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80–803 2013

SAVING SENIORS AND OUR MOST VULNERABLE 

CITIZENS FROM AN ENTITLEMENT CRISIS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 18, 2013 

Serial No. 113–18 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

GENE GREEN, Texas 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 4 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 5 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 7 

WITNESSES

James C. Capretta, Senior Fellow, Ethics and Public Policy Center .................. 9 

Prepared statement .......................................................................................... 11 

Joshua Archambault, Director of Healthcare Policy, Program Manager, Middle Cities Initiative, Pioneer Institute ............................................................... 20 

Prepared statement .......................................................................................... 22 

Judy Feder, Ph.D., Professor of Public Policy, Georgetown Public Policy Institute ........................................................................................................................ 34

Prepared statement .......................................................................................... 36 

SUBMITTED MATERIAL

Statement of Paul N. Van de Water ...................................................................... 69 

Statement of Families USA, submitted by Ms. Schakowsky ............................... 72 

(1) 

SAVING SENIORS AND OUR MOST VULNERABLE CITIZENS FROM AN ENTITLEMENT 

CRISIS 

MONDAY, MARCH 18, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 4:00 p.m., in room 

2123, Rayburn House Office Building, Hon. Joseph R. Pitts (chairman of the subcommittee) presiding. 

Present: Representatives Pitts, Burgess, Hall, Shimkus, 

Blackburn, Lance, Cassidy, Guthrie, Ellmers, Pallone, Christensen, 

Sarbanes, and Waxman (ex officio). 

Staff Present: Clay Alspach, Chief Counsel, Health; Sean 

Bonyun, Communications Director; Matt Bravo, Professional Staff 

Member; Sydne Harwick, Staff Assistant; Robert Horne, Professional Staff Member, Health; Carly McWilliams, Legislative Clerk; 

Monica Popp, Professional Staff Member, Health; Andrew 

Powaleny, Deputy Press Secretary; Chris Sarley, Policy Coordinator, Environment and Economy; Heidi Stirrup, Health Policy Coordinator; Alli Corr, Minority Policy Analyst; Amy Hall, Minority 

Senior Professional Staff Member; Elizabeth Letter, Minority Assistant Press Secretary; Karen Nelson, Minority Deputy Committee 

Staff Director for Health; and Matt Siegler, Minority Counsel. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. The subcommittee will come to order. 

The chair will recognize himself for an opening statement. 

Medicare and Medicaid are critically important programs that 

millions of Americans rely on. These programs are in trouble. 

Doing nothing is not an option. Doing nothing is unfair, particularly to those who can’t afford any other options. Doing nothing is 

irresponsible. 

But in the last few years, those who have proposed solutions 

have been viciously attacked by special interests and their allies on 

Capitol Hill. When the House passed a budget that charted a path 

to saving Medicare, many on the other side accused us of trying to, 

quote, ‘‘end Medicare as we know it,’’ end quote. But they offered 

no solution of their own. 

2 

Let me be clear: The status quo spells doom for every American 

who relies on Medicare or Medicaid for their health care. Both parties need to work together to modernize these programs so they can 

survive. 

Today’s hearing is designed to get an accurate picture of the fiscal challenges facing Medicare and Medicaid so we can preserve 

these programs for the populations they were designed to serve. 

Without defining the problems these programs face, we cannot assess whether they are serving current beneficiaries in the most efficient and effective manner possible and we cannot strengthen and 

save them for future generations. 

The Medicare program served 49 million beneficiaries in 2012 

and, as was noted in a previous hearing, has been on the Government Accountability Office’s high-risk list since the list began in 

1990. According to the latest Medicare trustees report, Medicare 

will be insolvent no later than 2024 but as soon as 2017. More recent estimates have predicted insolvency as soon as 2016. That is 

3 years from now. 

Doing nothing is not an option. Slogans such as ‘‘Hands Off My 

Medicare’’ and the past refusal of some on the other side of the 

aisle to even discuss changes to the program will lead to Medicare’s 

collapse. We can begin modernizing these programs now or we can 

do nothing. If we do nothing, Medicare will not be there for our 

children and grandchildren. In fact, if we do nothing, Medicare as 

we know it will not be there for today’s seniors in a few short 

years. 

Nearly 60 million Americans are currently enrolled in Medicaid. 

While Medicaid spending accounts for nearly one-quarter of most 

State budgets, in my home State of Pennsylvania it is approximately one-third of the entire State budget. Should Pennsylvania 

choose to expand the program under the Affordable Care Act, approximately 60 percent of the Commonwealth’s budget will go to 

welfare spending, including Medicaid, unfairly crowding out funding for roads, schools, and public safety. 

Medicaid costs to the States are expected to grow by nearly $400 

million in the next fiscal year, and these costs do not include any 

costs associated with an expansion. Currently, one in six Pennsylvanians receives Medicaid benefits. If the Governor chooses to 

expand Medicaid in the Commonwealth, one in four Pennsylvanians will be on the Medicaid rolls. 

And this is not just a problem for Pennsylvania. The next 10 

years of Federal Medicaid spending will be twice the amount spent 

in the last 45 years. This is completely unsustainable. 

Medicaid was designed as a safety net for our Nation’s poorest 

and sickest people. States are already struggling to serve this core 

population, and Washington certainly doesn’t have extra money 

lying around either. For a system that is already under tremendous 

strain, how will adding millions of young, able-bodied adults to 

Medicaid affect our ability to care for our country’s poorest and 

sickest citizens? 

With both Medicare and Medicaid, we face a fundamental issue 

of fairness. Is it fair that young people are paying into Medicare, 

when, as of now, the program will not be around for them when 

they retire? Increasingly, doctors simply can’t afford to treat MedVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
3 

icaid patients. Is it fair that the President’s healthcare law will 

force millions of disabled and sick Americans to compete with ablebodied 25-year-olds for appointments with those doctors who will 

still see them? 

I look forward to hearing from our witnesses today not just about 

the challenges we face in preserving these programs but also their 

solutions to modernize and save Medicare and Medicaid. 

Thank you. That concludes my time. 

The chair recognizes the ranking member of the Subcommittee 

on Health, Mr. Pallone, for 5 minutes for an opening statement. 

[The prepared statement of Mr. Pitts follows:] 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

Medicare and Medicaid are critically important programs that millions of Americans rely on. These programs are in trouble. 

Doing nothing is not an option. Doing nothing is unfair, particularly to those who 

can’t afford any other options. Doing nothing is irresponsible. 

But in the last few years, those who have proposed solutions have been viciously 

attacked by special interests and their allies on Capitol Hill. When the House 

passed a budget that charted a path to saving Medicare, many on the other side 

accused us of trying to ‘‘end Medicare as we know it.’’ 

But they offered no solution of their own. 

Let me be clear: the status quo spells doom for every American who relies on 

Medicare or Medicaid for their health care. Both parties need to work together to 

modernize these programs so they can survive. 

Today’s hearing is designed to get an accurate picture of the fiscal challenges facing Medicare and Medicaid so we can preserve these programs for the populations 

they were designed to serve. 

Without defining the problems these programs face, we cannot assess whether 

they are serving current beneficiaries in the most efficient and effective manner possible, and we cannot strengthen and save them for future generations. 

The Medicare program served 49 million beneficiaries in 2012, and, as was noted 

in a previous hearing, has been on the Government Accountability Office’s ‘‘high 

risk list’’ since the list began in 1990. 

According to the latest Medicare Trustees report, Medicare will be insolvent no 

later than 2024, and as soon as 2017. More recent estimates have predicted insolvency as soon as 2016. That’s three years fromnow. 

Doing nothing is not an option. 

Slogans such as ‘‘Hands Off My Medicare’’ and the past refusal of the other side 

of the aisle to even discuss changes to the program will lead to Medicare’s collapse. 

We can begin modernizing these programs now, or we can do nothing. If we do 

nothing, Medicare will not be there for our children and grandchildren. In fact, if 

we do nothing, Medicare as we know it will not be there for today’s seniors-in a few 

short years. 

Nearly 60 million Americans are currently enrolled in Medicaid. While Medicaid 

spending accounts for nearly one-quarter of most state budgets, in my home state 

of Pennsylvania, it is approximately one-third of the entire state budget. 

Should Pennsylvania choose to expand the program under the Affordable Care 

Act, over 60 percent of the commonwealth’s budget will go to Medicaid, unfairly 

crowding out funding for roads, schools, and public safety. 

Medicaid costs to the state are expected to grow by nearly $400 million in the 

next fiscal year, and these costs do not include any costs associated with an expansion. 

Currently one in six Pennsylvanians receives Medicaid benefits. If the governor 

chooses to expand Medicaid in the commonwealth, 1 in 4 Pennsylvanians will be on 

the Medicaid rolls. 

And this is not just a problem for Pennsylvania. The next ten years of federal 

Medicaid spending will be twice the amount spent in the last 45 years. 

This is completely unsustainable. 

Medicaid was designed as a safety net for our nation’s poorest and sickest people. 

States are already struggling to serve this core population, and Washington certainly doesn’t have extra money lying around either. For a system that is already 

under tremendous strain, how will adding millions of young, ablebodied adults to 

Medicaid affect our ability to care for our country’s poorest and sickest citizens? 

4 

With both Medicare and Medicaid, we face a fundamental issue of fairness. Is it 

fair that young people are paying into Medicare when, as of now, the program will 

not be around for them when retire? 

Increasingly, doctors simply can’t afford to treat Medicaid patients. Is it fair that 

the president’s health care law will force millions of disabled and sick Americans 

to compete with able-bodied 25-year-olds for appointments with those doctors who 

will still see them? 

I look forward to hearing from our witnesses today, not just about the challenges 

we face in preserving these programs but also their solutions to modernize and save 

Medicare and Medicaid. 

# # # 

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Chairman Pitts. 

Today we will examine Medicare and Medicaid, the safety net 

programs that afford our seniors, disabled, and low-income Americans access to quality health care. Ensuring the long-term fiscal 

stability of these programs has been and continues to be a priority 

of my work in Congress. 

Budgets are about more than numbers and dollars. They are 

real-life expressions of priorities, of choices, and of values. And 

these choices have an impact on the lives of millions of Americans 

not just for the fiscal year each budget covers but for future years 

and future generations. 

Now, I know that growing deficits are not good for the future either, but we cannot reduce the deficit and give tax cuts to the 

wealthy on the backs of our most vulnerable Americans. What Republicans want to do when they talk about painful cuts in the 

name of fiscal responsibility is to cut the structural foundation of 

our safety net programs. They want to block-grant Medicaid under 

the guise of State flexibility. They want to decrease the Medicare 

rolls and turn seniors’ health over to insurance companies. But 

these changes do nothing to tackle healthcare costs. They simply 

undermine the program’s guarantee of access to care. 

So let’s be clear and let’s use facts. We have deficits because of 

two unpaid wars, years of unpaid tax cuts to the rich, and a deep 

recession. Meanwhile, revenues as a percent of GDP from 2009 to 

2012 were at the lowest levels seen in 40 years. 

But because Republicans made it clear that they will not consider any further changes in revenues, not even to get rid of egregious tax breaks for the wealthiest Americans, their only idea for 

addressing our budget challenges associated with health care is to 

shift costs and risk onto seniors and to the most vulnerable Americans who depend on Medicare and Medicaid for health security. 

Now, I agree there is more that can be done to make the 

healthcare system more efficient and economically sustainable. The 

reality exists that an aging population means more people will rely 

on Medicare and millions of the uninsured will now have access to 

healthcare through Medicaid because of the Affordable Care Act. 

But there are commonsense reforms that I believe Democrats 

and Republicans can agree on that would bring greater value into 

our health system that don’t include cost-shifting. The Affordable 

5 

Care Act includes a number of provisions designed to both reform 

healthcare delivery and improve the quality and efficiency of health 

care. This, I believe, was a huge downpayment on reforming the 

way Medicare and Medicaid deliver care. And we are already seeing it pay off. Over the last 3 years, Medicare costs per person have 

grown 1.3 percent slower than growth in the overall economy. And 

that is a reversal of decades of rising costs. 

Healthcare reform was entitlement reform. The ACA decreases 

the deficit and promotes efficiency and quality. So let’s build on 

that work. Let’s have a productive and fair conversation about how 

to bring more value into these programs and not eviscerate them. 

Mr. Chairman, the issue is not whether we reduce the deficit, but 

how we do so. And that conversation must include a discussion 

about revenues. 

I would now yield whatever time I have to the gentlewoman from 

the Virgin Islands, Ms. Christensen. 

Mrs. CHRISTENSEN. Thank you, Mr. Pallone. 

I want to say a word about Medicaid. And I hope that my good 

friends on the other side of the dais understand that leaving so 

many Americans without any insurance coverage has severely 

damaged their health as individuals and our economic health as a 

Nation. The ACA makes the investment we need to correct this. 

Cutting $810 billion and restructuring Medicaid as a block grant 

is the absolutely wrong way to go and will have catastrophic longterm economic and health consequences for the Nation. 

I can tell you firsthand what it is like, because we in the territories have always had to struggle under Medicaid caps. Benefits 

and services have to be limited. Eligibility for us is well below the 

FPL. We can’t provide long-term care to all who need it, and we 

don’t get DSH payments. Our governments end up taking up the 

slack, and our hospitals are already in crisis. I don’t wish that on 

anyone, not even those who think they want Medicaid as a block 

grant. Your constituents deserve better, and your districts, States, 

and this country need us to do better. 

The best way to reduce Medicaid costs is by creating good jobs 

and by fully implementing and funding the Affordable Care Act, 

not going back to the Bush-era policies that increased poverty and 

the Medicaid rolls in the first place. 

I yield back the time to the ranking member. 

Mr. PITTS. The chair thanks the gentleman and, at this point, 

recognizes the vice chairman of the subcommittee, Dr. Burgess, for 

5 minutes for an opening statement. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. I thank the chairman for the recognition. 

We have all heard the figures. We hear them literally every 

week. Ten thousand baby boomers become eligible for Medicare 

every day. At the inception of Medicare, five workers supported 

every beneficiary. Today there are three; by 2030, there will be 

only two. The cost pressures are increasing, and we risk the ability 

to provide access to services for beneficiaries. Spending in Medicare 

alone is projected to double over the next 10 years. The estimates 

6 

are almost $40 trillion in unfunded liabilities, leading to insolvency 

by 2017. 

The Medicaid program, begun in 1965, was created to serve as 

a safety net for a very narrow population of 5 million very low-income Americans. The program has grown; now it covers over 40 

million Americans. Under the Affordable Care Act, it will grow 

even more: 25 million new individuals, 65 million total Americans. 

It is counterintuitive given the existing problems that already serve 

as a barrier to accessing care. 

Our country is $161⁄2 trillion in debt. The President came to the 

House of Representatives last week and explained that he didn’t 

think that was a pressing problem. I disagree. I think that it is. 

The issue is, no one knows when it becomes a crisis. No one 

knows when the Federal Government takes $110 billion down to 

the Bureau of Public Debt some Tuesday at noon to sell and no one 

shows up to buy. What happens next? Likely the interest rates rise. 

Do they go up a little bit, or do they go up a lot? If they go up more 

than a little bit, what happens to the debt service on the national 

debt, on that $16.5 trillion? You talk about mandatory spending, 

that is mandatory spending—spending that is not available for any 

other program. When we talk about crowding out other programs, 

that is what is at stake. 

And then we saw this weekend in Cyprus, where the Government of Cyprus decided to take very radical action because they 

felt the pressure from the debt crisis that they are facing. I am not 

saying that is what is in store for the United States, but you certainly understand that, given the world’s situation, that we do need 

to pay attention. Our debt does matter, despite what the President 

disclosed to us last week. 

So $161⁄2 trillion in debt, Medicaid costs are escalating $400 billion a year. States, even those States that have rejected expansion, 

like my home State of Texas, will be pressured to save money by 

reducing benefits or further cutting provider reimbursement. 

Now, think about that for a minute, what that means. We always 

talk about wanting to give patients access to high-quality, accessible care. How is it going to be high-quality, how is it going to be 

accessible if you keep cutting provider reimbursements and reducing benefits or increasing waiting lines to get that care? 

Spending in Medicare and Medicaid is not proportional to the 

distribution of beneficiaries. Over $400 billion is spent annually on 

50 million Medicare beneficiaries. More than half of that amount 

is for the 10 million individuals eligible for both Medicare and Medicaid. Nearly 1 in 10 of those so-called dual-eligibles have 5 or more 

chronic conditions, and well over half have mental or cognitive impairments. The most expensive dual-eligible patients, almost 11⁄2

million, comprise 70 percent of the total expenditures for that 

group. 

So we need to address costs, but the underlying system structure 

is something that needs to be looked at, as well. We must consider 

reforms that address the structure of this very critical entitlement 

program. Our heads have been stuck in the sand for too long. We 

know that the structural and fiscal problems exist. We know that 

they must be dealt with. The only question is, how long will AmerVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
7 

ica and Americans tolerate staring at these problems without fixing 

them for future generations? 

I thank the chairman for yielding, and I will yield back the balance of my time. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the ranking member of the full committee, Mr. Waxman, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. 

Today we have a hearing on the entitlement programs and the 

economy. There is an implication here that we have to choose one 

or the other. Unfortunately, in the name of fiscal responsibility and 

balancing the budget, we are often presented with what I believe 

is a false choice between securing our Nation’s fiscal health and ensuring the health of older, disabled, and low-income Americans. 

There are different paths we can take to ensuring the long-term 

fiscal health of Medicare and Medicaid. The Ryan budget proposal 

that is going to be on the floor this week, what my Republican colleagues and their witnesses propose in our hearing today, are fundamental structural changes in the programs which, through premium support and privatization for Medicare and block grants for 

Medicaid, don’t hold down the costs but simply shift them to beneficiaries, providers, and States. This path, as I said, doesn’t lower 

costs; it shifts costs in a way that undermines the programs’ guarantee of access to care. 

The alternative path that we began in 2010 with passage of the 

Affordable Care Act is to reform entitlement programs through delivery system reform that improves both efficiency and quality. The 

Affordable Care Act improves access to preventive care that saves 

dollars and lives. It includes incentives to reward physicians and 

other providers for better coordinating care and improving health. 

And it also included policies to cut waste and inefficient care. 

Health reform is entitlement reform. It is this kind of reform 

that builds a better healthcare system for all Americans at the 

same time that it lowers costs and helps support the long-term sustainability of our public healthcare programs. 

Medicare and Medicaid aren’t ballooning out of control. These 

programs are amazingly efficient. Over the next 10 years, Medicare 

per capita costs are expected to grow at 5 percent per year, as opposed to 6.9 percent in private insurance. On the Medicaid side, the 

Congressional Budget Office estimates projected Medicaid spending 

dropping by $200 billion through 2020, and the CMS actuary predicts spending will grow no faster per beneficiary than private insurance. 

The problem is the numbers and aging of our society. In the coming years, we will see a growth in the number of people who need 

Medicare and Medicaid. For Medicare, it is because of the retirement of the baby boomers, and many of these Medicare beneficiaries will also rely on Medicaid. Currently, dual-eligibles are 15 

percent of the Medicaid population but account for nearly 40 percent of expenditures. 

8 

In Medicaid, millions of Americans who were previously shut out 

of having insurance, particularly the working poor, will now have 

access to coverage beginning in 2014. More people clearly means 

more costs. But the solution should not and cannot be simply to 

shift costs to States and beneficiaries, but to continue our efforts 

to improve the value we get from our programs in a thoughtful and 

sensible way. 

Did we know there was going to be a larger population coming 

on Medicare and Medicaid? Of course we have known this. We 

have known that we have had a baby boom population. But rather 

than put money aside to take care of that population, we spent it 

on two wars without any funding for them, we spent it on tax 

breaks for the upper-income without paying for them. We worked 

ourselves into a deep debt, and now the money is not there that 

we anticipated to use for these programs. 

The Republican budget slashes away at the programs that families need most. The Republican budget is built on a hoax. On the 

one hand, they say it balances in 10 years. On the other, they say, 

‘‘Repeal Obamacare.’’ The fact is they repeal all of the benefits of 

Obamacare, including improvements to Medicare like filling in the 

Medicare Part D donut hole and adding no-cost preventive services, 

but then they turn around and keep the very Medicare cuts and 

taxes from the Affordable Care Act that Republicans campaigned 

against. 

Revenues need to be on the table. I don’t think most Americans 

will say, Well, we know there are going to be 70 million more seniors in Medicare; we hope you can make do with dollars that support only half that number. We need to eliminate the tax perks for 

the wealthiest. It is unjust, especially if, at the same time, we are 

talking about cutting holes in the safety net for the elderly and the 

poor. 

I yield back my time. 

Mr. PITTS. The chair thanks the gentleman. 

That concludes the opening statements. 

The title of our hearing today is ‘‘Saving Seniors and Our Most 

Vulnerable Citizens from an Entitlement Crisis.’’ The hearing was 

first scheduled on March 6th. It was cancelled due to the snowstorm. I want to thank the witnesses for rearranging your schedules to accommodate our hearing today. 

Our panel is comprised of three distinguished witnesses: first, 

Mr. James Capretta, senior fellow, Ethics and Public Policy Center; 

secondly, Mr. Joshua Archambault, director of health care policy 

and program manager for the Middle Cities Initiative, Pioneer Institute; and, thirdly, Dr. Judy Feder, professor of public policy, 

Georgetown Public Policy Institute. 

Your written statements will be made a part of the record. We 

ask that you summarize your testimony in a 5-minute opening 

statement. 

The chair recognizes Mr. Capretta for 5 minutes for your opening 

statement. 

9 

STATEMENTS OF JAMES C. CAPRETTA, SENIOR FELLOW, ETHICS AND PUBLIC POLICY CENTER; JOSHUA ARCHAMBAULT, 

DIRECTOR OF HEALTHCARE POLICY, PROGRAM MANAGER, 

MIDDLE CITIES INITIATIVE, PIONEER INSTITUTE; JUDY 

FEDER, PH.D., PROFESSOR OF PUBLIC POLICY, GEORGETOWN PUBLIC POLICY INSTITUTE 

STATEMENT OF JAMES C. CAPRETTA 

Mr. CAPRETTA. Thank you, Mr. Chairman. It is a real pleasure 

to be here. Mr. Pallone, other members of the subcommittee. Thank 

you for the opportunity to testify before you today. 

The most serious threat to the Nation’s long-term prosperity is 

the rapid and unfinanced growth of entitlement spending. Left unchecked, spending commitments for these programs will push Federal deficits and debt to levels that many economists fear will precipitate a crisis. Experience shows that the consequences of such a 

crisis would be especially disastrous for the most vulnerable segments of our society, including those who are dependent on the programs for their financial security and health needs. 

The three largest programs are Social Security, Medicare, and 

Medicaid. In 1973, spending on these programs was 4.8 percent of 

GDP. Four decades later, that number had jumped to 10 percent 

of GDP, a 5.2 percentage point jump, which is larger than today’s 

spending on national defense. 

In its latest projections, CBO shows the combined spending on 

Medicare and Medicaid, the health entitlements, growing from 

about $0.8 trillion in 2012 to $1.8 trillion in 2023. That is a $1 trillion jump in spending and represents 55 percent of all the new resources available in 2023 compared to 2012. 

Looking out into the future, the problem is even more daunting. 

Both CBO and the actuaries who produced the Medicare numbers 

for the annual trustees report expect healthcare cost inflation, 

along with the surge in enrollment, to push Federal entitlement 

spending up very rapidly in the decades ahead. CBO estimates that 

the combined spending on Medicare, Medicaid, and the health law’s 

new premium subsidy program will rise from 5.4 percent of GDP 

today to 8.4 percent in 2030. 

And these projections assume very deep cuts in what Medicare 

pays for these services for seniors, an assumption that is highly 

questionable. Under an alternative scenario that CBO produces, 

the number could rise to as high as 12.4 percent of GDP, just on 

the health entitlements, by 2050. 

The consequences of various approaches to the problem vary 

quite a bit. Our budget situation would be far worse if not for 

large, offsetting budgetary cost reductions that have already occurred. In the 1980s, average defense spending was 5.8 percent of 

GDP. In the last decade, it was 3.8 percent of GDP, even with the 

overseas engagements of that decade. All of that savings and more 

has gone to finance higher entitlement expenses. 

There is much concern today about the effects of the sequester. 

It is quite plain that the reason the blunt instrument of the sequester was enacted in 2011 is due in large part to the unaddressed 

problem of rising entitlement costs. The cuts are going to have to 

come from somewhere, and if there is no consensus on entitleVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
10 

ments, then the cuts will inevitably fall on discretionary accounts, 

including education, job training, and public health funding. 

One approach to the problem would be to use the provisions of 

the 2010 healthcare law. There has been much talk about bending 

the cost curve through those provisions. But it is really important 

to note that CBO estimated essentially no savings from those provisions when they estimated the bill, and there has been no evidence since then that they will produce any savings. Instead, the 

2010 law used the same formula that has been used in the past 

to hit budget targets, which is large, across-the-board, and indiscriminate cuts in the Medicare program. 

In particular, the law included an annual productivity factor adjustment that will reduce payments into institutions on an ongoing 

basis starting this year. According to the 2012 trustees report, the 

cuts will push revenue down so much that about 15 percent of all 

hospitals will be operating in the red by the end of the decade. 

That number will jump to 25 percent in 2030 and 40 percent by 

2050. 

The actuaries have made it very clear they don’t expect this to 

happen, and so they produce an alternative set of assumptions for 

the Medicare program assuming that they will be reversed or partially reversed. When they do that, the projections for Medicare are 

essentially unchanged from prior to when the law was enacted. 

Another approach to solving the problem would be to raise taxes. 

The Congressional Budget Office did a study for Chairman Ryan 

last year on, if you solve this problem entirely on the tax side of 

the equation, what would it take, essentially. They estimated that 

to close the gap between the current policy and then what would 

happen with the alternative projections would take about a 33 percent tax increase across the board on income taxes and corporate 

tax rates—a very, very large tax increase. 

Let me conclude by saying that the most significant risk of all 

of this is for the social safety net, because in the midst of a Federal 

debt crisis, abrupt changes in policies would be required to continue borrowing at preferential rates in the global market. That 

has happened to other countries, and it is not out of the question 

that it could happen here. 

Thank you very much. 

[The prepared statement of Mr. Capretta follows:] 

11 


80803.001

Testimony Presented to the Health Subcommittee of the 

House Energy and Commerce Committee 

"Saving Seniors and Our Most Vulnerable Citizens from an Entitlement Crisis" 

James C. Capretta 

Senior Fellow, Ethics and Public Policy Center and 

Visiting Fellow, American Enterprise Institute 

March 18, 2013 

Chairman Pitts, Mr. Pallone and other members of the subcommittee, thank 

you for the opportunity to testify before your committee today. 

The most serious threat to the nation's long-term prosperity is the rapid and 

unfinanced growth of entitlement spending. Left unchecked, spending commitments 

for these programs will push federal deficits and debt to levels that many economists 

fear will precipitate a crisis. Experience shows that the consequences of such a crisis 

would be especially disastrous for the most vulnerable segments of our society, 

including those who are dependent on these programs for their financial security and 

health needs. 

The Dimensions of the Problem 

The three largest entitlement programs today are Social Security, Medicare, 

and Medicaid. According to the Congressional Budget Office (CBO), total spending 

on these programs was just 4.8 percent of GDP in 1973, as shown in Chart I. In 

2012, four decades later, spending on these programs had reached 10.0 percent of 

GDP. That jump in spending -- 5.2 percentage points ofGDP -- is larger than today's 

federal commitment to national defense. 
12 


80803.002

Chart 1: 

Historical Federal Spending on the Largest Entitlement Programs 

Medicaid--.." 

:s 8.0 c-----.-..................................... -

t!l 

;i< 6.0 

4.0 

2.0 

0.0 1973 1977 1981 1985 1989 1993 1991 :ro01 200S 2009 

Source: Congressional Budget Office, Historical Tables 

Recently, CBO lowered the expected growth rates for the Medicare and 

Medicaid programs over the coming decade, but even with an expectation of slower 

per person spending growth, total spending on these programs is still set to rise very 

rapidly. As shown in Chart 2, in its latest projections, CBO shows combined 

spending on Medicare, Medicaid, and the new subsidy program from the 2010 health 

care law rising from $0.8 trillion in 2012 to nearly $1.8 trillion in 2023. That $1 

trillion jwnp in spending represents 55 percent of the difference between total, noninterest federal spending in 2023 compared to 2012. Put another way, and essentially 

by default, the major health entitlement programs will crowd out every other possible 

priority and consume more than half of all additional resources at the federal level. 

2 
13 


80803.003

Chart 2: 

Health Entitlement Spending Growth, 2000 to 2023 

$2,000 ~---~~-----'----'--"---.-'-'-'"'''' 

$1,800 L-_______ ~ _______ __;--'---~--...... ---.. -.----i 

$1,600 "------------.----.. 

$1,400 

!'! $1,200 L-___ ._._._. _______ .. _ .. _ 

o 

== $1,000 +-.. ---------.... ------~--.. ---

~ $800 "'------.-------"7"",,' 

$600 +-.~---­

$400 

$200 

$0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 

Avg. Annual Growth Rate of Spending'" 7.6% 

Source: The Budget and Economic Outlook' Fiscal Years 2Q13 to 2023, 

Congressional Budget Office, February 2013 

Looking further out into the future, the problem is even more daunting. Both 

CBO and the actuaries who produce the Medicare projections for the annual trustees' 

report expect health care cost inflation, along with a surge in enrollment in the 

programs, to push federal health entitlement spending up rapidly in the coming 

decades. In projections released Jast summer, CBO estimated that the combined 

spending on Medicare, Medicaid, and the health law's new premium subsidy program 

would rise from 5.4 percent of GDP today to 8.4 percent in 2030 and 11.4 percent in 

2050, as shown in Chart 3. 

And these projections assume very deep cuts in what Medicare pays those 

providing services to seniors -- an assumption that is highly questionable. CBO 

provides an additional long-term projection to take into account the possibility -- and 

some would say the likelihood -- that these cuts will be reversed or altered in some 

3 
14 


80803.004

fashion in the future. Under the "alternative fiscal scenario," spending on the major 

health entitlement programs is expected to rise to 12.4 percent ofGDP in 2050. 

15.0 

12.0 

0-

0 

Cl 9.0 

'0 

~ 

6.0 

3.0 

0.0 

Chart 3: 

Health Entitlement Spending, 2012 to 2050 

Added Spending Under 

_____ ->Autlt ... ernanat.iw-Eiscal Scenarjo " 

~ 

2012 2016 2020 2024 2026 2032 2036 2040 2044 2043 

Sources: Lh_8 20't1J"..QrJg:I~f!'rI~~Q~, Congressional Budget Office, 

June 2012 

The Consequences of Various Approaches to the Problem 

Our budget situation today would be far worse if not for large offsetting 

budgetary cost reductions that have made some room in the budget for higher 

entitlement spending. In the 1980s, average defense spending was 5.8 percent of 

GDP. But after the Cold War ended, there was a major drawdown in defense 

commitments that continued even during the Iraq and Afghanistan wars. Between 

2000 and 2009, defense spending averaged 3.8 percent ofGDP a full two 

percentage points ofGDP less than two decades earlier. All of that savings, and 

more, has gone to higher entitlement expenses. 

4 
15 


80803.005

Unfortunately, there is no more room for such major defense cutting, which is 

why rising entitlement costs are now causing significant dislocation in the rest of the 

budget. In August 2011, the President and Congress enacted the sequester that is now 

cutting domestic discretionary programs across the board by 5 percent. Many in 

Congress are worried that these cuts will reduce the level of services provided to the 

American people, and there is special concern for what the cuts might mean for the 

most vulnerable Americans. It is quite plain that the reason the blunt instrument of 

the sequester was enacted in 2011 is due in large part to the unaddressed problem of 

rising entitlement costs. The budget must be cut somewhere, and ifthere is no 

consensus on entitlement savings, then the cuts will inevitably fall on the 

discretionary accounts, including education, job-training programs, and public health 

funding. 

One approach to the problem would be to attempt to control costs in the health 

entitlement programs through the lowering of what the federal government pays for 

various medical services. This approach to cost control was featured heavily in the 

2010 health care law. Since the law was enacted, there has been a great deal of 

attention on certain reforms, such as accountable care organizations, that some 

analysts hope will "bend the cost curve" by altering how services are rendered to 

patients. But there's no evidence that this will occur, and the savings from such 

provisions were essentially non-existent in CBO's estimates of the law. 

Instead, the 20 I 0 law achieved large savings in Medicare the same way 

savings, at least on paper, have been achieved in the past -- with large downward 

revisions in what Medicare pays for services. In particular, the law included an 

5 
16 


80803.006

annual "productivity factor" adjustment that will reduce payments to institutions 

providing care, including hospitals, to levels that are well below what the actuaries 

expect will be necessary to cover the cost of caring for Medicare patients. According 

to the 2012 Trustees' Report, the cuts will push revenue down so much that about IS 

percent of all hospitals and other institutional providers of care will have negative 

total margins -- meaning they will be operating in the red and in danger of insolvency. 

The predictable response of these institutions will be to take steps to limit their losses 

by avoiding Medicare patients. And that will mean seniors will begin to find it harder 

to find providers who will care for them. The actuaries expect the percentage of 

"underwater" providers will reach 25 percent by 2030 and 40 percent by 2050. 1 

The actuaries have also made it very clear that they don't expect this to 

happen because the political pressure from inadequate access to care among seniors 

would force policymakers to enact revisions and increase payment rates. This is the 

primary reason why the actuaries have made it plain that the projections of Medicare 

spending under current law are unrealistic. It is also why, in each of the last three 

years, they have issued alternative projections of Medicare costs, simultaneous with 

the annual trustees' report, that assume higher reimbursement rates. As shown in 

Chart 4, under the latest alternative projection, Medicare spending rises even more 

rapidly in the decades ahead and reaches nearly 10 percent ofGDP by the end of the 

projection period. 

1 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and the Federal 

Supplementarv Medical Insurance Trust Funds, April20J2, p. 217 (http://www.cms.gov/RescarchStatistics-Data-and-Systcms/Statistics-Trends-and-ReportsIReportsTrustFunds/downloads/tr2012.pdD. 

6 
17 


80803.007

Another approach to solving the problem would be to raise taxes to cover the 

added costs of rising entitlement spending. In 2030, the total cost of the Medicare and 

Medicaid programs will be at least 8.4 percent ofGDP, a full 3 percentage points 

above the spending level in 2012. It might be possible to cover this added cost 

through hikes in either income or payroll taxes, or possibly both, but the tax hikes 

would have to be very large. 

12.0 

10.0 

a.. 8.0 

0 

(!) 

'0 6.0 

'<f!. 

4.0 

2.0 

0.0 

Chart 4: 

Long-Term Medicare Spending Projections: Two Scenarios 

Alternative Scenario 

... ........ .... .... 

.... ........ , , 

~ 2012 Trustees' Report 

-

2010 2020 2030 2040 2050 2060 2070 2080 

Source: "Projected Medicare Expenditures under Illustrative Scenarios with Altemative 

Payment Updates to Medicare Providers," John D. Shatto and M. Kent Clemens, Office 

of the Actuary. Centers for Medicare and Medicaid Services, May 18, 2012. 

For instance, as of 2013, the federal individual income tax is expected to 

generate revenue equivalent to about 7.8 percent of GDP. Increasing that by 3 

percentage points would thus imply a nearly 40 percent tax hike across the board. 

Such a hike would hit above-ave rage-income households especially hard, but the 

middle class and lower middle class would not be spared. For a median household 

7 
18 


80803.008

income, a 40 percent income tax hike would amount to $400 per year in today's 

Of course, relying entirely on income tax hikes to cover Medicare's long-term 

cost increases would fundamentally change the nature of the program, away from an 

earned benefit financed by payroll taxes to a benefit financed by general taxation, and 

thus more like a transfer payment. But covering Medicare's added costs with payroll 

tax hikes would hit the middle class even harder than income taxes and would be 

especially burdensome on younger Americans who would be forced to pay for 

Medicare twice -- once for the coming generation of retirees, and then again for their 

own health care needs in retirement. Covering the added Medicare costs implicit in 

the actuaries' alternative scenario -- roughly 3 percent of GDP over the long run --

with payroll taxes would imply doubling today's Medicare tax rate of2.9 percent of 

earned income (this is the rate that applies to all but the highest income households). 

Doubling the Medicare payroll tax would mean nearly $1,500 in higher taxes for 

households with armual wages of about $50,000. 

Conclusion 

The most significant risk of all for those dependent on the nation's social 

safety net is that, in the midst of a federal debt crisis, abrupt changes in policies would 

be required to continue borrowing at preferential rates in the global market. That has 

certainly happened to other countries that were mired in debt, and it is not out of the 

question that it could happen here. 

2 Calculated using CBO's supplementary tables accompanying the report, "The Distribution of 

Household Income and Federal Taxes, 2008 and 2009," July 2012 

(http://www.cbo.gov/publicationl43373). 

8 
19 


80803.009

The federal government's outstanding debt now stands at about 73 percent of 

GDP. CBO expects the debt burden to rise to 77 percent of GDP over the next 

decade, and those projections assume no economic downturn or spike in interest rates. 

There is now a very clear and real risk that, with a bad break or two, the U.S. could 

find itself struggling to service its debts without significant, near-term changes in 

spending commitments. 

It would be far better for all concerned ifpolicymakers began today to lower 

the risk of such a crisis by moving forward with sensible reforms of the nation's 

major entitlement programs. There is still time to enact changes that are gradual 

enough to protect today's retirees from abrupt changes even as the reforms ensure that 

the programs can be sustained for future generations. Reforms of this kind are never 

without controversy but it would be far better to take on difficult challenges now than 

to wait for the crisis to be upon us. 

9 
20 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

Mr. Archambault for 5 minutes for your opening statement. 

STATEMENT OF JOSHUA ARCHAMBAULT 

Mr. ARCHAMBAULT. Thank you, Chairman Pitts and Ranking 

Member Pallone, members of the committee. Thank you for this opportunity to bring a local perspective to this important issue of protecting our most vulnerable citizens from the entitlement crisis. My 

name is Josh Archambault, and I serve as the director of 

healthcare policy at a nonpartisan think tank, Pioneer Institute, in 

Massachusetts. 

This afternoon, I would like to focus on Medicaid, a program, especially in States with historically generous eligibility, such as 

Massachusetts, that may foreshadow some of the underlying issues 

that are sure to be exacerbated under the Affordable Care Act. 

Medicaid outcomes that deserve a closer look include the tremendous budget pressure in States and the crowding out of billions of 

dollars of spending on other public priorities; the reaction of State 

leaders to cut access to benefits and hike taxes to fund the program; and the increasing inability of patients to access providers, 

which may lead to worse health outcomes. In my opinion, as long 

as the program remains in place in its current form, these problems will persist, and we will fail to protect the most vulnerable. 

Lawmakers in all States, red or blue, have been prevented from 

investing in our kids and our communities due to the ballooning 

costs of Medicaid. For example, in 2012, 35 States funded elementary and high schools at a lower level than in 2008. This translated 

into fewer teachers in the classroom and less police officers on the 

street. Sadly, these tradeoffs fall disproportionately hard on vulnerable communities. 

Even with the Federal Government offering to pay a significant 

portion of the ACA’s Medicaid expansion costs, any additional 

spending does not come free. The Federal portion of the additional 

$638 billion will have to come either from higher taxes, from our 

sluggish economy, or from cuts in the budget. 

While supporters argue that the State portion of the additional 

spending will be minimal, roughly $33 billion, it cannot be denied 

that many States are struggling to pay for their current program. 

As a result, State leaders have cut access to benefits and hiked 

taxes to fund the program. In 2010, 15 States cut benefits in Medicaid; in 2011, 18 States did. 

Putting aside the debate over the generosity of Medicaid programs in each State for just one moment, we know the pain of 

these cost-containment strategies are felt most strongly by the 

beneficiaries themselves. Instead of being able to vote with their 

feet and take their business elsewhere, they are stuck with these 

top-down decisions that dictate their insurance coverage, and the 

outcome has been poor access to providers and worse care outcomes 

for those on Medicaid. 

The Federal Government has placed restrictions on how States 

can manage costs in the program. As a result, the prime tool to 

save money is to decrease payment rates to providers. States that 

have already expanded Medicare eligibility tend to pay for it by 

cutting reimbursement rates to finance the expansion. Over time, 

21 

this has resulted in underpayment of doctors and hospitals and 

more providers refusing to treat those on Medicaid. This trend prevents many recipients from gaining even basic access to specialists. 

As a result, when Medicaid patients are admitted into a hospital, 

they are often sicker. Lower rates also may account for more ER 

visits by a Medicaid patient. This form of care is both uncoordinated and expensive. 

In 2010, at least two-thirds of States cut provider reimbursement 

rates. In 2011, 39 States did. And in 2012, almost all 50 States cut 

rates. Recently the administration encouraged further cuts. As a 

result, access issues are likely to get worse, making it harder for 

even the most vulnerable on Medicaid to find a physician to see 

them. 

In 2011, a GAO study documented that children on Medicaid 

often have worse access to physicians than those with no insurance 

coverage at all. For many years, as Massachusetts has provided 

coverage to a much higher income level than in most other States, 

access remains a problem. Even the commonwealth with the highest per capita doctor ratio in the Nation still has a problem with 

access. 

A simple anecdote illustrates this problem well. A Boston-area 

Medicaid recipient was provided a list of eligible providers by the 

Medicaid office and yet failed to find one accepting new patients 

after calling over 20 doctors. 

Policymakers should be concerned about the string of troubling 

outcomes that are appearing more often in the academic literature, 

and these studies raise legitimate questions about the quality of 

care being provided. If Medicaid outcomes were presented as part 

of a business, it is my opinion it would be shut down because it 

is not serving its consumers well and, in some cases, may be hurting their health. Reform requires a departure from the current 

mindset that having access to a Medicaid card is the same as having access to a doctor. 

Thank you so much for your time. 

[The prepared statement of Mr. Archambault follows:] 

22 


80803.010

STATEMENT BY 

JOSH ARCHAMBAULT, MPP 

Hearing on "Saving Seniors and Our Most Vulnerable Citizens from an Entitlement Crisis" 

Committee on Energy and Commerce 

Subcommittee on Health 

United States House of Representatives 

March 6, 2013 

Josh Archambault 

Director of Healthcare Policy 

Center for Healthcare Solutions 

Pioneer Institute 

85 Devonshire St, 8th FI 

Boston, MA 

617-723-2277 ext 205 

josh@pioneerinstitute.org 
23 


80803.011

Summary of Testimony on 

"Saving Seniors and Our Most Vulnerable Citizens from an Entitlement Crisis" 

Josh Archambault, Pioneer Institute 

The testimony highlights some of the challenges being encountered at the state level on 

entitlements, especially in Medicaid. 

Discusses how Medicaid: 

I) Has put tremendous pressure on state budgets, crowding out billions of dollars of 

spending on other public priorities, 

2) Has forced state leaders to cut access to benefits and hike taxes to fund the 

program, and is 

3) Leaving patients increasingly unable to access providers, which can lead to worse 

health 

All three of these outcomes hurt the most vulnerable citizens in our country. Medicaid 

beneficiaries are captive to the whims of bureaucrats. Instead of being able to vote with their feet 

and take their "business" elsewhere, they are stuck with the top down decisions that dictate their 

insurance coverage. This approach is blunt and not sophisticated enough to take into account the 

real health differences amongst the vulnerable. As long as the current program remains in place, 

these problems will persist and we will fail to protect the most vulnerable 

States such as Massachusetts with historically generous Medicaid programs can serve to 

illustrate the challenges that are encountered under the current healthcare entitlement crisis, and 

may also foreshadow some of the underlying issues that will be exacerbated under the Patient 

Protection and Affordable Care Act's (ACA) Medicaid expansion. 

If Medicaid outcomes were presented as a business model, it would be shut down because it 

was not serving its consumers well, and in some cases may be hurting their health, all the while 

spending hundreds of billions annually. 

2 
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80803.012

Chainnan Pitts, Ranking Member Pallone, and Members of the Committee, 

Thank you for this opportunity to bring a local perspective to the important issue of 

protecting our most vulnerable citizens from the entitlement crisis. My name is Josh 

Archambault, and I serve as the director of healthcare policy at a non-partisan state-based think 

tank, Pioneer Institute, located in Boston, Massachusetts. 

This morning I would like to highlight some of the challenges being encountered at the 

state level on entitlements, focusing primarily on Medicaid. Medicaid serves to illustrate the 

challenges that are encountered under the current healthcare entitlement crisis, especially in 

states with historically generous programs, such as Massachusetts. The experience of our state 

may also foreshadow some of the underlying issues that are sure to be exacerbated under the 

Patient Protection and Affordable Care Act (ACA), as roughly 20+ million individuals will be 

joining Medicaid. 

My testimony will focus primarily on three outcomes under the current Medicaid 

program that point to the crisis at hand. Medicaid as currently constituted: 

I) Has put tremendous pressure on state budgets, crowding out billions of dollars of 

spending on other public priorities, 

2) Has forced state leaders to cut access to benefits and hike taxes to fund the program, and 

is 

3) Leaving patients increasingly unable to access providers, which can lead to worse health 

outcomes. 

Sadly, Medicaid has been afflicted by concerns over its quality, access, and financing for 

decades. The current payment structure of the program has codified perverse incentives that 

reward states when they spend an additional dollar, but disincentivizes state efforts to encourage 

efficiencies in care delivery and fight waste, fraud, and abuse. As long as the current program 

remains in place, these problems will persist and we will fail to protect the most vulnerable. 

3 
25 


80803.013

1) Medicaid puts tremendous pressure on state budgets, crowding out other public priorities. 

Under the ACA, Medicaid is projected to increase spending by an additional $638 billion 

by 2022.1 While supporters of the law argue that the state portion of additional spending will be 

minimal, $21 billion in premium contributions plus $12 billion in administrative costs," it cannot 

be denied that many states are struggling to pay for the current program. 

Medicaid is now the single largest line-item in the budget in numerous states, and has 

been so for the last four fiscal years.3 For example, in Massachusetts it accounts for roughly 36 

percent of the entire budget.4 Medicaid is clearly crowding out spending on other state priorities. 

This sentiment was expressed strongly in a Bipartisan Policy Center report, "Reforming 

Medicaid Waivers: The Governors' Council Perspective on Federalism Today," in which both 

Democratic and Republican Governors commented on the "significant burden" that Medicaid 

places on states.s A July 2012 bipartisan report from the State Budget Crisis Task Force also 

stated, "Medicaid spending growth is crowding out other needs.,,6 

Lawmakers in all states. red or blue, are being prevented from investing in our kids and 

communities due to the ballooning cost of Medicaid. One only has to look to spending trends to 

see the tradeoffs being made. For example, in 2012, 35 states funded elementary and high 

I Congressional Budget Office, "ACA Insurance Coverage Effects," February 21, 2013, Available at: 

http://www.cbo.gov/sites/defaultlfiles/cbofileslattachments/439OO_ACAInsuranceCoverageEffects.pdf 

2 It should be noted that any new enrollment among the previously eligible population prompted by awareness ofthe 

Medicaid expansion will not be financed by the federal government at the enhanced match rate. 

Howard, P. and Holtz-Eakin, D., "A Medicaid Rebellion?" City Journal, Winter 20 II. 

3 Harvard Kennedy School, Fels Institute of Government at University of Pennsylvania. and American Education 

Foundalion, "The State of the States: Full Report 2012," The States Project, Available at: 

http://v.'WW.thestatesproject.org/wp-contentiuploads/20I2IFull_Report.pdf 

4 Patrick, D., "An Act making appropriations for fiscal year 2014," Supplemental material, Expanding Access to 

Affordable, Quality Health Care, Issues in Brief, Available at: 

http://www.mass.govlbblbllfyI4hllexecI4Ihbudbrief3.htm 

5 Bipartisan Policy Center, "Reforming Medicaid Waivers: The Governors' Council Perspective on Federalism 

Today," March 2012, Available at: http://bipartisanpolicy.org/sites/defaultifiles/F ederalism percent20Paper.pdf 

6 State Budget Crisis Task Force, "Report ofthe State Budget Crisis Task Force," July 2012, Available at: http:// 

www.statebudgetcrisis.org/v.'Pcms/wp-contentlimagesIReport-of-the-State-Budget-Crisis-Task 

-Force-Full. pdf. 

4 
26 


80803.014

schools at a lower level than in 2008.7 Additionally, total infrastructure spending is down 20 

percent since 2009.8 This translated into fewer teachers in the classroom, less police officers on 

the street, and more structurally deficient bridges and roads. Moreover, the impact falls 

disproportionally on vulnerable communities.9 

Even with the federal government offering to pay a significant portion of the ACA's 

Medicaid expansion costs, any additional spending does not come "free." The projected $638 

billion in additional costs will have to come either from higher federal taxes drawn from our 

sluggish economy, or from cuts in the budget, which will likely leave less money for other 

worthy programs. A recent Harvard Kennedy School, University of Pennsylvania, and American 

Education Foundation study calculates that the state and local government unfunded liability to 

be $7.3 trillion, $1.2 trillion of which is for healthcare benefits. 10 Finding any new money for 

Medicaid highlights the challenges ahead and the deep entitlement crisis that our country faces. 

2) State leaders have cut access to beuefits and hiked taxes to fund the program, 

In 2010,15 states cut benefits in Medicaid. 11 In 2011,18 states eliminated, reduced, or 

restricted benefits. For example in 2010, Massachusetts cut dental coverage including filings, 

root canals, crowns and dentures, and also moved legal immigrants out of the subsidized 

Commonwealth Care program to reduce costs. States such as Arkansas, California, Kansas, 

7 Oliff, P., Mai. C. and Leachman, M., "New School Year Brings More Cuts in State Funding for Schools," Center 

on Budget and Policy Priorities, Updated September 4, 2012. 

8 Easton, N., "The next entitlement crisis: Medicaid spending threatens education," CNN.com, December, 3, 2012. 

9 Harvard Kennedy School, Fels Institute of Government at University of Pennsylvania, and American Education 

Foundation, page 16. The report draws the line between increasing Medicaid spending which leads to crowding out 

of state level education funding, and a heavier reliance on local tax revenue for school funding. " ... school funding 

based on local tax revenue may disadvantage low-income communities. The same tax rate in a low-income 

community will raise fewer funds than in a high-income community." 

10 The States Project, 'The State of the States: Full Report 2012," Available at: http://www.thestatesproject.orglwpcontentluploads!20 121Full_ Report.pdf 

11 "State Actions to Close Budget Gaps" Presentation to the NCSL Fiscal Leaders Seminar, 2010 Phoenix, Arizona. 

5 
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80803.015

Kentucky, Louisiana, Maine, Mississippi, North Carolin~ Oklahoma, South Carolina, Tennessee, 

Texas, Utah and West Virginia have all put limits on drug coverage.12 In a controversial move, 

Arizona opted to drop coverage for some organ transplants in December of2010. 13 

Putting aside the debate over the generosity of Medicaid programs in each state for a 

moment, the real losses of these cost containment strategies are endured by the beneficiaries, as 

they are captive to the whims of state bureaucrats. Instead of being able to vote with their feet 

and take their "business" elsewhere, they are instead stuck with top-down decisions that dictate 

their insurance coverage. This approach is blunt and not sophisticated enough to take into 

account the real health differences amongst the vulnerable. 

Increasing costs have also led to additional taxes. States have continued to increase 

questionable provider taxes, in order to maximize federal reimbursements, and others such as 

Massachusetts and Indiana have raised taxes to help offset the expenses of an expanding 

Medicaid program. 14 As long as the current program remains in place, these problems will persist 

and we will fail to protect the most vulnerable. 

3) Poor Access to Providers and Worse Health Outcomes 

Largely due to the program management structure of Medic aid, the federal government 

has placed restrictions on how states can manage costs in the program. As a result, the prime tool 

to "save" money is to adjust payment rates for providers. States that have already expanded 

Medicaid eligibility tend to pay for it by cutting provider reimbursement rates. Over time, this 

12 Galewitz, P. "States Cut Medicaid Drug Benefits to Save Money," Kaiser Health News, July 24. 2012. 

13 Bialik, c., "Health Studies Citied for Transplant Cuts Put Under the Knife," Wall Street Journal. December 18, 

2010. 

14Massachusetts raised the cigarette tax to help pay for the federally subsidized Commonwealth Care program, but 

the end result also freed up additional money for Medicaid. 

6 
28 


80803.016

has resulted in underpayment of doctors and hospitals, IS and subsequently more and more 

providers refusing to treat those on Medicaid. 16 This trend prevents many recipients from gaining 

access to basic and specialist care. As a result, when Medicaid patients are admitted into a 

hospital, they often suffer from a higher level of co-morbidity than privately insured patients, and 

with more serious illnesses. 

Low reimbursement rates may also account for the elevated number of emergency 

department (ED) visits by Medicaid patients. They are roughly twice as likely to visit an ED 

compared to both the uninsured and Medicare patients, and four times more likely than the 

privately insured. 17 To make matters worse, in Massachusetts, 55.1 percent of visits to the ED in 

FY 2010 were deemed "avoidable/preventable" for Medicaid beneficiaries.Is This form of care is 

providing uncoordinated, expensive care to patients and costing our country billions. 

In 2010, at least 2/3 of the states reduced provider rates. 19 In 2011, 39 states lowered 

provider payments, and 46 states expected to do so again in 2012.20 Just recently the 

Administration encouraged states to further cut reimbursement levels.21 As a result, access issues 

are likely to get even worse in the near future. In addition, with tens of millions joining the 

program under the ACA, the sickest of those on Medicaid today will find it even harder to find a 

physician to see them. 

"Medicaid lypically pays physicians 56 percent of the amount that private insurers pay 

"Decker, S., "In 2011, Nearly One-Third of Physicians Said They Would Not Accept New Medicaid Patients, But 

Rising Fees May Help," Health Affairs, Vol. 31, No.8 (August 2012), pp. 1673-1679 

17 Haislmaier, E., "Should States Opt Out of the Health Law's Medicaid Expansion?" The Wall Street Journal, 

February 18,2013. 

18 Compared to 43 percent for the privately insured. Division of Health Care Finance and Policy, "Efficiency of 

Emergency Department Utilization in Massachusetts," August 2012. 

19 National Conference for State Legislators, "State Strategies to Manage Budget Shortfalls," Budgets & Revenue 

Committee, 2011 Legislative Summit, August 9,2011. 

2°Smith, v., Gifford, K., Ellis, E., Rudowitz, R., and Snyder, L. "Moving Ahead Amid Fiscal Challenges: A Look at 

Medicaid Spending, Coverage and Policy Trends Results from a 50-State Medicaid Budget Survey for State Fiscal 

Years 2011 and 2012." Kaiser Commission on Medicaid and the Uninsured, October 2011." Available at: 

http://www.kff.org/medicaidluploadl8248.pdf 

21 Pear, R., "States Can Cut Back on Medicaid Payments, Administration Says," The New York Times. February 25, 

2013. 

7 
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With the ACA's Medicaid expansion, the experiences in states like Massachusetts, 

Illinois, and California support this growing concern over access. 

Concerning Access Issues in Massachusetts 

For many years, the Commonwealth has provided coverage to a much higher income 

level than most other states, some of which are reflected in the expansion under the ACA. 22 (See 

Appendix 1) Even though Massachusetts has the highest per capita doctor ratio of any state in the 

country, access is still a problem for those on Medicaid.23 According to an annual survey 

conducted by the Massachusetts Medical Society, only 54 percent of internal medicine and 64 

percent of family medicine offices accept Medicaid patients. To provide some context, Medicare 

acceptance rates in the state hover closer to 85-90 percent. The problem of access for Medicaid 

patients looks even worse when one digs deeper to observe geographical differences and 

admittance to specialists. For example, in Barnstable County on Cape Cod, only 14 percent of 

offices accept Medicaid.24 

Anecdotal evidence can illustrate this problem as well. A Boston-area Medicaid recipient 

was provided a list of eligible providers by the Medicaid office, and yet failed to find one 

accepting new patients after calling 20+ doctors.25 However, access issues are not isolated to 

Massachusetts. Other states with robust Medicaid programs have experienced some of the same 

issues and have also found detrimental effects on children. 

Concerning Access Issues tor Children in Illinois 

22 For example, while the national average for providing coverage to non-working parents is 37 percent and 63 

percent of the federal poverty Level (FPL) for working parents, Massachusetts sits at 133 percent FPL for both 

(which is largely mirrored under the ACA). In additional, Massachusetts unlike most other states, has no income 

eligibility limit for people with disabilities. The state also spends 46percent more overall per enrollee per year. 

($8,066 compared to a national average of$5,535). 

23 United States Census Bureau, "The 2012 Statistical Abstract: State Rankings: Doctors Per 100,000 Population, 

2007" U.S. Department of Commerce, available at: http://www.census.govlcompendialstatablrankings.html 

24Massachusetts Medical Society, "2012 MMS Patient Access to Care Studies," August 2012. 

25 Goodman, J., "Parallel Universes," National Center for Policy Analysis's Health Policy Blog, February 16,2011. 

8 
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A New England Journal of Medicine article highlighted the divergence in access for 

children on Medicaid and Children's Health Insurance Program (CHIP) when compared to those 

on private insurance in Cook County. In a random sample of specialists, children described as 

having a "serious medical condition" were denied an appointment 66 percent of the time if they 

said they had Medicaid, compared with II percent for those on private insurance. For those that 

did accept Medicaid, the wait times for an appointment were twice as long, 42 days for Medicaid 

patients compared to 20 days. 

Concerning Access Issues tor Children in CalifOrnia 

A 2005 study published in Urology found that for boys on Medi-Cal (Medicaid in 

California) 96 percent of offices would accept privately insured patients, while only 41 percent 

would accept Medi-Cal.26 Tellingly, 75 percent ofthe offices that did not accept Medicaid 

patients were unable to suggest another office that wouldP While these states have had some 

serious problems with access, a 20 II Government Accountability Office (GAO) study captured 

the problem nationally for kids. 

Is Being Uninsured Better fOr Access Than Medicaid? 

The GAO study documented that children on Medicaid often have worse access to 

physicians than those with no insurance coverage at all. Of the roughly 1,000 doctors surveyed, 

53 percent were not accepting new Medicaid patients, 45 percent were not accepting new 

uninsured patients, and 21 percent were not accepting new privately insured patients. However, 

the situation was even worse for those looking for a primary care doctor, as only 23 percent 

26Hwang, A.. Hwang, M. Xie, H., Hardy, B. and Skaggs, D., "Access to Urologic Care for Children in California: 

Medicaid Versus Private Insurance," Urology, Vol. 65, No. 1(2005), pp. 170-173. 

"Bisgaier, J. and Rhodes, K., "Auditing Access to Specialty Care for Children with Public Insurance," New England 

Journal of Medicine, June 16, 20 II, pp. 2324-

2333,http://www.nejm.org/doi/fuIlIl0.1056INEJMsaI013285 (accessed November 7, 2012). 

9 
31 


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would accept Medicaid patients, and only 17 percent of specialists were open for business. 28 

Interestingly, the GAO survey also asked for doctors' motivations for not participating in 

the Medicaid program. Low reimbursement rates lead the way with 94 percent saying it greatly 

or somewhat limited their willingness to take Medicaid patients. Billing requirements and 

paperwork burdens also topped the list (87 percent), delays in payments and difficulty in 

provider enrollment and program stipulations also garnered significant support (85percent), and 

difficulty referring patients to other providers registered as a major concern (78percent). 

It should be noted that factors such as the complexity of a patient's health or noncompliance were not primary drivers for non-participation. As some scholars have suggested, 

this reflects the worse possible outcome for Medicaid as doctors find it to have not only low 

payments, but also "burdensome requirements, excessive paperwork, and unresponsive 

bureaucrats.,,29 As long as the program remains in its current form, these problems will persist. 

Conclusiou 

It is impossible to infer a causal relationship between Medicaid participation and poor 

health outcomes without conducting a randomized controlled experiment, yet policymakers 

should be concerned about the strong correlation of troubling outcomes that are appearing more 

often in the academic literature.3o 

These studies raise legitimate questions about the quality of care being provided to some 

of our most vulnerable residents. If Medicaid outcomes were presented as a business model, it 

would be shut down because it was not serving its consumers well, and in some cases may be 

"GAO, "Most Physicians Serve Covered Children but Have Difficulty Referring Them for Specialty Care" GAO1l-624, Jun 30. 2011 

29 Roy, A., "GAO: Children on Medicaid Have Worse Physician Access Than Uninsured Children," Forbes.com. 

July 5, 2011. 

JODayaratna, K., "Studies Show: Medicaid Pateients Have Worse Access and Outcomes than the Privately Insured," 

Heritage Foundation, Backgrounder #2740, November 9.2012. 

10 
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80803.020

hurting their health. 

Furthermore, the problems of Medicaid leak out into the general marketplace driving up 

the cost of middle-class workers' insurance. A 2008 Milliman study found that the average 

family pays an additional $1,800 in premiums because of cost-shifting due to low Medicaid 

reimbursement rates.3l 

I trust that you will take these concerns seriously as you consider the best way forward to 

both protect the most vulnerable among us, and address the entitlement crisis. This is not a false 

choice between cutting benefits or simply raising taxes to fix the problem. It requires creative 

thinking and a true partnership with states to eradicate the billions of dollars of waste, fraud, and 

abuse that is preventing the level of care to be targeted at those that need it the most. It requires a 

departure from the current mindset that having access to a Medicaid card is the same as having 

access to a doctor. It requires us all to ask the tough question-are the billions we are spending 

as a country serving the best interest of the beneficiaries and of the taxpayers? 

I appreciate the opportunity to share some of my thoughts with you all today, and look 

forward to answering any questions you may have. 

31 Fox, W. and Pickering, J., "Hospital and Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, 

and Commercial Payers," Milliman Client Report, December 2008. 

11 
33 


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Appendix 1. 

MASSHEALTH ELIGIBILITY OVERVIEW 

Source: Massachusetts Medicaid Policy Institute, "MassHealth: The Basics, Facts, Trends and 

National Context." Updated.hme 2012, 

12 
34 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

Dr. Feder for 5 minutes to summarize your opening statement. 

STATEMENT OF JUDY FEDER, PH.D. 

Ms. FEDER. Thank you, Chairman Pitts and Ranking Member 

Pallone and members of the committee. 

I am pleased to be with you today to speak on the future of Medicare and Medicaid. Continuing to slow growth in these invaluable 

programs is essential to meeting the needs of an aging population, 

but these programs are neither doomed nor in crisis. Briefly summarizing my written testimony, let me explain why. 

First, per-person costs in Medicare and Medicaid have consistently grown more slowly than private insurance premiums despite 

these programs’ focus on older and disabled people with the greatest healthcare needs. In fact, in the past 3 years, Medicare’s perbeneficiary costs have grown so slowly—practically zero last year— 

that CBO has reduced its Medicare spending projections for the 

next decade by more than $500 billion, on top of the $500 billionplus in savings from measures taken in the Affordable Care Act. 

CBO has also reduced its Medicaid projections for that period, excluding ACA coverage expansions, by more than $200 billion. 

Second, what that means is that it is not growth in spending per 

beneficiary but growth in the number of beneficiaries that has become the primary driver of increased Medicare and Medicaid 

spending. It is this growth in the elderly population, as we baby 

boomers turn age 65, that requires us to actively promote the payment and delivery reforms initiated by the Affordable Care Act to 

make our healthcare system more efficient. There is no status quo 

in our healthcare system or in our public programs, Mr. Chairman. 

All our programs are in a state of active change, aiming to improve 

efficiency. 

Third, as these innovations develop—and they will take time to 

develop—there are additional measures we can take not in Medicaid. Given already constrained provider payment rates and existing opportunities for State flexibility, proposals that would secure 

more than modest savings, like block grants or per capita caps, 

would shift costs to States and reduce access to care. But on Medicare, as part of a balanced deficit-reduction package, we can refine 

existing payment mechanisms at the same time we promote their 

reform. 

My testimony includes a few examples of refinements that reduce 

unnecessary overpayments and promote efficiency. These measures 

and others are not, as critics claim, arbitrary or unjustified cuts 

that endanger access or quality. On the contrary, as MedPAC emphasizes, they actually enhance provider efficiency. And if too great 

a gap emerges between public and private payments, the solution 

is not to have Medicare pay more; it is to revoke cost containment 

across the whole healthcare system through a collaboration among 

public and private payers in payment design and payment constraints. 

Fourth, only so much can be expected of reducing Medicare costs 

per beneficiary. A balanced deficit-reduction package must therefore include new revenues to serve an aging population. As the elderly population doubles over the coming decade, it is no less necVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
35 

essary for the Federal Government to invest in health care than it 

was for State and local governments to invest in education, as they 

did, when the very same people began entering public school 60 

years ago. 

An alternative course of action, changing entitlement structures 

through vouchers or block grants or adopting an overly ambitious 

savings target that could produce the same result, would fail to 

serve the growing elderly population, undermining some of the 

most vulnerable members of our society, while shifting costs and 

actually increasing healthcare costs. Such measures might save 

Federal dollars, but keep in mind that half of Medicare beneficiaries have family incomes of less than $25,000 and they already 

spend 15 percent of their budgets on health care. 

Such action cannot be justified on grounds of fiscal responsibility. 

Stabilizing the debt in the coming decade at 73 percent of the economy would require another $11⁄2 trillion in deficit reduction and 

would give policymakers time to identify the further steps necessary to reduce costs throughout the healthcare system in coming 

years. And it will enable us to meet our responsibilities to an aging 

population, rather than abdicate those responsibilities by radically 

restructuring Medicare through premium support vouchers or by 

restructuring or severely cutting Medicaid or other programs that 

protect low-income Americans. 

Thank you. 

Mr. PITTS. The chair thanks the gentlelady. 

[The prepared statement of Ms. Feder follows:] 

36 


80803.022

Financing Medicare and Medicaid 

Testimony of Judy Feder1 and Paul N. Van de Water2 

Before the 

Subcommittee on Health 

Committee on Energy and Commerce 

US. House of Representatives 

March 18, 2013 

I Judy Pede! is an Urban Institute Fellow and Professor and former Dean. Georgetown Public Policy Institute. 

2 Paul Van de \'(later is a Senior Pellow, Center on Budget and Policy Priorities. 
37 


80803.023

Chairman Pitts, Ranking Member Pallone, and members of the subcommittee, I appreciate the 

invitation to appear before you today on the importance of preserving Medicare and Medicaid. 

Budgetary entitlements of many kinds are designed to guarantee Americans adequate protection in 

case of illness, disability, or economic misfortune. Efforts to control the costs of health care 

entitlements (including Medicare and Medicaid), must continue, if we are to meet the needs of an 

aging population. 

But Medicare and Medicaid are not in crisis. Responsible reforms, now underway, can achieve 

fiscal responsibility while sustaining these programs' fundamental insurance protections. By 

contrast, proposals to restructure Medicare through vouchers or Medicaid through block grants 

would undermine the very guarantee that these programs are designed to provide. 

Medicare and Medicaid are essential to the health and financial well-being of the elderly, disabled, 

and poor. Their costs per enrollee have consistently grown more slowly than private insurance 

premiums, despite their focus on populations with the greatest healrh care needs. Over the past 40 

years, Medicare spending per entollee has grown by an average of one percentage point less than 

comparable private health insurance premiums. 3 Medicaid provides acute health care coverage at a 

cost of 27 percent less per child, and 20 percent less per non-elderly adult, than private coverage; 4 it 

is also the nation's primary payer for long-term care services and supports. 

In fiscal year 2012, Medicare spending per beneficiary increased by an extraordinarily low 0.4 

percent - well below the 3.4-percent growth in gross domestic product (GDP) per capita. Over 

the 2010-2012 period, Medicare spending per beneficiary grew at an annual rate of 1.9 percent, while 

GDP per capita increased by 3.2 percent a year. S 

The financial outlook for Medicare and Medicaid has improved significantly in the past three 

years. The Affordable Care Act (ACA) reduced projected Medicare spending by $555 billion 

between 2011 and 2020. 6 The Congressional Budget Office's (CBO) projections of Medicare 

spending over the 2011-2020 period have fallen by an additional $511 billion since late 2010 for 

other reasons. 7 CBO's Medicaid projections for that period, excluding the ACA coverage 

expansions, have declined by more than $200 billion as well. 8 

Rather than growth in spending per beneficiary, growth in the number of beneficiaries has 

3 Office of the Actuary, Centers for Medicare & Medicaid Services, National Health Expenditure Tables,January 2013, 

table 21, http://,,,,,,w.ems.go\' IRescareh-Stausues-Data-aDd-Systems IStatisucs-TrcDds-andRcports/NationalHealthExpendData/Do,"l1loads/tables.pdf. 

4 Leighton Ku and Matthew Broaddus, "Public and Private Insurance: Stacking Up the Costs," Health AjJairs Web 

Exclusive,]unc 24, 2008. 

5 Richard Kronick and Rosa Po, Growth in Aledicare Spendingper Benificiary Continues to Hit Fft:rfonc LoiJJs, ASPE Issue Brief, 

U.S. Department of Health and Human Services, January 7, 2013. 

6 Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2010, p. 63. 

7 Paul N. Van de Water, "Projected Medicare Spending Has Fallen by More than $500 Billion, Off the Charis Blog, 

February 19, 2013, http:(lw.,,\\' offthechartsblog org/projected-medicare-spending-has-fallcn-b),-more-than-500-

billion!. 

S Edwin Park, "Projected Medicaid Spending Has Fallen by More than $200 billion," Off the Charis BIog, March 13, 2013, 

http-II \\'"\,·w.offthechartsbIQg.org/projccted~mcdicaid -spending-has-fallen-by-morc-than-700-billi()t1/ 
38 


80803.024

become the primary driver of increased Medicare and Medicaid spending. Even if cost growth 

remains moderate, Medicare and Medicaid spending will keep rising as more baby boomers become 

eligible for benefits. As baby boomers age, states will also face a considerable increase in the need 

for long-term care. 'Between now and 2035, federal spending on Medicare and Medicaid is 

projected to increase by slightly more than 3 percent of GDP. By way of comparison, state and 

local government spending on education grew by a similar amount between 1950 and 1975, as the 

boomers entered primary and secondary school. 

Growth in the elderly population makes it essential that we continue efforts to make our health 

care system more efficient. Effectively implementing the payment and delivery reforms of the 

Affordable Care Act is an essential next step. The ACA's research and pilot projects should yield 

important lessons about how to encourage coordinated and efficiently delivered care that lowers 

costs while maintaining or improving quality. ~'hile waiting for these efforts to bear fruit, are their 

additional measures we can take? 

In Medicaid, there is little room for savings from efficiency, given already constrained provider 

payment rates and existing opportunities for state flexibility. Most proposals that would secure 

more than very modest federal savings - such as a block grant or per capita cap - would do so by 

shifting costs to states. If that occurs, states are likely to cut eligibility, benefits, or provider 

payments and hence reduce beneficiaries' access to care. 

In Medicare, policymakers can enact measures now, as part of a balanced deficit-reduction 

package, that can reduce spending by refining current payment methods w'ithout jeopardizing the 

quality of care or access to care. Restoring the Medicaid rebate on prescription drugs for lowincome beneficiaries,1O eliminating overpayments to Medicare Advantage plans,'1 and refining 

payment mechanisms for post-acute care" are a few examples of policies likely to increase value for 

the Medicare dollar. Critics who dismiss Medicare payment reforms, especially to hospitals, as 

"arbitrary cuts" ignore MedPAC evidence that they promote sorely needed efficiency in health care 

delivery." Though too great a gap between Medicare and private payments can endanger access to 

care, the solution is not to have Medicare pay more. Rather it is to promote cost containment across 

the whole health care system through collaboration among public and private payers in designing 

and constraining rates or in setting overall health care budgets. 

Only so much can be expected, however, of reducing Medicare costs per beneficiary. A balanced 

Feder and Harriet Komisar. "The Importance of Federal Financing to the Nation's Long-tenn Care Safety Net." 

10 Richard Frank and Jack Hoadley. "The Medicare Part D Drug Rebate Proposal: Rebutting an Unpersuasive Critique." 

Health Aifairs Blog, December 28. 2012. 

11 Judy Feder, Steve Zuckennan. Nicole Lallemand and Brian Biles~ ''Wby Premium Support? Restructure Medicare 

Advantage, Not Medicare." Washington: The Urban Institute, 2012 

12 Kaiser Family Foundation, Policy Options to Sustain Medicare for the Future. January 2013, Option 2.42. 

13 Medicare Payment Advisory Committee, &port /0 the Congress, lviedicare Payment Po/ig, Chapter 3, March 2012. 

3 
39 


80803.025

deficit-reduction package must therefore include new revenues to deal with an aging population. As 

the elderly population doubles over the coming decades, it is no less necessary for the federal 

government to invest in their health care, efficiently delivered, than it was for state and local 

governments to invest in education sixty years ago when the very same people began entering public 

schools. 

An alternative course of action, changing entitlement structures through vouchers or block grants 

(or adopting an overly ambitious savings target that could produce the same results) would fail to 

serve the grO\ving elderly population- harming some of the most vulnerable members of society 

while shifting costs to states, individuals, and employers and failing to address the underlying causes 

of health cost growth. Indeed, some proposals - such as raising the age of eligibility or vouchers 

for Medicare - would actually raise total health care costs. Such measures might save federal 

dollars, but they shift risk onto beneficiaries who can ill afford to pay them. Keep in mind that half 

of Medicare beneficiaries have incomes ofless than $25,000 (including their spouse's income) and 

that Medicare households spend 15 percent of their budgets on out-of-pocket health costs - three 

times that of those not on Medicare. 

Such action cannot be justified on grounds of fiscal responsibility. The key fiscal policy goal for 

the medium term should be to stabilize the federal debt relative to the size of the economy. Since 

late 2010 Congress has enacted nearly $2.8 billion in deficit reduction - 70 percent of that through 

spending cuts. Another $1.5 trillion in deficit reduction would stabilize the debt at 73 percent of 

GDP over the latter part of this decade.'4 

Stabilizing the debt in the coming decade would give policymakers time to identify the further 

steps that will be needed to slow the growth of health care costs throughout the U.S. health care 

system without impairing the quality of care. And it will enable us to meet our responsibilities to 

an aging population, rather than abdicate those responsibilities by radically restructuring Medicareby replacing Medicare's guaranteed coverage with a premium support voucher - or by restructuring 

or severely cutting Medicaid or other programs that protect low-income Americans. 

'4 Richard Kogan, Robert Greenstein, and Joel Friedman, $1.5 Trillion in Deficit Savings 1170uld Stabih''@theDebt Over the 

Coming Decade, Center on Budget and Policy Priorities, February 11, 2103, http·!!www,cbpp.org(files!2-11-13bud.pdf. 
40 

Mr. PITTS. That concludes the opening statements. I will begin 

questioning and recognize myself for 5 minutes for that purpose. 

Mr. Capretta, I read over your testimony, and I must say I am 

very concerned for our most vulnerable citizens if we don’t fix these 

problems. Do you believe we have a healthcare access and coverage 

crisis on our hands if these valuable programs for our most vulnerable citizens are not strengthened? 

Mr. CAPRETTA. I do think that the problems in Medicaid are becoming worse rather than better and that the coming enrollment 

tidal wave as part of the healthcare law in 2014 will exacerbate the 

problems that are already existing in the program. 

It is quite apparent in many regions of the country that Medicaid 

participants are already struggling to get the same level of access— 

anywhere close to the same level of access as mainstream insurance. And we are about to enroll 15 million more people nationwide 

in the program on the sort of acute care side of Medicaid, from providing access to primary care, emergency care, specialist care. And 

every study that I have looked at shows that that will exacerbate 

the problem quite substantially because the supply of physicians 

willing to take care of those patients is fairly constrained. It is not 

likely to go up rapidly, even from the training of new physicians 

in the coming years. 

And so, yes, I have a real concern that you see in some parts of 

the country—California, for instance. Emergency rooms are crowded very heavily with people that are on the Medicaid program. 

That problem will become worse in 2014 and 2015. 

Mr. PITTS. You discuss in your testimony the unsustainable 

Medicare cuts in Obamacare. With more than 14 million Americans 

depending on the Medicare Advantage program today, what do you 

think the Obamacare cuts and the even more recent proposed 

Obama administration changes mean for the beneficiaries enrolled? 

Mr. CAPRETTA. Well, the estimates are that the combined effect 

of the regulatory changes they are proposing, along with the statutory cuts, are that Medicare payments are going to go down by 7 

to 8 percent in 2014 compared to 2013. 

So what we have had here is a temporary period where the administration really tried to artificially pump up Medicare Advantage, frankly, and put a new bonus program in that was really outside the normal process of demonstrations, pumped a lot of money 

into the program—sort of unfounded, in my opinion—and then now 

they have taken that away, and they are going to cut back on the 

payments quite a bit post some of the activity last year. 

And I think the effect is going to be very predictable. There are 

going to be plan withdrawals. There are going to be a lot of Medicare Advantage people pushed out of their program. The actuaries 

assume the number of enrollees will go down by a few million in 

the next few years. 

Mr. PITTS. Dr. Archambault, you note the added cost to States 

associated with the Medicaid expansion. Many States, including my 

home State of Pennsylvania, have not agreed to an overexpansion 

of the Medicaid program, which could cost the State approximately 

$5 billion over 10 years. Yet others are trying to sell the enhanced 

Federal match to States as free money and criticize Governors for 

rejecting the expansion. 

41 

From your perspective, is the expansion not a risky investment 

for States, one that could cost them billions in the long run? 

Mr. ARCHAMBAULT. Yes, it certainly is, in my opinion. I think 

when you talk to State legislators, they will say something like, 

Well, we face an X-million-dollar shortfall in Medicaid this year, 

and it is unaffordable, and 10 percent of that is even more 

unaffordable. 

So I certainly think from both a State budget perspective, it is 

going to put some real strain on their budgets going forward if you 

enroll additional folks. And as I highlighted in my testimony, certainly Federal dollars are not free. The taxpayers that are constituents that pay both State and Federal taxes will feel that pinch in 

the future. 

Mr. PITTS. Now, from your experience and review of the Medicaid 

programs undergoing past expansions, you note in your testimony 

that the most vulnerable often suffer. Today the committee released a staff report outlining major reasons for Medicaid reform, 

which shows the program is already struggling to serve the most 

vulnerable. 

What will a dramatic expansion of the Medicaid program mean 

for the program’s current citizens who already struggle to access 

services, like the disabled, who often have long waiting lists for 

home or community-based care initiatives, when resources will 

have to be diverted to cover the growing cost of an expansion rather than to serving them? 

Mr. ARCHAMBAULT. You know, I think you highlight a very important point going forward, that as you add millions of additional 

people into an already strained and broken system, it is the folks 

that have the most difficult health needs that maybe already struggle to find a primary care doctor or a specialist who are going to 

be even more disadvantaged in getting access to those people because there will be so many more people in front of them in line. 

We have multiple examples around the country. I know that the 

Committee on Oversight and Government Reform released a bipartisan report highlighting the billions of dollars in fraud and waste 

that we have seen in the New York Medicaid program for disabled 

folks. And I think it just highlights some of those issues that already exist in this program and need to be addressed with real, 

meaningful reform going forward. 

Mr. PITTS. My time has expired. 

The chair recognizes the ranking member of the subcommittee, 

Mr. Pallone, for 5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. 

I wanted to ask my questions of Dr. Feder. 

A number of recent reports, including the National Health Expenditure Report, and projections from the Congressional Budget 

Office have highlighted the slowing in Medicare cost growth. And 

the Affordable Care Act has a number of provisions designed to 

both reform healthcare delivery and improve the quality and efficiency of health care. A GAO report a couple weeks ago raised concerns about the long-term sustainability of some of the reforms. Estimates based on the GAO report project that if the reforms are 

sustained, it could result in as much as $13 trillion in deficit reduction over the next 75 years. 

42 

So I just wanted to ask if you could assess what impact the ACA 

is having on Medicare cost growth and the sustainability of the delivery system reforms designed to improve quality and efficiency. 

Can you help us get our hands around the sustainability issue? 

And then, last, we rely on a lot of economic models to project 

costs out into the future. How reasonable are these 75-year projections that are made by GAO and others? 

Ms. FEDER. Well, first of all, Mr. Pallone, the GAO report that 

you are referring to and the estimate of unsustainability was a 

gross misrepresentation of what can be called a projection. Those 

large numbers of unsustainability were based on assumptions that 

came from the requester, Senator Sessions, that ignored both the 

cost savings that are in the Affordable Care Act and the revenues 

associated with the Affordable Care Act. If you ignore both of those, 

it is not surprising that you come up with a problem. 

The GAO report, like CBO estimate after CBO estimate, shows 

that, as the law is written, that the expansions are indeed sustainable, and in coming decades—in this decade, they actually modestly 

reduce the deficit; in the subsequent decade, they significantly reduce the deficit. 

Now, the actions in the Affordable Care Act that control costs include measures that CBO does score, as shown in these estimates, 

which are elimination of overpayments to providers and to MA 

plans that have been recognized by experts for sometime as excess 

and overpayment. But, in addition, the Affordable Care Act has put 

in motion innovation in healthcare delivery to move not only the 

Medicare program and the Medicaid program but also the entire 

healthcare system away from a system that rewards more and 

more and more expensive services and instead rewards providers 

for efficiently delivering quality care through better coordination, 

better involvement of consumers in their own care, and avoidance 

and reduction of hospital use. 

Those innovations are just getting under way, but those mechanisms have considerable potential for improving the efficiency not 

just of the public programs but of the healthcare system overall. 

Mr. PALLONE. Thank you. 

Let me ask you—I know you got into this a little in your testimony. You said the past 3 years have seen a dramatic slowing in 

the rate of increase of Medicare per-beneficiary costs. At the same 

time, changing demographics and aging of the population is projected to increase the number of Medicare beneficiaries from 50 

million today to almost 90 million by 2040. So even if per capita 

beneficiary costs remain stable relative to GDP, the increase in 

number of beneficiaries will drive cost growth. 

Just talk a little more about the relative contribution of excess 

cost growth or spending per beneficiary and increasing enrollment 

as drivers of Medicare cost growth. And is it reasonable to think 

that controlling costs alone without considering revenue, which I 

mentioned in my opening statement, is a realistic approach to 

funding Medicare? 

Ms. FEDER. I think given the slowdown in Medicare cost growth, 

that the amount of what is called excess cost growth, which is 

above inflation, has diminished substantially in terms of projecting 

the future cost projections of per capita costs or of total costs. 

43 

What is happening is that the costs are being driven by the aging 

of the baby boom generation. As several of you referred to in your 

testimony, this is not something that is a surprise. The baby 

boomers have been coming—I am at the front of them and proud 

to be one—for a long time. It is the numbers of people on Medicare 

who are now driving the overall cost growth. 

Mr. PALLONE. Well, then what about the revenue aspect? 

Ms. FEDER. I am glad you went right there. The revenue has become critical in that respect. 

And I mentioned in my testimony that the State and local governments increased their spending on schools when we baby 

boomers entered school by about the same percentage as we are 

now looking to increase costs in Medicare. And that investment is 

essential. We simply don’t abandon the baby boom generation, who 

were working hard and contributing. We need to support the care 

that baby boomers will need through enhanced revenues, at the 

very same time that we are continually improving the efficiency of 

the program and getting value for the dollar. 

Mr. PALLONE. Thank you. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the vice chairman of the committee, Dr. Burgess, for 5 minutes for 

questions. 

Mr. BURGESS. I thank the chairman for the recognition. 

Mr. Archambault, let me ask you a practical question. And I realize we are in a congressional hearing, so a practical question isn’t 

really fair game, but I am going to ask it anyway. 

If you have, I mean, assuming a State that is going to do the 

Medicaid expansion under the Affordable Care Act, and you have 

a young person who is 20 years of age—well, let’s say 27 years of 

age, who is at 135 percent of the Federal poverty level, their care 

is going to be matched, the cost of their care is going to be paid 

for by the Federal Government, 100 percent match. Is that correct? 

Mr. ARCHAMBAULT. Will we assume in that State that is doing 

the expansion they also have a State-based exchange that is open? 

Mr. BURGESS. Well, they will be below the statutory rate—I 

mean, if there is a statutory—there is statutory language in the Affordable Care Act that says if you are below 138 percent of the Federal poverty level, you have to go into the Medicaid. 

Mr. ARCHAMBAULT. Yes—— 

Mr. BURGESS. Now, I don’t know how the Supreme Court decision actually changed that. 

I guess what I am getting at is, if that same person who is 28 

years of age covered at 100 percent match actually gets pregnant 

during the course of that coverage year, then are they bumped back 

down to the 54 percent or 57 percent match? Do they drift in and 

out of that? Who keeps track of that? 

Mr. ARCHAMBAULT. I think you are right, Representative. I think 

you raise a very good question about some of the churn concerns 

that we have in and out of the Medicaid program; who has responsibility at the State level versus the Federal level on all these eligibility terminations. 

Mr. BURGESS. Well, in fact, we learned during all of the difficulties with the Deepwater Horizon—and not this subcommittee but 

another subcommittee of the full committee had a field hearing 

44 

down in Louisiana. And I was somewhat startled by the variance 

in earnings that people can have and that someone might earn 

their entire yearly income of $50,000, $60,000 in May and June if 

they happen to be a shrimper in the Gulf Coast off Louisiana. 

So who is going to be responsible for putting that person on 

Medicare when times are tough and in the exchange and then figuring out what sort of subsidy they get in the exchange when the 

shrimp are coming in? 

Mr. ARCHAMBAULT. Yes, I think there is a huge technology lift 

that is being required and expected of States and the Federal Government to be able to tell whether somebody is here legally, how 

much money they make, whether they qualify for subsidies or not. 

And we are very concerned about that ability going forward. 

Mr. BURGESS. Well, and it is not just an esoteric or academic 

question, because there was someone from HHS who is in charge 

of the technology piece addressing AHIP this past week and 

seemed to, in the report in the CQ HealthBeat that I read, was significantly concerned about their ability to produce what they are 

supposed to be able to produce by October 1st. Because on October 

1st people are supposed to go live and go online and sign up for 

this. Is that correct? 

Mr. ARCHAMBAULT. Yes, that is correct. 

Mr. BURGESS. Well, let me just also say that, you know, I so welcome your testimony. I was privileged to be in the Supreme Court 

on the second day of the oral arguments last year. It didn’t turn 

out the way I thought it was going to. 

But I was very concerned when I heard the Solicitor General say 

that people showing up in the emergency room without insurance 

are what are driving the costs up for the rest of us. And, actually, 

your testimony referencing the Milliman study about the cost-shifting due to low Medicaid reimbursement rates is really the cost 

driver that we ought to be concerned about. 

And, in fact, it is hard for me to understand how we are fixing 

that underlying problem of cost-shifting by expanding the program 

that is causing the problem in the first place. Maybe you could enlighten me as to how that is going to work. 

Mr. ARCHAMBAULT. Representative, I think you raise—— 

Mr. BURGESS. It is fair to say it ain’t. 

Mr. ARCHAMBAULT. Yes, it ain’t. And I think you have an even 

broader question, which is the cost-shift onto small business, in 

particular, when you under-reimburse for Medicaid. 

Mr. BURGESS. Well, thank you. And I really appreciate everyone 

being here today. 

Mr. Capretta, let me just ask—you heard part of my opening 

statement. I am concerned about the fact that the dual-eligible— 

we talk about a dual-eligible population as if it is a monolithic 

group, but they are not. And we all know that there are subgroups 

within that group that cost a great deal more than some of their 

other counterparts. 

How, really, as a health policy person, how do you go about trying to get your arms around the scope of that problem so that it 

makes sense? I mean, you have people that may cost an average 

of $59,000 a year for their care if they have five chronic conditions 

45 

and people who may cost a fifth of that. How do you reconcile all 

of those differences within that group? 

Mr. CAPRETTA. Well, the heart of the problem is that many of 

those beneficiaries are in unmanaged fee-for-service Medicare but 

the Federal Government put them in or they defaulted into an 

unmanaged system or were in it for a long time, their health deteriorates, they are in an unmanaged system, no one is really watching over the full spectrum of care, and then they end up in a situation where they need a lot of intensive intervention with Medicaid 

as well as Medicare, and the two programs are not coordinated. 

So I think, frankly, the heart of the problem is that Medicare has 

too many beneficiaries in an unmanaged system and they end up 

falling through the cracks. 

Mr. BURGESS. Thank you, Mr. Chairman. I will yield back. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentlelady from the Virgin Islands, Dr. Christensen, for 5 minutes for questions. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. 

And I just needed to point out that the Affordable Care Act did 

increase the reimbursement rates of Medicaid as well as made 

other improvements to that and Medicare. 

Dr. Feder, while making up only 25 percent of the Medicaid population, the elderly and people with disabilities account for twothirds of Medicaid spending. Many consumers and advocates are 

concerned about the loss of essential services, especially to these 

two vulnerable groups, in the name of reducing the debt and balancing the budget. 

I am especially concerned about how proposals that would cap 

Federal Medicaid funding would affect these populations. As you 

heard in my opening statement, we have firsthand experience in 

the territories with capped Federal funding for Medicaid. It hasn’t 

made it more efficient; they haven’t made people better off. It has 

just shifted the burden onto the territories, the localities, and the 

families. And I am sure the same would happen here. 

So can you tell me what the implications are for low-income families, senior citizens, and persons with disabilities if the Federal 

Government were to cap or otherwise limit Medicaid funding, particularly for the frail seniors and disabled individuals who are likely to need long-term-care services? 

Ms. FEDER. Dr. Christensen, you rightly recognize from your experience that a large part of the Medicaid program does go toward 

long-term care as well as health care for people with disabilities. 

And any effort to cap that program so that it doesn’t grow with the 

demand for care and with the cost of care will fall—the burden will 

fall on—or will place a burden on beneficiaries. 

We know that the people who are receiving long-term care from 

Medicaid pretty much throughout the Nation are receiving—they 

are not receiving excessive care. They get pretty much less care 

than they need. In many States, they would like to move more aggressively to provide home and community-based care, but unfortunately that does not necessarily reduce costs. It may increase them. 

And the States will be, I believe, in the future sorely pressed to 

keep up with the growth in the elderly population and the demands 

it places. To simply put a lid on the program spending, on the FedVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
46 

eral contributions, is to leave the States holding the bag for this 

growing elderly and disabled population, unable to serve them and 

forced to make significant choices as to who would get services and 

who would not. 

And it is not about flexibility. The States have flexibility. It is 

about who is going to get served. And somebody is going to be in 

serious trouble. 

Mrs. CHRISTENSEN. Right. And you have already answered the 

question about shifting the costs. This is not going to control costs. 

It is just going to shift the beneficiaries in the States. 

Ms. FEDER. That is completely correct. 

Mrs. CHRISTENSEN. Yes. 

Can you talk about how better care coordination and other delivery reforms can improve care in Medicaid? You have already said— 

well, can you answer that for me? 

Ms. FEDER. Sure. The whole idea is to move away, as Jim was 

referring to, from a system that does not enable people or providers 

to work together to coordinate and integrate people’s care. 

And so we have in the Affordable Care Act a number of measures 

to achieve that goal, the coordination, whether it is the accountable 

care organizations or the medical homes or the health homes in 

Medicaid, a host that would start rewarding providers for working 

together to coordinate care. 

Mrs. CHRISTENSEN. On another question, as a physician, I was 

really surprised by some of the assertions in Mr. Archambault’s 

written testimony regarding Medicaid and the health outcomes of 

people who are covered by Medicaid. 

For example, he suggested Medicaid may be harmful rather than 

supportive of improved health. And I know you are familiar with 

the Oregon health study and others that show better self-reported 

physical and mental health in Medicaid recipients compared to 

those who are uninsured. And he cited the GAO study, and his testimony says that it documented that children on Medicaid have 

worse access to physicians than those with no insurance at all. But 

the GAO study actually shows that 78 percent of physicians nationally were participating in Medicaid. 

So we understand that there are challenges to Medicaid, as in all 

insurance, but I would like to ask you to comment on those studies 

and what the evidence shows about the impact of Medicaid on access and outcomes. 

Ms. FEDER. Yes, I, too, was surprised, Dr. Christensen. And as 

you said, Medicaid is improving access by, in the Affordable Care 

Act, increasing the payments to primary care physicians. 

But the research literature quite consistently shows that Medicaid beneficiaries look very different from the uninsured and look 

quite like the privately insured population in terms of their having 

a medical home, a doctor whom they see in terms of their visits, 

and in terms of their health status. 

So Medicaid is of enormous value. We have seen this recently in 

what was a natural experiment in Oregon—— 

Mrs. CHRISTENSEN. Yes. 

Ms. FEDER [continuing]. which was not contaminated by what— 

we sometimes can’t tell the difference whether they are sicker or 

the populations look the same, which absolutely I think astounded 

47 

its own authors, as to what a difference that Medicaid made to people’s health outcomes and health services use. 

Mrs. CHRISTENSEN. Thank you. 

I yield back to the chairman. 

Mr. PITTS. The chair thanks the gentlelady and now recognizes 

the gentleman from Texas, Mr. Hall, for 5 minutes for questions. 

Mr. HALL. Thank you, Mr. Chairman. And I do thank you for 

this hearing. It is certainly helpful because it is going to give opportunity for us Members to understand the financial challenges 

and everything facing our Nation and also hear from experts as to 

why doing nothing to improve it is not the answer we are listening 

for. And I would say this is one thrust that Members on both sides 

are very interested in, Republicans, Democrats, whatever. This is 

a major problem. 

And I think the chairman started out with this question to Mr. 

Capretta and to Mr. Archambault, and I think your answer was 

that you do believe that seniors and our most vulnerable citizens 

are facing an access-to-care crisis. That is a gimme, isn’t it? 

Mr. CAPRETTA. Are you directing that to me? 

Mr. HALL. Yes, sir. 

Mr. CAPRETTA. Yes, I did answer in the affirmative. Yes, I do 

think there are some serious access problems, particularly in the 

Medicaid program. 

Mr. HALL. And do you feel that Washington is ignoring this crisis? 

Mr. CAPRETTA. The Affordable Care Act, the healthcare law, tried 

to address it with a temporary Federal matching rate increase. But 

it is a 2-year program, and the nature of the problem is much, 

much larger than what they put on it. So I don’t think it has been 

addressed adequately. 

Mr. HALL. Well, do you think it is—I guess I am asking—I was 

in the Texas Senate from 1962 to 1972, and a Congressman came 

down to Austin, Texas, to tell us they had two wonderful new programs and that one, if we weren’t careful, one could cost around 

$500 million—I mean, could cost around $200 million a year; and 

the other, Medicaid, if we weren’t just quite careful and really 

watching it, it could cost maybe almost half that much. 

I regret to say that in 45 years Medicaid went from zero to $400 

billion a year and Medicare is now $600 billion a year. Those are 

correct. That is in the ballpark, isn’t it? 

Mr. CAPRETTA. That is correct, yes. 

Mr. HALL. How fair do you think that really is to youngsters that 

are 20, 21, 25, or 30? I can’t imagine anybody being that young. 

But how really fair is it to ask them to be paying into a program 

that we can’t honestly guarantee it is going to be around the day, 

in any way like it is today, when they become eligible for the program? What do you say to those youngsters? 

Mr. CAPRETTA. That is a very good point and an excellent question. I think you are probably in a difficult position with them because they are facing large—if the programs are left unreformed, 

they will end up paying probably three times: once for the current 

generation, once for their parents’ generation, and once for their 

own generation. And that is really not what was intended. 

48 

Especially in the Medicare context, the idea was it was a contributory program where across generations you roughly paid the 

same, and then you got an earned benefit in retirement for your 

health needs. The way it is shaping up is there is a big push to 

continually raise the tax rate financing the program so that future 

generations of retirees are going to pay way, way, way more than 

previous generations. 

Mr. HALL. The Medicare trustees, in their 2012 report, lay out 

two dates for insolvency. The first and most likely reported suggests the Medicare trust fund will be bankrupt in 2024. And the 

second—and some suggest it is the more realistic of the two—puts 

the date of insolvency at 2017, just 4 short years away. 

What number should we believe? 

Mr. CAPRETTA. I hate to dodge the question but probably both, 

because they really tell you two different things. 

The first is, the 2024 date tells you when there are simply no 

more reserves in the trust fund, so any claims that come into the 

Medicare program at that time will probably—the law is a little 

unclear—probably be paid at basically 75 cents on the dollar. So 

that is essentially what would happen after 2024 if the trust fund 

is allowed to go totally to zero. 

2017 is when the trust fund is running a cash deficit. So, essentially, that means the Federal Government is going to have to borrow even more money out in the outside world to cover Medicare’s 

expenses. That is kind of the time when you should start worrying 

about the overall finances of the Federal Government. 

Mr. HALL. I thank you. 

I yield back. 

Mr. PITTS. The chairs thanks the gentleman and now recognizes 

the gentlelady from Illinois, Ms. Schakowsky, for 5 minutes for 

questions. 

Ms. SCHAKOWSKY. Everyone here agrees that we have a growing 

aging population. We know that. And I appreciate my colleague 

from Texas saying, let’s talk about practicalities. But are we really, 

as a Congress, not just as Democrats or Republicans, talking about 

how to practically address these problems without causing more 

pain for the elderly in America? People over 65 are making a median income of $22,000 a year, a Social Security benefit averaging 

$15,000 a year, out of which, let’s remember, that is where the 

Medicare premiums come from. So you can’t even talk about these 

programs separately. 

Are you kidding me, that we are going to, tomorrow, see the passage of a budget that not only repeals Obamacare, meaning a number of the improvements to the total healthcare system, some of the 

things that account for the reduction in spending on Medicare, and 

that turns it into a voucher program, that cuts Medicaid by turning 

it into a block grant by $810 billion over 10 years? Can’t we do better than that? 

I mean, this whole conversation just drives me crazy. Old people 

are going to—they are going to grow in numbers. Poor people are 

going to continue to grow in numbers if we do those things. 

So why don’t we sit down and figure out those practicalities? My 

colleague raised some issues that I think do need to be dealt with. 

We can do this. 

49 

I wanted to ask Dr. Feder a couple of questions about payment. 

In terms of Medicaid, the Republican budget would block-grant 

Medicaid, as I said. Can you explain how block-granting Medicaid 

would severely restrict Medicaid’s ability to protect those that fall 

on hard times, such as the economic downturn that we are still living through? 

Ms. FEDER. Well, Ms. Schakowsky, it is exactly the opposite of 

the attention or the serious consideration you want to get to meeting the needs of the growing elderly population, would be to slam 

a lid on the funds that States have to deal with not only elderly 

and disabled people but other low-income people. 

There is not enough flexibility in life to enable States to deal 

more efficiently with this population, which is often claimed. States 

have flexibility to manage care in their programs. The only flexibility this would give them would be to essentially deny care to eligible people and would cut rates even further. 

Ms. SCHAKOWSKY. Let me give an example. In Cook County, we 

have already expanded the Medicaid program. And what we are 

seeing are things like a woman with Stage IV cervical cancer, a 

stage that community health centers rarely see at that stage, or a 

man with advanced testicular cancer, again, something rarely seen. 

So my question, if they had been insured, if they had been able 

to get Medicaid at an earlier point, I mean, are we really saving 

money if we cut these people off from the kind of preventative or 

appropriate intervention here? 

Ms. FEDER. Well, you are, I think, right to point out that when 

people are insured, we have lots of evidence that shows that people 

get care earlier, they get better care, and they are less likely to die 

than people who don’t have insurance. I can’t tell you that that 

means that we won’t save anything because, unfortunately, letting 

people die without care can mean spending less money. But that 

is not the way this society ought to operate and take care of its 

own. 

I hear a lot of concerns about what are purported problems in 

the Affordable Care Act from comments today, but, as I understand 

it, that many of these Members are planning to repeal the very 

coverage that would prevent the people from being seen only at 

that last minute. 

Ms. SCHAKOWSKY. Let me just end with this. What I see in the 

plans that have been suggested on the Republican side is cost-shifting. We say the Federal Government can’t afford it, but, frankly, 

what the American people are concerned more about than the debt 

in this country is their own budgets, their own inability to get what 

they need. Why would we want to exacerbate those problems? Let’s 

work together. 

I yield back. 

Mr. PITTS. The chair thanks the gentlelady and now recognizes 

the gentleman from Illinois, Mr. Shimkus, for 5 minutes for questions. 

Mr. SHIMKUS. Thank you, Mr. Chairman. 

I appreciate you all being here. It is an important debate and 

discussion we are having. 

And I like my friend from Texas, Mr. Hall’s comments on just the 

solvency of these programs, the 2017 date, the 2024 debate. I also 

50 

do that in discussions with Social Security, which is 2035 I think. 

And the way I try to explain it to my constituents: Absent reform— 

and this is a letter from the from Social Security Administration. 

When you retire, you get a letter. The fifth paragraph says, If we 

do nothing, you are going to get, in essence, 75 percent of your 

promised benefits. 

Because there is a trust fund, as I understand it, and the money 

is going—as we pay money in, it pays out to beneficiaries. But 

when you trip these dates, then only what gets paid out is what 

is in that fund. So that is why Social Security will be—someone 

who is expecting a $1,000 Social Security check will end up getting, 

on that date, left unchanged, a $750 check. 

I see, Mr. Capretta, you are shaking your head. 

Mr. CAPRETTA. Yes. 

Mr. SHIMKUS. Is that how you understand that whole system? 

Mr. CAPRETTA. That is right. 

Mr. SHIMKUS. And you are saying that that is true for the Medicare fund on 2017 or 2024, depending upon how we calculate that 

date. 

Mr. CAPRETTA. It would be true in 2024, yes. They would only 

be able to pay out claims financing at the level of revenue coming 

in at that point. So if the revenue is only covering 75 percent of 

the total claims that are being filed by hospitals on behalf of patients, the law is ambiguous about how that will be handled. It 

doesn’t say exactly how to handle it. The presumption is you just 

pay a percentage of the total claim. 

Mr. SHIMKUS. Because there is no provision for us right now, 

under current law, to borrow money to keep the new changed delta. 

I mean—— 

Mr. CAPRETTA. When the trust fund is depleted of reserves, there 

is no ability, under current law, for it just to run in the red. 

Mr. SHIMKUS. So Medicare pays, in essence, 70 percent of private 

care costs. I mean, I don’t know if you know that or not. That is 

what I—— 

Mr. CAPRETTA. It is a little bit more than that, but that is in 

rough terms right. 

Mr. SHIMKUS. So if these insolvency date hits, then they are 

going to end up paying—— 

Mr. CAPRETTA. Seventy percent of that. 

Mr. SHIMKUS. A huge—— 

Mr. CAPRETTA. Yes. 

Mr. SHIMKUS. So it could be 30, 35 percent to the providers—— 

Mr. CAPRETTA. Right. 

Mr. SHIMKUS [continuing]. Who are providing care. 

Mr. CAPRETTA. It recognizes the law has already cut the reimbursement rates quite a bit. The main provisions of saving money 

in the Medicare program that have been discussed today at the 

hearing are provisions that simply apply across-the-board reductions to every facility in the country that is providing services to 

Medicare patients. It didn’t distinguish amongst any of them based 

on quality or anything else. It essentially applied an across-theboard cut to every provider. 

Mr. SHIMKUS. Now, let me ask a question, because then you talk 

about revenue, right? Maybe a solution would be more revenue. 

51 

But under the Obamacare, the healthcare law, we increase Medicare taxes by leveling the 3.8 percent tax on unearned income, do 

we not? 

Mr. CAPRETTA. That is correct. For anyone above $200,000 a year in annual income if you are an individual, $250,000 for couples. 

Mr. SHIMKUS. So this must help that fund, shouldn’t it? 

Mr. CAPRETTA. Well, it didn’t go into the Medicare trust fund, 

though. This portion of that tax increase was dedicated to financing 

the rest of the bill. 

Mr. SHIMKUS. So a 3.8 tax on unearned income on the 

Obamacare healthcare law did not go to help prop up these insolvency issues on Medicare. 

Mr. CAPRETTA. Correct. 

Mr. SHIMKUS. Well, that is unfortunate, if there is a funding 

problem. 

We also talked a lot during the debate, even in the Presidential 

campaign—and I had Secretary Sebelius right at the table you are 

at, who in essence agreed that they had double-counted the depletion of Medicare dollars into two directions. They double-counted, 

in essence, I said $500 billion, but now we know it is like $716 billion. 

How did we double-count that, or how did—and we voted against 

the law—how did those who support the law, how did they doublecount, how did the administration double-count hundreds of billions 

of dollars? 

Mr. CAPRETTA. They cut the Medicare payment rate, as we dis- cussed, by about $500 billion. 

Mr. SHIMKUS. Arguing that they are saving Medicare. 

Mr. CAPRETTA. And they are taking basically $500 billion, reducing what Medicaid is paying to providers. That $500 billion was 

used under what you call the PAYGO scorecard that is used in 

Congress to make sure legislation is at least deficit-neutral or a little better. They used that $500 billion to show a positive balance 

on the PAYGO scorecard. That is one scorecard. And then they deposited it into the second scorecard, the trust fund scorecard, to 

pay future Medicare claims. So they did spend the money twice. 

Mr. SHIMKUS. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the ranking member of the full committee, Mr. Waxman, for 5 minutes for questions. 

Mr. WAXMAN. Thank you, Mr. Chairman. 

Dr. Feder, the title of today’s hearing is ‘‘Saving Seniors and Our 

Most Vulnerable Citizens from an Entitlement Crisis.’’ It seems 

that the term ‘‘entitlement’’ has come to mean different things to 

different people. Too often, people think of entitlements through 

the narrow lens of the programs that provide the social safety net 

for our seniors and the most vulnerable in our society without considering the fiscal impact of tax entitlements—tax deductions, exclusions, credits, and other tax preferences—which disproportionately benefit well-to-do Americans. One could call those entitlements. 

Can you talk about entitlements, both those providing essential 

services to seniors and low-income Americans and those providing 

52 

tax breaks to more affluent Americans, and the relative role of 

each in the context of protecting the most vulnerable in our society 

and addressing our long-term debt? 

Ms. FEDER. Yes, Mr. Waxman. 

I think that we should start with the recognition that an entitlement is a commitment on the part of the Federal Government to 

provide benefits to as many people who qualify for that benefit appear in a given year without a constraint through the appropriations process. And when we apply that definition, the benefits that 

come through the Tax Code are the very same kinds of entitlements as benefits as those that come through direct spending. And 

that has, I think, been recognized by the Congressional Budget Office and others for many years. That is why we call them tax expenditures. 

There are some tax expenditures that do benefit low-income people, like the earned income tax credit and like the refundable tax 

credits in the Affordable Care Act. But the vast majority of tax expenditures for health care, for housing, for pensions, are disproportionately overwhelmingly benefitting the better-off. Because the 

higher your income, the more you benefit from not paying taxes on 

those dollars. 

It can be argued that that spending is crowding out some of the 

spending that we—improved spending that we need for middle-income and lower-income populations. 

Mr. WAXMAN. Exactly the argument we hear for spending on entitlements. 

Ms. FEDER. I beg your pardon? 

Mr. WAXMAN. That is exactly the argument we hear for spending 

on Medicare and Medicaid. 

Ms. FEDER. That that is crowding out, not—— 

Mr. WAXMAN. Yes. 

Ms. FEDER. You are quite right. And what I am saying, and I 

think that I am getting your point, is that by spending on the better-off in tax entitlements, it is that that is very much a part of 

the crowd-out. 

Now, I would also say that I don’t know that I would eliminate 

all of those. I would not eliminate the tax benefit because we need 

the risk-pooling that it provides. But for high-income people, we do 

not need to be providing so many benefits. 

Mr. WAXMAN. Well, some have argued that cutting only spending 

entitlements while shielding tax entitlements would have a highly 

regressive impact. Is that what you are saying? 

Ms. FEDER. It surely would. 

Mr. WAXMAN. OK. 

My Republicans colleagues have proposed keeping tax levels at 

about 18 percent of GDP. With what we know about the aging of 

our population and the increasing need for health coverage under 

Medicare and Medicaid, is it realistic to keep revenues at that 

level? 

Ms. FEDER. No. It simply is not. And when you hear of concern 

for State budgets and when proposals are being made to actually 

shift more costs to States, whether it is health care or if we look 

at long-term care, which is borne primarily by the Medicaid program, and different rates of aging in different States, the notion 

53 

that we would deal with these kinds of issues without generating, 

raising additional revenues is really unconscionable. 

Mr. WAXMAN. I was troubled by some of the accusations in the 

testimony of Mr. Archambault, and I believe they deserve to be 

fact-checked. 

First, Mr. Archambault asserts that Medicaid is not serving its 

customers well and, in some cases, may be hurting their health. 

Dr. Feder, isn’t it true that the Medicaid program is completely 

optional for States? States are not required to provide Medicaid; 

isn’t that correct? 

Ms. FEDER. Yes, sir. 

Mr. WAXMAN. So if Governors really believed that Medicaid was 

harming their residents’ health, do you believe they would continue 

to fund the program? 

Ms. FEDER. Sounds pretty peculiar to me. 

Mr. WAXMAN. Many Governors, even Republican ones, have already opted to participate in the Medicaid expansion offered as a 

part of the Affordable Care Act because it is good for their States 

and good for their citizens. Moreover, there is empirical evidence 

showing that Medicaid improves health; isn’t that accurate? 

Ms. FEDER. Yes, sir. 

Mr. WAXMAN. In 2008, Oregon conducted a randomized, controlled experiment on how expanded access to Medicaid affects 

health. The results are very encouraging. The group who received 

coverage under Medicaid had substantively and statistically higher 

utilization of preventive and primary care, low out-of-pocket medical expenses and lower medical debt, and better physical and mental health than the control group. 

Can you comment on the assertions in Mr. Archambault’s testimony? 

Ms. FEDER. We had discussed that earlier, so I can do it briefly. 

I think that the evidence you have presented is what the—the 

predominant evidence on the value of Medicaid in terms of improving people’s health and enabling them to get care. There is no question about it. 

Mr. WAXMAN. Thank you. 

Thank you, Mr. Chairman. 

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

The chair now recognizes the gentleman from New Jersey, Mr. 

Lance, for 5 minutes. 

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

And good afternoon to the panel. 

To Dr. Feder, good afternoon. You gave us a figure, and I just 

didn’t hear it. I gather Medicaid, at the moment, spends roughly 

$400 billion a year; is that right? 

Ms. FEDER. I beg your pardon? 

Mr. LANCE. Medicaid is roughly $400 billion a year? And I was 

interested in your testimony regarding long-term care. What percentage is in long-term care? 

Ms. FEDER. Long-term care is about a third of total Medicaid 

spending. Spending on the elderly and disabled—and for the lowincome disabled, Medicaid is providing not just long-term care but 

health care—the two populations together absorb about two-thirds 

of Medicaid spending. 

54 

Mr. LANCE. And by ‘‘long-term care,’’ do we mean nursing home 

care, by and large? 

Ms. FEDER. Not necessarily. We mean help with basic tasks of 

daily living, which can happen in nursing homes but also happen 

at home and in community daycare centers and other places. 

Mr. LANCE. And, obviously, with an aging population, the baby 

boomers, there are going to be more people who are going to 

need—— 

Ms. FEDER. That is correct. 

Mr. LANCE [continuing]. Long-term care. 

Have you analyzed models that might be different from the 

model that we utilize today in America? I would hope it would be 

less expensive, but perhaps it would not be less expensive, care 

from one’s residence as opposed to care in the nursing home? 

Ms. FEDER. There has been a movement over several years, as 

it sounds as though you are quite familiar with, Mr. Lance, to treat 

people at home where they want to stay, or help people at home 

where they want to stay. And on a per-person basis, it is cheaper 

than putting them a nursing home. 

But we need to better serve that population. They are underserved throughout the Nation. And that requires additional investment. 

Mr. LANCE. That would impress me as an area where we might 

work together in a bipartisan capacity, as undoubtedly there are 

going to be more people needing long-term care given the aging 

population and particularly regarding those who are baby boomers. 

Ms. FEDER. I think that would be a wonderful thing, Mr. Lance. 

And I would appreciate—or would offer any assistance in that regard that I can. 

Mr. LANCE. Thank you. 

Regarding tax expenditures—and I understand that this is a 

newer debate in America, but it is a debate currently occurring in 

our country. To you, Dr. Feder, or to other distinguished members 

of the panel, what is the largest tax expenditure at the moment in 

the country? 

Ms. FEDER. I think the largest tax expenditure is the exclusion 

of employer-paid premiums from taxable income. 

Mr. LANCE. Yes. 

Other members of the panel, is that the largest tax expenditure? 

Mr. CAPRETTA. Yes, that is true. 

Mr. LANCE. Yes. And I have stated in my campaigns for office 

that I do not favor taxation of that, and that has been welcomed 

by those who elect me to office. 

And I think it would be extremely difficult to tax those 

healthcare policies. Does the panel believe that it is at all realistic 

that Congress, whatever its configuration, would actually do that? 

Ms. FEDER. Well, if I—and following up on Congressman Waxman’s questions—— 

Mr. LANCE. Yes? 

Ms. FEDER [continuing]. I think that what is important to recognize is that if the Congress is proposing to put a lid on spending 

for Medicare or Medicaid programs, that to ignore the expenditures 

that disproportionately go to higher-income people—— 

Mr. LANCE. I understand that point. 

55 

Ms. FEDER. And I think that is the context in which it is made. 

The other proposal—— 

Mr. LANCE. So do you favor taxation, Dr. Feder, of the portion—— 

Ms. FEDER. The proposals that I have seen that make sense to 

me—and we actually are doing something very much like that in 

the Affordable Care Act. I think that the proposals that I have seen 

that make some kind of sense are the proposals that would limit 

the tax breaks for higher-income people. But I would not favor taxing all those benefits. 

Mr. LANCE. You would not favor taxing all of those benefits. 

Yes? 

Mr. CAPRETTA. It is important to recognize that the healthcare 

law did, in a sense, impose a tax on those benefits on high-cost 

plans. 

Mr. LANCE. Yes. Thank you. 

Mr. CAPRETTA. And it was not based on income. It was across the 

board. 

Mr. LANCE. It was across the board. Thank you. 

In your testimony, Dr. Feder, you do say, ‘‘Stabilizing the debt 

in the coming decade would give policymakers time to identify the 

further steps that will be needed to slow the growth of healthcare 

costs throughout the U.S. healthcare system without impairing the 

quality of care.’’ I believe I agree with that statement. 

At what level do you think it would be best, given the current 

situation, to stabilize the debt? 

Ms. FEDER. Well, in my testimony I cited the work that has been 

done at the Center on Budget and Policy Priorities advocating that 

we stabilize that percentage at 73 percent of GDP. 

Mr. LANCE. And what is it at the moment? It is a little higher, 

isn’t it? 

Ms. FEDER. I apologize. I don’t want to misstate a figure, so I will 

just provide that for you later. 

Mr. LANCE. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. SHIMKUS. The gentleman’s time has expired. 

The chair recognizes the gentleman from Georgia, Mr. Barrow, 

for 5 minutes. 

Mr. BARROW. I thank the chairman. 

Critics of the two warring tribes in Washington can find plenty 

to criticize on both sides. There will be folks who criticize Democrats for having a blind faith in the future and sort of ignoring the 

long-term trends and problems here, having some faith in our ability to solve this problem down the road. Folks can criticize folks on 

the other side of the aisle for basically saying this is so ominous, 

so bad, we just have to get out of the business, we have to costshift, we have to get out of the business of subsidizing the current 

model because it is just way too much for the taxpayers to bear. 

Both sides, it seems to me, that stereotype, seem to agree on 

something. They seem to accept the current level of spending and 

the current projections and the trends as being sort of—the best of 

all possible worlds—some sort of a given. And I challenge that assumption. 

56 

I happen to think that this whole approach that most folks tend 

to agree on is, what are we going to do about how to pay for this, 

sort of ignores the real challenge here. And that is, what are we 

spending our healthcare dollars on? And what are the things we 

can do that would have a big impact on what we are spending on 

but would also alleviate the underlying problems that people are 

facing. 

I look at the scourge of Alzheimer’s and the scourge of diabetes 

as being a whole lot more than the public tab associated with both 

of those diseases, just to take two large, big-ticket items for example. If we could crack the Alzheimer’s code, for example, I think we 

would have a big impact on Medicaid’s viability and the burden 

that it is carrying all over the country. If we could crack the problem, the current trends of letting diabetes set up in the course of 

people’s lives during their work life and most of the bills coming 

due only during Medicaid’s time on the healthcare watch, we could 

have a big impact on Medicaid. But, more importantly, we could alleviate the suffering of millions that really is not accounted for in 

any of the discussion that we have been having on this committee. 

So my question to you all is, if you want to attack the problem 

in terms of putting the technology out in front of the mandates, instead of figuring out how we are going to pay for business as usual, 

but what can we invest in that will make for business as unusual, 

that can actually affect what we are having to spend money on in 

a big way? 

And I am not talking about nanny-state stuff that has no practical chance of success. I am talking about things we can hit if we 

make a good investment, a solid investment, a war on this or a war 

on that, that would have a big payoff not just in terms of the 

public’s share of the healthcare expense in this country but also the 

suffering that people are experiencing in their lives. 

What are the two or three things that you all say we ought to 

wage a war on to get at that would have a big impact on Medicare’s budget, Medicaid’s budget, and also the bottom line of what 

we are funding? 

Because I regard this whole approach as sort of taking the current state of affairs as a given. And I look at this in terms of we 

are missing the challenge of trying to find those breakthroughs, 

those things that would take a serious, concerted, coordinated effort of research and development and deployment to actually make 

a big impact not only on people’s lives but also in terms of our Nation’s healthcare budget. 

What would you suggest we go after if that is the approach we 

want to take? 

I want to make the bad things we are paying for obsolete, not 

just be arguing about who is going to have to pay for them. I want 

to make the things that are driving our budget ox into the ditch 

and making people’s lives miserable and make those things obsolete, rather than just figure out who is going to pay for them. 

Who is going to take a stab at helping us understand where we 

need to go in that direction? 

Mr. CAPRETTA. Well, it is a big, big question. I am sympathetic 

to your point of view, actually. I think it is a big challenge, though, 

to have the certainty that some kind of public intervention is going 

57 

to have enough of a payback and certainty that you don’t need to 

make other adjustments. 

So, in other words, my first point to you—— 

Mr. BARROW. I recognize that if we solved a lot of problems that 

are killing people off at a certain age, we would have a little bit 

more in terms of pension. Maybe there would be a shift on the reliance on the pension benefits of folks who are living longer and 

healthier lives. 

Mr. CAPRETTA. No, no, what I am trying to say is that let’s assume we made a big intervention in the areas you are talking 

about—and I am about to mention one that I agree with you on— 

it is so uncertain that it will have the payoff we both would like 

to see, that you still have to make other adjustments in the entitlement programs, because you can’t bank on that having the 20-year 

effect we are both looking for. 

But having said that, I do think that there are opportunities, especially in the area of diabetes, to make some progress. I think 

there are a lot of untreated and undertreated people with that condition that are heading into their Medicare years quite soon. And 

if we did a better job of coordinating care for that population, there 

is an opportunity—and I was part of a study that looked at this 

carefully—there is an opportunity to bring down some of that burden with some level of certainty associated with it. 

It won’t solve our budget problems, though, I am afraid to say, 

unfortunately, because there are some expenditures involved in 

providing better care for them too 

Mr. BARROW. Dr. Feder, my time is running out. Have you got 

something you want to add? 

Ms. FEDER. I was just going to add, I think that when Jim talks 

about investing in diabetes and in prevention and primary care, 

that is precisely what the changes, payment and delivery reforms 

in the Affordable Care Act are aimed to promote. It is to enhance 

our focus on primary care and coordinate care at early stages when 

there are early difficulties in order to prevent the use of costly 

services later on that actually could be prevented. 

Mr. BARROW. Just so you know, I am not interested in something 

that is high-maintenance, low-impact. I want low-maintenance, 

high-impact. That is what I am looking at. 

Thank you. 

Mr. SHIMKUS. The gentleman’s time has expired. 

Ms. SCHAKOWSKY. Mr. Chairman, I am wondering if I could offer 

something to put in the record. 

Mr. SHIMKUS. What are you—— 

Ms. SCHAKOWSKY. This is a statement by Ron Pollack from Families USA. 

Mr. SHIMKUS. OK. Without objection, we will accept the submission. 

Ms. SCHAKOWSKY. Thank you. 

[The information appears at the conclusion of the hearing.] 

Mr. SHIMKUS. That chair now recognizes the vice chairman of the 

full committee, Mrs. Blackburn, for 5 minutes. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

Just one comment I wanted to get in before I—I do have a couple 

of questions. Ms. Feder mentioned earlier that there was an inVerDate Nov 24 2008 13:33 Sep 13, 2013 Jkt 037690 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-18 CHRIS
58 

crease in provider payments in Obamacare for Medicaid providers. 

And I just want to note that that is actually going to be a 2-year 

bump—— 

Ms. FEDER. That is correct. 

Mrs. BLACKBURN [continuing]. And not a full-time, long-term 

payment. So basically what we are doing there is setting up another one of these cliffs. It will be a new SGR cliff because the 

money goes away after 2 years. 

And what we find out and what we hear from our Governors and 

one of the reasons so many of our State legislatures are having 

such heartburn over the Obamacare issues is because you put 

money in, then you take money out, and then what happens with 

those Medicaid beneficiaries? And where are they going? How are 

you going to pay for this? 

And, quite frankly, I have to tell you that we all are compassionate and want to make certain that people have access to affordable care. But having the Federal Government put their hand further into that healthcare pot does not solve the problem; it makes 

it worse. It makes it worse. 

What we want to do and what I have heard from my colleagues 

across the aisle even—I am happy to hear them talk about solving 

this problem and this access-to-care problem, because the more 

Federal intervention you have, the worse the situation gets, the 

more limited is your access to care. 

And what we have found in Tennessee—and I will make Mr. 

Pallone’s day. He knows I can’t sit here and not say ‘‘TennCare.’’ 

What we found through the—are you familiar with TennCare, Ms. 

Feder? 

Ms. FEDER. I am. 

Mrs. BLACKBURN. And you know what a miserable failure it was 

and how we had a Democrat Governor that had to come remove 

180,000 people from the rolls and restructure it. 

And one of the lessons learned is that having access to the queue 

is not the same thing as having access to the physician. And that 

is something that you see—I continue to ask everybody, show me 

a public option plan, show me a Federal mandate plan that gives 

you greater access, greater outcomes, and a lower cost. The truth 

is, Ms. Feder, there is not one on the face of the earth, not one, 

that has successfully done that. 

Mr. Capretta, I have a couple of questions for you. I sit in these 

hearings and I hear a lot about, every time we look at something 

to save Medicare, to keep it solvent for a long period of time, trustees have told us it is going broke. Every time we do that, we are 

accused of trying to drive grandma and grandpa off the cliff. And 

I find it so incredibly unfortunate, but I think that the real crime 

is to sit by and do nothing and say we are just going to be content 

with the status quo and not look at how we solve this problem. 

Tell me where you are with looking at these trustee reports. 

What are your thoughts? 

Mr. CAPRETTA. Well, the latest CBO estimates actually are pretty 

interesting. They did lower Medicare’s future expenditure rates 

going forward. 

But the largest reduction, actually, was in the drug benefit, believe it or not. There is a lot of talk about Medicare and what it 

59 

does and doesn’t do and so on, but the drug benefit is essentially 

a competitive program driven entirely by private plans. It has been 

very competitive. 

Mrs. BLACKBURN. And it works? 

Mr. CAPRETTA. And it works. The average annual growth 

rate—— 

Mrs. BLACKBURN. And it is successful? 

Mr. CAPRETTA. The average annual growth rate from 2007 to 

2012 is a little bit more than 2 percent a year, well below the average for the rest of the program. 

And the largest downward adjustment CBO made in their estimates going forward was in the drug benefit, despite the fact that 

the healthcare law expanded the program by closing the donut 

hole. 

So there is a model out there of competition and private choice 

and consumer choice that is working. It has actually driven a lot 

of costs out of the program. 

Mrs. BLACKBURN. All right. I appreciate that. 

I want to talk with you, also—obesity. Mr. Barrow mentioned 

Alzheimer’s, which is a disease I am so familiar with because of my 

dad and my mother-in-law, both of whom have died with Alzheimer’s. And I share his desire to crack that code. I think the 

other one is obesity. 

And you have had some interesting analysis on this. And what 

do you think, if we could reduce the obesity rates in seniors, what 

kind of impact would that have on the Medicare program? 

Mr. CAPRETTA. It would have a very positive impact if we could 

do it. I think the challenge is the certainty of knowing which policy 

levers to pull that can deliver for sure on the outcome. 

I am all for trying to address this problem, in some way, to some 

degree. I think it will positively affect especially diabetes in the 

program, where there is a big chunk of dollars associated with 

that. 

So we don’t have a silver bullet, but I think some additional public attention for people that are aging into Medicare with that problem is worth your attention. 

Mrs. BLACKBURN. Thank you. 

I yield back. 

Mr. SHIMKUS. The gentlelady’s time has expired. 

The chair now recognizes the gentleman from Virginia, Mr. Griffith, for 5 minutes. 

Mr. GRIFFITH. Thank you, Mr. Chairman. 

According to the CBO, Medicaid will cost the Federal Government $5 trillion over the next 10 years, with as much as $638 billion of that directly linked to the expansion of Medicaid from 

PPACA. Recently, Governor McDonnell laid out the need for vast 

reform to make Virginia’s Medicaid program more cost-effective before the Commonwealth can consider an expansion of those benefits 

in that program. 

The Governor has laid out five tenets for Medicaid reform: one, 

service delivery through an efficient, market-based system, including more managed and coordinated care; two, reducing financial 

burdens to the State by getting an assurance from the Federal Government that the expansion will not increase the national debt; 

60 

three, maximize the waivers that currently exist to achieve administrative efficiencies through streamlining of payment and service 

delivery; four, obtain buy-in from healthcare stakeholders in the 

State for statewide reform; and, five, achieve greater flexibility by 

changes to Federal law, including more value-based purchasing, 

cost-sharing, mandatory engagement in wellness and preventive 

care, the development of high-quality provider networks, and flexibility around essential health benefits. 

The Virginia Hospital and Health Care Association has said that 

they will cooperate. The reforms that Virginia is now discussing 

are on a par or similar to what we have discussed here in the Energy and Commerce Committee, at least on our side of the aisle. 

And that flexibility with Medicaid programs I think many States 

desire. 

So, Mr. Archambault, do you agree with Governor McDonnell 

that we need to have these Medicaid reforms and that not only Virginia but other States should be exploring these types of reforms 

and that we should be a partner with them? If you could explain. 

Mr. ARCHAMBAULT. Yes, Mr. Griffith, as I think the Governor has 

laid out and put his finger on a number of the issues that exist in 

the current program. 

And this is a bipartisan issue. You have Governors who have put 

in waiver requests that take over a year to get any response from 

the administration on whether they can move forward or not. So, 

certainly, I think both Republicans and Democrats at the State 

level see the value of greater flexibility. And I think anything that 

Congress can do to grant that flexibility would be a move in the 

right direction. 

Mr. GRIFFITH. And you say that there are Democratic Governors 

as well as Republican Governors who desire this flexibility? 

Mr. ARCHAMBAULT. That is true. I mean, we have one in Rhode 

Island, in which they have been working on these issues for years, 

trying to get flexibility. And they got some additional flexibility to 

move forward. 

Mr. GRIFFITH. And do you think that is because they sense, as 

the Founding Fathers did, that perhaps the individual States 

should experiment and find what works best, and then others can 

copy if they wish? 

Mr. ARCHAMBAULT. I think that is right. I mean, we even have 

an example in Connecticut with a Democratic Governor in which 

they expanded recently in Medicaid, and they found that it was 

more expensive than they initially anticipated; asked for flexibility 

from the administration, and it was denied. 

So I think there is certainly the need and a recognition on both 

sides of the aisle at the State level of this issue. 

Mr. GRIFFITH. Mr. Capretta and Mr. Archambault, both, what do 

you think that we can do to better serve the States as they try to 

figure out ways to be more efficient? 

I will start with you, Mr. Capretta, since Mr. Archambault has 

had a couple minutes. 

Mr. CAPRETTA. Sure. I think this year is a historic opportunity 

to move ahead with some more Medicaid flexibility year. Here you 

have an administration who would like the States to do a very 

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61 

tional at this point. Many States are holding back, thinking about 

it. 

I think they have a great deal of leverage and you and the Congress have a great deal of leverage to say, Before we do anything 

more to put more people into the program, let’s come to a consensus about what the basic rules are for who is running what. 

Mr. GRIFFITH. For those who may not follow Virginia politics 

closely, that is exactly what the Virginia General Assembly did, 

was they said, We are going to set up a special group to consider 

expansion that the President and PPACA encourages, but we are 

not going to expand until we have seen reforms that make it so 

that we can afford to do that expansion. 

And so you are recommending that perhaps we take that Virginia model and see if we can’t help encourage other States to do 

that by giving them the flexibility. 

Mr. CAPRETTA. I think there is a real pernicious effect. I worked 

in the administration, did a lot of Medicaid waivers in my previous 

job in a previous administration. There is a little bit of an unusual 

and pernicious effect on one-off negotiations between an administration and a State. There ought to be rules that apply to every 

State that are fair to taxpayers across the country, and not special 

deals given to some States over others. 

Mr. GRIFFITH. All right. I appreciate that. 

I only have 6 seconds left. Mr. Archambault? 

Mr. ARCHAMBAULT. I think a great example is welfare reform. 

You had a lot of States figure out how to do it at the local level 

first, and then there were—the same rules applied to all States. 

Mr. GRIFFITH. And I have to go, but I would be remiss if I didn’t 

mention that Virginia led on that one, as well. 

Thank you very much. 

I yield back, Mr. Chairman. 

Mr. PITTS [presiding]. The chair thanks the gentleman and now 

recognizes the gentleman from Kentucky, Mr. Guthrie, for 5 minutes for questions. 

Mr. GUTHRIE. Thank you very much, Mr. Chairman. I appreciate 

being here. 

We talked about 2024 as the date that Medicaid goes insolvent. 

And that is if you believe a lot of the different accounting systems 

in the healthcare bill and the SGR goes away. Things like that 

happen even to get to 2024. 

But let’s assume we get to 2024 before Medicare goes insolvent. 

So if somebody is 66 in 2024, we don’t know how the law is going 

to treat them. That is what the testimony has been here today. 

Will it be 75 percent of 70 percent payments to hospitals and doctors? We just don’t know that. 

I don’t know if anybody would disagree with me on the panel, but 

we don’t know what will happen if Medicaid goes insolvent in 2024, 

which is what the President’s healthcare bill that was voted on by 

the majority does. 

So if it goes insolvent in 2024 and we don’t know how 66-yearolds are going to be treated—we do know that if we pass the Ryan 

budget, someone who is 66 years old in 2024 will have Medicare 

as we know it today. 

62 

And just take me; I am a baby boomer. I was born in 1964, on 

the end of it. So if you are 65 today—today, if you are 65, as we 

speak today you are on Medicare, do you hope to live to be 76? 

With our healthcare system, I think most people do hope to live to 

76. 

So what we are telling people today, we have no idea how you 

are going to have Medicare when you are 76 years old, unless we 

put a plan in place, which this side has put forth. A lot of people 

say, In Washington nobody ever tries to solve problems. We have 

known this is coming, both parties have known this is coming for 

a long time. Baby boomers are just a fact; it is a fact of the life. 

But we do have a plan. If you are 65 years old today, when you 

are 76 you will have Medicare as you know it. 

And so what are we talking about doing the difference? Well, 

people will say, well, we need a balance of revenue. The President 

went around the country last year saying if we just asked the millionaires and billionaires, defined at $250,000 or more, to pay more, 

nobody is going to have to make any changes. Well, that is $80 billion. The President got $60 billion of the $80 billion in the fiscal 

cliff bill. I don’t know if anybody in this room would say that is 

enough to solve the problem with Medicare. Even if you got the additional $20 billion he promised—even 

though the 3.8 Medicare tax on unearned income didn’t go into the 

Medicare side. So asking the rich to pay more, the fiscal cliff bill, 

the $60 billion didn’t go to stave off Medicare. It was spent, essentially, in the fiscal cliff bill, most of it was spent on other projects. 

So when you say we just need to raise taxes to put it back into 

Medicare, I mean, we have seen what has happened twice just recently. 

So what are we offering? I think—is Medicare Part D a good program? And people think Medicare Part D—you said it is the cost 

of—people are saying Medicare costs per beneficiary have slowed, 

and a lot of it is due to Medicare Part D. 

So what we are saying is, oK, instead of—I think we had one 

panelist say, well, when baby boomers retire—they built schools 

when they had baby boomers; therefore, they are just going to have 

to pay more for us to be retired. So I am telling my children—my 

daughter is 19. In 30 years she will be 49. One hundred percent 

of all Federal revenues is supposed to go to Social Security, Medicare, and Medicaid at that point. So I am telling my daughter 

when she is my age she needs to wake up and go to work so my 

generation can be retired. That is what we are telling them. I 

mean, what else are they going to have? They are not going to have 

anything else. 

But what we are saying, if we adopt a program like Medicare 

Part D for the rest of Medicare, not only can somebody that is 65 

years old today have Medicare till they pass away as they know it 

and as it is, our children and grandchildren can have Medicare delivered to them in a way—did the majority change Medicare Part 

D in the bill? They did change some benefit within Medicare Part 

D, but they certainly didn’t change the way it is delivered. 

And so I don’t know why it is so radical. If it was so bad to do 

the other parts of Medicare like Medicare Part D, then why wasn’t 

it changed during the healthcare bill? It wasn’t. 

63 

And so what we can say today, we can say, Children and grandchildren, my generation is retiring, you just owe it to us? Or we 

can say, Children and grandchildren, we are going to promise to 

people who are near retirement because politicians promised them 

things that we had no idea how to pay for but they organized their 

life around it so we are going to honor it? That is what this budget 

that is coming out tomorrow does. It honors the promise we made 

to people at or near retirement. 

But instead of asking our younger people to pay more, let’s 

change the program in a way that we know works, because Medicare Part D works, and present it, give them an opportunity to 

have to not go to work every day to pay for my generation to be 

retired, go to work every day so hopefully someday when they have 

grandkids and they have grandkids, they can have the America 

that our parents have given to us. 

And I think that is what our generation owes them. They don’t 

owe us. We owe them. That is what the American dream has been 

about. 

And I yield back my time. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Louisiana, Dr. Cassidy, for 5 minutes. 

Mr. CASSIDY. Hey, Mr. Capretta. 

Mr. CAPRETTA. Hello, Doctor. 

Mr. CASSIDY. Que pasa? 

Mr. CAPRETTA. Very well. 

Mr. CASSIDY. So, as I gather—and I was looking up the CBO, Erskine Bowles—but if we do nothing, what, by 2035 or thereabouts 

Medicare, Medicaid, Social Security, and interest on the debt will 

consume 100 percent of Federal tax revenue? 

Mr. CAPRETTA. I think that is about right, yes. 

Mr. CASSIDY. It was something like that, and I somehow wondered off where I should be. 

And I also believe I know it is true that current law says that 

we cannot, under current law, transfer dollars from the general 

fund to the Medicare trust fund. Medicare trust fund, by law, is 

supposed to be self-sufficient, correct? 

Mr. CAPRETTA. The Medicare hospital insurance trust fund is in 

that circumstance, yes, that is correct. 

Mr. CASSIDY. So when A goes bankrupt, there is no more? 

Mr. CAPRETTA. When it runs out of reserves, there is no—you 

have to change the law to put more money into it. 

Mr. CASSIDY. Dr. Feder, is reform worse than bankruptcy? Because if we know, according to current law, that after, what, 2024 

there is no money, that people will not have any dollars in Medicare Part A, is reform worse than—is reform—— 

Ms. FEDER. Mr. Cassidy, it is not—— 

Dr. CASSIDY [continuing]. Worse than bankruptcy? 

Ms. FEDER [continuing]. Quite accurate to say people will not 

have any dollars in Medicare Part A. As has been said, they would 

not—that Medicare Part A dollars would fall short of full expenses—— 

Mr. CASSIDY. No, no, no, that is when it is bankrupt, right? 

Mr. CAPRETTA. Well, bankrupt, and that is—there would still be 

revenue coming in that—— 

64 

Ms. FEDER. There is still revenue—— 

Mr. CASSIDY. Well, it will be pay-as-you-go. 

Ms. FEDER. The short story there is—— 

Mr. CASSIDY. Yes, but—— 

Ms. FEDER [continuing]. It is never bankrupt. 

Dr. CASSIDY [continuing]. It is going to be 10 percent or it is 

going to be 20 percent. 

Ms. FEDER. No. Well, no. Wait. We said it is 70 percent. And the 

other—— 

Mr. CASSIDY. No, it is 70 percent now. 

Ms. FEDER. The other percent—no, I don’t think so. 

But the other part of the story is that we are not doing nothing 

now. I have heard it said several times today that ‘‘if we do nothing.’’ We are not doing nothing. 

Mr. CASSIDY. OK. Now, the accountable care organizations have 

never been shown to save money relative to—— 

Ms. FEDER. Well, of course they haven’t been shown to save 

money, because they are brand-new and we are piloting them. 

Mr. CASSIDY. No, no, no. They had demonstration projects which 

were deliberately selected to be places that had integrated health 

care that—— 

Ms. FEDER. I hear your concern about the previous pilots, and I 

think—but there are design features, for example, in the pioneer 

ACOs, who are sharing risk as well as sharing savings, that have 

greater potential, in addition to which they are not the only demonstrations that are being—— 

Mr. CASSIDY. Now, by the way, ACOs—I am sorry, I don’t mean 

to interrupt, but I just have so little time. ACOs count upon having 

a capitated or a per-beneficiary payment, correct? 

Ms. FEDER. No, they are shared—they are paid toward a—there 

is a target on their spending. 

Mr. CASSIDY. So their—— 

Ms. FEDER. And they share savings or bear—or some of them 

bear risk. 

Mr. CASSIDY. So, ultimately, there is a sense of—and IPAB, for 

example, assumes a global budget for Medicare. 

Ms. FEDER. Well, that is a different question. An ACO is not the 

same as an IPAB. 

Mr. CASSIDY. So is a cap inherently wrong? 

Ms. FEDER. Well, let me just—there is not a cap in the ACO savings. There is a shared risk—or an ACO program—there is shared 

savings. 

What I think is wrong is to cap dollars and assume that we know 

how to deliver the services. So you—— 

Mr. CASSIDY. So New York State is—— 

Ms. FEDER [continuing]. Assume a delivery mechanism. And I 

also would say that an arbitrary cap that is significantly slower 

than the rate of increase in healthcare spending puts beneficiaries 

at risk. 

Mr. CASSIDY. So New York Mayor Cuomo, Governor Cuomo, I am 

told, is putting a global cap on Medicaid. Is that wrong? 

Ms. FEDER. I do not think programs should be globally capped. 

I think they—— 

65 

Mr. CASSIDY. So is there no limit to the exposure of the Federal 

taxpayer to how much they can spend? 

Ms. FEDER. What I believe is that we need to adopt specific policy measures that do generate savings without—— 

Mr. CASSIDY. Well, we know historically—— 

Ms. FEDER [continuing]. Shifting risk to beneficiaries. It is shifting risk to beneficiaries—— 

Mr. CASSIDY. I am sorry. There is limited time. There is limited 

time. 

We know historically that New York, for example, has really 

gamed that system. So New York, which has half the population 

of California, has a program which is 25 percent more expensive. 

There are people in disabilities who are getting paid by New York 

Medicaid $5,000 a day. 

Ms. FEDER. I think the way to address problems in spending is 

to adopt specific policy measures to make the system more efficient, 

which we know how—— 

Mr. CASSIDY. Now, we know that—— 

Ms. FEDER [continuing]. Some of which we know how to do. 

Mr. CASSIDY. We know that Medicaid is very difficult to reform. 

Mr. Archambault just said that it takes a year, sometimes longer, 

to get a waiver. That doesn’t really seem to be the flexibility or the 

agility—— 

Ms. FEDER. Oh, I would say that Medicaid has made a lot of 

changes in recent years, that we have for moms and kids an extensive reliance on managed care plans, some of which is good and 

some of which is not good. So there has been plenty of reform in 

Medicaid programs, whatever—— 

Mr. CASSIDY. But that wasn’t the point. The point is that the 

flexibility that would give States the ability to sometimes shut this 

sort of thing down could take over a year. 

Ms. FEDER. What I have heard ignored and in the previous comments is that what your budget is proposing is to take $800 billion 

out of the Medicare program. 

Mr. CASSIDY. You are kind of dodging the point, my point being 

that there is no ability—or put it this way. If it takes a year to 2 

years or sometimes never to get the flexibility to address this, it 

shows that our ability to address it isn’t quite agile. 

Ms. FEDER. I simply disagree on—— 

Mr. CASSIDY. Mr. Archambault, is it true it takes over, sometimes, a year or 2 years to get those waivers? 

Mr. ARCHAMBAULT. I think there are multiple States. New Mexico is an example. Florida is an example in which it took at least 

a year, if not more. State of Oregon, Democratic Governor, took a 

while to get permission for their waiver, as well. Yes. 

Mr. CASSIDY. So I am almost out of time, but thank you very 

much. 

Ms. FEDER. You are welcome. 

Mr. CASSIDY. I yield back. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentlelady from North Carolina, Mrs. Ellmers, for 5 minutes for 

questions. 

Mrs. ELLMERS. Thank you, Mr. Chairman. 

And thank you to our panel. 

66 

I would like to start off by saying, Dr. Feder, you had made some 

comments regarding the budget and that the budget basically repeals Obamacare and that that, in your opinion, is not a good 

thing. I would say that I completely disagree with that. 

And I am very concerned about access to care for patients, 

whether they be patients who are receiving Medicaid or Medicare 

patients. I think that is really what is in jeopardy here, and quality 

of care. Those are some of the things that we have to be addressing 

and looking at. We are all talking about pay-for, and that is very, 

very important, but it is really access to care and quality of care. 

So, having said that, the discussion about the States and the 

Governors who have decided to or been opposed to expanding Medicaid is an issue. In North Carolina, for instance, Pat McCrory, 

Governor Pat McCrory, has not elected to expand the Medicaid program. And his quote is, ‘‘Our Medicaid system is broken, and I cannot expand a brokensystem.’’ Now, I understand the Governors 

that have, but I also understand that is also information that they 

are receiving, and good intentions are, I think, what is happening 

here. 

And I would just like to cite—I know there were some other studies that were being discussed about how—and you had made comments that someone who was put on Medicaid essentially will receive the same health care and the same quality as someone who 

was on a private healthcare insurance plan. And I would dispute 

that. 

In fact, the study that I most recently became familiar with is 

the 2010 University of Virginia study, which released a landmark 

study showing that surgical patients—and this is surgical patients 

that they cite—on Medicaid have a 13 percent higher chance of 

dying than an individual with no insurance at all, keeping in mind, 

of course, that the death rate or the mortality of a surgical patient 

with healthcare insurance is about 1.3 percent, so that is statistically pretty small. 

But 13 percent higher than someone with no insurance at all and 

97 percent higher if that person is on Medicaid. Now, that is in 

stark contrast with some of your theories and, basically, some of 

the studies that you have already cited. 

Having said that, obviously, this study shows, yes or no, that 

putting someone on Medicaid is not necessarily giving them better 

health care? 

Ms. FEDER. No. 

Mrs. ELLMERS. OK. Now, were you familiar with the study? 

Ms. FEDER. No, I was saying my understanding of that, or of 

similar studies—I would have to check that particular—— 

Mrs. ELLMERS. Yes. 

Ms. FEDER [continuing]. Is that it is of considerable importance, 

when you do a study, to compare costs under different insurance 

programs, that you recognize the health status or differences in the 

health status—— 

Mrs. ELLMERS. And I believe this study actually does that. So I 

would encourage you—— 

Ms. FEDER. My concern is that—— 

Mrs. ELLMERS. I would encourage you to familiarize yourself 

with this particular study—— 

67 

Ms. FEDER. And I—— 

Mrs. ELLMERS [continuing]. Because it breaks it down. 

Ms. FEDER. It runs counter to so much else—— 

Mrs. ELLMERS. Now, how can you justify or how can you say to 

an individual that would be put on Medicaid as a result of the expansion of Obamacare, essentially, how can you say to them that 

you really feel that they are going to be getting better health care? 

Ms. FEDER. Because I have a host of evidence that shows that 

people who get Medicaid have better access to care than people 

without health insurance and that they live longer as a result. I 

am very comfortable in making that judgment. 

Mrs. ELLMERS. So, in your opinion, putting more people on Medicaid is really the answer, not necessarily putting forward a budget 

or passing a budget that is actually a pro-growth economy—— 

Ms. FEDER. No, I actually think—— 

Mrs. ELLMERS [continuing]. To get people off of Medicaid? 

Ms. FEDER. I actually think, Mrs. Ellmers, that that is a very 

broad statement. What we are talking about is the expansions in 

the Affordable Care Act, which I think will be of huge benefit to 

the population, whether through Medicaid or through exchanges. 

And I would hope that all States would see the value to their populations and go along with that expansion. 

Mrs. ELLMERS. Mr. Archambault, are you familiar with the University of Virginia study? 

Mr. ARCHAMBAULT. I am, yes. 

Mrs. ELLMERS. Why is it that when patients are put on Medicaid 

that there is this discrepancy? Because there would be this natural 

assumption that if you are put on a Medicaid plan, that all of a 

sudden you are going to get better health care and you are going 

to have a better outcome. 

Mr. ARCHAMBAULT. Without specifics to that program in Virginia 

and how it is treated, I think what that study illustrates is that 

the history of under-reimbursing doctors has led to some 

unexplainable results in the program and inconsistent-quality care 

being provided. And I am not sure we fully understand why yet. 

There are a lot of theories. 

Mrs. ELLMERS. Yes. 

Mr. ARCHAMBAULT. But consistently in the academic literature 

we are seeing more and more examples in which the quality of care 

is less than those on private insurance. 

Mrs. ELLMERS. OK. Thank you very much. And my time has run 

out. I appreciate this testimony. Thank you. 

Mr. PITTS. The chair thanks the gentlelady. 

That concludes the Members’ questions at this point. If you have 

additional questions, you may submit them to the witnesses. I remind Members that they have 10 business days to submit questions for the record, and I ask the witnesses to respond to the questions promptly. 

This was an excellent hearing, excellent testimony. Thank you 

very much for coming today. 

And Members should submit their questions by the close of business on Monday, April 1st. 

With that, the subcommittee is adjourned. 

[Whereupon, at 5:57 p.m., the subcommittee was adjourned.] 

68 

[Material submitted for inclusion in the record follows:] 

69 


80803.026

Testimony of Paul N. Van de Water 

Senior Fellow, Center on Budget and PolIcy PrIorities 

Before the 

Subcommittee on Health 

Committee on Energy and Commerce 

U.s, House of Representatives 

Rnancing Medicare and Medicaid 

820 ::--;E, SUiH,' Sl(l 

\\; <l'>hingtlll\, DC 2(l{l()2 

Td: 202-.. W8-1080 

Fil"; 2fr>.J.OS-1O.'i(i 

Cemt"f tI cbpp.nfg 

J\1r. Chuinl1an, Ranking l\fember Pallone, and members of the subcomm.iltce, r appreciate the 

invitation to appear before you today. 

l\kdicatc and J\fedicaid arc essential to the health and financial "\-vell-being of the elderly, disabled, 

and poor. l11cy afe also cost-effective, OYer the 40 years, I\fcdicate enrollee 

has by an average less comparable 

J :Mcdicaid provides acute care coverage at a cost perccnt less per child, and 

percent less per non-elderly adult, than private coverage;2 it is also the nation's primary payer for 

long-term cafC services and supports. 

The tlnancial outlook for 11edicare and 'Medicaid has 

The Affordable Care Acr 

2011 and 2020.; 11,C Congt'cssional 

o\'cr the 2011·2020 

; Office of the l\cmary, Centers for :\.Jedicare & :\.fedicaid Services, National Health Expenditure Tables, January 2013, 

table 

Ku amI Matthew Broaddu::, "Public and Private lmurance: ~tacking Up the Costs," [fralth -1jlairs \'Ccb 

.. ,,'u,,' C. ,"'IC 24,2008. 

" Congressional Budget Office, tbe Btlr{f!.et and EtflllOmir 01fflook .",1n L pdaff, A.u~rust 2010, p. 63. 
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80803.027

CBO has reduced its projections of Medicare spending in response to the very low spending 

growth in the past three years. Medicare spending per beneficiary in fiscal year 2012 increased by 

only 0.4 percent - well below the 3.4~percent gro'W'!h in gross domestic product (GDP) per capita. 

Over the 201O~2012 period, Medicare spending per beneficiary grew at an annual rate of 1.9 percent, 

while GDP per capita increased by 3.2 percent a year.' 

No one knows how long this good news will continue, although many experts have concluded 

that a substantial part of the slowdown reflects ongoing structural changes in the health care system. 

But even if cost growth remains moderate, Medicare and Medicaid spending will keep rising as more 

baby boomers become eligible for benefits. Between now and 2035, as the baby boomers retire, 

federal spending on Medicare and Medicaid is projected to increase by slightly more than 3 percent 

of GDP. By way of comparison, state and local government spending on education grew by a 

similar amount between 1950 and 1975, as the boomers entered primary and secondary school. 

We can't do much about the aging of the U.S. population, but we can and must continue efforts 

to make our health care system more efficient. Effectively implementing the cost~control provisions 

of the Affordable Care Act is an essential next step. The ACA's research and pilot projects should 

yield important lessons about how to deliver health care in ways that lower costs while maintaining 

or improving quality. While waiting for these efforts to bear fruit, what additional savings can we 

achieve in our health programs? 

In Medicaid, most proposals that would secure more than very modest federal savings - such as 

a block grant, per capita cap, or restrictions on states' use of provider taxes - would do so by 

shifting costs to states. If that occurs, states are likely to cut eligibility, benefits, or provider 

payments and hence reduce beneficiaries' access to care. 

In Medicare, policymakers can enact measures now, as part of a balanced deficit~reduction 

package, that would achieve significant savings over ten years without jeopardizing the quality of 

care or access to care. But adopting an overly ambitious savings target could result in measures that 

largely shift costs to states, individuals, and employers and harm some of the most vulnerable 

members of society, yet fail to address the underlying causes of the unsustainable gro'W'th in costs 

across the health care system. Indeed, some proposals - such as raising the age of eligibility -

would actually raise total health care costs. It must also be kept in mind that half of Medicare 

beneficiaries have incomes of less than $25,000 (including their spouse's income) and that Medicare 

households spend 15 percent of their budgets on out~of~pocket health costs - three rimes that of 

those not on Medicare. 

The key fiscal policy goal for the medium term should be to stabilize the federal debt relative to 

the size of the economy. Since late 2010 Congress has enacted nearly $2.8 billion in deficit 

reduction - 70 percent of that through spending cuts. Another $1.5 trillion in deficit reduction 

would stabilize the debt at 73 percent of GDP over the latter part of this decade. 6 

5 Richard Kronick and Rosa Po, Gron'th in Medicare Spendingper Beneficiary Continues to Hit Historic Lows, ASPE Issue Brief, 

U.S. Department of Health and Human Services,January 7, 2013. 

6 Richard Kogan, Robert Greenstein, and Joel Friedman, SI.5 Trillion in Deficit Savings Would Stabilize the Debt Over the 

Coming Decade, Center on Budget and Policy Priorities, February 11,2103, http://www cbpp.org/files/2-11-1 "bud pdf. 

2 
71 


80803.028

Stabilizing the debt in the coming decade would give policymakers time to identify the further 

steps that \",ill be needed to slow the growth of health care costs throughout the U.S. health care 

system \vithout impairing the quality of care. But it's neither necessary nor desirable to accomplish 

this by radically restructuting Medicare - for example, by replacing Medicare's guaranteed coverage 

with a premium support voucher - or by restructuring or severely cutting Medicaid or other 

programs that protect low-income Americans. 

3 
72 


80803.029

Written Statement for tbe Record by 

Ron Pollack, Executive Director, Families USA 

For tbe U.S. House of Representatives 

Committee on Energy and Commerce, Subcommittee on Health 

Hearing on "Saving Seniors and Our Most Vulnerable Citizens from an Entitlement Crisis" 

Monday, Marcb 18,2013 

Chairman Pitts, Ranking Member Pallone, and members of the Committee on Energy and Commerce, 

Subcommittee on Health: 

I submit this statement for the record on behalf of Families USA, a national nonprofit, non-partisan 

organization dedicated to the achievement of high-quality, affordable health care for all Americans. 

We believe we must protect our seniors and most vulnerable citizens from an entitlement crisis. For 

those who rely on Medicaid for their health care, an "entitlement crisis" would occur from a reduction 

or restructuring of the program that shifts more of the cost burden onto the seniors and families who 

cannot afford it. 

Medicaid Helps Millions of Americans 

Millions of Americans rely on Medicaid for health care and long-term care. More than 15.6 million 

seniors and people with disabilities rely on Medicaid, which is the largest payer oflong-term supports 

and services, including home- and community-based care. Medicaid cuts would force states to reduce 

nursing home and home-care coverage, which would shift a larger burden onto individuals who need 

long-term care and onto their families. That would place a further strain on our struggling middle 

class. 

Medicaid also provides health care for millions oflow-income children and families. The program is 

integral to women's health, as more than two-thirds of all adult Medicaid enrollees are 

women. Communities of color disproportionately count on it for their health care. 

Medicaid Is a Lean Program 

Medicaid is a program that has little fat to cut. Administrative costs in Medicaid are extremely low. 

More than 96 percent of federal Medicaid spending goes to pay for health care and long-term care for 

program enrollees, not overhead. Payment rates for providers in Medicaid are already lower than rates 

for Medicare and private insurance. Cutting rates further could mean that more providers would be 

unwilling to participate in the program. And although health care costs are rising faster than inflation, 

Medicaid costs are rising more slowly than health care costs in the private market. 

Medicaid Provides Good Health Care 

Americans with Medicaid like their health care. One study found that 54 percent of adults with 

Medicaid rated their health plan a "9" or "10" on a 1 to IO scale (with 10 being the highest).l Several 

studies have shown that having Medicaid is far better than being uninsured. 

I Department of Health and Human Services, Agency for Healthcare Research and Quality, 2011 Consumer 

Assessment qf Healtheare Providers and Systems Survey Chartbook, "Overall Rating of Health Plans," report 

generated May 2, 2012. Based on 2011 reported satisfaction for adults in Medicaid and adults in private commercial 

insurance. 
73 

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80803.030

Cutting Medicaid Would Shift Costs to the States and Damage Local Economies 

Medicaid is an invaluable tool for states when economic downturns or natural disasters hit, because 

ofthe program's ability to expand to serve additional people in crisis. Any cut or restructuring of 

Medicaid-whether it be by block granting the program, instituting a per capita cap, or by limiting 

provider taxes-is simply a cost shift to states and families. Federal Medicaid spending stimulates 

economic activity and job growth in the states. Cutting Medicaid while state economies are still 

struggling would severely jeopardize states' financial recovery. 

Cutting Medicaid Would Jeopardize the Affordable Care Act's Expansion of Medicaid 

As of the writing of this statement, more than 15 states and the District of Columbia have signaled 

that they plan to cover the uninsured in their state by expanding the Medicaid program as allowed by 

the Affordable Care Act. Support for the Medicaid expansion includes both Democratic and 

Republican governors. However, if cuts or changes are made to Medicaid, it would send the wrong 

signal to states about the federal government's commitment to the program. 

We agree that we must help seniors, low-income families and other vulnerable Americans from 

facing an entitlement crisis. That is why we believe cuts or structural changes to Medicaid would be 

devastating to the millions of Americans who rely on the program for their health and well-being. As 

our economy struggles to recover, now is not the time for the federal government to scale back its 

support for Medicaid or shift costs to states and families.