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Remarks of Harvard University President Lawrence H. Summers, Conference on Biomedical Innovation and Health Care Spending

Boston, MA

It’s an interesting question to make the following comparison. Imagine what happened in the commercial aviation industry between, say, 1940 and 1980. There were a variety of very powerful technological improvements that took place. They led to substantially more transportation activity taking place, substantially more people being employed in the activity of air transportation, a substantial number of customers having opportunities that they had never had before, and significant changes in the American way of life, and air transportation representing a significantly greater share of GNP. And through the whole of those 40 years, I would suggest that everybody thought that was a terrific thing. And all the people associated with air transportation and almost everybody who looked on remarked on the terrific growth of America’s air transportation industry and thought of it as being a very happy thing.

And it is interesting to juxtapose that experience, which, by the way, I could transmute to any number of other industries – think about the computer or information technology industries more recently – with the tone of discussions about health care, where the basic facts are the same. More people working, a higher share of GNP, more consumers getting new stuff, tremendous technical improvements, and everybody says “Terrible thing, rising cancer on our economy.” And it’s an interesting question to ask why there is such a sharply different view of the growth of the health-care industry and growth of any other industry. And I think there are three possible answers to that question, and I may not have the right answer in my mind.

One answer is that people worried a bit as the air transportation industry developed that it was kind of unfair because rich people could go from coast to coast and poor people couldn’t, and so there was a greater inequality developing between rich people and poor people. But actually, in the case of air travel that wasn’t really a very important issue because it wasn’t that fundamental to get to go coast to coast or to go to Europe, so nobody was much worried about that. Whereas in health care there is a concern that as we make all of this progress and not everybody can afford the progress, something very troubling is happening. So one part of the reason why growth in health care creates more unease is there’s this sense of it as inequality exacerbated in the way most other kinds of growth is not.

The second is the concern that I think is probably 70 percent misplaced, which is that we’re not actually getting value for the growth. There are all these people doing all these procedures because they like doing these procedures and they get paid for doing these procedures but people aren’t actually getting healthier, or insofar as they are getting healthier, it’s because of cleaner water or more exercise, not the stuff that all the people of the health-care industry are making money doing. And that perception is significantly around. It was in no small way the conventional academic wisdom 20 years ago.

And I think it’s the great contribution of some of the research that has been done here and some of the research that’s been discussed at this conference – I think in particular of the work David Cutler has done and published in his book, Your Money or Your Life – to demonstrate that there is an enormous amount of very valuable innovation that has taken place whose benefits in application have very substantially exceeded the costs, and while there may well be areas of excess care, there are huge areas in which the share of GNP devoted to health care could rise and in which the benefits would very substantially exceed the cost. But that case is less securely in the public mind with respect to health care than it is with respect to air travel, though I think that’s changing as people observe what’s happening to them and their families and as all of this research is being done.

The third, and in my judgment, largest reason why this is seen rather differently in health care than it is seen in other spheres of the economy is that the public sector pays for a substantial share of the health-care benefits and people are paying for their own air travel, and so these extra health-care benefits are for other people paid for by my taxes. And most of us, I suspect, and it would be interesting if this hasn’t been done for somebody to do the survey, to ask people how much taxes they think they pay for health-care benefits and how much benefits they expect to receive in present value from Medicare. And my suspicion is that the value of the benefits people are receiving from Medicare is substantially underestimated in their own mind and the value of the taxes that they are paying to support other people’s health care are probably relatively accurately seen. And so I think the crucial challenge here comes in this third area, and there are a number of possible solutions, and I don’t have a clue which one is right.

One is to get people to understand that even though it takes place significantly in the public sector and taxes are paying for it, it’s really good and they should just get used to it – that we’ve just happened to have a terrific improvement in something that’s just paid for collectively and so taxes are going to be higher than they used to be. That’s one line of education.

A second line of education is to find ways to link the benefits people are receiving a little more explicitly to the taxes that they are paying. My Medicare benefit has something to do with my – and I don’t mean literally this proposal – but my Medicare account that was built up for me along the way, so that people have more of a sense of buying their own. People support Social Security in no small part because they think they’ve earned their Social Security benefits through their contributions, and they don’t feel that way with respect to Medicare. And finding solutions to achieve that objective seems to me to be a second part of the solution.

The third is finding ways for the government to convince people that it is an intelligent but fair consumer. There’s a suspicion on the one hand that the government is unfair to providers, and I suspect in this room there would be a consensus that the dangers are rather more on the side of the nasty things the government does to academic medical centers and the terrible threat that government price controls pose to the pharmaceutical industry, but that in a broader public sense, there is a feeling that if the government doesn’t do such a great job of procuring things and that when government procures things, it tends to be spending other people’s money and therefore it tends to spend less well. And so, achieving a sense of confidence in what the public sector does seems to me to be an additional part of solving this riddle.

But I do think that the preponderance of evidence is that the paradigm that says “it’s a rising share of GNP; it’s going to eat the whole economy up,” which does continue to be the dominant paradigm through which this issue is viewed, is just wrong. And it is very important for people in this room to find ways to win that argument. I think we’re probably winning that argument a little bit, but my suspicion is we probably made more progress on that argument in the last decade because the growth of health care relative to GNP has slowed, rather than because people are believing our arguments. And I would guess it’s going to be a tough next five years, and it seems to me that’s a very important challenge for all of us.