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S. HRG. 112–254 

A TIME FOR SOLUTIONS: FINDING CONSENSUS 

IN THE MEDICARE REFORM DEBATE 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

WASHINGTON, DC 

OCTOBER 12, 2011 

Serial No. 112–9 

Printed for the use of the Special Committee on Aging 

( 

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

(II) 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BILL NELSON, Florida 

BOB CASEY, Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

MICHAEL BENNET, Colorado 

KRISTEN GILLIBRAND, New York 

JOE MANCHIN III, West Virginia 

RICHARD BLUMENTHAL, Connecticut 

BOB CORKER, Tennessee 

SUSAN COLLINS, Maine 

ORRIN HATCH, Utah 

MARK KIRK III, Illnois 

DEAN HELLER, Nevada 

JERRY MORAN, Kansas 

RONALD H. JOHNSON, Wisconsin 

RICHARD SHELBY, Alabama 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

(III) 

CONTENTS 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Statement of Senator Bob Corker .......................................................................... 2 

Statement of Senator Ronald H. Johnson ............................................................. 3 

Statement of Senator Dean Heller ......................................................................... 4 

PANEL OF WITNESSES 

Statement of Maya MacGuineas, President, Committee for a Responsible 

Federal Budget and Director, Fiscal Policy Program, New America Foundation, Washington, DC ........................................................................................... 6 

Statement of Joseph Antos, Wilson H. Taylor Scholar in Health Care and 

Retirement Policy, American Enterprise Institute, Washington, DC .............. 8 

Statement of John F. Holahan, Director, Health Policy Research Center, 

Urban Institute, Washington, DC ....................................................................... 10 

Statement of Douglas Holtz-Eakin, President, American Action Forum, Washington, DC ............................................................................................................. 12 

APPENDIX 

SENATORS AND WITNESS STATEMENTS FOR THE RECORD

Senator Susan Collins (R-ME) ................................................................................ 38 

Maya MacGuineas, President, Committee for a Responsible Federal Budget 

and Director, Fiscal Policy Program, New America Foundation, Washington, 

DC .......................................................................................................................... 39

Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement 

Policy, American Enterprise Institute, Washington, DC .................................. 51 

John Holahan, Director, Health Policy Research Center, Urban Institute, 

Washington, DC ................................................................................................... 63 

Douglas Holtz-Eakin, President, American Action Forum, Washington, DC ..... 71 

ADDITIONAL STATEMENT SUBMITTED FOR THE RECORD

AARP ........................................................................................................................ 88

Access to Medical Imaging Coalition, Washington, DC ........................................ 93 

(1) 

A TIME FOR SOLUTIONS: FINDING 

CONSENSUS IN THE MEDICARE REFORM 

DEBATE 

WEDNESDAY, OCTOBER 12, 2011 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:01 p.m. in Room 

SD–562, Dirksen Senate Office Building, Hon. Herb Kohl, chairman of the committee, presiding. 

Present: Senators Kohl [presiding], McCaskill, Bennet, Corker, 

Collins, Kirk, Heller, Moran, Johnson, and Chambliss. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon to everybody, and we thank you 

very much for being here today. 

This year the debate in Washington has focused on our fiscal situation, and no one questions the need to do more to get our Federal budget under control. In addition to driving up the deficit, rising health care costs continue to drag down wages as potential increases are instead being spent on the increasing costs of health insurance and care. 

While last year’s health care reform was a start, it has not done 

enough to address costs. We need to do more and look at every opportunity to get health care costs under control. 

Today I will be sending specific policy recommendations to the 

Joint Select Committee on Deficit Reduction aimed at reducing the 

cost of health care without pushing those costs onto consumers or 

limiting access to care. Several proposals to reduce drug costs were 

considered by this committee during a hearing in July. One proposal would allow negotiation of drug prices in Medicare Part D. 

In Wisconsin, we have already seen the tremendous savings that 

can be achieved through negotiation with the prescription drug program called Senior Care. This program has been incredibly effective and popular. 

Other policies such as eliminating back-door payments for keeping generic drugs off the market have been considered by Congress 

for several years. These options could lead to significant reductions 

in government and consumer spending on health care. 

We are also recommending to the Super Committee that drug 

manufacturers be required to provide Medicare Part B with the 

same rebates that Medicaid receives. The Department of Health 

and Human Services Office of Inspector General estimates that this 

2 

policy would have saved Medicare at least $2 billion last year and 

could reduce spending overall by as well as $24 billion over the 

next decade. I hope that the so-called Super Committee will consider these ideas carefully and incorporate them into their consensus deficit reduction plan. 

So, once again, we are very happy that you’re here today. In the 

longstanding tradition of operating as a bipartisan committee, 

today we will hold a hearing developed by the minority looking at 

opportunities to reduce health costs. I will not be able to stay for 

the entire hearing, so I will be leaving the gavel in the very capable hands of Senator Bob Corker, who is the ranking member of 

this committee. I know Senator Corker very well. I have come to 

develop a high regard and respect for him as not only a smart senator but as a senator who very much likes and wants to do things 

in a bipartisan way, working together not only with Republicans 

but also with Democrats, and so I respect the man. I know this is 

going to be a good hearing, but even more so, I respect him for who 

he is and what he stands for, what he’s accomplished, and for what 

I’m sure he’s going to do in the future. 

Senator Corker. 

STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. Mr. Chairman, thank you for those kind comments, and thank you so much for allowing us to have this hearing, 

and thank you for the way that you’ve led this committee. I know 

we’ll have some more meetings before your departure, but I really 

do appreciate the way you conduct yourself and the way you conduct this committee. 

With that, I rarely give opening comments, but I am today. I 

want to thank you all for being here. We want to discuss Medicare 

reform options, and I know that you all know that the Aging Committee has a responsibility to study Medicare and to make sure 

that serving our seniors well—that we’re serving our seniors well 

and in a sustainable manner for future generations. 

We’re here to consider alternatives for controlling the long-term growth of Medicare spending, which was $572 billion in 2011, and 

it’s projected to be over $1 trillion in 2021, a 56 percent increase 

in just 10 years according to the CBO Office of Baseline Expectations. 

Financing this rate of spending growth by the Federal Government that is already borrowing 40 cents of every dollar it spends 

we all know is not sustainable. Future Medicare spending is projected to keep growing faster than GDP, and the Medicare trustees 

have said that the trust fund will be insolvent by the year 2024. 

When you consider that an American family—and this is something that I don’t think many people have been able to digest, but 

when you consider that an American family with parents both 

making $43,500 a year, which is the average per-person income in 

our country, over their lifetime they will pay $119,000 into the program when you include the employer contribution. So everybody 

knows that the employer pays one half, the employee pays the 

other half. This is in 2011 dollars. 

They will receive, that same family will receive—remember they 

will pay in $119,000, including the employer contribution, and the 

3 

benefits that they receive from Medicare are $357,000. I don’t think 

most Americans understand that is the math that we’re dealing 

within Medicare. Obviously, that doesn’t work, and this arrangement cannot continue and support the 20 million more Americans 

that are going to be on the program over the next 10 years, particularly when we’re going to have the lowest number of people 

working per retiree that we’ve ever had in the history of our country. If we keep putting off dealing with Medicare’s $38 trillion in unfunded liabilities, there will be severe consequences for the country. 

So we must start now and seize the opportunity before us with this 

Joint Select Committee on Deficit Reduction, and we see this hearing as an asset to that committee’s work. 

I have joined 42 senators, 21 Republicans and 20 Democrats and 

1 Independent, in asking the Select Committee to go big, and I 

know that Maya MacGuineas with the Committee for a Responsible 

Budget has been a leader in all of that, to propose at least $4 trillion in savings while also dealing with Medicare and entitlement 

reform, and tax reform simultaneously. If we start making significant changes now actuarially, they will multiply into huge savings 

down the road. 

Ultimately, fixing Medicare and controlling the overall health 

costs will require transforming our health system so that we move 

away from the current fee-for-service program. It will be highly 

complex and could take decades to fully evolve, but this approach 

will actually slow the rate of health care spending, including Medicare, and lead to better outcomes for patients. 

Medicare reform is a complex topic with diverse views, and I’m 

sure many people on this panel have very diverse views. I look forward to hearing the panel’s recommendations, especially regarding 

options where members of both parties might find some agreement. 

Even if agreement can only be reached on smaller solutions, it 

would be a good first step in the right direction. Making progress 

on reducing Medicare spending—or the growth of it—will demonstrate that we are beginning to put our country back on a sustainable path. Medicare is America’s largest fiscal and health care 

challenge, and getting more difficult to solve every day we don’t address it. Now is the time to develop consensus around solutions to 

preserve the program for the 48 million seniors who rely upon it 

today, and the generations behind them who will in the future. 

I look forward to an intelligent discussion, and I thank each of 

you for being here, and again, the Chairman for allowing this to 

happen. And I don’t know, I think one of you may have an opening 

comment, both of you have an opening comment. Thank you. 

STATEMENT OF SENATOR RONALD H. JOHNSON 

Senator JOHNSON. Thank you, Senator Corker, and I’d like to 

thank my senior senator from Wisconsin, Senator Kohl, for having 

this hearing. 

I’ll keep my comments brief, but there are just a couple of points 

I want to make. Past estimates of what things are going to cost 

have not been particularly well done in the government, particularly in Medicare. When they first started this program back in 

1965, they projected out 25 years and said that by 1990 Medicare 

4 

would cost $12 billion. In fact, it ended up costing $109 billion, basically nine times the original estimate. 

Senator Corker, you said that by 2021 it should cost close to a 

trillion dollars. I mean, let’s hope that’s all it costs. So I think it’s 

always important to keep in mind exactly what these projections 

really are versus what they end up being, two separate things. 

The other comment I want to make is I don’t fear addressing this 

issue. Certainly, as I traveled around the State of Wisconsin, when 

I ask younger people what do you expect to get out of Social Security and Medicare, younger people—unfortunately for me, that’s 

people probably 50 and under—without exception, the answer is 

nothing. 

Now, first of all, that’s incredibly unfair. But the second point is 

to me that shows that there’s a pretty receptive audience for structural reform because when you have no expectations of getting a 

benefit, you probably welcome the fact that if we reform these programs, make them sustainable, you’ll get something. 

So I think we should keep that in mind if we can just get past 

the demagoguery, because, quite honestly, nobody on our side of 

the aisle, I believe, is really talking about ending these programs. 

We’re talking about making them structurally sound in the future. 

So I agree with Senator Corker. What we need to do is look toward areas that we agree on and move the football forward in 

those areas first, and that’s certainly what I hope to hear out of 

this hearing today. So, thank you. 

STATEMENT OF SENATOR DEAN HELLER 

Senator HELLER. Thank you, Mr. Chairman and Senator Corker, 

for this opportunity. Actually, I don’t often give opening remarks 

either, but since this is my first time in this committee for a hearing, I would hope that you’d bear with me for a few minutes, and 

I’ll keep it short. 

I have to tell you, when I came over here to the Senate, I was 

pretty excited to serve on this committee and the impact that it has 

on seniors in my state that are facing some pretty difficult times. 

So thank you very much for the opportunity to serve on this committee. 

Nevadans who depend upon Social Security and other Federal retirement programs are struggling following the lack of COLA increases in both 2010 and 2011. As a result, I hear almost every day 

from older Nevadans who are unable to keep up with the skyrocketing costs of essential goods and services. 

In the next few days we’ll hear about whether the COLA will be 

increased in 2012. An announcement concerning Medicare Part B 

for next year is also due out in the next coming week, couple of 

coming weeks. 

Meanwhile, Americans who depend on Medicare are understandably concerned by all the talk coming out of Washington concerning 

these programs. Political posturing, baseless accusations have replaced constructive dialogue concerning the very real problems, 

that problem being the impending bankruptcy of Medicare. 

I believe every senator in this room, every witness that we’ll hear 

from today recognize that Medicare is on an unsustainable path. 

That doesn’t mean we should scrap the program and start over, 

5 

and no one is suggesting that approach. Rather, we must build on 

Medicare’s strengths, eliminating wasteful spending, fraud and 

abuse from the program and make sure its fiscal sustainability will 

outlast our children and grandchildren. 

The message Congress must send to seniors and near-retirees is 

simply this: Medicare is a promise to American citizens that must 

be kept. Congress must do everything within its power to strengthen and protect this program, and I commend the ranking member 

for calling this hearing so this committee can take the lead on this 

important matter. 

For my part, I’m a strong supporter of Medicare and have voted 

to prevent more than a half-a-trillion dollars in Medicare cuts during my time in Congress. I have voted against changes to Medicare 

that would impact current and near-retirees, including budgets proposed by members of both political parties. 

Medicare is a program worth protecting, and that’s why we’re 

having this hearing today. Many solutions for the challenges facing 

Medicare have been proposed both within the Federal Government 

and from outside stakeholders, and I look forward to the witnesses’ 

analysis of which plan provides a stronger future for Medicare. 

Again, I’m grateful for the chance to discuss solutions to the 

challenges facing the Medicare program today. I thank the witnesses for taking time to share their expertise with us today and 

look forward to their testimony. 

And with that, I yield back. Thank you. 

Senator CORKER. Well, thank you very much. And again, Mr. 

Chairman, thank you for this. 

I’ll briefly introduce the witnesses, and we look forward to your 

testimony. 

Maya MacGuineas is the President of the Committee for Responsible Federal Budget and Director of the Fiscal Policy Program at 

New American Foundation. She also advises the administration 

and regularly works with members of Congress on health, economic, tax and budget policy. I think many people have seen her 

on major broadcasts here recently as she’s been very active. 

Dr. Joseph Antos is the Wilson H. Taylor Scholar in Health Care 

and Retirement Policy for the American Enterprise Institute. He’s 

also Commissioner of the Maryland Health Services Cost Review 

Commission and a health advisor to the Congressional Budget Office. Before joining AEI, he was Assistant Director for the Health 

and Human Resources at Congressional Budget Office. 

We welcome you. 

Dr. John Holahan is the Director of the Health Policy Center for 

Urban Institute. He has done extensive work on state health policy, 

Medicaid, and issues of federalism and health. He has also helped 

develop the Massachusetts health care reform law. 

Thank you for being here. 

Douglas Holtz-Eakin, which is also seen often, is President of the 

American Action Forum and a commissioner of the congressionallychartered Financial Crisis Inquiry Commission. He was formerly 

Director of the Congressional Budget Office and assisted Congress 

as they addressed numerous policies, such as the 2003 tax cuts and 

Medicare prescription drug bill and Social Security reform. 

6 

We look forward to your testimony. Again, thank you for being 

here. 

STATEMENT OF MAYA MACGUINEAS, PRESIDENT, COMMITTEE 

FOR A RESPONSIBLE FEDERAL BUDGET AND DIRECTOR, 

FISCAL POLICY PROGRAM, NEW AMERICA FOUNDATION, 

WASHINGTON, DC 

Ms. MACGUINEAS. Well, thank you so much for holding this hearing today. The fiscal challenges that we as a nation face are immense, and the long-term problems, of course, are driven primarily 

by growing health care costs. So this is perhaps the most important 

topic we could be discussing. 

What was once a long-term problem has become far more immediate as debt levels have grown to near historic levels, and what 

I think is particularly troubling is that they are expected to grow 

indefinitely. The debt is already presumably at a level where it’s 

harming economic growth in this country. So as we struggle to figure out how to grow the economy, bringing our debt levels down 

will be a key to all of that. 

So I’d like to make four main points today as we go over the different options for controlling health care costs, and Medicare in 

particular. There are many areas of overlap between a variety of 

fiscal plans on ways to save money in health care, and as many of 

them as possible should be implemented as quickly as possible, 

particularly because they will all phase in rather gradually, and 

you want time for the savings to grow. 

No matter how large a package that we manage to put in place, 

it is in all likelihood will not be sufficient to bring down health care 

costs. And unlike something like Social Security, which we know 

how to fix, it’s just a question of choosing which levers to pull, 

health care reform is going to be an ongoing process. So again, we 

want to get as much done as possible, analyze the results, and then 

go for the next round as soon as we’re able to. 

We should put in place policies that are likely to generate savings even if they don’t score, ‘‘score well,’’ or they don’t generate 

large savings immediately, because they will compound. We should 

end the open-ended nature of spending on health care reform, 

through health care reform, and consider including it in a budget 

as we do all other national priorities. And then finally, just on the 

point, Senator Corker, that you brought up, on the notion of going 

big, we know that we have a major fiscal problem to face, to fix 

in this country, and we know that in order to do that, everything 

is going to have to be on the table. And to get everything on the 

table, structural health care reforms really have to be the centerpiece of that because that’s the largest problem that we face. So the 

sooner we start considering those, the sooner we get to the point 

of acknowledging that all parts of the budget are going to have to 

be part of a fiscal fix. 

So I’ll touch on a variety of reform options, and I broke them into 

things that I called savers, benders, and architectural reforms. 

Most of these reforms enjoy support of a number of different proposals, and I’ve included an appendix in the back of my testimony 

which hopefully will be helpful which compares the major plans 

and all the health care reforms that they have in it. 

7 

We also have a broader comparison table of all the different 

areas, so health care and also the other areas of the budget that 

I can submit to anybody who is interested. 

So first looking at savers, savers would bring down the levels of 

health care spending, and though growth might be the same, it 

would be off of a lower base. These would include things like raising the Medicare eligibility age, something that’s now possible in 

a way that wasn’t before because of the introduction of the exchanges and something I think should be considered strongly; reducing and reforming payment rates for home health care providers, skilled nursing facilities, rural hospitals, hospital payments 

for bad debts, and graduate medical education; reforming pharmaceutical drug payments, which was talked about in the beginning 

of the opening statements; and further means testing premiums for 

Medicare Part B premiums or raising the basic Part B premium 

across the board. 

The next category is benders, and those would bend the health 

care cost curve by bringing down the growth of health care costs, 

as well as the level. These might include things like greater costsharing requirements in the form of deductibles and copayments. 

Also, limiting Medigap or other supplemental insurance would provide better incentives for those participating in these programs to 

become more cost conscious. 

Finally, we could overhaul the entire cost-sharing system by, for 

example, replacing all of the cost-sharing rules in Medicare Part A 

and Part B with a single deductible and co-insurance up to a cap. 

I have to say, I think some of these are the most promising 

changes and that they get into structural reforms without changing 

the overall system at this point in the national health reform discussion. 

We could speed up adoption of successful cost control pilots 

which were included in the Affordable Care Act as we’re able to assess them and see which ones lead to proven results. We could cap 

non-economic and punitive damages in medical malpractice. And finally, coordinating care of dual eligibles or those who are eligible 

for both Medicare and Medicaid can lead to cost savings. 

So then, finally, the architectural reforms, and these are the 

changes that would change the basic structure of the Medicare system by ending the basic design of open-endedness on health care 

spending. 

So there are a variety of ways to do this. They could include expanding IPAB to include cost-sharing rules, provider payment reforms and benefits, or even overall spending, so expanding the 

kinds of things that IPAB is allowed to discuss and make recommendations on. 

Premium support or competitive bidding. Under premium support, the Federal Government would provide subsidies to individuals to help them purchase health insurance in private markets, 

and a variation of pure premium support would be to introduce 

premium support alongside a traditional Medicare system as was 

recommended in the Domenici-Rivlin Commission, which is also 

something I think is an idea really worth looking closely at. 

Competitive bidding would allow private plans to compete alongside Medicare in the new health care exchanges in which tradiVerDate Nov 24 2008 11:13 Feb 15, 2012 Jkt 072455 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\72455.TXT DPROCT
8 

tional fee-for-service Medicare would offer health plans in tandem 

with private bids, thus providing more price competition. 

And then finally, a budget for Medicare. The bottom line, I think, 

is that restructuring health care spending, we will sooner or later 

realize we cannot keep this open-ended commitment to health care, 

and we need to figure out the most efficient, effective and fair way 

to cap or limit spending while protecting people who depend on 

these programs. 

So while Medicare can and must play a critical role in controlling 

health care costs, going forward Medicaid, TRICARE, Federal Employees Health Care Benefits, and ACA and the health care exclusion in the tax code are also all other areas that we should consider 

for savings. 

So I’ll close here. I again really appreciate your holding this 

hearing and the bipartisan nature of it, and I look forward to the 

discussion. Thank you. 

[The prepared statement of Maya MacGuineas appears in the 

Appendix on page 39.] 

Senator CORKER. Thank you. 

Mr. Antos. 

STATEMENT OF JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR 

IN HEALTH CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Mr. ANTOS. Thank you. Medicare reform is an essential part of 

any plan to rein in the Federal budget deficit and stabilize the national debt. Medicare spending will double over the next decade. 

Indeed, that trillion dollar estimate is optimistic. It assumes that 

substantial price cuts on providers in Medicare will actually be 

taken over the next 10 years. 

The first of the baby boom generation turned 65 this year and 

enrolled in Medicare. Over the next two decades some 70 million 

people will move out of the workforce, into retirement, and into 

Medicare. That will place an increasing burden on the budget and 

on younger generations whose taxes support the program. 

The Budget Control Act creates an opportunity for Congress to 

act. The Joint Select Committee on Deficit Reduction is charged 

with developing a plan that could reduce the Federal deficit by at 

least $1.2 to $1.5 trillion over the next decade. The committee 

shouldn’t stop there. Higher levels of deficit reduction that are 

maintained over the long term are necessary for fiscal stability. 

A realistic Medicare reform package that could be considered by 

the Joint Select Committee must yield substantial program savings 

within the 10-year budget window as scored by CBO. That favors 

provisions that could be implemented fairly rapidly and whose capacity to reduce program spending is reasonably clear. At the same 

time, however, at least some provisions must be forward-looking 

and ultimately risky. Business as usual with a few tweaks will not 

be effective in preserving Medicare for the long term. 

I also have three categories. Probably everybody has three categories of options. I look at the near-term options, the options that 

you could implement fairly quickly that CBO will likely score favorably. There are two categories there, supply oriented options, deVerDate Nov 24 2008 11:13 Feb 15, 2012 Jkt 072455 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\72455.TXT DPROCT
9 

mand oriented options, and then the longer-term investments in 

real reform that get at the heart of Medicare spending challenge. 

On the question of supply oriented options, most of the proposals 

that you see coming from the White House and coming from various commissions have a raft of price reductions and other kinds 

of fee-for-service hits on providers. That’s inevitable. CBO will give 

you a score on that. However, to argue that Medicare cuts of that 

nature on providers are painless is incorrect. The fact is that no cut 

is painless. Somebody endures some pain, and ultimately it is the 

beneficiary that we have to be concerned about. 

So if we have repeated massive cuts in provider payments, we 

will see negative impacts on beneficiaries in terms of access to care 

and in terms of medical technology and innovations that are necessary to produce cures that we all hope exist in the future. 

On the demand side cuts, the sorts of things that Maya just mentioned are all I think highly relevant. Those sorts of things—reforming Medicare’s cost sharing, for example—makes a lot of sense. 

Going after Medigap and requiring that every Medicare beneficiary 

have to pay some amount for at least the basic services is a sound 

economic principle and encourages people to pay attention to the 

services that they get. 

A more promising avenue is looking at where the money is really 

spent in Medicare. Ten percent of Medicare beneficiaries account 

for 60 percent of the spending, and we can do a better job. This is 

a harder thing than just adjusting the rules as they are now. 

We can do a better job of bringing in chronic care management 

and focusing it on the people who are the big spenders. If you apply 

that to people more generally, you’re just not going to get a costeffective result. So we need to focus on the big spenders in Medicare, not just the big spenders on the supply side but the big 

spenders in terms of Medicare beneficiaries. 

We need essentially to create a coordinated care system that’s 

virtual, since the traditional Medicare program can’t actually 

produce it. Actually, we can still do a good job there. 

And then finally, longer term reform. Medicare’s uncapped entitlement and fee-for-service incentives have driven a steady but 

unsustainable rise in program spending. Both patients and providers benefit from increasing the use of more effective and more 

expensive treatments, and workers are stuck with the bill. Neither 

patients nor providers have much incentive to hold down costs to 

provide services in the most efficient way, and the reason for that 

is the basic structure of the entitlement. Essentially, providers 

know that if they provide more services, they will get more pay. 

Patients know that essentially everything is covered. So in that 

case, why would anybody turn anything down? 

What we need to do is we need to set up a reimbursement system so that everyone has an incentive to make prudent, efficient 

choices. If you try to work only on the supply side, you’re working 

with one hand tied behind your back. You need to enlist the aid 

of patients as smart shoppers. You need to get providers to recognize that they face a budget constraint and they need to find better, more efficient ways to provide services rather than to just provide more services. 

Thank you. 

10 

[The prepared statement of Joseph Antos appears in the Appendix on page 51.] 

Senator CORKER [presiding]. Mr. Holahan. 

STATEMENT OF JOHN F. HOLAHAN, DIRECTOR, HEALTH POLICY RESEARCH CENTER, URBAN INSTITUTE, WASHINGTON, 

DC 

Mr. HOLAHAN. Thank you. Thanks for the opportunity to testify 

before the committee. I appreciate that you’re having this hearing. 

In this testimony I’d like to make three points. Three seems to 

be the magic number here today. First, Medicare spending is projected to grow at about 6.5 percent per year over the next decade. 

This is faster than the growth in GDP, which is 4.7 percent per 

year. Much of this is due to the projected increases in enrollment, 

which is about 3 percent per year, which is going to occur because 

of the retirement of the baby boom generation. 

On a per capita basis, spending is projected to grow at 3.5 percent. It goes up to 4.2 percent with the physician fee fix, but this 

is close to the increase in GDP per capita, sort of more or less the 

target that people have been after. 

Spending growth in Medicare is really projected to be relatively 

low by historical standards. This is happening because of the retirement of the baby boomers bringing a low-cost population into 

the Medicare program, essentially changing the composition of enrollees towards the lower-cost one, and because of provisions in the 

Affordable Care Act that have reduced Medicare spending increases. But clearly, still more needs to be done. 

The second point is that proposals to privatize Medicare, such as 

Congressman Ryan’s and others, we don’t think will work as intended. The idea is to have Medicare provide subsidies towards the 

purchase of private plans, people being responsible then for the additional cost above the Medicare payments. The idea is that beneficiaries would respond by choosing plans with higher deductibles 

and cost sharing and use less services. 

The CBO has estimated that Federal spending will actually decline because of the way the payments are indexed, but beneficiary 

costs will increase greatly, and the total cost to the nation of providing Medicare benefits would also increase. CBO has estimated 

that average spending will be 28 percent higher under private 

plans than under Medicare in 2022. CBO finds that private plans 

are more costly than traditional Medicare because of higher administrative costs and higher provider payment rates. Simply because 

of the way the health care market works, you need a strong buyer 

with leverage over providers, and payment rates in Medicare has 

it to a greater degree than private insurers. 

The second issue is that privatization approaches ignore the fact 

that 20 percent of Medicare beneficiaries account for 77 percent of 

spending. Most of these will have spending among any plausible 

out-of-pocket caps you’re likely to see in private plans. That’s most 

of the high spenders will face virtually no out-of-pocket costs for 

most of their spending, which will limit the impact. 

But there are many other policies that could be pursued that are 

short of a major restructuring that will provide a considerable 

amount of savings and put Medicare on a lower expenditure path. 

11 

The demonstration programs that are testing things like medical 

homes and accountable care organizations should be pursued aggressively and moved and expanded as fast as possible to the extent that they prove to be successful. 

CBO and MedPAC have made a number of other recommendations. These include reducing home health and skilled nursing facility payments, which could yield savings of about $40 billion over 

10 years. CBO has proposed an increase in cost-sharing for home 

health services, with estimated savings of about $50 billion over a 

decade. The Bowles-Simpson Commission has recommended extending Medicaid drug rebates to Medicare dual eligibles. Others 

here have, too. Savings are estimated at $49 billion over 10 years. 

Next, the Medicare premium structure could be altered to lower 

premiums for low-income beneficiaries and increase them for those 

above 300 percent of poverty. The current structure makes no 

sense. Our idea would be to create a premium schedule much like 

that in the Affordable Care Act that increases premiums as incomes increase. 

In a somewhat similar proposal, CBO has estimated savings of $241 billion over 10 years by increasing the Part B premium from 

25 to 35 percent of program cost. This is similar but doesn’t have 

the low-income protections that we think are necessary. So if you 

put that in, savings would be lower. 

We also think Medicare cost sharing could be restructured with 

a single deductible, and most importantly an out-of-pocket cap on 

all spending; and further, that prohibiting Medigap policies from 

covering the first $500 of cost sharing and limiting coverage to 50 

percent of the next $5,000 we think are good ideas. This will make 

Medigap coverage less attractive, less necessary, and save about 

$110 billion over 10 years. 

Another option we think should be looked at is increasing the 

age of eligibility to age 67. This option is feasible once the ACA is 

fully implemented. The ACA provides for age rating and income-related premiums and cost sharing. Low-income people 65 and 66 

would actually pay less under the ACA than they would under 

Medicare today. There would be shifts, however, to those with 

higher incomes, to employers, to states. Subsidies and exchanges 

would be higher. Even after accounting for these shifts, CBO has 

estimated that such a policy would reduce Federal outlays by $125 

billion over a decade. 

Finally, Medicare should take greater responsibility for the acute 

care services provided to dual eligibles. Most of the acute care services used by dual eligibles are paid for by Medicare, and most successful demonstration programs have reduced utilization of Medicare services, not Medicaid. Thus, Medicare, not Medicaid, should 

take the lead role in developing policies to manage these acute care 

services of dual eligibles. Spending we estimate for 2010 is $305 

billion, over a decade is over $4 trillion. So even small reductions 

in spending would yield savings of over $200 billion over 10 years. 

So all of these things taken together would reduce Medicare 

spending substantially and I think achieve what you want. Thank 

you. 

[The prepared statement of John F. Holahan appears in the Appendix on page 63.] 

12 

Senator CORKER. Thank you for your testimony. 

Doug. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM, WASHINGTON, DC 

Mr. HOLTZ-EAKIN. Ranking Member Corker, and members of the 

Committee, thank you for the chance to be here today. And for the 

record, I wanted to thank the Chairman for his service and congratulate him on his tenure in the Senate. I’ve had the privilege 

of being at this committee under his chairmanship before. 

I wanted to add my voice to those that stress the absolute imperative that Medicare be reformed. At the moment, the gap between 

payroll taxes and premiums paid in and outlays headed out is $280 

billion a year, and it will rise to $600 billion over the next decade. 

It’s an extraordinary fiscal cancer, and under current law there are 

threats above and beyond the dollars at stake. 

If you take, for example, the Independent Advisory Board, it will 

by its very nature be given targets for cutting Medicare spending 

that must be reached within a year. It will inevitably be driven to 

reducing reimbursements for particular services or devices or 

drugs. My fear is that it will, in the process, target the most expensive, newest, most innovative treatments and will act as essentially 

a random tax on innovation. In the process, the program will become undesirable to the very beneficiaries it’s meant to serve. 

And so we need to change the fiscal stance of this program, but 

we need to do it in a way that makes it durable and serves the 

beneficiaries well and not disguise short-term budgetary success 

with actual progress toward the long run, and I think that’s the 

great challenge that we face at the moment. 

I, in the spirit of the day, have in my written testimony, which 

is submitted for the record, many of the same savers and benders 

that Maya categorized, the cost sharing and things like that. I 

won’t belabor them. I look forward to having a discussion about 

what might actually work. 

But I also included some things that from a budgetary point go 

the wrong way but we need to fix. Certainly, the SGR is a broken 

mechanism and is among the things that is wrong with Medicare 

at the moment, needs to be fixed. It is budgetarily expensive, but 

I don’t think we can pretend it’s not there. Those are monies that 

are quite likely going to be spent. We’re just pretending they’re not, 

and we need to acknowledge that. 

And we also need to fix the CLASS Act. The CLASS Act is simply unsustainable. It is a dangerous fiscal innovation for the 

United States. It should be repealed immediately. It would be 

scored as widening the deficit, but I think it would be an improvement in policy and ought to be on the radar screen of the Joint Select Committee. 

Finally, I want to again stress the imperative of having the nearterm changes be steps toward a long-run sustainable future, and 

in my testimony I embrace the idea of moving toward a system of 

premium support. I do that for a number of reasons. The first and 

most one is it is, in fact, a budget constraint on Medicare. It caps 

the taxpayers’ exposure to this program and eliminates the incentives that I think Joe Antos described quite eloquently, which is 

13 

one in which beneficiaries and providers jointly have absolutely no 

regard for how much money they spend and have good incentives 

to behave that way. And we need to stop that, provide incentives 

for efficiencies and high-quality outcomes. 

I believe that a well structured premium support can do that. It 

will have a competitive nature that is missing. It would look closer 

to the Part D program, which is the best of our entitlement programs at the moment and I think would be a step toward the right 

direction. It would also place the responsibility and the opportunity 

for real innovation and quality improvements in Medicare in the 

private sector where I believe elsewhere in the economy we have 

seen a better track record of success. 

And so while there are many ways to put Medicare on a budget 

constraint over the long run, I think that’s one that the committee 

ought to look at very carefully. 

We’ve seen pilot proposals and full-fledged proposals. My take on 

those is they are less exposed to the dangers that Mr. Holahan 

mentioned in terms of out-of-pocket costs for beneficiaries. Work 

that is underway at my think tank suggests that the CBO extrapolation is just that, an extrapolation. It misses some important market forces, and I would look forward to working with the committee 

in thinking about that kind of a proposal. 

So thank you for the opportunity to be here today, and I look forward to your questions. 

[The prepared statement of Douglas Holtz-Eakin appears in the 

Appendix on page 71.] 

Senator CORKER. Well, thank you all for your testimony. It’s outstanding. We have, along with great witnesses, a lot more full participation than we normally have. And so I’m going to let actually 

all of you ask questions first, and I’ll do that at the end. 

Senator Bennet, and then go to Senator Collins. 

Senator BENNET. Thank you, Senator Corker, and thank you 

very much for holding this hearing and inviting us all to be a part 

of it, and to the panel for your excellent testimony, and I mean 

that. I don’t always say that. I appreciate it. 

I wanted to get your thoughts on sort of a broad question, which 

is that there are isolated examples of excellent quality at lower 

prices that are throughout the delivery system in this country, but 

it seems that they occur sort of in spite of the way the Medicare 

incentive structure works rather than because of the way the Medicare incentive structure works. These are places in my own state 

like Denver Health. They are places like St. Mary’s Hospital in 

Grand Junction. Both of them are managing to deliver high-quality 

care at a lower cost. Neither of them have a hammer and sickle 

hanging outside of them. They’re just doing what quality organizations do, electronic medical records, the doctors are salaried, accountable care work, transitions and so forth. 

What is it about the Medicare incentive structure that has made 

delivery system reform so difficult? What can we change to accelerate the innovation that we need to see in our health care system? 

Because otherwise I don’t think most of the proposals that I’ve seen 

on Medicare are actually going to solve the budget problem that we 

face, because fundamentally what we’ve got is a cost problem in the 

delivery system itself, and until we are actually able to address 

14 

that, I don’t think we’re going to make meaningful progress on this 

question. 

Mr. Holtz-Eakin. 

Mr. HOLTZ-EAKIN. I think at the broadest level there are two 

very big contradictions inherent in the Medicare system. The top 

level one, the one that Joe Antos mentioned, is we essentially say 

to beneficiaries you may have all of the finest medical science that 

America can produce at low or no cost, and that turns out to be 

really expensive. So then we go to providers and we say stop that, 

either literally or by cutting their reimbursements to the point 

where they do, which violates our pledge to beneficiaries they can 

get all they want. And that inherent contradiction will never go 

away until we put the system on a budget and say you providers 

and you beneficiaries, these are the resources you have; let’s provide some efficient quality care. That’s contradiction number one. 

Contradiction number two is we pay hospitals based on DRGs, 

and we say here’s some money, go treat people, and with some exceptions they’re basically given the incentive to do as little as possible to treat people, and that has dangers on the quality front. At 

the same time, we have doctors being paid on volume. Fee-for-service medicine rewards that. Our doctors practice in hospitals, and 

only a few of them are the doctors and the administrators not at 

war, and it’s not a surprise. We pay them, and it’s fundamentally 

contradictory. And so we need to get them on the same page with 

reimbursement systems that bundle their incentives. 

Mr. HOLAHAN. I would respond in a couple of ways. One, as I 

said in my testimony, one of the big things we’re facing now in 

Medicare spending growth is the growth of enrollment, the baby 

boom generation. We knew this has been coming. It’s a big roll. 

You don’t lose sight of that. 

Secondly, it’s not just Medicare. The private insurance system is 

the same, has all the same problems. Its payment rates to providers are higher. It has the same issues with high utilization. 

The high quality, lower cost, I think by and large those are 

unique places that are great, but they’re not—whether you can replicate them over and over again, I don’t know. I think the biggest 

problem we have in health care is that more spending probably 

does lead to higher quality and better care a good percentage of the 

time, and there’s work that Jack Hadley and other colleagues of 

mine at the Urban Institute did that was published recently that 

has shown that. But the problem is that there’s a limit to how 

much of this higher quality you can afford, that we as a nation can 

afford, and the problem is that if you lower spending, you could be 

cutting out some good things, and I think that’s pretty much what 

we have to face. It’s not a free lunch. 

Senator BENNET. Well, actually, just on that point, Mr. Holahan, 

and I’d be interested on others’ thoughts on this too, there’s been 

some discussion around the Super Committee about whether or not 

they should approach Medicare with maybe an across-the-board cut 

of 2 percent. Should they do reform of some kind? Do people here— 

and I take it from what you just said that you think the 2 percent 

across-the-board cut would not be the best or most responsible idea. 

15 

Mr. HOLAHAN. I think a lot of the ideas that we all have mentioned and seem to agree on would get a big, big chunk of money, 

a long way towards that $1.2 trillion. 

Senator CORKER. $1.5 trillion. 

Mr. HOLAHAN. Sorry. 

Mr. HOLTZ-EAKIN. $4.0 trillion. 

[Laughter.] 

Senator BENNET. Whatever. 

Senator CORKER. I agree, I agree. I couldn’t agree more. 

Senator BENNET. Sign me up for that. 

Mr. ANTOS. A 2 percent cut in Medicare is nothing. That’s what 

the sequester would do, and you can do that very easily with policies that don’t make any difference whatsoever. You can lower the 

spending level a little bit. 

By the way, relative to the baseline, is that really cutting spending? It’s just slowing it down a little bit, but only one time. Most 

of the policies that MedPAC has proposed, that the President has 

proposed, those are just one-time reductions. They don’t fundamentally change anything about the way the program operates, in particular the way the health sector operates. So your point I think 

is very well taken. 

Senator BENNET. Thank you, Mr. Chairman, Senator Corker, for 

your time. 

Senator CORKER. Very good. 

Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. Doesn’t that sound 

good, that ‘‘Mr. Chairman’’ part? 

Senator CORKER. I don’t think it sounds too good to Bennet. 

[Laughter.] 

Senator BENNET. You might be surprised. 

[Laughter.] 

Senator COLLINS. In all seriousness, thank you for assembling 

such a terrific panel of witnesses as we try to tackle this issue. 

Before I start my questions, I just have to express complete 

agreement with Mr. Holtz-Eakin’s comments on the CLASS Act. It 

is a Ponzi scheme that would make Madoff proud, and it should be 

repealed in its entirety. We shouldn’t even be in the business of 

creating a new entitlement program that is funded in a way that 

it will be collecting premiums in the early years and thus appears 

to help the budget numbers, but then will explode in costs in the 

out years. 

I want to follow up on the issue of reimbursements. My concern 

is that what will happen in an attempt to save Medicare is there 

will be harmful cuts in reimbursements to providers that will be 

either a tax on innovation or will curtail access to the extent that 

more and more physicians will decide not to accept Medicare patients 

I’m fascinated by statistics that two of you used which demonstrate that a small percentage of Medicare patients are responsible for the vast majority of Medicare costs. And if you look at that 

population, by and large they have one of three chronic conditions, 

of which diabetes is one. In fact, if memory serves me correctly, one 

out of four Medicare dollars is spent treating people who suffer 

from diabetes. 

16 

Rather than just make across-the-board arbitrary cuts in reimbursements, we need to rethink the entire reimbursement system, 

and diabetes care is a perfect example of that. Right now, if a patient has diabetes and it is poorly controlled, and that patient ends 

up losing his leg, we pay for everything. But we don’t pay for a 

physician or a physician assistant or a nurse practitioner to call 

that man every week to check on his blood sugars and monitor his 

care in order to avoid the more expensive treatment. And that, to 

me, is what is wrong with our reimbursement system. It is not focused toward helping people who are consuming the most resources 

because of these four chronic diseases, helping them manage their 

care better and thus consume fewer resources. 

So my question—and I apologize for the long intro—to each of 

you, and I’ll start with you, Doug, is how could we restructure the 

reimbursement system toward that goal, and is that the approach 

we should be looking at rather than arbitrarily cutting all primary 

care physicians by a certain amount, or all specialists, or all hospitals? 

Mr. HOLTZ-EAKIN. Well, I certainly agree that a strategy that involves just either flat across-the-board cuts or just cuts in reimbursement rates to providers is ultimately going to fail. That’s been 

the history of the program. Going forward, we have to change its 

fundamental structure in order for it to serve the beneficiaries and 

survive financially. So reform is more important than savings at 

this point. You’ll get the savings in the out years. We need to 

change the trajectory. 

And then the second is there is a lot of evidence that, particularly with populations like the dual eligibles, that if their care is 

managed, we can have enormous savings. There are some Medicare 

demos that have actually shown this quite dramatically. The question is how to turn that from a research finding into an operational 

program for the Medicare population. 

But I think if we made it a priority to comprehensively manage 

the care and pay capitated amounts for those patients, we would 

solve the budgetary exposure and we’d get the providers coordinating to get the care, because with a fixed amount of money they’d 

have to do it to get the savings to meet the budget constraint, and 

that we should do as fast as possible. 

[The prepared statement of Senator Susan M. Collins appears in 

the Appendix on page 38.] 

Senator COLLINS. Thank you. 

Mr. Holahan. 

Mr. HOLAHAN. Yes, I would—I’m only going to comment on the 

one thing, the high-cost beneficiaries. I really think that should be 

an extremely high priority. There’s been a lot of work and talk 

about taking on care management for dual eligibles, but delegating 

that to states to run through Medicaid programs, most of the acute 

care dollars that dual eligibles use and other chronically ill people 

use are Medicare dollars, not Medicaid. So I don’t think it’s right 

to ask Medicaid programs to really manage the care of Medicare 

patients, and obviously that spending affects the Federal budget. 

This really should be a Medicare responsibility, and I think that 

would be a major step forward, to make this a very, very high priority for Medicare instead of delegating it to states; not that some 

17 

states won’t do a great job, but it will only be some states, and in 

other places it won’t be much of anything. 

Senator COLLINS. Thank you. 

Mr. Antos. 

Mr. ANTOS. Well, I think we’re aiming too low if we’re just aiming at dual eligibles. Of course, that’s an important population, but 

there are other Medicare beneficiaries who are working their way 

towards there who haven’t spent to the point where they’re eligible 

for Medicaid. So we really need to focus on the Medicare problem, 

the high-cost Medicare problem. It includes the dual eligibles, but 

it includes more people. And if we make payments to make it attractive for organized health systems—you notice I didn’t say feefor-service Medicare—for organized health systems to take on these 

kinds of patients and to use real management techniques to coordinate the services of half-a-dozen doctors and numerous other kinds 

of institutional providers, we’ll make a dent in this problem. 

Senator COLLINS. Thank you. I know my time has expired. So is 

it okay? Okay. Thank you. 

Ms. MacGuineas. 

Ms. MACGUINEAS. Sure. Just quickly, then. You know, I’m actually struck by how we are kind of stuck in the same problem with 

health care that we are with the overall fiscal environment. Because we waited for too long to reform a lot of these systems, the 

pressure of limited resources is what’s driving the discussion now, 

and in some ways we’ve lost the opportunity to really think about 

where to innovate, where to reform, where to spend more and 

where to spend less. And there’s a good part of that, which is nothing like tighter resources focuses the mind, you know? We’re going 

to have real spending caps in this area. But we also don’t want to 

be short-sighted as we think about how to reform the system. 

And I completely agree with your comments that the blunt tools 

of cutting reimbursement rates is not the thoughtful and right way 

to look at this. You really want to look at the delivery system in 

so many areas. One thing to keep in mind is that some of the most 

successful systems are those that maintain longer relationships 

with their patients, and the fact that Medicare, you have people 

once they’re seniors and not before, so you have a kind of a truncated time period where the investments in their health care 

doesn’t pay off to the same people who made them, leaves it in a 

very different system in terms of what the incentives are. 

We do need to collect a lot more information on the performance 

of various changes and incentives to the system, but we need to 

also make sure that they’re integrated in how we deliver systems 

and we pay more for what works. You can also look at cost sharing 

and have greater cost sharing in services and procedures that are 

not shown to work as well. 

So we need to be a little bit more nuanced in how you work the 

financial incentives, I think, into rewarding in health care. 

Senator COLLINS. Thank you. 

Thank you, Mr. Chairman. 

Senator CORKER. Thank you, Senator Collins. 

Senator McCaskill. 

Senator MCCASKILL. Thank you. Thank you, Senator Corker, and 

I wish there were more people down here, but I’m glad to be here 

18 

with all of you, and I think it’s important, since we do have this 

time constraint that you referred to, that we try to focus. I know 

Senator Corker has tried to make this hearing about where we can 

find consensus, and I think there’s a lot of places we can find consensus. And if we can just work hard in those places we can find 

consensus, then I think it might be surprising what we can get 

done. If we all stay over here, you know, that it’s not about this 

or it’s not about that and try to take political advantage of this 

fight, then I don’t think we’re going to move the ball, and that, candidly, is what usually happens. Everyone is busy taking political 

advantage of a situation, and guess what happens to the can? It 

gets kicked and kicked and kicked. 

So I’m proud that—Senator Corker doesn’t surprise me he does 

this, and my friend Senator Collins does it all the time, we try to 

figure out if there are ways that we can find consensus. 

Let’s talk about over-utilization. I had a group of docs that I was 

talking to during the health care debate, and they wanted to talk 

to me about the problems with—I don’t remember if it was tort reform or what it was, and I said, well, let’s just go around the table 

and tell me how often you use your machines. And there was a lot 

of shuffling and looking down, and we went around the table, and 

the least any of them were utilizing their machines was 92 percent. 

And, of course, the Medicare reimbursement is dependent on an assumption that they’re only using them about 50 percent of the 

time. So it was pretty obvious to me that their business model depended on over-utilization, that, in fact, the profit they were making was over-utilization. 

And I don’t think we’ve really tackled that, and it seems to me 

that could be an area of consensus. Rather than dinging them on 

reimbursement, which is not the right way to go—I certainly agree 

with that—I am trying to get to this notion that my mother, who 

has three chronics and is 83, can have sometimes as many as 10 

different blood works in 30 days, from four different specialists, all 

paid for by taxpayers, because it’s all out-patient and it’s all general revenue. It’s not in a hospital. 

So what are your ideas on how we get to this delivery system 

that has built a profit model on the altar of over-utilization? 

Ms. MACGUINEAS. I think I’ll return to something I’ll probably 

return to a number of times, but back to cost sharing. So I think 

that all consumers need to have greater price sensitivity than they 

currently do in Medicare. And I would also add that there’s a level 

of transparency that doesn’t exist in the entire health care system. 

We need to really work at improving the transparency of the effectiveness, costs of the same things in different areas, and so that 

consumers have better access to the information of how well something works, how much it costs, and how much they would be involved in shouldering part of the burden. 

And just a quick comment on the politicizing of Medicare. I just 

couldn’t agree with you more, and I think we’ve seen this way too 

often across both parties sort of talking about the other wanting to 

change Medicare and demagoging on it, and if there’s one thing 

that I hope comes out in this coming election, it’s that we know we 

need to make major, major changes to Medicare, and everybody 

19 

should be looking for those that we can get most agreement on. So 

I agree with you. 

Mr. ANTOS. You’re absolutely right. Because of the fee-for-service 

payment system, the machines are profit centers. So the more you 

use it, the better. And if you raise the utilization assumption that 

Medicare uses to set the fees to, let’s say, 92 percent, well, you’ve 

got 8 percent to go, you know? There may be eight hours in a day, 

but not for a machine. You can find ways to squeeze more money 

out of that. 

Now, that said, a lot of those machines do some pretty wonderful 

things. So we want to be very careful—— 

Senator MCCASKILL. Right. 

Mr. ANTOS [continuing]. Not to squeeze off the medical benefits. 

We just want to reduce the unnecessary use of services. 

One of the things that the Medicare Payment Advisory Commission recommends which isn’t going to work is for high utilizing radiologists, I forget exactly which imaging procedure, but whatever 

it is, it might be MRIs or something, that they would review these 

particular physicians, review each case and refuse to pay if they 

didn’t see sufficient evidence that the patient really needed the 

fifth MRI. 

Well, you know, you could do that, but how many services could 

be subject to that problem? The answer is all of them. 

Mr. HOLAHAN. I guess I would answer it this way. I think the 

problematic incentives in fee-for-service medicine are obvious. Everybody knows that. In your case, in the case that you cited, I don’t 

know whether that’s over-utilization because I don’t know what the 

information gain is from that 92 percent utilization rate. 

I think what we really have, especially with the advanced imaging technologies that we have, is that we haven’t brought down 

prices, the amount that we pay per test or per image, as these 

things have gotten cheaper and cheaper to do, and if they’re used 

efficiently, the prices should have fallen, and they really haven’t 

fallen—— 

Senator MCCASKILL. What do you attribute that to? 

Mr. HOLAHAN. I just think we’re dropping the ball. I don’t know 

whether it’s a MedPAC issue or what, but I think that public or 

private—— 

Senator MCCASKILL. Because you’re right. It makes no sense. 

Mr. HOLAHAN. I mean, my own experience with MRIs is that 

they ought to be used a lot because the information gained is so 

great, but they shouldn’t cost anywhere near as much as they do. 

They just should be run around the clock, just as long as you’re 

paying something closer to marginal cost. But, you know, I would 

stop there. 

Mr. HOLTZ-EAKIN. I’d want to echo the remarks of Joe Antos in 

particular. I agree completely. I mean, remember, if we were paying an organized health group to manage someone’s care, they 

wouldn’t undertake an unnecessary test because it would be an additional cost they wouldn’t want to bear. They’d keep track of the 

records so that they didn’t have to replicate that in order to do due 

diligence on the quality of the care the person received, and they 

would negotiate for a marginal cost pricing and not pay full boat. 

20 

Fee-for-service medicine lets them get away with all those mistakes. 

Senator MCCASKILL. And more. Thank you. 

Senator CORKER. Thank you, and thanks for being here. 

Senator. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Does anybody on the panel have any idea how much profit dollars in a $2.6 trillion industry are really realized by pharmaceutical 

companies, insurance companies, providers? Anybody done a study? 

Mr. Eakin? 

Mr. HOLTZ-EAKIN. I don’t remember the number, but this came 

up in my past, and at one point if you confiscated all the profits 

of the pharmaceutical industry and the insurance industry, you 

would take care of less than two years of spending growth per person in the health care sector in the United States. So it is, relative 

to the $2.6 trillion, not a big number. 

Senator JOHNSON. I’ve been trying to get that number, and it 

may be under $100 billion in a $2,600 billion a year industry. So 

it isn’t the profitability that drives cost. 

I’m a manufacturer. I’m always looking for the root cause of the 

problem, and to me there are a number of root causes in terms of 

driving up costs in health care. The initial one I think goes back 

to 1945 under wage and price controls where we started separating 

the consumer of the product from the payment of the product. Until 

we reconnect that, until we re-induce the free market system 

which, by the way, guarantees, what, the lowest possible price and 

cost, the highest possible level of quality, the highest possible level 

of customer service, we’re just not going to fix this problem. That’s 

one root cause. 

Another root cause is, as has been alluded to, 10 percent of individuals account for 60 percent, 20 percent represent about 77 percent of total costs. That’s chronic care. It’s also end-of-life issues. 

We also have a technology problem. But as we also pointed out, 

technology has a real upside. If it weren’t for cures, if it weren’t 

for innovation, if we hadn’t cured polio, what would our costs be? 

So again, I just want people to address that, really what are the 

root causes. I mean, am I accurate in that? Is there another root 

cause in this equation? 

Mr. ANTOS. I have a lot of sympathy for that viewpoint, as I hope 

my testimony made clear. I do want to say one thing as a word of 

caution to the committee, from my experience at CBO. Markets are 

phenomenal at driving prices down to cost, but they rarely drive 

them below. Price fixing by government health programs makes it 

possible for prices to be below cost. So sometimes when you move 

from a price-fixed program to a market program, it will cost the 

Federal budget money, which is going to be frustrating for those on 

the other side of this witness table, and you should remember that 

because it has come up in the past. 

Senator JOHNSON. Okay. You led me exactly where I want to go. 

Currently, about the only reason that we’re able to reduce cost to 

providers is because we have a huge amount of cost sharing, from 

the 50 percent that the government pays for to the 50 percent of 

the private sector, which is driving up private health care costs. 

21 

We’ve done work together in terms of the total under-estimation 

of what Obamacare is estimated to cost, because they only estimated 3.6 million people who would lose employer-provided care. 

When that number is driven to 50 percent, maybe 90 million people, possibly 180 million people, all those folks get dumped in the 

exchanges and government is paying for 100 percent, there will be 

nobody to share those costs with. What effect is that going to have 

in terms of our ability as a government to pay for this Medicare 

and Obamacare? 

Mr. HOLTZ-EAKIN. Well, as you well know, you’re leading the witness. I mean, I think it would be an unmanageable Federal budget 

cost if the estimates that I have done come to fruition. I mean, it 

will be two and three times the estimated budget costs every year 

for the insurance subsidies. 

I’d also point out something else. Senator Corker mentioned the 

importance of doing tax reform and entitlement reform. It’s all 

true. The order in which you do that matters. If you repeal the exclusion of employer-sponsored insurance from tax, then with certainty everybody ends up in the exchanges and you will have created an enormous budget cost. So this is not something you can do 

without thinking about how they interact, and this is a central part 

of a budgetary exposure. One subsidy is through the tax system, 

one is through the insurance exchanges, and this is really one subsidy competing with another, and if you toggle one, you’ll get a response from the other. 

Senator JOHNSON. The numbers we came up with, rather than 

an annual cost for Obamacare of $93 billion, it’s closer to almost 

a trillion dollars a year when everybody loses their health care and 

get dumped in the exchanges. 

We talked a little bit about the SGR concern about what that’s 

really going to cost. Anybody have an estimate of what that would 

really cost to fix? 

Mr. HOLAHAN. I think CBO has estimated it to be about $300 billion. 

Senator JOHNSON. Per year? 

Mr. HOLTZ-EAKIN. No. That’s over 10 years. 

Senator JOHNSON. Over 10 years? Okay. 

Mr. HOLTZ-EAKIN. Remember that there’s a year 11. There’s a 

table of estimates in my written testimony, if you want to peruse 

dismal numbers. 

Senator JOHNSON. Okay. Yes, I love scary numbers. 

That’s really about all I have. Thanks. 

Senator CORKER. Thank you. 

Senator Chambliss. 

Senator CHAMBLISS. Maya, you talk in your testimony about 

three reform measures that have the potential to drive down costs, 

benders, savers, structural changes I believe is the way you put it. 

What I’m interested in is how we get Medicare beneficiaries to get 

more skin in the game. How do we get that individual who goes 

to the emergency room to think, ‘‘Gee, if I go next time, it’s going 

to cost me $25’’ or whatever it may be? I couldn’t decide whether 

that might be low-hanging fruit in savers or whether that would 

be in your structural. But if you will, talk about that for a minute 

22 

and tell us your thoughts on how we get that more skin in the 

game attitude out there. 

Ms. MACGUINEAS. So I would put that squarely in the benders 

category, which is where I think we should be focusing as much of 

our energy as possible right now in that it can save significant 

money in a 10-year window, but more importantly it would have 

compounding savings over time. And so I think the real key here, 

and we’ve all discussed it to some extent, is that if you have more 

price sensitivity than you have with the system right now where 

you pay for my health care and I pay for your health care and we 

all think we should have as much as possible, but if you have more 

price sensitivity and you have more information in a way that you 

can evaluate what is good for your own health and what is excessive cost, that skin in the game is critical to bending the curve over 

the long term. 

I think we want to be careful. You want to make sure that while 

you’re changing the way that the financing, the incentives and the 

financing of Medicare, that you do protect people against excessive 

cost. We know that one of the highest reasons for bankruptcy is 

health care costs, and you want to make sure that people are protected from catastrophic costs, and you want to make sure that 

people are protected from paying a greater share of their income 

than they can. 

So it’s some combination of means testing, but not to the extent 

where the system unravels for the parts that are voluntary, and 

greater cost sharing. But nobody should feel that going to the doctor is just sort of a pastime. It needs to be something that you 

evaluate like you do with all other purchases, whether it’s worth 

it, and I think that’s the most important reform we could be looking at right now. 

Senator CHAMBLISS. Would you agree that that is the mindset 

right now on folks who have been used to the government taking 

care of their health care, whether it’s through Medicaid and graduating into Medicare, that there is that feeling, consciously or subconsciously, that I’m entitled to this, the government is going to 

take care of me, and until we change that curve, we’re not going 

to bend that curve, the Medicare cost curve down? 

Ms. MACGUINEAS. I think certainly there are three things that 

contribute to it: one, that you’ve paid into Medicare, though as we 

heard in the beginning, you haven’t paid nearly enough into Medicare to cover all that you’ll be receiving out of your lifetime, but 

you feel that you’ve paid into it; second, that you don’t see anything 

close to the real cost when you go to the doctor; and third, that it’s 

health care, and so everybody can work themselves up into a tizzy 

that this has got to be vastly important, I have to go to this doctor 

just in case this is a serious thing, and you lose the ability to 

evaluate whether it’s worth the cost. 

But those three factors all contribute to our over-utilization of 

health care, and I think price sensitivity and better information are 

the keys to helping bring that back down to closer to realistic levels 

for demand. 

Senator CHAMBLISS. Let me address this to the whole panel. My 

thought on SGR is that if we don’t fix this thing for at least 10 

years, we’re kidding ourselves. We know we’re going to come back 

23 

and we’re going to stick that band-aid on it every year. There’s no 

policymaker that could go home and look his docs in the eye without doing that. But if we do that, it’s going to be more expensive 

on us over that 10-year period than if we go ahead and bite the 

bullet and do it for 10 years. 

And the second part of that, I am extremely concerned that if we 

don’t come up with a long-term solution to SGR, that we’re going 

to lose docs like we’ve never seen before. Now rarely does a doc 

who is under 40 years of age—excuse me—yeah, under 40 years of 

age come into my office and he accepts Medicare patients. They’re 

pretty smart about going into a field where they don’t have to take 

them, or into a region where they don’t have to take them to make 

a good living. 

So what I want you to address is what do we need to do about 

SGR? We’ve got to pay for it somehow. But am I wrong in thinking 

that if we don’t fix it for at least a 10-year period, that we are 

missing an opportunity and that in the long run this is going to 

cost huge bucks? 

Mr. ANTOS. I certainly agree with that. Of course, 10 years is forever. As long as you’ve replaced it with something. You have to 

find some method of limiting unnecessary growth in health spending in Medicare generally. Now, if you want a short-term fix, 

MedPAC has plenty of ideas. You spread the pain around. Instead 

of taking a 30 percent cut in January for all physicians, you take 

a much smaller cut in specialists. You freeze specialists and primary care. That’s not an unreasonable thing to do. The rest of the 

health sector has to kick in as well. 

However, that doesn’t fundamentally solve the problem. You still 

have a fee-for-service Medicare program where the reason why patients go from doctor to doctor is they don’t have a sensible place 

to go otherwise. We’ve got to fix that problem, too. 

Mr. HOLAHAN. I would say certainly you have to fix it. It’s ridiculous sort of to do this every year, and a long-term fix that would 

be a freeze or a small rate of increase in fees just makes a lot of 

sense. 

One thing I would say is even though we come back and we don’t 

let fees fall, and so prices aren’t going up, it is important to remember that spending on physician services is going up much faster, 7 

or 8 percent a year, because the volume of services are going up. 

So that means that the incomes that physicians are receiving really 

are not falling. I mean, that’s just not right. But nonetheless, and 

it’s not just because of the reaction to the low fees but because of 

a lot of other factors, new technologies, new procedures that come 

along. 

So I would fix it, but it’s not because docs are really hurting because of the current policy. 

Mr. HOLTZ-EAKIN. If I could, in my testimony we put in some of 

the survey evidence that showed the response of physicians the last 

time Congress didn’t pass a patch in a timely fashion, and there’s 

a whole array of things from contemplating not seeing new Medicare patients to actually never seeing them ever again, and I think 

that’s a tribute to the concern you should have about not fixing it. 

You have to fix it or beneficiaries are going to suffer, and it is an 

24 

artifact of the current law baseline fiction to pretend that this is 

costing you something. 

You’re going to spend the money because you’re not going to let 

beneficiaries not have access to doctors. As a Congress, you can’t 

have that happen. You never have. You’ve always spent the money. 

It’s always ended up in the actual Federal deficit. It will end up 

in the actual Federal deficit in the future. So acknowledge the reality, fix it, and then start realizing that this is a 5 percent reduction every year in overall Medicare spending, and that’s something 

you’re going to need to get to begin with. 

So, you know, get this off the books, stop messing around with 

that corner of Medicare, and then fix the program. 

Senator CHAMBLISS. Thank you. 

Senator CORKER. Thank you, and thanks for being here. 

Senator Kirk. 

Senator KIRK. Mr. Chairman, Madam Chairwoman, I want to 

honor my promise on Medicare to my mom, to defend the program, 

and I think we need to advance our reforms that can be enacted, 

especially in a carefully balanced Congress, because in the end I 

think we’re judged by did you affect the process or not. 

When you look at reforms that we can make, I think we can 

build some consensus behind some, and one thing I want to look 

at, behind me you have the old Medicare card, which is what every 

senior has. Senator Corker and I, especially Senator Wyden, we’ve 

joined together to upgrade the Medicare card. 

This is a military ID. The United States has issued 10 million 

of these at $8 each, and they tell me—actually 20 million—and 

they tell me that not a single one yet has been counterfeited. But 

it has a number of upgrades, both front and back, that I think 

would really help seniors out. 

Notice on the Medicare card, you have the Social Security number printed straight on the front of the card, which is an invitation 

for ID theft. And so Senator Corker, I and Senator Wyden, we put 

together an effort to have the new card—this is what it looks like— 

where everything is held in a chip and it’s modeled after the established CAC card, common access card technology, that already was 

pioneered in DOD and now throughout the intelligence community, 

et cetera. 

We estimate that—Medicare is over a $500 billion program. The Department of Justice says we have about $60 billion in waste, 

fraud and abuse now in the program, which I think is three trips 

to Mars per year wasted out of the program. 

Here’s my question, though. Doug, I love your testimony, but I’ll 

blame you personally because of your old employer, CBO, something that we need to fix, and I want your advice on it. And for 

John and Maya, thank you because in your testimony you said program integrity improvements are key, and here’s the question. Why 

can’t we move to an upgraded card so that we actually know the 

recipient is receiving service at the point of service with a PIN 

number? 

This is something that now, as 9,000 baby boomers qualify for 

Medicare each year, everybody understands this technology. 

And B, why is it that CBO will not score upgrades in program 

integrity that we know will reduce waste, fraud and abuse, totaling 

25 

more money than most United Nations members’ gross domestic 

products in a year? 

Mr. HOLTZ-EAKIN. So on the program integrity improvements, let 

me do it with the IRS as an example, to take it out of the subject 

of the hearing, and then we’ll come back to your card. The scoring 

rules are set up so that you cannot simply appropriate more money 

to the IRS and assume that you will get back $1.20 in tax revenues 

for every dollar of appropriated funds. That’s to remove any pretense that the appropriators could create a money pump for themselves and simply spend it. So that was a conscious decision made 

by the House, the Senate majority, the majority of budget committees, OMB—— 

Senator KIRK. Which is understandable. 

Mr. HOLTZ-EAKIN. So that’s a scoring rule to which CBO adheres. 

Now, there are exceptions to that rule, and the exceptions are 

when the money is accompanied with a new tool that would genuinely improve the performance of the program. 

And so during my tenure at CBO, an example that came up was 

the IRS was allowed to hire private collection agencies and pay 

them 25 percent of whatever they collected on taxes that were outstanding, and I made the determination that this economic incentive, getting 25 cents on the dollar, constituted a new tool that a 

conventional IRS agent didn’t have and that we should reward 

those outlays with some IRS savings. It was not a uniformly popular decision, but you will be in that area, quite frankly a budgetary gray area, with the card. To what extent is that a new tool 

which changes the ability to monitor and operate the program? 

That’s the issue. 

Senator KIRK. Just before I go to John and Maya, I just want to 

say that we have now a number of Democrats and Republicans in 

the House that have backed this effort, and it makes sense. The 

legislation is to roll it out, 50,000 providers, 1.5 million recipients 

in five different areas. And I think getting the Social Security number off the card, A; B, picture magnetic stripe and chip; and C, PIN 

number punched in at point of delivery so that that person with 

that card received that service at that time. 

But for Maya and John, you mentioned this directly in your testimony, program integrity improvements. 

Ms. MACGUINEAS. Thank you, Senator. I had a chance to look at 

your proposal, and I think it’s a very solid idea in that it would 

both help with waste and fraud and also confusion. So it would 

clarify the system for people in a lot of ways. 

And one of the points I tried to make in my testimony is, again, 

I know we’re making all these decisions because of limited resources, and I worry about responsible budgets, and so the bottom 

line is what matters. But there are also important policy changes 

that we have to make, and even when they don’t score well, and 

even though I’m the biggest fan of CBO, I think what they do is 

incredibly useful, you don’t have to let that be the bible of when 

you adopt policies or when you don’t. 

So I know that we’re trying to make reforms to save money and 

improve the health care system, but there are plenty of ideas that 

aren’t going to score tremendously well which we should proceed 

with, and we would think that this is one of them. 

26 

Senator KIRK. John. 

Mr. HOLAHAN. This isn’t an area I feel I have a lot of expertise 

in. It sure looks really like a great idea to me, just off the top of 

my head. 

Senator KIRK. Thank you. 

Thank you, Mr. Chairman. 

Senator CORKER. Thank you, and thanks for your hard work. 

I might ask some questions now, if that’s all right. 

Senator MCCASKILL. Oh, sure. I forgot you didn’t. 

Senator CORKER. No, I didn’t. I’m so glad so many people are 

here and we have such outstanding witnesses, I wanted to wait, 

but let me ask a question. 

I think all of us believe in markets on both sides of the aisle, and 

I think there’s—I mean, I certainly agree that if people who use 

services pay for a portion of those services, utilization is going to 

go down, and I agree that’s low-hanging fruit from the standpoint 

of driving savings. 

How do we rectify that or balance that off against the fact that 

there are some people who genetically just end up having poorer 

health for reasons that are beyond their control? So even though, 

yes, in a normal market system people can choose services based 

on high quality, some people are left with the fact that they have 

to have the health care because of their own situation. And each 

of you do not have to respond to all of these questions, but those 

who feel most compelled, if you would, how do you respond? 

Mr. HOLTZ-EAKIN. I would respond in two ways. Number one, 

even those who have a chronic condition beyond their control still 

have an interest in having the lowest-cost provider give them the 

health services that they require with sufficient quality incentives. 

So the fact that you are born with that doesn’t relieve the system 

of an obligation to deliver services at low cost. 

The piece that is different is the insurance piece, because that 

person doesn’t fit in a catastrophic acute care insurance model 

where events are unpredictable but they happen only occasionally 

to a person and they’re easily smoothed out. They are predictably 

high cost, and that’s not insurable by that conventional model, and 

we need to manage their care, and in the end, given the nature of 

the condition, we’ll probably have to assist them in affording it. I 

mean, that’s a reality that a society will face. 

Senator CORKER. Anybody else feel compelled to answer? 

Mr. HOLAHAN. I would just—first of all, there is a fair amount 

of cost sharing in Medicare. It’s not structured very well, and a lot 

of us here have said that should be reformed, particularly with an 

out-of-pocket cap. Because of the lack of an out-of-pocket cap, people then tend to over-insure through buying Medigap policies. So 

the Bowles-Simpson and others have recommended that. I think 

most of the people here have endorsed that. That would, I think, 

go a long way to getting you where you want. 

The thing that in a lot of these proposals isn’t there is whether 

this ought to be related to—out-of-pocket caps ought to be related 

to income. I think they would. Therefore, your low-income, chronically ill people would be protected more than they would if it was 

a straight, say, $5,000 to $7,000 cap. 

27 

Senator CORKER. So let’s actually move to that. You know, I 

think a lot of people, one of the things I think there is consensus 

on, or at least a degree of consensus, is that people like myself and 

Ron and Claire that have done well in life—— 

Senator MCCASKILL. Or married well. 

Senator CORKER [continuing]. Or married well, should have to 

pay a lot more, and maybe we don’t even receive Medicare benefits 

at all if we’re in certain categories. I know Ron and I probably 

shouldn’t even receive them. 

There are groups, though, in our country that would say, well, 

no, that really demeans the integrity of the program. It turns Medicare into a welfare program, and these are folks that actually are 

there, you would think, to protect the program. 

I wonder if you might have any response to wealthier folks having diminished or no Medicare benefits. I know that doesn’t solve 

the problem, by the way. I know that’s only, like all these other 

things, a part of the solution. But means testing obviously for this 

to work is going to have to go way down the financial spectrum, 

not just upper income. But respond, if you would. 

Mr. HOLTZ-EAKIN. The systems are already progressive by their 

nature in that Social Security, Medicare, Medicaid, we attempt to 

provide more benefits to people who have lower incomes, and they 

don’t pay commensurately. So this is simply extending the degree 

to which these systems, which are already progressive, become 

more progressive, and I have no objection to doing that because, in 

the end, if we were to stop providing benefits to some high-income 

individuals and the system as a whole was not universal, which is 

the concern these groups often express, I think that perceived infringement of fairness in the moment is dominated by really rectifying the unfairness to the next generation of not fixing these programs and leaving to them both broken social safety nets and a 

mountain of debt. 

So fairness has lots of dimensions, and the one we are most likely to be unfair to is the next generation at the moment, and I think 

this fight over universality pales in comparison to that. 

Senator CORKER. A differing point of view? 

Mr. ANTOS. Well, I don’t have a different point of view, but certainly a sensible thing would be to recognize that we already do it. 

Not only do we do it in the sense that the benefits that are received 

go more towards people who have higher cost conditions over their 

lives, but also obviously we have income-related premiums in Part 

B and Part D. It makes no sense to have this subdivision of A, B 

and D. From a financial standpoint, it makes no sense. It’s not the 

kind of insurance anybody else has until they turn 65. So why can’t 

we have a single, unified premium? Why can’t it be highly progressive? The Heritage Foundation supports it. People on the left support it. It seems like a pretty reasonable principle when we have 

to face fiscal reality. 

Ms. MACGUINEAS. I’d love to jump in just because I feel so 

strongly that means testing is really the structural reform we need 

to be most broadly be considering as we look at this overall budgetary situation, and it goes from unifying all of these. But the copayment, the premium, the caps, I think the more that we can link 

28 

them to income, the better it works for price sensitivity and fairness. 

And I have to admit that I’ve always been dismayed by the argument that means testing these programs turns them into welfare 

programs where they then won’t have the same broad-based political support, because what you see right now is that these very programs are squeezing out all the programs that are focused on a 

safety net and focused on programs for the poor, and you also see 

that some of the fastest growing programs in our budget recently 

have been the EITC and Medicaid, which are directed towards the 

poor. And so it seems to undermine the argument that there won’t 

be political support if something is more targeted. 

So it seems to me that in an era of limited resources, not only 

is it unfair to the next generation to spend all this money on entitlements, particularly when people don’t need it, but it’s unfair to 

the rest of the budget. Whether you want to cut taxes or raise 

spending on other things, if it’s being squeezed out because we’re 

spending money on entitlements for people who don’t need it, that’s 

clearly not the best use of the limited dollars. 

Senator CORKER. I’m going to yield to the other senator since my 

time is up, but I would like to ask you to do this. You all, each of 

you meet with differing groups, Republicans, Democrats, Independents. If you would do this for me, I’d appreciate it, and that is to 

send me—it doesn’t have to be sophisticated. It can be bullet form. 

Send me the things that you think people on both sides of the aisle 

would readily adopt based on the multiple conversations that 

you’ve had with people on both sides of the aisle so that those could 

be compiled without attribution to you, unless I guess they would 

be with attribution to you since they’d be in the public record. But 

if you could send those to us so we could forward those on to the 

committee as things that we know have general support on both 

sides of the aisle so we can actually move this ball forward. 

And with that, I’ll turn it over to Senator McCaskill. 

Senator MCCASKILL. Thank you. Is it Ms. MacGuineas? Is that 

how you say it? MacGuineas. Ms. MacGuineas, I don’t think you 

need to worry about the Senate seeing a CBO director as the bible. 

We have a great deal of trouble—— 

[Laughter.] 

Senator MCCASKILL [continuing]. Paying much attention to the 

CBO around here. In fact, we only like the CBO when it agrees 

with us. And if it doesn’t agree with our position, then the CBO 

doesn’t work anymore. If it agrees with the other side’s position, 

then they are dumb, and if they agree with us, they’re brilliant. So 

poor CBO is one of the very favorite games of ping-pong around 

this place. 

You know, when we talk about free market, I think all of us are 

agreed that we need to get more skin in the game. But if you look 

at a free market, what makes a free market work are better incentives, incentives are what makes a free market work, an incentive 

for profit, an incentive for quality, an incentive for value, and good 

information. We know where every cup holder is in a car we buy. 

I had my knee replaced, and I was a United States Senator. It took 

me six months to get information as to what it cost, and I got three 

different numbers, one from the doctor, one from the hospital, one 

29 

from the insurance company, and none of them matched. So there 

is not good information. 

The other place the free market analogy falls apart is that I can 

choose whether I buy a new car. If my child is dying, or if my 

mother has had a traumatic injury, I’ve got no choice but to buy 

health care. And what really handcuffs my ability to make good decisions in health care is that I don’t have good information, whether I’m taking her to the right place or the wrong place; the right 

doctor, or the wrong doctor. 

And so I would like to know, to the extent that government 

should be involved here, and I understand there should be a limited role, how should we be forcing more good information on the 

consumer? Because Americans are great consumers if we can get 

the information, but most Americans don’t think to ask what it’s 

going to cost because they see it as free because it’s a benefit 

they’ve received; and most people that are selling health care are 

certainly not incentivized to tell you what it costs because, frankly, 

it could change between the time they did the procedure and the 

time that they actually get paid for it, depending on what the relationship is between the insurance company and the provider at the 

time. 

Ms. MACGUINEAS. So I think obviously health care is one of the 

most complicated fields there is because it will never be a total free 

market because insurance complicates it so much. And so it’s finding the right balance between those two, and I completely agree 

with you that more information, better information, more transparency is a key to helping this get the best of how markets work 

while also having the protections that insurance offers, and I think 

that means publicizing—I mean, it’s almost gimmicky, but as much 

as possible getting to things that look like price lists. 

I think we all have those stories of once asking your doctor how 

much something was going to cost and having that blank stare that 

he or she had no idea, and we need to be moving in the direction 

where you actually have a sense of the cost, publishing the hospital 

information, a lot of things that people are concerned about because of secrecy and privacy, but I don’t think that works at all in 

what we’re trying to accomplish here. 

And I also know that the Business Roundtable is working on 

coming up with a lot of specific ideas of how to develop improved 

transparency and information in the health care field which I think 

should be taken very seriously. 

Mr. ANTOS. CMS produces all sorts of quality information on providers. Nobody looks at it except people like us. Why is that? It’s 

because most people get their information from their doctor. So another part of this—I completely agree with Maya. But in terms of 

really getting good advice, we’re going to get it from our doctor. 

And so we really have to focus on how physicians practice medicine, because they are, in fact, the quarterbacks for our health care. 

You get a bad quarterback, you’re going to get a bad result, and 

we’re going to spend a lot of money. 

Senator MCCASKILL. Integrity in the program. One of the problems we have, and I’ve encountered this firsthand, is a dizzying 

array of contractors as it relates to integrity. Isn’t there some value 

in us bringing some of the functions of integrity in-house? 

30 

Shouldn’t we have the core competency of integrity within the 

house of CMS and Medicare, as opposed to it’s awfully hard to hold 

anyone accountable for the results as it relates to integrity because 

you can’t find who is responsible because generally it’s a maze of 

contractors? Any input on that subject matter from you all? 

Mr. HOLTZ-EAKIN. I don’t think you can draw a firm line on that 

front. I mean, the Federal Government as a whole has gone 

through many different iterations of in-house production versus 

contracting out, and I think the lesson of that is one that says that 

it depends on the quality of the contract that you write with the 

contractor, the ability to enforce the deliverables, and in the end, 

especially for Medicare, the biggest problem is the fact that we are 

operating in a pay and then chase framework where we’ve said we 

have to pay people, and then we’ll figure out later if it was fraudulent or inappropriate, and then we’ll go get the money back. If you 

don’t change that incentive, it isn’t going to matter where you put 

it. That’s the big problem. 

Mr. ANTOS. If you swear in every private sector employee of all 

those contractors today, does anything change? No, unfortunately 

not. So I don’t—— 

Senator MCCASKILL. Well, maybe we’d know how many of them 

there were, because you’d be amazed how many parts of government can’t even tell us how many contractors they have working 

for them. 

Mr. ANTOS [continuing]. Well, that’s completely true, and I’m 

sure there’s a problem in Medicare as well. But my point is that 

you have to have a good focus on what your goal is, and it’s not 

at all clear that we know what our goal is in this area. We talk 

about reducing fraud and abuse, but bills get recycled, and many 

of those bills are actually appropriate bills, but they get coded 

wrong. So it’s really hard to know how to focus in on this when, 

in fact, if you eliminated fraud and abuse altogether, you’d solve 

part of the problem but you’d still be on the same cost curve because it’s utilization that matters. 

Senator MCCASKILL. Right, right. 

Thank you, Mr. Chairman. 

Senator CORKER. Thank you. 

Senator Johnson. 

Senator JOHNSON. I’ll just turn myself into a witness here. I’ll 

answer your question. The free market would—— 

Senator MCCASKILL. Do I get to follow up with more questions? 

Senator JOHNSON. Sure. 

[Laughter.] 

The free market itself would force the information. Again, when 

you reconnect the payment of the product with the consumption of 

the product, individuals, when they’re paying for something—take 

a look at the Internet. Take a look at how much people research 

a big-screen TV. Now again, in medicine it’s more difficult. It would 

be very difficult to operate as a pure free market system. But 

you’re not going to have a top-down approach where you say you’re 

going to force the information on people. You need a bottom-up approach by utilizing the free market, reconnecting the payment of 

the product with the consumption of the product, and, trust me, 

31 

consumers will demand the information so they can make wiser 

consumer choices. 

That’s all I’ve got. 

Senator CORKER. Thank you. 

Let me—assuming the health care bill continues as is, I know 

there’s a lot of dispute, and who knows what happens in the future, 

but let’s just say that it ends up being implemented as it now is. 

Exchanges are being created under the health care bill that passed. 

The exchanges themselves, forget everything else that goes with it, 

but could they possibly be turned into a useful tool as it relates to 

delivering Medicare itself? 

Mr. ANTOS. Yeah. I mean, certainly the concept is very sound. 

Economists of all stripes have argued for a long time that if you 

give people choices in the market, give them information about 

what they’re buying, let them know what the price is, ideally have 

them pay part of the price, that they’re liable to make a pretty good 

decision because they stand to gain if they make a good decision, 

they stand to lose otherwise. 

You look at the Federal Employees Health Benefits Program. I 

think that’s an example of an exchange that works. It’s a lightly 

regulated exchange. I think that’s one of the keys. In the Medicare 

program we could be doing that now, but we’re not. We’re got the 

Medicare Advantage program. It’s completely separate from traditional Medicare. It does not compete on an even basis with traditional Medicare. The changes that were made in the Affordable 

Care Act didn’t actually correct that. It just adjusted the mistaken 

payment mechanism. 

So as a general concept, I think it’s a very sound concept. That 

said, there are lots of arguments about how you want to run this 

thing. If you’re going to have an exchange, then you have to decide 

how you want the subsidies to go. Can you have traditional Medicare operate with an uncapped subsidy? It depends on the other 

rules that you put in the system. 

Ms. MACGUINEAS. Yeah, I would say that the exchanges are 

something that I’m a proponent of. I think that they are a great 

step forward in how they’re going to allow us to make other needed 

reforms. The subsidies I have grave concerns about, and the costs 

that go along with those. But the exchanges add many values. 

I think one of them is that we can now have a serious discussion 

that we couldn’t have before about raising the retirement age for 

Medicare, because before there wasn’t an alternative for people 

when they weren’t going to be able to get health care. Now there 

is an alternative, and raising that is going to shift costs, perhaps 

more than it’s going to save costs, but it could be a very large improvement to the Medicare system, and it was something that was 

on the table in the bipartisan discussion over the summer. 

Secondly, I think it opens the door for competitive bidding, so 

thinking about how, as Joe was just saying, we can run some systems parallel to Medicare, reform Medicare so it’s on a more even, 

level playing field, and think about how to use those exchanges to 

bring out the pricing mechanisms and a little bit more competition 

parallel to Medicare. 

32 

Senator CORKER. But let me just follow up. You really couldn’t 

do that if Medicare is fee-for-service, right? I mean you’d have to 

end up with a premium support-type effort; is that correct? 

Ms. MACGUINEAS. What you’d have to do—that’s right—is cap 

the costs that were allowed for Medicare so that it wasn’t openended. And as I said in my opening remarks, I really think that’s 

one of the major points of where we’re headed. We’re going to have 

to pick which architectural reforms we embrace, but we’re going to 

have to find ways to set a budget for Medicare and Federal spending on health care, and then find which of the mechanisms that we 

decide to pursue are the most efficient and effective in staying 

within that budget. So, yes, I don’t believe Medicare is going to be 

able to be open-ended, and I don’t think it should be. 

Senator CORKER. Doug. 

Mr. HOLTZ-EAKIN. I want to agree with all that and I want to 

emphasize an aspect of that, which is that well run exchanges 

could provide for seamless transitions that allow provider networks 

to remain intact. So, for example, not the subject of this hearing, 

but there are going to be a lot of people who are in Medicaid who 

will then bounce up to be eligible for insurance subsidies, and then 

they will bounce back down and be back in Medicaid. Those transitions are going to happen a lot. If the exchanges are well designed 

and people are appropriately enrolled, we could get them in the 

same provider network instead of saying, well, right now you’re in 

Medicaid, you go to that hospital, now you’re in the insurance subsidy, you go to that hospital. They’ll get terrible care if that’s how 

it works out. So that’s a key design issue. 

In the same way, you could have someone transitioning from employer-sponsored insurance to an employer-paid retiree plan, which 

could be commingled with Medicare and they could stay with the 

same docs, they could stay with the same providers, and they’d get 

better care. So how those are done is at the centerpiece of a lot of 

the future of American medicine. 

Ms. MACGUINEAS. And on that, the continuity of care is also 

going to improve the investments, the incentives for up-front savings and the way that you’re going to treat patients if they can stay 

in the same care systems for longer. 

Senator CORKER. How would you feel about making Medicare 

claims available to the public? You would de-identify who the person was. But how would that affect the whole way of looking at the 

integrity of the program and just claims and costs and all of that? 

Mr. HOLTZ-EAKIN. I think there are two things. I mean, the first 

is that when I was on MedPAC and we simply went through and 

looked at episodes of care, urology care, whatever it might have 

been, congestive heart failure, if you simply displayed the wide variation in cost of an episode of care for the same risk-adjusted patient, participants were shocked. And so displaying this would actually, I think in many ways, have a big impact on the way they 

practice medicine, because they just have no idea that they’re so 

far out of line with norms. 

The second thing is that privacy advocates always get nervous 

about this, but to my mind if the taxpayers are paying for it, 

there’s a higher threshold and they have a right to see what they’re 

33 

getting for their money. And so I have been much more sympathetic to this notion than a lot of people. 

Senator CORKER. What type of folks oppose it? 

Mr. HOLTZ-EAKIN. Usually doctors. 

Mr. HOLAHAN. Well, there is already a Medicare beneficiary survey that links to claims data, and the advantage of using the survey and linking to claims data is you know an awful lot more about 

the people. So we do have access to that kind of data for a sample. 

You know, 100 percent of Medicare claims is just an enormous 

undertaking as an analyst and a researcher. So we may be pretty 

close to having what we need. I don’t know that there’s enough 

money put into analyzing the data that is available to us, nowhere 

near enough. 

Mr. ANTOS. I would just add that one of the issues is if you keep 

it in-house, then you don’t get different opinions about what constitutes quality care. I think this is one of the big disadvantages 

that Medicare now provides us. They carefully limit who has access 

to the detailed information that is absolutely essential to evaluate 

provider performance. There is a lawsuit now working its way 

through the courts to try to get Medicare to loosen its grip in an 

appropriate and fair and reasonable way. But the fact is that different analysts will have different weighting systems and different 

views about how you should evaluate provider performance. 

Senator CORKER. I want to ask one last question. I don’t know 

if Senator Johnson has any more. I do want to reiterate I think it 

would be a tremendous service if each of you would outline what 

you think generally uptake would be on both sides of the aisle on 

various—or what you think both sides of the aisle would actually 

have a degree of, enough common ground to actually maybe make 

something happen. I think that would be a huge, huge contribution 

to us. 

You’ve all talked, we’ve all talked about SGR, and every year 

when SGR, when the allocation that we give physicians that year 

is about to run out, the physicians across our country call and are 

upset, and then we extend it another year, as we should. But how 

do you actually—when we talk about $300 billion, that’s the money 

side of SGR. I didn’t really hear how you make SGR work. I mean, 

it’s kind of a Soviet Union mentality, and that is you give a bucket 

of money to physicians, and the more that it’s utilized, the less 

they each get. It’s kind of the opposite of the way things normally 

have worked in our country. So how do you actually reform it so 

that it works? 

Mr. HOLTZ-EAKIN. You don’t. I mean, you don’t in the end. Your 

observation is correct. I mean, it’s a near-term budgetary issue, but 

it is not a future for Medicare, and you need to go to something 

else, and my preference would be something that looks like premium support. 

Senator CORKER. So that’s, in essence, a privatized system, just 

like the health care delivery we have for most individuals that are 

below 65. Is that what you’re saying? 

Mr. HOLTZ-EAKIN. It looks a lot like FEHBP, the Federal employees plan, and that’s been a very successful and sensible approach. 

Mr. ANTOS. The other thing is we’ve created this wall around 

physician services that makes no sense clinically or financially. 

34 

We’ve got to integrate it. That’s one of the big problems with traditional Medicare, nothing is integrated. So fixing this would just 

shore up a system that is doing a disservice to patients. 

Ms. MACGUINEAS. I—— 

Mr. HOLAHAN. I don’t—I’m sorry. 

Ms. MACGUINEAS. Please go ahead. 

Mr. HOLAHAN. I was going to say, I don’t think you can really 

fix it either, but I’m not sure where I would go with that. I mean, 

I think you need to give modest increases to physicians every year, 

but I think you need to realize that Medicare spending, if you look 

at Part B spending, it is not going up at a zero rate, so that is really not the problem. But to continually go back and have to talk 

about 29 percent increases in fees in a particular year just gets to 

be a bit crazy. 

In terms of premium support, let me just say I don’t think it will 

work. I don’t think there’s evidence that private plans really manage care and pay less and are more efficient than traditional Medicare. I think the one thing that we haven’t focused on here today 

is what I think is one of the real drivers in health care costs, and 

becoming more and more a big one, and that is the concentration 

on the supply side, the consolidation among hospitals, the purchase 

of physician practices by hospitals, and the great difficulty insurers 

have in negotiating rates with them. 

It’s driving up costs on the private side. Medicare is a bit protected because it sets rates. Most providers accept those rates. And 

I think if we’re—I just don’t think we can expect to turn this over 

to the private insurance system and get a good outcome. I think if 

you have a Medicare exchange in which Medicare is one of the competitors, and if Medicare is more expensive than, say, a benchmark 

plan, people should have to pay more for it. I’m fine with that. But 

I just don’t think if this played out that you would see Medicare 

go away as a payer, a major payer. 

Mr. ANTOS. Why don’t we give competition a fair test? The problem is that when people talk about premium support, they usually 

talk about something that actually couldn’t work. They are notions 

rather than policies. And one of the big debates is how much 

should the subsidy rise by. So everybody is consumed with should 

it be GDP plus 1, should it be CPI, should it be something else. 

Well, it should be something else. It shouldn’t be set that way. It 

should be—it should come from the Medicare program because 

that’s where the costs are coming from. 

So if we had full competition, including traditional Medicare except improved traditional Medicare so it can actually survive, you 

have full competition among the plans and you set the winning 

payment amount for the plans at the market clearing price, and 

then you give everybody a fixed subsidy, some percentage of the 

winning bid, then you can be certain that people will be able to buy 

a plan. There will be at least one plan in every area where they 

pay no more than the standard Part B premium, and the winning 

bid will sometimes be traditional Medicare. There are plenty of 

places in this country, plenty of markets where, in fact, there is 

this concentration or there simply is only one hospital in the area, 

rural areas. The fact is you can’t really have effective competition 

35 

where you don’t have—in the insurance market if you don’t have 

effective competition among providers. 

So you can split the difference. You don’t have to go in an extreme way, and you can find out what works. 

Mr. HOLAHAN. I think that’s—he said it in a terrific way. I think 

one could debate how many markets are so concentrated or so 

small that it’s never going to work, versus finding those markets 

where it would. And if you want to let Medicare go and compete 

with private insurers, sure, let’s do it. But it’s not going to be a 

major game changer, in my view. 

Ms. MACGUINEAS. I wanted to make one comment on the SGR 

point that you brought up, but slightly different than how to fix it 

because I think your premise was right, that going back to the 

same top-down model is still going to lead to imperfect results. 

But one thing that was really interesting in the Bowles-Simpson 

Commission about the SGR, the need to fix it, which everybody understands, was there is so much tension around the health care 

issue. We all know that it’s very hard to move forward on this, and 

I really think your idea of let’s find all the pieces that most people 

can agree with and try to move there is the right approach. 

One of the things on the Bowles-Simpson Commission that they 

were able to do is I think some folks came in and said we don’t 

even want to talk about health care unless we’re going to repeal 

the President’s health care reform, and folks on the other side of 

the aisle came and said if you even talk about repeal, we’re not 

having this discussion. And the one place they were able to find a 

discussion they could have was, well, at least we need to offset the 

cost of SGR. We know we need to fix it, and so there’s $300 billion 

in savings we have to find. 

And I think for this whole ‘‘go big’’ model, you need more than 

$300 billion in savings, but I think that’s a really good start. Let’s 

say we’re going to find a way to permanently fix that and change 

that, and use as many of these cost savers to offset that. 

I could get dragged into the premium support discussion, and I 

think it’s the heart of all this. I don’t think we’re going to get it 

resolved in the next couple of months, but I think again in order 

to create a system that can stay within a budget, we’re going to 

have to have a couple of parallel systems, and I think that what 

Joe has laid out and what the Domenici-Rivlin plan put out there 

is really the key to this, which is if we have a couple of parallel 

tracks to bring more competition in it, you keep a reformed Medicare system there, you use competitive bidding to make sure that 

people will have access to this. I think that’s a real model for looking forward, and we shouldn’t get caught up on whether the growth 

rate of premium support is too high or too low because that’s just 

one of the levers we can move around. It’s the structural or architectural reform that we should really consider. 

Senator CORKER. Senator, do you want to ask any other questions? 

Senator JOHNSON. First of all, I just want to thank all the witnesses for your thoughtful testimony. I certainly learned a lot. I 

hope people watching did as well. 

I want to thank you for driving this hearing. It’s very good. 

36 

I also want to say it’s an extremely good idea to look for those 

areas of agreement, so I hope you submit those to Senator Corker. 

Without opening up a whole new can of worms, just a real quick 

question. We talked about the 10 percent using up 60 percent of 

the cost, and 20 percent using 77 percent. 

What drives end-of-life care? I mean, do you know a dollar figure 

or a percent spent on the last six months of life, last three months 

of life? I’ve read that in the past. I don’t have a current number, 

though. Then I’ll close. Thanks. 

Mr. HOLTZ-EAKIN. I don’t know the number off the top of my 

head. 

Mr. ANTOS. I vaguely remember a study by my former colleague, 

Steve Jencks, or Jim Lubitz, and it’s not as high as you would 

think. We spend a lot of money getting to that last year. I mean, 

one of the interesting things about health care is that if you get 

old enough, like my mother who is 95, and you get sick, the medical system isn’t going to touch you. But if you’re in your 70s, we’re 

going to pull out all the stops. 

Senator CORKER. Well, listen, I think all of us in the Senate stay 

generally frustrated about the lack of progress in solving problems, 

but I think each of us wake up each day also with a tremendous 

sense of privilege that we have the opportunity to have really intelligent and learned folks like you come in and testify, and we thank 

you for that and we look forward to the materials you’re going to 

send forth. 

I hope there are other forums where the four of you are doing 

exactly this for other senators and other committees, but thank you 

for doing this today. Thank you. 

[Whereupon, at 3:53 p.m., the hearing was adjourned.] 

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