Chairman Bernanke On Health-Care Reform Challenges

Chairman Ben Bernanke spoke today in front of the Senate Finance Committee Health Reform Summit, Washington, D.C.

It is worth pointing out that it was quite an informative speech as it detailed the many obstacles facing, by some very key measures I might add, our Health-Care Reform. And as he put it – a health-care system which is without a doubt one of the most important challenges that our nation faces.

From a social point of view, Bernanke said – we hope as many people as possible benefit from New medical technologies and better treatments. Through improved medical knowledge and standards of care, people will live healthier, longer, and more productive lives. But health care, he continued – 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.

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) and it is the single largest component of personal consumption-larger than spending on either housing or food.

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.

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. Needless to say , the stakes associated with health-care reform, both economic and social, are very high.

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.

The second key challenge, besides access – is s improving the quality of health care. The quality of medical research, training, and technology in the United States is generally very high. But evidence suggests a disturbing gap between the quality of health services and the quality of health services that actually are provided in practice. 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.

This observation brings 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.
Should that trend continue, as many economists predict it will, the share of income devoted to paying for health care will rise relentlessly.

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.

Without reform, Medicare and Medicaid will be about 35 percent of non-interest federal spending in 2025. As health spending continues to outpace income, health insurance and out-of-pocket payments will become increasingly unaffordable.

From the economist’s perspective, the question of whether we are spending too much on health care cannot ultimately be answered by looking at total expenditures relative to GDP or the federal budget. Rather, the question, whatever we spend, is whether we are getting our money’s worth.

Our health-care system is, de facto, a private-public partnership; as a result, governments should not view health-care costs narrowly as a budgetary issue. Rather, they should consider how the totality of government intervention in the health-care market–including tax policies, insurance regulation, and the structure of Medicare and Medicaid–affect the sector as a whole. The best way to reduce the fiscal burdens of health care is to deliver cost-effective health care throughout the entire system.

As we focus on the problems of our health system, it is easy to forget that much is good about it. Our health system has produced innovations in basic science, understanding in pharmacology and medical technology. These advances have resulted in more-effective treatments and significant reductions in mortality across a wide spectrum of diseases. In devising policies to reform our health-care system, concluded the Fed Chair – we must take care to maintain the vitality and spirit of innovation that has been its hallmark.

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