[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


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          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.
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    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.]

                                    

      
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