Hearing of House Committee on the Budget House of Representatives - Domestic Entitlements: Meeting the Needs

HEARING OF HOUSE COMMITTEE ON THE BUDGET HOUSE OF REPRESENTATIVES - DOMESTIC ENTITLEMENTS: MEETING THE NEEDS

February 17, 2005

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Mr. Wicker. Thank you. I am really not very patient but it is nice of you to think that I am.

Along the lines of the overall increase in health-care costs outside of the Federal programs, Dr. Wilensky commented a little about that. Let me ask a twofold question. Are there any industrialized countries that are not experiencing this very same problem? And what about a major factor being the lack of competition in health care?

Dr. Smetters likes health savings accounts. Let me ask you as economists, when you send a lot of money anywhere, the cost, the price seems to go up. To what extent has the cost of health care risen because over time with Medicare, Medicaid, almost universal health insurance, employment-based, without competition in choices, been a major factor in this overall
increase in health care?

Ms. Wilensky. Let me respond to the first part of your question, are we having a problem other or different from problems other countries have had? We tend to look at what we spend per person in this country relative to what other countries, G-7 countries, spend and observe we spend a lot more. We spend less time looking at rates of increase in spending in the United States compared to rates of increase in spending in other G-7 countries. Here we actually look far more similar than we look dissimilar.

A lot of the increased spending probability has to do with increasing medical capabilities as well as other factors such as increasing income and wealth. So in part, this is an issue that all of the developed countries are struggling with because they are all having aging populations. More importantly, they are also all struggling with how to try to take appropriate advantage of new medical technologies.

I am more positive than many of my colleagues in health economics and health policy about health savings accounts but only within a certain venue. I think it is important to give people part of the decision-making with regard to who they see and to understand that quality and price can differ.

As Dr. Feder mentioned early on, there is an unfortunate fact of life about health-care spending and that is it tends to be very concentrated. Spending is very concentrated in relatively small numbers, 1 percent, 10 percent of the population. If you want to really stretch, you can go out to the top 20 percent but basically the top 1 to 10 percent of spenders account for a lot of money. People will blow through any deductible that is in place as soon as they encounter a hospital, certainly by day two and generally by day one.

The question is whether you think health savings accounts and changing the tax treatment of health care to make it neutral for those with employer-sponsored insurance, maybe also cap the tax subsidy for those with extensive employer-sponsored insurance, a favorite remedy for most economists, will change behavior. Whether by getting people involved in the decision-making with the early dollars, you might have them more willing and amenable to have real care coordination for the expensive, ``back'' dollars, if applicable, there was better information about what really works when, and if there was a change in reimbursement so that those institutions that do it well, do it right the first time are rewarded. Together, would that help?

I think it would but I would be dishonest to say that tax savings or tax changes alone will drive the kind of change that is needed because of the very concentrated spending in health care.

Mr. Smetters. I agree, HSAs are not a magic bullet. In terms of other countries, if you actually look at the level of spending as a percentage of GDP, it is not hugely different than the United States. It is higher partly because health care is a luxury good and you spend more as you get richer. As just pointed out, the growth rates are very similar. That means they are going to converge over time.

If you look at what is provided in the Canadian or the UK system, if Hilary Clinton had succeeded in nationalizing the health-care system, President Clinton would not be alive today. Look at the UK or Canadian system, when you need open heart surgery, you don't get it in 3 or 4 days. Their average que is 9 months. The average person dies in the United Kingdom waiting for open heart surgery. Yet what have they achieved with it? Similar growth rates, a smaller level of spending, so we are talking about not much progress for just a very little amount of money.

Ms. Feder. I actually would make a different point about the international comparisons. First, it is very important to note that all the other industrialized nations have everybody in their health-care coverage systems. We have 45 million people who don't have coverage. I think that is an important point.

Also I think it is absolutely true that every nation is grappling with health-care costs and trying to get value for the dollars. As I understand it, actually Great Britain is making some great strides in trying to build the kinds of information systems perhaps similar to what Dr. Wilensky was talking about to enable them to get greater value for the dollar in their systems.

The other point to make I suppose is that all of these systems view their health-care spending as a budgetary decision and politically engage in the choices they want to make about what they want to spend for their Nation's health care. We don't do that. As I have argued in my testimony, I don't want to do it for the most vulnerable populations and not the whole health-care system but every other nation is trying to do that and do it directly. It might behoove us to make some of those decisions as well.

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