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42–576—PDF 2007

S. HRG. 110–406

CHARTING A COURSE FOR HEALTH

CARE REFORM: MOVING TOWARD

UNIVERSAL COVERAGE

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 14, 2007

(

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

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

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

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

WITNESSES

Mongan, James J., M.D., president and chief executive officer, Partners

HealthCare, Boston, MA ...................................................................................... 4

Altman, Stuart H., Ph.D., Dean, and Sol C. Chaikin Professor of National

Health Policy, The Heller School for Social Policy and Management, Brandeis University, Waltham, MA ............................................................................ 6

Sheils, John, M.S., vice president, The Lewin Group, Falls Church, VA ........... 8

Frank, Richard G., Ph.D., vice chair, Citizens’ Health Care Working Group,

Boston, MA ........................................................................................................... 9

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Altman, Stuart H., Ph.D.:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 43

Responses to questions from committee members ......................................... 51

Baucus, Hon. Max:

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

Bingaman, Hon. Jeff:

Prepared statement .......................................................................................... 57

Cantwell, Hon. Maria:

Prepared statement .......................................................................................... 58

Frank, Richard G., Ph.D.:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 59

Responses to questions from committee members ......................................... 69

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Prepared statement .......................................................................................... 76

Kerry, Hon. John:

Prepared statement .......................................................................................... 78

Mongan, James J., M.D.:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 80

Responses to questions from committee members ......................................... 85

Salazar, Hon. Ken:

Prepared statement .......................................................................................... 86

Sheils, John, M.S.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 87

Responses to questions from committee members ......................................... 92

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 104

Thomas, Hon. Craig:

Prepared statement .......................................................................................... 107

Page

IV

COMMUNICATIONS

American Medical Association ................................................................................ 109

American Public Health Association ...................................................................... 117

Erzen, Susan R. ....................................................................................................... 122

Gay, Lesbian, Bisexual and Transgender Community of South Florida, in

association with the Lesbian Visibility Committee of the City of West

Hollywood, CA ...................................................................................................... 124

Health Care for All/NJ ............................................................................................ 128

National Association of Health Underwriters ....................................................... 136

National Coalition of Mental Health Professionals and Consumers, Inc. ........... 142

RESULTS, Inc. ......................................................................................................... 152

Tompkins County Health Care Task Force ........................................................... 154

Universal Health Care Action Network (UHCAN) ............................................... 164

Washington State Ad Hoc Coalition on the Citizens’ Health Care Working

Group .................................................................................................................... 172

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CHARTING A COURSE FOR HEALTH

CARE REFORM: MOVING TOWARD

UNIVERSAL COVERAGE

WEDNESDAY, MARCH 14, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

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

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

(chairman of the committee) presiding.

Present: Senators Rockefeller, Bingaman, Kerry, Lincoln, Wyden,

Stabenow, Salazar, Grassley, Hatch, Thomas, Smith, and Crapo.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

In the wisdom of Ben Sirrah in the Catholic and Eastern Orthodox Bibles, it is written, ‘‘There are no riches above the riches of

health.’’ And a Swiss poet wrote, ‘‘Health is the first of all liberties.’’

America is the richest nation in the world but, to our shame, remains the only industrialized nation that does not think itself rich

enough to guarantee its citizens health coverage. And America is

the freest of all nations, but we remain the only major western nation that is not guaranteed the first of all liberties.

At the core of America’s health care crisis is the debate over

whether health care is a right or a privilege. At the core of our crisis is the question whether health care is just another commodity

or a fundamental human need.

I believe that health care should be a right. I believe that America is rich enough, and good enough, to guarantee that right. I believe that we must begin to work toward that goal today. America spends more than $2 trillion a year on health care, but

we have 47 million uninsured and we have relatively poor health

outcomes. America has many of the world’s best doctors and hospitals that perform the most advanced life-saving procedures, that

successfully treat the most serious illnesses, and that unfailingly

expand the bounds of medical innovation. But this best-in-theworld medical system is out of reach for millions of Americans.

One in six Americans does not have access to health care except

for an over-crowded emergency room. In my State of Montana, an

even greater percentage of people have limited access to health

care: that is, one in five Montanans lacks health insurance.

2

Businesses struggle to offer health benefits and remain competitive in the face of ever-increasing costs. Employees grapple with

having to pay more for coverage, while getting less. For too long,

Congress has remained idle as health care costs have spiraled out

of control. For too long, Congress has done nothing as the ranks of

the uninsured have grown. The people of my State of Montana, and

of the Nation, deserve better.

Today we begin down a long and arduous road. Today we begin,

again, the journey toward universal coverage. It is a road that we

must travel. Everyone seems to agree that we need to do better,

but discussions of how to proceed seem inevitably to end in stalemate. People seem, inevitably, to deadlock over who will make sacrifices and which ideologies must bend.

But standoffs must become a thing of the past. The American

people deserve better. Why start down this road? The short answer

is that we must. The problem has grown too large, and the situation too dire, for Congress not to act. We must engage in extensive

and thoughtful dialogue and begin to get answers, and I suggest

we begin today.

I have studied many proposals being put forth, and I am optimistic because I see the beginnings of a consensus. I see five broad

principles of reform. I intend to hold a series of hearings to explore

each principle at a later date, in greater depth. In having an open

and honest dialogue, I am confident that we can build momentum.

The first principle is universal coverage, our subject today. Universal coverage is essential if we are to make meaningful progress

on the other four principles. We cannot address the health care system and leave a growing portion of the country behind.

The second principle is sharing the burden. Neither the employer-based system nor the individual market can fulfill the demand for affordable, portable quality coverage. I believe the way to

help ensure affordable coverage is to create better and greater pooling arrangements.

The third principle is controlling costs. America cannot sustain

its current rate of growth in health care spending. Any serious proposal must reduce the rate of growth of health care costs; our economy depends on it.

The fourth principle is prevention. American health care tends to

address what happens when you are sick. By making prevention

the foundation of the health care system, we can spare a patient’s

needless suffering and can avoid the high cost of treating an illness

that has been allowed to progress.

The fifth principle is shared responsibility. Who will bear the

burden in this new system? The answer is, everybody must shoulder the burden together. Health care coverage is a shared responsibility and, therefore, all should contribute.

Today’s hearing is the first step on the road to reform. We will

hear from four individuals who are lifelong experts in health care.

They will help us start our journey. Along the way, we will have

more help from more experts as we convene subsequent hearings

as we begin to drill down even more.

With their help and advice, let us set out on the road to health

care reform for all Americans. Let us travel down the road that will

keep America a rich nation, and a free nation. Let us also go down

3

the road that will take our citizens to the greatest of riches and the

first of all liberties, that of health.

I would like to turn to Senator Grassley.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. Thank you, Mr. Chairman. You have described the situation very accurately, a situation that is untenable.

However, I am heartened by the fact that we are seeing more new

policy ideas as more people realize the seriousness of the situation.

For example, the President has provided us an outline to consider

in looking for ways to cover the uninsured. It is not perfect, but it

is a place to get started.

In a big, politically sensitive issue like health care reform, but

particularly as it relates to Medicare or Medicaid, it is highly politically sensitive. Whoever is President has to get out in front of it

if there is any hope of Congress taking any action.

So the President gets it started by using the tax code to create

incentives, along with the public/private partnership of the Affordable Choices initiative that he has put forward. Real solutions for

the uninsured will involve proposals that use many tools, not just

one size fits all.

I support ideas that incentivize greater private coverage. Covering everyone with government-run health care is not the right direction for America unless you want to do like a lot of countries do

and have political decisions that are made about rationing health

care as opposed to giving people access to health care through private decision-making.

I also think that Senator Wyden has made a very serious proposal with his Healthy Americans Act. It seems like he has written

a bill that has something for almost everyone. If that is the case,

he is close to having an answer.

But with all seriousness, I think Senator Wyden is very passionate about this subject. I think his tireless efforts to get people

to pay attention and to contribute to the debate is opening the

door, as a Senator can do—maybe not the same way that the President, with the bully pulpit of the presidency, can do—but we all

have a problem here, and we all have to pitch in.

Mr. Chairman, moving major legislation during a presidential

election cycle is very difficult, but not impossible. This committee

has done it in the case of Welfare reform. That was 10 years ago.

This committee has done it in regard to the Medicare drug benefit

during a presidential cycle; you and I worked together to accomplish that.

So I think that we should not fall under the cloud that, just because this is a presidential cycle, that nothing can get done. I think

the five meetings that you have scheduled in this area are an indication that you are very serious about it. And it does take the leadership of a Chairman of a committee to get this done, so I compliment you for that.

I am encouraged by the fact that it seems there are more people

in Congress talking about the issue than at any time in the last

decade. So, let me finalize my statements by saying that we have

4

enough on the table that we have an opportunity to move beyond

talk and take substantive action.

The number of uninsured is rising. Many employers do not provide coverage. Those employers that do provide their employees

coverage are finding it challenging to continue to provide health

benefits for their employees while staying competitive.

With every day that passes, we only make fixing the system

more difficult. We are running out of time to make changes that

will put us on a path towards a more sustainable health care community, or at least the longer we wait the more difficult that is

going to be.

Leadership must come from those on this committee. When it

does, there will be change as there was in the case of modernizing

Medicare, and in the case of modernizing Welfare. So, I thank you

for your leadership.

I have a longer statement I want to put in the record.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. Thank you very much, Senator Grassley.

We now have our witnesses today. Let me just, first, thank all

of the witnesses for coming. Some have come some distance. You

all are very renowned in your fields, and you have given a lot of

thought to this subject.

This first hearing is designed more as sort of a 50,000-feet kind

of overview with the goal of trying to bring people together here,

not to be divisive, but more toward consensus here; what are the

goals, the problems, that we have so we can tend to agree what the

problems are and the goals are and, later on in subsequent hearings, start to put some of the pieces together. At least try to do our

very best.

The first witness is Dr. Jim Mongan. He is the president and

chief executive officer of Partners HealthCare in Boston. Next is

Stuart Altman, who is dean and professor of National Health Policy, The Heller School for Social Policy and Management at Brandeis. Mr. John Sheils is vice president of The Lewin Group. We

have spent a lot of time looking at The Lewin Group’s recommendations. Everybody on this committee knows The Lewin Group,

I will tell you that. We also have Richard Frank, who is vice chair

of Citizens’ Health Care Working Group of Boston, MA.

So, Dr. Mongan, why don’t you proceed?

STATEMENT OF JAMES J. MONGAN, M.D., PRESIDENT AND

CHIEF EXECUTIVE OFFICER, PARTNERS HEALTHCARE, BOSTON, MA

Dr. MONGAN. Thank you, Mr. Chairman. I am Dr. Jim Mongan,

president of Partners HealthCare, which is a health system founded by key Harvard teaching hospitals.

As I came here this morning, I remembered the first time I entered this room 37 years ago as a young physician, newly hired as

a staffer for the Finance Committee, working for Senator Russell

Long and Senator Wallace Bennett.

The CHAIRMAN. Did you work for them together?

Dr. MONGAN. I worked for both of them.

The CHAIRMAN. Both Democrat and Republican together?

5

Dr. MONGAN. Indeed, we did.

The CHAIRMAN. Well, we are trying to follow that model right

here.

Dr. MONGAN. Yes, sir. I stayed for 7 years, and I developed tremendous respect for this committee.

These health financing issues were difficult then, as they are

now. In fact, over time the situation has only gotten worse. At our

best point in 1976, we had 23 million uninsured, or 11 percent of

our population; today, these numbers are 47 million and 16 percent. So, it is long past time to act. I applaud the committee for

holding these hearings.

I want to address three questions this morning. First, why is

health insurance important? Well, it is important for reasons involving health, economics, and simple justice.

Although some believe that the uninsured get care when they

really need it, the definitive Institute of Medicine Report on the

Uninsured in 2004 by a committee I was privileged to serve on

demonstrated that the uninsured receive fewer services and are

much more likely to be hospitalized for avoidable complications of

illness. The report found that they had a 25 percent higher agespecific mortality. So, health insurance is about health, not just

about dollars.

But it is also about economics. The same IOM report estimated

that the annualized economic cost of the diminished health and

shorter lifespans of Americans who lack insurance is between $65

and $130 billion.

Finally, expanding health insurance coverage is a matter of basic

social justice. Most families will never be free of fear of financial

ruin without health insurance coverage.

Second, why has legislating on this issue been so difficult? Well,

for two reasons. First, expanding health insurance comes with the

need for additional revenues. The same 2004 IOM report estimated

at that time that the cost of legislation would be from $70 to $100

billion a year.

Now, in terms of our $2 trillion of health spending, these numbers are not insurmountable. In terms of Federal taxes, this revenue could be raised and still leave taxes at or below levels of the

1990s, which underpinned one of our most productive economic

eras. Yet, raising revenue is always difficult.

The second reason that legislating is difficult is we are divided

as a Nation ideologically between those who favor a government

approach and those who favor a market approach to health issues.

We have been stuck for 25 years on this point.

So now the last question: are there paths towards success? My

experience in Massachusetts this past year makes me think there

are, not because I think the Massachusetts plan is perfect, nor because I think States can ultimately deal with this issue on their

own.

Rather, in Massachusetts I saw a successful approach to the two

difficulties which I just described. With respect to revenue, leaders

in Massachusetts addressed the revenue issue from the perspective

of shared responsibility: everybody pays something.

Federal funds, new State funds, preexistent insurer and provider

taxes, new employer contributions, and mandated payments by inVerDate 11-MAY-2000 15:12 Jun 12, 2008 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 42576.000 SFIN1 PsN: SFIN1
6

dividuals were all utilized. Is the resulting package a perfect balance? Probably not. But we have made a good start, and the legislature can improve upon it in the future.

With regard to the ideological stalemate between markets and

government, Massachusetts leaders demonstrated admirable intellectual humility. None of us has all the answers, so the legislature

crafted a package with regulatory and market approaches, including the best thoughts from all sides.

So the path to success consisted of an honest appraisal of the

problem, a shared commitment to solutions, a philosophy of sharing

and fairness regarding revenue, and a sense of intellectual humility. I commend this formula to you as you begin your important

work on universal coverage.

Thank you very much for the opportunity to appear.

The CHAIRMAN. Thank you, Dr. Mongan.

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

The CHAIRMAN. Dr. Altman?

STATEMENT OF STUART H. ALTMAN, Ph.D., DEAN, AND SOL C.

CHAIKIN PROFESSOR OF NATIONAL HEALTH POLICY, THE

HELLER SCHOOL FOR SOCIAL POLICY AND MANAGEMENT,

BRANDEIS UNIVERSITY, WALTHAM, MA

Dr. ALTMAN. Well, thank you, Mr. Chairman. It is not often that

I get to say that I have not been involved as long as Dr. Mongan.

It was only 36 years ago that I had the privilege of working before

this committee when my boss at that point, the Secretary of HEW,

Elliot Richardson, testified on the need for national health insurance. I feel as strongly today as I did then 36 years ago.

Unfortunately, in these 36 years I have come to be a little pessimistic, and people have coined the term ‘‘Altman’s Law’’ that I

would love to see repealed. It basically says that almost every

American and advocacy group supports some form of universal

health insurance, but if it is not their preferred version, their second-best alternative is to maintain the status quo.

I am sure you know that well, as different groups come up before

you. I really want to commend you and the committee for working

on this, and I hope that ‘‘Altman’s Law’’ gets repealed in this session of Congress.

Let me just make two overriding points about health insurance.

I strongly support what Jim Mongan said. Much as I believe that

there are some very interesting proposals being put forth, and

some of them require fairly radical changes, I have come to believe

that we should, wherever possible, improve on our existing health

insurance system with its various pieces—an employer base, Medicare and Medicaid—because to do otherwise creates such opposition that ultimately we fail. It is not that I do not believe that a

lot of other plans may even have more merit, but they ultimately

fail because of the opposition of those who stand to lose.

The second point, I have been a strong believer in the need to

control our health care spending. I worked for 15 years as Chairman of the Prospective Payment Assessment Commission to help

keep Medicare spending within defined limits. But I believe to try

7

to do both at the same time generates such opposition that we wind

up doing neither.

There is one area that I do want to mention right off the bat.

When I worked for Senator Kerry in his bid for the presidency, we

developed a reinsurance system. The main reason for having what

I call a high-cost reinsurance system is to get premiums for our existing employer-based system down.

And there is no better way to do that, I believe, than to take the really high-cost cases, those between $50,000 or $100,000, and

share them among all of us and have the government pay for it,

either at the State level—and I am advocating it in Massachusetts—or at the Federal level. If we do that, we can lower premiums 10, 15, maybe even 20 percent in some cases, and it will

allow us to build on our current system.

Now, I know you want to focus on the big issues. As Jim pointed

out, the uninsured bear a tremendous burden by not having health

insurance protection. But the burden of the uninsured goes beyond

them. We have created in this country a hidden tax that is used

to support the billions of dollars of care that is received by the uninsured. This tax is paid by all of us, and it disproportionately falls

on those who have the best coverage. The uninsured do get care,

but they get it in the most expensive way. Dr. Mongan can give you

chapter and verse of what happens in his institutions when a very

sick person comes into the hospital needing care. His institutions,

like most, try to push the expense onto others where they possibly

can, and in the end it winds up on our health insurance bills.

If you are a big employer like General Motors or what used to

be U.S. Steel, they are the ones that bear the biggest burden. They

bear the burden for their own employees, for the families of employees, for retirees, and for the uninsured. We need to help them,

and I think we need to do that soon.

Second, institutions like the ones that Dr. Mongan runs and the

one whose board I happen to be on, the Tufts New England Medical Center, bear the burden as well. Not all the costs of care for

the uninsured can be passed on to others. Hospitals must eat some

of the expenses of this care.

As a result, hospitals often do not have the funds to improve the

quality of patient care. This is a particularly serious problem for

safety net hospitals, which have difficulty obtaining sufficient

funds. So that is a second area that needs to be looked at in terms

of the burden generated by 48 million uninsured Americans.

Then, finally, all of us who are insured bear a burden. Because

we have such a patchwork health system, some individuals get

locked in to a job they don’t like because of fear that the job they

might get does not have health insurance, or they happen to be in

one area and they would like to be in another area and they are

afraid to move.

What it does is, it reduces the productivity of our economy because it makes our system less flexible. So we cannot just focus,

much as it is important, on the uninsured. Failure to act has a negative impact on our whole system. So, I applaud what you are

doing, and in any way I can be helpful, I would love to do that.

Thank you so much.

The CHAIRMAN. Thank you, Dr. Altman.

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

The CHAIRMAN. Mr. Sheils?

STATEMENT OF JOHN SHEILS, M.S., VICE PRESIDENT,

THE LEWIN GROUP, FALLS CHURCH, VA

Mr. SHEILS. Good morning. My name is John Sheils. I am a vice

president with The Lewin Group. We are committed to nonpartisan

analyses of health policy. We do not advocate for or against any

legislation.

Right now, the uninsured population is growing at a rate of

about 1 million people per year, 1 million since 1990. That suggests

we will hit 50 million uninsured by the end of this decade.

Costs, of course, are very high in the United States. They aver- age about $6,500 per person, which is roughly twice what is spent

in Canada and some of the other European Union nations. Costs

are growing at about 2 or 3 times the Consumer Price Index, which

is basic inflation. Interestingly, you are seeing similar rates of

growth in other countries.

Wage growth is compromised by this growth in cost. Quite simply, after the employer pays for increased costs for benefits, there

is less to pass on in the form of higher wages. It also has affected

our ability to compete internationally.

Due to the increasing costs, we have seen, of course, an increase

in the uninsured, but we also, interestingly, have 6 million people

out there, uninsured, who are offered coverage through work but

have declined it, presumably due to cost; 4 million workers and 2

million dependents.

The problem of the uninsured, of course, creates avoidable health

care costs. The Institute of Medicine estimates that up to 18,000

people die per year because they are uninsured; of course, worker

productivity, we believe, is compromised.

But there is also a cost shift associated with it. When somebody

goes into the hospital and they do not have insurance, the hospital

cares for them. They incur these costs, but they do not get paid for

it. So they have to increase what they charge other payors, private

payors, for the coverage. So there is a substantial cost shift we see

associated with having uninsured people, and we are winding up

paying for it anyway.

Medicaid is another important contributor to the cost shift. Payment under Medicaid for physicians can be half of what it is under

Medicare, which can be 20 percent less than private insurance.

Medicaid payments to hospitals are generally less than the cost of

providing the care.

This presents another shortfall in reimbursement for the providers, which again is passed on to privately insured people in the

form of the cost shift. In fact, at this point we believe that the cost

shift due to the Medicaid payment shortfalls is actually greater

than the cost shift associated with the uninsured.

This creates an insidious cycle that generates new uninsurance.

You get premiums going up for employers, you see people drop coverage, you get an increase in the uninsured which increases uncompensated care, maybe they go into Medicaid, it generates undercompensated care, which again pushes up private premiums. You

have this cycle that generates an increase in the uninsured.

9

There is another form of cost shifting I wanted to touch on. When

an employer offers health insurance, they typically cover the

spouse and the children under a family policy. Many of those

spouses, almost 20 million of them, are actually working somewhere else, but their employer apparently is not providing coverage.

So you have a situation where you see the cost of covering workers being shifted from low-coverage industries like services and retail towards high-coverage industries like manufacturing, which is

precisely the group that is having the most trouble competing in

international markets.

People are fond of saying we do not have rationing of health care

in the United States. Of course, that is wrong. We ration health

care in this country by limiting what the uninsured and low-income

people can get in the way of care. Eighteen thousand people lose

their lives because of uninsurance. Many of those covered under

Medicaid cannot find a physician to serve them.

There is a much-publicized story about what happened in Prince

George’s County, I believe last week, where a child died because of

an abscessed tooth infection that infected the brain. The problem

was, they were not able to find a dentist who was willing to treat

the child. So, it is not first-rung health care, although some States

have worked very hard to make it such.

The key to the kingdom is your private insurance card. If you

have a private insurance card and it is medically necessary, you

will probably find that it is covered. However, if you are uninsured

or in Medicaid, as I have explained, it is pretty much hit-and-miss.

We need to end this insidious cycle of cost shifting, inequitable

payments for care, and the rising number of uninsured people. Underpayments in health care, uncompensated care, and inequity in

how we pay for care will contribute to continuing uninsurance.

For any program to be successful, we are going to have to eliminate the relationship between cost shifting and increases in the uninsured population.

Thank you.

The CHAIRMAN. Thank you, sir. Thank you very much, Mr.

Sheils.

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

The CHAIRMAN. Dr. Frank, you are our clean-up batter here.

STATEMENT OF RICHARD G. FRANK, Ph.D., VICE CHAIR,

CITIZENS’ HEALTH CARE WORKING GROUP, BOSTON, MA

Dr. FRANK. Thank you for the opportunity to share with you the

experiences of the Citizens’ Health Care Working Group.

As you know, the working group was created by legislation that

was sponsored by Senators Hatch and Wyden, and was created to

engage the public in a nationwide discussion about how to improve

health care in America.

The 14 citizen members of the working group represented an informed cross-section of the American people. Over about 18

months, the working group engaged in fact finding and dialogue

about the health care system with experts, stakeholders, and ordinary citizens.

10

We reviewed more than 100 public opinion polls on health care,

traveled to 30 States, and more than 7,000 people attended a total

of 98 meetings that we initiated. In addition, we had another

20,000-plus responses to our online surveys where people shared

their views and their suggestions with us.

We heard, actually, a remarkable consensus across the Nation.

We heard a call for a health care system that is fair, affordable,

and available to all Americans. A clear majority of participants in

community meetings and those who responded to national polls

that were conducted over the last few years are in favor of universal coverage.

However, as we discovered, universal coverage means a lot of different things to a lot of different people, and several approaches

need to be analyzed, vetted, and debated.

It is this sentiment that led to our first recommendation, to establish a public policy that all Americans have affordable health

care. That would serve as a marker for the ultimate goal.

The overwhelming majority of Americans that we heard from believe that fixing the system has to start now. That is why the working group recommends some immediate steps, along with some

later actions, that target 2012 for a set of core benefits for all

Americans.

Our second recommendation calls for immediate action to guarantee financial protection against very high health care costs. It

proposes creating a program that would ensure some level of protection for everyone. This program could be structured in a number

of ways using either market-based or a sort of social insurance-type

model. This step has the additional virtue of rapidly establishing

the principle of universal coverage.

Our third recommendation also calls for immediate action, which

is to foster innovative, integrative community health networks. The

goal of this recommendation is to help communities develop systems of local health care providers to ensure that more people can

access an array of medical care that will meet their basic health

care needs.

A particular priority is making an array of effective and efficient

services available to low-income and uninsured people immediately.

Perhaps the most challenging component of the working group

strategy is our fourth recommendation, which defines a core set of

benefits for all Americans.

We recognize the difficulties of doing this in the context of important financial constraints. This was particularly evident when we

brought the issues up to the American people in our meetings. A

private/public entity, insulated from the usual pressures, should be

charged with applying the best science and economic thinking

aimed at that purpose.

Our fifth recommendation is to continue to promote efforts to improve quality of care and efficiency. Everyday Americans sensibly

believe that we can do a better job with the $2 trillion that is spent

every year on health care.

There are a variety of efforts under way by the government, by

philanthropies, and by the private sector aimed at improving efficiency and quality. We were particularly impressed by results from

11

some integrated health care systems across the country that have

shown the ability to improve care and cut waste.

Our final recommendation focuses on the end of life. End of life

care needs to be fundamentally rethought. Americans are distressed seeing loved ones approach their end in pain, cared for in

places they do not want to be, and at great cost. It is emblematic

of many of the problems of our health care system, generally.

We were presented with a variety of innovative models that point

to ways to make big improvements in how Americans are treated

at the end of their days. Of course, the suggestion for addressing

these types of shortcomings in today’s health care system can be

done without considering how to pay for improvements. There is a

strong sense in the American public that reallocation of existing

funds and increased efficiency should be the first step.

However, our data analysis also shows that the majority of the

population is willing to pay some more, if that is what it takes to

cover all Americans. Based on our review of studies by CBO, the

President’s Commission on Taxation, and independent research, we

believe that restructuring public subsidies would provide for a significant set of funds to target and support reform.

Absent meaningful policy action, we expect the number of uninsured to grow, financial pressure on public budgets and safety net

providers to intensify, and there are health consequences from

these, as you have heard, in the form of shorter lives and heavier

burdens of disease for the growing number of uninsured people.

This can, and must, be avoided. Doing nothing about health care

will certainly cost us more tomorrow than it would by acting today.

Thank you. I am happy to take any questions you might have.

The CHAIRMAN. Thank you, Dr. Frank.

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

The CHAIRMAN. Mr. Sheils, I have a question for you. You mentioned a cost shift, Medicaid and uninsured to private pay. Does

Lewin have any analysis of just what percentage of private pay is

attributable to costs shifted to them, total Medicaid and uninsured?

Roughly what percent?

Mr. SHEILS. We have heard up to 10 percent. Ours tends to come

closer to 5 percent from our analyses.

The CHAIRMAN. So between 5 and 10, say.

Mr. SHEILS. Yes.

The CHAIRMAN. Now, assuming that those folks were all private

pay, the Medicaid and the uninsured, then would the net cost be

about the same or would the net cost be better? I am hoping that

your answer is that the net cost would not be as great because

there are inefficiencies currently with the cost shift transfer. But

would the net be the same, or do you know?

Mr. SHEILS. Well, the first step would be increasing the payment

rates, perhaps, to something closer to private levels. That would reduce the cost shift, which would, to some degree, reduce the prices

for private health insurance.

Raising our reimbursement rates for Medicaid would not, in

itself, result in a 5- to 10-percent reduction in private insurance.

You need to couple it with, if it is an insurance-based system, a

program that intensifies competition.

12

It is interesting, though. There are some beautiful charts which

show, historically, that when public program payments improve,

private sector costs grow more slowly. Then when public sector

payments decline, the private insurance grows proportionately. So

it is symmetrical.

We know that if you did improve payment rates, there would be

at least some reduction. But I think to get the full reduction or

anything close to the full reduction, we have to intensify competition in the insurance industry.

The CHAIRMAN. This leads to another sort of basic question that

a lot of people ask, a lot of us who grapple with all of this, some

way to get rid of the ideology and to get people starting to think

about solutions rather than ideology, private pay versus government and so forth.

Which sort of begs another question, which is, do we try to build

on and improve the current system—Dr. Altman, I think you basically say yes—or do we try to come up with something that could

be innovative and quite new, something that America has not experienced? Some talk about single pay. Some look at other countries,

and so forth, who deal with both costs and coverage.

But I would just like your thoughts on kind of how we start getting various groups working better together, putting ideology aside.

Dr. Mongan, you talked about your Massachusetts experience, that

people in Massachusetts tended to exercise a little bit of humility

in trying to get things together. But I will just go down the line

here.

Maybe Dr. Mongan, first, your thoughts on how to get people together. And then there is a second question, which is, do we tend

to work with what we have, increased Medicaid, CHIP, Medicare

and some private, or do we go to something that is pretty new and

different?

Dr. MONGAN. So I guess I would venture a few observations before turning it over to my colleagues. As I indicated, I think a big

part of the way to get people together is to try to come to some

shared understanding of the dimensions of the problem and some

kind of commitment to the fact that everybody is going to have to

give a little and get a little.

That sounds corny, like ‘‘Mr. Smith Goes to Washington,’’ but I

think that is, in fact, what happened in Massachusetts at some

point in the process. I would say, as a general rule, it is easier to

achieve that kind of consensus if you are working with known elements of the existing system.

I am not saying that is necessarily the best answer, but I would

say to get us over this hump and to get the uncovered covered, I

think probably most of us who have been in these battles for 30

years or so would say your chances of doing that are better by

working with the various pieces of the current system. You may

find out a decade later you have to make more dramatic change

than that, but I think that would be what my experience is.

The CHAIRMAN. I appreciate that. We are trying to repeal Dr.

Altman’s law here. So Dr. Altman, why don’t you respond?

Dr. ALTMAN. Well, obviously, $2.2 trillion develops a lot of very

strong advocates for their piece of the pie. I have developed some

pretty radical ideas in my lifetime—I do not want to put them

13

down, because some of them are quite interesting—but I share

Jim’s concerns. As I said, I have watched some very good ideas go

down in flames because of the power of the forces that are there.

I believe, at the end of the day, what we do is we hold hostage the

poor and the uninsured to some very interesting new ideas, and it

is about time they had a shot to be under the tent.

I would support Jim. If, down the road, after we have everybody

covered and we are trying to control costs, we find a better way to

do it, let us do it. But to do it in the beginning almost sets us up

for failure, I am sorry to say.

The CHAIRMAN. Mr. Sheils?

Mr. SHEILS. Well, I guess I would point out——

The CHAIRMAN. You can have a different view. That is all right.

Mr. SHEILS. I am sorry?

The CHAIRMAN. It is all right to have a different view here.

[Laughter.]

Mr. SHEILS. During President Clinton’s effort to reform health

care, they had a plan that would have been a major restructuring

of the health care system, but at the time the employers were investing a lot in managed care, and they believed that they were

going to get things under control themselves. Their argument was,

well, leave us alone and we will just do it. It worked. We had

health care costs growing much more slowly than ever before.

But now we are not finding as many ideas with the employers.

Some employers appear to be out of ideas entirely. Some are doing

very innovative things, but there are not many of those ideas floating right now. I think that where it might not have been a good

idea to do a dramatic reform, say, 12 years ago, I think now we

may be there. Many employers are telling us, they just want to get

out of the business of providing health care.

The CHAIRMAN. Thank you. My time has expired. We will have

to get back to you, Dr. Frank, in the next round.

Senator Grassley?

Senator GRASSLEY. Yes. Thank you very much. I appreciate the

testimony.

My first question is directed to any or all who want to answer

it; it is to the panel, generally. It is in regard to the children and

the SCHIP debate that is coming up here shortly.

These children are uninsured either because the employer does

not offer health care coverage or the costs are prohibitive. Congress

is going to be reauthorizing the program.

A number of proposals that we have before us would expand this

public coverage to higher-income children and adults. Some have

raised concerns about the quality of care that children receive

through Medicare and SCHIP because of several factors, including

things you have brought up in the panel discussion about very low

provider reimbursement rates.

The President has offered his ideas about reforming the tax code

treatment of health care to help more people get covered. Senator

Wyden—I have already referred to his as a thoughtful proposal.

So my question is, should we be looking in this committee just

at SCHIP reauthorization in a vacuum or should we think about

the issue outside of just the SCHIP box?

14

For example, should we take a more comprehensive view and

consider SCHIP expansions alongside efforts to make the tax code

more equitable or to help more uninsured people obtain health insurance coverage?

Dr. MONGAN. Well, Senator, my own view would be that, clearly,

covering kids is very, very important, and appropriate extensions

of the SCHIP program are critically important.

I would love to see that done as part of a broader package that

deals with not only uninsured kids, but also uninsured adults. But

I must say, if the committee finds itself unable to agree on a broader package, then I would clearly want to make sure that the

SCHIP piece went forward. So I think my ultimate answer would

depend on what position you find yourselves in in terms of being

able to do a more comprehensive package.

Dr. ALTMAN. Well, I might as well be consistent if I am not right.

That is, I do believe you should reauthorize SCHIP and, if possible,

make some expansions in it. Then if we can move forward on a

basic reform, I think it will reduce the cost of SCHIP because many

of the SCHIP children will get covered, either through the employer-based system or some other program.

So my strong recommendation would be that SCHIP is really a

model. It was bipartisan in its preparation, it builds on the existing

system, and it gives States flexibility. I really want to emphasize

the value of State involvement in this. I think the States are playing a very critical role, and SCHIP is a very good example of it,

so I would support it.

Mr. SHEILS. I would just advise, do not let the perfect be the

enemy of the good. I have heard Senator Kennedy say that several

times. Do not let the hope of universal coverage get in the way of

doing something to cover the kids. I guess I would advise that most

strongly. Thank you.

Senator GRASSLEY. All right.

There are two things about——

The CHAIRMAN. You forgot Dr. Frank, now.

Senator GRASSLEY. All right.

The CHAIRMAN. He is feeling left out.

Senator GRASSLEY. Well, you do not have to feel left out. I will

be glad to hear your view, too.

Dr. FRANK. Thank you. I agree with the strategic points made by

my three colleagues here, but I do want to emphasize that doing

something about the delivery system is important.

I think starting to use the government’s power, to use the government’s clout in the marketplace to start to move the delivery

system, and one that produces higher quality and greater efficiency, is something you ought to work on, but I do not think it

should come at the cost of not acting on SCHIP.

Senator GRASSLEY. You know about the tax code in regards to

fairness, that people who have health care coverage get the benefit

through the employer—the tax deductibility—and the self-employed get it as well. Then people who do not have it, who are not

fortunate enough to have it through their employer, you have a

great deal of discrimination against them through the tax code.

And I realize that making a change in the tax code alone is not

enough. But do you think that we should fix the fundamental inVerDate 11-MAY-2000 15:12 Jun 12, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 42576.000 SFIN1 PsN: SFIN1
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equity in the tax code that discriminates against the working poor

from this standpoint? Mr. Sheils and Dr. Frank?

Mr. SHEILS. Actually, I am going to let someone else speak. I forgot the question.

Dr. FRANK. I will take a crack at that.

Mr. SHEILS. Oh, the tax code.

Dr. FRANK. I am sorry. Go ahead.

Mr. SHEILS. No, go ahead.

Dr. FRANK. The problem with the tax code, of course, is we lack

this equity. If you have an employer plan, your benefits are taxexempt. You do not have to pay taxes on them. If you do not have

employer coverage, you have to buy your coverage in after-tax dollars.

One approach, though, is to eliminate the tax benefits entirely

associated with employer coverage, or private coverage at all, and

to just eliminate the tax incentives for purchasing health care instead of expanding it.

You do not have to do it in a way where you actually increase

taxes. You could introduce some sort of a deduction or adjust the

tax code in some way so that we are not increasing any taxes on

people, but we are making the tax code neutral with respect to the

purchase of health care.

Mr. SHEILS. I think certainly there is important work to be done

to make it both more fair and more efficient. I think there is an

important set of inefficiencies in the existing treatment of employer-based health insurance.

Our working group, and I personally, do not believe that getting

rid of the deductibility would be appropriate. I think there are

some virtues to the employer-based system. And staying with the

notion of incrementalism that we were talking about before, I think

it would be an error to sort of scrap it. But changing it, perhaps

capping it, would be something that I think would make things

fairer and more efficient.

The CHAIRMAN. All right. Thank you very much, Senator.

Senator Bingaman, you are next.

Senator BINGAMAN. Thank you very much. Thank you all for

being here.

Dr. Altman, you have made the point that we have two big tasks:

one is expanding coverage to everybody, the other is controlling

costs, and we should not try to do them both because it is too hard.

I understood you are basically saying, let us get everybody covered

and then deal with the cost issue.

I certainly agree that if we are going to try to legislate universal

coverage or some combination of things that gets us toward universal coverage, we should not include in that, provisions that try

to solve the cost problem as well.

But the way I think about it, we ought to be trying to confront

the two issues on a parallel track. I do not see just putting off consideration about the cost growth in health care until we get everybody covered. In the first place, most of us are not going to still

be here by the time everybody gets covered, the way things have

been going.

It seems to me that there are different initiatives that are going

to have to be undertaken to begin to control costs. Could you elaboVerDate 11-MAY-2000 15:12 Jun 12, 2008 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 42576.000 SFIN1 PsN: SFIN1
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rate a little on what you think those are? What do you think the

essential elements are of beginning to control costs?

I know Mr. Sheils talked about how he thought we needed to

have greater competition, as I understood it. I think the phrase you

used was ‘‘in order to get the full reduction in health care premiums we would need increased competition in the insurance industry.’’ In your view, is that a part of the solution or is that going

the wrong way?

Dr. ALTMAN. Well, first of all, let me support where you are coming out. I made my statement quite strong as much for effect. I

think there are a number of things that we can do that will have

an effect on costs. I particularly like what Senator Wyden has done

with respect to preventive care and the need to improve such care.

I think that is all positive. I think it adds to the system.

But I do not think it would fundamentally change the cost

curves. Unfortunately, really making an impact—I mean, really, as

opposed to marginally—would require substantial changes in the

reimbursement system, would require changes in the availability of

capital, would require the delivery systems to change, and would

require us as patients to change our expectation of what we want

for care.

This would not be marginal, and it will be attacked. I happen to

believe, at the end of the day, it is necessary. That is the real message. If you want to have a substantial impact on cost, it will require more than just marginal changes. It is that, I fear, if we do

that in conjunction with trying to put coverage into effect, that will

ultimately run into a buzz saw.

But I do believe we need to move forward. I did not have time

to say so, but I really support the need to do a number of things,

particularly many of the things that are in Senator Wyden’s bill.

Senator BINGAMAN. All right.

Dr. Frank, the fourth recommendation that you referred to is

that we establish a national core of benefits and services, we set

up a group to do that. I gather the administration’s response came

back and they do not favor that. They favor something that they

call ‘‘Every American Should Have Access to a Basic Affordable Private Health Insurance Plan.’’

I am not clear what the difference is. I mean, why is it important

to establish this? I mean, how does it help either control costs or

expand access to actually establish what these core benefits and

services ought to be?

Second, is there a disagreement here between you and the administration on this issue?

Dr. FRANK. I have, as yet, not seen the response from the administration. When I left Boston last night it had not arrived on my

e-mail.

Senator BINGAMAN. But it came out while you were on the plane.

Dr. FRANK. Yes. I do not think it is necessarily a conflict. Since

I have not seen it—it is consistent to use the private sector going

to purchase that basic set of benefits. I think there are a couple of

reasons.

One is, you need to define what insurance means. It is too easy

to say everybody gets coverage and then that not have a lot of substance to it. I think the other thing is that, if you are going to rely

17

on private markets, then you have this issue of potential adverse

selection and competition to avoid risks through the design of a

benefit. And so establishing what at least a floor is, I think, would

be useful for that reason.

Senator BINGAMAN. Any of the others have a comment on that,

on the value of having a core set of benefits defined?

Dr. MONGAN. Senator, I have become somewhat skeptical over

the years about the core benefit concept. In the years I was working here, I would say every Senator on both sides of the aisle, at

one point or another, asked me to look at this issue. Everybody

should not have a Cadillac; go design a Chevy or a Hyundai, or

something of that sort.

It gets very hard to do because the things that people can easily

agree on, you know, no cosmetic surgery, no private room, maybe

no heart transplant, and you are at 0.2 percent of health care costs,

because most everybody wants to include hospitals, doctors, drugs,

et cetera.

Consequently, it is very difficult, I think, to agree on some core

package that is really significantly cheaper than the other packages people might be looking at. So, I am not against trying to do

some work, maybe not having quite as many mandates for special

services as we currently do, but I would not put a lot of stock in

being able to solve a lot of problems by coming up with some magic

core benefit description.

The CHAIRMAN. All right. Thank you very much, Senator.

Senator Hatch?

Senator HATCH. Well, thank you, Mr. Chairman.

Dr. Mongan, I appreciate what the States have tried to do, Massachusetts and California, just to mention a few States. But according to what I have been able to understand, the Massachusetts

plan will only cost the State about $132 million more—maybe a little more than that, but not much more than that—in tax money

per year.

Now, for the same plan, extrapolated to the California system, it

is indicated it would cost somewhere between 7 and 9 billion new

dollars.

So my question is, what do you believe the Federal role should

be in helping these States, or any States that want to come up with

innovative plans that may work?

Dr. MONGAN. Well, first off, Senator, as I indicated, I do not believe, in the long run, that this issue can be dealt with State by

State across the country. Having said that, I am a big believer in

encouraging the States to do what they can while we are working

our way towards a national——

Senator HATCH. Well, we have such a big role in the Federal

Government in so many different ways, you know: Medicaid, Medicare, CHIP, you name it.

Dr. MONGAN. Absolutely. Already. And I believe Senator Bingaman has a bill that is aimed at kind of supporting States with

some planning funds to help towards their coming up with programs.

Senator HATCH. Right.

Dr. MONGAN. I would say that in Massachusetts the cost of the

bill is substantially higher than that $130 million of State general

18

revenue. There is, as I say, money from all sources. A large amount

of Federal money is in that pot.

Senator HATCH. Well, that is right.

Dr. MONGAN. The Federal Government has already helped in a

significant way.

Senator HATCH. Well, let me just say, I want to thank Dr. Frank

and others on the working group for the hard work that they did

all over the country. It was really interesting.

Dorothy Bazos is here from New Hampshire. Would you stand,

Dorothy, so everybody knows? She was on the working group. We

are so happy to have you here.

Let me just ask another question to everybody on the panel. I

think it is an important question. That is, what do you think about

the HHS/administration approaches, which basically mean a budget-neutral manner, standard tax deduction for health insurance of

$15,000 for a family, $7,500 for an individual, so that the deduction

would be available to anybody who purchases insurance coverage

in the employment sector or in the non-group market.

Then, of course, they are emphasizing health savings accounts.

There are already 3 million people who have health savings accounts and are finding them efficacious and who want to save for

their health care.

Some here have argued for association health plans that should

bring costs under control to a degree. And, of course, keeping medical costs competitive by improving health care price and quality

transparency is also part of the administration approach,

Part D, the 39 million Medicare beneficiaries who now have access to prescription drug coverage through Medicare Part D, which

this committee had a big role in doing.

Of course, they would like to resolve the problem of medical liability reform. As a former medical liability defense lawyer, I have

to admit, I think there is an awful lot of unnecessary defensive

medicine that comes because of the threat of medical liability suits.

Dr. Altman?

Dr. ALTMAN. Senator, yes. First of all, I really was very pleased

to see the President and the administration get out front on this

issue. Second, I do believe a number of the options that they are

pushing can have some positive effect.

I am concerned, however, about the President’s plan for several

reasons. First, the so-called ‘‘Cadillac’’—or I am not sure in the current market Cadillacs would be the most expensive car out there—

plans——

Senator HATCH. Sure.

Dr. ALTMAN [continuing]. Often include dental care and eye care,

and stuff like that, which is what kicks them into the $15,000 as

opposed to the $12,000 premium. Their basic benefits for health

care are quite similar to a lot of others, except for one area: some

of them have little or no deductible or copayment.

I happen to believe that coinsurance is an appropriate part of insurance coverage for everyone but the very poor. I do believe individuals should have a financial stake in making decisions on what

care they receive. So, to the extent that we put a cap on highpremium plans for tax deductibility, I would not be against it, provided it was totally aimed at health care as opposed to——

19

Senator HATCH. Well, if you added for the poor, in the President’s plan, a refundable tax credit, that might help bolster it.

Dr. ALTMAN. I thought that was great. I did. So there were

positives. The other negative—very important. I do think that the

way it was designed, it would seriously erode the employer-based

system and the value of the pooling that goes on in the employer

system.

Senator HATCH. That is happening anyway, is it not?

Dr. ALTMAN. Well, I do not think it is ending. It has gone

from——

Senator HATCH. It is not ending, but it is surely happening.

Dr. ALTMAN. Well, it has gone from about 65 percent to 59. I am

a big believer in pooling in every way. I think the Chairman talked

about it. I think going towards the individual insurance market has

some down sides to it.

Unless we really, really subsidize it big-time, it could lead to the

number of uninsured growing substantially. So, in general I support a lot of what is in the President’s plan, but my own view is

that it is not the best way to go.

The CHAIRMAN. Thank you very much, Dr. Altman, and Senator.

Senator Wyden?

Senator WYDEN. Thank you very much, Mr. Chairman. I want to

commend you for all of your leadership, Mr. Chairman, and also—

he is not here—but thank Senator Grassley for his kind words

about my Healthy Americans Act. I truly believe that, under the

team of Baucus and Grassley, we are going to fix health care after

60 years.

I can tell you already, just in the last few months, Senator

Conrad, Senator Lott, Senator Crapo, Senator Salazar, Senator

Cantwell, and I have been working. We have been able to find a

bit of common ground, and we are going to work with you, Mr.

Chairman and Senator Grassley, and get this job done.

The first question I wanted to ask is for you, Mr. Sheils. Dr.

Mongan says that to get to universal coverage you are going to

have to raise taxes. Respectfully, Dr. Mongan, I would disagree

very strongly with that.

We are going to spend $2.3 trillion this year. We have 300 million Americans. You divide 300 million into $2.3 trillion and you

could go out and hire a doctor to handle every seven patients in

the country and give everybody good, quality care. So I think the

money is there, we are just not spending it in the right places.

My question to you, Mr. Sheils, is, is it not possible to get everybody covered for the $2.3 trillion that is spent today?

Mr. SHEILS. Absolutely. We spend, what is it, $6,500 per person

in the United States, which is twice what is spent in other countries. The uninsured are predominantly younger people who are not

very expensive to cover in the first place, so I would say we should

be able to get by with $2.3 trillion.

Senator, you have introduced a bill. Again, we are not advocates,

but you introduced a bill that we took a close look at that would

achieve universal coverage without actually increasing what we

spend as a Nation on health care.

It is not going to be easy. We have to take some steps to do it

in your proposal. We have to take steps to form aggressive price

20

competition among insurers, I think. We have to eliminate the tax

exclusion.

Basically the idea with this is that you cannot reduce your taxes

by increasing what you spend on health care. If we can eliminate

that feature, we will create an incentive to provide coverage. I

think just about any economist anywhere will tell you that that is,

at least to some degree, true.

So I believe it is quite possible to do it, but we will have to take

some innovative steps. Innovative steps in streamlining administration, too, I think, will be very important and part of the formula

for making it all happen. But there are other approaches that could

be devised different from Senator Wyden’s bill that would do the

trick.

Senator WYDEN. Thank you very much, and for all of your analysis as well.

Dr. Altman, I am a great admirer of yours as well. My question

for you is, how important do you believe fixing the broken marketplace is? Right now, the private insurance companies—certainly

many of them—cherry pick and they take healthy people and send

sick people over to government programs more fragile than they

are. I have been for fundamental insurance reforms so you cannot

do that; a number of others have been as well.

How important do you think stopping that cherry picking and

creating a private market where people compete on the basis of

price and benefit and quality is?

Dr. ALTMAN. Well, to the extent that it exists—and I do believe

it exists—I think it should be stopped. The Congress has been trying to do that over the years. Now we require that a person who

develops a serious medical condition continue to be insured, even

if they change jobs, to make it more and more difficult to discriminate. I think there are more and more ways to do that, and you

should do it.

I also believe in pooling, as the Chairman talked about. I think

that we should be creating the marketplaces that you talk about.

I think there are a number of ways to do it, but I do not believe

we need to, or should, destroy the private insurance market or the

employer-based system. I think we can get pretty close to what you

want without having to do that. But I surely would support what

you want to do.

Senator WYDEN. We will debate that some more. I think Andy

Stern, the head of the Service Employees Union, with their 1.8 million members, has made the case better than I can that the private

employer system is sort of melting like a Popsicle on the summer

sidewalk. But I will let Andy make that case, too.

One quick question for you, Dr. Frank—and you and Dottie and

Frank Baumeister, and Joe Hanson, you did a terrific job in terms

of involving people. I think the area that has really resonated with

me is, you all seem to have started a revolution in terms of preventive health care, with people coming to those meetings and constantly saying, get us focused on prevention rather than sick care.

Can you elaborate a little bit more on what you heard in the

meetings about sort of changing to a whole new ethic of prevention?

21

Dr. FRANK. Well, much of that came out of the notion of sort of

personal responsibility, in part, and creating opportunities for people to actually take better care of themselves.

The way we saw that coming about—and we found that to be

very popular with people at our meetings—was through working on

a delivery system so those types of services are available locally

and come from trusted local provider networks and are available at

an affordable rate.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Salazar, you are next.

Senator SALAZAR. Thank you very much, Chairman Baucus.

Thank you for putting the spotlight on this issue of health care. I

appreciate the excellent testimony from the witnesses.

I have two questions, and I would like each of you to just take

a minute in responding to these two questions. The first has to do

with the Massachusetts plan. It seems to me that what is going to

happen more and more around the country is that frustration in

our States is leading our Governors, and everybody else, to basically say, if they cannot get it done in Washington, we are going

to get it done back home. That is happening in multiple States.

My question to you is, if you were to take the Massachusetts

plan and extrapolate that as a plan that would cover the entire Nation, what kind of costs would you be talking about? Essentially

something that gets to universal coverage, but what are the costs

that would be associated with that? That is question number one.

Number two, I would like your comments on the President’s proposal that he laid out. Some of you have commented on it. You

have seen the CBO estimates and other estimates on the cost of

that, somewhere around $500 billion, something of that nature. Is

it a workable plan? What are the problems with it? If you can do

that very briefly.

So I will just start with you, Dr. Mongan, and just come on down

the table.

Dr. MONGAN. So with respect to the Massachusetts plan, expanding it to the Nation, if you put all costs in, including the payments

people have to mandatorily make, I still believe you are back at

that $70- to $100-billion figure.

Incidentally, I would love to sit here and tell the committee, you

can do this without any new money. But believe me, to do that you

have to surgically extract every bit of waste and abuse in the system; one man’s MRI is not another person’s waste. Surgically extract it, and then somehow tax it back from the people who are currently paying the premium. So, it will cost money.

Senator SALAZAR. So we could do it nationwide, but you would

say it would cost $70 to $100 billion?

Dr. MONGAN. I believe that it would.

Senator SALAZAR. All right. Take a second, then, on the President’s plan.

Dr. MONGAN. The second question. With respect to the President’s plan, I would echo much of what Dr. Altman said. I think

there are some good features there. I think some of those tax features should be looked at. I am concerned about some of the impact

22

of the HSA provisions in the bill that I think potentially work in

a detrimental way towards lower-income people.

Senator SALAZAR. Dr. Altman?

Dr. ALTMAN. Well, you have a number of Massachusetts people

here. We have some advantages in Massachusetts, some substantial advantages, that allowed us to do it without sort of breaking

our bank. I do believe, in concept, it is the right way to go about

building on our current system. I share very strongly Dr. Mongan’s

view, and I would differ with Mr. Sheils.

I do believe there is enough money in the system. I think Senator

Wyden is absolutely correct. But I do not think we can get it. I

think it will have pluses and minuses all over the place, and people

who want to attack it will put on the front page of every newspaper

how particular groups are going to wind up paying a lot more,

while others get a lot more.

So I do believe the Massachusetts plan can be a model for the

rest of the country, but not necessarily for all States. I share Senator Hatch’s comments that some States that have a lot more uninsured and do not have the same structure would not be able to support it, but I do think it is going to cost us about $100 billion initially to cover all the uninsured in the country.

I think we can then squeeze some of it back out, but, if you want

to create coverage, you have to recognize there will be a need for

some new money initially.

Senator SALAZAR. Mr. Sheils?

Mr. SHEILS. I would say the number would be closer to $50 to $70 billion. I say that because I do not think that the Massachusetts model is going to be successful in covering all Americans.

The affordability issue is really acute with the proposal. They are

subsidized to 300 percent of the poverty line. So imagine a woman

with two kids, $50,000 income. They would not qualify for a subsidy. A policy for that family would cost something in the neighborhood of $8,700, which is well over 10 percent of their income.

In California, they said, all right, we will cheapen the premium

by giving you a catastrophic plan. Well, imagine that, paying 6 or

7 percent of your income and then getting a policy that does not

really cover much unless you get very ill.

Senator SALAZAR. So your view of the Massachusetts plan is that,

at the end of the day, it is not going to cover everybody.

Mr. SHEILS. I do not believe that it will.

Senator SALAZAR. Because of my time limits here, just a quick

sentence or two on the President’s proposal.

Mr. SHEILS. The President’s proposal does not provide enough

subsidies to the low-income people to target that population. We

have estimated the average tax savings per family, with $150,000

or more in income, would be about $1,500. For the very lowest income, it would be $35, which is enough for pizza, I suppose.

Senator SALAZAR. Dr. Frank?

Dr. FRANK. Yes. I am in the $100-billion sort of camp. I think

that I agree with Senator Wyden, that there is money there. I

agree with my two colleagues, that it is really hard to get your

hands on it.

Massachusetts. It is important to realize two unique conditions

in Massachusetts. One, our rate of uninsured is relatively low, and

23

we have a lot of Federal money on the table that leveraged what

we were able to do. That may not be available everywhere. Those

two conditions do not hold everywhere else.

On the President’s plan, I, too, am concerned with the fact that

it relies so heavily on deductions to cover what are relatively lowincome people instead of credits or subsidies, and so I am concerned about that.

I am also concerned, as is Dr. Altman, with provisions that undermine the employer-sponsored system. I just do not think the individual market is ready for prime time yet.

Senator SALAZAR. Thank you.

Thank you, Dr. Frank, for your work with the Citizens’ Health

Group as well.

The CHAIRMAN. Thank you, Senator.

Senator Rockefeller?

Senator ROCKEFELLER. Thank you, Mr. Chairman.

I do not think anybody has been to more meetings on health care

than I have with Stuart Altman, with the possible exception of Max

Baucus. I would like to ask Dr. Frank a question. That is about

end-of-life care, because your report makes recommendations.

But I have not read your report, so I do not know what they are.

I do know this, that an enormous percentage of Medicare goes to

that. I do know that when people are dying from long, slow diseases, that, let us say, 3 of the 5 kids are for letting that person

go home, take morphine, and just pass.

That is usually what the patient wants, and they can show that

by biting down on their feeding tube, and that is usually the only

way it happens. But then the doctor, if it is in certain States, cannot give morphine because he would be breaking the law.

So, I mean, it is the whole question of, how do you cut down

where I think we can save billions of dollars on end-of-life care

without disrupting the concept of what America is?

Dr. FRANK. This is, perhaps, the most surprising thing that we

came up with. We were not expecting that to be a major part of

our report. Everywhere we went, there was deep concern about

this.

Our recommendations really need to be restructured. We identified a number of models that are out there. There is a group at

Dartmouth, a group at Rand here, a group at Massachusetts General, Dr. Mongan’s shop, who all have developed very sensible approaches that I think would allow considerable autonomy, increased efficiency, allow people a better choice about where they

end their days, and it is projected to really save a lot of money.

Senator ROCKEFELLER. How do you do that?

Dr. FRANK. By pursuing these models—I cannot give you——

Senator ROCKEFELLER. I started, in 1989, with Jack Danforth.

Dr. FRANK. Right.

Senator ROCKEFELLER. They called it, at that time, advance directive, or whatever it is now. It is all up to lots of words.

Dr. FRANK. Right.

Senator ROCKEFELLER. But it is on the chart at the end of the

bed. Doctors often just routinely ignore it, because they are going

to do what they are going to do.

24

Dr. FRANK. Yes. I think it begins before that. For example, one

of the models is, I think, the Good Death model that is really being

developed at Dartmouth, and it really starts with a set of supports,

a set of education, a set of counseling to the family way before you

get to putting the chart on the end of the bed.

Senator ROCKEFELLER. Other comments on that?

Dr. MONGAN. Well, Senator, I would say it is an extremely important, and as you know extremely difficult, area. A very quick

anecdote. When I was working here with Senator Long at a hearing on end of life, he was quite intrigued. He called me over and

he said, ‘‘Maybe we could have a bill.’’ Then he said, ‘‘But you don’t

know when the last year starts, do you?’’

In fact, that is the problem not only for drafting legislation, but

for doctors. You do not always know that you are dealing with the

end of life when you start dealing with the patient. If there is an

answer, I believe it is having better connections and primary care

to patients.

What we find is that, if the doctor knows the patient ahead of

time, they have a much better understanding of their needs and

desires as opposed to a patient who just comes in to the emergency

room cold.

Senator ROCKEFELLER. I flat-out agree with that. But I have a

very hard time accepting that, as you indicate, doctors who know

their patients, whether it is Alzheimer’s, ALS, or whatever it is, it

is one of the more predictable events of life, when life is going to

end. Now, how long and when? But this education process or whatever it is you suggest is huge.

What do you suggest beyond the education process?

Dr. FRANK. Well, the model just includes early preparation. Also

educating the physicians, getting them to make better prognoses.

I think Dr. Mongan is absolutely right.

One of the big problems is that physicians tend to be systematically too optimistic, and so that gives families hope, it creates a desire to intervene more. I think getting more information is important, getting it to be balanced information, both to the doctor and

to the patient, because they are both biased in the same kind of

way.

Senator ROCKEFELLER. Does that have anything to do—my final

question—with the fact that we train so few geriatricians?

Dr. FRANK. There are a remarkably small number of geriatric

training programs in the United States right now. In fact, the newest programs are programs to train trainers, just for exactly that

reason.

Senator ROCKEFELLER. Thank you, sir.

The CHAIRMAN. Thank you, Senator.

Senator Smith, who has been waiting patiently over here.

Senator SMITH. Thank you, Mr. Chairman. I have been listening

and learning much from you gentlemen. I thank you for your contribution here today.

Senator Wyden and I both come from a State that has tried to

be quite innovative on health care, and perhaps you are familiar

with the Oregon version of Medicaid, the Oregon Health Plan.

I have been struggling with health care as a State Senator, as

a U.S. Senator, since 1992, and frankly have concluded—and I

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think one of you mentioned, I think it was you, Dr. Altman—that

health care is rationed.

You either ration it through price, as we do in this country, or

you ration it, as Oregon does on Medicaid, through a package, a defined benefit, or you ration it by denial through delay. It seems to

me those are the three models we have to work with.

There is currently in the State of Oregon serious discussion

about a new approach, different than Massachusetts. The author of

it is the same gentleman who was the author of the Oregon Health

Plan, John Kitzhauber. I do not speak for him, in defense of him.

I am not representing him.

But if I can give you the outlines of what I understand his approach to be, it would be universal coverage in Oregon that would

essentially end Medicaid and Medicare and the employer deduction

for health care, to pool those resources and create a defined benefit

package for all Oregonians.

I am neither telling you I am for it or against it, I am just open

to the idea of how we get a handle on this issue. I wonder if you

would have a comment, without knowing more specifics than I am

able to give you, on what you would think about that approach.

Dr. ALTMAN. Well, let me comment. First of all, John Kitzhauber

is a good friend of mine.

Senator SMITH. And mine.

Dr. ALTMAN. We serve on many panels together and we have

been debating his plan for the past 2 years. I strongly believe that

Governor Kitzhauber cares a lot, really wants to create a system

that will provide basic coverage, believes that the government

should do that, and I appreciate that.

My concern with the proposal that he put forward is, if you

added up the money that is currently in Medicare and Medicaid

and the tax deduction, it comes to about a third of the $2.2 trillion.

If that is all you have to provide the basic government coverage,

the amount of coverage would be totally inadequate. Dr. Kitzhauber uses the analogy of communities providing basic education

for every American. If the public education system spent so little

relative to private education, community after community would

have an uproar.

So if we are going to do that—and I am not arguing, necessarily

against it. I happen to believe I would rather not do it that way—

you have to add substantially more money to it. Then we have to

take what Dr. Mongan and I say, you have to claw back huge

amounts for individuals and providers.

When you sort of do away with the tax deductibility, you then

have to tax the people to get the money to spend it. Once you do

that, it changes who pays for it in a fundamental way. Second,

Medicare is expensive because it covers the sickest people.

Senator SMITH. Yes.

Dr. ALTMAN. So as much as I think John Kitzhauber is one of

the most thoughtful people in America, I do not support his plan.

Mr. SHEILS. On the question of rationing, the Oregon plan was

an enormous step forward because they took a rational approach

to deciding what is going to be covered and what is not. And no

offense to people from Oregon, but what they did was ration care

to the poor, not ration care throughout the system.

26

Senator SMITH. Yes. That is correct.

Mr. SHEILS. That would be a big deal. The thought was that if

you eliminated, say, heart transplants or liver transplants, you

save enough money to provide all this preventive care.

Well, if you were to do that system-wide, you would not have to

eliminate as many services to save enough money to provide the

other services to the State. That is an explicit form of rationing

that extends throughout the State to all who live there. That is

fundamentally different. It is rationing. It is explicit rationing and

it is very different than what we do now.

But I think that is where you will find more of an answer in

terms of saving money without cutting too deeply into the list of

services that we do provide.

Senator SMITH. Well, again, Dr. Kitzhauber can speak for himself

better than I can. I am not trying to represent the totality of what

he is proposing. But as I have understood it, I think he is saying,

in order to get a handle on costs, you have to have some kind of

a package.

I am attracted to Senator Wyden’s bill as well for the reasons

that have been stated here this morning, but it does not control

costs. But when you control costs, you take away choice. Then

above the defined benefit, freedom is there for people to insure

above that if they choose to.

Mr. SHEILS. Let me just add that making the care available to

all Americans would give you—I am sorry. I am getting old. I will

think of it later.

Senator SMITH. I am out of time.

Senator GRASSLEY. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

I certainly appreciate this discussion. It is such a critical part of

what we have to do in this country. I appreciate the fact that you

all recognize the fact that, without a doubt, it covers many issues,

one being the health and well-being of all of our loved ones here

in this country, certainly a huge role that it plays in economics, as

well as the whole issue of justice, in terms of all being God’s creation, that there is an issue of justice in terms of making sure

health care is there.

I just want to say, Dr. Frank, thank you. I am glad to see that

the Citizens’ Health Care Working Group does include the recommendations for improving end-of-life care. I think that is absolutely essential if we are going to deal with this issue.

I also want to echo Senator Wyden’s comments on the importance of preventive care, whether it be screening, prenatal. The investment brings us a 10-fold return in the long term. We have to

make the investment in order to get the rewards from it, but it is

a tremendous investment that does bring rewards, I think both the

focus on prevention and proper chronic care management, not just

at the end-of-life care, but throughout the life course.

One of the components I tried to work on in Medicare reform was

chronic care management, and certainly just simple management

in terms of the issues of health care delivery. I think it will be a

critical part of keeping our costs down in the long run, and I am

grateful for you all’s recognition of those issues.

27

I also want to applaud Chairman Baucus and Senator Grassley

in the efforts we have put towards SCHIP. That has been talked

about here today. It is coverage that is a critical component in this

discussion, hitting on all of those issues, whether it is the longterm cost of health care—if we do not get children the health care

that they need early in life, then they are going to continue to become a part of the system that is going to be costly. But it is also

the right thing to do. I think that is so essential for us to remind

ourselves every day when we deal with that.

A quick question on SCHIP. There are a lot of children in SCHIP

who have to drop and go outside of their private insurance. They

have insurance, but it is not enough. I would be interested in hearing your comments on the ability of using SCHIP as a wraparound, much as we do in terms of Medicaid, to be able to take that

step if in fact we cannot get to the comprehensive plan that has

been talked about.

Then, Mr. Sheils, you raised a good point about the lack of equity

in the current distribution of tax benefits. I would be interested to

hear about your study. You conclude that 26.7 percent of Federal

health benefit tax expenditures go to the 14 percent of the population with the highest incomes.

I believe you are correct in questioning whether it is appropriate

considering that the majority of the 47 million uninsured Americans are in the lower-income group, and that is where we are trying to focus our attention in order to get the biggest bang for our

buck as we move forward.

So I just would be interested in your comments on whether you

think the part of the President’s proposal that is working towards

that, if done correctly, would really address the equity concerns

that you have raised.

That would be kind of my question in terms of the President’s

proposal, which, again, I am open to looking further into. But I do

have some concerns that we may not actually be addressing the

issue in the group of greatest concern.

So, those are my two questions, Mr. Chairman.

Dr. ALTMAN. With respect to SCHIP, States have the flexibility

of using the Medicaid system or developing their own. As you

pointed out, in some areas, by developing their own, they could be

restricting the access. I do support the idea of using it as a wraparound where possible.

There are advantages, though, to having a more restricted delivery system in terms of efficiency and cost, and that is why some

States do it. So I think, in general, the Congress was right in giving the States the choice, but the negative is what you pointed out.

Senator LINCOLN. Well, we take more out of the private insurer

if they get out of private insurance in order to be able to access

that.

Dr. ALTMAN. I know.

Senator LINCOLN. Yes.

Mr. SHEILS. The equity question under the President’s plan is

really very interesting. It achieves a certain type of equity. That is,

if you had two people at identical income levels, one gets employer

coverage and one does not, they will both get a tax benefit now. So,

it does achieve that kind of equity. The concern is equity across inVerDate 11-MAY-2000 15:12 Jun 12, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 42576.000 SFIN1 PsN: SFIN1
28

come levels. The lower-income people do not pay enough in taxes

to get very much out of a tax deduction.

Senator LINCOLN. Right.

Mr. SHEILS. But if we provided them with a tax credit, a refundable tax credit, we could start to make some progress in directing

some funds to that population group. That was originally, I think,

the idea that the President had in doing that.

Senator LINCOLN. Just cost.

Mr. SHEILS. Yes. One thing that I would like to add, too, is that

administrative costs become an issue with some of these proposals.

For example, in Massachusetts they are talking about subsidizing

people through 300 percent of poverty. That would require processing 40 million families per year, going down to the health care

office and reviewing their income, and so on.

It would cost about $10 billion a year to administer that. If you

do it through the tax code, you have a basis for using the model

they use with our tax code, which is self-attestation.

You report your income—you report what you spend on health

care in this case—and you calculate your taxes. You can adjust

your withholding so you can get money put into your paycheck instead of taken out. All of those things are doable. The enforcement

in a system like that is, of course, the possibility of an audit and

fines for improperly reporting income and your costs.

So I think that using the tax code to generate these tax credits

for purchases of private coverage is really the better way to go than

doing it where people go in and apply. It would be like going down

to the DMV, only worse.

Senator LINCOLN. Well, I have to say, between myself and Senator Snowe working to get the child tax credit refundable, it is a

difficult thing to do, but without doing it you really do not get at

the heart of the problem. Thank you.

The CHAIRMAN. Thank you, Senator, very much.

I apologize to the witnesses. There is a vote going on, so there

is a bit of disruption here.

Assuming we are going to build on the current system—assuming—where would you begin to build? What steps would you begin

to take? Anybody. I am going to ask all four, but whoever wants

to speak first, just jump in here. Maybe you would like to talk back

and forth, too. Let us get a dialogue going here.

Dr. ALTMAN. Well, the value of the Massachusetts plan is that

it shows you the places where you can build on. I happen to believe

that the employer system should be asked to do more; for better

or worse, it is our basic system. We can do more through the employer system.

I do think that, much as I have concerns about pushing the individual mandate too much—and I do think that Mr. Sheils did suggest some problems—I now believe that individual responsibility

should be part of any universal access plan.

I do think we need to be very conscious of the fact that we cannot

build on it too much, and maybe we should be subsidizing insurance up to 400 to 500 percent of poverty for certain people, or I

suggested having a reinsurance system that reduces the costs so

that low- and middle-income individuals and families can afford it.

29

So I would use the Massachusetts approach, which sort of shares

the responsibility between government, the individual, and the employer.

The CHAIRMAN. All right.

Mr. SHEILS. I guess I would start with the tax exclusion. I would

eliminate it. You could do it without increasing anybody’s taxes.

The CHAIRMAN. Just right there, though, do you think that is politically feasible in the short term? I mean, short meaning the next

2 or 3 years, maybe.

Mr. SHEILS. It is amazing. I am amazed that it has been proposed.

The CHAIRMAN. I am, too. In fact, it is refreshing that it has been

proposed. But I am just trying to figure out, how realistic is it?

Mr. SHEILS. The only way to do it, I would think, the only thing

that would be believable, is to convey to people that we are not trying to raise your taxes, we are just trying to make the tax code

neutral. You can do that without raising revenues. The biggest

problem with taxing expenditures is you have to pay taxes on income you did not know you had. That is a big problem.

The CHAIRMAN. That is a big problem.

Mr. SHEILS. But if you did it in a way where, look, it is a compact

with the American people, you are not going to pay any more in

taxes. We are just going to eliminate that exclusion.

I would also talk about making sure people had a choice of

health plans. Right now, I think only about half of workers who

have a choice of health plans have access to, say, an HMO. Now,

that is an option one could put in.

One could also put the HSA options in there. I mean, right now

you have to wait for the employer to decide, well, let us do an HSA.

If we were to somehow require choice, an example would be taking

insurance agents and brokers and require them to prepare a multiple offering for any employer who wants to purchase coverage.

That is a way of using the broker rather than thinking in terms

of dumping them.

I guess what I would like to see is us just pull out all the stops

on the questions of competition. There are so many people who

have advocated that you could save money if you would make the

system competitive, if you make people face the price of insurance.

Most people do not even know what their employer is paying for

their insurance.

If you can do those things and create choice in a workable market, competition will have an impact. Whether it is going to be

enough to get everything under control, probably not. You would

still see costs growing faster than wages, for example.

But I believe in uncorking the system, uncorking all of these

ideas on competition before we move to something like rate controls

in a single payor system, which has its own broad range of issues

and problems.

The CHAIRMAN. All right.

Dr. Frank?

Dr. FRANK. I am going to answer the question about where we

would start. I would not start with eliminating the tax deductibility. I think perhaps capping it would be a good idea. I think

30

that you can do a lot of damage by completely wiping out the employer-based system, so I just want to say that.

I guess the two places I would start would be, first, going after

high-cost coverage that is universal, because it is affordable, it is

relatively affordable given current budget arrangements, it establishes the principal of universality, and it turns out it is extraordinarily important to small business people.

When we had a meeting sponsored by the National Association

of Realtors, over and over and over we heard that, look, the thing

that I am worried about is my business, my family, everything

being wiped out by a high-cost medical problem, and so the idea

of high-cost protection was very popular there.

The second thing I would do is work on the delivery system, just

because there is the problem of low-income people having access to

all the types of things we have been talking about.

I think right away I would sort of start to build on the community health center concept and move that into the sort of integrated

network system to really get effective and efficient systems available to low-income people right away. Then from there you can sort

of build a larger insurance thing based on either competition or one

of these other models.

The CHAIRMAN. Dr. Mongan?

Dr. MONGAN. Mr. Chairman, if I could make a comment that

bears on, I think, your question. You said, assuming we build on

the present system. You know, if you look back from about 1970

to 1992, the debate was between radical change—which meant government program, Medicare for everybody, health security, those

sorts of things—against building on the present system, which at

that time meant basically some government program plus employer

mandates or play-or-pay. That was what building on the present

system was called.

Now, from about 1992 on, employer mandates had become as

problematic as taxes, if you will, in terms of revenue-raising devices. So the debate has shifted a little in recent years towards this

individual mandate, which was the key that unlocked the situation

in Massachusetts. I guess I would just say, echoing what has been

said earlier here, this individual mandate is a tricky piece of business and not necessarily a magic answer.

As you know, there are some on the right who attack it because

they do not even want to mandate motorcycle helmets, let alone

premium payments. Then there are those on the left who say, gee,

are you really going to make people who are still pretty low-income

pay this kind of money that could be 10, 11 percent of their income? So, it is not necessarily magic.

Having said that, one of the first two things I would do, I would

pick up on this reinsurance or catastrophic concept. Senator Long

had a bill 30 years ago that you might take a look at.

Second, I would play with the individual mandate, but again, a

little more starting on the kind of catastrophic side so that it is not

quite the cost it might otherwise be.

The CHAIRMAN. Thank you.

Senator Stabenow?

Senator STABENOW. Well, thank you, Mr. Chairman. First, I

want to just echo what others have said in thanking you for this.

31

It has been an excellent panel. I really appreciate your comments

on putting ideology aside. I think that is so critical for us to be able

to look at just what we can do together. So, I thank you for that.

I also want to thank you for your leadership in making SCHIP

a priority for us in this committee and, with your leadership, we

have made it a top priority in the budget resolution we will be

dealing with today.

It is, in fact, just the first step. We have committed to step one,

expanding coverage to all children. Obviously, step two is universal

coverage. But, thank you for that.

I appreciate the comments and concerns raised about the President’s plan related to his tax deductions. Coming from a State with

employer plans—we call them Cadillac plans. I drive a Cadillac

STS. It is a great car. So I will call it the Cadillac plans.

But the reality is, we have had employers that have stepped up,

working with employees to provide insurance. I certainly do not

think the first way to cover the uninsured is by taking away coverage of people who have insurance, so I appreciate your comments.

My question to all of you relates to, if we just kind of look at

where we go—and you have talked about catastrophic coverage,

and I hear that a lot from small businesses and large businesses

about starting as a piece to cover catastrophic—but we have systems, as you have mentioned. The reality is, the majority of health

care is paid for by public dollars now, directly or indirectly.

So this false debate, this ideology that government should not be

involved in health care, is just silly because we provide most of the

dollars. So the question is, how do we move forward on universal

coverage?

And I would like your thoughts on the structure of Medicare. If

you assumed we were adequately providing payments to health

care providers—which is a concern right now, just the structure of

people paying into a system where they get basic coverage and

then they can choose to add coverage and add a premium and copay with Part B for doctor visits and home health care and so on,

they can add coverage for prescription drugs—it seems to me that

is a uniquely American structure for universal health care that is

different than the other systems people criticize, top-down socialized medicine, the kind of thing we hear all the time from people.

Do you think Medicare or some other system we have in place

right now provides the right structure in which to work to move

towards universal coverage? Dr. Altman?

Dr. ALTMAN. Let me comment. First, let me tell you how much

I appreciate what goes on in Michigan. I have spent a lot of time

in Michigan and think that there are some very interesting ideas

there.

Now, with respect to Medicare, if you compare Medicare to Social

Security, Social Security, as a percentage of retirement income, is

a much smaller percentage than Medicare.

Medicare really is designed to be, if not the whole, to be a substantial amount of the benefits you will need, particularly with the

coverage of prescription drugs, coverage I strongly support.

Even with that prescription drug coverage, Medicare has gaps,

there is no question about that: long-term care, certain catastrophic

32

coverage, and so on. But it is up there. It is not a basic, as Dr.

Mongan said, and very limited plan. So you can live without any

additional coverage, but most Americans do add extra coverage as

well.

I think, as a structure, it is the right one. The fear I have, what

Senator Smith talked about, Governor Kitzhauber, if you took his

plan, it would give a percentage of health care that would, as I

said, be at 30 percent. For the uninsured, it would even be lower.

So I think Medicare needs fixing, but it does not need fixing on

its benefit side as much. I think it needs fixing on its financing

side, and I do think it needs to be more innovative in terms of not

paying for services that are not needed, and so on. But I support

the benefits.

Senator STABENOW. Anyone else? Yes.

Mr. SHEILS. I drive a Saturn. I guess I would start by saying that

if you were going to maintain or build on the current system of private insurance, you have to do it in a way which will enhance competition.

Administrative costs, according to CMS, for private insurance,

grew at about 12 percent a year between 2000 and 2005. Health

benefits, health services costs, grew by only 8 percent. How can the

cost of the paperwork be growing faster than the cost of the services, when you consider the added new technologies we see?

So I think industry sources say that the profits for health insurance were in the neighborhood of $40 billion in 2006. This came

from some Wall Street material, which was actually trying to explain why it is good to invest in insurance companies.

But I do not really mean to pick on the insurance companies. I

think it is quite likely a real important part of the answer, but I

do feel it is an industry that could benefit greatly from enhanced

competition in some way.

Senator STABENOW. Thank you.

The CHAIRMAN. Thank you.

Senator Wyden?

Senator WYDEN. Thank you very much, Mr. Chairman. A question for you, Mr. Sheils. When I was putting my legislation together and I was having town meetings with citizens and the like,

what people always came back with is, I want care like you people

in Congress have. We want a system like you do, with private coverage and private choices and the like.

Dr. Altman, Dr. Mongan, both of whom I respect very much,

talked about all the change in how people would absorb it. But

what we sought to do in our legislation is essentially take the 180

million people who get coverage through their employer and essentially take their salary, plus their health benefits, and get them

that compensation in cash directly, just their tax brackets, and people would have more cash in their pocket on day one as you go forward with a new system where everybody is covered.

That way the employer wins and the worker wins on day one.

The employer does not have to pick up the rate of growth, it is always 11, 12, 13 percent. The worker has more cash in their pocket.

Give me your reaction—I know you do not back legislation and

the like—just conceptually to the idea of starting with the worker

having more cash in their pocket.

33

Mr. SHEILS. Well, I think putting more cash in their pocket is

there to, again, maximize, uncork, all of the competitive incentives

we could possibly get out of the system. If you put $12,000, which is the average cost of a family policy,

in people’s wages, individuals are certainly going to think, well, gee

whiz, if I save some of this money, if I went to a more efficient

plan, not necessarily a grand health plan, I could save enough

money to maybe buy a wide screen TV, go fishing in Oregon, whatever you want.

You take away the tax benefit and you give people choice, then

I think that you have considerable potential for enhancing the competition in the way it needs to be enhanced.

I think that a prerequisite to health reform, though, universal

coverage, will be the idea that people who have money will be able

to buy more. That is the way it is all over the world.

In England, there is a private health care system that has

evolved. It is like, you pay your property taxes so that we have

schools. Well, but you might send your kid to a private school anyway. You still have to pay the property tax. That is what goes on

in England, in many cases. People pay for the basic health care

system, but they do, at their own expense, use another system.

I think that having a choice, an option to buy more, is really important. I explained to somebody that we are talking about the

same benefits as your Congressman has. The family’s response

was, we want better than that. [Laughter.]

Senator WYDEN. Right.

Mr. SHEILS. So, you might legislate yourself a little improvement

here and there. [Laughter.]

Senator WYDEN. I will see if I can get one other one in. That is

a very important point. I think there is a clear bipartisan consensus that what universal coverage is about is setting a floor of

dignity, and certainly allowing people to have the freedom above

that floor to purchase what they want.

Talk to us a little bit more about administrative savings and how

you get them. What I sought to do in my legislation is have people

sign up once. Essentially once they were signed up, everything

would be done through the magical world of withholding, which is

different than the last 20 or 30 years. Dr. Altman remembers this

so well. We were always talking about vouchers, and putting paper

in people’s hands.

Could you just—again, not in connection with my bill—talk about

the concept of getting people to sign up once and then accomplish

everything else through this world of electronic transfers so that

people are not going through the time and the cost and stigma of

going through this sign-up process continually.

Mr. SHEILS. Well, as I said earlier, you have to think in terms

of innovation in administration. You have to think of some new

ideas. Right now, the real problem, I think, administratively, is

that your coverage is always linked to whether you paid the premium.

You change jobs, well, you have to find another employer to pay

your premium, another plan. If you buy down your own, you have

to pay the premium. You stop paying, you do not get coverage.

That, it seems to me, is the key expense in our system.

34

The idea in your bill, as it worked out, was that we would collect

premiums through a different system—actually, through the tax

system—and that would bring in the revenues required to make

premium payments to the health plans that people have selected.

That is done through the tax code and it is relatively straightforward. But the other step is that the individual goes to the health

agencies—kind of a connector—and picks their health plan.

Once they have picked a health plan, once they have reported,

they do not have to show whether they paid a premium. They do

not have to come in and say, I am low-income, I need subsidies.

They do not have to do any of that. All they have to do is come

in with a gas bill or driver’s license and establish that they are a

resident.

Then they pick the plan. They can change plans during an open

enrollment period, just like you and I can with the FEHBP, for example. But the system would never let go of you. Just like back at

work, if I decide not to fill out the form at the end of the year for

open enrollment, I stay where I am. The system will never lose the

individual once we can get them into it.

The key to that is making sure that the premiums people pay are

collected through another system—in this case, the tax system,

possibly have Social Security administer it—and wherein, where

you make that payment, there is a worksheet and it says, well, you

have low income so you do not pay anything; you have middle income, you do not have to pay the full premium, but pretty much.

Then for higher-income people, you just have to pay in the full premium.

So, it is a different and innovative way. There are probably other

ways, but I think it has the potential to save us a lot on administrative grounds.

Dr. ALTMAN. Senator Wyden, I wonder if I could just say one

thing. When I first started, similar to Dr. Mongan, the administrative costs for health insurance were very small, and the insurance

companies did absolutely nothing.

I mean, their job was to keep administrative costs down. They

did absolutely nothing. Maybe they had to check on whether you

were insured. They did nothing. Then we started asking insurance

companies to do a lot more, whether they did it all right or not,

the whole issue of managed care and so on.

I do believe you are on to something in terms of savings for the

collection of money. I think we can do that with an employer system. I do believe yours would work better, but I do not think that

is where the big savings are.

I think the big issue is, what do we want our insurers or our

intermediaries to do, just like Medicare? There are three parts to

the administrative costs. There is the movement of the money,

there is what we ask them to do, and then there are their ‘‘profits.’’

I think to the extent that we can get the profits down, that is

appropriate. But I think at the end of the day the question is, what

do we ask our intermediaries to do, whoever they are? I strongly

believe that we should pool, the way the Chairman said.

I do believe what you are talking about is correct in terms of giving people choice, and you can do that in a variety of ways. So in

a lot of ways I think you are on to it.

35

Whether you need to sort of do away with the employer-based

system at the end of the day, if that is the way we agreed, I would

buy it. But I think you could get at 80 to 90 percent of what you

want by some compromise. So I just want to suggest that we can

get almost to what you want without ending the employer-based

system.

The CHAIRMAN. And what would that compromise be? What are

some of the things that come to mind?

Dr. ALTMAN. If you go down the line of Senator Wyden’s bill, I

kept checking it off: yes, yes, yes. Competition, pooling, choice.

There is so much in there. And as I said at the end, my fear is that

if you take away all the taxes and start moving that money around

and giving people cash, it is just going to create chaos.

I think we are better served by taking the important concepts

that are in the bill and seeing how much we can pull out of our

existing system and make it work, and I think we can get pretty

far down the road.

Senator WYDEN. Mr. Chairman, can I just do a quick parliamentary thing? You have been so kind to me in terms of giving me this

extra time. Dr. Altman, this is a superb panel that Chairman Baucus has put together, and clearly there is going to have to be a lot

of give and take in trying to find the common ground.

I would like to just put this into the record, Mr. Chairman. Apparently, Robert Wood Johnson—I am just reading from my BlackBerry—came out with a really important study yesterday, and I

will just read it: ‘‘Fewer than half of parents and families earning

less than $40,000 a year are offered health insurance through their

employer, a 9-percent drop since 1997.’’

So as we work under Chairman Baucus’s leadership, I think trying to get our arms around the role of the individual and the role

of the employer is obviously going to be key, and you have been

very kind. Thank you.

The CHAIRMAN. Thank you. Thank you for how you have advanced the ball here, Senator. It is very appreciated.

Mr. Sheils, you said it was important—maybe it was Dr. Altman,

I have forgotten which—to get more competition among insurance

companies. My question is, how? How would you do that? In what

way?

Mr. SHEILS. Well, I think that the main thing would be to make

sure that everybody with employer coverage actually has a choice

of health plans. If you are a small insurer, small firm, you are

lucky that the employer provides you with one.

But if you were to set it up in a way where your broker was required to present a multiple offering where there were choices and

perhaps lower-cost options, in an environment like that you would

enhance competition.

As I say, only about half of the firms that offer a choice of plans

have an HMO in it. I am not saying we want to put everybody in

HMOs, but I am saying we ought to give everyone that option.

I think another thing you need to do, another part of it, is that

you need to enhance the incentive for the individual to save the

money. If you can create a marketplace where people have strong

incentives to buy something less costly, that will be helpful in generating the competition.

36

Without that, if we continue to numb people to the cost of health

care by not even telling them how much the employer is spending,

if we continue with that, the incentives to try to control health care

are really quite weak. Without that, with the two aspects of it, I

do not see how competition will really shoot the lights out for us.

I think health care costs are always going to grow faster than

our wages, and that is going to create stress forever. It is happening everywhere else in the world. Every international model I

have ever heard of, the people will do it that way. They are facing

pretty much the same problem.

I do not think it is reasonable to think that we are going to get

all these new innovations and modern medicine without paying for

them, but I do think we can get into an environment where we can

possibly slow the rate of growth in health care costs.

The CHAIRMAN. Right.

Mr. SHEILS. Maybe half a point a year. After a few years, that

really accumulates. So, compounding, you save quite a bit of

money.

So I encourage people to think in terms of those two pieces: increasing choice and increasing the incentives to make lower-cost

choices.

The CHAIRMAN. How important is it that we try to solve this

basic problem of coverage and cost? Is this just an exercise just to

go through, an academic exercise, that, sure, it is interesting, it is

helpful to try to find a solution, but we are the United States of

America, we are a big, strong country. If we do not get this solved

significantly, no big deal.

Or on the other hand, is this a big deal? If it is a big deal, if you

could fairly and precisely articulate the reasons why it is a big deal

that we try to begin to solve this. How important is it? That is the

basic question.

Dr. MONGAN. Could I take a quick jump?

The CHAIRMAN. Sure.

Dr. MONGAN. Senator, as I tried to indicate in my testimony, I

think the coverage issue is a very big deal, a very big deal for people’s health, a very big deal for the economy, and a very big deal

for the kind of just society we want to be. So, I think it is critically

important.

I think the cost issue is ultimately important, again, in terms of

what kind of society we are going to be. I think we have to be real

careful with the cost issue. We are a wealthy society. Some make

the argument that, in fact, we could continue to afford some continued increases in cost, but at some point you get to a place where

I think society is going to have to say ‘‘enough’’ because the imbalance between health and other expenditures will just be too great.

So I think, ultimately, both of them are critical issues. The coverage issue is one that I think is absolutely compelling, and the

cost one will be compelling as a piece of finishing the whole puzzle.

The CHAIRMAN. Just playing the devil’s advocate a little bit, I

hear a lot from businesses who are very concerned about the costs

from a competitive perspective. Let me put it this way. Last year,

I took a bunch of Montana businessmen to Asia and Bangalore—

first China, then India.

37

In Bangalore, I went to the Jack Welch Technology Center. It is

a big research facility, one of the three GE research facilities in the

world. It was very impressive. When I finished, I went to talk to

the manager, the only non-Indian there. An awful lot of folks there.

I said, ‘‘Why are you in Bangalore?’’ He said, ‘‘The greatest talent

pool.’’ I asked, ‘‘What country has the next greatest talent pool?’’

‘‘China.’’ ‘‘Where are we, the United States?’’ ‘‘Oh, you are kind of

down there.’’ ‘‘What does it take for us to get up there?’’ I asked.

His immediate response, without skipping a beat, was education

and health care. He said, ‘‘You have to educate your people better,

and you have a health care system that hurts your companies

doing business.’’ I am just curious the degree to which anybody

might agree with that.

Dr. ALTMAN. Let me comment on that. I have worked a lot with

business, and I totally agree that it does put those companies that

really are——

The CHAIRMAN. And sort of duck Mr. Sheils’s point about an employer-based system, those poor companies who have to pay these

big bills.

Dr. ALTMAN. I mean, that is what the issue is. But what I have

found—and maybe you have a different view—I have not found

business willing to step up to the plate to raise taxes.

The CHAIRMAN. Oh, I agree with that.

Dr. ALTMAN. And so it is easy. With all due respect to them, they

talk in not a complete sentence. So the question is, can we help

them? Should we help them? The answer is yes. That is why I have

advocated the reinsurance system across the board. I think that

would help them.

I was pleased to see Professor Frank say the same thing. I think

we can do that. As I said, the business community does not talk

in a complete sentence, and they have not been willing to step up

to the plate and say, fine, take it off our backs, we will gladly support a tax increase.

The CHAIRMAN. Dr. Frank?

Dr. FRANK. Yes. I just want to first address your first question,

which is, after trouping around the country for about 2 years, the

health care system regularly breaks people’s hearts. We just heard

it over and over again.

One fellow said to us—I think it was actually in Salt Lake City—

you know, my business, my life, my assets were gone in the blink

of an eye. This happened—I cannot tell you how many hundreds

of times we heard these stories. Small businesses are feeling that,

too.

Now, I do have the observation, putting on my hat as an economist, that the times that we have made the most progress on the

uninsured in recent history have been one of the times when we

reigned in the costs. During that period during the 1990s where

managed care, as bad as people thought it was, really brought

down the rate of growth, suddenly we started making inroads on

the uninsured.

So I think you are right, that you have to, at some point, reconnect those. But I think there are things to do. I again go back to

my colleagues and agree with them strategically, that at the end

of the day I think you need to address the cost side as well.

38

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. I was just going to

ask one other question, and I appreciate all the time.

Dr. Frank, what did you pick up as you all went around the

country with respect to people getting information about the quality of services and the cost of services? I hear this constantly from

everybody. I mean, the reality is, you can learn a lot more about

buying a washing machine than you can about health care.

What were your recommendations with respect to this whole

question about getting comparative information so you can make

health care choices more wisely?

Dr. FRANK. Well, I think, clearly, we support that. We think that

information is important. The new capabilities of health information technology should improve that.

One of the things that we heard over and over, was that people

really depend on sources very close to home for information, their

doctors, the health care systems, and it is very hard for them to

get a straight story there.

Creating opportunities to have better communications, to make

things clearer, to use information technology to tell people what is

going on in a transparent way is very important to people.

Senator WYDEN. Mr. Chairman, you have given me a lot of time.

I think Dr. Frank’s point there, especially for those of us who have

big western States and rural areas, is going to be key. What we

were trying to do, and picked up to some extent on what I heard

going to your meetings, is to try to say that this information ought

to literally be available by zip code.

In other words, people want to know close by in Oregon and

Montana and Colorado what kind of doctor offers what sort of service, and what their track record is, and to the extent you can, in

something resembling English, some information. So, you are on to

a good thing. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Salazar, I do not know if you want to ask some questions

now or not.

Senator SALAZAR. Yes, Mr. Chairman.

The CHAIRMAN. Because if you do not, I am sure Senator Wyden

will. [Laughter.]

Senator SALAZAR. No.

The CHAIRMAN. Go ahead.

Senator SALAZAR. I would like to ask a few more questions on the

President’s plan, in part because my colleague, Senator Wyden, has

encouraged me to join with a group of Senators on a bipartisan

basis to have a dialogue with the White House on how we might

move forward in some way.

I will say this. I think that both Senator Baucus and Senator

Wyden are correct in making the statement that we ought not wait

until after the 2008 presidential elections, that we ought to do as

much as we can at this point in time. We are having a series of

dialogues with the White House, and who knows where we will ultimately end up.

But I think in the earlier set of questions where I asked each of

you to respond in 30 seconds to the question I asked you, basically

39

I think at least a couple of you said that your concern with the

President’s plan was two-fold, if I could summarize it correctly.

One, that it does not provide enough deductions for low-income

people to afford coverage, and that a tax credit will be more effective. I think, according to the analysis that has been done of the

President’s plan, I think even the President’s own figures show

that we would only take care of some 7 million of the uninsured,

knowing that we have almost 48 million uninsured, so it is only

going to take care of a small percentage of the problem with the

uninsured.

Then the second concern that I heard from some of you is that

it would erode some of the employer-based health insurance system

by creating incentives for healthy people to forego the insurance offered by the employer.

Because this is the agenda, at least, for health care that the

President set forth in his State of the Union, I would like you to

elaborate on the concerns that you have from your expertise and

your point of view with respect to the plan.

Dr. ALTMAN. There is one of the pieces of the President’s plan

that we did not talk about that is very problematic and very difficult to figure out, and that is the role of the ‘‘safety net’’ providers

if we were to go closer and closer to universal coverage.

To say we have a safety net system is sort of pushing it a little

bit, but we do have a number of important deliveries of care that

disproportionately provide care to the uninsured and to Medicaid,

whether they are public hospitals, neighborhood health clinics, or

any not-for-profit or even for-profits that wind up in areas.

The President’s plan would systematically reduce payments to

them and take that money and use that to cover the uninsured. To

some extent, that is appropriate.

However, if you look at what happened in Massachusetts—and

I do not want to overdo Massachusetts—the framers of the plan—

and it was not me—did take money away from the safety net providers to cover some of the costs, but they were very conscious of

the fact that these providers provide services that, even in a truly

universal coverage system, need to be there because the uninsured

are not just like us and have less money. Some of them need different kinds of services, and an insurance system will not pay for

it.

So I became concerned, when you look at that part, that it did

not do justice to the safety net providers. So I would just put that

on your agenda to look at.

Senator SALAZAR. All right.

Mr. SHEILS. I would just say that the President’s plan, a feature

of it is, the tax deduction you get applies to whatever insurance

you buy, whether it is employer insurance or non-group insurance.

So in that sense, it is rather neutral to whether or not you have

employer coverage or non-group coverage.

What we believe will happen is, in the long term, groups will sort

of sort themselves out. Where it is cheaper to have employer coverage—and it will often be the case, with much lower administrative costs for larger firms—certainly, in those cases I do not see

any reason for employer coverage to disappear.

40

In cases where people can do better, where the group could actually go out and buy the coverage at a better cost in the individual

market, for example, in those cases—and it depends on how the

market is structured—people will, I think, dump employer coverage. We estimated about 12.1 million workers and dependents

losing coverage under that provision.

There is still a net increase in the number of people who are covered. Most of the people who drop that coverage, we estimate most

of them will get coverage somewhere else—private coverage, and

some on Medicaid. But I think you are right that there would be

an erosion of employer coverage, but there would be a limit to it.

I do not think it would go beyond the 12 million persons we estimate, for example.

Senator SALAZAR. Dr. Frank?

Dr. FRANK. What I am concerned about is, as you said, a lack

of subsidy or tax credit to actually put money in the hands of people who are poor. A deduction does not do you much good when you

do not pay taxes.

The other piece, though, is that when you start to—I do not have

any trouble de-emphasizing the employer-based system if you have

a good pooling alternative. Now, Senator Wyden’s plan pushes us

in the direction of an alternate pooling mechanism. I did not see

that in the President’s plan. Betting on the individual market, I

think, is a bad bet.

Senator SALAZAR. May I, Mr. Chairman, just ask another question? The President’s plan essentially has been characterized by

some people as costing somewhere in the neighborhood of $550 billion in order to implement. I am wondering, at the end of the day,

about trying to figure out how you put the fiscal picture together

so that it makes sense for the country. Senator Baucus is struggling now, as we are struggling to try to figure out how we finance

SCHIP and how we expand that.

But in terms of where the dollars would come from for say—some

of you mentioned it would cost $100 billion to be able to expand

the Massachusetts model and extrapolate that across the country.

What would be your suggestions in terms of where that money

would come from?

Dr. ALTMAN. Well, first of all, I think the $500 billion, I am not

sure. I think that is over a 10-year period of time——

Senator SALAZAR. It is.

Dr. ALTMAN [continuing]. Where the $100 billion is over a year.

So I do think we should recognize that the President’s plan, because we do not think it does that much, is also much less expensive. And at the end of the day, I must go back to the comments

made by the Chairman. I think we need to deal with the cost issue

at the end of the day. I would prefer we deal with it when we get

everybody covered.

I think, while it may cost money in the short run, and I do not

want to minimize that, I think in the long run we need to get our

rate of growth down, not to a point where it is the same as the

CPI. I think that is silly. Mr. Sheils made it very clear, we will

spend more, and we should spend more, and Americans will react.

41

So, I think we just have to recognize that it is quite likely to cost

more in the beginning, but over time I think if we do the right

things, we can ultimately spend less.

Senator SALAZAR. Can I ask you a similar question on that, Dr.

Altman? When will we know whether this Massachusetts experiment is working and what the costs are? I mean, it is a new program. Two years out? A year out?

Dr. ALTMAN. We are hitting a very important issue in time. In

July of this year, the individual mandate goes into effect. We have

this group of very talented individuals who run this thing called

the Connector, which is trying to grapple with the idea of, how do

you make this affordable to the group that Mr. Sheils talked about?

While I agree with him, not everybody is going to take this. First

of all, people do not know about what is required. They still do not

know it. This is not your group that picks up the New York Times

every morning before they go to work. They are working hard.

They have three jobs, and so on.

So, we are going to find out after July. It is going to take time.

I think it would be unfair to sort of say, by August, September, or

even a year from now, well, it has failed. I think we are going to

need to give it several years to work itself out.

And even if we do not get to 100 percent, the State is making

sizeable improvements. The number of people setting coverage at

below 100 percent of poverty is increasing. The number of people

between 100 and 300 is increasing. At the end of the day, we need

to evaluate this in comparison to what would have happened had

the State not done it.

Senator SALAZAR. Well, thank you, Dr. Altman.

Dr. MONGAN. Senator, since I started my testimony with a comment about financing, you asked a very fair question: who is going

to pay? Basically, people are going to pay. It is going to come directly out of people’s pocket for a mandated payment.

It is going to come from the employer, which most economists

think means it is coming from the person’s wages, or it is going to

come from taxes, which comes from people. Which way it comes

will affect greatly which people are impacted, but it is going to

come from people.

I know, Senator Wyden, I am tremendously committed to your

concept that the best way to do this would be to get the waste and

the abuse out of the system and pay for it without any new dollars.

Again, the complexity of surgically excising that waste out and

then having to tax it back from the person who paid the premium,

I think you are still taking it out of people’s pockets. That is where

it is going to come from.

Senator SALAZAR. Thank you very much.

The CHAIRMAN. Thank you, Senator.

This has been a very good hearing. I want to thank you very,

very much. It has been thoughtful. I appreciate this very much. I

personally believe we have to move very quickly, as quickly as we

can, as complicated as this problem is. Health care is a right, it is

not a privilege.

Health care should not be treated as a commodity. This is something that is basic, a core value of America. We are just going to

have to jump into this. I am reminded of a poem. This shows how

42

masochistic I think we are. The poem is at the beginning of a book

about law school. It was by Columbia Law School. It was Karl

Llewellyn, I think, who wrote this book a long time ago.

The preface of this book—and we all know the theme—‘‘I jumped

into this bramble bush and scratched my eyes out. I was blind. I

could not see. I jumped back into the bramble bush and scratched

my eyes back in, now I can see.’’ We are going to have to do a lot

of jumping into a lot of bramble bushes to make this thing work.

[Laughter.]

Thank you very much. I appreciate your time.

[Whereupon, at 12:16 p.m., the hearing was concluded.]

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Æ