[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE AND THE FEDERAL BUDGET
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, MAY 8, 2002
__________
Serial No. 107-30
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Printed for the use of the Committee on the Budget
Available on the Internet: http://www.access.gpo.gov/congress/house/
house04.html
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COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
PETER HOEKSTRA, Michigan Ranking Minority Member
Vice Chairman JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota KEN BENTSEN, Texas
VAN HILLEARY, Tennessee JIM DAVIS, Florida
MAC THORNBERRY, Texas EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia GERALD D. KLECZKA, Wisconsin
GARY G. MILLER, California BOB CLEMENT, Tennessee
PAT TOOMEY, Pennsylvania JAMES P. MORAN, Virginia
WES WATKINS, Oklahoma DARLENE HOOLEY, Oregon
DOC HASTINGS, Washington TAMMY BALDWIN, Wisconsin
JOHN T. DOOLITTLE, California CAROLYN McCARTHY, New York
ROB PORTMAN, Ohio DENNIS MOORE, Kansas
RAY LaHOOD, Illinois MICHAEL E. CAPUANO, Massachusetts
KAY GRANGER, Texas MICHAEL M. HONDA, California
EDWARD SCHROCK, Virginia JOSEPH M. HOEFFEL III,
JOHN CULBERSON, Texas Pennsylvania
HENRY E. BROWN, Jr., South Carolina RUSH D. HOLT, New Jersey
ANDER CRENSHAW, Florida JIM MATHESON, Utah
ADAM PUTNAM, Florida
MARK KIRK, Illinois
[Vacancy]
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, May 8, 2002...................... 1
Statement of:
Thomas R. Saving, Ph.D., Director, Private Enterprise
Research Center, Texas A&M University; Public Trustee,
Social Security and Medicare Trust Funds; and Senior
Fellow, National Center for Policy Analysis................ 4
Joseph R. Antos, Ph.D., Resident Scholar, American Enterprise
Institute and Adjunct Professor, School of Public Health,
University of North Carolina, Chapel Hill.................. 15
Judy Feder, Ph.D., Dean of Public Policy, Public Policy
Institute, Georgetown University........................... 22
Prepared statement of:
Hon. Adam Putnam, a Representative in Congress from the State
of Florida................................................. 3
Dr. Saving................................................... 9
Dr. Antos.................................................... 18
Dr. Feder.................................................... 25
MEDICARE AND THE FEDERAL BUDGET
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WEDNESDAY, MAY 8, 2002
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:04 a.m. in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Gutknecht,
Collins, Thornberry, Culberson, Putnam, Spratt, McDermott and
Davis.
Chairman Nussle. Good morning. This is the full committee
hearing on Medicare and the Federal budget, and we welcome our
witnesses and our guests here today. Nobody would argue that
improving Medicare coverage is long overdue, and not many would
argue that Medicare has failed to keep up with health care in
general or private health care coverage. At a time when
medicine is advanced to the point where we can treat more and
more conditions with medicines, Medicare's benefit package does
not even offer a prescription drug benefit or coverage. Nor
does it provide consistent coverage for many preventative
treatments, support coordinated management of chronic diseases,
or for that matter offer catastrophic coverage.
But the program also is facing huge financial liabilities
leading to unsustainable spending levels in the Federal budget
in years to come. If you look at Medicare as a whole, taking
into account both the Hospital Insurance Trust Fund--HI Trust
Fund--and the Supplemental Insurance Trust Fund, Medicare's
dedicated revenues are lower than program expenditures even
today. As a result Medicare must draw increasing amounts from
general revenues within the budget. And with increases in
health care costs and demographic changes such as more
beneficiaries, longer life expectancy and smaller workforce-to-
beneficiary ratios, this problem will only get worse.
Therefore, as we look to address the weaknesses in Medicare's
coverage, Congress must also ensure that the program is
strengthened and preserved so it remains viable for generations
to come.
It is for that reason that in this committee a little over
a month ago, we passed a budget that included $350 billion over
the next 10 years, including money up front, in order to
preserve and strengthen Medicare and modernize Medicare with a
prescription drug benefit. Let me make it clear in case anyone
wasn't paying attention or wasn't listening at the time, it was
to include both. It is not just for prescription drugs. If we
only take a prescription drug benefit and add it to an already
out-of-control Medicare program which is not serving the needs
of seniors or not paying the bills of many parts of the
country, particularly mine in Iowa, we will do no benefit to
the Medicare program or to the seniors that it serves. It is
for that reason that we included $350 billion of new resources
in this budget to do both, modernize, preserve and strengthen
Medicare, and to include a prescription drug benefit, not one
or the other.
That is one of the purposes of today's hearing, to review
Medicare's current condition. Start with the process of
strengthening and preserving the program. We will specifically
review the impact of Medicare on the Federal budget, address
gaps in Medicare coverage, review the factors that will drive
Medicare costs, and gain insight into the impact current
Medicare reform proposals may have in the Nation's health care
system and the Medicare program.
Testifying today we are honored to have Dr. Thomas R.
Saving, who is a Medicare trustee; Joe Antos, who is a resident
scholar at the American Enterprise Institute; and Judy Feder,
who is the dean of policy studies from the Public Policy
Institute, Georgetown University. We welcome all three of you
to our hearing today.
With that I would turn to my friend and colleague Mr.
Spratt for any comments he would like to make.
Mr. Spratt. Thank you, Mr. Chairman. Let me thank our
witnesses for coming and testifying to us about a topic of
vital importance, particularly to 35 to 40 million Americans.
Without this program I am not sure where they would be,
frankly. But as the Budget Committee, when we look at the
budget, the items that attract our attention first, are those
that are spikes in the budget. Not only are they substantial
programs, but their rate of increase is inexorably continual
year to year with a few exceptions, like 1999 in the wake of
the Balanced Budget Agreement of 1997.
So the questions before us are numerous, and we are glad to
have your help in sorting through them. The chairman says that
we have provided $350 billion in a reserve account, but there
are a number of different claims upon that account. One is
Medicare modernization. Nobody knows what it is, much less what
it will cost. The other is the drug benefit, and everybody's
estimate is that $300 billion, $350 billion is a minimal
estimate of what an adequate drug coverage program would cost.
And then finally, there is on the table before us submitted by
MedPAC, our own designated consultants on Medicare--there is on
the table a request of $174 billion in provided payment
adjustments. You can't squeeze that much blood out of $350
billion worth of turnips unfortunately.
So we have got some hard questions. What do we do? And
aggravating those problems is the fact that the budget assumes
that Medicare will cost $225-billion less than CBO assumes over
the next 10 years. If CBO is right, not only do we have a
reserve fund which won't satisfy all the claims, but we also
have an understatement in the Medicare accounts that is
substantial. In other words, we have got problems, and we are
going to need your help in sorting them out.
Thank you for coming, and we look forward to your
testimony.
Chairman Nussle. With unanimous consent all members will
have 7 legislative days to put a statement in the record at
this point, an opening statement. Without objection, so
ordered.
[The information referred to follows:]
Prepared Statement of Hon. Adam Putnam, a Representative in Congress
From the State of Florida
The 107th Congress has been tasked with securing America's future.
As Americans reach retirement their future is dependent on their health
security. The Budget Committee has gathered here today in an effort to
ensure personal health security for our senior citizens, while also
ensuring economic security for the Medicare system and future
generations of Medicare recipients.
Medicare is our nationwide health insurance program for the aged
and certain disabled persons. Over its nearly 35 year history, it has
provided important protections for millions of Americans. However, the
program is facing a number of problems. One concern is that Medicare's
financing mechanisms will be unable to sustain the program in the long
run. Many are also concerned that the program's structure, which in
large measure reflects both the health care delivery system as well as
political considerations in effect at the time of enactment, has failed
to keep pace with the changes in the health care system as a whole.
My major concern is the solvency of the Medicare program.
Currently, the Medicare Hospital Insurance Trust Fund is projected to
become insolvent by 2029 and according to the Congressional Budget
Office, the total Medicare Program is already generating huge
liabilities: in 2003, Medicare will require $71 billion in general
revenues; over 10 years, Medicare will require $1.2 trillion in general
revenues. Moreover, Medicare spending will eventually nearly quadruple
its share of the economy.
I recognize the need to modernize the Medicare program and endorse
a balanced approach to strengthen and preserve this vital program. The
budget resolution passed by the House of Representatives provides $350
billion in a reserve fund for Medicare modernization, including
prescription drug coverage.
We must create a fair and responsible Medicare program that has
improved benefits for its current customers while remaining a stable,
solvent program for the future. Medicare's outmoded benefit does not
cover prescription drugs, provide consistent coverage for many
preventive treatments, support coordinated management of chronic
diseases, or offer catastrophic coverage.
Currently, the major focus has been on providing prescription drug
coverage for beneficiaries. We must provide our seniors with a
prescription drug plan that will lower the costs of prescription drugs
now so senior citizens can better afford the medicines they need to
live healthier and improve their quality of life. The plan must also
keep all of Medicare's benefits financially secure. Failing to provide
stable funding for a new Medicare drug benefit is reckless policy that
could have substantial adverse effects on the ability of seniors to get
the prescription drugs they need. The fiscal year 2003 budget
resolution allows for up to $5 billion to begin the implementation of
prescription drug coverage.
Today, I am interested to hear how the $350 billion, including the
$5 billion for this year will be used to improve the Medicare program.
I am eager to know that the funds allocated in the House Budget
Resolution will be used to secure the future of American's health.
QUESTIONS
1. In my district, we no longer have any Medicare HMOs remaining.
In the last 3 years they have all left. The HMOs were inefficient; they
could not even perform a proper referral. The care they provided was
substandard. With no HMOs left though, all the patients have come back
to Medicare and are creating a burden on the system. How will any
reform plans address this problem? Are there plans to improve Medicare
HMOs? Are there plans to encourage them to return to areas they have
vacated?
2. There is great concern regarding the Medicare physician payment
formula. Currently there is legislation (HR 3351, Bilirakis) to change
the conversion factor from 5.4 percent to 0.9 percent. The legislation
also calls for a Medicare Payment Advisory Commission to develop a new
formula that more fully accounts for changes in the unit costs of
providing physicians' services. What is the projected cost to Medicare
that this change would create? Is there any other possible solution?
3. In my district, I have a group of physicians have not gotten
paid by Medicare in the last 3 months. They are beginning to enter into
dire financial situations. If they receive an ``advance'' on the
payment there is a 15-percent charge. They are being charged to receive
the payment they are already entitled to, and that is already late. It
is no surprise that physicians are beginning to discontinue accepting
Medicare patients. If patients do not receive care from a physician
they often become sicker and end up in the hospital emergency room,
which creates a bigger drain on the Medicare system than if the doctors
could just get paid initially. How is a Medicare reform plan going to
address the needs of these physicians so they can provide quality care
to Medicare beneficiaries?
4. There are several cases in my district, regarding the Medicare
Program Safeguards Auto/Liability Department, and I have heard numerous
complaints from local attorney's regarding this department. Whenever
the attorney has a personal injury/liability case they have to get
subrogation lien information from Medicare. A process that should take
a couple of days is taking a year with Medicare. The process includes:
notifying all of the Medicare carriers that are involved in that
particular case, getting the claim amount, when the research comes back
they may have to get additional information from the attorney and then
calculate the amount. Even so, 1 year is a long time for the attorney
to have in his possession all of this money. Medicare also states that
the attorney cannot issue a check to his client before they have come
up with a figure, because if Medicare doesn't get their money right
away the attorney will be held responsible for paying Medicare along
with reimbursement penalties and interest. In reality, the attorney's
are trying to reimburse Medicare, but having trouble finding out what
is owed. They have no way of knowing what amount their client is
entitled to or what the settlement will be until Medicare figures the
lien amount. If Medicare could perform more efficiently, these patients
could have their money before it is too late. Medicare will have $350
billion to improve its efficiency and modernize it systems. Is it going
to be possible?
Chairman Nussle. Our witnesses today, your entire
statements will be made part of the record as well, and you may
summarize your testimony as you see fit.
With that, I believe we are going to begin with Dr. Saving.
We welcome your testimony at this time.
STATEMENT OF THOMAS R. SAVING, PH.D., MEDICARE TRUSTEE
Mr. Saving. Thank you, Mr. Chairman. I want to get the
right set of slides up here. As Congress considers legislation
to add a prescription drug benefit to Medicare, it is important
to understand the financial condition of current Medicare. Both
of you have alluded to that condition, and in the recently
released 2002 trustees' report even though we show slightly
better short-term news coupled with slightly worse long-term
news from the perspective of the total Federal budget, part of
that is trust fund exhaustion dates that have been extended by
a small amount. But those things really hide the reality of the
demands that these programs, the elderly entitlement programs
in general, are going to place on the Federal budget. And what
I want to do is to review briefly some things that you can get
out of the trustees' report, if you spend the time. If you
don't spend the time, you might miss some of these things.
One is the whole idea of the three elderly programs
together. Let me give you a feel for that, because these three
programs together--in spite of the fact that 78 percent of Part
B expenditures, Medicare Part B expenditures, last year were
paid by general revenue transfers, as you know, the idea of the
premiums is to be 25 percent of--but we only set those premiums
at the beginning of the year. We estimate what is going to
happen in Part B. The cost of Part B rose significantly last
year, greater than we expected, so as it turns out, premiums
only covered roughly 22 percent of Part B. But in spite of the
fact that 78 percent of Part B expenditures were paid by
general revenue, surpluses in Social Security and Medicare Part
A were sufficient so that the three programs together--Social
Security, Medicare Part A and Medicare Part B--made net
contributions to the U.S. Treasury that were equal to 2.5
percent of Federal income tax revenues, and you can see that if
you look at this chart.
You can see that the cost ratio--that the revenues are
above the costs of these programs, and, in fact, those
surpluses are going to continue to rise. They are going to peak
in 2004, just 2 years from now. Then they are going to start to
fall very rapidly so that by 2010, these three programs
together are going to be requiring a transfer of resources from
the general revenue of the Treasury. And, in fact, that
transfer is going to grow very rapidly, and I will give you an
idea of where that is headed.
Here we have the Social Security and Medicare funding
shortfalls as a percent of Federal income tax revenues, and you
can see a couple of the things that are very important. In
fact, by 2015 we are going to be transferring more than 6.5
percent of all projected Federal income tax revenues to these
three programs, and 2015 is 1 year before the Social Security
program goes into deficit. So these three programs together
already are going to be reacquiring 6.5 percent of Federal
income tax revenues, whereas in 2004 they are going to be
contributing an amount equal to 3 percent of Federal income tax
revenues. So you are going to go from a set of programs which
basically contribute to the Treasury, 3 percent of Federal
income tax revenues, to programs that are going to be taking
6.5 percent of Federal income tax revenues. By 2020, they are
going to be taking 16 percent of Federal income tax revenues;
and by 2030, that is the year that we project that the HI Trust
Fund is going to be exhausted, these programs are going to be
taking 35 percent of Federal income tax revenues. By 2040, the
year before we say the Social Security Trust Fund is going to
be exhausted, these programs are going to be requiring more
than 44 percent of all Federal income tax revenues.
Clearly these programs are out of control, and you can see
from just looking at this chart that the three programs
together are going to be taking by 2075, in the end, the way
the trustees think about it, some 75 percent of all Federal
income tax revenues. Clearly that can't happen, and the
question is: What do we do about it?
Another way of thinking about this problem, I think a
useful way of looking at it, is to ask yourself the commitments
that we made under current law, what are the value of these
commitments if we consider them in the same way we consider the
commitments to pay the government debt? And if you calculate
the accrued benefits, the future promises that we have made,
you can see that the Social Security benefits are equivalent of
almost $13 trillion and Medicare benefits are almost $18
trillion of debt. In contrast, the currently held public debt
is about $3.4 trillion. The Social Security debt, and since
this is a Medicare hearing, the Social Security debt--while a
lot of the press is about Social Security, and we are saying
that Social Security is in dire straits, the Medicare problem
is bigger than the Social Security problem.
Mr. McDermott. Mr. Chairman, may I ask a question to
clarify? You said $18 trillion. Over what period?
Mr. Saving. If we just look at current people who are going
to ultimately be eligible to receive Medicare, and we estimate
using the 2002 trustees' report what those payments are going
to be, that is a promise in a sense, if we treat that as a
promise we made to people, and now we are calculating what is
the present value of that promise and how much we would have to
have as an asset right now to be able to pay the promises that
we have made in the future. That is what this is, and that is
really what--go ahead. I am sorry.
Mr. McDermott. For what period; is that $18 billion a year?
Mr. Saving. No. I am sorry. This is the current value. If
you had $18 billion in real assets right now, you could pay the
projected Medicare costs of all the people who are currently
alive and eligible for Medicare, their future payments. That is
what this is. It says, let us take everyone who is currently
eligible for Medicare. Let us forget about everyone else that
is coming after them. Let us just take those people. Let us
calculate what we project they are going to use as Medicare
expenditures in the future, and ask ourselves how much would we
have to have in our bank account to actually cover their
expenses, and that is a number like $18 trillion.
Mr. Spratt. Mr. Saving, if you back out the existing
payroll tax revenues, what is the net present value?
Mr. Saving. In a sense--talking about the unfunded number,
but the--we will see it in a moment. This is really just what
the debt is, and part of the debt is paid, of course, by
revenues. One way to pay for this debt is to increase revenues,
as we will see later on, and I think we will want to do that.
The unfunded liability is smaller than that, and I don't
have the number. Maybe my associate has it.
No. I can get that for you. At the moment I don't have it
right here.
Mr. Spratt. This is the gross liability.
Mr. Saving. Exactly. These are the gross liabilities, just
the way the Federal debt is a gross liability in a sense. These
are the gross liabilities in the systems, not the unfunded
liabilities. The unfunded liabilities are significant, as you
can see as we get further along.
Here is the situation with current Medicare. You have got
three sources of revenue for Medicare. You have got payroll
taxes, you have that portion of the tax on Social Security
benefits that goes to Medicare, and then we have the premiums.
And you have two sources of premiums, although one of those is
very small, and that is the premiums for individuals who are
not eligible for Medicare Part A, but choose to take Part A as
if it were some insurance program. They are allowed to do that.
The primary premium source that we are discussing here, of
course, is the Part B premium, and you can see that Medicare is
already in deficit. As you look at this, and this comes right
from the 2002 trustees' report, you will see that the costs of
Medicare A and B together are going to fall slightly over the
next 2 years. Now, you might say if this thing is going so
badly, where is that fall going to come from? Part of that fall
is our programming in of reduced physician reimbursements, and
we recognize as trustees, and this came up in the trustees
meeting in March, this is already having an impact on the
availability of physicians' services for Medicare
beneficiaries, and we recognize that we are programming in--we
are just going to pay physicians less and ignore the impact
that is going to have on supply of physician services for
Medicare patients.
It is clear that that is not any kind of a long-run
solution, and that is where this reduction in expenditures--a
very brief one--is coming from, but you can see what is going
to happen. At the point where we say the HI Trust Fund is going
to be exhausted, 2030, you can see 20-something percent of
Federal income tax revenues are going to have to be transferred
to Medicare. Right now Medicare is taking about 5 percent of
Federal income tax revenues. We are transferring to Medicare
Parts A and B, and we already know that Medicare is in deficit.
That is going to rise very slowly actually between now and
2010, and looking at the graph, it is only going to be 6
percent, we estimate, in 2010.
Then it is going to start to rise rapidly. It will be 8\1/
2\ percent of Federal income tax revenues by 2015, 12 percent
by 2020, and by 2030 again, the year in which we say the HI
Trust Fund is going to be exhausted, more than a fifth of all
the Federal income tax revenues are going to have to be
transferred to this program.
So over the next 20 years the benefits as a percent of
earnings are expected to grow 50 percent, implying a
contemporaneous tax rate. If you were to actually pay the
Medicare system through--and this comes back to the issue of
revenues--a tax rate of 6.33 percent in 2022 would be enough to
fund Medicare in that year on a pay-as-you-go kind of basis. By
2030 all the baby boomers will have retired, and the Medicare
tax necessary to make these payments would be 8.12 percent, and
they will continue to rise, reaching 10 percent by 2040 and
18.3 percent by 2080.
We are talking about very significant effects of the
current Medicare program, and all this time, of course, tax
revenues are going to be rising, that is premium revenues,
because premiums right now are $648 a year. That is about 6.3
percent of an average retiree's Social Security benefit, and
they are going to rise to $3,000 by 2070, and that will be
about 13 percent of scheduled Social Security benefits.
So the premium burden--and that doesn't mean we shouldn't
have a premium burden, but the premium burden is going to be
rising, but that comes from the fact that our current forecasts
are that medical care expenditures are going to be rising at 1
percentage point faster than per capita gross domestic product,
and that pretty much says what has been happening. That is,
seniors consume--when their income goes up--a lot more medical
care, and perhaps because a lot of things have become available
that allow for quality of life enhancement, and I think quality
of life enhancement is important. And as I said, some of the
times I look at people, and I tell them I actually even have a
Medicare card even though I am still employed by the
university. It is a secondary payer; so I have never collected
anything from Medicare, but it is a card.
And I see nothing wrong in trying to maintain quality of
life as we know, but currently elderly entitlement payments are
out of control. If nothing is done, and I think this is an
important point, the combination of Social Security and
Medicare are going to exhaust more than 72 percent of the
Federal budget that remains at the current budget share of
gross domestic product. These programs today only account for
37 percent of that Federal budget. So you are looking at these
programs doubling in size relative to the Federal budget.
Now, in spite of those funding changes, Medicare offers
kind of second-rate coverage, and I think that point was made
here. The role of pharmaceuticals in health outcomes is much
more important than it was when Medicare was established. There
isn't any doubt about that, and in spite of the increased
efficacy of pharmaceuticals in health outcomes, current
Medicare makes non-pharmaceutical components cheaper than
pharmaceuticals, and if we are trying to do an efficient
outcome, we would want people to consume more pharmaceuticals
and less physician care. But the way Medicare is structured, it
encourages them to actually do things that are more expensive
than pharmaceuticals, so as a result, Medicare recipients have
incentives to substitute physician and other covered components
of health care for what would be less expensive and more
efficient pharmaceutical treatment.
Essentially the current structure of Medicare discriminates
against pharmaceuticals and results in more costly and less
effective health care. That said, given the bleak financial
future of Medicare, what can be done to bring the
pharmaceutical coverage into the program without further
endangering the financial future of the program? And that is
the issue that this committee is discussing today. You have to
take steps that make both providers and beneficiaries care
about the cost of care. That is important.
One approach toward this end is to combine Parts A and B of
current Medicare into one program. This new program should
include pharmaceutical coverage, just as the standard health
care coverage for the working population does. You would want
to include catastrophic coverage. The latter issue would
eliminate the need for beneficiaries to purchase Medigap, and
if you could get rid of first dollar coverage, you could have a
very significant effect on health care costs. In fact, I have
argued before that the competition for the first dollars of
Medicare patients is a huge market, and that kind of
competition by providers would reduce costs for everyone.
I have a dream--often when I drive to Dallas to visit my
children, I see these signs, billboards, and those signs are
for LASIK surgery. If you have seen those signs yourself, you
know that the biggest number on the sign is the price, what
LASIK surgery costs. And I keep dreaming of the day when I am
going to see a billboard for a doctor or a hospital where the
most dominant thing on the billboard is the price to try to
attract people by lowering prices. And if you see a billboard
for a hospital, which you do, price is never mentioned because
nobody cares what it costs, and if the customers don't care
what it costs, you can be sure that the providers don't care
what it costs. They love to provide high-cost services for
patients who don't care what it costs.
And then third, we must increase the premium of health care
markets to work. In our current approach of fixing the price of
medical services--MedPAC was just mentioned--MedPAC essentially
circumvents normal market forces. If we give beneficiaries a
greater role in the choice of health care plan in a way similar
to the FEHBP, we can increase provider competition. And we have
to make a greater effort to make all Medicare beneficiaries
equally desirable to providers, and that is a real issue: how
do we keep skimming individuals?
So basically, in the debate concerning changes in Medicare,
we allow an addition of prescription drug benefits, it is
important to consider how these changes will impact on current
Medicare's precarious financial condition, and we are
projecting these huge deficits as trustees. We don't like to
present bad news. Unfortunately, the way these programs are
structured, they are heading toward a real financial crisis. It
is not clear how we are going to accomplish adding something
which I think is important, drug benefits, in order to change
the pricing structure so that people will have incentives to
buy the efficient combination of pharmaceuticals, physicians
and hospitalization; and to accomplish that at the same time
finding a way to pay for the costs that are down the road, are
coming down the road, that are going to take a huge share of
the Federal budget.
Thank you.
Chairman Nussle. Thank you, Doctor.
[The prepared statement of Dr. Saving follows:]
Prepared Statement of Thomas R. Saving, Ph.D., Medicare Trustee
As Congress considers legislation to add a prescription drug
benefit to Medicare, it is important to understand the financial
condition of current Medicare. In less than a decade the combined
Social Security and Medicare programs will go from providing net
revenue to the Treasury to requiring a revenue transfer. Even though
this year's Trustees' Report shows slightly better short-term news
coupled with slightly worse long-term news, from the perspective of the
total Federal budget, these programs will impose significant costs even
in the near term. The fact that the Trustees 2002 estimates of Trust
Fund exhaustion dates are 3 years later for Social Security and 1 year
later for Medicare HI has obscured the reality that the demands of
these programs on the rest of the budget will begin in just a few
years. A total budget perspective is important because though Social
Security and Medicare HI have Trust Funds, when revenues into the
combined system fall below expenditures, real resources must come from
somewhere else in the Federal budget.
The total budget perspective good news is that, in spite the fact
that last year almost 78 percent of Medicare Part B expenditures were
paid by general revenue transfers, surpluses in Social Security and
Medicare Part A were sufficient so that these three programs, Social
Security, Medicare Part A and Medicare Part B, made a net contribution
to the U.S. Treasury that was equal to more than 2.5 percent of total
Federal income tax receipts. By 2004, the contribution of these
programs to Federal coffers will grow to more than 3 percent of
projected Federal income tax receipts.
The bad news that is after 2004, in just two short years, this net
surplus will begin an accelerating decline. By 2010, just 8 years from
now, the 2004 contribution of 3 percent of total income tax receipts to
the U.S. Treasury will become a deficit. Rather than providing funds
that add to Federal income tax revenues, these programs will require a
transfer from these same Federal income tax receipts and begin to
impinge on other Federal programs. Moreover, the magnitude of the
required transfer from Federal income tax receipts will grow rapidly so
that by 2015 more than 6.5 percent of all Federal income tax receipts
will have to be transferred to meet program expenditures.
The problem doesn't end in 2015 because the required transfers will
continue to grow rapidly. By 2020, in order to maintain current program
benefits, these three programs will require a transfer from the
Treasury of almost 16 percent of all Federal income tax receipts. The
transfer will grow to more than 35 percent of Federal income tax
revenues by 2030 and by 2040, a year before the current estimate of
Social Security Trust Fund exhaustion and almost 10 years before newly
entered workers will retire, these programs will require almost 44
percent of total Federal income tax receipts.
In spite of Social Security's problems getting most of the press,
Medicare is already in deficit and its' financing future is much more
ominous. Last year, Medicare Part A and Medicare Part B together,
required a transfer from the U.S. Treasury that was equal to more than
5 percent of total Federal income tax receipts. By 2010, just 8 years
from now, and at the front end of the baby boomer retirement wave,
Medicare will require the transfer of more than 6 percent of all
Federal income tax receipts to pay benefits forecast by the Trustees
under current law. This transfer will grow rapidly so that by 2015, the
year before the Trustees forecast that HI expenditures will exceed HI
revenues, 8.5 percent of all Federal income tax receipts will have to
be transferred to Medicare.
Because of the expected growth in health care cost, the required
transfers will continue to grow rapidly. By 2020, in order to maintain
current program benefits, Medicare will require a transfer from the
Treasury of 11.9 percent of all Federal income tax receipts. The
transfer will grow to more than 21 percent of Federal income tax
revenues by 2030, the year before the Trustee's forecast the exhaustion
of the Medicare HI Trust Fund. By 2040, a year before the current
Trustees estimate of Social Security Trust Fund exhaustion and almost
10 years before newly entered workers reach retirement age, Medicare
will require a transfer of more than 28 percent of total Federal income
tax receipts in order to maintain current law benefits.
Over the next 20 years, forecast Medicare benefits as a percent of
earnings will grow 50 percent implying a contemporaneous tax rate of
6.33 percent in 2022. By 2030, all the baby boomers will have retired,
and the tax rate necessary to pay their benefits in that year is 8.12
percent. If the status quo intergenerational financing of Medicare is
maintained, tax rates will continue to rise reaching 10.0 percent of
payroll in 2040 and 18.13 percent of payroll in 2080. All during this
time premiums for Part B will also be rising, from their 2002 level of
$648 per year, or about 6.3 percent of an average retiree's Social
Security benefit to premiums will rise to $3,000 in 2075, about 13
percent of average scheduled Social Security benefits.
As these figures make clear, Medicare, as it is currently
structured, is going to become more and more of a general revenue
transfer financed program. In 2001, 25 percent of Medicare expenditures
were financed from general revenues. This proportion rapidly rises as
the baby boomers retire. In 2010 more than 27 percent of Medicare
expenditures will be general revenue financed and by 2015 more than
one-third of all Medicare expenditures will be financed via general
revenue transfers. The size of the required general revenue transfer
continues to rise rapidly reaching almost 40 percent of expenditures by
2020, and 47 percent by 2025. By 2030, the year before we as Trustees
forecast that the Medicare HI Trust Fund will be exhausted, more than
52 percent of all Medicare expenditures will be financed by transfers
from general revenues and by 2040 almost 60 percent of all Medicare
expenditures will be financed via transfers from general revenues.
Clearly, elderly entitlement programs are out of control. If
nothing is done, by 2060, the combination of Social Security and
Medicare will exhaust more than 72 percent of a Federal budget that
remains at the current budget's share of the nation's gross domestic
product. By way of comparison, these two programs today account for
only 37 percent of Federal expenditures.
The promises implied by the Social Security and Medicare programs
are essentially debts that must be paid by future taxpayers. Using the
estimated costs of Social Security and Medicare from the 2002 Trustees
Reports, we can calculate the size of Social Security and Medicare
debt. This exercise is useful because it points out the staggering size
of the promises we have made compared to what we usually refer to as
the public debt. In 2001, the value of U.S. Treasury debt held by the
public was $3.32 trillion. In contrast, the present value of Social
Security promises was $12.92 trillion and the present value of Medicare
promises was a staggering $17.4 trillion. Between now and the time it
takes for the baby boomers to move through retirement, we will have to
pay off all of this Medicare and Social Security debt. In doing so we
must bear in mind that the retired baby boomers are going to eat real
food, live in real houses, drive real cars and use real hospitals,
doctors and nurses. The young will have to produce all this output,
essentially paying off the huge debt by consuming less while the
retired baby boomers consume more of the nation's output.
These numbers, while staggering, are not meant to frighten,
although they are frightening. They are based on the best estimates
that we as Trustees of the Social Security and Medicare trust funds are
able to put together. If not meant to frighten, they surely represent a
sobering reality. The question to ask as you consider changing Medicare
is: How any changes will impact on Medicare's already dismal financial
future?
CHANGING MEDICARE FOR THE 21ST CENTURY
In spite of the substantial funding challenges facing Medicare, as
it is currently structured, Medicare offers second rate coverage of
health related episodes. The role of pharmaceuticals in health outcomes
is much more important than it was at the inception of Medicare. In
spite of the increased efficacy of pharmaceuticals in health outcomes,
current Medicare makes non-pharmaceutical components of care cheaper
than pharmaceuticals. As a result, Medicare recipients have incentives
to substitute physician and other covered components of health care for
what would be less expensive and more efficient pharmaceutical
treatment. Essentially, the current structure of Medicare discriminates
against pharmaceuticals and results in more costly and less effective
health care.
This said, given the bleak financial future of Medicare, what can
be done to bring pharmaceutical coverage into the program without
further endangering the financial future of the program?
First, we must take steps to make both providers and beneficiaries
care about the cost of care. One approach toward this end is to combine
both Parts A & B of current Medicare into one program. This new program
should include pharmaceutical coverage just as standard health coverage
for the working population does.
Second, we must include catastrophic coverage. This latter issue
would eliminate the need for beneficiaries to purchase Medi-Gap
coverage. In fact, Medi-Gap would disappear from the market because of
adverse selection. Without Medi-Gap's first dollar coverage, users of
the health care system would begin to care about cost. Importantly, if
users care about cost, providers would quickly begin to care about
costs. These incentives would result from a single, higher deductible
on the unified package. Suddenly, cost reducing technological
developments would begin to have the same benefits to providers as they
do in other industries. We might begin to see billboards for health
procedures similar to those we see for LASIK surgery, where price plays
the dominant role. I dream of the day when I will see a billboard for a
doctor or hospital where the most dominant thing is the price of the
service being offered.
Third, we must increase the freedom of health care markets to work.
Our current approach of fixing the price of medical services through
MedPac essentially circumvents normal market forces. If we give
beneficiaries a greater role in the choice of health care plan in a way
similar to the Federal Employee Health Benefit Plan approach, we can
increase provider competition. To do so, however, requires that we make
a greater effort to make all Medicare beneficiaries equally desirable
to providers.
THE CHOICE BETWEEN TAX FINANCING AND SAVING
As we have seen, Medicare will require substantial transfers from
the rest of the Federal budget. Without substantial restructuring,
simply adding prescription drug coverage will increase Medicare's
costs. Medicare's funding gap, even as projected without a prescription
drug benefit, gives rise to considering other funding alternatives. One
such alternative to have people save more for their retirement.
Additional savings now can be used to lessen the tax burden required
under the present financing arrangement.
Comprehensive Social Security reform proposals often include
increased savings as a key component, but in the context of Medicare
reform, increased saving is seldom mentioned. Because Medicare is an
in-kind benefit conditional on use of the health care system, benefit
growth is affected by both changing preferences and changing
technology. As a result, identifying the right amount of additional
saving is difficult. But regardless of the difficulty in forecasting,
funding future Medicare will require imaginative ways to meet its
costs.
Current Medicare reform proposals address Medicare's growing
financial burden by advocating increased competition in the delivery of
care. In the longer term, Congress will need to think about funding
alternatives including incentives to save for retirement health care.
CONCLUSION
In the debate concerning changes in Medicare that will allow the
addition of a prescription drug benefit, it is important to consider
how these changes will impact on current Medicare's precarious
financial condition. The deficits projected by the Trustees in the 2002
Annual Report of the Boards of Trustees are especially significant. If
no changes are made in Medicare, it will rapidly become the tail that
wags the Federal budget dog. By 2030, Medicare alone will require more
than 21 percent of all Federal income tax revenues. When coupled with
the transfers to pay currently scheduled Social Security benefits,
total transfers of general revenues to keep these programs intact will
require more than 35 percent of Federal income tax revenues in 2030. If
other Federal programs are to remain at anything like their current
size, dramatic action will be required.
Thus, as we change Medicare to update its coverage, we should
introduce incentives for market forces to work toward controlling the
future cost of care. The impetus to incorporate prescription drugs into
Medicare presents a unique opportunity to bring Medicare into the 21st
century. Redo Medicare so that the need for beneficiaries to purchase
Medi-Gap will be eliminated. The elimination of Medi-Gap will increase
incentives for users and providers alike to care about cost. We should
rethink both the structure and financing of Medicare. A new Medicare
that combines Parts A & B and includes both prescription drug and
catastrophic coverage into a single entity with a combination of
premium and tax financing is a start. We must then make the market for
this new Medicare one where the normal forces of competition work to
control the cost of medical care. This can be accomplished if both
users and providers care about cost.
SLIDES PRESENTED AT HEARING
Chairman Nussle. Next is Dr. Joe Antos, and we welcome you
to the committee, and pleased to receive your testimony.
STATEMENT OF JOSEPH R. ANTOS, PH.D., RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Mr. Antos. Thank you, Mr. Chairman.
Chairman Nussle. There is a microphone button you need to
push.
Mr. Antos. Thank you, Mr. Chairman, for that reminder.
Medicare is a vitally important program. It has given
seniors access to affordable, high-quality health care. But
Medicare is in crisis. As the latest report from the Medicare
trustees makes clear, Medicare spending is projected to grow
rapidly for the foreseeable future, outstripping growth in the
economy and in Federal revenues. Yet Medicare has not met--
could we have a blank screen there for a while? Thanks. Yet
Medicare has not met the needs of beneficiaries nor the
concerns of health care providers.
First, beneficiaries are increasingly vocal about gaps in
Medicare's benefit package, particularly the failure to offer
coverage for prescription drugs. In addition, Medicare leaves
beneficiaries exposed to potentially unlimited costs because it
does not offer catastrophic protection. Beneficiaries obviously
want greater insurance coverage since many of them purchase
expensive Medigap policies, but the Medicare program has been
unable to respond to these clear consumer demands.
Second, providers criticize what they view as inadequate
payments for services. Payment issues, as we know, are on the
top of Congress' ``to do'' list. The furor over mandated cuts
in physician payment has led to reports that doctors would drop
out of Medicare. It is not entirely clear how significant a
problem that is right now, but obviously it is a danger. In any
event, Medicare's payment formulas often do not reflect actual
conditions in the local health care market. It can take years
to make changes in the formulas despite clear evidence that
there is a problem.
Third, Medicare's administration is unnecessarily complex
and inflexible. The proliferation of regulations, manual
instructions and other guidance is meant to clarify how to
satisfy program requirements in specific real world
circumstances. But the process breeds errors, uncertainty and
mistrust on all sides.
Medicare's crisis is not just a financial problem that will
occur sometime in the distant future. The crisis is pervasive,
reflecting longstanding defects and rigidities in the Medicare
program, and it is happening now. How can we transform Medicare
to be responsive to beneficiaries and to provide better value
for the taxpayer? The Federal Employees Health Benefit Program
offers an example of what could be achieved. Such an approach
could provide more meaningful health plan choices to
beneficiaries than are now available under Medicare+Choice with
safeguards to assure reliability and high quality.
Micromanagement and formula-driven payment rates could be
replaced by a flexible approach to administration based on
negotiation and market information. It would be a big change.
A competitive strategy, even one based on an operating
model such as the Federal employees health program, must be
developed carefully and will take time. Congress is likely to
take more immediate steps to address some of the deficiencies
of the current program. A risk of that approach, in other words
doing temporary actions now, is that some policy decisions
could hinder subsequent restructuring efforts, or at least
forego an opportunity to foster reform.
Medicare drug prescription benefit is a case in point.
Adding a stand alone drug benefit could retard progress on
broader reform and reduce the program's financial liability in
the long term unless other program changes also remain to
improve incentives in the program. A drug benefit ideally would
be part of the broader reform and the benefit, that benefit,
would be part of an integrated package of benefits provided by
health plans participating in the Medicare program.
Let us consider the long-run impact of a stand alone drug
benefit on Medicare's finances. And how do I get this started?
I want the first slide. That slide. OK. Thank you.
The first slide plots Medicare spending in revenue as a
percentage of GDP. Dedicated revenue, which is the bottom line
there, counts funds specifically earmarked for Medicare. That
includes the Medicare payroll tax, part of the tax on Social
Security benefits and premium revenues. According to Medicare
trustees, I copied from their report, program spending will
climb from about 2.3 percent of GDP--no, go back.
Mr. Saving. I am trying to be your assistant.
Mr. Antos. Thank you. Of course, you are worth what you are
paid.
Program spending will climb from 2.3 percent of GDP in 2000
to 4.5 percent of GDP in 2003. You can see that top red line.
That is doubling costs for the program in real terms. That is
roughly equivalent to a Medicare program costing $450 billion
this year rather than the $250 billion that is expected in
2002.
What about that gap? The gap between spending and dedicated
revenue represents the amount of general revenues that would go
into Medicare. As you can see, general revenue transfers to
Medicare would rise to 2.4 percent of GDP by 2030.
Now let us add a drug benefit. The example I use is the
Clinton drug proposal. According to the latest estimate from
the Congressional Budget Office, the Clinton proposal would
increase Federal spending by $512 billion between 2005 and
2012. Premiums would be about $29.50 a month in the first year,
2005. I might add that when you look at this slide, the solid
lines are the lines you just saw showing the current law
program and the dotted lines indicate what happens when you add
the benefit. And forgive me, my computer drawing skills aren't
that great. The program really does start in my calculation in
2005, in spite of the way it might look.
In 2010, CBO estimates that the proposal would increase
Medicare spending by about $100 billion, which is about six-
tenths of a percent of GDP. Premium revenue would equal about
$24 billion in that year, or less than two-tenths of a percent
of GDP, and you can see that even with a quite generous drug
benefit, the near-term impact on Medicare finances is
relatively modest. However, by 2030 the cost of the drug
benefit could grow dramatically.
I had to make an arbitrary assumption, and I assumed that
per capita drug spending in this program would grow at a
constant 10 percent a year, which is roughly the rate of growth
of per capita drug spending that CBO estimates this proposal
would have in the last 2 years of the program--in their
estimate, 2011 and 2012. Under that assumption total Medicare
spending would jump to 6.6 percent of GDP in 2030. That is
roughly equivalent to increasing the size of today's Medicare
program by an additional $400 billion, an increase larger than
the budget for all non-defense discretionary programs combined.
Premiums from the drug benefit would grow more slowly,
increasing Medicare revenue by about four-tenths of a percent
of GDP. As a result, Medicare's financing gap would increase to
about 4.1 percent of GDP in 2030, nearly doubling the draw on
general revenues that was projected for that year by the
Medicare trustees. This calculation demonstrates the potential
financial consequences of adding a generous but underfunded
benefit to Medicare without additional reforms.
Of course, it is impossible to predict actual spending
patterns 30 years in advance or, for that matter, 1 year in
advance, but I think the example does give an indication of the
power this kind of proposal could have on the Medicare
financing problem.
We clearly have a dilemma on our hands. On one hand, even
though a full reform package is not ready, Congress has an
opportunity to provide some needed help to Medicare
beneficiaries by enacting a stand alone drug benefit. On the
other hand, such a benefit could substantially increase the
financial pressures on Medicare and could seriously impede
future efforts to resolve other fundamental problems in the
program.
As I said earlier, a drug benefit should be an integral
part of the broader reform rather than an add-on to the current
program, but there are policy options that could minimize the
risks of a stand alone benefit. In my written statement I
sketch out one such option, which combines a drug discount card
with a cash subsidy for low-income people, a tax-deferred
saving option for others, and catastrophic insurance
protection. Such an approach might provide an opportunity to
test a market-based approach in Medicare without having to
resolve some very difficult issues that are at the heart of
broader reform efforts.
That completes my statement, Mr. Chairman. Thank you.
[The prepared statement of Dr. Antos follows:]
Prepared Statement of Joseph R. Antos, Ph.D., Resident Scholar,
American Enterprise Institute
Mr. Chairman and members of the committee, thank you for inviting
me to testify today. My name is Joseph Antos. I am a resident scholar
at the American Enterprise Institute for Public Policy Research in
Washington, where I concentrate on health economics. I am also an
adjunct professor at the University of North Carolina, Chapel Hill,
School of Public Health. Previously I was the assistant director for
health and human resources at the Congressional Budget Office, where
much of my work addressed the challenges facing the Medicare program.
My testimony will focus on the need to modernize and reform
Medicare. The program enjoys broad popularity for its success in making
high quality medical care affordable for seniors. But Medicare is also
widely criticized for offering inadequate benefits, being unresponsive
to the concerns of health care providers regarding both payment for
services and administrative complexity, and rapidly rising program
costs. Congress is considering actions that could improve Medicare in
some of those dimensions. The decisions that are made this year
particularly decisions on a prescription drug benefit could have a
significant impact on the long-term viability of the program.
CHALLENGES FACING MEDICARE
The financial challenges facing Medicare are well known, and were
recently re-emphasized by the annual report of the Medicare trustees.
The program will spend $250 billion this year for hospital, physician,
and other health services provided to 40 million elderly and disabled
Americans. Over the next decade, Medicare spending is expected to grow
about 7 percent a year, outstripping growth in the economy and in
Federal revenues. That projection does not reflect increases in
provider payments that may be enacted this year, nor does it include
the cost of a Medicare prescription drug benefit.
The long-term outlook for Medicare financing is driven by
demographics and the increasing use of health services among Medicare
beneficiaries. By 2030, about 78 million people will be enrolled in the
program when most baby boomers will have become eligible for Medicare,
and as longevity continues to increase. At the same time, the working
age population will grow more slowly, resulting in a drop in the ratio
of workers to beneficiaries. Thus Medicare spending will rise more
rapidly than the resources available to finance it.
According to the Medicare trustees, program spending will climb
from 2.3 percent of GDP in 2000 to 4.5 percent of GDP in 2030 (see
figure 1). In today's dollars, each percentage point of GDP is equal to
about $100 billion. Medicare's budgetary impact in 2030 would be
roughly equivalent to additional program spending of about $200 billion
in 2002.
The rapid growth in program spending will not be matched by a
similar growth in revenues that are specifically dedicated to Medicare.
Those dedicated revenues consist of payroll taxes, taxes on Social
Security benefits, and premiums paid by beneficiaries. According to the
Medicare trustees, the discrepancy between total Medicare expenditures
and dedicated revenues was 0.5 percent of GDP in 2000. By 2030, the gap
is projected to rise to 2.4 percent of GDP. The funding gap is
currently made up through transfers from general revenues; such
transfers will rise sharply over the next few decades unless
significant changes are made to the structure of Medicare.
Other developments have given strong impetus to Medicare reform.
The public has grown increasingly vocal about the inadequacies of
Medicare's benefits, which reflect what a reasonable health insurance
policy covered in 1965. Unlike most comprehensive insurance products
available today, Medicare does not cover outpatient prescription drugs
and provides no protection against very large medical costs. Many
beneficiaries find that they have less health insurance coverage once
they reach 65 than when they were covered by a health plan at work.
Beneficiaries often purchase supplemental private insurance to fill
in some of the gaps in Medicare coverage, and to reduce the uncertainty
they have about paying their share of the cost of Medicare-covered
services. Such coverage can be a significant financial burden, however,
costing thousands of dollars in annual premiums. Some beneficiaries
find a low-cost alternative to Medigap by enrolling in a
Medicare+Choice plan. But many health plans have dropped out of
Medicare+Choice in recent years, and the remaining plans have pared
back their benefits.
The provider community has become outspoken about the perceived
inadequacy of Medicare payment. Physician payment rates were cut 5.4
percent in 2002, and are expected to drop a total of 18.2 percent by
2005. That has spurred a backlash from the physician community, with
the possibility that seniors in some locales could have difficulty
finding a doctor. Payment add-ons for skilled nursing facilities are
scheduled to expire over the next 6 months, and the 15 percent
reduction in home health payments that Congress has delayed for several
years is scheduled to take effect in October. Those payment changes
have raised concerns about access to appropriate care for seniors,
although there is little evidence thus far to suggest that access has
become a significant problem.
Providers have been vocal about what they see as the unnecessary
complexity and inflexibility of Medicare administration. According to a
recent study by the General Accounting Office (GAO), for example,
Medicare contractors provide information to physicians that is often
difficult to use, out of date, inaccurate, and incomplete. The carriers
provide telephone and Web-based information to physicians, but only 15
percent of the test questions fielded by GAO were answered completely
and accurately. The Centers for Medicare and Medicaid Services (CMS)
was criticized for failing to provide sufficient performance standards
or oversight for contractors.
Medicare+Choice plans also have experienced payment and
administrative difficulties that have contributed to the exodus of
health plans from the program in the past several years. Because of
payment formulas intended to reduce the geographic variation in
payments to health plans and encourage plans to expand into underserved
markets, most Medicare+Choice plans received 2-percent annual increases
in their payment rates since 1999 even though their costs were rising 8
percent a year or more. In addition, uncertainty about future payment
policy changes and a heavy regulatory burden has made Medicare+Choice
an unattractive market for many health plans.
RISKS OF PIECEMEAL POLICY CHANGES
The problems facing Medicare seem to have mushroomed in the past
few years, but they reflect defects and rigidities in the design of the
program that have persisted since 1965. Changing the Medicare benefit
package literally requires an act of Congress. Consequently, Medicare
has not kept up with rapid advances in medical care. Medicare payment
rates often do not reflect conditions facing providers and health plans
in their local markets, and rate setting mechanisms are slow to adapt
to new economic realities. The formal regulatory process is complex,
and the proliferation of manual instructions and other guidance in the
shadow regulatory process meant to clarify how the regulations should
apply in specific real world circumstances often lead to errors,
uncertainty, and mistrust.
Restructuring Medicare to give beneficiaries realistic choices
among competing health plans, similar to the way the Federal Employees
Health Benefit Program (FEHBP) operates, could alleviate many of the
problems in the current system. Such an approach could provide more
meaningful health plan choices to beneficiaries than are now available
under Medicare+Choice, with safeguards to assure reliability and high
quality. Micromanagement and formula-driven payment rates could be
replaced by a flexible approach to administration based on negotiation
and market information.
A competitive strategy, even one based on an operating model such
as FEHBP, must be developed carefully. The administration has indicated
an intention to present such a plan in the future. Until then, Congress
is likely to take other steps to address some of the most important
deficiencies of the current Medicare program. A risk of that approach
is that some policy actions could hinder subsequent restructuring
efforts, or at least forego an opportunity to foster reform.
The Medicare prescription drug benefit is a case in point. Adding a
stand alone drug benefit could retard progress on broader reform and
reduce the program's financial viability in the long term unless other
program changes also were made to improve incentives in the program. A
drug benefit ideally would be part of the broader reform, and the
benefit would be part of an integrated package of benefits provided by
health plans participating in the Medicare program.
To illustrate the possible long-run impact of a stand alone drug
benefit, I estimated how much Medicare costs and revenues might
increase over the next 30 years under the Clinton prescription drug
proposal (see figure 2). The benefits under the proposal are fairly
generous: no deductible, 50 percent co-insurance for the first $2,000
of spending, and stop-loss above $5,000 of total spending. According to
the latest estimate from the Congressional Budget Office (CBO), the
Clinton proposal would increase Federal spending by $512 billion
between 2005 and 2012. Premiums would be $29.50 a month in 2005.
In 2010, CBO estimates that the proposal would increase Medicare
spending by $100 billion, or about 0.6 percent of GDP. Premium revenue
would equal $24 billion in that year, or less than 0.2 percent of GDP.
Even with a generous drug benefit, the near-term impact on Medicare
finances is quite modest, widening the gap between total program
spending and dedicated revenues by 0.4 percent of GDP.
By 2030, however, the cost of the drug benefit could grow
dramatically. I assumed that per capita drug spending would grow at a
constant 10 percent a year. Under that assumption, total Medicare
spending would jump to 6.6 percent of GDP in 2030. That is roughly
equivalent to increasing the size of today's Medicare program by an
additional $400 billion larger than the budget for all non-defense
discretionary programs combined.
Premiums from the drug benefit would grow more slowly, increasing
Medicare revenue by about 0.4 percent of GDP. As a result, Medicare's
financing gap would increase to about 4.1 percent of GDP in 2030 nearly
doubling the draw on general revenues that was projected by the
Medicare trustees.
This calculation demonstrates the potential financial consequences
of adding a generous but underfunded benefit to Medicare without
additional reforms. The actual impact of adding such a benefit depends
on the specific design of the proposal and on other factors that cannot
be foreseen with any accuracy, including the future path of
pharmaceutical innovation, the impact of drug coverage on the use of
other health care services, and changes in the incidence of specific
diseases among the Medicare population. Those factors might reduce the
long-run fiscal impact of a drug benefit but they might also increase
that impact.
DRUG BENEFIT AS A STEP TO REFORM
Medicare reform will probably not be accomplished in one sweeping
action. As we have seen with other attempts to reform the health
system, it is difficult to obtain consensus from health policy experts
on the best approach to reform. It may be even more difficult to
convince the public that a massive change in the way they obtain health
care will (eventually) be good for them. Moreover, we cannot foresee
all of the developments and reactions that might occur in response to
major system change.
Phasing in reform can provide information about market reactions
and allows mid-course corrections. A reform plan that has flexibility
to accommodate to changing circumstances in the health care market has
a greater chance of success than one that attempts to resolve every
problem at the outset. A carefully designed prescription drug benefit
could provide an opportunity to test market-based approaches to
Medicare reform.
There are clear risks associated with a stand alone prescription
drug benefit. But there are policy options that could minimize those
risks, and might also serve as a transition to broader reform. One
approach, called the Prescription Drug Security (PDS) Card program,
combines a drug discount card with insurance protection from high-end
drug expenses. Low-income Medicare beneficiaries would be eligible for
an annual cash subsidy perhaps as much as $600 toward the cost of their
first-dollar drug expenditures. Their premiums for catastrophic drug
coverage would also be subsidized. Higher-income beneficiaries would
not receive a subsidy. They would be able to contribute to their own
prescription drug cash account on a tax-deductible basis and
participate in catastrophic drug insurance. They would also receive any
discounts for pharmaceutical purchases that are available from their
plan.
The PDS card account would work like a debit card, allowing
beneficiaries to draw down their deposit when they make prescription
purchases. The account could be augmented with contributions from
relatives, religious organizations, or other charitable groups.
Beneficiaries would be able to keep any unspent funds in their accounts
for health expenses in subsequent years.
Such a program would allow Medicare beneficiaries to select from a
number of competing plans that offer drug coverage. Plans would have
the flexibility to offer a variety of benefit and premium options. The
program would target assistance to the most needy, i.e., low-income
beneficiaries without other drug coverage. By providing a fixed subsidy
rather than an open entitlement to benefits, the program gives
enrollees an incentive to shop wisely.
Unlike a traditional Medicare benefit, administration of the PDS
card program would be modeled after FEHBP. The administering agency
would provide broad direction on required benefits and other policies,
negotiate premium offers with plans, and provide information to
Medicare beneficiaries on their options and the performance of
individual plans.
A prescription drug program of this sort could be a laboratory for
development of broader Medicare reform. Unlike a pure discount card
approach, it would provide a subsidy for low-income beneficiaries and
true insurance protection against unforeseeable, large drug costs. Such
a program would create an administrative infrastructure that is
flexible and consumer-focused. Since it would initially be a stand
alone benefit, a competitive drug program could be implemented without
having to resolve some difficult issues that are at the heart of
proposals to restructure Medicare. Nonetheless, lessons from a
competitive drug program could fruitfully be applied to the larger
reform.
CONCLUSION
The Medicare trustees have once again reminded us that the Medicare
program is on an unsustainable trajectory. Decisions made by Congress
this year will have consequences well beyond the 10-year budget window.
There is an opportunity this year to provide some needed help to
Medicare beneficiaries through a prescription drug benefit, but there
is the risk that such a benefit could increase long-run fiscal
pressures and retard progress on the broader reform that is needed. A
well designed prescription drug plan, however, could be a step toward
that reform.
Chairman Nussle. Dr. Feder, welcome, and we are pleased to
receive your testimony at this time.
STATEMENT OF JUDY FEDER, PH.D., DEAN OF PUBLIC POLICY, PUBLIC
POLICY INSTITUTE, GEORGETOWN UNIVERSITY
Ms. Feder. Thank you, Mr. Chairman and members of the
committee. It is a pleasure to be with you this morning to
testify on behalf of myself and my George Washington University
colleague Jeanne Lambrew.
My goal today is to remind you that Medicare is one of our
Nation's greatest achievements, and that as a Nation, we have
the obligation and the capacity to sustain and extend that
achievement to provide affordable health insurance, including
prescription drugs, to seniors and to people with disabilities.
First and foremost, Medicare is not broke or broken, nor in
crisis. Medicare works. It provides affordable health insurance
for the Nation's elderly and some of its disabled citizens
without the problems that plague health insurance for younger
Americans, and it is as good or better than the private sector
in managing health care cost growth. Faced with high rates of
expenditure growth and trust fund concerns in the 1990s,
policymakers responded with payment rate changes that
dramatically slowed Medicare cost growth and kept its per
beneficiary cost increases lower than those in the Federal
Employees Health Benefit Program and the private sector.
Health care costs are a problem for the Nation, not just
Medicare, but recent experience demonstrates that policymakers
have the tools they need to manage Medicare costs. Indeed the
Congressional Budget Office and the Office of Management and
Budget showed confidence in these tools with their estimates of
the relatively low growth rates for Medicare costs in the
future. And as we have heard from Dr. Saving, the report on the
Medicare trust fund found solvency through the year 2030, one
of the longest periods of solvency for the trust fund in the
program's history.
The strengths of Medicare financing must be looked at well
beyond the situation of the trust fund. What the security of
financing really rests on is the strength of our economy. A
recent analysis by Marilyn Moon of the Urban Institute shows
how much better off future taxpayers will be, even taking
Medicare cost growth and necessary spending into account. By
Dr. Moon's estimates, the gross domestic product per worker
will rise by more than 50 percent between the year 2000 and the
year 2035. Or, another way to say it is people will be 50-
percent richer than they are today, and that growth is only 3
percentage points lower when Medicare needs are taken into
account than when they are ignored. So they would be 53-plus
percent richer if we didn't meet Medicare's needs. They will be
50-percent richer if we do. That seems hardly a problem, let
alone a crisis. Stated simply, the Nation's economy is strong
enough to pay for Medicare beneficiaries' future health care
costs.
What then is Medicare's most pressing need? It is not a
change in managing what Medicare already covers. It is, rather,
a change to cover what Medicare currently excludes, and we are
focusing here on the gap in prescription drug coverage. I would
argue that it is a travesty that the population that is over
the age of 65 and people with disabilities who most need
prescription drug coverage are without that protection when the
working-age population has it available to them.
Over the next decade, Medicare beneficiaries will spend an
estimated $1.8 trillion on prescription drugs. Those costs and
needs are there with or without a Medicare prescription drug
benefit. The issue is who is going to bear those costs.
Although there is widespread agreement on the need for
Medicare's prescription drug benefit, as you know, there is
considerable disagreement on what constitutes an adequate
benefit, that is, what should be the distribution of
prescription costs between seniors and taxpayers; on its
affordability; and on the priority it ought to have in our
public spending.
As I said, seniors' drug costs are estimated at about $1.8
trillion over the next 10 years. A Medicare drug benefit
designed similar to the benefit that you have--and I have as
the wife of a Federal retiree--in the Federal Employees Health
Benefit Program would cost an estimated $750 billion over the
next 10 years, covering less than half benificiaries' actual
prescription drug costs. This committee, Mr. Chairman, as you
indicated earlier, has endorsed a benefit and additional
Medicare spending of $350 billion, woefully short of meeting
beneficiaries needs in the future.
Can we do better? The administration has testified
elsewhere on this subject and has implied that we cannot, as
have the previous speakers; that the resources are not there to
meet the needs of the current Medicare program and of a new
prescription drug benefit. But the fact is that what is missing
is not resources, it is the priority that we give to meeting
these needs. In fact, combining what the President's budget
would spend in new dollars on Medicare with the proposed
spending on tax cuts that is in the budget, the budget already
includes the $750 billion that could be applied fully to a
Medicare drug benefit. Moreover, according to analyses
performed by the Center on Budget and Policy Priorities,
proposed extensions of the tax cut beyond 2010 would cost $4.1
trillion in that second decade compared to the $1.2 trillion
cost of the additional amount of drug coverage. In other words,
the cost of the proposed tax cuts that some feel are a priority
exceed by more than threefold the cost of a prescription drug
benefit. It is hard to reconcile the claim that a prescription
drug benefit is a priority while at the same time eliminating
the revenues needed to support it.
On the source of funding, there is also an issue: what
ought to be the appropriate financing mechanism for a Medicare
prescription drug benefit? The administration has challenged
the use of both the Hospital Insurance Trust Fund as a source
of funding--that is, the existing trust fund--and general
revenue financing. No one has proposed the first, and the
administration itself has used the second.
It is important to remember when we look at the financing
system of Medicare that general revenues have always been a
part of Medicare spending. It is inappropriate to consider the
need for such revenues as a ``financing gap.'' General revenues
are a longstanding appropriate and progressive source of
financing both for the existing Medicare program and for a new
benefit, prescription drugs.
In conclusion, the facts suggest that the biggest challenge
facing Medicare today is not its cost growth or even its long-
term affordability, but the lack of a prescription drug
benefit. Medicare has contributed, and will in the immediate
future continue to contribute, to longer and healthy lives for
our Nation's elderly and some of its disabled citizens. But its
historical protection against the economic consequences of high
health care costs is now threatened by rising drug costs and
its lack of a drug benefit. By 2012, Medicare beneficiaries are
projected to spend more on prescription drugs than Medicare is
projected to spend on all Part B services combined, according
to the Congressional Budget Office. A $750 billion prescription
benefit would cover less than half of prescription drug costs
of Medicare beneficiaries, but would certainly be meaningful
support for the seniors and disabled people who are bearing
those burdens. It costs far less over time than the extension
of the tax cut.
The question here, I would urge you to recognize, is not a
matter of affordability, it is a matter of our priorities.
Thank you.
Chairman Nussle. Thank you.
[The prepared statement of Dr. Feder follows:]
Prepared Statement of Judith Feder, Dean of Public Policy, Georgetown
University
Chairman Nussle, Congressman Spratt, and distinguished committee
members, thank you for the opportunity to offer this testimony about
Medicare and the Federal budget. My goal today is to remind you that
Medicare is one of our Nation's greatest achievements and that, as a
nation, we have both the obligation and capacity to sustain and extend
that achievement to provide affordable health insurance, including
prescription drugs to seniors and to people with disabilities.
MEDICARE WORKS
The issue of Medicare reform is neither new nor simple. Defining
Medicare's problems, let alone coming to consensus over solutions, has
been controversial. Discussions of Medicare and the Federal budget
often define the ``problem'' as the gap between projected payroll tax
revenues and health care spending that will result from the aging of
the population. An all-too-common reaction is to declare Medicare
fiscally ``unsustainable'' and to call for a retraction of government
responsibilities for the health care of the elderly. But this approach
obscures the real challenge of an aging population and ignores
Medicare's fundamental purpose.
For more than 30 years, Medicare--with some significant help from
Medicaid for low-income elderly and for long-term care--has provided
affordable health insurance of the Nation's elderly citizens without
the problems that plague health insurance for younger Americans.
Medicare is nearly universal, avoids dividing the healthy from the sick
and the poor from the better-off, and provides reliable coverage with a
choice of providers.
Limiting the government's liabilities for health care will not make
those liabilities go away. Rather, it will shift them back to elderly,
people with disabilities and their families. And Medicare's signal
advantages--its ability to spread risk and to make insurance
affordable--will be lost. That is not solving the problem; it is
abdicating responsibility. Instead our goal should be to assure that
Medicare has adequate financing to provide effective health insurance
in the future as it does today.
Our ability to achieve that goal is enhanced by Medicare's fiscal
performance. Health care is expensive. But Medicare is as good and
often better than the private sector in managing cost growth. Faced
with high rates of expenditure growth and trust fund problems in the
1990s, policy makers responded with payment rate changes that
dramatically slowed Medicare cost growth. In the past 5 years,
Medicare's average growth rate per beneficiary was significantly lower
than that of the private sector or the Federal Employees' Health
Benefits Plan (FEHBP) (Figure 1). Although the cost of health care is
an issue for the entire Nation (not Medicare alone) and there will
always be controversy about whether Medicare is paying too much or too
little, recent experience demonstrates that policymakers have the tools
they need to manage Medicare's costs.
The Medicare baseline projections for the next 10 years recognize
the effectiveness of these tools for the future as well as the past.
Both the Congressional Budget Office (CBO) and the Office of Management
and Budget (OMB) are projecting average Medicare growth rates per
beneficiary that are low: 4.8 and 3.6 percent for the next 10 years\1\
at or below medical inflation (4.4 percent from March 2001 through
2002) and well below projected private premium growth projections (6.1
percent for 2002 through 2010) (Figure 2). Medicare has not grown this
slowly for any past 10-year period.\2\ Similarly, in its most recent
report, the Medicare Trustees project that the Hospital Insurance Trust
Fund will be solvent through 2030. Few previous Trustees' projections
have been more optimistic than this.
Our ability to support the Medicare program goes well beyond the
strength of the Trust Fund. Most critical to that support is the
strength of our economy. A recent analysis by Marilyn Moon suggests how
important it is to examine projected Medicare cost growth in the
context of overall economic growth. Her analysis demonstrates that
future taxpayers will be substantially better off than current
taxpayers, even taking Medicare cost growth into account. By her
estimates, GDP per worker will rise by 53.8 percent between 2000 and
2035, even taking into account Medicare spending projections. Without
Medicare, this projected increase in GDP per worker would be 57 percent
(Figure 3). Stated simply, this Nation's economy will likely grow
strongly enough to pay for Medicare beneficiaries' future health care
costs.\3\
a prescription drug benefit is medicare's most pressing need
Medicare's biggest challenge is not better managing what it already
covers; instead, it is covering what it currently excludes:
prescription drugs. Prescription drugs have become an integral part of
modern medicine, often preventing disease, managing chronic illness and
even curing certain conditions. Seniors and people with disabilities
disproportionately rely on prescription drugs. According to recent CBO
testimony, Medicare beneficiaries account for 15 percent of the
population but 40 percent of the spending on outpatient prescription
drug spending. The average Medicare beneficiary will spend over $2,400
on prescription drugs next year, and nearly one-in-five beneficiaries
(17 percent) are expected to spend more than $5,000 by 2005. Over the
next decade, Medicare beneficiaries are projected to spend $1.8
trillion on prescription drugs; with or without a Medicare drug
benefit.\4\
Not only do Medicare beneficiaries have a greater need for
prescription drugs; they also disproportionately lack coverage for it.
Depending on how one counts, anywhere from 25 to 42 percent of Medicare
beneficiaries lack prescription drug coverage for all or part of the
year.\5\ This problem is worse for older and rural beneficiaries. Over
time, most experts suggest that the proportion of beneficiaries who
lack drug coverage will grow as the cost of Medigap policies with drug
coverage rises, the drug benefits in Medicare managed care plans become
less generous and more scarce, and employers continue to cut back on
retiree health coverage.
A PRESCRIPTION DRUG BENEFIT IS AFFORDABLE
There is a widespread consensus on the need for a Medicare
prescription drug benefit. What is lacking is agreement on what
constitutes an adequate benefit, the distribution of prescription drug
costs between seniors and taxpayers, its affordability, and its
priority.
Substantial differences exist in the scope of proposed prescription
drug benefits. This committee allocated $350 billion over 10 years for
a benefit; the Senate Budget Committee allocated $500 billion. And it
would cost an estimated $750 billion over 10 years to provide seniors
with a benefit comparable to the benefit Members of Congress receive
through the Federal Employees Health Benefits Program.
Recently, administration testimony implied that the Nation cannot
afford a $750 billion drug benefit: ``The excess costs of $400 billion
in the first 10 years would balloon to $1.2 trillion in the next ten,
just when the baby boomers are counting on Medicare.'' The testimony
continues to claim that a drug benefit of this size would, by 2030, be
``equivalent to a tax of $2,170 (in today's dollars) on every working
American.''\6\
But, the administration's analysis suggests that its concern is not
affordability, it is priorities. In fact, combining what the
President's budget spends on Medicare and its tax cuts, the budget
already includes $750 billion that could be applied fully to a Medicare
drug benefit.\7\ Moreover, in the second decade, the extension of the
tax cut would cost, according to the Center on Budget and Policy
Priorities,\8\ $4.1 trillion, compared to the administration's
estimated $1.2 trillion cost of the additional amount of drug coverage
(Figure 4). And, it is not until well after 2020 that the cost per
worker of a drug benefit exceeds that of the cost per worker of a tax
cut, according to a forthcoming analysis by the Center on Budget and
Policy Priorities; in 2020, the average tax cut cost per worker ($1,579
in 2002 dollars) would still exceed that of the cost per worker of the
entire $750 billion drug benefit ($1,064). Thus, it is hard to
reconcile the claimed priority given to a prescription drug benefit
with the proposal to eliminate the revenues needed to support it.
On the source of funding, the administration has challenged the use
of both the Hospital Insurance Trust Fund and general revenue
financing. Specifically, it claims that funding a prescription drug
benefit from the Trust Fund would cut its insolvency in half, and that
funding it through a mechanism like the Supplemental Medical Insurance
Trust Fund represents ``accounting gimmicks.''\9\ Corroborating this
concern, the administration omitted general revenue funding from its
displays of the current Medicare program's financial health in its
budget documents, despite its legal, 35-year history of supporting Part
B services. On prescription drug financing, no one has proposed the
first, and the administration itself has used the second. General
revenue funding supports outpatient services in Medicare today; it is a
more progressive way to finance benefits than a payroll tax increase;
and, while weakened, the budget outlook is strong enough to support
this use of funds. The fact that the administration's own $190 billion
Medicare allocation is drawn from general revenues raises the question
of where and, more importantly, why the administration is drawing lines
about legitimacy of the funding of this critical benefit.
CONCLUSION
The facts suggest that the biggest challenge facing Medicare today
is not its cost growth or even its long-term affordability but its lack
of a prescription drug benefit. Medicare has contributed and will, in
the immediate future, continue to contribute to longer and healthier
lives for our Nation's elderly. But its historical protection of
seniors against the economic consequences of high health care costs is
now threatened by rising drug costs and its lack of a drug benefit. By
2012, Medicare beneficiaries are projected to spend more on
prescription drugs than Medicare is projected to spend on all Part B
services combined, according to CBO. A $750 billion prescription drug
benefit would cover less than half of prescription drug costs of
Medicare beneficiaries. It costs far less, over time, than the
extension of the tax cut. The question here is not affordability, it is
priorities.
ENDNOTES
The views expressed in this paper do not represent those of
Georgetown or George Washington University.
1. From Crippen DL. (March 7, 2002). Projections of Medicare and
Prescription Drug Spending. Testimony before the Committee on Finance,
U.S. Senate. Washington, DC: Congressional Budget Office. Assumes
projected beneficiary growth of 1.7 percent over the 2003-12 period.
2. Reischauer R. (March 2002). Presentation at the American
Enterprise Institute.
3. Moon M, Storeygard M. (March 2002). Solvency or Affordability?
Ways to Measure Medicare's Financial Health. Menlo Park, CA: The Henry
J. Kaiser Family Foundation.
4. Crippen, 2002.
5. CBO defines uninsured as lacking drug coverage throughout the
year (25 percent); Laschober MA, Kitchman M, Neuman P, Stabic AA.
``Trends in Medicare supplemental insurance and prescription drug
coverage, 1996-1999,'' Health Affairs. February 27, 2002, Web
Exclusive, pp. W127-W138 define coverage as point in time (38 percent);
and Briesacher B, Stuart B, Shea D. Drug Coverage for Medicare
Beneficiaries: Why Protection May be in Jeopardy. New York (NY), The
Commonwealth Fund, January 2002 define it as the number who lack drug
coverage for part or all of the year (42 percent).
6. McClellan M. (April 17, 2002). ``Creating a Medicare
Prescription Drug Benefit: Assessing Efforts to Help America's Low-
Income Seniors.'' Testimony before the Committee on Energy and
Commerce, U.S. House of Representatives. Washington, DC: White House
Council of Economic Advisors.
7. The President's budget includes $603 billion for tax cuts and
$169 billion for Medicare for fiscal year 2003-12, according to CBO's
Analysis of the President's Budget.
8. Friedman J; Greenstein R; Kogan R. (April 16, 2002). The
administration's Proposal to Make the Tax Cut Permanent. Washington,
DC: Center on Budget and Policy Priorities.
9. McClellan, 2002.
Chairman Nussle. I had some questions, but I guess to start
off with, I am tempted to allow rebuttal. It seems it is pretty
rare where we have a hearing where we have such a difference of
opinion on the panel over the state of Medicare and its future.
I am not going to paraphrase Dr. Feder's testimony, but suffice
it to say it appears that what you are suggesting is that you
don't necessarily believe there is a crisis in Medicare, and
that if we would merely repeal the tax cut, that everything
would seem to work out just fine.
That having been said, Dr. Antos or Dr. Saving, do you want
to respond to that at all? My understanding from your testimony
is that the general revenue transfers to Medicare would far
exceed a simple repeal of the so-called tax cut. So, Dr.
Saving----
Mr. Saving. I think that is correct, Mr. Chairman. The real
issue here--and the estimates that I have made of the general
revenue transfers as a percent of projected Federal income tax
revenues allow Federal income tax revenues to stay at the same
percentage of the gross domestic product they are now, so they
really don't account for any of the tax cut that is going to
occur later on, assuming that that tax cut would reduce the
share of Federal income tax revenues or gross domestic product.
So in effect our estimate from the trustees report is that
that share of Federal income tax revenues in 2030--and I should
say that the deficits that we are discussing stay the same no
matter what the trust fund is. I mean, if you could arbitrarily
make the trust fund 100 million times what it is so that it
would never run out, you would have to transfer exactly the
same amount of money from income tax revenues because there
isn't anything in the trust fund. It is just an accounting
entry that says that--and legally, of course, you can't pay
benefits unless the trust fund has these accounting entries,
but in the end they are accounting entries. They are not real
output.
And I think it is important to understand that when the
baby boomer--and this is an issue of two things. One of them is
increased longevity, and the second one is population shock,
meaning that the baby boomers moving through the population,
providing a huge amount of resources when they were working,
and consuming a huge amount of resources when they retire. When
that happens, and if Dr. Antos is right in his estimates of
what the drug benefit is going to cost, and I am a person--I
think all three of us here are saying that an efficient
Medicare system should include a drug benefit. So that is not
really at issue here.
What is at issue here is what are the funding issues that
have to be dealt with if you are going to do this. And if we
are accepting Dr. Antos' numbers, currently from the trustees
we would estimate that by 2030, 21 percent of all Federal
income tax revenues are going to have to be transferred to
Medicare. That is four times what we are now transferring to
Medicare off of Federal income tax revenues.
Chairman Nussle. Just so we are clear, that is compared
today at what percent?
Mr. Saving. Five percent. Right now an amount equal to 5
percent. We are going to be at 21 percent. If Dr. Antos is
right, that number is going to be 36 percent, and coupled with
the Social Security transfer, one-half of all Federal income
tax revenues are going to have to be transferred to these
elderly entitlement programs. And right now, remember, these
three programs together are actually contributing an amount
equal to 2.5 percent of Federal income tax revenues. So we are
going to go from being able to spend this money on fighting
terrorism or anything else to having to take half of all the
Federal income tax revenues and transfer them to these
programs. All the other programs are going to be much smaller,
and if you would add Medicaid to that, then you would have
almost nothing left over for anything else that the Federal
Government does.
I think this is a significant problem. It is not going to
be solved by the trust fund. I think we need a prescription
drug benefit for efficiency purposes, but we also have to
recognize reality. Putting our head in the sand and saying
these resources are going to come from somewhere is not going
to do it. It is real resources the elderly are going to
consume--when I was on the commission, the baby boomers when
they retire are going to eat real food, drive real cars, and
live in real houses and use real hospitals and doctors when
they consume medical care. Somebody is going to have to produce
that stuff. We have to find a way to get resources to provide
the elderly with what they are going to be consuming and to let
workers keep something for themselves. That is the challenge,
and it is a tough one.
Chairman Nussle. Dr. Antos.
Mr. Antos. I would add to that, I think, an obvious point.
We all agree that the Medicare benefit isn't adequate, and it
became inadequate because of the structure of the program in
the first place. One of the goals of reform is to make it
possible for consumer demand to be satisfied. There is no
question where consumer demand is on prescription drugs. There
is very little question on where consumer demand is on wanting
additional insurance protection, but we have a program that is
locked in concrete.
Part of the idea of reform is to make it possible for what
consumers want to actually materialize on less than a glacial
basis. Furthermore, it is perfectly clear that with a virtual
doubling over the next 30 years of the number of people in the
Medicare program, we are going to be spending more money. There
is no question about that, and I don't think any of us disagree
with that. The question is are we going to have the program
that we really want? I am speaking personally now. Unlike Tom,
when I reach 65, I will be using Medicare. Is that program
going to be a good program, or am I going to find that my
insurance protection suddenly dropped through the floor? That
is our goal.
Chairman Nussle. Dr. Feder.
Ms. Feder. First a clarification, Mr. Chairman. The slide
that was up earlier and my comments on comparing the costs of a
tax cut with the costs of a drug benefit were not addressed at
repealing tax cuts that Congress has enacted. They focus on new
tax cuts that are proposed in the President's budget or the
extension--this particular slide is making the tax cut
permanent, extending the tax cut into the next decade. I
haven't even addressed repeal; that would make additional
revenues available to meet these needs.
The second issue I would like to raise, I think you are
quite right: there are tremendous differences in the way we, as
speakers, see the Medicare financing situation. I think that
differences reflect how we compare rising Medicare costs to
other changes. There is no question that health care costs are
rising, and that the costs per beneficiary are rising, and the
number of beneficiaries is increasing. But to asses whether we
face an ``affordability crisis,'' we have to look at these
costs in the context of the rest of the economy. And what I
have indicated to you, which is not present in others'
comments, is that the economy is growing substantially even
when we assume moderate growth assumptions. As a result, we as
a Nation will be, as I indicated to you, 50 percent richer in
30 years and consequently have the resources to decide how we
want to spend those resources and how we want to provide
quality of life for our Nation's seniors.
Finally, on the issue of the benefit problem which Dr.
Antos just mentioned, the absence of prescription drug benefits
in Medicare is, I would argue, not a function of Medicare's
structure. It, again, is a question of choices and political
priorities. We have a good prescription drug benefit in the
Federal Employees Health Benefits Program because that is what
Congress chooses to provide Federal employees and Members of
Congress, and it includes prescription drugs. We have the
capacity to make a similar political choice for Medicare
beneficiaries. We have just not done so.
Chairman Nussle. I am dying to ask who ``we'' is when you
say we haven't done so. I don't recall my last 8 years seeing a
White House prescription drug benefit that has been proposed. A
couple of nice lofty goals that came down, but I think there
are a lot of political choices being made.
I would suggest to you that I believe the costs are out of
control, and that in my area in Iowa, it is not serving as good
a program, and it is not paying its bills the way that it may
be in the area that you live. So that is part of the reason why
we not only wanted to include in this budget, as we have the
last number of budgets, a prescription drug benefit, but also
an ability to modernize the program and to strengthen it,
because it is just not paying the bills in Iowa. Maybe it is in
your area, but it isn't in our area. And I understand why
seniors may not recognize that, but the people providing the
care certainly do realize that, and it is going to become
pretty difficult to keep and, as both of our other witnesses
said, attract and continue to keep these physicians and
hospitals and other health care providers in some of these
underserved areas if the program continues as it is.
So with that, Mr. Spratt.
Mr. Spratt. Dr. Feder, I thought I saw you wanting to
respond when the chairman said he had not seen a proposal for
prescription drugs floated by the White House in the last 8
years.
Ms. Feder. I was tempted to respond, but I wasn't sure it
was necessarily totally wise. But as a member of the Clinton
administration----
Chairman Nussle. You are welcome to respond to that.
Ms. Feder. I didn't think it was unwelcome on your part,
sir. I just wasn't sure I needed to mention it.
A prescription drug benefit was most definitely a part of
the Clinton Health Security Act. And in more recent years,
before the Clinton administration ended, we had a prescription
drug benefit on the table.
So I was surprised that you had said it wasn't mentioned.
Chairman Nussle. Well, if I could--just so I understand.
Was this in bill form? Was this written in bill form?
Ms. Feder. The Medicare prescription drug coverage was part
of the Clinton Health Security Act.
Chairman Nussle. I understand. But was this a proposal in
bill form?
Ms. Feder. In bill form. It was in the bill.
Chairman Nussle. In what bill? We are going to have to go
back to the record here, because I served on the Ways and Means
Committee. We never got a bill. Now, we got some goals.
The same criticism currently exists for this
administration, I would hasten to add.
Ms. Feder. And when you asked who ``we'' is, it is all of
us as a nation that have not made this a priority, when you
said that earlier.
Chairman Nussle. You mentioned it was Congress. I just
wanted to make sure that the record reflected that it was more
than just Congress who made that political decision.
Ms. Feder. That is a fair point, in general.
Chairman Nussle. I am sorry to interrupt.
Mr. Spratt. Dr. Feder, for the record, would you like to
briefly outline what the Clinton prescription drug package
contained?
Ms. Feder. It would be a challenge for me to remember the
bill as it was proposed in 1993. But I believe the more recent
proposal resembled proposals that have been on the table, that
are being discussed today. The one that--actually that Dr.
Antos used as the basis for his cost projections was the
proposal toward the end of the Clinton administration.
Mr. Spratt. There is a premium of about how much?
Mr. Antos. It is a no-deductible plan, 50 percent co-
insurance for the first $2,000 of drug spending; no coverage
between $2,000 and $5,000 of drug spending, where most of the
drug spending is; and then what we economists call stop-loss
coverage above $5,000, in other words, the program would pay
for the whole cost above $5,000.
The premium would start in the first year, 2005, at $29 a
month. And like all comprehensive proposals, the premium grows
every year.
Mr. Spratt. In all of these proposals, a couple of things
have been lacking in the cost estimates. Number one, only
modest assumptions are made about what can be attained through
the use of the government's clout as the purchasing agent, in
effect, for 35 to 40 million people, a huge coalition of
purchasers.
How do we measure that? What can we reasonably expect can
be accomplished in the way of price reduction from the
government's collective efforts to purchase on behalf of 35 to
40 million beneficiaries?
Mr. Antos. Mr. Spratt, that is a very good question, a
question that CBO has struggled with for the last several years
and will continue to struggle with.
I think the issue has to do with how much flexibility and
leeway the particular benefit allows for the management of
those prescription drug costs. Not just prices, but even more
importantly, the actual use of drugs. The latest figures
strongly suggest that more than half of the increase in total
prescription drug cost in this country stems from increases in
the use of drugs, moving to newer, more expensive drugs, using
more drugs. Price is a lesser issue.
And so it seems like only a few months ago I remember
discussing this very question with my colleagues at CBO. The
issue was: Did an individual bill allow drug plans use the
tools that they now have at their disposal to aggressively
manage costs, or were there going to be restrictions on what
they could do? I believe that--I believe CBO should speak for
itself here, but I believe that the estimate that the CBO had
done for the Clinton-style plan assumed that there would be
restrictions, fairly rigid restrictions, on how costs could be
managed and how consumer demand could be directed.
The House-passed bill from last year, on the other hand, is
a bill that places drug plans at risk for costs. It does
provide reinsurance, but it does put them at risk. And it gives
them more ability to use tools such as multi-tiered co-
payments, formularies, mail order and the like.
A lot depends on the structure of the benefit.
Mr. Spratt. The second thing that we don't hear much about,
or see in these cost estimate systems, is a kind of dynamic
scoring, which we discussed last week. We seldom get any
calculation of the savings that might be realized in inpatient
care, the most expensive form of health care as a result of
having adequate maintenance drugs and other acute care drugs
available for outpatients.
Surely there is some savings to be realized there, or
otherwise why are we taking these medications?
Nevertheless, you never see that calculation factored into
any of the estimates. Can you give us an idea of what you think
realistically, over a period of years, ought to be factored in
to account for the inpatient savings if you have a drug
program? Any of you?
Mr. Antos. Let me try that first, if you don't mind. It is
a very tough question, of course. Let me explain a little about
CBO's thinking about this question, which isn't going to be all
that helpful to any of us on this, I don't think.
The issue for CBO is: What is the incremental effect of a
drug benefit? As we know--from data collected from Medicare
beneficiaries--that somewhere around two-thirds of Medicare
beneficiaries have some form of prescription drug coverage.
Some of them have very good coverage now through employer
plans, for example, and some of them have coverage through
Medigap plans, and that is pretty bad.
If there is a comprehensive drug benefit enacted, then the
question that CBO confronts is, how much will actual drug usage
increase, given that a lot of people now have coverage, and the
people who don't have coverage use about two-thirds of the
prescription drugs that people with coverage use today. And so
this is really an incremental kind of calculation.
As a result, while they are very, very concerned and
interested in this issue, they have, in particular, been
focusing on some work by Frank Lichtenberg at Columbia
University, who has demonstrated some pretty impressive results
along these lines. Nonetheless, they have to bring those
results down to this kind of incremental scoring.
So I would say the bottom line here for me is that there is
no question that a drug benefit will bring real medical
benefits to Medicare beneficiaries in terms of better outcomes,
more sensible approaches to health care and, ultimately, in
terms of some potential cost savings. But in terms of bill
scoring, I agree with my former colleagues. It is really tough
to know right now how much of an impact that would have in the
short run. In the long run, it could be quite large.
Ms. Feder. I wish I could give you an estimate,
Congressman. I can't do that. But I can give you an example
that is, I believe, supportive of your concern that it ought to
be addressed.
There was a study some years ago following a cutback in
drug coverage in Medicaid, I believe in Connecticut, that
examined its effect on Medicaid spending. And the finding was,
that--Steve Sumerai was the author--the finding was that a
reduction in the availability of prescription drugs led to--I
don't remember the magnitude--but an increase in nursing home
costs, another area of considerable concern. And I do think we
are seeing a decline in the availability of prescription drug
coverage for seniors, which would have the kind of effect I
just described, as well as effects on hospital use and
whatever.
And with due respect--Joe knows I am sympathetic to the
problems of cost estimating--but CBO does take on a number of
challenges with great boldness; this would not seem to be
beyond its capacity.
Mr. Spratt. Dr. Saving. You have got a fit name for a
conservative economist, by the way.
Mr. Saving. Economists tend to be what you would refer to
as conservative, because economists understand constraints.
Other people may live in unconstrained worlds, but the real
world appears to have real constraints attached to it. And I
think--as my testimony argued, I think that a prescription drug
benefit is important to have efficiency in medical outcomes.
There is no question that pharmaceuticals are playing a much
larger role than they used to, and we need to do this.
The issue is, who is going to pay for it, when the
individuals who are consuming the medical care, which is now
happening, and once you give them a benefit and make these
things cost much less, we know they are going to consume more
of them. That is the simplest idea. Then your point is, to what
extent is this efficiency gain that I have addressed--and I
think we all have, actually--going to offset some of that?
Secondly, those individuals that used to pay for the
pharmaceuticals--and now the general taxpayers are going to pay
for them--they are actually better off. And so you might
justify, in a sense, raising premiums or other kinds of sources
of revenue for this system, because you are simply transferring
current expenditures from one group of people to another. And
the question is, who should pay? And is there an efficiency
gain?
We certainly know from anything that we have done in the
past, where we decided to make something free that wasn't free
before, we almost always underestimate what it is going to cost
us, that the increase in expenditures is going to be
significant.
Mr. Spratt. You showed us a big spike--$18 billion, as I
recall--as probably the gross liability, present value, for all
benefits that would be drawn by those who are now eligible for
them if the system were to take no new entrants in the future.
If we don't have additional tax transfers to meet some of
that, do you have any estimation of how much cost would have to
be wrung out of the program over a period of 10 years, 15
years, 20 years, in order to accomplish solvency by cost
reduction alone?
Mr. Saving. Yes, in fact, I do. I have what percentage of
these programs are--I have got it right here somewhere; I will
find it in a moment--are going to actually be funded by
transfers. Because that is actually what the question is.
Right now, we are 25 percent of--in 2001, 25 percent of
Medicare expenditures were financed from general revenues. In
2010, it will be like 27 percent. By 2020, 40 percent of all of
the expenditures are going to be financed by general revenues.
Mr. Spratt. You are speaking with a sense of inevitability.
Mr. Saving. Well, these are our trustees' estimates. These
are the best estimates that we have of what is going to happen.
Nothing is inevitable. We don't pretend, as trustees, that what
we put in the trustees report is what the numbers have to be,
but they are our best estimates of what is going to happen. And
we will be--under the current program we will be financing some
40 percent of Medicare with general revenue transfers. This is
2020; 47 percent by 2025.
Mr. Spratt. By 2025, 47 percent----
Mr. Saving. Of these things are going to be financed with
general revenue transfers. So you would have to cut the program
in half in a little over 20 years to----
Mr. Spratt. That is not realistic, in your estimation?
Mr. Saving. I don't think it is realistic. I think we need
to--but we have to understand that these programs are
significantly underfunded for the future.
Mr. Spratt. Which means, if you can wring some of the costs
out, so much the better. If you can get more efficiency----
Mr. Saving. If you can raise revenue.
Mr. Spratt. There is a high probability that we will make
substantial additional transfers from general revenues to
sustain the program?
Mr. Saving. That is exactly right. That is going to happen.
You will be doing that. I don't think you can avoid it. You may
be able to, by some of the reforms that perhaps have been
suggested for Social Security, finding ways to prepay some of
this to make the current working--to get the current working
population to pay for some of their future medical care, to set
something aside to pay for their own medical care in the
future. That has been suggested for Social Security. And Social
Security has gotten a good bit of the press, sort of, on
reform.
But we may want to think about this at some point down the
road for Medicare, which is really part and parcel of taking
care of the elderly. I mean, it is actually part of the
retirement program. I mean, it is all one piece of a thing. We
have just decided to separate out one little piece of what the
elderly consume.
Actually, it is a very big piece that the elderly consume.
That is medical care. I mean, we haven't done that for bread;
for cars; or for houses, but we have done it for medical care.
We could just as well have one big, elderly entitlement number,
and people could decide whether they wanted a fancier house or
more medical care. But we are not doing that. We are giving
them an ``in-kind'' kind of a benefit.
Mr. Spratt. So if we make the tax cut permanent in 2012, it
will be a very short-lived accomplishment because, you are
telling me, in 2024 we will need 47 percent of all tax revenues
collected?
Mr. Saving. No. Be careful. No.
What I said was that 47 percent of the Medicare program
will be funded by general revenue transfers. That is not a
percentage of Federal income tax revenue.
Mr. Spratt. Excuse me. I misstated it. But still it is a
substantial amount.
Mr. Saving. It is going to be a substantial number. And the
Federal income tax revenues that I am using to project this
don't account for any tax cuts. I mean, they are really letting
Federal income tax revenues remain at the same percentage of
gross domestic product they are today, they were last year--
actually, last year, so before any real tax cuts took place
basically, because most of those tax cuts are in the future. We
are keeping that the same.
So it also accounts for all of the growth in the economy
that we are projecting. We are not assuming that Federal income
tax revenues are static; they are going to grow with the
economy. But these programs are just going to grow much faster
than the economy.
And, of course, the increased longevity is not bad. I am
certainly a person that is all for increased longevity. But it
is expensive for these programs. We have to recognize that and
prepare for it. I think we would be remiss in our duty if we
don't prepare and understand the facts, even though the facts
may be frightening. We need to know what those are and be ready
for them, so that we can keep those programs in place as we go
forward.
Mr. Spratt. Thank you very much.
Chairman Nussle. Mr. Collins.
Just before Mr. Collins begins, this is a vote on the
previous question on the floor, which at least puts the
possibility forward we may have to adjourn the hearing in order
to vote on the passage of this rule to consider the steel
disposition on the floor.
Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Ms. Feder, in your comments, I may have misunderstood what
you were saying. But I thought you did indicate that the actual
savings in health care costs would exceed the prescription drug
benefit cost.
Ms. Feder. I mean to say that. The comparison that I have
made several times is a comparison of the cost of the proposed
additional tax cuts to the cost of a drug benefit.
Mr. Collins. This was prior to even mentioning the word
``tax''?
Ms. Feder. I am sorry that I can't identify what is
concerning you. I didn't mean to say that.
Mr. Collins. Maybe I just misunderstood you. But I thought
you did say something about the savings based on the
requirement of health care, based on having the prescription
drug available, those savings would exceed the actual cost.
Ms. Feder. No, I did not say that.
Mr. Collins. Well, I misunderstood you there.
But there are some savings to be gained; is that not kind
of the rationale?
Ms. Feder. I think that was in our conversation with
Congressman Spratt, yes.
Mr. Collins. But is that not some of the reason, probably,
that the private sector--and you mentioned the Federal
Employees Health Benefit Program--do have prescription drug
programs, because it does keep a person current with medicine
that will enable them to maybe not have to have certain
procedures in either outpatient or inpatient.
Ms. Feder. Well, I think that the way to look at the
structure of benefits in the private sector is that benefits
for workers, including Federal employees, are designed to
attract workers and have consequently responded to changes in
medicine. Adding drugs is a way of providing better benefits
for workers. With Medicare, a direct choice has to be made by
the executive and the Congress to include a new benefit.
Mr. Collins. Well, you are getting right to my point. The
private sector insurance, whether it be a private policy, an
HMO policy, or whatever it may be, is a private sector. They do
make choices about offering prescription drugs, whether it is
additional benefit for an employee or what.
But it does have a positive effect on the health care of
the individuals, as you mentioned. You enjoy, and I do, too,
the prescription drug coverage that we have.
That is somewhat different, quite different, from Medicare,
even though Medicare is basically structured like an HMO. But
it is run by the Congress. The policy is set by the Congress.
We have to set policy to adapt to new medicines, new
procedures, and we are way behind the curve for doing all of
those--quite different from private sector insurance.
Now, we have tried to do some of this with Medigap. We have
tried do some of it with the Medicare+Choice. But where we have
fallen short is that we don't have the same type or same ratio
of payment as the private sector, because we are a government-
run HMO, the most inefficiently run HMO in the country, policy
set by Congress. A lot of it is set by politics rather than
just plain reality and need.
And I am going to vote. Thank you.
Chairman Nussle. Just to inform members, there are three
votes on the floor. We will go to Mr. McDermott's questions and
then we will adjourn the hearing for those votes.
Mr. McDermott.
Mr. McDermott. I wanted to commend the chairman for having
this hearing. And I am sorry there are so few members here,
because I think it is one of the biggest issues we face.
I came out of medical school in 1963. I remember that every
senior citizen at that time was in the private insurance
industry. And we came along with this government program and
ripped them out of the private sector and put them into this
awful Socialist program, which has now obviously got some
concerns.
One of the things that I listened to here, and I have been
listening--I was on the Medicare Commission, and I have been
listening to this for the last 4 or 5 years, ever since Newt
Gingrich said he wanted Medicare to wither on the vine. I know
now, in Seattle, people cannot get physicians to accept more
people into their practice.
The wife of the first Asian judge in the State of
Washington came up to me at a meeting and said, ``I turned 65
and no one will take me into their practice as a Medicare
patient.'' So we have done quite a lot of fixing here in the
last 6 or 8 years.
But I hear the one that you are talking about. And you keep
talking about this Federal Employees Health Benefit program and
what a good program that is. I had a little discussion with my
mother the other day. A few months ago I turned 65, and my
mother is 92.
Now, what you are telling me is that the solution to
Medicare is to put my mother into the Federal Employees Health
Benefit program with me, because I have a drug benefit. I pay
for my pharmaceuticals through my plan, and all my mother has
to do now, she gets this voucher from the government, and she
puts it in and she pays like I do, about $45 or $65 or $70 a
month. If she pays $70 a month, she would have the same thing I
do in the Federal Employees Health Benefit Plan.
Is that what you are you telling me? You are seriously
sitting there and talking about bringing my 92-year-old mother
in on the same basis that I am, on there?
Mr. Antos. Mr. McDermott, no.
Mr. McDermott. Oh, you are not?
Mr. Antos. No, I am not.
Mr. McDermott. Tell me what--because you keep talking about
the Federal Employees Health Benefit program, like that is the
one we are going to stick people into. Are you are going to
adjust this, because my mother is 92 and I am--you know--are we
going in that same program together, hand in hand?
Mr. Antos. Mr. McDermott, you are raising a very important
point. What I was trying to say was that I believe Medicare
needs to be a program, it needs to be on its own, but it needs
to find a better way to manage itself, manage its physicians,
its other providers of health care; and manage its benefits and
find a way to make it possible for people to actually get some
satisfaction of their real health care needs.
Mr. McDermott. Let me stop you. You are talking about a
voucher system, right? Are you? That is what I have. I have a
voucher system as a Federal employee.
Mr. Antos. Yes. And your voucher is a somewhat adjustable
voucher. It depends to some extent on what health plan you
take.
Mr. McDermott. But my mother would get a fixed amount of
money from Federal Government, and she would go out on the
street with me, buying a policy.
Mr. Antos. That is not at all clear that that is the way it
would work.
Mr. McDermott. Well, how would a voucher system work for
all of those old people?
Mr. Antos. First of all, it would be implausible to start
such a program by immediately requiring that everybody now in
Medicare change what they are doing. That is unreasonable. And
I don't think any of us would support that.
Instead, this is--the idea behind this is to gradually,
over time, phase in a system that will allow people to make
their wishes known and use the resources that they, in fact,
are using now in a more sensible way, in a way that gives them
the kind of health care that they actually need and want.
Mr. McDermott. I understand you are phasing in. We phased
in working longer under Social Security from 65 to 67. So you
are saying that in the year 2020 or 2015, at that point, every
senior citizen will get a voucher. Up to that point, folks will
have the same program that we have today.
In 2015, when you are 65, you will then just get a voucher
to go out and buy whatever you can. That is how you would have
to phase it in.
Mr. Antos. It is a pretty complicated issue.
There are lots of ways to phase a program like this in. One
way to do it is to allow people to voluntarily--to go into that
type of a program.
But we are not just talking about a voucher. I mean, in
some sense, the Medicare+Choice program is kind of a voucher
program, it is just that beneficiaries don't hold the piece of
paper in their hand.
We are talking about a fundamental change in the way that
the Medicare program would look at its own operation, a
reduction in the kind of micromanagement that we now see, a
reduction or an increase in the--in the interaction, the
positive interactions that are possible between health plans,
providers and the program.
It would require a new kind of agency, the kind of agency
that you heard--as you said, you have heard this for many
years--the kind of agency that the commission recommendation
suggested, that would have a different approach, a less heavy-
handed approach to the benefit.
Mr. McDermott. Thank you very much.
I want to thank the chairman. And I hope that this won't be
the last time we discuss this issue, because I think there--
that the Members need to hear you go through what the
circumstances and the nuances of this really are. Because it
sounds like you can manage this all by cutting costs, by sort
of giving everybody a fixed amount. Everybody will be in the
Medicare+Choice, when, in fact, 80 percent of the people in the
country don't have Medicare+Choice available to them.
So the question then is how--I mean, that is what I hope we
can come back and talk another time about.
Thank you, Mr. Chairman.
Chairman Nussle. I agree with the gentleman. I would hope
we can, too. We have done that today, I think calmly and
respectfully. That is what we need in order to solve this. I
would agree this is probably the most profound issue we are
facing here on the committee, long-term.
I had indicated that we were going to come back. We have
been told by members that we don't have any that are able to
come back after the three votes on the floor. So I will thank
our panelists for their fine testimony today and the great
discussion that we have had.
Mr. McDermott and others are correct. We will need to
revisit this issue many times in the future.
Parenthetically, Dr. Feder, I appreciate your clarification
on 1993. I was speaking about--we were talking past one
another. So you are correct. I apologize for that.
Ms. Feder. I was going to run home and make sure it was in
there.
Chairman Nussle. Well, I have checked with my staff. And I
don't like the record to reflect inappropriately.
We appreciate the testimony of all three of you. With that,
the committee is adjourned.
[Whereupon, at 11:30 a.m., the committee was adjourned.]