association of
Health Underwriters/Charter House, 2006.
---------------------------------------------------------------------------
What about preventive care? McKinsey, Aetna, National Center for
Policy Analysis (Discovery Health) and Humana \29\ all report an
increase in preventive care--even as they report other, significant
cost-reducing changes in patient behavior. Note, however, that many
CDHC plans contain extra incentives to seek and obtain preventive care.
Discovery Health tried to determine whether skimping on care in the
short run caused higher costs in later years and found no evidence to
support the claim.\30\
---------------------------------------------------------------------------
\29\ ``Healthcare Consumers: Passive or Active?'' Humana, June 28,
2005.
\30\ Refuting the criticism that the reduction in spending reflects
MSA holders' tendency to forgo appropriate health care would require a
randomized longitudinal study with far more clinical data than is
currently available. However, a comparison of catastrophic claims under
the two different health plans did not show more catastrophic claims
under the MSA plan than under the non-MSA plan. Apparently MSA-holders
are not healthier as a group. See Shaun Matisonn, ``Medical Savings
Accounts in South Africa,'' National Center for Policy Analysis, NCPA
Policy Report No. 234, June 2000.
---------------------------------------------------------------------------
creating opportunities for the chronically ill \31\
---------------------------------------------------------------------------
\31\ John C. Goodman, ``Making HSAs Better,'' National Center for
Policy Analysis, Brief Analysis No. 518, June 30, 2005.
---------------------------------------------------------------------------
The chronically ill are responsible for an enormous amount of
health care spending. In fact, almost half of all health care dollars
are spent on patients with five chronic conditions (diabetes, heart
disease, hypertension, asthma and mood disorders). This is where HSAs
have the greatest potential to reduce costs and improve the quality of
care.
Healthy people tend to interact with the health care system
episodically. Once in awhile they go to the emergency room or take a
prescription drug. On these occasions, they gain knowledge that
improves their skills as medical consumers. But it may be several years
before they use that knowledge again, by which time it may be obsolete.
The chronically ill are different. Their treatments are usually
repetitive, requiring the same procedures, visits and/or medicines,
week after week, year after year. Consequently, cost-saving discoveries
by these patients are not one-time events. Rather, they pay off
indefinitely. Suppose a diabetic patient learns how to cut the costs of
her drugs in half, by comparing prices, shopping online, bulk buying,
pill splitting or switching to a generic brand. Such a discovery could
be financially very rewarding to a patient who must pay these costs
out-of-pocket.
Numerous studies have found the chronically ill can reduce costs
and improve quality by managing their own care. But health care
management is difficult and time-consuming. So patients should reap
both health rewards and financial rewards from making better decisions.
Insurers should be able to create versatile HSA accounts for patients
with differing chronic conditions. They should be able to adjust the
accounts' funding to fit specific circumstances. A typical Type II
diabetic, for example, might receive one level of HSA deposit from his
employer; a typical asthmatic patient another.
The problem is: The HSA law requires employers to deposit the same
amount to each employee's HSA account, irrespective of medical
condition. This is a strange requirement because employers who give
employees choices of health plans are risk-rating their premium
payments whether they are aware of it or not. If the sickest employees
all choose Plan B and the healthiest choose Plan A, then the employer
will invariably pay more premiums per employee to Plan B. Although
employers risk-rate their premium payments, they are not allowed to
risk-rate HSA deposits.
I have attached two articles for your benefit that also address the
challenges and opportunities related to health care coverage and
access. The first is ``Solving the Problem of the Uninsured'' from
Thoracic Surgery Clinics. The second is ``What Is Consumer-Directed
Health Care?'' from Health Affairs Online.
______
Solving the Problem of the Uninsured*
The fact that millions of Americans do not have health insurance is
said to be a major problem, if not the major problem, of the United
States health care system. Estimates of the number who are uninsured
vary widely. There are also widely different indicators of how much
difference uninsurance makes. Proposed solutions range from single-
payer national health insurance to individual or employer mandates to
tax subsidies for the purchase of private health insurance. Even the
proponents admit these proposals require large taxpayer burdens and new
Federal bureaucracies.
---------------------------------------------------------------------------
* The original title was modified to this version by the request of
the Guest Editor, Dr. Sade. E-mail address: [email protected].
---------------------------------------------------------------------------
Fortunately, there is a way to deal with this problem that does not
require new taxes or cumbersome (and probably unenforceable) mandates.
Nor does the solution require the knowledge of how many uninsured there
are at any one time or what difference uninsurance makes. The solution
involves integrating the current system of tax subsidies (which
encourage people to obtain private insurance) with the system of
spending subsidies (which encourage people not to be insured). The
purpose of the integration is to ensure that government policies are
not encouraging people to be uninsured, and causing the very problem
that needs to be solved.
All physicians are familiar with the do-no-harm principle in
medical ethics. It is time to apply that same principle to public
policy.
nature of the problem
The latest Census Bureau report estimates that 45 million Americans
are uninsured at any one time.\1\ Yet, estimates using the Census
Bureau's Survey of Income and Program Participation suggest that the
actual number of uninsured could be half as large. For instance, a
Congressional Budget Office study of the Census Bureau's Survey of
Income and Program Participation estimated the actual number of
uninsured may be as low as 21 million.\2\ Another report finds that,
even using Census Bureau methods, the 45 million number is about 25
percent too high, or off by 9 million people.\3\
Regardless of the actual number, what is more important is how long
people are uninsured. Being uninsured is like being unemployed. Most
people probably experience the condition over the course of a lifetime,
but in most cases it is temporary. Very few people are uninsured for a
long period of time. For instance, 75 percent of uninsured spells are
over within 12 months. Less than 10 percent last longer than 2
years.\4\
There are dozens of studies that claim to find significant health
differences between those who are insured and those who are uninsured.
For instance, Marquis and Long \5\ \6\ find that uninsured adults have
about 60 percent as many physician visits and 70 percent as many
inpatient hospital days as they would if they were covered by
insurance. Yet, there are reasons to doubt these results. Consider the
fact that there are between 10 and 14 million people who are
theoretically eligible for Medicaid and SCHIP (for low-income families
who do not qualify for Medicaid) but do not bother to sign up. This is
almost one in every four uninsured persons in the country. Estimates of
eligibility for public health care programs vary. The lower estimates
are that around 10 million Americans are eligible but unenrolled,
whereas the upper range of estimates is closer to 14 million. One study
found that just over half (51.4 percent) of eligible, nonelderly adults
were enrolled in Medicaid in 1997. Of the remaining adults who were
Medicaid eligible, 21.6 percent had private coverage, whereas 27
percent were uninsured. Another study found that about 7 million
uninsured children eligible for either SCHIP or Medicaid are not
enrolled.\7\ Of those children eligible for Medicaid or SCHIP, one
third is eligible for SCHIP, whereas two-thirds are eligible for
Medicaid. Eight percent of uninsured, low-income children are illegal
aliens and, as such, not eligible for either Medicaid or SCHIP.\8\ \9\
Furthermore, in most places people are able to enroll in Medicaid up to
3 months after they receive medical treatment. Because these people can
enroll at the drop of a hat, even after they have incurred medical
expenses, are they not de facto insured even without the necessity of
formal enrollment?
To see what this means on the local level, consider Parkland
Hospital in Dallas, a primary source of care for the indigent and those
covered by Medicaid. Uninsured patients and Medicaid patients pass
through the same emergency room door; they see the same doctors; they
receive the same treatments; and if required, they are admitted to
hospital rooms on the same floors.\10\
The only people who seem to care very much about who is insured or
uninsured at Parkland are the hospital staff (presumably because that
affects how they get paid). For that reason, full-time employees work
their way through the emergency room waiting area to enroll all
eligible patients in Medicaid (most of the time they fail). With the
same goal in mind, employees also go room to room to visit those who
are admitted (where their success rate is much higher).
At Children's Medical Center, next door to Parkland, a similar
exercise takes place. Children on Medicaid, children on SCHIP, and
uninsured children all come through the same emergency room door.
Again, they all see the same doctors and receive the same treatments.
Again, it is only the hospital that seems to care whether anybody is
insured and by whom.\10\
If a $100 bill were dropped on the emergency room floor at
Parkland, it probably would not remain there for 60 seconds; but an
application to enroll in Medicaid dropped on the same floor might
remain there for hours. In the view of some commentators, the
enrollment forms are a ticket to health insurance worth thousands of
dollars and substantially more health care. But people do not act as
though they believe that is the case. To the contrary, they act as
though the marginal value of enrollment is virtually zero.
For the millions of people who opt not to enroll in free
government-provided health insurance, uninsurance is the result of
voluntary choice. A lot of other people are also voluntarily uninsured.
For example, about 9 million people (more than one in five of the
uninsured) are eligible for employer insurance and decline to enroll
even though the employee share of the premium is usually nominal.\11\
It can be inferred that many other people are voluntarily
uninsured, because they apparently have enough income to purchase
insurance if they choose. Although it is common to think of the
uninsured as having low incomes, many families who lack insurance are
solidly middle class (Fig. 1). The largest increase in the number of
uninsured in recent years has occurred among higher-income families,
About one in three uninsured persons (14.8 million people) lives in a
family with an income of $50,000 or higher and about half of those have
incomes in excess of $75,000. Further, over the past decade, the number
of uninsured increased by 54 percent in households earning between
$50,000 and $75,000 and by 130 percent among households earning $75,000
or more. By contrast, in households earning less than $50,000 the
number of uninsured decreased approximately 3 percent.\12\
These results are contrary to the normal expectation of economists.
Economic theory teaches that as people earn higher incomes, they should
be more willing to purchase insurance to protect their income against
claims arising from expensive medical bills.
Similarly, as people become wealthier the value of insuring against
wealth depiction (e.g., by a catastrophic illness) also rises.
Insurance should be positively correlated with income and wealth
accumulation. The fact that the number of uninsured rose over the past
decade while incomes were rising and that the greatest increase was
among higher-income families suggests that something else is happening
to make insurance less attractive.
Some information about middle-class families who are voluntarily
uninsured is provided by a California survey of the uninsured with
incomes of more than 200 percent of poverty.\13\ Forty percent owned
their own homes and more than half owned a personal computer. Twenty
percent worked for an employer that offered health benefits, but half
of those declined coverage for which they were eligible. This group was
not opposed to insurance in general, however, because 90 percent had
purchased auto, home, or life insurance in the past.
The existence of voluntary uninsurance raises a profound public
policy question. Economists assume that if people choose A rather than
B they are revealing through their actions that they prefer A to B.
Further, if people act in accordance with their preferences one is
entitled to say they are better off from their own point of view.
From the economist's perspective, the case for doing something
about the uninsured rests on its effects on people other than the
uninsured. External effects, as shown below, are quite substantial; but
if the goal of the reform is to minimize external costs for others, the
reform looks quite different from a reform that focuses on the
uninsured.
policy proposals
A number of proposals seek to reduce or eliminate the problem of
uninsurance. For example, Physicians for a National Health Program
proposes a system of taxpayer-funded, free health care, making
government the universal insurer of everyone.\14\ Both major candidates
in the 2004 presidential campaign proposed offering tax subsidies for
private insurance, to individuals and to employers. All of these
proposals are highly expensive relative to any reasonable estimate of
their probability of success in insuring the uninsured. For example,
the National Center for Policy Analysis estimated that Senator John
Kerry's plan would have cost just over $1 trillion over 10 years.\15\
An American Enterprise Institute study placed the cost of the Kerry
plan at $1.5 trillion and President Bush's plan at $128.6 billion. This
results in a cost of $1,919 per newly insured individual for the Bush
plan (almost $8,000 for a family of four) and $5,494 for the Kerry plan
(almost $22,000 for a family of four). Using the candidates' own
figures, the Bush plan would have cost $1,667 per newly insured,
whereas the Kerry plan would have cost about double that amount.\16\
\17\
A different approach is to require individuals to purchase
insurance (much as it is now required that people who drive a car have
a driver's license) or to require employers to insure their own
employees. Proposals to impose mandates on the private sector typically
offer a pay-or-play option: either provide insurance or pay a sum of
money to the government and let the government handle the problem.
There are many problems with mandates, but the most important problem
is this: with a pay-or-play approach, no mandate is actually needed.
To the advocates of mandates, the question can always be asked:
What are you going to do with people who disobey the mandate? As a
practical matter, no one is suggesting that they be put in jail. One is
left with imposing a financial penalty (e.g., a fine). But a system
that fines people who are uninsured ipso facto is indistinguishable
from a system that subsidizes those who insure, the subsidy being the
absence of the fine. That is the system already in place.
reasons for uninsurance
Although most people in health policy believe that the existence of
millions of uninsured people is a major public policy problem,
politicians at both the State and Federal level are reflecting voter
indifference through their failure to act. The probable reason for this
indifference is that uninsured families discover how to get health care
even if they have no insurance. They do so in one of two ways: they
manage to get insurance after they get sick or they manage to get free
care.
A proliferation of State laws has made it increasingly easy for
people to obtain insurance after they get sick. Guaranteed issue
regulations (requiring insurers to take all comers, regardless of
health status) and community-rating regulations (requiring insurers to
charge the same premium to all enrollees, regardless of health status)
are a free rider's heaven. They encourage everyone to remain uninsured
while healthy, confident that they will always be able to obtain
insurance once they get sick. Moreover, as healthy people respond to
these incentives by electing to be uninsured, the premium that must be
charged to cover costs for those who remain in insurance pools rises.
These higher premiums, in turn, encourage even more healthy people to
drop their coverage.
Federal legislation has also made it increasingly easy to obtain
insurance after one gets sick. The Health Insurance Portability and
Accountability Act of 1996 had a noble intent to guarantee that people
who have been paying premiums into the private insurance system do not
lose coverage simply because they change jobs. A side effect of
pursuing this desirable goal is a provision that allows any small
business to obtain insurance regardless of the health status of its
employees. This means that a small, mom-and-pop operation can save
money by remaining uninsured until a family member gets sick.
Individuals can also opt out of their employer's plan and re-enroll
after they get sick (they are entitled to full coverage for a pre-
existing condition after an 18-month waiting period). A group health
plan can apply pre-existing condition exclusions for no more than 12
months except in the case of late enrollees to whom exclusions can
apply for 18 months.
The other lure is the existence of free care for those who cannot
or do not pay their medical bills. Although no one knows what the exact
number is, public and private spending on free care is considerable. A
study by the Texas State Comptroller's office found that Texas spent
about $1,000 per year on free care for every uninsured person in the
State, on the average (Fig. 2).\18\ A less comprehensive, but
nonetheless nationwide, study by the Urban Institute estimated that in
2001 the uninsured received nearly $90 billion in care, of which more
than one third was uncompensated charity care. Charity care by this
calculation was equal to about $767 per uninsured individual. If
uncompensated physician care is included (as it was in the Texas
study), the total likely approaches $1,000.\19\
The Texas estimate is almost 7 years old, and at an annual (health
care) rate of inflation of 10 percent, spending doubles every 7 years.
Assuming a more conservative increase of 50 percent puts spending on
the uninsured at almost $1,500 per person, or about $6,000 a year for a
family of four.
Interestingly, $6,000 is a sum adequate to purchase private health
insurance for a family in most Texas cities. One way to look at the
choice many Texas families face is: they can rely on $6,000 in free
care (on the average) or they can purchase a $6,000 private insurance
policy with after tax income. Granted, the two alternatives are not
exactly comparable. Families surely have more options if they have
private insurance. To many, however, the free care alternative seems
more attractive.
rationale for government
Aside from the burden of providing charity care to the poor, is
there any legitimate reason for government to care whether people have
health insurance? Although many reasons have been offered, the main and
by far the most persuasive is the ``free rider'' argument. According to
this argument, health insurance has social benefits, over and above the
personal benefits to the person who chooses to insure. The reason is
that people who fail to insure are likely to get health care anyway,
even if they cannot pay for it, because the rest of the community is
unwilling to allow the uninsured to go without health care, even if
their lack of insurance is willful and negligent.
This set of circumstances creates opportunities for some people to
be free riders on other people's generosity. In particular, free riders
can choose not to pay insurance premiums and to spend the money on
other consumption instead, confident that the community as a whole will
provide them with care even if they cannot pay for it when it is
needed. Being a free rider works because there is a tacit community
agreement that no one will be allowed to go without health care. This
tacit agreement is so established that it operates as a social contract
that many people substitute for a private insurance contract.
a proposal for reform
Fortunately, the concerns of the free rider argument can be met
without the disadvantage of other reform proposals. There can be a
system that provides a reasonable form of universal coverage for
everyone without spending more money and without intrusive and
unenforceable government mandates.
Changing the tax system
Currently, the Federal Government spends more than $189 billion a
year on tax subsidies for private insurance.\20\ The bulk of these
subsidies arise from the fact that employer payments for employee
health care are excluded from taxable employee income. Because State
tax laws tend to piggyback on the Federal tax system, these employer
payments avoid State income and payroll taxes. Consider a middle-income
family facing a 25 percent Federal income tax rate; a (employer and
employee combined) payroll tax rate of 15.3 percent; and a State income
tax of, say, 4 percent, 5 percent, or 6 percent. The ability to exclude
employer-paid premiums from taxation means that government is paying
almost half the cost of the family's insurance.
These generous tax subsidies undoubtedly encourage people who would
otherwise be uninsured to obtain employer-provided insurance. There are
three problems, however, with these tax subsidies the way they are
structured: (1) the largest subsidies are given to people who need them
least; (2) the subsidies are generally not available to most of the
uninsured; and (3) the penalties for being uninsured do not fund safety
net care.
Under the current system, families who obtain insurance through an
employer obtain a tax subsidy worth about $1,482 on the average.\20\
Not everyone, however, gets the average tax subsidy. Households earning
more than $100,000 per year receive an average subsidy of $2,780. By
contrast, those earning between $20,000 and $30,000 receive only $725
(Fig. 3). One reason is that those earning higher incomes are in higher
tax brackets. For example, a family in the 40 percent tax bracket gets
a subsidy of 40 cents for every dollar spent on their health insurance.
By contrast, a family in the 15 percent bracket (paying only the FICA
payroll tax) gets a subsidy of only 15 cents on the dollar.
The second problem is that people who do not obtain insurance
through an employer get virtually no tax relief if they purchase
insurance. Individuals paying out-of-pocket for health care can deduct
costs in excess of 7.5 percent of adjusted gross income. For instance,
a family with $50,000 in income is not able to deduct the first $3,750
in medical expenses. \21\ This means that a middle-income family buying
insurance directly must pay almost twice as much after taxes as a
similarly situated family whose employer is able to buy the same
insurance with pretax dollars. Because most of the uninsured are in
this situation, small wonder that reliance on a (free care) safety net
looms as an attractive alternative.
Because an uninsured family with an average income does not get a
tax subsidy, the family pays about $1,482 more in taxes than families
that have employer-
provided insurance. Instead of describing the current system as one
that subsidizes employer-provided insurance, it could, with equal
validity, be described as one that penalizes the lack of employer-
provided insurance.
Any incentive system can be described in one of two ways: as a
system that grants subsidies to those who insure and withholds them
from those who do not; or as a system that penalizes the uninsured and
refrains from penalizing the insured. Either description is valid,
because a subsidy is simply the mirror image of a penalty.
Under the current system the uninsured pay higher taxes because
they do not enjoy the tax relief given to those who have employer-
provided insurance. These higher taxes are a ``fine'' for being
uninsured. The problem is that the extra taxes paid are simply lumped
in with other revenues collected by the U.S. Treasury Department,
whereas the expense of delivering free care falls to local doctors and
hospitals.
How can these defects be corrected? First, a uniform, refundable
tax credit should be offered to every individual for the purchase of
private insurance. The Bush administration has proposed a $1,000 per
person refundable tax credit, or $3,000 per family. This tax credit
phases out as income rises, however, and virtually vanishes when family
income reaches about $80,000 (the author helped formulate the
administration's proposal). In general, social interest in whether
someone is insured is largely independent of income. In general, a
$100,000-a-year family can generate hospital bills it cannot pay almost
as easily as a $30,000-a-year family. One can readily grant that there
is no social reason to care whether Bill Gates is insured. There could
be an income or wealth threshold, beyond which the subsidy-penalty
system does not apply. As a practical matter, however, there are so few
individuals who would qualify for an exemption that uniform treatment
for everyone is administratively attractive. For this reason and
practical considerations, the tax credit should be independent of
income. Second, all forms of private insurance should be subsidized at
the same rate. There is no socially good reason why individuals who
cannot obtain insurance through an employer should be penalized when
they buy insurance on their own. Third, the higher taxes paid by people
who turn down the offer of the tax credit (and through that act elect
to be uninsured) should flow to local communities where the uninsured
live to be available to pay for care that uninsured patients cannot
afford to pay on their own.
Changing the Social Security net
The problem with the current system of spending subsidies is that
they encourage people to be uninsured. Why pay for expensive private
health insurance when free care provided through public programs is de
facto insurance? Think of the system that provides free health care
services as ``safety net insurance,'' and note that reliance on the
safety net is not as valuable to patients as ordinary private
insurance, other things equal. The privately insured patient has more
choices of doctors and hospital facilities. Further, safety net care is
probably much less efficient (e.g., using emergency rooms to provide
care that is more economic in a free-standing clinic). As a result, per
dollar spent the privately insured patient probably gets more care and
better care. It is in society's interest not to encourage people to be
in the public sector rather than the private sector.
To avert the perverse incentives the current system creates, people
who rely on the free care system should be able to apply those dollars
instead to the purchase of private insurance and the accompanying
private health care that private insurance makes possible. A mechanism
for accomplishing this result follows.
Integrating taxing and spending decisions
Let us now put the pieces together.\22\ \23\ Under an ideal system,
the government offers every individual a subsidy. If the individual
obtained private insurance, the subsidy is realized in the form of
lower taxes (in the form of a tax credit). Alternatively, if the
individual chose to be uninsured, the subsidy is sent to a safety net
agency in the community where the individual lives (Fig. 4).
The uniform subsidy should reflect the value society places on
having one more person insured. But what is that value? An empirically
verifiable number is at hand, so long as one is willing to accept the
political system as dispositive. It is the amount one expects to spend
(from public and private sources) on free care for that person when he
or she is uninsured. For example, if society is spending $1,500 per
year on free care for the uninsured, on the average, one should be
willing to offer $1,500 to everyone who obtains private insurance.
Failure to subsidize private insurance as generously as free care is
subsidized encourages people to choose the latter over the former.
One way to think of such an arrangement is to see it as a system
under which the uninsured as a group pay for their own free care. That
is, in the very act of turning down a tax credit (by choosing not to
insure) uninsured individuals pay extra taxes equal to the average
amount of free care given annually to the uninsured (Fig. 5).
How can the subsidies for those who choose to move from being
uninsured to insured be funded? By reversing the process: at the
margin, the subsidy should be funded by the reduction in expected free
care that person would have consumed if uninsured. Suppose everyone in
Dallas County chose to obtain private insurance, relying on a
refundable $1,500 Federal income tax credit to pay the premiums. As a
result, Dallas County no longer needs to spend $1,500 per person on the
uninsured. All of the money that previously funded safety net medical
care could be used to fund the private insurance premiums (Fig. 6).
In this way, people who leave the social safety net and obtain
private insurance actually furnish the funding needed to pay their
private insurance premiums, at least at the margin. They do this by
allowing public authorities to reduce safety net spending by an amount
equal to the private insurance tax subsidy. Some patients may be high
cost. In a private insurance market, insurers do not agree to insure
someone for $1,000 if his or her expected cost of care is, say, $5,000.
But if the safety net agency expects a $5,000 savings as a result of
the loss of a patient to a private insurer, the agency should be
willing to pay up to $5,000 to subsidize the private insurance premium,
The additional, higher subsidy could be incorporated into the tax
credit or added as a supplement to the tax credit.
Implementing reform
How can this scheme be implemented? To implement the program, all
the Federal Government needs to know is how many people live in each
community. In principle, it is offering each of them an annual $1,500
tax credit. Some will claim the full credit. Some will claim a partial
credit (because they will only be insured for part of a year). Others
will claim no credit. What the government pledges to each community is
$1,500 times the number of people. The portion of this sum that is not
claimed on tax returns should be available as block grants to be spent
on indigent health care.
How does the Federal Government manage to reduce safety net
spending when uninsured people elected to obtain private insurance?
Because much of the safety net expenditure already consists of Federal
funds, the Federal Government could use its share to fund private
insurance tax credits instead. For the remainder, the Federal
Government could reduce block grants to States for Medicaid and other
programs.
Advantages of reform
The goal of health insurance reform is not to get everyone insured
(indeed, everyone is already in a loose sense insured). Instead, the
goal is to reach a point at which there is societal indifference about
whether one more person obtains private insurance as an alternative to
relying on the social safety net. That is the point at which the
marginal cost (in terms of subsidy) to the remaining members of society
of the last person induced to insure is equal to the marginal benefit
to the remaining members of society (in terms of the reduction in cost
of free care). Once this condition is satisfied, it follows that the
number of people who remain uninsured is optimal, and that number is
not zero.
This is achieved by taking the average amount spent on free care
and making it available for the purchase of private insurance. In the
previous example, the government guarantees that $1,500 is available,
depending on the choice of insurance system. From a policy perspective,
there is indifference about the choice people make.
A common misconception is that health insurance reform costs money.
For example, if health insurance for 40 million people costs $1,500 a
person, some conclude that the government needs to spend an additional
$65 billion a year to get the job done. What this conclusion overlooks
is that $65 billion or more is already being spent on free care for the
uninsured, and if all 40 million uninsured suddenly became insured they
would free up the $65 billion from the social safety net.
At nearly $2 trillion a year,\24\ there is no reason to believe the
health care system is spending too little money. To the contrary,
attempting to insure the uninsured by spending more money has the
perverse effect of contributing to health care inflation. Getting all
the incentives right may involve shifting around a lot of money (i.e.,
reducing subsidies that are currently too large and increasing
subsidies that are too small). It may also mean making some portion of
people's tax liability contingent on proof of insurance.\25\ It need
not add to budgetary outlays.
There is virtually nothing in the tax code about what features a
health insurance plan must have to qualify for a tax subsidy. The
exceptions are mandated maternity coverage and coverage of a 48-hour
hospital stay after a well-baby delivery if requested by a patient and
physician. Insurance purchased commercially, around two-thirds of the
total, is regulated by the State governments. But the Federal tax
subsidy applies to whatever plans State governments allow to be
sold.\26\ In this sense, the Federal role is strictly financial. That
is, the current tax break is based solely on the number of dollars
taxpayers spend on health insurance, not on the features of the health
plans themselves.
This practice is sensible and should be continued. Aside from an
interest in encouraging catastrophic insurance, there is no social
reason why government at any level should dictate the content of health
insurance plans. To continue the example, the role of the Federal
Government should be to ensure that $1,500 is available. It should
leave the particulars of the insurance contract to the market, and it
should leave decisions about how to operate the safety net health care
to local citizens and their elected representatives.
Under the current system, when people lose or drop their employer-
provided insurance coverage, the Federal Government receives more in
taxes as a result. But it makes no extra contribution to any local
health care safety net. As a consequence, the growth in the uninsured
is straining the finances of many urban hospitals. The problem is
exacerbated by less generous Federal reimbursement for Medicaid and
Medicare and by increasing competitiveness in the hospital sector,
Traditionally, hospitals have covered losses that arise from people who
cannot pay for their care by overcharging those who can pay. But as the
market becomes more competitive, these overcharges are shrinking. There
is no such thing as ``cost shifting'' in a competitive market.
Under this proposal, there is a guaranteed, steady stream of funds
available to local communities who provide indigent care. The funding
expands and contracts as the number of uninsured expands and contracts.
summary
Reform of the United States health care system is less complicated
than it first might appear. The building blocks of an ideal system are
already in place. The Federal Government already generously subsidizes
private health insurance and safety net care. What is wrong with the
current system is that there are too many perverse incentives.
One could reasonably argue that government is doing more harm than
good, and that a laissez faire policy is better than what is now in
place. Nonetheless, if government is going to be involved in a major
way in the health care system, perverse incentives should be replaced
with neutral ones. At a minimum, government policy should be neutral
between private insurance and the social safety net, never spending
more on free care for the uninsured than it spends to encourage the
purchase of private insurance. Careful application of this principle
would go a long way toward creating an ideal health care system.
References
1. DeNavas-Walt C, Proctor BD, Mills RJ. Income, Poverty, and
Health Insurance Coverage in the United States: 2003. Current
Population Reports. Consumer Income P60-226. Washington (DC): U.S.
Census Bureau, U.S. Government Printing Office; 2004.
2. Nelson L. How Many People Lack Health Insurance and for How
Long? Congressional Budget Office, May 2003. Available at: http://
www.cbo.gov/showdoc.cfm?index=4210&sequence=0. Accessed July 25. 2005.
3. Alonso-Zaldivar SR. Number of Uninsured May Be Overstated,
Studies Suggest. Los Angeles Times April 20, 2005:Part A:14.
4. Mills RJ, Bhandari S. Health Insurance Coverage in the United
States: 2002. Current Population Reports. P60-223. Washington (DC):
U.S. Census Bureau, U.S. Government Printing Office; 2003.
5. Marquis S, Long SH. The Uninsured Access Gap: Narrowing the
Estimates. Inquiry 1994-1995;31:405-14.
6. Marquis S, Long SH. The Uninsured Access Gap and the Cost of
Universal Coverage. Health Aff (Millwood) 1994;13:11-20.
7. Davidoff A, Garrett B, Yemane A. Medicaid-Eligible Adults Who
Are Not Enrolled: Who Are They and Do They Get the Care They Need?
Urban Institute, Series A, No. A-48: Washington (DC): Urban Institute;
2002.
8. Dubay L, Haley J, Kenney G. Children's Eligibility for Medicaid
and SCHIP: A View From 2000. Urban Institute, Series B, No. B-41:
Washington (DC): Urban Institute; 2002.
9. The Uninsured in America. Lanham (MD): Blue Cross Blue Shield
Association: 2003.
10. Goodman J, Musgrave G, Herrick D. Lives At Risk: Single Payer
National Health Insurance Around the World. Lanham (MD): Rowman and
Littlefield: 2004.
11. Cunningham PJ, Schaefer E, Hogan C. Who Declines Employer-
Sponsored Health Insurance and Is Uninsured? Issue Brief No. 22.
Washington (DC): Center for Studying Health System Change; 1999.
12. Herrick DM. Is There a Crisis of the Uninsured? Brief Analysis
No. 484. Dallas (TX): National Center for Policy Analysis. 2004.
13. Yegian JM, Pockell DG, Smith MD, et al. The Nonpoor Uninsured
in California, 1998. Health Aff (Millwood) 2000;19:58-64.
14. Physicians' Working Group on Single-Payer National Health
Insurance. Proposal For Health Care Reform, Chicago: Physicians for a
National Health Program: 2001.
15. Goodman JC, Herrick DM. The Case Against John Kerry's Health
Plan. NCPA Policy Report No. 269. Dallas (TX): National Center for
Policy Analysis; 2004.
16. Antos J, King R, Wildsmith T. Analyzing the Kerry and Bush
Health Proposals: Estimates Of Cost and Impact. Washington (DC):
American Enterprise Institute: 2004.
17. Herrick DM. Bush Versus Kerry on Health Care. Brief Analysis
No. 468. Dallas (TX): National Center for Policy Analysis: 2004.
18. Texas Estimated Health Care Spending on the Uninsured, Austin
(TX): Texas Comptroller of Public Accounts: 1999.
19. Hadley J, Holahan J. How Much Medical Care Do the Uninsured
Use, and Who Pays For It? Health Aff (Millwood) 2003. Available at:
http//content.healthaffairs.org/cgi/reprint/hlthaff.w3.66v1. Accessed
July 25, 2005.
20. Sheils J, Haught R. The Cost of Tax-Exempt Health Benefits in
2004. Health Aff (Millwood) 2004. http://content.healthaffairs.org/cgi/
reprint/hlthaff.w4.106v1. Accessed July 25, 2005.
21. Topic 502 Medical and Dental Expenses, Internal Revenue
Service, U.S. Department of the Treasury. Available at: www.irs.gov/
taxtopics/tc502.html. Accessed July 25, 2005.
22. Goodman JC, Musgrave GL. Patient Power: Solving America's
Health Care Crisis. Washington: Cato Institute; 1992.
23. Etheredge L. A Flexible Benefits Tax Credit for Health
Insurance and More. Health Aff (Millwood). Available at: http://
content.healthaffairs.org/cgi/reprint/hlthaff.w1.1v1. Accessed July 25,
2005.
24. Heffler S, Smith S, Keehan S, et al. U.S. Health Spending
Projections for 2004-2014. Health Aff (Millwood) 2005. Available at:
http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.74v1. Accessed
July 25, 2005.
25. Steuerle CE. Child Credits: Opportunity at the Door. Washington
(DC): Urban Institute; 1997.
26. Marquis MS, Long SH. Recent Trends in Self-Insured Employer
Health Plans. Health Aff (Millwood) 1999; 18:161-6.
______
PERSPECTIVE--What Is Consumer-Directed Health Care?
Comparing Patient Power With Other Decision Mechanisms
ABSTRACT: To control health care costs, someone must choose between
health care and other uses of money. The value of most health care is
experienced subjectively, as is the value of other goods and services.
No one is in a better position to make these subjective trade-offs than
patients themselves. The current system not only systematically denies
patients the opportunity to make such choices, it distorts the
incentives of providers in the process. Chronic patients in particular
would be much better off if they could manage more of their own health
care dollars and if providers were free to compete to meet their needs.
[Health Affairs 25 (2006): w540-w543 (published online 24 October 2006;
10.1377/ hlthaff.25.w540)]
Consumer-directed health care (CDHC) is a potential solution to two
perplexing problems: (1) how to choose between health care and other
uses of money, and (2) how to allocate resources in an industry where
normal market forces have been systematically suppressed. Unfortunately
the paper by Melinda Beeuwkes Buntin and colleagues does not discuss
the problems that CDHC advocates set out to solve.\1\ Because they do
not acknowledge that health care has to be rationed, the authors do not
compare patient power with other decision mechanisms. Because they do
not acknowledge that scarce resources must be allocated among unlimited
wants, they do not compare price rationing with other rationing
schemes. I promise to be more direct.
the need to ration health care
One of the cardinal beliefs of advocates of single-payer health
insurance (and one that is shared by many advocates of the health
maintenance organization, or HMO, form of health care delivery) is that
health care should be free at the point of consumption, regardless of
willingness or ability to pay. But if health care really were free (and
easily accessible), people would have at least an economic incentive to
use health care until its value at the margin approaches zero. That
would imply an enormous amount of waste.
Granted, the current system of third-party payment discourages many
expenditures by failing to cover them (even if useful) and by erecting
barriers such as waiting for care. But even the current payment system
is unstainable. Christian Hagist and Laurence Kotlikoff have shown that
if health care spending grows at the rate of the past 30 years, it will
equal one-third of national income by mid-century, when today's college
students reach retirement age.\2\ If private spending on health care
keeps up with public spending, the Nation will devote about two-thirds
of its income to health care by 2050--roughly equal to total
consumption of all goods and services today.
Patients as choosers. To avoid this disastrous scenario, someone
must choose between health care and other uses of money. The question
is: Who will that someone be?
Critics of CDHC are fond of pointing out that there are times when
patient choice is not desirable or appropriate. They are, of course,
correct. We do not want a parent to choose not to have her child
vaccinated; or an at-risk expectant mother to avoid prenatal care; or a
heart patient to eschew aspirin or beta blockers. The reason: There is
overwhelming evidence that the social benefits of such care exceed its
social costs.\3\ Yet instances where we are sure that we know which
alternative is best are rarer than one might suppose. At the other
extreme, in thousands of cases, only the patient can make the right
choice.
Take arthritic pain relief. The annual cost of brand name drugs
runs about $800 more than over-the-counter (OTC) substitutes, and they
are riskier (Vioxx and Bextra, for example, have been removed from the
market). Is the extra cost and risk worth the marginal improvement in
pain relief offered by the prescription drug? Since drugs affect
different people differently, we cannot determine for someone else
which is more valuable. So it is appropriate and desirable for people
to make these decisions themselves--to reap the full benefits and bear
the full costs of their decisions.
Mechanisms for choosing. Buntin and her colleagues define consumer-
directed health care as high-deductible health plans. This is
unfortunate.\4\ Although there is no doubt that high deductibles reduce
spending, the question is: Why? Patients who are liquidity-constrained
might forgo care--not because it is less valuable than other uses of
money, but because (living paycheck to paycheck) they might not have
the cash. This is why virtually all CDHC advocates endorse individual
self-insurance through a funded account.
With a properly designed health savings account (HSA), people will
not spend a dollar on health care services unless they get a dollar's
worth of value.\5\ With a properly designed insurance plan, people will
self-insure for expenses for which individual choice is appropriate and
desirable.\6\ The HSA design required by Federal law falls short of
these ideals.\7\
The law also requires employers to make the same deposit to every
employee's account--despite the fact that actual health care costs vary
radically among employees. Additionally, the law virtually forces
employees to use their HSAs in a way that piggybacks on the current
payment system rather than fundamentally challenging it. For example,
even if the patient saves money by buying an OTC drug rather than a
prescription drug, his or her spending does not count toward the
deductible unless the OTC drug is covered by the plan (which is
typically not the case).
Despite these defects, HSAs are a small but important step in the
direction of a health care system in which individuals ration their own
health care, instead of having those decisions made by impersonal
bureaucracies or doctors who answer to those bureaucracies.
the need to allocate resources
On average, every time Americans spend a dollar on physician
services, only 10 cents is paid for out-of-pocket; the remainder is
paid by a third party--an employer, insurance company, or
government.\8\ From a purely economic perspective, then, our incentive
is to consume physician services until their value to us is only 10
cents on the dollar. Clearly, we are not rationing health care on the
basis of price.
In general, the physicians time is rationed based on patients'
willingness and ability to pay for care with time rather than money.
Physicians, by contrast, are paid by task. This suppression of the
price system has been bad for patients in a number of ways.
Lack of telephone and e-mail consultations. Whereas lawyers and
other professionals routinely communicate with their clients by phone
and e-mail, it is very rare for physicians to communicate that way,
even for routine prescriptions.\9\ Why? The short answer: They do not
get paid for these types of consultations.\10\ Medicare does not pay
for them, nor does Medicaid or most private insurance.
The fact that patients cannot conveniently consult with physicians
leads to two bad consequences. First, the unnecessary office visitors
(say, patients who have a cold) expect at least a prescription in
return for their investment of waiting time, and all too often the drug
will be an antibiotic. Were telephone consultations possible, the
physician might recommend an OTC remedy, thus avoiding the cost of
waiting for the patient and the cost of degrading the effectiveness of
antibiotics for society as a whole.
At the same time, rationing by waiting imposes disproportionate
costs on patients who need more contact with physicians: the
chronically ill. This might be one reason why so many are not getting
what they most need from primary care physicians and what is most
likely to prevent more costly problems later on: prescription
drugs.\11\ The ability to consult with doctors by phone or e-mail could
be a boon to chronic care. Face-to-face meetings with physicians would
be less frequent, especially if patients learned how to monitor their
own conditions and manage their own care.
Lack of electronic health records. Whereas the computer is
ubiquitous in our society and studies show that electronic health
record (EHR) systems have the capacity to improve quality and greatly
reduce medical errors, no more than one in five physicians or one in
four hospitals have such systems.\12\ Why are most medical records
still stored on paper? Again, the short answer is this: There is no
financial incentive not to do so. For the most part, we collect,
manage, and distribute most medical information by means of ``pen,
paper, telephone, fax, and Post-It note'' because doctors cannot get
compensated for making an investment in computer technology.\13\
Inadequate advice about drugs and other therapies. Why do doctors
so often prescribe brand name drugs and fail to tell patients about
generic, therapeutic, and OTC substitutes? Why do they typically not
know the price of the drugs they prescribe or the costs of
alternatives? Once again, the short answer is this: They do not get
paid to know these things. Knowing the current best price, knowing
where the patient can obtain that price, and knowing all the prices and
availabilities of all of the alternatives is demanding and time-
consuming. For the doctor, it is time that is not compensated.
Inadequate patient education. Numerous studies have shown that
chronic patients can often manage their own care, with lower costs and
as good or better health outcomes than with traditional care.
Diabetics, for example, can monitor their own glucose levels, alter
their medications when needed, and reduce the number of trips to the
emergency room (ER).\14\ Similarly, asthmatics can monitor their peak
airflows, adjust their medications, and also reduce ER visits.\15\
The problem is, to take full advantage of these opportunities,
patients need training, which they rarely receive. ER doctors could
save themselves and future doctors the necessity of a lot of future ER
care if they take the time to educate the mother of a diabetic or
asthmatic child about how to monitor and manage the child's health
care. But time spent on such education is not billable.
Lack of competition for patients. One consequence of rationing by
waiting is that doctors have little incentive to compete for patients
the way other professionals compete for clients. Unless a primary care
physician is starting a new practice or working in a rural area, his or
her time is usually fully booked. As a result, neither a loss of some
existing patients nor a gain of a few new patients has much effect on
the doctor's income. Loss of some existing patients, for example, would
tend to reduce the average waiting time for the remaining patients. But
with shorter waiting times, those patients would be encouraged to make
more visits. Conversely, a gain of new patients would tend to lengthen
waiting times, causing some patients to reduce their number of visits.
Because time, not money, is the currency we use to pay for care, the
physician doesn't benefit (very much) from patient-pleasing
improvements and is not harmed (very much) by an increase in patient
irritations.
rationing by waiting versus rationing by price
Virtually all of the features of our health care system discussed
above are the direct result of the way in which we pay for health care.
We compensate physicians in ways that are different from the way we pay
for other professional services, and those differences create problems
in the medical marketplace that do not arise (at least to the same
degree) in other markets. The principal payment methods, moreover, are
not the natural result of free-market forces. They are instead the
product of distortions created by public policies.
Would physicians practice medicine differently if they were paid
differently? There is ample evidence that the answer is yes. Unlike
other forms of surgery, the typical cosmetic surgery patient can (1)
find a package price in advance covering all services and facilities,
(2) compare prices prior to the surgery, and (3) pay a price that is
lower in real terms than the price charged a decade ago for comparable
procedures--despite considerable technological innovations in the
interim.\16\
Ironically, many physicians who perform cosmetic surgery also
perform other types of surgery. The difference in behavior is
apparently related to how they are paid. A cosmetic surgery transaction
has all of the characteristics of a normal market transaction in which
the seller has a financial interest in how all aspects of the
transaction affect the buyer. In more typical doctor-patient
interactions, doctors are not paid to be concerned about all aspects of
care and therefore typically ignore the effects on the patient of the
cost of time, the cost of drugs, and other ancillary costs. And what is
true for U.S. doctors in general is also true of doctors who practice
in the government-run health systems of other developed countries.
Endnotes
1. M.B. Buntin et al., ``Consumer-directed Health Care: Early
Evidence about Effects on Cost and Quality'' Health Affairs 25 (2006):
w516-w530 (published online 24 October 2006; 10.1377/ hlthaff.25.w516).
2. C. Hagist and L.J. Kotlikoff, ``Health Care Spending: What the
Future Will Look Like,'' Policy Report no. 286 (Dallas: National Center
for Policy Analysis, 28 June 2006).
3. See T.O. Tengs, et al., ``Five-Hundred Life-Saving Interventions
and Their Cost-Effectiveness,'' Risk Analysis 15, no. 3 (1995): 369-
390.
4. An irritating feature of Buntin and colleagues' paper is that
the authors appear not to have read anything that CDHC proponents have
written, even while commenting on their goals and objectives. The term
was introduced by Harvard Business School professor Regina Herzlinger.
See R.E. Herzlinger, ed., Consumer-driven Health Care: Implications for
Providers, Payers, and Policymakers (San Francisco: Jossey-Bass, 2004);
and R.E. Herzlinger, Market-driven Health Care (Reading, Mass.:
Addison-Wesley, 1996). The concept of the health savings account was
first introduced in J.C. Goodman and G.L. Musgrave, Patient Power
(Washington: Cato Institute, 1993).
5. MV Pauly and J.C. Goodman, ``Tax Credits for Health Insurance
and Medical Savings Accounts,'' Health Affairs 14, no. 1 (1995): 126-
139.
6. J.C. Goodman, ``Designing Health Insurance for the Information
Age,'' in Consumer-driven Health Care, ed. Herzlinger, 224-241.
7. J.C. Goodman, ``Making HSAs Better,'' Brief Analysis no. 518
(Dallas: NCPA, 2005).
8. C. Smith et al., ``Health Spending Growth Slows in 2003,''
Health Affairs 24, no. 1 (2005): 192.
9. Health on the Net Foundation, ``Evolution of Internet Use for
Health Purposes,'' February/March 2001, http://www.hon.ch/Survey/
FebMar2001/.survey.html (accessed 11 July 2006).
10. C. Wiebe, ``Doctors Still Slow to Adopt Email Communication,''
Medscape Money and Medicine 2, no. 1 (2001).
11. See J.D. Kleinke, ``Access versus Excess: Value-based Cost
Sharing for Prescription Drugs,'' Health Affairs 23, no. 1 (2004): 34-
47.
12. R. Hillestad et al., ``Can Electronic Medical Record Systems
Transform Health Care? Potential Health Benefits, Savings, and Costs,''
Health Affairs 24, no. 5 (2005): 1103-1117.
13. J.D. Kleinke, ``Dot-Gov: Market Failure and the Creation of a
National Health Information Technology System,'' Health Affairs 24, no.
5 (2005): 1246-1262.
14. See S.L. Norris, M.M. Engelgau, and K. Narayan, ``Effectiveness
of Self-
Management Training in Type 2 Diabetes: A Systematic Review of
Randomized Controlled Trials,'' Diabetes Care 24, no. 3 (2001): 561-
587.
15. P.G. Gibson, et al., ``Self-Management Education and Regular
Practitioner Review For Adults With Asthma,'' Cochrane Database of
Systematic Reviews no. 3 (2002): CD001117.
16. D.M. Herrick, ``Why Are Health Costs Rising?'' Brief Analysis
no. 437 (Dallas: NCPA, May 2003).
Chairman Kennedy. Very good.
Ms. Davis.
STATEMENT OF KAREN DAVIS, PRESIDENT, THE COMMONWEALTH FUND, NEW
YORK, NY
Ms. Davis. Thank you, Mr. Chairman and members of the
committee, for this invitation to testify.
As you've shown, the search for effective strategies to
extend health insurance coverage to all Americans and contain
costs is urgent. Other countries are achieving universal
coverage. They have much lower spending per capita. We're about
twice what other countries spend. We spend 16 percent of GDP,
they spend 8 to 10 percent, and they achieve, on the whole, the
same, or better, health outcomes. By contrast, 40 percent of
U.S. adults report not getting needed care in the United States
because of costs. That's a rarity in other countries. U.S.
patients find it much more difficult to get in to see their
physician on the same day, or to receive care after regular
hours. Americans are much less likely to have been with the
same physician for 5 years or more, and only one in four
American primary care physicians report use of electronic
medical records, and that's compared with over 90 percent in
countries like Denmark, the Netherlands, New Zealand, and the
United Kingdom. The fragmentation of the U.S. health insurance
system leads to much higher administrative costs.
The key question is how other countries achieve universal
coverage and greater efficiency, while maintaining and
improving the quality of care for all. There are a number of
examples in my testimony, but I'd like to just illustrate with
the case of Denmark.
Public satisfaction with the health system is higher in
Denmark than in any other country in Europe. Denmark has
universal health insurance coverage, as is true of most
European countries, with no patient cost-sharing for physician
and hospital services. Every Dane selects a primary care
physician, who receives a monthly fee for serving as the
patient's medical home, in addition to fee for services that
they provide. Patients can easily obtain care on the same day
if they are sick or need medical attention.
Denmark has an organized evening and weekend service. After
regular hours, physicians on duty are paid for providing
telephone advice, writing prescriptions by computer or
electronically, or treating patients at clinics. All primary
care physicians are required to have an electronic medical
records system, and they do, all of the GPs, and are paid for
e-mail consultations. The easy accessibility of physician
advice by phone or e-mail cuts down markedly on both physician
and patient time. Physicians are supported by a nationwide
health information exchange, which is a repository of
electronic information on each patient's medications, tests,
and prior medical history, and it costs $2 million a year for
5.3 million Danes, 40 cents a person.
There are many other examples of innovative practices that
the United States might wish to investigate more closely and
potentially adapt. Achieving a high-performance health care
system that has high-quality, safe, effective, and accessible
care for all requires a number of things that have been talked
about today: extending health insurance coverage to all;
supporting research and innovation to improve quality and
safety and the spread of best practices; having patient-
centered medical homes and organized off-hours care; public
information on cost and quality; financial rewards for quality
and efficiency, and information technology, as well as a health
information exchange system, to pool that information; emphasis
on a primary care workforce; but, most of all, it requires
national leadership.
Thank you very much.
[The prepared statement of Ms. Davis follows:]
Prepared Statement of Karen Davis
executive summary
Thank you, Mr. Chairman and members of the committee, for this
invitation to testify today on a problem of concern to all Americans:
gaps in health insurance coverage and rising health care costs.
The search for effective strategies to extend health insurance
coverage to more Americans and contain costs is urgent. One-third of
all Americans and two-thirds of low-income Americans are uninsured or
underinsured at some point during the year. Family health insurance
premiums have risen 87 percent since 2000 while median family incomes
have only increased by 11 percent. One-third of families now report
medical bill or medical debt problems. We spend 16 percent of our Gross
Domestic Product on health care, yet we fall short of reaching
achievable benchmark levels of quality care.
The key question is how to achieve improved coverage and greater
efficiency while maintaining or improving quality. Other countries are
achieving universal coverage, much lower spending per capita, and
better health outcomes. While the United States is unlikely to adopt
another country's health system in all its aspects, it is instructive
to review what we know about the U.S. health system compared to that of
other nations, and highlight examples of high performance and
innovative practices that may provide insights relative to the current
U.S. challenge of simultaneously achieving better access, higher
quality, and greater efficiency.
u.s. health system performance lags behind many
other industrialized nations
The United States spends almost $2 trillion, or $6,700 per person
on health care--more than twice what other major industrialized
countries spend, and spending in the United States rose faster than
other countries in the last 5 years. Yet the United States is also
alone among major industrialized nations in failing to provide
universal health coverage. This undermines performance of the U.S.
health system in multiple ways. Forty percent of United States adults
report not getting needed care because of cost. And almost one-fourth
of sicker adults in the United States wait 6 or more days to see a
doctor, compared with one in seven or less in New Zealand, German,
Australia, or the United Kingdom.
The United States also stands out for difficulty obtaining care on
nights and weekends. Only 40 percent of U.S. physicians say they have
an arrangement for after-hours care, compared with virtually all
primary care physicians in the Netherlands.
On key health outcome measures the United States is average or
worse. On mortality from conditions that are preventable or treatable
with timely, effective medical care, the United States ranked 15th out
of 19 countries.
And the U.S. health care system also fails to ensure accessible and
coordinated care for all patients. Only 42 percent of Americans have
been with the same physician for 5 years or more, compared with nearly
three-fourths of patients in other countries. While patients in the
United States may need to change physicians when their employers change
coverage, many other countries encourage or require patients to
identify a ``medical home'' which is their principal source of primary
care, responsible for coordinating specialist care when needed.
U.S. patients are more likely to report medical errors than
residents of other countries. Overall one-third of sicker adults in the
United States reported such errors in 2005, compared with one-fourth in
other countries. And finally, only about one-fourth of U.S. primary
care physicians report use of electronic medical records--compared with
9 in 10 primary care physicians in the Netherlands, New Zealand, and
the United Kingdom.
The fragmentation of the U.S. health insurance system leads to much
higher administrative costs as well. In 2005, the U.S. health system
spent $143 billion on administrative expenses, and in 2004, if the
United States had been able to lower the share of spending devoted to
insurance overhead to the same level found in the three countries with
the lowest rates (France, Finland, and Japan), it would have saved $97
billion a year.
innovations in other countries that provide examples
of high performance
Through the Commonwealth Fund's 9-year experience conducting
comparative surveys of the public and health professionals in selected
countries, I'm pleased to share with the committee selected innovations
that stand out as possibilities for the United States to consider--in
Denmark, the Netherlands, Germany, and the United Kingdom.
Public satisfaction with the health system is higher in Denmark
than any country in Europe. This is related to the emphasis Denmark
places on patient-centered primary care, which is highly accessible and
supported by an outstanding information system that assists primary
care physicians in coordinating care. Denmark, like most European
countries, has universal health insurance, with no patient cost-sharing
for physician or hospital services. Every Dane selects a primary care
physician who receives a monthly payment for serving as the patient's
medical home, in addition to fees for services provided. Patients can
easily obtain care on the same day if they are sick or need medical
attention.
But what most impresses me about the Danish system is its organized
``off-hours service.'' In every county, clinics see patients at nights
and weekends. Physicians directly take calls from patients and can
access computerized patient records. They can electronically prescribe
medications, or ask the patient to come in to see a physician on duty.
Physicians are paid for the telephone consultation, and paid a higher
fee if the problem can be handled by phone. The patient's own primary
care physician receives an e-mail the next day with a record of the
consultation.
All primary care physicians (except a few near retirement) are
required to have an electronic medical record system, and 98 percent
do. Danish physicians are paid for e-mail consultations with patients.
The easy accessibility of physician advice by phone or e-mail, and
electronic systems for prescriptions and refills cuts down markedly on
both physician time and patient time. Primary care physicians save an
estimated 50 minutes a day from information systems--a return that
justifies their investment in a practice information technology system.
Physicians are supported by a nationwide health information
exchange, which is a repository of electronic prescriptions, lab and
imaging orders and test results, specialist consult reports, and
hospital discharge letters, accessible to patients, and authorized
physicians and home health nurses. It now captures 87 percent of all
prescription orders; 88 percent of hospital discharge letters; 98
percent of lab orders; and 60 percent of specialist referrals. Yet, its
operating cost is only $2 million a year, or 40 cents per person.
Germany is a leader in national hospital quality benchmarking, with
real-time quality information available on all 2,000 German hospitals
with over 300 quality indicators for 26 conditions. Peers visit
hospitals whose quality is substandard, and enter into a ``dialogue.''
Typically within a few years all hospitals come up to high standards.
Germany has instituted disease management programs and clinical
guidelines for chronic care, with financial incentives to develop and
enroll patients and be held accountable for care with early results
showing positive effects on quality.
The Netherlands stands out for its leadership on transparency in
reporting quality data, as well as its own approach to primary care and
``after hours'' care arrangements. Although most Dutch primary care
practices are solo practices, they support each other through a
cooperative including an after hours nurse and physician call bank
service. The Dutch government funds nurse practitioners based in
physician practices to manage chronic disease. Under national reforms
implemented in 2006, payments to Dutch doctors now blend capitation,
fees for consultations, and payments for performance.
The United Kingdom General Practitioner contract in April 1, 2004
provided bonuses to primary care physicians for reaching quality
targets. Far more physicians met the targets than anticipated, leading
to a controversial cost over-run, but demonstrating that financial
incentives do change physician behavior. The United Kingdom National
Institute of Clinical Effectiveness conducts cost-effectiveness review
of new drugs and technology. The United Kingdom also publishes
extensive information on hospital quality and surgical results by name
of hospital and surgeon.
These are just a few examples of innovative practices that the
United States might wish to investigate more closely and potentially
adapt. Most, however, require leadership on the part of the central
government to set standards, ensure the exchange of health information,
and reward high performance on quality and efficiency.
conclusion
The United States has the world's costliest health system yet still
fails to provide everyone with access to care--and falls far short of
providing the safe, high-quality care that is possible to provide. The
conclusion that there is room for improvement is inescapable. Achieving
a high-performance health care system--high-quality, safe, efficient,
and accessible to all--will require a major change in the U.S. system
of delivering health services. Steps we can take include:
Extending health insurance to all, in order to improve
access, quality, and efficiency;
Assessing innovations leading to high performance within
the United States and internationally and adopting best practices;
Organizing the care system to ensure coordinated and
accessible care to all;
Increasing transparency and rewarding quality and
efficiency;
Expanding the use of information technology and systems of
health information exchange;
Developing the workforce required to foster patient-
centered and primary care; and
Encouraging leadership and collaboration among public and
private stakeholders dedicated to achieving a high performance health
system.
These steps would take us a long way toward ensuring that the
United States is a high-performing health system worthy of the 21st
century. Thank you very much for the opportunity to join this panel. I
look forward to learning from my fellow panelists and answering any
questions.
______
Learning From High Performance Health Systems Around the Globe
Thank you, Mr. Chairman and members of the committee, for this
invitation to testify today on a problem of concern to policymakers,
employers, health care leaders, and insured and uninsured Americans
alike: gaps in health insurance coverage and rising health care costs.
The search for effective coverage and cost-containment strategies is of
great urgency. One-third of all Americans and two-thirds of low-
income Americans are uninsured at some point during the year or are
underinsured.\1\ Family health insurance premiums under employer plans
have risen 87 percent since 2000 while median family incomes have only
increased by 11 percent.\2\ As a result, one-third of families now
report medical bill or medical debt problems, and the problem is
growing rapidly for middle class families.\3\ We spend 16 percent of
our Gross Domestic Product on health care, yet we fall short of
reaching achievable benchmark levels of quality care.\4\
---------------------------------------------------------------------------
\1\ C. Schoen, K. Davis, S.K.H. How, and S.C. Schoenbaum, ``U.S.
Health System Performance: A National Scorecard,'' Health Affairs Web
Exclusive (Sept. 20, 2006):w457-w475; C. Schoen, M.M. Doty, S.R.
Collins, and A.L. Holmgren, ``Insured but Not Protected: How Many
Adults Are Underinsured?'' Health Affairs Web Exclusive (June 14,
2005):w289-w302.
\2\ P. Fronstin and S.R. Collins, The 2nd Annual EBRI/Commonwealth
Fund Consumerism in Health Care Survey, 2006: Early Experience With
High-Deductible and Consumer-Driven Health Plans (New York: The
Commonwealth Fund, Dec. 2006).
\3\ S.R. Collins, K. Davis, M.M. Doty, J.L. Kriss, and A.L.
Holmgren, Gaps in Health Insurance: An All-American Problem (New York,
The Commonwealth Fund, Apr. 2006); S.R. Collins, J.L. Kriss, K. Davis,
M.M. Doty, and A.L. Holmgren, Squeezed: Why Rising Exposure to Health
Care Costs Threatens the Health and Financial Well-Being of American
Families (New York: The Commonwealth Fund, Sept. 2006).
\4\ K. Davis, C. Schoen, S. Guterman, T. Shih, S.C. Schoenbaum, and
I. Weinbaum, Slowing the Growth of U.S. Health Care Expenditures: What
Are the Options? (New York: The Commonwealth Fund, Jan. 2007).
---------------------------------------------------------------------------
Broad consensus now exists on the need for action. A recent survey
of health care opinion leaders placed expanding coverage for the
uninsured and enacting reforms to moderate rising health care costs at
the top of a list of health care priorities for Congress.\5\ Their
priorities are the public's priorities as well. Ensuring that all
Americans have adequate, reliable health insurance and controlling the
rising cost of medical care were cited in a survey of U.S. adults last
summer as the two top health care priorities for the President and
Congress.\6\
---------------------------------------------------------------------------
\5\ A.L. Holmgren, K. Davis, S. Guterman, and B. Scholl, Health
Care Opinion Leaders' Views on Priorities for the New Congress (New
York: The Commonwealth Fund, Jan. 2007).
\6\ C. Schoen, S.K.H. How, I. Weinbaum, J.E. Craig, Jr., and K.
Davis, Public Views on Shaping the Future of the U.S. Health System
(New York: The Commonwealth Fund, Aug. 2006)
---------------------------------------------------------------------------
The key question is how to achieve both these goals while
maintaining or improving the quality of care for all. Insight is
provided by contrasting the experience of the United States with that
of other countries. There is now extensive evidence that other
countries are achieving universal coverage, much lower spending per
capita, and better health outcomes.\7\ Given its history, institutions,
and preferences, the United States is unlikely to adopt another
country's health system in all its aspects, but it can learn from
examples of practices that contribute to high performance. Today, I
would like to share with the committee what we know about the U.S.
health system compared to that of other countries, and highlight some
examples of high performance and innovative practices in countries like
Denmark, the Netherlands, and Germany, among others, that provide
potential solutions to the current U.S. challenge of simultaneously
achieving better access, higher quality, and greater efficiency.
---------------------------------------------------------------------------
\7\ C. Schoen, R. Osborn, P.T. Huynh, M.M. Doty, J. Peugh, and K.
Zapert, ``On the Front Lines of Care: Primary Care Doctors' Office
Systems, Experiences, and Views in Seven Countries,'' Health Affairs
Web Exclusive (Nov. 2, 2006):w555-w571; C. Schoen, R. Osborn, P.T.
Huynh, M. Doty, K. Zapert, J. Peugh, and K. Davis, ``Taking the Pulse
of Health Care Systems: Experiences of Patients with Health Problems in
Six Countries,'' Health Affairs Web Exclusive (Nov. 3, 2005):w509-w525;
P.S. Hussey, G.F. Anderson, R. Osborn et al., ``How Does the Quality of
Care Compare in Five Countries?'' Health Affairs, May/June 2004
23(3):89-99.
---------------------------------------------------------------------------
This assessment of innovations leading to high performance
internationally confirms and underscores the work of the Commonwealth
Fund's Commission on a High Performance Health System that has
identified seven keys to a high performance health system in the United
States:
Extending health insurance to all;
Pursuing excellence in the provision of safe, effective,
and efficient care;
Organizing the care system to ensure coordinated and
accessible care to all;
Increasing transparency and rewarding quality and
efficiency;
Expanding the use of information technology and systems of
health information exchange;
Developing the workforce required to foster patient-
centered and primary care; and
Encouraging leadership and collaboration among public and
private stakeholders dedicated to achieving a high performance health
system.\8\
---------------------------------------------------------------------------
\8\ The Commonwealth Fund Commission on a High Performance Health
System, Framework for a High Performance Health System for the United
States (New York: The Commonwealth Fund, Aug. 2006).
national health expenditures and value for money
Nothing makes it clearer that something is amiss than the contrast
between health spending in the United States and health spending in
other countries. The United States spends almost $2 trillion, or $6,700
per person on health care--more than twice what other major
industrialized countries spend. (Figure 1) \9\ Even in contrast to its
substantial economy, the United States spends 16 percent of GDP on
health care, while other countries spend 8 to 10 percent. Health
spending in the United States rose faster than other countries in the
last 5 years, while countries with high spending such as Germany and
Canada moderated their growth, and countries with low spending such as
the United Kingdom increased outlays as a matter of deliberate public
policy.
---------------------------------------------------------------------------
\9\ A. Catlin, C. Cowan, S. Heffler, B. Washington, and the
National Health Expenditure Accounts Team, ``National Health Spending
in 2005: The Slowdown Continues,'' Health Affairs Jan./Feb. 2007
26(1):142-153.
All countries face rising costs from technological change, higher
prices of pharmaceutical products, and aging of the population. In
fact, the population in most European countries already has the age
distribution that the United States will experience in 20 years. Nor is
the difference in spending attributable to rationing care. In fact, the
United States has lower rates of hospitalization and shorter hospital
stays than most other countries.\10\ One difference is that the United
States tends to pay higher prices for prescription drugs; in other
countries governments typically negotiate on behalf of all residents to
achieve lower prices.\11\
---------------------------------------------------------------------------
\10\ B. Frogner and G. Anderson, Multinational Comparisons of
Health Systems Data, 2005 (New York: The Commonwealth Fund, Apr. 2006).
\11\ G.F. Anderson, D.G. Shea, P.S. Hussey et al., ``Doughnut Holes
and Price Controls,'' Health Affairs Web Exclusive (July 21, 2004):W4-
396-W4-404; G. Anderson, U.E. Reinhardt, P.S. Hussey et al., and V.
Petrosyan, ``It's the Prices, Stupid: Why the United States Is So
Different from Other Countries,'' Health Affairs May/June 2003
22(3):89-105.
---------------------------------------------------------------------------
The United States is alone among major industrialized nations in
other respects. Over half of health care spending is paid for
privately, compared with about one-fourth or less in other countries.
Ironically, because the United States is so expensive, the government--
while it accounts for only 45 percent of all health care spending--
spends as much as a percent of GDP on health care as do other countries
with publicly financed health systems.\12\
---------------------------------------------------------------------------
\12\ B. Frogner and G. Anderson, Multinational Comparisons of
Health Systems Data, 2005 (New York, NY: The Commonwealth Fund, Apr.
2006).
---------------------------------------------------------------------------
Another striking difference is that the United States has fewer
physicians per capita than other countries, and many more of our
physicians are specialists.\13\ Research both within the United States
and across countries has shown that health care spending is higher and
health outcomes worse when there is a lower ratio of primary care to
specialist physicians.\14\ In the United States, patients face a more
fragmented health care system, are cared for by different physicians
for different conditions, have poorer care coordination, and take more
medications, which contribute to higher rates of medical errors.\15\
More things can and do go wrong when care is provided by multiple
parties. In fact in 2006, 42 percent of U.S. adults reported one of
four experiences in the prior 2 years: their physicians ordered a test
that had already been done; their physician failed to provide important
medical information or test results to other doctors or nurses involved
in their care; they incurred a medical, surgical, medication, or lab
test error; or their physician recommended care or treatment that in
their view was unnecessary.\16\
---------------------------------------------------------------------------
\13\ G.F. Anderson, B.K. Frogner, R.A. Johns, and U.E. Reinhardt,
``Health Care Spending and Use of Information Technology in OECD
Countries,'' Health Affairs May/June 2006 25(3):819-831.
\14\ J.S. Skinner, D.O. Staiger, and E.S. Fisher, ``Is
Technological Change in Medicine Always Worth It? The Case of Acute
Myocardial Infarction,'' Health Affairs Web Exclusive (Feb. 7,
2006):w34-w47; B. Starfield, L. Shi, and J. Macinko, ``Contribution of
Primary Care to Health Systems and Health,'' The Milbank Quarterly,
2005 83(3):457-502.
\15\ C. Schoen, R. Osborn, P.T. Huynh, M. Doty, K. Zapert, J.
Peugh, and K. Davis, ``Taking the Pulse of Health Care Systems:
Experiences of Patients with Health Problems in Six Countries,'' Health
Affairs Web Exclusive (Nov. 3, 2005):w509-w525.
\16\ C. Schoen, S.K.H. How, I. Weinbaum, J.E. Craig, Jr., and K.
Davis, Public Views on Shaping the Future of the U.S. Health System
(New York: The Commonwealth Fund, Aug. 2006).
---------------------------------------------------------------------------
The bottom line is that the United States is not receiving value
commensurate to the resources it commits to health care. Many Americans
would gladly pay more for health care if it meant longer lives,
improved functioning, or better quality of life. Yet, on key health
outcome measures the United States fares average or worse. For example,
on mortality from conditions ``amenable to health care''--a measure of
death rates before age 75 from diseases and conditions that are
preventable or treatable with timely, effective medical care, the
United States ranked 15th out of 19 countries, with a death rate 30
percent higher than France, Japan, and Spain. (Figure 2) If the U.S.
performance were comparable to the best 3 countries or even the best 5
States within the United States, it could save almost 90,000 lives a
year.
The Commonwealth Fund supported an international working group on
quality indicators, an effort that is now being continued and extended
by the Organization of Economic Cooperation and Development. On most
measures, the United States was neither the best nor the worst on
clinical quality outcomes. It had the best outcome of five countries on
5-year relative survival rates for breast cancer (Figure 3), but the
worst outcome on 5-year relative survival rates for kidney
transplants.\17\ (Figure 4) For the resources it commits to health
care, it should be achieving much better results.
---------------------------------------------------------------------------
\17\ P.S. Hussey, G.F. Anderson, R. Osborn, C. Feek, V. McLaughlin,
J. Millar, and A. Epstein, ``How Does the Quality of Care Compare in
Five Countries?'' Health Affairs, May/June 2004 23(3):89-99.
access to care
The United States is also alone among major industrialized nations
in failing to provide universal health coverage. This undermines
performance of the U.S. health system in multiple ways, but the most
troubling is the difficulty Americans face in obtaining access to
needed care. (Figure 5) Forty percent of U.S. adults report one of
three access problems because of costs: not getting needed care because
of cost of a doctor's visit, skipping medical test, treatment, or
followup because of costs, or not filling prescription or skipping
doses because of cost. Further, Americans pay far more out-of-pocket
for health care expenses and are more subject to financial burdens as a
result of either no health insurance or inadequate health insurance.
(Figure 6)
But aside from the evident failure of the U.S. health system to
guarantee financial access to care, the organization of care in the
United States also fails to ensure accessible and coordinated care for
all patients. In fact the United States stands out for patients who
report either having no regular doctor or having been with their
physician for a short period of time. (Figure 7) Only 42 percent of
Americans have been with the same physician for 5 years or more,
compared with over half to three-fourths of patients in other
countries. Managed care plans with restricted networks exacerbate poor
continuity of care, as patients may need to change physicians when
their employers change coverage. By contrast, many other countries
encourage or require patients to identify a ``medical home'' which is
their principal source of primary care responsible for coordinating
specialist care when needed.
These differences in care arrangements and the relative undersupply
of primary care physicians contribute to more Americans reporting an
inability to get care when sick or needing medical attention--whether
in the doctor's office during the day or on nights and weekends. Almost
one-fourth of sicker adults in the United States and one-third of
Canadian adults wait 6 or more days to get in to see a doctor when sick
or need medical attention, compared with only one in seven or less in
New Zealand, Germany, Australia, and the United Kingdom. (Figure 8) The
United States has short waiting times for elective surgery such as hip
replacements or cataract operations--but quick access to primary care
is rarer in the United States.
The United States also stands out for difficulty obtaining care on
nights and weekends. Three in five Americans report that it is
difficult to obtain care off-hours, compared to one in four in Germany
and New Zealand. (Figure 9) In a recent survey of primary care
physicians, only 40 percent of U.S. physicians say they have an
arrangement for after-hours care, compared with virtually all primary
care physicians in the Netherlands. (Figure 10)
These differences in accessibility of basic primary care are a
reflection of policy decisions made by different countries.\18\ Most
fundamentally, of course, other countries make primary care financially
and physically accessible to their residents. In contrast, the United
States puts substantial financial barriers to primary care including
larger numbers of uninsured and significant deductibles that pose
financial barriers to primary care even for the insured. Other
countries provide relatively higher payments to primary care
physicians, and support physician practices in organizing after hours
care. These policies increase the attractiveness of primary care
practice.
---------------------------------------------------------------------------
\18\ C. Schoen, R. Osborn, P.T. Huynh, M. Doty, K. Zapert, J.
Peugh, and K. Davis, ``Taking the Pulse of Health Care Systems:
Experiences of Patients with Health Problems in Six Countries,'' Health
Affairs Web Exclusive (Nov. 3, 2005):w509-w525; C. Schoen, R. Osborn,
P.T. Huynh, M. Doty, J. Peugh, and K. Zapert, ``On the Front Lines of
Care: Primary Care Doctors' Office Systems, Experiences, and Views in
Seven Countries,'' Health Affairs Web Exclusive (Nov. 2, 2006):w555-
w571.
---------------------------------------------------------------------------
quality of care
The United States faces a major increase in chronic conditions as
its population ages. Sicker adults with multiple chronic conditions are
particularly at risk for poor quality or uncoordinated care.
Coordination of information across sites of care is essential for safe,
effective, and efficient care. Measured by patients saying that test
results or medical records were not available at the time of
appointments or that physicians duplicated tests, one-third of U.S.
patients experience breakdowns in coordination, compared with about
one-fifth in other countries. (Figure 11)
Improving the management of patients with chronic disease is key to
effective control and prevention of complications. One-third of primary
care physicians in the United States report routinely giving patients a
care plan to manage their chronic diseases at home compared with almost
two-thirds in Germany. (Figure 12)
Patient safety has received heightened attention in the United
States in the last 5 years. Despite this U.S. patients are more likely
to report experiences of medical errors than residents of other
countries--including medical or medication errors, hospital acquired
infections, or incorrect lab or diagnostic tests or delay in
communicating abnormal results to patients. Overall one-third of sicker
adults in the United States reported such errors in 2005, compared with
one-fourth in other countries. (Figure 13) The frequency of errors was
strongly associated with the number of doctors involved in a patient's
care--with almost half of U.S. sicker adults seeing four or more
physicians reporting such errors. (Figure 14)
efficiency
U.S. physicians are highly trained, and U.S. hospitals are well-
equipped compared with hospitals in other countries.\19\ Some of the
waste and missed opportunities to provide high quality, safe care may
be attributable to more limited adoption of information technology in
the United States. About one-fourth of U.S. primary care physicians
report use of electronic medical records--compared with over 9 in 10
primary care physicians in the Netherlands, New Zealand, and the United
Kingdom, often obtained with financial support from government either
directly or through reimbursement incentives. (Figure 15)
---------------------------------------------------------------------------
\19\ A.M.J. Audet, M.M. Doty, J. Shamasdin, and S.C. Schoenbaum,
Physicians' Views on Quality of Care: Findings from The Commonwealth
Fund National Survey of Physicians and Quality of Care (New York: The
Commonwealth Fund, May 2005).
Primary care physicians in other countries not only have basic
electronic medical records but an array of functionality, often
facilitated by governmental arranged systems of information exchange.
Less than one-fifth of U.S. primary care physicians routinely send
reminder notices to patients about preventive or followup care,
compared with over 9 in 10 in New Zealand. (Figure 16) Nine in ten
primary care physicians in the Netherlands, New Zealand, and the United
Kingdom receive alerts about potential problems with prescription drug
dosage or interaction, compared with one-fourth who receive such
notices in the United States through computerized systems. (Figure 17)
When assessed against 14 different functions of advanced information
capacity (EMR, EMR access to other doctors, access outside office,
access by patient; routine use electronic ordering tests, electronic
prescriptions, electronic access to test results, electronic access to
hospital records; computerized reminders; Rx alerts; prompt tests
results; easy to list diagnosis, medications, patients due for care),
one in five U.S. primary care physicians reported having at least 7 out
of the 14 functions compared to 9 in 10 physicians in New Zealand
(Figure 18).
The United States relies on market incentives to shape its health
care system, yet other countries are more advanced in providing
financial incentives to physicians targeted on quality of care. Only 30
percent of U.S. primary care physicians report having the potential to
receive financial incentives targeted on quality of care, including
potential to receive payment for: clinical care targets, high patient
ratings, managing chronic disease/complex needs, preventive care, or
quality improvement activities. (Figure 19) By contrast nearly all
primary care physicians in the United Kingdom and over 70 percent in
Australia and New Zealand report such incentives.
The reliance on private insurance and the fragmentation of the U.S.
health insurance system--with people moving in and out of coverage and
in and out of plans, and changing their usual source of care--all
contribute to high administrative costs for insurers and for health
care providers.\20\ In 2005, the U.S. health system spent $143 billion
on administrative expenses, not including administrative expenses
incurred by health care providers.\21\
---------------------------------------------------------------------------
\20\ K. Davis, Time for Change: The Hidden Costs of a Fragmented
Health Insurance System. Invited Testimony, Senate Special Committee on
Aging, March 10, 2003.
\21\ A. Catlin, C. Cowan, S. Heffler, B. Washington, and the
National Health Expenditure Accounts Team, ``National Health Spending
in 2005: The Slowdown Continues,'' Health Affairs Jan./Feb. 2007
26(1):142-153.
---------------------------------------------------------------------------
The United States with its mixed public-private system of financing
devotes a much higher share of health spending to administration. The
United States spends 7.3 percent of total health expenditures on
insurance administrative expense.\22\ (Figure 20) In 2004, if the
United States had been able to lower the share of health care spending
devoted to insurance overhead to the same level found in the three
countries with the lowest rates (France, Finland, and Japan), it would
have saved $97 billion a year. If the United States had spent what
countries with mixed public-private insurance systems, such as Germany
and Switzerland, spend on insurance administrative costs, it could have
saved $32 to $46 billion a year.
---------------------------------------------------------------------------
\22\ C. Schoen, K. Davis, S.K.H. How, and S.C. Schoenbaum, ``U.S.
Health System Performance: A National Scorecard,'' Health Affairs Web
Exclusive (Sept. 20, 2006):w457-w47.
innovations in other countries that provide examples of high
performance
The key question is how the United States might achieve improved
coverage and greater efficiency while maintaining or improving the
quality of care for all. Given its history, institutions, and
preferences, the United States is unlikely to adopt another country's
health system in all its aspects, but it can learn from examples of
practices that contribute to high performance. Through the Commonwealth
Fund's 9-year experience conducting comparative surveys of the public
and health professionals in selected countries and sponsoring annual
symposia for top government officials and experts focused on
innovations, numerous examples of innovative practices and high health
system performance stand out. I have also had the opportunity of
serving on a team of economists critiquing the Danish health system
charged with preparing a report for the Danish parliament.\23\ From
this experience, I'm pleased to share with the committee selected
innovations that stand out as possibilities for the United States to
consider, highlighting examples of high performance and innovative
practices in Denmark, the Netherlands, Germany, and the United Kingdom.
---------------------------------------------------------------------------
\23\ K. Davis, ``The Danish Health System Through an American
Lens,'' Health Policy, Jan. 2002 59(2):119-132.
---------------------------------------------------------------------------
Let me begin with Denmark which I visited again last October.
Public satisfaction with the health system is higher in Denmark than
any country in Europe.\24\ In my view this is related to the emphasis
Denmark places on patient-centered primary care, which is highly
accessible and has an outstanding information system that assists
primary care physicians in coordinating care. (Figure 21) Denmark, like
most European countries, has a universal health insurance system with
no patient cost-sharing for physician or hospital services. Every Dane
selects a primary care physician who receives a monthly payment per
patient for serving as the patient's medical home, in addition to fees
for services provided. Incomes of primary care physicians are slightly
higher than those of specialists, who are salaried and employed by
hospitals. Primary care physicians own their own practices, which are
open from 8 a.m. to 4 p.m., and patients can easily obtain care on the
same day if they are sick or need medical attention.
---------------------------------------------------------------------------
\24\ E. Mossialos, ``Citizens Views on Health Care Systems in the
15 Member States of the European Union,'' Health Economics 1997 6:109-
16.
This system of primary care contributes to highly accessible basic
and preventive care, and lower total health care expenditures. Denmark
is rated as one of the best countries on primary care as measured by
high levels of first contact accessibility, patient-focused care over
time, a comprehensive package of services, and coordination of services
when services have to be provided elsewhere.\25\ (Figure 22)
---------------------------------------------------------------------------
\25\ B. Starfield, ``Why More Primary Care: Better Outcomes, Lower
Costs, Greater Equity,'' Presentation to the Primary Care Roundtable:
Strengthening Adult Primary Care: Models and Policy Options, October 3,
2006.
But what most impresses me about the Danish system is its organized
``off-hours service.'' In every county, clinics see patients at nights
and weekends. Physicians sit at phone banks in the ``back office'' of
the clinic and directly take any calls from patients. They sit in front
of computer terminals and can access computerized patient records.
After listening to a patient's complaint, they can electronically
prescribe medications, or ask the patient to come in to see a physician
on duty. Physicians are paid for the telephone consultation, and paid a
higher fee if the problem can be handled by phone. The patient's own
primary care physician receives an e-mail the next day with a record of
the consultation.
All primary care physicians (except a few near retirement) are
required to have an electronic medical record system, and 98 percent
do. Danish physicians are now paid about $8 for e-mail consultations
with patients, a service that is growing rapidly. (Figure 23) The easy
accessibility of physician advice by phone or e-mail, and electronic
systems for prescriptions and refills cuts down markedly on both
physician time and patient time. Primary care physicians save an
estimated 50 minutes a day from information systems that simplify their
tasks, a return that easily justifies their investment in a practice
information technology system.\26\
---------------------------------------------------------------------------
\26\ I. Johansen, ``What Makes a High Performance Health Care
System and How Do We Get There? Denmark,'' Presentation to the
Commonwealth Fund International Symposium, November 3, 2006.
Physicians, whether seeing patients through the off-hours service
or during regular hours, are supported by a nationwide health
information exchange, maintained by a nonprofit organization MedComm.
An assessment of information systems in 10 countries ranks Denmark at
the top, and concludes that countries with a single unifying
organization setting standards and responsible for serving as an
information repository have the highest rates of information system
functionality.\27\ (Figure 24) MedComm is a repository of electronic
prescriptions, lab and imaging orders and test results, specialist
consult reports, and hospital discharge letters, accessible to
patients, and authorized physicians and home health nurses. It now
captures 87 percent of all prescription orders; 88 percent of hospital
discharge letters; 98 percent of lab orders; and 60 percent of
specialist referrals. (Figure 25) Yet, its operating cost is only $2
million a year for a population of 5.3 million Danes, or 40 cents a
person a year.
---------------------------------------------------------------------------
\27\ D. Protti, ``A Comparison of Information Technology in General
Practice in Ten Countries,'' Presentation to the Commonwealth Fund
International Symposium, November 3, 2006.
But Denmark is not the only country with cutting-edge innovations
to improve the quality, accessibility, and efficiency of health care.
Germany is a leader in national hospital quality benchmarking, with
real-time quality information on all 2,000 German hospitals with over
300 quality indicators for 26 conditions. (Figure 26) Peers visit
hospitals whose quality is substandard, and enter into a ``dialogue''
about why that is the case. Typically within a few years all hospitals
come up to high standards. (Figure 27) Germany has instituted disease
management programs and clinical guidelines for chronic care, with
financial incentives from insurance funds to develop and enroll
patients and be held accountable for care with initial results showing
positive effects on quality.\28\ (Figure 28) Germany is also
experimenting with an all-inclusive global fee for payment of care of
cancer patients in Cologne. (Figure 29)
---------------------------------------------------------------------------
\28\ Michael Hallek, ``Typical problems and recent reform
strategies in German health care--with emphasis on the treatment of
cancer,'' Presentation to the Commonwealth Fund International
Symposium, November 2, 2006.
The Netherlands also stands out for its leadership on transparency
in reporting quality data, (Figure 30) as well as its own approach to
primary care and ``after hours'' care arrangements. (Figure 31)
Although most Dutch primary care practices are solo practices, they
support each other through a cooperative including an after hours nurse
and physician call bank service. The Dutch government funds nurse
practitioners based in physician practices to manage chronic diseases.
Under national reforms implemented in 2006, payments to Dutch doctors
now blend capitation, fees for consultations, and payments for
performance.
The United Kingdom General Practitioner contract in April 1, 2004
provided bonuses to primary care physicians for reaching quality
targets. (Figure 32) Far more physicians met the targets than
anticipated, leading to a controversial cost over-run, but amply
demonstrating that financial incentives do change physician
behavior.\29\ The United Kingdom National Institute of Clinical
Effectiveness conducts cost-effectiveness review of new drugs and
technology. (Figure 33) The United Kingdom also publishes extensive
information on hospital quality and surgical results by name of
hospital and surgeon. (Figures 34 and 35)
---------------------------------------------------------------------------
\29\ T. Doran, C. Fullwood, H. Gravelle, D. Reeves, E.
Kontopantelis, U. Hiroeh, and M. Roland, ``Pay-for-Performance Programs
in Family Practices in the United Kingdom,'' New England Journal of
Medicine, 2006 355(4):375-384.
These are just a few examples of innovative practices that the
United States might wish to investigate more closely and potentially
adapt. Most, however, require leadership on the part of the central
government to set standards, ensure the exchange of health information,
and reward high performance on quality and efficiency.
conclusion
If we have the world's costliest health system yet still fail to
provide everyone with access to care--and fall far short of providing
the safe, high-quality care that it is possible to provide--the
conclusion that there is room for improvement is inescapable.\30\ Only
by facing this fact squarely and putting into action the best ideas and
experiences across the United States and around the world can we
achieve a vision of American health care that includes: automatic and
affordable health insurance for all, accessible care, patient-
responsive care, information- and science-based care, and commitment to
quality improvement.\31\
---------------------------------------------------------------------------
\30\ K. Davis, S.C. Schoenbaum, K.S. Collins, K. Tenney, D.L.
Hughes, and A.M.J. Audet, Room for Improvement: Patients Report on the
Quality of Their Health Care. (New York: The Commonwealth Fund, Apr.
2002); K. Davis, C. Schoen, S.C. Schoenbaum, A.J. Audet, M.M. Doty,
A.L. Holmgren, and J.L. Kriss, Mirror, Mirror on the Wall: The Quality
of American Health Care (New York: The Commonwealth Fund, forthcoming).
\31\ K. Davis, C. Schoen, and S. Schoenbaum, ``A 2020 Vision for
American Health Care.'' Archives of Internal Medicine Dec. 2000
160(22):3357-62.
---------------------------------------------------------------------------
Achieving a high-performance health care system--high-quality,
safe, efficient, and accessible to all--will require a major change in
the U.S. system of delivering health services.\32\ Steps toward this
goal include:
---------------------------------------------------------------------------
\32\ The Commonwealth Fund Commission on a High Performance Health
System, Framework for a High Performance Health System for the United
States (New York: The Commonwealth Fund, Aug. 2006).
Extending health insurance to all, in order to improve
access, quality, and efficiency;
Assessing innovations leading to high performance within
the United States and internationally and adopting best practices;
Organizing the care system to ensure coordinated and
accessible care to all;
Increasing transparency and rewarding quality and
efficiency;
Expanding the use of information technology and systems of
health information exchange;
Developing the workforce required to foster patient-
centered and primary care; and
Encouraging leadership and collaboration among public and
private stakeholders dedicated to achieving a high performance health
system.
These steps would take us a long way toward ensuring that the
United States is a high-performing health system worthy of the 21st
century. Thank you very much for the opportunity to join this panel. I
look forward to learning from my fellow panelists and answering any
questions.
(Acknowledgments: Research assistance from Alyssa L. Holmgren, Research
Associate, The Commonwealth Fund; comments from Cathy Schoen, senior
vice president for research and evaluation and Robin Osborn, vice
president, The Commonwealth Fund; editorial assistance from Barry
Scholl and Chris Hollander.)
Chairman Kennedy. Thank you very much.
Debra Ness, we thank you for joining with us and look
forward to your comment.
STATEMENT OF DEBRA NESS, PRESIDENT, NATIONAL PARTNERSHIP FOR
WOMEN AND FAMILIES, WASHINGTON, DC
Ms. Ness. Thank you, Chairman Kennedy and Senator Enzi, for
this opportunity and for your leadership.
The National Partnership has been working for more than
three and a half decades to improve the lives of women and
families through our work on issues around work and family in
health care.
If there is one key point I'd like to leave folks with
today, it's that I believe that cost, quality, and coverage
have to be addressed as a package deal. They are inextricably
linked. And if we don't both control costs and improve quality,
we're never going to be able to expand coverage to all
Americans.
I'd like to focus on four things that I think Congress can
focus on to help get us to that place. One is that we need to
significantly fix our payment system. Second, we need to----
Chairman Kennedy. Could you say that again? Fix our?
Ms. Ness. We need to fix our payment system.
Chairman Kennedy. Payments.
Ms. Ness. We need to realign the payment system. Second, we
need to increase transparency. And by that, I mean we need to
measure quality, and publicly report it. Third, we need to get
on with comprehensive adoption of health information
technology--interoperable, secure health information
technology. And finally, we have to help consumers make better
health care decisions, and we need to do that by getting them
better information to make those decisions and through the
right kind of incentives in our benefit design.
I'm going to spend a couple of minutes on our payment
system.
Our system, right now, has all the wrong incentives. In
fact, we actually perversely reward some of the very things
that drive up costs and undermine quality, causing people to
get the wrong care or unnecessary care all too much of the
time. Let me give you a couple of examples.
We know how important it is to have primary care and
coordination of care front and center, particularly as more and
more people have chronic conditions. As the population ages,
this becomes more and more of a problem. We know what the
expense of silo fragmented care is. But we have a system that
rewards specialty care and technology at the expense of primary
care. I'll give you an example. Technology has enabled
gastroenterologists, for example, to do colonoscopies in a
fraction of the time they used to be able to do it. They can do
a lot more of them. But today we pay a gastroenterologist 274
times what we pay a primary care practitioner for the same
half-hour of care. And that practitioner could be sitting in
front of somebody with a series of complex conditions--asthma,
diabetes, heart conditions--and they are getting a fraction of
the pay.
Second thing I want to focus on is, the system rewards
volume. It rewards volume--more care--as opposed to,
necessarily, outcomes and appropriate care. Some of us have
probably heard about Elyria, Ohio, also known as ``The Stent
Capital of the United States.'' Researchers discovered that
Medicare was paying for stents to be put in patients at four
times the national rate. There's no real understanding of why
that's happening. Nobody is accusing the doctors in Elyria,
Ohio, of inappropriately delivering care. But we don't have any
evidence that those patients are doing any better than patients
who are being treated with less-invasive methods, using
medications, and we do know that Medicare is paying $11,000 for
every one of those stents that gets put into a patient. It's
clear that medical decisions are often as much influenced by
financial incentives as they are by evidence of what's in the
best interest of patients.
There is lots more evidence of the way in which we reward
volume. Miami, for example, we pay twice as much for Medicare
patients in Miami than we do in Minneapolis, but the outcomes
aren't any better; in fact, the outcomes in Miami tend to be
among the worst. And the biggest correlation researchers could
find was between the number of specialists that--Miami had 40
percent more specialists than Minneapolis does.
And finally, I'd like to say that we also, when we pay for
care, don't make any distinction between good quality and bad
quality care. I often say this to people. I say, ``You know,
think about it. When you pay for health care, you pay the same
amount whether it's good or bad, and if they make a mistake,
you pay for the do-over.'' In health care, we have done little
to distinguish between good quality and bad quality. Recently,
there's been a lot of focus on pay for performance. Pay for
performance is not the only answer, but it is one of the things
in which we are seeing some pretty dramatic results. And CMS
recently did a major demonstration project with Premier
Hospital System, and, in less than a year, is showing that, as
a result of the pay-for-performance program, patients are
getting better-quality care, costs are going dramatically down,
lengths of stay have been shortened. It's a win-win for
everybody. So, payment drives quality in very significant ways.
The other two very interrelated elements here are the need
for transparency and the need to implement HIT. And, Senator
Enzi, Senator Kennedy, I thank you for your leadership on HIT.
For sure, that is another way to reduce costs, it's another way
to ensure coordination, it's another way to improve quality.
Transparency, another way to make sure that people can make the
right decisions, another way to drive quality. We have lots of
evidence that when you measure quality, it improves; and when
you measure and then publicly report it, it improves even
faster.
And finally, when it comes to helping patients make better
decisions, if we don't make the system more transparent, we'll
never get to that point. I understand the desire to get
patients to appreciate and make thoughtful decisions about
their health care dollars, but it's hard to ask people to make
good decisions when they don't have good information about
costs and quality, when they can't make those kinds of
comparisons. We have a long ways to go before patients have
that kind of information.
In addition, we need to keep in mind that most patients
make their decisions based on what their doctors recommend. So,
if we really want to influence the decisions that patients are
making, we need to go back to the payment system and how it's
rewarding its providers.
And finally, there is very encouraging research that when
you give patients information that allows them to make a shared
decision with their physician, and they have information about
their options, their alternatives, they tend to make more
conservative decisions that are less costly, and, in the end,
generally better outcomes. So, there's a great deal of future
in giving consumers better information. They, too, can be a
part of reining in costs and improving quality, but we have to
get to that place.
Thank you.
[The prepared statement of Ms. Ness follows:]
Prepared Statement of Debra L. Ness
Good morning. Chairman Kennedy, Senator Enzi, and members of the
committee, thank you for the opportunity to testify today at this
important hearing on health care reform. My name is Debra Ness and I am
President of the National Partnership for Women and Families. The
National Partnership for Women & Families is a non-profit, nonpartisan
advocacy organization with more than 30 years' experience promoting
fairness in the workplace, access to quality health care, and policies
that help women and men meet the competing demands of work and family.
Over the past decade, the Partnership has advocated for sound reforms
for our health care system to help the uninsured and promote quality
health care for all Americans.
Our health care system is broken. The costs are unsustainable, and
the burden falls most heavily on consumers. Since 2000, average
premiums have risen 87 percent, while workers' earnings have only grown
20 percent. As a result, our employer-based system of coverage is
unraveling, and we are faced with historic levels of Americans who lack
health insurance, or live in fear of losing the coverage they have.
We must act, and we must act quickly. But costs, quality and
coverage are inextricably linked, and if we don't both control costs
and improve health care quality, we can never successfully extend
coverage to all Americans. There are four tasks we must accomplish to
achieve that goal: We must fix our payment system; increase
transparency by measuring and publicly reporting quality; implement
nationwide, interoperable health information technology (HIT); and help
consumers make better health care decisions through the right kind of
tools, information, and health plan benefit design.
i. fixing our payment system
Our current system of paying for health care is in need of dramatic
changes. In too many cases, the system perversely rewards the very
things that drive up health costs and undermine quality, causing
millions of patients to get care they don't need, or, worse, care that
makes them sicker. Today, fully \1/3\ of our health care spending is
wasted on payment for medical mistakes and poor quality care. We also
have a system that values expensive technology over the basic primary
and preventive care that keeps people from getting sick in the first
place, rewards volume of care over outcomes or appropriate care, and
makes no distinction in payment based on quality or health outcome.
As our population ages and a growing number of Americans suffer
from multiple chronic conditions, it is critical for our health care
system to ensure that people get high quality primary care and that
there be good coordination of care. But the reimbursement methodology
of Medicare and private insurers advantages specialty care at the
expense of primary care and care coordination, resulting in exploding
costs as they pay huge sums for services and technologies to treat
diseases that could have been prevented or controlled. For example,
technology has made it easier and faster to perform colonoscopies. Many
gastroenterologists will perform thousands of them during the course of
their careers, as many as 10 in a day. And they are rewarded by a
system that provides a gastroenterologist with a payment that is 274
times the amount a family practitioner would get for the same 30
minutes of time. And that family doctor could be treating a patient
suffering from diabetes, heart disease and asthma, requiring extensive
patient education, coordination of care, and monitoring.
In addition, our payment system rewards providers for delivering a
high volume of procedures and services, regardless of whether those
procedures and services are necessary or appropriate. For example, in
Elyria, Ohio--recently tagged as the ``stent capital'' of the United
States--Medicare beneficiaries are receiving angioplasties at four
times the national rate. While no one is claiming doctors in Elyria are
intentionally providing inappropriate care, there is no evidence that
their patients are better off than patients in other parts of the
country who are treated less expensively and less invasively. We do,
however, know that Medicare is paying $11,000 for each angioplasty.
There are many such examples of extraordinary geographic variations
in care, costs and outcomes throughout our country. For example,
Medicare pays twice as much to care for beneficiaries in Miami as it
does for beneficiaries in Minneapolis. And yet the outcomes in Miami
are no better than those in Minneapolis--in fact, by some measures they
are significantly worse. Assessed on 3 main categories of care--heart
attack, pneumonia, and congestive heart failure--the Miami area was
among the 5 worst regions of the country for the care of heart attacks
and pneumonia, and was only 29th out of 40 regions for the treatment of
congestive heart failure. In analyzing these types of regional
variations, researchers have concluded that the volume of services
patients receive and the cost of care in an area are highly correlated
with that area's concentration of specialists. Miami, for example, has
50 percent more specialists than Minneapolis.
Study after study has shown that unnecessary care is rampant. But
our payment system encourages it, and it is clear that care is often
influenced as much by financial incentives as by medical decisions. For
example, when the State of Florida lowered provider payments for
workers' compensation treatment, doctors responded by finding more
treatments to perform on each patient. I do believe that most
physicians want what is best for their patients, but given the way our
payment system is structured, is it any wonder that providers act, and
patients often think, that ``more is better?''
Our payment system also makes no distinction between good and bad
quality care. We pay the same amount even if poor care is provided. And
we often pay more for errors that result in extra days in the hospital
or in readmissions. For example, research in Pennsylvania showed that
individuals who acquire infections while in the hospital cost on
average $185,260 to treat, and remained in the hospital for an average
of 20.6 days. At the same time, individuals who did not acquire such
infections cost on average $31,389 and stayed in the hospital an
average of 4.5 days. The Centers for Medicare and Medicaid Services
(CMS) has taken some steps in the right direction. Under the Deficit
Reduction Act of 2005 (DRA), starting in fiscal year 2008, they are
required to adjust payments for hospital-acquired infections. CMS is
also reviewing its administrative authority to reduce payments for
``never events,'' and to provide more reliable information to the
public about when such events occur.
In recent years, there have been numerous initiatives to reform the
system by linking payment to quality. Such efforts are often referred
to as ``pay for performance.'' A CMS-run demonstration project with the
Premier hospital system has provided groundbreaking evidence that
changing payment incentives can generate better patient care, reduce
costs, and save lives. Hospitals in the demonstration were required to
report on their performance on a series of quality measures for
patients with conditions such as heart disease and pneumonia. Those
hospitals that performed the best received a higher payment than
others. The results were dramatic. In just one category alone, coronary
artery bypass grafts (CABG), the results showed that better care costs
less to treat (an average of $30,000 as opposed to $41,000), patients
were seven times more likely to survive, had fewer complications (4
percent versus 11 percent), and spent less time in the hospital (9 days
versus 13.5 days). The Premier demonstration strongly suggests that
true payment reform can not only save billions of dollars but also
drive significant improvements in quality.
It is time to re-align the incentives in our payment system to
ensure that we encourage and reward delivery of the right care, at the
right time, for the right reason, and at the right price.
ii. transparency
Payment and quality are inextricably linked. ``Quality'' is really
making sure that every patient gets the right care, at the right time,
for the right reason. And improving the quality of care is essential if
we are going to control our exploding health care costs.
Unfortunately, quality in our health care system today is, in a
word, lousy. The average American patient has no more than a 50-50
chance of receiving the right care for his or her condition. Every
year, close to 100,000 lives are lost because of medical errors. And
\1/3\ of our health care spending is wasted on unnecessary or poor
quality care.
The good news is that there are strategies that we know can improve
quality. Measuring quality and publicly reporting the results have been
shown to drive dramatic improvements in our system. ``Measurement''
must, of course, be premised on evidence-based best practices, and the
measures used should provide meaningful information to consumers.
Quality information should be publicly reported in a manner that
enables comparison and helps consumers make better choices about
providers.
Measurement and public reporting are proven strategies. For
example, individuals enrolled in health plans that measure and publicly
report performance data were more likely to receive preventive care and
have their chronic conditions managed in accordance with clinical
guidelines based upon medical evidence. In 2005, for patients enrolled
in private health plans accredited by the National Committee for
Quality Assurance (NCQA), there was improvement in 35 of 42 nationally
accepted (HEDIS) measures. And in many cases, the improvement was
dramatic. In 1992, 62 percent of heart attack patients received a beta
blocker upon discharge. Today, 96 percent do.
Similarly, just 3 years after New York adopted a public reporting
system for data and outcomes on coronary artery bypass surgery, the
mortality rate dropped by 41 percent. And as I mentioned, the Premier
demonstration data from year one show significant improvement in the
quality of care across the five key focus areas of: acute myocardial
infarction, heart failure, CABG, pneumonia, and hip and knee
replacement.
iii. adoption of interoperable health information technology
To effectively improve quality, we need comprehensive adoption of
interoperable, secure and confidential health information technology
(HIT). It is the essential platform for transparency. Specifically, it
will speed the development of quality measures that are useful to
providers, patients, and payers, ensure the automation of public
reporting of current and future measures, and accelerate the clinical
decision support that can actually improve performance. Further,
emerging technologies offer us an unprecedented ability to provide
accurate and actionable medical information in a secure and private
form when and where it is needed, whether by patients themselves or the
clinicians who care for them.
HIT can also reduce medical errors and generate huge cost savings.
Researchers at RAND found that computerized physician order entry
(CPOE) could eliminate 200,000 adverse drug events and save about $1
billion a year if installed in hospitals. And about two-thirds of
preventable adverse drug events could be avoided through widespread use
of ambulatory CPOE. The same study concluded that HIT could generate
savings for both inpatient and outpatient care of $77 billion or more
per year.
But the development and adoption of HIT is futile without the trust
and cooperation of patients. For this, assurances that electronic
health records are kept private and secure are essential. Yet today,
consumers have little such assurance. To date, the Department of Health
and Human Services (HHS) has received over 23,000 complaints about
privacy violations under the Federal Privacy Rule promulgated under the
Health Insurance Portability and Accountability Act (HIPAA). Yet the
agency has failed to impose a single civil fine. Is it any wonder that
consumers don't have confidence that their medical information will be
protected if it is entered into an electronic record? Any policies
affecting the development and adoption of HIT must include appropriate
safeguards to ensure the privacy and security of individually
identifiable health information. Further, any violations of privacy or
security that violate HIPAA should be actively investigated and
enforced.
iv. consumer decisionmaking
All consumers should be in a health benefit plan that creates
incentives for patients to get the right care, at the right time, for
the right reason. The plan should encourage and reward patients for
seeking primary and preventive care, and should encourage providers to
provide appropriate care coordination and follow best medical practices
for the care of chronic conditions.
But not all so-called ``consumer-directed'' health plans are
created equal. Many of us approach ``consumer-directed'' health care
such as health savings accounts (HSAs) with cynicism, because little
about it is truly consumer-driven. Rather, much of it appears to be
simple cost shifting from employers or health plans to individuals.
This kind of approach not only does not solve the problem of rising
costs and poor quality in our health care system; it actually makes it
worse. First, encouraging HSAs won't help us reduce the rising costs in
our system because so much of health spending is non-discretionary.
Studies have shown that 5 percent of our population is responsible for
almost 50 percent of our health care costs. These are not people
deciding whether to spend their deductible on a flu shot or dentist
appointment. These are individuals with chronic, complex conditions who
would quickly exhaust the deductible in any high-deductible plan.
Further, research has shown that consumers in HSAs tend to get less
care, especially the kind of primary and preventive care that can help
them stay healthy or avoid more serious illnesses. And because of their
tax incentives, HSAs tend to attract the wealthy and healthy, skewing
the risk pool for those in traditional insurance, and leaving those
most in need behind.
Some say that consumers need ``skin in the game'' in order to help
bring health costs down. Presumably the notion is that consumers who
have a greater financial stake in their care will not seek unnecessary
treatments and choose providers who are the most cost-efficient. But
consumers can't make good choices without good information, and good
information just doesn't exist today. Consumers have access to almost
no comparative data on either the price or quality of care. Patients
can learn more about the quality of a toaster oven than they can about
their local hospital or doctor. This is wrong, and consumers have a
right to know where they can get the best care for their family.
In the absence of other information, consumers will rely on their
doctor's advice. But we know that our payment system often encourages
doctors to have a ``more is better'' mindset; a mindset often passed on
to patients. We need to better educate consumers so they can
participate in shared decisionmaking with their physician. Research has
shown that when consumers have accurate information about treatment
options and alternatives, they tend to make more conservative, less
invasive, and less costly decisions. And those decisions often result
in better outcomes.
Consumers need good, reliable information about both the cost and
quality of health care. They simply cannot make educated decisions
without it. And we cannot ask consumers to decide solely based on cost
information. Would anyone ask a new mother to just go out and find the
cheapest pediatrician? Or a heart attack victim to find the cheapest
cardiologist? Good information about both quality and cost must be
available for consumers to make true, value-based decisions about how
and where to spend their health care dollars.
v. conclusion
I believe everyone here today has the same goal: for every American
to have access to high quality, affordable care. And I would urge you,
if there is one thing you remember from the hearing today, remember
that lasting health care reform must tackle cost, quality and coverage
as a package deal. If we focus on the four things I discussed today:
fixing our payment system, promoting transparency, implementing HIT,
and helping consumers make better decisions, I believe we can make
enormous progress toward achieving our common goal.
Mr. Chairman, members of the committee, thank you for the
opportunity to join in this roundtable today and I look forward to our
discussion.
Chairman Kennedy. Thank you all very much.
I'm struck by how much agreement we've heard from a diverse
set of witnesses. All our participants agree on some very basic
points--Federal bipartisan leadership is essential; the
importance of health IT is crucial in containing costs; the
emphasis on reward, encouragement, and quality, and renewing
and expanding the CHIP is very important, as is transparency,
information to patients, comparative effectiveness. The
reducing of fragmentation and administrative costs in a number
of different areas, is also very useful and very important.
Let me get back to the witnesses, and we'll ask all of our
colleagues to chime in here. John, in the area of ERISA--and
I'd also be interested in hearing from the Business Roundtable
and others--what are the real inhibitors that the States are
going to find, in terms of ERISA? What should we know? We've
heard comments about what's happened in Massachusetts, and
what's happening in California. We know other States, such as
Vermont, have taken some initiatives. Is there some general
guidance you can give us about the existing inhibitors for
States to move ahead? I mean, what can you tell us about it?
Mr. McDonough. Well, there are two principal impacts of
ERISA, one we think is entirely appropriate, which is setting
national standards, so States don't go and micromanage what
employers have to offer, when they offer coverage. And so, we
have no objection with establishing that national standard. The
concern is, when a State, for example, wants to create a level
playing field so that employers who offer coverage are not
being required to subsidize employers who don't, implicitly or
explicitly, ERISA prevents a significant legal roadblock to
doing that and to creating a broad, even, fair level of
employer responsibility. And so, you create, then, essentially
a reward for employers who engage in the race to the bottom, in
terms of reducing their benefits, and end up shifting those
costs onto States and onto other employers. So, it's a real
impediment. It's a foggy area. It keeps getting thrown back to
the courts, most recently in the Maryland case, and there's a
lot of uncertainty. And so, some ability on the part of States
to have a clearer sense of what we can do and what we can't do,
and to be able to hold employers to some level of basic
responsibility, we think, is critically important, moving
forward.
Chairman Kennedy. If there are members here on the panel
who would like to make a comment on any of this, just raise
your card.
Larry.
Mr. Burton. Just a response. We believe that ERISA has been
important, because our employers, which are basically large
employers, operate in multistates. And so, it does help have a
common basis of a plan. If we were forced to go to each State
and develop individual plans in each State, it could be very,
very costly. So, I think the unknown is the big question there.
Chairman Kennedy. John, did you want to make a comment?
Mr. Goodman. We have a different problem with ERISA. I
didn't hear anybody today talk about portability, but I think
this is going to be the next really big problem in health care.
People need to be able to take insurance with them as they go
from job to job. And the ERISA law, as now written, creates a
problem for any employer that wants to buy insurance for his
employees--that they own and they can take with them. And it's
uncertain about what they can do. And that, I think, has
blocked a lot of States from being more aggressive in creating
opportunities for portable insurance.
Chairman Kennedy. Michael, do you want to ask any
questions?
Senator Enzi. I, too, want to thank the panel for a lot of
information. And I assume you realize that, by volunteering to
be on this panel, that you're also willing to answer some
additional questions that we might submit to you later, because
there are some details that we won't cover here, but that we
may need information on to come up with significant
legislation, and that is what we will try to do.
I do appreciate the emphasis that there's been today on
Health IT from virtually everybody. We recognize that. We put
that through as one of the first bills that we did, and we
tried, up to the last minute of last year's lame-duck session,
to get that through. It got bogged down in a whole lot of
additional issues that will have to be covered at some point,
but our hope was that we could get the interoperability piece
going immediately so that the communications system would work
between doctors, patients, pharmaceutical companies, hospitals,
and all providers. And, of course, we did run into some Federal
laws that create some problems there, but we're sure we could
work that out as a second part later, and then even a third
part, where we could address the costs.
But we were very encouraged to find out that the
interoperability, just in Medicaid, Medicare, and veterans
alone, would produce a savings of $160 billion a year with a
one-time infrastructure cost of $40 billion. That's good
investment anywhere. That's better investment than anybody can
get anywhere. And that doesn't even take into consideration the
savings in the private sector.
So, I really appreciate the information, the encouragement,
and the explanation of what can come out of Health IT. It's
those results that we're really looking for. And a lot of
that's the transparency and the ability to make better
decisions, which is also what scares a lot of the health care
providers.
I hope, as the California plan develops further, that our
panelist who spoke on that will share that information with us.
We already have good information, both from Senator Kennedy and
from Massachusetts, on the Massachusetts plan. And we are
trying to find some kind of a solution that's going to provide
people with quality health care, hopefully at a lower price.
I do have one more question here that I'll just throw out.
Perhaps it'll come as a written answer. We're considered, in
the United States, to have the cutting-edge technology in
medical care, and yet, the health indicators are better other
places in the world. Why? How? I'll just leave that rhetorical,
and hope you'll respond to me individually on that one.
Senator Enzi. I appreciate the information on the Danes and
what they're doing, and I want to get some more information on
that piece of it.
Ms. Davis. I think one key is that other countries put a
lot more emphasis on permacare. We have about the same number
of physicians per capita, but they have a much higher share of
permacare. And they make that free and accessible. You can get
it the same day, so you catch problems early, you get the
preventive care. We put a lot of money into the costly high-end
specialized care, where we get a lot of duplication,
fragmentation, errors--we have higher error rates than other
countries. So, I think one key is really having a medical home,
that physicians are rewarded for taking responsibility for
patients and they help ensure that they get the preventive
care, and they coordinate their care.
Chairman Kennedy. Anyone else want a chance?
Senator Sanders.
Senator Sanders. Thank you, Mr. Chairman.
I would just concur with those who have suggested that our
health care system is not just in trouble, but it is
disintegrating. I think the charts that the Chairman showed us
tell us a whole lot, but, in many ways, they understate the
case, because it's not just the number of people who are
uninsured, it's the number of people who are underinsured, who
do have health insurance, but it is inadequate health
insurance.
It seems to me that, of all of the excellent testimony--and
all of the people who have spoken have made important
contributions--I think Karen has raised some important issues,
in that, Why is it that, in the United States, where we are
spending almost twice as much per capita on health care as any
other country, we remain the only Nation in the industrialized
world that does not guarantee health care to all people? And,
as Senator Enzi indicated, that many of the indices, in terms
of quality, are not as strong as in other countries. And I
think it is very important for us to take a look at Denmark,
Scandinavia, Europe, and see what they are doing, in fact, that
we are not doing. And I think one of the components of what
they are doing is saying that all people are entitled to health
care as a right of being citizens of their country.
Now, I am not optimistic, for a variety of reasons, that,
here in Washington, we are going to pass a national health care
system. The opposition is just too strong. But picking up on
John's point, earlier, I do think that States are laboratories
for change, and I would hope that many of us can come together,
from whatever our ideological perspective might be, to say,
``Look, maybe the Massachusetts is working well, maybe it's
not; maybe Vermont wants to go to a single-payer model, maybe
it doesn't; but why don't we give States the option to
experiment and to look at different concepts, see what works,
see what doesn't work?'' If we can't do it in Washington, at
least give States that opportunity.
I thank you, Mr. Chairman.
Senator Allard. Thank you, Mr. Chairman.
I want to pose a question as--you know, to think about--is,
How, by just merely expanding coverage, do you really bring
down the cost of health care? I've had the experience of a
small businessman, and, as a small businessman, I was an
intensive shopper. And I found that, in my employees, some of
them didn't want to use my health insurance, because they had a
better policy either within the family--I had young employees--
whether it was in the family or, perhaps, maybe their spouse
had a better policy than what I could offer. And so, they
didn't do that. So, there was a sense of fairness between
another employee that I had that we paid health insurance for
and those who got their health insurance coverage outside the
business. And so, I was concerned about a fairness issue,
wanting to pay my employees for their productivity.
The other things that I ran into is that I found that just
because you have group coverage doesn't mean it's less
expensive. Sometimes individual coverage is less expensive. And
so, you have to watch your costs. Sometimes you start out with
coverage that is relatively low, but, over the years, some
companies increase their premium rates faster than others, and
so, they become noncompetitive, so, as the small businessman,
you have to watch that.
The other thing that I found out is that--I got frustrated
with the high cost of health care. I decided that me and my
wife would set aside a cash account in our family to pay for
health care costs. So, I had a hard time getting to the
hospital when I needed surgery, but, once I got in there and
got out, I got a 15-percent discount because I paid it, cash.
So, my question, again, is, How is it, by increasing
coverage, do we reduce the cost of health care? And I think, as
a small businessman, what we need to do is, we need to give
small business people lots of choices. The more choices they
have, the more they can deal with the market.
Mr. Meade. I'll be glad to provide you with some analysis
that we have done on this. But let me say, at the beginning,
for those who don't have insurance, health care is more
expensive and inadequate. At one of our hospitals that Senator
Kennedy is very familiar with, Boston Medical Center, began an
experiment in the last couple of years, where they gave people
who were coming regularly and using the uncompensated care pool
a card for that hospital and started making regular
appointments for people. And they found a dramatic drop in the
cost of health care to those folks. So, far too many of the
people who don't have coverage end up going to extreme cases
and being treated in the most expensive way possible, beginning
at the threshold of the emergency room.
I do think Debra put her finger on what we need to do, and
we can't look at just one part of the health care system. We do
think you can lower cost if there is--the three stools that she
spoke about: cost, quality, and coverage. People like Don
Berwick and others at IHI have done a lot of work saying that
at least a third of the care we presently get may be
inadequate, and the significant overuse, misuse, and underuse
in health care, we think, is an important part of this. So, I'd
like to provide you with some information on the analysis that
we have done, and share that with the committee, as well.
Chairman Kennedy. Peter Harbage.
Mr. Harbage. Thank you. For better or worse, health
insurance is how people in this country truly access health
care. And so, by expanding coverage, that's how you're able to
get access to a medical home, to smoking cessation, to obesity
programs, because, as Peter just said, right now when you're--
uninsured you're most likely to present in the ER and have very
costly and very inadequate care. So, that's one way universal
health coverage will bring down cost. The other is that on a
societal basis if everyone pays a little bit more the cost will
come down for everyone else. The concept of a hidden tax that
the people with insurance are paying for the unisured is
something that Families USA has talked about, it's something
that New America has talked about. And so if everyone--if the
uninsured just start paying in a little more you can start to
capture some of that savings back and reduce the cost of
insurance for people who are buying it today. Governor
Schwarzenegger has taken to calling that the coverage dividend.
Mr. Antos. Well--if you--I think the Senator's point is
quite right, if you want to phrase it as if you want change you
have to make change. So simply doing what we are doing is not
going to do it. I'd make the comment that we have to be careful
about what cost means. If all we do is hide the cost--which is
what we often do--if we just hide the cost we hide it in taxes,
we hide it in higher premiums. We haven't actually addressed
the real cost problem. The real cost problem is the use of
resources to produce, as Karen says, less than ideal outcomes.
And so that's what we need to be focusing on. If we only
concentrate on what I would consider to be sort of phoney
financing mechanisms we will lose the battle. We have to do
what Deborah was talking about.
Mr. Goodman. I agree with the question. At Parkland
Hospital in Dallas, the uninsured patients, the Medicaid
patients, the SCHIP patients all come through the same
emergency room door, they all see the same doctors, they all
get the same care. In fact, RAND Corporation says, nationally,
once people get into the system, they get the same care,
regardless of the insurance they have. But, in any event, at
Parkland, there are paid employees who go through the room and
actually try to sign people up to get them on Medicaid or
SCHIP. So, the question is, once they sign that piece of paper,
does their care become better? Do our costs go down? Of course
not. And so, I think that we have become so focused on the
formality here, because hospitals and other very important
institutions care about the money flows, but we're not going to
change the quality of care, or the efficiency with which it's
delivered, unless we give people different options in the
medical marketplace.
Chairman Kennedy. Brief comment, John?
Mr. McDonough. I was just saying with all respect, we do
what we can to get access to the emergency room. And there is
an abundance of evidence that by not having health insurance
these people get sicker and die sooner and in these--emergency
room and what you get in the emergency room----
Mr. Goodman. OK, it turns out that what you just said is
true, there are hundreds of studies that concluded that lack of
insurance leads to worse care. Turns out, they're all bad
studies. And when the RAND Corporation did this the right way,
which is to ask, Among people who see doctors, who access the
system, is there then any difference in care? And the answer
is, ``no''. And why is this important? Because if we just
enroll people in Medicaid, but the rates are so low that their
only opportunity to get health care is at the emergency room,
we don't lower costs and we don't improve quality.
Chairman Kennedy. Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
In the State of Alaska now we're looking at about 18
percent of our population that's uninsured, but we also
recognize that there's a good portion of those folks that can
afford insurance who are just opting not to. So, we're looking
at what's going on in California, in Massachusetts, in Vermont,
and you look to the possibilities that can come out of these
State initiatives. And I agree that we do need to encourage the
State initiatives and, kind of, figure out how those are going
to happen, but I've also heard that the Federal assistance
would be helpful, would be welcome.
Well, usually when we step in, we have a desire or an
attitude to, kind of, impose a one-size-fits-all, and, kind of,
see this, to a certain extent, in education. All the States are
doing their own thing, we step in with No Child Left Behind,
and you've got, kind of, a one-size-fits-all approach to it.
The question I'm concerned with, particularly coming from a
State like Alaska that has very unique health care challenges
as it relates to access not only to health care insurance, but
access to providers, is how we can be of assistance at the
Federal level without giving that directive to the States, when
you all are, to a certain extent, trying to figure it out on
your own. How far do we come into the picture?
Mr. McDonough. Senator, I would just suggest looking at the
SCHIP program as a prototype, where you are not creating a one-
size-fits-all program, you're giving States an array of
choices, not a limitless number of choices, but some States
wanted to do it just through their Medicaid program, some
States wanted to set up a unique, distinct, special Children's
Health Program, and some States wanted to do a hybrid. So, I
think there's a good model for you, in terms of looking at
that, which is, don't do it one-size-fits-all, give some array
of options, and not a limitless number of options.
Chairman Kennedy. Ms. Ness.
Ms. Ness. I just want to add into this discussion the fact
that the Federal Government is the largest purchaser of health
care. Through Medicare, through Medicaid, through its other
public purchasing programs, it really sets the tone for what a
lot of the private sector does. And so, I think we need to
think both of how the Federal Government can support what's
going on in the States, and encourage the innovation, while, at
the same time, being sure that, at the Federal level, Medicare
is being innovative, itself, in setting the stage for the kinds
of reforms that, if the private sector would follow, could make
a huge difference, both in the States, in what they do, as well
as in those public programs.
Ms. Davis. If I could just respond, I don't think the
States can do this on their own and sustain it without Federal
help. Obviously, if the Federal Government would just put up
matching money for, say, adults below 150 percent of poverty or
children below 300 percent of poverty, it would help many
States move forward. Massachusetts had a waiver, they had a low
rate of uninsured, because they had high employer coverage in
the State, but, for other States, I think making the offer of
some Federal matching funds that was significant for the low-
income uninsured population would make a big difference----
Senator Murkowski. To offer Federal assistance a lot of
places----
Chairman Kennedy. All the more reason, on the SCHIP, to
increase funding for the reasons that have been outlined.
Senator Coburn.
Senator Coburn. Thank you, Senator Kennedy.
One of the things I heard consistently is, Make sure we
allow the States to experiment. I think everybody, all of our
panelists, agree to that, that there needs to be this ability
to try different things, and we should not be hindering that at
the Federal level.
You know, the estimates are anywhere from a third to a
fourth of the health care dollars that we spend aren't spent on
health care. And I'm interested to know--you know, we had a
broad spectrum of position and viewpoint here today--is, How do
you squeeze the one-third to one-fourth out? Do we do it by
regulation? Do we do it by management? Do we do it by
manipulation? Do we do it by mandates? Or do we do it like we
do it in every other area in this country, except in education
and health care, is market forces? And I--you know, we hear
comments about how well Medicare and Medicaid does, from an
administrative standpoint, but when you add the fraud and abuse
and waste in Medicare, which, this last year, totaled--in
Medicare and Medicaid, totaled $85 billion--you get to rates
higher than the private sector, in terms of fraud, waste,
abuse, and overhead. Do you mandate the amount of profit
somebody can make if they sell a product? And what happens to
the insurance market as soon as you do that? It goes away.
You know, the one thing that we know we can do in our
country--and I want to identify a lot with what Ms. Ness said,
because she's right on about what's happening in medicine
today, she's right on about the perverse incentives, to
overutilize, overtest, overtreat, because of the reward
mechanism--but I want to caution us on pay for performance
versus payment for best practices. There is a big difference.
And the pitfall is, if you're going to pay for performance, the
best doctors in our country are going to get canned, because we
send our toughest patients to the best, and they have the worst
outcomes, because they have the toughest patients. So, we'd
better be very careful with this concept of pay for performance
versus payment for best practices, and we need to be measuring
best-practice utilization rather than performance.
But I'm interested in the comments on how we squeeze this
one-third to one-fourth out, because that's the real key. How
do--if we're at 16 percent, we should be at 10 or 11 percent,
and how do we afford access for everybody--which I totally
support--how do we best do that? Do we do it with a Soviet-
style-run health care system that we've been experimenting with
for the last 40 years in this country, or do we allow what has
happened in every other aspect that has increased standards of
living, promoted the best research, the best Nobel--the largest
number of Nobel Peace Prize winners, the greatest advancements
in health care anywhere in the world--80 percent of them have
come out of this country--how do we not lose that as we go
toward that?
So, I'd be interested in hearing how we squeeze that one-
third to one-fourth out, of waste, fraud, and duplication, that
we know is there. And we get to go one of two ways. We can go
with a heavy handed government-oriented, or we can experiment
in the States, come up with a way, and use market forces that
have been very beneficial to us in every other aspect,
protecting consumers at the same time. And I'd love to hear the
response to that.
Chairman Kennedy. All right. We've got a number of
respondents so, quickly.
Larry.
Mr. Burton. First of all, I think we're all in this
together--I think that's the big message you're hearing today--
whether it's the government, whether it's employers, whether
it's individuals. That's point one.
Point No. 2 is, you cannot underestimate the power of
innovation, which is a--something we cannot put any sort of
governors on. The efficiency from Health IT is just fantastic.
And you heard the numbers. And I think that's there. Next is
information to consumers. If they have good information, they
can make very informed decisions which are cost efficient.
That's going to help the system. And, of course, again,
wellness. I think that's unexplored territory which could yield
tremendous benefits.
Chairman Kennedy. Fine.
Joe, quick.
Mr. Antos. One of the things that I think you are headed
toward, Senator, with your $2 trillion question, has to do with
the way health plans and providers operate. And one of the big
factors, I think, is that, although there's some risk in the
business--in fact, there's an entitlement mentality. Everybody
expects to get paid. We argue about how much we're going to get
paid. But, in the end, you have a pretty good idea that the
dollars are going to come in. And there really needs to be a
greater sense that there's accountability for that money, and a
greater sense that it isn't absolutely guaranteed. And, as
someone said earlier, I think Medicare is a good place to look
at that.
Chairman Kennedy. Peter Harbage, briefly.
Mr. Harbage. Briefly, I just wanted to say what you might
find in the Schwarzenegger plan. And I think it's really a mix
of market forces and government intervention. The plan's based
on private insurance, new--it's based on market forces. It's
based on the idea that if you can develop a statewide purchase
pool, that you can get better efficiencies from providers. On
the government side, there's expense in the long-term. He's
looking at health information technology, like everyone else.
What can be done in chronic care to bring down costs in the
long-term and make things more efficient? But, in the short
term, there really is the focus on the loss ratio I mentioned
in my remarks----
Senator Coburn. Well, let me give you an example. Let's say
I'm XYZ Insurance Company, and I really believe in prevention,
and I work hard on wellness. What's the reward for me if I have
an extra 5 percent? I've done great care for my patients, I've
paid for all the bills, and, at the end of the year, because
I've done wellness with the same mix of patients, I've got to
go spend it all or I give it to the government? You're never
going to have that innovation if you mandate what somebody's
potential can be. You're going to kill innovation. You're not
going to stimulate it, you're going to suppress it. And the
thing that we--the one aspect--the only aspect, I think, that's
great about our health care system today is, we do have some
innovation. I just want us to have more.
Chairman Kennedy. Peter.
Mr. Meade. Senator, Blue Cross Blue Shield of Massachusetts
is a not-for-profit health care company. We have 3 million
subscribers. Over 300,000 of those subscribers are on wellness
programs. And we believe that gives us an advantage to our
bottom line, but also makes us more competitive with wonderful
competitors in our State. So, we think that's part of it.
One of the things we have to look at is what we pay for,
all of us. And being a primary payer, the Federal Government
ought to look at it. Just the beginning, never events. The
never events ought to be reported by every hospital in the
country. The whole issue of how we compare needs to be done.
When we talk about quality--and, yes, we need to be very
careful. Just as in education--we need to be careful as we look
at special education and the more difficult prospect of
educating people like me, who were special-ed folks--we need to
look at what happens with difficult patients and what happens
with those doctors. But you can set standards, you can measure.
And if we don't measure, we'll never be able to manage.
Chairman Kennedy. But just briefly, I mentioned to my
friend and colleague--what has been happening in the VA system,
which is use the information technology. IT has helped the VA
keep the costs down, improving quality. This has been, really,
an extraordinary improvement. They've had some very, very
innovative and creative kind of ways of doing some of this that
we ought to pay some attention to.
I see Senator Roberts is here. We thank you, our friend and
colleague, and member of our committee. Senator Burr and then
Senator Roberts, if that's agreeable. And we have a vote at
noontime.
Senator Burr. Thank you, Mr. Chairman.
Let me thank each and every one of you for your willingness
to come in. I think that there's been a tremendous amount of
great ideas, some with--which I agree with, some with--which
I've already discounted and, in the past, felt they weren't a
direction we should go. But I think the spirit here is the
right spirit, and that's--we've got to try something, because
if we continue to do what we're doing, we're in big trouble.
I remember when an emergency room was designed to treat
emergencies. And a large share of the emergency room today is
to deliver primary care. The degree of that depends upon where
you are in the country, in many cases. But to help me clarify
where everybody is, let me ask three questions. It's yes-or-no
answers. I'll go right around. I'll start with John first.
Do you support a single-payer system?
Mr. McDonough. Yes, among others.
Senator Burr. Andy?
Mr. Stern. [Off Mic]
Senator Burr. Larry?
Mr. Burton. [Off Mic]
Senator Burr. Pat?
Ms. Combs. No.
Senator Burr. Peter?
Mr. Meade. No.
Senator Burr. Peter?
Mr. Harbage. It's not politically feasible.
Mr. Meade. No.
Senator Burr. John?
Mr. Goodman. Of course not.
Ms. Davis. Impractical.
Senator Burr. Debra?
Ms. Ness. I'd say not politically feasible.
Senator Burr. Let me work backwards this time.
Do you support liability reforms--health liability reforms?
Ms. Ness. Yes, but probably not the same ones that you
would.
[Laughter.]
Senator Burr. John?
Mr. Goodman. Radical liability.
Senator Burr. Joe?
Mr. Antos. Yes.
Senator Burr. Peter?
Mr. Harbage. It's a very small part of overall health care
spending, and California already has some pretty good reforms
in place.
Senator Burr. Yup. Peter?
Mr. Meade. It depends on the reform, Senator.
Ms. Combs. It depends on where it starts and where it ends.
Senator Burr. Larry?
Mr. Burton. Yes.
Senator Burr. Andy?
Mr. Stern. [Off Mic]
Senator Burr. John?
Mr. McDonough. [Off Mic]
Senator Burr. Is that a yes or no?
Mr. McDonough. [Off Mic]
Senator Burr. Again, working backwards, Do you support
pricing transparency? That's for the entire delivery system.
It's doctors, it's hospitals, it's insurers.
Andy.
Mr. Stern. Yes.
Ms. Combs. In other areas, we have. We haven't addressed in
this one, at the moment.
Mr. Meade. Absolutely.
Mr. Harbage. Absolutely.
Mr. Antos. Absolutely.
Mr. Goodman. Absolutely.
Ms. Davis. Yes, but transparency----
Ms. Ness. For making cost information available to
consumers.
Senator Burr. Great. Now, see how easy it was to find an
item that we had a unanimous agreement on?
[Laughter.]
Senator Burr. That, I hope, is where Senator Kennedy is
headed with this process. And I believe that he has a history
of finding those things where there's total agreement, and then
building on that.
In North Carolina, the Medicaid program is now designed
around a community care program, a waiver. A State had the
option to be creative, and, regionally, we've tried to set up
the Medicaid system where it has stakeholders--stakeholders:
patients, doctors, health care professionals, hospitals, social
workers. But the unique thing was that it's set up to provide a
health care relationship with every Medicaid beneficiary. How
in the world can you take the most at-risk population, based
upon actuarial figures, which is the lower income, and not
create a health care relationship, and expect them to utilize
health care in the most cost-effective and the most efficient
way? It is impossible. How can we ever talk about successfully
addressing prevention and wellness if, in fact, a patient
doesn't have a relationship with a health care professional. It
doesn't have to be a primary-care doc. It can be an RN, it can
be a community health center, it could be a hospital. It
depends on where that patient is and what the delivery system
looks like around them.
I think we've gotten a lot of great ideas today. It is
amazing to me that, since Medicaid is--the majority of the
funding for Medicaid is out of the Federal Government--that we
would--we don't require every State to require every Medicaid
beneficiary to be assigned a primary care provider. If you
think about a piece that everybody said, which was education,
which was access, which was wellness, which was prevention, if,
in fact, you created that relationship, not in a voluntary way,
but you--just like Massachusetts requires every person to have
an insurance policy. Well, why can't you say to every Medicaid
beneficiary, ``You've got to have a primary care provider?''
What's wrong with that? And I would challenge you that that's
just one example of, I think, an easy change that gets at the
cost savings that Dr. Coburn talked about. The question is, Do
you--can you learn, from that, about other pieces of the
delivery system? And that's one that States and the Federal
Government have direct jurisdiction over and direct control
over.
Did you have something, John?
Mr. McDonough. Just that, I totally enforce the idea----
Chairman Kennedy. Microphone, John, please.
Mr. McDonough [continuing]. The reality is that in many
States the primary care system in the United States right now
is hemorrhaging. We are losing primary care physicians all over
the country, and, in many parts of the country, you simply
don't have enough primary care physicians to handle the demand
for all of those folks.
Senator Burr. John, I agree with you totally, and that's
why I didn't use the term ``primary care doctors,'' because I
think that we--as we creatively look at health care and try to
figure out how to get our hands around this, you have to
creatively look at the delivery system and ask yourself, just
like we use generic drugs and--at some point--what's wrong with
using RNs? What's wrong with using a community health center?
What's wrong with using a hospital for a primary care function
if, in fact, the pool of available doctors or nurses, or
whatever, is not sufficient?
In full disclosure, Mr. Chairman, I am a little bit
influenced on this debate as it relates to having Ms. Combs
here, because my wife is a realtor. Therefore, I'm lobbied
every day on this issue, and I'm not sure----
[Laughter.]
Senator Burr [continuing]. I'm not sure how that'll be
treated under the new ethics rules that we're debating----
[Laughter.]
Senator Burr [continuing]. On the floor.
But I think our attempt here is to acknowledge what many of
you said--this is a crisis; Andy, what you said, and that's
that American business is not going to be competitive unless we
do something. We may have differences as to what ``something''
is, but the fact is that we agree that this hurts America,
hurts American workers, hurts the American people. And I think
there is a real sense that we can begin the process of
radically changing health care. If there is one hope that I
have--and, I think, many members have--is that we will quit
tinkering around the edges of this issue--right or wrong, that
we get a hold of some bold changes in health care that provide
us the type of information that we need to make the right
decisions in the future.
I thank you, Mr. Chairman.
Senator Coburn. I just wanted to followup on that. You
know, we can't fix Medicare until we fix health care. We can't
fix Medicaid until we--I'm talking about the fiscal mess that's
in front of us--until we fix health care. And I think Richard's
right, we need to boldly change it. We can come together. The
great hope is, this is not an insolvable problem for our
country. And if we choose to come together, we can solve this,
and we can say--make a tremendous impact, in terms of health
care, in terms of the lives of those people out there who don't
have it today, in terms of the longevity and quality, in terms
of prevention. We are spending billions of dollars in a
chronic-disease-system treatment, rather than a preventative
treatment, and we need to transform from chronic-disease
treatment to prevention treatment. And if we can do that, then
I think we can accomplish a great deal for our country.
Chairman Kennedy. Senator Roberts, we're so glad that
you're going to be our wind-up questioner or commenter and give
us some pearls of wisdom. You've been sitting back here,
looking at all of us here tentatively.
[Laughter.]
Chairman Kennedy [continuing]. And nodding occasionally.
Senator Roberts. I'm just sorry I'm late. And----
Chairman Kennedy. No, that's----
Senator Roberts [continuing]. The nice remarks knowing I'm
the last guy----
Chariman Kennedy. Standing.
Senator Roberts [continuing]. To--or standing.
[Laughter.]
Senator Roberts. That's why I've always thought it might be
a good idea to have members sit where members ought to sit, and
others sit elsewhere, but----
Mr. Chairman, thank you very much for holding this hearing.
I am--over in the Finance Committee, which has a related
interest in this.
In Kansas, we have 300,000 people without health insurance.
That's a big problem. In Kansas, about 41 percent of our small
businesses do offer health insurance to their employees. That's
in contrast to 97 percent of larger businesses who offer health
insurance. And I know there's been some discussion about
universal health coverage--the Massachusetts plan, California
plan. And I do appreciate these ideas--as proposals. I do have
some concerns about the vast plan to attack vast planning. And
that, as a consequence, I'm not sure we should jump into that
pool without being very careful. And I am a very strong
supporter of Senator Enzi's small business health care plan
legislation. I was going to ask Ms. Combs--and, by the way,
Senator Burr, my wife is a realtor, as well, just for
competition's sake.
[Laughter.]
Senator Roberts. And I sure wish you wouldn't bring it up
in context with ethics reform.
[Laughter.]
Senator Roberts. I have it on the record I appreciate it.
Chairman Kennedy. As long as they don't fly in a corporate
plane.
[Laughter.]
Senator Roberts. Senator Kennedy I was wondering if you can
get the Massachusetts plan to cover that cold you had----
[Laughter.]
Chairman Kennedy. Yeah, Senator Coburn gave me some free
advice earlier about this cold, and that is, I don't have to
talk quite as much, and----
[Laughter.]
Chairman Kennedy [continuing]. I'm sure he was relating to
my cold.
In any event, thank you.
Senator Burr. Free advice is worth what you pay for it.
[Laughter.]
Senator Roberts. I shouldn't say this--as well, I was an
acting presiding officer. I had the priviledge to do that when
you were speaking sir. And you were speaking and then you were
speaking and then you were speaking and----
[Laughter.]
Senator Roberts. Your coloration tends to----
[Laughter.]
Senator Roberts [continuing]. You act, you ask me--and
presiding officer how much time the distinguished Senator for
Massachusetts had remaining, I informed you that the
distinguished Senator had 11 minutes remaining and that the
audio system was working.
[Laughter.]
Chairman Kennedy. Oh, I always look for good advice from my
friend.
Senator Roberts. Ms. Combs, if you could do anything, any
one thing, that could help a State like Kansas, where we really
have a problem in regard to access, really have a problem in
regard to any health insurance for our small businesses, what
would it be?
Ms. Combs. Well, I think that we need the ability to have a
pool to have our association members in that pool so that we
can access more affordable housing.
Senator Roberts. I appreciate that. And with that I yield
back to the Chairman.
Chairman Kennedy. Well, thank you very much.
Thanks to all of our panelists. As I think back on Senator
Enzi and I, and others who comment, there's a lot of common
ground. I don't minimize, and none of us should, the
complexities and the problems, and the forces that are out
there that resist change. As one who cares deeply, I've
thought, like everyone on the panel and all of our colleagues,
about this issue for some period of time, and the devil's in
the details of these issues. But the American people are just
crying for some focus and attention and for some relief. And I
think we've gotten a number of very, very good suggestions. And
I think we have a real responsibility to come to grips with
them. This is the beginning of a series of issues on this.
I'd like to second what Senator Enzi said about following
up. We'll be inquiring, from some of our panelists, some
additional kinds of ideas and get your reaction to some
additional kinds of questions. But we're very, very grateful to
all of you for joining with us this morning. It's been very
constructive and very helpful.
I thank my colleagues who have joined with us, and we'll
stand in recess.
[Additional material follows.]
ADDITIONAL MATERIAL
Prepared Statement of Senator Clinton
I'd like to thank the Chair and Ranking Member for
convening this roundtable. And I'd like to thank all those who
have come here today to share their ideas on how we can both
reduce costs and ensure that all Americans receive high-quality
health care.
As you know, I've done a little work on health care myself,
and still have the scars to show for it. In the years since I
first became involved in this issue, the problems confronting
our system have only grown.
Costs have continued to rise, the ranks of the uninsured
have increased, and strains on our system and its ability to
provide quality care have worsened.
But before we begin to explore those, I think it's
important that we first take a look at what's right about
America's health care system. We can learn how to fix some of
the problems by drawing on the strengths of our current system.
First and foremost we have dedicated, skilled, caring
doctors, nurses and other health care personnel. We have
medical innovation that is second-to-none.
And in recent years, we have seen communities engaging in
local innovation, bringing together business, patients, and
medical leaders to try and hold down costs and make sure those
who need care get it.
While I may not agree with every policy detail of the
Massachusetts law or the California proposal they deserve
enormous credit for stepping up to the plate to try to solve a
very difficult problem for their States and their citizens.
That's something that I think we should be doing at the
national level.
Yet while we have the resources to provide quality care for
every American, the incentives in our system don't reward the
right types of care.
Our medical system is numb to the relationship between cost
and result; it's blind to the need to pay for prevention; and
it's deaf to the need to reward good corporate citizens who
provide decent coverage for their workers.
We're not getting our money's worth for our health care
dollars. We spend in this country more per person than any
nation in the world. Yet according to the Commonwealth
Foundation, our healthy life expectancy is tied for last among
33 industrialized countries. More than 46 million Americans
don't have any health insurance at all--including over 9
million children. And if our health care spending continues to
rise at current rates, we'll be putting one-third of our GDP
into health care costs by the year 2040.
Our payment system is upside-down: too often paying for
costly and debilitating treatment but not for low-cost
prevention.
The New York Times ran a series on diabetes that spelled it
out as clearly as I've ever seen it in the media. Our system
will pay tens of thousands of dollars for a diabetic's
amputation, but not a low-cost visit to a podiatrist that could
have saved someone's feet, and I'll be introducing diabetes
legislation later this month that will address several of the
issues raised by this New York Times series.
The market now rewards businesses that unload health care
costs onto their employees, onto other employers, and onto
local, State, and Federal Government programs, while basically
punishing companies that try to do the right thing.
The deck is stacked against good corporate citizens who
provide decent coverage. Not only do responsible companies
carry the health care expense for their workers, they often pay
for coverage of their dependents whose own employers don't
provide health insurance.
Small businesses are particularly impacted by these high
costs of coverage, and we need to be looking for ways to help
them.
I was pleased to join with Senator Durbin and Senator
Lincoln last year to introduce legislation that would help
small businesses provide coverage through a mechanism modeled
after the Federal Employee Health Benefits Program, and I think
that this model is one step of many we can take to improve
access to quality coverage.
Our country has never been about racing to the bottom,
never been about ignoring evidence and going with ideology over
fact. The private sector and public sector can and must work
together to craft a uniquely American solution.
We need to develop a health care system that reflects and
responds to how people are living today--that does incentivize
people to take better care of themselves, but doesn't leave
them on their own.
I believe we can solve our Nation's health coverage crisis,
and I look forward to working with my colleagues on this
committee to help ensure Americans have quality, affordable
health care.
Thank you.
Prepared Statement of Senator Obama
Mr. Chairman, I join my colleagues in commending you for
kicking off this new Congress by organizing a roundtable on
what is arguably the No. 1 health issue facing Americans
today--the rising cost of health care. This is not a new issue,
and health care experts, including many in this room today,
have been examining and debating this issue for decades.
Nevertheless, real efforts to tackle this problem on a
national level have been stymied by politics and a lack of
collective will. As a result, we're now facing a true crisis,
and we're paying a steep price for Federal inaction.
We all know the statistics about the rate at which premiums
are increasing, and the percentage of people who have to
declare bankruptcy for medical reasons.
We know about the large number of uninsured Americans who
face significantly worse health outcomes because of delayed or
foregone care. We know how these costs are ultimately borne by
public programs and through higher premiums for people with
health insurance. And we know how our health insurance crisis
affects hospitals and small businesses.
So, we know what the problem is. And we actually know
pretty well what some of the solutions are.
Patients with chronic illnesses account for 75 percent of
all health care spending. For that reason, we need to develop a
nationwide chronic care delivery system for the chronically ill
that would ensure that every patient has a regular doctor who
can help to coordinate care and provide access to disease
management programs, all of which can improve health and
dramatically reduce costs.
Even more important is promoting healthier lifestyles in
children and adults, which can prevent or delay the onset of
many chronic diseases.
The rate of obesity among adults has doubled in the last 20
years, with almost one-third of adults now being affected.
Obesity increases the risk for a number of chronic diseases,
including diabetes, heart disease, arthritis and some cancers.
This doubling of the obesity rate accounts for nearly 30
percent of the growth in the cost of private insurance. And
yet, the Federal Government only spends pennies of every health
dollar on prevention activities.
Finally, we know that up to 30 cents of every health care
dollar is spent on administration and overhead as opposed to
direct clinical care. Even just moving to electronic claim
adjudication alone could save the United States about $5
billion per year.
In the last Congress, I introduced legislation to address
some of these issues, including health care quality and
prevention, and I will continue to focus on each of these areas
in this new Congress. Improvements in each of these areas will
certainly lead to substantial cost savings in the long-term,
but they will not completely address the immediate crisis at
hand.
For all the national attention and acknowledgement of these
issues, the Federal Government and the Congress have not
stepped up to the plate and implemented meaningful,
comprehensive reform. Fortunately, the States and the private
sector have acted. In recent years, many health plans and self-
insured employers have aggressively started tackling cost-
containment. States, like Illinois, have championed innovation
and intervention to expand coverage and improve quality.
But ultimately, we're going to need Federal intervention,
so I look forward to hearing more today about State experiments
and public and private sector initiatives that could help us as
we begin work to develop a national strategy to address costs
and expand coverage. Thank you.
Prepared Statement of the American College of Physicians (ACP)
The American College of Physicians (ACP)--representing 120,000
physicians of internal medicine and medical student members--is the
largest physician specialty organization in the United States. On
behalf of its members, ACP is releasing sweeping new policy
recommendations to reform Medicare, Medicaid, SCHIP, and other programs
supported by the Federal Government to advance patient-centered primary
care. Patient-centered primary care is a model of health care delivery
that has been proven to result in better quality, more efficient use of
resources, reduced utilization, and higher patient satisfaction.
Patient-centered primary care will facilitate the ability of
physicians, working in partnership with their patients, to implement a
systems-based approach to delivering patient-centered services that
have been shown to result in better quality, lower costs, and higher
patient satisfaction. It will also avert an impending collapse of
primary care medicine by restructuring payment policies to support the
value of care provided by a primary care physician. Moreover, patient-
centered primary care will extend the benefits of a patient-centered
health care system to all Americans by taking immediate steps toward
making affordable coverage available to the uninsured and by giving
them direct access to patient-centered health care through a medical
home.
ACP's recommendations acknowledge that the State of America's
health care in 2007 is inadequate and that comprehensive reforms are
needed to determine how medical care is organized, valued, financed and
reimbursed.
America's health care system is inadequate in the following ways:
(1) According to most recent estimates by the U.S. Census, almost 47
million Americans do not have health insurance coverage.\1\ The United
States is the only major industrialized nation in the world that does
not provide health insurance coverage to all of its citizens; (2) The
uninsured are less likely to have access to regular care by a personal
physician, less likely to receive needed and recommended preventative
services and medications, and are more likely to succumb to preventable
illnesses, more likely to suffer complications from those illnesses,
and more likely to die prematurely \2\; (3) Per capita health care
expenses are considerably higher in the United States, and consume a
higher proportion of the national Gross Domestic Product (GDP) than
other industrialized nations \3\; (4) Americans receive preventative
and other health care less than half of the times recommended by
evidence-based guidelines \4\ and often receive health care that is
unnecessary, excessive, and possibly even harmful \5\; (5) The United
States has a much lower proportion of primary care physicians to
specialists than other industrialized nations that score better on
measures of cost and quality; pays more for procedures provided by
specialists than for evaluation and management services provided by
primary care physicians; and enables huge earnings inequities that
favor procedural specialists over primary care \6\; (6) This imbalance
between specialty and primary care exists even though dozens of studies
show that the availability of patient-centered primary care is
positively and consistently associated with better quality, reduced
mortality, higher patient satisfaction and lower costs of care.\7\
---------------------------------------------------------------------------
\1\ U.S. Census Bureau. Health Insurance Coverage 2005. Accessed at
http://www.census.gov/hhes/www/hlthins/hlthin05/hlth05asc.html.
\2\ Institute of Medicine, Care Without Coverage: Too Little, Too
Late, National Academy Press, 2002.
\3\ Reinhardt U, Hussey P, Anderson G. U.S. Health Care Spending in
an International Context. Health Affairs 2004;23(3): 12-25.
\4\ McGlynn, EA, et al. The Quality of Health Care Delivered to
Adults in the United States. NEJM 2003; 348:2635-2645.
\5\ Fisher, E, et al. Avoiding the Unintended Consequences of
Growth in Medical Care: How Might More be Worse?, Journal of the
American Medical Association, February 3, 1999; Vol 281, No. 5.
\6\ Starfield B. Shi L, and Macinko J., Contributions of Primary
Care to Health Systems and Health, Millbank Quarterly, 2005;83:457-502.
\7\ Barbara Starfield, The Primary Solution, Boston Review,
November/December 2005, http://bostonreview.net/BR30.6/starfield.html.
---------------------------------------------------------------------------
The problem in primary care is consistently getting worse: as ACP
reported in January 2006 in its State of the Nation's Health Care
report, the U.S. health care system is facing a collapse of primary
care medicine. Very few new physicians are going into primary care and
many of those currently in practice are leaving the field or are
planning to retire in the near future. These changes are occurring at
the same time that demographic trends--an aging population with more
chronic conditions--will require more primary care physicians. The
result of this collapse of primary care will be higher costs, lower
quality, diminished access, and decreased patient satisfaction.\8\
---------------------------------------------------------------------------
\8\ Thomas Bodenheimer, MD, Primary Care--Will it Survive?, New
England Journal of Medicine, 355;9,August 31, 2006.
---------------------------------------------------------------------------
ACP proposes a solution to such inadequacies that would redirect
Federal health care policy toward supporting patient-centered health
care that builds upon the relationship between patients and their
primary and principal care physicians and supports the systems needed
to achieve better results. This would involve applying systems-based
models that have been proven to work in other nations' health systems
(adapting them to the unique circumstances and needs of the United
States) and in successful patient-centered health programs within the
United States.
A patient-centered health care system is one that provides
continuous access to a personal primary or principal care physician who
accepts responsibility for treating and managing care for the whole
patient through an advanced medical home (AMH), also known as a
patient-centered medical home rather than limiting practice to a single
disease condition, organ system, or procedure. A patient-centered
health care system also supports the specific characteristics or care
that evidence shows results in the best possible outcomes for patients.
It recognizes the importance of implementing systems-based approaches
that will enable physicians and other clinicians to manage care, in
partnership with their patients, and to engage in continuous quality
improvement. At the same time, a patient-centered health care system
will introduce transparency in consumer decisionmaking and
accountability for getting better results. Moreover, this system will
create a new financing, reimbursement, and delivery models that support
the ability of physicians and patients to provide and receive patient-
centered care. Finally, a patient-centered health care system will
assure that all individuals will have access to care through a patient-
centered medical home (PC-MH) by providing affordable health insurance
coverage to all and creating models that will provide everyone with the
option of receiving care through a PC-MH.
More specifically, the Commonwealth Fund has suggested that
patient-centered primary care should have most of the following
characteristics:
(1) Superb access to care including ease of making an appointment
and e-mail and telephone visits when they are an appropriate substitute
for in-person care and electronic prescription refills.
(2) Patient engagement in care: option for patients to be informed
and engaged partners in their care, including a recasting of clinician
roles as advisers, with patients or designated surrogates for
incapacitated patients serving as the locus of decisionmaking (when
desired by patients); information for patients on conditions, treatment
options, and treatment plans; clear delineation of roles and
responsibilities for patients, caretakers, and clinicians; patients
reminders and alerts for routine preventative care or when special
followup is necessary.
(3) Clinical information systems that support high-quality care,
practice-based learning, and quality improvement: registries;
monitoring adherence; ease of access to laboratory and diagnostic test
results; physicians and patient reminders or alerts; decision support
for physicians and patients; information on recommended treatment
plans; and longitudinal charts on risk factors, use of services, and
outcomes.
(4) Care coordination: coordination of specialist care, including
systems that monitor whether recommended referrals take place; prompt
feedback of specialist consultation reports to primary care physicians
and patients; information about the availability and quality of
specialty services and community resources; systems to prevent errors
that occur when multiple physicians or sites are involved in care;
post-hospital followup and support; tracking of tests, test results,
procedures, and the filling of prescriptions to monitor patient
adherence to mutually agreed-upon diagnostic and treatment plans; and
communication among health care providers who care for a patient, but
do so in different geographic locations or at different times.
(5) Integrated, comprehensive care and smooth information transfer
across a fixed or virtual team of providers: including physicians,
advanced practice nurses, nurses, and others as needed (i.e. social
workers, nutritionists, health educators, exercise physiologists, and
behavioral health specialists), and elimination of information and
testing.
(6) Ongoing and routine patient feedback to a practice: using, for
example, low-cost, internet-based, patient-centered care surveys,
leading to targeted plans for practice improvement. Such surveys
following a patient encounter or episode of care could be used by the
physician or practice to understand what went right or wrong from the
perspective of the patient and suggest opportunities for improvement.
(7) Publicly available information on practices; information by
which a patient could choose a physician or practice most likely to
meet the patient's needs.\9\
---------------------------------------------------------------------------
\9\ Davis, Karen, Schoenbaum, Stephen C. & Audet, Anne-Marie. A
2020 Vision of Patient-
Centered Primary Care. Journal of General Internal Medicine
2005;20:953-957.
Many U.S. physicians already are providing some of the
characteristics of patient-centered care, but few provide all of
them.\10\ In comparison, many other industrialized countries have made
a deliberate policy decision to build their health care systems around
patient-centered care, and physicians in those countries are far more
likely to report that they have all or most of the characteristics
associated with patient-centered care.\11\
---------------------------------------------------------------------------
\10\ Audet, Anne-Marie, Davis, Karen, & Schoenbaum, Stephen C.
Adoption of Patient-Centered Care Practices by Physicians. Archives of
Internal Medicine. 2006;166:754-759.
\11\ Schoen C, Osbern R, et al. On the Front Lines: Primary Care
Office System's, Experiences and Views in 7 Countries. Health Affairs
2006;25:w555-w571.
---------------------------------------------------------------------------
A principal reason why the United States does not consistently
deliver patient-centered care is that payment systems used by the
Centers for Medicaid and Medicare Services (CMS) and most private
payers reward physicians for the volume of procedures generated and the
number of office visits performed, rather than for ongoing continuous
and longitudinal management of the patients' whole health, supported by
systems-based practice improvements that lead to better results.
There is substantial and growing evidence that a health care system
built upon a foundation of patient-centered primary care will improve
outcomes, result in more efficient use of resources, and accelerate
systems-based improvements in physician practices. According to an
analysis by the Center for Evaluative Clinical Sciences at Dartmouth,
States that have relied more on primary care have lower Medicare
spending (inpatient reimbursements and Part B payments), lower resource
inputs, lower utilization rates, and better quality of care.
Starfield's review of dozens of studies on primary-care oriented
health systems found that primary care is consistently associated with
better health outcomes, lower costs, and greater equity in care.
Primary-care oriented countries such as Australia, Canada, New Zealand,
and the United Kingdom rate higher than the United States on many
aspects of care, including the public's view of the health care system
not needing completely rebuilding, finding that physicians' advice is
helpful, and coordination of care. ``The United States rates the
poorest on all aspects of experienced care, including access, person-
focused care over time, unnecessary tests, polypharmacy, adverse
effects, and rating of medical care received.'' However, in the United
States, adults with a primary care physician rather than a specialist,
had 33 percent lower cost of care and 19 percent less likely to die. It
is important to also note that the supply of primary care physicians is
consistently associated with improved health outcomes for conditions
like cancer, heart disease, stroke, infant mortality, low-birth weight,
life expectancy, and self-rated care. In both England and the United
States, each additional primary care physician per 10,000 people is
associated with a decrease in mortality rates of 3 to 10 percent.
Specifically in the United States, an increase of one primary care
physician is associated with 1.44 fewer deaths per 10,000 people, and
the association of primary care with decreased mortality is greater in
the African American population than in the white population.\12\
---------------------------------------------------------------------------
\12\ Starfield, presentation to The Commonwealth Fund, Primary Care
Roundtable: Strengthening Adult Primary Care: Models and Policy
Options, October 3, 2006.
---------------------------------------------------------------------------
Another analysis found that when care is managed effectively in the
ambulatory setting by primary care physicians, patients with chronic
diseases like diabetes, congestive heart failure, and adult asthma have
fewer complications thus leading to fewer avoidable
hospitalizations.\13\
---------------------------------------------------------------------------
\13\ Commonwealth Fund, Chartbook on Medicare, 2006.
---------------------------------------------------------------------------
Patient-centered primary care will also accelerate the
transformation of physician practices by making the business case for
physicians, including those in small practice settings, to acquire and
implement health information technologies and other systems-based
improvements that contribute to better outcomes. Yet authors of a
recent survey found that a ``gap exists between knowledge and
practice--between physicians' endorsement of patient-centered care and
their adoption of practices to promote it. Physicians reported several
barriers to their adoption of patient-centered practices, including
lack of training and knowledge and costs. Education, professional and
technical assistance, and financial incentives might facilitate broader
adoption of patient-centered care practices. With the right knowledge,
tools, and practice environment, and in partnership with their
patients, physicians should be well positioned to provide the services
and care that their patients want and have the right to expect.'' \14\
---------------------------------------------------------------------------
\14\ Commonwealth Fund study, ``Adoption of Patient-Centered Care
Practices by Physicians: Results from a National Survey'' (Archives of
Internal Medicine, April 10, 2006).
---------------------------------------------------------------------------
In ACP's new position paper, ``A System in Need of Change:
Restructuring Payment Policies to Support Patient-Centered Care,'' the
College proposes that the Federal Government take the lead in
restructuring payment policies to achieve patient-centered health care.
The College's recommendations would transition Medicare from paying
doctors solely on the number of procedures or visits generated to
paying them for providing patient-centered health care. The College
also proposes a pathway for eliminating automatic cuts in payments
generated by the flawed Sustainable Growth Rate, or SGR, formula,
because continued SGR payment cuts will make it impossible for
physicians to invest the resources in the systems required to provide
patient-centered care, accelerate the collapse of primary care medicine
and result in severe limitations on access to care for Medicare
beneficiaries. ACP proposes the following payment reforms to support
patient-centered care:
1. Institute a multi-component payment structure that facilitates
more effective and efficient care delivery for patients through the
Patient-Centered Medical Home that would include:
A bundled and prospective payment component that would
include all of the physician work associated with coordinating care
that is not included in payments for face-to-face visits, such as
arranging care with other health professionals and family-caregivers
and following up with patients on self-management plans. Bundled means
that the payment would include a defined package of services related to
care coordination rather than billing for such services on an a la
carte basis. Prospective means that the payment would be made on a
regularly scheduled timetable, such as monthly, for each patient who
receives care in the patient-centered medical home without
necessitating that the physician generate a bill for a specific
procedure or visit.
A bundled and prospective payment component that provides
sustained funding for the systems needed for a physician practice to
deliver patient-centered care, such as patient-registry systems,
evidence-based clinical decision support at the point of care,
computerized order entry and e-prescribing systems, secure e-mail, and
electronic health records that have the functionalities required to
provide patient-centered care.
Risk-adjustment of the prospective bundled payment to
account for differences in the health status, disease conditions,
chronic illnesses, and severity of illness of the patient population
seen by physicians in a patient-centered medical home.
A fee-for-service visit component that would allow
physicians to continue to bill for face-to-face encounters with
patients.
A performance-based component that provides additional
bonus payments based on reporting of evidence-based quality, cost of
care, and patient satisfaction measures.
This payment structure would:
Recognize the value of the time and work required of
physicians and their staffs to manage and coordinate the care of
patients, rather than paying them only for the work involved in
providing a face-to-face visit or procedure.
Accelerate practice transformation by providing sustained
funding to support the ability of physicians to acquire and use health
information technology and other systems-based tools needed to provide
patient-centered care; such expenses are not currently supported by
Medicare payment policies.
Be risk-adjusted to create a strong incentive for
physicians to accept responsibility for providing patient-centered care
to patients' with multiple chronic illnesses.
Combine the prospective payment structure with fee-for-
service payments for face-to-face visits to assure that physicians will
continue to see patients in their offices, unlike traditional
capitation models that created disincentives for physi-
cians to see patients. This ``hybrid'' system of prospective bundled
payment and FFS payments has been implemented successfully in countries
like Denmark that have patient-centered health care systems.\15\
---------------------------------------------------------------------------
\15\ Karen Davis, Ph.D., Stephen C. Schoenbaum, M.D., and Anne-
Marie Audet, M.D., A 2020 Vision of Patient-Centered Primary Care,
Journal of General Internal Medicine, October 2005; 20(10):953-957.
---------------------------------------------------------------------------
The following example illustrates how ACP's new bundles payment
structure would work in an internal medicine practice:
Dr. Smith is an internist in a four-person internal
medicine practice in Des Moines, Iowa. Her practice has demonstrated,
through an independent review process, the necessary characteristics
required to be qualified as a patient-centered medical home. To assist
the physicians in providing patient-centered care, the practice
recently implemented a software patient registry program to allow them
to rack the care provided to patients by medical condition. It also has
established a secure e-mail consultation service that generates
``reminders,'' based on evidence-based guidelines, on steps that
patients can take to improve or maintain their own health as part of an
integrated self-management plan that Dr. Smith developed in partnership
with each patient.
Fifty percent of the practice's patients are Medicare
enrollees who have selected the practice as their medical home, and 10
percent of those patients have four or more chronic conditions, like
diabetes, congestive heart failure, and asthma. Medicare would pay Dr.
Smith a baseline monthly ``care coordination'' payment that includes
the value of the time that she and her colleagues spend coordinating
care outside of the face-to-face visits. The prospective payment also
includes an allowance for the costs incurred by the practice in
acquiring and sustaining the patient-registry software and the secure
e-mail service. The baseline payment would be increased for those
Medicare patients who have multiple chronic diseases.
The secure e-mail program allows Dr. Smith to communicate
with patients after regular hours on non-urgent medical issues, and to
generate secured e-mail reminders to them that followup on recommended
treatment plans. This reduces the number of times that patients have
come into the office to see Dr. Smith and her colleagues. This frees up
time so that when patients do need to be seen in her office, Dr. Smith
is able to spend more time with them. She bills Medicare on a fee-for-
service basis for the office visits using existing codes and relative
value units.
Dr. Smith's practice also regularly reports on its
performance using evidence-based measures for primary care that have
been approved by the National Quality Forum and the AQA, multi-
stakeholder bodies that respectively endorse and implement quality
measures based on criteria that have been broadly accepted by
physicians, health plans, employers, and consumers. At the end of the
calendar year, Dr. Smith's practice receives a Medicare bonus payment
based on excellent performance and measures.
2. Make changes within the resource-based relative value scale
(RBRVS) system to improve accuracy of work and practice expense
relative values, support physician-directed care coordination, provide
an incentive for the adoption of health information technology linked
to quality improvement efforts, and provide incentives for physicians
to participate in programs to continuously improve, measure and report
on the quality and cost of the care provided. Medicare should
specifically allow for separate ``care coordination'' procedure codes
and relative value units that would allow physicians in practices that
have not been recognized as qualified patient-centered medical homes to
bill for care coordination on a retrospective, fee-for-service basis
with appropriate documentation of the work involved.
3. Enact legislation to provide an ``add on'' to the Medicare
office visit fee for small physician practices when it is supported by
a certified electronic health record that has the functional
capabilities needed to provide patient-centered care and to measure and
report on the quality of care provided, as proposed in bipartisan
legislation introduced in the 109th Congress called the National Health
Information Incentive Act. (This ``add on'' would not apply to
physician practices that qualify as patient-centered medical homes
because such practices would be reimbursed on a prospective basis for
the systems improvements needed to deliver patient-centered care).
4. Replace the Sustainable Growth Rate (SGR) Formula with a new
methodology that will provide positive and predictable baseline
payments and create powerful incentives for physicians to design,
implement and participate in programs to improve quality and achieve
more efficient use of resources:
The College proposes a transitional pathway to eliminate
the SGR that will culminate in a stable and predictable methodology for
updating physician payments and create a strong incentive for
physicians to participate voluntarily in a Medicare pay-for-reporting
program. During the transition period, changes would be made in the
transitional pay-for-reporting program now being instituted by Medicare
to provide greater bonus payments to physicians who acquire the systems
needed to deliver patient-centered care and who do more to improve
quality, rather than a ``one-size-fits-all'' program that pays all
physicians the same amount for reporting a few measures, regardless of
the impact of those measures on improving patient care.
At the end of the transition, the SGR would be replaced
with a new update system that would have three components:
A baseline physician payment update that takes into
account the costs of delivering care, beneficiary access to
services, workforce and other data on trends that may affect
access and quality.
A separate pool of funds that would be set aside to
fund qualified physicians' quality improvement programs that
have the greatest potential to achieve quality improvements and
cost efficiencies for the Medicare population, including
programs that are designed to support patient-centered care.
Performance payments to physicians would be
paid on a weighted basis to physicians who agree to
participate in the quality improvement programs funded
by the pool.
This physician payment quality improvement
pool would be funded in part by systemwide Medicare
savings that are attributable to quality improvement
programs funded out of the pool. For example, the pool
could fund programs that reward physicians for helping
to keep patients with multiple chronic diseases out of
the hospital. A portion of Medicare Part A savings
would then be redistributed back into the physician
performance pool.
``Weighted'' payments mean that physicians
who successfully participate in programs that have the
greatest impact on quality and cost would receive
greater bonus payments than those who do not
participate, or who participate in programs that will
have a lesser impact on quality and cost. This is
fundamentally different from the current ``one-size-
fits-all'' transitional Medicare pay-for-reporting
program, which will pay physicians the same percentage
bonus payment for as few as three measures regardless
of the impact of the measures on improving quality and
reducing costs.
A process that would direct the Medicare Payment
Advisory Commission to consider making formal recommendations
to Congress on discretionary bonus payments to achieve specific
policy objectives, such as increasing the supply of primary
care physicians.
The benefits of a patient-centered health care system should not be
limited only to those who currently have health insurance coverage. The
47 million Americans who now lack health insurance coverage are much
less likely to have a regular source of care, never mind having access
to physician practices that are organized to provide patient-centered
primary care. The College believes that immediate steps must be taken
to expand health insurance coverage, with the goal of providing
coverage to all Americans. Proposals to expand health insurance
coverage should also assure that patients have access to a core set of
benefits that includes preventive and primary care services and other
services associated with patient-centered care. In addition, proposals
to expand coverage should provide funding and incentives to assure that
all patients will have access to care through a patient-centered
medical home. To accomplish this goal, the College proposes that
Congress:
1. Provide dedicated Federal funds to support State-based programs
that will reduce the number of uninsured and provide access to services
through patient-
centered medical homes.
2. Provide waivers to States that wish to redesign their Medicaid
and SCHIP programs to give enrollees access to services through a
patient-centered medical home including changes in reimbursement policy
to support PC-MHs.
3. Enact Federal legislation to implement a step-by-step plan to
provide health insurance coverage to all Americans by a defined date
through changes in Federal entitlement programs, tax credits and other
subsidies to allow low-income working Americans to buy into the Federal
Employees Health Benefit Program, and insurance market reforms.
Translating the College's proposals for redesigning American health
into action will require Congress, the Centers for Medicare and
Medicaid Services, employers, and health plans to take immediate steps
to create pathways for building and implementing patient-centered
changes through U.S. health care. The Federal Government has a
particular responsibility to use its enormous purchasing authority to
drive the systems changes needed to support patient-centered care.
ACP's policy proposal for implementation of legislative action to
accelerate and advance patient-centered care would include the
following:
1. Expanding the new Medicare demonstration of patient-centered
care.
2. Redesigning the voluntary Medicare physician pay-for-reporting
program to emphasize systems-based approaches to delivering patient-
centered care and to vary payments based on the impact of the systems
and processes being measured and the practice expenses associated with
obtaining the tools required.
3. Creating additional reimbursement incentives for physician-
directed care
coordination and systems improvements that lead to better care.
4. Replacing the SGR with a new payment methodology that would
provide predictable and positive baseline payments, emphasize systems-
based approaches to improving quality and reducing costs, provide
dedicated funding for quality improvement programs that will have the
greatest impact on quality and cost, and allow physicians to share in
non-Part B program savings associated with better care management in
the ambulatory setting.
5. Providing States with dedicated funding and increased
flexibility to expand coverage and redesign Medicaid and SCHIP around
the patient-centered medical home.
6. Expanding health insurance coverage through a combination of
public and private funding resources.
President Bush and the 110th Congress have an historic opportunity
to join with the College, other physician organizations, employers, and
health plans to redesign the American health care system to deliver the
care that patients need and want, to recognize the value of care that
is managed by a patients' personal physician, to support the value of
primary care medicine in improving outcomes, and to create the systems
needed to help physicians deliver the best possible care to patients.
The College's policy recommendations and implementation roadmap are
offered as a comprehensive plan for achieving a high quality,
affordable, and patient-centered health care system for all Americans.
[Whereupon, at 12 p.m., the hearing was adjourned.]