59

Secretary SHALALA. Congressman Portman, there is a significant
hit on beneficiaries that goes beyond the amount of money that
they would pay every month—balance billing; there are plans that
the Republicans are putting forward that would allow doctors to
charge anything on top. In addition to that, these proposals would
hit low-income beneficiaries—the average Medicare recipient in
this country has an income of $13,000 a year and already has 20
percent of that in out-of-pocket costs. They cannot get back into
their Medigap plans if they go out into a managed care plan. That
would impose a huge cost on a beneficiary, particularly those with
preexisting conditions.

Throughout the Republican plan are hidden costs for bene-
ficiaries that would make it very difficult for relatively low-income
people. As people get older, they get poorer. Our concern is that
they will not be able to use those Medicare plans at the end of the
day because it will cost them too much to use those plans.

So it is not simply what they are going to pay for the basic insur-
ance plan; it is all the other costs that they will have to pick up,
particularly if they decide to go outside of traditional Medicare.

Our argument is let us protect the beneficiaries but slow down
the growth; let us increase the efficiency of the system; let us make
sure we have eliminated waste, fraud and abuse, aggressively; let
us not mandate and take off some of the restraints that we have
put in that will lead to more fraud in the system.

Mr. PorTMAN. I thank you for your statement. I don’t think any-
body on this panel, I hope, on our side or the other side would dis-
agree with any of those principles that you outlined, and my ques-
tion is, over the last year, we have changed our proposal substan-
tially to address specific concerns raised by the administration, and
why hasn’t the administration been willing to bridge the gap. I
think the answer is that there frankly is not the will to do so, so
long as this can be a political issue, bandied about and
demagogued.

Thank you, Mr. Chairman.

Secretary Shalala. I respectfully disagree, Mr. Portman.

Mr. LAUGHLIN [presiding]. The gentleman’s time has expired.

Next, the Chair will recognize the gentleman from Washington,
Mr. McDermott.

Mr. McDermott.

Mr. McDermott. Thank you, Mr. Chairman.

Rather than asking if I can show a videotape of the speaker say-
ing that he wants Medicare to wither on the vine, I would like to
ask you a serious question.

As you analyze these changes in the Trust Fund, we all know
that the Republican Medicare proposal wants to put more senior
citizens into managed care, but we know from a _ recent
Mathematica study that Medicare managed care plans are being
overpaid by almost 6 percent per enrollee. So it seems to me that
the deficit which we are allegedly here discussing is caused in part
by proposals which the Republicans are pushing and trying to ex-

pand.

In addition, my understanding is that the MSA proposal which
they are proposing for Medicare would cost Medicare $4.6 billion
over 7 years.


25

the date of default or the date of exhaustion of the HI Trust Fund
would now have to be moved up to the year 2001 instead of 2002.

It seems to me that that is a very important and significant item
that would be very much a part of the Budget negotiations and de-
termining what would occur. After all, the only time that the HI
Trust Fund has gone negative in all of its history was once, in

This truly was a historic moment and I would think of some seri-
ous import.

Secretary SHALALA. Excuse me, Mr. Chairman. The HI Trust
Fund was not going negative. There was $129 billion in the HI
Trust Fund.

Chairman ARCHER. Well, the whole-———

Secretary SHALALA. The HI Trust Fund had balances.

Chairman ARCHER. Well, yes, but——

Secretary SHALALA. What we are talking about is a crossover—
obviously, between revenues.

Chairman ARCHER. But what we are discussing, Madam Sec-
retary, today is the fact that it took in less money in 1995——

Secretary SHALALA. That is correct, but that does not mean——

Chairman ARCHER [continuing]. Than it paid out in spending.
And that had only happened one time before, and that was in 1972.

Secretary SHALALA. Let me make two points here. First, that did
not mean that the Trust Fund went broke at that moment, because
there was $129 billion in assets in the Trust Fund, and it was not
beyond the normal variations in terms of projections of what was
going to happen to the Trust Fund, and second, it did not change
our conclusion as Trustees. I will remind you what we said to the
Congress in 1995. We reminded you that the Trust Fund would be
exhausted in less than 11 years and urged the Congress to take ad-
ditional actions designed to control HI Program costs and to ad-
dress the projected financial imbalance in both the short range and
the long range through specific program legislation as part of a
broad-based health care reform. We believe that prompt, effective
and decisive action is necessary.

And that crossover simply reinforced that view that prompt, ef-
fective and decisive action was necessary.

Chairman ARCHER. So you did not consider this significant.

Secretary SHALALA. I did not.

Chairman ARCHER. Thank you.

Secretary SHALALA. I consider the condition of the Trust Fund
significant. I consider the fact that the Trust Fund is running out
of money significant, and the fact that our projections now make
it even more urgent simply reinforces the very strong language
that we used in 1994 and 1995, and makes it even more urgent
that all of us deal with the issue of Medicare.

Chairman ARCHER. But the fact that it was deteriorating more
rapidly by between 1 and 2 years, you did not count as being im-
portant.

Secretary SHALALA. As I reported, with both the CBO projections
as well as in the Trust Fund projections, these are projections and
estimates, and they always vary a certain percentage. This was not
outside the range. And as Senator Domenici reported, this was in
the range, and therefore was not significant in his judgment to


COMMITTEE ON WAYS AND MEANS:
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
BE. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jk., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD £. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. MCNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
Putte D, Mosetey, Chief of Staff

JANICE MAYS, Minority Chief Counsel

ab


68

action was clear in prior Trustees’ Reports, and that the Trust
Fund’s 1995 performance did not change this need.

The Chief Actuary and the public Trustee also remembered a
question being asked about the Part A Trust Fund deficit, related
to whether this information would be fully discussed in the 1996
Trustees’ Report. The question was answered in the affirmative.

Now, second, I would briefly like to mention the status of current
projections regarding the Trust Fund. The Part A Trust Fund had
an operating deficit in October and November 1995, but the month-
ly Treasury statement for December 1995 showed that the Part A
Trust Fund generated a surplus of $747 million for the first quar-
ter of fiscal year 1996. The surplus for the first quarter of fiscal
year 1995, in contrast, was $3.3 billion.

The Office of the Actuary has been trying to identify reasons for
the estimating error in the 1995 Trustees’ Report. Preliminary data
indicate that hospitals had speeded up the submission of claims,
causing some claims to be paid in September rather than October.
Because the Trust Fund numbers are presented on a cash basis,
this resulted in higher than expected outlays in fiscal year 1995.
In addition, preliminary data indicate that admissions to hospitals
and the case mix index of admissions also increased at faster rates
than had been estimated, which would tend to increase outlays. Fi-
nally, Trust Fund receipts were somewhat below projected
amounts.

The Office of the Actuary expects to complete its analysis for the
1996 Trustees’ Report by late March or April.

This completes my prepared statement. I will be glad to answer
any questions you may have.

(The prepared statement and attachments follow:]


79

Page 3 - The Secretary

‘Secretary Rubin will call on Mr, Viadeck to report on the financial status of the
Funds. HCFA will report that: °

SMI Trust

* The HI Trust Fund Balance essentially was unchanged from FY1994 to FY1995 at 129.5-
$129.6 billion. There was in fact, however, a $36 million (.03%) decrease instead of an
anticipated $5 billion increase, Revenues were a litle lower and outlays somewhat higher
than was anticipated in the 1995 Report.

. This change is probably sufficient to move the exhaustion date from CY2002 or FY2003
to 2001. Because the projection assumptions have not been finalized, we cannot tell
whether the fund will necessarily be exhausted in CY2001

. The SMI Trust Fund balance is slightly better off than was projected in the 1995 Annual
Report, Expenditures have been running about 1.8% lower than projected.

It seems unlikely that any other important issues will arise at the meeting. All the trust funds are
in about the same condition as last year. The funding of the SMI Trust Fund has been set through
1996. .

Update on Status of 1996 Report Preparation

Preparation of the 1996 Reports is proceeding approximately on schedule.

The public Trustees are developing their own talking points for the meeting, It is not clear what
they will be, but they will probably not be controversial.

It.was earlier suggested that the Public Trustees might discuss a possible research project focusing
on possible physiological causes for the slowdown since 1982 in the improvement in life
expectancy for older women, It was thought that the Public Trustees might wish to quantify how
much of the gap between life expectancies for men and women has narrowed and to get
suggestions from academics about changes in the assumptions for the trust fund projections.

Further, it was thought that they might state their goal of continuing the tradition of the Public
Trustees’ role in sponsoring and otherwise encouraging research on issues affecting the Social
Security and Medicare Trust Funds.

It seems likely still that their statements will be along those lines, but no one knows at this point.
OTHER ITEMS OF BUSINESS

We expect no other business.


15

APPENDIX A

& ve Seca Tany oF Henan gia seats
: edie

FEB 12 1996

‘The Honorable Bill Archer
‘Chairman

Washington, D.C. 20515-6348

‘Thank you for your letter of February 5, 1996, regarding the status of the
Hospital Insurance (HI) Trust Fund. As you know, the Clinton Administration has
always been and remains committed to the fiscal integrity of the Medicare trust
funds and to the health security of all our elderly. For this reason, I welcome the
opportunity to set the record straight.

‘Your letter states that the HI Trust Fund “weat broke" in 1995. This is simply
not true. Far from being "broke", the Trust Fund's balance at the end of fiscal year
1995 was aver $129,000,000,000 — sufficient under curreat law to carry the Fund
past the end of the decade. During fiscal year 1995, expenditures from the Fund
($114.883 billion) slightly exceeded total income ($114.847 billion). The resulting
$36 million deficit reduced the Fund's net assets from $129.555 billion at the
beginning of fiscal year 1995 to $129.520 billion at the end of the year.

Almost a year ago in the 1995 HI Trustees Report, I and the other HI Trust
Fund trustees pointed out that, without further action, the HI Fund would be
depleted early in the next decade. Based upon the intermediate projections prepared
by the HCFA actuary at that time, depletion was estimated to occur in the year
2002 (a slight change from the previous year's estimate of 2001). The
Administration responded last summer by proposing a series of measures to extend
the Fund. We have proposed additional steps in the President's budget for fiscal

year 1997. Taken together, these proposals should extend the HI Fund for more
than a decade from now.


74

APPENDIX II APPENDIX II

Dollars in millions

{ ‘Quarterly
prs IReceipis foutiays [Change in trust fund [Balance in trust fund (at
fpalance nd of quarter)

[Fiscal year 1991

Oct-Dec $19,300 $15,998 $3,302 $98,933
jan-Mar 20,433 T7270 3.163 102,096
lapr-Tune 25313 18,399 6913 109,009
july-Sept 18.892 17971 2 109,930
[Total $83,938 $69,638 $14,299

[Fiscal year 1992

Oct-Dec $24,201 319,074 $5,127 $115,057
jan-Mar 20,134 20.167 es 115,024
[Apr-Tune 28.927 21328 7,598 112,623
uly-Sept T9AIS 21.405 0,990) 120,633
[Total $92,677 ‘$81,974 ‘$10,703

[Fiscal year 1993

focrDec $25,360 S297 53.389 S240
jan Mar 20.833 BRE C301 122,722
pr-June 29.581 3.982 3,599 128.320
july-Sept 21327 517 2190) 126.131
fTotar $97,101 $91,604 35,497

[Fiscal year 1994

cr-Dec 326446 $4758 31.688 S278

fan-Mar ROT 25,458 Gait 174,408
[Apr-Tune 33,155 25.937 7219 131.626
july Sept 24.547 26.618 Qo 129,555
[Total $106,195 $102,770 $3,425

[Fiscal year 1995

fOcrDec $29,821 $26,533 $3,288 $132,844
jan-Mar 25.215 28.638 BAD 139,420
[Apr-Tune 35.570 30513 3.057 134.477
july-Sept 2a241 29.199 6958) 129520
[Total ‘S114 847 ‘3114883 (536

[Fiscal year 1996

[PetDec | $30,001 [ $29.253] 3747] $130,267

Note: Totals may not add because of rounding.

Sources: Fiscal year 1991-95 data were compiled from monthly reports
prepared by HCFA's Office of the Actuary. Fiscal year 1996 data are
from the monthly Treasury statement, Dec. 31, 1995.


32

Secretary Rubin, you have indicated that on that October mate-
rial, which was the monthly update, and it just happened to be the
last month of the fiscal year, that not only was this information in-
cluded in the monthly statement, but it was highlighted in the
“Treasury News” that was embargoed for release, which was a pub-
lic document. And I went through that, and apparently you are re-
ferring to the page 4 reference about the actual outlays for the
Medicare Program; is that the statement you were talking about
which highlighted the deficit?

Secretary RuBIN. Yes. It is about the middle of page 4, that is
right.

ate, Tuomas. Yes, I see that, and nowhere do I see it stating that
there was a deficit in the Trust Fund. So how is it highlighted?

Secretary RUBIN. Well, the Trust Fund, as you know, did not
have a deficit. The Trust Fund had——

Mr. THomas. No—the yearly report, on the monthly report——

Secretary RUBIN. Yes.

Mr. THOMAS. Where is the deficit shown for the year in this high-
lighted paragraph?

Secretary RUBIN. Mr. Thomas, what this highlight was intended
to do was to do exactly that, highlight the most important parts of
the report, and then people who are interested can——

Mr. THOMAS. So it was not important that the deficit——

Secretary RuBIN. No—Mr. Thomas, I think if you will let me fin-
ish, maybe you will find——

Mr. THoMas. No. I would like to ask the question. Was there
anywhere in the document a statement or a number that showed
that it actually was a minus number?

Secretary RUBIN. Yes. Now let me respond, if I may. What you
will find in the middle of page 4 is a highlight with respect to the
Medicare Trust Fund, pointing out that the outlays exceeded esti-
mates by the amount that is indicated.

Mr. THOMAS. Yes.

Secretary RUBIN. For anyone who is interested in Medicare and
in pursuing that, you can then go back into the material. The point
of the highlights is to point out the most important pieces of what
is then a longer document.

Mr. THOMAS. And somewhere in the middle of the document,
there is a number that shows that for the year, you missed the es-
timate.

Secretary RUBIN. Well, each of these items——

Mr. THomas. No. Is there somewhere in the document——

Secretary RUBIN. Yes. The answer to the question is yes.

Mr. THomas. Where is that?

Secretary RUBIN. That is about page 28.

Mr. THomas. So on page 28——

Secretary RUBIN. I think—yes, it is on page 28.

Mr. THOMAS [continuing]. There is a single number that says
minus 36.

Secretary RUBIN. Let me say, if 1 may, Mr. Thomas——

Mr. THoMas. No. What that means—take a look at the chart
over here. That is what the Trustees estimated. And you will notice
between 1994 and 1995, you estimated a reversal of the trend that
had been carried out over several years. The next chart shows ex-


39

Secretary RUBIN. Mr. Shaw, I don’t know if I was aware of these
numbers being discussed at that time or whether it registered on
me or not, but I will say once again—and we have now said it
many times——

Mr. SHAw. Could we——

Secretary RUBIN [continuing]. We are exactly where Mr. Domen-
ici is, Senator Domenici.

Mr. SHAw. Could we—.

Secretary RUBIN. These are very important issues. Nobody has
ever disagreed about the importance of dealing with solvency. The

uestion is what path do we take to addressing the solvency, and
that is what has separated the parties.

Mr. Suaw. I think this is very important because the previous
questioner talked like this was just politics as usual, and it is not.

Could we play a tape over here, please?

Secretary RUBIN. Mr. Shaw, while we are waiting, could I just—
I may have misheard you. If you said the Trust Fund was in the
red, that was not correct.

[Videotape of press conference shown.]

TRANSCRIPT OF PRESS BRIEFING BY SECRETARY RUBIN AND Mrs. RIVLIN

Q. Mr. Secretary, how long has the administration known that the Medicare Trust
Fund was going to suffer a deficit and not a surplus this year?

Secretary Rubin. I just heard about this Alice, do you know the answer? This
was not something I had known about before.

Ms. Rivlin. Today is what? I heard.

Secretary Rubin. Yeah, my first knowledge of it was today.

Jim Lehrer. You first found out about it in the New York Times? Is that what
I'm led to believe hare?

Secretary Rubin, It’ actually a very good paper. You should read it. I mean, there
are a lot of other good papers, too. I didn’t mean—that was not a relative comment.

Q. If I could ask, then, why is it that the administration did not know this, espe-
cially since there was sensitive budget negotiations going on for a couple of months?

Secretary Rubin. Well, Jim, there may well have been people who in analyzing
this were familiar with it. 1 learned about it today. But I don’t think it matters.

Mr. SHAW. OK, Mr. Secretary, proceeding along those lines, I
would assume that if I asked you if you had brought this up at any
of the negotiating sessions with the Members of Congress—I under-
stand you were at all of them—that you did not bring it up because
you say you did not remember it.

Let me ask you a question. If you did remember it, and particu-
larly since that is going to affect the “drop dead” date on Social Se-
curity, would you have thought it was important to bring up—
please, yes or no?

Secretary RUBIN. Mr. Shaw, it does not affect the “drop dead”
date on Social Security, so I do not know what you are referring
to.

Mr. SHAw. I am sorry. Medicaid. Medicare.

Secretary RuBIN. And if it has any effect at all——

Mr. SHAW. Secretary Shalala said that Medicare is no longer sol-
vent until 2002. It is now solvent until 2001. Do you think that was
a significant thing to bring to the attention of the negotiators who
were trying to negotiate with the President?

Secretary RUBIN. I agree with Senator Domenici and his com-
ment, I agree with——

Mr. Suaw. I did not——


64

I think the next day. CBO had full knowledge of this, and I cannot
ask you questions, but I wonder whether CBO notified any of you.
They put this into their assumptions. They worked for you. Instead
of having Donna Shalala, you ought to have CBO here and your
own staff. Your staff received a copy of this material.

I am not faulting your staff or faulting June O’Neill; she handled
it the same way that HHS did, and Mr. Domenici—it is his words,
Mr. Laughlin; it is their words. The word “significant” comes from
them, not from Donna Shalala. It says, “The recent change in pro-
jections do not significantly affect the longrun Medicare situation.”
And the Senate Budget Committee gives your conspiracy theory an
op”

And the disturbing thing is that it is being pursued here when
we should be working on a bipartisan basis to resolve the Medicare
issue. There is a shortfall, and that is the most disturbing part of
this. She hears about this through a press report instead of some-
one picking up the telephone and trying to discuss this on a sen-
sible, rational basis.

Chairman ARCHER. Mr. English.

Mr. ENGLISH. Secretary Shalala, this hearing has run a long
time, and I will try to be brief. I have already made one comment
previously.

I want to thank you for being here. I think clearly the point of
what we are discussing today is the timely presentation of this in-
formation to the American public, and the fact that part A was
going south a lot quicker than a lot of us had originally thought.

You have pointed out correctly that last year, you were one of the
Trustees who called our attention to this problem, and I have ap-
plauded your report in town meetings in my district.

However, the fact that it was not called vividly to the attention
of the American public at a time when we were debating Medicare,
and a lot of people have had questions about why this issue had
even come up, or whether there was really a crisis in Medicare.
You have made it clear that you think there is a crisis in Medicare.
There are some among my colleagues who have made statements
that were more doubtful. I have to say this information coming
available when it did might have had a substantial difference in
the debate, might have shaped public perceptions of the nature of
the problem, might even have changed the outcome of some of the
debates in the House, simply because I think that if more of my
colleagues had had access to this information, they might have
taken this problem more seriously, and we would have seen more
bipartisanship in the Medicare reform issue as it had been debated.

I think the point of this hearing has been to explore whether we
could have gotten the information sooner, whether the American
public could have had access to it, whether it could have been in-
troduced into the public debate; and, contrary to some of my col-
leagues on this panel, I do not think that is a trivial issue.

I want to give you credit for the positive efforts that you have
made. As I think I have made clear, and I do not want to belabor
the point, I am disappointed that it was not made public several
months earlier than it was. I have your word on the fact that this
was nothing deliberate on your part, and certainly, I think we have
buried the notion that today’s hearing was in any way a witch


35

Medicare’s Cash Position is
Declining Faster Than Expected

16
144
12
10

$143
Billion

8 855 .

6! Billion sa Prejestion
Ballon $4.7 Billion

4, —

24

0 |

1991 1992 1993 1994 1995,

Source: Monthly Treasury Reports and 1995 Hospital Insurance Trustees Report

Medicare’s Cash Position is
Declining Faster Than Expected

$14.3

14
12
104

84

6

$34

4 Billion

2

0 nas
2 $36 Million

1991 1992 1993 1994 1995

Source: Monthly Treasury Reports and 1995 Hospital Insurance Trustees Report


67

disseminated, and second, the status of current projections regard-
ing the Trust Fund.

ith your permission, I will summarize my statement and re-
quest that the full statement be submitted for the record.

Chairman ARCHER. Without objection, so ordered.

Ms. JaGaar. First, when did the operating deficit become known?
The fact that the Part A Trust Fund had run an operating deficit
during fiscal year 1995 was first published in a Department of the
Treasury monthly report dated October 27, 1995. Table 8 in the
Treasury report showed that the Trust Fund had cash receipts of
$114.85 billion and cash outlays of $114.88 billion, resulting in an
operating deficit of $36 million during 1995.

(The report is being held in the Committee's files.]

Ms. JaGcar. HCFA’s Chief Actuary told us he became aware of
the operating deficit in late November 1995, after HCFA received
from the Department of Treasury more detailed monthly tables on
the Part A Trust Fund.

On December 2, in response to the HCFA Administrator’s re-
quest several days earlier for an update on Medicare and Medicaid
spending, the Chief Actuary sent the Administrator an electronic
mail message explaining the operating deficit. In a December 6
electronic mail message, the Chief Actuary told the Administrator
that if the assumptions used for the April 1995 Trustees’ Report
were applied without change to the new data, the Trust Fund de-
pletion date would advance from the end of calendar year 2002 to
roughly the middle of calendar year 2001. He pointed out that
changes to the assumptions could advance or postpone the deple-
tion date somewhat, but he would not know for sure until the esti-
mates for the 1996 Trustees’ Report are completed.

The Secretary of HHS was informed by memo dated December
8, 1995, that she would be briefed by the HCFA Administrator on
the Social Security and Medicare Trust Funds in preparation for
the biannual Trustees meeting and that one important item to be
discussed was the part A operating deficit. This briefing occurred
on December 11. The other Federal Trustees were also briefed indi-
vidually before the Board of Trustees meeting.

The Board of Trustees biannual meeting was held on December
13, 1995. All of the Trustees, which include the Secretaries of
Labor, HHS and the Treasury, the Commissioner of Social Security
and two public Trustees, participated in the meeting, which was
chaired by the Secretary of the Treasury.

Also on December 13, the Congressional Budget Office released
its updated budget baseline, which reflected the fiscal year 1995
data on the Part A Trust Fund. The overall spending estimates for
Medicare for fiscal years 1996 through 2002 decreased slightly.

OMB staff became aware of the part A operating deficit for fiscal
year 1995 in December 1995. An OMB official advised the Special
Assistant to the President for Health Policy Development of the op-
erating deficit sometime after the December 13 Board of Trustees
meeting.

In our discussions with the Chief Actuary and a public Trustee
who attended the December 13 Board of Trustees meeting, they
said that the news of the operating deficit for fiscal year 1995 did
not seem to cause alarm. They stated that the need for corrective


45

Mr. CarpIN. Thank you, Mr. Chairman.

In the event that some of my constituents might be listening to
this hearing and trying to figure out what the purpose of the hear-
ing is and what the current status is of Medicare, we are talking
about the Medicare Part A Trust Fund dealing with hospitals. And
our Republican friends want us to treat the Trust Fund very seri-
ously, as a trust fund, as moneys that are there.

First, let me ask, has there been any change that would concern
the hospitals in my district or my seniors in my district about get-
ting their hospital bills paid in 1996?

Secretary SHALALA. No.

Mr. CarpiN. In fact, is there any danger from what you have pro-
jected that those bills will be paid in 1997 and 1998?

Secretary SHALALA. No.

Mr. CarDIN. So we are talking here about a change in a projec-
tion in the Trust Fund that does not immediately affect the hos-
pitals in my district or my beneficiaries as far as being paid or re-
imbursed for hospital care?

Secretary SHALALA. Yes, Mr. Cardin.

Mr. CaRDIN. You have stated a couple of times, both of you, and
it has not been challenged, that the difference in the income com-
ing into the Part A Trust Fund and the expenditures going out of
the Part A Trust Fund, the actual 1995 figures were within the
statistical range of historical data. Is that fairly accurate to say?

Secretary SHALALA. Yes. And we have also discussed the accu-
racy of the previous Trustees’ Reports, and the ranges are consist-
ent with the CBO’s own projections and with their accuracy.

Mr. CaRDIN. So both CBO and the Trustees have been somewhat
consistent in these numbers. In fact, I think you said the Part B
Fund) expenditures were actually less than what had been pro-
jected.

Secretary SHALALA. Yes.

Mr. CARDIN. So, in one case, we spent more for hospital care and
less for physician care than we anticipated—of course, they are
separate trust funds, and we are here talking about the Part A
Trust Fund, not the Part B Trust Fund.

Let me go back to fiscal year 1992. The figure that I have here
is that the income was adjusted that year by 1.4 percent——

Secretary SHALALA. That is correct.

Mr. CaARDIN [continuing]. Which is a higher variation than we
are dealing with here, of a ~1.2 percent—and the expenditures
were misjudged by 5.6 percent in that year.

Secretary SHALALA. That is correct. The worst year of projections
was in fact the last year of the Bush administration.

Mr. CarDIN. I guess that is the point I want to make. Does any-
one here recall whether we had an emergency hearing of the Ways
and Means Committee in order to deal with those changes in pro-
jections in calendar year 1992? I know you were not Secretary at
the time, but I am just curious as to whether we had a hearing of
our Committee to deal with those changes. And I must admit, I
don’t read every report that comes into the office. I did not read
that report that came into the office. I am going to confess that I
did not know about it until I read it in the paper. And I might have
missed a hearing notice of this Committee.


87

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Pubbe Lenk @bak-

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8

lems, we would urge that this be accomplished sooner rather than
later.

We would also urge that we will be more likely to accomplish
this if Republicans set aside their proposals that harm the Medi-
care Trust Fund and harm beneficiaries.

Now I would like to turn to the question of the current financial
health of the Part A Trust Fund. Mr. Chairman, I am deeply con-
cerned about recent allegations from Members of the majority
party in this Congress of a breach of trust by this administration
in its oversight of the Part A Trust Fund. Nothing could be further
from the truth.

Far from a breach of trust, the administration has worked hard
to protect Medicare and the Trust Fund as I have just outlined.

I want to take this opportunity to walk you through the process
through which the administration and the Medicare Trustees’ Re-
port to Congress on the Trust Fund. I would like to submit for the
record a copy of my February 12 letter to the Committee on this
subject. By law, the Medicare Trustees submit their annual report
on the status of the HI Trust Fund to Congress each spring. The
law specifically requires the Trustees to report on the performance
of the Trust Fund in the prior fiscal year.

In their report, the Trustees also make projections about future
performance and solvency. The report is widely distributed to the
Congress and to the public.

In addition to the statutory requirement to issue an annual re-
port, other specific statutory requirements ensure that Congress
will be notified if the outlook for the Part A Trust Fund is particu-
larly critical.

For example, the law requires the Trustees to notify Congress if
the Trust Fund’s assets are expected to fall below 20 percent of 1
year’s expenditures in the short term, which the Trustees have
used to mean 10 years. The Trustees have sent this special notifi-
cation, known as a “section 709 letter” along with their annual re-
ports during each of the last 3 years.

The section 709 letter sent to congressional leaders in April 1995
indicated that the Trustees projected that the HI Trust Fund would
be depleted in 2002.

In addition to the annual report, the administration prepares
semiannual estimates of the financial operations of the HI Program
as part of the President’s budget process. Each year, the adminis-
tration releases Medicare baseline projections as part of the Presi-
dent’s budget proposal for the upcoming fiscal year. These esti-
mates for fiscal year 1997 will be released next month as part of
the President’s fiscal year 1997 budget submission to Congress.

The Treasury Department, which serves as the official book-
keeper of government outlays and revenues, reports retrospectively
on outlays from and revenues to the Part A Trust Fund. These re-
ports show actual cash flows to and from the HI Trust Fund, in
contrast to the projections in the Medicare Trustees’ Report and
the projections in the President’s budget.

In October 1995, the Treasury Department reported on the Trust
Fund income and outlays, together with the Fund’s assets at the
end of fiscal year 1995.


FINANCIAL CONDITION OF THE FEDERAL
HOSPITAL INSURANCE TRUST FUND

THURSDAY, FEBRUARY 29, 1996

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
Washington, DC.
The Committee met, pursuant to notice, at 10:12 a.m., in room
1100, Longworth House Office Building, Hon. Bill Archer (Chair-
man of the Committee) presiding.
[The advisory announcing the hearing follows:]

ie)


42

Now, what is wrong with this is that the Republicans have been
saying 7 years is too little, 6 years is too little. Now we are down
to 5 years. So this does matter, and we need to have a better an-
swer than estimates and within the accepted range of blah, blah,
blah, because these are facts. These are not estimates. These are
dollars and values.

And of course, if you see a loss in a company, you do not imme-
diately make a judgment about whether that company is in trouble,
but it is a big red flag, and you look at it differently than if it had
been $36 million-plus. A $36 million-minus in the Medicare Fund
is a flag that we all ought to care about.

Now, the reason this matters to me is that you guys let some of
the physicians have a 12-percent increase in reimbursement rates
last January. Why? Because you were not paying attention. If you
were paying attention, you would have come to this Committee and
said, “Change the law; we cannot let that go into effect.”

It is the same thing that almost happened to Medicare Select ex-
cept that, frankly, I was there, and I said this is going to expire.

e have got to mind the shop. Otherwise, we are not going to
have a program.

Now, Madam Secretary—and I am sorry I am taking my time to
tell you what I think, but this has not been the kind of quality dia-
log that I had expected from this hearing—but you keep going to
the President’s proposal. It is imperative to get on the record that
the President’s proposal to save the Medicare Trust Fund “saves
part A by robbing part B.”

And you know and I know that part of the way it “makes $125
billion in savings” is by moving the responsibility to pay for home
health care from part A to part B.

Now, CBO, the Congressional Budget Office, states that is not
Nancy Johnson. And that is one of the reasons why we are having
trouble getting together. I have not met a senior out there in Amer-
ica who does not think that the Republican proposal says that
upper-income seniors should pay more of their part B premiums is
not fair and just. But you won’t even consider it.

We have a 5-year problem now, and that 5-year problem is under
your intermediate estimates. I would assume, looking at your other
estimates, that under your most serious estimates, your worst case
scenario, we are talking 4 years because your estimate backed up
1 year. You back up the lowest, your most serious estimate, 1 year, .
and you are down to 4 years now instead of 5.

So the business of the Nation and of the seniors and of all of us
demands that we buckle down and do this. And $124 billion of
which $35 billion is sleight of hand—or $50 billion; I have forgotten
just which one—is sleight of hand and smoke and mirrors is not
good enough. But that is for another time.

have been part of the bipartisan group that has tried to nego-
tiate. We just do not get clear input from you guys. One of the rea-
sons why we are concerned is that your people put out a press re-
lease in October. They did not bother to tell you, you did not bother
to tell the President, and we are 5 years from bankruptcy. We are
into broke. When you are paying out more than you are taking in,
you are broke. We are not bankrupt because we have assets in this
program, but we are broke already, and we are going to be bank-


3

APPENDIX I

APPENDIX I

Th Mer Pica Your w Dew

acwoms | outers | exe | neowoe | xmare oh
Tel aoe wan od a
To
ro mom ww nas
Oo rg diy SR om 8
Foor duos Parcs Peey-aerrd ae
Fara eros te oe me ard 3
Fara srporse were Peraeet en} wae
fara foe rece ais ame gt tabs
Fir Soom cates carne 560 Helge tant ae
Fora sect) mae'r th Bi 89
Sor Sie es Be
Pe yey oie ae
nbc sore Sos ok vad
May weer Sake cae or
Seat chat ry ean

Wrewe' te mere 3S Se a 38 28 Bes
wine ne & = ee ert 2S
“el tt rc

Mirren nse now tone 6

serene i sen Tae mms sam uri ream maa rie winger samme anes
ee ad eae Be nis Be Ste
Tet hn mow wd avy on tae
oie TE ws 7a ura swan are 70
Tet Fedele cope nd eee... aaah —Toaasa Tae eat Tomrre
ae ma rae NS ie
taco 1 ov on Pa
porary tomss1_toncar Tame _ ues ronaars _-252570

2a Beor 9408
Tes 7am iaeoaTe (avon Waste

Nene Cy at ee i

Source: Ejnal Monthly Treasury Statement of Receipts and Outlays
ofthe United states Government for Fiscal Year 1995 Through

(Washington,
Department of the Treasury, Oct. 27, 1995)

D.C.


administration Js trying to get on top of the problem. The President
bas outlined a proposal for $124 billion in Medicare savings. This
proposal should put the HI Trust Fund in balance through 2011. If
Congress accepts the proposal, the Fund should be in good shape for
the foreseeable future.

4. Status of 1996 Report Preparation,

Preparation of the 1996 reports is proceeding according to schedule.

5. Update on Public Trustees Activities

Secretary Rubin will introduce the new Trustees to the rest of the board and will
indicate something about their backgrounds.

As you know, Marilyn Moon is a distinguished scholar with a multitude of
publications on Medicare and health economics. She bas worked at the AARP
and at the Congressional Budget Office and currently is a Senior Fellow at the
‘Urban Institute.

Stephen G. Kellison is also a distinguished scholar. He is currently Vice
President and Chief Actuary of the Variable Annuity Life Insurance Company in
Houston. Mr. Kellison was chairman of the Panel of Technical Experts appointed
by the 1991 Advisory Council on Social Security. He has been on the faculty of
the University of Nebraska-Lincoln and Georgia State University.

‘Short biographies are attached in Tab B.

The Public Trustees are developing their own talking points for the meeting. We
are not sure of their content, but they will probably not be controversial.

If it seems necessary to provide a response on a possible research project, you
might say .

Money is tight, but we would be happy for our staffs to take a look at the
issue. You might call Mr. Viadeck to set up an appointment for him or for
‘someone on his staff to meet with you and your staff to discuss how we might

best work together to get such » project started.

6. Other Items of Business,

‘There will probably not be any other items of business.


FINANCIAL CONDITION OF THE FEDERAL
HOSPITAL INSURANCE TRUST FUND

HEARING

BEFORE THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

FEBRUARY 29, 1996

Serial 104-63

Printed for the use of the Committee on Ways and Means

ae

U.S, GOVERNMENT PRINTING OFFICE
27-407 CC WASHINGTON : 1997

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-054173-5
Z





30

Mr. Gippons. As a de facto situation, the Medicare Trust Fund
would be in just as bad a position on March 22 as it would be in
2001. You would not be able to spend any bills in this year.

Secretary RUBIN. Well, this country will not default, I am con-
fident, Mr. Gibbons. But if ever we did, it would create a lot of
problems with respect to the Trust Funds. But that will not hap-
pen, I am confident.

Mr. GipBons. Can you tell me about when we are going to get
any legislation on that?

Secretary RUBIN. Well, all I can tell you, Mr. Gibbons, is that in
my view and in the spirit of the letter that the leadership gave us
and in the spirit of the legislation that the Chairman here pro-
vided, which I think was very useful and constructive, I think it
is important that we move promptly and that we not let this issue
linger because of its enormous importance to the country.

Mr. GisBons. Thank you.

Chairman ARCHER. Mr. Crane.

Mr. CRANE. Thank you, Mr. Chairman.

Secretary Rubin, in whose name was that October 27, 1995, re-
port issued?

Secretary RUBIN. Well, this is the regular—it is called “Treasury
News,” but it was actually put out as a joint statement from myself
and Alice Rivlin, Director of the OMB.

Mr. CRANE. Now, my recollection is you indicated that you and
Alice Rivlin first learned about that shortfall in the New York
Times article you read in February of this year?

Secretary RUBIN. Mr. Crane, when we were doing a press con-
ference on this year’s budget, and we were asked that question, I
said that I did not at that time know whether I knew it from then
or not. It certainly was not in my mind at the time of the February
5 press conference that you are talking about, and I believe Direc-
tor Rivlin said the same thing.

Mr. CRANE. So you are saying that you did not know what was
in your release of October 27, and that Alice Rivlin did not know
it either.

Secretary RUBIN. Well, let me just try to be a little bit more pre-
cise if I may, Mr. Crane. What I was saying was that I just did
not know on February 5 whether this had been in my mind October
27 or not, and as I said a moment ago to the Chairman, that really
is not the point. The point is the point that was in our April report,
which is that the Medicare solvency issue has to be dealt with, and
it has to be dealt with effectively and promptly.

Mr. Crane. Right, but I mean, it obviously was not that signifi-
cant to you until you read the New York Times. It was incon-
sequential, basically, I gather, because at the meeting you chaired
on December 13, you have no recollection of it being discussed, not-
withstanding what Secretary Shalala said.

Secretary RUBIN. I agree with Senator Domenici’s bulletin—and
I will not read it again because the Chairman has said it is in the
record, which is true—but he refers to the projections as not being
significant. And I think——

Mr. CRANE. Well, wait——

Secretary RUBIN. Could I just-——


89

this Committee has done nothing to try to save the Trust Fund or
protect the senior citizens except a lot of blather in the press and
a McCarthy-like hearing.

So I think that a fitting end to this nonsense would be that we
do not see it again for 4 years and that sooner or later, the Repub-
licans get around to dealing with the administration’s bill, which
would extend the Trust Fund for 10 years and do the responsible
thing. This is McCarthyism of its worst kind, and I am ashamed
to say that it probably lies with the staff—the Republican staff—
packed with former insurance company lobbyists, and that is prob-
ably why we are going to do insurance company reform in March
and not get around to saving the Trust Fund.

I thank Ms. Jaggar for a reasoned explanation, and I think it is
just a sad day for the Ways and Means Committee and a sad trib-
ute to what used to be a well-managed Committee.

Chairman ARCHER. Mr. Portman.

Mr. PorTMAN. I thank you, Mr. Chairman.

I did not think it was a sad day. I think it was an interesting
day. I learned a lot, and I think it was a helpful exchange between
the Committee and the two witnesses.

I was not going to talk about this, but Mr. Rangel talks about
us alleging a coverup; now Mr. Stark talks about a McCarthy-like
hearing and that we are alleging some illegality. I did not hear any
of that, and I was here for 95 percent of the hearing today. So it
is interesting hearing allegations about what we are alleging, but
that is not why I was here, and that is not what I heard today.

Ms. Jaggar, just briefly, I enjoyed your testimony, and you talked
a little about the projections, you talked a little about why, per-
haps, the projections were off. I think you summarized well what
we heard earlier today about the possibility of some payments
being requested sooner and so on.

I wonder if you could respond to an additional question as to the
projections. You indicated that in the first quarter of this fiscal
year, there might have been a surplus, although we had the deficit
in the last year. You may have not been here when Mr. Thomas
had a chart which showed the trend lines. The trend lines are very
disturbing because they indicate, as would conventional wisdom,
that we are going to continue to go into a deficit position and that
perhaps the Trust Fund will be bankrupt by the year 2000, rather
than 2002 or 2001.

Have you looked into that from a GAO perspective as to what
this short-term projection means for the long term, and whether
you think these trends will continue?

Ms. JAGGAR. Mr. Portman, we have not tried to do a thorough
analysis, I believe that would duplicate the efforts of the HCFA Ac-
tuary, who has access to much of the information that is needed
and also, in doing the final analyses, uses information and data
from Department of Labor and other economic indicators.

However, appendix II of my statement—perhaps you have it
there—is a chart which shows what the change in the Trust Fund
balance has been over the past several years. Indeed, in the next-
to-the-right column, if I might impose upon you to look at that,
what you can see is that at the end of the first quarter of fiscal
year 1996—the October through December quarter—there is a


84

BOARD OF TRUSTEES MEETING
DECEMBER 13.1995
LIST OF ATTENDEES

Robert Rubin , Secretary, Dept. of Treasury/Managing Trustee

Dan Sichel, Treasury

Robert Reich , Secretary, Dept. of Labor/Trustee

Marilyn Moon , Urban Institute/Public Trustee

Ms. Meridith Miller, Labor

Robert Gillingham, Treasury

John Hambot, Treasury

Peter Bieger, General Counsel, Treasury

Kathy Buto, Assoc. Administrator for Policy, HCFA

Rick Foster, Chief Actuary, HCFA

Bruce Vladeck, Administrator, HCFA

Carolyn Colvin, Deputy Commissioner for Programs, Policy
Evaluations, Communications, SSA

Katherine King, (B. Vladeck's assistant) HCFA

Harry Ballantyne, Chief Actuary, SSA

Brian Coyne, SSA

Mike Andrew, Staff Assistant to Public Trustee, SSA

Judy Hunt, Staff Assistant to Public Trustee, HCFA

Gene Moyer, (advisor to D. Shalala) HHS

Joe Hight, (staffer to R. Reich) Labor

Steve Kellison, Public Trustee

Shirley Chater, Acting Commissioner, SSA

Donna Shalala, Secretary, HHS/Trustee

Steve Goss, Office of the Actuary, SSA

Jack Ebeler, Acting Deputy Assistant Secretary for Planning
Evaluation/Health Policy, HHS

Gus Faucher, Treasury

Source: John Hambob, pept. of Treasury (622-2350)


12

‘STATEMENT OF DONNA E. SHALALA
TARY
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Thank you for the opportunity to address the Committee on the performance of the Medicare
Hospital Insurance Trust Fund in 1995. Since coming into office, the Clinton Administration
has worked continually to address the problems affecting the Trust Fund, and we are hopeful
that we can find common ground with this Committee and with the Congress this year on
reforms to the Medicare program that will strengthen the Fund,

It should be remembered that it was the Clinton Administration and Congressional Democrats
who argued successfully for the President's 1993 five-year deficit reduction package (OBRA
*93) which extended the life of the Trust Fund by an additional three years by achieving
realistic Medicare savings and by stimulating economic growth in the general economy.

‘The Administration has continued our commitment to controlling Medicare costs in the
future. As part of his comprehensive plan to balance the Federal budget, the President has
proposed $124 billion in specific policy changes designed to strengthen Medicare. The
President's proposal extends the life of the HI Trust Fund for more than a decade from now.

To achieve these savings, the Administration’s plan modifies Medicare payments in a number
of ways. Our plan achieves substantial savings through provider payment changes that
promote greater efficiency and make Medicare a more prudent purchaser and through
increased efforts to combat waste, fraud and abuse. Importantly, it does so while
‘maintaining and strengthening key protections for the beneficiaries Medicare serves.

‘The Administration plan represents a balanced approach ~ one that protects traditional
Medicare while expanding choice and preventive benefits. First, our proposal does not
impose additional costs on beneficiaries; the plan maintains Part B premiums at 25% of
program costs. Second, the plan maintains important protections for low-income Medicare
beneficiaries. Third, the package expands the range of private plans available under
Medicare without harming the traditional fee for service program, inviting dangerous risk
selection, or shifting costs to beneficiaries, Finally, the Administration maintains critical
prohibitions against “balance billing", which protects the programs 37 million beneficiaries
from excessive charges from providers. I am hopeful that in the weeks ahead we can all
focus our efforts on positive steps to enact such proposals.

1am concemed about recent allegations of a “breach of trust" by the Administration in its
oversight of the HI Trust Fund. Far from a “breach of trust", the Administration has spent
the past year focusing on the need to improve the Medicare program and uphold our
commitment to current beneficiaries and future generations.

I would like to take this opportunity to clarify the process through which the Administration
and the Trustees report to Congress on the Trust Fund, as I did in my letter to the
Committee dated February 12, 1996, which is attached to this statement. ‘The Administration
has consistently made information about historical and projected performance of the HI Trust
Fund available to Congress and the public. Section 1817 (b) of the Social Security Act
requires the Medicare Trustees to submit their annual report on the status of the HI Trust
Fund to Congress in the Spring. The law specifically requires the Trustees to report on the
performance of the Trust Fund in the prior fiscal year. In their report, the Trustees also
make projections about future performance and solvency. The report is widely distributed.
Copies are provided to each Congressional office and to many others,

In addition to the statutory requirement to issue an annual report, other specific statutory
requirements ensure that Congress will be notified if the outlook for the HI Trust Fund is
particularly critical. For example, under section 709 of the Social Security Act, the
‘Trustees are required to notify Congress if the Trust Fund assets are expected to fall below
20 percent of one year’s expenditures in the short term, which the Trustees have used to
mean 10 years. The Trustees have sent this special notification, known as a “section 709"
letter, along with their annual reports during each of the last three years. ‘The section 709
letter sent to Congressional leaders in April 1995 indicated that the Trustees projected the HI
‘Trust Fund would be depleted in 2002.


54

Mr. RamstaD. If I could refer you, Madam Secretary, to table 3
on page 2 of that document. From the information listed, Madam
Secretary, on the table, again just so we are on the same page, so
to speak, could you tell me what the receipts are for Medicare pay-
roll taxes on that page?

Secretary SHALALA [perusing document]. I think they have got
Social Security and Medicare in the same numbers. If we are look-
ing at the same document, they have combined the two.

Mr. RamstaD. They are gross figures for Social Security and
Medicare, in other words?

Secretary SHALALA. Right.

Mr. RAMSTAD. Now let us look at the next page, at table 5 of the
document.

Secretary SHALALA. Yes.

Mr. RamstaD. From the information listed on the table there,
could you tell us where the outlays are for the Medicare HI Trust
Fund on that page?

Secretary SHALALA. In both cases, it looks like they are combin-
ing both Social Security and the Medicare Trust Fund numbers.

Mr. RamstaD. Together?

Secretary SHALALA. Yes.

Mr. Ramstap. Lumped together. I think if we had time to go
through the rest of the document, you would not find any reference,
Madam Secretary, to the $36 million deficit in the Trust Fund
spending over receipts in fiscal year 1995.

And frankly, Madam Secretary, with all respect, this document
does not tell us anything about the financial activity, much less the
financial condition, of the HI Trust Fund. It seems to me that your
use of this document as one of your examples of—I think you used
the words—how readily available this information about the Trust
Fund is to Congress and the public, illustrates the very point we
are trying to make today, that is, the administration was more in-
terested in keeping this issue in the shadows rather than shedding
light on the very pressing problem of the deficit in Medicare.

Secretary SHALALA. Congressman Ramstad, I should have been
more comprehensive. Subsequent to the document, the November
7 document, the CBO staff on November 28, led by Paul Van de
Water, who is the Assistant Director of their Budget Analysis Divi-
sion, and his health staff spent an entire morning meeting with the
HCFA actuaries to discuss the possible revisions to the CBO Medi-
care baseline in December. CBO was briefed extensively on the
particular issues that we are discussing today. They had already
acknowledged the Trust Fund shortfall in previous conversations
with the HCFA actuaries. So CBO was not only informed; they
went through their own briefings and spent considerable time with
the HCFA actuaries. How they decided to use that information was
public. It was used, obviously, to adjust the baseline. Whether they
thought it was more dramatic than we did is obviously not evident,
but let me simply make the case that CBO spent considerable time
reviewing this issue with the HCFA actuaries and was very well-
informed—as reflected in their own baseline adjustments and as
reflected in Senator Domenici’s own points in his own memo.

Mr. RamsTAD. Well, Madam Secretary, I am not sure the fact
that CBO was briefed extensively means that the information


96

American Hospitat Association
Tey Pico
Washington Office
328 Seventh Suet, NW
Suite 00
‘Washington,DC 200042802
202-634-1100
Statement
of the
American Hospital Association
before the
Committee on Ways and Means
of the
U.S. House of Representatives
on

‘The Financial Condition of the Federal Hospital Insurance Trust Fund

February 29, 1996

‘The American Hospital Association, representing 5,000 hospitals, health care systems,
networks and other providers of care, is pleased to submit a statement for the record on the
issue of improving the long-term future of Medicare and the Hospital Insurance Trust Fund
(HI Trust Fund, or Medicare Part A).

America’s hospitals and health systems are at the forefront of change in the way health care is
being delivered. In communities across the country, hospitals and health systems are creating
new and better ways to provide high-quality health care. They are forming partnerships and
creating integrated systems of care that are designed not just to treat illness and injury, but also
to make the communities they serve healthier.

This is happening partly in response to market changes, but also because hospitals and health
systems share a vision of a society of healthy communities, where all individuals reach their
highest potential for health. This vision cannot be achieved without a strong Medicare
program. As more and more Americans reach retirement age, and as the population in general
ages, it is becoming clear that this nation simply cannot afford to let the Medicare program
become financially weakened.

Unfortunately, Medicare's Hospital Insurance Trust Fund is becoming more and more fragile.
The number of Medicare enrollees is increasing exponentially. When Medicare became law in
1965, 19.1 million people were covered; today the figure is closer to 38 million, a number that
is expected to swell to more than 40 million by the year 2000. It is estimated that the average
‘one-eamer couple tumting 65 last year will use an estimated $126,700 more in Medicare
benefits than they paid during their working years in payroll taxes and premiums. In just 15
years, the nation’s baby boomers will begin tuming 65. And not too long after that, there will
be only two workers supporting each enrollee, instead of the four workers supporting each
enrollee today.

Alll of these facts are contributing to the HI trust fund’s weakening condition, Last April, the
trust fund's board of trustees reported that the fund will be insolvent by 2002 -- just six years
from now. The board also reported that program costs are expected to far exceed revenues
over a 75-year long-range period under any set of circumstances.

But Medicare is a contract with America’s seniors, and the trust fund is the financial backing
that keeps the Medicare contract from becoming an unfulfilled promise. Something must be
done to fulfill that contract for generations to come -- not just for a short-term political fix.


75

Chairman ARCHER. Thank you, Ms. Jaggar.

Did you examine the minutes of the December 13 meeting?

Ms. JaGcar. Mr. Chairman, the minutes of the meeting have not
been completed at this time. We have examined the rough notes
that were taken by the Chief Actuary, who was tasked with that
activity.

Chairman ARCHER. So do those rough notes confirm what Sec-
retary Shalala testified to, that this operating deficit was discussed
at that meeting?

Ms. JAGGAR. Yes, sir.

Chairman ARCHER. Thank you very much.

Do any other Members have questions?

Mr. Rangel.

Mr. RANGEL. Yes, thank you.

Thank you, Director Jaggar. We are trying to find out whether
or not there was a conspiracy, and if not, whether there was a de-
liberate coverup of the fact that there was an operating deficit in
1995. And after preparing and reviewing your testimony, do you
find any scintilla of coverup by anybody?

Ms. Jaccar. Mr. Rangel, we found that the Treasury Depart-
ment in accordance with its routine procedures published the infor-
mation about the deficit in its October 27 report and that other
routinely produced reports were generated and distributed as they
normally would be.

In looking at the discussion at the Trustees meeting and in talk-
ing to individuals who were in attendance at that meeting, there
was no notice or intimation of any attempt not to discuss fully that
information; rather, the focus was on assuring that there was clear
understanding of the many different factors that might influence
the overall health of the Trust Fund and make that public in the
Trustees’ Report which is due out this spring.

Mr. RANGEL. Historically, the General Accounting Office has
never gotten involved in any political issues or any partisan issues
but has been a very objective arm of the U.S. Government. I have
no reason to believe that that has changed. Do you still maintain
that reputation of the GAO that you do not get involved in political
or partisan issues?

Ms. JaGGar. It is certainly our main goal to be objective and to
serve the needs of both sides of the Congress with factual informa-
tion that can be used for the debate, but without political opinions
about those facts.

Mr. RANGEL. Thank you so much for your testimony.

Ms. JAGGaR. My pleasure.

Chairman ARCHER. Are there any other questions?

Mr. Shaw.

Mr. SHAW. Mr. Chairman, I would like to just briefly respond to
what Mr. Rangel just said, and then I do have a couple of ques-
tions.

I do not think anybody here has indicated that there is a conspir-
acy or a coverup. I think it is a question of whether a duty was
performed to report to this Committee. As I am sure every Member
on this Committee agrees, we have a very significant duty to the
Trust Fund and that the Trustees, the Managing Trustee specifi-


36

Medicare’s Cash Position is
Declining Faster Than Expected

Trustee's:
Projection
$4.7 Billion
Actual
‘nn
. $36 Million
1991 1992 1993 1994 1985,
Source: Mombly Treasury Reports and 1995 Hospital Insurance Trustees Report
: 5 ea
Medicare’s Condition
:
is Worse than Expected
FY ‘95 FY ‘96
— De!
$3.8 Billion -$36 Million $133 Million
?
Ist 4 Months of FY95 ‘Year End Ist 4 Months of FY96 ‘Year End
Ending 1/3195, Ending 1/31/96

Source: Monthly Treasury Reports,


48

already running a deficit would have had a direct bearing on the

deliberations going on in Congress because of some of the kind of

eel good” statements coming from people who were part of that
lebate.

Having a fiduciary responsibility as Trustees for the system,
don’t you feel that you had a little more responsibility than simply
making sure that a report was delivered on time that had in the
body of its arcana a reference to the fact that part A was running
a deficit for the first time since 1972?

Secretary RUBIN. Mr. English, there is nothing you have said
that I would not agree with fully. We in our April report in 1995,
and as Secretary Shalala said, also in 1994, said very specifically
that the exhaustion date was much too close for comfort, and that
it was imperative that we deal with the issue.

So I think there is no question that we have been focused on the
imperativeness of resolving these issues—and I do not think the
gentleman from Maryland was at all suggesting it was not impor-
tant; he was just talking about the difference, I believe, between
the immediacy of the debt limit issue and the fact that there is
some time on this——

Mr. ENGLISH. My time has expired. I just wanted to suggest that
I think when Trustees realize that an important milestone like this
has been passed that they have an affirmative responsibility to call
its attention to the public and not simply allow it to be buried in
the details of a financial document. And I appreciate your coming
here to testify today.

I thank the gentleman from New York.

Chairman ARCHER. Secretary Rubin, we have reached 12 o’clock.
Can you stay any longer with us?

Secretary RUBIN. Mr. Chairman, | do have a little more time. I
need to be back, if possible, for a meeting at 12:30.

Chairman ARCHER. Well, you certainly will be excused at what-
ever time you need to leave.

Secretary RuBIN. Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Ramstad.

Mr. Ramstap. Thank you, Mr. Chairman.

Mr. Secretary, Madam Secretary. Secretary Shalala, I appreciate
your point that the CBO reported information about Medicare in
its November 7, 1995, analysis of the September Treasury state-
ment. I think it would be important for the purposes of this hear-
ing to examine the document itself. I believe you referred to it ear-
lier. Do you have a copy of that document?

Secretary SHALALA. The CBO document.

Mr. Ramstap. Yes. The CBO document entitled, “Analysis of the
September Treasury Statement.”

Secretary SHALALA. I have it somewhere here.

[The following was subsequently received:]


53

Defense-Military outlays were higher than both our March and August estimates, but these
overruns were more than offset by shortfalls in other spending areas. Medicare outlays in total were
$1.0 billion lower than projected in March and August, although hospital insurance (Part A) exceeded
our projection by $1.4 billion while supplementary medical insurance (Part B) outlays fell short by
$2.4 billion. Medicaid outlays, on the other hand, were quite close to our baseline estimates. The
major shortfall from our March estimate for "other major benefits" was for the earned income tax
credit, which was reflected in our August update

October Projections

October receipts are estimated to be $97 billion and outlays $125 billion, giving a deficit of
$28 billion for the month, Last year, October receipts were $89 0 billion, outlays were $120.4 billion,
and the deficit was $31.3 billion.

Jim Bum
‘Rosemary Marcuss


49

NOTICE
Internal Memorendum
Not for Public Release

November 7, 1995

ANALYSIS OF THE SEPTEMBER TREASURY STATEMENT

‘The September surplus of $7.3 billion was $3.0 billion higher than a year ago but $1.7 billion
lower than our estimate for the month. The fiscal year ended with a deficit of $163.8 billion, $39.3
billion below last year's deficit of $203. 1 billion (see Table 1)

TABLE! BUDGET RECEIPTS, OUTLAYS, AND THE DEFICIT
FOR SEPTEMBER 1995 (In billions of dollars)

———FFiscal Xear Totals __
Budget September September Percent
Aggregates! 1995 194 1995 1994 Change
Receipts 143.2 135.9 1,350.6 1,257.5 14
Outlays 1389 1316 15144 1,460.6 37
Deficit/Surplus (-) “73 43 163.8 203.1 -19.3

1 Inelades Social Securiy and Postal Service, which are offbudget
The 1995 deficit was $10.8 billion lower than the CBO March baseline estimate but $2.4
billion higher than our August baseline estimate (see Table 2). CBO's deficit estimates were closer

to the mark than OMB's. The President's February budget overestimated the 1995 deficit by $28.7
billion, and the OMB July mid-session review underestimated the deficit by $3.8 billion.

TABLE 2, BUDGET RECEIPTS, OUTLAYS, AND THE DEFICIT
FOR FY 1995 (In billions of dollars)?

CBO CBO ——Actual Less __
Budget March August CBO CBO
Aggregates* Baseline Baseline Actual ‘March August
Receipts 1,355.2 1,356.7 1,350.6 AG 6.2
Outlays 1,529.9 1,518.2 13144 155 38
Deficit 1746 161.4 163.8 10.8 24

1 Includes Socal Security and Panel Servic, hich are off budge,


78

Page 2 - The Secretary
PRINCIPAL PARTICIPANTS.

‘The Honorable Robert E. Rubin, Secretary of the Treasury (Presiding)
‘The Honorable Robert B. Reich, Secretary of Labor

Shirley S. Chater, Commissioner of Social Security,

Carolyn Colvin, Deputy Commissioner of Social Security

Bruce C. Viadeck, Administrator, Health Care Financing Administration

In addition to the principal participants, Peter B. Edelman, Acting Assistant Secretary for
Planning and Evaluation, Jack Ebeler, Deputy Assistant Secretary for Planning and Evaluation for
Health Policy and other DHHS support staff will attend the meeting. Kathleen Buto, the
Associate Administrator for Policy, and Richard S. Foster, the Chief Actuary, will accompany Mr.
Viadeck. Each ex officio Trustee and the two Secretaries of the Boards will be accompanied by a
‘small number of support staff.

Update of the Financial Status of the Social Security and Medicare Trust funds

Secretary Rubin will call on Ms. Colvin or on Mr. Ballantyne, the Chief Actuary of Social
Security, to report on the financial status of the OASDI Trust Funds. SSA's talking points are

. At the end of fiscal year 1995, the combined Old Age and Survivors Insurance (OASI)
and Disability Insurance (DI) Trust Funds held total assets of $483.2 billion, representing
about 137 percent of estimated outgo in fiscal year 1996.

+ During fiscal year 1995, the combined OASI and DI Trust Funds grew by $60.4 billion,
which was about $2.5 billion less than was predicted in the 1995 Report of the Board of
Trustees.

. Most of the difference from. the. estimated growth was due to an overestimate of tax
income. Although the overestimate.was relatively small; less than 0.6 percent, it
amounted to $2.1 billion. Income after 1995 will probably continue at a somewhat lower

. Although tax income to the DI Trust Fund was overestimated by the same percentage as
for the combined funds, it was offset by an overestimate in DI benefit payments of the
same magnitude, about $0.4 billion. Benefit payments from the DI Trust Fund after 1995
will also probably continue at a somewhat lower level for some time.

. Benefit payments from the OASI Trust Fund in fiscal year 1995 exceeded the estimated
amount by only $0.1 billion.


88

Chairman ARCHER. Are there any——

Mr. Stark. Mr. Chairman.

Chairman ARCHER. Mr. Shaw, are you finished with your in-
quiry?

Mr. SHAw. Yes, Mr. Chairman.

Chairman ARCHER. Mr. Stark.

Mr. Stark. Thank you, Mr. Chairman.

I just wanted to thank Ms. Jaggar for her testimony. In your in-
vestigation of this matter, did you find that the administration or
any of the Trustees did anything wrong?

Ms. JAGGAR. We found that the Trustees acted in accordance
with the requirements of the legislation regarding reporting infor-
mation about the status of the Trust Fund.

Mr. Stark. So you didn’t find that anybody did anything wrong,
did you?

Ms. JAGGAR. Nothing that would be called, I think, legally in
question.

Mr. STarK. Yes, OK—illegal—immoral. Do you know if the
Trustees’ loyalty oaths are all current?

Ms. JAGGaR. I am sorry, I could not hear you.

Mr. Stark. Do you know if the Trustees’ loyalty oaths are all
current?

Ms. JaGGar. No, sir, I don’t know that.

Mr. Stark. That might be important to know.

Well, Mr. Chairman, I think that the only comment I can make
is that—to call this hearing “immature,” and “irrelevant” is giving
it more kind treatment than it deserves. Fortunately, this is Feb-
ruary 29, and if memory serves me right, this kind of silliness can
only come up once every 4 years, and I hope that that augurs well
that we will not hear any more about it.

If in fact there is any blame, it is the Republican staff. If this
was important enough to know, and they were not smart enough
to read this report and tell you about it, if it were me, I would get
rid of the staff. If the Republicans feel that this is such an al-
mighty important issue——

Chairman ARCHER. Is the gentleman directing a question to the
witness?

Mr. Stark. No; I am just finishing my comment on my time, Mr.
Chairman——

Chairman ARCHER. Just ruminating.

Mr. SrarK [continuing]. And letting you know that I think if any-
body is screwed up, it was the Republican staff. Your staff tells me
he was here, that he only took 2 days off, so if he did not think
it was important and you guys did not act—Mr. Chairman, you
have said to the press that you are going to get some of this insur-
ance reform out of here by March, but I have not heard a peep out
of the leadership of this Committee about doing anything to save
the Trust Fund. And if in fact these things are important, in the
8 years or 10 years that I am aware that the now minority ran the
Health Subcommittee, this issue never came up. We met our re-
sponsibilities in a timely and bipartisan fashion. We had our hear-
ings, we had markups.

And I would just say that it is a sad day when we can posture
like this about saving the Trust Fund, and yet the leadership of


43

rupt in 5 years, and I challenge this administration to do some-
thing better than just oppose the Republican proposal.

Thank you.

Chairman ARCHER. The gentlelady’s time has expired.

Secretary SHALALA. If I might respond, Mr. Chairman.

Chairman ARCHER. I don’t think there was a question.

Secretary SHALALA. But the Congresswoman made some accusa-
tions. If I might respond.

Chairman ARCHER. Madam Secretary, you certainly shall have
time to respond.

Secretary SHALALA. Congressman Johnson, you have made our
case. We have been arguing about the urgency as Trustees from
the beginning. But since you don’t want me to talk about the Presi-
dent’s Medicare proposal, suppose I make some points about your
Medicare proposal.

Mrs. JOHNSON. Madam Secretary, I would be happy to talk about
both of those proposals in a setting in which we could come to
agreement. This hearing is about why this administration did not
pay attention to warning signs that are so serious that they have
not occurred since 1972, and when a similar situation, but not as
bad, occurred in the early eighties, we took strong action.

Chairman ARCHER. The gentlelady’s time——

Secretary SHALALA. Congressman Johnson, we have been warn-
ing the Congress since we arrived in this administration, in 1993,
in 1994, in 1995, in reports of the Trustees——

Mrs. JOHNSON. Madam Secretary, it was all talk and no action.

Secretary SHALALA [continuing]. With language that could not be
more urgent. And when the Republicans put a proposal on the
table that does not weaken the Medicare Program, like the MSAs
do, I would be happy to have——

Mrs. JOHNSON. Madam Secretary, our proposal does not weaken
Medicare.

Chairman ARCHER. The gentlelady’s time has expired.

Mr. Bunning.

Mr. BUNNING. Thank you, Mr. Chairman.

First of all, I would like to welcome the Secretaries to the “David
Letterman Show” chaired by Charlie Rangel. They want to make
light of the fact that there is a serious problem with our Medicare
system, and we are serious about addressing it.

We are serious about the manner in which the deficit was re-
leased in an overall omnibus release out of the Treasury. Rather
than coming to us and saying, Oh, by the way, we miscalculated,
or our projections are not right, and saying while you are in budget
negotiations that, by the way, those projections for Medicare, in-
stead of a $4+ billion surplus, we are going to have a shortfall of
$36 million.

Now, $36 million is not a lot in an overall program, but it does
red flag the program as turning negative before the Trustees an-
ticipated it turning negative, and that is a big problem.

I heard from both of the Secretaries—both of you in your state-
ments today said that there were going to be cuts in Medicare, in
the President’s proposal—cuts in Medicare.

Secretary Rubin, you just said it. Secretary Shalala, you just said
it—cuts in Medicare. Is that accurate—both of you?


CONTENTS

Page
Advisory of February 21, 1996, announcing the hearing... 2
WITNESSES
U.S. Department of the Treasury, Hon. Robert E. Rubin, Secretary «0... 22

U.S. Department of Health and Human Services, Hon. Donna

Secretary .. 7
U.S. General z ;  Jagear, ;

‘and Public Health Issues, Health, Education, and Human Services Div 66

SUBMISSIONS FOR THE RECORD

American Academy of Actuaries, Jerry Bogart, letter 98
American Hospital Association, statement

am


66

juster, so I wish you would comment on how you think medical sav-
ings accounts would affect Medicare if in fact they were enacted.

Secretary SHALALA. All of the analysts who have looked at medi-
cal savings accounts, including the Congressional Budget Office, be-
lieve that basically, they would segment the market and allow
those sponsors of the medical savings accounts to take out of the
pool those elderly people who are healthier and wealthier. These
are people who currently probably do not use very much Medicare
money, and then give them money that we would not otherwise be
spending on them.

An example of these kinds of people would be my mother, who
is 84 and plays tennis every day and is very healthy, who barely
dips into her Medicare insurance. We would be allowing her to get
money from the government that she would not otherwise get, and
that would weaken the Medicare Trust Fund because it would take
a healthier population out of it—but it is precisely why the Con-
gressional Budget Office said it would cost $4 billion as opposed to
saving money.

We believe that senior citizens ought to have alternatives, but
that those alternatives ought not to weaken any of the markets and
cost the Medicare Trust Fund more money than it would be cur-
rently spending.

Right now, I think about 11 percent of Medicare recipients never
dip into the Medicare Fund, and we have to be very careful that
we do not do something with them, spend money on them that we
are not now spending on them, because that is the way in which
we can spend money on those who are less healthy.

Ms. KENNELLY. So it is wise of me to keep looking at that.

Secretary SHALALA. Absolutely.

Ms. KENNELLY. Thank you very much, Madam Secretary.

Chairman ARCHER. Madam Secretary, thank you for taking the
time today. It has been over 2 hours, and we are very grateful for
that time. We know you have other duties, so you certainly are ex-
cused to go attend to those duties.

Thank you very much.

Secretary SHALALA. Thank you very much, Mr. Chairman.

Chairman ARCHER. Our next, Sarah Jaggar, Director of Health
Financing and Public Health Issues of the GAO.

Ms. Jaggar, thank you very much for coming to help us through
this process today. We would appreciate your statement, and you
may proceed.

STATEMENT OF SARAH F. JAGGAR, DIRECTOR, HEALTH

FINANCING AND PUBLIC HEALTH ISSUES, HEALTH,
EDUCATION, AND HUMAN SERVICES DIVISION, U.S.
GENERAL ACCOUNTING OFFICE

Ms. JAGGAR. It is a pleasure to be here, Mr. Chairman.

Mr. Chairman and Members of the Committee, you asked us to
be here today to testify on our ongoing review of the status of
Medicare’s Federal Hospital Insurance Part A Trust Fund. Specifi-
cally, the Committee asked us to determine, first, when the admin-
istration became aware that the Trust Fund had an operating defi-
cit of $36 million for fiscal year 1995 and how the information was


52

‘Outlays for the fiscal year totaled $1,514.4 billion, an increase of 3.7 percent from the 1994
level, the same percentage increase in outlays as for the previous year, Defense-Military outlays
continued their downward trend, falling $9 billion (3.4 percent) below the 1994 level. Social Security
benefits and Medicare outlays increased by $33 billion (7.0 percent) over 1994, about the same rate
of growth as during the previous year.

Other major benefits grew by $12 billion (3.7 percent) in 1995, down slightly from the rate
of growth in 1994 for this category of programs. Medicaid grants were up 8.6 percent, marginally
above the 8.3 percent growth in 1994. Unemployment benefit outlays continued to decline in 1998,
dropping $5 billion from the 1994 level, Food and nutrition outlays rose by only 2 percent in 1995
and supplemental security income benefits grew by less than 1 percent (1994 was boosted by an extra
‘monthly payment because of the calendar). On the other hand, EITC outlays were up 30 percent over
1994

Debt service costs rose sharply in 1995. Net interest on the public debt rose by $29 billion
(13.6 percent) aver the 1994 level. Other federal program outlays, however, fell by $11 billion (5.9
percent), but this was the result of spectrum auction receipts of $7.6 billion and a $10 billion increase
in net negative outlays for deposit insurance programs. If these two items were excluded, other
federal program outlays rose by $7 billion (3.6 percent) over the 1994 level.

TABLE 6. FISCAL YEAR 1995 QUTLAYS (In billions of dollars)

BO CRO
March August CBO cBO
Major Source Baseline Baseline Actual March August
Defense-Mititary 2583 255.3 259.6 12 42
Social Security
and Medicare S108 $09.8 $09.0 19 0.9
‘Other Major Benefits 333.3 331.5 310 23 0.5
‘Net interest on
the public debt 243.5 240.4 239.2 ad
Other federal programs _ 183.9 812 1786 :
Total Outlays 1,529.9 1,518.2 1,514.4 3.8

Note: Deteils may nor add to vrais because efrownding,
‘Less than 330 milion

Total outlays in 1995 were $15.5 billion lower than we projected in our March baseline and
$3.8 billion below our August update estimate. The comparable OMB misestimates were $24.5
billion for the February budget and $3.5 billion for the July mid-session review. As shown in Table
6, the bulk of the lower-than-expected spending from the CBO estimates were in the “other federal

" category and involved a variety of programs inctuding deposit insurance, CCC farm price
supports, Public Heslth Service, Justice Department, NASA, and the Postal Service


26

change our conclusion that we must deal with the Medicare Trust
Fund.

Chairman ARCHER. All right. Did you attend the December 13
Trustee meeting?

Secretary SHALALA. I did.

Chairman ARCHER. Was the shortfall discussed at that meeting?

Secretary SHALALA. It was. It was reported, and I specifically
asked a question on what accounted for it. Administrator Vladeck
had some information, and I specifically asked that we get a lot
more information about what was happening to the Trust Fund.

Chairman ARCHER. So it was specifically discussed at the Decem-
ber 13——_

Secretary SHALALA. It was discussed.

Chairman ARCHER. Was Secretary Rubin at that meeting?

Secretary SHALALA. He was.

Chairman ARCHER. OK. Thank you very much.

Secretary Rubin, you also are a Medicare Trustee.

Secretary RUBIN. That is correct.

Chairman ARCHER. With the very special extra responsibilities
that I know you take very seriously. And you are actually the man-
aging Trustee of the Board of Trustees, is that not correct?

Secretary RUBIN. That is correct, Mr. Chairman.

Chairman ARCHER. And Secretary Shalala said you were at the
December 13 meeting; I assume that is true?

Secretary RUBIN. That is also correct.

Chairman ARCHER. Can you tell us whether you recall it being
discussed at the December 13 meeting?

Secretary RUBIN. Mr. Chairman, I do not know whether the—I
do not recollect the discussion that Secretary Shalala just reported,
although if she reported it, it undoubtedly occurred. But I really do
not think that is the point. I think the point is the point that Sec-
retary Shalala made. In our April report, what we said was that
with the exhaustion date approaching, the near- and long-term sol-
vency of the Medicare Trust Fund had to be addressed. That was
our consistent position, it is what we worked for through this en-
tire period.

I might observe, as Secretary Shalala observed, that Senator Do-
menici’s report on February 12, specifically referring to the num-
bers, to the performance in 1995 in the HI Trust Fund, said: “The
recent changes in projections do not significantly affect the longrun
Medicare situation.”

Chairman ARcHER. Mr. Secretary, you and Secretary Shalala
have now repeated that three times. I think it is in the record, and
it is not necessary to repeat that.

Secretary RUBIN, Well—

Chairman ARCHER. I am curious as to what capacity you at-
tended that December 13 meeting.

Secretary RUBIN. I attended as a Trustee.

Chairman ARCHER. Were you also chairman of that meeting?

Secretary RUBIN. Yes. I am the managing Trustee of the Medi-
care Trust Fund.

Chairman ARCHER. But you don’t recall what Secretary Shalala
says was specifically discussed at that meeting?


22

Chairman ARCHER. Thank you, Madam Secretary.
Secretary Rubin, we would be pleased to receive your testimony
now.

STATEMENT OF HON. ROBERT E. RUBIN, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY

Secretary RUBIN. Thank you, Mr. Chairman.

Thank you for having us here today to discuss a subject that is
of enormous importance to the country—Medicare, and particularly
the Medicare Part A Trust Fund. My testimony is brief, but let me
summarize if I may the most important points.

First, the Trustees regularly report the financial status of the
Medicare Funds in conformity with law and precedent. The Trust-
ees during this administration have never deviated from the prac-
tices of previous administrations in making these disclosures—not
once, not for any reason.

Second, following our established procedures, the Board annually
reports the current and projected financial status of the Funds to
the Congress as we did last April. In addition, the Treasury De-
partment reports monthly on receipts and outlays in the Fund and
issued its fiscal 1995 yearend report last October 27. That report,
Mr. Chairman, which I hold in my hand, was a public document—-
in fact, this is a press release that says “Embargoed for Release at
2 p.m. EDT,” so it was publicly available—and it has highlighted
in it on the initial summary certain of the information with respect.
to Medicare.

These reports are provided to every Member of this Committee
and to the public, and every member of the negotiating team on
both sides, with respect to both parties, had received copies of this
report. Indeed, as Secretary Shalala mentioned, the Congressional
Budget Office and the American Academy of Actuaries analyzed
the yearend report and in turn made their findings public within
2 months of issuance.

Third, each year, the actual results differ slightly from the fore-
casts. As Senator Domenici and the Senate Budget Committee staff
have pointed out, neither the administration nor the Congress
looked at these fluctuations as significant in the Medicare debate.
Whether they improve or regress does not affect in any way what-
soever the need to extend the life of the Medicare Trust Fund. And
while we disagree on policy, Mr. Chairman, as Secretary Shalala
said, our shared concern must be how we can extend the life of the
Fund to maintain the viability and vigor of the Medicare Program.

These are the facts. In our April 1995 Trustees’ Report, we con-
cluded that, using intermediate assumptions, the HI Trust Fund
would be depleted in 2002—a l-year change from the 2001 esti-
mated in the 1994 report.

We asked Congress to take remedial action to fix the HI Trust
Fund on a near-term basis and then to make long-term changes in
the system to accommodate the influx of the baby boomer genera-
tion. The first baby boomers will reach age 65 in the year 2010. We
felt that this would provide adequate time for responsible, biparti-
san, long-term solutions to the financing problem.

Last June, the administration put forth a proposal that the
Health Care Financing Administration Chief Actuary certified


34

Mr. Tuomas. I did not use the word “trivial.” That was in a
memo to you.

Secretary SHALALA. And all of the information in the memo to
me, as well as what I heard at that meeting, was consistent with
what we had urged Congress to do.

Mr. Tuomas. Madam Secretary, here is the real problem, and
this is looking forward as Mr. Gibbons urged us. On the left was
the fiscal year 1995. Encapsulated in blue are the first 4 months,
which showed a $3+ billion amount. But for the entire year there
was that deficit of $36 million.

My real concern is that on the right side of that chart is fiscal
year 1996, and in fiscal year 1996, we do not have the frontload
in the first 4 months of that more than $3 billion.

Now, what happened with the actual numbers was that we were
in the worst case scenario, according to the profiles as outlined by
the Medicare Trustee actuaries. Where are we if, in the first 4
months, we have only that much of a frontload? What is going to
be the yearend in fiscal year 1996, and are we going to be outside
the worst case scenario as profiled by your actuaries?

{The following was subsequently received:]


58

We then went through the process of the television ads, which
were played in my district repeatedly, that demagogued the issue
and misinformed the public as to what the problem was and what
we were doing. We in turn moved from about a $270 billion reduc-
tion in the rate of growth to a $168 billion reduction in the rate
of growth, so over $100 billion, in the process. I just ask you this
question, because these are ongoing negotiations to try to save the
program, has the administration moved from $124 billion? We have
gone from roughly $270 to $168 billion.

Secretary SHALALA. Let me first, before we get into the negotia-
tions, indicate that the material was properly released. We never
publicly released information from the December meeting of the
Medicare Trustees, but the official release of detail and data that
was released was released in the proper channels. And the GAO re-
port, which reviewed the release of this information, did not indi-
cate that there was anything improper in the information we re-
leased, and that we annually released the details officially as part
of our April report.

Mr. PorTMAN. I think we have gone over that in some detail
today, and I purposely was not going to focus on that. If you would
like to, I am happy to, because I think there was on the part of
the fiduciaries of the Fund a responsibility to report the informa-
tion properly, and it was not done so. But I am talking about what
you said you wanted to talk about, which is the future and how we
get there.

You have gone from $124 billion to where over the last year?

Secretary SHALALA. Let me say that we have been at $124 bil-
lion. Those are very deep cuts in the program, but at the same
time, we have made recommendations that would make the pro-
gram more competitive. We have objected to Republican proposals
that would cost money, weaken the Trust Fund, and shift costs to
beneficiaries. But we are not willing to da—

Mr. PorTMAN. Well, let me just focus on that, because——

Secretary SHALALA [continuing]. What you are obviously willing
to do—we are not prepared to shift costs to beneficiaries.

Mr. PorTMAN. Well, I am willing to make significant changes to
an entitlement program that needs changes, and you have not
moved from $124 billion, which I guess is your answer. Let us talk
about the beneficiaries. In your statement, you say that “Our pro-
posal does not impose additional costs on beneficiaries.” You also
say in your statement to us this morning, “Beneficiaries’ out-of-
pocket expenses should not be substantially increased,” implying, of
course, that the Republican proposal does that.

Let us talk about that since you just brought it up again, because
this is where we are getting into how do we bridge this gap. You
say it is so important that we save the program, we say it is impor-
tant, and yet there is no movement on your side, and there has
been substantial movement on our side.

What is the difference in cost to the beneficiary over the next 7
years? It is my understanding that the difference between the ad-
ministration’s plan and ours is between $5 and $10 per beneficiary
per month—$5 to $10 a month—is that what you would call a
major difference, a substantial increase? Is that the reason why
you are not willing to come together with us to solve the problem?


76

cally, the U.S. Treasurer, has a fiduciary relationship to that Trust
and a responsibility to report specifically to Congress.

Now, I would like to go back to the question of the meeting and
the minutes of the meeting—was it December 13-——

Ms. JAGGaR. Yes, sir.

Mr. SHaw [continuing]. That Secretary Shalala indicated and you
confirmed in a response to a question by Chairman Archer, that
the question of the Trust Fund going into the red, being that more
was going out than coming in, was discussed at that meeting.

Ms. JAGGAR. Yes, sir.

Mr. SHAw. Do the notes indicate who discussed it?

Ms. JAGGAR. Briefing documents that were handed out in ad-
vance of the meeting so that people would know essentially what
the agenda was, indicate that Mr. Vladeck, who is the Adminis-
trator of the Health Care Financing Administration, would present
the information about the status of the HI Trust Fund. The meet-
ing notes indicate that that is indeed what happened.

Mr. Suaw. Do the notes reflect that the deficit in the Trust Fund
was discussed at the meeting?

Ms. JAGGAR. Yes, sir.

Mr. SHAW. Does it indicate who discussed it?

Ms. JAGGaAR. Other than Mr. Vladeck presenting the information
about the status, the notes that we have seen do not say who asked
what questions about it.

Mr. SHAW. What questions were asked?

Ms. JAGGAR. I am aware that a question was asked as to wheth-
er or not the causes and factors affecting the more rapid expendi-
ture and higher outlays would be thoroughly explored and pre-
sented in the Trustees’ Report. And the answer was that, yes, they
would be so discussed.

In addition, I should mention that the Trustees routinely have a
meeting, their second meeting of every year, before that report is
made public, to review the report and discuss the issues that are
going into it.

Mr. SHAW. What other matters were discussed at that meeting?
Were there other matters discussed at the meeting, other than the
status of the Trust Fund?

Ms. JAGGAR. The status of the other Trust Funds, because this
is a meeting also for the Social Security Trust Fund, and its status
was also discussed.

Mr. SHAW. What other——

Ms. JaGGar. And in addition—I have the agenda, if you will wait
one moment—but in addition, there were new public Trustees who
were present at this meeting, and they were introduced and wel-
comed.

Mr. SHAw. Mr. Chairman, I wonder if we could see the agenda
that the witness has referred to.

Chairman ARCHER. Without objection——

Mr. SHaw. Could we look at that, please? Could somebody bring
that up and let the Committee see what the witness has in her
hand?

Chairman ARCHER. Without objection, it will be inserted in the
record.

[The documents follow:]


28

Chairman ARCHER. Well, actually, it really wasn’t a question, but
you certainly are free to respond.

Secretary RUBIN. Well, it has the nature of a comment—it is a
question, I guess. My comment is not that you should have known
of the material in this document. My comment was that it was
broadly distributed, including to each Member of Congress.

I will stick with what Senator Domenici said, and I will not
quote him again because as you observed, he has now been quoted
a number of times. But I would also observe that the CBO revised
their baseline, and when they came to the December 12, I believe
it was, negotiating session, and they had already revised their
baseline to reflect these numbers, they too did not mention these
numbers. And I think the reason they did not mention these num-
bers, Mr. Chairman—and this is the point that I was trying to
focus on—is that all of us, based on all of the information with re-
gard to the HI Trust Fund, were committed to the proposition that
we need to deal with both near- and long-term solvency, and these
numbers did not change whatsoever the need to address that prob-
lem.

Chairman ARCHER. Well, it still is very interesting to this Com-
mittee that you as the managing member of the Board did not
know about this until you read a press account about it in Feb-
ruary of this year. And I believe you that you are being totally
forthright in saying that you just do not remember it, but it does
strike me as being rather strange.

Mr. Gibbons.

Mr. GIBBONS. Mr. Chairman and witnesses, I think we would
serve the country better if we spent more time discussing how you
fix the problem rather than trying to assess blame around here.

Madam Secretary, I would like for you to tell me as briefly as
you can what changes you think this Congress should make in the
Medicare Part A Trust Fund.

And Secretary Rubin, I would like for you to tell this Committee
what is going to happen to Medicare and the whole rest of the gov-
ernment if we do not get our work done in passing a clean debt
ceiling by the middle of this month.

Secretary Shalala, would you go first?

Secretary SHALALA. Thank you, Congressman Gibbons.

The President has laid out in his balanced budget proposal a se-
ries of changes in the Medicare Program that will improve the
managed care options of new plans including PPOs and PSOs, im-
prove the program’s payment methods, improve the quality protec-
tions and provide better beneficiary information.

In addition to that, the President has recommended that we ex-
pand some of our prevention benefits, including mammogram cov-
erage. The President also included considerably stronger waste,
fraud and abuse protections, in his proposal.

To achieve $124 billion in savings, we propose to slow down the
growth of Medicare with a series of very specific recommendations
on hospital updates, on other special hospital payments, on an SNF
prospective payment system, on a home health prospective pay-
ment system, on HMO payment revisions, and on physician up-
dates. We have given the Congress a very specific set of cuts that
will slow down the growth of the Medicare Program as well as a


94

Mr. Lewis. Ms. Jaggar, were you asked to examine the personal
calendars for the month of December of the Secretary for Health
and Human Services and the Secretary of the Treasury?

Ms. JAGGAR. We were asked to identify whether those individuals
had—I should say verify—whether those individuals had partici-

ated in meetings to discuss budget negotiations subsequent to
faving been informed about the status of the Trust Fund, and we
did do that.

Mr. Lewis. So did anyone on your staff examine all of the cal-
endars for the month of December of the two Secretaries?

Ms. JAGGAR. We contacted the “handlers,” if you will——

Mr. Lewis. The schedulers?

Ms. JAGGAR. The schedulers—the schedulers of each of the three
Secretaries because Secretary Reich is also a Trustee member and
was in attendance at the meeting. We obtained the calendars—in
some cases, not the full calendar, but the relevant portions of the
calendar that would show whether the Secretaries also had partici-
pated in the budget negotiations subsequent to the Trustees meet-
ing.

Mr. Lewis. Ms. Jaggar, I know you are carrying out your job and
your duty, your responsibility, but it just seems so strange to me,
that it would be a better use of the limited resources of GAO to
try to find a way to strengthen and protect Medicare, maybe to look
at some of the abuses, fraud and waste. But I appreciate your testi-
mony.

Ms. JAGGAR. Thank you, sir.

Mr. LAUGHLIN. OK. That concludes the hearing. I thank the wit-
ness for being with us, and we stand adjourned.

[Whereupon, at 1:20 p.m., the hearing was adjourned.]

(Submissions for the record follow:]


9

The Treasury reports are widely distributed to each Member of
Congress, to the Congressional Budget Office, this Committee, the
House and Senate Budget Committees, the Senate Finance Com-
mittee, and others on request.

The data provided in the Treasury reports are analyzed by a va-
riety of public and private agencies and organizations. For exam-
ple, in November of last year, the Congressional Budget Office re-
ported on the Treasury data for fiscal year 1995 in a report enti-
tled, “Analysis of the September Treasury Statement.”

In addition, CBO used this data to update their Medicare base-
line in December 1995, which reflects the higher growth on part A
spending and the lower growth on part B spending.

Furthermore, the American Academy of Actuaries noted in its
December 1995 report, “Comments and Recommendations on Medi-
care Reform,” that the total expenditures exceeded income for the
Hospital Insurance Trust Fund in 1995.

On February 12, 1996, in a bulletin released by the Senate Budg-
et Committee, Chairman Domenici acknowledged having received
the Treasury data in October and noted, “The recent changes in
projections do not significantly affect the longrun Medicare situa-
tion.”

I would now like to talk specifically about how one should inter-
pret the information that is provided in the Trustees’ Report.

The primary purpose of the Trustees’ Report is to provide esti-
mates of the future financial status of the Trust Fund for use by
the Congress in making decisions about the Medicare Program. Be-
cause of the uncertainty inherent in projections, the future status
of the Trust Fund is examined under three alternative sets of as-
sumptions: “intermediate,” “low cost” and “high cost.” The inter-
mediate set of assumptions represents the Trustees’ best estimate
of expected future economic and demographic trends—in employ-
ment, in wage increases, in health care prices, and utilization and
other factors that will affect the financial status of the Trust Fund.

Each year, the Trustees’ projections are updated, using the most
recent available information on several factors, including inflation,
wages, and utilization. One of those factors is actual experience in
the past year.

For example, the Treasury report released in October provided
actual cash revenues and outlays from the Part A Trust Fund for
fiscal year 1995. This information on actual experience will be in-
corporated into future projections.

In summary, projections in the Trustees’ Report are routinely up-
dated to reflect actual experience and new economic data, but the
projections themselves remain estimates of the future of the Medi-
care HI Trust Fund. Any given projection of Trust Fund status, by
its very nature, cannot be expected to exactly mirror actual experi-
ence.

The Trustees construct our projections with the best and most re-
cent information available and continually benchmark projections
against actual results to obtain feedback on improving our meth-
odology. Consequently, the Trustees’ projections provided the most
useful guides available to decisionmakers in addressing the issues
of an uncertain future.


17

DEPARTMENT OF HEALTH & HUMAN SERVICES (Ortce of the Secratry

Wesrington, OC. 20201

DEC 8 195

To: ‘The Secretary
Through: DS

From:

Phase and Svanion 1 (a Peter tddnwe),

Subject: December-13 Meeting of the OASDI, HI, and SMI Boards of Trustees —
BRIEFING

PURPOSE:

‘To provide information about the board meeting and topics that may be discussed at the meeting
of the Federal Old-Age, Survivors, and Disability Insurance (OASDN, Federal Hospital Insurance
(HD, and Federal Supplementary Medical Insurance (SMI) Boards of Trustees. To recommend
responses to specific issues that may be raised during the meeting,

BACKGROUND

‘The Boards are comprised of six Trustees: The Secretaries of the Treasury, Labor, and Health
and Human Services, the Commissioner of Social Security, plus two Public Trustees. The
Secretary of the Treasury is the managing Trustee and presides at the meetings which are held
every Spring and Fall. The Principal Deputy Commissioner of Social Security is Secretary to the
Board for the OASDI Trust Funds. Since the Principal Deputy Commissioner will be out of town.
(on the date of the meeting, another Deputy will be acting in his place at this meeting. The
Administrator of the Health Care Financing Administration (HCFA) is Secretary to the HI and
SMI Boards. The primary responsibilities of the Boards relate to management of the trust funds
485 opposed to direction of general program policies. ‘The main purpose of the Spring meeting is
‘to adopt and to sign the annual reports of each of the trust funds. Members of the Boards are
updated on the financial status of the trust funds and on other relevant activities at the Fall
Meeting.

‘The boards will approve the minutes of the April 3, 1995 meeting (Tabs C and D)

‘Secretary Rubin will introduce the two new Public Trustees to the board during the meeting. Tab
B has short biographies of the Trustees.


83

Mr. SHAW. Do the notes indicate that this was a principal matter
of discussion at that meeting or an incidental matter of discussion?

Ms. JAGGaR. The entire meeting lasted about 18 minutes, as you
have heard today, and according to the notes that we have, it was
one matter; it was not the primary matter, and it was not brushed
over. It was talked about I would say briefly, given the time con-
straints—not the principal topic of discussion.

Mr. SHAaw. How many matters were referred to in that meeting?

Ms. JAGGAR. Sir, I have that information, and I would like to
give it to you later. I have it——

Mr. SHAW. Perhaps you could supply it for the record.

Ms. JAGGAR. Yes, sir, I would be delighted to. What we could do
is we could provide the agenda for the meeting, which would pro-
vide that information for you, and then a copy of the rough notes
that were taken, which would show you that those topics were dis-
cussed. They are handwritten notes, and a bit cryptic, as hand-
written notes tend to be, but that would show you what was dis-
cussed.

Chairman ARCHER. Without objection, that will also be inserted
in the record.

Ms. JaGGar. Thank you.

{The following was subsequently received:]


5

Secretary Rubin and the Office of Management and Budget Direc-
tor Alice Rivlin on October 27.

This statement listing the entire receipts and outlays in great de-
tail of every function of the Federal Government was mailed to con-
gressional offices and to numerous government agencies. It was
not, however, made public or made available to the press.

I personally believe this was an inadequate and inappropriate
way to highlight a major milestone in Medicare. While I have no
doubt that you can cite some technicians who were able to find this
needle in a haystack, I do not think this manner of disclosure was
sufficient to bring it to the attention of the public, to policymakers,
or even to some of Medicare’s own Trustees; and I suspect Sec-
retary Rubin might possibly agree with that statement.

It should also be noted that the administrator of the Health Care
Financing Administration did not become aware of this information
until early December, more than 1 month after the release of the
45-page statistical printout. And my understanding is that Sec-
retary Shalala did not become aware of it until mid-December.

When all is said and done, what does this new information
mean? I conclude that we should continue our efforts to pass a bill
that saves Medicare and do it this year. Chairman Thomas is work-
ing with a group of Democrats to develop a bipartisan bill that pre-
serves, protects and strengthens Medicare. I hope he will be suc-
cessful and that the Clinton administration will work with us to
pass such a bill.

Separate and apart from this legislation, however, our Commit-
tee does have significant important oversight functions. These in-
clude reviewing the changing status of the Trust Fund and wheth-
er the Trustees adequately fulfilled their responsibilities and obli-
gations as the leaders in whose hands the public puts that trust.

I am now happy to yield to the Ranking Minority Member, Mr.
Gibbons, for a statement.

Mr. GisBBons. Thank you, Mr. Chairman. I listened very closely
to what you had to say, and this is not a time for us to bicker about
the fact that we all missed the announcement that the Trust Fund
was running out of money sooner than proposed. From what I
know about the situation, our staffs were too busy, for good reason,
to read all the detail of the reports that came to us and that come
to us all the time. In fact, the press was too busy, everybody was
too busy and just overlooked the situation. That is regrettable.

But that is water over the dam, and it is time for us to go for-
ward. I think we as Democrats are willing to tell you and the other
Members of this Committee and the public that we want to sit
down with this Committee at the earliest possible date to try to
work out the differences we have over Medicare. We want to save
the program, and we do not want to pass any additional costs on
to the beneficiaries. We believe there are ways in which the Part
A Trust Fund can be saved, without any radical changes in it.

The President of the United States has put forward a program
that would extend the program to the same extent, I believe, as far
as your program would. There are many things in all of this that
we can agree to and agree to rather readily, but I think all of us
are going to have to be willing to do some working together to get


81

TabA

ANNOTATED TENTATIVE AGENDA FOR THE SECRETARY
BOARDS OF TRUSTEES MEETING
OASDI, HI, AND SMI TRUST FUNDS
ROOM 3327, MAIN TREASURY BUILDING
‘WEDNESDAY, DECEMBER 1 3, 1995, 11:00 A. M.

Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal
Disability Insurance Trust Fund
Board of Trustees of the Federal Hospital Insurance Trust Fund
Board of Trustees of the Federal Supplementary Medical Insurance Trust Fund
1. Approval of the Minutes of April 3, 1995 Meeting

The minutes for the December Meeting have been reviewed by staff and are
acceptable as submitted.

2. Adoption of the Agenda
The Agenda is acceptable.
31 Financial S {the Social Sesuri Medicare TrustE

a Presentation on the Old-Age, Survivors, and Disability Insurance
(OASDI) Trust Funds.

‘Ms. Colvin or Mr. Ballantyne will make the report.

b: Presentation on the Hospital Insurance (HI) and Supplementary Medical
Insurance (SMI) Trust Funds

Mr. Viadeck will make the report.

If it seems appropriate for you to comment on the HII (Part A) balance, you
might say


92

ing the status of the Medicare Trust Fund as part of the Medicare
Trustees’ Report.

Mr. McDermott. Thank you very much for your report.

Mr. LAUGHLIN [presiding]. The time of the gentleman has ex-
pired.

Mr. English may inquire.

Mr. ENGLISH. Thank you, Ms. Jaggar. I appreciate your testi-
mony, and if we could, I would like to walk through a couple of ele-
ments of it.

My understanding from your testimony is that you have exam-
ined the relevant documents as you were tasked to do and that you
have discovered that indeed, in late October, it became apparent
that the Part A Trust Fund was running not a surplus for the last
year as expected, but actually was running a deficit; is that cor-
rect?

Ms. JaGcar. That is correct.

Mr. ENGLISH. And that shortly thereafter, that information be-
came available to the individual Trustees and that that included
the two Cabinet members who testified today?

Ms. JacGar. Yes, sir—if “shortly thereafter” is December when
they became aware of it.

Mr. ENGLISH. December.

Ms. JAGGaR. Right.

Mr. ENGLISH. And then, at a meeting which both of the Cabinet
members as Trustees attended and which Mr. Rubin presided over,
this matter was discussed.

Ms. JAGGAR. Yes, sir.

Mr. ENGLISH. And that there was a report mailed out, which I
believe we have copies of here, which included, buried in a moun-
tain of data, a reference to the fact that part A was currently run-
ning a deficit. Have you examined that report?

Ms. JAGGAR. Yes, sir.

Mr. ENGLISH. Did you see anything that in any way highlighted
that figure or called attention to it?

Ms. JAGGaR. I think that it is important to recognize that that
report is normally the focus of people who, if you will allow me to
call them technical individuals, actuaries and the like, who read
numbers frequently——

Mr. ENGLISH. Right.

Ms. JAGGAR [continuing]. And there is a reference in the material
to the variation in outlays. I don’t know whether a technical person
would consider that highlighting it or not.

Mr. ENGLISH. I used to be the executive director of our State Sen-
ate Finance Committee for the minority, so I used to receive re-
ports like this on a regular basis from various departments of State
government, and we were virtually awash in them, and I imagine
you have to be familiar with how many reports come into legisla-
tive offices, that certainly, this was one of many, many reports that
came in.

Ms. JAGGAR. Right. There was not a special notice that was
made—

Mr. ENGLISH. There was no special notice, and it was simply a
technical report that included that detail buried in it.

Ms. JAGGAR. That is how I would characterize it.


60

It seems to me that the proposals they are offering as solutions
to the Medicare problem make its financial condition worse, and I
would like your comments about what it is that they have proposed
and what the President has proposed and what the differences are,
and why the President’s proposal is better, because I personally
think the President has made a good proposal.

Secretary SHALALA. Two points about the Republican plans. One
is that they do indeed have costers; that their proposals will weak-
en the Medicare Trust Fund directly, as you pointed out, with the
medical savings accounts. But in addition, the medical savings ac-
counts will also weaken the pool, because it will allow cherry-
picking of those who are wealthier and healthier, which will incur
costs on the Medicare Program.

The Republican plan has significant savings because they shift
costs onto the beneficiaries, and as I pointed out, the average elder-
ly person in the Medicare Program has an income of $13,000 a
year. They already pay 20 percent of that in out-of-pocket health
care expenses. They are being asked to go out into managed care
companies or other kinds of alternatives that may be able to charge
them more on top, and even if they went out into managed care,
the Republican proposal does not allow them to come back into the
traditional Medicare fee-for-service because they cannot get their
Medigap plans back.

For a senior citizen, it is the worst of every world, choice that
is not choice at all, increasing costs, weakening of the Medicare
pool by putting in costers, and weakening of our ability to fight
waste, fraud and abuse because of cuts in both HCFA Administra-
tion budgets as well as eliminating some of the referral restraints
that we have put on in the past.

What the President does is protect beneficiaries, increase choice
for the beneficiaries so that more beneficiaries can choose not only
managed care, but PPOs and other kinds of new delivery systems.
It protects them to come back into traditional Medicare if that is
what they want to do, and at the same time, firmly squeezes down
on the growth of the Medicare system, mostly on the provider side,
which we think is very important.

Mr. McDermott. Do I understand what you are saying is that
if someone chooses a managed care plan—some senior citizen—once
they go into that, if they get dissatisfied with it, and they would
like to go back into the fee-for-service system, they will not be able
to get Medigap insurance? Is that what you are saying?

Secretary SHALALA. That is what I am saying. If you will remem-
ber, the Medigap period for enrollment is the first 6 months, and
there is no provision in the Republican plan that if you go out to
a managed care plan that you can go backward and go back in. So
it is not real choice.

Real choice is where you could go back and forth and change
your mind. Many seniors may not like managed care. They may
well want to go back into traditional Medicare, into the fee-for-
service. Most of them will have preexisting conditions, so they
won't be able to get their Medigap plans back. We will not be able
to protect them under the Republican plan to go back into
Medigap.


56

and Social Security Trust Funds, a total, I think, of a little over
$9 billion for all the trust funds put together. And there is no res-
toration of interest provisions for those trust funds, so what you
say is correct. Congress would have to legislate to provide the res-
toration of interest.

Mr. Lewis. Do you have any legislation coming before you? Has
anyone on the other side, the majority side, offered a proposal to
you and to the administration?

Secretary RuBIN. No, they have not, Mr. Lewis. I think your
basic point is exactly right. It is absolutely essential that this debt
limit ceiling be increased on a long-term basis and that that be
done very promptly.

Mr. Lewis. Madam Secretary, it is my understanding that you,
other members of the administration and the President are going
all out to protect Medicare. This is how we should be spending our
time—trying to address the big issue, the global picture of protect-
ing Medicare.

Wouldn’t you agree, and would you like to elaborate?

Secretary SHALALA. Congressman, we have laid out a plan that
will extend the life of the Medicare Trust Fund, and that plan in-
cludes reductions in the growth for hospital updates and other spe-
cial kinds of what we have both described as cuts of $124 billion.

In addition, we have made recommendations to this Congress
that will allow for more choice for Medicare recipients but also
allow us to get more efficiency in the system through PPOs,
through PSOs, through improved payment methods, through
stronger quality protections.

Our great concern is that the proposals that we have seen thus
far from your Republican counterparts in fact have some sugges-
tions that would weaken the Trust Fund. The medical savings ac-
counts, the Congressional Budget Office has already said, are a
coster—$4 billion wasted, that will come from the Medicare Trust
Fund, that will weaken the Trust Fund, as well as other rec-
ommendations that will allow for cherrypicking or allow for things
that we have banned before, like self-referrals by doctors, which
the CBO has also said would weaken the Trust Fund.

It is time that we got on with this, and I repeat what I repeated
at the single hearing that I attended on Medicare, and that is we,
must deal with the Trust Fund issue.

Mr. Lewis. Madam Secretary and Mr. Secretary, thank you.

Mrs. JOHNSON [presiding]. Mr. Hancock.

Mr. HANcock. Madam Secretary, a real quick one. You said that
allowing people to save their own money to pay their own medical
bills is wasted money for the government?

Secretary SHALALA. I—excuse me?

Mr. HANCOCK. Yes, you did. You said that the MediSave plan
was wasted money.

Secretary SHALALA. No. I—

Mr. HANCOCK. How can you logically say that to allow people to
save their own money to pay for their own medical bills is wasted
money from the government? I’m sorry, I——

Secretary SHALALA. Medical savings accounts—I did not say it.
What I said was that the Congressional Budget Office said that we
were spending money that we would not otherwise spend in the


18

‘Your letter also asked for the latest projections for the Trust Fund. The :
projections you described in your letter are made annually by the HCFA actuaries
and included in the annual Trustees Report. It is important to note that the
performance of the Trust Fund in fiscal year 1995 is just one of many factors upon
which the HCFA actuaries base their projection of the Fund's performance over the
longer term, and its projected depletion date. In making these projections, the
HCFA actuaries not only analyze data conceming the actual experience in 1995, but
also the additional experience in the current fiscal year, new analyses of the factors
affecting HI benefit growth during fiscal years 1990-1995, updated projections of HI
payroll tax income and revenue from the taxation of OASDI benefits and current
interest rate expectations,

They are currently engaged in this very activity, and their projections will be
included in the 1996 Trustees Report, as they are each year. Although the report is
typically issued in April, the HCFA actuaries have informed me that this year's
report may be delayed by about six weeks because of the government furlough and
snow storms. We will of course make it available to your Committee, all Members
of Congress, and the public as soon as it is completed.

‘Without the detailed analysis that these projections involve, it is too soon to
draw firm conclusions about the extent to which the performance of the Trust Fund
in fiscal year 1995, or the many other factors that affect the Fund, will affect the
‘Trust Fund's estimated depletion date. Despite the fact that these projections are
not yet available, the HCFA actuaries provided the following calculation: using the
(no longer current) assumptions from the 1995 intermediate Trustees Report
estimate, and reflecting only the actual Fund operations in fiscal year 1995, they
calculate that under those outdated assumptions the projected depletion date would
move back from 2002, as estimated in 1995, to 2001, as estimated in 1994. This
estimate does not take into account changes in any of the many other data and
assumptions that are being reviewed, including such obviously important factors as
economic performance, current interest rate expectations, health care costs, HI
payroll tax income and revenue from the taxation of OASDI benefits.


47

What should we be doing to make sure that this thing is looked
at in terms of its trends, the actual numbers, and is there some-
thing we should be doing differently? I ask those questions.

Secretary SHALALA. Congressman Houghton, thank you for the
question. Even though under the interim projections, the estimates
that we were given were within the normal range of variation, we
asked that the actuaries and our analysts look within those num-
bers to see if something different is happening. At that meeting,
Bruce Vladeck said something about hospital admissions going up
somewhat more than projected, from 3.2 to 3.5, but I specifically
asked them to get inside the numbers.

For example, most recently, there may be some evidence that the
hospitals are putting in their bills earlier than they have in the
past. We need to find that out, and in our April report, we will re-
port that to Congress in more detail. But since we don’t have the
final numbers yet, and the analysis goes on during the course of
the year, and then we report in April, you can be assured that if
something different is going on, we will report it in detail with as
much accuracy as we can to Congress.

Mr. HouGutTon. Yes, I think that is helpful, because—although
this will not happen because the numbers dramatically changed in
terms of their magnitude—if we slip a year, and next year we slip
another year, that is something we have got to be very, very sure
0

Secretary SHALALA. Thank you very much, Congressman. And I
want to make the point that even when the variations are within
the range, it does not mean that we are not anxious to find out
what is going on. It is very important in terms of the kinds of re-
forms that both Republicans and Democrats are talking about that
we know what is going on in terms of Medicare expenditures, and
that is exactly what we are trying to assure.

Mr. HouGuHTon. Sure. Secretary Rubin, do you have any com-
ment?

Secretary RUBIN. No. I would exactly identify with Secretary
Shalala’s comments.

Mr. HoucurTon. Fine. I yield to Mr. English, if that is all right,
Mr. Chairman.

Chairman ARCHER. Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman, and I would like to
thank the gentleman from New York, my distinguished neighbor,
for allowing me to speak.

I have a comment and then a question for both Secretaries. I
have listened with a great deal of interest to your testimony this
morning, and I am intrigued by it.

Secretary Rubin, I do not have your financial expertise. However,
I did serve as Trustee of a municipal pension system in the third
largest city in Pennsylvania, and when we were facing a terrible
financial problem, I felt obliged to go public with it because it was
obvious that it would have a direct impact on the deliberations be-
fore city council occurring at that time.

Now, the gentleman from Maryland has suggested that since the
bankruptcy of Medicare is a few years away, that perhaps this was
not an immediate problem, but I think when Medicare goes bank-
rupt and how quickly it is going bankrupt, and the fact that it was


51

TABLE 4. FISCAL YEAR 1995 RECEIPTS (In billions of dollars)

CBO CBO Actual Less__

March August CBO CBO
Major Source Baseline Baseline Actual March August
Individual inoome taxes $93.7 594.9 590.2 36 AT
Corporate income taxes 149.0 156.0 157.1 81 BI
Social insurance taxes 493.8 483.8 484.5 94 0.7
Excise taxes $3.9 $8.1 S75 16 -0.6
Estate and gift taxes 160 145 148 12 03
Customs duties 213 203 193 20 10
Miscellaneous receipts __25.5 29.2 i213 is oL3

Total Receipts 1,355.2 1,356.7 1,350.6 46 6.2

owe: Datars may nor add to totals because of rounding.

Quilays

September outlays of $135.9 billion were only $4.3 billion higher than a year ago and $0.9
billion higher than we estimated for the month, The higher-than-expected outlays in September can
be attributed largely to the early payment of October's cost for rental assistance and public housing,
‘operating subsidies. Table 5 summarizes the September results and the fiscal year totals by major

spending categories.
TABLE 5. SEPTEMBER OUTLAYS (In billions of dollars)
————Fiscal Year Totals ___
September Percent
Major Source 1995 1995 1994 Change
‘Defense-Military 25.0 259.6 268.6 34
Social Security and Medicare 441 309.0 475.6 70
Other Major Benefits 30.4 331.0 319.1 37
‘Net interest on the public debt 19.9 239.2 210.6 13.6
Other federal programs 165 5.6 186.6 282
Total Outlays 135.9 1,814.4 1,460.6 37

Nous: Devas may not add to wotal because ofrounding


Page 4 - The Secretary
TALKING POINTS

Tab A is an annotated agenda. It includes_a talking point on the problem of the HI (Part A) Trust
Fund and a suggested response to & possible suggestion by the Public Trustees.

C2 Slalomo

Peter B. Edelman
Attachment:

Tab A- Annotated Agenda

Tab B - Bios for the Public Trustees

Tab C- Minutes of the April 3, 1995 Meeting of the OASDI Board of Trustees
Tab D - Minutes of the April 3, 1995 Meeting of the HI-SMI Board of Trustees


13

In addition to the annual report, the Administration prepares estimates of the financial
operations of the HI program semi-annually as part of the President's Budget process. Each
year, the Administration releases Medicare baseline projections as part of the President's
‘budget proposal for the upcoming fiscal year. ‘These estimates for fiscal year 1997 will be
released next month by the Office of Management and Budget as part of the President's fiscal
year 1997 Budget Submission to the Congress.

‘The Treasury Department, which serves as the official “bookkeeper” of government outlays
and revenues, reports retrospectively on outlays and revenues to the HI Trust Fund. These
reports show actual cash flows to and from the HI Trust Fund, in contrast to the projections
in the Medicare Trustees Report and the projections in the President's Budget. In October
1995, the Treasury Department reported on the HI Trust Fund income and outlays together
with the Fund’s assets at the end of fiscal year 1995. The Treasury reports are widely
distributed to the Congressional Budget Office, House and Senate Budget Committees, this
Committee, the Senate Finance Committee, each member of Congress, and others upon
request.

‘The data provided in the Treasury reports are analyzed by a variety of public and private
agencies and organizations. For example, in November of last year, the Congressional
Budget Office reported on the Treasury data for fiscal year 1995 in a report entitled,
“Analysis of the September Treasury Statement.” In addition, CBO used the data to update
their Medicare baseline in December 1995 which reflects the higher growth in Part A and
lowers growth in Part B. Furthermore, the American Academy of Actuaries noted in its
December 1995 report, "Comments and Recommendations on Medicare Reform" that the
cost of benefits exceeded income for the Hospital Insurance Trust Fund in 1995, On
February 12, 1996 in a bulletin released by the Senate Budget Committee, Chairman
Domenici acknowledged having received the Treasury data in October, and noted that, “The
recent changes in projections do not significantly affect the long-run Medicare situation.”

I would now like to talk specifically about how one should interpret the information that is
provided in the Trustees Report.

‘The primary purpose of the Trustees Report is to provide estimates of the future financial
status of the Trust Fund for use by Congress in making decisions about the Medicare
program, Because of the uncertainty inherent in projections, the future status of the Trust
Fond is examined under three alternative sets of assumptions: “intermediate,” “low cost” and
“high cost.” The intermediate set of assumptions represents the Trustees’ best estimate of
the expected future economic and demographic trends that will affect the financial status of
the Trust Fund.

Health care expenditures tend to exhibit much more volatile rates of change than
expenditures for many other private and social insurance programs. As the Trustees Report
notes, projections are intended to illustrate how the HI program would operate under
specified, reasonable assumptions concerning trends in employment, wage increases, health
care prices, utilization, and other factors. Actual future Trust Fund operations will almost
always differ somewhat from specific projections.

Each year the Trustees Report projections are updated using the most recent available
information on several factors, including inflation, wages, and utilization. One of the factors
is actual experience in the past year. For example, the Treasury report released in October
provided actual cash revenues and outlays from the HI Trust Fund for fiscal year 1995; this
information on actual experience will be incorporated in to future projections.

In summary, projections in the Trustees Report are routinely updated to reflect actual
experience and new economic data, but the projections themselves remain estimates of the
future of the Medicare HI Trust Fund. Any given projection of Trust Fund status, by its
very nature, cannot be expected to exactly mirror actual experience. ‘The Trustees construct
our projections with the best and most recent information available, and continually
benchmark projections against actual results to obtain feedback for improving our


55

about the Trust Fund was, as you stated before, readily available
to Congress and the public. As you have cited, the numbers in the
document are gross figures.

Secretary SHALALA. Yes, I understand that, Congressman, but
there is a series of documents in which this material was available.
But remember, these are interim estimates.

We do present a public report. The Board of Trustees in April
presents a public report. The information that we had in December
would not have changed the conclusion that we came to in 1995,
and that is that we advised the Congress that prompt, effective and
decisive action is necessary. A change from 2002 to 2001 would not
lessen the urgency of this Congress dealing this year with the issue
of the Medicare Trust Fund. And I fully expect us to use the same
kind of language in our 1996 report if these numbers hold up in
the final analysis and recommendations that the actuaries give us.

Mr. RamstTaD. Well, again, Madam Secretary—and my time is
up, so I will conclude—but with all respect, it just seems to me that
this was enough of a milestone that the administration should have
been more forthcoming instead of letting things be rather obscured.

Secretary SHALALA. Yes.

Mr. RaMSTAD. Thank you, Madam Secretary.

Secretary SHALALA. I also would refer you to the last page of the
document, which makes a specific point about the Medicare out-
lays. It says “Medicare outlays in total were”—and it goes through
the Medicare outlays, so it is much more specific than the tables.
That is on page 5 of the same report. But it does not change our
final conclusions, and that is, I cannot repeat enough what I re-
peated in the other hearing that I had with this Committee, and
that is that we must deal with the Medicare Trust Fund.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Lewis.

Mr. Lewis. Thank you, Mr. Chairman.

Madam Secretary, Mr. Secretary, I am not so sure today whether
we are holding a witch hunt, or an inquisition, or so-called hearing,
but I am always happy to see you.

Let me just say that I am sorry we are here wasting your valu-
able time and wasting our valuable time. I do not think we need
another so-called hearing that is used to attack you and criticize
the administration and the President.

If you think back, Madam Secretary, we only had 1 day of hear-
ings on the Republican Medicare bill. I think it is a shame and a
disgrace that we have time for this hearing, but we do not have
hearings for bills.

In fact, today, right now, we should be marking up a bill to ex-
tend the debt ceiling.

Mr. Secretary, are we facing a serious problem if we do not ad-
dress the debt ceiling issue soon? What may happen if no action
is taken by March 15, will we lose interest on the Trust Fund? It
seems to me that if we are so concerned about the Medicare Trust
Fund, we would act on the debt ceiling. If we do not, it could cost
the Trust Fund money. Is that correct, Mr. Secretary?

Secretary RUBIN. Yes, Mr. Lewis. On March 15, there is about
$2.2 billion, I believe, of cash proceeds that as a matter of law we
will not be able to invest—cash proceeds going into the Medicare


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

FOR IMMEDIATE RELEASE. CONTACT: (202) 225-1721
February 21, 1996
‘No. FC-11

Archer Announces Hearing on Financial Condition of

Federal Hospital Insurance Trust Fund
-Report Shows Trust Fund Spending Exceeds Revenues-

Congressman Bill Archer (R-TX), Chairman of the Committee on Ways and Means,
today announced that the Commitee will hold a hearing to review the current financial
condition of the Federal Hospital Insurance Trust Fund. The hearing will take place on
Thursday, Februa Committee hearing room, 1100 Longworth
House Office Building, beginning at 10:00 a.m.

The Committee will receive testimony from Federal Hospital Insurance Trust Fund
‘Trustees and other Administration witnesses.

BACKGROUND:

The payroll taxes paid by working Americans and employers into the Federal Hospital
Insurance Trust Fund (HI Trust Fund) pay for about 60 percent of the medical care for
Medicare beneficiaries. The Hospital Insurance program (Medicare Part A) is obligated to
cover the costs of inpatient hospital care and other related services for those Americans who
are entitled to insurance coverage under Medicare Part A.

‘A recent story in the New: York Times indicates that the HI Trust Fund is in financial
imbalance. Beginning late in 1995, the HI Trust Fund has spent more in outlays than it
received in income.

Currently, payroll taxes from about four workers cover the Medicare Part A costs on
average for each beneficiary. This ratio worsens over time, and drops precipitously when the
baby boomers become eligible for Medicare after the year 2010. It is noteworthy, however,
that the current financial imbalance in the HI Trust Fund occurs prior to the eligibility of baby
boomers and is occurring months earlier than had even been projected in the 1995 report of
the Trustees of the HI Trust Fund.

“This new information on the Hl Trust Fund is an early warning signal that cries out
for immediate Congressional attention. 1 am very concerned about the manner in which this
information was conveyed to the public and its implications for the furure solvency of the
Medicare program." Archer said.

Focus:

This hearing will focus on the manner in which the information concerning the
Medicare shortfall was made available to the public and will review the financial status of the
HI Trust Fund

SUBM F WI N COMMI

‘Any person ot organization wishing to submit 2 written statement for the printed
record of the hearing should submit at least six (6) copies of their statement, with their
address and date of hearing noted, by the close of business, Thursday, March 14, 1996, to
Phillip D. Moseley, Chief of Staff, Commitee on Ways and Means, U.S. House of
Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 300 additional copies for this purpose to the
Committee office, room 1102 Longworth House Office Building, at least one hour before the
hearing begins.

(MORE)


12

$3.3 billion, as shown in appendix IT.

The Office of the Actuary has been trying to identify
reasons for the estimating error in the 1995 Trustees’ report.
We were told that a number of possible reasons are being
explored. Preliminary data indicate that hospitals had speeded
up the submission of claims, causing some claims that normally
would have been paid in October to be paid in September. Because
the trust fund numbers are presented on a cash basis, this would
result in higher than expected outlays in fiscal year 1995. In
addition, preliminary data indicate that admissions to hospitals
and the case mix index of admissions also increased at faster
rates than had been estimated. Both of these factors would tend
to increase outlays. Finally, trust fund receipts were below
projected amounts.

The Office of the Actuary expects to complete its analysis
for the 1996 Trustees’ report by late March or April.

This completes my prepared statement. I will be glad to
answer any questions you may have.

For more information on this testimony, please call Tom
Dowdal, Assistant Director, at (202) 512-6588. Other
major contributors were Roger Hultgren and Pete Oswald.



27

Secretary RuBIN. Mr. Chairman, I do not recollect what was spe-
cifically discussed at that meeting. What I do recollect is what we
said in our April report; I recollect what we worked on through this
whole time; I recollect what I think is absolutely imperative that
we have done and that we have said throughout this process, which
is that we restore the solvency, near-term and long-term, of the
Medicare Trust Fund.

Chairman ARCHER. I understand. But you remember Secretary
Domenici’s release precisely, but you do not remember what was
discussed at a meeting that you chaired on December 13?

Secretary RUBIN. Well, Mr. Chairman, I remember Senator Do-
menici’s release because when I was notified of this hearing we got
hold of it, we got a copy of this release, and we thought we would
share it with you because we thought you would find it useful in
evaluating the importance of those numbers.

Chairman ARCHER. Is there a record kept of the discussion at
your Trustee meetings?

Secretary RUBIN. There are minutes; they are minutes like all
other meetings. They tend to be summary in form.

Chairman ARCHER. Have you taken occasion to go back and re-
fresh your memory by looking at those?

Secretary RUBIN. No, I have not. Secretary Shalala may have.

Secretary SHALALA. No.

Secretary RUBIN. But let me just add if I may, Mr. Chairman,
that the reason I have not is that this—and Secretary Shalala said
it very well—there is no change in our view with respect to the im-
portance of—our differences with the congressional majority never
lay over the question of the importance of addressing the solvency
of the Medicare Trust Fund. We always said that that was criti-
cally important. The differences lay in policy. We did not think pre-
miums should be raised. The congressional majority did think pre-
miums should be raised. We felt that the reductions——

Chairman ARCHER. I understand, Mr. Secretary, but——

Secretary RUBIN [continuing]. Wait 1 minute—the cuts should be
of a level that were consistent with having an effective program.
We felt the congressional majority’s cuts were too large, and so
forth. That is where the differences lay, not in whether we needed
to address this shortfall.

Chairman ARCHER. But let me tell you what troubles me, and
this will be my last comment. What troubles me is that you have
come to this Committee, and you have said that we should know.
Because there was a needle in a haystack buried in a very big doc-
ument, we should have known about this shortfall, and that has
been the inference from both of your testimonies. But you, as chair-
man of a Board of Trustees, in a meeting that only lasted I believe
18 minutes, do not recollect this, and Secretary Shalala specifically
remembers it being discussed. That just—I find that hard to be-
lieve because I attach a great deal of importance to this significant
change in the trust account for the Medicare beneficiaries of this
country.

So I'am going to yield to Mr. Gibbons for inquiry.

Secretary RUBIN. Could I respond to that, though, Mr. Chair-
man?


70

1995. ‘This report includes a number of tables summarizing the
financial activities of the federal government.* HCFA's Chief
Actuary told us he became aware of the operating deficit in late
November 1995 after HCFA received from the Department of Treasury
more detailed monthly tables on the part A trust fund.*

On December 2, in response to the HCFA Administrator's
request several days earlier for an update on Medicare and
Medicaid spending, the Chief Actuary sent the Administrator an
electronic mail message explaining the operating deficit. The
message stated that cash outlays were $3.3 billion higher than
estimated in the Trustees’ 1995 report and that cash payroll tax
receipts were $1.6 billion lower, accounting for most of the
estimating error.

In a December 6 electronic mail message, the Chief Actuary
told the Administrator that, if the assumptions used for the
April 1995 Trustees’ report were applied without change to the
new data, the trust fund depletion date would advance from the
end of 2002 to roughly the middle of 2001. He pointed out that
changes to the assumptions could advance or postpone the
depletion date somewhat, but he would not know for sure until the
estimates for the 1996 Trustees’ report are completed.

The Secretary of HHS was informed by memo, dated December 8,
1995, that she would be briefed on the Social Security and
Medicare trust funds in preparation for the biannual Trustees
meeting and that one important item to be discussed was the part
A operating deficit. The Administrator briefed the Secretary of
HHS on December 11 on the trust fund operating deficit and other
matters related to the upcoming Trustees meeting, and the other
federal Trustees were also briefed individually before the Board
of Trustees meeting on December 13, 1995. The Administrator's
briefing document basically covers the items included in the two
electronic mail messages from the Chief Actuary to the
Administrator

Treasury, Oct. 27, 1995).
‘This report is routinely distributed to about 2,400 addressees.

‘Table 8 in the Treasury report showed that the trust fund had
cash receipts of $114.85 billion and cash outlays of $114.88
billion, resulting in an operating deficit of $36 million. (See
appendix I for a copy of table 8.)

‘About 3 weeks after HCFA receives the Treasury's monthly
receipts and outlays report, Treasury also sends a more detailed
monthly set of tables on the part A trust fund


63

Mr. LEVIN. This letter that was sent to you on February 5, do
you remember—did any of the four call you about this subject mat-
ter?

Secretary SHALALA. No.

Mr. LEVIN. So they sent you a letter.

Secretary SHALALA. Actually, I heard about it in a press state-
ment from a reporter.

Mr. LevIN. I think so. In other words, this is a matter of major
importance, a letter is sent to you, and no one calls you?

Secretary SHALALA. No.

Mr. Levin. Did Chairman Archer call you?

Secretary SHALALA. No.

Mr. Levin, Did Mr. Bliley call you?

Secretary SHALALA. No.

Mr. LevIN. Did Mr. Thomas call you?

Secretary SHALALA. No.

Mr. Levin. Did Mr. Bilirakis call you?

Secretary SHALALA. No.

Mr. LEVIN. And you first heard about this from a reporter?

Secretary SHALALA. Yes.

Mr. LEVIN. Was there a press conference—apparently, there was
a press conference about this letter before you received it?

Secretary SHALALA. I do not remember that, but I do remember
that I first heard it in a press——

Mr. LEVIN. This is the letter to you dated February 5, regarding
this matter, and saying they were shocked to read press reports.
That is the letter you are referring to?

Secretary SHALALA. Yes.

Mr. LEVIN. Do these four gentleman know the telephone number
of HHS?

Secretary SHALALA. I am sure they do.

Mr. LEVIN. Now let me ask you about CBO——

Chairman ARCHER. Will the gentleman yield?

Mr. Levin. I will.

Chairman ARCHER. The gentleman has referred to a letter that
I signed. The letter was in the Secretary's office before the press
ever knew anything about it, number one. I cannot vouch for how
quickly information gets to the Secretary; some of this hearing
today is devoted to that very issue. But the letter was certainly
there——

Mr. Levin. Mr. Chairman——

Chairman ARCHER [continuing]. And if the gentleman would
yield for just one small additional comment, had we received a let-
ter on October 27, we would have been much better advised as to
the condition of the Trust Fund.

Mr. Levin. If I could say a word——~

Chairman ARCHER. I thank the gentleman for yielding.

Mr. LEVIN. What disappoints me most about the way you all
have proceeded in holding this hearing is that I thought this year
might be different from last year. I still have hope that we can pro-
ceed in some type of bipartisan manner on other important issues.

This hearing has the exact opposite purpose or surely tone to it.
No one called the Secretary about this matter. A letter was sent,
and then a press conference was held. A press conference was held


20

APPENDIX B

ABudget

Bulletin

Pose V. Decne - Chem
GW Haga Ba ae
{G1 Sere Deen ig UDG AAS

A Weeki Balsin pretcad wha he Scrat ina by the Senate Blac: Coerule - Mafecty Sel

itn Compas, nd oa Ho.

eocuacy 12 986

INFORMED BUDGETERR

+ The Sat ate ha a Bi (.1S41) om ebay 7,196,
‘bya vote of 64 7 32. The SDC majacty

Sead, wil con 80. viien eve 7 yoo tem bee Supreme
December 5995 bmoting, The Balanced Budget Act of 1995. Coon and ay subnagocar verse tlenents for damage.
tedoced fart apuading by 5. Dion over years
Pas Adlai. ate any scan ate
TURCTTARY PRCTOR hm pa abe pn ye lee
Leena T5717 a Bihedoetsthe COO boslasthownta bo badger
adie Aor OMB so ORO: Rerart Lest Anke About Bose

Farm Bill(S. 1541) Adi
Amount of Lost Savings @ Even as the ‘@tamph t cloak his Duige whh ce

FTE eal eM cco
‘THEBUDGET DIDN'T STAY BALANCED FOR LOG

+ Presiden Clinton's January &th buetger achieved 8 rami ofS

Billon i 2009 according to CUO. The budget oudine Sat
President Clinton issued on February $th ts.
away tadgat promis Whie a Presidents Febery ote
-clainas ta wctieve # surplus of $3.7 biilion in 2002, if seored by
BO Wl show a dain of 9 bilion oud

+ Table | (page 15) of the President's busgec oun Is the mart
impanwat pece of avidenea underdving the President clekn of
‘surplus. The table—eatid "The Presients Budget
Under CBO Asiumptions”~ saya utes CBO Decamber
ceevoinie wd teohuical agsumpuans. Breept whan it dover.
‘The Fronduit vse box text end roomotas v0 maddy the watery
and depart Bon CBO's numbers once again

+ Tus fot of th ble pra o how CBOs December
cesiimate of tho baseline deficit. The line, however, bas a
foomate that “OMB hus agjoded CBO's Docomber batline t..
refect te pending Supreme Cour review of a lower court
Aesop on taaunting Fr eau.” In fee Print
pretend: 19 ube the CHO baseline and extnetes, a3 he Congress
Nac and athe egy speed be aoe haga Or
Dasollee or ignores the oxiunese when ic uks Ma purposes

+ Leth Took at this change fo me CBO basellag, at well as «

‘duunge t CBO esumure of « propoua) en specrun,
snake the Presidents Job of elanianing the dafic $18.5" bilien
‘estes Ir 2002 and $26 billion easter ove seven year

iodo Tans into tu wi

+ The Sopanbat 1, 1995, Built relatd how «federal appa
court decided (vere vf 9-2) that 2 1919 federal law broke «
‘contract between x savings and loan tasthulen
regvlate/deponit insurance agency, which could
‘he fedecal government fom $10 billion to 320 blillon. (TRE
federal agncy had encouraged the S&L to bay ‘oer fled
S&L with Ne prorilua tt the buyer euuld enploy favorable

‘cecuming eostment of “supervisory goodwill" the suhaaguen
1949 lew reversed that agreement, contng the SAL ralilons)

+ The Supreme Cour jus feceatly oyreed to roview tla eas, wth
arguments expected in Apel, und a daclelon by the €x6 of Be
tem In one. Given the loprided nature of Ue
Aecislon, CBO, in developing iis December baseloe,
atniderthe pssibilty thatthe Supreme Cour would aphid the
ddecsion and some payments would be made fron, the Treasury

+ 1€CBO cuimatad dat 270 payments would Ue made (nich 6
‘OMD'sporktion, as t aarumes Ce Cadersl govecument will win
its appeal at the Supreme Cour), it would be, la effect,
predicting the cutcame of Ge case the Suptame Coun
Ovetums. On the otter hand, ICO estlmeiad Ot $20 bitin
‘ould be pald aut of the Treatury, would be predlting frat be
federal aovemment would loye and would tive to Tay (he

als courts *

ine
fof teble 1 wre savings of 56.1 billon In 2001 maleally
‘eseala te $26 billion in 2002. What sceoumu for this?

1102002, de Presider sasusoas be wil evction spectrum that wilt
‘berwturnd by tlevsle: brosdcaser (In 2005), and tha fie
‘cucion does tot genuroie $17 billion, thea brow carters will be
‘charged » fos on ‘spectrums to maka up the
difference tbe suction proceeds und the target of $17
aut n tacon of ured peart wold
(Oh eld nt x C00 fo xa
every pour 17 bn 202 neat
wat owe te CBO tine
“iran! or CBO one dining yas save on
ilng Tu own eaiaata read

| Combining his conveaten oalsion of tn CUO enmate (wor
SIT Uillew la 2002) with the benefoial soorekaeping
‘sjustnents thove prodsoe $13.6 lion difference fram CBO.
‘Thar meane fre if elt CAO nuctbers were red for these lems
‘ane the Providers bugs, rete than beng tn rupli, would
eve $9 bilion detetcin 2003

+A cacant New Yore Times anicle indcad shit Medlere
Hosp Yoraranca (IU) axpeodinaes fr focal yet 1995 were
3.4 bilo higher an he rer praleced o ek rpor la
‘Apil Hl ous fod reveowe were $1.3 billon fas than
oleted. Thee to err ested 0836 milen GuetRnd
‘ef lst yar, rte than a projected $4.7 bln surps.

+ Budget wnalyes ofl erase expenditures en 2 cash-flow

‘bait The HI wrt fund Gent ran cub flow defi in PY 1992.

“ ° over the pa two fiscal years have

oftet by genctal revere payments
labeled 4s nares! on IT rust find amet,

WOSPIFAL IXSURARCE TRUST FUND, FY 1998
* 1 PRCUECTIONS VS REALITY

: Re nabs

including inarert

‘Trunt Fund income Hott taser 2.339}

peony

Surplus ams “oor 473

Lixchuding Interest

‘Trot Fund cash income 104.979 10361 360}
ia

366-076

Sunlas
Cash fow Surptes


37

Secretary SHALALA. Congressman Thomas, as far as we are con-
cerned, it is urgent and imperative that this Congress deal with
the Trust Fund situation. We reported that in 1994 and 1995.
These projections simply confirm that conclusion——

Mr. THOMAS. I agree with you completely. As Congressman Gib-
bons said, we started out at do70 billion of slowing the growth; we
went to $225 billion in December. We are currently negotiating
with reasonable Democrats a $168 billion—we have come down
more than $100 billion of slowing the growth of Medicare.

He repeated, you repeat, a $124 billion number. Why don’t you
come up $50 billion? We have come down $100 billion. And we
would have that agreement which you folks seem to want to reach.
Only come halfway. We have already come more than $100 billion.
All you have to do is come to $50 billion. Reasonable Democrats are
there. When are you folks going to be there?

Chairman ARCHER. The gentleman’s time has expired.

Mr. Rangel.

Mr. RANGEL. Mr. Chairman, the way this works out is that I
would get a chance to vote and question——

Chairman ARCHER. You can use as much time, and use the rest
of your time when you get back.

Mr. RANGEL. Well, Mr. Chairman, as usual, you are very gener-
ous.

Let me say this to the witnesses. It is abundantly clear that—
no, no, that is all right——

[Mrs. Johnson assumes the chair.]

Mr. RANGEL. Thank you so much, Madam Chairperson.

It is abundantly clear that no one here——

Mrs. JOHNSON [presiding]. The Committee will recess for a few
minutes until the Members return from the vote.

[Pause.]

Mrs. JOHNSON. Will the witnesses please return to the witness
table.

Mr. Matsui.

Mr. Martsut. It was only a difference of 18 months in terms of
the default and the shortage in the Trust Fund. So nobody paid a
lot of attention to this because we were looking at the bigger issue.
We were not dealing with the kind of minutiae. We wanted to solve
the bigger problem.

I really do not understand what this hearing is about. Last Octo-
ber, we asked the Republican leadership to hold a series of hear-
ings on Medicare once your bill was introduced, and you only gave
us one hearing. Now you want to hold a hearing on this.

They did a very poor job, Mr. Rubin and Secretary Shalala, if in
fact they wanted a coverup, because they sent this out to your of-
fice—all 485 Members of Congress got this on October 28, 1995.
Every one of us got this. I happened to read it. Apparently, nobody
on the Republican side of the aisle read this report. If they did read
it, they could not have thought it was too important.

So I really do not understand what the problem happens to be
with respect to all this, and I just have to say that I am just some-
what surprised at all this.

Mr. Barbour, Haley Barbour, just issued a press release yester-
day, accusing the administration of a coverup. Is this a political


57

Medicare system in medical savings accounts. I was simply
quoting——

Mr. Hancock. Madam Secretary, Madam Secretary
§ Secretary SHALALA [continuing]. The Congressional Budget Of-
ice.

Mr. HANCOCK [continuing]. You said that to allow people to save
their own money to pay for their own medical bills was wasted
money on the part of government. I beg your pardon——

Secretary SHALALA. The Congressional Budget Office has said
that the——

Mrs. JOHNSON. I would like to recognize-——

Secretary SHALALA [continuing]. Medical savings accounts will
cost Medicare over $4 billion that we would not otherwise spend on
the individuals who will participate in the program.

Mrs. JOHNSON. I would like to recognize Mr. English.

It is true that the Congressional Budget Office has estimated
that provision of the Republican proposal to cost $4 billion. There
is also a great deal of disagreement as to whether that is going to
happen or not.

It is also true that Republicans believe very strongly that that
will reduce the rate of growth in spending for those people. And so
this is a difficult issue. It is a new approach to health insurance,
and that is why there are legitimate differences about it.

Mr. English.

Mr. ENGLISH. Madam Chairman, I will yield my time.

Mrs. JOHNSON. Mr. Portman.

Mr. PortTMAN. I thank the Chairwoman, and I appreciate, Mr.
Secretary, your staying for this final round of questioning, and
Madam Secretary, thanks for being here.

I listened very carefully today Madam Secretary, to your testi-
mony, and let me briefly summarize where we are and why this
conversation today continues to concern me.

It is very important that we talk about this data which was not
properly released because I think the perception of the problem is
extremely important to solving the problem, and I think that that
is something both the White House and the Congress have realized
over the past year.

As I see it, in 1993, 1994 and 1995, you did indeed send us
warnings, and you talked about that, Ms. Shalala, several times in
your testimony, and how it was so important that we deal with this
issue on an urgent basis. At the same time, there was no action.
And when you testified before the Ways and Means Committee the
last time, my whole point was to tell you that we were desperate;
we begged for you to send us a proposal. Eventually, after we went
ahead and came up with our proposal, which was criticized by the
White House, there was a proposal forthcoming from the adminis-
tration. Ours was about a $270 billion reduction in the rate of
growth of Medicare. Your proposal was about a $124 billion reduc-
tion in the rate of growth.

Again, the issue became how much of a problem do we have, and
that was the great challenge we had with the American people,
was trying to explain on a factual basis where we actually were.
And this is why this information which was not properly released
is so important.


23

would extend the life of the HI Trust Fund through 2006. This ini-
tiative was consistent with actions by prior Congresses in affording
us more than sufficient time to propose a bipartisan solution to the
long-term problems of Medicare. Such a bipartisan solution will be
needed for the long-term health of Medicare regardless of which
plan is finally adopted.

Additionally, during the budget negotiations last December, the
President, as Secretary Shalala said, laid down a proposal that
would have extended the Trust Fund for at least another decade
from now.

Last October 27, the final fiscal year 1995 numbers were pub-
lished, which showed that Trust Fund income was 1.2 percent less
than projected, and expenditures were 3.1 percent greater than
projected. This is consistent with normal fluctuations and variances
from prior forecasts.

The key is that last year’s information does not change whatso-
ever the fundamental need, as we expressed in the report to Con-
gress last April, to reform Medicare, to ensure the near- and long-
term solvency of the HI Trust Fund. And it is exactly that observa-
tion that Senator Domenici’s report also made, the report issued,
I believe, on February 12. The report said that the results of 1995
in no way whatsoever alter the fundamental situation, which is
that the Medicare Trust Fund needs to be reformed to provide for
both near-term and long-term solvency.

Mr. Chairman, let me conclude by saying that one of the great
accomplishments of government over the last 30 years is that we
have in very large measure conquered poverty among senior citi-
zens, although there is certainly still additional work to do. We did
that by having strong and effective programs in Social Security,
Medicare, and Medicaid. Medicare has effectively provided a reli-
able source of medical care coverage for aged and disabled Ameri-
cans.

There are few issues of greater concern to working families than
the cost of retirement and the problem of providing health care to
the elderly. That is why the administration and the Congress must
strive to work together to energetically address the solvency prob-
lem of this great program so that it can continue providing the
services on which 37 million of our elderly and disabled depend.

I hope, Mr. Chairman, that this hearing will contribute to ad-
dressing those issues and to providing for the near- and long-term
health of Medicare.

Thank you very much.

Chairman ARCHER. Thank you, Mr. Secretary. We do have a
major responsibility, to the senior citizens of this country and to
generations to come who will become senior citizens, for this very
vital program, and we all agree on that.

The Board of Trustees is set up under the law with a very special
responsibility, a front line responsibility, a responsibility of signifi-
cant trust; that is why it is called “Trustees.” And as a result of
that law which creates this board, the members of that board are
of course charged with this significant additional responsibility in
advising Congress and advising us as quickly as possible so that
we will be aware of what is going on.


90

$747 million balance in the Trust Fund. And if you look at com-
parable first quarters in the previous 5 years, balances were al-
ways in the billions, not the millions.

Mr. PorRTMAN. Right.

Ms. JAGGaR. So it is clear that everyone agrees the Trust Fund
is running out of money, and this is something that is of grave con-
cern.

Mr. PorTMAN, So what you can tell from both the historical data
and the $747 million figure as compared to the $3 billion, $1 bil-
lion, $1.6 billion and so on in previous first quarters, it looks as
though the deficit trend will continue and at a rate which could
perhaps lead to the long-term projection being pushed back to the
year 2000 or some other earlier date?

Ms. JAGGAR. There are many other factors to consider to deter-
mine where those estimates finally will come out when the Trust-
ees’ Report is issued this spring, but surely there is nothing at this
point, from looking at this data, that indicates it is going to be a
rosier scenario—

Mr. PorRTMAN. Than projected.

Ms. JaGGar [continuing]. Than projected.

Mr. PorTMAN. I thank you, Director Jaggar.

Chairman ARCHER. Mr. McDermott.

Mr. McDermott. Thank you, Mr. Chairman.

Ms. Jaggar, can you tell me how much this investigation costs,
how much you have spent on this?

Ms. JAGGAR. Mr. McDermott, to date we have spent about 35
staff-days doing this, which is probably around $20,000 of time as
GAO calculates it.

Mr. McDermott. I read in your report that 2,400 of these Treas-
ury reports went out all over Washington, DC, I assume that is the
basic mailing list for those reports. Is that correct?

Ms. JAGGaR. Yes, sir. The mailing list that the Department of
Treasury uses, to be precise, sends out 2,439 reports to various ad-
dressees around Washington and also to other countries.

Mr. McDermott. And are Members of Congress on that list?

Ms. JaGGar. Yes, sir.

Mr. McDERMOTT. And are Committee staff on that list?

Ms. JAGGAR. Yes, sir. -

Mr. McDERMort. So this was something that was widely distrib-
uted here on the Hill. From looking at the report and from your
background in health finance examinations, can you offer us an
opinion as to why no one seemed to take this seriously when they
received the information in the mail, why it did not rise to the level
of the furor that we are seeing here today?

Ms. JacGar. I think that several groups of people did take it se-
riously: That the Congressional Budget Office worked with those
numbers in revising their budget estimates for subsequent years in
their December update, as has been discussed here.

Several attendees at the Medicare Trustees’ meeting indicated to
us that while they did take the numbers seriously, they felt that
a thorough analysis of all the factors that needed to be considered
before the revised projections were put out would be forthcoming,
and would be timely.


44

Secretary RUBIN. I will speak for myself, and the answer is abso-
lutely yes. In every company I ever worked on, Mr. Bunning, and
I worked on a lot of them in the private sector, what you would
do is you would take the programs that you had, you would project
out, you would see what they would cost, and then, if you were
going to try to reduce your expenses, you would say you were cut-
ting your programs, and that is precisely the same approach that
we took here. But what we did was we proposed cuts in the pro-
gram that would maintain the effectiveness of the Medicare Pro-
gram, and the concern we had——

Mr. BUNNING. Then, in other words, the President’s——

Secretary RUBIN [continuing]. Was the cuts in excess of that—
wait 1 minute——

Mr. BUNNING. The President’s proposal actually cuts Medicare.

Secretary RUBIN. The cuts in excess of that would affect access
and choice and were imprudent. What?

Mr. BUNNING. The President’s proposal actually cuts Medicare.

Secretary RUBIN. It cuts Medicare below what it otherwise would
have been, which is precisely the approach that I took in 26 years
on Wall Street in dealing with private companies.

Mr. BUNNING. When Mrs. Clinton testified before this Commit-
tee—and I can get you the tape—Mrs. Clinton said that they want-
ed to cut Medicare, or the rate of growth, back to 6 percent.

The Republican proposal only reduces the growth to 7 percent, 1
percentage point higher than the Clinton proposal.

Secretary RUBIN. Well, but as you remember, Mr. Bunning, that
was in the context of overall health care reform, which——

Mr. BUNNING. No. We are talking specifics. We are talking about
Medicare.

Secretary RUBIN. No. We are talking about apples and oranges
because one——

Mr. BUNNING. No. We are talking about Medicare. She was spe-
cifically talking-——

Secretary RUBIN. Yes, but——

Mr. BUNNING [continuing]. And the question to her was a specific
question on Medicare.

Secretary RUBIN. I understand that, Mr. Bunning, but I believe
that you will find—I assume this was during the health care de-
bate—yes, this was in the context of health care reform, and as you
remember, the health care reform would have had effects on the
expenses of the Medicare Program, and I think it was a very sen-
sible approach to dealing with Medicare; unfortunately, not one in
which we could engage enough Members of Congress to ultimately
produce a health care reform program.

Mr. BUNNING. Well, we think it is a very serious problem, the
problem that instead of 6, 7 years, that Medicare is going to in fact
lose the surplus in 5 years, according to Ms. Shalala’s testimony.

Secretary RuBIN. Mr. Bunning, we agree with you there is a red
flag. There was a red flag in the 1995 April report, as Secretary
Shalala said, there was a red flag in the 1994 report. There is no
disagreement between the administration and the congressional
majority about the need to address Medicare solvency.

Mr. BUNNING. Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Cardin.


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62

in 1994, we said it in 1995; we said it was urgent, that it had to
be dealt with directly and quickly, and I am repeating it in 1996.
There is no question in my mind.

It does not have anything to do with just the estimates that we
were given in December. Without those estimates, I would have the
same note of urgency in my voice that I had in 1993, in 1994, in
1995, and now in 1996.

Mr. LAUGHLIN. Well, while I have heard repeated references to
Senator Domenici—and I am sure that his report gives some com-
fort to whomever failed to bring to your and Secretary Rubin’s at-
tention this problem—he is not a Trustee, is he, with an obligation
to the Congress and the American people? He is not a Trustee of
this Trust Fund, is he?

Secretary SHALALA. He is not.

Mr. LAUGHLIN. And the last thing I want to ask is this. There
has been great reliance upon the “Treasury Notes” dated October
27, and now I have forgotten, because time has passed, whether it
was you or Secretary Rubin—and it is now important—who was
here. One of you testified that in this report, it was highlighted
about the shortfall. And the way I understand the word “high-
lighted” in a report, it tells me that it either marks a lot in some
unusual color, or “Please Note” in capital letters, or “Important to
Observe,” or just some kind of warning in the document. And with
all due respect to both you and Secretary Rubin, I have looked
through this, and I do not find any highlighting of the information
you all are here testifying about, that somebody on the congres-
sional staff should have found.

Secretary SHALALA. Congressman Laughlin, in 1993 in April, a
few minutes after we had come to office—

Mr. LAUGHLIN. Secretary Shalala, I want to interrupt——

Secretary SHALALA [continuing]. We warned about the condition
of the Trust Fund; in 1994, we warned about the condition of the
Trust Fund. The urgency has been with us——

Mr. LAUGHLIN. My question was not about 1994, and the red
light is on, but do you find anything highlighted in the “Treasury
Notes” that we have been referenced, and either you or Secretary
Rubin said it was highlighted?

Secretary SHALALA. Congressman Laughlin, there is nothing in
that report that would change the conclusion that I have given this
Congress as a Trustee of the system since we arrived in 1993. We
must deal with the Medicare Trust Fund now.

Chairman ARCHER. The gentleman’s——

Mr. LAUGHLIN. I understand your answer. It does not answer my
question.

Mr. Chairman, would you instruct the witness to answer my
question, Where is it highlighted in this document?

Chairman ARCHER. I think she has responded that it is not. But
the gentleman’s time has expired.

Mr. LAUGHLIN. Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Levin.

Mr. Levin. Welcome. When did you first hear about this letter
of February 5, signed by four Members of the House? Do you re-
member?

Secretary SHALALA. I am sorry?


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31

Mr. CRANE [continuing]. You are confirming that from your per-
spective it is not significant.

Secretary RUBIN. Mr. Chairman, there was about a $36 million
shortfall in about a $130 billion fund.

Mr. Crane. Instead of the $4.7 billion surplus that had been an-
ticipated.

Secretary RUBIN. That is correct, and if you look back-——

Mr. CRANE. Well—

Secretary RUBIN. If I could, Mr. Crane.

Mr. CRANE. I am just curious as to how much significance you
attach to figures like that. You do not have to pursue it, but I have
a question for Secretary Shalala.

I have half a dozen news releases that you have issued since
1994, November 1994, and they deal with a variety of things, in-
cluding the hearings, public hearings soliciting input from the pub-
lic, their ideas, and highlighting studies of Medicare payments and
medical equipment and supplies. In these news releases, though,
you never once made any reference to the information that you
knew on December 13 and was in that October 27 report. Is that
because you two do not think that is all that significant?

Secretary SHALALA. The information that we were given was a
preliminary report, and the variation that was described was with-
in the normal range of variation.

Mr. CRANE. So, roughly $5 billion here or there is not that sig-
nificant?

Secretary SHALALA. Well, as you could see from what we had
done before on projections compared to what CBO has done on
their projections, it was within the normal range of variation. Ad-
justments were made in the baselines from this information. CBO
was informed, they were briefed extensively, they made adjust-
ments in the baseline.

My staff has to keep me informed when there is something be-
yond the normal range of variation. I was briefed for that meeting;
I asked questions about what was the explanation within the num-
bers. We expected to have a full report in 1996. The information
I was given did not change any conclusion that we had made as
Trustees or any information we had given to the Congress about
the urgency of dealing with the Medicare Trust Fund.

Mr. CRANE. At that December 13 meeting of the Trustees, who
raised the question of the difference in the figures?

Secretary SHALALA. We were briefed by the HCFA Administrator
on the preliminary actuarial figures. I asked a question about what
was inside of those numbers, and we knew that we would get a
firmer report in April, but the figures we were given were within
the normal range of variation. They did not change our very firm
conclusion that this Congress must deal with the Medicare Trust
Fund problem.

Mr. CRANE. Thank you very much.

Chairman ARCHER. Mr. Thomas.

Mr. THoMas. Thank you very much, Mr. Chairman.

First of all, I thank both of you for coming, and especially, Sec-
retary Shalala, for the information that you provided that is help-
ful to try to put timelines together.


7

STATEMENT OF HON, DONNA E. SHALALA, SECRETARY, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Secretary Shalala. Mr. Chairman, Congressman Gibbons, thank
you for the invitation to join you today. I welcome the opportunity
to discuss with you the status and the future of the Medicare Hos-
pital Insurance Trust Fund.

Since the day he took office in 1993, the President has devoted
himself to improving the availability and affordability of medical
care in this country, especially for those who rely on Medicare—our
senior citizens and those who are living with disabilities.

In his first year in office, the President’s economic recovery pro-
gram breathed new life into the Medicare Trust Fund, extending
the fiscal solvency of the Part A Trust Fund by 3 full years for that
critical program. And I would note that that legislation passed
without a single Republican vote in either House of Congress.

Last year, and now this year, the President is again proposing
measures to extend the fiscal solvency of the Part A Trust Fund.
As part of his comprehensive plan to balance the Federal budget
in 7 years, the President has proposed $124 billion in Medicare re-
forms that would extend the life of the Part A Trust Fund for more
than a decade from now.

Throughout this process, the administration’s policies on Medi-
care have been based on three basic principles: First, that Medicare
should be a more prudent purchaser of health care services for the
87 million beneficiaries who depend on it. Second, senior citizens
need greater choice of high-quality health plans that also preserve
the important consumer and financial protections Medicare prom-
ises. And third, we must increase our effort to root out waste, fraud
and abuse of the Medicare Program.

These are the elements that must form the basis of any agree-
ment we reach to balance the Federal budget, and the good news
is that those elements are on the table in both the President’s plan
and some of the proposals made by the majority party in Congress.

Our job is to come to an agreement on those elements while dis-
carding proposals that would weaken the Trust Fund and endanger
the physical and financial health of beneficiaries. For example, it
is our firm belief that we should not dramatically increase out-of-
pocket expenses for senior citizens when they are already spending
20 percent of their own limited income on medical expenses not
covered by Medicare.

We also should not eliminate important limitations on balance
billing that protect seniors against overcharging by providers.

We should not open the Medicare Program to untried and
untested health care approaches, like medical savings accounts,
which have been estimated to cost Medicare more than $4 billion
rather than save Medicare money. And we should not weaken our
efforts against fraud and abuse at a time when we have finally
begun to win the battle against those who would abuse the system
for their own financial gain.

As the President has said, the elements of a bipartisan agree-
ment to balance the budget in 7 years are on the table. The ques-
tion is whether we can come together and approve those elements
this year. In light of the Trust Fund’s short-term financing prob-


46

But has there been a hearing scheduled on the debt extension in
our Committee that either one of you have been advised of?

Secretary RUBIN. Not to the best of my knowledge, Mr. Cardin.

Mr. Carprn. And if we don’t pass legislation on the debt exten-
sion, is there a danger in 1996 that my hospitals may not get pay-
ment under Medicare, or that my beneficiaries might lose some
coverage? Is that a real risk if no legislation moves through this
Committee?

Secretary RUBIN. Well, let me give you a two part answer. One,
there is no question in my mind, as Chairman Archer said, that
this Nation is not going to default, but if that were to happen—
which won’t happen—then that would create very serious problems
with respect to all the trust funds.

Mr. CarpIN. And you are talking about in the month of March,
this coming month, we run the risk of having our hospitals in our
districts not receiving Medicare payments because of the debt ex-
tension not being enacted upon in Congress? Yet, we have no hear-
ings set on that issue? Yet we have a hearing set on a matter that
does not affect the payment of my hospitals this year?

Secretary RuBIN. The debt extension is clearly an immediate
issue that must be resolved promptly. The Medicare issue, as we
have all agreed, is an extremely important issue, but it has a
longer timeframe to it.

Mr. CarpIN. And as has been pointed out, the Clinton adminis-
tration has come up with a proposal that they support that will ex-
tend the solvency for another 6 years or so beyond the current pro-
jections. We have, as the President said, agreement on some $120
billion of Medicare reductions. Yet we cannot get action in this
Congress on what has been agreed upon by both Democrats and
Republicans that could extend the solvency of the Trust Fund. We
are having a heaving today to deal with an issue that does not af-
fect the immediate problem. When we have an immediate problem,
we don’t have a hearing set on it with the debt extension.

It is baffling to my constituents and to me.

Chairman ARCHER. Mr. Houghton.

Mr. HouGuton. Thank you very much, Mr. Chairman.

I am not going to take long because I would like to yield some
of my time to Mr. English, but Mr. Secretary and Madam Sec-
retary, it is good to have you here.

I am not going to get into who did what when, and who forgot
what when, because I do not think that is an argument that any-
body is going to win. I have just a couple of points.

The numbers jumped around a bit, and I have some historical
data, and the estimate in 1993 for 1994 was off on a plus side by
about $3 billion. And if we had estimated in 1993 for 1995, it was
pretty much what it was, what it came out. So it is very hard to
sort of “G” in the forecast with what actually happened.

I guess the major thrust is this, and I am sure you recognize
this. Is something different happening? Is there something we
ought to be aware of now, both in terms of the Treasury and Sec-
retary Shalala’s department and Congress, so that we will do some-
thing different? We know we are on a slippery slope. We have al-
ready chopped off 1 year. This is a concern to an awful lot of peo-
ple.


6

that done. We do not want to be faced with having to beat back
radical changes.

You must remember, and I am sure you do, that last year, when
all of this debate began, you proposed to take $270 billion out of
the Medicare Program. We just do not believe that is desirable. We
would be willing to take out $124 billion and do it very readily and
very quickly and save the Trust Fund.

So I am not going to throw any stones. I want to work with you.
We Democrats want to work with you, and as soon as you call a
meeting, we will put our program on the table, and we will respect-
fully reexamine yours.

I think that is about all that needs to be said.

Mr. Martsut. Will the Ranking Member, Mr. Gibbons——.

Mr. RANGEL. Mr. Chairman.

Mr. GIBBONS. Yes, but just very briefly. Go ahead.

Mr. RANGEL. All I would like to say, Mr. Gibbons——

Chairman ARCHER. Mr. Gibbons, let me say, in deference to the
Secretaries’ time, if we start opening statements by every Member
of the Committee, there will be no time for him to make his presen-
tation and no time for questions.

Mr. RANGEL. I am terribly sorry. I do not want to say anything,
Mr. Gibbons.

Mr. Chairman.

Chairman ARCHER. Without objection, each Member will have
the right to enter his written statement into the record.

If the gentleman from Florida wishes to yield briefly to another
Member on his side for less than 1 minute, then certainly, that will
be accommodated.

Mr. GIBBONS. Well, Mr. Rangel is our Ranking Member.

Mr. RANGEL. Well, I do not want too much democracy to spread
over this Committee with Members making statements here. As a
matter of fact, I have changed my mind. I think we ought to get
a special prosecutor to look into this matter. I think it is a coverup.
This whole damned idea of a “sliver” means that there is more in-
formation, and I think we ought to proceed. I yield back. [Laugh-
ter.

Mr. GIBBONS. Maybe we could get Mr. D’Amato to look at it.
[Laughter.]

OK. Thank you, Bill. We appreciate it.

Chairman ARCHER. Secretary Rubin, welcome to the Committee,
and we will be pleased to receive your testimony. If you can sum-
marize it, that will be helpful. Your entire statement will, without
objection, be printed in the record, but certainly you are free to
spend as much time as you like.

‘You may proceed.

Secretary RUBIN. Mr. Chairman, thank you very much. It is tra-
ditional for the Secretaries to testify in order of precedence, but in
light of the fact that this is a Medicare issue, and the leading mem-
ber of the Cabinet with respect to Medicare is Secretary Shalala,
our view was that Secretary Shalala would testify first, and I
would testify second, if that is acceptable to you.

Chairman ARCHER. Of course.

You may proceed, Secretary Shalala. Welcome to the Committee.
We are happy to receive your testimony.


40

Secretary RUBIN [continuing]. Wait 1 minute—let me just fin-
ish—I agree with what implicitly must have been June O’Neill’s
view, that of CBO, because they had changed their baseline to re-
flect these numbers and did not bring it up in the negotiating ses-
sion.

Mr. SHAW. Am I correct——

Secretary RUBIN. I think it was critically important that we ad-
dress the issue of the solvency of Medicare, and I do not think that
that importance was significantly impacted by the operating deficit
in 1995.

Mr. SHaw. I would take your answer to be, then, that you do not
take much significance in the fact that the Trust Fund took in less
money than it paid out in 1995. I find that unbelievable, and I am
very concerned.

I think the real message we have here is what didn’t you know,
and when did you forget it.

Secretary RUBIN. Well, Mr. Shaw——

Chairman ARCHER. The gentleman’s time has expired.

Mr. Rangel.

Mr. RANGEL. Thank you, Mr. Chairman.

Do either of you two have counsel here?

Secretary RUBIN. We will serve as counsel to each other, thank
you, Mr. Rangel.

Mr. RANGEL. Well, I don’t think anyone on this Committee, ex-
cept the last speaker, is challenging the validity of your remarks.
They believe what you are saying, but as Clay Shaw said, the ques-
tions are what did you know and when did you know it? And we
want you two to understand that we do not have much legislation
to work on for the rest of this year, so it is very important to us
that we try to get as much information about these types of things
as we can, especially when we are enjoying the television cameras
here with us today.

So we do hope that if you have any notes or any evidence at all
around in your bedrooms, office files, or memorandums that you
could use to refresh your recollections as to who was at these meet-
ings that you attended and when you found out the shortfalls you
will let us know. Notwithstanding that these variations were not
too far from norm, this is the only issue we have, so we have to
stick with this.

Now, at any of these meetings at the White House did you know
or should you have known that there was a Dr. O’Neill in attend-
ance. Does that name mean anything at all to either of you?

Secretary RUBIN. Well, Mr. Rangel, Dr. O’Neill was at the De-
cember 12 meeting—and it was actually held up on the Hill—at
which all of the budget negotiators from the congressional majority,
congressional minority, and the White House were present.

Mr. RANGEL. I know, and I appreciate your testimony on these
questions.

Now, is Dr. O’Neill the Republican-appointed head of the Con-
gressional Budget Office?

Secretary RUBIN. Yes, she is, Mr. Rangel.

Mr. RANGEL. Now, did you have reason to believe that she would
report to the Republicans as to exactly what took place at this
meeting that was held in December?


19

In closing, let me emphasize that the most important issue is for the Congress,
working with the Administration, to take the steps necessary to strengthen the
Medicare trust funds. One year's results will not change the need to strengthen the
Hi Trust Fund. As you know, the President's 1993 Economic Plan added three
years to the life of the Fund. The President, iti his seven-year balanced budget plan,
has proposed additional measures. The Congress, too, has made proposals in this
area. 1 am hopeful that, working together, we can agree upon necessary changes to
the Medicare program, which is so essential to the security of all Americans.

A similar letter is being sent to the co-signers of your letter.

Pa FELL.

Donna E. Shalala

cc: The Honorable Sam M. Gibbons


14

methodology. Consequently, the Trustees’ projections provide the most useful guides
available to decisionmakers in addressing the issues of an uncertain future.

The 1995 Trustees Report projected that the HI Trust Fund would be depieted in 2002 under
the intermediate assumptions. ‘This depletion date was one year later than was projected in
the 1994 Report. The estimates under the “low cost” and “high cost” alternative ranged
from 2001 to 2006. The Trustees estimated that HI Trust Fund income would exceed
expenditures by $4.7 billion in fiscal year 1995; income would approximately equal
expenditures in fiscal year 1996; and income would fall short of expenditures by
approximately $5 billion in fiscal year 1997. However, as you know, actual expenditures
exceeded revenues for fiscal year 1995 by $36 million,

‘The 1995 Trustees projections were within a reasonable range of variation, as they have been
over the past several years. In each of the past ten years, actual HI income has been within
approximately 1.5 percent of projections in either direction, Actual HI expenditures
exceeded projections in six of the last ten years, by amounts ranging from 0.4 percent in
1993 to 5.6 percent in 1992. Projections were higher than actual experience in four of the
last ten years, by amounts ranging up to 2 percent. This past year, in fiscal year 1995, total
HI income was 1.2 percent less than projected and expenditures were 3.1 percent greater
than projected. Thus, the 1995 variation was within a normal range of variation,

Considering the complexity of the projections at stake, the Office of the Actuary has a pretty
good track record with its estimates. By way of comparison, the Congressional Budget
Office’s March 1995 baseline projections for HI were very comparable to the Trustees
Report projections, and estimated a surplus in fiscal year 1995. Moreover, a comparison of
‘Trustee Report and Congressional Budget Office projections of total Medicare spending,
when the projections were made during the actual year in question, shows similar ranges of
differences between projections and actual spending. Over the period 1987 to 1994, the
‘Trustee Report overestimated same year spending four times, underestimated same year
spending two times, and came within a billion dollars twice; CBO overestimated spending
three times, underestimated spending three times and came within a billion on two occasions.

1 know that you are very interested in having the most up-to-date projections of HI Trust
Fund depletion, and the Trustees will provide them as soon as they become available. As T
described earlier, the performance of the Trust Fund in fiscal year 1995 is just one of the
factors upon which the HCFA actuaries base their projection of the Fund’s performance over
the longer term. The HCFA actuaries are in the process of completing the analyses they
need to make these projections. Their projections will be included in the 1996 Trustees
Report.

Without the detailed analysis that these projections involve, it is too soon to draw firm
conclusions about the extent to which the performance of the Trust Fund in fiscal year 1995,
or how the many other factors that affect the Fund, will affect the Trust Fund’s estimated
depletion date. Despite the fact that these projections are not yet available, the HCFA
actuaries have provided the following interim calculation; using the (no longer current)
assumptions from the 1995 intermediate Trustees Report estimate, but reflecting actual Fund
operations in fiscal year 1995. Based on this incomplete information, the projected depletion
date would move back from 2002, as projected in 1995, to 2001, as we projected in our
1994 Trustees Report. However, this projection is preliminary and incomplete since it does
not take into account any other changes in the data or assumptions that are currently being
reviewed. Finally, this projection is subject to change — at a substantially lengthened time
frame -- if the Congress acts soon to adopt the constructive Medicare reforms that this
Administration has recommended.

In closing, I appreciate the opportunity to appear before you today to set the record straight
regarding the status of the HI Trust Fund. Although the status of the HI Trust Fund may be
slightly worse than projected last year, the long term outlook for Medicare has not changed.
Without intervention, the Trust Fund will be exhausted within the next five years or so. To
meet this challenge, the President has submitted a balanced budget proposal that insures the
Trust Fund will remain solvent for more than a decade from now, and provides us with an
opportunity to tackle the longer term issues in a measured fashion. We must move forward
in a responsible, bipartisan manner to enact the President's Balanced Budget proposal as the
Medicare program requires and as the citizens we serve expect.


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69

STATEMENT OF SARAH F. JAGGAR
DIRECTOR
HEALTH FINANCING AND PUBLIC HEALTH ISSUES
U.S. GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Committee:

You asked us to testify today on our ongoing review of the
status of Medicare's Federal Hospital Insurance (part A) Trust
Fund. Specifically, the Committee asked us to determine (1) when
the administration became aware that the trust fund had an
operating deficit--that is, cash outlays exceeded cash receipts--
of $36 million for fiscal year 1995 and how the information was
disseminated and (2) the status of current projections regarding
the trust fund.

To address your questions, we spoke with officials of the
Departments of Health and Human Services (HHS), Labor, and the
Treasury; the Health Care Financing Administration (HCFA),
including its Chief Actuary; the Congressional Budget Office
(CBO); the Office of Management and Budget (OMB); the Social
Security Administration; and one of the public members of the
Board of Trustees. We also obtained relevant documents from
these officials and reviewed the monthly cash-basis part A trust
fund reports for fiscal years 1991 through 1995 and the first
quarter of fiscal year 1996.

The Board of Trustees’? annual report issued in April 1995
estimated that the part A trust fund would have an operating
surplus in fiscal year 1995, just about break even in fiscal year
1996, and move to an operating deficit in fiscal year 1997.* The
Trustees projected that the fund would be depleted in calendar
year 2002. The fund actually had an operating deficit for fiscal
year 1995.

WHEN DID THE OPERATING
DEFICIT BECOME KNOWN?

The fact that the part A trust fund had run an operating
deficit during fiscal year 1995 was first published in a
Department of the Treasury monthly report? dated October 27,

‘The Federal Hospital Insurance Board of Trustees consists of the
Secretaries of Health and Human Services, Labor, and the
Treasury; the Commissioner of Social Security; and two members
who represent the public.

*The Trustees’ report presents three sets of estimates based on
nigh cost, low cost, and intermediate sets of assumptions. In
this testimony, we use the estimates based on the intermediate
assumptions, which are those the Trustees considered the most
likely to occur.

(Binal Monthly Treasun Monthly Treasury Statement of Receipts and Qutla: f£_th
United States Government for Fiscal Year 1995 Through September
30,1995, and Other Periods (Washington, D.C.: Department of the



24

And Secretary Shalala, you are one of those Medicare Trustees,
and I am curious as to when you first learned about Medicare's
early financial shortfall.

Secretary SHALALA. As I reported to you in my letter, it was in
early December, in preparation for the midyear Trustee meeting.

Chairman ARCHER. So the first you knew about it was when you
were given a memo from Sandra Bart, your policy coordinator, on
December 11?

Secretary SHALALA. Yes.

Chairman ARCHER. OK.

Secretary SHALALA. And a meeting followed that memo. That
was a memo in preparation for a briefing meeting with me by my
senior staff.

Chairman ARCHER. So you personally did not learn of it from this
October 27 release that you have raised.

Secretary SHALALA. I did not.

Chairman ARCHER. And you are a Trustee.

Secretary SHALALA. I am a Trustee, and I did not learn it from
the October Treasury Department report but instead learned about
it at the December midterm meeting when we would normally re-
ceive an analysis on the condition of the HI Trust Fund from our
senior officials.

Chairman ARCHER. I do not want to bore in on this, but I am
very curious because you and Secretary Rubin both have held up
an October 27 release and said everybody should know about it be-
cause of that, but as a Trustee, you did not know about it until De-
cember 11.

Secretary SHALALA. That is correct.

Chairman ARCHER. Did you at that time inform Alice Rivlin
about the shortfall?

Secretary SHALALA. I did not.

Chairman ARCHER. Did you inform Leon Panetta?

Secretary SHALALA. I did not.

Chairman ARCHER. Did you or anyone else to your knowledge in-
form the President about it?

Secretary SHALALA. I did not inform the President about it.

Chairman ARCHER. And to your knowledge, nobody else did?

Secretary SHALALA. Not to my knowledge.

Chairman ARCHER. OK. Why not?

Secretary SHALALA. For several reasons—because when I was in-
formed the numbers were within the normal range of variations for
these projections, because the Congressional Budget Office and all
the appropriate fiscal offices that take these numbers and adjust
baselines were informed and had discussion on these numbers, and
because they were preliminary projections. The Trust Fund was
solvent at the end of 1995 because there was $129 billion in that
Trust Fund. And all of us read these numbers the same way that
Senator Domenici did, and that is that there was still urgency, that
we still needed to move ahead with the Medicare changes that all
of us were working on.

Chairman ARCHER. Of course, but what we are talking about
here is actual changes in spending, not projections. And in the
memo that you have given us from Sandra Bart, it says here that


10

The 1995 Trustees’ Report projected that under the intermediate
assumptions, the HI Trust Fund would be depleted in 2002. This
depletion date was 1 year later than was projected in the 1994 Re-
port. The estimates under the “low cost” and “high cost” alter-
natives ranged from 2001 to 2006, and both of those numbers were
included in our 1995 Trustees’ Report. The Trustees estimated that
HI Trust Fund income would exceed expenditures by $4.7 billion in
fiscal year 1995; income would approximately equal expenditures
in fiscal year 1996, and income would fall short of expenditures by
approximately $5 billion in fiscal year 1997. However, as you know,
actual expenditures exceeded revenues for fiscal year 1995 by $36
million.

The 1995 Trustees’ projections were within a reasonable range of
variation, as they have been over the past several years. Let me
repeat that. The 1995 Trustees’ projections were within a reason-
able range of variation, as they have been over the past several
years.

In each of the past 10 years, actual HI income has been within
approximately 1.5 percent of projections in either direction. Actual
HI expenditures exceeded projections in 6 of the last 10 years by
amounts ranging from 0.4 percent in 1993 to 5.6 percent in 1992.
Projections were higher than actual experience in 4 of the last 10
years, by amounts ranging up to 2 percent. This past year, in fiscal
year 1995, total HI income was 1.2 percent less than projected, and
expenditures were 3.1 percent greater than projected. Thus, the
1995 variation was within a normal range of variation.

Considering the complexity of the projections at stake, the Office
of the Actuary has a very good track record with its estimates. By
way of comparison, the Congressional Budget Office March 1995
baseline projections for HI were very comparable to the Trustees’
Report projections and estimated a surplus in fiscal year 1995.

Moreover, a comparison of Trustees’ Report and Congressional
Budget Office projections of total Medicare spending, when the pro-
jections were made during the actual year in question, shows simi-
lar ranges of differences Setween projections and actual spending.
Over the period 1987-95, the Trustees’ Report overestimated same
year spending four times and underestimated same year spending
two times, and came within $1 billion twice; CBO overestimated
spending three times, underestimated spending three times, and
came within $1 billion on two occasions.

We fully recognize that you are very interested in having the
most up-to-date projections of the HI Trust Fund depletion, and the
Trustees will provide them to you as soon as they become available.
Without the detailed analysis that these projections involve, it is
too soon to draw firm conclusions about the extent to which the
performance of the Trust Fund in fiscal year 1995, or any other fac-
tors, will affect the Trust Fund’s estimated depletion date.

Despite the fact that these projections are not yet available, the
HCFA actuaries have made an interim calculation based on incom-
plete information, suggesting that the projected Trust Fund deple-
tion date would move back from 2002 to 2001.

However, this interim projection is preliminary and incomplete
since it does not take into account any other changes in the data
or assumptions that are currently being reviewed.


29

set of options that will increase the availability of Medicare and the
choices available to every American.

All of this will extend the Trust Fund into the second decade of
the 21st century and give all of us enough time to deal with the
long-range problems of financing the Medicare Program.

Mr. GiBBons. Secretary Rubin, what is going to happen if we do
not get a clean debt ceiling.

Secretary RuBIN. Mr. Gibbons, this Committee, as you well
know, is the Committee of jurisdiction with respect to the debt
limit, and your Chairman has played, I think, a very constructive
role in providing the $29 billion that got us through March 1. That
was a very important contribution.

I think, Mr. Gibbons, we have come a long way. When this proc-
ess started, many, many months ago, there were those who were
saying that default was acceptable as the price for getting their
way on the budget negotiations, and it was our view that nothing,
but nothing, should be allowed to in any way create a question
with respect to the creditworthiness of the United States of Amer-
ica. And I think that this period, although it has been a difficult
period, has accomplished a great deal in the sense there seems to
be an almost universal view now, given that people have had time
to reflect on the importance of the creditworthiness of the Nation,
that default is unthinkable, and I believe it is unthinkable, and it
will not happen.

On March 15, Mr. Gibbons, that will be the date when, under
Chairman Archer’s legislation, there will in effect be a “snapback,”
so that the debt that has been issued will be treated as debt above
the debt limit. For that reason, we will not be able, as a matter
of law—not choice on our part—as a matter of law, we will not be
able to reinvest the incoming proceeds, the incoming cash, to the
Social Security, Medicare and other trust funds in interest-bearing
government securities. So instead, they will go on the books of the
Federal Government as credits backed by the full faith and credit,
but without interest. Congress could, of course, restore interest leg-
islatively.

We will still, however, have a cash balance. As the days go on,
additional Trust Fund investments will come in; as a matter of law,
we will not be able to invest them, but we will continue to have
a cash balance.

On March 21, according to our projections, we are a slight bit ei-
ther way, depending on the day, of being able to meet the obliga-
tions of the U.S. Government, so that default is possible on the
21st—based on the most recent projections we have, default would
occur by a slight bit, but those projections put us slightly over or
slightly under, depending on the particular day of the projections,
and we are making projections 1 month out, on a $1.5 trillion budg-

et.

But I think it is imperative that we put in place a debt ceiling
increase, that we do it promptly, and that we do it in a manner
consistent with the letter that the leadership, I think very con-
structively, gave to the Congress—which means taking out the use
of the debt ceiling to pressure with respect to other legislative
agendas.


98

A similar concept for an independent commission has also been proposed by the conservative
House Democrats who make up the Coalition -- also known as the Blue Dogs. In its balanced
budget proposal, the Coalition calls for an independent commission to help Congress make the
tough choices on Medicare for the next 30 years. ‘The commission outlined in the Coalition
plan is also a full-time, bipartisan working group that could make Medicare less of a political
football.

The Coalition would create a permanent Medicare Reform Commission to examine how
Medicare has met budgetary and program goals. The commission would report periodically to
Congress on the status of traditional Medicare, and on any new Medicare payment options that
may be adopted, such as Medicare Choice. If budgetary or program goals are not met, the
President could make specific legistative recommendations that would be approved by
Congress through a fast-track process.

Both H.R. 2152 and the Coalition bill are sound proposals that can help bring more logical and
reasoned decision making to the Medicare funding process. We commend those involved for
recognizing that Medicare funding decisions must be made outside of the political arena, And
we are gratified that, during the debate over how to balance the federal budget, the idea of a
bipartisan Medicare commission has attracted more and more attention.

It is also important to note that Rep. Cliff Stearns (R-FL) has proposed a commission with a
shorter-term focus. And Senate Majority Leader Robert Dole was quoted during the budget
debate as saying “the best solution is a bipartisan” approach. We look forward to working with
these members and others to create a bipartisan, independent commission that will address the
long-term problems of Medicare funding.

Conclusion
The issues we are addressing here are not just political issues -- they are people issues. The
decisions that Congress makes about Medicare will affect almost every American: the 38
million people who rely on Medicare benefits for their health care; the families of those
beneficiaries; the millions of baby-boomers who are edging closer to retirement; the young
workers who are paying into the system and rightfully expect Medicare to be there for them
when they grow older and retire; and all our citizens who receive care from hospitals and
health systems that could be adversely affected if change is achieved simply by the traditional
and irrational method of ratcheting down provider payments.

America's hospitals and health systems are proud of the high-quality health care they have
provided Medicare beneficiaries over the first 30 years of the program. We look forward to
providing high-quality care in an even better delivery system for the next 30 years and beyond,
We believe strongly that, by creating an independent commission on Medicare, we can achieve
that goal.

ae


91

Mr. McDermott. Do you think that that was a prudent judg-
ment on their part that, given your background in analyzing health
care issues, they took it seriously but felt that it was not something
that they had to shoot up red flares in the sky about?

Ms. JAGGAR. With respect, I would decline to say whether it was
prudent judgment on their part. Several of them are political ap-
pointees and involved in many complicated issues in relations with
Congress. But we detected nothing that would indicate that they
were, for political reasons, trying to hide information.

Mr. McDerRmoTT. Did you do any examination in your inquiry
about why the relevant Subcommittees, for example, of the Ways
and Means Committee, like the Oversight Committee, did not call
a hearing once they had received the report and read it? Did you
look into that at all?

Ms. JaGGAR. No, sir, we did not.

Mr. McDeERMoOTT. You were not tasked to do that, or were you
told not to do that?

Ms. JAGGAR. We were not tasked to do that. It did not come up
as an issue.

Mr. McDermott. And so you made the assumption that they all
read it, is that correct, that it was read by the people who would
have the responsibility on this Committee?

Ms. Jaccakr. Sir, I have no information about whether anyone on
this Committee, the Budget Committee, or any of the other Com-
mittees that received it, read the material or noticed it.

Mr. McDERMoTT?. Well, you did find out—or at least we know
now in this hearing—that Senator Domenici read it, or his staff
read it, and commented that it was not a serious problem.

Ms. JAGGaR. Yes.

Mr. McDeErRmorr?. So you would assume that it was done in the
House, wouldn't you?

Ms. JAGGAR. I am not sure of the timing of Senator Domenici’s
piece. It may well have been after the news release that brought
it to people’s attention.

Mr. McDermott. I see. So he may not have read it, either, until
then; is that what you are saying?

Ms. JAGGAR. I really don’t have any information about whether
it was read by others. We do know that the American Association
of Actuaries read it and incorporated it into their report, as did the
Congressional Budget Office.

Mr. McDeErRmoTr?T. So that, really, you do not know what hap-
pened up here on the Hill; you just know that the report was sent
out.

Ms. JAGGAR. Yes, sir.

Mr. McDermott. And the closing down of the government, do
you think that played any part—we were closed down approxi-
mately from November 16 to 19, when the Republicans thought the
government made no difference—that the shutdown did not inter-
fere in the processing of this information?

Ms. JAGGaR. To the best of our knowledge, it did not interfere in
the processing of the information. The possible impact of the fur-
loughs may be felt this spring as the Department of Labor and
other departments provide input to the HCFA Actuary for reassess-


11

Finally, this projection is subject to change and the Trust Fund
depletion date substantially delayed, if the Congress acts soon to
adopt the constructive Medicare reforms that this administration
has recommended.

In closing, let me again thank you for allowing me to appear be-
fore you today to set the record straight regarding the status of the
HI Trust Fund. Although the status of the HI Trust Fund may be
slightly worse than projected last year, the long-term outlook for
Medicare has not changed and requires action. Without interven-
tion, the Trust Fund will be exhausted within the next 5 years or
so.

To meet this challenge, the President has submitted a 7-year bal-
anced budget plan that ensures that the Trust Fund will remain
solvent for more than a decade from now and provides us with an
opportunity to tackle the longer term issues in a measured fashion.

We should move forward in a responsible bipartisan manner to
enact these changes, as the Medicare Program requires and as the
citizens we serve expect.

Thank you.

[The prepared statement and attachments follow:]


‘An Independent Commission an Medicare
Clearly, we must be thinking now about the long-term future of Medicare. While Congress
must be held ultimately accountable, an independent commission on Medicare could provide
Congress an important level of public trust and debate. The American people have a right to
know that what the nation spends on Medicare is buying the best benefits and the most
efficient care. They should be confident that federal budget pressures will not entirely dictate
how health services are provided for older Americans now, five years from now, or 30 years
from now.

‘An independent commission can do this job, and put the “trust” back in the trust fund. The
commission would annually assess how much money is needed to maintain the commitments it
establishes. Then, Congress would set a target -- through its regular budget resolution -- for
how much it wants to spend on Medicare. The commission would hold public hearings,
translate the congressional budget target into recommendations for a benefit package and
provider payment rates, and present Congress with its recommendations -- which would then
be voted up or down as a package.

We believe a bipartisan commission on Medicare should be permanent, with a life expectancy
beyond the current crisis. Otherwise, older Americans will continue to be caught in the
political crossfire obscuring the real issue: how to provide quality, cost-effective health care
to a growing number of people. Creating an independent commission does not mean that we
will not constrain growth; it means we will do it rationally and publicly.

‘We also believe that the independent commission should govem a single Medicare Trust Fund,
in which the HI Trust Fund (Medicare Part A) - which covers inpatient hospital services -—
and Medicare Part B - which, with premiums and general revenues, funds physician,
ambulatory and other services -- are combined.

Capitated payments and approaches that “bundle” Part A and Part B services are erasing the
distinctions between Medicare Parts A and B. Today, the HI Trust Fund finances a variety of
services that occur outside the hospital, such as skilled nursing, home health and hospice care.
In fact, these services are the fastest growing portion of Medicare spending. At the same time,
hospitals are reimbursed for a variety of services provided under Part B, such as outpatient,
clinical laboratory and physician care.

Medicare is composed of both Parts A and B, and we believe it is time for them both to be
considered as one program under the aegis of an independent commission.

consider the creation of an independent
commission. Most notably, we support the Commission to Save Medicare Act of 1995 (HR
2152), which was proposed last year by Rep. Phil English (R-PA). His bill was an important
tangible step toward the much-needed long-term restructuring of the Medicare program. It
would create a mechanism to balance Medicare benefits with available federal financing, and
remove Medicare spending decisions from the federal budget process, where sound health care
policy often takes a back seat to political expediency.

Rep. English’s proposal would create a commission of seven members, chosen in a bi-partisan
‘manner, appointed by the President, and subject to Senate confirmation. These members
‘would serve full-time, and be nationally recognized experts in health care, The commission
‘would report annually to Congress and the President on the per capita value of services
delivered through the Medicare benefits package, and the projected growth in program
expenditures. Each April, Congress would set a target for Medicare spending for the
upcoming year, taking into account the amount of revenue collected through payroll taxes,
enrollee premiums and transfers from general revenue. In July, the commission would
recommend specific changes in the program to bring spending within the budget target set by
‘Congress the previous April.


65

hunt. This was on a very substantive issue which J think was with-
in the Committee’s jurisdiction and is of immediate concern to the
American public.

Mr. Chairman, I would be happy to yield back the balance of my
time.

Chairman ARCHER. I thank the gentleman for yielding.

Madam Secretary, I understand that you also, as all of us do,
have schedule constraints, and that you need to leave at 12:45, so
we will have one last questioner, Ms. Kennelly.

Ms. KENNELLY. Thank you, Chairman Archer.

I think it has come out clearly in this hearing that when you get
all through what has been said, the facts that we are looking at
today are very important facts because they relate to the solvency
of the Medicare Fund. We all wish that we had all read every last
word in that monthly Treasury report, but a lot of people did not.
And I just want to salute you for the work you have done this year.
I have met with you, and every member of this panel has met with
you on the solvency of Medicare, and I think the one thing that
should come out of this hearing is that we all agree that we are
very, very committed to the solvency of Medicare, and I thank you
for that.

Secretary Shalala, I wonder if you would comment to me about
medical savings accounts. What I find when I go home is that med-
ical savings accounts are not totally understood and also that there
is a difference between medical savings accounts for someone who
is 25 years old and someone who is 65 years old.

So I wonder if, before you leave us today, having really withstood
a good deal of questioning, and you have handled yourself as you
always do, could you comment on the medical savings account—but
before you do that, I just thought of something. The next summary
of Medicare solvency comes out, I believe, in April?

Secretary SHALALA. Yes.

Ms. KENNELLY. I have the feeling that everybody will read every
word of the next report of the Trustees. Is there any possibility
that report might be late, Madam Secretary, because of the closing
down of the government?

Secretary SHALALA. Well, it may be late because of the closing
down. We are trying to make sure that we get it as much on time
as possible, and I would be happy to come up and brief the Mem-
bers of this Committee early, as soon as it is ready to go into print-
ing or something, if the Committee would like that. But at the mo-
ment, I think——

Chairman ARCHER. I think that would be very helpful. Thank
you.

Secretary SHALALA. At the moment, I think we are working very
hard, but I did get some information that the dates may slip be-
cause of the furlough. And, in fact, that Trustee meeting that we
were talking about happened during the furlough, too, so we have
been working with less staff than we normally do.

Ms. KENNELLY. I am asking you this about the medical savings
accounts because we don’t know what will exactly happen as we
move forward. I think we all hope that there is a budget that we
can agree to. But I come from Hartford, Connecticut, which has an
interest in insurance, and I know the difficulty of doing a risk ad-


val

The Board of Trustees biannual meeting was held on December
13, 1995. All of the trustees participated in the meeting, which
was chaired by the Secretary of the Treasury.

Also on December 13, CBO released its updated budget
baseline,’ which reflected the fiscal year 1995 data on the part
A trust fund. The overall spending estimates for Medicare for
fiscal years 1996 through 2002 decreased slightly.’ While CBO's
March 1995 baseline had underestimated part A expenditures by
about $1 billion, it said that lower inflation would largely
offset the rise in spending. CBO did not make an estimate of
trust fund receipts and has not updated its estimate for the date
the trust fund will be depleted.

OMB staff became aware of the part A operating deficit for
fiscal year 1995 in December 1995. An OMB official advised the
Special Assistant to the President for Health Policy Development
of the operating deficit sometime after the December 13 Board of
Trustees meeting.

In our discussions with the Chief Actuary and a public
trustee who attended the December 13 Board of Trustees meeting,
they said that the news of the operating deficit for fiscal year
1995 did not seem to cause alarm. They stated that the need for
corrective action was clear in prior Trustees‘ reports and that
the trust fund's 1995 performance did not change this bottom
line. Outlays have been growing faster than receipts in recent
years, leading to the operating deficit.

The Chief Actuary and the public trustee also remembered a
question being asked about the part A trust fund deficit related
to whether this information would be fully discussed in the 1996
Trustees’ report. The question was answered in the affirmative.

STATUS OF CURRENT PROJECTIONS
REGARDING THE TRUST FUND

The part A trust ,fund had an operating deficit in October
and November of 1995, ‘but the monthly Treasury statement for
December 1995 showed that the part A trust fund had generated a
surplus of $747 million for the first quarter of fiscal year
1996. The surplus for the first quarter of fiscal year 1995 was

(Washington, D.C.: CBO, Dec. 1995).

*spending on part A and part B (Supplemental Medical Insurance)
was estimated to be $45 billion lower than in the March 1995
baseline, mainly because part B spending was about $2 billion
lower relative to CBO's March 1995 baseline for fiscal year 1995.


16

As you know, each year the HCFA actuary and the Trustees develop
Projections of the future status of the Trust Fund. These projections cover a period
of 75 years into the future. To reflect the uncertainty inherent in projection, the
future of the Trust Fund is examined under three alternative sets of assumptions:
“int iate,” “low cost,” and “high cost". The intermediate set of assumptions
represents the Trustees’ best estimate of the expected future economic and
demographic trends that will affect the financial status of the program. Estimates of
future health care expenditures are inherently léss certain than estimates for many
other Federal programs because so many factors affect expenditures: changes in the
number of beneficiaries, changes in the age and health status of beneficiaries, trends
in health care inflation, increasing use of new technologies, and changes in the use
of health services, among other factors.

Based on the intermediate set of assumptions, the 1995 Trustees Report
published last April estimated a fund exhaustion date of 2002. The individual
estimates for the next several years were as follows: (1) HI Trust Fund income
would exceed expenditures by $4.7 billion in fiscal year 1995; (2) income would
approximately equal expenditures in fiscal year 1996; and (3) income would fall
short of expenditures by approximately $5 billion in fiscal year 1997.

The Congressional Budget Office also estimates the future operations of the
Trust Fund. The Congressional Budget Office estimates were very similar to the
intermediate Trustees Report estimates, and also projected a fiscal year 1995
surplus. For comparison purposes, the Congressional Budget Office estimates for
fiscal year 1995 are shown below together with the intermediate estimates from the
1995 Trustees Report (amounts in billions),

1995 Trustees CBO March Actual
Report 1995 baseline
Income $1162 $116.6 $114.8
Expenditures 1S 113.6 114.9
Net change in 47 3.0 -0.036
assets
Assets at end of 1343 131.7 129.5

year


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21

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Receipts

____ Receipts in September were $143.2 billion, up $7.3 billion from a year ago but slightly ($0.8
billion) lower than we estimated for the month, September receipts and fiscal year totals are shown

by major source in Table 3

TABLE3. SEPTEMBER RECEIPTS (In billions of dollars)

—————Fiscal Year Totals ____

September Percent

Major Source 1995 1995 1994 Change
Individual income taxes 60.9 390.2 543.1
Corporate income taxes 33.0 157.1 140.4
Social insurance taxes 39.9 4845 461.5
Excise taxes $7 575 552
Estate and gift taxes, 13 148 152
Customs duties 16 193 201
‘Miscellaneous receipts 08 203 220

Total Receipts 143.2 1.3506 12575 14

Note: Detitsmay nor add 1 oral Bacau ofrownding,

Receipts forthe year totaled $1,350.6 billion, up 7.4 percent from 1994, This was $4 6 billion
lower than our March baseline estimate and $6.2 billion lower than our August baseline update. The
Administration's misestimates were comparable in magnitude although somewhat diffecent in
direction, Actual receipes were $4.2 billion higher than the February budget estimate but $7.3 billion
lower than the mid-session review estimate. Table 4 provides a comparison of actual receipts by

major source with the CBO March and August estimates

Three quarters of the $6 billion receipt shortfall from our August baseline update was in
individual income tax receipts, mostly in taxes withheld from paychecks. Withheld taxes come in at
a rate of roughly $35 to $45 billion per month, making a divergence from projected levels of this size
A persistent event. Divergences in other tax sources were small, with shortfalls in customs duty and
Federal Reserve receipts edging out an overage in corporate income tax receipts.


95

AMERICAN ACADEMY of ACTUARIES

February 29, 1996

The Honorable Bill Archer
United States House of Representatives
Washington, DC 20515

Dear Chairman Archer:

The American Academy of Actuaries Social Insurance Committee requests that this letter be
submitted for the record on today’s full committee hearing regarding the financial condition of the
Medicare Hospital [nsurance (H!) Trust Fund.

‘As you know, data reported by the Health Care Financing Administration (HCFA) indicate that the
HI Trust Fund experienced a deficit in fiscal year 1995. The Academy believes the data further
underscore the need for Congress to act now to bring the HI program into long-range actuarial
balance. The HCFA data state that in 1995, actual expenditures from the HI Trust Fund exceeded
income to the Trust Fund by $.036 billion. In contrast, Medicare trustees in their April 1995 report
projected that the Trust Fund would run a $4.7 billion surplus in 1995. HCFA reported that actual
Trust Fund income was $1.4 billion (1.2%) less than projected, while actual expenditures were $3.4
billion (3.1%) greater than projected in 1995.

This shortfall raises questions as to whether the Trust Fund will be depleted before 2002, the year
trustees projected in the 1995 report. Although we cannot yet determine whether the 1995 shortfall
will have a substantial effect on the HI program's long-term actuarial balance, we believe that the
fact that the HI Trust Fund contains almost $5 billion less in assets than projected, and ran a deficit
in 1995 (a year earlier than anticipated), should serve as a waming that the HI program’s financial
problems need to be addressed sooner rather than later. Delay will limit the options for change and
require such changes to be more extreme. The Academy has evaluated potential solutions to the
Medicare program's financial problems in a recently released monograph. “Solutions to Social
Security’s and Medicare's Financial Problems.”

The Academy is a national organization that represents actuaries of all specialties and serves as the
profession's public policy voice. [tis a primary source of actuarial analysis for policy makers. We
look forward to the opportunity to provide the committee with such analysis on this important issue.
Please contact Christine Cassidy, Assistant Director of Public Policy, if we can be of assistance

Sincers
ot
fog ba
Jerry Bogart. FSA, MAAA.

Chairperson
Social Insurance Committee

Paxsinle 0.972 148

OO Seventeenth Stgost NY Seventh Ehaor Washinton, HC 20086 Telep



33

actly what happened—in fact, a continuation of the trend over the
last several years. So when you compare the two, what you really
have is a difference—and there on the chart is a dotted line show-
ing the original estimate, and the line below that, which was the
actual one, and the zero for the year which you folks do not seem
to place much significance on produces a yearly deficit for the first
time since 1972. And the last time there was a deficit, the Demo-
cratic-controlled Congress responded by raising taxes.

So no one thought that because there was a deficit it made any
difference, or it was not important, or it was not significant at all?

Secretary RUBIN. Mr. Thomas, let me—would you like me to re-
spond to that?

Mr. THOMAS. Yes.

Secretary RUBIN. Let me respond in two respects, and in one of
them, I will just repeat something I have said several times before.

There has never been a disagreement about whether or not the
solvency ——

Mr. THomas. No. I understand that.

Secretary RUBIN. Wait 1 minute——

Mr. THomas. No. I have heard your statements, and I under-
stand that, and my time is almost out. So you did not think it was
significant to really focus on the minus. That is OK.

Secretary RUBIN. I think that——

Mr. THomas. I understand that. I would like to ask——

Secretary RUBIN. I think that what is significant is to focus on
the solvency, which we have been trying to do all along. I agree
with Senator Domenici’s report——

Mr. THomas. We know that. You have relied on him signifi-
cantly.

Secretary RUBIN. Well, he is very thoughtful about these things.

Mr. THomas. OK.

Secretary RUBIN. I do not think that this particular number af-
fected the imperative to deal with that problem.

Mr. THOMAS. Secretary Shalala, you did not think the minus 36
was significant——

Secretary SHALALA. The information we had——

Mr. THoMasS. No. Question: You did not think it was significant,
either?

Secretary SHALALA. The variation was within a normal range for
these projections. I think the——

Mr. THOMAS. Why, then, on the memo that is dated December 8,
did your aides say that this number may be controversial?

Secretary SHALALA. Because it was a change in what our projec-
tions indicated, but it was within the normal range of variation as
the actuaries concluded. The numbers were also preliminary, and
t made sure that we found out what was underlying those num-

ers.

Mr. THomas. No, no, no. The statement was: “It may not be per-
ceived as trivial.” Was it because it was a deficit for the first time
since 1972?

Secretary SHALALA. Congressman Thomas, I do not consider any
variation in the Trust Fund trivial. I do not consider any informa-
tion I get about the Trust Fund trivial. We act on that informa-
tion——


17

Actual expenditures in the Trust Fund were 3.1 percent higher and income
was 1.2 percent lower than estimated by the HCFA actuaries. Such differences are
within the range of nonnal variation.

In your letter, you asked when the Administration became aware of the
performance of the Trust Fund in fiscal year 1995, and why the Adminstration did
not make this information public until February Sth. The Adminstration became
aware of the Fund’s performance, and reported these results, more than three
months ago.

Each month, the Treasury Department issues public reports that track cash
income and outlays and the balance of the Trust Fund. Information on the HI Trust
Fund income and outlays together with the Fund's invested assets at the end of fiscal
year 1995 was reported in the "Final Monthly Treasury Statement of Receipts and
Outlays of the United States Government". This information was released publicly
by the Treasury Department on October 27, 1995.

The Treasury Department and the Office of Management and Budget
distributed nearly four thousand copies of the October report to the public, including
individual copies for every Member of Congress, with extra copies to the House and
Senate Budget, Appropriations and Banking Committees, the Senate Finance
Committee, the Congressional Budget Office, and to your Committee.

Furthermore, we know that interested parties read these reports. The
American Academy of Actuaries noted the HI Fund's 1995 results in its “Comments
and Recommendations on Medicare Reform" on December 21,1995. Medicare
outlays were also reported on by the Congressional Budget Office (“Analysis of the
September Treasury Statement,” November 7, 1995.)

In late November, the HCFA actuaries received more detailed information on
the components of the income, outlays and Fund balance from the Treasury
Department based on this report. The actuaries informed HCFA Administrator
Bruce Viadeck of the Trust Fund's status on December 2, 1995. The Administrator
subsequently briefed me on these findings in a meeting on December 9, 1995. The
Administrator, as Secretary to the Board of Trustees, provided an interim report on
the Trust Fund's performance for fiscal year 1995 at the Trustees’ regular meeting on
December 13, 1995.


61

Mr. McDermott. My understanding is that there are 9 million
widows in this country living on less than $8,000 a year. Is that
correct?

Secretary SHALALA. That is correct.

Mr. McDermort. And that is the group that would be incurring
additional costs under the Republican plan; the Republicans would
be shifting that cost onto those beneficiaries, the 9 million or so
widows making less than $8,000 a year.

Secretary SHALALA. That is exactly right.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Laughlin.

Mr. LAUGHLIN. Thank you, Mr. Chairman.

Secretary Shalala, thank you for being here, and I know Sec-
retary Rubin had another meeting to go to, and I am sorry that he
could not be here, but I would ask you to pass on why I think this
hearing is so important.

Unlike Secretary Rubin, I never worked on Wall Street, and un-
like Secretary Rubin, I never knew a Rhodes scholar until I met
President Clinton at the White House. I talk to an awful lot of peo-
ple in my State and my district who are greatly concerned about
Medicare and its impact on their lives, and I think I have more in
common with those people, who have never met a Rhodes scholar
or worked on Wall Street.

The dollars that we are talking about here are out of the imagi-
nation of people like me and most of the people out here, dependent
upon Medicare. When I hear that there is a projected surplus of
about $4.7 billion, and then, in October, someone—not you and not
Secretary Rubin and not the President, but someone reportable to
you—makes a determination that we are going to have a shortfall
of about $36 million, and while the math is not accurate, it is about
a $5 billion shift, that is real money to the people whom I talk to.
I think that you and Secretary Rubin particularly, who are Trust-
ees, have an obligation to those people out there that this amount
of money amounts to real money. While it may be insignificant to
people who have Wall Street backgrounds, these are significant
shifts of money for which they feel—and I have heard this said
many times in the last several weeks—someone should have been
talking about.

So I think that is the real reason, and the important reason, for
this hearing. I hear a lot of them talking about the rhetoric that
comes out of Washington, DC, by some, that strikes fear in the
hearts of citizens that Medicare is going to go away. And then we
have the problem of what many would consider significant dollars
in the forecast, either disappearing or not meeting the expecta-
tions.

And with this great debate going on in the National Capital,
don’t you feel that the people out there in the countryside are enti-
tled to know when this significant amount of money does not re-
main on the books or remain to be used in this debate whether we
have medical savings accounts or whether we leave the system as
it has been for the last 30 years and just raise taxes?

Secretary SHALALA. Congressman Laughlin, not only do I believe
that everyone should know that the Medicare Trust Fund is in
trouble and must be dealt with, but we said it in 1993, we said it


4

Chairman ARCHER. The Committee will come to order.

I am informed that the Secretaries do have a limited timeframe,
which is understandable with all their duties, so unfortunately, the
vote on the floor of the House has delayed some of our Members
from returning, but it is my intention to proceed, and they will be
able to participate as they arrive.

I am pleased to welcome two of the major members of the Presi-
dent’s Cabinet before the Committee today, and Madam Secretary,
Mr. Secretary, thank you both for taking the time to join us today.

We want to discuss the latest information concerning the finan-
cial condition of the Medicare Trust Fund. As you know, last April,
Congress was informed by the Medicare Board of Trustees that the
Trust Fund would be insolvent and unable to pay its bills in the
year 2002. That, of course, was a best judgment projection based
on the data available at that time. The Trustees also told us that
Medicare would run surpluses through fiscal year 1997, at which
time the Fund would then begin to spend more than it took in an-
nually. But on February 5 of this year, the story appeared in the
press stating that the condition of the Trust Fund was worse than
expected. That story, which quoted Medicare’s chief actuary, re-
ported that the Trust Fund actually started losing money in fiscal
year 1995, 2 years earlier than was projected at roughly this same
time last year.

Considering the fact that a surplus was expected in 1995, I per-
sonally consider this unexpected shortfall to be an important mile-
stone in the history of Medicare. Some might argue that it does not
matter. Medicare, they say, was going broke anyway, so what dif-
ference do a couple of years make? But I personally believe that it
makes a great difference.

Too often, the Congress and the White House are unable to reach
agreements on important issues until the very last minute. For

edicare, if the last minute moves up in an unexpected way, we
will lose the luxury of shoring up the program with relatively mod-
est solutions. Every day the Trust Fund loses money, our options
become more and more difficult. That has been confirmed by other
witnesses before this Committee in the last year.

In fact, this week, we have learned that Medicare’s financial con-
dition is deteriorating faster than even this new information sug-
gests. Chairman Thomas has received new data concerning the
Trust Fund’s balance for the first 4 months of this fiscal year, and
it shows that Medicare appears to be in far worse shape than even
last year.

Secretary Shalala, you are a Medicare Trustee, and Secretary
Rubin, you are a Trustee, and you are Medicare’s managing Trust-
ee. As such, you enjoy a heightened responsibility to this Commit-
tee and to the public on all issues, but especially for this Commit-
tee’s oversight responsibilities of the Trust Fund, your opinions and
evaluations are extremely important to us.

The purpose of this hearing is to assess what this latest news
means for the solvency of the Trust Fund. We are also here to dis-
cuss the manner in which the news of the shortfall was made avail-
able to the public. I am concerned that the news of the shortfall
was buried at a time when key budget negotiations were under
way. It was revealed in a sliver of a 45-page statement issued by


93

Mr. ENGLISH. Is that a fair characterization?

Ms. JAGGAR. That is how I would characterize it.

Mr. ENGLISH. And you have received nothing—you have become
aware of nothing in your limited investigation that suggests there
was any effort made by either of the Cabinet Secretaries to subse-
quently call public attention to this, a fact which obviously was
coming to the fore at a time when Medicare reform was being vig-
orously debated, at a time when it had become a very partisan
issue, and at a time at which obviously this information was ex-
tremely inconvenient to one side—you have not seen any evidence
of an effort by any of the Trustees to bring this issue to the atten-
tion of the public, have you?

Ms. JAGGAR. Mr. English, we found nothing that would suggest
that anyone tried to hide it, and we have found nothing that sug-
gests that anyone tried to highlight it.

Mr. ENGLISH. I appreciate your bringing that up.

Do you have any recommendations for changing the statute that
spells out the responsibilities of the Trustees to maybe clarify a re-
sponsibility, a fiduciary responsibility, to call attention to these
sorts of public issues? Have you explored any ways of strengthen-
ing the statute that governs the role of the Trustees?

Ms. JAGGAR. We have noted that the statute requires the Trust-
ees at this point to identify and notify Congress when the Trust
Fund is “unduly small”; and there also is, in a separate but related
section—.

Mr. ENGLISH. But it does not specify “unduly small,” does it?

Ms. JAGGAR. A separate, related section requires notification
when the balance ratio is below 20 percent. And the Trustees have
done that when they completed their annual projections. This was
an interim projection, and it is being considered in making the
overall projections for the Trustees’ Report.

Mr. ENGLISH. I understand. I think what you have done here is
testify to the fact that the legal forms strictly understood were fol-
lowed, although I will say there are other statutes governing other
Trustees that are much stronger and would require a Trustee to
bring this very much to the attention of the public and to everyone
who is a stakeholder.

q want to thank you for the professionalism of your testimony
today.

Mr. LAUGHLIN. The time of the gentleman has expired.

The gentleman from Georgia is recognized.

Mr. Lewis. Thank you, Mr. Chairman, and I will be very brief.

Ms. Jaggar, I know you have been here for a long time, but let
me just ask you—you have limited resources as Director of this sec-
tion of GAO.

Ms. JAGGAR. Yes, sir.

Mr. Lewis. And do you think it is fitting and appropriate to use
your limited resources to engage in this type of inquisition?

Ms. JAGGAR. Mr. Lewis, we respond to the requests of Members,
of Committee Chairmen and Subcommittee Chairmen, both minor-
ity and majority parties, and when it is possible, we respond to the
needs that they have to the best of our capability. In this case, we
were requested, and we were able, to provide assistance.


38

issue, or are we trying to really solve the problem of the Medicare
Trust Fund?

I would hope that we would all act in a responsible, adult fashion
to try to solve the problem of the Medicare Trust Fund instead of
playing politics. You know, many senior citizens rely only on their
Medicare payments in terms of their health care coverage. We do
not need politics as usual, but apparently, you guys have no issues
to play with, so you are playing politics with this issue.

T just have to say that I do not know the relevance of this hear-
ing. It is really somewhat astonishing and surprising to me, and it
would be my hope that we act in a more responsible fashion in the
future.

I really do not have any questions. I am just astonished that we
are wasting our time when we have a debt limit that we have to
deal with in the next 2 weeks. I just find it absolutely astonishing,
and I do not even understand, frankly, why your leadership in-
sisted upon this.

Mrs. JOHNSON. The gentleman from Florida.

Mr. SHAW. Thank you, Madam Chairman.

I would like to review a few things here, because I think some
things have been said that are of a little bit of concern.

Secretary Rubin, before coming here, you were an investment.
banker on Wall Street; is that correct?

Secretary RUBIN. That is correct, Mr. Shaw.

Mr. SHaw. And as far as analyzing a corporation, if the corpora-
tion goes into the red for the first time since the seventies, it would
certainly be brought to your attention if that were in your invest-
ment portfolio; is that right, Mr. Rubin?

Secretary RUBIN. You know, Mr. Shaw——

Mr. SHaAw. Yes or no, please, sir. I am not going to be filibus-
tered. Is that right, or is that wrong?

Secretary RUBIN. Mr. Shaw, the results of any particular period
would have to be taken in context and considered, as I said, in the
context. I actually am very accustomed to analyzing financial state-
ments and results, and I-——

Mr. SHAW. Well, I have analyzed them, too, as a certified public
accountant and a lawyer, and I can tell you, Secretary Rubin, that
I would think that was very significant, and J think you would, too.
Now——

Secretary RUBIN. Well, Senator Domenici and I don’t.

Mr. SHAW [continuing]. Let me go on. I have some further things
that I want to say.

Now, it has come out—Secretary Shalala has said that she
learned of this on December 11, and it was discussed at a meeting
that you chaired, I believe, on December 13.

Secretary RUBIN. Correct.

Mr. SHAW. How long did that meeting go, Mr. Secretary?

Secretary RuBIN. I have been told since; it was roughly 18 min-
utes.

Mr. SHAw. Eighteen minutes. I would assume that your attention
span certainly would last 18 minutes, but in any event, you say you
just cannot remember anybody saying anything about the Trust
Fund going into the red; is that correct?


41

Secretary RUBIN. Well, she was not at the December meeting,
but she was fully cognizant of the numbers that were reported—
oh, in the December 12 meeting?

Mr. RANGEL. Yes.

Secretary RuBIN. That she would report everything that she felt
was relevant?

Mr. RANGEL. Yes.

Secretary RUBIN. I cannot speak for Dr. O’Neill, but she is very
highly respected; I presume that she would.

Mr. RANGEL. So if there was an attempt to cover up—of which,
of course, there is a strong implication here—this information, Dr.
O’Neill would have been a part of that coverup, now, wouldn’t she?
(Laughter.]

Now, you don’t have to answer this.

Secretary RUBIN. Well, not necessarily, Mr. Rangel. She may
have forgotten, or-——

Mr. RANGEL. Well, we think that you ought to consider getting
counsel in this matter, because we don’t have time to take up the
flat tax, and we don’t expect that we will be getting any meaning-
ful legislation out of this Committee still we are going to be on this
until we get to the bottom of it. [Laughter.]

And so I agree with my friend Clay Shaw—he is gone—that as
long as we can get away with this, we are going to try.

I want to thank you, Mr. Chairman.

Chairman ARCHER. Mrs. Johnson.

Mrs. JOHNSON. Thank you, Mr. Chairman.

I think it does matter when you knew things, and it does matter
what got forgotten, because this is one of the two most important
programs for the seniors of America, and on Medicare’s solvency
not only rests the health and well-being of the seniors, but the
peace of mind and well-being of their families.

So I take this hearing seriously, and if I am the only one here
who does, so be it. But we are talking about in 1 year, a $4.7 bil-
ion surplus, almost a $5 billion surplus, becoming a $36 million

eficit.

You say in your testimony, Secretary Shalala, that that means
that the Medicare Trust Fund will be exhausted in 5 years or so.
I mean, 5 years, for a Nation our size, for a program this size, is
a short period of time.

And the reason why a lot of us want to know how come a little
release was put out on October 27, and you guys did not pay any
attention to it until recently; you did not even discuss it in a meet-
ing until December, and then you did not tell the President or any-
one else in charge about such an important event.

The reason I am interested in that is because we have to save
this program. Now, the Chairman mentioned that there was only
one other time that Medicare actually paid out more than it took
in—1972. There is only one other time that Medicare had three bad
Trustee reports, that is, where the fund was going to go broke in
7 or fewer years—that is my definition of “bad”; that is worse than
your definition; I am more liberal than your definition—but there
‘was only one other time, and when that happened, Secretary Heck-
ler got out there, and she raised you-know-what. And she came up
with the DRG system because she said 7 years is too little.