Initiatives of Healthcare Reform

Improving the performance of our health-care system is without a doubt one of the most important challenges that our nation faces. In recent decades, improvements in medical knowledge and standards of care have allowed people to live healthier, longer, and more productive lives. New medical technologies and treatments promise more and better to come. From a social point of view, we hope as many people as possible benefit from these advances. But health care is not only a scientific and social issue; it is an economic issue as well. The decisions we make about health-care reform will affect many aspects of our economy, including the pace of economic growth, wages and living standards, and government budgets, to name a few.

By any measure, the health-care sector represents a major segment of our economy. Spending on health-care services currently exceeds 15 percent of the gross domestic product (GDP). Indeed, health-care spending is the single largest component of personal consumption–larger than spending on either housing or food. Importantly, health care also has long been, and continues to be, one of the fastest-growing sectors in the economy: Over the past four decades, this sector has grown, on average, at a rate of about 2-1/2 percentage points faster than the GDP. Should this rate of growth continue, health spending would exceed 22 percent of GDP by 2020 and reach almost 30 percent of GDP by 2030.¹

Health-related spending is also a large and growing share of government budgets. Last year, health care accounted for about one-quarter of total federal spending. The Congressional Budget Office (CBO) projects that, under current policies, health spending will account for almost one-half of all federal non-interest outlays by 2050.²

As the public interest in these issues testifies, the stakes associated with health-care reform, both economic and social, are very high. But we must keep in mind that, for all its problems, the U.S. health-care system also has many strengths. We must take care that we do not lose what is good about our system as we try to address the significant concerns that certainly exist.

In the remainder of my remarks, I will discuss three key challenges for health-care reform. These challenges are, in short, the issues of access, quality, and cost.

Challenges for Health-Care Reform

Access
Access to health care is the first major challenge that health-care reform must address. In 2006, a total of 47 million Americans, or almost 16 percent of the population, lacked health insurance. Although the federal and state governments spent more than $35 billion to finance uncompensated care in 2004, the evidence nonetheless indicates that uninsured persons receive less health care than those who are insured and that their health suffers as a consequence. Per capita expenditures on health care for uninsured individuals are, on average, roughly half those for fully insured individuals.³ People who are uninsured are less likely to receive preventive and screening services, less likely to receive appropriate care to manage chronic illnesses, and more likely to die prematurely from cancer–largely because they tend to be diagnosed when the disease is more advanced.⁴ One recent study found that uninsured victims of automobile accidents receive 20 percent less treatment in hospitals and are 37 percent more likely to die of their injuries than those who are insured.⁵

Quality
The second key challenge is improving the quality of health care. The quality of medical research, training, and technology in the United States is generally very high. However, the quality of health care is determined not only by, say, technological advances in preventing and treating disease but also by our ability to deliver the benefits of those advances to patients. For maximum impact, advances in medical knowledge must be widely disseminated and consistently and efficiently implemented. But evidence suggests a disturbing gap between the quality of health services that can be provided in principle and the quality of health services that actually are provided in practice. For example, in 2000, the Institute of Medicine issued a landmark report that concluded that up to 98,000 Americans died each year in hospitals as a result of medical errors.⁶ Many of the errors identified by the report–for example, errors caused by adverse drug events, improper transfusions, wrong-site surgery, and mistaken patient identity–could have been prevented if hospitals had adopted appropriate safety systems. Although hospitals have implemented a number of new safety practices since the time of that report, the scope for improving patient safety remains large.⁷

Inconsistent use of best practices by doctors and hospitals is also surprisingly widespread. For example, numerous studies have pointed to the lack of adherence to evidence-based guidelines for the treatment of heart attacks. In particular, it has long been well established that restoring blood flow to the heart and using aspirin, beta blockers, and ACE inhibitors at the appropriate times significantly reduce deaths resulting from heart attacks.⁸ Yet studies show that the dissemination of these treatments occurred only slowly.⁹ More widespread application of evidence-based medicine could help health-care workers make better use of the medical knowledge they already have to improve patients’ outcomes.Initiatives of Healthcare Reform Sample

Although some patients do not receive the care they need, others receive more (and more expensive) care than necessary. Research on geographic variation in health-care practices and costs confirms this point. For example, Medicare expenditures per eligible recipient vary widely across regions, yet areas with the highest expenditures do not appear to have better health outcomes than those with the lowest expenditures; indeed, the reverse seems to be true.¹⁰

Cost
This observation brings me to a third important challenge for health-care reform: controlling costs. The problem here is not only the current level of health-care spending (U.S. spending exceeds that of most other industrial countries) but, to an even greater degree, the continued rapid growth of that spending. Per capita health-care spending in the United States has increased at a faster rate than per capita income for a number of decades. Should that trend continue, as many economists predict it will, the share of income devoted to paying for health care will rise relentlessly. A piece of wisdom attributed to the economist Herbert Stein holds that if something cannot go on forever, it will stop. At some point, health-care spending as a share of GDP will stop rising, but it is difficult to guess when that will be, and there is little sign of it yet.

Although the high cost of health care is a frequently heard complaint, it is important to note that a substantial portion of the cost increases that we have seen in recent decades reflects improvements in both the quality and quantity of care delivered rather than higher costs of delivering a given level of care. Notably, new technologies, despite greatly adding to cost in many cases, have also yielded significant benefits in the form of better health. People put great value on their health, and it is not surprising that, as our society becomes wealthier, we would choose to spend more on health-care services. Indeed, although quantifying the economic value of improved health and greater expected longevity is difficult, most researchers who have undertaken an exercise of this type find that, on average, the health benefits of new technologies and other advances have significantly exceeded the economic costs.¹¹

That said, the evidence also suggests that the cost of health care in the United States is greater than necessary to allow us to achieve the levels of health and longevity we now enjoy. I have already mentioned research that finds large regional differences in the cost of treating a given condition, with high-cost areas showing no better results. The slow diffusion of the use of aspirin and beta blockers for treating heart-attack patients shows that cheap, effective treatments are not always used, potentially leading to higher costs and worse outcomes. Moreover, because insurance companies and the government play such prominent roles in financing health care, patients and doctors have far less incentive to consider the extra costs of optional tests or treatments. But, as we all know, although testing and treatment decisions may be undertaken on the presumption that “someone else will pay,” the public eventually pays for all these costs, either through higher insurance premiums or higher taxes.Initiatives of Healthcare Reform Sample