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

FULFILLING A LEGAL DUTY: TRIGGERING A MEDICARE PLAN FROM THE
ADMINISTRATION

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

HEARING

before the

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF
COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

of the

COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

JULY 12, 2011

__________

Serial No. 112-81

__________

Printed for the use of the Committee on Oversight and Government Reform

Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director

Subcommittee on Health Care, District of Columbia, Census and the
National Archives

TREY GOWDY, South Carolina, Chairman
PAUL A. GOSAR, Arizona, Vice DANNY K. DAVIS, Illinois, Ranking
Chairman Minority Member
DAN BURTON, Indiana ELEANOR HOLMES NORTON, District of
JOHN L. MICA, Florida Columbia
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
SCOTT DesJARLAIS, Tennessee CHRISTOPHER S. MURPHY, Connecticut
JOE WALSH, Illinois

C O N T E N T S

----------
Page
Hearing held on July 12, 2011.................................... 1
Statement of:
Blahous, Charles P., III, public trustee of Social Security
and Medicare; Joseph Antos, Wilson H. Taylor scholar in
health care and retirement policy, American Enterprise
Institute; James C. Capretta, fellow, Ethics and Public
Policy Center; and Paul N. Van de Water, senior fellow,
Center on Budget and Policy Priorities..................... 33
Antos, Joseph............................................ 42
Blahous, Charles P., III................................. 33
Capretta, James C........................................ 49
Van de Water, Paul N..................................... 60
Blum, Jonathan, Deputy Administrator and Director, Centers
for Medicare and Medicaid Services......................... 7
Letters, statements, etc., submitted for the record by:
Antos, Joseph, Wilson H. Taylor scholar in health care and
retirement policy, American Enterprise Institute, prepared
statement of............................................... 44
Blahous, Charles P., III, public trustee of Social Security
and Medicare, prepared statement of........................ 36
Blum, Jonathan, Deputy Administrator and Director, Centers
for Medicare and Medicaid Services, prepared statement of.. 9
Capretta, James C., fellow, Ethics and Public Policy Center,
prepared statement of...................................... 51
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 5
Van de Water, Paul N., senior fellow, Center on Budget and
Policy Priorities, prepared statement of................... 62

FULFILLING A LEGAL DUTY: TRIGGERING A MEDICARE PLAN FROM THE
ADMINISTRATION

----------

TUESDAY, JULY 12, 2011

House of Representatives,
Subcommittee on Health Care, District of Columbia,
Census and the National Archives,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:05 p.m., in
room 2154, Rayburn House Office Building, Hon. Trey Gowdy
(chairman of the subcommittee) presiding.
Present: Representatives Gowdy, Gosar, DesJarlais, Davis,
Norton, Clay, Murphy and Cummings (ex officio).
Staff present: Ali Ahmad, deputy press secretary; Brian
Blase, professional staff member; Robert Borden, general
counsel; Drew Colliatie, staff assistant; Gwen D'Luzansky,
assistant clerk; Linda Good, chief clerk; Christopher Hixon,
deputy chief counsel, oversight; Sery E. Kim, counsel; Justin
LoFranco and Cheyenne Steel, press assistants; Mark D. Marin,
senior professional staff member; Ronald Allen, minority staff
assistant; Jaron Bourke, minority director of administration;
Yvette Cravins, minority counsel; Carla Hultberg, minority
chief clerk; and Christopher Staszak, minority senior
investigative counsel.
Mr. Gowdy. Welcome. This is a hearing entitled ``Fulfilling
a Legal Duty: Triggering a Medicare Plan from the
Administration.''
I would ask the first witness in a panel by himself to come
forward.
Thank you, Mr. Blum.
Let me read the mission statement from the Oversight
Committee. We exist to secure two fundamental principles.
First, Americans have a right to know the money that Washington
takes from them is well spent; and second, Americans deserve an
efficient and effective government that works for them. Our
duty on the Oversight and Government Reform Committee is to
protect these rights. Our solemn responsibility is to hold
government accountable to taxpayers, because the taxpayers have
a right to know what they get from their government. We will
work tirelessly in partnership with citizen watchdogs to
deliver the facts to the American people and bring genuine
reform to the Federal bureaucracy. This is the mission of the
Oversight and Government Reform Committee.
I will recognize myself for an opening statement and then
recognize the distinguished gentleman from Illinois Mr. Davis.
First I want to thank not just the first panel of
witnesses, but all the witnesses for their time and willingness
to share their insights, as well as thank all the guests in the
audience. As part of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, Congress enacted a
trigger provision, a statutory requirement to propose Medicare
reform should certain conditions be met. Each year the Medicare
trustees are required to include a Medicare funding warning in
their annual report should general revenue funding exceed 45
percent of total Medicare revenue for the current year or is
projected to exceed 45 percent for the subsequent 6 years.
Should that warning be issued in consecutive years, the trigger
mechanism would take effect requiring the President to submit
legislation to Congress that would decrease the percentage of
general revenue financing Medicare. Since 2006, every single
annual report has included this warning.
The previous administration complied with this law. The
current administration has not, and that is troubling on at
least two fronts. Firstly and fundamentally, we are a Nation of
laws. We don't have the luxury of picking and choosing which
laws we like and which laws we do not like. The law is no
respecter of title or station, it applies to all. So it is
troubling the President, who is the Chief Executive of the
branch charged with enforcing the laws, has not complied. And
this failure to comply is troubling because we are witnessing
firsthand right now the need for decisive leadership on the
tough spending issues facing our country.
Making speeches isn't hard. Saying you have a plan when you
don't have a plan isn't hard. What is hard is leading. What is
hard is making tough decisions. That is what is statutorily,
and indeed morally, required of leaders.
Without substantive reform Medicare will be insolvent in a
decade. Costs are skyrocketing, and benefits are threatened by
the unsustainable status quo. Something has to be done, and
simply talking about the problems will no longer suffice.
Abdicating this duty might be a good political strategy; it is
not a good strategy for this country. We can hope for the
leadership to resolve this difficult issue. That we can hope
for. What we should never be forced to hope for is compliance
with the law. Hence this hearing.
I now recognize the gentleman from Illinois, ranking member
of the subcommittee, Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman. And I want to
thank you, first of all, for holding this very important
hearing. As a matter of fact, this is an issue that I care
deeply about, and for many different reasons.
For more than 45 years, Medicare has successfully provided
access to health services for the elderly ages 65 and over and
nonelderly people with disabilities. It currently covers 47
million Americans. Just think about it, 47 million Americans.
Since July 30, 1965, when Lyndon Johnson signed the bill
creating this fundamental health initiative, this program has
evolved to reliably meet the demands of aging and medically
vulnerable Americans who may not have had access to medical
attention otherwise. Simply put, Medicare is the lifeline.
Given the political realities, I realize that certain well-
thought-out improvements need to be made for Medicare to
continue its course. However, make no mistake, I, along with my
Democratic colleagues, am committed to ensuring the viability
and sustainability of Medicare without deep ideological-driven
cuts with harmful consequences.
It is this same commitment that ensured that Congress
worked actively for comprehensive health reform. The passage of
the Affordable Care Act further improved upon the fiscal
efficiencies necessary to ensure Medicare's continued
existence.
On a personal note, I have been involved in health advocacy
for over 35 years. I believe it fundamentally reveals the
character of a Nation when it cares for its most vulnerable
citizens, the elderly and the infirm. In my district I can
attest that Medicare serves as an indispensable safety net for
many of my constituents.
This discussion is a valid one, but it must be approached
in a serious, thoughtful manner mindful of the sacrifices made
by those who came before us. Seniors should not bear the burden
of cost shifting disguised as reform.
I look forward to the testimony of all the witnesses. And I
will just end, Mr. Chairman, by suggesting that if it was not
for Medicare, many of the senior citizens that I personally
know probably would not still be around, because oftentimes
Medicare is the only stopgap between them and the grave. So if
we talk about safety nets, there is nothing that can provide
more safety than the opportunity for individuals who have
reached an age where they cannot necessarily care for
themselves to know that at the end of the day, they can get the
medical services that they need.
I look forward to the hearing and yield back the balance of
my time.
Mr. Gowdy. I thank the gentleman from Illinois.
I now recognize the gentleman from Maryland, the ranking
member of the full committee, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. I want to
thank you for calling this hearing today. And I want to pick up
where the ranking member of this subcommittee left off.
As the son of a mother who is 85 years old, I just watch
her struggle through the difficulty of seeing her doctor retire
and trying to help her find a new doctor. She found a new
doctor, but even that was very taxing on her at 85 years old.
To pick up where Mr. Davis left off, and when I meet with
people in my district, the seniors, and I ask them, you know,
who has savings and who has pensions and whatever, most of
them, all they have is Social Security and Medicare, that's it,
period. So to put it more bluntly, without Medicare they would
be--many of them would be dead, period.
There are 45 million people nationwide who depend on
Medicare for their health care. For them and for millions of
seniors who will come after them, it is vital that Congress
ensure Medicare's long-term solvency. The Patient Protection
and Affordable Care Act extended the Medicare Trust Fund
solvency by 8 years, which is one of the many reasons I'm proud
that I voted to enact this law, and I will go to my grave
defending it.
By providing free, preventative screenings and reducing the
cost of brand-name prescription drugs, the Affordable Care Act
has already made a tremendous impact on seniors' health care
and their pocketbooks. The Affordable Care Act also addresses
the escalating cost of health care by reforming Medicare's
payment and delivery system to incentivize high-quality,
better-coordinated care without inefficiencies and to fight
fraud and abuse.
In contrast, the recent plan passed by my House Republican
friends would eliminate Medicare as we know it. In a radical
transformation they would wipe out Medicare's guaranteed
benefits for seniors. They would also shift massive costs onto
seniors, while doing nothing to address the real reasons behind
the high cost of health care.
Under the Republican plan seniors aged 65 and 66 would be
abandoned to find health care on their own or go without it.
Seniors 67 and older would get a voucher from the government to
pay a smaller and smaller share of their health care costs. But
one of the questions that I posed to so many, and I've never
received a satisfactory answer, Mr. Chairman, is that if I have
a senior at 65 years old with diabetes and its companion heart
disease, who is going ensure them? I don't care how much money
you've got, who is going to ensure them?
The nonpartisan Congressional Budget Office estimated that
the Republican plan would more than double out-of-pocket costs
for seniors. Right now seniors pay about 25 to 30 percent.
Under the Republican plan they would pay 68 percent with no
money, by the way. The Center for Economic Policy Research
calculates that the Republican plan would shift costs of up to
$4.9 trillion onto seniors. For the individual senior citizen,
that would amount to an average of $13,368 per year.
Mr. Chairman, the Republican plan is cruel, and it is sadly
a cruel betrayal of our Nation's seniors. It would have a
profoundly negative impact on the health of those elderly, it
would be detrimental to the Nation's economy, and it would
impair the living standards of seniors and their children, who
will be called upon to take over when the government abandons
them. This radical--and again, I go back to if they can get
insurance.
This radical plan is not inevitable, and Democrats in
Congress will fight tooth and nail to help protect our Nation's
seniors from this abomination. At the same time we will seek
commonsense measures to secure runaway medical inflation rather
than taking away medical care from people who need it.
And I agree with the ranking member, there are things that
have to be done with regard to Medicare. Nobody is saying it's
either one way or the highway. But we have to do those things
that are sensible, and we have to do those things--we have to
treat this as if we are the most skilled heart surgeon
performing the most delicate operation so that we do the
treatment and give the reform that will allow Medicare to live
as opposed to allow the patient to die.
And so I look forward to the testimony today. I want to
thank our witnesses. And again, Mr. Chairman, I think this is a
grand opportunity for us to address this issue. And with that I
yield back.
Mr. Gowdy. I thank the gentleman from Maryland.
[The prepared statement of Hon. Elijah E. Cummings
follows:]

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Mr. Gowdy. It is now my pleasure to introduce Mr. Jonathan
Blum, who is the Deputy Administrator and Director, Center for
Medicare and--Centers for Medicare and Medicaid Services.
Pursuant to committee policy, I would ask Mr. Blum to
please rise and let me administer an oath.
[Witness sworn.]
Mr. Gowdy. May the record reflect that the witness answered
in the affirmative.
Mr. Blum, there are a series of lights hopefully somewhere.
They mean what they traditionally mean outside of committee
hearings. So with that we would recognize you for your 5-minute
statement.

STATEMENT OF JONATHAN BLUM, DEPUTY ADMINISTRATOR AND DIRECTOR,
CENTERS FOR MEDICARE AND MEDICAID SERVICES

Mr. Blum. Great. Thank you, Chairman Gowdy, Ranking Member
Davis and members of the committee. I am pleased to be here
today to talk about our efforts to strengthen the Medicare
program.
I would like to make three main points during my 5 minutes.
First, the Affordable Care Act has made substantial
improvements to Medicare's overall finances. The Affordable
Care Act will reduce Medicare spending by over $500 billion
over the next 10 years.
Many of the savings provisions included in the Affordable
Care Act came from proposals that were part of the President's
first budget submission to Congress in 2009. These proposals
included a payment change to promote accountable care
organizations to participate within the Medicare program,
bundled payments to promote greater care coordination and
greater efficiency to our payments, payment reductions to
certain health care providers and incentives for hospitals to
improve quality. Many of these saving provisions have been
already implemented, so the savings are real, and CMS is on
track to implement the remaining savings provisions on time.
This year's Medicare Trustees Report confirmed the
Affordable Care Act's impacts on the program's overall
solvency. The Part A trust fund solvency has been extended by 8
years. The 45 percent trigger threshold will be met by 2013.
Projected per capita spending will be 2.9 percent over the next
10 years, significantly lower than the previous 10 years. The
cost curve, at least in the short run, has been bent downward.
Not only do these changes reduce taxpayers' burdens, but they
lower costs for Medicare beneficiaries through lower copayments
and premiums.
The second point that I want to make today is that reducing
Medicare costs is one of CMS's greatest priorities, highest
priorities. We have made significant new investments in
reducing waste, fraud and abuse. Through our partnerships with
law enforcement agencies, billions of dollars have been
recovered back to the trust funds.
We have also implemented on January 1st the first round of
competitive bidding for medical supplies such as power
wheelchairs. Through this competitive bidding program, Medicare
will pay an average of 32 percent less than it previously paid
for power wheelchairs, oxygen tanks and other durable
equipment. That 32 percent is an average figure. The program
will save billions of dollars for taxpayers and beneficiaries
when fully phased in.
We have also closed loopholes and reformed our payment
systems to ensure that we pay accurately for providers such as
skilled nursing facilities, home health agencies and physician
services. CMS will continue to use its rulemaking authorities
to ensure we pay as accurately and fairly as possible.
And the third point I would like to make today is that
Medicare benefits are stronger due to the Affordable Care Act
and our work at CMS. The Medicare Part D doughnut hole is being
phased out by 2020, and this year those that do fall into the
doughnut hole will save hundreds of dollars on their out-of-
pocket costs for prescription drugs. This year the program
began to offer free cost sharing for certain preventive
benefits to keep seniors healthier for longer periods of time,
and the Medicare Advantage program continues to grow--not
shrink, but to grow--while offering average lower premiums.
Clearly we have more work to do to ensure a sustainable
program for the long-term future. We look forward to working
with the Congress to ensure we have the strongest program
possible. I would be happy to answer your questions.
Mr. Gowdy. Thank you, Mr. Blum.
[The prepared statement of Mr. Blum follows:]

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Mr. Gowdy. I would say on behalf of all of us, votes are
imminent, and all of us want to be good stewards of your time
as well as the time for the second panel. I know that people
have other commitments and other things to do. So we're going
to ask questions until they call for votes, and then if we get
back in time and you're still here, great; if not, then we want
to be respectful of things other people have. So thank you. We
apologize for that in advance.
Mr. Blum, what's the purpose of the trigger?
Mr. Blum. The 45 percent trigger?
Mr. Gowdy. That's right.
Mr. Blum. Well, the MMA, the Medicare Modernization Act of
2003, created a kind of additional solvency measure to assess
the overall financing of the total Medicare program Parts A and
Parts B.
Mr. Gowdy. And it requires the President to submit a plan
to Congress, correct?
Mr. Blum. The statute requires that the Medicare trustees
issue a funding warning when certain conditions have been met.
Mr. Gowdy. Have those conditions been met?
Mr. Blum. They were met starting as of 2006 or 2007.
Mr. Gowdy. Right. So according to Federal law, President
Obama was supposed to submit a plan to this Congress to flip
that 45 percent of general revenue funding for Medicare,
correct?
Mr. Blum. The 45 percent trigger has been met, will be met
by 2013. The Affordable Care Act will----
Mr. Gowdy. That wasn't my question.
Mr. Blum. The President has consistently submitted a budget
to propose reductions to overall Medicare's financing. In 2009,
the President submitted a historic budget framework to reduce--
--
Mr. Gowdy. So he doesn't take the position that is
advisory, he takes the position that it is the law?
Mr. Blum. I think the position that the administration
takes is that reducing Medicare costs is one of our highest
priorities.
Mr. Gowdy. Mr. Blum, I'm not asking you about priorities,
I'm asking you about compliance with the law. Does this
administration take the position that the trigger is advisory
or mandatory?
Mr. Blum. We take the position that reducing Medicare costs
is our highest priority.
Mr. Gowdy. Mr. Blum, I'm probably not asking my question
very artfully, so let me try it again. Is the trigger mandatory
or discretionary, complying with it?
Mr. Blum. The trigger is one measure of overall Medicare
solvency. The President has proposed a budget in 2009. Many of
those savings provisions were included within the Affordable
Care Act and adopted in the Affordable Care Act.
Mr. Gowdy. So your position is that the Affordable Care Act
or ObamaCare meets his requirements under that section for the
trigger?
Mr. Blum. My position today is that the President has
continued to propose ideas and proposals to reduce Medicare
spending, and as a result by 2013, in 2 years' time, the 45
percent threshold has been met.
Mr. Gowdy. Mr. Blum, I quit counting at number seven when I
heard for the seventh time my colleagues refer to the
Republican plan. And that's great, they can--that's the
beautiful part about our Republic is that we can introduce
ideas and criticize them, and heavens knows Paul Ryan's plan
has certainly been scrutinized and criticized.
I wonder if the President's decision not to submit a plan
to fix Medicare might be because he had the prescience to
realize that there would be criticism that came, just like Mr.
Ryan has experienced. Do you think that might explain why we
haven't gotten a plan submitted to Congress?
Mr. Blum. I think the President since he took office has
said that reducing Medicare costs, overall health care costs,
is one of our greatest challenges in the context of overall
health care reform. The President submitted a budget in 2009
that will reduce--that would have reduced Medicare spending by
$300 billion. Many of those provisions were adopted in the
Affordable Care Act.
Mr. Gowdy. What about 2010?
Mr. Blum. He continues to suggest new ideas, for example,
to reduce waste, fraud and abuse. This April he proposed in the
context of the overall debt ceiling reductions for a $400
billion additional reduction for both Medicare and Medicaid,
and he continues to suggest new ideas in the context of the
overall debt ceiling discussions.
Mr. Gowdy. Mr. Blum, I'm going to ask you again, do you
take the position that ObamaCare meets the statutory
requirements of the trigger legislation?
Mr. Blum. My position is that due to the savings provisions
that were included in the Affordable Care Act, Medicare
solvency has been increased by 8 years. The 45 percent trigger
will be met by 2013, in 2 years' time, through at least 2020.
What I think is true is that the Affordable Care Act will
reduce Medicare spending, will improve Medicare solvency. We
have more work to do, but by 2013 the 45 percent trigger will
be met.
Mr. Gowdy. So that's a long way to say you do take the
position that introducing or passing ObamaCare absolves you
from having to meet any other trigger requirements?
Mr. Blum. I think the President has been clear that we have
much more work to do to ensure Medicare solvency.
Mr. Gowdy. Well, I'm wondering if part of that work might
be complying with the law and submitting a plan to Congress as
is required when you get warnings from the trustees?
Mr. Blum. I believe that the first year that the warning
was issued was in 2006, possibly 2006 or 2006-2007. The first
year the President took office, he submitted a proposal to the
Congress to reduce Medicare spending by $300 billion. The
Affordable Care Act took many of those proposals to reduce
spending by $500 billion. We are working very hard to implement
those provisions. We have extended--those provisions have
extended solvency by 8 years to the Part A trust fund by 2013.
The trigger has been met through at least 2020. So I believe we
are--we have complied with the intent to the 45 percent
trigger.
Mr. Gowdy. Well, I'm way out of time, so I will recognize
the gentleman from Illinois Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Mr. Blum, I'm aware that we are searching for alternatives
to reform Medicare. The Ryan plan is one such scenario, but I'm
not in favor of merely shifting beneficiaries from one Federal
plan to another. The Congressional Budget Office said the
following about the Ryan plan, and I'm actually quoting: As the
eligibility age for Medicare rose from 65 to 67, some people
who were 65 or 66 years old or were approaching those ages
would turn to other programs for health care and income
support. For example, more people might apply for disability
benefits under the Disability Insurance Program or under the
Supplemental Security Income Program. Most people on disability
insurance receive Medicare benefits after a 24-month waiting
period, and Supplemental Security Income beneficiaries receive
Medicaid benefits immediately under current law. Most people
might also apply for the Supplemental Nutrition Assistance
Program or other welfare programs.
Is it reasonable to believe that under the Ryan plan,
seniors will be forced to rely on other public health programs
or simply not obtain those services at all?
Mr. Blum. My reading of the Congressional Budget Office
analysis of Chairman Ryan's plan is that it would shift
additional cost onto Medicare beneficiaries; that the way the
program is structured, to my understanding, is that it sets a
premium support system that grows over time by an amount less
than the overall projected trend rate in health care costs,
and, as a result, that shifts costs onto Medicare beneficiaries
relative to what they would have paid without the proposal.
Mr. Davis. And it's also my understanding that the
nonpartisan Congressional Budget Office found that a typical
beneficiary would spend more for health care under the proposal
than under CBO's long-term scenarios for several reasons.
First, private plans would cost more than traditional Medicare
because of the net effect of differences in payment rate for
providers, administrative costs and utilization of health care
services as described above. Second, the government's
contribution would grow more slowly than health costs, leaving
beneficiaries with more to pay. Is that your understanding of
this scenario?
Mr. Blum. Correct. I think if you look at the history of
private plans operating within the Medicare program, they have
historically not been less expensive than the traditional fee-
for-service Medicare program. Today we spend about 108 percent
on average more for private plans for those beneficiaries who
join a private plan relative to the traditional fee-for-service
program. Now, those payment differentials are coming down. But
I think one of the points from the Congressional Budget Office
is that they estimate that the cost to administer health care
coverage through private plans relative to the fee-for-service
program would be more expensive, and that's one of the reasons
why beneficiaries would be projected to pay more than they
would without the new program put into place.
Mr. Davis. In your analysis, would you suggest that the
Affordable Care Act actually helps to reduce the cost of
Medicare?
Mr. Blum. The Affordable Care Act reduces Medicare
beneficiaries' out-of-pocket costs in a number of ways. One is
that it constrains cost growth. So to the effect that the
program pays less, beneficiaries pay less through lower
copayments and lower premiums.
The Affordable Care Act also phases out the so-called Part
D doughnut hole. This year beneficiaries will save hundreds of
dollars in out-of-pocket costs for brand-name prescription
drugs. And also that the program provides free cost sharing for
certain preventive benefits.
So, yes, the Affordable Care Act will lower out-of-pocket
costs relative to previous law.
Mr. Davis. Thank you very much.
Thank you, Mr. Chairman. I yield back.
Mr. Gowdy. I thank the gentleman from Illinois.
The chair will now recognize the gentleman from Tennessee
Dr. DesJarlais.
Mr. DesJarlais. Thank you, Mr. Chairman. And thank you, Mr.
Blum, for appearing today.
Just in continuation of the conversation we were just
having, you were talking about lowering health care costs under
the ObamaCare plan for Medicare recipients. Does the plan take
into account the fact that there are 10,000 new Medicare
recipients entering the Medicare pool daily? Does it take into
account the fact that the average life expectancy now versus
1965 has grown by about 10 years? I believe the average life
expectancy in 1965 was 68 for a male, and it's much higher now,
thankfully.
The CBO says that it will be insolvent by 2024. With all
those considerations, is that all covered in the Affordable
Health Care Act, and is that going to be taken care of in terms
of still being able to lower costs despite this huge influx and
the CBO report that Medicare is going to be insolvent?
Mr. Blum. Well, the trustees report that I cited during my
opening statement projected that Medicare Trust Fund solvency
will be increased by 8 years, that the 45 percent trigger will
be met by 2013, per capita spending will be constrained over
the next 10 years relative to the previous 10 years. Those
projections also include the fact that beneficiaries live
longer, the fact that more beneficiaries due to the baby-boom
generation will be added to the program. So the figures that I
cited take into account the demographic changes that are
projected to happen to the Medicare program.
Mr. DesJarlais. And as a practicing physician who has taken
care of many Medicare patients, do you believe that we can
reduce the cost the way you speak here and maintain quality of
care?
Mr. Blum. I think one of the greatest challenges and also
opportunities that is contained within the Affordable Care Act
is the opportunities to use payment reform to change how we
think about paying for care, to shift to paying for value from
paying for volume. The Affordable Care Act includes many
provisions to make our health care system safer, more focused
on outcomes; for example, focusing on hospital readmissions.
So the spirit of the Affordable Care Act is to constrain
cost growth in part by lowering payment updates to providers,
but also to fundamentally change how we think about paying for
care, to focus on the value, to focus on the outcome rather
than just the volume of services.
Mr. DesJarlais. What is it going to do with the SGR,
because that's a looming issue that concerns both the
recipients of health care, because seniors are already having
difficulty finding providers, and providers seem to be exiting
the Medicare plan because of the cost cuts? Right now we have
anywhere from a 21 to a 28 percent cut. Does your plan include
a 30 percent pay cut to providers?
Mr. Blum. Congressman, you are correct, according to our
current projections, that if Congress does not extend the so-
called SGR extensions, that CMS will that have to reduce
physician payments by 30 percent. We are very concerned about
this projected payment reduction. And while we don't see any
disruptions to access the physician services across the country
right now, we are concerned that physician access could be
compromised if this cut were to take into effect. The President
has called for a permanent fix to the SGR, one that's also
fiscally responsible.
Mr. DesJarlais. How are we going to pay for that? I mean,
what are we going to tell our seniors right now, don't worry,
we're going to cut physicians' pay by another 30 percent, when
essentially there hasn't been a pay increase for a decade now
despite rising health care costs, overhead costs, and
physicians are going to be paid probably 50 percent less than
they were a decade ago? Do you really think that's going to
fly? Can you tell our seniors with any confidence that doctors
are going to be there for them, and what does the Obama
administration have as a solution for this?
Mr. Blum. I can't speak for the Congress, but the President
this year in his 2012 budget submission proposed a 2-year
extension that was fully paid for through payment reduction,
through improvements to how we think about waste, fraud and
abuse within the Medicare program. But the President has also
called for a permanent solution, but one that's also done in a
fiscally responsible way.
Mr. DesJarlais. So we're going to kick the can down the
road?
Mr. Blum. I think what the President has said is that we
need to find a permanent solution working with the Congress.
His budget submission this year included a 2-year extension,
but his policy--very strong policy preference is for a
permanent fix to the SGR.
Mr. DesJarlais. Okay. So we'll worry about it when I get
there is basically what I'm hearing.
Let's talk about IPAB quickly, because we're running out of
time. That's another area that I think maybe even the
administration recommend is flawed. We have an Independent
Payment Advisory Board that is basically tasked with rationing
health care even though they're saying that they're not allowed
to ration it, but they are tasked with cutting Medicare. And I
find it interesting that the Ryan plan has been accused of
ending Medicare as we know it when in reality ObamaCare within
the next 2 years is going to start making drastic cuts to
payments to Medicare recipients and providers, and I see a
recipe for disaster.
Mr. Gowdy. Mr. Blum, the gentleman's time is expired, but I
don't want to prevent you from answering. I would just ask you
to answer in light of the fact that the gentleman's time has
expired.
Mr. Blum. Thank you.
I think that the overall goal that we have, I think all of
us have, is to ensure that cost growth remains lower than in
the past. And I think one of the reasons that Congress did
include the IPAB provision was to create a check on overall per
capita growth.
In my opinion, we need to look at a whole host of different
solvency measures. The 45 percent trigger looks at the mix of
financing, but it doesn't necessarily look at the overall cost
growth. And I think that the Affordable Care Act's goal, CMS's
goal, is to ensure that we have lower cost growth than the past
to ensure the program remains affordable both for taxpayers and
for beneficiaries.
Mr. Gowdy. I thank the gentleman from Tennessee.
The chair would now recognize the gentleman from Maryland,
the ranking member of the full committee Mr. Cummings.
Mr. Cummings. Mr. Chairman, I see that we are about to
start voting on the floor, so I will be brief.
Let me ask you, Mr. Blum, one of the things about the
Affordable Care Act, and it's something that my seniors
applaud, is the whole idea of wellness. I cannot tell you the
number of people that I see in my district who call me and say,
Cummings, you know, I found out I had prostate cancer, and they
said it was too late, too late. In other words, they didn't get
the exam earlier. Or they found out they have some other
disease that is going to cost a lot, end-of-life care. And I
was wondering, as you all see it, the Affordable Care Act had
provisions to try to address some of the costs by keeping
people well; is that correct?
Mr. Blum. The Affordable Care Act included several
provisions, one of which was for the first time to add the
opportunity for Medicare beneficiaries to have an annual
wellness visit, a conversation with their physician to ensure
that they're complying with recommended preventive tests; to
check medications to ensure that the mix of medications is
correct. Almost 1 million Medicare beneficiaries to date has
taken advantage of that new wellness visit.
The Affordable Care Act also included provisions to lower
barriers for beneficiaries to take advantage of preventative
benefits by waiving the cost sharing for certain preventative
benefits. And I think that in our opinion at CMS is that we
need to keep our beneficiaries healthier for longer periods of
time. That's the right thing to do for beneficiaries, but it's
the right thing to do for overall Medicare costs. We know that
when beneficiaries come onto the program without coverage, they
cost more than beneficiaries who have coverage turning age 65.
So that gives us evidence that when we focus on the health, we
focus on the well-being, we ensure that beneficiaries receive
care when they need it, that the overall costs are lower.
Mr. Cummings. If you will recall, when I did my opening
statement, I talked about a question that concerns me, and I'm
sure many others. If you got a senior who is 65 years old with
no--who has diabetes and who has heart disease, I asked the
question, who is going to insure them? And I'm sure you all
have tried to figure this out because you realize that there is
a Republican plan. And so under that plan have you figured out
who is going to insure those folks, because I've got a lot of
folks in similar situations in my district.
Mr. Blum. Well, the plan as I understand it, Chairman
Ryan's plan, would take effect in 2022. I think it's hard to
predict which insurance companies would come into a market in
more than 10 years' time. But I think the keys are to have very
strong risk-adjustment mechanisms to ensure that plans have
very strong incentives to take those that have chronic illness,
the chronic sick. The history of the private plan system within
the Medicare program to date has been that when we don't
account for the high cost that beneficiaries with diabetes or
other chronic conditions have, that plans figure out ways not
to care for them.
Mr. Cummings. You talked about waste, fraud and abuse, and
that's been certainly a subject that has come before our full
committee quite a bit and is something that we are tasked with
addressing. And, you know, do you all see a lot of waste, fraud
and abuse in the Medicare system, and do you--you know, those
are words that we hear over and over again, I mean every year.
I've been hearing it for the last 15 years since I've been
here, waste, fraud and abuse; waste, fraud and abuse. The
question is, do we have a plan to truly attack that?
Mr. Blum. I think in 2009 there was an historic coming
together of both CMS and the law enforcement agencies,
Department of Justice, of trying to do more than what was done
in the past to reduce true fraud in the program. One thing that
was put into place is Operation HEAT, which targets both law
enforcement resources and also analytic resources to the
hotspots of the country for Medicare fraud. We know that fraud
tends to be in certain parts of the country, then it moves when
law enforcement moves in. So the key really is to follow the
hotspots and ensure that the fraudsters don't get ahead of law
enforcement.
Second is that we are using data analytics in novel new
ways to both find waste, fraud and abuse, but also to predict
where waste, fraud and abuse could be happening.
And the third area is that we need to make sure that our
payment policies are correct, they don't overinflate to create
incentives for fraudsters or bad actors to come into the
program. One example is that we have reduced prices paid for
certain durable medical equipment. That's an area that we have
a lot of fraud in the program by 32 percent. So if we target
the hotspots, we use data wisely, we also set our payment
policies right, that we will make a serious dent in waste,
fraud and abuse.
Mr. Cummings. Thank you. I yield back.
Mr. Gowdy. I thank the gentleman from Maryland.
Mr. Blum, and to my colleagues Mr. Clay, Ms. Holmes Norton,
Dr. Gosar, we've got about 10 minutes left to vote. It looks
like it may be a series of some length. What I can promise you
is we will be back here as quickly as we can get back here.
Mr. Blum. I'm happy to stay.
Mr. Gowdy. Well, we all apologize, but we can't control
when votes are called, and sometimes can't control how long
they last. But I'll make you the commitment we will get back
here. I'm not going to tell you we're going to run, but we'll
walk briskly to get back here.
Mr. Blum. It's too hot to run.
Mr. Gowdy. And we'll be in recess until such time as we can
come back. And again, we apologize for any inconvenience.
Mr. Blum. Thank you very much.
[Recess.]
Mr. Gowdy. Mr. Blum, and to all our guests, again, we
apologize for any inconvenience for what was an especially long
vote series.
The chair will now recognize the vice chairman of the
subcommittee Dr. Gosar, the gentleman from Arizona.
Mr. Gosar. Thank you, Chair.
Mr. Blum, do you agree--or do the current law projections
include a 30 percent cut in the provider payment rate schedule
to occur next year?
Mr. Blum. The trustees reports----
Mr. Gosar. How about yes or no?
Mr. Blum. No, it does not. The trustees report projects
current law, and the current law would have a 30 percent cut in
2012 absent congressional legislation.
Mr. Gosar. Okay. The chief actuary at CMS says that many of
the providers will find it difficult to remain in Medicare if
provider payments are cut dramatically. I find that in Arizona
already. So if we are making further cuts, we are not going to
see a lot of providers or access to care, right?
Mr. Blum. I think what the chief actuary has said is that
it is possible that Congress may repeal some of the savings
provisions that are----
Mr. Gosar. May repeal?
Mr. Blum. Correct.
Mr. Gosar. So that's a maybe, not a definitive?
Mr. Blum. What the trustees report has projected current
law, and current law has productivity of payment adjustments
for hospitals and other health care providers really to incent
more efficiency. And so the actuaries have projected an
alternative scenario for future costs if Congress were to
repeal some of the changes and also that if Congress were to
provide a permanent fix to the SGR.
Mr. Gosar. Well, we didn't include the SGR into that fix,
did we?
Mr. Blum. Which fix, I'm sorry?
Mr. Gosar. I mean, the health care bill did not take in the
SGR fix.
Mr. Blum. Current law provides that in January 1, 2012,
that physician payments would be reduced by 30 percent or so.
Mr. Gosar. And you actually think that's going to go
through?
Mr. Blum. The President has called for a permanent fix to
the SGR when it is done in a fiscally responsible way. The
administration is hopeful that the Congress will address the
long-term SGR, but the President has said that it should be
done in a kind of fiscally responsible way. His 2012 budget
submission provided a paid-for 2-year extension, but he has
also said his very strong commitment for a permanent fix to the
SGR.
Mr. Gosar. Well, I understand the commitment and trying to
perform the fix. Have you actually been on the ground, because,
you know, physicians are chasing their tail, so a cut is
improbable, just because it just doesn't work that way in a
physician's office.
Mr. Blum. I have traveled throughout the country over my
time at CMS, and what I hear is tremendous frustration from
physicians about sort of the current uncertainty to what
physician payments will be in the future. The good news is that
so far we're not seeing any access issues for beneficiaries
nationwide, but if the 30 percent cut were to go into effect,
that we would have to be very worried about access to physician
services.
Mr. Gosar. But we're already starting to see that. I'm from
rural America, from rural Arizona, and we're starting to see it
already. Because, once again, we're just chasing our tail
because we're not getting paid, and we're hopefully getting
down the road so that we get some compensation. And so there's
no efficiency in that model whatsoever, and there's no
efficiency in some of the clinics as well when we're talking
about paying encounter fees just so that we have a single WIC
mom coming 5 different weeks for 1 visit not even seeing a
physician. That's not called efficiency in my book.
Mr. Blum. I think the Affordable Care Act provides CMS new
tools and new payment authorities. And I think one of our
challenges, but also our opportunities, is to change how we pay
for physician services and other services to promote greater
care coordination, to promote more efficiency in payments, to
reward outcomes rather than just volume of services.
So one of the highest priorities that we have at CMS is to
build the next generation of payment systems to ensure more
accountability, greater quality outcomes. But I agree with you,
Congressman, we have to address the 30 percent shortfall that's
scheduled to take effect.
Mr. Gosar. I'm going to go back to this. Your testimony
assumes, at least the numbers you're reporting to us assumes,
that there's a physician 30 percent cut, right?
Mr. Blum. The actuary's report this year assumes that the
30 percent cut will go into effect. That assumes current law.
What the President has called for is a fiscally responsible
permanent fix to the SGR. He has proposed a 2-year extension
that's fully offset by other changes to the Medicare and
Medicaid programs.
So we agree that we need to find a permanent solution to
our current physician shortfall, but at the same time we need
to make sure that the Medicare program remains strong for
future generations. Part of that strategy is to ensure that we
build a next generation of payment systems to ensure the health
care is more efficient, that it's more accountable, that it
rewards care coordination, and through payment improvements,
through delivery improvements, we can save tremendous amounts
of money.
Mr. Gosar. Don't you feel--just real quick, Chairman--don't
you feel that not mentioning this 30 percent cut is misleading?
Mr. Blum. It depends how the 30 percent cut is implemented,
and I can't speak to how Congress will change. But it can be
done in a budget-neutral manner, it can be done in a nonbudget-
neutral manner.
What I can speak to is the projections; to the trustees
report that has projected additional Medicare solvency; the
Part A trust fund, that doesn't include physician services. No
matter what the SGR change is, the Part A trust fund will be
solvent for 8 more years.
Mr. Gosar. Well, I have to interrupt because that's a
contingency on having more jobs in this country, and if you
last looked, that didn't work. And I know that the hospitals
bought into making--agreed to certain cuts, and now those cuts
are even greater. All I got to tell you is that the hospitals
back home in rural America are saying, no way. So I think you
need to redo your math. Thank you.
Mr. Gowdy. I thank the gentleman from Arizona.
The chair would now recognize the gentlelady from the
District of Columbia Ms. Holmes Norton.
Ms. Norton. Thank you very much, Mr. Chairman. Actually I
thank you for this hearing because I think it allows us to get
some information on the record.
Many would say that the present majority got here or was
able to take over the House by the way they characterized what
I think many would regard as the only savings, substantial
savings, in Medicare in a long time and with virtual
demagoguery about the Medicare Advantage program. Now, a
quarter of our seniors get Medicare Advantage, but the last
time I heard, all seniors, like all men and women, are created
equal, except that we spend $14 billion, I believe the figure
was, more on those who enrolled in this private beneficiary
plan and then got, shall we call it, premium support from the
Congress, except that premium was the bulk of what was $14
billion. Now, if they had stayed in traditional Medicare, of
course, the cost would have been less, $14 billion less, to be
exact. So isn't it the case that the Affordable Care Act, by
correcting this overpayment, in fact, saved Medicare funds for
the first time that anyone has been able to do so in any large
amount of funds?
Mr. Blum. The Affordable Care Act phases down the higher
payments that are made to Medicare to vanish plans down to a
level on average that will be closer to the traditional fee-
for-service program.
Ms. Norton. So you could still get it?
Mr. Blum. Correct.
Ms. Norton. But you couldn't get all those extras that sent
you way above what other Medicare patients were getting,
seniors were getting?
Mr. Blum. Sure. CMS began to phase in those payment
reductions last year. They will continue over the next several
years. Contrary to predictions, more Medicare beneficiaries are
going into the Medicare Advantage program. We expect that it
will continue to grow over the next several years. So while we
are phasing down payments, we are also increasing our oversight
of the plans. We are----
Ms. Norton. So people continue in their plans, or in that--
those who prefer private plans continued in it even though they
didn't get this overpayment?
Mr. Blum. And more are signing up every day.
Ms. Norton. Let me ask you about another one of these
concerns. When Part D was passed, we bemoan the fact it wasn't
paid for. It is, in fact, the case that the Affordable Care Act
was paid for; is that not the case?
Mr. Blum. The Affordable Care Act included $500 billion in
cuts to the Medicare program. While there were some savings
provisions that were included within the Medicare Modernization
Act of 2003, that is correct, that the Part D benefit was not
paid for.
Ms. Norton. That was a lot not to be paid for. But as we
know, the trustees--I'm sorry. Yes, the trustees have to let us
know when the general funds are being tapped to pay for Part D.
Now, the figures I have show that 82 percent of the financing
of Part D comes from general revenues and only 10 percent from
beneficiary premiums. States make up 7 percent of the
financing, according to the figures I have. The Medicare
trigger denoting you've reached that 45 percent was almost
immediately pulled.
Do you believe that lowering the Medicare D prescription
drug spending would reduce the chances of this, of triggering
the general services, the general revenue obligation?
Mr. Blum. Sure. The 45 percent trigger is triggered when
nondedicated revenues are greater than 45 percent. The Part D
benefit in its current structure is financed. Roughly 75
percent in beneficiaries pay--beneficiaries who are not----
Ms. Norton. Could I ask you now, in the Affordable Care Act
we closed the doughnut hole over time. Now, how do we pay for
that? We say that was paid for.
Mr. Blum. The Part D doughnut hole was estimated to be
about $16 to $20 billion of costs. That could be wrong. I'll
have to get back to you with an accurate figure. But the
changes to close the doughnut hole were fully offset by other
savings provisions within the Affordable Care Act.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Gowdy. I thank the gentlelady from the District of
Columbia.
The chair would now recognize the gentleman from Vermont
Mr. Welch.
I'm sorry. Mr. Murphy. I apologize.
Mr. Murphy. Thank you very much, Mr. Chairman. Vermont is a
beautiful place. So is Connecticut.
Mr. Gowdy. My apologies.
Mr. Murphy. Mr. Blum, thank you very much for appearing
today. I want to just maybe extend the conversation that Ms.
Norton was having with you regarding what has happened to
Medicare Advantage. She talked about the fact that more, not
less, people are signing up since the Affordable Care Act has
been passed. Can you talk a little bit about premiums for
seniors as it relates to premium increases prior to the
subsidies being taken away?
Mr. Blum. Sure. Currently that the average premium for
those beneficiaries who are in the program are 6 to 7 percent
lower than they were last year. So we're seeing an average
decline of premiums for beneficiaries that are still in the
program. Average benefits have stayed the same, and more
Medicare beneficiaries are signing up for the program relative
to overall growth to the program overall. So payments are
coming down, more beneficiaries are going into the program
relative to last year, and average premiums are declining.
Mr. Murphy. Do you have a guess as to why premiums are
coming down?
Mr. Blum. Well, I think that when the program--when CMS is
a tougher negotiator--last year we denied plan bids for the
first time with new authorities that were provided to the
Secretary to oversee the program. We are actively managing the
program. We are being much more stronger stewards of the
program. And I think the lessons that I've taken is that when
we have enhanced our oversight, promoted competition,
simplified beneficiary choices, held plans to the standards
that are consistent with our goals and values, competition
increases, premiums are lower, and beneficiaries are more
satisfied and join plans.
The Affordable Care Act provides a tremendous new tool to
our oversight of the program. For the first time starting in
2012, we'll be able to provide bonus payments to those plans
that provide the greatest quality outcomes, the greatest
performance. So I think we have more tools than we have had in
the past, but CMS has a stronger commitment to oversee the
program, and when that happens, we get lower costs for
taxpayers, lower premiums for beneficiaries, and stronger take-
up in the program.
Mr. Murphy. Well, I think that's really important
information to have because--and I sat on the Energy and
Commerce Committee and listened for a year and a half to
opponents of health care reform tell us two things, that if we
were to remove the subsidies, the 13 to 15 percent subsidies
above what traditional Medicare costs, that plans would close
up shop. And seniors would no longer be able to have offered to
them Medicare Advantage plans, and/or costs would skyrocket.
And exactly the opposite has happened. Since the Affordable
Care Act has been passed more people are signing up for
Medicare Advantage, and it is costing people less, which is
frankly something you don't see almost anywhere else in the
health care system, people's premiums actually declining.
And I think that's significant, because as we are sitting
here trying to assess how best to create benchmarks for our
health care system for the Medicare program, the benchmark that
we're looking at today is one regarding the percentage of
general revenues that go into the program. But an equally
important benchmark is how much individual beneficiaries are
paying out of their pocket. And the fact that the Affordable
Care Act has meant that Medicare Advantage beneficiaries are
paying less, that Part D beneficiaries are paying less, that
Medicare beneficiaries who are going to have to pay for
preventative care are paying less has just as much to do with
whether or not we're achieving the ultimate goals of the
program as does a question of how much general revenues are
being put into the program.
I think that's incredibly important as we talk about the
current plan before us by the Republicans to radically change
the way that Medicare is structured, because what we know is
this, and CBO tells us, that the average beneficiary is going
to go from paying about 20 to 30 percent of health care costs
to somewhere in the neighborhood of 65 to 70 percent; that they
are going to see their out-of-pocket expenses under the Ryan
Medicare privatization plan be tripled over a 20-year window;
65- and 66-year-olds would probably completely lose the ability
to receive Medicare. Now, that means something to each
individual beneficiary, but it also means something to the
Federal Government. It also means that those 65- and 66-year-
olds leach out somewhere else into the system, and a lot of the
costs that are borne by the beneficiary end up resulting in
people not receiving preventative care getting sicker and
costing us less later on.
So I would like to see us have benchmarks, but I think one
of the benchmarks should also be how much money is coming out
of the pocket of each individual beneficiary. And I think the
Republican plan before us on this radical rewrite of Medicare
will make tracking those expenses even more important.
I thank the chair for the time, and I yield back.
Mr. Gowdy. I thank the gentleman from Connecticut. And I
apologize again for moving him without his consent.
Mr. Blum, on behalf of all of us, thank you for sharing
with us your perspective and for indulging us as we went to
vote.
We will--I'm not even going to leave. I'm going to ask the
second panel to come up, and if any of my colleagues need a
break, they're welcome to take it, otherwise we'll go right
into the second panel.
We want to welcome our second panel. I will introduce you
from my left to right, your right to left. Dr. Charles Blahous
III, is public trustee of Medicare and Social Security. Dr.
Joseph Antos--and if I mispronounce anyone's name, I apologize
in advance--is the Wilson H. Taylor scholar in health care and
retirement policy. Mr. James Capretta is a fellow with the
Ethics and Public Policy Center. And Dr. Paul Van de Water is a
senior fellow with the Center on Budget and Policy Priorities.
Pursuant to committee rules I will ask all four of our
witnesses if they would please rise so I can administer the
oath.
[Witnesses sworn.]
Mr. Gowdy. May the record reflect all the witnesses
answered in the affirmative.
Mr. Blahous, we will recognize you for your 5-minute
opening, and then we will go from your right to left, my left
to right.

STATEMENTS OF CHARLES P. BLAHOUS III, PUBLIC TRUSTEE OF SOCIAL
SECURITY AND MEDICARE; JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR
IN HEALTH CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE
INSTITUTE; JAMES C. CAPRETTA, FELLOW, ETHICS AND PUBLIC POLICY
CENTER; AND PAUL N. VAN DE WATER, SENIOR FELLOW, CENTER ON
BUDGET AND POLICY PRIORITIES

STATEMENT OF CHARLES P. BLAHOUS III

Mr. Blahous. Thank you, Mr. Chairman, Mr. Ranking Member.
It's an honor to appear before you today to discuss the funding
warning in the 2011 trustees report. My written testimony
contains some basic background about Medicare financing, and in
view of the limited time, I would just like to make a few
cursory summary comments in my oral remarks.
First, Medicare has two trust funds. It has a Hospital
Insurance Trust Fund, which we call Part A, and it has a
Supplementary Medical Insurance Trust Fund. And that's
different--that's important to know because financial strains
on each side of the program are manifested in different ways.
On the Part A side, in the hospital insurance side, we as
trustees make projections that are somewhat like the ones we
make for Social Security. We project forward future program
income, future program expenditures. We make a determination as
to whether they're out of balance. We make a determination as
to whether or not there's a date by which the trust fund will
be exhausted. And naturally there's great public and press
interest each year in the trustees' annual projections for a
date of depletion of the HI Trust Fund.
On the SMI side things operate somewhat differently. On
that side general revenues, enrollee premiums are reestablished
each year to match expected costs. So that side of the program
doesn't go insolvent. When there are financial strains there,
they are manifested in rising premiums, rising general revenue
pressures.
Now, if you look at Medicare as a whole, it's bringing in
income from a lot of different sources. Some of these sources
are dedicated revenue sources like payroll taxes, benefit
taxes, premiums, State transfers. And some of the revenue
sources are simply general revenue transfers from the remainder
of the Federal budget without a dedicated financing source. And
the distinction between these different revenue sources is
important for the government's ability to finance Medicare.
Whenever you increase revenues from a dedicated financing
source, like payroll taxes or benefit taxes, you not only
improve the status of the Medicare Trust Funds, but you improve
the government's general ability to finance Medicare because
you're also improving the unified budget balance. But if you
increase general revenues contributions to Medicare, you can
increase the balance of the Medicare Trust Funds, but that's at
the expense of the general fund. It doesn't actually improve
the government's net ability to finance Medicare. So it's
important to keep an eye on the size of those general revenue
obligations.
Now, under our projections, the parts of Medicare that are
funded predominantly by general revenues are going to grow
substantially in the years to come. SMI was about 1.9 percent
of GDP in 2010. We show that rising pretty sharply to about 3.4
percent of GDP by 2035, continuing to rise afterwards. And this
is going to mean increased pressures on general revenues. We
show general revenue requirements of 1.5 percent of GDP this
year gradually rising to over 3 percent of GDP by 2085.
Now, as you noted in your opening statement, the 2003 MMA
directs the trustees to determine whether there is excess
general revenue Medicare funding, and that means more than 45
percent of total Medicare outlays funded from general revenues
in any of the first 7 years of our projection period. And we
did make such a finding for this fiscal year, 2011. This is the
sixth consecutive Medicare Trustees Report that has made such a
finding. Whenever that's done in two consecutive reports, we
must issue a funding warning, as we did this year. Under our
latest projections we would be over 45 percent in fiscal years
2011 and 2012. We would need revenue increases of about $25
billion, benefit reductions of about $46 billion, or some
combination thereof, to get that ratio down below 45 percent
for both 2011 and 2012.
Now, under current law assumptions, which has been noted
here assumes that we allow a 29 percent reduction in physician
payments to go into effect next year, this ratio would drop
below 45 percent in years 2013 through 2021 and then rise
afterwards. By 2034, the ratio would hit 54 percent and stay at
roughly that level through the remainder of the 75-year period.
In sum, Mr. Chairman, the Medicare funding warning
eliminates a part rather than the whole of the financing
challenge facing Medicare. It basically represents a facet of
the financing challenge that is in a sense complementary to the
projections that we make for the solvency of the Part A trust
fund. It looks at other aspects of program financing that the
HI solvency calculation doesn't deal with.
This year we found that the gap between Medicare's
dedicated revenues and expenditures will exceed 45 percent of
outlays in each of this year and next under current law,
thereby triggering the Medicare funding warning pursuant to the
MMA.
Thank you, Mr. Chairman.
Mr. Gowdy. Thank you, Doctor.
[The prepared statement of Mr. Blahous follows:]

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Mr. Gowdy. Mr. Antos.

STATEMENT OF JOSEPH ANTOS

Mr. Antos. Thank you, Mr. Chairman. Thank you, ranking
member.
The trigger mechanism known as the Medicare funding warning
is designed to reflect the combined financial condition of all
parts of the Medicare program. It is a complete indicator of
everything that's going on with Medicare financing, but it is
an important measure. It was intended to call attention to
imbalances between Medicare spending and revenue specifically
dedicated to fund the program.
The first funding warning was declared by the trustees in
2007 and has been declared by the trustees every year since
then. President Bush responded in 2008, his only opportunity to
respond. President Obama has not.
I want to emphasize two points. First, for a given level of
Medicare spending, the trigger directly addresses how much
workers should pay for benefits for seniors. This is a
difficult question that we as a society must answer. One can
disagree about whether 45 percent is the right level, but that
does not invalidate its use.
Second, the Medicare trigger doesn't have teeth. As a
result, the trigger has not directly led to legislation to slow
the program's cost growth. Nonetheless, the trigger, like the
trustees report itself, has raised attention to the fiscal
crisis facing Medicare. And I might add the trustees report has
been equally unsuccessful in motivating a great deal of policy
response to a program that is in crisis, and the crisis is
real.
Despite White House claims that the new health reform law
keeps Medicare strong and solvent, the Affordable Care Act only
modestly improved the program's fiscal outlook. According to
the trustees, spending from the HI Trust Fund has exceeded
revenue since 2008, and trust fund assets will be exhausted in
2024. SMI funding, that's Part B and Part D--spending, rather,
is projected to moderate somewhat from past trends, but the
drain on the Treasury remains extremely high. In fact, those
estimates are optimistic. They incorporate net Medicare savings
from the Affordable Care Act of $575 billion through 2019 and,
of course, much more beyond that, primarily through reductions
and payments to providers. These are reductions that the
Medicare's chief actuary considers unrealistic. The estimates
also assume that the Medicare payments to physicians will be
cut an unprecedented 30 percent in January 2012. Neither
assumption is plausible. Even the trustees state that, ``the
actual future costs for Medicare are likely to exceed those
shown by the current law projections.''
In fact, the actuary's office put out a supplementary
report to the trustees report, and that report estimates much
higher levels of Medicare spending, assuming that Congress
rescinds the physician payment cut and rescinds partially the
other Affordable Care Act reductions after 2021. They're not
assuming that all of those cuts go way, they're assuming that
some of them are moderated. According to that analysis, total
Medicare spending will be 8 percent higher than the official
estimate in 2020, and 14 percent higher in 2030, with spending
growth continuing to accelerate beyond that point. That
translates into trillions of dollars of additional general tax
revenue that will be needed by Medicare over the next 75 years
unless responsible policies are adopted to reduce program
costs.
As we've seen, the President and Congress can ignore a
Medicare trigger with impunity. That's business as usual in
Washington. But neither the President nor Congress actually
need the trigger to advance reasonable policy, and that's the
point. The President sends a budget to Congress every year.
That budget should contain provisions that set Medicare on a
sustainable fiscal path not just for a year or two, but more
permanently.
Congress also doesn't have to wait for the President to
act. The importance of this issue cannot be overstated.
Decisions about Medicare financing, whether by conscious policy
or by default, will determine the fate of a program that
millions of seniors depend on. Those decisions will also shape
the limits on Federal support for societies of their
priorities.
Rapid growth in Medicare spending is a major contributor to
the Nation's debt crisis. Failure to adopt structural reforms
to promote greater efficiencies in delivering health care and
higher values for our Medicare dollar will be disastrous. The
Medicare trigger could be a tool to encourage policymakers to
do what they must do, but only if it's taken seriously.
Mr. Gowdy. Thank you, sir.
[The prepared statement of Mr. Antos follows:]

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Mr. Gowdy. Mr. Capretta.

STATEMENT OF JAMES C. CAPRETTA

Mr. Capretta. Mr. Chairman, Mr. Davis, members of the
subcommittee, thank you for the opportunity to participate in
this very important hearing. In the short time available, I
want to focus my comments on the reason the trigger was
proposed in the first place and adopted by Congress, and why a
credible reform of Medicare is so important.
The Medicare program, as we've just heard, is financed in
ways that are not often well understood. Part of the program,
as Dr. Blahous said, is financed like Social Security, but a
big part of the program is not. For Parts D and B of the
program, the beneficiaries pay premiums for a portion of the
cost, but a large part is financed directly out of the general
fund of the Treasury. These general fund payments to Medicare
are not trivial. As I show in chart 1 in my prepared testimony,
the present value of these payments, as estimated by the
Medicare trustees, is expected to exceed $21 trillion over the
long-range projection period.
Financing Part B and D in this manner can be deceptive in
terms of the burden on taxpayers. Officially these parts of
Medicare are always solvent. The trust fund that pays these
benefits is never expected to ever be depleted because it by
definition has always got money from the general fund to cover
its costs. But just because the trust funds appear to be
solvent on paper does not mean that there is no cost to this
open-ended tap on the Treasury. The money must come from
somewhere. When Part B and D costs rise, the general fund is
tapped for more funding, it just means the Federal budget goes
deeper into deficit, thus forcing more borrowing and debt.
One way to look at the burden of the general fund financing
of Medicare places on the rest of the budget is to look at the
amount of financing--of the financing relative to personal and
corporate income taxes. In my prepared testimony I show in
chart 2 that as recently as 1990, the general fund contribution
to Medicare Part B took up only 5.9 percent of total personal
and corporate income tax collections. By 2020, with Part D now
part of the program, that figure had risen to 19.2 percent. So
1 out of every $5 coming into the Treasury in personal and
corporate income taxes goes as a payment to the Medicare
program. By 2050, it's getting closer to about 1 out of every
$4.
And this is a very optimistic scenario. This is based on
the official Medicare trustees' projections under current law,
but that is highly unlikely to occur, as the actuaries
themselves have stated repeatedly. In the new health care law,
there is a very broad and deep reduction in the provider
payment rates, what are called the productivity adjustment.
This is going to hit hospital and other institutional providers
of care every year in perpetuity. And the actuaries assume
essentially that it won't happen because the consequence would
be that many hospitals would stop seeing Medicare patients
eventually. It would drive Medicare payments down to those of
Medicaid and below, and reach at some point in the not-too-
distant future 50 percent of what private insurers have to pay
to access hospital coverage.
So the actuaries have produced an alternative scenario to
say what is it going to look like if those kind of cuts don't
go into place and the physician cut of 30 percent doesn't begin
in next year. The result of that is shown in chart 3 of my
prepared testimony. And the effect is that over the long run,
total Medicare spending is essentially unchanged from where it
was prior to enactment of the health law. In 2080, total
Medicare spending would exceed 10 percent of GDP by that point
in time, which is well above the 4 percent it is now, and
certainly well above the 1 or 2 percent it was when the program
was first enacted.
Now, the Medicare trigger was enacted to bring into the
policy debate a broader view of Medicare's financing beyond the
misleading picture of permanent solvency for Parts B and D.
What's needed, though, at this point is, as Joe indicated, the
will to actually enact a structural reform of the program. And
here I would just like to conclude by pointing out that there
seems to be some agreement that Medicare is key to slowing
costs throughout the entire health system. As Mr. Blum
testified, their view of the administration is that they need
to change how Medicare operates with things like the
accountable care organizations and bundled payments and other
payment reforms.
It's my judgment that those proposals will not get very far
because of the burdens of politics and other things that will
stand in the way. What I think is more promising is actually
reform like the Part D program has in Medicare. It is true that
it has driven up the general fund contribution to the program,
but it's built around competition and consumer choice. And the
effect of that has been, since 2006 through 2010, the average
annual per capita growth in cost has been just 1.2 percent,
because the consumers have a very strong incentive to go with
low-cost, high-value plans, and that has worked. It's my
judgment that we should pursue Medicare reform in a broader way
along those lines.
Thank you.
Mr. Gowdy. Thank you, sir.
[The prepared statement of Mr. Capretta follows:]

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Mr. Gowdy. Dr. Van de Water.

STATEMENT OF PAUL N. VAN DE WATER

Mr. Van de Water. Mr. Chairman, Mr. Davis, I appreciate the
invitation to appear before you today.
Although Medicare faces significant financing challenges,
claims by some policymakers that the program is facing
bankruptcy are highly misleading. The 2011 report of the
Medicare trustees shows little change from last year's report.
Because the trustees now foresee a slower recovery, they
estimate that Medicare's Hospital Insurance Trust Fund will be
depleted in 2024, 5 years sooner than they estimated last year.
Even at the point of depletion, however, payroll taxes and
other revenues will still be sufficient to pay 90 percent of HI
costs.
HI will not be completely lagging in resources, nor does it
face going out of business. And the 2024 date does not apply to
the Medicare Supplementary Medical Insurance Trust Fund. SMI is
always adequately financed because beneficiary premiums and
general revenue contributions are set annually to cover
expected costs for the coming year. By design, SMI cannot run
out of money.
The trustees' near-term projections are broadly in line
with those they have issued in the past. Since 1990, changes in
the law, the economy and other factors had moved the projected
year of HI insolvency as close as 4 years and as far as 28
years away. Trustees reports, in fact, have been projecting
insolvency for four decades, but Medicare benefits have always
been paid because Congress has taken steps to make sure that
they are. The rapid evolution of the health care system has
required frequent adjustments to Medicare as it has to private
health insurance, and that pattern is certain to continue.
Although the trustees again project that 45 percent or more
of Medicare's financing will come from general revenues within
6 years, this finding bears no relation whatever to Medicare
solvency. The 45 percent figure is an arbitrary benchmark that
is completely unrelated to the financial health of the program.
By its very design, Medicare is supposed to be financed in
large part with general revenues. That at least 45 percent of
Medicare will be financed with general revenue is no more a
problem than that 100 percent of defense, education and most
other Federal programs will also be financed with general
revenues.
Last year's health reform legislation significantly
improved Medicare's long-term cost outlook. If health care were
repealed, the Medicare actuary estimated that HI's insolvency
date will be moved up 8 years to 2016. And without health
reform, HI's long-term shortfall would increase from 0.79
percent of payroll to 3.89 percent. These projections
underscore the importance of successfully implementing the
cost-containment provisions in the Affordable Care Act.
In contrast, phasing out traditional Medicare and replacing
it with private health insurance, as the House-passed budget
resolution would do, would represent a big step in the wrong
direction. It would increase total health care spending
attributable to Medicare beneficiaries by upwards of 40
percent, and it would reduce the Federal Government's
contribution to cover those costs. As a result, the House plan
would massively shift costs to elderly and disabled
beneficiaries. According to CBO, the average 65-year-old
beneficiary's out-of-pocket spending would more than double
from about $6,000 a year to over $12,000 in 2022.
Health reform envisions that Medicare will continue to lead
the way in efforts to slow health care costs while improving
the quality of care. By eliminating traditional Medicare, the
House-passed plan would discard the opportunity to use the
program to promote cost reduction throughout the health care
system. Americans should not be driven into adopting such a
radical proposal by misleading claims that Medicare is on the
verge of bankruptcy.
Thank you, Mr. Chairman.
Mr. Gowdy. Thank you.
[The prepared statement of Mr. Van de Water follows:]

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Mr. Gowdy. Dr. Blahous, what in your judgment is the single
best policy that you could recommend in order to improve
Medicare solvency?
Mr. Blahous. I have to be a little bit careful in answering
that question. Obviously as a trustee, we don't have an
official view, and I'm not speaking for the other trustees. I
would just make a couple of comments. One is certainly there is
a robust debate about how we can get more savings in order to
achieve actuarial balance in Medicare. We have a shortfall in
Medicare. There's competing ideas on how to resolve the
remaining shortfall.
Mr. Gowdy. Before you finish that, because I may be making
an assumption that you disagree with, do you agree with Dr. Van
de Water that all of this is just worrying about nothing, and
that everything is going to be fine, and we can continue to
fund it from the general fund, and it's no big deal?
Mr. Blahous. I don't agree that it's no big deal. I think
we have a very substantial financing challenge in Medicare, a
sizable problem remaining to solve, and I'm very concerned
about it.
Mr. Gowdy. All right. Go on with your solution.
Mr. Blahous. Well, I would say that one of the things
that's difficult is getting savings from a program that people
are dependent upon. And this one of the things that causes
people on both sides of the aisle to have disagreements, how
can we get savings which we need from the Medicare program
without sacrificing beneficiary access to care.
What I can say is that it's easier to hold down spending
growth where people have not yet become dependent on a program.
If I just give one piece of advice personally, I would say do
what can be done to slow down or scale back the spending
increases in last year's health care reform law. Basically, to
the extent that we show an improvement in Medicare financing
under that law, it's because of the Medicare provisions alone
understood in isolation, but that law contained other
provisions that expended a great deal of that projected savings
in Medicare, about 63 percent of it according to CBO. To the
extent that we expend that savings in Medicare on a new
program, we are undercutting the government's ability to make
good on those increased funding obligations to Medicare.
So I think my short answer would be do whatever can be done
to scale back the projected spending increases outside of
Medicare from last year's health care law.
Mr. Gowdy. Well, that leads nicely, I think, to my next
question for you, Dr. Antos. Do you agree with the
administration that the trigger mechanism, that's just a
suggestion or an advisory idea, or do you believe that it is a
legal requirement that they submit a plan?
Mr. Antos. It's a law.
Mr. Gowdy. That's what I thought, too.
Do you think that ObamaCare complies with that requirement
of the law?
Mr. Antos. Well, it certainly does not comply with the
technical specifications of the law. The law clearly states
that in response to the funding warning, the President is to
send to Congress his proposal within 2 weeks of his budget.
Now, I think it may be a little unclear at least in the
abstract if the President's budget, in fact, addressed this
problem, whether that was a sufficient response. However, in my
opinion, the President's budget at this time did not address
the problem.
Mr. Gowdy. Mr. Capretta, I've thought about patenting or
getting a trademark on Paul Ryan's name so I could be paid
every time it is mentioned in a committee hearing in
Washington. I haven't yet.
A lot of criticism about Representative Ryan's plan. The
other plan, near as I can tell, is just to continue to raise
the debt ceiling as often as we can. What are your thoughts on
his plan, and do you have a better idea.
Mr. Capretta. I don't have a better idea. I think his plan
is really very much the direction we need to head.
I would say a couple of things about some of the criticisms
that are made about it. First is there's often reference to a
CBO analysis of what the Ryan plan would do in 2022. A couple
of things about that. First, it assumes that the payment rate
reductions that occur in Medicare through ObamaCare are going
to be in place all the way to 2022. So in a sense it creates--
it says that we're going to impose very deep price reductions
in what Medicare pays for services, price reductions that would
bring Medicare's rates down below Medicaid by the end of the
decade, and assumes those will be in effect in 2022, and that
Medicare beneficiaries will still have access to care in 2022
at the rates they do today. Highly unlikely that that will
occur.
So I think one assumption is just false, that you can
have--you know, you could pay as low as you want in Medicare
with no consequence whatsoever on quality. I think that's a
false assumption that's buried in those CBO numbers.
The second thing that it doesn't do is that it doesn't take
into account any effect from competition. And Dr. Elmendorf
testified at the House Budget Committee a week or so ago, 10
days ago, and said as much to Chairman Ryan, that that's a gap
in their toolbox, that they don't estimate the effects of
competition on what it will do to premiums in the future, and
so they have no--the whole point of the Ryan proposal is to
bring some discipline to the Medicare program, not to increase
costs on seniors, but actually increase value so they can get a
better deal, much like we did in the Part D program.
So I generally reject the notion that the Ryan plan is
actually going to be worse for seniors. The whole point of it
is to actually make it better for seniors without the problems
that come from price controls.
Mr. Gowdy. Thank you.
My time is expired. The gentleman from Illinois Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
The Republican Federal budget proposal for fiscal year
2012, widely known as the Ryan plan, was passed by a party-line
vote in the House of Representatives on April 15, 2011. The
Ryan plan would end Medicare as it exists today, take away all
Federal health benefits from 65- and 66-year-olds and give 67-
year-olds and older a voucher that will pay a smaller and
smaller share of their health care costs.
According to the Congressional Budget Office's long-term
analysis of the Ryan plan, this proposal would result in
substantially higher out-of-pocket costs for seniors. CBO found
that they would be paying 68 percent of the health care costs,
more than double what they pay now under traditional Medicare.
This massive shift in cost from the government onto individuals
would cause many seniors to forego health care altogether.
Those that could would sign up for welfare programs.
Dr. Blahous, Chairman Ryan represents this radical
transformation he is leading as, and I am quoting, preserving
and protecting Medicare. But any student of history could know
that Republicans opposed the creation of Medicare in the 1960's
and have sought to dismantle it since then.
Dr. Blahous, are you familiar with this quote from former
Republican National Committee Chairman Haley Barbour, who
extolled the 1995 trustees report as manna from Heaven in an
effort to politicize Medicare and justify then-Speaker
Gingrich's Contract with America plan to cut Medicare spending
by 14 percent to provide tax cuts for the rich?
Mr. Blahous. I was not familiar with that quote, sir, no.
Mr. Davis. Okay. If you heard such a quote, would you agree
with it, have any concerns about it, or have a different
position and a different opinion?
Mr. Blahous. Well, certainly speaking as someone who I feel
very honored to have become a trustee last year, it will
certainly be my hope that the trustees reports be received in a
spirit so that they inspire changes to make financial
corrections to preserve the financial soundness of the Medicare
program. The purpose of the trustees report is to acquaint
Congress and the public with the finances of Medicare to permit
the program to be as strong as possible.
Mr. Davis. Mr. Van de Water, can I ask you, under the Ryan
proposal, the Congressional Budget Office determined that the
gradually increasing number of Medicare beneficiaries
participating in the new premium support program would bear a
much larger share of the health care costs than they would
under the traditional program. That greater burden would
require them to reduce their use of health care services, spend
less on other goods and services, or save more in advance of
retirement than they would under current law. At the same time
the proposal analyzed by CBO would leave in place provisions
restraining payments to many providers under the traditional
Medicare program. Under this scenario where our seniors who are
living on a fixed income are supposed to get additional money
they need to obtain health care and take care of their basic
needs like food, shelter and clothing, won't all of this put an
even bigger burden on seniors themselves and their children who
might be helping out?
Mr. Van de Water. Yes, I think that's correct, Mr. Davis.
As you or another one of the Members, I believe, has already
cited, that the Congressional Budget Office analysis of the
budget resolution plan would roughly double the expected out-
of-pocket costs for a typical 65-year-old in the first year
from about $6,000 to over $12,000 a year. And given the average
income of a 65-year-old, that increase would be a significant
burden.
Mr. Davis. A big burden.
Mr. Chairman, I see my time is expired.
Mr. Gowdy. I thank the gentleman from Illinois.
The chair would now recognize the gentleman from
Connecticut Mr. Murphy.
Mr. Murphy. Thank you very much, Mr. Chairman. And I thank
the panel for being here with us today.
Representative Davis, as I will, spent some time talking
about the Ryan budget, the budget that passed through the House
of Representatives. And I think it's appropriate, because what
the subject of today's hearing is really about is who has the
burden of making proposals to try to reform our Medicare
program going forward. And that's a really important topic for
us to be talking about.
I mean, we have one very clearly articulated plan before
Congress right now, and that is the Republican budget, which
dramatically changes the Medicare program, and admittedly
certainly takes cost out of it, but takes cost out of it by
shifting the burden onto individuals, tripling the amount of
out-of-pocket costs for senior citizens, for example.
But one of the other things it does--and, Dr. Van de Water,
I will ask you a question about this because I know you've
spent some time looking at it--what it also does is it removes
65- and 66-year-olds from eligibility for the program. And
maybe this doesn't seem like such a big deal. It's sort of
built in this mythology that people are living longer. It's not
necessarily that over the last few years people are living
longer, it's that less infants are dying, and so you still have
people retiring, leaving work at about the same age and needing
benefits.
Medicare was conceived in part because those people who are
65 and 66 just didn't have a private market, didn't have a
place to go to that could adequately insure someone that is
likely going to be more sick. And the reality is that a lot of
those people who are 65 and 66 and who don't--will not now
qualify for Medicare are going to receive their care from
somewhere else, that the cost is going to shift to somewhere
else in the system.
And I guess I wanted to ask that question to you, Dr. Van
de Water. What happens as you move millions of 65- and 66-year-
olds off of Medicare? There seems to be an idea that the
government won't bear that cost, but in reality we're likely to
shift a lot of that health care cost just onto the government
dime somewhere else. Could you speak a little bit about how the
cost shifting for individuals who are removed from the Medicare
rolls occurs?
Mr. Van de Water. Yes, Mr. Murphy. I might say the proposal
to increase or the discussion of increasing the Medicare
eligibility age to 67 is problematic, but at least I think can
sensibly be discussed if one is assuming that the Affordable
Care Act goes into effect, because with the Affordable Care
Act, at the very least 65- and 66-year-olds would have a
guaranteed alternative source of coverage. Many beneficiaries
would have to pay considerably more, but they wouldn't be
completely shut out of the market.
But as we know, under the current arrangement, without the
provisions of the Affordable Care Act, many people in their
60's find that insurance is either unavailable or completely
unaffordable. And so the result is exactly as you say: If the
eligibility age were increased, some of the people in the 65-
to 66-year-old bracket would go without insurance. To some
extent they would cut back on care if they couldn't afford it.
To some extent they would pay for it out of pocket, and to some
extent it would end up being paid for through emergency room
visits. And some people, of course, would be poor and would end
up on Medicaid. So it would be shifted in a variety of
fashions.
Mr. Murphy. And I think that your point is a good one,
which is that, though I don't support moving the retirement age
up to 67, we did hear for a period of time in this Congress a
mantra of repeal and replace, which was, I think, an effort, at
least on behalf of those who opposed the health care bill that
was passed by this Congress, to recognize that we needed
something else in its place. We don't have that any longer; we
just have repeal. And those that will be most exposed, as you
mentioned, are those who are right on the cusp of Medicare
eligibility. In fact, right now, even with the eligibility at
65, the people who are most likely to go without insurance if
they lose their job are people who are in the 55 to 65 age
bracket.
And so I do think that it's important to recognize how
fragile the world is today for people right on the edge of
Medicare eligibility and how incredibly increasingly fragile it
becomes if you partner these drastic changes in the Ryan budget
to Medicare with a full repeal of the Affordable Care Act.
And I see my time is up. I yield back.
Mr. Gowdy. I thank the gentleman. And all of us thank our
four witnesses not only for lending us your perspective, your
insight, your expertise, but also for accommodating a long vote
series. I know your time is just as valuable as ours, if not
more so, so we appreciate your courtesy. And thank you again
for your presence today.
The hearing is adjourned.
[Whereupon, at 4:09 p.m., the subcommittee was adjourned.]