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57–616—PDF 2008

S. HRG. 110–1054

CRISIS IN THE FUTURE:

LONG-RUN DEFICITS AND DEBT

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JUNE 17, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

WITNESSES

Orszag, Dr. Peter R., Director, Congressional Budget Office, Washington,

DC .......................................................................................................................... 3

Dodaro, Gene, Acting Comptroller General, Government Accountability Office,

Washington, DC ................................................................................................... 5

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Dodaro, Gene:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 23

Orszag, Dr. Peter R.:

Testimony .......................................................................................................... 3

Prepared statement with attachment ............................................................. 42

(III)

(1)

CRISIS IN THE FUTURE:

LONG-RUN DEFICITS AND DEBT

TUESDAY, JUNE 17, 2008

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:05 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Conrad, Wyden, and Salazar.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Alan Cohen, Senior Budget Analyst;

Shawn Bishop, Professional Staff (Health); and Suzanne Payne,

Detailee. Republican Staff: Steve Robinson, Chief Social Security

Advisor; and Paraskevi Maddox, Detailee.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

The Chicago columnist Sidney J. Harris once wrote, ‘‘An idealist

believes the short run doesn’t count. A cynic believes the long run

doesn’t matter. A realist believes that what is done or left undone

in the short run determines the long run.’’

Today we will look at the long run. We will examine the huge

Federal budget deficits that the Congress projects for decades to

come, and we will look at the causes of those deficits.

CBO projects that, unless we act, in 2030 the Federal budget deficit will grow to more than 10 percent of the economy. In 2050, it

will be more than 22 percent of the economy. And by 2082, it will

exceed 54 percent of the economy. These deficits, of course, will

dwarf the post-World War II record deficit of 6.3 percent in 1983.

Why are these projected deficits so high? Until a few years ago,

people would often point to retirement and the baby boom generation. The increased number of older people eligible for Social Security, Medicare, and Medicaid would dramatically drive up expenditures for the Federal Government. But beginning a few years ago,

CBO, GAO, and others demonstrated that the primary source of

high long-term deficits is the rapid growth in health care costs. The

bigger problem is not that we have too many enrollees in Medicare

and Medicaid. The bigger problem is that health care costs per enrollee are growing so rapidly.

Health care costs are growing faster than the economy, and this

same problem is occurring in the private sector. Since 1975, per

capita Medicare costs have grown 2.4 percent faster a year than

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the economy, Medicaid costs have grown 2.2 percent faster, and all

other health care spending has grown 2.0 percent faster.

Unfortunately, we have no good reason to expect these high rates

to abate. There is no reason except, of course, we will not be able

to afford them.

As a result of rapid health care cost growth, CBO projects that,

between 2007 and 2082, Medicare and Medicaid’s annual costs will

grow from 4 percent of the economy to more than 19 percent; of

that growth, 86 percent will come from rapid health care cost

growth and 14 percent comes from demographic changes.

For comparison, Social Security’s costs will grow from 4 percent

of the economy in 2007 to 6.5 percent of GDP in 2082. If you add

together the cost of Medicare, Medicaid, and Social Security, more

than three-fourths of the increase between 2007 and 2082 is due

to rapidly growing health care costs.

Thus, if you want to prevent huge Federal budget deficits in the

long run, you will need to significantly lower the rate of growth in

health care costs. If we control health care costs, then along with

prudent policies for the rest of the budget, we will be able to control the Federal budget deficits. But if we fail to control health care

costs it will not matter what else we do in the rest of the budget,

we would have no hope of keeping Federal budget deficits under

control.

We will succeed. Why? Because we must. If we as a society do

not control health care costs, people will not have enough income

left to buy the other things that we need to live. Many of the solutions that will control health care costs in the private sector will

work in Medicare and Medicaid, and the reverse is true as well.

The problem that we face is a health care problem in both the

private and public sectors, and to beat that problem we need a solution that works in both the private and public sectors.

How are we going to control health care costs without reducing

quality? We need to reform the system. With regards to cost, reform will follow from several elements. We need a greater focus on

improving the quality of care, on improving health outcomes, and

on increasing prevention and wellness. We need to reduce unnecessary utilization of health care, and we need to increase efficiencies

in the system, both without reducing quality. We’ll need to build

in more patient safety measures to avoid medical errors that drive

up costs. We need to thoroughly explore all potential areas of

health care cost reduction.

Some of this work is already occurring. I commend Peter Orszag

and the Congressional Budget Office for the work that they have

been doing, and encourage them on the work that they are planning, to find ways that we can reduce health care costs without

sacrificing quality.

Health care reform will not be easy, but I have made it a priority

for the Finance Committee. Already this year we have had three

hearings on health care reform. We will continue with more next

month. Yesterday, we had a day-long summit on health care reform

over at the Library of Congress. Frankly, I thought it was very,

very good and it helped a lot. I think it will be a foundation on

which we can build and find some solutions.

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I know that, if we work together, we can find answers to the

tough questions about health care reform. I know that we can deliver high-quality, affordable health care to all Americans. I know

that we can bring down the overall cost of providing for that care.

The cynic might say that we can never succeed in health care reform. An idealist might say that we have to wait for the perfect solution. But as a realist, I say that what we do or leave undone on

health care reform next year may well determine our future for a

long time to come.

Now I would like to introduce our witnesses. The first witness is

Peter Orszag, the Director of the Congressional Budget Office. Our

second witness is Gene Dodaro, Acting Comptroller General.

Thanks for coming, both of you. You know the drill: 5-minute statements, and your printed one will automatically be included in the

record.

STATEMENT OF DR. PETER R. ORSZAG, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC

Dr. ORSZAG. Thank you very much, Mr. Chairman, and other

Senators.

I am going to make three points today, and you should have a

chart packet in front of you.

The CHAIRMAN. Is this it here?

Dr. ORSZAG. Yes.

[The charts appear in the appendix starting on p. 55.]

Dr. ORSZAG. We are on a clearly unsustainable path, most of

which is associated with health care costs. Second, there are very

significant opportunities to improve the efficiency of the health care

system. Third, there are important political economy questions surrounding how we can capture those opportunities, and on that dimension I just wanted to commend the chairman and other members of the committee. I, too, thought that yesterday was a phenomenal day, and exactly the kind of thing that we need to be

doing.

So on the first point, the first chart in your packet shows you the

path that we are on, with rapidly rising costs, especially with our

entitlement programs, concentrated especially in Medicare and

Medicaid. As you can see, spending would rise to unprecedented

levels over the next 75 years under our projections.

If you combine that spending path, as the next chart shows, with

something on the revenue side that basically reflects the current

tax system which is embodied in the so-called alternative fiscal scenario, you can clearly see an explosion of deficits and debt that occurs. In particular, by 2050 the deficit would reach 23 percent of

the economy and debt would reach almost 300 percent of the economy.

The economic cost associated with that kind of scenario would be

so much larger than any economic difficulties that we are currently

experiencing. In our estimation, for example, real GNP, real national income, would be reduced by 25 percent in 2050, and beyond

2062 we cannot even compute the results. This course is clearly

unsustainable.

Why is the course unsustainable? Most of it does have to do with

health care. As the chairman already mentioned, the next chart

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shows you that most of the growth in health care costs has to do

with rising costs per beneficiary, that so-called excess cost growth

which you see in the light shaded part of the chart, and only a

smaller part has to do with the pure effects of demographics. I

would be happy to answer more questions about that.

Now, embodied in that central long-term fiscal challenge that we

face is, as I think is now well understood, a very substantial opportunity to reduce health care costs without impairing health outcomes. In particular, as much as 30 percent of the health care services delivered in the United States, according to expert analysis, do

not improve health outcomes. Thirty percent of health care services

is 30 percent of 16 percent of GDP, which is 5 percent of GDP.

That is $700 billion a year in health care services delivered that

do not improve health outcomes.

I will just walk very quickly through that opportunity. This map

shows you that costs per beneficiary vary substantially across parts

of the United States, for reasons that the team up at Dartmouth

cannot explain based on underlying riskiness of the patients, or the

cost of building a hospital, or other factors across the U.S. Even at

our top medical centers there are very substantial costs that are occurring.

So at UCLA Medical, for a beneficiary in the last 6 months of life, the average cost per beneficiary is $50,000 a year; at the Mayo

Clinic it’s $26,000 a year. There is no appreciable difference in

quality. If anything, the quality indicators are better at the Mayo

Clinic. The best medical care in the world should not be costing us

twice as much as the best medical care in the world, and you and

I, through our payroll taxes, are paying for that today.

You similarly see very significant—the last chart—variation in

the number of days in the hospital that beneficiaries in the last

6 months of life spend at different leading medical centers. We are

practicing medicine in vastly different ways, even at our top medical centers across different parts of the United States, in ways

that do not correlate—they correlate with higher costs, but not

with higher quality.

That brings me to my final point, which is, what do we do about

all of this? As I said yesterday, it appears to me that our political

system does not deal well with gradual, long-term problems. As you

can see from this chart, we face a gradual, long-term problem

which will eventually become a crisis if we do not deal with it.

However, there are significant aspects of the core problem that

we face—which involves health care—that are already affecting us

today. Health care costs are, to a degree that is under-appreciated

and unnecessarily large, reducing workers’ take-home pay. Health

care costs are consuming, already, a quarter of the Federal budget.

Health care costs at the State government level, evidence suggests,

are crowding out other State government priorities, including especially higher education, thereby driving up tuition and impairing

quality at our Nation’s higher education facilities. That is happening today.

A final point which, Mr. Chairman, you already noted, I would

just emphasize what Chairman Bernanke said yesterday, which is,

the best way to reduce the fiscal burdens of health care is to deliver cost-effective health care throughout the entire system, and I

5

hope we can talk more about that during the question-and-answer

period.

Thank you very much.

The CHAIRMAN. Thank you very much.

[The prepared statement of Dr. Orszag appears in the appendix.]

The CHAIRMAN. Mr. Dodaro?

STATEMENT OF GENE DODARO, ACTING COMPTROLLER GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

Mr. DODARO. Good morning, Mr. Chairman and members of the

committee. I am very pleased to be here today to discuss the longterm fiscal outlook for the Federal Government.

Simply put, from GAO’s perspective, the long-term path is unsustainable, and it is a matter of the utmost concern. Health care costs

are the principal driver for this situation, but demographic changes

also play a role and are a contributing factor to the situation.

Reform of the health care system is essential to dealing with this

problem, but we believe the scope and magnitude of this issue confronting the country requires looking at all aspects of the Federal

Government’s operations, both on the revenue and the spending

sides, in order to deal with this situation.

Additionally, the window of opportunity to deal with the significant issues confronting policymakers on these subjects is shrinking,

and the ability to gradually phase in adjustments, for individuals,

private sector, and government institutions is shrinking.

I have three charts I would like to show you to illustrate this

point. You have them before you. The first chart—Figure 3 in my

written testimony—talks about the combined Federal, State, and

local fiscal imbalance. This one shows—based on GAO’s simulations—what the deficit trend would be in the out-years for the Federal Government. It is an ominous trend. The deficits are large and

grow steadily in the out-years, contributing to what Dr. Orszag

talked about in terms of the explosion of debt.

We have also done a simulation of the State and local sector. The

dashed line shows the combined Federal, State and local government deficits. State governments will also face an increasing gap

between their expenditures and receipts in dealing with issues.

One of the primary reasons for the gap in terms of the situation

that the States face is rising health care costs, both for Medicaid

for their employees, and for dealing with the post-retirement health

care costs for their employees. As you can see, at the same time

the Federal Government is going to be facing large and growing

structural deficits, so will the States; this is going to complicate

finding solutions and equitably distributing changes that will need

to take place.

The second chart is Figure 2 from my submitted statement. This

shows some of the magnitude of the programmatic decisions that

confront the Congress and the country going forward. What this

shows is that, if you hold revenue constant in the out-years at

about 18.3 percent of the Gross Domestic Product—which is about

the 40-year historic average—that by 2030, revenues would only

cover interest on the debt, the Social Security, Medicare, and Medicaid payments. At that level, there would be no revenue for any

6

other government operations. If you go out 10 more years, at that

level of revenue, there is not enough to make the payments for Social Security, Medicare and Medicaid, and interest on the debt.

Now, obviously this is not going to happen. Action will have to

take place. But it illustrates the magnitude of the problem and the

size of the adjustments that are going to have to take place. Right

now, the net present value of excess projected expenditures over

revenues is $41 trillion; it is $34 trillion for Medicare, $7 trillion

for Social Security. So, it is a significant problem.

My final point is that this is not an out-year issue alone. We are

already starting to see the squeeze. Figure 5 from my written testimony shows the historic rise in the debt level that we have seen

from 2003 to 2007; it shows that debt held by the public has increased significantly to fund our previous and current annual deficits. But in the white bar at the top it also shows the debt that

is held by the government itself largely from excess revenues in the

Social Security program that are now being used to fund current

government operations. That excess of Social Security taxes over

the benefits being paid is going to start to shrink in 2011, and in

2017 the Social Security program will shift to a net cash deficit position.

Right now, in 2008, the Medicare program is in a net cash flow

problem. In fiscal year 2009, the Congress is going to have to raise

the debt ceiling again. So the need for change is already evident,

and the pressures that the Federal Government will feel just in

funding its current operations are going to be unfolding in the next

few years, even before the dramatic changes that are likely, going

forward.

I commend this committee for holding this hearing and for holding the summit yesterday, and we look forward to working with

you to help deal with these issues going forward.

[The prepared statement of Mr. Dodaro appears in the appendix.]

The CHAIRMAN. Thank you both, very much.

Dr. Orszag, I am just curious about the components or the breakdown of the 30 percent of health care expenditures that do not improve outcomes. Are you in a position to kind of break that down

a little bit and tell us what the main components of those inefficiencies are?

Dr. ORSZAG. Yes and no. It comes, again, from that map, basically, showing the higher-cost regions not generating better health

outcomes. Then the question is, why is that variation occurring?

The variation tends to be largest in the areas where we know less

about what should happen. So, for example, we know that someone

suffering a heart attack should be administered an aspirin associated with hospital admission. There is not a lot of variation in that

practice.

Another example is imaging and diagnostic tests—think about an

MRI, for example, and when it should or should not be applied.

There is not as much guidance on that or as much information, and

there is a huge amount of variation. Similarly, how many times

you should go back and see your doctor after surgery, no one can

tell you. There is a lot more variation in those kinds of settings,

so it is precisely where we know least about what should happen

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that the variation is greatest, and that is where I think most of the

efficiency gains could come.

The CHAIRMAN. So that is where most of the 30 percent occurs?

Dr. ORSZAG. I think most of the 30 percent is coming from those

areas where it is less clear what should happen, where there is less

clear medical guidance on what should happen. Yes.

The CHAIRMAN. But are you also saying that——

Dr. ORSZAG. I am sorry. You also see that in the variation we see

across the leading medical centers. Beneficiaries in the last 6

months of life are being treated in completely different ways across

some of our Nation’s leading medical centers for reasons that we

do not understand.

The CHAIRMAN. Yes. That is the chart, this one here.

Dr. ORSZAG. That one and the one before it. Yes, sir.

The CHAIRMAN. Right. But you say, for reasons we do not understand. You have looked at this a little bit. Do you have any sort

of clues?

Dr. ORSZAG. Yes.

The CHAIRMAN. What might come to mind?

Dr. ORSZAG. There is a lot more stuff that happens to you. If you

go to UCLA Medical rather than the Mayo Clinic, you are much

more likely to spend a lot more time in the hospital, you are much

more likely to have lots of tests done to you, and you are much

more likely to see lots of specialists, none of which we have any information actually improves your outcome.

The CHAIRMAN. Again, any indication of why, at UCLA Medical,

you are more than likely to see so many more?

Dr. ORSZAG. Well, there are two basic theories. One is that you

build it and they will come, so the greater availability of beds, and

supply, basically, creates its own demand. The second thing is just

social norms among medical practitioners. Zeke Emanuel’s new

book on health care opens with a test that was applied at much different thresholds at two hospitals that he worked at. He said at his

new hospital, he asked why is it being applied at this looser level,

and they said, that is what we do here.

I am surprised as I explore health care more and more the degree to which that is true: that is just the way we do it here. It

is not backed by any specific evidence that it works better than

anything else, but it is the way we do it here. A lot of inertia.

The CHAIRMAN. Does that get a little bit into comparative effectiveness?

Dr. ORSZAG. Absolutely. So then the question is, how do you

change that? I think the way you change that is—and there is evidence that establishing practice guidelines and tying financial incentives to those guidelines changes doctors’ and medical providers’

behavior. Very clear evidence, in my opinion. You need to do both,

though.

The CHAIRMAN. Is there a role for Congress, through Medicare,

to try to set up some practice patterns that are more uniform or

get at the disparity?

Dr. ORSZAG. I think there is huge potential for the government

to lead by either financing or playing an active role in conducting

the research. Then the key is, we need to change the way we reimburse—the financial incentives that face providers. Right now we

8

pay for more care rather than better care, and that fundamentally

has to change or we are not going to get anywhere.

The CHAIRMAN. You know, as I picture this, maybe we ought to

have a hearing here on that subject, get some hospital administrators in high-cost areas and some in low-cost areas and look at those

practice patterns and see whether there is any justification for the

variation.

Dr. ORSZAG. And the other interesting idea that came out yesterday, and that you asked Mr. Bernanke about, involves some sort

of institutional body that could play a larger role in those sorts of

questions.

The CHAIRMAN. Right. But your thoughts about that?

Dr. ORSZAG. I think it is a very interesting idea.

The CHAIRMAN. And how far would you go in pursuing that?

Dr. ORSZAG. I have already said that I think the political system

does not deal well with gradual, long-term problems. This, again,

strikes me as a gradual, long-term problem. So I am going to have

to defer to you on the exact structure, but it does strike me that

thinking through things like that is probably an auspicious path to

be pursuing.

The CHAIRMAN. Another reason, too, as I said there at the summit yesterday, none of us here are competent to decide what reimbursement rates should be for X, Y, or Z. What do we know?

Dr. ORSZAG. And you get lobbied heavily on it, too.

The CHAIRMAN. We are just Senators and we are lobbied heavily.

Exactly.

Dr. ORSZAG. Yes.

The CHAIRMAN. Thank you very much. I appreciate it. I am sorry

I did not get a chance to question you, Mr. Dodaro. Next time

around.

Senator Conrad, you are next.

Senator CONRAD. Thank you, Mr. Chairman.

The CHAIRMAN. Do you have some charts?

Senator CONRAD. I am only going to use one. [Laughter.] I am

only going to use one.

First of all, I want to thank you, Mr. Chairman, for holding this

hearing. I especially appreciate it. I also very much appreciated

yesterday. As I said yesterday, I really thought, that is the way the

Senate should function. When I came here 22 years ago, I really

thought that is the way it would be. You bring in the experts from

around the country and it would be deliberative and you would

really search for a solution.

The CHAIRMAN. I did too, when I came here. [Laughter.] I sat in

the room for the first time and I said, boy, that is the kind of thing

I would like to do.

Senator CONRAD. I just thought yesterday was outstanding, and

really a good model for things we could do around here.

Let me just make this point, if I can. This is the long-term scenario according to CBO, long-term budget scenario. If we make all

the tax cuts permanent, if we indexed the AMT for inflation, this

is where we are headed. And it is not the sweet by and by. You

can see, this trajectory on debt as a share of GDP takes off like a

scalded cat in about 2012. So, this is not far down the road.

9

The question I would have for the witnesses is: so what? Are

these not just numbers on a page, and is this not just an academic

exercise, balancing budgets? Is that not just for the green eyeshade types? Should we be concerned about what this would do if

this path were pursued? Should we be concerned about the effect

on people’s lives in this country and, if so, how?

Dr. Orszag?

Dr. ORSZAG. Yes. And I think this is a very important point.

Right now we are borrowing a lot of capital from abroad, and the

effect may be masked in terms of what the ultimate impact is. But

just like the subprime crisis came home to roost when it was

unsustainable, when you are on an unsustainable path, bad things

will happen.

I have heard this likened to a dysfunctional relationship. So

something that is unsustainable like a dysfunctional relationship

can go on longer than you expect, and end faster and messier than

you think. We are on an unsustainable path and bad things will

happen, including a collapse in GDP and an explosion in debt. We

would not be able to sell the debt on your chart. We would literally

not be able to sell debt at those kinds of levels, as Mr. Bernanke

and others have suggested. So, significant economic costs that far

exceed what we are facing today unless we get at the heart of this

problem.

Senator CONRAD. Mr. Dodaro, what would your answer be?

Mr. DODARO. This is a very serious situation. If it is not addressed, it will have an impact on the public, on the potential

standard of living, and the amount of funds that will have to be

generated in order to offset this. We have estimated the current fiscal exposures that already exist for what is projected in Medicare,

in Social Security, and other contingencies and liabilities, at about

$54 trillion.

Senator CONRAD. When you say standard of living, I think part

of the problem is, numbers mean a lot to you, they mean a lot to

me, but I find with my constituents, we say these big numbers,

$45 billion, $54 billion, it has no meaning. You said it is going to

affect the standard of living in our country.

Mr. DODARO. Right.

Senator CONRAD. How can that be? What difference does it make

to the standard of living?

Mr. DODARO. Well, the government provides a lot of essential

services to individuals, and the ability to fund those services is

going to have an impact both on individuals and on the government’s ability to deal with emergency situations. The figures that

you are showing in your chart and that Dr. Orszag and I have been

showing in our charts do not even consider emergencies that might

happen, such as hurricanes or floods.

Basically the services that the Federal Government and the

State and local governments are going to be able to provide will be

under a great deal of stress, even without considering potential

unmet needs that people want the government to respond to. There

will also be a question of what people are going to be willing to pay

in terms of revenue for a certain level of services going forward.

10

Senator CONRAD. All right.

Dr. Orszag, what would you say?

Dr. ORSZAG. I would just add, I already said that the path that

we were on would reduce national income by one-quarter in outyears, in 2050, and after that we cannot even compute the number.

So a quarter for the typical family in terms of household income

is north of $10,000 a year, even at today’s income levels. So the

kinds of economic effects we are talking about are just so much

larger than anything we are experiencing in terms of current economic difficulties.

I would also point out there are things that involve this fiscal

problem that are affecting households today. I mean, most workers,

I do not think, appreciate the fact that their take-home pay is

being reduced by $7,000 or $10,000 a year to finance their

employer-sponsored insurance. They probably do not make the connection, as much as the evidence suggests, between the high tuition

that they are facing for the kids at college and rising Medicaid

costs. There are huge parts of this problem that are affecting people today and are not just this thing down the road.

Senator CONRAD. Sweet by and by. Thank you.

Dr. ORSZAG. Thank you, Senator.

The CHAIRMAN. Senator Salazar?

Senator SALAZAR. Thank you very much, Chairman Baucus.

Thank you for the witnesses and your statements today.

Following up, Dr. Orszag, on Senator Conrad’s questions to you

on the mountain of debt that we have, I think we have a disconnect

between what we are talking about here in the Finance Committee

this morning and what the people of America really see. I know

some of us have been over to the White House at different times

and we have heard from the leadership of this country that debt

does not really matter, that deficits do not really matter as a percentage of our GDP.

I heard you in your last response to Senator Conrad saying, well,

if you look at the year 2015, what you are looking at is essentially

that any one family, by 2015, is going to be making $10,000 less.

I am not exactly sure what your number was.

Dr. ORSZAG. It was 2050.

Senator SALAZAR. 2050. All right. It is going to be a significant

reduction in how much money people are making here in America.

Is it possible for you at CBO, and for you at GAO, to come up

with a scenario for us that tells us what this rising mountain of

debt will mean to the typical American family, say by the year

2015? Because I think, when you look at the chart that Senator

Conrad just had and the charts we have here, this is not a problem

that is off at 2050, this is one that we are going to be seeing very

soon here at 2010, 2012—we are seeing it already.

But if we were to ask you, give us a set of realities of the typical

American family of four, what does this mean to them by the year

2015? Is that something that you could do?

Dr. ORSZAG. Yes. Now, I would say, though, the effects are not

going to be as massive as you might think and that might motivate

action. It is like we are running up this credit card debt. And while

you are spending on the credit card and the interest payments are

building, it does not look that painful, and it can go on for some

11

period of time. Ultimately, because of the power of compound interest and because it is not a sustainable situation, you face a crisis.

I do not want to say the crisis will not happen before 2015, but

the probabilities are such that it may not happen before 2015, and

therefore while you are in that running up stage and you are just

running up your credit card bill, things can look artificially good.

That is sort of the analogy of the dysfunctional relationship: it can

go on longer than you think and then it can become a complete

mess.

Senator SALAZAR. All right. We have a real challenge, though,

Dr. Orszag, in terms of explaining this problem to the American

people.

Dr. ORSZAG. Yes. I agree.

Senator SALAZAR. Because I would bet you, 99 percent of them

say, it does not affect me today and it is not going to affect me in

2012. So these guys and I come up and say we need some more revenue or whatever it is, all of a sudden people do not get it.

Dr. ORSZAG. That may be why it would be useful to focus on some parts of the problem that are occurring today: $700 billion in

health care services delivered today that are unnecessary.

Senator SALAZAR. Let me switch over then to health care on that.

This map is very, very interesting. It shows some parts of the country where we are spending $10,000 to $13,900 per Medicaid beneficiary and, in other parts, only $6,900. I think your statement was,

we essentially have the same quality being delivered in different

places, but we have very disparate costs with respect to the delivery of those services.

So the question for you would be—and for all of us is—what do

we do about that? What do we do with this runaway train? I heard

one idea, and that is the idea of comparative effectiveness and that

maybe we look at the possibility of this board that Senator Baucus

and others talked about yesterday. What else would you do? How

do we get a hold of this runaway train?

Dr. ORSZAG. There are lots of ideas out there. I would now say

four key things. The first is, comparative effectiveness. The second

is, we absolutely need to change the financial incentives for providers. Third is, we can do a lot more to encourage healthier living,

and we can talk about that. The fourth is, we need to be experimenting much more, including through the Medicare demonstration projects, on what works and what does not in terms of coordinated care, in terms of accountable care organizations, in terms of

pay-for-performance and what have you, all of which we could be

doing today.

Senator SALAZAR. Go back to the four points.

Dr. ORSZAG. All right. Comparative effectiveness research, what

works and what does not. Pay for the stuff that works and do not

pay for the stuff that does not. Encourage healthier living, and we

can flesh that out a little bit more. Then use Medicare and other

public programs to be experimenting with what works and what

does not in terms of the delivery system—so, accountable care organizations, coordinated care, disease management, pay-forperformance incentives, and what have you so that we have a sort

of active learning system for what works and what does not, because it is going to take a lot of experimentation to bend this curve.

12

Senator SALAZAR. Thank you very much.

Senator CONRAD. Changing incentives.

Dr. ORSZAG. That was the second. Absolutely key.

Mr. DODARO. Also, the one thing that I would add to that list,

and to go back to your comment, Mr. Chairman, that we may not

have the expertise at the Senate to deal with this, but you could

think about creating a structure that sets standards of care in

some of these areas and what kind of information reporting should

come on a regular basis so people have the information. In other

words, there need to be tools that are put into the system, both in

standards and information reporting, that provide a regular

amount of data to feed into the type of research that Dr. Orszag

is talking about and the decisions that have to be made over time.

In other words, to put a structure in place to help facilitate this,

I think would be something—should be something—the Congress

considers.

Dr. ORSZAG. It may make sense for you or others to ask GAO or

us to try to flesh out the Federal health board structure and the

pros and cons of different structures that could be thought about.

The CHAIRMAN. Great minds think alike. That very concept was

going through my mind, of asking you to do just that.

Senator Rockefeller?

Senator ROCKEFELLER. Thank you, Mr. Chairman.

I have a couple of things that go through my mind as I listen

to you. One, if you go over what I would call, in my bipartisan nature, the absolute disaster of tax cuts, Iraq, and no attention to any

infrastructure ability, no attention to anything that relates to the

future, like, NIH can produce things which could reduce—but you

cannot get grants for them now—the National Science Foundation,

not for health, but for other things.

I started out with the premise that Medicare and Medicaid

should not be cut to the extent that it affects health care needs

that people actually have. All right? I also put Medicare and Medicaid in the long-term context of the budget debt out in the future.

I am not quite as radical as my friend Mr. Conrad over here. What

difference does it make? I think it does make some. But he is usually right.

So we have, as a Nation, magnificently and totally ignored longterm care policy. The only place we have it is in the VA system,

and that is on an outpatient basis. It is obviously a different situation. We have ignored end-of-life care, which we have discussed

now 4 or 5 times in the last day. It is a huge expense.

The Hippocratic Oath does not say we are going to cure you, it

says we are not going to do harm to you and we are going to maintain your quality of life. We are doing neither, not just in the last

year of life, but in the case of some kinds of chronic diseases, in

the last 5, 8, 10 years of life where people basically are not there,

and huge amounts of money are being spent on them.

So I am really for the idea of taking Medicare and Medicaid and

looking at hospitals, like this one chart that someone gave me on

spending in the last 6 months of life, and then showing UCLA,

Massachusetts General Hospital, and the Mayo Clinic, and the

enormous variation in what they treat. I had an operation at Johns

13

Hopkins. Johns Hopkins can do no wrong. That is what you are

saying: this is the way we do it.

I am not sure we should let people get away with that. Part of

institution building in health care is their self-esteem, their sense

of morale, and all of that. They do compete. They like that. They

have to track doctors. That is important. How they are seen affects

that. So, my second point would be, having said that, there is an

enormous amount of work we can do in this Congress, I think, on

regulating behavior.

I do not mean that in a bad way, but simply, rationally, reasonably looking at the differences of what people’s outcomes are and

saying, that is not sufficient. We just tell them and they will hate

it, and it will be called socialism, and all the rest of it. So be it.

You can do that across the board in Medicaid and Medicare: better

outcomes, do not waste the money, $700 billion that does not do

any good, or whatever it was that you said.

The other thing is, I remember RBRVS so well, the ResourceBased Relative Value Scale, and the attempt to try to make more

sense out of primary care, pediatric care, preventive care which

would come with the pediatric, and all the rest of it. That was

1989, 100 years ago. That has been replaced by a system in which

lobbyists in this town swamp our offices with their special niches

because they are not looking at what used to be a chart up there.

They are not looking at that, they are looking at their share of the

pie and their share of the pie only.

I sat last night at a dinner at the Alliance for Health Reform between the head of a major medical association in this country and

the head of a major foundation on health care in this country, and

they were furious about that. They said, we are being done in by

specialties, or niches, or durable medical equipment people, whoever it is, who come in for their own purposes and care not a whit

about the long-term effects, much less anything called universal

health care or a rational system.

So I just want to make the point—I am not asking a question because I have talked too long. I am unwilling, in my State of West

Virginia, to see Medicaid or Medicare cut to the disadvantage of my

people. I am willing and very anxious to see new practice techniques and technology, and end-of-life care, and long-term care,

and all kinds of things where maybe you have to spend a little bit

more to save money later, but you do those things and you do not

let hospitals—and you get those statistics. That is a superb idea.

I mean, this is revolutionary to me. There is no excuse that they

can make, and we do not hold them accountable because we do not

know what they are doing.

So I will continue on this in the next round, but I really feel that

there is a lot that we can do here to cut the costs, and then also

looking at the larger picture of the national economy, this business

of tax cuts and this absolutely essential war that we fought in Iraq

for all these years. I mean, it is just horrendous, what that also

does to where your charts end up.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Wyden?

14

Senator WYDEN. Thank you, Mr. Chairman. I do not want to

make this a bouquet-tossing contest, but yesterday’s program was

terrific, and we sure need a lot more of that kind of work.

I want to start with you, Dr. Orszag, because I believe that central to holding down health costs is to adopt new policies that empower Americans to be smarter shoppers for health care so that

they can get more value for their health care dollar, and providers

and payers see that, if they do not squeeze out some of that $700

billion you say is wasted, in effect they go somewhere else. We

tried to do that in the Healthy Americans Act, and we were pleased

about the scoring that said it was budget-neutral in the short term

and could actually help to hold down the rate of growth in the 3rd

year.

Tell me a little bit about your thinking at page 8, because we

subscribe to that where you say making the underlying costs associated with employment-based insurance more transparent might

provide an opportunity to contain health costs.

Dr. ORSZAG. Yes. The basic thought there is that one of the

things that perpetuates inefficiency in the health system is that

workers do not demand as much from the system as they would if

they knew how much it was actually costing them.

The economic evidence is overwhelming, the theory is overwhelming, that when your firm pays for your health insurance you

actually pay through reduced take-home pay. The firm is not giving

that to you for free. Your other wages, or what have you, are reduced as a result. I do not think most workers realize that. The

backlash that you all hear about out-of-pocket spending, which is

significant, is striking when you realize that out-of-pocket spending

is only 15 percent of the total.

So coming back to a point I made earlier, imagine what the

world would be like if workers realized that, today, it was costing

them $10,000 a year in take-home pay for their employer-sponsored

insurance, and that could be $7,000 and they could have $3,000

more in their pocket today if we could wring these efficiencies out

of the health system. Making those costs more transparent may

generate demand for efficiency, and yes, your legislation does make

those costs more transparent.

Senator WYDEN. How, in your analysis of that legislation, did the

cash-out, the transparency, figure in to the scoring that you did,

the report you gave us?

Dr. ORSZAG. The budget neutrality actually was accomplished

without that channel really operating. I think that over the long

term that channel may turn out to be as important, if not more important, than the sort of traditional economics that reflects the initial guidance that you received.

Senator WYDEN. And then as people are smarter shoppers—and

what we do is we make sure everybody is in a pool, we make sure

it is not connected to risk, and there are insurance reform subsidies

for the low-income people. We also have people say, that is good,

we like it, but we want to be rewarded for preventive kinds of approaches. So what we said is, as the families take their kids to preventive kinds of services, they would get reductions in their premiums. Do you think that has the potential for the kinds of savings

that you talk about down the road?

15

Dr. ORSZAG. I think prevention has significant potential to improve the quality of our health. The evidence on the degree to

which prevention itself saves money, especially in the short run, is

much more mixed and in general is not as strong as many proponents think, although I would note, even there, there are

things—for example, vaccinations for flu during flu season for

Medicare beneficiaries—that probably would save money even in

the 5- or 10-year window, and we are not at 100-percent take-up

for those kinds of things, so there are preventative steps that

would save money even within 5 or 10 years. But most of the payoff, especially in terms of quality, would be longer-term, and the effect on cost is a little bit more ambiguous.

Senator WYDEN. And what about reforming the tax code? I mean,

we have essentially a system today in 2008 that is not very different than 1948. The consumer, again, is in the dark. In the

Healthy Americans Act we want to make sure people know what

employers are spending. You talk about the transparency argument. Would tax reform in this area not also be another one that

sheds some light for individuals, that they have a stake in this and

they are not divorced from it as they are in today’s system?

Dr. ORSZAG. Economists have long had concerns about the structure of the tax incentive for employer-sponsored insurance, which,

according to traditional economic thinking, creates an incentive for

employer-sponsored insurance as opposed to other forms of insurance, creates an incentive for gold-plated plans as opposed to other

kinds of health insurance plans, and creates job lock in the sense

that workers are worried about moving from job to job because of

the loss of health insurance. In addition to that, there is also the

sort of cost consciousness that we were just discussing.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

I would just be curious how these alarming cost curves in the

United States compare with cost curves in other countries, and in

terms of the Federal budget deficit. I presume that some would

project other countries’ expenditures off into the future, because

they have lower health care costs per capita compared with the

United States—dramatically lower—that the curves would not look

so alarming in those countries.

Dr. ORSZAG. Health care costs, even though they are lower in

other countries, are rising across the industrialized world. In terms

of the overall fiscal burden, a larger share of the long-term fiscal

problems that, for example, continental European countries face is

associated with their pension plans, their equivalent of Social Security, both because their populations are aging more rapidly than

ours are, and because their pension plans tend to be more generous

than the Social Security system here is. Most industrialized countries face some long-term problem. There are some that look pretty

good. The U.K., for example, is in decent shape. But I would say

our problem is among the larger problems, both in magnitude and

in terms of share of GDP.

The CHAIRMAN. And Japan and the Asian countries—let us say,

Taiwan—about the same?

Dr. ORSZAG. Most countries, including Japan, face significant

long-term fiscal problems. The share that is attributable to aging

16

varies across countries, but it is more prominent in many other

countries than it is here.

The CHAIRMAN. You touched on this. Actually, I just said it. All

these charts somewhat assume a static analysis, that is, they do

not take into account all you have talked about, a collapse. They

just assume that they go along——

Dr. ORSZAG. Those are the good scenarios.

The CHAIRMAN. Those are the good scenarios. As bad as they are,

they are good scenarios.

Dr. ORSZAG. Yes.

Mr. DODARO. It is very conservative.

The CHAIRMAN. They are good scenarios. The bad scenario is,

something just collapses, something breaks. As you said, whenever

something is unsustainable, something bad happens. In my judgment, it happens sooner rather than later. It reminds me of a Japanese poem which I learned a long, long time ago, in English.

[Laughter.] Which is, ‘‘I always knew one day I’d travel down this

road, only I didn’t know it would be so soon.’’ I just sense, it’s like

a lot of bubbles. Subprime, everyone knew that was a problem. The

dot-com bubble. This was kind of a bubble here too, and something

bad is going to happen earlier rather than later if we do not address it more quickly.

Mr. DODARO. Along the lines of your questions about other countries, Mr. Chairman: a number of other countries have put in place

fiscal sustainability reporting where they do run alternative scenarios that would be along the lines of what you talked about. We

have recommended that we consider doing that here in the United

States as well.

The CHAIRMAN. We talked on this a bit, too, Dr. Orszag. What

kinds of studies would you like to see us, the Finance Committee,

the Congress, ask you to do, CBO or GAO? You kind of know what

the problem is here. Are there some components or aspects of it

that perhaps we should ask you to focus on, both to get the facts

and also to dramatize and highlight what some of the problems

are?

Dr. ORSZAG. And you are asking me this in front of my staff?

[Laughter.]

The CHAIRMAN. I am. [Laughter.]

Dr. ORSZAG. Maybe we can have a discussion later.

The CHAIRMAN. All right.

While I am talking, Mr. Dodaro, you can consult with your staff.

[Laughter.]

Mr. DODARO. A couple of things come immediately to mind, Mr.

Chairman. One, there are a lot of activities in the States, in Massachusetts and other States, that are trying different models. How

well are those models working? Are there lessons to be learned

from the State activities? That would be one thing that could be

shared.

Second, I believe that you are talking about a situation where

there is really a structural problem and there is not a lot in the

way of standards or good information readily available. I think

looking at that issue and what are the options for the Congress, to

put in place a systematic set of standards and information is the

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tainly, you can do targeted studies, but time goes by, and a lot of

expenditures take place. You need more regularized reporting,

analysis, and transparency to be able to deal with this.

The CHAIRMAN. Well, that is a very good point. Sometimes, it occurs to me, there is just not enough data on subject A, B, or C. Is

there something that we can do here in the Congress to ask for

agencies or the private sector, somebody, to provide more data in

certain areas? If so, at this point, what comes to mind?

Dr. ORSZAG. I would identify two things, in particular. I should

say, by the way, I think in terms of CBO, perhaps the best thing

we could do, in addition to perhaps the study we have already discussed, is these two major reports that we are currently working

on that will be out within the year on health options.

The CHAIRMAN. Right. Right.

Dr. ORSZAG. With regard to data, you can have more reporting

of the data that is actually out there already, and some of the part

D data comes to mind.

The CHAIRMAN. Right.

Dr. ORSZAG. I know that there is discussion going on. And Medicare Advantage is also a big area where we could be getting more

reporting from the plans in terms of what they are doing and not

doing.

The CHAIRMAN. Right.

Dr. ORSZAG. And then in terms of building out the data in the

future, health information technology could provide a significant

backbone for providing data. The approaches that have been adopted so far in policies I have seen involve subsidies for health information technology which will work for providers that are close to

adopting it on their own. There are alternatives that would probably get widespread adoption much faster than small subsidies, but

I know they are dicier.

The CHAIRMAN. My time has expired. Thank you very much.

Senator Conrad?

Senator CONRAD. Let me ask you this. When politicians—and I

count myself as one—hear that we have a serious problem out in

2050, boy, we are not going to be here in 2050, so we can just kick

that can down the road. So why can we not just kick this can down

the road before we do something? It sounds to me from what I

heard here today that we could wait 4 or 5 years before we do anything. Is that the case?

Dr. ORSZAG. I do not think so. Here is the basic problem. If you

waited, first of all, it is not going to be as long as the projection

suggests because the system will collapse before then. But more

importantly, there is so much infrastructure that needs to be built

in order to make sound judgments, that the longer you wait the

harder it is going to be to do.

So we do not have a comparative effectiveness entity, we do not

have the demonstration projects in place to be figuring out what

works and what does not. We do not have the structures in place

to make intelligent decisions. The longer you wait to start doing

that, you are just going to be shooting in the dark.

Senator CONRAD. Let me ask you this. The conversation this

morning mostly has focused on health care, because we all know

that is the 800-pound gorilla. But that is not the only gorilla in the

18

room. We have Social Security. That is headed for a circumstance

in which it goes cash negative in 2017. Right now it is throwing

off $200 billion a year that we are using to pay operating expenses.

I heard that in your testimony, Mr. Dodaro.

Mr. DODARO. Right. That is correct.

Senator CONRAD. But that is going to change, and going to start

to change quite soon because that surplus that we are using to pay

operating expenses is going to start to decline in about 2011. Then

it is going to go cash negative in 2017, and then we are going to

have to start borrowing money from the general fund, right? We

are going to have to be having money from the general fund go over

into Social Security. So that is a situation that we are going to face

quite soon, is it not?

Mr. DODARO. That is correct. In 2011—in fact, that chart—Figure

5 again, if I could put it back up there—shows that the reason that

Congress had to raise the debt ceiling is not only from borrowing

from the public to finance the unified Federal deficit. In addition,

it is going up because the Federal Government is using the Social

Security surplus of payroll tax receipts over benefit costs to fund

current operations. That changes in 2011, when the cash surplus

starts shrinking. Then in 2017, Social Security’s cash flow turns

negative, and we will have to turn it around.

Senator CONRAD. So, boy, are we in for a big surprise around

here. We have been having a growing Social Security surplus that

we were able to use to pay operating expenses. Now that is going

to start declining as soon as 2011, and by 2017, instead of having

$200 billion that actually sort of works as a bonus around here, it

is going to start going the other way and we are going to have to

be drawing money out of general fund expenditures. Now, that is

only 9 years away, and in budget years it is only 8 years away.

Mr. DODARO. Right.

Senator CONRAD. So, if I could ask Dr. Orszag, how soon do we

need to take action, in your judgment?

Dr. ORSZAG. I would agree with Chairman Bernanke, that ‘‘10

years ago’’ would be the appropriate response to that question.

Senator CONRAD. Ten years ago. And what if we do not act now

to meaningfully reduce this trajectory?

Dr. ORSZAG. Every year that goes by, you are increasing the risk

of the collapse that the chairman mentioned.

Senator CONRAD. And what kind of a collapse are we talking

about?

Dr. ORSZAG. When things go wrong, they can go wrong in such

a wide array of ways that it is hard to play out all the possible scenarios. But what we are really talking about is, for example, if the

very significant purchases of government debt from abroad that are

currently occurring dried up, you would see a very sharp increase

in interest rates in the United States. You would see a collapse in

confidence—that is possible. You would see a significant reduction

in economic activity and a significant hit to household incomes as

a result. Again, that could pale—that could just make our current

economic difficulties look tiny. That is not a scenario we want to

live through.

Senator CONRAD. A number of years ago, former Secretary Rubin

asked me to lunch. He said to me, don’t they get it down there?

19

Don’t they understand the risks that are being run, that if the kind

of adverse scenario that you outlined were to begin, there are not

good alternatives, because the only way then you could attract capital is to significantly raise interest rates, and that would have a

severe effect on the economy.

My time has expired.

The CHAIRMAN. Senator Rockefeller?

Senator ROCKEFELLER. Thank you.

A very famous doctor by the name of Orszag [laughter] said back

in 2007, June 21st, 3 days after my birthday——

Senator CONRAD. Would that make your birthday the 24th?

Senator ROCKEFELLER [continuing.] And you run the Budget

Committee? [Laughter.]

Senator CONRAD. No wonder we are in trouble.

Senator ROCKEFELLER. Many analysts believe that significantly

constraining the growth of cost for Medicare and Medicaid over

long periods of time while maintaining broad access to health care

providers under those programs can only occur in conjunction with

slowing cost growth in the health care system as a whole; ultimately, therefore, restraining costs in Medicare and Medicaid requires restraining overall health care costs.

Now, this is to both of you. In my first round of questions I suggested a whole series of things in this incredible piece of data from

UCLA, Massachusetts General, and the Mayo Clinic. I mean, it is

just stunning, what we do not know. One of you said that you do

not think the Senate has the capacity to judge these things.

I would argue with that. If we had the data, there are superb

health care staffers all over both sides of the Congress. But the

data, I think, is one of the answers. I go back to my statement, that

efficiencies in Medicare and efficiencies in Medicaid, provided they

do not affect the quality of the care that people are getting, I will

fight that unless we have a plan to do that.

Now, my question to you—both of you—is, what are some of the

things you would do to bring down the overall costs of health care

or that you would suggest that we do?

Dr. ORSZAG. Well, again, I think the first place to start is exactly

that kind of variation you have highlighted from this chart on

UCLA Medical versus the Mayo Clinic. And by the way, I guess I

have made myself unpopular with the folks at UCLA Medical. If

I ever get sick in Los Angeles, I am not going there. [Laughter.]

But coming back to the exchange with Senator Salazar, I think the

way to get at this involves much more information, something that

you have already identified, and that will likely require health information technology. If we were serious about——

Senator ROCKEFELLER. And which we could do together, right?

Dr. ORSZAG. Yes. And if we were serious about that, you could

get health information technology systems dramatically expanded

throughout the health system if you tied it to Medicare reimbursement. If we really wanted to do this, if you simply said in order

to be reimbursed under Medicare you have to have a system that

meets the following qualifications, it would happen virtually overnight. The second thing we need to do is we need to change the

financial incentives so that we are not just paying for more of this

20

stuff to happen at UCLA Medical if there is no evidence that it

works.

Senator ROCKEFELLER. Can I just put an implant there?

Dr. ORSZAG. Sure.

Senator ROCKEFELLER. Ophthalmologists, RBRVS. They were

using the totally new laser technology and charging prices that

were based upon it before that even existed, so we took them down

somewhat in RBRVS. It did not have any effect. It did not have

any effect.

So we are talking about hospitals. We also talk about doctors.

They practice and sometimes they pull out of hospital systems and

go off on their own, and we do not like that because we say that

is depriving people of general hospital care. The hospitals certainly

say that. But behavior modification—and that is not a moral judgment, it is simply a clinical judgment about what works and what

does not, what is fair and what is not fair, to charge within some

flexibility—I think is a fair point we ought to be putting pressure

on the medical community about, and we are not. Do you agree

with that?

Dr. ORSZAG. Yes.

Mr. DODARO. I agree. That was one of the points I made earlier

about standard setting. There needs to be more standard setting,

and then you can judge adherence to the standards and development.

The other issue is, with the advent of bringing on technology,

there is really not a requirement for a cost-effectiveness evaluation

of bringing the technology on board by some of the Federal agencies that look at it from a safety standpoint. That is another potential opportunity to look at so you introduce a little bit more rigor

into that process.

Senator ROCKEFELLER. And do you think the combination of the

technology, the much greater oversight based upon much better

knowledge of data, et cetera, about both hospitals, doctors, and

practices—yet understanding you just cannot say, this is it and

that is all—do you think that that would have a substantial enough

effect on Medicare and Medicaid so that people would still continue

to get it, but they would get it more efficiently, but not without the

same, or maybe better, quality? The quality has to be good. That

cannot be compromised. We cannot cut back on a program just for

the sake of doing it.

Mr. DODARO. Right. I think those items would be a good start,

but we have to wait and see how they would be implemented over

time. There needs to be some transparency about outcomes as well,

and we need to educate consumers as part of the discussion that

occurred before. But I think it would be a start.

Senator ROCKEFELLER. And medical associations have to get involved in this, too.

Mr. DODARO. Yes.

Senator ROCKEFELLER. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

21

Both of you have been very professional and certainly have rung

the alarm bell. What I want to do is ask about an area that I think

gives us real grounds to be optimistic as we walk out. It seems to

me what is clear in what you both have said is, on health care, if

you reorganized the delivery system, if you changed the incentives

that keep people from being smart shoppers, if you make changes

in the tax code, for example, which drive so much of Federal spending, you can not only deal with a lot of these cost questions, but

based on the reports that you sent to me, Dr. Orszag, you can get

everybody in the United States good-quality, affordable coverage.

That is essentially what you said to me in that report.

Is it not correct that, if you are bold here and you make the

kinds of changes you are talking about, that you can actually get

to universal coverage? Is that not what you essentially told us in

the report you gave us on the Healthy Americans Act?

Dr. ORSZAG. What the letter to you said was, given all the

changes in your legislation, that, yes, you would get to nearly universal coverage in a budget-neutral way.

Senator WYDEN. And what I think is striking about it, because

Chairman Baucus always highlights the fact that this is going to

have to be a team approach to get to universal coverage, I think

there are other approaches that can get us there as well. I just appreciate the way you all have provided the wake-up call to the U.S.

Senate, because clearly, if you do nothing, it is going to be bedlam.

My own view is, health costs and economic well-being are two

sides of the same coin. I mean, the reason people’s take-home pay

does not go up is because it all is left on the floor with health costs.

But I want people to walk out of here being optimistic, and you just

gave us that reason again, Dr. Orszag. If you are willing to make

bold changes in the delivery system, in the incentives, in the areas

that drive Federal cost, not only can you start turning out the

growth curve, but you can actually get to where people want to go

in this country, which is to fix the system, which means covering

everybody.

Both of you have been very professional, as has been the Joint

Committee on Taxation. I just wanted to highlight, for my last

question, Mr. Chairman, I think, if we follow your model of a teamwork kind of approach that is bipartisan, that last answer that Dr.

Orszag gave us gives us real grounds to be optimistic that in 2009,

with your leadership, Chuck Grassley’s leadership, we can deal

with the premier domestic issue of our time.

I thank both of our witnesses. That allows me to walk out of this

room saying I think there is a lot of reason to be optimistic, and

I thank you.

The CHAIRMAN. Thank you, Senator, very much. I agree with

you. I think, with the hearings we have had, the summit yesterday,

and the tone of this hearing today, searching for the truth, that the

prospects are quite good. We do not have much choice, but they are

quite good, nevertheless. I very much appreciate this hearing. I

wish there had been a few more on the other side of the aisle here,

but that will happen. That will come.

So, thank you all very much. Thank you both very, very much

for your contribution here. I have a hunch we will be talking a lot

more. We will also be asking you to give us some reports, and

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maybe, after our staffs talk a little more, we can figure out which

ones will be the most effective. Thank you very much.

The hearing is adjourned.

[Whereupon, at 11:13 a.m., the hearing was concluded.]

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