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The American Health Care System: Past, Present and Future


Dr. Paul Ginsburg, President of the Center for Studying Health System Change; Dr. Tevi Troy, Deputy Secretary for HHS; and Dr. Robert Moffit, Director, Center for Health Policy Studies, Heritage Foundation
Foreign Press Center Briefings
Washington, DC
November 14, 2007




Moderator: Thank you for coming. We'll have a longer session than usual this afternoon.

I decided to try to organize this seminar because a number of the correspondents that I deal with said we understand that health care is going to be an important issue in the coming campaign, and it is, but we don't understand your system.

So we're going to have actually three speakers today. I'm very sorry to say that Dr. Len Nichols who is on your agenda notified me yesterday that he's being called to the Hill to confab with Senators on some issues and couldn't get away from that. But I'm very pleased to start with our initial speaker, and that's Dr. Paul Ginsburg. He is the President of the Center for Studying Health System Change. He left some materials out by the front desk.

The Center was founded in 1995 and it conducts research for policymakers and other audiences including journalists about changes in the organization and financing and delivery of health care and its affect on people. They do this by monitoring data gathered through a community tracking study of various groups that are representative of the country. And one of those tracking studies is on the CD that many of you should have. The Center is widely known for its objectivity and the technical quality of its research and its success in communicating.

Dr. Ginsburg has served as the Founding Executive Director of the Physician Payment Review Commission, now the Medicare Payment Advisory Commission which is very important. He was the Senior Economist at Rand, served as Deputy Assistant Director of the Congressional Budget Office, and before that he served on the faculties of Duke and Michigan State University. However, my favorite piece of information from his bio is that five times he has been voted one of the 100 most influential people in the United States in the field of health care.

We've asked Dr. Ginsburg today to talk a little bit, the seminar is past, present and future, to talk a little bit about the past. How did we get here? How did we get this system? Why is ours so different from the systems in many of your countries?

Dr. Ginsburg, thank you.

Dr. Ginsburg: I think the way where you can get the most value out of this and also make it most fun for me is to encourage you to ask me questions along the way rather than hold them for 45 minutes and then ask. We'll wind up spending more time on what's really on your mind.

When I talk about the United States health system, trying to explain it in a nutshell, let me say the system of providing care, of hospital care and physician care, that's not that different from the Canadian system, or many European systems, in the sense it's a private system. The bulk of the hospitals have always been private, not for profits. We do have some public hospitals owned by local governments. That is in slow decline, that trend, converting over to private, not for profit. Physicians are independent. They have their own practices. And what's different, of course, is the finance. Actually one thing that actually is like Canada, very different from Europe, is that community physicians practice in hospitals. There aren't two separate physician systems, ones that are employed by hospitals and only work in hospitals; and the other that only work in the community. But there's actually a very strong recent trend in that direction in our system that in some areas a physician called a hospitalist or I think the term is a specialist in hospital medicine, increasingly who works entirely in the hospital either as a hospital employee or an independent contractor, will take care of most medical admissions.

So our delivery system isn't that distinct. Our financing system is. We have a system where private health insurance provided through employment is, for at least the under 65 population, the dominant form of financing. That actually probably began in the 1930s. We didn't have any financing system before then. And it was initiated by hospitals. Hospitals during the Great Depression worried about having more of their patients be able to pay the bill. Hospitals actually sponsored what today is Blue Cross. Actually physicians, somewhat later, sponsored what today is called Blue Shield. Most of those plans which historically were private, not for profit, and most of those Blue Shield plans have merged. Blue Cross/Blue Shield is still quite distinct in the sense that they don't compete with each other. Each of them has a territory and an actual thing is they're not allowed to use -- They can sell insurance elsewhere, but they can't use the Blue Cross/Blue Shield trademark except in their own territory. The most typical territories are states.

Insurance began there. Employers started finding that this was an attractive fringe benefit. There's always been very favorable tax treatment. So in the sense of an employer say provides health insurance to their employees, the cost of that insurance is not taxed to the employer as a business expense just like money wages would be, but to the employee it's not taxed as income.

So there is a strong -- probably inadvertent -- incentive in our tax system. It wasn't deliberate to encourage health insurance. When it started happening it was just accepted as compensation that is not taxed. And so it grew particularly rapidly during the 1950s.

Some writers point to wage controls during World War II as it was a way of evading wage controls. Although people I've spoken to don't think that's that important a part of the history.

Some other advantages of it besides the tax advantages is that an employer by buying a policy for, it could be hundreds of employees, can buy it for a much lower price. It really slices the distribution costs because the employer's going to handle, through payroll deduction, any employee contribution to premiums and is just going to send the insurer a big check for everyone once a month. There's some purchasing power there, so they can buy insurance for less. They pool together all the employees in a company, so in a sense they have young and old and healthy and sick and even if the employees had to make a contribution, maybe 15, 20, 25 percent of the premium, when they all paid the same premium it was affordable to almost everyone.

So in a sense we say that employers created pools not the way an insurance company creates a pool. Because an insurance company, their business is taking the risk, pooling the risk of the unexpected. Of these 100 people, say 10 of them are going to get really sick. That's the risk on insurers. But what about having some people that have a much higher risk of getting sick than others? Well, insurers avoid insuring those people, or if they do insure them, they'll charge a very high premium reflecting those risks and a lot of those people won't be able to afford the coverage. But when an employer provides insurance, they create the pool of healthy and sick people themselves, and either they or the insurer will take the risk of well, some of them are going to get sick and some of them won't.

So Blue Cross/Blue Shield was in the business probably starting in the 1950s. What were then life insurance companies decided well, health insurance might be a good business for us. Companies like Aetna got into it. And they did it in a different way than the Blue Cross/Blue Shield plans did, though, in that when Blue Cross/Blue Shield started out, when they sold insurance to say individuals or small employers in a community, they charged everyone in the community the same premium. What we call commercial insurers didn't do it that way. They charged people different premiums depending on, like to charge an employer of 50 people the premium would depend on what are the characteristics of your employees? How old are they? That's actually the main thing. When you have a situation with someone at the same price and someone is varying the price, then the Blues were no longer able to do what's called community rating because the healthiest people would all go to the commercial insurers and the Blues would be left with sick people.

So we had those two systems, and they grew. Periodically the Congress or the President tried to legislate universal coverage. The only success they ever had was in 1965 with the enactment of the Medicare and the Medicaid programs. This was something of compromising different approaches which sometimes led to doing everything, to doing both. At that time the Democrats wanted a universal government-run health insurance system for the elderly; and Republicans wanted to focus government efforts on providing insurance on low income people and also wanted the states to take a large role in that approach. There were also interests in whether this would be done by subsidizing private insurance or whether this would be public insurance. What we came out of the process was some of each.

We insured hospital care the way the Democrats wanted to, through a government-run insurance program, and today we call it Part A of Medicare. And we had a physician insurance program for the elderly that was modeled more on private insurance, although still run by the government with a large, actually in both Part A and Part B, a significant role for health insurers to process the claims, and they do that to this day. They are the claims processors for the Medicare program. And then a series of grants to the states to provide health insurance coverage for low income people.

Now the Medicaid program's history has always been, we call it categorical in a sense. Not all low income people, but certain low income people. And our welfare programs at the time only focused on indigent mothers and children, so Medicaid programs traditionally only covered low income mothers and children. They didn't cover everything. But along the way states were given more flexibility to expand their Medicaid program to include fathers of low income families, which some states do. Virtually none of them cover, to this day, single people or couples without children.

So the Medicaid program is a state program. There are federal matching grants to the states and the federal government pays between 50 percent and somewhere in the 70s depending on a very old formula with the state's per capita income. So very low income states like Mississippi get the highest match rates, but there's a floor of 50 percent so even the high income stats like New York or Massachusetts get a 50 percent match in their Medicaid program.

Ironically, I don't know if it's ironic, it's turned out that the high income states have the most expansive Medicaid programs, between their high incomes, between their different political values and in a sense they have covered people up to higher income ranges, they've been more liberal going beyond the original categories of eligibility. So in a sense the high income states actually draw most of the money from the Medicaid program.

Question: [Mathias Rueb, Frankfurter Allgemeine Zeitung, Germany]. Are you insured with the state system as soon as you move to the state are do you have to wait for a couple of years? If you're moving from Mississippi to Massachusetts?

Dr. Ginsburg: You have to go through a fairly difficult application process. I shouldn't say it's that difficult. I don't think there generally is a waiting period. I don't think there are that many people that move because the Medicaid program is better. Actually all states but one have -- Arizona never started a Medicaid program although back maybe 20 years ago they developed a Medicaid-like program of their own which actually is quite widely admired as in a sense being of a different, by being newer and not having a history, probably more reflective of the best thinking about how to provide insurance for low income people today.

Question: [Mathias Rueb, Frankfurter Allgemeine Zeitung, Germany]. When did that start?

Dr. Ginsburg: I'm not sure. It might have been in the mid-80s, would be my guess.

Question: Rosalina Maejerova, Bulgarian Embassy. Can you say how many people are those single people, as you said that Medicaid doesn't cover single people or couples without children. How many people are not covered in this way?

Dr. Ginsburg: A lot of people aren't covered in that way. Actually what we know is, out of a population of 300 million for the country I think the latest estimate was 47 million are not insured. And these are all non-elderly people, because all people over 65 are in the Medicare program. Not all of them are low income people, and some of them are young males, are a group that's particularly likely to be uninsured because they don't think they'll need it and they don't spend the money on insurance. But I don't have numbers with me about Medicaid.

One of the unfortunate things is with Medicaid being a state program there's not a lot of good national information about it. Often the agency which makes the federal matching grant is asked to do surveys of state programs to find out anything because they don't have common data systems.

That's basically where we got to with employment-based coverage, a Medicare program, a Medicaid program. Medicare was subsequently expanded to cover people who had been disabled for at least two years. So a disabled population became eligible for Medicare. And people with end state renal disease, kidney failure. There was also specific eligibility for them that came in I think the early 1970s.

Medicare actually, in a way, has been frozen in time, in 1960s thinking. In the 1960s health insurance tended not to cover prescription drugs. The reason it wasn't covered was that prescriptions didn't cost very much, most of them were used for an acute illness. They didn't cost very much. Processing small claims was very expensive so they didn't have it. In the 1970s private insurers started to cover prescription drugs. And because Medicare was always costing more than had been projected, the federal government never got around to adding a prescription drug benefit to Medicare until 2003 and it was implemented in 2006, last year.

Question: [Czech Republic]. Daniel Anyz, Hospodaske Noviny. I have just one small question to Medicare. This age limit 65, it was set in '75 and it didn't change since then?

Dr. Ginsburg: In contrast to Social Security which provides income support, where the retirement age is being raised from 65 to 67 slowly, in Medicare it's never changed. Not as much support for raising it in Medicare because of concerns that there really isn't a good alternative to Medicare as far as for people that are no longer working, if they're no longer working. We know that a fairly large part of the population at age 65 is not in the labor force any more so that's why.

Another comment I should make about Medicare that people today don't remember is that Medicare was created not so much because of a concern that elderly people weren't getting care, but more of a concern about the financial impacts. The elderly people weren't able to buy private insurance because they didn't have the employment link, and it was just the risk of financial catastrophe of getting sick. So in a sense, Medicare was really enacted to provide financial protection for the elderly.

Question: I am Donaig Le Du with Radio France International. Talking about the 47 million people that are not insured, what if someone who is not insured goes to the hospital and obviously has no money to pay. Would he be denied care?

Dr. Ginsburg: Yes. Hospitals have the responsibility if someone comes in in an emergency to stabilize that patient. A lot of, hospitals often do provide some limited amount of what they call charity care to people who are uninsured and have low incomes, but there are a lot of people that maybe they would have a condition that needs an expensive operation and they may very well not be able to get that. That's been a factor of the system for a long time.

Question: [Donaig Le Du, Radio France International]. Do people die because of that? Does that happen?

Dr. Ginsburg: Yeah, they probably do. They don't die on the spot, but yes. There has been a lot of research on what difference does it make being uninsured to the amount of care you get or to your health, and it's not good. Even though in today's political discussions there are people from the right that often say oh, everyone gets care whether they're insured or not. That's just not true.

Question: [Rosalea Barker, Scoop Media, New Zealand]. A follow up on that one. It's true of a public hospital run by a county as it is of a private one that somebody would be turned away?

Dr. Ginsburg: That's right. Certainly there are hospitals, many of them public, some of them private, who see a major mission to serve low income people whether they're insured or not. In fact we call that part of the safety net. We actually have an extensive system of community health centers which get grants from the federal government and get very favorable reimbursement rates from the Medicaid program when they serve people who are covered by Medicaid, and they provide very extensive primary care. And they've gotten better and better over time. These are organizations which are located where low income people live; they're sensitive to language barriers and different cultures. So in a sense we have an extensive safety net system, whether it's hospital care or community health centers or community mental health centers that specialize in mental health, for serving low income people in general and the uninsured in particular. But those studies have said they're good, but it's not the same as having insurance.

Question: Christoph von Marschall from the German daily Der Tagesspiegel. I'm certainly not a right wing person and I was certainly not talking to right wing persons about health care before, but I got from two sources different information than you just said. I just visited Texas. They are running themselves the health care institutions free, financed by the church, and they told me everybody can get, even the uninsured, basic health care in this country. And even the Democratic presidential candidates say well, that is the weird thing about this health care system, why it's so expensive, that everybody, even if he is uninsured, gets basic health care in every hospital but it's the most expensive way to get those people uninsured health care and that is why the system is so expensive.

So could you clarify? In Europe we have often this impression, or most of the people I talk to in Europe have this impression that if you are uninsured in the United States it's almost a death sentence, or it ruins your family. It's almost like a third world country. I really would like to get that right, what is your impression, what is true or if it's two different pictures.

Dr. Ginsburg: I think it's really somewhere in between there. There certainly is, an uninsured person can go to an emergency room and will be seen. If it's an emergency they'll get some care. There are lots of clinics. And even actually regular physicians provide some care that, they call it charity care, where people won't have to pay for. So there certainly are sources of care.

I think in the aggregate it doesn't mean that the uninsured get the same care as the insured, so even if you have Medicaid, access to specialists is very much a problem throughout the country. It's a particular problem for an uninsured person. Actually a friend of mine runs what's called a free clinic. It's another type of institutions where they, through donations they support nurses and other staff and the physicians volunteer their time. But it's mostly primary care. They have to go and call up on a phone to a specialist, you know, I have a patient who could really benefit from you, could you please see them? So in a sense it's not an ideal system to be uninsured. You won't get care that's as good. Some people are more fortunate, given if they live in an area that has a very strong safety net, they have a lot more options.

The next thing I should talk about which is probably really hard for someone not from this country to understand is managed care. Managed care, the origins of managed care go back to say the 1940s when some innovative, usually physician groups such as Kaiser Permanente, developed a new model of care which basically put the delivery system and the insurance into the same organization. We used to call them pre-paid group practices. For many years these systems were successful. They grew. They never became, actually in California and Oregon they actually became a fairly significant part of the insurance and delivery system and studies were done showing they were more efficient, had lower cost, the quality was just as good. And in the 1970s somewhat aided by grants from the federal government, the term health maintenance organization was developed, that was modeled after the pre-paid group practices, but in a sense was broader. In a sense it included organizations where the financing, the delivery were in different organizations, but still the person who enrolled in insurance was committed or limited to a network of providers.

So in a sense in a health maintenance organization or an HMO, it became a type of insurance rather than a delivery system where there was a network of physicians and hospitals that had contracts with the insurers and that's where you went for care. And sometimes they had rules that you had to go to a primary care physician first. A pediatrician or an internist, a family physician, before you could go to a specialist. Some of them have rules that the physician had to get permission from the plan to refer to a specialist or to hospitalize a patient.

So they took the pre-paid group practice model and they expanded it somewhat so that the insurance industry really got involved in creating HMOs and then they pushed it further to create preferred provider organizations which were much less restrictive for patients. One of the key reductions in restrictiveness is that you could go to a physician or a hospital not in the network and still you'd have coverage. You'd pay more of the bill as a patient than you would have if you went inside the network, but you still had coverage.

Probably in the early 1990s there was a very sharp shift from traditional insurance coverage to either HMOs or PPOs and we call them managed care.

Managed care succeeded in a number of ways in controlling costs. One of the ways was by negotiating lower payment rates with providers. How could they negotiate lower payment rates for providers? They could say well, you're not going to be in our network if we don't come to an agreement on rates and you'll get fewer patients than if you do agree to be in our network. And some of the administrative controls had an affect on the use of services. Then also sometimes the providers were paid, instead of fee for service, in fact I should have mentioned this, that traditionally in the United States providers had been paid fee for service, not on a per patient per month basis which we call capitation, but many HMOs paid providers on a capitated basis so that the providers worked with the amount of health care use.

It came at a time when severe recession in the early 1990s, employers' profits way down, health care costs at the time rising very rapidly, and many employers very quickly dropped their traditional insurance plans and put their employees into HMOs or PPOs, into managed care plans.

The managed care, some people call it the managed care revolution, generated a major consumer and physician backlash. They didn't like the restrictions. They didn't feel like they had any choice in it, they were just put in this more restrictive plan. By that time the economy was strong, employers were more sensitive to what the employees thought about the health benefits, and many of the restrictions of managed care were eased. So in a sense the HMOs and PPOs as they built provider networks, they started offering more choice. There would be, now instead of just a subset of hospitals often all the hospitals in a community are in the managed care plan's network; a higher percentage of physicians are. A lot of the authorization requirements were dropped.

Managed care still had a bad name, but employees weren't so angry any more with these changes. But then what happened, costs started going up quickly again. This led to the newest wrinkle of approaches to health care costs called consumer driven health care which the basic essence of it is view patients in a different way, rather than you do whatever your doctor tells you to. You start bringing financial incentives to consumers, much like they used to have before managed care.

The one thing I should have mentioned is that when managed care -- patients typically paid 20 percent of the bill with traditional insurance. With HMOs, since the HMO had all these ways of controlling the use of services, and a philosophical belief that having to pay shouldn't come between the patient and getting the care they needed, they had very small if any payment by the patients to use services. So what happened with consumer driven health care is the patient financial incentives, the deductible, you have to pay so many dollars a year before your coverage kicks in, or you have to pay 20 percent of the bill. The financial incentives started resurfacing. Also the other change, a whole philosophy grew up about well, not only do you want consumers to be sensitive to the cost of care, but you want to give them information on provider quality, on which providers are more costly than others.

Something else that happened at the same time is, call it the quality movement. When I started out in this field which was in the late 60s, the only time I heard the word quality of care was I heard it from the American Medical Association or the American Hospital Association. If you squeeze our payment rates too much, quality will suffer. Or if government gets too involved, quality will suffer.

But a very influential report from our Institute of Medicine which is a quasi-governmental group, showed how many people were dying each year due to medical errors and how quality of care in the United States was nowhere near as good as it could be, or should be. So there now is very serious interest in measuring the quality of care of different providers, of providers improving their quality of care, and this is part of the consumer-driven health care movement, that providers are going to be more accountable for their quality of care by there measures for quality of care and this information being provided to consumers.

Question: Sonia Schott, Radio Valera, Venezuela. I would like to know how you deal with the patients who are having chronic diseases]? How do they manage the situation?

Dr. Ginsburg: When you say patients who are a risk to others, you mean such as through communicable diseases? Communicable diseases have always been treated by public health departments. That's a longstanding, so they treat sexually transmitted diseases and other communicable diseases. Probably the way the system has been working, certainly private physicians treat these diseases also and they have requirements to report to the public health department cases they find, but certainly low income people can go to these public health department clinics to be treated for communicable diseases.

Many public health departments were also traditionally part of the safety net in that they delivered primary care as well as care for specific communicable diseases, but that function has been slowly been dropped as public health departments have had other demands on their time such as preparing for disaster preparedness, continuing with the communicable disease, focusing on the environments.

Question: Mathias Rueb with the German newspaper Frankfurter Allegemeine. Could you give us a breakdown in terms of how many people have insurance provided by their employers, how many have HMOs, how many have Medicare/Medicaid? First question.

Second, you mentioned that quite a lot of people decide not having insurance, so they're not forced out of the system, they just think they do not pay the premium. Is the threshold getting higher the older you get to get insurance wherever you want? So even if you're an older employee, is it more difficult for you to convince your employer to pay your premium? Or is it the same premium the employer is going to pay, how old you are?

Dr. Ginsburg: Actually when, well, employer based insurance probably covers about two-thirds of the population. People who buy private insurance as individuals, that's always been a relatively small proportion of the population. It's not an important part of the insurance market. Then you have Medicare. So the bulk of the rest is Medicare and Medicaid.

Of course Medicare is responsible for a very large share of the dollars, because by covering an elderly population it's going to be that way.

When an employer provides insurance it's offered to everybody who works for that employer. I don't know if there are rules about it or not, but most employers, that's their instinct to do it, because they see, to them it's actually a powerful recruiting tool. We're going to offer you good health insurance as well as a salary, and particularly for middle and upper income people, it's a very effective recruiting tool because they want to be insured, and getting it through their employer is a much better way of doing it than buying it themselves.

So in a sense the older people who really have a problem are the older people, let's say they worked for a company for 30 years and the company downsized and they're 60 years old and they don't have a job. They will have to pay a lot for individual health insurance because of their age, and many of them won't be able to pay that.

Question: My name is Olivia Schoeller with Berliner Zeitung. I have two questions. First of all, does the employer, how does it work? The employer has an insurance company he works with and everybody gets insured with that company then? Is that the way it works?

Dr. Ginsburg: Yes, actually what the employers typically do, if it's a large employer, we'll say they are self-insured. In a sense the employer is actually not buying insurance from an insurance company, they're actually paying an administrator fee for the insurance company to run their insurance benefit for them. So the insurance company creates the networks, processes the claims, but the employer actually pays the bills on an ongoing basis. So actually the insurer writes a check on the employer's bank account to pay the bills. And smaller employers buy insurance from an insurance company because they're not large enough to take the risk. So there the insurance company is selling health insurance to the employer. There's no employer that actually does the whole thing themselves.

Question: [Olivia Schoeller, Berliner Zeitung]. Of these 47 million uninsured, it's always said that it's basically because people don't have enough money and they have to decide whether they want to pay health insurance or pay down the payments on the house. Is that the main reason why people are not insured? And what are the other reasons?

Dr. Ginsburg: I think probably the number one reason is it's too expensive in relation to their income. Now family, an insurance policy for a family that is obtained through employment, that's usually a favorable price, may be about $12,000 a year. So you take someone who is say earning $30,000 a year, they can't spend that large a part of their income on health insurance. That's the main reason.

For people who are not working or whose employer does not provide coverage, almost all large employers provide insurance coverage but many small employers don't. So some of those people might face particularly high prices on the individual health insurance market where even the average price is going to be a lot higher than the price that employers would pay for coverage. For two reasons. One is the higher cost of distributing it, and the other is what we call risk selection or adverse selection. Because people are more likely to want to buy coverage if they expect to need medical care. So the insurance company knows that unless it takes action it's going to get the sicker part of the population buying its insurance, its claims experience will be high. So insurers protect themselves against that by what's called medical underwriting. They may require a medical history or an exam before they'll sell someone insurance. That adds to the cost of it but it also means that someone who has a serious, chronic disease probably won't be able to buy insurance. The only way they can be insured is if they get it through employment.

Question: Anna Engelke with German Radio. Is there an average figure that an employer pays for the employees? In Germany 50 percent is paid by your employer, 50 percent you are paying yourself. Is there an average?

Dr. Ginsburg: There is. If I remember it correctly -- Well, insurance is priced as to whether it's covering one person, single coverage, or whether it's covering a family. For single coverage, which some have called the employee only, there employers pay a significant, maybe about 85 percent is my guess of the premium.

Question: [Anna Engelke, ARD Radio, Germany]. By the employer?

Dr. Ginsburg: By the employer. Pays about 85 percent. If it's family coverage it might be about 70 percent. And that's been fairly stable. There are some companies that pay everything. Actually what's interesting is that there used to be a lot more companies that paid everything but as two-worker families became a more important part of the population, employers started thinking well, the subset of employees, their spouses work, they have employers, we don't want to pay for all the coverage. So in a sense, let's not pay the whole thing, so let's have them each get coverage through their own firm rather than us getting more than our share of the burden of the cost of coverage for two- worker families.

Question: [Japanese Broadcasting Corporation]. Hi, my name is Marea Pariser, I'm with NHK. My question is related to infant mortality. That seems to be a really big issue now, especially in Mississippi and the poorer states. I was wondering in relation to the 47 million that are uninsured, all these teen, high risk young women that are getting pregnant, Medicaid, does that, if you're pregnant can you qualify for it?

And another question is, the risk selection. If a young woman has a history of infant mortality, their children died before they were one year old, is that going to make them not be able to qualify for insurance in the future?

Dr. Ginsburg: No. Actually Medicaid has specific eligibility for pregnant women. Often there's a lot of effort to get pregnant women enrolled.

Some of the ways that people get enrolled in Medicaid is, say they go into a hospital. Someone without insurance goes into a hospital. The first thing the hospital does is get information and check with Medicaid to see if that person is eligible. Then the hospital enrolls them in Medicaid.

I suspect that a pregnant woman without health insurance coverage, it's probably not that common. I'm sure it happens because of lack of knowledge about what's available to them, but they're always eligible for Medicaid.

Anyone getting employer-based coverage is not going to be ruled out because of their medical history. Employers offer their coverage to everybody who is at least full time employed in the company.

I suspect that the high infant mortality rates in the United States are not predominantly due to the failures of the health care system but to other factors -- to bad nutrition, to smoking and drinking as opposed to lack of access to care.

Question: Rosalea Barker from Scoop Media, New Zealand. Could you explain COBRA, which I believe is a federal program for people between jobs?

Dr. Ginsburg: That's right. COBRA was passed I think in the mid 1980s. This program basically requires employers to offer continuation of their coverage for a certain period of time for people who leave their employment, whether it's voluntary or involuntary. In a sense, they don't get subsidized, but they pay the full amount of the employer plus the employee's share of the premium, but they do pay the same premium as everyone else plus I think two percent.

Now employers will tell you they lose money because of COBRA because even though in theory they're not subsidizing these people, the proportion of people who leave employment who exercise this right to enroll under COBRA is a minority and they are a minority that's more likely to use care. So in a sense their experience is these are sicker than average people that enroll in COBRA. The healthy people don't.

I guess I've done what I can to bring you up to where we are. There's renewed interest in universal coverage today, which is why you've heard so much in the campaign, and I think the basis of the renewed interest is that for the last say seven, eight years the rate of increase of premiums for health insurance has been much higher than the rate of increase of earnings. So between 1999 and 2006 premiums for health insurance have more than doubled. During that period earnings have increased 24 percent. So this is why voters care about it. Affordability is becoming a much more intimately felt issue by much of the public than it was before. And as you can see, we have very much a patched-together financing system with many different pieces.

And the expectation is that with all this interest there will be a lot of debate about it in the presidential campaign. I would say the Democrats have put a higher priority on this, although as far as the leading candidates, their plans are fairly similar to each other so that the Democrats' proposals for health insurance won't help differentiate them from their competitors for the Democratic nomination, but there will be a big difference between the Democratic nominees' proposals and the Republican nominees' proposals. The Republicans, it's not as high a priority although it seems to be gaining in priority and visibility. Their proposals are more different from each other, many of them still being worked out. I think the likelihood, I think there's a good likelihood of congressional action in 2009 after the election no matter who's elected, whether it's a Democrat or a Republican, and I think a likely political compromise that would be viable would be a mixture of expanding public insurance programs like Medicaid, and I should have mentioned the SCHIP program which is for children, related to Medicaid, and subsidies through the tax system or some other way somewhat higher income people who still can't afford insurance, to buy private insurance.

Thank you very much.

[Applause].

Moderator: Thank you so much for coming today. I think you've already discovered the coffee and cookies and tea. I know that Dr. Troy is going to be a couple of minutes late, and I also know he's got a White House meeting at 3:00. So when he gets here, we're going to rush him in here and then we're going to rush him out of here. So as soon as we can have him here. But please feel free to go in the back and freshen your coffee and we'll be back here as soon as we can.

[Coffee Break].

Moderator: Ladies and gentlemen, if we could get resettled again.

It's a great honor to introduce Dr. Tevi Troy who is the Deputy Secretary of Health and Human Services. Dr. Troy is second in command and chief operating officer of the largest civilian department in the federal government with a $640 billion annual budget and 65,000 employees.

After receiving his PhD in American Civilization from the University of Texas, Dr. Troy dedicated his career to public service working at senior levels in the U.S. House of Representatives, the U.S. Senate, the executive agencies and the White House. He is the author of Intellectuals and the American Presidency: Philosophers, Jesters or Technicians?, a study of the impact intellectuals have had on presidential administrations. Before coming to Health and Human Services Dr. Troy served as President Bush's Domestic Policy Advisor.

When he's not busy with his day job, Dr. Troy and his wife Cammy are plenty busy at home with four children under the age of seven, which leads me to believe that he knows a lot about health care because when my son was that age I called him Typhoid Collin with all the things that he brought home from school. [Laughter].

Thank you so much.

Dr. Troy: Thank you for that very fine introduction. I think it was Lyndon Johnson who said, "It's the kind of introduction my father would appreciate and my mother would actually believe." [Laughter]. Thanks a lot. It's good to be here today. It's always fun to talk about the present of health care.

Keith was right to mention sort of familiar relations, getting one interested in health care. I personally have my mother to credit for my interest in health care because when I was growing up what she would always say to me is, "If you don't have your health, you don't have nothing." So health is very important in the Troy household.

I'm delighted to have the opportunity here to talk to you a little bit about President Bush and Secretary Levitt and what HHS has been trying to do to help transform health care in the U.S.. And we're very interested in what works in health care, what doesn't work, and we're trying to apply what works to our own health care system. In fact we just sent a very high level delegation from HHS to Western Europe to have some meetings about some of the systems in Europe that have been getting some really good press these days, particularly Switzerland and the Netherlands -- high level conversations about what's been going on, what works, and they have systems that have health insurance mandates but they also use market mechanisms. It's likely that some kind of combination of those two will be used at some point in the United States.

First, I know I'm supposed to talk about the present but I want to talk a little bit about the recent past, it's almost close enough to be present, which is some of the accomplishments of this administration under Secretary Levitt and President Bush and the improvements we've been making to the health care system. I think this has been a very consequential administration in terms of health care, perhaps the most consequential one in decades in terms of making real improvements to the health care system that have an impact on people's daily lives.

The number one thing I would mention in this regard is the Medicare modernization where we're providing prescription drug benefits to 38 million senior under Medicare. The Medicare program was founded in 1965, and at that time we had a very different approach to medicine. At that time prescription drugs were just not as important and significant a part of health care and treatment, so the Medicare system as originally designed only covered prescription drugs on an in-patient basis. If you were in a hospital your prescription drugs were covered, but if you were outside of the hospital, on an out-patient basis, there was no coverage, almost no coverage. There were rare exceptions and they were usually congressionally determined, but there was very little coverage for prescription drugs outside the hospital. That was a very problematic approach, especially as we had the invention of all sorts of new preventive therapies over the last 40 years, therapies that really could help keep people out of the hospital, and it was significantly cheaper to treat people with prescription drugs outside of the hospital setting. But the Medicare system had a skewed intent, that was encouraging people to go to the hospital in order to get these prescription drugs.

So President Bush called for this in his campaign in 2000. He secured it. A lot of people were skeptical when it came into being about its cost and about the number of options. What we found is that the plan consistently surpassed expectations in terms of having more choices and lower costs. Consistently coming under the estimates of cost and seniors are expressing over 80 percent satisfaction with the prescription drug benefit. So that was a very significant change.

Another important change, it's one of the smaller changes that I think is going to have a larger impact over the long run, is the creation of health savings accounts. These are tax-free accounts that people can use to set aside money for their own health care spending.

Two of the problems we have in this country in health care are lack of portability, so you have insurance based on your job and you feel like you can't switch jobs or move or have any flexibility within the labor force because you're stuck with your job because that's where your insurance is; and the second is a huge disconnect between the people who are getting the health care, which is the individual consumer, and the people who are paying for the health care which is usually the insurer. So the consumer has almost no incentive to look for cheaper health care or even better health care. He just says well, the insurer's going to take care of it, they're going to pay for it, so I'll just get the Cadillac system all the way, even though it's not necessarily the best one. We've seen studies that show that consumers, if they're not paying for the health care, consistently choose the higher cost option even if it's not necessarily better value or even better quality, because they assume that the higher cost is better quality, and that's a bad assumption to make. So I think health savings accounts, they're combined with high deductible health plans, and they've got an actual contribution of about 2,000 to 2,050, and for families it's 5,650, almost double that. It will help solve two of those problems. One is you're going to be setting aside your own money, you have a high deductible plan, you have to pay for some kind of procedure, you will look and see which procedure is the best value, the cheapest, possibly the best quality, but the one that works for you. That's one piece of it. They're also portable. The money stays with you. You put aside your money in your health savings account, you get to keep that money.

The health savings accounts were also part of the Medicare deal and I think they're going to be extremely consequential as more people sign up for them and realize the value of them.

Another way we're emphasizing this notion of value is through what Secretary Levitt calls the four cornerstones of value-driven health care. I'm going to talk about it a little later, but it's really an approach that we've codified into an executive order, that we've worked with them, with insurance companies and providers and employers, about ways to make sure that consumers are looking for the most value in their health care in terms of highest quality, lowest price, using health IT, information technology, to get the information to individuals about what they need.

Another problem in our country is lack of access. There are, while people who have insurance tend to be extremely satisfied with their coverage, we've got almost about an 80 percent satisfaction with insurance, with private insurance, the ones who have it. The people who don't have it often have problems with access. We're seeing a lot of progress on the access front recently.

One of the President's goals that he established in 2000 when he was running for election was to establish or expand community health centers in 1200 communities. These community health centers, they're not run by HHS but they're often funded by HHS through HRSA, and HRSA provides grants to these health centers. Now there's, as I said, 1200 of them. These health centers serve anyone. They're in local communities. They're often in rural communities but they're also in urban settings, and they're a way for people to come in off the street, even if you don't have a Cadillac health care plan, even if you don't have your own family doctor, you can go to these health clinics and get service. So this is one way we're addressing the access problem.

We've noticed that in conjunction with these health clinics the private sector is also stepping up here and providing more access in ways that consumers want. One of our top officials at HHS, Admiral John Aquinobi, just left HHS to go join WalMart. He is tasked at WalMart with setting up individual clinics at WalMarts so that you can go into a WalMart, in addition to buying your groceries or whatever housewares you need, you can get seen quickly by medical professionals. These aren't cancer treatment centers, these are centers for dealing with relatively minor problems -- an earache, a stomach flu, a sprained ankle. But these are ways to get access, especially in rural communities. So we're pleased that there are private companies that are following our model in terms of providing access in communities. WalMart's not the only one that's doing it. Some of the major drug stores, CVS and Walgreens, are doing similar things.

So these are some of the things we've seen in the last couple of years, but I would be remiss of I didn't talk about some of the problems that we are facing in this country in terms of health care. I alluded to some of them. Some of the biggest ones we have are health inflation is greater than the regular rate of inflation. So employers have premiums that are growing two to three times faster than wages and that suppresses wages and also hurts competitiveness and also makes things more expensive.

Consumers in particular are facing high out of pocket costs and also the portability issue I mentioned earlier. They're afraid of losing the insurance if they change their jobs. They also feel there's a lack of information. They don't have information to make decisions.

Insurers are under pressure from the employer customers to control rising costs. So the cost spiral has an impact on the providers, on the insurers, on the employers, on the consumers. The providers in particular have to balance the care they provide against the reimbursement rates they get from Medicare. Medicare is really the big dog in the American health care system and drives the market in many ways. If Medicare is not going to reimburse for a procedure or a drug, or they're going to reimburse at the low cost rate, that has a huge impact on what services doctors will offer.

Overall in this country we're expecting health care costs to consume about 20 percent of our GDP by 2015. That's about four trillion dollars. And I don't think that the cost, per se, is a problem. We are a country with a large GDP. We have people who are willing to spend on health care, they see health care as a priority, so the overall amount of money the country spends per se is not a problem, but the problem, it does point to other problems such as if people can't afford insurance, that's a problem; if you're not getting a commensurate return on investment for all that spending; and if you don't have access. Those are the problems. So the amount of money is sort of a signal, pointing to a potential problem.

Under President Bush's leadership what we want to do is try to meet these challenges head on. Particularly what we want to do is increase the accessibility of health insurance and of coverage. I was talking about the centers before, the community health centers and the private sector centers. That's one way of doing it. Moving health care into the 21st Century in terms of taking advantage of new technologies is another.

Reducing medical errors. Medical errors are a huge problem in our system today. Medicare, [CMS] just announced that they are no longer going to be reimbursing for what's called "never events". A "never event" is something that happens in a hospital that should never happen in a hospital if they're doing their job. For example, leaving a surgical implement inside a body when sewing somebody up; amputating the wrong limb; bed sores, which are something that can be easily avoided by rotating patients. Really terrible, horrible, horrific mistakes where people are worse off after getting care from the hospital than they were before. So Medicare said we're not going to reimburse for those kind of "never events" and a number of insurers are stepping up in that regard as well. I think that decision by [CMS] just in the last couple of months I think is going to help in terms of reducing medical errors.

Obviously, as I said, we're quite proud of the Medicare prescription drug benefit so we're going to resist any attempts to weaken that.

Reauthorizing SCHIP. I know there's been a big issue in the media lately, and I'll talk about it a little bit. President Bush came out in January calling for the reauthorization of SCHIP and recently I've been reading about it really heated up when the congressional leaders started paying attention to this issue this spring and early summer. But this is something President Bush talked about back in January and February.

Other highlights are fostering a greater sense of personal responsibility, getting people involved in their own health care decisions. Improving people's understanding of health care economics, which is really important to having people make the right decisions. Overall, I think addressing these issues one at a time will really help improve our overall systems.

I'd like to touch on a few of these at greater length. I don't think I have time to talk about all of them today but I can talk about some of the issues and then I'd be happy to answer any questions you guys might have in the time remaining.

First of all, I've referred a little bit to the problem of access in this country. We get questions from abroad often about the notion of access because many countries have a universal health system and there's no question of access, everybody gets it. The problem is the rationing in those kinds of countries. In this country the issue is often about access. We often get a lot of criticism because of the number of people who are uninsured. I think the latest figure is about 46 million. So 85 percent of Americans do have health insurance. That number varies a little bit over time, but it's been pretty steady over the last decade, in the 80s range. And the people who do have it are very happy with it and report a lot of satisfaction with their coverage.

That said, about 15 percent of the population doesn't have it, and how are we going to handle that?

If you're looking at the way we treat health care among the people who are covered, I kind of see it as a sandwich. The bread is sort of the stop gap on the top and bottom. We cover people who are old, people who are poor, and poor kids through programs like Medicaid, Medicare and SCHIP. But the meat of the sandwich, the bulk of the people who are covered, are covered through private insurance. Sixty percent of Americans have private coverage so that's a significant percentage; and 85 overall have coverage. Our goal is to encourage people to get private coverage when possible, however if not, we provide opportunities for poorer people or old people or poor kids to get subsidies or to get insurance from the government.

Of the people, the 40-plus million who don't have coverage, there's a significant percentage of them, about a third, who are in their early 20s. A lot of studies suggest that the people who are in those age ranges who don't get health insurance are doing it on purpose. They are choosing not to spend their money on health insurance because they don't think it's a good value for their money at this time and they are at the age cohort that is the healthiest of all people, so they make decisions not to pursue health care at that very young age. There's also about one-fifth of the uninsured, and there's some overlap with these very young people, but there's one-fifth who have family incomes about $75,000. Again, some people could afford health insurance but are choosing not to get it for whatever economic reasons occurring to them.

That's still a huge problem of the people who are not in those two cohorts, who don't have it, but I think if you take the chunk of the people who don't have coverage is a smaller, more manageable chunk. There are other, and there are various estimates about this, but up to ten million potentially who are eligible for some kind of coverage but are not taking advantage of it. Then there are about 10 to 12 million people who are illegal immigrants in this country who would not be eligible for government coverage, but obviously they could purchase private insurance if they so desired.

I think when looking at the problem of the uninsured, I don't think it's fruitful to just say here's 46 million, we have to cover them in one fell swoop, I don't think that will work. I think you have to look at them in different buckets and find strategies that work for each bucket. For example, using the tax code to better identify those not purchasing health care I think would work for the wealthier people. Using community health centers which treats people regardless of their immigration status is a good way for getting access to the people who might be afraid to come forward or purchase health insurance or join a government program.

When I was talking about using the tax code, the President is proposing and proposed in the State of the Union this last year, is leveling the playing field for individuals who want to purchase health insurance in the individual non-group market. Right now, and this wasn't really a planned system but it's the way it worked out, most Americans buy their health insurance through their work place as part of their compensation. The government helps employers provide health insurance with a tax break. So the employers get the tax break; the employees get the insurance. That's the way the system has worked pretty much since around World War II.

What we're finding today is that an increasing number of Americans want to buy health insurance on their own. Why do they want to buy it on their own? They're self employed so they don't have an employer who can get tax subsidized insurance; they're students so they again have the problem of they don't have an employer; they own a small business or they work for a small business. Small businesses don't have to provide insurance for their employees; although they are allowed to if they want to. And then even people who work for larger employers who don't offer coverage.

We have seen in recent years an unfortunate shrinking in the percentage of employers who do offer coverage. It's in the 60s. The number is tipping down slightly, and it's something, we'd want to stop that shrinkage in the percentage of employers who provide coverage, but I think we also are seeing with the rising costs and rising lawsuits frankly, for employers who provide coverage, that it's not the best bet in the world to assume that employers will continue to provide coverage in the future. So we think it's a safer bet to make the system more portable and provide the tax advantage to individuals who purchase health insurance rather than doing it only through the employers.

How do we want to do this? The President's proposal would allow every taxpayer with health insurance that meets certain basic criteria -- it can't be a health insurance in name only, it has to provide certain services -- but every taxpayer who has a health insurance that meets the criteria would be able to deduct $15,000 for a family or $7500 for individuals from their income for health insurance. These numbers we're pretty confident are large enough to cover all but the most expensive Cadillac-type plans. If you wanted to buy a more expensive plan obviously you could purchase that out of your own pocket. But $15,000 for families, $7500 for an individual, that would be a tax deduction right off their taxes right at the beginning. So that would incentivize people, individuals, to buy health insurance as opposed to having to go just through the employer.

Some estimates indicate this would reduce the number of uninsured Americans by 37 percent. It would particularly address the issue I was talking about earlier of people who are younger and wealthier and are choosing not to buy health insurance because they don't have the economic incentive to do so. If we change the economic incentive, if you purchase health insurance, you would get a considerable tax break for doing so, so I think that would be a good incentive.

There are other ways of adjusting it. Senator Coburn in the Senate has proposed making this a tax credit rather than a tax deduction. The tax deduction would be on the front end, you take it off your income; a tax credit would be at the end, you would get potentially even reimbursed for the money you spent. The tax credit is something you get back from the government. If you owed less than $7500 to the government you would get more, that gap back when you got your tax rebate check. The various versions of that plan, the President's plan or Senator Coburn's plan, we've seen estimates that would reduce the number of uninsured by somewhere in the range of 17 to 20 million, so that would really take a big chunk out of that 46 million who aren't insured.

That was the President's big health care proposal this year. I alluded to this earlier, but what happens, instead of talking about this plan, I think it's a good plan and we still want to pursue it and the President talks about it often, but this year is really, especially in the spring and summer, has really gotten bogged down in the SCHIP issue.

SCHIP stands for State Children's Health Insurance Program. I think all of the words in that acronym are important. State meaning it's a state program; Children, really important; and Health Insurance Program. So what the SCHIP program is about is providing health insurance subsidies for poor children. It was initially intended to be for poor children, it's always been about poor children, and it was passed with bipartisan support in 1997, and it has been successful in covering about seven million children since that point at a cost of about $40 billion over the last decade.

It was created to help children of lower income families who don't qualify for Medicaid and specifically we're talking about children in families at or below 200 percent of the federal poverty level, about $41,000 in annual income. One of the issues in SCHIP in the beginning has been getting people who are eligible enrolled. This administration has worked very hard to enroll additional people in SCHIP, and Medicaid frankly, since the beginning. We've added two million people to the rolls in SCHIP and five million in Medicaid since 2001. But there are still poor children out there who are eligible, who meet the terms of qualification, who are not enrolled in SCHIP. There are about 500,000 of those kids. What the President has been saying all along is that he wants to focus the program on making sure that we add those poor kids who are eligible but not being covered.

What some of the plans in Congress are doing, and particularly the proposal of [inaudible], are not focused on the poor kids but in expanding the amount of people who would get SCHIP at higher income levels. So the number they're often talking about is 300 percent of poverty which is about $63,000. But in some states like New York, it's 400 percent of poverty or $83,000 would be eligible. We think at $83,000 we're not really talking about poor kids any more. In addition, there is a program in America, it's not an HHS program, and it's called the Alternative Minimum Tax or the AMT. That is a tax that was created in the 1960s to make sure that rich people paid their share of taxes. For various inflationary reasons over the years, more and more people have become eligible for the AMT, but $83,000, if people were eligible for SCHIP at $83,000, they're also eligible or required to pay the AMT. So under this definition of estimated 400 percent of poverty, you would have people who are defined by the government as rich and poor at the same time -- that's frankly something that can only happen in Washington. But we think that would not be an ideal approach to this.

What we're trying to do is make sure that the SCHIP program focuses on poor kids, that it doesn't cover adults. There are a number of states that are covering more adults than kids, even. We just don't think that's the right way to go about it and that's why President Bush has been so adamant about not extending SCHIP in to the middle income levels. He wants to keep the program for poor kids and for people in middle incomes hew ants to provide this tax deduction or tax credit, depending on which version you use. The President's preference is a tax deduction in order to incentivize people to purchase health insurance.

So the SCHIP debate then is not really about who wants to cover poor kids, because all of us -- Democrats and Republicans -- want to cover poor kids. The question is about whether you want to expand the SCHIP program beyond the universe of poor kids for which it was originally intended. That's why it's become such a big deal.

Another issue I want to talk about today a little bit in more depth is this notion of value-driven health care. I've alluded to this a couple of times.

One of the key problems in our health care system is that people are not getting good value for their money. That means people aren't looking at the prices and the quality when they're purchasing health insurance, they're just saying well my insurer pays it, I'm not going to worry about it so I'll take the most expensive procedure instead of looking for value.

The other thing is in reimbursements what we're finding is that the health care industry, Medicare, Medicaid, they're more on volume instead of value. So a doctor who does more procedures gets reimbursed more than a doctor who does better procedures. So we want to change the health care system so it's really consumer-directed health care, and we want to increase the incentives for quality care delivery.

The key to all of this is health information technology. That's electronic health records where you know what services you got, what your diagnosis is, what your issues are. It's portable, it can stick with you, and it would be private. It's interoperable so it would work with other systems. That's what President Bush and Secretary Levitt are talking about. We have a goal of having the majority of Americans with electronic health records by the year 2014. That's about seven years from now. We're well on the way to achieving that goal.

If we are able to get a critical mass with health information technology, that will allow us to do better reporting on the outcome measures in the health care industry so that we can measure and see who is providing good health care value, who's providing poor health care value, who's charging more, who's charging less, which doctors work, which doctors don't. So health information technology is really key to transforming the system to a system based on value.

Just as I mentioned with the private sector partnering with us on working on their clinics and their stores, the private sector is also stepping up in this regard as well. I was recently briefed by Microsoft, they've created a new program called Health Vaults. Health Vaults is a system they're planning on getting 40 million Americans with personalized health records in the next few years. Health Vault is internet-based. You log in. You type in your information, your family's information. Your doctor can upload information about your family. And it's portable so you can take it with you everywhere you go. It's private. Microsoft says they're never going to read the information, share the information. It's even free. They don't charge anything for this service. The whole idea behind it, what they want to do is drive people to their site, to the Health Vault site to make searches on health care. They're kind of following the Google model. By driving 40 million people to their site, that's where they keep their health information, they will have more people; more advertisers will be inclined to go with them. They're not doing it out of the goodness of their own heart, but there is a real value to this Health Vault system.

Unsurprisingly, Google is supposedly coming out with a similar system. We should be hearing about that too.

But I think the competition in the area of health information technology and personalized electronic health records is a good thing. The more we see more companies getting involved in developing these personalized health records, I think the better off we are and the more likely we are to see us reach the majority of Americans with electronic health records by 2014.

I think all these things I mentioned are pieces of the four cornerstones that the Secretary talked about. The President signed an Executive Order asking health systems, asking the federal government as a provider but also as an insurer. So the federal government is a provider through Medicare, but it's an insurer through its employer, and most federal employees are involved in the Blue Cross/Blue Shield program, but there's a variety of potential plans through the FEHBP which is the plan for federal employees, the health benefit plan for federal employees. And this notion of the four cornerstones is based on electronic medical records, standardized quality measures -- so we know whether a procedure is working or not working, price transparency, so you know how much it costs, and incentives where everybody has a motivation to see the balance between cost and quality.

The idea would be that if insurers and providers and hospitals and employers start focusing on those four cornerstones -- again, electronic health technology, quality information, price information, and incentives to apply the first three -- then you will start seeing a more value-driven health care system.

Secretary Levitt went on a nationwide tour to encourage all those entities to join up. So far we've had 25 state governments, 100 of the largest private companies in the country, and a significant number of unions and hospitals commit to joining the four cornerstones. So with all of those efforts in recruiting, we've had plans that covered more than 100 million lives committed to these four cornerstones, to adopting the notion of value-based health care to our health care system.

Again as I said, electronic health records are really the key to this. If you think about it, your cell phone -- everybody here has a cell phone or a blackberry or an ATM card, these are interoperable. You can use your cell phone to call another cell phone; you can put in your ATM card in Tokyo or in Washington and get money out from your bank account, wherever it is, in the local currency. What we want is health information technology to work the same way. Completely private, completely safe, but to work everywhere and to be interoperable.

That is our plan. We're not doing it through government dictates because we don't think that will work - think about banks, for example, with the ATM cards. We want to develop consensus standards. What Secretary Levitt talks about is national standards and recommending an approach, a neighborhood strategy, making sure local groups apply the health information technology standards in ways that work for them.

What we're finding overall in this area is that consumer empowerment could work, and that the health care market responds to economic laws just like the rest of the economy. Some good example -- iPods, Lasik are huge. All these things that have been improved over the last couple of years through technology and the products have improved and costs have decreased. We think the same thing can happen in health care. If people - using technology -- have more information and transparency, you will see better results.

In Lasik, for example, from 1999 to 2004 the average price per eye dropped about 20 percent. So when people say it can't work in health care, it does work in health care. We're optimistic and excited about the possibility that value-based health care can bring.

In short, we envision Americans being able to access basic information about the health care they consume so they can become more engaged and savvier purchasers. We want to help the free market and a transparent system for innovation and quality care are rewarding; a system where we can continue to meet our entitlement obligations to the old, sick, poor children, and the indigent, because value drives costs down and quality up. We think the best way to get there is by relying on Americans' ability to make the best decisions about their own health care in a competitive market place.

So we're keeping that as our guiding principle, and I think that we can, doing these things we can foster a transparent health care system that's efficient, effective, and will help Americans live longer, healthier lives.

That's my view of the present. I'd be happy to take a couple of questions.

Question: Christoph von Marschall, the German daily Der Tagesspiegel. I very much appreciate your approach that it should be the sovereign choice of every individual, which health care plan, whatever they want to have. On the other hand it seems to me that health is a different good than normal consumer goods. When I talk to Americans, even if they have a high education, they say they don't understand the individual health care plans, they are not able to make really good choices. So what is the freedom worth if you can't really understand the substance of it? And also with the tax deductible, am I able as a normal citizen to understand at the beginning of the tax year whether I should have to put away $7500 or $15,000 if I don't know how healthy or sick I will be in the next year? And as far as that, the money is gone if I don't use it.

Dr. Troy: Those are good questions. Let me just explain the $7500 versus $15,000 -- those numbers are referring to the tax deduction which is a simpler transaction. What I think you're talking about is the health savings account where you have to make these estimates about how much it will cost.

With the deduction, first of all I think the basis of your question is very paternalistic, that people can't make decisions and choices for themselves. But purchasing cable is complicated, purchasing cell phones is complicated. These transactions can be complicated but I also have faith in American's ability to make these choices and I think they can make them better than other can make them for you.

You raise some interesting thoughts about maybe there should be more consultants, whether government-based or private consultants, who advise people on what health care would work for them. Maybe employers can provide that as an added benefit or incentive to people who are working there. But I think that kind of issue can be worked out.

In terms of the tax deductibility -- your question confuses the issue. With the tax deductibility I choose at the beginning of the year to purchase a health insurance plan. It really doesn't matter if I'm going to be sick or not. The health insurance plan, the whole idea is to cover me whether I have minimal health costs or maximum. You make decisions based on whether you want an HMO, a health maintenance organization; you want an individual doctor; or family or individual insurance. The $7500 would be, I'll use $15,000. Since I have a family of four kids I'd probably want the more expensive plan. So I would have up to $15,000 to spend on a health insurance plan. It doesn't disappear at the end of the year. If I decide to purchase a $12,000 plan, I'll get up to a $15,000 deduction. So I don't think that piece of it is that confusing.

But at the heart of your question, you are right. People do have to make choices about what health care works for them. We think that rationing by having people make decisions is a better way than rationing by limiting the amount of health care which we see in some of the systems that have universal health care. People wait in long lines to get health care. Americans have shown a frustration with waiting in long lines and they're not interested in that kind of system. So I think they'd rather have the figuring outside of things than the wait inside. But it's generally easy.

Question: My name is Hiroshi Nakamae, for NIKIE, Japan. My question is, you have the private sector, private insurance sector and the government insurance sector in the United States. I'm curious which sector is more efficient in terms of running the health insurance business? Is there any credible way to measure which is more efficient?

Dr. Troy: That is an excellent question and I'm not really going to speak to studies about it per se, but I would say there's a fundamental problem with the government side of it, specifically Medicare/Medicaid, because what you have is a system where Congress makes the ultimate decisions on what's covered, so you have companies that are expert in lobbying Congress on getting their procedure covered or their type of care covered or their type of medicine covered, so it becomes not a question of efficiency so much as a question of political savvy. So I don't really think it's comparable to look at the two systems in that way.

Question: Olivia Schoeller with Berliner Zeitung. You mentioned that large employers have to provide health care. Small employers don't. What do you mean by large employers? How many people work for large employers? And small employers?

Dr. Troy: I said small employers don't have to provide health care, not necessarily that large employers do. They usually tend to. But for example WalMart for many years did not provide health insurance and they have, I believe, 1.4 million employees. Just recently they changed their policy and they do provide.

Question: So no employer has to provide health care? It's not a must?

Dr. Troy: I'm going to have t double check it. I think there is a rule about a certain level, and the way WalMart got out of it was by limiting the number of hours. I think if you have a certain number of people who work a certain number of hours. But if you give me your card I'll give you the exact answer on that.

(Dr. Troy later submitted the following: "Some workers purchase health insurance directly, while others purchase it through their employers. While the current federal tax code encourages the latter arrangement, there is no federal requirement for employers to provide this benefit.

"Among state governments, only Massachusetts requires employers to offer health insurance coverage to their employees. In April, 2006, the Massachusetts legislature passed a bill (which became effective July 1, 2007) mandating that all businesses with 10 or more employees either purchase health insurance for their employees or enable their employees to purchase coverage through pre-tax wages. Employers not in compliance with the law are penalized by an annual fine of $295 per employee.

"In addition, Massachusetts enacted an individual mandate that penalizes individuals who fail to demonstrate on their tax forms that they have either health insurance or a waiver. Several other state legislatures, including those in California and Maryland have considered, but not enacted, similar mandates.")

Question: Thank you.

Dr. Troy: We can share it with everybody. It's a complicated question and I want to get the answer precisely right. Thanks you.

[Applause].

Moderator: We hope to start the last session at 3:00, so have more caffeine and sugar because it's really healthy for you. [Laughter].

[Coffee Break].

Moderator: We're in the home stretch, folks. Thank you for your patience. For those of you who maybe came a little later I'll explain that this section as originally conceived had two individuals who were going to talk about the future of health care, particularly the reform plans that are out there, some of the things that have been going on in the states, but Dr. Len Nichols from the New America Foundation regretted that he had to pull out of the session yesterday. But you will find on the CD articles from the New America Foundation.

We are extremely pleased to have Dr. Robert Moffit. He's the Director of the Heritage Foundation Center for Health Policy Studies. He's a former senior official at the U.S. Department of Health and Human Services and also at the Office of Personnel Management. Dr. Moffit's team helped develop the Massachusetts Health Insurance Reform Initiative of 2005 and his research also involves him in continuing debates over how to reform Medicare, how to ensure access to prescription drugs, and how to improve access to private health care coverage.

Dr. Moffit has been in the middle of national health care policy debates before. He joined the Heritage Foundation in 1991 and his first task was to come up with a response to the health care plan that was developed by Hilary Clinton and the Clinton administration. In somewhat of a legendary move he locked himself in a room with the 1300 page plan, a stack of legal pads, and he started writing. His articles about the plan led to the opposition to the plan and eventual failure of the plan.

Rather than take more time, I'm very pleased to have Dr. Moffit here today to talk about the future of health care in the U.S.

Dr. Moffit: Thank you very much, ladies and gentlemen. It is a pleasure to be here with you today.

I'm going to try to give you an overview of our health care system in the time allotted to me, and then I want to tell you about what I think we ought to do and then finally I will tell you what I think will happen which as a member of the press I'm sure you're interested in what is likely to happen.

In the United States, and most of you know this but I'll just repeat the obvious. In my experience the obvious is always overlooked -- especially in Washington -- so I'll repeat the obvious.

The United States has a health care system which is probably the largest in the world. We have a health care system which is $2.3 trillion and it's about 16.5 percent of our gross domestic product. On a per capita basis we spend at least twice as much as our closest competitor in this area.

Question: What's the per capita?

Dr. Moffit: Oh, our per capita. Gee whiz, it's about $7,000, $8,000, something like that. But it's quite a bit of money actually.

We grow, the health care sector of the economy is growing roughly 2.5 percentage points above the rate of inflation, so it's expensive and it's growing and it's growing fast. Right now, just to give you the sense of the size of it, one out of every $6 in Americans' pockets is spent on health care in the United States. Within a relatively short period of time, 2020 say, it will probably be about one out of every five dollars that is spent in the United States. So we spend a lot of money. It's a very very large sector of the economy. And as you can imagine, most of the debate about health care in the United States focuses on cost, the cost of the health care system. Another focus, of course, is access. We have 47 million people on an annual basis who are uninsured. And there is now a debate in the United States more and more on the issue of quality, the kind of quality Americans are getting for their health care dollars. It is, I can tell you, uneven, the quality is uneven in the United States. Some of the quality is very high and in some sectors of the health care economy it's not as good as it should be.

I think in this area, however, we've got to keep some perspective on reform in the health care system. I don't think there's any question about it, that health care is a leading candidate for reform. It is the number one or number two domestic issue for Americans. In every presidential debate you're seeing the health care issue is part of the national debate among Democrats and Republicans as well, so this will be a major issue in the presidential campaign.

But as I said, I think we have to keep some perspective on this. There are certain features of the American health care system where the health care system is performing very well. In terms of research and development, on medical science and technology, the system performs extremely well. That is to say that for the dollars we invest in health care, in research, science and technology, we are getting very very good return on those dollars. And it is evident in the progress we've made in certain categories.

For example, over the past 20 years there has been a 40 percent decline in the United States among American deaths from heart disease. That is dramatic, actually. There has been a 20 percent decline in the United States among senior citizens who suffer disability. There has been substantial progress in the United States on cancer. In fact this year if you've looked at some of the most recent data in the United States we've actually started to roll back deaths from cancer this year. There are a lot of reasons for this. Part of the reason I say is research, development, medical science and technology is very advanced in the United States. We are extremely aggressive in using diagnostic technology to catch disease early. But I would say in terms of productivity of the health care sector of the economy there are three areas where we have made I think very significant strides. One is in the area of surgical techniques. That is to say less invasive, minimally invasive surgery has resulted in surgical interventions that are resulting in better and better outcomes for a larger and larger number of the American people.

In the area of diagnostic technology the United States has done extremely well in this area. We do have a heavy reliance -- they are expensive -- a heavy reliance on things like Magnetic Resonance Imaging; CT scans; Positron Emissions Tomography, PET scans, which are very advanced. But the fact of the matter is that while these diagnostic technologies are very expensive, they also of course result in early detection of disease and in many cases result in lower cost in the treatment of certain diseases and catching them early. Things like breast cancer, for example. A good example of that.

The biggest area of progress has been in pharmaceuticals. We are the heirs of a pharmaceutical revolution that began very shortly after World War II. Doctors in the United States have access to pharmaceutical products, a new line of newer and more effective drugs which are resulting in better and better outcomes for larger and larger numbers of American people. Let me give you one example which I think indicates how this works in a very practical way.

About 20, 25 years ago, 30 years ago, if people suffered from clinical depression most times -- when you're talking about 20-25 years ago, people who were clinically depressed were paralyzed. People would lie in bed in the morning, they couldn't get up, couldn't go to work, they were basically out of it. Today with the development of various types of drugs which rectify chemical imbalances in the brain, neuro-transmitters, people who are clinically depressed are walking around, they're here in the National Press Club Building, they're working in the White House. [Laughter]. They're working all over the place. They're working in Congress. They're in think tanks, they're in businesses, and they're doing very well. You may not think they're doing very well, but the fact is they're productive, functioning members of society. They pay taxes. They're adding to the gross domestic product of the United States and they're doing quite well.

What is the value of that in terms of the results of that research and development? The returns on that are priceless, actually. They're tremendous in terms of giving people a high quality of life.

In terms of our spending and what our spending has done, we get very good value in terms of our spending which is heavy on research, science, medical technology. The dollar return on that has been extremely good. I think since the inception of the Nobel Prize in Medicine, the United States has won 85 Nobel Prizes in Medicine. We do very well in that area.

There is, however, aside from the delivery system and where we are effective in that area, medical science and technology and so on, where we have a problem is in health care financing. This is where the focus of the debate is in the United States. We all know what the problems are, and you do too, but they are significant. We have a large number of people in the United States who do not have health insurance. That is to say they do not have access to good, solid coverage, and the number that is used this year most recently is 47 million people, so we have millions of Americans who do not have even basic health insurance coverage. So the access problem is a serious problem for us.

As I say, costs are a problem. It all depends on how you define cost. Actually, this is an interesting thing. If you look at the survey research, when people talk about health care they say they're concerned about health care costs. It all depends on how you ask the question. Are they concerned about, for example, the costs that are being paid by their employer? Hell no. They think that's just fine. In fact the employer's health insurance plan is great. It's a free good that automatically comes with the job. I can go to the doctor. I can have all kinds of nice tests. I can buy all kinds of very expensive drugs and it doesn't cost me anything. It's just wonderful.

But if your co-payments, your premiums and so on go up, well that's a problem. That's when people talk about cost. You've got to be very careful. What do they actually mean?

They often do not mean, for example, the cost of Medicare or Medicaid or the public programs because the cost is so huge nobody can comprehend them so we don't worry about them.

Quality, as I said, the quality issue. Are people getting good quality care? In this area it is mixed. What you'll find, you go around any of the think tanks here in Washington, the Kaiser Family Foundation, or the Commonwealth Fund, and you'll get all kinds of surveys of American hospital officials and American experts on health care policy. What you'll find is Americans are extremely critical of their own system. More so, I think frankly, based on what I've seen, more so than most European experts in terms of their system. But Americans are very critical. That's fine. Self-criticism, criticism is very big in this country, especially when it comes to health care. But there are, as I say if you've got cancer, if you've got heart disease, we have these magnificent centers where we deal with these things in the most advanced way. Right up the road here is Johns Hopkins University in Baltimore which is one of the world-class medical centers. If you have cancer you want to go down to Houston, Texas to the MB Anderson Center or Sloane Kettering in New York. You will get about the best there is in the cosmos in terms of treatment. In the cosmos, as far as we know. We haven't talked to the Martians recently, but to the best of our experience we do pretty well in this area.

However, in certain areas we have real gaps in coverage. I will tell you in my view the weakest performance in the American health care system is the treatment of senior citizens on Medicare who are referred to nursing homes. Custodial care in nursing homes. This is my personal experience, but it is also the view of many serious policy analysts, whether they're liberal or conservative, Republican, Democrat. If they say where are the problems, this is an area.

Let me give you a classic example. An older person will get sick. They'll have a stroke or they'll have some kind of episode. They go to the hospital. They go to the hospital, they go to the emergency room, they end up in what is called an intensive care unit. They're injected with all kinds of fluids and get all kinds of bottles hanging over them, doctors are coming in and so on. They're there for a while and they stabilize for maybe four or five days. Then what will happen is they will say okay, the person is stabilized, so what we'll do is we'll send them to a skilled nursing facility. So they get them in an ambulance and they send them to a nursing home or what we would call an old person's home or a nursing home and so on. They'll be there for about one or two weeks. The doctors they have in the nursing home are not the doctors they had at the hospital. The family physician may not in fact be properly connected into the system. So there's a breakdown in the continuity of care. They're in the nursing home for maybe two weeks and what happens? They worsen. So what does the nursing home do? Sends them back to the hospital. Then they go back to the hospital. Then they're in the hospital for a while, they're stabilized, and they go back to the nursing home. We refer to it as the revolving door phenomenon, or some people refer to these people as "frequent fliers" going back and forth. But this is where you have a real breakdown in the quality of care in our system.

If you were to ask me where I thought, and I know a lot about the system, if you were to ask me where I think the weakest link is in the quality of treatment of people, it's primarily people who are on the Medicare program who end up in nursing homes. That is my view. Others may disagree, but that's where I think we have a problem.

We also have very unusual laws in the United States, and I'm going to talk a little bit about that. In the United States for all practical purposes if you're an American citizen you have a legal right to health care. A lot of people don't seem to understand this. But if you're an American citizen and you're sick, you can walk into any hospital in the United States, just about, in any state in the union and you have a legal right to health care. That is to say their responsibility is to take care of you . They don't have to take care of you forever, but they have to take care of you. They have to stabilize you.

Many of the people who are uninsured, and many people who are enrolled in government programs where the doctors don't take the payments in many cases, like Medicaid. Sometimes the State Children's Health Insurance Program. Will end up going to emergency rooms to get routine medical services.

So as a result, what we have is we have millions of people going to emergency rooms not for emergency care, but they go to emergency rooms to get routine health care. The total cost of this uncompensated care was estimated in 2004 by my colleagues at the Urban Institute -- the important thing to remember about the Urban Institute is you must read their research. They do some of the best research in town. Just don't pay any attention to their policy recommendations which are always wrong. [Laughter]. But their research is very good. Anyway, the Urban Institute found that we spend about $41 billion a year on people who are uninsured. $41 billion. That was in 2004. Today it's probably closer to $50 billion, but I wouldn't be certain of that, but it's higher today than it was in 2004.

This is a problem because the uninsured actually cost a lot of money. $40 to $50 billion is a lot of money. Of course it's also an inappropriate use of medical resources because oftentimes you will have people crowding into emergency rooms who should not be there because they do not have emergency conditions. So it's a mis-use of resources in a sense. That is one of the reasons why we have a problem with the uninsured. It's not necessarily that they don't have coverage, but they're contributing to a massive cost-shifting in the system which is costly, and the quality of care, the inefficiency of the delivery of care is another problem.

Now we have another set of laws in the United States which have a profound impact on the way in which we function in terms of our health insurance market, and I want to talk about that. If you were to say to me what is the fundamental problem in the American health care system, I would say to you the fundamental problem in the American health care system is the way in which we finance care. It is irrational. Let me explain.

Almost all -- I mentioned to you at the top of the conversation here that we spend about $2.2, $2.3 trillion in health care. What is important for you to understand is that in the United States approximately half of all the spending on health care is government spending. In other words, sometimes back home people may say to you well, the Americans have a private sector system. Right? That's false. It's not erroneous, it is false. Our system is roughly half government. The government is directly responsible for the financing of almost half of all spending, largely through large government health care programs like Medicare which is the program for senior citizens, the aged and disabled; Medicaid which is the welfare program for lower income people and indigent people; and various other public programs such as the State Children's Health Insurance Program and the Veterans program, and you have various state public health programs at the state level. So altogether about 50 cent of every dollar is spent directly by the government.

In the private sector you have a very unusual, and I think, and any of you can correct me if I'm wrong, but I think that what we do in the private sector is not done anywhere else in any other private sector in the world. We have a health insurance market where by law and regulation -- by law and regulation -- the market is dominated by employers. It's employment-based health insurance. I know that in Germany you have, for example, employment-based health insurance through the sickness funds and so on. This system, though, is not like the German system. This is different. Let me explain how we do it.

We have, let me explain it to you this way. I'll put on my philosopher hat and invoke Aristotle for a moment. You've all studied Aristotle, I'm sure. [Laughter]. His health care system was very inexpensive. [Laughter].

Aristotle, really the father of formal logic, would say to me if he were here, he'd say look, put this is a syllogism and make it clear, right? Here's the syllogism. The major premise. Premise A, the major premise -- if you want to reform the American health care system, you must reform the health insurance markets. That would be the major premise, right?

The minor premise, beta, minor premise would be if you want to reform the health insurance markets, you must reform the tax treatment of health insurance. That's the minor premise.

So the conclusion, logically, delta, is if you want to reform the American health care system you must reform the tax treatment of health insurance.

Here's what we do, and it's done here and I don't think it's done anywhere else, but again, you would know better than me.

Every American citizen who gets health insurance in the United States, 85 percent of our people have coverage of some sort. Fifteen percent do not, but 85 percent do. But every person who gets health insurance in the private market gets unlimited tax relief for the purchase of their health insurance on one condition. If and only if they get their health insurance through the place of work. Okay?

So if you buy health insurance through the place of work the value, the monetary value of that health care benefit is tax-free. The way it works is this. The Internal Revenue Service of the federal government says, let's say for example you make $50,000 a year just for the sake of argument, but you have a $10,000 health care package. The Internal Revenue Service here in the United States will say to you, well, your total compensation is $60,000, not 50. It's 60. But for purpose of calculating your taxes, the income tax you pay or the payroll tax that you pay, the national insurance tax, right? We're only going to tax you on $50,000, not $60,000. So what you get then is you get a tax break called the tax exclusion. That's what we call it. Write this down, this is very important. It's a tax exclusion on the value of your health insurance benefits. It's very important to understand this.

For employers, they get to deduct from their taxable income from the company, all of it. They deduct your salary and they deduct your health care benefits. You get to deduct your health care benefit. The tax break, by the way, is unlimited. This is an important point. In other words, the bigger your health care benefits package through the place of work, the bigger the tax break. So if you work for a large company --

Question: [Inaudible]?

Dr. Moffit: Yes, yes. Absolutely. You've got to get this. If you get this, I will tell you, you will understand the American health care system.

Question: The more you spend, the more you get.

Dr. Moffit: Exactly. Exactly. In other words, the bigger your health care benefits package through the place of work, the bigger your tax break. So it doesn't make any difference how big it is. It could be 15, 20 -- the average spending in the United States for an employer-based plan is around $12,000. But in some of your big corporations, for example the Detroit, the automakers in Detroit and a number of other companies, you will have health care benefits packages that are larger than this. Some of them are 15, 16, 17, 18,000 dollars a year. That's all tax-free income.

So the way it works is if you work for a large company with a big benefits package you get a large chunk of tax-free income. It's terrific if you work for a big company with a big benefits package.

If you work for a smaller company and your health care benefits are not as big, well, you know, the tax break is not as good for you.

Here's the problem. If you work for a company, and many times you're talking about a small company, and your employer does not offer you health insurance and you want to buy health insurance outside of the place of work, what does the government do for you? Nothing. Nothing.

So in effect, basically, you're in great shape in the United States if you work for a large company with a large benefits package or you work for even a mid-sized company with a decent benefits package, you're fine. You get the benefits package, you get a large chunk of tax-free income. However, if you don't get health insurance through the place of work and you want to cover yourself and your family you would have to buy that health insurance coverage on the individual market, not the group market, but the individual market.

The important thing to understand there is the individual market in the United States differs pretty radically from state to state. They're not all the same. In some states the individual market is terrible. In other states the individual market is not so bad. But it's all a function of the local market. But one thing, even if the local market is good, there's a lot of good plans and they've got good offerings and so on, the problem is if you decide to buy health insurance in the individual market you will have to pay for it with after tax dollars. You don't get a tax break. But the problem with that is, because of the generosity of this tax break normally, that will mean you will add 40 to 50 percent to the cost of the premium. That's how big the tax break is. Financially the tax breaks for health insurance is about $210 billion a year, roughly, and those are numbers that are three or four years old so it's bigger now. But that's what you're talking about. This is a huge thing. This is the 800 pound gorilla that drives and shapes the health insurance markets in the United States.

Now ladies and gentlemen, what I am telling you is the gospel truth. If you get this you'll understand why the health insurance markets in the United States operate the way they do. You will also, to a large extent, understand the problem of the uninsured. Why?

There's something I want you to write down. There was an article published in 2003 in Health Affairs. Health Affairs is a very prominent journal in the United States on health policy. In 2003 there was an article published, I think it was December of 2003, by two women, professors at Pennsylvania State University. The name of the article is, write this down, "Battery Powered Insurance" by two Pennsylvania State University professors -- Pamela Short and Deborah Graefe. This is the best article published in the United States on the uninsured. I'm telling you this. Trust me. I study this stuff. I know what I'm talking about. This is really good.

What they did, what Graefe and Short did is they looked at the total population of the uninsured in the United States not over one year -- when you hear these numbers, 45 million, 47 million, that's a one year Census Bureau thing and everybody writes about it and it gets in the newspaper. What they did is they took the Census Bureau numbers over a period of four years. What they did is they examined this population of the uninsured.

Now I can tell you, we've studied the uninsured to death. We spend so much time studying, we can count the hairs on their head. We know exactly where they live, we know their relatives. We've studied these folks to death. But what Graefe and Short did is they studied them from the standpoint of where they worked and how they got uninsured. What they did was they took four years of the Census Bureau data and they took the entire population of the uninsured over four years, which is big, it was over 80 million people over a four year period who were uninsured. What they found was very interesting.

They said, the findings are not surprising, really, to those of us in the business. But what they found was the number of Americans who are chronically or persistently uninsured, that is to say constantly uninsured over like a four year period, is actually not that large. It's about 12 percent of the total population of the uninsured. Eight-eight percent of these people are people who had coverage, mostly got it through the place of work, but lost it. They lost it because of a change of jobs or a change in their work situation, going from one job to another. Either they were unemployed for a while. But why the article is so important is it's the best single study of exactly what has happened in the insurance market. What they point out is the health insurance market in the United States, particularly among small businesses, is churning. People are constantly transitioning in and out of coverage, they're covered by an employer-based plan, they change the job, they may go to the individual market and buy an insurance plan in the individual market, but then they find after they're there a year, they're rated up, the premiums are much higher than they thought they were, so they drop that coverage. They may have had a spell of illness or they may have had a downturn in their income and they become eligible for a government program like Medicaid. But Medicaid is also very unstable. People are constantly in and out. People don't understand this. Just because you're on a government program doesn't mean you stay there. Medicaid is very unstable. People are in and out of Medicaid all the time.

What Short and Graefe found was basically 88 percent of the people who are uninsured are people who had coverage and lost it. The problem is then, and this is me speaking, it's not them. The problem is if you were able to stop the churning in the insurance market you would basically dramatically reduce the number of people who are uninsured, even if you didn't spend a lot of money. In other words, if you had the insurance stick to the person and not the job. That's the key thing.

Now in national health insurance systems, that's what happens. You get insurance by virtue of citizenship. The British National Health Service, or the Canadian system.

My colleagues at the Heritage Foundation have another idea. It's a different approach, and this is what we would propose. That in order to get at this issue of the uninsured what we should do is take the tax codes that we have today and replace it with a new approach, a new tax policy entirely. So instead of having an unlimited tax break through the place of work, what we would do, and I'm talking about my colleagues at Heritage, is we would create a national tax credit system. Basically a national tax credit system which means that everybody who pays taxes, who buys health insurance, would be able to take that off on their taxes and therefore get a tax cut, in effect. Right? Standard tax credit. But low income people, people who do not pay taxes, people who are not wealthy enough to file, would basically get a direct subsistence, direct subsidy, direct assistance to offset the cost of insurance. It would be national. The way in which you'd do it is everybody would get a basic tax credit, then depending upon either your income or your health care costs. Let's say you were low income and had very very high health care costs which ate up a lot of money, basically the credit would be graduated up to cover those costs over time.

What we have proposed, in effect, is a universal coverage system through a national tax credit. You can basically buy any insurance you want as long as the insurance meets the basic requirements of being real insurance, covering catastrophic illness, and --

Question: Would it be mandatory [inaudible]?

Dr. Moffit: I'm telling you what I would do. I would make it mandatory. I personally would. I would make it mandatory with one option out of it and that would be that if you wanted to self-insure. In other words, if you said to the government look, don't worry about me, I'll take care of myself. And you say you're going to self-insure. Sure, you'd be able to do that. But what I would do is make you post a bond or put money into an escrow account so if you ended up headed to the emergency room you would at least pay at least the first two nights at the emergency room, if that happened. That's actually not a crazy idea. That was the proposal that Governor Romney originally made in Massachusetts. The legislature didn't buy it, but what you're finding out now in state after state, state legislators are looking at this issue, because you've got two -- In America we have a very very strong feeling about personal liberty. We don't think the government should tell you how to live your personal life. That's us. Right? We're not interested in that. There's a lot of John Wayne in America. I'll live my own life, you live your life, and as long as you stay on your side of the street we're going to be friends and we're going to be fine. That kind of thing. That's the way we are. My view is --

Question: [Inaudible].

Dr. Moffit: I know you do. Especially when it gets rough, we show up for the fight, too. But the thing is, the idea here is to establish some kind of social contract, in a sense, and we think that makes sense.

But the idea would be a national tax credit system and it would be progressive in the sense that people who had higher health care costs or lower income would just get a larger subsidy or larger assistance to offset the cost of insurance.

That's the first thing we would do, I think.

The second thing we would do is we have in the United States a very very strange arrangement with regard to our insurance markets. Under federal law we have a situation whereby almost all health insurance market regulation, all insurance market rules are set by the states. So if you live in Maryland, for all practical purposes, like I do, I live in Maryland. You have to buy health insurance in Maryland. Of course if you're working in D.C. and the company offers a D.C., you can do that too. Or if you're a large company you can have companies that they call self-insure. But if I'm in Maryland and I want to buy life insurance in a different part of the country I can do that. If I want to buy auto insurance from a national company like Geico, I can do that. If I want to buy home owner's insurance which is sold by Mutual of Omaha, I can do that. I can't buy health insurance. I can only buy health insurance in one place.

Americans can buy just about anything over the Internet, just like Europeans. But you can't buy health insurance.

What we suggested to Congress is that we have a national market in health insurance. Basically open it up. States would still have the primary responsibility for regulating insurance, that's fine. But at the same time you would have interstate commerce in health insurance, just like you have interstate commerce in every other good and service in the economy. And instead of having these small pools, which are ridiculous. We do have arrangements at the state level which are really absurd from the standpoint of common sense. We have pools of people with 20, 30, 40, 50 members. It's ridiculous. You would have pools, national pools of maybe 200,000, 300,000, a couple of million, four or 500,000, whatever. And in fact we do have that in one sector of the American health insurance system, and that is the Federal Employees Health Benefits Program. The federal employees actually have a national market and they can buy, if they live in Orlando, Florida and they want to buy a plan nationally, that's home-based in Seattle, Washington, that's perfectly okay. They can do it. They have large pools.

When they have large pools, what happens to administrative costs? Right? They go down. If you have the uninsured in those pools, what happens to your average claims costs? Well, they go down too. And at the same time if you have everybody on with a tax credit, basically, which will cover basic costs and so on, and insurance companies are forced to compete directly for consumers' dollars, and you have robust competition, what happens to prices? They go down or at least they stabilize. I don't think too many people are thinking that we'll ever go back to a period where we have health care costs aggressively go down. I don't think that's going to happen. But what we can do is you can get value for money. We can't get value for money right now in the current insurance markets.

So basically under the federal Constitution, Congress has two responsibilities. Under Article 1, Section 8 of the Constitution, Congress has two big jobs. One is to make tax policy; and the other is to promote interstate commerce. If they did those two things they could go home and we could all be happy.

With that I'll take some questions. I'm sure you have quite a few.

Question: [Christoph von Marscghall - Der Tagesspiegel]. If such a reform would take place, who would be the loser? Who is against it? Who are the lobbyists who are against such --

Dr. Moffit: I'll tell you, I know all about them. Big insurance companies don't like this idea. They are opposed to this approach for a variety of reasons, but one major reason is they would have to actually start earning their money by keeping customers happy.

Now insurance companies do that in life insurance, auto insurance and homeowners insurance. They don't do it in health insurance. You'll run into very few Americans, it's something you might want to do while you're here, doing just a fun reporting job, talk to Americans on the street and ask them when was the last time your health insurance company called you up and asked how things were going? Well, they don't care what ordinary people think. In this sector of the economy you have something which is literally schizophrenic. Literally. I'm not kidding. Literally schizophrenic. The customer for this product and the consumer for this product are two entirely different personalities.

Question: [Inaudible].

Dr. Moffit: That's right. It's actually a clinical issue. But right now we're stuck with it because it's part of our economy. It doesn't make any sense from the standpoint of classical economics, of course. But that's what we have.

But big insurance companies don't like it and they also do not like, I will tell you, the idea of interstate commerce. They're against that too. The basic reason is they don't want to compete. The big guys. The small guys are different. They actually do.

Question: Daniel Anyz, Hospodarske Noviny. I know that you being from Heritage, it may be difficult for you, but could you comment on Hilary Clinton's health care plan?

Dr. Moffit: It's not hard. [Laughter]. Hilary Clinton is my ticket to full employment. [Laughter].

I think she's learned a big lesson. I think she's doing an excellent job at sales. I think she gets an A in marketing. What she did, what she did not do last time is she proposed that everybody would be able to keep the health plans they have today, that's her number one principle; and that's a big deal because Hilary is being very nice. She's saying you can keep all the good little things you have today. We're not going to take them away from you. You can keep your rattle, and so on. Your security blanket, you may have it. But mentions opening up other options.

The most significant thing that Hilary actually does is basically transform the regulatory system. What she does is she sends all of the regulatory over health insurance from the states to the federal government. So what she would do, in effect, is nationalize health insurance regulation. That would be the big thing.

Now do I think that's a good thing? No. I don't because I don't think that at the end of the day, given the complexity of the American health insurance market, that a group of very very smart people, and she will appoint the brightest and the best, working out of the West Wing of the White House, is going to be able to run the entire health insurance system in the United States. I don't think she can do that. I don't want her to do it, but I don't think she could do it even if I did want her to do it.

Moderator: You said at some point you'd talk about what you think is going to happen.

Dr. Moffit: Oh, yes, let me do that. What do I think will happen?

Let's say in 2008 Hilary is elected. Let's say any of them, whoever is elected. I don't think that, my view is you will not get a comprehensive overhaul of the American health care system. The reasons for that are, there's a lot of reasons for that, but on this issue you have a deeply conflicted American public opinion. Americans are very very clear about what it is they don't like. They are not entirely clear about what it is they want. This is a very important thing to understand. Americans are very concerned about the issue. They're very concerned about costs. They're afraid of losing their coverage. They know that there are gaps in the quality of care that is delivered to them, especially through HMOs and so on. But they're not particularly clear about what it is they are for.

At the same time, you're going to still have a deeply divided Congress at the end of 2008. You're not going to have a situation which is lop-sided, you're going to have a deeply divided Congress. And on this issue in Congress there are deep ideological and philosophical differences. Republicans, generally speaking, do not like the idea of an expanded public sector. The public sector right now is responsible for 50 percent of the health care economy. The idea of having it take up 60 percent or 75 percent is not attractive to Republicans. The Democrats are generally distrustful of private health insurance. So if a Republican gets elected or a Democrat gets elected, you're still going to be dealing with a deeply divided Congress and the rules of the Congress themselves, the very rules that govern debate in Congress, militate against radical change. Let me give you an example.

In the Senate of the United States we have a filibuster rule. Do you understand that at all? All right. Basically unless you can break a filibuster, cut off debate, unless you can get 60 votes, the proposal, no matter how good it is, is not going to fly. So this would require a level of consensus in the Congress I think is unlikely. For an overhaul. I'm talking about an overhaul.

What do I think can happen? What do I think is realistic? Among liberals and conservatives in the think tanks and in Congress there is a growing recognition that what I talked about here today is absolutely true, that the tax treatment of health insurance is inequitable, it's unfair, it undermines portability, it fuels higher health care costs, and it contributes to larger numbers of people being uninsured. So I think that we will get some liberalization of the tax code.

The reason I say that is right now a leading expert on the Democratic side of this issue, Senator Ron Widen, is a Democrat from Oregon, has joined up with Senator Robert Bennett, a Republican from Utah, and they have introduced a bill that would actually overhaul the entire tax treatment of health insurance, which is radical. I don't think that's going to happen. But I think what you're talking about is providing direct assistance to people who do not have health insurance through the place of work to get coverage. I think that is very realistic. I don't think that is unrealistic at all.

Would it result in absolute universal coverage? No. Would it result in a dramatic reduction of the uninsured? Yes. That could happen. It could happen very very easily.

I don't think you will get an agreement on interstate commerce for health insurance. I think there's just too much opposition at the state level. I do think you will get agreement on things like the promotion of information technology in health care, for example for prescription drugs. The information technology as a general rule, electronic records, electronic claims processing. I think you will see very significant strides in concrete ways to make sure that there is transparency in things like the performance of physicians, hospitals, health plans and other medical facilities. I think we'll also see price transparency, both in public and private programs in terms of the procedures.

One thing, because we don't have a functioning market. Whatever you may have heard, we do not have a free market in health care in the United States. Everybody knows this who knows the system. But because we don't have a functioning market, we don't really have anything that would normally be a market price. We don't know what the price of anything is in this system. Prices are very arbitrary.

One of the things that we found when I was up in Massachusetts working with Governor Romney, we found, for example, that we had some very good things going on in Massachusetts, actually a very low level of numbers of people who were uninsured. It depended on what numbers you used, either seven percent or eleven percent. It wasn't a lot of people. But I'll tell you what we found. We have hideously high health care costs in Massachusetts. I'm talking about health care costs that would curl your hair. They were unbelievable. But the other thing that was surprising about this is that within just a few square miles for exactly the same medical procedure you had hospitals charging radically different prices. So there was no market pricing at all. What Romney accomplished was to say that stops. That kind of thing ends. All of the pricing in hospitals is henceforth going to be transparent. That will have a very positive impact, I think, on health care costs.

Just because you go to an institution that's called Harvard, that doesn't necessarily mean they have a divine right to charge you anything that they think, which is what goes on up there. But I think things like electronic information, transparency of pricing, more information, consumer information on outcomes, performance of plans and benefit managers. I think all of that's likely. And I do think we're going to get some liberalization in tax treatment. I think that will happen.

Question: [Christoph von Marschall, Der Tagesspiegel]. You have a little bit of international experience so can you tell me why European health care has here such a bad image? Socialized medicine and so on. If I compare my security net, I'm in Germany. I have my health insurance. My wife is working for the NIH, she has an American plan. My security is much much higher than hers. Nevertheless, the average cost is lower in Germany than over here. It's really amazing that Americans think that that's a bad system.

Dr. Moffit: Let me say this to you. First of all, to be very frank, I don't think, I'm going to be honest with you, I don't think Americans think a lot about the European health care system because they don't think enough about their own. [Laughter]. To be honest.

For most Americans who have coverage, this is an abstract issue. They know there are people out there uninsured and they know people fall through the cracks, but as long as it's not them, they're not obsessed about it.

Having said that, it is still a number one, number two issue on domestic policy.

The other thing is, too, there is no such thing as the European health care system. There's much greater diversity in Europe on health policy than there is in the United States. How about that? We actually have a far more unified system of health care financing and delivery than you do in Europe. Because in Europe you've got, frankly, very poor performers like the British National Health Service; and you have very good performers like the Swiss health care system which is actually superior in its performance to the health care performance of Connecticut. We know that because there's an article in the Journal of the American Medical Association on that. They're very different systems. The German system is not the same as the French system. The British system is not the same as the Swiss or the system in the Netherlands. So to be very frank, I think Americans, Americans are not looking at "European health care systems" because there is no such thing.

Strictly speaking, there is no such thing as an American health care system. Strictly speaking.

Question: [Inaudible] socialized medicine.

Dr. Moffit: Among Republicans they do, and it all depends on what they're talking about. Oftentimes when they use that phrase, usually even though they don't articulate it, what is at the forefront of politicians who use the phrase is Great Britain. And we can read English, so we read the Daily Telegraph and we read the London Times and we know what's happening over there. So we're not fooled by the British system.

Question: Rosalea Barker from New Zealand, Scoop Media. There's a big sign going into the capitol subway that says 70 percent of health care costs go on chronic disease. I'm wondering if you have any thoughts on how the pharmaceutical companies who kind of encourage doctors to aggressively push diagnosing chronic disease, how does that factor into this?

Dr. Moffit: The pharmaceutical companies market their services to physicians, no question about it. But of course they have to go through an extensive process of review and testing before they're ever allowed to sell anything in the United States. The normal time for a pharmaceutical to go from the lab to the market is about 15 years. You've got to understand you're not talking about, in most cases, a fly by night process. In fact we've had bad things happen -- Vioxx most recently is one. And we've had some other things happen. We haven't had, to the best of my knowledge, we never had anything at the level of Thalidomide in the United States, which was a disaster in Europe many many years ago.

Having said that, the truth is there's a wonderful article on this which deals with this issue. I had a friend of mine, used to work for Hilary Clinton. We're still friends. [Laughter]. Ken Thorpe. He's just published an article in Health Affairs about American's health care. Ken did a study of conditions of disease. It's just out, by the way, in Health Affairs, just recently. He attributes some enormous number, I can't give you the exact number so I won't, but his point is that about 75 percent of all our health care spending goes to big chronic diseases.

Diabetes in the United States is now at epidemic proportions. Why is that? It's not hard. We eat too much, we drink too much, we don't get enough exercise, and it's killing us. We should stop eating and drinking as much as we do and get more exercise. Would that affect the health care system in terms of the overall cost? Probably. Although it probably means we would live much longer and more of us would be crowded into nursing homes and then the cost would really go up. [Laughter].

To be honest, I don't know if there's any easy way out of this. There's no simple answer to these things.

Question: Eric Cameron from [inaudible]. Our earlier speaker, Dr. Troy from HHS talked about the Bush administration plan to allow a tax deduction on health insurance purchasing. Is there a big difference between your idea of tax credit, or is it a minor difference?

Dr. Moffit: It's not minor. It goes in the same direction. The Bush administration deserves a lot of credit for opening up this debate, and they really have. What they want to do is basically abolish the current tax treatment of health insurance, what we just talked about this afternoon, and replace it with a universal deduction. The deduction that they're talking about is very generous. They're talking about a deduction for family coverage of up to $15,000 a year. That's significantly above the $12,000 a year that health care plans normally cost at the place of work. So the initial deduction would result in a rather significant tax cut for millions of Americans actually. And the individual deduction is pretty decent too, it's $7500.

The deduction is fine. There's nothing wrong with it. The Lewin Group which is the leading econometrics firm here in this area that has done work on this has indicated that with the deduction there would be a reduction in the total number of uninsured by about 9.2 million people. That's fine. That's not insignificant.

The problem with the deduction, to be very frank, a deduction does not do anything for the bulk of the uninsured. The bulk of the uninsured are low income, working people, primarily in small firms. If you want to reach them you have to have a generous tax credit. If you want to actually provide them with direct and immediate help a tax credit, basically a direct grant for lower income people or a real write-off for coverage for middle income people is a better way to go.

The policy direction, in my view, is in the right way. It introduces much more fairness into the tax code than we have today. Really, right now if you think about the current system, frankly it is profoundly inequitable. It just is. People are punished by the federal government of the United States because they can't get health insurance through the place of work and we make them pay twice for it if they buy it on their own. You can't think of an incentive that is worse. And frankly, this has been going on for a long time.

I will tell you something else. In too many health care seminars around the country I go around and talk a lot, Len Nichols and I basically share this point of view, I must tell you. Len does not disagree with anything I've said here today. Well, that's not true. [Laughter]. He defends Hilary. That goes to show you. [Laughter]. Anyway, on the issue of the tax code Len would agree. This is a profound inequity in the system. I think there's a chance to rectify it, and people of good will like Len Nichols I think will help to do that.

Question: Sonia Schott with Radio Valera, Venezuela. An increasing number of persons or people here in the United States are considered to go abroad the United States to get treatment or to get some procedures. How true is that? How important is? What kind of impact does it have in the whole discussion of health care?

Dr. Moffit: I think it's good. What you're talking about is medical tourism to places like India or Thailand. They have the money to travel. You can check it out. The doctors are actually, in many cases, very well trained. You're dealing with first class physicians in many cases, they just happen to be in Thailand or India. They do specific medical procedures.

It's basically, to me it's a form of free trade. As far as I'm concerned, fine. Let the guys at Hopkins and MG Anderson and Sloane Kettering compete directly with the physicians in New Delhi. That's fine with me. What's wrong with that?

The British go to France and they're happy to do so. Canadians come to the United States in large numbers to get medical procedures. And so that's all right.

Question: But doesn't that have any impact on the prices here? [Inaudible]?

Dr. Moffit: What, people spending money overseas? No. People spend money overseas on vacations. Does it affect the tourist industry in the United States? I guess so. It's not something I would lose sleep about. People have a right to be free. If they want to get on an airplane and go to India and get an appendectomy, that's okay with me.

Question: When I served in London my wife was a therapist who worked in a private British hospital that catered to [inaudible] Arabs. She said what was really interesting is the hospital used to be a hotel, so the rooms are all very nice. They expected to be catered to. So they were coming in for heart disease and the lunches were like 2,000 calorie heart-stoppers. [Laughter]. Since they expected it.

Dr. Moffit: What's funny about this is I saw an advertisement years ago, there was this advertisement back in the 50s that said one out of two doctors recommends Chesterfield cigarettes. [Laughter]. That's in the old days. They don't say that any more. Although if you go to the American College of Cardiology, one of their conferences, and you have breakfast. Breakfasts are fantastic -- eggs, bacon, sausage, home fries. It's great. [Laughter].

Question: Mathias Rueb, Allgemeine Zeitung, Frankfurt, Germany. You mentioned Massachusetts. What turned out to be the plan imposed by Governor Romney and would it be a model for the whole U.S.?

Dr. Moffit: Well, yes and no. Let me just tell you there were three big policy items in Massachusetts. There were others, but three big ones. We, my colleagues and I, had responsibility for helping him with one. The first one, which we had to do with, was the creation of a new health insurance market for small business employees. It was grounded in this problem with the tax code. The biggest difficulty for insurance coverage is for employees in small businesses. That's where the rubber hits the road, so to speak, in this issue. They're hard to get covered. Small businesses struggle with the administrative cost of coverage. It's daunting for them to try to negotiate a benefits package for a firm with 10 or 15 people, something like that.

At the same time small business employees, there's high mobility among small businesses. People do change jobs a lot in that area. There's high mobility.

What we did, we knew that Congress was not going to change the tax treatment of health insurance and we also knew that portability of coverage was the biggest single problem in the health insurance market. As I said earlier, people had -- we know the problem is not people having access to coverage. They do. It's keeping it once they got it. So the question was how do you enable them to keep it?

We created something called a health insurance exchange. The way to think of it is like a stock exchange. When you and I decide we're going to buy stocks, bonds or mutual funds what do we do? We go to the stock exchange. What is a stock exchange? A stock exchange is a centralized market where you have centralized transactions and the paperwork is handled by the stock exchange employees, the brokers of the company, so on.

What we did was say okay, what if we created a stock exchange for health insurance which would enable employees to pick and choose the plans they wanted in the exchange, and own the plan and take the plan from job to job without a loss of tax breaks. How would you do that? Well, you can under federal law. This is how we did it.

We set up something called an exchange and under the current federal law governing group employment, for which you can get tax-free health benefits, if the employer defines the exchange as the employer's plan, group plan, for the purposes of the federal law and federal tax code, that means all the employer's contributions to that health insurance plan are tax free and the value of the benefits are also tax free. So the exchange itself becomes the employer's plan.

What that means is, under our law, the federal law, that employees can buy a plan, they own the plan, and because they own the plan it doesn't make any difference. They can go from job to job without losing that health insurance plan. That was a big change in the insurance market. It's actually pretty revolutionary. We basically got at the tax code through the back door. We snuck in the back door and repealed the tax code for small employees is basically what we did.

The second thing Romney did was he was spending about $1.3 billion a year in Massachusetts on uncompensated care for the uninsured in these large hospitals in Massachusetts. Basically these costs were going up and there was really no accountability about how the money was being spent. People were walking into the emergency room, they were getting care. Whether the care was the best around, whether it was competitive, nobody knew. He was the first who said, in fact I remember him saying, I'm spending a hell of a lot of money up here, I'm on Wall Street, I know this stuff, I don't know what I'm getting for the money I'm spending, that is to say what the taxpayers are spending. What he did is he took that $1.3 billion and he took all those subsidies that were going to hospitals and health care facilities and he turned them upside down and turned them into subsidies or grants for low income people to get insurance. That's what he did. That was a major change in financing.

The third thing he did is he added a mandate, in effect, but his mandate was not exactly what the state legislature passed.

Having said that, the mandate, the change in health care financing and the health insurance exchange are three very very big changes in policy in health care policy. They're very big. On the Richter scale it's a nine, right?

However, Massachusetts is not like any other state in the union. They're not all the same. The insurance markets are not the same, the problems are not the same, the penetration of insurance is not the same, and the whole cultural acceptance of a mandate is not the same.

The idea that you can simply take Massachusetts and replicate it for Arizona, for example, is just simply, it's not something that's politically doable. This is a very diverse country. One thing that I've found out, just going all over the place, you can go from Maryland across the border into Virginia, and when you get into the south side of Virginia you are really in different -- then you get down to South Carolina and you're very far away from Germany. [Laughter].

Question: [Christoph von Marschall, Der Tagesspiegel]. May I come back to the question of interstate commerce. On another tour of this nice institution, the Foreign Press Center, we went a little bit more than one year ago to a Virginia winery, and we learned there that a few years ago they were not allowed to sell their wine directly to different states. Then one of the owner went to court and they went up to the Supreme Court and they won.

Dr. Moffit: That's right.

Question: Could this happen in the health insurance system as well? Would somebody go to court for the right to sell his plan also in a different state? Would that break up the system? Or would your, after the last discussion, are the states so different and their culture, that it wouldn't work even if they had the right?

Dr. Moffit: You're talking about interstate commerce. States can do anything they want, but if you wanted to buy a plan that was domiciled in another state you could do it. The problem is in this particular case, it would mean that the court would have to strike down an act of Congress as unconstitutional. There's no way that I can see that the McKaren/Ferguson Act which restricts this, is unconstitutional. Congress has a right to say okay, fine, we're going to leave the regulation of insurance in the states. It's a congressional decision.

Under the Constitution Congress makes the laws. The Supreme Court of the United States and the lower courts apply the laws that are made. They do not willy-nilly go about striking down acts of Congress as unconstitutional unless in fact they really are, and in this case I don't think the congressional restriction in and of itself on interstate commerce is. Congress has a right to regulate interstate commerce. It doesn't mandate the commerce, promote interstate commerce, in every aspect of our economy. Although clearly the founding fathers intended Congress to be proactive in preventing Virginia, for example from restricting oysters from coming into Maryland. James Madison had strong views about that.

Moderator: Thank you for coming.

Dr. Moffit: Thank you very much. Enjoy yourselves.


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