Event Summary: Health Care in America: How to Fix a Troubled System

March 25, 2004

Harvard economist David Cutler, speaking at a Brookings Briefing today, presented a new vision for America’s troubled health care system, as outlined in his new book, Your Money or Your Life: Strong Medicine for America’s Health (Oxford University Press, 2004).

Cutler, who served on the Council of Economic Advisers and the National Economic Council during the Clinton administration, was optimistic about the future of the U.S. health care system, despite rising costs, shrinking insurance coverage, and an aging population. Currently, health care accounts for one-seventh of the U.S. economy, with that percentage expected to grow rapidly over the next decade as new treatments proliferate and the baby boom generation grows older.

Cutler said that heated political rhetoric clouds recent progress, including technological advances, greater life expectancy, and improvement in the quality of life. He admitted, however, that such progress has come at a cost.

“The vast reason why we spend more,” Cutler said, “is that the nature of what we can do is different?We spend more because we get more.”

Cutler referred to the history of cardiovascular care as an example of expensive—yet worthwhile—medical advances. In 1950, Cutler said, the standard medical response to cardiovascular disease was up to six months of bed rest—a virtually cost-free (and ineffective, it turns out) treatment. Now, heart disease can be treated with intensive diagnostic therapies, invasive revascularization, and drugs designed to restore blood flows, greatly increasing a patient’s chances of recovery. These treatments cost an average cost of $30,000 over a person’s lifetime.

“Is it worth it?” Cutler asked the panel and audience members. “What’s a life worth?” Viewed through that prism, Cutler believes that recent “medical advances cost a lot, but are worth it.”

The current system’s primary problem, according to Cutler, lies with the quantity, not quality of health care, and he noted that managed care currently rewards doctors on the basis of what services are provided, not how well they are performed.

“It’s the value, stupid,” Cutler said. “We collect data on what doctors do, on what the diagnosis is, and how they treat it. However, they get paid only on what the diagnosis is, not on what they actually do.”

Cutler argued that the system’s sustainability can be maintained, paid for, and even improved to provide universal health coverage—with some adjustments.

“We can do this for about one-half to two-thirds of the cost of the Bush tax cuts,” Cutler said. He called for a transition to a “pay-for-performance” system that would add five percent to Medicare payments through a “quality improvement fund.” Doctors would be assigned points for meeting quality standards and would lose points for failing to meet such standards. Funds would be awarded based on a doctor’s point accumulation.

Cutler conceded that the system’s future would require sacrifice by citizens and clear-thinking by politicians.

“If we want to afford more medical programs, we just need to say that we’re willing to do that,” Cutler said. “It’s not that we’ll have to absolutely cut back on things, we’ll just have to have them increase less rapidly than they otherwise would have.”

Not all panelists agreed with Cutler, however. “I don’t share David’s optimism about the political process,” said Leonard E. Burman, a senior fellow at the Urban Institute. “Universal health coverage would have to be based on tax credits, but it’s hard to think of Congress agreeing to $7,000 refund credits per family.” President Bush’s plan calls for a $3,000 credit per family only for insurance purchased separately from employer-based programs, a measure that Burman said would “undermine employment-based health insurance while still being grossly inadequate for people unable to pay for insurance.”

Stuart Butler, vice president of Domestic and Economic Policy Studies at the Heritage Foundation, agreed that universal health coverage was a worthy endeavor, but said it’s be difficult to fund.

“Paying for it is tricky,” said Butler. “To get adequate universal coverage would cost roughly $70 to $100 billion a year?I just haven’t figured out how to persuade people to ante up. Until we figure it out, it’s the part of [Cutler’s] prescription that we’re really never going to achieve.”

Brookings Senior Fellow Thomas Mann agreed that the implementation of Cutler’s plan would be difficult. “The whole transition from our current system to the one that David has in mind is the most difficult to grapple with,” Mann said. “I have a tougher time figuring out how in the world we get from here to there.”

Cutler conceded that his view was an optimistic one. “Maybe that’s what getting out of Washington does to you.”