Fed Chairman Bernake's Health-Care Remarks from June 16, 2008

Chairman Bernake's remarks (full PDF version of his remarks) from the immediately-below Summit:

. . . .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. 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. . . .

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.

Although some patients do not receive the care they need, others receive more (and more expensive) care than necessary. Research on geographic variation in healthcare 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. . . .

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 exceed the economic costs.

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.

The effects of high health-care costs on government budgets deserve special note.

In the United States, a large and growing portion of both federal and state expenditures is for subsidized health insurance. In 1975, federal spending on Medicare and Medicaid was about 6 percent of total non-interest federal spending. Today, that share is about 23 percent. Because of rising costs of health care and the aging of the population, the CBO projects that, without reform, Medicare and Medicaid will be about 35 percent of non-interest federal spending in 2025.

This trend implies increasingly difficult tradeoffs for legislators and taxpayers, as higher government spending on health-care spending will, of necessity, require reductions in other government programs, higher taxes, or larger budget deficits. Rapid increases in health spending also portend increasingly difficult access to health services for people with lower incomes. As health spending continues to outpace income, health insurance and out-of-pocket payments will become increasingly unaffordable. One way that society has addressed this problem in the past has been to expand government subsidies for health spending. The Medicare Part D program, which assists seniors with the costs of prescription drugs, is an example. However, to continue limiting the effects of rising medical costs on household budgets, the government may have to absorb an increasing proportion of the nation’s total bill for health care, putting even greater pressure on government budgets than official projections suggest.

Taking on these challenges will be daunting. Because our health-care system is so complex, the challenges so diverse, and our knowledge so incomplete, we should not expect a single set of reforms to address all concerns. Rather, an eclectic approach will probably be needed. In particular, we may need to first address the problems that seem more easily managed rather than waiting for a solution that will address all problems at once. . . .

This dove-tails with the next one -- from June 17, 2008.