[Senate Hearing 110-220]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-220
 
                       HEALTH CARE AND THE BUDGET 

=======================================================================

                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               ----------                              


 June 21, 2007--HEALTH CARE AND THE BUDGET: ISSUES AND CHALLENGES FOR 
                                 REFORM
 June 26, 2007--HEALTH CARE AND THE BUDGET: THE HEALTHY AMERICANS ACT 
                      AND OTHER OPTIONS FOR REFORM
 September 11, 2007--HEALTH CARE AND THE BUDGET: OPTIONS FOR ACHIEVING 
                       UNIVERSAL HEALTH COVERAGE

                 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
                                     
           Printed for the use of the Committee on the Budget

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                        COMMITTEE ON THE BUDGET

                  KENT CONRAD, NORTH DAKOTA, CHAIRMAN

PATTY MURRAY, WASHINGTON             JUDD GREGG, NEW HAMPSHIRE
RON WYDEN, OREGON                    PETE V. DOMENICI, NEW MEXICO
RUSSELL D. FEINGOLD, WISCONSIN       CHARLES E. GRASSLEY, IOWA
ROBERT C. BYRD, WEST VIRGINIA        WAYNE ALLARD, COLORADO
BILL NELSON, FLORIDA                 MICHAEL ENZI, WYOMING
DEBBIE STABENOW, MICHIGAN            JEFF SESSIONS, ALABAMA
ROBERT MENENDEZ, NEW JERSEY          JIM BUNNING, KENTUCKY
FRANK R. LAUTENBERG, NEW JERSEY      MIKE CRAPO, IDAHO
BENJAMIN L. CARDIN, MARYLAND         JOHN ENSIGN, NEVEDA
BERNARD SANDERS, VERMONT             JOHN CORNYN, TEXAS
SHELDON WHITEHOUSE, RHODE ISLAND     LINDSEY O. GRAHAM, SOUTH CAROLINA


                Mary Ann Naylor, Majority Staff Director

                Scott B. Gudes, Minority Staff Director

                                  (ii)





















                            C O N T E N T S

                               __________

                                HEARINGS

                                                                   Page
June 21, 2007--Health Care and the Budget: Issues and Challenges 
  for Reform.....................................................     1
June 26, 2007--Health Care and the Budget: The Healthy Americans 
  Act and Other Options for Reform...............................    81
September 11, 2007--Health Care and the Budget: Options for 
  Achieving Universal Health Coverage............................   191

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Conrad..............................................1, 81, 191
Ranking Member Gregg........................................12, 89, 196
Senator Allard...................................................   202
Senator Feingold................................................77, 265
Senator Sanders..................................................   204
Senator Whitehouse..............................................75, 203
Senator Wyden...............................................90, 94, 201

                               WITNESSES

Henry J. Aaron, PH.D, Bruce and Virginia MacLaury Fellow, 
  Economic Studies Program, The Brookings Institute............206, 209
Hon. Robert F. Bennett, A United States Senator from the State of 
  Utah...........................................................    99
Sara R. Collins, PH.D., Assistant Vice President, Program on the 
  Future of Health Insurance, The Commonwealth Fund............140, 142
Sherry A. Glied, PH.D., Department Chair, Health Policy and 
  Management, Professor of Health Policy and Management, Mailman 
  School of Public Health, Columbia University.................224, 227
Arnold Milstein, M.D., Medical Director, Pacific Business Health 
  Group........................................................113, 115
Len Nichols, PH.D., Director, Health Policy Program, New America 
  Foundation...................................................122, 126
Peter Orszag, Director, Congressional Budget Office..............16, 20
Janet Trautwein, Executive Vice President and CEO, National 
  Association of Heath Underwriters............................234, 237



      HEALTH CARE AND THE BUDGET: ISSUES AND CHALLENGES FOR REFORM

                              ----------                              


                        THURSDAY, JUNE 21, 2007

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
SD-608, Dirksen Senate Office Building, Hon. Kent Conrad, 
Chairman of the Committee, presiding.
    Present: Senators Conrad, Murray, Wyden, Feingold, 
Stabenow, Whitehouse, and Gregg.
    Staff present: Mary Naylor, Majority Staff Director; Scott 
Gudes, Staff Director for the Minority.

              OPENING STATEMENT OF CHAIRMAN CONRAD

    Chairman Conrad. The hearing will come to order.
    Let me just indicate we all understand the hearing room is 
unusually warm and the technical people are working on that. I 
would invite those who are here, you are welcome to take off 
your jackets, as it is good and warm in here this morning.
    We want to welcome everyone to the hearing room this 
morning, the hearing on health care, with our distinguished CBO 
Director Peter Orszag. Dr. Orszag is particularly well-suited 
to address this issue. He has done an outstanding job of 
focusing CBO on analyzing and providing information to Congress 
on the problem of rising health care costs. Earlier this year 
he created a new panel of health advisers and he is increasing 
the number of CBO personnel who work on health issues over the 
next 2 years. That is an important and much needed change.
    I very much appreciate Director Orszag's emphasis on this 
topic. I think all of us know this is the 800-pound gorilla. 
This is the issue that could swamp the boat for our country in 
terms of its fiscal future.
    Let me just go to a couple of slides.

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    This is the driver that needs to focus our attention on the 
fiscal challenges facing America. We face a demographic tidal 
wave. We are going to have 80 million retirees by 2050, more 
than a doubling of the number of people eligible for Social 
Security and Medicare, and we need to focus on this fact like a 
laser.
    We need to remember that Social Security is not the biggest 
budget challenge confronting us.

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    Because of rising health care costs and this demographic 
tidal wave over the next 75 years the shortfall in Medicare 
will be seven times the shortfall in Social Security. The 
growing cost of Medicare and Medicaid is simply staggering.

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    By 2050, if nothing changes, more than 20 percent of our 
gross domestic product will be spent on just these two 
programs. That is more than we now spend on the entire Federal 
Government. So if this does not get people's attention I do not 
know what will.
    This next chart from the Center on Budget and Policy 
Priorities shows that rising health care costs are by far the 
biggest factor driving Medicare cost growth.

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    Demographic changes, which I have referenced, from the 
retiring baby boom generation are significant but they are 
secondary to the rising costs.
    The fact is that our health care system is not as efficient 
as it should be. The United States is spending far more on 
health care expenditures as a percentage of gross domestic 
product than any other country in the OECD and that includes 
the leading economies in the world.

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    For example, the U.S. spent over 15 percent of GDP on 
health care expenditures in 2003 compared to 7.2 percent in 
Ireland. We are spending even more as a percentage of GDP 
today. In fact, most estimates are we are over 16 percent of 
GDP today on health care. That is one of every $6 in this 
economy going to health care.
    Despite this additional health care spending, health 
outcomes in the United States are no better than health care 
outcomes in other OECD countries.
    But we need to remember that the problem is not that 
Medicare and Medicaid are Federal programs. The problem stems 
from the underlying rising cost of health care.
    This is a quote from the Comptroller of the General 
Accounting Office, General Walker, making exactly that point.

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    He said, and I quote ``Federal health spending trends 
should not be viewed in isolation from the health care system 
as a whole...Rather, in order to address the long-term fiscal 
challenge, it will be necessary to find approaches that deal 
with health care cost growth in the overall health care 
system.'' That is a critical point.
    Our budget resolution, which was adopted by Congress last 
month, takes a number of important steps to begin addressing 
these rising health care costs.

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    First, we include funding for program integrity initiatives 
to crack down on waste, fraud, and abuse in Medicare and other 
programs. I met with the Secretary yesterday on this issue and 
others and we again emphasized the importance of going after 
waste, fraud, and abuse in Medicare.
    Second, we include a health information technology reserve 
fund to promote the use of advanced information technology, a 
point that the Senator from Michigan has made many times, 
Senator Stabenow. The RAND Corporation has done a study that 
says we could save as much as $80 billion a year if information 
technology were broadly deployed in health care. Additional 
Federal action could save even more.
    Third, we include a comparative effectiveness reserve fund 
to jump start an initiative to provide research on the 
comparative effectiveness of different treatments, medical 
devices, and drugs. This research will lead to savings over the 
long term by allowing health care providers and patients to 
avoid treatments that may be ineffective or overly expensive 
while at the same time improving health care outcomes.
    I would note that CBO is currently working on a study on 
comparative effectiveness at the request of myself and Senator 
Baucus, the Chairman of the Finance Committee.
    In conclusion, within Medicare I believe we also need to 
look at the additional cost of Medicare Advantage plans.

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    MedPAC has found that Medicare Advantage plans are costing 
on average 112 percent of the cost of traditional Medicare fee-
for-service. These plans were meant to save money. Instead, 
they are contributing to Medicare's financial instability and 
continued growth in Medicare Advantage, similar to what we have 
seen recently, has major implications for future costs in the 
structure of the Medicare program.
    At my request, CBO has done an analysis of savings if we 
capped Medicare Advantage expenditures at as much as 150 
percent of traditional fee-for-service Medicare. And they found 
savings even at that level, much more significant savings if we 
would cap Medicare Advantage at 120 percent or 125 percent of 
traditional fee-for-service Medicare.
    With that, I am going to turn to my colleague and able 
member of this Committee, Senator Gregg.

           OPENING STATEMENT OF RANKING MEMBER GREGG

    Senator Gregg. Thank you, Mr. Chairman. And obviously, the 
Chairman and I and many other members of the Senate agree on 
the problem, which is that we confront a demographic tsunami 
which is going to overwhelm our capacity as a country to 
support the present programs we have in place. And that if we 
do not do something substantive we will end up passing on to 
our children not only a government that is unaffordable but a 
lifestyle which will be significantly less in quality than the 
lifestyle that our generation has had because the burden which 
will be put on them will be so high that they will not be able 
to do things such as purchase homes, send their kids to 
college, and have discretionary spending money. It will all be 
spent on the government to support these programs.
    But I think where the Chairman and I depart is on whether 
or not the Congress has responded to this. We have had 
innumerable hearings on this issue and they have all been good, 
and I congratulate the Chairman for holding this hearing. But 
the fact is that the numbers are there. We know them. We have 
been presented with them. I know that the Director is going to 
give us another set of numbers and some ideas. But they are not 
going to be significantly different than what we have already 
been presented before, which is that this is a problem that is 
huge and that is coming at us and that cannot be avoided as 
were reflected in the Chairman's numbers.
    I think to refer to the last budget as having taken a bite 
out of this apple is really an exaggeration which cannot be 
defended by the facts. The simple fact is that we have not, as 
a Congress, stepped in to this issue. The President, 
ironically, put forward a proposal, a very legitimate proposal, 
which would have used reconciliation to address the issue of 
health care and the out-year cost of health care.
    The unfunded liability of Medicare is approximately $32 
trillion. Under the President's proposal that unfunded 
liability would have been reduced by almost 25 percent. And his 
proposal would not have affected present beneficiaries or 
future beneficiaries of middle and moderate income, or low 
income for that matter. It would have primarily affected the 
top 5 percent of Medicare beneficiaries who have high incomes.
    It had two basic elements: first, that reimbursements to 
providers should be accurately paid and should not be inflated. 
And they are, by all estimates, and especially by the 
independent analysis, inflated by the extent of about 1.3 
percent which is benefit accruing from more technological 
capability and efficiencies within the system. And what the 
President suggested was to let the provider groups keep half of 
that inflated payment but have the other half be returned to 
basically make the system more solvent.
    The second proposal was to have high income retirees pay a 
larger proportion of the costs of their premiums so that a 
person, a retired member of the Senate, or Warren Buffett's 
Part D premium for Medicare drug benefit is not subsidized by 
working Americans who are working at a garage or on an 
industrial line or at a restaurant.
    Today average working Americans trying to make ends meet, 
trying to raise families, trying to send their kids to college, 
trying to make their payments, are also paying the cost of 
Warren Buffett's Part D drug benefit. And they are paying the 
costs of retired members of the Senate's Part D drug benefit 
which is totally inexcusable. There is no reason those premiums 
should not be means-tested, wealth-tested.
    And the proposal the President suggested was reasonable. He 
said if an individual makes more than $80,000 or a couple more 
than $160,000, then they should pay a larger portion of their 
drug benefit costs. Both of those ideas were rejected, rejected 
out of hand by the Democratic budget.
    But worse than that, because those were reasonable ideas 
that did not have any partisan policy to them, in fact I would 
think that coming from the other side of the aisle there would 
be some receptiveness to taxing--not taxing, but making people 
who have high incomes pay the fair cost of their Part D 
premium.
    Worse than the fact that they were rejected was there was 
no alternative put forward. The President suggested a proposal 
to take $8 trillion of potential unfunded liability out of the 
system. The response from the other side of the aisle was to 
reject that, to reject having high income people pay a larger 
part of their Part D premium, to have a more accurate 
reimbursement for provider groups. But no substitute, nothing 
was brought forward to substitute.
    In fact, not only was nothing brought forward to address it 
but the situation was dramatically aggravated by the use of 
reconciliation as a vehicle to dramatically expand the 
Government. We just saw that occur yesterday in the HELP 
Committee where the reconciliation instructions were used for 
the purposes of increasing spending 2,500 percent more than 
savings were put in place for deficit reduction. $1 billion of 
savings, $20 billion of new spending used by--and 
reconciliation was used as the vehicle to accomplish that.
    So instead of having reconciliation, which is supposed to 
be a vehicle that controls the rate of growth of entitlements 
in this Government, it was used as a vehicle to expand 
entitlements and there was no attempt in the Democratic 
budget--in fact, it was rejected on the floor--to address the 
funding and the correction of Medicare.
    In addition, we know that the issue of how you correct 
Medicare is an issue of utilization, transparency, and access 
to quality, reasonable cost health care. We know from studies 
that have been done at the Dartmouth Institute for Health 
Policy and Clinical Practive that if you look at the cost and 
utilization and quality of health care across this country you 
will find that in many States, especially for example I will 
take Florida, utilization is high, cost is high, and outcome is 
not that good for Medicare recipients.
    If you look at a state like say Washington State, I--
utilization is low, cost is low, and outcomes are higher, are 
better.
    And so we know, we know what we need to do. And I know Dr. 
Orszag is going to tell us again what the problem is. I am not 
sure he is going to tell us what we need to do. We know what we 
need to do. The problem is we do not have, as a Congress, the 
courage to do it. It is that simple.
    So I appreciate the hearing. I appreciate more information 
being brought to the table. But I do think there is a 
legitimate disconnect to represent that the last budget in any 
way significantly moved us down the road toward solving the 
first set of charts which were reflecting the problem.
    Chairman Conrad. Let me just take a minute to respond 
because the Senator has raised a number of issues that are 
legitimate to raise but deserve a response.
    First of all, I went through in some detail in my opening 
statement things that were in this budget to address these 
long-term challenges. The fact is, as I have stated on many 
occasions, I do not believe the budget resolution is the place 
where these long-term entitlement challenges can be 
successfully addressed. But we did take a series of important 
steps. First of all, by providing a health IT reserve fund. As 
I have indicated, the RAND Corporation says that if we deployed 
information technology broadly in our society we could save 
over $80 billion a year.
    And second, a comparative effectiveness fund to deploy the 
best and most cost effective methodologies.
    We also know that that would provide tremendous savings. So 
those provisions are in the budget.
    Why didn't we address the long-term entitlement challenges? 
Very simply because I do not believe that you will ever resolve 
those in a budget resolution. That is going to take a separate 
negotiation between the White House and the Congress. Why not a 
budget resolution? Well first of all, the President plays no 
role in a budget resolution. But a president will have to play 
a central and significant role in addressing our long-term 
imbalances in Medicare and Social Security.
    So the irony is Senator Gregg and I talked just as recently 
as yesterday about introducing a proposal that would create a 
process that would address these long-term imbalances in a 
bipartisan way, a working group that would be given the 
responsibility to come back with a plan, a plan that would 
involve not only the Congress but the White House.
    I think it is going to take that kind of bipartisan 
approach that involves directly the White House to have any 
hope of dealing with these long-term imbalances.
    Senator Gregg. If I could just quickly respond, Mr. 
Chairman.
    First, I do not in any way--in fact, I do not wish my 
opening statement to imply in any way--question the desire and 
purpose of the Chairman to address this issue. And his 
commitment here is legitimate and I know it is substantive and 
I know he wants to get to this point. I know that he is limited 
by the ability he has to get votes on his side of the aisle.
    But I do have to say that I think my characterization of 
the budget was accurate. But more importantly than that, the 
President is a player in the budget process. And when he 
becomes a player is on reconciliation. He has to sign the 
reconciliation bill. So where the budget process can drive this 
exercise is when we give reconciliation instructions that force 
the committees of jurisdiction to take action. That is when we 
can drive the process.
    Unfortunately, I think the thing that I find most upsetting 
is that the only reconciliation instruction given was not the 
one that the President suggested, which is to make wealthy 
people pay a larger part of their Part D premium or to get 
their reimbursements right for provider groups. It was a 
reconciliation instruction which yesterday was used to expand 
the government by 2,500 percent over what it saved in deficit 
reduction.
    And so I do think we missed an opportunity and I will leave 
it at that.
    Chairman Conrad. Let me just conclude this by saying I do 
not think we have missed an opportunity. I do not think the 
budget resolution that is just carried on one side of the 
aisle--there were only two Republican votes for the budget. In 
the House just a handful there, as well.
    So to deal with these long-term challenges is truly going 
to take a bipartisan effort. The fact is the President does not 
have a role in a budget resolution. The budget resolution never 
goes to the president. It is purely a Congressional document.
    To deal with the long-term entitlement challenges is going 
to take the direct involvement of the President of the United 
States and going to take the direct involvement of the Congress 
of the United States.
    Let me also, in terms of reconciliation and what was 
included in the budget, first of all it did not expand 
government by 2,500 percent. That is not the case. What it did 
was provide an ability to extend higher education 
reauthorization using the reconciliation process but one that 
is completely paid for, completely paid for. Plus it will 
produce about $1 billion of deficit reduction.
    Now that is not inappropriate. That is what reconciliation 
is for. I might say when our colleagues controlled the budget 
process they used reconciliation not to reduce the deficit, 
which is the only legitimate purpose for reconciliation. They 
used reconciliation, which is a fast track procedure that goes 
outside the normal rules of the Congress, to explode the 
deficit and the debt. They have added trillions of dollars of 
debt using reconciliation. We have not, by the use of 
reconciliation on our side, expanded the deficit by a dollar. 
Instead, we have used it to reduce the deficit and at the same 
time extend higher ed reauthorization, which is going to mean 
more affordable college for hundreds of thousands of Americans, 
which is absolutely essential to our continued position in the 
world. If we are not first in education, we are not going to be 
first in anything.
    With that I want to turn to Dr. Orszag for his opening 
statement.
    I want to acknowledge the important role that Senator Wyden 
has played in this hearing and hearings to follow. And I think 
all of us, one place that we agree is the need for a bipartisan 
approach to what really is the 800-pound gorilla, dramatically 
rising health care costs.
    Welcome, Dr. Orszag.

 STATEMENT OF PETER R. ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET 
                             OFFICE

    Mr. Orszag. Thank you very much.
    Mr. Chairman, ranking member Gregg, other members of the 
Committee, my testimony this morning focuses on several points, 
the most important of which is that when it comes to the 
Nation's long-term fiscal health, we have been misdiagnosing 
the problem. The central long-term fiscal challenge facing the 
United States is rate at which health care costs grow relative 
to the economy, as my first chart shows. Is that chart up? 
Thank you.
    That chart shows the path of Medicare and Medicaid 
expenditures as a share of GDP if, over the next four decades, 
health care costs grow as rapidly compared to income per capita 
as they did over the past four decades, those two programs 
would rise from 4.5 percent of the economy today to more than 
20 percent by 2050, which is the entire size of the Federal 
Government today.
    The bottom dotted line shows you what happens if health 
care costs track income per capita. It isolates the pure effect 
of aging on those two programs. Here is the point. I think you 
can see that where you wind up in 2050 under that bottom dotted 
line is higher than where you start today, but that that 
difference is way smaller than the difference in 2050 between 
the bottom dotted line and the top point.
    In other words, to a first approximation the Nation's long-
term fiscal challenge collapses to the rate at which health 
care costs grow compared to income per capita. That is the key 
variable.
    Rising health care costs represent a challenge for the 
budget but also for the private sector, which is not surprising 
because the same forces that are driving up costs in the public 
sector are driving up costs in the private sector, including 
the spread of new technologies and changes in cost-sharing 
requirements.
    If you look over long periods of time, as figure two shows, 
costs per beneficiary in Medicare and Medicaid have tracked 
costs per beneficiary in the rest of the health system. That is 
very likely to occur in the future and therefore sustainable 
changes to Medicare and Medicaid will only work if they are 
accompanied by other changes that restrain overall health care 
cost growth.
    In light of that, though, I would note that a very 
significant opportunity exists to reduce costs because the 
evidence suggests that more expensive care need not mean higher 
quality care. Perhaps the most compelling evidence of that 
opportunity comes from the significant geographic variation in 
Medicare costs per beneficiary which this chart shows.
    In reference to a comment that was made earlier by Senator 
Gregg, I would note that the Senators in this room all come 
from the light States where costs are lower than in other parts 
of the country. In fact, in many States costs are lower than in 
other countries. The reasons cannot be explained by the 
underlying risk characteristics of the patients. They cannot be 
explained by the costs of building hospitals or wage rates in 
the lighter areas. And the kicker is that the darker areas, 
were higher spending occurs, do not generate better health 
outcomes than the lower spending regions, as my next chart 
shows.
    If you look at a simple correlation across States of 
spending versus quality, there is no correlation that exists. 
One of the reasons for that is that a lot of spending occurs 
without any evidence associated with it. The Institute of 
Medicine has suggested that only about a quarter of health care 
costs have any evidence associated with them. So the vast bulk 
of what we are doing in health care is not backed by medical 
evidence in terms of whether it works better than something 
else. As a result, you get a lot of variation in cost that does 
not translate into better quality.
    Chairman Conrad. Let me just stop you on that point so we 
rivet that point. Let us not have anybody miss that point.
    What you are saying is more spending does not result in 
better health care outcomes.
    Mr. Orszag. That is correct. And that represents a very 
substantial opportunity. It is going to be difficult to 
capture, but to take cost out of the system without harming 
health. So embedded in this central long-term fiscal challenge 
facing the United States is an opportunity to take costs out of 
the system without harming health. And I think moving toward 
capturing that opportunity is most important objective that 
policymakers could pursue if you are interested in achieving 
long-term fiscal balance.
    And by the way, it is the same problem that private 
employers are facing with the rising cost of health care in the 
rest of the health system. The kind of variation that I showed 
you for Medicare also exists in Medicaid and it exists in the 
rest of the health system also.
    Chairman Conrad. So this goes beyond Medicare and Medicaid. 
It is endemic in the health care system, that more expenditures 
do not result in better health care outcomes.
    Mr. Orszag. Within the United States I think there is a 
wide variety of evidence suggesting that at the margins more 
expenditures do not seem to generate better health outcomes. 
And the amount of money that we are talking about is very 
significant.
    Just as an example, and without embracing the specific 
estimate, the Dartmouth group that Senator Gregg mentioned 
before has suggested that if you move the darker regions of the 
country, if we go back to the earlier slide, the darker regions 
of the country toward practice norms and practice patterns and 
medical practices that are like the lighter parts of the 
country, you could reduce overall health care costs by 30 
percent without harming health.
    You can do the math. We are currently spending----
    Chairman Conrad. Reduce health care costs by 30 percent?
    Mr. Orszag. 3-0. We are currently spending 16 percent of 
GDP on health care. You do the math. We are talking about a lot 
of money.
    In light of that, I think it is very important again to 
emphasize the variation is larger often where there is no 
evidence on what works and what does not. So for example, if 
you fracture your hip it is very clear what is going to happen. 
You are going to be hospitalized. You are in intense pain. You 
are usually going to go in for surgery. There is not that much 
variation in the cost of inpatient hip fracture cases.
    Once you get out of the hospital, however, there is no 
evidence, should you go back and see the doctor five times a 
month, twice a month? Should you get an MRI or not? Should you 
do physical therapy or not? No one knows.
    Post-hospitalization costs vary a lot. And I think the 
reason is that there is no evidence of what works and what does 
not. Doctor norms in different parts of the country vary. And 
because they are not backed by hard evidence, they do not 
generate better health outcomes.
    That opens up an obvious opportunity which is to expand the 
share of health care costs with which there is some evidence 
associated. So Senator Conrad, as you mentioned, the interest 
in comparative effectiveness research, basically looking at 
what works and what does not, is precisely aimed at trying to 
build out or increase the share of health care costs where 
there is some evidence on what works and what does not. And 
then practitioners and patients could use that information to 
move toward higher value health care rather than paying for 
things and doing things that might not be generating any better 
outcomes.
    I think we have to really ask the question why some parts 
of the country are able to deliver quality health care at so 
much lower rate cost than other parts of the country and be 
delving into ways to try to narrow that variation is one 
mechanism for addressing this opportunity to reduce costs 
without harming health.
    A second opportunity is that if you look over long periods 
of time, as figure four shows, there has also been a very 
significant reduction in cost-sharing requirements. So out-of-
pocket expenses as a share of total health care costs have 
decreased significantly over the past three or four decades. 
With, in 1975, out-of-pocket expenses accounting for about a 
third of health care expenditures and today it is nearing 15 
percent.
    The evidence suggests that those lower out-of-pocket 
expenses put upward pressure on overall health care costs and 
another opportunity would be to work on the demand side of the 
health care equation by increasing the cost sharing that each 
individual has. I think it is very important, it might sound 
like that is a higher burden. But when we each individually 
have a lower out-of-pocket cost sharing requirement, it drives 
up overall costs and we all wind up paying for that higher 
level of expenditures which might not wind up generating better 
health.
    There is also evidence from randomized experiments that 
have been done with variations in cost-sharing requirements 
that when you increase, perhaps even modestly, cost-sharing 
requirements on individuals the result is lower quantities of 
health care consumed but no adverse consequences in general, on 
average, for health.
    So operating on both sides of the equation, the supply side 
in terms of the information that is provided and perhaps the 
incentives that providers are given, and then on the demand 
side in terms of providing information to consumers and also 
perhaps changing their financial incentives, are the two sides 
of the scissors that would help to reduce costs over the long 
term.
    I agree with Senator Gregg, there are many things that can 
be done. But I would also argue that there are many things that 
we do not know yet, in particular again because the share of 
health care costs with which there is evidence associated is so 
small, the challenge in moving toward creating incentives 
toward higher value health care is significant because in many 
cases we just do not know what works and what does not.
    So that was the main theme of my testimony. I also covered 
a variety of other topics ranging from employer-sponsored 
insurance to uninsurance to the importance of prevention and 
healthy living. I am not sure if you want me to cover those 
topics now or move right to questions because I know that I 
have spent a significant amount of time just going over that 
most important topic, Mr. Chairman.
    [The prepared statement of Mr. Orszag follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    

    Chairman Conrad. Why don't we go to questions because we 
got have members here who are very interested in pursuing their 
questions.
    Let me ask you this question, 30 percent, I just did sort 
of a back of the envelope calculation. You had indicated in 
your testimony we could save 30 percent of health care costs if 
we just had best practices replicated throughout the country.
    Mr. Orszag. Let me just really quickly note, that is a 
Dartmouth estimate. It is not a CBO estimate. But it is an 
outside estimate that it exists.
    Chairman Conrad. It is a pretty credible estimate, given 
the people at Dartmouth who did the analysis. I have met with 
them.
    Mr. Orszag. They are credible researchers.
    Chairman Conrad. They are credible. They are serious 
people.
    Thirty percent, we have to be spending over $2 trillion a 
year on health care.
    Mr. Orszag. That is correct.
    Chairman Conrad. So 30 percent savings would be in the 
range of $600 billion a year. If we were able to have the 
practices that are already pursued in very large parts of the 
country. I mean geographically speaking, as I looked at your 
map, roughly half of the country has the practices in place 
that would lead to that kind of savings if they were broadly 
distributed.
    Mr. Orszag. A significant part of the country. There is a 
question about how you do--a lot of those States are smaller 
States so there is a question about the population weighting. 
But the point holds, which is that there are significant parts 
of the country--in fact, the four of you right there represent 
parts of it--where costs are much lower than in other parts of 
the country and where quality is not any worse.
    Chairman Conrad. Have you thought through how we could 
spread those practices? How could we effectively get those 
practices adopted in other parts of the country?
    Mr. Orszag. I think it will likely require two things. One 
is I think it does require more information about exactly what 
works and what does not for specific interventions, coming back 
to should you do an MRI after your hip fracture surgery or not 
kind of thing. And then it will likely also require changes in 
incentives for providers so that they would be presented with 
incentives to pursue value care, high value care, rather than 
just churning high cost care.
    Chairman Conrad. Let me go to another subject that has 
captured my attention and that is roughly 5 percent of Medicare 
beneficiaries, 5 or 6 percent, use half of the money.
    Mr. Orszag. Yes.
    Chairman Conrad. They are the chronically ill.
    Mr. Orszag. We have a chart that can pull up on that. I 
think that is figure five or six.
    The top 5 percent in 2001 accounted for 43 percent of 
costs.
    Chairman Conrad. Five percent, and if we go to 6 percent 
they are at about 60 percent of the cost.
    Well, there are people that have multiple serious 
conditions. We know their care is not well coordinated. There 
was a study done with some 20,000 of them in which we put a 
coordinator on each one of their cases and it dramatically 
lowered cost. In fact, it lowered hospitalization, as I recall, 
more than 40 percent just to put case managers on each one of 
their cases. Because the left hand does not know what the right 
hand is doing.
    Have you examined this phenomenon? And can you tell us is 
there potential for savings there?
    Interestingly enough in the study that was done, not only 
did you have significant savings, you had better health care 
outcomes.
    Mr. Orszag. Yes, Senator. Just looking at the data health 
care costs are very concentrated. It makes sense to look where 
the money is. And there is potential for cost reductions 
through better interventions for those types of beneficiaries.
    I would note, though, that the data to date is somewhat 
frustrating in the sense that it does not suggest strong 
evidence of overall cost savings from things like care 
coordination and disease management. Medicare is currently 
doing a variety of pilot projects including a randomized 
experiment on precisely this topic. The early evidence suggests 
that quality may be improved but the net effect is not a cost 
saving. And it may well be that part of the problem is that it 
is very hard to do target the right interventions to the right 
subsets of the population that would most benefit from it.
    Potentially, with improved electronic health records and 
improved health information technology, that targeting may 
occur in a better way.
    In the absence of that the problem is that you are 
providing a service to a broad array of people. That costs 
money. If it does not work for a significant share you do not 
wind up saving money.
    Chairman Conrad. Let me just say in the study I was 
referencing the first thing they did is go in and get all the 
prescription drugs out on the table. They found out on average 
these people are taking 16 prescription drugs. And when they 
evaluated each one of them, they cut it in half. And that led 
to dramatically lower hospitalization.
    You were talking about the early stages of studies that are 
being done now. We may find that over time the savings grow.
    Mr. Orszag. If I could just add, I know that private firms 
are trying to move toward more sophisticated targeting and 
intervention. And we are actively monitoring those developments 
and eager for empirical evidence on what might work and what 
might not. Because again there is opportunity there. The only 
question is could it be captured?
    Chairman Conrad. My time has expired.
    Senator Gregg.
    Senator Gregg. Thank you.
    I think it is important to note that it is a nationalized 
system which has created this inefficiency, essentially, in 
Medicare. Medicare is your classic universal coverage 
nationalized system.
    And that if you are going to generate any significant 
savings in health care you have to get, as you said in your 
second set of presentation, more participation by the consumer 
through cost and more knowledge and transparency from the 
purchasers, specifically the insurer and the businesses that 
are paying the health care costs. If you cannot get those two 
things in the process, you are not going to be able to drive 
better practices.
    It is very difficult to capture this represented 30 percent 
cost that is over--which is not producing better outcomes; 
unless you have a system which encourages the patient to be an 
intelligent purchaser and the insurer and the businesses that 
are paying for the patient when you have disconnected that cost 
to be informed purchasers.
    In order to accomplish that, I have introduced a bill with 
Senator Clinton called the Medicare Quality Enhancement Act. 
Are you familiar with that at all?
    Mr. Orszag. I am.
    Senator Gregg. The purpose of that is to get the 
information into a centralized place, the Medicare information 
and the other major provider group information such as Kaiser 
Permanente statistics so that an employer or an insurer can go 
to a central place and get information that is hospital 
specific, doctor group specific on what the outcomes are and 
what the costs.
    Do you think that that would potentially help in some of 
this process?
    Mr. Orszag. Let me say this, I think the largest return to 
health information technology and electronic health records is 
likely not to be the internal efficiency gains that some 
studies have identified but that we have some questions about, 
but rather that it would provide the information to allow the 
kinds of things that you are talking about, comparative 
effectiveness research, feeding information back down to 
providers.
    So it is sort of a systemic question. Just by itself, 
without those other kinds of analyses, it does not do as much 
as some studies have suggested.
    Senator Gregg. The purpose of this is to simply create a 
clearinghouse where people could get that information if the 
information was being effectively developed by Medicare rather 
than having it sit in the Medicare office somewhere and having 
it just accessed by a small cadre of health experts who would 
have access to it.
    I do not see it as the solution but I see it as part of the 
solution, one element. It is a multipronged issue.
    I am wondering also, that 5 percent who is using 40 
percent, that is a public policy dilemma of considerable 
proportions because a large percentage of that 5 percent is in 
long-term care and end-of-life situations; isn't that correct?
    Mr. Orszag. Something like a quarter or so of Medicare 
costs are rising in the last 6 months. But the point is toward 
the end of life there are very concentrated health care costs.
    Senator Gregg. How does an elected government deal with 
that issue?
    Mr. Orszag. Again, I come back to the same thing, which is 
for someone who is near the end of life and there are various 
different interventions that are possible, if it turns out that 
the more expensive intervention is not actually going to extend 
your life anymore, you may think twice about doing it and the 
providers might think twice about doing it. I think, even in 
end of life decisions, more information about what works and 
what does not to extend life would be very beneficial. We do 
not do enough of that.
    Senator Gregg. Most of those interventions that is not--
there is always an assumption that they are going to make the 
quality of life better for the person.
    Mr. Orszag. An assumption without evidence, in many cases.
    Senator Gregg. I guess my question to you is do you have 
any concept as to how a government that functions on the basis 
of concern for the individual is going to deal with dealing 
with end-of-life decisions that are driving health care costs 
which probably do not extend life but may give you quality of 
life improvements?
    Mr. Orszag. At some point, obviously, you reach value 
judgments that policymakers like yourself are elected to 
evaluate. And I will leave it at that.
    I would note two other things, though. The first is that 
while obviously end-of-life costs are important, there is a 
significant amount of health care costs that are occurring 
outside of that.
    Senator Gregg. We all accept that and hopefully we can get 
to that issue also.
    I believe my time is up but thank you. Your information 
is--I totally agree with the information you put forward and 
just hope that we can get some action on it.
    Chairman Conrad. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. And thank you for 
your superb leadership on the topic and our many questions.
    Senator Gregg, you say that we know what needs to be done 
and yet it is not getting done. I have joined with Senator 
Bennett, a member of the Senate Republican leadership, on the 
first bipartisan health care overhaul in 15 years.
    So my message, Senator Gregg, is there is bipartisanship 
coming to a committee near you very quickly. Senator Bennett 
and I will be the leadoff witnesses on Tuesday for our 
legislation on the Healthy Americans Act, which does make it 
possible for all Americans, according to Lewin & Associates, 
sort of the gold standard of health policy analysis, to receive 
coverage like Members of Congress do, for the amount of money 
that is being spent today. According to Lewin, there would be 
savings of $1.5 trillion over the next 10 years.
    But since we are going to be taking that up on Tuesday, let 
me get into my questions for Dr. Orszag.
    Dr. Orszag, thank you again for a good piece of work. I 
want to start with one of the more important policy issues that 
I think is going to relate to the future of American health 
care, and that is how we promote prevention and wellness and, 
in effect, get away from this sick care system. I think this is 
going to be a great challenge for all of us.
    Essentially what we have is a situation where the private 
sector, companies like Safeway, that helped me extensively with 
my legislation, feel that they are producing very substantial 
savings by rewarding prevention. And you all in Government, I 
think, look at these studies and are saying how in the world do 
we score all of it?
    In fact, under our legislation we try to be very 
conservative, that is what the Lewin people said, and we did 
not score prevention at all. So we give authority to for 
Medicare, for example, to reward in Part B the outpatient 
program, authority to reward people for lowering their blood 
pressure, lowering cholesterol. We do not score that. We do not 
score any of the private savings, for example, that the private 
sector is doing in prevention.
    What are your thoughts on how we come up with a way to make 
sure that the future of American health care is built around 
these sensible preventive practices so we can reduce the 
chronic care costs Senator Conrad correctly points out and move 
forward with a very different vision of health care?
    Mr. Orszag. Thanks for the question, Senator.
    As my written testimony emphasizes, perhaps much more 
important than the health care system in determining the 
healthiness or health outcomes for individuals is precisely 
prevention and healthy living. And we have experience over the 
past two or three decades, a very significant increase from 
about one-half to two-thirds of the population that is either 
overweight or obese. Smoking rates have come down but they 
remain higher than where many medical professionals would like. 
And roughly half of preventative measures that are 
recommended--or half of the people do not get the recommended 
preventative steps.
    All of that combined is a significant issue often outside 
of the health care system per se that will have substantial 
implications for the environment in which Medicare, Medicaid, 
and the rest of the system operate.
    The reason I wanted to include that section of the 
testimony is I think this is critically important and there are 
a whole variety of interventions that have pros and cons and 
that need to be evaluated carefully but that hold the potential 
to improve how we live basically. And I think there are a lot 
of decisions. I will give you just a little vignette for a 
second, in which we are not behaving in a way that we even 
ourselves would want to.
    Just very briefly, there was an experiment done, I 
referenced it in a footnote in the testimony, in which people 
were put in front of a movie and they were given buckets of 
stale popcorn that was three or 4 days old, nothing anyone 
would want to eat. The people who were given larger buckets of 
stale popcorn ate more of it than the people who were given 
smaller buckets of stale popcorn. There is a lot that we are 
doing that is affected by our environment and by how we make 
decisions that affect our health.
    Senator Wyden. I will not take on the movie theaters for 
purposes of----
    Mr. Orszag. This was an experiment.
    Senator Wyden [continuing]. Of today. I just want make it 
clear, I want to work with you on this point because we have a 
disconnect. The private sector says that they are making 
significant savings with preventive practices. Government has 
been taking an approach that I think probably we would all say 
is more cautious. I would like to work with you on that area.
    Let me ask about one other issue, and that is the role of 
the States. The States are very concerned about Federal 
inaction on this subject. What is so important about your 
testimony is you have made it clear that the consequences of 
inaction on health care are devastating. They are staggering. 
And I appreciate your spelling it out.
    But is it not correct that the States cannot fix the health 
care challenge in this country because they cannot touch the 
tax code, which drives conduct for 170 million people with 
employer-based coverage. And they cannot touch Medicare, which 
Chairman Conrad has correctly pointed out is the driver of 
entitlements.
    So I want to give the States a lot of credit for their good 
work, and they are doing imaginative, creative stuff. But is it 
not correct that the States cannot fix health care because they 
cannot deal with the biggest drivers that I mentioned?
    Mr. Orszag. I would agree with you that with regard to cost 
and quality, which are two of the three important dimensions 
along which to evaluate health changes, the States are limited 
in their ability. They seem to be doing more on coverage, which 
is the third component of thinking about changes to the health 
system.
    Senator Wyden. I commend you for your good work and, Mr. 
Chairman, look forward to Tuesday, as well.
    Chairman Conrad. Thank you. I look forward to Tuesday, as 
well. You know, the ranking member threw down a challenge to 
let us move this to action. I could not agree with him more.
    We are going to be talking about action on Tuesday and it 
is a bipartisan proposal. Senator Bennett, Senator Wyden, there 
will be others who have competing proposals. We are going to 
hear from them all because we think it is critical that we give 
the American people a chance to hear what the ideas are for 
really transforming the health care system in the country.
    We are headed for a cliff here. I do not know what could be 
more clear. The only way that I see that it is going to be 
dealt with is in a bipartisan way. Nothing can pass here unless 
it has support on both sides of the aisle. And nothing can 
ultimately be implemented unless the president of the United 
States is on board.
    So if we are serious here, and I think the vast majority of 
our colleagues are, the only way it is going to happen is with 
some larger agreement. That means compromise on both sides and 
that is always difficult.
    Senator Stabenow is next. Senator Stabenow, I want to again 
commend for her involvement in this issue. She has been 
ferocious at defending Medicare and also very constructive on 
this Committee in the various reserve funds that have been 
created that really would save substantial sums of money, 
according to all outside experts, if they were adopted.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman, very much for 
your focus on this and the passion of Senator Wyden in 
focusing, as you are, working in a bipartisan way. And Senator 
Whitehouse, who has brought such wonderful new passion and 
interest in health IT as well as other areas. I am so glad we 
are talking about this.
    Just to stress the point in terms of why this is so 
critical. I believe that fundamentally it is the most important 
thing we can do to help our businesses be competitive in a 
global economy, to focus on our quality of life, on the Federal 
budget. It is singly the most important thing that we could do 
with the broadest impact for the future.
    Just as an example, yesterday big headlines in the Wall 
Street Journal. Toyota will no longer be making automobiles in 
the United States. When they make them in Japan, they pay the 
equivalent of $95 per vehicle, as opposed to here at $1,500 per 
vehicle.
    Chairman Conrad. Just for the health care component.
    Senator Stabenow. Just for health care. So when you couple 
that with the fact that, and I will not labor the point, but 
Japan is manipulating the yen. So they get a great discount by 
shipping them from Japan. So that is more American jobs gone. 
And our folks are here trying to figure that out.
    So it is huge. And I want though to, and this is less of a 
question, I guess. I do have questions, many, many questions. 
But I would like to take us though to 30,000 feet on this for 
just a moment and, first of all, say prevention, obviously 
critical for the future, a focus on chronic diseases, diabetes, 
heart disease, the five chronic diseases which take up so much 
of the health care system. Quality, transparency, consumer 
choice, all of those things are critical. All of those things.
    But when we only focus on that, I mean, Mr. Chairman, I 
believe there is a fundamental question that separates us from 
other countries and the reason our costs are so high. That we 
start from a position that is fundamentally different. In every 
other country that you mentioned, and I have your chart, every 
other country, the focus and the structure is on health care as 
an essential public service.
    In the United States we have a health care industry. When I 
look at Ireland, Finland, Luxembourg, United Kingdom, Japan, 
Italy, Austria, Netherlands, Cuba--which is in a current film--
I do not think they have more information than we do about--
they have better outcomes. They do not have more transparency. 
They do not have more information. They do not have more 
efforts than we do, like we are talking about now. Why are 
these costs fundamentally so different with other countries 
that are not smarter than we are? They are not doing better 
quality control than we are. What is it?
    My concern is that if we only focus on providers of health 
care, which I believe we absolutely need to be certainly--or 
consumers, and we do not focus on the fact that we have huge 
money being made off this system. That is the difference 
between these countries, and I realize that I come from, I 
think, a little different perspective certainly than many here 
in the Congress. But the big difference that we do not talk 
about is we have a round peg in a square hole and we are 
putting them together here as we look at how do we structure 
this.
    And I will give you an example: Medicare has a 2 percent 
administrative cost. Now rather than expanding Medicare with 
prescription drugs within Medicare to get the savings from that 
administrative cost, we created a private sector model. Now we 
can debate good or bad. But the truth is it added costs. It did 
not take away costs. It added costs. It added layers of cost 
because private sector is 15 to 20 percent.
    Medicare Advantage, and I support having a private sector 
option. But that was supposed to save us money. Mr. Chairman, 
you have been extremely articulate in that. It was supposed to 
save us money. And now we are seeing that, as you indicated, 
even if we were to pay 50 percent more, a 150 percent for the 
private plans versus the public plans, we would save money if 
we capped it.
    So I am very concerned that as we hone in on things, all of 
which I am very supportive of, that there is like the 800-pound 
gorilla in the room that we are not focusing on, which is the 
fact that there are those who will fight change because there 
is huge amounts of money being made in this system. So how do 
we address public interest versus private interests? And I know 
that is a big challenge for us.
    That leads me to my question. And thank you for your input. 
I should also say health IT, huge savings. There is huge things 
that we can do.
    But Medicare Advantage, CBO estimated that setting the 
payment for Medicare Advantage at 100 percent--and I am not 
suggesting that we not allow a higher payment. But if you were 
to set it at 100 percent for local fee-for-service as 
recommended by MedPAC, you indicated it would save $46 billion 
over 10 years.
    Now CBO is saying that the savings would be $160 billion 
over 10 years, it is an increase three-and-a-half times higher.
    So I am wondering why you are assuming the much larger 
overpayments? And why it is getting so much larger? What is 
happening in that number?
    Mr. Orszag. What is happening is that enrollment in 
Medicare Advantage has grown substantially, and particularly 
within the private fee-for-service component of Medicare 
Advantage. We now anticipate rapid growth over the next decade. 
So the base of savings is very much larger than it was last 
year.
    Senator Stabenow. So it is more people. Basically you are 
saying more people----
    Mr. Orszag. More people driving a higher level of Federal 
subsidy for each--right.
    Senator Stabenow. Right.
    Mr. Chairman you been patient with my time. I know I have 
gone over that, as long as the Chairman is sidelined here, I am 
going to ask you one more question.
    Mr. Orszag. Go for it.
    Senator Stabenow. Is it not also true that----
    Chairman Conrad. That is good.
    [Laughter.]
    Senator Stabenow. Is it not also true that for those 
overpayments that everybody else under Part B, everybody else 
in the public system, is having higher premiums as a result of 
that?
    Mr. Orszag. Yes, it is.
    Senator Stabenow. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Conrad. Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman, for holding this 
hearing today. I would like to thank Dr. Orszag for being here.
    I am pleased that the Committee is focusing on health care 
reform today. I often point out that when I go to each of 
Wisconsin's 72 counties every year and I hold a town meeting in 
every one of the counties every year. Health care is almost 
always the No. 1 topic that I hear about. Is a very important 
issue to me and to everyone.
    I commend Chairman Conrad for responding to the importance 
of this issue by launching a series of issues on health care 
reform, and I am pleased to be here for the first one. There 
are many problems in our health care system that I think are 
overdue in receiving proper attention and these issues converse 
with the problem of the uninsured. Health care costs are driven 
up, hospitals and clinics are overburdened and communities and 
families struggle all as a result of uninsurance.
    We have to figure out a way to break this deadlock. That is 
why I have introduced a bill with another Senator on this 
Committee, Lindsey Graham. Last month we introduced the State-
Based Health Care Reform Act which gives certain select States 
the funding and authority to cover the uninsured within their 
State.
    This bill makes political sense because it encourages 
initiatives we have already seen in places like Massachusetts, 
Illinois, California and Wisconsin, among others. It does not 
prejudge the type of reform that a State should adopt. So many 
different political philosophies can be on the table.
    Additionally, the proposal makes fiscal sense. Our bill 
provides up to $40 billion for States to use for reforms and it 
is entirely offset.
    If passed, this would provide a path to nationwide health 
care reform while still maintaining budget neutrality.
    Senator Graham and I are certainly from opposite ends of 
the political spectrum. We are from different areas of the 
country and we have different views on health care. But we 
agree that something needs to be done about health care in our 
country.
    The only question I would ask you is that, as you know, a 
lot of different solutions have been proposed to the problems 
in our health care system and most of them have come under 
political attack. Much of the data generated by economists 
conflict on what would be the best approach.
    The bill that I have introduced with Senator Graham would 
allow States to propose amending Federal law with a 
Congressional sign off in order to address the uninsured health 
care costs and preventions. States would have the flexibility 
to decide about issues of such as employer-sponsored insurance.
    Do you think that there is sufficient data now to show that 
any one particular approach is the best way to help our country 
lower health care costs?
    Mr. Orszag. What I would say is I think there are a variety 
of approaches that hold promise. One of the challenges that we 
have is that I have not seen, and I do not think one exists, a 
comprehensive plan that would, given the available information 
today, credibly bend that curve sustainably over the long-term.
    So one of the challenges is we need to be trying different 
things, seeing what works, and then readjusting as we figure it 
out. And the sooner we start that, the better off we are going 
to wind up being.
    Senator Feingold. Exactly. So the answer to my question 
would be that there is not sufficient data or not sufficient 
experiments to get that data.
    Mr. Orszag. That is correct.
    Senator Feingold. Do you agree that the Feingold-Graham 
State-based approach could be useful in gathering better data 
on what would be better for the country as a whole?
    Mr. Orszag. There are a variety of approaches that are 
possible and I have had an opportunity to take a look at the 
legislation and that could be among the choices that you all 
embrace.
    Senator Feingold. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Conrad. Thank you, Senator Feingold. And thank you 
for your contributions to this Committee.
    Senator Sheldon Whitehouse is a new member of this 
Committee but already he has proved to be somebody deeply 
knowledgeable on health care. He and I have had extended 
discussions about his own experience in his home State where he 
was given responsibility for getting a major State program in 
shape and rescued from bankruptcy.
    And Senator Whitehouse, I have asked to serve on a special 
panel of the Budget Committee to focus on what we can do to 
accomplish significant health care savings, at the same time 
improving health care outcomes. He has made a valuable 
contribution in just his short period of time on this 
Committee.
    Senator Whitehouse.
    Senator Whitehouse. Well, thank you, Chairman. I am moving 
down one because there seems to be a technical difficulty with 
my microphone at this seat. I am not trying to get further away 
from anybody or closer to anybody.
    I do want to thank you for leading the Budget Committee in 
this direction. It is so important that we get our arms around 
this problem. And it is one of the most frustrating issues that 
we have to deal with in this Congress because, frankly, so much 
of the cost that we are dealing with is unnecessary. Very often 
we are presented with situations where it is a zero-sum game 
and there is a winner and a loser. And to the extent you add a 
dollar to the winner, you take away a dollar away from the 
loser.
    This is not one of those situations. This is a situation 
which, by simply making the system run more effectively, we can 
have win-win-wins that improve health care, lower costs, make 
people happier within the system. It is a colossally challenged 
system right now.
    Dr. Orszag, welcome. Would you agree that there are 
enormous systemic inefficiencies in the American health care 
sector?
    Mr. Orszag. Yes.
    Senator Whitehouse. Would you agree that quality reform 
presents an opportunity for bringing down cost in ways that are 
helpful to patients as well as to the system, quality of care 
reform?
    Mr. Orszag. I think there are opportunities to reduce costs 
without harming health outcomes.
    Senator Whitehouse. Even with improving.
    Mr. Orszag. Difficult to capture, but yes.
    Senator Whitehouse. Even with improving health outcomes.
    Mr. Orszag. And perhaps in some cases to improve.
    Senator Whitehouse. Would you agree that that can include 
improvement in the delivery of procedures, as indicated by the 
wonderful Keystone Project in Senator Stabenow's home State 
that was reported by Johns Hopkins to have saved $160 million 
in just a section of Michigan's intensive care units over 15 
months?
    Mr. Orszag. Changes in procedures would be among the things 
that would be in the toolkit.
    Senator Whitehouse. And certainly Pennsylvania's recent 
study that shows literally billions of dollars in hospital 
acquired infections shows another opportunity for how improved 
procedures can be a part of that quality reform.
    Mr. Orszag. There are opportunities throughout the health 
sector and the question is how to capture them.
    Senator Whitehouse. Would you agree also that, setting 
aside procedures, there are prevention techniques that present 
the possibility of saving cost for the system as demonstrated 
by Safeway's work with its own employee base, reducing cost by 
enhancing prevention?
    Mr. Orszag. I think there is an opportunity. I would say 
that the evidence to date is a little bit more sketchy in terms 
of whether overall preventative medicine interventions help 
reduce costs as opposed to improve quality. Again I think again 
you have this targeting issue which is preventive measures may 
work for a subset of the population. But if you are provided 
that test or screening to a whole bunch of people, in some 
cases it may warrant additional health care costs, and in some 
cases it does not matter. So you have costs that are not as 
targeted to generate the savings.
    Senator Whitehouse. The fact that it is prevention does not 
mean that it costs savings but targeted correctly prevention 
can save money in the system and improve health care.
    Mr. Orszag. There is a potential for that, yes.
    Senator Whitehouse. Would you agree that the reason that 
these things are not happening, given things like the RAND 
Corporation's analysis showing that it is somewhere between $81 
billion and $346 billion a year for properly supported HIT 
enhanced quality reform is because there are market failures 
that are driving this?
    Mr. Orszag. I think there are a variety of incentive 
distortions and problems that are creating the kind of--and 
information problems--that are creating the kind of variation 
we saw up on that chart.
    Senator Whitehouse. Would you agree that those market 
failures can be addressed or reduced through structural reforms 
such as reforms of the reimbursement system so that it is 
pointed in the direction of the care we want? Or institutional 
reform so that there is, for instance, a place you can go to 
get the best information about a particular area of care that 
does not exist right now?
    Mr. Orszag. I think it is pretty clear that in health care 
we get what we provide incentives for. And if we develop more 
information and move toward a value-based system of incentives 
we would wind up with some combination of higher quality or 
lower cost.
    Senator Whitehouse. It strikes me that we have kind of a 
microcosm in this building of the health care problem, in which 
there are externalities that prevent the right thing from 
happening. Here some of the externalities include the budget 
restrictions of this Committee and the actuarial and other 
process restrictions that bind you to certain kinds of analysis 
and determinations before you can score something positively.
    Are there ways, say working with entities that are 
Government controlled but not within the Federal budget, that 
we could experiment more successfully without the need to be 
able to prove the point to the extent that a CBO score is the 
gateway but you can kind of take more chances without affecting 
either the budget rules of the Senate or the professional 
analysis that you are obliged to follow as a CBO scorer?
    Mr. Orszag. What I would say, Senator, is that CBO scores 
are used by the Committee and the Congress as you all see fit 
and that, in many cases, for example because the budget window 
has been chosen by the Congress to be five or 10 years, a lot 
of things for example with regard to prevention may show up 
well outside that budget window.
    Beyond that we are always looking for additional evidence 
that will inform our estimate.
    I guess my response would be we have a job to do and we are 
going to do it and you all can use the information as you see 
fit. And that is not for me to comment on.
    Senator Whitehouse. I will followup more in my second round 
scared because my time has expired. I thank the Chairman.
    Chairman Conrad. I thank Senator Whitehouse.
    I want to go back to Medicare Advantage because I am 
increasingly concerned about what I see happening. Medicare 
Advantage are private plans that compete with fee-for-service 
traditional Medicare. Medicare Advantage plans were sold to the 
Congress based on the notion that they would save money. The 
whole idea with Medicare Advantage was that it was going to 
save money. It was going to be less costly than traditional 
Medicare because the private sector was going to bring 
efficiencies to the table and the result would be reduced 
costs.
    In fact, Medicare Advantage, when it was adopted, was 
capped at, as I recall, 95 percent of traditional fee-for-
service Medicare. That was then raised, as I recall, to 97 
percent. We now know on average that it is 112 percent and, in 
fact, in scoring done by the CBO we see if we put a cap of 150 
percent of a traditional fee-for-service Medicare there would 
still be savings at that level.
    Now we have a runaway train here. 19 percent of Medicare 
enrollments are now Medicare Advantage. That is up from 13 
percent in 2004.
    What do you see as the implications for the cost of 
Medicare and the future of Medicare if these trends continue?
    Mr. Orszag. Senator, if over the next couple of years the 
rate of growth that we have experienced recently in Medicare 
Advantage were to continue, I think the result would be a 
fundamental change in the nature of the Medicare system that 
may then be hard to reverse, including within it higher costs 
than are currently projected. So the more rapid the growth in 
Medicare Advantage under current law the more fundamental the 
change in the nature of the Medicare system and the higher the 
cost of that system.
    Chairman Conrad. That is sobering testimony. You know, I 
see people advocating even more costly health care systems for 
the country. I personally do not believe that is the answer. We 
are now spending one in every six dollars in this economy for 
health care, one in every six dollars. No one else in the world 
is spending more than one in every nine dollars in their 
economy in health care. And we are not getting better health 
care outcomes.
    What I have just heard you say is that if the current 
trends on Medicare Advantage continue those costs will only 
escalate and, in fact, it may become even more of a challenge 
to get all of this under control. Am I hearing you correctly?
    Mr. Orszag. Yes you are, Senator.
    Chairman Conrad. Let me ask you, you are somebody who has 
studied this carefully and closely. You have one of the best 
groups anywhere in the country, perhaps anywhere in the world, 
organized to evaluate and understand these issues. I heard your 
answer to Senator Feingold, I think it was Senator Feingold, 
earlier that you do not see a comprehensive plan that is out 
there that, if adopted, we could be confident would get this 
under control. Was I hearing you right?
    Mr. Orszag. Basically yes. There are things that seem 
promising and that hold out the promise of bending that curve 
over the long-term. But in terms of having the confidence to 
say in 2025 there would be a reduction of X percent in health 
care expenditures from known interventions that unfortunately 
is not where the state of knowledge is.
    Chairman Conrad. My colleague, Senator Gregg, was 
suggesting the President had put on the table a plan that would 
save substantial money for Medicare, billions and billions of 
dollars was his assertion. Have you evaluated the President's 
proposal?
    Mr. Orszag. Yes, we did. In the analysis of the President's 
budget that we did earlier this year we included a box on the 
longer-term consequences from those changes in the Medicare, in 
particular. What we suggested is that if they were sustained 
over the next--through 2050, they would indeed succeed in 
reducing Medicare outlays substantially in that year by over 20 
percent.
    However, there is a very significant question, as I noted 
in my testimony, about the sustainability of changes to 
Medicare or Medicaid over that long period of time without 
broader health care cost growth slowdowns. So I think one would 
imagine that if the kind of payment update reductions that were 
carried out under that policy were followed through with over a 
45 or 50 year period, significant excess problems would be 
created in the Medicare program unless the overall rate of 
health care cost growth slowed.
    Chairman Conrad. Let us rivet that point. Why didn't 
Congress rush to embrace the President's proposals? Because 
other objective experts told us that if we did embrace them 
that access to health care by senior citizens would be 
threatened and endangered. That is why we did not rush to 
embrace the President's proposal.
    Look, I have voted for--I have voted for saying to those 
among us who have the greatest wealth that we ought to pay 
more. I have embraced the proposal. I think that has to be 
adopted. I think it makes no sense to me, there is nothing 
progressive about having a working family in effect subsidize 
wealthy retirees. I have never understood why that is a 
progressive value. And I have voted for, in another Committee 
in which I participate, the Finance Committee, to, in fact, 
means-test Medicare. And I will vote to do that again. Because 
I think it is one part--it comes nowhere close to solving our 
problem--but it is one contribution that can be made in an 
overall effort.
    My time has expired, so we will go to Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Just one point procedurally, Dr. Orszag. There has not been 
any formal effort to look at the various proposals before the 
Congress, is that not correct?
    Mr. Orszag. It depends which proposals you mean, sir.
    Senator Wyden. My understanding is you all are getting a 
private group together to advise you. And at some point when 
proposals are submitted then there will be an effort to look at 
a formal examination of costs and scoring and the like. I know 
we have--I have used Lewin & Associates because they are 
former, I guess, graduates of CBO. And we think our cost 
analysis that was done by them of the amount that is spent 
today being sufficient to cover people and the $1.5 trillion 
savings over 10 years, we think that that is authoritative.
    But I just want to be clear on the record, because we have 
now gotten to the point of discussing proposals, you have not 
done formal scoring of the kinds of proposals that are being 
considered today; isn't that correct?
    Mr. Orszag. We have not been asked to and we have not done 
a cost estimate of your proposal, for example.
    Senator Wyden. And we look forward to sitting down with you 
for a formal effort to have an examination. I appreciate your 
making the record clear on that point.
    Two other areas. One is administrative savings in American 
health care. One of the areas that we believe Lewin has found 
significant administrative savings is just using electronic 
transfers, the sign-up process and the paying of bills. For 
example, in our State there is something like 33 categories of 
Medicaid. And everybody spends all of their time trying to dive 
into the various Medicaid boxes in order to get covered.
    What we have found through the Lewin analysis is that once 
people enter the system and everything is handled through 
electronic transfers there are substantial savings in the 
administrative costs and the Lewin people scored that in our 
proposal.
    Do you generally, and again I do not want to get you pinned 
down about formal increase versus informal inquiries. But 
generally, the proposition of using something like that as a 
way to reduce costs so that poor people do not go through this 
degrading god-awful process that is both inefficient and 
inequitable is something that ought to be looked at for the 
future?
    Mr. Orszag. I agree it should be looked at carefully.
    I would note that since there have been several references, 
we have actually invited the authors of the RAND study on 
health information technology in to CBO to present their 
results. And I would be happy to provide our analysis of that 
study at anyone's request. In fact, we are planning to do a 
study on the returns to health information technology.
    Senator Wyden. I think that is a fair point. The reality is 
that the colleagues here have good ideas, Senator Stabenow, 
Senator Whitehouse on technology, Senator Feingold. I am very 
sympathetic to a broad role for the States. So we appreciate 
your making it clear you want to work with all of us.
    Let me go now to the ramifications for people who have 
coverage with respect to the status quo.
    Families USA did an analysis indicating that if you have 
coverage today, in their judgment, you essentially have $1,000 
of your premium go to pick up the costs of the uninsured. This 
stems from the fact that uninsured folks go to hospital 
emergency rooms and all of that gets pushed off on other parts 
of the system.
    Without saying whether it is $1,000 or $800 or what have 
you, can you give us your assessment of what the present system 
means for people who have insurance today, the auto worker who 
has insurance today, what it means generally for them given the 
fact that so many are uninsured and there is a Federal law that 
entitles them to coverage in emergency rooms?
    Mr. Orszag. I would say three things. First, I think the 
things that we were talking about before in terms of higher 
utilization than in many cases may be necessary drives up the 
cost for the people who have employer-sponsored insurance. The 
care that is provided to the uninsured, even though it is lower 
cost than for the insured, still winds up driving up the costs 
for the insured because of the different pool. And that is the 
effect that you noted.
    But I would also note that adding people, moving people 
from the uninsured pool to the insured pool, can have a variety 
of changes with complicated impacts on overall costs.
    Senator Wyden. Let me see if I can get one other question 
in. What is your assessment of the situation today with private 
insurance, where there is so much cherry picking going on? And 
private insurance companies, many of them, not all, essentially 
try to find healthy people and send sick folks over to 
Government programs more fragile than they are? What are the 
ramifications, as you look at costs, of this cherry picking 
situation?
    Mr. Orszag. Well, there are significant incentives for 
insurance firms to try to select particular types of 
beneficiaries and that does, as you know, occur. That can drive 
up the cost, both in terms of administrative costs and other 
costs in the system.
    One of the issues involved in reform of the health care 
system is whether it remains employer-based or not. And if not, 
what kinds of pooling mechanisms would exist outside of the 
employer in order to avoid some of the problems that occur in 
the individual insurance market where some of the selection 
effects are most severe.
    Senator Wyden. With the Chair's indulgence, I know 
colleagues are waiting as well, I have asked every economist, 
and you have some of the best economic stripes in the country, 
whether they agree that under the tax code today, essentially 
the tax treatment of American health care disproportionately 
favors the most affluent and promotes inefficiency at the same 
time. Every previous economist, liberal, moderate, or 
conservative has said yes. They think that is what happens with 
the current tax code.
    Just because we have you here, do you share that view as 
well?
    Mr. Orszag. Yes.
    Senator Wyden. Very good.
    Mr. Orszag. Let me just add really quickly that I think, in 
general, there are a whole series of incentives that we provide 
through the tax code to promote health, retirement, home 
ownership, et cetera. There are questions that exist about the 
efficiency with which a lot of those are done because they are 
often provided in the form of a deduction, which ties the size 
of the incentive to one's marginal tax bracket. And that may or 
may not be the optimal thing to do.
    Senator Wyden. After 60 years of wrangling on this issue, I 
think we are right on the cusp of bringing both political 
parties together for a fix. And if we are going to get there, 
it is because we are going to have your good work and your good 
offices in the effort to get it right. And I very much look 
forward to working with you in the days ahead.
    Thank you, Mr. Chairman, and again for your leadership, 
Mary Naylor's leadership, putting all of this Committee time 
into what is clearly the premier domestic issue of our time and 
look forward to working with you and all of our colleagues on 
it.
    Chairman Conrad. We thank you for your leadership and 
involvement, as well.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman.
    I also want to thank Senator Wyden again for working in 
such diligent way.
    I did want to just go back to one of your responses to 
Senator Wyden, when you said that the uninsured would have 
lower cost health care.
    Actually, I would contend, and we have seen numbers, that 
they actually received higher cost health care because they are 
more likely to be using an emergency room. What we see, 
certainly in our State where there are a number--we have a 
large number of people who have private health insurance. And 
we have been able to track with local emergency rooms what 
happens not only with the uninsured but when co-pays get so 
high that people choose not to go to a doctor but wait and go 
to an emergency room. The emergency room costs are a much more 
expensive way to cover things that could otherwise be done 
through a physician's office.
    So I am not clear on would you agree with that? Emergency 
room care is certainly a much more expensive way to treat the 
uninsured.
    Mr. Orszag. Senator, my written testimony on pages 16 and 
17 covers this issue and has the citations for the statement 
that I made.
    Senator Stabenow. OK. Let me move to one issue specific on 
cost. You indicated in your information that the rate at which 
health care costs are growing is the No. 1 issue, and I would 
agree with that. And it was beyond demographics. It is not just 
that we are all getting older, we baby boomers. This is about 
cost growth in what is happening. Again, I would argue 
structure and policies and so on actually add to that.
    One area where we know there is substantial savings, and I 
would like your comments on, relates to competition within the 
prescription drug area. We know, the latest numbers show, that 
the average retail price for a brand name prescription drug was 
$102 in 2005 versus $30 for a generic drug. And that in every 
case where there is a generic and a brand, through that 
competition the price is lower.
    In fact, INS Health has said that on average generics are 
anywhere between 30 and 80 percent lower. We have actually had 
a success in this area, I am very pleased, in the Prescription 
Drug User Fee Bill that just passed the Senate, a bipartisan 
effort that began with a bill that Senator Lott and I have on 
closing loopholes to allow more generic drugs on the market was 
able to pass. It was a significant policy and it was great, in 
addition to Senator Brown, to have Senators Thune, Lott, Hatch, 
and Coburn with us. So this was an effort to really look at 
cost, generic drug costs. In fact, you scored that as savings.
    Mr. Orszag. See.
    Senator Stabenow. I am wondering if you might speak more to 
the strategy of using generic drugs, lower-cost generic drugs, 
in the marketplace as it relates to overall spending on 
prescription drugs which, at least with the private employers I 
talked to, they say that is the No. 1 driver in terms of the 
area of cost they have the least control over, and that is 
going up the quickest.
    Mr. Orszag. A few comments. The first is that there are a 
variety of policy measures that are coming before the Congress 
including follow-on biologics, for example, that will have 
implications for overall costs.
    The second is that prescription drugs are an important but 
not overwhelming share of overall health care spending, 
something like a tenth. So one needs to put it in perspective.
    The final thing is actually over the past few years one of 
the things that has slowed overall health care cost growth 
relative to where it would otherwise be as that prescription 
drug spending has not been growing as rapidly as it did a few 
years before that.
    Senator Stabenow. Thank you, Mr. Chairman.
    Chairman Conrad. I thank the gentle lady from Michigan.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    To pick up where we left off--and by the way, I think you 
are spectacular. I think your office is spectacular. I do not 
mean any of this critically but I do think we have kind of a 
potential logjam coming up.
    You said that there are things that you cannot score yet 
for savings because there is insufficient experiment or 
insufficient evidence to give you the basis of knowledge on 
which to make that calculation and to prove out the savings.
    If in return, or in the next step, there is insufficient 
experiment because we do not fund it and there is not adequate, 
what I would call R&D being done on health care reform in 
America, and if in turn we do not fund it because you cannot 
score it----
    Mr. Orszag. Then we are sort of stuck.
    Senator Whitehouse. We are sort of stuck.
    So the question is are there ways, by moving some of this 
into for instance an NGO or a federally chartered but not 
federally budgeted entity, that we could take what we know to 
be the sensible moral judgment to move forward on this without 
having it impact the budget scoring that is so necessary to the 
workings of this Committee?
    Mr. Orszag. Senator, for example on comparative 
effectiveness research, so looking at what types of 
interventions and technologies work and which do not, there are 
a variety of approaches out there, some of which are sort of 
quasi-governmental, the National Academy of Sciences/Institute 
of Medicine or something like that, that have been proposed. 
And there are various different financing mechanisms that could 
be associated with that. We are going to be laying all that 
out.
    Senator Whitehouse. I do not mean to suggest that there is 
nothing going on. My concern is that given the scope of the 
problem that you have elucidated and given the dollars 
involved, which are--I mean, we are trillions of dollars into 
health care and it is climbing rapidly--do you believe at this 
point that there is enough work being done on the sort of 
extermination and evidence aspect, the R&D of health care 
reform in America?
    Mr. Orszag. No.
    Senator Whitehouse. So to notch it up a bit would be my 
issue. We can work further on that.
    Mr. Orszag. All I can do is, for example, within CBO we are 
taking a variety of steps because I think out of necessity we 
are increasingly becoming the Congressional health office and 
we need to.
    Senator Whitehouse. With good reason.
    Mr. Orszag. We are shifting staffers into that area. We 
created a panel of health advisers. I created a new health 
intern program. We are moving in that direction and I think 
broader changes are warranted, also.
    Senator Whitehouse. Let me make an observation and you can 
tell me if this is beyond your expertise. It strikes me that 
one of the big problems in health care is the cost shifting 
problem, that everyone has their own parochial part of the 
system. And if they can push costs out of their part to other 
places, they become winners, although they create costs 
overall.
    The perfect example of that is massive claims denial by 
insurers which moves dollars out of their portfolio but at the 
same time requires providers around the country, doctor's 
offices, to staff up with an army of people to fight back 
against the claims denial and the costs of that whole battle 
over claims denial and approval continues to swell, continues 
to burden the system in a kind of an arms race with no health 
care value. And yet, once you are locked into that dynamic, you 
are kind of stuck with it.
    It strikes me that if you look at the insurance model in 
this country, it is characterized by three things. One, the 
desire to not provide coverage to people who might get sick or 
who you can find out are sick already. Two, the desire if you 
get somebody into your portfolio who becomes sick to try to 
find a way to deny them coverage. And three, if you are stuck 
and actually have to deny them coverage to try to figure out a 
way to deny as many of their claims as possible.
    I do not attribute that to evil intent on the part of the 
insurance industry. I think institutions respond to economic 
signals. And I would be interested in pursuing with you the 
extent to which you think the insurance business model and its 
cost shifting dynamic relates to specific attributes of our 
health care system that encourage and incent that kind of 
behavior and how we might reverse the polarities of the 
incentives the health care system turns out so that the 
productive insurance model, the productive business model for 
the insurance industry becomes how am I your ally? How can I be 
helpful to you navigating this complex system? How can I warn 
you when you need certain tests and things based on your age 
and your family's health history? How can I be there for you 
when you have a call in the middle of the night and you do not 
know you really want to go to the emergency room?
    I think until that changes, we have a huge problem with the 
insurance industry. And yet they could provide such a valuable 
function. Are you looking in any way at how the signals the 
system sends out incents the business model of the insurance 
industry that creates so much cost-shifting?
    Mr. Orszag. What I would say more broadly is precisely 
because it is so hard to get at specific steps that would slow 
overall health care cost growth, for many participants in the 
health system it is in the short term more financially 
advantageous to shift costs across different sectors than to 
get at that underlying rate of growth because that challenge, 
which is the fundamental one, is so hard to grapple with.
    Senator Whitehouse. Thank you, Mr. Chairman.
    Chairman Conrad. Thank you, Senator Whitehouse.
    We have talked today about cost growth in the whole health 
care sector as being the biggest contributor to the long-term 
challenge. We know we have a secondary issue which is also 
serious which is this demographic time bomb.
    What are your assessments of the contributors to this cost 
growth? And have you been able to put them in some kind of 
priority order? That is, as you analyze the system what do you 
see as the major contributors to this cost explosion in health 
care that is far above the underlying rate of inflation in the 
economy? And what is your assessment of what could be done 
about each of those areas?
    Mr. Orszag. The first thing I would say is that this is 
another topic on which CBO will be issuing a study over the 
course of the year, so we are focused on that. My written 
testimony covers some of the things.
    One of the big drivers is the increased capabilities of 
medical technology and the average return to the advances in 
technology has been high. So if you look at the health care 
that we have today it is better in terms of delivering care, 
improving health than 50, 60, 70, 80, 100 years ago.
    But the improved technologies are often also applied 
outside of the range in which they actually help to improve 
health. And so you have this thing----
    Chairman Conrad. So it is overutilization.
    Mr. Orszag [continuing]. Where something is introduced and 
it can produce an average benefit. But it is then expanded 
beyond, expanded into areas where again if we had the evidence 
it may not be warranted.
    So I think the key question is how to continue to encourage 
that kind of innovation which is beneficial while driving it 
toward the higher value applications that generate the best 
outcomes.
    Chairman Conrad. What other contributors to cost growth do 
you see?
    Mr. Orszag. There are various different ways of parsing 
that. One is the increased prevalence of chronic conditions, 
including the ones associated with obesity. So for example, the 
share of Medicare costs that are attributable to obese 
beneficiaries increased from 9 percent in 1987 to 25 percent in 
2002. If continued increases in obesity are carried out in the 
future and then start to affect the pool of Medicare 
beneficiaries that share may well go up even further.
    That increase is disproportionate to the increase in obese 
beneficiaries, in part because obese beneficiaries cost a lot 
more that--roughly a third or so more than beneficiaries of 
normal weight.
    Chairman Conrad. What can be done to address a dynamic like 
that one?
    Mr. Orszag. That is very hard. I gave the, I guess, trivial 
example of mindless eating. But I think there are a whole 
variety of interventions----
    Chairman Conrad. That was your stale popcorn.
    Mr. Orszag. That was the stale popcorn. By the way, that 
was an experiment. And someone walked out of the experiment 
afterwards. And they were given free popcorn because it was an 
experiment. And they complained that the popcorn was stale, I 
want my money back. But in any case----
    Chairman Conrad. That was not a Member of Congress.
    Mr. Orszag. No.
    There are a whole variety of things that we talk about in 
the testimony having to do with better information, having to 
do with incentives, and having to do with other interventions. 
So for example, and this is not to embrace this kind of change 
but just the sorts of things that researchers are starting to 
identify as affecting what we eat and how we exercise, putting 
fruit and vegetables toward the beginning of a cafeteria line 
rather than at the end seems to significantly boost consumption 
of fruits and vegetables, as opposed to the high calorie, low 
nutrient alternative foods that are then placed at the end of a 
cafeteria line.
    How you engineer that or how you adopt changes like that 
and the pros and cons of different kinds of things are 
important challenges that we have not yet fully tackled. So we 
do not really know the answer but certainly more information 
and changes in incentives and changes in the environment in 
which we are making decisions could potentially have an effect.
    Chairman Conrad. The incentives in the system almost 
everybody has talked about we have the incentives wrong because 
what we incentivize are procedures because that is what we pay 
for. We pay for procedures. You pay for procedures, you get a 
lot of procedures.
    We do not incentivize keeping patients well. With that 
said, I have never been certain how you would construct a 
system that would provide incentives for keeping patients well. 
Have you thought about how you would structure a system that 
would do that?
    Mr. Orszag. Yes, there are different approaches that have 
been discussed along that dimension. Some of them are processed 
based. So the things that we know, you develop evidence that, 
for example, having a nurse practitioner coordinate care, if 
the evidence existed that that improved health outcomes, you 
could then pay for that sort of approach. That is one way of 
structuring finances, financial incentives.
    Another way is to look at outcome-based things. You 
basically provide incentives if you achieve better life 
expectancy for your beneficiaries or lower blood pressure or 
other things that you can measure in terms of outcomes.
    There are whole variety of things that are starting to come 
together in terms of metrics that can be used but it is early 
in terms of how one would fully design a value driven set of 
incentives.
    Chairman Conrad. You know, the ranking member challenged us 
in the early going here to take action, and sign me up. I am 
eager to take action. The thing is I do not want to take action 
that proves to be unsustainable. I do not want to take action 
that threatens people's access. I fear very much the 
President's proposal, based on other's testimony, would do 
that.
    So we have to go through a process here, and that is what 
these hearings are about, of identifying options and then on a 
bipartisan basis trying to find a way to embrace them. That is 
not easy to do here. Even if you have a majority of members of 
the Senate that are for something, we all know a majority is 
not enough. Because if you do not have a super majority you 
cannot end the endless discussion that will occur here and the 
filibustering by amendment that can occur here. That means you 
have to have at least 60 votes in the Senate.
    And then, of course, you have to deal with the House of 
Representatives, you had to deal with the White House. The only 
way that I see this proceeds is if there is a group that is 
given responsibility to come up with a plan that is totally 
bipartisan in nature, that involves all three of the entities 
that have to be brought together for any plan to be actually 
implemented. That means the House of Representatives, the 
Senate, the White House, all of them have to play a role not 
only on the landing but on the takeoff. If people are not 
involved--one thing I have learned around here, if people are 
not involved in the development of the plan, they are not going 
to support the plan when the going gets tough.
    But that still leaves us with the question of a plan. And a 
plan that could really make a meaningful difference and one in 
which we could have confidence that it would not only save 
money, but at least do no harm to health care outcomes and 
hopefully improve health care outcomes.
    I just want to go back over what I heard you say. What I 
heard you say is you are not aware of any comprehensive plan 
that exists at this moment that we could be assured would save 
money and at least not hurt health care outcomes. Did I hear 
you correctly?
    Mr. Orszag. That is correct. I do think that there are 
steps that can be taken to move toward creating the opportunity 
for such approaches or options to exist and that regardless of 
your broader vision for health care reform would make sense.
    Chairman Conrad. Tell me what some of those would be. What 
are the things, because you said earlier you see promising 
signs on the horizon. Let me just give you the time to go 
forward and tell us what are the things out there that you see 
as promising that ought to be pursued?
    Mr. Orszag. Let me mention three. The first is that one 
could, if you as a policymaking body were committed to it, 
significantly increase the share of health care spending with 
which there is some evidence associated. So the Institute of 
Medicine is contemplating a goal of increasing that 25 percent 
share to something like 80 percent or 90 percent by a date 
certain.
    Chairman Conrad. Let's talk about that, the 25 percent 
share, what does that reference?
    Mr. Orszag. There are very rough estimates but that if you 
take total health care spending and you ask do we have any 
evidence that this intervention works better than that 
intervention? Or this is better than that? Only about a quarter 
of health care spending is arising in that evidence-based 
information box.
    Chairman Conrad. Only about one-quarter of health care 
spending we can say, based on evidence, is actually 
contributing to improved outcomes?
    Mr. Orszag. You can think about it that way. The vast 
majority of health care spending is occurring where we just do 
not know.
    Chairman Conrad. We do not know.
    Mr. Orszag. So a sensible approach presumably, regardless 
of whether you favor a consumer directed health plan kind of 
system in which consumers need the information, a single payer 
in which the single payer administrative body would need the 
information, or some mixed system where State Governments, 
Medicare, Medicaid and insurance firms would need the 
information is you need the information.
    That brings me to my second point which is I think it is 
unlikely that you are going to get up substantially above a 
quarter on that share in the absence of a broader system of 
electronic health records. And I think that the return to 
health information technology is much more likely to occur in 
providing and feeding information into this kind of analysis 
than in the type of cost savings that are contained in the 
study that has been discussed here at the hearing.
    The largest return may well turn out to be other things 
like providing the data that could be then used. It is very 
likely that you are going to be able to get up to 50, 60, 70 
percent of health care costs having some evidence associated 
with them relying solely on randomized control trials. And I am 
not even sure that you would want to, from a cost-effective 
basis.
    So you will need to struggle with the difficulties of 
statistically analyzing large bodies of panel data which could 
be provided by electronic health records.
    The final category that I would--actually I will give you 
four categories.
    The third category has to do with disease management and 
chronic care and trying to evolve toward better targeting of 
those interventions so that they not only improve quality where 
there seems to be some evidence that they do, but that they 
actually reduce costs. So finding the right interventions where 
they actually work seems----
    Chairman Conrad. I am a big believer in your No. 3. That is 
where the money is. When I went to business school we were 
taught to focus where the money is. And here are 5 or 6 percent 
of the patient loads using half the money.
    Mr. Orszag. And again it can be integrated with my first 
point which is we again need to be looking at disease 
management programs from the perspective of what works and what 
does not.
    Chairman Conrad. What is your fourth?
    Mr. Orszag. The fourth category was just something that 
Senator Wyden and others have suggested, which has to do with 
prevention and incentives for healthy living so that trends 
like the dramatic increase in obesity are addressed in some way 
because in the absence of that you are going to be dealing with 
a much larger burden for the health care system regardless of 
how effective you make it in processing information and being 
value-based.
    Chairman Conrad. All right.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    I asked you earlier whether you thought there was adequate 
research and development being done on the health care reform 
at this point, the health care reform side, how we get these 
savings. You said no. I want to ask you for some kind of metric 
on that.
    How close are we to what you think would be the ideal level 
of experimentation and evidence generation, research and 
development, on how we work through these steps that you have 
described? Are we like the Lewis and Clark expedition, what we 
are doing so far, with a vast unexplored landscape in front of 
us? Or are we something who has like cleaned six room of the 
house, there may be one left to do but we have pretty much done 
it?
    In those sort of ranges, how close are we to where we 
should be, in your view, in terms of investment in 
experimentation and analysis of how we get ahead of this 
problem?
    Mr. Orszag. I think we are closer to the Lewis and Clarke 
trip.
    Senator Whitehouse. To followup on what the Chairman asked 
you about wellness incentives, if you are going to pay for 
wellness incentives through an insurance company model, and if 
the insurance company model exists in a very mobile population 
in which a particular insurer can bet that a fairly significant 
group of their insureds is in three or five or 7 years going to 
move on and become somebody else's problem and, in fact, in 
their old age are likely to become the United States 
Government's problem, what does that do to the calculation of--
assuming that they are being rational economic actors in the 
American business model--what does that do to the return on 
investment calculation that they would logically make about 
investing in wellness incentives? And what does that mean 
structurally about that model in terms of its ability to 
provide optimal wellness incentives?
    Mr. Orszag. It reduces the incentive to invest in--if you 
cannot capture the full benefits because people are churning 
and turning over and leaving your plan, your incentive to 
invest in that kind of activity is reduced.
    Senator Whitehouse. And it is reduced in an inefficient way 
in the sense that it creates a suboptimal level of investment?
    Mr. Orszag. From a national perspective there can be lower 
levels of preventative steps that are taken as a result of that 
incentive issue that we just discussed.
    Senator Whitehouse. Mr. Chairman, I would want to conclude. 
First of all, thank you for letting us have the third round. I 
appreciate it very much and I know we are going to have a vote 
very soon.
    But I just wanted to conclude again by complementing both 
of you on this. I think the Chairman's direction of the Budget 
Committee into the health care issue is extremely wise and 
vitally important. And I think, Peter, your transformation of 
your agency into one that is far more adept and focused on the 
looming health care problem that we face is also very wise.
    And I think that working together we have the chance to get 
ahead of this problem. I live constantly with the very, very 
deep anxiety that if we do not get ahead of this problem, if we 
do not work hard at it now and do the structural things will 
allow the system to work better and sort of cleanse itself and 
be efficient and send correct price signals and began to become 
a system we can be proud of rather than one that screams 
distress from really every quadrant, we are then going to be 
left with really harsh choices because we have not left 
ourselves the time to work through some of these problems.
    And those really harsh choices are ones that I hope we 
never have to face. And if we do have to face them because we 
did not do the work in advance, then really shame on us. 
Because the people that will suffer are people who are in a lot 
of distress already.
    So I think we have a very, very high moral obligation to 
pursue this very aggressively. And I appreciate so much that 
this Committee has been turned in this direction by the 
Chairman and that your organization has been turned in this 
direction by you.
    Chairman Conrad. I thank Senator Whitehouse and again, I 
thank you for the energy and attention you have brought to this 
subject.
    Director Orszag, we are all delighted at the leadership 
that you have brought to CBO. It is really exceptional and we 
appreciate very much the thoughtfulness that you direct to 
these issues.
    This really is the challenge of our time in terms of the 
fiscal future of the country. I am not talking about just the 
human element of all of this because health care touches every 
one of our lives. We have simply got to do a better job of 
facing up to what is the preeminent fiscal challenge that this 
country faces.
    I am delighted that you are in this position of 
responsibility, Director Orszag, because I think you have the 
ability to help us work our way through this.
    I also want to acknowledge the work of Senator Gregg, who 
is committed to addressing not only this long-term entitlement 
issue but the others as well. I am eager to work with him 
because nothing is going to happen unless we work productively 
together. That is the reality of this place and of this time.
    I thank you and thank the members of the Committee for 
their participation this morning.
    [Whereupon, at 11:52 a.m., the Committee was adjourned.]

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HEALTH CARE AND THE BUDGET: THE HEALTHY AMERICANS ACT AND OTHER OPTIONS 
                               FOR REFORM

                              ----------                              


                         TUESDAY, JUNE 26, 2007

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:32 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Kent Conrad, 
Chairman of the Committee, presiding.
    Present: Senators Conrad, Wyden, Nelson, Stabenow, Cardin, 
Whitehouse, Gregg, Allard, and Crapo.
    Staff present: Mary Naylor, Majority Staff Director; and 
Scott Gudes, Staff Director for the Majority.

              OPENING STATEMENT OF CHAIRMAN CONRAD

    Chairman Conrad. The hearing will come to order.
    I want to welcome everyone to today's hearing. This is our 
second hearing this summer on health care reform and the impact 
on the budget. Last week our witness was the CBO Director, Dr. 
Orszag, who helped set the stage by providing an overview of 
the problem and issues to consider in evaluating reform 
options.
    Today we will focus more specifically on comprehensive 
solutions and the issues raised by them. We have two panels 
today. Our first includes two of our most respected colleagues: 
Senator Wyden, who is a valued member of this Committee; and 
Senator Robert Bennett, who is a longtime leader on the Joint 
Economic Committee. Senators Wyden and Bennett will jointly 
present their Healthy Americans Act.
    I want to first commend them for working together. That is 
going to be critically important as we approach the issue of 
health care reform and all of the other contentious issues 
facing us on fiscal policy.
    Our second panel includes three health care experts, Len 
Nichols, Director of Health Policy at the New America 
Foundation; Sara Collins, the Assistant Vice President of the 
Program on the Future of Health Insurance at the Commonwealth 
Fund; and Arnold Milstein, the Medical Director of the Pacific 
Business Health Group. These experts will be giving us their 
views on health care and options for comprehensive reform.
    I want to begin with this chart that shows that rising 
health care costs are by far the largest factor driving up the 
cost of our Federal health programs.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Demographic changes that we all know about and that have 
been so much in the news are also a significant factor.
    But the biggest factor, the largest element here, are 
rising health care costs in the larger system.
    Let me go to the next slide, if we could.

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    The fact is that our health care system is not as efficient 
as it could be. We are spending far more on health expenditures 
as a percentage of GDP than any other country in the world. 
This chart goes back to 2003. For those who are wondering why 
do we go back to 2003 and 2007, it is because it is the most 
recent year for which we have comparative data from other 
countries.
    We know our own health care expenditures now are over 16 
percent of gross domestic product. That means that about one in 
every seven dollars in this economy is going to health care and 
that percentage is rising.
    If we look at other countries, we see the next highest 
country in terms of expenditure per share of GDP is at 11 
percent. So one would assume that because we have the highest 
health care expenditures in the world we have the best health 
care in the world. Unfortunately, we know that that is not the 
case.
    In fact, what we see is in many cases health care 
expenditures are inverse to health care outcomes. In other 
words, higher health care expenditures do not lead to better 
health care outcomes. In fact, in many parts of this country, 
the places that are the highest cost health care have the 
lowest quality health care outcomes.
    Let us go to the next slide, if we could.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    We need to remember the problem is not that Medicare and 
Medicaid are Federal programs. The problem stems from the 
rising cost of health care and the demographic tsunami that is 
coming at us. This is a quote from the Comptroller General of 
the United States, David Walker, who made this point: ``Federal 
health spending trends should not be viewed in isolation from 
the health care system as a whole...Rather, in order to address 
the long-term fiscal challenge, it will be necessary to find 
approaches that deal with health care cost growth in the 
overall health care system.''
    Let us go to the next slide, if we could.
    Let us go over that one, in the interest of time. Senator 
Gregg is now here, let's just go to the final one.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The fact is that we can get dramatic savings in Federal 
health care programs if we can reduce the rising cost of health 
care. This chart shows that reducing per capita annual health 
care cost growth from 2.5 percent above GDP to 1 percent above 
GDP can bring down Medicare and Medicaid spending as a 
percentage of GDP from 21 percent in 2050, to under 12 percent 
in that same year.
    Look, we all know we have a huge challenge here. The 800-
pound gorilla is health care expenditures. That is what can 
swamp the whole boat here. And we know that if we get to 2050 
and we are spending over 20 percent of GDP on just Medicare and 
Medicaid, that is more than we are spending on all of the 
Federal Government today. That cannot be permitted to occur.
    The question is what do we about it? That is what this 
series of hearings are about. I again want to thank our 
colleagues, Senator Wyden and Senator Bennett, for their 
thoughtful approach to the issue and for their leadership.
    Senator Gregg. 

           OPENING STATEMENT OF RANKING MEMBER GREGG

    Senator Gregg. Thank you, Mr. Chairman. I want to express 
my appreciation for you holding this hearing because really, as 
Willie Sutton used to say about why he robbed banks, that is 
where the money is. This is where the money is. This is where 
the problem is. And it is where the money is. And it is where 
the threat is to the next generation.
    I assume you held up the chart before I got here that 
pointed out that there is about $30-plus trillion of unfunded 
liabilities simply in the Medicare accounts and that will 
bankrupt the next generation if we do not do something about 
it.
    The issue becomes not finding new revenue streams to 
support it, because it is really not supportable or 
sustainable. The issue is how you control the rate of growth to 
get it back to a number which is more reflective of the number 
you have mentioned, which is something nearer to the rate of 
inflation for the economy as a whole.
    And that becomes an issue of a variety of different 
initiatives that have to be taken. There is no magic wand here 
that can solve the whole problem. It is a matrix and a complex 
matrix, and you have to move forward in a number of different 
areas: health IT, transparency, market-oriented approaches so 
people are more cost sensitive when they are purchasing, 
quality information, making sure that there is a consistency of 
quality and a consistency of cost across the country relative 
to quality, and cost and procedures.
    And so it is a complex issue. And I appreciate the effort 
the two senators before us today have made in this area, 
Senator Wyden and Senator Bennett. Obviously it is a good memo 
to begin the discussion with and I look forward to hearing from 
them.
    Chairman Conrad. Thank you, Senator Gregg.
    Let me say to the Senator, I did not hold up that 
particular chart this morning. But really, as I look ahead to 
the budget and fiscal challenges facing the country, none loom 
larger than this one. And that is why I think it is critically 
important that we start this series of hearings and talk about 
what are we going to do about it? What are the potential 
solutions? All of us know there are a lot of ideas out there. 
We want to try to find the best ones.
    Certainly one of the best is the one advanced by our two 
colleagues who are here this morning. Senator Wyden, who I have 
indicated earlier is a valuable member of this Committee; 
Senator Bennett, who is widely respected and esteemed for his 
views on economic and financial matters, welcome to the 
Committee. Senator Wyden, why don't you proceed.

STATEMENT OF HON. WYDEN, A UNITED STATES SENATOR FROM THE STATE 
                           OF OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    I want to thank you and Senator Gregg for having Senator 
Bennett and I this morning. This is an exceptionally busy time 
here in the Senate and once again you have shown your 
commitment to finally getting our arms around the health care 
challenge.
    I know all of you, and Senator Cardin who spent a lot of 
time on health care over the years as well, are going to have 
folks pulling on you extensively. So I would like to just make 
my prepared remarks a part of the record and offer up just some 
brief comments with respect to where I think we are.
    Mr. Chairman, we have only been at the cause of fixing 
health care in this country for about 60 years. It goes back to 
Harry Truman in 1945, the 81st Congress. And so I think the 
first thing people are going to say is what is different about 
this time? Why do you think there is grounds for optimism 
today?
    I think there are three big factors. First, the business 
community has done a complete about-face on this issue. Back in 
1993, for example, during the Clinton debate, the business 
community said we cannot afford health care reform. Now they 
are saying we cannot afford the status quo. That is No. 1.
    No. 2, there are new alliances that have formed that we 
certainly did not see in 1993. When we proposed the Healthy 
Americans Act, for example, standing next to us was Andy Stern, 
the Head of the Service Employees International Union, and 
Steve Burd, the President of the Safeway Company. So 12 or 13 
years ago they belonged to groups that were fighting each 
other. And now they are stating there side-by-side saying they 
want to work for a specific piece of legislation.
    And finally, as Senator Bennett and I will tell you, I 
think there has been something of an ideological truce in the 
last few years. Republicans have come around to the proposition 
that you cannot fix health care unless you cover everybody. 
Because if you do not cover everybody the people who are 
uninsured shift their bills over to folks who are insured.
    Democrats have come a big distance as well, recognizing 
that you cannot just turn all of this over to the Government 
and have a Government-run system. And you particularly have to 
make changes in the tax code because the tax code 
disproportionately favors the wealthiest and promotes 
inefficiency.
    The bumping up against those positive signs, of course, is 
the popular wisdom. The popular wisdom is oh, this is too big. 
It is too complicated. Congress cannot possibly get its arms 
around something this size. People say there are too many 
lobbyists. They say people who have coverage, for example, the 
millions who have coverage are still going to say the devil 
that they know is better than the devil that they do not know. 
So the popular wisdom kind of bumps up against the very 
positive signs we are seeing.
    So I think what is helpful about your hearing, Senator 
Conrad, is it gives us a chance to diagnose what is really 
broken in health care and then get at the cure. I am going to 
do the diagnosis very quickly.
    First, I strongly share your view that we are spending 
enough money on health care today. We are going to spend $2.3 
trillion on health care. There are 300 million of us. You 
divide $300 million dollars into $2.3 trillion and you could go 
out and hire a doctor for every seven families in the United 
States, pay the doctor $20,000. And whenever I mention it to 
the doctors they say Ron, where do I go to get my seven 
families? I would like to be a doctor again. We are spending 
enough money, colleagues. We are not spending it in the right 
places.
    Second, as you touched on, Chairman Conrad, we are not 
getting collective value for the amount of money we are 
spending. And that is despite the thousands of wonderful 
doctors and nurses and physician assistants. In spite of all 
this talent, I think the latest numbers, for example in life 
expectancy, we have surged ahead of Cuba and Albania but we 
still lag behind Malta. So we are not getting as much as we 
ought to get in terms of collective value.
    Finally, on the diagnosis side, is we have mostly stick 
care. We do not have health care. We do not have prevention. 
Medicare, for example, pays huge expenses for hospital bills 
under Part A. And then Medicare Part B pays very little for 
prevention. So Senator Bennett and I want to get us back in the 
business of health care and not just sick care.
    So that is my diagnosis. Let me move on to the cure and go 
through briefly what I think the citizens want by way of a 
cure.
    In my town hall meetings, after we have a bit of discussion 
and people say they want a Government-run health system and 
other folks they know they do not, people in the audience 
eventually say Senator, we you want coverage like you people 
have in the U.S. Congress. And then the whole room breaks out 
into applause. People are not exactly sure what Members of 
Congress have but they figure if they have it, it is a good 
thing.
    So what I do at that point, Mr. Chairman, is I reach in 
back and get out my wallet and I go all right, let us be clear 
about what it is Members of Congress have. And so at my town 
meetings I hold up on this. This is my BlueCross card. It is a 
private policy, a private insurance policy. And Senator Bennett 
and I feel that we ought to have a system that makes it 
possible for all Americans to have a private insurance card and 
to choose from a range of policies.
    And the Lewin Group, which is something of the gold 
standard of private health coverage, has done an analysis for 
us. We have made it available to the Committee. It says for the 
amount of money we are spending, everybody in the United States 
could have choices like Members of Congress have, private 
coverage like Members of Congress have, and a delivery system 
like Members of Congress have.
    So here is the way it works. We have 300 million people in 
the United States. Senator Bennett and I are saying that the 
basic structure of Medicare and the military system ought to be 
left intact. So we would like to make some improvements. For 
example, we have rewards for prevention, improving chronic 
care, something called a health care home. Mr. Chairman, the 
typical Medicare patient sees seven doctors in a typical year. 
So we ought to have better coordination of their care.
    But Senator Bennett and I leave the basic structure of 
Medicare and the military system alone.
    So that leaves us then 250 million people. About 160 
million of those get their care through their employer, about 
48 million are uninsured, and the rest are primarily in the 
individual market, or Medicaid. So here is what we do for this 
group of people: for the 160 million who are covered by their 
employer, we say the employer ought to cash them out. And do it 
in a way so that the employer wins and the worker wins with the 
very first paychecks that are issued. So hypothetically, if you 
have a worker in North Dakota who would make $40,000 and would 
get $10,000 in health care benefits from their employer, the 
employer would give them $50,000. The worker has just gotten a 
big old pay raise and says to themselves hey, that is pretty 
neat. What is the catch? The catch is that they have to buy a 
basic health policy.
    Workers may say how in the world do I do that?
    So Senator Bennett and I fixed the private marketplace. We 
say that insurance companies can no longer cherry pick, for 
example. They cannot just take the healthy people and send the 
sick people over to Government programs more fragile than they 
are. And then we adjust the tax laws so that the worker does 
not pay more tax on that additional compensation that they got 
from the employer.
    Now the next group, small business in particular, where 
most of the uninsured are, usually in a situation where the 
employers are dying to cover their workers but have not been 
able financially to figure out a way for them to do it.
    So we worked with three groups of employers: big employers, 
medium-sized employers, and small employers. And all of them 
agreed that they could pay something. They could pay something. 
And so they make a contribution on the basis of revenue per 
employee. So those who are uninsured and work at small business 
get their coverage that way. In the individual market it works 
along the same lines. People in the individual market use a 
State agency to sign up. It is close to home. It simplifies the 
process. So that works for most of the folks that are 
uninsured.
    With respect to Medicaid, we have made improvements so that 
the program is more efficient and more compassionate. Today on 
Medicaid, you have to try to squeeze yourself into scores of 
boxes. In my state it is more than 30 boxes you have to try to 
squeeze yourself into to get some coverage. It is a horrendous 
waste of money. It is degrading for poor people. And so we make 
coverage more efficient and more compassionate and say you sign 
up once through these State agencies and everything else is 
done through electronic transfers. The Lewin Group has found 
substantial savings as a result of our doing it.
    Let me wrap up by saying where the money comes from in 
terms of paying for it. We redirect the tax code expenditures. 
Instead of what we have today that disproportionately favors 
the most affluent and encourages inefficiency, we redirect 
those expenditures and get more help to folks in the middle and 
folks in the lower middle classes so they can buy these private 
coverages. We make substantial administrative savings that the 
Lewin Group has documented. I will not go through all of them, 
Mr. Chairman, because the time is short. They are outlined on 
page 15 and 16 of the Lewin report that we have made available 
to you.
    We make savings in what is called the disproportionate 
share program, where a lot of poor folks go to hospitals and 
hospital emergency rooms where we would rather have them get 
private coverage that is outpatient oriented.
    When insurance companies compete on the basis of price, 
benefit, and quality there are savings in that area. And as I 
touched on, we make savings in Medicaid by making the program 
more efficient while we also make it more compassionate.
    Finally, Mr. Chairman, we want to have a broad berth for 
the States. Senator Bennett and I have had some very good 
discussions with Secretary Leavitt on this point. The Healthy 
Americans Act makes it possible for the States to get a waiver 
to come up with their own approaches. We also same for purposes 
of the benefit package there can be what we call an actuarial 
equivalent offered, so that there is a lot of flexibility there 
for the States and private insurers.
    At the end of the day, Mr. Chairman, I would like to see us 
on a bipartisan basis work to defy the odds and produce a 
rational system so that everybody gets quality affordable 
coverage in this Congress.
    I know people say it cannot be done. We are all aware of 
that debate, that this is kind of a Presidential election 
issue. I do not think the American people sent us here to wait 
two more years. That is what we would be doing. We would be 
waiting two more years, essentially until the middle of 2009. 
And I do not think the country can afford to wait.
    Senator Bennett and I have the first bipartisan overhaul of 
health care since the one offered by the late John Chafee. We 
are not saying it is set in stone. Quite the contrary. We know 
that nothing is invented here. You have to work with colleagues 
on a bipartisan basis. But we think we ought to get going.
    [The prepared statement of Senator Wyden follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Chairman Conrad. Thank you, Senator Wyden.
    Senator Gregg has to go to the floor momentarily, but I 
think he would like to ask a question.
    Senator Gregg. I just had one question of the Senators, 
because I have read your proposal. It is intriguing.
    If I can try to sugar it off and summarize it, is 
essentially what you are doing is you are taking the deception 
which is now at the employer level and you are converting that 
deduction to cash into the hands of the employee. And then you 
are saying to the employee go out and buy insurance.
    It is, for all intents and purposes, a voucher program. You 
are basically converting the insurance market where you give 
everybody a chit backed up by cash. And you say you have to buy 
insurance and the insurance has to meet certain standards as to 
community rating and it has to have certain levels of coverages 
such as the FEHBP level.
    Senator Wyden. Let's not characterize anything as a 
voucher, because that will be the kiss of death. I would 
describe what we are doing with the cash out as a transition 
way to get to a new system.
    And by the way----
    Senator Gregg. Let me see if I have it right, though. You 
are giving people cash, people then take the cash and buy a 
plan and the plan is subject----
    Senator Bennett. You are not giving them cash because it is 
a tax credit that is only available for a particular purpose. 
If you were giving them cash, they could go out and buy a new 
set of tires for their pickup.
    Senator Gregg. That is my point. That is why I called them 
a voucher because you are essentially giving them a ticket 
which says you have to go buy insurance with this money that 
you are getting back from the employer in the form of 
compensation. Right? I mean, does that summarize it?
    Senator Wyden. In the old days, people got vouchers and 
they would march around town with a piece of paper that said 
this entitles you to such and such. There is not going to be 
anything like that. We are going to have to figure out a way, 
Senator, to make a transition from what we have to something 
else.
    Senator Gregg. No, you are basically mandating that they go 
out and buy the insurance.
    Senator Bennett. There is an individual mandate, that is 
correct.
    Senator Gregg. So the individual has to use the proceeds 
that they are getting from their employer, who is no longer 
having a deductible event for insurance, that is converted to a 
payment to the employee. The payment then must be used or some 
percentage of it must be used to buy insurance, which insurance 
has to be community rated and it has to have a certain set of 
benefits which are at least the minimum of the FEHBP program.
    Senator Bennett. That is correct.
    Senator Gregg. I appreciate it. I guess my only concern, 
and I am sorry I have to leave, is I think it is an intriguing 
idea, quite honestly, and probably the right way to move.
    I think the next step, however, is how do you build in 
efficiency? What do you make that buy--what incentives do you 
give that newly empowered individual with this cash--not called 
a voucher--to go out and use it in a way that is market 
oriented and efficient and gives them good health care at a 
lower cost?
    Senator Bennett. We will be glad to discuss that with you.
    Senator Wyden. Before the Senator runs out the door, what 
we have picked up from the Lewin people and others, I would say 
to my friend, is once that person has the extra money in their 
pocket and has choices for their health care, because remember 
today the worker largely has no choice. The worker just gets 
the one policy that their employer has for them.
    Once the worker has those choices, if say in the example I 
gave where the worker would get a certain amount because of 
what their employer is paying, they then look for a variety of 
different choices. And if they save $500 on that, they can go 
fishing on the Rogue River in Oregon.
    Senator Gregg. That, I think, is a key element of the 
program. Interesting idea.
    Chairman Conrad. I want to thank Senator Gregg. I know that 
he is got duties on the floor.
    Senator Bennett, welcome. Please proceed.

 STATEMENT OF HON. ROBERT F. BENNETT, A UNITED STATES SENATOR 
                     FROM THE STATE OF UTAH

    Senator Bennett. Thank you, sir.
    I want to thank you for holding the hearing and for your 
leadership role in focusing Congress's attention on health care 
reform.
    I especially want to thank my colleague and fellow 
panelist, Senator Wyden, for his leadership. And along with 
leadership, which is a word we throw around a great deal here, 
he brings vision and passion to this which, in many cases, is 
more important.
    I believe the Congress needs to address health care reform 
this session and not put it off for future Congresses. More 
importantly, I believe that it can. That is because our 
conversation starts with what we can agree on, where we can 
find consensus. And we will find the common ground necessary to 
pass comprehensive health care. And because I believe that, I 
have joined with Senator Wyden and cosponsoring the Healthy 
Americans Act.
    This Congress is uniquely situated in history. For the 
first time since Dwight Eisenhower's election there is not an 
incumbent in the White House running for the White House, 
neither a sitting president nor a sitting vice president. And 
yet you have divided government. The Democrats controlling the 
Congress have a political motive to accomplish big things. And 
the Republicans want to have a legacy come out of this 
Administration but they cannot take credit for it for their 
candidate because their candidate will not come from this 
Administration.
    So these are rare circumstances of a political setting that 
creates the ideal time for Congress to act in a bipartisan way 
on comprehensive health reform.
    Now, we have established some principles we can agree on. 
And here they are in my view: tax reform, portability, 
individual access, incentives for healthy behavior, and market 
forces. The Healthy Americans Act embodies these five tenets of 
reform. It is not a perfect bill but I think it is a perfect 
jumpstart to begin the dialog about these core principles. So 
let us go through each one of them.
    Tax Reform. We all agree that the rate of growth in health 
care spending in our country is unsustainable. For the last 45 
years in the United States health care as a part of the gross 
domestic product has more than tripled to 16 percent. It is on 
a steady climb upwards. As you have pointed out, Mr. Chairman, 
other countries have a much smaller rate of growth of 
percentage of GDP devoted to health care and they have 
drastically lower numbers of uninsured.
    I look at it and realize that as the amount of money spent 
per capita rises, out-of-pocket expenditures of after-tax 
dollars by individuals are decreasing equally if not more 
dramatically. Which means that Americans have little or no 
knowledge of how much their health care costs or where their 
health care dollars are spent because they do not control those 
dollars. It is the employers who are spending their employees' 
money.
    By giving employees the right to control their own dollars 
the Healthy Americans Act will strengthen the incentives to 
shop for lower-cost plans as well as improve quality.
    Portability. Because individuals do not receive any tax 
incentive for obtaining health care coverage outside the 
employer setting, they feel chained to their jobs many times. 
Americans should not have to be afraid to change jobs just 
because they fear losing access to health care coverage. It is 
not good for productivity. It is not good for the rest of the 
economy. And it is certainly not good for the person who is 
trapped in a job that he or she hates. There needs to be 
portability in the health care system so that individuals will 
always have their coverage regardless of where they work. The 
Healthy Americans Act provides portability.
    Individual access. Every American should have access to 
health care. In fact, currently every American does. It is 
called the emergency room. And that is the most ineffective, 
inefficient, and expensive way of care possible. If all 
Americans have their own individual portable coverage, the 
uninsured will no longer engage in overutilization of emergency 
room visits, health care spending will be more evenly dispersed 
and dramatically reduced. The Healthy Americans Act provides 
individual access.
    Healthy behavior. Healthy individuals use less health care 
dollars than unhealthy ones and the record is very good that 
when people spend time taking care of themselves health care 
costs go down dramatically. In private industry there are 
multiple examples of companies that have aggressively pursued 
keeping their employees healthy and, as a result, their health 
care costs increases are level to inflation or in some cases 
even below it.
    Healthy behavior incentives are working in some other 
countries around the world. For example, in Switzerland, where 
only 11 percent of GDP is spent on health care and everyone is 
required to purchase his own private plan--similar to the 
Healthy Americans Act--competition has lead to innovative 
incentives to stay well. Some plans offer lump sum cash awards 
for those who stay healthy and others penalize unhealthy habits 
or behaviors. People respond to incentives. And if there are 
incentives for individuals to stay healthy, we will see 
significant differences in driving down health care costs.
    The Healthy Americans Act promotes personal responsibility 
and prevention by offering discounted premiums for 
participation in wellness programs and rewarding providers for 
helping their patients stay healthy.
    Market forces. When transparency and competition exist, 
markets work. But markets require transparency on cost and 
quality to work efficiently. Once the individual is empowered 
to make choices, he or she will demand such transparency and 
market forces and competition will enter and work their magic. 
As seen in the Swiss model, private sector competition drives 
down costs and offers innovative solutions.
    It all starts with tax reform, Mr. Chairman. We get the 
right kind of tax reform. That will empower the individual. And 
from that empowerment we can get portability, individual 
access, incentives for healthy behavior, and the beneficial 
effect of market forces.
    Healthy Americans Act embraces these five principles so 
that health coverage can be affordable, and the uninsured can 
be covered, and not insignificantly our economy can be 
strengthened.
    I thank my friend from Oregon for inviting me to serve as 
his Republican cosponsor. I hope to work with members of both 
parties closely on this issue and I think we can craft 
reasonable legislation that provides access to health care to 
all Americans.
    Chairman Conrad. Thank you, Senator Bennett. Thank you, 
Senator Wyden, for your testimony.
    Let me just say, and I know Senator Bennett has to take his 
leave momentarily. I think you have the basic structure right. 
That is my own conclusion. After 20 years in this business, and 
I was deeply involved in the efforts when we had the mainstream 
forum with Senator Chafee and Senator Durenberger, we spent 
hundreds of hours trying to craft a health care reform package.
    Unfortunately those efforts came to naught. But I do 
believe you have the basic structure right. That is this is not 
Government controlled but there is a role for Government. You 
have universal coverage and I think most of us now acknowledge 
that if you do not have everybody in the system then you just 
have leakage and you have transfer pricing. You have transfer 
of cost going on throughout the system. And unfortunately, the 
transfer occurs at the most expensive point of the system which 
is, as Senator Bennett indicated, the emergency room.
    You build on what we have. We have a system now that, in 
fact, does insure a significant majority of people, although a 
growing number of people are not.
    You provide portability. Senator Bennett, you said it very 
well. In many cases, people feel locked to their job. I have 
relatives that are in that very situation, a relative who is an 
extremely productive and successful executive in the health 
care profession. And his wife has an ongoing chronic illness 
and he feels wedded to his job because of the health care 
coverage circumstance.
    Incentives for healthy behavior. If there is one thing that 
is clear it is we have the incentives wrong in this system. We 
incentivize treatments. And boy, if you incentivize treatments, 
you get a lot of them. Whether or not they are efficacious is 
another issue.
    Chronic care coordination. This, I believe, is an area that 
you address that we could strengthen in a final proposal. The 
statistic that always captures my attention is about 5 percent 
of Medicare beneficiaries are using half the money. We have to 
focus on that like a laser.
    And then market forces. Clearly, if we could harness market 
forces we could bring greater efficiency to this system.
    Now with that said, the devil is in the details. I think 
all of us recognize that. There are two I want to just visit 
with you about momentarily.
    Senator Bennett. May I be excused?
    Chairman Conrad. Yes, Senator Bennett.
    Senator Bennett. I am ranking member of a Committee that is 
holding a hearing, so I probably ought to run to that.
    Chairman Conrad. We understand.
    Senator Bennett. I will read your details with great 
interest, Mr. Chairman.
    Chairman Conrad. Thank you so much, Senator Bennett, for 
being here. Again, these two Senators are two of the most 
respected of our colleagues. When they speak on a subject, we 
listen.
    Let me, if I could, ask Senator Wyden just on two details.
    Senator Wyden. Only two?
    Chairman Conrad. Yes, I will limit myself to two. The two I 
would ask you about one, who decides on the package of what is 
required for an employee to use the money that comes from their 
employer? Who decides what has to be in a minimum package?
    Senator Wyden. That was a very important question, Mr. 
Chairman. That is why I was saying in a kidding way, as we get 
into the details, there are scores and scores of them and time 
does not allow us to get at all of them.
    We had a big debate about how to set the minimum benefit 
package. So essentially we got into a two-part exercise. 
Because citizens at these town hall meetings always say we want 
care like you people get, we essentially took, as a minimum 
benefit package, the middle range benefit package that is 
available to Members of Congress. In other words, there are 
half of them above and half of them below. It is sort of the 
middle range. In the Lewin report it is outlined. It has 
prevention, outpatient, inpatient, and catastrophic----
    Chairman Conrad. Let me ask this, would the BlueCross 
BlueShield standard option, would that be----
    Senator Wyden. Right. That could certainly be one of them.
    Chairman Conrad. That is what many of us have. I have 
people ask me all the time, they think we have some great 
Cadillac plan here. It is a good plan. But what many of us have 
is a BlueCross BlueShield standard option that is widely 
available in our States.
    Senator Wyden. It is what I have with the card I held up.
    And then we took another step and we said it would also be 
possible for plans to offer what would be called the actuarial 
equivalent, so that it would be a lot of flexibility for 
innovation and creative kind of thinking.
    And then we also said, because none of this ought to be set 
in stone, that we would lay out a process so that after we had 
this underway for a couple of years there would be a 
commission, an advisory group that would in effect look at 
whether--we got into this with Dr. Orszag, for example, last 
week, whether as a result of comparative effectiveness changes 
that there ought to be an adjustments in it as we go along.
    But at some point you have to figure out how to set that 
minimum benefit package. That is how we went about doing it.
    Chairman Conrad. The second question I had, and just 
briefly, is on the pay for side of the ledger. You cash out 
the--as I understand it, the employer cashes out the employee. 
If he is spending $10,000 a year on the health care of that 
employee, that $10,000 is made available to the employee for 
the purpose of buying a health care policy.
    Senator Wyden. Correct.
    Chairman Conrad. If the employee is able to save money and 
able to get a policy, to get that standard option, whatever it 
is, mid-range of what Federal employees have, and it only cost 
them $8,000, what happens to the savings? The $2,000 savings?
    Senator Wyden. They, of course, are allowed to keep it. I 
do not think we will see many people getting it for $8,000. I 
think we are more likely, particularly at the outset since this 
is a basic package, for them as a result of the fact that they 
will have more choices in the marketplace, one. The marketplace 
will be fixed because insurance companies will not be able to 
cherry pick. They will compete on the basis of price, benefit, 
and quality. My guess is that a good shopper along the lines of 
what you are talking about might save $500 or something along 
those lines.
    And that is why I joked they will get to go fishing in 
Oregon.
    But the point is that there will be incentives----
    Chairman Conrad. Now a North Dakotan, would they have to go 
all the way out to Oregon to go fishing?
    Senator Wyden. We will work out an agreement with Senator 
Crapo and Senator Stabenow and our colleagues on that.
    Chairman Conrad. We have very good fishing in North Dakota. 
I am there.
    Senator Wyden. That is essentially the outline. I do not 
think people, in the instance of buying that $10,000 policy, 
are immediately going to save $2,000 on a basic package. But 
they might save a few hundred. And that begins to kick in the 
kinds of incentives that we do not have today, where you 
essentially go out on your own in this broken marketplace that 
has all this cherry picking, they are not much interested in 
you. And if you have an employer-based plan, you basically get 
the one thing that the employer gives you and that is it.
    Chairman Conrad. I am going to stop at this point because 
there are other members here. Let me ask, Senator Wyden, would 
you be open to questions from other members of the panel? As we 
set this up we indicated only the Chairman and ranking member 
would ask.
    Senator Wyden. Sure. Of course.
    Chairman Conrad. But I would just make this offer to 
members of the Committee. If they would have questions for 
Senator Wyden, we will have one 5 minute round because we have 
a second panel. And you can either use that time to ask 
questions of Senator Wyden or make a statement.
    Senator Cardin was first.
    Senator Cardin. Thank you very much, Mr. Chairman, and let 
me congratulate Senator Wyden for not only his legislation but 
his leadership on the health care issues. He has been a 
champion for many years. And we appreciate that you are working 
with Senator Bennett because I do agree, we need to have a 
bipartisan approach if we are going to be able to get results 
in this Congress. And we need to get results.
    I also agree that we are spending enough money. Both you 
and the Chairman have indicated that. But the problem is we 
have 46 million to 48 million people without health insurance. 
We talk about those numbers but let me just put a face on it. 
Deamonte Driver, a 12-year-old from Prince Georges County, 
Maryland, fell through the cracks. Had Medicaid, lost Medicaid, 
had no insurance, had a toothache. A simple toothache, tooth 
decay.
    His mother thought his younger brother was in worse shape 
than he was with oral health care. Deamonte ended up going to 
the emergency room, where they have to treat him. A quarter of 
a million dollars was spent on emergency surgery. And he lost 
his life through an abscessed tooth going to his brain.
    For an $80 tooth extraction, we could have saved his life.
    So each one of these 48 million represent an individual 
family. And we all have lists on what we need to do to improve 
our health care system, bring down costs, including taking on 
the prescription drug cost and dealing with preventive health 
care and dealing with long-term care and dealing with use of 
technology more effectively. But No. 1 should be, on everyone's 
list, universal health coverage. We have to get everyone in the 
system. That is what you said, and I agree with you completely. 
We have to get everyone into the system.
    In 1993, I was on the Ways and Means Committee, the 
Subcommittee on Health. I not only supported the Clinton 
approach for universal coverage, I voted for it in the 
subcommittee. It has been to long until we get back to a way to 
get universal coverage.
    So I start off by congratulating you for bringing forward a 
proposal that will bring us to universal coverage, because we 
need to do it in a proposal that I hope that this Congress will 
consider the proposals for universal coverage.
    I just caution that--I listened to your explanation and I 
thought you did an excellent job. But whenever you have a 
proposal that is somewhat complex, people will pick at it. That 
was one of the problems we had in 1993.
    I am working on a proposal that takes part of what you just 
said in your proposal. It is a rather simple bill, I hope to 
file it shortly, that will require every person in this country 
to have health insurance. A simple individual mandate. Allowing 
the States to determine what is an acceptable product and the 
enforcement being the cost to provide a minimum insurance plan 
in your State.
    So that everybody would have health insurance in this 
country, be required to have health insurance. I think it would 
be the right steps to take to encourage those States that are 
already moving forward with universal coverage to show that the 
Federal Government wants to be a partner in that approach.
    I think it helps employers who want to cover their 
employees, looking for more options, because I think the 
private insurance marketplace would provide more opportunities 
knowing that the market is going to be a lot larger. And it 
certainly helps individuals today who go into the insurance 
market to try to find an insurance product and cannot find an 
affordable product because, as you point out, adverse risk 
selection and cherry picking. If everyone needed insurance, 
there would certainly be more products available. And it would 
also encourage those young workers who today choose not to buy 
insurance, who have the opportunity, knowing that it is 
required, I think you will see a more favorable way of moving 
forward.
    Senator Wyden, I just really wanted to take this time to 
applaud you and agree with you that we need to take up health 
insurance in this Congress.
    Mr. Chairman, it would be a mistake for us to wait two more 
years. And I am more than happy to get your reaction, but I 
really believe that you are on the right track by placing the 
responsibility at least first that everybody in this country 
must have insurance, must be part of the system.
    Senator Wyden. Just very quickly, if I could, Mr. Chairman. 
I do not want to make this a bouquet tossing contest. But we 
are just thrilled to have Senator Cardin here. He and I have 
been working on health care since the days when he was on the 
Ways and Means Committee. Just a couple of quick reactions.
    First, on this issue of being complicated, and I think one 
of the reasons that we took the time this morning is we wanted 
to lay out how it would work for 300 million people. I have 
tested this at town meetings. And I hold up that card and I say 
you are going to get choices like Members of Congress get, a 
delivery system like Members of Congress get, and I can lay it 
out in just a minute or two. And I think that will be part of 
the effort to prevent what the Senator is talking about. 
Because, of course, all of this can be twisted around.
    It also allows us to say there is a precedent. Everybody 
always wants to say well, how do we know it works? We can say 
Members of Congress and their families are not complaining.
    With respect to the cost, my hope when we shipped this off 
to the Lewin people, and they been scoring for everybody, the 
Administration and us and everybody else, is I said I hope we 
get to revenue neutrality. I hope we can just tell people it 
will not cost more than we are spending today.
    And when they came back and said at the outset you can 
expand the coverage for less money and save close to $1.5 
trillion over 10 years, I just about fell off my chair. I had 
no idea that we would be able to get to that point. And I still 
say to myself if we can get close to that, I think we would be 
in a position to move a bipartisan piece of legislation.
    So the Senator is right. I also want to add I very much 
share your view about the need for a wide berth for the States. 
That is going to be very key. Senator Bennett and I have been 
talking to Secretary Leavitt about that and we will definitely 
want to have discussions with you about it.
    Senator Cardin. Thank you. Thank you, Mr. Chairman.
    Chairman Conrad. I thank Senator Cardin.
    Let me just indicate to the audience that there are chairs 
up in front. There are a lot of people who have been standing 
for some time in the back. There are at least four chairs up in 
the front, three on this side and on over here. Please feel 
free to take those chairs.
    Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman. I 
appreciate you holding this hearing.
    Senator Wyden, I am not going to ask you a question. I am 
just going to make a comment and then you can reply to it if 
you would like.
    But I just want to thank you for efforts in this area. I 
apologize I did not get here for your original testimony so 
this may have already been stated. But as you know very well, 
with your leadership, a group of senators on both the 
Republican and Democrat side have come together to commit to 
try to get past the partisan differences and the philosophical 
battles that we have had for decades now, trying to resolve 
these issues of getting an adequate and not only an adequate 
but a top-notch health care system in place in this country.
    Five Republicans and five Democrats have signed a letter to 
the President. I am one of those, working with you, telling the 
President that we are ready to sit down and hammer out a 
solution because our country so badly needs that kind of 
leadership. And so I appreciate your leadership in that area.
    We really do need to get past the conflicts in the past 
that have stopped us, frankly, from proceeding. In a very 
shorthand way of looking at it, there are those in the country 
and in Congress who want to have a Government-run health care 
system, what some of us call a purely socialized health care 
system, one where the sole provider is the Government and we 
get away from market forces and trying to figure out how to let 
a market work.
    There are others in Congress who want none of that and they 
want to have a pure market system in which we move away from 
all of the other aspects of assisted health care that we have.
    And in the middle is sort of the uneasy mix that we have 
right now, which is a little bit of a win for one side and a 
little bit of a win for the other side over the years as we 
have battled back and forth here in Congress.
    The solution clearly, in my opinion, is not one which is 
well thought out. It is time for us to come together and work 
on a bipartisan basis to solve the problems that we have in our 
health care delivery system in this country.
    And so I applaud you. I look forward to working with you to 
achieve these objectives. It is going to require that we all 
give and that we all take. The give and take is going to 
necessarily result in some kind of a compromise where, in this 
traditional battle that we have over how to handle our health 
care, neither one side nor the other is going to come out of 
the total victor. I am confident that it will be some kind of a 
mix.
    But we have to come together and find a path forward that 
reaches solutions. And you certainly have started to put your 
finger on some of the directions in that pathway that we need 
to be traveling.
    So I commend you for it and thank you.
    Senator Wyden. I would just say I really appreciate the 
Senator's involvement. Before the Senator got here I talked 
about, even in the letter, the sort of ideological truce. As we 
talked about when we were doing the letter, and the Chairman 
was involved in this, it is a big lift for some folks on the 
Republican side to say we are going to cover everybody. We are 
going to get everybody under the tent. But it was a big lift 
for some of the folks on the Democratic side to talk about the 
role for the private sector we did, and talk about fixing the 
tax code.
    So your involvement has been a great help and we are 
appreciative.
    Senator Crapo. Thank you.
    Chairman Conrad. Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    I would like to start by emphasizing what Senator Cardin 
and Senator Crapo have just said, which I agree with very, very 
strongly. And that is that the health care situation is very 
dire and our health care system right now is, in effect, 
broken. And if your car was broken, you would take it and get 
it fixed. And you would not care whether your mechanic was a 
Democrat or a Republican. You would just get the work done.
    Same with your plumbing. You do not care about your 
plumber's political views. You just need somebody who can make 
the darn thing work better.
    And that is where I think we are in health care. So these 
initiatives to try to get away from--there are plenty of 
partisan dynamics in this building, and some of them are 
wonderful. But this is an area where we really need to push 
toward solutions. So I appreciate, Senator Wyden, what you are 
doing.
    In terms of trying to put it into some context, I would 
hypothesize to you that we have a finance problem in the health 
care sector. I hesitate to even call it a system. That is a 
complement to it that it does not deserve.
    But if it were a system, it would have a finance aspect to 
it. It would also have an operations aspect to it. In a 
business you will often see that there is a finance group that 
deals with the financial problems. And then there is an 
operations group that deals with the operations problem.
    As you know, I am focused a lot on the operations piece and 
I see quality reform, particularly in those proven areas, 
particularly in Senator Stabenow's State of Michigan where a 
wonderful example took place, saving $165 million just in 15 
months, just in intensive care units, and not even all of them 
while saving nearly 1,600 lives. There are these win-win 
situations out there where people get better health care at 
lower cost.
    We have a disastrous health information technology system. 
It is the second worst of any industry except the mining 
industry, according to the Economist magazine. The available 
savings according to RAND, as you know, are between $81 billion 
and $346 billion a year.
    And then, of course, we have some really idiotic and 
counter-productive price signals in the way the reimbursement 
system is going.
    I see those three elements as being kind of core principles 
for solving what I call the operations problems that we have in 
the health care system. And I would like your comment, Senator, 
because you have thought about this a long time and are one of 
our leaders here in the Senate on this issue, about the extent 
to which you would agree that the plan you are discussing here 
is primarily a financing plan and the extent to which you would 
find that to create any conflict with the sort of operational 
level reforms in quality institute, in quality care, in health 
information technology, and in reimbursement reform that I know 
you are also very interested in.
    In a nutshell, do you think those two initiatives can 
proceed in happy concert with each other and in parallel?
    Senator Wyden. I think the Senator has made important 
points. I do see this as considerably more than a financing 
proposal. For example, this is the first proposal that goes 
right to the heart of changing behavior in this country. This 
is the first time anybody has said, under Medicare Part B, let 
us make it attractive for prevention. So we say there would be 
voluntary incentives. If seniors lower their blood pressure, 
lower their cholesterol, they get lower premiums. This has 
brought together conservatives who want to look at health care 
from a behavioral standpoint and folks on the liberal side who 
see this as an important expansion as it relates to benefits.
    So I do see this as considerably more then a financing 
issue.
    I think what the Senator is talking about with respect to 
information technology, and our friend from Michigan has talked 
about, is extraordinarily important. There are two points that 
come to mind.
    One of the areas we touched on last week with Dr. Orszag, 
and the Chairman got into this, is some of the most important 
work in this area, particularly as it relates to information 
technology, prevention, and comparative effectiveness where you 
are kind of looking at one approach versus another in terms of 
treating a patient. Traditionally the Congressional Budget 
Office has not been willing to score as something that will 
save money.
    Everybody in the country, Democrats and Republicans, know 
that it will save money. But the people who are deputized to 
make these official scores have not scored it to date. And that 
is why Lewin, with the important things we did in prevention, 
and we used the Agency for Health Care Quality Research to do 
some of the work the Senator is talking about.
    Lewin, when we had discussions with them, they sort of 
smiled and said those are great ideas, all you people in 
Congress have them, put them in. We are not going to score 
them. We are not going to score that they make any savings, 
even though you and others argue for the fact that prevention 
will surely pay off, as will information technology.
    Now that we have you here in the U.S. Senate to lead us on 
information technology, and we are looking at your very good 
bills, because I think they make a big contribution, we are 
going to want to bring those into this debate, as well. And I 
think your touching on sort of the financing and the operations 
of health care is critically important.
    What we tried to do is to say look, the system today does 
not work. It does not work in the financing area. It does not 
work in prevention. It does not work in information technology. 
We require, and the insurance companies have indicated, they 
would go along with this, that when somebody signs up for a 
plan that an electronic medical record is opened on them at 
that time and people would own their record so we could have 
the portability.
    But there is a lot of heavy lifting to do and we are glad 
you are here to help us in so many of the important areas.
    Senator Whitehouse. Thank you.
    Chairman Conrad. I thank the Senator.
    Senator Allard.
    Let me also indicate the situation we are dealing with 
here. One of our witnesses on the next panel has to leave by 11 
o'clock. So after Senator Allard and Senator Stabenow have had 
their turn we will then call the second panel. and I will ask 
Dr. Milstein to go first to the second panel because he has 
another time constraint, and I apologize to everyone else but 
we have to try to make this work for everyone.
    Senator Allard.
    Senator Allard. Thank you, Mr. Chairman. And thank you for 
holding this hearing. Senator Wyden, thank you for your 
leadership on this very important issue.
    You are working, I guess, with Senator Bennett on this 
proposal. I think that is an appropriate individual to be 
working with. The fact that he has a health care systems in 
Utah that is doing a fabulous job of holding physicians 
accountable, and I will go into that. Maybe you are aware of it 
but I will mention it to you.
    But I have served on the health board at the county level. 
I have served in the State Senate in Colorado, served in the 
U.S. House, served here in the Senate, and been on committees 
in each one of those bodies that talked about health care.
    Obviously preventive medicine is something that helps. Then 
there is things that you can do for holding the programs more 
accountable. Is basically more rules and regulations. But we 
have a fundamental problem with third-party pay. That is the 
patient or whoever pays into the third party, they think they 
paid for health care. And then the insurance company or the 
Government or whoever is paying out to the physician, they do 
not have the time or the effort that individuals should be 
putting out to hold whoever the provider is accountable.
    And they have, with Intermountain Health Care System, where 
they have gone to electronic records. You and I have talked a 
little bit about electronic records and we know how important 
electronic records are as far as a diagnostic tool. But they 
are using electronic records in a way where they are using an 
outcome based evaluation for the doctors.
    So this is a system that has, I do not remember how many 
doctors they have in it, but we will just pick a figure, 
somewhere around 500. And they look at those doctors, for 
example, who are treating diabetes. I am using this 
hypothetically.
    So they will look at some of the doctors. Some of them have 
a better recovery, a quicker recovery rate and maintenance of 
glucose sugar than others, and do not have as many secondary 
complications as others. So then what they do is they look 
well, this doctor here is getting these kind of results and 
this is what is happening in the end. And the other doctors 
getting other results but they are not as favorable as the 
first doctor.
    So then they say well, what is this doctor doing that the 
other ones are not? And since they are all in this group 
together, they have a conference and say look, we have to talk 
about this. There is this discrepancy.
    What they have found in this program, and they have the 
facts to prove it, is they are bringing in the quality of care 
because the doctors, and they graduate from a whole different 
variety of medical institutions, they all have their approach 
to treating diseases. And they are working out, through their 
organization, processes that work best for the State of Utah. 
This is a Utah--it is called Intermountain.
    Dr. Brent Jones of the Intermountain Health Care is the one 
that I got this presentation on. I have heard lots of 
presentations, but this is the one that has hit me as being the 
most effective in holding down health care costs and improving 
the results at the end because it is sort of an outcome based 
measurement of the various strategies that doctors use in a 
practice.
    I just bring that to your attention and just wanted to give 
you an opportunity to maybe comment on it. I am glad you are 
working with Senator Bennett because this is an organization 
that is right in his back door and maybe both of you have been 
visiting with this organization. But they have some good 
things.
    Senator Wyden. I think the person you are talking about, 
Brent James, in particular, he is on our citizens health care 
working group that Senator Hatch and I were involved in getting 
set up. He really has been the gold standard in terms of trying 
to integrate the kinds of services that you have mentioned. We 
are trying to essentially build on it. There are a handful of 
programs like that in this country.
    In my part of the world Kaiser, for example, has tried to 
do much of the same thing that Intermountain has.
    But the Senator is absolutely right, there are some very 
good models that we ought to look to.
    Senator Allard. Thank you, Mr. Chairman.
    Chairman Conrad. I thank the senator.
    Now I will turn to Senator Stabenow. I will just point out 
Senator Stabenow was reminding us all forcefully in the last 
few weeks that this health care issue goes way beyond the 
health care part of our economy and affects the manufacturing 
sector. I remember very well the Senator telling me in this 
country we have about $1,500 of embedded health care cost in 
every automobile. And our competitors, less than $100. That 
confers an enormous economic advantage on our international 
competitors in the automobile industry.
    So Senator Stabenow, who has been such an important part of 
this Committee in dealing with health care issues, glad you are 
here this morning.
    Senator Stabenow. Thank you, Mr. Chairman, for this 
additional hearing that is so critical. And thank you for 
raising what is, in fact, an international competitiveness 
issue for us in terms of keeping jobs in America. As I know 
Senator Wyden knows, as well as being, in my opinion, the No. 1 
quality-of-life issue for all of us.
    I am really pleased, first of all, that we have been 
talking about health IT as it relates to saving dollars, 
comparative quality issues, as Senator Allard raised. There is 
such a wide range of issues that can be addressed through 
health IT.
    I hope that we are going to begin to move on that as a 
piece in conjunction with the broader issue as soon as possible 
because it is going to take time to get that set up. And we are 
now in agreement with the fact that it needs to happen. Now we 
just need to move ahead and help providers be able to put it in 
place so we can use it.
    Senator Wyden, thank you so much for your thoughtfulness 
and your leadership on this issue and so many areas of health 
care.
    Focusing on prevention, I totally agree with you on the 
fact that there is enough money in the system if we were using 
it correctly, more than enough, to be able to address the 
uninsured and bring down costs.
    What I grapple with all of the time, and I would appreciate 
your thoughts on this, and I apologize for having come in late 
to your presentation. But when we talk about an individual 
mandate, I understand the concept of an individual mandate. We 
hear often of an individual mandate that you have to get auto 
insurance or you have to get homeowners insurance. The 
difference is you do not have to have a car, you do not have to 
have a house. That is part of the costs you build it. But we 
are all stuck with our bodies and so it is tough to say we will 
choose not to get sick.
    For me the question is always, I understand the theory of 
more people going into the marketplace. That makes sense to me. 
But what I am concerned about is what happens on the insurance 
end to make sure that people can actually afford to purchase 
that insurance. Because now you have more people in a mandate. 
How do we know, first of all, that it just will not be a 
terribly confusing situation, as has happened with other things 
for people? And how do we know that, in fact, that costs will 
really come down for people in that mandate?
    That is where I get stuck. We say to people you have to 
have it. I understand that we would no longer see cherry 
picking, which is a really important thing. But if you could 
speak on the insurance end, what kind of reforms, what kind of 
consumer protections do you see? For me that is critical in 
getting my arms around this.
    Senator Wyden. The Senator, as usual, makes a very 
important point. Of course, if you do not make--and it is 
really a good one to quit on, Mr. Chairman, because let us talk 
about how it would work in the real world.
    What Senator Bennett and I are trying to do, and I held up 
my private card, is make it look like it works for the Stabenow 
family. What happens to the Stabenow family and the Whitehouse 
family and all of us is you get that information from a variety 
of private insurers during the open enrollment season. They are 
required to offer explanations and to have toll-free lines and 
the kind of thing that allows you to have a place to answer 
questions. For our proposal we use State agencies. We call them 
health help so that there would be, for example, a Midwestern 
health help. You might have just for Michigan or for a handful 
of states in Michigan. They can help walk people through the 
choices.
    The cash out feature is very important because when this 
goes into effect the first thing people are going to say is how 
in the world am I going to do this? So we put the extra money 
in people's pockets so that they are in a position to then have 
the money to make the choices.
    Now we think if we can enforce the insurance reforms, and 
the Senator is absolutely right, this does not work unless you 
reform the insurance sector. I have told insurance companies, 
and we had a visionary insurance leader, a BlueCross leader 
from our area, Mark Gansle [ph], you give and you get. You are 
going to have to give on things you have resisted in the past. 
There is going to be guaranteed issue so people can get 
coverage. You cannot discriminate against people with pre-
existing illnesses. There is going to be loss ratio 
requirements so that what you get in the premium dollar you 
have to pay out. Insurance companies do a lot of gulping when 
you talk about all of the things that you are going to require 
in terms of consumer protection.
    But then you tell them hey look, you are not going to get 
put out of business. Some people think that we ought to just 
had this over to the Government. You are not going to be put 
out of business.
    So the Senator is absolutely right. The linchpin of going 
to something like this for our country is making sure you have 
these private insurance reforms which, if coupled with the tax 
code changes so you do not disproportionately favor the most 
affluent, we can make it work. Those are the two things. Stop 
rewarding the wealthiest among us under the Federal health care 
tax rules and make the private insurance reforms that the 
Senator eloquently has talked about. Then I think you make it 
work for the families we all care about.
    Senator Stabenow. Thank you.
    Chairman Conrad. Thank you, Senator. It is a good place to 
end it.
    Senator Wyden, I want to thank you and Senator Bennett for 
your appearance here today. You have contributed significantly 
to the work of this Committee and certainly beyond the borders 
of this Committee, as well, to the work of the Congress.
    We may have an opportunity because SCHIP is up for 
reauthorization. Maybe we need to think more broadly. That is, 
of course, providing health care coverage to children. We have 
a debate going on right now whether adults should be covered 
under SCHIP.
    I have argued if you are going to cover adults you have to 
call it something else. You cannot call it health care coverage 
for children.
    Maybe we need to lift our horizons here and talk about not 
just additional incentives for covering children. Maybe we need 
to have this broader discussion of how we cover everyone in 
this country and do it now.
    Senator Wyden. Sign me up, Mr. Chairman.
    Chairman Conrad. You have certainly done an enormous amount 
of work and we very much appreciate the energy and the effort 
that you have put into it.
    Thank you, Senator Wyden.
    Senator Wyden. Thank you.
    Chairman Conrad. I now call the second panel. Sara Collins, 
the Assistant Vice President on the Future of Health Insurance 
at the Commonwealth Fund; Len Nichols, Director of Health 
Policy at the New America Foundation; and Arnold Milstein, the 
Medical Director of the Pacific Business Health Group.
    Thank you all for being here.
    We are going to go immediately to your opening statements 
and we are going to start with Dr. Milstein because I know he 
is under a severe time constraint and has another obligation 
that will require him to leave, as I understand it, at about 11 
o'clock.
    First of all, I want to thank all of the witnesses for 
being here. I appreciate it very much. And as we are getting 
set up, I hope we can turn to Dr. Milstein for his testimony 
and then we will proceed with the other witnesses.
    Dr. Milstein, welcome.

 STATEMENT OF ARNOLD MILSTEIN, M.D., MEDICAL DIRECTOR, PACIFIC 
                     BUSINESS HEALTH GROUP

    Dr. Milstein. Thank you, Mr. Chairman.
    My testimony can be reduced to three key points. First, 
health care reforms should initially include a focus on removal 
of the 30 to 40 percent waste in current health care delivery. 
This waste is about equally divided between services of no 
valuable and valuable services that fail to meet low-cost 
benchmarks per unit of service. These inefficiencies were 
described in an Institute of Medicine report published in the 
fall of 2005 along with this estimate of 30 to 40 percent waste 
in current spending.
    This is a critical place for health care reform to focus 
because greater efficiency of health care delivery frees up 
funds to widen health insurance coverage and, equally 
important, enable greater investment in quality of care so we 
can begin to create more distance between our quality rating 
and those of countries like Albania.
    Second, that highest leverage point for eliminating this 
estimated 30 to 40 percent waste is by motivating physicians to 
conserve health care resources and to deliver quality at levels 
already being achieved in their communities by their peers who 
are at benchmark levels of efficiency and quality.
    I did bring along one slide that illustrates, just gives 
you a pictorial image of what happens in any given community 
when one profiles, compares individual doctors on two 
dimensions. The vertical dimension illustrated in this diagram 
is quality of care, rate of compliance with evidence-based 
guidelines. And the horizontal axis is what I refer to as the 
average health insurance fuel burn per episode of care. So it 
is total all-in costs associated with a particular physician's 
care.
    A number of pioneering purchasers, in this case a 
partnership between the machinists union and Boeing, have begun 
to pioneer in generating such comparisons among physicians in a 
community. Each one of these little dots is a doctor in the 
Seattle area.
    In essence, if one models how much could be saved if simply 
every doctor in Seattle practiced at the level of the low-cost 
high-quality benchmark doctors, which is illustrated by the 
northeast quadrant in this distribution, the savings would be 
substantial, on the order of magnitude of 15 percentage points 
in total spending while improving quality.
    The next slide simply summarizes some of the experience of 
a few early purchaser pioneers who have taken advantage of this 
to share with both physicians and consumers differences in 
physician performance within a community associated with both 
resource use and quality. You can see this is a mixed group of 
users. It includes very progressive and forward thinking labor 
unions like the hotel workers union in Nevada, a number of 
health insurers and self-ensured employers like Pitney Bowes. 
As you can see, the early returns on this, when used by single 
payers, is on the order of magnitude of two to 17 points, 
depending on how aggressively the results are used.
    Why physicians? Why focus on physicians? Physicians are the 
highest leverage point on both quality and efficient resource 
use because State laws give them the exclusive authority to 
write orders for medical services that comprise more than 80 
percent of total health insurance spending. And because no one 
influences patient health behaviors more than physicians do.
    The third point is that to adequately apply strength to 
this leverage point Congress should consider authorizing use of 
reports from analysis of the Medicare claims data to help all 
private payers to identify and reward physician excellence more 
accurately. Very few self-insured employers, union-administered 
health benefit plans, or insurers have sufficient density of 
insurance claims data to compare accurately and reward 
physicians on conservative resource use and achieving benchmark 
levels of quality. Most payers simply do not have sufficient 
density of claims data in any given community to do this.
    The Medicare data base is the only health insurance claims 
data base in the U.S. of sufficient size to enable all private 
payers to generate performance measures at the individual 
physician level.
    Senators Gregg and Clinton have proposed to correct this 
problem via the Medicare Quality Enhancement Act at no cost to 
the Federal Government. It is supported by a very wide variety 
of constituents, including AARP and virtually every labor 
organization and large employer that is aware of the 
legislation has signed on in support of it.
    If Congress enacts it, it would potentially enable all 
payers to slow per capita spending growth, improve quality of 
care and--importantly for this hearing--help fund wider health 
insurance coverage.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Milstein follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Conrad. Thank you, Dr. Milstein. Thank you very 
much for that very interesting testimony. I know that we are 
running close to the time that you need to leave.
    So I am going, if I could, just ask the other witnesses to 
withhold for a moment so that I can ask you about the 
legislation that has been introduced by the ranking member of 
the Committee, Senator Gregg, and Senator Clinton.
    Can you give us a sense, does it include quality measures?
    Dr. Milstein. Yes. It essentially enables anyone, any 
citizen, any organization, to order from a small number of 
federally qualified analysts of the Medicare claims data base, 
any report pertaining to quality of care or efficiency of 
resource use. And so it is essentially an opportunity for any--
whether it is Consumers Union or General Motors--to have a full 
set of performance statistics on physicians, on hospital 
departments, on any unit of analysis, as long as the only 
purpose of the request is to generate performance information 
about the health care system.
    Chairman Conrad. Let me ask, do you see any risk in this 
proposal? Is there any downside to this?
    Dr. Milstein. Yes, I do. I feel that in any industry--at 
the beginning of performance measurement in any industry we 
know the additional measures are not going to be exactly right. 
I would reflect back on the early car crash safety ratings. 
They were only based on frontal impact. In retrospect we could 
say gee, it would have been a lot better had we also had side 
impact, three-quarters impact, and rollover testing.
    I think very analogous to that, early uses of insurance 
claims data bases to generate measures of quality and resource 
use efficiency are going to be directionally correct but not 
perfect. And I think that is one of the risks associated with 
moving forward is the resulting measures, I do believe, will be 
directionally correct, as verified by those that have begun to 
use them. But I think they will be imperfect.
    At the margin, for example, some hospital departments or 
some physicians will get a B+ rating when actually they 
deserved an A-.
    Chairman Conrad. And how is quality included? The thing 
that I am struggling to understand is if you are getting data 
from analysts and they have readily available to them cost 
data, quality data less readily available to them, how do we 
ensure that somebody who may be a higher cost doctor who also 
happens to be the best quality doctor, that those two facts do 
not get lost and we only wind up seeing the high cost?
    Dr. Milstein. Will first of all, I think it is a very valid 
concern and one that, as a physician, I share. I think the good 
news side of it is that every single purchaser that did have 
enough claims data density to go forward without access to the 
Medicare claims data has intuitively sensed that it would be 
irresponsible and non-viable to try to go forward with an 
approach to physician or hospital department rating that did 
not include quality as well as resource use.
    Whether one is a steward for a group of employees or a 
group of union members or members of, for example, a State 
Government insurance plan, it is simply in this country no 
longer doable post-managed-care backlash to proceed forward 
with any rating system that does not also include quality of 
care.
    Chairman Conrad. That really is my concern. I withheld 
cosponsoring the bill because of that concern. I think it has 
enormous merit and I am very intrigued by your testimony here 
today. I regret that other business takes you away from us but 
we certainly understand that.
    We will now turn to Mr. Nichols, the Director of Health 
Policy at the New America Foundation. Welcome, Dr. Nichols, 
good to have you here.
    Thanks so much for your patience. Dr. Collins, as wealthy, 
thank you for your patience.

   STATEMENT OF LEN NICHOLS, PH.D., DIRECTOR, HEALTH POLICY 
                PROGRAM, NEW AMERICA FOUNDATION

    Mr. Nichols. Thank you, Mr. Chairman, Senator Wyden, and 
other members of the Committee. I would like to thank for 
inviting me to testify on health system reform today.
    Your invitation asked me to address three specific 
questions, the first of which is how should the Committee 
evaluate health care reform proposals? I would offer two 
criteria for your consideration. First, does the proposal match 
the scale of our problems? And the second, is the proposal 
capable of earning bipartisan support?
    Now your own charge at the beginning of this hearing, Peter 
Orszag last week, I have some charts in my written testimony. 
They all make the point. You all clearly get it. The scale of 
our problems is very large. So I will not belabor that point.
    I will just say to match the scale what I will call a 
major-league proposal worthy of your time must have three 
elements. It must cover everyone. It must have some way to 
reduce cost growth in the long run and increase value. And it 
must offer a credible financing package that can sustain the 
system over time. Any proposal without these three elements, in 
my view, should be labeled minor league and kept at the end of 
your queue.
    If a proposal would not cover everyone, it is not serious 
for it continues to ignore the cost shift and adverse selection 
that messes up our insurance markets. If it does not have a 
credible plan for reducing cost growth, you know what? None of 
us are going to be able to afford health care in the coming 
decades. Third, if the proposal does not have a credible 
financing package, it is not being honest with the American 
people about the costs and benefits of investing in a new 
health care system.
    You all know we have tried dishonesty before. I will simply 
observe it did not work. We can do better than that.
    On the bipartisanship point, the second criterion should 
simply be this, it has to be capable of earning bipartisan 
support. I have heard a lot of that. In fact, I have heard more 
of that this morning than I have heard in 5 years of testifying 
up here. This is a very good Committee. I applaud your work.
    Bipartisan reform means that each side must recognize the 
key elements of their own priorities within the solution. For 
Republicans, in my mind, this means individual choice and 
market forces. For Democrats it means a solution must work for 
all of us, including those who are low income or high health 
risks. And I believe it is sharing these perspectives that is 
what brought Senators Wyden and Bennett to cosponsor the 
Healthy Americans Act. In my judgment, this is the only major-
league proposal that has bipartisan support in the 110th 
Congress at this moment.
    The second question you asked was what are some possible 
options for health care reform? In my view, after many years of 
looking at this, I will say there are only three credible ways 
to cover all Americans: single-payer Medicare for all; employer 
mandates plus individual mandates; or individual mandates 
alone. I will tell you technically, as a health economist, they 
all could work. They all have their pluses and minuses. But 
each approach really does have some weaknesses that are worth 
addressing.
    In my view, the largest weakness of the single-payer 
approach is that the American people do not seem to me to trust 
Government enough to let it take over the health system 
altogether.
    On the employer mandate side, I am really sympathetic to 
Senator Stabenow's problem in Michigan. The fundamental worry I 
have about an employer mandate is international 
competitiveness. Again, I have some charts in my written 
testimony I would be glad to talk about but I think it is 
fundamentally true if this was not a problem employers would 
not be dropping coverage like some are. Employers would not be 
reduced the share of the premium they are paying like many are. 
And employers would not be reducing the generosity of the 
coverage they offer like almost all of them are. This is not 
being shifted. They are bearing some of this cost.
    So that leaves me with individual mandates. To my view, 
they have much to recommend them. First, they are consistent 
with the personal responsibility vision of conservative 
reformers. And they also make insurance markets both more 
efficient and more fair by solving adverse selection problems 
which liberals like on good days.
    The one real fear of individual mandates is precisely the 
one expressed by Senator Stabenow earlier. How can you make 
sure these packages are going to be affordable? And I submit to 
you that is important. That is the most important question. In 
a sense, I would say this is not really a critique of 
individual mandates per se but a broader distrust of the whole 
reform system. And I submit therefore the burden of reassuring 
proof about commitment to affordability and fairness is in the 
details of the legislation. And here I would say the Healthy 
Americans Act does a better job of this than either the State 
of Massachusetts or Governor Schwarzenegger has done so far in 
their proposals.
    So part of why this is true is because the Healthy 
Americans Act can redirect a large and regressive tax 
expenditure money that gives Federal reformers more degrees of 
freedom than any State has on their own.
    The final question the Committee asked, how do we provide 
quality health insurance to more individuals and families, 
decrease the number of uninsured, improve health outcomes and 
contain costs? First, I applaud your ambition. But this is the 
proverbial key question.
    I would offer a two-part overarching answer. The first is 
simple: buy smarter. It gets to the operational details Senator 
Whitehouse talked about.
    The second though may be more important. Think hard about 
whom we are buying for and why we are doing it.
    I would defer to Arnie and Sara to follow on buying 
smarter. They are going to talk about that a lot. I will just 
mention the three elements that have to be there, and I think 
we all already agree: electronic records, better incentives, 
and comparative effectiveness information that is widespread. 
We need them all. We need them tomorrow. And if we start this 
afternoon, we can have them all in 5 years.
    But I want to close by focusing on the last part of my 
answer to this question. For whom are we buying and why? I 
submit to you that there are 10,000 technical questions about 
health reform. We have talked about a lot of them today. You 
are going to talk about all of them a lot of times after this. 
But there is one fundamental question and I think it is a moral 
question that we should ask before we begin to answer any of 
the technical questions. That is who should be allowed to sit 
at our health care table of plenty?
    This is a question about community. What kind of community 
do we think we want to nurture and build and maybe rebuild? The 
older I get, the more gray in my beard, the more convinced I am 
the best descriptions of community we have are the oldest 
descriptions we have. I am talking about the Hebrew prophets 
which, as you know, inspired Jesus and Mohammed as well. A fair 
reading of our Jewish, Christian, and Muslim scripture says 
communities have an obligation to feed the hungry, the widow, 
the orphan, the stranger who would otherwise have starved. 
Preventable starvation was unacceptable in ancient times, even 
for the stranger. Because all humans were believed to be made 
in the image of God and believed to possess the right to 
participate in the life of the community.
    I submit to you health care has become like food, a unique 
gift capable of restoring and sustaining lives that are 
stricken with illnesses which could, after all, be any of us 
anytime because we are all the stranger.
    Now the Institute of Medicine has concluded after 3 years 
of committee meetings, six volumes of published reports, lots 
of footnotes, 18,000 Americans die every year for lack of 
health insurance which prevents them from getting the care that 
rest of us routinely get. These preventable deaths and the 
human suffering and lost productivity of preventable illness 
are a dark stain on our Nation. And the fact that most 
uninsured lack health insurance because of cost, in my view, is 
tantamount to denying food to the poor, the widow, and the 
orphan when Moses, Jesus, and Mohammed taught. I do not think 
they would approve.
    At the same time no community was ever told to share food 
exactly equally, to give all of its food to one person. 
Stewardship of the collective resources of the community was 
always part of leadership. Indeed, when you consider another of 
the Institute of Medicine's findings, that the total social 
cost of the uninsured, including economic loss of premature 
death, unnecessarily prolonged illnesses, et cetera, that total 
social cost of the uninsured is roughly equal to the new public 
cost of covering the uninsured. Which is why, by the way, the 
math of Senator Wyden and Bennett works out.
    You realize that health reform is at least as much about 
stewardship as it is about charity.
    I would also point out that Leviticus, the source of all of 
this, the landowner is not told to cook the food and invite the 
stranger home to dinner. But rather is told to leave the food 
in the field for the stranger to gather themselves.
    Our oldest obligations to each other have always been 
reciprocal. Each community has the right to define the rules of 
participation but it must keep the door open to willing 
passersby. Therefore, requiring people to obtain property 
subsidized coverage and to take personal responsibility for 
their own health is perfectly consistent with this 
interpretation of the timeless moral case. As is expecting the 
leadership of the community, that would be you, to exercise 
stewardship over its collective resources, including the health 
care delivery system.
    This shared responsibility extends to making the system 
more efficient so we can buy health care smarter for all of us.
    Thank you very much.
    [The prepared statement of Mr. Nichols follows:]

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    Chairman Conrad. Thank you, Dr. Nichols, for really 
excellent testimony. I think you have framed the issues in a 
very clear and compelling way.
    Dr. Collins, welcome. Dr. Collins is with the Commonwealth 
Fund, has a very good reputation and as somebody who is 
thoughtful on health care issues. Welcome, and please proceed.

STATEMENT OF SARA R. COLLINS, PH.D., ASSISTANT VICE PRESIDENT, 
  PROGRAM ON THE FUTURE OF HEALTH INSURANCE, THE COMMONWEALTH 
                              FUND

    Ms. Collins. Thank you, Mr. Chairman, ranking member Gregg, 
and members of the Committee, for this invitation to testify on 
health care reform.
    The U.S. health system performs poorly relative to other 
industrialized Nations on health outcomes, quality, access, 
efficiency and equity.
    In addition, where you live in the United States matters 
greatly in terms of access to care, the quality of care and the 
opportunity to lead a healthy life. A major culprit in the 
inconsistent performance of the Nation's health system is that 
we fail to provide health insurance to nearly 45 million people 
and inadequately insure an additional 16 million more. 
Universal coverage is essential to placing the system on a path 
to high performance but the way in which a universal coverage 
system is designed will matter greatly in terms of whether the 
health system is ultimately able to make sustainable and 
systematic improvements on key performance measures.
    The Commonwealth Fund Commission on a High Performance 
Health System's National Scorecard on U.S. Health System 
Performance found the United States ranks 15th out of 19 
countries on mortality from conditions that are amenable to 
health care. That is, deaths that could have been prevented 
with timely and effective care. The U.S. ranks in last place on 
infant mortality.
    Not having stable adequate coverage limits access to care. 
Out of five industrialized countries, the U.S. has the highest 
share of adults reporting that they have cost-related problems 
accessing health care.
    Our health insurance system is complex, inefficient and 
administratively costly. In 2003 spending on health and 
insurance administration commanded 7.3 percent of national 
health spending compared with 5.6 percent in Germany and around 
2 percent in France, Finland, and Japan.
    There are wide differences across States in access, 
quality, and cost. The Commission on High Performance Health 
System's State Scorecard on Health System Performance finds 
that across States there is nearly a threefold variation in the 
percent of adults who are uninsured, ranging from a low of 11 
percent in Minnesota to a high of 30 percent in taxes. The 
proportion of uninsured children ranges from 5 percent in 
Vermont to 20 percent in Texas.
    Across States higher rates of insurance are closely 
associated with better quality of care. States with higher 
medical costs tend to have higher rates of potentially 
preventable hospital use, including high rates of Medicare 
readmissions within 30 days of discharge.
    It is critical that the entire population be brought into 
the health care system in a way that ensures timely access to 
care across the full length of people's lives. Uninsured and 
underinsured patients and the doctors who care for them are far 
from able to obtain the right care at the right time and in the 
right setting.
    Quality and effectiveness measurement will not be 
meaningful unless measures reflect the experience of a fully 
and continuously insured population and the work of their 
providers.
    The design of universal coverage will matter in terms of 
our ability to achieve high performance. Key questions that the 
public and policymakers might consider in evaluating health 
reform proposals include whether proposals improve access to 
care; whether they have the potential to lower cost growth and 
improve efficiency in the health system; whether they will 
improve equity; and whether they will have the potential to 
improve the quality of care on a system-wide basis.
    In terms of approaches to universal coverage, many recent 
proposals, both at the Federal and State levels, would build on 
the current system by connecting public and private insurance 
to ensure more coherent and continuous coverage over a person's 
life span.
    A framework for such an approach would create a new group 
insurance option similar to the Federal Employees Health 
Benefits Program with income related premium subsidies, 
expansion of Medicaid and the State Children's Health Insurance 
Program, and expansions of Medicare. It would include 
requirements that employers offer coverage or pay into a fund, 
and requirements that individuals obtain coverage.
    An alternate framework might include a more substantial 
role for Medicare. All uninsured people, people with non-group 
coverage, and most Medicaid beneficiaries would enroll in 
Medicare under this framework. Employers could either continue 
to offer and pay coverage or pay part of their employees' 
Medicare premiums. Individuals could not opt out of the system. 
The program would subsidize both premiums and cost-sharing for 
lower income families.
    Some key components of universal health reform proposals 
that will help move the system to high performance include the 
following: insurers should be required to compete on providing 
added value to the health system in greater quality and 
efficiency rather than on segmenting or excluding poor health 
risks.
    Private insurers and public programs should negotiate with 
providers to create fair payment rates for health services and 
pharmaceuticals.
    Patient and provider incentives should be aligned to 
encourage use of all effective services and avoid use of 
ineffective services.
    All patients and providers should be part of an organized 
care system that is accessible and accountable for patient 
outcomes in preventive care and care coordination.
    The Nation should invest in fully interoperable national 
health information technology system.
    Thank you.
    [The prepared statement of Ms. Collins follows:]

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    Chairman Conrad. Thank you very much.
    Let me go to the question of comparative effectiveness. 
Very striking in your testimony, Dr. Collins, is the wide 
difference we see across regional lines in the country.
    Dr. Nichols, you mentioned comparative effectiveness along 
with electronic records and changing incentives. How do you see 
comparative effectiveness being employed? One of the things, I 
think it is pretty clear we have a common agreement that 
comparative effectiveness has to be part of the solution. In 
fact, in our budget we have a reserve fund for comparative 
effectiveness.
    Dr. Nichols, how would you employ it?
    Mr. Nichols. You know, Mr. Chairman, I think that is the 
question. I would offer the following example: let us start 
with something concrete, what we do now at the FDA. Right now 
to get a drug approved a company has to show that the drug is 
safe and effective, say it does not have untoward side effects, 
and beats a placebo. With all due respect, prayer beats a 
placebo.
    So maybe we should think a little bit about raising the 
bar. What if you said you have to show against existing 
treatments and for which subpopulation?
    Now that will take longer so you have to give them the 
right incentive. You have to give them a longer period of 
exclusivity.
    But the fundamental point, show us at the point of decision 
about whether to go forward with widespread marketing, that it 
beats existing treatment options and for whom.
    Then you take that information. And what I would do, sir, 
is put the information in the public domain. That is why the 
creature that makes the information has to be, in my view, a 
combination public/private partnership. The research has to be 
done in academic medical centers so we believe that. And the 
funding has to come from the Government because we are the ones 
producing the public good of the information.
    Chairman Conrad. Let me direct you to--just interrupt you 
for a moment if I could. Dr. Milstein came here supporting 
specific legislation. Have you looked at the Gregg-Clinton 
proposal?
    Mr. Nichols. I think it is a step forward. I think it is a 
very good idea to allow analysis of the data inside the 
Medicare program. I am, frankly, not committed to the notion 
that the individual physician is the right unit. I think, as 
Arnie talked about, there is difficulties with numbers of 
patients of different kinds so that, as he put it, the density 
of a patient population. It may be better and smarter to 
aggregate over groups. There may be different ways to do it.
    But as a way forward, using the data we have now, is 
certainly a good way to, in a sense, create rough rank order of 
who is doing extremely well.
    I think the example that Senator Allard talked about of 
Intermountain Health Care in Utah, Senator Wyden implied Kaiser 
in Oregon, Geisinger in Pennsylvania, Mayo in Minnesota, Henry 
Ford in Michigan. A lot of folks are doing this right.
    But what we do not have, and that is the next step, we do 
not have a powerful system of driving the incentives through 
the system to make everyone do what other people know is 
working.
    Chairman Conrad. Exactly.
    Mr. Nichols. And that is where I would submit Medicare can 
play a major role in buying smarter by linking payment to 
outcomes. What if we said, if you are one of those docs 
managing the diabetics better, you get more money? Hey, what a 
concept. I suspect we will get--so you take this information, 
you put it in the combination public and private buyers we have 
now, and they work together to drive the incentives. That is 
the best way to go forward, rather than having one-size-fits-
all.
    Chairman Conrad. Ms. Collins, on the same question, 
comparative effectiveness, how can that best be employed?
    Ms. Collins. I think it is very important, in terms of just 
from the benefit perspective too, to think of how we were 
structuring benefits. So once we have done the difficult work 
of looking at what is comparatively more effective, that our 
benefit designs steer people in the direction of using higher 
quality, higher valued services.
    Right now we do not have that very much in our benefit 
structures. People are directed toward overusing ineffective 
services and underusing services that could be very effective. 
So the benefit design is a very important piece of thinking 
about comparative effectiveness.
    Chairman Conrad. And who should have the responsibility for 
that benefit design and using comparative effectiveness 
measures? Where should that responsibility lie?
    Dr. Nichols was talking about in the context of FDA. I am 
wondering about with respect to individual doctors making 
judgments about what treatment they are going to use for 
specific illnesses. The thing that has never been clear to me 
is how do we translate this data down to that individual doctor 
and incentivize them to use the best practices?
    Mr. Nichols. It comes back to what I think Senator 
Whitehouse was getting at, and that is we have to have a system 
of information, an infrastructure if you will, so that not only 
do you have an electronic record of the individual patient, but 
each clinician/patient encounter should have access to the best 
practice information that the Intermountains, et cetera, 
developed. So that when presented with here is this patient, 
this problem, here are my choices, here is the one that seems 
to work best for this kind of patient.
    This decision support tool dimension of the electronic 
information infrastructure may be as important. That is how you 
are going to get the savings from the RAND study, is getting 
that information out there to the clinician/patient encounter. 
And also then paying them more when they do well and, perchance 
paying them less when they do not do as well.
    Chairman Conrad. Thank you very much.
    Senator Whitehouse.
    Senator Whitehouse. Thank you.
    Boy, there are so many things I would like to pick up on 
but I think the first one is I would like to emphasize what you 
said about the potential hazards of taking comparative 
effectiveness analysis and trying to drill down to individual 
doctors.
    That concept just scares me to death, because I am so 
concerned that by the time you have drilled down to that 
individual doctor and you have figured out that the reason Dr. 
Whitehouse is showing lower costs is because he knows that he 
is not very good at this stuff and he is referring all of his 
tough cases to Dr. Nichols, who is really the local expert in 
this matter. As a result, in the community known to be the 
local expert, as a result gets the toughest cases, as a result 
has bad outcomes. By the time have gone down into their patient 
records and teased out that data, you have such a regulatory 
load that this system now has to carry, and particularly run 
through private insurers is so gameable that it will make, I 
think, our present claims processing nightmare look like a walk 
in the park.
    So I am really interested in trying to figure out ways to--
it is finally important that we do this. I just think drilling 
down that far with our present level of capacity is really 
problematic.
    My thought at this point would be to do it more regionally 
and hold basically regions and States accountable for their 
performance and pay more in certain areas than others. It is a 
little bit rough justice. But that really then incents the 
local community to sort out its own affairs and to do the kind 
of internal work that is necessary.
    My sense, I will ask you to react to this after I make this 
last point, my sense is that we are so primitive at this point 
in developing comparative effectiveness and in having the 
institutions in place to really work this issue, that we are 
far better off as a country if we push some of this down to the 
more local level where people have existing relationships, 
where they trust each other, where they see each other in the 
market on Sundays, and where you can kind of let 1,000 flowers 
bloom, let the laboratories of democracy do their thing, and 
take more advantage of the innovation that can develop at that 
level.
    So there is a series of different thoughts but I would like 
you comment back to me on them.
    Mr. Nichols. All of them are good. I would say 
unambiguously, we are not going to be successful in translating 
incentives to a medical marketplace unless the physicians 
behavior is indeed reflected in both what they get paid and the 
outcomes over which they have control. So this notion of--that 
is why I am worried about the individual physician thing, as 
well.
    However, I would say it would still be useful to know which 
of these physicians are better. But maybe you do not want to 
make it public and maybe you do not want to tie payment to that 
specifically. But you want to go and say you know what? You are 
an outlier. What is the deal? What do they do at Intermountain? 
They go down the hall and talk to them. It is exactly the kind 
of local community conversation you are talking about.
    So one idea would be to say OK look, here is a referral 
network, you know Commonwealth has done a lot on high 
performance networks. Here is a de facto referral network, let 
us just say in Providence. Let them choose themselves to join 
this group over which we hold that group accountable. Then they 
are referring to each other and then they really have a stake 
in it and, I would submit, a control over it. And we are much 
more likely to get physician buy-in.
    The worst thing we could do, in my view, is to rush 
headlong into this area and turn the physicians against us. I 
have much scar tissue from 1992 and 1993. We are not going to 
reform the health care system if the physicians become our 
enemy. Just a thought.
    Senator Whitehouse. A related thought is that if you are 
focusing on extracting out of this information that we have the 
best practices that actually exist out there and then setting 
them up as the model for everybody to work toward, rather than 
setting up a definitional thing of who is good and who is not 
good, you get the same place. It is far less gameable. And 
there are ways within the existing administrative apparatus of 
Government, particularly State Government, where you could have 
meetings in a sensible way of figuring out what those best 
evidence practices really should be.
    Mr. Nichols. That is extremely important, and I would 
submit that is the only real solution in the long run. We are 
going to get where we want to be when every physician wants to 
be as good as that best practice outcome. And they are going to 
want to do that if we both show it to them. They need to know--
there is too much information, they cannot possibly process it 
all. And second, to have incentives so they do not get screwed 
financially by pursuing the right strategy.
    And that is why we need both of those things. Absolutely. 
No question about it.
    Senator Whitehouse. I appreciate your testimony.
    Chairman Conrad. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman.
    Just to continue on the whole discussion on comparative 
effectiveness for a moment. First of all, there are terrific 
software packages out there now. And it would be interesting, 
Mr. Chairman, I think to show some to the Committee as it 
relates to these issues. Because there is already software out 
there. There is already efforts going on on comparative 
effectiveness. That would it be, I think, very interesting for 
us to take a look at.
    But to take a step back in what you were saying in terms of 
physicians, we find a situation where we have either been 
freezing or proposed cuts in Medicare reimbursements for 
physicians. Then we say to them we want you to go out and buy 
this hardware and this software and be able to spend all this 
money. And by the way, you will get the least savings in the 
system. The big savings goes to the Federal Government and the 
hospital systems.
    In Michigan, where we are actually, I think, one of the 
States really moving along aggressively in health IT, they find 
that it is most difficult to get the physician to come on 
board. The hospital system sets up out health IT but it is the 
cost and et cetera.
    So that is one of the reasons Senator Snowe and I have been 
proposing that we do some simple things like accelerated 
depreciation on costs for physicians to be able to get 
equipment, payments that are not only a higher payment for 
quality but a higher payment for use of technology, so that we 
are rewarding what we need. Because we are never going to be 
able to compare anything until we get these folks on electronic 
records and get a common system.
    So I keep going back to how do we get this started so that 
we are rewarding every provider? Medicare could easily be 
rewarding providers that are using these systems and then go to 
comparative analysis after we get them on board.
    So I hope that we are going to be able to move this, to be 
able to do some things in that area.
    A different kind of question. I want to go back and 
actually ask Dr. Nichols, you to visit something you went over 
very quickly. I want to be the devil's advocate here today, as 
we are all talking about individual mandates.
    You talked about three different approaches. I would agree 
with you on the employer mandate personally. I do not believe 
that is the way to go. Individual mandates, possibly, depending 
on how we do that.
    But you skipped over the first one, Medicare for all. I 
would like you just to go back and revisit. When you say the 
public would not accept that, my mother I think would wrestle 
me to the ground if I tried to take her Medicare card away. The 
truth is it is the only universal system we have. Politically 
it may not be viable to go to that approach. But from a 
substantive standpoint it has choice, you get basic coverage. 
If you want to add doctor visits or home health coverage you 
sign up for Part B, you pay more. You want prescription drug 
coverage, sign up for Part D, you pay more. It is 2 percent 
administrative costs, much less than the 15 percent to 20 
percent in the private sector.
    I guess I would just like you--I am not so sure it is the 
public that would not accept it. I think politically, because 
of all of the interests, it would be difficult to pass. But the 
public, I think, thinks Medicare works pretty while.
    So I wonder if you might just speak a little bit more 
substantively to Medicare.
    Mr. Nichols. I think it is an excellent point. I would say 
I am basing my observation about the public on the speaking 
that I do around the country. I am very lucky, I get to talk 
over the country. I would say between Philadelphia and San 
Francisco people are nervous about having one-size-fits-all for 
them. They think Medicare works great for mom, and they are 
looking forward to getting there. That is correct. It is a safe 
thing and it works. It is the most popular program probably our 
country has ever had.
    But that does not mean they are willing to accept a 
Government control over what their choices are compared to 
their----
    Senator Stabenow. I would just stop you there.
    Mr. Nichols. So they are worried about it. That is all I am 
saying. I would submit the bill that is in, I believe, the 
House now, I believe it is Representative Stark's. It is 
basically Medicare as it for all, which allows the private 
plans to compete. I think that is the way to go if we are going 
to go that way. I think that would preserve the choice.
    Go back to what is our fundamental problem, Senator? I 
would submit is a lack of information, which leads to a lack of 
trust. The reason we had the backlash against managed care was 
not that some managed care plans were not outstanding in 
quality, some in your State you know. But they could not 
convince the people that they were better. And they thought 
employers were forcing them into them and they did not trust 
them. And some of them, of course, did behave badly. No 
question about that. But the point is they did not have 
information to convince them of high quality. So choice became 
a proxy, a protection, a safety valve. And that is why I think 
choice is so important.
    So if you had choice in the Medicare for all, then I think 
that would be something that would be more talkable.
    But I would also submit, and Peter Orszag's testimony last 
week made it clear again, over time the rate of cost growth in 
the Medicare program basically is the same rate of cost growth 
as the private sector. It has done no better and no worse.
    Now this is no shock to people like Sara who understand the 
system. It is all one system, of course this is true. But the 
point is we have not done better at buying, as a very 
concentrated single buyer, then the private sector did as well. 
Why is that? I submit the reason--you come with me to Senate 
Finance and I will show you the reason. It is because basically 
the Medicare program, which is an insurance program for our 
most vulnerable people, is also unfortunately in real life an 
income support program for mediocre providers.
    Democracy will not let us be as demanding as we would like 
to be.
    So I think the cost control potential and the concern about 
choice is real. What I believe, Senator, is that if we set up a 
system where we had one big marketplace and there was a lot of 
competition for it, then that system could work in lots of 
different ways. It could evolve in lots of different ways. We 
share the same goal.
    Senator Stabenow. Just a final comment, Mr. Chairman, and 
that is in asking that question I was assuming that there would 
be that private choice in Medicare. Going back to my mother, 
she is actually in an HMO and loves it. That is not what I was 
assuming.
    But I would also say, just as an editorial comment, that we 
also, in the Medicare prescription drug piece, I believe, have 
higher rates because negotiation is prohibited.
    But nonetheless, I would just say before we dismiss--I mean 
I understand all the realities of going with the third choice 
you looked at. But I do think it is just important to speak 
about the fact that we do have a system that provides choice, 
that adds on based on paying more depending on the services you 
want, that has worked well for the people that it covers.
    Chairman Conrad. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. And I am sorry I 
did not get to hear all of the comments from the two witnesses 
because both of them are as good as it gets in American health 
care policymaking. We would not have had a Healthy Americans 
Act if it had not been for Len Nichols and we are very, very 
appreciative of that and look forward to having your counsel.
    Ms. Collins, you and Karen Davis have been doing good work 
in this field since I have been involved in it and I really 
appreciate your contribution, as well.
    I wanted to ask a question that has had me baffled for a 
couple of months and see if you can walk me through it.
    You all did, back in April, an analysis of the various 
reform proposals. And we were very flattered that you called 
the Healthy Americans Act one of the leading proposals.
    There was one chart that I wanted to ask you about. 
Essentially I and Senator Edwards and Senator Stark, all of us 
seek to cover all of the uninsured, the 48 million. And you put 
the Stark proposal at covering 47.8 million and our proposal at 
covering 45.3 million. So we will want to work with you on that 
analysis. But that is not my question.
    My question is on the chart it says that the Stark proposal 
will cost the Government $154.5 billion. And then you said that 
our proposal would cost the Federal Government $24.3 billion. 
So you look at that chart, and I need you to just walk me 
through it. You scratch your head and you say by this chart it 
would cost $130 billion difference between the Stark cost and 
our costs to cover the I guess 2 million people that you have 
calculated was the difference.
    Congressman Stark has done a lot of good work on health 
care over the years and we have worked with him and I want to 
sort this out.
    But can you tell me what that chart really is all about? 
Because I do not think--I do not think he intended that. And I 
want to sort it out because it is a remarkable difference in 
cost between the two proposals, the Stark Medicare for all 
approach and the Healthy Americans Act.
    Ms. Collins. I think those are really good points and 
actually the Lewin Group modeled both proposals, so using a 
similar model, a similar set of assumptions.
    But the major difference in terms of the Federal costs are 
the fact that you have more financing sources in your proposal. 
Because of the wage cash out, there is some newly taxable 
income, so it increases the revenues that can support the 
program.
    In the case of the Stark provision, households can have a 
major savings in premium, employers also realize major savings. 
So if there were a financing component that was stronger in the 
Stark proposal, that size of the Federal Government's share 
would probably go down.
    In terms of the overall savings, we tend to really focus on 
the Federal costs on these proposals. The overall health system 
savings are also a very important component of evaluating all 
the proposals, and these two proposals in particular. Both 
proposals have a very significant risk pooling mechanism. The 
Stark proposal, in terms of Medicare for all, and then Senator 
Wyden, your proposal in terms of these large regional 
purchasing cooperatives. This is very important in terms of 
achieving overall savings.
    Administrative savings are huge in the United States. And 
pulling everybody into large risk pools is very important in 
terms of gaining control of health care costs. But that is the 
major difference.
    Senator Wyden. That is a very thoughtful answer and the 
pooling question goes to the point Senator Stabenow made as 
well, with respect to consumers and their having bargaining 
power and the ability to get a fair shake is something that 
clearly would be changed.
    Nothing, in my view, works unless you have the kind of 
private insurance reform Senator Stabenow is talking about, the 
kind of pooling that you are talking about, Dr. Collins. And we 
would like to work some more with you on the underlying numbers 
that went into this because as soon as I saw that I said to 
myself I know my Chairman, who has been so kind to work with me 
on these years, is going to look at these charts in great 
detail and I am going to have better answers than I have.
    But you and Dr. Davis had done great work for a lot of 
years. And to Len Nichols, I have thanked him before. All of 
those two a.m. e-mails kept us going when we were trying to put 
together the Healthy Americans Act and we would not have a 
bipartisan bill without you, Dr. Nichols.
    Thank you, Mr. Chairman.
    Chairman Conrad. I am going to do an usual thing here but I 
would like to ask Senator Wyden question. That goes to the 
question of pooling.
    I have been intrigued with the German system, maybe because 
in part I am a little German. And at the heart of their system, 
as I understand it, and maybe the two witnesses know something 
about these foreign and international systems, as well. They 
take advantage of large pooling in employer groups.
    In the Healthy Americans Act how do you get to the large 
pools? How is there a translation from the cashing out feature 
in which the employer provides to the employee the cost of 
their current policy so that the individual can go out and buy 
an equivalent policy? How do they make that leap to get into a 
large purchasing pool which will give them leverage?
    Senator Wyden. We create, Mr. Chairman, a statewide pool. 
And we also make it possible for there to be a regional pool. 
So that, for example, my sense would be the first thing that 
would happen on the East Coast of the United States is you 
would probably have a New York, New Jersey, and Connecticut 
pool. They might call it eastern states regional purchasing 
organization. So essentially all the money is collected through 
the Federal tax system and pooled. You could have, for example, 
a Dakota health help agency, North Dakota and South Dakota 
going in to pool the dollars. The key, of course, is to have, 
as you have suggested and the Germans do, a big enough group of 
people so as to spread cost and risk.
    And then you get to the point that Dr. Nichols has been 
making, is that you also can make markets considerably more 
efficient in that kind of way because you do not have the 
problem that we have seen of late, some pretty affluent people 
who just do not buy coverage.
    Chairman Conrad. Let me say that I am very concerned about 
State-focused pools. Perhaps it is because I come from a State 
with a modest population. But I think we all know to really get 
the leverage advantage you have to be part of a large pool. We 
just do not have the population, in North and South Dakota. We 
combine the two States we have 1.4 million people.
    I think it is going to take, and that is what I am 
intrigued about the regional opportunity. This is a 
conversation for a more extended session at some point. But 
that is very intriguing to me, how we get people to have the 
advantage of being part of a large pool.
    Senator Wyden. If I could just offer one other thought, Mr. 
Chairman, I think you have your hands on it. You do not make 
the pool work unless they are big enough. So if the Dakotas 
decide they want to go in and bring in several other States--we 
found in New York and New Jersey----
    Chairman Conrad. We might even consider going in with 
Montana.
    Senator Wyden. Montana--I will leave that to you and 
Senator Dorgan and all the other good folks from the region.
    I was struck, as I talked to people in New York, is people 
said well, I work in New York, I live in New Jersey, my kid is 
in school in Connecticut. Clearly you are going to need to have 
some capacity to do what we are all talking about. I very much 
want to put this in the context Senator Stabenow is talking 
about.
    Because if you are going to start something like this, 
people are going to need to know how is it going to work right 
at the outset. Because first impressions are everything. We 
thought that the idea of coming up with a win for the workers 
and the employers right at the outset was something, as you 
said Mr. Chairman, we have laid out in the basic structure. But 
there are scores of details that would have to be addressed 
before you could go forward and.
    Chairman Conrad. Let me just say, I think at future 
hearings for the Committee we might want to have a panel that 
would look at the various options, single-payer, employer 
mandate, individual mandate. I think that would be a very 
useful panel.
    I think it would also be very useful for us to have a 
future look that would include electronic records, changing the 
incentives, and comparative effectiveness, that that would be a 
very useful--and I would like to work with Senator Wyden, 
Senator Stabenow and Senator Whitehouse, who I have deputized 
be a subcommittee of the Budget Committee, to work on who might 
be good witnesses for those various hearings and how we might 
proceed to hold hearings on those issues.
    We have been joined by very valuable member, Senator Nelson 
of Florida. Welcome, Senator Nelson. Please proceed.
    Senator Nelson. Let me ask the good Senator from Oregon, in 
your proposal how do you take the employer mandates--no, let me 
rephrase the question.
    How do you take the existing system of employer-sponsored 
insurance and how do you transition those people into the large 
pools?
    Senator Wyden. The Senator, of course, has asked the big 
question. We come at it this way. Essentially we got into this 
predicament after World War II. We had a situation where there 
were wage and price controls. We had all of these wonderful 
troops coming home. And there was no way to get them benefits. 
Essentially, it all got pushed back on the employer. It was 
factored into the cost of goods and services and we could 
pretty much handle it at that point. We were not faced with a 
global economy.
    Today what you have is those employers in Florida are 
competing against people in India and Asia and all over the 
world, and you cannot spot your competition 15 or 20 points the 
day you open your doors. The premiums go up 13 percent a year 
in Florida and your foreign competition has socialized 
medicine. You cannot be competitive.
    So the big idea in this legislation is to cut the link 
between health insurance and employment. And the way we do it 
is through a transition period. So that if you have a business 
in Florida that say pays the worker $40,000 in salary and 
$12,000 in health care benefits. at the outset the business 
pays the worker $52,000 in compensation. We adjust the workers 
tax brackets so they do not experience a hit for the additional 
compensation. And then we reform the private market so that 
that person, with the additional money, can go out into a 
private market where the health insurance companies cannot 
cherry pick and cannot discriminate against you if you have had 
an illness and the like. And the Senator, because he was an 
insurance commissioner, knows how widespread that problem is.
    But we tried to come up with a transition so that the 
worker wins and the employer wins at the outset. And we were 
able to get Andy Stern, the head of the Service Employees 
Union, and Steve Burd, the head of the Safeway Company, to 
essentially be our bookends for labor and business, saying if 
you make the transaction this way, labor and business, it is 
looking for a win for workers and employers will say let us 
give it a shot.
    Senator Nelson. And then the employee, the insured, would 
then take that money that otherwise his employer, and he would 
go out and he would purchase from these large pools. And 
therefore you could purchase it cheaper because you would 
spread the risk over quite a few number of people instead of 
just the risk of the population of the employment.
    Now how do you guarantee that, in fact, the insured, the 
employee, will go out and buy it become the insured?
    Senator Wyden. Florida, of course, is in the enviable 
position that the Dakotas and Oregon, that we are not because 
you will have a lot of people for purposes of pooling, and 
certainly a number of major insurers will find that market 
attractive.
    What we said in this legislation is all right, we are not 
going to put people in jail if they do not buy the coverage. 
That is what happens if you do not buy auto insurance, we put 
you in jail. We have not going to do that. So we set up a 
regime of essentially financial penalties so that if the person 
did not buy the health coverage they would get nicked with a 
financial penalty. If they eventually go the hospital emergency 
room, which is usually what happens, they get signed up at that 
point. So there are various points through State services where 
you would sign them up, a way to have a default sign up 
arrangement so that if we learn you are not covered.
    And then employers will be involved in signing people up as 
well. So the idea is to have as many different checkpoints that 
are practical, not intrusive but practical, to get people 
signed up, recognizing that now in America you have to buy auto 
insurance and certainly some people do not do it.
    Senator Nelson. And under your concept who regulates the 
product that is offered to the consumers?
    Senator Wyden. Still regulated by the States. We do not 
upend McCarron-Ferguson and the process of current State 
insurance regulation. We do make those changes that Senator 
Stabenow spoke eloquently about to make sure it is a different 
product.
    I think the Senator knows this is an area I feel very 
strongly about. I think probably the thing I am proudest of in 
my time in the Congress is having written the Medigap law, 
which I think the Senator remembers back before we had that, 
you would have seniors with a whole shoebox full of insurance 
policies. Most of them were not worth the paper they were 
written on. We got that Medigap law through, working with the 
National Association of Insurance Commissioners.
    So we have to get this insurance reform piece right and we 
ought to keep it with the States.
    Senator Nelson. In the case where you would pool several 
States, then you have some amalgam that between the insurance 
commissioners of those States they would regulate the product?
    Senator Wyden. That is correct. It would almost be--I think 
from a legal standpoint we were advised by the Congressional 
Research Service to not call it a compact. And Len me know 
something about it. But it works the same way. You could have, 
and this will be especially important for States like Oregon 
and the Dakotas and Rhode Island, not so important for Florida, 
California and Texas, but we have to have the opportunity to 
create a big enough pool.
    Senator Nelson. Did you ever think about going to pools 
beyond States, so that you get millions of people in the pool?
    Senator Wyden. That, of course, means that you are going to 
have the debate as to whether it is going to be a single-payer 
or a system that involves a less expansive role for Government. 
We felt that creating the kinds of pools that we envision, 
particularly with regional kinds of pools, got it large enough.
    But this would be something that would surely be debated 
and my sense is that people who are for some version of single-
payer or another, Medicare for all or some other version, would 
clearly want to say all right, if we cannot have one pool, let 
us have two pools. And we should have that debate.
    I think that the feeling of myself and Senator Bennett is 
you got to have something which gives you a big enough pool for 
bargaining power and still you are able to structure enough 
private choices so as to have some competition in the 
marketplace.
    Senator Nelson. Mr. Chairman, I will just say in closing 
that Senator Wyden has corrected one of the deficiencies that 
is often missed around here. For example, there was a U.S. 
Chamber of Commerce highly intensely lobbied effort to take the 
same concept of pools.
    In this case it was more like a trade association, for 
example realtors. You cannot afford it if you are a single 
realtor. But if you could bank all of the realtors together, 
then you could spread the health risk over that much larger 
group.
    But the fatal flaw in it was that they had no regulator. 
With the result that were that version to become law, you would 
go right back into what we have. You would have the advantage 
of a larger group but then the insurance companies would start 
cherry picking as the group got older and older and sicker and 
sicker. And there is no regulator looking over their shoulder.
    There was, and I do not remember who it was filed by, 
another version that did allow the State regulators to get 
involved. And I would have people coming up here just begging 
me to cosponsor this legislation. I would sit down and explain 
to them the bottom-line result is going to be exactly the 
opposite of what you want. What you are trying to do is get 
relief on the high premiums that you are paying. But if you 
take the regulator out of the mix then inevitably the premiums 
is going to go up and the coverage is going to go down.
    Chairman Conrad. The Senator is entirely correct. I had the 
same thing. I had many people from my State, some of my closest 
friends, come to me and urge me to support that legislation. 
When I showed them what it would intersect with our State law 
and would have created a system of cherry picking, if you would 
have had an outlier, if you had somebody in your group that was 
unhealthy, that person would be excluded from coverage and you 
would have had a system of insurance for the healthy, not for 
those who had a medical condition.
    Unfortunately that would have been--would not have 
accomplished what the whole purpose was.
    Let me just say and ask Senator Wyden in closing, we have a 
vote that is about to occur on the floor and we will have to 
shut down the hearing.
    There is no restriction, as I understand it, in this 
legislation as to how many States might decide to pool 
together?
    Senator Wyden. That is correct. And I think you, Mr. 
Chairman, and Senator Nelson raise very important points. We 
need to have that debate and clearly the pools have to be big 
enough to make a real difference. There is no restriction on 
the number of States that could pool or how many States could 
go in together.
    Depending on the size of the pool, we would have the debate 
that Senator Nelson's question really triggers is at some point 
I guess if you say all the States can join in one pool, 
everybody says that is the single-payer model and then you bump 
up against a different set of political challenges.
    Chairman Conrad. And I do not think that would be--I do not 
think that is what would happen. I do not think you would have 
a situation where all of the States would go together. I think 
what you would have is you would have these regional pools and 
maybe would have more than a regional pool. Maybe you would go 
outside of your region for diversity sake, in terms of reducing 
risk to the pool.
    I think that would be very healthy to have different pools 
because then you could look at the experience of the different 
pools and see what best practices result in savings and in 
improved health care outcomes.
    Senator Wyden. And there are some visionary people in the 
insurance industry who I think would be willing to accept it. 
Normally you would think that they would automatically want to 
have the smallest possible group so as to not have some clout. 
But I think a lot of them are coming around to exactly the kind 
of thing you are talking about.
    Chairman Conrad. Let me know thank the witnesses. We 
appreciate very much your contribution to the work of the 
Committee. I thank all of my colleagues who have participated 
today.
    We are going to continue this series of health care 
hearings because we understand the critical importance of 
making progress.
    Thanks to all who have participated today.
    [Whereupon, at 11:51 a.m., the Committee was adjourned.]


  HEALTH CARE AND THE BUDGET: OPTIONS FOR ACHIEVING UNIVERSAL HEALTH 
                                COVERAGE

                              ----------                              


                      TUESDAY, SEPTEMBER 11, 2007

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
SD-608, Dirksen Senate Office Building, Hon. Kent Conrad, 
Chairman of the Committee, presiding.
    Present: Senators Conrad, Wyden, Stabenow, Cardin, Sanders, 
Whitehouse, Gregg, Allard, and Graham.
    Staff present: Mary Naylor, Majority Staff Director; and 
Scott Gudes, Staff Director for the Majority.

              OPENING STATEMENT OF CHAIRMAN CONRAD

    Chairman Conrad. The hearing will come to order.
    I would like to welcome everyone to the Budget Committee 
this morning as we discuss options for achieving universal 
health care coverage.
    I would like to particularly welcome our witnesses today: 
Dr. Henry Aaron, Senior Fellow at the Brookings Institution; 
Dr. Sherry Glied, Department Chair and Professor of Health 
Policy and Management at Columbia University's School of Public 
Health; and Janet Trautwein, the Executive Vice President and 
CEO of the National Association of Health Underwriters.
    Welcome to all of you. The Committee is very appreciative 
of your helping us with the work of the Congress.
    This is our fifth hearing this year specifically on health 
care and its impact on the budget. The fact is that rising 
health care costs, even more so than the coming retirement of 
the baby boom generation, represent the most significant threat 
to our Nation's long-term fiscal security. Solutions should not 
be put off. The sooner we act, the better.
    Part of the solution, I think we have a growing consensus, 
is that we need to have universal health coverage. Instead of 
getting needed preventative care, too many of the uninsured are 
ending up in the emergency room and I think all of us 
understand that is the most expensive place to extend treatment 
to them.
    Moving toward a universal system would make it easier to 
coordinate patient care and adopt new health care information 
technology and best practices. Our health care system is simply 
not as efficient as it should be. The United States is spending 
far more on health expenditures as a percent of GDP than any 
other country in the Organization for Economic Cooperation and 
Development. Those are the leading economies in the world.
    For example, the United States spent 15.3 percent of GDP on 
health expenditures in 2005, compared to 7.5 percent in a 
country like Ireland.

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    We are spending even more than that, of course, today. I 
think the latest estimates are we are at 16 percent of gross 
domestic product. That is between one of every $6 and one of 
every $7 in this economy is going toward health care, far more 
than anyone else.
    Despite this additional health care spending, health 
outcomes in the United States are no better than health 
outcomes in the other OECD countries. And the number of 
uninsured continues to grow.

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    In fact, the number of uninsured increased by 22 million 
people in 2006 to 47 million Americans without health 
insurance. The number of uninsured children increased by 
600,000 in 2006 to 8.7 million children without health care 
insurance.

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    We need to remember that the budget problem we face stems 
from the underlying rise of health care. Here is a quote from 
the GAO, the Comptroller General of the United States, David 
Walker, making exactly that point.

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    He said, and I quote ``Federal health spending trends 
should not be viewed in isolation from the health care system 
as a whole... rather, in order to address the long-term fiscal 
challenge, it will be necessary to find approaches that deal 
with health care cost growth in the overall health care 
system.'' Moving toward universal health care coverage should 
be part of that solution.
    Here is what the former Treasury Secretary, Bob Rubin, and 
the Hamilton Project Director, Jason Furman, wrote this summer: 
``The problems of uninsurance and expensive or ineffective care 
are interrelated... it is impossible to address fully the 
problems of affordability and effectiveness without covering 
everyone. Much of the health care the uninsured do get is 
costly and inefficient with the cost passed on to others. 
Insuring everyone would not just eliminate these uncompensated 
cost shifts, it would also enable the health system to function 
better by expanding risk pooling and reducing the fragmentation 
of financing.''

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    We could build a far more efficient and cost effective 
system if we could cover those now uninsured.
    There are really three basic options for choosing universal 
coverage.

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    First, we could adopt a single-payer system, which some 
refer to as Medicare for all. Second, we could have an employer 
mandate. Or we could have a mandate on every American to have 
health care insurance. Those are basically the three options. 
Or we could have some hybrid approach. We could mix and match 
to achieve the goal of covering everyone.
    But the reality that we confront is that whatever option is 
chosen must have bipartisan support. These problems are too big 
to be tackled by one party alone.
    Former Treasury Secretary John Snow made this point earlier 
this year. He was quoted in the Wall Street Journal as saying 
''You cannot do health care reform or Social Security reform... 
without a bipartisan consensus... if we have made a mistake, it 
was not approaching it in a more bipartisan way.``

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    I think Secretary Snow got it right. I think it does 
require a bipartisan approach. And the sooner we get down to it 
the better.
    With that, I want to turn to the ranking member, Senator 
Gregg, and once again thank him for his courtesy as we have 
organized this hearing and ask him for his comments.

           OPENING STATEMENT OF RANKING MEMBER GREGG

    Senator Gregg. Thank you, Mr. Chairman.
    I thank you for holding this hearing. I want to start where 
you stopped, which is that--actually start where you started 
and where you stopped, which is that A, health care is driving 
the out-year problems which we face as a society from a fiscal 
standpoint. And also, it's going to be driving our social 
issues to a large degree because of the aging of the 
population. And it has to be addressed. And B, it can only be 
addressed in a bipartisan way.
    Sitting at the dais today I see Senator Wyden, who has put 
forward a bipartisan bill in this area, which I am a cosponsor 
of and which I congratulate him for.
    However, prior to getting into the Wyden initiative, which 
I am sure he will spend some time on anyway, I want to just 
address the issue of the first of your three options for 
resolving this, which is a proposal to go to universal health 
care under a nationalized system. The Kennedy bill, which is 
called Medicare for all, is the leading example of that. But of 
course, Senator Clinton has proposed this, Senator Obama has 
proposed this, Senator Edwards has proposed this. All of the 
national candidates in the Democratic party running for 
president have proposed a nationalization of our health care 
system, having a national delivery system which is controlled 
by the government.

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    The arguments for this are that it delivers better health 
care, that is obviously gives everyone access to health care, 
and that it costs less. All three of these arguments are wrong. 
And in addition, the proposal of nationalizing the system as an 
approach to making sure that everybody gets coverage and having 
the government run it leads to some other very clear 
significant problems.
    The first, of course, is that it creates rationing. You do 
not have to go too far to see this. We see it, for example, in 
Canada, where you have a waiting time that has doubled since 
they went to a national system, since 1993. That is not since 
they went to their national system, that is since 1993. In 
Britain, you have waiting times for cancer and cardiac tests 
which are 25 weeks.

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    There is no question but that when you go to a nationalized 
system you end up with a system that basically rations health 
care. You are basically putting everybody into what amounts to 
a national HMO. And the way HMOs succeed is by limiting health 
care delivery in most context.
    In addition, you reduce innovation. It is estimated that if 
US adopted Canada's national health care system national 
research and development funding would be reduced by nearly 25 
percent, or $77 billion. And nearly one-half of the drugs 
approved by the FDA would not be available in a national 
formulary as cost control measures--if a national formulary was 
used for cost control measures. You are basically limiting A, 
the availability of drugs, and B, the development of new drugs, 
things which may cure people, make them better, by going to a 
nationalized system.
    Again, you can look at our neighbors in Canada and our 
friends across the sea in Britain to see that that is 
absolutely the case. That is why new drugs are being developed 
here and not in those nations, to a large degree.
    And third, taxes go up a lot. The Chairman makes the point 
that we spend more per capita as a percent of gross national 
product on health care than any other country in the world. 
This is true. But if you look at the tax costs which countries 
bear as result of going to a nationalized system, you see that 
their tax burden on the taxpayers of those countries goes up 
dramatically.
    Let us look at Canada, for example. Since they have gone to 
a nationalized single payer system, their tax burden has jumped 
significantly and almost the vast majority of that is health 
care costs.
    Let us look at the EU and Canada compared to the United 
States tax burden. Again, the EU and Canada have dramatically 
high tax burdens as a percentage of gross national product. And 
almost all of that reflects health care costs. Remember, in the 
U.S. health care cost, we at least have a fairly significant 
effort in the area of national defense in our tax burden. 
Canada and the EU do not have that type of national defense 
commitment in their numbers. So the vast majority of those 
dollars that are being taxed in those systems are to pay for 
single-payer nationalized systems universal health care.
    The effect of these higher tax systems, what is that? Not 
only does it mean that people end up paying more of their 
earnings to the government for a less efficient health care 
system which delivers a lower quality, rationing, and less 
research, but it also means that productivity in those 
countries is not as high because they have a higher tax burden, 
and the next chart reflects that. The United States' 
productivity far exceeds Canada and the EU.

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    I would argue, and I think many economists would argue, 
that that is in large part a direct function of the tax burden 
of those countries, which is a direct function of having 
nationalized their health care system.
    In addition, you do not have to believe me on this point. 
Just look at the number that Senator Kennedy's plan proposes, 
and that is the next chart. Medicare for all, Senator Kennedy 
openly proposes a dramatic increase in HI tax and Social 
Security tax, 57 percent higher under that plan, in order to 
pay for it. That is a burden that would be put on the American 
taxpayer.
    So even though we may spend more on health care in our 
society today, moving to a single-payer nationalized system is 
actually going to cause us to spend a great deal more in the 
area of tax burden and probably create a less efficient system.
    You do not have to listen to me about this less efficient 
system. I would quote my colleague, the Chairman of this 
Committee's comrade, Dorgan, from North Dakota because he 
described what presently exists as the one national health care 
system that we have in this country which is truly a 
nationalized system, and that is the Indian health care system. 
That is a nationalized system.
    Quoting Senator Dorgan on the floor just a few weeks ago he 
says--he said, of the Indian health care system, which is 
nationalized system, ``You can't ration health care. Yet, that 
is what is happening. We have a trust responsibility and yet 
health care is being rationed with respect to Native 
Americans.''
    Why is that? Because they have a nationalized system, a 
Federal system, which is rationally their health care. Quoting 
a Indian Hospital CEO, ``In the Native American population, we 
are effectively using a system of rationing to be able to 
provide care for those that we serve.''
    That is what happens when you go to a nationalized system. 
The Indian health care system is the best example of what is 
going to happen to the American system if we go to a system of 
call it Medicare for all or call it universal health care under 
a nationalization system. It does not work.
    The better approach is the approach suggested by the 
Senator from Washington, which is to create an atmosphere where 
everybody has the wherewithal to go out and purchase health 
care and we use the private markets to do that and we make sure 
that everybody does that. There are a lot of different 
variables for accomplishing that, and I have some reservations 
about Senator Wyden's proposal, but conceptually, using the 
private marketplace is a much better way to proceed, in my 
opinion, and it avoids the rationing, the reduction in 
research, and the massive increase in taxation which would 
occur if we went to universal system under nationalization.
    Thank you, Mr. Chairman.
    Chairman Conrad. Thank you, Senator Gregg.
    And I do not take this to mean--as I hear you saying it, 
you are arguing against a nationalized system, you are not 
arguing against universal coverage.
    Senator Gregg. No, in fact the bill which I have 
cosponsored with Senator Wyden is a universal coverage. It just 
uses the private market to drive down costs and make it more 
competitive and create more incentive for productivity and 
research.
    Chairman Conrad. I appreciate that and I know that that is 
the Senator's position. But somebody just casually listening, I 
think, might have come to the conclusion that you do not want 
universal coverage. That is not your point. Your point is very 
clear that you do not want to see a nationalized system as a 
way----
    Senator Gregg. I think we have a problem in the language 
that is being used because basically the proposal by the 
Clinton Administration, led by the then-First Lady, which 
merged the concept of universal health care with 
nationalization. So we have to figure out how we use better 
language here. But there are ways to get everybody covered 
without nationalizing the system, is our point.
    Chairman Conrad. Good point.
    I am going to go in a little bit different direction than 
we have previously at hearings and ask those members who are 
here already if they would like to avail themselves of a 3-
minute opening statement to do so, because let me just say we 
have some of the most active members on this Committee here 
today on the issue of health care, none more active than 
Senator Wyden of Oregon, who has put forward a very thoughtful, 
carefully considered plan, which I think has enormous merit. We 
can question some of the details. That is not really the point 
of it.
    The point is Senator Wyden has stepped out there with a 
specific plan that I believe, in overall structure, probably 
has the best chance of advancing.
    Senator Wyden, would like to take a few minutes for opening 
statements?

               OPENING STATEMENT OF SENATOR WYDEN

    Senator Wyden. I thank you, Mr. Chairman, for your 
thoughtfulness and it has generally not been the rule to have 
opening statements here and I will keep this brief.
    I think that essentially 13 years after the last effort, 
the Clinton plan, we come to an interesting confluence of 
opportunities. I think it is clear now that Democrats have been 
right in saying to fix American health care you have to get 
everybody covered. Because if you do not recover everybody, 
people who are uninsured shift their bills to people who are 
insured. So I think you start with that proposition.
    Republicans have been correct in saying we do not think you 
ought to turn it all over to government. It should not be just 
one kind of government system. I think that is what Senator 
Gregg was alluding to.
    So if you start with that as the basic proposition, then 
you move to some of the tough calls that are going to have to 
be made. I think Democrats have to accept the fact that every 
economist who has come before the Committee says that the tax 
code disproportionately favors the wealthy on health care and 
rewards inefficiency. Every economist has said that.
    Republicans and, to their credit, our sponsors for the 
bill, have said that if you are going to have the delivery 
system in the private sector, you are going to have to have 
tough oversight in terms of insurance practices. So you cannot 
have cherry picking, just take healthy people and send sick 
people over to government programs more fragile than they are.
    The Lewin Group has analyzed our proposal. It is the first 
bipartisan proposal in the Senate in 15 years for universal 
coverage, with Senator Bennett, Senator Gregg, Senator Bill 
Nelson, Senator Lamar Alexander, and myself. And obviously we 
want to do what Chairman Conrad has been talking about, which 
is use it as a starting point. This is not the last word in a 
piece of legislation. This is an effort to begin the debate.
    We have a wonderful panel, all of whom I read your articles 
regularly. Dr. Aaron, really one of my heroes in the field. 
Probably the only area I have a difference of opinion with Dr. 
Aaron on is this question of having to spend a lot of money to 
get started. I think you know that the Lewin Group has analyzed 
our proposal. They believe that it is possible to get to 
universal coverage without significant expense in terms of the 
short-term and there would be savings over a 10-year period.
    I think it really comes down to, as Senator Gregg touched 
on, a question of language. And that is one of the things I am 
going to be interested in exploring with you, Dr. Aaron, is why 
you see something like this requiring a significant amount of 
additional money at the outset. I know that there are issues 
with respect to demand that you would have in a new program, 
questions of technology and the like.
    We have a wonderful panel. Mr. Chairman, I think you for 
your thoughtfulness to be able to have this opening statement, 
and for your kind comments.
    Chairman Conrad. Thank you, Senator Wyden, for all the 
effort you have put into this subject.
    I will also call on Senator Allard. Senator Allard, who has 
announced he will not be seeking reelection, so will be 
retiring at the end of this term, has been a very valuable 
contributor to the work of this Committee and I want to thank 
them for all of the time and effort he has put into the work of 
the Budget Committee.
    Senator Allard.

              OPENING STATEMENT OF SENATOR ALLARD

    Senator Allard. Thank you, Mr. Chairman.
    I just want to make a few brief comments, I do not have 
anything prepared.
    I have dealt, in the State legislature of Colorado when I 
served there, we dealt with the uninsured. And we have 
continued to deal with it here in the Congress.
    One of the things that I have noticed is that the 
percentage of people who are uninsured remain static. The 
number of people that are underinsured increases because you 
have more people. In runs around 15 or 16 percent. It is a 
straight line over all those years.
    I think that the 15 percent or 16 percent, a lot of it has 
to do with mobility issues. They are--employees, for example, 
are going from one employer to another. And so they hit a 
period of time when they are not insured. It is young people, 
who are just entering the work place for the first time and 
have not really settled in about what it is they need, they 
kind of feel an invulnerability.
    I think those are the two groups that really drive a large 
percentage. It is a fixed rate. And I think mobility is one of 
the things that we have to work on in covering. I do not think 
we want a government-run health care system because I think we 
want basically a patient-driven one. And I think the patient 
has to participate in the costs to a certain degree.
    I can think of several corporations in Colorado who decided 
they were going to cover all of health care costs of their 
employees. And when I was in the State legislature they had to 
discontinue those policies because they were abused. And so you 
need some participation from the patient in the cost of that so 
that you make responsible decisions.
    I do think that we need to drive this so that more people 
are insured. And I look forward to working with Senator Gregg 
and the Senator from Oregon, Senator Wyden, on this issue. I 
serve on the Health Committee here.
    But I do think those are important things that need to be 
addressed and I think we can deal with that percentage with 
just some real thoughtfulness about how we are going to get 
people on the roll in a way that is not going to bankrupt his 
country.
    If we go to a nationalized government-driven health care, 
the costs are horrendous. And then you have a lot of problems 
with spending, as far as the budget is concerned.
    So I think if you really are serious about resolving this 
issue with the cost of health care and everything, we have to 
have a patient-driven system that ties the patient and the 
doctor closer together on the decisionmaking process, having 
the patient take some participation in the cost, and to deal 
with the mobility issues.
    Thank you, Mr. Chairman.
    Chairman Conrad. Thank you, Senator Allard. Thank you very 
much for your contribution to the work of this Committee.
    Senator Whitehouse, would you like to make a brief opening 
statement?

            OPENING STATEMENT OF SENATOR WHITEHOUSE

    Senator Whitehouse. I would be delighted to and I am very 
pleased, Mr. Chairman, that you have given all of us the 
opportunity to do this.
    As the newest member of this Committee, I come to it with 
considerable regard for the work that has been done before I 
got here, but also with some fairly firmly held observations 
that I have made during the course of my professional career.
    The overarching observation that I have made is that our 
health care system, as an administrative system, is a disaster. 
It is a broken system. In terms of its plumbing, it is bad 
plumbing. In terms of its wiring, it has been wiring. In terms 
of the incentive that it creates, it creates unhelpful 
incentives. And it is very important, because it is 
government's role to set the conditions for proper market 
conduct. And we have not done that yet.
    So I think it is very important for us to be having this 
discussion.
    I would suggest to the ranking member, my senior Senator, 
the Senator from New Hampshire, Senator Gregg, that for the 
average business or for the average family what you have to pay 
for health care is probably more important to you than who you 
have to pay it to. There may very well be circumstances in 
which by the government taking over at least certain parts of 
the system or mitigate it more closely or making higher demands 
of it, even in circumstances in which in order to do so you may 
have to raise taxes a bit, enormous savings in the overall 
operation of the system can result. That is a concept that I 
think is an important one to keep in mind as we address this 
problem.
    I think some of the areas in which the market conditions 
are failing most dramatically involve the areas where 
improvement of the quality of the care that is delivered in the 
health care system and lowering the cost of health care system 
actually occupy the same space. Over and over again we have 
seen issues where in intensive care units you can reduce 
infections dramatically and lower the cost and save lives.
    And yet it does not get done anywhere near to the optimal 
level, I think, because of the way the system is set up to 
reimburse and encourage conduct. In fact, you put people in the 
situation where doing the right thing causes them economic 
punishment. And that is just a dumb way for the government to 
set up a system to operate.
    The other area that I am very concerned about is the wild 
under-investment we have in health information technology. You 
can look at a couple of ways. You can look at it like the 
highway system. I do not think everybody begrudges Federal 
Government spending in the highway system. It is a common good, 
and it saves enormous money to our economy by having people be 
able to truck goods here and there and to be able to go and 
visit grandma in Illinois. We do not worry too much about that.
    And yet, when you talk about building an information 
highway that would carry health information technology so that 
we could have more efficiency of the system, people run from 
that idea as if it is communist socialist medicine. It just is 
not. It is just good sense.
    And there, I think, are multiple ways to solve the problem. 
We cannot just walk away from that problem.
    Ultimately, I think it is a problem of system design and I 
think we are on a fool's errand if we believe that market 
failures can be cured by the market. The market failure is 
itself a sign that the system does not allow the market to 
operate in the ordinary course. So to sit back and say well, we 
have this market failure. But if we just wait long enough 
eventually the market will correct it, I think is hopeless 
folly.
    I think there may very well be very areas of care where the 
security and the manageability that is provided by government 
oversight or management of sections of the health care system 
is merited. And I think there are also areas in which it is 
important for the innovation and choice that people expect out 
of a health care system to also be permitted.
    So I think as we go into this discussion, it is important 
that we leave our options open and think about what the best 
way is to result with a system design that makes sense, rather 
than start from an ideological proposition that if it is going 
to raise taxes it is bad, even if it saves money overall, or to 
start from the proposition if the government manages any part 
of the health care system, that is such a bad thing we cannot 
even discuss it.
    Thank you very much. Thank you, Mr. Chairman.
    Chairman Conrad. Senator Sanders, we have departed from our 
usual custom here and allowed a 3-minute opening statement. If 
you would like to avail yourself of that, you would be welcome.
    Senator Sanders. Reluctant as I am to publicly speak, I 
will take advantage.
    [Laughter.]
    Senator Gregg. I was assuming, Senator, that I had given 
your opening statement for you.
    [Laughter.]
    Senator Sanders. But you did not have the charts.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you very much and let me pick up on 
Senator Whitehouse's point. Of course, I only heard half of his 
remarks, but we will see.
    Senator Whitehouse. The good half.
    Senator Sanders. The good half.
    The simple truth is it is appropriate that the Budget 
Committee deal with health care. Why? Because we are spending 
an enormous amount of money.
    Now some people say well, the real problem is Medicare and 
Medicaid. Boy, that is a lot of money. Gee, the American people 
love spending money on BlueCross BlueShield, General 
Connecticut, all the private insurance. That is not a problem. 
But Medicare and Medicaid and government spending, boy, that is 
just awful. And obviously that is just nonsense.
    Nobody that I know worries about whether it is BlueCross 
out of their own pocket. They are spending money on health 
care. And the issue that we have to deal with as a Nation are 
two fundamental issues. As a Nation, should we guarantee health 
care to every man, woman, and child as a right of citizenship? 
Simple question.
    Some people say no. If you have the money in this country, 
you have a big house, you have a big car, you have good health 
care. If you do not have the money, tough luck. That is a point 
of view some people hold. I disagree.
    I think that health care, just like education, should be a 
right, r-i-g-h-t, of all of our people. In my State, most of 
the people agree with that. I think nationally, in fact, most 
people agree with that.
    Then obviously, the second question is if you are going to 
provide health care to every man, woman, and child what is the 
most cost-effective way to do that? The answer is the system 
that we have is not only a system that is disintegrating, it is 
enormously wasteful, it is enormously bureaucratic. We have 
today 47 million Americans who have zero out the insurance, 
even more who are underinsured. And yet we spend twice as much 
per capita on health care as do the people of any other major 
country on earth.
    Why is that? Well, among other reasons, over 30 percent of 
the money we spend on health care does not go to doctors. We 
have a doctor shortage. It does not go to nurses. It does not 
go to dentists. We have shortages of dentists and nurses. It 
goes to bureaucracy, administration, billing, advertising, all 
of the things we do not need.
    So in my view, and I know this is a radical idea in the 
U.S. Senate, I think we should move toward a national health 
care program. I think we should guarantee health care to all 
people. I think it should be a publicly funded system. I think 
it would be infinitely more cost-effective than the wasteful 
and bureaucratic systems we have right now.
    I just, the other day, introduced legislation with John 
Tierney in the House which is pretty conservative. And that is 
why we are looking forward Judd Gregg's support for this 
legislation. It is very conservative.
    What it says is, not to go forward right now because 
politically we cannot do it with Bush in the White House and so 
forth. But to go forward and have 10 States promise, if they 
are making a commitment to do universal health care--not 
single-payer, what I would like, universal health care--we will 
provide the waivers that they need. We will provide the 
financial support that they need. We will use States as a 
laboratory. And States will go forward.
    And we will learn from each State's mistakes and strengths. 
And then perhaps we can develop a national program. I hope that 
some States will go forward with a single-payer model, which I 
think will show that universal health care can be done cost-
effectively. But we will learn from each strengths, positive 
and negative results, and then we can forward as a Nation.
    So let me again congratulate the Chairman because it is 
totally appropriate for the Budget Committee to be dealing with 
health care. This system is broken. We need to move in a new 
direction. And thank you very much, Mr. Chairman.
    Chairman Conrad. I thank the Senator. And I again thank the 
witnesses.
    We will start with Dr. Aaron, Senior Fellow at the 
Brookings Institution, and I think widely admired on both sides 
of the aisle here in the U.S. Senate.
    Dr. Aaron, welcome.

STATEMENT OF HENRY J. AARON, PH.D., BRUCE AND VIRGINIA MacLAURY 
   FELLOW, ECONOMIC STUDIES PROGRAM, THE BROOKINGS INSTITUTE

    Mr. Aaron. Thank you very much. I appreciate the invitation 
to testify this morning, and I ask for my statement be part of 
the record.
    Chairman Conrad. Without objection.
    Mr. Aaron. Yesterday, when I finished writing that, I 
started by saying that I thought there were three coequal 
health care problems: cost, quality of care, and taxes. This 
morning I am inclined to lament that, having just come from a 
physician's appointment, which took no more than 15 to 20 
minutes, at the end of which I signed a credit card payment of 
$920. So our cost weights a little more heavily on my----
    Chairman Conrad. And you are looking very healthy this 
morning, as well.
    Mr. Aaron. That raises an important point. We are willing 
to pay if we get good value for money.
    In my statement, I argued that there are, as you well know, 
alternative ways that have been proposed to advance universal 
coverage and reform the health care financing system, variously 
conservative, liberal, and incrementalist, some relying on the 
tax system, some involving additional reform of the insurance 
system, some involving a single-payer approach of one stripe or 
another.
    The critical point, I think, to keep in mind is that any 
one to these approaches, well designed, implemented in a non-
ideological matter, is capable of achieving significant 
improvements over our current system. Any one of the three, 
implemented in an ideologically narrow-minded manner and 
ineffectively, could do very serious damage to both cost and 
access to care.
    So I think the thing to do is to try to get by the 
ideological differences among the various approaches and focus 
on the nuts and bolts of how a particular approach is done.
    One point has been made that I would like to reemphasize, a 
point that was made during the initial statements. We sometimes 
focus on the budgetary problems posed over the long run by 
Medicare and by Medicaid. The point was made that it is 
impossible effectively to deal with those problems in isolation 
from systemwide reform. The same hospitals, the same doctors 
care for Medicare and Medicaid patients and for those who are 
insured privately. For simple psychological and professional 
reasons, they render approximately the same care to different 
patients.
    If we are to reform this health care system, we have to 
attack it whole and not piecemeal.
    Having agreed with some of the points made, I would like to 
raise some questions about some of the others that were made 
during the opening statements. Former Senator Moynihan used to 
say that everybody is entitled to his own opinions, but not to 
his own facts. The statement has been made that government 
health insurance is horrendously expensive. We have abundant 
evidence around the world that that statement is false.
    The fact of the matter is that the very systems that spend, 
among the 10 richest OECD countries other than United States, 
on average half as much per capita as the United States does, 
all have systems that are far more government run than our own. 
They spend less. There are consequences from those lower 
expenditures, no question about that. But the idea that 
government-run health insurance is necessarily a budgetary 
catastrophe is simply untrue.
    It is not even true in a narrower sense. The United States' 
tax burden in support of government health care spending is 
nearly as great as that of any other developed nation in the 
world. There are a couple of countries where the government 
costs are slightly higher than those of the United States but 
they are lower also in many other countries. The very fact that 
we support nearly enough of health care spending through public 
budgets and we spend, on average, twice as much as the 10 next 
richest countries in the OECD do means that our public burden 
approximates that of the government-run systems elsewhere.
    So there are high taxes in Europe, no question about it, 
much higher than are tolerated currently here in the United 
States. Health care spending by the government is not the 
reason.
    One other point I would like to make is that the emphasis 
on universal coverage that everybody has been making here 
today, I think is altogether correct but for a different reason 
than many people emphasize. The simple fact is we are never 
going to be able effectively to control the growth of health 
care spending until we have essentially universal coverage. Why 
is that? The reason is that inevitably cost control is going to 
mean saying no for some kinds of services. It is going to mean 
cutting back on expenditures in some fashion.
    If some people are uninsured, providers will honor the 
demands of the strong payers, the well insured. The fact of the 
matter is that today the uninsured consume a lot of health 
care. And for that reason, the fact that there are a great many 
uninsured is not the catastrophe that it might be because they 
do have access to a great deal of health care.
    Try to impose significant cost controls in a system where 
some are uninsured and you will discover that the lack of 
health insurance takes on a whole new meaning and not one that 
I think any of us would wish to contemplate.
    Finally, I would like to draw on the theme that Senator 
Sanders made at the end and that I think Senator Feingold would 
make if he were here today, rather than with the rest of the 
world down listening to General Petraeus, or asking him 
questions.
    That is that there is a great deal of energy currently 
apparent around these United States at the State level trying, 
at the State level, to do much of what we are talking about 
here this morning. That is extend coverage, hold down costs, 
and improve health care quality. There is a great deal that the 
Federal Government could do to make it easier for States to 
move ahead with these reforms.
    As Senator Sanders said, I think it is wise for us to 
encourage those efforts, whatever our long-term goals for 
Nation action may be, because we have a lot to learn. The State 
of Massachusetts is now on the ground solving a host of 
problems that nobody anticipated when Governor Romney and a 
Democratic legislature enacted the Massachusetts plan. They are 
working together as of this moment, and let us hope that they 
continue to do so.
    If that effort succeeds, the prospects of national health 
care reform will be greatly enhanced because we will have 
learned many things that work, solve many problems that arise, 
and push the whole cause forward significantly.
    Finally, let me respond in advance to Senator Wyden. I do 
not think it is going to take a great deal more money but it is 
going to take some if we are going to achieve national 
coverage. I am aware of the Lewin and Associates estimate of 
your plan. I respect them as an organization. And I do not 
believe these particular estimates. Why?
    Years ago my colleague, Charles Schulz, suggested that 
there is kind of political Hippocratic oath: do not be seen to 
do any obvious harm. I believe that motivation will operate 
powerfully when you come to markup. You are going to have to 
take care of various groups who fear that they would be injured 
by your proposal and who would line up against it unless they 
are provided significant assurances.
    In the end I believe political bodies such as the U.S. 
Congress will honor a significant number of those requests and 
you will end up spending some additional money at the outset.
    But I come back to the point I made earlier: spending that 
money is the ante into an environment in which real cost 
control becomes feasible for the first time as it is not 
feasible today in the current U.S. health care system.
    [The prepared statement of Mr. Aaron follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Conrad. Thank you, Dr. Aaron.
    Now we will turn to Dr. Sherry Glied, the Department Chair and 
Professor of Health Policy and Management at Columbia 
University School of Public Health. Welcome.

 STATEMENT OF SHERRY A. GLIED, Ph.D., DEPARTMENT CHAIR, HEALTH 
     POLICY AND MANAGEMENT, PROFESSOR OF HEALTH POLICY AND 
     MANAGEMENT, MAILMAN SCHOOL OF PUBLIC HEALTH, COLUMBIA 
                           UNIVERSITY

    Ms. Glied. Thank you. Thank you, Chairman Conrad, Ranking 
Member Senator Gregg, members of the Committee, for this 
opportunity to testify.
    You have copies of my testimony, so I am going to focus my 
remarks today on the three strategies that you have put 
forward.
    Let me start with Medicare for all, because it is most 
familiar.
    Medicare has three important virtues that come about 
because it is a single-payer style plan. Everyone would be 
insured through the same financing, which means that we would 
pool healthier and sicker people together. Medicare could drive 
hard bargains with providers. That is the bane of our health 
care system today. We just pay very high prices for everything. 
And finally, coverage under Medicare is nearly automatically. 
Those are very important virtues.
    But Medicare also some serious flaws, and I am going to 
talk about some that are a little different than have been 
mentioned here already today.
    The Medicare benefit package was designed in 1964. We 
should all be very grateful to the Congressmen and Senators who 
did the heavy lifting at that time. But they were legislators 
and not fortune tellers. Health care has changed and the state 
of art of benefit design has changed a lot since Medicare was 
passed. Medicare has not kept up.
    For example, health plans today never separate inpatient 
hospitalization insurance from physician insurance. But that 
was typical when Medicare was passed and Medicare still has it.
    Plans today typically do not include a mental health 
benefit with a 50 percent co-pay. But Medicare was designed in 
an era of Freudian psychoanalysis, not Prozac. So we have a 
plan that is somewhat outdated even in its design.
    Another problem with universal Medicare would be the 
enormous size of the program. This huge program would create 
tremendously powerful incentives for providers and we know that 
providers will organize their practices around those 
incentives. That would be fine. It would even be desirable if 
we knew how to design perfect payment incentives. But we do 
not. So in humility, we should design a system that is not so 
monolithic where we can make mistakes and make changes over 
time.
    Moreover, the response to the strong incentives created by 
this single payment system will generate a system that is 
committed to the preservation of the status quo. Provider and 
beneficiary resistance to change is the reason that Medicare 
itself has not evolved much over 40 years. We need a system 
that will continue to transform itself as medical care 
transforms itself.
    So what about an employer mandate? I have grave misgivings 
about extending the reach of employer coverage through a 
mandate. For full-time middle income workers employed in medium 
and large firms, job-based coverage in the United States is 
great. That group, with their families, constitute about half 
of all Americans under 65.
    But that great system breaks down when you try to stretch 
it to cover people who do not naturally belong to it such as 
part-time workers, people who change jobs frequently, low-wage 
workers, workers in small firms. It just does not make any 
sense to force this group to get their coverage through their 
jobs. And if employers cannot play, an employer mandate becomes 
nothing more than a disguised payroll tax on low-wage workers 
who work for small firms.
    The third option under consideration is an individual 
mandate combined with a fair subsidy program. I really 
emphasize that because I think going forward with an individual 
mandate that is not combined with an appropriate subsidy would 
not be a reform. It would simply be cruelty.
    An individual mandate can be a useful tool but I think it 
is sometimes seen as a sort of panacea that will solve all of 
our problems with a wave of the wand. Many of the people who 
would be affected by a mandate do not now have a natural place 
in which to buy coverage. They do not have a place to bargain 
with providers, they are on their own, or to pool risks.
    This problem can be addressed by creating new purchasing 
pools but there will always be a tendency to allow those pools 
to compete with one another or to allow participation in the 
pools to be voluntary, to allow people to decide whether they 
want to be the pools or to stick with their employer coverage. 
If that happens, the pools will fall apart and the system 
itself will deteriorate. We have seen it happen before. Indeed, 
even existing employer group coverage could evaporate in that 
environment.
    An individual mandate also faces enormous administrative 
challenges. Enforcing the mandate on people who spend three or 
4 months uninsured, which is a very typical pattern as I think 
you have pointed out, would be very difficult, much moreso here 
than say in the Netherlands or Switzerland where they have 
individual mandates but in an atmosphere of far less labor 
mobility, with a much higher base rate of health insurance 
coverage, and much more intrusive kind of state.
    In my view, the best designs for health care reform 
actually combine elements of all three of these options, 
although I think, as Henry Aaron pointed out, that any one of 
these could be an improvement over the present mess.
    At the same time I have some bad news, I think. None of 
these solutions, no possible combination of them that you might 
come up with or that any of us could come up with, will 
actually solve the health care problem once and for all. When 
you look around the world at legislators in countries that have 
had universal health insurance for 100 years, you see them 
holding hearings just like this one here today.
    Much as I am sure you would like to put the health care 
problem behind you, one forecast I am comparable in making is 
that 50 years from now somebody like you will be sitting there 
listening to somebody like me talking about health care reform.
    [Laughter.]
    Chairman Conrad. That is the end of the hearing.
    [Laughter.]
    Ms. Glied. So we do not have to fix it once and for all. We 
just have to make a step forward and realize that we are going 
to keep tinkering with it as we move on.
    [The prepared statement of Ms. Glied follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Conrad. All right. That is more hopeful. That 
sounds better.
    [Laughter.]
    Chairman Conrad. Next we will turn to Janet Trautwein, the 
Executive Vice President and CEO of the National Association of 
Health Underwriters.
    I hope I am pronouncing your name correctly.
    Ms. Trautwein. You got it perfectly. Thank you.
    Chairman Conrad. Thank you. Welcome.

STATEMENT OF JANET TRAUTWEIN, EXECUTIVE VICE PRESIDENT AND CEO, 
          NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS

    Ms. Trautwein. Thank you. I am very pleased to be here 
today.
    I think, as panelists, we all have run into each other many 
times before and we know each other. And we all really want to 
do the right thing. We don't always agree on all the details 
but I think one thing that each of us would agree on at this 
table is that we have to be very careful as to how we move 
forward, and that if we move forward for the wrong reasons or 
in the wrong way that we could actually end up with a worse 
situation than we already have.
    So I would like to delve right into again addressing the 
three issues that we talked about. I will try to talk about a 
different angle than what we have already addressed so as not 
to be boring here.
    First of all, let me start first with an employer mandate. 
Our members work with consumers, both individuals and 
employers, every single day to purchase coverage, to use the 
coverage that they purchase and, to make the whole thing work 
appropriately. One of our biggest observations, although we 
have members that work with all sorts of people, is that 
employer-based coverage does, in fact, work pretty well. It is 
efficient--and this doesn't imply that the individual market is 
inferior. What it means is that it is an efficient process.
    And what it does that makes it work well is that it 
naturally groups people together. It controls the flow in and 
out of a plan, which is very, very important in controlling 
costs over time. And very important, it provides an easy 
vehicle for employers to subsidize the cost of coverage.
    Now having said that, providing health insurance by 
employers is very, very expensive for them and they do it for a 
really important reason. I think that most of them want to do 
it for a very important reason. And that is to attract and 
retain the best employees. Even the smallest employers have 
that need and want to do that.
    We are concerned about an employer mandate for either a 
certain type of health insurance, to provide health insurance 
at all, or to pay for a specified percentage of the cost.
    Health insurance in this country has historically not been 
a right associated with employment and there are questions 
about whether it should be a right at all. I would like to move 
back to that in a moment but I want to talk just for a moment 
about the employment aspect.
    The ability of employers to offer or not offer coverage 
helps businesses compete in the way that's most appropriate for 
that particular business, that particular business. Sometimes 
they can offer coverage and at other times they cannot.
    This does affect our economy in this country and I think we 
need to be very careful as to what burdens we put on employers 
and be very careful to do it in a way in that we do not do harm 
because our economy is very important to driving everything 
this country, as we all know.
    The other thing that we do have a problem with related to 
employer mandate proposals is the whole idea of play or pay or 
pay or play or however we want to talk about it.
    We are concerned for the same reasons that Dr. Glied has 
said, about this tax on low-wage workers. We are concerned 
that, in fact, these proposals can escalate over time and that 
we would end up with something that we did not start with.
    Our other concern is that this whole idea of opting out 
often puts someone into a true government-run program and that, 
in fact, other countries' experiences with government-run 
programs have shown to produce certain situations that almost 
always happen. And what I want to talk about is something that 
we have not mentioned before. It is not that it happens, it is 
why it happens.
    The reason why it happens is that in any sort of a 
government-run program, regardless of how you style it, you 
have to deal with a global budget. In fact, wouldn't it be 
fiscally imprudent not to have a budget? We are the Budget 
Committee here. You have to have a budget on any sort of health 
plan.
    And countries that run into problems do so because their 
global budgeting requires them to cut back somewhere. Sometimes 
it is rationing care for people of certain ages. Sometimes it 
is waiting lists. Oftentimes it is paying their providers a 
ridiculously low amount of money. It is often the providers 
that are cut back significantly.
    In fact, we have tried this a bit in Maine through their 
DirigoChoice program. I know that we hear about Dirigo up here 
sometimes, but the fact is that Dirigo is not doing very well 
in Maine. And there are some very important reasons why that is 
the case because, in fact, even with the government running 
part of this program, it has cost much more than they thought 
it was going to. And so I think again we have to just take 
caution in moving forward.
    Also, I do want to speak at this point about Medicare for 
all. Under all of the proposals that we have seen, all 
Americans would have access to the Medicare program as we know 
it. Some of them also include an option for the participation 
in the Federal Employee Health Benefit Program. I have looked 
at several different cost projections for this proposal and 
they are all quite high. And I agree that we are spending a lot 
of money today but I think we need to be careful as to how we 
spend it.
    We have looked very carefully at this issue because our 
current Medicare program is a government-run program. Yet, we 
do not have rationing. We do not have significant waiting 
areas. And our seniors currently do have access to technology. 
But the United States is very large. When we add in all of the 
people in this country and we talk about the whole global 
budgeting process, we know that a global budget would be an 
absolute necessity, a necessity, with an expansion to everyone 
like that.
    We would be forced to do the same thing that the other 
countries do or we would not be able to pay for it. We do not 
have an unlimited checkbook here. So I think that we need to 
the very careful about expansions and consider them carefully 
in the way that we do them so that we do not end up with 
something that we did not bargain for.
    The other thing I want to talk about is an individual 
mandate proposal. We find the idea of individual mandates 
really kind of an interesting proposal. And Massachusetts, as 
you all probably know, became the first State to enact an 
individual mandate in 2006. Certainly it is an outside the box 
approach. But again I think the Devil is in the details. We 
just have to be careful as to how we might implement something 
like that.
    There are a number of questions that would have to be 
addressed, particularly how the regulatory environment would 
have to be adjusted, particularly in the individual market. 
Would you couple it with a purchasing pool or a connector or an 
alliance or something like that? How would you make an 
individual mandate work?
    Would it really reduce the cost of providing health care? 
Remember that health care is what drives the cost of health 
insurance. Because if we look at Massachusetts as our example, 
and they have not been doing it very long, they still have some 
of the highest health insurance premiums in the country. And so 
I think we need to make sure that we do not assume that there 
is some magic silver bullet. There is not. This is a problem 
that we are going to have to address very carefully.
    And then beyond that I just want to mention, relative to an 
individual mandate, one other consideration. And please do not 
construe this as opposition. These are questions and we have to 
answer these questions. We should think about these things.
    Would this really lower the number of uninsured people in 
the country? The easiest thing to look at, of course, is the 
mandate for auto insurance. In spite of the fact that we have 
an individual mandate for auto insurance in 46 States and the 
District of Columbia, the Insurance Research Council released 
data in June of 2006 indicating that 14.6 percent of American 
motorists lacked car insurance in 2004. And that 14.6 percent 
sounds very similar to the 16 percent uninsured that we have 
right now. So we have just got to figure out how, in fact, we 
would enforce that sort of thing.
    So I would just conclude by saying that I agree that we are 
going to be talking about this for a long time. That does not 
mean that we cannot make a lot of progress in the meantime.
    We look forward to working with the Committee on solutions 
to make that happen.
    [The prepared statement of Ms. Trautwein follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    

    Chairman Conrad. Thank you very much. Thanks to all of the 
witnesses.
    Let me ask you all the same question.
    If you had the ability to design the system or at least 
take interim steps that would lead in the direction I think we 
would all like to go in terms of trying to get everyone 
covered, what would you do? Dr. Aaron? If you were given the 
power to design the system, what would you do?
    Mr. Aaron. I actually was asked that question just the 
other night. And I responded in light of the three problems 
that I described. The first thing I would do would be to try to 
secure enactment of some version of the three bills that have 
been introduced to put the Federal Government in the position 
of supporting State health care reform, one of which is 
cosponsored by Senator Graham, who just came in the room just 
now.
    The reason I say that is that the objective circumstances 
across the United States as far as the delivery of health care 
reform, the financing of health care reform, the use of health 
care, are so diverse, so different, ranging from more than 25 
percent of the people uninsured in Texas to well under 10 
percent in much of New England and Minnesota and Hawaii. Health 
maintenance organizations dominating health care delivery in 
some States and not existing in others. Spending differences of 
60 percent or 70 percent among the States, per capita spending 
differences.
    I am skeptical that we know enough now to design a single 
system to encompass that range of diversity. So I think the 
first step is to get behind what strikes me as the palpable 
energy now in the States to move ahead with health care reform. 
I think it is going to be difficult to draft that kind of a 
bill but there is a lot of interest. The House bill now has 70 
cosponsors, nearly equally divided between Republicans and 
Democrats.
    I think you can make some progress here. Get the SCHIP bill 
debate behind you and then move on this.
    The other two areas that I think are critically important 
relate more to quality and to the practice of medicine. We 
simply do not know what works and what does not for most of 
what physicians do. It has not been evaluated.
    The history of Federal sponsorship of agencies to try to 
add to that knowledge is really a pretty dismal one. Short, 
ugly and brutal is the life expectancy of these various 
agencies. I think it is possible to create an agency and fund 
it that would be protected from the political winds that have 
knocked down the previous agencies. And we need to begin to 
buildup this body of medical knowledge on what works, what does 
not, what is cost-effective.
    If you are a private insurer, if you are a business, if you 
are a labor union, and you want to impose some kind of 
constraint on access to care what evidence do you--can you 
refer to now?
    Chairman Conrad. What agency would you give that 
responsibility?
    Mr. Aaron. What I would like to see is an organization that 
was created independent of the current department structure 
with a governance structure similar to that that has worked so 
well for nearly 100 years to provide independent monetary 
policy, that of the Federal Reserve, funded by an earmark or a 
charge that is not subject to annual appropriation.
    The objective here would be to have an entity that was 
governed by people who could not be removed except for cause, 
who had staggered terms, lengthy terms, and a funding source 
vastly larger than those that have been discussed in the SCHIP 
reauthorization bill, to underwrite this kind of research. 
Until we have that kind of knowledge, I think it is going to be 
damned difficult to justify saying no to what may be relatively 
ineffectual or unnecessarily costly care. So that would be the 
second element.
    The third element, I think, is we really do have to get 
serious about information technology. As I commented in my 
statement, President Bush created an agency headed by a very 
distinguished and capable civil servant, David Braylor, but the 
authorizing legislation said except no new money shall be 
appropriate for this agency.
    It is going to take some additional Federal support to help 
the private medical sector reorganize itself, implement 
information technology, and move from the age where solo docs 
did it all and prided themselves on never pleading ignorance 
into a world where information demands are so vast that 
physicians and other providers have to work as teams and 
exchange information freely. That is a key step to boosting the 
quality of health care in the United States.
    Chairman Conrad. Very well. Thank you.
    Dr. Glied.
    Ms. Glied. I would second the approach of encouraging State 
variation. I think it is a good way to go for several reasons. 
We do not know the answers and we need to see how we can 
develop answers that will fit within the United States. There 
is tremendous variation across the country in spending. And 
everything that we do nationally creates cross-subsidies 
between low spending areas and high spending areas that are 
just unjustified, I think. So I enabling State variation in 
design and encouraging it at the Federal level is important.
    Second, I think we need to consider tax code changes that 
would get the money to buy health insurance into the hands of 
the people who need it rather than spending it in the 
inefficient way that we do now. I think that can be an 
important step in conjunction with several different directions 
for reform.
    And I think another thing that we need to do as we move 
ahead with state variation, which I think is the way that 
progress is perhaps most likely to be made, is to think about 
ways to allow the Federal Medicare program to benefit from 
savings and innovation that take place at the State level.
    So we need to think about how to really--and that goes back 
to the question of variation among the States in spending 
levels already. How can we actually capture some of that saving 
that we might be able to get by bringing the high-cost regions 
down within our program.
    I think comparative effectiveness research is critically 
important and I think information technology is very important. 
I do not think that they will have an enormous or direct impact 
on the cost of our health care system. I think over time, 
especially if the provider community really adopts the 
recommendations of these programs, they could have an effect on 
the quality of our health care system. We have not spoken 
enough, I think, about how poor the quality of our health care 
system actually is but that is a really important direction for 
us to go in.
    Chairman Conrad. Ms. Trautwein?
    Ms. Trautwein. Not to be repetitive, but I actually would 
agree in part with the other two panelists relative to the 
State issue. But I would say that we need to proceed with 
caution in that area and here is why.
    When I talked earlier about Massachusetts still having some 
of the highest costs in the country, there is a very important 
reason why that happened. I do have concern about very creative 
State ideas like Massachusetts's program being done before 
important basic reforms are done. Massachusetts should have 
changed some of their current regulatory structure before they 
proceeded with what they did and they might have had quite a 
different result than they did.
    So I agree that we need to look at the State side but we 
need to do so with certain parameters in mind to make sure that 
States have not already foiled themselves before you even get 
there with the creative ideas. We do not want to be a Band-aid, 
in other words.
    I also think one of the reasons why it is very important to 
look at the state level is we do have a very different picture 
from State to State, not just because of the regulatory 
environment but also because of the whole issue of rural health 
care. Rural health care has all sorts of issues, provider 
access issues, but it also has an important cost issue. Because 
of the fewer number of providers that are there the costs of 
providing care are significantly higher in those areas, not to 
mention lack of access to important technologies that prevent 
people from being as healthy as they otherwise might have.
    The other thing, I do think we do need to provide 
incentives for employers to offer coverage. We need to provide 
incentives for people and subsidies for people who cannot, who 
genuinely cannot afford to pay for coverage on their own. We 
must get these people in the system. We just need to proceed 
with caution in how we do it.
    We also need to make sure that we are not instilling waste 
into the system with frivolous lawsuits. There are a lot of 
different ways to approach this. The Senate has looked at 
medical liability many, many times. I think there are other 
ideas we have not addressed fully enough to address the 
problem. We do not have to just introduce the same idea over 
and over and over again, but let us not forget that there is a 
problem.
    And finally, this whole issue of information technology, we 
have experienced that in my own family where we have seen 
duplicate tests, having to do things over and over again 
because one doctor was not able to talk to the other one. It is 
a horrible waste of money. We have to do something and move 
forward with that. That is a bipartisan idea and we should 
waste no time in getting that done.
    Chairman Conrad. Thank you, very much. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I like the approach that a couple of the witnesses have 
talked about where you use the States as a laboratory to begin 
to put some of these ideas into action. Ms. Trautwein, is that 
right? You keep talking about needing to look at the regulatory 
structure. What are you seeing in Massachusetts and other 
States where the regulatory structure has to be changed in 
order to have an individual mandate on health insurance?
    Ms. Trautwein. If we had looked at a State like 
Massachusetts--and there are others--many of them are 
concentrated on the East Coast. They have the worst situations 
there, cost-wise. They have a few things in common.
    No. 1, their market is much more tightly regulated in terms 
of the ability to actually assess insurance risk. For example, 
in the individual health insurance market you can ask no 
questions at all. And the rate bands are very, very tight. What 
that means is that----
    Senator Allard. Let me understand. In the health insurance 
market you cannot ask any questions at all? Who would ask the 
questions?
    Ms. Trautwein. The insurance companies.
    Senator Allard. Explain that to me.
    Ms. Trautwein. The insurance companies who provide the 
insurance. The same as if you applied for auto insurance, they 
ask you for your driving record. The same thing happens in the 
individual health insurance markets in almost every State.
    If you compare the costs for coverage in States that are 
allowed to do that and the cost of coverage in Massachusetts or 
Maine or New York or New Jersey or Vermont, you will see that 
they are very, very different. Most states have provided a 
vehicle for those who do not pass the health questions, who do 
not pass the medical underwriting, so that they can still get 
coverage at an affordable cost. That is just an example of one 
thing.
    The other thing that is very important--there there are 
numerous things. But the other thing that is really important 
is the way rates are established. Too tight of a community 
rate, so that everyone is paying the costs----
    Senator Allard. You have smaller pools.
    Ms. Trautwein. Yes, smaller pools. And the younger people 
really just, because they think they are invincible, choose not 
to pay the cost. It is a great deal if you are 55. But if you 
are 25, it is not. And those are the people that we need in the 
system to keep the costs down.
    Senator Allard. I have run across a company or an insurer--
I will just put it this way--an insurer, that manages their 
health costs by keeping track of a doctor's diagnosis and then 
keeps track of the ultimate outcome of that disease when it is 
treated.
    What they found is on some diseases--we could take diabetes 
as an example--when the diagnosis is made, some doctors get 
that patient stabilized in a shorter period of time than 
others. Some get a few days, some take weeks.
    What they do that what they have found is that they go to 
the--they put the pressure on the doctor. They say look, your 
history tells us it takes you longer to cure your patients with 
this disease compared to this other doctor. What is it that you 
could do to shorten the time period on that?
    I need the docs do not like that but there are some 
variables. But how practical is that?
    That is the only system where I have seen where you have 
increased quality and you have had the potential of holding 
down costs.
    So how can a State implement something like this if they 
have an individual mandate? Anybody have any ideas on that?
    Ms. Trautwein. I love that idea and we wish that more 
insurers could get their providers to participate in that. 
Again, it is a matter of a provider being able to say I do not 
want to be in your network and they can be an out of network 
doctor and they do not have to do anything like that. And so if 
we can get more providers to participate in things like that, 
it would be great. It would save a lot of cost in the system 
and it would be better for patients.
    The other issue is how do we get the patients to choose 
those providers?
    Senator Allard. The only ones that who have the ability is 
the bill payer. They are the only ones that have the ability to 
force the doctors to do that. So instead of an individual 
mandate, maybe you look at a mandate on those who reimburse for 
the costs to do this. How practical would that be?
    Ms. Trautwein. I think most insurers would like to use some 
form of that anyway. But the issue is still, and I go back to 
the providers because we do not have any law that says Dr. 
Jones must participate in insurance company ABC's plan. They 
can say you know, I do not like your rules and I do not want to 
be in your plan. I am just going to assume that my patients 
will like me enough to continue to come to me anyway because I 
do not like your silly rules.
    A lot of them--we hear that a lot from providers. So that 
is the pushback that insurers are hearing from their provider 
network as they try to impose more and more. I am not saying we 
do not think it should be done and that a lot of them are not 
trying it. It is just that the reality is that we are hearing 
reports of provider pushback.
    Senator Allard. I see my time has expired, Mr. Chairman.
    Chairman Conrad. I thank the Senator.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman, an excellent panel.
    Dr. Aaron, I share your view about how important it is to 
give the States a major role in designing the health system, 
and we do that in the Healthy Americans Act. We have very broad 
waiver provisions so they can, in effect, go off and do their 
own thing by getting close to essentially what the Healthy 
Americans Act calls for.
    But I would like your thoughts on the developments this 
year because, as you characterized it, there was palpable 
energy at the State level. Every single State legislature met 
in 2007 and not one of them, not one, passed a major reform 
bill. California is still out. We are all keeping our fingers 
crossed and hope they do it.
    My sense is the reason it is so hard for the States is that 
they cannot get their arms around any of the big drivers in 
American health care. They cannot get at the Federal tax code. 
It cannot get at Medicare. They cannot get at ERISA. Veterans 
is a Federal program.
    In fact, I am going to say, and I talked a little bit with 
Senator Graham, I think we ought to be saying three cheers for 
the States because they are getting a lot done given the fact 
they have virtually no bandwidth in which to work in.
    What are your thoughts specifically about why nobody at the 
State level was able to move in 2007 when there was all this 
energy this year?
    Mr. Aaron. First, I think there is still some possibility 
for State action. Notably, there is a current dustup between 
the administration in New York over pushing the SCHIP limit up 
rather considerably. There is a lot of energy to do similar 
things with SCHIP in other States as well. So I think there is 
a little more possibility for positive action.
    The States, though, face some very serious obstacles. One 
is the restrictions, the Federal regulations imposed within 
discrete programs. A second is that they, like everybody else, 
face competing demands for available resources. The reason 
there is so much proposal activity at the current time is that 
the States are unusually flush because of rising tax revenues.
    You have mentioned ERISA. That is, I think, a serious 
impediment since it puts self-insured health plans pretty much 
off-limits.
    There is another obstacle which I do not think hasten 
sufficient attention actually from any of the bills that would 
push State action, and that is it the cyclical threat that if 
you over commit when things are--when the economy is favorable, 
you may be left holding a financial day of very considerable 
girth when the economy turns sour.
    I think one step that could make it much more attractive 
for States to move ahead and make commitments is if any Federal 
legislation that provides encouragement to State action along 
the lines of the three major bills that have been tabled also 
contains a provision that provides automatically on a formula 
basis some financial support. Not completely bailout, but some 
financial support during recession periods.
    Senator Wyden. Let me see if I can get one last question in 
because in many of these debates, and particularly Lindsey and 
others, talking about the States--and I want to be clear, I am 
supportive of the role of the States--they are saying there are 
no models. Gosh, we ought to have a model.
    I will tell you, there is a model, folks, in this country 
and it is in my wallet. This is a private insurance card that 
covers the Wyden family. And there are a couple of twins that 
are arriving here in a few weeks, so we been a lot of attention 
to this private insurance card.
    When you come to one of my town meetings, and I bet it 
happens for Bernie and all of us, what folks say when you ask 
them about health care they say we want coverage like you 
people have in Congress. Folks are not completely sure what 
that is, but whatever it is we have, they would like. That is 
sort of the story.
    So after I spent these 4 years on this policy and this 
effort to try to come up with a plan, I said what is wrong with 
the basic model Members of Congress have? We recognize it is 
different. We would be the first to say it is different.
    But what happens is Senator Graham, I, all of us, we get 
information during the open enrollment system. They give us 
choices of private coverage.
    Under the Lewin analysis, they said our administrative 
costs would be about 3.4 4 percent. So we are talking about 
really driving down the administrative costs when you use the 
big pooling arrangement that I and Senator Gregg and Senator 
Bennett and all of us are talking about.
    Folks, what is wrong with that as a model? We have it 
today. It is not something you have to go out and reinvent. Why 
not try to figure out a way, recognizing that it would have to 
be different? I'm not saying that the Members of Congress 
system is exactly analogous.
    But what is wrong with a model that says during open 
enrollment season you get information about private choices. 
You fix the private market so the private insurance companies 
cannot cherry pick and just take healthy people. You have a 
place for people to go for their questions. You drive down the 
administrative costs like Lewin says we are doing. What is 
wrong with that as a model? Professor Glied?
    Ms. Glied. I do not think anything is wrong that as a 
model. I think it is a perfectly reasonable model. I guess 
there are some questions about how you put it together. And 
particularly how you make it more regional rather than having 
it run out of Washington, out of OPM. There is a lot of work to 
be done to make a model like that operate. And there are lots 
of questions about what happens to people who already have 
coverage through their employers. Is everybody going into that 
FEHBP? Or are we going to have parallel structures? And what 
are the issues that are going to come out of that?
    I think there are better and worse ways to design a plan 
around that, but I think it is an excellent basis.
    Senator Wyden. I am going to quit while I am ahead and you 
have given me extra time, Mr. Chairman. Thank you.
    Chairman Conrad. Let me just say, if we are going to be 
doing this based on the American people wanting our health care 
system, I saw a poll that was taken not so long ago that the 
American people think all senators live in mansions, that we 
have servants, and that we are chauffeured in limousines.
    I drew this to the attention of my wife, who was highly 
amused by this since I drive a 1999 Buick, we live in an 1,800 
square foot house, and the servants in our household are Kent 
and Lucy. Lucy is my wife.
    [Laughter.]
    Chairman Conrad. Senator Graham.
    Senator Graham. And there is Senator Grassley in 1960-
something.
    But anyway, Dr. Aaron, about the bill that we are try to 
come up with? Can you explain it? Because I know you will do 
better than I would do? What are we trying to do, me and 
Senator Feingold?
    Mr. Aaron. I think what do you and Senators Bingaman and 
Voinovich and in the House, Tammy Baldwin and Representative 
Price from Georgia, are all trying to do has certain structural 
similarities. In each case, you would create a bipartisan 
federally sponsored entity D to receive and to review proposals 
from States with firm goals and specific procedures for 
extending health insurance coverage.
    The bills differ in the exact ways in which this agency 
would it be created. They differ in the ways in which or 
whether additional funding would be provided to those States 
whose plans are approved. The commission would be structured so 
that there could be confidence on both sides of the aisle that 
both conservative and liberal proposals from different States 
would be approved. For example, you have balanced appointment 
to this committee and you require a super majority to send a 
forward a proposal. So both Republicans and Democrats would 
have to approve a roster of State proposals.
    Congress, under expedited procedures, would either approve 
or reject the whole lot, sort of a fast-track approach. The 
programs would run a typically for approximately 5 years, 
during which period the States would report back to the 
commission on the progress that they are making or not making 
in extending health insurance coverage.
    The idea is to facilitate the proposals, which, as Senator 
Wyden has correctly observed, have not been rushing through 
legislatively in this calendar year to try and achieve a better 
outcome in future years.
    Actually, States have taken a number of steps previously, 
not all of which have succeeded and many of which have not 
endured because of fiscal cycle reasons, to extend health 
insurance coverage. I think the philosophy behind this is when 
one is talking about national health reform, one is talking 
about a nation in which the objective differences among the 
States are at least as great as they are among the nations of 
the European Union. And that it may well be more possible 
within the narrower confines of State offices to negotiate the 
difficult compromises that need to be made in order to field a 
comprehensive proposal.
    The poster child for this now is Massachusetts. Everybody 
is watching to see whether they will successfully deal with the 
problems they are unquestionably encountering. Right now I 
think the auguries are favorable. Diverse groups are still 
working together.
    And the purpose of your bill and the other two bills, and 
now I should say three because of Senator Sanders' and 
Congressman Tierney's bill, is to encourage those efforts by 
providing a little regulatory wiggle room, possibly some 
additional funding, and national support.
    Senator Graham. I am really impressed with myself after 
hearing that.
    [Laughter.]
    Chairman Conrad. Among our colleagues, there is almost no 
restriction on the ability to be impressed with ourselves.
    [Laughter.]
    Senator Graham. I have taken it to a new level here.
    One thing, and my time is up, is there any country out 
there that you would point to as having gotten it particularly 
right?
    And the second question is one of the big issues we face in 
this country is the cost of dying. When you discuss health care 
and prevention, you also have to talk about how much money is 
spent in the last illness preceding death. Any thoughts about 
what we could do along those lines?
    Mr. Aaron. On the first point, the World Health 
Organization has evaluated health care systems of different 
nations. The top award went to France. A former Assistant 
Secretary of Health said to me, and he is obviously a person 
who can get access to the best that the United States has to 
offer, that if he were to get sick anywhere else in the world, 
France would be his choice about where to get sick.
    That said, I do not think it is important. I think each 
nation has its own unique history, its own unique political 
setting, its own objective circumstances that differ. We each 
have to find our own ways.
    As for the cost of dying, I think the high cost is 
certainly real. It sometimes is exaggerated. The proportion of 
health care spending that does occur during the last year of 
life is under 20 percent. And it is important to recognize we 
do not know at the beginning of that year that it is the last 
year of life. A lot of the people who receive health care 
continue to live on beyond that period, for which we should be 
thankful.
    But I do think it is important for physicians and families 
to face up to the fact that, as one English person once said to 
me, Americans erroneously believe that death is an option----
    [Laughter.]
    Mr. Aaron [continuing]. And approach it in that fashion. As 
I age, this is a topic that is increasingly on my mind, I must 
say.
    Chairman Conrad. I thank the Senator.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    Chairman Conrad. Let we just stop you if I can. There is 
going to be a moment of silence observed on the Senate floor at 
noon for the victims of 9/11. So my intention is to wrap up 
about 5 minutes before.
    So I am going to try to be pretty strict with respect to 
the 5-minute time so that we can conclude this before the 
moment of silence to be recognized. Senator Whitehouse.
    Senator Whitehouse. In that event, let me ask a very narrow 
and targeted question in this great big issue that we have been 
discussing, and that is in this area, in which improved quality 
of care provides lower costs--and it does not always do that 
but there are identifiable areas that can be found where when 
you improve the quality of care it does lower the cost.
    And it strikes me that that is an area that we should be 
mining incredibly diligently for those savings and for those 
quality improvements. Everyone should be behind this. This is 
not an I win/you lose political fight between two interests. 
This is just making it work better at less expensive and save 
lives. And it is not happening. It really truly is not 
happening to anywhere near the degree that it should be.
    There is some kind of a market failure out there that is 
preventing this from happening despite everybody's interest in 
having it get done. What is that market failure? Why is this 
not happening more?
    Ms. Glied. I think the reason it is not happening more has 
to do with the way that payments are fragmented. So in total a 
lot of those things save us money. Improving quality saves 
money in terms of infection control, for example. But it does 
not necessarily save hospitals money. Or when it saves 
hospitals money, it does not necessarily save insurance 
companies money or it does not save physicians money.
    And the way that money flows in our system in the 
fragmented way it does, it is very difficult to make deals that 
make everybody better off. It is one of the things we really 
should be looking out for.
    Senator Whitehouse. If you were to try to pursue those 
deals that you just mentioned, where people have the chance to 
get together and work them out so that we can explore those 
areas, would that more likely happen effectively at the local 
level or dictated by the Federal level?
    Ms. Glied. My sense is that most of those changes have to 
happen at a local level. And if the change has to happen at a 
local level, it is probably best to try and implement it as 
close to the change as you can, that it is actually more 
difficult to try and do it nationally. It is better for groups 
of doctors, hospitals, and insurers to sit together somewhere 
and say we are going to tackle this problem here.
    Senator Whitehouse. Plus, they are bumping into each other 
all the time on all sorts of issues locally, so there is more 
honor, if you will, in the negotiations.
    Ms. Glied. The difficulty with health care is that it is, 
ultimately, a locally delivered commodity. And we need to 
recognize that at every step along the way. Mr. Aaron.
    Senator Whitehouse. I see, I think, three heads nodding 
approval. But in my last minute or so, do you both agree with 
the exchange we have just had?
    Ms. Trautwein. Yes, absolutely.
    Mr. Aaron. Yes, with modification that I think information 
is fresh air that helps. And in this case----
    Senator Whitehouse. Do not get me started on information 
technology.
    Mr. Aaron. No, no, I'm talking about data on health 
outcomes. It is very difficult to gather that from a million 
fragmented payers. That is a real advantage, for example, of 
the Medicare system which has vast quantities of data which 
have been underutilized to date. So the Nation can provide 
information that will help the locals do their job.
    Senator Whitehouse. Excellent point. And like Senator 
Wyden, I will quit while I am ahead and yield the remainder of 
my time.
    Chairman Conrad. Senator Sanders.
    Senator Sanders. Thank you very much, Mr. Chairman.
    I just want to touch on a few points and then ask our 
panelists a question. We talk about universal coverage. 
Universal coverage saves us money and deals with human 
suffering because right now in this country there are people 
who, when they get sick, do not go to a doctor until they are 
quite ill. And the insanity is that we spend zillions of 
dollars in hospital care when we could have saved money, saved 
human suffering, if they could have walked into the doctor 
originally when they were very ill.
    No. 2, I know that in the Congress it is customary to 
demonize ``government health care.'' We have a president who 
does that every single day. And I find it very ironic, Mr. 
Chairman--I am a member of the Veterans' Committee--that we 
have Jim Nicholson, who is the former Chairman of the 
Republican Party, I believe, now head of the VA, coming before 
the Committee saying studies show that the Veteran's 
Administration has the highest quality health care of any major 
system in the United States of America. Let me suggest this is 
a socialized health care system, 100 percent government run, 
former Chairman of the Republican Party tells us how cost-
effective and high-quality that care is.
    Third point, in my State and around this country, and I 
know in North Dakota, and I am working on this issue a whole 
lot, federally Qualified Health Centers are doing an 
extraordinarily good job in a cost-effective way of providing 
health care to every man, woman, and child in the served area.
    I am happy to say thank you, Mr. Chairman, that with a 
little bit of luck we are going to significantly increase 
funding for FQHCs and expand them throughout this country.
    Let me touch on another issue. And that is you can have 
everybody having insurance, but sometimes we miss another 
point. But you can have all the insurance in the world and you 
may not, if you live in a rural area in Vermont, have access to 
doctors. You may have a nursing shortage. You may have a major 
dental crisis.
    So here is an issue that I would like some comments on. How 
is it that in this great country today we have a doctor 
shortage, especially among primary health care physicians in 
rural areas? We have a major nursing crisis, by which 50,000 
eligible applicants for nursing school cannot get into nursing 
school but we are depleting the Philippines of their nurses by 
bringing them over here. We have an embarrassment in my State 
and all over this country. We do not have enough dentists.
    I think one of my the solutions, Mr. Chairman, is to 
significantly increase funding for the National Health Service 
Corps.
    By the way, the recent educational reconciliation bill will 
debt forgiveness, a big deal, for doctors and dentists and 
nurses and so forth.
    But I would like maybe are panelists, starting with Dr. 
Aaron, to talk about how it can be that in America we have a 
doctor shortage, a nursing shortage, a dentist shortage?
    Mr. Aaron. I think we have a mixed problem currently. He 
has been remarked by many for some years that the incentives to 
specialize and subspecialize financially are extremely 
seductive. If you can make a mid-six-figure income in Chicago, 
it takes an awful lot of environmental compensation to have a 
five-figure income in rural Vermont.
    Ms. Glied. Unfortunately, I think one of the things that we 
have done with our health care system is let providers decide 
how many of them there ought to be. The number of new entrants 
into American medical schools, I think, stopped growing in the 
mid-1980's. The medical schools simply do not take any more 
medical students. The dental schools have also been very strict 
in terms of allowing increases in the number of dentists.
    Senator Sanders. They have a strong unit there----
    Ms. Glied. We effectively have a very strong union there. 
So we have created a shortage of our own design. And several 
other countries have done similarly. But we have a very low 
physician-to-population ratio compared to international 
standards.
    Senator Sanders. And am I right in assuming as we age that 
problem becomes more severe?
    Ms. Glied. Unless we do something about it, yes.
    Senator Sanders. What is your suggestion? Give me some 
concrete ideas as to how we can increase--especially, as Dr. 
Aaron said, I do not know that we need any more specialists in 
Chicago or New York City. But we do need obstetricians and 
primary health care physicians in rural America.
    Ms. Glied. I think we do need to do a lot of thinking about 
our provider situation. I do not think we need physicians for 
all of these purposes either. I mean, we have been very strict 
about who does what. But in many of these cases, nurse 
practitioners and other well-trained but less costly providers 
could be doing the job. We do not let them in many cases 
because our regulatory structures do not permit it.
    I think there is a lot of scope for evaluating the 
regulation of providers.
    Senator Sanders. Now dental care is an issue, I think, that 
does not get enough attention. But are you suggesting that it 
is the dental schools that are playing a major role in 
determining how many dentists we have?
    Ms. Glied. Yes.
    Senator Sanders. Did you want to add something?
    Ms. Trautwein. Basically I just want to agree with the 
other two. And having a son that is a premed student, the 
incentives to specialize are incredible. So we have to figure 
out how to provide better incentives for people to go into 
rural areas and to train in primary care.
    And also, we have to figure out a way to train more of 
them. Whether it is dentists, whether it is nurses or whether 
it is physicians, there are not enough slots for the people 
that want to----
    Senator Sanders. I do not want to start a major 
controversy. I see, fortunately, Senator Gregg is not here. But 
Michael Moore's movie makes the point that in Cuba they are 
sending doctors all over the world. They are able to train far 
more than they need. And in this country, we are not training 
enough physicians.
    Your point is a good point. Some way or another we are 
going to have to provide incentives to get physicians, young 
people, into medical cool school, into dental school, to get 
out to those areas that we need them, not just in big cities 
where they can make a whole lot of money.
    Mr. Aaron. Let me just add here the point that Professor 
Glied made. You put a nurse practitioner in a rural area, 
connected well to specialists located someplace else, and you 
can get very high-quality care.
    Senator Sanders. Thank you very much, Mr. Chairman.
    Chairman Conrad. I thank the Senator.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman. And thank you for 
holding this hearing. And I thank our panelists.
    I tell the people of Maryland, when we talk about the 
health care debate and universal coverage, that I am a 
survivor. By that I mean I voted for, not only supported the 
Clinton proposal back in 1993, I voted for it on the Ways and 
Means Committee Subcommittee on Health. And I am still in 
Congress.
    Mr. Aaron. But not in the House.
    [Laughter.]
    Senator Cardin. That may have been the penalty, I had to 
come over to the Senate.
    Chairman Conrad. Let me tell you, that is not a penalty.
    Senator Cardin. I even got promoted.
    What I learned from that experience is that in 1993 the 
majority of the people in this country supported universal 
coverage. And it was a popular thing we thought was going to 
happen. But when we started to get down into the details as to 
government's responsibility and employers' responsibility, we 
lost the critical mass necessary to pass universal coverage.
    I think universal coverage is critically important for so 
many reasons. We talked about cost. If you're going to have a 
cost-effective system, everybody's got to play according to the 
same rules. You need universal coverage if you want efficiency 
in the system. We have to have everyone covered so we can have 
the right facilities in the right location.
    And just from a humanity point of view, we have great 
health care in America. The problem is too many people are not 
able to get that health care. And the fact that they are 
uninsured is one of the leading reasons why so many people are 
denied necessary health care.
    So I have come to the conclusion that we need to find a way 
to get this done.
    I have introduced legislation, Mr. Chairman, that is four 
pages long. It is an individual mandate. It is pretty simple. 
It just says everybody has to have health insurance. It then 
allows the States not only the responsibility to determine what 
is adequate health insurance but requires the States to have at 
least three low-cost plans available on community rating so 
that there is a product available in each of our States to 
those who need to be covered who are not covered by their 
employer or under governmental programs.
    The enforcement is kind of simple. It may not be totally 
effective. We may not get 99 percent coverage. But we certainly 
would get a lot more coverage than we have today. It is 
enforced under our Federal Internal Revenue Code which is, of 
course, applicable in all States. And one of the criticisms 
about individual mandates in States that do not have income tax 
is how you enforce it.
    Now, I want to make this clear, Mr. Chairman. I think that 
is the beginning of the debate, not the end of the debate. That 
if we had an individual mandate, then we could, I think, talk 
about what is the appropriate responsibility of employers in 
America in meeting the needs of all of us who need and have 
health insurance? I think it talks about what is individual 
responsibility, not just financially to buy health insurance 
but as consumers to purchase health services in this country? 
What do we mean by coverage? What is adequate coverage? What 
should be included in health plans in America on wellness or 
mental health parity and affordability? What should be the 
responsibility of individuals? And how do we bring the costs 
down? And then federalism. What is the Federal Government's 
responsibility? What is the local government's and the private 
sector?
    I think all of that would be on a healthier plane if we at 
least start with the mandate that everyone must have health 
coverage in America.
    So I thought I would use my 5 minutes to try to promote 
support for my proposal. Any takers among the panel?
    Mr. Aaron. I think you are going to need more than four 
pages before you have a proposal that----
    Senator Cardin. Of course, in the Senate you have unlimited 
amendments so I assume it will get longer than four pages.
    Mr. Aaron. When it does, come back to me please.
    Senator Cardin. That was not a ringing endorsement, Dr. 
Aaron.
    Mr. Aaron. Before you were here, Professor Glied listed a 
number of approaches, among which an individual mandate was one 
of the approaches to extending coverage, and I think validly 
indicated that using each could combine into an effective 
strategy for increasing----
    Senator Cardin. Of course, just to----
    Mr. Aaron. You can do it better than I can.
    Senator Cardin. Of course, one of the problems when you 
look at an individual mandate as the solution, it tends to be 
as long as Massachusetts, the bill. And I am trying to keep 
this simple because it is not the end of the debate but the 
beginning of the debate.
    Ms. Glied. It is a little hard to speak about something in 
that much abstraction. I commend you for moving ahead with 
something and I think a mandate--stating that we think it is a 
principle that everyone should have insurance is a clear step 
forward. I think the question is how are you going to actually 
make it happen?
    Senator Cardin. Let me be clear that my bill is to just a 
principle. It is a requirement.
    Ms. Glied. Right.
    Senator Cardin. And it is enforceable but not the end of 
the debate.
    I want more from employers and I want more from government.
    Mr. Aaron. An individual mandate, again I am quoting my 
neighbor to my left here, is something--is effective if it is 
backed up by assistance to those who lack financial resources 
themselves so that it can become a reality. Otherwise it is 
just punishment.
    So I think inevitably you are going to have to get into the 
tax code, into financing, into formulas for assistance. And 
that's going to stretch, unless the print is extremely small, 
beyond four pages.
    Ms. Trautwein. I will comment on one specific aspect of 
your bill that you mentioned, and I had talked about this in my 
testimony earlier also.
    I think all of us think that an individual mandate could 
work. But again the details, and part of that is the regulatory 
aspect, this issue about requiring a State to offer three basic 
policies. You would have to be very careful about how you 
structured that so that those policies did not end up being a 
dumping ground for you. Because if you went in and community 
rated those policies and the rest of their market was not 
community rated, it would end up getting the poorest risk. It 
would just need to be structured----
    Senator Cardin. Let me put out in Maryland we have a small 
market reform that is working. So there are ways that States 
can make it work if they want to make it work.
    Thank you, Mr. Chairman.
    Chairman Conrad. I thank the Senator.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman. And welcome, to 
our guests. I apologize for being late today because of the 
Finance Committee meeting. It certainly is not because of lack 
of interest because as all of us on this panel know, we are 
desperately and deeply concerned about this issue.
    First, let me just put out a couple of points based on the 
discussion that I have been hearing. One is we talk about 
nursing shortage. I know specifically, as it relates to 
nursing, that our challenge is not having enough professors to 
train them. And so we have slots opening up, we are funding 
slots, but because of all of us baby boomers now that are 
retiring what I hear from very prestigious colleges of nursing 
is the problem is not having enough slots because we do not 
have enough professors to be able to really provide that. So in 
some way, we have to address that.
    I want to thank the Chairman also for the federally 
Qualified Health Centers. Very, very important, very effective. 
Thank you for your help and leadership on that.
    We really do have a universal health care system. But the 
reason it costs twice as much as any other country is it is 
called emergency rooms. And so people get treated sicker than 
they should be, inappropriately, where they could be in the 
doctors office. But they get treated. And then every business 
that has insurance or every individual picks up the costs.
    That may have been said earlier, but that is my mantra 
consistently. It is not about whether or not we have it. It is 
how we want to pay for it and if we want to continue to pay 
this huge cost, very ineffectively.
    A quick question. I am sure that Senator Whitehouse brought 
up health information technology. I would like to do that, as 
well. You spoke about local decisions earlier. I think, first 
of all, it is very difficult to have only local decisions when 
it is primarily federally funded as a system. We talk about we 
do not want a government-run system. Well, we are too late. 
Most of the funding is Federal or State or some public entity.
    But health IT, it seems to me, brings that together where 
if we have that information available then local people can 
make good decisions within the context of a broad health IT 
system.
    I know we talk about it in terms of cost all the time but 
you spoke about outcomes. This really is about quality. It is 
about whether or not you duplicate tests over and over again. 
Whether or not people have the right medicines and they do not 
conflict. Whether or not we are providing care in rural areas.
    In the Upper Peninsula of Michigan we have a wonderful 
program that has been developed by Marquette General Hospital 
and their system so that they can put a nurse onsite out with 
somebody and through telecommunication be able to provide 
diagnosis and treatment, share x-rays, all of those things.
    The VA is way out of us on all of this. The VA is doing an 
excellent job.
    But I wonder if anyone would like to speak a little bit 
more to the question of sharing information and outreach and 
what that does in terms of quality. We know there is a cost 
savings but being able to look at more effectively particular 
diseases, chronic diseases, where they are, the ability to 
treat people through long distances and so on, diagnosis, 
sharing of information.
    I do not know if anyone spoke earlier about that piece on 
quality. Because I think we are not good to get where we go if 
we are not rewarding investments in health IT and, in, fact 
incentivizing investments in health IT.
    Mr. Aaron. Actually, we did touch on those issues because, 
like you, I think all of us believe that those reforms hold out 
enormous promise for improving the quality of care.
    Partly it is sending information to areas that may be 
thinly served by highly trained professionals so that people 
who are trained to a lower level can communicate with others 
who have that specialized knowledge.
    Information on effectiveness can also help improve the 
quality of care in the highly served areas, as well. Not all 
providers are equally effective. Under the current system, as 
you suggested, I think a seriously ill patient may end up 
seeing a great many physicians who do not bother to talk to one 
another or do not communicate sufficiently well. So that it is 
important to facilitate communications even within well-served 
areas among various physicians.
    So yes, yes, and yes to your suggestions.
    Senator Stabenow. Anyone else?
    Ms. Glied. I think it is important when we talk about 
health IT to think about all the different forms that takes. 
And I think you emphasized communications, technology. I think 
sometimes we do not put enough emphasis on the kind of 
epidemiologic statistical data and the learning that we can get 
from that. That is a very different kind of investment than 
electronic medical records that might move from person to 
person. I think actually the epidemiologic data hold more 
promise even than the individual record.
    Ms. Trautwein. I am not sure I have anything substantive to 
add, other than we do have to look at this both from a 
national, regional and local level. We need a national 
interoperable system so that we can exchange whatever 
information we need to of all these different types of 
information nationwide.
    But we also need to look to customize that somewhat at the 
local level. Because we do, we talked about quality issues at 
the local level and how this is really a local issue and a 
local resource issue. I think we need to make sure that we have 
a system that also can work for the very individual needs that 
those local communities have.
    Senator Stabenow. Thank you, Mr. Chairman.
    Chairman Conrad. Thank you, Senator.
    Let me thank this panel. I very much appreciate your taking 
the time to be here, share your thoughts with the Committee.
    We are trying to provide some focus to this issue for our 
colleagues because of the critical impact on our Federal 
budget. We all understand that this is an area that can swamp 
the boat. It is the 800-pound gorilla.
    I think we just need a lot more communicating, a lot more 
thinking about how we proceed to build consensus.
    With that, I want to note that there will be a moment a 
silence on the Senate floor at 12 noon in memory of those who 
lost their lives and who were injured on 9/11.
    So with that, we will declare the hearing adjourned and 
again thank our witnesses.
    [Whereupon, at 11:51 a.m., the Committee was adjourned.]

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