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79–937 2013

MEDICARE PREMIUM SUPPORT PROPOSALS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 27, 2012 

Serial No. 112–HL10 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER SAFAVIAN, Staff Director 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 

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

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

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

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

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

is further refined. 


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C O N T E N T S 

Page 

Advisory of April 27, 2012, announcing the hearing ............................................ 2 

WITNESSES 

Honorable John B. Breaux, Senior Counsel, Patton Boggs, LLP ........................ 6 

Honorable Alice M. Rivlin, Ph.D., Senior Fellow, Economic Studies, Brookings 

Institution ............................................................................................................. 14 

Honorable Joseph R. Antos, Ph.D., Wilson H. Taylor Scholar in Health Care 

and Retirement Policy, American Enterprise Institute .................................... 23 

Honorable Henry J. Aaron, Ph.D., Senior Fellow, Economic Studies, Brookings Institution ..................................................................................................... 34 

SUBMISSIONS FOR THE RECORD 

AARP, statement ..................................................................................................... 68 

AFL–CIO, statement ............................................................................................... 71 

AFSCME, statement ................................................................................................ 73 

Alliance for Retired Americans, statement ............................................................ 78 

Center for Fiscal Equity, statement ....................................................................... 81 

Consumers Union, statement ................................................................................. 86 

Families USA, statement ........................................................................................ 92 

Health Care for America Now, statement ............................................................. 94 

HLC, statement ....................................................................................................... 98 

National Committee to Preserve Social Security and Medicare, statement ....... 101 


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MEDICARE PREMIUM SUPPORT PROPOSALS 

FRIDAY, APRIL 27, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:00 a.m., in Room 

1100, Longworth House Office Building, Hon. Wally Herger [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

Friday, April 27, 2012 

HL–10 

Chairman Herger Announces a Hearing on 

Medicare Premium Support Proposals 

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

today announced that the Subcommittee on Health will hold a hearing to examine 

proposals to reform Medicare through a premium support model. The hearing will 

take place on Friday, April 27, 2012, in Room 1100 of the Longworth House 

Office Building, beginning at 9:00 a.m. 

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

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

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

The Medicare program was enacted on June 30, 1965, when President Lyndon 

Johnson signed into law the Social Security Amendments Act (P.L. 89–97). At the 

time of its creation, Medicare’s Fee For Service (FFS) design was modeled after the 

Blue Cross Blue Shield plans that were prevalent throughout the Nation. However, 

despite repeated and significant advances in private insurance over the last 45 

years, Medicare’s FFS delivery design has largely remained unchanged. 

Medicare’s FFS delivery system and its antiquated and siloed benefit design has 

also led to inefficiencies and financial challenges throughout Medicare’s history. On 

numerous occasions, Congress has been forced to act to slow the growth of Medicare 

in order to extend the program’s solvency. As a result, today’s Medicare program 

is unsustainable. According to the 2011 Medicare trustees report, Medicare’s Hospital Insurance Trust Fund is expected to go bankrupt by 2024, 5 years earlier than 

the trustees projected in 2010. 

In announcing the hearing, Chairman Herger stated, ‘‘The American public 

recognizes that today’s Medicare program faces significant financial challenges. Unless Congress acts, the Medicare program that seniors and people with disabilities rely on will go bankrupt in just a few short years. In 

order to protect the Medicare program for future beneficiaries, Congress 

must look beyond simply slashing Medicare provider reimbursements, 

which will eventually result in beneficiaries losing access to care. The premium support model holds promise to place Medicare on sound financial 

footing while transforming and modernizing the program to provide greater choice for beneficiaries. Such proposals have enjoyed bipartisan support 

for decades, and it is time to move beyond partisan arguments and focus 

on the bipartisan solutions that will strengthen and improve Medicare for 

future generations of Americans.’’ 

FOCUS OF THE HEARING: 

The hearing will review the bipartisan support for implementing a premium support system in order to modernize the Medicare benefit while also improving the 

program’s long-term financial solvency. 


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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

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

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

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

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

with the formatting requirements listed below, by the close of business on Friday, May 11, 2012. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

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

225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

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

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

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

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

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

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

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

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

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

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

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

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

by the Committee. 

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

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

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

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

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

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

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

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

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

f 

. 

Chairman HERGER. The Subcommittee will come to order. 

We are meeting today to examine proposals to reform Medicare 

through premium support and the bipartisan support for such proposals. 

First, I think it should be abundantly clear that despite what 

some on the other side might say, Republicans support the Medicare program. The program serves as a critical function in our society, ensuring that American seniors and people with disabilities 

have health care coverage. 

Unfortunately, the program faces significant financial challenges 

and is slated to go bankrupt in 2024. We cannot keep tweaking 

here and tweaking there, hoping to kick the can down the road for 

a year or two. As the Medicare trustees again stated in their annual report, Congress must act sooner rather than later to reform 

the program to ensure its viability. 


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The Medicare program is in dire need of reform and improvement so that it meets the health care needs of its beneficiaries in 

the 21st century. 

The traditional Medicare benefit was created in 1965 and it really hasn’t been reformed since, despite the fact that the delivery of 

health care and the private insurance market have changed dramatically. 

The Medicare fee-for-service benefit design, with its array of confusing coinsurance and deductible levels and its siloed delivery system, has not kept pace with the rest of health care. Can you imagine buying your hospital insurance from one insurance company, 

your doctor’s office insurance from another insurance company, 

your prescription drug insurance from yet another company and 

catastrophic spending protections from a fourth company? That is 

exactly what the majority of Medicare beneficiaries do today. This 

outdated design breeds confusion, waste, and even fraud. 

Medicare’s antiquated design also inhibits care coordination, 

incentivizes overuse, and has led to financial challenges throughout 

Medicare’s history. 

So what is to be done? Simply hoping to make the Medicare program solvent by cutting payments to providers is unrealistic. The 

Chief Medicare Actuary has warned that the cuts already enacted 

as part of the Democratic health law would drive Medicare payments below Medicaid levels, which could result in ‘‘severe problems with beneficiary access to care.’’ Further drastic provider cuts 

may make Medicare appear solvent on paper, but it would do so 

at the expense of the millions of seniors and people with disabilities who depend on the program. 

Instead, we should examine reforms that will protect and improve the Medicare program, and premium support is one way to 

do that. Since the term ‘‘premium support’’ was coined by Henry 

Aaron, one of our witnesses here today, and Robert Reischauer, 

both Democrats, it has received bipartisan support. 

Moving to a premium support model was advanced by the National Bipartisan Commission on the Future of Medicare, which 

was cochaired by Democratic Senator Breaux, another witness here 

today. Writing in support of the proposal, Senator Breaux and 

former Ways and Means Chairman Bill Thomas stated that they 

believe Medicare ‘‘can be more secure only by focusing the government’s powers on ensuring comprehensive coverage at an affordable price rather than continuing the inefficiency, inequity, and inadequacy of the current Medicare program.’’ 

Premium support was also a key component of the recommendations from the Bipartisan Policy Center cochaired by Senator Pete 

Domenici and former CBO Director and Clinton Administration 

OMB Director Alice Rivlin, who is also testifying today. 

It is in this vein that the 2013 House budget includes a premium 

support proposal. We have drawn upon the ideas that our witnesses have proposed over the past 2 decades and put forward a 

plan to protect Medicare for future generations. 

There certainly will be differing opinions about how a premium 

support proposal should work. That is a healthy discussion. However, simply hiding our head in the sand is not. 


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House Republicans have made it abundantly clear that we will 

not simply watch Medicare become insolvent. My friends on the 

other side may not like our proposal to protect the Medicare program but where is yours? Relying on $14 billion in savings from 

so-called ‘‘delivery reforms’’ in the health care law is not going to 

save the program. They are already built into the Medicare trustees’ estimates that predict Medicare’s demise in just over 10 years. 

There is some time before Medicare faces the dire shortfalls that 

would jeopardize access to care. However, we would be wise to heed 

the charge given to us by the Medicare trustees and begin to work 

together now to place the Medicare program on solid financial 

ground. It is my hope that today’s hearing would be the beginning 

of this effort. 

Before I recognize Ranking Member Stark for the purposes of an 

opening statement, I ask unanimous consent that all Members 

written statements be included in the record. Without objection, so 

ordered. 

I now recognize Ranking Member Stark for 5 minutes for the 

purpose of his opening statement. 

Mr. STARK. I would like to thank Chairman Herger for holding 

this meeting. I think it is the first hearing that Republicans have 

held in the Ways and Means Committee to advance their plan to 

end the Medicare as we know it. Basically Republicans want to 

take away Medicare’s guaranteed benefits and replace it with a 

voucher and put the insurance companies back in charge. I don’t 

like their plan. I appreciate their honesty in flying their flag to dismantle Medicare high and proud. 

This year they modified their plan by saying that traditional 

Medicare would remain an option. That promise isn’t worth very 

much. Traditional Medicare might be theoretically available, but 

would be out of reach of many because the voucher would not be 

guaranteed to cover costs. 

Traditional Medicare would undoubtedly attract sicker patients 

and quickly enter into a death spiral. 

My Republican colleagues don’t like the sound of voucher to describe their plan so they have made up a new term called premium 

support. They also dislike being the sole owners of this plan, so 

they are holding this hearing today. They want to share the blame 

and are trying to overshadow the fact that every single Democrat 

in the House of Representatives voted against their budget, which 

includes their Medicare voucher proposal. I can count on maybe 

one hand the Democrats who support vouchers or similar proposals. 

Dr. Aaron actually has the dubious honor of having coined the 

phrase ‘‘premium support,’’ but his written testimony today makes 

clear he is no proponent of the Ryan plan. The only Democrat I 

have heard say nice things about premium support is Ron Wyden, 

and he quickly disavowed the Ryan budget and said I didn’t write 

it and can’t imagine a scenario where I would vote for it. 

I am going to go on record again making clear the strong opposition that Democrats have to the House Republican proposal. By 

any name it would be devastating to Medicare beneficiaries, raising 

their costs, negating the gains made from Medicare that ensure 

that all our seniors have quality affordable health care. Instead 


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they would return us to a time when private health insurers would 

control what care seniors get and what price they are forced to pay. 

The CBO has said it would lead to an increase in overall national 

health spending as seniors and people with disabilities are moved 

into less efficient, more costly private plans. It simply takes us in 

the wrong direction. 

Now, I have to agree with my chairman that there are reforms 

that we can and should continue to make to Medicare. I am proud 

of the provisions we included in the health reform bill that are already moving forward, payment and delivery system reforms. They 

are reducing overpayments to private health insurers and their 

plans to cost taxpayers tens of billions of dollars each year, adding 

years of solvency to the trust fund through our recent legislation. 

We did this while preserving and even improving Medicare benefits, proving that you don’t have to kill the patient to save it. 

With that, I look forward to hearing from our witnesses today. 

Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. Today we are joined by four 

witnesses, former Senator John Breaux, who chaired the 1999 National Bipartisan Commission on the Future of Medicare; Alice 

Rivlin, a Senior Fellow at the Brookings Institution and Cochair of 

the Bipartisan Policy Center’s task force on debt reduction; Joe 

Antos, the Wilson H. Taylor scholar at American Enterprise Institute; and Henry Aaron, a Senior Fellow at the Brookings Institution. You will each have 5 minutes to present your oral testimony. 

Your entire written statement will be made a part of the record. 

Senator Breaux, you are now recognized for 5 minutes. 

STATEMENT OF HON. JOHN B. BREAUX, SENIOR COUNSEL, 

PATTON BOGGS, LLP 

Mr. BREAUX. Thank you very much, Mr. Herger, for inviting 

me. Ranking Member Pete Stark, he and I have been involved in 

this for many, many, many years. Thank you all for inviting me. 

Jim McDermott, who served with me in a great capacity when we 

had the National Bipartisan Commission on Medicare Reform, and 

many of you who I have had the privilege of working with in different capacities. Thank all of you for inviting me to talk about one 

of the most important issues and at the same time one of the most 

divisive issues that either party is going to have to face, and that 

is what do we do with Medicare reform? 

Let me say I had the privilege of serving in this body for 14 years 

in the House and 18 in the Senate, or the other body as we like 

to have called them over here in the House. So I think I fully understand the difficulties that each Member from each party has in 

addressing the very difficult issue of how we continue to provide 

quality health care for our Nation’s seniors. 

I have observed over the years that some Democrats, not all, but 

some have taken the position that in health care the government 

should do everything and the private sector should do nothing. On 

the other side there are some Republicans, not all, but some who 

take and argue the opposite position that the government should 

do nothing when it comes to health care and that the private sector 

should do everything. 


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My opinion is that in order to ever reach an agreement between 

the two parties, Congress is going to have to combine the best of 

what government can do with the best of what the private sector 

can do and put the two together. I would submit to this panel that 

that is exactly what we did in creating Medicare Part D. The best 

of what government can do in that legislation is, one, help pay for 

the program which the government can do through the taxation 

system. Second, government can help set up the mechanics and 

structure of the program with standards that the government 

would put into place. And third, government can make sure that 

private sector and companies do not scam the system and can actually deliver the product. Government does those things fairly well. 

On the other hand, the private sector needs to be involved. The 

private sector can create competition among competing plans. The 

government doesn’t create competition, private sector can do that. 

Second, private sector can bring invasion and new products to the 

market. Government doesn’t do that very well. And third, the private sector can deliver beneficiaries’ choices to allow them to select 

the best plan for themselves and their families. 

Now our current Medicare program, as all of you know, was 

signed into law by President Lyndon Johnson back in 1965. And 

the model chosen to deliver those health benefits 47 years ago was 

the fee-for-service model, providers do the service and the government pays the fees. To control the cost the government fixes the 

price for everything from bed pans to brain surgery. Providers now 

get around the cost gaps by simply doing more services, and the 

program has remained much the same as it has for 47 years. 

A former colleague of mine in the U.S. Senate was Harris 

Wofford, a great guy from Pennsylvania. He was a truly committed 

liberal who served with great distinction in the Kennedy Administration as well as in the Senate. He argued very strongly that 

American citizens should have access to the same quality health 

care that his or her Member of Congress has. He argued that if it 

was good enough for Members of Congress it should be good 

enough for all Americans. Now, what each of you have and your 

staffs and millions of other Federal employees, and myself included 

as a retired Federal employee, is a health plan that does combine 

the best of what government can do with the best of what the private sector can do. The Federal Employees Health Benefits Plan, 

enacted in 1959, required that the Federal Government write the 

regulations that set up the program and then pays up to 75 percent 

of the cost of the health benefits. The beneficiary then pays the rest 

based on a formula set by law. Over 350 private health plans are 

offered under the program and 14 or so are fee-for-service and the 

remainder are what is called premium support plans. Premium 

support plans have the government paying the 75 percent, and the 

government approves a group of private plans that employees can 

choose from that are required by our government to deliver the 

services. And all of this is implemented by the Office of Personnel 

Management. 

When I chaired the National Bipartisan Commission on the Future of Medicare back in 1998 and 1999 we examined several options on how to improve Medicare. No one, Republican or Democrat, on that Commission wanted to end the Federal Medicare and 


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a strong majority, 10 of the 17, supported a new delivery system 

based on market based premium support system, where for most 

seniors the premium support would be set at about 88 percent of 

the standard plan. Unfortunately, the statute created at our Commission did not require a majority to report, but a supermajority, 

so our Commission’s plan was never formally submitted to the 

President nor to Congress. However, what happened next was that 

then Republican leader Bill Frist and I developed complete statutory language, not an outline, not just a print, not just talking 

points, but complete statutory legislation and introduced S. 1895, 

which incorporated the fundamental principles of the Medicare 

Commission proposal. 

The core recommendation of our bill was not to end Medicare but 

to rather restructure Medicare, using what each of you have today, 

the FEHB program, as a model. 

Under our bill beneficiaries would be subsidized by the Federal 

Government for participating in any competing private or government plan offered under Medicare, including the existing fee-forservice program. The contribution amount by the Federal Government would be based—this is important—on the national average 

of the premiums for a standard benefit package, weighted by plan 

enrollment and adjusted for risk and for geography, not some arbitrary growth rate like GDP. That standard benefit package would 

be all services guaranteed under the existing Medicare statute, as 

part of the legislation. Breaux-Frist set the overall Medicare contribution at 88 percent of the national average cost of that standard benefit package. And under our plan the amount of Medicare’s 

contribution would be guaranteed. Also, importantly, under our 

plan, for rural areas many of you represent, where competition is 

less likely, beneficiaries would be protected from paying premiums 

that are higher than the current Part B premium. 

And finally we established the Medicare Board, and this would 

oversee competition among private and government sponsored feefor-service plans and would be the equivalent of the Office of Personnel Management, which today manages the FEHB program. It 

would exercise its authority by regulation and negotiate with the 

plans. Overall the Commission estimated the proposal would reduce the Medicare growth rate by 12 percent. 

One might ask the question, why tamper with Medicare at all? 

Why change the system that has worked well for 47 years? Well, 

I used to drive a 1965 Chevy II. I really loved that car. But I would 

hate to be driving it today, 47 years later, and keeping up with the 

maintenance of that car and I think none of you would want to do 

the same thing. Perhaps a better answer, however, to that question 

of why tinker with it now is a statement made by Rick Foster, 

Chief Actuary for the Medicare and Medicaid services, just this 

past week. 

Mr. Foster said in the 2012 Trustees’ Report on Medicare, ‘‘Without unprecedented changes in health care delivery systems and 

payment mechanisms, the prices paid by Medicare for health services are very likely to fall increasingly short of the cost of providing 

these services.’’ 

Some good news out there now is that in addition to the important changes made in the Affordable Health Care Act, ObamaCare 


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made to those under 65 in the private insurance market through 

exchanges and other things, it also included promising reforms, 

moving away from traditional fee-for-service Medicare but still 

under the fee-for-service program. Things like value-based purchasing and bundle payment systems, where CMS will try to realign incentives and reimburse doctors and hospitals for the quality 

of the care they provide and not just the quantity. 

Under the Affordable Care Act, CMS has already started testing 

new and innovative payment and delivery programs through the 

CMMI, the Center For Medicare and Medicaid Innovation. The goal 

of all these payment reforms and demonstration projects is to improve patient outcomes while lowering the cost. 

In the event that we move to a premium support model where 

there is more price competition between fee-for-service and the private plans, the whole system is going to be better off if these promising fee-for-service Medicare reforms—— 

Chairman HERGER. Senator, if you could summarize. 

Mr. BREAUX. I am summarizing, last paragraph. I used to stay 

that all the time, but they would never stop. 

The great challenge today I would just suggest to both my Democratic colleagues and my Republican friends and colleagues, former 

colleagues, is how do both political parties bridge the gap between 

the different political philosophies and produce health care reform 

for America’s seniors? 

In 1965, a bipartisan Congress said that fee-for-service was the 

best delivery system back then. Let me suggest that in 2012 the 

best delivery system was still what is contained in the Breaux-Frist 

proposal. 

If I can be of any help to any of you, please call on me, and thank 

you very much for your attention. 

[The prepared statement of Mr. Breaux follows:] 


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dkrause on DSKHT7XVN1PROD with HEARING79937A.001

***TESTI MONY IS EMBARGOED UNTIL 9,00 AM FRIDAY, 

APRlL 27, 2012*"'* 

Statement of The Honorable John Breaux 

Subcommitrcc 011 Health, Committee 011 \Ways and J\ leall~ 

US House of Representatives 

April 27, 2012 

Chaixman Herger, Ranking Member Smrk and members of the Committee, 

thank you for inviting me to testify 011 wh:a i~ both onl' of the mOSI 

importam and at the same rime di\<isivc isslies of our dme - Medicare. 

tel me say that J had the privilege of serviJ1g in Congress for 32 years, 14 

in the House and 18 in the Senate. I fully understand the difficulties each 

!\{cmbcr has in addressing what needs ro be dOlle in providing hcalthcart· 

[0 our nation's seniors, 1 have obscn'cd over tht, years some Dcmucr.Hs, 

nOt all, have taken the position that in hcalthcare, the govemmcnt should 

do everything and rhe private secror should do nothing. On rhe orhet ~ide. 

there arc some Republicans, nO[ all, who argue the opposite - government 

5hould do nothing and the private sector Hhould do it all. 

}' opinion is thar in order to ever reach an agreemenr; ougre~~ must 

combine the best of what government can do with the best of what the 

private sectOr can. 

I would submit this is c..xactly what we did in creating Medicare Part O. 

The beST of what rhe governmenT can provide is: 

I. Help pal' for rhe program. 

2. Ser up the mechanics and structure of the program with standards 

J. Make sure the companies do nOt scam the system and can actually 

deliver the product_ 
11 


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The private secror can: 

I. ere:!.t!! compet.ition which lowC[s prices 

2. Bring innnvat.ion and new produCTS to the market 

3. Deliver beneficiaries choices to allow selection of the best plan for 

them. 

Our eurrl'm tvledicare program was signed into law by Presidem Lyndon 

Johnson in 1965. The mode! chosen to deliver those health benefiTs 47 

years ago was the " fcc for service" mode!. Providers do the service and the 

government pays the fees. To control co , the government 6xcs the price 

for cveryrhing from bcdpan:l- to brain surgery. Providers now gCt around 

the COSt caps by (loing more services and the program has remained much 

the samc for 47 years. 

A form!!r collc:lh'lU.: of mine in the United Stares Senate was Harris Wolford 

from enn~ vania . Senator \X/olford wa~ a truly committed libel":!.1 who 

sCfvecl with great distinction in the Kennedy ,\dministration, as well as the 

Senate. He argued strongly that evef), American citizen shouJd have acceS$ 

to rhe S:UTIe {Juality healthcare that his or her Member o f Congress receives. 

Hc argued that if it was good enough fot Congressmen, it should be good 

enough for all Americans. 

\'.:'hat each of you, your ~t.1ff~ and millions of orher federal employees have 

(and 1 ha ve a~ a retired federal employee). i~ a health plan that combine~ 

the best of what government can prO\·ide with dle best of what the privatc 

scctor can offer. 

nli~ Federal Employees HeaJrh Benefits Progmm (FEH B) enacted in "1959 

re'luinxl that the federal govt'rnmcOI write the regulations that set up [he 

program and then pays up to 75% of the COSI of the healdl benefits. The 

benefici:lr}, then pays the rCH based on a ff)rmulll set by la\v. Q\"CJ: 350 

private health plans arc offerecl under the program - 14 afe fcc fo r service 

and the remainder arc what is called premium support. Premium suppOrt 

programs have the government paying 75% of the premiums :lJld approve 

a select group o f private plan s that employees can choo$c from that arc 

, 
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required by our governmc1l[ w ddiver serviccs. All of chis is implemented 

and enforced by the Federal Office of Personnel ~hnagemcnt OP~ I), 

\Xfhcn I chaired the national Bipani~an Co mmi~ sion on the ruture of 

ivfedicare in 1998 and 1999, we examined several options on how to 

improve i\kdicare. No one. republican or democrm, wanted to end federal 

Medicare and a strong majurit)' (10 of the 17) supported a new delivery 

system ba~cd on :l m:lrkcr b:l:;cd premium suppOrt system where for most 

sen iors, premium support would bl' ~et at about 88%. of The standard plan, 

Unforl'unatdy, the sratutc creating our Commission did not require a 

majority to repon. bUi a super majority. so o ur Commission plan w'.ts nt.'ver 

fomlall)' submitted to the P_resident or Congress, Howcvcr, what 

happened next was then Republican Leader Bill Frist :lnJ I developed 

complete St.'1tUT(lry legislation and introduced S. 1895 which incorporated 

the fundamental principles of the Medicare Commission proposal. 

Thl' corc recommendation of our bill was not co ~Ild Medicare, but rather 

to rCSn1.1Crurc Medicare using wh:lt each of you have today, the FEHB 

l)rogram as a model. Under Ollt bilL bCneficiari~s would be subsidized b~' 

the federal governmenr for participation in any competing privnle or 

govcrnment plans offered under J\kdicarc. including the existing Medicare 

fcc for Service program. 

The contribution amount by the federal government would be based on 

the national ,,-"Cfage, weighted by plan enrollmcnt and adjusted for risk and 

geography, of dle premiums fClf:l standard benefit package. Upd:ltes 

would be based on actual health care costs at that time- NOT some 

arbitrary growth rate like GDP. That standard benefit packabTC would be 

"all sen'ices guaranteed under rhe existing tvledicarc srarutc." 

Brcaux-Frist sel the ()vc11l.11 Medicare contribulion at 88% of the national 

avt'rag(' COH of the standard benefit package. Under our plan, the amount 

of Medicarc'~ contribution would be guaranteed. Also, importantly, under 

our plan, in rural areas wherr: competition is less likely. beneficiarics would 

be p[OtC!cred f[am paying premiums that arc higher than the current Part B 

p[emlums. 

J 
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Finally. we established a _Medicare Board. T his board would oversee 

competition among private and government sponsored fee for Sl:.rvice 

plans and would be the equi\'alent to rhe Office of Personnd Management 

which loday m:m:l.ges the FEHB Program. It would exercise it~ authoriry 

by regulatjon and negotiate with the plans. Overall. the Commi~~ion 

csrimated its proposal would reduce the l\{edieare growth fate by 12%. 

Some good news is that in addition to the important changes the 

j\ffonbble Carc Act (ACA) made to tho~c under 65 in rJ1C private. 

insurance market (through exchanges, etc), it also included promising 

reforms moving away from traditional FFS r\'[Cdicare, but still under -a fcc 

for sen'icc program. Things like value-based purchasing and bundled 

payment syStems where Cr-.-tS will try to realihY"J1 inccntiyes and reimburse 

docror~ and hospitals for dle gualit}' of care they provide rather than the 

quantity. Under the \Cr\. eMS has already started testing new and 

innovative payment and delivery programs through the Center for 

Medicare and Medicaid Innovation (CMi\"IJ). The goal of aU of these 

payment reforms ~l1d demonstration projects in the AC,\ is to improve 

patient outcomes while low('ring COsts. :tn the event that we move to a 

premium suppOrt model wh!.:!fe therc is morc pricc competition be(v"ct.'11 

FFS and private plans. dIe whole system would be betrer off if these 

promising FFS i\ ledic:lre reforms in ,,\CA ..... -ork. 

The great challenge today i$ how do both political parties bridge the gap 

between clifferent philosopbies and produce. healthcafe reform for 

America's seniors. In 1965, a biparrisan Congress said fcc for service was 

the best delivery system. let me suggest thaI in 2012, the best delivery 

system is eontaimxl in the B[caux-Frisr propo~al. 

Thank you for your attcntion. 
14 

Chairman HERGER. Thank you, Senator. Ms. Rivlin, you are 

recognized for 5 minutes. 

STATEMENT OF HON. ALICE M. RIVLIN, PH.D., SENIOR 

FELLOW, ECONOMIC STUDIES, BROOKINGS INSTITUTION 

Ms. RIVLIN. Thank you, Chairman Herger and Ranking Member 

Stark. I am delighted to have the opportunity to testify on reforming Medicare through a premium support model. Medicare is a 

hugely successful program that has dramatically increased the 

availability of health care to seniors, increased the length and quality of life of older Americans, and greatly reduced their fear of 

being unable to afford care when they need it. We need to preserve 

Medicare’s guarantee of affordable health care for older and disabled people and make sure the program is sustainable as the 

number of beneficiaries explode and upward pressure on health 

care costs continues. 

Medicare reform is not just about Medicare. Medicare plays a 

crucial role in two of the most daunting challenges facing American 

policymakers, the relentless increase and the proportion of the total 

spending that Americans collectively devote to health care and the 

unsustainable projected increase in publicly held Federal debt. 

Medicare reform represents an opportunity to turn this large publicly funded program into the leader in increasing efficiency of 

health care delivery for all Americans. 

I believe that a well crafted, bipartisan bill that introduces a premium support model while preserving traditional Medicare can 

help achieve these goals. I will focus my remarks on the plan that 

former Senator Pete Domenici and I devised at the Bipartisan Policy Center, but it is very similar to the plan offered by Chairman 

Paul Ryan and Senator Ron Wyden. 

Our proposal would preserve traditional Medicare as the default 

option for all seniors permanently. It would also offer seniors the 

opportunity to choose among comprehensive private health plans 

offered on a regulated exchange. These plans would be required to 

cover benefits with at least the same actuarial value as traditional 

Medicare and would have to accept all applicants and would receive a risk adjusted annual payment based on the age and health 

status of their beneficiaries. 

The regional exchanges would collect and manage the prices and 

terms of competing plans within a designated region. And those 

plans would include traditional fee-for-service Medicare as well as 

qualified private plans. The government’s contribution would be set 

by the second lowest plan in the region, subject to their having sufficient capacity. 

With more accessible information about cost and patient outcomes, cost conscious consumer choice will lead the providers to 

emphasize preventive measures, managed care coordination of people with multiple chronic diseases and adopt more cost effective approaches to the delivery of care. 

However, we don’t know in advance what consumer driven competition will do. So we have introduced as a fail-safe, which we 

doubt will be necessary, a cap on per enrollee government premium 

contribution over time at the rate of growth per capita GDP plus 

1 percent. 


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There are lots of questions about how well this would work. One 

is can’t Medicare beneficiaries already choose among private plans 

under Medicare Advantage? They can and a quarter of them do, 

but Medicare Advantage wasn’t properly structured to give full 

competition among plans. And our plan we think would structure 

the competition so that it actually lowered the rate of growth of 

cost. 

And people question whether there is evidence that competition 

leads to lower cost and better quality. Actually despite its perverse 

features Medicare Advantage provides considerable evidence that 

competition works. The impression that it is more expensive derives from the fact that Medicare often pays plans more than the 

cost of fee-for-service. But under our plan that would not be possible and the competition we think would hold plans down. 

Finally, would older and sicker seniors end up in traditional 

Medicare and raise its costs? This fear is based on the assumption 

that risk adjustment can’t work and rules against cherry picking 

will not be enforced. But in fact we believe that these rules can 

work, that they are working better in Medicare Advantage than 

they used to and will work still better under a new system. 

We believe that health care policy is far too important to be driven by a single party’s ideology. No matter how the 2012 election 

turns out the President and congressional leadership should strive 

to find common ground on how to cover the uninsured, how to reform Medicare and Medicaid while stabilizing the debt. We believe 

that our plan contributes to that end. 

Thank you very much for giving me the opportunity. 

[The prepared statement of Ms. Rivlin follows:] 


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**'THIS TESTIMONY IS EMBARGOED UNTIL 9:00 AM 

FRIDAY, APRIL 27, 2012'** 

i\ Bipartisan Allproach to Reforming Med icare 

Tutimony or Alice M. Ri"lin l 

The rookin ~ Institutiun lind Geo~c lown Unh'crsity 

ubco l1lmith~~ on 1I ~I I1th 

Conllnillcc on WIlYS lind Means 

U.s. IIOLLse or H: cllrc5fnlalivu 

).'ridll)'. April 2?, 2012 

Chairma n IIcrgtr lind Ranking Mcn, hc-r Sta rk: 

lam delighted [0 have the opponunily 10 testify 011 n:fonning Medicare through ~ 

prell1iUlIl support mode1. Medicare is a hugely ~ucccssf\ll program that hilS dr~mMicaU~' 

increased the IIvnilnbitity ofheftllh care to 5ell iol'5. increased lilt" I(.'nglh and qua lily of life 

of older Americans, Dnd greatly reduced rlleiT fear ofbcing unable to afford l'urc when 

Ihey need it. We I\~ed 10 l\'~rve Medkare's ~uanlluee of aITofllable In:"lIh \,:!II\' fur 

older nnd diS3bkd people I1l1d make su", that the progl'llm is sustainable 115 the number of 

beneftciaries elO.plodes and upward pn:,;surt un health care: costs continues. 

MedicafC refonn is 110tjust aoout McdiClire. Medicart ply}s II nudal rolt in twu Clf the 

mCist dauntin., challenges fUclll!; American policy makers: the relentle~$ incrc,ne in the 

proportion of lOla I s(X!nding Iha! Americans collectively dno\c to h(lIlth cal\: (now abuuI 

III percent of ollr gross domcslic product (GOP) pnd rising); nnd the ullsuSlaillublc 

prQjccLcd illcrtllSe in publicly held federal debt (now ahout 10 pc:fCenL of 001' and 

rising). Medicare refoml prescnlS lite opportunity to tum this large publicly-funded 

program into the Icader in increasing thc efficieoc), Clfllculth care delivery ror nil 

AmcticDn5 - whether re<:eiving taft' \lIroh&h public or private plans - improving the 

qllJ.lily of hcl1lth CHrt services. slowing Ihe growth ofHlialhealth cart spending at tke 

I I am Indebt~d 10 the stalf ClI tl1@ pattl~ an Policy Center IOPC) and membef ~ of the OPC 's Task. 

Force on Oebt Reduction for asslnaflce with Ihls T~sl moflY . The views J)r~sented Me my own 

al"ld should not be atlllbuted Itl i10V of Ihe lflS tltuUOns with which I am affiliated. 
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national level. and (by slowing the projccted growth of Medicare spending) reducing the 

growth of fllture debt. 

I believe that 3 well"cralled bipanisan bill thm introduces a premium suppon model while 

pres-.'rving traditional Medicare can help 3chirve these guals. Since there are ~I'erul 

versions of premium suppan, I wi ll focus Ill)' remarks on the proposal of the Bipartisan 

Policy Center's Task Foree on Debt Reduction, which I co·chaired with rormer Senmor 

Pete Domeniei (sec attachment). ThiS" plan is \·ery similar 10 Ih .. bipanisan proposal 

pr~'SCntcd b)' Chainnan Paul Ryan and Senator Ron Wyden in Decrmbcr. 2011. 

fealUres <If tile Domeniei"Rh'lin Propos al 

Our proposal would pr~":Scrve traditiOlml Medicare as the .. kfhul! optIon for all ~niors 

permanently. It also would offer seniors thl!. opponunity to choose alllong comprehensive 

private health plans ofiercd on a r.:gulated exchange. Thcse plans would be- required to 

rover benefits with ttl leastthc sal11e actuarial value ~s traditional Medicare {including a 

specificd packagc of ~crv ccsl. ... 'ould havc to acccpt allapplicanlS (ab~olutc y no cherry 

picking allowed), ~nd would receive risk'arlju,ted annual paYl11l.'nts based on the age and 

health status ofthcir b.'ntiiciaries. The regional exchanges would collect and manage the 

prices and tenns or competing plans within ;\ desig.nated region (a metropolitan ar{'a or;) 

rur-oJl area) tlrat would include traditional r~'C-ror·service (FFS) Medicare as well as 

qualified private plans. The government's contribution would be set by the secondlowest-priced plan in the region (subjel:l to the two lowest·pric ... d plnns Ilaving sufficient 

c>lp;lcity). Ikneficiaries who chose th ... lowest"priced plan would gft money back and 

those who chose more expensive plal)s would hnve to pay the difference. 

With morc accessible infonlllltion about costs and palient outcomes. cosl-conscious 

conSUlller choice- wi ll enhance competition amollg plans (including FFS Medicare) lind 

will lead providcrs 10 emphasize preventive measures, IIlIUlage care coordination of 

patients witli multiple chronic discaSC"s, and adopt more cost"ertective approaches to 

dc!h'ery orearI.'. We are confident dun this process will reduce the l"oJtc of growth of 
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Medicare sp<:nding.just as si milar market competition works to improw quality <Ind 

reduce cost for virtual ly every other good or service in our economy and others around 

the world. 

However, we do not know in adl'ance wh:n consumer·drilll;!n competition will do in the 

next ten years to improve quality llild reduce cost for 1m)' good or service - <Iutomobiles, 

computcr.;, haircuts, or (under nur proposal) health care. If you ask!.'d the Cnngn;:ssional 

Budget Office (eIlO) to "scorl,!" the em'cl of market competition on the pric~"'S the 

government must pay oller the nexl ten years to buy computers or automobiles, cao 

would len yOIL th(ltthcy could not do so. e BO's response to scoring the effects of 

competition 0 11 health care would he pn;:ciscly the ~a ll1C, for precisely the same fCU:>Oll. 

Therefore, as II fail-s.aic, our proposal would cap the per enronce gOllernment premium 

eontriblllion Oller time attlie rate of growth ol' the per c<lpita GOP plus om:. percen\. 

Although we consider this eventuality unlikely, should the plans' pricing process result in 

a higher rale of growth, [he additiOI131 COsl would be rdlcclcd in an income-Iested 

premium. with ful! protection for low-income seniors against high.:r contributions. 

Congress could. of C(luN(", ova-ride this premium increa~c, <Ind d.."Cidc 10 reduce 

providcr lXlymcnts or incI'Case Ihe government contribUlion instead. 

Some quesliuns Ilbollt Ihe Domenici-Rivlin apllrollch 

ell/! 'r Medic(lre m'.llrjicioriC5 a/ready ChO(/.Wl (/I11O!!g pril·(I/1!. pl(//~\' IIl/dcr Pari C fir 

M edicoreAd''(11)/flge (AM!? They call al1d about a quarter of them do. However, /.11\ 

proved more expensive to tl1l' trust funds than FFS Medicare bl.-cau5c it was not 

slroc\lJred 10 providc incentives for compdilivc cost reduction and Quality improvclllelli. 

Our plan would subsilillo MA :md prollide transparent cOlllp<:lition (lIl wgiollal 

exchanges, where beneficiaries could realize benefits of choosing more cosl-c lTcctive 

plans. The gOllcmmenl would 110 longcr halle to pay extra to priva te plans when FFS 

Medical'': providcd lowcr ..... "'Ost coverage (as is oHen truc under MA) nod would not pay 

more to prOllidc FFS Medicare when prillale plans oller th.: cafe for less (us it curtCntly 

does under MAJ. 
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We ~lieve that the elle.:tiveness or competition in driving down costs und improving 

outcomO:$ would be enhanc.:d by the trnnspar.:nty or c()mpt,ting on an exchange and the 

structure orthe bidding process in our proposal. Benefit-iuries would pay more anenlion. 

especially in areas where they oou ld save money, because FFS Medicare premiums 

el(ceeded the sel'Ond lowest bid. Plans would also h3ve more incentive to seek efficil.!ncy 

whell the bidding mcchanis1l1 resulted in lower payments from the government than under 

the pre.wnt MA system (Ie :Idillinistr:ltively pt'gging payments to the cost of FFS 

Medicare. 

Is Ih.yc .t\'h/cncc 1/1(1/ CQmpNiliQ/J leads 10 IlJIrcr COSI (JI>(/ bCII~'-111/(/1ity ? Actually, 

despite its perverse femures. MA provides considerable evidence that COlllpetition works, 

The impression Ihm MA plans are more COSIly on avernge derives from the fael that 

Medicare often pays Illorc to the plans than the cost ofFFS Medicare and that Illany of 

them ofTer supplementJUy benefits. But recent MEDPAC annlysis shows that private 

plans afTer the Medicare entitlement package ilselrfor the saine CQst ~ FFS Medicare 

and HMO's in MA cost less than FFS. Competition works besl in more densely 

populilted urban arens. but Ihnt is " 'here most of the Medicare population lives. In fact. 88 

percent of Medicare beneficiaries live in arct\s in which II bidding process like the one we 

propose would produce a second·lowest bid below the current eosl of FFS Medicare. In 

rurJI areas where FFS Medicare might fC main the only available plan, our proposal 

would avoid any dislocalion forthose residents, because it would retain traditional 

Medicare as a pcmlunent oplion, unhelm()re, although ex isting systems thaI follow our 

genemlmodel are too small 10 ha\'e the Same k~\ ernge over the enlire helllthcare market 

as w(luJd Medicare, cvidt'11ce thus far is promising. Systems organized along Ihese lines 

include- Ihe stale ('Illployee systems for Califomia and Wi~eonsin, and some employers 

including Stanford University, The Netherlands has adopted a similar nmional system, 

and cxpcri('ncc thus far is Ilworable. 

WOII 'I older and sicker seniors elld l.p ill Iraditionol Medicare ami rui~e il$ coSI? This 

rear is bascd on thc aSSlimption thaI risk adjustment c:m't work. and that roles against 
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chl:rry picking will nol be enforced. so thaI pril'ate insurers will find Ilays to shun the 

elderly " 'ith the most-.:xpensive conditions. [n fact, howel'~ . risk-adjustment ttchniqucs 

improved substuntially as reieV'Jnt datil and expo!ri.:nc.: accumulilted in MA lind other 

progrnms. and can be expe<:ted to improve more. Moreover. some he.lIth plans nN 

developing elfeetive techniques for managing chronic diseases. such as diabetes, ;\I1d life 

IlOW actively \I)'ing to auracl paticnls wilh these risks. Finally, the Fedcrol Employees 

'ahh Bcnefits Plan demon~\r'JIcs that an intelligently managed enrollment process c~n 

give consumers free access to all plans. wirhoUl plan underwriting or selection, 

Won'l f!JTort$ 10 $fJlIN=e COS/S ill MelliCiJre jll$1 sh{ft Ihem fa Ihe prim/e S«-/Qr? Under 

the current system, with Medienrc savings achievcd largely through simple Nductions in 

reimbUfSCment ratto'S. cost shiHing has been a major coneen!, Howev.:r. our proposal is 

driwn di ll'cn:ntly. If competition works to produce lIIore cost-effccti~e delivery. 

Medicare cnn be 1\ leader h.:re. Plans and providers thilt have incentives to serve their 

Medicare patients more cost-efl'cctivcly will do the snme for their othel clients. 

Why 110/ J f.'" I/O .... , IhO! {'mimi PrOleclioll WM A.OOrduble Care A"I ({'{'ACA) wurt, before 

dUlilgillg Afl!dil.:'ll'f! jimher? I suppor1 the PPACA und assume most of its provisions will 

be implemented - even if the Supremc Court makes il necessary to replace the mnndate 

with other ways of cncouraging more pt.'Ople 10 buy health inslu-Jncc. The Center for 

Medicare and Mcdicaid Innov31ion. the Patient-Centered Outcomes Research Institule, 

and Accountable Care Organizations - all fC:lIures oflhe PPACA - can help \0 assemble 

solid evidcI1Ce about wSI-effective approaches to delivering health care. If the 

Indepcndcntl'ayment Advisory Board (WAB) funcliolls as int ... nded. ilwill dt'sign 

regulations thm cncourap;c more cost-cffcctivc delivery of care ill traditional Medicare. 

However, it rI,'moins to be sel'n how well these new illslitulions will pl'rfonn. We think it 

only prlldent 10 strengthen compet ition BS an additional 1001, Under our proposal. 

competing health plans all ovcr the country would have strong incentives, not only to 

impkment ilUlOl'lItil'e id';:$ coming out ofthe fedel'lIlly-supported institutions crented by 

the PPACA, bulto seck every possible way to provide highcr-quaJity care at a lower cost 

in their own local area. The PPACA IIIt.:mpls 10 I't:wllrd Medielll't: providers that Inc<:t the 
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conditions set in regulations. Enhancing comp.:titive incentives to achieve suvings and 

improve outcomes could prove the.- more em::ctive nppro.9ch. Our proposal is to try both. 

How docs the Ryan-Wyden propos:1l differ from Dorncnici-Rivlin ? 

The bipartisan refonn of Medicare proposed by Budget Comilliltee Chainnrul Paul Ryan 

and Senmor Ron Wyden is very similar to our proposal - aud signilicalllly diflcre!1l froul 

Chaimlan Ryan 's earlier proposal incorporated in the Hous" Buds"t ResolUTion passed in 

201 L Unlike the earlier Ryan proposal. Ryan-Wyden preserves traditional FFS Medicare 

permal)ently, proposes a bidding process on Medicnre exchanges, sets the government 

contribution at the Sl'Cond-lowcst bid, and has a failsafl! provision that caps increases in 

the contribution at GOP plus one pt'rcent - all features of Domcniei-Rivlin. Two 

difTercnces arc worth noting. bere. Ryan-Wyden would pha~e in mort: slowly starting in 

2022 and would ollly apply to new bt:nelieiaries, while we would start in 1018 or even 

sooner. Ryan-Wyden also is more l1exible about what would happen if the cap were 

brcaehed. suggesting that Cungre-ss l11i ht chuose among various kinds of reductions in 

provider payments in addition 10 Ihe mCH n$-tcStcd premium increase In our proposal. 

Why is a hipa.r1iSli n a pproach necessa ry'! 

We believe thaI health care policy is far too imporla!1l to be drivcn by a single party's 

ideology. Programs Ihm afTeet people's lives so intimately lIlust flow From a broad 

bipar1isun COlIscnsus. The public's heahh in5Uf"llnce covemge should not bounce around 

unpredictably with each par1y transition in an el~ction. No matter how (he 2012 ek-.:tion 

turns Ollt, the prcsidelJl and congrcssional lcadership should strive to find common 

ground both on how 10 cover the uninsured and how to refonn Medicaid and Medicare 

while stabilizing the debt. Furthennorc. the American p.:oplc and the finnn eial markets 

will have the !lIost confidence III Qur success, and in the oullook for policy stability, if a 

Medicare solution rests on broad principles that I)oth panics call accept. 
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Mo[',:avcr. the two parties' com~til\g ideologies clln both contribute 10 improving heulth 

eare outcomes and reducing the growlh of costs. Republicans lend 10 rely on market 

competition and consumer choice 10 produce results in the public interest; while 

Democrats tend to rely on regulation. Republicans tend \0 distrust govcrmnem: while 

Democrats tend 10 distrust profit-seeking in the private se<:tor. But Ilone of llS is certain 

whm wiJl work best to redm:e the grcm1h of heahb costs, while improving health 

outcomes. The premium support model embodkd ill DOlllCnici-Rivlin and Ryan-Wydcn 

soxks to combine the tools- of market competition and cost-effective regulution in hop<:s 

of Illa ~imi:.:ing the chances of improving health care for seniors at a SlistaiUlIble eOli!. 

Thank you very much for this opportunity to testify. 
23 

Chairman HERGER. Thank you very much. Mr. Antos, you are 

recognized for 5 minutes. 

STATEMENT OF HON. JOSEPH R. ANTOS, PH.D., WILSON H. 

TAYLOR SCHOLAR IN HEALTH CARE AND RETIREMENT 

POLICY, AMERICAN ENTERPRISE INSTITUTE 

Mr. ANTOS. Thank you very much, Chairman Herger and Ranking Member Stark. 

Medicare is a vitally important program but it is living on borrowed time. Medicare’s Part A trust fund will be depleted in 2024, 

as you said, and the program faces $27 trillion in unfunded liabilities over the next 75 years. With retirement of 76 million Baby 

Boomers over the next 2 decade the program will consume an ever 

increasing share of the Federal budget unless policies are adopted 

to bend the Medicare’s cost curve. Reform based on a principle premium support can responsibly slow the growth of Medicare spending and help set this country on a sustainable fiscal path. Such a 

reform relies on market competition among health plans to achieve 

high quality coverage at low cost. That is essential if we are to protect the Medicare program for future beneficiaries. 

I will address four points about the design of a premium support 

reform. 

First, should traditional Medicare be offered as a competing plan 

option under premium support? I think that is the most reasonable 

course. Perhaps as many as 57 million beneficiaries will be enrolled 

in traditional Medicare 10 years from now which is when most proposals will start competition under premium support. Traditional 

Medicare will not disappear when premium support begins, even if 

we do not allow any new enrollment. Moreover, traditional Medicare is likely to retain a stronghold in rural areas and other markets that are dominated by a few providers. For that reason we 

must find ways to reduce unnecessary spending in traditional 

Medicare in the near term as well as after premium support is in 

place. 

Premium support does not need to exclude traditional Medicare. 

Premium support lets consumers decide for themselves which plan 

provides the best value and gives them a clear financial stake in 

that decision. 

Second, will premium support shift huge new costs to Medicare 

beneficiaries? Let’s be clear, the Affordable Care Act already shifts 

costs to beneficiaries. The law imposes unprecedented cuts in provider pay rates to generate $850 billion in Medicare savings over 

the next decade. According to the Medicare actuary, these payment 

reductions mean that 15 percent of hospitals and other party providers would lose money on their Medicare patients by 2019. That 

figure rises to 25 percent in 2030. Large across the board cuts in 

provider payments without changing incentives threaten access to 

care, and that is a real cost to patients that is not reflected in higher premiums. 

In contract premium support changes the incentives that have 

driven up Medicare spending. Plans that hope to increase their 

profit margin need to seek more efficient ways to deliver necessary 

care rather than adding another test or procedure. There is plenty 

of room to improve efficiency in health care, and plans that ignore 


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opportunities to cut costs will lose market share and see their bottom line shrink. 

There is also the market test in premium support. If private 

plans fail to offer a good product at a good price, beneficiaries will 

move to traditional Medicare which remains an option. This is an 

important safety valve that ensures seniors will be protected. 

Third, what index should be used to limit the growth of Medicare 

subsidy? An index that ties Medicare spending growth to the economy, provides some budget discipline and helps with the CBO 

score, but let’s not fool ourselves into thinking that the spending 

target is what produces the reductions in the cost of care. Efficiency and innovation in health care, in health care delivery determine whether Medicare savings can be sustained in the long term. 

Finally, what other reforms are needed? We obviously needed 

modernized Medicare, we need to make the program fairer, we 

need to reduce unnecessary spending. That means we need better 

information, clearer financial incentives and a reformed subsidy 

structure that reinforces rather than undercuts efforts to slow 

spending. 

In my written statement I list a number of reforms. There are 

many that need to be done. Certainly reforming the confusing 

structure of traditional Medicare’s cost sharing to make it more 

clear to people what they are paying would be a good first step in 

giving people good information about their health plans so that 

they can make good choices is absolutely vital. 

So in conclusion, there is broad agreement that we need to bend 

the Medicare cost curve. The argument is only over how to do it. 

Premium support is not an academic theory, it has been effective 

in lowering cost and enhancing value in the Federal Employees 

Health Benefits Program for the past 5 decades and in CalPERS 

since the nineties. A well design premium support program can 

take full advantage of market competition to drive out unnecessary 

spending and increase Medicare’s value to beneficiaries. It is about 

time we tried it, and I think we can find bipartisan agreement 

about moving forward. 

Thank you. 

[The prepared statement of Mr. Antos follows:] 


dkrause on DSKHT7XVN1PROD with HEARING
25 


dkrause on DSKHT7XVN1PROD with HEARING79937A.012

""TESTIMONY IS EMBARGOED UNTIL 9,00 AM FRIDAY, 

APRIL 27, 20 12'" 

A ~ 

-, Ame rican ElIlerprise Institute 

{01' Public Policy Research 

Statcmcnr TO the House Commim.'C' o n Way~ ll1\d Me:ln~. 

Sulxommincc o n Httnlth 

Premium Support Proposals ror Medicare Reform 

Jmcph R. Antos, Ph.n. 

Wilson H. Taylor S.-:holnr in Hcn lth Cart: lmd Ru ircmcm !lulk." 

American Enterprise Instinut' 

April 27, 20[2 

TIt.: t'IC",S exp1'dsd in this rtsei11lun111Tf those of tft.> wahor II10ne (Iod do no! flCCessUril) 

r~prt'5<'nl thrur of Ille Allieriwn Entnpme Insfi!ule. 
26 


dkrause on DSKHT7XVN1PROD with HEARING79937A.013

Mr, Cbuiman, " 'r. n~ing Member. Ihank you lor Ihe oppotlunily to leSlif)' today 

befort' Iht' House ('ommi1lee on Ways and Means, Subcommiuec on Health. 

Medicare refoml based on tht' principle of premium support can rc:Iponsibly slow Ihe 

gro\\'lh of program spending nnd help setlhis country on II sustainable fi~al path. Such II reform 

n"Iies on market competition among health an~ 10 achieve high-qua li!), covemgc at the lowest 

e051. Thnt is ess<:n1ial if"e are to protcet tiH: I\kdiellrc pmgmm for fmure beneficiaries. 

The annual rcporl orthe Medicarc trustees issued earlier this wcck reminds us once again 

thaI r..kdil.".tre is li\'illg 1111 borrowed time. Evell if the sub$t.1ntial reduelil)l\s in paymcl1ls to 

health care providers included in the Affordable Care Act (ACA) art'- fully implemented and 

Congress allillls the 32 ~rcen t rt'tiuclion in physician payments n"quired IIndt'r current law \0 8(1 

throU~l in January, /l.k i~are spending will continul! \0 grow al unsustainable rates. Mcdie9re's 

Pari A tnlst fund will be depleted in 2024. and the progr~m filces $27lrillion in ullfunded 

liabilities uver the ne;o;l 75 years. Witb the relirelllCnl of76 1l1illioll Baby Boomers over the ne~1 

two decades. the program will consume nn ever increasing shllre of the f<!deral budget unless 

policies are adupled to bend Medie~re's co~1 curve, 

Traditional Mediean:'s uncapped entitlemtnl and fee-fOf-st:rviee iXlyment stnletun: is II 

major caur.c of the rapid rise ofprosram spending. Fee-for-service payment promotes thc usc of 

more. and UlOn" expensive. 5ervie"",, in II fragmented and uncoordillated dt'lil'cry Systt'Ul. That 

resul!$ in higher cost and poorer patient outcomes. 

Premium supPQrt ehang,:,s that ;nttnlil'C by giving CQnsuml!rs a 5ut>sidy 10 purchase 

il1sur~nec ii-om 3 \\'ide selcction of competing health plulls olTering a core sct ofbclldits. In each 

m8r~cl area. Ihc plan~ would ,ubmil bids 10 provide Ih., basic ocnclils 10 3 bendiciary Ililh 

a\'erage health riSk. The ~ubsidy would be b;,s..'<i on lhe low bid. which under m~lly proposal~ is 

defilled 3S the second· lowest bid ulTered in lhal mmkl'1. To ensure alTordability, subsidies would 

be higher for beneficiaries with lower illcomC$ or higher health risk.~ . 

iknciiciaries could tllroll in more e~p"nsi, c plans, bUI any extra premium would be paid 

soll-Iy by the beneficiary without addition"1 subsidy. That givu an incelllil'c to consumers 10 

sck<:tl(!w'cr-c(!st plans, aod il giVCll8Jl illccnti"" to 1b~ plaoS 10 oegQliate lo\\cr prices with 

providers alld improve lhe delivery of care, II1~teHd ofincrea.sing the volume ofserYites 10 

increase pD)'IllCot. health plans "ou!d have ~ strong in1erest in providing ueccSS-1ry services in a 

eost-c:flccti\'~ manner. Undcr premium supporl. more efficient health care delivery is rew~rded. 

Ilot penalizcd. 

A number ofbip3rti!;:ln Medi,'are refomlS thm incorporate premiulll support ill their 

design ve been mll'anced Ol'er !/le past J 5 years- including the Breau/t'-Thomas pNpo!;:l1 

developed for the National Bipartisan Commissi()n on the Future of Medicare, the O<lmcniciRivli.n proposal de"elop;.'{] for the BIpartisan Policy Ctn ·5 ~Qt Reduction Tas~ Force and 

n'cent proposals by Rep. Paul Ryan (R·Wis.) and Sen, Ron Wyd<11 (O-Ore).' E:aeh Qf ho~ 

propoSllIs ad<lTeSs\:s !on~·s'anding problell1s tha1threa1en to undemline Medicare andjcoJXlrdil.c 

the countl)"s fi!lC"JI fulurt, 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.014

My testimony ad(.h-e~SC$ fotlr key issues in designing a M~x1icare reform b:tsed on 

premium Sltpport . Firsl, tile role oftr:Klitional Medi~~re. 111ere are polillcal and pracl1tal 

reasons to retain tmdilional Medic are 3~ a competing plan op. ion under p~mium ~uppo". 

Propcrly stmcton:d, prcmium support would not f;l\'or any specilk plan over another. 

Second. COS1 shifting to bcllCficiaries. Conccms have bccl\ raised tha! premium support 

would impose dmmDtic~lly higher costs 00 Medicare beneficiaries. ThaI ignores lhe eosl shilling 

Ihal is already in place IInder Ihc ACA. which rt.-quires Jargc across-the-board CUIS in provid~'1' 

paymentlhal Ihreaien Access to eare--a reaJ COSt io pa ient~ Ihol is not renecled in hig.her 

premiums. It also ignores-the <·kar inccllliv~tlml heahh Jllans woultl h:lVc 10 keep COSIS low, and 

itlnkes no account of the availability oftmditional Medican: as a safety valve for bcn\.'ficiories 

should private plans [,1;1 10 perform. 

rhiru. indc.~ing tile gI"O\\1h nf Mcdieare's subsidy. Moot proposals include ~n ind.' .... to 

limil fUlur" Medicare s~nding, "hich prod,,~es "scoreable" budgel $:lvings. The ehoi~e oran 

inde .... i~ important, but efficiency tlnd innOVAtion in health can: delivery d~tenn;nc wh .. thcr 

Medicare savings ~An oc sustained in the long tcnn, 

Fourth, :ldd;tlonal reronns. Premium supp.Jrl by ilself will not save Mcdicare. More 

immcdiale refonns are needed 10 modemi7.c tradilion~! Medicnre lind produce addilion~1 COSI 

s,1Ving5 as wc Iransilion 10 full premjum support. Our fisc~1 crisis is 100 urgent and Medicarc's 

problems arc 100 comp!cx to delay actioll. 

Trndifionlll i\1rdic lI~ lIS An Oprion 

Should trudilional /!" Iedicate be retained as a plan option under premium support. or 

slu)Uld it be phas;ed OUI? Lasl years House budget resolution included a prt'mium support 

propos.allh31 closed newenrollmcnt in tradilional "kdicare b<:ginning in 2021.~ Individu:tls 

turning OS fmm lhat year on would have 3 ehoice of private ~ns. bUltraditionnl Medicare 

would not be available. 

Rc~pondin!J. 10 concerns, the House budgd resolution pasSl.'ti Ihis year indudt.'s lraditional 

Mcdi~arc as a plan oplion under pr"mium support for all be"cjieitlri~, including tnos.-, who 

become newly eligible for Medica,,:. Although there are problems with eilher opprOllch, 

retaining Il"3diliooal Medicare as an option;> thc IuOSI reasonable course. 

Somc conservatives criticize this change as backsliding. They c01"T<X'tly sce the 

tmdilioMI Medicare: pmgmm in ils current form as in-efficielll and anticom~tilive, But 

pretending thal lhe progrnm will dis,1ppcar in \0 y~ars n18i<cs it unlikely Ihat Congress would 

ll1 ak., important but difficult decisions nceded 10 sct lradition31 ~\edicnre on a !is.:-aUy sus lninnbl~ 

p:uh. 

The reality is that traditional fc,,-!or-S/,'rvjcc ~Iedicure could have somc 57 million 

enroUees in 2023. when premium s uppon would begin under Ihe proposatJ Ev.,"O withoutlbe 

current automatic 3ssignJl1~11l of newly-eligible belleficiaries to tntdilional Mcdic:lrt', that 

1 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.015

program could ~11l>\ n a dominant force In Ihe hea lt h seclor for d~ades if seniOrs eonlinue 10 

enroll. Prudenl refomlS. discussed below. are uced<'d to make lraditional Ml-di care less waJIll'ful 

in the IIcar Icnn as well as aftcr premium suppnn is in placc. 

Tradilional Medicare is likely to rdain 3 slrong hold in ntrJllocales and other markels 

Ihal arc dominaled by:l small number nfprllviders. In such cases, health plans moy have liule 

bargaining power 10 ncgotime lower prices wilh providers. llowevcr. private plans may he- able 

10 rein in lheir opcrnliog COSIS Ihrough care eoordinnlion and olher efficiencies Ihal are outside 

100 reach o r lradilional fee-for-~rvie.' Medicare. In Olher markels whl're Ihere is less 

eoneclIlrulion and more compclilion among providers. private plans arc: likely 10 h~ve n 

tompc iti~e advantage over lrudilional M~dieare. The)' should be belief able 10 eOIHra~1 

selectively in sueh markets, ~Ilowin!!. hcm 10 o ffer lower-COSI oplions 10 seniors. 

The object,~e o r' premium s upport should not be 10 dri,'e QUllraditional M('ilieal\'. 

Insl.:ad. premium support should be dcsigllcd 10 allow COII lImers 10 decide for Ihcmselves which 

plan provides the besl vallie. and give them a le~r fin~r>Clal slake in Ih~t dcclsion. 

Cnst Shirring ~nd the Muket Test 

Will premium suppon bas.:d on full eOlnpclition among privale plans and truditionai 

Medi ca re work? SOlO.· critics argue Ihal premium .uppon simply shifts thc COSI of car.;, 10 

seniors wilhout improving Ihe emdency of health care delivery. ThaI ,,"'ould be lrue only if there 

"ere nO room 10 Improve heallh care efticicnc)' or if plans ignored opportunities 10 cut eosts. 

increase markel share, and improve Ihe ir bollom line$. 

Under ~ premium-support syslem. an addiliormllcSI or procedure would nOI generJle 

additional rcimbufSt'melll Ji"oIn Ihe governmcllt Mosl Medicare benefkiaries li ve 011 fi".'d 

incomes nnd nre nOI in a posilion 10 pay subsmntially more . thaI real it)' will force health plans 

and providers to coordinate palienl care and lind othl'f cmcicncies rath .. r Ihan perpetuating Ihe 

currenl fra!!.menled sySlcm. In a well-org8ni~ed markeL bencliciarlcs will be allracted 10 health 

plans Ihat provide Ihe mOSI effcclive care at Ihe 10weSI price. 

The nltemntivc oftercd by the ACA is nOl appealing. The law imposes unprc:ccdtnted 

ellIs in provide r paymcot rates to generate S850 bUlion In Medi,al'l: savings OVCT Ihe nc"t d(....,ad ~ 

According 10 Ihe McJicare aelualy. Ihose payment rc:duelions mean Ihal 15 pcrc:elll ofhospilals 

and oIhcr Part A providers would lost." moncy on their Medicare pat ients by 20 19: Tha t figure 

rises 10 25 percent in 2030 and 40 percent in 2050. 

Under Ihose eircumslances. providers \Vill have 10 lVilhdra,v from th~ Medicare program. 

causing growin g p",bkm~ for seniors n<'Cding cal'C. Impeding ace.'Ss III ,:are imposes n"al costs 

on patieolS Ihal arc nOl fdlecl~d il] higher p .... mlums, but Ihey repT\.~nl a cOSI sh\fl nevertbeles:; 

Retaining fee·for·scrviee Medic~re as a plan oplion in premiul]I support creates a salely 

va l-'c if the private phHlS arc Il'lahlc 10 rein in COS IS. Iflhe critics are correcl.traditional 

Medicare would be Ihe low·cosl plan in evcry market Beneficiaries would move back 10 Ihe 

lraditional plan when Ihe ellSl dinerence~ bec~nte apparent 

l 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.016

Wit can be rt:3wnably contidenl thai cven the heahh s«tur will re~pond to clear 

e~onomic inc~nti\'es_ In 1l1l' unlikely .. ~nt tha t deli,rer)' syst~m imprnvemenlS fail tn 

materialize. beneficiaries wuuld nul be fOf'l.'cd into poor-perfanning plans, 

Limiting Prognlm SJ'l';'nd ing 

Medicare reform propns.1ls that rely on premium suppon include;)n external constroint 

on program spending, Iypi<'ally limiting lht annual gro ..... th in the subsidy 10 some tconomic 

index such BS the gross nmionol prodntt (GOP). The propos.11 in the I-Iousc I3tldget Resolution 

fur Ii>eal yt"Jr 2013 SCIS the limit at Ihe GOP growth mle plu. 0.5 perrcnl. which is idcnticallO 

Ihe liscal target SCI in thc President's 20 13 budgcI for the Independent Payment Advisor)' 

COl11mil1ec (IPAR). TIle Wyden-Ryan proposal and the. Oomctlici-Rivlin prnposal, as well as the 

IrAI3 under currenl law, usc GDP plus ] percen!. 

The diffe\'Cnce tween those Iwo growth rates can be substantial lrom a budget scoring 

perspective. If the growth in Medicare: outlays was lil1lih~d using GDP plus I sinning in 2013. 

spellding fur ben"'lils Ihrough 1022 would IOlal about 57.7 Irillion .~ Th~1 is equal \0 spending 

under CSO's current law baselille (\lhieh iileludcs the IPAB gro\l1h target in its projections). 

The trnjC<.·tul)' of spending is lower Ihan und~r tht: basclin ... huwel· .. r. whkh suggt'Sts thai GDP 

plus I ,voltld y ield oct budgCl savings in su~qllent years. Usiog GOt' plus 0.5 reSllliS in .1bollt 

$180 billion ill budget !ilIvinh'1i through 201::. and considernbly 1110re in Imet" y .. ars. 

lhe target t:an bI,' r':llcheted up or down to achieve any leve! uf St:Ol1.'~tblc $livings 

dC\Tlltnded by political circumstances. Indeed, this type ofnscal confrol is oflen included in 

refonl1 propoSllls to ensure lh:'ll eso produces a "good"' score. Bul that docs not in1Ply lhat 

future Coug.resses will enforce the outlay Jimit or IlInt such a lituil is appropriate under fuwn' 

circumstance.. (hatlUc dinicult to predict. Deterioration in the underlying health statu~ ofthc 

Medicltre population, for example, could drive up necessary spending even when eltre delivery is 

cfficieltl. 

Despite that utlcena;my. it is uscful \0 include a spending I3rgcI in Mcdicare rcfonn 

proposals. The SlIstainablc Growth Rate (SGR). \\ hich is intended to limit Medicare physician 

spending, is an instructive t:.xamplc. Although Congress has ovcrridden the SGR repemedly over 

tbe paSI 9 ycars, p.lymenl rateS ha,rc grown l<'s5 11Ipidty than they Ilouid have with thc lllJ1ation 

adjustment built ;lI1olhe fonnula. Without the SGR, it is possihle Ihm Congress wuuld have 

allowed larger annual updales. 

Huwever, we should not fool oursd\"e~ intu believing IImt spendi ";! targets by th .. !m;eI\"~s 

will produce savings that t:on be mainlUined o"er the long tenn. Whitt mailers most are the 

economic int:cmives broughllO bear by premium support, which encourage benet" decisionll\aldng un the pan of both consumers and health care providers. Ifcompelition cal) keep 

pmgmm spt'nding wilhin the bounds sct by the targltts. thffi the l~rgdS 3r~ nOi nect:ssary except 

ns a budgetary mnemonic device thDt reminds us Ihat rcsources are limited. evcn for the most 

urgent ofpmgl".\nlS. Ifno!, then the targd; would el'entually huv~' tn be ;n~reased unless a public 
30 


dkrause on DSKHT7XVN1PROD with HEARING79937A.017

consensus had been reached that other spending priorities took pr~c~dence over h~alth 1.'3"', at 

least at the n1(lfgin. 

The Resl of MtdiCllF"t' Reform 

Additional refonns are necessary to modernize Medicare. make the progrllln fnirer. and 

.... dul·~ uuni.'Ccssary ~pcnd in g. In addition. some eh3nges in Medicare ndes would greatly 

enhance the eITC1:til'eness ofcompctition among health plans Jnd make tmdilional Medicare 

mure compt'titivl' in 101::1.1 morhts. 

To help slow /\Iledicare ~pendi g growth whiit- providing greiltcr flll onciol help til those 

"ho are most in need. we need bener '"fomm\ion. clearer financial Incentives, and a refomll::d 

subsidy smlcture that reinforees rather than undercuts efforts to 51('11\' spending. Sueh reform 

proposals include~ 

Eslohlish clear cosi-shadng inetnlins for bentliciAricS. Separate Part A and 

Pari B deductibks. coinsurance nnd e(lpayment requirements that vary aero:l$ 

difl"renl types of S<!",ice~. and arbilrnry gaps in coverage (such as the limit on 

lifetime hospital days) mllke it impossible for belleflcillries to know what their 

costs will be. A :single dl-ductible covering ~lll'arl A and Pan B services with a 

uniforn> coinsurance raIl.' applied 10 nil covered services, similar 10 the dcsign nf 

most private insurance. would help clarify for beneficiaries whal they an: likely to 

pay. 

Makc cO -s h~rin g r~q "i rem~ nl ~ inctlme-s~ ilin. Medical\": cIIl1\'ntly reIMC$ 

th~ p",miums thaI beneficiaries pay for Pan Band P:trt O. In addition. dual 

eligibles and olher low-income bc.~nelicia il'S rcc";vc addilional ~ubsidics Ihal have 

the eITecl ofincom<.<-re!:uing benefits. This principle should b<.> extended by 

inc .... asing cosi-sharing requi .... ments for higher·incomec beneliciaric~. Any 

specific dollar amount of CQst-sharing has a grcalN impact on low-income 

beneficiru-ies. lucollle-sensitive cost-sharing would [nnre efftttiwly promote eo~ 

awareness aeross Ih,- iacome dislribuliou. 

lnlr(ldu(l' Irue u"'dnee proteclion inlO Medicar\' benefits. Elimin8ting 

limilS on inp.1tient days nnd udding covernge lor cata~ rophic c!1penscs would 

provide protl'C i<~ 1I against high and onen unexpected costS. 

R~«(l\ H Ihe cOSlnf induced uliliutilln from land·alon ~ Medigufl in llr~ rs. 

Supplemenlal coverage pays Medkare deductibles and coiru;urancc, which largely 

~lj",inaIl"S financial in~~nlivl'S for COn!IC "~liw C31"l"" on thc p"~rt ofbuth patiClllS 

and providlTS. Medigap plans do lIot ahsorb Ihe cost of the additional usc or 

~rvices that results, which arc paid by Medicare os primary insurer. (This is nOI 

an issuc for Medicare Advalllage plans. which provide primary covcrage lIS \\"ell 

as any odditional benefits for 3 fixed per-beneficiary government payment.) 

Requiril\!:I supplcmenlal plans I<l d~rl"Jy higher prugranl 1.'0515 would trJnsfcr the 

additional COSI from ta.~payers back to those who purchase and benet,1 from 

Medigap plan~. All alternativc appwach wo"ld esdudc Medigap C<lVCI"Jgc for the 

first $500 ofa senior's eosl-shllring and limit coverage abo~e thai to less than full 

paymen!.6 The objective ofthi, propositI combini.'t! with tile three precl'tling ones 

, 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.018

is 10 impn)"~ lraditiooal Medicare so Ihallh~re "OIJld b<' lillie nct'd fo.-

bt-nelkiarics to purchase supplemelltal insurance, bUI !lQt \Q diclate how Medicare 

bcJ1enci~rle~ deddc 10 spend Iheir 0"11 money_ 

Offer cure coordimuion $fr\'ins 10 bcnclici:lries \\-110 need it. Traditional 

Medienre could improvc palient outcomes and potentially reduce cOSt by 

providing care coordination 10 high-risk \)t>ncliciaries being In:alcd by multiple 

physidaus and other pfflvldcrs,7 If used by patients ffie<>tiug appropriale m .. dical 

crileria. such a SCT\'icc would help minimiJ.:c unnecessary t<:-stillg. ~mcrgcllc)' room 

usc, and avoid~ble hospital admissions, 

Reform Medicare's .,aymenl s)-$Icms, The onl:!oing threa! of massive paym<'nt 

cutS to physicians under the Sustainable Growth Rate should be repl~ced with a 

sustainable payment policy based on the principl~ uf shared saerificl', N~w 

paymenl approachcs should be tested that can promote effecti"e and effieienl 

C:lrt', II win be u('cessary to limiumy paymC!l1 incn:-ases until a new payment 

mechanism has iJ.oC!l de"clop..-d, Similarly, other paymenl refonns-inc luding 

blmdled payment. and compdilil'c bidding approochl,'s for spccinc servicnsl1o\lld be devdopcd and t<:SK-d for their POI~ntiaJ illlj><lct ou cost an.! patient 

outcomes. 

Impro\e thr benefkiary purchasing e~pcrie ee, Although the Medicare 

prol:\r~m o ffers lools to help beneficiaries n13ke their decisions about cnrollin~ in 

traditional Medicare or in an MA plan, as well as the choice ofa I'art 0 plan far 

tho!\\: who OPI for tl'3dilionnl Medicare, IhOSt' tools an:: limitl'd. Beller infonnation 

is n~ .... ded on HII plan combinatio'lS availahlc to '-""I<'iici:lrics, including 3clli~1 

pr~!1liums trulh,'r than rangc~J for Medigap plans, Information is also !lCt'ded on 

the likely olll-uf-pocket eosl that;\ beneficiary would incllr in the eveOI of~n 

unexpected high":05t changc in health status, Beneficiaries nl't'd 10 know what a 

pl'lIl choice will ",ali), L"()Stthem, induding both predktable ~o~ s \premium~) and 

unpredictable costs (cosi-s harin,g ami olll-([f-ue\I'Ork cxpcnsesJ, Improving thc 

insurancl: "e~change" function is ~:5sclllial in D premium ,uppart s),sh,'m , 

Such policy improvemems willt3~e time to implement. but Medicare will cominllc 10 

exert increasing prcssttI'C un the fedct'JI budgct. Other actions to offset those c{)Sts include: 

In crd~ Medinre pn::m;IIms, T~ I-':!rt B premium eurrct'\tlycov<'Tli 25 percen) 

orthe COSI of Ihe b.melit. In the shun tenn. thl: premium could be rni;.:d 10 35 

pe"col, with highcr prcmiums paid by higher income btucficiaries. One.; p"rt A 

and Part B bt-ncfit; 3n: combincd \U Sinlpli fy thc c()5l-shariug Structure, a 

premium lh~1 )XI}~ for an lIppropria!C share oflhe combincd beucfit would make 

sen~, 

In e~(',,* lhe eligihility g~ 10 67_ This proposal prollidl'S an incenlil'e lo r ".-,nion. 

tu remaiu in the I\or~ force longer, I\hich would in~rease Ihe 31110tLIllufpayroll 

tll~ re~iplS and some\\hal reduct' Medicare spending, 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.019

Conclusion 

The deb.llc. over Medicare refoml is abom means, nOI <'"ds. There is broad agre~m"'''1 

Ihal Medicare spt'nding is on an unsustainable trajectory thaI threatens 10 crowd out other 

priorities elsc"lIerc in the budgl'l. There is broad agreement thaI Medicare's pcrfonnance in 

dclil'ering s.::rvices to older Americans enn and should be improved, TIlere is srent controversy 

over how 10 ensurc Ihal senior.s continu~ In receive high-value health care at a price Ihal is 

afTordable 10 I hem and 10 a~ paycrs. 

Irwe ever bope 10 bend Medicare's eosl curve, "' c InUSI cI'3ngc lhe finattc ial incentives 

that dr;\'c progl1lm spending to inerensingly una lTordnhle levels, A well-designed premium 

suppon program can take fu ll ~dv~nmge of market competition 10 drivc 0 11 1 unnecessary 

spending and increase M~~iCllre' s va luc III beneficiaries. In n properly slmelllred m~r\.;et. 

beneficiarics wonld have inecntiv<'s to scck services from cost-efTective delil'cry sy~lI:m s and 

providcrs WOU ld hal'c incenlives to operate eflicicntiy. 

The alternative approach relies on ti!l,hter .-egulation nd cuts in provider paymerlt I1IICS 

lVithout ch,Ht girll; the u"d~rI)'i l1 g ~'e-ror-S<'rvice incentives that have driv~n Medicare spending 

to unprecedented !evels. That is ultimately sclf·dcfe;lt ing. sti flill~ pri"at ... se~tor ~re3t ivhy r~th~1' 

th:'!n channeling il w~rd sys ~m lVide imptov<,ment. 

The need for M~d eare refonn has never-i:>een more urgcnl, or more c lear. Premium 

suppon is nol an academic theory. It has been eflective in lowering costs and C1th:mcing val u," 

for Ii\'(' dc.::~de s in the Fcdcrn! Employees I leahh Benefits Program and since the early 19905 in 

the California Publi,' Employee~ Retirement Sysl~m 1 It <'an IVOr\.; in Medic:'! .... , bUI .mly ifwc 

tHke Ihe timc 10 get il right. 

Josc'IJJr Amus i .• lire Wi/Jonl!. Taylor S~hol(/r in Hc'ullh Can' and Re/irememl'olic), ar tile 

Amerioon c nlerpri.I'1: InSlilllle. fie "r'Ni(jIlS~\ ' served as 11r~ As.<is/(jlll DireclOr Jur fltaith ",ul 

1I11mon Rt'sQIIIT/!$ at 111<, CO>lgre~'~ii!l/{/1 8lUl;,-r1 Offict'. and he i., curren/ly a member ufCBO's 

pane'l of Ilealll! advisers. 

'Sen. John lI ..... UK .nd Rep. aliI lloom .... 1I"ildln 3 Ikner Medk.", 

lliponlsan CommlOS;Qn 011111< F\!1"",ofM..Jk.r<:. Moreh 1(0. I 

1"11< Dctol Reduction r. ~ 

" 

" 

., 

lhe lIudg.'. '-Tilt Path IQ 

., If M"rt b20.1() IZ. 

'1 (II, , " 

7 
33 

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• John I) Sh.l«l and M, KOnl {,I;:m~" .. , "Projecl<J M~dk:a,. ti.~p,,,,d;l "res ... 1<1 .. an JII" lr~I;'~ Sc<n.rio wllh 

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'''U1i1of'H 3kula,I''1l using CIlO'5 eslimOied Gl)r i"'''lh .. ,~ of~ 7 I"'~n' be'''"",n 2()12.nd 2022 ami """,II.,., 

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in 20 I J "ill _qu,1 $5'16.8 billion (IK'I oflile 54.6 bill]oo dollu I\"d"cli~n d .... 10) 'he $elluesler •• 11«1 for in ,be RWI9'1 

Conl",1 ACI) . 

• S..,.s"'.Jo<- U.tem,. n and Sen. "rom C<>bum."" R<du"" II", 

[~bl- I , - Ii,' It 

, 

8 
34 

Chairman HERGER. Thank you, Mr. Antos. Mr. Aaron is recognized for 5 minutes. 

STATEMENT OF HON. HENRY J. AARON, PH.D., SENIOR 

FELLOW, ECONOMIC STUDIES, BROOKINGS INSTITUTION 

Mr. AARON. Thank you, Mr. Herger and Ranking Member 

Stark. Also special greetings to Congressman Price, with whom I 

have had the privilege of working in the past. 

You have my written statement and I understand it is going to 

be entered into the record. I would like to begin with what I think 

is the central issue that divides those of us who are opposed to the 

premium support idea from those who are in favor of it. 

I think all of us recognize that there are reforms to the existing 

Medicare program that could improve its operation. All of us would 

like to see cost competition play an enhanced role. All of us would 

like to see delivery system reforms that result in better quality and 

lower costs. And we hope they will work, but maybe they won’t. If 

they don’t, who bears the risk of costs rising faster than projections? 

Under traditional Medicare those risks are pooled broadly across 

the population and over time across all Americans. Under premium 

support those risks are shouldered by Medicare beneficiaries who 

will be faced with higher out-of-pocket costs themselves. That is the 

choice I believe, the fundamental choice that needs to be made in 

determining a position on this issue. 

Now some years ago Bob Reischauer and I, as you noted, coined 

this term ‘‘premium support’’ and we did so with respect to a particular plan, which was more than vouchers, and actually incorporated one of the features that Senator Breaux mentioned just 

now, that the index to which benefits are tied should be a health 

index not an economic index. And I would note that none of the 

proposals now under discussion meets Senator Breaux’s standard 

in that respect. 

In the 17 years since Bob Reischauer and I put this idea forward, 

I have changed my mind and I would like to just list a few of the 

reasons why I have changed my mind and I think I would urge you 

to consider them as well. 

The whole environment of health care policy has been transformed. We wrote in the wake of the failure of the Clinton health 

reform effort and at a time when projections of insolvency of the 

Medicare Trust Fund were becoming steadily worse and were very 

near term. Both of those elements has changed. And in particular 

the passage of the Affordable Care Act means we have put in place 

a key element of the premium support idea for the rest of the population; namely, health insurance exchanges. We are finding those 

are difficult to implement. They are politically controversial. I 

think they will succeed and those problems are solvable. 

The Medicare population is vastly more difficult to deal with 

than the population served under the Affordable Care Act. We 

should prove that the Medicare—that the health insurance exchanges work, get them up and running before we take seriously, 

in my view, calls to put the Medicare population through a similar 

system. 


dkrause on DSKHT7XVN1PROD with HEARING
35 

The regulatory climate has changed. It is far more hostile to the 

kinds of regulatory interventions, pretty aggressive regulatory 

interventions that Bob Reischauer and I thought were essential to 

the functioning of a premium support plan. 

We at the time said that no premium support plan should move 

forward until risk adjustment was good enough to discourage competition based on risk selection. At the time, like Alice, we thought 

oh, well, it is doable, some time it will happen. Alas, it hasn’t happened yet. A recent study has shown that the risk adjustment algorithm used under Medicare Advantage actually has increased the 

degree of risk selection that occurs through Medicare Advantage. 

We are not there yet. When we are, that would be the time to consider whether premium support merits consideration. 

And finally, the idea that competition is going to save money, as 

an economist I really want to believe that. I got my degrees in that 

and I was pledged to like markets, I really do. The evidence to date 

is not encouraging. The higher costs of Medicare Advantage are not 

attributable solely to the extra payments that are made to them, 

nor is it attributable to a selection of patients. After controlling for 

all of those factors, Medicare Advantage plans are more expensive 

than is traditional Medicare. Furthermore, even Part D drug benefits which have come in below cost have come in below cost by less 

than other drug spending outside of the Medicare system has come 

in below the projections that were made at about the same time. 

So I want to believe that competition will work and save money. 

The evidence is not supportive at this time. And given the risks involved it seems to me important to continue to spread the risks 

from rapid growth of health care spending across the general population rather than to impose them on a very vulnerable group of 

people, the elderly and people with disabilities. 

Thank you. 

[The prepared statement of Mr. Aaron follows:] 


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36 


dkrause on DSKHT7XVN1PROD with HEARING79937A.021

"'THIS TESTIMONY IS EMBARGOED UNTIL 9:00 AM 

FRIDAY, APRIL 27, 2012'" 

Mr. Chnirm,.u: 

Stat<:' '''tnt of 

Ilrnry J. A"ron' 

heforl! the 

Il ,, ~e W"Y~ and MellM l'lc"h h nh o"'m i!l e~ 

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old"r). N,,,,,, of th e 1'1 ;. ~ ""'" ""d,,. (lj"""8~i "u '1,,"lifi t~ 6 'I're.uiu." $"1'1""1.' Thi ~ ~ nor 

n "'1I1trr t,lf 6 .... "0"1;(:5. 1' '']lt,lttIOIIl ,o cy de." ut distitl ui h "r uI rl~u " ('0'" pre",i ",,, 

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snfficicnt tlelDillo h,t o nc k""w eXlldl y ",Iu" ,.; heillg proposed, 

• h~ cond,' i""6 t h111 reco,"n'llndcd prew' ''''' M'l'por. i" 1 he rui.I-1990s no I""g'" apply. The 

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50 

Chairman HERGER. Thank you, Mr. Aaron. 

Senator Breaux, I think it is important to get this out of the way 

right at the beginning of this hearing. Do you think premium support will ‘‘end Medicare’’ as we know it as some have claimed? 

Mr. BREAUX. I think the whole debate politically about ending 

Medicare as we know it, I think we want to change Medicare. We 

want to keep Medicare. I think we want to improve the delivery 

system. I think everybody is committed to having the Federal Government provide adequate quality health care for our Nation’s seniors. But we don’t have to do it under a delivery system that was 

formed in 1965. Just like my Chevy II, things have changed, things 

have improved, so our recommendation is that we keep Medicare 

of course, it is a great program, but change the way it is delivered 

to our Nation’s seniors so they get a better deal, a better product 

at a better price. 

Chairman HERGER. So then you would say that premium support does have the potential to improve the Medicare program and 

shore up its long-term finances by harnessing private sector innovations? 

Mr. BREAUX. My answer would be yes, but you don’t have to 

take my word for it. Look at the things we have done in the areas 

where we implemented premium support. Medicare Part B is a 

classic premium support system. The government helps pay for it, 

and they help set it up with the private sector competing for the 

right to deliver the product. Let me suggest it is a program that 

is more popular today than the Congress that wrote it, and I include myself in that group because I was there. The seniors love 

it. 

Second, the second example is even better, every one of us up 

there and me have a premium support Federal Employees Health 

Benefits Plan, that is a classic premium support. People can choose 

from, they can continue fee-for-service if you want to stay there, 

but the Federal Government sets up a premium support. We have 

the Office of Personnel Management guaranteeing that everybody 

that participates can deliver the product and negotiate for the 

price. That combines the best of what government can do with the 

best of what the private sector can do. So don’t take my word, look 

at the two times we were able do this, and I would think you would 

agree it works very well. 

Chairman HERGER. Mr. Antos, I think it is important for all of 

us to focus on what the Medicare program is facing today. The 

Medicare trustees released their 2012 report just this week. When 

do you expect the Medicare hospital insurance trust fund to go 

bankrupt? 

Mr. ANTOS. Well, I rely on the trustees, who are the Secretaries 

of Treasury, Labor, HHS and two public trustees, and they rely on 

Mr. Foster, who is the Chief Actuary. If current law is actually implemented, which means major cuts in payments to hospitals and 

other Part A providers, then their projection is that the Part A 

trust fund will run short of funds by 2024. However, under other 

assumptions it would be much earlier than that. And in fact under 

the so-called high cost assumption that the trustees also present, 

it is 2016. 


dkrause on DSKHT7XVN1PROD with HEARING
51 

Chairman HERGER. So even with the projections that we were 

to make these major cuts, which most dealt very much we would 

make to hospital, what with the bankruptcy—you say 2024, what 

was the bankruptcy date in last year’s Trustees’ Report? 

Mr. ANTOS. 2024. So some people say that we’ve held our 

ground. Another way to look at it is we are 1 year closer. 

Chairman HERGER. In other words, we are 1 year closer, as you 

mentioned, to this looming, addressing this looming problem. 

The trustees stated that Congress and the executive branch 

‘‘must work closely together with a sense of urgency.’’ In other 

words, now is the time to address significant reform of the Medicare program. 

Do you agree with this assessment? 

Mr. ANTOS. Yes, sir, it is absolutely vital. 

Chairman HERGER. Ms. Rivlin, the plan you worked on with 

Senator Domenici is similar to the 2013 House passed budget as 

private plans that compete against traditional fee-for-service Medicare. 

Can you please explain how this competition will control costs, 

not only for the beneficiaries enrolled in the private plans but also 

for traditional Medicare? 

Ms. RIVLIN. Yes. On a structured exchange where you can really see, where the consumer can really see what the choices are, the 

plans that participate would offer their wares and they would have 

to agree to take everybody who wanted to join their plan and to 

give actuarially equivalent benefits to fee-for-service Medicare and 

they would be competing directly with fee-for-service Medicare. 

There are lots of new innovations in how you treat people, including people with chronic diseases and there is evidence that plans 

can offer better services and bring down the cost of treating Medicare beneficiaries. We believe that would happen and that through 

the bidding process the cost of the plans would maybe not come 

down, but not increase as rapidly as they otherwise would. And 

that fact that the government contribution would be slowed would 

be of benefit to everybody, including those in fee-for-service Medicare. 

Chairman HERGER. In other words, quality could be higher, 

service could be higher, but the cost could be more? 

Ms. RIVLIN. Yes, we think that would be true. Fee-for-service 

Medicare would compete and would probably get better over time 

because otherwise people would leave it. But there is a lot of evidence that fee-for-service doesn’t coordinate care very well. I am a 

Medicare beneficiary. I watch this happening and the coordination 

among providers is terrible. If you are looking at comprehensive 

capitated plans, whose responsibility is to take care of everybody 

in that plan, you are likely to get better results. 

Chairman HERGER. Thank you very much. Mr. Stark is now 

recognized for 5 minutes. 

Mr. STARK. Thank you, Mr. Chairman. Mr. Aaron, would the 

Medicare Trust Fund become insolvent sooner under the Republican plan to repeal ACA? 

Mr. AARON. The ACA contained many provisions that extend 

the life of the Medicare Trust Fund. It was a major improvement 

in the financial status. There can be—is grounds for legitimate deVerDate Mar 15 2010 15:10 Mar 26, 2013 Jkt 079937 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\79937.XXX 79937

dkrause on DSKHT7XVN1PROD with HEARING
52 

bate about whether every element of the ACA is going to be enforced down the road, but there are additional revenues and a host 

of payment reforms that are designed to lower cost with scorable 

savings and others that while not scored by CBO contain virtually 

every idea for payment reform that analysts have come up with. 

Mr. STARK. I have a letter from CMS that indicates that without the ACA the trust fund would expire 8 years earlier, and I 

would ask the chairman to make that letter a part of the record. 

Chairman HERGER. Without objection. 

[The letter from CMS follows: The Honorable Pete Stark] 


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53 


dkrause on DSKHT7XVN1PROD with HEARING79937A.071

DEPARTMIlNTOF .mALTH &: HUMANSIiRVICES 

Cen",,,, fo. Meditare& M!'dic.id 5ervlC1':'l 

Room 352·G 

200 IndependenC<' flV1lnue, SW 

Wa~hin,to", DC 20201 

Office ofCommunkalw ... 

CMSNEWS 

FOR IMMEDIATE RELEASE 

Mondlly, April, 23,1012 

CAIS 

Contact: CMS Office or Mcdia Relations 

(202) 690·6'45 

I\l cdicarr St3ble, But RCI, uires Sirengtlwning 

The Medic4~ Trustee's Report released today shows that the Hospital Jnsuran~e (HI) Tnlst Fund 

is expected to rema in solvent unlil 2024, the same liS 11I5t year's estimatc, hut action is needed 10 

5e'Cure its long-lerm fil1u re. In 20 11 , lhe HI Trust t'und c)[pendirures were lower than expected, 

Without the Affordable Can: Act, the HI Tnisl Fund wou ld e)[pire 11 years C/lrlier, in 2016. The 

11lW provides importanlWols to con1(ol costs over the long rlln slich as chartging the way 

Medicurt: pays providers to reward efficienl, (.jua lity care. These efforts to reronn th~ he"dlthcare 

delivery system tire lint f.1ClOred inlO the Tnmees projettions liS many orthe inilialives are just 

launching. 

"The TruS1ees Repon tells us that while Medicare is stable fot now, we ha\"!: a lot of work ahead 

or us to ~r:mtee ils future," said Acting eMS AdminiSlrtllor Marilyn T~venn~r. ··The 

Affordable Carc Act is giv ing CMS the ability to do this work, with tools to lower costs, fight 

rroud. and change inc('ntives SO tl1at Medicare pays for coordinated. quality cate and nOt Ihe 

number of services." 

The report projects that the Supplementary Medicallnsur:\ncc (SMI) Trust l'und is IinlUlcially 

balanced because beneficiary premiums and general revenue fin ancing arc set to cover exptCted 

program costs, Spending from the I'art B account of the Sf-II trust rund grew al an average rate 

of 5.9 percent over the lnst 5 yenrs. 

Sfvlll'art I), the Medicare prescription drug program, had an average growth rate or7.2 pt'"I"'Ccnt 

over the la~[ 5 yca t$. Cost projtttion5 for f>art I) 3re lower [hall ill the 20 I J Trllstees report, due 

to loWer s~ndi g in 201 J and greHlcr cxpectl.-d use of gell!'r;c drugs. 
54 

f 


dkrause on DSKHT7XVN1PROD with HEARING79937A.072

III expenditures hD~e exceeded income ~nnually since- 2008 ~nd are pmjC'(:ted to continue doin!!: 

:Klunder current law in all flliure years. Trust Fund inle-rest earnings and asset ~dcmptions are 

required to cover Ihe difference. HIISSCIS are projected to cover annual deficits through 202J, 

... ith assel dcpletion in 2024. After a~set depiction. irCoogn::ss were to take no fUl1het action. 

proje-clcd III Trust Fund re~enuC' woold be adequlte to cover 87 percent of estimated 

expenditur~ in 202~ and 67 percent ofproje.:tc:d CO$\.S in 2050. In pntctice, Congn:iis hilS rn:~er 

allowed D Mcdiclln! trust fund to exbaust ]" assets, 

Tile finnncial projections lor Medicare rcfleci subslontiol COSt savings resulting from lhe 

Allbr<lable Care Act. but alsu show thaI furth~r Dction is n~eded to address the progrMl's 

continuing COSI growth. 

The Medican: Trustees are Treasury Secretary ami Managing Trustee Timothy F. Geithner. 

Ilealth and Iluman Services SC'(:relary Kathleen Sebelius. I..aOOr !kcrd3ry Hilda L. Solis. and 

Socill $e1.:urity CommiSSIoner Micl\ac! J. ASlrue. Two ocher members arc publie rcprc:sc:matives 

whQ life Bppoinled by the Presilknl SUbjectlo confinnation by the Senale. Charles P. BlahOlls III 

and Robel1 D. Reisc:haucr bcgllll serving on September 17, 2010. eMS Acting Administrator 

Marilyn II. Tavenner is designatcd as Secretary of the Board. 

The repon is avail3ble at: htlps:l/www.cms.sov/ReoortsTr\.!SlFu .. d$/dowJllo~ds/!r?012 .pdt 
55 

Mr. STARK. If we had vouchers, or whatever you want to call 

premium support things, the Medicare would stop being a defined 

benefit plan and become a defined contribution plan, would it not? 

Mr. AARON. That is exactly what I meant in my opening comment about who bears the risk if costs rise more than are anticipated. 

Could I inject one comment which I think is important? 

Mr. STARK. Please. 

Mr. AARON. The statement has been made a couple of times 

that Medicare is the same as it was 47 years ago, that just isn’t 

true. 

Mr. STARK. You are right, I remember the change. 

Mr. AARON. It has evolved in a number of very important ways. 

It has pioneered in payment reform with the DRG system with respect to payment. And as various people have noted, it does contain 

in one form or another, we may like it or not, the options for individuals to choose among a large number of competing private 

plans. 

Mr. STARK. I have always suspected it was Republicans, but you 

know these guys who march outside with the billboards over them 

saying the world’s going to come to an end. They have now crossed 

that out and say that Medicare is going to come to an end in 2024 

or whatever—12 years. I can remember when those signs said it 

was going to end in 1 year. And I can remember years when the 

trustees report said we had 20 years. 

But the fact is that to change the existing—the life of Medicare 

costs relatively so little to the population at large, I believe that the 

figure to extend the solvency of Medicare beyond the 75-year target 

that people have talked about would cost less than say a 3 percent 

total increase in the premiums or lifting the cap or doing a host 

of those types of things, so that it hardly seems unless you so 

strenuously object to anything that sounds like a tax or a fee, 

which many of my colleagues do, but if you are willing to ask the 

public who will benefit from this plan to pay a reasonable amount 

over their lifetime, I see no reason that it can’t be extended forever 

without hurting job growth or putting the country further into deficit. Does that make sense to you? 

Mr. AARON. Yes, it does, but I would modify it in one direction. 

I haven’t a clue what is going to happen in the health care world 

in 50 or 75 years. What is science going to produce, what will be 

the impact on longevity? In my view, trying to look 50 or even 75 

years ahead, with respect to health care, pensions are different, 

with respect to health care in my view is a fool’s game. And it was 

a bad day when the actuaries were required to look 75 years ahead 

in the case of health care. Look 25 years ahead, that is quite a long 

time and there is a lot of uncertainty within that. Over that period 

you could close the Part A trust fund gap with an increase in payroll taxes of .35 percent each on workers and employers, or more 

cost sharing on some Medicare beneficiaries, or additional payment 

cuts through what we would hope backed up by improvements in 

delivery, which is one of the goals of the Affordable Care Act. 

So I think the idea that Medicare is standing on the brink of a 

dangerous precipice for as far ahead as it is reasonable to look is 

simply incorrect. 


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Mr. STARK. Thank you. The 75-year target doesn’t bother me 

much, but I will come back and ask Mr. Herger, he will find out 

what it is like. Thank you, Mr. Chair. 

Chairman HERGER. Well, I would agree to a degree we have a 

tough time estimating what is going to happen next year, let alone 

5 years, 25, 75 years, but one thing we do know, 10,000 Baby 

Boomers are now going on Medicare every day and that is something we are aware of. And again we have to hopefully in a bipartisan way work together to solve this so it does remain stable for 

our children and our grandchildren. 

With that, Mr. Ryan is recognized. 

Mr. RYAN. Thank you, Mr. Chairman. You know, I hesitate to 

say this, but, Dr. Rivlin I think I agreed with everything you said 

in your opening statement. And the reason I hesitate is every time 

I say something nice about a Democrat it gets them in trouble, 

they get viciously attacked. So in light of Mr. Stark’s opening statement and comments, I am considering making really nice comments about you. See if I can direct it over from Alice to you. So 

I will be working on that. 

Look, there seems to be this attempt to undermine premium support and how it came to be. Let’s remember that it started as a 

Democratic idea. We have the grandfather of the original idea here, 

the author in Congress of its last iteration here. And so there is 

clearly room for the two parties to talk to each other about this 

issue. If we could just calm down a little bit, we might be able to 

save this program. 

Recently I worked with Ron Wyden. I know that is a name. I 

probably got him in trouble right there saying that. 

Here is what Ron Wyden tells me—first of all I think if we want 

real lasting Medicare reform in my judgment it does have to be bipartisan. So here is what a Democrat, Ron Wyden, tells me: Democrats can’t support a proposal that does not have an ironclad Medicare guarantee. It must maintain traditional fee-for-service as a 

viable option. It needs to guarantee affordability for the Medicare 

consumer and protect the low-income. It must have strongest consumer protections for seniors and aggressive risk adjustment to 

protect the marketplace. 

So this is what a Democrat in good standing and Member of the 

Finance and Budget Committee in the Senate tells me are sort of 

the essential principles for premium support to move forward. 

That seems hardly irrational to me. That, to me, strikes me as 

these are ideas we should talk about with each other and there is 

plenty of room for conversation with one another, and we ought to 

have that conversation. So I think we need to put this in perspective. 

This is a program that is going bankrupt. We have the actuary 

come here all the time, whether it is the Budget Committee or the 

Ways and Means Committee, telling us providers are going to leave 

the system, they are going to stop seeing Medicare beneficiaries, 

the trust fund is going bankrupt. All those things are known to us 

now, and it is just so much smarter given that 10,000 are retiring 

every single day to get ahead of this problem and prepare the program so that it can be a guarantee that is not only there for today’s 

seniors, but for tomorrow’s seniors. 


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There is one thing, Dr. Rivlin, that you convinced me of from all 

our conversations over the years on this, that we modified our plan 

for this, and that is competitive bidding. It seems to me a far 

smarter way to set the rate system. Give me a quick synopsis of 

why competitive bidding is superior, what are the attributes to it, 

and how you propose to set it up, the second lowest plan bid and 

the like? 

Ms. RIVLIN. Yes. I think competitive bidding among plans, including fee-for-service Medicare, in a regional exchange, and by ‘‘regional,’’ we mean a metropolitan area or a large rural area, how 

this would work is the plans would offer their plan and bid on the 

opportunity to serve Medicare beneficiaries with the same benefits. 

And the second lowest bid would determine the government contribution. If you chose the lowest bid plan, you would get the 

money back. If you wanted to go higher up the scale, you could. 

You could choose a more inefficient plan or one that offered additional benefits for higher cost. 

But most people would look at how can I get these benefits at 

a cost that I can afford. And the government contribution at the 

second lowest bid would then mean if you are in fee-for-service 

Medicare, you would have the option, if that plan was higher, of 

moving to one that cost you less and getting the same benefits. 

There would be parts of the country where the fee-for-service 

plan might be the best plan and you could stay there, or other people in other plans could move there. But it seems like a good bet 

for offering seniors comprehensive services at the best possible 

price. 

Mr. BREAUX. Can I add something just really quick to that, 

Congressman Ryan. And that is the point that in some rural areas 

you may not have competition, so you have to take steps to protect 

rural areas where there may not be any competition. And we did 

that in Breaux-Frist by saying that no beneficiary would have to 

pay more than the current Part B premium for his standard plan. 

So you can take care of those areas where there may not be sufficient competition to really create a competitive model. 

Mr. RYAN. Five minutes goes fast. Thank you. 

Chairman HERGER. Thank you. Mr. Gerlach is recognized for 5 

minutes. 

Mr. GERLACH. Thank you, Mr. Chairman. 

Dr. Rivlin, looking at your testimony and specifically quoting you 

to say I believe a well-crafted bipartisan bill that introduces a premium support model while preserving traditional Medicare can 

help achieve these goals, and then you go on to say that the 

Domenici-Rivlin proposal is very similar to the bipartisan proposal 

presented by Chairman Paul Ryan and Senator Ron Wyden in December of 2011. 

So as a result of that testimony, I would take it then you consider the Ryan-Wyden plan to be a premium support plan, is that 

correct? 

Ms. RIVLIN. Yes, I do. 

Mr. GERLACH. Okay. And since the Ryan-Wyden plan was incorporated into the House Republican budget and passed a few 

months ago, therefore that plan as passed by the House is a premium support plan, is that correct? 


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Ms. RIVLIN. Yes. I think there are some differences between the 

plan put in the budget. A budget resolution is just a budget resolution. It isn’t a draft of a Medicare law. 

Mr. GERLACH. Correct. 

Ms. RIVLIN. So it is a bit elliptical. And I would stick with my 

statement that I support Ryan-Wyden. 

Mr. GERLACH. As I think of the word ‘‘voucher,’’ I think of a 

situation where government would provide a payment to a private 

citizen, either cash or some sort of check form of payment, and that 

citizen would take that and then purchase a product or a service 

with that money received from the government. Is that a typical or 

rational definition of what a voucher is? 

Ms. RIVLIN. That is what a voucher means to me, and premium 

support as we define it is definitely not a voucher. You don’t get 

a check from the government, you get a choice among plans and 

the plan gets a risk-adjusted payment, a payment that reflects your 

age and health condition. And you don’t even know what that is 

as the individual bidder, as the individual beneficiary. That is between the government and the plan. 

Mr. GERLACH. So the Domenici-Rivlin proposal was not a 

voucher program, correct? 

Ms. RIVLIN. No, it was not a voucher program. 

Mr. GERLACH. And the Ryan-Wyden proposal was not a voucher program. 

Ms. RIVLIN. Not as I understand those terms. No. 

Mr. GERLACH. Thank you so much. I yield back. 

Chairman HERGER. Thank you. Mr. Thompson is recognized. 

Mr. THOMPSON. Thank you, Mr. Chairman, and thanks to all 

the witnesses for being here. 

I am a little heartened actually. There seems to be a lot of agreement. Everybody agrees we need to fix Medicare, we need to make 

it work, and so that is the best news I have heard on this topic 

for a long time. 

I would submit, Mr. Chairman, that it might be helpful as we are 

looking at this if we had a plan in front of us. We have heard a 

lot of criticism about Mr. Ryan’s plan. We have heard criticism 

about the Ryan-Wyden plan. We have heard those who are proponents of that suggesting that maybe it is not what the critics say 

it is. It would be good if we had a plan. We could actually see the 

details of that plan and be able to get down in the weeds and look 

at it. Until that happens, we are just going to maybe be spinning 

our wheels. 

But I do know a couple things for sure. I know that as I travel 

my seven county district, that includes both rural areas, Senator 

Breaux, as well as urban areas, I hear a lot from the people that 

I represent about Medicare and what they think about Medicare. 

And I hear them tell stories juxtaposing the Medicare they have 

today vis-a`-vis what their parents or grandparents had, and it is 

clear, and I hear it all the time, they like what they have now with 

Medicare. They like that. 

Now, I hear criticism of Medicare. I hear people say don’t cut my 

benefits, and I also hear people say keep your government hands 

off my Medicare, which is one that I always kind of chuckle at, because I guess everyone hadn’t gotten the memo yet that Medicare 


dkrause on DSKHT7XVN1PROD with HEARING
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is, in fact, a government program. But I have never heard anybody 

say please, please, go to a voucher system, do away with my defined benefit program. And I don’t think I am in the minority 

there. The Kaiser Family Foundation did polling on this, and I 

think 70 percent of the people agree with that. 

I think we really need to keep in perspective the fact that providing health care to seniors and to people with disabilities isn’t a 

huge money maker. It is not a huge money maker. And I think 

that it is important that we note, and I am glad that Mr. Antos 

pointed out the fact that he puts great belief and credit in what 

the trustees say. I want to reiterate what Mr. Stark said. The 

trustees just said that accountable CARE Act lengthens the life of 

Medicare by 8 years, and the CBO has said that if we put in place 

my friend Paul Ryan’s proposal, they project that the total health 

care spending would grow faster under that proposal and for the 

typical 65-year-old, there would be an increased cost between 50 

and 66 percent. 

Mr. Aaron, could you comment on the effects to society of health 

care spending growing that fast and what would it do to the, not 

only health care, but to the greater economy? 

Mr. AARON. I don’t think there is a lot of difference among the 

four witnesses on the fact that rising health care costs are a problem in this country. They squeeze public budgets, they squeeze private compensation. For that reason, systemic health care reform is 

the key to moving ahead. I think there is a serious risk of trying 

to screw down on the costs of just one element, even a large and 

significant element such as Medicare, while not attending to the 

rest of the health care system. 

For that reason, I think that the key now, the most important 

thing to do now is to move ahead with systemic health care reform. 

The law of the land is the Affordable Care Act. Nobody I think regards that law as perfect in every way. We are going to learn new 

things as it is implemented and we will probably change it down 

the road. 

But the first job is to make, to the best of our ability, to make 

that system work. To the extent that we do that, we then should, 

in my view, be open minded and willing to come back in future 

years and consider whether changes such as the ones that are 

being proposed here today should be enacted and implemented. But 

I think now is not the time to do that. 

Mr. THOMPSON. Thank you. My time is expired. I yield back. 

Chairman HERGER. I thank the gentleman, and I just would 

like to emphasize that as our witnesses pointed out, the trust fund 

is going bankrupt in 2024. The trustees indicated it was going 

bankrupt in 2024 last year. That means we have 1 year less than 

we did a year ago. So this is something the sooner we begin on a 

bipartisan manner working on this, and not using hopefully scare 

terms like ‘‘voucher.’’ I don’t know of anyone except a few people 

on the other side that are using that term. The purpose of this 

hearing is to talk about premium support, which is a bipartisan 

suggestion on how we might be able to fix the system and preserve 

it. So I would just like to make that point. 

With that, Dr. Price is recognized. 


dkrause on DSKHT7XVN1PROD with HEARING
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Mr. PRICE. Thank you, Mr. Chairman, and I want to commend 

the chairman for holding this hearing, and I want to also recognize 

and commend the chairman of the Budget Committee, Mr. Ryan, 

for his work within our conference in educating people about the 

need for reform, but also the positive nature of premium support. 

I also want to thank each of the panelists. You all have put really a life’s work into many things, but not the least of which is positive suggestions and reforms for our health care system. As a physician, I can tell you that folks are hurting out there, not just patients and not just doctors. There are real challenges in the current 

system that we have. 

By way of clarification and to make certain that folks understand 

that our proposal is a guaranteed proposal for seniors, it is stated 

in all of the communication that we have. It is also stated in the 

legislative language. It is a guarantee. So seniors need to appreciate that what we are trying to do is save and strengthen and improve Medicare in a positive way. 

There has been some talk about what is Medicare going to look 

like in 25 years, in 75 years, what the finances are going to be. I 

want to share with you just what the current system looks like out 

there in the real world. 

The status quo is clearly unacceptable. There are new Medicare 

patients. We talk about 10,000 folks reaching retirement age or 

getting on Medicare every single day. If you are in a community 

and you are currently a non-Medicare patient reaching Medicare 

age tomorrow, and you are currently being seen by a physician who 

does not see Medicare patients, the challenge that you have in finding a doctor to see you as a Medicare patient is huge. The difficulty 

of new Medicare patients to find a physician seeing new Medicare 

patients is massive. 

The physicians out there are going crazy with this current system. It doesn’t make any sense at all, and it is more and more onerous, more and more difficult to be able to just care for patients. 

One out of every three physicians in this country limits the number 

of Medicare patients that they see. One out of every eight physicians in this country sees no Medicare patients at all. That is not 

a system that works. So we need to find a positive solution, which 

is what we have been trying to put forward on our side of the aisle. 

Ms. Rivlin, I was encouraged by the tenor of your testimony and 

commend you for the work that you have done in the area of premium support. You mentioned that your proposal differs some from 

the Ryan-Wyden proposal, and when I got to that area of your testimony, which wasn’t in your spoken testimony but was in your 

written testimony, one of the areas that you differ with the RyanWyden proposal is that you believe we can move to a premium support system for seniors sooner than is in our proposal. Is that correct? 

Ms. RIVLIN. That is correct. 

Mr. PRICE. And would you expand on that? Our concern was 

that if we didn’t what we call grandfather the grandfathers, that 

we would not only take political heat, but the challenge of moving 

in that direction that quickly would be too great. Please help me 

understand why you think we can move there sooner? 


dkrause on DSKHT7XVN1PROD with HEARING
61 

Ms. RIVLIN. Because we preserve traditional fee-for-service 

Medicare as the default option. I mean, it does grandfather anybody who is in it, and it is a permanent option. If you reach that 

age you are in it, unless you opt into something else. And we believe that the changes that would take place in the competitive bidding are substantial challenges, but they could be met by, say, 

2018. We will have some experience in setting up exchanges under 

the Affordable Care Act by then, and there is no reason not to start 

sooner and let everybody have a choice. 

You can view this as an improvement on Medicare Advantage 

that makes the competitive bidding—introduces competitive bidding and makes Medicare Advantage more accessible and better, 

and if you do it that way, it is not such a big deal. 

Mr. PRICE. I want to thank you for that. And we will go back 

and scrub our numbers, but I want to thank you for what hopefully 

will be the genesis of a new found bipartisan opportunity to move 

forward and save and strengthen and improve Medicare by providing for those choices, but guaranteeing that seniors have the option of remaining on the current Medicare. 

Thank you, Mr. Chairman. 

Mr. STARK. Would the gentleman yield? I happen to be a fan 

of his bill to get rid of this idea that if a physician doesn’t take 

Medicare, they are out of the system for 2 years. I join with him 

in trying to see that we get that changed, because that doesn’t help 

anybody. You are to be credited for seeing that and trying to 

change it. Thank you very much. 

Mr. PRICE. Thank you, Mr. Stark. I may fall into the category 

of Mr. Ryan, though. If I start saying nice things about you, we 

may all be in trouble. Thank you very much. 

Chairman HERGER. Mr. Kind is recognized. 

Mr. KIND. Thank you, Mr. Chairman, and thank you for holding 

this hearing. And I want to thank the witnesses for your testimony 

here today. 

Senator Breaux, this is always a delight to hear you and your 

comments. But just for the record, I still have a ’68 Chevy Malibu 

convertible that I love to drive around. And it is one of those cars 

where you can get under the hood and do your own tune-up and 

oil changes, and you don’t have to be a computer whiz to do it. And 

my guess is that if you asked the typical senior in Medicare, they 

feel kind of comfortable with the Medicare system right now, and 

they think it is essential to the quality of their life. They want to 

see improvements made, but they also don’t want to see it decimated. 

I am one of those dwindling breeds here apparently in Congress 

these days, a moderate, centrist Member of Congress trying to find 

different pathways forward, hopefully in a bipartisan fashion, to 

address the challenges of our time, and I can’t think of a bigger 

challenge than the dysfunctional health care system and the impact it is having not only on people’s lives, but on our budget and 

our national finances. 

I have been encouraged listening to a lot of your testimony because there appears to be a lot of agreement on the panel today 

that a lot of the tools that we put in place in the Affordable Care 

Act need time to move forward. Delivery system reform, so we get 


dkrause on DSKHT7XVN1PROD with HEARING
62 

better integrated, coordinated care leading to better outcomes; payment reform so it is value-based, not volume-based. 

In a lot of respects, this hearing and this discussion we are having is premature, and Mr. Aaron and I agree. I think the Affordable Care Act needs a chance to move forward to see if this stuff 

works before you can actually have a serious conversation about a 

voucher or a premium support plan, and who ultimately is going 

to bear that risk. 

But I have always been interested in just three things when it 

comes to health care reform: Better quality of care for a better 

bang for the buck, and making sure that all Americans have access 

to that type of care in this country. And how we get there is something that we have to continue to talk about. 

But one of my concerns with the Republican budget proposal and 

their voucher or premium proposal is the risk in and who is going 

to bear it. But a bit of a parochial concern that I have from the 

State of Wisconsin, we have traditionally historically been one of 

the lowest Medicare reimbursement States in the entire Nation. 

We share that with the Pacific Northwest and some other regions. 

And under their proposal, apparently the rates will get locked in 

at the lower of either the current fee-for-service reimbursement 

rate, or the second lowest plan in that region, which would guarantee in Wisconsin that our providers are locked in at the lowest 

Medicare reimbursement rate, which they are struggling to live 

under today, which tells me that they are going to have to continue 

to cost shift the inadequacy of Medicare reimbursements on to the 

backs of businesses large and small, on to the backs of private 

health care plans. 

Mr. RYAN. Will the gentleman yield? 

Mr. KIND. In a second, so I can make my point. 

This will not only continue the death spiral that our health care 

providers are experiencing in the State of Wisconsin, but the death 

spiral that businesses in Wisconsin are facing with rising health 

care costs because of the cost shifting that is currently impacting 

them, making it harder for them to compete, not only at home, but 

globally. And it does not make sense that we go down this road, 

not until at least we find out whether delivery system reform and 

payment reforms actually have a chance of working. 

I have tried in my way to work in a bipartisan fashion in this 

Committee. Mr. Aaron, you pointed out that it is crucial that these 

exchanges have a chance to move forward and show whether or not 

they are viable or not. I have been the author in previous years of 

the SHOP Act, which was the basis for these health insurance exchanges, and every year I introduced that proposal, I had an equal 

number of Republicans and Democrats on that bill. We put it in the 

Affordable Care Act and my Republican colleagues ran for the hills. 

I was one of the authors with Mr. Blumenauer on reimbursing 

our health care providers for counseling on advance directives. And 

every year we introduced that bill, we had at least five or six Members of the Committee, Republican Members, who were on that legislation. That was put in the Affordable Care Act and that turned 

into ‘‘death panels’’ and my Republican colleagues ran for the hills. 

So having that bipartisan conversation is difficult to have when 


dkrause on DSKHT7XVN1PROD with HEARING
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you have principles or issues that we had previously agreed on that 

suddenly divide us today. 

I agree with Mr. Thompson, Paul, that to have a serious conversation, we need a plan. We need words on paper so we can actually see, because we all know, and I think everyone on this panel 

would agree, that the devil is in the details on how any type of premium support or voucher plan is ultimately structured. And we 

don’t have that. 

I talked to Ron Wyden too, and sometimes I feel like I am talking 

to two different people who are embracing the same type of plan. 

What Paul understands what the plan would mean, and what Ron 

Wyden understands sometimes they are talking past each other. 

So unless or until you put something on paper so we can truly 

analyze the impact of this what this is going to mean, all this is 

theoretical. 

Mr. RYAN. If the gentleman would just yield kindly, I will send 

to you and Mr. Thompson the plan that Senator Wyden and I coauthored with our signatures, and I will send it over to your office. 

Mr. KIND. All right. But, again, I think, Mr. Aaron, I hear from 

you, and John, I think you testified too, that it is important that 

these delivery system and payment reforms as part of the Affordable Care Act right now have a chance to continue to move forward. And if, for some reason, the Supreme Court or this body decides to overturn everything, I think that is just going to lead to 

an absolute state of chaos right now in the health care system that 

may take a generation to recover from if we go back to square one 

again. 

Thank you, Mr. Chairman. 

Chairman HERGER. Mr. Pascrell is recognized. 

Mr. PASCRELL. Thank you, Mr. Chairman. Thank you to the 

panelists. 

I have heard, and I said many times health care reform is entitlement reform. Folks on the other side don’t want to hear that. We 

haven’t touched entitlement reform in the health care bill. I think 

that is utter nonsense. One-third of the health care bill is devoted 

to Medicare and Medicaid. It is very specific about the recommendations, and those are recommendations that we should be 

considering if we weren’t trying to suffocate this legislation before 

it breathes fully in the next 2 years. 

Not only are we going to reduce costs for Medicare, but also the 

Health Care Act reduced costs for beneficiaries, unless you don’t 

agree with the CBO numbers. The majority’s attempt to repeal reform and turn Medicare into, let’s not use a voucher program, let’s 

not use that word, I call it the more-out-of-your-own-pocket-folks 

program. I think that will hurt beneficiaries. And there is no doubt 

about it, this is going to mean more money out-of-pocket. No one 

has denied that. No one. 

So according to the CBO office, the Republican budget will dramatically cut spending in Medicare for new beneficiaries by more 

than $2,200 per person per year. That is what the CBO says. And 

we conveniently use the CBO when they support our position, and 

then we tell them that they don’t know what they are talking about 

when it doesn’t support our position. And starting in 2030, by 


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64 

$8,000, by 2050. If you want to talks about the future, let’s talk 

about the future. 

We don’t have to scrap the current system. In fact, as we are sitting here today talking about strengthening Medicare, the health 

care reform bill is already hard at work actually testing new payment and delivery systems that will lead innovation not only for 

Medicare, but for the entire health care system. And let’s talk 

about that health care system. 

You are talking about competition. Let’s increase competition in 

terms of Medicare. We don’t have competition in the health care 

system. Many States have only two or three companies who write 

health insurance. Why don’t we do something about that? If we 

want to foster competition, let’s foster competition. We don’t merely 

mean it. This is—it is empty. These are words that we use back 

and forth. This is one-upmanship. That is all we are after. 

The basics of health care will be changed by the Health Care Act 

for the better of Americans. It will not be a socialistic system, 

thank God we graduated from that, since more insurance companies will be involved in order for us to gain favor with the people 

that we are dealing with. 

You know, we are heading back to 1964. I am convinced that 

that is the direction we want to go in, when senior poverty was at 

the greatest since the Great Depression. That is where we want to 

go. Why don’t we just say that? We are using a lot of pretty words. 

Yes, you may shake your head, Ms. Rivlin, but I am telling you, 

we are marking time in place while many seniors are being stopped 

at the door because they are under Medicare. That is what we 

should be addressing. That is what we should be saying, enough of 

this. The health care system is not working. The health care system has been totally taken over by the health insurance companies 

of this country. You know it and I know it. We don’t have competition. 

In New Jersey, what would do we have, three or four companies 

that write health insurance? This is competition? What is this competition? You say, so we will narrow it. Maybe next year we will 

have three companies. Maybe Co. C will take over Co. D. In how 

many States do we have only three or four or less companies writing health insurance, and you want to put our seniors into that situation? That is not competition. That is a joke. You know it and 

I know it. 

By the way, Mr. Aaron, I want to congratulate you on the work 

you have done. I know since I have been here for 16 years, you 

have been at the forefront of talking about these issues. These are 

critical issues for all of us. I know that it is not very popular to 

try to hold down out-of-pocket expenses. That is not a popular position, Mr. Aaron. But I don’t care whether it is or isn’t. You have 

done the right thing. I admire what you are doing. 

We have enough here to work with within the legislation to 

change Medicare, but let’s not throw away everything because we 

want to get to a few who will profit only. Thank you, Mr. Chairman. 

Chairman HERGER. The gentleman’s time has expired. 

Dr. Boustany is recognized. 


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65 

Mr. BOUSTANY. Thank you, Mr. Chairman. I thank you for 

holding this hearing. 

I think this has been a nice reprieve where we actually get to 

talk about policy, and I want to thank all the panelists here today 

for the serious work you have done over many, many years to advance the debate and to advance real solutions to solving health 

care. 

Senator Breaux, let me publicly thank you for your many, many 

years of service to our State of Louisiana and our country and to 

your continued willingness to do this and to serve in a public capacity to advance the debate in health care. 

Mr. Aaron, you raised the point about competition and the fact 

that it has not lowered costs. I would submit that we are really 

stuck right now between a price-controlled system and vastly imperfect competition. We don’t really have the kind of competition 

that is necessary, both in the health care financing arena as well 

as in the delivery system aspect of this. And I think if we could 

get to more perfect competition there, we would see the advantages 

of lowering costs and enhancing quality. And that is coming from 

somebody who has had many years practicing in the health care 

system as a physician. 

I have some really deep concerns about the tilt toward price controls in this, which I think it is pretty indisputable that that is 

what we are operating under right now. And the problem is we already have a serious shortage of physicians and nurses in this 

country, and if we continue on this path where we have seen—we 

are facing the cuts in sequestration, we have seen cuts year after 

year to providers, what is this really going to mean for access? Because coverage does not equate to access to good high quality care. 

I know, Senator Breaux, you and I, actually even before I got to 

Congress back in the 1990s had serious concerns about trends we 

are seeing in the Medicare program whereby, for instance, as a 

heart surgeon, I would see a patient in the emergency room and 

do an emergency coronary bypass operation, and then in the aftermath of all that, we couldn’t find a primary care physician to take 

care of the patient’s basic health care needs. I would have to get 

on the phone and start begging physicians in my community that 

I knew well and worked with to take on a new patient. And the 

whole issue was the cost. The cost of care and the cost to these 

physician practices is not being met by reimbursement. So if we 

can get to a system that brings us back to a real competition, I 

think it makes a difference. 

I want to compliment Chairman Ryan. I know he walked out. 

But he has actually taken a lot of the work that Dr. Rivlin and 

Senator Breaux, Mr. Antos, you have worked on, and Mr. Aaron, 

and put it into a body of work along with Senator Wyden to try 

to get us to that. And I don’t know of any other alternative. 

So, would anybody comment? Is there another alternative out 

there other than the premium support model? 

Mr. AARON. I think the key to solving the problems that you 

have described, and quite eloquently, I believe, regarding the fragmentation of care comes in some of the innovations that are in the 

Affordable Care Act, in particular, two that I would focus on. 


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One is the creation of accountable care organizations, which are 

groups of providers who would be paid to assure the health of people who enroll with them, much as health maintenance organizations do; and the second would be bundled payments, so that in the 

event of a coronary artery bypass graft surgery case, a payment 

would be made not just for the act of surgery, but for the followup care as well, so that you, together with a primary care physician 

and perhaps a nurse practitioner who would regularly contact the 

patient to make sure that he or she was taking recommended 

medications, would all work together. That is the key. 

Mr. BOUSTANY. Mr. Aaron, one of the fundamental problems 

not addressed in the Affordable Care Act is the—in the context of 

accountable care organizations is we still have Federal barriers in 

place that prohibit physicians to integrate care with hospitals, and 

that has not been addressed adequately. We need statutory relief 

in that area if we are going to see those kinds of innovations. 

Mr. AARON. I agree with you completely, and it is an illustration of how the law may need to be amended. 

Mr. BOUSTANY. Senator Breaux. 

Mr. BREAUX. In alternatives, and I think that Congressman 

Kind had pointed this out, Ron talked about the demonstration programs that are in the Accountable Care Act. I remember when I 

was in Congress when I wanted to stop something from happening, 

I used to offer an amendment to do a study, or maybe to do a demonstration program, hoping it never got completed. 

But I think the things that are in the Accountable Care Act, the 

demonstration programs, are very important, but you can be for 

both going to a premium support system and a demonstration 

project in the Accountable Care Act. If the demonstration programs 

work, it will improve the fee-for-service delivery system, and then 

if you have premium support, they will be better competitors. And 

that is what we are trying to bring about. 

I think the demonstration programs are helpful, they are important, but they are not an either/or situation. You can move to a 

premium support system and support the demonstration projects 

and hope that they work very well. 

Mr. BOUSTANY. Dr. Rivlin, do you want to comment? 

Ms. RIVLIN. Yes, I fully support what Senator Breaux just said. 

It is a mistake to think of these as alternatives. At least our plan 

envisions that the Affordable Care Act continues, that the demonstrations and the various institutions that were set up to improve the delivery system go ahead, and we hope that works. We 

are only saying that there ought to be another way to get these innovations into use, and that would be competition. 

Mr. BOUSTANY. Thank you. Mr. Antos. 

Mr. ANTOS. I agree with that. But it would also be a mistake 

to believe that these things are going to materialize overnight. As 

someone said, the devil is in the details, and accountable care organizations are devilish. 

Mr. BOUSTANY. Thank you. I yield back, Mr. Chairman. 

Chairman HERGER. I want to thank our witnesses for your testimony today. This has been an extremely interesting discussion, 

one that highlights the need for Congress to act soon in order to 

place Medicare on sound financial footing. Premium support proVerDate Mar 15 2010 06:53 Apr 02, 2013 Jkt 079937 PO 00000 Frm 00070 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\79937\79937.XXX 79937

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posals like those we heard about today hold promise to improve 

how care is delivered, better protect beneficiaries against Medicare’s cost sharing requirements, and utilize competition to control 

costs for the program as a whole. 

As a reminder, any Member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask the witnesses to respond in a timely manner. 

With that, this Subcommittee is adjourned. 

[Submissions for the Record follow:] 


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dkrause on DSKHT7XVN1PROD with HEARING79937A.035

April 27, 2012 

The Honorable Dave Camp 

Chairman 

Ways and Means Committee 

U.S. House of Representatlves 

Washington, D.C. 20515 

The Honorable Wally Herger 

Chair, Health Subcommittee 

Ways and Means Committee 

U.S. House of Representatives 

Washington, D.C. 20515 

The Honorable Sander levin 

Ranking Member 

Ways and Means Committee 

U.S. House of Representatlves 

Washington, D.C, 20515 

The Honorable Pete Stark 

Ranking Member, Health 

Subcommittee 

Ways and Means Committee 

U.S. House of Representatives 

Washington. D.C. 20515 

Dear Representatives Camp, Levin, Herger. and Stark: 

I am writing to you on behalf of AARP's 38 million members and the millions of 

older Americans and their families who depend upon the Medicare program. Our 

stalementtoday will focus on comments generally to the creation of a "premium 

support" system for the Medicare program. We appreciate that the House Ways 

and Means Committee is holding a hearing focused on the long-term future of 

Medicare. AARP believes it is critical that we strengthen Medicare to ensure 

both the health and economic security of cU(Tent seniors and future generations. 

AARP is concemed Ihat rather than recognizing that health care is an 

unavoidable necessity which must be made more affordable for all Americans, a 

premium support system may Simply result in a shift of high and growing health 

care costs onto Medicare beneficiaries, as well as a shift of even higher costs of 

increased uninsured care onto everyone else. The typical Medicare beneficiary 

today, living on an income of roughly $20,000, already struggles to pay for their 

ever-rising health and prescription drug costs -- and nearly 20 percent of their 

income currenlly goes to health care costs. By creating a "premium support" 

system for future Medicare beneficiaries, any such proposal risks simply 

increasing costs for beneficiaries while removing Medicare's promise of secure 

health coverage - a guarantee that future seniors have contributed to through a 

lifetime of hard work. 
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The Honorable Representatives Camp! Levin, Herger, and Slark 

April 27. 2012 

Page 2 

Proponents of a premium support syslem for Medicare believe Ihal such a 

system could, depending on how the government contribution to premiums was 

determined, reduce future federal Medicare spending. Previous proposals 

assumed significant savings would come from competition among private plans 

in Medicare. However, many critics have questioned those savings, and point 

oullhal much of the savings are achieved nol by lowering health costs, but 

simply by shifting costs onto beneficiaries. The recent experience with Medicare 

Advantage, where payments to private plans have generally been higher than 

costs for the traditional fee·for·service (FFS) population, casts some doubt on the 

promise of savings through competition. 

A premium supper1 system with an inadequate government contribution would 

greally increase the costs of Medicare for beneficiaries and would increase the 

risks beneficiaries would face under such a system. Much of the federal savings 

from premium support would come from increased premiums paid by 

beneficiaries (i.e. shifting costs from the government to beneficiaries) rather Ihan 

from cost savings within the health care system. Especially vulnerable are those 

beneficiaries who are unable to afford higher premiums, including Ihose 

remaining in the traditional FFS program (assuming it remained as an option), 

eilher because it was Ihe only option available in their geographic area or 

because they felt it the best option for Ihem. This would be par1icularly true if Ihe 

FFS program included a larger propor1lon of the oldest and sickest beneficiaries, 

which could further raise costs and premiums compared wilh private plans. A 

premium support system - unlike private plan options that currently exist in 

Medicare - would under this likely scenario ' price oul" traditional Medicare as a 

viable option, thUS rendering the choice of traditional Medicare as a false 

promise. 

Any Medicare reform proposal should ensure adequate affordable coverage -

especially for lower income beneficiaries - and protect beneficiaries by 

maintaining a guaranteed benefits package and insuring that all plans meet 

quality and efficiency standards. 

Various premium support proposals up 10 this point have failed to recognize that 

higher Medicare spending is driven to a large extent by high costs throughout Ihe 

health care system generally. Medicare is just one part of our nation's health 

system, which includes public, individual, and employer·based health insurance. 

If we're serious about lowering health care costs, we cannot simply focus on 

Medicare and Medicaid for savings. Rather, we must improve the delivery of 

health care generally, including increasing preventive services, better 
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The Honorable Representatives Camp. Levin, Herger. and Start.. 

April 27, 2012 

Page 3 

coordination of care, lowering the cost of prescription drugs, and the reduction of 

waste and fraud throughout the entire health care system. 

Over 47 million older and disabled Americans depend on Medicare today, Giving 

seniors the peace of mind that they can see their doctor and afford therr health 

care isn't a Republican or Democratic issue. 

Older Americans agree it's time to work together to find solutions that will ensure 

that Medicare will continue to be there for them and their families. AARP is 

committed to working with both sides of the aisle to ensure Congress reaches a 

financially responsible solution that will ensure seniors have access to the 

doctors and services they depe[1d on through the Medicare program. If you have 

any further questions, please feel free to call me or have your staff contact Ariel 

A. Gonzalez of our Govemment Affairs staff at 202~43443770. 

Sincerely , 

~A.,¥-

Joyce A. Rogers 

Senior Vice President 

Government Affairs 
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TESTIMONY OF KEllY ROSS 

OEPUTY POLICY OIRECTOR, AFL-CIO 

BEFORE TH£ HOUSE COMMmE£ ON WAYS AND MEANS 

HEARING ON MEDICARE PREMIUM SUPPORT PROPOSALS 

APRIL 27, 2012 

Un e5~ hullO care COSU ire broushl u~der conlrol, they ire projecled 10 bankrllPt ;ndividll.ls, 

famille., bll,lne"e., ,tate SOYf',nments, and the federal government bV the lauer hall III the 21M 

century, The fact that Medicare has proven to be more cou eUKtive than private health Insur~nce 

plan~ over the P.II lour decades sUKge5ts Ihat the besl w~v to ccnuln future COlt glowth illo improve 

and e~lIand Medica re by bllilding on Ihe lIaymeM and delivery .eform. of the Allo rdable care Act (AO), 

6V conlrast, proposals to replace guaranteed Medicare bendit. with a lIat payment of premium 

supporl-also known.5 a vOllcher-wollld Increase overall hHllh cue costs, Shift cost. 10 senlofs and 

increase their out-of-pocket spending, create a two-tier health ca re system, ma~e Medicare's fisk pool 

more upenslve to cover, and IIltimately leave Medicare to "wither on the vine ," The dalm Ih i t these 

IIremillm sUPllOrl proposals wOllld reduce overall heallh care costs I, based on ideoloiY ral~er than 

e~per1ence or facts, 

Mediure ha, lower costs Ih~n privale health Insurance pl~n"for Ihree reasons. Fl .. I, Medkare 

has lower administrative cost! - about 2 perc~nl of lOla I sllending compared to 11 percent for Medicare 

Advanlige plans.' ~tond, Medk,lTe has enOlmous buying power that allows It to resist IInreasonable 

increao;es in pfOvid~r prkes, where~, p"vate insurance companies often '~ck Ihe indlnation or abilll\! to 

resist rite Increases In concenttated provider markets, Third, Medicare has the birgillnln, power 

necessary 10 prevail llPOn prillate providers 10 implement payment and delivery relorms Ihi l prom;o;e 10 

bring CO!!S unde, contlol. 

In ildd!tJon, Medicare has experienced Igw.!U'os!,!I!owtll,gVE'r tim.$' thiO private iosllrance plan,. 

Belween 1970 and 2009_ Medicare spending per enrollee grew one percentage polnlless each Veallhan 

comparable privale heallh care pfemium. oron~ third Ie •• over four decade,,' In addllion, b~tween 

2010 lind 2019, Medicare spendlog per C~ ili 15 projected to Srow nearly two percentase lIOints slower 

than private heall h Insurance ," 

ThiS is why ploPOsals to repli ce guaranteed Medica re benefllS with IIremlum .lIppOrt vouch""s 

would InereaS£' ove,all cost. in Ihe U.S. health care ,v,lem, The Congre"ional6udgetOffice (C601 has 

found that t~e 2011 Rya~ premium support proposal would Increase overall health care COlts for the 

average 65-year-old beneficiary by 40 percent-from $14,750 to $20,500-in Its flrst year 01 

implementation," O .... r 7S yea .. , Ihe 2011 Ryan plan wOllld inorea,e the coSt of orovlding Medic~r~ 

eqllivalent policies by 011 least 520 trlllion,' 

To theet;tent toal Premium SIlPPOrt proposals .... ollid reduce lOme portion 01 Ihe lederal 

government's health Care con~, th~y would do 50 bV shifting a much higher amollnt 01 COSIS to seniors, 

6ecaule the vallie of a vOllcher would almost certainly lail to keep up with health care cost growth, 

beneficiaries wOllld have 10 pay mOre 0111 of pocket each year-eil her to buy mote generous prlvale 

plans or to stay in traditiona l Medicare-or they would hav~ to sellie for less npensive pl an.lhat 

provide lewer benefits or require more co~t sharIng, According to CBO, fiep, lIyan's 201 J premium 

..... ppotl proposal wOllld Increa,eoul·ol-p<Kket heallh care .pending per IN!neflciary by $6,000 In il' fir~ 

year of implement ali on-from $6,150 to Sll,SOO,~ Moreover, theamount of the ~ouchers could be 

easily dialed down to 'hift even more wSi. 10 .eniots, 
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Premium 5UppOrt prop05al~ th.eaten 10 create a two-tier health care system, In the upper tier, 

the wealthiest senio,s would supple",ent Ihe" lIOuchers wlt~ the'r own resources 10 access Ihe most 

ad~anced medical ca'e. In the lower tiel/ seniors with more modest .esoulces would only be able to 

acce .. Care covered by their in<reasingly inadl!<luatellOucher. 

Maintaining trad il,o",,1 Medicare as an alternative 10 privale insurance plans would nOI remedy 

these delects, We know Irom e~perl nce th,lI priVate Insu.ance companies do nOl compele with 

!radil;"n"1 Medicare based on efficiency, but .alher by ' cherry picking" the healthiest and least 

e~pensi~e beneficia ries, This hu been the expNlenceof Medicare Advantase, whose pllvale plans have 

a history ollrylng 10 attract h .... llhy seniors and discourasing less heallh y en.oilees and whose costs per 

beneficiary we,e neverthele" 9 percent higher than tradillonal Medicare in 2010. This was also Ihe 

expe rience of th .. Medicare ~ Choice progr3m In the 19905. 

Because of this tendency of prNat e plans to che rry pick the healthiest and lean expensive 

beneficIarIes, prem,um supporl proposals would I .. ad to the gradua l demise 01 Medicare as we know lI_ 

The pool of beneficiaries enrolled in traditional Medlule would be sk~er and mOre expensive 10 co"er, 

HlghercoslS fm a dwindling pool of beneficia ries would lead 10 higher premiums, ,hrln~ing the .isk pool 

furtll!>r and drIving up prfmlums further, This is known as it "death spiral: Or as House5puke, Newt 

Gingrich calle1:l it in the 199Os. "withering On Ihe vine," Although ·,Isk adjustmenl# is designed to 

add.es. thiS pmblem, e~perience has also shown that risk adjustment is flawed and that ultima tely 

prIVate plans are overcompensated for recruillng healthY beneficiari~s . Th~ important thing 10 

understand Is thai Medicare would be dis.dvantaged nOI beC3use it is leiS cost-effective Ihan privale 

insurance plans. but because It pools risk without regard to health status and does not cherry pick Ihe 

hea lthlesl and leut expensive benef",;aries. 

In Ihe end, premium support proposal, would not only fail 10 conlaln DYerali COSt, In Ihe US. 

health care system, but they would cripple Medicare's superior ability to conta in ''''Is. With a 

dWind ling number of beneficiaries, Medlcar~'s administritlive costs would Increase as it percentage,of 

spending. Medlcar" would lo~ Ihe bargainIng pOWilt needed to resist unrnsonable provider price 

Increases. And Medica re would 1(l5e the cloul needed 10 drive payment and delivery reforms by privale 

provide ... 

In 5hoft, prrmlum support proposals would be it giant step in Ihe wrong direction. The real 

problem is nOI Medicare spending growth per se, but overall cost growlh In our health care svstem, 

which also driy"s up CDSts for Medicare. Premium support propOsa ls would ma~e this problem worse by 

drlvln8 up overall costs, Instead of crippling the ability ot Medicare to contain health care cost growth, 

we should Improve and e~pand Medicare and take advantage olilS market power 10 extend paymenl 

and delivery reforms th.oughoulthe entire U.S, heallh care system. 

' ...... f.O\IIy,_, .... ,~ • ..,..,m"li_"_llOlll. ... s . • f .... v .. "" ""''''. ~ ..... _ to f'<ernI"", ~0P0<1 WO<l1<f uw.1.Nd '" '-TIer ~ • ..,., CO'.I .. '..... • ConI., on ~~ ond 

-..,.,~IS. . .......... "',lonL. 1 

~_'r_f_ .... _.".~ !_,Oll l 

• ~_ "~0Ifq, '"lont r ............. "' ...... '_'., <1>0_ ",,,,,' (_, S, 'O" _ 5.-NnO' .... "'t:OO _ 

_ ..... *<.ir .. d "' ....... . .. " .... , W_ N ... "10 [<>d ",,,,, 0> G .............. , 01'"" rt..n SoooI So<~. _"~ D<-o,'" DoI_'" 1ffiJ." 

'"""', r"' ....... '.r>d -.""" ..... v-w 1, 10"1 ••. J, 

' o.m .. "" 1_ ar><I """'"" ~_.«Io, 'Il0l>_,, .... N,,,,.. ~)Or_~. w .. ,.l ... (~0tiI >e"1., I, "",, l . ·c"""" .......... ~Olf"','""" , .. '" ..... ~01."""""'- ..... C~.~"''" ~,,~·(_ 5, 10111:" __ ,,,", --aD""-,, _ ..... _I.d~ • .",' ... 'w ..... _! .. "' .. t"'~_OtIwIMo_s.."'II-.,"N '~C¥t,._Oof ........ ,~· 

c .... , t .. """P!. r>d ............... ... "'" 1. IO"~ p •• • 
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AFSCME ~ , 

Statement for the Record 

by the 

American Federation of State, County and 

Municipal Employees (AFSCME) 

for the Hearing 

on 

Medicare Premium Support Proposals 

Before the 

Subcommittee on Health 

Committee on Ways and Means 

U.S. House of Representatives 

April 27, 2012 
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SI:tI('menl for !he Rfi:o rd 

by Ihe 

AmeriClin Feder .... inn ofS .e , County nnd M unieiplll Employees (AFSCME) 

Fnr Ihe H(,!lring nn 

Medicare I'r~n~iu'" Suppon l'rul}(ISMls 

Befnu th~ 

Subcnmmill('(' on llcalth 

Ull1mill(' ~ 011 WaYI Mild Me.ns 

U.s. Ilnllse of RC lrr nl tins 

AIITi127,2012 

Th;s Slalem"nl is submiuoo on behalf ofth., 1.6 million workers and reti ....... members of 

tilt American Fcdernlion ofSlale. Coonly and Ivlunicipal Employees (AFSCME). for the hearin~ 

held April 27. 20 12 on MedieaTl' Premium Support f'rupuS3ls. 

AFSCME is proud of labor's hisloric I'(l l~ in the crc~tion MC'dicare. It i5 ~n indisp •. 'llsuble 

federal social in,OTanc" progmm. Medicare provides \,hal ~onl!nercial health insurnnee 

enmlXlnies did nOl, .... ,ould 001. and could not; affordable, utkquu.e health cowrage ror /\merica's 

elderly population regardless of income or Ilea Itt! SIa l us. Before tile enactment ofMooican', only 

lIalflhe population agc 65 and older lIad he~hh illsurnnceand •• hoS\' who did haw covernge, paid 

close to triple whal younger people paid for prem iums:md olher out-of·pockel costs. 

l3efor(' "" eVI\luate prem'um support proposals, it is ,,,'portant 10 briefl}' .... vicw 

Medicare's core purposes lind how Mcdieon! has successfully pooled our Mtion's resources 10 

equitably meet an ongoing need for each generation, 

Medicar .. &S NOI "'nil Shyuld Not Ik> Uk<' Comrncrei>ll .lnsonouce 

t>.'ledicare and privale plans may seem as being similar in thaI both allow ;nd;\'jdIl3Is to 

go 10 a doctor and ~et medicaltreatmenl. The foundatinn lind purpose of Medicare i§ profoundly 

unlike l'Ommereial health pbns. As a soci~1 insllrnllcc plan, Medicare's purpose is to absorb 3nd 

spread risk, serving individuals who may have COSIly and complex medical nl.'Cds as well as the 

relatively healthy. Medicare un;ll-s lhe resourees oflhe emire nal;OIl to shield olle genermioll 

after another nf oldcr Americans and individuals with disabilities from fmanciol Olin in the Cl'cnl 

of ilIIlCSS, injul)' Of expensive chronic condilinns. AU American workCI1I contribute to fund the 

program and reap Ihe benefits oflhe progmm once Ihcy are eligible. No one ;s shul out bee~use 

nflleahh slatus or income. Medicare by design pays lor all m:'c~ medical cart: for 

beneficiaries. Medica .... will pay claims withoul discriminating against an individu.al becall!;C of 

"here Ihl'Y live, thcir hislory. Ihcir diagnoses or prefcrences. President John$OlI'S Medicare 

signing stmemcnl addressed Ihe core American values 31 the hean of Medicare's 11nancial and 

bend;t design- individual dig.n;ty, faiM1~'Ss. and safeguarding Ihe common good: 

·'No longer will older Al11erie,ms be denied Ihe IIcaling miracle of modcrn medicine. No 

longer will illness crush and destro), the savings thaI lhey have so carefully PUI away ovcf 

3 lifetime so Ih~1 Ihey mij!hl enjoy dignity in their latcr years. No long~r \\-ill young 
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families.$(."/' their oll'n incombi. and the,r Q",n hop"s, eaten away .simply ~atlSe th .. ), lire 

carrying olltthd. deep mornl obligations to tht ir p.1tcntS, aJld to their uncles, and their 

aunts, And r\(} longer will th is Nation re fuse the hand ofJ stk~ tll QS~ whu ha"e gi~en a 

lifetimt! of!ICrvkc all<! wisdom and labor 10 Ihe progT\:~S n flh is progressive country." 

Pri"at .. health insurnnce companies haw a very dim'rent purpQSC and function, l 'he;. bu in c~s 

inter~ t is to avoid k lecting individuals " ,th medical needs in order to maximi:r.e pro iilS. In 

short, insumnce conI panics !lCek to avoid risk. nOt pool it. 

The Iludget for FY 2013 passed by Ihe House of R~pre5t!ntatiws along part)' lines. calls 

for a radicall'l.'$lnlcturing of /ltkdic~rc and a repeal of the Atfordable Care Att {ACA). The 

jllslilicalion for such ehnnges is to rc<Iuce the dclicil1lnd to rein in the ~o-ca ed "ollt-(lf·contro'" 

pendi,,~ in Mo:dicare and to Sl!ve the fUllm" of Med'care. Analysis of data actually shows these 

ju, tifiC"dlioos to be highly que ti ll uble. 

li st nric~ll , MediCtlre per capita spending has grown 11 bil slower Ihnn tile privateseclor's. 1'.kodicare·s growth r~te (s rcn13rkably low when it comes 10 I;!eahh can: eosl& pcr 

pcrS(m. 'Over the lIe)(t decade. Mcdicare's per bcllcfleiary nue of growth is projected \0 be h,w, 

in lurge pC/rl Jut! /(1 1.·IKJIIges i n /he AJjordtl/)/1! Cure >le//AeA). 

The AC A promOtes cosH:niciellt delive!)' of quality care ullde. Medicare. Tbc law laps 

imn Medicare's purchasing po,,"er 10 pronlpl providers, "ho arc increasillgly concemml~-d alld 

call elTcdhcl), drive Ull pa}'ments regardless of quality, to do more to control their COSIS.! It is 

important 10 highlightlhnt 1I0ne o f the payment refonns am'CI Medicarc's gnaranteed benefit 

packages. In f.1Ct. the law s pells out loud alld clear thaI the guarnlltt'ed ben('flts in Medicare !'art 

A and I'm' Il will not be redllc.::d or eliminated as a result of changes 10 the Medica,.:: program. 

The AC,\ prQt~ts ta.xpay .... ru}(l M.w~are dollar$ against fraud in M~dicarc . I" 20 II , 

Medicare ~'tIthc IWW ACA t'llfoTC<'meot louis w n:CO\'cr nearl), 54.1 billion from individuals 

and compani~~ who ullemptcd tu defraud Sl'niors and laxpayers _ln most cases. they charged 

Mcdica re lQr sl'rvices never rccei ~ed by belleflciarie5. or d<'libl.'T1llcly owrchargt'd for services 

rendered. 

The fisca l ;ntprul'ements ,n th~ ACA help Med;~are to hold dOwn premium in~re:tSCi tor 

h<'nelidaril'S who ... ", o ltlcr and sicker 1han the non-Ml-dicare populatioo, The COllgrcssioual 

Budge! Otlice (CBO) IInds thM Medieart premiums. eurr<:ntly e~lil\lated 10 be 11 pt.'n;cnt lov;er 

than private il\ Ur3n~~ premiums ror the same h<'llelit package, will be about 30 pt'rt"t'Ilt luwer by 

the end ofthc "~)(I d~...,atle_ 

Ikcausc the fund ing stnletu("e of Medica re - through payroll eontributions, ("eVenues ~nd 

hcnclki,uy cost-sharing - fluctuates with the economy, the surclire way to fortify Ih" soh'ency 

of Medicare and address the dc fi61 is- 10 inlPI'()VC the ccollomy. Creatillgjobs. closing corporate 

• Jbid. 

, 
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rax lOOpllok'S and requiring Ihe wealtlliest Americans to pay th~ir rair $lIare will help Medicare 

and il5 bel1diciaries. 

Tile n<:~d for Medicare 10 Il'main a refuge against financial ruiil caused by Ihe ca[ll'ice o f 

Ill ness and disability rinJ!.Sas true today 3S il did nearly lIa lfa cenlury agu "hen Medica", "as 

creared. Any propos.aIIO redesign nr Slruclllr'oIlly change MediClLre ho\lld be able 10 affimlalively 

meel allea~llhree criteria wbieh arc at the IIcar1and soul of Medicare. 

I J Docs Ihe proposal eff<'(:\i'l:ly spread ri~k m,d d<:liver guamnlccd benClils fm~'<Iicall}' 

n<.-eess,'lry C8re, reg3rdles.~ of ~n individual 's medica l eondilion? 

2) Docs Ihe pro~1 cfl'cctivl:ly continut MJ:djcare's 00fC rlmction o fpooliug r<:sourccs 

In fillRnce health covernge for ~niors and individuals with snhililie ~? 

J ) Does Ih~ proposal eff~'c il l:I)' conlinue Medicare's core purpose or prOlecl'ng 

beneficiaries and tlleir ramilies from rmlmciul ruin due 10 ilIn<:ss, dis~85C or i.Uul)'? 

The 1-loltse-P.1Ssed brldgel which restructures MJ:dictlre inlo prell1iulll supportS, CllIS 

benefils. I'"~ises Ihe age oreligibilil~' alld repeals Ihe ACA r.1 ils Oil all three crilcria. 

The I;>ttdget plan n:plac~'S ~1ctli(are' s guaront~ .... ofhcallh covcra~~ anti Sei premiums. 

In;lead, fUlulC relill'es would be given a flal p.l),lIICn\, or voucher. Ihat bcnclicinrics would usc 10 

purchase eilh,'r private health inSUJ"<Incc or traditional ~kdicare. Tile- voucher is dcsign<:,j 10 lose 

valuc o\'cr lime so thaI more and more Orthe COSI of cowrnge (premiums and eOSI sharing) 

would bo: shill~-d 10 beneficiarics. Be~ausc Ihc median income ufMcdican: households is about 

S25,O{JO n ycor, ~nd mOSI spend three limes s much orlllcir budgets on olil-of-pocket health 

c:-cpcnscs compared to nOII-M,'dicare hOlLseholds. 1l101l), rclirc~'S woold find lhal eowrogc is 

unarro dabf~ HI higher costs. 

According 10 th(- CSO, Ihe prem'um Support or \Jch r proposal will incICltSC coolS for 

Medicare bl:ncficiarics by 1110re than U ,200 per bcn~'ficiary startillg in 1030 311d increasing In 

S8,000 in 2050. 

OITering bolh pri"ate plans ami lradltional MJ:dicare USC$ llle promls<.- of choke to 

disguise Ihe dill1inishmenl of Medic pre's funcliOlllo deliver gual'"4ntecd bcnC'lils pnd pool 

resources :md SPf;.'ad risk, The private plans, like the privale Mcdi(aH" Adl'anlug<: pl~n$, will slill 

ch~\T) -pick heahh;"r :md less COSIly clirolll"l!S and I~ave Medicare willi II less health)' pool ur 

bcn<:ticiaric$. Over time, Iraditional M(-dicar<' will bc<:o'ne less: affordabk, causing cOSts 10 rlst 

for sicker and older beneficiaries. 

Th~re is no guardntee Ihal Ih~ premium support or VOUdlL'I" wuuld co,w Ih~ COSI of 

M'-dicar~ al Ilw Slart or ov~r I"ne. Cumntly, r>k-dkare premiul11s a~ Iht same, r"gardkS5 of 

IIhcn.' a bendkiary re .• idcs il\ our nalion, Th~rc is LIt) guaranl<.'c Ihat the premiums will be 

adequate 10 cover /I privMC Medicare plan regardle ss of!ocalion. 

The privale plans would nolix required 10 provi.k the gU8ranle<:d benelilS under 

Medicare, The private plaus would only Ix requi .... -d 10 prt)vide Ihe uCluarial equivalenl orlhc 

bcUC!,IS undcr lraditional Medic~rc. Again, Ihe history ofbencficiary abuse and exploilatioll by 

, 
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Medicart:! Advantage private plans iliuStlllte the d3ng~ rs for heallll and financial SI.'Curit)' rth~ 

sickest and olde st ben~ficiaries, 

Medicare is an amazing success story - providing heaith and financipl SI.>curity to 

millions of Americans, even during thc worst e<:onomk crisis since the Greal Dcpl\'ssion. 

AFSCMF. opposes the HO\ls~·pa sscd budget's rcstnlcturing of Mt'dican: beCllUse it would expose 

o lder Americans and their families to financial nlln caused by the caprice uf illness and 

disability. It would a llow sick and older 5CniOM; and individuals with disabilities to be denied the 

promise of modern medicine because of income Mnd health status. In shon, we oppose the 

premium support or oucl1~r prtlposal because it ends Medical\', ns we know it . 

• 
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STATEMENT FOATHE RECORD 

SUBMITTED TO THE HOUSE WAYS & MEANS HEALTH SUBCOMMITTEE 

ON 

PREMIUM SUPPORT AND ITS IMPACT ON MEDICARE BENEFICIARIES 

APRIL 27, 2012 

ALLIANCE FOR RETIRED AMERICANS 

815 161H STREET, NW 

WASHINGTON. DC 20006 

1fL..YNJ..relite(1americaOs.org 
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The Alliance for Retired Americans submits this statement to the House Ways & 

Means Subcommittee on Health Care to express our strong opposition to the premium 

support provision included in this year's House Budget Resolution , H. Con. Res_ 11 2-

Premium support would end Medicare as we know it for Medicare beneficiaries, 

removing the guaranteed benefits that have provided health security for our nation's 

retirees and the disabled since 1965. 

Founded in 2001, the Alliance is a grassroots organization representing more 

than 4 million retirees and seniors nationwide Headquartered in Washington, D.C., the 

Alliance and ils 32 state chapters works to advance public policy that strengthens the 

health and economic security of older Americans by teaching seniors how to make a 

difference through activism, 

Premium support, as proposed under the House budget, will be devastating for 

many seniors. The plan ends the guaranteed benefits under Medicare, which assures 

beneficiaries that any and all services that are medically-necessary will be covered, 

Under premium support, beginning in 2023, Medicare beneficiaries would receive a 

fiKed stipend to be used to purchase insurance through a Medicare eKchange. 

Beneficiaries could choose between private plans or traditional Medicare. The problem 

wilh this proposal is that the capped payment would not keep up with medical innation. 

Instead, the fiKed stipend would be indexed to the gross domestic product (GOP) plus 

one percent - a calculation that does not adequately account for rising medical costs. 

Over time, as medical costs continue to rise, the capped stipend would be insufficient 10 

cover the premiums. requiring seniors and the disabled to spend more and more money 

out-of-pocket to get the same care they currently receive under traditional Medicare. 

While higher income beneficiaries may be able to afford the higher premiums or 

increased out-of-pocket costs, most Medicare beneficiaries would not. This will produce 

a two-tiered system of care. with Ihe wealthy having access to all the latest technology 

and treatment, while the fest of the population goes without. Contrary to the image that 

seniors are well off, half of the people on Medicare have incomes below S22 ,000 a year, 

To make matter worse, Medicare beneficiaries already spend 15% of their income on 

heath care costs. which is three times more than the rest of the popUlation. The added 

out-of-pocket costs under the Ryan Republican budget will force many Medicare 

beneficiaries to be underinsured and. in many instances, forgo needed medical 

treatment. 

Furthermore. premium support may very well be the demise of the Medicare 

program. Proponents argue that premium support allows Medicare beneficiaries to stay 

on traditional Medicare. While this may be true initially, It is uncertain whether that will 

hold true in the future. Based on the experience 01 Medicare Advantage plans, one car'\ 

expect that private Insurers under premium support will likely cherry pick the healthiest 

patients leaving Medicare with sicker and more chlonically iii individuals. This will 
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undoubtedly increase costs for those under traditional Medicare. Medicare has 

historically been more efficient than private insurance, in part due to its enormous risk 

pool. However, should Medicare become saddled with sicker pallents, Its premiums will 

rise, causing even more of the healthy beneficiaries to abandon the program, The 

continuous rise In premiums and subsequent drop in enrollment could undermine the 

entire program as increased costs make the program unaffordable and unsustainable. 

Finally, premium support does nothing to address the true drivers of rising health 

care costs. Instead of implementing reforms that will bend the cost curve, premium 

support. as adopted in the Ryan Republican budget, simply shifts the costs on to 

beneficiaries_ If Congress is serious about reducing health costs. it should allow the 

new C(ist--savi'1gs initlt1tives "I"! the Affordable Care Act to be implemented These pilOI 

programs are well thought out and have been successful in reducing costs while 

improving the overall health of the population. Furthermore, the new initiatiVes do not 

reduce health expenditures by transferring the costs on to beneficiaries. 

In addition to premium support, ttlere are various other ideas that have been 

proposed to help reduce the cost of health care. including raising the Medicare eligibililY 

age, instituting a single Medicare deductible and charging a surcharge on Medigap 

policies. Like premium support, these policies are short·sighted and not in the besl 

interest of Medicare beneficiaries. They seek to reduce health costs by shifting it 10 

those WhO can least afford it. As Congress deliberates on ways to reduce health costs, 

members should keep the need of seniors and the disabled first and foremost on their 

minds and not make radical, harmful changes such as those in Ihe Ryan Republican 

budget. 
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Comments for the Record 

HOllst! Committee on Ways and Means 

Subcommittee Qn Health 

Hearing on Medicare Premium Support ~roposa s 

Friday. April 27. 2012, 9:00 AM 

by Michael G. l3indner 

Thc Centcr for Fiscal Equity 

Chainnun Hrrger i.lI1d Runking Member Stark, Ulllnk you f,)r the (Jpponunity to submit 

my comments 011 111 is topic. 

The whok purpose of social in~umnee is to prevent the imposition oful1eanled ~'osts lind 

payment of unC3med benefits by not only the beneficiaries, but also their f3milics. Cuts 

which cauS<.· patients to pick up the slack favor richer patients, richer children and grand 

children. patients with larg.er families and fmnilics whose parents and I:\randparents arc 

alre3dy deceased, given thM the altematil'e is high.:r I3XCS 011 ea.:h working m.:mbcr. 

Such cuts would be an undue bl.lrden on poorer retirees without savings, poor lami lies, 

small families with fewer children or with surviving parents. grandpllrents and (10 add 

inSult to injury) in-laws. 

The key iSSLle for the futur.: of health care finance is the impact of pre.-existing conditioll 

reforms on the market ror health insurance. Mand:ncs under the Anord3ble Care Act 

(ACM may be inadt.-'<!utl1c 10 kccp people from dropping insurance - ~ll"Id will cerLllinly 

not \\'ork if the mandate is rejected altogether for constitutional l'C3SQns. 

I f people stan dropping insurancc untilthcy get sick - which is rational given thc 

wC3kness of mundl.ltes - then privatc health insuf'dllce will requirc n bai lout into an 

ctYcclive single payer systcm. The only way (0 SlOp t!us from h;)ppening is to ellact a 

subsidi7.cd public option for those \\'ith pre-cxisting conditions while repealing mandates 

lind pre-e.xisling cQndition reromls. 

In the cvent that Congress docs nothing and privotc sector health insurance is lost. the 

prospects tor premium suppan to repla.:e the ClUTcnt Medicare program is lost as well. 

Premium suppon 1Ilso wilillot work if the ACA i~ repealed, since without the ACA, pre.-

cxi-sting condition protections and insurance exchanges eliminate the guarantee to seniors 

nccessary for refomlto SlIcc.:ed. Meanwhile, under a public option without pre-existing 

condition rt'ronns. bccalJsc seniors wOlJld be in the group of those who could not 

normally get i.l1su/"Jnce in the privtue market. the premium SlJpPOri solution would 

ultimately do nothil1£ 10 fix Medicare's funding problem. 
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The all(.'mmive of single-payer catastrophic insurance with health savings llccounts would 

nOI work as adveni5ed, as health cnre is 001 ~ nonnal go(xL People will obtain hculth 

eliTe upon dOClor recomnwndlllions. rCgilrdlcss oflheir ability 10 pay. Pm\'id~·r.; will thcn 

shoulder the burden of \\aiting for health s:l\'ings account balances to accumulate -

further encouraging provider consolidation. Existing trends toward provider 

cOnsolidation will exa~rbate th~se problems. because patients will lack oplions once 

they are in a network. giving funder.; little option other than paying up as demanded. 

Bruce BurtlclI wrote in the New York Times Economix Ologon May 17.2011 outhc 

nmure orlhe Medicare nnandal problem nnd how to fix il. The information he imparted 

is invaluable, however I diS<lgree " 'ith his solution, which is to stop doing the Doc Fix. 

He relatcs that the ACA c.xpansion of runding brought the Hospitallnsurnncc Trust Pund 

(Part A) into balance. with parts I) (doctor visits) and D (Drug coverage) rt.'Sponsible for 

most Orlhe unsustainabk cost growth. as patient premiums are sellO 25% of progrnm 

co~ts and will] drub coverage premiums covering evenlcss. 

The Ccnter belicves that Slopping doctor bills frOm going up on the dcmand side will not 

work. We know that because it did not work lor Medicaid - since restricting payments 

have SlOpped most doctor.; from taking Mcdic~id). This linding has a grem deal ofimpact 

on what is possible in preventing the doctor Ilx. 

The problem with Mcdicare I'an 13 is thm inereUS(.'s cunnot kcep up with costs, like they 

do in Ihe privote market. because doing SO violates the commitment to not cut SocioJ 

Security benefit checks. Tht' cost of living. adjustment must be high enough to cover the 

premium increase each year· although lor many that is ull it docs. Funhcr cuts bring up 

Ihe S[lI!Cter or seniors eating cat foot to make ends meet. hence the reason thol the riSClll 

Commission was called the Cal Food Commission by progressives. 

Premium support and not pnlehing dOClor rees ore mtempts to makc doctors TCstrict their 

costs - bolh to seniors and overall. Prices nmurall)' risc more quickly Ihan inflation 

bt."CllI.lSe these services arc subsidized, so any co-pay must be increased to slow demand 

from users in I!.xactly the slime way the market wOl!ld without subsidies or insurance. The 

desire to make doctors pay more Is a recognition thm the main impact of both insurance 

,1I]d subsidie.~ (and subsidies for insunmcc) is higher income ror doctors and a larger 

medical CIl/"C sector thlln would Olhelwise occur inll rree mllrkct. 

OIIT hybrid system is the mosl expensive uplion . eilht.'r going 10 much less 

comprehensive insumnce for evt.'ryonc or an entirely governmental system would be 

cheaper, but is politically untcnllble (at least until private insurnnce ooJlap~s or is 

evemually supplanted by an ever cxp,mding public option). 

Going aflL'T doctors still won't ,~ork, however, as the Medicaid experience clearly shows. 

Premium support is a way 10 have insurance companics go aflcr doctors instead, bUllhat 

willlikc1y y ield the same result. 
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Making pmients more conscious ortheir care might do the trick. both wilh more realistic 

premiums lor Part Il and Part D, with both rising to absorb half the cost - although 

premiums could be lowered by increasing co-pays und providing seniors with Flexible 

Spending and/or health savings 3CCOUntS. The problem is that this is untenable when 

dealing wilh a population with largely lixed incomes. That problem, however. is not 

unsolvable. 

The obvious solution. which no one has yet suggested. is to change how COLAs lire 

calculated. moving rrom the wage index to an index based 0 0 IIh31 scniurs actually buyespecially health care. If premiums were inc reused quickly. COLA changes would have 

II) be as mpid. 

Such a propoSal Il ouid ha.>ten thc date IhattheOld Age and Sun'ivors Insurance fund 

Ill'eds rescue. II also impacts lower income seniors to a greater eXlelllthan higher income 

seniors, since they havc less lell ol'er aflo:r ally mnndutory eo·pa)'. Either bcnd points 

would h31'c 10 be reset orlhe entire eomplic:ued system orbeod points would have to be 

replaced a ncw mcthod or crediting contributions. where employer contributions arc 

credited equally ruther than as a match to the employee contribution· thus moving. 

redistribution from thc benefits side to the revenue side. 

An 8vcmge cmployer contribution Ilouid provide cven more inccntil'c for increasing the 

amount or income subjccl to benefits. <II le:lst for the employcr eOOlribution. Of course, if 

you do the lallcr, we might as well simply use:l Net Business Rcceipts Tax or a VAT to 

replace the employcr contribution (which eapwrcs all income lI'ilh the latter burdening 

impons as wcll) 

Shifting to more publk lunding of health cure in response 10 future events is neither good 

nor bad, Rather. the success of such funding dcpends upon its adcquat'Y and its impaci 

on the qU:llity of care - I"ith inadequnte runding and quality being related. 

Ultimately, tixing health eMC rctoml will require more funding, probably somc kind of 

employer payroll or net business l\.'Ccipts Inx - which would also fund thc shonfall in 

Medicnrc and Medicaid (and take. over most ofthcir public rcVCllllC lunding), 

We wi!! now 0101'1.' to an analysis of flludin g options and their impact on patient care and 

cost control. 

The committce well underst3nds U1C ins 3nd outs of increasing Ule payrolltnx, so we will 

coniine our rcmarks to a tuller e.xplan;:uion ofNet l3usincss Receipts Taxes CNBRT). Its 

busc is similar to II Value Added Tu); (V AT). but not id..:ntical. 
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Unlike a VAT. an NBRT would 110t be visible on receipts and should not be lCro ruted 111 

the border - nor should it be applied to imports. While both collect from consumcrs. the 

unit o f :malysis for the NllRT should be the business rathcr than thc tr~nsaction. As such, 

il5 3pplic3Iion should be universal - covering hQlh public companies who currently iile 

business incOme t(lXC$ and prh'(Itc companies who currently iile Iheir bUSineSS c."po:nS('S 

on individual rt'turns. The key difference between the two lases is th:lt lhe NBRT should 

be the vehicle for diStributing tax benefits for families, particularly the Chi ld Tax Credit. 

the Depcndcnt Care Credit and the Health Insurance Exclusion. as well as any recently 

enueted credits or subsidies under the ACA. In the event the ACA is refomled. ilny 

additional subsidies or Ulxcs should be taken against lhis lax (10 pay for a public option or 

provide for cata:>lmphie care and Health Savings Accounts andlor Flexible Spcl1ding 

Accounts). 

The NORT can provide an incentive for cost savings ifwc allow employers III oOcr 

ser" ice~ privatcly 10 both employees and rctiri..'1;S in exchange for a substantial tax benefit, 

either by pro\'iding insurance or hiring health care \\'orkcrs directly and building their 

own facilities. Employers who fund cat~strophic care or operatc nursing c:Jre ra cilitie~ 

would gi.:l an eV1."11 higher bencfil. with the proviso that any care so provided be superior 

to the CIlre available Ihrough Medicaid. Making employers responsible for 01051 eOsl~ and 

for all cost savings allo\\"s Ihem to usc some market power to get lower ra tes. but no so 

much Ihm the free market is destroyed. 

This proposal is probably the 1110st promising way In alTCst health care costs from their 

current upward spiral - as employers who wotlld be financially responsible for this care 

through taxe~ would have a real incentive 10 limit pcnding in a way that individual 

taxpayers simpl)' do not have the mCllns or incentive to exercise. While not all t.'1T1ployers 

would participate. those who do would dramatically aiter the market. In addition. a kim! 

ofbeneiiciary cschange could be established so thm participuting employers might trude 

eredi\.li for the funding of former employees who retired elsewhere. so that no one must 

pay unduly for the mcdicnl cOSts of workers who spent the majority orlheir careers in the 

service of olher employers. 

The NBRT would replace disability insurJnee. hospital insurance. the employer 

contribution 10 old age and survivors insurMee, the corporate income lax. businC$s 

income taxmion through the personal income tax and the mid range o f personal income 

ta:ll collection, cfTectil'ely lowering personal income taxes by 25% in most brackets. 

Note that collection Oflhis tax would lead to a reducticm of gross wages., but nOl 

necessarily net wages - allhough larger lamilies would rl·Cl'lvC a large wage bump, while 

wealthier families and childless famili es would like ly receive u somewhat lower net wage 

due to loss of somc tax subsidies and because reductionS in income to make lip for an 

increased ta. .. benefil ror families will likely be skewed to higher incomes. For this 

reason, a higher O1il1ilnul11 wage is necessary so thaI lower wage workers ure 

COlllpens;ucd with 1I10re thanjUSllhcirchiid la ~ benefits. 

Thank you for the opportunity 10 address the committee. We are, of course, available for 

dirccllcstirnony or to answer 4ue lion~ by members and taIT. 
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Contact Sheet 

Michaell3indner 

Center for riscol Equity 

4 Camerbury Square. Suit,,: 302 

Alexandria. Virginia 22304 

571-334~8771 

fiscalcquit y@veri~<' net 

Subcommittee Oil Ilealth 

J.k aring on Medicare Premium Support Prop()~a!s 

Friday. April 27,1012, 9:00 AM 

All submissions muSt includl! a list of all diems. persons and/or organizmions on whose 

behalf the wiiness appears: 

This testimony is n01 submined on behalf oran), client, person or org;U1ization other thau 

the Center iL~l!lf, which is so far unfunded by nny donations. 
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POLICY & ACTION FROM 

CONSUMER REPORTS 

Written Testimony of 

Consumers Union 

on 

Medicare Premium Support Proposals 

Submitted to 

U.S. House of Representatives 

Committee on Ways and Means 

Subcommillee 011 Hettll" 

Apri1 27, 20 12 
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Int roduc tion 

Consumers Union, lhe policy and advocacy amI of Consumer Reponsl

, apprcci:lles this 

opportunity 10 providl! written Il!Slimony on Mcdic3rc premium supporl proposals 

currently being considered as an ahemativc to lradilional Medicare. 

Medicare PlVvides cssemial hC3hh coverage for almost 50 million American seniors and 

p!!rsons lI'ith disabilities. Mcdicarc faces financial challengcs. primarily as a result of 

c~asing enrollment due 10 retiring baby boomers. Importantly, however. Medicure per 

enroll!."!: spending has been slightly be/oUl\hal ofprivalc insuruncc.2 

Premium support proposals seck 10 trnnsform Medicare from a dcfint,.-d bcnefil program.. 

in which bendiciaries are guaranteed coverage for a f,,'a:d set of benefits. to a defined 

contribution or " rTCmiuln support" progmm. in which bcncliciarics arc guantnlt,.-cd a 

fixed tcderal payment (or voucher) to help cover Iheir health earc c.xpenses. 

Consumers Union believes Ihallhis approach io addressing the real fi nancial challenges 

to Medicare will not rcduce overall health care costs, ~UI will PUI millions ofs.enior and 

disabled AmericanS at grcaler risk of higher COSIS. less coverage. or bOth. 

Unaccepta ble T r,, " sfer of Ri k 10 Br nr ficiaries 

Under Ihese proposals. a 13rge amOl!tl1 of risk is lransferred 10 Medicart: beneficiaries. 

fieneficiari<.:S al\' at risk for the escalation Of medica! costs abovc GrosS Domcstic 

Product (GDP) +.5 perccnt. Thcre are no gUllrnnlecs Ihnt thl: proposal will hold down per 

clIpita cost growth. Instead, wc argue 1x:low that COSI control is unlikely. ,lIld thus is likely 

to increase costs for Mcdienre beneficiaries, most of whom. II\'C" on modest. fixed 

incomes and are nol in a posilion to pay much more for Iheir heallh care. 

In addition to this fmaneinl risk, in a world of multiple and varying plan designs 

beneficiaries are al risk lor being able 10 idcntify the plan Ihal provides the best cuverage. 

The "premium support" proposals will require health plans to otTer coverage Ihal is 

"lIelutlrially equivalcnt~ to looay's I\>kdicarc Fee-for-Service (FFS) plan . This IllcanS thlll 

the Medicare benefit design would no longer be slandardizt'il, requiring beneficiaries to 

'Cl>"SUIn~1 R~pon~ is Ihe WlJI"ld'~ Inrg,~ t independenl prildueH~"in8 nrgnllil.Qtinn. 1}_in@"I<lnOlrethan 50 

13bs.. 3ull) l<!St tenler. and urvC)' rt;,,,ur<:h cnt~ . lhe nonprofit IlIt,"" Ihw,lnd!; or prilductS 8n~ service; 

•• ""uaU}. fOlu"dcd in 1936. CousUlner R~p('fU< ha:; ""er 8 mitlj,," ."bscribclli W LIS ma~i"c, ,,"eMile, and 

Bmer public~tiol(". hs II<hOCB_'Y di"isiBn. C/msumcr'Ol Uni()ll. " ',,,ks r"r health ",rOml. r<>t><J and prod,"'t 

""[<:1),. linancinl rdOlm1. and nlh .. -r Cj1f\SUlner iSllu~ ,n Washi,)gh)II. 1l.C .. Ihe latc ~. and in Ihe mnrkclrl~et. 

1 John 1ll)lnh:tn and Slac~y MtMomo". ··Medicare. Metlil. did Und lh~ Ixfi.il Debate: 'j imdy Anal) ~ nf 

Im"'L-dillle Ilcalth Policy tss ,,~ s~. Urban In51iwl(. Arrit 20t2. 

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undc rSland how coumlcss complex designs would aHccllhem, There is overwhelming 

evidence Ihal consumers have dimcuhy understanding and comparing Ihe cosHharing 

provisions of hcahh plans,) We IlIUS! recognize thm Ihese producls are nOI cans of soup 

that can be easily compared, especially with new and " innovative" products coming on 

the marki.'t. Il1nov(ltion is olkn accompanied by additioll(ll complexity for conSumers. 

SOllle proposals promise to provide voucher ree-ipients with 'elc:\r and easy to understand 

information' on various plans. lea hh rlans, the National Associalion of Insurance 

Commissioners (NA Ie) and consumer as!;istors everywhere have been trying to convey 

understandable infomlation on health plan features for yeMs. Indeed, se\'cral regulations 

require thatvariOlls health plan summaries be understandable \0 the avc ral!:e health plan 

enrollee. However, we ha\le /It) evidence thus far thlll thesc are succe$sful: The reasons 

vary: the underlYing infonnation is complex and new methods o f usefully summarizing 

are only just coming online.s In shol1. these proposals put seniors at risk of obtaining 

coverage that they do not understand and that docs not cover their needs. 

Uarnessing Murkct Furees - ilow Realistic'! 

Harnessing mnrkel forces to achieve the policy goal ofadcquate health eo\'erage for 

seniors in a linnncially sustainsblc. method is a theory that needs a careful reality check. 

A~ SOOle oflile proposals rt.'eognil.c. harnessing competilion among private insurance 

pl(lns to achieve a poliey gO:ll \l1kes aggressive government intervention und oversight 

The m(lrke\ cannot operate unleltered because cel131n outcomes, such as engaging in risk 

st"leetion or discriminatory plan designs, are· a natural by-product of privale insurance 

company activity, Yct these pr:lclices undennine Ihe policy goals of adequale, aflordnble 

co,lerage for all seniors. 

Experiellce with the Mcdican.' Advantage program shows us how hard it is 10 gel this 

oversight right. Rules governing benefit design, markcting and other practices have had 

to be continuously fine-tuncd due 10 privale insurer predilections to :lItract lhe healthiest 

risks. 

Policy approaches that "harness the market" require ruks with respect t6 consumer 

prot<:elions. monitoring and enforcement. Wc CM expect that in all these activities 

retl ..on Glahn_ -Cl1n,umer Ch"icc{)fl kahh Plan lk~isi l1n SU I'I"~ R"tl~ r,,,. lIealil, ,chatl~~"', Pad tic 

B",incss Group I1n Ileahh. FebnJ.1ry 2012. Lynn Quincy. "Whal' ~ Ikhind the Door: Con""l'crs' 

Oifficuhil'S ~Iwin~ Ileahl' PInus". C(>M,"n~r.;-LJnjon. Jllnuhl)' ~Ot2 . 

• Coll"'-"!! F.. Metlill. EIlRI Fello". Rich1ll'd L. Wieller. llrian II. Bmnstdo. antl E. h: kn1:l" McGorl), "III'" 

KC'IIdablf Art SlIm,nal')' I'lull De:scriplioliS For Iltallli Cart l'lans'?". EBRI NOles. Ot:1Ob<.r 21.106. This 

stutl)· ro""tllhatlh~ a'~"'g~ n:adab;lily kwl ror imporla"t i"romlsl;"" Cl!nc~m;n~ digibilil~, hcncfiL'l, .. nd 

parliCip<1l'l rigl11$ Bnd n:'fK'llsibititics ill summa!)' ptan tJ..-s.:riplions is "rillcil ~l B first J eM c,1lkgc reading 

tClel. tle;:r>[l~ a rCQuirclllcnllhallhc malerinls be und~rslnndnblc 10 lht oVC1lIge ptan ~nmttt~. 

"I'M Kltimann Gm"p and C,'nSUml'i'S UniDll, "Early Consumer Ttst;ng Qrlk Coverage l'at15 Lubel", 

Augus120 11 . 

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insurers and othcr intcreSlCd panics will try to afTcct rules atlhestatc and fcdcrallcvclto 

ensure thm morc advantage lalls their way, to the detrimelll of sicker patients. 

Unl ... E\"id ... ~ ... Th:lt Costs W uuld Be l.ow!';r 

Proponent;; lIT"gue that the premium support approach can be used to lower hClllth care 

costS, compared \0 traditional Medican'. 'fhis must be examined critically from three 

pcrspcctiv(.'s. 

One, it is not just fcdcmlly financed costs that need to be considered but ovemll costs, 

including the consumer's out-of-pockct share. Mcrely shilling costs to COl1sum()rs is not 

an acceptable policy solution. The Congressional Budget Ollice (CIlO) projects that lul,,1 

health carc spending for II typical beneficiary covered by the standardized benefit under 

at least one of the proposals would grow faster than such spending for the same 

beneficiary in trnditiQnal Medicare." 

Two, the ingredients lor a competitive mnrkel place - one cupable of driving down prices 

- arc missing. As discussed abovc, consumcrs havc trcmcndous diOicu!ty distinguishing 

a1)long hcalth plans - a kcy rcquircment lor il fUllctioning mnrketplnc~. Consumers also 

lack the necessary price transparency, ability to ellaluate alternate treatments and 

confidence to make market driven detisions when consuming health earc services. For 

serious medical conditions, most consumers defer to the treatment recommended by their 

doctors. And as mentioned abov.:, eOective fisk adjustment mechanisms and 

understandable health pliln disclosures that are key to this type of ilpproach n!tedto be 

gn::.:.tly improved. 

Three, Ihere is lillIe el'idellce that costs would be Iowa. The cno eslimates that a private 

health insumnce plM eovaing the standardized benefit would be more expensive 

currently than traditional Medicare.' This shollld not be surprising. The Medicare 

Advilntage program - a nmrkel-b.1sed alternative to tradition:!1 Medicare - costs lllorc, 

not less, per bellelieiar)'.~ Thos<: fixed monthly ,paymcnts to Ad\'antage plans are, on 

avcrage, 13 percent abovc Mcdicilrc FFS costs. 

MOl\:: broadly, private plalls operating in the commcrcial market place now have providcd 

linle evidence that !lley can lower costs more succcssfully thall MI.>dicare's eurrcnt 

approach. 

6 Elmendorf. Aprit 5. 20lt lcner 1<.1 lIonnrdt>lc 1'aut Ryall. 

hllp :llcoo.¥o\" 5il~.""lkfaull /j Icslcbolil"-"flpdoc.tl 21 xxldoc t 2128f04..{)S-f)'lIn _Icncr.pdf 

l tbid . 

• The Mcdia.r..- Ad,p"lag~ pi"Ugrnm $h<ln:~ mnll)' ofl he ~am,' fealure.' oflhc premium .• uppor1 pmgron>. 

Ih~ plon ~ muSI o1Tl:r a bend,l IhUI; ~ 8tluurially e<lui~alem Iii Medic,,",. ll,cy ti!.::e anl,-d;Krin,inal'iln rul« 

and r~c~iv~ risk adjusltd pa)m~nI" t'(>m CMS. CQStl; t~" nlra bcnc/jl "rc bon,e b) ~"dic;ari~". IX'spite 

the,,;, pro~,...~m fe3Ilm::s. cost>; arc! hif'hcr in Ihe Mtdi~are Ad"an~~ge IImpn. 

' Ilrlan Ili!c~ and Gmct Amold. "Mcdic-are Ad"Mlage Payment I'r(n sjo ~: ! 1Cl\lth C= and Edu.:ali"n 

AlTordabit'lY Recon"itialion gCI of2\JIO It.K. 4872". Gi."<I<llc Wa~hinSh'n Uniwrsil} Schoot <)f l'ul)!ic 

llcallh. Man:h 2010. 

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Medicares Finllncial Challenges CII " Be Addressed 

We can all agree thm Medicare finances need allcntion. HQwevcr, cXJl<!rlS agree that there 

are multiple ways to address Medicare's financing gap. 

For example, there is wide.spread agrccmentlhat adopting mcasures such as reducing the 

usc of redundant or unnecessary teslS, reducing Ihc usc of treatments that evidence shows 

arc not elTective. increasing the use of generic drugs. and increasing the elTectiveness and 

usc of prc\"enti\'e care can all reduce cost.growth. The A 1T0rdabie Care-Act introduces 

numerous pi lots designed to alter provider incentives to I\.--duce the u~e of the unnecessary 

services. 

As we wait for the evidcnce from these pilot programs. 11UIlIerous other proposnls have 

been offered 10 achieve the savings needed. such as extending Medicaid drug. rebates Ii) 

Medicare dual eligiblcs.10 M:my experts bel ieve that significant s.1vings could be 

obtained i(Medicarc is allowed to negotiate drug prices. Curreni law bars the Centef5 for 

Medicare and Medicaid Services (eMS) from negOLiating Ihe prices for drug..~. This is in 

stark contrast to the Veteran's Administrntion (V A). whith negotiates directly with drug 

manufacturers and is not bound by the sume funnulary rules:.lS Medicare Part D 

prescription drug plans. 11 

C rt':lter Choiet' For lJendiciarics 

Another argument olien made for premium support proposals is that beneficiaries will 

benefit from grc:ltcr choice. Decision-makers must critie<llly examine and rejeet this oft 

made :lrgumenL The research litermurc is clear th:lt whilc n few choices :lfe good, tOO 

much choice undemlines consumer decision-m :l king. J~ As cognitive functi on declines. It 

becomes even more diflicuh to navigate multiple choices. 

In summa!),. Consumers Union can not support moving Medicllrc in the direction of the 

pri vnte ..::ommcrcial insurance m:lrkct. whic!t is mort: exp..:l1 sivc. has higher administrative 

costs and would put Medicare bel)i.'!ici3ries at much greater risk. There (Ire numerous 

" Ro""" 1\. Bcrenwil and Joon Holahan. " I'r.:M"\in!!, Medicau: A I'r~ctical I'Iprrl>ach 10 Controlling 

Spending" , Ihc Urbru. In lil~IC. &plc~nbc~ 2011 . " Frnkl. AU . . S. I'iz~r ami It Feldman. "Should Mcdicsrc adoplillc Vct~rans hcalth adm ini lrlnj<>n 

f,)OnuIMyT. II~,*" em'" Fii"",c i'<g'(- £rOl",,,,;e., M~) 20t2. 

I ~ Y~ni ~ IlpnQCh ~1 al .• ''Clu<ice. N"mcl"ll~Y. ~ nd Ph} sidans-in-Tmining l'e.fO!Tl1ance: The /.:a!l<' or 

Mcdil'DrC I'art D··.II~<!IIII P'J"clroIog)·. July 201U: Slac<'Y Wood el al .. "Num~rlicy ond ~dica~ ~rt D: 

n,,· l"'l'''"~'' C~ nrCllok~ and 1.. lcr~ey for Numbc:", in Oplimi,i"l1 !)eeisi"" Muking filr Medic""'·.i 

1'n"$C.iplion Druji l''''Y1Im'' f'syf'h%gyA"'/ Ag;,,~. June 21)11: J. Midlflcl McWi1liRIm C! at , "CCI ",pJc~ 

M~<li<:a.e A<l vno!~g,· Chokes M~y Ol'erwhcloo ScniOOl- I:. p.:dall} ThOM' Willt tnlpal...,d [kcl ~i.) n 

Ma~ n~". " ... ,I,IIAffi,in 5<'pI0111l1<:r 101 t. 

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olher sleps lhm could be 13ken 10 help shore up the Medicare Trust Fund while work ing 

to address lhl! broader COS1 issues Ihal afTCl:I all of the health care sector. 

Submitted by: 

OcAnn Friedholm 

Director, I leahh Relonn 

ConsumerS Union 

Olliee: 

11 01 t7,hSl.. N,W.$uitc;OO 

Washingl0n, D.C. 211(1)9 

202.462.6262 

202.265.9548 fax 

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WriUen Stllienlen' for 'he R.....,ord by 

Familirs USA 

CommiUet 011 Way~ amI Means 

Il ea riug on Medicare I'remium Supporl l' rOIIO$als 

Friday, "I'riI 27. 2012 

TIle House budget resolulion (II. Con. R,"S. 111) passed on March 2Q, 2012,'lIlIs for replacin!; the 

cllfTenl Medicare proll-m", will! 3 voucher-based system called "premium support." Families USA 

is dc~ply ItQubh:d b/ the implicationS orsuch a s)slem. Ifenacle<i, this plan "oold have 

devDSl3ling consequ~'llCCS for S('nio~ and people With disabilities "ho rely on Medicare today and 

for lhose who wilillred il in the !lllllre. 

Under Ihis vision flIT Medicare, the progmm's currenl gUnrIInleeof coverJg~ for everyone ""ho 

qUlIlifil.'S will end lind be replucl-d wilh II pmmise of n /i:.:ed IImount of money (i.e., II vouchen to 

purchase hC311h ~ur.lI\c~. The pl~n shifts risk alld C(IStS onto individuals. lflhe voucher is 

il1Slllficient to pllrchm;e comprt'hcnsin~covemge, individuals would hal'<' to either pay for the rest 

ortlleir e3r1." OUI of their own pockets or go without il. Medicare would face !;I"l.'aler ~nd greater 

cuts overtime, with payments on behalf of beneficiaries being Cll! b)' 23 percclll within seven 

yenrs orthe new s),stcllllaking clfecllll1d a 42 percclll cut after tll"e1l1y-seven y~ars. 

The prr mium SlJPf>Urt ~n does nOI pr crv~" l\·lediC3re---il cuds I\lellkarc liS we kno ... il. 

Even ifsoml'thing c31led "Medicare'" still l"")<isls under this plan forthe progr31ll. it wilt 

provide Jess prQt~"C ion ~nd ellSt mort' thUlilhe progl"'dl11 we h3\'e 10113)'. 
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Calling somelhing "Medic:l/"e" does nOI make il l-.k-dicBre. A "t."hidc Ihal's missing 

wheels, brakes. and doors i$ nOI a ··car." no nmll~r whal a salcsman calls i1. 

The premiulIl suppurl pl:m r~i 'S bcncficiuriu' uUI-uf-l}tJcket (uslS, 

Thc amOllnl oflh" \'ollcher will not ket!p up wilh increases in health cnr.: costs, 

OVl'f time" thc voucher will buy le~s and lC'Ss coverage, and the bcnelidaries will have to 

either pay more or go without care, 

T he prem;um SUIJport pilon reliell on eMily pr;\'II' c insll oo nce cumpun;cs. 

",,,'ale plans in Medicare have alwa"s. on average, COSI more. nol less, than the trudiliollol 

Medicare program 1(1 d<'/il't'r lite sume mr(' , 

Pr;I'otc hl",1llh illSllrJnte companies have higher"dmini~lr~tivc COSI. Ih:lII Mcdil~Jrc OJ1d 

linN pay f\)r markt'ling. s:lIarics, adv"nising. and pmli15, 

Privalc in5ur~nce c01l1pani~ s' poor Imck e~ord in controlling Medicllr" CO$IS suggesls thai 

premium support will not be able to S!IVC mone), without passing costS onto beneficiaries, 

The premium SUPI)(Irl pla n I"IIS currenl b~n fici~ri es al risk. too. 

Even ifthc pr~l1lium support proposal is phased in Dnd traditional MeiliCllT<' remains on 

option iolm: future, current beneficillries wHI face higher com, 

e~lthit."r and "eallhicr beneficiaries will likely k~ve traditional Me<Jican: for che~p<:r 

(}rivale plans thil! provide k-ss protection bccauSl' Ihey can alTord 10 JXly additional oot-ofpock~ cost;; th~ms~ ¥es, 

Higher-eosl p~lknt ~ will remain ill traditional ~dkare, tit('feby pushing up Medicare 

premiums for t."1'l'fyone left in the prngJUm, Higher premiums would encourogc more 

people to leave traditional Ml'dkare, increa$ingMl-dicarc's costs further, 

The premium sUI/porf pla n d oes lI ut "ddrClis l'tl ic~ ~'s fiscal hMll ll l!es--i l just s hifts ellSls 

10 lW niors lind people "ith disabilities. 

The kcy to Ii~ing Medicare's liscal prnbli:m ~ is to slow Ihc rale ofh~~lth care cost growth 

The AlTordahle Ca re Act lays the ~round",ort for making Ihe health care system more 

efficicol b)' encouraging dOCtOr:lllOd other hcJlth care providwi 10 work logether 10 

improve quality. ket.'p people healthy, and I'('du~e unnet:essnry C'Me. 

Alrl'mly, M~d; eare's annual C{)SIS have g,rown mort sloll'ly ;n rt'Cl'l1t yC'~"" than in prior 

dct:lld~"$ . We need to leI th~S<' rerOrm~ take rool. 

The bhd!;"1 proposal is lh" IUli.'S1 u1!empt to tum Medi~~r\" inlo a priv31e vouch~r system and 

comes wilh a!lthe same problems ns prcl'ious proposals. BUI Ihe plall off~1'S no explnnation for 

how seniors and p.:ople wilh dis.1hilitics are cXJX!~led III pay for the cnre lhcy need us the value of 

their \'ou~hcr d~dincs, Th" roug/II)' hatrofpeople w;lh M~dic~,... wlto have limited inCOOl~ would 

be forced 10 CUt back on (Jth ... r nccl'Ssities like fvod pnd shclt~r --or go without he~lthcal'(', If 

enacted, this propos:ll would fundamcrllaJly viola, .. Ihc promise thJI Jl, ll'd(carc has made II! current 

and fulUrc generations, which is 10 ensure access to ~omprchensive care 3t a lime in their lives 

II'h~n Ihey are mOOI vu lncmbl .. , 
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Strengthen Medicare. Don't End It. 

Medkar~ pmvid<.'S heahh Mil f'inondul ~Ilrity to 4)( million olJcr and disab\c-d AmeOl1Ins. and it 

f'I"I,ykks 1l ~!l 1I with Ihe :«:'CunlY or knowing IlInt OIlr rdati, ... '!! wH\ he prolected from un ~'n:sI.-.:~ble 

ri~ks in old IIgc or disability. With pO"Q!~ pensions ~"apllf1l!in!l and personal iavinv eroding in the 

midst oran c'(.!onomic erisi~. Medicare is ~ "ilollhan c,'tr. ""Premium support"" wooid pri"olize 

Medicare and end "kdicare ~s We kr.ow il. rom h) ellmlnulinS the Medica<"\) guamn!e~ nnd shitling 

huge c<l5IS 10 enrollccs. 

MediCl ~ wor ks. n"d .. r need to keel' it slrong for f,lIu re tl'1l tl ~. The AflOrdablc Cen: ACI 

/ACA) has already mooc $C"era! chuojlC5 IhDI make Medicare bolh mor~ CllSt ellbcti,'c and bellcr 

im;umnce for scniOfS. 

Th~ ACA will sa,'C IPXP<l)'CIlI mlm: Ihan:5200 bimoo by 2016. resulting in an immediaLe 

bo.."llefiL to the Trust Fund. NOlle ofthesc sa' illgt oom~ from shifting C()l;t ~ 10 s.:nh"lf:<. MMt will 

be :!Chic"c,", b) endlngm'erp<o) men!>; to privale insurers and paying M<:tOIll l'or doing good 

woLi; inSICl>d of ju.st more \\"\10;. I 

The ACA improved Mcditarc's Iong-Ienn fiMllcial ()llliook. Mcdkarc's 1"11151 Fund is fully 

funded lor Ihe next 12)'eari while the hisl1lri~31 a,·~~t projc.:ted lifcsp.m urthe fund is 11 .3 

ye3ni.l Efforts 10 repc.i lhe ACA weaken Mc-dican:'~ linancial oullook. 

ht 2011. senio", who <'!uch Ihe ~ripLion drug CQI'crage l!~p. Or dou£hnllllwl~. ,,111 rn'\:i, ~ K 

~O ~cm di!ICounl "hen bu)'in2 Medica<'! Pan () cuwrcd brami-name prescripLion drut!s. 

Ovi:!" the next 10 YC"N. scni!l)1; "illl\. ... "'j'·r additional SIIving.' on hrun,j'n"",e and generic 

,jmg.s untillhc C<lVCIllgC I!;~p is clo!\.'d for good in 2020.J 

'rhe la" pl"Iwidcs eCf\"~1 p!"t.'VL1\livc .serviCe'S. ~uch as ~nual wclln o:$S visits, lut>;t~C<) ces..<mjoo 

coonsclin~, prcvt:nlivc S<.T<... Tli02S. ~nd pcn;ooalizc<l p,,:wtuion plruls. at no ro~1 rOT S<.TljQfS un 

Mc-diCllre.' 

'I'he ACA c'!;tabli,Iu.-.J" ne\\ Center for McdicM:: & Mc,jic$i,j Innnvatinn Ihal "ill begin (cstin," 

''''''" "")'5 10 buy and d~li\"tt CUI\.' Ihm impmvc ~ualh}' "hilc I",,"cring C,).iUi. ~ 

Ill<' 1,,\\ <.~Wb!ished llIi:- ConHnuni'Y tllre Trlmsiti<lns I'rogrum. which help.> bigh-risl: 

ho>pi\Uli~..,d Medit'llre ~Ih:itlrics avoid unn<l<:'l.'SSal) ri!.'ldmi~~ion> by (>,"lr<linaliIlS carc and 

conlltCting plIlil'nLS to cO"''''Unil)'-bascd "'crvic,'S." 

'(;_fotMN ..... """MNkold$«"l~-n.o"'T«Jol>l<C ... ,"" l .......... ~lo.J ..... C_.IIl I""""""'-c-- Zlill 

> ~of"'" O,,..,I:,,o(1) ...... of"'" r_ tI."i', .. ,IMunIo['O....c ' ........ ,~ "<di~ I ............ , ..... ".""" 1'iItI-

;!(lil. 

JS ~""' or ll .. I"'''''''I<_ ....... I«O...,.'''' '\o.&I ........ r_i .... !(II~ 

'US ~"fIl .. ~~ -' II""""!.oro"",, -1"" 11-"'" ' ..... i""·;«II~ 

' us n ...... _.f Il, ... ~ -' ,_ s.... ic ... ''Tho 11<0101", ... ·t'l' .. dl ... • lOt! 

• Us !)qro" """,' fll .. "" ...0 II .. ",," s.n-i. .... .",. I~. T .. "" ...... !tol~ 

13!~" $< ..... , sw _ ~ 1'\oI\r - .... ''''''i,~.,.,. DC l 0M6 - Yll-.lH-WOO 

jf •• llhC."" · ... ""'mc.No~ .Of, 
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If ~ n1i t~ding 10 <illY th t Medic"rr is " bYnkrul,I.-

Aller :::!024. re~enue still will be able 10 CO\'er about 87% ~r ospital n~untlice ~05t:i .' 

l'hysician and outpatienT ~rviees and the prescription dru!! mneti! ar~ not - and ca"not- N 

insolvent. There i~ a slwnfall in l/ospiwl IlLsumnce fundilLt. buI it is dising~nuous and 

decep,ive 10SCar>: scnion by sayinll thal Medicare is "bankrupt:' 

Prh r i .. , urancr is hanJly ~n aIJI'rt>"ria re ",<MI,I rur 1\,.t1i< r·s futu...,. Pri . i .. , uranc, has 

,)nlHIl il lff~r Ius . rr.eth·. in controlling ws,s. 

Unlike pl"iVlllc lnsurnne~. Mcdicare'ji per..;:apila costs arc grow;ng at Ihc >(Ime p;!I;e as GOP." 

On averagc. per capila COSIS MV. ri~n 1% Jess in Medicart Ihan in privale insurance each YelIr 

since 1970. ThaI means private insurnnce pl"\"mium~ have ri~l1 ~lmos 60 pen;:en! fQster thftn 

Medicare', per eapita costs.' 

lbc ("BO proj«,s that privalizing Medil-aTe would lead hCllI.h Cllre COSIS 10 be bO pen;"m 

hiJ;.her for a typical 65-year old by1Q3S. , .. 

Private insurers con-c~'de tltcy c~nnOI con'rol COSts. "' Ttlc oos. IJf health COVCrn.\lC lias 

IJulslripped tm: gro"1h of W~SC"S, caling inlO family iocIJm.:." 1 MallY employc"fs ~'" CUlling 

benefits and raising Co-JII>Y5 Or eiiminatingtovernge ahogc1w,r.

u This is why the Affordable 

Care ACI ~ 50 imponanll() families. 

Owr 1m: next de<:adc. private ;lIsur:mce pr;:m;ums are pI"Oj«,.:d 10 r;~ nearly 50 percent faster 

Iltan lhe per c~pila COSI ofMediclU"<." each yc-ar." 

Sincf l\1~dicare ~ murt d fk it nl Ih~n prh·.tt in urers, Ih ~ only ..... y a premium SIII'POI"\ syslem 

can 5a,·t moncy for the gO" ernmcnt would ~ hy hlRjn g CO,IS to older and disahlcd Amfrkans. 

"Premium suppon"" shifts costs 10 eurulk"c.s." 

'111C vOlocher pis" prupo$Cd in !Judget Commince Chainnan Pm .. 1 Rynn's 13testb~dg<!"l conlrol~ 

spe"d;nJ!. by ClIuin¥ ,he "al"" of lhe , oucher." 

, B_ .n "' ...... r .... ,. ...... 111""' .. 1 """' ~ """ I'alern s'"i'l'l<m .. ~ Mo.6<>l ~ 1 '"" F""",- 1011 .,.""ul lI..,.rI, 

Ar''':!J. DI l . 

• M·" ~"" .... '>0"'." M,M"""'" .,':!, ....... ~"*""...!!I ~"'!l!..1\!0 L>ru<JtJ",,"l. )~'Uil '''''"'''~''' I!.!'!>.I", '9""· UrN. '">' ~"'. "' pril20 ~. "(MS.Ml f " '" rltNi> IW ........... OC:, ~l>II9l TtbI< 1J 

"CIlO.l __ ' _ ' '''''' .... '''. .Jv1""""~aI""C4odrwo"" /I)· ... IW""".&"'" DC Apo S.l(Ill~Z' 

" Itto~:'''''' "' ..... ,p.'i!""4!>' ·". "O!<W·'\ox.Jl"'II"·'·1\jI1 " .-'" """" .. rOll .......... c.""" !",-.,.M", ""'~. 1 • ....uJ&.<I<J """ lA_"""·.'i«rr/ .... .,.'. Sqo<. 201 ' . ,_1. ,"or ....... ~. ro<.I>. _I( ...... r ""';ly r .... Ja,lM ....t H .. ~~ M ...... do """ I:dto.o.o,;,..., r ...... """"'>pro lfHl'A8-fJ< . ... ·!)11 , ........ so.n...;"" "c_,~ """" oM. _~...,, _"'~ ""' .. ,"'"""""' .. ._ ~ ... ' ''I4(I''''.J''''''~~I' . "r",,,,,",,,,,,,,,r,h ( MS.Io/ ... III a/IIof; , ..... r """"" ...... ",()Ia.lII.'a l]il,, . , ... It 11. 

" HoO<) I. A_...J M ...... p. t1 Maa; · lbt M«l ...... .fIo<m 0010>«: 110' .... 1. Ill< N", :.· II"" ~~,. .I{~) : 1·30 

I. :~ ••• '~ .• , •. • "~. ,_ .. ·1I" ... \\l)" .. l'mOi ... ~~,l!.~'t.I.~.·C"_·!br oo1£<I;Mlo/,.." i<yl'rio<il l<> 

D<r !1.2011 

!IllS I( s,,~~ ),;11' _ 4" f"",," · \\' sloln '''''. OC 20006 _llll-ol;l-.l·II2Ol' 

ll~"IbC" r«lo'"";"" l'~" "'¥ 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.063

Annual Medicare Per-Capita Spending, 1997-2009, 

Actual Spending vs. Hypothetical Spending at Private 

Health Insurance Growth Rates 

Actu~1 

• Adjusted 

19':17 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 

In order to get ~ handle On skyrocketing he.llh carc C<l'tli. We n~"Cd to de,clop n~,," h~allh tar.;, <lcion"1) 

·systcntS th,u coordinale care lOr the people with the hi~est COStS and ere:,le new [)U~n'e"t mClhlKl< that 

reward ,·alue. not \·01,,10<'. Medi<are is rssentlMI to drl' ·in g nu ded r~ror s bru ~ It givl.'S 

policymakrl"S th ~ meanS 10 enco urage pro'·idcrs 10 dopl besl prac lices. !'!'o_IJri' ·alc b""lth 

insuraQce tom(!any bas th ~ jnnU tt th 1 Mfdka re bas 10 cbanl:e Iht .. I!l1Ittkr!i. 

Medic"", ha. u history "fdri\"ing innm·alions laler adopt"...! throughoul lhe hcaith carc Sl:cIQl". 

For example. Mooicare's fee .schc...!ule. aduploo in Ihe 1980s to prevent provid~.,.. frum "uing 

exomit~nt rmes. is Ihe basis ror prices throughout Ihe syslem. " 

The Affurdablc CIlf,· ACIll""C MeIlicar;: Ihe manJaleand Ihe r~uri:CS 10 del·clop pil"l 

progrnms lu l<'Stlhe cn~""li' l"CS!I of ditlerelll system rcfunn •• "hiclt cn:lIl~ fiml1lciul ;!lC~l\l;l"l"s 

ror providers lu imtmJ\"eeurc "hite c\mlrolling COSIS. 

De .... eloping rclial)!e m~~oiSun.~ ofwhut work$ and whal dOl-osn·1 i$ k~} to lultg-lenn $uvinll$.l)u\ 

it's a long·lenn proc>.'S~ thDt'~ju5t ~ginning. 111;;ural1~c rompani~ arc pr<\\"l1l~ II) 

Ill~ Ii:. S1'«' N I\' ~ ~1 00l" _ w.,"'''I1'' .... DC lOOQI; _ 20~·4S4-1>2I)j! 

H." 1111(" . ,. • ."., ,n.ri<oNo~ .0(8 
97 

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dkrause on DSKHT7XVN1PROD with HEARING79937A.064

l'ompclitivc imJICr.lli,'es and stwr ~mlthin ing from making long-Ienn commitments 10 

sludying Ih .. health $),slem Or to sharing fi ndings with rivals. 

M edi .... n! CO,'N'5 ~ I.opuia lion Ih a l ,,"ould hB" f Ulrt l11 f diffi t "Uy s ho pping fo r eO\ 'f1'1l)::r. 

Surveys show thDl 290/0 ofscniors have "below basic" h~alth lil""11I<:y. meaning lhey lack Ihe 

"'caral'ily 10 oblain. pt"OCe,s, al!d uoocrstand basic hC'~lth ul(onnation and servic('S ocl:<le<J 10 

make appropriale health lkcisio11S ,~" 

Nearly one-third oft.'Jedic= enrollee!! hUI'c some sort ora COj!.Ilili,·c imfl<1imlcnt.l<J 

Commercial in!m rtn' bu neu modd is b "ilt 0 " d r"" in g (0\"Cr.t1!~ 10 the mO"1 Yuln .... blt. 

Comm~rcial insurers are likely to engage in a practice kno"'n as "risk-sdection'" or··cr.:arn 

skll11l11lng."lnsurtrs desIgn benefits in ways that do n01 rncC1thc "C\.'ds oflhe slck~1 

lndivilhmls. ~K'/:rinll h<: mOSI uJ~mble inl,' public programs. a praclice thaI berome5 

increasingl)' IInafToNnblc b.:ca"se il cOVe""" very risky popu ~lion. This cre3t1!:5 a two-tiered 

heahh care sys ~m: 3 low_oost one for ~ healthy, and an c)I"lr.:mdy e.'pen.ive one for the 

sick.~ ,~ 

nlC" ~o":mmcnt can try to address :WveJ'SC risk-sclccliun by making cnha ~ed ··risk· 

udju511nent'" ptoyrnl'11tS designed to shield health plans (ronl the cOSts Qfcovering the 1l10!it 

yulncrable. bul M~'<licare Advnnlllgc plans have prow" adepl at gaming this system,:) 

Our par.:rus and grandfl<1T1:.1ts builllhe Medicare system. and hund..-ds ofmiUions of Amerkans were 

wdl·~ed hy It over the IQ~t hnlf century. NOlv i'-5 our jnb to ~trengthen Medicare fnr fUlure 

g~'11erntions. not break il inlo piet:~':S and tum It over 10 the insurenee [n<lu'II)'. Congress has lhe PO'"'' 

10 en.ure thai Medicare remains fonancially ~Oll <l , Congress has a r.lJ1g~ of ways 1(, trinl Medicare·s 

costs. reduee wast .. and incffic;encit'S. ar.d ra ~ additional re~~nue tu save public funds withoul 

privatizillg Medicare ar.d shifting more custs to vulnel'llble Amc:ricans. 

"COO. L.....,. I ..... .1-1..00:.... •• u....... ........ """",,," '" 0._ .. M~."'" c-r~: "'nl ("~ and " . , .. ·s.....! t"l_. tl ~Ut ~, 

" ~ ....... c ..... " T .. td_;"" s....""", " Tn. " .. lito l"-Y '" "".m.:.' .... "'~'" ~ ... . fro", Iht lOOJ l'IMiooIoI .... !C»4\\ .... III' C ...... Li .... <),- ~ .... .!!I(>6, 

""_Mru __ :"fIIII.. ·~l!i!\U1.f""" l. l. 

" v ... <lr Iii ..... Paul II -{" '~"'~''lI'-~laJ '''-'' i;';r<",""'l s"t'l"K\ , .. """, 11:<1. ~-.I , .. ! ~'~rx. II .. hh$'~~ C ...... ('" 

u..da« on.! J'oII<) "' ..... In. Scr<. lfi. lUI I. 

t< ... """, 11<11')'""" ... "" .. f .. ~ "V, a ~"" t_ .... ," I~ IbsJ .. ~'1 ~'I"<w u.,. ..... IoIImoI oT M<d,,_, M""", .. ~I " " j""", nm. ... M .... ,t> .... .,;._ ....... '1'1111 ... """"' __ ~"'-w ,, '\t."9~~~~ 

h .. "~"m.'I.""' "~Qf.W"" ..... I\IP>p<r"", ttll7l. ... rril20l1. 

1823 K Sir"" NW ~ .. Floor _ W",,~i" ~"'. DC 200(1(> lO:-I~~.(ilOO 

1t .. ~l!(" .... fl><f<mrrlc. N"" ,Ott. 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.065

May 11, 2012 

The Honorable Wally Herger 

Chairman 

J1VAlIHCARE 

I.EADERSHII' 

C'?-UNC IL 

U.S. House Ways and Means Sul)committee on Health 

Washington, DC 20515 

Dear Chairman Herger: 

Mr, Chairman, I am submining this statement on beha~ of \t1e members of the Heal1hcare 

Leadership COl.lncll (HlC). The HLC 15 comprised of chief executives of the nation's leading 

healthcare companies and organlzallOns, representing vinually ail sectors of American 

healthcare. It has long been a priority of HLC members to protect the long-term sustain ability of 

the Medicare program and to ensure that beneficiaries have access to affordable, high-quality, 

innovative healthcare. 

There is no qu'eslion that Ihe Medicare program, as it e~isls today, cannot be sustained for 

fuhJfe generations. Each day. 7,500 baby boomers are joining \t1e rofts of Medicare and, on 

average, each of these beneficiaries is receiving three dollars worth of health care services lo( 

every one dollar they paid in payroll taxes. In 1965, when Medicare was created. the ratio of 

active workers-to-beneficililries was 19-to-one. By 2030, there will be only two ta~paylng 

workers supporting each beneficiary 

These statistics tell us that structural reform 01 the Medicare program is imperative. The currenl 

lee-lor-service program in Which the vast majority 01 beneficiaries are enrolled does not 

sufficiently Incentivize value, cost-effectiveness, Of positive patient outcomes It Is a program 

that pays for volume of healthcare services, but not necessarily for value-driven care. 

There are different options available to address Medicare's fiscal crisis. One is, of course, 

simply to reduce the amounl of money the government pays for healthcare goods and services. 

When provider payments are reduced, however, beneficiaries pay the price. Already, many 

physicians place limitations on the number of Medicare patients they will !reat because of the 

program's comparably low reimbursement rates, According 10 a 2010 American Medical 

Association sLirvey, 31 percent 01 primary care physicians already restrict the number of 

Medicare patients they see. Cutting payments lor pharmaceutical products and medical devjce~ 

wil( simply deprive selliors 01 access to lifesavillg and life-improving health care ;nrlova!lons. 

Thi!J i'S the primary flaw In the Independent Payment AdVISOry Board (IPAB) concept. wtlich 

some cite as an answer to Medicare's financial challenges. Washington cannot simply make 
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arbitrary curs in Medicare expenditures Without ad~ersely affecting the access to care and 

quanty of care pro~ided to Medlcare<lependenl seniors and disabled citiZens, 

Many loutlhe much-needed delivery sysrem refolms thaI were pan of the Palienl Protection 

and Affordable Act (PPACA). wnlle we agree thai these reforms lire II slep 1n Ihe fighl 

direction. we do nOI believe that they are enough: nor wiil lhese changes offer the array of 

choice that would be available 10 beneficiaries throogh a Medicare exchange model. similar to 

the Federal Employees Hearth Benefrt5 Plan (FEHBP). 

A more palienl·centered approach 10 improving Medicare would invol~e using tile power of 

consumer choice to dnve lIalue, quality, and posltove outcomes. We support the concept of 

empowering Medicare beneficraries w'th greater conlrol over the,f own hea~hcare 

decision making. 

To be more specif,c. HLC has been on retort! supporting an approach lIlat WO\J1d give Medk:are 

beneficiaries Ihe opl,on of remaining in con~entional fee-for-service Medicare or mOiling into a 

competitille exchange in which multiple health plans would compete lor beneficiary loyalties by 

offering high-quallty covel1lge options at affordable premium rates. In order for soch a 

competili~e eJ(change 10 be viable. plans and pro~iders would halle 10 emphasize bolh ql.lality 

and cost-efficiency, liS well as ensuring allordability, especially to attract indiViduals with lower 

Incomes. 

This approach has worked successfully 'n FEHBP, under whiCh members of Congress and 

federal workers choose Irom a wide I1Inge of competing health plans. The concept has also 

worked well 1M the implementation of the Medicare Part D prescription drug program. In Part D, 

offering seniors a choice 01 plans ~as resulted in mUCh lower-than-projected program cosls. 

affordable mon\l1l~ premiums, and extl1lordlnarily high benef,ciary satisfaction rates. 

The cD!1sumer choice approactl will also be utilized in tt)e slate-based healtl1 ' l'\suF.lnce 

exchanges that serve as a cornerstone of PPACA 

Lealling aside tbe ethical question of whether seniors should halle the same power of consl.lme( 

choice that so many olhers enjoy. II appears clear Ihat the Medicare program would gain greate, 

Sl.lstainabliltY Irom this type of reform. In order to conllince beneficiaries to shift from fee-forsell/ice MediCare to a oompel ~lIe exchange. plans would halle to offer affordable premiums and 

an appealing scope of cOllelage. Health providers would inno~ate 10 provide hlgh-quallty care 

in an en~lIonment that emphasizes cost-efficieney. 

This Is far pleferable 10 an allemative In which a/bitlary across-the-board cuts ale made by 

government fia t, 10lcing healthcare providers to further restnct beneficiary access to care. 

The fact is. policymakers are go'ng to ha~e 10 choose one 01 these directions. It is a fallacy to 

insist that we ean maintain the Medicare program exactly as it e~ists today E~ n Ihe most 

recent Medicare Trustees report thai projects program insolvency in the year 2024 is painting a., 

unrealistically rosy scenalio. As CMS chief actuary Richard Fosler has pointed out, that 

project~n is based on a scheduled 31 percenl reduction in Medicare physician payment IlItes 'n 

2013 that almost certainly w,1I not occur. This tells us that the need to relorm the program is 

even more urgentlhan commonly assumed 

ChaiflTlan Herger. we applaud you and your colleagues fa' shining a spotlight on this vitally 

important issue. 1\ is impel1ltive thai Congress begin the process to reform. imp o~e. and 
100 

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dkrause on DSKHT7XVN1PROD with HEARING79937A.067

strengthen the Medicare program We strongly urge Congress 10 develop reforms that are 

patienl-Ge(ltered, that provide care Ihat is both accessible and high-qualily, that gives patients 

access 10 lifesaVing medical innovations, and that sets Medicare on a path toward 10f1g"term 

suslainability if1slead ollhe shOl1-term rellel offered by arbitrary biJdge! CUIS The Heallhcare 

leadership Couf1cillooks forward 10 working wilh you on this critical priority, 

Sincerely, 

Mary R. Greely 

President 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.068

<!iii(l), .... _ ... ---- ~ OCIal uritYc;r dical'8· III iMled ' IndcperlOen'. fjtect"'e 

nj ~d l~IH HQu ~ of ReprH cntali\l1'5 

", ,,,illf~ on Ways alHI ,, ~, ub "' miUf~ (In Heahh 

Ht~rln g on " Mtdin rt Pr"mium S" I"wrt Pruposals" 

Friday. April 27, 2(112 

Mr. ChaimHiIl and Mc",bcr~ urlhe Ct)mmilt~...,: 

I am M~x Riduman. l'rcsidcnl and Chid Execul;, e Officer " f lile National Conlln;U!'c h' 

r'r<'serve Social $<>C'Ur;l), Dod Medicare. und I upprt.'cinle lhe UptM'lllll;.Y Iu ~ublnillhis ,IaK1ne1l1 

for the record. With millions ofmcmb.:rs on(] suppMt~n; acrMS Allleric", the Notional 

Commilwe is a g,rnSSr{lOts advoca~y and education urga"i~1I1ion devoted to prc;;cTvillg ~nd 

prom!)!;ng Social Sl"Curil), and Mcdi~3re. As you kilo". these pmSnuns an: tht" iijundaliun ,~f 

finnncial an.:! hC"lllh scturity for older Americans. Today, I '1'111 address our conccms al)oul lhc 

ncg.1lil'c impllCI or Mcdi~arc premium suppor1 proposals on CUl'T\'n l and fUlUre ocnclieiarics and 

suggc,1 aiJcmalivl' way~ I,) imprtll'e Mcdka",'s lOIlS'lerm tinun.:;ul 41ln~K) . 

Reccully, the National COllllllillL'e eOllt~clcd all Mcmhell OfCOIIgr>:Sli to advise Ih~tn of our 

uPP<lSitl(~1I tu II. COil. Res. 112. Ih,' Hllus~' BudK'" Re!KIluli<)n fIN' Fi e~1 YCIIT 2013. which 

priVHli%c~ Medicare ol-er lim" and fich;e~"s s.avin~;; r<lT Ihe rixlernl gMtmmenl Ihn)ug,h a 

premium 5uppon syslcm Ihal "OIIld shill COSIS 10 Medicare bcncliciarics nnd olhc:nl. Beginning 

in 2023. "hen people b\.'eome cligibk for MediC'llre Ihey wllUld nol enroll in Ihe current prugrnm 

which provides guaronk'\'d henents. Ralher. Ihey lI'ould ",-"",eive a ,ouellcr. also rcli:m:d 10 ~ A 

prc lnium support payment. III ho: used 10 purchase privnll' h~ahh inSUI'\IIlCe Qr traditionul 

Medicare through u Medicare E.'(ehru~c. 

The ;lnlllun\ Mlhe ",ucht< \\nuld tJ<, delcmlincd each y"ar "hen private hC;J.lth ;n~"rallcc pluns 

and Ir:ldilional I',lrdicore par1i~ipa ~ in n competitive bidding proc~s.~. The am{)unt ofth ~ voucher 

"ould be ~qUB\ 10 ",hallh.: second-le:l.St-c.~p.:lIsh " pril'at~ plan or tradilional M~dicare agret:d 10 

aCCept III cover Mediciin' bellcfidnrics. Seniors chN'lSing D more e:'l'jlClIsivc plan wmild be 

",--quircd to pay the difference between Ihe "Q"e ~'T and Ihe plan's pr~'1T1illm. which could limit 

IO\\'~'f-income bclH:liciDrie~' IICeL'l\S II) cel1ain plans. 1111>5': ehoosin)! a h.'Ss-cuSlly plan w\lOld 

rccci,'c a rebntc, Under Chainnan l'ulIl Ryall'S blldg~1 resolution. the unnuul gTlllI'th ;11 Mcdic~re 

spClldilig is limited 10 ~ros~ dOlllcslk_ product (GDI» t n.S JlC",ent, a r:tle likely 10 be tllwcr rhan 

the growlh in hc~hh <·osts.1fspo.·ndilll:! c. cccdcd this alllouni bcllclici:trics "ould be subj~'l:11O 

additional oul-of-pock~l (O!ilS. '11lnt i~ bccao~ the hlnollnt the fcdcntl gOl'cnlmL,1l prol'ides for 

th<'i. ,·""eh"r would bc limiled. 

Chnirmlill Rynn's blldg~, n.'l\olution cnll, for pril'nle plMS to pmvidc bcllCtits th in nre 111 Ica,l 

3clunrially ~'qu l'alcm 10 Ihe bcnclit p<'ckage pro, ided by fL'e-lor-scrviec Medicare. This giles 

pril'all' CQlIIp,anlCS Ih" abilily 10 tailor their plans tOllllmct Ih~ youngl'Sl and health;' . .,;1 scninrs. 

evclI if paym~ntS nre "ribJc- adjusted" 10 take hCliith Slatus ililo ac<'OUIlI. which would Icnvc 

traditional Medicare wilh older and sicker bcncticiarics.lne'r higber hc~llh CUlUS could lead 10 

10 G Stree!. NE. Sulle 600 • Wosl1ing!on. DC 20002·4215 · 202-216.{}A20 • www.ncpssm.org 
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dkrause on DSKHT7XVN1PROD with HEARING79937A.069

higllcf premiums Ihlll pL><Jplc would Ix: unabk llr unwilling 10 pay, re$ulling in a dealh spil'lll fOf 

tr:Iditiolt.a1 M~dicurt'. This would ud ~rscly impact pt'Oplc ug~ 55 und old.-r, dl'spilc Chuinnan 

Ryan's ~ssenion Ihal nothing will change for them, as well as people cUITemly enrollcd in 

traditional McdielltC. 

The Ryan proposal eSlablishes a(:CQunl$ for low-in~omc Medi~are b~nctieiari~$, I;kely tho~c 

people eligible for Ml'd;C'!Ire lind Medicaid, to usc to pay premiums, co-p;'lym<'nts and f1t ller out· 

of-pocket co~lS. How~"er, il is unclear whal Ihe amounl of assistance would be or ifit \\><JlIld 

adequately cover om-of·pockel expcn~. 111 !lddition, the plnll applies CUlTem mcans-testing 

thresholds for Medicare !'an B and D pl'Cmiums rur higher-incomc bcnefici3l"ies!j.() Ihatlhey 

'I ould continue 10 Imv .. higher costS in th .. privali1..cd Medicare syS1t~n. 

In addition to privutizjllg Medicare oler time. thc Ryan budgel would incfea;c Ihe age of 

clij!:ibi\ity for Mcdic!lTC from 65 to 67 by increasing it two months per year from 2023 to 2034. 

111e Rylln budgel also calls for repealing provisioflS in Ihe Affordable Cart: Ael tACA), which 

will "'3k~ in,uranct al la~1e and more arTordable for 65 to 67 y~a r olds. Withoul the guarantees 

io the ACA, such as ,,-,qlliring illSU1"3llCe companil"li to c()wr pcuple with Pl'l.'·cxisling medica! 

cOllditions alld to limit 9ge rating, it would b~ very dinicuh and cxpcllsive f<-r older pi.."<Jple who 

would Il() longer be e ligihle for Medicllre coverage 10 p"rell,,~ private ;"~ r:on,,e . Repe~ling the 

ACA would 9150 lake away impr(lVelnCtllS !l1n."ady io place ror Medicare be,-,eliciaries - closing 

the Medicnre Pan 0 prescription drug coverage gap, kllOwn ns the '"donut hole;" providing 

pre"'~tt1ive screeoings and ~crvic.'S wilhout oUI-of-pucket CllSlS: !lod providing antlual Iwllness 

exam~. 

Action is nl"\:ded 10 strenglh.'n the !ong-tenll solvency of Medicare, but il is tt11(lOt1mll to 

remember tlUlt Mtdict\re's COSts on a per capilli basis nrc growing more slowly d1ll1l private 

health can.' eO.'its. Costs will continue to inereasc because of general health eIre inn lion !lnd Ih .. · 

number ofpcop\e becomillg eligible for Ml"dicare as th" b:.by boomers reach agc 65. Any 

diAlogue ullom Medicare soh<ency OlIiSI address W!ly~ to control overall t-.eal:h care illnMion 

wllilc improving the qua!ily or calC bei1Jg provided, 

The NMional COt11!1tillee to Preserve Social Security and Ml-dicare 5UppOn.s measures to improve 

Ihe Medicare program and its tinancing wi/hOll/taking away guaranteed benefits or shifting 

addit'onall'osts \I, beuefic;u/ies, the m;'ljority of whom alre:.dy have- higll oul-of·poc\;et healtll 

care costs and e!lllllot afford 10 pay more. 'n,cre!lre many ways 10 address the ris;»); cost of 

Medicare and il11prn\' ~ Ille progmm withoUl dismuntling M~licarc and making he~hh care OSl~ 

unatTordabl e for m3ny oldcr and disabled Americans. These include: 

Implemenling refomlS in the Afford3b!c ('are ACI (ACA), beyond provider payment 

r;.-dUtt;C1Il5, lhat 9rcdt~;gnL..J 10 imprnl,,-qllalil)' ;'Illd n.-duCi'.lInllecciSJ.ry iJl"llding. ihe!.c 

refOntlS include pmgmms Illm bolster primary cllre. e;;tablish ACCOOJ:tull!t Cart" 

Orglll1izations. provide ror bundled p3ymCt1!s. and reduce t-.ospital re~dmissions. The 

ACA n:fomls sllould be giventimc to suceecd before possibly destroyi ng the corrent 

Medicare program. which works well for so maoy seniors. 
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