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70–887 2011

2011 MEDICARE TRUSTEE REPORT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 22, 2011

Serial No. 112–HL4 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVE REICHERT, Washington 

PETER ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 

JON TRAUB, Staff Director 

JANICE MAYS, Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of June 22, 2011, announcing the hearing ............................................. 2 

WITNESSES 

Charles P. Blahous, Ph.D., Public Trustee, Social Security and Medicare 

Boards of Trustees Testimony ............................................................................. 8 

Robert Reischauer, Ph.D., Public Trustee, Social Security and Medicare 

Boards of Trustees Testimony ............................................................................. 17 

SUBMISSIONS FOR THE RECORD 

The Center for Fiscal Equity .................................................................................. 50 

American Academy of Actuaries ............................................................................. 55 

American Federation of State, County and Municipal Employees ...................... 68 


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MEDPAC MARCH 2011 REPORT TO CONGRESS 

WEDNESDAY, JUNE 22, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in Room 

1100, Longworth House Office Building, Honorable Wally Herger 

[chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Herger Announces Hearing on the 2011 

Medicare Trustees Report 

June 22, 2011 

House Ways and Means Health Subcommittee Chairman Wally Herger (R–CA) 

today announced that the Subcommittee on Health will hold a hearing on the recently released 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. In 

what will be the first in a series of hearings on Medicare’s future, the Subcommittee 

will focus specifically on the Medicare program’s financial status. The Subcommittee 

will hear testimony from Medicare’s two public trustees. The hearing will take 

place on Wednesday, June 22, 2011, in 1100 Longworth House Office Building, beginning at 9:30 A.M. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

The Social Security Act requires the Board of Trustees for the Medicare program 

to report annually to the Congress on the current and projected financial condition 

of the Medicare Hospital Insurance (HI) and the Supplementary Medical Insurance 

(SMI) trust funds. The trustees, who are designated in statute, are the Secretary 

of the Treasury, the Secretary of Health and Human Services, the Secretary of 

Labor, the Administrator of the Centers for Medicare and Medicaid Services (CMS), 

and the Commissioner of Social Security. Additionally, the statute requires that 

there be two public trustees, from different political parties, who are appointed by 

the President and confirmed by the Senate for four-year terms. The CMS Office of 

the Actuary is responsible for preparing the report. The 2011 report was released 

on May 13, 2011, and can be found at https://www.cms.gov/ReportsTrustFunds/ 

downloads/tr2011.pdf. The Medicare actuaries subsequently released an alternative 

scenario memorandum, based on what actions they expect Congress to take (such 

as preventing cuts to Medicare physician payment rates) to ‘‘present an alternative 

scenario to help illustrate and quantify the potential magnitude of the cost understatement under current law.’’ That memo can be found at http://www.cms.gov/ 

ReportsTrustFunds/Downloads/2011TRAlternativeScenario.pdf. 

Ensuring the financial viability of Social Security and Medicare is one of Congress’ most important responsibilities. The annual release of the trustees’ reports 

provides Congress with a valuable update on the programs’ fiscal status and important information with respect to projections of future expenditures. 

The trustees currently predict the Medicare HI trust fund will go bankrupt in 

2024, five years earlier than they estimated in last year’s report. Additionally, this 

was the sixth consecutive report in which the Medicare trustees issued a ‘‘Medicare 

funding warning’’ because they project ‘‘excess general revenue Medicare funding,’’ 

as defined by a provision contained in Public Law 108–173. 

The trustees project Medicare spending to grow from 3.6 percent of Gross Domestic Product (GDP) in 2010 to 6.2 percent of GDP in 2085, or to 10.7 percent of GDP 

in 2085 under their alternative scenario. 

In announcing the hearing, Chairman Herger stated, ‘‘The findings of the 

Medicare trustees are alarming. Medicare’s Hospital Insurance trust fund 


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is expected to go bankrupt five years sooner than last year and was forced 

to redeem $32.3 billion in bonds last year so that it could pay medical 

claims. It is critical that the American people understand just how dire 

Medicare’s finances are.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on Medicare’s financial situation as detailed by the 2011 

Medicare Trustees report. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on 

Wednesday, July 6, 2011. Finally, please note that due to the change in House 

mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House 

Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov/. 

f 

Chairman HERGER. We are meeting today to hear from the two 

public members of the Boards of Trustees of the Federal Hospital 

Insurance and Federal Supplementary Medical Insurance Trust 

Funds. 


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It is important to understand the financial health of the Medicare program if we are to ensure that the program is solvent and 

available to future generations of Americans. The 2011 trustees’ report makes it clear that Medicare’s financial outlook is bleak. The 

Medicare trustees estimate that the Medicare Hospital Insurance 

Trust Fund will be bankrupt in 2024, 5 years earlier than estimated in last year’s report. Even though the report paints a very 

troubling financial picture, the reality is likely much worse. 

The independent actuaries at the Centers for Medicare and Medicaid Services felt the need to publish an alternative scenario because of the high likelihood that the trustees report, which is based 

on current law, understates future Medicare spending. The Medicare actuaries’ alternative scenario assumes that Congress will prevent scheduled cuts in provider payments such that Medicare 

spending as a percentage of gross domestic product will be nearly 

twice as high as the spending called for under current law. 

The trustees report and the alternative scenario reinforce the 

need for prompt attention to Medicare’s severe financial problems. 

Republicans recognize the seriousness of this situation, and have 

demonstrated their commitment to addressing Medicare’s financial 

demise. We put forth a plan to save Medicare. Congressional Democrats and President Obama have not. My hope is that this hearing 

will help the Nation come to grips with the extent of the financial 

problems facing Medicare. We cannot wish it away or ignore it, as 

some have chosen to do, or demagogue it away. Medicare is fast 

going broke, and no amount of speechmaking or positioning for political gain is going to change that fact. Some may not like the plan 

we have offered, but the critics have the responsibility of proposing 

solutions. 

I also call on the President to step forward and play a leading 

role. While the 2011 trustees report issued a funding warning that 

the general revenue contribution to Medicare’s financing is excessive, the President has failed to recommend improvements in response to this trigger. 

There will always be a next election and a temptation to put politics above responsibility and problem solving, but as Medicare 

trustees warn, the time to act is short and growing shorter. Ensuring the financial viability of Medicare is one of Congress’ most important responsibilities. Today’s witnesses will inform us of the extent of Medicare’s financial difficulties as we execute this responsibility. 

Chairman HERGER. Before I recognize Ranking Member Stark 

for the purposes of an opening statement, I ask unanimous consent 

that all Members’ written statements be included in the record. 

Without objection, so ordered. 

I now recognize Ranking Member Stark for 5 minutes for the 

purpose of his opening statement. 

Mr. STARK. Well, thank you, Chairman Herger, for holding this 

hearing today. Monitoring Medicare’s solvency is an important responsibility for our committee, and we welcome the opportunity to 

discuss this with our public trustees today. 

The trustees report shows a Medicare program which has been 

significantly improved by the enactment of the Affordable Care Act. 

Beneficiaries are also enjoying new benefits as a result of the law. 


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And without the health reform law, insolvency would be projected 

at only 5 years, a full 8 years less than the 2024 date reported by 

the trustees. 

It is important to look at the trustees report in historical context. 

Since we have been projecting Medicare’s solvency, those projections have varied widely. In 1970 and 1971, just before I got here, 

the program was expected to only last 2 years. At the end of the 

Clinton administration, it had a robust 25 years of solvency. In the 

past 45 years, whether solvency projections have been 2 years or 

25, we have never allowed Medicare to become insolvent. And why? 

Because Congress has always acted to make changes to the program to avoid that outcome. That is our job, and I think we have 

done it pretty well. 

I would also note that no private health insurance company, and 

we know our colleagues on the other side of the aisle would prefer 

that Medicare be handed over to them, none of those companies are 

measured with regard to their projected solvency over the next 75 

years, or even 1 year. They move quarter by quarter with the market. 

My Republican colleagues will focus on the solvency date having 

slipped 5 years from last year’s projection of 2029. We know that 

this slip is primarily due to the economic recovery being so slow, 

which directly affects Medicare’s financial standing. I am not sure 

why the Republicans are focused on the issue of Medicare solvency 

at all. They have already voted to end Medicare several times. The 

Republican position is clear: Republicans don’t believe it is the role 

of the Federal Government to guarantee health benefits to senior 

citizens and people with disabilities. Republicans would prefer to 

repeal the health reform law and end the delivery system reforms, 

reforms that the trustees’ report highlight as showing real promise 

for controlling Medicare’s spending growth even more in the future. 

Republicans instead want to provide Medicare beneficiaries with a 

voucher to purchase more expensive private insurance that may or 

may not be affordable or cover the benefits they need. There is no 

doubt that an underfunded voucher would save the government 

money. Medicare becomes a lot cheaper when you destroy the program. 

The message to take from this year’s trustees report is that the 

Affordable Care Act significantly improved Medicare’s financial 

standing. There is always more to be done, and we must work together to protect and improve Medicare, not end its guaranteed 

benefits for senior citizens today and tomorrow. 

With that, I yield back to my friend from California and look forward to the testimony and discussion to come. 

Chairman HERGER. Thank you. 

Today, we are joined by two witnesses, both of whom serve as 

public trustees for the Medicare program. The witnesses will both 

report on the dire financial status of the Medicare program as outlined in the most recent trustees’ report. 

In addition to serving as public trustees, both of our witnesses 

are nationally recognized experts in the fields of Federal fiscal policy and the Federal budget. 

Our witnesses are Charles Blahous, a research fellow at the Hoover Institution and former Deputy Director of the National EcoVerDate Mar 15 2010 07:51 Nov 30, 2011 Jkt 070887 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\70887.XXX GPO1 PsN: 70887

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nomic Council; and Robert Reischauer, president of the Urban Institute and former Director of the Congressional Budget Office. 

Mr. Blahous, you are now recognized for 5 minutes. 

STATEMENT OF CHARLES P. BLAHOUS, PH.D., SOCIAL SECURITY AND MEDICARE BOARDS OF TRUSTEES, WASHINGTON, 

D.C. 

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

Stark, and Members of the Subcommittee. It is a great honor to appear before you today to discuss the findings of the 2011 Medicare 

trustees’ report. 

By mutual agreement with my fellow public trustee Dr. 

Reischauer, I will present the primary findings of the report with 

respect to projected Medicare finances, and leave other important 

issues, such as the reasons for change in the projections and the 

degree of uncertainty in the projections, for him to discuss. 

Medicare has two trust funds. There is a Hospital Insurance 

Trust Fund, colloquially known as Part A; and a Supplementary 

Medical Insurance Trust Fund, which includes Part B, which is basically physician services, outpatient hospital, home health services; and Part D, the prescription drug program. Every year there 

is a great amount of interest in the trustees’ projections for the solvency of the Part A fund and its projected date of trust fund depletion. That attention is appropriate. 

It is important to remember, however, this is just one component 

of overall Medicare financing. On the SMI side, basically general 

revenue contributions, premiums, these factors are reestablished 

each year so as to match expected costs on that side of the program. So when there are financial strains on the SMI side, which 

there definitely are, they are manifested in a different way. We 

don’t show a projected date of trust fund depletion; instead, we 

show rising general revenue pressures and rising enrollee premiums. 

Let me first review the HI projections. Currently we project that 

every year going forward annual hospital expenditures under HI 

will exceed program income in all future years. And the consequences of that would be a continuing diminution of the assets 

in the HI Trust Fund to the point where it is exhausted in 2024. 

As has been noted here, that 2024 date is 5 years earlier than was 

projected in the previous trustees’ report. 

At that point of depletion, projected revenues would be roughly 

sufficient to fund about 90 percent of expenditures, and that percentage would gradually decline from that point forward till by 

midcentury it would be about three-quarters of expected expenditures. That would be a low point. Afterwards, it would begin to 

drift up a little bit. 

Over 75 years, the so-called long-range valuation period over 

which HI actuarial balance is measured, that is traditionally done 

as a percentage of the program’s tax base, taxable payroll, and we 

show a projected deficit of 0.79 percent of taxable payroll over 75 

years. Last year’s report showed 0.66 percent. 

Now, as I have noted, this is just one component of Medicare financing. On the SMI side, we see the financial strains arising in 

the form of rising costs. SMI costs were roughly 1.9 percent of GDP 


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in 2010. We show them rising fairly rapidly and going to 3.4 percent of GDP in 2035. And, indeed, Medicare costs as a whole are 

projected to rise fairly rapidly to reach about 5.6 percent of GDP 

in 2035 and to increase gradually thereafter to more than 6 percent 

of GDP. 

Now, I have a couple of caveats about those numbers, but before 

I get to those, just one additional point. This year’s report also 

issues a Medicare funding warning. There is a provision of law that 

requires us to state when we project that at any time over the next 

7 years there will be a year where the gap between program outlays and dedicated revenues is more than 45 percent of program 

outlays, and that is the case for fiscal year 2011, and that funding 

warning has been issued in this report for the sixth consecutive 

year. 

Now, the caveat about the numbers. There are a number of 

places in the trustees’ report where it is stated pretty explicitly 

that actual costs in practice are likely to be substantially higher 

than what we show, and the reasons for this are various. The most 

obvious of them is the fact that under current law there would be 

roughly a 29 percent reduction in physician payments in early 

2012. Historically, Congress and the administration have worked 

together to override those reductions that have been called for by 

the sustainable growth rate formula over the years. Obviously if 

that continued to be the case, then actual costs in practice would 

be higher than we show. 

As members of this subcommittee know better than anyone, 

there is a vigorous ongoing debate as to whether or not the costsavings provisions of the Affordable Care Act will be sustainably 

implemented other the long term. We as trustees are obviously not 

in a position to arbitrate on that and to predict the political economy of the Affordable Care Act over the long term. All we can do 

is show literal current law as it is written. 

Now, what the Medicare actuary does is he publishes an illustrative alternative scenario in which it is shown that the consequences of physician payment reductions being overridden and 

the productivity adjustments from the Affordable Care Act being 

gradually phased out over time. Under that scenario total costs are 

substantially higher than in the main report, 10.7 percent of GDP 

in 2085 rather than 6.2 percent. 

I know I am out of time, so I will wrap up. Just one final point. 

That all speaks to political uncertainty, but it is important for the 

subcommittee to know that Medicare projections are highly uncertain even if the politics are certain. There is a tremendous amount 

of variation in the projections over the long term according to different assumptions for health care cost inflation. It is a very difficult variable to predict over the long term. 

The bottom line is that the Medicare programs faces real and 

substantial financial challenges. We will best serve the interests of 

the public if these financial corrections are made at the earliest 

possible time. 

Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Blahous follows:] 


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Chairman HERGER. Now Mr. Reischauer is recognized for 5 

minutes. 

STATEMENT OF ROBERT REISCHAUER, PH.D., PUBLIC TRUSTEE, SOCIAL SECURITY AND MEDICARE BOARDS OF 

TRUSTEES, WASHINGTON, D.C. 

Mr. REISCHAUER. Thank you, Chairman Herger, Ranking 

Member Stark, and Members of the Subcommittee. I appreciate the 

opportunity to appear before you to discuss the 2011 Medicare 

trustees’ report. 


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I will focus my comments on changes that have occurred between 

the 2010 and 2011 reports and on the inherent uncertainty that 

surrounds projections of health care costs, both in the public and 

the private sectors. 

As you all know, the trustees’ projections of the financial health 

of the Medicare program change each year for a variety of reasons. 

There might be legislation that affects them. There is almost always a failure of the base year actual amounts to equal what was 

projected the previous year for that year. There are changes in economic and demographic assumptions, and there are continual refinements and improvements in the methodologies used by the actuaries to make the projections. 

The media and the public, as my colleague pointed out, look 

largely at the date at which the HI trust fund becomes exhausted 

to make a judgment about whether the changes have been significant or not from one year to the next. As has been mentioned, the 

2011 trustees’ report projects that the Medicare HI Trust Fund will 

be depleted in 2024, which is 5 years earlier than projected in 

2010. But it is worth noting that that is still 7 years later than was 

projected in the 2009 report, which was the last one issued before 

the Affordable Care Act was enacted, and 8 years longer than the 

actuaries’ latest estimates for the date of depletion were the Affordable Care Act not the law of the land. 

The 5-year deterioration in the date of the trust fund exhaustion 

might suggest that some major changes have occurred in policy or 

in assumptions. That is not the case. Instead, rather small deviations of actual from projected performance in 2010, and a few 

small changes in assumptions about the future, were enough to 

move the estimated date of exhaustion 5 years earlier. 

The second figure in my prepared statement shows that Medicare expenditures have exceeded income since 2008. Last year’s 

trustees’ reports projected that as the economy recovered, this 

would turn around, and we would experience small surpluses in 

that trust fund in the period between 2014 and 2022. But under 

the new projections, Medicare spending is expected to exceed income for the indefinite future. 

A more comprehensive measure of the HI Trust Fund’s fiscal situation is the actuarial balance, which is the difference between the 

program’s annual income and costs rates averaged over a 75-year 

period and expressed as a fraction of taxable payroll. The actuarial 

balance has deteriorated from minus 0.69 to minus 0.79 between 

the 2010 and 2011 report. The primary factor responsible for this 

decline is that expenditures were higher and payroll taxes were 

lower in the base year 2010 than was anticipated in the previous 

year. 

Let me just say a few words about the inherent uncertainty of 

projecting Medicare’s expenditures. We all realize that there is a 

lot of change going on in health care, both in the public and the 

private sectors, and how that will play out over the next several 

decades is quite uncertain. As the chairman has mentioned, the 

trustees’ report projects expenditures and income based on current 

law, and because current law assumes the implementation of a 

29.4 percent reduction in the physician fee schedule payments in 

2012, some have viewed this as a relatively optimistic scenario. 


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The actuaries have provided an alternative estimate, which, as 

my colleague explained, assumes that the physician fee schedule is 

increased each year by the Medicare Economic Index, and also that 

the productivity-related reduction in payment for other providers is 

phased out. Some have suggested that this is the right or appropriate alternative projection. I think one can argue that, in fact, 

just as the trustees’ report might be a little optimistic, this is a little pessimistic, because over the last 9 years, the update in the 

physician fee schedule has not kept pace with the Medicare Economic Index, and at times we have seen a reduction from full updates for other providers. 

I think the message that we leave you with is that further legislative changes have to be considered by the Congress. The sooner 

those are enacted, the less disruption there will be for taxpayers, 

for beneficiaries, and for providers. And so it is essential that this 

is on the front burner of the Congress. 

Thank you. 

Chairman HERGER. Thank you very much. 

[The prepared statement of Mr. Reischauer follows:] 


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Chairman HERGER. I thank our witnesses for their testimonies. 

Before I get to my questions, I would like to welcome the newest 

member of the Health Subcommittee, Vern Buchanan. As Mr. Buchanan has many Medicare beneficiaries in his district, we especially look forward to his insights. 

Mr. Blahous, I would like to get a few things on the record. 

When do the Medicare trustees expect the Medicare Hospital Insurance Trust Fund to go bankrupt? 


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Mr. BLAHOUS. We project depletion of the trust fund in 2024. 

Chairman HERGER. What was the bankruptcy date in last 

year’s trustee report? 

Mr. BLAHOUS. It was 2029. 

Chairman HERGER. So in the course of 1 year, the Medicare HI 

Trust Fund lost 5 years in solvency? Is this something Congress 

should be concerned about? 

Mr. BLAHOUS. Well, I would state we should definitely be concerned about the hastening insolvency of the trust fund. As I note 

in my testimony, because trust fund balances are so low for several 

years going forward, changes of several years in the insolvency 

date are quite possible even without qualitative changes in the annual operations of Medicare. 

Chairman HERGER. Mr. Blahous, I can tell you that it is certainly alarming to me that during the course of just 1 year, the 

Medicare Hospital Insurance Trust Fund lost 5 years of solvency 

and is now expected to go bankrupt, as you stated, in 2024. You 

state in your testimony that ‘‘it does not take a great deal of creativity to imagine a 2012 Medicare trustees’ report in which the 

Hospital Insurance Trust Fund and solvency date moves again by 

several years in either direction.’’ 

Are you suggesting that it is possible that we could see a Medicare bankruptcy date within the next 10 years? 

Mr. BLAHOUS. Well, it is certainly very possible. The trust fund 

ratio, that is basically the measure of the relationship of assets in 

the trust fund to annual expenditures, that is projected to drop 

below 50 in 2015. So less than half a year’s worth of benefit payments could be accounted for by assets in the trust fund. Once you 

are down at that level, you run the risk of trust fund depletion. 

That is certainly very possible. It is also quite possible it could 

move the other way. 

Chairman HERGER. The trustees’ report estimates that the 

Medicare Hospital Insurance Trust Fund is projected to spend 

more money paying claims this year than it will collect via the payroll tax; is that correct? 

Mr. BLAHOUS. Yes. 

Chairman HERGER. How long has that been the case? 

Mr. BLAHOUS. 2008 was the first year. 

Chairman HERGER. Do you expect this trend of the Medicare 

Hospital Insurance Trust Fund spending more than it is collecting 

to continue? 

Mr. BLAHOUS. Yes, we do. 

Chairman HERGER. Are you aware of any program that will be 

financially sustainable if it spends more money than it has, or is 

this a recipe for bankruptcy? 

Mr. BLAHOUS. Well, certainly our current projections would exhaust the trust fund because of these annual operating deficits, 

yes. 

Chairman HERGER. I thank you. 

Mr. Stark is recognized for 5 minutes. 

Mr. STARK. Thank you, Mr. Chairman. 

Mr. Reischauer, if you would just help me for a minute with a 

personal matter. I have a 9-year-old who hates math and science, 

but he wants to be the batboy for the Democrats’ ball team. I have 


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to go home and explain to him how somebody with a Ph.D., like 

yourself, in computational quantum chemistry gets published in 

the Baseball Research Journal. Can you help me a little bit? That 

is a personal matter, and if you want to take time later, I would 

certainly appreciate the help at home to get this little bugger to 

study his math and science, and let him know that he could have 

something to do with baseball. It would be deeply appreciated. 

The shortened solvency date, Dr. Reischauer, I believe has been 

caused by sluggish economic recovery, and it is due to a drop in 

revenues and an increase in spending, both factors caused by the 

general state of our economy; am I close? 

Mr. REISCHAUER. You are right on the money. This is a program that is sensitive to the strength of the economy, both in direct 

and quite indirect ways. When economic growth picks up, wages of 

providers goes up, expenditures go up as a result of that. When the 

economy weakens, we see both induced enrollment of those who 

lose their jobs but were working when they were over 65, and a 

fall-off in payroll tax revenues. 

Mr. STARK. Some have suggested that we could save a good bit 

of money by allowing Medicare private contracting. The Republicans seem to think that this would allow Medicare to continue 

paying doctors, but then allow doctors to charge whatever they 

want on top of the Medicare payment. Do you have any concerns 

about the effects of private contracting on, say, access to care and 

quality of care? 

Mr. REISCHAUER. As a public trustee, I don’t. As an analyst, 

it is an area that concerns me in that if private contracting were 

permitted and were not regulated, we could see access by individuals who are in tight markets, tight provider markets, begin to create some problems. 

Mr. STARK. The Affordable Care Act is going to expire in 2016, 

and the report issued today shows that the reforms in the Affordable Care Act would add 8 years to the solvency. Before I ask if 

you think that is about right, I do notice that since I have been 

here, and perhaps since Mr. Rangel has been here, we have been 

going to go broke just about every year, and the reason, of course, 

we don’t is that Congress acts in one way or another to protect 

Medicare. But going back, the question of the shortened solvency 

date caused by the economy in general, is there any one area that 

you suggest to us that we might move to extend the solvency of 

Medicare? 

Mr. REISCHAUER. You know, there are a tremendous variety of 

measures that could strengthen the Medicare program’s financial 

position, and some basic decisions have to be made by the Congress 

on the extent to which we should look to beneficiaries, taxpayers, 

or providers to contribute to that effort. Some of them involve 

changes in the current structure. Others involve incentives that 

might lead to a reformed delivery system, and we could talk for 

several weeks, probably, on the pros and cons of the various alternatives. 

Mr. STARK. Thank you. 

I thank you, Mr. Chairman. 

Chairman HERGER. The gentleman from Texas Mr. Johnson is 

recognized for 5 minutes. 


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Mr. JOHNSON. Thank you, Mr. Chairman. 

Good morning. You know, 5 years. Last Congress, the Democratically controlled Congress, passed a health care overhaul and a 

stimulus bill that were supposed to control health care costs and 

extend the life of the trust fund. From your report I would say 

these bills failed. Do you think those efforts are enough to solve 

this crisis? 

Mr. PASCRELL. Would the gentleman yield, Mr. Johnson? 

Mr. JOHNSON. Why? 

Mr. PASCRELL. I wanted to ask you a question. 

Mr. JOHNSON. Ask me a question? I don’t yield. 

I want to know if you think that those efforts are enough to solve 

the Medicare problem, or did we not get into it deep enough? 

Mr. BLAHOUS. Clearly under our projections, we have a deficit 

in Medicare, even if we assume the current law is sustainably implemented. And as I indicated, actual costs are probably likely to 

be somewhat higher than what we show. So we clearly have a remaining problem left to solve. 

Mr. REISCHAUER. Notwithstanding that, the best estimates, 

our estimates and CBO’s estimates of the Affordable Care Act are 

that they extended the life of the trust fund, and were the Affordable Care Act to be repealed, the date at which the trust fund 

would become depleted would move from 2024 to 2016. 

Mr. JOHNSON. I recognize you all are Ph.D.s, do you consult 

with medical doctors when you look at this kind of thing? Do you 

have them in front of you talking to you and telling you what their 

problems are; yes or no? 

Mr. REISCHAUER. You mean when we do the iterations for the 

trustees’ report? 

Mr. JOHNSON. Yes. 

Mr. REISCHAUER. No. 

Mr. BLAHOUS. No. 

Mr. JOHNSON. So you are not consulting the medical community at all. And, you know, docs, I think, play the system. They are 

going to ask for more than it really costs them because they know 

it isn’t going to get paid. You are probably aware of that. That is 

why I ask you if you ever consult with the doctors themselves. The 

paperwork is atrocious. I don’t know if you are aware of that or 

not. But it seems to me that the doc costs are part of our problem. 

I don’t know that you all have really considered it. 

Clearly we need to do more to save Medicare for future generations. I would just ask both of you: Do you have solutions for this 

problem? You know, you talk about the problem. What are the solutions? 

Mr. BLAHOUS. Again, I would be very careful to say as trustees, 

we have to be very careful about not having a view. Personally, I 

think there are only so many levers you can pull. The things that 

drive the problem are the growth of the beneficiary population, so 

you have to look at eligibility criteria and eligibility ages. You have 

to look at the growth of the per capita benefits paid by the Federal 

Government. That is always dicey, and you get attacked for, quote, 

‘‘cutting benefits’’ when you do that. But no matter how you do 

that, whether you are talking about the Affordable Care Act or alternative visions for Medicare, we are all in the game of having to 


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cap the growth of the per capita benefits the Federal Government 

is paying and controlling that rate of growth in some way. That has 

to be a component of the solution. In fact, we need additional cost 

constraint beyond what is in current law if Medicare is going to be 

maintained in terms of its solvency. 

Mr. JOHNSON. Do you have a comment on that, Dr. Reischauer? 

Mr. REISCHAUER. Well, I would agree with my colleague that 

there are a handful of areas that you can look to. Changing the 

number of folks who are eligible for this program, the definition of 

covered benefits, the payment to providers, the contribution from 

beneficiaries—in other words, premiums—and the contribution 

from the taxpayer, those are easy ones to estimate the savings that 

might result from them. A much harder one is to figure out what 

a change, a significant change, in the structure of the delivery system might do to lower the growth of costs over the long run. 

Mr. JOHNSON. Thank you both for your comments. I appreciate 

it. 

Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. 

The gentleman from Wisconsin Mr. Ryan, the chairman of the 

Budget Committee. 

Mr. RYAN. Thank you gentlemen for coming here. Five minutes 

isn’t enough time to get into all of this. 

A couple of things. It has been said that we want it to go away, 

or something like that. We all represent around 700,000 people. 

Our relatives are on Medicare. It is probably one of the most important programs the Federal Government has or has ever had. We 

want it to work; we want to save it. 

Here is our problem. We have 10,000 baby boomers retiring 

every day with fewer workers coming into the workforce to pay for 

it. We have health care costs going up a lot faster than inflation. 

You are telling us that the HI Trust Fund is going bankrupt in 

2024; CBO is telling us faster than that. So something has got to 

be done. 

I want to ask you a couple of premise questions. A, do you both 

agree that you cannot say the savings in Medicare is going to pay 

for the Affordable Care Act and extend the solvency of Medicare? 

Do you agree that that is counting a dollar twice? Just a quick yes 

or no. 

Mr. BLAHOUS. I agree with that. 

Mr. RYAN. Bob, I assume you do? 

Mr. REISCHAUER. From a unified budget standpoint, the answer is yes. 

Mr. RYAN. Right. So we had the trustees giving us these alternative scenarios for 2 years now, which I find pretty amazing. So 

under more realistic assumptions, we find that you can’t fund one 

other government program on the one hand and then extend the 

solvency on the other hand. That is double counting. We are not 

suggesting that CBO is doing the double counting, we are saying 

Congress is doing the double counting. 

Point number two, Mr. Stark is right, we have faced insolvency 

before. Congress has always done something to deal with it; but the 

problem is the cliff is getting that much steeper. If we keep kicking 

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step, then the solutions will be that much more dire, that much 

more bitter, and people will be that much more affected. 

How many providers do you think are going to stay providing 

Medicare benefits if they are getting 66 cents on the dollar for 

every Medicare patient they have coming in the door? If you are 

telling us, as you do in your trustees’ report, that they are going 

to pay 66 cents on the dollar down to 33 cents on the dollar, we 

might have a Medicare program, but it is not going to work for people on Medicare if nobody takes Medicare as a provider. 

So we have got to be realistic about what is necessary to save 

Medicare. I would just simply say that the lessons we learned from 

the previous Medicare fixes are lessons we should take into the future. 1997 was an important budget agreement. It was bipartisan. 

It was a Republican Congress and a Democrat President doing a 

budget agreement to extend Medicare solvency and get the economy growing, produce budget surpluses. 

But here is the lesson we got out of that exercise: Price controls 

and Medicare don’t work. What happened, Congress did two successive bills, BIPA and BBRA, giving back the money to prevent Medicare providers from just dropping Medicare. What I think our 

friends on the other side of the aisle got out of that, as evidenced 

by the Affordable Care Act, is not that price controls don’t work, 

it is that price controls are not politically sustainable, because Congress, seeing and knowing that access is being denied to Medicare 

beneficiaries, that providers are leaving providing the benefit, that 

we should just take it out of the hands of politicians. We should 

just take it out of the hands of Congress. Let us form an IPAB, an 

independent payment advisory board, of 15 political appointees and 

have them do the price controlling that goes right into law, circumventing Congress. 

To us, what this simply means is we are going to do hard-core 

price controlling, which leads to rationing, which will lead to Medicare providers dropping Medicare, and that means future seniors 

will not have access. 

We want to get rid of that. If we are going to save money to extend solvency, it should go to Medicare, not to pay for some other 

program. We shouldn’t be raiding one government program to pay 

for another one. How many times have we heard that about Social 

Security? 

Second, price controls, or rationing, or whatever you want to call 

it, it just doesn’t work. So we believe at the end of the day, there 

is going to have to be a bipartisan solution. This is why we proposed premium support. The sooner you do it, you don’t have to affect benefits for anyone above the age of 55. So the way we look 

at this, people who already retired on this program, don’t change 

their benefits, because they have been made promises that government should keep to them. And if we do this soon, we can keep the 

promise also to the people who are within 10 years away from retirement. 

So it is very negotiable. It is very reasonable to debate the contours of how to fix it with the new system, growth rates and design 

features. That is what this committee is trying to do. 


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But I simply want to ask you: Do you think providers of Medicare are going to keep taking Medicare if they are going to get paid 

66 to 33 cents on the dollar? 

Mr. BLAHOUS. I think you have highlighted a fundamental 

problem that we also highlight in the report, which is under our 

current assumptions, reimbursement rates under Medicare will lag 

very far behind what they are in the private sector, and we say 

that this could lead to substantial withdrawals of access to care 

under Medicare. So the answer is yes, I agree that is a fundamental problem. 

Mr. REISCHAUER. I think you put your finger on a very important point, which is that the same providers offer services to the 

elderly and disabled through Medicare, the low-income population 

through Medicaid, and the working population and their dependents through employer-sponsored insurance or individually purchased insurance. And I for one think that efforts to restrain Medicare or Medicaid significantly are doomed to failure unless we provide incentives for dampening the growth of health care costs in 

the private sector as well. You can’t have these huge differentials 

in reimbursements. 

On the other hand, I would argue that the fixation we have with 

comparing Medicare’s reimbursement rates to those in the private 

sector are a comparison of average payments or average costs, and 

most economists would argue that service is provided, a good is 

produced, as long as the provider can meet marginal costs. And so 

we can have some differentials here without destroying the market. 

They obviously can’t get too large, and that is what you are concerned about, rightly. 

Chairman HERGER. The time of the gentleman has expired. 

The gentleman from California Mr. Thompson is recognized for 

5 minutes. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

Mr. Reischauer, isn’t it true that whenever a new law results in 

a savings to Medicare Part A, that those savings improve the Hospital Insurance Trust Fund finances regardless of whether the savings are used elsewhere in the budget? 

Mr. REISCHAUER. Yes, that is true. 

Mr. THOMPSON. I just wanted to bring that up. My friend from 

Wisconsin raised that issue in questioning the double counting, but 

that is how the accounting system works. 

Mr. REISCHAUER. And how it has been treated in many omnibus budget bills in the past, and other corrections by the Congress. 

Mr. THOMPSON. My friend also used the Balanced Budget Act 

of 1997, which was passed under the Republican-controlled House, 

as an example. That included $994 billion in Medicare savings, and 

$292 billion of that was used for a tax cut. So it is the same practice; it is just depending on who is trying to do what. I guess the 

other guys are the critics. 

Also, I have a sheet here. It was prepared by our side’s staff, but 

you are the trustees’ report starting in 1970, running through 

2011, and years of solvency of the program, and I think—I would 

like to get you to look at it and let us know if this is accurate, but 

based on this, it has always been projected to reach insolvency at 

some point. And as Mr. Stark had mentioned earlier, Congress has 


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always addressed this issue by making changes. As a matter of 

fact, of the 40 years on this chart, 18 of those years, the solvency 

date is less than it is today in 2011. As you recognize, it is a problem because of the downturn in the economy. So I would like to 

have someone give you this and get your analysis of it. 

And then also, the Affordable Care Act that was mentioned was 

an attempt to put in place provisions that would, in fact, improve 

the quality and reduce the cost of health care. Everything from 

bundling around a hospital admission to reducing hospital readmissions to expanding fraud-fighting efforts, and your trustees’ report 

recognized that. Can you tell us your assessment of the delivery 

system reforms in the ACA? 

Mr. REISCHAUER. Once again, I am going to have to take off 

my trustee’s hat for this. 

Mr. THOMPSON. Did you take these policies into consideration 

when you did this? 

Mr. REISCHAUER. Yes. These follow the estimates by the actuary of the impact of those reforms on cost. There are many that 

both the CMS actuary and the Congressional Budget Office didn’t 

provide savings for, or provided quite modest savings; that if all the 

planets come into alignment, and things work out well, and some 

of the initiatives that I discussed in my prepared statement come 

to pass, we could see, you know, significantly more in the way of 

savings. 

On the other hand, some of them may prove to be ones that Congress reconsiders or ones that don’t work out as well as the CBO 

and CMS have estimated. So we are in a period of huge uncertainty, I think, right now. But those base numbers are in our projections. 

Mr. THOMPSON. I think the language on page 2 of the report 

says that ‘‘major program of research and development for alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health 

care and reduce the cost of Medicare.’’ And this improves the cost 

and quality of health care outside of Medicare as well. I think that 

is important to note. 

CMS did a press release on your report, and in it they say: Without the reforms in the Affordable Care Act, the Medicare HI Trust 

Fund would expire in just 5 years, in 2016. The report issued today 

shows these reforms added 8 years of solvency. 

I would like to ask unanimous consent to submit this to the 

record. 

Chairman HERGER. Without objection. 

Mr. THOMPSON. Thank you. 

Chairman HERGER. The gentleman from California Mr. Nunes 

is recognized for 5 minutes. 

Mr. NUNES. Thank you, Mr. Chairman. 

I would like to ask the two witnesses this question of insolvency. 

I apologize, I don’t know how long you have been trustees, but 

when we look back throughout time, 10 years, 15, 20 years ago, we 

always knew we had an insolvency issue. I don’t think anyone disagrees with that, and there has always been a need to save Medicare and save Social Security. 


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When you analyze the problem today, and you know here in this 

body we are locked into this budget debt limit increase and budget 

fight where it doesn’t appear like there is any fix in sight, and basically one of the major holdups is are we going to deal with these 

entitlement programs to solve the insolvency problem. I don’t believe we have ever defaulted on our debt. We are getting very close 

to that if we don’t have an agreement soon. So my question to you 

is: Is the situation more serious and more urgent today than what 

it was when you looked back to 10 years ago and 20 years ago? 

Mr. REISCHAUER. I think the answer to that is yes, both because the Medicare problem is embedded in a larger fiscal problem; 

and because, as opposed to 5, 10, 20 years ago, the baby boomers 

are retiring. They are beginning to apply for Medicare benefits. 

And so the acceleration of the burden that we talked about as a 

future problem 10 years, 15 years ago is now upon us. And this 

makes some solutions more difficult because the numbers of individuals who are receiving benefits is rising rapidly. 

Mr. NUNES. Mr. Blahous. 

Mr. BLAHOUS. I have a two-part answer, and Dr. Reischauer 

anticipated both parts. One, we have a much more serious overall 

fiscal situation. Deficits, unified deficits, are much larger than they 

previously were. 

Secondly, we have an urgency that arises from demographics. 

Each year that passes, we have more baby boomers going onto the 

benefit rolls, and there is a great reluctance, a bipartisan reluctance, to withdraw benefits from people who are already dependent 

upon them. So the costs of dealing with these problems grows enormously with every passing year. 

Mr. REISCHAUER. I would just like to add a third issue, to differentiate myself from my colleague here, and that is we have enacted major changes already in the Medicare program. So in some 

sense the cupboard is fairly bare. We can’t go to that cupboard and 

open it up and say, well, let us cut provider payments even more. 

We are worried about can we sustain the ones we have already 

adopted. 

Mr. NUNES. There is no question that every day in my office, 

people are coming in. Health care providers are coming in, either 

to my district office or here in Washington, and complaining about 

the status of the health care system as it relates to the Affordable 

Care Act, Medicare and Medicaid. There are problems throughout 

all of these programs. 

Would it be good policy if somehow this Congress could move legislation that would take anyone that is 55 years of age and older 

and keep them on traditional Medicare; would that be a good goal 

for this Congress to partake in? 

Mr. BLAHOUS. Are we basically saying anyone over 55, keep 

them in traditional Medicare and sort of hold them harmless for 

any future changes at all? 

Mr. NUNES. If we could accomplish that? 

Mr. BLAHOUS. I mean, I think it is good policy to try to hold 

people who are near retirement or in retirement, hold harmless as 

much as possible from any future changes. Having said that, with 

every passing year, it gets harder and harder to hold harmless people older than even 55. In 5 or 10 years from now, if you asked me 


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the same question, I might look at you and say, I don’t think you 

are going to be able to do that. 

Mr. NUNES. Mr. Reischauer. 

Mr. REISCHAUER. I guess I am a believer that even old dogs 

can learn new tricks. And, you know, when we make a statement 

as you have made and Congressman Ryan also made about we will 

let people 55 and older stay in the system that they are in now, 

it implies that you want to keep that system unchanged. 

Quite frankly, I don’t think that is appropriate policy. I think 

Medicare should evolve in a gradual way. We have in the Affordable Care Act an innovation center. We have some changes in payment mechanisms and things like that that would gradually 

change Medicare. I think pushing those forward as fast as we possibly—— 

Mr. NUNES. I think we agree that there should be gradual 

change, and that is why in Mr. Ryan’s plan he has put forward 55 

and older, because that gives people time for retirement planning 

and such to deal with the changes. However, I think where we disagree is where this problem just seems to be bigger than what— 

as you both said earlier, this problem appears to be bigger than 

what it was 10, 20 years ago, and so I think we have to act quickly 

in order to save Medicare for everyone. 

Chairman HERGER. The time of the gentleman has expired. 

The gentleman from Oregon Mr. Blumenauer is recognized for 5 

minutes. 

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

I would just pose questions to our panelists not to answer now, 

because I have some others I want to get to, but if you would reflect, because I appreciated, Mr. Blahous, you talking about whether or not this is sustainable over time, that we are going to take, 

what is it, 79 million Americans and freeze them in Medicare as 

it is now, although my friend from Wisconsin takes the reviled savings from the Affordable Care Act and counts them, assumes them, 

in trying to make his plan pensile. But we will be having a situation where there is a huge population that will grow smaller over 

time, but still millions of people 30 years from now, an ever-sicker, 

smaller population that my friend, when he asked it to be scored, 

just assumed that the general fund would pick up the gap. I really 

would appreciate it if you two experts might reflect and maybe 

share with the committee what that impact is going to be over 

time. 

Mr. RYAN. Would the gentleman yield just briefly? 

Mr. BLUMENAUER. If I have time at the end, Paul, I am happy 

to do it. 

I would like to be able to lock in what this means, because we 

haven’t been able to get a good figure. It wasn’t scored in terms of 

what that extra cost would be for an older, sicker population. Although declining, it would still be millions of people. 

And I would take modest exception to my friend’s characterization that IPAB takes the control out of Congress and puts it inevitably towards rationing and price control. As I think he knows that 

the recommendations from IPAB are just that, and they will come 

to Congress and have to be voted up or down. I think that is really 

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ure on both sides of the aisle on things like base closing and repeated failure with Medicare. 

We are already seeing some people trying to walk back IPAB’S 

ability. And I have heard my Republican friends decry the fact that 

providers right now aren’t getting enough money, and yet we can’t 

afford what we are giving them, and they don’t want a control 

mechanism. 

I am wondering, is there any reason why, with the help of IPAB 

to maybe stiffen the spine of Congress, that we couldn’t mimic the 

best practices that are going on right now with Medicare in my 

community, my colleague Mr. Kind’s, Mr. Ryan’s State of Wisconsin, where costs are dramatically lower than other parts of the 

country, and performance is better? Is there any inherent reason 

that we can’t mimic that behavior, Mr. Reischauer? 

Mr. REISCHAUER. It is certainly a goal that we should strive 

to achieve. But it is very difficult to figure out how to get from here 

to there, how to get from Miami to Wisconsin. 

Mr. BLUMENAUER. But some people have figured it out, 

haven’t they? Some people have figured it out. We are not all 

Miami; we are not all McAllen, Texas. 

Mr. REISCHAUER. And we don’t really know how to convince 

Miami to mimic the behaviors of Wisconsin, Minnesota, some of the 

more parsimonious practice pattern States. 

Mr. BLUMENAUER. That are more effective? 

Mr. REISCHAUER. In many cases, that are more effective. 

Mr. BLUMENAUER. Well, I am troubled a little bit with this, 

because I think we do know what works. I think there is bipartisan 

agreement, at least there has been until recent years, of some of 

the experiments in the Affordable Care Act, the ACOs, of dealing 

with unnecessary hospital readmissions, being able to have more 

attention to primary care, dealing with freight with waste, fraud 

and abuse. 

I mean, there is a litany of bipartisan actions that can be taken 

to squeeze far more out of the existing Medicare system. But people 

haven’t been incented to do it. And Congress in both parties has 

wobbled, at least until we are starting to move back with the Affordable Care Act. 

And I just, I think we are setting our sights too low. I think we 

ought to be accelerating the reforms that were talked about. And 

yes, there is a little discipline. There are some price signals. I don’t 

think that is control. But we are not just going to open the spigot 

and then pay people for procedure after procedure after procedure, 

which is why doctors are getting more money, even though the reimbursement rates are more parsimonious. 

And I think we ought to be more optimistic about this. And I 

think there is a bipartisan consensus about how it could be done 

once we get out of this whirl we are in right now. Thank you. 

Chairman HERGER. The gentleman’s time has expired. 

The gentleman from Washington, Mr. Reichert, is recognized for 

5 minutes. 

Mr. REICHERT. Thank you, Mr. Chairman. 

And thank you, gentlemen, for appearing this morning. 


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I agree with Mr. Blumenauer, we must find a bipartisan solution 

to this, and I think we need to be more optimistic that there is one. 

I think many of the members have expressed that this morning. 

However, there have been some comments that have been made 

that sort of puzzle me just a little bit. Like the question was asked 

earlier, why are we even paying attention to this issue? Well, I 

think it is obvious from your testimony there are some major 

themes that you are expressing this morning to all of us, to all 

Americans, as some may be watching C–Span and don’t have a life. 

Medicare is going bankrupt. You both agree with that, and it is accelerating, true, yes? 

Mr. BLAHOUS. Yes. 

Mr. REICHERT. Medicare’s dire financial status is actually drastically understated, would you agree with that, yes? 

Mr. BLAHOUS. I would say it is very likely to be significantly 

understated. 

Mr. REICHERT. Sir? 

Mr. REISCHAUER. I am unsure of that. I think if we don’t take 

full advantage of the initiatives in the Affordable Care Act, if we 

don’t encourage all of the innovation that is going on in the private 

sector and in the nonprofit sector, that is true. 

Mr. REICHERT. Sir, wasn’t it understated just a year ago? 

Mr. REISCHAUER. Excuse me? 

Mr. REICHERT. Wasn’t it understated just a year ago in a report and here we are today, we are accelerating the—— 

Mr. REISCHAUER. You know, I think the—— 

Mr. REICHERT. Is that a yes? 

Mr. REISCHAUER. No. I am not sure what your question is. 

Were you referring to the 2010 report? 

Mr. REICHERT. Yes. 

Mr. REISCHAUER. And this report also has warnings which 

say—— 

Mr. REICHERT. But it has been accelerated, is that not true? 

Mr. REISCHAUER. Yes, it has. 

Mr. REICHERT. By 5 years? 

Mr. REISCHAUER. There are changes largely in the economic—— 

Mr. REICHERT. And you would not expect that to continue? 

Mr. REISCHAUER. I hope the economy is going to rebound. 

Mr. REICHERT. You are not sure, okay. Massive tax increases, 

do you see that on the horizon, or benefit cuts? If we don’t do something now, isn’t that sort of the scenario, if we don’t act now? I 

mean, we must do something now; would you both agree with that? 

Mr. BLAHOUS. I would say that the, on the HI side, the implication of trust fund exhaustion would be a benefit reduction in the 

absence of legislation. On the SMI side, the implication would be 

greater general revenue requirements, which implicitly would lead 

to higher tax burdens. 

Mr. REISCHAUER. Yes. 

Mr. REICHERT. Okay. Thank you. The thing that I guess is 

really confusing to a lot of Americans, they see this health care bill 

out there that has been passed, and it has been implemented by 

some degree or another and still more laws to take effect. But there 

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plied to small businesses and people to pay for this. How can we 

get the economy going if we continue to tax small businesses? $523 

billion in cuts to Medicare. So no wonder people are expecting higher premiums and fewer benefits in Medicare. 

I wanted to ask a specific question though regarding the alternative scenario. It states that overall Medicare spending is expected to grow to 10.36 percent of GDP, a 3.6 percent increase over 

the trustees report. Growth of this magnitude would substantially 

increase the strain on the Nation’s workers, the economy, Medicare 

beneficiaries and the Federal budget. Could you elaborate on what 

the strain may look like related to these important areas in other 

national priorities, like education and medical research. 

Mr. BLAHOUS. Well, I would just say, first of all, I agree with 

Dr. Reischauer that the main projected trustees’ report is probably 

the best-case scenario, and then this would be sort of the pessimistic scenario. The reality is probably somewhere in the middle. 

But if we take that worst-case scenario, I mean, that is an unprecedented level of strain, fiscal strain, for the Federal Government. I 

mean, if you consider over 10 percent of GDP is for one Federal 

program alone, that is roughly twice as much as any Federal program to this point has ever absorbed. That would be over half, relative to GDP, over half of the size of the entire Federal Government relative to the economy as recently as 2008. So to have over 

half of our historic norms in terms of the Federal size of government devoted to one program would be an unprecedented strain. 

Mr. REISCHAUER. My comment on this is long before those 

numbers would come to be realized, this nation is going have to address its deficit and debt problem. And in my view, Medicare will 

be one contributor to a solution. And so those numbers are horrific. 

But long before we face them, we are going to have to make some 

much more fundamental changes in our revenues and expenditures 

across the board. 

Chairman HERGER. The gentleman’s time has expired. 

The gentleman from New Jersey Mr. Pascrell is recognized for 5 

minutes. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

How are you today? What is logical, we learn in logic 101, may 

not be true. It is our premises that determine those things. I want 

to enter into the record, Mr. Chairman, the S&P indices concerning 

the health care costs, and to bring to your attention, Mr. Chairman, that in 2010, Medicare claim costs associated with hospital 

and professional services for patients covered under Medicare increased at a more modest 3.2 percent rate, much lower than the 

private sector, much lower than the private sector. And I would 

like to ask to begin with and very briefly your response, I would 

appreciate that, what do you think attributed to the slowdown to 

the more moderate pace of increase in Medicare, as well as the private sector going down, too, but not to the degree of Medicare? Why 

do you think that happened? Both of you, either of you. 

Mr. REISCHAUER. My response to that would be that one factor 

is certainly the turndown in the economy, which has left some seniors and others with less income to pay their co-insurance and their 

co-payments and so on. It is conceivable that some even had to 

drop their Medigap policies. 


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But I think of more importance here is the attention that CMS 

and the providers have begun to pay to overuse of services. And 

many practitioners are looking anew at their practice patterns. 

Mr. PASCRELL. Which is a major target of the health care act, 

right? 

Mr. REISCHAUER. Yes. And it is a major change in attitude 

and behavior, and I think that is going on throughout the society, 

and it is a good development. 

Mr. PASCRELL. Mr. Blahous. Thank you. 

Mr. BLAHOUS. I generally would agree with that. I think certainly the overall state of the economy played a role, and the factors Dr. Reischauer just spoke of also played a role. 

But I would be candid and add a heavy dose of ‘‘I don’t know’’ 

to the answer. Short-term fluctuations in these cost levels are very 

difficult not only to predict but also to explain after the fact, so my 

level of uncertainty as to what to attribute that to is very high. 

Mr. PASCRELL. I would contend that even before it is only 20 

percent in effect that the health care act has had an effect on the 

very costs that we are trying to reduce because we are never going 

to have a Medicare program that is able to keep up with inflation 

and the rising costs of health care until we control in some manner, 

shape, or form under a capitalistic system the rise of health care 

costs. We need to do something about that, and we are trying to 

do something about that. 

One-third of the entire health care act dealt with Medicare and 

Medicaid and how we should save money in the process. Much of 

it was not scored in the final analysis. 

Now, we had a major change. In the report of 1997, the report 

of the trustees in 1997, brought about some very interesting things. 

The beginning of Medicare Advantage, the beginning of the process 

to start to privatize the system. Now, we pay 12 percent more to 

these private plans, and seniors are going to pay much more if we 

move, obviously, to privatize the whole process under the guise of 

trying to straighten out Medicare. Look, all of these reports from 

1970, as the gentleman from California pointed out before to now, 

talk about the dire position in which Medicare is in. Every one of 

those reports, that the world is coming to an end as far as Medicare is concerned. That did not happen. 

As for my friend from Wisconsin that talks about double accounting, this is what a bank account is all about. You take money out 

of the account as you need it; you don’t take it all out. It is, I believe, very analogous to those funds that are in a bank account. 

When moneys are deposited, the dollars are used for other purposes until they are withdrawn. What is so different about what we 

do in terms of how we are calculating savings in the future? 

So we need to take a look, Mr. Chairman, at not only the logic 

of what we say, but if there is any resemblance to the truth. This 

is not reality TV. Thank you. 

Chairman HERGER. The gentleman’s time has expired. 

The gentleman from Georgia, Dr. Price, is recognized for 5 minutes. 

Mr. PRICE. I thank the chair and I thank our witnesses for coming to help us understand what are the financial operations of 

Medicare. We are talking about the financial operations. That is 


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the role of the trustees, right? Look at the financial, not the clinical 

side of health care. So, as a physician, we are talking about money 

today; we are not talking about quality of health care, those kinds 

of things, that are so important to patients across this country. 

Our friends on the other side of the aisle have a penchant for 

mischaracterizing our positive solution, I think. And I want to 

touch on a couple of the things that Mr. Stark mentioned. He said 

that our proposal, our positive solution, was a voucher plan for 

Medicare. Well, it isn’t a voucher plan; you know that. Both of you 

know that, correct? 

Mr. Reischauer, you understand that our program is not a voucher program; it is a premium support program. 

Mr. REISCHAUER. The difference between premium support 

and vouchers has been explained by some as the payment not relating to the cost of the underlying enterprise. That is a distinction 

that I am not—— 

Mr. PRICE. Well, you supported a premium support program in 

the mid to late 1990s. 

Mr. REISCHAUER. I did. I still support it. 

Mr. PRICE. You wouldn’t have called it a voucher program, 

would you? In fact, you didn’t call it a voucher program at that 

time, did you? 

Mr. REISCHAUER. No, we didn’t call it—— 

Mr. PRICE. No, you called it a premium support program, and 

that is important to know. 

Mr. STARK. also said that our positive solution ends guaranteed 

benefits for seniors. Well, that is not true. You know that. In fact, 

we save Medicare for future generations. In fact, in our proposal, 

it actually stipulates that the program must be guaranteed. Isn’t 

that true, Mr. Reischauer, when you read our program. 

Mr. REISCHAUER. To the extent that I know the details of the 

program, yes. 

Mr. PRICE. It is a guaranteed program; that is correct. Mr. 

Stark also mentioned the issue of private contracting and said that 

if private contracting were allowed in the Medicare program, which 

many of us believe is the kind of pressure valve that needs to be 

put in place to relieve the incredible access pressure that currently 

exists in Medicare, in response to his question, wouldn’t that cause 

access problems? 

Mr. Reischauer, you said, ‘‘if not regulated,’’ is your quote, ‘‘if not 

regulated’’ it might cause—have access problems. Are you aware of 

any proposal that would put in place private contracting without 

regulation? 

Mr. REISCHAUER. Well, I think this is a matter of degree as 

well as existence. 

Mr. PRICE. Are you aware of any, though, that don’t? 

Mr. REISCHAUER. No, I am not. 

Mr. PRICE. And in fact, isn’t it possible that an appropriately 

regulated and structured private contracting program would in fact 

increase access for Medicare for seniors in this country, isn’t that 

possible? 

Mr. REISCHAUER. It is possible, but not probable, I would say. 

Mr. PRICE. Well, I would beg to differ with you on that. And 

there are certainly individuals who understand the huge challenges 


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with access right now that seniors have. And that one of the ways 

to solve it, as you have identified in your list of solutions, is something that allows for increasing access. 

I want to touch on the Medicare trigger, for this is now the sixth 

year in a row that the trustees have said that the board of trustees 

are required to issue determination projected excess general revenue for Medicare funding, this is the sixth consecutive such funding. When that trigger occurs, then, it is the obligation of the President, is it not, to then propose to Congress a solution to fix that 

problem. Is that correct? 

Mr. REISCHAUER. Yes. 

Mr. PRICE. And have you seen any solution that this administration has offered for having had this trigger be punched through 

for the past 3 years under his watch? 

Mr. BLAHOUS. No. 

Mr. PRICE. Have you, Mr. Reischauer, have you seen that solution? 

Mr. REISCHAUER. No. I think the Congress has waived the requirement. 

Mr. PRICE. Under the Democrat control in the past, yes, they 

said, oh, no, don’t worry about that. Isn’t that what they did, said 

don’t worry about the money? 

Mr. REISCHAUER. Yes. 

Mr. PRICE. I want to touch on this whole issue of Medicare 

changing. In fact, Mr. Reischauer, you said that there are significant changes to Medicare through the PPACA, which is the reform 

bill that they put through. So, in fact, what has already been 

adopted ends Medicare as we know it. Would you agree with that 

statement? 

Mr. REISCHAUER. It transforms the program as all legislation 

in the past—— 

Mr. PRICE. So Medicare as we know it right now in this colloquial term that is used out there in the marketplace, Medicare as 

we know doesn’t exist under the Democrat’s plan already, is that 

correct? 

Mr. REISCHAUER. Well, the question is, what are we referring 

to as Medicare? If we are saying—— 

Mr. PRICE. Medicare as we know it is basically is what we have 

right now. 

Mr. REISCHAUER.—a fee-for-service unmanaged care program, 

you know, it exists after the Affordable Care Act as it did before 

the Affordable Care Act. 

Mr. PRICE. But Medicare as we know it, the program that exists 

right now, has been changed significantly under PPACA, would you 

agree with that statement? 

Mr. REISCHAUER. There have been significant changes. 

Mr. PRICE. But Medicare as we know it is already gone and 

done so by the reform bill that was put in place before. 

Mr. Chairman, my time has expired, but I look forward to submitting further questions for the panel. 

Chairman HERGER. I thank the chairman. 

The gentleman from New York, Mr. Rangel, is recognized for 5 

minutes. 


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Mr. RANGEL. Thank you, Mr. Chairman, for calling this meeting. 

And I think it is helpful just to clear the air to have experts that 

are objective that will have their reputations to protect long after 

the election is over. 

I think you have to agree that whatever decisions that we make 

that is going to cause any dissatisfaction with our constituents, it 

is much easier when the parties are talking together. They may not 

be happy with Democrats Or Republicans, but at least they would 

not be nearly as angry if the parties themselves have taken different positions. 

The fact that so many Republicans got elected attacking so-called 

ObamaCare forced Democrats to get reelected in attacking the 

RyanCare. And now the facts are not nearly as important, it appears to me, as the parties getting reelected. 

So, unlike Mr. Blumenauer, I just can’t believe that a nation that 

owes so much to our aging population can spend trillions of dollars 

rebuilding the economy of Afghanistan and Iraq and able to say 

that we can’t provide decent care. And that means that we are 

going to have to have reform, and that means it is going to be painful to a lot, but it also means that as long as we fight each other, 

then the parties don’t want, the beneficiaries don’t want to make 

decisions. 

Let me ask this: As relates to Medicare and solvency, do you believe that the Affordable Care Act goes in the direction of dealing 

with the question of solvency? 

Mr. BLAHOUS. Certainly the Affordable Care Act extended the 

duration of Medicare HI solvency. 

Mr. RANGEL. And does it constantly request that we review 

what changes have to be made from the Congress and the administration in order to protect that solvency? I mean, do you believe 

that we are not dealing with the problem at all and that we need 

a dramatically different approach? I don’t have a problem changing 

the approach if it is bipartisan and we agree that this is best. I believe that an old dog can use new tricks. I believe that if the Republicans come in and they say ObamaCare is moving in the right 

direction, not fast enough, and we think these changes have to be 

made that is not going to happen until, if it happens at all, until 

after the election. 

So my question to you as being objective professionals, are you 

satisfied that the affordable act bill allows itself to deal with solvency if certain changes are made? I mean, do you believe that we 

just are hanging it out there and ignoring the problem? We know 

that this great country has the ability working together to deal 

with that problem. 

Mr. BLAHOUS. I would say there are three things that come to 

mind in response to your question. One is the primary engine 

under the Affordable Care Act for extending solvency of the HI 

trust fund is these annual adjustments in the reimbursement rates 

for growth and economy-wide multifactor productivity. And in the 

last trustees’ report, that engine was powerful enough to account 

for basically the overall contours of the cost projections over the 

long term. 


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Now, this year’s trustees’ report relies a little bit more on the 

payment advisory board. But basically, in order to hit the savings 

targets in the Affordable Care Act, the productivity adjustments 

themselves won’t be completely sufficient. 

Mr. RANGEL. Really—I am going get the answer, but my time 

is so restricted. Really what I want to do is understand the premium support position more clearly. And whether you call it a 

voucher or premium support, one, does anyone contradict that the 

insurance companies’—the health insurance companies’ major obligation is to make a profit? No. That is their job. Two, if you are 

trying to make a profit, does anyone challenge the fact that the selection of people to be insured are based on the risk involved? Answer, no. If, indeed, a person is more vulnerable when they are 

older, are they less inclined to get a fair strike, less inclined to get 

benefits without higher costs? Answer, no. 

So the premium support idea guarantees that you get something, 

but you can only get what you are able to afford to get, is that 

true? That is true. And so I don’t care what you call it; the fact 

is that we are making major adjustments and putting the entire 

ability of people to get health care in the hands of those people that 

really don’t want you as a client, and I got a—not a voucher, I got 

support. But you are not guaranteeing that I have enough support 

to get the health care that I have for my kids that I get, right. 

Chairman HERGER. The gentleman’s time has expired. 

And our witness can respond in written letter to the committee 

on the question. 

The gentleman from Florida, our new member to the subcommittee, Mr. Buchanan, is recognized for 5 minutes. 

Mr. BUCHANAN. Thank you, Mr. Chairman, for holding such an 

important hearing. 

I also look forward to working with you as chairman and the rest 

of the members on the subcommittee. 

I also would like to thank our witnesses for being here today. 

It got touched on a little bit. I want to go over a couple of points. 

Medicare trustee, which you projected, we touched on this a little 

earlier, would become insolvent in 2024 instead of 2010. In my district, I have 170,000 seniors, and we are in Florida, so, obviously, 

it is a big issue now all over the country, but percentage wise much 

bigger in Florida. When we are looking at projecting to 2024, one 

thing I don’t believe that was taken into account is the reduction 

or the doc fix or the SGR that was taken into effect in terms of 

looking at insolvency. 

When we project this out and look at it down the road talking 

with doctors in our community, I am very concerned a lot of them 

will have to go out of businesses, a lot of the big practices. We have 

got another 30 percent cut that we are looking at, but doesn’t take 

any impact in terms of the viability of Medicare long term. So I 

guess, wouldn’t you agree that these cuts if they go into a place 

would drive the insolvency date, because we are looking at a $300 

billion problem a lot quicker? And I would like to have both gentlemen respond. 

Mr. REISCHAUER. The solvency issue relates to the HI or hospital insurance fund. And the doc fix is Part B, part of SMI, and 

that is not affected by solvency issues. Because of the way the Part 


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B trust fund is constructed, it can never be exhausted. General revenues are automatically given to the trust fund to make up the difference between projected costs and premium payments and State 

transfers, so it doesn’t affect the date of exhaustion of the HI trust 

fund. 

Mr. BUCHANAN. My point is I have been here a little over 4 

years, and we have had a doc fix once or twice a year. I don’t know 

how anybody runs a business or any business, especially a lot of 

these medical practices, and have to look at a 15 or 30 percent cut 

every year. But I don’t know how this isn’t considered as a part of 

the overall Medicare, the viability of the medical community. 

The other gentleman—— 

Mr. BLAHOUS. I would say I think the principal effect of the anticipated doc fix overrides would be in the overall cost of Part B. 

And under our projections, where we assume those huge cuts happen, we show Part B costs of a little over 2 and a quarter percent 

of GDP by the 2030s. But if you assume we override them, we are 

up over 3 percent of GDP. So there is a substantial increased cost 

on the SMI side if you assume the payment reductions are overridden. 

Mr. BUCHANAN. Mr. Blahous, let me ask you another question. 

Last year a Harvard study found that malpractice costs in terms 

of our health care system at about—we could save as much as $55 

billion a year. Do you think that we should have medical malpractice reform, especially as we are looking to try to drive down 

costs? 

Mr. BLAHOUS. Well, certainly speaking as a trustee, everything 

we can do to hold down the growth of cost is going to make our 

overall financial projections better for Medicare. So, yes, if we can 

produce that level of savings for Medicare through malpractice reform, obviously, that would improve the financial outlook that we 

would show. 

Mr. BUCHANAN. Is that something that you personally have 

looked at as a trustee of med mal costs in terms of Medicare? Because, obviously, I can just tell you doctors about defensive medicine, running a lot more tests than they feel that they need to just 

to make sure they are covered in case 1 in 1,000 or 10,000 cases 

of someone has a tumor and it doesn’t end of being something more 

substantial. Is this something you have looked at in terms of tort 

legal reform? 

Mr. BLAHOUS. Not so much, because the trustees’ process generally focuses on scoring current law. It is somewhat different from 

say the Congressional Budget Office where they produce these 

menus of policy alternatives. Generally, in the trustees’ process, we 

don’t tend to evaluate alternative policies to current law. But obviously, it would certainly draw heavily from the input of everyone 

from CBO to the Medicare technical panels to others in scoring 

such a provision if it were enacted into law. 

Mr. BUCHANAN. Mr. Reischauer, do you have any thought on 

legal tort reform, the impact that would have either as a trustee 

or your own personal opinion in terms of driving down costs, because I mean, obviously this is something—and again, I meet with 

a lot of doctors. I have a neurosurgeon who says his medical malpractice is $200,000 a year; he has got to see $1,000 worth of reveVerDate Mar 15 2010 07:51 Nov 30, 2011 Jkt 070887 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\70887.XXX GPO1 PsN: 70887

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nues to pay the $200,000 in insurance, and they are practicing a 

lot of defensive medicine, and I think it is a big area we can make 

a big change in, but what are your thoughts? 

Mr. REISCHAUER. My thought is that there are a number of 

studies trying to estimate the impact of malpractice reform on overall health care costs. By and large they come out saying that this 

isn’t a huge contributor to the rapid growth of costs, of health care 

costs, but reform certainly would be a significant contributor to 

lowering the growth by reducing the level, really a one-time level 

shift. So I would align myself with Dr. Blahous’ comments that I 

think some change would be a good thing. 

Chairman HERGER. The gentleman’s time has expired. 

Mr. BUCHANAN. I yield back. 

Chairman HERGER. The gentleman from Wisconsin, Mr. Kind, 

is recognized for 5 minutes. 

Mr. KIND. Thank you, Mr. Chairman. I want to thank our witnesses for your update today. What strikes me—and Mr. 

Reischauer, maybe I can start with you—I am looking at this 

charge here showing the trustee reports dating back to 1970 in regards to years of solvency. And what jumps out is how much this 

really does track economic performance, whether we are in a 

growth state or a declining state, and how that influences the ultimate solvency of this trust fund. Is that something that is consistent with what the trustees are finding, too, what the strength 

of our economy is and the payroll revenue that is being generated 

and also the number of entrants entering Medicare? 

Mr. REISCHAUER. Certainly that is a very important contributor, as is legislation. And at various times in this list, the Congress has enacted significant legislative changes that have prolonged the life of the HI trust fund. 

Mr. KIND. I am looking particularly at the late 1990s, 2000 or 

so, when we had period of robust economic growth, and there the 

trustee were showing 25, 28 years of solvency. Unlike the great recession that we are coming through right now, we have had a drop 

off of the number of years of solvency. So I think one of the best 

things we can do as a nation to increase the solvency of the trust 

fund is to get this economy back on track creating good-paying jobs, 

would you agree with that? 

Mr. REISCHAUER. I would agree. 

Mr. KIND. And in regards to my friend’s comment regarding 

med mal reform and the impact that is going to have, you know, 

and I think the President is there as well, that if we are going to 

be asking doctors through the Affordable Care Act to practice more 

best-evidence medicine or protocols of care, knowing what works 

and what doesn’t work, there should be greater safe havens of protection for that type of practice system. But this is where you lose 

me on that; 37 States have already enacted med mal reform, including the State of Wisconsin. So, unless those 13 States that 

haven’t taken action yet on med mal reform are driving all this additional cost in the health care system, I don’t see it. 

In fact, studies show that the utilization practice of doctors in 

States that have med mal reform in it is very little different than 

in States that don’t have med mal reform. Is that what you found 

in your analysis? 


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Mr. REISCHAUER. I haven’t done any independent analysis, but 

I am aware of studies that have come to that conclusion. 

Mr. KIND. Well, this is what I think will also help, and a lot of 

this is already built in, baked into the Affordable Care Act; is we 

need to continue to move forward on delivery system reform, expecting better outcomes and better value at a better price. And 

there are models of care in various regions of the country that do 

work and work well. They are highly integrated, coordinated, patient-focused, that are producing some of the best results and for 

a better bang for the buck. And a lot of what is incented in the Affordable Care Act is driving that type of delivery system reform to 

a more efficient and better outcome-based system but at a better 

price. And the fact that studies have shown over and over again 

that a large part of the health care dollars is going to tests and 

procedures and things that aren’t working, they are not improving 

patient care. In fact, some estimates range as high as $800 billion 

a year in a $2.4 trillion system are going to various procedures and 

tests that we are not getting a good bang for the buck. And therefore, I think the ultimate verdict in how successful we are in driving costs down is changing the way we pay for health care, to reward outcome in value as opposed to the volume-based payments 

that occur in Medicare. Would you agree with that analysis? 

Mr. REISCHAUER. I would. 

Mr. KIND. And there are things that are on track right now to 

lead us to that hopefully promised land of payment reform, whether it is the IPAP commission—I know that was brought up for criticism today—or the work that the Institute of Medicine is doing 

right now in changing the fee-for-service system to a fee-for-valuereimbursement system. And we also know that what happens in 

Medicare is going to also drive the private health insurance market 

in how they reimburse with health care expenses. 

So the concern I have with the Ryan plan, the Republican plan 

that was just passed—that was just passed is that they would do 

away with all these reforms and instead create a voucher plan that 

virtually ends Medicare but without addressing the really systemic 

problem we have in the health care system, which is the rising 

costs and what we can do to bend that cost curve. And if we are 

moving forward on the reforms in the Affordable Care Act, especially in the payment area, so we are rewarding good quality outcomes, is an important thing that we need to do to shore up the 

trust fund and ultimately the long-term sustainability of the Medicare program, would you agree with that? 

Mr. REISCHAUER. You know, I am not sure with my trustee 

hat on, I should be opining on these issues, but I think the Affordable Care Act incorporates—— 

Mr. KIND. Well, I think even in the trustees’ report, they do acknowledge some of the reforms that are contained in the Affordable 

Care Act that can lead to—— 

Mr. REISCHAUER. That have the potential to move in the direction of providing better care at a reduced cost, yes. 

Mr. KIND. And as a former head of CBO yourself, you realize 

that it is awfully tough to get a score from CBO on health care savings. You all seem to come from Missouri, and that is the showme state; you got to show us the reforms and how it is actually reVerDate Mar 15 2010 07:51 Nov 30, 2011 Jkt 070887 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\70887.XXX GPO1 PsN: 70887

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sulting in its cost savings before it gets scored. So a lot of this we 

need to move forward on, but we are not going to be certain what 

type of cost savings until they occur, is that right? 

Mr. REISCHAUER. That is right. And I was criticized in this 

very room many times for that fact. 

Mr. KIND. I know you were, as others have been and probably 

will be. But thank you for your testimony. 

Chairman HERGER. The gentleman’s time has expired. 

The gentleman from Illinois, Mr. Roskam is recognized for 5 minutes. 

Mr. ROSKAM. Thank you, Mr. Chairman. 

Your report shows that Medicare will now be bankrupt in 2024. 

Americans would then be forced to either endure a massive tax 

hike or an immediate 17 percent reduction in expenditures. In 

other words, an immediate 17 percent Medicare cut. Can you explain what you mean by ‘‘immediate’’? 

Mr. BLAHOUS. Well, the way that the trust funds work, both on 

the Social Security side and on the Medicare HI side, is that the 

amount of expenditures the program can put out there is limited 

by what is in the trust funds. Now, on the SMI side, it is not really 

an issue because we just give the trust fund each year whatever 

is required to keep pace with costs. But once that trust fund runs 

out, the program lacks the authority to make benefit payments. 

Now, there have been a lot of legal analyses that have been done 

of what happens when the trust fund runs out, and they don’t all 

agree. But a fairly common one is that payments would simply 

have to be suspended or delayed until the requisite financing came 

into the trust fund, which would have the effect of reducing payments simply by virtue of delay. 

Mr. ROSKAM. And that immediate is the common understanding of immediate? In other words, this present moment in 

time, in other words, when insolvency happens, then you immediately are prohibited based on the law and based on your understanding as a trustee from paying anything further out. And your 

estimation is that it would be a 17 percent cut in a benefit, is that 

correct? 

Mr. BLAHOUS. Well, it is 17 percent on average over 75 years. 

Now, it varies according to year. I think in 2024, specifically, it is 

about 10 percent, but then that increases, and then it becomes 

about 25 percent by the mid-2040s. 

Mr. ROSKAM. So it is averaged—go ahead. 

Mr. REISCHAUER. What I think my colleague was describing is 

when the trust fund became insolvent, money would still be flowing 

in from tax receipts and Medicare would delay paying bills. And so 

a hospital would send its bill in and, rather than being paid in 24 

days, might have to wait 5 months. And the CMS, the intermediaries and other payors would be writing out the checks, transferring the resources to the hospital, to the hospice, whatever, on 

a much delayed basis. 

Mr. ROSKAM. So that cut, just so I am clear, is not a hypothetical cut. It is not a hypothetical delay. It is an actual delay in 

payment to the point of reaching the 17 percent number based on 

your own projection, is that right? 


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Mr. BLAHOUS. That is right. I mean, the Social Security Act 

which deals with these trust fund issues is very explicit that payments can only be made from the trust funds. 

Mr. ROSKAM. So there is no other flexibility? If the revenues 

aren’t there, if an insolvency is declared, you have no other remedy 

but to move forward and make those cuts, is that right? 

Mr. BLAHOUS. Right. The programs don’t have the authority to 

borrow in excess of the resources provided by the trust funds. 

Mr. ROSKAM. And absent some change in the program, your 

prediction is that that is where our Nation will be in 2024, that is 

right? 

Mr. BLAHOUS. That is right. 

Mr. REISCHAUER. With respect to the hospital insurance system. 

Mr. ROSKAM. I understand. So when the gentleman from Wisconsin said that there is a proposal that is out there by the majority on this committee that ends Medicare, in fact, Medicare as we 

know it will end in 2024 absent some change in policy or some 

change in moving forward, that is right, isn’t it? 

Mr. BLAHOUS. Yes. 

Mr. ROSKAM. I yield back. 

Chairman HERGER. The gentleman yields back. 

The gentleman from Washington is recognized, Mr. McDermott, 

for 5 minutes. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

And I appreciate your allowing me to ask questions. 

I have a report from the CMS actuary who says that—we were 

talking just now about a 17 percent reduction in expenditures if 

nothing is done. They suggest that if the Affordable Care Act were 

repealed, as the majority is trying to do, it would require a 53 percent reduction in benefits or 134 percent increase in the payroll tax 

to cover the deficit. So what we have seen here proposed by Mr. 

Ryan it seems to me is something that would make things much 

worse, at least according to the—if you believe in actuary. 

Now, I want to ask you a question that I have sat here thinking 

about this whole time listening to. I came into medicine in 1963. 

I graduated from medical school just before Medicare started, so I 

have seen the whole history. I heard it was going to be socialism 

and the end of medicine as it was going to exist in this country, 

and I have watched it. And it is clear to me that the decision to 

give doctors the right to set their own fees was a crucial error made 

in 1964. When they wrote that they could have their usual and customary fees, they really set in motion an awful lot of what we are 

looking at today. 

And you know about the RUC, the update committee, most people don’t know what that is, but you know about it, and they set 

the rates. Now, why is there no discussion in your report about reform of the RUC committee or the rate setting that is done? We 

don’t have a fee schedule set by the government. We have the RUC 

committee recommending to us what we should pay and that is 

what we pay. 

Now, how can we have control of costs if we don’t have the medical profession in some kind of direct negotiation with the government about what is going to be paid? This SGR was a simplistic 


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idea that never was going to be—never worked because it only controlled one thing and it left all the ability to raise rates or raise 

amounts of money by doing more of the same procedure. 

I see in the Washington Post this week, many hospitals overuse 

double CT scans. There are a thousand examples of overuse of procedures in the medical care, but the RUC says, you get this amount 

a month for doing that, and boy, they do them and do them and 

do them, and the SGR has had no control whatsoever on it. How 

do we get there if we don’t get the doctors at the table someplace 

to negotiate about their part in this game? It is not just between 

the government and the Medicare beneficiaries. There is a thirdparty here that we are ignoring, and that is the physicians and the 

health care system. 

Mr. REISCHAUER. Are you looking at me? 

Mr. MCDERMOTT. Yes, sir. I have looked at you many times. 

Mr. REISCHAUER. I believe that the RUC is an advisory committee that gives its recommendations to CMS, and CMS is the ultimate decider. 

Mr. MCDERMOTT. And they accept 85 to 90 percent—— 

Mr. REISCHAUER. What the RUC does is it looks at the relative 

values and decides which procedures, interventions, might be overpaid in a relative sense and which might be underpaid. And needless to say, there are few volunteers for being overpaid, and many 

claimants for being underpaid. 

When they balance out what would happen if these changes were 

made? If on the whole, it saves resources, then those resources are 

thrown back into the overall pool, and the whole pool is raised. So 

it is designed to be, in a sense budget-neutral, which I don’t think 

personally is an appropriate thing. And I believe the administration has made a suggestion that the overpayment amounts for procedures that we believe are overpaid should be used to reduce overall costs. 

And I think we need a more robust review procedure like the 

RUC, one that reviews these amounts more frequently than is now 

the case and aggressively looks at what is happening in the balance of the market, the private sector, with respect to fees for these 

various procedures, and we could improve the accuracy of payments much more and probably save some money. 

Chairman HERGER. The gentleman’s time has expired. 

Mr. MCDERMOTT. Thank you. I hope you put that in the report 

next year. 

Mr. REISCHAUER. Well, the Medicare Payment Advisory Commission on which I served for 9 years has made recommendations 

and analyzed this issue quite frequently in its reports. 

Chairman HERGER. The gentleman’s time has expired. 

The gentleman from Louisiana, Dr. Boustany, is recognized for 

5 minutes. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

As a heart surgeon, I had the tremendous privilege of operating 

on thousands of Medicare beneficiaries, and I can tell you patient 

by patient perhaps better than anybody in this room, I understand 

the value of the Medicare program and the importance it plays in 

the lives of seniors, especially seniors back home in Louisiana, 


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many of whom have very limited means and depend on this truly 

for their life. 

And I could go on and on about the quality and what we need 

to do to establish and maintain and strengthen a good patient-doctor relationship based on high quality medicine while managing 

costs, but that is not the purpose of the hearing. We are here to 

talk about the financial solvency of this program and some of the 

things that we need to do. 

You know, the Medicare actuary has been quoted as saying that 

the improved hospital trust fund financing cannot be simultaneously used to finance other Federal outlays, such as coverage expansions, and to the extent the trust fund, despite the appearance 

of this result from the respective accounting conventions, meaning 

we can’t double count; this is a real problem. And I will tell you 

as a physician who worked with many, many Medicare patients, 

this is a huge disservice to Medicare beneficiaries across this country. 

We have an obligation to fix this program and to get it right. And 

when I see this double counting and the fact that we are playing 

games with the SGR and the reimbursement structure, this is literally legislative malpractice. And then if you go on with the IPAB, 

this is another example of where you are going to try to keep the 

lid on a boiling pot of liquid. It is not really going to be in the best 

interest of maintaining high quality patient care between a doctor 

and a patient. 

My question is this: We know with current law, we are headed 

toward 2024 with the insolvency of the hospital trust fund, which 

means Medicare as we know it, at least that part, the hospital 

care, ends; is that correct? 

Mr. BLAHOUS. Certainly it does not have the resources sufficient to discharge its obligations. 

Mr. BOUSTANY. So if we don’t correct this problem, then there 

will not be a payment mechanism for hospital care for our seniors? 

Mr. BLAHOUS. Well, I would say there will still be a payment 

mechanism, but it would not be able to—— 

Mr. BOUSTANY. To pay. 

Mr. BLAHOUS [continuing]. To pay, and get it on a delayed 

basis, reduced basis. 

Mr. BOUSTANY. And before we get to that point, clearly it is not 

a just simple situation where we get to the point and then it stops. 

Would you suggest that there will probably be other forms of rationing for our seniors before we get to that point under current 

law with regard to hospital care? 

Mr. REISCHAUER. In fact, it is a situation where you get to 

that point and fall off the cliff. You know, participants will be, even 

after the date of insolvency, entitled to the benefits that are laid 

out in the program. Providers may choose not to provide as much 

care because they will have to wait a long time or a longer time 

to get paid for it. But it is a situation that up to that point, everything seems fine. 

Mr. BOUSTANY. And that gets us to the access problem because 

that is the other side of this equation, whereby the further we go, 

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lems with access for our seniors, so in effect, if you don’t have access or limited access, delayed access, is that rationing? 

Mr. BLAHOUS. Well, I would say, I mean, there are two elements of this issue. One is the sudden withdrawal of benefits that 

would occur in 2024. But then there is the other question of as we 

constrain our reimbursement rates under current law and prior to 

2024, does that have the effect of causing providers to withdraw 

from Medicare or go out of business? And this is obviously something we are wrestling with as trustees and the actuaries are wrestling with analytically. 

Mr. BOUSTANY. I think the answer is clearly yes based on my 

experience in visiting with many, many physicians across this 

country. And we are seeing worsening access problems. I saw them 

back in the 1990s in my own practice where as a heart surgeon, 

treating a patient who came into the emergency room needing 

emergency open-heart surgery, between the cardiologist and I, we 

were unable to find primary care providers to help these patients 

with their other medical problems, and that has only gotten worse. 

And so we have an obligation to deal with this. And the problem 

I have is on the other side of the aisle, we see these characterizations that Republicans want to end Medicare. Well, the point is 

Medicare is ending under current law which they put in place, and 

we need to take our heads out of the sand, and I ask our colleagues 

on the other side of the aisle to take their heads out of the sand, 

as well as the President, who has deliberately ignored this trigger. 

We have to be honest with the American people, and we have to 

be honest with seniors who depend on this very valuable Medicare 

program and get this right. It is critically important. 

I see my time has expired, Mr. Chairman. Thank you. 

Chairman HERGER. I thank the gentleman. 

The gentlelady from Tennessee, Ms. Black is recognized for 5 

minutes. 

Mrs. BLACK. Thank you, Mr. Chairman. 

And first, I would like to begin by thanking you for allowing me 

to sit on this subcommittee hearing even though I am not an assigned member, I appreciate that. 

Mr. Blahous, I would like to discuss the graph that you have on 

page 5 of your written testimony, and it is up on the screen, showing Medicare costs and non-interest income by source as a percentage of GDP. Medicare SMI trust fund spending is expected to make 

up a rapidly increasing percent of GDP, as you did talk about in 

your testimony, over the upcoming decade. And the trustees’ report 

states that it will rise from 1.9 percent of GDP in 2010 to 3.4 percent in 2035. The trustees’ report projects that $21.3 trillion in general revenue funding will be needed to pay the benefits financed by 

the Medicare SMI trust fund in the next 75 years. Can the country 

afford to fund the SMI trust fund at this level? 

Mr. BLAHOUS. Well, I would say two things: One is that would 

be, under current law, it would be an enormous expansion of fiscal 

pressure on the Federal budget, far beyond any burdens we have 

carried in the past to finance Medicare SMI, the vast majority of 

which is funded from general government revenues. But even this 

probably understates the case, because as I indicated before, this 

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ment rates are suddenly reduced by 29 percent next year. So, in 

practice, we are likely to be significantly higher than this. 

Mrs. BLACK. And given that information, and you are referencing that that money would have to come from the general 

fund because obviously it is not coming in, we don’t get enough 

money in on the beneficiary side, would you agree that this is also 

going to impact some of the other national priorities, maybe such 

as education or roads or some of those areas? 

Mr. BLAHOUS. Absolutely. I would say the growth of Medicare 

spending and the growth of our health care spending generally is 

probably the single greatest threat to discretionary spending 

throughout the Federal budget. 

Mrs. BLACK. And given that, even if the Medicare SMI trust 

fund is not technically going bankrupt, like the hospital insurance 

fund, is it fair to say that it is bankrupting our Federal budget or 

could bankrupt our federal budget if not changed? 

Mr. BLAHOUS. The way I would put it is there is no single 

cause of our overall fiscal problems, but under an untenable current law scenario that CBO and everyone else projects over the 

long term, this is about as big a contributor to it as anything. 

Mrs. BLACK. Well, obviously, when it starts taking up that great 

percentage of our GDP, then we are going to have to in some way 

make some decisions about what it is that we are going to fund or 

not fund. 

Let me also ask you this: Do you think that if Congress enacted policies that reduce Medicare spending by $15 billion over the next 

10 years, would that be sufficient to address Medicare’s financial 

crisis? 

Mr. BLAHOUS. No. 

Mrs. BLACK. No. Okay. I agree with you. And unfortunately, 

there is a growing chorus from our Congressional Democrats to 

simply do nothing and wait for the so-called delivery reforms from 

their health care overhaul to take effect. But CBO estimates those 

policies save just $14.7 billion over the next 10 years. So, given 

that, it seems to me that we have got to find other fixes other than 

what they recommend in the affordability act. Would you agree 

with that? 

Mr. BLAHOUS. I agree with that. 

Mrs. BLACK. Okay. Thank you. I yield back my time. 

Chairman HERGER. The gentlelady yields back. 

With that, I would like to thank our witnesses for your testimony 

and insight. From the trustees report and the expert testimony 

that we heard today, it has become abundantly clear that Medicare 

faces real and substantial challenges. We can and must meet these 

challenges in order to preserve Medicare for future generations. 

It is also evident that Congress must act sooner, not later, to 

tackle this growing problem, as delay only makes the difficult 

choices we must make even harder and further threatens Medicare’s bankruptcy. 

I am confident that we can meet the challenge that lies before 

us. While it may seem like an insurmountable challenge, America’s 

current and future seniors rightly expect us to work together to 

find a solution to preserve the Medicare program for generations 

to come. 


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As a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask the witnesses to respond in writing in a timely manner. With 

that, the subcommittee is adjourned. 

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.] 

[Submissions for the Record follow:] 


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