<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:30619.wais]
S. Hrg. 109-660
FROM MEDICAID TO RETIREE BENEFITS:
HOW SENIORS IMPACT AMERICA'S HEALTH CARE COSTS
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
JULY 13, 2006
__________
Serial No. 109-27
Printed for the use of the Special Committee on Aging
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SPECIAL COMMITTEE ON AGING
GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama HERB KOHL, Wisconsin
SUSAN COLLINS, Maine JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
MEL MARTINEZ, Florida EVAN BAYH, Indiana
LARRY E. CRAIG, Idaho THOMAS R. CARPER, Delaware
RICK SANTORUM, Pennsylvania BILL NELSON, Florida
CONRAD BURNS, Montana HILLARY RODHAM CLINTON, New York
LAMAR ALEXANDER, Tennessee KEN SALAZAR, Colorado
JIM DEMINT, South Carolina
Catherine Finley, Staff Director
Julie Cohen, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Gordon Smith........................ 1
Opening Statement of Senator Herb Kohl........................... 3
Opening Statement of Senator Ron Wyden........................... 3
Opening Statement of Senator James Talent........................ 4
Opening Statement of Senator Debbie Stabenow..................... 5
Panel of Witnesses
G. Richard Wagoner, Jr., chairman and chief executive officer,
General Motors Corporation, Detroit, MI........................ 6
Hon. Janet Napolitano, governor, State of Arizona, Phoenix, AZ... 30
Donald B. Marron, acting director, Congressional Budget Office,
Washington, DC................................................. 55
APPENDIX
Prepared Statement of Senator Ken Salazar........................ 89
(iii)
FROM MEDICAID TO RETIREE BENEFITS: HOW SENIORS IMPACT AMERICA'S HEALTH
CARE COSTS
----------
THURSDAY, JULY 13, 2006
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 10:06 a.m., in
room SD-106, Dirksen Senate Office Building, Hon. Gordon H.
Smith (chairman of the committee) presiding.
Present: Senators Smith, Talent, Kohl, Wyden, Carper and
Clinton.
OPENING STATEMENT OF SENATOR GORDON H. SMITH, CHAIRMAN
The Chairman. Good morning, ladies and gentlemen. We
welcome you all to this hearing of the U.S. Senate Special
Committee on Aging. We have a very important topic to consider
today, ``From Medicaid to Retiree Benefits: How Seniors Impact
America's Health Care Costs.''
We are joined by two very distinguished witnesses. Richard
Wagoner is the president of General Motors and Janet Napolitano
is the Governor from my mother's home State, the great State of
Arizona. We thank you so very much, Governor, for being here.
We will begin by having opening statements by my colleagues
and then we will turn to our witnesses. Our colleague, Debbie
Stabenow, will be introducing more formally Richard Wagoner. So
we thank you, Senator, for being here at this important
hearing.
Our nation is facing a crisis. Health care costs continue
to escalate, while quality continues to lag behind other
industrialized nations. Just this past April, a study was
released in the Journal of the American Medical Association
that compared the health status and spending of Americans to
that of British citizens. The results were alarming. Not only
did Americans have lower overall health status, we are spending
almost twice as much.
We will hear from our witnesses how health care costs
continue to impact employers, States and the Federal
Government's ability to deliver health care. The two driving
factors for growth in health care spending are continually high
health care inflation and a growing senior population. While
the size of the over-age-65 population can't be changed, steps
can be taken to better their care and create efficiencies to
ensure we are spending our health care dollars wisely.
Obviously, the question is asked why is this important. The
National Center for Chronic Disease Prevention and Health
Promotion estimates that 80 percent of people over age 65 have
at least one chronic health condition, and 50 percent of those
have at least two chronic conditions. Further, the size of this
population is projected to explode to 71.5 million people, or
20 percent of our population, by the year 2030, when all the
baby-boomers will have retired.
These alarming statistics clearly indicate that our nation
is facing a financial train wreck. That is why it is important
to act now to reform our system, and I believe the place to
start is Medicaid. The Medicaid program, which was created in
1965, has failed to evolve over time. As innovations in the
delivery and management of care have become mainstream in the
private sector, Medicaid has remained firmly set in its
original fee-for-service model.
However, Medicaid is not a failure. It is an integral and
essential component of America's health care system, providing
safety net coverage to over 60 million Americans. These
Americans are the poor, the elderly and the disabled. However,
as strongly as I support Medicaid, I am not an apologist for
it. I do not believe Medicaid needs to be reformed. I do not
believe it should be put on a pedestal, never to be changed, I
believe that reform is essential.
In that respect, I continue to try to be a bridge from my
party, the Republican Party, to the Democratic Party, fighting
to protect the program, but at the same time urging sound,
rational reform. That is the purpose of this hearing, to create
a bipartisan forum where all stakeholders--members,
beneficiaries, providers and advocates--can come together to
chart the future of Medicaid.
I hope that by starting this dialog now, we can develop
sound policies that are based on improving care and ensuring
efficiency rather than simply cutting funding to meet a dollar
figure. In the end, I fear the latter approach only ends up
costing the country more both in actual dollars spent and in
the negative impact to human life.
The Aging Committee has a long tradition of leading the
Congress toward innovative and necessary changes to our social
programs. In fact, the Social Security program and Medicare
were created based on recommendations that came from this
Committee. We also have continued to operate in an open and
bipartisan manner, and I have to make special note of Senator
Kohl and the privilege and pleasure it is to work with him on
such a basis.
As Congress embarks on changes to Medicaid, and hopefully
the entire health care system, we have an opportunity to once
again lead the way. We need to put ideology aside and develop
solutions that will ensure the long-term solvency of Medicaid.
In doing so, I am hopeful the combined effect will drive
efficiencies and modernizations throughout the entire health
care system.
As we will hear from our witnesses, both of whom oversee
large health care programs, utilizing the size and clout of
Medicaid can force innovation in the delivery of care and
provide lower-cost, higher-quality health care. It is time to
act, and I hope my colleagues will join me as I begin a series
of hearings and monthly roundtable discussions focused on
reforming Medicaid the right way, not just the budget way.
I look forward to hearing from our witnesses, and before we
do that, I will turn to my colleague, Senator Kohl.
OPENING STATEMENT OF SENATOR HERB KOHL
Senator Kohl. Well, thank you, Mr. Chairman, and, of
course, we welcome all of our witnesses today. This hearing
will kick off a series of Committee meetings to examine
Medicaid, its challenges, and bipartisan proposals for reform.
I congratulate you, Mr. Chairman, for undertaking this very
ambitious agenda.
Medicaid is the largest health care program in the United
States, covering more than 60 million people. While Medicaid is
traditionally viewed as a program for low-income families and
their children, 70 percent of spending is on the elderly and
the disabled. There is no question that the current trends in
Medicaid growth and spending are not sustainable for Federal or
State governments. We all agree that we have to cut costs. The
question is how, without endangering the most vulnerable in our
society.
In my State of Wisconsin, Medicaid provides quality
services to a broader population than is required by law. Our
Governor has worked to avoid limiting enrollment and services,
seeking instead to buy prescription drugs at better prices and
rely on home and community-based care options as an alternative
to costly long-term care institutions.
Arizona is engaged in a similar battle to cut Medicaid
spending without cutting Medicaid care, and we look forward to
hearing from Governor Napolitano about their success. We also
hope to hear from Richard Wagoner about General Motors and the
private sector's struggle with rising health care costs. These
costs threaten GM's fiscal solvency just as certainly as they
affect that of the entire Nation.
So again I thank you, Mr. Chairman, for holding this first
hearing on the topic, and we all look forward to working with
you on this issue.
The Chairman. Thank you, Senator Kohl.
Senator Wyden.
OPENING STATEMENT OF SENATOR RON WYDEN
Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I
think I mentioned to you back when I was director of the Oregon
Gray Panthers, we used to say we dream of the idea of an
Oregonian being Chairman of the Senate Committee on Aging. It
is great to see that you have the gavel in your hands, and I
appreciate all of our bipartisan work in this regard.
The Chairman. Thank you, Senator.
Senator Wyden. I think it is well understood that
escalating health care costs are hitting America like a
wrecking ball. This was seen again yesterday when there was an
announcement that Medicare premiums were going to go up at
least 11 percent next year. What that means is that many older
people are going to be looking to their companies and companies
like General Motors in order to secure good health care.
Because health care is like an ecosystem, if you can't secure
your health care from Medicare and you can't secure it on the
retiree benefit side in the private sector, then, of course,
you slide on to Medicaid.
So I am very pleased that we are going to have our
witnesses today, Mr. Wagoner and Governor Napolitano, because I
am interested in looking with them particularly at how as
entities--a big private employer and a major State--how they
use their purchasing power in order to help drive down the
costs of health care.
We have Senators here who have been of great help to
Senator Snowe and I, for example, in trying to life the
restriction on Medicare so that Medicare could bargain to hold
down the costs of medicine. We are just a handful of votes
away, and I am sure Mr. Wagoner and Governor Napolitano--one of
the first things that they do is try to ensure that they can
use their clout in the marketplace in order to drive down the
cost of health care.
What I will be asking you, Mr. Wagoner, first, because I
know you have thought a lot about health care and thought about
it in an innovative way, is about your ideas on shared
responsibility in terms of holding down health care costs and
securing good services. It seems to me that there is a role for
government, there is a role for the private sector, and I would
also say as a Democrat there is a role for the individual, as
well. So I am really glad you are here.
I note Senator Stabenow is here. You are running with the
right crowd, Mr. Wagoner, because Senator Stabenow has been a
great advocate for quality and affordable health care.
I thank my friend and colleague, Senator Smith, for
bringing the Committee together to examine these issues.
The Chairman. Thank you, Senator Wyden.
Senator Talent.
OPENING STATEMENT OF SENATOR JAMES TALENT
Senator Talent. Thank you, Mr. Chairman. I want to echo
what the other Senators have said about the importance of this
hearing. Medicaid is a vital program that makes a difference
everyday to millions and millions of vulnerable people. It is
the safety net in this area.
We do have fiscal challenges ahead. I am actually
optimistic that if this Committee and others like it will
canvas what is happening out there and the good people involved
in health care in the States and the localities, we can find
ways really to make this program sustainable and affordable
without cutting access or quality directly or indirectly,
without taking it out of the hide of providers. There is so
much good going on in health care. I really believe we can find
it.
I did want to make a comment. This is very timely,
especially in view of the administration's proposal to reduce
the provider tax assessment program from 6 percent to 3
percent, which I know you are leading a struggle against, and I
appreciate that.
I do want to make a comment just to make certain you are
aware of it that Missouri is a State that has entered into a
special partnership agreement with CMS regarding its provider
tax program. We opened up all our books and let them see
everything, in return for which they agreed that they would not
change the terms of the program during the life of the
agreement.
So this proposal not only has broad national effects, but
it effects Missouri, in particular, because we have this
partnership agreement negotiated in good faith and that Senator
Bond and I are trying to make certain gets respected, whatever
else is done. So I wanted to make certain the record had that
in it.
Again, I am grateful to you and to Senator Kohl for holding
this important hearing. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Stabenow.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman. I want to
particularly thank you and Senator Kohl and all of my
colleagues for beginning this series which is so critically
important to all of us.
I am extremely pleased to have the opportunity to introduce
the chairman and CEO of General Motors, Rick Wagoner, today.
Over his 29-year career with General Motors, Rick has been
involved, I am sure, in every facet of the company. He was
elected to his current position on May 1, 2003, after serving
as president and chief executive officer since June 2000,
making him the youngest CEO in GM's history.
Given his wealth of experience, it is no wonder that when
Rick Wagoner talks about health care, it makes national
headlines and people listen. I think his words are very
important, and his experiences, and those that he represents in
terms of an industry are very, very important.
Health care costs are a huge challenge facing American
businesses, as we know, who are trying to compete in a global
economy. The reason for that is that we fund health care
differently than any other country does, and this difference
eats into the bottom line for companies.
Let me just mention, if I might, in making the introduction
that there are many ways that we can work together. I have
appreciated the work with General Motors on generic drugs, and
Senator Lott and I have legislation to close loopholes
currently in the generic drug laws to be able to speed generics
to the marketplace. We have worked together on health IT, and I
am sure Rick is going to talk about e-prescribing. I would say
again Senator Snowe and I have legislation to move that
forward, which I would look forward to working with you on.
There are so many areas where we can work together.
Senator Wyden talked about shared responsibility, and I am
sure that Rick is going to be talking about the fact that 1
percent of their employees have catastrophic costs, but that is
somewhere between 20 to 25 percent of the entire cost of the
company. There are ways for us to come together and I hope that
the Committee will be recommending opportunities for us to
partner on those issues, as well as on Medicaid and Medicare.
As I indicated, Rick Wagoner speaks for an entire industry
which has created the middle class of this country, has given
people good-paying jobs, health care, pensions and security in
retirement. As our companies compete in a global economy, I
hope that we will be listening closely and listening to what
Rick is saying today because we have a stake in their success.
We have a stake in their ability to succeed in a global economy
because that means our people succeed, and I believe that means
we keep the middle class of this country.
So I am very pleased that Rick Wagoner is here. He is
someone that we hold in high esteem in Michigan for his work
and for the leadership of General Motors on a host of issues.
Certainly, health care is at the top of that list.
So welcome, Rick.
The Chairman. Thank you, Senator Stabenow.
Let me also now introduce, as well, our other witness who
is the Governor of the great State of Arizona, Janet
Napolitano. When I invited the Governor to participate in this
hearing, it was because I am aware of and following the great
things she is doing for the Medicaid population in Arizona and
wanted very much to include Arizona's experience in this
important hearing.
As I invited her to be with us today, it was very clear to
me in our conversation that she had a much more important
responsibility than being in Washington, DC today, not just
running the State of Arizona, but being with her niece for this
week, and on this Committee family comes first.
Governor, thank you so much for taking the time. I don't
know whether you have a time constraint where you would like to
go first in your testimony. We want to be respectful of that.
Governor Napolitano. Senator, thank you for that. I would
like to hear from Mr. Wagoner first and then I will dive in,
and then we will get to questions from the Committee.
The Chairman. Thank you so much, Governor.
Mr. CEO of General Motors, thank you so much for being
here, and we invite your testimony now.
STATEMENT OF G. RICHARD WAGONER, JR., CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, GENERAL MOTORS CORPORATION, DETROIT, MI
Mr. Wagoner. Thank you very much. I very much appreciate
it. Chairman Smith, Senator Kohl, members of the Committee, it
is an honor to have a chance to testify.
Governor, thanks for joining us today and I will look
forward to your comments momentarily. I wanted to thank Senator
Stabenow for her kind introduction as well.
I would like to highlight a few of General Motors' efforts
to improve the delivery and efficiency of health care services
for our employees, retirees and dependents. In addition, I have
provided a detailed description of GM's key initiatives in my
written testimony. Let me start by giving a little background.
General Motors is the largest private purchaser of health
care in the United States, paying the health care costs for 1.1
million employees, retirees and dependents. Of those 1.1
million people, approximately 530,000 are age 60 or over. In
2005, General Motors spent $5.3 billion for health care. That
is more than we spent on steel. In fact, a staggering $1.9
billion of that cost was for prescription drugs.
As you know, the U.S. spends more on health care as a
percentage of GDP than any other industrialized country, and
costs continue to rise, as has been pointed out earlier.
Despite all that spending, basic quality indicators would
suggest the U.S. does not have the best health care. In short,
we need to get greater value for our health care dollar, and to
do this requires the collaboration of stakeholders on many
levels.
In our own analysis, we found that GM employees and
retirees need three important things: first, better information
on effective treatments; second, better tools to identify
effective and efficient health care providers; third, education
and outreach to prevent disease and better manage chronic
illnesses.
To address these needs and to find innovative ways to
create better health care delivery systems for all, GM is
leading over 30 initiatives across the country. This morning, I
would like to touch on just a few of them.
For example, we have in place a number of programs and
educational tools to help our employees, retirees and their
families stay healthier and better manage disease. Way back in
1996, GM, along with the UAW, our largest union, launched
Lifesteps, our comprehensive health and wellness program
designed to help individuals identify controllable health
risks, develop plans to reduce those risks and modify their
lifestyles.
Today, more than 75 percent of GM employees and a very
substantial number of retirees have participated in this
Lifesteps program which has led to more than 1 million health
risk appraisals and the reduction of more than 185,000 specific
health risks.
What is more, we found that when our employees participate
in Lifesteps as active employees, they are more likely to
participate in these programs as Medicare-eligible retirees. So
as our employees retire and move into Medicare, we are
providing Medicare with a more health-conscious member and
likely a healthier member.
Another GM initiative that focuses on prevention and
disease management is the Greater Flint Health Care Coalition
Heart Failure Task Force. The goal of this program, which
covers almost 200,000 General Motors employees, retirees and
their families in the greater Flint, MI area, is to encourage
more physicians to follow established clinical guidelines in
order to reduce health risks and readmission rates, and offer a
better quality of care.
We are pleased that early results show a significant
improvement in the use of appropriate medications, better
documentation and compliance with guidelines. For example, of
2,500 heart patients, those treated at the eight participating
hospitals had significantly lower mortality and readmission
rates, than those treated at six non-participating hospitals.
GM has also had an extensive health education campaign for
all of our employees, retirees and their families to help them
become better health care consumers. Back in 2001, we began to
emphasize to our employees and retirees the high quality and
value of generic drugs. As a result, we have been able to gain
over 90-percent generic substitution, again with the support of
union leadership. Each percentage increase in generic use saves
General Motors $4 million a year.
We also offer all of our employees and retirees many
publications, including this comprehensive Health Care 101
guide that addresses major issues facing the health care
system. We are also helping our employees and retirees become
better consumers by providing them with more information about
providers and plans in their communities.
This August, GM, along with other employers, will launch
the Dayton, Ohio Consumer Information Transparency Project. The
program will give more than 70,000 local health care consumers
some key shopping tools, like cost and quality information
about their health care providers. The goal is to educate
patients to make better-informed and effective health care
choices and to create competition among providers based on cost
of service and quality of service.
Starting in 2006, GM began offering salaried workers and
early retirees a choice of two high-deductible health care
plans with health savings accounts. These plans have been very
well received and give GM employees and early retirees greater
control over their health care dollars, flexibility to choose
their own providers and tax-favored ways to save for current
and future health care costs.
Another critical tool to help patients become better health
care consumers is health information technology. We have
projects in several of our communities, including a
collaborative effort with Ford, DaimlerChrysler and Medco
Health, which is supported by the UAW and the State of
Michigan. This Southeast Michigan Electronic Prescribing
Initiative encourages physicians to adopt wireless hand-held
devices to look up formularies and other prescription drug
information, write prescriptions and send them directly to the
pharmacy for filling. As a result, we have seen a significant
reduction in adverse drug events and an increase in generic
drug use by over 7 percent.
As I mentioned earlier, it takes collaboration by
stakeholders in the public and private sectors to develop a
quality health care system. While there are numerous
collaborative efforts that GM supports, I want to highlight two
that are showing great promise.
In Michigan, GM is working with local health care
providers, businesses, unions, hospitals and the Greater
Detroit Health Care Council on a program called Save Lives,
Save Dollars. The goal is to make hospitals more financially
accountable for their performance and give consumers price and
quality information on physicians. We believe that this will
drive our health care cost system to achieve higher levels of
performance, which will help save lives, and greater overall
efficiency, which will help save dollars.
The Save Dollars component will pay hospitals based on
their meeting established performance measures. When care and
outcomes are improved, we expect to spend fewer dollars. This
is something we know from our own extensive experience in
manufacturing. As you improve quality, you lower costs.
Another quick example of collaboration is the
implementation of the General Motors production system within
health plans, hospitals and physician groups. GM has found that
approximately 80 percent of a process, regardless of the
industry, is comprised of non-value-added activities. Since
1994, GM has held workshops in over 400 hospitals to help those
in the health care industry learn how to be more efficient and
eliminate waste. Average results have yielded a 60-percent
productivity increase, a 46-percent inventory reduction and a
51-percent lead time improvement.
So as you can see from all this, GM is investing
considerable resources to find innovative ways to improve the
quality and cost of health care services. However, we also
believe that much more can be done with the support and
engagement of Congress and other public and private sector
stakeholders.
Several key public and private initiatives that deserve
attention are a rigorous and robust, competitive prescription
drug market in which everyone has access to the full range of
affordable pharmaceuticals, including generic biopharmaceutical
drugs; policies that give consumers and physicians information
on the relative effectiveness of different drugs and treatments
so they can compare and distinguish treatment options;
implementation of national health IT legislation; release of
the complete Medicare claims data base; and, finally, a better
public-private effort on high-cost cases. Just 1 percent of the
population with chronic and serious illnesses accounts for
almost 30 percent of total health care expenditures.
So in conclusion, GM is proud of the positive health care
efforts we have been making in our communities for our
employees, retirees and their families. However, we all can and
must do even more to improve quality, reduce cost and get
greater value for our health care dollar. At GM, we are
committed to working with both public and private sector
stakeholders to develop the solutions that will improve the
health care market for everyone.
Thank you again for the opportunity to share GM's
experiences with you today.
[The prepared statement of Mr. Wagoner follows:]
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The Chairman. Thank you, Mr. Wagoner.
Governor.
STATEMENT OF HON. JANET NAPOLITANO, GOVERNOR, STATE OF ARIZONA,
PHOENIX, AZ
Governor Napolitano. Well, thank you, Mr. Chairman and
members of the Committee, for inviting me to be with you today.
I am sorry I can't be there in person, but as the Chairman
referenced, I had a family obligation that I could not move.
I must say as the Governor of a Western State that using
the videoconferencing facilities to testify is a great service
because it allows me to stay in my State and do the day-to-day
work of government and to provide you with information that I
think will be helpful. Indeed, I think I sit here in a unique
position because normally Governors come to the Senate and they
testify and they say we need more money, we need more help.
I am here to say I think I can offer you some suggestions
on the policy side that will end up saving money for the
country as a whole. Indeed, there was a recent Lewin study that
looked at Arizona's Medicaid program and said that if this were
adopted nationally, it would save you $83 billion over the next
10 years. So I thought what I would do in my testimony is
highlight some of the elements of that and why it works and why
we think you don't have to choose between cost containment and
quality of care. You can do both.
In Arizona, as you may know, we were the last State to
adopt a Medicaid program. That was in 1982, and we decided to
design a program different from all others. In fact, we have
been operating under a huge waiver since our beginning. We
utilize managed care, full risk-based capitation, effective
procurement and market forces to control costs. Our waiver
allows us to use these tools and serve seniors and other
populations in a cost-effective way.
Now, without a doubt the most important component of our
program is the partnership between the public and the private
sectors. This is the cornerstone of our model. Arizona contains
costs while providing high-quality services through use of
managed competition with private sector managed care
organizations, known as MCOs.
Another key component of the model is that the MCOs we
contract with are capitated at full risk for all services,
including pharmaceuticals. The full risk contracting encourages
MCOs to leverage purchasing power, to establish their own
formularies, to case-manage members and to appropriately manage
health care utilization. The model not only allows, but
incentivizes MCOs to establish formularies that mandate use of
generic drugs.
While other States average a 50-percent rate of generic
drug usage, Arizona has a rate of 71 percent, and that is just
for our long-term care population. The Lewin study found that
Arizona's per-capita drug spending is the lowest in the Nation,
without compromising quality.
Arizona's model also has seen significant savings from
serving our aging members in home and community-based settings.
Arizona has been able to reverse previous trends and now serves
more than 63 percent of our aging population in home and
community-based settings rather than more costly nursing
facilities. This is not only cost-effective, but it offers more
options to our members in how they receive their care and how
they continue to live effectively and independently in their
own homes.
I think we all agree that the most basic goal is to ensure
that Medicaid endures and it endures to serve our seniors and
others who rely on this program for their health care. I
believe the Arizona model offers opportunities that other
States and the Federal Government should be encouraging.
Again, I want to thank you for this opportunity to testify
before you today and I would be happy to answer any questions
that you have. I have a more complete statement that I have
submitted to the Committee and I hope that you will include it
in your deliberations.
[The prepared statement of Governor Napolitano follows:]
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The Chairman. Thank you, Governor, and we will include your
full statement and we value very much your participation and
your insights.
Did you say that the number of savings for the Federal
Government nationwide would be $83 billion?
Governor Napolitano. Yes. This is based on a study done by
the Lewin Group looking at how we manage our health care costs
versus other States in the Medicaid area, and they said if you
followed Arizona's model, those are the types of savings you
would incur.
But again, Mr. Chair, and to echo what you said in your
opening comments, it is not just about a budget number; it is
about providing health care for people. I think the key point
of that is you can create those savings and still provide
quality health care.
The Chairman. Well, that has been my point all along
through the Medicaid debate earlier in this Congress, and I
have to say $83 billion is--by the way, it is $83 billion over
how many years?
Governor Napolitano. Ten.
The Chairman. Ten years. That is enough even to get the
attention of the U.S. Senate. But I think even more important
than the budget number, my point in my opening statement was,
look, Medicaid needs reform. I think Arizona has shown a light
as to how you can reform it without compromising health and
quality. I can't thank you enough for that example and sharing
it with us.
I guess the question I have for you is what has the Deficit
Reduction Act of 2005 done to your ability positively or
negatively. I would be very interested in how we can mitigate
any damage done and not just replicate some of the good things
you have done.
Governor Napolitano. Mr. Senator, I think it is a little
too soon to know what the DRA really has done. What I do think
we need to communicate to HHS and the administration on the
Medicaid program is the need for flexibility in the States.
Our waiver has been in existence since 1982. It works, but
we still spend an ordinate amount of administrative time going
back to CMS to justify the waiver even though from a cost
containment perspective and a quality of care perspective this
is probably one of the most, if not the most effective Medicaid
program in the country.
The Chairman. Are other States learning from you, asking
these questions, and specifically the State of Oregon?
Governor Napolitano. I can't speak to Oregon, but I can say
that States and other Governors have been speaking with me. Of
course, we are all speaking with the Congress now because we
are all concerned that in the effort to reduce the Federal
deficit, decisions will be made about Medicaid and other
programs that are budget-driven as opposed to policy-driven. I
think from the view of the Governors, we think, make the policy
changes and then let the budget work its way out.
The Chairman. Well, obviously the way you have worked it
out, it serves health, Medicaid and the budget, and I think
that that is the better approach to Medicaid reform and my
point from the beginning.
As we go forward, Governor, and the Deficit Reduction Act
is implemented, I would be very anxious to learn from you what
its negative positive impacts are in terms of flexibility so
that we can be responsive in a timely way and undo any damage
that may have been done.
Governor Napolitano. Thank you, Senator, and I would be
happy to be speaking with you as we go through the
implementation of the Deficit Reduction Act. I am the incoming
chair of the National Governors Association, so I am sure I
will be hearing from my colleagues around the country.
The Chairman. Well, that is terrific, and I hope that my
Udall cousins are all treating you well. Turn them over to me
if they are not.
Governor Napolitano. Your Udall cousins are treating me
very well and we could use more of them. Thank you.
The Chairman. I think I have about 5,000 of them in
Arizona.
Mr. Wagoner, thank you again. You know, as I listened to
your testimony and have considered some of the remarkable
things you have done, frankly, they almost seem to replicate
many of the things which the State of Arizona is trying to do.
She has given us a potential score from a study that was done.
Have you been able to score budgetarily or in health outcomes
what your programs have meant?
Mr. Wagoner. We haven't, Senator, added them up. Frankly, I
think as the Governor mentioned, it is a little bit of, in some
sense, a dicey practice of doing it because we are really
trying to do two things. We are trying to improve quality of
health care and quality of people's lives, and the cost of
providing that. So the accounting for it is--we try to be a
little careful about being overly, let me say, bean-counterish
about it.
But for each of the programs that we do, as I indicated in
my testimony, we have a pretty good sense of what the cost
would have been in the absence of that program. Sometimes, it
is cost-saving to us. Sometimes, it is better health treatment.
We would be more than glad to sit down with the staff of the
Committee and really work through initiative by initiative
those that I mentioned and others that we filed in the written
testimony that perhaps could give you some insights on which
kinds of activities generate which kinds of savings.
The Chairman. Are you mindful of Fortune 500 companies or
perhaps even your competitors following similar enlightened
models as General Motors is in health care?
Mr. Wagoner. Yes. I think different companies have begun to
seriously focus their best thinking on health care costs at
different times because I think, to be honest, for some
companies with different profiles of retirees, for example, it
might not have been a big cost item for them. But I would be
surprised if there are many large companies that don't have
fairly sophisticated efforts going on to try to both improve
quality and reduce the cost of health care, because it is
frankly such an issue in global competitiveness today.
But I think maybe even more interesting, Senator, it is not
just large companies. We have, obviously, many suppliers of all
sizes, large and small, local and global, and dealers which
tend to be medium or smaller businesses. We find that health
care costs for many of them is a very important issue because
they find simply that it is a benefit their employees very much
appreciate and really want. Yet, the cost of it is
unmanageable.
So they are very interested in having access to these
ideas, as well, but they obviously don't necessarily have the
capability to have the staffing or, as you referred to earlier,
the purchasing power that we do. I think it highlights to me
the importance of what you are doing on the Committee, which is
not just improving health care for General Motors, but focusing
on can we do for the whole system of health care costs in the
United States.
The Chairman. Richard, 2 weeks ago we had in this Committee
a most fascinating hearing on a topic called medical tourism.
We had testimony from an ESOP-owned, a union-owned company, in
which they had come to an agreement with employees within their
union, within their company, to access health care in India. It
is called IndUS. This IndUS company--India U.S., I assume the
acronym means--is staffed by Indians who are trained in
American medical schools and in American business schools and
have replicated in India the finest medical facilities that you
could find in America.
The union representative told us of one employee who had a
heart issue. The cost of the heart surgery in North Carolina
was $96,000. In India, with equal care, competent physicians,
and legal rights, the cost was $6,000. Is this an issue that
you all are looking at?
Mr. Wagoner. I have to say I am familiar with it, having
read about stories such as those you are citing, but it is not
something that we have studied.
The Chairman. Is it something you will have to look at?
Mr. Wagoner. It is not something that we are looking at in
detail right now. I would say just from the practical
perspective, as we see it, because of our size, we have felt
that items like medical care--for the most part, our employees
would prefer to do it, if at all possible, at a convenient
location to where they live. Given the number of people we
insure, we hadn't really thought of the practicality, to be
honest, of shipping high volumes of people overseas.
The Chairman. All the pre-ops were done by
teleconferencing, like we are doing with Governor Napolitano.
Mr. Wagoner. Right.
The Chairman. I was astounded by what I learned in that
hearing and I just simply note it to you because there is a lot
of difference between $6,000 and $96,000.
Mr. Wagoner. I think, Senator, if I could comment, I think
perhaps something that we would learn from that is why can they
do that for $6,000. Certainly, there may be lower wage rates
involved, things that we could not replicate here, but I would
suspect it is a much more sophisticated systems-based answer
than that, and I think gets at the issue that I think bothers
so many of us, which is why can't we deliver the kind of health
care system that people want here at a much more efficient
cost, because the costs of some of these treatments like you
are citing seem to be almost unimaginable.
It does suggest that if we put a number of these
initiatives in place which have been discussed, we really
should have an opportunity to provide the kind of health care
people want at a much lower cost. I think that is one of the
things that I know you are working on here and we applaud it.
The Chairman. Well, there are a lot of Republican and
Democrat Senators wondering the same thing. So, anyway, my time
is up and I want to note Senator Hillary Clinton has joined us.
We welcome you, Senator, and we will just go in order of
appearance and thank you for being with us.
Senator Kohl.
Senator Kohl. Thank you very much.
Mr. Wagoner, you talked about the cost of health care
spending, of course, and the fact that almost 40 percent of
your health care spending is on prescription drugs. You talked
about generic drugs and the opportunities that they present you
and, by extension, our country to do something about the
staggering costs of health care.
Will you talk about a little bit more generic drugs, their
importance, in your opinion, to our Nation, the things that we
need to do here in Washington to see to it that generic drugs
get full access to the marketplace and not prevented from
providing that kind of cost saving to our country?
Mr. Wagoner. Senator, I think you have stated our position
very well. Our experience is as you suggest and we do think
there has been progress in enhancing the availability of
generic drugs, and we do see that as a significant element of
cost control with no sacrifice in quality.
I think an area where we are seeing an opportunity to
expand generic options would be in the biopharmaceutical drugs,
which today do not have the proactive attention that
traditional drugs do, chemical-based drugs. We see that as an
area where, frankly, health care expenses are rising from a low
base, but at an alarming rate. So that would be an area, for
example, that--specific focus on providing the resources where
those drugs could be reviewed and opened up to generics on a
timely basis--would be a good example of an area where we see
significant additional opportunity to provide the kind of
treatment that people want and need, but at a much more
effective cost than the current model provides.
Senator Kohl. In your statement, did you give us an
estimate on, in your judgment, what generic drug usage in your
company is saving you?
Mr. Wagoner. Well, yes. We said that of all of the
formularies that offer generic drugs, generic alternatives, we
have had about a 90-percent success rate in converting from
branded to generic. For each point on that scale that we move,
it saves us about $4 million. So assuming this against a base
of $1.9 billion, that would be a savings of roughly $400
million, very significant in total.
I would say just from my own experience, from drug to drug
you could see savings even greater than that. I would also
think, to be honest, that having greater access to generics
would also help to keep the pricing of the brand name
pharmaceuticals perhaps in a more competitive light as well.
Senator Kohl. So can I conclude that you would suggest that
we need here--to the extent that we are in a position to
influence the process, we need here in Washington to see to it
that everything is done to open up the market to generic drugs
which, as you pointed out, have absolutely no downside with
respect to quality?
Mr. Wagoner. Our experience has been very good. It has got,
obviously, to be done on a thoughtful basis. I think that has
worked out very well from our experience. I want to be clear. I
think prescription drugs do play an important role in the whole
health care system, too. So in no way, shape or form are we
``anti'' those. We think they play an important role, but our
experience is by enabling greater access to generics, making
sure consumers understand the value equation in generics, those
sorts of things can really help to provide, as the Governor
said, very high-quality health care at much lower cost. I think
that is really what we are all talking about here.
Senator Kohl. Thank you very much, Mr. Wagoner.
Governor Napolitano, some States that have expanded home
and community-based services, such as your State, have
experienced cost increases which you have not, apparently, in
what is called the woodwork effect, which is that people who
might not have participated in the State health care system
join, as you know, when they are offered programs that allow
them to stay in their homes and in their neighborhoods.
How have you managed to avoid this cost increase?
Governor Napolitano. Yes, Senator, thank you. We have
avoided the woodwork effect because we use a pre-assessment
screening tool, which is a very effective device. We interview
people. We ascertain whether they are eligible for or would
qualify for institutionalization or not, and it is those that
would qualify for institutionalization that we then look to--
yes, you qualify, but would you be better off in your own home,
in your own setting, and have our services delivered to you?
The use of that tool--and this has been evaluated by a
number of entities--has allowed us to increase the percentage
of our seniors who can stay in their homes and have services
delivered to them. Like I said in my testimony, two-thirds of
our seniors who are in the long-term care program are getting
long-term care at home, as opposed to the majority of States
where it is actually the reverse statistic. But it is the use
of this tool that allows us to screen early and that prevents
the woodwork effect from driving up our costs.
Senator Kohl. Do you think that the relatively smaller size
of your State, as opposed to the really larger States in our
country, gives you a somewhat greater ability to do this kind
of screening, or do you think that does not affect it at all?
Governor Napolitano. We are the 17th largest State in the
country, so we are at least medium, and we have a large senior
population. In fact, by the year 2020, 25 percent of our
population will be 65 or older. So it is to our interest to
really think through long-term care, think about it for
ourselves, actually, because as the baby-boomer ages, we need
to think about the long-term care models we want to employ, but
then set up a system that allows us to enable people who are
capable to stay in their homes and live as freely and
independently and comfortably as possible.
Senator Kohl. That is very good.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Kohl.
So you won't think we are rude, they have called a vote. I
would propose that Senator Kohl and I rush over and vote and
come back while Senator Wyden and Senator Clinton ask
questions, and we will make sure we hold the vote open for our
colleagues.
Here is the gavel, Ron.
Senator Wyden [presiding]. Mr. Chairman, thank you.
Mr. Wagoner, as you know, since 1945 and Harry Truman, this
country has been trying to come up with a way to make sure that
all Americans could get essential, affordable health care. We
thought we had a shot at it in the early 1990's, as you know,
and at that time many corporations said we are not sure we can
survive if there is comprehensive health reform. What I hear a
lot of companies saying now is we can't survive without
comprehensive health reform.
My first question to you is do you think we are at the
point again, a tipping point, when the companies would be
willing to work with the Congress in a bipartisan way for
comprehensive reform, getting beyond these incremental steps?
Mr. Wagoner. I obviously can't speak for everybody,
Senator. I can say from General Motors' perspective--and
certainly I talk to my colleagues in the auto and auto supply
business--this is a huge issue for us and I think I can assure
you that we all would be most interested in that form of
engagement.
I can also tell you at the quarterly Business Roundtable
survey of the CEOs of the largest companies, which extends
obviously far beyond auto and auto supply and even
manufacturing, they ask us each quarter what are the toughest
challenges you face in your business, and health care, in the
last number of surveys, has come up as the biggest challenge
that business faces--health care costs.
So that would suggest to me that I think a fairly broad
base of the business community is very concerned about this
issue. So I believe they would be willing to engage
proactively, and I assure you we would be.
Senator Wyden. Tell me your thoughts about the idea of
shared responsibility, that there is a role for a government,
there is a role for the private sector and there is a role for
the individual. This obviously was a big topic of debate when
Massachusetts, for example, considered their proposal.
What do you think the Congress ought to be pushing
employers to do as part of comprehensive health reform and
saying to the employers, you are going to have be part of this
as well; everybody is going to have to be part of the equation?
What can the Congress expect employers to do in this regard?
Mr. Wagoner. Well, obviously, our model, Senator, is one
that involves the three parties really working together to fund
the health care expense, and it is one that we have had at GM
for many years.
My personal view on the matter to your broader question is
I do think there are things the Congress can act on right now
which would help to get at the broad-based issue of reducing
health care costs while improving quality. You are familiar
with the list and I mentioned a number of them today.
Obviously, the development of a sophisticated information
technology center in health care would be worth billions of
dollars to all providers, but does require some strong
leadership. The use of all of the data that we have on cost and
quality--there is no data base that is as comprehensive, as
high-quality, as good as the Medicare claims data base. If we
were able to provide that information, I think you would see
significant improvements. There are many, many more things, and
my philosophy, frankly, has been we should really push to get
on those things that I think everyone can agree on.
Senator Wyden. I think you are right, and my seat-mate,
Senator Clinton, has done very important work in the technology
area, but I do want to come back to this question of what the
Congress ought to expect from employers. I and others have been
reluctant to just impose mandates because if you just heap on
mandates, you can put people out of business.
But if we are going to have shared responsibility--and I am
prepared to tell individuals they are going to have to pay a
portion of health costs in the future--what should the Congress
ask of employers?
Mr. Wagoner. Well, again, I don't think I am in probably a
position to tell you what should be required of all employers.
You know what we do. My experience is the more we can let
market forces work even in areas that are not purely market-
type businesses, which health care isn't, I think that is the
better prescription. So I think to be honest, I better leave it
to you all to decide the specific contribution you expect of
business.
We are contributing a lot. In fact, I think you would see,
Senator, that the direction that has been going on in
businesses is businesses are reducing or even eliminating the
health care benefits because they are so expensive
particularly, for example, to retirees. My preference is to
resolve that, rather than specifically legislating that
businesses should provide it--I think the fundamental issue is
we need to get our arms around the cost issue.
Senator Wyden. Let me ask you about one idea that I am
looking at with respect to the role of the employer. I hear
constantly from businesses that their employees very often have
to take a full day off in order to get health care. In other
words, their appointment was for ten o'clock. They show up at
ten o'clock, they wait until noon, and essentially the worker
and the company lose a full day of productivity.
What do you think about the idea of essentially bringing
health care to the worksite? As we look at the role of the
employer in a shared responsibility system, we might try to
look at this partnership so that the employer and government
and the individual might do something that was in everybody's
interest, which is essentially to bring health care to the
worksite so that we don't lose a day of productivity. Is that
something you might think is fruitful?
Mr. Wagoner. Well, I know that some companies have done
that. We have done that at specific sites and I think have had
some success doing it. I think basic demographics, things like
that, will drive whether it is economically attractive for
everyone. If you have a small business, perhaps it wouldn't be
something that would make sense from a stand-alone basis.
But I think it is something that a number of companies have
done at specific sites where there are enough people and the
work is time-sensitive and things of that sort. So we certainly
don't rule that out as one of the things that might help
improve the productivity of the system.
Senator Wyden. My time is up and, as you know, my seat-mate
has a longstanding interest in this issue, as well, and I am
going to give her the gavel and hope to come back.
Mr. Wagoner. Thank you.
Senator Clinton [presiding]. Thank you. It is good to see
you again, Mr. Wagoner. Governor, welcome. We are delighted to
have you be part of this hearing as well.
Governor Napolitano. Thank you.
Senator Clinton. GM does business all over the world. You
obviously are an American company with global reach and we hope
that continues. You have employees in how many countries, Mr.
Wagoner?
Mr. Wagoner. I would say we have employees probably in 40,
45 countries.
Senator Clinton. Have you done an analysis of your health
care costs in those other 44 countries?
Mr. Wagoner. We have. It is concentrated primarily on the,
let me say, 20 countries where we have most of the employees.
Senator Clinton. Do those include Canada, European
countries, as well as Asian countries?
Mr. Wagoner. They do, Senator, yes.
Senator Clinton. Is that information that could be made
available to this Committee in some non-proprietary way for a
basis of comparison?
Mr. Wagoner. We would be glad to share that information
with the Committee.
Senator Clinton. Obviously, what I am trying to get at is
that I think American companies are being put in an impossible
position when it comes to a global economy. Ten years ago, if
you had been here, I think we would be talking on a slightly
different plane about what the challenges were, but 10 years is
a lifetime when it comes to the pace and speed of global
competition with respect to American jobs and American
productivity and America's standard of living.
I think that when we look at health care costs, it is
apparent that you compete against companies in countries where
individual businesses don't provide health care costs, where
that is provided across the board, where everyone has to make a
contribution through the tax system. Some preliminary analyses
that I have seen show that if you add all of the costs on
American business, which include taxes, health care, worker's
comp, et cetera, the costs that you are paying are considerably
higher than what is paid for health care in comparably advanced
countries where everybody pays into the system.
On the other side of the equation are those companies in
countries that don't provide health care, where basically it is
every person for himself. There is a rudimentary system, but
there is no organized way, and therefore the costs are
commensurately lower.
I have become increasingly convinced that we are getting a
bad deal in America and that GM is getting a bad deal and most
of the other companies that are doing the right thing by
insuring employees are getting a bad deal. But certainly
companies like yours which essentially bear the social contract
of the last 50 years are getting an especially bad deal because
you are paying for what are now considered retired employees,
therefore unproductive employees who certainly did a great
service to you and to our country, but no longer are in the
workforce.
I don't think this is a sustainable position, and I read
your testimony and I really commend you for the many innovative
programs and the efforts that you have undertaken to try to
squeeze down your costs. I would be interested again, if this
is not proprietary, if you could provide this Committee with
some sense of what the costs are for running all these
programs--the huge benefit-managing departments that large
companies have to have, the costs of third-party payers that
large companies have to pay.
We spend $1.7 trillion on health care in this country. We
spend 50 percent more than any other country and we don't even
have the highest results in terms of quality of health care
when you look across the board. So one of my continuing
questions is why does American business take such a bad deal. I
mean, basically, you are getting a really bad deal.
The cost of administering Medicare is much less than the
cost of administering your health care programs. The average
cost of private insurance is considerably higher than the
administrative costs of Medicare. I don't know how it much it
costs to pay for benefit managers and the whole bureaucracy you
have to pay for, but I assume it is considerable.
So why is it that American business doesn't just rise up
and say there has got to be better way here, and why don't you
bring not just your market power to bear, but your political
power to get some changes in this dysfunctional, overly
expensive, unproductive health care system that we all are
paying for?
Mr. Wagoner. Senator, I share many of your views and I
think your analysis is correct that if you compare the cost of
health care that we pay for employees in the U.S. versus any
other country where we have significant production operations,
it would be anywhere from somewhat to a lot higher, and I
suspect that is true for many businesses.
I think individual businesses probably look at your
question along the following lines. If they are like us, they
see the high cost of health care and so they are faced with
several choices, such a investing in other lower-cost
locations. That is good for some businesses, but it is not good
for the U.S. economy because we lose jobs. Or they may perhaps
tradeoff and say rather than giving significant wage increases,
we will put that money into health care costs for the
employees. Or they may choose to not offer health care benefits
or reduce the amount of health care benefits which they offer,
which I think is definitely a trend we see in business.
Senator Clinton. Mr. Wagoner, I am so sorry, but they have
told me if I don't go to vote, I am not going to get to vote. I
would love to get the rest of your answer perhaps in writing
and the information that you kindly offered to provide us.
Mr. Wagoner. I would be glad to do that.
Senator Clinton. Thank you so very much for being here.
Mr. Wagoner. Yes, ma'am. Thank you.
The Chairman [presiding]. Thank you, Senator Clinton.
Before we let you go, just a couple of follow-ups I had.
Governor, I am interested to know in Arizona how you have made
sure that private managed care organizations are focusing on
managing care and not managing costs. I am sure you know the
difference. If they are managing costs by saving money through
delaying or denying needed care, what is your role in that? How
does the government make sure that care is managed instead of
costs being managed?
Governor Napolitano. One is we are really one of the
largest purchasers of health care in the State and that gives
us some market power. What we do is we have within our AHCCCS
department, which is the acronym for our Medicaid area, a whole
division that is designed to make sure that quality of care is
not sacrificed for cost.
We also write into our vendor contracts a number of quality
of care provisions, including a provision that says you have to
spend 84 percent of your capitated costs on direct rendition of
services, not on other expenditures. So both by oversight and
by contract, we endeavor to maintain the quality of care even
as we try to control costs.
The Chairman. Did I understand you to say that you are the
purchaser of prescription drugs as well?
Governor Napolitano. Well, that is part of the capitated
costs. It is a full-risk, capitated program, and part of that
is the pharmaceuticals. So we leave it to the MCOs and the
market to figure out how to provide medically adequate care in
the sense that they get the capitated costs. If they are able
to achieve some savings someplace, they get the benefit of
that. If not, they assume the risk of that, and pharmaceuticals
are a part of that calculation.
The Chairman. Richard, as you are no doubt aware, the
Centers for Medicare and Medicaid Services have tried without a
great deal of success to publish cost and quality information
for various sectors of the health care industry. It hasn't been
very successful, but it appears like you might have been
successful in the program you described.
How were you able to secure participation of these groups
and how helpful have your employees and retirees found the
information?
Mr. Wagoner. We have been able to do this successfully, I
would say, on a limited basis, in areas where obviously we have
concentrations, high numbers of employees, so we can create
data bases that are meaningful and accurate. I think it has
been very helpful.
Just from personal experience, you look through and if you
have to go into some sort of elective surgery and there are
eight hospitals in your area and you can look and see how many
surgeries they have done and what has been the success rate of
those surgeries, I think it is the kind of thing that is very
helpful. I don't think that the average consumer of health care
is used to doing that sort of thing, which we find incredibly
ironic.
When you go buy a car, one of the things you might do is go
on a website and try to get things like warranty performance or
resale values. People do that as second nature, and yet when
they are going to get some form of medical care, because that
information isn't easily available, they don't do that. So this
is where I think use of the Medicare claims data base in a
thoughtful way would really help make everyone out there a
smarter consumer.
I think as the Governor mentioned, we don't discount the
role of individuals and the private enterprise system reacting
to opportunities, and we think there is nothing like data on
cost and quality of outcomes that would really help to drive
people to the efficient and low-cost and high-quality providers
of various services.
The Chairman. Senator Kohl has a follow-up.
Senator Kohl. Thank you.
Just a word from each of you, if you would, on the
importance of health information technology programs, their
startup costs, but the payment that you get and how important
you think these programs are in controlling the cost of health
care and the sense of urgency or importance that you attach to
it.
We will start with you, Governor.
Governor Napolitano. Thank you, Senator Kohl. Over a year
ago, I issued an executive order and what I did through that
executive order was create task force that was called the
Health-e Connection. What it was designed to do was to bring
together public and private providers to look at how we input
technology and have a statewide technology basis to our health
care system.
We are now in the process of implementing the
recommendations of that group and our goal is within the next
few years to have medical records online, accessible to
providers. It is a quality of care issue, it is a cost
containment issue and it is the wave of the future.
One of the amazing things we found out as we went through
the task force work is how paper-driven the medical industry
is. For all the science that underlies medicine, their
recordkeeping is in the 19th century. So to convert everything
to a system that is universally accessible that allows us to
transfer records on a real-time basis so that doctors and ER
physicians have real-time information is a great development, I
think, that the States are doing this. The Federal Government
could help us by incentivizing that and providing grants or
whatever to other States to do the same thing.
Senator Kohl. Very good.
Mr. Wagoner.
Mr. Wagoner. I wholly endorse what the Governor said. I
think she laid out the benefits. The case is compelling. You
would be sensitive from your own background. The application of
information technology, while it has taken a while, has moved
across every sector of our economy--manufacturing, services,
now into education. Health care has been, for a variety of
reasons, very slow to embrace the opportunity. It is gold lying
on the streets and we really need to get at it.
Things like enacting the bill sponsored by Senators Enzi,
Kennedy, Frist and Clinton for example, with a sense of urgency
would be a great way to begin to capture more and more the
benefits here. But it is just viewed by everyone I talk to--
professionals in the field, our own business experience--that
the benefits are huge. It does require some investment, as you
say, but the return is going to be terrific.
Senator Kohl. Those are good answers. I thank you both very
much.
I thank you, Mr. Chairman.
The Chairman. Richard Wagoner and Governor Napolitano, we
can't thank you enough for sharing your time on this very
important issue, an issue that eventually will be better
reformed because of the work that you are doing and the Federal
Government needs to do. So for that, we extend to your our
heartfelt gratitude. With that, we wish you a good day and we
will call up our second witness.
Mr. Wagoner. Thank you very much.
Governor Napolitano. Thank you, sir.
The Chairman. Thank you.
Mr. Don Marron is the acting director of the Congressional
Budget Office.
We welcome you. Thank you, Don.
He will present a new CBO report that examines the cost
implications seniors have on America's health care system, with
a special focus on the Medicaid program and how its cost growth
will fuel significant challenges for the entire Federal budget.
Thank you, and the mike is yours.
STATEMENT OF DONALD B. MARRON, ACTING DIRECTOR, CONGRESSIONAL
BUDGET OFFICE, WASHINGTON, DC
Mr. Marron. Thank you, Mr. Chairman. It is a pleasure to be
here today to discuss the Medicaid program and the challenges
it faces as a result of rising health care costs and
demographic pressures. As you mentioned, my written testimony
today is, in essence, a primer on Medicaid and some of the
forces that are driving spending increases in it, and both
looking back where we have been and looking forward to where we
may be going.
To start with--and this will come as no surprise--Medicaid
is a very large program both in terms of enrollment and
spending. In fiscal 2006, Medicaid will cover about 60 million
people--1 in 5 Americans--making it the largest Government
health insurance program by enrollment. Federal spending for
the program this year will total about $190 billion. That is
about 7 percent of the overall Federal budget and about 1.5
percent of the overall U.S. economy. Including State spending,
which itself is more than $100 billion, Medicaid spending is
comparable in size to the net outlays for Medicare. It is a
very large program.
Now, in thinking about the size of the program, it is
important to distinguish between who the enrollees are and
where the money goes. It turns out that most Medicaid enrollees
by numbers are children, their parents, and pregnant women.
Together, those groups comprise about three-quarters of
Medicaid enrollment, but they only comprise about 30 percent of
the benefit spending. The aged and the disabled, on the other
hand, have much higher costs than those other groups. So while
they comprise only one-quarter of Medicaid enrollment, they are
the ones who account for about 70 percent of Medicaid benefit
spending.
As you know, Medicaid costs have risen rapidly in recently
decades. These increases reflect both increases in enrollment--
a growing population and expanded enrollment in the programs--
and rising costs per enrollee. The growth in enrollment has
been particularly pronounced among disabled beneficiaries.
Looking ahead over the next 10 years, for which CBO
constructs projections as part of our baseline exercise, we
project that rising costs per enrollee--that is, so rising
health care costs per person--will play the dominant role in
driving Medicaid's overall cost growth.
The factors that drive Medicaid cost growth and the
challenges the program faces are similar in many ways to those
that face the U.S. health care system as a whole. As you know,
health care spending generally in the United States has risen
much faster than the economy in recent years. It now accounts
for almost 16 percent of the GDP, up from 8 percent back in
1975.
Most analysts agree that the bulk of this growth reflects
increasing use of new medical technologies, or more generally
the increased capabilities of medicine. Those advances enable
us to treat new conditions, to improve upon existing treatments
and to treat more people. Other factors have also contributed
to the growth in spending--aging, increasing incomes, deeper
insurance coverage. But, together, those explain much less of
the spending increases.
As an economist, I should emphasize that increased spending
on health care is not necessarily a bad thing. The key issue--
and this was discussed on the first panel--is whether that
spending provides essential value and benefits that are
commensurate with the spending. If it makes sense for the U.S.
people and the U.S. economy to spend more on health care
because it is delivering benefits that are worth it, that is
fine.
The chief concerns, however, are: A) that there may be
concerns that we are not getting benefits commensurate with the
spending, and that, B) we have a system in which there is a
significant amount of Federal spending for health care. So,
obviously, as that spending rises, it places pressures on the
rest of the Federal budget.
You mentioned earlier on, Mr. Chairman, that it is
important to think about the interactions between Medicaid and
the health system as a whole. What I would like to emphasize is
that the factors driving health care spending generally are
important for Medicaid because as capabilities and standards
for the delivery of care increase generally in the health care
system, they tend to be incorporated into Medicaid as well. In
part, that reflects the choice of administrators about what
procedures to cover, and in part it reflects the tendency of
physicians to provide a comparable level of care to all of
their patients.
As this Committee is well aware, the rapid growth in
Medicaid spending will occur at a time when the Federal budget
will face increasing pressures due to health care costs and the
aging of the population. As I mentioned earlier, CBO estimates
that Medicaid spending this year will be about 1.5 percent of
GDP. CBO projects that under current law Federal spending for
Medicaid will reach about 2 percent of GDP in 10 years, by
2015, and under intermediate assumptions about future health
care costs, could reach 4 percent of GDP by 2050.
So under current trends, under current law, the Medicaid
program would take up a larger and larger share of the U.S.
economy and, in addition, a larger and larger share of the
Federal budget. Such potential cost growth is a particular
challenge since Social Security and, in particular, Medicare
will experience significant cost growth at the same time.
Under CBO's projections, Social Security spending might
increase by about 2 percent of GDP by 2050 and Medicare
spending might increase by about 5.5 percent of GDP. Together,
again, under current law, those three programs would take up
about 19 percent of GDP several decades out, which is about
what overall Federal spending today is when you strip out
interest on the debt.
Now, I should emphasize that these estimates are subject to
great uncertainty. Demographic trends can be projected with
some confidence, but future growth of health care costs is
highly uncertain. It is easy to imagine scenarios in which the
growth of health care costs is higher than our intermediate
projections, and it is entirely possible that it will turn out
to be lower as well.
Still, these projections highlight the long-term budget
challenges that we face, and again I want to emphasize they are
primarily, it turns out, driven by rising health care costs per
enrollee. That is the predominant contributor to it, and
changing demographics are also an important but secondary
factor.
Because of these looming fiscal pressures, there has been
increasing interest on ways to control spending in these
programs. In thinking about Medicaid in particular, there is
sort of a basic menu of choices that you could have. Since it
is a joint State-Federal program, obviously one line of
direction of pursuing savings for the Federal Government is to
shift more costs onto the States. Another obvious approach is
to have beneficiaries of the program bear more costs. That
would reduce Federal spending and it also might induce some
people to demand fewer services through the Medicaid program.
Or you could try to pursue ways to make the delivery of
care more efficient so that you have the possibility of having
less spending and a higher quality of care. The challenge with
those approaches is that finding mechanisms that accomplish
that are actually quite challenging. Reference was made on the
earlier panel about the woodwork effect. The woodwork effect
comes from a situation in which there was a desire to pursue a
more efficient way of delivering care in which you move people
from an institutional setting to a community or home-based
setting.
That has the effect of being more efficient, lower-cost per
beneficiary, but in many implementations of that you discover
this woodwork effect that more beneficiaries come forward. Then
as a result, if your concern is Federal spending, you may not--
--
The Chairman. It gets its name from people coming out of
the woodwork for it?
Mr. Marron. Exactly.
The Chairman. All right.
Mr. Marron. You may not get the reductions in overall
spending that you might have thought just by comparing the per-
capita costs of the two systems. Again this also raises an
issue raised earlier about to what extent you want to focus
just on the budget side versus kind of the delivery and
efficiency of care.
With that, I am happy to take any questions you have.
The Chairman. Well, on that issue--and I know that has been
the problem with home care, is the woodwork effect, and yet it
does seem to me if they are entitled to be a part of the
program and they come out of the woodwork and they are there
are under law and it is more efficient and perhaps even better
care and less cost, I guess that is the catch-22 we are in.
I want to take you back to a comment, if you were here,
from Governor Napolitano about the Lewin Group report.
Mr. Marron. Yes.
The Chairman. Their report has shown that the Medicaid
program would secure $83 billion over 10 years in savings if
all the States moved to a full capitation, managed care model.
I am wondering, do you value that study, do you agree with that
study? Could you comment on the viability of their projections,
whether CBO has done any related research that would verify
that kind of a number?
Mr. Marron. Certainly. We took a very quick glance at the
study this morning. We have not reviewed it in any great
detail. What I took from it from a quick glance is the $83
billion number that you mentioned. That would be for the
Medicaid program as a whole. For the States involved, it turns
out that the FMAP is about 56 percent, on average, so that
translates into about $46 billion in potential savings for the
Federal Government over the next 10 years.
I guess, first, just going back to--and this is one of
these classic issues with these programs about what is a big
number and what is a small number. Forty-six billion dollars is
in one sense an astronomical number. It is interesting. When
you compare it to the 10-year spending in the Medicaid program
at the Federal level, it still works out to be less than 2
percent. So it is relatively small compared to the overall
program, but obviously a significant amount of money.
The Chairman. Yes.
Mr. Marron. As I understand it again basically just from a
quick glance, their analysis presumes that these changes would
essentially happen overnight. Obviously, any policy initiatives
that would try to pursue them--presumably, there would be some
phase-in period over which they would occur. So I would expect
lower savings just for that reason.
States at the moment currently have the flexibility to
pursue many kinds of managed care programs on their own, and so
you face sort of the classic question about why isn't this
already being done.
The Chairman. Why isn't it?
Mr. Marron. Well, it is interesting. Arizona is clearly a
very special case. As the Governor mentioned, they were the
last entrant into the Medicaid program, and they are by far the
most intensive users of managed care. For me, this sort of
raises this classic issue with a program like Medicaid.
Medicaid has this great sort of laboratories of democracy
approach, in which it gives the individual States a great deal
of freedom to try to choose what works best and it gives the
other States an opportunity to learn from that. But it also
gives the States an opportunity to design programs that best
fit their culture, their population, their needs, their health
care delivery system.
It raises, then, a question about how well can you transfer
the results in one State that has specifically chosen that
approach to other States that for various reasons haven't. I
think that would be the key issue in trying to figure out
whether----
The Chairman. Can you give me an example of some
challenges, say, hypothetically Arkansas would have adopting
what Arizona has? Are there States that you could compare that
would have particular challenges evolving to such a capitated
system?
Mr. Marron. I think the primary challenge would be that
Arizona has worked at managed care since 1982.
The Chairman. Managed care isn't as accessible in other
States?
Mr. Marron. That not every other State has chosen to go
that far. So it is not something where you can easily just
switch from a more fee-for-service-oriented delivery system.
The Chairman. It takes a more mature industry in health
care to deal with their system.
Mr. Marron. Yes, and then there may also be differences in
the population covered, but I am afraid I don't have those
details at my fingertips.
The Chairman. Do you ever do studies that actually make
recommendations to CMS on these kinds of things or
encouragement to give these kinds of waivers because something
is working and something is not?
Mr. Marron. We at CBO studiously avoid recommendations of
any kind, if possible. Our job is essentially to serve you and
to give you the kinds of information that will be helpful for
guiding policy decisions, and we are happy to assist you in
that way.
The Chairman. Well, obviously, we are going to have to do
something continually on the whole entitlement category because
eventually we will have no choice, because the entitlement side
of the ledger is going to consume everything on the
discretionary side. I think that is unsustainable to the
American people, as well.
Your analysis is appreciated today. It has been helpful and
I have found this hearing very worthwhile. I hope maybe you
have got a few ideas you can distill for us to make some
recommendations to the Congress, and then maybe to OMB, too. I
know there is always that fight, too.
Thank you very much, Don, and we are grateful for your
presence, and for all of you who have participated.
[The prepared statement of Mr. Marron follows:]
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The Chairman. With that, this hearing is adjourned.
[Whereupon, at 11:31 a.m., the Committee was adjourned.]
A P P E N D I X
----------
Prepared Statement of Senator Ken Salazar
Good Morning.
I want to thank Chairman Smith and Ranking Member Kohl for
their leadership and commitment to reform the Medicaid program
and to fix our national health care crisis.
The financial sustainablity and reform of Medicaid is a
matter of life and death to over 57 million elderly, pregnant
women, children, poor, and disabled Americans, who rely on
Medicaid for necessary medical care.
In my state alone, over 10% of our population relies on
Medicaid to provide critical medical services.
The problems affecting Medicaid are a reflection of the
problems plaguing our national health care system.
It is absolutely imperative that we reform our health care
system so that all Americans, including our senior citizens,
get the health care that they need and so that we stop the
crippling effect that rising health care costs has on our
citizens, businesses, economy and state and federal
governments.
Reforming our system will take the collective wisdom from
hearings like this one. It will also take the political will to
tackle our entire health care delivery system.
Last year, Senator McCain and I introduced the National
Commission on Health Care Act (S. 2007). Its purpose is simple
and bold--to fix our broken health care system. It achieves
that goal by bringing together elder statesmen and women to
study and develop the best reform proposals that will solve our
health care crisis.
I look forward to working with the members of this
Committee and the witnesses here today on health care reform,
whether it is through a commission or other worthy legislative
proposals.
I am particularly interested in hearing the testimony and
reform proposals of General Motors Corporation CEO, Richard
Wagoner, Arizona Governor Janet Napolitano, and Donald Marron
of the Congressional Budget Committee.
It will take the concerted efforts of private businesses
and leaders at all levels of government to solve the problems
plaguing Medicaid and our entire health care system.
Thank you.
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