Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System
U.S. House of Representatives
Committee on Financial Services
February 15, 2007
Rep. Deborah Pryce, R-Ohio: (excerpt) … the greatest problem is that people just can’t find health insurance that they afford. Therefore, they don’t get the medical treatment that they need.
And it occurs to me and many others that one of the reasons for this is because there’s really no consumer factor in health care in this country. We don’t shop for our benefits; we take what our insurance companies provide for us.
Market forces seem to work very well in all other aspects of our society. And is this what is wrong with our health care delivery system, this lack of market forces, so to speak, in it?
Chairman Ben Bernanke: Congresswoman, you’re correct in pointing out a very, very serious problem.
And I think you’re also correct that one of the main reasons why health care is so expensive in the United States has to do with the fact that we’re always buying with somebody’s money and not with our on money.
We have a system where technology is advancing rapidly, where our ability to do new and sophisticated tests, to provide new and sophisticated drugs through procedures is advancing rapidly
In most industries, new technologies save costs in medicine because — again, because of third-party payment. And the doctor and the patient are not making a cost-based decision. The cost-efficiency is not perhaps what it should be.
Now, one approach to this is to increase market forces in determination of what tests to order and what costs and how much to shop and so on. There are ways to do that. The health savings accounts, for example, create a catastrophic coverage — ask for a catastrophic coverage and ask people to save money within this account to buy coverage — to buy, sorry, medical care below the catastrophic level.
Some people may be uncomfortable with having to make those kinds of decisions. And so an alternative is to have competition between, say, HSA catastrophic plans and other types of medical management: HMOs, PPOs, traditional insurance and the like.
By creating more competition, I think there would be some benefits. But, again, it’s a complex subject.
There’s a lot of other things we could do. I think we could increase the transparency in terms, you know, of hospitals and doctors letting us know what they charge, what their quality is; improving information technology in health care, which would, I think, reduce errors and create more consistency across parts of the country.
We currently have very big differences in the costs of managing a certain kind of condition in different parts of the country. More uniformity and more best practice would help reduce costs as well.
So I think markets could have a useful role to help reduce and control — at least control costs.
Portability is a difficult question. One approach to portability is to have insurance companies insure workers rather than insure employers, so to speak. That would require somehow creating different kinds of pools, rather than employer-based pools, because you need pools in order to share risk. And there are some issues associated with that.
The main alternative would be to have people have the ability to take their policy from their current employer and then move over to another employer with the same policy.
These are all things we should be looking at, but none of them is a completely simple problem, because in each case you want to make sure that people are buying as part of a pool — a risk pool, rather than buying on an individual basis, where they might be, if they’re ill or a pre-existing condition, they won’t be able to afford insurance.
http://www.washingtonpost.com/wp-srv/content/article/2007/02/15/bernanke_021507.html
Comment:
By Don McCanne, MD
It is unfortunate that Federal Reserve Chairman Ben Bernanke used the framing of the conservatives to define the problems with our health care system, as he seemed to stumble through an explanation of why we need more market competition in health care. He might have been more convincing had he used the framing of his Princeton colleague, Paul Krugman.
There is a reassuring tone to his response. It is quite clear that he believes that the problems are much more complex than a mere lack of adequate market competition. His bottom line is that risk pooling is essential.
Markets dodge risk. Public policies distribute risk. If asked again, hopefully he will have prepared his answer better and start from the position of pooling risk. Paul Krugman could help him.
