S. HRG. 110–220

HEALTH CARE AND THE BUDGET

HEARINGS

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

June 21, 2007—HEALTH CARE AND THE BUDGET: ISSUES AND 

CHALLENGES FOR REFORM

June 26, 2007—HEALTH CARE AND THE BUDGET: THE HEALTHY 

AMERICANS ACT AND OTHER OPTIONS FOR REFORM

September 11, 2007—HEALTH CARE AND THE BUDGET: OPTIONS FOR 

ACHIEVING UNIVERSAL HEALTH COVERAGE

(

Printed for the use of the Committee on the Budget 

HEALTH CARE AND THE BUDGET

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37–525pdf 2007

S. HRG. 110–220

HEALTH CARE AND THE BUDGET

HEARINGS

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

June 21, 2007—HEALTH CARE AND THE BUDGET: ISSUES AND 

CHALLENGES FOR REFORM

June 26, 2007—HEALTH CARE AND THE BUDGET: THE HEALTHY 

AMERICANS ACT AND OTHER OPTIONS FOR REFORM

September 11, 2007—HEALTH CARE AND THE BUDGET: OPTIONS FOR 

ACHIEVING UNIVERSAL HEALTH COVERAGE

(

Printed for the use of the Committee on the Budget

ii

COMMITTEE ON THE BUDGET 

KENT CONRAD, NORTH DAKOTA, CHAIRMAN

PATTY MURRAY, WASHINGTON 

RON WYDEN, OREGON 

RUSSELL D. FEINGOLD, WISCONSIN 

ROBERT C. BYRD, WEST VIRGINIA 

BILL NELSON, FLORIDA 

DEBBIE STABENOW, MICHIGAN 

ROBERT MENENDEZ, NEW JERSEY 

FRANK R. LAUTENBERG, NEW JERSEY 

BENJAMIN L. CARDIN, MARYLAND 

BERNARD SANDERS, VERMONT 

SHELDON WHITEHOUSE, RHODE ISLAND 

JUDD GREGG, NEW HAMPSHIRE 

PETE V. DOMENICI, NEW MEXICO 

CHARLES E. GRASSLEY, IOWA 

WAYNE ALLARD, COLORADO 

MICHAEL ENZI, WYOMING 

JEFF SESSIONS, ALABAMA 

JIM BUNNING, KENTUCKY 

MIKE CRAPO, IDAHO 

JOHN ENSIGN, NEVEDA 

JOHN CORNYN, TEXAS 

LINDSEY O. GRAHAM, SOUTH CAROLINA 

MARY ANN NAYLOR, Majority Staff Director

SCOTT B. GUDES, Minority Staff Director

(II) 

iii

C O N T E N T S 

HEARINGS 

Page 

June 21, 2007—Health Care and the Budget: Issues and Challenges for 

Reform ................................................................................................................... 1

June 26, 2007—Health Care and the Budget: The Healthy Americans Act 

and Other Options for Reform ............................................................................ 81

September 11, 2007—Health Care and the Budget: Options for Achieving 

Universal Health Coverage ................................................................................. 191

STATEMENTS BY COMMITTEE MEMBERS 

Chairman Conrad .............................................................................................. 1, 81, 191

Ranking Member Gregg .................................................................................. 12, 89, 196

Senator Allard .......................................................................................................... 202

Senator Feingold .................................................................................................... 77, 265

Senator Sanders ....................................................................................................... 204

Senator Whitehouse............................................................................................... 75, 203

Senator Wyden ................................................................................................. 90, 94, 201

WITNESSES 

Henry J. Aaron, PH.D, Bruce and Virginia MacLaury Fellow, Economic Studies Program, The Brookings Institute............................................................. 206, 209

Hon. Robert F. Bennett, A United States Senator from the State of Utah ........ 99

Sara R. Collins, PH.D., Assistant Vice President, Program on the Future 

of Health Insurance, The Commonwealth Fund............................................ 140, 142

Sherry A. Glied, PH.D., Department Chair, Health Policy and Management, 

Professor of Health Policy and Management, Mailman School of Public 

Health, Columbia University........................................................................... 224, 227

Arnold Milstein, M.D., Medical Director, Pacific Business Health 

Group................................................................................................................. 113, 115

Len Nichols, PH.D., Director, Health Policy Program, New America Foundation..................................................................................................................... 122, 126

Peter Orszag, Director, Congressional Budget Office ........................................... 16, 20

Janet Trautwein, Executive Vice President and CEO, National Association 

of Heath Underwriters ..................................................................................... 234, 237

(1)

HEALTH CARE AND THE BUDGET: ISSUES 

AND CHALLENGES FOR REFORM 

THURSDAY, JUNE 21, 2007

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The committee met, pursuant to notice, at 10 a.m., in room SD–

608, Dirksen Senate Office Building, Hon. Kent Conrad, Chairman 

of the Committee, presiding. 

Present: Senators Conrad, Murray, Wyden, Feingold, Stabenow, 

Whitehouse, and Gregg. 

Staff present: Mary Naylor, Majority Staff Director; Scott Gudes, 

Staff Director for the Minority. 

OPENING STATEMENT OF CHAIRMAN CONRAD 

Chairman CONRAD. The hearing will come to order. 

Let me just indicate we all understand the hearing room is unusually warm and the technical people are working on that. I 

would invite those who are here, you are welcome to take off your 

jackets, as it is good and warm in here this morning. 

We want to welcome everyone to the hearing room this morning, 

the hearing on health care, with our distinguished CBO Director 

Peter Orszag. Dr. Orszag is particularly well-suited to address this 

issue. He has done an outstanding job of focusing CBO on analyzing and providing information to Congress on the problem of rising health care costs. Earlier this year he created a new panel of 

health advisers and he is increasing the number of CBO personnel 

who work on health issues over the next 2 years. That is an important and much needed change. 

I very much appreciate Director Orszag’s emphasis on this topic. 

I think all of us know this is the 800-pound gorilla. This is the 

issue that could swamp the boat for our country in terms of its fiscal future. 

Let me just go to a couple of slides.

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This is the driver that needs to focus our attention on the fiscal 

challenges facing America. We face a demographic tidal wave. We 

are going to have 80 million retirees by 2050, more than a doubling 

of the number of people eligible for Social Security and Medicare, 

and we need to focus on this fact like a laser. 

We need to remember that Social Security is not the biggest 

budget challenge confronting us.

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Because of rising health care costs and this demographic tidal 

wave over the next 75 years the shortfall in Medicare will be seven 

times the shortfall in Social Security. The growing cost of Medicare 

and Medicaid is simply staggering.

By 2050, if nothing changes, more than 20 percent of our gross 

domestic product will be spent on just these two programs. That is 

more than we now spend on the entire Federal Government. So if 

this does not get people’s attention I do not know what will. 

This next chart from the Center on Budget and Policy Priorities 

shows that rising health care costs are by far the biggest factor 

driving Medicare cost growth.


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Demographic changes, which I have referenced, from the retiring 

baby boom generation are significant but they are secondary to the 

rising costs. 

The fact is that our health care system is not as efficient as it 

should be. The United States is spending far more on health care 

expenditures as a percentage of gross domestic product than any 

other country in the OECD and that includes the leading economies in the world.

For example, the U.S. spent over 15 percent of GDP on health 

care expenditures in 2003 compared to 7.2 percent in Ireland. We 

are spending even more as a percentage of GDP today. In fact, 

most estimates are we are over 16 percent of GDP today on health 

care. That is one of every $6 in this economy going to health care. 

Despite this additional health care spending, health outcomes in 

the United States are no better than health care outcomes in other 

OECD countries. 

But we need to remember that the problem is not that Medicare 

and Medicaid are Federal programs. The problem stems from the 

underlying rising cost of health care. 

This is a quote from the Comptroller of the General Accounting 

Office, General Walker, making exactly that point.


37525.110
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He said, and I quote ‘‘Federal health spending trends should not 

be viewed in isolation from the health care system as a 

whole...Rather, in order to address the long-term fiscal challenge, 

it will be necessary to find approaches that deal with health care 

cost growth in the overall health care system.’’ That is a critical 

point. 

Our budget resolution, which was adopted by Congress last 

month, takes a number of important steps to begin addressing 

these rising health care costs.


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First, we include funding for program integrity initiatives to 

crack down on waste, fraud, and abuse in Medicare and other programs. I met with the Secretary yesterday on this issue and others 

and we again emphasized the importance of going after waste, 

fraud, and abuse in Medicare. 

Second, we include a health information technology reserve fund 

to promote the use of advanced information technology, a point 

that the Senator from Michigan has made many times, Senator 

Stabenow. The RAND Corporation has done a study that says we 

could save as much as $80 billion a year if information technology 

were broadly deployed in health care. Additional Federal action 

could save even more. 

Third, we include a comparative effectiveness reserve fund to 

jump start an initiative to provide research on the comparative effectiveness of different treatments, medical devices, and drugs. 

This research will lead to savings over the long term by allowing 

health care providers and patients to avoid treatments that may be 

ineffective or overly expensive while at the same time improving 

health care outcomes. 

I would note that CBO is currently working on a study on comparative effectiveness at the request of myself and Senator Baucus, 

the Chairman of the Finance Committee. 

In conclusion, within Medicare I believe we also need to look at 

the additional cost of Medicare Advantage plans.

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MedPAC has found that Medicare Advantage plans are costing 

on average 112 percent of the cost of traditional Medicare fee-forservice. These plans were meant to save money. Instead, they are 

contributing to Medicare’s financial instability and continued 

growth in Medicare Advantage, similar to what we have seen recently, has major implications for future costs in the structure of 

the Medicare program. 

At my request, CBO has done an analysis of savings if we capped 

Medicare Advantage expenditures at as much as 150 percent of traditional fee-for-service Medicare. And they found savings even at 

that level, much more significant savings if we would cap Medicare 

Advantage at 120 percent or 125 percent of traditional fee-for-service Medicare. 

With that, I am going to turn to my colleague and able member 

of this Committee, Senator Gregg. 

OPENING STATEMENT OF RANKING MEMBER GREGG 

Senator GREGG. Thank you, Mr. Chairman. And obviously, the 

Chairman and I and many other members of the Senate agree on 

the problem, which is that we confront a demographic tsunami 

which is going to overwhelm our capacity as a country to support 

the present programs we have in place. And that if we do not do 

something substantive we will end up passing on to our children 

not only a government that is unaffordable but a lifestyle which 

will be significantly less in quality than the lifestyle that our generation has had because the burden which will be put on them will 

be so high that they will not be able to do things such as purchase 

homes, send their kids to college, and have discretionary spending 

money. It will all be spent on the government to support these programs. 

But I think where the Chairman and I depart is on whether or 

not the Congress has responded to this. We have had innumerable 

hearings on this issue and they have all been good, and I congratulate the Chairman for holding this hearing. But the fact is that the 

numbers are there. We know them. We have been presented with 

them. I know that the Director is going to give us another set of 

numbers and some ideas. But they are not going to be significantly 

different than what we have already been presented before, which 

is that this is a problem that is huge and that is coming at us and 

that cannot be avoided as were reflected in the Chairman’s numbers. 

I think to refer to the last budget as having taken a bite out of 

this apple is really an exaggeration which cannot be defended by 

the facts. The simple fact is that we have not, as a Congress, 

stepped in to this issue. The President, ironically, put forward a 

proposal, a very legitimate proposal, which would have used reconciliation to address the issue of health care and the out-year cost 

of health care. 

The unfunded liability of Medicare is approximately $32 trillion. 

Under the President’s proposal that unfunded liability would have 

been reduced by almost 25 percent. And his proposal would not 

have affected present beneficiaries or future beneficiaries of middle 

and moderate income, or low income for that matter. It would have 

13

primarily affected the top 5 percent of Medicare beneficiaries who 

have high incomes. 

It had two basic elements: first, that reimbursements to providers should be accurately paid and should not be inflated. And 

they are, by all estimates, and especially by the independent analysis, inflated by the extent of about 1.3 percent which is benefit accruing from more technological capability and efficiencies within 

the system. And what the President suggested was to let the provider groups keep half of that inflated payment but have the other 

half be returned to basically make the system more solvent. 

The second proposal was to have high income retirees pay a larger proportion of the costs of their premiums so that a person, a retired member of the Senate, or Warren Buffett’s Part D premium 

for Medicare drug benefit is not subsidized by working Americans 

who are working at a garage or on an industrial line or at a restaurant. 

Today average working Americans trying to make ends meet, 

trying to raise families, trying to send their kids to college, trying 

to make their payments, are also paying the cost of Warren 

Buffett’s Part D drug benefit. And they are paying the costs of retired members of the Senate’s Part D drug benefit which is totally 

inexcusable. There is no reason those premiums should not be 

means-tested, wealth-tested. 

And the proposal the President suggested was reasonable. He said if an individual makes more than $80,000 or a couple more 

than $160,000, then they should pay a larger portion of their drug 

benefit costs. Both of those ideas were rejected, rejected out of hand 

by the Democratic budget. 

But worse than that, because those were reasonable ideas that 

did not have any partisan policy to them, in fact I would think that 

coming from the other side of the aisle there would be some receptiveness to taxing—not taxing, but making people who have high 

incomes pay the fair cost of their Part D premium. 

Worse than the fact that they were rejected was there was no alternative put forward. The President suggested a proposal to take 

$8 trillion of potential unfunded liability out of the system. The response from the other side of the aisle was to reject that, to reject 

having high income people pay a larger part of their Part D premium, to have a more accurate reimbursement for provider groups. 

But no substitute, nothing was brought forward to substitute. 

In fact, not only was nothing brought forward to address it but 

the situation was dramatically aggravated by the use of reconciliation as a vehicle to dramatically expand the Government. We just 

saw that occur yesterday in the HELP Committee where the reconciliation instructions were used for the purposes of increasing 

spending 2,500 percent more than savings were put in place for 

deficit reduction. $1 billion of savings, $20 billion of new spending 

used by—and reconciliation was used as the vehicle to accomplish 

that. 

So instead of having reconciliation, which is supposed to be a vehicle that controls the rate of growth of entitlements in this Government, it was used as a vehicle to expand entitlements and there 

was no attempt in the Democratic budget—in fact, it was rejected 

on the floor—to address the funding and the correction of Medicare. 

14

In addition, we know that the issue of how you correct Medicare 

is an issue of utilization, transparency, and access to quality, reasonable cost health care. We know from studies that have been 

done at the Dartmouth Institute for Health Policy and Clinical 

Practive that if you look at the cost and utilization and quality of 

health care across this country you will find that in many States, 

especially for example I will take Florida, utilization is high, cost 

is high, and outcome is not that good for Medicare recipients. 

If you look at a state like say Washington State, I—utilization 

is low, cost is low, and outcomes are higher, are better. 

And so we know, we know what we need to do. And I know Dr. 

Orszag is going to tell us again what the problem is. I am not sure 

he is going to tell us what we need to do. We know what we need 

to do. The problem is we do not have, as a Congress, the courage 

to do it. It is that simple. 

So I appreciate the hearing. I appreciate more information being 

brought to the table. But I do think there is a legitimate disconnect 

to represent that the last budget in any way significantly moved 

us down the road toward solving the first set of charts which were 

reflecting the problem. 

Chairman CONRAD. Let me just take a minute to respond because the Senator has raised a number of issues that are legitimate 

to raise but deserve a response. 

First of all, I went through in some detail in my opening statement things that were in this budget to address these long-term 

challenges. The fact is, as I have stated on many occasions, I do 

not believe the budget resolution is the place where these longterm entitlement challenges can be successfully addressed. But we 

did take a series of important steps. First of all, by providing a 

health IT reserve fund. As I have indicated, the RAND Corporation 

says that if we deployed information technology broadly in our society we could save over $80 billion a year. 

And second, a comparative effectiveness fund to deploy the best 

and most cost effective methodologies. 

We also know that that would provide tremendous savings. So 

those provisions are in the budget. 

Why didn’t we address the long-term entitlement challenges? 

Very simply because I do not believe that you will ever resolve 

those in a budget resolution. That is going to take a separate negotiation between the White House and the Congress. Why not a 

budget resolution? Well first of all, the President plays no role in 

a budget resolution. But a president will have to play a central and 

significant role in addressing our long-term imbalances in Medicare 

and Social Security. 

So the irony is Senator Gregg and I talked just as recently as 

yesterday about introducing a proposal that would create a process 

that would address these long-term imbalances in a bipartisan 

way, a working group that would be given the responsibility to 

come back with a plan, a plan that would involve not only the Congress but the White House. 

I think it is going to take that kind of bipartisan approach that 

involves directly the White House to have any hope of dealing with 

these long-term imbalances. 

Senator GREGG. If I could just quickly respond, Mr. Chairman. 

15

First, I do not in any way—in fact, I do not wish my opening 

statement to imply in any way—question the desire and purpose of 

the Chairman to address this issue. And his commitment here is 

legitimate and I know it is substantive and I know he wants to get 

to this point. I know that he is limited by the ability he has to get 

votes on his side of the aisle. 

But I do have to say that I think my characterization of the 

budget was accurate. But more importantly than that, the President is a player in the budget process. And when he becomes a 

player is on reconciliation. He has to sign the reconciliation bill. So 

where the budget process can drive this exercise is when we give 

reconciliation instructions that force the committees of jurisdiction 

to take action. That is when we can drive the process. 

Unfortunately, I think the thing that I find most upsetting is 

that the only reconciliation instruction given was not the one that 

the President suggested, which is to make wealthy people pay a 

larger part of their Part D premium or to get their reimbursements 

right for provider groups. It was a reconciliation instruction which 

yesterday was used to expand the government by 2,500 percent 

over what it saved in deficit reduction. 

And so I do think we missed an opportunity and I will leave it 

at that. 

Chairman CONRAD. Let me just conclude this by saying I do not 

think we have missed an opportunity. I do not think the budget 

resolution that is just carried on one side of the aisle—there were 

only two Republican votes for the budget. In the House just a 

handful there, as well. 

So to deal with these long-term challenges is truly going to take 

a bipartisan effort. The fact is the President does not have a role 

in a budget resolution. The budget resolution never goes to the 

president. It is purely a Congressional document. 

To deal with the long-term entitlement challenges is going to 

take the direct involvement of the President of the United States 

and going to take the direct involvement of the Congress of the 

United States. 

Let me also, in terms of reconciliation and what was included in 

the budget, first of all it did not expand government by 2,500 percent. That is not the case. What it did was provide an ability to 

extend higher education reauthorization using the reconciliation 

process but one that is completely paid for, completely paid for. 

Plus it will produce about $1 billion of deficit reduction. 

Now that is not inappropriate. That is what reconciliation is for. 

I might say when our colleagues controlled the budget process they 

used reconciliation not to reduce the deficit, which is the only legitimate purpose for reconciliation. They used reconciliation, which 

is a fast track procedure that goes outside the normal rules of the 

Congress, to explode the deficit and the debt. They have added trillions of dollars of debt using reconciliation. We have not, by the use 

of reconciliation on our side, expanded the deficit by a dollar. Instead, we have used it to reduce the deficit and at the same time 

extend higher ed reauthorization, which is going to mean more affordable college for hundreds of thousands of Americans, which is 

absolutely essential to our continued position in the world. If we 

are not first in education, we are not going to be first in anything. 

16

With that I want to turn to Dr. Orszag for his opening statement. 

I want to acknowledge the important role that Senator Wyden 

has played in this hearing and hearings to follow. And I think all 

of us, one place that we agree is the need for a bipartisan approach 

to what really is the 800-pound gorilla, dramatically rising health 

care costs. 

Welcome, Dr. Orszag. 

STATEMENT OF PETER R. ORSZAG, DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. ORSZAG. Thank you very much. 

Mr. Chairman, ranking member Gregg, other members of the 

Committee, my testimony this morning focuses on several points, 

the most important of which is that when it comes to the Nation’s 

long-term fiscal health, we have been misdiagnosing the problem. 

The central long-term fiscal challenge facing the United States is 

rate at which health care costs grow relative to the economy, as my 

first chart shows. Is that chart up? Thank you. 

That chart shows the path of Medicare and Medicaid expenditures as a share of GDP if, over the next four decades, health care 

costs grow as rapidly compared to income per capita as they did 

over the past four decades, those two programs would rise from 4.5 

percent of the economy today to more than 20 percent by 2050, 

which is the entire size of the Federal Government today. 

The bottom dotted line shows you what happens if health care 

costs track income per capita. It isolates the pure effect of aging 

on those two programs. Here is the point. I think you can see that 

where you wind up in 2050 under that bottom dotted line is higher 

than where you start today, but that that difference is way smaller 

than the difference in 2050 between the bottom dotted line and the 

top point. 

In other words, to a first approximation the Nation’s long-term 

fiscal challenge collapses to the rate at which health care costs 

grow compared to income per capita. That is the key variable. 

Rising health care costs represent a challenge for the budget but 

also for the private sector, which is not surprising because the 

same forces that are driving up costs in the public sector are driving up costs in the private sector, including the spread of new technologies and changes in cost-sharing requirements. 

If you look over long periods of time, as figure two shows, costs 

per beneficiary in Medicare and Medicaid have tracked costs per 

beneficiary in the rest of the health system. That is very likely to 

occur in the future and therefore sustainable changes to Medicare 

and Medicaid will only work if they are accompanied by other 

changes that restrain overall health care cost growth. 

In light of that, though, I would note that a very significant opportunity exists to reduce costs because the evidence suggests that 

more expensive care need not mean higher quality care. Perhaps 

the most compelling evidence of that opportunity comes from the 

significant geographic variation in Medicare costs per beneficiary 

which this chart shows. 

In reference to a comment that was made earlier by Senator 

Gregg, I would note that the Senators in this room all come from 

17

the light States where costs are lower than in other parts of the 

country. In fact, in many States costs are lower than in other countries. The reasons cannot be explained by the underlying risk characteristics of the patients. They cannot be explained by the costs 

of building hospitals or wage rates in the lighter areas. And the 

kicker is that the darker areas, were higher spending occurs, do 

not generate better health outcomes than the lower spending regions, as my next chart shows. 

If you look at a simple correlation across States of spending 

versus quality, there is no correlation that exists. One of the reasons for that is that a lot of spending occurs without any evidence 

associated with it. The Institute of Medicine has suggested that 

only about a quarter of health care costs have any evidence associated with them. So the vast bulk of what we are doing in health 

care is not backed by medical evidence in terms of whether it 

works better than something else. As a result, you get a lot of variation in cost that does not translate into better quality. 

Chairman CONRAD. Let me just stop you on that point so we 

rivet that point. Let us not have anybody miss that point. 

What you are saying is more spending does not result in better 

health care outcomes. 

Mr. ORSZAG. That is correct. And that represents a very substantial opportunity. It is going to be difficult to capture, but to take 

cost out of the system without harming health. So embedded in 

this central long-term fiscal challenge facing the United States is 

an opportunity to take costs out of the system without harming 

health. And I think moving toward capturing that opportunity is 

most important objective that policymakers could pursue if you are 

interested in achieving long-term fiscal balance. 

And by the way, it is the same problem that private employers 

are facing with the rising cost of health care in the rest of the 

health system. The kind of variation that I showed you for Medicare also exists in Medicaid and it exists in the rest of the health 

system also. 

Chairman CONRAD. So this goes beyond Medicare and Medicaid. 

It is endemic in the health care system, that more expenditures do 

not result in better health care outcomes. 

Mr. ORSZAG. Within the United States I think there is a wide variety of evidence suggesting that at the margins more expenditures 

do not seem to generate better health outcomes. And the amount 

of money that we are talking about is very significant. 

Just as an example, and without embracing the specific estimate, 

the Dartmouth group that Senator Gregg mentioned before has 

suggested that if you move the darker regions of the country, if we 

go back to the earlier slide, the darker regions of the country toward practice norms and practice patterns and medical practices 

that are like the lighter parts of the country, you could reduce overall health care costs by 30 percent without harming health. 

You can do the math. We are currently spending——

Chairman CONRAD. Reduce health care costs by 30 percent? 

Mr. ORSZAG. 3–0. We are currently spending 16 percent of GDP 

on health care. You do the math. We are talking about a lot of 

money. 

18

In light of that, I think it is very important again to emphasize 

the variation is larger often where there is no evidence on what 

works and what does not. So for example, if you fracture your hip 

it is very clear what is going to happen. You are going to be hospitalized. You are in intense pain. You are usually going to go in 

for surgery. There is not that much variation in the cost of inpatient hip fracture cases. 

Once you get out of the hospital, however, there is no evidence, 

should you go back and see the doctor five times a month, twice 

a month? Should you get an MRI or not? Should you do physical 

therapy or not? No one knows. 

Post-hospitalization costs vary a lot. And I think the reason is 

that there is no evidence of what works and what does not. Doctor 

norms in different parts of the country vary. And because they are 

not backed by hard evidence, they do not generate better health 

outcomes. 

That opens up an obvious opportunity which is to expand the 

share of health care costs with which there is some evidence associated. So Senator Conrad, as you mentioned, the interest in comparative effectiveness research, basically looking at what works 

and what does not, is precisely aimed at trying to build out or increase the share of health care costs where there is some evidence 

on what works and what does not. And then practitioners and patients could use that information to move toward higher value 

health care rather than paying for things and doing things that 

might not be generating any better outcomes. 

I think we have to really ask the question why some parts of the 

country are able to deliver quality health care at so much lower 

rate cost than other parts of the country and be delving into ways 

to try to narrow that variation is one mechanism for addressing 

this opportunity to reduce costs without harming health. 

A second opportunity is that if you look over long periods of time, 

as figure four shows, there has also been a very significant reduction in cost-sharing requirements. So out-of-pocket expenses as a 

share of total health care costs have decreased significantly over 

the past three or four decades. With, in 1975, out-of-pocket expenses accounting for about a third of health care expenditures and 

today it is nearing 15 percent. 

The evidence suggests that those lower out-of-pocket expenses 

put upward pressure on overall health care costs and another opportunity would be to work on the demand side of the health care 

equation by increasing the cost sharing that each individual has. 

I think it is very important, it might sound like that is a higher 

burden. But when we each individually have a lower out-of-pocket 

cost sharing requirement, it drives up overall costs and we all wind 

up paying for that higher level of expenditures which might not 

wind up generating better health. 

There is also evidence from randomized experiments that have 

been done with variations in cost-sharing requirements that when 

you increase, perhaps even modestly, cost-sharing requirements on 

individuals the result is lower quantities of health care consumed 

but no adverse consequences in general, on average, for health. 

So operating on both sides of the equation, the supply side in 

terms of the information that is provided and perhaps the incenVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
19

tives that providers are given, and then on the demand side in 

terms of providing information to consumers and also perhaps 

changing their financial incentives, are the two sides of the scissors 

that would help to reduce costs over the long term. 

I agree with Senator Gregg, there are many things that can be 

done. But I would also argue that there are many things that we 

do not know yet, in particular again because the share of health 

care costs with which there is evidence associated is so small, the 

challenge in moving toward creating incentives toward higher 

value health care is significant because in many cases we just do 

not know what works and what does not. 

So that was the main theme of my testimony. I also covered a 

variety of other topics ranging from employer-sponsored insurance 

to uninsurance to the importance of prevention and healthy living. 

I am not sure if you want me to cover those topics now or move 

right to questions because I know that I have spent a significant 

amount of time just going over that most important topic, Mr. 

Chairman. 

[The prepared statement of Mr. Orszag follows:]

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Chairman CONRAD. Why don’t we go to questions because we got 

have members here who are very interested in pursuing their questions. 

Let me ask you this question, 30 percent, I just did sort of a back 

of the envelope calculation. You had indicated in your testimony we 

could save 30 percent of health care costs if we just had best practices replicated throughout the country. 

Mr. ORSZAG. Let me just really quickly note, that is a Dartmouth 

estimate. It is not a CBO estimate. But it is an outside estimate 

that it exists. 

Chairman CONRAD. It is a pretty credible estimate, given the 

people at Dartmouth who did the analysis. I have met with them. 

Mr. ORSZAG. They are credible researchers. 

Chairman CONRAD. They are credible. They are serious people. 

Thirty percent, we have to be spending over $2 trillion a year on 

health care. 

Mr. ORSZAG. That is correct. 

Chairman CONRAD. So 30 percent savings would be in the range of $600 billion a year. If we were able to have the practices that 

are already pursued in very large parts of the country. I mean geographically speaking, as I looked at your map, roughly half of the 

country has the practices in place that would lead to that kind of 

savings if they were broadly distributed. 

Mr. ORSZAG. A significant part of the country. There is a question about how you do—a lot of those States are smaller States so 

there is a question about the population weighting. But the point 

holds, which is that there are significant parts of the country—in 

fact, the four of you right there represent parts of it—where costs 

are much lower than in other parts of the country and where quality is not any worse. 

Chairman CONRAD. Have you thought through how we could 

spread those practices? How could we effectively get those practices 

adopted in other parts of the country? 

Mr. ORSZAG. I think it will likely require two things. One is I 

think it does require more information about exactly what works 

and what does not for specific interventions, coming back to should 

you do an MRI after your hip fracture surgery or not kind of thing. 

And then it will likely also require changes in incentives for providers so that they would be presented with incentives to pursue 

value care, high value care, rather than just churning high cost 

care. 

Chairman CONRAD. Let me go to another subject that has captured my attention and that is roughly 5 percent of Medicare beneficiaries, 5 or 6 percent, use half of the money. 

Mr. ORSZAG. Yes. 

Chairman CONRAD. They are the chronically ill. 

Mr. ORSZAG. We have a chart that can pull up on that. I think 

that is figure five or six. 

The top 5 percent in 2001 accounted for 43 percent of costs. 

Chairman CONRAD. Five percent, and if we go to 6 percent they 

are at about 60 percent of the cost. 

Well, there are people that have multiple serious conditions. We 

know their care is not well coordinated. There was a study done 

with some 20,000 of them in which we put a coordinator on each 

51

one of their cases and it dramatically lowered cost. In fact, it lowered hospitalization, as I recall, more than 40 percent just to put 

case managers on each one of their cases. Because the left hand 

does not know what the right hand is doing. 

Have you examined this phenomenon? And can you tell us is 

there potential for savings there? 

Interestingly enough in the study that was done, not only did you 

have significant savings, you had better health care outcomes. 

Mr. ORSZAG. Yes, Senator. Just looking at the data health care 

costs are very concentrated. It makes sense to look where the 

money is. And there is potential for cost reductions through better 

interventions for those types of beneficiaries. 

I would note, though, that the data to date is somewhat frustrating in the sense that it does not suggest strong evidence of 

overall cost savings from things like care coordination and disease 

management. Medicare is currently doing a variety of pilot projects 

including a randomized experiment on precisely this topic. The 

early evidence suggests that quality may be improved but the net 

effect is not a cost saving. And it may well be that part of the problem is that it is very hard to do target the right interventions to 

the right subsets of the population that would most benefit from it. 

Potentially, with improved electronic health records and improved health information technology, that targeting may occur in 

a better way. 

In the absence of that the problem is that you are providing a 

service to a broad array of people. That costs money. If it does not 

work for a significant share you do not wind up saving money. 

Chairman CONRAD. Let me just say in the study I was referencing the first thing they did is go in and get all the prescription drugs out on the table. They found out on average these people 

are taking 16 prescription drugs. And when they evaluated each 

one of them, they cut it in half. And that led to dramatically lower 

hospitalization. 

You were talking about the early stages of studies that are being 

done now. We may find that over time the savings grow. 

Mr. ORSZAG. If I could just add, I know that private firms are 

trying to move toward more sophisticated targeting and intervention. And we are actively monitoring those developments and eager 

for empirical evidence on what might work and what might not. 

Because again there is opportunity there. The only question is 

could it be captured? 

Chairman CONRAD. My time has expired. 

Senator GREGG. 

Senator GREGG. Thank you. 

I think it is important to note that it is a nationalized system 

which has created this inefficiency, essentially, in Medicare. Medicare is your classic universal coverage nationalized system. 

And that if you are going to generate any significant savings in 

health care you have to get, as you said in your second set of presentation, more participation by the consumer through cost and 

more knowledge and transparency from the purchasers, specifically 

the insurer and the businesses that are paying the health care 

costs. If you cannot get those two things in the process, you are not 

going to be able to drive better practices. 

52

It is very difficult to capture this represented 30 percent cost 

that is over—which is not producing better outcomes; unless you 

have a system which encourages the patient to be an intelligent 

purchaser and the insurer and the businesses that are paying for 

the patient when you have disconnected that cost to be informed 

purchasers. 

In order to accomplish that, I have introduced a bill with Senator 

Clinton called the Medicare Quality Enhancement Act. Are you familiar with that at all? 

Mr. ORSZAG. I am. 

Senator GREGG. The purpose of that is to get the information 

into a centralized place, the Medicare information and the other 

major provider group information such as Kaiser Permanente statistics so that an employer or an insurer can go to a central place 

and get information that is hospital specific, doctor group specific 

on what the outcomes are and what the costs. 

Do you think that that would potentially help in some of this 

process? 

Mr. ORSZAG. Let me say this, I think the largest return to health 

information technology and electronic health records is likely not to 

be the internal efficiency gains that some studies have identified 

but that we have some questions about, but rather that it would 

provide the information to allow the kinds of things that you are 

talking about, comparative effectiveness research, feeding information back down to providers. 

So it is sort of a systemic question. Just by itself, without those 

other kinds of analyses, it does not do as much as some studies 

have suggested. 

Senator GREGG. The purpose of this is to simply create a clearinghouse where people could get that information if the information 

was being effectively developed by Medicare rather than having it 

sit in the Medicare office somewhere and having it just accessed by 

a small cadre of health experts who would have access to it. 

I do not see it as the solution but I see it as part of the solution, 

one element. It is a multipronged issue. 

I am wondering also, that 5 percent who is using 40 percent, that 

is a public policy dilemma of considerable proportions because a 

large percentage of that 5 percent is in long-term care and end-oflife situations; isn’t that correct? 

Mr. ORSZAG. Something like a quarter or so of Medicare costs are 

rising in the last 6 months. But the point is toward the end of life 

there are very concentrated health care costs. 

Senator GREGG. How does an elected government deal with that 

issue? 

Mr. ORSZAG. Again, I come back to the same thing, which is for 

someone who is near the end of life and there are various different 

interventions that are possible, if it turns out that the more expensive intervention is not actually going to extend your life anymore, 

you may think twice about doing it and the providers might think 

twice about doing it. I think, even in end of life decisions, more information about what works and what does not to extend life would 

be very beneficial. We do not do enough of that. 

53

Senator GREGG. Most of those interventions that is not—there is 

always an assumption that they are going to make the quality of 

life better for the person. 

Mr. ORSZAG. An assumption without evidence, in many cases. 

Senator GREGG. I guess my question to you is do you have any 

concept as to how a government that functions on the basis of concern for the individual is going to deal with dealing with end-oflife decisions that are driving health care costs which probably do 

not extend life but may give you quality of life improvements? 

Mr. ORSZAG. At some point, obviously, you reach value judgments 

that policymakers like yourself are elected to evaluate. And I will 

leave it at that. 

I would note two other things, though. The first is that while obviously end-of-life costs are important, there is a significant 

amount of health care costs that are occurring outside of that. 

Senator GREGG. We all accept that and hopefully we can get to 

that issue also. 

I believe my time is up but thank you. Your information is—I totally agree with the information you put forward and just hope 

that we can get some action on it. 

Chairman CONRAD. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. And thank you for 

your superb leadership on the topic and our many questions. 

Senator Gregg, you say that we know what needs to be done and 

yet it is not getting done. I have joined with Senator Bennett, a 

member of the Senate Republican leadership, on the first bipartisan health care overhaul in 15 years. 

So my message, Senator Gregg, is there is bipartisanship coming 

to a committee near you very quickly. Senator Bennett and I will 

be the leadoff witnesses on Tuesday for our legislation on the 

Healthy Americans Act, which does make it possible for all Americans, according to Lewin & Associates, sort of the gold standard of 

health policy analysis, to receive coverage like Members of Congress do, for the amount of money that is being spent today. According to Lewin, there would be savings of $1.5 trillion over the 

next 10 years. 

But since we are going to be taking that up on Tuesday, let me 

get into my questions for Dr. Orszag. 

Dr. Orszag, thank you again for a good piece of work. I want to 

start with one of the more important policy issues that I think is 

going to relate to the future of American health care, and that is 

how we promote prevention and wellness and, in effect, get away 

from this sick care system. I think this is going to be a great challenge for all of us. 

Essentially what we have is a situation where the private sector, 

companies like Safeway, that helped me extensively with my legislation, feel that they are producing very substantial savings by rewarding prevention. And you all in Government, I think, look at 

these studies and are saying how in the world do we score all of 

it? 

In fact, under our legislation we try to be very conservative, that 

is what the Lewin people said, and we did not score prevention at 

all. So we give authority to for Medicare, for example, to reward 

in Part B the outpatient program, authority to reward people for 

54

lowering their blood pressure, lowering cholesterol. We do not score 

that. We do not score any of the private savings, for example, that 

the private sector is doing in prevention. 

What are your thoughts on how we come up with a way to make 

sure that the future of American health care is built around these 

sensible preventive practices so we can reduce the chronic care 

costs Senator Conrad correctly points out and move forward with 

a very different vision of health care? 

Mr. ORSZAG. Thanks for the question, Senator. 

As my written testimony emphasizes, perhaps much more important than the health care system in determining the healthiness or 

health outcomes for individuals is precisely prevention and healthy 

living. And we have experience over the past two or three decades, 

a very significant increase from about one-half to two-thirds of the 

population that is either overweight or obese. Smoking rates have 

come down but they remain higher than where many medical professionals would like. And roughly half of preventative measures 

that are recommended—or half of the people do not get the recommended preventative steps. 

All of that combined is a significant issue often outside of the 

health care system per se that will have substantial implications 

for the environment in which Medicare, Medicaid, and the rest of 

the system operate. 

The reason I wanted to include that section of the testimony is 

I think this is critically important and there are a whole variety 

of interventions that have pros and cons and that need to be evaluated carefully but that hold the potential to improve how we live 

basically. And I think there are a lot of decisions. I will give you 

just a little vignette for a second, in which we are not behaving in 

a way that we even ourselves would want to. 

Just very briefly, there was an experiment done, I referenced it 

in a footnote in the testimony, in which people were put in front 

of a movie and they were given buckets of stale popcorn that was 

three or 4 days old, nothing anyone would want to eat. The people 

who were given larger buckets of stale popcorn ate more of it than 

the people who were given smaller buckets of stale popcorn. There 

is a lot that we are doing that is affected by our environment and 

by how we make decisions that affect our health. 

Senator WYDEN. I will not take on the movie theaters for purposes of——

Mr. ORSZAG. This was an experiment. 

Senator WYDEN [continuing]. Of today. I just want make it clear, 

I want to work with you on this point because we have a disconnect. The private sector says that they are making significant 

savings with preventive practices. Government has been taking an 

approach that I think probably we would all say is more cautious. 

I would like to work with you on that area. 

Let me ask about one other issue, and that is the role of the 

States. The States are very concerned about Federal inaction on 

this subject. What is so important about your testimony is you 

have made it clear that the consequences of inaction on health care 

are devastating. They are staggering. And I appreciate your spelling it out. 

55

But is it not correct that the States cannot fix the health care 

challenge in this country because they cannot touch the tax code, 

which drives conduct for 170 million people with employer-based 

coverage. And they cannot touch Medicare, which Chairman 

Conrad has correctly pointed out is the driver of entitlements. 

So I want to give the States a lot of credit for their good work, 

and they are doing imaginative, creative stuff. But is it not correct 

that the States cannot fix health care because they cannot deal 

with the biggest drivers that I mentioned? 

Mr. ORSZAG. I would agree with you that with regard to cost and 

quality, which are two of the three important dimensions along 

which to evaluate health changes, the States are limited in their 

ability. They seem to be doing more on coverage, which is the third 

component of thinking about changes to the health system. 

Senator WYDEN. I commend you for your good work and, Mr. 

Chairman, look forward to Tuesday, as well. 

Chairman CONRAD. Thank you. I look forward to Tuesday, as 

well. You know, the ranking member threw down a challenge to let 

us move this to action. I could not agree with him more. 

We are going to be talking about action on Tuesday and it is a 

bipartisan proposal. Senator Bennett, Senator Wyden, there will be 

others who have competing proposals. We are going to hear from 

them all because we think it is critical that we give the American 

people a chance to hear what the ideas are for really transforming 

the health care system in the country. 

We are headed for a cliff here. I do not know what could be more 

clear. The only way that I see that it is going to be dealt with is 

in a bipartisan way. Nothing can pass here unless it has support 

on both sides of the aisle. And nothing can ultimately be implemented unless the president of the United States is on board. 

So if we are serious here, and I think the vast majority of our 

colleagues are, the only way it is going to happen is with some 

larger agreement. That means compromise on both sides and that 

is always difficult. 

Senator Stabenow is next. Senator Stabenow, I want to again 

commend for her involvement in this issue. She has been ferocious 

at defending Medicare and also very constructive on this Committee in the various reserve funds that have been created that 

really would save substantial sums of money, according to all outside experts, if they were adopted. 

Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman, very much for 

your focus on this and the passion of Senator Wyden in focusing, 

as you are, working in a bipartisan way. And Senator Whitehouse, 

who has brought such wonderful new passion and interest in 

health IT as well as other areas. I am so glad we are talking about 

this. 

Just to stress the point in terms of why this is so critical. I believe that fundamentally it is the most important thing we can do 

to help our businesses be competitive in a global economy, to focus 

on our quality of life, on the Federal budget. It is singly the most 

important thing that we could do with the broadest impact for the 

future. 

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Just as an example, yesterday big headlines in the Wall Street 

Journal. Toyota will no longer be making automobiles in the 

United States. When they make them in Japan, they pay the 

equivalent of $95 per vehicle, as opposed to here at $1,500 per vehicle. 

Chairman CONRAD. Just for the health care component. 

Senator STABENOW. Just for health care. So when you couple 

that with the fact that, and I will not labor the point, but Japan 

is manipulating the yen. So they get a great discount by shipping 

them from Japan. So that is more American jobs gone. And our 

folks are here trying to figure that out. 

So it is huge. And I want though to, and this is less of a question, I guess. I do have questions, many, many questions. But I 

would like to take us though to 30,000 feet on this for just a moment and, first of all, say prevention, obviously critical for the future, a focus on chronic diseases, diabetes, heart disease, the five 

chronic diseases which take up so much of the health care system. 

Quality, transparency, consumer choice, all of those things are critical. All of those things. 

But when we only focus on that, I mean, Mr. Chairman, I believe 

there is a fundamental question that separates us from other countries and the reason our costs are so high. That we start from a 

position that is fundamentally different. In every other country 

that you mentioned, and I have your chart, every other country, 

the focus and the structure is on health care as an essential public 

service. 

In the United States we have a health care industry. When I 

look at Ireland, Finland, Luxembourg, United Kingdom, Japan, 

Italy, Austria, Netherlands, Cuba—which is in a current film—I do 

not think they have more information than we do about—they have 

better outcomes. They do not have more transparency. They do not 

have more information. They do not have more efforts than we do, 

like we are talking about now. Why are these costs fundamentally 

so different with other countries that are not smarter than we are? 

They are not doing better quality control than we are. What is it? 

My concern is that if we only focus on providers of health care, 

which I believe we absolutely need to be certainly—or consumers, 

and we do not focus on the fact that we have huge money being 

made off this system. That is the difference between these countries, and I realize that I come from, I think, a little different perspective certainly than many here in the Congress. But the big difference that we do not talk about is we have a round peg in a 

square hole and we are putting them together here as we look at 

how do we structure this. 

And I will give you an example: Medicare has a 2 percent administrative cost. Now rather than expanding Medicare with prescription drugs within Medicare to get the savings from that administrative cost, we created a private sector model. Now we can debate 

good or bad. But the truth is it added costs. It did not take away 

costs. It added costs. It added layers of cost because private sector 

is 15 to 20 percent. 

Medicare Advantage, and I support having a private sector option. But that was supposed to save us money. Mr. Chairman, you 

have been extremely articulate in that. It was supposed to save us 

57

money. And now we are seeing that, as you indicated, even if we 

were to pay 50 percent more, a 150 percent for the private plans 

versus the public plans, we would save money if we capped it. 

So I am very concerned that as we hone in on things, all of which 

I am very supportive of, that there is like the 800-pound gorilla in 

the room that we are not focusing on, which is the fact that there 

are those who will fight change because there is huge amounts of 

money being made in this system. So how do we address public interest versus private interests? And I know that is a big challenge 

for us. 

That leads me to my question. And thank you for your input. I 

should also say health IT, huge savings. There is huge things that 

we can do. 

But Medicare Advantage, CBO estimated that setting the payment for Medicare Advantage at 100 percent—and I am not suggesting that we not allow a higher payment. But if you were to set 

it at 100 percent for local fee-for-service as recommended by 

MedPAC, you indicated it would save $46 billion over 10 years. 

Now CBO is saying that the savings would be $160 billion over 

10 years, it is an increase three-and-a-half times higher. 

So I am wondering why you are assuming the much larger overpayments? And why it is getting so much larger? What is happening in that number? 

Mr. ORSZAG. What is happening is that enrollment in Medicare 

Advantage has grown substantially, and particularly within the 

private fee-for-service component of Medicare Advantage. We now 

anticipate rapid growth over the next decade. So the base of savings is very much larger than it was last year. 

Senator STABENOW. So it is more people. Basically you are saying 

more people——

Mr. ORSZAG. More people driving a higher level of Federal subsidy for each—right. 

Senator STABENOW. Right. 

Mr. Chairman you been patient with my time. I know I have 

gone over that, as long as the Chairman is sidelined here, I am 

going to ask you one more question. 

Mr. ORSZAG. Go for it. 

Senator STABENOW. Is it not also true that——

Chairman CONRAD. That is good. 

[Laughter.] 

Senator STABENOW. Is it not also true that for those overpayments that everybody else under Part B, everybody else in the public system, is having higher premiums as a result of that? 

Mr. ORSZAG. Yes, it is. 

Senator STABENOW. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman CONRAD. Senator Feingold. 

Senator FEINGOLD. Thank you, Mr. Chairman, for holding this 

hearing today. I would like to thank Dr. Orszag for being here. 

I am pleased that the Committee is focusing on health care reform today. I often point out that when I go to each of Wisconsin’s 

72 counties every year and I hold a town meeting in every one of 

the counties every year. Health care is almost always the No. 1 

58

topic that I hear about. Is a very important issue to me and to everyone. 

I commend Chairman Conrad for responding to the importance 

of this issue by launching a series of issues on health care reform, 

and I am pleased to be here for the first one. There are many problems in our health care system that I think are overdue in receiving proper attention and these issues converse with the problem of 

the uninsured. Health care costs are driven up, hospitals and clinics are overburdened and communities and families struggle all as 

a result of uninsurance. 

We have to figure out a way to break this deadlock. That is why 

I have introduced a bill with another Senator on this Committee, 

Lindsey Graham. Last month we introduced the State-Based 

Health Care Reform Act which gives certain select States the funding and authority to cover the uninsured within their State. 

This bill makes political sense because it encourages initiatives 

we have already seen in places like Massachusetts, Illinois, California and Wisconsin, among others. It does not prejudge the type 

of reform that a State should adopt. So many different political philosophies can be on the table. 

Additionally, the proposal makes fiscal sense. Our bill provides up to $40 billion for States to use for reforms and it is entirely offset. 

If passed, this would provide a path to nationwide health care reform while still maintaining budget neutrality. 

Senator Graham and I are certainly from opposite ends of the political spectrum. We are from different areas of the country and we 

have different views on health care. But we agree that something 

needs to be done about health care in our country. 

The only question I would ask you is that, as you know, a lot of 

different solutions have been proposed to the problems in our 

health care system and most of them have come under political attack. Much of the data generated by economists conflict on what 

would be the best approach. 

The bill that I have introduced with Senator Graham would 

allow States to propose amending Federal law with a Congressional 

sign off in order to address the uninsured health care costs and 

preventions. States would have the flexibility to decide about issues 

of such as employer-sponsored insurance. 

Do you think that there is sufficient data now to show that any 

one particular approach is the best way to help our country lower 

health care costs? 

Mr. ORSZAG. What I would say is I think there are a variety of 

approaches that hold promise. One of the challenges that we have 

is that I have not seen, and I do not think one exists, a comprehensive plan that would, given the available information today, 

credibly bend that curve sustainably over the long-term. 

So one of the challenges is we need to be trying different things, 

seeing what works, and then readjusting as we figure it out. And 

the sooner we start that, the better off we are going to wind up 

being. 

Senator FEINGOLD. Exactly. So the answer to my question would 

be that there is not sufficient data or not sufficient experiments to 

get that data. 

59

Mr. ORSZAG. That is correct. 

Senator FEINGOLD. Do you agree that the Feingold-Graham 

State-based approach could be useful in gathering better data on 

what would be better for the country as a whole? 

Mr. ORSZAG. There are a variety of approaches that are possible 

and I have had an opportunity to take a look at the legislation and 

that could be among the choices that you all embrace. 

Senator FEINGOLD. Thank you very much. Thank you, Mr. Chairman. 

Chairman CONRAD. Thank you, Senator Feingold. And thank you 

for your contributions to this Committee. 

Senator Sheldon Whitehouse is a new member of this Committee 

but already he has proved to be somebody deeply knowledgeable on 

health care. He and I have had extended discussions about his own 

experience in his home State where he was given responsibility for 

getting a major State program in shape and rescued from bankruptcy. 

And Senator Whitehouse, I have asked to serve on a special 

panel of the Budget Committee to focus on what we can do to accomplish significant health care savings, at the same time improving health care outcomes. He has made a valuable contribution in 

just his short period of time on this Committee. 

Senator WHITEHOUSE. Senator WHITEHOUSE. Well, thank you, Chairman. I am moving 

down one because there seems to be a technical difficulty with my 

microphone at this seat. I am not trying to get further away from 

anybody or closer to anybody. 

I do want to thank you for leading the Budget Committee in this 

direction. It is so important that we get our arms around this problem. And it is one of the most frustrating issues that we have to 

deal with in this Congress because, frankly, so much of the cost 

that we are dealing with is unnecessary. Very often we are presented with situations where it is a zero-sum game and there is a 

winner and a loser. And to the extent you add a dollar to the winner, you take away a dollar away from the loser. 

This is not one of those situations. This is a situation which, by 

simply making the system run more effectively, we can have winwin-wins that improve health care, lower costs, make people 

happier within the system. It is a colossally challenged system 

right now. 

Dr. Orszag, welcome. Would you agree that there are enormous 

systemic inefficiencies in the American health care sector? 

Mr. ORSZAG. Yes. 

Senator WHITEHOUSE. Would you agree that quality reform presents an opportunity for bringing down cost in ways that are helpful to patients as well as to the system, quality of care reform? 

Mr. ORSZAG. I think there are opportunities to reduce costs without harming health outcomes. 

Senator WHITEHOUSE. Even with improving. 

Mr. ORSZAG. Difficult to capture, but yes. 

Senator WHITEHOUSE. Even with improving health outcomes. 

Mr. ORSZAG. And perhaps in some cases to improve. 

Senator WHITEHOUSE. Would you agree that that can include improvement in the delivery of procedures, as indicated by the wonVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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derful Keystone Project in Senator Stabenow’s home State that was 

reported by Johns Hopkins to have saved $160 million in just a section of Michigan’s intensive care units over 15 months? 

Mr. ORSZAG. Changes in procedures would be among the things 

that would be in the toolkit. 

Senator WHITEHOUSE. And certainly Pennsylvania’s recent study 

that shows literally billions of dollars in hospital acquired infections shows another opportunity for how improved procedures can 

be a part of that quality reform. 

Mr. ORSZAG. There are opportunities throughout the health sector and the question is how to capture them. 

Senator WHITEHOUSE. Would you agree also that, setting aside 

procedures, there are prevention techniques that present the possibility of saving cost for the system as demonstrated by Safeway’s 

work with its own employee base, reducing cost by enhancing prevention? 

Mr. ORSZAG. I think there is an opportunity. I would say that the 

evidence to date is a little bit more sketchy in terms of whether 

overall preventative medicine interventions help reduce costs as opposed to improve quality. Again I think again you have this targeting issue which is preventive measures may work for a subset 

of the population. But if you are provided that test or screening to 

a whole bunch of people, in some cases it may warrant additional 

health care costs, and in some cases it does not matter. So you 

have costs that are not as targeted to generate the savings. 

Senator WHITEHOUSE. The fact that it is prevention does not 

mean that it costs savings but targeted correctly prevention can 

save money in the system and improve health care. 

Mr. ORSZAG. There is a potential for that, yes. 

Senator WHITEHOUSE. Would you agree that the reason that 

these things are not happening, given things like the RAND Corporation’s analysis showing that it is somewhere between $81 billion and $346 billion a year for properly supported HIT enhanced 

quality reform is because there are market failures that are driving 

this? 

Mr. ORSZAG. I think there are a variety of incentive distortions 

and problems that are creating the kind of—and information problems—that are creating the kind of variation we saw up on that 

chart. 

Senator WHITEHOUSE. Would you agree that those market failures can be addressed or reduced through structural reforms such 

as reforms of the reimbursement system so that it is pointed in the 

direction of the care we want? Or institutional reform so that there 

is, for instance, a place you can go to get the best information 

about a particular area of care that does not exist right now? 

Mr. ORSZAG. I think it is pretty clear that in health care we get 

what we provide incentives for. And if we develop more information 

and move toward a value-based system of incentives we would 

wind up with some combination of higher quality or lower cost. 

Senator WHITEHOUSE. It strikes me that we have kind of a microcosm in this building of the health care problem, in which there 

are externalities that prevent the right thing from happening. Here 

some of the externalities include the budget restrictions of this 

Committee and the actuarial and other process restrictions that 

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bind you to certain kinds of analysis and determinations before you 

can score something positively. 

Are there ways, say working with entities that are Government 

controlled but not within the Federal budget, that we could experiment more successfully without the need to be able to prove the 

point to the extent that a CBO score is the gateway but you can 

kind of take more chances without affecting either the budget rules 

of the Senate or the professional analysis that you are obliged to 

follow as a CBO scorer? 

Mr. ORSZAG. What I would say, Senator, is that CBO scores are 

used by the Committee and the Congress as you all see fit and 

that, in many cases, for example because the budget window has 

been chosen by the Congress to be five or 10 years, a lot of things 

for example with regard to prevention may show up well outside 

that budget window. 

Beyond that we are always looking for additional evidence that 

will inform our estimate. 

I guess my response would be we have a job to do and we are 

going to do it and you all can use the information as you see fit. 

And that is not for me to comment on. 

Senator WHITEHOUSE. I will followup more in my second round 

scared because my time has expired. I thank the Chairman. 

Chairman CONRAD. I thank Senator Whitehouse. 

I want to go back to Medicare Advantage because I am increasingly concerned about what I see happening. Medicare Advantage 

are private plans that compete with fee-for-service traditional 

Medicare. Medicare Advantage plans were sold to the Congress 

based on the notion that they would save money. The whole idea 

with Medicare Advantage was that it was going to save money. It 

was going to be less costly than traditional Medicare because the 

private sector was going to bring efficiencies to the table and the 

result would be reduced costs. 

In fact, Medicare Advantage, when it was adopted, was capped 

at, as I recall, 95 percent of traditional fee-for-service Medicare. 

That was then raised, as I recall, to 97 percent. We now know on 

average that it is 112 percent and, in fact, in scoring done by the 

CBO we see if we put a cap of 150 percent of a traditional fee-forservice Medicare there would still be savings at that level. 

Now we have a runaway train here. 19 percent of Medicare enrollments are now Medicare Advantage. That is up from 13 percent 

in 2004. 

What do you see as the implications for the cost of Medicare and 

the future of Medicare if these trends continue? 

Mr. ORSZAG. Senator, if over the next couple of years the rate of 

growth that we have experienced recently in Medicare Advantage 

were to continue, I think the result would be a fundamental change 

in the nature of the Medicare system that may then be hard to reverse, including within it higher costs than are currently projected. 

So the more rapid the growth in Medicare Advantage under current law the more fundamental the change in the nature of the 

Medicare system and the higher the cost of that system. 

Chairman CONRAD. That is sobering testimony. You know, I see 

people advocating even more costly health care systems for the 

country. I personally do not believe that is the answer. We are now 

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spending one in every six dollars in this economy for health care, 

one in every six dollars. No one else in the world is spending more 

than one in every nine dollars in their economy in health care. And 

we are not getting better health care outcomes. 

What I have just heard you say is that if the current trends on 

Medicare Advantage continue those costs will only escalate and, in 

fact, it may become even more of a challenge to get all of this under 

control. Am I hearing you correctly? 

Mr. ORSZAG. Yes you are, Senator. 

Chairman CONRAD. Let me ask you, you are somebody who has 

studied this carefully and closely. You have one of the best groups 

anywhere in the country, perhaps anywhere in the world, organized to evaluate and understand these issues. I heard your answer 

to Senator Feingold, I think it was Senator Feingold, earlier that 

you do not see a comprehensive plan that is out there that, if 

adopted, we could be confident would get this under control. Was 

I hearing you right? 

Mr. ORSZAG. Basically yes. There are things that seem promising 

and that hold out the promise of bending that curve over the longterm. But in terms of having the confidence to say in 2025 there 

would be a reduction of X percent in health care expenditures from 

known interventions that unfortunately is not where the state of 

knowledge is. 

Chairman CONRAD. My colleague, Senator Gregg, was suggesting 

the President had put on the table a plan that would save substantial money for Medicare, billions and billions of dollars was his assertion. Have you evaluated the President’s proposal? 

Mr. ORSZAG. Yes, we did. In the analysis of the President’s budget that we did earlier this year we included a box on the longerterm consequences from those changes in the Medicare, in particular. What we suggested is that if they were sustained over the 

next—through 2050, they would indeed succeed in reducing Medicare outlays substantially in that year by over 20 percent. 

However, there is a very significant question, as I noted in my 

testimony, about the sustainability of changes to Medicare or Medicaid over that long period of time without broader health care cost 

growth slowdowns. So I think one would imagine that if the kind 

of payment update reductions that were carried out under that policy were followed through with over a 45 or 50 year period, significant excess problems would be created in the Medicare program 

unless the overall rate of health care cost growth slowed. 

Chairman CONRAD. Let us rivet that point. Why didn’t Congress 

rush to embrace the President’s proposals? Because other objective 

experts told us that if we did embrace them that access to health 

care by senior citizens would be threatened and endangered. That 

is why we did not rush to embrace the President’s proposal. 

Look, I have voted for—I have voted for saying to those among 

us who have the greatest wealth that we ought to pay more. I have 

embraced the proposal. I think that has to be adopted. I think it 

makes no sense to me, there is nothing progressive about having 

a working family in effect subsidize wealthy retirees. I have never 

understood why that is a progressive value. And I have voted for, 

in another Committee in which I participate, the Finance Committee, to, in fact, means-test Medicare. And I will vote to do that 

63

again. Because I think it is one part—it comes nowhere close to 

solving our problem—but it is one contribution that can be made 

in an overall effort. 

My time has expired, so we will go to Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. 

Just one point procedurally, Dr. Orszag. There has not been any 

formal effort to look at the various proposals before the Congress, 

is that not correct? 

Mr. ORSZAG. It depends which proposals you mean, sir. 

Senator WYDEN. My understanding is you all are getting a private group together to advise you. And at some point when proposals are submitted then there will be an effort to look at a formal 

examination of costs and scoring and the like. I know we have—

I have used Lewin & Associates because they are former, I guess, 

graduates of CBO. And we think our cost analysis that was done 

by them of the amount that is spent today being sufficient to cover 

people and the $1.5 trillion savings over 10 years, we think that 

that is authoritative. 

But I just want to be clear on the record, because we have now 

gotten to the point of discussing proposals, you have not done formal scoring of the kinds of proposals that are being considered 

today; isn’t that correct? 

Mr. ORSZAG. We have not been asked to and we have not done 

a cost estimate of your proposal, for example. 

Senator WYDEN. And we look forward to sitting down with you 

for a formal effort to have an examination. I appreciate your making the record clear on that point. 

Two other areas. One is administrative savings in American 

health care. One of the areas that we believe Lewin has found significant administrative savings is just using electronic transfers, 

the sign-up process and the paying of bills. For example, in our 

State there is something like 33 categories of Medicaid. And everybody spends all of their time trying to dive into the various Medicaid boxes in order to get covered. 

What we have found through the Lewin analysis is that once 

people enter the system and everything is handled through electronic transfers there are substantial savings in the administrative 

costs and the Lewin people scored that in our proposal. 

Do you generally, and again I do not want to get you pinned 

down about formal increase versus informal inquiries. But generally, the proposition of using something like that as a way to reduce costs so that poor people do not go through this degrading 

god-awful process that is both inefficient and inequitable is something that ought to be looked at for the future? 

Mr. ORSZAG. I agree it should be looked at carefully. 

I would note that since there have been several references, we 

have actually invited the authors of the RAND study on health information technology in to CBO to present their results. And I 

would be happy to provide our analysis of that study at anyone’s 

request. In fact, we are planning to do a study on the returns to 

health information technology. 

Senator WYDEN. I think that is a fair point. The reality is that 

the colleagues here have good ideas, Senator Stabenow, Senator 

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thetic to a broad role for the States. So we appreciate your making 

it clear you want to work with all of us. 

Let me go now to the ramifications for people who have coverage 

with respect to the status quo. 

Families USA did an analysis indicating that if you have coverage today, in their judgment, you essentially have $1,000 of your 

premium go to pick up the costs of the uninsured. This stems from 

the fact that uninsured folks go to hospital emergency rooms and 

all of that gets pushed off on other parts of the system. 

Without saying whether it is $1,000 or $800 or what have you, 

can you give us your assessment of what the present system means 

for people who have insurance today, the auto worker who has insurance today, what it means generally for them given the fact that 

so many are uninsured and there is a Federal law that entitles 

them to coverage in emergency rooms? 

Mr. ORSZAG. I would say three things. First, I think the things 

that we were talking about before in terms of higher utilization 

than in many cases may be necessary drives up the cost for the 

people who have employer-sponsored insurance. The care that is 

provided to the uninsured, even though it is lower cost than for the 

insured, still winds up driving up the costs for the insured because 

of the different pool. And that is the effect that you noted. 

But I would also note that adding people, moving people from the 

uninsured pool to the insured pool, can have a variety of changes 

with complicated impacts on overall costs. 

Senator WYDEN. Let me see if I can get one other question in. 

What is your assessment of the situation today with private insurance, where there is so much cherry picking going on? And private 

insurance companies, many of them, not all, essentially try to find 

healthy people and send sick folks over to Government programs 

more fragile than they are? What are the ramifications, as you look 

at costs, of this cherry picking situation? 

Mr. ORSZAG. Well, there are significant incentives for insurance 

firms to try to select particular types of beneficiaries and that does, 

as you know, occur. That can drive up the cost, both in terms of 

administrative costs and other costs in the system. 

One of the issues involved in reform of the health care system 

is whether it remains employer-based or not. And if not, what 

kinds of pooling mechanisms would exist outside of the employer 

in order to avoid some of the problems that occur in the individual 

insurance market where some of the selection effects are most severe. 

Senator WYDEN. With the Chair’s indulgence, I know colleagues 

are waiting as well, I have asked every economist, and you have 

some of the best economic stripes in the country, whether they 

agree that under the tax code today, essentially the tax treatment 

of American health care disproportionately favors the most affluent 

and promotes inefficiency at the same time. Every previous economist, liberal, moderate, or conservative has said yes. They think 

that is what happens with the current tax code. 

Just because we have you here, do you share that view as well? 

Mr. ORSZAG. Yes. 

Senator WYDEN. Very good. 

65

Mr. ORSZAG. Let me just add really quickly that I think, in general, there are a whole series of incentives that we provide through 

the tax code to promote health, retirement, home ownership, et 

cetera. There are questions that exist about the efficiency with 

which a lot of those are done because they are often provided in 

the form of a deduction, which ties the size of the incentive to one’s 

marginal tax bracket. And that may or may not be the optimal 

thing to do. 

Senator WYDEN. After 60 years of wrangling on this issue, I 

think we are right on the cusp of bringing both political parties together for a fix. And if we are going to get there, it is because we 

are going to have your good work and your good offices in the effort 

to get it right. And I very much look forward to working with you 

in the days ahead. 

Thank you, Mr. Chairman, and again for your leadership, Mary 

Naylor’s leadership, putting all of this Committee time into what 

is clearly the premier domestic issue of our time and look forward 

to working with you and all of our colleagues on it. 

Chairman CONRAD. We thank you for your leadership and involvement, as well. 

Senator STABENOW. Senator STABENOW. Thank you, Mr. Chairman. 

I also want to thank Senator Wyden again for working in such 

diligent way. 

I did want to just go back to one of your responses to Senator 

Wyden, when you said that the uninsured would have lower cost 

health care. 

Actually, I would contend, and we have seen numbers, that they 

actually received higher cost health care because they are more 

likely to be using an emergency room. What we see, certainly in 

our State where there are a number—we have a large number of 

people who have private health insurance. And we have been able 

to track with local emergency rooms what happens not only with 

the uninsured but when co-pays get so high that people choose not 

to go to a doctor but wait and go to an emergency room. The emergency room costs are a much more expensive way to cover things 

that could otherwise be done through a physician’s office. 

So I am not clear on would you agree with that? Emergency room 

care is certainly a much more expensive way to treat the uninsured. 

Mr. ORSZAG. Senator, my written testimony on pages 16 and 17 

covers this issue and has the citations for the statement that I 

made. 

Senator STABENOW. OK. Let me move to one issue specific on 

cost. You indicated in your information that the rate at which 

health care costs are growing is the No. 1 issue, and I would agree 

with that. And it was beyond demographics. It is not just that we 

are all getting older, we baby boomers. This is about cost growth 

in what is happening. Again, I would argue structure and policies 

and so on actually add to that. 

One area where we know there is substantial savings, and I 

would like your comments on, relates to competition within the 

prescription drug area. We know, the latest numbers show, that 

the average retail price for a brand name prescription drug was 

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$102 in 2005 versus $30 for a generic drug. And that in every case 

where there is a generic and a brand, through that competition the 

price is lower. 

In fact, INS Health has said that on average generics are anywhere between 30 and 80 percent lower. We have actually had a 

success in this area, I am very pleased, in the Prescription Drug 

User Fee Bill that just passed the Senate, a bipartisan effort that 

began with a bill that Senator Lott and I have on closing loopholes 

to allow more generic drugs on the market was able to pass. It was 

a significant policy and it was great, in addition to Senator Brown, 

to have Senators Thune, Lott, Hatch, and Coburn with us. So this 

was an effort to really look at cost, generic drug costs. In fact, you 

scored that as savings. 

Mr. ORSZAG. See. 

Senator STABENOW. I am wondering if you might speak more to 

the strategy of using generic drugs, lower-cost generic drugs, in the 

marketplace as it relates to overall spending on prescription drugs 

which, at least with the private employers I talked to, they say 

that is the No. 1 driver in terms of the area of cost they have the 

least control over, and that is going up the quickest. 

Mr. ORSZAG. A few comments. The first is that there are a variety of policy measures that are coming before the Congress including follow-on biologics, for example, that will have implications for 

overall costs. 

The second is that prescription drugs are an important but not 

overwhelming share of overall health care spending, something like 

a tenth. So one needs to put it in perspective. 

The final thing is actually over the past few years one of the 

things that has slowed overall health care cost growth relative to 

where it would otherwise be as that prescription drug spending has 

not been growing as rapidly as it did a few years before that. 

Senator STABENOW. Thank you, Mr. Chairman. 

Chairman CONRAD. I thank the gentle lady from Michigan. 

Senator WHITEHOUSE. 

Senator WHITEHOUSE. Thank you, Mr. Chairman. 

To pick up where we left off—and by the way, I think you are 

spectacular. I think your office is spectacular. I do not mean any 

of this critically but I do think we have kind of a potential logjam 

coming up. 

You said that there are things that you cannot score yet for savings because there is insufficient experiment or insufficient evidence to give you the basis of knowledge on which to make that 

calculation and to prove out the savings. 

If in return, or in the next step, there is insufficient experiment 

because we do not fund it and there is not adequate, what I would 

call R&D being done on health care reform in America, and if in 

turn we do not fund it because you cannot score it——

Mr. ORSZAG. Then we are sort of stuck. 

Senator WHITEHOUSE. We are sort of stuck. 

So the question is are there ways, by moving some of this into 

for instance an NGO or a federally chartered but not federally 

budgeted entity, that we could take what we know to be the sensible moral judgment to move forward on this without having it imVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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pact the budget scoring that is so necessary to the workings of this 

Committee? 

Mr. ORSZAG. Senator, for example on comparative effectiveness 

research, so looking at what types of interventions and technologies 

work and which do not, there are a variety of approaches out there, 

some of which are sort of quasi-governmental, the National Academy of Sciences/Institute of Medicine or something like that, that 

have been proposed. And there are various different financing 

mechanisms that could be associated with that. We are going to be 

laying all that out. 

Senator WHITEHOUSE. I do not mean to suggest that there is 

nothing going on. My concern is that given the scope of the problem 

that you have elucidated and given the dollars involved, which 

are—I mean, we are trillions of dollars into health care and it is 

climbing rapidly—do you believe at this point that there is enough 

work being done on the sort of extermination and evidence aspect, 

the R&D of health care reform in America? 

Mr. ORSZAG. No. 

Senator WHITEHOUSE. So to notch it up a bit would be my issue. 

We can work further on that. 

Mr. ORSZAG. All I can do is, for example, within CBO we are taking a variety of steps because I think out of necessity we are increasingly becoming the Congressional health office and we need 

to. 

Senator WHITEHOUSE. With good reason. 

Mr. ORSZAG. We are shifting staffers into that area. We created 

a panel of health advisers. I created a new health intern program. 

We are moving in that direction and I think broader changes are 

warranted, also. 

Senator WHITEHOUSE. Let me make an observation and you can 

tell me if this is beyond your expertise. It strikes me that one of 

the big problems in health care is the cost shifting problem, that 

everyone has their own parochial part of the system. And if they 

can push costs out of their part to other places, they become winners, although they create costs overall. 

The perfect example of that is massive claims denial by insurers 

which moves dollars out of their portfolio but at the same time requires providers around the country, doctor’s offices, to staff up 

with an army of people to fight back against the claims denial and 

the costs of that whole battle over claims denial and approval continues to swell, continues to burden the system in a kind of an 

arms race with no health care value. And yet, once you are locked 

into that dynamic, you are kind of stuck with it. 

It strikes me that if you look at the insurance model in this country, it is characterized by three things. One, the desire to not provide coverage to people who might get sick or who you can find out 

are sick already. Two, the desire if you get somebody into your 

portfolio who becomes sick to try to find a way to deny them coverage. And three, if you are stuck and actually have to deny them 

coverage to try to figure out a way to deny as many of their claims 

as possible. 

I do not attribute that to evil intent on the part of the insurance 

industry. I think institutions respond to economic signals. And I 

would be interested in pursuing with you the extent to which you 

68

think the insurance business model and its cost shifting dynamic 

relates to specific attributes of our health care system that encourage and incent that kind of behavior and how we might reverse the 

polarities of the incentives the health care system turns out so that 

the productive insurance model, the productive business model for 

the insurance industry becomes how am I your ally? How can I be 

helpful to you navigating this complex system? How can I warn you 

when you need certain tests and things based on your age and your 

family’s health history? How can I be there for you when you have 

a call in the middle of the night and you do not know you really 

want to go to the emergency room? 

I think until that changes, we have a huge problem with the insurance industry. And yet they could provide such a valuable function. Are you looking in any way at how the signals the system 

sends out incents the business model of the insurance industry that 

creates so much cost-shifting? 

Mr. ORSZAG. What I would say more broadly is precisely because 

it is so hard to get at specific steps that would slow overall health 

care cost growth, for many participants in the health system it is 

in the short term more financially advantageous to shift costs 

across different sectors than to get at that underlying rate of 

growth because that challenge, which is the fundamental one, is so 

hard to grapple with. 

Senator WHITEHOUSE. Thank you, Mr. Chairman. 

Chairman CONRAD. Thank you, Senator Whitehouse. 

We have talked today about cost growth in the whole health care 

sector as being the biggest contributor to the long-term challenge. 

We know we have a secondary issue which is also serious which 

is this demographic time bomb. 

What are your assessments of the contributors to this cost 

growth? And have you been able to put them in some kind of priority order? That is, as you analyze the system what do you see as 

the major contributors to this cost explosion in health care that is 

far above the underlying rate of inflation in the economy? And 

what is your assessment of what could be done about each of those 

areas? 

Mr. ORSZAG. The first thing I would say is that this is another 

topic on which CBO will be issuing a study over the course of the 

year, so we are focused on that. My written testimony covers some 

of the things. 

One of the big drivers is the increased capabilities of medical 

technology and the average return to the advances in technology 

has been high. So if you look at the health care that we have today 

it is better in terms of delivering care, improving health than 50, 

60, 70, 80, 100 years ago. 

But the improved technologies are often also applied outside of 

the range in which they actually help to improve health. And so 

you have this thing——

Chairman CONRAD. So it is overutilization. 

Mr. ORSZAG [continuing]. Where something is introduced and it 

can produce an average benefit. But it is then expanded beyond, 

expanded into areas where again if we had the evidence it may not 

be warranted. 

69

So I think the key question is how to continue to encourage that 

kind of innovation which is beneficial while driving it toward the 

higher value applications that generate the best outcomes. 

Chairman CONRAD. What other contributors to cost growth do 

you see? 

Mr. ORSZAG. There are various different ways of parsing that. 

One is the increased prevalence of chronic conditions, including the 

ones associated with obesity. So for example, the share of Medicare 

costs that are attributable to obese beneficiaries increased from 9 

percent in 1987 to 25 percent in 2002. If continued increases in 

obesity are carried out in the future and then start to affect the 

pool of Medicare beneficiaries that share may well go up even further. 

That increase is disproportionate to the increase in obese beneficiaries, in part because obese beneficiaries cost a lot more that—

roughly a third or so more than beneficiaries of normal weight. 

Chairman CONRAD. What can be done to address a dynamic like 

that one? 

Mr. ORSZAG. That is very hard. I gave the, I guess, trivial example of mindless eating. But I think there are a whole variety of 

interventions——

Chairman CONRAD. That was your stale popcorn. 

Mr. ORSZAG. That was the stale popcorn. By the way, that was 

an experiment. And someone walked out of the experiment afterwards. And they were given free popcorn because it was an experiment. And they complained that the popcorn was stale, I want my 

money back. But in any case——

Chairman CONRAD. That was not a Member of Congress. 

Mr. ORSZAG. No. 

There are a whole variety of things that we talk about in the testimony having to do with better information, having to do with incentives, and having to do with other interventions. So for example, 

and this is not to embrace this kind of change but just the sorts 

of things that researchers are starting to identify as affecting what 

we eat and how we exercise, putting fruit and vegetables toward 

the beginning of a cafeteria line rather than at the end seems to 

significantly boost consumption of fruits and vegetables, as opposed 

to the high calorie, low nutrient alternative foods that are then 

placed at the end of a cafeteria line. 

How you engineer that or how you adopt changes like that and 

the pros and cons of different kinds of things are important challenges that we have not yet fully tackled. So we do not really know 

the answer but certainly more information and changes in incentives and changes in the environment in which we are making decisions could potentially have an effect. 

Chairman CONRAD. The incentives in the system almost everybody has talked about we have the incentives wrong because what 

we incentivize are procedures because that is what we pay for. We 

pay for procedures. You pay for procedures, you get a lot of procedures. 

We do not incentivize keeping patients well. With that said, I 

have never been certain how you would construct a system that 

would provide incentives for keeping patients well. Have you 

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thought about how you would structure a system that would do 

that? 

Mr. ORSZAG. Yes, there are different approaches that have been 

discussed along that dimension. Some of them are processed based. 

So the things that we know, you develop evidence that, for example, having a nurse practitioner coordinate care, if the evidence existed that that improved health outcomes, you could then pay for 

that sort of approach. That is one way of structuring finances, financial incentives. 

Another way is to look at outcome-based things. You basically 

provide incentives if you achieve better life expectancy for your 

beneficiaries or lower blood pressure or other things that you can 

measure in terms of outcomes. 

There are whole variety of things that are starting to come together in terms of metrics that can be used but it is early in terms 

of how one would fully design a value driven set of incentives. 

Chairman CONRAD. You know, the ranking member challenged 

us in the early going here to take action, and sign me up. I am 

eager to take action. The thing is I do not want to take action that 

proves to be unsustainable. I do not want to take action that 

threatens people’s access. I fear very much the President’s proposal, based on other’s testimony, would do that. 

So we have to go through a process here, and that is what these 

hearings are about, of identifying options and then on a bipartisan 

basis trying to find a way to embrace them. That is not easy to do 

here. Even if you have a majority of members of the Senate that 

are for something, we all know a majority is not enough. Because 

if you do not have a super majority you cannot end the endless discussion that will occur here and the filibustering by amendment 

that can occur here. That means you have to have at least 60 votes 

in the Senate. 

And then, of course, you have to deal with the House of Representatives, you had to deal with the White House. The only way 

that I see this proceeds is if there is a group that is given responsibility to come up with a plan that is totally bipartisan in nature, 

that involves all three of the entities that have to be brought together for any plan to be actually implemented. That means the 

House of Representatives, the Senate, the White House, all of them 

have to play a role not only on the landing but on the takeoff. If 

people are not involved—one thing I have learned around here, if 

people are not involved in the development of the plan, they are 

not going to support the plan when the going gets tough. 

But that still leaves us with the question of a plan. And a plan 

that could really make a meaningful difference and one in which 

we could have confidence that it would not only save money, but 

at least do no harm to health care outcomes and hopefully improve 

health care outcomes. 

I just want to go back over what I heard you say. What I heard 

you say is you are not aware of any comprehensive plan that exists 

at this moment that we could be assured would save money and 

at least not hurt health care outcomes. Did I hear you correctly? 

Mr. ORSZAG. That is correct. I do think that there are steps that 

can be taken to move toward creating the opportunity for such apVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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proaches or options to exist and that regardless of your broader vision for health care reform would make sense. 

Chairman CONRAD. Tell me what some of those would be. What 

are the things, because you said earlier you see promising signs on 

the horizon. Let me just give you the time to go forward and tell 

us what are the things out there that you see as promising that 

ought to be pursued? 

Mr. ORSZAG. Let me mention three. The first is that one could, 

if you as a policymaking body were committed to it, significantly 

increase the share of health care spending with which there is 

some evidence associated. So the Institute of Medicine is contemplating a goal of increasing that 25 percent share to something like 

80 percent or 90 percent by a date certain. 

Chairman CONRAD. Let’s talk about that, the 25 percent share, 

what does that reference? 

Mr. ORSZAG. There are very rough estimates but that if you take 

total health care spending and you ask do we have any evidence 

that this intervention works better than that intervention? Or this 

is better than that? Only about a quarter of health care spending 

is arising in that evidence-based information box. 

Chairman CONRAD. Only about one-quarter of health care spending we can say, based on evidence, is actually contributing to improved outcomes? 

Mr. ORSZAG. You can think about it that way. The vast majority 

of health care spending is occurring where we just do not know. 

Chairman CONRAD. We do not know. 

Mr. ORSZAG. So a sensible approach presumably, regardless of 

whether you favor a consumer directed health plan kind of system 

in which consumers need the information, a single payer in which 

the single payer administrative body would need the information, 

or some mixed system where State Governments, Medicare, Medicaid and insurance firms would need the information is you need 

the information. 

That brings me to my second point which is I think it is unlikely 

that you are going to get up substantially above a quarter on that 

share in the absence of a broader system of electronic health 

records. And I think that the return to health information technology is much more likely to occur in providing and feeding information into this kind of analysis than in the type of cost savings 

that are contained in the study that has been discussed here at the 

hearing. 

The largest return may well turn out to be other things like providing the data that could be then used. It is very likely that you 

are going to be able to get up to 50, 60, 70 percent of health care 

costs having some evidence associated with them relying solely on 

randomized control trials. And I am not even sure that you would 

want to, from a cost-effective basis. 

So you will need to struggle with the difficulties of statistically 

analyzing large bodies of panel data which could be provided by 

electronic health records. 

The final category that I would—actually I will give you four categories. 

The third category has to do with disease management and 

chronic care and trying to evolve toward better targeting of those 

72

interventions so that they not only improve quality where there 

seems to be some evidence that they do, but that they actually reduce costs. So finding the right interventions where they actually 

work seems——

Chairman CONRAD. I am a big believer in your No. 3. That is 

where the money is. When I went to business school we were 

taught to focus where the money is. And here are 5 or 6 percent 

of the patient loads using half the money. 

Mr. ORSZAG. And again it can be integrated with my first point 

which is we again need to be looking at disease management programs from the perspective of what works and what does not. 

Chairman CONRAD. What is your fourth? 

Mr. ORSZAG. The fourth category was just something that Senator Wyden and others have suggested, which has to do with prevention and incentives for healthy living so that trends like the 

dramatic increase in obesity are addressed in some way because in 

the absence of that you are going to be dealing with a much larger 

burden for the health care system regardless of how effective you 

make it in processing information and being value-based. 

Chairman CONRAD. All right. 

Senator WHITEHOUSE. 

Senator WHITEHOUSE. Thank you, Mr. Chairman. 

I asked you earlier whether you thought there was adequate research and development being done on the health care reform at 

this point, the health care reform side, how we get these savings. 

You said no. I want to ask you for some kind of metric on that. 

How close are we to what you think would be the ideal level of 

experimentation and evidence generation, research and development, on how we work through these steps that you have described? Are we like the Lewis and Clark expedition, what we are 

doing so far, with a vast unexplored landscape in front of us? Or 

are we something who has like cleaned six room of the house, there 

may be one left to do but we have pretty much done it? 

In those sort of ranges, how close are we to where we should be, 

in your view, in terms of investment in experimentation and analysis of how we get ahead of this problem? 

Mr. ORSZAG. I think we are closer to the Lewis and Clarke trip. 

Senator WHITEHOUSE. To followup on what the Chairman asked 

you about wellness incentives, if you are going to pay for wellness 

incentives through an insurance company model, and if the insurance company model exists in a very mobile population in which 

a particular insurer can bet that a fairly significant group of their 

insureds is in three or five or 7 years going to move on and become 

somebody else’s problem and, in fact, in their old age are likely to 

become the United States Government’s problem, what does that 

do to the calculation of—assuming that they are being rational economic actors in the American business model—what does that do 

to the return on investment calculation that they would logically 

make about investing in wellness incentives? And what does that 

mean structurally about that model in terms of its ability to provide optimal wellness incentives? 

Mr. ORSZAG. It reduces the incentive to invest in—if you cannot 

capture the full benefits because people are churning and turning 

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over and leaving your plan, your incentive to invest in that kind 

of activity is reduced. 

Senator WHITEHOUSE. And it is reduced in an inefficient way in 

the sense that it creates a suboptimal level of investment? 

Mr. ORSZAG. From a national perspective there can be lower levels of preventative steps that are taken as a result of that incentive 

issue that we just discussed. 

Senator WHITEHOUSE. Mr. Chairman, I would want to conclude. 

First of all, thank you for letting us have the third round. I appreciate it very much and I know we are going to have a vote very 

soon. 

But I just wanted to conclude again by complementing both of 

you on this. I think the Chairman’s direction of the Budget Committee into the health care issue is extremely wise and vitally important. And I think, Peter, your transformation of your agency 

into one that is far more adept and focused on the looming health 

care problem that we face is also very wise. 

And I think that working together we have the chance to get 

ahead of this problem. I live constantly with the very, very deep 

anxiety that if we do not get ahead of this problem, if we do not 

work hard at it now and do the structural things will allow the system to work better and sort of cleanse itself and be efficient and 

send correct price signals and began to become a system we can be 

proud of rather than one that screams distress from really every 

quadrant, we are then going to be left with really harsh choices because we have not left ourselves the time to work through some of 

these problems. 

And those really harsh choices are ones that I hope we never 

have to face. And if we do have to face them because we did not 

do the work in advance, then really shame on us. Because the people that will suffer are people who are in a lot of distress already. 

So I think we have a very, very high moral obligation to pursue 

this very aggressively. And I appreciate so much that this Committee has been turned in this direction by the Chairman and that 

your organization has been turned in this direction by you. 

Chairman CONRAD. I thank Senator Whitehouse and again, I 

thank you for the energy and attention you have brought to this 

subject. 

Director Orszag, we are all delighted at the leadership that you 

have brought to CBO. It is really exceptional and we appreciate 

very much the thoughtfulness that you direct to these issues. 

This really is the challenge of our time in terms of the fiscal future of the country. I am not talking about just the human element 

of all of this because health care touches every one of our lives. We 

have simply got to do a better job of facing up to what is the preeminent fiscal challenge that this country faces. 

I am delighted that you are in this position of responsibility, Director Orszag, because I think you have the ability to help us work 

our way through this. 

I also want to acknowledge the work of Senator Gregg, who is 

committed to addressing not only this long-term entitlement issue 

but the others as well. I am eager to work with him because nothing is going to happen unless we work productively together. That 

is the reality of this place and of this time. 

74

I thank you and thank the members of the Committee for their 

participation this morning. 

[Whereupon, at 11:52 a.m., the Committee was adjourned.]

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(81)

HEALTH CARE AND THE BUDGET: THE 

HEALTHY AMERICANS ACT AND OTHER OPTIONS FOR REFORM 

TUESDAY, JUNE 26, 2007

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to notice, at 9:32 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Kent Conrad, Chairman of the Committee, presiding. 

Present: Senators Conrad, Wyden, Nelson, Stabenow, Cardin, 

Whitehouse, Gregg, Allard, and Crapo. 

Staff present: Mary Naylor, Majority Staff Director; and Scott 

Gudes, Staff Director for the Majority. 

OPENING STATEMENT OF CHAIRMAN CONRAD 

Chairman CONRAD. The hearing will come to order. 

I want to welcome everyone to today’s hearing. This is our second 

hearing this summer on health care reform and the impact on the 

budget. Last week our witness was the CBO Director, Dr. Orszag, 

who helped set the stage by providing an overview of the problem 

and issues to consider in evaluating reform options. 

Today we will focus more specifically on comprehensive solutions 

and the issues raised by them. We have two panels today. Our first 

includes two of our most respected colleagues: Senator Wyden, who 

is a valued member of this Committee; and Senator Robert Bennett, who is a longtime leader on the Joint Economic Committee. 

Senators Wyden and Bennett will jointly present their Healthy 

Americans Act. 

I want to first commend them for working together. That is going 

to be critically important as we approach the issue of health care 

reform and all of the other contentious issues facing us on fiscal 

policy. 

Our second panel includes three health care experts, Len Nichols, Director of Health Policy at the New America Foundation; Sara 

Collins, the Assistant Vice President of the Program on the Future 

of Health Insurance at the Commonwealth Fund; and Arnold 

Milstein, the Medical Director of the Pacific Business Health 

Group. These experts will be giving us their views on health care 

and options for comprehensive reform. 

I want to begin with this chart that shows that rising health care 

costs are by far the largest factor driving up the cost of our Federal 

health programs.

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Demographic changes that we all know about and that have been 

so much in the news are also a significant factor. 

But the biggest factor, the largest element here, are rising health 

care costs in the larger system. 

Let me go to the next slide, if we could.

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The fact is that our health care system is not as efficient as it 

could be. We are spending far more on health expenditures as a 

percentage of GDP than any other country in the world. This chart 

goes back to 2003. For those who are wondering why do we go back 

to 2003 and 2007, it is because it is the most recent year for which 

we have comparative data from other countries. 

We know our own health care expenditures now are over 16 percent of gross domestic product. That means that about one in every 

seven dollars in this economy is going to health care and that percentage is rising. 

If we look at other countries, we see the next highest country in 

terms of expenditure per share of GDP is at 11 percent. So one 

would assume that because we have the highest health care expenditures in the world we have the best health care in the world. 

Unfortunately, we know that that is not the case. 

In fact, what we see is in many cases health care expenditures 

are inverse to health care outcomes. In other words, higher health 

care expenditures do not lead to better health care outcomes. In 

fact, in many parts of this country, the places that are the highest 

cost health care have the lowest quality health care outcomes. 

Let us go to the next slide, if we could.

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We need to remember the problem is not that Medicare and Medicaid are Federal programs. The problem stems from the rising cost 

of health care and the demographic tsunami that is coming at us. 

This is a quote from the Comptroller General of the United States, 

David Walker, who made this point: ‘‘Federal health spending 

trends should not be viewed in isolation from the health care system as a whole...Rather, in order to address the long-term fiscal 

challenge, it will be necessary to find approaches that deal with 

health care cost growth in the overall health care system.’’

Let us go to the next slide, if we could. 

Let us go over that one, in the interest of time. Senator Gregg 

is now here, let’s just go to the final one.

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The fact is that we can get dramatic savings in Federal health 

care programs if we can reduce the rising cost of health care. This 

chart shows that reducing per capita annual health care cost 

growth from 2.5 percent above GDP to 1 percent above GDP can 

bring down Medicare and Medicaid spending as a percentage of 

GDP from 21 percent in 2050, to under 12 percent in that same 

year. 

Look, we all know we have a huge challenge here. The 800-pound 

gorilla is health care expenditures. That is what can swamp the 

whole boat here. And we know that if we get to 2050 and we are 

spending over 20 percent of GDP on just Medicare and Medicaid, 

that is more than we are spending on all of the Federal Government today. That cannot be permitted to occur. 

The question is what do we about it? That is what this series of 

hearings are about. I again want to thank our colleagues, Senator 

Wyden and Senator Bennett, for their thoughtful approach to the 

issue and for their leadership. 

Senator GREGG.

OPENING STATEMENT OF RANKING MEMBER GREGG 

Senator GREGG. Thank you, Mr. Chairman. I want to express my 

appreciation for you holding this hearing because really, as Willie 

Sutton used to say about why he robbed banks, that is where the 

money is. This is where the money is. This is where the problem 

is. And it is where the money is. And it is where the threat is to 

the next generation. 

I assume you held up the chart before I got here that pointed out that there is about $30-plus trillion of unfunded liabilities simply 

in the Medicare accounts and that will bankrupt the next generation if we do not do something about it. 

The issue becomes not finding new revenue streams to support 

it, because it is really not supportable or sustainable. The issue is 

how you control the rate of growth to get it back to a number 

which is more reflective of the number you have mentioned, which 

is something nearer to the rate of inflation for the economy as a 

whole. 

And that becomes an issue of a variety of different initiatives 

that have to be taken. There is no magic wand here that can solve 

the whole problem. It is a matrix and a complex matrix, and you 

have to move forward in a number of different areas: health IT, 

transparency, market-oriented approaches so people are more cost 

sensitive when they are purchasing, quality information, making 

sure that there is a consistency of quality and a consistency of cost 

across the country relative to quality, and cost and procedures. 

And so it is a complex issue. And I appreciate the effort the two 

senators before us today have made in this area, Senator Wyden 

and Senator Bennett. Obviously it is a good memo to begin the discussion with and I look forward to hearing from them. 

Chairman CONRAD. Thank you, Senator Gregg. 

Let me say to the Senator, I did not hold up that particular chart 

this morning. But really, as I look ahead to the budget and fiscal 

challenges facing the country, none loom larger than this one. And 

that is why I think it is critically important that we start this series of hearings and talk about what are we going to do about it? 

90

What are the potential solutions? All of us know there are a lot of 

ideas out there. We want to try to find the best ones. 

Certainly one of the best is the one advanced by our two colleagues who are here this morning. Senator Wyden, who I have indicated earlier is a valuable member of this Committee; Senator 

Bennett, who is widely respected and esteemed for his views on 

economic and financial matters, welcome to the Committee. Senator Wyden, why don’t you proceed. 

STATEMENT OF HON. WYDEN, A UNITED STATES SENATOR 

FROM THE STATE OF OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. 

I want to thank you and Senator Gregg for having Senator Bennett and I this morning. This is an exceptionally busy time here 

in the Senate and once again you have shown your commitment to 

finally getting our arms around the health care challenge. 

I know all of you, and Senator Cardin who spent a lot of time 

on health care over the years as well, are going to have folks pulling on you extensively. So I would like to just make my prepared 

remarks a part of the record and offer up just some brief comments 

with respect to where I think we are. 

Mr. Chairman, we have only been at the cause of fixing health 

care in this country for about 60 years. It goes back to Harry Truman in 1945, the 81st Congress. And so I think the first thing people are going to say is what is different about this time? Why do 

you think there is grounds for optimism today? 

I think there are three big factors. First, the business community 

has done a complete about-face on this issue. Back in 1993, for example, during the Clinton debate, the business community said we 

cannot afford health care reform. Now they are saying we cannot 

afford the status quo. That is No. 1. 

No. 2, there are new alliances that have formed that we certainly 

did not see in 1993. When we proposed the Healthy Americans Act, 

for example, standing next to us was Andy Stern, the Head of the 

Service Employees International Union, and Steve Burd, the President of the Safeway Company. So 12 or 13 years ago they belonged 

to groups that were fighting each other. And now they are stating 

there side-by-side saying they want to work for a specific piece of 

legislation. 

And finally, as Senator Bennett and I will tell you, I think there 

has been something of an ideological truce in the last few years. 

Republicans have come around to the proposition that you cannot 

fix health care unless you cover everybody. Because if you do not 

cover everybody the people who are uninsured shift their bills over 

to folks who are insured. 

Democrats have come a big distance as well, recognizing that you 

cannot just turn all of this over to the Government and have a Government-run system. And you particularly have to make changes 

in the tax code because the tax code disproportionately favors the 

wealthiest and promotes inefficiency. 

The bumping up against those positive signs, of course, is the 

popular wisdom. The popular wisdom is oh, this is too big. It is too 

complicated. Congress cannot possibly get its arms around something this size. People say there are too many lobbyists. They say 

91

people who have coverage, for example, the millions who have coverage are still going to say the devil that they know is better than 

the devil that they do not know. So the popular wisdom kind of 

bumps up against the very positive signs we are seeing. 

So I think what is helpful about your hearing, Senator Conrad, 

is it gives us a chance to diagnose what is really broken in health 

care and then get at the cure. I am going to do the diagnosis very 

quickly. 

First, I strongly share your view that we are spending enough money on health care today. We are going to spend $2.3 trillion on 

health care. There are 300 million of us. You divide $300 million 

dollars into $2.3 trillion and you could go out and hire a doctor for 

every seven families in the United States, pay the doctor $20,000. 

And whenever I mention it to the doctors they say Ron, where do 

I go to get my seven families? I would like to be a doctor again. 

We are spending enough money, colleagues. We are not spending 

it in the right places. 

Second, as you touched on, Chairman Conrad, we are not getting 

collective value for the amount of money we are spending. And that 

is despite the thousands of wonderful doctors and nurses and physician assistants. In spite of all this talent, I think the latest numbers, for example in life expectancy, we have surged ahead of Cuba 

and Albania but we still lag behind Malta. So we are not getting 

as much as we ought to get in terms of collective value. 

Finally, on the diagnosis side, is we have mostly stick care. We 

do not have health care. We do not have prevention. Medicare, for 

example, pays huge expenses for hospital bills under Part A. And 

then Medicare Part B pays very little for prevention. So Senator 

Bennett and I want to get us back in the business of health care 

and not just sick care. 

So that is my diagnosis. Let me move on to the cure and go 

through briefly what I think the citizens want by way of a cure. 

In my town hall meetings, after we have a bit of discussion and 

people say they want a Government-run health system and other 

folks they know they do not, people in the audience eventually say 

Senator, we you want coverage like you people have in the U.S. 

Congress. And then the whole room breaks out into applause. People are not exactly sure what Members of Congress have but they 

figure if they have it, it is a good thing. 

So what I do at that point, Mr. Chairman, is I reach in back and 

get out my wallet and I go all right, let us be clear about what it 

is Members of Congress have. And so at my town meetings I hold 

up on this. This is my BlueCross card. It is a private policy, a private insurance policy. And Senator Bennett and I feel that we 

ought to have a system that makes it possible for all Americans to 

have a private insurance card and to choose from a range of policies. 

And the Lewin Group, which is something of the gold standard 

of private health coverage, has done an analysis for us. We have 

made it available to the Committee. It says for the amount of 

money we are spending, everybody in the United States could have 

choices like Members of Congress have, private coverage like Members of Congress have, and a delivery system like Members of Congress have. 

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So here is the way it works. We have 300 million people in the 

United States. Senator Bennett and I are saying that the basic 

structure of Medicare and the military system ought to be left intact. So we would like to make some improvements. For example, 

we have rewards for prevention, improving chronic care, something 

called a health care home. Mr. Chairman, the typical Medicare patient sees seven doctors in a typical year. So we ought to have better coordination of their care. 

But Senator Bennett and I leave the basic structure of Medicare 

and the military system alone. 

So that leaves us then 250 million people. About 160 million of 

those get their care through their employer, about 48 million are 

uninsured, and the rest are primarily in the individual market, or 

Medicaid. So here is what we do for this group of people: for the 

160 million who are covered by their employer, we say the employer ought to cash them out. And do it in a way so that the employer wins and the worker wins with the very first paychecks that 

are issued. So hypothetically, if you have a worker in North Dakota 

who would make $40,000 and would get $10,000 in health care 

benefits from their employer, the employer would give them 

$50,000. The worker has just gotten a big old pay raise and says 

to themselves hey, that is pretty neat. What is the catch? The catch 

is that they have to buy a basic health policy. 

Workers may say how in the world do I do that? 

So Senator Bennett and I fixed the private marketplace. We say 

that insurance companies can no longer cherry pick, for example. 

They cannot just take the healthy people and send the sick people 

over to Government programs more fragile than they are. And then 

we adjust the tax laws so that the worker does not pay more tax 

on that additional compensation that they got from the employer. 

Now the next group, small business in particular, where most of 

the uninsured are, usually in a situation where the employers are 

dying to cover their workers but have not been able financially to 

figure out a way for them to do it. 

So we worked with three groups of employers: big employers, medium-sized employers, and small employers. And all of them agreed 

that they could pay something. They could pay something. And so 

they make a contribution on the basis of revenue per employee. So 

those who are uninsured and work at small business get their coverage that way. In the individual market it works along the same 

lines. People in the individual market use a State agency to sign 

up. It is close to home. It simplifies the process. So that works for 

most of the folks that are uninsured. 

With respect to Medicaid, we have made improvements so that 

the program is more efficient and more compassionate. Today on 

Medicaid, you have to try to squeeze yourself into scores of boxes. 

In my state it is more than 30 boxes you have to try to squeeze 

yourself into to get some coverage. It is a horrendous waste of 

money. It is degrading for poor people. And so we make coverage 

more efficient and more compassionate and say you sign up once 

through these State agencies and everything else is done through 

electronic transfers. The Lewin Group has found substantial savings as a result of our doing it. 

93

Let me wrap up by saying where the money comes from in terms 

of paying for it. We redirect the tax code expenditures. Instead of 

what we have today that disproportionately favors the most affluent and encourages inefficiency, we redirect those expenditures and 

get more help to folks in the middle and folks in the lower middle 

classes so they can buy these private coverages. We make substantial administrative savings that the Lewin Group has documented. 

I will not go through all of them, Mr. Chairman, because the time 

is short. They are outlined on page 15 and 16 of the Lewin report 

that we have made available to you. 

We make savings in what is called the disproportionate share 

program, where a lot of poor folks go to hospitals and hospital 

emergency rooms where we would rather have them get private 

coverage that is outpatient oriented. 

When insurance companies compete on the basis of price, benefit, 

and quality there are savings in that area. And as I touched on, 

we make savings in Medicaid by making the program more efficient while we also make it more compassionate. 

Finally, Mr. Chairman, we want to have a broad berth for the 

States. Senator Bennett and I have had some very good discussions 

with Secretary Leavitt on this point. The Healthy Americans Act 

makes it possible for the States to get a waiver to come up with 

their own approaches. We also same for purposes of the benefit 

package there can be what we call an actuarial equivalent offered, 

so that there is a lot of flexibility there for the States and private 

insurers. 

At the end of the day, Mr. Chairman, I would like to see us on 

a bipartisan basis work to defy the odds and produce a rational 

system so that everybody gets quality affordable coverage in this 

Congress. 

I know people say it cannot be done. We are all aware of that 

debate, that this is kind of a Presidential election issue. I do not 

think the American people sent us here to wait two more years. 

That is what we would be doing. We would be waiting two more 

years, essentially until the middle of 2009. And I do not think the 

country can afford to wait. 

Senator Bennett and I have the first bipartisan overhaul of 

health care since the one offered by the late John Chafee. We are 

not saying it is set in stone. Quite the contrary. We know that 

nothing is invented here. You have to work with colleagues on a 

bipartisan basis. But we think we ought to get going. 

[The prepared statement of Senator Wyden follows:]

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Chairman CONRAD. Thank you, Senator Wyden. 

Senator Gregg has to go to the floor momentarily, but I think he 

would like to ask a question. 

Senator GREGG. I just had one question of the Senators, because 

I have read your proposal. It is intriguing. 

If I can try to sugar it off and summarize it, is essentially what 

you are doing is you are taking the deception which is now at the 

employer level and you are converting that deduction to cash into 

the hands of the employee. And then you are saying to the employee go out and buy insurance. 

It is, for all intents and purposes, a voucher program. You are 

basically converting the insurance market where you give everybody a chit backed up by cash. And you say you have to buy insurance and the insurance has to meet certain standards as to community rating and it has to have certain levels of coverages such as 

the FEHBP level. 

Senator WYDEN. Let’s not characterize anything as a voucher, because that will be the kiss of death. I would describe what we are 

doing with the cash out as a transition way to get to a new system. 

And by the way——

Senator GREGG. Let me see if I have it right, though. You are 

giving people cash, people then take the cash and buy a plan and 

the plan is subject——

Senator BENNETT. You are not giving them cash because it is a 

tax credit that is only available for a particular purpose. If you 

were giving them cash, they could go out and buy a new set of tires 

for their pickup. 

Senator GREGG. That is my point. That is why I called them a 

voucher because you are essentially giving them a ticket which 

says you have to go buy insurance with this money that you are 

getting back from the employer in the form of compensation. Right? 

I mean, does that summarize it? 

Senator WYDEN. In the old days, people got vouchers and they 

would march around town with a piece of paper that said this entitles you to such and such. There is not going to be anything like 

that. We are going to have to figure out a way, Senator, to make 

a transition from what we have to something else. 

Senator GREGG. No, you are basically mandating that they go out 

and buy the insurance. 

Senator BENNETT. There is an individual mandate, that is correct. 

Senator GREGG. So the individual has to use the proceeds that 

they are getting from their employer, who is no longer having a deductible event for insurance, that is converted to a payment to the 

employee. The payment then must be used or some percentage of 

it must be used to buy insurance, which insurance has to be community rated and it has to have a certain set of benefits which are 

at least the minimum of the FEHBP program. 

Senator BENNETT. That is correct. 

Senator GREGG. I appreciate it. I guess my only concern, and I 

am sorry I have to leave, is I think it is an intriguing idea, quite 

honestly, and probably the right way to move. 

I think the next step, however, is how do you build in efficiency? 

What do you make that buy—what incentives do you give that 

99

newly empowered individual with this cash—not called a voucher—

to go out and use it in a way that is market oriented and efficient 

and gives them good health care at a lower cost? 

Senator BENNETT. We will be glad to discuss that with you. 

Senator WYDEN. Before the Senator runs out the door, what we 

have picked up from the Lewin people and others, I would say to 

my friend, is once that person has the extra money in their pocket 

and has choices for their health care, because remember today the 

worker largely has no choice. The worker just gets the one policy 

that their employer has for them. 

Once the worker has those choices, if say in the example I gave 

where the worker would get a certain amount because of what 

their employer is paying, they then look for a variety of different 

choices. And if they save $500 on that, they can go fishing on the 

Rogue River in Oregon. 

Senator GREGG. That, I think, is a key element of the program. 

Interesting idea. 

Chairman CONRAD. I want to thank Senator Gregg. I know that 

he is got duties on the floor. 

Senator Bennett, welcome. Please proceed. 

STATEMENT OF HON. ROBERT F. BENNETT, A UNITED STATES 

SENATOR FROM THE STATE OF UTAH 

Senator BENNETT. Thank you, sir. 

I want to thank you for holding the hearing and for your leadership role in focusing Congress’s attention on health care reform. 

I especially want to thank my colleague and fellow panelist, Senator Wyden, for his leadership. And along with leadership, which 

is a word we throw around a great deal here, he brings vision and 

passion to this which, in many cases, is more important. 

I believe the Congress needs to address health care reform this 

session and not put it off for future Congresses. More importantly, 

I believe that it can. That is because our conversation starts with 

what we can agree on, where we can find consensus. And we will 

find the common ground necessary to pass comprehensive health 

care. And because I believe that, I have joined with Senator Wyden 

and cosponsoring the Healthy Americans Act. 

This Congress is uniquely situated in history. For the first time 

since Dwight Eisenhower’s election there is not an incumbent in 

the White House running for the White House, neither a sitting 

president nor a sitting vice president. And yet you have divided 

government. The Democrats controlling the Congress have a political motive to accomplish big things. And the Republicans want to 

have a legacy come out of this Administration but they cannot take 

credit for it for their candidate because their candidate will not 

come from this Administration. 

So these are rare circumstances of a political setting that creates 

the ideal time for Congress to act in a bipartisan way on comprehensive health reform. 

Now, we have established some principles we can agree on. And 

here they are in my view: tax reform, portability, individual access, 

incentives for healthy behavior, and market forces. The Healthy 

Americans Act embodies these five tenets of reform. It is not a perVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00105 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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fect bill but I think it is a perfect jumpstart to begin the dialog 

about these core principles. So let us go through each one of them. 

Tax Reform. We all agree that the rate of growth in health care 

spending in our country is unsustainable. For the last 45 years in 

the United States health care as a part of the gross domestic product has more than tripled to 16 percent. It is on a steady climb upwards. As you have pointed out, Mr. Chairman, other countries 

have a much smaller rate of growth of percentage of GDP devoted 

to health care and they have drastically lower numbers of uninsured. 

I look at it and realize that as the amount of money spent per 

capita rises, out-of-pocket expenditures of after-tax dollars by individuals are decreasing equally if not more dramatically. Which 

means that Americans have little or no knowledge of how much 

their health care costs or where their health care dollars are spent 

because they do not control those dollars. It is the employers who 

are spending their employees’ money. 

By giving employees the right to control their own dollars the 

Healthy Americans Act will strengthen the incentives to shop for 

lower-cost plans as well as improve quality. 

Portability. Because individuals do not receive any tax incentive 

for obtaining health care coverage outside the employer setting, 

they feel chained to their jobs many times. Americans should not 

have to be afraid to change jobs just because they fear losing access 

to health care coverage. It is not good for productivity. It is not 

good for the rest of the economy. And it is certainly not good for 

the person who is trapped in a job that he or she hates. There 

needs to be portability in the health care system so that individuals 

will always have their coverage regardless of where they work. The 

Healthy Americans Act provides portability. 

Individual access. Every American should have access to health 

care. In fact, currently every American does. It is called the emergency room. And that is the most ineffective, inefficient, and expensive way of care possible. If all Americans have their own individual portable coverage, the uninsured will no longer engage in 

overutilization of emergency room visits, health care spending will 

be more evenly dispersed and dramatically reduced. The Healthy 

Americans Act provides individual access. 

Healthy behavior. Healthy individuals use less health care dollars than unhealthy ones and the record is very good that when 

people spend time taking care of themselves health care costs go 

down dramatically. In private industry there are multiple examples 

of companies that have aggressively pursued keeping their employees healthy and, as a result, their health care costs increases are 

level to inflation or in some cases even below it. 

Healthy behavior incentives are working in some other countries 

around the world. For example, in Switzerland, where only 11 percent of GDP is spent on health care and everyone is required to 

purchase his own private plan—similar to the Healthy Americans 

Act—competition has lead to innovative incentives to stay well. 

Some plans offer lump sum cash awards for those who stay healthy 

and others penalize unhealthy habits or behaviors. People respond 

to incentives. And if there are incentives for individuals to stay 

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healthy, we will see significant differences in driving down health 

care costs. 

The Healthy Americans Act promotes personal responsibility and 

prevention by offering discounted premiums for participation in 

wellness programs and rewarding providers for helping their patients stay healthy. 

Market forces. When transparency and competition exist, markets work. But markets require transparency on cost and quality 

to work efficiently. Once the individual is empowered to make 

choices, he or she will demand such transparency and market 

forces and competition will enter and work their magic. As seen in 

the Swiss model, private sector competition drives down costs and 

offers innovative solutions. 

It all starts with tax reform, Mr. Chairman. We get the right 

kind of tax reform. That will empower the individual. And from 

that empowerment we can get portability, individual access, incentives for healthy behavior, and the beneficial effect of market 

forces. 

Healthy Americans Act embraces these five principles so that 

health coverage can be affordable, and the uninsured can be covered, and not insignificantly our economy can be strengthened. 

I thank my friend from Oregon for inviting me to serve as his 

Republican cosponsor. I hope to work with members of both parties 

closely on this issue and I think we can craft reasonable legislation 

that provides access to health care to all Americans. 

Chairman CONRAD. Thank you, Senator Bennett. Thank you, 

Senator Wyden, for your testimony. 

Let me just say, and I know Senator Bennett has to take his 

leave momentarily. I think you have the basic structure right. That 

is my own conclusion. After 20 years in this business, and I was 

deeply involved in the efforts when we had the mainstream forum 

with Senator Chafee and Senator Durenberger, we spent hundreds 

of hours trying to craft a health care reform package. 

Unfortunately those efforts came to naught. But I do believe you 

have the basic structure right. That is this is not Government controlled but there is a role for Government. You have universal coverage and I think most of us now acknowledge that if you do not 

have everybody in the system then you just have leakage and you 

have transfer pricing. You have transfer of cost going on throughout the system. And unfortunately, the transfer occurs at the most 

expensive point of the system which is, as Senator Bennett indicated, the emergency room. 

You build on what we have. We have a system now that, in fact, 

does insure a significant majority of people, although a growing 

number of people are not. 

You provide portability. Senator Bennett, you said it very well. 

In many cases, people feel locked to their job. I have relatives that 

are in that very situation, a relative who is an extremely productive and successful executive in the health care profession. And his 

wife has an ongoing chronic illness and he feels wedded to his job 

because of the health care coverage circumstance. 

Incentives for healthy behavior. If there is one thing that is clear 

it is we have the incentives wrong in this system. We incentivize 

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treatments. And boy, if you incentivize treatments, you get a lot of 

them. Whether or not they are efficacious is another issue. 

Chronic care coordination. This, I believe, is an area that you address that we could strengthen in a final proposal. The statistic 

that always captures my attention is about 5 percent of Medicare 

beneficiaries are using half the money. We have to focus on that 

like a laser. 

And then market forces. Clearly, if we could harness market 

forces we could bring greater efficiency to this system. 

Now with that said, the devil is in the details. I think all of us 

recognize that. There are two I want to just visit with you about 

momentarily. 

Senator BENNETT. May I be excused? 

Chairman CONRAD. Yes, Senator Bennett. 

Senator BENNETT. I am ranking member of a Committee that is 

holding a hearing, so I probably ought to run to that. 

Chairman CONRAD. We understand. 

Senator BENNETT. I will read your details with great interest, 

Mr. Chairman. 

Chairman CONRAD. Thank you so much, Senator Bennett, for 

being here. Again, these two Senators are two of the most respected of our colleagues. When they speak on a subject, we listen. 

Let me, if I could, ask Senator Wyden just on two details. 

Senator WYDEN. Only two? 

Chairman CONRAD. Yes, I will limit myself to two. The two I 

would ask you about one, who decides on the package of what is 

required for an employee to use the money that comes from their 

employer? Who decides what has to be in a minimum package? 

Senator WYDEN. That was a very important question, Mr. Chairman. That is why I was saying in a kidding way, as we get into 

the details, there are scores and scores of them and time does not 

allow us to get at all of them. 

We had a big debate about how to set the minimum benefit package. So essentially we got into a two-part exercise. Because citizens 

at these town hall meetings always say we want care like you people get, we essentially took, as a minimum benefit package, the 

middle range benefit package that is available to Members of Congress. In other words, there are half of them above and half of 

them below. It is sort of the middle range. In the Lewin report it 

is outlined. It has prevention, outpatient, inpatient, and catastrophic——

Chairman CONRAD. Let me ask this, would the BlueCross 

BlueShield standard option, would that be——

Senator WYDEN. Right. That could certainly be one of them. 

Chairman CONRAD. That is what many of us have. I have people 

ask me all the time, they think we have some great Cadillac plan 

here. It is a good plan. But what many of us have is a BlueCross 

BlueShield standard option that is widely available in our States. 

Senator WYDEN. It is what I have with the card I held up. 

And then we took another step and we said it would also be possible for plans to offer what would be called the actuarial equivalent, so that it would be a lot of flexibility for innovation and creative kind of thinking. 

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And then we also said, because none of this ought to be set in 

stone, that we would lay out a process so that after we had this 

underway for a couple of years there would be a commission, an 

advisory group that would in effect look at whether—we got into 

this with Dr. Orszag, for example, last week, whether as a result 

of comparative effectiveness changes that there ought to be an adjustments in it as we go along. 

But at some point you have to figure out how to set that minimum benefit package. That is how we went about doing it. 

Chairman CONRAD. The second question I had, and just briefly, 

is on the pay for side of the ledger. You cash out the—as I understand it, the employer cashes out the employee. If he is spending 

$10,000 a year on the health care of that employee, that $10,000 

is made available to the employee for the purpose of buying a 

health care policy. 

Senator WYDEN. Correct. 

Chairman CONRAD. If the employee is able to save money and 

able to get a policy, to get that standard option, whatever it is, 

mid-range of what Federal employees have, and it only cost them 

$8,000, what happens to the savings? The $2,000 savings? 

Senator WYDEN. They, of course, are allowed to keep it. I do not think we will see many people getting it for $8,000. I think we are 

more likely, particularly at the outset since this is a basic package, 

for them as a result of the fact that they will have more choices 

in the marketplace, one. The marketplace will be fixed because insurance companies will not be able to cherry pick. They will compete on the basis of price, benefit, and quality. My guess is that a 

good shopper along the lines of what you are talking about might 

save $500 or something along those lines. 

And that is why I joked they will get to go fishing in Oregon. 

But the point is that there will be incentives——

Chairman CONRAD. Now a North Dakotan, would they have to go 

all the way out to Oregon to go fishing? 

Senator WYDEN. We will work out an agreement with Senator 

Crapo and Senator Stabenow and our colleagues on that. 

Chairman CONRAD. We have very good fishing in North Dakota. 

I am there. 

Senator WYDEN. That is essentially the outline. I do not think people, in the instance of buying that $10,000 policy, are immediately going to save $2,000 on a basic package. But they might 

save a few hundred. And that begins to kick in the kinds of incentives that we do not have today, where you essentially go out on 

your own in this broken marketplace that has all this cherry picking, they are not much interested in you. And if you have an employer-based plan, you basically get the one thing that the employer gives you and that is it. 

Chairman CONRAD. I am going to stop at this point because there 

are other members here. Let me ask, Senator Wyden, would you 

be open to questions from other members of the panel? As we set 

this up we indicated only the Chairman and ranking member 

would ask. 

Senator WYDEN. Sure. Of course. 

Chairman CONRAD. But I would just make this offer to members 

of the Committee. If they would have questions for Senator Wyden, 

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we will have one 5 minute round because we have a second panel. 

And you can either use that time to ask questions of Senator 

Wyden or make a statement. 

Senator Cardin was first. 

Senator CARDIN. Thank you very much, Mr. Chairman, and let 

me congratulate Senator Wyden for not only his legislation but his 

leadership on the health care issues. He has been a champion for 

many years. And we appreciate that you are working with Senator 

Bennett because I do agree, we need to have a bipartisan approach 

if we are going to be able to get results in this Congress. And we 

need to get results. 

I also agree that we are spending enough money. Both you and 

the Chairman have indicated that. But the problem is we have 46 

million to 48 million people without health insurance. We talk 

about those numbers but let me just put a face on it. Deamonte 

Driver, a 12-year-old from Prince Georges County, Maryland, fell 

through the cracks. Had Medicaid, lost Medicaid, had no insurance, 

had a toothache. A simple toothache, tooth decay. 

His mother thought his younger brother was in worse shape than 

he was with oral health care. Deamonte ended up going to the 

emergency room, where they have to treat him. A quarter of a million dollars was spent on emergency surgery. And he lost his life 

through an abscessed tooth going to his brain. For an $80 tooth extraction, we could have saved his life. 

So each one of these 48 million represent an individual family. 

And we all have lists on what we need to do to improve our health 

care system, bring down costs, including taking on the prescription 

drug cost and dealing with preventive health care and dealing with 

long-term care and dealing with use of technology more effectively. 

But No. 1 should be, on everyone’s list, universal health coverage. 

We have to get everyone in the system. That is what you said, and 

I agree with you completely. We have to get everyone into the system. 

In 1993, I was on the Ways and Means Committee, the Subcommittee on Health. I not only supported the Clinton approach for 

universal coverage, I voted for it in the subcommittee. It has been 

to long until we get back to a way to get universal coverage. 

So I start off by congratulating you for bringing forward a proposal that will bring us to universal coverage, because we need to 

do it in a proposal that I hope that this Congress will consider the 

proposals for universal coverage. 

I just caution that—I listened to your explanation and I thought 

you did an excellent job. But whenever you have a proposal that 

is somewhat complex, people will pick at it. That was one of the 

problems we had in 1993. 

I am working on a proposal that takes part of what you just said 

in your proposal. It is a rather simple bill, I hope to file it shortly, 

that will require every person in this country to have health insurance. A simple individual mandate. Allowing the States to determine what is an acceptable product and the enforcement being the 

cost to provide a minimum insurance plan in your State. 

So that everybody would have health insurance in this country, 

be required to have health insurance. I think it would be the right 

steps to take to encourage those States that are already moving 

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forward with universal coverage to show that the Federal Government wants to be a partner in that approach. 

I think it helps employers who want to cover their employees, 

looking for more options, because I think the private insurance 

marketplace would provide more opportunities knowing that the 

market is going to be a lot larger. And it certainly helps individuals 

today who go into the insurance market to try to find an insurance 

product and cannot find an affordable product because, as you 

point out, adverse risk selection and cherry picking. If everyone 

needed insurance, there would certainly be more products available. And it would also encourage those young workers who today 

choose not to buy insurance, who have the opportunity, knowing 

that it is required, I think you will see a more favorable way of 

moving forward. 

Senator Wyden, I just really wanted to take this time to applaud 

you and agree with you that we need to take up health insurance 

in this Congress. 

Mr. Chairman, it would be a mistake for us to wait two more 

years. And I am more than happy to get your reaction, but I really 

believe that you are on the right track by placing the responsibility 

at least first that everybody in this country must have insurance, 

must be part of the system. 

Senator WYDEN. Just very quickly, if I could, Mr. Chairman. I do 

not want to make this a bouquet tossing contest. But we are just 

thrilled to have Senator Cardin here. He and I have been working 

on health care since the days when he was on the Ways and Means 

Committee. Just a couple of quick reactions. 

First, on this issue of being complicated, and I think one of the 

reasons that we took the time this morning is we wanted to lay out 

how it would work for 300 million people. I have tested this at 

town meetings. And I hold up that card and I say you are going 

to get choices like Members of Congress get, a delivery system like 

Members of Congress get, and I can lay it out in just a minute or 

two. And I think that will be part of the effort to prevent what the 

Senator is talking about. Because, of course, all of this can be 

twisted around. 

It also allows us to say there is a precedent. Everybody always 

wants to say well, how do we know it works? We can say Members 

of Congress and their families are not complaining. 

With respect to the cost, my hope when we shipped this off to 

the Lewin people, and they been scoring for everybody, the Administration and us and everybody else, is I said I hope we get to revenue neutrality. I hope we can just tell people it will not cost more 

than we are spending today. 

And when they came back and said at the outset you can expand 

the coverage for less money and save close to $1.5 trillion over 10 

years, I just about fell off my chair. I had no idea that we would 

be able to get to that point. And I still say to myself if we can get 

close to that, I think we would be in a position to move a bipartisan 

piece of legislation. 

So the Senator is right. I also want to add I very much share 

your view about the need for a wide berth for the States. That is 

going to be very key. Senator Bennett and I have been talking to 

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Secretary Leavitt about that and we will definitely want to have 

discussions with you about it. 

Senator CARDIN. Thank you. Thank you, Mr. Chairman. 

Chairman CONRAD. I thank Senator Cardin. 

Let me just indicate to the audience that there are chairs up in 

front. There are a lot of people who have been standing for some 

time in the back. There are at least four chairs up in the front, 

three on this side and on over here. Please feel free to take those 

chairs. 

Senator CRAPO. Senator CRAPO. Thank you very much, Mr. Chairman. I appreciate you holding this hearing. 

Senator Wyden, I am not going to ask you a question. I am just 

going to make a comment and then you can reply to it if you would 

like. 

But I just want to thank you for efforts in this area. I apologize 

I did not get here for your original testimony so this may have already been stated. But as you know very well, with your leadership, a group of senators on both the Republican and Democrat 

side have come together to commit to try to get past the partisan 

differences and the philosophical battles that we have had for decades now, trying to resolve these issues of getting an adequate and 

not only an adequate but a top-notch health care system in place 

in this country. 

Five Republicans and five Democrats have signed a letter to the 

President. I am one of those, working with you, telling the President that we are ready to sit down and hammer out a solution because our country so badly needs that kind of leadership. And so 

I appreciate your leadership in that area. 

We really do need to get past the conflicts in the past that have 

stopped us, frankly, from proceeding. In a very shorthand way of 

looking at it, there are those in the country and in Congress who 

want to have a Government-run health care system, what some of 

us call a purely socialized health care system, one where the sole 

provider is the Government and we get away from market forces 

and trying to figure out how to let a market work. 

There are others in Congress who want none of that and they 

want to have a pure market system in which we move away from 

all of the other aspects of assisted health care that we have. 

And in the middle is sort of the uneasy mix that we have right 

now, which is a little bit of a win for one side and a little bit of 

a win for the other side over the years as we have battled back and 

forth here in Congress. 

The solution clearly, in my opinion, is not one which is well 

thought out. It is time for us to come together and work on a bipartisan basis to solve the problems that we have in our health care 

delivery system in this country. 

And so I applaud you. I look forward to working with you to 

achieve these objectives. It is going to require that we all give and 

that we all take. The give and take is going to necessarily result 

in some kind of a compromise where, in this traditional battle that 

we have over how to handle our health care, neither one side nor 

the other is going to come out of the total victor. I am confident 

that it will be some kind of a mix. 

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But we have to come together and find a path forward that 

reaches solutions. And you certainly have started to put your finger 

on some of the directions in that pathway that we need to be traveling. 

So I commend you for it and thank you. 

Senator WYDEN. I would just say I really appreciate the Senator’s involvement. Before the Senator got here I talked about, 

even in the letter, the sort of ideological truce. As we talked about 

when we were doing the letter, and the Chairman was involved in 

this, it is a big lift for some folks on the Republican side to say we 

are going to cover everybody. We are going to get everybody under 

the tent. But it was a big lift for some of the folks on the Democratic side to talk about the role for the private sector we did, and 

talk about fixing the tax code. 

So your involvement has been a great help and we are appreciative. 

Senator CRAPO. Thank you. 

Chairman CONRAD. Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Mr. Chairman. 

I would like to start by emphasizing what Senator Cardin and 

Senator Crapo have just said, which I agree with very, very strongly. And that is that the health care situation is very dire and our 

health care system right now is, in effect, broken. And if your car 

was broken, you would take it and get it fixed. And you would not 

care whether your mechanic was a Democrat or a Republican. You 

would just get the work done. 

Same with your plumbing. You do not care about your plumber’s 

political views. You just need somebody who can make the darn 

thing work better. 

And that is where I think we are in health care. So these initiatives to try to get away from—there are plenty of partisan dynamics in this building, and some of them are wonderful. But this is 

an area where we really need to push toward solutions. So I appreciate, Senator Wyden, what you are doing. 

In terms of trying to put it into some context, I would hypothesize to you that we have a finance problem in the health care sector. I hesitate to even call it a system. That is a complement to it 

that it does not deserve. 

But if it were a system, it would have a finance aspect to it. It 

would also have an operations aspect to it. In a business you will 

often see that there is a finance group that deals with the financial 

problems. And then there is an operations group that deals with 

the operations problem. 

As you know, I am focused a lot on the operations piece and I 

see quality reform, particularly in those proven areas, particularly 

in Senator Stabenow’s State of Michigan where a wonderful example took place, saving $165 million just in 15 months, just in intensive care units, and not even all of them while saving nearly 1,600 

lives. There are these win-win situations out there where people 

get better health care at lower cost. 

We have a disastrous health information technology system. It is 

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ing to RAND, as you know, are between $81 billion and $346 billion a year. 

And then, of course, we have some really idiotic and counter-productive price signals in the way the reimbursement system is 

going. 

I see those three elements as being kind of core principles for 

solving what I call the operations problems that we have in the 

health care system. And I would like your comment, Senator, because you have thought about this a long time and are one of our 

leaders here in the Senate on this issue, about the extent to which 

you would agree that the plan you are discussing here is primarily 

a financing plan and the extent to which you would find that to 

create any conflict with the sort of operational level reforms in 

quality institute, in quality care, in health information technology, 

and in reimbursement reform that I know you are also very interested in. 

In a nutshell, do you think those two initiatives can proceed in 

happy concert with each other and in parallel? 

Senator WYDEN. I think the Senator has made important points. 

I do see this as considerably more than a financing proposal. For 

example, this is the first proposal that goes right to the heart of 

changing behavior in this country. This is the first time anybody 

has said, under Medicare Part B, let us make it attractive for prevention. So we say there would be voluntary incentives. If seniors 

lower their blood pressure, lower their cholesterol, they get lower 

premiums. This has brought together conservatives who want to 

look at health care from a behavioral standpoint and folks on the 

liberal side who see this as an important expansion as it relates 

to benefits. 

So I do see this as considerably more then a financing issue. 

I think what the Senator is talking about with respect to information technology, and our friend from Michigan has talked about, 

is extraordinarily important. There are two points that come to 

mind. 

One of the areas we touched on last week with Dr. Orszag, and 

the Chairman got into this, is some of the most important work in 

this area, particularly as it relates to information technology, prevention, and comparative effectiveness where you are kind of looking at one approach versus another in terms of treating a patient. 

Traditionally the Congressional Budget Office has not been willing 

to score as something that will save money. 

Everybody in the country, Democrats and Republicans, know 

that it will save money. But the people who are deputized to make 

these official scores have not scored it to date. And that is why 

Lewin, with the important things we did in prevention, and we 

used the Agency for Health Care Quality Research to do some of 

the work the Senator is talking about. 

Lewin, when we had discussions with them, they sort of smiled 

and said those are great ideas, all you people in Congress have 

them, put them in. We are not going to score them. We are not 

going to score that they make any savings, even though you and 

others argue for the fact that prevention will surely pay off, as will 

information technology. 

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Now that we have you here in the U.S. Senate to lead us on information technology, and we are looking at your very good bills, 

because I think they make a big contribution, we are going to want 

to bring those into this debate, as well. And I think your touching 

on sort of the financing and the operations of health care is critically important. 

What we tried to do is to say look, the system today does not 

work. It does not work in the financing area. It does not work in 

prevention. It does not work in information technology. We require, 

and the insurance companies have indicated, they would go along 

with this, that when somebody signs up for a plan that an electronic medical record is opened on them at that time and people 

would own their record so we could have the portability. 

But there is a lot of heavy lifting to do and we are glad you are 

here to help us in so many of the important areas. 

Senator WHITEHOUSE. Thank you. 

Chairman CONRAD. I thank the Senator. 

Senator ALLARD. 

Let me also indicate the situation we are dealing with here. One 

of our witnesses on the next panel has to leave by 11 o’clock. So 

after Senator Allard and Senator Stabenow have had their turn we 

will then call the second panel. and I will ask Dr. Milstein to go 

first to the second panel because he has another time constraint, 

and I apologize to everyone else but we have to try to make this 

work for everyone. 

Senator ALLARD. 

Senator ALLARD. Thank you, Mr. Chairman. And thank you for 

holding this hearing. Senator Wyden, thank you for your leadership 

on this very important issue. 

You are working, I guess, with Senator Bennett on this proposal. 

I think that is an appropriate individual to be working with. The 

fact that he has a health care systems in Utah that is doing a fabulous job of holding physicians accountable, and I will go into that. 

Maybe you are aware of it but I will mention it to you. 

But I have served on the health board at the county level. I have 

served in the State Senate in Colorado, served in the U.S. House, 

served here in the Senate, and been on committees in each one of 

those bodies that talked about health care. 

Obviously preventive medicine is something that helps. Then 

there is things that you can do for holding the programs more accountable. Is basically more rules and regulations. But we have a 

fundamental problem with third-party pay. That is the patient or 

whoever pays into the third party, they think they paid for health 

care. And then the insurance company or the Government or whoever is paying out to the physician, they do not have the time or 

the effort that individuals should be putting out to hold whoever 

the provider is accountable. 

And they have, with Intermountain Health Care System, where 

they have gone to electronic records. You and I have talked a little 

bit about electronic records and we know how important electronic 

records are as far as a diagnostic tool. But they are using electronic 

records in a way where they are using an outcome based evaluation 

for the doctors. 

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So this is a system that has, I do not remember how many doctors they have in it, but we will just pick a figure, somewhere 

around 500. And they look at those doctors, for example, who are 

treating diabetes. I am using this hypothetically. 

So they will look at some of the doctors. Some of them have a 

better recovery, a quicker recovery rate and maintenance of glucose 

sugar than others, and do not have as many secondary complications as others. So then what they do is they look well, this doctor 

here is getting these kind of results and this is what is happening 

in the end. And the other doctors getting other results but they are 

not as favorable as the first doctor. 

So then they say well, what is this doctor doing that the other 

ones are not? And since they are all in this group together, they 

have a conference and say look, we have to talk about this. There 

is this discrepancy. 

What they have found in this program, and they have the facts 

to prove it, is they are bringing in the quality of care because the 

doctors, and they graduate from a whole different variety of medical institutions, they all have their approach to treating diseases. 

And they are working out, through their organization, processes 

that work best for the State of Utah. This is a Utah—it is called 

Intermountain. 

Dr. Brent Jones of the Intermountain Health Care is the one 

that I got this presentation on. I have heard lots of presentations, 

but this is the one that has hit me as being the most effective in 

holding down health care costs and improving the results at the 

end because it is sort of an outcome based measurement of the various strategies that doctors use in a practice. 

I just bring that to your attention and just wanted to give you 

an opportunity to maybe comment on it. I am glad you are working 

with Senator Bennett because this is an organization that is right 

in his back door and maybe both of you have been visiting with 

this organization. But they have some good things. 

Senator WYDEN. I think the person you are talking about, Brent 

James, in particular, he is on our citizens health care working 

group that Senator Hatch and I were involved in getting set up. He 

really has been the gold standard in terms of trying to integrate 

the kinds of services that you have mentioned. We are trying to essentially build on it. There are a handful of programs like that in 

this country. 

In my part of the world Kaiser, for example, has tried to do much 

of the same thing that Intermountain has. 

But the Senator is absolutely right, there are some very good 

models that we ought to look to. 

Senator ALLARD. Thank you, Mr. Chairman. 

Chairman CONRAD. I thank the senator. 

Now I will turn to Senator Stabenow. I will just point out Senator Stabenow was reminding us all forcefully in the last few 

weeks that this health care issue goes way beyond the health care 

part of our economy and affects the manufacturing sector. I remember very well the Senator telling me in this country we have about 

$1,500 of embedded health care cost in every automobile. And our 

competitors, less than $100. That confers an enormous economic 

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advantage on our international competitors in the automobile industry. 

So Senator Stabenow, who has been such an important part of 

this Committee in dealing with health care issues, glad you are 

here this morning. 

Senator STABENOW. Thank you, Mr. Chairman, for this additional hearing that is so critical. And thank you for raising what 

is, in fact, an international competitiveness issue for us in terms 

of keeping jobs in America. As I know Senator Wyden knows, as 

well as being, in my opinion, the No. 1 quality-of-life issue for all 

of us. 

I am really pleased, first of all, that we have been talking about 

health IT as it relates to saving dollars, comparative quality issues, 

as Senator Allard raised. There is such a wide range of issues that 

can be addressed through health IT. 

I hope that we are going to begin to move on that as a piece in 

conjunction with the broader issue as soon as possible because it 

is going to take time to get that set up. And we are now in agreement with the fact that it needs to happen. Now we just need to 

move ahead and help providers be able to put it in place so we can 

use it. 

Senator Wyden, thank you so much for your thoughtfulness and 

your leadership on this issue and so many areas of health care. 

Focusing on prevention, I totally agree with you on the fact that 

there is enough money in the system if we were using it correctly, 

more than enough, to be able to address the uninsured and bring 

down costs. 

What I grapple with all of the time, and I would appreciate your 

thoughts on this, and I apologize for having come in late to your 

presentation. But when we talk about an individual mandate, I understand the concept of an individual mandate. We hear often of 

an individual mandate that you have to get auto insurance or you 

have to get homeowners insurance. The difference is you do not 

have to have a car, you do not have to have a house. That is part 

of the costs you build it. But we are all stuck with our bodies and 

so it is tough to say we will choose not to get sick. 

For me the question is always, I understand the theory of more 

people going into the marketplace. That makes sense to me. But 

what I am concerned about is what happens on the insurance end 

to make sure that people can actually afford to purchase that insurance. Because now you have more people in a mandate. How do 

we know, first of all, that it just will not be a terribly confusing 

situation, as has happened with other things for people? And how 

do we know that, in fact, that costs will really come down for people in that mandate? 

That is where I get stuck. We say to people you have to have it. 

I understand that we would no longer see cherry picking, which is 

a really important thing. But if you could speak on the insurance 

end, what kind of reforms, what kind of consumer protections do 

you see? For me that is critical in getting my arms around this. 

Senator WYDEN. The Senator, as usual, makes a very important 

point. Of course, if you do not make—and it is really a good one 

to quit on, Mr. Chairman, because let us talk about how it would 

work in the real world. 

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What Senator Bennett and I are trying to do, and I held up my 

private card, is make it look like it works for the Stabenow family. 

What happens to the Stabenow family and the Whitehouse family 

and all of us is you get that information from a variety of private 

insurers during the open enrollment season. They are required to 

offer explanations and to have toll-free lines and the kind of thing 

that allows you to have a place to answer questions. For our proposal we use State agencies. We call them health help so that there 

would be, for example, a Midwestern health help. You might have 

just for Michigan or for a handful of states in Michigan. They can 

help walk people through the choices. 

The cash out feature is very important because when this goes 

into effect the first thing people are going to say is how in the 

world am I going to do this? So we put the extra money in people’s 

pockets so that they are in a position to then have the money to 

make the choices. 

Now we think if we can enforce the insurance reforms, and the 

Senator is absolutely right, this does not work unless you reform 

the insurance sector. I have told insurance companies, and we had 

a visionary insurance leader, a BlueCross leader from our area, 

Mark Gansle [ph], you give and you get. You are going to have to 

give on things you have resisted in the past. There is going to be 

guaranteed issue so people can get coverage. You cannot discriminate against people with pre-existing illnesses. There is going to be 

loss ratio requirements so that what you get in the premium dollar 

you have to pay out. Insurance companies do a lot of gulping when 

you talk about all of the things that you are going to require in 

terms of consumer protection. 

But then you tell them hey look, you are not going to get put out 

of business. Some people think that we ought to just had this over 

to the Government. You are not going to be put out of business. 

So the Senator is absolutely right. The linchpin of going to something like this for our country is making sure you have these private insurance reforms which, if coupled with the tax code changes 

so you do not disproportionately favor the most affluent, we can 

make it work. Those are the two things. Stop rewarding the 

wealthiest among us under the Federal health care tax rules and 

make the private insurance reforms that the Senator eloquently 

has talked about. Then I think you make it work for the families 

we all care about. 

Senator STABENOW. Thank you. 

Chairman CONRAD. Thank you, Senator. It is a good place to end 

it. 

Senator Wyden, I want to thank you and Senator Bennett for 

your appearance here today. You have contributed significantly to 

the work of this Committee and certainly beyond the borders of 

this Committee, as well, to the work of the Congress. 

We may have an opportunity because SCHIP is up for reauthorization. Maybe we need to think more broadly. That is, of course, 

providing health care coverage to children. We have a debate going 

on right now whether adults should be covered under SCHIP. 

I have argued if you are going to cover adults you have to call 

it something else. You cannot call it health care coverage for children. 

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Maybe we need to lift our horizons here and talk about not just 

additional incentives for covering children. Maybe we need to have 

this broader discussion of how we cover everyone in this country 

and do it now. 

Senator WYDEN. Sign me up, Mr. Chairman. 

Chairman CONRAD. You have certainly done an enormous 

amount of work and we very much appreciate the energy and the 

effort that you have put into it. 

Thank you, Senator Wyden. 

Senator WYDEN. Thank you. 

Chairman CONRAD. I now call the second panel. Sara Collins, the 

Assistant Vice President on the Future of Health Insurance at the 

Commonwealth Fund; Len Nichols, Director of Health Policy at the 

New America Foundation; and Arnold Milstein, the Medical Director of the Pacific Business Health Group. 

Thank you all for being here. 

We are going to go immediately to your opening statements and 

we are going to start with Dr. Milstein because I know he is under 

a severe time constraint and has another obligation that will require him to leave, as I understand it, at about 11 o’clock. 

First of all, I want to thank all of the witnesses for being here. 

I appreciate it very much. And as we are getting set up, I hope we 

can turn to Dr. Milstein for his testimony and then we will proceed 

with the other witnesses. 

Dr. Milstein, welcome. 

STATEMENT OF ARNOLD MILSTEIN, M.D., MEDICAL DIRECTOR, 

PACIFIC BUSINESS HEALTH GROUP 

Dr. MILSTEIN. Thank you, Mr. Chairman. 

My testimony can be reduced to three key points. First, health 

care reforms should initially include a focus on removal of the 30 

to 40 percent waste in current health care delivery. This waste is 

about equally divided between services of no valuable and valuable 

services that fail to meet low-cost benchmarks per unit of service. 

These inefficiencies were described in an Institute of Medicine report published in the fall of 2005 along with this estimate of 30 to 

40 percent waste in current spending. 

This is a critical place for health care reform to focus because 

greater efficiency of health care delivery frees up funds to widen 

health insurance coverage and, equally important, enable greater 

investment in quality of care so we can begin to create more distance between our quality rating and those of countries like Albania. 

Second, that highest leverage point for eliminating this estimated 30 to 40 percent waste is by motivating physicians to conserve health care resources and to deliver quality at levels already 

being achieved in their communities by their peers who are at 

benchmark levels of efficiency and quality. 

I did bring along one slide that illustrates, just gives you a pictorial image of what happens in any given community when one 

profiles, compares individual doctors on two dimensions. The 

vertical dimension illustrated in this diagram is quality of care, 

rate of compliance with evidence-based guidelines. And the horizontal axis is what I refer to as the average health insurance fuel 

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burn per episode of care. So it is total all-in costs associated with 

a particular physician’s care. 

A number of pioneering purchasers, in this case a partnership 

between the machinists union and Boeing, have begun to pioneer 

in generating such comparisons among physicians in a community. 

Each one of these little dots is a doctor in the Seattle area. 

In essence, if one models how much could be saved if simply 

every doctor in Seattle practiced at the level of the low-cost highquality benchmark doctors, which is illustrated by the northeast 

quadrant in this distribution, the savings would be substantial, on 

the order of magnitude of 15 percentage points in total spending 

while improving quality. 

The next slide simply summarizes some of the experience of a 

few early purchaser pioneers who have taken advantage of this to 

share with both physicians and consumers differences in physician 

performance within a community associated with both resource use 

and quality. You can see this is a mixed group of users. It includes 

very progressive and forward thinking labor unions like the hotel 

workers union in Nevada, a number of health insurers and self-ensured employers like Pitney Bowes. As you can see, the early returns on this, when used by single payers, is on the order of magnitude of two to 17 points, depending on how aggressively the results are used. 

Why physicians? Why focus on physicians? Physicians are the 

highest leverage point on both quality and efficient resource use because State laws give them the exclusive authority to write orders 

for medical services that comprise more than 80 percent of total 

health insurance spending. And because no one influences patient 

health behaviors more than physicians do. 

The third point is that to adequately apply strength to this leverage point Congress should consider authorizing use of reports from 

analysis of the Medicare claims data to help all private payers to 

identify and reward physician excellence more accurately. Very few 

self-insured employers, union-administered health benefit plans, or 

insurers have sufficient density of insurance claims data to compare accurately and reward physicians on conservative resource 

use and achieving benchmark levels of quality. Most payers simply 

do not have sufficient density of claims data in any given community to do this. 

The Medicare data base is the only health insurance claims data 

base in the U.S. of sufficient size to enable all private payers to 

generate performance measures at the individual physician level. 

Senators Gregg and Clinton have proposed to correct this problem via the Medicare Quality Enhancement Act at no cost to the 

Federal Government. It is supported by a very wide variety of constituents, including AARP and virtually every labor organization 

and large employer that is aware of the legislation has signed on 

in support of it. 

If Congress enacts it, it would potentially enable all payers to 

slow per capita spending growth, improve quality of care and—importantly for this hearing—help fund wider health insurance coverage. 

Thank you, Mr. Chairman. 

[The prepared statement of Dr. Milstein follows:]

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Chairman CONRAD. Thank you, Dr. Milstein. Thank you very 

much for that very interesting testimony. I know that we are running close to the time that you need to leave. 

So I am going, if I could, just ask the other witnesses to withhold 

for a moment so that I can ask you about the legislation that has 

been introduced by the ranking member of the Committee, Senator 

Gregg, and Senator Clinton. 

Can you give us a sense, does it include quality measures? 

Dr. MILSTEIN. Yes. It essentially enables anyone, any citizen, any 

organization, to order from a small number of federally qualified 

analysts of the Medicare claims data base, any report pertaining to 

quality of care or efficiency of resource use. And so it is essentially 

an opportunity for any—whether it is Consumers Union or General 

Motors—to have a full set of performance statistics on physicians, 

on hospital departments, on any unit of analysis, as long as the 

only purpose of the request is to generate performance information 

about the health care system. 

Chairman CONRAD. Let me ask, do you see any risk in this proposal? Is there any downside to this? 

Dr. MILSTEIN. Yes, I do. I feel that in any industry—at the beginning of performance measurement in any industry we know the additional measures are not going to be exactly right. I would reflect 

back on the early car crash safety ratings. They were only based 

on frontal impact. In retrospect we could say gee, it would have 

been a lot better had we also had side impact, three-quarters impact, and rollover testing. 

I think very analogous to that, early uses of insurance claims 

data bases to generate measures of quality and resource use efficiency are going to be directionally correct but not perfect. And I 

think that is one of the risks associated with moving forward is the 

resulting measures, I do believe, will be directionally correct, as 

verified by those that have begun to use them. But I think they 

will be imperfect. 

At the margin, for example, some hospital departments or some 

physicians will get a B+ rating when actually they deserved an A-

. Chairman CONRAD. And how is quality included? The thing that 

I am struggling to understand is if you are getting data from analysts and they have readily available to them cost data, quality 

data less readily available to them, how do we ensure that somebody who may be a higher cost doctor who also happens to be the 

best quality doctor, that those two facts do not get lost and we only 

wind up seeing the high cost? 

Dr. MILSTEIN. Will first of all, I think it is a very valid concern 

and one that, as a physician, I share. I think the good news side 

of it is that every single purchaser that did have enough claims 

data density to go forward without access to the Medicare claims 

data has intuitively sensed that it would be irresponsible and nonviable to try to go forward with an approach to physician or hospital department rating that did not include quality as well as resource use. 

Whether one is a steward for a group of employees or a group 

of union members or members of, for example, a State Government 

insurance plan, it is simply in this country no longer doable postVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00127 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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managed-care backlash to proceed forward with any rating system 

that does not also include quality of care. 

Chairman CONRAD. That really is my concern. I withheld cosponsoring the bill because of that concern. I think it has enormous 

merit and I am very intrigued by your testimony here today. I regret that other business takes you away from us but we certainly 

understand that. 

We will now turn to Mr. Nichols, the Director of Health Policy 

at the New America Foundation. Welcome, Dr. Nichols, good to 

have you here. 

Thanks so much for your patience. Dr. Collins, as wealthy, thank 

you for your patience. 

STATEMENT OF LEN NICHOLS, PH.D., DIRECTOR, HEALTH 

POLICY PROGRAM, NEW AMERICA FOUNDATION 

Mr. NICHOLS. Thank you, Mr. Chairman, Senator Wyden, and 

other members of the Committee. I would like to thank for inviting 

me to testify on health system reform today. 

Your invitation asked me to address three specific questions, the 

first of which is how should the Committee evaluate health care reform proposals? I would offer two criteria for your consideration. 

First, does the proposal match the scale of our problems? And the 

second, is the proposal capable of earning bipartisan support? 

Now your own charge at the beginning of this hearing, Peter 

Orszag last week, I have some charts in my written testimony. 

They all make the point. You all clearly get it. The scale of our 

problems is very large. So I will not belabor that point. 

I will just say to match the scale what I will call a major-league 

proposal worthy of your time must have three elements. It must 

cover everyone. It must have some way to reduce cost growth in 

the long run and increase value. And it must offer a credible financing package that can sustain the system over time. Any proposal without these three elements, in my view, should be labeled 

minor league and kept at the end of your queue. 

If a proposal would not cover everyone, it is not serious for it continues to ignore the cost shift and adverse selection that messes up 

our insurance markets. If it does not have a credible plan for reducing cost growth, you know what? None of us are going to be 

able to afford health care in the coming decades. Third, if the proposal does not have a credible financing package, it is not being 

honest with the American people about the costs and benefits of investing in a new health care system. 

You all know we have tried dishonesty before. I will simply observe it did not work. We can do better than that. 

On the bipartisanship point, the second criterion should simply 

be this, it has to be capable of earning bipartisan support. I have 

heard a lot of that. In fact, I have heard more of that this morning 

than I have heard in 5 years of testifying up here. This is a very 

good Committee. I applaud your work. 

Bipartisan reform means that each side must recognize the key 

elements of their own priorities within the solution. For Republicans, in my mind, this means individual choice and market forces. 

For Democrats it means a solution must work for all of us, including those who are low income or high health risks. And I believe 

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it is sharing these perspectives that is what brought Senators 

Wyden and Bennett to cosponsor the Healthy Americans Act. In 

my judgment, this is the only major-league proposal that has bipartisan support in the 110th Congress at this moment. 

The second question you asked was what are some possible options for health care reform? In my view, after many years of looking at this, I will say there are only three credible ways to cover 

all Americans: single-payer Medicare for all; employer mandates 

plus individual mandates; or individual mandates alone. I will tell 

you technically, as a health economist, they all could work. They 

all have their pluses and minuses. But each approach really does 

have some weaknesses that are worth addressing. 

In my view, the largest weakness of the single-payer approach is 

that the American people do not seem to me to trust Government 

enough to let it take over the health system altogether. 

On the employer mandate side, I am really sympathetic to Senator Stabenow’s problem in Michigan. The fundamental worry I 

have about an employer mandate is international competitiveness. 

Again, I have some charts in my written testimony I would be glad 

to talk about but I think it is fundamentally true if this was not 

a problem employers would not be dropping coverage like some are. 

Employers would not be reduced the share of the premium they are 

paying like many are. And employers would not be reducing the 

generosity of the coverage they offer like almost all of them are. 

This is not being shifted. They are bearing some of this cost. 

So that leaves me with individual mandates. To my view, they 

have much to recommend them. First, they are consistent with the 

personal responsibility vision of conservative reformers. And they 

also make insurance markets both more efficient and more fair by 

solving adverse selection problems which liberals like on good days. 

The one real fear of individual mandates is precisely the one expressed by Senator Stabenow earlier. How can you make sure these 

packages are going to be affordable? And I submit to you that is 

important. That is the most important question. In a sense, I would 

say this is not really a critique of individual mandates per se but 

a broader distrust of the whole reform system. And I submit therefore the burden of reassuring proof about commitment to affordability and fairness is in the details of the legislation. And here I 

would say the Healthy Americans Act does a better job of this than 

either the State of Massachusetts or Governor Schwarzenegger has 

done so far in their proposals. 

So part of why this is true is because the Healthy Americans Act 

can redirect a large and regressive tax expenditure money that 

gives Federal reformers more degrees of freedom than any State 

has on their own. 

The final question the Committee asked, how do we provide quality health insurance to more individuals and families, decrease the 

number of uninsured, improve health outcomes and contain costs? 

First, I applaud your ambition. But this is the proverbial key question. 

I would offer a two-part overarching answer. The first is simple: 

buy smarter. It gets to the operational details Senator Whitehouse 

talked about. 

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The second though may be more important. Think hard about 

whom we are buying for and why we are doing it. 

I would defer to Arnie and Sara to follow on buying smarter. 

They are going to talk about that a lot. I will just mention the 

three elements that have to be there, and I think we all already 

agree: electronic records, better incentives, and comparative effectiveness information that is widespread. We need them all. We 

need them tomorrow. And if we start this afternoon, we can have 

them all in 5 years. 

But I want to close by focusing on the last part of my answer 

to this question. For whom are we buying and why? I submit to you 

that there are 10,000 technical questions about health reform. We 

have talked about a lot of them today. You are going to talk about 

all of them a lot of times after this. But there is one fundamental 

question and I think it is a moral question that we should ask before we begin to answer any of the technical questions. That is who 

should be allowed to sit at our health care table of plenty? 

This is a question about community. What kind of community do 

we think we want to nurture and build and maybe rebuild? The 

older I get, the more gray in my beard, the more convinced I am 

the best descriptions of community we have are the oldest descriptions we have. I am talking about the Hebrew prophets which, as 

you know, inspired Jesus and Mohammed as well. A fair reading 

of our Jewish, Christian, and Muslim scripture says communities 

have an obligation to feed the hungry, the widow, the orphan, the 

stranger who would otherwise have starved. Preventable starvation 

was unacceptable in ancient times, even for the stranger. Because 

all humans were believed to be made in the image of God and believed to possess the right to participate in the life of the community. 

I submit to you health care has become like food, a unique gift 

capable of restoring and sustaining lives that are stricken with illnesses which could, after all, be any of us anytime because we are 

all the stranger. 

Now the Institute of Medicine has concluded after 3 years of 

committee meetings, six volumes of published reports, lots of footnotes, 18,000 Americans die every year for lack of health insurance 

which prevents them from getting the care that rest of us routinely 

get. These preventable deaths and the human suffering and lost 

productivity of preventable illness are a dark stain on our Nation. 

And the fact that most uninsured lack health insurance because of 

cost, in my view, is tantamount to denying food to the poor, the 

widow, and the orphan when Moses, Jesus, and Mohammed 

taught. I do not think they would approve. 

At the same time no community was ever told to share food exactly equally, to give all of its food to one person. Stewardship of 

the collective resources of the community was always part of leadership. Indeed, when you consider another of the Institute of Medicine’s findings, that the total social cost of the uninsured, including 

economic loss of premature death, unnecessarily prolonged illnesses, et cetera, that total social cost of the uninsured is roughly 

equal to the new public cost of covering the uninsured. Which is 

why, by the way, the math of Senator Wyden and Bennett works 

out. 

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You realize that health reform is at least as much about stewardship as it is about charity. 

I would also point out that Leviticus, the source of all of this, the 

landowner is not told to cook the food and invite the stranger home 

to dinner. But rather is told to leave the food in the field for the 

stranger to gather themselves. 

Our oldest obligations to each other have always been reciprocal. 

Each community has the right to define the rules of participation 

but it must keep the door open to willing passersby. Therefore, requiring people to obtain property subsidized coverage and to take 

personal responsibility for their own health is perfectly consistent 

with this interpretation of the timeless moral case. As is expecting 

the leadership of the community, that would be you, to exercise 

stewardship over its collective resources, including the health care 

delivery system. 

This shared responsibility extends to making the system more efficient so we can buy health care smarter for all of us. 

Thank you very much. 

[The prepared statement of Mr. Nichols follows:]

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Chairman CONRAD. Thank you, Dr. Nichols, for really excellent 

testimony. I think you have framed the issues in a very clear and 

compelling way. 

Dr. Collins, welcome. Dr. Collins is with the Commonwealth 

Fund, has a very good reputation and as somebody who is thoughtful on health care issues. Welcome, and please proceed. 

STATEMENT OF SARA R. COLLINS, PH.D., ASSISTANT VICE 

PRESIDENT, PROGRAM ON THE FUTURE OF HEALTH INSURANCE, THE COMMONWEALTH FUND 

Ms. COLLINS. Thank you, Mr. Chairman, ranking member Gregg, 

and members of the Committee, for this invitation to testify on 

health care reform. 

The U.S. health system performs poorly relative to other industrialized Nations on health outcomes, quality, access, efficiency and 

equity. 

In addition, where you live in the United States matters greatly 

in terms of access to care, the quality of care and the opportunity 

to lead a healthy life. A major culprit in the inconsistent performance of the Nation’s health system is that we fail to provide health 

insurance to nearly 45 million people and inadequately insure an 

additional 16 million more. Universal coverage is essential to placing the system on a path to high performance but the way in which 

a universal coverage system is designed will matter greatly in 

terms of whether the health system is ultimately able to make sustainable and systematic improvements on key performance measures. 

The Commonwealth Fund Commission on a High Performance 

Health System’s National Scorecard on U.S. Health System Performance found the United States ranks 15th out of 19 countries 

on mortality from conditions that are amenable to health care. 

That is, deaths that could have been prevented with timely and effective care. The U.S. ranks in last place on infant mortality. 

Not having stable adequate coverage limits access to care. Out of 

five industrialized countries, the U.S. has the highest share of 

adults reporting that they have cost-related problems accessing 

health care. 

Our health insurance system is complex, inefficient and administratively costly. In 2003 spending on health and insurance administration commanded 7.3 percent of national health spending compared with 5.6 percent in Germany and around 2 percent in 

France, Finland, and Japan. 

There are wide differences across States in access, quality, and 

cost. The Commission on High Performance Health System’s State 

Scorecard on Health System Performance finds that across States 

there is nearly a threefold variation in the percent of adults who 

are uninsured, ranging from a low of 11 percent in Minnesota to 

a high of 30 percent in taxes. The proportion of uninsured children 

ranges from 5 percent in Vermont to 20 percent in Texas. 

Across States higher rates of insurance are closely associated 

with better quality of care. States with higher medical costs tend 

to have higher rates of potentially preventable hospital use, including high rates of Medicare readmissions within 30 days of discharge. 

141

It is critical that the entire population be brought into the health 

care system in a way that ensures timely access to care across the 

full length of people’s lives. Uninsured and underinsured patients 

and the doctors who care for them are far from able to obtain the 

right care at the right time and in the right setting. 

Quality and effectiveness measurement will not be meaningful 

unless measures reflect the experience of a fully and continuously 

insured population and the work of their providers. 

The design of universal coverage will matter in terms of our ability to achieve high performance. Key questions that the public and 

policymakers might consider in evaluating health reform proposals 

include whether proposals improve access to care; whether they 

have the potential to lower cost growth and improve efficiency in 

the health system; whether they will improve equity; and whether 

they will have the potential to improve the quality of care on a system-wide basis. 

In terms of approaches to universal coverage, many recent proposals, both at the Federal and State levels, would build on the 

current system by connecting public and private insurance to ensure more coherent and continuous coverage over a person’s life 

span. 

A framework for such an approach would create a new group insurance option similar to the Federal Employees Health Benefits 

Program with income related premium subsidies, expansion of 

Medicaid and the State Children’s Health Insurance Program, and 

expansions of Medicare. It would include requirements that employers offer coverage or pay into a fund, and requirements that individuals obtain coverage. 

An alternate framework might include a more substantial role 

for Medicare. All uninsured people, people with non-group coverage, and most Medicaid beneficiaries would enroll in Medicare 

under this framework. Employers could either continue to offer and 

pay coverage or pay part of their employees’ Medicare premiums. 

Individuals could not opt out of the system. The program would 

subsidize both premiums and cost-sharing for lower income families. 

Some key components of universal health reform proposals that 

will help move the system to high performance include the following: insurers should be required to compete on providing added 

value to the health system in greater quality and efficiency rather 

than on segmenting or excluding poor health risks. 

Private insurers and public programs should negotiate with providers to create fair payment rates for health services and pharmaceuticals. 

Patient and provider incentives should be aligned to encourage 

use of all effective services and avoid use of ineffective services. 

All patients and providers should be part of an organized care 

system that is accessible and accountable for patient outcomes in 

preventive care and care coordination. 

The Nation should invest in fully interoperable national health 

information technology system. 

Thank you. 

[The prepared statement of Ms. Collins follows:]

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Chairman CONRAD. Thank you very much. 

Let me go to the question of comparative effectiveness. Very 

striking in your testimony, Dr. Collins, is the wide difference we 

see across regional lines in the country. 

Dr. Nichols, you mentioned comparative effectiveness along with 

electronic records and changing incentives. How do you see comparative effectiveness being employed? One of the things, I think 

it is pretty clear we have a common agreement that comparative 

effectiveness has to be part of the solution. In fact, in our budget 

we have a reserve fund for comparative effectiveness. 

Dr. Nichols, how would you employ it? 

Mr. NICHOLS. You know, Mr. Chairman, I think that is the question. I would offer the following example: let us start with something concrete, what we do now at the FDA. Right now to get a 

drug approved a company has to show that the drug is safe and 

effective, say it does not have untoward side effects, and beats a 

placebo. With all due respect, prayer beats a placebo. 

So maybe we should think a little bit about raising the bar. What 

if you said you have to show against existing treatments and for 

which subpopulation? 

Now that will take longer so you have to give them the right incentive. You have to give them a longer period of exclusivity. 

But the fundamental point, show us at the point of decision 

about whether to go forward with widespread marketing, that it 

beats existing treatment options and for whom. 

Then you take that information. And what I would do, sir, is put 

the information in the public domain. That is why the creature 

that makes the information has to be, in my view, a combination 

public/private partnership. The research has to be done in academic medical centers so we believe that. And the funding has to 

come from the Government because we are the ones producing the 

public good of the information. 

Chairman CONRAD. Let me direct you to—just interrupt you for 

a moment if I could. Dr. Milstein came here supporting specific legislation. Have you looked at the Gregg-Clinton proposal? 

Mr. NICHOLS. I think it is a step forward. I think it is a very 

good idea to allow analysis of the data inside the Medicare program. I am, frankly, not committed to the notion that the individual physician is the right unit. I think, as Arnie talked about, 

there is difficulties with numbers of patients of different kinds so 

that, as he put it, the density of a patient population. It may be 

better and smarter to aggregate over groups. There may be different ways to do it. 

But as a way forward, using the data we have now, is certainly 

a good way to, in a sense, create rough rank order of who is doing 

extremely well. 

I think the example that Senator Allard talked about of Intermountain Health Care in Utah, Senator Wyden implied Kaiser in 

Oregon, Geisinger in Pennsylvania, Mayo in Minnesota, Henry 

Ford in Michigan. A lot of folks are doing this right. 

But what we do not have, and that is the next step, we do not 

have a powerful system of driving the incentives through the system to make everyone do what other people know is working. 

Chairman CONRAD. Exactly. 

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Mr. NICHOLS. And that is where I would submit Medicare can 

play a major role in buying smarter by linking payment to outcomes. What if we said, if you are one of those docs managing the 

diabetics better, you get more money? Hey, what a concept. I suspect we will get—so you take this information, you put it in the 

combination public and private buyers we have now, and they work 

together to drive the incentives. That is the best way to go forward, 

rather than having one-size-fits-all. 

Chairman CONRAD. Ms. Collins, on the same question, comparative effectiveness, how can that best be employed? 

Ms. COLLINS. I think it is very important, in terms of just from 

the benefit perspective too, to think of how we were structuring 

benefits. So once we have done the difficult work of looking at what 

is comparatively more effective, that our benefit designs steer people in the direction of using higher quality, higher valued services. 

Right now we do not have that very much in our benefit structures. People are directed toward overusing ineffective services and 

underusing services that could be very effective. So the benefit design is a very important piece of thinking about comparative effectiveness. 

Chairman CONRAD. And who should have the responsibility for 

that benefit design and using comparative effectiveness measures? 

Where should that responsibility lie? 

Dr. Nichols was talking about in the context of FDA. I am wondering about with respect to individual doctors making judgments 

about what treatment they are going to use for specific illnesses. 

The thing that has never been clear to me is how do we translate 

this data down to that individual doctor and incentivize them to 

use the best practices? 

Mr. NICHOLS. It comes back to what I think Senator Whitehouse 

was getting at, and that is we have to have a system of information, an infrastructure if you will, so that not only do you have an 

electronic record of the individual patient, but each clinician/patient encounter should have access to the best practice information 

that the Intermountains, et cetera, developed. So that when presented with here is this patient, this problem, here are my choices, 

here is the one that seems to work best for this kind of patient. 

This decision support tool dimension of the electronic information 

infrastructure may be as important. That is how you are going to 

get the savings from the RAND study, is getting that information 

out there to the clinician/patient encounter. And also then paying 

them more when they do well and, perchance paying them less 

when they do not do as well. 

Chairman CONRAD. Thank you very much. 

Senator WHITEHOUSE. 

Senator WHITEHOUSE. Thank you. 

Boy, there are so many things I would like to pick up on but I 

think the first one is I would like to emphasize what you said 

about the potential hazards of taking comparative effectiveness 

analysis and trying to drill down to individual doctors. 

That concept just scares me to death, because I am so concerned 

that by the time you have drilled down to that individual doctor 

and you have figured out that the reason Dr. Whitehouse is showing lower costs is because he knows that he is not very good at this 

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stuff and he is referring all of his tough cases to Dr. Nichols, who 

is really the local expert in this matter. As a result, in the community known to be the local expert, as a result gets the toughest 

cases, as a result has bad outcomes. By the time have gone down 

into their patient records and teased out that data, you have such 

a regulatory load that this system now has to carry, and particularly run through private insurers is so gameable that it will make, 

I think, our present claims processing nightmare look like a walk 

in the park. 

So I am really interested in trying to figure out ways to—it is 

finally important that we do this. I just think drilling down that 

far with our present level of capacity is really problematic. 

My thought at this point would be to do it more regionally and 

hold basically regions and States accountable for their performance 

and pay more in certain areas than others. It is a little bit rough 

justice. But that really then incents the local community to sort out 

its own affairs and to do the kind of internal work that is necessary. 

My sense, I will ask you to react to this after I make this last 

point, my sense is that we are so primitive at this point in developing comparative effectiveness and in having the institutions in 

place to really work this issue, that we are far better off as a country if we push some of this down to the more local level where people have existing relationships, where they trust each other, where 

they see each other in the market on Sundays, and where you can 

kind of let 1,000 flowers bloom, let the laboratories of democracy 

do their thing, and take more advantage of the innovation that can 

develop at that level. 

So there is a series of different thoughts but I would like you 

comment back to me on them. 

Mr. NICHOLS. All of them are good. I would say unambiguously, 

we are not going to be successful in translating incentives to a 

medical marketplace unless the physicians behavior is indeed reflected in both what they get paid and the outcomes over which 

they have control. So this notion of—that is why I am worried 

about the individual physician thing, as well. 

However, I would say it would still be useful to know which of 

these physicians are better. But maybe you do not want to make 

it public and maybe you do not want to tie payment to that specifically. But you want to go and say you know what? You are an 

outlier. What is the deal? What do they do at Intermountain? They 

go down the hall and talk to them. It is exactly the kind of local 

community conversation you are talking about. 

So one idea would be to say OK look, here is a referral network, 

you know Commonwealth has done a lot on high performance networks. Here is a de facto referral network, let us just say in Providence. Let them choose themselves to join this group over which we 

hold that group accountable. Then they are referring to each other 

and then they really have a stake in it and, I would submit, a control over it. And we are much more likely to get physician buy-in. 

The worst thing we could do, in my view, is to rush headlong into 

this area and turn the physicians against us. I have much scar tissue from 1992 and 1993. We are not going to reform the health 

care system if the physicians become our enemy. Just a thought. 

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Senator WHITEHOUSE. A related thought is that if you are focusing on extracting out of this information that we have the best 

practices that actually exist out there and then setting them up as 

the model for everybody to work toward, rather than setting up a 

definitional thing of who is good and who is not good, you get the 

same place. It is far less gameable. And there are ways within the 

existing administrative apparatus of Government, particularly 

State Government, where you could have meetings in a sensible 

way of figuring out what those best evidence practices really should 

be. 

Mr. NICHOLS. That is extremely important, and I would submit 

that is the only real solution in the long run. We are going to get 

where we want to be when every physician wants to be as good as 

that best practice outcome. And they are going to want to do that 

if we both show it to them. They need to know—there is too much 

information, they cannot possibly process it all. And second, to 

have incentives so they do not get screwed financially by pursuing 

the right strategy. 

And that is why we need both of those things. Absolutely. No 

question about it. 

Senator WHITEHOUSE. I appreciate your testimony. 

Chairman CONRAD. Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman. 

Just to continue on the whole discussion on comparative effectiveness for a moment. First of all, there are terrific software packages out there now. And it would be interesting, Mr. Chairman, I 

think to show some to the Committee as it relates to these issues. 

Because there is already software out there. There is already efforts going on on comparative effectiveness. That would it be, I 

think, very interesting for us to take a look at. 

But to take a step back in what you were saying in terms of physicians, we find a situation where we have either been freezing or 

proposed cuts in Medicare reimbursements for physicians. Then we 

say to them we want you to go out and buy this hardware and this 

software and be able to spend all this money. And by the way, you 

will get the least savings in the system. The big savings goes to the 

Federal Government and the hospital systems. 

In Michigan, where we are actually, I think, one of the States 

really moving along aggressively in health IT, they find that it is 

most difficult to get the physician to come on board. The hospital 

system sets up out health IT but it is the cost and et cetera. 

So that is one of the reasons Senator Snowe and I have been proposing that we do some simple things like accelerated depreciation 

on costs for physicians to be able to get equipment, payments that 

are not only a higher payment for quality but a higher payment for 

use of technology, so that we are rewarding what we need. Because 

we are never going to be able to compare anything until we get 

these folks on electronic records and get a common system. 

So I keep going back to how do we get this started so that we 

are rewarding every provider? Medicare could easily be rewarding 

providers that are using these systems and then go to comparative 

analysis after we get them on board. 

So I hope that we are going to be able to move this, to be able 

to do some things in that area. 

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A different kind of question. I want to go back and actually ask 

Dr. Nichols, you to visit something you went over very quickly. I 

want to be the devil’s advocate here today, as we are all talking 

about individual mandates. 

You talked about three different approaches. I would agree with 

you on the employer mandate personally. I do not believe that is 

the way to go. Individual mandates, possibly, depending on how we 

do that. 

But you skipped over the first one, Medicare for all. I would like 

you just to go back and revisit. When you say the public would not 

accept that, my mother I think would wrestle me to the ground if 

I tried to take her Medicare card away. The truth is it is the only 

universal system we have. Politically it may not be viable to go to 

that approach. But from a substantive standpoint it has choice, you 

get basic coverage. If you want to add doctor visits or home health 

coverage you sign up for Part B, you pay more. You want prescription drug coverage, sign up for Part D, you pay more. It is 2 percent administrative costs, much less than the 15 percent to 20 percent in the private sector. 

I guess I would just like you—I am not so sure it is the public 

that would not accept it. I think politically, because of all of the interests, it would be difficult to pass. But the public, I think, thinks 

Medicare works pretty while. 

So I wonder if you might just speak a little bit more substantively to Medicare. 

Mr. NICHOLS. I think it is an excellent point. I would say I am 

basing my observation about the public on the speaking that I do 

around the country. I am very lucky, I get to talk over the country. 

I would say between Philadelphia and San Francisco people are 

nervous about having one-size-fits-all for them. They think Medicare works great for mom, and they are looking forward to getting 

there. That is correct. It is a safe thing and it works. It is the most 

popular program probably our country has ever had. 

But that does not mean they are willing to accept a Government 

control over what their choices are compared to their——

Senator STABENOW. I would just stop you there. 

Mr. NICHOLS. So they are worried about it. That is all I am saying. I would submit the bill that is in, I believe, the House now, 

I believe it is Representative Stark’s. It is basically Medicare as it 

for all, which allows the private plans to compete. I think that is 

the way to go if we are going to go that way. I think that would 

preserve the choice. 

Go back to what is our fundamental problem, Senator? I would 

submit is a lack of information, which leads to a lack of trust. The 

reason we had the backlash against managed care was not that 

some managed care plans were not outstanding in quality, some in 

your State you know. But they could not convince the people that 

they were better. And they thought employers were forcing them 

into them and they did not trust them. And some of them, of 

course, did behave badly. No question about that. But the point is 

they did not have information to convince them of high quality. So 

choice became a proxy, a protection, a safety valve. And that is why 

I think choice is so important. 

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So if you had choice in the Medicare for all, then I think that 

would be something that would be more talkable. 

But I would also submit, and Peter Orszag’s testimony last week 

made it clear again, over time the rate of cost growth in the Medicare program basically is the same rate of cost growth as the private sector. It has done no better and no worse. 

Now this is no shock to people like Sara who understand the system. It is all one system, of course this is true. But the point is 

we have not done better at buying, as a very concentrated single 

buyer, then the private sector did as well. Why is that? I submit 

the reason—you come with me to Senate Finance and I will show 

you the reason. It is because basically the Medicare program, 

which is an insurance program for our most vulnerable people, is 

also unfortunately in real life an income support program for mediocre providers. 

Democracy will not let us be as demanding as we would like to 

be. 

So I think the cost control potential and the concern about choice 

is real. What I believe, Senator, is that if we set up a system where 

we had one big marketplace and there was a lot of competition for 

it, then that system could work in lots of different ways. It could 

evolve in lots of different ways. We share the same goal. 

Senator STABENOW. Just a final comment, Mr. Chairman, and 

that is in asking that question I was assuming that there would 

be that private choice in Medicare. Going back to my mother, she 

is actually in an HMO and loves it. That is not what I was assuming. 

But I would also say, just as an editorial comment, that we also, 

in the Medicare prescription drug piece, I believe, have higher 

rates because negotiation is prohibited. 

But nonetheless, I would just say before we dismiss—I mean I 

understand all the realities of going with the third choice you 

looked at. But I do think it is just important to speak about the 

fact that we do have a system that provides choice, that adds on 

based on paying more depending on the services you want, that has 

worked well for the people that it covers. 

Chairman CONRAD. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. And I am sorry I did 

not get to hear all of the comments from the two witnesses because 

both of them are as good as it gets in American health care policymaking. We would not have had a Healthy Americans Act if it had 

not been for Len Nichols and we are very, very appreciative of that 

and look forward to having your counsel. 

Ms. Collins, you and Karen Davis have been doing good work in 

this field since I have been involved in it and I really appreciate 

your contribution, as well. 

I wanted to ask a question that has had me baffled for a couple 

of months and see if you can walk me through it. 

You all did, back in April, an analysis of the various reform proposals. And we were very flattered that you called the Healthy 

Americans Act one of the leading proposals. 

There was one chart that I wanted to ask you about. Essentially 

I and Senator Edwards and Senator Stark, all of us seek to cover 

all of the uninsured, the 48 million. And you put the Stark proVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00190 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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posal at covering 47.8 million and our proposal at covering 45.3 

million. So we will want to work with you on that analysis. But 

that is not my question. 

My question is on the chart it says that the Stark proposal will cost the Government $154.5 billion. And then you said that our 

proposal would cost the Federal Government $24.3 billion. So you 

look at that chart, and I need you to just walk me through it. You 

scratch your head and you say by this chart it would cost $130 billion difference between the Stark cost and our costs to cover the 

I guess 2 million people that you have calculated was the difference. 

Congressman Stark has done a lot of good work on health care 

over the years and we have worked with him and I want to sort 

this out. 

But can you tell me what that chart really is all about? Because 

I do not think—I do not think he intended that. And I want to sort 

it out because it is a remarkable difference in cost between the two 

proposals, the Stark Medicare for all approach and the Healthy 

Americans Act. 

Ms. COLLINS. I think those are really good points and actually 

the Lewin Group modeled both proposals, so using a similar model, 

a similar set of assumptions. 

But the major difference in terms of the Federal costs are the 

fact that you have more financing sources in your proposal. Because of the wage cash out, there is some newly taxable income, 

so it increases the revenues that can support the program. 

In the case of the Stark provision, households can have a major 

savings in premium, employers also realize major savings. So if 

there were a financing component that was stronger in the Stark 

proposal, that size of the Federal Government’s share would probably go down. 

In terms of the overall savings, we tend to really focus on the 

Federal costs on these proposals. The overall health system savings 

are also a very important component of evaluating all the proposals, and these two proposals in particular. Both proposals have 

a very significant risk pooling mechanism. The Stark proposal, in 

terms of Medicare for all, and then Senator Wyden, your proposal 

in terms of these large regional purchasing cooperatives. This is 

very important in terms of achieving overall savings. 

Administrative savings are huge in the United States. And pulling everybody into large risk pools is very important in terms of 

gaining control of health care costs. But that is the major difference. 

Senator WYDEN. That is a very thoughtful answer and the pooling question goes to the point Senator Stabenow made as well, with 

respect to consumers and their having bargaining power and the 

ability to get a fair shake is something that clearly would be 

changed. 

Nothing, in my view, works unless you have the kind of private 

insurance reform Senator Stabenow is talking about, the kind of 

pooling that you are talking about, Dr. Collins. And we would like 

to work some more with you on the underlying numbers that went 

into this because as soon as I saw that I said to myself I know my 

Chairman, who has been so kind to work with me on these years, 

186

is going to look at these charts in great detail and I am going to 

have better answers than I have. 

But you and Dr. Davis had done great work for a lot of years. 

And to Len Nichols, I have thanked him before. All of those two 

a.m. e-mails kept us going when we were trying to put together the 

Healthy Americans Act and we would not have a bipartisan bill 

without you, Dr. Nichols. 

Thank you, Mr. Chairman. 

Chairman CONRAD. I am going to do an usual thing here but I 

would like to ask Senator Wyden question. That goes to the question of pooling. 

I have been intrigued with the German system, maybe because 

in part I am a little German. And at the heart of their system, as 

I understand it, and maybe the two witnesses know something 

about these foreign and international systems, as well. They take 

advantage of large pooling in employer groups. 

In the Healthy Americans Act how do you get to the large pools? 

How is there a translation from the cashing out feature in which 

the employer provides to the employee the cost of their current policy so that the individual can go out and buy an equivalent policy? 

How do they make that leap to get into a large purchasing pool 

which will give them leverage? 

Senator WYDEN. We create, Mr. Chairman, a statewide pool. And 

we also make it possible for there to be a regional pool. So that, 

for example, my sense would be the first thing that would happen 

on the East Coast of the United States is you would probably have 

a New York, New Jersey, and Connecticut pool. They might call it 

eastern states regional purchasing organization. So essentially all 

the money is collected through the Federal tax system and pooled. 

You could have, for example, a Dakota health help agency, North 

Dakota and South Dakota going in to pool the dollars. The key, of 

course, is to have, as you have suggested and the Germans do, a 

big enough group of people so as to spread cost and risk. 

And then you get to the point that Dr. Nichols has been making, 

is that you also can make markets considerably more efficient in 

that kind of way because you do not have the problem that we have 

seen of late, some pretty affluent people who just do not buy coverage. 

Chairman CONRAD. Let me say that I am very concerned about 

State-focused pools. Perhaps it is because I come from a State with 

a modest population. But I think we all know to really get the leverage advantage you have to be part of a large pool. We just do 

not have the population, in North and South Dakota. We combine 

the two States we have 1.4 million people. 

I think it is going to take, and that is what I am intrigued about 

the regional opportunity. This is a conversation for a more extended session at some point. But that is very intriguing to me, 

how we get people to have the advantage of being part of a large 

pool. 

Senator WYDEN. If I could just offer one other thought, Mr. 

Chairman, I think you have your hands on it. You do not make the 

pool work unless they are big enough. So if the Dakotas decide they 

want to go in and bring in several other States—we found in New 

York and New Jersey——

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Chairman CONRAD. We might even consider going in with Montana. 

Senator WYDEN. Montana—I will leave that to you and Senator 

Dorgan and all the other good folks from the region. 

I was struck, as I talked to people in New York, is people said 

well, I work in New York, I live in New Jersey, my kid is in school 

in Connecticut. Clearly you are going to need to have some capacity 

to do what we are all talking about. I very much want to put this 

in the context Senator Stabenow is talking about. 

Because if you are going to start something like this, people are 

going to need to know how is it going to work right at the outset. 

Because first impressions are everything. We thought that the idea 

of coming up with a win for the workers and the employers right 

at the outset was something, as you said Mr. Chairman, we have 

laid out in the basic structure. But there are scores of details that 

would have to be addressed before you could go forward and. 

Chairman CONRAD. Let me just say, I think at future hearings 

for the Committee we might want to have a panel that would look 

at the various options, single-payer, employer mandate, individual 

mandate. I think that would be a very useful panel. 

I think it would also be very useful for us to have a future look 

that would include electronic records, changing the incentives, and 

comparative effectiveness, that that would be a very useful—and I 

would like to work with Senator Wyden, Senator Stabenow and 

Senator Whitehouse, who I have deputized be a subcommittee of 

the Budget Committee, to work on who might be good witnesses for 

those various hearings and how we might proceed to hold hearings 

on those issues. 

We have been joined by very valuable member, Senator Nelson 

of Florida. Welcome, Senator Nelson. Please proceed. 

Senator NELSON. Let me ask the good Senator from Oregon, in 

your proposal how do you take the employer mandates—no, let me 

rephrase the question. 

How do you take the existing system of employer-sponsored insurance and how do you transition those people into the large 

pools? 

Senator WYDEN. The Senator, of course, has asked the big question. We come at it this way. Essentially we got into this predicament after World War II. We had a situation where there were 

wage and price controls. We had all of these wonderful troops coming home. And there was no way to get them benefits. Essentially, 

it all got pushed back on the employer. It was factored into the cost 

of goods and services and we could pretty much handle it at that 

point. We were not faced with a global economy. 

Today what you have is those employers in Florida are competing against people in India and Asia and all over the world, and 

you cannot spot your competition 15 or 20 points the day you open 

your doors. The premiums go up 13 percent a year in Florida and 

your foreign competition has socialized medicine. You cannot be 

competitive. 

So the big idea in this legislation is to cut the link between 

health insurance and employment. And the way we do it is through 

a transition period. So that if you have a business in Florida that 

say pays the worker $40,000 in salary and $12,000 in health care 

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benefits. at the outset the business pays the worker $52,000 in 

compensation. We adjust the workers tax brackets so they do not 

experience a hit for the additional compensation. And then we reform the private market so that that person, with the additional 

money, can go out into a private market where the health insurance companies cannot cherry pick and cannot discriminate against 

you if you have had an illness and the like. And the Senator, because he was an insurance commissioner, knows how widespread 

that problem is. 

But we tried to come up with a transition so that the worker 

wins and the employer wins at the outset. And we were able to get 

Andy Stern, the head of the Service Employees Union, and Steve 

Burd, the head of the Safeway Company, to essentially be our 

bookends for labor and business, saying if you make the transaction this way, labor and business, it is looking for a win for workers and employers will say let us give it a shot. 

Senator NELSON. And then the employee, the insured, would 

then take that money that otherwise his employer, and he would 

go out and he would purchase from these large pools. And therefore 

you could purchase it cheaper because you would spread the risk 

over quite a few number of people instead of just the risk of the 

population of the employment. 

Now how do you guarantee that, in fact, the insured, the employee, will go out and buy it become the insured? 

Senator WYDEN. Florida, of course, is in the enviable position 

that the Dakotas and Oregon, that we are not because you will 

have a lot of people for purposes of pooling, and certainly a number 

of major insurers will find that market attractive. 

What we said in this legislation is all right, we are not going to 

put people in jail if they do not buy the coverage. That is what happens if you do not buy auto insurance, we put you in jail. We have 

not going to do that. So we set up a regime of essentially financial 

penalties so that if the person did not buy the health coverage they 

would get nicked with a financial penalty. If they eventually go the 

hospital emergency room, which is usually what happens, they get 

signed up at that point. So there are various points through State 

services where you would sign them up, a way to have a default 

sign up arrangement so that if we learn you are not covered. 

And then employers will be involved in signing people up as well. 

So the idea is to have as many different checkpoints that are practical, not intrusive but practical, to get people signed up, recognizing that now in America you have to buy auto insurance and 

certainly some people do not do it. 

Senator NELSON. And under your concept who regulates the 

product that is offered to the consumers? 

Senator WYDEN. Still regulated by the States. We do not upend 

McCarron-Ferguson and the process of current State insurance regulation. We do make those changes that Senator Stabenow spoke 

eloquently about to make sure it is a different product. 

I think the Senator knows this is an area I feel very strongly 

about. I think probably the thing I am proudest of in my time in 

the Congress is having written the Medigap law, which I think the 

Senator remembers back before we had that, you would have seniors with a whole shoebox full of insurance policies. Most of them 

189

were not worth the paper they were written on. We got that 

Medigap law through, working with the National Association of Insurance Commissioners. 

So we have to get this insurance reform piece right and we ought 

to keep it with the States. 

Senator NELSON. In the case where you would pool several 

States, then you have some amalgam that between the insurance 

commissioners of those States they would regulate the product? 

Senator WYDEN. That is correct. It would almost be—I think 

from a legal standpoint we were advised by the Congressional Research Service to not call it a compact. And Len me know something about it. But it works the same way. You could have, and 

this will be especially important for States like Oregon and the Dakotas and Rhode Island, not so important for Florida, California 

and Texas, but we have to have the opportunity to create a big 

enough pool. 

Senator NELSON. Did you ever think about going to pools beyond 

States, so that you get millions of people in the pool? 

Senator WYDEN. That, of course, means that you are going to 

have the debate as to whether it is going to be a single-payer or 

a system that involves a less expansive role for Government. We 

felt that creating the kinds of pools that we envision, particularly 

with regional kinds of pools, got it large enough. 

But this would be something that would surely be debated and 

my sense is that people who are for some version of single-payer 

or another, Medicare for all or some other version, would clearly 

want to say all right, if we cannot have one pool, let us have two 

pools. And we should have that debate. 

I think that the feeling of myself and Senator Bennett is you got 

to have something which gives you a big enough pool for bargaining power and still you are able to structure enough private 

choices so as to have some competition in the marketplace. 

Senator NELSON. Mr. Chairman, I will just say in closing that 

Senator Wyden has corrected one of the deficiencies that is often 

missed around here. For example, there was a U.S. Chamber of 

Commerce highly intensely lobbied effort to take the same concept 

of pools. 

In this case it was more like a trade association, for example realtors. You cannot afford it if you are a single realtor. But if you 

could bank all of the realtors together, then you could spread the 

health risk over that much larger group. 

But the fatal flaw in it was that they had no regulator. With the 

result that were that version to become law, you would go right 

back into what we have. You would have the advantage of a larger 

group but then the insurance companies would start cherry picking 

as the group got older and older and sicker and sicker. And there 

is no regulator looking over their shoulder. 

There was, and I do not remember who it was filed by, another 

version that did allow the State regulators to get involved. And I 

would have people coming up here just begging me to cosponsor 

this legislation. I would sit down and explain to them the bottomline result is going to be exactly the opposite of what you want. 

What you are trying to do is get relief on the high premiums that 

you are paying. But if you take the regulator out of the mix then 

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inevitably the premiums is going to go up and the coverage is going 

to go down. 

Chairman CONRAD. The Senator is entirely correct. I had the 

same thing. I had many people from my State, some of my closest 

friends, come to me and urge me to support that legislation. When 

I showed them what it would intersect with our State law and 

would have created a system of cherry picking, if you would have 

had an outlier, if you had somebody in your group that was 

unhealthy, that person would be excluded from coverage and you 

would have had a system of insurance for the healthy, not for those 

who had a medical condition. 

Unfortunately that would have been—would not have accomplished what the whole purpose was. 

Let me just say and ask Senator Wyden in closing, we have a 

vote that is about to occur on the floor and we will have to shut 

down the hearing. 

There is no restriction, as I understand it, in this legislation as 

to how many States might decide to pool together? 

Senator WYDEN. That is correct. And I think you, Mr. Chairman, 

and Senator Nelson raise very important points. We need to have 

that debate and clearly the pools have to be big enough to make 

a real difference. There is no restriction on the number of States 

that could pool or how many States could go in together. 

Depending on the size of the pool, we would have the debate that 

Senator Nelson’s question really triggers is at some point I guess 

if you say all the States can join in one pool, everybody says that 

is the single-payer model and then you bump up against a different 

set of political challenges. 

Chairman CONRAD. And I do not think that would be—I do not 

think that is what would happen. I do not think you would have 

a situation where all of the States would go together. I think what 

you would have is you would have these regional pools and maybe 

would have more than a regional pool. Maybe you would go outside 

of your region for diversity sake, in terms of reducing risk to the 

pool. 

I think that would be very healthy to have different pools because then you could look at the experience of the different pools 

and see what best practices result in savings and in improved 

health care outcomes. 

Senator WYDEN. And there are some visionary people in the insurance industry who I think would be willing to accept it. Normally you would think that they would automatically want to have 

the smallest possible group so as to not have some clout. But I 

think a lot of them are coming around to exactly the kind of thing 

you are talking about. 

Chairman CONRAD. Let me know thank the witnesses. We appreciate very much your contribution to the work of the Committee. 

I thank all of my colleagues who have participated today. 

We are going to continue this series of health care hearings because we understand the critical importance of making progress. 

Thanks to all who have participated today. 

[Whereupon, at 11:51 a.m., the Committee was adjourned.] 

(191)

HEALTH CARE AND THE BUDGET: OPTIONS 

FOR ACHIEVING UNIVERSAL HEALTH COVERAGE 

TUESDAY, SEPTEMBER 11, 2007

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SD–

608, Dirksen Senate Office Building, Hon. Kent Conrad, Chairman 

of the Committee, presiding. 

Present: Senators Conrad, Wyden, Stabenow, Cardin, Sanders, 

Whitehouse, Gregg, Allard, and Graham. 

Staff present: Mary Naylor, Majority Staff Director; and Scott 

Gudes, Staff Director for the Majority. 

OPENING STATEMENT OF CHAIRMAN CONRAD 

Chairman CONRAD. The hearing will come to order. 

I would like to welcome everyone to the Budget Committee this 

morning as we discuss options for achieving universal health care 

coverage. 

I would like to particularly welcome our witnesses today: Dr. 

Henry Aaron, Senior Fellow at the Brookings Institution; Dr. Sherry Glied, Department Chair and Professor of Health Policy and 

Management at Columbia University’s School of Public Health; and 

Janet Trautwein, the Executive Vice President and CEO of the National Association of Health Underwriters. 

Welcome to all of you. The Committee is very appreciative of 

your helping us with the work of the Congress. 

This is our fifth hearing this year specifically on health care and 

its impact on the budget. The fact is that rising health care costs, 

even more so than the coming retirement of the baby boom generation, represent the most significant threat to our Nation’s longterm fiscal security. Solutions should not be put off. The sooner we 

act, the better. 

Part of the solution, I think we have a growing consensus, is that 

we need to have universal health coverage. Instead of getting needed preventative care, too many of the uninsured are ending up in 

the emergency room and I think all of us understand that is the 

most expensive place to extend treatment to them. 

Moving toward a universal system would make it easier to coordinate patient care and adopt new health care information technology and best practices. Our health care system is simply not as 

efficient as it should be. The United States is spending far more 

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on health expenditures as a percent of GDP than any other country 

in the Organization for Economic Cooperation and Development. 

Those are the leading economies in the world. 

For example, the United States spent 15.3 percent of GDP on 

health expenditures in 2005, compared to 7.5 percent in a country 

like Ireland.

We are spending even more than that, of course, today. I think 

the latest estimates are we are at 16 percent of gross domestic 

product. That is between one of every $6 and one of every $7 in 

this economy is going toward health care, far more than anyone 

else. 

Despite this additional health care spending, health outcomes in 

the United States are no better than health outcomes in the other 

OECD countries. And the number of uninsured continues to grow.


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In fact, the number of uninsured increased by 22 million people 

in 2006 to 47 million Americans without health insurance. The 

number of uninsured children increased by 600,000 in 2006 to 8.7 

million children without health care insurance.


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We need to remember that the budget problem we face stems 

from the underlying rise of health care. Here is a quote from the 

GAO, the Comptroller General of the United States, David Walker, 

making exactly that point.

He said, and I quote ‘‘Federal health spending trends should not 

be viewed in isolation from the health care system as a whole... 

rather, in order to address the long-term fiscal challenge, it will be 

necessary to find approaches that deal with health care cost growth 

in the overall health care system.’’ Moving toward universal health 

care coverage should be part of that solution. 

Here is what the former Treasury Secretary, Bob Rubin, and the 

Hamilton Project Director, Jason Furman, wrote this summer: ‘‘The 

problems of uninsurance and expensive or ineffective care are 

interrelated... it is impossible to address fully the problems of affordability and effectiveness without covering everyone. Much of 

the health care the uninsured do get is costly and inefficient with 

the cost passed on to others. Insuring everyone would not just 

eliminate these uncompensated cost shifts, it would also enable the 

health system to function better by expanding risk pooling and reducing the fragmentation of financing.’’


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We could build a far more efficient and cost effective system if 

we could cover those now uninsured. 

There are really three basic options for choosing universal coverage.


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First, we could adopt a single-payer system, which some refer to 

as Medicare for all. Second, we could have an employer mandate. 

Or we could have a mandate on every American to have health 

care insurance. Those are basically the three options. Or we could 

have some hybrid approach. We could mix and match to achieve 

the goal of covering everyone. 

But the reality that we confront is that whatever option is chosen 

must have bipartisan support. These problems are too big to be 

tackled by one party alone. 

Former Treasury Secretary John Snow made this point earlier 

this year. He was quoted in the Wall Street Journal as saying ’’You 

cannot do health care reform or Social Security reform... without a 

bipartisan consensus... if we have made a mistake, it was not approaching it in a more bipartisan way.‘‘

I think Secretary Snow got it right. I think it does require a bipartisan approach. And the sooner we get down to it the better. 

With that, I want to turn to the ranking member, Senator Gregg, 

and once again thank him for his courtesy as we have organized 

this hearing and ask him for his comments. 

OPENING STATEMENT OF RANKING MEMBER GREGG 

Senator GREGG. Thank you, Mr. Chairman. 

I thank you for holding this hearing. I want to start where you 

stopped, which is that—actually start where you started and where 

you stopped, which is that A, health care is driving the out-year 

problems which we face as a society from a fiscal standpoint. And 

also, it’s going to be driving our social issues to a large degree because of the aging of the population. And it has to be addressed. 

And B, it can only be addressed in a bipartisan way. 


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Sitting at the dais today I see Senator Wyden, who has put forward a bipartisan bill in this area, which I am a cosponsor of and 

which I congratulate him for. 

However, prior to getting into the Wyden initiative, which I am 

sure he will spend some time on anyway, I want to just address 

the issue of the first of your three options for resolving this, which 

is a proposal to go to universal health care under a nationalized 

system. The Kennedy bill, which is called Medicare for all, is the 

leading example of that. But of course, Senator Clinton has proposed this, Senator Obama has proposed this, Senator Edwards has 

proposed this. All of the national candidates in the Democratic 

party running for president have proposed a nationalization of our 

health care system, having a national delivery system which is controlled by the government.

The arguments for this are that it delivers better health care, 

that is obviously gives everyone access to health care, and that it 

costs less. All three of these arguments are wrong. And in addition, 

the proposal of nationalizing the system as an approach to making 

sure that everybody gets coverage and having the government run 

it leads to some other very clear significant problems. 

The first, of course, is that it creates rationing. You do not have 

to go too far to see this. We see it, for example, in Canada, where 

you have a waiting time that has doubled since they went to a national system, since 1993. That is not since they went to their national system, that is since 1993. In Britain, you have waiting 

times for cancer and cardiac tests which are 25 weeks.


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There is no question but that when you go to a nationalized system you end up with a system that basically rations health care. 

You are basically putting everybody into what amounts to a national HMO. And the way HMOs succeed is by limiting health care 

delivery in most context. 

In addition, you reduce innovation. It is estimated that if US 

adopted Canada’s national health care system national research 

and development funding would be reduced by nearly 25 percent, 

or $77 billion. And nearly one-half of the drugs approved by the 

FDA would not be available in a national formulary as cost control 

measures—if a national formulary was used for cost control measures. You are basically limiting A, the availability of drugs, and B, 

the development of new drugs, things which may cure people, make 

them better, by going to a nationalized system. 

Again, you can look at our neighbors in Canada and our friends 

across the sea in Britain to see that that is absolutely the case. 

That is why new drugs are being developed here and not in those 

nations, to a large degree. 

And third, taxes go up a lot. The Chairman makes the point that 

we spend more per capita as a percent of gross national product on 

health care than any other country in the world. This is true. But 

if you look at the tax costs which countries bear as result of going 

to a nationalized system, you see that their tax burden on the taxpayers of those countries goes up dramatically. 

Let us look at Canada, for example. Since they have gone to a 

nationalized single payer system, their tax burden has jumped significantly and almost the vast majority of that is health care costs. 

Let us look at the EU and Canada compared to the United States 

tax burden. Again, the EU and Canada have dramatically high tax 

burdens as a percentage of gross national product. And almost all 

of that reflects health care costs. Remember, in the U.S. health 


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care cost, we at least have a fairly significant effort in the area of 

national defense in our tax burden. Canada and the EU do not 

have that type of national defense commitment in their numbers. 

So the vast majority of those dollars that are being taxed in those 

systems are to pay for single-payer nationalized systems universal 

health care. 

The effect of these higher tax systems, what is that? Not only 

does it mean that people end up paying more of their earnings to 

the government for a less efficient health care system which delivers a lower quality, rationing, and less research, but it also means 

that productivity in those countries is not as high because they 

have a higher tax burden, and the next chart reflects that. The 

United States’ productivity far exceeds Canada and the EU.

I would argue, and I think many economists would argue, that 

that is in large part a direct function of the tax burden of those 

countries, which is a direct function of having nationalized their 

health care system. 

In addition, you do not have to believe me on this point. Just 

look at the number that Senator Kennedy’s plan proposes, and that 

is the next chart. Medicare for all, Senator Kennedy openly proposes a dramatic increase in HI tax and Social Security tax, 57 percent higher under that plan, in order to pay for it. That is a burden 

that would be put on the American taxpayer. 

So even though we may spend more on health care in our society 

today, moving to a single-payer nationalized system is actually 

going to cause us to spend a great deal more in the area of tax burden and probably create a less efficient system. 

You do not have to listen to me about this less efficient system. 

I would quote my colleague, the Chairman of this Committee’s comrade, Dorgan, from North Dakota because he described what presently exists as the one national health care system that we have 


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in this country which is truly a nationalized system, and that is the 

Indian health care system. That is a nationalized system. 

Quoting Senator Dorgan on the floor just a few weeks ago he 

says—he said, of the Indian health care system, which is nationalized system, ‘‘You can’t ration health care. Yet, that is what is happening. We have a trust responsibility and yet health care is being 

rationed with respect to Native Americans.’’

Why is that? Because they have a nationalized system, a Federal 

system, which is rationally their health care. Quoting a Indian 

Hospital CEO, ‘‘In the Native American population, we are effectively using a system of rationing to be able to provide care for 

those that we serve.’’

That is what happens when you go to a nationalized system. The 

Indian health care system is the best example of what is going to 

happen to the American system if we go to a system of call it Medicare for all or call it universal health care under a nationalization 

system. It does not work. 

The better approach is the approach suggested by the Senator 

from Washington, which is to create an atmosphere where everybody has the wherewithal to go out and purchase health care and 

we use the private markets to do that and we make sure that everybody does that. There are a lot of different variables for accomplishing that, and I have some reservations about Senator Wyden’s 

proposal, but conceptually, using the private marketplace is a 

much better way to proceed, in my opinion, and it avoids the rationing, the reduction in research, and the massive increase in taxation which would occur if we went to universal system under nationalization. 

Thank you, Mr. Chairman. 

Chairman CONRAD. Thank you, Senator Gregg. 

And I do not take this to mean—as I hear you saying it, you are 

arguing against a nationalized system, you are not arguing against 

universal coverage. 

Senator GREGG. No, in fact the bill which I have cosponsored 

with Senator Wyden is a universal coverage. It just uses the private market to drive down costs and make it more competitive and 

create more incentive for productivity and research. 

Chairman CONRAD. I appreciate that and I know that that is the 

Senator’s position. But somebody just casually listening, I think, 

might have come to the conclusion that you do not want universal 

coverage. That is not your point. Your point is very clear that you 

do not want to see a nationalized system as a way——

Senator GREGG. I think we have a problem in the language that 

is being used because basically the proposal by the Clinton Administration, led by the then-First Lady, which merged the concept of 

universal health care with nationalization. So we have to figure out 

how we use better language here. But there are ways to get everybody covered without nationalizing the system, is our point. 

Chairman CONRAD. Good point. 

I am going to go in a little bit different direction than we have 

previously at hearings and ask those members who are here already if they would like to avail themselves of a 3-minute opening 

statement to do so, because let me just say we have some of the 

most active members on this Committee here today on the issue of 

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health care, none more active than Senator Wyden of Oregon, who 

has put forward a very thoughtful, carefully considered plan, which 

I think has enormous merit. We can question some of the details. 

That is not really the point of it. 

The point is Senator Wyden has stepped out there with a specific 

plan that I believe, in overall structure, probably has the best 

chance of advancing. 

Senator Wyden, would like to take a few minutes for opening 

statements? 

OPENING STATEMENT OF SENATOR WYDEN 

Senator WYDEN. I thank you, Mr. Chairman, for your thoughtfulness and it has generally not been the rule to have opening statements here and I will keep this brief. 

I think that essentially 13 years after the last effort, the Clinton 

plan, we come to an interesting confluence of opportunities. I think 

it is clear now that Democrats have been right in saying to fix 

American health care you have to get everybody covered. Because 

if you do not recover everybody, people who are uninsured shift 

their bills to people who are insured. So I think you start with that 

proposition. 

Republicans have been correct in saying we do not think you 

ought to turn it all over to government. It should not be just one 

kind of government system. I think that is what Senator Gregg was 

alluding to. 

So if you start with that as the basic proposition, then you move 

to some of the tough calls that are going to have to be made. I 

think Democrats have to accept the fact that every economist who 

has come before the Committee says that the tax code disproportionately favors the wealthy on health care and rewards inefficiency. Every economist has said that. 

Republicans and, to their credit, our sponsors for the bill, have 

said that if you are going to have the delivery system in the private 

sector, you are going to have to have tough oversight in terms of 

insurance practices. So you cannot have cherry picking, just take 

healthy people and send sick people over to government programs 

more fragile than they are. 

The Lewin Group has analyzed our proposal. It is the first bipartisan proposal in the Senate in 15 years for universal coverage, 

with Senator Bennett, Senator Gregg, Senator Bill Nelson, Senator 

Lamar Alexander, and myself. And obviously we want to do what 

Chairman Conrad has been talking about, which is use it as a 

starting point. This is not the last word in a piece of legislation. 

This is an effort to begin the debate. 

We have a wonderful panel, all of whom I read your articles regularly. Dr. Aaron, really one of my heroes in the field. Probably the 

only area I have a difference of opinion with Dr. Aaron on is this 

question of having to spend a lot of money to get started. I think 

you know that the Lewin Group has analyzed our proposal. They 

believe that it is possible to get to universal coverage without significant expense in terms of the short-term and there would be savings over a 10-year period. 

I think it really comes down to, as Senator Gregg touched on, a 

question of language. And that is one of the things I am going to 

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be interested in exploring with you, Dr. Aaron, is why you see 

something like this requiring a significant amount of additional 

money at the outset. I know that there are issues with respect to 

demand that you would have in a new program, questions of technology and the like. 

We have a wonderful panel. Mr. Chairman, I think you for your 

thoughtfulness to be able to have this opening statement, and for 

your kind comments. 

Chairman CONRAD. Thank you, Senator Wyden, for all the effort 

you have put into this subject. 

I will also call on Senator Allard. Senator Allard, who has announced he will not be seeking reelection, so will be retiring at the 

end of this term, has been a very valuable contributor to the work 

of this Committee and I want to thank them for all of the time and 

effort he has put into the work of the Budget Committee. 

Senator ALLARD. 

OPENING STATEMENT OF SENATOR ALLARD 

Senator ALLARD. Thank you, Mr. Chairman. 

I just want to make a few brief comments, I do not have anything prepared. 

I have dealt, in the State legislature of Colorado when I served 

there, we dealt with the uninsured. And we have continued to deal 

with it here in the Congress. 

One of the things that I have noticed is that the percentage of 

people who are uninsured remain static. The number of people that 

are underinsured increases because you have more people. In runs 

around 15 or 16 percent. It is a straight line over all those years. 

I think that the 15 percent or 16 percent, a lot of it has to do 

with mobility issues. They are—employees, for example, are going 

from one employer to another. And so they hit a period of time 

when they are not insured. It is young people, who are just entering the work place for the first time and have not really settled in 

about what it is they need, they kind of feel an invulnerability. 

I think those are the two groups that really drive a large percentage. It is a fixed rate. And I think mobility is one of the things 

that we have to work on in covering. I do not think we want a government-run health care system because I think we want basically 

a patient-driven one. And I think the patient has to participate in 

the costs to a certain degree. 

I can think of several corporations in Colorado who decided they 

were going to cover all of health care costs of their employees. And 

when I was in the State legislature they had to discontinue those 

policies because they were abused. And so you need some participation from the patient in the cost of that so that you make responsible decisions. 

I do think that we need to drive this so that more people are insured. And I look forward to working with Senator Gregg and the 

Senator from Oregon, Senator Wyden, on this issue. I serve on the 

Health Committee here. 

But I do think those are important things that need to be addressed and I think we can deal with that percentage with just 

some real thoughtfulness about how we are going to get people on 

the roll in a way that is not going to bankrupt his country. 

203

If we go to a nationalized government-driven health care, the 

costs are horrendous. And then you have a lot of problems with 

spending, as far as the budget is concerned. 

So I think if you really are serious about resolving this issue 

with the cost of health care and everything, we have to have a patient-driven system that ties the patient and the doctor closer together on the decisionmaking process, having the patient take 

some participation in the cost, and to deal with the mobility issues. 

Thank you, Mr. Chairman. 

Chairman CONRAD. Thank you, Senator Allard. Thank you very 

much for your contribution to the work of this Committee. 

Senator Whitehouse, would you like to make a brief opening 

statement? 

OPENING STATEMENT OF SENATOR WHITEHOUSE 

Senator WHITEHOUSE. I would be delighted to and I am very 

pleased, Mr. Chairman, that you have given all of us the opportunity to do this. 

As the newest member of this Committee, I come to it with considerable regard for the work that has been done before I got here, 

but also with some fairly firmly held observations that I have made 

during the course of my professional career. 

The overarching observation that I have made is that our health 

care system, as an administrative system, is a disaster. It is a broken system. In terms of its plumbing, it is bad plumbing. In terms 

of its wiring, it has been wiring. In terms of the incentive that it 

creates, it creates unhelpful incentives. And it is very important, 

because it is government’s role to set the conditions for proper market conduct. And we have not done that yet. 

So I think it is very important for us to be having this discussion. 

I would suggest to the ranking member, my senior Senator, the 

Senator from New Hampshire, Senator Gregg, that for the average 

business or for the average family what you have to pay for health 

care is probably more important to you than who you have to pay 

it to. There may very well be circumstances in which by the government taking over at least certain parts of the system or mitigate it more closely or making higher demands of it, even in circumstances in which in order to do so you may have to raise taxes 

a bit, enormous savings in the overall operation of the system can 

result. That is a concept that I think is an important one to keep 

in mind as we address this problem. 

I think some of the areas in which the market conditions are failing most dramatically involve the areas where improvement of the 

quality of the care that is delivered in the health care system and 

lowering the cost of health care system actually occupy the same 

space. Over and over again we have seen issues where in intensive 

care units you can reduce infections dramatically and lower the 

cost and save lives. 

And yet it does not get done anywhere near to the optimal level, 

I think, because of the way the system is set up to reimburse and 

encourage conduct. In fact, you put people in the situation where 

doing the right thing causes them economic punishment. And that 

is just a dumb way for the government to set up a system to operate. 

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The other area that I am very concerned about is the wild underinvestment we have in health information technology. You can look 

at a couple of ways. You can look at it like the highway system. 

I do not think everybody begrudges Federal Government spending 

in the highway system. It is a common good, and it saves enormous 

money to our economy by having people be able to truck goods here 

and there and to be able to go and visit grandma in Illinois. We 

do not worry too much about that. 

And yet, when you talk about building an information highway 

that would carry health information technology so that we could 

have more efficiency of the system, people run from that idea as 

if it is communist socialist medicine. It just is not. It is just good 

sense. 

And there, I think, are multiple ways to solve the problem. We 

cannot just walk away from that problem. 

Ultimately, I think it is a problem of system design and I think 

we are on a fool’s errand if we believe that market failures can be 

cured by the market. The market failure is itself a sign that the 

system does not allow the market to operate in the ordinary course. 

So to sit back and say well, we have this market failure. But if we 

just wait long enough eventually the market will correct it, I think 

is hopeless folly. 

I think there may very well be very areas of care where the security and the manageability that is provided by government oversight or management of sections of the health care system is merited. And I think there are also areas in which it is important for 

the innovation and choice that people expect out of a health care 

system to also be permitted. 

So I think as we go into this discussion, it is important that we 

leave our options open and think about what the best way is to result with a system design that makes sense, rather than start from 

an ideological proposition that if it is going to raise taxes it is bad, 

even if it saves money overall, or to start from the proposition if 

the government manages any part of the health care system, that 

is such a bad thing we cannot even discuss it. 

Thank you very much. Thank you, Mr. Chairman. 

Chairman CONRAD. Senator Sanders, we have departed from our 

usual custom here and allowed a 3-minute opening statement. If 

you would like to avail yourself of that, you would be welcome. 

Senator SANDERS. Reluctant as I am to publicly speak, I will take 

advantage. 

[Laughter.] 

Senator GREGG. I was assuming, Senator, that I had given your 

opening statement for you. 

[Laughter.] 

Senator SANDERS. But you did not have the charts. 

OPENING STATEMENT OF SENATOR SANDERS 

Senator SANDERS. Thank you very much and let me pick up on 

Senator Whitehouse’s point. Of course, I only heard half of his remarks, but we will see. 

Senator WHITEHOUSE. The good half. 

Senator SANDERS. The good half. 

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The simple truth is it is appropriate that the Budget Committee 

deal with health care. Why? Because we are spending an enormous 

amount of money. 

Now some people say well, the real problem is Medicare and 

Medicaid. Boy, that is a lot of money. Gee, the American people 

love spending money on BlueCross BlueShield, General Connecticut, all the private insurance. That is not a problem. But 

Medicare and Medicaid and government spending, boy, that is just 

awful. And obviously that is just nonsense. 

Nobody that I know worries about whether it is BlueCross out 

of their own pocket. They are spending money on health care. And 

the issue that we have to deal with as a Nation are two fundamental issues. As a Nation, should we guarantee health care to 

every man, woman, and child as a right of citizenship? Simple 

question. 

Some people say no. If you have the money in this country, you 

have a big house, you have a big car, you have good health care. 

If you do not have the money, tough luck. That is a point of view 

some people hold. I disagree. 

I think that health care, just like education, should be a right, 

r-i-g-h-t, of all of our people. In my State, most of the people agree 

with that. I think nationally, in fact, most people agree with that. 

Then obviously, the second question is if you are going to provide 

health care to every man, woman, and child what is the most costeffective way to do that? The answer is the system that we have 

is not only a system that is disintegrating, it is enormously wasteful, it is enormously bureaucratic. We have today 47 million Americans who have zero out the insurance, even more who are underinsured. And yet we spend twice as much per capita on health care 

as do the people of any other major country on earth. 

Why is that? Well, among other reasons, over 30 percent of the 

money we spend on health care does not go to doctors. We have a 

doctor shortage. It does not go to nurses. It does not go to dentists. 

We have shortages of dentists and nurses. It goes to bureaucracy, 

administration, billing, advertising, all of the things we do not 

need. 

So in my view, and I know this is a radical idea in the U.S. Senate, I think we should move toward a national health care program. I think we should guarantee health care to all people. I 

think it should be a publicly funded system. I think it would be infinitely more cost-effective than the wasteful and bureaucratic systems we have right now. 

I just, the other day, introduced legislation with John Tierney in 

the House which is pretty conservative. And that is why we are 

looking forward Judd Gregg’s support for this legislation. It is very 

conservative. 

What it says is, not to go forward right now because politically 

we cannot do it with Bush in the White House and so forth. But 

to go forward and have 10 States promise, if they are making a 

commitment to do universal health care—not single-payer, what I 

would like, universal health care—we will provide the waivers that 

they need. We will provide the financial support that they need. 

We will use States as a laboratory. And States will go forward. 

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And we will learn from each State’s mistakes and strengths. And 

then perhaps we can develop a national program. I hope that some 

States will go forward with a single-payer model, which I think will 

show that universal health care can be done cost-effectively. But 

we will learn from each strengths, positive and negative results, 

and then we can forward as a Nation. 

So let me again congratulate the Chairman because it is totally 

appropriate for the Budget Committee to be dealing with health 

care. This system is broken. We need to move in a new direction. 

And thank you very much, Mr. Chairman. 

Chairman CONRAD. I thank the Senator. And I again thank the 

witnesses. 

We will start with Dr. Aaron, Senior Fellow at the Brookings Institution, and I think widely admired on both sides of the aisle here 

in the U.S. Senate. 

Dr. Aaron, welcome. 

STATEMENT OF HENRY J. AARON, PH.D., BRUCE AND VIRGINIA 

MacLAURY FELLOW, ECONOMIC STUDIES PROGRAM, THE 

BROOKINGS INSTITUTE 

Mr. AARON. Thank you very much. I appreciate the invitation to 

testify this morning, and I ask for my statement be part of the 

record. 

Chairman CONRAD. Without objection. 

Mr. AARON. Yesterday, when I finished writing that, I started by 

saying that I thought there were three coequal health care problems: cost, quality of care, and taxes. This morning I am inclined 

to lament that, having just come from a physician’s appointment, 

which took no more than 15 to 20 minutes, at the end of which I 

signed a credit card payment of $920. So our cost weights a little 

more heavily on my——

Chairman CONRAD. And you are looking very healthy this morning, as well. 

Mr. AARON. That raises an important point. We are willing to 

pay if we get good value for money. 

In my statement, I argued that there are, as you well know, alternative ways that have been proposed to advance universal coverage and reform the health care financing system, variously conservative, liberal, and incrementalist, some relying on the tax system, some involving additional reform of the insurance system, 

some involving a single-payer approach of one stripe or another. 

The critical point, I think, to keep in mind is that any one to 

these approaches, well designed, implemented in a non-ideological 

matter, is capable of achieving significant improvements over our 

current system. Any one of the three, implemented in an ideologically narrow-minded manner and ineffectively, could do very serious damage to both cost and access to care. 

So I think the thing to do is to try to get by the ideological differences among the various approaches and focus on the nuts and 

bolts of how a particular approach is done. 

One point has been made that I would like to reemphasize, a 

point that was made during the initial statements. We sometimes 

focus on the budgetary problems posed over the long run by Medicare and by Medicaid. The point was made that it is impossible efVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00212 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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fectively to deal with those problems in isolation from systemwide 

reform. The same hospitals, the same doctors care for Medicare and 

Medicaid patients and for those who are insured privately. For simple psychological and professional reasons, they render approximately the same care to different patients. 

If we are to reform this health care system, we have to attack 

it whole and not piecemeal. 

Having agreed with some of the points made, I would like to 

raise some questions about some of the others that were made during the opening statements. Former Senator Moynihan used to say 

that everybody is entitled to his own opinions, but not to his own 

facts. The statement has been made that government health insurance is horrendously expensive. We have abundant evidence 

around the world that that statement is false. 

The fact of the matter is that the very systems that spend, 

among the 10 richest OECD countries other than United States, on 

average half as much per capita as the United States does, all have 

systems that are far more government run than our own. They 

spend less. There are consequences from those lower expenditures, 

no question about that. But the idea that government-run health 

insurance is necessarily a budgetary catastrophe is simply untrue. 

It is not even true in a narrower sense. The United States’ tax 

burden in support of government health care spending is nearly as 

great as that of any other developed nation in the world. There are 

a couple of countries where the government costs are slightly higher than those of the United States but they are lower also in many 

other countries. The very fact that we support nearly enough of 

health care spending through public budgets and we spend, on average, twice as much as the 10 next richest countries in the OECD 

do means that our public burden approximates that of the government-run systems elsewhere. 

So there are high taxes in Europe, no question about it, much 

higher than are tolerated currently here in the United States. 

Health care spending by the government is not the reason. 

One other point I would like to make is that the emphasis on 

universal coverage that everybody has been making here today, I 

think is altogether correct but for a different reason than many 

people emphasize. The simple fact is we are never going to be able 

effectively to control the growth of health care spending until we 

have essentially universal coverage. Why is that? The reason is 

that inevitably cost control is going to mean saying no for some 

kinds of services. It is going to mean cutting back on expenditures 

in some fashion. 

If some people are uninsured, providers will honor the demands 

of the strong payers, the well insured. The fact of the matter is 

that today the uninsured consume a lot of health care. And for that 

reason, the fact that there are a great many uninsured is not the 

catastrophe that it might be because they do have access to a great 

deal of health care. 

Try to impose significant cost controls in a system where some 

are uninsured and you will discover that the lack of health insurance takes on a whole new meaning and not one that I think any 

of us would wish to contemplate. 

208

Finally, I would like to draw on the theme that Senator Sanders 

made at the end and that I think Senator Feingold would make if 

he were here today, rather than with the rest of the world down 

listening to General Petraeus, or asking him questions. 

That is that there is a great deal of energy currently apparent 

around these United States at the State level trying, at the State 

level, to do much of what we are talking about here this morning. 

That is extend coverage, hold down costs, and improve health care 

quality. There is a great deal that the Federal Government could 

do to make it easier for States to move ahead with these reforms. 

As Senator Sanders said, I think it is wise for us to encourage 

those efforts, whatever our long-term goals for Nation action may 

be, because we have a lot to learn. The State of Massachusetts is 

now on the ground solving a host of problems that nobody anticipated when Governor Romney and a Democratic legislature enacted the Massachusetts plan. They are working together as of this 

moment, and let us hope that they continue to do so. 

If that effort succeeds, the prospects of national health care reform will be greatly enhanced because we will have learned many 

things that work, solve many problems that arise, and push the 

whole cause forward significantly. 

Finally, let me respond in advance to Senator Wyden. I do not 

think it is going to take a great deal more money but it is going 

to take some if we are going to achieve national coverage. I am 

aware of the Lewin and Associates estimate of your plan. I respect 

them as an organization. And I do not believe these particular estimates. Why? 

Years ago my colleague, Charles Schulz, suggested that there is 

kind of political Hippocratic oath: do not be seen to do any obvious 

harm. I believe that motivation will operate powerfully when you 

come to markup. You are going to have to take care of various 

groups who fear that they would be injured by your proposal and 

who would line up against it unless they are provided significant 

assurances. 

In the end I believe political bodies such as the U.S. Congress 

will honor a significant number of those requests and you will end 

up spending some additional money at the outset. 

But I come back to the point I made earlier: spending that money 

is the ante into an environment in which real cost control becomes 

feasible for the first time as it is not feasible today in the current 

U.S. health care system. 

[The prepared statement of Mr. Aaron follows:]

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Chairman CONRAD. Thank you, Dr. Aaron. 

Now we will turn to Dr. Sherry Glied, the Department Chair and 

Professor of Health Policy and Management at Columbia University School of Public Health. Welcome. 


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STATEMENT OF SHERRY A. GLIED, Ph.D., DEPARTMENT CHAIR, 

HEALTH POLICY AND MANAGEMENT, PROFESSOR OF 

HEALTH POLICY AND MANAGEMENT, MAILMAN SCHOOL OF 

PUBLIC HEALTH, COLUMBIA UNIVERSITY 

Ms. GLIED. Thank you. Thank you, Chairman Conrad, Ranking 

Member Senator Gregg, members of the Committee, for this opportunity to testify. 

You have copies of my testimony, so I am going to focus my remarks today on the three strategies that you have put forward. 

Let me start with Medicare for all, because it is most familiar. 

Medicare has three important virtues that come about because it 

is a single-payer style plan. Everyone would be insured through the 

same financing, which means that we would pool healthier and 

sicker people together. Medicare could drive hard bargains with 

providers. That is the bane of our health care system today. We 

just pay very high prices for everything. And finally, coverage 

under Medicare is nearly automatically. Those are very important 

virtues. 

But Medicare also some serious flaws, and I am going to talk 

about some that are a little different than have been mentioned 

here already today. 

The Medicare benefit package was designed in 1964. We should 

all be very grateful to the Congressmen and Senators who did the 

heavy lifting at that time. But they were legislators and not fortune tellers. Health care has changed and the state of art of benefit 

design has changed a lot since Medicare was passed. Medicare has 

not kept up. 

For example, health plans today never separate inpatient hospitalization insurance from physician insurance. But that was typical when Medicare was passed and Medicare still has it. 

Plans today typically do not include a mental health benefit with 

a 50 percent co-pay. But Medicare was designed in an era of Freudian psychoanalysis, not Prozac. So we have a plan that is somewhat outdated even in its design. 

Another problem with universal Medicare would be the enormous 

size of the program. This huge program would create tremendously 

powerful incentives for providers and we know that providers will 

organize their practices around those incentives. That would be 

fine. It would even be desirable if we knew how to design perfect 

payment incentives. But we do not. So in humility, we should design a system that is not so monolithic where we can make mistakes and make changes over time. 

Moreover, the response to the strong incentives created by this 

single payment system will generate a system that is committed to 

the preservation of the status quo. Provider and beneficiary resistance to change is the reason that Medicare itself has not evolved 

much over 40 years. We need a system that will continue to transform itself as medical care transforms itself. 

So what about an employer mandate? I have grave misgivings 

about extending the reach of employer coverage through a mandate. For full-time middle income workers employed in medium 

and large firms, job-based coverage in the United States is great. 

That group, with their families, constitute about half of all Americans under 65. 

225

But that great system breaks down when you try to stretch it to 

cover people who do not naturally belong to it such as part-time 

workers, people who change jobs frequently, low-wage workers, 

workers in small firms. It just does not make any sense to force 

this group to get their coverage through their jobs. And if employers cannot play, an employer mandate becomes nothing more than 

a disguised payroll tax on low-wage workers who work for small 

firms. 

The third option under consideration is an individual mandate 

combined with a fair subsidy program. I really emphasize that because I think going forward with an individual mandate that is not 

combined with an appropriate subsidy would not be a reform. It 

would simply be cruelty. 

An individual mandate can be a useful tool but I think it is 

sometimes seen as a sort of panacea that will solve all of our problems with a wave of the wand. Many of the people who would be 

affected by a mandate do not now have a natural place in which 

to buy coverage. They do not have a place to bargain with providers, they are on their own, or to pool risks. 

This problem can be addressed by creating new purchasing pools 

but there will always be a tendency to allow those pools to compete 

with one another or to allow participation in the pools to be voluntary, to allow people to decide whether they want to be the pools 

or to stick with their employer coverage. If that happens, the pools 

will fall apart and the system itself will deteriorate. We have seen 

it happen before. Indeed, even existing employer group coverage 

could evaporate in that environment. 

An individual mandate also faces enormous administrative challenges. Enforcing the mandate on people who spend three or 4 

months uninsured, which is a very typical pattern as I think you 

have pointed out, would be very difficult, much moreso here than 

say in the Netherlands or Switzerland where they have individual 

mandates but in an atmosphere of far less labor mobility, with a 

much higher base rate of health insurance coverage, and much 

more intrusive kind of state. 

In my view, the best designs for health care reform actually combine elements of all three of these options, although I think, as 

Henry Aaron pointed out, that any one of these could be an improvement over the present mess. 

At the same time I have some bad news, I think. None of these 

solutions, no possible combination of them that you might come up 

with or that any of us could come up with, will actually solve the 

health care problem once and for all. When you look around the 

world at legislators in countries that have had universal health insurance for 100 years, you see them holding hearings just like this 

one here today. 

Much as I am sure you would like to put the health care problem 

behind you, one forecast I am comparable in making is that 50 

years from now somebody like you will be sitting there listening to 

somebody like me talking about health care reform. 

[Laughter.] 

Chairman CONRAD. That is the end of the hearing. 

[Laughter.] 

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Ms. GLIED. So we do not have to fix it once and for all. We just 

have to make a step forward and realize that we are going to keep 

tinkering with it as we move on. 

[The prepared statement of Ms. Glied follows:]

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Chairman CONRAD. All right. That is more hopeful. That sounds 

better. 

[Laughter.] 

Chairman CONRAD. Next we will turn to Janet Trautwein, the 

Executive Vice President and CEO of the National Association of 

Health Underwriters. 

I hope I am pronouncing your name correctly. 

Ms. TRAUTWEIN. You got it perfectly. Thank you. 

Chairman CONRAD. Thank you. Welcome. 

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

Ms. TRAUTWEIN. Thank you. I am very pleased to be here today. 

I think, as panelists, we all have run into each other many times 

before and we know each other. And we all really want to do the 

right thing. We don’t always agree on all the details but I think 

one thing that each of us would agree on at this table is that we 

have to be very careful as to how we move forward, and that if we 

move forward for the wrong reasons or in the wrong way that we 

could actually end up with a worse situation than we already have. 

So I would like to delve right into again addressing the three 

issues that we talked about. I will try to talk about a different 

angle than what we have already addressed so as not to be boring 

here. 

First of all, let me start first with an employer mandate. Our 

members work with consumers, both individuals and employers, 

every single day to purchase coverage, to use the coverage that 

they purchase and, to make the whole thing work appropriately. 

One of our biggest observations, although we have members that 

work with all sorts of people, is that employer-based coverage does, 

in fact, work pretty well. It is efficient—and this doesn’t imply that 

the individual market is inferior. What it means is that it is an efficient process. 

And what it does that makes it work well is that it naturally 

groups people together. It controls the flow in and out of a plan, 

which is very, very important in controlling costs over time. And 

very important, it provides an easy vehicle for employers to subsidize the cost of coverage. 

Now having said that, providing health insurance by employers 

is very, very expensive for them and they do it for a really important reason. I think that most of them want to do it for a very important reason. And that is to attract and retain the best employees. Even the smallest employers have that need and want to do 

that. 

We are concerned about an employer mandate for either a certain type of health insurance, to provide health insurance at all, or 

to pay for a specified percentage of the cost. 

Health insurance in this country has historically not been a right 

associated with employment and there are questions about whether 

it should be a right at all. I would like to move back to that in a 

moment but I want to talk just for a moment about the employment aspect. 

235

The ability of employers to offer or not offer coverage helps businesses compete in the way that’s most appropriate for that particular business, that particular business. Sometimes they can offer 

coverage and at other times they cannot. 

This does affect our economy in this country and I think we need 

to be very careful as to what burdens we put on employers and be 

very careful to do it in a way in that we do not do harm because 

our economy is very important to driving everything this country, 

as we all know. 

The other thing that we do have a problem with related to employer mandate proposals is the whole idea of play or pay or pay 

or play or however we want to talk about it. 

We are concerned for the same reasons that Dr. Glied has said, 

about this tax on low-wage workers. We are concerned that, in fact, 

these proposals can escalate over time and that we would end up 

with something that we did not start with. 

Our other concern is that this whole idea of opting out often puts 

someone into a true government-run program and that, in fact, 

other countries’ experiences with government-run programs have 

shown to produce certain situations that almost always happen. 

And what I want to talk about is something that we have not mentioned before. It is not that it happens, it is why it happens. 

The reason why it happens is that in any sort of a governmentrun program, regardless of how you style it, you have to deal with 

a global budget. In fact, wouldn’t it be fiscally imprudent not to 

have a budget? We are the Budget Committee here. You have to 

have a budget on any sort of health plan. 

And countries that run into problems do so because their global 

budgeting requires them to cut back somewhere. Sometimes it is 

rationing care for people of certain ages. Sometimes it is waiting 

lists. Oftentimes it is paying their providers a ridiculously low 

amount of money. It is often the providers that are cut back significantly. 

In fact, we have tried this a bit in Maine through their 

DirigoChoice program. I know that we hear about Dirigo up here 

sometimes, but the fact is that Dirigo is not doing very well in 

Maine. And there are some very important reasons why that is the 

case because, in fact, even with the government running part of 

this program, it has cost much more than they thought it was 

going to. And so I think again we have to just take caution in moving forward. 

Also, I do want to speak at this point about Medicare for all. 

Under all of the proposals that we have seen, all Americans would 

have access to the Medicare program as we know it. Some of them 

also include an option for the participation in the Federal Employee Health Benefit Program. I have looked at several different 

cost projections for this proposal and they are all quite high. And 

I agree that we are spending a lot of money today but I think we 

need to be careful as to how we spend it. 

We have looked very carefully at this issue because our current 

Medicare program is a government-run program. Yet, we do not 

have rationing. We do not have significant waiting areas. And our 

seniors currently do have access to technology. But the United 

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try and we talk about the whole global budgeting process, we know 

that a global budget would be an absolute necessity, a necessity, 

with an expansion to everyone like that. 

We would be forced to do the same thing that the other countries 

do or we would not be able to pay for it. We do not have an unlimited checkbook here. So I think that we need to the very careful 

about expansions and consider them carefully in the way that we 

do them so that we do not end up with something that we did not 

bargain for. 

The other thing I want to talk about is an individual mandate 

proposal. We find the idea of individual mandates really kind of an 

interesting proposal. And Massachusetts, as you all probably know, 

became the first State to enact an individual mandate in 2006. Certainly it is an outside the box approach. But again I think the 

Devil is in the details. We just have to be careful as to how we 

might implement something like that. 

There are a number of questions that would have to be addressed, particularly how the regulatory environment would have 

to be adjusted, particularly in the individual market. Would you 

couple it with a purchasing pool or a connector or an alliance or 

something like that? How would you make an individual mandate 

work? 

Would it really reduce the cost of providing health care? Remember that health care is what drives the cost of health insurance. Because if we look at Massachusetts as our example, and they have 

not been doing it very long, they still have some of the highest 

health insurance premiums in the country. And so I think we need 

to make sure that we do not assume that there is some magic silver bullet. There is not. This is a problem that we are going to 

have to address very carefully. 

And then beyond that I just want to mention, relative to an individual mandate, one other consideration. And please do not construe this as opposition. These are questions and we have to answer these questions. We should think about these things. 

Would this really lower the number of uninsured people in the 

country? The easiest thing to look at, of course, is the mandate for 

auto insurance. In spite of the fact that we have an individual 

mandate for auto insurance in 46 States and the District of Columbia, the Insurance Research Council released data in June of 2006 

indicating that 14.6 percent of American motorists lacked car insurance in 2004. And that 14.6 percent sounds very similar to the 

16 percent uninsured that we have right now. So we have just got 

to figure out how, in fact, we would enforce that sort of thing. 

So I would just conclude by saying that I agree that we are going 

to be talking about this for a long time. That does not mean that 

we cannot make a lot of progress in the meantime. 

We look forward to working with the Committee on solutions to 

make that happen. 

[The prepared statement of Ms. Trautwein follows:]

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Chairman CONRAD. Thank you very much. Thanks to all of the 

witnesses. 

Let me ask you all the same question. 

If you had the ability to design the system or at least take interim steps that would lead in the direction I think we would all 

like to go in terms of trying to get everyone covered, what would 

you do? Dr. Aaron? If you were given the power to design the system, what would you do? 

Mr. AARON. I actually was asked that question just the other 

night. And I responded in light of the three problems that I described. The first thing I would do would be to try to secure enactment of some version of the three bills that have been introduced 

to put the Federal Government in the position of supporting State 

health care reform, one of which is cosponsored by Senator 

Graham, who just came in the room just now. 

The reason I say that is that the objective circumstances across 

the United States as far as the delivery of health care reform, the 

financing of health care reform, the use of health care, are so diverse, so different, ranging from more than 25 percent of the people 

uninsured in Texas to well under 10 percent in much of New England and Minnesota and Hawaii. Health maintenance organizations dominating health care delivery in some States and not existing in others. Spending differences of 60 percent or 70 percent 

among the States, per capita spending differences. 

I am skeptical that we know enough now to design a single system to encompass that range of diversity. So I think the first step 

is to get behind what strikes me as the palpable energy now in the 

States to move ahead with health care reform. I think it is going 

to be difficult to draft that kind of a bill but there is a lot of interest. The House bill now has 70 cosponsors, nearly equally divided 

between Republicans and Democrats. 

I think you can make some progress here. Get the SCHIP bill debate behind you and then move on this. 

The other two areas that I think are critically important relate 

more to quality and to the practice of medicine. We simply do not 

know what works and what does not for most of what physicians 

do. It has not been evaluated. 

The history of Federal sponsorship of agencies to try to add to 

that knowledge is really a pretty dismal one. Short, ugly and brutal 

is the life expectancy of these various agencies. I think it is possible to create an agency and fund it that would be protected from 

the political winds that have knocked down the previous agencies. 

And we need to begin to buildup this body of medical knowledge 

on what works, what does not, what is cost-effective. 

If you are a private insurer, if you are a business, if you are a 

labor union, and you want to impose some kind of constraint on access to care what evidence do you—can you refer to now? 

Chairman CONRAD. What agency would you give that responsibility? 

Mr. AARON. What I would like to see is an organization that was 

created independent of the current department structure with a 

governance structure similar to that that has worked so well for 

nearly 100 years to provide independent monetary policy, that of 

249

the Federal Reserve, funded by an earmark or a charge that is not 

subject to annual appropriation. 

The objective here would be to have an entity that was governed 

by people who could not be removed except for cause, who had 

staggered terms, lengthy terms, and a funding source vastly larger 

than those that have been discussed in the SCHIP reauthorization 

bill, to underwrite this kind of research. Until we have that kind 

of knowledge, I think it is going to be damned difficult to justify 

saying no to what may be relatively ineffectual or unnecessarily 

costly care. So that would be the second element. 

The third element, I think, is we really do have to get serious 

about information technology. As I commented in my statement, 

President Bush created an agency headed by a very distinguished 

and capable civil servant, David Braylor, but the authorizing legislation said except no new money shall be appropriate for this agency. 

It is going to take some additional Federal support to help the 

private medical sector reorganize itself, implement information 

technology, and move from the age where solo docs did it all and 

prided themselves on never pleading ignorance into a world where 

information demands are so vast that physicians and other providers have to work as teams and exchange information freely. 

That is a key step to boosting the quality of health care in the 

United States. 

Chairman CONRAD. Very well. Thank you. 

Dr. GLIED. Ms. GLIED. I would second the approach of encouraging State 

variation. I think it is a good way to go for several reasons. We do 

not know the answers and we need to see how we can develop answers that will fit within the United States. There is tremendous 

variation across the country in spending. And everything that we 

do nationally creates cross-subsidies between low spending areas 

and high spending areas that are just unjustified, I think. So I enabling State variation in design and encouraging it at the Federal 

level is important. 

Second, I think we need to consider tax code changes that would 

get the money to buy health insurance into the hands of the people 

who need it rather than spending it in the inefficient way that we 

do now. I think that can be an important step in conjunction with 

several different directions for reform. 

And I think another thing that we need to do as we move ahead 

with state variation, which I think is the way that progress is perhaps most likely to be made, is to think about ways to allow the 

Federal Medicare program to benefit from savings and innovation 

that take place at the State level. 

So we need to think about how to really—and that goes back to 

the question of variation among the States in spending levels already. How can we actually capture some of that saving that we 

might be able to get by bringing the high-cost regions down within 

our program. 

I think comparative effectiveness research is critically important 

and I think information technology is very important. I do not 

think that they will have an enormous or direct impact on the cost 

of our health care system. I think over time, especially if the proVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00255 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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vider community really adopts the recommendations of these programs, they could have an effect on the quality of our health care 

system. We have not spoken enough, I think, about how poor the 

quality of our health care system actually is but that is a really important direction for us to go in. 

Chairman CONRAD. Ms. Trautwein? 

Ms. TRAUTWEIN. Not to be repetitive, but I actually would agree 

in part with the other two panelists relative to the State issue. But 

I would say that we need to proceed with caution in that area and 

here is why. 

When I talked earlier about Massachusetts still having some of 

the highest costs in the country, there is a very important reason 

why that happened. I do have concern about very creative State 

ideas like Massachusetts’s program being done before important 

basic reforms are done. Massachusetts should have changed some 

of their current regulatory structure before they proceeded with 

what they did and they might have had quite a different result 

than they did. 

So I agree that we need to look at the State side but we need 

to do so with certain parameters in mind to make sure that States 

have not already foiled themselves before you even get there with 

the creative ideas. We do not want to be a Band-aid, in other 

words. 

I also think one of the reasons why it is very important to look 

at the state level is we do have a very different picture from State 

to State, not just because of the regulatory environment but also 

because of the whole issue of rural health care. Rural health care 

has all sorts of issues, provider access issues, but it also has an important cost issue. Because of the fewer number of providers that 

are there the costs of providing care are significantly higher in 

those areas, not to mention lack of access to important technologies 

that prevent people from being as healthy as they otherwise might 

have. 

The other thing, I do think we do need to provide incentives for 

employers to offer coverage. We need to provide incentives for people and subsidies for people who cannot, who genuinely cannot afford to pay for coverage on their own. We must get these people 

in the system. We just need to proceed with caution in how we do 

it. 

We also need to make sure that we are not instilling waste into 

the system with frivolous lawsuits. There are a lot of different ways 

to approach this. The Senate has looked at medical liability many, 

many times. I think there are other ideas we have not addressed 

fully enough to address the problem. We do not have to just introduce the same idea over and over and over again, but let us not 

forget that there is a problem. 

And finally, this whole issue of information technology, we have 

experienced that in my own family where we have seen duplicate 

tests, having to do things over and over again because one doctor 

was not able to talk to the other one. It is a horrible waste of 

money. We have to do something and move forward with that. That 

is a bipartisan idea and we should waste no time in getting that 

done. 

Chairman CONRAD. Thank you, very much. Senator Allard. 

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Senator ALLARD. Thank you, Mr. Chairman. 

I like the approach that a couple of the witnesses have talked 

about where you use the States as a laboratory to begin to put 

some of these ideas into action. Ms. Trautwein, is that right? You 

keep talking about needing to look at the regulatory structure. 

What are you seeing in Massachusetts and other States where the 

regulatory structure has to be changed in order to have an individual mandate on health insurance? 

Ms. TRAUTWEIN. If we had looked at a State like Massachusetts—and there are others—many of them are concentrated on the 

East Coast. They have the worst situations there, cost-wise. They 

have a few things in common. 

No. 1, their market is much more tightly regulated in terms of 

the ability to actually assess insurance risk. For example, in the individual health insurance market you can ask no questions at all. 

And the rate bands are very, very tight. What that means is 

that——

Senator ALLARD. Let me understand. In the health insurance 

market you cannot ask any questions at all? Who would ask the 

questions? 

Ms. TRAUTWEIN. The insurance companies. 

Senator ALLARD. Explain that to me. 

Ms. TRAUTWEIN. The insurance companies who provide the insurance. The same as if you applied for auto insurance, they ask you 

for your driving record. The same thing happens in the individual 

health insurance markets in almost every State. 

If you compare the costs for coverage in States that are allowed 

to do that and the cost of coverage in Massachusetts or Maine or 

New York or New Jersey or Vermont, you will see that they are 

very, very different. Most states have provided a vehicle for those 

who do not pass the health questions, who do not pass the medical 

underwriting, so that they can still get coverage at an affordable 

cost. That is just an example of one thing. 

The other thing that is very important—there there are numerous things. But the other thing that is really important is the way 

rates are established. Too tight of a community rate, so that everyone is paying the costs——

Senator ALLARD. You have smaller pools. 

Ms. TRAUTWEIN. Yes, smaller pools. And the younger people really just, because they think they are invincible, choose not to pay 

the cost. It is a great deal if you are 55. But if you are 25, it is 

not. And those are the people that we need in the system to keep 

the costs down. 

Senator ALLARD. I have run across a company or an insurer—I 

will just put it this way—an insurer, that manages their health 

costs by keeping track of a doctor’s diagnosis and then keeps track 

of the ultimate outcome of that disease when it is treated. 

What they found is on some diseases—we could take diabetes as 

an example—when the diagnosis is made, some doctors get that patient stabilized in a shorter period of time than others. Some get 

a few days, some take weeks. 

What they do that what they have found is that they go to the—

they put the pressure on the doctor. They say look, your history 

tells us it takes you longer to cure your patients with this disease 

252

compared to this other doctor. What is it that you could do to shorten the time period on that? 

I need the docs do not like that but there are some variables. But 

how practical is that? 

That is the only system where I have seen where you have increased quality and you have had the potential of holding down 

costs. 

So how can a State implement something like this if they have 

an individual mandate? Anybody have any ideas on that? 

Ms. TRAUTWEIN. I love that idea and we wish that more insurers 

could get their providers to participate in that. Again, it is a matter 

of a provider being able to say I do not want to be in your network 

and they can be an out of network doctor and they do not have to 

do anything like that. And so if we can get more providers to participate in things like that, it would be great. It would save a lot 

of cost in the system and it would be better for patients. 

The other issue is how do we get the patients to choose those 

providers? 

Senator ALLARD. The only ones that who have the ability is the 

bill payer. They are the only ones that have the ability to force the 

doctors to do that. So instead of an individual mandate, maybe you 

look at a mandate on those who reimburse for the costs to do this. 

How practical would that be? 

Ms. TRAUTWEIN. I think most insurers would like to use some 

form of that anyway. But the issue is still, and I go back to the 

providers because we do not have any law that says Dr. Jones must 

participate in insurance company ABC’s plan. They can say you 

know, I do not like your rules and I do not want to be in your plan. 

I am just going to assume that my patients will like me enough to 

continue to come to me anyway because I do not like your silly 

rules. 

A lot of them—we hear that a lot from providers. So that is the 

pushback that insurers are hearing from their provider network as 

they try to impose more and more. I am not saying we do not think 

it should be done and that a lot of them are not trying it. It is just 

that the reality is that we are hearing reports of provider 

pushback. 

Senator ALLARD. I see my time has expired, Mr. Chairman. 

Chairman CONRAD. I thank the Senator. 

Senator WYDEN. 

Senator WYDEN. Thank you, Mr. Chairman, an excellent panel. 

Dr. Aaron, I share your view about how important it is to give 

the States a major role in designing the health system, and we do 

that in the Healthy Americans Act. We have very broad waiver 

provisions so they can, in effect, go off and do their own thing by 

getting close to essentially what the Healthy Americans Act calls 

for. 

But I would like your thoughts on the developments this year because, as you characterized it, there was palpable energy at the 

State level. Every single State legislature met in 2007 and not one 

of them, not one, passed a major reform bill. California is still out. 

We are all keeping our fingers crossed and hope they do it. 

My sense is the reason it is so hard for the States is that they 

cannot get their arms around any of the big drivers in American 

253

health care. They cannot get at the Federal tax code. It cannot get 

at Medicare. They cannot get at ERISA. Veterans is a Federal program. 

In fact, I am going to say, and I talked a little bit with Senator 

Graham, I think we ought to be saying three cheers for the States 

because they are getting a lot done given the fact they have virtually no bandwidth in which to work in. 

What are your thoughts specifically about why nobody at the 

State level was able to move in 2007 when there was all this energy this year? 

Mr. AARON. First, I think there is still some possibility for State 

action. Notably, there is a current dustup between the administration in New York over pushing the SCHIP limit up rather considerably. There is a lot of energy to do similar things with SCHIP in 

other States as well. So I think there is a little more possibility for 

positive action. 

The States, though, face some very serious obstacles. One is the 

restrictions, the Federal regulations imposed within discrete programs. A second is that they, like everybody else, face competing 

demands for available resources. The reason there is so much proposal activity at the current time is that the States are unusually 

flush because of rising tax revenues. 

You have mentioned ERISA. That is, I think, a serious impediment since it puts self-insured health plans pretty much off-limits. 

There is another obstacle which I do not think hasten sufficient 

attention actually from any of the bills that would push State action, and that is it the cyclical threat that if you over commit when 

things are—when the economy is favorable, you may be left holding 

a financial day of very considerable girth when the economy turns 

sour. 

I think one step that could make it much more attractive for 

States to move ahead and make commitments is if any Federal legislation that provides encouragement to State action along the lines 

of the three major bills that have been tabled also contains a provision that provides automatically on a formula basis some financial 

support. Not completely bailout, but some financial support during 

recession periods. 

Senator WYDEN. Let me see if I can get one last question in because in many of these debates, and particularly Lindsey and others, talking about the States—and I want to be clear, I am supportive of the role of the States—they are saying there are no models. Gosh, we ought to have a model. 

I will tell you, there is a model, folks, in this country and it is 

in my wallet. This is a private insurance card that covers the 

Wyden family. And there are a couple of twins that are arriving 

here in a few weeks, so we been a lot of attention to this private 

insurance card. 

When you come to one of my town meetings, and I bet it happens 

for Bernie and all of us, what folks say when you ask them about 

health care they say we want coverage like you people have in Congress. Folks are not completely sure what that is, but whatever it 

is we have, they would like. That is sort of the story. 

So after I spent these 4 years on this policy and this effort to try 

to come up with a plan, I said what is wrong with the basic model 

254

Members of Congress have? We recognize it is different. We would 

be the first to say it is different. 

But what happens is Senator Graham, I, all of us, we get information during the open enrollment system. They give us choices of 

private coverage. 

Under the Lewin analysis, they said our administrative costs 

would be about 3.4 4 percent. So we are talking about really driving down the administrative costs when you use the big pooling arrangement that I and Senator Gregg and Senator Bennett and all 

of us are talking about. 

Folks, what is wrong with that as a model? We have it today. It 

is not something you have to go out and reinvent. Why not try to 

figure out a way, recognizing that it would have to be different? I’m 

not saying that the Members of Congress system is exactly analogous. 

But what is wrong with a model that says during open enrollment season you get information about private choices. You fix the 

private market so the private insurance companies cannot cherry 

pick and just take healthy people. You have a place for people to 

go for their questions. You drive down the administrative costs like 

Lewin says we are doing. What is wrong with that as a model? Professor Glied? 

Ms. GLIED. I do not think anything is wrong that as a model. I 

think it is a perfectly reasonable model. I guess there are some 

questions about how you put it together. And particularly how you 

make it more regional rather than having it run out of Washington, out of OPM. There is a lot of work to be done to make a 

model like that operate. And there are lots of questions about what 

happens to people who already have coverage through their employers. Is everybody going into that FEHBP? Or are we going to 

have parallel structures? And what are the issues that are going 

to come out of that? 

I think there are better and worse ways to design a plan around 

that, but I think it is an excellent basis. 

Senator WYDEN. I am going to quit while I am ahead and you 

have given me extra time, Mr. Chairman. Thank you. 

Chairman CONRAD. Let me just say, if we are going to be doing 

this based on the American people wanting our health care system, 

I saw a poll that was taken not so long ago that the American people think all senators live in mansions, that we have servants, and 

that we are chauffeured in limousines. 

I drew this to the attention of my wife, who was highly amused 

by this since I drive a 1999 Buick, we live in an 1,800 square foot 

house, and the servants in our household are Kent and Lucy. Lucy 

is my wife. 

[Laughter.] 

Chairman CONRAD. Senator Graham. 

Senator GRAHAM. And there is Senator Grassley in 1960-something. 

But anyway, Dr. Aaron, about the bill that we are try to come 

up with? Can you explain it? Because I know you will do better 

than I would do? What are we trying to do, me and Senator Feingold? 

255

Mr. AARON. I think what do you and Senators Bingaman and 

Voinovich and in the House, Tammy Baldwin and Representative 

Price from Georgia, are all trying to do has certain structural similarities. In each case, you would create a bipartisan federally sponsored entity D to receive and to review proposals from States with 

firm goals and specific procedures for extending health insurance 

coverage. 

The bills differ in the exact ways in which this agency would it 

be created. They differ in the ways in which or whether additional 

funding would be provided to those States whose plans are approved. The commission would be structured so that there could be 

confidence on both sides of the aisle that both conservative and liberal proposals from different States would be approved. For example, you have balanced appointment to this committee and you require a super majority to send a forward a proposal. So both Republicans and Democrats would have to approve a roster of State 

proposals. 

Congress, under expedited procedures, would either approve or 

reject the whole lot, sort of a fast-track approach. The programs 

would run a typically for approximately 5 years, during which period the States would report back to the commission on the 

progress that they are making or not making in extending health 

insurance coverage. 

The idea is to facilitate the proposals, which, as Senator Wyden 

has correctly observed, have not been rushing through legislatively 

in this calendar year to try and achieve a better outcome in future 

years. 

Actually, States have taken a number of steps previously, not all 

of which have succeeded and many of which have not endured because of fiscal cycle reasons, to extend health insurance coverage. 

I think the philosophy behind this is when one is talking about national health reform, one is talking about a nation in which the objective differences among the States are at least as great as they 

are among the nations of the European Union. And that it may 

well be more possible within the narrower confines of State offices 

to negotiate the difficult compromises that need to be made in 

order to field a comprehensive proposal. 

The poster child for this now is Massachusetts. Everybody is 

watching to see whether they will successfully deal with the problems they are unquestionably encountering. Right now I think the 

auguries are favorable. Diverse groups are still working together. 

And the purpose of your bill and the other two bills, and now I 

should say three because of Senator Sanders’ and Congressman 

Tierney’s bill, is to encourage those efforts by providing a little regulatory wiggle room, possibly some additional funding, and national support. 

Senator GRAHAM. I am really impressed with myself after hearing that. 

[Laughter.] 

Chairman CONRAD. Among our colleagues, there is almost no restriction on the ability to be impressed with ourselves. 

[Laughter.] 

Senator GRAHAM. I have taken it to a new level here. 

256

One thing, and my time is up, is there any country out there that 

you would point to as having gotten it particularly right? 

And the second question is one of the big issues we face in this 

country is the cost of dying. When you discuss health care and prevention, you also have to talk about how much money is spent in 

the last illness preceding death. Any thoughts about what we could 

do along those lines? 

Mr. AARON. On the first point, the World Health Organization 

has evaluated health care systems of different nations. The top 

award went to France. A former Assistant Secretary of Health said 

to me, and he is obviously a person who can get access to the best 

that the United States has to offer, that if he were to get sick anywhere else in the world, France would be his choice about where 

to get sick. 

That said, I do not think it is important. I think each nation has 

its own unique history, its own unique political setting, its own objective circumstances that differ. We each have to find our own 

ways. 

As for the cost of dying, I think the high cost is certainly real. 

It sometimes is exaggerated. The proportion of health care spending that does occur during the last year of life is under 20 percent. 

And it is important to recognize we do not know at the beginning 

of that year that it is the last year of life. A lot of the people who 

receive health care continue to live on beyond that period, for 

which we should be thankful. 

But I do think it is important for physicians and families to face 

up to the fact that, as one English person once said to me, Americans erroneously believe that death is an option——

[Laughter.] 

Mr. AARON [continuing]. And approach it in that fashion. As I 

age, this is a topic that is increasingly on my mind, I must say. 

Chairman CONRAD. I thank the Senator. 

Senator WHITEHOUSE. Senator WHITEHOUSE. Thank you, Mr. Chairman. 

Chairman CONRAD. Let we just stop you if I can. There is going 

to be a moment of silence observed on the Senate floor at noon for 

the victims of 9/11. So my intention is to wrap up about 5 minutes 

before. 

So I am going to try to be pretty strict with respect to the 5-

minute time so that we can conclude this before the moment of silence to be recognized. Senator Whitehouse. 

Senator WHITEHOUSE. In that event, let me ask a very narrow 

and targeted question in this great big issue that we have been discussing, and that is in this area, in which improved quality of care 

provides lower costs—and it does not always do that but there are 

identifiable areas that can be found where when you improve the 

quality of care it does lower the cost. 

And it strikes me that that is an area that we should be mining 

incredibly diligently for those savings and for those quality improvements. Everyone should be behind this. This is not an I win/

you lose political fight between two interests. This is just making 

it work better at less expensive and save lives. And it is not happening. It really truly is not happening to anywhere near the degree that it should be. 

257

There is some kind of a market failure out there that is preventing this from happening despite everybody’s interest in having 

it get done. What is that market failure? Why is this not happening 

more? 

Ms. GLIED. I think the reason it is not happening more has to 

do with the way that payments are fragmented. So in total a lot 

of those things save us money. Improving quality saves money in 

terms of infection control, for example. But it does not necessarily 

save hospitals money. Or when it saves hospitals money, it does 

not necessarily save insurance companies money or it does not save 

physicians money. 

And the way that money flows in our system in the fragmented 

way it does, it is very difficult to make deals that make everybody 

better off. It is one of the things we really should be looking out 

for. 

Senator WHITEHOUSE. If you were to try to pursue those deals 

that you just mentioned, where people have the chance to get together and work them out so that we can explore those areas, 

would that more likely happen effectively at the local level or dictated by the Federal level? 

Ms. GLIED. My sense is that most of those changes have to happen at a local level. And if the change has to happen at a local 

level, it is probably best to try and implement it as close to the 

change as you can, that it is actually more difficult to try and do 

it nationally. It is better for groups of doctors, hospitals, and insurers to sit together somewhere and say we are going to tackle this 

problem here. 

Senator WHITEHOUSE. Plus, they are bumping into each other all 

the time on all sorts of issues locally, so there is more honor, if you 

will, in the negotiations. 

Ms. GLIED. The difficulty with health care is that it is, ultimately, a locally delivered commodity. And we need to recognize 

that at every step along the way. Mr. Aaron. 

Senator WHITEHOUSE. I see, I think, three heads nodding approval. But in my last minute or so, do you both agree with the 

exchange we have just had? 

Ms. TRAUTWEIN. Yes, absolutely. 

Mr. AARON. Yes, with modification that I think information is 

fresh air that helps. And in this case——

Senator WHITEHOUSE. Do not get me started on information technology. 

Mr. AARON. No, no, I’m talking about data on health outcomes. 

It is very difficult to gather that from a million fragmented payers. 

That is a real advantage, for example, of the Medicare system 

which has vast quantities of data which have been underutilized to 

date. So the Nation can provide information that will help the 

locals do their job. 

Senator WHITEHOUSE. Excellent point. And like Senator Wyden, 

I will quit while I am ahead and yield the remainder of my time. 

Chairman CONRAD. Senator Sanders. 

Senator SANDERS. Thank you very much, Mr. Chairman. 

I just want to touch on a few points and then ask our panelists 

a question. We talk about universal coverage. Universal coverage 

saves us money and deals with human suffering because right now 

258

in this country there are people who, when they get sick, do not 

go to a doctor until they are quite ill. And the insanity is that we 

spend zillions of dollars in hospital care when we could have saved 

money, saved human suffering, if they could have walked into the 

doctor originally when they were very ill. 

No. 2, I know that in the Congress it is customary to demonize 

‘‘government health care.’’ We have a president who does that 

every single day. And I find it very ironic, Mr. Chairman—I am a 

member of the Veterans’ Committee—that we have Jim Nicholson, 

who is the former Chairman of the Republican Party, I believe, 

now head of the VA, coming before the Committee saying studies 

show that the Veteran’s Administration has the highest quality 

health care of any major system in the United States of America. 

Let me suggest this is a socialized health care system, 100 percent 

government run, former Chairman of the Republican Party tells us 

how cost-effective and high-quality that care is. 

Third point, in my State and around this country, and I know in 

North Dakota, and I am working on this issue a whole lot, federally 

Qualified Health Centers are doing an extraordinarily good job in 

a cost-effective way of providing health care to every man, woman, 

and child in the served area. 

I am happy to say thank you, Mr. Chairman, that with a little 

bit of luck we are going to significantly increase funding for FQHCs 

and expand them throughout this country. 

Let me touch on another issue. And that is you can have everybody having insurance, but sometimes we miss another point. But 

you can have all the insurance in the world and you may not, if 

you live in a rural area in Vermont, have access to doctors. You 

may have a nursing shortage. You may have a major dental crisis. 

So here is an issue that I would like some comments on. How is 

it that in this great country today we have a doctor shortage, especially among primary health care physicians in rural areas? We 

have a major nursing crisis, by which 50,000 eligible applicants for 

nursing school cannot get into nursing school but we are depleting 

the Philippines of their nurses by bringing them over here. We 

have an embarrassment in my State and all over this country. We 

do not have enough dentists. 

I think one of my the solutions, Mr. Chairman, is to significantly 

increase funding for the National Health Service Corps. 

By the way, the recent educational reconciliation bill will debt 

forgiveness, a big deal, for doctors and dentists and nurses and so 

forth. 

But I would like maybe are panelists, starting with Dr. Aaron, 

to talk about how it can be that in America we have a doctor shortage, a nursing shortage, a dentist shortage? 

Mr. AARON. I think we have a mixed problem currently. He has 

been remarked by many for some years that the incentives to specialize and subspecialize financially are extremely seductive. If you 

can make a mid-six-figure income in Chicago, it takes an awful lot 

of environmental compensation to have a five-figure income in 

rural Vermont. 

Ms. GLIED. Unfortunately, I think one of the things that we have 

done with our health care system is let providers decide how many 

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259

ican medical schools, I think, stopped growing in the mid-1980’s. 

The medical schools simply do not take any more medical students. 

The dental schools have also been very strict in terms of allowing 

increases in the number of dentists. 

Senator SANDERS. They have a strong unit there——

Ms. GLIED. We effectively have a very strong union there. So we 

have created a shortage of our own design. And several other countries have done similarly. But we have a very low physician-to-population ratio compared to international standards. 

Senator SANDERS. And am I right in assuming as we age that 

problem becomes more severe? 

Ms. GLIED. Unless we do something about it, yes. 

Senator SANDERS. What is your suggestion? Give me some concrete ideas as to how we can increase—especially, as Dr. Aaron 

said, I do not know that we need any more specialists in Chicago 

or New York City. But we do need obstetricians and primary 

health care physicians in rural America. 

Ms. GLIED. I think we do need to do a lot of thinking about our 

provider situation. I do not think we need physicians for all of 

these purposes either. I mean, we have been very strict about who 

does what. But in many of these cases, nurse practitioners and 

other well-trained but less costly providers could be doing the job. 

We do not let them in many cases because our regulatory structures do not permit it. 

I think there is a lot of scope for evaluating the regulation of providers. 

Senator SANDERS. Now dental care is an issue, I think, that does 

not get enough attention. But are you suggesting that it is the dental schools that are playing a major role in determining how many 

dentists we have? 

Ms. GLIED. Yes. 

Senator SANDERS. Did you want to add something? 

Ms. TRAUTWEIN. Basically I just want to agree with the other 

two. And having a son that is a premed student, the incentives to 

specialize are incredible. So we have to figure out how to provide 

better incentives for people to go into rural areas and to train in 

primary care. 

And also, we have to figure out a way to train more of them. 

Whether it is dentists, whether it is nurses or whether it is physicians, there are not enough slots for the people that want to——

Senator SANDERS. I do not want to start a major controversy. I 

see, fortunately, Senator Gregg is not here. But Michael Moore’s 

movie makes the point that in Cuba they are sending doctors all 

over the world. They are able to train far more than they need. 

And in this country, we are not training enough physicians. 

Your point is a good point. Some way or another we are going 

to have to provide incentives to get physicians, young people, into 

medical cool school, into dental school, to get out to those areas 

that we need them, not just in big cities where they can make a 

whole lot of money. 

Mr. AARON. Let me just add here the point that Professor Glied 

made. You put a nurse practitioner in a rural area, connected well 

to specialists located someplace else, and you can get very highquality care. 

260

Senator SANDERS. Thank you very much, Mr. Chairman. 

Chairman CONRAD. I thank the Senator. 

Senator CARDIN. Senator CARDIN. Thank you, Mr. Chairman. And thank you for 

holding this hearing. And I thank our panelists. 

I tell the people of Maryland, when we talk about the health care 

debate and universal coverage, that I am a survivor. By that I 

mean I voted for, not only supported the Clinton proposal back in 

1993, I voted for it on the Ways and Means Committee Subcommittee on Health. And I am still in Congress. 

Mr. AARON. But not in the House. 

[Laughter.] 

Senator CARDIN. That may have been the penalty, I had to come 

over to the Senate. 

Chairman CONRAD. Let me tell you, that is not a penalty. 

Senator CARDIN. I even got promoted. 

What I learned from that experience is that in 1993 the majority 

of the people in this country supported universal coverage. And it 

was a popular thing we thought was going to happen. But when 

we started to get down into the details as to government’s responsibility and employers’ responsibility, we lost the critical mass necessary to pass universal coverage. 

I think universal coverage is critically important for so many reasons. We talked about cost. If you’re going to have a cost-effective 

system, everybody’s got to play according to the same rules. You 

need universal coverage if you want efficiency in the system. We 

have to have everyone covered so we can have the right facilities 

in the right location. 

And just from a humanity point of view, we have great health 

care in America. The problem is too many people are not able to 

get that health care. And the fact that they are uninsured is one 

of the leading reasons why so many people are denied necessary 

health care. 

So I have come to the conclusion that we need to find a way to 

get this done. 

I have introduced legislation, Mr. Chairman, that is four pages 

long. It is an individual mandate. It is pretty simple. It just says 

everybody has to have health insurance. It then allows the States 

not only the responsibility to determine what is adequate health insurance but requires the States to have at least three low-cost 

plans available on community rating so that there is a product 

available in each of our States to those who need to be covered who 

are not covered by their employer or under governmental programs. 

The enforcement is kind of simple. It may not be totally effective. 

We may not get 99 percent coverage. But we certainly would get 

a lot more coverage than we have today. It is enforced under our 

Federal Internal Revenue Code which is, of course, applicable in all 

States. And one of the criticisms about individual mandates in 

States that do not have income tax is how you enforce it. 

Now, I want to make this clear, Mr. Chairman. I think that is 

the beginning of the debate, not the end of the debate. That if we 

had an individual mandate, then we could, I think, talk about what 

is the appropriate responsibility of employers in America in meetVerDate 0ct 09 2002 11:00 Dec 21, 2007 Jkt 000000 PO 00000 Frm 00266 Fmt 6601 Sfmt 6601 C:\DOCS\37525.TXT SBUD1 PsN: TISH
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ing the needs of all of us who need and have health insurance? I 

think it talks about what is individual responsibility, not just financially to buy health insurance but as consumers to purchase 

health services in this country? What do we mean by coverage? 

What is adequate coverage? What should be included in health 

plans in America on wellness or mental health parity and affordability? What should be the responsibility of individuals? And how 

do we bring the costs down? And then federalism. What is the Federal Government’s responsibility? What is the local government’s 

and the private sector? 

I think all of that would be on a healthier plane if we at least 

start with the mandate that everyone must have health coverage 

in America. 

So I thought I would use my 5 minutes to try to promote support 

for my proposal. Any takers among the panel? 

Mr. AARON. I think you are going to need more than four pages 

before you have a proposal that——

Senator CARDIN. Of course, in the Senate you have unlimited 

amendments so I assume it will get longer than four pages. 

Mr. AARON. When it does, come back to me please. 

Senator CARDIN. That was not a ringing endorsement, Dr. Aaron. 

Mr. AARON. Before you were here, Professor Glied listed a number of approaches, among which an individual mandate was one of 

the approaches to extending coverage, and I think validly indicated 

that using each could combine into an effective strategy for increasing——

Senator CARDIN. Of course, just to——

Mr. AARON. You can do it better than I can. 

Senator CARDIN. Of course, one of the problems when you look 

at an individual mandate as the solution, it tends to be as long as 

Massachusetts, the bill. And I am trying to keep this simple because it is not the end of the debate but the beginning of the debate. 

Ms. GLIED. It is a little hard to speak about something in that 

much abstraction. I commend you for moving ahead with something and I think a mandate—stating that we think it is a principle that everyone should have insurance is a clear step forward. 

I think the question is how are you going to actually make it happen? 

Senator CARDIN. Let me be clear that my bill is to just a principle. It is a requirement. 

Ms. GLIED. Right. 

Senator CARDIN. And it is enforceable but not the end of the debate. 

I want more from employers and I want more from government. 

Mr. AARON. An individual mandate, again I am quoting my 

neighbor to my left here, is something—is effective if it is backed 

up by assistance to those who lack financial resources themselves 

so that it can become a reality. Otherwise it is just punishment. 

So I think inevitably you are going to have to get into the tax 

code, into financing, into formulas for assistance. And that’s going 

to stretch, unless the print is extremely small, beyond four pages. 

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Ms. TRAUTWEIN. I will comment on one specific aspect of your bill 

that you mentioned, and I had talked about this in my testimony 

earlier also. 

I think all of us think that an individual mandate could work. 

But again the details, and part of that is the regulatory aspect, this 

issue about requiring a State to offer three basic policies. You 

would have to be very careful about how you structured that so 

that those policies did not end up being a dumping ground for you. 

Because if you went in and community rated those policies and the 

rest of their market was not community rated, it would end up getting the poorest risk. It would just need to be structured——

Senator CARDIN. Let me put out in Maryland we have a small 

market reform that is working. So there are ways that States can 

make it work if they want to make it work. 

Thank you, Mr. Chairman. 

Chairman CONRAD. I thank the Senator. 

Senator STABENOW. 

Senator STABENOW. Thank you, Mr. Chairman. And welcome, to 

our guests. I apologize for being late today because of the Finance 

Committee meeting. It certainly is not because of lack of interest 

because as all of us on this panel know, we are desperately and 

deeply concerned about this issue. 

First, let me just put out a couple of points based on the discussion that I have been hearing. One is we talk about nursing shortage. I know specifically, as it relates to nursing, that our challenge 

is not having enough professors to train them. And so we have 

slots opening up, we are funding slots, but because of all of us baby 

boomers now that are retiring what I hear from very prestigious 

colleges of nursing is the problem is not having enough slots because we do not have enough professors to be able to really provide 

that. So in some way, we have to address that. 

I want to thank the Chairman also for the federally Qualified 

Health Centers. Very, very important, very effective. Thank you for 

your help and leadership on that. 

We really do have a universal health care system. But the reason 

it costs twice as much as any other country is it is called emergency rooms. And so people get treated sicker than they should be, 

inappropriately, where they could be in the doctors office. But they 

get treated. And then every business that has insurance or every 

individual picks up the costs. 

That may have been said earlier, but that is my mantra consistently. It is not about whether or not we have it. It is how we want 

to pay for it and if we want to continue to pay this huge cost, very 

ineffectively. 

A quick question. I am sure that Senator Whitehouse brought up 

health information technology. I would like to do that, as well. You 

spoke about local decisions earlier. I think, first of all, it is very difficult to have only local decisions when it is primarily federally 

funded as a system. We talk about we do not want a governmentrun system. Well, we are too late. Most of the funding is Federal 

or State or some public entity. 

But health IT, it seems to me, brings that together where if we 

have that information available then local people can make good 

decisions within the context of a broad health IT system. 

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I know we talk about it in terms of cost all the time but you 

spoke about outcomes. This really is about quality. It is about 

whether or not you duplicate tests over and over again. Whether 

or not people have the right medicines and they do not conflict. 

Whether or not we are providing care in rural areas. 

In the Upper Peninsula of Michigan we have a wonderful program that has been developed by Marquette General Hospital and 

their system so that they can put a nurse onsite out with somebody 

and through telecommunication be able to provide diagnosis and 

treatment, share x-rays, all of those things. 

The VA is way out of us on all of this. The VA is doing an excellent job. 

But I wonder if anyone would like to speak a little bit more to 

the question of sharing information and outreach and what that 

does in terms of quality. We know there is a cost savings but being 

able to look at more effectively particular diseases, chronic diseases, where they are, the ability to treat people through long distances and so on, diagnosis, sharing of information. 

I do not know if anyone spoke earlier about that piece on quality. 

Because I think we are not good to get where we go if we are not 

rewarding investments in health IT and, in, fact incentivizing investments in health IT. 

Mr. AARON. Actually, we did touch on those issues because, like 

you, I think all of us believe that those reforms hold out enormous 

promise for improving the quality of care. 

Partly it is sending information to areas that may be thinly 

served by highly trained professionals so that people who are 

trained to a lower level can communicate with others who have 

that specialized knowledge. 

Information on effectiveness can also help improve the quality of 

care in the highly served areas, as well. Not all providers are 

equally effective. Under the current system, as you suggested, I 

think a seriously ill patient may end up seeing a great many physicians who do not bother to talk to one another or do not communicate sufficiently well. So that it is important to facilitate communications even within well-served areas among various physicians. 

So yes, yes, and yes to your suggestions. 

Senator STABENOW. Anyone else? 

Ms. GLIED. I think it is important when we talk about health IT 

to think about all the different forms that takes. And I think you 

emphasized communications, technology. I think sometimes we do 

not put enough emphasis on the kind of epidemiologic statistical 

data and the learning that we can get from that. That is a very 

different kind of investment than electronic medical records that 

might move from person to person. I think actually the epidemiologic data hold more promise even than the individual record. 

Ms. TRAUTWEIN. I am not sure I have anything substantive to 

add, other than we do have to look at this both from a national, 

regional and local level. We need a national interoperable system 

so that we can exchange whatever information we need to of all 

these different types of information nationwide. 

But we also need to look to customize that somewhat at the local 

level. Because we do, we talked about quality issues at the local 

level and how this is really a local issue and a local resource issue. 

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I think we need to make sure that we have a system that also can 

work for the very individual needs that those local communities 

have. 

Senator STABENOW. Thank you, Mr. Chairman. 

Chairman CONRAD. Thank you, Senator. 

Let me thank this panel. I very much appreciate your taking the 

time to be here, share your thoughts with the Committee. 

We are trying to provide some focus to this issue for our colleagues because of the critical impact on our Federal budget. We 

all understand that this is an area that can swamp the boat. It is 

the 800-pound gorilla. 

I think we just need a lot more communicating, a lot more thinking about how we proceed to build consensus. 

With that, I want to note that there will be a moment a silence 

on the Senate floor at 12 noon in memory of those who lost their 

lives and who were injured on 9/11. 

So with that, we will declare the hearing adjourned and again 

thank our witnesses. 

[Whereupon, at 11:51 a.m., the Committee was adjourned.]

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