cms says that many of the providers will find it difficult to remain in medicare if provider payments are cut dramatically i find that in arizona already so if we are making further cuts we are not going to see a lot of providers or access to care right mister blum i think what the chief issues for beneficiaries nationwide but if the hpercent cut were to go into effect that we would have to be very worried about access to physician services mister gosar but we're already starting to see that i'm from rural america from rural arizona and we're starting to see it already because once again we're just chasing our tail because we're not getting paid and we're hopefully getting down the road so that we get some compensation and so there's no efficiency in that model whatsoever and there's no efficiency in some of the clinics as well when we're talking about paying  new tools and new payment authorities and i think one of our challenges but also our opportunities is to change how we pay for physician services and other services to promote greater care coordination to promote more efficiency in payments to reward outcomes rather than just volume of services so one of the highest priorities that we have at cms is to build the next generation of payment systems to ensure more accountability greater quality  a year extension that's fully offset by other changes to the medicare and medicaid programs so we agree that we need to find a permanent solution to our current physician shortfall but at the same time we need to make sure that the medicare program remain strong for future generations part of that strategy is to ensure that we build a next generation of payment systems to ensure the health care is more efficient that it's more accountable that it rewards care coordination and interrupt because that's a contingency on having more jobs in this country and if you last looked that didn't work and i know that the hospitals bought into making agreed to certain cuts and now those cuts are even greater all i got to tell you is  now a quarter of our seniors get medicare advantage but the last time i heard all seniors like all men and women are created equal except that we spend hbillion i believe the figure was more on those in fact saved medicare funds for the first time that anyone has been able to do so in any large amount of funds  several years contrary to predictions more medicare beneficiaries are going into the medicare advantage program we expect that it will continue to grow over the next several years so while we are phasing down payments we are  revenues and only ten percent from beneficiary premiums states make up seven percent of the financing according to the figures i have the medicare trigger do you believe that lowering the medicare d prescription drug spending would reduce the chances of this of triggering the general services the general revenue from the district of columbia the chair would now recognize the gentleman from vermont mister wel for appearing today i want to just maybe extend the conversation that ms hnorton was having with you regarding what has happened to medicare advantage she talked about the fact that more not less people are signing up  since the affordable care act has been passed can you talk a little bit about premiums for seniors as it relates to premium increases prior to the subsidies being taken away mister blum sure currently that the average premium for those beneficiaries who are in the program are six to hpercent lower than they were last year so we're seeing an average decline of premiums for beneficiaries that are still in the program average have stayed the same and more medicare beneficiaries are signing up for the program relative to overall growth to the program overall so payments are coming down more beneficiaries are going into the program relative to last year and average premiums ar secretary to oversee the program we are actively managing the program we are being much more stronger stewards of the program and i think the lessons that i've taken is that when we have enhanced our oversight promoted competition simplified beneficiary choices held plans to the standards that are consistent with our goals and values competition increases premiums are lower and beneficiaries are more satisfied and join plans t provides a tremendous new tool to our oversight of the program for the first time starting in two thousand and twelve we'll be able to provide bonus payments to those plans that provide the greatest quality outcomes the greatest performance so i think we have more tools than we have had in the past but cms has a stronger commitment to oversee the program and when that happens we get lower costs for taxpayers lower premiums for beneficiaries and stronger takeup in the program mister murphy well i think that's really important information to have because and i sat on the energy and commerce committee and listened for a year and a half to opponents of health care reform tell us two things that if we were to remove the subsidies the thirteen to hpercent subsidies above what traditional medicare costs that plans would close up shop and seniors would no longer be able to have offered to them medicare advantage plans andor costs would skyrocket and exactly the opposite has happened since the affordable care act has been passed more people are signing up for medicare advantage and it is costing people less which is frankly something you don't see almost anywhere else in the health care system people's premiums actually declining and i think that's significant because as we are sitting here trying to assess how best to create benchmarks for our health care system for the medicare program the benchmark that we're looking at today is one regarding the percentage of general revenues that go into the program but an equally important benchmark is how much individual beneficiaries are paying out of their pocket and the fact that the affordable care act has meant that medicare advantage beneficiaries are paying less that part d beneficiaries are paying less that medicare beneficiaries who are going to have to pay for preventative care are paying less has just as much to do with whether or not we're achieving the ultimate goals of the program as does a question of how much general revenues are being put into the program i think that's incredibly important as we talk about the current plan before us by the republicans to radically change the way that medicare is structured because what we know is this and cbo tells us that the average beneficiary is going to go from paying about twenty to hpercent of health care costs to somewhere in the neighborhood of sixty five to hpercent that they are going to see their outofpocket expenses under the ryan medicare privatization plan be tripled over a year window sixty five and yearolds would probably completely lose the ability to receive medicare borne by the beneficiary end up resulting in people not receiving preventative care getting sicker and costing us less later on so i would like to see us have benchmarks but i think one of the benchmarks should also be how much money is coming out of the pocket of each individual beneficiary and i think the republican plan before us on this radical rewrite of medicare will make tracking those expenses even more important i thank the chair for the time and i yield back mister gowdy i thank the gentleman from connecticut and i apologize again for moving him without his panel to come up and if any of my colleagues need a break they're welcome to take it otherwise we'll go right into the second  name i apologize in advance is the wilson h taylor scholar in health care and retirement policy mr hjames capretta is a fellow with the ethics and public policy center and doctor paul van de water is a senior fellow with the center on budget and policy priorities pursuant to committee rules i will ask all four of our witnesses if they would please rise so i can administer the oath do you sol swear or affirm that the testimony you are about to give this committee will be the truth the whole truth and nothing but the truth may the record reflect all the witnesses answered in the affirmative mr hblahous we will recognize you for your  minute opening and then we will go from your right to left my left to right mister blahous thank you mister chairman mister ranking member it's an honor to appear before you today to discuss the funding warning in the two thousand and eleven trustees report my written testimony contains some basic background about medicare financing and in view of the limited time i would just like to make a few cursory summary comments in my oral remarks first medicare has two trust funds it has a hospital insurance trust fund which we call part a and it has a supplementary medical insurance trust fund and that's different that's important to know because financial strains on each side of the program are manifested in different ways on the part a side in the hospital insurance side we as trustees make projections that are somewhat like the ones we make for social security we project forward future program income future program expenditures we make a determination as to whether they're out of balance we make a determination as to whether or not there's a date by which the trust fund will be exhausted and naturally there's great public and press interest each year in the trustees annual projections for a date of depletion of the hi trust fund on the smi side things operate somewhat differently on that side general revenues enrollee premiums are reestablished each year to match expected costs so that side of the program doesn't go insolvent when there are financial strains there they are manifested in rising premiums rising general revenue pressures now if you look at medicare as a whole  it's bringing in income from a lot of different sources some of these sources are dedicated revenue sources like payroll taxes benefit taxes premiums state transfers and some of the revenue sources are simply general revenue transfer from the remainder of the federal budget without a dedicated financing source and the distinction between these different revenue sources is important for the government's ability to finance medicare whenever you increase revenues from a dedicated financing source like payroll taxes or benefit taxes you not only improve the status of the medicare trust funds but you improve the government's general ability to finance medicare because you're also improving the unified budget balance but if you increase general revenues contributions to medicare you can increase the balance of the medicare trust funds but that's at the expense of the general fund it doesn't actually improve the government's net ability to finance medicare so it's important to keep an eye on the size of those general revenue obligations now under our projections the parts statement the two thousand and three mma directs the trustees to determine whether there is excess general revenue medicare funding and that means more than hpercent of total medicare outlays funded from general revenues in any of the first seven years of our projection period and we did make such a finding for this fiscal year two thousand and eleven this is the sixth consecutive medicare trustees report that has made such a finding whenever that's done in two consecutive reports we must issue a funding warning as we did this funding warning eliminates a part rather than the whole of the financing challenge facing medicare it basically represents a facet of the financing challenge that is in a sense complementary to the projections that we make for the solvency of the part a trust fund it looks at other aspects of program financing that the hi solvency calculation doesn't deal with this year we found that the gap between medicare's dedicated revenues and expenditures will exceed hpercent of outlays in each of this year and next under current law thereby triggering reflect the combined financial condition of all parts of the medicare program it is a complete indicator of everything that's going on with medicare financing but it is an important measure it was intended to call attention to imbalances between medicare spending and revenue specifically dedicated to fund the program the first funding warning was declared by the trustees in two thousand and seven and has been declared by the trustees every year since then president bush responded in two thousand and eight his only opportunity to respond president obama has not i want to emphasize two points first for a given level of medicare spending the trigger directly addresses how much workers should pay for benefits for seniors this is a difficult question that we as a society must answer one can disagree about whether hpercent is the right level but that does not invalidate its use second the medicare trigger doesn't have teeth as a result the trigger has not directly led to legislation to slow the program's cost growth nonetheless the trigger like the trustees report itself has raised attention to the fiscal crisis facing medicare and i might add the trustees report has been equally unsuccessful in motivating a great deal of policy response to a program that is  crisis and the crisis is real despite white house claims that the new health reform law keeps medicare strong and solvent the affordable care act only modestly improved the program's fiscal outlook according to the trustees spending from the h i trust fund has exceeded revenue since two thousand and eight and trust fund assets will be exhausted in two thousand and twenty four smi funding that's part b and part dh spending rather is projected to moderate somewhat from past much more beyond that primarily through reductions and payments to providers these are reductions that the medicare's chief actuary considers unrealistic the estimates also assume that the medicare payments to physicians will be cut  unprecedented hpercent in january of two thousand and twelve neither assumption is plausible even the trustees state that the actual this is a quote the actual future costs for medicare are likely to exceed those shown by the current projections in fact the actuary's office put out a supplementary report to the trustees report and that report estimates much higher levels of medicare spending assuming that congress  trillions of dollars of additional general tax revenue that will be needed by medicare over the next hyears unless responsible policies are adopted to reduce program costs as we've seen the president and congress can ignore a medicare trigger with impunity that's business as usual in washington but neither the president nor congress actually need the trigger to advance reasonable policy and that's the point the president sends a budget to congress every year that budget contain provisions that set medicare on a sustainable fiscal path not just for a year or two but more permanently congress also doesn't have to wait for the president to act the importance of this issue cannot be overstated decisions about medicare financing whether by conscious policy or by default will determine the fate of a program that millions of seniors depend on those decisions will also shape the limits on federal support for societies of their priorities rapid growth in medicare spending is a major contributor to the nation's debt crisis failure to adopt structural reforms to promote greater efficiencies in delivering health care and higher values for our medicare dollar will be disastrous the medicare trigger could be a tool to to participate in this very important hearing in the short time available i want to focus my comments on the reason the trigger was proposed in the first place and adopted by congress and why a credible reform of medicare is so important the medicare program as we just heard is financed in ways that are not often well understood part of the program as doctor blahous said is financed like social security but a big part of the program is not for parts d and b of the program the beneficiaries pay premiums for a portion of the cost but a large part is financed directly out of the general fund of the treasury these general fund payments to medicare are not trivial as i show in chart one in my prepared testimony the present value of these payments as estimated by the medicare trustees is expected to exceed twenty one dollars trillion over the longrange projection period financing part b and d in this manner can be deceptive in terms of the burden on taxpayers officially these parts of medicare are always solv the trust fund that pays these benefits is never expected to ever be depleted because it by definition has always got money from the general fund to cover its costs but just because the trust funds appear to be solvent on paper does not mean that there is no cost to this openended tap on the treasury the money must come from somewhere when part b and d costs rise the general fund is tapped for more funding it just means the federal budget goes into deficit thus forcing more borrowing and debt one way to look at the burden of the general fund financing of medicare places on the rest of the budget is to look at the amount of financing of the financing relative to personal and corporate income taxes in my prepared testimony i show in chart two that as recently as one thousand nine hundred and ninety the general fund contribution to medicare part b took up only five point nine percent of total personal and corporate income tax collections by two thousand and twenty with part d now part of the program that figure had risen to hpercent so one out of every five dollars coming into the treasury in personal and corporate income taxes goes as a payment to the medicare program by two thousand and fifty it's getting closer to about one out of every four dollars and this is a very optimistic scenario this is based on the official medicare trustees projections under current law but that is highly unlikely to occur as the actuaries themselves have stated repeatedly in the new health care law there is a very broad and deep reduction in the provider payment rates what are called the productivity adjustment this is going to hit hospital and other institutional providers of care every year in perpetuity and the actuaries assume essentially that it won't happen because the consequence would be that many hospitals would stop seeing medicare patients eventually it would drive medicare payments down to those of medicaid and below and reach at some point in the nottoodistant future hpercent of what private insurers have to pay to access hospital coverage actuaries have produced an alternative scenario to say what is it going to look like if those kind of cuts don't go into place and the physician cut of thirty percent doesn't begin in next year the result of that is shown in chart three of my prepared testimony and the effect is that over the long run total medicare spending is essentially unchanged from where it was prior to enactment of the health law in two thousand and eighty total medicare spending would exceed ten percent of gdp by that point in time which is well above the four percent it is now and certainly well above the one or hpercent it was when the program was first enacted now the medicare trigger was enacted to bring into the policy debate a broader view of medicare's financing beyond the misleading picture of permanent solvency for parts b d what's needed though at this point is as joe indicated the will to actually enact a structural reform of the program and here i would just like to conclude by pointing out that there seems to be some agreement that medicare is key to slowing costs throughout the entire health system as mister blum testified their view of the administration is that they need to change how medicare operates with things like the accountable care organizations and bundled payments and other payment reforms it's my judgment that those proposals will not get very far because of the burdens of politics and other things that will stand in the way what i think is more promising is actually reform like the part d program has in medicare it is true that has driven up the general fund contribution to the program but it's built around competition and consumer choice and the effect of that has been since two thousand and six through two thousand and ten the average annual per capita growth in cost has been just  percent because the consumers have a very strong incentive to go with lowcost highvalue plans and that has worked it's my judgment that we should pursue medicare reform in a broader way along those lines thank mister chairman mister davis i appreciate the invitation to appear before you today although medicare faces significant financing challenges claims by some policymakers  the program is facing bankruptcy are highly misleading the two thousand and eleven report of the medicare trustees shows little change from last year's report because the trustees now foresee a slower recovery they estimate that medicare's hospital insurance trust fund will be depleted in two thousand and twenty four five years sooner than they estimated last year even at the point of depletion however payroll taxes and other revenues will still be sufficient to pay ninety percent of hi costs hi will not be completely lagging in resources nor does it face going out of business and the two thousand and twenty four date does not apply to the medicare supplementary medical insurance trust fund   is always adequately financed because beneficiary premiums and general revenue contributions are set annually to cover expected costs for the coming year by design smi cannot run out of money t hyears away trustees reports in fact have been projecting insolvency for four decades but medicare benefits have always been paid because congress has taken steps to make sure that they are the rapid evolution of the health care system has required frequent adjustments to medicare as it has to private health insurance and that pattern is certain to continue although the trustees again project that hpercent or more of medicare's financing will come from general revenues within six years this finding bears no relation whatever to medicare solvency the hpercent figure is an arbitrary benchmark that is completely unrelated to the financial h defense education and most other federal programs will also be financed with general revenues last year's health reform legislation significantly improved medicare's longterm cost outlook if percent of payroll to three hpercent these projections underscore the importance of successfully implementing the costcontainment provisions in the affordable care act in contrast phasing out traditional medicare and replacing it with private health insurance as the housepassed budget resolution would do would represent a big step in the wrong direction it would increase total health care spending attributable to medicare beneficiaries by upwards of hpercent and it would reduce the federal government's contribution to cover those costs as a result the house plan would massively shift costs to elderly and disabled beneficiaries reform envisions that medicare will continue to lead the way in efforts to slow health care costs while improving the quality of care by eliminating traditional medicare the housepassed plan would discard the opportunity to use the program to promote cost reduction throughout the health care system americans should not be driven into adopting such a radical proposal by misleading claims that medicare is on the verge of bankruptcy thank you mist doctor blahous what in your judgment is the single best policy that you could recommend in order to improve medicare solvency mister blahous i have to be a little bit careful in answering that question obviously as a trustee we don't have an official view and i'm not speaking for the other trustees i would just make a couple of comments one is certainly there is a robust debate about how we can get more savings in order to achieve actuarial balance in medicare we have a shortfall in medicare there's competing ideas on how to resolve the remaining shortfall mister gowdy before you finish that because i may be making an assumption that you disagree with do you agree with doctor van de water that all of this is just worrying about nothing and that everything is going to be fine and we can continue to fund it from the general fund and it's no big deal mister blahous i don't agree that it's no big deal i think we have a very substantial financing challeng  and this one of the things that causes people on both sides of the aisle to have disagreements how can we get savings which we need from the medicare program without sacrificing beneficiary access to care what i can say is that it's easier to hold down spending growth where people have not yet become dependent on a program if i just give one piece of advice personally i would say do what can be done to slow down or scale back the spending increases in last year's health care reform law basically to the extent that we show an improvement in medicare financing under that law it's because of the medicare provisions alone understood in isolation but that law contained other provisions that expended a great deal of that  projected savings in medicare about hpercent of it according to cbo to the extent that we expend that savings in medicare on a new program we are undercutting the government's ability to make good on those increased funding obligations to medicare so i think my short answer would be do whatever can be done to scale back the projected spending increases outside of medicare from last year's health care law mister gowdy well that leads nicely i think to my next question for you doctor  antos do you agree with the administration that the trigger mechanism that's just a suggestion or an advisory idea or do you believe that it is a legal requirement that they submit a plan technical specifications of the law the law clearly states that in response to the funding warning the president is to send to congress his proposal within two weeks of his budget now i think it may be a little unclear at least in the abstract if the president's budget in fact addressed this problem whether that was a sufficient response however in my opinion  washington i haven't yet a lot of criticism about representative ryan's plan the other plan near as i can tell is just to continue to raise the debt ceiling as often as we can what are your thoughts on his plan and do you have a better idea capretta i don't have a better idea i think his plan is really very much the direction we need to head i would say a couple of things about some of the criticisms that are made about it first is there's often reference to a cbo analysis of what the ryan plan would do in and twenty two a couple of things about that first it assumes that the payment rate reductions that occur in medicare through obamacare are going to be in place all the way to two thousand and twenty two so in a sense it creates it says that we're go impose very deep price reductions in what medicare pays for services price reductions that would bring medicare's rates down below medicaid by the end of the decade and assumes those will be in effect in two thousand and twenty two and that medicare beneficiaries will still have access to care  and twenty two at the rates they do today highly unlikely that that will occur so i think one assumption is just false that you can have you know you could pay as low as you want in medicare with no consequence whatsoever on quality i think that's a false assumption that's buried in those c numbers the second thing that it doesn't do is that it doesn't take into account any effect from competition and dr helmendorf testified at the house budget committee a week or so ago ten days ago and said as much to chairman ryan that that's a gap in the toolbox that they don't estimate the effects of competition on what it will do to premiums in the future and so they have no the whole point of the ryan proposal is to bring some discipline to the medicare program not to increase costs on seniors but actually increase value so they can get a better deal much like we did in the part d program so i generally reject the notion that the ryan plan is actually going to be worse for seniors the whole point of it is to actually make it better for seniors without the problems that come from price controls  eleven the ryan plan would end medicare as it exists today take away all federal health benefits from sixty five and  budget office's longterm analysis of the ryan plan this proposal would result in substantially higher outofpocket costs for seniors cbo found that they would be paying eight percent of the health care costs more than double what they pay now under traditional medicare this massive shift in cost from the government onto individuals would cause many seniors to forego health care altogether those that could would sign up for welfare programs doctor blahous chairman ryan represents this radical you heard such a quote would you agree with it have any concerns about it or have a different position and a different opinion mister blahous well certainly speaking as someone who i feel very honored to have become a trustee last year it will certainly be my hope that the trustees reports be received in a spirit so that they inspire changes to make financial corrections to preserve the financial soundness of the medicare program the purpose of the trustees report is to acquaint congress and the public with the finances of medicare  to permit the program to be as strong as possible mister davis mister van de water can i ask you under the ryan proposal the congressional budget office determined that the gradually increasing number medicare beneficiaries participating in the new premium support program would bear a much larger share of the health care costs than they would under the traditional program that greater burden would require them to reduce their use of health care services spend less on other goods and services or save more in advance of retirement than they would under current law at the same time the proposal analyzed by c would leave in place provisions restraining payments to many providers under the traditional medicare program under this scenario where our seniors who are living on a fixed income are supposed to get additional money they need to obtain health care and take care of their basic needs like food shelter and clothing won't all of this put an even bigger burden on seniors themselves and their children who might be helping out mister van de water yes i think that's correct mr hdavis as you or another one of the members i believe has already cited that the congressional budget office analysis of the budget resolution plan would roughly double the expected outofpocket costs for a typical yearold in the first year from about six thousand dollars to over twelve thousand some time talking about the ryan budget the budget that passed through the house of representatives and i think it's appropriate because what the subject of today's hearing is really about is who has the burden of making proposals to try to reform our medicare program going forward and that's a really important topic for us to be talking about i mean we have one very clearly articulated plan before congress right now and that is the republican budget which dramatically changes the medicare program and admittedly certainly takes cost out of it but takes cost out of it by shifting the burden onto individuals tripling necessarily that over the last few years people are living longer it's that less infants are dying and so you still have people retiring leaving work at about the same age and needing benefits medicare was conceived in part because those people who are sixty five and sixty six just didn't have a private market didn't have a place to go to that could adequately insure someone that is likely going to be more sick and the reality is that a lot of those people who are sixty five and sixty six and who don'th will not now qualify for medicare are going to receive their care from somewhere else that the cost is going to shift to somewhere else in the system and i guess i wanted to ask that cost but in reality we're likely to shift a lot of that health care cost just onto the government dime somewhere else could you speak a little bit about how the cost shifting for individuals who are least sixty five and yearolds would have a guaranteed alternative source of coverage many beneficiaries would have to pay considerably more but they wouldn't be completely shut out of the market but as we know under the current and so the result is exactly as you say if the eligibility age were increased some of the people in the sixty five to yearold bracket would go without insurance to some extent they would cut back on care if they couldn't afford it to some extent they would pay for it out of pocket and to some extent it would end up being paid for through emergency room visits and some people of course would be poor and would end up  hear for a period of time in this congress a mantra of repeal and replace which was i think an effort at least on behalf of those who opposed the health care bill that was passed by this congress to recognize that we needed something else in its place we don't have that any longer we just have repeal and those that will be most exposed as you mentioned are those who are right on the cusp of medicare eligibility in fact right now even with the eligibility at sixty five the people who are most likely to go without insurance if they lose their job are people who are in the to age bracket and so i do think that it's important to recognize how fragile the world is today for people right on the edge of medicare eligibility and how incredibly increasingly fragile it becomes if you partner these drastic changes in the ryan budget to medicare with a full repeal of  i see my time is up i yield back mister gowdy i thank the gentleman and all of us thank our four witnesses not only for lending us your perspective your insight your expertise but also for accommodating a long vote series i know your time is