[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                      2011 MEDICARE TRUSTEE REPORT

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 22, 2011

                               __________

                           Serial No. 112-HL4

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                         Subcommittee on Health

                   WALLY HERGER, California, Chairman

SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
DAVE REICHERT, Washington            EARL BLUMENAUER, Oregon
PETER ROSKAM, Illinois               BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director

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 
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current publication process and should diminish as the process is 
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                            C O N T E N T S

                               __________
                                                                   Page

Advisory of June 22, 2011, announcing the hearing................     2

                               WITNESSES

Charles P. Blahous, Ph.D., Public Trustee, Social Security and 
  Medicare Boards of Trustees Testimony..........................     8
Robert Reischauer, Ph.D., Public Trustee, Social Security and 
  Medicare Boards of Trustees Testimony..........................    17

                       SUBMISSIONS FOR THE RECORD

The Center for Fiscal Equity.....................................    50
American Academy of Actuaries....................................    55
American Federation of State, County and Municipal Employees.....    68


                  MEDPAC MARCH 2011 REPORT TO CONGRESS

                              ----------                              


                        WEDNESDAY, JUNE 22, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:35 a.m., in 
Room 1100, Longworth House Office Building, Honorable Wally 
Herger [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

 Chairman Herger Announces Hearing on the 2011 Medicare Trustees Report

June 22, 2011

    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
on the recently released 2011 Annual Report of the Boards of Trustees 
of the Federal Hospital Insurance and Federal Supplementary Medical 
Insurance Trust Funds. In what will be the first in a series of 
hearings on Medicare's future, the Subcommittee will focus specifically 
on the Medicare program's financial status. The Subcommittee will hear 
testimony from Medicare's two public trustees. The hearing will take 
place on Wednesday, June 22, 2011, in 1100 Longworth House Office 
Building, beginning at 9:30 A.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Social Security Act requires the Board of Trustees for the 
Medicare program to report annually to the Congress on the current and 
projected financial condition of the Medicare Hospital Insurance (HI) 
and the Supplementary Medical Insurance (SMI) trust funds. The 
trustees, who are designated in statute, are the Secretary of the 
Treasury, the Secretary of Health and Human Services, the Secretary of 
Labor, the Administrator of the Centers for Medicare and Medicaid 
Services (CMS), and the Commissioner of Social Security. Additionally, 
the statute requires that there be two public trustees, from different 
political parties, who are appointed by the President and confirmed by 
the Senate for four-year terms. The CMS Office of the Actuary is 
responsible for preparing the report. The 2011 report was released on 
May 13, 2011, and can be found at https://www.cms.gov/
ReportsTrustFunds/downloads/tr2011.pdf. The Medicare actuaries 
subsequently released an alternative scenario memorandum, based on what 
actions they expect Congress to take (such as preventing cuts to 
Medicare physician payment rates) to ``present an alternative scenario 
to help illustrate and quantify the potential magnitude of the cost 
understatement under current law.'' That memo can be found at http://
www.cms.gov/ReportsTrustFunds/Downloads/2011TRAlternativeScenario.pdf.
      
    Ensuring the financial viability of Social Security and Medicare is 
one of Congress' most important responsibilities. The annual release of 
the trustees' reports provides Congress with a valuable update on the 
programs' fiscal status and important information with respect to 
projections of future expenditures.
      
    The trustees currently predict the Medicare HI trust fund will go 
bankrupt in 2024, five years earlier than they estimated in last year's 
report. Additionally, this was the sixth consecutive report in which 
the Medicare trustees issued a ``Medicare funding warning'' because 
they project ``excess general revenue Medicare funding,'' as defined by 
a provision contained in Public Law 108-173.
      
    The trustees project Medicare spending to grow from 3.6 percent of 
Gross Domestic Product (GDP) in 2010 to 6.2 percent of GDP in 2085, or 
to 10.7 percent of GDP in 2085 under their alternative scenario.
      
    In announcing the hearing, Chairman Herger stated, ``The findings 
of the Medicare trustees are alarming. Medicare's Hospital Insurance 
trust fund is expected to go bankrupt five years sooner than last year 
and was forced to redeem $32.3 billion in bonds last year so that it 
could pay medical claims. It is critical that the American people 
understand just how dire Medicare's finances are.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on Medicare's financial situation as 
detailed by the 2011 Medicare Trustees report.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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FORMATTING REQUIREMENTS:

      
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    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. We are meeting today to hear from the two 
public members of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance 
Trust Funds.
    It is important to understand the financial health of the 
Medicare program if we are to ensure that the program is 
solvent and available to future generations of Americans. The 
2011 trustees' report makes it clear that Medicare's financial 
outlook is bleak. The Medicare trustees estimate that the 
Medicare Hospital Insurance Trust Fund will be bankrupt in 
2024, 5 years earlier than estimated in last year's report. 
Even though the report paints a very troubling financial 
picture, the reality is likely much worse.
    The independent actuaries at the Centers for Medicare and 
Medicaid Services felt the need to publish an alternative 
scenario because of the high likelihood that the trustees 
report, which is based on current law, understates future 
Medicare spending. The Medicare actuaries' alternative scenario 
assumes that Congress will prevent scheduled cuts in provider 
payments such that Medicare spending as a percentage of gross 
domestic product will be nearly twice as high as the spending 
called for under current law.
    The trustees report and the alternative scenario reinforce 
the need for prompt attention to Medicare's severe financial 
problems.
    Republicans recognize the seriousness of this situation, 
and have demonstrated their commitment to addressing Medicare's 
financial demise. We put forth a plan to save Medicare. 
Congressional Democrats and President Obama have not. My hope 
is that this hearing will help the Nation come to grips with 
the extent of the financial problems facing Medicare. We cannot 
wish it away or ignore it, as some have chosen to do, or 
demagogue it away. Medicare is fast going broke, and no amount 
of speechmaking or positioning for political gain is going to 
change that fact. Some may not like the plan we have offered, 
but the critics have the responsibility of proposing solutions.
    I also call on the President to step forward and play a 
leading role. While the 2011 trustees report issued a funding 
warning that the general revenue contribution to Medicare's 
financing is excessive, the President has failed to recommend 
improvements in response to this trigger.
    There will always be a next election and a temptation to 
put politics above responsibility and problem solving, but as 
Medicare trustees warn, the time to act is short and growing 
shorter. Ensuring the financial viability of Medicare is one of 
Congress' most important responsibilities. Today's witnesses 
will inform us of the extent of Medicare's financial 
difficulties as we execute this responsibility.
    Chairman HERGER. 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. Well, thank you, Chairman Herger, for holding 
this hearing today. Monitoring Medicare's solvency is an 
important responsibility for our committee, and we welcome the 
opportunity to discuss this with our public trustees today.
    The trustees report shows a Medicare program which has been 
significantly improved by the enactment of the Affordable Care 
Act. Beneficiaries are also enjoying new benefits as a result 
of the law. And without the health reform law, insolvency would 
be projected at only 5 years, a full 8 years less than the 2024 
date reported by the trustees.
    It is important to look at the trustees report in 
historical context. Since we have been projecting Medicare's 
solvency, those projections have varied widely. In 1970 and 
1971, just before I got here, the program was expected to only 
last 2 years. At the end of the Clinton administration, it had 
a robust 25 years of solvency. In the past 45 years, whether 
solvency projections have been 2 years or 25, we have never 
allowed Medicare to become insolvent. And why? Because Congress 
has always acted to make changes to the program to avoid that 
outcome. That is our job, and I think we have done it pretty 
well.
    I would also note that no private health insurance company, 
and we know our colleagues on the other side of the aisle would 
prefer that Medicare be handed over to them, none of those 
companies are measured with regard to their projected solvency 
over the next 75 years, or even 1 year. They move quarter by 
quarter with the market.
    My Republican colleagues will focus on the solvency date 
having slipped 5 years from last year's projection of 2029. We 
know that this slip is primarily due to the economic recovery 
being so slow, which directly affects Medicare's financial 
standing. I am not sure why the Republicans are focused on the 
issue of Medicare solvency at all. They have already voted to 
end Medicare several times. The Republican position is clear: 
Republicans don't believe it is the role of the Federal 
Government to guarantee health benefits to senior citizens and 
people with disabilities. Republicans would prefer to repeal 
the health reform law and end the delivery system reforms, 
reforms that the trustees' report highlight as showing real 
promise for controlling Medicare's spending growth even more in 
the future. Republicans instead want to provide Medicare 
beneficiaries with a voucher to purchase more expensive private 
insurance that may or may not be affordable or cover the 
benefits they need. There is no doubt that an underfunded 
voucher would save the government money. Medicare becomes a lot 
cheaper when you destroy the program.
    The message to take from this year's trustees report is 
that the Affordable Care Act significantly improved Medicare's 
financial standing. There is always more to be done, and we 
must work together to protect and improve Medicare, not end its 
guaranteed benefits for senior citizens today and tomorrow.
    With that, I yield back to my friend from California and 
look forward to the testimony and discussion to come.
    Chairman HERGER. Thank you.
    Today, we are joined by two witnesses, both of whom serve 
as public trustees for the Medicare program. The witnesses will 
both report on the dire financial status of the Medicare 
program as outlined in the most recent trustees' report.
    In addition to serving as public trustees, both of our 
witnesses are nationally recognized experts in the fields of 
Federal fiscal policy and the Federal budget.
    Our witnesses are Charles Blahous, a research fellow at the 
Hoover Institution and former Deputy Director of the National 
Economic Council; and Robert Reischauer, president of the Urban 
Institute and former Director of the Congressional Budget 
Office.
    Mr. Blahous, you are now recognized for 5 minutes.

  STATEMENT OF CHARLES P. BLAHOUS, PH.D., SOCIAL SECURITY AND 
         MEDICARE BOARDS OF TRUSTEES, WASHINGTON, D.C.

    Mr. BLAHOUS. Thank you, Chairman Herger, Ranking Member 
Stark, and Members of the Subcommittee. It is a great honor to 
appear before you today to discuss the findings of the 2011 
Medicare trustees' report.
    By mutual agreement with my fellow public trustee Dr. 
Reischauer, I will present the primary findings of the report 
with respect to projected Medicare finances, and leave other 
important issues, such as the reasons for change in the 
projections and the degree of uncertainty in the projections, 
for him to discuss.
    Medicare has two trust funds. There is a Hospital Insurance 
Trust Fund, colloquially known as Part A; and a Supplementary 
Medical Insurance Trust Fund, which includes Part B, which is 
basically physician services, outpatient hospital, home health 
services; and Part D, the prescription drug program. Every year 
there is a great amount of interest in the trustees' 
projections for the solvency of the Part A fund and its 
projected date of trust fund depletion. That attention is 
appropriate.
    It is important to remember, however, this is just one 
component of overall Medicare financing. On the SMI side, 
basically general revenue contributions, premiums, these 
factors are reestablished each year so as to match expected 
costs on that side of the program. So when there are financial 
strains on the SMI side, which there definitely are, they are 
manifested in a different way. We don't show a projected date 
of trust fund depletion; instead, we show rising general 
revenue pressures and rising enrollee premiums.
    Let me first review the HI projections. Currently we 
project that every year going forward annual hospital 
expenditures under HI will exceed program income in all future 
years. And the consequences of that would be a continuing 
diminution of the assets in the HI Trust Fund to the point 
where it is exhausted in 2024. As has been noted here, that 
2024 date is 5 years earlier than was projected in the previous 
trustees' report.
    At that point of depletion, projected revenues would be 
roughly sufficient to fund about 90 percent of expenditures, 
and that percentage would gradually decline from that point 
forward till by midcentury it would be about three-quarters of 
expected expenditures. That would be a low point. Afterwards, 
it would begin to drift up a little bit.
    Over 75 years, the so-called long-range valuation period 
over which HI actuarial balance is measured, that is 
traditionally done as a percentage of the program's tax base, 
taxable payroll, and we show a projected deficit of 0.79 
percent of taxable payroll over 75 years. Last year's report 
showed 0.66 percent.
    Now, as I have noted, this is just one component of 
Medicare financing. On the SMI side, we see the financial 
strains arising in the form of rising costs. SMI costs were 
roughly 1.9 percent of GDP in 2010. We show them rising fairly 
rapidly and going to 3.4 percent of GDP in 2035. And, indeed, 
Medicare costs as a whole are projected to rise fairly rapidly 
to reach about 5.6 percent of GDP in 2035 and to increase 
gradually thereafter to more than 6 percent of GDP.
    Now, I have a couple of caveats about those numbers, but 
before I get to those, just one additional point. This year's 
report also issues a Medicare funding warning. There is a 
provision of law that requires us to state when we project that 
at any time over the next 7 years there will be a year where 
the gap between program outlays and dedicated revenues is more 
than 45 percent of program outlays, and that is the case for 
fiscal year 2011, and that funding warning has been issued in 
this report for the sixth consecutive year.
    Now, the caveat about the numbers. There are a number of 
places in the trustees' report where it is stated pretty 
explicitly that actual costs in practice are likely to be 
substantially higher than what we show, and the reasons for 
this are various. The most obvious of them is the fact that 
under current law there would be roughly a 29 percent reduction 
in physician payments in early 2012. Historically, Congress and 
the administration have worked together to override those 
reductions that have been called for by the sustainable growth 
rate formula over the years. Obviously if that continued to be 
the case, then actual costs in practice would be higher than we 
show.
    As members of this subcommittee know better than anyone, 
there is a vigorous ongoing debate as to whether or not the 
cost-savings provisions of the Affordable Care Act will be 
sustainably implemented other the long term. We as trustees are 
obviously not in a position to arbitrate on that and to predict 
the political economy of the Affordable Care Act over the long 
term. All we can do is show literal current law as it is 
written.
    Now, what the Medicare actuary does is he publishes an 
illustrative alternative scenario in which it is shown that the 
consequences of physician payment reductions being overridden 
and the productivity adjustments from the Affordable Care Act 
being gradually phased out over time. Under that scenario total 
costs are substantially higher than in the main report, 10.7 
percent of GDP in 2085 rather than 6.2 percent.
    I know I am out of time, so I will wrap up. Just one final 
point. That all speaks to political uncertainty, but it is 
important for the subcommittee to know that Medicare 
projections are highly uncertain even if the politics are 
certain. There is a tremendous amount of variation in the 
projections over the long term according to different 
assumptions for health care cost inflation. It is a very 
difficult variable to predict over the long term.
    The bottom line is that the Medicare programs faces real 
and substantial financial challenges. We will best serve the 
interests of the public if these financial corrections are made 
at the earliest possible time.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Blahous follows:]

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    Chairman HERGER. Now Mr. Reischauer is recognized for 5 
minutes.

 STATEMENT OF ROBERT REISCHAUER, PH.D., PUBLIC TRUSTEE, SOCIAL 
                SECURITY AND MEDICARE BOARDS OF 
                   TRUSTEES, WASHINGTON, D.C.

    Mr. REISCHAUER. Thank you, Chairman Herger, Ranking Member 
Stark, and Members of the Subcommittee. I appreciate the 
opportunity to appear before you to discuss the 2011 Medicare 
trustees' report.
    I will focus my comments on changes that have occurred 
between the 2010 and 2011 reports and on the inherent 
uncertainty that surrounds projections of health care costs, 
both in the public and the private sectors.
    As you all know, the trustees' projections of the financial 
health of the Medicare program change each year for a variety 
of reasons. There might be legislation that affects them. There 
is almost always a failure of the base year actual amounts to 
equal what was projected the previous year for that year. There 
are changes in economic and demographic assumptions, and there 
are continual refinements and improvements in the methodologies 
used by the actuaries to make the projections.
    The media and the public, as my colleague pointed out, look 
largely at the date at which the HI trust fund becomes 
exhausted to make a judgment about whether the changes have 
been significant or not from one year to the next. As has been 
mentioned, the 2011 trustees' report projects that the Medicare 
HI Trust Fund will be depleted in 2024, which is 5 years 
earlier than projected in 2010. But it is worth noting that 
that is still 7 years later than was projected in the 2009 
report, which was the last one issued before the Affordable 
Care Act was enacted, and 8 years longer than the actuaries' 
latest estimates for the date of depletion were the Affordable 
Care Act not the law of the land.
    The 5-year deterioration in the date of the trust fund 
exhaustion might suggest that some major changes have occurred 
in policy or in assumptions. That is not the case. Instead, 
rather small deviations of actual from projected performance in 
2010, and a few small changes in assumptions about the future, 
were enough to move the estimated date of exhaustion 5 years 
earlier.
    The second figure in my prepared statement shows that 
Medicare expenditures have exceeded income since 2008. Last 
year's trustees' reports projected that as the economy 
recovered, this would turn around, and we would experience 
small surpluses in that trust fund in the period between 2014 
and 2022. But under the new projections, Medicare spending is 
expected to exceed income for the indefinite future.
    A more comprehensive measure of the HI Trust Fund's fiscal 
situation is the actuarial balance, which is the difference 
between the program's annual income and costs rates averaged 
over a 75-year period and expressed as a fraction of taxable 
payroll. The actuarial balance has deteriorated from minus 0.69 
to minus 0.79 between the 2010 and 2011 report. The primary 
factor responsible for this decline is that expenditures were 
higher and payroll taxes were lower in the base year 2010 than 
was anticipated in the previous year.
    Let me just say a few words about the inherent uncertainty 
of projecting Medicare's expenditures. We all realize that 
there is a lot of change going on in health care, both in the 
public and the private sectors, and how that will play out over 
the next several decades is quite uncertain. As the chairman 
has mentioned, the trustees' report projects expenditures and 
income based on current law, and because current law assumes 
the implementation of a 29.4 percent reduction in the physician 
fee schedule payments in 2012, some have viewed this as a 
relatively optimistic scenario.
    The actuaries have provided an alternative estimate, which, 
as my colleague explained, assumes that the physician fee 
schedule is increased each year by the Medicare Economic Index, 
and also that the productivity-related reduction in payment for 
other providers is phased out. Some have suggested that this is 
the right or appropriate alternative projection. I think one 
can argue that, in fact, just as the trustees' report might be 
a little optimistic, this is a little pessimistic, because over 
the last 9 years, the update in the physician fee schedule has 
not kept pace with the Medicare Economic Index, and at times we 
have seen a reduction from full updates for other providers.
    I think the message that we leave you with is that further 
legislative changes have to be considered by the Congress. The 
sooner those are enacted, the less disruption there will be for 
taxpayers, for beneficiaries, and for providers. And so it is 
essential that this is on the front burner of the Congress.
    Thank you.
    Chairman HERGER. Thank you very much.
    [The prepared statement of Mr. Reischauer 
follows:] 

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    Chairman HERGER. I thank our witnesses for their 
testimonies.
    Before I get to my questions, I would like to welcome the 
newest member of the Health Subcommittee, Vern Buchanan. As Mr. 
Buchanan has many Medicare beneficiaries in his district, we 
especially look forward to his insights.
    Mr. Blahous, I would like to get a few things on the 
record. When do the Medicare trustees expect the Medicare 
Hospital Insurance Trust Fund to go bankrupt?
    Mr. BLAHOUS. We project depletion of the trust fund in 
2024.
    Chairman HERGER. What was the bankruptcy date in last 
year's trustee report?
    Mr. BLAHOUS. It was 2029.
    Chairman HERGER. So in the course of 1 year, the Medicare 
HI Trust Fund lost 5 years in solvency? Is this something 
Congress should be concerned about?
    Mr. BLAHOUS. Well, I would state we should definitely be 
concerned about the hastening insolvency of the trust fund. As 
I note in my testimony, because trust fund balances are so low 
for several years going forward, changes of several years in 
the insolvency date are quite possible even without qualitative 
changes in the annual operations of Medicare.
    Chairman HERGER. Mr. Blahous, I can tell you that it is 
certainly alarming to me that during the course of just 1 year, 
the Medicare Hospital Insurance Trust Fund lost 5 years of 
solvency and is now expected to go bankrupt, as you stated, in 
2024. You state in your testimony that ``it does not take a 
great deal of creativity to imagine a 2012 Medicare trustees' 
report in which the Hospital Insurance Trust Fund and solvency 
date moves again by several years in either direction.''
    Are you suggesting that it is possible that we could see a 
Medicare bankruptcy date within the next 10 years?
    Mr. BLAHOUS. Well, it is certainly very possible. The trust 
fund ratio, that is basically the measure of the relationship 
of assets in the trust fund to annual expenditures, that is 
projected to drop below 50 in 2015. So less than half a year's 
worth of benefit payments could be accounted for by assets in 
the trust fund. Once you are down at that level, you run the 
risk of trust fund depletion. That is certainly very possible. 
It is also quite possible it could move the other way.
    Chairman HERGER. The trustees' report estimates that the 
Medicare Hospital Insurance Trust Fund is projected to spend 
more money paying claims this year than it will collect via the 
payroll tax; is that correct?
    Mr. BLAHOUS. Yes.
    Chairman HERGER. How long has that been the case?
    Mr. BLAHOUS. 2008 was the first year.
    Chairman HERGER. Do you expect this trend of the Medicare 
Hospital Insurance Trust Fund spending more than it is 
collecting to continue?
    Mr. BLAHOUS. Yes, we do.
    Chairman HERGER. Are you aware of any program that will be 
financially sustainable if it spends more money than it has, or 
is this a recipe for bankruptcy?
    Mr. BLAHOUS. Well, certainly our current projections would 
exhaust the trust fund because of these annual operating 
deficits, yes.
    Chairman HERGER. I thank you.
    Mr. Stark is recognized for 5 minutes.
    Mr. STARK. Thank you, Mr. Chairman.
    Mr. Reischauer, if you would just help me for a minute with 
a personal matter. I have a 9-year-old who hates math and 
science, but he wants to be the batboy for the Democrats' ball 
team. I have to go home and explain to him how somebody with a 
Ph.D., like yourself, in computational quantum chemistry gets 
published in the Baseball Research Journal. Can you help me a 
little bit? That is a personal matter, and if you want to take 
time later, I would certainly appreciate the help at home to 
get this little bugger to study his math and science, and let 
him know that he could have something to do with baseball. It 
would be deeply appreciated.
    The shortened solvency date, Dr. Reischauer, I believe has 
been caused by sluggish economic recovery, and it is due to a 
drop in revenues and an increase in spending, both factors 
caused by the general state of our economy; am I close?
    Mr. REISCHAUER. You are right on the money. This is a 
program that is sensitive to the strength of the economy, both 
in direct and quite indirect ways. When economic growth picks 
up, wages of providers goes up, expenditures go up as a result 
of that. When the economy weakens, we see both induced 
enrollment of those who lose their jobs but were working when 
they were over 65, and a fall-off in payroll tax revenues.
    Mr. STARK. Some have suggested that we could save a good 
bit of money by allowing Medicare private contracting. The 
Republicans seem to think that this would allow Medicare to 
continue paying doctors, but then allow doctors to charge 
whatever they want on top of the Medicare payment. Do you have 
any concerns about the effects of private contracting on, say, 
access to care and quality of care?
    Mr. REISCHAUER. As a public trustee, I don't. As an 
analyst, it is an area that concerns me in that if private 
contracting were permitted and were not regulated, we could see 
access by individuals who are in tight markets, tight provider 
markets, begin to create some problems.
    Mr. STARK. The Affordable Care Act is going to expire in 
2016, and the report issued today shows that the reforms in the 
Affordable Care Act would add 8 years to the solvency. Before I 
ask if you think that is about right, I do notice that since I 
have been here, and perhaps since Mr. Rangel has been here, we 
have been going to go broke just about every year, and the 
reason, of course, we don't is that Congress acts in one way or 
another to protect Medicare. But going back, the question of 
the shortened solvency date caused by the economy in general, 
is there any one area that you suggest to us that we might move 
to extend the solvency of Medicare?
    Mr. REISCHAUER. You know, there are a tremendous variety of 
measures that could strengthen the Medicare program's financial 
position, and some basic decisions have to be made by the 
Congress on the extent to which we should look to 
beneficiaries, taxpayers, or providers to contribute to that 
effort. Some of them involve changes in the current structure. 
Others involve incentives that might lead to a reformed 
delivery system, and we could talk for several weeks, probably, 
on the pros and cons of the various alternatives.
    Mr. STARK. Thank you.
    I thank you, Mr. Chairman.
    Chairman HERGER. The gentleman from Texas Mr. Johnson is 
recognized for 5 minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Good morning. You know, 5 years. Last Congress, the 
Democratically controlled Congress, passed a health care 
overhaul and a stimulus bill that were supposed to control 
health care costs and extend the life of the trust fund. From 
your report I would say these bills failed. Do you think those 
efforts are enough to solve this crisis?
    Mr. PASCRELL. Would the gentleman yield, Mr. Johnson?
    Mr. JOHNSON. Why?
    Mr. PASCRELL. I wanted to ask you a question.
    Mr. JOHNSON. Ask me a question? I don't yield.
    I want to know if you think that those efforts are enough 
to solve the Medicare problem, or did we not get into it deep 
enough?
    Mr. BLAHOUS. Clearly under our projections, we have a 
deficit in Medicare, even if we assume the current law is 
sustainably implemented. And as I indicated, actual costs are 
probably likely to be somewhat higher than what we show. So we 
clearly have a remaining problem left to solve.
    Mr. REISCHAUER. Notwithstanding that, the best estimates, 
our estimates and CBO's estimates of the Affordable Care Act 
are that they extended the life of the trust fund, and were the 
Affordable Care Act to be repealed, the date at which the trust 
fund would become depleted would move from 2024 to 2016.
    Mr. JOHNSON. I recognize you all are Ph.D.s, do you consult 
with medical doctors when you look at this kind of thing? Do 
you have them in front of you talking to you and telling you 
what their problems are; yes or no?
    Mr. REISCHAUER. You mean when we do the iterations for the 
trustees' report?
    Mr. JOHNSON. Yes.
    Mr. REISCHAUER. No.
    Mr. BLAHOUS. No.
    Mr. JOHNSON. So you are not consulting the medical 
community at all. And, you know, docs, I think, play the 
system. They are going to ask for more than it really costs 
them because they know it isn't going to get paid. You are 
probably aware of that. That is why I ask you if you ever 
consult with the doctors themselves. The paperwork is 
atrocious. I don't know if you are aware of that or not. But it 
seems to me that the doc costs are part of our problem. I don't 
know that you all have really considered it.
    Clearly we need to do more to save Medicare for future 
generations. I would just ask both of you: Do you have 
solutions for this problem? You know, you talk about the 
problem. What are the solutions?
    Mr. BLAHOUS. Again, I would be very careful to say as 
trustees, we have to be very careful about not having a view. 
Personally, I think there are only so many levers you can pull. 
The things that drive the problem are the growth of the 
beneficiary population, so you have to look at eligibility 
criteria and eligibility ages. You have to look at the growth 
of the per capita benefits paid by the Federal Government. That 
is always dicey, and you get attacked for, quote, ``cutting 
benefits'' when you do that. But no matter how you do that, 
whether you are talking about the Affordable Care Act or 
alternative visions for Medicare, we are all in the game of 
having to cap the growth of the per capita benefits the Federal 
Government is paying and controlling that rate of growth in 
some way. That has to be a component of the solution. In fact, 
we need additional cost constraint beyond what is in current 
law if Medicare is going to be maintained in terms of its 
solvency.
    Mr. JOHNSON. Do you have a comment on that, Dr. Reischauer?
    Mr. REISCHAUER. Well, I would agree with my colleague that 
there are a handful of areas that you can look to. Changing the 
number of folks who are eligible for this program, the 
definition of covered benefits, the payment to providers, the 
contribution from beneficiaries--in other words, premiums--and 
the contribution from the taxpayer, those are easy ones to 
estimate the savings that might result from them. A much harder 
one is to figure out what a change, a significant change, in 
the structure of the delivery system might do to lower the 
growth of costs over the long run.
    Mr. JOHNSON. Thank you both for your comments. I appreciate 
it.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    The gentleman from Wisconsin Mr. Ryan, the chairman of the 
Budget Committee.
    Mr. RYAN. Thank you gentlemen for coming here. Five minutes 
isn't enough time to get into all of this.
    A couple of things. It has been said that we want it to go 
away, or something like that. We all represent around 700,000 
people. Our relatives are on Medicare. It is probably one of 
the most important programs the Federal Government has or has 
ever had. We want it to work; we want to save it.
    Here is our problem. We have 10,000 baby boomers retiring 
every day with fewer workers coming into the workforce to pay 
for it. We have health care costs going up a lot faster than 
inflation. You are telling us that the HI Trust Fund is going 
bankrupt in 2024; CBO is telling us faster than that. So 
something has got to be done.
    I want to ask you a couple of premise questions. A, do you 
both agree that you cannot say the savings in Medicare is going 
to pay for the Affordable Care Act and extend the solvency of 
Medicare? Do you agree that that is counting a dollar twice? 
Just a quick yes or no.
    Mr. BLAHOUS. I agree with that.
    Mr. RYAN. Bob, I assume you do?
    Mr. REISCHAUER. From a unified budget standpoint, the 
answer is yes.
    Mr. RYAN. Right. So we had the trustees giving us these 
alternative scenarios for 2 years now, which I find pretty 
amazing. So under more realistic assumptions, we find that you 
can't fund one other government program on the one hand and 
then extend the solvency on the other hand. That is double 
counting. We are not suggesting that CBO is doing the double 
counting, we are saying Congress is doing the double counting.
    Point number two, Mr. Stark is right, we have faced 
insolvency before. Congress has always done something to deal 
with it; but the problem is the cliff is getting that much 
steeper. If we keep kicking the can down the road and waiting 
until insolvency is on the doorstep, then the solutions will be 
that much more dire, that much more bitter, and people will be 
that much more affected.
    How many providers do you think are going to stay providing 
Medicare benefits if they are getting 66 cents on the dollar 
for every Medicare patient they have coming in the door? If you 
are telling us, as you do in your trustees' report, that they 
are going to pay 66 cents on the dollar down to 33 cents on the 
dollar, we might have a Medicare program, but it is not going 
to work for people on Medicare if nobody takes Medicare as a 
provider.
    So we have got to be realistic about what is necessary to 
save Medicare. I would just simply say that the lessons we 
learned from the previous Medicare fixes are lessons we should 
take into the future. 1997 was an important budget agreement. 
It was bipartisan. It was a Republican Congress and a Democrat 
President doing a budget agreement to extend Medicare solvency 
and get the economy growing, produce budget surpluses.
    But here is the lesson we got out of that exercise: Price 
controls and Medicare don't work. What happened, Congress did 
two successive bills, BIPA and BBRA, giving back the money to 
prevent Medicare providers from just dropping Medicare. What I 
think our friends on the other side of the aisle got out of 
that, as evidenced by the Affordable Care Act, is not that 
price controls don't work, it is that price controls are not 
politically sustainable, because Congress, seeing and knowing 
that access is being denied to Medicare beneficiaries, that 
providers are leaving providing the benefit, that we should 
just take it out of the hands of politicians. We should just 
take it out of the hands of Congress. Let us form an IPAB, an 
independent payment advisory board, of 15 political appointees 
and have them do the price controlling that goes right into 
law, circumventing Congress.
    To us, what this simply means is we are going to do hard-
core price controlling, which leads to rationing, which will 
lead to Medicare providers dropping Medicare, and that means 
future seniors will not have access.
    We want to get rid of that. If we are going to save money 
to extend solvency, it should go to Medicare, not to pay for 
some other program. We shouldn't be raiding one government 
program to pay for another one. How many times have we heard 
that about Social Security?
    Second, price controls, or rationing, or whatever you want 
to call it, it just doesn't work. So we believe at the end of 
the day, there is going to have to be a bipartisan solution. 
This is why we proposed premium support. The sooner you do it, 
you don't have to affect benefits for anyone above the age of 
55. So the way we look at this, people who already retired on 
this program, don't change their benefits, because they have 
been made promises that government should keep to them. And if 
we do this soon, we can keep the promise also to the people who 
are within 10 years away from retirement.
    So it is very negotiable. It is very reasonable to debate 
the contours of how to fix it with the new system, growth rates 
and design features. That is what this committee is trying to 
do.
    But I simply want to ask you: Do you think providers of 
Medicare are going to keep taking Medicare if they are going to 
get paid 66 to 33 cents on the dollar?
    Mr. BLAHOUS. I think you have highlighted a fundamental 
problem that we also highlight in the report, which is under 
our current assumptions, reimbursement rates under Medicare 
will lag very far behind what they are in the private sector, 
and we say that this could lead to substantial withdrawals of 
access to care under Medicare. So the answer is yes, I agree 
that is a fundamental problem.
    Mr. REISCHAUER. I think you put your finger on a very 
important point, which is that the same providers offer 
services to the elderly and disabled through Medicare, the low-
income population through Medicaid, and the working population 
and their dependents through employer-sponsored insurance or 
individually purchased insurance. And I for one think that 
efforts to restrain Medicare or Medicaid significantly are 
doomed to failure unless we provide incentives for dampening 
the growth of health care costs in the private sector as well. 
You can't have these huge differentials in reimbursements.
    On the other hand, I would argue that the fixation we have 
with comparing Medicare's reimbursement rates to those in the 
private sector are a comparison of average payments or average 
costs, and most economists would argue that service is 
provided, a good is produced, as long as the provider can meet 
marginal costs. And so we can have some differentials here 
without destroying the market. They obviously can't get too 
large, and that is what you are concerned about, rightly.
    Chairman HERGER. The time of the gentleman has expired.
    The gentleman from California Mr. Thompson is recognized 
for 5 minutes.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Reischauer, isn't it true that whenever a new law 
results in a savings to Medicare Part A, that those savings 
improve the Hospital Insurance Trust Fund finances regardless 
of whether the savings are used elsewhere in the budget?
    Mr. REISCHAUER. Yes, that is true.
    Mr. THOMPSON. I just wanted to bring that up. My friend 
from Wisconsin raised that issue in questioning the double 
counting, but that is how the accounting system works.
    Mr. REISCHAUER. And how it has been treated in many omnibus 
budget bills in the past, and other corrections by the 
Congress.
    Mr. THOMPSON. My friend also used the Balanced Budget Act 
of 1997, which was passed under the Republican-controlled 
House, as an example. That included $994 billion in Medicare 
savings, and $292 billion of that was used for a tax cut. So it 
is the same practice; it is just depending on who is trying to 
do what. I guess the other guys are the critics.
    Also, I have a sheet here. It was prepared by our side's 
staff, but you are the trustees' report starting in 1970, 
running through 2011, and years of solvency of the program, and 
I think--I would like to get you to look at it and let us know 
if this is accurate, but based on this, it has always been 
projected to reach insolvency at some point. And as Mr. Stark 
had mentioned earlier, Congress has always addressed this issue 
by making changes. As a matter of fact, of the 40 years on this 
chart, 18 of those years, the solvency date is less than it is 
today in 2011. As you recognize, it is a problem because of the 
downturn in the economy. So I would like to have someone give 
you this and get your analysis of it.
    And then also, the Affordable Care Act that was mentioned 
was an attempt to put in place provisions that would, in fact, 
improve the quality and reduce the cost of health care. 
Everything from bundling around a hospital admission to 
reducing hospital readmissions to expanding fraud-fighting 
efforts, and your trustees' report recognized that. Can you 
tell us your assessment of the delivery system reforms in the 
ACA?
    Mr. REISCHAUER. Once again, I am going to have to take off 
my trustee's hat for this.
    Mr. THOMPSON. Did you take these policies into 
consideration when you did this?
    Mr. REISCHAUER. Yes. These follow the estimates by the 
actuary of the impact of those reforms on cost. There are many 
that both the CMS actuary and the Congressional Budget Office 
didn't provide savings for, or provided quite modest savings; 
that if all the planets come into alignment, and things work 
out well, and some of the initiatives that I discussed in my 
prepared statement come to pass, we could see, you know, 
significantly more in the way of savings.
    On the other hand, some of them may prove to be ones that 
Congress reconsiders or ones that don't work out as well as the 
CBO and CMS have estimated. So we are in a period of huge 
uncertainty, I think, right now. But those base numbers are in 
our projections.
    Mr. THOMPSON. I think the language on page 2 of the report 
says that ``major program of research and development for 
alternative provider payment mechanisms, health care delivery 
systems, and other changes intended to improve the quality of 
health care and reduce the cost of Medicare.'' And this 
improves the cost and quality of health care outside of 
Medicare as well. I think that is important to note.
    CMS did a press release on your report, and in it they say: 
Without the reforms in the Affordable Care Act, the Medicare HI 
Trust Fund would expire in just 5 years, in 2016. The report 
issued today shows these reforms added 8 years of solvency.
    I would like to ask unanimous consent to submit this to the 
record.
    Chairman HERGER. Without objection.
    Mr. THOMPSON. Thank you.
    Chairman HERGER. The gentleman from California Mr. Nunes is 
recognized for 5 minutes.
    Mr. NUNES. Thank you, Mr. Chairman.
    I would like to ask the two witnesses this question of 
insolvency. I apologize, I don't know how long you have been 
trustees, but when we look back throughout time, 10 years, 15, 
20 years ago, we always knew we had an insolvency issue. I 
don't think anyone disagrees with that, and there has always 
been a need to save Medicare and save Social Security.
    When you analyze the problem today, and you know here in 
this body we are locked into this budget debt limit increase 
and budget fight where it doesn't appear like there is any fix 
in sight, and basically one of the major holdups is are we 
going to deal with these entitlement programs to solve the 
insolvency problem. I don't believe we have ever defaulted on 
our debt. We are getting very close to that if we don't have an 
agreement soon. So my question to you is: Is the situation more 
serious and more urgent today than what it was when you looked 
back to 10 years ago and 20 years ago?
    Mr. REISCHAUER. I think the answer to that is yes, both 
because the Medicare problem is embedded in a larger fiscal 
problem; and because, as opposed to 5, 10, 20 years ago, the 
baby boomers are retiring. They are beginning to apply for 
Medicare benefits. And so the acceleration of the burden that 
we talked about as a future problem 10 years, 15 years ago is 
now upon us. And this makes some solutions more difficult 
because the numbers of individuals who are receiving benefits 
is rising rapidly.
    Mr. NUNES. Mr. Blahous.
    Mr. BLAHOUS. I have a two-part answer, and Dr. Reischauer 
anticipated both parts. One, we have a much more serious 
overall fiscal situation. Deficits, unified deficits, are much 
larger than they previously were.
    Secondly, we have an urgency that arises from demographics. 
Each year that passes, we have more baby boomers going onto the 
benefit rolls, and there is a great reluctance, a bipartisan 
reluctance, to withdraw benefits from people who are already 
dependent upon them. So the costs of dealing with these 
problems grows enormously with every passing year.
    Mr. REISCHAUER. I would just like to add a third issue, to 
differentiate myself from my colleague here, and that is we 
have enacted major changes already in the Medicare program. So 
in some sense the cupboard is fairly bare. We can't go to that 
cupboard and open it up and say, well, let us cut provider 
payments even more. We are worried about can we sustain the 
ones we have already adopted.
    Mr. NUNES. There is no question that every day in my 
office, people are coming in. Health care providers are coming 
in, either to my district office or here in Washington, and 
complaining about the status of the health care system as it 
relates to the Affordable Care Act, Medicare and Medicaid. 
There are problems throughout all of these programs.
    Would it be good policy if somehow this Congress could move 
legislation that would take anyone that is 55 years of age and 
older and keep them on traditional Medicare; would that be a 
good goal for this Congress to partake in?
    Mr. BLAHOUS. Are we basically saying anyone over 55, keep 
them in traditional Medicare and sort of hold them harmless for 
any future changes at all?
    Mr. NUNES. If we could accomplish that?
    Mr. BLAHOUS. I mean, I think it is good policy to try to 
hold people who are near retirement or in retirement, hold 
harmless as much as possible from any future changes. Having 
said that, with every passing year, it gets harder and harder 
to hold harmless people older than even 55. In 5 or 10 years 
from now, if you asked me the same question, I might look at 
you and say, I don't think you are going to be able to do that.
    Mr. NUNES. Mr. Reischauer.
    Mr. REISCHAUER. I guess I am a believer that even old dogs 
can learn new tricks. And, you know, when we make a statement 
as you have made and Congressman Ryan also made about we will 
let people 55 and older stay in the system that they are in 
now, it implies that you want to keep that system unchanged.
    Quite frankly, I don't think that is appropriate policy. I 
think Medicare should evolve in a gradual way. We have in the 
Affordable Care Act an innovation center. We have some changes 
in payment mechanisms and things like that that would gradually 
change Medicare. I think pushing those forward as fast as we 
possibly----
    Mr. NUNES. I think we agree that there should be gradual 
change, and that is why in Mr. Ryan's plan he has put forward 
55 and older, because that gives people time for retirement 
planning and such to deal with the changes. However, I think 
where we disagree is where this problem just seems to be bigger 
than what--as you both said earlier, this problem appears to be 
bigger than what it was 10, 20 years ago, and so I think we 
have to act quickly in order to save Medicare for everyone.
    Chairman HERGER. The time of the gentleman has expired.
    The gentleman from Oregon Mr. Blumenauer is recognized for 
5 minutes.
    Mr. BLUMENAUER. Thank you very much, Mr. Chairman.
    I would just pose questions to our panelists not to answer 
now, because I have some others I want to get to, but if you 
would reflect, because I appreciated, Mr. Blahous, you talking 
about whether or not this is sustainable over time, that we are 
going to take, what is it, 79 million Americans and freeze them 
in Medicare as it is now, although my friend from Wisconsin 
takes the reviled savings from the Affordable Care Act and 
counts them, assumes them, in trying to make his plan pensile. 
But we will be having a situation where there is a huge 
population that will grow smaller over time, but still millions 
of people 30 years from now, an ever-sicker, smaller population 
that my friend, when he asked it to be scored, just assumed 
that the general fund would pick up the gap. I really would 
appreciate it if you two experts might reflect and maybe share 
with the committee what that impact is going to be over time.
    Mr. RYAN. Would the gentleman yield just briefly?
    Mr. BLUMENAUER. If I have time at the end, Paul, I am happy 
to do it.
    I would like to be able to lock in what this means, because 
we haven't been able to get a good figure. It wasn't scored in 
terms of what that extra cost would be for an older, sicker 
population. Although declining, it would still be millions of 
people.
    And I would take modest exception to my friend's 
characterization that IPAB takes the control out of Congress 
and puts it inevitably towards rationing and price control. As 
I think he knows that the recommendations from IPAB are just 
that, and they will come to Congress and have to be voted up or 
down. I think that is really good that we have a mechanism 
because we have seen political failure on both sides of the 
aisle on things like base closing and repeated failure with 
Medicare.
    We are already seeing some people trying to walk back 
IPAB'S ability. And I have heard my Republican friends decry 
the fact that providers right now aren't getting enough money, 
and yet we can't afford what we are giving them, and they don't 
want a control mechanism.
    I am wondering, is there any reason why, with the help of 
IPAB to maybe stiffen the spine of Congress, that we couldn't 
mimic the best practices that are going on right now with 
Medicare in my community, my colleague Mr. Kind's, Mr. Ryan's 
State of Wisconsin, where costs are dramatically lower than 
other parts of the country, and performance is better? Is there 
any inherent reason that we can't mimic that behavior, Mr. 
Reischauer?
    Mr. REISCHAUER. It is certainly a goal that we should 
strive to achieve. But it is very difficult to figure out how 
to get from here to there, how to get from Miami to Wisconsin.
    Mr. BLUMENAUER. But some people have figured it out, 
haven't they? Some people have figured it out. We are not all 
Miami; we are not all McAllen, Texas.
    Mr. REISCHAUER. And we don't really know how to convince 
Miami to mimic the behaviors of Wisconsin, Minnesota, some of 
the more parsimonious practice pattern States.
    Mr. BLUMENAUER. That are more effective?
    Mr. REISCHAUER. In many cases, that are more effective.
    Mr. BLUMENAUER. Well, I am troubled a little bit with this, 
because I think we do know what works. I think there is 
bipartisan agreement, at least there has been until recent 
years, of some of the experiments in the Affordable Care Act, 
the ACOs, of dealing with unnecessary hospital readmissions, 
being able to have more attention to primary care, dealing with 
freight with waste, fraud and abuse.
    I mean, there is a litany of bipartisan actions that can be 
taken to squeeze far more out of the existing Medicare system. 
But people haven't been incented to do it. And Congress in both 
parties has wobbled, at least until we are starting to move 
back with the Affordable Care Act.
    And I just, I think we are setting our sights too low. I 
think we ought to be accelerating the reforms that were talked 
about. And yes, there is a little discipline. There are some 
price signals. I don't think that is control. But we are not 
just going to open the spigot and then pay people for procedure 
after procedure after procedure, which is why doctors are 
getting more money, even though the reimbursement rates are 
more parsimonious.
    And I think we ought to be more optimistic about this. And 
I think there is a bipartisan consensus about how it could be 
done once we get out of this whirl we are in right now. Thank 
you.
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from Washington, Mr. Reichert, is recognized 
for 5 minutes.
    Mr. REICHERT. Thank you, Mr. Chairman.
    And thank you, gentlemen, for appearing this morning.
    I agree with Mr. Blumenauer, we must find a bipartisan 
solution to this, and I think we need to be more optimistic 
that there is one. I think many of the members have expressed 
that this morning.
    However, there have been some comments that have been made 
that sort of puzzle me just a little bit. Like the question was 
asked earlier, why are we even paying attention to this issue? 
Well, I think it is obvious from your testimony there are some 
major themes that you are expressing this morning to all of us, 
to all Americans, as some may be watching C-Span and don't have 
a life. Medicare is going bankrupt. You both agree with that, 
and it is accelerating, true, yes?
    Mr. BLAHOUS. Yes.
    Mr. REICHERT. Medicare's dire financial status is actually 
drastically understated, would you agree with that, yes?
    Mr. BLAHOUS. I would say it is very likely to be 
significantly understated.
    Mr. REICHERT. Sir?
    Mr. REISCHAUER. I am unsure of that. I think if we don't 
take full advantage of the initiatives in the Affordable Care 
Act, if we don't encourage all of the innovation that is going 
on in the private sector and in the nonprofit sector, that is 
true.
    Mr. REICHERT. Sir, wasn't it understated just a year ago?
    Mr. REISCHAUER. Excuse me?
    Mr. REICHERT. Wasn't it understated just a year ago in a 
report and here we are today, we are accelerating the----
    Mr. REISCHAUER. You know, I think the----
    Mr. REICHERT. Is that a yes?
    Mr. REISCHAUER. No. I am not sure what your question is. 
Were you referring to the 2010 report?
    Mr. REICHERT. Yes.
    Mr. REISCHAUER. And this report also has warnings which 
say----
    Mr. REICHERT. But it has been accelerated, is that not 
true?
    Mr. REISCHAUER. Yes, it has.
    Mr. REICHERT. By 5 years?
    Mr. REISCHAUER. There are changes largely in the economic--
--
    Mr. REICHERT. And you would not expect that to continue?
    Mr. REISCHAUER. I hope the economy is going to rebound.
    Mr. REICHERT. You are not sure, okay. Massive tax 
increases, do you see that on the horizon, or benefit cuts? If 
we don't do something now, isn't that sort of the scenario, if 
we don't act now? I mean, we must do something now; would you 
both agree with that?
    Mr. BLAHOUS. I would say that the, on the HI side, the 
implication of trust fund exhaustion would be a benefit 
reduction in the absence of legislation. On the SMI side, the 
implication would be greater general revenue requirements, 
which implicitly would lead to higher tax burdens.
    Mr. REISCHAUER. Yes.
    Mr. REICHERT. Okay. Thank you. The thing that I guess is 
really confusing to a lot of Americans, they see this health 
care bill out there that has been passed, and it has been 
implemented by some degree or another and still more laws to 
take effect. But there is a $600 billion tax pay in this bill, 
$600 billion worth of taxes applied to small businesses and 
people to pay for this. How can we get the economy going if we 
continue to tax small businesses? $523 billion in cuts to 
Medicare. So no wonder people are expecting higher premiums and 
fewer benefits in Medicare.
    I wanted to ask a specific question though regarding the 
alternative scenario. It states that overall Medicare spending 
is expected to grow to 10.36 percent of GDP, a 3.6 percent 
increase over the trustees report. Growth of this magnitude 
would substantially increase the strain on the Nation's 
workers, the economy, Medicare beneficiaries and the Federal 
budget. Could you elaborate on what the strain may look like 
related to these important areas in other national priorities, 
like education and medical research.
    Mr. BLAHOUS. Well, I would just say, first of all, I agree 
with Dr. Reischauer that the main projected trustees' report is 
probably the best-case scenario, and then this would be sort of 
the pessimistic scenario. The reality is probably somewhere in 
the middle. But if we take that worst-case scenario, I mean, 
that is an unprecedented level of strain, fiscal strain, for 
the Federal Government. I mean, if you consider over 10 percent 
of GDP is for one Federal program alone, that is roughly twice 
as much as any Federal program to this point has ever absorbed. 
That would be over half, relative to GDP, over half of the size 
of the entire Federal Government relative to the economy as 
recently as 2008. So to have over half of our historic norms in 
terms of the Federal size of government devoted to one program 
would be an unprecedented strain.
    Mr. REISCHAUER. My comment on this is long before those 
numbers would come to be realized, this nation is going have to 
address its deficit and debt problem. And in my view, Medicare 
will be one contributor to a solution. And so those numbers are 
horrific. But long before we face them, we are going to have to 
make some much more fundamental changes in our revenues and 
expenditures across the board.
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from New Jersey Mr. Pascrell is recognized 
for 5 minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    How are you today? What is logical, we learn in logic 101, 
may not be true. It is our premises that determine those 
things. I want to enter into the record, Mr. Chairman, the S&P 
indices concerning the health care costs, and to bring to your 
attention, Mr. Chairman, that in 2010, Medicare claim costs 
associated with hospital and professional services for patients 
covered under Medicare increased at a more modest 3.2 percent 
rate, much lower than the private sector, much lower than the 
private sector. And I would like to ask to begin with and very 
briefly your response, I would appreciate that, what do you 
think attributed to the slowdown to the more moderate pace of 
increase in Medicare, as well as the private sector going down, 
too, but not to the degree of Medicare? Why do you think that 
happened? Both of you, either of you.
    Mr. REISCHAUER. My response to that would be that one 
factor is certainly the turndown in the economy, which has left 
some seniors and others with less income to pay their co-
insurance and their co-payments and so on. It is conceivable 
that some even had to drop their Medigap policies.
    But I think of more importance here is the attention that 
CMS and the providers have begun to pay to overuse of services. 
And many practitioners are looking anew at their practice 
patterns.
    Mr. PASCRELL. Which is a major target of the health care 
act, right?
    Mr. REISCHAUER. Yes. And it is a major change in attitude 
and behavior, and I think that is going on throughout the 
society, and it is a good development.
    Mr. PASCRELL. Mr. Blahous. Thank you.
    Mr. BLAHOUS. I generally would agree with that. I think 
certainly the overall state of the economy played a role, and 
the factors Dr. Reischauer just spoke of also played a role.
    But I would be candid and add a heavy dose of ``I don't 
know'' to the answer. Short-term fluctuations in these cost 
levels are very difficult not only to predict but also to 
explain after the fact, so my level of uncertainty as to what 
to attribute that to is very high.
    Mr. PASCRELL. I would contend that even before it is only 
20 percent in effect that the health care act has had an effect 
on the very costs that we are trying to reduce because we are 
never going to have a Medicare program that is able to keep up 
with inflation and the rising costs of health care until we 
control in some manner, shape, or form under a capitalistic 
system the rise of health care costs. We need to do something 
about that, and we are trying to do something about that.
    One-third of the entire health care act dealt with Medicare 
and Medicaid and how we should save money in the process. Much 
of it was not scored in the final analysis.
    Now, we had a major change. In the report of 1997, the 
report of the trustees in 1997, brought about some very 
interesting things. The beginning of Medicare Advantage, the 
beginning of the process to start to privatize the system. Now, 
we pay 12 percent more to these private plans, and seniors are 
going to pay much more if we move, obviously, to privatize the 
whole process under the guise of trying to straighten out 
Medicare. Look, all of these reports from 1970, as the 
gentleman from California pointed out before to now, talk about 
the dire position in which Medicare is in. Every one of those 
reports, that the world is coming to an end as far as Medicare 
is concerned. That did not happen.
    As for my friend from Wisconsin that talks about double 
accounting, this is what a bank account is all about. You take 
money out of the account as you need it; you don't take it all 
out. It is, I believe, very analogous to those funds that are 
in a bank account. When moneys are deposited, the dollars are 
used for other purposes until they are withdrawn. What is so 
different about what we do in terms of how we are calculating 
savings in the future?
    So we need to take a look, Mr. Chairman, at not only the 
logic of what we say, but if there is any resemblance to the 
truth. This is not reality TV. Thank you.
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from Georgia, Dr. Price, is recognized for 5 
minutes.
    Mr. PRICE. I thank the chair and I thank our witnesses for 
coming to help us understand what are the financial operations 
of Medicare. We are talking about the financial operations. 
That is the role of the trustees, right? Look at the financial, 
not the clinical side of health care. So, as a physician, we 
are talking about money today; we are not talking about quality 
of health care, those kinds of things, that are so important to 
patients across this country.
    Our friends on the other side of the aisle have a penchant 
for mischaracterizing our positive solution, I think. And I 
want to touch on a couple of the things that Mr. Stark 
mentioned. He said that our proposal, our positive solution, 
was a voucher plan for Medicare. Well, it isn't a voucher plan; 
you know that. Both of you know that, correct?
    Mr. Reischauer, you understand that our program is not a 
voucher program; it is a premium support program.
    Mr. REISCHAUER. The difference between premium support and 
vouchers has been explained by some as the payment not relating 
to the cost of the underlying enterprise. That is a distinction 
that I am not----
    Mr. PRICE. Well, you supported a premium support program in 
the mid to late 1990s.
    Mr. REISCHAUER. I did. I still support it.
    Mr. PRICE. You wouldn't have called it a voucher program, 
would you? In fact, you didn't call it a voucher program at 
that time, did you?
    Mr. REISCHAUER. No, we didn't call it----
    Mr. PRICE. No, you called it a premium support program, and 
that is important to know.
    Mr. STARK. also said that our positive solution ends 
guaranteed benefits for seniors. Well, that is not true. You 
know that. In fact, we save Medicare for future generations. In 
fact, in our proposal, it actually stipulates that the program 
must be guaranteed. Isn't that true, Mr. Reischauer, when you 
read our program.
    Mr. REISCHAUER. To the extent that I know the details of 
the program, yes.
    Mr. PRICE. It is a guaranteed program; that is correct. Mr. 
Stark also mentioned the issue of private contracting and said 
that if private contracting were allowed in the Medicare 
program, which many of us believe is the kind of pressure valve 
that needs to be put in place to relieve the incredible access 
pressure that currently exists in Medicare, in response to his 
question, wouldn't that cause access problems?
    Mr. Reischauer, you said, ``if not regulated,'' is your 
quote, ``if not regulated'' it might cause--have access 
problems. Are you aware of any proposal that would put in place 
private contracting without regulation?
    Mr. REISCHAUER. Well, I think this is a matter of degree as 
well as existence.
    Mr. PRICE. Are you aware of any, though, that don't?
    Mr. REISCHAUER. No, I am not.
    Mr. PRICE. And in fact, isn't it possible that an 
appropriately regulated and structured private contracting 
program would in fact increase access for Medicare for seniors 
in this country, isn't that possible?
    Mr. REISCHAUER. It is possible, but not probable, I would 
say.
    Mr. PRICE. Well, I would beg to differ with you on that. 
And there are certainly individuals who understand the huge 
challenges with access right now that seniors have. And that 
one of the ways to solve it, as you have identified in your 
list of solutions, is something that allows for increasing 
access.
    I want to touch on the Medicare trigger, for this is now 
the sixth year in a row that the trustees have said that the 
board of trustees are required to issue determination projected 
excess general revenue for Medicare funding, this is the sixth 
consecutive such funding. When that trigger occurs, then, it is 
the obligation of the President, is it not, to then propose to 
Congress a solution to fix that problem. Is that correct?
    Mr. REISCHAUER. Yes.
    Mr. PRICE. And have you seen any solution that this 
administration has offered for having had this trigger be 
punched through for the past 3 years under his watch?
    Mr. BLAHOUS. No.
    Mr. PRICE. Have you, Mr. Reischauer, have you seen that 
solution?
    Mr. REISCHAUER. No. I think the Congress has waived the 
requirement.
    Mr. PRICE. Under the Democrat control in the past, yes, 
they said, oh, no, don't worry about that. Isn't that what they 
did, said don't worry about the money?
    Mr. REISCHAUER. Yes.
    Mr. PRICE. I want to touch on this whole issue of Medicare 
changing. In fact, Mr. Reischauer, you said that there are 
significant changes to Medicare through the PPACA, which is the 
reform bill that they put through. So, in fact, what has 
already been adopted ends Medicare as we know it. Would you 
agree with that statement?
    Mr. REISCHAUER. It transforms the program as all 
legislation in the past----
    Mr. PRICE. So Medicare as we know it right now in this 
colloquial term that is used out there in the marketplace, 
Medicare as we know doesn't exist under the Democrat's plan 
already, is that correct?
    Mr. REISCHAUER. Well, the question is, what are we 
referring to as Medicare? If we are saying----
    Mr. PRICE. Medicare as we know it is basically is what we 
have right now.
    Mr. REISCHAUER.--a fee-for-service unmanaged care program, 
you know, it exists after the Affordable Care Act as it did 
before the Affordable Care Act.
    Mr. PRICE. But Medicare as we know it, the program that 
exists right now, has been changed significantly under PPACA, 
would you agree with that statement?
    Mr. REISCHAUER. There have been significant changes.
    Mr. PRICE. But Medicare as we know it is already gone and 
done so by the reform bill that was put in place before.
    Mr. Chairman, my time has expired, but I look forward to 
submitting further questions for the panel.
    Chairman HERGER. I thank the chairman.
    The gentleman from New York, Mr. Rangel, is recognized for 
5 minutes.
    Mr. RANGEL. Thank you, Mr. Chairman, for calling this 
meeting.
    And I think it is helpful just to clear the air to have 
experts that are objective that will have their reputations to 
protect long after the election is over.
    I think you have to agree that whatever decisions that we 
make that is going to cause any dissatisfaction with our 
constituents, it is much easier when the parties are talking 
together. They may not be happy with Democrats Or Republicans, 
but at least they would not be nearly as angry if the parties 
themselves have taken different positions.
    The fact that so many Republicans got elected attacking so-
called ObamaCare forced Democrats to get reelected in attacking 
the RyanCare. And now the facts are not nearly as important, it 
appears to me, as the parties getting reelected.
    So, unlike Mr. Blumenauer, I just can't believe that a 
nation that owes so much to our aging population can spend 
trillions of dollars rebuilding the economy of Afghanistan and 
Iraq and able to say that we can't provide decent care. And 
that means that we are going to have to have reform, and that 
means it is going to be painful to a lot, but it also means 
that as long as we fight each other, then the parties don't 
want, the beneficiaries don't want to make decisions.
    Let me ask this: As relates to Medicare and solvency, do 
you believe that the Affordable Care Act goes in the direction 
of dealing with the question of solvency?
    Mr. BLAHOUS. Certainly the Affordable Care Act extended the 
duration of Medicare HI solvency.
    Mr. RANGEL. And does it constantly request that we review 
what changes have to be made from the Congress and the 
administration in order to protect that solvency? I mean, do 
you believe that we are not dealing with the problem at all and 
that we need a dramatically different approach? I don't have a 
problem changing the approach if it is bipartisan and we agree 
that this is best. I believe that an old dog can use new 
tricks. I believe that if the Republicans come in and they say 
ObamaCare is moving in the right direction, not fast enough, 
and we think these changes have to be made that is not going to 
happen until, if it happens at all, until after the election.
    So my question to you as being objective professionals, are 
you satisfied that the affordable act bill allows itself to 
deal with solvency if certain changes are made? I mean, do you 
believe that we just are hanging it out there and ignoring the 
problem? We know that this great country has the ability 
working together to deal with that problem.
    Mr. BLAHOUS. I would say there are three things that come 
to mind in response to your question. One is the primary engine 
under the Affordable Care Act for extending solvency of the HI 
trust fund is these annual adjustments in the reimbursement 
rates for growth and economy-wide multifactor productivity. And 
in the last trustees' report, that engine was powerful enough 
to account for basically the overall contours of the cost 
projections over the long term.
    Now, this year's trustees' report relies a little bit more 
on the payment advisory board. But basically, in order to hit 
the savings targets in the Affordable Care Act, the 
productivity adjustments themselves won't be completely 
sufficient.
    Mr. RANGEL. Really--I am going get the answer, but my time 
is so restricted. Really what I want to do is understand the 
premium support position more clearly. And whether you call it 
a voucher or premium support, one, does anyone contradict that 
the insurance companies'--the health insurance companies' major 
obligation is to make a profit? No. That is their job. Two, if 
you are trying to make a profit, does anyone challenge the fact 
that the selection of people to be insured are based on the 
risk involved? Answer, no. If, indeed, a person is more 
vulnerable when they are older, are they less inclined to get a 
fair strike, less inclined to get benefits without higher 
costs? Answer, no.
    So the premium support idea guarantees that you get 
something, but you can only get what you are able to afford to 
get, is that true? That is true. And so I don't care what you 
call it; the fact is that we are making major adjustments and 
putting the entire ability of people to get health care in the 
hands of those people that really don't want you as a client, 
and I got a--not a voucher, I got support. But you are not 
guaranteeing that I have enough support to get the health care 
that I have for my kids that I get, right.
    Chairman HERGER. The gentleman's time has expired.
    And our witness can respond in written letter to the 
committee on the question.
    The gentleman from Florida, our new member to the 
subcommittee, Mr. Buchanan, is recognized for 5 minutes.
    Mr. BUCHANAN. Thank you, Mr. Chairman, for holding such an 
important hearing.
    I also look forward to working with you as chairman and the 
rest of the members on the subcommittee.
    I also would like to thank our witnesses for being here 
today.
    It got touched on a little bit. I want to go over a couple 
of points. Medicare trustee, which you projected, we touched on 
this a little earlier, would become insolvent in 2024 instead 
of 2010. In my district, I have 170,000 seniors, and we are in 
Florida, so, obviously, it is a big issue now all over the 
country, but percentage wise much bigger in Florida. When we 
are looking at projecting to 2024, one thing I don't believe 
that was taken into account is the reduction or the doc fix or 
the SGR that was taken into effect in terms of looking at 
insolvency.
    When we project this out and look at it down the road 
talking with doctors in our community, I am very concerned a 
lot of them will have to go out of businesses, a lot of the big 
practices. We have got another 30 percent cut that we are 
looking at, but doesn't take any impact in terms of the 
viability of Medicare long term. So I guess, wouldn't you agree 
that these cuts if they go into a place would drive the 
insolvency date, because we are looking at a $300 billion 
problem a lot quicker? And I would like to have both gentlemen 
respond.
    Mr. REISCHAUER. The solvency issue relates to the HI or 
hospital insurance fund. And the doc fix is Part B, part of 
SMI, and that is not affected by solvency issues. Because of 
the way the Part B trust fund is constructed, it can never be 
exhausted. General revenues are automatically given to the 
trust fund to make up the difference between projected costs 
and premium payments and State transfers, so it doesn't affect 
the date of exhaustion of the HI trust fund.
    Mr. BUCHANAN. My point is I have been here a little over 4 
years, and we have had a doc fix once or twice a year. I don't 
know how anybody runs a business or any business, especially a 
lot of these medical practices, and have to look at a 15 or 30 
percent cut every year. But I don't know how this isn't 
considered as a part of the overall Medicare, the viability of 
the medical community.
    The other gentleman----
    Mr. BLAHOUS. I would say I think the principal effect of 
the anticipated doc fix overrides would be in the overall cost 
of Part B. And under our projections, where we assume those 
huge cuts happen, we show Part B costs of a little over 2 and a 
quarter percent of GDP by the 2030s. But if you assume we 
override them, we are up over 3 percent of GDP. So there is a 
substantial increased cost on the SMI side if you assume the 
payment reductions are overridden.
    Mr. BUCHANAN. Mr. Blahous, let me ask you another question. 
Last year a Harvard study found that malpractice costs in terms 
of our health care system at about--we could save as much as 
$55 billion a year. Do you think that we should have medical 
malpractice reform, especially as we are looking to try to 
drive down costs?
    Mr. BLAHOUS. Well, certainly speaking as a trustee, 
everything we can do to hold down the growth of cost is going 
to make our overall financial projections better for Medicare. 
So, yes, if we can produce that level of savings for Medicare 
through malpractice reform, obviously, that would improve the 
financial outlook that we would show.
    Mr. BUCHANAN. Is that something that you personally have 
looked at as a trustee of med mal costs in terms of Medicare? 
Because, obviously, I can just tell you doctors about defensive 
medicine, running a lot more tests than they feel that they 
need to just to make sure they are covered in case 1 in 1,000 
or 10,000 cases of someone has a tumor and it doesn't end of 
being something more substantial. Is this something you have 
looked at in terms of tort legal reform?
    Mr. BLAHOUS. Not so much, because the trustees' process 
generally focuses on scoring current law. It is somewhat 
different from say the Congressional Budget Office where they 
produce these menus of policy alternatives. Generally, in the 
trustees' process, we don't tend to evaluate alternative 
policies to current law. But obviously, it would certainly draw 
heavily from the input of everyone from CBO to the Medicare 
technical panels to others in scoring such a provision if it 
were enacted into law.
    Mr. BUCHANAN. Mr. Reischauer, do you have any thought on 
legal tort reform, the impact that would have either as a 
trustee or your own personal opinion in terms of driving down 
costs, because I mean, obviously this is something--and again, 
I meet with a lot of doctors. I have a neurosurgeon who says 
his medical malpractice is $200,000 a year; he has got to see 
$1,000 worth of revenues to pay the $200,000 in insurance, and 
they are practicing a lot of defensive medicine, and I think it 
is a big area we can make a big change in, but what are your 
thoughts?
    Mr. REISCHAUER. My thought is that there are a number of 
studies trying to estimate the impact of malpractice reform on 
overall health care costs. By and large they come out saying 
that this isn't a huge contributor to the rapid growth of 
costs, of health care costs, but reform certainly would be a 
significant contributor to lowering the growth by reducing the 
level, really a one-time level shift. So I would align myself 
with Dr. Blahous' comments that I think some change would be a 
good thing.
    Chairman HERGER. The gentleman's time has expired.
    Mr. BUCHANAN. I yield back.
    Chairman HERGER. The gentleman from Wisconsin, Mr. Kind, is 
recognized for 5 minutes.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank our 
witnesses for your update today. What strikes me--and Mr. 
Reischauer, maybe I can start with you--I am looking at this 
charge here showing the trustee reports dating back to 1970 in 
regards to years of solvency. And what jumps out is how much 
this really does track economic performance, whether we are in 
a growth state or a declining state, and how that influences 
the ultimate solvency of this trust fund. Is that something 
that is consistent with what the trustees are finding, too, 
what the strength of our economy is and the payroll revenue 
that is being generated and also the number of entrants 
entering Medicare?
    Mr. REISCHAUER. Certainly that is a very important 
contributor, as is legislation. And at various times in this 
list, the Congress has enacted significant legislative changes 
that have prolonged the life of the HI trust fund.
    Mr. KIND. I am looking particularly at the late 1990s, 2000 
or so, when we had period of robust economic growth, and there 
the trustee were showing 25, 28 years of solvency. Unlike the 
great recession that we are coming through right now, we have 
had a drop off of the number of years of solvency. So I think 
one of the best things we can do as a nation to increase the 
solvency of the trust fund is to get this economy back on track 
creating good-paying jobs, would you agree with that?
    Mr. REISCHAUER. I would agree.
    Mr. KIND. And in regards to my friend's comment regarding 
med mal reform and the impact that is going to have, you know, 
and I think the President is there as well, that if we are 
going to be asking doctors through the Affordable Care Act to 
practice more best-evidence medicine or protocols of care, 
knowing what works and what doesn't work, there should be 
greater safe havens of protection for that type of practice 
system. But this is where you lose me on that; 37 States have 
already enacted med mal reform, including the State of 
Wisconsin. So, unless those 13 States that haven't taken action 
yet on med mal reform are driving all this additional cost in 
the health care system, I don't see it.
    In fact, studies show that the utilization practice of 
doctors in States that have med mal reform in it is very little 
different than in States that don't have med mal reform. Is 
that what you found in your analysis?
    Mr. REISCHAUER. I haven't done any independent analysis, 
but I am aware of studies that have come to that conclusion.
    Mr. KIND. Well, this is what I think will also help, and a 
lot of this is already built in, baked into the Affordable Care 
Act; is we need to continue to move forward on delivery system 
reform, expecting better outcomes and better value at a better 
price. And there are models of care in various regions of the 
country that do work and work well. They are highly integrated, 
coordinated, patient-focused, that are producing some of the 
best results and for a better bang for the buck. And a lot of 
what is incented in the Affordable Care Act is driving that 
type of delivery system reform to a more efficient and better 
outcome-based system but at a better price. And the fact that 
studies have shown over and over again that a large part of the 
health care dollars is going to tests and procedures and things 
that aren't working, they are not improving patient care. In 
fact, some estimates range as high as $800 billion a year in a 
$2.4 trillion system are going to various procedures and tests 
that we are not getting a good bang for the buck. And 
therefore, I think the ultimate verdict in how successful we 
are in driving costs down is changing the way we pay for health 
care, to reward outcome in value as opposed to the volume-based 
payments that occur in Medicare. Would you agree with that 
analysis?
    Mr. REISCHAUER. I would.
    Mr. KIND. And there are things that are on track right now 
to lead us to that hopefully promised land of payment reform, 
whether it is the IPAP commission--I know that was brought up 
for criticism today--or the work that the Institute of Medicine 
is doing right now in changing the fee-for-service system to a 
fee-for-value-reimbursement system. And we also know that what 
happens in Medicare is going to also drive the private health 
insurance market in how they reimburse with health care 
expenses.
    So the concern I have with the Ryan plan, the Republican 
plan that was just passed--that was just passed is that they 
would do away with all these reforms and instead create a 
voucher plan that virtually ends Medicare but without 
addressing the really systemic problem we have in the health 
care system, which is the rising costs and what we can do to 
bend that cost curve. And if we are moving forward on the 
reforms in the Affordable Care Act, especially in the payment 
area, so we are rewarding good quality outcomes, is an 
important thing that we need to do to shore up the trust fund 
and ultimately the long-term sustainability of the Medicare 
program, would you agree with that?
    Mr. REISCHAUER. You know, I am not sure with my trustee hat 
on, I should be opining on these issues, but I think the 
Affordable Care Act incorporates----
    Mr. KIND. Well, I think even in the trustees' report, they 
do acknowledge some of the reforms that are contained in the 
Affordable Care Act that can lead to----
    Mr. REISCHAUER. That have the potential to move in the 
direction of providing better care at a reduced cost, yes.
    Mr. KIND. And as a former head of CBO yourself, you realize 
that it is awfully tough to get a score from CBO on health care 
savings. You all seem to come from Missouri, and that is the 
show-me state; you got to show us the reforms and how it is 
actually resulting in its cost savings before it gets scored. 
So a lot of this we need to move forward on, but we are not 
going to be certain what type of cost savings until they occur, 
is that right?
    Mr. REISCHAUER. That is right. And I was criticized in this 
very room many times for that fact.
    Mr. KIND. I know you were, as others have been and probably 
will be. But thank you for your testimony.
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from Illinois, Mr. Roskam is recognized for 5 
minutes.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Your report shows that Medicare will now be bankrupt in 
2024. Americans would then be forced to either endure a massive 
tax hike or an immediate 17 percent reduction in expenditures. 
In other words, an immediate 17 percent Medicare cut. Can you 
explain what you mean by ``immediate''?
    Mr. BLAHOUS. Well, the way that the trust funds work, both 
on the Social Security side and on the Medicare HI side, is 
that the amount of expenditures the program can put out there 
is limited by what is in the trust funds. Now, on the SMI side, 
it is not really an issue because we just give the trust fund 
each year whatever is required to keep pace with costs. But 
once that trust fund runs out, the program lacks the authority 
to make benefit payments.
    Now, there have been a lot of legal analyses that have been 
done of what happens when the trust fund runs out, and they 
don't all agree. But a fairly common one is that payments would 
simply have to be suspended or delayed until the requisite 
financing came into the trust fund, which would have the effect 
of reducing payments simply by virtue of delay.
    Mr. ROSKAM. And that immediate is the common understanding 
of immediate? In other words, this present moment in time, in 
other words, when insolvency happens, then you immediately are 
prohibited based on the law and based on your understanding as 
a trustee from paying anything further out. And your estimation 
is that it would be a 17 percent cut in a benefit, is that 
correct?
    Mr. BLAHOUS. Well, it is 17 percent on average over 75 
years. Now, it varies according to year. I think in 2024, 
specifically, it is about 10 percent, but then that increases, 
and then it becomes about 25 percent by the mid-2040s.
    Mr. ROSKAM. So it is averaged--go ahead.
    Mr. REISCHAUER. What I think my colleague was describing is 
when the trust fund became insolvent, money would still be 
flowing in from tax receipts and Medicare would delay paying 
bills. And so a hospital would send its bill in and, rather 
than being paid in 24 days, might have to wait 5 months. And 
the CMS, the intermediaries and other payors would be writing 
out the checks, transferring the resources to the hospital, to 
the hospice, whatever, on a much delayed basis.
    Mr. ROSKAM. So that cut, just so I am clear, is not a 
hypothetical cut. It is not a hypothetical delay. It is an 
actual delay in payment to the point of reaching the 17 percent 
number based on your own projection, is that right?
    Mr. BLAHOUS. That is right. I mean, the Social Security Act 
which deals with these trust fund issues is very explicit that 
payments can only be made from the trust funds.
    Mr. ROSKAM. So there is no other flexibility? If the 
revenues aren't there, if an insolvency is declared, you have 
no other remedy but to move forward and make those cuts, is 
that right?
    Mr. BLAHOUS. Right. The programs don't have the authority 
to borrow in excess of the resources provided by the trust 
funds.
    Mr. ROSKAM. And absent some change in the program, your 
prediction is that that is where our Nation will be in 2024, 
that is right?
    Mr. BLAHOUS. That is right.
    Mr. REISCHAUER. With respect to the hospital insurance 
system.
    Mr. ROSKAM. I understand. So when the gentleman from 
Wisconsin said that there is a proposal that is out there by 
the majority on this committee that ends Medicare, in fact, 
Medicare as we know it will end in 2024 absent some change in 
policy or some change in moving forward, that is right, isn't 
it?
    Mr. BLAHOUS. Yes.
    Mr. ROSKAM. I yield back.
    Chairman HERGER. The gentleman yields back.
    The gentleman from Washington is recognized, Mr. McDermott, 
for 5 minutes.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    And I appreciate your allowing me to ask questions.
    I have a report from the CMS actuary who says that--we were 
talking just now about a 17 percent reduction in expenditures 
if nothing is done. They suggest that if the Affordable Care 
Act were repealed, as the majority is trying to do, it would 
require a 53 percent reduction in benefits or 134 percent 
increase in the payroll tax to cover the deficit. So what we 
have seen here proposed by Mr. Ryan it seems to me is something 
that would make things much worse, at least according to the--
if you believe in actuary.
    Now, I want to ask you a question that I have sat here 
thinking about this whole time listening to. I came into 
medicine in 1963. I graduated from medical school just before 
Medicare started, so I have seen the whole history. I heard it 
was going to be socialism and the end of medicine as it was 
going to exist in this country, and I have watched it. And it 
is clear to me that the decision to give doctors the right to 
set their own fees was a crucial error made in 1964. When they 
wrote that they could have their usual and customary fees, they 
really set in motion an awful lot of what we are looking at 
today.
    And you know about the RUC, the update committee, most 
people don't know what that is, but you know about it, and they 
set the rates. Now, why is there no discussion in your report 
about reform of the RUC committee or the rate setting that is 
done? We don't have a fee schedule set by the government. We 
have the RUC committee recommending to us what we should pay 
and that is what we pay.
    Now, how can we have control of costs if we don't have the 
medical profession in some kind of direct negotiation with the 
government about what is going to be paid? This SGR was a 
simplistic idea that never was going to be--never worked 
because it only controlled one thing and it left all the 
ability to raise rates or raise amounts of money by doing more 
of the same procedure.
    I see in the Washington Post this week, many hospitals 
overuse double CT scans. There are a thousand examples of 
overuse of procedures in the medical care, but the RUC says, 
you get this amount a month for doing that, and boy, they do 
them and do them and do them, and the SGR has had no control 
whatsoever on it. How do we get there if we don't get the 
doctors at the table someplace to negotiate about their part in 
this game? It is not just between the government and the 
Medicare beneficiaries. There is a third-party here that we are 
ignoring, and that is the physicians and the health care 
system.
    Mr. REISCHAUER. Are you looking at me?
    Mr. MCDERMOTT. Yes, sir. I have looked at you many times.
    Mr. REISCHAUER. I believe that the RUC is an advisory 
committee that gives its recommendations to CMS, and CMS is the 
ultimate decider.
    Mr. MCDERMOTT. And they accept 85 to 90 percent----
    Mr. REISCHAUER. What the RUC does is it looks at the 
relative values and decides which procedures, interventions, 
might be overpaid in a relative sense and which might be 
underpaid. And needless to say, there are few volunteers for 
being overpaid, and many claimants for being underpaid.
    When they balance out what would happen if these changes 
were made? If on the whole, it saves resources, then those 
resources are thrown back into the overall pool, and the whole 
pool is raised. So it is designed to be, in a sense budget-
neutral, which I don't think personally is an appropriate 
thing. And I believe the administration has made a suggestion 
that the overpayment amounts for procedures that we believe are 
overpaid should be used to reduce overall costs.
    And I think we need a more robust review procedure like the 
RUC, one that reviews these amounts more frequently than is now 
the case and aggressively looks at what is happening in the 
balance of the market, the private sector, with respect to fees 
for these various procedures, and we could improve the accuracy 
of payments much more and probably save some money.
    Chairman HERGER. The gentleman's time has expired.
    Mr. MCDERMOTT. Thank you. I hope you put that in the report 
next year.
    Mr. REISCHAUER. Well, the Medicare Payment Advisory 
Commission on which I served for 9 years has made 
recommendations and analyzed this issue quite frequently in its 
reports.
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from Louisiana, Dr. Boustany, is recognized 
for 5 minutes.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    As a heart surgeon, I had the tremendous privilege of 
operating on thousands of Medicare beneficiaries, and I can 
tell you patient by patient perhaps better than anybody in this 
room, I understand the value of the Medicare program and the 
importance it plays in the lives of seniors, especially seniors 
back home in Louisiana, many of whom have very limited means 
and depend on this truly for their life.
    And I could go on and on about the quality and what we need 
to do to establish and maintain and strengthen a good patient-
doctor relationship based on high quality medicine while 
managing costs, but that is not the purpose of the hearing. We 
are here to talk about the financial solvency of this program 
and some of the things that we need to do.
    You know, the Medicare actuary has been quoted as saying 
that the improved hospital trust fund financing cannot be 
simultaneously used to finance other Federal outlays, such as 
coverage expansions, and to the extent the trust fund, despite 
the appearance of this result from the respective accounting 
conventions, meaning we can't double count; this is a real 
problem. And I will tell you as a physician who worked with 
many, many Medicare patients, this is a huge disservice to 
Medicare beneficiaries across this country.
    We have an obligation to fix this program and to get it 
right. And when I see this double counting and the fact that we 
are playing games with the SGR and the reimbursement structure, 
this is literally legislative malpractice. And then if you go 
on with the IPAB, this is another example of where you are 
going to try to keep the lid on a boiling pot of liquid. It is 
not really going to be in the best interest of maintaining high 
quality patient care between a doctor and a patient.
    My question is this: We know with current law, we are 
headed toward 2024 with the insolvency of the hospital trust 
fund, which means Medicare as we know it, at least that part, 
the hospital care, ends; is that correct?
    Mr. BLAHOUS. Certainly it does not have the resources 
sufficient to discharge its obligations.
    Mr. BOUSTANY. So if we don't correct this problem, then 
there will not be a payment mechanism for hospital care for our 
seniors?
    Mr. BLAHOUS. Well, I would say there will still be a 
payment mechanism, but it would not be able to----
    Mr. BOUSTANY. To pay.
    Mr. BLAHOUS [continuing]. To pay, and get it on a delayed 
basis, reduced basis.
    Mr. BOUSTANY. And before we get to that point, clearly it 
is not a just simple situation where we get to the point and 
then it stops. Would you suggest that there will probably be 
other forms of rationing for our seniors before we get to that 
point under current law with regard to hospital care?
    Mr. REISCHAUER. In fact, it is a situation where you get to 
that point and fall off the cliff. You know, participants will 
be, even after the date of insolvency, entitled to the benefits 
that are laid out in the program. Providers may choose not to 
provide as much care because they will have to wait a long time 
or a longer time to get paid for it. But it is a situation that 
up to that point, everything seems fine.
    Mr. BOUSTANY. And that gets us to the access problem 
because that is the other side of this equation, whereby the 
further we go, and it seems year after year we are seeing more 
and more problems with access for our seniors, so in effect, if 
you don't have access or limited access, delayed access, is 
that rationing?
    Mr. BLAHOUS. Well, I would say, I mean, there are two 
elements of this issue. One is the sudden withdrawal of 
benefits that would occur in 2024. But then there is the other 
question of as we constrain our reimbursement rates under 
current law and prior to 2024, does that have the effect of 
causing providers to withdraw from Medicare or go out of 
business? And this is obviously something we are wrestling with 
as trustees and the actuaries are wrestling with analytically.
    Mr. BOUSTANY. I think the answer is clearly yes based on my 
experience in visiting with many, many physicians across this 
country. And we are seeing worsening access problems. I saw 
them back in the 1990s in my own practice where as a heart 
surgeon, treating a patient who came into the emergency room 
needing emergency open-heart surgery, between the cardiologist 
and I, we were unable to find primary care providers to help 
these patients with their other medical problems, and that has 
only gotten worse.
    And so we have an obligation to deal with this. And the 
problem I have is on the other side of the aisle, we see these 
characterizations that Republicans want to end Medicare. Well, 
the point is Medicare is ending under current law which they 
put in place, and we need to take our heads out of the sand, 
and I ask our colleagues on the other side of the aisle to take 
their heads out of the sand, as well as the President, who has 
deliberately ignored this trigger. We have to be honest with 
the American people, and we have to be honest with seniors who 
depend on this very valuable Medicare program and get this 
right. It is critically important.
    I see my time has expired, Mr. Chairman. Thank you.
    Chairman HERGER. I thank the gentleman.
    The gentlelady from Tennessee, Ms. Black is recognized for 
5 minutes.
    Mrs. BLACK. Thank you, Mr. Chairman.
    And first, I would like to begin by thanking you for 
allowing me to sit on this subcommittee hearing even though I 
am not an assigned member, I appreciate that.
    Mr. Blahous, I would like to discuss the graph that you 
have on page 5 of your written testimony, and it is up on the 
screen, showing Medicare costs and non-interest income by 
source as a percentage of GDP. Medicare SMI trust fund spending 
is expected to make up a rapidly increasing percent of GDP, as 
you did talk about in your testimony, over the upcoming decade. 
And the trustees' report states that it will rise from 1.9 
percent of GDP in 2010 to 3.4 percent in 2035. The trustees' 
report projects that $21.3 trillion in general revenue funding 
will be needed to pay the benefits financed by the Medicare SMI 
trust fund in the next 75 years. Can the country afford to fund 
the SMI trust fund at this level?
    Mr. BLAHOUS. Well, I would say two things: One is that 
would be, under current law, it would be an enormous expansion 
of fiscal pressure on the Federal budget, far beyond any 
burdens we have carried in the past to finance Medicare SMI, 
the vast majority of which is funded from general government 
revenues. But even this probably understates the case, because 
as I indicated before, this is the best-case scenario, in 
which, for instance, the physician payment rates are suddenly 
reduced by 29 percent next year. So, in practice, we are likely 
to be significantly higher than this.
    Mrs. BLACK. And given that information, and you are 
referencing that that money would have to come from the general 
fund because obviously it is not coming in, we don't get enough 
money in on the beneficiary side, would you agree that this is 
also going to impact some of the other national priorities, 
maybe such as education or roads or some of those areas?
    Mr. BLAHOUS. Absolutely. I would say the growth of Medicare 
spending and the growth of our health care spending generally 
is probably the single greatest threat to discretionary 
spending throughout the Federal budget.
    Mrs. BLACK. And given that, even if the Medicare SMI trust 
fund is not technically going bankrupt, like the hospital 
insurance fund, is it fair to say that it is bankrupting our 
Federal budget or could bankrupt our federal budget if not 
changed?
    Mr. BLAHOUS. The way I would put it is there is no single 
cause of our overall fiscal problems, but under an untenable 
current law scenario that CBO and everyone else projects over 
the long term, this is about as big a contributor to it as 
anything.
    Mrs. BLACK. Well, obviously, when it starts taking up that 
great percentage of our GDP, then we are going to have to in 
some way make some decisions about what it is that we are going 
to fund or not fund.
    Let me also ask you this: Do you think that if Congress 
enacted policies that reduce Medicare spending by $15 billion 
over the next 10 years, would that be sufficient to address 
Medicare's financial crisis?
    Mr. BLAHOUS. No.
    Mrs. BLACK. No. Okay. I agree with you. And unfortunately, 
there is a growing chorus from our Congressional Democrats to 
simply do nothing and wait for the so-called delivery reforms 
from their health care overhaul to take effect. But CBO 
estimates those policies save just $14.7 billion over the next 
10 years. So, given that, it seems to me that we have got to 
find other fixes other than what they recommend in the 
affordability act. Would you agree with that?
    Mr. BLAHOUS. I agree with that.
    Mrs. BLACK. Okay. Thank you. I yield back my time.
    Chairman HERGER. The gentlelady yields back.
    With that, I would like to thank our witnesses for your 
testimony and insight. From the trustees report and the expert 
testimony that we heard today, it has become abundantly clear 
that Medicare faces real and substantial challenges. We can and 
must meet these challenges in order to preserve Medicare for 
future generations.
    It is also evident that Congress must act sooner, not 
later, to tackle this growing problem, as delay only makes the 
difficult choices we must make even harder and further 
threatens Medicare's bankruptcy.
    I am confident that we can meet the challenge that lies 
before us. While it may seem like an insurmountable challenge, 
America's current and future seniors rightly expect us to work 
together to find a solution to preserve the Medicare program 
for generations to come.
    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 writing in a 
timely manner. With that, the subcommittee is adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]
    [Submissions for the Record follow:] 

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