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Washington Business Group on Health
HEALTH CARE COSTS: A dilemma for all Americans
Willis B. Goldbeck
Washington Business Group on Health
Select Committee on Small Business
August 21, 1978
605 Pennsylvania Avenue, S.E., Washington, D.C. 20003 (202) 547-6700
Mr. Chairman, I appreciate your invitation to share with the Committee an important perspective on the pressing issue of escalating health care costs.
Our organization, the Washington Business Group on Health (WBGH), does not claim to represent all business. We are a small group of 155 major employers with very diverse interests bound together by a common appreciation for the great challenge facing those who would make health policy:
how to contain the rate of cost escalation while simultaneously
The interests of the business community are vital not just because of the dollars they expend on medical care and insurance but also because of the great potential that economic clout holds for helping to redirect the current delivery system for the common good. The fact that the 155 members of our Group provide the health beneifts for approximately 35,000,000 employees, retirees, and dependents 18 ample evidence that much more is at stake here than just dollars to be saved.
Following your instructions, in my few minutes, I will try to address these issues:
Causes of the cost problem
The rise in industry's attention to health care costs can be traced back to 19741975. Naturally, some were concerned before but a look at one company's costs will show why 1975 was a pivotal year.
Sherwin-Williams' cost per active employee with no major change
$370 in 1974
The costs for many employers were further increased due to a concommittent increase in their share of the premium payment. An example:
Rates of cost escalation per company vary with some as low as 6% per year and others exceeding 20%. Most would agree that the natioral trends are headed down, but sany have yet to see any positive impact on the rates they are paying.
Other specific examples can be found in Appendix A.
Let me begin by commenting briefly on testimony you received last Friday.
You debated the amount of the price per Ford Motor Company car
2. Trying to indicate how the government or the population
would have spent money it could have saved had cost control legis-
There was an implication that because a hospital is non-profit, it
Both Mr. Schultze and Mr. Aaron noted that hospital cost increases
Congress does not need to create any law to give itself stand-
When business opposes the stand-by legislation, it is simply op-
To say that past history assures poor provider behavior is the
CAUSES OF ESCALATION
To be brief, we have had cost escalation for the past twenty years because we designed a system without a policy and with all its economic incentives pointed directly at cost escalation.
To be specific, our system was not originally designed for health care but rather for medical repair; our system was not originally designed with anybody's rights in mind but rather to provide a high-priced service for those who could afford it and charity for some of those who could not; our system was based on a set of values and myths which today are being challenged but nonetheless had great influence over the costs we are now paying.
provider education was structured
to ignore economics and relative
consumers have been supposed to be incapable of comprehending their
purchasers of insurance were supposed to simply trust the providers,
other product. (In fact, many providers still take umbrage at the
the public is just awakening to the fact that more care does not
the patient, not the physician, pays the costs of defensive medicine
He must also note that the health care industry, now one of the three largest in the nation, does not operate in a vacuum. General inflation, totally unrealistic demands by patients, voluminous government regulations and programs, and the often-cited impact of third-party payments all help drive up the cost.
Adding to all these forces are a mixture of technological and value pressures:
medical technology, of which we are seeing only the tip of the pro-
we have been a society which says sex education is sinful and one
Finally, inexorably pushing costs ever higher is and will be the aging of our population.
In short, we are just now fully recognizing that the imperative of limited resources which faces our whole nation will also force us to ration health care more explicitly at the very time when we are publicly committed to expand its utilization.
THE GUT ISSUES OF COST CONTAINMENT
While understandable, it is in my view unfortunate that the dialogue on cost containment gives the impression that success can be achieved at no cost. It is time to recognize that, if we are serious, and regardless of whether the approach is regulatory or market-oriented, there can be no carte blance wage pass-through, facilities will be put out of business, restrictions will be imposed on the free selection of providers by the individual, self-destructive lifestyles and products will have to be much more rigidly controlled, and many people in the delivery system will lose their jobs...not just future wage increases. To do otherwise is to either deny that the system has all the waste and duplication with which it has been charged, or to suggest that the public really is not seriously concerned about health care cost increases.