[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

2011 MEDICARE TRUSTEE REPORT

=======================================================================

HEARING

before the

SUBCOMMITTEE ON HEALTH

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

JUNE 22, 2011

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Serial No. 112-HL4

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

Subcommittee on Health

WALLY HERGER, California, Chairman

SAM JOHNSON, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin MIKE THOMPSON, California
DEVIN NUNES, California RON KIND, Wisconsin
DAVE REICHERT, Washington EARL BLUMENAUER, Oregon
PETER ROSKAM, Illinois BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida

Jon Traub, Staff Director

Janice Mays, Minority Staff Director

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C O N T E N T S

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Page

Advisory of June 22, 2011, announcing the hearing................ 2

WITNESSES

Charles P. Blahous, Ph.D., Public Trustee, Social Security and
Medicare Boards of Trustees Testimony.......................... 8
Robert Reischauer, Ph.D., Public Trustee, Social Security and
Medicare Boards of Trustees Testimony.......................... 17

SUBMISSIONS FOR THE RECORD

The Center for Fiscal Equity..................................... 50
American Academy of Actuaries.................................... 55
American Federation of State, County and Municipal Employees..... 68

MEDPAC MARCH 2011 REPORT TO CONGRESS

----------

WEDNESDAY, JUNE 22, 2011

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to call, at 9:35 a.m., in
Room 1100, Longworth House Office Building, Honorable Wally
Herger [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

Chairman Herger Announces Hearing on the 2011 Medicare Trustees Report

June 22, 2011

House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing
on the recently released 2011 Annual Report of the Boards of Trustees
of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds. In what will be the first in a series of
hearings on Medicare's future, the Subcommittee will focus specifically
on the Medicare program's financial status. The Subcommittee will hear
testimony from Medicare's two public trustees. The hearing will take
place on Wednesday, June 22, 2011, in 1100 Longworth House Office
Building, beginning at 9:30 A.M.

In view of the limited time available to hear from witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.

BACKGROUND:

The Social Security Act requires the Board of Trustees for the
Medicare program to report annually to the Congress on the current and
projected financial condition of the Medicare Hospital Insurance (HI)
and the Supplementary Medical Insurance (SMI) trust funds. The
trustees, who are designated in statute, are the Secretary of the
Treasury, the Secretary of Health and Human Services, the Secretary of
Labor, the Administrator of the Centers for Medicare and Medicaid
Services (CMS), and the Commissioner of Social Security. Additionally,
the statute requires that there be two public trustees, from different
political parties, who are appointed by the President and confirmed by
the Senate for four-year terms. The CMS Office of the Actuary is
responsible for preparing the report. The 2011 report was released on
May 13, 2011, and can be found at https://www.cms.gov/
ReportsTrustFunds/downloads/tr2011.pdf. The Medicare actuaries
subsequently released an alternative scenario memorandum, based on what
actions they expect Congress to take (such as preventing cuts to
Medicare physician payment rates) to ``present an alternative scenario
to help illustrate and quantify the potential magnitude of the cost
understatement under current law.'' That memo can be found at http://
www.cms.gov/ReportsTrustFunds/Downloads/2011TRAlternativeScenario.pdf.

Ensuring the financial viability of Social Security and Medicare is
one of Congress' most important responsibilities. The annual release of
the trustees' reports provides Congress with a valuable update on the
programs' fiscal status and important information with respect to
projections of future expenditures.

The trustees currently predict the Medicare HI trust fund will go
bankrupt in 2024, five years earlier than they estimated in last year's
report. Additionally, this was the sixth consecutive report in which
the Medicare trustees issued a ``Medicare funding warning'' because
they project ``excess general revenue Medicare funding,'' as defined by
a provision contained in Public Law 108-173.

The trustees project Medicare spending to grow from 3.6 percent of
Gross Domestic Product (GDP) in 2010 to 6.2 percent of GDP in 2085, or
to 10.7 percent of GDP in 2085 under their alternative scenario.

In announcing the hearing, Chairman Herger stated, ``The findings
of the Medicare trustees are alarming. Medicare's Hospital Insurance
trust fund is expected to go bankrupt five years sooner than last year
and was forced to redeem $32.3 billion in bonds last year so that it
could pay medical claims. It is critical that the American people
understand just how dire Medicare's finances are.''

FOCUS OF THE HEARING:

The hearing will focus on Medicare's financial situation as
detailed by the 2011 Medicare Trustees report.

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Chairman HERGER. We are meeting today to hear from the two
public members of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance
Trust Funds.
It is important to understand the financial health of the
Medicare program if we are to ensure that the program is
solvent and available to future generations of Americans. The
2011 trustees' report makes it clear that Medicare's financial
outlook is bleak. The Medicare trustees estimate that the
Medicare Hospital Insurance Trust Fund will be bankrupt in
2024, 5 years earlier than estimated in last year's report.
Even though the report paints a very troubling financial
picture, the reality is likely much worse.
The independent actuaries at the Centers for Medicare and
Medicaid Services felt the need to publish an alternative
scenario because of the high likelihood that the trustees
report, which is based on current law, understates future
Medicare spending. The Medicare actuaries' alternative scenario
assumes that Congress will prevent scheduled cuts in provider
payments such that Medicare spending as a percentage of gross
domestic product will be nearly twice as high as the spending
called for under current law.
The trustees report and the alternative scenario reinforce
the need for prompt attention to Medicare's severe financial
problems.
Republicans recognize the seriousness of this situation,
and have demonstrated their commitment to addressing Medicare's
financial demise. We put forth a plan to save Medicare.
Congressional Democrats and President Obama have not. My hope
is that this hearing will help the Nation come to grips with
the extent of the financial problems facing Medicare. We cannot
wish it away or ignore it, as some have chosen to do, or
demagogue it away. Medicare is fast going broke, and no amount
of speechmaking or positioning for political gain is going to
change that fact. Some may not like the plan we have offered,
but the critics have the responsibility of proposing solutions.
I also call on the President to step forward and play a
leading role. While the 2011 trustees report issued a funding
warning that the general revenue contribution to Medicare's
financing is excessive, the President has failed to recommend
improvements in response to this trigger.
There will always be a next election and a temptation to
put politics above responsibility and problem solving, but as
Medicare trustees warn, the time to act is short and growing
shorter. Ensuring the financial viability of Medicare is one of
Congress' most important responsibilities. Today's witnesses
will inform us of the extent of Medicare's financial
difficulties as we execute this responsibility.
Chairman HERGER. Before I recognize Ranking Member Stark
for the purposes of an opening statement, I ask unanimous
consent that all Members' written statements be included in the
record. Without objection, so ordered.
I now recognize Ranking Member Stark for 5 minutes for the
purpose of his opening statement.
Mr. STARK. Well, thank you, Chairman Herger, for holding
this hearing today. Monitoring Medicare's solvency is an
important responsibility for our committee, and we welcome the
opportunity to discuss this with our public trustees today.
The trustees report shows a Medicare program which has been
significantly improved by the enactment of the Affordable Care
Act. Beneficiaries are also enjoying new benefits as a result
of the law. And without the health reform law, insolvency would
be projected at only 5 years, a full 8 years less than the 2024
date reported by the trustees.
It is important to look at the trustees report in
historical context. Since we have been projecting Medicare's
solvency, those projections have varied widely. In 1970 and
1971, just before I got here, the program was expected to only
last 2 years. At the end of the Clinton administration, it had
a robust 25 years of solvency. In the past 45 years, whether
solvency projections have been 2 years or 25, we have never
allowed Medicare to become insolvent. And why? Because Congress
has always acted to make changes to the program to avoid that
outcome. That is our job, and I think we have done it pretty
well.
I would also note that no private health insurance company,
and we know our colleagues on the other side of the aisle would
prefer that Medicare be handed over to them, none of those
companies are measured with regard to their projected solvency
over the next 75 years, or even 1 year. They move quarter by
quarter with the market.
My Republican colleagues will focus on the solvency date
having slipped 5 years from last year's projection of 2029. We
know that this slip is primarily due to the economic recovery
being so slow, which directly affects Medicare's financial
standing. I am not sure why the Republicans are focused on the
issue of Medicare solvency at all. They have already voted to
end Medicare several times. The Republican position is clear:
Republicans don't believe it is the role of the Federal
Government to guarantee health benefits to senior citizens and
people with disabilities. Republicans would prefer to repeal
the health reform law and end the delivery system reforms,
reforms that the trustees' report highlight as showing real
promise for controlling Medicare's spending growth even more in
the future. Republicans instead want to provide Medicare
beneficiaries with a voucher to purchase more expensive private
insurance that may or may not be affordable or cover the
benefits they need. There is no doubt that an underfunded
voucher would save the government money. Medicare becomes a lot
cheaper when you destroy the program.
The message to take from this year's trustees report is
that the Affordable Care Act significantly improved Medicare's
financial standing. There is always more to be done, and we
must work together to protect and improve Medicare, not end its
guaranteed benefits for senior citizens today and tomorrow.
With that, I yield back to my friend from California and
look forward to the testimony and discussion to come.
Chairman HERGER. Thank you.
Today, we are joined by two witnesses, both of whom serve
as public trustees for the Medicare program. The witnesses will
both report on the dire financial status of the Medicare
program as outlined in the most recent trustees' report.
In addition to serving as public trustees, both of our
witnesses are nationally recognized experts in the fields of
Federal fiscal policy and the Federal budget.
Our witnesses are Charles Blahous, a research fellow at the
Hoover Institution and former Deputy Director of the National
Economic Council; and Robert Reischauer, president of the Urban
Institute and former Director of the Congressional Budget
Office.
Mr. Blahous, you are now recognized for 5 minutes.

STATEMENT OF CHARLES P. BLAHOUS, PH.D., SOCIAL SECURITY AND
MEDICARE BOARDS OF TRUSTEES, WASHINGTON, D.C.

Mr. BLAHOUS. Thank you, Chairman Herger, Ranking Member
Stark, and Members of the Subcommittee. It is a great honor to
appear before you today to discuss the findings of the 2011
Medicare trustees' report.
By mutual agreement with my fellow public trustee Dr.
Reischauer, I will present the primary findings of the report
with respect to projected Medicare finances, and leave other
important issues, such as the reasons for change in the
projections and the degree of uncertainty in the projections,
for him to discuss.
Medicare has two trust funds. There is a Hospital Insurance
Trust Fund, colloquially known as Part A; and a Supplementary
Medical Insurance Trust Fund, which includes Part B, which is
basically physician services, outpatient hospital, home health
services; and Part D, the prescription drug program. Every year
there is a great amount of interest in the trustees'
projections for the solvency of the Part A fund and its
projected date of trust fund depletion. That attention is
appropriate.
It is important to remember, however, this is just one
component of overall Medicare financing. On the SMI side,
basically general revenue contributions, premiums, these
factors are reestablished each year so as to match expected
costs on that side of the program. So when there are financial
strains on the SMI side, which there definitely are, they are
manifested in a different way. We don't show a projected date
of trust fund depletion; instead, we show rising general
revenue pressures and rising enrollee premiums.
Let me first review the HI projections. Currently we
project that every year going forward annual hospital
expenditures under HI will exceed program income in all future
years. And the consequences of that would be a continuing
diminution of the assets in the HI Trust Fund to the point
where it is exhausted in 2024. As has been noted here, that
2024 date is 5 years earlier than was projected in the previous
trustees' report.
At that point of depletion, projected revenues would be
roughly sufficient to fund about 90 percent of expenditures,
and that percentage would gradually decline from that point
forward till by midcentury it would be about three-quarters of
expected expenditures. That would be a low point. Afterwards,
it would begin to drift up a little bit.
Over 75 years, the so-called long-range valuation period
over which HI actuarial balance is measured, that is
traditionally done as a percentage of the program's tax base,
taxable payroll, and we show a projected deficit of 0.79
percent of taxable payroll over 75 years. Last year's report
showed 0.66 percent.
Now, as I have noted, this is just one component of
Medicare financing. On the SMI side, we see the financial
strains arising in the form of rising costs. SMI costs were
roughly 1.9 percent of GDP in 2010. We show them rising fairly
rapidly and going to 3.4 percent of GDP in 2035. And, indeed,
Medicare costs as a whole are projected to rise fairly rapidly
to reach about 5.6 percent of GDP in 2035 and to increase
gradually thereafter to more than 6 percent of GDP.
Now, I have a couple of caveats about those numbers, but
before I get to those, just one additional point. This year's
report also issues a Medicare funding warning. There is a
provision of law that requires us to state when we project that
at any time over the next 7 years there will be a year where
the gap between program outlays and dedicated revenues is more
than 45 percent of program outlays, and that is the case for
fiscal year 2011, and that funding warning has been issued in
this report for the sixth consecutive year.
Now, the caveat about the numbers. There are a number of
places in the trustees' report where it is stated pretty
explicitly that actual costs in practice are likely to be
substantially higher than what we show, and the reasons for
this are various. The most obvious of them is the fact that
under current law there would be roughly a 29 percent reduction
in physician payments in early 2012. Historically, Congress and
the administration have worked together to override those
reductions that have been called for by the sustainable growth
rate formula over the years. Obviously if that continued to be
the case, then actual costs in practice would be higher than we
show.
As members of this subcommittee know better than anyone,
there is a vigorous ongoing debate as to whether or not the
cost-savings provisions of the Affordable Care Act will be
sustainably implemented other the long term. We as trustees are
obviously not in a position to arbitrate on that and to predict
the political economy of the Affordable Care Act over the long
term. All we can do is show literal current law as it is
written.
Now, what the Medicare actuary does is he publishes an
illustrative alternative scenario in which it is shown that the
consequences of physician payment reductions being overridden
and the productivity adjustments from the Affordable Care Act
being gradually phased out over time. Under that scenario total
costs are substantially higher than in the main report, 10.7
percent of GDP in 2085 rather than 6.2 percent.
I know I am out of time, so I will wrap up. Just one final
point. That all speaks to political uncertainty, but it is
important for the subcommittee to know that Medicare
projections are highly uncertain even if the politics are
certain. There is a tremendous amount of variation in the
projections over the long term according to different
assumptions for health care cost inflation. It is a very
difficult variable to predict over the long term.
The bottom line is that the Medicare programs faces real
and substantial financial challenges. We will best serve the
interests of the public if these financial corrections are made
at the earliest possible time.
Thank you, Mr. Chairman.
Chairman HERGER. Thank you.
[The prepared statement of Mr. Blahous follows:]

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Chairman HERGER. Now Mr. Reischauer is recognized for 5
minutes.

STATEMENT OF ROBERT REISCHAUER, PH.D., PUBLIC TRUSTEE, SOCIAL
SECURITY AND MEDICARE BOARDS OF
TRUSTEES, WASHINGTON, D.C.

Mr. REISCHAUER. Thank you, Chairman Herger, Ranking Member
Stark, and Members of the Subcommittee. I appreciate the
opportunity to appear before you to discuss the 2011 Medicare
trustees' report.
I will focus my comments on changes that have occurred
between the 2010 and 2011 reports and on the inherent
uncertainty that surrounds projections of health care costs,
both in the public and the private sectors.
As you all know, the trustees' projections of the financial
health of the Medicare program change each year for a variety
of reasons. There might be legislation that affects them. There
is almost always a failure of the base year actual amounts to
equal what was projected the previous year for that year. There
are changes in economic and demographic assumptions, and there
are continual refinements and improvements in the methodologies
used by the actuaries to make the projections.
The media and the public, as my colleague pointed out, look
largely at the date at which the HI trust fund becomes
exhausted to make a judgment about whether the changes have
been significant or not from one year to the next. As has been
mentioned, the 2011 trustees' report projects that the Medicare
HI Trust Fund will be depleted in 2024, which is 5 years
earlier than projected in 2010. But it is worth noting that
that is still 7 years later than was projected in the 2009
report, which was the last one issued before the Affordable
Care Act was enacted, and 8 years longer than the actuaries'
latest estimates for the date of depletion were the Affordable
Care Act not the law of the land.
The 5-year deterioration in the date of the trust fund
exhaustion might suggest that some major changes have occurred
in policy or in assumptions. That is not the case. Instead,
rather small deviations of actual from projected performance in
2010, and a few small changes in assumptions about the future,
were enough to move the estimated date of exhaustion 5 years
earlier.
The second figure in my prepared statement shows that
Medicare expenditures have exceeded income since 2008. Last
year's trustees' reports projected that as the economy
recovered, this would turn around, and we would experience
small surpluses in that trust fund in the period between 2014
and 2022. But under the new projections, Medicare spending is
expected to exceed income for the indefinite future.
A more comprehensive measure of the HI Trust Fund's fiscal
situation is the actuarial balance, which is the difference
between the program's annual income and costs rates averaged
over a 75-year period and expressed as a fraction of taxable
payroll. The actuarial balance has deteriorated from minus 0.69
to minus 0.79 between the 2010 and 2011 report. The primary
factor responsible for this decline is that expenditures were
higher and payroll taxes were lower in the base year 2010 than
was anticipated in the previous year.
Let me just say a few words about the inherent uncertainty
of projecting Medicare's expenditures. We all realize that
there is a lot of change going on in health care, both in the
public and the private sectors, and how that will play out over
the next several decades is quite uncertain. As the chairman
has mentioned, the trustees' report projects expenditures and
income based on current law, and because current law assumes
the implementation of a 29.4 percent reduction in the physician
fee schedule payments in 2012, some have viewed this as a
relatively optimistic scenario.
The actuaries have provided an alternative estimate, which,
as my colleague explained, assumes that the physician fee
schedule is increased each year by the Medicare Economic Index,
and also that the productivity-related reduction in payment for
other providers is phased out. Some have suggested that this is
the right or appropriate alternative projection. I think one
can argue that, in fact, just as the trustees' report might be
a little optimistic, this is a little pessimistic, because over
the last 9 years, the update in the physician fee schedule has
not kept pace with the Medicare Economic Index, and at times we
have seen a reduction from full updates for other providers.
I think the message that we leave you with is that further
legislative changes have to be considered by the Congress. The
sooner those are enacted, the less disruption there will be for
taxpayers, for beneficiaries, and for providers. And so it is
essential that this is on the front burner of the Congress.
Thank you.
Chairman HERGER. Thank you very much.
[The prepared statement of Mr. Reischauer
follows:]

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Chairman HERGER. I thank our witnesses for their
testimonies.
Before I get to my questions, I would like to welcome the
newest member of the Health Subcommittee, Vern Buchanan. As Mr.
Buchanan has many Medicare beneficiaries in his district, we
especially look forward to his insights.
Mr. Blahous, I would like to get a few things on the
record. When do the Medicare trustees expect the Medicare
Hospital Insurance Trust Fund to go bankrupt?
Mr. BLAHOUS. We project depletion of the trust fund in
2024.
Chairman HERGER. What was the bankruptcy date in last
year's trustee report?
Mr. BLAHOUS. It was 2029.
Chairman HERGER. So in the course of 1 year, the Medicare
HI Trust Fund lost 5 years in solvency? Is this something
Congress should be concerned about?
Mr. BLAHOUS. Well, I would state we should definitely be
concerned about the hastening insolvency of the trust fund. As
I note in my testimony, because trust fund balances are so low
for several years going forward, changes of several years in
the insolvency date are quite possible even without qualitative
changes in the annual operations of Medicare.
Chairman HERGER. Mr. Blahous, I can tell you that it is
certainly alarming to me that during the course of just 1 year,
the Medicare Hospital Insurance Trust Fund lost 5 years of
solvency and is now expected to go bankrupt, as you stated, in
2024. You state in your testimony that ``it does not take a
great deal of creativity to imagine a 2012 Medicare trustees'
report in which the Hospital Insurance Trust Fund and solvency
date moves again by several years in either direction.''
Are you suggesting that it is possible that we could see a
Medicare bankruptcy date within the next 10 years?
Mr. BLAHOUS. Well, it is certainly very possible. The trust
fund ratio, that is basically the measure of the relationship
of assets in the trust fund to annual expenditures, that is
projected to drop below 50 in 2015. So less than half a year's
worth of benefit payments could be accounted for by assets in
the trust fund. Once you are down at that level, you run the
risk of trust fund depletion. That is certainly very possible.
It is also quite possible it could move the other way.
Chairman HERGER. The trustees' report estimates that the
Medicare Hospital Insurance Trust Fund is projected to spend
more money paying claims this year than it will collect via the
payroll tax; is that correct?
Mr. BLAHOUS. Yes.
Chairman HERGER. How long has that been the case?
Mr. BLAHOUS. 2008 was the first year.
Chairman HERGER. Do you expect this trend of the Medicare
Hospital Insurance Trust Fund spending more than it is
collecting to continue?
Mr. BLAHOUS. Yes, we do.
Chairman HERGER. Are you aware of any program that will be
financially sustainable if it spends more money than it has, or
is this a recipe for bankruptcy?
Mr. BLAHOUS. Well, certainly our current projections would
exhaust the trust fund because of these annual operating
deficits, yes.
Chairman HERGER. I thank you.
Mr. Stark is recognized for 5 minutes.
Mr. STARK. Thank you, Mr. Chairman.
Mr. Reischauer, if you would just help me for a minute with
a personal matter. I have a 9-year-old who hates math and
science, but he wants to be the batboy for the Democrats' ball
team. I have to go home and explain to him how somebody with a
Ph.D., like yourself, in computational quantum chemistry gets
published in the Baseball Research Journal. Can you help me a
little bit? That is a personal matter, and if you want to take
time later, I would certainly appreciate the help at home to
get this little bugger to study his math and science, and let
him know that he could have something to do with baseball. It
would be deeply appreciated.
The shortened solvency date, Dr. Reischauer, I believe has
been caused by sluggish economic recovery, and it is due to a
drop in revenues and an increase in spending, both factors
caused by the general state of our economy; am I close?
Mr. REISCHAUER. You are right on the money. This is a
program that is sensitive to the strength of the economy, both
in direct and quite indirect ways. When economic growth picks
up, wages of providers goes up, expenditures go up as a result
of that. When the economy weakens, we see both induced
enrollment of those who lose their jobs but were working when
they were over 65, and a fall-off in payroll tax revenues.
Mr. STARK. Some have suggested that we could save a good
bit of money by allowing Medicare private contracting. The
Republicans seem to think that this would allow Medicare to
continue paying doctors, but then allow doctors to charge
whatever they want on top of the Medicare payment. Do you have
any concerns about the effects of private contracting on, say,
access to care and quality of care?
Mr. REISCHAUER. As a public trustee, I don't. As an
analyst, it is an area that concerns me in that if private
contracting were permitted and were not regulated, we could see
access by individuals who are in tight markets, tight provider
markets, begin to create some problems.
Mr. STARK. The Affordable Care Act is going to expire in
2016, and the report issued today shows that the reforms in the
Affordable Care Act would add 8 years to the solvency. Before I
ask if you think that is about right, I do notice that since I
have been here, and perhaps since Mr. Rangel has been here, we
have been going to go broke just about every year, and the
reason, of course, we don't is that Congress acts in one way or
another to protect Medicare. But going back, the question of
the shortened solvency date caused by the economy in general,
is there any one area that you suggest to us that we might move
to extend the solvency of Medicare?
Mr. REISCHAUER. You know, there are a tremendous variety of
measures that could strengthen the Medicare program's financial
position, and some basic decisions have to be made by the
Congress on the extent to which we should look to
beneficiaries, taxpayers, or providers to contribute to that
effort. Some of them involve changes in the current structure.
Others involve incentives that might lead to a reformed
delivery system, and we could talk for several weeks, probably,
on the pros and cons of the various alternatives.
Mr. STARK. Thank you.
I thank you, Mr. Chairman.
Chairman HERGER. The gentleman from Texas Mr. Johnson is
recognized for 5 minutes.
Mr. JOHNSON. Thank you, Mr. Chairman.
Good morning. You know, 5 years. Last Congress, the
Democratically controlled Congress, passed a health care
overhaul and a stimulus bill that were supposed to control
health care costs and extend the life of the trust fund. From
your report I would say these bills failed. Do you think those
efforts are enough to solve this crisis?
Mr. PASCRELL. Would the gentleman yield, Mr. Johnson?
Mr. JOHNSON. Why?
Mr. PASCRELL. I wanted to ask you a question.
Mr. JOHNSON. Ask me a question? I don't yield.
I want to know if you think that those efforts are enough
to solve the Medicare problem, or did we not get into it deep
enough?
Mr. BLAHOUS. Clearly under our projections, we have a
deficit in Medicare, even if we assume the current law is
sustainably implemented. And as I indicated, actual costs are
probably likely to be somewhat higher than what we show. So we
clearly have a remaining problem left to solve.
Mr. REISCHAUER. Notwithstanding that, the best estimates,
our estimates and CBO's estimates of the Affordable Care Act
are that they extended the life of the trust fund, and were the
Affordable Care Act to be repealed, the date at which the trust
fund would become depleted would move from 2024 to 2016.
Mr. JOHNSON. I recognize you all are Ph.D.s, do you consult
with medical doctors when you look at this kind of thing? Do
you have them in front of you talking to you and telling you
what their problems are; yes or no?
Mr. REISCHAUER. You mean when we do the iterations for the
trustees' report?
Mr. JOHNSON. Yes.
Mr. REISCHAUER. No.
Mr. BLAHOUS. No.
Mr. JOHNSON. So you are not consulting the medical
community at all. And, you know, docs, I think, play the
system. They are going to ask for more than it really costs
them because they know it isn't going to get paid. You are
probably aware of that. That is why I ask you if you ever
consult with the doctors themselves. The paperwork is
atrocious. I don't know if you are aware of that or not. But it
seems to me that the doc costs are part of our problem. I don't
know that you all have really considered it.
Clearly we need to do more to save Medicare for future
generations. I would just ask both of you: Do you have
solutions for this problem? You know, you talk about the
problem. What are the solutions?
Mr. BLAHOUS. Again, I would be very careful to say as
trustees, we have to be very careful about not having a view.
Personally, I think there are only so many levers you can pull.
The things that drive the problem are the growth of the
beneficiary population, so you have to look at eligibility
criteria and eligibility ages. You have to look at the growth
of the per capita benefits paid by the Federal Government. That
is always dicey, and you get attacked for, quote, ``cutting
benefits'' when you do that. But no matter how you do that,
whether you are talking about the Affordable Care Act or
alternative visions for Medicare, we are all in the game of
having to cap the growth of the per capita benefits the Federal
Government is paying and controlling that rate of growth in
some way. That has to be a component of the solution. In fact,
we need additional cost constraint beyond what is in current
law if Medicare is going to be maintained in terms of its
solvency.
Mr. JOHNSON. Do you have a comment on that, Dr. Reischauer?
Mr. REISCHAUER. Well, I would agree with my colleague that
there are a handful of areas that you can look to. Changing the
number of folks who are eligible for this program, the
definition of covered benefits, the payment to providers, the
contribution from beneficiaries--in other words, premiums--and
the contribution from the taxpayer, those are easy ones to
estimate the savings that might result from them. A much harder
one is to figure out what a change, a significant change, in
the structure of the delivery system might do to lower the
growth of costs over the long run.
Mr. JOHNSON. Thank you both for your comments. I appreciate
it.
Thank you, Mr. Chairman.
Chairman HERGER. Thank you.
The gentleman from Wisconsin Mr. Ryan, the chairman of the
Budget Committee.
Mr. RYAN. Thank you gentlemen for coming here. Five minutes
isn't enough time to get into all of this.
A couple of things. It has been said that we want it to go
away, or something like that. We all represent around 700,000
people. Our relatives are on Medicare. It is probably one of
the most important programs the Federal Government has or has
ever had. We want it to work; we want to save it.
Here is our problem. We have 10,000 baby boomers retiring
every day with fewer workers coming into the workforce to pay
for it. We have health care costs going up a lot faster than
inflation. You are telling us that the HI Trust Fund is going
bankrupt in 2024; CBO is telling us faster than that. So
something has got to be done.
I want to ask you a couple of premise questions. A, do you
both agree that you cannot say the savings in Medicare is going
to pay for the Affordable Care Act and extend the solvency of
Medicare? Do you agree that that is counting a dollar twice?
Just a quick yes or no.
Mr. BLAHOUS. I agree with that.
Mr. RYAN. Bob, I assume you do?
Mr. REISCHAUER. From a unified budget standpoint, the
answer is yes.
Mr. RYAN. Right. So we had the trustees giving us these
alternative scenarios for 2 years now, which I find pretty
amazing. So under more realistic assumptions, we find that you
can't fund one other government program on the one hand and
then extend the solvency on the other hand. That is double
counting. We are not suggesting that CBO is doing the double
counting, we are saying Congress is doing the double counting.
Point number two, Mr. Stark is right, we have faced
insolvency before. Congress has always done something to deal
with it; but the problem is the cliff is getting that much
steeper. If we keep kicking the can down the road and waiting
until insolvency is on the doorstep, then the solutions will be
that much more dire, that much more bitter, and people will be
that much more affected.
How many providers do you think are going to stay providing
Medicare benefits if they are getting 66 cents on the dollar
for every Medicare patient they have coming in the door? If you
are telling us, as you do in your trustees' report, that they
are going to pay 66 cents on the dollar down to 33 cents on the
dollar, we might have a Medicare program, but it is not going
to work for people on Medicare if nobody takes Medicare as a
provider.
So we have got to be realistic about what is necessary to
save Medicare. I would just simply say that the lessons we
learned from the previous Medicare fixes are lessons we should
take into the future. 1997 was an important budget agreement.
It was bipartisan. It was a Republican Congress and a Democrat
President doing a budget agreement to extend Medicare solvency
and get the economy growing, produce budget surpluses.
But here is the lesson we got out of that exercise: Price
controls and Medicare don't work. What happened, Congress did
two successive bills, BIPA and BBRA, giving back the money to
prevent Medicare providers from just dropping Medicare. What I
think our friends on the other side of the aisle got out of
that, as evidenced by the Affordable Care Act, is not that
price controls don't work, it is that price controls are not
politically sustainable, because Congress, seeing and knowing
that access is being denied to Medicare beneficiaries, that
providers are leaving providing the benefit, that we should
just take it out of the hands of politicians. We should just
take it out of the hands of Congress. Let us form an IPAB, an
independent payment advisory board, of 15 political appointees
and have them do the price controlling that goes right into
law, circumventing Congress.
To us, what this simply means is we are going to do hard-
core price controlling, which leads to rationing, which will
lead to Medicare providers dropping Medicare, and that means
future seniors will not have access.
We want to get rid of that. If we are going to save money
to extend solvency, it should go to Medicare, not to pay for
some other program. We shouldn't be raiding one government
program to pay for another one. How many times have we heard
that about Social Security?
Second, price controls, or rationing, or whatever you want
to call it, it just doesn't work. So we believe at the end of
the day, there is going to have to be a bipartisan solution.
This is why we proposed premium support. The sooner you do it,
you don't have to affect benefits for anyone above the age of
55. So the way we look at this, people who already retired on
this program, don't change their benefits, because they have
been made promises that government should keep to them. And if
we do this soon, we can keep the promise also to the people who
are within 10 years away from retirement.
So it is very negotiable. It is very reasonable to debate
the contours of how to fix it with the new system, growth rates
and design features. That is what this committee is trying to
do.
But I simply want to ask you: Do you think providers of
Medicare are going to keep taking Medicare if they are going to
get paid 66 to 33 cents on the dollar?
Mr. BLAHOUS. I think you have highlighted a fundamental
problem that we also highlight in the report, which is under
our current assumptions, reimbursement rates under Medicare
will lag very far behind what they are in the private sector,
and we say that this could lead to substantial withdrawals of
access to care under Medicare. So the answer is yes, I agree
that is a fundamental problem.
Mr. REISCHAUER. I think you put your finger on a very
important point, which is that the same providers offer
services to the elderly and disabled through Medicare, the low-
income population through Medicaid, and the working population
and their dependents through employer-sponsored insurance or
individually purchased insurance. And I for one think that
efforts to restrain Medicare or Medicaid significantly are
doomed to failure unless we provide incentives for dampening
the growth of health care costs in the private sector as well.
You can't have these huge differentials in reimbursements.
On the other hand, I would argue that the fixation we have
with comparing Medicare's reimbursement rates to those in the
private sector are a comparison of average payments or average
costs, and most economists would argue that service is
provided, a good is produced, as long as the provider can meet
marginal costs. And so we can have some differentials here
without destroying the market. They obviously can't get too
large, and that is what you are concerned about, rightly.
Chairman HERGER. The time of the gentleman has expired.
The gentleman from California Mr. Thompson is recognized
for 5 minutes.
Mr. THOMPSON. Thank you, Mr. Chairman.
Mr. Reischauer, isn't it true that whenever a new law
results in a savings to Medicare Part A, that those savings
improve the Hospital Insurance Trust Fund finances regardless
of whether the savings are used elsewhere in the budget?
Mr. REISCHAUER. Yes, that is true.
Mr. THOMPSON. I just wanted to bring that up. My friend
from Wisconsin raised that issue in questioning the double
counting, but that is how the accounting system works.
Mr. REISCHAUER. And how it has been treated in many omnibus
budget bills in the past, and other corrections by the
Congress.
Mr. THOMPSON. My friend also used the Balanced Budget Act
of 1997, which was passed under the Republican-controlled
House, as an example. That included $994 billion in Medicare
savings, and $292 billion of that was used for a tax cut. So it
is the same practice; it is just depending on who is trying to
do what. I guess the other guys are the critics.
Also, I have a sheet here. It was prepared by our side's
staff, but you are the trustees' report starting in 1970,
running through 2011, and years of solvency of the program, and
I think--I would like to get you to look at it and let us know
if this is accurate, but based on this, it has always been
projected to reach insolvency at some point. And as Mr. Stark
had mentioned earlier, Congress has always addressed this issue
by making changes. As a matter of fact, of the 40 years on this
chart, 18 of those years, the solvency date is less than it is
today in 2011. As you recognize, it is a problem because of the
downturn in the economy. So I would like to have someone give
you this and get your analysis of it.
And then also, the Affordable Care Act that was mentioned
was an attempt to put in place provisions that would, in fact,
improve the quality and reduce the cost of health care.
Everything from bundling around a hospital admission to
reducing hospital readmissions to expanding fraud-fighting
efforts, and your trustees' report recognized that. Can you
tell us your assessment of the delivery system reforms in the
ACA?
Mr. REISCHAUER. Once again, I am going to have to take off
my trustee's hat for this.
Mr. THOMPSON. Did you take these policies into
consideration when you did this?
Mr. REISCHAUER. Yes. These follow the estimates by the
actuary of the impact of those reforms on cost. There are many
that both the CMS actuary and the Congressional Budget Office
didn't provide savings for, or provided quite modest savings;
that if all the planets come into alignment, and things work
out well, and some of the initiatives that I discussed in my
prepared statement come to pass, we could see, you know,
significantly more in the way of savings.
On the other hand, some of them may prove to be ones that
Congress reconsiders or ones that don't work out as well as the
CBO and CMS have estimated. So we are in a period of huge
uncertainty, I think, right now. But those base numbers are in
our projections.
Mr. THOMPSON. I think the language on page 2 of the report
says that ``major program of research and development for
alternative provider payment mechanisms, health care delivery
systems, and other changes intended to improve the quality of
health care and reduce the cost of Medicare.'' And this
improves the cost and quality of health care outside of
Medicare as well. I think that is important to note.
CMS did a press release on your report, and in it they say:
Without the reforms in the Affordable Care Act, the Medicare HI
Trust Fund would expire in just 5 years, in 2016. The report
issued today shows these reforms added 8 years of solvency.
I would like to ask unanimous consent to submit this to the
record.
Chairman HERGER. Without objection.
Mr. THOMPSON. Thank you.
Chairman HERGER. The gentleman from California Mr. Nunes is
recognized for 5 minutes.
Mr. NUNES. Thank you, Mr. Chairman.
I would like to ask the two witnesses this question of
insolvency. I apologize, I don't know how long you have been
trustees, but when we look back throughout time, 10 years, 15,
20 years ago, we always knew we had an insolvency issue. I
don't think anyone disagrees with that, and there has always
been a need to save Medicare and save Social Security.
When you analyze the problem today, and you know here in
this body we are locked into this budget debt limit increase
and budget fight where it doesn't appear like there is any fix
in sight, and basically one of the major holdups is are we
going to deal with these entitlement programs to solve the
insolvency problem. I don't believe we have ever defaulted on
our debt. We are getting very close to that if we don't have an
agreement soon. So my question to you is: Is the situation more
serious and more urgent today than what it was when you looked
back to 10 years ago and 20 years ago?
Mr. REISCHAUER. I think the answer to that is yes, both
because the Medicare problem is embedded in a larger fiscal
problem; and because, as opposed to 5, 10, 20 years ago, the
baby boomers are retiring. They are beginning to apply for
Medicare benefits. And so the acceleration of the burden that
we talked about as a future problem 10 years, 15 years ago is
now upon us. And this makes some solutions more difficult
because the numbers of individuals who are receiving benefits
is rising rapidly.
Mr. NUNES. Mr. Blahous.
Mr. BLAHOUS. I have a two-part answer, and Dr. Reischauer
anticipated both parts. One, we have a much more serious
overall fiscal situation. Deficits, unified deficits, are much
larger than they previously were.
Secondly, we have an urgency that arises from demographics.
Each year that passes, we have more baby boomers going onto the
benefit rolls, and there is a great reluctance, a bipartisan
reluctance, to withdraw benefits from people who are already
dependent upon them. So the costs of dealing with these
problems grows enormously with every passing year.
Mr. REISCHAUER. I would just like to add a third issue, to
differentiate myself from my colleague here, and that is we
have enacted major changes already in the Medicare program. So
in some sense the cupboard is fairly bare. We can't go to that
cupboard and open it up and say, well, let us cut provider
payments even more. We are worried about can we sustain the
ones we have already adopted.
Mr. NUNES. There is no question that every day in my
office, people are coming in. Health care providers are coming
in, either to my district office or here in Washington, and
complaining about the status of the health care system as it
relates to the Affordable Care Act, Medicare and Medicaid.
There are problems throughout all of these programs.
Would it be good policy if somehow this Congress could move
legislation that would take anyone that is 55 years of age and
older and keep them on traditional Medicare; would that be a
good goal for this Congress to partake in?
Mr. BLAHOUS. Are we basically saying anyone over 55, keep
them in traditional Medicare and sort of hold them harmless for
any future changes at all?
Mr. NUNES. If we could accomplish that?
Mr. BLAHOUS. I mean, I think it is good policy to try to
hold people who are near retirement or in retirement, hold
harmless as much as possible from any future changes. Having
said that, with every passing year, it gets harder and harder
to hold harmless people older than even 55. In 5 or 10 years
from now, if you asked me the same question, I might look at
you and say, I don't think you are going to be able to do that.
Mr. NUNES. Mr. Reischauer.
Mr. REISCHAUER. I guess I am a believer that even old dogs
can learn new tricks. And, you know, when we make a statement
as you have made and Congressman Ryan also made about we will
let people 55 and older stay in the system that they are in
now, it implies that you want to keep that system unchanged.
Quite frankly, I don't think that is appropriate policy. I
think Medicare should evolve in a gradual way. We have in the
Affordable Care Act an innovation center. We have some changes
in payment mechanisms and things like that that would gradually
change Medicare. I think pushing those forward as fast as we
possibly----
Mr. NUNES. I think we agree that there should be gradual
change, and that is why in Mr. Ryan's plan he has put forward
55 and older, because that gives people time for retirement
planning and such to deal with the changes. However, I think
where we disagree is where this problem just seems to be bigger
than what--as you both said earlier, this problem appears to be
bigger than what it was 10, 20 years ago, and so I think we
have to act quickly in order to save Medicare for everyone.
Chairman HERGER. The time of the gentleman has expired.
The gentleman from Oregon Mr. Blumenauer is recognized for
5 minutes.
Mr. BLUMENAUER. Thank you very much, Mr. Chairman.
I would just pose questions to our panelists not to answer
now, because I have some others I want to get to, but if you
would reflect, because I appreciated, Mr. Blahous, you talking
about whether or not this is sustainable over time, that we are
going to take, what is it, 79 million Americans and freeze them
in Medicare as it is now, although my friend from Wisconsin
takes the reviled savings from the Affordable Care Act and
counts them, assumes them, in trying to make his plan pensile.
But we will be having a situation where there is a huge
population that will grow smaller over time, but still millions
of people 30 years from now, an ever-sicker, smaller population
that my friend, when he asked it to be scored, just assumed
that the general fund would pick up the gap. I really would
appreciate it if you two experts might reflect and maybe share
with the committee what that impact is going to be over time.
Mr. RYAN. Would the gentleman yield just briefly?
Mr. BLUMENAUER. If I have time at the end, Paul, I am happy
to do it.
I would like to be able to lock in what this means, because
we haven't been able to get a good figure. It wasn't scored in
terms of what that extra cost would be for an older, sicker
population. Although declining, it would still be millions of
people.
And I would take modest exception to my friend's
characterization that IPAB takes the control out of Congress
and puts it inevitably towards rationing and price control. As
I think he knows that the recommendations from IPAB are just
that, and they will come to Congress and have to be voted up or
down. I think that is really good that we have a mechanism
because we have seen political failure on both sides of the
aisle on things like base closing and repeated failure with
Medicare.
We are already seeing some people trying to walk back
IPAB'S ability. And I have heard my Republican friends decry
the fact that providers right now aren't getting enough money,
and yet we can't afford what we are giving them, and they don't
want a control mechanism.
I am wondering, is there any reason why, with the help of
IPAB to maybe stiffen the spine of Congress, that we couldn't
mimic the best practices that are going on right now with
Medicare in my community, my colleague Mr. Kind's, Mr. Ryan's
State of Wisconsin, where costs are dramatically lower than
other parts of the country, and performance is better? Is there
any inherent reason that we can't mimic that behavior, Mr.
Reischauer?
Mr. REISCHAUER. It is certainly a goal that we should
strive to achieve. But it is very difficult to figure out how
to get from here to there, how to get from Miami to Wisconsin.
Mr. BLUMENAUER. But some people have figured it out,
haven't they? Some people have figured it out. We are not all
Miami; we are not all McAllen, Texas.
Mr. REISCHAUER. And we don't really know how to convince
Miami to mimic the behaviors of Wisconsin, Minnesota, some of
the more parsimonious practice pattern States.
Mr. BLUMENAUER. That are more effective?
Mr. REISCHAUER. In many cases, that are more effective.
Mr. BLUMENAUER. Well, I am troubled a little bit with this,
because I think we do know what works. I think there is
bipartisan agreement, at least there has been until recent
years, of some of the experiments in the Affordable Care Act,
the ACOs, of dealing with unnecessary hospital readmissions,
being able to have more attention to primary care, dealing with
freight with waste, fraud and abuse.
I mean, there is a litany of bipartisan actions that can be
taken to squeeze far more out of the existing Medicare system.
But people haven't been incented to do it. And Congress in both
parties has wobbled, at least until we are starting to move
back with the Affordable Care Act.
And I just, I think we are setting our sights too low. I
think we ought to be accelerating the reforms that were talked
about. And yes, there is a little discipline. There are some
price signals. I don't think that is control. But we are not
just going to open the spigot and then pay people for procedure
after procedure after procedure, which is why doctors are
getting more money, even though the reimbursement rates are
more parsimonious.
And I think we ought to be more optimistic about this. And
I think there is a bipartisan consensus about how it could be
done once we get out of this whirl we are in right now. Thank
you.
Chairman HERGER. The gentleman's time has expired.
The gentleman from Washington, Mr. Reichert, is recognized
for 5 minutes.
Mr. REICHERT. Thank you, Mr. Chairman.
And thank you, gentlemen, for appearing this morning.
I agree with Mr. Blumenauer, we must find a bipartisan
solution to this, and I think we need to be more optimistic
that there is one. I think many of the members have expressed
that this morning.
However, there have been some comments that have been made
that sort of puzzle me just a little bit. Like the question was
asked earlier, why are we even paying attention to this issue?
Well, I think it is obvious from your testimony there are some
major themes that you are expressing this morning to all of us,
to all Americans, as some may be watching C-Span and don't have
a life. Medicare is going bankrupt. You both agree with that,
and it is accelerating, true, yes?
Mr. BLAHOUS. Yes.
Mr. REICHERT. Medicare's dire financial status is actually
drastically understated, would you agree with that, yes?
Mr. BLAHOUS. I would say it is very likely to be
significantly understated.
Mr. REICHERT. Sir?
Mr. REISCHAUER. I am unsure of that. I think if we don't
take full advantage of the initiatives in the Affordable Care
Act, if we don't encourage all of the innovation that is going
on in the private sector and in the nonprofit sector, that is
true.
Mr. REICHERT. Sir, wasn't it understated just a year ago?
Mr. REISCHAUER. Excuse me?
Mr. REICHERT. Wasn't it understated just a year ago in a
report and here we are today, we are accelerating the----
Mr. REISCHAUER. You know, I think the----
Mr. REICHERT. Is that a yes?
Mr. REISCHAUER. No. I am not sure what your question is.
Were you referring to the 2010 report?
Mr. REICHERT. Yes.
Mr. REISCHAUER. And this report also has warnings which
say----
Mr. REICHERT. But it has been accelerated, is that not
true?
Mr. REISCHAUER. Yes, it has.
Mr. REICHERT. By 5 years?
Mr. REISCHAUER. There are changes largely in the economic--
--
Mr. REICHERT. And you would not expect that to continue?
Mr. REISCHAUER. I hope the economy is going to rebound.
Mr. REICHERT. You are not sure, okay. Massive tax
increases, do you see that on the horizon, or benefit cuts? If
we don't do something now, isn't that sort of the scenario, if
we don't act now? I mean, we must do something now; would you
both agree with that?
Mr. BLAHOUS. I would say that the, on the HI side, the
implication of trust fund exhaustion would be a benefit
reduction in the absence of legislation. On the SMI side, the
implication would be greater general revenue requirements,
which implicitly would lead to higher tax burdens.
Mr. REISCHAUER. Yes.
Mr. REICHERT. Okay. Thank you. The thing that I guess is
really confusing to a lot of Americans, they see this health
care bill out there that has been passed, and it has been
implemented by some degree or another and still more laws to
take effect. But there is a $600 billion tax pay in this bill,
$600 billion worth of taxes applied to small businesses and
people to pay for this. How can we get the economy going if we
continue to tax small businesses? $523 billion in cuts to
Medicare. So no wonder people are expecting higher premiums and
fewer benefits in Medicare.
I wanted to ask a specific question though regarding the
alternative scenario. It states that overall Medicare spending
is expected to grow to 10.36 percent of GDP, a 3.6 percent
increase over the trustees report. Growth of this magnitude
would substantially increase the strain on the Nation's
workers, the economy, Medicare beneficiaries and the Federal
budget. Could you elaborate on what the strain may look like
related to these important areas in other national priorities,
like education and medical research.
Mr. BLAHOUS. Well, I would just say, first of all, I agree
with Dr. Reischauer that the main projected trustees' report is
probably the best-case scenario, and then this would be sort of
the pessimistic scenario. The reality is probably somewhere in
the middle. But if we take that worst-case scenario, I mean,
that is an unprecedented level of strain, fiscal strain, for
the Federal Government. I mean, if you consider over 10 percent
of GDP is for one Federal program alone, that is roughly twice
as much as any Federal program to this point has ever absorbed.
That would be over half, relative to GDP, over half of the size
of the entire Federal Government relative to the economy as
recently as 2008. So to have over half of our historic norms in
terms of the Federal size of government devoted to one program
would be an unprecedented strain.
Mr. REISCHAUER. My comment on this is long before those
numbers would come to be realized, this nation is going have to
address its deficit and debt problem. And in my view, Medicare
will be one contributor to a solution. And so those numbers are
horrific. But long before we face them, we are going to have to
make some much more fundamental changes in our revenues and
expenditures across the board.
Chairman HERGER. The gentleman's time has expired.
The gentleman from New Jersey Mr. Pascrell is recognized
for 5 minutes.
Mr. PASCRELL. Thank you, Mr. Chairman.
How are you today? What is logical, we learn in logic 101,
may not be true. It is our premises that determine those
things. I want to enter into the record, Mr. Chairman, the S&P
indices concerning the health care costs, and to bring to your
attention, Mr. Chairman, that in 2010, Medicare claim costs
associated with hospital and professional services for patients
covered under Medicare increased at a more modest 3.2 percent
rate, much lower than the private sector, much lower than the
private sector. And I would like to ask to begin with and very
briefly your response, I would appreciate that, what do you
think attributed to the slowdown to the more moderate pace of
increase in Medicare, as well as the private sector going down,
too, but not to the degree of Medicare? Why do you think that
happened? Both of you, either of you.
Mr. REISCHAUER. My response to that would be that one
factor is certainly the turndown in the economy, which has left
some seniors and others with less income to pay their co-
insurance and their co-payments and so on. It is conceivable
that some even had to drop their Medigap policies.
But I think of more importance here is the attention that
CMS and the providers have begun to pay to overuse of services.
And many practitioners are looking anew at their practice
patterns.
Mr. PASCRELL. Which is a major target of the health care
act, right?
Mr. REISCHAUER. Yes. And it is a major change in attitude
and behavior, and I think that is going on throughout the
society, and it is a good development.
Mr. PASCRELL. Mr. Blahous. Thank you.
Mr. BLAHOUS. I generally would agree with that. I think
certainly the overall state of the economy played a role, and
the factors Dr. Reischauer just spoke of also played a role.
But I would be candid and add a heavy dose of ``I don't
know'' to the answer. Short-term fluctuations in these cost
levels are very difficult not only to predict but also to
explain after the fact, so my level of uncertainty as to what
to attribute that to is very high.
Mr. PASCRELL. I would contend that even before it is only
20 percent in effect that the health care act has had an effect
on the very costs that we are trying to reduce because we are
never going to have a Medicare program that is able to keep up
with inflation and the rising costs of health care until we
control in some manner, shape, or form under a capitalistic
system the rise of health care costs. We need to do something
about that, and we are trying to do something about that.
One-third of the entire health care act dealt with Medicare
and Medicaid and how we should save money in the process. Much
of it was not scored in the final analysis.
Now, we had a major change. In the report of 1997, the
report of the trustees in 1997, brought about some very
interesting things. The beginning of Medicare Advantage, the
beginning of the process to start to privatize the system. Now,
we pay 12 percent more to these private plans, and seniors are
going to pay much more if we move, obviously, to privatize the
whole process under the guise of trying to straighten out
Medicare. Look, all of these reports from 1970, as the
gentleman from California pointed out before to now, talk about
the dire position in which Medicare is in. Every one of those
reports, that the world is coming to an end as far as Medicare
is concerned. That did not happen.
As for my friend from Wisconsin that talks about double
accounting, this is what a bank account is all about. You take
money out of the account as you need it; you don't take it all
out. It is, I believe, very analogous to those funds that are
in a bank account. When moneys are deposited, the dollars are
used for other purposes until they are withdrawn. What is so
different about what we do in terms of how we are calculating
savings in the future?
So we need to take a look, Mr. Chairman, at not only the
logic of what we say, but if there is any resemblance to the
truth. This is not reality TV. Thank you.
Chairman HERGER. The gentleman's time has expired.
The gentleman from Georgia, Dr. Price, is recognized for 5
minutes.
Mr. PRICE. I thank the chair and I thank our witnesses for
coming to help us understand what are the financial operations
of Medicare. We are talking about the financial operations.
That is the role of the trustees, right? Look at the financial,
not the clinical side of health care. So, as a physician, we
are talking about money today; we are not talking about quality
of health care, those kinds of things, that are so important to
patients across this country.
Our friends on the other side of the aisle have a penchant
for mischaracterizing our positive solution, I think. And I
want to touch on a couple of the things that Mr. Stark
mentioned. He said that our proposal, our positive solution,
was a voucher plan for Medicare. Well, it isn't a voucher plan;
you know that. Both of you know that, correct?
Mr. Reischauer, you understand that our program is not a
voucher program; it is a premium support program.
Mr. REISCHAUER. The difference between premium support and
vouchers has been explained by some as the payment not relating
to the cost of the underlying enterprise. That is a distinction
that I am not----
Mr. PRICE. Well, you supported a premium support program in
the mid to late 1990s.
Mr. REISCHAUER. I did. I still support it.
Mr. PRICE. You wouldn't have called it a voucher program,
would you? In fact, you didn't call it a voucher program at
that time, did you?
Mr. REISCHAUER. No, we didn't call it----
Mr. PRICE. No, you called it a premium support program, and
that is important to know.
Mr. STARK. also said that our positive solution ends
guaranteed benefits for seniors. Well, that is not true. You
know that. In fact, we save Medicare for future generations. In
fact, in our proposal, it actually stipulates that the program
must be guaranteed. Isn't that true, Mr. Reischauer, when you
read our program.
Mr. REISCHAUER. To the extent that I know the details of
the program, yes.
Mr. PRICE. It is a guaranteed program; that is correct. Mr.
Stark also mentioned the issue of private contracting and said
that if private contracting were allowed in the Medicare
program, which many of us believe is the kind of pressure valve
that needs to be put in place to relieve the incredible access
pressure that currently exists in Medicare, in response to his
question, wouldn't that cause access problems?
Mr. Reischauer, you said, ``if not regulated,'' is your
quote, ``if not regulated'' it might cause--have access
problems. Are you aware of any proposal that would put in place
private contracting without regulation?
Mr. REISCHAUER. Well, I think this is a matter of degree as
well as existence.
Mr. PRICE. Are you aware of any, though, that don't?
Mr. REISCHAUER. No, I am not.
Mr. PRICE. And in fact, isn't it possible that an
appropriately regulated and structured private contracting
program would in fact increase access for Medicare for seniors
in this country, isn't that possible?
Mr. REISCHAUER. It is possible, but not probable, I would
say.
Mr. PRICE. Well, I would beg to differ with you on that.
And there are certainly individuals who understand the huge
challenges with access right now that seniors have. And that
one of the ways to solve it, as you have identified in your
list of solutions, is something that allows for increasing
access.
I want to touch on the Medicare trigger, for this is now
the sixth year in a row that the trustees have said that the
board of trustees are required to issue determination projected
excess general revenue for Medicare funding, this is the sixth
consecutive such funding. When that trigger occurs, then, it is
the obligation of the President, is it not, to then propose to
Congress a solution to fix that problem. Is that correct?
Mr. REISCHAUER. Yes.
Mr. PRICE. And have you seen any solution that this
administration has offered for having had this trigger be
punched through for the past 3 years under his watch?
Mr. BLAHOUS. No.
Mr. PRICE. Have you, Mr. Reischauer, have you seen that
solution?
Mr. REISCHAUER. No. I think the Congress has waived the
requirement.
Mr. PRICE. Under the Democrat control in the past, yes,
they said, oh, no, don't worry about that. Isn't that what they
did, said don't worry about the money?
Mr. REISCHAUER. Yes.
Mr. PRICE. I want to touch on this whole issue of Medicare
changing. In fact, Mr. Reischauer, you said that there are
significant changes to Medicare through the PPACA, which is the
reform bill that they put through. So, in fact, what has
already been adopted ends Medicare as we know it. Would you
agree with that statement?
Mr. REISCHAUER. It transforms the program as all
legislation in the past----
Mr. PRICE. So Medicare as we know it right now in this
colloquial term that is used out there in the marketplace,
Medicare as we know doesn't exist under the Democrat's plan
already, is that correct?
Mr. REISCHAUER. Well, the question is, what are we
referring to as Medicare? If we are saying----
Mr. PRICE. Medicare as we know it is basically is what we
have right now.
Mr. REISCHAUER.--a fee-for-service unmanaged care program,
you know, it exists after the Affordable Care Act as it did
before the Affordable Care Act.
Mr. PRICE. But Medicare as we know it, the program that
exists right now, has been changed significantly under PPACA,
would you agree with that statement?
Mr. REISCHAUER. There have been significant changes.
Mr. PRICE. But Medicare as we know it is already gone and
done so by the reform bill that was put in place before.
Mr. Chairman, my time has expired, but I look forward to
submitting further questions for the panel.
Chairman HERGER. I thank the chairman.
The gentleman from New York, Mr. Rangel, is recognized for
5 minutes.
Mr. RANGEL. Thank you, Mr. Chairman, for calling this
meeting.
And I think it is helpful just to clear the air to have
experts that are objective that will have their reputations to
protect long after the election is over.
I think you have to agree that whatever decisions that we
make that is going to cause any dissatisfaction with our
constituents, it is much easier when the parties are talking
together. They may not be happy with Democrats Or Republicans,
but at least they would not be nearly as angry if the parties
themselves have taken different positions.
The fact that so many Republicans got elected attacking so-
called ObamaCare forced Democrats to get reelected in attacking
the RyanCare. And now the facts are not nearly as important, it
appears to me, as the parties getting reelected.
So, unlike Mr. Blumenauer, I just can't believe that a
nation that owes so much to our aging population can spend
trillions of dollars rebuilding the economy of Afghanistan and
Iraq and able to say that we can't provide decent care. And
that means that we are going to have to have reform, and that
means it is going to be painful to a lot, but it also means
that as long as we fight each other, then the parties don't
want, the beneficiaries don't want to make decisions.
Let me ask this: As relates to Medicare and solvency, do
you believe that the Affordable Care Act goes in the direction
of dealing with the question of solvency?
Mr. BLAHOUS. Certainly the Affordable Care Act extended the
duration of Medicare HI solvency.
Mr. RANGEL. And does it constantly request that we review
what changes have to be made from the Congress and the
administration in order to protect that solvency? I mean, do
you believe that we are not dealing with the problem at all and
that we need a dramatically different approach? I don't have a
problem changing the approach if it is bipartisan and we agree
that this is best. I believe that an old dog can use new
tricks. I believe that if the Republicans come in and they say
ObamaCare is moving in the right direction, not fast enough,
and we think these changes have to be made that is not going to
happen until, if it happens at all, until after the election.
So my question to you as being objective professionals, are
you satisfied that the affordable act bill allows itself to
deal with solvency if certain changes are made? I mean, do you
believe that we just are hanging it out there and ignoring the
problem? We know that this great country has the ability
working together to deal with that problem.
Mr. BLAHOUS. I would say there are three things that come
to mind in response to your question. One is the primary engine
under the Affordable Care Act for extending solvency of the HI
trust fund is these annual adjustments in the reimbursement
rates for growth and economy-wide multifactor productivity. And
in the last trustees' report, that engine was powerful enough
to account for basically the overall contours of the cost
projections over the long term.
Now, this year's trustees' report relies a little bit more
on the payment advisory board. But basically, in order to hit
the savings targets in the Affordable Care Act, the
productivity adjustments themselves won't be completely
sufficient.
Mr. RANGEL. Really--I am going get the answer, but my time
is so restricted. Really what I want to do is understand the
premium support position more clearly. And whether you call it
a voucher or premium support, one, does anyone contradict that
the insurance companies'--the health insurance companies' major
obligation is to make a profit? No. That is their job. Two, if
you are trying to make a profit, does anyone challenge the fact
that the selection of people to be insured are based on the
risk involved? Answer, no. If, indeed, a person is more
vulnerable when they are older, are they less inclined to get a
fair strike, less inclined to get benefits without higher
costs? Answer, no.
So the premium support idea guarantees that you get
something, but you can only get what you are able to afford to
get, is that true? That is true. And so I don't care what you
call it; the fact is that we are making major adjustments and
putting the entire ability of people to get health care in the
hands of those people that really don't want you as a client,
and I got a--not a voucher, I got support. But you are not
guaranteeing that I have enough support to get the health care
that I have for my kids that I get, right.
Chairman HERGER. The gentleman's time has expired.
And our witness can respond in written letter to the
committee on the question.
The gentleman from Florida, our new member to the
subcommittee, Mr. Buchanan, is recognized for 5 minutes.
Mr. BUCHANAN. Thank you, Mr. Chairman, for holding such an
important hearing.
I also look forward to working with you as chairman and the
rest of the members on the subcommittee.
I also would like to thank our witnesses for being here
today.
It got touched on a little bit. I want to go over a couple
of points. Medicare trustee, which you projected, we touched on
this a little earlier, would become insolvent in 2024 instead
of 2010. In my district, I have 170,000 seniors, and we are in
Florida, so, obviously, it is a big issue now all over the
country, but percentage wise much bigger in Florida. When we
are looking at projecting to 2024, one thing I don't believe
that was taken into account is the reduction or the doc fix or
the SGR that was taken into effect in terms of looking at
insolvency.
When we project this out and look at it down the road
talking with doctors in our community, I am very concerned a
lot of them will have to go out of businesses, a lot of the big
practices. We have got another 30 percent cut that we are
looking at, but doesn't take any impact in terms of the
viability of Medicare long term. So I guess, wouldn't you agree
that these cuts if they go into a place would drive the
insolvency date, because we are looking at a $300 billion
problem a lot quicker? And I would like to have both gentlemen
respond.
Mr. REISCHAUER. The solvency issue relates to the HI or
hospital insurance fund. And the doc fix is Part B, part of
SMI, and that is not affected by solvency issues. Because of
the way the Part B trust fund is constructed, it can never be
exhausted. General revenues are automatically given to the
trust fund to make up the difference between projected costs
and premium payments and State transfers, so it doesn't affect
the date of exhaustion of the HI trust fund.
Mr. BUCHANAN. My point is I have been here a little over 4
years, and we have had a doc fix once or twice a year. I don't
know how anybody runs a business or any business, especially a
lot of these medical practices, and have to look at a 15 or 30
percent cut every year. But I don't know how this isn't
considered as a part of the overall Medicare, the viability of
the medical community.
The other gentleman----
Mr. BLAHOUS. I would say I think the principal effect of
the anticipated doc fix overrides would be in the overall cost
of Part B. And under our projections, where we assume those
huge cuts happen, we show Part B costs of a little over 2 and a
quarter percent of GDP by the 2030s. But if you assume we
override them, we are up over 3 percent of GDP. So there is a
substantial increased cost on the SMI side if you assume the
payment reductions are overridden.
Mr. BUCHANAN. Mr. Blahous, let me ask you another question.
Last year a Harvard study found that malpractice costs in terms
of our health care system at about--we could save as much as
$55 billion a year. Do you think that we should have medical
malpractice reform, especially as we are looking to try to
drive down costs?
Mr. BLAHOUS. Well, certainly speaking as a trustee,
everything we can do to hold down the growth of cost is going
to make our overall financial projections better for Medicare.
So, yes, if we can produce that level of savings for Medicare
through malpractice reform, obviously, that would improve the
financial outlook that we would show.
Mr. BUCHANAN. Is that something that you personally have
looked at as a trustee of med mal costs in terms of Medicare?
Because, obviously, I can just tell you doctors about defensive
medicine, running a lot more tests than they feel that they
need to just to make sure they are covered in case 1 in 1,000
or 10,000 cases of someone has a tumor and it doesn't end of
being something more substantial. Is this something you have
looked at in terms of tort legal reform?
Mr. BLAHOUS. Not so much, because the trustees' process
generally focuses on scoring current law. It is somewhat
different from say the Congressional Budget Office where they
produce these menus of policy alternatives. Generally, in the
trustees' process, we don't tend to evaluate alternative
policies to current law. But obviously, it would certainly draw
heavily from the input of everyone from CBO to the Medicare
technical panels to others in scoring such a provision if it
were enacted into law.
Mr. BUCHANAN. Mr. Reischauer, do you have any thought on
legal tort reform, the impact that would have either as a
trustee or your own personal opinion in terms of driving down
costs, because I mean, obviously this is something--and again,
I meet with a lot of doctors. I have a neurosurgeon who says
his medical malpractice is $200,000 a year; he has got to see
$1,000 worth of revenues to pay the $200,000 in insurance, and
they are practicing a lot of defensive medicine, and I think it
is a big area we can make a big change in, but what are your
thoughts?
Mr. REISCHAUER. My thought is that there are a number of
studies trying to estimate the impact of malpractice reform on
overall health care costs. By and large they come out saying
that this isn't a huge contributor to the rapid growth of
costs, of health care costs, but reform certainly would be a
significant contributor to lowering the growth by reducing the
level, really a one-time level shift. So I would align myself
with Dr. Blahous' comments that I think some change would be a
good thing.
Chairman HERGER. The gentleman's time has expired.
Mr. BUCHANAN. I yield back.
Chairman HERGER. The gentleman from Wisconsin, Mr. Kind, is
recognized for 5 minutes.
Mr. KIND. Thank you, Mr. Chairman. I want to thank our
witnesses for your update today. What strikes me--and Mr.
Reischauer, maybe I can start with you--I am looking at this
charge here showing the trustee reports dating back to 1970 in
regards to years of solvency. And what jumps out is how much
this really does track economic performance, whether we are in
a growth state or a declining state, and how that influences
the ultimate solvency of this trust fund. Is that something
that is consistent with what the trustees are finding, too,
what the strength of our economy is and the payroll revenue
that is being generated and also the number of entrants
entering Medicare?
Mr. REISCHAUER. Certainly that is a very important
contributor, as is legislation. And at various times in this
list, the Congress has enacted significant legislative changes
that have prolonged the life of the HI trust fund.
Mr. KIND. I am looking particularly at the late 1990s, 2000
or so, when we had period of robust economic growth, and there
the trustee were showing 25, 28 years of solvency. Unlike the
great recession that we are coming through right now, we have
had a drop off of the number of years of solvency. So I think
one of the best things we can do as a nation to increase the
solvency of the trust fund is to get this economy back on track
creating good-paying jobs, would you agree with that?
Mr. REISCHAUER. I would agree.
Mr. KIND. And in regards to my friend's comment regarding
med mal reform and the impact that is going to have, you know,
and I think the President is there as well, that if we are
going to be asking doctors through the Affordable Care Act to
practice more best-evidence medicine or protocols of care,
knowing what works and what doesn't work, there should be
greater safe havens of protection for that type of practice
system. But this is where you lose me on that; 37 States have
already enacted med mal reform, including the State of
Wisconsin. So, unless those 13 States that haven't taken action
yet on med mal reform are driving all this additional cost in
the health care system, I don't see it.
In fact, studies show that the utilization practice of
doctors in States that have med mal reform in it is very little
different than in States that don't have med mal reform. Is
that what you found in your analysis?
Mr. REISCHAUER. I haven't done any independent analysis,
but I am aware of studies that have come to that conclusion.
Mr. KIND. Well, this is what I think will also help, and a
lot of this is already built in, baked into the Affordable Care
Act; is we need to continue to move forward on delivery system
reform, expecting better outcomes and better value at a better
price. And there are models of care in various regions of the
country that do work and work well. They are highly integrated,
coordinated, patient-focused, that are producing some of the
best results and for a better bang for the buck. And a lot of
what is incented in the Affordable Care Act is driving that
type of delivery system reform to a more efficient and better
outcome-based system but at a better price. And the fact that
studies have shown over and over again that a large part of the
health care dollars is going to tests and procedures and things
that aren't working, they are not improving patient care. In
fact, some estimates range as high as $800 billion a year in a
$2.4 trillion system are going to various procedures and tests
that we are not getting a good bang for the buck. And
therefore, I think the ultimate verdict in how successful we
are in driving costs down is changing the way we pay for health
care, to reward outcome in value as opposed to the volume-based
payments that occur in Medicare. Would you agree with that
analysis?
Mr. REISCHAUER. I would.
Mr. KIND. And there are things that are on track right now
to lead us to that hopefully promised land of payment reform,
whether it is the IPAP commission--I know that was brought up
for criticism today--or the work that the Institute of Medicine
is doing right now in changing the fee-for-service system to a
fee-for-value-reimbursement system. And we also know that what
happens in Medicare is going to also drive the private health
insurance market in how they reimburse with health care
expenses.
So the concern I have with the Ryan plan, the Republican
plan that was just passed--that was just passed is that they
would do away with all these reforms and instead create a
voucher plan that virtually ends Medicare but without
addressing the really systemic problem we have in the health
care system, which is the rising costs and what we can do to
bend that cost curve. And if we are moving forward on the
reforms in the Affordable Care Act, especially in the payment
area, so we are rewarding good quality outcomes, is an
important thing that we need to do to shore up the trust fund
and ultimately the long-term sustainability of the Medicare
program, would you agree with that?
Mr. REISCHAUER. You know, I am not sure with my trustee hat
on, I should be opining on these issues, but I think the
Affordable Care Act incorporates----
Mr. KIND. Well, I think even in the trustees' report, they
do acknowledge some of the reforms that are contained in the
Affordable Care Act that can lead to----
Mr. REISCHAUER. That have the potential to move in the
direction of providing better care at a reduced cost, yes.
Mr. KIND. And as a former head of CBO yourself, you realize
that it is awfully tough to get a score from CBO on health care
savings. You all seem to come from Missouri, and that is the
show-me state; you got to show us the reforms and how it is
actually resulting in its cost savings before it gets scored.
So a lot of this we need to move forward on, but we are not
going to be certain what type of cost savings until they occur,
is that right?
Mr. REISCHAUER. That is right. And I was criticized in this
very room many times for that fact.
Mr. KIND. I know you were, as others have been and probably
will be. But thank you for your testimony.
Chairman HERGER. The gentleman's time has expired.
The gentleman from Illinois, Mr. Roskam is recognized for 5
minutes.
Mr. ROSKAM. Thank you, Mr. Chairman.
Your report shows that Medicare will now be bankrupt in
2024. Americans would then be forced to either endure a massive
tax hike or an immediate 17 percent reduction in expenditures.
In other words, an immediate 17 percent Medicare cut. Can you
explain what you mean by ``immediate''?
Mr. BLAHOUS. Well, the way that the trust funds work, both
on the Social Security side and on the Medicare HI side, is
that the amount of expenditures the program can put out there
is limited by what is in the trust funds. Now, on the SMI side,
it is not really an issue because we just give the trust fund
each year whatever is required to keep pace with costs. But
once that trust fund runs out, the program lacks the authority
to make benefit payments.
Now, there have been a lot of legal analyses that have been
done of what happens when the trust fund runs out, and they
don't all agree. But a fairly common one is that payments would
simply have to be suspended or delayed until the requisite
financing came into the trust fund, which would have the effect
of reducing payments simply by virtue of delay.
Mr. ROSKAM. And that immediate is the common understanding
of immediate? In other words, this present moment in time, in
other words, when insolvency happens, then you immediately are
prohibited based on the law and based on your understanding as
a trustee from paying anything further out. And your estimation
is that it would be a 17 percent cut in a benefit, is that
correct?
Mr. BLAHOUS. Well, it is 17 percent on average over 75
years. Now, it varies according to year. I think in 2024,
specifically, it is about 10 percent, but then that increases,
and then it becomes about 25 percent by the mid-2040s.
Mr. ROSKAM. So it is averaged--go ahead.
Mr. REISCHAUER. What I think my colleague was describing is
when the trust fund became insolvent, money would still be
flowing in from tax receipts and Medicare would delay paying
bills. And so a hospital would send its bill in and, rather
than being paid in 24 days, might have to wait 5 months. And
the CMS, the intermediaries and other payors would be writing
out the checks, transferring the resources to the hospital, to
the hospice, whatever, on a much delayed basis.
Mr. ROSKAM. So that cut, just so I am clear, is not a
hypothetical cut. It is not a hypothetical delay. It is an
actual delay in payment to the point of reaching the 17 percent
number based on your own projection, is that right?
Mr. BLAHOUS. That is right. I mean, the Social Security Act
which deals with these trust fund issues is very explicit that
payments can only be made from the trust funds.
Mr. ROSKAM. So there is no other flexibility? If the
revenues aren't there, if an insolvency is declared, you have
no other remedy but to move forward and make those cuts, is
that right?
Mr. BLAHOUS. Right. The programs don't have the authority
to borrow in excess of the resources provided by the trust
funds.
Mr. ROSKAM. And absent some change in the program, your
prediction is that that is where our Nation will be in 2024,
that is right?
Mr. BLAHOUS. That is right.
Mr. REISCHAUER. With respect to the hospital insurance
system.
Mr. ROSKAM. I understand. So when the gentleman from
Wisconsin said that there is a proposal that is out there by
the majority on this committee that ends Medicare, in fact,
Medicare as we know it will end in 2024 absent some change in
policy or some change in moving forward, that is right, isn't
it?
Mr. BLAHOUS. Yes.
Mr. ROSKAM. I yield back.
Chairman HERGER. The gentleman yields back.
The gentleman from Washington is recognized, Mr. McDermott,
for 5 minutes.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
And I appreciate your allowing me to ask questions.
I have a report from the CMS actuary who says that--we were
talking just now about a 17 percent reduction in expenditures
if nothing is done. They suggest that if the Affordable Care
Act were repealed, as the majority is trying to do, it would
require a 53 percent reduction in benefits or 134 percent
increase in the payroll tax to cover the deficit. So what we
have seen here proposed by Mr. Ryan it seems to me is something
that would make things much worse, at least according to the--
if you believe in actuary.
Now, I want to ask you a question that I have sat here
thinking about this whole time listening to. I came into
medicine in 1963. I graduated from medical school just before
Medicare started, so I have seen the whole history. I heard it
was going to be socialism and the end of medicine as it was
going to exist in this country, and I have watched it. And it
is clear to me that the decision to give doctors the right to
set their own fees was a crucial error made in 1964. When they
wrote that they could have their usual and customary fees, they
really set in motion an awful lot of what we are looking at
today.
And you know about the RUC, the update committee, most
people don't know what that is, but you know about it, and they
set the rates. Now, why is there no discussion in your report
about reform of the RUC committee or the rate setting that is
done? We don't have a fee schedule set by the government. We
have the RUC committee recommending to us what we should pay
and that is what we pay.
Now, how can we have control of costs if we don't have the
medical profession in some kind of direct negotiation with the
government about what is going to be paid? This SGR was a
simplistic idea that never was going to be--never worked
because it only controlled one thing and it left all the
ability to raise rates or raise amounts of money by doing more
of the same procedure.
I see in the Washington Post this week, many hospitals
overuse double CT scans. There are a thousand examples of
overuse of procedures in the medical care, but the RUC says,
you get this amount a month for doing that, and boy, they do
them and do them and do them, and the SGR has had no control
whatsoever on it. How do we get there if we don't get the
doctors at the table someplace to negotiate about their part in
this game? It is not just between the government and the
Medicare beneficiaries. There is a third-party here that we are
ignoring, and that is the physicians and the health care
system.
Mr. REISCHAUER. Are you looking at me?
Mr. MCDERMOTT. Yes, sir. I have looked at you many times.
Mr. REISCHAUER. I believe that the RUC is an advisory
committee that gives its recommendations to CMS, and CMS is the
ultimate decider.
Mr. MCDERMOTT. And they accept 85 to 90 percent----
Mr. REISCHAUER. What the RUC does is it looks at the
relative values and decides which procedures, interventions,
might be overpaid in a relative sense and which might be
underpaid. And needless to say, there are few volunteers for
being overpaid, and many claimants for being underpaid.
When they balance out what would happen if these changes
were made? If on the whole, it saves resources, then those
resources are thrown back into the overall pool, and the whole
pool is raised. So it is designed to be, in a sense budget-
neutral, which I don't think personally is an appropriate
thing. And I believe the administration has made a suggestion
that the overpayment amounts for procedures that we believe are
overpaid should be used to reduce overall costs.
And I think we need a more robust review procedure like the
RUC, one that reviews these amounts more frequently than is now
the case and aggressively looks at what is happening in the
balance of the market, the private sector, with respect to fees
for these various procedures, and we could improve the accuracy
of payments much more and probably save some money.
Chairman HERGER. The gentleman's time has expired.
Mr. MCDERMOTT. Thank you. I hope you put that in the report
next year.
Mr. REISCHAUER. Well, the Medicare Payment Advisory
Commission on which I served for 9 years has made
recommendations and analyzed this issue quite frequently in its
reports.
Chairman HERGER. The gentleman's time has expired.
The gentleman from Louisiana, Dr. Boustany, is recognized
for 5 minutes.
Mr. BOUSTANY. Thank you, Mr. Chairman.
As a heart surgeon, I had the tremendous privilege of
operating on thousands of Medicare beneficiaries, and I can
tell you patient by patient perhaps better than anybody in this
room, I understand the value of the Medicare program and the
importance it plays in the lives of seniors, especially seniors
back home in Louisiana, many of whom have very limited means
and depend on this truly for their life.
And I could go on and on about the quality and what we need
to do to establish and maintain and strengthen a good patient-
doctor relationship based on high quality medicine while
managing costs, but that is not the purpose of the hearing. We
are here to talk about the financial solvency of this program
and some of the things that we need to do.
You know, the Medicare actuary has been quoted as saying
that the improved hospital trust fund financing cannot be
simultaneously used to finance other Federal outlays, such as
coverage expansions, and to the extent the trust fund, despite
the appearance of this result from the respective accounting
conventions, meaning we can't double count; this is a real
problem. And I will tell you as a physician who worked with
many, many Medicare patients, this is a huge disservice to
Medicare beneficiaries across this country.
We have an obligation to fix this program and to get it
right. And when I see this double counting and the fact that we
are playing games with the SGR and the reimbursement structure,
this is literally legislative malpractice. And then if you go
on with the IPAB, this is another example of where you are
going to try to keep the lid on a boiling pot of liquid. It is
not really going to be in the best interest of maintaining high
quality patient care between a doctor and a patient.
My question is this: We know with current law, we are
headed toward 2024 with the insolvency of the hospital trust
fund, which means Medicare as we know it, at least that part,
the hospital care, ends; is that correct?
Mr. BLAHOUS. Certainly it does not have the resources
sufficient to discharge its obligations.
Mr. BOUSTANY. So if we don't correct this problem, then
there will not be a payment mechanism for hospital care for our
seniors?
Mr. BLAHOUS. Well, I would say there will still be a
payment mechanism, but it would not be able to----
Mr. BOUSTANY. To pay.
Mr. BLAHOUS [continuing]. To pay, and get it on a delayed
basis, reduced basis.
Mr. BOUSTANY. And before we get to that point, clearly it
is not a just simple situation where we get to the point and
then it stops. Would you suggest that there will probably be
other forms of rationing for our seniors before we get to that
point under current law with regard to hospital care?
Mr. REISCHAUER. In fact, it is a situation where you get to
that point and fall off the cliff. You know, participants will
be, even after the date of insolvency, entitled to the benefits
that are laid out in the program. Providers may choose not to
provide as much care because they will have to wait a long time
or a longer time to get paid for it. But it is a situation that
up to that point, everything seems fine.
Mr. BOUSTANY. And that gets us to the access problem
because that is the other side of this equation, whereby the
further we go, and it seems year after year we are seeing more
and more problems with access for our seniors, so in effect, if
you don't have access or limited access, delayed access, is
that rationing?
Mr. BLAHOUS. Well, I would say, I mean, there are two
elements of this issue. One is the sudden withdrawal of
benefits that would occur in 2024. But then there is the other
question of as we constrain our reimbursement rates under
current law and prior to 2024, does that have the effect of
causing providers to withdraw from Medicare or go out of
business? And this is obviously something we are wrestling with
as trustees and the actuaries are wrestling with analytically.
Mr. BOUSTANY. I think the answer is clearly yes based on my
experience in visiting with many, many physicians across this
country. And we are seeing worsening access problems. I saw
them back in the 1990s in my own practice where as a heart
surgeon, treating a patient who came into the emergency room
needing emergency open-heart surgery, between the cardiologist
and I, we were unable to find primary care providers to help
these patients with their other medical problems, and that has
only gotten worse.
And so we have an obligation to deal with this. And the
problem I have is on the other side of the aisle, we see these
characterizations that Republicans want to end Medicare. Well,
the point is Medicare is ending under current law which they
put in place, and we need to take our heads out of the sand,
and I ask our colleagues on the other side of the aisle to take
their heads out of the sand, as well as the President, who has
deliberately ignored this trigger. We have to be honest with
the American people, and we have to be honest with seniors who
depend on this very valuable Medicare program and get this
right. It is critically important.
I see my time has expired, Mr. Chairman. Thank you.
Chairman HERGER. I thank the gentleman.
The gentlelady from Tennessee, Ms. Black is recognized for
5 minutes.
Mrs. BLACK. Thank you, Mr. Chairman.
And first, I would like to begin by thanking you for
allowing me to sit on this subcommittee hearing even though I
am not an assigned member, I appreciate that.
Mr. Blahous, I would like to discuss the graph that you
have on page 5 of your written testimony, and it is up on the
screen, showing Medicare costs and non-interest income by
source as a percentage of GDP. Medicare SMI trust fund spending
is expected to make up a rapidly increasing percent of GDP, as
you did talk about in your testimony, over the upcoming decade.
And the trustees' report states that it will rise from 1.9
percent of GDP in 2010 to 3.4 percent in 2035. The trustees'
report projects that $21.3 trillion in general revenue funding
will be needed to pay the benefits financed by the Medicare SMI
trust fund in the next 75 years. Can the country afford to fund
the SMI trust fund at this level?
Mr. BLAHOUS. Well, I would say two things: One is that
would be, under current law, it would be an enormous expansion
of fiscal pressure on the Federal budget, far beyond any
burdens we have carried in the past to finance Medicare SMI,
the vast majority of which is funded from general government
revenues. But even this probably understates the case, because
as I indicated before, this is the best-case scenario, in
which, for instance, the physician payment rates are suddenly
reduced by 29 percent next year. So, in practice, we are likely
to be significantly higher than this.
Mrs. BLACK. And given that information, and you are
referencing that that money would have to come from the general
fund because obviously it is not coming in, we don't get enough
money in on the beneficiary side, would you agree that this is
also going to impact some of the other national priorities,
maybe such as education or roads or some of those areas?
Mr. BLAHOUS. Absolutely. I would say the growth of Medicare
spending and the growth of our health care spending generally
is probably the single greatest threat to discretionary
spending throughout the Federal budget.
Mrs. BLACK. And given that, even if the Medicare SMI trust
fund is not technically going bankrupt, like the hospital
insurance fund, is it fair to say that it is bankrupting our
Federal budget or could bankrupt our federal budget if not
changed?
Mr. BLAHOUS. The way I would put it is there is no single
cause of our overall fiscal problems, but under an untenable
current law scenario that CBO and everyone else projects over
the long term, this is about as big a contributor to it as
anything.
Mrs. BLACK. Well, obviously, when it starts taking up that
great percentage of our GDP, then we are going to have to in
some way make some decisions about what it is that we are going
to fund or not fund.
Let me also ask you this: Do you think that if Congress
enacted policies that reduce Medicare spending by $15 billion
over the next 10 years, would that be sufficient to address
Medicare's financial crisis?
Mr. BLAHOUS. No.
Mrs. BLACK. No. Okay. I agree with you. And unfortunately,
there is a growing chorus from our Congressional Democrats to
simply do nothing and wait for the so-called delivery reforms
from their health care overhaul to take effect. But CBO
estimates those policies save just $14.7 billion over the next
10 years. So, given that, it seems to me that we have got to
find other fixes other than what they recommend in the
affordability act. Would you agree with that?
Mr. BLAHOUS. I agree with that.
Mrs. BLACK. Okay. Thank you. I yield back my time.
Chairman HERGER. The gentlelady yields back.
With that, I would like to thank our witnesses for your
testimony and insight. From the trustees report and the expert
testimony that we heard today, it has become abundantly clear
that Medicare faces real and substantial challenges. We can and
must meet these challenges in order to preserve Medicare for
future generations.
It is also evident that Congress must act sooner, not
later, to tackle this growing problem, as delay only makes the
difficult choices we must make even harder and further
threatens Medicare's bankruptcy.
I am confident that we can meet the challenge that lies
before us. While it may seem like an insurmountable challenge,
America's current and future seniors rightly expect us to work
together to find a solution to preserve the Medicare program
for generations to come.
As a reminder, any member wishing to submit a question for
the record will have 14 days to do so. If any questions are
submitted, I ask the witnesses to respond in writing in a
timely manner. With that, the subcommittee is adjourned.
[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]
[Submissions for the Record follow:]

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