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Washington Business Group on Health

HEALTH CARE COSTS: A dilemma for all Americans

Statement of

Willis B. Goldbeck


Washington Business Group on Health

before the

Select Committee on Small Business

US Senate

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
improving both the quality of and access to needed health care.

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 gut issues of cost containment
What business is currently doing about health care costs
The Voluntary Effort
What the future may hold



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
in benefits was:

$370 in 1974
$555 in 1976
$894 in 1978

The costs for many employers were further increased due to a concommittent increase in their share of the premium payment. An example:

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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
that can be attributed to health care costs. The current amount
is $120. This amount is lower than expected due not to lower
health care costs but rather to record auto sales thus reducing
the per unit impact of those health care costs. I would suggest
that these are very fragile statistics that really are not very
informative. The significant fact about Ford is that their
total health care "bill" increased between 1977-1978 from $400 to
$500 nillion with no significant increase in benefits.

2. Trying to indicate how the government or the population

would have spent money it could have saved had cost control legis-
lation passed in 1977 is very high-risk gambling. One of the pro-
blems we all face is the uncertainty of future health care dollar
allocations. There is no guarantee that dollars saved by hospital
cost containment would even stay in the health sector, much less
that they would do all the good things Assistant Secretary Aaron


There was an implication that because a hospital is non-profit, it
is also not competitive. This is not so. In fact, non-profits
compete for patients by competing for the so-called best physicians
who in turn escalate the medical arms race by demanding ever
greater expenditures on new equipment and expanded facilities. This
is one case where the private sector must acknowledge that competi-
tion can be destructive. Community pride in local non-profit hos-
pitals is another competitive factor which once helped build our
system and is now characterized by excess.


Both Mr. Schultze and Mr. Aaron noted that hospital cost increases
do appear to be headed downward. Both stated that this was at
least in part due to the threat of Congressional action as stimu-
lated by the Administration's cost control bill. I would agree and
add that most employers recognize that some such pressure was long

Congress does not need to create any law to give itself stand-
by authority for future action. You have that authority per-
manently. If you do not think the providers have made a legiti-
mate effort by 1980, then you can impose whatever controls you
want. And, these may need to be more restrictive than those you
prospectively design today. There is absolutely no value in
Congress locking itslef into a system of future controls simply
as a method of seeming to strengthen its power to threaten the

When business opposes the stand-by legislation, it is simply op-
posing a methodology which we feel is unneccessary. Cost contain-
ment is a mutual objective which currently can be best achieved
through strengthened public-private partnership.

To say that past history assures poor provider behavior is the
same as saying the Executive Branch cannot improve its efficiency
due to its past history. Neither need be true.


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
cost effectiveness

to ignore economics and relative

consumers have been supposed to be incapable of comprehending their
own bodies and the medical options available to them

purchasers of insurance were supposed to simply trust the providers,
something not expected in the buyer-seller relationship with any

other product. (In fact, many providers still take umbrage at the
concept of their service being considered a product)
management and labor are just now recognizing that they have a con-
mon interest in the objective of cost containment, and in many if
not all of the methods. (I would refer you to the recently issued
Labor-Management Group Report which supported a broad range of cost
containment methods)

the public is just awakening to the fact that more care does not
necessarily equal better health

the patient, not the physician, pays the costs of defensive medicine
used in an attempt to preclude malpractice judgements

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-
verbial iceberg, is frequently labor-intensive, often gets purchased
and used with little regard to need

we have been a society which says sex education is sinful and one
million pregnant teenagers is acceptable; which says health educa-
tion should be an elective; which says mandatory seat belts are a
violation of our human rights. This is not an atmosphere conducive
to promoting wellness or demonstrating a national commitment to
improved health status.

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.


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.

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