[Congressional Record Volume 140, Number 91 (Thursday, July 14, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 14, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                        THE COST OF HEALTH CARE

  Mr. COATS. Mr. President, I want to also discuss something that I 
know the Senator from New Mexico is vitally interested in because we 
have been talking about it over a number of days, weeks, and months.
  The Wall Street Journal this morning reports that the latest figures 
are in on health care cost increases over the past 12 months. Studies 
show that health care costs have increased at the lowest rate in the 
past year in the last 20 years, 2.5 percent.
  Milliman & Robertson, a consulting actuarial firm from Pennsylvania, 
has indicated that health costs for the 12 months ending last March 
rose just 2.5 percent, the lowest level since it began tracking health 
care costs 20 years ago.
  ``The findings are bolstered,'' the article says, ``by several large 
employers who say they are winning significant reductions in premiums 
from some health plans as they negotiate rates for 1995.'' For 
instance, the Xerox Corp., which offers 204 separate plans to its 
employees--a cafeteria-style proposal from which they pick and choose, 
similar to what is offered in the Dole and Nickles proposal--they 
indicate a sharp drop in health care cost growth rates and a 
restructuring of the system.

       There's incredible competition out there in most markets, 
     said Helen Darling, manager of health care strategy and 
     programs at Xerox.
       Employer demands for quality improvement and cost 
     reductions have, among other things, helped prompt a 
     consolidation and reorganization of the health care system.

  They go on to say that GTE has seen its cost increases practically 
become flat.

       And the Medica health plan in Minnesota reduced its family 
     rates for Minnesota government employees for 1995 by 25 
     percent. * * *

  The whole underlying premise of the Clinton health care plan is that 
costs are rising at double-digit rates, and we cannot get control of 
them. And the only way we can get control is to reorganize the entire 
system. But there is a revolution underway in health care, and that 
revolution is driving down costs as employers are looking for ways of 
putting pressure on health care providers to cut costs, to come up with 
innovative plans.
  So let us not proceed on false assumptions; let us not proceed on the 
assumption that unless we massively reorganize the health care system, 
we cannot get control of costs.
  The Dole plan builds on what is happening out in the marketplace and 
adds to that the kind of reforms that do not interfere with this 
reorganization. I know the Senator from New Mexico is directly involved 
in all of this. This is good news for health consumers in America, and 
this should guide our discussions as we begin to undertake the health 
care issue.
  I thank the Senator for yielding me the time.
  I ask unanimous consent that this article in today's Wall Street 
Journal be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

               Medical Costs Are Increasing at a Low Rate

                            (By Ron Winslow)

       Medical costs in the U.S. are rising at the lowest rate in 
     two decades, new reports indicate, another sign that the 
     health care industry is managing to bring expenses under 
     control.
       Milliman & Robertson Inc., a consultant and actuarial firm 
     based in Radnor, Pa., said health costs for the 12 months 
     ending last March rose just 2.5 percent, the lowest level in 
     the 20 years it has tracked such expenditures.
       ABR Information Services Inc., Clearwater, Fla., said group 
     health-insurance premiums it tracks in administering certain 
     benefits for 12,000 employers have been essentially flat 
     since the beginning of the year and have risen less than 3.5 
     percent since January 1993.
       The findings are bolstered by several large employers that 
     say they are winning significant reductions in premiums from 
     some health plans as they negotiate rates for 1995.
       But some benefits consultants predict that health costs at 
     most companies will still be above the general annual 
     inflation rate, currently about 3 percent. ``We're seeing 
     increases for next year of about 6 percent to 10 percent,'' 
     said Robert Eicher, principal at Foster Higgins, a benefits 
     consultant in New York.
       Moreover, whether market forces or other factors are 
     chiefly responsible for the moderation in health costs is a 
     matter of fierce debate, as is whether the trend will last. 
     ``It's a matter of some speculation as to what happens 
     next,'' said Richard Ostuw, a principal in the Cleveland 
     office of benefits consultant Towers Perrin and the firm's 
     chief actuary.
       A recent Towers Perrin report said growth in employer 
     health-care costs this year was about 6 percent, well below 
     the 20-year average. Mr. Ostuw believes that fear of cost 
     pressures from health-care reform legislation is a major 
     reason for the trend. If Washington fails to act on health 
     reform and ``that fear is removed,'' he argued, ``it will 
     result in an uptick in health-care inflation.''
       In Minneapolis, Steven Wetzel, executive director of the 
     Business Health Care Action Group, a coalition of major 
     employers, said a lower cost trend is sustainable only if 
     health plans truly reduce use of health-care services. 
     ``Premiums alone don't tell the whole story,'' he said. If 
     plans are bidding aggressively to win market share, but fail, 
     for instance, to reduce excess hospital capacity, costs will 
     inevitably rise again, he maintained.
       Peter Reilly, an actuary at Milliman & Robertson, 
     maintained that increased market penetration of health 
     maintenance organizations and other similar market forces 
     have done little to stem the tide of health costs. An 
     economic model he and his colleague John Cookson developed 
     shows that a decline in real national income during the 
     recession in the early 1990s is the major driver in 
     moderating health costs. They maintain that there is a three-
     to-four-year lag between changes in income levels and similar 
     changes in health-care spending. If that's the case, Mr. 
     Reilly says a renewed dose of health-care inflation looms, 
     since incomes have improved since the recession.
       Many employers maintain that the growing power of 
     purchasers is driving both a sharp drop in health-cost growth 
     rates and a restructuring of the system. ``There's incredible 
     competition out there in most markets,'' said Helen Darling, 
     manager of health-care strategy and programs at Xerox Corp., 
     Stamford, Conn., which offers a total of 204 health plans to 
     its employees in the U.S.
       Employer demands for quality improvement and cost 
     reductions have, among other things, helped prompt a 
     consolidation and reorganization of the health-care system. 
     But so much excess capacity remains, she said, that continued 
     consolidation holds the possibility ``that the rate of 
     increase in health costs will stay low if not absolutely flat 
     for several years.''
       In any event, Xerox itself is reaping the benefits of its 
     purchasing power in markets across the U.S. Ms. Darling said 
     recent negotiations will mean an average increase in HMO 
     premiums for Xerox of 1.2 percent in 1995 over current rates. 
     In many individual cases, in Florida and Washington, D.C., 
     for instance, premiums will drop more than 10 percent.
       Elsewhere, GTE Corp., expects 1995 rates for its managed 
     health-care plans to increase 2 percent after a 3.5-percent 
     rise this year, said Dwight McNeil, manager of healthcare 
     information. And the Medica health plan in Minnesota reduced 
     its family rates for Minnesota government employees for 1995 
     by 25 percent after a competitive bidding process.

  Mr. DOMENICI. Mr. President, I yield myself 7 minutes, and I ask the 
Chair to call it to my attention when I have spoken for 7 minutes.
  Might I say to the Senator from Indiana that he also could have said 
there are two things driving health care reform: One is clearly cost 
containment; the other is the need for reform. But I believe that the 
principal motivator for the last 12 to 15 years has not been the need 
for changes in the delivery system, but rather cost containment. If you 
cannot get one without the other, obviously, you have to set about to 
reform the system. But if you are getting substantial cost 
containment--and we have been certain of that for a while. We are 
hearing, anecdotally, from hundreds of companies that it is working, 
but this may be one of the most significant proofs that it is already 
going on to a substantial degree, which I believe should alter 
substantially that which we seek to do, because we should not have to 
build on a premise that it is motivated so much by cost containment 
that we need things like cost controls and things like the Senator from 
Indiana mentioned.

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