>Health Care Update
September 4, 2009
Over the past few months, the topic of health care reform has been hotly debated in the halls of Congress and in communities across America. Given the importance of this issue and the impact of the health care reform legislation on every American family, I wanted to make sure you understood why I am opposed to this proposed legislation. In addition, I also wanted to provide you with some additional information about this important topic.
In the House of Representatives, the legislation currently under debate is H.R. 3200, introduced by Congressman John Dingell on July 14, 2009. A copy of this bill can be found at: https://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.3200:. This legislation, consisting of more than 1000 pages, has been reviewed by three Committees in the House of Representatives, but has yet to come to floor for a vote. In the Ways and Means Committee, the bill passed 23-18 with all Republicans and 3 Democrats opposing. In the Education and Labor Committee, the bill passed 26-22, with all Republicans and 3 Democrats opposing. And in the Energy and Commerce Committee, the bill passed 31-28 with all Republicans and 5 Democrats opposing.
Along with my colleagues in the House of Representatives and President Obama, I firmly believe that our health care system is in need of reform. But I also acknowledge that, in many respects, our health care system is the envy of the world. As we consider legislation to reform health care, it is important that we build on what works, and try to fix what is not working. But the legislation currently under consideration in the House would radically change the way the majority of Americans receive health care treatment. And unfortunately, rather than fix what is not working in the American health care system, I fear that the legislation would actually embrace many of its broken elements, achieve little in the way of true reform, and scuttle a number of promising reforms enacted in recent years. This is not the direction that health care reform should take, and I have outlined my chief concerns with the bill below.
Cost
One of the biggest issues facing our health care system is its high cost. In 2007, an estimated $2.26 trillion was spent on health care in the United States, or $7,439 per person. Health care costs have risen faster than wages or inflation for decades, and this is expected to continue into the future. In as soon as 2017, almost one-fifth of the entire U.S. economy is expected to be expenses and spending related to health care.
But if this is a problem for the private sector, the situation is much worse for the federal government’s primary public health care plans: Medicare and Medicaid. In Congress, I have the pleasure of serving on the Budget Committee. Ever since I first arrived in Congress, witness after witness—Republican or Democrat, liberal or conservative—who have appeared before the Committee have all noted the serious long-term funding issues that these programs face. For some examples of these hearings, and to read testimony presented before the Budget Committee you can follow the links here, here, and here.
The 2009 report of the Medicare board of trustees noted:
“The financial outlook for the Medicare program continues to raise serious concerns. Total Medicare expenditures were $468 billion in 2008 and are expected to increase in future years at a faster pace than either workers’ earnings or the economy overall. As a percentage of GDP, expenditures are projected to increase from 3.2 percent in 2008 to 11.4 percent in 2083. ..Growth of this magnitude, if realized, would substantially increase the strain on the nation’s workers, Medicare beneficiaries, and the Federal Budget.”
If anything, these estimates might actually understate the problem. According to the Peter G. Peterson Foundation, America’s three biggest entitlement programs, Medicare, Medicaid, and Social Security are projected to consume over 80 percent of the federal budget within a generation (see the report here). The single biggest driver of this increased cost is health care inflation. Medicare alone has a $36.3 trillion unfunded liability which means that every baby born in America in 2009 has a health care debt of $121,000 as soon as it takes its first breath.
Amazingly, H.R. 3200 would actually make the problems associated with the nation’s long-term finances significantly worse. The director of the Congressional Budget Office (CBO) Douglas Elmendorf, who was appointed by Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV), concluded that, “enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period.” Furthermore, when testifying before the Senate Budget Committee, Dr. Elmendorf said, “In the legislation that has been reported we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs.”
Many have argued that increased preventative care will lead to lower costs. While I strongly support preventative care efforts, such as increased cancer screenings or the development of additional non-invasive diagnostic techniques, we should not be overly optimistic about the potential cost savings that these efforts would bring. As Dr. Elmendorf noted in an August 7th letter, “researchers who have examined the effects of preventative care generally find that the added costs of widespread use of preventative services tend to exceed the savings from averted illness.” One of the studies cited by Dr. Elmendorf in the prestigious New England Journal of Medicine found that more than 80 percent of preventative measures added to medical costs.
In other words, H.R. 3200 would create a new health care entitlement, with trillions of dollars in new unfunded obligations on top of the already unsustainable federal health care programs without doing anything significant to slow the rate of growth of federal health care spending. This is, to put it mildly, a recipe for fiscal disaster of the first order.
Innovation
One of the hallmarks of American medicine is its innovation. Our nation’s doctors and hospitals have access to the most advanced, cutting edge research, medical devices, and pharmaceutical products in the world. The medical achievements of the last 60 years have been amazing: polio is confined to the history books; death by cardiovascular disease has fallen by two-thirds; childhood leukemia, once a death sentence, is now treatable. Furthermore, American medicine has been uniquely innovative when compared with the rest of the world: according to a survey of physicians, four of the six most important medical innovations of the past 25 years were developed in the United States (see this New York Times op-ed by Tyler Cowen for more information).
Unfortunately, I fear H.R. 3200 would seriously dampen medical innovation in the United States. The central tenet of H.R. 3200 is the creation of a new government-run insurance plan that would reimburse physicians similar to Medicare rates. A well-respected research firm, the Lewin Group, estimates that within 10 years, 114 million individuals would lose their current coverage and be placed on the government-run insurance plan. Because this plan would account for over one-third of the entire health care system and pay an approximation of Medicare’s rates, it would also exacerbate many of the problems Medicare has had in stifling medical innovation.
For example, over the years many observers, including President Obama, have noted that “accountable care organizations,” such as the Mayo Clinic or the Geisinger Health System, provide high quality health care at significantly less cost. Unfortunately though, medical innovators such as these, who find ways to treat diseases at less cost, are punished by a perverse government reimbursement system. As the CEO of the Mayo Clinic, Denis Cortese, recently wrote in the Chicago Tribune:
“Many doctors and hospitals that offer [high-value] care are reaching the point where we cannot afford to provide it to patients with government-sponsored insurance such as Medicare and Medicaid. We worry that the same could hold true for patients in a new government-run public insurance plan.
Despite the fact that we strive to give patients the right level of care…we consistently suffer huge financial losses due to the government price-controlled Medicare payment system, which financially punishes providers who offer higher quality care at a lower cost.
Last year alone, Mayo Clinic lost hundreds of millions of dollars caring for Medicare beneficiaries…Because of this shortfall, our other patients pay more to make up the difference. Someday soon, neither Mayo Clinic nor those other payers will be able to afford this situation.”
Additionally, H.R. 3200 contains a section regarding comparative effectiveness research. Comparative effectiveness research is a government analysis to determine which treatments are more “effective” than others in terms of medical application. While this type of research is important, and can help inform physicians’ medical decisions, many have expressed concern that comparative effectiveness will lead to government-run health care programs refusing to provide certain prescriptions or other treatments if they deem them not effective enough. This could have a profound chilling effect on researchers attempting to discover new ways to treat patients through innovative new treatments or drug therapies.
This is the case in other countries, where entities such as the National Institute for Health and Clinical Excellence (NICE) in England, have infamously denied expensive cancer drugs to its citizens because of cost considerations. I recently learned from a former colleague in the House of Representatives who survived abdominal cancer in 2005 that the drug used to treat his cancer was not available at all in England at the time. In other words, he survived because of access to innovative treatments that could be stifled under H.R. 3200.
Taxes
One of the worst components of H.R. 3200 is the inclusion of a $544 billion surtax on people earning more than $280,000. Aside from the fact that almost nobody believes it is a good idea to raise taxes in the middle of a recession, I have serious concerns that these tax increases would unfortunately fall disproportionately on small businesses.
According to the Internal Revenue Service’s (IRS) 2002 Statistics of Income, 64 percent of households filing individual tax forms with Adjusted Gross Income (AGI) above $250,000 filed as an S-Corporation or partnership or filed a Schedule C sole proprietor tax form. Further, of all small businesses 75 percent are S-Corporations where the business income is passed through to the business owners’ individual tax return, increasing the chances that it will be impacted by the proposed surtax (see here for more information).
According to the Small Business Administration (SBA), small businesses generate 60 to 80 percent of net new jobs annually and employ approximately half of all private sector employees. Numerous economic studies show that higher marginal tax rates discourage small businesses from expanding and hiring more workers. Especially in a recession, it is important not to levy a new tax against the job creators who will sow the seeds of our recovery.
Even Bill Gale, the Vice President and Director of Economic Studies at the liberal-leaning Brookings Institution, notes, “Choosing to finance health care reform by taxing the rich is bad economic policy, bad health policy, bad budget policy and poor leadership.”
Furthermore, under President Obama’s budget submitted earlier this year, the tax cuts enacted in 2001 and 2003 are scheduled to expire in 2011. When these expiring tax cuts are combined with the new surtax proposed in H.R. 3200, the top marginal tax rates in 39 states would exceed 50 percent, with a 52 percent national average. According to the non-partisan Tax Foundation, this would be higher than just three of the 30 most economically developed countries in the world.
Finally, H.R. 3200 contains an “employer mandate” for the purchase of health insurance. This means that any business not currently offering health insurance must either offer a government approved plan, or pay a penalty equal to 8 percent of an employee’s payroll tax. For small businesses not currently offering health insurance, this would be a massive new cost per employee. A 2007 study by Harvard Professor Kate Baicker found that “33 percent of uninsured workers”—5.5 million total—“earn within $3 [per hour] of the minimum wage, putting them at substantial risk of unemployment if their employers were required to offer insurance.” The study also found that “among the uninsured, those with the least education face the highest risk of losing their jobs under employer mandates.”
Medical Liability Reform
Recently, I spent a couple of days in my district touring hospitals, physician group practices, and long-term care facilities. When talking to the physicians at these facilities, I asked them, “What issue would you most like to see addressed in health care reform legislation?” In every single facility I visited, medical liability reform was either at or near the top of the list.
We know that the surge in malpractice lawsuits over the past 30 years has had a profoundly negative impact on the practice of medicine. And while, obviously, I feel that patients should be compensated for gross negligence by physicians, there is little doubt that our current tort system is broken. More than 60 percent of liability claims against physicians are dropped, withdrawn, or dismissed without payment. In 2007, the average cost of defending these claims was $18,000 per case.
This has pushed the cost of liability insurance through the roof. The American Medical Association (AMA) has listed New Jersey as a “crisis state” for medical liability. Doctors face liability insurance premium increases that far outpace the already high rate of medical inflation. Some high-risk specialties, such as obstetrics or emergency, face annual premiums of over $100,000 per year. According to a survey conducted by the American College of Obstetricians and Gynecologists (ACOG), the lack of affordable liability insurance forced 70 percent of OB/GYNs to make changes to their practice. Liability concerns also forced between seven to eight percent of OB/GYNs to stop practicing obstetrics.
But more important than the direct costs of our tort system are the indirect costs. The anxiety that our physicians face from confronting potential lawsuits seriously affects the doctor-patient relationship. One pediatrician I spoke to said that he would “just like to practice medicine without feeling like a lawyer was looking over my shoulder all the time.” Additionally, it drives up the cost of health care by encouraging the practice of “defensive medicine.” The AMA estimates that defensive medicine adds somewhere between $84 – $151 Billion per year in health care costs to our system. As another doctor I met with said, “I can waste money like you’ve never seen. When someone comes into my hospital and needs treatment, I can order every test, every procedure known to man, simply to protect myself from a lawsuit.”
It is imperative that any serious reform of the health care system take a hard look at the issue of medical liability. Unfortunately, H.R. 3200 proposes nothing in the way of reform in this area.
What I Support
While I do not support the creation of a massive new health care entitlement, there are a number of steps that we could begin taking today that would lead to dramatic increase in access to affordable, quality health insurance. Health care in the 21st Century should be: portable, affordable, sustainable, effective, and innovative.
During World War II, strict wage and price controls encouraged employers to offer generous non-cash compensation packages to compete for employees. In 1954 Congress wrote into law what has come to be known as the “Employer Tax Exclusion for Healthcare Benefits” and it has been a fixture of the tax code ever since.
This exclusion is one of the largest in the tax code, and it has encouraged our current health care system, wherein three-fifths of the population under the age of 65 receives their medical benefits through their employers. In the 20th Century this worked out well. The population did not switch jobs as often as it does now, and the companies people worked for were generally larger, which made risk pooling easier.
But this is not an ideal way to structure a health care system for the 21st Century. Today, our workforce is much more mobile. People change jobs far more frequently than they did in the past. And when people change jobs they are far likelier to work for a small business or become a sole-proprietor. An ideal health care system for the 21st Century would allow individual’s health care plans to be portable—that is, allow individuals to keep their health care coverage through a change in jobs. A portable health care system should also include a safety net for those who become unemployed or disabled.
Two proposals that I would support which would encourage this portability are to allow individuals to enjoy the same tax benefit that employers currently have, and to allow individuals and families to purchase insurance across state lines. Purchasing individual health insurance in New Jersey is more than twice as expensive as it is in other states, such as Arizona. Because of the high cost of setting up a policy in New Jersey, many insurers choose to ignore New Jersey, and take their business elsewhere. This would increase competition amongst insurers, and by allowing the purchase of these policies to be tax deductible, would make health insurance far more affordable.
Additional reforms that I support are a greater utilization of Health Savings Accounts (HSAs). HSAs combine a high deductible health insurance plan with a tax preferred savings vehicle, which can then be used to pay for out of pocket health care expenses. Our health insurance system currently encourages insurers, either private insurers, or public insurers, to compensate health care providers not just for expenses that are unexpected and large, but for nearly all health-care expenses. For some people, such as those with chronic conditions a “pre-paid” option that operates this way could be a preferred option. But for a good portion of the population, HSAs could be good option. John Mackey, the CEO of Whole Foods, recently wrote in the Wall Street Journal:
“Whole Foods Market pays 100 percent of the premiums for all our team members who work 30 hours or more per week (about 89 percent of all team members) for our high-deductible health-insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees’ Personal Wellness Accounts to spend as they choose on their own health and wellness.
Money not spent in one year rolls over to the next and grows over time. Our team members therefore spend their own health-care dollars until the annual deductible is covered (about $2,500) and the insurance plan kicks in. This creates incentives to spend the first $2,500 more carefully. Our plan’s costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction.”
Finally, I strongly believe in increased funding for health care research. In the past, I have been a strong advocate for increased funding for the National Institutes of Health (NIH), and the cancer research programs at the Department of Defense. As I said earlier, American health care leads the world in innovation and discoveries, and the federal government has a role to play in this area. For example, public funding for health care research can go to areas that have a large public benefit, but for which there is little private incentive to research, such as “orphan diseases” that only affect a small number of people.
Thank you for taking time to listen to my concerns with this legislation. I have set up a special email account so that you can share your thoughts and concerns about health care reform at: [email protected].
Should you have any further questions or comments about this or any legislative issue, please do not hesitate to contact me in my Washington, D.C. office at (202) 225-4465. Also, please visit my website at www.house.gov/garrett to sign up for my e-newsletter with the latest updates.
Sincerely,
Scott Garrett
Member of Congress
