[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                           THE ECONOMIC CASE
                           FOR HEALTH REFORM

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 19, 2009

                               __________

                           Serial No. 111-12

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania    PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio                     Ranking Minority Member
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon              MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas               MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida                  PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts     CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts          JOHN CAMPBELL, California
BOB ETHERIDGE, North Carolina        JIM JORDAN, Ohio
BETTY McCOLLUM, Minnesota            CYNTHIA M. LUMMIS, Wyoming
CHARLIE MELANCON, Louisiana          STEVE AUSTRIA, Ohio
JOHN A. YARMUTH, Kentucky            ROBERT B. ADERHOLT, Alabama
ROBERT E. ANDREWS, New Jersey        DEVIN NUNES, California
ROSA L. DeLAURO, Connecticut,        GREGG HARPER, Mississippi
CHET EDWARDS, Texas                  ROBERT E. LATTA, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                 Austin Smythe, Minority Staff Director


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, June 19, 2009....................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
        Report, ``The Economic Case for Health Care Reform,'' 
          Internet address to....................................     5
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     3
    Christina D. Romer, Chair, Council of Economic Advisers......     5
        Prepared statement of....................................    12
    Hon. Gerald E. Connolly, a Representative in Congress from 
      the State of Virginia, prepared statement of...............    45


                           THE ECONOMIC CASE
                           FOR HEALTH REFORM

                              ----------                              


                         FRIDAY, JUNE 19, 2009

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:00 a.m., in room 
210, Cannon House Office Building, Hon. John Spratt [chairman 
of the committee] presiding.
    Present: Representatives Spratt, Schwartz, Becerra, 
Doggett, Blumenauer, Berry, McGovern, Tsongas, Etheridge, 
Yarmuth, DeLauro, Edwards, Larsen, Connolly, Schrader, Ryan, 
Hensarling, Garrett, Diaz-Balart, McHenry, Lummis, and Latta.
    Chairman Spratt. I will call the hearing to order. Good 
morning, and welcome to the Budget Committee's hearing on The 
Economic Case for Health Care Reform.
    We are privileged this morning to have with us Dr. 
Christina Romer, who is the Chair of the President's Council of 
Economic Advisers. Under her guidance, the CEA has developed an 
incisive analysis of our health care sector, the high price we 
pay for its flaws, distortions, and inefficiencies, and the 
advantages to be gained from addressing these flaws in a 
thoughtful, constructive way.
    The CEA report provides critical context as Congress begins 
its consideration of health care reform legislation. This is 
the latest in a series of hearings related to health care that 
we have held here on the House Budget Committee. They have all 
pointed to the same conclusion, that we have a system with huge 
inefficiencies that need to be addressed, the sooner the 
better.
    In 2007, we examined the nature and extent of overpayments 
to private health care plans operating through the Medicare 
Advantage program. We then held a hearing on the role of the 
Tax Code in health insurance coverage. And last year we held a 
hearing exploring possibilities for getting better value from 
our health care spending.
    Today's hearing was called at the request of Mrs. Schwartz, 
who is engaged in the health care debate here, in the Ways and 
Means Committee, and at home, where her husband and son are 
both physicians. I am going to limit my remarks, therefore, and 
yield to her before turning to our ranking member, Mr. Ryan, 
for an opening statement.
    Mrs. Schwartz.
    Ms. Schwartz. Thank you, Mr. Chairman, and thank you for 
those additional credentials. There is a lot of discussion 
about health care in my household. It is definitely true. But 
it is also true that there is a lot of discussion about health 
care and health care reform in my community and from my 
constituents, both individuals, families, businesses, and of 
course here in the Budget Committee, a lot of concern about the 
growing costs of health coverage and some of the inefficiencies 
and changes we might make.
    So I thank the chairman for holding this hearing, and of 
course thank you, Dr. Romer, for your presence here.
    The recent report from the President's Council of Economic 
Advisers, of course you are Chair, on the economic case for 
health care reform could not be more timely. As you obviously 
know, we will see draft legislation come out, be reported out 
today by the committees, but we really do want to hear from you 
and look forward to it.
    The challenges in our economy and the challenges in our 
health care system and the degree to which they are linked, 
that is going to be very, very important. As we talk about 
rebuilding our economy in order to enable American businesses 
to be more competitive and to restore stability for our budget 
and to bring our country back to the path of strong fiscal 
standing, we know that we have a challenge to create a uniquely 
American solution to health care costs and coverage.
    We have already begun this work. In just the first 3 months 
of the administration in which you serve, and I am so delighted 
to see you making such progress already, we have already 
strengthened the health care more so than we have done in the 
past decade. And I am really proud of the fact we have extended 
affordable health coverage to 11 million children of working 
parents, taken major steps to modernize medicine through health 
information technology. That investment is important. And of 
course made a significant investment in life-saving medical 
research. And we also did create a way to help those who have 
been laid off from their jobs, at least in the near term, to be 
able to have access to health coverage.
    So all three House committees, as you know, today have all 
been working on crafting comprehensive health reform 
legislation, and will be releasing that report today, that 
proposal today. My colleagues here on the Budget Committee have 
repeatedly heard me argue for health care reform as both an 
economic and moral imperative, to use the President's words, 
and I do that often. I believe it is our fundamental 
responsibility to improve health outcomes and to expand access 
to affordable, meaningful health coverage to every American.
    We have also heard in this committee that really the really 
very grave implications for the Federal budget if we do not 
enact health care reform that controls the rate of growth of 
health care spending.
    So at today's hearing I know we will be focusing on the 
economic imperative to achieving meaningful health care reform 
this year, to our Nation's troubled economy, and to our future 
economic growth. Health care reform that slows the growth of 
health costs will lower the Federal deficit and promote 
national savings and capital formation. I hope you will address 
that in more specifics.
    Expanding health coverage for all Americans will improve 
Americans' health status and increase workforce productivity, 
free up dollars that are now used for benefits for increased 
wages and additional job growth, because we hear from many 
employers who say they would actually add jobs if they didn't 
have to worry about the rising cost of health coverage.
    So what we do know is we need to take action. Many of us 
believe that. There are a lot of different opinions about what 
that action will be. But I think this hearing is very important 
to creating the economic consequences of action or inaction, 
and I look forward very much to hearing your testimony.
    Thank you.
    Chairman Spratt. Mr. Ryan.
    Mr. Ryan. Thank you, Chairman. Dr. Romer, I think this is 
your first time here to the Budget Committee, so welcome, we 
are glad to have you. There is no debate in Washington more 
controversial, more critical, and more consequential for the 
future of our Nation than the current debate over health 
reform. Our economic future hinges on the results of this 
debate.
    Dr. Romer, I read your report, The Economic Case For Health 
Care Reform, with great interest, and I have to say I agree on 
the huge benefits of slowing health care inflation. If we can 
achieve this goal, the economic benefits are vast. And I am 
pleased that we all share this goal.
    However, at this stage in the game, with CBO fully engaged 
in scoring the proposals, I am less concerned with figuring out 
whether slowing the growth of rates will help. I know it will 
help. What I am more concerned about is how we slow the growth 
rate.
    The specifics of how we do this matter very greatly. Just 
this week CBO Director Doug Elmendorf said, quote, large 
reductions in spending will not actually be achieved without 
fundamental changes in the financing and delivery of health 
care. So what are the fundamental changes that need to take 
place?
    Congress is a legislative body, and it is not enough for us 
to assume that health care reform will have a positive effect 
on our long-term economic growth. We need to prescribe exactly 
how these changes are going to take place. What changes we make 
will actually bend the cost curve over time? The question must 
be answered and answered quickly, since our long-term economic 
outlook worsens with each year Congress fails to act.
    If you could bring up the chart, please.

    
    
    We recently learned from the Medicare trustees that the 
program's unfunded liability has grown to $38 trillion just 
this year, a single year increase of $2 trillion. Failing to 
reform this one program for just 1 year has cost us $2 
trillion.
    While I applaud the administration for proposing real 
scorable Medicare savings, many of which were included in the 
Republican budget, I have yet to see a single Democrat health 
care proposal that would direct these savings to deficit 
reduction. These savings are swallowed up by even greater 
spending increases.
    As OMB Director Orszag noted, quote, our political system 
unfortunately does not appear to be particularly effective at 
addressing gradual long-term problems such as rising health 
care costs, end quote. Again, I agree, which is why we 
shouldn't give any proposal the benefit of the doubt that it 
will magically bend the health care cost growth curve over 
time.
    Whether we can achieve these savings depends entirely on 
the specifics of these changes, none of which are in this 
particular report. Are they fundamental changes that remove 
market distortions and remove payment structures or reform 
payment structures, or are they provider cuts that Congress has 
reversed in the past and tax increases? According to CBO, there 
is no guarantee that the health care system's response to near-
term cost reductions would produce greater quality or 
efficiency. While I believe these cost reductions are 
important, bending the cost curve requires changes more 
fundamental than simply provider cuts.
    As CBO noted, quote, the government can spur those changes 
by transforming payment policies in Federal health care 
programs and by significantly limiting the current tax subsidy 
for health care or changing it.
    Last Congress I introduced an entitlement reform bill, A 
Roadmap for America's Future. And just a couple weeks ago I, 
along with a number of my colleagues, introduced a health care 
bill, The Patient's Choice Act. Both of these bills transform 
the payment structure of federal health care programs and 
reform the current tax subsidy for health insurance.
    The President has stated repeatedly that, quote, health 
care reform is entitlement reform. Again, we completely agree 
with that. The two are critically tied to each other. However, 
the fundamental drivers of entitlement costs must be addressed 
to put any health care reform proposal on a sustainable path.
    As I review the administration's health care plan and where 
it is headed in the Congress, I conclude that it is more likely 
to weaken the quality of health care, increase its costs, and 
worsen our severe long-term budget problems.
    CBO raised the same exact caution, stating, quote, without 
meaningful reforms, the substantial costs of many current 
proposals to expand Federal subsidies for health insurance 
would be more likely to worsen the long run budget outlook than 
to improve it, end quote. I agree with the benefits of reducing 
health care inflation and expanding coverage, but I hope you 
can explain how the administration's proposals will actually 
reduce health care costs and address the Nation's severe long-
term budget problem.
    Thank you, and welcome to the Budget Committee.
    Chairman Spratt. Dr. Romer, welcome to the Budget 
Committee. We are glad to have you. The piece of work you have 
done is an excellent piece of work. We appreciate it, and that 
is why we wanted you to come here this morning to talk about 
meaningful reform and what it means if we can discard the 
dysfunctional features of our health care system and move to a 
system with fewer flaws, greater efficiency. What is there to 
be gained, not just in the costs, but what is there to be 
gained for the welfare of our economy as a whole?
    Before turning to you for your statement, let me ask 
unanimous consent that all members who have not been able to 
make an opening statement be allowed to submit a statement for 
the record at this point. We will take your report and make it 
part of the record. You can summarize it as you see fit, but 
you are the only witness this morning, so you can take your 
time and plow through it as thoroughly as you like. We are glad 
to have you, and we look forward to your testimony.
    [The report, ``The Economic Case for Health Care Reform,'' 
may be accessed at the following Internet address:]

           http://www.whitehouse.gov/administration/eop/cea/
                  TheEconomicCaseforHealthCareReform/

  STATEMENT OF CHRISTINA D. ROMER, CHAIR, COUNCIL OF ECONOMIC 
                            ADVISERS

    Ms. Romer. Well, thank you so very much, Chairman Spratt, 
Vice Chair Schwartz, Ranking Member Ryan, members of the 
committee. It is indeed an honor to be with you today to 
discuss the economic impact of health care reform.
    The President, as has been noted, has identified 
comprehensive, meaningful health care reform as a top priority. 
In my testimony today I will be discussing the impact of 
successful reform on American families, businesses, the 
government budget, and the overall economy. As has been noted, 
2 weeks ago the Council of Economic Advisers issued a report on 
this topic. And with your permission, I would like to submit a 
copy of the report for the record. It contains the detailed 
analysis and citations to the relevant literature that form the 
basis of my comments today. It also is going to contain the 
sources and methodology for all of the figures that I will be 
showing you this morning.
    Well, as has been noted, the key finding of the report is 
that doing health care reform well will have tremendous 
benefits for the economy. If we can genuinely restrain the 
growth rate of health care costs significantly, while assuring 
quality, affordable health care for all Americans, living 
standards would rise, the budget deficit would be much smaller, 
unemployment could fall, and labor markets would likely 
function more efficiently. Because the economic benefits that 
we identify depend crucially on not just doing health care 
reform, but doing it well, we hope that our report will help to 
strengthen the resolve of policymakers to undertake the serious 
changes that are necessary.
    So let me start with a discussion of where we are and where 
we are headed without reform.
    Many of the crucial trends in American health care are well 
known. The Council of Economic Advisers, however, worked with 
others in the administration to develop what we think are the 
crucial facts. We feel that spelling out these facts and these 
trends makes a compelling case that doing nothing is simply not 
an option. So let me start.
    One fact that is surely well known is that health care 
expenditures in the United States are currently about 18 
percent of GDP, by far the highest of any country. The 
expenditures are projected to rise sharply.
    Here I would like, let's look at the first slide. This 
shows you national health expenditures as a share of GDP. It is 
going from its current rate, that is the dashed line, of 18 
percent, and what this shows is our projection of the likely 
path of national health care expenditures. By 2040, health 
expenditures could be roughly one-third of total output in the 
United States' economy. That would be one of every $3 that we 
make would be going to health care.
    The second effect or second trend to think about is where 
we are with households, because for households this trend of 
rising health care expenditures are likely going to show up as 
rising insurance premiums. And even if employers continue to 
pay the lion's share of premiums, both economic theory and 
empirical evidence suggest that this trend will show up in 
stagnating take-home wages.
    So let's look at the second figure. So the top line is 
showing you total compensation. This is the total amount that 
firms pay for workers. That includes both their wage and any 
fringe benefits. What the dashed line shows you is total 
compensation minus our projection of health care premiums. So 
what it is going to cost for workers. And all of these are in 
inflation-adjusted dollars.
    What we project is that without reform, the noninsurance 
part of compensation, that dashed lower line, will grow very 
slowly and likely fall eventually as premiums rise over time. 
And what you see, the way to think about that wedge between the 
two lines, those are the insurance premiums that is projected. 
We can see it has already risen, but crucially expected to rise 
very dramatically over time. And obviously where that is going 
to show up is less noninsurance compensation going to our 
workers.
    All right. Let me talk about the effect on government. 
Rising health care costs could also mean that the government 
spending on Medicare and Medicaid will rise sharply over time. 
Let's go to, I guess it is the fourth figure now. All right. So 
this, the top line shows the projection of total spending, 
Medicare and Medicaid, including the State portion, as a 
percent of GDP. And what our projections show is that these 
expenditures, which are currently about 6 percent of GDP, will 
rise to 15 percent of GDP by 2040. Now, as I said, the dashed 
line shows the projected rise in Medicare and--I guess it is 
actually the solid line shows the rise in Medicare and Medicaid 
expenditures just due to demographic factors.
    We do know that the American population is aging. The baby 
boom is going to be retiring sooner than we think. But what 
that solid line shows you is that if that were all that was 
happening, Medicare and Medicaid spending would obviously be 
rising, but not nearly as much.
    The thing that is really driving the projections of the 
long-term expenditure is the fact that the cost per enrollee is 
going up substantially. And in fact just to give you some 
numbers, roughly one-quarter of the projected rise in 
expenditures on Medicare and Medicaid as a share of GDP is 
coming from the demographic changes, and the other three-
quarters is coming from the fact that spending per enrollee is 
rising much faster than GDP. In the absence of tremendous 
increases in taxes or reductions in other types of government 
spending, this trend implies a devastating and frankly 
unsustainable rise in the Federal budget deficit.
    Finally, another trend that is well known but simply too 
crucial to be ignored is the rise in the number of Americans 
without health insurance. Currently, 46 million people in the 
United States are uninsured. In the absence of reform, this 
number is projected to rise to 72 million by 2040. And there is 
the figure that goes with that.
    The one thing I would add here is experts will tell you 
that though this is the numbers we give, like 46 million, have 
to do with how many people are uninsured at a point in time, 
but another fact that we know is that if you look say over a 2-
year period, the number of people that have some spell where 
they don't have health insurance is much larger than that. You 
hear numbers closer to 80 million of people who go through some 
period without health insurance.
    All right. So let's talk about the key elements of reform. 
So if these are sort of the trends of where we are going 
without reform, let's talk about the kind of reforms that the 
President has talked about. And he has set two fundamental 
goals for this reform. It must slow the growth rate of costs 
significantly and expand coverage to the millions of uninsured 
Americans. He has also made it clear that he wants to work with 
the current system rather than just toss it out. One of his key 
starting points is that if Americans like their current plan, 
they like their doctor, they can keep it, and they can keep him 
or her. The overarching goal is to develop a cost-effective 
health care system that preserves quality, expands coverage, 
and ensures choice and security for all Americans.
    Now, since reform plans are very much, as has already been 
mentioned, in the process of being developed cooperatively with 
the Congress, our report does not describe in detail the 
reforms that would enable us to achieve these goals. But to 
make the analysis credible, we give a sense of the kind of 
changes that might be implemented. For example, we discuss 
changes in payment systems, investments in health information 
technology, and research on what works and what doesn't that 
could help to slow the growth rate of health care costs over 
time.
    The President in his speech last Monday to the American 
Medical Association made some specific suggestions for reform 
along these lines. He also said that he would be open to 
changes that would give the recommendations of the Medicare 
Payment Advisory Commission a greater chance of adoption and 
implementation.
    The Council of Economic Advisers report also surveys the 
evidence, much of it from international comparisons and for 
comparisons across different parts of the United States, that 
there is substantial inefficiency in the current system. The 
finding of this survey is that up to 30 percent of health 
expenditures in the United States, which is equivalent to about 
5 percent of our GDP, could be cut without affecting health 
care quality or outcomes.
    This is important for making the case that slowing the 
growth rate of costs by improving efficiency is absolutely 
possible. For example, our estimate suggests that we could slow 
cost growth by 1\1/2\ percentage points per year for almost a 
quarter of a century before we would have exhausted the 
existing degree of inefficiency.
    However, I don't want to sugarcoat the situation. Slowing 
cost growth by 1\1/2\ percentage points per year may sound 
small, but it is, as has been suggested, likely to be very 
challenging. It will take an incredible degree of resolve and 
cooperation among policymakers, consumers, and providers to 
bring this about. It will surely require policymakers to take 
actions that will likely step on toes now, but whose cost-
slowing benefits may not be felt until 5 or even 10 years into 
the future. But what our study shows is that slowing health 
care cost growth significantly should be possible.
    Let me turn also to coverage expansion. Some of coverage 
expansion involves designing mechanisms that overcome market 
failures. For example, the fact that individuals know more 
about their likely health expenditures than potential insurers 
leads insurers to charge rates for individuals in small groups 
that are above the actual cost of providing coverage for these 
segments in the population. Expanding coverage will likely 
involve creation of some sort of an insurance exchange that 
gives individuals and small groups the same benefits of risk 
pooling and elimination of adverse selection that employees of 
large firms enjoy.
    One feature of the insurance exchange and coverage 
expansion that the President has made clear is not negotiable 
is the limitation on coverage of preexisting conditions. 
Americans with health problems need the security of knowing 
that if they change jobs or they lose jobs, they will still be 
able to get health insurance coverage.
    All right. Well, at some level all of this discussion of 
where we are headed and the keys to successful reform are the 
necessary prelude to our more substantive contribution, which 
is to talk about the economic benefits of successful reform. 
Now, in our study we considered the effects of cost containment 
and coverage expansion separately, but obviously the two are 
related. Expanding coverage is likely to make certain types of 
cost containment easier to achieve. For example, widespread 
access to primary care is likely to increase the emphasis on 
disease prevention and wellness. Smoking cessation and weight 
management are two preventative measures that could genuinely 
reduce cost growth over time, while obviously improving health 
and the quality of life.
    In our analysis of cost containment, we focus on slowing 
the growth rate of costs. This is the so-called curve bending 
that can last for decades. Slowing the growth rate of costs is 
quite separate from the actions that we may take immediately to 
cut the level of government medical spending, such as the more 
than $300 billion of Medicare and Medicaid savings proposed in 
our budget, and the roughly $313 billion of additional savings 
that the administration proposed just last Saturday. These 
immediate cuts are unquestionably important for paying for the 
expansion of coverage and health care reforms in the next 
decade.
    But for thinking about the changes that will save us from 
the unsustainable long run trends that I discussed earlier, 
slowing cost growth year after year is essential, and what we 
focus on in our study. Now, we considered various degrees of 
cost containment.
    All right. In particular, we looked at the effects of 
slowing the annual growth rate of health care costs by one and 
a half, one, and just half a percentage point. And to be 
conservative, we assumed that it is going to take a few years 
before that genuine curve bending kicks in. All right. Well, 
this figure, though, is going to show you that the most direct 
effect of slowing growth in health care costs is that it would 
reduce the growth in the amount of resources that we have to 
devote to health care. As a result, the share of health care 
spending in GDP would rise more slowly.
    And so what this picture is going to show you is the 
projected path of health care spending as a share of GDP under 
the assumption that the cost savings are devoted to nonhealth 
spending. All right. So the top line shows the path that we are 
on without reform. You have seen that before. Health care 
expenditures as a share of GDP rising steeply. The other lines 
show the projections under the different degrees of cost 
containment. If you want it, you get the very visual idea of 
bending the curve, in this case looking at what it is going to 
do to health care expenditures as a share of GDP. If we look at 
the bottom line, if we lower annual health care cost growth by 
1\1/2\ percentage points, the share of health spending in GDP 
in 2040 would be just about 23 percent of GDP rather than 34 
percent, which is where we are currently headed.
    Fundamentally, what slowing cost growth does is free up 
resources. If we can restrain costs by eliminating waste and 
inefficiency, we can have the same real amount of health care 
with resources left over to produce the other things that we 
value. This causes standards of living to rise. So in our 
report we analyze the effects of this freeing up of resources 
in a standard growth accounting framework. And if you like 
equations, there are lots of them in the appendix.
    Now nothing says how we would use those freed up resources. 
We may spend some of them to increase the quantity of health 
care by expanding coverage. We might also choose to use some of 
those freed up resources to improve the quality of our health 
care. But the crucial finding of our analysis is that we can 
have more of all of the things that we value as a country if we 
slow the growth rate of health care costs.
    We also expand our framework to think about what slowing 
cost growth would do for the deficit and for capital formation 
or investment. Because the government is a major provider of 
health care, slowing the growth rate of health care costs could 
lower the deficit and thus raise public saving. And efficiency 
gains that raise income would lead to additional private 
saving. All of this increased saving would tend to lower 
interest rates and encourage investment, and this extra 
investment is very good for standards of living and the level 
of output that we can produce.
    Now, our estimate suggests that the combined impact of 
greater efficiency in health care and greater investment is 
very large.
    Why don't we go to the next slide.
    And a way to make sort of these effects very concrete is to 
translate them into the effects on the income of a typical 
family of four, again everything in constant dollars, adjusting 
for inflation, and these effects are shown in the figure. The 
bottom line shows the proposed path or the projected path of 
real family income without reform. The higher paths show family 
income under different degrees of cost containment.
    Our numbers suggest that if we slow cost growth by 1\1/2\ 
percentage points per year, family income would be about $2,600 
higher in 2020 than it otherwise would have been. By 2030, it 
would be nearly $10,000 higher.
    I also want to show you what our analysis implies about the 
effect of health care cost containment on Federal budget 
deficits. I need to be very clear that our estimates are not 
the official budget projections, which would be based on 
detailed projections of spending and revenues. Ours are more 
back-of-the-envelope calculations. They are also looking very 
much down the line 2 and 3 decades from now.
    The other thing to be very clear is that our numbers do not 
include the cost of coverage expansion, and this is because the 
President has pledged that those costs in the next 10 years 
will be covered by hard scorable spending, savings, and revenue 
increases that are currently under discussion. Our numbers show 
the effect of slowing cost growth over the long term.
    The key thing is that we find the effects on the deficit 
are very large. This figure shows deficit reduction in key 
years. And the different bars in each year show you the 
different degrees of cost containment. The purple is if we 
manage to slow cost growth by 1\1/2\ percentage points. What 
you see if you look there in 2030 is that if we can slow cost 
growth by 1\1/2\ percentage points per year, we estimate that 
the deficit will be about 3 percent of GDP smaller than it 
otherwise would have been. By 2040, it would be 6 percent of 
GDP smaller.
    The numbers illustrate the crucial truth that serious 
health care cost growth containment is the number one thing 
that we can do to ensure the long run fiscal health of the 
country. Health reform is absolutely central to long run fiscal 
stability.
    Another macroeconomic effect of cost growth containment is 
a shorter run impact on unemployment and employment. When 
health care costs are growing more slowly, wages can grow 
without firms' costs rising. So firms do not raise prices as 
much. This allows monetary policy to lower the unemployment 
rate, while keeping inflation steady. Our estimates suggest 
that slowing cost growth by 1\1/2\ percentage points per year 
would lower normal unemployment by about a quarter of a 
percentage point. This translates into an increase of 
employment of about 500,000 jobs. While this is almost surely 
not a permanent effect, it could last for a number of years.
    Now, what this picture shows, it relates to studies that 
find that this mechanism was one source of the unusual 
prosperity of the 1990s. This figure shows medical care 
inflation, that is the heavy blue line, and it shows overall 
inflation, that is the black line, and then the shaded blue 
area shows you the unemployment rate. And what you can't help 
but notice is that medical care inflation fell dramatically in 
the 1990s. Greater attention to costs and widespread changes in 
the nature of health insurance led to a period of much lower 
health care cost growth.
    What we also know, it sort of fell, medical care inflation 
fell from about 10 percent at the beginning of the decade to 
below 3 percent. What you certainly probably remember is that 
the unemployment rate also fell steadily over this period. 
Formal studies suggest there was a linkage between the two, and 
that the impact of slowing health care costs on the 
unemployment rate were quantitatively significant.
    All right. Well, our report also discusses the benefits of 
coverage expansion. The most important of these involves the 
economic well-being of the uninsured. We used the best 
available estimates to try to quantify the costs and benefits 
of expanding coverage to all Americans. Among the benefits that 
we attempt to put a dollar value on are the increase in life 
expectancy and the decreased chance of financial ruin from 
higher medical bills. The costs to society of covering the 
uninsured represent a mix of public and private costs, and come 
from existing studies, not from estimates of plans being 
currently contemplated by Congress.
    What we find is that the benefits of coverage to the 
uninsured are very large and substantially greater than the 
costs. Our estimates show that the net benefits, the benefits 
minus the costs, are roughly $100 billion per year, or about 
two-thirds of a percent of GDP.
    Another effect of expanding coverage that we considered is 
increased labor supply. With full health insurance coverage, 
some people who would not be able to work because of disability 
would be able to get health care that prevents or effectively 
treats that disability. They would therefore be able to stay in 
the labor force longer. A related effect is that some workers 
currently in the labor force would be more productive with 
better health care. How large these effects might be are hard 
to predict, and there could be offsetting effects.
    For example, with a better insurance market some workers 
who are working just to get health insurance might retire 
earlier. But we believe that the net impact on the effective 
labor supply will be positive and will further increase GDP.
    The final impact that we identify is the effect of 
expanding coverage on the efficiency of the labor market. 
Expanding coverage and eliminating restrictions on preexisting 
conditions could end the phenomenon of job lock, where worries 
about health insurance cause workers to stay in jobs even when 
there are ones that pay better or are a better match available. 
Our estimates, again based on a range of economic studies, are 
that this benefit could be about two-tenths of a percent of GDP 
each year.
    Similarly, we examine the fact that small businesses are 
currently disadvantaged in the labor market because current 
employer-sponsored insurance is so expensive for them, due in 
large part to the fact that they do not have a large workforce 
over which to pool risk. Moving to an insurance system that 
removes this disadvantage should be beneficial to the 
competitiveness of the crucial small business sector of the 
economy.
    So the bottom line of our report is that doing health care 
reform right is incredibly important. If we can put in place 
reforms that slow cost growth significantly and expand 
coverage, the benefit to American families, firms, and the 
government would be enormous. To put it simply, good health 
care reform is good economic policy.
    Thank you.
    [The prepared statement of Ms. Romer follows:]

            Prepared Statement of Christina D. Romer, Chair,
                      Council of Economic Advisers

    Chairman Spratt, Ranking Member Ryan, members of the Committee, it 
is an honor to be with you today to discuss the economic impact of 
health care reform. The President has identified comprehensive health 
care reform as a top priority. In my testimony today, I will discuss 
the impact of successful reform on American families, businesses, the 
government budget, and the overall economy. Two weeks ago, the Council 
of Economic Advisers issued a report on this topic. With your 
permission, I would like to submit a copy of our report for the record. 
It contains the detailed analysis and citations to the relevant 
literature that form the basis for my comments today.
    The key finding of the report is that doing health care reform well 
will have tremendous benefits for the economy. If we can genuinely 
restrain the growth rate of health care costs significantly, while 
assuring quality, affordable health care for all Americans, living 
standards would rise, the budget deficit would be much smaller, 
unemployment could fall, and labor markets would likely function more 
efficiently. Because the economic benefits that we identify depend 
crucially on not just doing health care reform, but doing it well, we 
hope that our report will help strengthen the resolve of policymakers 
to undertake the serious changes that are necessary.

                    TRENDS IN THE ABSENCE OF REFORM

    The report has four key sections. The first discusses some of the 
key projections of what is likely to happen in the health care sector 
without successful reform. If you want--it shows the costs of doing 
nothing.
    One fact that is well known is that health care expenditures in the 
United States are currently about 18 percent of GDP, by far the highest 
of any country. These expenditures are projected to rise sharply. By 
2040, health expenditures could be roughly one-third of total output in 
the U.S. economy.
    For households, rising health care expenditures will likely show up 
in rising insurance premiums. Even if employers continue to pay the 
lion's share of premiums, both economic theory and empirical evidence 
suggest that this trend will show up in stagnating take-home wages. 
This figure (Figure 3 in the report) shows our projection of total 
compensation and compensation less insurance costs, both in inflation-
adjusted dollars. We project that without reform, the non-insurance 
part of compensation will grow very slowly, and likely fall eventually, 
as premiums rise sharply over time.



    Rapidly rising health care costs also mean that total government 
spending on Medicare and Medicaid (including state spending) will rise 
sharply over time. Our projections suggest that these expenditures, 
which are currently about 6 percent of GDP, will rise to 15 percent of 
GDP by 2040. A crucial fact is that only about one-quarter of the total 
rise in government health expenditures is due to demographic changes. 
The other three-quarters is due to the fact that health care spending 
per enrollee is rising much more rapidly than GDP. In the absence of 
tremendous increases in taxes or reductions in other types of 
government spending, this trend implies a devastating, and frankly 
unsustainable, rise in the Federal budget deficit.
    Another trend that is well known, but too crucial to be ignored, is 
the rise in the number of Americans without health insurance. Currently 
46 million people in the United States are uninsured. In the absence of 
reform, this number is projected to rise to about 72 million by 2040.

                             NEEDED REFORMS

    A second key part of our study looks at the inefficiencies in our 
current system and the market failures leading to our lack of 
insurance. It is important to diagnose the problem before one can 
sensibly discuss solutions. This part of the report also discusses the 
key goals the President has laid out for reform. One is to slow the 
growth rate of health care costs significantly, while maintaining 
quality and choice of doctors and plans. Another is to expand health 
insurance coverage to all Americans.
    Since reform plans are very much in the process of being developed 
cooperatively with the Congress, our report does not describe in detail 
the reforms that would enable us to achieve these goals. But, to make 
the analysis credible, we give a sense of the kind of changes that 
might be implemented. For example, we discuss changes in payments 
systems, investments in health information technology, and research on 
what works and what doesn't that could help to slow the growth rate of 
health care costs over time. The President, in his speech last Monday 
to the American Medical Association, made some specific suggestions for 
reform along these lines. He also said that he was open to changes that 
would give the recommendations of the Medicare Payment Advisory 
Commission greater chance of adoption and implementation.
    The CEA report also surveys the evidence, much of it from 
international comparisons and comparisons across different parts of the 
United States, that there is substantial inefficiency in the current 
system. The finding of this survey is that up to 30 percent of health 
expenditures in the United States (which is equivalent to about 5 
percent of GDP) could be cut without affecting health care quality or 
outcomes. This is important in making the case that slowing the growth 
rate of costs by improving efficiency is possible. For example, our 
estimates suggest that we could slow cost growth by 1.5 percentage 
points per year for almost a quarter of a century before we have 
exhausted the existing inefficiency.
    However, I do not want to sugarcoat the situation. Slowing cost 
growth by 1.5 percentage points per year may sound small, but it is 
likely to be very challenging. It will take an incredible degree of 
resolve and cooperation among policymakers, consumers, and providers to 
bring this about. It will require policymakers to take actions that 
will likely step on toes now, but whose cost-slowing benefits may well 
not be felt until five or even ten years into the future. But, what our 
study shows is that slowing health care cost growth significantly 
should be possible.

                 ECONOMIC IMPACT OF SLOWING COST GROWTH

    More fundamentally, what our study shows is that the economic 
benefits of taking actions to slow cost growth will be enormous. This 
is, in fact, the conclusion of the third key part of our study, which 
looks at the economic effects of successful reform. In our study, we 
consider the effects of cost containment and coverage expansion 
separately. But obviously, the two are related. Expanding coverage is 
likely to make certain types of cost containment easier to achieve. For 
example, widespread access to primary care is likely to increase the 
emphasis on disease prevention and wellness. Smoking cessation and 
weight management are two preventative measures that could reduce cost 
growth over time, while improving health and quality of life.
    In our analysis of cost containment, we focus on slowing the growth 
rate of costs. This is the so-called ``curve-bending'' that can last 
for decades. Slowing the growth rate of costs is quite separate from 
actions that we might take immediately to cut the level of government 
medical spending, such as the more than $300 billion of Medicare and 
Medicaid savings proposed in our budget and the roughly $313 billion of 
additional savings the Administration proposed last Saturday. These 
immediate cuts are unquestionably important for paying for the 
expansion of coverage and health care reforms in the next decade. But, 
for thinking about the changes that will save us from the unsustainable 
long-run trends I discussed earlier, slowing cost growth year after 
year is essential, and what we focus on in our study.
    We consider varying degrees of cost containment. In particular, we 
look at the effects of slowing the annual growth rate of health care 
costs by 1.5, 1.0, and 0.5 percentage points. To be conservative, we 
assume that it takes a few years for genuine curve-bending to kick in.
    The fundamental thing that slowing cost growth does is free up 
resources. If we restrain costs by eliminating waste and inefficiency, 
we can have the same real amount of health care with resources left 
over to produce other things that we value. This causes standards of 
living to rise.
    We analyze the effects of this freeing up of resources in a 
standard growth accounting framework. Now, nothing says how we would 
use those freed up resources. We may spend some of them on increasing 
the quantity of health care by expanding coverage. We also might choose 
to use some of the freed up resources to improve the quality of our 
health care. But, the crucial finding of our analysis is that we can 
have a lot more of the things we value as a country if we slow the 
growth rate of health care costs.
    We then expand our framework to analyze what slowing cost growth 
would do for the deficit and capital formation (or investment). Because 
the government is a major provider of health care, slowing the growth 
rate of health care costs would lower the deficit and thus raise public 
saving. And, efficiency gains that raise income would lead to some 
additional private saving. All of this increased saving would tend to 
lower interest rates and encourage investment. This extra investment 
increases output even more.
    Our estimates suggest that the combined impact of greater 
efficiency in health care and greater investment is very large. If we 
can slow cost growth by 1.5 percentage points, we estimate that 
correctly measured real output in 2020 would be about 2\1/2\ percent 
higher than it otherwise would have been. By 2030, it would be nearly 8 
percent higher. If we only manage to slow growth by 1 percentage point, 
real output would be about 1\1/2\ percent higher in 2020 and 5\1/2\ 
percent higher in 2030. These results show very clearly that the more 
we can slow cost growth, the more rapidly living standards will 
improve.
    To make these numbers more concrete, we translate them into the 
effects on the income of a typical family of four (in constant 
dollars). These effects are shown in this figure (Figure 15 from the 
report). The bottom line shows the projected path of real family income 
without reform. The higher paths show family income under different 
degrees of cost containment. Our numbers suggest that if we slow cost 
growth by 1.5 percentage points per year, family income would be about 
$2,600 higher in 2020 than it otherwise would have been. By 2030, it 
would be nearly $10,000 higher.



    I also want to show you what our analysis implies about the effect 
of health care cost containment on the Federal budget deficit. I need 
to be very clear that our estimates are not official budget 
projections, which would be based on detailed projections of spending 
and revenues. Ours are more a back-of-the-envelope calculation. And, 
they do not include the costs of coverage expansion, because most of 
those costs will be covered by the spending cuts and revenue increases 
that are currently under discussion. Our numbers show the effect of 
slowing cost growth over the long term.
    We find that the effects on the deficit are very large. This figure 
(Figure 14 from the report) shows the deficit reduction in key years. 
If we can slow cost growth by 1.5 percentage points per year, we 
estimate the deficit in 2030 will be 3 percent of GDP smaller than it 
otherwise would have been. In 2040, it would be 6 percent of GDP 
smaller. The numbers illustrate the crucial truth that serious health 
care cost growth containment is the number one thing we can do to 
ensure our long-term fiscal health. Health reform is central to long-
run fiscal stability.



    Another possible macroeconomic effect of cost growth containment is 
a short-run impact on unemployment and employment. When health care 
costs are growing more slowly, wages can grow without firms' costs 
rising, so firms do not raise prices as much. This allows monetary 
policy to lower the unemployment rate while keeping inflation steady. 
Our estimates suggest that slowing cost growth by 1.5 percentage points 
per year would lower normal unemployment by around \1/4\ of a 
percentage point. This translates into an increase in employment of 
about 500,000 jobs. While this is almost surely not a permanent effect, 
it could last for a number of years.
    Studies find that this mechanism was one source of the unusual 
prosperity of the 1990s. This figure (Figure 16 from the report) shows 
medical care inflation, overall inflation, and the unemployment rate in 
the 1990s. Greater attention to costs and widespread changes in the 
nature of health insurance led to a period of much lower health care 
cost growth. The growth rate in medical care prices slowed from about 
10 percent at the beginning of the decade to below 3 percent. The 
unemployment rate also fell steadily over this period. Formal studies 
suggest that there was a linkage between the two and that the impact of 
slowing health care costs on the unemployment rate were quantitatively 
significant.



               THE ECONOMIC IMPACT OF COVERAGE EXPANSION

    The report also discusses the benefits of coverage expansion. The 
most important of these involves the economic well-being of the 
uninsured. We use the best available estimates to try to quantify the 
costs and benefits of expanding coverage to all Americans. Among the 
benefits we attempt to put a dollar value on are the increase in life 
expectancy and the decreased chance of financial ruin from high medical 
bills. The costs to society of covering the uninsured represent a mix 
of public and private costs and come from existing studies, not 
estimates of plans currently being contemplated by Congress. We find 
the benefits of coverage to the uninsured are very large and 
substantially greater than the costs. Our estimates show that the net 
benefits--the benefits minus the costs--are roughly $100 billion per 
year, or about \2/3\ of a percent of GDP.
    Another effect of expanding coverage that we consider is increased 
labor supply. With full health insurance coverage, some people who 
would not be able to work because of disability would be able to get 
health care that prevents or effectively treats the disability. They 
would therefore be able to stay in the labor force longer. A related 
effect is that some workers currently in the labor force would be more 
productive with better health care. How large these effects might be 
are hard to predict. And, there could be offsetting effects: for 
example, with a better insurance market some workers who are working 
just to get health insurance might retire earlier. But, we believe that 
the net impact on effective labor supply will be positive and will 
further increase GDP.
    The final impact that we identify is the effect of expanding 
coverage on the efficiency of the labor market. Expanding coverage and 
eliminating restrictions on pre-existing conditions would end the 
phenomenon of ``job lock,'' where worries about health insurance cause 
workers to stay in their jobs even when ones that pay more or are a 
better match are available. Our estimates, based on a range of economic 
studies, are that this benefit could be about \2/10\ of a percent of 
GDP each year. Similarly, we examine the fact that small businesses are 
currently disadvantaged in the labor market because current employer-
sponsored insurance is so expensive for them (due in large part to the 
fact that they do not have a large workforce over which to pool risk). 
Moving to an insurance system that removes this disadvantage should be 
beneficial to the competitiveness of the crucial small business sector 
of the economy.
    The bottom line of our report is that doing health care reform 
right is incredibly important. If we can put in place reforms that slow 
cost growth significantly and expand coverage, the benefits to American 
families, firms, and the government budget would be enormous. To put it 
simply, good health care reform is good economic policy.

    Chairman Spratt. Thank you very much, Dr. Romer. A couple 
of questions on my part, and then in the interests of seeing 
that everyone gets a chance, I will limit my questions.
    But first for detail, health care as a percentage of GDP, 
sometimes you see 16 percent, sometimes 18 percent. You have 
used 18 percent here. What is the reason for the difference?
    Ms. Romer. Some of it certainly has to do with sort of how 
up to date your numbers are. One of the things that is true is 
as GDP has gone down, that is making the current amount that we 
spend a bigger fraction. So I think it probably just has to do 
with sort of are you looking at 2009, are you giving a number 
for 2007, 2008? I think that is the main source of the 
difference.
    Chairman Spratt. Years ago I remember when we were having a 
similar debate, I think it was on Social Security, someone made 
a presentation to a Senate committee, and Senator Moynihan was 
a member of that committee, and when the presentation was 
through, it was about the cost of expanding health care, 
expanding Medicare and limits on it, and he said excuse me for 
being skeptical, but you can write it up to 25 years of being 
burned. In other words, I have seen these estimates before, and 
they simply didn't come to pass.
    What you are proposing today, the bottom line I absolutely 
agree with. We all do. It seems counterintuitive, though, and 
that makes your burden of persuasion all the more difficult, 
because basically we know what it costs to insure 46 million 
people, roughly that, because we insure through Medicare nearly 
that number. They are higher cost beneficiaries for sure, but 
still it gives you a benchmark to refer to, and it is a pretty 
substantial sum, over $300 billion a year.
    One of the questions that is raised, I don't think there is 
any doubt about the things that you are talking about, the 
doubt is about how do you implement them? How do you take the 
practices in Minneapolis and the good practices that are more 
efficient and ship them to Miami and implement them in Miami? 
How do you deal with preventive care? How do you police the way 
people eat? My daughter is an endocrinologist. She says to me I 
will tell you how you can cut the costs of health care in this 
country by 50 percent. Change the way people eat. As she does 
it, she sort of nudges her father and points towards me, but I 
am a case study in how difficult it is to change cultural 
styles.
    How do we do this? How do we implement it, and how do we 
police to it to see that we are moving towards these goals, 
which I think you would agree are not going to happen 
overnight, they will have to happen in the latter part of the 
10-year period that we are looking at?
    Ms. Romer. I couldn't agree with you more in the sense that 
it is going to be hard, and I certainly heard that in 
Congressman Ryan's remarks as well. One of the ways that I 
think of our report is it is saying it is worth it. Right. We 
are absolutely putting in your hands doing these kind of 
meaningful, fundamental reforms. And it is certainly going to, 
as I said, step on some toes. And we are trying to show how 
important it is to do it.
    In terms of what we do, again I am trying not to get too 
much ahead of the legislative process. But the crucial thing is 
that there are good ideas out there. People laugh when I say my 
bedtime reading, I keep it on my bedside table, the giant CBO 
volume of 108 things that you can do to slow the cost growth in 
Medicare spending. There are things that experts have said. Of 
course we don't know for sure how much they will work, that we 
will get exactly the cost containment that they are estimating. 
But there are crucial good ideas out there. And what we are 
asking is to get them into the legislation.
    We have tried to put on the table certainly the spending 
cuts for right now that we think will pay for the reforms we 
are trying to do and the expansion of coverage, but also having 
the concrete proposals like more research in what works and 
what doesn't work. The President's proposal on maybe giving 
MedPAC a greater role, proposals about how do you deal with 
productivity changes in the medical care sector to make sure 
that gets reflected in prices. Changes in how we bundle and how 
we do payments, like bundling payments. You know, there is a 
lot of evidence, you mentioned some of the success stories, the 
Kaisers, the Mayo Clinics, that we think manage to actually do 
better by patients and have slower cost growth.
    So that is exactly the huge challenge. I guess one of the 
things we have tried to say is there are the ideas out there, 
and basically asking you to take them.
    Chairman Spratt. One final question along the same line. 
Let's take IT, information technology, since we are already 
spending a substantial sum on it as a result of the Recovery 
Act. What sort of time frame do we expect for, number one, the 
implementation of these IT reforms and, number two, the 
achievement of gains from that technology in which we are 
investing at a pretty heavy pace?
    Ms. Romer. You are absolutely right. I think one of the 
wonderful triumphs of the American Recovery and Reinvestment 
Act is that we did get that money in there for health IT, and 
it is absolutely getting out the door. And so we anticipate 
that we will be seeing these innovations.
    I think one of the things, again, this very much gets to 
your previous question, which is sort of when will we see the 
cost saving effects? You know, here the best analogy I would 
give is the computer revolution. When we looked at it as 
economists, we saw the consumer or the computer revolution 
coming to American business, and for the longest time, 10 years 
even, we said why isn't it showing up in the data? And then one 
of the views about another reason why the 1990s were so good is 
it was like bam, that is when it kind of all came together. And 
one of the things we learn is that it is not enough just to 
have the computer there, it starts to become a way of life. You 
start to have a generation that understands how to use it where 
it is not a new-fangled contraption, and then that is when you 
start to get the incredible productivity gains.
    And I have heard David Cutler, who is an expert in health 
economics, talk about how there will certainly be a lag, and it 
could unfortunately, in our numbers we say we probably don't 
get a lot of this curve bending for at least 5 years until this 
technology diffuses, people become comfortable, we design a 
system that works with it rather than trying to deal with it in 
our old system. So it is almost surely going to take time. I 
would say the evidence from the computer revolution is 
absolutely the productivity benefits, the cost slowing benefits 
will come. It could easily take 5 to 10 years.
    Chairman Spratt. Well, thank you, ma'am. We look forward to 
working with you to achieve all of these goals.
    Mr. Ryan.
    Mr. Ryan. Thank you, Chairman. I enjoyed your study, and I 
would just simply say I think we all agree with these 
conclusions. That is really not the issue here. We all know if 
we bend the cost curve, good things happen. That is pretty much 
something we all agree on. But we are leapfrogging the facts 
before us, which is how do we achieve that? What is Congress 
going to do legislatively to achieve these goals we know are 
all very good? So that is really what we are focusing on here.
    One of the assumptions you have in your study is that all 
these cost savings go to the deficit reduction and then all 
these good things happen. But let me ask you this. When we are 
looking at the way this bill is being set up, all these cost 
savings are going to create a new benefit.
    So let's just take the Medicare savings, for example. I can 
only speak to things we read in the press because we haven't 
seen the legislation yet, but let's just say it is the $400 
billion in Medicare savings. I think that is the number we 
hear. Any of my Ways and Means colleagues want to correct me?
    Let's just assume it is 400 billion. That 400 billion isn't 
going to the bottom line to the taxpayer, it is going to create 
a new benefit. And so the cost savings are going to create new 
liabilities. And here is my big concern. It seems to me that 
what we are putting on the tracks here is a brand new 
entitlement program that could very well likely rival the size 
and liabilities of Medicare itself.
    Look at the experience of the last 10 years. 1997, we 
passed the BBA. That was a bill that created the SGR, created a 
lot of payment reforms in Medicare, and was at the time 
estimated to save about $370 billion over 10 years of Medicare 
savings. It was a bipartisan bill. Bill Clinton was President, 
Republican Congress, cut capital gains taxes, paved the way for 
the surpluses that occurred later. A great budget agreement 
that this man right here was a big part of.
    But what happened after that? Congress gave back all the 
savings. We had the BBRA, we had BIPA, we had all these bills 
where we gave back all of these savings. And I will agree that 
some of them were artificial price controls that didn't work. 
Point being, though, Congress created the savings and then 
interest groups came, lobbied, and the money went away. And 
what happened? The liabilities continued to grow.
    So here is what we are doing again. We are creating a new 
benefit, a new entitlement, a universal entitlement, and we are 
setting up a pay-for system that is not a self-financing 
system. We are setting up a pay-for system with a grab bag of 
tax increases and a grab bag of provider cuts, which history 
shows us always fade away, but the new entitlement continues 
on. And so we are basically doing this all over again.
    And so what I can't comprehend or what I can't get my mind 
around is how are we fixing the problem here of our long-term 
fiscal liabilities when we are creating a new entitlement, 
paying for it within the first 10 years, when all of the 
experience and history shows us that these pay-fors fade away, 
the entitlement grows, and voila, another huge new health care 
entitlement.
    How do you reconcile that?
    Ms. Romer. All right. So I think the crucial thing is to 
draw the distinction between paying for the things that we are 
doing right now and the reforms that are going to slow the 
growth rate of costs. Because fundamentally, what the President 
has said is, you know, we do know that expanding coverage, we 
do know that, as we have already described the investments in 
health IT and research and what works and what doesn't work, 
those do cost money. And that is why the President, through his 
budget and other things that he has announced, has put $948 
billion on the table to pay for this in the next 10 years. You 
know, he has said very clearly this absolutely has to be 
deficit neutral in the short run. And then exactly what our 
report is talking about and what we are asking the Congress to 
do is to in that process of expanding coverage, doing these 
reforms, to put in the kind of changes that will slow the 
growth rate of costs over time. That is just simply so 
important, and that is why it is not just these level savings 
that we have been talking about now, but the more significant 
reforms in how we pay providers, emphasizing value over volume, 
how we set up systems to deal with productivity improvements, 
how we change the incentives used for technological change. 
Those are just so crucial for the long run deficit.
    Mr. Ryan. Right. Because I want to be sensitive to people's 
times. The clock doesn't run for the two of us, but I want to 
be sensitive to that. Why didn't you talk about ideas to bend 
the cost curve itself? You talk about the conclusion of bending 
the cost curve. You assume 1.5 percent, which by the way I 
think you say is the upper bound.
    Number one, my question is do you think that is an actual 
realistic assumption? But number two, why not talk about the 
game changers that Federal policy can actually effect, like the 
changing of the tax subsidy, which most economists, and I think 
you would probably agree the tax exclusion is a source of 
health inflation. Why not talk about restructuring the way 
Medicare finances health care, the tax subsidies? Why not talk 
about those things that the Federal Government can actually do 
that we are fairly confident will change health inflation 
instead of just assuming changes in health inflation occur and 
then talking about all the good things that happen from that?
    Ms. Romer. Okay. So various things. First, on whether 1\1/
2\ percentage points per year is an upper bound by how much we 
could slow the growth rate of costs. We do think it is going to 
be very hard, and so we did put that in. I will tell you I was 
at a symposium with Mark McClellan and David Cutler, again two 
distinguished health economists, and Doug Holtz-Eakin, and 
David Cutler said I think you should have had 2 or 2\1/2\. So 
he absolutely thinks that we were not at the upper bound. And 
he certainly has thoughts again, he is such a big proponent of 
health IT, he thinks at some point you could get substantially 
more. So we were trying to be quite cautious. And I will say 
there are others out there.
    I do feel, as you have surely seen in our report, we didn't 
list particular things, we certainly didn't have legislative 
language, we did try to describe what the game changers were 
like. Because to make this credible it is absolutely the case 
that we are going to need to do these things.
    We didn't want to get ahead of the legislative process. Our 
job was, as I described it, basically to show you all how 
valuable it would be, to give you the support you need to say 
we are doing these hard things, but it genuinely will matter.
    But I will again commend to you the report that came out 
from Doug Elmendorf at the CBO this week about the long run 
fiscal situation, but had these very concrete game changers. I 
think you will see we have proposed or the President has spoken 
about most of those as things that are important. He has talked 
about accountable care organizations. He has talked about 
bundling payments. You know, we think that is one of the things 
that both improves the quality of care, makes sure that one 
person is watching this process beginning to end, but also has 
been shown to slow the growth rate of costs. He has talked 
about things like Centers of Excellence as a way of--you know, 
we find that patients again get better care, lower risks, and 
restraining cost growth.
    So we do think those things are out there and very much on 
the table.
    Mr. Ryan. So again we agree that with the economic benefits 
of bending the curve, you know, ceteris paribus, but you do 
this in isolation. And when taking account of the 
administration, all the other economic policies that the 
administration is providing, you know, using your work, you 
know, it is as if we are imposing all these adverse exogenous 
tax policies. And so what that means is, what I am trying to 
say here is I am a fan of your prior work, we are raising taxes 
on businesses, we are raising tax rates on small businesses, we 
are raising taxes on capital, we are maintaining the second 
highest tax rate in the industrialized world on corporations, 
we are taxing worldwide American firms on their overseas 
operations, making it harder for them to be more competitive in 
the global economy, we are engorging ourself on deficits and 
debt, which is going to make our borrowing costs go up, make 
our interest rates go up, and so we are engaging in this kind 
of economic policy that is sure to harm our economy. This is 
not an opinion; I think any kind of good regression analysis 
would show this.
    And so yes, bending the cost curve in health care is good, 
but if we are really trying to see what we are going to do to 
achieve prosperity in America, shouldn't we look at all things 
that the government is doing? And since you are the CEA, 
shouldn't you incorporate in these kinds of studies all the 
other things that the Federal Government is doing that I think 
you would have argued are not good economic policies?
    Ms. Romer. I certainly should look at all of the things 
that the Federal Government is doing, and I think we are doing 
a spectacular job. I would say the American Recovery and 
Reinvestment Act was incredibly useful spending, that there is 
simply nothing worse for the deficit than having the economy go 
off a cliff. And bringing us back from that cliff has been 
absolutely crucial. I think what the President has----
    Mr. Ryan. You are welcome, I set you up on that one there.
    Ms. Romer. What the President has been talking about is not 
only getting through this crisis, but putting us on a stronger 
footing going forward. And you have seen he has done a 
financial regulatory reform, he is talking about health care 
reform, all the things that we need to do to make us stronger 
going forward.
    I also want to come back, since you brought up the issue of 
taxes, again I have to come back to the Recovery Act, because 
surely you know one of the biggest things that we did was give 
substantial tax cuts to the vast majority of the American 
population. So the crucial Making Work Pay tax cut.
    And then I think you and I do not disagree that deficits 
are a problem, and that is why I am here today. You know, I 
have from long before I had this job those CBO studies that 
showed the trajectory that we were on for Medicare and Medicaid 
spending. It is just something I can't emphasize enough that 
can't last. And so I think what we all need to talk about is 
what can we possibly do to bend the curve to slow that cost 
growth. Because it has to happen. The trajectory we are on 
cannot come to be without the country really getting into big 
fiscal trouble.
    Mr. Ryan. Thank you. I will just simply conclude by saying 
CBO is warning. They are telling us our deficit path is 
unsustainable. It will never get below $600 billion. We end the 
budget window with the tripling of the national debt, 5.4 
percent of GDP deficit. They are telling us in their long-term 
projections on health care we are going in the wrong direction. 
We are possibly adding a new third health care entitlement that 
I think most observers would say will not be fully paid for. We 
are not even doing long run scoring outside of the 10-year 
window to see what kind of liabilities we are piling onto the 
next generation.
    And so you know, obviously we have differences of opinion 
on some of these things. We do agree bending the health care 
cost curve is a good thing for many reasons. We just might 
disagree on how we achieve that.
    Thanks for coming.
    Chairman Spratt. Mrs. Schwartz.
    Ms. Schwartz. Thank you. I often find myself having to 
decide between asking my question and engaging some of the 
debate I want to engage in and then just answering Mr. Ryan. So 
coming after him, I always have that sort of little dilemma 
personally, because I do want to say that much of what Mr. Ryan 
said, well, our agreement is that we want to grow this economy, 
right. And in fact, some of the suggestions that Mr. Ryan made, 
I have to say, while we are looking at all the options, there 
is nothing in your report that suggests either an entitlement 
or the kind of taxes that he is talking about. So without 
spending time on that, there is nothing that we are discussing 
today that suggests that.
    What you are saying, in very, very clear terms, and I 
wanted to just sort of follow up on this, is that if we are to 
grow this economy, if we are going to enable businesses to be 
able to have the capital to make the investments, whether it is 
new employees or expanding their business in other ways, they 
need to have that capital. And they are finding increasing 
dollars, scarce dollars that they have in this economy going 
into health care benefits. They want to see that shrink for 
themselves, and certainly their employees do.
    In addition to the issue about the Federal budget, what I 
really wanted to ask you about, because you mentioned this 
certainly in your comments, and in the report it comes out 
pretty significantly, is that one of the questions we have been 
asked by our constituents, they care about the Federal budget 
and the deficit, it is very important to us on the Budget 
Committee, they care about economic competitiveness, but what 
they mostly want to know is how it is going to affect them. 
Most Americans have health insurance coverage. Now, a lot of 
them are really worried about that cost. A lot of them are 
worried about losing it. A lot of them don't change jobs 
because they don't know what their health care coverage is 
going to look like. A lot of them don't start new businesses 
because they say they may have a preexisting condition, and 
they know they are just never going to be able to pay for 
health care coverage, and they worry about that.
    So without giving all the answers here, I think this is 
important, but what I would like you to be as specific as you 
can on, how is this going to matter to the millions of 
Americans who now have health insurance coverage for us to 
actually take the action that you have laid out that we believe 
that we have to take in order to bring down the deficit and to 
be able to address the concerns about the insecurity that so 
many Americans feel about health insurance coverage?
    So if you could speak a little more specifically to the--
should anybody be listening--to the millions of Americans out 
there who say what does this do for me?
    Ms. Romer. Absolutely. And it absolutely is crucial to 
Americans at just so many levels. So let me start with one, 
which is one of the things that the President wants to make 
sure is that people aren't frightened by health care reform. 
Right. That he wants to make it clear if you like what you 
have, if you like your doctor, we are not going to--we are 
going to preserve that. And that is so important.
    A second thing, though, is what they may well be--what the 
average American may well be reacting to is they have seen the 
same numbers, the same studies coming out. They realize that on 
the trajectory we are going they might not be able to have what 
they have now because the status quo just can't last. We are 
seeing these health care costs rise so dramatically. They know 
that their premiums are going to be going up dramatically. They 
are worried. We see with small businesses the number of them 
that have dropped their employer-sponsored health insurance has 
just really been skyrocketing over the last few years as costs 
have been going up. So we do projections when costs go up even 
more, even more of those are going to drop.
    Ms. Schwartz. So some of the risk adjustments, some of the 
risk pooling that we can do for small businesses could make a 
very, very big difference in their actually seeing a change, a 
reduction, a decrease in what they are paying for health 
insurance.
    Ms. Romer. Absolutely. I think that is just so crucial, to 
make sure that Americans have the security that if they like 
what they have, it can last, because we will take the kind of 
reforms that will make sure that costs don't rise 
astronomically.
    Your point about security. I think the President's emphasis 
on as we do this right, as we get something like a health 
insurance exchange, we can get rid of the limitation on 
preexisting conditions. Because, you are right, so many 
Americans, one of the things they worry most about losing their 
job is if I have got a preexisting condition, will I ever be 
able to get insurance again. To take away that source of 
insecurity for the average American, I think, is going to be 
incredibly important.
    I think the other thing, oftentimes when we have been 
talking about financial regulatory reform or any of these big 
things that we are talking about, of course the things right 
down next to home are important. But I keep trying to come back 
to the bigger picture, which is every American benefits from a 
healthier economy.
    And so taking the kind of steps that slow the growth rate 
and costs so that our budget deficit doesn't go through the 
roof, so that we don't have interest rates rising over the next 
two or three decades, all of that is so important. They may not 
notice it much. It is not like it is right there in their 
paycheck every month. But it is fundamental to their economic 
well-being and what they can hope to leave to their children. 
The kind of economy and society that we will have.
    And so I think keeping that big picture in mind is crucial 
for each person.
    Ms. Schwartz. My time is up, but certainly it is going to 
be very real to American families if they have more money in 
their paycheck after a decade of stagnant wages and if they 
actually have some money to save for the future, those extra 
dollars, because they get cheaper health care coverage, but 
better quality health care coverage and maybe they are 
healthier, will be real to them.
    I appreciate your comments and really commend all of my 
colleagues to read your report fully. I think it really states 
the case for us to take action. Thank you. I yield back.
    Chairman Spratt. Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. Dr. Romer, if the 
purpose of your testimony is to convince us that health care 
reform is a must and that there are great benefits for our 
citizens and our economy to control health care inflation, I 
would say either, one, your testimony is not needed, or it has 
succeeded beyond its wildest expectations. I don't think there 
is any disagreement on any of those propositions on either side 
of the aisle.
    Ms. Romer. May I take the second one?
    Mr. Hensarling. The question is not should, the question is 
how. In that regard, the President, I guess on Monday, gave a 
speech to the American Medical Association. And you have 
alluded to this. I think the President has said it on many 
occasions, but he said, ``If you like your health care plan, 
you will be able to keep your health care plan. Period.''
    Now, one of the major Democratic plans that is on the table 
today is the Kennedy-Dodd bill. CBO recently came back with 
analysis of parts of that bill that indicated, ``The number of 
people who had coverage through an employer would decline by 
about 15 million, and coverage from other sources would fall by 
about 8 million.''
    Given this estimate from CBO, do you accept that estimate? 
And, if so, given the President's commitment on Monday, if the 
Kennedy-Dodd bill came across his desk, is that something he 
would reject?
    Ms. Romer. It is so important to realize that, as you well 
know, there are lots of bills being talked about, and we are 
going to be getting just a whole slew of CBO scores as these 
various bills make their way through. The other thing that is 
important is, of course, in that particular case what was being 
scored was a very incomplete part of it. So what the President 
has, he has definitely sketched out his vision. I strongly 
recommend----
    Mr. Hensarling. Dr. Romer, let me try it a different way, 
then. Let's divorce it from the Kennedy-Dodd bill. If 
legislation comes across his desk that CBO analyzes will have a 
significant decline in the number of people who are covered 
through their employers, would the President veto that 
legislation?
    Ms. Romer. I am not going to presume to speak for the 
President. I will tell you that he has said many times part of 
the American way of health care insurance is largely employer-
sponsored. And that is something he wants to maintain. And he 
has talked about ways that he would do that. That is certainly 
very important to him.
    Mr. Hensarling. Let me ask you about something else the 
President has said, Dr. Romer. I guess on June 11, 2009, in his 
town hall meeting in Green Bay, Wisconsin, the President said, 
If the private insurance companies have to compete with a 
public option, it will keep them honest and it will help keep 
their prices down.
    I don't know of any hospital administrator, I don't know of 
any physician that has certainly walked into my office since I 
have been a Member of Congress who hasn't said essentially we 
have non-Medicare patients who end up subsidizing Medicare 
patients. Essentially, what some do not pay in premiums in the 
front door, they end up paying in taxes in the back door.
    So I am just somewhat curious. If I am a private 
competitor, how do I compete with somebody who writes the rules 
of the game and essentially has a printing press of Federal 
money in the back warehouse? I mean, how do you expect to 
compete with the government?
    It seems to me we kind of tried this in the mortgage market 
with something called Fannie and Freddie. They drove out within 
their section of the market--for all intents and purposes, they 
drove out all of the private competitors, and now we have seen 
what has happened. And it has blown up in the marketplace.
    So, how do you really expect any type of private insurance 
company to end up competing with somebody who can print money, 
subsidize the plan with taxes, and write the rules?
    Ms. Romer. Let's first be clear, the reason that the 
President has supported a public plan, he wants to make sure 
that every consumer has choice. And we do know if you set up 
exchanges, depending on sort of the level at which you set them 
up, we do know that there is a lot of geographic concentration, 
and so wanting to make sure that everybody has a number of 
plans to choose from. One way you can do that is make sure that 
there is a public one. So I think that is very important.
    Your point, I think, it is going to be in the details. I 
very much take your point to heart that we do need, when we 
have this public plan, it needs to be on a level playing field.
    Mr. Hensarling. But you at least admit there is the 
possibility that a public plan, if not properly engineered, 
could drive out private plans?
    Ms. Romer. The important thing is how we design it. That is 
true with so much of what we do.
    Mr. Hensarling. I see my time is up. Thank you.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thank you very much. Thank you so much for 
your testimony and your important work, Dr.
    With reference to the revenues that will be necessary to 
finance health care reform, after we have gotten the most that 
can be had in terms of savings and have tried to assure as 
efficient a program as possible, I know the President has 
suggested some ways of providing those revenues.
    Is it important in an economic sense that the financing for 
any health care plan be progressive in its effect on our 
population?
    Ms. Romer. You are absolutely right that the President has, 
as he has been proposing, how are we going to pay for what we 
have been proposing, he absolutely has said that this needs to 
be paid for. That is why he is done more than $600 billion in 
hard spending savings. But he has suggested a particular tax 
increase. Limiting the itemized deduction for high-income 
Americans.
    The President has looked at the trends over the last 
decade, where we do know that middle-class families have taken 
a hit. And he feels it is incredibly important that we not 
raise taxes on middle-class families. He has made a very strong 
commitment to that promise. And we think it is important for 
the economy that it take the form that he has described.
    Mr. Doggett. In current economic conditions, what is the 
likely effect of, for example, deciding to finance reform by 
putting a tax on payroll--some kind of payroll tax or of taxing 
the benefits that middle-income people get through their 
employer for their health insurance now if they, say, have a 
dental policy or a policy with low co pays?
    Ms. Romer. You can very much see our attitude on this from 
the American Recovery and Reinvestment Act. When we designed a 
tax cut that we thought would help get the economy going again, 
it was a broad tax cut for working Americans earning in the 
middle-income range, because we do feel that that is--they are 
the people that, when you give the money, are very crunched, 
and go out and spend it. And that is part of the reason why we 
think it is going to be very effective.
    That follows on the other way. If you are thinking about 
how to pay for something, you don't want to raise taxes on the 
people that need the money very much to keep their spending 
going, for the economy as it is today.
    Mr. Doggett. Let me focus a little on the public option and 
the role it plays in addressing the concerns that you have 
raised this morning. Only on Tuesday of this week, three major 
insurance companies indicated that they were continuing their 
practice of dropping any sick people that they could from their 
rolls, even though they paid their insurance premiums. They 
call it rescission. For a family with a sick member, it is, I 
think, a much more harsh term.
    We also know that from the charts you had that the 
percentage of health care of our Gross Domestic Product is 
scheduled to about double.
    If you don't have an effective public option, how do you 
get control of costs as well as access to people that are being 
terminated by private insurers even though they have paid their 
premiums, just because they are sick?
    Ms. Romer. I do want to come back to the public option as a 
source of choice. And basic economics does tell you that 
competition is good for cost control. I think that is certainly 
very important.
    The other thing that I think is useful to put on the table 
is the idea of the public option as a leadership role, as a 
source of innovation. We have had conversations at the White 
House with private insurers that are saying some of the things 
that you are proposing, say, for Medicare, we would love to see 
you do more on the bundling side, because you can be our 
leader. You can make it easier for us to do some of those 
things.
    I think another important role that the public option can 
play, is as a leader of innovation in the kind of reforms that 
can slow costs over time.
    But then also your point, the President couldn't agree with 
you more on the importance that people with preexisting 
conditions can't just--that they need to know that there will 
always be insurance there for them. And setting up that is 
going to be a crucial part of how we set up the exchange. 
Certainly, the public option helps to make that very real.
    Mr. Doggett. Thank you very much.
    Chairman Spratt. As you can see, we have about 8 minutes to 
vote. I am going to stay here through this vote so that any 
members who wish to do so, may do as well. But we will move now 
to Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman. Let me 
first thank you for your service. Public service isn't always 
the easiest task. So I really, really appreciate you doing 
that. We know what a sacrifice it is, particularly on your 
loved ones, because of your time.
    Let me go back to something, because I think obviously 
there are reasons, not of this administration necessarily, but 
there are reasons to be skeptical about some numbers and some 
projections, obviously. By the way, I do want to echo what Mr. 
Hensarling said. You mentioned a while ago that good health 
reform is good economic policy. That is absolutely the case. I 
guess the converse of that would be that health care reform 
that is bad would be bad economic policy. Not only that, but 
bad family policy and devastating to individuals and families. 
I think, obviously, that is something we would all agree on.
    On January 9 of this year, as Chair Designee of the Council 
of Economic Advisors there was the report: The Job Impact of 
the American Recovery and Reinvestment Plan, the stimulus plan.
    On page 5 of the report, it contains a chart showing the 
projected unemployment rate with and without the recovery plan. 
Based on those numbers that you had, the stimulus would have 
capped the unemployment rate at about 8 percent. About 8 
percent. Now, as you can clearly see in the chart, unemployment 
for the last three months, March, April, and May, is 
substantially higher than was projected by the administration 
with the passage of the stimulus. But what is ironic, it is 
even higher than projected unemployment, according to those 
numbers, if we wouldn't have spent one penny on it.
    So, obviously, there are several conclusions that can be 
drawn because of that.
    Now, cynics will say--and I don't agree with this, and I 
would condemn it. But obviously you have heard it out there. 
Some cynics say, well, Congress was misled. And it was an 
effort to mislead Congress. That is, obviously, not something 
which I agree with. And I would condemn people saying that.
    The more likely scenario, of course, is the stimulus has, 
frankly, just been a failure. That unemployment has soared past 
8 percent despite the fact that we have spent and put on our 
children and grandchildren's credit card billions of dollars in 
increased debt.
    Now, with all due respect, I just heard from you--and I say 
this with all respect--that a wonderful job is being done. I 
just got the last economic numbers from Florida. I just got it 
on my Blackberry right now. Unemployment in Florida has just 
shot up to 10.2 percent, up in 1 month from 9.7.
    With all due respect, that is not good. Those are not rosy 
numbers. People are losing homes and jobs.
    So it may be a semantical issue, but I think we have to be 
very careful, because saying that that is doing a great job, 
with all due respect, I don't agree with.
    Now, here's my question. How can you reassure us, this 
committee, that the information that we are being provided 
today by the administration is more accurate and hopefully less 
flawed than the obviously flawed, obviously didn't work numbers 
of the stimulus plan?
    Ms. Romer. I would be happy to. One, since you mentioned 
the toll that this job takes on loved ones, I do have my 
husband and son here today. So I did--the one perk that they 
get is that they occasionally get to see their mom and wife in 
action.
    Mr. Diaz-Balart. You are an optimist because I know that it 
is a tough job. Again, I do want to thank you, and I respect 
and admire you.
    Ms. Romer. So, let's take on these numbers absolutely, 
because the crucial thing--so let me first talk about Florida's 
unemployment numbers, because I will be the first to say that 
those are terrible, and I can't think of anything worse than 
what is happening to American families and these unemployment 
rates.
    What I do take the most strenuous exception with is that 
those numbers are a sign that the recovery plan isn't working; 
it is a sign that Congress--you said you didn't agree with 
this--that Congress was misled. What it is a sign of is how 
much the economy deteriorated in early January and February. 
And you will see when we did this chart back in early January, 
we were doing the best estimates that we could. And I will tell 
you that the forecast certainly--I think the strongest point in 
our favor is your point that things are much worse than what 
was being forecast without any recovery plan.
    What deteriorated was where we--the estimates of where we 
were headed. You see this in every private forecast. The blue 
chip consensus forecast deteriorated between January and 
February and March--again, on the unemployment rate--by about a 
percentage point.
    What we learned was a lot of information. The rest of world 
that we had a hope maybe was going to be not synchronized with 
us tanked in January and February. And so really what we saw 
was a tremendous deterioration in the
    baseline.
    So one always does forecasting. You make the best estimate 
you have at the time. And at the time we were smack in the 
middle of what other private forecasters, the Federal Reserve, 
all of those, were making.
    In terms of the recovery plan, I can't help but say that 
thinking about where we were in January and how the economy--we 
lost 743,000 jobs in January. That was just--we were all 
shocked at how quickly the economy--the acceleration of the 
downturn. And one of the things, of course, we can't say that 
things are good now, but it is encouraging that the rate of job 
loss is slowing. It is encouraging that retail sales that had 
been plummeting earlier this week actually rose. The housing 
market, where we know we have just seen unbelievable declines 
in building, we actually saw building permits turn up.
    So the sense, whether you call them the green shoots or the 
glimmers of hope, the crucial thing is we are seeing signs that 
what was truly a precipitous free-fall is slowing, and we have 
every hope and anticipation that it is going to bottom out and 
start to grow again. That is, again, what you see in the 
professional forecasts.
    I will tell you again the blue chip forecast is now 
forecasting that we will basically have zero GDP growth in the 
third quarter, we will stop falling, and in the fourth quarter 
it will be positive again.
    And I absolutely feel that the Recovery Act and, of course, 
what we have done with the financial stabilization, what the 
Federal Reserve has done, all of that has been crucial to 
stopping the precipitous decline and bringing us these 
encouraging signs.
    Mr. Diaz-Balart. But your estimates now are going to be 
better than the past estimates.
    Ms. Romer. Let me just very quickly; that is a forecasting 
issue. I absolutely feel very strongly that the numbers for 
what we think the Recovery Act will do in terms of the impact 
are absolutely still correct and accurate. And I will be making 
reports to Congress that will be testing all of those 
assumptions.
    The thing that changed is the unknowable at some level of 
where the economy was headed without policy. Very much what we 
have been talking about here is what are the effects of the 
changes that we are talking about, and I firmly believe that 
those numbers are as good as they can be.
    Chairman Spratt. We are trying to get enough time for Mr. 
Blumenauer to ask questions. Mr. Blumenauer.
    Mr. Blumenauer. I just want to apologize for your husband 
and son. If this is their day in D.C., that makes my blood run 
cold. So I will be brief and get on and maybe only miss one 
vote.
    I did listen to my colleague, Mr. Ryan. I voted against the 
balanced budget agreement because I didn't think it was real. 
And I am sorry that the Republicans gave back all the savings 
when they were in charge. But that doesn't indicate that we 
can't structure something that will make a difference.
    I come from one of those low-cost, high-value States, 
Oregon. If every part of the country had a Medicare practice 
like Oregon's, we wouldn't have that huge deficit.
    So I appreciate what the administration has done indicating 
that you want at least half the cost to come from providing 
greater value to recipients.
    We have had lots of evidence in our Ways and Means 
Committee, in the Budget Committee, that lots of and lots of 
care, test procedures, a dozen different physicians, doesn't 
necessarily give better health care to the people. I commend 
you and the President for focusing in on this.
    I have, this week, introduced legislation to deal with 
choices for end of life. Right now, Medicare doesn't pay a 
doctor for sitting down for an hour and working with a patient 
and their family. It will pay all sorts of tubes and tests and 
procedures, but not something that would help them and 
undoubtedly save costs over time. We don't have a transitional 
benefit to help make sure people stay out of health care.
    And one of the things I feel very strongly about is a bonus 
to reward low-cost, high-performance communities, for rewarding 
what they are doing, rather than rewarding, I think you said, 
volume over value.
    You have staked out the public plan. And I wanted to give 
you the next 2 minutes to just speak about this incredible 
specter of something that is going to be a heavily subsidized, 
prescriptive, intrusive actor in the health care arena that 
doesn't comport with anything I have heard the President say, 
working with members of his team, or what you said here today. 
Can you take a minute or two and clarify the intent?
    Ms. Romer. I absolutely will. I do want to come back and, 
again, I think your reference to Oregon is so important, 
because when we look at the variation in spending across the 
country, absolutely we see places with high-value care often 
being some of the lowestcost. And so that is so important, that 
we can have quality, maintaining all that is good in improving 
it, and slowing the growth rate of costs. So that is crucial.
    Also, what you were describing about empowering patients, 
that is one of the things that I have heard the President be so 
eloquent about.
    Why does he support the research on what works and what 
doesn't? It is just unbelievable that I can know more about the 
car I am buying than some surgery that I am thinking of getting 
done. And so the idea that we need to empower patients and talk 
to patients about what do they want in their treatment is just 
crucial.
    The public plan is absolutely something that is designed 
not to, in any way, supplant the current system, not to, in any 
way, hurt current insurers. It is designed to provide choice to 
make the market work better. That is the fundamental idea, is 
to make sure that there is competition, to make sure that 
consumers always have a choice of a number of plans that can 
satisfy their needs. But it is absolutely, the President has 
made it clear, that he wants it on a level playing field with 
the private insurers.
    It is there to be an innovator, it is there to be someone 
that, again, is providing choice and competition. But certainly 
we'll be working closely with the Congress in thinking about 
what would be a desirable way to structure it.
    Mr. Blumenauer. But not a heavily subsidized----
    Ms. Romer. Never.
    Mr. Blumenauer. Startup costs only, deficit-neutral.
    Ms. Romer. Make it so that it stands on it its own. That it 
is there separate from the government.
    Mr. Blumenauer. Thank you. I appreciate your willingness to 
make that a part of the record. Thank you, Mr. Chairman, for 
your courtesy.
    Chairman Spratt. We have got two votes and we will be back 
as quickly as possible. We appreciate your forbearance.
    Ms. Romer. It is an honor to be here, so I will be here 
when you come back.
    [Recess.]
    Chairman Spratt. We will go to Mrs. Lummis next, then to 
Mr. McGovern.
    Mrs. Lummis. Thank you very much, Mr. Chairman. Welcome, 
Dr. Romer. It was nice to meet you in the back room. I look 
forward to asking you a couple of questions. So thank you again 
for joining us today.
    I have two questions specifically that I want to focus on. 
While you offered no specifics about how the efficiency gains 
assumed in your study will be obtained, your study does assume 
that they can be obtained.
    So let's assume for a moment that we could fill in the 
detail gap of your study and achieve savings without 
compromising quality, something that I think we all would like 
to achieve.
    The transference of the attained health savings to economic 
benefits is based on your assumption that health savings will 
be devoted to deficit reduction. And my question is: Is that a 
realistic assumption, and are there ways that that could be 
enforced and assured?
    Ms. Romer. There are a couple of things to say. The health 
savings, the only ones that I was assuming were going to 
deficit reduction are the ones the government gets, because of 
course what we are talking about are savings to the whole 
system. So that we know a lot of the expenditures are private. 
And those will go back to the private sector.
    So, what we were assuming is that anything the government 
saves from, again, from these long-term curve-bending actions 
will go into deficit reduction.
    Again, I guess I am going to have to throw it to you 
because it would be for Congress to make sure that that 
happens.
    One thing I would point out is the numbers we are talking 
about are huge. The important thing is about curve bending is 
it slows that growth rate year after year, and that is what 
adds up so dramatically over time. So if some of it didn't go 
to deficit reduction, there is still an awful lot of money 
there on the table. So how much goes obviously tells you how 
much the deficit shrinks relative to what it otherwise would 
have been.
    Mrs. Lummis. Your assumptions as to government savings due 
to curve-bending are that it would all go to deficit reduction.
    Ms. Romer. So those numbers where you get the deficit 
shrinking by 3 percent of GDP in 2030 and 6 percent in 2040, 
that is based on that assumption. And if some of it didn't, 
those numbers would be smaller.
    Mrs. Lummis. Very good. Thank you. In your testimony, you 
refer to the over $300 billion in Medicare cuts announced by 
the administration over the weekend to immediately pay for 
health care reform. Do you believe these cuts have a realistic 
chance of being enacted by Congress? I know that a lot of good 
things can happen in the eye of the ``King for a day,'' if that 
person can be king for a day. But as I have observed Congress 
over the years--I am a freshman--a lot of the assumptions of 
the King for a day don't come true because Congress doesn't 
follow through. So could you talk about the $300 billion in 
Medicare cuts and whether that is realistic?
    Ms. Romer. I will confess to being a freshman as well. My 
first venture into government.
    I think what the President would certainly say is we have 
put really close to $635 billion of suggestions on the table of 
things that we think realistically can be done, things in our 
budget. We have putting Medicare Advantage up to competitive 
bid. In the things that he proposed last Saturday, they are 
such sensible things, like in Medicare paying for a hospital 
admission and the time afterwards so that the provider has the 
right incentive to not send the patient home too early. To do 
what it takes to make sure that that patient is ready to go 
home. That is just something that improves patient quality and 
it controls costs that that is such a win-win. I think things 
like that ought to be able to go through.
    I think what the President would say is we have put $635 
billion on the table. If you don't like those, come up with 
your own.
    So I think the important thing is to have the resolve. And 
you are showing that that is the crucial issue. And the 
President, I know, has it. I hope it is here as well.
    Mrs. Lummis. Mr. Chairman, I would just comment that some 
of the things that the President has put on the table in terms 
of ways to raise taxes are hard in other ways on my 
constituents. And so the tradeoffs are tough. But I thank you 
for your testimony.
    Chairman Spratt. Mr. McGovern.
    Mr. McGovern. Thank you, Dr. Romer, for being here. I think 
you captured the moment. You said the President has the resolve 
to get this done. Everybody around here is saying they agree 
with you that we need to control health care costs and that 
there are ways to find savings and we could put it toward 
deficit reduction. But the fact is, for the last 8 years their 
plan has been take two tax breaks and call me the morning. It 
hasn't worked.
    We have seen as you know in your testimony health care 
costs are rising at a much faster pace than wages. Between 2000 
and 2007, average health care premiums rose from $6,772 to 
$12,075, an increase of more than 78.3 percent. Wages, however, 
only rose about 15 percent. Premiums continue to grow, and in 
2008 reached $13,244 for a family of four, or a little over 26 
percent of median household income.
    So it is clear that if we are committed to the goals that 
you outlined in your report, that we need to embrace 
comprehensive health care reform, and we are going to have to 
do some things that are complicated and not easy. But if it was 
easy, we would have done it a long time ago.
    When we are talking about health care reform, we have been 
hearing a lot about primary care and keeping people well, or 
preventative care. And the chairman talked about eating well. 
One of my passions, along with my colleague, Congresswoman 
DeLauro, has been a lot of work focused on ending hunger and 
promoting healthy nutrition, which I think need to be 
incorporated more fully into our health care policies.
    Often, families suffering economic hardships have to make 
tough decisions. Healthy food costs more, and families have to 
choose between buying two pieces of fruit or 10 packages of 
Ramen noodles.
    Just looking at the price inflation of food, health care, 
basic necessities, average households and those that rely on 
Federal benefits find that higher costs can cause a genuine 
decline, short-term or permanent, in real purchasing power.
    So could you just speak to the economic impacts of 
reforming health care and keeping people well? What might it 
mean for the average family, and especially for the uninsured 
family? For example, will it help restore some income and 
purchasing power for the average- or lower-income family, which 
I hope might help put healthier choices in a family's weekly 
shopping cart. Because part of what we need to do is to get 
people to make healthy choices, but healthy choices are more 
expensive. So it is more complicated than just kind of willing 
it. If you could comment on that, I would appreciate it.
    Ms. Romer. So many good points here. I know if the First 
Lady were here, she would be cheering, because she has so made 
the cause of healthy nutrition and making sure especially 
children know the importance of fresh fruits and vegetables. 
She would probably be your biggest supporter on many of these 
issues.
    So you have raised so many good points. I think one of the 
things we do have to emphasize is just how important good 
health care reform is for the average family, the typical 
worker, and that that graph that I showed you before, we have 
seen wages stagnating, and certainly in our projections may 
even go down, your take-home wage, precisely because such a big 
part of your compensation will start to take the form of those 
insurance premiums.
    You gave some numbers, but one of the ones from our study, 
you go out to 2040, you are looking at numbers like $45,000 to 
insure a family of four. So that is mind-bogglingly large. You 
can see how that is going to take an incredible bite out of--
how could anyone can get a wage increase when employers are 
having that kind of a fringe benefit that they are paying for. 
So that is crucial.
    But your point about the uninsured--I have been spending so 
much time talking about what it is going to do to the overall 
economy and how it could create jobs in the short run. But we 
can never lose sight of the fact of the benefits that this will 
have obviously for the low-income workers who are currently not 
insured just in terms of what it will do to life expectancy, to 
disability, to financial risk, that one of the crucial things 
that insurance does is that it means that if you have a major 
medical expense, you are not thrown into bankruptcy. Your life 
is not destroyed. And that is something that empirically is a 
very big point.
    And then the last thing, I do, again, want to bring it back 
to the average American. Even someone with insurance--the 
crucial point is we have a lot of uncompensated care now, and 
that that is something that there is sort of a hidden tax on 
people who have insurance. And going to a system where we 
expand coverage is fantastic for those that are getting the 
expansion, but it is also fantastic for all the rest of us 
because that hidden tax disappears and the overall economy is 
going to do so much better.
    Mr. McGovern. If I can make one last quick point. Going 
back to this issue of food security and healthy choices, one of 
the things that I hope you might want to consider urging the 
President to do is to get--I hate to use the word czar, but get 
somebody to help kind of organize a domestic agenda to try to 
end hunger and food insecurity in this country to help increase 
people's ability to purchase healthier foods. It includes the 
Secretary of Education, who oversees a lot of the school 
feeding programs, as well as a number of other agencies.
    Sometimes it is difficult because the challenge to 
prevention here, to promote prevention, falls under multiple 
agencies and multiple departments. And it needs to be a 
coordinated effort.
    Food is medicine. We have an obesity problem in part 
because of people making wrong choices. But it is important 
that we have a coordinated comprehensive plan to deal with that 
issue. And I think it would help deal with the issue of lower 
health care costs.
    Ms. Romer. I will absolutely take that message back. But on 
the importance of wellness, I think you are definitely getting 
at one of the ways that expansion of coverage can help to slow 
the growth rate of costs. I think weight management is one of 
the ones that clearly works. And so anything we can do along 
those lines would be important.
    Mr. McGovern. Thank you very much.
    Chairman Spratt. Mr. Garrett.
    Mr. Garrett. I thank the chairman and I thank the witness, 
Dr. Romer, for being here today. I would like to thank you for 
your professionalism already that you have brought to the 
Council of Economic Advisers. I say that because you were 
recently quoted in the New York Times regarding a document that 
we are discussing today. I don't read The New York Times, but I 
heard about it. I pulled out.
    And you said--and this is the good thing you said--you did 
not want to put schlocky arguments there.
    And so I appreciate that argument. So I pulled out The New 
York Times, or my staff did, and here is what it says: Mrs. 
Romer, the only woman serving among the top advisers--so on and 
so forth--their clashes have come out when he takes a more 
political view. ``A recent example involved a report by Mrs. 
Romer, released last Tuesday, that analyzed the 
administration's economic case for overhauling the health care 
system. Mr. Summers pressed Mrs. Romer to make the argument 
that health care reform could make American businesses more 
competitive globally, adding that it is among the political 
advisers' favorite talking points.
    ``He did so again when Mrs. Romer outlined her final draft 
at a recent well-attended meeting. She cut him off, saying that 
some of his own staff agreed the point did not belong in the 
paper.''
    So I appreciate the fact that you stood up to Larry Summers 
on this. And I appreciate the fact that this is one of his 
favorite political talking points. But I would encourage the 
Chair that in the future, we may not have witnesses with such 
integrity, and it may be appropriate to ask witnesses in the 
future whether they are receiving calls or pressure from other 
members of the administration to politicize their documents in 
a way just to include talking points that may be favorable to 
the administration. But I thank you for standing up.
    Now, regarding that very same report, as was just indicated 
a moment ago, it assumes a reduction in medical inflation by 
1.5 percentage points, talks about the benefits of the 
reduction. We all agree on that, of the benefits that would 
occur. As the young lady just indicated, you assume that those 
savings achieved from less health care spending would go for 
deficit reduction.
    As far as the proposal that we have seen so far from the 
administration, and the number you throw out is $635 billion, 
we have seen those would actually increase spending and as a 
result would increase the deficit. Early estimates of the 
Senator Kennedy and Dodd bill would actually see a projected 
increase in spending of $1 trillion. Some private forecasters 
have estimated this number could rise as high as $4 trillion.
    So in order to pay for this new spending and array of new 
taxes--I noted that you did not use that term, you used the 
euphemism ``revenue enhancers,'' but I think the people at my 
district would see them as taxes--have been proposed.
    The title of the hearing we are in today is called: The 
Economic Case for Health Care Reform. But you are an economic 
adviser. So I wonder, can you discuss the economic case for a 
$4 trillion tax increase and what impact that would have on the 
economy.
    Ms. Romer. Let's be very clear. The President in his
    AMA speech--speech to the AMA said that the kind of plans 
he was looking at that he thought were appropriate were likely 
to cost on the order of $1 trillion or $100 billion a year over 
the next 10 years, and he has very carefully put $948 billion 
of savings and new revenue on the table to pay for that.
    Mr. Garrett. New revenue could mean taxes.
    Ms. Romer. He has proposed limiting the itemized deduction 
on high-income earners as one of the things. I think it is 
important to know we have had well over $600 billion in 
savings. So he has very much, if you think about how he is 
proposing to pay for this, he is very much emphasizing the 
savings reduction. So that is unbelievably, I think, important.
    Mr. Garrett. Let me ask you, since you are an expert. That 
is one option. Would another option to be lower--and I know 
someone on the other side of the aisle just made a comment in 
regard to how our idea is always about lowering taxes--but 
would another idea be perhaps to address the issue of 
international competitiveness and the like and, to address this 
issue as well, to actually lower corporate income taxes. Would 
that actually potentially do more in the long term, in the big 
picture, to solve this equation that we are in right now?
    Ms. Romer. Certainly, I believe that the evidence on 
corporate income taxes, when people give numbers about how 
taxes are higher in the U.S. than abroad, often don't take into 
account. They look at just the rates and not the various 
special exceptions. I think when people do the careful studies, 
you don't find the big differences across countries.
    The other thing is, for exactly some of the same reasons 
why the competitiveness argument on the health care costs is 
not always accurate, the same is going to hold true to business 
taxes. Because a lot of these differences in costs in general 
end up being reflected at some point in the exchange rate.
    Mr. Garrett. What do you mean by the argument about the 
competitiveness nature because of the health----
    Ms. Romer. The question of whether if you lower health care 
costs, what does that do to the competitiveness of American 
businesses. And it is very much a similar thing if you were to 
reduce taxes on American firms. So at some level----
    Mr. Garrett. It is not as big a deal as some people say.
    Ms. Romer. Not as big a deal as some people say, precisely 
because it is, to some degree, reflected in exchange rates, 
certainly over long periods of time. So that is the argument.
    Mr. Garrett. I thank you very much for your answers, and 
for your integrity. Thank you for standing up.
    Chairman Spratt. Ms. Tsongas.
    Ms. Tsongas. Thank you, Dr. Romer, for your testimony. I 
have enjoyed it very much. I am from the Commonwealth of 
Massachusetts and, as you know, several years ago we put in 
place a system to attempt to bring and try to bring hundreds of 
thousands of people and to provide coverage for them. One of 
the long-term goals around that was that it would give people 
access to chronic disease management, preventive care, wellness 
programs, all the things that, in the long term, generate 
savings, but in the near term it takes a while to realize 
those.
    And I have to say that as a Member of Congress, and as I 
travel around my district in the State, you can see and know 
immediately when somebody has not had access to care in the 
course of their life. And it is a cost that we pay for many 
times over as they age and need more complicated care than 
someone who might have access to care early on.
    So, my question is to you really that we do--some have 
proposed addressing inefficiencies in our health care system 
before expanding coverage. But can you discuss why expanding 
coverage and bending the cost curve through such things as what 
I was just discussing is the most fiscally responsible way over 
the long run for us to move ahead?
    Ms. Romer. Absolutely, because I think exactly what you are 
getting at is this idea that cost containment and expansion of 
coverage often go together. That by getting people--if you go 
in and out of health insurance or if you don't have it, you 
tend not to have a relationship with a doctor, not someone who 
can say, as Chairman Spratt's children will say to him, Get 
your weight under control, get your eating under control, get 
healthier lifestyles.
    That is, we think, very important for long-run sort of cost 
containment. I think that is incredibly important.
    The other thing, Massachusetts has been an important 
experiment for us as a country and something that we are very 
much trying to learn from as we are thinking about what would 
work and what wouldn't.
    One of the things that--one of the facts that I have heard 
that I find so interesting is that when Massachusetts put in 
this system, employer-sponsored care actually increased, 
because suddenly workers wanted--it now became something that 
they pressed their firms to do. And I think that is something 
that I find very interesting, because the President has said 
that is sort of the employer-sponsored system is something that 
does work for many Americans, and to make sure that it 
continues.
    Ms. Tsongas. It is true. One of the issues we still 
struggle with, and why I think it is so important that we put 
in place a system across the country, but some of the issues 
that can bring down costs, we don't have in place the way in 
which we incentivize providers through a payment structure; 
having a comparative effectiveness resource so that you can 
sort of assess--physicians can assess what is the best way to 
go with their patient. Electronic recordkeeping is very 
piecemeal. It is very helpful where it exists, but still we 
need something more uniform.
    Ms. Romer. Absolutely. Doing the two together, I think that 
is something that the President has been so clear about, that 
you don't want to just stay with where we are and expand it, 
because we do know all those statistics that I showed you 
before. The trajectory is very frightening. Take this as an 
opportunity to provide coverage to the millions that, as you 
have described, their whole quality of life, their life 
expectancy, all of that is being affected. And, at that same 
time, put in place those genuine reforms that, quite honestly, 
can often be easier to do on a national level than on a State 
level. That that just makes incredible sense for solving two 
problems at once.
    Ms. Tsongas. Thank you. I yield back.
    Chairman Spratt. Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman. Thank you, Dr. Romer, 
for your testimony. Part of the discussion and part of the 
intent based on the President's frequent comments, and I think 
there is bipartisan agreement with, is with controlling the 
cost drivers in medicine. Can you touch on that?
    Ms. Romer. Absolutely. We have seen--again, the numbers are 
just incredibly clear of how costs are rising over time, and we 
do think it has to do with a lot of how we have structured the 
system. That we do have payment systems that tend to reward 
volume over value. We have a system that tends to reward 
technological change that is cost-increasing but not 
technological change that is cost-saving. And all of those 
things are important.
    Mr. McHenry. In terms of cost drivers, there is a 
utilization component. Too many tests ordered. In that regard. 
Can you touch on that as well?
    Ms. Romer. Yes. We certainly do think that there are 
duplicative tests and things like that that can be important. 
We do--when the studies that have, for example, looked at the 
difference across States in Medicare spending do find that it 
is often quantity, not the price, that is much higher in some 
areas than others. That is, again, that then feeds in. Our 
report very much talks about that as one of the drivers.
    Then, how do you fix it? Well, part of the way you fix it 
is perhaps to bundle care so that there is one provider sort of 
looking at the whole chain and making sure there aren't 
duplications and things like that.
    Mr. McHenry. There is also defensive medicine being 
practiced. You have doctors that are ordering tests, even 
though they believe they have the correct conclusion, for fear 
of lawsuits. And that has been a component and a large 
discussion in my State of North Carolina and certain States 
around the country on liability insurance for medical 
providers. That tends to be a significant cost driver. There 
have been various studies, and I am sure you are very familiar 
with it. But I haven't heard and I haven't seen proposals from 
the administration on limiting medical liability and bringing 
the cost of medical liability down.
    Ms. Romer. We touch on defensive medicine as one of the 
things that can matter in our report. The President has also 
mentioned it in his AMA speech.
    Mr. McHenry. A passing glance.
    Ms. Romer. He did come out and say that it was something 
that he understood was a possibility. He has expressed views 
that he is not willing to put caps on awards.
    Mr. McHenry. Why no caps?
    Ms. Romer. But he has very much talked about ways that we 
could make a middle ground.
    Mr. McHenry. Why no caps? We have a number of different 
bits of evidence. Oregon is a model for a State pre-cap, with 
caps, then caps revoked. And the cost drivers--the cost of 
liability insurance for those practicing medicine jumped 
severely after the caps were removed. Do you disagree with that 
evidence that caps absolutely have an impact on the cost of 
liability insurance for medical providers?
    Ms. Romer. There are of course trade-offs. And what the 
President has described is he is worried about fairness to 
people that have been harmed. And that is part of what he 
certainly mentioned in his speech of why he was not in favor of 
caps. But he is very much in favor, and it fits so much into 
the research on what works and what doesn't, he is very much in 
favor of doctors saying let's establish better protocols so 
that we have a presumption on what is reasonable and so that 
that is a way to help, again, get to a middle ground.
    Mr. McHenry. You know, in terms of the developed nations 
around the world, we pay the highest price as a percentage of 
our GDP in lawsuits of any country in the world. Two percent of 
our GDP goes to lawsuits. Isn't that a significant driver of 
health care? Shouldn't that be, in a holistic approach if we 
are going to talk about everything, shouldn't that certainly be 
on the table, caps on lawsuits?
    Ms. Romer. Certainly there is a lot----
    Mr. McHenry. We can just stop with ``certainly.''
    Ms. Romer. No, there is evidence across countries of course 
of very large differences in spending in general. And a big 
part of thinking about how to reform things is figuring out 
what those sorts of differences are. The President has 
identified a number of things that we think can slow the growth 
rate of costs that don't go to the things that you are talking 
about, things that absolutely will work.
    Mr. McHenry. Just as a parting glance, Mr. Chairman, I have 
read significantly that there has been a number of stories 
about the Safeway model, what they have done to control health 
care costs. Has that been a point of discussion within the 
administration?
    Ms. Romer. It certainly has. And it certainly gets to some 
of what Mr. McGovern was talking about, about doing innovative 
things to reward wellness. And that is something I think many 
people agree on, are things that encourage prevention and 
wellness are an important part of cost containment.
    Mr. McHenry. Thank you.
    Chairman Spratt. Mr. Connolly.
    Mr. Connolly. Mr. Ryan likes Latin, and I would say to him 
mirabile dictu, I actually get to ask a question as a freshman. 
And I thank you, Dr. Romer, so much for being here today. A 
couple of things.
    Picking up on the last line of questioning, we hear so much 
of an ideological commitment to capping lawsuits, and somehow 
that is the secret to providing massive health care to the 46 
million people who aren't covered. Even if we did all of that, 
is that a significant contributor compared to the other factors 
you have outlined for us today?
    Ms. Romer. What we know is that so many things are 
contributing to the high cost of health care in the United 
States. And certainly our report really goes through all of the 
sources of inefficiency, like the fragmentation in our system, 
the way we pay doctors and all providers that emphasize 
quantity over quality, the technology----
    Mr. Connolly. But Dr. Romer, you don't have any study that 
says, hey, that is the one variable that somehow would get our 
handles around the cost of rising health care?
    Ms. Romer. Absolutely not. We know it is a very multi-
faceted issue.
    Mr. Connolly. Thank you. Let me ask you this. To begin 
with, in terms of health care costs you outlined the 
President's goals. To some critics and to some observers it 
might seem there is a fundamental incompatibility with the two 
goals you laid out on behalf of the President. One is bringing 
down the overall cost of health care is essential as we move 
forward for the health of this economy and for the budget while 
expanding coverage to the 46 million Americans who now don't 
have health insurance.
    Could you address that seeming incompatibility?
    Ms. Romer. Absolutely, because the two, as we have 
discussed before, absolutely go together in many ways, that by 
expanding coverage we can get the kind of primary care that we 
think can change lifestyles and certainly slow cost growth. So 
that is fundamentally important. I think the other way that the 
two go together is just in a practical sense, that at a time 
when you are thinking about doing an expansion of care to the 
millions of Americans that are not covered now, that is a very 
natural time to do the other reforms. That gives you sort of 
the opening and the ability to make so many of these 
fundamental reforms. And I can't emphasize enough they have to 
be made. That is exactly what all of our discussion of the 
status quo and how it can't last, those absolutely have to be 
done. And now is a sensible time.
    Mr. Connolly. You know, our friends on the other side of 
the aisle want to always focus on what it will cost to try to 
institute this reform. And a trillion dollars perhaps over the 
next 10 years and they scoff at the 948 billion the President 
has put on the table to help pay for that. But let me ask you a 
different question. Let's look at the next 10 years.
    Looking at the trajectories you showed us in your 
presentation, what is the cost of doing nothing, just letting 
the system continue the way it is?
    Ms. Romer. The cost of doing nothing is exactly what I 
showed you where we were headed. So the cost of doing nothing 
is that American families would see their take-home wages 
stagnate and eventually go down. We would see the government 
budget deficit go up astronomically because we are not doing 
anything to control health care costs. We would see standards 
of living put lower because we won't have those health care 
savings to be put into investment and make our economy more 
productive.
    So absolutely the costs of doing nothing--the way to think 
about it is when I showed you the picture of how much higher 
GDP could be if we do do reform versus what we don't, just flip 
that around and it's saying, by not doing reform you are 
condemning us to this lower standard of living.
    Mr. Connolly. Far be it from me to make a political 
suggestion to the White House, and you know you do empirical 
work and analytical work, you are not into politics, but I do 
think it is very critical we not allow people who only want to 
focus on a number in terms of health care reform to ignore the 
other number, the cost of doing nothing. And I urge you to come 
up with a number that reminds the American people of what that 
would be if we in fact do not have health care reform.
    My time is running out, so I will ask you one final 
question, if I may, Dr. Romer. What are the views of the White 
House, and I am not trying to entangle you, but guidance, there 
are kind of competing proposals about the so-called public 
option in terms of health care insurance coverage and creating 
a risk pool, and maybe creating something like a co-op that 
would still be a private sector way of approaching it rather 
than a public option. Any views on the desirability of one 
approach over the other?
    Ms. Romer. I think right now what the President has said is 
that he does think a public option is something that he wants 
on the table. You know, what he has said from the beginning is 
this is a collaborative process, and he wants to work with 
Congress and get your opinions and think about what is going to 
be best for the country going forward. So he is certainly open 
to talk about a whole range of things.
    Mr. Connolly. I thank the Chair for my time, and I also 
want to congratulate Dr. Romer on a piece of very fine work. 
This is really a seminal piece of work as we try to tackle this 
issue. Thank you.
    Ms. Romer. Thank you so much.
    Chairman Spratt. Mr. Schrader.
    Mr. Schrader. Thank you, Mr. Chairman. I apologize for 
that, Ms. Romer. It would appear that--I mean Mr. Ryan and 
others have commented on the rapid growth of Medicare costs, 
frankly Medicaid costs for that matter. Is it pretty safe to 
say that absent some sort of major initiative in health care 
reform that our national debt will just continue to skyrocket? 
It is like one of the key, if not the most important element?
    Ms. Romer. Absolutely. And I think the important thing to 
say is that Medicare has been going up much like health care 
costs throughout the system. But it absolutely has been going 
up at a very large rate. And absolutely, I believe those CBO 
studies and our own studies that say it is going to be a source 
of just unsustainable budget deficits when you go out in the 
future.
    Mr. Schrader. There has been a lot of talk about the up-
front costs, you alluded to those, to get a system started, to 
pay providers appropriately, make sure people have access, 
everyone has access, if you will. And the scoring that CBO does 
focuses, obviously, on the very tangible, scorable, for lack of 
a better term, up-front costs. But they have difficulty, as I 
understand, scoring the long-term bending of the curve, you 
know, the savings that will result from the things we actually 
all agree on like preventative care, chronic disease 
management, primary home, frankly the bipartisan things that we 
do agree on.
    Don't you think that over the long haul that the long-term 
savings could be indeed very, very, very considerable compared 
to the up-front costs?
    Ms. Romer. I do indeed. And I think that is in some sense 
the crucial point is we need to do the up-front costs because 
it is the right thing for the millions of Americans that don't 
have coverage, it is the crucial investments that are going to 
help us to get some of these cost savings. But absolutely the 
kinds of reforms that are very much on the table, the what we 
call the game changers, the things that genuinely slow the 
growth rate of costs, those are absolutely crucial to do. And 
you all are in a hard position because they don't score. You 
don't get to go back and say look, I did this. All you are 
going to get is the gratitude of all of our children that 40 
years from now we will not be a bankrupt country because you 
made those choices now. But they are fundamentally important.
    Mr. Schrader. I hope it is a little sooner than 40, at 
least 10 or 20. How is that? It would appear, looking at a 
different report that appears to complement yours from the 
Small Business Majority, I mean I am a small businessman myself 
as a veterinarian, I serve on the Small Business Committee, 
Chair of the Tax and Finance Committee, and they have some 
pretty interesting findings in the report that was done by 
Jonathan Gruber at MIT with his unique health care economics 
model. It has got a lot of play, and I would just like to draw 
attention to that.
    One of the findings in his study is that without reform, 
small businesses will pay nearly $2.4 trillion over the next 10 
years in health care costs for their workers. And that with 
reform, small businesses could save as much as $855 billion, a 
reduction of 36 percent. Would you agree with the general tenor 
of that?
    Ms. Romer. I would. I mean we do know that precisely 
because of some of the problems inherent in health insurance 
markets that small businesses that don't have the big pool of 
workers to spread risk over are disadvantaged in the labor 
market. They do pay more for medical insurance for their 
employees, and it is something that is absolutely hurting their 
competitiveness within our economy. And so anything that we can 
do to level that playing field across big and small firms is 
incredibly important for their long run health.
    Mr. Schrader. It is a top issue in the small business 
community in my State. Certainly we have had NFIB talk about it 
here in the Capitol. It is critical to getting done without 
being obsessed with the particulars. This same study also 
indicates that without reform, 178,000 small business jobs 
could be lost by 2018 as a result of health care costs. I think 
that is pretty substantial. And perhaps most importantly, if 
you are a small businessman, at the end of the day is that 
without reform small businesses will continue to spend more and 
more on health care, limiting their ability to reinvest in 
their businesses, reinvest in new jobs and new ventures, and 
that small businesses would lose up to $52 billion in profits, 
and that health care reform could reduce these losses by more 
than 56 percent.
    Would you agree with the tenor of those conclusions also?
    Ms. Romer. Yes. And I would also, you know, the other way 
that this could play out is what we are seeing is absolutely 
the number of small firms dropping health insurance coverage 
for their employees. And so bringing it back to the workers, 
that is another place where this is going to be very 
devastating, because we do see more and more workers losing 
their employer-sponsored care from small businesses. So that 
would be another effect that I would highlight.
    Mr. Schrader. Just a final comment, Mr. Chair, and that is 
that those savings could really help grow our economy and 
create a lot of great jobs.
    Thank you. I yield back, Mr. Chair.
    Chairman Spratt. Mrs. DeLauro, you have forbearing, you get 
to bat cleanup.
    Ms. DeLauro. Thank you very much, Mr. Chairman. Dr. Romer, 
thank you, it is wonderful to see you, and thank you for your 
great work.
    I do want to make a comment that might be personal. 
Listening to you with the CBO report next to you and reading 
that, I mean, you know, some of us go home and watch C-SPAN. 
And so all of us have got to get a life here. But thank you for 
reading those reports and for your knowledge in this area.
    I will make one other point, and then I will get to my 
question. I think we have to keep pushing back the notion that 
most of our colleagues on the other side of the aisle just like 
to say, and it is more than a gratuitous comment, that what the 
President is proposing is to raise taxes. That is not at all 
what the President is proposing or what you are talking about. 
So we just can't let those comments go by. I think every time 
that comes up we have got to bat it back out of the park.
    My question is on prevention. You know, 75 percent of 
health spending in the U.S. is attributable to chronic disease, 
many of which are largely preventable. We have got a study by 
economist Ken Thorpe, who says that over 30 percent of the 
recent rise in Medicare spending in the last 10 years is 
associated with the persistent rise in obesity in the Medicare 
population. Yet less than 3 percent of our health care spending 
goes to preventive health services and health promotion despite 
the fact that proven preventive measures can reduce the risk 
for developing chronic diseases such as heart disease, 
diabetes, stroke, some cancers. Now, we know that investing in 
prevention can save money, but sometimes the savings are not 
evident until 10 or 20 years later. Other times prevention is 
very cost effective, but not necessarily cost saving.
    Can you talk to us about the value of investing in 
prevention as a long-term strategy for bending that cost curve? 
Can the savings be quantified? And what data are needed to 
quantify them? And will health care reform and the expansion of 
coverage ultimately be sustainable without significantly 
increasing our attention and our investments in prevention both 
inside the clinical setting and out in the community where 
people live, work, and play?
    Ms. Romer. That is a wonderful question. I have to tell you 
I keep being reminded I was doing an interview a few days ago 
and someone said, yes, but this focus on prevention, won't it 
cause people to live longer? And I said guilty as charged. And 
I don't think there is a person in America that would think 
that was a bad thing.
    So I mean I think one of the key points that you are making 
is the importance of more research, of finding out about what 
kinds of prevention are the most helpful. And again, you have 
focused in on smoking cessation and weight management. 
Certainly the evidence seems very strong there that those are 
important. The other thing, again it gets into reform, how 
important how you pay providers can be for getting that kind of 
prevention. Because part of what say bundling payments for 
someone who has diabetes, what that may do is to give the 
person, you know, the primary provider the right incentive to 
say you know what, nutritional counseling might be terrific 
here. And you know, these number of tests will be great for 
really monitoring your blood sugar. And so I think, you know, 
thinking about our reforms and how they feed into prevention is 
absolutely crucial.
    Ms. DeLauro. In terms of quantifying it, and to be specific 
to the way that this institution runs and what we have to go on 
is how do you score prevention? How do you deal with that in 
terms of cost saving for this effort? And how does that get 
factored into the overall costs or lowering the costs when--
well, how do we score it?
    Ms. Romer. It is exactly the problem. I guess what I would 
like to do is to reassure you that maybe it is not as serious a 
problem as we think in that, you know, when we talk about the 
expansion of coverage that we are doing, and the reforms that 
we want to do now, and how the President has described paying 
for it, and obviously wants to hear from Congress how it wants 
to pay for it, at some level these other things that we are 
talking about like making reforms towards prevention, making 
reforms towards all these other things, the fact that they 
don't score is surely frustrating, but the crucial thing is we 
absolutely need to do them anyway.
    Right? And that sort of comes back to this issue that the 
real score is going to be we will say 15 years from now, right, 
when we were going to go off a cliff at that budget deficit and 
we are not. That is really the score that you are going to get 
is that we are doing these things that are slowing things now. 
And at some level not having them--I mean, making sure that we 
are doing other hard scorable savings now to pay for what we 
are doing now leaves those for helping to deal with those long 
run trends that I described were so unsustainable and would be 
devastating.
    Ms. DeLauro. Mr. Chairman, can I just make two comments? 
And then I know my time is up.
    Chairman Spratt. Go right ahead.
    Ms. DeLauro. Thank you. My colleague, Mr. McGovern, talked 
about children, nutrition, a variety of efforts. I would just 
say again in the description, yours, the President's, et 
cetera, when we are talking about children is to focus in on 
the benefits of insuring all children, not some, and what that 
benefit will be in terms of the future.
    And my final comment is with regard to the public plan. And 
what is of concern to me these days is that the notion of a 
public plan choice is what this seems to me to be about in the 
mixture here. And we ought to describe it that way. And we 
ought to be reassuring to people, and again my colleague says 
about the politics and advising on politics for the White 
House, but I think there has to be a more fulsome description 
not of specific details, but that no one is talking about a 
public plan choice that is less, has less benefits, is, if you 
will, a second rate to what is being offered, so that the minds 
of the public and those who would be able to take advantage of 
that, that it will have a benefit package that will be 
competitive with what else is on the table.
    Ms. Romer. The President couldn't agree more that what he 
is thinking about is making sure that every American has 
choice, and that is really important.
    Ms. DeLauro. Thank you. Thank you, Dr. Romer. Thank you, 
Mr. Chairman.
    Chairman Spratt. Thank you, Mrs. DeLauro. Dr. Romer, you 
have made a major contribution to the debate. You have helped 
us frame it. You have helped us answer the right questions, and 
we will be looking to you, I am sure, for further answers as we 
move through this process. But thank you for coming today, for 
the time and forbearance, and your excellent responses, 
forthright responses.
    Just as a final housekeeping detail, I would ask unanimous 
consent that members who have not had the opportunity to ask 
questions of the witness be given 7 days to submit questions 
for the record. Without objection, so ordered.
    The committee is now adjourned. Thank you again.
    Ms. Romer. Thank you.
    [The statement of Mr. Connolly follows:]

  Prepared Statement of Hon. Gerald E. Connolly, a Representative in 
                  Congress From the State of Virginia

    Mr. Chairman, thank you for holding this hearing on the economic 
impact of our health care system.
    The human face of health care reform is real; it is 46 million 
Americans and rising without any health insurance. It is the 45 percent 
of Americans who have some form of pre-existing condition that may find 
themselves either denied insurance in the future, or more 
frighteningly, they find that they have insurance, but not coverage as 
their preexisting condition is unexpectedly denied coverage. It is the 
fact that a child with appendicitis is five times more likely to die 
without health insurance, than if he or she was covered. We cannot put 
a price on a child's life; however, we can recognize that it is far 
more cost effective to proactively treat the symptoms of appendicitis 
rather than treat the results of a burst appendix.
    The economic face of health care reform is visible in the rapidly 
rising premiums that millions of Americans with health insurance must 
face each year. It is the 21 percent of Americans who had extreme 
difficulty last year paying for necessary health care procedures or 
medicine; up dramatically from the previous year. It is in the 
estimated $1,000 that each and every taxpayer incurs as a result of the 
increasing use of emergency rooms for those lacking health insurance. 
It is in the fact that despite paying far more per capita than the 
median for health care--more than $5,200 in 2005 compared to the 
industrialized nations' median cost of $2,200--and a far greater 
percentage of our Gross Domestic Product--15.3 percent in 2006 as 
opposed to the next highest nation, Sweden, the socialist model, at 
11.3 percent, the United States ranks below many nations in health care 
results. Out of the world's 224 nations, the U.S. ranks fiftieth in 
life expectancy. Since 1975, annual health care spending per capita has 
outpaced overall economic growth by 2.1 percent per year. In 1960, 
health care spending in the United States was 5 percent of GDP, has 
risen to almost 18 percent today and is projected to continue to rise 
to a staggering 34 percent of GDP by 2040. We cannot afford those kinds 
of increases. If we are not receiving our moneys' worth, then why are 
we paying record amounts on health care? Something must be done.
    As we debate the various proposals for health care reform, there 
are five overarching principles upon which I will base my support.
    First, every child in America deserves health care coverage. We 
cannot continue to place selfish ideology above the health of our 
children.
    Second, nobody should be financially destroyed due to a 
catastrophic illness. The tremendous costs associated with combating 
deadly medical conditions often wipe out savings and force many 
families to choose between life giving care and a lifetime of debt.
    Third, insurance companies should not be allowed to cherry pick 
those who they cover based upon pre-existing conditions. The purpose of 
insurance is to spread and mitigate risk. Denying coverage for pre-
existing conditions will force more Americans into the emergency rooms 
to receive treatment.
    Fourth, there must be universality of access to health care. It is 
an essential principle for any advanced, industrialized society that 
every person should have access to health care coverage.
    Finally, we must respect the right of individuals to choose health 
insurance and providers. Assisting some Americans in accessing health 
care must not come at the expense of restricting access for others.
    I look forward to Dr. Romer's testimony and to this Congress' 
discussion and deliberation on reigning in the expanding costs of 
health care, and providing real reform that reduces the number of 
uninsured Americans.

    [Whereupon, at 12:40 p.m., the committee was adjourned.]

                                  
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