Health called major U.S. test

Bernanke says cost is growing burden for people and nation

Associated Press

June 17, 2008

WASHINGTON - Bolstering the performance of the U.S. health care system is one of the biggest challenges facing the country, Federal Reserve Chairman Ben S. Bernanke said yesterday.

New medical technologies and treatments are allowing people to live healthier, longer and more productive lives. However, the aging of millions of baby boomers coupled with rapidly rising heath care costs are accounting for an ever-growing share of both personal and government budgets - strains that will become increasingly burdensome unless changes are made, the Fed chief warned.

Challenges, he said, fall into three major areas: improving access to health care for the 47 million Americans - or about 16 percent of the population - who lack health insurance; bolstering the quality of care; and controlling costs.

"Improving the performance of our health care system is without a doubt one of the most important challenges our nation faces," Bernanke said in remarks to a summit on health care reform organized by a Senate panel on Capitol Hill.

The Fed chief didn't talk about the Fed's next move on interest rates or the state of the U.S. economy in his speech or during a brief question-and-answer session afterward.

Many economists believe the Fed will hold its benchmark interest rate steady at 2 percent, a four-year low, when it meets next week. Bernanke and other Fed officials have sent strong signals that the Fed's rate-cutting campaign, started last September to shore up the ailing economy, was probably over because of mounting concerns about inflation.

Wall Street investors and some others believe that the Fed might be forced to raise interest rates later this year to thwart a dangerous inflation flare-up.

Others, however, still think the Fed will be able to hold rates steady through the rest of this year.

It's a difficult spot for Fed policymakers. They are trying to aid an economy that has been badly bruised by the blows of housing, credit and financial debacles. At the same time, they don't want inflation to take off. If the Fed were to start boosting rates too soon to fend off inflation, that could impede fragile economic growth.

On the health care front, Bernanke didn't recommend specific solutions, saying the difficult choices involved with improving access and quality, and controlling costs, were best left to policymakers in Congress, the White House and elsewhere.

"Taking on these challenges will be daunting," he said. Given the complexity of health care matters, he suggested that it might be better for policymakers to consider an "eclectic approach," rather than one single set of reforms to address all concerns.

"We may need to first address the problems that seem more easily managed rather than waiting for a solution that will address all problems at once," Bernanke offered. When policymakers contemplate changes, he said, he urged that they "not lose what is good about our system."

The system has produced innovations in basic science, in the understanding and diagnosing of disease and in advancements in medical technology, he pointed out. These advances have produced more effective treatments and significant reductions in mortality across a wide spectrum of diseases, he added.

Bernanke, once again, warned that high health care costs will put an increasing strain on people's and government's budgets unless those costs are restrained.

Spending on health care is the single-largest component of overall consumer spending - larger than spending on either housing or food, Bernanke said.

For the federal government, spending on health care accounts for about one-quarter of total spending. By 2050, it will account for almost half, Bernanke said.

"Per capita health care spending in the United States has increased at a faster rate than per capita income for a number of decades," he said. "Should that trend continue, as many economists predict it will, the share of income devoted to paying for health care will rise relentlessly," Bernanke predicted. That will make health insurance and out-of-pocket payments increasingly unaffordable, he said.

However, if the government doesn't rein in the growth of entitlement programs, such as Medicare and Social Security, those exploding costs in time will balloon the U.S. budget deficit, which would hurt the country's long-term economic vitality and could lead to higher interest rates, Bernanke said.

"Certainly, it will have effects on interest rates, it will have effects on economic growth and on stability," he said.

The government, Bernanke said, needs to move ahead sooner, rather than later, because these issues "are not going to get better" and instead will only "get worse."