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75–792—PDF 2011

S. HRG. 112–530 

HEALTH REFORM: LESSONS LEARNED 

DURING THE FIRST YEAR 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 16, 2011 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

WITNESSES 

Sebelius, Hon. Kathleen, Secretary, Department of Health and Human Services, Washington, DC ........................................................................................... 5 

Holtz-Eakin, Douglas, Ph.D., president, American Action Forum, Washington, 

DC .......................................................................................................................... 32

Van de Water, Paul, Ph.D., senior fellow, Center on Budget and Policy Priorities, Washington, DC .......................................................................................... 33 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement with attachment ............................................................. 45 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 50 

Holtz-Eakin, Douglas, Ph.D.: 

Testimony .......................................................................................................... 32 

Prepared statement .......................................................................................... 53 

Sebelius, Hon. Kathleen: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 78 

Van de Water, Paul, Ph.D.: 

Testimony .......................................................................................................... 33 

Prepared statement .......................................................................................... 86 

(III) 

(1) 

HEALTH REFORM: LESSONS LEARNED 

DURING THE FIRST YEAR 

WEDNESDAY, MARCH 16, 2011 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:12 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Bingaman, Kerry, Wyden, Nelson, Menendez, 

Carper, Cardin, Hatch, Grassley, Snowe, Roberts, Ensign, Cornyn, 

and Thune. 

Also present: Democratic Staff: Russ Sullivan, Staff Director; 

David Schwartz, Acting Chief Health Counsel; Chris Dawe, Professional Staff; and Callan Smith, Research Assistant. Republican 

Staff: Chris Campbell, Staff Director; Jay Khosla, Chief Health Policy Advisor; and Kim Brandt, Chief Health Care Investigative 

Counsel. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

Abraham Lincoln said, ‘‘You cannot escape the responsibility of 

tomorrow by evading it today.’’ Health reform looked ahead to the 

responsibility of tomorrow. It asked, will quality, affordable care remain accessible if costs continue to rise? 

Health care reform took responsibility for tomorrow by solving 

the challenges of today. It protected one of our most important responsibilities: Medicare. One year ago, Medicare was set to go 

bankrupt in just 7 years. Health care reform extended the life of 

the program by 12 more years, until at least 2029. 

A year ago, Medicare only paid health care professionals to provide care when seniors were sick. Medicare, too often, was a system 

that only treated sickness, and that meant it was costly. We knew 

these costs were over-burdening Medicare and our entire health 

care system. We spent nearly 2 years studying the problems. We 

worked together to craft a law that lowered costs and shifted the 

focus of our system to prevention and wellness. 

Today, Medicare does not just care for you when you are sick; it 

is a true health care system. Under the health care reform law, 

seniors receive an annual wellness visit. Seniors can schedule a 

visit, even if they are not sick. They can receive screenings and tips 

on how to manage and prevent conditions like diabetes or high 

blood pressure. 

2 

Madam Secretary, I look forward to hearing from you today 

about how these visits are working for seniors. A year ago, seniors 

faced a Medicare program that focused on the quantity of care they 

received, and not the quality of the care they received. Medicare 

paid hospitals more if the patient got an infection that could have 

been avoided, and paid hospitals less if they successfully avoided 

infections. A year ago, each of a patient’s doctors would perform the 

same test because they had not been encouraged to work together 

and share results. 

Health reform increases payments to hospitals for providing 

high-quality care. The law gives hospitals incentives to prevent 

avoidable illness. And the law improves quality by increasing the 

number of primary care physicians. These doctors can better keep 

track of patient care. They can make sure patients are seeing the 

right specialists, and they can help specialists avoid repeating 

tests, procedures, and options that have already been completed or 

considered. 

To encourage primary care, the Affordable Care Act pays doctors 

more to practice primary care. That is already producing results. 

Dr. Tom Roberts, who has been an internist in Missoula, MT for 

30 years, said health care reform has ‘‘already had a direct impact 

on our ability to provide good medical care for the citizens of Missoula and surrounding counties.’’ Then he added, ‘‘We are in a 

much better position to continue to support the kind of primary 

care services that are vitally important moving forward.’’ 

A year ago, seniors had to pay more for their prescription drugs, 

and that meant seniors did not always get the treatment they 

needed. The Medicare prescription drug benefit covered the first 

$2,800 in costs, and catastrophic coverage kicked in after seniors 

spent $6,300. But there was a coverage gap in between, often called 

the ‘‘donut hole.’’ 

Today, health care reform is closing that gap in coverage. Already, more than 3.5 million seniors received a check for $250 that 

helped cover the cost of their prescriptions in 2010. This year, seniors who hit the donut hole will receive a discount of 50 percent off 

the cost of their prescriptions, and the gap will be eliminated entirely by the year 2020. 

A year ago, the standards to prevent waste, fraud, and abuse in 

Medicare were not tough enough. As a result, criminals were able 

to rip off Federal health care programs. Too often, these programs 

paid fraudulent claims without enough review. The new health reform law provides enforcement officials with unprecedented new 

tools. These tools prevent fraud before it occurs. 

Because of the changes in the Affordable Care Act, Medicare is 

stronger than ever. But now we face new challenges. We face those 

who want to roll back these benefits and weaken Medicare. So let 

us continue to confront the challenges of tomorrow. Let us continue 

to protect and strengthen Medicare today. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

3 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman, for helping to schedule this very important hearing. It comes on the anniversary of the 

Patient Protection and Affordable Care Act becoming law. 

Now, whether this is a welcome anniversary depends on one’s 

perspective. When I listen to my fellow Utahans and Americans 

from coast to coast who were left footing the bill for this misguided 

health law, I get a very, very different assessment. For struggling 

families, any marginal benefits from this law are far outweighed by 

the heavy-handed intervention in their health care by, you guessed 

it, Washington bureaucrats. 

For seniors, the cuts to a Medicare program that is already nearing bankruptcy in order to fund another new entitlement and expand an existing one are beyond irresponsible. For taxpayers, the 

decision to pay for this law with over $813 billion in tax increases 

was the last thing that our struggling economy needed. 

The more Americans get to know this law, the less they like it. 

In the end it may have been over 2,000 pages long, but Americans 

understood it both simply and soundly. In short, at the President’s 

urging, Democrats passed a $2.6-trillion health care law, with massive new subsidies for coverage and without addressing the longterm costs of care. All of this is paid for with billions in new taxes 

and by taking from an already struggling entitlement. 

This simple understanding is closer to the mark than that of the 

supposedly sophisticated who sold this massive spending bill as 

somehow saving money. Citizens understood that the historic expansion of Federal power and the creation of new bureaucracy 

would never increase efficiencies and make health care more accessible. 

So, one year later, what do we know about this law? What has 

it given us? As it turns out, the American people are closer to the 

mark than all of the liberal editorialists who pushed for this law: 

$2,100 in higher premiums; 800,000 fewer jobs; $118 billion in new 

unfunded State mandates on top of the $175 billion that the States 

were already in the hole; $311 billion in higher health care costs; 

$529 billion in Medicare cuts to fund new entitlement spending; 

$813 billion in new taxes; and $2.6 trillion in new Federal spending. 

It would be hard to devise a more economically destructive piece 

of legislation. Just last week, the Congressional Budget Office concluded that ‘‘growth in health care costs will almost certainly push 

up Federal spending significantly relative to GDP under current 

law.’’ 

So much for bending the cost curve. And let us keep in mind that 

all of this damage comes before the Medicaid expansions and the 

new premium subsidies for the health law’s insurance exchanges. 

Now, it is reasonable to assume, given the history of Federal 

spending programs, that the original cost estimates for these coverage expansions are substantially understated. 

Yet Americans’ opposition to this law is not only owing to it 

being bad policy. In the eyes of citizens, its original sin was its lack 

of transparency. Americans understood that the true cost of this 

health law was being hidden from them. 

4 

According to the President’s budget, a permanent fix to Medicare’s Physician Payment formula will cost taxpayers nearly $370 

billion over the next 10 years. That is in addition, by the way. But, 

instead of fixing this problem, the health law cut $529 billion from 

Medicare and directed it toward new entitlement spending that is 

itself unsustainable. This was simply irresponsible. 

But it was also misleading, as it double-counted the savings from 

Medicare. The chief Medicare actuary, the administration’s own 

Chief Actuary, was crystal clear on this point. He said, ‘‘In practice, 

the improved Part A financing cannot be simultaneously used to finance other Federal outlays, such as the coverage expansions 

under PPACA, and to extend the trust fund.’’ 

Now, this double-counting and lack of transparency on costs that 

stained the health law and its origins continued as the administration sought to implement the new law. According to the Congressional Research Service, roughly 83 percent of the final rules implementing the health law circumvented public comment, which is 

generally required by Federal law. 

I guess this administration’s pledge on transparency simply became another slogan that was discarded when it became an inconvenience in implementing their agenda. Just yesterday, my colleague Senator Enzi and I reminded the administration of its troubling failures when it comes to briefing Congress on the health 

law’s implementation. This includes a failure to respond to nearly 

67 percent of Republican requests. One year later, with its flaws 

only more evident, I suspect it is starting to dawn on more members of this body as well. 

I want to thank our chairman again, as well as our witnesses for 

appearing here today. I do look forward to today’s testimony and 

what should be a lively question and answer session. Thanks, Mr. 

Chairman. 

The CHAIRMAN. Thank you, Senator. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. I am now pleased to welcome three witnesses. 

Actually, they are on two separate panels. First is our Health and 

Human Services Secretary, Kathleen Sebelius. She will appear on 

our first panel. 

Our second panel will feature Dr. Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, and Dr. Douglas 

Holtz-Eakin, president of the American Action Forum. 

I would remind all of you to please keep your statements fairly 

short—5, 6 minutes. For you, Madam Secretary, you can maybe go 

a couple, 3 minutes longer; it is up to you. Your statement will 

automatically be in the record. For the other panelists, I encourage 

them to stick within the 5 minutes. Thank you very much. 

Madam Secretary, it is an honor to have you here. This is the 

first anniversary, and there will be many, many more as, at each 

one, we look forward to progress. Thank you very much for appearing before us. 

5 

STATEMENT OF HON. KATHLEEN SEBELIUS, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC 

Secretary SEBELIUS. Well, thank you, Chairman Baucus and 

Ranking Member Hatch, and members of the committee. It is good 

to be back with you at the Finance Committee to discuss the Department’s implementation of the Affordable Care Act during the 

last year. 

In the year since the Act became law, our department has 

worked closely with Secretaries Geithner and Solis, with Governors, with State insurance commissioners, with doctors, nurses, 

and other health care providers, with consumer and patient advocates, employers, health plans, and other stakeholders to deliver 

the law’s key benefits to the American people. 

In that time we have had the opportunity to see the law through 

the eyes of the people who are being helped every day, people like 

John Bartell from Colorado, who was able to afford his hip surgery 

after joining a pre-existing condition plan, or Jenny Bass from Connecticut, whom I met with here in DC, whose family was able to 

keep their farm, in part because of the action her State took to 

block unreasonable insurance rate increases. 

Earlier this year, President Obama laid out a vision for how 

America can win the future by building on a foundation for longterm growth that will allow families and businesses to thrive. The 

Affordable Care Act is an essential component of that growth. 

My written testimony provides more detail, but I want to quickly 

highlight the ways that the Affordable Care Act is already delivering a stronger and more sustainable Medicare for the 45 million 

people Medicare serves. 

Yesterday, Attorney General Eric Holder and I were in Detroit, 

holding one of our series of fraud summits to continue the focus on 

stamping out waste, fraud, and abuse in Medicare and other health 

care programs. We are continuing to build on the success of recent 

years, including the record $4 billion in recoveries made in fiscal 

year 2010. 

Now, those efforts are helped immeasurably by the new resources and authorities granted by the Affordable Care Act. The 

important changes have begun to produce savings for taxpayers 

and have extended the life of the Medicare trust fund, and they 

give us tools to build a state-of-the-art data system for prevention 

and tougher penalties for prosecution. 

Thanks to the Affordable Care Act, Medicare beneficiaries also 

enjoy better quality care, better access to care, and a more patientcentered care delivery system that helps to improve outcomes and 

reduce costs. 

We provide immediate assistance to people struggling with high 

prescription drug costs. As the chairman said, we have had over 3 

million seniors and other beneficiaries who have reached the premium Part D donut hole last year and received a one-time $250 rebate check. One of them, Lester Pross from Kentucky, wrote to me 

that he took his $250 right to the pharmacy to help pay his bill. 

Now, this year, those beneficiaries who reach the donut hole receive even greater assistance, with a 50-percent discount on brandname prescription drugs purchased over the year. The full cost of 

6 

those drugs is also counted toward the amount a person needs to 

get out of the gap, substantially narrowing the gap in Part D coverage. Many of the individuals this will help are people living with 

chronic conditions. The assistance is critically important to them 

and their families, as we hear every day. 

At the same time, Medicare beneficiaries are now receiving critical preventive services in an annual wellness visit that is now part 

of their overall Medicare benefits. As of February 23, nearly 

152,000 people have seen their doctors for one of these wellness 

visits, and that benefit just started in January of this year. We are 

convinced that the investment in prevention and wellness will help 

people with Medicare stay healthier and reduce their costs going 

forward. 

This year, HHS has also improved its oversight and management 

of the Medicare Advantage program. We have had more tools to negotiate with, and those efforts are paying dividends for seniors and 

for the trust fund. Now, according to the MedPAC report issued 

just on the 15th of March, we currently have about 11.4 million 

beneficiaries enrolled in Medicare Advantage, 24 percent of the 

overall beneficiaries, the highest number ever. That enrollment is 

up 6 percent in 2011. 

The good news for the beneficiaries is that premiums are down 

6 percent. Access to Medicare Advantage remains strong, with 

more than 99 percent of Medicare beneficiaries having a choice of 

Medicare Advantage plans as an alternative to original Medicare. 

Those trends actually fly in the face of the predictions that were 

being made during the course of the debate of the Affordable Care 

Act, that the Medicare Advantage program was being harmed. 

Perhaps the area with most promise is our work to improve quality and safety of care for people with Medicare. Over the years, 

beneficiaries eligible for Medicare and Medicaid, known as the socalled dual-eligibles, have been a large driver of cost in the health 

care system. The population makes up just a sixth of Medicare 

beneficiaries, but it counts for well over a third of the cost. 

Now, there’s been historically a terrific lack of coordination between the programs, which too often leads seniors to being readmitted to hospitals and seeing multiple providers. By expanding 

their access to primary care and to specialists when they need 

them, we know we can keep seniors healthier and lower their costs 

also. So the Affordable Care Act established a Federal coordinated 

health care office to better coordinate the care provided to this population. 

In December, we announced that States can apply for resources 

to support the design of new demonstration projects that integrate 

the full range of care, support, and service that dual-eligibles receive, reducing waste, lowering costs, and improving outcomes. 

In addition to strengthening Medicare for those who need it 

today and protecting it for our children and grandchildren tomorrow, the new law is also continuing to strengthen the economy. The 

Congressional Budget Office, again, recently confirmed that the 

new law reduces the Federal deficit by $230 billion over the next 

decade, and by more than $1 trillion by the end of the following 

decade. 

7 

Over the last year, our department has focused on working with 

Congress and our partners across the country to implement the law 

quickly and effectively. In the coming months, I look forward to 

working with all of you to continue those efforts and make sure 

that Americans can take full advantage of all that the law has to 

offer. 

Thank you again, Mr. Chairman, for inviting me back to the Finance Committee. I look forward to our conversation. 

The CHAIRMAN. Thank you, Madam Secretary, very much. 

[The prepared statement of Secretary Sebelius appears in the appendix.] 

The CHAIRMAN. I would just like to go over three provisions 

which are helping Americans. I will give it back to you, the ones 

that you think are most important that have helped Americans the 

most, early on. It can be the donut hole, it can be the age 26, it 

can be more efficient Medicare Advantage, it can be the wellness 

visits. 

But just what do you think has really made a difference here, the 

couple, two, or three things that it is important for Americans to 

know about? I suspect, frankly, that a lot of Americans just do not 

know about some of the benefits of the legislation. So I would like 

you to just tell people what they are. 

Secretary SEBELIUS. Well, Mr. Chairman, I think there is no 

question that some of the early insurance changes have helped particular categories of folks, folks who are locked out of the market 

with pre-existing health conditions, have a high-risk pool. Families 

now have the opportunity to get health insurance for their children 

with pre-existing conditions. Families can keep a young adult on a 

family plan. Prevention is being pushed and promoted across the 

country. That is a big change. 

I think addressing for the first time the underlying drivers for 

health care costs, with delivery system changes that are about to 

really take hold, everything from the Accountable Care Organizations to our work with the dual-eligibles, can be enormously helpful 

not only to those Americans without insurance coverage, but to all 

Americans who really should deserve higher quality care at a lower 

cost. We now pay for volume, we do not pay for value. That change 

is under way and holds huge promise to addressing the deficits in 

our system. 

Finally, I think, Mr. Chairman, the third category probably is the 

overall assistance that it will make to ordinary Americans who no 

longer will face bankruptcy because of a health outcome, who will 

have the peace of mind that they can leave jobs and move throughout this economy without being job-locked by insurance coverage, 

with the development of the new State-based exchanges. That has 

not kicked in yet—it does not occur until 2014—but we are working 

hard with States to have that new marketplace up and running by 

2014 and to give those choices to, particularly, small business owners and individuals that they have never had before. 

The CHAIRMAN. One of the provisions in the new Act that I think 

is most important is not well-known either. I think it is sort of the 

sleeper. It is sort of the stealth provision. It is going to make a real 

difference. The real key, I think, is to find ways that effectively reduce the rate of growth of costs. Some of these numbers that SenVerDate Nov 24 2008 21:10 Sep 18, 2012 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\75792.000 TIMD
8 

ator Hatch pointed out about cost increases, there are various ways 

to explain those, but it is somewhat true. I mean, costs are going 

up. But it is not because of the bill. Actually, the bill is lowering 

the rate of increase in the growth of costs. 

But that does not answer the problem or solve the problem. We 

still have to lower the rate of growth of costs much more than we 

already have. I do believe that there are a lot of provisions in this 

bill which will help accomplish that result, but one of them is delivery system reform. 

Secretary SEBELIUS. You bet. 

The CHAIRMAN. And it is Accountable Care Organizations, all of 

that. If you could give us a little accounting of how far along you 

are, how this committee could help you proceed further. Because 

that, in 3 years, I think is going to pay rich dividends in terms of 

lowering the rate of growth of health care costs in this country. If 

you could just give us a little idea. Do not pull any punches. Tell 

us what needs to be done, and how well you are doing. 

Secretary SEBELIUS. Well, Mr. Chairman, the $500 billion that 

Senator Hatch referred to, as you know, is a slowing down of the 

growth rate of Medicare, it is not a cut to the overall Medicare 

spending. It is an attempt to slow down the growth rate. It was 

projected to be about an 8-percent growth rate. This now is projected to be at closer to a 6-percent growth rate, and I think, if you 

look at the long-term deficit projections and the impact that Medicare has on those deficit projections, there is no question that the 

Affordable Care Act made a significant step toward addressing 

some of that. A lot of that is based on the projections about the delivery system changes that I think are incredibly important. 

I travel across the country a lot, and I talk to hospital CEOs and 

providers who are wildly enthusiastic about the opportunity to actually receive payment for strategies that will keep people 

healthier, and not just when they go into a hospital, to do everything from working on hospital-acquired infections, which we know 

not only kill over 100,000 people a year, but extend hospital stays 

dramatically and can be dramatically lowered, because it is happening in some systems. 

To Accountable Care Organizations—the rules should be available within this month on Accountable Care Organizations. I can 

tell you, across this country, physicians, the physicians system, 

hospital organizations, are very enthusiastic about participating in 

strategies that actually coordinate care, provide better outcomes, 

and lower costs. That is the whole goal of the Accountable Care Organizations, and they are eager to be a part of it. 

The Center for Innovation is going to help us look at strategies 

for the so-called dual-eligibles, the population whom we know—as 

a former Governor, 40 percent of Medicaid costs are accountable to 

these so-called dual-eligibles who qualify for both Medicaid and 

Medicare, and yet often they have very uncoordinated, very expensive care delivery that really does not yield higher results. 

So we have a whole series of tools that we have never had before 

with the Centers for Medicaid and Medicare, and are implementing 

those rules, after lots of input from providers across the system. 

The CHAIRMAN. I appreciate that. 

9 

There are two votes now occurring in the Senate, but I want to 

keep this hearing going. So, we will have rolling attendance here. 

I am going to leave. Senator Hatch will take over. There are just 

going to be a lot of audibles here as to who is going to be chairing 

and who is going to be called on in the next, oh, about 20, 30 minutes. But thank you very much, Madam Secretary. I will be back. 

Senator Hatch? 

Senator HATCH. Well, thank you, Mr. Chairman. 

Welcome, Madam Secretary. I just want to point out, the $209 

billion out of Medicare Advantage is a cut, not a slowing of rates. 

There is a reason that some have said that enrollment and extra 

benefits in Medicare Advantage will decline by nearly 50 percent. 

Second, health care spending, according to the CBO, postpassage, will increase by $311 billion. Now, this is not my number, 

this is CBO’s. 

Let me get to a question. It will take me a few minutes to get 

to it, Madam Secretary. You have a tough job, I acknowledge that. 

It is one of the most difficult jobs in government. But last month 

you testified before this committee and committed to working with 

Congress to implement this new health law. And while I appreciate 

that commitment, it stands in stark contrast to the fact that many 

congressional requests for information about the law are not receiving timely responses. There have been at least 52 congressional requests for information regarding implementation of the health law 

submitted to your department since the middle of last year, and to 

date 67 percent of those requests are still awaiting responses. 

Now, your department has also still not responded to questions 

for the record submitted by members of this committee from when 

you last testified over a month ago. Now, this ongoing failure to 

provide information to us relating to the implementation of the new 

law and to respond to congressional inquiries directly undermines 

Congress’s ability to conduct oversight and assess the impact that 

this law is having on patients, employers, States, and taxpayers. 

Now, going forward, will you commit to having your department 

respond to all congressional requests, including letters and hearing 

questions for the record, I would hope within 30 days of the request? Can you commit to that? 

Secretary SEBELIUS. Senator, I certainly will commit to responding to requests as quickly as we possibly can. We are working diligently to provide volumes of material to both the House and the 

Senate on a regular basis, and we take transparency and oversight 

very seriously, and I certainly will remind my staff to be as timely 

as possible. We want to be accurate, we want to be complete, and 

we are working hard to do just that. 

Senator HATCH. Well, I do not think 30 days is too big a request. 

I think you ought to try to do that within a reasonable period of 

time. There is a lot of interest in this health care bill by both those 

who are for and those who are against it, but I would like to see 

you do that. 

Now, Madam Secretary, States are facing a collective $175 billion 

budget shortfall, the worst State budget crisis since the Great Depression. The financial situation, as bad as it is for States now— 

this law enacted the largest expansion of Medicaid since its incepVerDate Nov 24 2008 21:10 Sep 18, 2012 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\75792.000 TIMD
10 

tion, covering half of those newly ‘‘insured’’ through this government program. 

The Joint Congressional Committee report on State government found that PPACA will cost State taxpayers at least $118.04 billion 

more through 2023. Now, as a former Governor, I know you can appreciate this terrible burden and costs that are placed on the backs 

of our taxpayers through State mandates. 

Now, I have had the Congressional Research Service look into 

the waiver provided under section 1115 of the Social Security Act, 

and they confirmed that you have the appropriate authority to lift 

the maintenance of effort requirement. Now, will you utilize your 

authority to help cash-strapped States avoid gutting education, law 

enforcement, and other State priorities? 

Secretary SEBELIUS. Well, Senator, as you know, I am a former 

Governor, and I know that Medicaid is a significant State expenditure. It is about 16 percent, on average, of State budgets. We are 

working very, very closely with my former colleagues and the new 

Governors across the country. 

In fact, we have about 17 State teams in place and are in the 

process of looking at everything from individual 1115 waivers to 

strategies to lower Medicaid costs. In 2014, when the Medicaid expansion is scheduled to be in place, as you know, the Federal Government is picking up 100 percent of the costs of the newly eligible 

Medicaid recipients for a period of 3 years, and gradually that cost 

sharing decreases to a high of 90/10. 

Senator HATCH. How is the Federal Government going to do 

that? I mean, it is broke. 

Secretary SEBELIUS. Well, I think that the expansion is paid for 

as part of the overall health care bill. As you know, this is one of 

the few acts passed in health care in a long period of time that is 

fully paid for within the confines of the legislation so that, unlike 

the Part D prescription benefit, which was not paid for and continues to add to the deficit, the Affordable Care Act is fully paid 

for. 

The other thing, I think, Senator—— 

Senator HATCH. But even—— 

Secretary SEBELIUS [continuing]. That is not taken into account 

when State numbers are looked at is the extraordinarily high cost 

of uncompensated care, which right now falls onto a lot of States 

and community hospitals, estimated in 2008 to be over $43 billion. 

So when we look at Medicaid expansion, I think it has to also be 

measured against, what is the cost of having uninsured folks miss 

work, what is the cost on hospital systems of uncompensated care, 

what is the cost to providers who do not have a payment system 

at all and who are delivering pro bono coverage? A lot of those 

costs are currently picked up in State budgets. 

Senator HATCH. Well, my time is up. But even CBO said it will 

cost States an additional $60 billion. State governments are saying 

$118 billion through 2023. It just does not make sense to me. But 

my time is up. 

Senator Grassley is next, and then after Senator Grassley—— 

Senator GRASSLEY. Am I next? 

Senator HATCH. Well, Senator Bingaman was next, but he is not 

here. So, you are next. 

11 

Senator GRASSLEY. All right. 

Senator HATCH. And let me just say, after you will come Senator 

Wyden. 

Senator GRASSLEY. All right. 

Madam Secretary, I have three questions I want to ask. I will 

take a half minute to ask each question, and I would ask you to 

take 60 seconds to answer each question. 

A week ago, your department issued a waiver allowing the State 

of Maine to waive medical loss ratios applied to insurers. Your 

Deputy, Steve Larsen, wrote in a waiver letter to Maine that applying the medical loss ratio regulation ‘‘has a reasonable likelihood 

of destabilizing the Maine individual health insurance market.’’ 

Maine can now use the 65-percent medical loss ratio standard. 

Why 65? Why not 70, 75? If you are allowing Maine to essentially 

drive their own medical loss ratio standard, why shouldn’t every 

other State? Why could Iowa not use 75, Utah 73, Montana 68, et 

cetera, et cetera, if those States determine that, to make that level, 

that lessens the destabilization of their market? If Maine is essentially driving its own medical loss ratio, why should every other 

State not have its own? 

Secretary SEBELIUS. Senator, it is not a 60-second answer, but I 

will try to speak quickly. I am sorry Senator Snowe is not here, because she asked me about this the last time I was here. Maine has 

a particular situation of only two insurers in the market. One has 

a 70-percent market rate, the other has a 30-percent market rate. 

I do not know that there is any other State in the country that 

looks like that. 

We have worked very closely with the Maine Insurance Commissioner. We will work very closely with regulators on the ground in 

other States to look at their particular situation. It was determined 

in Maine that to uninsure 30 percent of the population at this time 

before the exchanges were up and running would be a huge disadvantage to those in that population. But we are listening to the 

regulators. It is a State-wide ratio, and in Maine they have a very 

particularly small market with a different situation. 

Senator GRASSLEY. Madam Secretary, your department has 

granted well over 1,000 waivers. Yesterday in the House, Steve 

Larsen testified that 95 percent of the waiver requests you have received have been granted. That is 94 percent. That strikes me as 

a very high percentage. Can you convince the committee that you 

are not simply granting nearly every waiver that you get to limit 

the amount of griping and complaining you get between now and, 

say, November the 12th? Until you are more transparent with the 

process, you have earned this kind of criticism. 

Secretary SEBELIUS. Senator, the waiver that you are speaking 

about deals with one section of the Affordable Care Act, and it is 

the ability of policies to pay out up to $750,000. Again, we were 

given specific language in the statute about market disruption. We 

are looking at those cases. Before there is an available affordable 

option to have an alternative to the so-called ‘‘mini-med’’ policies, 

the vast majority of them have been granted. Some coverage is better than no coverage. 

Senator GRASSLEY. There is a case pending before the Supreme 

Court commonly referred to as Maxwell-Jolly. Madam Secretary, in 

12 

a brief filed in that case, the Justice Department asserts that your 

department will be issuing a Notice of Proposed Rulemaking for 

section 1396(a), and then some subsections of the Social Security 

Act next month. 

Madam Secretary, given that your actions in writing a regulation 

here could have a greater impact on the Medicare program than 

the certainty of the maintenance of effort issue, and perhaps the 

Affordable Care Act in general, would you commit to this committee to fully brief us before taking action, particularly since the 

section of law in question you have suddenly decided to write regulations for has been around since 1968 and has not been touched 

for the last 22 years? 

Secretary SEBELIUS. Senator, we will certainly keep the committee briefed as we move forward with the rulemaking process. I 

am aware that discussions are under way with the Solicitor General about appeals in that case. I know that they have not made 

a determination, but we will certainly follow the existing protocol 

with rulemaking. 

Senator GRASSLEY. Do you have a regulation about ready to come 

out? That is the question. 

Secretary SEBELIUS. I cannot tell you the status of the regulation. I have not been briefed on the final—— 

Senator GRASSLEY. Well, then answer the question in writing. 

Secretary SEBELIUS. I would be happy to. 

Senator GRASSLEY. And brief us according to what you said. 

Thank you. Senator Bingaman, I guess. 

Senator BINGAMAN. Madam Secretary, thank you for being here. 

Thanks for your service. This is a very important job you have, obviously, in implementing this new law, and we appreciate the good 

effort you are making. 

Let me ask about Medicare Advantage. One of the big concerns 

expressed by many of my colleagues who were not in favor of the 

health care reform bill was that enacting the changes that were 

contained in it related to Medicare Advantage would be disastrous 

for people who receive their health care through a Medicare Advantage program. You say in your testimony here that Medicare Advantage enrollment in 2011 is up 6 percent, and average premiums 

are down 6 percent compared to 2010. 

I just wonder if you could explain some of the factors that you 

think might explain both of those changes. Why would there be 

more people enrolling in Medicare Advantage now than was the 

case a year ago, and why would we see a reduction in premiums? 

Secretary SEBELIUS. Well, Senator, while the law does not lock 

companies into delivering Medicare Advantage plans throughout 

the country, we have a very robust system of Medicare Advantage 

choices. I think all but 1 percent of Medicare beneficiaries have a 

choice, and even that 1 percent has a fee-for-service Medicare as 

an option to traditional Medicare. 

We were given some tools in the Affordable Care Act to allow us 

to negotiate for the rate-setting of Medicare Advantage, and that 

turned out to be fairly successful in terms of making sure, first of 

all, that beneficiaries did not pay more out-of-pocket costs, which 

had been a trend of companies shifting payments onto beneficiaries. And we made sure that companies were not cherryVerDate Nov 24 2008 21:10 Sep 18, 2012 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\75792.000 TIMD
13 

picking the market by not providing care for folks who could be 

more seriously ill. 

And finally, we made sure that beneficiaries got the best bang 

for their buck, so that we were able to negotiate rates that indeed 

have turned out to be, on average, about 6 percent lower. MedPAC 

did confirm, in their report 2 days ago, that we have the highest 

level ever of Medicare Advantage enrollees, about 24 percent. But 

I think the good news also carries on to the traditional Medicare 

beneficiaries who have, frankly, paid more for their traditional 

Medicare because of the over-payment to Medicare Advantage programs. 

So gradually, over the course of the Affordable Care Act, that 

over-payment will be leveled out, and the dire predictions that this 

would destroy Medicare Advantage, it would get rid of people’s options, it would drive companies out of the market, have not been 

borne out at all by what has happened. 

Senator BINGAMAN. Let me also ask about—you talk here in your 

testimony again about, in 2012, CMS will implement a demonstration that builds on the quality bonus payments that are authorized 

in the Affordable Care Act. This is, again, for Medicare Advantage 

plans, as I understand it. 

Secretary SEBELIUS. Yes. 

Senator BINGAMAN. And the purpose of this is to accelerate quality improvements. You talk about how these enhanced incentives 

will help to provide a smooth transition as Medicare Advantage 

payments are gradually aligned more closely with Medicare fee-forservice. Could you describe a little more what those quality improvement efforts are and how you see that benefitting people who 

are getting their care through Medicare Advantage? 

Secretary SEBELIUS. Well, again, Senator, I think in the past it 

was a plan design, if I am correct about my history, that was to 

encourage companies to come into the marketplace. So the original 

strategy was to pay more than traditional fee-for-service Medicare 

to companies to provide a private alternative. That over-payment, 

if you will, of about $1,000 per beneficiary was not based on care 

results, was not based on quality results, it was just a market 

strategy to draw companies in. After gathering information for 

years, it has become apparent that there really was not a health/ 

quality differential for the additional dollars spent. 

So what the Affordable Care Act does is set up a different structure. It gradually reduces just the general over-payment, but puts 

in place instead a quality improvement bonus based on outcomes 

for, particularly, beneficiaries with difficult and chronic conditions, 

to make sure that Medicare beneficiaries who chose Medicare Advantage plans are indeed getting quality results. It is a 5-star system, as you say. It will be measured. 

It is, I think, part of our delivery system transformation, to really begin to look at aligning payment incentives with quality outcomes, encouraging better care to beneficiaries so that this strategy, I think—what we saw this year, beneficiaries are already getting the advantage of seeing the 5-star, 4-star, 3-star ratings. We 

had an increase in beneficiaries choosing 5-star plans. It is a way 

that they get more information, and it is a way, I think, that our 

payment system incentivizes quality. 

14 

Senator BINGAMAN. Thank you very much. My time is up. 

Senator Wyden? 

Senator WYDEN. Thank you. 

Madam Secretary, thank you. I appreciate what you and the 

President are trying to do in terms of giving the States more flexibility. The law, as you know, says that in 2017 a State could get 

a waiver and set up a plan without an individual mandate, without 

an employer mandate. There would be considerable freedom with 

respect to the exchanges, and you and the President have advocated now moving that up to 2014, and there is a bipartisan bill, 

of course, here in the Senate to do that. 

One of the areas that has not gotten much attention, and I want 

to go over this with you, deals with the fact that I believe fixing 

the entitlement programs means you have to reinvent Medicaid. 

You have to reinvent Medicaid to hold down costs and improve 

quality. To me, that means creating new choices in a remade 

health marketplace. It seems to me you want to move in that direction as well. 

I just want to get this part on the record. My understanding is 

that you all would support the ideas—we look at reinventing Medicaid—of giving a State the option to say that their poor people 

could shop for health care coverage on these insurance exchanges. 

Of course, these exchanges are much like what we have in Congress, and, as we start to introduce choice and competition, poor 

folks would be brought into that kind of concept as well. I have 

seen information on the HHS website on this point as well. Could 

you just outline your thoughts on that? 

Secretary SEBELIUS. Certainly, Senator. As you know, Medicaid 

is really a State/Federal partnership. What I think is occurring 

across the country is really very encouraging, and not new. States 

are really eager to implement innovations and are looking at their 

markets and their populations and their challenges with very new 

and innovative ideas, and, frankly, new tools that they have never 

had before. 

So I think we are eager and are very much in dialogue with 

States across the country that are looking at everything from—I 

mean, we have a couple of States that say they would like to be 

a State-wide Accountable Care Organization and include all the 

public and private markets in that plan. We have others that are 

looking at new strategies, as I said, for the dual-eligible. 

What we know about Medicaid is that 5 percent of the Medicaid 

enrollees account for over 50 percent of the costs, and there are 

again some very exciting ideas about ways that, not only can care 

be better coordinated and better delivered, but at significantly 

lower costs. We are eager to work with States on a whole variety 

of ideas, but certainly competition is one of them. Some States may 

open up exchanges. I mean, this is really a kind of State-based dialogue that is under way with some new tools that they have never 

had before. 

Senator WYDEN. I appreciate that. What I have sought, and what 

Senator Scott Brown has sought, is to be able to say to Governors, 

look, as long as you hit these targets, you can pretty much do your 

thing. The President, in effect, said that when he made the announcement to the Governors. 

15 

I want to ask you about just one other point that I have been 

pleased about. My understanding is, you could actually get what 

amounts to a coordinated waiver. You could get a waiver that 

would let you out from the individual mandate, let you out from 

the employer mandate, give you the freedom with exchanges, make 

the kinds of changes we just talked about with respect to Medicaid 

and letting people shop. 

And this could have benefits for both the private sector and the 

public sector, because one of the parts of what I have been concerned about is the possibility that employers would say, you know, 

maybe I ought to pay the fine and get out of health care. My workers can go to Medicaid. Well, with one of these waivers, the employers in a State could get relief from the employer mandate. 

A State could have an opportunity to have the freedom to come 

up with its own system without an individual mandate, get a waiver from Medicaid flexibility. You are receptive to the idea of States 

having these coordinated waiver applications so we could get benefits to the private and public sector, is that not correct? 

Secretary SEBELIUS. Yes, Senator. I think, again, this idea does 

not become a reality unless there is congressional action, but I can 

tell you there are already a lot of Governors who are enthusiastically looking at strategies that would fit their State. What, as you 

know, may work in Oregon may not work so well in Florida, or 

Kansas, or Utah. 

I think the idea is around the goal of insuring the same number 

of people, not adding to the Federal deficit, not shifting huge costs 

onto the beneficiaries. If there are strategies that work, public and 

private, all in, all payer, those are certainly ones that should be 

discussed at the State level and brought to the waiver process. 

Senator WYDEN. My time is up. I only want, both in the Congress 

and the country, for folks to know that is in the law now. 

Secretary SEBELIUS. Yes. As far as the date. 

Senator WYDEN. In 2017. 

Secretary SEBELIUS. That is correct. 

Senator WYDEN. The hope here is, on a bipartisan basis, we can 

move that to 2014 so the States will not have to do their work 

twice. I commend you for it. 

Senator Roberts? 

Senator ROBERTS. I thank my friend and colleague. 

Madam Secretary, thank you for being here. I know you have an 

extremely busy schedule. 

I was in Kansas over this past work period, and I talked to our 

Kansas patients, providers, and advocates, people whom you know 

and who know you, about the President’s executive order. This is 

the one that is supposed to take care of the regulatory overkill on 

the cost-benefit yardstick. The President said that they were duplicative, costly, and in some cases just stupid, which I was really encouraged by when I heard about that. But I also heard about, and 

found out it was not only necessary to read the bill, but to read the 

regulations, which is a full-time job, which is why I have people behind me who do that and then report to me. But at any rate, I am 

very concerned about that. 

There was a stakeholder roundtable in Topeka. It is the first 

time I think they all got together. We had everybody, Kathleen. We 

16 

had the ambulance drivers, we had the druggists, we had hospice, 

we had the hospital administrators, doctors, nurses, you name it. 

It was the first time I think that they all got together and discussed feedback and what they were concerned about. Every representative at that meeting had a concern with regulations, and 

the sheer volume of that was just extraordinary. I promised them 

I would summarize them and send them to you, and obviously I 

hope for a response so we could have a better dialogue. 

The number-one concern I heard was a fear of the impact of future regulations, especially those regulations for implementing 

feedback and their potential to have a further and greater impact 

on jobs and the economy, and the economy of that provider, whether or not that provider could actually stay in business. 

I want to underscore, those concerns were even greater than the 

impacts that we discussed during the health care debate. As you 

know, we went to the HELP Committee, we went to the Finance 

Committee, and then we went to Harry Reid’s committee, and then 

we had the bill. Then we tried to look at it since that time. 

It is my understanding that a number of the PPACA rules have 

been issued as interim final rules, and therefore with limited stakeholder input. That really concerns me. In my letter to the President 

last week—and I sent it to the President, not to you. I knew it 

would get to you eventually. It is dated March 10, and I know you 

have not had a chance to look at it. I doubt if it has come down 

to you by now. But I am going to give you a copy. I thought maybe 

you could go over it at halftime at the KU game or the K State 

game when you are watching. Probably more K State than KU, but 

then that is beside the point. 

At any rate, I encouraged the administration to limit the use of 

this regulatory process and take every available opportunity to get 

feedback from those who would be most affected by these regulations. I encouraged the administration to review any comments you 

have received on these regulations. 

So my question to you is, do you commit to only using the interim final rule process in the most limited and necessary fashion, 

and through that do you commit to getting stakeholder input 

through a designated comment period so the folks whom I met with 

and whom you know and whom you would meet with—matter of 

fact, that might not be a bad idea—so that they could at least have 

some input? In short, the people whom you know in Kansas, and 

I know in Kansas, who are trying to do their best with PPACA but 

are worried about regulations, can they at least have time so that 

they can have some input? 

Secretary SEBELIUS. Well, Senator, I share your concerns, that 

input from stakeholders is critical. We have been trying to balance 

what were fairly daunting 2010 deadlines with getting that feedback as quickly and promptly as possible, doing everything from 

webinars to open periods. But we are certainly eager to have stakeholder input. I have met with a number of the people who probably 

were in the room with you, Maynard Oliverius and others, who are 

willing and eager to participate in the Accountable Care Organizations. But yes, we are looking for ways—— 

Senator ROBERTS. Well, we invited Maynard in, but we kicked 

him out after about 5 minutes. No. But at any rate, go ahead. 

17 

Secretary SEBELIUS. Well, I share your concern, and we are certainly looking for ways to get the maximum input as we move 

through—— 

Senator ROBERTS. But I know that you will move forward with 

that. I took advantage of all that input, which lasted for about 3 

hours. We have 34 regulations here that they sort of broke down 

into different categories. I am going to give them to you. My letter 

will work down through the process to you after a while. 

I had another question, but I can ask it for the record. My time 

is up. I do not know what we are going to do here. Do you want 

to rewrite the bill now, or what? [Laughter.] 

Secretary SEBELIUS. We can talk about brackets. 

Senator WYDEN. In my college basketball days, before we had the 

24-second clock, we used to just dribble in the corner. 

Senator ROBERTS. Dribble in the corner. 

Senator WYDEN. So I am not going to quite—— 

Senator ROBERTS. Have you voted on the second vote? 

Senator WYDEN. I have not. There are about 10 minutes left. I 

was going to ask one quick question. What is the Senator’s pleasure? 

Senator ROBERTS. Since I have the time, can I ask my brief question, then I will yield you the remainder of the time? 

Senator WYDEN. Of course. Of course. 

Senator ROBERTS. And I will throw you the ball. All right. 

Secretary SEBELIUS. Are you dribbling in the corner or are you 

coming to the basket? I just need to know. 

Senator ROBERTS. He is dribbling in the corner. 

Secretary SEBELIUS. Because I am playing defense here. [Laughter.] 

Just give me a signal. 

Senator ROBERTS. It is the full court press. [Laughter.] 

Secretary SEBELIUS. All right. Got it. 

Senator ROBERTS. All right. 

The executive order. It is a fine executive order, but there are 

loopholes. The loopholes are this: if you are sitting as Secretary, 

like you, in front of a regulatory agency, and you are doing the 

public good while you are excluded from this cost-benefit yardstick 

that the President issued with his executive order to get a hold of 

all these regulations—which, by the way, is the number-one issue 

that pops up in Kansas: ‘‘What on earth are you doing back there, 

passing all these regulations that do not make any sense? They are 

counterproductive, they do not meet a cost-benefit yardstick, and 

they are about to put me out of business.’’ That is the speech that 

you hear. I always say I am not a ‘‘you’’ guy, I am an ‘‘us’’ guy, 

and then we go from there. 

Now, there are exemptions. One is, are you doing the public 

good? The other is, are you a sub-agency or an independent agency? If so, you are exempted. Then we have this—and this is the one 

that I think that you are under, I am not sure. This is, ‘‘Where appropriate and permitted by law, each agency may consider and discuss qualitatively’’—I am talking about this executive order by the 

President, and this is the part where I have the most concern— 

‘‘values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.’’ 

18 

If that is not an amorphous statement, I do not know what is. 

You and I could sit down and talk about that for 6 hours and we 

would not be able to come up with any kind of a directive or any 

kind of a conclusion, other than just to take the whole thing, wad 

it up, and put it in a wastepaper basket somewhere. 

Now, which one of those exemptions do you fall under, or do you 

fall under any? And are you making the best effort to try to apply 

the regulations to the President’s executive order? 

Secretary SEBELIUS. We are doing the latter. That has been the 

directive of the President, not just for future regulations, but he 

has asked us all as cabinet members, and our offices, at the top of 

this list, to review prior regulations and to look at, not only gathering input from stakeholders, but to go through a very strenuous 

process of looking at duplicative information, regulations that are 

outdated, outmoded. 

Senator ROBERTS. You are doing that? 

Secretary SEBELIUS. We are absolutely starting the process. 

Senator ROBERTS. And it is a priority? 

Secretary SEBELIUS. Yes. Yes, sir. 

Senator ROBERTS. I have 34 of them for you to take a look at. 

Secretary SEBELIUS. All right. Thank you. 

Senator ROBERTS. I thank my colleague, who is no longer dribbling but has left the court. [Laughter.] 

Secretary SEBELIUS. Are you going to take a shot, or are you just 

going? 

Senator ROBERTS. I have already taken my shot. [Laughter.] 

The CHAIRMAN. Thank you, Senator. 

I might add, too, we just now repealed a statute, a small business statute, because it was useless. It was causing more problems 

than it was solving. It is an example of the Congress repealing, getting rid of, dead weight. The more we can keep doing that in the 

executive branch, the better. That is not just an idle statement, 

Madam Secretary. I hear this constantly from businesses of all 

sizes, that our country is changing, and not for the better, in their 

view. We are becoming like an old Third World country, we are so 

hidebound. It is almost Lilliputian, with all the strangulation, with 

all the rules and regulations, and they are always on, and people 

just feel it. They feel it, sometimes with new legislation passed. So 

I just strongly urge you to be very vigorous and slash, just cut. 

It is not going to go too far here, but it reminds me of Joseph 

Shumpeter, the economist. It is creative destruction. You have to 

destroy to create. You have to destroy to create. I am not urging 

you to be draconian about that. Exercise a little common sense 

with it. But there is that dynamic: you have to cut to create. I urge 

you to go pretty far, because you will be surprised at the energy 

and synergy that that will create. 

Senator Ensign? 

Senator ENSIGN. Thank you, Mr. Chairman. 

Madam Secretary, welcome. I just want to quote from the President: ‘‘Under the plan, if you like your current health insurance, 

nothing changes except your costs will go down by as much as 

$2,500.’’ Do you remember that quote? It was quoted quite often by 

the majority party, claiming that premiums were going to go down. 

19 

Well, I actually just got off the phone with one of our larger employers in the State of Nevada, and most people recognize this 

name, Steve Wynn. I asked him if I could quote him, which he said 

was all right. He is probably the most employee-friendly employer 

that we have in the State of Nevada for years. Unions love him, 

his workers love him; he treats them like gold. He does everything 

he possibly can. 

Well, these are the statistics that he just gave me. From 2005 

to 2010, they had a steady rate of increase in the premiums of 

around 8 percent a year, which is high. We all agree that that is 

high. This year, his premiums went up by 12 percent, almost a 50- 

percent increase in the rate of growth. What did that mean to the 

people who are working for him? That means that his people—he 

took on some of those costs, but not all of them. The average worker who works for the Wynn Resorts now will pay an extra $800 to 

$900 a year. So the premiums did not go down, they actually went 

up. He, based on the people and experts he has working for him, 

has studied the system, and he thinks that actually things are 

going to get worse in the future, not better. 

Also, their plan worked with other plans across the valley. One 

of the big selling points was, well, we are going to have fewer people going to emergency rooms. They have had no decrease in the 

number of people going to emergency rooms, but they have had a 

decrease in the number of doctors now practicing. 

So I guess some of the promises—and this is just an anecdote, 

obviously. But I have talked to employer after employer after employer across the State of Nevada, and small employers had much 

larger increases than what he just had. I have had people tell me, 

the small employers, that their premium increases were as much 

as a 35-percent increase this year, and that was even with increasing the co-pays for their employees. So I guess the bottom line is, 

at least what I am seeing in the State of Nevada, is that the health 

care reform bill is driving up costs, not doing what it was promised, 

to drive down costs. 

How would you respond to that? 

Secretary SEBELIUS. Well, Senator, I do not think there is any 

question that costs are continuing to increase. I think, unfortunately, that trend, it is almost impossible to say what the trend 

would have been absent the bill. I can tell you that the status quo, 

as I think you and I would both agree, was totally unsustainable 

and unacceptable. 

I, in fact, am somewhat stunned that Mr. Wynn’s premiums have 

gone up at that slower pace during those 5 years, because that was 

not the average. The average during those years was, people were 

seeing over 100-percent rate increases over that period of time. 

Senator ENSIGN. That is because they have implemented a lot of 

things in his employ that try to work with their employees to encourage healthier behaviors and things like that. They have been 

doing some of the same things that Safeway has been doing, to try 

to hold those premiums. But the point that he made is, for 5 years 

they basically had a level of 8 percent per year. 

Secretary SEBELIUS. Well, the insurance industry overall has indicated that, in this last 12 months, there are not significant cost 

drivers related to the implementation of the Affordable Care Act. 

20 

That is what the industry is saying as they analyze their rates. 

They are saying it is the underlying rise in health care costs and 

the underlying utilization of health care. Again, the Affordable 

Care Act, I think for the first time, has some delivery system 

changes which have never been part of the dialogue before. 

I think, not only will they impact what Mr. Wynn’s employees 

are seeing in the private sector, but they certainly will impact the 

long-term deficit in the public sector. Those are clearly not showing 

up in the first 6 or 7 months of implementation of the bill, because 

the structures are not even in place yet. 

Emergency room decreases, I would suggest, Senator, will not 

occur until the vast majority of uninsured have access to insurance 

coverage, and that does not occur until 2014. So some of the examples that you cite absolutely are under way, not only in Nevada, 

but in other States around the country. But as this law is gradually implemented, I think you will see a change in those dynamics. 

Senator ENSIGN. The next issue I want to address is basically the 

waivers. We have seen, now, over 1,000 waivers that have been 

granted, and for various reasons. But we do not know a lot of what 

those reasons are, and obviously you have to protect proprietary information. But we have introduced legislation basically to find out, 

why are different people getting different waivers? What is the justification why one person is getting it, why one person is not getting it? I guess, can we ask for more transparency in that process? 

Secretary SEBELIUS. Absolutely, Senator. The waiver, again, is about one feature of the bill. It is the $750,000 annual fee. We are 

collecting information this year. But because it turns out that the 

State Insurance Departments had very little information about 

these so-called ‘‘mini-med’’ plans, the vast majority of people who 

have come to the department with this plan, saying, absent this we 

will drop coverage altogether, we have granted waivers to. The only 

ones, it is my understanding, as a framework that were not granted waivers, that 6 percent—— 

Senator ENSIGN. These were not just mini-med plans, though, 

that were granted waivers. 

Secretary SEBELIUS. The vast majority absolutely are. They are 

the so-called under-funded—I mean—— 

Senator ENSIGN. I thought half of the plan—— 

Secretary SEBELIUS [continuing]. They are not comprehensive 

plans. 

Senator ENSIGN. I thought half the plans that were granted 

waivers were union plans. 

Secretary SEBELIUS. No, sir. I think your information is incorrect. 

We will absolutely get you that information. Steve Larsen just testified. 

Senator ENSIGN. And also, if we can get a copy basically of the 

rationale for those plans. 

Secretary SEBELIUS. Yes. Absolutely. We will give you the criteria. 

Senator ENSIGN. And the criteria. 

Secretary SEBELIUS. Yes. 

Senator ENSIGN. And why each one was granted or not granted. 

Secretary SEBELIUS. Well, we can give you the criteria, yes, that 

was used to make those decisions. Yes, sir. 

21 

Senator ENSIGN. Not just the criteria, but then—— 

Secretary SEBELIUS. Well, there are not a thousand different reasons. They either met the criteria or they did not. What I am telling you is, 94 percent of them met the screening criteria, and that 

is what I would be happy to provide you. 

Senator ENSIGN. All right. Thank you, Mr. Chairman. 

Senator HATCH. Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. Madam Secretary, 

thank you very much for your leadership on this issue. I very much 

appreciate your response to Senator Ensign as it relates to premiums. But we know from millions of health care consumers, they 

have gotten either better benefits or better value for what they 

were spending in health care. 

We know that there are over a million children now who are 

qualified to be under their parents’ health insurance policy who 

would not have been prior to the passage of the Affordable Care 

Act, under the provision now that allows families to keep children 

on the policies to age 26. We also know there are millions of seniors, over 3 million, who were helped in getting coverage for the 

coverage gap for prescription drugs, the so-called donut hole, and 

now have wellness examinations. So they are clearly better off than 

they were a year ago. 

We know that there are millions of consumers of health insurance who are now getting better value because of the protections 

we put in the bill to require that the premium dollars, the lion’s 

share, go for benefits rather than for expensive overhead or profits. 

So we have made some progress. We have also given protection on 

issues such as access to emergency care, and the list goes on and 

on and on. 

And then we know that we are saving costs in our health care 

system. It has been 12 months, but a lot of the changes are going 

to take time to see the impact. The one I liked the most, just to 

emphasize, is what we have done for the qualified health center. 

I know what is happening in my State of Maryland with the use 

of the qualified health centers. I know we are going to keep people 

out of emergency rooms, which is going to save all of us money so 

that our costs and hospital care for those of us who have insurance 

will be a little bit less because of those. 

And, of course, the management of wellness programs, use of 

health information technology, the management of readmissions to 

hospitals, you add all that up—but I think it is unrealistic to expect it could have any major impact on a premium that was already in the works that people received during the course of this 

year. So, I just really want to go on record saying that I thank you 

for your leadership, and the millions of people in this Nation and 

the thousands in Maryland who are getting much better value for 

their health care expenditures today than they got last year as a 

result of the enactment of the Affordable Care Act. 

I do have one question I want to ask you, unrelated to that, and 

that is to minority health and health disparities. One of the provisions that I was very proud that got into the Affordable Care Act 

is to put a real spotlight on dealing with health disparities and minority health issues. We know that the incidence of asthma is twice 

as high in the minority community. We know that deaths from 

22 

heart attacks or heart disease are 33 percent higher. We know infant mortality rates are higher, and the list goes on and on and on. 

The law now establishes you as the reporting person for a lot of 

the information related to strategies dealing with minority health 

and health disparities. I just really want to get your assessment as 

to how you will be dealing with this issue as the Secretary, and 

how we can be helpful in advancing areas that will not only be the 

right thing for our Nation to do, but we have a study that was done 

in Maryland by Johns Hopkins University and University of Maryland Medical Center that showed that we could save as much as 

$260 billion if we address this issue in an aggressive way. So this 

is also a cost issue. 

Secretary SEBELIUS. Well, Senator, first of all, I share your focus 

and commitment in that area of health disparities. It is not only 

good for minority communities, but I would say it is good for the 

country. We have done a pretty good job at HHS of gathering statistics. We have not done a particularly good job in the past of closing the gap, and that has really been a priority of mine. So we have 

a first-ever kind of strategic action plan which will be out in about 

a month, and I would be delighted to come and brief you and your 

staff about the steps that we think are the four or five most important steps with measurable outcomes that we can take. 

The Affordable Care Act not only, I think, in the expansion of the 

Community Health Centers—which deliver affordable and highquality care—but certainly in making coverage finally available to 

all Americans by 2014, makes a huge step in access. The Affordable 

Care Act also has very important strategies about minority workforce recruitment. Having culturally competent, familiar providers 

will be part of this strategy; making sure that we have accurate 

mapping of where the under-served areas are and connecting providers to those under-served areas as part of this; the Community 

Transformation Grants, which are going to be significant efforts in 

major areas to look at everything from wellness and prevention. 

But coordinated care for chronic diseases, which again are far higher in minority communities, is part of what the prevention fund 

will focus on. 

So I would say throughout the bill there are, again, resources 

and tools and really directions, thanks to your leadership and that 

of your colleagues, that make sure that we focus attention on what 

has been a pretty static gap in health outcomes and make sure, as 

we improve overall public health, that we pay particular attention 

to those communities where the gap has been most serious. 

Senator CARDIN. Thank you. 

Thank you, Mr. Chairman. 

Senator HATCH. Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. 

Madam Secretary, welcome back. Thank you for joining us today 

and providing answers and insights on where we are with regard 

to the health care bill. 

In our previous exchange last month, we talked about the CLASS 

Act. You told me that the program was ‘‘totally unsustainable’’ as 

it was written in the law, and you made that assessment based 

upon actuarial models developed within HHS. Is that correct? 

23 

Secretary SEBELIUS. I said I did not think, as written, it could 

be implemented in a sustainable fashion. Yes. 

Senator THUNE. Right. But that was based upon some actuarial 

studies that were done, analysis? 

Secretary SEBELIUS. I think I told you we had just hired the actuary who came from Genworth, who is now going to be our Chief 

Actuary. I think it is based on some modeling that was done. Yes, 

sir. 

Senator THUNE. We, in a briefing with several Republican staffers, Richard Frank, the Deputy Assistant Secretary for policy, told 

my staff that your department’s Office of Planning and Evaluation 

conducted its first actuarial analysis of the CLASS program before 

the law was enacted. Did your department’s first actuarial analysis 

of the CLASS program, made early in 2010 before its enactment, 

indicate that the program was totally unsustainable? 

Secretary SEBELIUS. Senator, I know that during the course of 

the discussion we had some concerns about some of the threshold 

levels that were in the bill, and there was a contemplation of 

amendments to the bill as it progressed through the Senate due to, 

I think, the Byrd rule and some other issues that are part of the 

Senate rules. They were not included as part of the final amendments, but the Department was given broad discretionary authority and a very clear direction that we could not rely on taxpayer 

backup for the plan, and that it had to be solvent. So we have 

taken that direction very seriously. 

Senator THUNE. To the extent that the actuarial analysis is 

available out there, is it something that you could provide to me 

and my staff, or to this committee so that we could review the information that was available about the financial solvency of this 

proposal? 

Secretary SEBELIUS. I assume, Senator. I cannot tell you exactly 

what is available, but I will go back to Richard Frank and figure 

out what he referred to with your staff, sure. 

Senator THUNE. And you mentioned that you were contemplating 

various amendments to it as it was moving through. I offered an 

amendment on the floor to strike it for the reasons that we talked 

about that I have indicated to you earlier, that the program was 

unsustainable, and that was what CBO, I think, had accurately 

concluded, at least in the second decade in the out-years. But it 

was a significant offset and pay-for in the bill. So I guess my question would be, were there discussions that were held with members 

of the Senate or House who had the ability to make changes in the 

CLASS program in the bill prior to its enactment? 

Secretary SEBELIUS. Senator, as I said, there were lots of discussions about CLASS. I think that the concern, at least in the discussions that I was involved in, always was the balance between helping to fulfill what was really a commitment to a lot of Americans 

who currently find themselves with no options about community 

living and aging in place, to making sure that there was not an unfunded entitlement put forward. Those discussions continued, and 

they are ones that we are continuing to have with both a community of advocates, but also with the financial advisors that we have. 

Senator THUNE. I mean, it seems to me, at least, that if there 

were concerns along the lines that you mentioned, and as this was 

24 

being debated up here, that members of Congress should have 

known about the CLASS program’s problems before voting to approve the law. 

So, I guess what I am trying to get at here is, to the degree that 

there was that sort of information available, why it was not conveyed to Congress, or, if it was, were there discussions—I mean, 

obviously we were not privy to any of those, but it strikes me at 

least that this thing is a runaway train. We thought that at the 

time. I still believe that today. You have indicated that, without 

some significant changes or authority to try to fix it, that it is unsustainable. 

Secretary SEBELIUS. Again, Senator, we have that authority. We 

take the direction very seriously, that it has to be a solvent program, not only in the first 5 years or the first 10 years, but on into 

the future. That depends on, I think, the income threshold, the 

earning threshold which we are taking very serious looks at. It depends on the enrollment projections, and there are ways to shift 

those enrollment projections upward or downward, and that is a 

key component to make sure it is not, from the outset, an adversely 

selected pool. 

So all of those issues which are modeled in the private insurance 

market—I think we have gotten the best expert. Genworth is the 

company that really knows this space better than any. Their chief 

actuary is now the chief actuary for the CLASS program. We are 

reaching out to stakeholders, but we take that direction very seriously, that this has to be a program that is modeled on into the 

future as being sustainable. 

Senator THUNE. Well, my time has expired, Mr. Chairman. But 

I guess the only thing I would say is, to the degree that that actuarial analysis or that modeling is available, as I mentioned earlier, 

if you could make that available to us, I would certainly welcome 

the opportunity to review that. 

Secretary SEBELIUS. Thank you. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Carper, you are next. 

Senator CARPER. Thank you, Mr. Chairman. Thank you very 

much. 

The CHAIRMAN. Any time. 

Senator CARPER. Madam Secretary, welcome. Nice to see you. 

Secretary SEBELIUS. Thank you. 

Senator CARPER. I chair a subcommittee, an oversight subcommittee in the Homeland Security and Governmental Affairs 

Committee, that enables us to look into a lot of financial management—in some cases mismanagement—in the Federal Government. 

About a week or two ago, one of your top people, Peter Budetti, was 

with us. The subject was the Improper Payments Act, something 

that many people know about. 

But President Obama signed into law last year legislation that 

Senator Coburn, I, and others had worked on. It basically says, not 

only do we want agencies to identify improper payments, usually 

over-payments, we want them to identify them, report them, stop 

making them and going out to recover the money that has been 

overpaid, or mispaid, and to recover that money. Going forward, we 

25 

directed that Federal managers be evaluated, at least in part, on 

their compliance with the improper payments law. 

Last year, improper payments totaled about $125 billion—$125 

billion! That does not include most of the Department of Defense, 

it does not include Medicare Part D. Out of the $125 billion, roughly $45–50 billion was Medicare. Peter Budetti spoke to us, and he 

said one of the administration’s goals between now and 2012 is to 

cut that, we will say $48-billion number, in half. 

My question to you is: how does the Affordable Care Act, the 

health care reform legislation, strengthen you and give you some 

of the tools that you need to be able to reduce improper payments 

from roughly $50 billion a year to $25 billion a year? Eric Holder 

tells us that, separate and apart from that, fraud in Medicare could 

be as much as $60 billion. 

And whether it is $60 billion, $50 billion, or $40 billion, that is 

a lot of money that is separate and apart from the improper payments. But we are talking about a lot of money, and, in a day of 

deficit reduction when we are looking for every dime that we can 

save, how can you use the legislation, the law of the land today, 

to help us reduce improper payments and Medicare fraud? 

Secretary SEBELIUS. Well, I think, Senator—the Attorney General and I were just in Detroit yesterday in our series of fraud summits, which we are having in the so-called ‘‘hot spots,’’ places where 

fraud activity seems to be higher than normal. Not only are we instituting new protections within the Centers for Medicare and Medicaid Services, thanks to the Affordable Care Act, but also a new 

predictive modeling that has been used in the private sector for a 

long time, but has not been available in CMS, to watch billing aberrations. New strike force teams are on the ground. We are up to 

nine. We intend to expand at least by two in the near future, and 

then look at resources, which are Office of Inspector General agents 

working with the U.S. Attorneys, working with the local law enforcement officers to really be very nimble about shutting these aberrations down. But I think that Dr. Budetti would be the first to 

tell you that we do not feel we can prosecute our way out of this 

activity. We really need to set up much higher firewalls at the front 

end to prevent it. 

So some of the data systems—we are re-credentialing providers 

in the highest-risk area, making it much more difficult, frankly, to 

hang out a shingle and just start billing Medicare. We are training 

millions of seniors across the country to be the eyes and ears on 

the ground of the patrol. Then we have set up a series of checks 

within CMS about billing practices that we feel can help us dramatically lower, as you correctly said—the payment system is not 

necessarily fraud. Some of it might be fraud, but it is not necessarily symbolic of fraud. Some of it is over- and under-payment. 

So again, we are updating our routine surveys and updating our 

equipment so that we are much more able to pay accurately the 

first time. 

Senator CARPER. We tried to give you a number of new tools, and 

I am encouraged to hear that you intend on using them. 

Secretary SEBELIUS. Absolutely. 

26 

Senator CARPER. And with improper payments of almost $50 billion, not counting Part D, Medicare Part D, and with fraud as high 

as maybe $60 billion a year, we need every tool you can muster. 

The other thing I want to talk about is obesity. We are intent 

on reducing obesity in this country today, an age when one-third 

of the people in our country are overweight or are on their way to 

being obese. In the case of Japan, we spend twice as much for 

health care as Japan, and they cover everybody. We spend twice 

as much. They get better results. One of the reasons why is, they 

have done a much better job with obesity and trying to keep people 

from becoming overweight. 

My second question is, how can we ensure there are public investments in obesity reduction, programs are adequately measured, 

they are coordinated, and they are effective? For example, would it 

be possible to put all the federally funded anti-obesity efforts 

maybe on one website so that States and other stakeholders could 

easily access information and resources in these anti-obesity programs? 

Secretary SEBELIUS. Well, I think the website is a good idea. We 

do have, I think for the first time with the Recovery Act investments, community strategies that are in place across the country 

in urban centers, in rural centers. Some are health systems, some 

are entire communities, some are school-based projects, really with 

a very dedicated measurement tool. So we have never had good 

data on what it does take to change behavior patterns, buying patterns, eating patterns for folks. I think we will have that data for 

the first time. We are sharing the information about those strategies with folks across the country. 

We have lots of mayors and policymakers and officials who have 

signed up to be part of the ‘‘Let’s Move’’ strategy, which, as you 

know, Senator, is aimed at reducing childhood obesity in a generation. The First Lady’s spotlight on this, I think, has been enormously helpful in getting the word out. 

We are about to launch also the menu labeling initiatives as part 

of the Affordable Care Act, which will, for the first time, again, give 

more information to consumers about what choices they are making when they order food and shop for food and buy food for their 

kids. The FDA also is under way with front-of-package labeling, 

which, again, is more information for consumers. So we are trying 

to address this in a variety of strategies. 

I think the bill that you all passed at the end of last year, the 

Nutrition Act, which, for the first time in a very long time, updates 

standards for nutrition for school breakfasts and lunches, and gives 

additional revenue to schools for healthier foods, incentives for 

local farmers is, again, a wonderful strategy that will not only be 

helpful in the farm communities and be helpful with fresh fruit, 

but should have a very positive impact on our children. 

Senator CARPER. Good. 

Mr. Chairman, I would just say, in the spirit of March Madness, 

the NCAA basketball players, we need a full court press on obesity. 

The Secretary has just gone over some of the things that we are 

doing. I think that they are all smart things. One of the things that 

Senator Murkowski, Senator Harkin, and I worked on is menu labeling. 

27 

Later this year—I think your regulations will be out in a couple 

of months—when people go into a chain restaurant, 15 restaurants 

or more across the country, they will have a menu board. On the 

board will be what is being ordered, price, calories. If we have a 

menu, what is being ordered, price, calories, and information on 

about 10–12 additional items: fats, transfats, the real thing, 

verifiable upon request. It is just one thing. We need to be doing 

all these things. As you know, a major driver in health care in this 

country is obesity, being overweight. We have to get—this is a bad 

pun—our arms around it. I think I am encouraged that maybe we 

are starting to. So, keep it up. Use those tools. Thank you. 

The CHAIRMAN. Thank you, Senator. It is clear that chronic disease is a huge driver, cost driver, in this country. It is obesity, it 

is cardiac care, it is all the various forms of diabetes, all the various chronic care illnesses. 

I remember once I was following a cardiologist on his rounds in 

a hospital in Missoula, MT. We visited all of his patients. It just 

struck me, hit me like a 2 × 4: one-third of his patients were overweight, one-third of his patients were smokers, and the other third 

were assorted. I mean, there is no question that a lot of the excess 

cost is due to chronic disease, and it can be addressed. I compliment you for being such a persistent advocate of addressing 

these issues. You have mongoose tenacity, Senator, and I really appreciate that. 

Senator CARPER. I think that is a compliment. 

The CHAIRMAN. That is a compliment. 

Madam Secretary, as we address health care costs—and I do believe that there are all kinds of reasons for this bill, but one of 

them is to reduce the rate of growth of health care costs. I wish, 

frankly, we had spent more time on that. In fact, I wish in retrospect, when we were advocating the bill the last couple of years, 

we spent more time on costs up-front rather than coverage, per se, 

because it gave detractors an opening. 

Nevertheless, that is history. One of the cost drivers, I think, is 

over-utilization. It is over-utilization in lots of different areas. This 

causes a lot of waste in our system. One of the questions I have 

is, what is the Department doing, and CMS doing, on addressing 

this problem of over-utilization? That is, physicians ordering procedures that are not needed, in various specialties, hospitalizations 

not needed. 

I do not know if you saw the most recent Atul Gawande article. 

I am sure you read that. I think it was in New Jersey. It was stunning that there were 240 admissions to one hospital by the same 

person in a 5-year period, as I recall. That is nuts. When I talk to 

business people, well, part of it is defensive medicine. That is what 

causes over-utilization. Some say that our system is biased toward 

it. That is, the incentives are more for quantity than quality. 

So, I am just asking you, what is being done about this? I think 

a lot more should be done about this than I am aware of. I might 

be wrong, but I think the Dartmouth study has a website that 

shows utilization in various parts of the country, and I regret to 

say that my State is not the best in a couple of cities in terms of 

subspecialties. 

28 

But my one thought might be just to highlight all that. Just tell 

all the world, tell America and all these different hospitals and all 

these different specialties, what the utilization rate is, for starters. 

But how do we address over-utilization? I want you to be honest: 

how do we address the issue of over-utilization in America? 

Secretary SEBELIUS. Well, Mr. Chairman, I think that, again, you 

provided a framework in the Affordable Care Act which has really 

never been part of the public payment system in the past. The public payment system has been aligned with more procedures bringing in more income. There is very little in the way of compensation 

for issues that did not involve some kind of test or procedure or 

visit. 

So, aligning the incentives, as the Affordable Care Act does for 

the first time, with appropriate care strategies, with wellness visits, with giving doctors the opportunity to get into systems of care, 

of medical homes, where keeping people out of the hospital becomes—you get paid for that strategy more than enrolling folks in 

the hospital. So we have a whole series of tools that were not part 

of the payment system. I think that is very helpful. 

I think we are making the kind of utilization information much 

more transparent. Medicare information is now available, and people can look at, not only the cost of issues, but the kind of procedures that are being provided from hospital to hospital, from State 

to State, and do comparisons. 

You mentioned Dr. Gawande’s recent article. We actually had the 

authors, the hot-spotters who are running these new strategies for 

very high-cost patients, in to talk about ways that we could be informed by their systems. It is the kind of work we are doing on the 

so-called dual-eligibles, where often people are seeing 20 to 30 different providers, getting a whole host of different prescriptions. 

There is not any coordinated care. 

So the kinds of strategies of bundling care, of having Accountable 

Care Organizations, of looking at what happens when a patient 

leaves the hospital to make sure that that after-care is coordinated, 

all of those are a part of the tools in the Affordable Care Act that 

we are taking very seriously and implementing as we speak. 

The CHAIRMAN. I appreciate that. This is a crisis, the cost increases in this country, health care costs. I just say, we can, together, perform a terrific service if we just, with very serious dedication, address the rise and growth of cost increases in this country. I believe, frankly, that a lot more transparency is helpful. Just 

the disinfectant of sunshine is very potent. 

Years ago I was on the EPW Committee, and we had this—I 

have forgotten what the act was called. We enacted a law here in 

Congress that revealed the pounds of pollutants that polluters were 

emitting from their smokestacks: nitrogen oxides, for example, sulfur dioxides, all the different pollutants. It had a tremendous salutary effect. Tremendous. It was not a regulation, it was just the information. When the American public knew which were the biggest 

polluters, man, those companies, they did not want that, so they, 

on their own, found ways to break it down. 

So I urge you to find ways to do the same thing here. I will tell 

you something else that is going to happen. The private sector is 

very, very creative and talented. A lot of these entrepreneurs are 

29 

going to take all this new data and start developing software, some 

new programs to help the public, and so forth. So what you do, you 

can align with the private sector and get these creative juices flowing with a lot more data about what is going on. I am only talking 

now about utilization. 

Secretary SEBELIUS. Right. 

The CHAIRMAN. There are a lot of other subjects, too. 

Secretary SEBELIUS. Well, Mr. Chairman, you are singing from 

our hymnal. We believe strongly that Medicare, being the largest 

sort of insurer in the world, has enormous data that is very helpful, 

not only to private sector purchasers, but also to consumers, to inform consumers, to keep them aware. So we have been engaged in 

an effort over the last year and a half to really push Medicare data 

out into the public domain in user-friendly, free, transparent ways, 

and we have a whole project under way called the Community 

Health Data Initiative, which does just this and has now lots of 

those entrepreneurs who are taking the data and reformatting it 

in ways that will be helpful to purchasers, to policymakers, to consumers, to moms. So, that effort is very much under way. I could 

not agree more that people really—the more they know about their 

own health care, their own cost drivers, their own system, the 

smarter choices they can make. 

The CHAIRMAN. I appreciate that. You have been extremely patient. My time has more than expired. I do not want you to have 

to come up here every week, or every month. But could you give 

us a status report on just that one last project you talked about? 

Secretary SEBELIUS. Yes, I would be delighted to. 

The CHAIRMAN. Where you are. 

Secretary SEBELIUS. Yes. 

The CHAIRMAN. What your plans are. 

Secretary SEBELIUS. Yes. 

The CHAIRMAN. Where you hope to be a year from now, et cetera. 

I am only going to ask that one project. Thank you. 

Secretary SEBELIUS. Yes, sir. 

The CHAIRMAN. Thank you. 

Senator Wyden, I am told that you have the last word. 

Senator WYDEN. With your graciousness, Mr. Chairman. Thank 

you very much. 

Just a question, Madam Secretary, if I could, about end-of-life 

care, because it seems to me the legislation gives us the prospect 

to start a new debate about end-of-life care in this country, and I 

think a much more constructive approach that brings people together. What I am speaking about—you and I have talked about 

it before. 

The bill, for the first time, would give folks—older people, for example—the ability to get the hospice benefit without giving up the 

prospect of curative care. So, no longer are people being pitted 

against each other. I know you are going forward with the implementation of this. I would like to hear a little bit of your thoughts 

about it. 

But just as you answer the question, would that not be the opportunity to lay a foundation for a new approach to discussing endof-life issues, these incredibly emotional, difficult questions that 

even divide families? The fact that, in the bill, folks can get the 

30 

hospice benefit for the first time without giving up the prospect of 

curative care, strikes me as laying the foundation for a new approach on end-of-life issues. I wonder what your thoughts are. 

Secretary SEBELIUS. Well, Senator, I think that not having to 

make those Sophie’s Choice decisions is certainly an important step 

forward. I do think—and I will just use my own situation as an example. My mother spent the last 10 weeks of her life in 3 different 

hospitals, flown from hospital to hospital. 

I hesitate to even imagine how many procedures were done during that period of time, and how many strategies used, and how 

many teams of doctors. But looking back on that situation with my 

siblings and my father, all of us wished that there had been an opportunity at a much earlier stage, and probably well before that 10 

weeks, to have my mother have engaged in a robust discussion 

with her caregivers, and then inform the family of those choices. 

So, I do think that having opportunities to have patients talk to 

their doctors well before—I mean, I was at the Gundersen Lutheran Medical System in Wisconsin, and heard some very compelling testimony from the head of the hospital system, who said one 

of the problems really with conversations is, we wait until someone 

is in a crisis situation, or wait until there is no possibility for that 

patient to engage. 

Their theory is, the first time anyone has contact with the hospital system, a conversation should be held with that patient, 

should become part of their record and updated on a regular basis, 

whether they are in to have a baby or anything else. So I think this 

is an area where I think patients and families tell me they really 

want to be informed, they want to be involved, they want to be engaged. But I think having the bill address that difficult situation 

of an either/or is certainly an important step. 

Senator WYDEN. If you could, just for the record—and I thank 

you for the extra time, Mr. Chairman—give us in writing the implementation progress that has been made, because I know you are 

working on the rule. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Actually, we should thank the Secretary for the extra time. Another Senator just arrived, Madam Secretary. We promised the 

Secretary we would be finished by about 11:45. 

Senator NELSON. All right. So that means I have minus 8 minutes. 

The CHAIRMAN. To lift-off. [Laughter.] 

Senator NELSON. Well, I cannot create more time. 

The CHAIRMAN. No, no. You go ahead, very briefly. 

Senator NELSON. All right. 

The CHAIRMAN. With the indulgence of the Secretary. 

Senator NELSON. I want to thank you already for explaining how 

you are going after fraud, making them do those background 

checks. I want to thank you also for having explained earlier today 

how we are winning on Medicare Advantage by taking away all of 

the extra payments that insurance companies were getting and 

how you are making that where Florida actually has a reduction 

in the premiums for Medicare Advantage up to this point, while at 

the same time having a significant increase of people enrolling in 

31 

Medicare Advantage. So that is certainly a winner up to this point, 

and we will continue to go on that. 

Can you just briefly, since you have to go, tell us about your excitement about Accountable Care Organizations really doing something? 

The CHAIRMAN. And show how really excited you really are. 

[Laughter.] 

Secretary SEBELIUS. Pardon me? 

The CHAIRMAN. I am sorry. Just show how really excited you 

really are. 

Senator NELSON. Just like I am. 

Secretary SEBELIUS. I am very excited. Well, I can tell you, providers around the country are very excited. I have been really encouraged by, not only hospital executives and their providers talking to us about the opportunity to deliver better care at lower 

costs—and they are very eager to participate in this transformation—but community health centers working with hospitals, provider organizations working on their own care strategies that people know can work. And they really have felt either that the incentives have not been there for them to align that practice, or that 

they would be financially penalized by delivering the kind of care 

that they think is quite possible. 

So I have been across this country. We will have these rules out 

in the very near future. I cannot tell you the level of enthusiasm 

I see, not only in our office, but in the provider community, for having a platform that allows better care delivery, allows them to be 

paid for that, and that they feel can really lower the overall costs— 

improve health, improve patient care, and lower costs—and they 

are very, very eager to participate. As you know, Senator, this is 

an entirely voluntary initiative. We are not forcing anyone; this is 

not a federally directed program, but the enthusiasm in the provider community is enormous. 

The CHAIRMAN. Thank you, Madam Secretary, very, very much. 

I might add, I want to amend my request on the report that you 

are going to give, the status report, remember, I asked you about? 

Secretary SEBELIUS. That one thing? 

The CHAIRMAN. Yes. I only have one more. ACOs. Status report 

on ACOs, Accountable Care Organizations. How are you doing? 

How are they coming along? Again, the plan, et cetera. 

Secretary SEBELIUS. Will do. 

The CHAIRMAN. Thank you very, very much. 

Secretary SEBELIUS. Yes, sir. 

The CHAIRMAN. Thank you. You have been very, very generous, 

Madam Secretary. Thank you very much. 

Senator Wyden will now chair. Our next panel is Douglas HoltzEakin and Paul Van de Water. 

Mr. Holtz-Eakin, you go first. 

Senator WYDEN. Gentlemen, thank you very much. We appreciate your patience here this morning. We will make your prepared 

statements a part of the record. If you could take maybe 5 minutes 

or so and summarize your views, that would be helpful. Then we 

will have some questions. 

Let us begin with you, Dr. Holtz-Eakin. 

32 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, Ph.D., PRESIDENT, 

AMERICAN ACTION FORUM, WASHINGTON, DC 

Dr. HOLTZ-EAKIN. Well, thank you, Acting Chairman Wyden, and 

members of the committee. 

I have submitted a lengthy statement for the record. Five minutes cannot do justice to my misgivings about the Affordable Care 

Act, even after a year, but the three points I would stress in my 

brief opening would be that it represents a real missed opportunity 

in reforming Medicare, which remains a budgetary and financial 

danger; it is more appropriate to reform Medicaid, as you mentioned in your remarks in the first panel, than to expand it in its 

current form; and, third, that the Affordable Care Act is damaging 

budgetary and economic policy. 

Just let me say a word or two about each of those three points. 

First, with Medicare, it remains on shaky financial ground. The dubious trust fund accounting that has been highlighted in the first 

panel does not hide the fact that the money coming in is going out 

for two new entitlement programs and will not be available for future Medicare benefits, regardless of the accounting. 

The second thing I am concerned about is that, since no analyst 

has looked at this law and decided that it will in fact bend the cost 

curve and slow the growth of health care spending, it is quite unlikely that the Medicare provider cuts in the law will stick. As a 

result, those funds will have to go out, and Medicare will be under 

even more shaky financial ground. Then finally, if they were able 

to stick, it would have made more sense to fix the SGR. It is a real 

missed opportunity to take care of a problem that has plagued Congress for years. 

Then lastly, in Medicare, I am deeply concerned about the future 

of Medicare Advantage. It is an important program, especially for 

low-income minority seniors, and the financing of it in the Affordable Care Act puts it on shaky ground. It is also the kind of health 

care that we should value. It is a coordinated benefit that offers the 

opportunity for a higher and better value proposition. 

On Medicaid, the Affordable Care Act expands the program in 

which beneficiaries have deep difficulty finding providers, end up 

in emergency rooms at much higher rates than even the uninsured, 

and, with the maintenance of effort requirements, is now an extremely costly mandate on the States. I applaud the efforts of 

Ranking Member Hatch, and in the House, Congressman Upton, to 

really take on some flexibility in Medicaid; $118 billion over the 

next decade is something they simply cannot afford at this point 

in time. Even more flexibility is needed, as you have talked about, 

under the law itself—your efforts with Senator Brown. 

Then lastly, on the budget and economic front, I am convinced 

that, even with the reports of my former organization, the Congressional Budget Office, on the record, this is a dangerous budgetary 

move at this point in time. This committee is well-aware of the projected future debt increases in the United States. They represent 

a fundamental threat to our prosperity, and even our freedom. 

Setting up two new entitlement spending programs, insurance 

subsidies and the CLASS Act, that the CBO estimates will grow at 

8 percent a year as far as the eye can see, that is faster than the 

economy will grow. That is faster than any measure of revenues 

33 

will grow. There is no way that one can do that and close the budgetary gap. We are making it worse at a time when it is already a 

great danger. 

I think those future deficits, which are a promise of higher interest rates, higher taxes, or both, are a fundamental impediment to 

growth in the United States, and for that reason the Affordable 

Care Act represents a big anti-growth step at a time that is very 

important, when we have 8 million Americans out of work. 

At the same time, in the Act there are $500 billion worth of 

taxes, and there are extensive mandates and requirements on what 

is one-fifth of our economy. That cannot be a growth strategy. To 

layer on top of it a trillion dollars in spending, I think, is a quite 

questionable move at this point in time. 

I also noted in my testimony, I disagree, respectfully, with the 

CBO’s estimate that only 19 million individuals will end up in the 

exchanges. I think with this much money on the table, we will see 

employers drop coverage. This is quite likely to be 2, and as much 

as 3 times as expensive as they think. 

Then lastly, the front-loading of the taxes, the insurance reforms 

that cover more benefits, all lead to higher premiums in the near 

term, especially for small businesses. Those higher premiums are 

a cost they are going to have to shift, and the likely burden is going 

to be borne by workers in the form of lower wages or lost employment opportunity. So I would say that, after a year, we know some 

things about the Affordable Care Act. They are not entirely heartening from the point of view of entitlement reforms for Medicare 

and Medicaid, and for the outlook for the economy and the budget. 

Thank you. 

Senator WYDEN. Thank you. We will have some questions in a 

moment. 

[The prepared statement of Dr. Holtz-Eakin appears in the appendix.] 

Senator WYDEN. Mr. Van de Water? 

STATEMENT OF PAUL VAN de WATER, Ph.D., SENIOR FELLOW, 

CENTER ON BUDGET AND POLICY PRIORITIES, WASHINGTON, DC 

Dr. VAN DE WATER. Well, thank you, Senator. 

Given the lateness of the hour, the small attendance, and the 

fact that I have submitted my statement for the record, I would 

just like to comment on a few of the points that Doug Holtz-Eakin 

has made. 

First of all, when we look at the budgetary effects of the Affordable Care Act, it is extremely important to put this in the context 

that Secretary Sebelius has just laid. We have to remember that 

the Affordable Care Act is projected to cover 32 million more Americans, and it is estimated by the Congressional Budget Office, 

where both Doug Holtz-Eakin and I have formerly worked, that the 

law will be paid for—in fact, in the long run, more than paid for. 

Obviously, paying for the expansion in coverage requires some 

reductions in the growth of spending, as the Secretary has outlined, requires some increases in taxes, but we have to focus on the 

expansion coverage as well as the way that it is paid for. 

34 

Second, Doug said that no one has estimated that the Affordable 

Care Act would bend the cost curve. That is flatly incorrect. The 

Congressional Budget Office has indicated that, after the initial increase in Federal spending, which of course will come about as we 

cover those 32 million more Americans, that the Federal commitment to health care spending in the second decade will be lower 

than it would have been in the absence of the law. 

The CMS actuaries who produced projections of national health 

expenditures have said much the same thing. They showed an initial increase in health spending as more people are covered, but 

then the growth rate declines, and extrapolating the actuaries’ projections in the second decade suggests that national health spending again will be smaller, ultimately, as a result of the Affordable 

Care Act. 

I would also like to comment on the so-called double-counting 

issue, which we have been discussing—Doug and myself and our 

colleagues—I would say rather fruitlessly now for the past year. 

This is not a new charge, yet the Congressional Budget Office still 

tells us that the Affordable Care Act will reduce the Federal deficit 

modestly in its first 10 years, substantially in its second decade, 

and the Medicare actuary still tells us that the Affordable Care Act 

will extend the life of the Hospital Insurance Trust Fund by approximately 12 years. 

Whether or not there is double-counting, whatever it may mean, 

this argument has no practical input in terms of the deficit projections or the projections for the solvency of the trust fund. 

Finally, a few words about the costs to States of expanding Medicaid. According to CBO, the Federal Government will pay 92 percent of the cost of the Medicaid expansion through 2021, with 

States responsible for only $60 billion of that amount, an increase 

of only 2.6 percent over what they would have spent in the absence 

of health reform. 

But most important, that number has to be taken in the context 

of other savings that the States will incur by no longer having to 

pay as much for the cost of uncompensated care of people who have 

been without health insurance. So, when that factor is considered, 

as well as the State’s modest increase in Medicare costs, the Medicaid expansion is not projected to impose a substantial burden on 

the States. 

With that, I will end and turn to your questions. 

The CHAIRMAN. Well, thank you both. 

[The prepared statement of Dr. Van de Water appears in the appendix.] 

The CHAIRMAN. On that last point, so what is the net for States? 

I mean, the Medicaid expansion. As you pointed out, Uncle Sam is 

picking up 92-some percent of the bill. If you are cutting it out, reducing uncompensated care for States, do you have a figure? 

Dr. VAN DE WATER. I do not have a precise estimate, Mr. Chairman. But the analysts at the Urban Institute who have a model 

for projecting these costs have said that they believe that the reduction in the cost of uncompensated care could offset a substantial 

portion, or even more than offset the cost to the States of the Medicaid expansion. 

35 

The CHAIRMAN. Is it your judgment that, although costs are increasing—it is true. I have talked to individuals, small businesses, 

others who are concerned about the increase in premiums. Is it 

your view that—well, it is my view, first, that those premiums 

would be going up anyway, and the goal here is to try to reduce 

the rate of growth of health care costs and the rate of growth of 

the premiums. Without putting words in your mouth, do you think 

that premiums would go up higher or not quite as high if there was 

no law? 

Dr. VAN DE WATER. Mr. Chairman, for that I rely again on the 

estimates of my former colleagues, and Doug’s former colleagues, at 

the Congressional Budget Office. They have estimated that for 

large employers, which are the source of insurance coverage for 

most Americans, premiums could fall by up to 3 percent as a result 

of the Affordable Care Act. There would probably be a very small 

decrease in premiums for small employers, and people in the individual health insurance market would end up paying less for a 

given benefit package. 

The CHAIRMAN. So the answer to the question is—— 

Dr. VAN DE WATER. The answer is yes. The Affordable Care Act 

is estimated to reduce premiums. 

The CHAIRMAN. Compared with no law. If the law were not 

passed, then are you saying that probably the premiums would go 

up at a higher rate? 

Dr. VAN DE WATER. Yes. Again, that is not my estimate, that is 

the Congressional Budget Office’s estimate. 

The CHAIRMAN. The Congressional Budget Office. Now remind 

everybody here, who is the Congressional Budget Office? Just so 

the world knows. 

Dr. VAN DE WATER. Oh. The Congressional Budget Office is the 

congressional staff office, nonpartisan office, established by the 

Congressional Budget Act to provide its best estimates to you and 

other members of the Congress about the budgetary and economic 

effects of pending legislation. 

The CHAIRMAN. And you said it is a nonpartisan office. 

Dr. VAN DE WATER. Absolutely, sir. 

The CHAIRMAN. And it serves both the House and the Senate? 

Dr. VAN DE WATER. Indeed. 

The CHAIRMAN. And it is staffed with professionals? 

Dr. VAN DE WATER. Yes, sir. 

The CHAIRMAN. And it has a reputation of not tipping the balance one way or the other. Is that correct? 

Dr. VAN DE WATER. That is correct. I mean, like any estimates, 

there is always a degree of uncertainty, but the Congressional 

Budget Office aims to produce an estimate and get as close as possible to the middle of the expected outcome. 

The CHAIRMAN. Well, I appreciate that. I am not going to get into 

this—which I think is a sterile and specious—debate about doublecounting. I will put in the record an article from the Washington 

Post on this issue, which basically included a silly discussion, and 

other sides have been using it themselves. 

[The article appears in the appendix on p. 47.] 

The CHAIRMAN. The analogy really is, for me, if you are a baseball player and you have RBIs, runs batted in, and it is a certain 

36 

number, and you have all the players on the team, you add the 

total all up, and it is not going to equal what the runs batted in 

for the team is. They are just two separate components, one is part 

of the other, and so forth. I am not going to get into a debate over 

it, but to be honest I am kind of disappointed when people raise 

that discussion, because it is really missing the whole point. 

Dr. VAN DE WATER. Mr. Chairman, I agree with your argument, 

your point that this is a sterile argument. If I might add one thing, 

I mentioned in my—— 

The CHAIRMAN. I also think it is specious. 

Dr. VAN DE WATER. Indeed. I mentioned in my prepared statement that this argument has just surfaced in the past year, and 

that for decades, when estimates were being done for legislation, 

people recognized that changes in Medicare could both reduce the 

deficit and improve the status of the Hospital Insurance Trust 

Fund. As I said, I knew that was the case from my experience at 

CBO. 

But it was recently brought to my attention that, when Congress 

was considering the Balanced Budget Act of 1997, which I am sure 

you remember very well, the Senate Republican Policy Committee 

issued a legislative notice in which they themselves pointed out 

that that very piece of legislation would both help produce a balanced budget, and also extend the life of the Medicare trust fund. 

The CHAIRMAN. Thank you. My time has expired. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. 

Dr. Holtz-Eakin, let me ask you a question on the waiver issues. 

I appreciated the point that you made in a couple of your articles 

where you said conservatives ought to take these proposals seriously. I appreciate that. 

What I would like to hear you outline is, you also say that the 

States ought to get wider latitude, I think, than what we have 

talked about. Now, our proposal and current law says that you 

would not have to have an individual mandate, you would not have 

to have an employer mandate, you would have a lot of flexibility 

in terms of the exchanges and something that you and I, I think, 

share a similar view on: poor people would have new choices. Poor 

people would actually be brought into a private sector marketplace. 

I think it has been the view with Senator Brown and I that, in 

effect, States could pretty much do almost anything that they 

sought to do, as long as they could hit the coverage kind of targets. 

So, when you say wider latitude is needed, tell me what else you 

think ought to be part of the debate, because I want to reach out 

to the conservative folks, and progressive folks. I remember the 

first conversation I had with Senator Scott Brown. He said, this is 

about States’ rights. This is about letting States go off and do their 

own thing. So, when someone like yourself says there ought to be 

wider latitude, I want to reach out and hear your thoughts. 

Dr. HOLTZ-EAKIN. Well, I think we share a lot of the same objectives. One of the things we now know is that the States are under 

a lot more pressure than we initially thought a year ago because 

of their budgets. 

Senator WYDEN. Correct. 

37 

Dr. HOLTZ-EAKIN. And because it looks like the number of, for 

example, new retirees—if the income rules are as I understand 

them, they will disregard their Social Security as part of the income. That means they will qualify for Medicaid instead of being 

in the exchanges, so the actual burdens are bigger than the CBO 

estimated at the time. 

If you say to a State, all right, you have big budget problems, 

there will be more people on Medicaid than we anticipated, you 

have to hit coverage targets, and you have to hit benefit requirements, they do not have many tools. Once you say there is so many 

people and there is so much in the way of benefits, they have to 

get efficiencies, which means you have to give them great latitude 

on delivery system models so they can get efficiencies and get some 

savings. I also think that they should get some flexibility on the 

benefit packages. I think that would be an enormous help. It makes 

a lot of sense. 

The last piece is the migration between Medicaid and the exchanges, where, as I mentioned to you in one of our conversations, 

there is research in Health Affairs—and I will get the details 

wrong, but the spirit of it is, if you look at the area at about 133 

percent of the Federal poverty line, there are about 20 million folks 

who are on the border of Medicaid versus exchange eligibility, and 

they will transition back and forth at a rapid rate. 

That is an administrative nightmare for a State to be taking 

them out of one program, putting them in another, and then turning around and putting them back. They will probably get disruptions in their coverage, and maybe even their providers. It does not 

make any sense, without having the flexibility to take the Medicaid 

dollars and go in the exchange and stay in private insurance. I 

think those are all good ideas. 

Senator WYDEN. I think, clearly, there is an opportunity for progressive folks and conservative folks to work together here. That is 

one of the reasons I find this coordinated waiver that the Secretary 

was talking about attractive, because on this point of employers 

dropping coverage, I think it is clear there is considerable concern. 

If a State says they are going to come in with a waiver proposal 

to drop the individual mandate and drop the employer mandate, 

this gives employers more opportunities to offer affordable coverage, not send their low-income workers to either Medicaid or 

workers above it to the exchange. I would like to follow up with you 

on that and continue to work with you. 

A question for both of you. It is on a point you made, Mr. Chairman, that I think is really the ball game, and that is this chronic 

care question. It is clear from the latest research that the bulk of 

the Medicare dollar goes to a relatively small percentage of the 

population, folks with heart disease, stroke, diabetes, these kinds 

of conditions. 

Senator Carper has done yeoman work focusing on prevention so 

that we would have fewer folks at some point on Medicare without 

all those health concerns, but right now we still have to address 

this. Do either of you have any thoughts on how it would be possible to promote additional efficiencies, and particularly coordination of chronic care services—because I think there is a fair amount 

of duplication there—and generate some savings? 

38 

Since I was pummeling Dr. Holtz-Eakin first, why don’t you start 

that, Dr. Van de Water, and then you could follow up. But the 

prospect of savings on this point, the chairman, I think, is spot-on 

with respect to the question of cost. Senator Carper’s point makes 

sense for the long term, but we have to figure out how people can 

get good-quality chronic care today, and at the same time not break 

the bank. Your thoughts, Dr. Van de Water? 

Dr. VAN DE WATER. Senator, I do not have anything to add to 

what Secretary Sebelius said on this issue earlier. The Affordable 

Care Act itself sets up a number of pathways to improving delivery 

of chronic care, including, particularly, the efforts to do various 

demonstration projects, and certainly, of course, the Federal coordinated care office to focus on the Medicare/Medicaid dual-eligibles 

who, as the Secretary said, represent a large part of the cost of the 

program. 

I do not know that anyone can say that he or she knows which 

of these new ventures will prove most successful, exactly how they 

are going to work out, but the approach of the Affordable Care Act, 

which is to set up a variety of things to try, to try to implement 

quickly the things that work, abandon the things that do not work, 

and move on to new efforts, is the right approach. 

Senator WYDEN. I am over my time. Mr. Chairman, can Dr. 

Holtz-Eakin just answer? 

The CHAIRMAN. Yes. Briefly. You are over your time, but just 

briefly. Senator Hatch has been very patient here. 

Senator HATCH. No, no. 

Dr. HOLTZ-EAKIN. I think, briefly, what we know is that expensive people are those with multiple co-morbidities, many of them 

chronic, and that identifying effective practice patterns is something that is a top priority, and coordinating their care across providers has to be an essential part of this. Fee-for-service medicine 

fails at both of those, so we have to move away from it. 

My reservation with the Affordable Care Act is that Medicare 

Advantage is an operating entity which coordinates, which can give 

you lots and lots of discovery of effective practice patterns, that has 

a financial incentive to manage these patients effectively, especially 

the duals. These are low-incomes and minorities, in many cases. So 

it is a high-value delivery system. To scale it back, I think, is a 

mistake. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Hatch? 

Senator HATCH. Well, thank you, Mr. Chairman. 

Dr. Holtz-Eakin, I know that our esteemed chairman thinks that 

the double-counting argument is specious, but health care law contains more than $500 billion in cuts to the Medicare program, 

which were claimed by the administration not only to improve 

Medicare solvency, but also to fund new entitlement spending at 

the same time. 

Now, furthermore, the nonpartisan Congressional Budget Office 

said, on December 23, 2009, ‘‘The key point is that the savings in 

the Hospital Insurance Fund under the PPACA would be received 

by the government only once, so they cannot be set aside to pay 

39 

for future Medicare spending and at the same time pay for current 

spending on other parts of the legislation or other programs.’’ 

In fact, the Department’s own actuary also agreed with this 

viewpoint in his memorandum on April 22, 2010 when he said the 

following: ‘‘In practice, the improved HI financing cannot be simultaneously used to finance other Federal outlays, such as coverage 

expansions under PPACA, and to extend the trust fund, despite the 

appearance of this result from the respective accounting conventions.’’ 

Now, do you agree with the CMS’s actuary’s view that you cannot use the same dollar to extend the solvency of the Medicare Part 

A trust fund while you are also using it to pay for new Federal 

spending? 

Dr. HOLTZ-EAKIN. I completely agree. The trust fund will not 

contain real resources to pay benefits. 

Senator HATCH. Then how are they getting away with this? How 

are they getting away with this by saying there is no doublecounting here? I mean, here are two eminent solutions of their 

own. Can you answer that question? 

Dr. HOLTZ-EAKIN. This, I believe, is simply a very misleading 

presentation of the budgetary facts. The fact that it is longstanding 

does not change the fact that it is misleading. You cannot pretend 

that you have extended the life of the trust fund unless there are 

resources to pay future benefits and simultaneously pay current 

benefits under the insurance exchanges. That is just not possible. 

So you either pay for the current benefits or you put the money 

away for the future, you cannot do both. 

The CHAIRMAN. I might—I am sorry. 

Senator HATCH. Well, let me continue. I am coming to the conclusion this is the Unaffordable Care Act, not the Affordable Care Act. 

States are facing a collective $175 billion budget shortfall. I do not 

know anybody who disagrees with that. This is the worst State 

budget crisis since the Great Depression. 

Now, the 2009 so-called economic ‘‘stimulus’’ package and the Patient Protection and Affordable Care Act imposed new Medicaid eligibility restrictions on the States called ‘‘maintenance of effort’’ requirements. Now, this lack of flexibility made it especially challenging for States to solve these unprecedented State budget crises, 

and the majority of Governors have asked Washington for relief 

from these successive constraints. States are being forced to cut 

education, law enforcement, and make completely unrealistic cuts 

to Medicaid providers, jeopardizing access to care for the most vulnerable beneficiaries. 

Now, Dr. Holtz-Eakin, could you comment on the effect of the 

MOE requirements during the current State fiscal crisis? 

Dr. HOLTZ-EAKIN. Well, as I mentioned in my opening remarks, 

I wanted to applaud your efforts and those of Congressman Upton, 

to take on this issue. States are fiscally strapped. Some of their efforts and the degree of severity are actually best documented by 

work that has been done at Dr. Van de Water’s organization, and 

the MOE requirements are a mandate that they spend money they 

simply do not have. They need flexibility to control their budgets, 

and they do not have that flexibility. I think at this point in time 

it is an especially big budgetary injustice to these States. 

40 

Senator HATCH. Where is the Secretary going to get the money 

for that 3-year period of time when they are going to pay for all 

this stuff? 

Dr. HOLTZ-EAKIN. They believe that they can borrow those dollars on international markets. I am less sanguine about the U.S. 

outlook and believe this is a very dangerous law for that reason. 

Senator HATCH. Well, I just saw where PIMCO is selling off U.S. 

bonds and not taking any more. Now, if that does not send a message, I do not know what in the world does. Yet, they seem to think 

there is a never-ending fount of money to just pay for this. 

Look, there are good things in every bill, I suppose, in health 

care and things that both sides would have agreed on. But these 

type of things, personally, they are driving me out of my gourd. I 

mean, I cannot believe that they continue to get away with this— 

we can just pay for everything even though costs are going to go 

up, regardless. 

Dr. HOLTZ-EAKIN. We have not changed the trajectory of national 

health care spending. That is the fundamental problem. It is the 

missed opportunity in this reform. The budgetary consequences I 

consider to be dire, and I am deeply concerned about. For those 

reasons, I think it is the wrong move at this juncture in our history. 

Senator HATCH. Do you think this bill is going to bend the curve, 

to use their terms? 

Dr. HOLTZ-EAKIN. No. No. 

Senator HATCH. What do you think about that? What is it going 

to do, then? 

Dr. HOLTZ-EAKIN. I believe that the underlying pace of health 

care cost growth will remain essentially unchanged, and we will 

layer on top of that additional insurance requirements that will 

make insurance more expensive, and even worse, we will damage 

the pace of economic growth, because this is a bad economic policy 

toward a big part of our economy, and thus the resources that we 

will have available to address both those higher costs will be lower. 

Senator HATCH. And you said it is going to be one-fifth of the 

American economy? 

Dr. HOLTZ-EAKIN. It is growing too fast. 

Senator HATCH. Do you really think it will be one-fifth of our 

economy? 

Dr. HOLTZ-EAKIN. Twenty percent of GDP, yes. We are on track 

to get there. 

Senator HATCH. Jeepers. All right, Mr. Chairman. That is all I 

have. 

The CHAIRMAN. I am tempted to get into this double-counting, 

but I am going to refrain. 

Senator HATCH. I would like that. I would like you to do that. 

The CHAIRMAN. Well, I would, too, because I would like to expose 

it. But nobody’s mind is going to be changed with this argument, 

so I am not going to get into it. We are past it. We can move to 

the present. The present is, we have a law. It is not going to be 

repealed. The question therefore is, how do we make it work? How 

do we make it work well? Nothing is perfect. This is a large statute. It is well-intended, and I think its results are going to be, over 

time, definitely positive. 

41 

I predict it is going to be somewhat like Social Security. Ten 

years after the passage of Social Security, 10 years after the passage of Medicare, people look back and say, yes, that was the right 

thing to do because we made improvements along the way on each 

of those two, as we will make improvements here along the way. 

So I am just going to let each of you—I do not want to get into 

these political arguments. Just constructively, what are the one or 

two things that you think we need to do to make it work better? 

We know it is not going to be repealed. We know that. It is a fact. 

Either one of you can start, it does not make any difference. 

Dr. VAN DE WATER. Well, there are many areas. I guess, maybe 

I can comment briefly on two. First of all, Senator Thune was asking Secretary Sebelius about the CLASS Act. Clearly, many of us, 

myself included, have written about the issues that we faced in 

making sure that CLASS is solvent, but I think the Secretary has 

indicated that the Department of Health and Human Services is 

fully aware of all of those issues and is making every effort to use 

the flexibility of the law to make sure that CLASS is implemented 

in a fiscally responsible way. So I think that is one example. 

The CHAIRMAN. That is a problem. I was not in favor of the 

CLASS Act, I must tell you, for all the reasons people decry it. But 

it is there. Now we have to do what we can with it. 

Dr. VAN DE WATER. So I think that is, in fact, a good example, 

in answer to your question, of where we need to work. 

The CHAIRMAN. As to that, what else? 

Dr. VAN DE WATER. Secondarily, I have some concerns about an 

issue which is pending in the Congress currently, which is the 

issue of, to what extent people who receive tax credits for premiums and suffer a change or benefit from a change in circumstances which could require them to have to repay a large 

amount of that credit even though it was correctly received at the 

time, I think care has to be taken in redesigning those repayments. 

The CHAIRMAN. Right. That is interesting. We are debating that 

right now. Frankly, a lot of Senators are trying to get their hands 

around it. Do you have any off-the-top-of-your-head thoughts of 

how that might be modified? 

Dr. VAN DE WATER. It is a very complicated issue. My basic point 

is that, in doing that, one has to be careful to make sure that people do not face the risk of repayments that are so large and that 

are trying to recoup money that actually was correctly paid in the 

first place—— 

The CHAIRMAN. Right. 

Dr. VAN DE WATER [continuing]. And so as to deter participation 

and undo the fundamental point of the coverage expansion. 

The CHAIRMAN. All right. 

Dr. Holtz-Eakin, how do we make this better? 

Dr. HOLTZ-EAKIN. So, if you roll the clock back to the beginning 

of the debate, there was a much greater bipartisan agreement on 

delivery system reforms—— 

The CHAIRMAN. Yes. That is correct. 

Dr. HOLTZ-EAKIN [continuing]. And great divergence on the coverage. I believe, going forward, that is the way to think about this. 

Quite frankly, the road to health care hell is paved with demonstration projects. We are not going to bend the curve with all 

42 

these demonstrations. We need stronger delivery system reforms. 

That is a way both sides should be able to agree to go. That is the 

cost problem. I would simply repeal the CLASS Act. It is broken, 

it cannot be fixed, and it is expensive. 

On the insurance subsidies, you have, I think, a big problem in 

that they are just too rich, and thus the encouragement for employers to drop. I think you need to be cognizant of their budgetary 

costs for that reason. They are also unfair in that you are going to 

have one family that has employer-sponsored insurance and gets 

nothing, and then another family that is identical and is getting up 

to 10 percent of their income or more in Federal subsidies; that is 

just not going to hold. So, I believe it is budgetarily sensible, fairer, 

to scale back those insurance subsidies. They are simply too generous in the law. We understand that we want to help deserving 

Americans, but you cannot over-promise, and this bill does. 

The CHAIRMAN. Delivery system reform. Can you expand on that 

a little bit? What do you have in mind there? 

Dr. HOLTZ-EAKIN. Well, I believe that we have to make stronger 

efforts to simply get rid of fee-for-service medicine in America, period. I would personally also like to see stronger budgets on these 

efforts. So, one of the reasons I believe it is desirable to sort of 

block out Medicaid is, you give a fixed budget and let them go work 

on it in the States and at the Federal level. I think using more of 

Medicare Advantage as a bridge to something that looks like a premium is actually sensible and will give you better delivery system 

reforms as well. So, we can talk about this at greater length; it 

takes a while. 

The CHAIRMAN. It does. 

What about the effort to build in control costs with an IPAB? 

Dr. HOLTZ-EAKIN. Say again. I could not hear. 

The CHAIRMAN. IPAB. I have forgotten the name of this outfit. 

Dr. HOLTZ-EAKIN. The Independent Payment Advisory Board? 

The CHAIRMAN. Yes. That is the one. Yes. What do you think of 

that? 

Dr. HOLTZ-EAKIN. I think it sounds like MedPAC on steroids. As 

an alumnus of MedPAC, I think it will be comparably effective. 

The CHAIRMAN. That is a bit ambiguous. 

Dr. HOLTZ-EAKIN. I am not optimistic that it will ever be allowed 

to substantially affect the trajectory of Federal health programs. 

The CHAIRMAN. Because? 

Dr. HOLTZ-EAKIN. Because Congress will override it if it is inconvenient. That is the history of it. It has already, in the statute, 

been given limited tools. It cannot charge beneficiaries more; we 

cannot touch certain aspects of the delivery system for 10 years. If 

you start out constraining it, you have set the precedent that you 

do not really want it to do what you say this job is. I am not optimistic. 

The CHAIRMAN. Well, it is there. We have to figure out how to 

make it work. Things can be repealed. You are right. 

43 

You have made a lot of provocative statements, both of you, that 

take more time to explore. But I thank you very much. That is why 

I invited you in the first place, because you are both so thoughtful 

and so helpful. So, thank you both, very much. 

The hearing is adjourned. 

[Whereupon, at 12:33 p.m., the hearing was concluded.] 

(45) 

A P P E N D I X 

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