The Health Care Crisis: The President's Plan for High-Quality, Affordable Care

Report Health Care Reform

The Health Care Crisis: The President's Plan for High-Quality, Affordable Care

November 5, 2002 39 min read
The Mark McClellan

I'd like to tell you about the President's vision for promoting health care quality and access through affordable care in the United States. It's a vision that looks to some significant reforms and improvements in our health care system now and down the road. It's a vision that also is forward-looking in terms of thinking about the potential for the American health care system in the years ahead. We think the potential vastly exceeds everything that we've seen so far, tremendous as it has been in improving quality and length of life.

The main text that serves as a basis for what I'm going to talk about is a chapter in the Economic Report of the President, prepared by the Council of Economic Advisers and released in February of this year. So if you'd like to see more details, I refer you to that chapter.

We have a very strong health care system in many respects. It's one of the largest and most vibrant sectors of our economy. It has accounted for much of the economic growth of our economy in recent years. And I think our high-tech industries are intimately connected with the health care developments that have been a hallmark of American economic growth.

The discovery and innovation that these industries have produced in the United States are unparalleled. The U.S. has more Nobel Prizes in medicine than all other countries combined. The U.S. has been leading the world in the development of new drugs, new devices, and new ways of delivering care, providing these innovative medical treatments in as cost-effective and rapid a way as possible. The U.S. has also led the world in developing a number of information systems to provide better access to the kinds of information that patients and doctors need to make informed decisions about their health care.

So it shouldn't really be any surprise that the health of Americans has improved in many measurable and important ways in the past decade. For people who were born in 1990, life expectancy is seven years longer than it was in 1950. Mortality rates from all heart diseases combined have declined by 40 percent over the past 20 years or so. Disability among the elderly has decreased 20 percent in the past two decades. Not only are we living longer, in part because of improvements in medical care, but we're also living better, with less disability and a higher quality of life.

We owe much of that to the innovations in our health care system--not just the high-tech procedures and devices, but also the consequences of better information. As we learn more about the basis for diseases, we understand better what steps people can take through their behavior, through their lifestyle and other measures to improve their health.

But our system is challenged. Health care expenditures continue to rise rapidly. Before joining the Administration, I did a lot of research on this issue of rising health care costs. The compelling evidence--not only from my work, but mainly from work by many other prominent economists and academic clinicians--is that most of the increases in health care costs are due largely to improvements in medical treatments and medical technology. It's not higher prices for drugs or doctors' care, and it's not medical waste, although these factors are small contributors. It's due to the fact that there are more and better treatments available for a far broader range of conditions than were ever possible in the past.

It's cold comfort to say that you should be happy about rising health care costs as you struggle to meet your health insurance premium costs, which are going up, and struggle to pay for all those new prescription drugs, but that's really the underlying story here. And that's why health care expenditures are rising. This country actually leads the world in the share of expenditures devoted to health care at 13.4 percent of our GDP, and I think everyone's expectation, at least in the economic community, is that the growth in health care costs is going to continue to outpace the growth of the economy in the years ahead.

Again, there's every reason to expect that we're going to be better off for it. The value of these improvements in health far exceeds their cost to the economy. According to estimates by Professor William Nordhouse at Yale, perhaps as much as half of the entire value-added that economic growth has brought over the past 50 years is due to the improvements in health that have occurred as part of our development in technological progress.

But this conclusion does seem to imply that costs will continue to go up, and right now, perhaps more than any time in the past decade or so, there is real concern about not knowing a way out of this cost quandary. After a decade of cost control through managed care in the private sector and through government attempts to control prices in the public sector, health insurance premiums in the private sector are again rising at double-digit rates, and federal and state expenditures on public programs are also increasing dramatically.

In addition, there are some fundamental disparities in access to care and in quality of care. Many Americans don't have health insurance. There are also fundamental differences in health status that are strongly associated with factors like poverty, race, and even areas of residence in the country.

In all of this, there are some clear opportunities to improve the access to and quality of health care. It would be one thing if we were achieving these kinds of gains in productivity--or, in more basic terms, in quality and length of life--in a way that was associated with the efficient and most effective possible delivery of medical care, but there is a lot of evidence that we could be doing better. For example, medical errors are all too common. There is considerable evidence of both underutilization and overutilization of medical services, and regardless of whether or not the underutilization cancels out the overutilization and this saves any money, it's clearly the case that we could be getting a lot more for the dollars that we are spending on health care. As costs continue to go up, we need to be even more careful that we are getting the most possible benefits out of the dollars that we spend on health care.

That leads to the principles that the President has laid out for where he would like to see the American health care system go in the years ahead. In the President's vision, all Americans should have access to high-quality and affordable health care. This vision can be realized through Americans' having choices and control over their health care decisions--with patients working with doctors to make those decisions.

The best way to do this, the President believes, is through choice and competition. They are proven American approaches in most sectors of our world-leading economy, and have led to more rapid and sustained growth in economic terms over the past decade than in just about any other fully developed country in the world; but choice and competition can also work in health care to promote innovation, and to encourage new ideas for controlling costs and delivering care in a more effective way.

In this vision, there is an important role for the government. It's not in telling people what care they should get and deciding how doctors can or can't treat patients; that seems like a sure way to fall behind, not only in the availability of medical treatments but also in the innovative ways of providing those treatments.

People talk a lot about how, if you're sick anywhere in the world, the place where you want to get your care is the United States because the most innovative medical treatments are often available here first. But I always like to think about the innovations that occur in health insurance and in coverage as well. Along with the developments in prescription drugs over the past several decades, for example, there have been some major developments in health programs, such as wellness and disease management programs that help patients get their drug treatments in the most effective way possible.

The way that we're headed, you can envision patients not even having to go to the doctor to manage a chronic illness in the years ahead. They will be able to do it from home both with telephone, Internet, and other kinds of support and with pills that they can take as needed, to stay well and avoid complications. That's an innovative way of developing health care through coordinated disease management programs and the like, a method that is just fundamentally at odds with a government-run structure of defining how health care is delivered.

So, in the President's vision, the primary role of government should be to improve the health care market. We can do this by providing information; by helping to provide the right kinds of incentives so that our doctors and patients are making the best use of the resources available; and by, where needed, targeting regulation to address some limited failures of the market to do everything that it should.

The government also has a fundamental role in promoting research. We are this year finishing the achievement of the President's goal of doubling the budget for the National Institutes of Health over five years. Again, not only are we supporting research on new medical technologies and gaining insights from such fundamental discoveries as the sequencing of the human genome, but we're also promoting research on how to use these treatments most effectively, how to improve the appropriateness of care, how to address health disparities.

The government also has a key role to play in providing financial support for those with low incomes and significant health care needs so that they too can participate in the same kind of mainstream health care coverage that all other Americans enjoy.

Of course, with the importance of Medicare and Social Security in the nation's long-standing commitment to providing assistance for people who are over 65 and persons with disabilities, the government has an important role in fulfilling our commitment to seniors while enhancing choice and broadening benefits: again, giving them access to the same kind of mainstream health care coverage system with choices about how to get the best possible coverage that all other Americans should enjoy as well.

In this approach that the President has laid out, individual patients, working with health care professionals, are the ones responsible for deciding the best way to get care. That goes for the health plan that can give them the best possible coverage. It also goes for deciding which health care services have the greatest value for them.

Giving individuals the opportunity and the responsibility to work with doctors effectively helps on two counts. First, doctors and patients are in the best position to determine what the best treatment for a particular circumstance is. It's not a government treatment guideline by itself, helpful as those might be in some cases. Its not a rule, a coverage rule defined by an HMO bureaucrat or a government bureaucrat in the Centers for Medicare and Medicaid Services (CMS). It's patients working with their doctors.

This also is the best way to control costs because patients are the ones in the best position to balance the benefits and costs of the health care they receive: whether the types of health care coverage or the disease management programs are worth it or not; whether the insurance plan that they are in is the best approach for getting the most value for their money. As I mentioned before, now more than ever, it is critical for us to pay attention to getting the most value for the health care dollars that we spend.

In short, if you add it all up, this program amounts to patient-centered health care. This is the President's vision: patient-centered health care; care that puts the needs and the values of the patient foremost; care that makes the patient the primary decisionmaker, working in partnership with dedicated health care professionals, to make decisions about costs, and to make decisions about the benefits of care.

So how do we achieve this kind of vision? There are a lot of features of the American health care system that I think are very promising in this regard. We have, in contrast to most other health care systems around the world, more private participation, more opportunities for coverage options than just about any other country, but we need to do more.

We need health reform that builds on some of these existing strengths in the American health care system. For one, employer-sponsored health insurance needs to be protected. The President has proposals to do this, to strengthen employer-sponsored coverage. These proposals include support for improved medical savings accounts--or, as I like to think of them, health accounts.

Medical savings accounts have not proven that popular with people so far because they've been implemented in a way that has a fundamental disconnect from the way that people have been getting their health insurance coverage. What we propose to do is make these health accounts much more widely available and bring down the very high deductible limits and restrictions on coverage that are in these plans now.

Instead of a deductible limit well over $3,000 for a family policy, which is not only something that many families are uncomfortable with for out-of-pocket spending, but is also something that's not observed in the private health insurance plans now available, we'd like a more reasonable number--maybe something like a $1,000 deductible for an individual but includes an opportunity to get good preventive care and basic care without counting against the deductible.

If you look at what's happening in the real world today, the private market and the plans that people are choosing are leaving the government behind. People are moving toward plans that give them choices of doctors; if they want to pay more for it, they often have to, but they have the opportunity to go outside of a network of care. They have a broad range of choices, and they're willing to pay for this even though the tax system today is fundamentally biased against those kinds of plans.

If someone chooses an HMO for their employer coverage and pays a premium that entitles them to care with a $5 co-pay for that network of physicians in the HMO, that's fully tax deductible. On the other hand, if they choose a point-of-service plan or a preferred provider organization (PPO) that has a significant deductible and gives them some important coverage when they go outside of the network for any doctor that they want to see so they can get the health care they want, they often end up paying thousands of dollars out of pocket, and that is not deductible.

So we have a health care system that is biased against the ability of patients to choose the coverage that's best for them and to choose the doctors and the treatment that's best for them. The President wants to level that playing field, and health accounts are a good way to do that.

A related proposal that we think is also a good way to do that is to allow flexible spending accounts, which are now widely available in employer-provided coverage, to be rolled over at least to some extent. These accounts are tools that businesses have come up with largely on their own to help people with out-of-pocket costs without it counting against their tax liability--again, to address this imbalance that I was just talking about.

The problem is that, under current law, it's use it or lose it. You have to spend the money by the end of the year; you can't roll it over and save it for when you might have higher health care expenditures in the future. By allowing people to save some of the cost that they'd like to set aside for their health care needs in these tax-favored accounts, we give them more flexibility in how they get their coverage and also provide better protection against high costs when they do occur.

It seems like a smart thing to do, and it would certainly move the health care system in the direction of strengthening employer coverage, which is already moving in the direction of higher out-of-pocket costs, and--at least for people who are willing to pay those costs--more flexibility in how they get their coverage.

For those without employer-sponsored insurance, we also support proposals to improve their access to and the affordability of their health insurance plans through health insurance tax credits, refundable credits, and purchasing pool opportunities. These proposals include purchasing pools that might be set up by states to provide competing health insurance plans or other mechanisms. We've also supported, in recent legislation, the idea of strengthening high-risk pools for people who have serious, chronic conditions and so pay a high cost to get coverage in the individual market.

But the idea of health insurance credits to correct another imbalance in our health care system--which is that people who don't get employer-sponsored coverage often get no help at all from the government, no tax deductibility, no assistance of any kind--is a critical element of improving health insurance coverage.

The President has proposed a health insurance credit in his budget that would be usable by up to 15 million people who are buying coverage on their own now with no assistance at all from the government because they don't have access to a good employer plan, or that would be usable by people who are not able to afford coverage on their own now. Not only would this policy help make coverage more affordable in the non-group market for people who are having trouble struggling on their own to pay for it, but it would also make coverage available for about 6 million people who are uninsured.

This is an important approach for addressing the problem of insurance. It's one that we spent a lot of time working on, not only internally but with experts from outside the Administration and a number of Democrats who support these kinds of ideas to make sure we can implement them in a way that works.

One of the main criticisms of health insurance credit proposals in the past was that, for people who don't have any tax liability or who are struggling month-to-month with just meeting their expenses, waiting until the end of the year for a small deduction isn't going to be much help. We've listened.

We've proposed a health insurance credit that is fully refundable so that it's worth the same amount regardless of your tax liability, and we've proposed it in a way that's advanceable--a technical term that means you can use it when you're actually buying your insurance as a way of lowering the actual premium that you pay month to month. You don't have to wait until the end of the year; you can get the coverage now.

This is a proposal that has a subsidy or an assistance rate that phases down with income, so that it is a very cost-effective way of significantly reducing the total number of uninsured and establishing an approach that we think will be very effective in providing the kind of health care system the patient wants, one where patients have the opportunity to choose the coverage that's best for them and to use their resources, these additional resources from the government, in the most cost-effective way possible.

Finally, we are proposing some steps to help small businesses with their coverage. Small businesses have faced some of the highest premium increases in recent years and were struggling to keep health care affordable even before the increases; increases that occurred because of higher loading costs for small businesses and because these companies are subject to a number of mandates that don't apply to large firms that are entitled to exemptions under ERISA, the Employee Retirement Income Security Act of 1974.

The President has proposed an idea for association health plans that would enable small businesses to pool together to get access to some of the same kinds of discounts from higher-volume purchasing and the same kinds of flexibility to design coverage options that large firms have. Right now, small employers too often can offer only one plan because the insurer requires that just about all their employees participate in their plan alone. If you have only five or eight employees, you can understand why an insurer might want to do that.

A better approach, the President thinks, is to make available the option of pooling together with other small businesses and in associations, like the National Federation of Independent Business, to purchase health insurance together so you can get access to the same menu of choices that will be available across state lines--that can cover multiple states and have the same kind of flexibility that large firms have.

We understand that there is some real concern about making sure this is implemented in a way that doesn't repeat the mistakes of the so-called MEWAs, the Multiple Employer Welfare Arrangements, which are not working well in many cases. We have some good ideas about how to do that, and we are going to continue to work on finding ways to implement this even more effectively.

Altogether, these proposals amount to steps that would substantially reduce the number of uninsured. They can be implemented now and don't require states to come up with matching funds or set up fundamentally new administrative infrastructures; and they could immediately have a significant impact on the cost of care, the number of uninsured, and the affordability of care for everyone in our private health insurance system.

There also are fundamental pressures that apply to public health care systems today. There is a looming fiscal crisis on both the federal and state levels caused by the rapid growth in health care costs that I described earlier.

In spite of the cost increases, though, there are still major shortcomings in the benefit designs of both the Medicare and Medicaid programs. Medicaid programs too often are not providing complete or integrated benefit packages. Many of them still rely on old-style fee-for-service coverage and the arbitrary limits on access to physicians and access to prescriptions and other valuable medical treatments that come with it.

In the Medicaid program, things are heading in exactly the wrong direction. There are getting to be fewer and fewer choices available to seniors other than a single, one-size-fits-all, government-run, old-style fee-for-service health insurance plan that is extremely costly for seniors.

To get by in the Medicare fee-for-service program, you typically need to spend not just the $50 a month Medicare premium cost, but another, much larger amount--three or four times that--for a Medigap policy that typically won't even cover prescription drugs or other valuable integrated services like disease management; not a good option for seniors when health care costs are rising as rapidly as they are; and not a good way for seniors who might prefer to get care more cost-effectively.

Once again, we think that competition is likely to produce more benefits than these traditional government-run bureaucratic structures have been able to produce through extensive regulation and administered pricing. We would like to replace the current Medicare structure or augment the current Medicare fee-for-service benefit with other options for seniors who prefer it. We think that seniors, just like every federal employee and millions of other Americans, should have a choice of a much broader range of health insurance plans than just an old-style fee-for-service benefit.

For example, that fee-for-service benefit has no prescription drug coverage and has been way behind the times in introducing benefits for preventive care--benefits for things like cholesterol screening that have long been available in private plans. Medicare has very high out-of-pocket expenses from an arbitrary benefit package that owes more to the legislative history for enacting this program in 1965 than to anything that has to do with effective ways of providing health care coverage in our modern health care system, including no stop-loss protection, $800 per hospitalization deductibles for getting care for each hospital spell, and 50 percent co-pays or higher for outpatient care in many cases.

For all these reasons, seniors almost have to buy Medigap plans--supplemental private insurance plans--that are extremely costly, that are not a very good recipe for delivering high value care, and that give seniors no choice. Many seniors prefer this kind of model. That's what they're used to, that's what they want, and they should be able to keep that; but it just seems wrong that seniors shouldn't have the option of selecting other systems that many of them prefer.

Millions of seniors have been enrolled in private plans and Medicare through the Medicare+Choice program, but those choices are going away today. Medicare+Choice and Medicare are paid through the same kind of arbitrary regulatory price structure approach that is just not keeping pace, not only with the cost of delivering care in private plans, but even with the cost of the traditional fee-for-service Medicare programs.

No wonder options are rapidly becoming less available to seniors. And that just seems wrong to us in the Administration: that seniors should not have the option to continue coverage that for them is often the preferred choice; preferred because they can get wellness programs, because they can get drug coverage, because they can get disease management programs and other benefits that have not been available in Medicare.

In short, the Medicare program, and the Medicaid program as well, should move in the direction of encouraging patient-centered care, and move in the direction of encouraging patients that participate in mainstream health care coverage plans that they choose, so that they can select the ones with the innovations that they need through a competitive choice mechanism.

I also want to say a couple of things about the importance of improving quality of care. We have a health care system that is not delivering high-quality care often enough even as health care costs keep rising, straining the pocketbooks of just about every American. We think that a truly competitive system, one that provides the right kinds of incentives by giving people choices, enabling them to get the coverage that best meets their needs, is the best way to lay a foundation of higher-quality care for all Americans, for the kind of efficient health care that we desperately need in the 21st century.

To go along with that, there is a key role for the government to play in providing better information for patients, employers, and providers about quality of care and costs of different treatment options and different kinds of coverage. We think that, together, better information and the right kinds of reforms to give patients choices and to provide a truly competitive system of health care for all Americans will lead to high-quality care.

In our current health care system, providers that are trying to do the right thing, that would like to keep people out of the hospital, that would like to involve patients in their care in ways that keep them as healthy as possible for as long as possible, are too often punished. Reimbursement systems in Medicare, for example, are set up to pay hospitals more for more complications, not more for delivering higher-quality care.

It's a fundamental incentive problem: As long as we have a government-regulated fee-for-service structure as the only option for seniors, we're never going to change this environment in which doctors are practicing. Our litigation system encourages an environment for medical practice that punishes doctors rather than rewarding them for identifying ways to deliver safer, more effective care.

When I was practicing on the West Coast, I was involved in a program that was designed to implement more effective patient safety programs in hospitals. Too often, the doctors we were working with would talk to the risk-management team at their hospital--the risk management here is litigation risk, not patient risk--and would be told that, "Yes, you should try to avoid errors, but please don't write any of the stuff down and don't talk about it with too many of your colleagues from other hospitals and other health care experts, because this is just going to come back to haunt us and open the door to discovery for who knows what kind of lawsuit down the road." That's wrong.

Efforts to improve the quality of care by identifying medical errors when they occur and preventing them from ever happening again need to be protected from litigation. Reforms should also encourage the reduction of the defensive medical practices that are too much a part of health care delivery today.

Another critical role for the government is obviously in supporting biomedical research. We have achieved tremendous things over the past 30 years, and when I look back at my practice over the past 10 years--it's tremendous how much the treatment of a heart attack patient, say, has changed, between 1990 and now.

If you go back even further, 30 years ago, if you came in with a heart attack, the doctor would put you in a bed and say, "Try to stay comfortable and we'll cross our fingers." There were a couple of medications patients could get, but that was pretty much it.

Today, there are treatments that can be available immediately and not only treat the heart attack, but also prevent it from happening in the first place and then prevent future attacks from occurring. That's why we've seen these huge improvements in the quality and length of life. And that's the kind of thing we need to encourage through both biomedical research and a health care system that creates an environment within which we can quickly adopt the best treatments that our innovative health care system has to offer.

We need to be very careful that we're only adopting the high-valued ones. We're spending a lot of money on health care, but we shouldn't resort to arbitrary mechanisms of controlling and restricting the development of new technologies and the use of new technologies that have so much potential for improving health in the future.

Think ahead to 30 years from now when our understanding of the genome is going to have been translated into being able not only to tell people what diseases they are at risk for and when and what specific steps, through medication, lifestyle management, and the like, they can take to avoid those diseases, but also to individually tailor therapies, drugs that work on a particular patient's genetic makeup to cure or prevent an illness entirely.

Think ahead to a stage when we're going to have artificial hearts that not only can work in a hospital for a month, but can make you live another 10 years. Other artificial organs as well: not just knees, but livers, even musculoskeletal assist devices.

The potential is truly tremendous, but we'll achieve that potential only if we recognize and reward the best features of our health care systems. And that is where patient-centered care is so critical. If doctors and patients can't work together and don't have the flexibility to take advantage of all these new discoveries that we're supporting through research, if their only options are an old style of coverage and payments for treatments that are 30 years out-of-date, we are not going to achieve that potential.

So we're at a critical time in health care policymaking. It's a very difficult time, with health care costs rising, and it will be very difficult for us to move forward to make sure that all Americans are a part of this health care system through mainstream coverage options that reach everyone.

We are at a crossroads. The President's view is that we need to reinforce and strengthen the best features of our health care system. Private-sector delivery; patients and doctors working together to choose the options that are best for them: we hope that's where our system will go. I hope you all will help us think through these difficult issues and work with us in the years ahead so that the next 40 years can be even more dramatic than the past 40 years.


QUESTION: I have two questions. One: What mechanism regarding the tax credits will prevent current small-business companies from dropping their current coverage and go ahead and get this tax credit?

The second question is: For small businesses who currently bear the burden, those that are offering health care, what incentives will be there for them to continue to do that? They are both related.

DR. McCLELLAN: Those are related questions, and I think the concern about employers dropping coverage when a health insurance credit becomes available stems from the view that if you make the alternative so much cheaper, there are going to be some people who want to cross over and go to the alternative rather than continue employer coverage.

Some would say, "Well, if that's the case, what you ought to do is keep these costs up--don't do anything for these people who don't have good employer options." We think that's the wrong answer. We think the right answer is to bring down costs for the small businesses as well.

That's why the President has laid out a pretty aggressive agenda on assisting small businesses. One component that will help with that is our health account proposal. Many small businesses, even more so than large firms, typically have health plans that require significant out-of-pocket contributions by their employees.

There is no tax-favored status for those kinds of purchases. Their workers are paying for them out of their own pockets, so it's not surprising that many of them decide, "This coverage isn't such a great deal after all. Maybe I should go elsewhere or just get no coverage at all." By making coverage in small firms more affordable through a tax deduction for all or a significant part of out-of-pocket expenses, health accounts would help small businesses offer more affordable coverage.

In addition, as I mentioned before, the President has laid out an idea for association health plans that would let small businesses pool together to get the same kind of discounts that large firms get when they purchase health insurance.

If you look at the kinds of models, the curve, this employer-dropping phenomenon, a good bit of it occurs on the small-business side, and that's because the small-business health insurance premiums, quite frankly, are not that much better than an individual market policy in many cases. We need to make those premiums lower. We need to bring down the cost on both sides to encourage people to stay in their employer plans.

Even so, I want to emphasize--and there have been some misleading data out there about this--that the insurance credit that we propose for people who don't have access to good employer coverage would not lead to any consequential dropping of coverage by firms. According to estimates by the nonpartisan staff at the U.S. Treasury, at most, a million or so people would switch out of employer coverage in conjunction with this 15 million-person credit: 10 percent to 15 percent of the take-up at most. The vast majority of the credit would be going to people who don't have coverage now or who are trying to struggle along to buy coverage on their own with no assistance from the government at all.

And that analysis doesn't even take into account that we would very much like to implement these other proposals to bring down costs in the small businesses at the same time, which would get rid of even that small amount of crowd-out.

So we view this as an overall agenda. There is no one piece here that is going to solve all the problems. We've got a multi-factorial health care system, and we need some multi-factorial direction, some incremental stages, some steps in the right direction to make each part of this system stronger.

QUESTION: Sir, would you discuss long-term care for retired, old people?

DR. McCLELLAN: I'd be happy to discuss long-term care for seniors. The current system has a vast majority of payments coming from the public sector in one way or another, either through Medicaid directly for people who are spent down to Medicaid levels of coverage, or through Medicare contributions for those people who are on the way to needing long-term care, or who are getting a significant amount of long-term care through the Medicare program.

Medicare is supposed to be focused on acute care, but a lot of the growth in recent years has been in home health and skilled nursing services and other things that at least have a chronic element to them. Only about 15 percent or so is privately financed, and only a small part of that comes from private long-term care insurance premiums. We think that's way too little.

I just went through this process with my grandmother, where we ended up not staying completely away from the Medicaid route and did get to hear a little bit about it. It just is not the kind of choice you'd want to have if and when you need long-term care services for any length of time.

In keeping with the philosophy that I've laid out earlier for patient-centered, choice-based care, what we think is needed is more opportunities and more incentives for people to purchase private long-term care insurance options, maybe in conjunction with some reforms in the Medicaid program, to recognize that there will be savings from Medicaid from fewer people going into it, and to purchase options that give them more opportunities to get the kind of care that they want.

The President has proposed a tax deduction for the cost of long-term care insurance premiums that will make this kind of approach significantly cheaper for people who are thinking about whether to save or set aside some resources for their long-term care needs. The President has also proposed a tax exemption for people who are getting care in their homes: again, to recognize that there is some benefit to the government, and obviously a benefit to the person involved, to be able to stay out of an institution that's financed by Medicaid.

We need to do a lot more of that, and I think this is one of the fundamental questions that is coming to a head with the Medicaid program. Medicaid is not very sustainable in its current form. Costs are rising rapidly, both on the acute care side for providing health insurance to low-income persons and persons with disabilities, and also on the long-term care side.

We need a different solution, and I think the best approach, once again, is encouraging patient-centered care through private long-term care insurance options that let people choose the coverage that's best for them.

QUESTION: As I understand it, in the trade bill, Mr. Daschle recently said something to the effect that, in addition to considering subsidizing COBRA benefits, he might be open to considering some individual tax credit approach. How optimistic are you that you can get some features of the tax credit that you proposed into actual legislation so we can at least get some experience with it?

DR. McCLELLAN: I'm optimistic. In the seniors debate, we were doing a lot of discussions, meeting with Members and so forth, and some of the ideas we were talking about were really new to people who hadn't had a chance to hear from anyone outside the Administration that these ideas could work. The thing that encourages me about the debate now is that there is more attention being paid to the bottom-line question of what's going to work best.

Some of the original ideas that were put forward like COBRA-only coverage, which wouldn't get to a large share of the workers who really need help and which would impose more burdens on firms that are already having difficulty staying in existence, would probably not be the most effective way to go. Medicaid expansion coverage when Medicaid is having some fundamental problems just continuing its current responsibilities for low-income and medically needy populations didn't seem like the best way to go.

There has been a fresh attempt to put aside the ideology and the philosophical differences and focus on what works, more of a willingness to focus on the most effective way to provide coverage quickly and effectively to the workers. I think that's the kind of movement beyond ideological differences and into the question of what works that will really get us to a good deal for workers as part of trade legislation.

QUESTION: I know that the President's initiative is quality health care for patients. What are your thoughts on the nursing shortage? It seems like the quality of care is really suffering on that front.

DR. McCLELLAN: There is a lot of frustration right now among all health professionals about dealing with a system where they feel like they are losing control. I'm not a nurse, but I talk to a lot of nurses, and I also talk to a lot of doctors. I can tell you from personal experience that many of them are not getting out because of the money; they're getting out because of the bureaucratic red tape and not being able to spend time with patients.

You can try some quick fix--with physicians, boost their payments a little bit, or with nurses, fund more education programs, for example. Maybe that would help, but it doesn't really address the fundamental problem, which is frustration with not being able to deliver patient-centered care. If we can make the kind of changes that we've talked about in the health care system to give more control back to patients, working with doctors and other health care professionals, that will help a lot.

There are also a number of things that we can do in the short term. We're entering, if I got the tone of Chairman Alan Greenspan's remarks correctly, a period of recovery, but not a very strong recovery. There are a lot of people out of work; but on the other hand, there are a lot of job openings as well.

We've been trying to develop some innovative programs, in some cases in partnership with health care institutions, to get people the training they need to fill job openings that are available now. This hasn't worked out all that well yet for the very highly trained nurses, but for a number of health profession positions that do require some specialized training and are experiencing shortages today, we think this is a very effective approach to getting people back in the right direction.

But make no mistake: This is going to continue to be a concern as long as nurses and doctors are feeling so frustrated about what they have to go through in order to deliver good care.

QUESTION: Several federal programs purchase prescription drugs. These would include Medicaid and Veterans Affairs, Department of Defense, Federal Employees Health Benefits Program. Are there any lessons learned from those programs in terms of what to do, and perhaps what not to do, in the purchase of prescription drugs under Medicare?

DR. McCLELLAN: I think that the lesson is to do something different. It is true that if you regulate a drug price, you can probably get a low drug price, but that doesn't guarantee you good care either in the short run or the long run.

Price controls alone are not the kind of innovative coverage that's needed to encourage and help patients use drugs effectively to prevent diseases before they occur. Taking one blood pressure medication if you get it early and having a doctor or health care system that's working with you to help make sure that you stay compliant with it, as in a disease management program or prevention program, can end up costing a lot less than paying for the seven or eight or nine medications that may be needed after a stroke or a heart attack occurs because a patient had an untreated risk factor.

That's generally our approach to health care: not to impose arbitrary price controls, which aren't going to encourage the development of new and even more valuable treatments for the future, but to encourage a more effective way of using all of the available medical resources and treatments that are out there.

You want more drugs and more innovative treatments to be developed, and we're not going to get that through tight price controls. But we need to do more at the same time to encourage innovative coverage that helps seniors and other people use these treatments as effectively as possible.

QUESTION: You talk about promoting private insurance as an option, but one of the fundamental questions that's still raised, despite the lessening use of HMOs, is that some insurance policies act as a barrier to quality of care by limiting what patients can actually get paid for by their insurance programs. Is the Administration looking at this issue at all?

DR. McCLELLAN: I said before that there are some instances where regulation is needed to make sure that coverage is up to appropriate standards, and we think a good patients' rights bill that encourages appropriate benefits and appropriate care, care for emergency conditions, specialists when necessary, would be helpful.

However, we don't want to open the door to unlimited litigation and exacerbate an already extremely burdensome problem facing our health care system. We hope we can work that out. Beyond that, I don't want to badmouth HMOs here. I think health maintenance organizations provide the kind of care that many people want, and a number of people choose those plans voluntarily over other alternatives.

A lot of people in Medicare who are in closed network HMOs are writing us saying, "Please fix the payment system so that these plans don't go away." They like them because they have minimal out-of-pocket costs; they have a network of physicians that they've often grown to know and feel comfortable with, and it's a much more cost-effective alternative for some people than other approaches to delivering health care.

That should be an option. I don't think it should be the only option, and I don't think it should be a requirement, but I think we should be doing more to keep a broad range of health care coverage options available so that people can get the kind of coverage that best meets their needs.

SPEAKER: What role do you see for the state governors in dealing with the waiver problem, in particular in states like Tennessee, which has a TennCare program? I know there are certain problems with TennCare. Do you think there could be some viable solution?

DR. McCLELLAN: We're working closely with Tennessee on ways to keep that program viable. They have had trouble keeping costs down with a number of the coverage expansions they've tried, and they are looking at ways to head off having to cap enrollment or restrict services any more than is necessary, and we're obviously working closely with them on ways to address these problems.

Medicaid is a program that runs largely by waiver. Very few states have or are operating programs without any waivers for how they actually deliver services. Unfortunately, a waiver process can be difficult, time-consuming, and in some cases restrictive on what states do. That's especially a problem now when states are facing increases in Medicaid costs of 10 percent, 12 percent, or more per year in the face of a budget base that is rising by nowhere near that rate.

We're getting a lot of increasingly urgent requests from states about the cost of sustaining these programs. That's why I said I think we're approaching a time where we need to take a fundamental look at the way the Medicaid program works. It needs to be there for providing critical health services for populations that are especially vulnerable.

I think some of the most promising signs with respect to waivers in recent years have been steps to save money by integrating private health insurance coverage; for example, Wisconsin and other states have implemented programs where the state makes a contribution toward the cost of private health insurance for its Medicaid or State Children's Health Insurance Program (SCHIP). Also promising are the steps that states have taken toward making private health insurance coverage options available, serving as a purchasing pool for their beneficiaries.

So I think there are some steps that we need to look at in deciding where the Medicaid program should be going from here on out. The problems that states are facing under the current waiver system and current law are indicative of that, and I think they are going to get tougher in the months ahead.

SPEAKER: Talk about drugs, because what we're seeing right now. I think that's a worldwide barrier. I just want to get your view on drugs.

DR. McCLELLAN: It is a problem. It's funny how the health care system is working in not achieving some of the goals that the President has set out for us.

It seems odd that the people who are paying the highest prices for drugs are seniors and the uninsured; but that's the way our health care system is working, because they have been left out of the kinds of mainstream coverage options that help people get lower prices. People enrolled in private insurance plans today have a drug benefit manager that negotiates on their behalf lower prices from the manufacturers, savings of 10 percent to 40 percent. That kind of assistance with lower prices is just not available to too many seniors, so they are going across the border.

We've looked very carefully at some of the legislative proposals to permit re-importation, and so far the conclusion has been--just like the Clinton Administration's conclusion before us--that there really isn't a way to do this while guaranteeing safe and effective drugs and to do this on a large-scale basis. Where drugs can be shipped across the border, we have no way of tracking where those drugs have been outside this country or assuring that they are unadulterated products without spending probably even more money than people would save in getting lower prices and doing inspections at the border and drug testing.

But, again, I think the fundamental problem that we ought to be addressing directly is the high prices that seniors are paying for drugs. And I think we've laid out some proposals as part of our Medicare strategy for getting a drug benefit in Medicare and modernizing the program and giving seniors access to lower prices that, if enacted now, can provide help in this regard as soon as next year.

--The Honorable Mark McClellan, a physician and an economist, delivered this lecture when he was the Senior Policy Director for Health Care and Related Economic Issues at the White House and a member of the Council of Economic Advisers. He has since been confirmed as the Commissioner of the U.S. Food and Drug Administration.


The Mark McClellan