“Vision for Health Care”

February 12, 2004

by Rep. Bill Thomas

Twenty years ago the House Ways and Means Committee voted on whether to cap the deduction of fringe benefits by employers. That vote fell two votes short of establishing a limit that would have focused tax relief on those needs that were deemed most important for the dollars assigned. That was just one of the milestones in the battle to change what is now one of the most perverse systems man has ever created, which at the beginning no one had any intention of producing, and which some people apparently still fail to understand. When you look at what some folks are saying, it is amazing how much of a disconnect there is in this society over something that should have been resolved some time ago. I'm pleased to say, I believe we have the beginning of a structure in place to correct the problem.

A Proposition

Let me start off by asking: How many people here to discuss the problem of the uninsured are themselves involuntarily uninsured? Show of hands? Almost no one. I always find it ironic. Every time we get together to discuss the uninsured, it is with a group of people who are 100 percent insured, or almost always above 95 percent. My second question is this: How many of you who are now insured would be willing to give up 25 percent of the insurance you currently have? Show of hands? Ah, nobody. Well, one or two. Had you all raised your hands, the problem of the uninsured would go away. Because the problem isn't that this country doesn't spend enough on health insurance; it's that what we spend is mal-distributed.

If we could redistribute what society spends for health insurance, we could eliminate virtually all of the problems. Why don't we just do that? Well, that's what we've been trying to do for a quarter of a century. We don't have time to review the history, so I'll try to focus on the thinking that baffles me even to this day. Because of it we can't restructure the system without an enormous political battle that becomes sharply partisan very quickly.

A Closer Look At The Uninsured

When you look at the statistics on the uninsured, you can pick a number at any one time between 20 and 50 million - since there are a lot of people who are chronically uninsured and others who are temporarily uninsured. If you split the group, separating those who can afford insurance but don't buy it and those who can't afford it and don't have it, you find that fully 25 percent of the uninsured are low-income people who qualify for available government programs. They just haven't enrolled. So why in the world wouldn't you market the products - Medicaid and other programs - that are available. You could put a significant dent in the number of uninsured if you simply made sure you enroll people in the programs that they are qualified to join.

Just to give you the latest example, who in the world would create a partially new, exciting product and then not let people know that it's available? People often talk about how much different government is from the private sector, yet there would not be that much difference if government were smart. If you create a product, you have got to let people know the product is available. And yet I see in the newspapers another battle over the fact that Medicare dared to actually advertise the fact that there is a new product out there that might be useful to a significant number of Americans.

Looking further, fully a third of the uninsured are higher-income people who earn above $50,000 a year. You might conclude that these people are foolish because they don't have health insurance. But frankly, when people who make $100,000 a year remain uninsured, I think they are making a decision and communicating to the marketplace that they don't think there is value in the products that are out there. Now, if you're in the private sector, this would be viewed as an opportunity. But if you're the government, this is viewed as a problem, and you have to create a program to "solve" the problem instead of examining why people who make enough money to buy insurance aren't doing so and why they don't think it gives them enough economic value for the premiums charged.

Source of Our Current Problems

Join me briefly in going back to that period in history when somebody decided that instead of paying an employee a dollar in wages, we should create collusion between the government and the employer and provide "health care" or "fringe benefits" instead. That little separation between wages and fringe benefits has laid the groundwork, fundamentally and virtually completely, for the problems we face today.

How many of you here get your homeowners insurance through your employer? How many of you here get your automobile insurance through your employer? None. So why do you have to get health insurance that way? Well, the argument is, that employment forms an insurable group. But that argument is fundamentally flawed. Why? Because not everybody is employed. But worse than that, if you tell people they can have a dollar in wages, which is fully taxable, or a dollar in untaxed fringe benefits, what do you expect them to choose? A brief labor history of the 1950s and the 1960s will show you that American workers virtually priced themselves out of the international marketplace by creating a total compensation package that made them uncompetitive. But more insidiously, the fringe benefits were in the form of a first-dollar, third-party payer system in which no one knew the cost of medical care and, frankly, no one cared. The only question patients typically asked was, "Does my insurance cover it?" And if the answer was no, then the follow-up was, "I've got to get more insurance." Eventually we wound up with billions of dollars of insurance and some bizarre anomalies. People had every possible coverage under the sun. But since they used very few of the benefits, most of their premium dollars paid for coverage that generated no return. Why? Because the concept of group insurance built around the employer is the most bizarre redlining ever conceived.

Okay, let's start with a clean sheet of paper. Who needs insurance? People who are at risk. The whole concept of insurance is to pool risk. Who are the ones who have the hardest time getting insurance in this country? People who need it. Where's the cheapest insurance? The group insurance through an employer that has gone through a number of screening processes to produce a group that doesn't use the insurance very much.

Now, many people - especially those in the insurance industry - believe in the concept of insuring non-risky people. If you want to make money, you get people to buy insurance that they never use. And that's what we have to a very great extent today. Look at all the screening procedures that apply to someone who is employed. They have to get up every morning, they go to work, and they carry out difficult tasks. All of those are screening factors in terms of health care. So when you have a group of employees, you have a group of people who are the cheapest to insure. Yet they get the biggest tax breaks. The people who really need insurance are out there in the "individual market," sinking because they can't get insurance. Who would intentionally create a structure like that today? No one. And yet, that's where we are.

Then, ironically, since you have all this insurance, and since you chose these fringe benefits over a dollar in taxable wages, you feel you've got to get something out of it. How many of you toward the end of a year in which you hadn't used much of your health insurance decided to get new eye glasses, or to have your teeth cleaned one more time, trying to get some benefit out of your insurance package? When you have first-dollar, third-party coverage and nobody knows the cost of care, you get overutilization. It's use it or lose it.

And, ironically, at the very same time we have underutilization. Because we have a voluntary employer-based system, you can have people performing the same job for two different employers. One has 100 percent coverage, and the other has none. Yet if the one who doesn't have it wants it, he has to buy it out-of-pocket with after-tax dollars.

Remember, we lost the vote to cap the amount of tax free benefits in the early 1980s by two votes. Back then, we were thinking of some "outrageously high" dollar limit, like a $5,000 cap. Had we done that, you would have seen a much more rational decision-making process today to determine what the fringe benefit packages contain. If employees wanted coverage above the limit, you would have seen a secondary market develop, as we have seen with after-tax wraparound packages that are available to individuals. That would have initiated a rational market where you would buy what you wanted. Instead of doing that we continued a system that substitutes health insurance for wages. About 80 percent of spending on health care is third-party payer spending. The managed care cycle was just a different variation on previous methods. It didn't fundamentally change the system.

Who said that insurance has to be sold the way it is? There wasn't any decree that came down from on high. It was partly because in an easily-sourced, easily-sold market, insurers could make a lot of money. Now, you tell me: Do you want to trod along, picking up premiums one by one in the so-called individual market, or would you rather sit back and have an employer bring you 5,000 or 10,000 lives, which is an easy package to insure because overall costs are fairly predictable?

And who said, to use an analogy, that health insurance should be like an employer-based umbrella. As long as you stay inside, at the place of employment, you can use the umbrella, but if you go outside, if you leave your place of employment, you have to leave the umbrella's protection. The problem is: When do you need the umbrella? Answer: When you've left the place of employment. Instead, why can't we have a system structured so that a dollar in wages and a dollar in fringe benefits trade on a level playing field and you make decisions based upon what you think you need?

Then we have group insurance and individual insurance. Is the role of government to create a subsidy for those people least in need of insurance? Or should government guarantee that no one goes without and let the market figure out how to create a pooling system? Currently, government uses tax dollars to insure those least in need, and the individual market exists for everyone else. Why are we sending people out into this ugly individual insurance market? It's bound to fail. At least it will if we operate under conventional concepts.

 

Thinking Outside the Box

Try to get out of the box a little bit. Compare scheduled airlines and chartered airlines. Why can a chartered plane sell a trip so much more cheaply than a scheduled airline? It's pretty simple: a scheduled airline takes off whether it's full or not. The charter says: Show up on this day, at this time, and we'll sell you a seat at this price. If it's a good time and the destination is good and the price is good, the plane will be full. You know when Honda first entered the U.S. market, they provided a radio in every car as standard equipment. Some in the industry thought that was not a good idea. But Honda, in its naiveté, said, "You'd be amazed at how cheap radios are if you stick them in every car as standard equipment on the assembly line."

Do you realize how cheap an insurance product would be if you made a fundamental boiler-plate catastrophic program available to every American? Government could play a role - not as a subsidizer for those least in need, but as a subsidizer for those most in need. If you have a low income you would be subsidized. If you have the wherewithal to purchase insurance you would get a tax credit. And any insurance above some limit would be your decision based upon after-tax dollars. Do you realize how cheap that product would be?

If you have an insurance market that doesn't work because you have high-cost outliers, guess what you can do? Separate the outliers and you will have a market that works. Most of the health care dollars are spent on a very small number of people. At the same time, there are a lot of people who don't cost very much. Instead of having government subsidize all those inexpensive people on the low end of the curve, why not use the money to subsidize the costly outliers at the high end of the curve? Then you would have a universe that is clearly insurable. But don't do it through a third party that dictates what you're going to get and leaves you with nothing when you change jobs. Create an arrangement where dollars are spent for the highest and best needs as envisioned by the person who's being insured. Let people have what they need. Let them take it with them on their journey through the labor market. Let them realize the benefits of prudent behavior, including preventive and wellness care. Why in the world should others pay for health problems caused by people who smoke? Why in the world should others pay for the health problems caused by people who abuse themselves over the years? Why should these personal problems become society's problems? If each of us had his own insurance policy and adopted a healthy lifestyle, over the years a whole lot of dollars would accumulate in our personal health savings accounts. And if you did abuse yourself and if you had to pay for the small costs along the way, you could still rely on catastrophic insurance.

Health Savings Accounts

We talk endlessly about the way in which this system needs to be changed, but I find it really ironic that we are having a clash of titans over a modest health savings account proposal finally coming to full fruition - not in the aberrated forms that we had earlier but in a simple form. Basically, if you want to help yourself, the government will allow you to put money away free of taxation, to be spent only on your definable health needs. And if at the end of the year the money you've put away isn't all consumed, you get to roll it over. And wouldn't it be something if you could take the employer dollars that are currently heavily subsidized and put them into that same pot so they could be rolled over as well? In that case the funds would clearly be yours, not your employer's. And when you leave your job, you would get to take the umbrella with you.

We had a major political fight over COBRA, an insurance steppingstone for people between jobs. We created a system in which the former employer, no longer obligated to you by law, is now required to offer you insurance. And as soon as that modest steppingstone between jobs was created, the previous administration tried to blow it up into a 10-year requirement. We had a lot of hand wringing over people who aren't yet 65 and eligible for Medicare. Many jobs nowadays end at age 55. If you're in risk services, such as fire or police protection, 55 is a common retirement age. If you're in the building industries, 55 is a common retirement age. What are we going to do about these people? Drag the Medicare eligibility age down from 65 to 55? If people had a health savings account for the 25 years they were employed, and if they practiced reasonable preventive health care and were a little lucky, they'd wind up at age 55 with significant amounts of money to tide them over between then and when they qualify for Medicare.

The account will also help with premiums for drug coverage and out-of-pocket costs when these people reach 65 and enroll in Medicare. The ordinary citizen will have a pot of money to be able to pay some of those costs.

Why do we have such a mal-distribution of benefits in this system? If this discussion were about income, don't you think Ted Kennedy would be right up here next to me demanding redistribution? Why don't we take the tens of billions of dollars of government subsidies for employer-provided insurance and talk about redistributing them? It's because of who the groups are that currently get these benefits. It really is about whose ox gets gored. Although small business often is unable to offer health care, big business typically does. Often there are unionized contracts that, frankly, are pretty munificent. And management isn't all that worried about it because they get their health benefits as well. So I find it ironic. I started off by asking you how many had insurance. All of you did, but none of you are willing to give up anything you've got to help other folks. I thought that is what government was supposed to be about.

So what I'm now saying is, okay, keep what you've got. I'm not going to continue banging my head against the wall trying to cap fringe benefits. I'm giving that up. I'm not even interested in subverting the employer-based system, which is fundamentally flawed. I'm giving that up too. All I want to do is ask this question: Why are people so hostile to the idea of allowing an employer or an individual or a family to put a little money away? Why can't they have a tax-free account that allows interest to accumulate tax free, and that is tax free when they spend it on a health care need? Why such hostility toward that concept? Because it will distort the group market? What in the world does employer-based insurance do to a group market but distort it in the worst possible way? It gives the cheapest cost to the people who need it the least. Because we will disrupt government programs? Twenty-five percent of the low-income people are not enrolled in the free health care programs for which they are eligible because we refuse to spend a few bucks on marketing to make sure they're covered.

 

Creating A Real Market

I think the real issue is the fear that all of the arguments over all the years that health care can never be a true market might actually be challenged. What do you need to have a market? Well, you need individuals with the wherewithal to be able to make purchases. As long as it's third-party insurance, the individual never gets to do the purchasing. But you need something more than an individual who has the ability to make purchases to make a market. If you want a long-term, responsive market, you also need knowledgeable consumers. Frankly, that is an area where we have fallen down from the very beginning. We don't have knowledgeable consumers because we don't collect information that will allow those consumers to be knowledgeable.

There are myriad ways we can collect data in a manner that ensures privacy. Right now, we don't have the ability to tell people what works and what doesn't in health care, based on reliable statistics. We don't have the ability to create guidelines that allow the largest purchaser of health care, the public sector (spending your tax dollars) to decide that one procedure is significantly and statistically better than another and pay only for the former and not the latter. And until we achieve that ability, you aren't going to have a market.

We need to move rapidly to develop the ability to collate and collect data in a confidential way that allows us to look at outcomes so that people can make wise choices. That will be another major battle because, frankly, there is a group of people who don't think they should be held accountable. The medical universe needs to be held accountable - not in order to punish individuals, but in order to enhance our collective wisdom. I don't know why anyone would really fear that, except that it does change the relationship in terms of power and hierarchy. But if the public is going to spend the billions of dollars it spends, we need better data available to decide what is and what is not a good purchase.

 

Vision for The Future

When we reach the point of knowledgeable consumers spending in a marketplace, you will have a very reasonable institution, which will keep health care costs down and which will allow for innovation in the private sector.

Maybe that's why some of those folks are so opposed to what we're trying to do. It really will take government out of the picture and create a rational process in which we empower individuals and have government fill in only to meet needs that the marketplace can't.

For the low-income uninsured who are eligible but not enrolled in government programs, you spend a little money, like the private sector would, advertising the programs that are available. Go out and get them; fill that need. For the higher income uninsured who don't see an economic value in the current insurance products, there will be new products. What you would have left is a relatively small group for which government would be the insurer of last resort. This would resolve virtually all of the concerns for that group of uninsured and at the same time create a market for everyone else.

That's a tomorrow that I think we have a chance of moving toward. And I think that is one of the reasons some of our opponents are so vehement about what seems to be a very modest little change in a major health care bill. It's not about today; it's about tomorrow.

Question and Answer Session

Q: Are there things that can we learn from other nations?

BT: Yes, I think you can. Basically, look at every other industrialized nation, especially Europe, and then run as fast as you can away from those models. We can see in them where we are at risk of going. You have governments collectively providing subsidies to employers for health care needs and regulating work hours as well; where people believe it's their right not to put in a full week's work; and where there are government-sponsored long periods of time in which they are encouraged not to work. We can really learn from those folks. The idea that somehow certain areas are exempt from market principles is a fundamental fallacy.

Q: What's the alternative to employer-based "umbrella" insurance?

BT: The reason the insurance market is divided between group and individual insurance is because of the way the government subsidizes insurance. Change the way government subsidizes insurance and you will change the way the product is marketed and sold.

Why are one-third of the people who are currently without insurance clearly financially able to purchase it? Because they don't find a product they think is valuable and works for them. I think you'll find that if you free it up the market, not only will you see insurance responding with new products, you will also see the health care marketplace respond with new products which fit niches. If a product has value, people will purchase it and the market for it will grow. And if a product doesn't have value, it won't be purchased and its market won't grow.

Instead of this, employers offer a dollar in fringe benefits, which is cheaper than a dollar in wages, and we continue to distort the market by offering comprehensive group insurance, which drives up costs but which very few people use because the universe of those who get it are the healthiest ones in the country. That's perverse.

Q: First, is there anything in the recent legislation that will help doctors collect reimbursements from patients who have HSAs? Second, you said the medical universe needs to be held accountable, and I wonder if you could expound on that a little more.

BT: Go to any bookstore or fly on an airplane. I've often wondered if they publish magazines just for airplane passengers. When I fly, I find publications that I've never found anywhere else except on an airplane. And if you go into large bookstores, you can find magazines for very narrow market niches. Currently, the big rage is home theaters. You know, plasma screens, surround sound, and all the rest. It's really pretty nice. But when you read the articles, you find they are loaded with very technical material. The irony is there are a lot of people you would consider average Americans who really do understand the very technical aspects, at least on a comparative basis. Now, I know distortion is not good, but I don't know what .001 distortion is versus .0095. But once they tell you the direction of the scale, you know one is better than the other, so you start making qualitative comparisons. Another example is automobiles. They have an alphabet soup of products that are currently available. They don't tell you it's antilock brakes; it's ABS, so you've got to figure out what that means. But many people know what these codes are.

Somehow, in the area of health, people are supposed to be totally incapable of understanding anything. I went to a doctor, because of a problem I have with my ankle. Foolish use, football, all that. The doctor looked at me and said, "You have gravel in your transmission." And I said, "Oh, get off it. Would you please tell me, one, what you believe the problem is; two, what you believe the remedy is; and three, what it is going to cost." If we had the information available, we could make the average person a discerning shopper. But the medical community doesn't want that information to be available.

When an airplane has an accident, they have extensive testimony and investigation. They've even got a black box on the airplane that they inevitably recover. They play back what happened. Everybody is supportive of getting to the bottom of what the problem was. Why? So it won't happen again. People are getting the wrong leg cut off in operating rooms. What if we had a black box in the operating room so we could find out who talked to whom and what happened? What if we had the ability to recreate all of the mistakes? Why? To go after somebody? To punish the doctor for cutting off the wrong leg? No. To make sure it doesn't happen again. But the mind-set behind the code of silence in the operating room is to make sure no one gets nailed for the problem. Now, in part, that's because of the tort laws. But it's partly because of a professional unwillingness to talk about colleagues.

You want to solve problems in the doctor area? You need true peer group review. Doctors know who the problem doctors are, and, frankly, if you eliminated them, you would eliminate a significant number of problems. Even though they're at the tail end of the bell curve, they're the ones responsible for a disproportionate share of medical errors. Unfortunately, you don't see the profession coming forward. Hospitals say they don't want to let people know how many people die in their hospital because they will lose patients. Yet there are all kinds of ways to report risks. There are all kinds of ways to reward people who are willing to take risks. But somehow, in the medical area, silence and lack of knowledge is the norm to a degree that isn't true of any other market I'm aware of. That's one of the biggest problems with the structure of medical care.

Our recent legislation allows doctors to collect money from patients who have Health Savings Accounts. In fact, it's the best possible arrangement. I would love to see patients sit down and ask doctors how much they charge. "What's your usual and customary fee?" And then, "Here's cash on the barrelhead. I've got the money to pay for it. What is it going to cost me if I pay for it now?" Let's have that kind of a conversation. Then you'll find doctors getting paid upfront, and maybe some doctors will give discounts rather than wait 120 days and receive one-third of the actual cost of the operation as they try to collect the few bucks they get from insurers who understand float, who hang onto the money as long as they can, and who pay only reluctantly.

Now, I think there may be a few doctors who will like this new arrangement. That will be revolutionary.

Q: As you mentioned, there is a large percentage of uninsured patients who are eligible for Medicaid. However, states are having a lot of trouble with the cost of the Medicaid program. I'm wondering if you would support any kind of enhanced match like Congress passed last year to help the states during these hard economic times.

BT: You'd be amazed at the political fight to simply take low-income seniors out of the Medicaid program and make them a part of Medicare. Now, get this: We decide in 1965 to have a program for seniors because, given the marketplace, they could not get health insurance and were not getting health care the way they should have. So we decide to have a national program, a federal program for seniors. It's called Medicare. But if you happen to be a low-income senior, you're in Medicaid, which is a federal/state-shared program and which is different in different states. Why in the world would you split seniors between the two programs?

Well, I think if you go back and look at the history, you will find there was a little bit of politics involved. Under a state-based Medicaid structure with just women and children, you would have a group of folks that, frankly, probably wouldn't be as politically viable. With seniors part of the same program, there is a stronger political base. So the big fight over having seniors be exclusively in Medicare was that you were splitting a very viable political mix (Medicaid) that would no longer be as strong as it had been historically. We succeeded, because, believe it or not, the argument that we ought to have a low-income segment for seniors under Medicare prevailed, especially when we decided we were going to add coverage for drugs. There were still those who were not open about it but were trying to subvert the change so that they could maintain a power base by having seniors who were better-organized and better-informed as part of another federal health program. To put all the seniors in one pot would dilute the leverage they had to influence the operation and funding of Medicaid.

Why are some people so upset that government actually decided to spend some money to tell people that a multi-billion dollar program exists for them? On the one hand, they complain about the monies that the program is going to cost, and on the other hand, they complain about a very small amount being spent to get the message out that the program is actually available. They're disputing the amount of money that is going to be spent because there's a disagreement about how many low-income seniors are actually going to enroll, now that it is a national program with uniform information available and uniform outreach to enroll those low-income seniors. So the argument is, "Well, the program is going to cost more than you said it would." But we are getting to those people who need it most, and if you spend a few bucks to actually enroll them, that's a plus, not a minus. It's interesting how the sides have stacked up in significant and different ways.

Q: Mr. Chairman, thank you very much for your presentation and your vision of what's wrong with the health insurance system in this country. You mentioned tax credits as one of the options for helping those with lower incomes. I wonder if you would talk about possible legislation this year that could begin to address that.

BT: In the short run it doesn't look good, in part, because of the economy and the way money is being spent, and the fact that everybody is taking a breath because we just passed a major broad-based health bill. I don't know that tax credits are the best way to go. The other concern I have is about health savings accounts. The President, in the State of the Union address, said it doesn't make any sense to have HSA deposits deductible, but not the premiums for the high-deductible insurance that goes with the HSA. I think that's right, but we should not recreate the problem of government driving the marketplace. When you allowed employers to deduct the fringe benefit and they went to first-dollar, third-party payer coverage, you went off in a direction that has produced the problems we have today.

I don't think we should elevate HSAs through a double bonus - the collection of the dollars in an account that is interest tax-free and expenditure tax-free - and then restrict deductibility only to premiums for HSA plans, because then you'll have government distortion of that marketplace. What I want is a broad spectrum of products in which people can choose what they really want. It seems to me, from a societal point of view, what you should do is have that Honda radio standard product that would be so cheap if it were available to everybody in a boilerplate structure, and make the subsidy a tax credit, which would in part replace the current system, and then have virtually all other coverage purchased with after tax dollars. Then people could decide what they want without distortions.

Why do you think fringe benefits are so grossly distorted the way they are now? Because as an employee if I can't get a dollar in wages tax free, I take the tax-free fringe benefit instead. So starting with basic catastrophic insurance, we added the bells and whistles, then we added vision care, then we added dental care, then we added veterinarian care. We went off in all these different directions because it was available and there was no cap forcing people to be rational about how they spent those dollars.

So government has got to figure out how to create a level playing field of assistance - not a product-by-product endorsement, which distorts the marketplace, because, then people will gravitate to the product that has the greatest subsidy. And then when the marketplace changes, you wind up with people who have the wherewithal to purchase, once again, but don't find a product that makes sense to them because government has distorted the market by virtue of its subsidies. So we're trying to move toward the broadest possible base for a subsidy of a common product and then let individuals' determine what they buy in the marketplace.

Q: What are your thoughts on making accessible - at least to researchers - the practitioner-level data in Medicare Part B so they can begin to do some kind of quality research.

BT: One of the failures of government was the failure to exploit the changes in the health care delivery system in recent decades. As we moved to managed care, we also began to move toward preventive and wellness care. There was epidemiological information about a discrete universe and there were millions of people in that discrete universe and government was paying those costs. But we never said, hey, wait a minute, we want from you the information you have so that we can begin to build a database, in order to find out whether or not we're getting our money's worth. That is a fundamental flaw we need to correct.

Beyond that, the information that's out there is collectible in forms that don't invade people's privacy. In fact, as we move toward greater computerization, privacy should be more secure. Walk into a doctor's office and look at all of those manila files in those sliding file cabinets. Who is going to know something is missing if a file is stolen? Paper is the biggest obstacle in keeping information confidential. Pulling it together in a comprehensive computer fashion, with very stiff punishment for misuse, would give us the ability to get the epidemiological information that will allow us to profile. Given the way computerization today can really isolate and go after problems in such a rapid way, we could have an invaluable tool, allowing us to get the maximum bang out of our investment in health care.

We constantly run into problems today that were created in the ‘50s and in the ‘60s and even in the ‘70s, which at one time may have made some sense terms of patient protection. But have you been to a senior citizen center recently? You think you're going to exploit those people? They are very knowledgeable. There is a network of seniors that spreads information faster than a computer virus. We need to review decisions in law that may have made sense once but don't make any sense today.

Q: Do you expect the President's Health Savings Account deductibility proposal will be part of the uninsured package that is coming up?

BT: We have tried to assist people who, through no fault of their own, become dependent on a government agency: The Pension Benefit Guarantee Corporation, which takes over from corporations that fail to honor their pension commitments. This is a group of people who normally are employed at relatively high salaries and who normally have fairly decent fringe benefit packages - and all of a sudden they find themselves out in the cold. So through trade adjustment assistance or through the PBGC, we offered a very modest subsidy - a 65 percent tax credit - to those people who found themselves without health insurance, usually in that very vulnerable period between ages 55 and 65.

There was a recent article, which said these efforts are not working. The judgment from the scholars and the think tanks on the other side, and apparently the reporters who listen to them, is that tax credits are probably a failure, and therefore we shouldn't go forward with similar efforts. But we've only been at this for six months. There has been virtually no publicity about the fact that the product is out there. Once you see the wave of HSAs break on the shore and the products beginning to develop, things will be different.

I'd very much like to provide a subsidy as broad as the current employer subsidy for these individual products. That certainly could include allowing an above-the-line deduction for the premium cost of the insurance. But I don't want to go so far as to distort the market by putting all the eggs in one product basket. That's not what I'm in it for. What I'm in it for is to create the potential for the marketplace to respond to real needs and for people with valuable, after-tax dollars to be able to make the decisions. We also need information available so those people who want to have an in-depth understanding can have the ability to make intelligent decisions with the dollars they spend. And government should be the solver of last-resort problems, not first-resort problems. That's the only way we're going to get on top of spiraling costs, ultimately.

Q: You've been talking about the employer subsidy for years. Do you have a plan to go more directly at that, legislatively, or are you reduced to taking small steps that may kind of go off in the wrong direction?

BT: No, of course I have a plan.

Q: And what is it?

BT: I'm not going to talk about it, because then the opposition will begin to rally. I see some friends of mine here who are reporters, and we visit daily. They must have the most frustrating job in the world, which is trying to get something out of me. My response to them is, "You have a job to do and I have a job to do. And if I help you get your job done, I may not get my job done." No, you have to have a comprehensive game plan, which may never be completely accomplished, but eventually the pieces begin to fall in place. The process is very slow and very difficult, but it's very important.

To try to change the system is so difficult. Take the Dakotas. The whole upper Midwest has very low utilization rates. It's partly cultural. People are resourceful and they take care of themselves. But many of the people down in south Florida get up in the morning, feel terrific and say, "I think I'll go to the doctor to find out why I feel so good." These different utilization rates get built into the cost reimbursement factor, and you get significant discrepancies.

If you can create a marketplace reimbursement arrangement instead of an arbitrary fixed formula, you can go a long way toward solving the problem. The difficulty is that you begin to buck a system in which bureaucrats think they know what people should have more than the people themselves, and that's a very difficult hurdle to overcome.

Also, I'll end with what I began with. Everybody here said you had insurance, but nobody here was willing to give up a little bit of it to help those who didn't. If that's the attitude we have, the effort to reform this outrageously expensive system is going to be long, difficult and probably ultimately unsuccessful.

We need to begin talking about creating a structure that provides basic coverage, beyond which individuals with valuable dollars make decisions for themselves in a marketplace that provides not only the information needed to make those decisions, but a payment mechanism that responds to time, place and manner. Critics say no one is going to thumb through the Yellow Pages to see who's going to give you the cheapest heart surgery when you have a heart attack. Okay. Let's talk about everything less severe than a heart attack, including a runny nose.

You cannot imagine the battle we went through to impose a modest little co-pay, say $1 to $5, as an entry price into the wide-open, expensive health care service that we're now creating for the first time: prescription drugs for seniors. The battle behind closed doors was not about low-income seniors; they don't have to pay anything. It was about charging seniors who have the wherewithal a $1 or a $5 co-pay just to help keep down overutilization. It was not unlike those of you who raised your hands when I said: Would you be willing to give up a little bit of what you had?

Together, we can solve the problem or together we can continue to try to argue that God created the insurance business and God created the employer deduction. It's a little bit like snow removal in D.C. - God put it there, and God can take it away. We can do something about it, and I was pleased that we made some minor inroads in the Medicare bill. But, we've got a long way to go.

Thank you very much.

*Note: These remarks have been edited by John C. Goodman.