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THE 2013 MEDICARE TRUSTEES REPORT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JUNE 20, 2013 

Serial No. 113–HL05 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

JIM MCDERMOTT, Washington 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


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C O N T E N T S 

Page 

Advisory of June 20, 2013 announcing the hearing .............................................. 2 

WITNESSES 

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

Boards of Trustees ............................................................................................... 7 

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

Boards of Trustees ............................................................................................... 20 

SUBMISSIONS FOR THE RECORD 

AAA, statement ........................................................................................................ 39 

MRC, statement ....................................................................................................... 47 

National Center for Policy Analysis, statement .................................................... 51 

NCPSSM, submission .............................................................................................. 54 


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THE 2013 MEDICARE TRUSTEES REPORT 

THURSDAY, JUNE 20, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 9:30 a.m., in Room 

1100, Longworth House Office Building, Hon. Kevin Brady [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Thursday, June 13, 2013 

No. HL–05 

Chairman Brady Announces Hearing on 

the 2013 Medicare Trustees Report 

House Ways and Means Health Subcommittee Chairman Kevin Brady (R–TX) 

today announced that the Subcommittee on Health will hold a hearing on the recently released 2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. This 

hearing will allow the Subcommittee to focus specifically on the Medicare program’s 

financial status and changes from the trustees previous reports. The Subcommittee 

will hear testimony from Medicare’s two Public Trustees. The hearing will take 

place on Thursday, June 20, 2013, in 1100 Longworth House Office Building, beginning at 9:30 a.m. 

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

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

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

BACKGROUND: 

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

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

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

(SMI) Trust Funds. The trustees, who are designated in statute, are the Secretary 

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

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

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

there be two Public Trustees, from different political parties, who are appointed 

by the President and confirmed by the Senate for 4-year terms. The CMS Office of 

the Actuary is responsible for preparing the report. The 2013 report was released 

on May 31, 2013, and can be found at https://www.cms.gov/ReportsTrustFunds/ 

downloads/tr2013.pdf. The Medicare actuaries subsequently released an alternative 

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

as preventing cuts to Medicare physician payment rates, overriding productivity adjustments to Part A providers, and eliminating the Independent Payment Advisory 

Board) to ‘‘present an alternative scenario to help illustrate and quantify the potential magnitude of the cost understatement under current law.’’ That memo can 

be found at http://www.cms.gov/ReportsTrustFunds/Downloads/2011TRAlternative 

Scenario.pdf. 

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

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

The Medicare trustees again issued a ‘‘Medicare funding warning’’ stating that the 

more than 45 percent of Medicare outlays in FY2013 will be comprised of general 

revenues. Additionally, the trustees report the Medicare Hospital Insurance (HI) 

Trust Fund is expected to go bankrupt by 2026, 2 years later than the 2012 estimate. However, under the high-cost assumptions, the HI Trust Fund is expected to 

go bankrupt by 2019. 


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The trustees state that the HI Trust Fund is not adequately financed through 

2014 as its ‘‘expenditures have exceeded income each year since 2008’’ and will run 

a ‘‘deficit amounting to $23.8 billion in 2012.’’ The trustees project Medicare spending to grow from 3.6 percent of Gross Domestic Product (GDP) in 2012 to 6.5 percent 

of GDP in 2087. 

Under the alternative scenario, the trustees estimate that Medicare spending 

would increase to 9.8 percent of GDP in 2087. The trustees state that growth of this 

magnitude would ‘‘substantially increase the strain on Nation’s workers, the economy, Medicare beneficiaries, and the Federal budget. 

In announcing the hearing, Chairman Brady stated, ‘‘The conclusions of the 

Medicare trustees are deeply troubling and should serve as a call to action 

for those who want to save Medicare. While Medicare’s Hospital Insurance 

Trust Fund has been given a brief 2 year reprieve before going bankrupt, 

that doesn’t mean Congress has two more years to act. The simple truth is 

that Medicare remains in deep financial trouble and the time to act is now. 

It is critical that the American people, the President and Congress understand just how dire Medicare’s finances are.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on Medicare’s financial situation as detailed by the 2013 

Medicare trustees report. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

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

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

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

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

with the formatting requirements listed below, by the close of business on Friday, July 5, 2013. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

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

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

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

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

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

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

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

by the Committee. 

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

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

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

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

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

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


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

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

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

f 

/. 

Chairman BRADY. The Subcommittee will come to order. We are 

meeting today to hear from the public members from the Board of 

Trustees, the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds on their 2013 report analysis regarding the current dire status of the Medicare program. It 

is important to understand the financial health and viability of the 

Medicare program if we are to ensure that the program is solvent 

and available to our immediate seniors as well as future generations of Americans. 

Author George R.R. Martin wrote, ‘‘most men would rather deny 

a hard truth than face it.’’ I worry that when it comes to Medicare 

that is true for too many in Washington today. If Medicare is just 

fine, as some claim, then why the Medicare trustees issue and 

Medicare funding warning for the seventh straight year? If there 

is no problem that needs action now, then why have the assets in 

the Trust Fund shrunk by 15 percent from the projections made 

just 5 years ago? And if sincere concerns about Medicare’s financial 

condition are summarily dismissed as alarmist rhetoric by some 

Members of Congress, then why can’t Medicare pay its medical 

bills for seniors in just 13 short years? 

Today no Member of Congress can honestly look a 52-year-old 

American in the eye and assure them that Medicare will be there 

for them when they retire because the trustees report has just confirmed that. That is not just fine. For those who continue to stick 

their head in the sand, where hope is the denial of reality and who 

shirk from their responsibility to act to save Medicare now, here 

is yet another wakeup call. The 2013 trustees report continues to 

make it abundantly clear that Medicare’s financial future is in 

trouble. Americans all over the country and across generations are 

paying into a program that we as a Congress cannot promise they 

will receive benefits for. But if we simply face reality and come together we can act now, this year, to take the first real steps to 

make sure our citizens receive the medical care they deserve and 

have paid into when they need it the most. 

If you somehow think a couple of years of reduced healthcare 

spending within a recession solves the problem, do the math. The 

number of people in Medicare doubled over the last 35 years and 

is going to double in size again. And no one credible has proven 

that reduced healthcare spending will last. Even the Medicare 

trustees didn’t attempt to make that claim. And they are not alone, 

the independent actuaries at the Centers for Medicare and Medicaid Services again published what they call an alternative scenario. In their full scenario they assume that Congress will prevent, schedule cuts in physician providers payments, and repeal 

the heavy-handed independent advisory board causing Medicare 

spending as a percentage of our economy to skyrocket. The trustees 


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report and the alternative scenario reinforce the need for prompt 

attention to Medicare’s severe financial problem. 

As we will hear from our witnesses today, we should continue to 

push, now is the time to act as the sooner we make changes the 

better the program structure, the less dramatic these changes will 

have to be. My hope is that this hearing will help my colleagues 

on both sides of the aisle continue to understand the extent of the 

financial problem that pushes us to work toward a bipartisan commonsense solution. We can’t wish this problem away. Medicare is 

going broke too quickly, and no amount of positioning for political 

gain is going to change that fact. The Medicare Board of Trustees 

urged us as Congress to take prompt legislative action and recognize the projection in this year’s report continues to demonstrate 

the need for timely and effective action to address Medicare’s remaining financial challenges. 

So if the trustees don’t view the two added years of solvency as 

a significant reprieve, then why should Congress or the White 

House? Our witnesses here today will further explain to us the extent of Medicare’s financial difficulties as we work to deliver on 

this promise. Medicare is important, it is in trouble, common sense 

dictates that we act now. 

Before I recognize Ranking Member McDermott for the purposes 

of an opening statement I ask unanimous consent that all Members’ written statements be included in the record. Without objection so ordered. I now recognize Ranking Member McDermott for 

his opening statement. 

Mr. MCDERMOTT. Thank you very much, Mr. Chairman. I want 

to welcome Dr. Reischauer. It seems like you have been a permanent fixture around here doing something ever since I came 25 

years ago. So it is good to see you here today as one of the public 

witnesses. And Dr. Blahous, thank you for your service as being 

willing to sit on a commission like this. I believe it has been a couple of years since we have seen you before the Committee, and I 

look forward to hearing your thoughts today about what is going 

on. 

As in the past, as you listened to my colleague Mr. Brady, this 

hearing has usually been a hearing where there has been continual 

harping on Medicare’s supposed dire finances and scaring the public into believing that Medicare is going bankrupt and it won’t be 

there for you when you get to a certain age. Every generation has 

been subjected to that since I’ve been in Congress; it is not going 

to be here by the year X. 

When I looked outside this morning as I got up, I can assure you 

the sky’s not falling. The latest trustees report projects two initial 

years of solvency to 2026, and that is pretty healthy by historical 

standards. Additionally the Affordable Care Act is improving conditions across the Medicare program. Projected Medicare spending is 

down from where it was headed before the passage of ACA. Before 

ACA we were projecting spending would reach 11.4 percent of GDP 

in 2082. I don’t know who can believe we know anything about 

2082, but people sit around and make those kind of projections. 

This year that number is down to 6.5 percent in 2087, so that is 

almost a 50 percent cut. 


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The long-term 75-year deficit has also improved, dropping from 

3.88 percent in 2099 to 1.11 percent in 2013, that is a 72 percent 

decline. So you are seeing that things in fact in the long term seem 

to be getting better. Now if you believe those predictions the guys 

who want them believe them I guess. I am one of those a little dubious about who will know what will happen in 75 years. But the 

ACA is also resulting in historically low healthcare spending rates. 

Per capita Medicare spending rate was only .4 percent in 2012, 

that is less than one-half of 1 percent, and national expenditures 

grew only 3.9 percent in 2011, the third straight year of slower 

growth. But these rates are expected to remain low through the 

decade, it is not just a one-time occurrence. These are the result 

of the initiatives within the ACA and the initiatives it has catalyzed throughout the country. Providers and insurers have gotten 

the message loud and clear they need to transform into high-value, 

efficient providers if they want to compete in the healthcare system 

of tomorrow. 

While all of this good news won’t keep my Republican colleagues 

from playing Chicken Little, I would like to remind them that repealing the ACA, they tried it 37 times, their singular goal for the 

last 3 years, would actually put the program on a worse financial 

footing. The latest estimates of the actuaries say that repeal would 

shorten solvency by 8 years. It would also increase beneficiary costs 

and eliminate benefit improvements such as free preventive care 

and closure of the Part D donut hole. 

So rather than using this year’s trustees record to invoke panic 

and fear, rather let’s use it to justify shifting costs or justifying 

costs on to beneficiaries and undermining the program in the name 

of solvency, I challenge my colleagues to think bigger. Let’s figure 

out how to ensure Medicare is an efficient program that provides 

a quality benefit to those who rely on it. While I support improvements to the Medicare program, no program designed in 1964 could 

possibly be adequate for today. There’s just no way you can do that. 

And I reject calls to slash the program to save it, it wasn’t made 

too big at the beginning. Let’s give the ACA and the civil liberty 

system reforms the chance to work. After all the sky isn’t going to 

fall anywhere tomorrow either. And I think that the Committee 

has to look at what you present to us and decide how we actually 

implement the efficiency that is in the ACA because it will affect 

Medicare as it affects everything. The delivery of health care and 

the way we pay for it is going to change over the next few years. 

It is changing in part by the fact that we have actually put ACA 

in motion. That made people start to think about it. 

I yield back the balance of my time. 

Chairman BRADY. Today we will hear from two witnesses, 

Charles Blahous and Robert Reischauer, both Public Trustees on 

Social Security Medicare Boards of Trustees. Thank you both for 

being here today. I look forward to your testimony. You both will 

be recognized for 5 minutes for the purposes of providing your oral 

remarks. 

Mr. Blahous, we will begin with you. 


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STATEMENT OF CHARLES P. BLAHOUS, PH.D., PUBLIC 

TRUSTEE, SOCIAL SECURITY AND MEDICARE BOARDS OF 

TRUSTEES 

Mr. BLAHOUS. Thank you, Mr. Chairman, Mr. Ranking Member, all the Members of the Subcommittee. It is as always a great 

honor to appear before you today to discuss the findings of the 

Medicare trustees report. By mutual agreement with my fellow 

Public Trustee Dr. Reischauer I am going to present in my oral remarks the primary financial projections of the Medicare trustees 

report and leave it to his testimony to discuss some of the recent 

evolution of longer-term outlook. 

The first point I would make in my oral remarks is simply that 

Medicare finances are very complex, the program has two Trust 

Funds and they are financed in different ways. Each year there is 

naturally a high degree of public and press attention in our projections for the date of depletion of the Hospital Insurance Trust 

Fund, and that is very important to the data and it is appropriate 

there be such attention, but that is just one piece of a larger mosaic 

of Medicare program finances. 

Medicare also has a Supplementary Medical Insurance Trust 

Fund which actually has larger expenditures, and that is constructed so that it can never go insolvent by design. It is basically 

given whatever general revenues it needs out of the general fund 

in order to maintain benefit payments. So when we have financing 

strains on that side of Medicare they are not manifested in the 

data’s trust fund depletion but they are manifested in the form of 

rising enrollee premiums and rising pressure on the general budget. And in fact we are showing such rising pressure. Under our current projections—well, in 2013 we are expecting about $594 billion 

in total Medicare expenditures. That is about 3.6 percent of our 

Gross Domestic Product. We are projecting going forward that 

Medicare costs will rise substantially faster than our economic output to the point where in the 2030s, by mid 2035 we are expecting 

total program costs to be about 5.6 percent of GDP. Thereafter we 

are expecting continued increases relative to our economic output 

but moderating a little bit to hit about 6.5 percent of GDP by 2087. 

Now the primary driver of this cost growth of course is demographics. We have a lot of baby boomers coming onto the benefit 

rolls. Healthcare cost inflation also plays an important role and is 

a relatively more important factor later in the evaluation period, 

although in the near term the demographics are the larger one. 

Under our current projections as has been noted we are projecting that the Hospital Insurance Trust Fund will be depleted in 

2026, that is 2 years later than we projected in last year’s report. 

My colleague Dr. Reischauer will explain some of the reasons for 

recent changes in the outlook. Here in my remarks, I will just note 

that Medicare finances are really very much on a knife’s edge over 

the next several years. We are starting this year with less than 1 

year’s worth of benefit payments in the Hospital Insurance Trust 

Fund and so our 2026 projection depends to a great degree on 

whether annual tax income and outgoing benefit expenditures will 

be almost exactly balanced over the next several years. If our projections are off a little bit and our long-term projections are subject 


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to great uncertainty, that 2026 date could move a few years in either direction. 

The last point I will make, Mr. Chairman, is simply that for various reasons total costs are likely to be higher in practice than 

what we are showing in the report. The most obvious of these is 

simply the sustainable growth rate formula for physician payments. We are obliged to project what happens under literal current law and under literal current law there will be a 25 percent 

reduction in physician payments at the beginning the next year. 

Historically Congress has tended to override these. If we assume 

that that pattern continues, then costs will be higher than we are 

currently projecting, by our estimates a little bit more than 10 percent higher over the long term. 

Now there are some who argue that costs will be higher than our 

current projections for other reasons and those are rooted in some 

of the technicals of how we make our projections. I will try to explain these without getting too far into the weeds. But basically our 

projections for Medicare cost growth are very highly dependent on 

our projections for healthcare costs growth in the broader economy 

which determines the input costs that providers report to Medicare. 

What we do in our long-term projections is we assume a certain 

level of deceleration in national healthcare cost growth. The reason 

we assume that has to do with the historical elasticity of medical 

cost growth as a function of price growth. I think the layman’s way 

of understanding it is that as health care takes up a larger and 

larger share of our economy and absorbs more of each of our pocketbooks the pressure in the direction of further increases is lessened a bit. If that weren’t the case then ultimately we would get 

to the point where our economy would serve nothing other than 

health care. So we assume a certain level deceleration going forward in national healthcare expenditures. So when you overlay on 

top of that the ambitious cost constraints of current law in some 

areas we actually have projections that have per capita expenditures in Medicare more rapid than GDP growth in the near term, 

but actually less than GDP growth in the long term. And so there 

are some people that look at our projections and say, we don’t 

think that is plausible, we don’t think lawmakers would permit expenditures in Medicare to be less than a per capita basis and per 

capita GDP growth. We as trustees have to be agnostic about that. 

We can’t predict the future actions of lawmakers, but what we do 

say is we show the main projections in the current law and we also 

provide some alternative scenarios in which it is assumed that 

some of these provisions are overridden. 

In conclusion, Mr. Chairman—I know I am out of time—Medicare is a complex program in which finance strains have consequences that include projected depletion of the Trust Fund and 

raising pressure on the general budget. We are showing costs raising markedly over the next couple of decades, primarily due to demographics, costs are likely to be at least as high as we currently 

project if the historical pattern of SGR overrides continues. In our 

report we say that under our current projections legislation will be 

needed to prevent financing shortfall in the Hospital Insurance 

Trust Fund and to address rising budgetary pressures arising from 

Medicare SMI. The sooner such legislation is enacted the more 


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likely you can produce substantial long-term savings with less potential disruption for beneficiaries. 

Thank you. 

[The prepared statement of Mr. Blahous follows:] 


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Chairman BRADY. Thank you. 

Mr. Reischauer. 

STATEMENT OF ROBERT D. REISCHAUER, PH.D., PUBLIC 

TRUSTEE, SOCIAL SECURITY AND MEDICARE BOARDS OF 

TRUSTEES 

Mr. REISCHAUER. Chairman Brady, Ranking Member 

McDermott and other Members of the Subcommittee, I appreciate 

the opportunity to appear before you today. My colleague Dr. 

Blahous has already covered the trustees’ latest projections and the 

basic operations of Medicare. And I am going to stray a bit in part 

in response to the op-ed that was in last week’s Washington Post 

about the credibility of Medicare’s long-term projections. 

What I was going to talk about is the implications of the slowdown in overall healthcare spending will have or could have on the 

Medicare program’s future financial situation. As you know, both 

Medicare per beneficiary spending and private sector per capita 

spending has slowed considerably over the last few years. The latest trustees report projects that the year in which the HI Trust 

Fund will be depleted has been pushed out 2 years from 2024 to 

2026. This is good news, but does it suggest that the cost curve has 

been bent in a sustainable way and we can relax? Even though I 

count myself among those who think that much of the spending 

slowdown is structural in nature, I believe that the fundamental financial challenge facing Medicare and the need for further costs restraint and reform remain largely unchanged from where they 

were a year or two ago. 

The slowdown in per capita in national spending has been going 

on in bits and starts for a better part of a decade. Probably the biggest single factor explaining the slowdown is the economic weakness of the past 5 years. This weakness has reduced the ability of 

many workers and their families to afford health care. What is less 

recognized is that it has also had an effect on Medicare beneficiaries who experienced sharp declines in the value of their IRAs 

and 401(k)s and reduced interest income from their CDs and bonds. 

In addition they went 2 years without a Social Security COLA. 

The fact that relatively few major new technologies and blockbuster drugs have been introduced in the past few years is a second factor that has contributed to the slowdown. Policy changes, 

both at the Federal and the State level, also can take some credit 

for the spending slowdown and the final factor is the sea change 

that has taken place in the attitudes and focus of leaders in the 

healthcare sector. In contrast to the past there is now widespread 

appreciation among these leaders that health care cannot be provided without concern for its costs and the efficiency with which it 

is delivered. As a result of this attitudinal shift hospitals, physician 

groups, insurers and employers have initiated innumerable projects 

designed to moderate cost growth and some have helped to dampen 

overall spending. 

Whether the spending slowdown will continue is an open question. While there are reasons to be cautiously optimistic there are 

also reasons for concern. Prime among those reasons of course is 

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ogy, stem cell research and other cutting-edge technologies could 

lead to an explosion of new and expensive interventions. 

The increased market power that providers may gain when they 

consolidate to provide integrated high-quality care as it is envisioned under health reform is also a threat, potential threat to the 

continuation of the spending slow down. 

Some might ask whether the future pace of growth of overall 

healthcare spending has much relevance for Medicare, because 

Medicare has administered, not market-based praises and does not 

negotiate with providers when it sets other cost-related program 

parameters. Notwithstanding these differences, Medicare cannot 

set its own course with respect to future growth independent of 

what is happening in the rest of the healthcare marketplace. This 

has been illustrated clearly by the appropriate reluctance lawmakers have shown towards adhering to the sustainable growth 

rate formula. As you know, the projections in our report assume 

that the physician fee schedule will be reduced by 24.7 percent at 

the start of 2014. The report notes, however, that it is a virtual certainty that this reduction will be overridden. This judgment is 

based on experience since 2003 and an appreciation of the disruptive consequences that a sudden sharp reduction would have on 

Medicare payment rates leaving them far below those of other payers. In short, what happens in the private marketplace does constrain what Medicare can do to slow spending. 

For several years the trustees reports have expressed caution 

with respect to the long run sustainability of the major cost reduction measures required by the Affordable Care Act. The most important of these are the productivity related reductions in annual 

payment rate updates for Medicare providers and the IPAB. While 

the trustees believe that these measures or alternative ones of 

similar impact can be sustained over the long run, they judge that 

this will occur only if the overall healthcare sector transitions to 

significantly more efficient models of care delivery. Such a transition will not happen unless private payers as well as Medicare continue to pursue cost-saving innovations aggressively and providers 

respond to the incentives to moderate growth. In short Medicare’s 

ability to moderate growth over the long run depends critically on 

the private sector’s success and its efforts to slow spending and vice 

versa. 

Thank you. 

[The prepared statement of Mr. Reischauer follows:] 


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Chairman BRADY. Thank you, Mr. Reischauer. 

Mr. Blahous, you and six other trustees predicted in 13 years 

Medicare will only be able to pay 87 percent of its benefits going 

forward. How can a cut that severe or a shortfall that severe—what 

impact does it have on Medicare and its ability to provide medical 

assistance to seniors? 

Mr. BLAHOUS. Well, that shortfall is in the Hospital Insurance 

Trust Fund, and if it were allowed to simply play out without action the amount of benefits we could pay would be 87 percent of 

what is currently scheduled. Under law that side of Medicare cannot make payments in excess of the balance of its Trust Funds. So 

basically under most interpretations of the law Medicare would 

simply have to wait until there was incoming revenues before it 

could send out payments. This would mean in many instances denial or delay of care but certainly a reduction in the aggregate 

amount of the amount of care seniors receive of 13 percent in that 

year. 

Chairman BRADY. You say in your testimony that you project 

likely higher cost growth rates going forward, so in effect we ought 

not count on the low growth rates of the last 2 years. And you 

make the point that our finances ‘‘are on a knife’s edge.’’ The seven 

trustees said we need—Congress needs to take prompt, timely and 

legislative action. So is that prompt and timely meaning in some 

time in the next 10 years, sometime in the next 5 years? Do we 

need to act sooner than that to address these issues? 

Mr. BLAHOUS. Well, certainly the sooner there is action I think 

the more prudent it would be, for a number of reasons. One is the 

sooner you act the more people you can involve in the solution. You 

can involve more cohorts of taxpayers, you can have a gentler impact if there’s going to be an impact on beneficiaries, you can 

spread it out over a longer period of time. The other point I’d make 

is that you have to remember the main factors driving the cost, one 

of them is demographics. It is hard to just change on a dime with 

respect to demographics. If we are going to change anything about 

eligibility ages or eligibility criteria you are going to want to phase 

that in. 

Chairman BRADY. A lot more people are coming into the program. Are higher costs over the long term continuing to drive the 

financial problems? 

Mr. BLAHOUS. That is right. 

Chairman BRADY. What is your recommendation to us? How 

soon should we act to address this? You have been there, you know 

the issues, and you know the challenges. How much longer do we 

delay taking some meaningful steps? 

Mr. BLAHOUS. And the difficulty of this of course is lawmakers 

always have to make a judgment as to what is the right environment or the best time to act from a number of perspectives. I can 

just tell you strictly from numerical perspective the earlier you act, 

the better. The more immediate action, the better. 

Chairman BRADY. Now, this session preferably. 

Mr. BLAHOUS. From a purely technical substantive perspective, 

yes. 


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Chairman BRADY. Thank you. Mr. Reischauer, your testimony 

sounds like everything is just fine in Medicare. Is your thinking 

don’t worry, be happy, it will all work out? 

Mr. REISCHAUER. Well, I mean I think I said early in my oral 

remarks as well as my written remarks that although I am optimistic about the spending slowdown, I think that we still face a 

very significant problem. And like my colleague I think the sooner 

we adopt measures to address the long-term situation, the better. 

I am not one who spends sleepless nights worrying about 2087, but 

looking out at the next two decades there is cause for concern. And 

like Dr. Blahous, I believe the sooner decisions are made, the more 

gradually they can be implemented, and the more political viability 

they will have. 

Chairman BRADY. Is your thinking too rather than waiting 5 

years or 10 years, would your recommendation as far as taking 

some meaningful steps to Congress be to do this session, to start 

those solutions or at least the steps of them now rather than continuing to delay? 

Mr. REISCHAUER. We have adopted a lot of changes. We are 

going to learn a lot from the demonstration and pilot programs and 

from the implementation of various cost reducing measures in the 

Affordable Care Act. And I think in a few years we will be in a 

much better position to adopt in a sense the next generation of 

changes, informed by what we learn about how well some of these 

demonstrations are doing. 

Chairman BRADY. I didn’t—you spent a lot of time in your testimony talking about the benefits of the Affordable Care Act. I didn’t 

see that. What section of the trustees report was that in? 

Mr. REISCHAUER. It wasn’t. I said I was going to stray a bit 

from the trustees report because—— 

Chairman BRADY. So it is your personal view, just looking 

ahead on these issues? 

Mr. REISCHAUER. Yes. And it comes from the belief that the 

success of the efforts to hold down Medicare costs depends critically 

on what is happening in the rest of our health economy that Medicare can’t go off—— 

Chairman BRADY. Sure. No, no, I heard your testimony loud 

and clear. 

Final point, is it accurate that the Trust Fund—hospital Part A 

Trust Fund this year started out only having enough to cover 81 

percent of liabilities; is that accurate, in your trustees report? 

Mr. REISCHAUER. The Trust Fund’s assets amounted to 81 percent of 2013’s expected expenditures. If there were no money coming into the Trust Fund that is—— 

Chairman BRADY. Is that expected to get better or to decline? 

Mr. REISCHAUER. It is expected to decline. 

Chairman BRADY. Get worse. 

Mr. REISCHAUER. Over the next 13 years, yes. 

Chairman BRADY. Mr. McDermott. 

Mr. MCDERMOTT. Since these hearings are basically educational for the public let me try and get clear in people’s minds, 

when you are talking about a deficit, you are talking about a deficit 

in Part A, that is what you are talking about? And Part B, that 

is doctors and other incidental laboratory and so forth, will be paid 


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in full. And Part D will be paid in full. So those two programs are 

not what we are worried about here. We are worrying about the 

hospital is at 87 percent and there is going to be 87 percent of the 

value in whatever it is, 20, or whatever, out there. 

If we do nothing, you are saying if we do nothing but what is 

here in the law. But in fact we have done, we put in place the ACA. 

So we now are putting in cost control mechanisms in the ACA that 

are affecting this or seem to be affecting it. I look at the Medical 

Advantage program and see that it is dropping and that there is 

really encouraging news that the bids are coming in lower on Medicare Advantage, which suggests to me that the ACA is already having an effect. Is that a fair estimate to either one of you, Dr. 

Reischauer or Dr. Blahous? 

Mr. REISCHAUER. The trustees report says that the initial estimates of the impact of the Affordable Care Act on Medicare Advantage plans were probably a bit high—a bit low in terms of reductions and that behavior of these plans and the changes in the 

benchmarks that have occurred over the last 3 years have led the 

actuaries to believe that the savings will be larger in Medicare Advantage than they thought in 2010, and we have also seen an increase in the numbers of folks signing up for Medicare Advantage, 

higher than was predicted at the time the Affordable Care Act was 

enacted. 

Mr. MCDERMOTT. The initial Medicare Advantage introduction 

was a little bit rocky, as I remember it. 

Mr. REISCHAUER. Well, I mean let’s start with recalling that 

Medicare Advantage in a sense cost the government more money 

than fee for service. 

Mr. MCDERMOTT. Because—— 

Mr. REISCHAUER. Because we were overpaying these plans relative to the cost that the individuals who participated in the plans 

would have paid had they been in fee-for-service medicine. And so 

the Affordable Care Act took a number of steps to try and reduce 

that situation and those have been quite successful. 

Mr. MCDERMOTT. So to sum that up, what you have just said 

is that the Congress took actions that have reduced costs already. 

And it looks like there is no reason to believe that that won’t continue out into the future if people, more people get into managed 

care and Medicare Advantage and the bids keep coming down we 

will save money in the future? 

Mr. REISCHAUER. Well, but to take this to the next step, the 

bids really have to come down well below what the costs would be 

in fee for service, which means that these plans have to become 

ever more efficient, which I think they are on the way to doing. But 

to go back to my original testimony, these are plans that by and 

large are run by companies that also run managed care plans in 

the commercial market. And so this is all one big ball of wax here 

and we want to keep pushing on all aspects of it. 

Mr. MCDERMOTT. It seems to me that what you are really saying is that some of the things that are being put in place and have 

been put in place both in the ACA and in Medicare Advantage in 

the past are you can’t expect them to go in and instantly have a 

major change, that it is like trying to take a super tanker and turn 

it on a dime, it takes 20 miles to bend it 4 degrees in its direction 


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and that is really what we are doing here with a big program. Is 

that your view, that we are getting the benefits from the ACA? 

Mr. REISCHAUER. We are I think. And I think—I hope we 

would get more, and I think you are right on the money when you 

say this is a big, complex sector of our economy and needs time to 

evolve to change, to move in the right direction and that is why the 

Chairman’s suggestion that making decisions sooner rather than 

later, giving instructions on what direction to go is very timely. 

Mr. MCDERMOTT. I would be glad to help with the cost control. 

Thank you. 

I yield back the balance of my time. 

Chairman BRADY. I am going to recognize Mr. Johnson for questioning. We have a vote series of 15, I know Members want to take 

a look at those before we begin and we are going to recess until 

5 minutes after the vote series concludes. We will reconvene at that 

point. Mr. Johnson. 

Mr. JOHNSON. Mr. Blahous, the trustees report estimates that 

the Medicare Hospital Insurance Trust Fund is projected to spend 

more money paying claims this year than it will collect from the 

payroll tax; is that correct? 

Mr. BLAHOUS. That is correct. 

Mr. JOHNSON. How long has this been the case? 

Mr. BLAHOUS. 2008 was when expenditures began to exceed 

tax income. 

Mr. JOHNSON. Okay. Are you aware of any program that is financially sustainable if it spends more money than it has or is this 

a recipe for bankruptcy? 

Mr. BLAHOUS. Obviously we can’t continue on that path forever. In our current projections over the next decade we are projecting almost an exact symmetry between income and outgo, and 

there actually is a brief blip later in this decade when we are projecting tax incomes for 1 year exceed expenditures, but then after 

that the lines pull apart and expenditures exceed income on a permanent basis and that is what leads to depletion of that Trust 

Fund. 

Mr. JOHNSON. Well, I don’t know how you come up with that 

decision. 

Mr. Blahous, in your testimony you say that current Medicare 

cost growth projection shows there will be increased pressure on 

the general Federal budget highlighting the increase in general 

revenues that will be needed to prop up the SMI Trust Fund. What 

does this mean for Federal finances as a whole and won’t this further pressure the Federal budget never to pay down our debt? 

Mr. BLAHOUS. The answer is yes, it does mean much increased 

pressure on the general budget. And there are only three outcomes. 

One is you have to have higher taxes, one is you have to have higher indebtedness or you have to have reduced expenditures elsewhere in the Federal budget. 

Mr. JOHNSON. Okay. And which of those do you favor? 

Mr. BLAHOUS. Well, I mean this is my personal view. I am not 

excited about the idea of steadily rising taxes or steadily rising 

debt, but I am also not excited about seeing the rest of the budget 

squeezed either. So I think we have to do something to get the rising cost of Medicare under control. 


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Mr. JOHNSON. Maybe you could pay for the whole cost out of 

your salary, what do you think? 

Mr. BLAHOUS. I would not want to do that. 

Mr. JOHNSON. Mr. Reischauer, in your testimony you say policies included in the Affordable Care Act, ObamaCare, will reduce 

costs and create more efficiencies in the system. You specifically 

mention cost conscience insurance products that will be offered 

within the exchanges but many States have also released numbers 

showing that premiums will be increasing 10 percent, some 20 to 

50 percent, and some as much as 150 percent. 

Your assumption doesn’t sound right to me. How does this help 

us control costs in Medicare, which is facing the problems right 

now? 

Mr. REISCHAUER. Well, first of all those numbers that you suggested I don’t think account for the differences in generosity between the plans that are being offered now and the plans that will 

be offered in the exchange because there are minimum benefit requirements for plans offered in the exchange. But what I really am 

referring to is the situation that we will have once the exchange 

starts, which is the individual consumer having a choice of which 

plan he or she decides to sign up for. And as you know, there will 

be plans at different levels of generosity. And we might find that 

very significant fractions of the American public are quite comfortable with plans that are not as generous as those that we see 

offered in the usual employer/employee situation and that will 

change and start a competition that heretofore really hasn’t existed 

both because fewer employers offer a range of plans, and those that 

do usually make their contributions to those different flavors of 

plans such that true market responses by their employees are not 

exhibited. 

Mr. JOHNSON. Well, my impression is people don’t want to 

spend more money on health care than they already are and that 

is what I am afraid is going to happen. Thank you. 

Mr. REISCHAUER. No, I think you are right, I agree with that. 

Mr. JOHNSON. Thank you for your testimony. 

Chairman BRADY. We have a vote series of 15 votes, but each 

of them are 2 minutes long. So we will—this Subcommittee will reconvene promptly 5 minutes after the last vote series. So grab a 

cup of coffee but be back here ready to work. 

[Recess.] 

Chairman BRADY. The Subcommittee will reconvene. 

Thank you for being patient during the vote series. We have another one coming up, but I would like to recognize Mr. Pascrell for 

5 minutes. 

Mr. PASCRELL. Thank you, Chairman Brady. Dr. Reischauer, 

do you think that Medicare can hit the spending projections in the 

trustees report under current law? Do you think that we will hit 

those spending projections that you mentioned? 

Mr. REISCHAUER. Well, one aspect of current law is the assumption that the SGR will be implemented and that physician 

payment rates will go down by almost 25 percent, and in that respect I don’t think we will hit the projections, and I think the impact that that has on Medicare’s overall spending is about 2 percent, but abstracting from that, you know, I think it is perfectly 


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plausible that over the course of the next 10 and 20 years that we 

will hit the projected numbers that are in the report. But as I said 

in my testimony, this presumes that there will be a significant 

transformation of our delivery system, not just the delivery system 

from Medicare’s perspective, but from the private sector as well, 

but I think that we are on our way to that in large measure because of the pressure that the Congress has been exerting on 

healthcare providers. 

Mr. PASCRELL. Well, correct me if I am wrong on this, that the 

alternative scenario projects spending at 9.8 percent of GDP compared to a projection of 11.4 percent prior to healthcare reform. Is 

that accurate? 

Mr. REISCHAUER. Yes, that is. I mean, if you look at the—— 

Mr. PASCRELL. That is pretty important, isn’t it? 

Mr. REISCHAUER. If you look at the 2009 report, the 75-year 

projections were considerably more pessimistic than either the current law projections in the 2013 report or the alternative scenario 

contained in that report. Some of that is, of course, the Affordable 

Care Act, but that is taken out by the alternative scenario, and 

some of it is the different projections of the economy and inflation, 

and, you know, some of it is the slowdown in spending that we 

have experienced, so there are a lot of factors that are going on, 

but your basic observation is correct. 

Mr. PASCRELL. You would agree with that? 

Mr. REISCHAUER. Yes. 

Mr. PASCRELL. Now, we have slowed down the rising cost of 

drugs, yes or no? 

Mr. REISCHAUER. We have—— 

Mr. PASCRELL. Prescription drugs. 

Mr. REISCHAUER [continuing]. Slowed down prescription drug 

costs in large measure because there has been a very substantial 

shift from branded drugs to generic drugs, much more than experts 

had predicted a few years ago, in part because of the pressures 

that PBMs have exerted through the Medicare Part D program. 

Mr. PASCRELL. Now, the projects that we are into right now in 

terms of Medicare and health care, for that matter, the rest of 

health care are designed to moderate costs. 

Mr. REISCHAUER. Uh-huh. 

Mr. PASCRELL. If we don’t touch that, we cannot catch up, we 

cannot raise enough money to do so. If we continue to go on the 

past process, we are out of business. But let me add this: I don’t 

want to be morbid about it, but there is really, as I see it, and correct me, please, there is no real hope of a real reduction of the costs 

of health care, and indeed Medicare, unless folks take control of 

their health choices and learn to read their bills. 

I have looked at the reports from both sides of the aisle. Neither 

of the sides of the aisle are stressing those choices, and I would say 

both sides of our aisle are going in the wrong direction and that 

the major emphasis, if I had a chance to finish the question, Mr. 

Chairman, and maybe just a short answer if it is possible? 

Chairman BRADY. If I could—I want to give plenty of time—— 

Mr. PASCRELL. I mean, we have got 45 minutes. 

Chairman BRADY. Mr. Pascrell, I will probably ask the witnesses to respond. 


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Mr. PASCRELL. Okay. But the point I was concluding the question is this: If we can’t raise enough money to do the things that 

we want to do, then we need to deal with the person who seeks 

care, whether he is in control of his health. You can’t pass a bill 

to say you are in control of your health, this is what you will do, 

but that is the side that we are not discussing. We are not emphasizing this, and I fear, Mr. Chairman, with all your good intentions 

and the great intentions of our Ranking Member, that we are not 

going to deal with this cost and deal with the lowering of that cost 

unless we deal with those two things, the bill that you get and taking control of your own health. That is not in the books here. I 

don’t know why we are not discussing it. Thank you. 

Chairman BRADY. Thank you, Mr. Pascrell. 

Dr. Price. 

Mr. PRICE. Thank you, Mr. Chairman, and I appreciate Mr. Pascrell’s observation. I would just call his attention to a bill H.R. 2300 

that we have introduced that actually responds to those things, and 

I will be glad to sit down and chat with you about them. 

I want to thank our witnesses and the expertise that you bring 

and the contributions that you have made to trying to move us in 

the right direction. Dr. Blahous, I am struck by your testimony and 

much of the graphics within your testimony. We hear some of our 

friends on the other side sound relatively sanguine about the situation, that it is not a big deal, that we don’t have to worry about 

it too much, but you cite that the demographics are driving the 

challenge. We have 10,000 folks reaching retirement age every single day and will continue to do that until we get the 78 million 

folks of my generation, the boomers, through this process, and that 

is a huge, huge economic challenge. My sense is that things aren’t 

as rosy as some would like them, like us to believe they are, and 

in fact they may not even be as rosy as the trustees report. Would 

you care to comment on that? 

Mr. BLAHOUS. Sure. I think with respect to the observation 

that costs may be higher than we are currently projecting, I would 

return to Dr. Reischauer’s point, we are assuming in our projections an almost 25 percent reduction in physician payments early 

next year. Historically there is very little basis for assuming that 

is going to happen, so if you assume that those payment reductions 

continue to be overridden, costs would be at least to that extent 

higher than we are currently projecting. 

Beyond that, I think an important part of the message I would 

offer is that we still have work to do to sustain the finances of 

Medicare. There has been an awful lot written and said about the 

recent slowdown in healthcare cost growth, and obviously we are 

very hopeful that that will continue, and we are hopeful that it will 

render the aggressive cost containment mechanisms in current law 

more plausible over the long run, but I think it would go too far 

to assume that things are going to turn out significantly better 

than we are currently projecting. 

Mr. PRICE. And likely not as good? 

Mr. BLAHOUS. And probably not as much, not as good because 

we are basically assuming that is going to work, assuming it is 

going to work. 


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Mr. PRICE. Let me turn to the issue of cost control that has been 

stipulated by the ACA for Medicare, which is through the Independent Payment Advisory Board. Something that many of us oppose vehemently because we believe it removes those choices for 

patients and families and doctors for the kind of care that they desire. 

The projections right now are that the Independent Payment Advisory Board, IPAB, will come into play when they have to make 

a decision about reducing services or reducing compensation, reimbursement to physicians in 4 or 5 years. What is the interplay between that and the projection that the trustees have made already? 

Mr. BLAHOUS. It is a little tricky. Basically the IPAB comes 

into play whenever total Medicare expenditures exceed a target 

rate of growth, basically GDP plus 1 percent. 

Mr. PRICE. Right. 

Mr. BLAHOUS. Now, that renders it a little difficult to run out 

some of our sort of illustrative alternative scenarios because, for example, if you assume that the cost containment provisions in the 

Affordable Care Act are overridden, then unless the IPAB is also 

overridden, IPAB would basically just have to come in to fill in the 

gap. They would have to provide the savings that those cost containment mechanisms did not provide, so there is a strong interplay between the two. That is why in our illustrative alternative 

scenario we show the consequences of those cost containment provisions being overridden and the assumption that IPAB’s recommendations are overridden. It is not because we are making a policy 

recommendation or prediction, it is just that you can’t really show 

the effects of one unless you assume the other is turned off because 

the IPAB would basically just come in to fill the gap if those cost 

containment mechanisms were overridden. 

Mr. PRICE. And if the SGR reduction doesn’t occur, which virtually all of us believe it ought not, and that we, Congress, will act, 

does the IPAB come into play from decreasing reimbursement to 

physicians sooner or later? 

Mr. BLAHOUS. I think the short answer is I am not certain, but 

I will tell you what I think the answer is. I think the answer is 

that the main interplay is with the so-called productivity adjustments in the Affordable Care Act, and the reason I believe that is 

that the SGR override that we are assuming, basically most of that 

effect is in early 2014. We are assuming 25 percent higher physician payments in 2014, whereas the years that we are projecting 

IPAB coming into play based on the targets they have to hit, those 

are more in the outyears, it is subsequent to 2018. 

Mr. PRICE. But they could be much sooner? 

Mr. BLAHOUS. It could be sooner, but I think a bigger factor is 

whether the other cost containment provisions of the ACA are overridden, and I am looking to my co-trustee to correct me if he thinks 

I have that wrong, but I think that is the case. 

Mr. PRICE. Thank you. Thank you, Mr. Chairman. 

Chairman BRADY. Thank you very much. Mr. Smith, for the 

final questions. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you to our 

witnesses for being here today and sharing your insight and expertise. Dr. Reischauer, in your testimony you suggest spending on 


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health care may actually decrease in the future in part because of 

the creation of IPAB, and what part of IPAB is it that you think 

can lead to that? I know many folks are concerned that it is a form 

of rationing of care. 

Mr. REISCHAUER. First of all, I don’t believe that spending will 

decline. I think the rate of spending will continue at a relatively 

slow rate increase, so I am not here predicting nirvana, so to 

speak. 

Mr. SMITH. Okay. 

Mr. REISCHAUER. You know, the IPAB effect is a relatively 

modest one in our projections. As Dr. Blahous mentioned, the significant impact comes from the productivity adjustment in the payment updates for most types of providers. You know, the IPAB, if 

it is created and if it is put into effect, as you know, will be charged 

with bringing up suggestions that don’t necessarily have to be a cut 

in physician payments or other payments, it can be some other 

things as well, to bring spending down below a threshold, and if 

Congress disagrees with those measures, it can enact a substitute 

way of damping down the growth of costs, but some of the materials that we have suggest that looking out over the next 20 or 30 

years, the IPAB is really a relatively minor part of the story of 

holding down cost growth. 

Mr. SMITH. Would you say it is minor but important? The reason—a little bit of context. 

Mr. REISCHAUER. I think its importance really comes—I mean, 

if I were making a prediction, its importance would not come from 

its actions so much as its threat of actions. I mean, it focuses the 

minds of policymakers that, hey, we have to do some more, you 

know. We have done a modest amount so far, but we have to do 

some more or else, you know, this is, could be viewed in a way as 

something like sequestration, you know, it is nobody’s first or 

tenth, you know, idea of what a good solution to the problem is, 

so let’s, as legislators, come up with an alternative. 

Mr. SMITH. Okay. So just to follow up, Dr. Blahous, if creating 

the IPAB perhaps is considered by many to be good policy—I have 

my concerns—why is its elimination assumed, then, in the supplemental report? 

Mr. BLAHOUS. Basically it pertains to—what we are trying to 

show in the illustrative alternative scenario, we are basically trying 

to acquaint lawmakers with the potential expenditures that could 

arise if certain cost containment mechanisms of current law are 

turned off, and IPAB is very important in that demonstration because if you left IPAB to continue to operate and if Congress came 

in and overrode those cost containment mechanisms in current law, 

then under other aspects of current law, IPAB would come in and 

just have more savings to facilitate. So in order to show the magnitude of the additional expenditures, if you assume certain elements of current law are overridden, you also have to assume that 

IPAB is basically overridden as well because otherwise IPAB would 

just come in and fill in the gap for that savings. Is that clear? 

Mr. SMITH. Somewhat. But my fear is perhaps that SGR will 

just be replaced by IPAB, you know, under a little different acronym. Is that conceivable? 


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Mr. BLAHOUS. Well, I would say, I think there are different levels of skepticism within the trustees process as to which elements 

of current law are likely to be sustained. I think the trustees as 

a body, based on history, are very, very skeptical that anything approaching the SGR is going to happen because historically we have 

overridden that. I think with respect to something like IPAB, with 

respect to other cost containment provisions in current law, I think 

you have a greater diversity of views and greater agnosticism. You 

certainly have some players in that process who think it is possible 

that they could be sustained, you have others who are more skeptical. We had a technical panel look at this over the last couple of 

years, and they basically came back with a recommendation that 

in our illustrative alternative scenario we assume that these cost 

containment mechanisms operate in full up through 2020, and then 

are partially phased out from 2020 to 2034. Again, it is not a prediction, it is not a policy recommendation, but basically that reflects an alternative assumption that basically these cost containment mechanisms will be overridden to the extent that would be 

necessary under our methodology, which people can argue with, 

but under our methodology to prevent a growing wedge between 

Medicare reimbursement rates and private sector ones, but there 

is a great diversity of views on that, especially since we haven’t 

seen whether these are going to be effective yet. 

Mr. SMITH. Thank you, Mr. Chairman. 

Chairman BRADY. I want to thank both witnesses for your testimony today. Clearly, I hope we heed your warning to act sooner 

rather than later to take the meaningful steps to save and extend 

the life of Medicare. 

As a reminder, any Member may submit questions for 14 days 

for the record. I would ask the witnesses to respond in a timely 

manner, as I know you will. With that, the Subcommittee is adjourned. 

[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.] 

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