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Fed Chairman Says Improving Health Care System Performance Critical

By Mary Agnes Carey, CQ HealthBeat Associate Editor

June 17, 2008 -- Changes to the nation's health care system will influence the pace of economic growth, wages, living standards, and government budgets due to the sector's large and growing share of public and private sector spending, Federal Reserve Board Chairman Ben Bernanke said Monday.

Speaking at a "Health Care Summit" at the Library of Congress sponsored by the Senate Finance Committee, Bernanke said that improving the performance of the health care system was one of the nation's most important challenges, with the key areas of concern being access, quality and cost.

"Taking on these challenges will be daunting. Because our health care system is so complex, the challenges so diverse, and our knowledge so incomplete, we should not expect a single set of reforms to address all concerns," Bernanke said. "Rather, an eclectic approach will probably be needed. In particular, we may need to first address the problems that seem more easily managed than waiting for a solution that will address all problems at once."

Senate Finance Committee Chairman Max Baucus, D-Mont., said he hoped speakers at Monday's summit would lay the groundwork for major health care legislation next year. Sen. Charles E. Grassley, R-Iowa, the panel's ranking Republican, called health care the year's top economic issue and implored lawmakers to find comprehensive solutions that deal with areas such as access and cost.

In his remarks, Bernanke noted that spending on health care services represents a major segment of the economy, exceeding 15 percent of gross domestic product (GDP). "A piece of wisdom attributed to the economist Herbert Stein holds that if something cannot go on forever, it will stop," Bernanke said. "At some point, health care spending as a share of GDP will stop rising, but it is difficult to guess when that will be and there is little sign of it yet." And as health spending continues to rise faster than income, health insurance and out-of-pocket payments "will become increasingly unaffordable," he said.

Higher government spending on health care also puts pressure on other areas of the budget, creating "increasingly difficult tradeoffs for legislators and taxpayers" that will require reductions in other government programs, higher taxes, or larger budget deficits, Bernanke said. In 1975, federal spending on Medicare and Medicaid was about 6 percent of total non-interest federal spending. Today, he said, that share is about 23 percent. If current trends continue, rising costs of health care and the aging of the population will increase that share to about 35 percent in 2025, according to the Congressional Budget Office (CBO).

But as lawmakers focus on what's wrong with the nation's health system, they must also remember what's right, he said. New technologies have added cost to the system, but they have also improved the quality of care delivered. New drugs and treatments have improved the diagnosis and treatment of disease. "In devising policies to reform our health care system, we must take care to maintain the vitality and spirit of innovation that has been its hallmark," Bernanke said.

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