U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

71–987 PDF 2012

FULFILLING A LEGAL DUTY: TRIGGERING A

MEDICARE PLAN FROM THE ADMINISTRATION

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JULY 12, 2011

Serial No. 112–81

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

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

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

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman

PAUL A. GOSAR, Arizona, Vice Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

PATRICK T. MCHENRY, North Carolina

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

DANNY K. DAVIS, Illinois, Ranking Minority

Member

ELEANOR HOLMES NORTON, District of

Columbia

WM. LACY CLAY, Missouri

CHRISTOPHER S. MURPHY, Connecticut

(III)

C O N T E N T S

Page

Hearing held on July 12, 2011 ............................................................................... 1

Statement of:

Blahous, Charles P., III, public trustee of Social Security and Medicare;

Joseph Antos, Wilson H. Taylor scholar in health care and retirement

policy, American Enterprise Institute; James C. Capretta, fellow, Ethics

and Public Policy Center; and Paul N. Van de Water, senior fellow,

Center on Budget and Policy Priorities ....................................................... 33

Antos, Joseph ............................................................................................. 42

Blahous, Charles P., III ............................................................................ 33

Capretta, James C. .................................................................................... 49

Van de Water, Paul N. .............................................................................. 60

Blum, Jonathan, Deputy Administrator and Director, Centers for Medicare and Medicaid Services .......................................................................... 7

Letters, statements, etc., submitted for the record by:

Antos, Joseph, Wilson H. Taylor scholar in health care and retirement

policy, American Enterprise Institute, prepared statement of ................. 44

Blahous, Charles P., III, public trustee of Social Security and Medicare,

prepared statement of ................................................................................... 36

Blum, Jonathan, Deputy Administrator and Director, Centers for Medicare and Medicaid Services, prepared statement of ................................... 9

Capretta, James C., fellow, Ethics and Public Policy Center, prepared

statement of ................................................................................................... 51

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 5

Van de Water, Paul N., senior fellow, Center on Budget and Policy

Priorities, prepared statement of ................................................................. 62

(1)

FULFILLING A LEGAL DUTY: TRIGGERING A

MEDICARE PLAN FROM THE ADMINISTRATION

TUESDAY, JULY 12, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 1:05 p.m., in room

2154, Rayburn House Office Building, Hon. Trey Gowdy (chairman

of the subcommittee) presiding.

Present: Representatives Gowdy, Gosar, DesJarlais, Davis, Norton, Clay, Murphy and Cummings (ex officio).

Staff present: Ali Ahmad, deputy press secretary; Brian Blase,

professional staff member; Robert Borden, general counsel; Drew

Colliatie, staff assistant; Gwen D’Luzansky, assistant clerk; Linda

Good, chief clerk; Christopher Hixon, deputy chief counsel, oversight; Sery E. Kim, counsel; Justin LoFranco and Cheyenne Steel,

press assistants; Mark D. Marin, senior professional staff member;

Ronald Allen, minority staff assistant; Jaron Bourke, minority director of administration; Yvette Cravins, minority counsel; Carla

Hultberg, minority chief clerk; and Christopher Staszak, minority

senior investigative counsel.

Mr. GOWDY. Welcome. This is a hearing entitled ‘‘Fulfilling a

Legal Duty: Triggering a Medicare Plan from the Administration.’’

I would ask the first witness in a panel by himself to come forward.

Thank you, Mr. Blum.

Let me read the mission statement from the Oversight Committee. We exist to secure two fundamental principles. First, Americans have a right to know the money that Washington takes from

them is well spent; and second, Americans deserve an efficient and

effective government that works for them. Our duty on the Oversight and Government Reform Committee is to protect these rights.

Our solemn responsibility is to hold government accountable to taxpayers, because the taxpayers have a right to know what they get

from their government. We will work tirelessly in partnership with

citizen watchdogs to deliver the facts to the American people and

bring genuine reform to the Federal bureaucracy. This is the mission of the Oversight and Government Reform Committee.

I will recognize myself for an opening statement and then recognize the distinguished gentleman from Illinois Mr. Davis.

2

First I want to thank not just the first panel of witnesses, but

all the witnesses for their time and willingness to share their insights, as well as thank all the guests in the audience. As part of

the Medicare Prescription Drug, Improvement, and Modernization

Act of 2003, Congress enacted a trigger provision, a statutory requirement to propose Medicare reform should certain conditions be

met. Each year the Medicare trustees are required to include a

Medicare funding warning in their annual report should general

revenue funding exceed 45 percent of total Medicare revenue for

the current year or is projected to exceed 45 percent for the subsequent 6 years. Should that warning be issued in consecutive years,

the trigger mechanism would take effect requiring the President to

submit legislation to Congress that would decrease the percentage

of general revenue financing Medicare. Since 2006, every single annual report has included this warning.

The previous administration complied with this law. The current

administration has not, and that is troubling on at least two fronts.

Firstly and fundamentally, we are a Nation of laws. We don’t have

the luxury of picking and choosing which laws we like and which

laws we do not like. The law is no respecter of title or station, it

applies to all. So it is troubling the President, who is the Chief Executive of the branch charged with enforcing the laws, has not complied. And this failure to comply is troubling because we are witnessing firsthand right now the need for decisive leadership on the

tough spending issues facing our country.

Making speeches isn’t hard. Saying you have a plan when you

don’t have a plan isn’t hard. What is hard is leading. What is hard

is making tough decisions. That is what is statutorily, and indeed

morally, required of leaders.

Without substantive reform Medicare will be insolvent in a decade. Costs are skyrocketing, and benefits are threatened by the

unsustainable status quo. Something has to be done, and simply

talking about the problems will no longer suffice. Abdicating this

duty might be a good political strategy; it is not a good strategy for

this country. We can hope for the leadership to resolve this difficult

issue. That we can hope for. What we should never be forced to

hope for is compliance with the law. Hence this hearing.

I now recognize the gentleman from Illinois, ranking member of

the subcommittee, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman. And I want to

thank you, first of all, for holding this very important hearing. As

a matter of fact, this is an issue that I care deeply about, and for

many different reasons.

For more than 45 years, Medicare has successfully provided access to health services for the elderly ages 65 and over and nonelderly people with disabilities. It currently covers 47 million Americans. Just think about it, 47 million Americans. Since July 30,

1965, when Lyndon Johnson signed the bill creating this fundamental health initiative, this program has evolved to reliably meet

the demands of aging and medically vulnerable Americans who

may not have had access to medical attention otherwise. Simply

put, Medicare is the lifeline.

Given the political realities, I realize that certain well-thoughtout improvements need to be made for Medicare to continue its

3

course. However, make no mistake, I, along with my Democratic

colleagues, am committed to ensuring the viability and sustainability of Medicare without deep ideological-driven cuts with harmful consequences.

It is this same commitment that ensured that Congress worked

actively for comprehensive health reform. The passage of the Affordable Care Act further improved upon the fiscal efficiencies necessary to ensure Medicare’s continued existence.

On a personal note, I have been involved in health advocacy for

over 35 years. I believe it fundamentally reveals the character of

a Nation when it cares for its most vulnerable citizens, the elderly

and the infirm. In my district I can attest that Medicare serves as

an indispensable safety net for many of my constituents.

This discussion is a valid one, but it must be approached in a serious, thoughtful manner mindful of the sacrifices made by those

who came before us. Seniors should not bear the burden of cost

shifting disguised as reform.

I look forward to the testimony of all the witnesses. And I will

just end, Mr. Chairman, by suggesting that if it was not for Medicare, many of the senior citizens that I personally know probably

would not still be around, because oftentimes Medicare is the only

stopgap between them and the grave. So if we talk about safety

nets, there is nothing that can provide more safety than the opportunity for individuals who have reached an age where they cannot

necessarily care for themselves to know that at the end of the day,

they can get the medical services that they need.

I look forward to the hearing and yield back the balance of my

time.

Mr. GOWDY. I thank the gentleman from Illinois.

I now recognize the gentleman from Maryland, the ranking member of the full committee, Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I want to

thank you for calling this hearing today. And I want to pick up

where the ranking member of this subcommittee left off.

As the son of a mother who is 85 years old, I just watch her

struggle through the difficulty of seeing her doctor retire and trying

to help her find a new doctor. She found a new doctor, but even

that was very taxing on her at 85 years old.

To pick up where Mr. Davis left off, and when I meet with people

in my district, the seniors, and I ask them, you know, who has savings and who has pensions and whatever, most of them, all they

have is Social Security and Medicare, that’s it, period. So to put it

more bluntly, without Medicare they would be—many of them

would be dead, period.

There are 45 million people nationwide who depend on Medicare

for their health care. For them and for millions of seniors who will

come after them, it is vital that Congress ensure Medicare’s longterm solvency. The Patient Protection and Affordable Care Act extended the Medicare Trust Fund solvency by 8 years, which is one

of the many reasons I’m proud that I voted to enact this law, and

I will go to my grave defending it.

By providing free, preventative screenings and reducing the cost

of brand-name prescription drugs, the Affordable Care Act has already made a tremendous impact on seniors’ health care and their

4

pocketbooks. The Affordable Care Act also addresses the escalating

cost of health care by reforming Medicare’s payment and delivery

system to incentivize high-quality, better-coordinated care without

inefficiencies and to fight fraud and abuse.

In contrast, the recent plan passed by my House Republican

friends would eliminate Medicare as we know it. In a radical transformation they would wipe out Medicare’s guaranteed benefits for

seniors. They would also shift massive costs onto seniors, while

doing nothing to address the real reasons behind the high cost of

health care.

Under the Republican plan seniors aged 65 and 66 would be

abandoned to find health care on their own or go without it. Seniors 67 and older would get a voucher from the government to pay

a smaller and smaller share of their health care costs. But one of

the questions that I posed to so many, and I’ve never received a

satisfactory answer, Mr. Chairman, is that if I have a senior at 65

years old with diabetes and its companion heart disease, who is

going ensure them? I don’t care how much money you’ve got, who

is going to ensure them?

The nonpartisan Congressional Budget Office estimated that the

Republican plan would more than double out-of-pocket costs for

seniors. Right now seniors pay about 25 to 30 percent. Under the

Republican plan they would pay 68 percent with no money, by the

way. The Center for Economic Policy Research calculates that the

Republican plan would shift costs of up to $4.9 trillion onto seniors.

For the individual senior citizen, that would amount to an average

of $13,368 per year.

Mr. Chairman, the Republican plan is cruel, and it is sadly a

cruel betrayal of our Nation’s seniors. It would have a profoundly

negative impact on the health of those elderly, it would be detrimental to the Nation’s economy, and it would impair the living

standards of seniors and their children, who will be called upon to

take over when the government abandons them. This radical—and

again, I go back to if they can get insurance.

This radical plan is not inevitable, and Democrats in Congress

will fight tooth and nail to help protect our Nation’s seniors from

this abomination. At the same time we will seek commonsense

measures to secure runaway medical inflation rather than taking

away medical care from people who need it.

And I agree with the ranking member, there are things that

have to be done with regard to Medicare. Nobody is saying it’s either one way or the highway. But we have to do those things that

are sensible, and we have to do those things—we have to treat this

as if we are the most skilled heart surgeon performing the most

delicate operation so that we do the treatment and give the reform

that will allow Medicare to live as opposed to allow the patient to

die.

And so I look forward to the testimony today. I want to thank

our witnesses. And again, Mr. Chairman, I think this is a grand

opportunity for us to address this issue. And with that I yield back.

Mr. GOWDY. I thank the gentleman from Maryland.

[The prepared statement of Hon. Elijah E. Cummings follows:]

5

6

7

Mr. GOWDY. It is now my pleasure to introduce Mr. Jonathan

Blum, who is the Deputy Administrator and Director, Center for

Medicare and—Centers for Medicare and Medicaid Services.

Pursuant to committee policy, I would ask Mr. Blum to please

rise and let me administer an oath.

[Witness sworn.]

Mr. GOWDY. May the record reflect that the witness answered in

the affirmative.

Mr. Blum, there are a series of lights hopefully somewhere. They

mean what they traditionally mean outside of committee hearings.

So with that we would recognize you for your 5-minute statement.

STATEMENT OF JONATHAN BLUM, DEPUTY ADMINISTRATOR

AND DIRECTOR, CENTERS FOR MEDICARE AND MEDICAID

SERVICES

Mr. BLUM. Great. Thank you, Chairman Gowdy, Ranking Member Davis and members of the committee. I am pleased to be here

today to talk about our efforts to strengthen the Medicare program.

I would like to make three main points during my 5 minutes.

First, the Affordable Care Act has made substantial improvements

to Medicare’s overall finances. The Affordable Care Act will reduce

Medicare spending by over $500 billion over the next 10 years.

Many of the savings provisions included in the Affordable Care

Act came from proposals that were part of the President’s first

budget submission to Congress in 2009. These proposals included

a payment change to promote accountable care organizations to

participate within the Medicare program, bundled payments to promote greater care coordination and greater efficiency to our payments, payment reductions to certain health care providers and incentives for hospitals to improve quality. Many of these saving provisions have been already implemented, so the savings are real,

and CMS is on track to implement the remaining savings provisions on time.

This year’s Medicare Trustees Report confirmed the Affordable

Care Act’s impacts on the program’s overall solvency. The Part A

trust fund solvency has been extended by 8 years. The 45 percent

trigger threshold will be met by 2013. Projected per capita spending will be 2.9 percent over the next 10 years, significantly lower

than the previous 10 years. The cost curve, at least in the short

run, has been bent downward. Not only do these changes reduce

taxpayers’ burdens, but they lower costs for Medicare beneficiaries

through lower copayments and premiums.

The second point that I want to make today is that reducing

Medicare costs is one of CMS’s greatest priorities, highest priorities. We have made significant new investments in reducing waste,

fraud and abuse. Through our partnerships with law enforcement

agencies, billions of dollars have been recovered back to the trust

funds.

We have also implemented on January 1st the first round of competitive bidding for medical supplies such as power wheelchairs.

Through this competitive bidding program, Medicare will pay an

average of 32 percent less than it previously paid for power wheelchairs, oxygen tanks and other durable equipment. That 32 percent

8

is an average figure. The program will save billions of dollars for

taxpayers and beneficiaries when fully phased in.

We have also closed loopholes and reformed our payment systems

to ensure that we pay accurately for providers such as skilled nursing facilities, home health agencies and physician services. CMS

will continue to use its rulemaking authorities to ensure we pay as

accurately and fairly as possible.

And the third point I would like to make today is that Medicare

benefits are stronger due to the Affordable Care Act and our work

at CMS. The Medicare Part D doughnut hole is being phased out

by 2020, and this year those that do fall into the doughnut hole

will save hundreds of dollars on their out-of-pocket costs for prescription drugs. This year the program began to offer free cost

sharing for certain preventive benefits to keep seniors healthier for

longer periods of time, and the Medicare Advantage program continues to grow—not shrink, but to grow—while offering average

lower premiums.

Clearly we have more work to do to ensure a sustainable program for the long-term future. We look forward to working with the

Congress to ensure we have the strongest program possible. I

would be happy to answer your questions.

Mr. GOWDY. Thank you, Mr. Blum.

[The prepared statement of Mr. Blum follows:]

9

10

11

12

13

14

15

16

17

18

19

20

21

Mr. GOWDY. I would say on behalf of all of us, votes are imminent, and all of us want to be good stewards of your time as well

as the time for the second panel. I know that people have other

commitments and other things to do. So we’re going to ask questions until they call for votes, and then if we get back in time and

you’re still here, great; if not, then we want to be respectful of

things other people have. So thank you. We apologize for that in

advance.

Mr. Blum, what’s the purpose of the trigger?

Mr. BLUM. The 45 percent trigger?

Mr. GOWDY. That’s right.

Mr. BLUM. Well, the MMA, the Medicare Modernization Act of

2003, created a kind of additional solvency measure to assess the

overall financing of the total Medicare program Parts A and Parts

B.

Mr. GOWDY. And it requires the President to submit a plan to

Congress, correct?

Mr. BLUM. The statute requires that the Medicare trustees issue

a funding warning when certain conditions have been met.

Mr. GOWDY. Have those conditions been met?

Mr. BLUM. They were met starting as of 2006 or 2007.

Mr. GOWDY. Right. So according to Federal law, President

Obama was supposed to submit a plan to this Congress to flip that

45 percent of general revenue funding for Medicare, correct?

Mr. BLUM. The 45 percent trigger has been met, will be met by

2013. The Affordable Care Act will——

Mr. GOWDY. That wasn’t my question.

Mr. BLUM. The President has consistently submitted a budget to

propose reductions to overall Medicare’s financing. In 2009, the

President submitted a historic budget framework to reduce——

Mr. GOWDY. So he doesn’t take the position that is advisory, he

takes the position that it is the law?

Mr. BLUM. I think the position that the administration takes is

that reducing Medicare costs is one of our highest priorities.

Mr. GOWDY. Mr. Blum, I’m not asking you about priorities, I’m

asking you about compliance with the law. Does this administration take the position that the trigger is advisory or mandatory?

Mr. BLUM. We take the position that reducing Medicare costs is

our highest priority.

Mr. GOWDY. Mr. Blum, I’m probably not asking my question very

artfully, so let me try it again. Is the trigger mandatory or discretionary, complying with it?

Mr. BLUM. The trigger is one measure of overall Medicare solvency. The President has proposed a budget in 2009. Many of those

savings provisions were included within the Affordable Care Act

and adopted in the Affordable Care Act.

Mr. GOWDY. So your position is that the Affordable Care Act or

ObamaCare meets his requirements under that section for the trigger?

Mr. BLUM. My position today is that the President has continued

to propose ideas and proposals to reduce Medicare spending, and

as a result by 2013, in 2 years’ time, the 45 percent threshold has

been met.

22

Mr. GOWDY. Mr. Blum, I quit counting at number seven when I

heard for the seventh time my colleagues refer to the Republican

plan. And that’s great, they can—that’s the beautiful part about

our Republic is that we can introduce ideas and criticize them, and

heavens knows Paul Ryan’s plan has certainly been scrutinized and

criticized.

I wonder if the President’s decision not to submit a plan to fix

Medicare might be because he had the prescience to realize that

there would be criticism that came, just like Mr. Ryan has experienced. Do you think that might explain why we haven’t gotten a

plan submitted to Congress?

Mr. BLUM. I think the President since he took office has said that

reducing Medicare costs, overall health care costs, is one of our

greatest challenges in the context of overall health care reform.

The President submitted a budget in 2009 that will reduce—that

would have reduced Medicare spending by $300 billion. Many of

those provisions were adopted in the Affordable Care Act.

Mr. GOWDY. What about 2010?

Mr. BLUM. He continues to suggest new ideas, for example, to reduce waste, fraud and abuse. This April he proposed in the context

of the overall debt ceiling reductions for a $400 billion additional

reduction for both Medicare and Medicaid, and he continues to suggest new ideas in the context of the overall debt ceiling discussions.

Mr. GOWDY. Mr. Blum, I’m going to ask you again, do you take

the position that ObamaCare meets the statutory requirements of

the trigger legislation?

Mr. BLUM. My position is that due to the savings provisions that

were included in the Affordable Care Act, Medicare solvency has

been increased by 8 years. The 45 percent trigger will be met by

2013, in 2 years’ time, through at least 2020. What I think is true

is that the Affordable Care Act will reduce Medicare spending, will

improve Medicare solvency. We have more work to do, but by 2013

the 45 percent trigger will be met.

Mr. GOWDY. So that’s a long way to say you do take the position

that introducing or passing ObamaCare absolves you from having

to meet any other trigger requirements?

Mr. BLUM. I think the President has been clear that we have

much more work to do to ensure Medicare solvency.

Mr. GOWDY. Well, I’m wondering if part of that work might be

complying with the law and submitting a plan to Congress as is required when you get warnings from the trustees?

Mr. BLUM. I believe that the first year that the warning was

issued was in 2006, possibly 2006 or 2006–2007. The first year the

President took office, he submitted a proposal to the Congress to

reduce Medicare spending by $300 billion. The Affordable Care Act

took many of those proposals to reduce spending by $500 billion.

We are working very hard to implement those provisions. We have

extended—those provisions have extended solvency by 8 years to

the Part A trust fund by 2013. The trigger has been met through

at least 2020. So I believe we are—we have complied with the intent to the 45 percent trigger.

Mr. GOWDY. Well, I’m way out of time, so I will recognize the

gentleman from Illinois Mr. Davis.

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

23

Mr. Blum, I’m aware that we are searching for alternatives to reform Medicare. The Ryan plan is one such scenario, but I’m not in

favor of merely shifting beneficiaries from one Federal plan to another. The Congressional Budget Office said the following about the

Ryan plan, and I’m actually quoting: As the eligibility age for Medicare rose from 65 to 67, some people who were 65 or 66 years old

or were approaching those ages would turn to other programs for

health care and income support. For example, more people might

apply for disability benefits under the Disability Insurance Program or under the Supplemental Security Income Program. Most

people on disability insurance receive Medicare benefits after a 24-

month waiting period, and Supplemental Security Income beneficiaries receive Medicaid benefits immediately under current law.

Most people might also apply for the Supplemental Nutrition Assistance Program or other welfare programs.

Is it reasonable to believe that under the Ryan plan, seniors will

be forced to rely on other public health programs or simply not obtain those services at all?

Mr. BLUM. My reading of the Congressional Budget Office analysis of Chairman Ryan’s plan is that it would shift additional cost

onto Medicare beneficiaries; that the way the program is structured, to my understanding, is that it sets a premium support system that grows over time by an amount less than the overall projected trend rate in health care costs, and, as a result, that shifts

costs onto Medicare beneficiaries relative to what they would have

paid without the proposal.

Mr. DAVIS. And it’s also my understanding that the nonpartisan

Congressional Budget Office found that a typical beneficiary would

spend more for health care under the proposal than under CBO’s

long-term scenarios for several reasons. First, private plans would

cost more than traditional Medicare because of the net effect of differences in payment rate for providers, administrative costs and

utilization of health care services as described above. Second, the

government’s contribution would grow more slowly than health

costs, leaving beneficiaries with more to pay. Is that your understanding of this scenario?

Mr. BLUM. Correct. I think if you look at the history of private

plans operating within the Medicare program, they have historically not been less expensive than the traditional fee-for-service

Medicare program. Today we spend about 108 percent on average

more for private plans for those beneficiaries who join a private

plan relative to the traditional fee-for-service program. Now, those

payment differentials are coming down. But I think one of the

points from the Congressional Budget Office is that they estimate

that the cost to administer health care coverage through private

plans relative to the fee-for-service program would be more expensive, and that’s one of the reasons why beneficiaries would be projected to pay more than they would without the new program put

into place.

Mr. DAVIS. In your analysis, would you suggest that the Affordable Care Act actually helps to reduce the cost of Medicare?

Mr. BLUM. The Affordable Care Act reduces Medicare beneficiaries’ out-of-pocket costs in a number of ways. One is that it

constrains cost growth. So to the effect that the program pays less,

24

beneficiaries pay less through lower copayments and lower premiums.

The Affordable Care Act also phases out the so-called Part D

doughnut hole. This year beneficiaries will save hundreds of dollars

in out-of-pocket costs for brand-name prescription drugs. And also

that the program provides free cost sharing for certain preventive

benefits.

So, yes, the Affordable Care Act will lower out-of-pocket costs relative to previous law.

Mr. DAVIS. Thank you very much.

Thank you, Mr. Chairman. I yield back.

Mr. GOWDY. I thank the gentleman from Illinois.

The chair will now recognize the gentleman from Tennessee Dr.

DesJarlais.

Mr. DESJARLAIS. Thank you, Mr. Chairman. And thank you, Mr.

Blum, for appearing today.

Just in continuation of the conversation we were just having, you

were talking about lowering health care costs under the

ObamaCare plan for Medicare recipients. Does the plan take into

account the fact that there are 10,000 new Medicare recipients entering the Medicare pool daily? Does it take into account the fact

that the average life expectancy now versus 1965 has grown by

about 10 years? I believe the average life expectancy in 1965 was

68 for a male, and it’s much higher now, thankfully.

The CBO says that it will be insolvent by 2024. With all those

considerations, is that all covered in the Affordable Health Care

Act, and is that going to be taken care of in terms of still being

able to lower costs despite this huge influx and the CBO report

that Medicare is going to be insolvent?

Mr. BLUM. Well, the trustees report that I cited during my opening statement projected that Medicare Trust Fund solvency will be

increased by 8 years, that the 45 percent trigger will be met by

2013, per capita spending will be constrained over the next 10

years relative to the previous 10 years. Those projections also include the fact that beneficiaries live longer, the fact that more

beneficiaries due to the baby-boom generation will be added to the

program. So the figures that I cited take into account the demographic changes that are projected to happen to the Medicare program.

Mr. DESJARLAIS. And as a practicing physician who has taken

care of many Medicare patients, do you believe that we can reduce

the cost the way you speak here and maintain quality of care?

Mr. BLUM. I think one of the greatest challenges and also opportunities that is contained within the Affordable Care Act is the opportunities to use payment reform to change how we think about

paying for care, to shift to paying for value from paying for volume.

The Affordable Care Act includes many provisions to make our

health care system safer, more focused on outcomes; for example,

focusing on hospital readmissions.

So the spirit of the Affordable Care Act is to constrain cost

growth in part by lowering payment updates to providers, but also

to fundamentally change how we think about paying for care, to

focus on the value, to focus on the outcome rather than just the volume of services.

25

Mr. DESJARLAIS. What is it going to do with the SGR, because

that’s a looming issue that concerns both the recipients of health

care, because seniors are already having difficulty finding providers, and providers seem to be exiting the Medicare plan because

of the cost cuts? Right now we have anywhere from a 21 to a 28

percent cut. Does your plan include a 30 percent pay cut to providers?

Mr. BLUM. Congressman, you are correct, according to our current projections, that if Congress does not extend the so-called SGR

extensions, that CMS will that have to reduce physician payments

by 30 percent. We are very concerned about this projected payment

reduction. And while we don’t see any disruptions to access the

physician services across the country right now, we are concerned

that physician access could be compromised if this cut were to take

into effect. The President has called for a permanent fix to the

SGR, one that’s also fiscally responsible.

Mr. DESJARLAIS. How are we going to pay for that? I mean, what

are we going to tell our seniors right now, don’t worry, we’re going

to cut physicians’ pay by another 30 percent, when essentially

there hasn’t been a pay increase for a decade now despite rising

health care costs, overhead costs, and physicians are going to be

paid probably 50 percent less than they were a decade ago? Do you

really think that’s going to fly? Can you tell our seniors with any

confidence that doctors are going to be there for them, and what

does the Obama administration have as a solution for this?

Mr. BLUM. I can’t speak for the Congress, but the President this

year in his 2012 budget submission proposed a 2-year extension

that was fully paid for through payment reduction, through improvements to how we think about waste, fraud and abuse within

the Medicare program. But the President has also called for a permanent solution, but one that’s also done in a fiscally responsible

way.

Mr. DESJARLAIS. So we’re going to kick the can down the road?

Mr. BLUM. I think what the President has said is that we need

to find a permanent solution working with the Congress. His budget submission this year included a 2-year extension, but his policy—very strong policy preference is for a permanent fix to the

SGR.

Mr. DESJARLAIS. Okay. So we’ll worry about it when I get there

is basically what I’m hearing.

Let’s talk about IPAB quickly, because we’re running out of time.

That’s another area that I think maybe even the administration

recommend is flawed. We have an Independent Payment Advisory

Board that is basically tasked with rationing health care even

though they’re saying that they’re not allowed to ration it, but they

are tasked with cutting Medicare. And I find it interesting that the

Ryan plan has been accused of ending Medicare as we know it

when in reality ObamaCare within the next 2 years is going to

start making drastic cuts to payments to Medicare recipients and

providers, and I see a recipe for disaster.

Mr. GOWDY. Mr. Blum, the gentleman’s time is expired, but I

don’t want to prevent you from answering. I would just ask you to

answer in light of the fact that the gentleman’s time has expired.

Mr. BLUM. Thank you.

26

I think that the overall goal that we have, I think all of us have,

is to ensure that cost growth remains lower than in the past. And

I think one of the reasons that Congress did include the IPAB provision was to create a check on overall per capita growth.

In my opinion, we need to look at a whole host of different solvency measures. The 45 percent trigger looks at the mix of financing, but it doesn’t necessarily look at the overall cost growth. And

I think that the Affordable Care Act’s goal, CMS’s goal, is to ensure

that we have lower cost growth than the past to ensure the program remains affordable both for taxpayers and for beneficiaries.

Mr. GOWDY. I thank the gentleman from Tennessee.

The chair would now recognize the gentleman from Maryland,

the ranking member of the full committee Mr. Cummings.

Mr. CUMMINGS. Mr. Chairman, I see that we are about to start

voting on the floor, so I will be brief.

Let me ask you, Mr. Blum, one of the things about the Affordable

Care Act, and it’s something that my seniors applaud, is the whole

idea of wellness. I cannot tell you the number of people that I see

in my district who call me and say, Cummings, you know, I found

out I had prostate cancer, and they said it was too late, too late.

In other words, they didn’t get the exam earlier. Or they found out

they have some other disease that is going to cost a lot, end-of-life

care. And I was wondering, as you all see it, the Affordable Care

Act had provisions to try to address some of the costs by keeping

people well; is that correct?

Mr. BLUM. The Affordable Care Act included several provisions,

one of which was for the first time to add the opportunity for Medicare beneficiaries to have an annual wellness visit, a conversation

with their physician to ensure that they’re complying with recommended preventive tests; to check medications to ensure that

the mix of medications is correct. Almost 1 million Medicare beneficiaries to date has taken advantage of that new wellness visit.

The Affordable Care Act also included provisions to lower barriers for beneficiaries to take advantage of preventative benefits by

waiving the cost sharing for certain preventative benefits. And I

think that in our opinion at CMS is that we need to keep our beneficiaries healthier for longer periods of time. That’s the right thing

to do for beneficiaries, but it’s the right thing to do for overall

Medicare costs. We know that when beneficiaries come onto the

program without coverage, they cost more than beneficiaries who

have coverage turning age 65. So that gives us evidence that when

we focus on the health, we focus on the well-being, we ensure that

beneficiaries receive care when they need it, that the overall costs

are lower.

Mr. CUMMINGS. If you will recall, when I did my opening statement, I talked about a question that concerns me, and I’m sure

many others. If you got a senior who is 65 years old with no—who

has diabetes and who has heart disease, I asked the question, who

is going to insure them? And I’m sure you all have tried to figure

this out because you realize that there is a Republican plan. And

so under that plan have you figured out who is going to insure

those folks, because I’ve got a lot of folks in similar situations in

my district.

27

Mr. BLUM. Well, the plan as I understand it, Chairman Ryan’s

plan, would take effect in 2022. I think it’s hard to predict which

insurance companies would come into a market in more than 10

years’ time. But I think the keys are to have very strong risk-adjustment mechanisms to ensure that plans have very strong incentives to take those that have chronic illness, the chronic sick. The

history of the private plan system within the Medicare program to

date has been that when we don’t account for the high cost that

beneficiaries with diabetes or other chronic conditions have, that

plans figure out ways not to care for them.

Mr. CUMMINGS. You talked about waste, fraud and abuse, and

that’s been certainly a subject that has come before our full committee quite a bit and is something that we are tasked with addressing. And, you know, do you all see a lot of waste, fraud and

abuse in the Medicare system, and do you—you know, those are

words that we hear over and over again, I mean every year. I’ve

been hearing it for the last 15 years since I’ve been here, waste,

fraud and abuse; waste, fraud and abuse. The question is, do we

have a plan to truly attack that?

Mr. BLUM. I think in 2009 there was an historic coming together

of both CMS and the law enforcement agencies, Department of Justice, of trying to do more than what was done in the past to reduce

true fraud in the program. One thing that was put into place is Operation HEAT, which targets both law enforcement resources and

also analytic resources to the hotspots of the country for Medicare

fraud. We know that fraud tends to be in certain parts of the country, then it moves when law enforcement moves in. So the key really is to follow the hotspots and ensure that the fraudsters don’t get

ahead of law enforcement.

Second is that we are using data analytics in novel new ways to

both find waste, fraud and abuse, but also to predict where waste,

fraud and abuse could be happening.

And the third area is that we need to make sure that our payment policies are correct, they don’t overinflate to create incentives

for fraudsters or bad actors to come into the program. One example

is that we have reduced prices paid for certain durable medical

equipment. That’s an area that we have a lot of fraud in the program by 32 percent. So if we target the hotspots, we use data wisely, we also set our payment policies right, that we will make a serious dent in waste, fraud and abuse.

Mr. CUMMINGS. Thank you. I yield back.

Mr. GOWDY. I thank the gentleman from Maryland.

Mr. Blum, and to my colleagues Mr. Clay, Ms. Holmes Norton,

Dr. Gosar, we’ve got about 10 minutes left to vote. It looks like it

may be a series of some length. What I can promise you is we will

be back here as quickly as we can get back here.

Mr. BLUM. I’m happy to stay.

Mr. GOWDY. Well, we all apologize, but we can’t control when

votes are called, and sometimes can’t control how long they last.

But I’ll make you the commitment we will get back here. I’m not

going to tell you we’re going to run, but we’ll walk briskly to get

back here.

Mr. BLUM. It’s too hot to run.

28

Mr. GOWDY. And we’ll be in recess until such time as we can

come back. And again, we apologize for any inconvenience.

Mr. BLUM. Thank you very much.

[Recess.]

Mr. GOWDY. Mr. Blum, and to all our guests, again, we apologize

for any inconvenience for what was an especially long vote series.

The chair will now recognize the vice chairman of the subcommittee Dr. Gosar, the gentleman from Arizona.

Mr. GOSAR. Thank you, Chair.

Mr. Blum, do you agree—or do the current law projections include a 30 percent cut in the provider payment rate schedule to

occur next year?

Mr. BLUM. The trustees reports——

Mr. GOSAR. How about yes or no?

Mr. BLUM. No, it does not. The trustees report projects current

law, and the current law would have a 30 percent cut in 2012 absent congressional legislation.

Mr. GOSAR. Okay. The chief actuary at CMS says that many of

the providers will find it difficult to remain in Medicare if provider

payments are cut dramatically. I find that in Arizona already. So

if we are making further cuts, we are not going to see a lot of providers or access to care, right?

Mr. BLUM. I think what the chief actuary has said is that it is

possible that Congress may repeal some of the savings provisions

that are——

Mr. GOSAR. May repeal?

Mr. BLUM. Correct.

Mr. GOSAR. So that’s a maybe, not a definitive?

Mr. BLUM. What the trustees report has projected current law,

and current law has productivity of payment adjustments for hospitals and other health care providers really to incent more efficiency. And so the actuaries have projected an alternative scenario

for future costs if Congress were to repeal some of the changes and

also that if Congress were to provide a permanent fix to the SGR.

Mr. GOSAR. Well, we didn’t include the SGR into that fix, did we?

Mr. BLUM. Which fix, I’m sorry?

Mr. GOSAR. I mean, the health care bill did not take in the SGR

fix.

Mr. BLUM. Current law provides that in January 1, 2012, that

physician payments would be reduced by 30 percent or so.

Mr. GOSAR. And you actually think that’s going to go through?

Mr. BLUM. The President has called for a permanent fix to the

SGR when it is done in a fiscally responsible way. The administration is hopeful that the Congress will address the long-term SGR,

but the President has said that it should be done in a kind of fiscally responsible way. His 2012 budget submission provided a paidfor 2-year extension, but he has also said his very strong commitment for a permanent fix to the SGR.

Mr. GOSAR. Well, I understand the commitment and trying to

perform the fix. Have you actually been on the ground, because,

you know, physicians are chasing their tail, so a cut is improbable,

just because it just doesn’t work that way in a physician’s office.

Mr. BLUM. I have traveled throughout the country over my time

at CMS, and what I hear is tremendous frustration from physicians

29

about sort of the current uncertainty to what physician payments

will be in the future. The good news is that so far we’re not seeing

any access issues for beneficiaries nationwide, but if the 30 percent

cut were to go into effect, that we would have to be very worried

about access to physician services.

Mr. GOSAR. But we’re already starting to see that. I’m from rural

America, from rural Arizona, and we’re starting to see it already.

Because, once again, we’re just chasing our tail because we’re not

getting paid, and we’re hopefully getting down the road so that we

get some compensation. And so there’s no efficiency in that model

whatsoever, and there’s no efficiency in some of the clinics as well

when we’re talking about paying encounter fees just so that we

have a single WIC mom coming 5 different weeks for 1 visit not

even seeing a physician. That’s not called efficiency in my book.

Mr. BLUM. I think the Affordable Care Act provides CMS new

tools and new payment authorities. And I think one of our challenges, but also our opportunities, is to change how we pay for physician services and other services to promote greater care coordination, to promote more efficiency in payments, to reward outcomes

rather than just volume of services.

So one of the highest priorities that we have at CMS is to build

the next generation of payment systems to ensure more accountability, greater quality outcomes. But I agree with you, Congressman, we have to address the 30 percent shortfall that’s scheduled

to take effect.

Mr. GOSAR. I’m going to go back to this. Your testimony assumes,

at least the numbers you’re reporting to us assumes, that there’s

a physician 30 percent cut, right?

Mr. BLUM. The actuary’s report this year assumes that the 30

percent cut will go into effect. That assumes current law. What the

President has called for is a fiscally responsible permanent fix to

the SGR. He has proposed a 2-year extension that’s fully offset by

other changes to the Medicare and Medicaid programs.

So we agree that we need to find a permanent solution to our

current physician shortfall, but at the same time we need to make

sure that the Medicare program remains strong for future generations. Part of that strategy is to ensure that we build a next generation of payment systems to ensure the health care is more efficient, that it’s more accountable, that it rewards care coordination,

and through payment improvements, through delivery improvements, we can save tremendous amounts of money.

Mr. GOSAR. Don’t you feel—just real quick, Chairman—don’t you

feel that not mentioning this 30 percent cut is misleading?

Mr. BLUM. It depends how the 30 percent cut is implemented,

and I can’t speak to how Congress will change. But it can be done

in a budget-neutral manner, it can be done in a nonbudget-neutral

manner.

What I can speak to is the projections; to the trustees report that

has projected additional Medicare solvency; the Part A trust fund,

that doesn’t include physician services. No matter what the SGR

change is, the Part A trust fund will be solvent for 8 more years.

Mr. GOSAR. Well, I have to interrupt because that’s a contingency

on having more jobs in this country, and if you last looked, that

didn’t work. And I know that the hospitals bought into making—

30

agreed to certain cuts, and now those cuts are even greater. All I

got to tell you is that the hospitals back home in rural America are

saying, no way. So I think you need to redo your math. Thank you.

Mr. GOWDY. I thank the gentleman from Arizona.

The chair would now recognize the gentlelady from the District

of Columbia Ms. Holmes Norton.

Ms. NORTON. Thank you very much, Mr. Chairman. Actually I

thank you for this hearing because I think it allows us to get some

information on the record.

Many would say that the present majority got here or was able

to take over the House by the way they characterized what I think

many would regard as the only savings, substantial savings, in

Medicare in a long time and with virtual demagoguery about the

Medicare Advantage program. Now, a quarter of our seniors get

Medicare Advantage, but the last time I heard, all seniors, like all

men and women, are created equal, except that we spend $14 billion, I believe the figure was, more on those who enrolled in this

private beneficiary plan and then got, shall we call it, premium

support from the Congress, except that premium was the bulk of

what was $14 billion. Now, if they had stayed in traditional Medicare, of course, the cost would have been less, $14 billion less, to

be exact. So isn’t it the case that the Affordable Care Act, by correcting this overpayment, in fact, saved Medicare funds for the first

time that anyone has been able to do so in any large amount of

funds?

Mr. BLUM. The Affordable Care Act phases down the higher payments that are made to Medicare to vanish plans down to a level

on average that will be closer to the traditional fee-for-service program.

Ms. NORTON. So you could still get it?

Mr. BLUM. Correct.

Ms. NORTON. But you couldn’t get all those extras that sent you

way above what other Medicare patients were getting, seniors were

getting?

Mr. BLUM. Sure. CMS began to phase in those payment reductions last year. They will continue over the next several years. Contrary to predictions, more Medicare beneficiaries are going into the

Medicare Advantage program. We expect that it will continue to

grow over the next several years. So while we are phasing down

payments, we are also increasing our oversight of the plans. We

are——

Ms. NORTON. So people continue in their plans, or in that—those

who prefer private plans continued in it even though they didn’t

get this overpayment?

Mr. BLUM. And more are signing up every day.

Ms. NORTON. Let me ask you about another one of these concerns. When Part D was passed, we bemoan the fact it wasn’t paid

for. It is, in fact, the case that the Affordable Care Act was paid

for; is that not the case?

Mr. BLUM. The Affordable Care Act included $500 billion in cuts

to the Medicare program. While there were some savings provisions

that were included within the Medicare Modernization Act of 2003,

that is correct, that the Part D benefit was not paid for.

31

Ms. NORTON. That was a lot not to be paid for. But as we know,

the trustees—I’m sorry. Yes, the trustees have to let us know when

the general funds are being tapped to pay for Part D. Now, the figures I have show that 82 percent of the financing of Part D comes

from general revenues and only 10 percent from beneficiary premiums. States make up 7 percent of the financing, according to the

figures I have. The Medicare trigger denoting you’ve reached that

45 percent was almost immediately pulled.

Do you believe that lowering the Medicare D prescription drug

spending would reduce the chances of this, of triggering the general

services, the general revenue obligation?

Mr. BLUM. Sure. The 45 percent trigger is triggered when nondedicated revenues are greater than 45 percent. The Part D benefit

in its current structure is financed. Roughly 75 percent in beneficiaries pay—beneficiaries who are not——

Ms. NORTON. Could I ask you now, in the Affordable Care Act

we closed the doughnut hole over time. Now, how do we pay for

that? We say that was paid for.

Mr. BLUM. The Part D doughnut hole was estimated to be about

$16 to $20 billion of costs. That could be wrong. I’ll have to get

back to you with an accurate figure. But the changes to close the

doughnut hole were fully offset by other savings provisions within

the Affordable Care Act.

Ms. NORTON. Thank you, Mr. Chairman.

Mr. GOWDY. I thank the gentlelady from the District of Columbia.

The chair would now recognize the gentleman from Vermont Mr.

Welch.

I’m sorry. Mr. Murphy. I apologize.

Mr. MURPHY. Thank you very much, Mr. Chairman. Vermont is

a beautiful place. So is Connecticut.

Mr. GOWDY. My apologies.

Mr. MURPHY. Mr. Blum, thank you very much for appearing

today. I want to just maybe extend the conversation that Ms. Norton was having with you regarding what has happened to Medicare

Advantage. She talked about the fact that more, not less, people

are signing up since the Affordable Care Act has been passed. Can

you talk a little bit about premiums for seniors as it relates to premium increases prior to the subsidies being taken away?

Mr. BLUM. Sure. Currently that the average premium for those

beneficiaries who are in the program are 6 to 7 percent lower than

they were last year. So we’re seeing an average decline of premiums for beneficiaries that are still in the program. Average benefits have stayed the same, and more Medicare beneficiaries are

signing up for the program relative to overall growth to the program overall. So payments are coming down, more beneficiaries are

going into the program relative to last year, and average premiums

are declining.

Mr. MURPHY. Do you have a guess as to why premiums are coming down?

Mr. BLUM. Well, I think that when the program—when CMS is

a tougher negotiator—last year we denied plan bids for the first

time with new authorities that were provided to the Secretary to

oversee the program. We are actively managing the program. We

32

are being much more stronger stewards of the program. And I

think the lessons that I’ve taken is that when we have enhanced

our oversight, promoted competition, simplified beneficiary choices,

held plans to the standards that are consistent with our goals and

values, competition increases, premiums are lower, and beneficiaries are more satisfied and join plans.

The Affordable Care Act provides a tremendous new tool to our

oversight of the program. For the first time starting in 2012, we’ll

be able to provide bonus payments to those plans that provide the

greatest quality outcomes, the greatest performance. So I think we

have more tools than we have had in the past, but CMS has a

stronger commitment to oversee the program, and when that happens, we get lower costs for taxpayers, lower premiums for beneficiaries, and stronger take-up in the program.

Mr. MURPHY. Well, I think that’s really important information to

have because—and I sat on the Energy and Commerce Committee

and listened for a year and a half to opponents of health care reform tell us two things, that if we were to remove the subsidies,

the 13 to 15 percent subsidies above what traditional Medicare

costs, that plans would close up shop. And seniors would no longer

be able to have offered to them Medicare Advantage plans, and/or

costs would skyrocket. And exactly the opposite has happened.

Since the Affordable Care Act has been passed more people are

signing up for Medicare Advantage, and it is costing people less,

which is frankly something you don’t see almost anywhere else in

the health care system, people’s premiums actually declining.

And I think that’s significant, because as we are sitting here trying to assess how best to create benchmarks for our health care

system for the Medicare program, the benchmark that we’re looking at today is one regarding the percentage of general revenues

that go into the program. But an equally important benchmark is

how much individual beneficiaries are paying out of their pocket.

And the fact that the Affordable Care Act has meant that Medicare

Advantage beneficiaries are paying less, that Part D beneficiaries

are paying less, that Medicare beneficiaries who are going to have

to pay for preventative care are paying less has just as much to do

with whether or not we’re achieving the ultimate goals of the program as does a question of how much general revenues are being

put into the program.

I think that’s incredibly important as we talk about the current

plan before us by the Republicans to radically change the way that

Medicare is structured, because what we know is this, and CBO

tells us, that the average beneficiary is going to go from paying

about 20 to 30 percent of health care costs to somewhere in the

neighborhood of 65 to 70 percent; that they are going to see their

out-of-pocket expenses under the Ryan Medicare privatization plan

be tripled over a 20-year window; 65- and 66-year-olds would probably completely lose the ability to receive Medicare. Now, that

means something to each individual beneficiary, but it also means

something to the Federal Government. It also means that those 65-

and 66-year-olds leach out somewhere else into the system, and a

lot of the costs that are borne by the beneficiary end up resulting

in people not receiving preventative care getting sicker and costing

us less later on.

33

So I would like to see us have benchmarks, but I think one of

the benchmarks should also be how much money is coming out of

the pocket of each individual beneficiary. And I think the Republican plan before us on this radical rewrite of Medicare will make

tracking those expenses even more important.

I thank the chair for the time, and I yield back.

Mr. GOWDY. I thank the gentleman from Connecticut. And I

apologize again for moving him without his consent.

Mr. Blum, on behalf of all of us, thank you for sharing with us

your perspective and for indulging us as we went to vote.

We will—I’m not even going to leave. I’m going to ask the second

panel to come up, and if any of my colleagues need a break, they’re

welcome to take it, otherwise we’ll go right into the second panel.

We want to welcome our second panel. I will introduce you from

my left to right, your right to left. Dr. Charles Blahous III, is public

trustee of Medicare and Social Security. Dr. Joseph Antos—and if

I mispronounce anyone’s name, I apologize in advance—is the Wilson H. Taylor scholar in health care and retirement policy. Mr.

James Capretta is a fellow with the Ethics and Public Policy Center. And Dr. Paul Van de Water is a senior fellow with the Center

on Budget and Policy Priorities.

Pursuant to committee rules I will ask all four of our witnesses

if they would please rise so I can administer the oath.

[Witnesses sworn.]

Mr. GOWDY. May the record reflect all the witnesses answered in

the affirmative.

Mr. Blahous, we will recognize you for your 5-minute opening,

and then we will go from your right to left, my left to right.

STATEMENTS OF CHARLES P. BLAHOUS III, PUBLIC TRUSTEE

OF SOCIAL SECURITY AND MEDICARE; JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR IN HEALTH CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE INSTITUTE; JAMES

C. CAPRETTA, FELLOW, ETHICS AND PUBLIC POLICY CENTER; AND PAUL N. VAN DE WATER, SENIOR FELLOW, CENTER ON BUDGET AND POLICY PRIORITIES

STATEMENT OF CHARLES P. BLAHOUS III

Mr. BLAHOUS. Thank you, Mr. Chairman, Mr. Ranking Member.

It’s an honor to appear before you today to discuss the funding

warning in the 2011 trustees report. My written testimony contains

some basic background about Medicare financing, and in view of

the limited time, I would just like to make a few cursory summary

comments in my oral remarks.

First, Medicare has two trust funds. It has a Hospital Insurance

Trust Fund, which we call Part A, and it has a Supplementary

Medical Insurance Trust Fund. And that’s different—that’s important to know because financial strains on each side of the program

are manifested in different ways. On the Part A side, in the hospital insurance side, we as trustees make projections that are

somewhat like the ones we make for Social Security. We project

forward future program income, future program expenditures. We

make a determination as to whether they’re out of balance. We

make a determination as to whether or not there’s a date by which

34

the trust fund will be exhausted. And naturally there’s great public

and press interest each year in the trustees’ annual projections for

a date of depletion of the HI Trust Fund.

On the SMI side things operate somewhat differently. On that

side general revenues, enrollee premiums are reestablished each

year to match expected costs. So that side of the program doesn’t

go insolvent. When there are financial strains there, they are manifested in rising premiums, rising general revenue pressures.

Now, if you look at Medicare as a whole, it’s bringing in income

from a lot of different sources. Some of these sources are dedicated

revenue sources like payroll taxes, benefit taxes, premiums, State

transfers. And some of the revenue sources are simply general revenue transfers from the remainder of the Federal budget without

a dedicated financing source. And the distinction between these different revenue sources is important for the government’s ability to

finance Medicare.

Whenever you increase revenues from a dedicated financing

source, like payroll taxes or benefit taxes, you not only improve the

status of the Medicare Trust Funds, but you improve the government’s general ability to finance Medicare because you’re also improving the unified budget balance. But if you increase general revenues contributions to Medicare, you can increase the balance of

the Medicare Trust Funds, but that’s at the expense of the general

fund. It doesn’t actually improve the government’s net ability to finance Medicare. So it’s important to keep an eye on the size of

those general revenue obligations.

Now, under our projections, the parts of Medicare that are funded predominantly by general revenues are going to grow substantially in the years to come. SMI was about 1.9 percent of GDP in

2010. We show that rising pretty sharply to about 3.4 percent of

GDP by 2035, continuing to rise afterwards. And this is going to

mean increased pressures on general revenues. We show general

revenue requirements of 1.5 percent of GDP this year gradually rising to over 3 percent of GDP by 2085.

Now, as you noted in your opening statement, the 2003 MMA directs the trustees to determine whether there is excess general revenue Medicare funding, and that means more than 45 percent of

total Medicare outlays funded from general revenues in any of the

first 7 years of our projection period. And we did make such a finding for this fiscal year, 2011. This is the sixth consecutive Medicare

Trustees Report that has made such a finding. Whenever that’s

done in two consecutive reports, we must issue a funding warning,

as we did this year. Under our latest projections we would be over

45 percent in fiscal years 2011 and 2012. We would need revenue

increases of about $25 billion, benefit reductions of about $46 billion, or some combination thereof, to get that ratio down below 45

percent for both 2011 and 2012.

Now, under current law assumptions, which has been noted here

assumes that we allow a 29 percent reduction in physician payments to go into effect next year, this ratio would drop below 45

percent in years 2013 through 2021 and then rise afterwards. By

2034, the ratio would hit 54 percent and stay at roughly that level

through the remainder of the 75-year period.

35

In sum, Mr. Chairman, the Medicare funding warning eliminates

a part rather than the whole of the financing challenge facing

Medicare. It basically represents a facet of the financing challenge

that is in a sense complementary to the projections that we make

for the solvency of the Part A trust fund. It looks at other aspects

of program financing that the HI solvency calculation doesn’t deal

with.

This year we found that the gap between Medicare’s dedicated

revenues and expenditures will exceed 45 percent of outlays in

each of this year and next under current law, thereby triggering

the Medicare funding warning pursuant to the MMA.

Thank you, Mr. Chairman.

Mr. GOWDY. Thank you, Doctor.

[The prepared statement of Mr. Blahous follows:]

36

37

38

39

40

41

42

Mr. GOWDY. Mr. Antos.

STATEMENT OF JOSEPH ANTOS

Mr. ANTOS. Thank you, Mr. Chairman. Thank you, ranking member.

The trigger mechanism known as the Medicare funding warning

is designed to reflect the combined financial condition of all parts

of the Medicare program. It is a complete indicator of everything

that’s going on with Medicare financing, but it is an important

measure. It was intended to call attention to imbalances between

Medicare spending and revenue specifically dedicated to fund the

program.

The first funding warning was declared by the trustees in 2007

and has been declared by the trustees every year since then. President Bush responded in 2008, his only opportunity to respond.

President Obama has not.

I want to emphasize two points. First, for a given level of Medicare spending, the trigger directly addresses how much workers

should pay for benefits for seniors. This is a difficult question that

we as a society must answer. One can disagree about whether 45

percent is the right level, but that does not invalidate its use.

Second, the Medicare trigger doesn’t have teeth. As a result, the

trigger has not directly led to legislation to slow the program’s cost

growth. Nonetheless, the trigger, like the trustees report itself, has

raised attention to the fiscal crisis facing Medicare. And I might

add the trustees report has been equally unsuccessful in motivating

a great deal of policy response to a program that is in crisis, and

the crisis is real.

Despite White House claims that the new health reform law

keeps Medicare strong and solvent, the Affordable Care Act only

modestly improved the program’s fiscal outlook. According to the

trustees, spending from the HI Trust Fund has exceeded revenue

since 2008, and trust fund assets will be exhausted in 2024. SMI

funding, that’s Part B and Part D—spending, rather, is projected

to moderate somewhat from past trends, but the drain on the

Treasury remains extremely high. In fact, those estimates are optimistic. They incorporate net Medicare savings from the Affordable

Care Act of $575 billion through 2019 and, of course, much more

beyond that, primarily through reductions and payments to providers. These are reductions that the Medicare’s chief actuary considers unrealistic. The estimates also assume that the Medicare

payments to physicians will be cut an unprecedented 30 percent in

January 2012. Neither assumption is plausible. Even the trustees

state that, ‘‘the actual future costs for Medicare are likely to exceed

those shown by the current law projections.’’

In fact, the actuary’s office put out a supplementary report to the

trustees report, and that report estimates much higher levels of

Medicare spending, assuming that Congress rescinds the physician

payment cut and rescinds partially the other Affordable Care Act

reductions after 2021. They’re not assuming that all of those cuts

go way, they’re assuming that some of them are moderated. According to that analysis, total Medicare spending will be 8 percent

higher than the official estimate in 2020, and 14 percent higher in

2030, with spending growth continuing to accelerate beyond that

43

point. That translates into trillions of dollars of additional general

tax revenue that will be needed by Medicare over the next 75 years

unless responsible policies are adopted to reduce program costs.

As we’ve seen, the President and Congress can ignore a Medicare

trigger with impunity. That’s business as usual in Washington. But

neither the President nor Congress actually need the trigger to advance reasonable policy, and that’s the point. The President sends

a budget to Congress every year. That budget should contain provisions that set Medicare on a sustainable fiscal path not just for a

year or two, but more permanently.

Congress also doesn’t have to wait for the President to act. The

importance of this issue cannot be overstated. Decisions about

Medicare financing, whether by conscious policy or by default, will

determine the fate of a program that millions of seniors depend on.

Those decisions will also shape the limits on Federal support for

societies of their priorities.

Rapid growth in Medicare spending is a major contributor to the

Nation’s debt crisis. Failure to adopt structural reforms to promote

greater efficiencies in delivering health care and higher values for

our Medicare dollar will be disastrous. The Medicare trigger could

be a tool to encourage policymakers to do what they must do, but

only if it’s taken seriously.

Mr. GOWDY. Thank you, sir.

[The prepared statement of Mr. Antos follows:]

44

45

46

47

48

49

Mr. GOWDY. Mr. Capretta.

STATEMENT OF JAMES C. CAPRETTA

Mr. CAPRETTA. Mr. Chairman, Mr. Davis, members of the subcommittee, thank you for the opportunity to participate in this very

important hearing. In the short time available, I want to focus my

comments on the reason the trigger was proposed in the first place

and adopted by Congress, and why a credible reform of Medicare

is so important.

The Medicare program, as we’ve just heard, is financed in ways

that are not often well understood. Part of the program, as Dr.

Blahous said, is financed like Social Security, but a big part of the

program is not. For Parts D and B of the program, the beneficiaries

pay premiums for a portion of the cost, but a large part is financed

directly out of the general fund of the Treasury. These general fund

payments to Medicare are not trivial. As I show in chart 1 in my

prepared testimony, the present value of these payments, as estimated by the Medicare trustees, is expected to exceed $21 trillion

over the long-range projection period.

Financing Part B and D in this manner can be deceptive in

terms of the burden on taxpayers. Officially these parts of Medicare

are always solvent. The trust fund that pays these benefits is never

expected to ever be depleted because it by definition has always got

money from the general fund to cover its costs. But just because

the trust funds appear to be solvent on paper does not mean that

there is no cost to this open-ended tap on the Treasury. The money

must come from somewhere. When Part B and D costs rise, the

general fund is tapped for more funding, it just means the Federal

budget goes deeper into deficit, thus forcing more borrowing and

debt.

One way to look at the burden of the general fund financing of

Medicare places on the rest of the budget is to look at the amount

of financing—of the financing relative to personal and corporate income taxes. In my prepared testimony I show in chart 2 that as

recently as 1990, the general fund contribution to Medicare Part B

took up only 5.9 percent of total personal and corporate income tax

collections. By 2020, with Part D now part of the program, that figure had risen to 19.2 percent. So 1 out of every $5 coming into the

Treasury in personal and corporate income taxes goes as a payment to the Medicare program. By 2050, it’s getting closer to about

1 out of every $4.

And this is a very optimistic scenario. This is based on the official Medicare trustees’ projections under current law, but that is

highly unlikely to occur, as the actuaries themselves have stated

repeatedly. In the new health care law, there is a very broad and

deep reduction in the provider payment rates, what are called the

productivity adjustment. This is going to hit hospital and other institutional providers of care every year in perpetuity. And the actuaries assume essentially that it won’t happen because the consequence would be that many hospitals would stop seeing Medicare

patients eventually. It would drive Medicare payments down to

those of Medicaid and below, and reach at some point in the nottoo-distant future 50 percent of what private insurers have to pay

to access hospital coverage.

50

So the actuaries have produced an alternative scenario to say

what is it going to look like if those kind of cuts don’t go into place

and the physician cut of 30 percent doesn’t begin in next year. The

result of that is shown in chart 3 of my prepared testimony. And

the effect is that over the long run, total Medicare spending is essentially unchanged from where it was prior to enactment of the

health law. In 2080, total Medicare spending would exceed 10 percent of GDP by that point in time, which is well above the 4 percent it is now, and certainly well above the 1 or 2 percent it was

when the program was first enacted.

Now, the Medicare trigger was enacted to bring into the policy

debate a broader view of Medicare’s financing beyond the misleading picture of permanent solvency for Parts B and D. What’s

needed, though, at this point is, as Joe indicated, the will to actually enact a structural reform of the program. And here I would

just like to conclude by pointing out that there seems to be some

agreement that Medicare is key to slowing costs throughout the entire health system. As Mr. Blum testified, their view of the administration is that they need to change how Medicare operates with

things like the accountable care organizations and bundled payments and other payment reforms.

It’s my judgment that those proposals will not get very far because of the burdens of politics and other things that will stand in

the way. What I think is more promising is actually reform like the

Part D program has in Medicare. It is true that it has driven up

the general fund contribution to the program, but it’s built around

competition and consumer choice. And the effect of that has been,

since 2006 through 2010, the average annual per capita growth in

cost has been just 1.2 percent, because the consumers have a very

strong incentive to go with low-cost, high-value plans, and that has

worked. It’s my judgment that we should pursue Medicare reform

in a broader way along those lines.

Thank you.

Mr. GOWDY. Thank you, sir.

[The prepared statement of Mr. Capretta follows:]

51

52

53

54

55

56

57

58

59

60

Mr. GOWDY. Dr. Van de Water.

STATEMENT OF PAUL N. VAN DE WATER

Mr. VAN DE WATER. Mr. Chairman, Mr. Davis, I appreciate the

invitation to appear before you today.

Although Medicare faces significant financing challenges, claims

by some policymakers that the program is facing bankruptcy are

highly misleading. The 2011 report of the Medicare trustees shows

little change from last year’s report. Because the trustees now foresee a slower recovery, they estimate that Medicare’s Hospital Insurance Trust Fund will be depleted in 2024, 5 years sooner than

they estimated last year. Even at the point of depletion, however,

payroll taxes and other revenues will still be sufficient to pay 90

percent of HI costs.

HI will not be completely lagging in resources, nor does it face

going out of business. And the 2024 date does not apply to the

Medicare Supplementary Medical Insurance Trust Fund. SMI is always adequately financed because beneficiary premiums and general revenue contributions are set annually to cover expected costs

for the coming year. By design, SMI cannot run out of money.

The trustees’ near-term projections are broadly in line with those

they have issued in the past. Since 1990, changes in the law, the

economy and other factors had moved the projected year of HI insolvency as close as 4 years and as far as 28 years away. Trustees

reports, in fact, have been projecting insolvency for four decades,

but Medicare benefits have always been paid because Congress has

taken steps to make sure that they are. The rapid evolution of the

health care system has required frequent adjustments to Medicare

as it has to private health insurance, and that pattern is certain

to continue.

Although the trustees again project that 45 percent or more of

Medicare’s financing will come from general revenues within 6

years, this finding bears no relation whatever to Medicare solvency.

The 45 percent figure is an arbitrary benchmark that is completely

unrelated to the financial health of the program. By its very design, Medicare is supposed to be financed in large part with general revenues. That at least 45 percent of Medicare will be financed

with general revenue is no more a problem than that 100 percent

of defense, education and most other Federal programs will also be

financed with general revenues.

Last year’s health reform legislation significantly improved Medicare’s long-term cost outlook. If health care were repealed, the

Medicare actuary estimated that HI’s insolvency date will be

moved up 8 years to 2016. And without health reform, HI’s longterm shortfall would increase from 0.79 percent of payroll to 3.89

percent. These projections underscore the importance of successfully implementing the cost-containment provisions in the Affordable Care Act.

In contrast, phasing out traditional Medicare and replacing it

with private health insurance, as the House-passed budget resolution would do, would represent a big step in the wrong direction.

It would increase total health care spending attributable to Medicare beneficiaries by upwards of 40 percent, and it would reduce

the Federal Government’s contribution to cover those costs. As a reVerDate 17-JUN-2003 13:53 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71987.TXT KATIE PsN: KATIE
61

sult, the House plan would massively shift costs to elderly and disabled beneficiaries. According to CBO, the average 65-year-old

beneficiary’s out-of-pocket spending would more than double from

about $6,000 a year to over $12,000 in 2022.

Health reform envisions that Medicare will continue to lead the

way in efforts to slow health care costs while improving the quality

of care. By eliminating traditional Medicare, the House-passed plan

would discard the opportunity to use the program to promote cost

reduction throughout the health care system. Americans should not

be driven into adopting such a radical proposal by misleading

claims that Medicare is on the verge of bankruptcy.

Thank you, Mr. Chairman.

Mr. GOWDY. Thank you.

[The prepared statement of Mr. Van de Water follows:]

62

63

64

65

Mr. GOWDY. Dr. Blahous, what in your judgment is the single

best policy that you could recommend in order to improve Medicare

solvency?

Mr. BLAHOUS. I have to be a little bit careful in answering that

question. Obviously as a trustee, we don’t have an official view, and

I’m not speaking for the other trustees. I would just make a couple

of comments. One is certainly there is a robust debate about how

we can get more savings in order to achieve actuarial balance in

Medicare. We have a shortfall in Medicare. There’s competing ideas

on how to resolve the remaining shortfall.

Mr. GOWDY. Before you finish that, because I may be making an

assumption that you disagree with, do you agree with Dr. Van de

Water that all of this is just worrying about nothing, and that everything is going to be fine, and we can continue to fund it from

the general fund, and it’s no big deal?

Mr. BLAHOUS. I don’t agree that it’s no big deal. I think we have

a very substantial financing challenge in Medicare, a sizable problem remaining to solve, and I’m very concerned about it.

Mr. GOWDY. All right. Go on with your solution.

Mr. BLAHOUS. Well, I would say that one of the things that’s difficult is getting savings from a program that people are dependent

upon. And this one of the things that causes people on both sides

of the aisle to have disagreements, how can we get savings which

we need from the Medicare program without sacrificing beneficiary

access to care.

What I can say is that it’s easier to hold down spending growth

where people have not yet become dependent on a program. If I

just give one piece of advice personally, I would say do what can

be done to slow down or scale back the spending increases in last

year’s health care reform law. Basically, to the extent that we show

an improvement in Medicare financing under that law, it’s because

of the Medicare provisions alone understood in isolation, but that

law contained other provisions that expended a great deal of that

projected savings in Medicare, about 63 percent of it according to

CBO. To the extent that we expend that savings in Medicare on a

new program, we are undercutting the government’s ability to

make good on those increased funding obligations to Medicare.

So I think my short answer would be do whatever can be done

to scale back the projected spending increases outside of Medicare

from last year’s health care law.

Mr. GOWDY. Well, that leads nicely, I think, to my next question

for you, Dr. Antos. Do you agree with the administration that the

trigger mechanism, that’s just a suggestion or an advisory idea, or

do you believe that it is a legal requirement that they submit a

plan?

Mr. ANTOS. It’s a law.

Mr. GOWDY. That’s what I thought, too.

Do you think that ObamaCare complies with that requirement of

the law?

Mr. ANTOS. Well, it certainly does not comply with the technical

specifications of the law. The law clearly states that in response to

the funding warning, the President is to send to Congress his proposal within 2 weeks of his budget.

66

Now, I think it may be a little unclear at least in the abstract

if the President’s budget, in fact, addressed this problem, whether

that was a sufficient response. However, in my opinion, the President’s budget at this time did not address the problem.

Mr. GOWDY. Mr. Capretta, I’ve thought about patenting or getting a trademark on Paul Ryan’s name so I could be paid every

time it is mentioned in a committee hearing in Washington. I

haven’t yet.

A lot of criticism about Representative Ryan’s plan. The other

plan, near as I can tell, is just to continue to raise the debt ceiling

as often as we can. What are your thoughts on his plan, and do

you have a better idea.

Mr. CAPRETTA. I don’t have a better idea. I think his plan is really very much the direction we need to head.

I would say a couple of things about some of the criticisms that

are made about it. First is there’s often reference to a CBO analysis of what the Ryan plan would do in 2022. A couple of things

about that. First, it assumes that the payment rate reductions that

occur in Medicare through ObamaCare are going to be in place all

the way to 2022. So in a sense it creates—it says that we’re going

to impose very deep price reductions in what Medicare pays for

services, price reductions that would bring Medicare’s rates down

below Medicaid by the end of the decade, and assumes those will

be in effect in 2022, and that Medicare beneficiaries will still have

access to care in 2022 at the rates they do today. Highly unlikely

that that will occur.

So I think one assumption is just false, that you can have—you

know, you could pay as low as you want in Medicare with no consequence whatsoever on quality. I think that’s a false assumption

that’s buried in those CBO numbers.

The second thing that it doesn’t do is that it doesn’t take into account any effect from competition. And Dr. Elmendorf testified at

the House Budget Committee a week or so ago, 10 days ago, and

said as much to Chairman Ryan, that that’s a gap in their toolbox,

that they don’t estimate the effects of competition on what it will

do to premiums in the future, and so they have no—the whole

point of the Ryan proposal is to bring some discipline to the Medicare program, not to increase costs on seniors, but actually increase

value so they can get a better deal, much like we did in the Part

D program.

So I generally reject the notion that the Ryan plan is actually

going to be worse for seniors. The whole point of it is to actually

make it better for seniors without the problems that come from

price controls.

Mr. GOWDY. Thank you.

My time is expired. The gentleman from Illinois Mr. Davis.

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

The Republican Federal budget proposal for fiscal year 2012,

widely known as the Ryan plan, was passed by a party-line vote

in the House of Representatives on April 15, 2011. The Ryan plan

would end Medicare as it exists today, take away all Federal health

benefits from 65- and 66-year-olds and give 67-year-olds and older

a voucher that will pay a smaller and smaller share of their health

care costs.

67

According to the Congressional Budget Office’s long-term analysis of the Ryan plan, this proposal would result in substantially

higher out-of-pocket costs for seniors. CBO found that they would

be paying 68 percent of the health care costs, more than double

what they pay now under traditional Medicare. This massive shift

in cost from the government onto individuals would cause many

seniors to forego health care altogether. Those that could would

sign up for welfare programs.

Dr. Blahous, Chairman Ryan represents this radical transformation he is leading as, and I am quoting, preserving and protecting Medicare. But any student of history could know that Republicans opposed the creation of Medicare in the 1960’s and have

sought to dismantle it since then.

Dr. Blahous, are you familiar with this quote from former Republican National Committee Chairman Haley Barbour, who extolled

the 1995 trustees report as manna from Heaven in an effort to politicize Medicare and justify then-Speaker Gingrich’s Contract with

America plan to cut Medicare spending by 14 percent to provide

tax cuts for the rich?

Mr. BLAHOUS. I was not familiar with that quote, sir, no.

Mr. DAVIS. Okay. If you heard such a quote, would you agree

with it, have any concerns about it, or have a different position and

a different opinion?

Mr. BLAHOUS. Well, certainly speaking as someone who I feel

very honored to have become a trustee last year, it will certainly

be my hope that the trustees reports be received in a spirit so that

they inspire changes to make financial corrections to preserve the

financial soundness of the Medicare program. The purpose of the

trustees report is to acquaint Congress and the public with the finances of Medicare to permit the program to be as strong as possible.

Mr. DAVIS. Mr. Van de Water, can I ask you, under the Ryan

proposal, the Congressional Budget Office determined that the

gradually increasing number of Medicare beneficiaries participating in the new premium support program would bear a much

larger share of the health care costs than they would under the traditional program. That greater burden would require them to reduce their use of health care services, spend less on other goods

and services, or save more in advance of retirement than they

would under current law. At the same time the proposal analyzed

by CBO would leave in place provisions restraining payments to

many providers under the traditional Medicare program. Under

this scenario where our seniors who are living on a fixed income

are supposed to get additional money they need to obtain health

care and take care of their basic needs like food, shelter and clothing, won’t all of this put an even bigger burden on seniors themselves and their children who might be helping out?

Mr. VAN DE WATER. Yes, I think that’s correct, Mr. Davis. As you

or another one of the Members, I believe, has already cited, that

the Congressional Budget Office analysis of the budget resolution

plan would roughly double the expected out-of-pocket costs for a

typical 65-year-old in the first year from about $6,000 to over

$12,000 a year. And given the average income of a 65-year-old, that

increase would be a significant burden.

68

Mr. DAVIS. A big burden.

Mr. Chairman, I see my time is expired.

Mr. GOWDY. I thank the gentleman from Illinois.

The chair would now recognize the gentleman from Connecticut

Mr. Murphy.

Mr. MURPHY. Thank you very much, Mr. Chairman. And I thank

the panel for being here with us today.

Representative Davis, as I will, spent some time talking about

the Ryan budget, the budget that passed through the House of

Representatives. And I think it’s appropriate, because what the

subject of today’s hearing is really about is who has the burden of

making proposals to try to reform our Medicare program going forward. And that’s a really important topic for us to be talking about.

I mean, we have one very clearly articulated plan before Congress right now, and that is the Republican budget, which dramatically changes the Medicare program, and admittedly certainly

takes cost out of it, but takes cost out of it by shifting the burden

onto individuals, tripling the amount of out-of-pocket costs for senior citizens, for example.

But one of the other things it does—and, Dr. Van de Water, I

will ask you a question about this because I know you’ve spent

some time looking at it—what it also does is it removes 65- and 66-

year-olds from eligibility for the program. And maybe this doesn’t

seem like such a big deal. It’s sort of built in this mythology that

people are living longer. It’s not necessarily that over the last few

years people are living longer, it’s that less infants are dying, and

so you still have people retiring, leaving work at about the same

age and needing benefits.

Medicare was conceived in part because those people who are 65

and 66 just didn’t have a private market, didn’t have a place to go

to that could adequately insure someone that is likely going to be

more sick. And the reality is that a lot of those people who are 65

and 66 and who don’t—will not now qualify for Medicare are going

to receive their care from somewhere else, that the cost is going to

shift to somewhere else in the system.

And I guess I wanted to ask that question to you, Dr. Van de

Water. What happens as you move millions of 65- and 66-year-olds

off of Medicare? There seems to be an idea that the government

won’t bear that cost, but in reality we’re likely to shift a lot of that

health care cost just onto the government dime somewhere else.

Could you speak a little bit about how the cost shifting for individuals who are removed from the Medicare rolls occurs?

Mr. VAN DE WATER. Yes, Mr. Murphy. I might say the proposal

to increase or the discussion of increasing the Medicare eligibility

age to 67 is problematic, but at least I think can sensibly be discussed if one is assuming that the Affordable Care Act goes into

effect, because with the Affordable Care Act, at the very least 65-

and 66-year-olds would have a guaranteed alternative source of

coverage. Many beneficiaries would have to pay considerably more,

but they wouldn’t be completely shut out of the market.

But as we know, under the current arrangement, without the

provisions of the Affordable Care Act, many people in their 60’s

find that insurance is either unavailable or completely

unaffordable. And so the result is exactly as you say: If the eligiVerDate 17-JUN-2003 13:53 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71987.TXT KATIE PsN: KATIE
69

bility age were increased, some of the people in the 65- to 66-yearold bracket would go without insurance. To some extent they would

cut back on care if they couldn’t afford it. To some extent they

would pay for it out of pocket, and to some extent it would end up

being paid for through emergency room visits. And some people, of

course, would be poor and would end up on Medicaid. So it would

be shifted in a variety of fashions.

Mr. MURPHY. And I think that your point is a good one, which

is that, though I don’t support moving the retirement age up to 67,

we did hear for a period of time in this Congress a mantra of repeal

and replace, which was, I think, an effort, at least on behalf of

those who opposed the health care bill that was passed by this

Congress, to recognize that we needed something else in its place.

We don’t have that any longer; we just have repeal. And those that

will be most exposed, as you mentioned, are those who are right

on the cusp of Medicare eligibility. In fact, right now, even with the

eligibility at 65, the people who are most likely to go without insurance if they lose their job are people who are in the 55 to 65 age

bracket.

And so I do think that it’s important to recognize how fragile the

world is today for people right on the edge of Medicare eligibility

and how incredibly increasingly fragile it becomes if you partner

these drastic changes in the Ryan budget to Medicare with a full

repeal of the Affordable Care Act.

And I see my time is up. I yield back.

Mr. GOWDY. I thank the gentleman. And all of us thank our four

witnesses not only for lending us your perspective, your insight,

your expertise, but also for accommodating a long vote series. I

know your time is just as valuable as ours, if not more so, so we

appreciate your courtesy. And thank you again for your presence

today.

The hearing is adjourned.

[Whereupon, at 4:09 p.m., the subcommittee was adjourned.]

Æ