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



         THE TRUE COST OF PPACA: EFFECTS ON THE BUDGET AND JOBS

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 30, 2011

                               __________

                           Serial No. 112-27



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                    COMMITTEE ON ENERGY AND COMMERCE

                         FRED UPTON, Michigan
                                Chairman
JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky               EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
MARY BONO MACK, California           BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
SUE WILKINS MYRICK, North Carolina   DIANA DeGETTE, Colorado
  Vice Chairman                      LOIS CAPPS, California
JOHN SULLIVAN, Oklahoma              MICHAEL F. DOYLE, Pennsylvania
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas            CHARLES A. GONZALEZ, Texas
MARSHA BLACKBURN, Tennessee          JAY INSLEE, Washington
BRIAN P. BILBRAY, California         TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire       MIKE ROSS, Arkansas
PHIL GINGREY, Georgia                ANTHONY D. WEINER, New York
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin Islands
BILL CASSIDY, Louisiana              
BRETT GUTHRIE, Kentucky              
PETE OLSON, Texas                    
DAVID B. McKINLEY, West Virginia     
CORY GARDNER, Colorado               
MIKE POMPEO, Kansas                  
ADAM KINZINGER, Illinois             
H. MORGAN GRIFFITH, Virginia         

                                  (ii)
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia                TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio                MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington   ANTHONY D. WEINER, New York
LEONARD LANCE, New Jersey            HENRY A. WAXMAN, California (ex 
BILL CASSIDY, Louisiana                  officio)
BRETT GUTHRIE, Kentucky
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)













                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     6
    Prepared statement...........................................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     8
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................    10

                               Witnesses

Douglas Elmendorf, Director, Congressional Budget Office.........    11
    Prepared statement...........................................    13
    Answers to submitted questions...............................   258
Richard Foster, Chief Actuary, Centers for Medicare and Medicaid 
  services.......................................................    47
    Prepared statement...........................................    49
    Answers to submitted questions...............................   268
Douglas Holtz-Eakin, President, American Action Forum............    99
    Prepared statement...........................................   101
    Answers to submitted questions...............................   271
David M. Cutler, Otto Eckstein Professor of Applied Economics, 
  Harvard University.............................................   120
    Prepared statement...........................................   122
Philip K. Kennedy, President, Comanche Lumber Company............   137
    Prepared statement...........................................   139
Rick Poore, President, Design Wear/Velocitee.....................   150
    Prepared statement...........................................   152
Larry Schuler, President, Schu's Hospitality Group...............   162
    Prepared statement...........................................   164

                           Submitted Material

Article entitled, ``The Republican Response to Obamacare,'' from 
  Bloomburg Business Week, March 24, 2011, submitted by Ms. Capps   188
Letters of March 30, 2011, from Health and Human Services to Mr. 
  Waxman, submitted by Mr. Waxman................................   190
Working paper entitled, ``The Impact of the Medicaid Expansions 
  and Other Provisions of Health Reform on State Medicaid 
  Spending,'' by The Lewin Group, December 9, 2010, submitted by 
  Mr. Cassidy....................................................   194
Article entitled, ``New Jobs Through Better Health Care,'' by 
  David Cutler, submitted by Mr. Cassidy.........................   226
Statement of the Small Business Majority, submitted by Mr. Waxman   239
Committee rules on the Truth in Testimony form, submitted by Mr. 
  Waxman.........................................................   250
.................................................................

 
         THE TRUE COST OF PPACA: EFFECTS ON THE BUDGET AND JOBS

                              ----------                              


                       WEDNESDAY, MARCH 30, 2011

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:02 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Whitfield, 
Shimkus, Rogers, Myrick, Murphy, Blackburn, Gingrey, Latta, 
McMorris Rodgers, Lance, Cassidy, Guthrie, Upton (ex officio), 
Pallone, Dingell, Engel, Capps, Schakowsky, Gonzalez, Baldwin, 
Weiner, and Waxman (ex officio).
    Staff present: Allison Busbee, Legislative Clerk; Howard 
Cohen, Chief Health Counsel; Paul Edattel, Professional Staff 
Member, Health; Julie Goon, Health Policy Advisor; Ryan Long, 
Chief Counsel, Health; Jeff Mortier, Professional Staff Member; 
Monica Popp, Professional Staff Member, Health; Heidi Stirrup, 
Health Policy Coordinator; Phil Barnett, Democratic Staff 
Director; Alli Corr, Democratic Policy Analyst; Tim Gronniger, 
Democratic Senior Professional Staff Member; Purvee Kempf, 
Democratic Senior Counsel; Karen Lightfoot, Democratic 
Communications Director, and Senior Policy Advisor; and Karen 
Nelson, Democratic Deputy Committee Staff Director for Health.

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

    Mr. Pitts. The subcommittee will come to order.
    The chair recognizes himself for 5 minutes for an opening 
statement.
    We had a very instructive field hearing, our first, in 
Harrisburg last week, on the 1-year anniversary of the signing 
of PPACA. What we heard about the health reform law's costs on 
Pennsylvania alone was chilling. Governor Corbett stated that 
after the Medicaid expansion had gone into effect, roughly one 
in four Pennsylvanians would be on the program. According to 
the Acting Secretary of the Department of Public Welfare, Gary 
Alexander, Medicaid currently accounts for 30 percent of the 
state budget. That is more than all but two other States: 
Illinois and Missouri. And if PPACA is fully implemented, that 
percentage will double to 60 percent of their state budget by 
fiscal year 2019-20. This is simply not sustainable for my home 
state, or any other. And the numbers don't look much better for 
the Federal Government, either.
    On March 18, 2011, CBO released its preliminary analysis of 
the President's fiscal year 2012 budget. CBO's estimate of 
total spending on coverage expansions in PPACA grew from $938 
billion last March for fiscal years 2010 through 2019 to $1.445 
trillion for fiscal years 2012 through 2021. That is a 54 
percent increase in federal spending.
    As you may remember, President Obama, when he was running, 
promised his health care plan would cost $50 billion to $65 
billion a year when fully phased in. CBO, however, projects 
that the real cost of the coverage expansions will be $229 
billion in 2020 and $245 billion in 2021--four times the levels 
of spending that President Obama had promised.
    And what about the jobs PPACA was supposed to create? Then-
Speaker Pelosi stated in February of last year that the law 
would create ``4 million jobs, 400,000 jobs almost 
immediately.'' Yet, as Mr. Elmendorf told the House Budget 
Committee last month, he expects the law will cost 800,000 jobs 
by 2021. That may be because the law contains perverse 
incentives for businesses not to grow. Small businesses are 
hesitant to go over 50 employees and incur a penalty for each 
full-time employee who does not have proper insurance, as 
defined by the government.
    They are also being buried under thousands of pages of 
regulations, with thousands more to come, with which they will 
have to comply, and they will bear the cost of compliance on 
their own. Or, like Case New Holland, a major manufacturer with 
operations in Pennsylvania, testified at the field hearing last 
week, they already expect to spend $126 million over the next 
decade just to comply with this law, and that is $126 million 
that won't go towards expanding their business or creating new 
jobs.
    We are receiving reports almost weekly that show that the 
true cost of Obamacare is worse than what any of us expected--
higher premiums, more federal health spending, fewer jobs, less 
access, and people losing the coverage they currently have and 
like. Not only does the law not achieve its stated goals, the 
true cost of Obamacare is too high for our States, too high for 
the Federal Government, and too high for the private sector.
    I would like to thank all of our witnesses for being here 
today.
    [The prepared statement of Mr. Pitts follows:]

               Prepared Statement of Hon. Joseph R. Pitts

    The subcommittee will come to order.
    The chair will recognize himself for an opening statement.
    We had a very instructive field hearing in Harrisburg last 
week, on the 1-year anniversary of the signing of PPACA.
    What we heard about the health reform law's costs on 
Pennsylvania alone was chilling.
    Governor Corbett stated that after the Medicaid expansion 
had gone into effect, roughly 1 in 4 Pennsylvanians would be on 
the program.
    According to the Acting Secretary of the Department of 
Public Welfare, Gary Alexander, Medicaid currently accounts for 
30% of the state budget--that is more than all but two other 
states (Illinois and Missouri)--and if PPACA is fully 
implemented, that percentage will double to 60% by FY19-20.
    This is simply not sustainable for my home state, or any 
other.
    And the numbers don't look much better for the federal 
government, either.
    On March 18, 2011, CBO released its preliminary analysis of 
the President's FY12 budget.
    CBO's estimate of total spending on coverage expansions in 
PPACA grew from $938 billion last March (for fiscal years 2010-
2019) to $1.445 trillion (for fiscal years 2012-2021)--a 54% 
increase in federal spending.
    As you may remember, candidate Obama promised his health 
care plan would cost ``$50-65 billion a year when fully phased 
in.''
    CBO, however, projects that the real cost of the coverage 
expansions will be $229 billion in 2020 and $245 billion in 
2021--four times the levels of spending candidate Obama 
promised.
    And what about the jobs PPACA was supposed to create? Then 
Speaker Pelosi stated in February of last year that the law 
would ``create 4 million jobs--400,000 jobs almost 
immediately.''
    Yet, as Mr. Elmendorf told the House Budget Committee last 
month, he expects the law will cost 800,000 jobs by 2021.
    That may be because the law contains perverse incentives 
for businesses not to grow.
    Small businesses are hesitant to go over 50 employees, and 
incur a penalty for each full-time employee who does not have 
``proper insurance''--as defined by the government.
    They are also being buried under thousands of pages of 
regulations--with thousands more to come--with which they'll 
have to comply. And they'll bear the cost of compliance on 
their own.
    Or, like Case New Holland--a major manufacturer with 
operations in my district -which testified at the field hearing 
last week, they already expect to spend $126 million over the 
next decade just to comply with the law.
    And that's $126 million that won't go towards expanding 
their business and creating jobs.
    We are receiving reports almost weekly that show that the 
true cost of Obamacare is worse than what any of us expected--
higher premiums, more federal health spending, fewer jobs, less 
access, and people losing the coverage they currently have and 
like.
    Not only does the law not achieve its stated goals, the 
true cost of Obamacare is too high for our states, too high for 
the federal government, and too high for the private sector.
    I thank our witnesses for being here today, and I yield the 
remainder of my time to Dr. Burgess.

    Mr. Pitts. I will yield the remainder of my time to Dr. 
Burgess.
    Mr. Burgess. I thank the chairman for the recognition.
    Today we are faced with the question, is the Affordable 
Care Act affordable? We don't know. We didn't know when this 
committee passed a health care bill last year called H.R. 3200. 
Mercifully, that bill died a natural death in the Speaker's 
office and H.R. 3590, as everyone knows, was signed into law a 
year and a week ago.
    But even today, we don't know about the essential benefits 
package. We don't know about the cost of setting up the 
exchanges. All of this remains shrouded between a veil of 
obscurity.
    After the bill became law, our actuary from the Centers for 
Medicare and Medicaid Services released his findings to the 
Congress and estimated the overall national health expenditures 
would be increased by some $311 billion, a significant 
difference from the $142 billion in savings that was advertised 
merely a month before. So I authored last year a Resolution of 
Inquiry requesting the transfer of internal Health and Human 
Services communications related to the date of Mr. Foster's 
report. The Congressional Budget Office and the Chief Actuary 
do model different things, and this has been pointed out to me 
by some of our witnesses this morning. But both are essential 
components to determining the cost, the true cost of the 
Affordable Care Act, and really should have made available to 
the Members of Congress before, before, before the vote was 
taken last year.
    If the intent of reforming the health care system was 
indeed to bend the cost curve, then it looks like mission 
accomplished. Unfortunately, we bent it in the wrong direction.
    Now, I acknowledge that the Congressional Budget Office had 
an impossible job, and most Members of Congress do recognize 
that, and I guess I would just ask the question, if we rely 
solely on the Congressional Budget Office when we know they 
have an impossible job, if we rely solely on their numbers, are 
we in fact not facing reality. What if their assumptions are 
off by just a little bit? The result of maybe 5 percent of 
employers dropping coverage and moving employees into the 
exchanges. What effect does that have on the cost of the 
subsidies in the exchanges when that kicks in a few years' 
time? Probably an average of tens of billions of dollars.
    Why was Congress negligent in our responsibility to see the 
impact that this law would have on the health care system, the 
cost of the health care system? The Administration knew that it 
would take Mr. Foster time to complete his model, but did the 
Administration push us to have that vote before we could have 
access to the actual date? And this is the question that needs 
to be answered this morning.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the ranking member of the subcommittee, Mr. Pallone, for 5 
minutes for an opening statement.

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

    Mr. Pallone. Thank you, Mr. Chairman. We are back from 
another week off in Congress and it is time for the Republicans 
to try to repeal, defund, or criticize the health care reform 
again. It is pretty clear that the Republicans believe that if 
you just keep saying the same thing over and over again, it 
will start to be believed. Just fire up the old talking points, 
throw in a little righteous indignation and you are good to go. 
And that would be just fine if we were all talk-radio stars, 
but we are not. We have a job to do. We are legislators. We are 
supposed to be trying to turn the economy around and create 
jobs. But here we are to talk again about the Affordable Care 
Act, which is just the Republicans' reheated arguments about 
repeal and replace, except they forgot to replace it with 
anything to speak of.
    The Republicans seem to wish that if they just click their 
heels three times, we could return to that magical time in the 
last decade when they controlled both Houses of Congress and 
the White House and, as they would tell it, business prospered 
and fiscal responsibility was the name of the game, except that 
is not what happened. When President Bush came to office, he 
inherited a surplus projected to total $5.6 trillion over 10 
years, and he managed to swiftly squander that, leaving 
President Obama a nicely wrapped $1.3 trillion deficit in 2009. 
Under President Bush's watch, the number of uninsured increased 
by 6 million nationwide. Small businesses, which make up the 
majority of the uninsured in America, were hurt especially hard 
during this time. While 57 percent of small businesses were 
able to offer health insurance in 2000, only 46 percent were 
able to by the end of the Bush Administration, and it would 
have just gotten worse. By the time President Obama took 
office, national health expenditures surpassed $2.4 trillion in 
2009, more than three times as much as it was in 1990. The 
percentage of income families spent on employer-sponsored 
health insurance rose from 12 to 22 percent from 1999 to 2009 
during the Bush Administration, and those without insurance 
were even worse off. For many families who had worked hard, 
saved hard and planned for the worst, they couldn't stay in the 
black if their kid got sick or denied health insurance for life 
due to a preexisting condition or if they themselves got sick 
with a tough disease and quickly ran through their insurance 
plan's annual limits.
    So understanding this, President Obama and the Congress 
including this committee didn't just sit around and whine about 
the previous 8 years under Bush; they stood up and led. And we 
are very proud of the health care reform, the economic 
certainty, insurance reform, and coverage expansions will offer 
families across the Nation. We are glad that small business 
owners like Rick Poore, who will testify later this morning, 
are now eligible for tax credits today to cover their 
employees, and in the future Rick will be able to leverage the 
purchasing power of small business owners across the Nation 
through the State exchanges so that more of his money can be 
invested in his business and more of his energy can be devoted 
to innovation.
    I am very proud that the Affordable Care Act will control 
health care spending by making important delivery system 
changes that reward quality, not quantity of care. We are proud 
that Americans will no longer be held hostage to insurance 
companies as a result of the reforms in our legislation, and I 
will remind you that the Congressional Budget Office has 
estimated the Affordable Care Act will reduce the deficit by 
$124 billion by 2019 and further cuts the deficit by $1.2 
trillion in the second 10 years.
    So if the Republicans want to spend another Wednesday 
morning discussing the true effects of the Affordable Care Act 
today, I am game, but I think we really need to get back to 
work and try to create jobs instead of wasting our time trying 
to repeal health reform. I mean, it is how many weeks now since 
you first repealed the act and of course the Senate rejected 
it? We have had nothing but hearings for the most part on 
either repealing the bill, repealing part of the bill, 
defunding the bill, now, you know, another hearing talking 
about the financial aspects of the bill. It just never seems to 
end.
    So I would now yield the remaining time to my colleague 
from California, Representative Capps.
    Mrs. Capps. Thank you, Mr. Pallone. To underscore what you 
have just said, we have been in session for over 10 weeks now 
and the Majority has yet to produce a plan to create jobs or 
strengthen the economy. Instead, our Republican colleagues are 
here yet again to live in the past and attack the Affordable 
Care Act.
    Many of the claims we are going to hear today about the so-
called true cost of the Affordable Care Act are likely to be 
shocking but that is not because the Affordable Care Act is 
dangerous or because it is not working. Instead, it is because 
these claims are at best gross exaggerations and at worst 
complete fabrications. Let us be clear: the Affordable Care Act 
is the largest deficit-reducing bill enacted by Congress in the 
last decade. It will reduce the deficit by $210 billion over 
the next 10 years, and by $1.2 trillion over the following 
decade, and it will do so while continuing to help families and 
small businesses.
    And as I yield back, the very sections of the bill the 
Republicans are trying to defund are the provisions which will 
reduce the deficit. I yield back.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the chairman of the full committee, Mr. Upton, for 5 
minutes for an opening statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman. I too thank you 
for holding this hearing. We just did mark the 1-year 
anniversary of the health care bill being signed into law last 
week yet today will be the committee's first chance to fully 
explore the true fiscal impact the law will have on our 
Nation's budget and job creation.
    Last week the CBO noted that the coverage provisions of 
PPACA would cost $1.445 trillion for fiscal year 2012 through 
2021. This is up from a 10-year cost estimate of $938 billion 
when the bill was signed into law. This is not a change in CBO 
scoring. Indeed, the CBO estimates for the overlapping years 
are remarkably consistent. The larger figure simply proves that 
if you take away some of the gimmicks, mainly paying for only 6 
years of benefits in the first decade, that the cost far 
exceeds $1 trillion and will likely top $2 trillion over a full 
10 years.
    We have also heard about how PPACA imposes a paperwork 
nightmare on small businesses. The law, as we know, requires a 
tax filing for every transaction over $600. The House has voted 
to repeal this massive paperwork cost on American employers. 
However, our job does not end there. PPACA includes dozens of 
new paperwork requirements that force businesses to report to 
HHS, the Department of Labor, and the IRS. Job creation is our 
top priority, which is why we cannot ignore the fact that PPACA 
reduces employment.
    In recent testimony before the House Budget Committee, Mr. 
Elmendorf stated that 800,000 jobs would be lost because of the 
new health care law. We should be creating jobs, not destroying 
them, which is why many of us believe that we should repeal 
this job-destroying bill. Many of us believe that we must 
repeal the uncertainty that it is causing businesses and the 
hundreds of billions of dollars in new taxes and mountains of 
paperwork.
    I would yield the balance of my time to Dr. Gingrey.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Mr. Chairman, thank you for holding this hearing. We just 
marked the one-year anniversary of the health care bill being 
signed into law. Yet today will be the committee's first chance 
to fully explore the true fiscal impact the law will have on 
our country.
    Since PPACA was signed into law, most revelations have 
fallen into one of the following categories: 1) news that the 
law will cost much more than our Democrat colleagues told us--
imposing a massive burden on future generations; 2) news that 
job creators are facing higher financial and administrative 
costs as a result of PPACA 3) news that health care costs will 
rise, and 4) news that PPACA has jeopardized both access to and 
the quality of health care for American seniors, job creators, 
and families.
    First, let's discuss the true monetary cost of PPACA. Last 
week, the Congressional Budget Office noted that the coverage 
provisions of PPACA would cost $1.445 trillion from FY2012-
2021. This is up from a ten-year cost of $938 billion when the 
bill was signed into law last March. This is not a change in 
CBO's scoring. Indeed, the CBO estimates for the overlapping 
years are remarkably consistent. The larger figure simply 
proves that Washington Democrats tried to hide the true ten-
year cost of the bill by delaying its startup. Based on these 
new estimates, the real ten-year cost of the law will be $2 
trillion if we are lucky and much more if we are not.
    Second, let's look at the economic costs. Job creators 
around the country have spoken loud and clear. PPACA imposes 
massive new burdens on them that stifle growth and job 
creation. Many of the country's largest employers reported 
hundreds of millions of dollars in losses as a result of this 
law--jeopardizing investment and jobs when we need them the 
most.
    The Majority scheduled a hearing last year to examine the 
losses companies were forced to report because of the law, 
indicating doubt that the law they championed could force such 
immediate harm. However, the hearing was abruptly cancelled 
when it became clear that the facts undermine the case for 
PPACA. Rather than study these massive new costs, my Democrat 
colleagues decided to sweep the matter under the rug.
    We have also heard how PPACA imposes a paperwork nightmare 
on small businesses. The law requires a tax filing for every 
transaction over $600. The House has voted to repeal this 
massive paperwork cost on America's employers. However, our job 
does not end there. PPACA includes dozens of new paperwork 
requirements that force businesses to report to HHS, the 
Department of Labor, and the IRS.
    Employers who originally supported PPACA are growing 
increasingly skeptical. In a recent interview, the CEO of 
Starbucks explained that upon further inspection, the new 
health care law would impose too great of a burden on job 
creators.
    We have also heard from the Director of the Congressional 
Budget Office, Doug Elmendorf, on how PPACA reduces employment. 
In recent testimony before the House Budget Committee, Mr. 
Elmendorf stated that 800,000 jobs would be lost because of 
PPACA.
    Third, we must consider the cost to patient care, in both 
access and quality. We already know low-income Americans face 
significant access problems in the Medicaid program because of 
low reimbursement rates for providers. PPACA extends the same 
problems to Medicare by reducing payment rates to unsustainable 
levels. As CMS Chief Actuary Rick Foster's analysis shows, 
Medicare payments fall sharply below those of private insurers 
and even below the Medicaid program.
    Finally, the health care law has actually increased the 
cost of health care coverage -exactly the opposite of what 
proponents claimed would happen. As Mr. Foster has noted, the 
health care law increases overall national health expenditures 
by $311 billion. CBO has told us that by 2016, individual 
premiums will rise by $2,100 as a result of PPACA.
    To date, HHS has issued more than 1,000 waivers to exempt 
health plans and employers from the expensive new regulations 
imposed by health care law. Last week, a member of this 
committee and supporter of the law suggested his hometown 
should receive a waiver. I think we should go one step further: 
we should lift the burden of PPACA from all Americans and 
repeal it.
    Thank you again for holding this hearing. The American 
people deserve to know the true costs of this law. I would like 
to thank Larry Schuler from the great state of Michigan for 
agreeing to testify and present his perspectives on the new 
law. Mr. Chairman, I yield back the balance of my time.

    Mr. Gingrey. I thank the chairman for yielding.
    Mr. Chairman, it was just interesting to hear the ranking 
member of the subcommittee a few minutes ago talk about how the 
Democrats came to the rescue after 8 years of Republican 
inaction on health care reform, essentially saying just don't 
sit there, do something. Well, I think my colleague, Dr. 
Burgess, a fellow OB/GYN physician, would remember our OB/GYN 
motto, don't just do something, sit there, in managing labor 
and delivery. And the point I am making is to rush to judgment 
to do something just to get something done oftentimes is a huge 
mistake, and I think that is the way our side of the aisle 
feels in regard to PPACA, the Affordable Care Act, because it 
doesn't accomplish any of the goals that were set out. It is 
not good for patients. It is not good for consumers. It is 
certainly not good for corporate America and it is not good for 
the taxpayer.
    So bottom line is, this is a bad bill, not that the idea of 
reforming health care is a bad thing to do but certainly the 
priority of doing it as a number one or number two thing in the 
111th and 110th Congress when we had 16 million people out of 
work in this country and probably 25 million underemployed, an 
unemployment rate of 10 percent, deficits. He said they 
inherited a $1.4 trillion deficit. Well, how about the next 
year when it was $1.6 trillion? Who inherited that? And how 
about the $5 trillion worth of additional debt that was piled 
on to the taxpayer by the Democrat Majority since they took 
control in 2007? So I think their priorities are all wrong and 
backwards in regard to this, and I am really interested in 
hearing from our witnesses, the first panel, of course, CBO, 
Mr. Elmendorf, and our CMS Actuary, Mr. Foster, because we need 
this information.
    So if there is any time remaining, I will just yield that 
back. Mr. Upton controls the time I guess.
    Mr. Upton. I yield to Ms. Blackburn.
    Mrs. Blackburn. I want to welcome our witnesses today, and 
to the witnesses and my colleagues, I would just remind you 
all, in Tennessee we had an experiment called TennCare. 
TennCare eventually consumed 35.3 percent of our State's budget 
before Governor Bredesen took action to try to get this under 
control. This was public option health care and it was the 
experiment for public option health care, and I would like to 
hear from our witnesses today if there ever been any, any 
project where you gambled on making all these short-term 
expenses in order to receive long-term savings. From our 
research work, you can't find an example. It is one of the 
dangers we have in Obamacare.
    I yield back.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the ranking member, Mr. Waxman.

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

    Mr. Waxman. Thank you very much, Mr. Chairman.
    I find this hearing to be sadly ironic. The Republican 
members of the House have frequently complained about the 
growth in spending in government health programs. We hear on a 
daily basis about how Medicare and Medicaid are jeopardizing 
the financial health of this country, and about how it is time 
that we had an adult conversation about spending. Yes, let's 
have an adult conversation. Adult conversations start with 
facts.
    These are the facts. When President Bush came to office, he 
inherited a surplus projected to total $5.6 trillion over 10 
years. When President Obama came to office, he inherited a 
deficit in 2009 of $1.3 trillion for that one year alone. The 
deficit widened, I would remind my colleagues on the other side 
of the aisle, because we went into the deepest recession since 
the Great Depression, which meant fewer revenues and greater 
expenditures, widening the deficit more.
    President Bush did not think national debt was a high 
priority. Instead, rather than pay it off, he passed a series 
of reckless tax increases that enriched the wealthy at the 
expense of everyone else. Those tax cuts, like the Medicare 
prescription drug bill and two wars launched under President 
Bush, were not paid for. They were charged straight to the 
national credit card. And that is how you take a $5.6 trillion 
surplus and turn it into a massive deficit.
    Health care has played a role in this drama. In the future, 
increasing numbers of baby boomers and stubborn health care 
spending growth will put pressure on our budget, without 
question. But the deficit crisis we find ourselves in is a man-
made crisis, in fact, it is a Republican-made crisis.
    CBO projects that growth in Medicare under the Affordable 
Care Act, will be slowed to historically low rates on a per 
capita basis, to just 2 percent per year over the next 2 
decades, compared to a 4 percent per capita historically. 
Projected spending on Medicare would fall well below even 
projected annual growth in GDP per capita, which CBO pegs at 
3.7 percent over the next 10 years. Medicaid, too, has 
historically had slow growth on a per capita basis relative to 
private health plans. Over the last decade, Medicaid costs grew 
4.6 percent per person per year, compared to 7.7 percent for 
employer-sponsored premiums.
    Now, the gentleman on the other side of the aisle said he 
didn't know why we went into this reform of health care. Well, 
things were not great. Fifty million people couldn't get health 
insurance. Health care costs were increasing so rapidly. We 
needed to do something. The Republicans evidently said let 
things go as they are going and they were going in the wrong 
direction.
    The Affordable Care Act has been the largest deficit-
reducing bill passed by Congress in the last decade so it is 
true to its name, affordable care. So our current deficit 
crisis right now is not about health care.
    In addition, the Affordable Care Act covers 32 million 
Americans. Republicans never offered anything to do that. The 
health care bill stops insurance practices that would deny care 
to people who have to look to the private market. It would 
protect them from being excluded because of previous conditions 
and other arbitrary insurance practices, which they had to do 
because they didn't have everybody else in the pool.
    Well, let us go back to our adult conversation. Republicans 
keep telling us that we can't afford the reforms to Medicare 
that the ACA proposed. Now they are telling us that once we 
repeal the ACA, we need to pass much larger cuts to Medicare 
and Medicaid in order to pay for tax cuts for the very richest 
Americans. Majority Leader Eric Cantor said in a speech just 
last week, talking about Social Security, Medicare, and 
Medicaid: ``We are going to have to come to grips with the fact 
that these programs cannot exist if we want America to be what 
we want America to be.''
    How dare he say these programs cannot exist. This is not 
the America people want. The Affordable Care Act is entitlement 
reform done responsibly. It is time we stopped trying to repeal 
it and moved on to real work and real legislation.
    Mr. Chairman, I just think that we hear these complaints, 
complaints, complaints from the other side of the aisle. What 
do they have to offer? If what they have to offer is to cut 
back on Medicare and Medicaid and Social Security, they will 
create jobs because the elderly and the poor are going to have 
to find work but they are not going to find them, they are just 
going to have to do without the care and we are going to have 
more uninsured.
    I yield back my time.
    Mr. Pitts. The gentleman's time is expired. The chair 
thanks the gentleman.
    Mr. Waxman. Mr. Chairman, I was supposed to use less time 
and yield it to Mr. Dingell. At some point can we give him a 
minute? May I ask unanimous consent that Mr. Dingell be given 1 
minute?
    Mr. Pitts. Is there any objection? Without objection, the 
gentleman is recognized for 1 minute.
    Mr. Dingell. Mr. Chairman, I thank my good friend. I have 
an excellent statement. It denounces this hearing. It denounces 
the purposes of my Republican colleagues. It denounces the 
fiction that we are going to be hearing this morning from the 
other side of the aisle. I would urge my colleagues to read it. 
It will benefit everybody, and I am sure you will enjoy reading 
this and I thank you, and I ask unanimous consent to submit my 
remarks.
    Mr. Pitts. Without objection, so ordered.
    [The prepared statement of Mr. Dingell follows:]

               Prepared statement of Hon. John D. Dingell

    Today, nearly 4 months into the 112th Congress, this 
Committee is holding yet another political show for the benefit 
of pundits here inside the Beltway.
    It is abundantly clear that without major reform to our 
health system the status quo is unsustainable. After hard 
decisions, hours of debate and deliberation, Congress passed 
and the President signed the Affordable Care Act.
    Defunding the Affordable Care Act is not legislating. This 
is like taking an eraser to an answer on a test, and then 
leaving it blank because you don't have a better solution.
    If my friends on the other side of the aisle want to defend 
the Nation's bottom line, then why did they offer H.R. 2, 
repealing the Affordable Care and increasing the federal 
deficit by $210 billion?
    If my friends on the other side of the aisle want to create 
jobs, why repeal the Affordable Care Act, which will add 
400,000 jobs a year for the next 10 years?
    American families need help now. They need protection from 
insurance companies dropping their coverage, they need help in 
providing health coverage for their college students, and they 
need help to afford their prescriptions under Medicare--these 
are all real solutions ACA provides to families today and 
solutions my friends on the other side of the aisle would 
repeal and replace with nothing.
    Thank you.

    Mr. Pitts. The chair thanks the gentleman.
    We have two panels today. Each of the witnesses has 
prepared an opening statement that will be placed in the 
record. I will now introduce the first panel of two witnesses.
    Our first witness is Doug Elmendorf, who is the Director of 
the Congressional Budget Office. Before he came to CBO, Mr. 
Elmendorf was a senior fellow in the Economic Studies Program 
at the Brookings Institution. Next, we will hear from Rick 
Foster, who serves as the Chief Actuary at the Office of the 
Actuary at the Centers for Medicare and Medicaid Services.
    Mr. Elmendorf, we ask you to please summarize. You are 
recognized for 5 minutes for your opening statement at this 
time.

STATEMENTS OF DOUGLAS ELMENDORF, DIRECTOR, CONGRESSIONAL BUDGET 
OFFICE; AND RICHARD FOSTER, CHIEF ACTUARY, CENTERS FOR MEDICARE 
                     AND MEDICAID SERVICES

                 STATEMENT OF DOUGLAS ELMENDORF

    Mr. Elmendorf. Thank you, Chairman Pitts, Congressman 
Pallone and members of the subcommittee. I appreciate the 
opportunity to testify today about CBO's analysis of the 
Patient Protection and Affordable Care Act and last year's 
Reconciliation Act. Together with our colleagues on the staff 
of the Joint Committee on Taxation, we provided to the Congress 
numerous analyses of this act and the legislation leading up to 
it, and my written statement summarizes that work.
    In brief, we estimate that the legislation will increase 
the number of non-elderly Americans with health insurance by 
roughly 34 million in 2021. About 95 percent of legal non-
elderly residents will have insurance coverage in that year 
compared with a projected share of 82 percent in the absence of 
that legislation and about 83 percent today. The legislation 
generates this increase through a combination of a mandate for 
nearly all legal residents to obtain health insurance, the 
creation of health insurance exchanges operating under certain 
rules and through which certain people will receive federal 
subsidies and the significant expansion of Medicaid.
    According to our latest estimate, the provisions of the law 
related to health insurance coverage will have a net cost to 
the Treasury from direct spending and revenues of $1.1 trillion 
during the 2012-2021 decade. That amount is larger than CBO's 
original estimate of the cost of those provisions during the 
2010-2019 decade that represented the 10-year budget window 
when the legislation was originally estimated. That increase is 
due almost entirely to the shift in the budget window. As you 
can see in figure 2 in front of you, the revisions in any 
single year are quite small.
    In addition to the provisions related to insurance 
coverage, PPACA and the Reconciliation Act also reduce the 
growth of Medicare's payments for most services, impose certain 
taxes on people with relatively high income and made various 
other changes to the tax code, Medicare, Medicaid and other 
programs. As you can see in figure 1, those provisions will on 
balance reduce direct spending and increase revenues, providing 
an offset to the cost of the coverage provisions. According to 
our latest comprehensive estimate of the legislation, the net 
effect of all the changes in direct spending and revenues is a 
reduction in budget deficits of $210 billion over the 2012-2021 
period.
    Not surprisingly, observers have raised a number of 
challenges to our estimates. Let me comment briefly on the 
three most common areas of concern that I have heard. First, 
some analysts have asserted that we have misestimated the 
effects of the changes in law. Those concerns run in different 
directions. Some analysts believe that the subsidies will be 
more expensive than we project while others maintain that the 
Medicare reforms will save more money than we project. 
Certainly, projections of the effects of this legislation are 
quite uncertain and no one understands that better than the 
analysts at CBO and JCT. Our estimates depend on myriad 
projections of economic and technical factors as well as on 
assumptions about the behavioral responses of families, 
businesses and other levels of government. All of these 
projections and assumptions represent our objective and 
impartial judgment based on our detailed understanding of 
federal programs, careful reading of the research literature 
and consultation with outside experts. In addition, our 
estimates depend on a line-by-line reading of the specific 
legislative language. Our goal is always to develop estimates 
that are in the middle of the distribution of possible 
outcomes, and we believe we have achieved that goal in this 
case.
    A second type of critique of our estimates is that budget 
conventions hide or misrepresent certain effects of the 
legislation. I will mention two of the prominent examples that 
I have heard. As one example, the numbers I have just cited 
involve changes in direct spending and revenues because that is 
what is relevant for pay-as-you-go procedures and because those 
changes will occur without any additional legislative action. 
However, PPACA and the Reconciliation Act will also affect 
discretionary spending that is subject to future 
appropriations. We noted many times that we expect the cost to 
the Department of Health and Human Services and the Internal 
Revenue Service of implementing the legislation will probably 
be about $5 billion to $10 billion each over the next decade. 
PPACA also includes authorizations for future appropriations. 
Those referring to specific amounts total about $100 billion 
over the decade with most of that funding applied to activities 
that were being carried out under prior law such as programs of 
the Indian Health Service.
    Another example of concern about budget conventions 
involves the Hospital Insurance trust fund, which covers 
Medicare part A. The legislation will improve the cash flow in 
that trust fund by hundreds of billions of dollars over the 
next decade. Higher balances in the fund will give the 
government legal authority to pay Medicare benefits for longer 
than otherwise but most of the savings will pay for new 
programs rather than reduce future budget deficits, and 
therefore will not enhance the government's economic ability to 
pay Medicare benefits in future years. We wrote about those 
issues as the legislation was being considered in the Congress.
    A third type of critique is that PPACA and the 
Reconciliation Act will be changed in the future in ways that 
will make deficits worse. As with all of CBO's cost estimates, 
the ones for this legislation reflect an assumption that the 
legislation will be implemented in its current form. We do not 
intend to predict the intent of future Congresses that might 
choose to enact different legislation. At the same time, we 
emphasize that the budgetary impact of this legislation could 
be quite different if key provisions were changed and we 
highlighted certain provisions that we expect might be 
difficult to sustain for a long period of time. Thank you.
    [The prepared statement of Mr. Elmendorf follows:]


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    Mr. Pitts. The chair thanks the gentleman and recognizes 
Mr. Foster for 5 minutes for an opening statement.

                  STATEMENT OF RICHARD FOSTER

    Mr. Foster. Thank you. Chairman Pitts, Representative 
Pallone, other distinguished subcommittee members, thank you 
for inviting me here today to testify about the financial 
impacts of the Affordable Care Act.
    The Office of the Actuary at the Centers for Medicare and 
Medicaid Services provides actuarial, economic, and other 
technical support and information to policymakers both in the 
Administration and in Congress. We do so on an independent, 
objective and nonpartisan basis, and we have performed this 
role throughout the last 45 years since the enactment of 
Medicare and Medicaid.
    I am accompanied today by two folks, John Shatto, who is a 
fellow of the Society of Actuaries, and he is the director of 
our Medicare and Medicaid Cost Estimates Group sitting right 
behind me, and by Laming Kai, who is a Ph.D. in economics and 
is one of our senior economists. Both are members our health 
reform modeling team.
    I am very pleased to have the opportunity to appear with 
Doug Elmendorf. Now, I know you probably saw the press reports 
of a cage match or a possible fight between us or various 
humorous things like that but I am afraid the reality is far 
less dramatic. Doug and I and our staffs, we are all public 
servants and our goal is just to try to do the best job we can 
to provide valuable technical information for you all. That is 
all we are trying to do. I am not running for president. I 
suspect you are not either. And if nominated, I know what would 
happen with either one of us.
    Now, Doug has already talked about the overall impacts on 
expenditures and revenues under the Affordable Care Act so I 
won't go over that same material. I will mention that we have 
estimated the impact of the Affordable Care Act on total 
national health expenditures from all sources, not just federal 
expenditures, not just for Medicaid or Medicare but everything, 
and that increase, Chairman Pitts, you quoted earlier. We 
estimated a net increase overall of about $311 billion through 
fiscal year 2019. There are substantial increases, of course, 
associated with the coverage expansions in the legislation 
through Medicaid and the exchange private health insurance but 
there are partially offsetting reductions in national health 
spending, principally because of the lower Medicare 
expenditures. And there would also be lower out-of-pocket costs 
for individuals because so many more of them would have health 
insurance coverage and for other reasons.
    I want to say just a couple words about concerns that I 
have had and have expressed with one important aspect of the 
Affordable Care Act, and that has to do with the annual payment 
updates under Medicare for most categories of providers. 
Specifically, these annual payment updates are based on the 
increase in a market basket of prices that providers have to 
pay to pay for wages or rent or energy costs or supplies, you 
name it. It is based on that increase in prices, input prices, 
minus the overall economywide increase in productivity, which 
is about 1.1 percent per year. Now, this adjustment, which is 
permanent, this will happen forever until you all decide maybe 
it should be changed, but this adjustment will be a strong 
incentive for providers to economize, to get rid of any 
inefficiency, waste, et cetera, be as efficient as possible, 
but I believe it is doubtful that many health providers can 
improve their own productivity enough to match the level of 
economy-wide productivity. Now, if they can't, then the 
consequences are that Medicare provider payment rates for most 
providers would grow about 1.1 percent per year less than their 
input prices or their input costs, and unless they can improve 
their productivity to match, eventually they would become 
unable or unwilling to provide services to Medicare 
beneficiaries. Now, long before that would happen, I think 
Congress would step in and change the basis to prevent such 
access or quality problems, but if that happens, that means the 
Medicare savings we have estimated would be lower. Actual 
Medicare costs would be higher than any of our estimates.
    Let me finish by saying that I pledge the Office of the 
Actuary's continuing assistance to you all and your colleagues 
and to the Administration as you work to continue to determine 
optimal solutions to the high cost of health care in the United 
States.
    Thank you, and I would be happy to answer any questions.
    [The prepared statement of Mr. Foster follows:]


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    Mr. Pitts. The chair thanks the gentleman. I thank the 
panel for their opening statements and I will now begin the 
questioning and recognize myself for 5 minutes for that 
purpose.
    Mr. Elmendorf, your testimony states that the health care 
law will reduce employment by roughly 800,000 by 2012 because 
PPACA encourages some people to work fewer hours or withdraw 
from the labor market altogether. You also attribute some of 
the job reduction to higher marginal tax rates included in 
PPACA. I would like to explore what other factors were included 
and excluded when you calculated this number. Does this 800,000 
job reduction figure account for employers who will reduce 
employment in order to avoid the 50-employee threshold that 
triggers PPACA's employer mandate?
    Mr. Elmendorf. Mr. Chairman, we did not explicitly model 
that provision. There are a number of factors that we did 
incorporate in reaching this estimate. We didn't try to 
quantify every single aspect of the law. We tried to quantify 
the ones that we thought were most significant.
    Mr. Pitts. Does the 800,000 figure account for employers 
that choose to avoid creating jobs in order to avoid the 50-
employee threshold that triggers PPACA's employer mandate?
    Mr. Elmendorf. Again, Mr. Chairman, we did not explicitly 
the model the effects of the 50-employee threshold. We focused 
on maybe 10 other aspects of the legislation that we thought 
would have more significant effects on employment.
    Mr. Pitts. OK. Does the 800,000 figure account for the new 
employer paperwork requirements in PPACA such as the 1099 
filing provision and the variety of reporting requirements to 
Department of Labor and Treasury and HHS included in PPACA that 
will shift employer resources away from investment towards 
regulatory compliance?
    Mr. Elmendorf. Mr. Chairman, it is not obvious to me why 
the 1099 forms would have a significant effect on employment, 
and no, we did not incorporate any such effect in this 
estimate.
    Mr. Pitts. How about, does the 800,000 figure account for 
the employer resources that will have to shift toward providing 
more expensive health coverage as a result of the new mandates 
and the essential benefits package included in PPACA?
    Mr. Elmendorf. Mr. Chairman, in our analysis of the effects 
of changes in health insurance payments by employers, we 
recognize that both logic and evidence suggest that changes in 
particular aspects of compensation to employees tend to be 
offset by changes in other aspects of their compensation, so 
one can see in the aggregate data for the United States a rise 
in health spending by employers over the past several decades 
but also a slower rise in cash compensation, and economists 
think those factors are related. So we think that changes in to 
the extent that employers pay more for health care and some 
would pay more under this legislation, some would pay less 
under this legislation, we have not tried to tote this up. In 
any case, we think there would be offsetting changes in the 
cash compensation that employers would provide.
    Mr. Pitts. Mr. Foster, proponents of PPACA argue that U.S. 
health spending of 16 percent of GDP is unsustainable and claim 
that PPACA bends the cost curve. Does PPACA change this dynamic 
for the better or the worse?
    Mr. Foster. We have estimated this question for the first 
10 years. As I mentioned briefly, we estimate that the 
legislation increases the overall amount of total health 
spending in the United States by roughly one percentage point. 
In terms of the growth rates and what happens in the future, 
initially the growth rates are higher because we are spending 
more but there are certain factors that would tend to reduce 
the growth rates in the longer term. A good example is the 
productivity adjustments for Medicare payment updates. The real 
question is, how long can that work? They will help slow 
Medicare spending growth but they may not be viable 
indefinitely.
    Mr. Pitts. Can you explain how a strict application of 
modified gross adjustment could greatly expand Medicaid 
eligibility under PPACA and increase the cost to both Federal 
Government and States?
    Mr. Foster. Yes, sir. In the legislation, to achieve 
consistency between the definition of eligibility for Medicaid 
and the definition of eligibility for exchange subsidies, 
Congress decided to use modified adjusted gross income as the 
basis for determining income. Now, prior to this point for 
Medicaid, almost all States or perhaps all have included Social 
Security benefits in their definition of income for purposes of 
determining eligibility. With modified adjusted gross income, 
in contrast, for most people, only a small portion, if any, of 
their Social Security benefits would be included in that 
definition of income. So if you consider Social Security early 
retirees, under 65, who are potentially eligible for the 
Medicaid expansion and you then don't count $10,000 or $20,000 
a year of Social Security benefits in their income, many of 
them can potentially qualify for Medicaid if you use that 
strict definition of modified adjusted gross income.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the ranking member, Mr. Pallone, for 5 minutes for 
questioning.
    Mr. Pallone. Thank you, Mr. Chairman. I wanted to address 
my questions to Mr. Elmendorf.
    Mr. Chairman, I am sure you could tell from my opening 
statement that I am very frustrated because I feel that you 
came here and you did the best and we were using your numbers 
because we are supposed to in deciding the cost of the 
legislation, and of course, if we didn't go by CBO or if CBO 
said that things cost too much, then they would criticize us, 
and then we finally came up with a bill that actually resulted 
in some significant deficit savings and they said well, those 
numbers aren't actually good, so the whole purpose of this 
hearing is essentially to challenge you and say essentially 
that we don't agree with what you are doing. But of course, if 
we hadn't followed it, then we would be criticized because we 
didn't follow you.
    So I just wanted to go through some of the things, because 
tomorrow I understand we are going to have a markup on some 
bills that we had a hearing on just before the break, and 
Representative Bachmann and members of this committee are 
claiming that there is about $105 billion in hidden spending 
that was snuck into the bill without you or the American people 
knowing about it, and the hearing was, of course, on this 
hidden mandatory spending and that is what the markup will be 
about tomorrow.
    So let me just go through and find out whether any of this 
really was hidden from you. First of all, we considered a bill 
that would repeal funding for section 1311, the health 
insurance exchange planning and establishment grants. Did you 
know about that funding stream?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Pallone. OK. So it wasn't hidden. What about section 
4002, the prevention and public health fund? Did you know about 
that?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Pallone. So that wasn't hidden either. And about what 
funding for school-based health centers? Did you know about 
that?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Pallone. So it seems that we couldn't slip much past 
you, try as the Republicans think we might. It is also true 
that, I guess it was Congressman Jerry Lewis, Appropriations 
Committee, he said that there is about $100 billion in new 
discretionary funding in the bill that, of course, was hidden, 
that we were trying to hide. But I see you mention in your 
testimony that $85 billion of that is what actually--well, 
actually it was just reauthorization of preexisting programs 
like the Indian Health Service or the Community Health Centers. 
I was the sponsor of the Indian Health Care Improvement Act 
that was included in the bill. So $85 billion of this $100 
billion in discretionary was actually just reauthorization of 
preexisting programs like the Indian Health Service. Is that 
correct?
    Mr. Elmendorf. Yes, that is right, Congressman.
    Mr. Pallone. All right. I mean, reauthorization of existing 
programs is of course a standard practice in this committee, 
both under the Democrats and the Republicans.
    Now, I want to go back over your deficit numbers. CBO and 
JCT analyzed all of the revenue and spending changes in the 
health reform law and estimated that it would reduce the 
deficit by $210 billion over 10 years and by about half of 1 
percent of GDP or $1.2 trillion in the following decade. 
Recently in your routine updating of your baseline projections, 
you made some changes to your projections of spending in 
Medicare, Medicaid and health insurance exchanges. Is that 
correct?
    Mr. Elmendorf. Yes, that is right.
    Mr. Pallone. Did you update your cost estimate for the 
Affordable Care Act?
    Mr. Elmendorf. No, we did not do a comprehensive re-
estimate of the effects of the act.
    Mr. Pallone. Did you increase your cost estimate for the 
Affordable Care Act by $500 billion, which I think was 
suggested in a press release by Chairman Upton?
    Mr. Elmendorf. So again, Congressman, the last 
comprehensive estimate we have done for the act was part of our 
February estimate of the effects of repealing the act as 
encompassed in H.R. 2.
    Mr. Pallone. So you didn't increase your cost estimate by 
$500 billion?
    Mr. Elmendorf. Again, at least in February, we have made no 
new estimates of the comprehensive effects of the legislation.
    Mr. Pallone. Do you have any expectation that a new cost 
estimate would continue to show that the Affordable Care Act 
reduces the deficit?
    Mr. Elmendorf. So I can't say anything too firmly, having 
not done the estimate, but I will say that I think given the 
magnitude of the deficit reduction that we projected based on 
our February estimate of the effects of repeal, I would be 
surprised if a new estimate that we did today showed a 
different sign of the effect on the deficit, although of course 
the precise number would be somewhat differently presumably.
    Mr. Pallone. OK. I mean, I am not trying to be too critical 
of Chairman Upton, I like him, but he put out this press 
release last week. He said with that $500 billion, and I think 
it is somewhat misleading and I guess the Washington Post said 
it was widely inflated and earned a three Pinocchios rating 
from the Washington Post fact checker column. Whatever. My only 
point is that nothing has really changed here, and I think that 
the effort on the part of the Republicans to basically 
discredit you is baseless.
    Thank you, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the vice chairman of the committee, the gentleman 
from Texas, Dr. Burgess, for 5 minutes for questioning.
    Mr. Burgess. I thank the chairman for the recognition.
    Mr. Elmendorf, of course you did appear before this 
committee in the run-up to the passage of H.R. 3200 but you 
might not recognize it because when you were in that day, the 
television cameras weren't on, the lights were off, no recorder 
was at the end of the table, no one was in the audience 
section. It was obviously an unofficial briefing that you had 
with at the time what was I recall described as a back-of-the-
envelope calculation. We never had a formal hearing on the 
Congressional Budget Office's opinion on the passage of H.R. 
3200 and we certainly, certainly never had any sort of hearing 
on the budgetary effects of H.R. 3590 because at the time you 
were here testifying before us, H.R. 3590 was a bill that had 
been passed by the House of Representatives that dealt with 
housing issues and not with health care issues. Is that 
correct?
    Mr. Elmendorf. Yes. I have testified to this committee but 
it was early in 2009 before the legislative action that you are 
describing, Congressman.
    Mr. Burgess. Well, were you called in for a briefing, as I 
recall, and again, there was no recorder, no testimony was 
taken down. The lights were off, the cameras were off. It was 
kind of a closed-door cloak-and-dagger type of hearing or 
briefing as I recall.
    Mr. Elmendorf. I am confident I did not come to a cloak-
and-dagger affair, Congressman. I don't remember the precise 
circumstances but I think----
    Mr. Burgess. I recall them vividly. That is why I am 
reminding you of them. Well, let me just ask you a question 
about the funding that is in the bill, and this is just for me. 
You are required to interpret the cost of things under existing 
law, so under existing law in the Patient Protection and 
Affordable Care Act subtitle B, patient-centered outcomes 
research, establishing comparative effective clinical 
effectiveness research, in the section under funding of 
comparative effective clinical effectiveness research for 
fiscal year 2010 and each subsequent fiscal year, amounts in 
the patient-centered outcomes research trust fund shall be 
available without further appropriation to the institute to 
carry out this section. How do you quantify that?
    Mr. Elmendorf. I am sorry. I wasn't sure myself, 
Congressman. I am told there were specified amounts available--
--
    Mr. Burgess. That is the problem. We aren't, either. But go 
ahead.
    Mr. Elmendorf. I am told in the legislation there are 
specified amounts made available to he Patient-Centered 
Outcomes Research Institute.
    Mr. Burgess. Well, for fiscal year 2010 and each subsequent 
fiscal year, and there is no limit put on that so I have got to 
assume that is until the second coming, amounts in the patient-
centered outcomes research trust fund under section 9511 of the 
Internal Revenue Code shall be available without further 
appropriations to the institute to carry out this section, 
without further appropriation. Now, Chairman Pallone or Ranking 
Member Pallone talks about how we reauthorized several 
provisions of existing law in the Affordable Care Act. Fair 
enough. But this wasn't an existing provision. This did not go 
through authorization through this committee. It is never going 
to be reauthorized by this committee. No oversight of this 
funding is going to occur by this committee, and these funds, 
we don't even know the top dollar figure, are appropriated it 
looks to me like in perpetuity. Is that a fair reading of this 
statute?
    Mr. Elmendorf. So I think it is important for me to 
distinguish between mandatory funding and authorization for 
future discretionary appropriations. The----
    Mr. Burgess. And in fact, I don't know that I have time to 
get into that.
    Mr. Elmendorf [continuing]. Our estimate including 
whatever----
    Mr. Burgess. These provisions should be authorized. We are 
an authorizing committee. Ranking Member Pallone pointed that 
out. That is what we do. We authorize these programs. We 
subsequently in future years reauthorize them to ensure that 
they are working properly, at least if we are performing up to 
standards the American people should be holding us to, but in 
this instance, we don't get a chance. So the anxiety that a lot 
of people have is there is funding like this strewn throughout 
the language of 3590 and it is going to be very, very difficult 
for future Members of Congress to get a hold of these funding 
streams and understand are they performing as they are supposed 
to. The language makes it difficult, makes it difficult for you 
to tell us really how much money we have obligated the taxpayer 
to spend on this. Whether it is mandatory or discretionary, 
they don't care. Honestly, they don't care. They want to know 
how many dollars they are spending and whether those dollars 
are being invested wisely, if they are getting an appropriate 
return on investment. How do we advise them? How do you advise 
them?
    Mr. Elmendorf. All I can say, Congressman, is that the 
mandatory funding is included in this page after page of our 
cost estimate row by row, and if there are specific questions 
about individual rows, then I hope that you and your colleagues 
will come and ask us.
    Mr. Burgess. I have a specific question about a specific 
section of the law that was signed into law a year and a week 
ago, and I would appreciate it if you--I see my time is up, but 
if you could get back to us that estimate.
    Mr. Elmendorf. We will do that, Congressman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the ranking member of the committee, Mr. Waxman, for 
5 minute for questions.
    Mr. Waxman. Mr. Chairman, last week, I mentioned in my 
opening, Eric Cantor, the Majority Leader, gave a speech at the 
Hoover Institute where he talked about Social Security, 
Medicare and Medicaid, and he said, ``We are going to have to 
come to grips with the fact that these programs cannot exist if 
we want America to be what we want America to be.'' Well, I 
can't come to grips with that statement because it would be a 
back to the future, to a time when seniors and people with 
disabilities lived in poverty without financial and health 
security.
    Mr. Elmendorf, what was the approximate cost of extending 
the Bush tax cuts in the legislation that was passed last 
December?
    Mr. Elmendorf. I believe the legislation passed last 
December had--I am not sure I know the answer to that question.
    Mr. Waxman. The tax cut bill.
    Mr. Elmendorf. I am sorry. I mean----
    Mr. Waxman. Well, I understand.
    Mr. Elmendorf. I don't know it offhand.
    Mr. Waxman. I understand it is around $700 billion.
    Mr. Elmendorf. That sounds in the right ballpark to me, 
Congressman.
    Mr. Waxman. And now focusing just on the upper income tax 
cuts and the estate tax, I would like you, if you don't have it 
off the top of your head, to give us an estimate of what it 
cost just to extend those for another 10 years.
    Mr. Elmendorf. I can provide that to you later, 
Congressman.
    Mr. Waxman. I believe that the OMB budget lists the cost of 
extending those tax cuts along with the interest costs as 
almost a trillion dollars, but I would like to submit it for 
the record. That is a huge number and that is just from the tax 
cuts for the wealthiest Americans alone. So you take a trillion 
dollars, and then we look at the Affordable Care Act. It has 
the opposite effect of actually reducing the deficit. Isn't 
that correct?
    Mr. Elmendorf. Yes, Congressman. By our estimates, it does.
    Mr. Waxman. They say that to govern is to choose, and we 
know what Republicans choose. They choose to cut Medicare, 
Medicaid and health insurance for middle-income American 
families to pay for tax cuts for the rich.
    Mr. Elmendorf, your re-estimate of the President's budget 
projects some relatively modest changes in projected spending 
for Medicare and Medicaid and health insurance exchange tax 
credits. According to your letter to Senator Inouye, in table 6 
mandatory outlays on tax credits are projected to be about $54 
billion higher over the next 10 years while spending on 
Medicare and Medicaid is projected to be about $339 billion 
lower for a reduction in direct spending of $277 billion from 
these health programs. Is that correct?
    Mr. Elmendorf. It sounds right to me, Congressman. I don't 
have the letter in front of me.
    Mr. Waxman. So projections for spending on health programs 
are down relative to your prior baseline. You also note in your 
testimony that spending growth in Medicare is projected to be 
very low on a per capita basis over the budget window. Is that 
correct? What is your estimated growth rate?
    Mr. Elmendorf. We did reduce slightly the growth rate of 
spending by the Federal Government for Medicare and for 
Medicaid over the 10-year budget window. I don't have the 
actual growth rates at hand. They are still of course 
substantial growth rates.
    Mr. Waxman. As I understand it, 2 percent per capita 
compared to 4 percent historically, but we would like to get 
you to submit that for the record.
    Mr. Foster, do you agree that cost growth in Medicare is 
very restrained in the next 10 years or so?
    Mr. Foster. Yes, sir, I do. As I have cautioned, it is not 
clear that all of the provisions will be viable indefinitely.
    Mr. Waxman. So we all agree that Medicare cost growth has 
been brought to be a very low level, so low that in CBO's 
baseline the triggers for the Independent Payment Advisory 
Board are not tripped anymore. Isn't that correct, Dr. 
Elmendorf?
    Mr. Elmendorf. That is right, Congressman.
    Mr. Waxman. Mr. Foster, considering these low growth rates 
in per capita spending, would you characterize the growing 
costs of Medicare over the next 10 years as primarily driven by 
increasing population or by increasing spending per person?
    Mr. Foster. There are still factors of each. I would 
consider them comparable order of magnitude. We have the baby 
boom generation moving into Medicare these days, of course, 
with the people turning 65, so the enrollment is growing about 
3 percent per year, and the cost per person for Medicare is 
also growing in the rough vicinity of 3 percent per year, which 
is much lower than average or normal because of the Affordable 
Care Act provisions.
    Mr. Waxman. And the Medicare spending growth that we have 
seen recently has been primarily driven by increased enrollment 
due to the recession. Is that an accurate statement?
    Mr. Foster. In recent years, that is basically correct.
    Mr. Waxman. So in effect, Medicaid is fulfilling its 
essential safety-net function. Once the economy recovers, 
Medicaid costs will go down again because fewer people will 
need the help. Is that a correct statement?
    Mr. Foster. We would expect that, yes, sir.
    Mr. Waxman. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Illinois, Mr. Shimkus, for 5 
minutes for questioning.
    Mr. Shimkus. Thank you, Mr. Chairman. It is curious that 
the extension of the Bush tax cuts occurred under a Democrat-
controlled House, a Democrat-controlled Senate, and signed by a 
Democrat President. That is just for the record. The extension 
of the Bush tax cuts was passed by a Democrat House, a Democrat 
Senate and signed by a Democrat President. I don't know how 
many years you guys you want to run against George Bush but it 
obviously gets a little old. You guys might find new targets.
    It is good to see you all here. I became ranking member of 
the Health Subcommittee after the passage of the law and I 
think we asked numerous times for you all to come in opening 
hearing to discuss the budgetary aspects, to be denied every 
time, and I would agree with my colleague, Mr. Burgess, that 
Mr. Elmendorf, you came but you didn't come with the press 
available, with people in the galleries with the TV cameras on, 
without any open, transparent system for us to talk to the 
American public about the cost of this bill. So we are glad to 
see you, and I know being bean counters, that puts you 
crossways with both sides as we try to drive our issue.
    But 2 or 3 weeks ago we had Secretary Sebelius here, and 
she admitted on tape in the transcript that the law really 
double counts Medicare savings. She admitted that, in fact, her 
final word was both the Medicare savings that is attributed to 
extending the solvency of the Medicare trust fund is also the 
same dollars that is used to pay for the health care law, which 
I would agree with her, and that has been part of the actuary 
think. We understand you have to score what we give you, 
obviously 6 years of benefits, 10 years of taxes. You know, we 
know that you have to score what is given. But in some of the 
testimony, especially on--and this is directed to Mr. Foster. 
If you back out the Medicare cuts in the bill, what would be 
the total increase in national health expenditures?
    Mr. Foster. I am sorry. If you----
    Mr. Shimkus. If you back out the Medicare cuts. I don't 
know if we have ever cut Medicare in the history of this 
government.
    Mr. Foster. Yes. If you left out or don't consider for the 
moment the Medicare savings provisions, then the expansion of 
coverage for Medicaid----
    Mr. Shimkus. Well, you say Medicare savings, we say 
Medicare cuts. Same terminology, right?
    Mr. Foster. It is a reduction in expenditures.
    Mr. Shimkus. Right.
    Mr. Foster. Call them whatever you like.
    Mr. Shimkus. OK. I will call them cuts, you can call them 
savings, but there are cuts to what we are all paying for 
Medicare right now.
    Mr. Foster. Anyway, back to your original question, the 
expansions of coverage through Medicaid and the federal 
subsidies for the exchange coverage would increase total 
national health expenditures by something in the range of 3\1/
2\ percent and then the savings that you get, or the cuts, if 
you prefer, from the Medicare provisions reduces----
    Mr. Shimkus. My issue is, we are triple counting. I mean, 2 
weeks ago we got the Secretary to say we double counted. My 
issue now is that we are really triple counting because we are 
assuming we are going to cut $500 billion from Medicare that we 
are not going to do. So if we are not going to do that, we 
attribute that savings to extending the solvency of the 
Medicare trust fund, which we are not going to do, and we are 
not going to have the $500 billion to pay for the expansion of 
the health care law. So the Secretary was right when she said 
she double counted that but if we don't do the Medicare cuts, 
we are triple counting the same $500 billion.
    Mr. Elmendorf. Congressman, to be clear, when we give you a 
cost estimate, it counts each and every provision of the law 
once and only once. It is certainly the case that if those 
Medicare cuts or savings do not ultimately come to pass, then 
the deficit reduction effect of PPACA plus whatever future 
legislation took back those cuts, that combination of law would 
not have the same effect in reducing budget deficits that we 
estimate PPACA to have by itself.
    Mr. Shimkus. And that is our concern. We appreciate you 
being here, and I yield back my time.
    Mr. Elmendorf. Mr. Chairman. I am sorry, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman.
    Mr. Elmendorf. Mr. Chairman, I am sorry.
    Mr. Pitts. Who seeks recognition?
    Mr. Elmendorf. I realize it is my turn but I actually have 
a better answer to Congressman Burgess's question and I see 
that he is still here.
    Mr. Pitts. Go ahead.
    Mr. Elmendorf. Congressman, section 6301 of PPACA specifies 
amounts to be transferred to the Patient-Centered Outcome 
Research Institute trust fund, some from a tax on health 
insurance premiums and the amount that we estimate for that was 
estimated by our colleagues and staff on the Joint Committee on 
Taxation based on the specified tax rate in the law. It also 
specifies transfers from Medicare in amounts that I am told are 
specified in dollar terms, and then further amounts from the 
general fund that are specified.
    Mr. Burgess. And the total dollar figure then is?
    Mr. Elmendorf. And the total dollar figure, I don't have 
that offhand but it is in our table and we can provide that to 
you.
    Mr. Pitts. All right. The chair thanks the gentleman and 
now recognizes the gentlelady from California, Ms. Capps, for 5 
minutes for questions.
    Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman, and to the 
witnesses, thank you for your service and thank you for joining 
us here today.
    Mr. Elmendorf, you are the Director of the Congressional 
Budget Office, correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Gonzalez. So that means you work for Congress, you work 
for all of us, whether there is an R or a D following our 
names. Is that correct?
    Mr. Elmendorf. Yes, sir.
    Mr. Gonzalez. And I am sure during this debate you had 
meetings with Members of Congress that requested to meet with 
you and you responded to questions posed both by Democrats and 
Republicans?
    Mr. Elmendorf. Yes, we did.
    Mr. Gonzalez. You have an open-door policy, you are 
accessible, so it doesn't require a hearing with the lights on 
and the cameras and the reporter in order for a Member to 
become acquainted with specific budgetary facts that you may 
provide them as a result of any proposal. Is that correct?
    Mr. Elmendorf. Congressman, we are certainly available to 
explain our estimates and the logic that lies behind them to 
you or any of your colleagues at any time, but of course, I am 
not going to get in the middle of a question about when this 
committee or others should be holding hearings.
    Mr. Gonzalez. And I agree, but I venture to guess, we 
probably get more information from your office outside of the 
hearing process. That is the point I was trying to make.
    Now, I know my colleagues have indicated that we rushed to 
judgment, why did we do what we did, but nearly 2 years ago, 
Steve Pearlstein writing in the Washington Post in the middle 
of this said, ``Among the range of options for health care 
reform, there is one that is sure to raise your taxes, increase 
your out-of-pocket medical expenses, leave more Americans 
without insurance and guarantee that wages will remain 
stagnant. That is the option of doing nothing.'' We didn't 
think that was an option. We were in the majority. We made it a 
priority. And there was plenty of debate, plenty of information 
out there, and I know what the present Majority is attempting 
to do after the fact.
    Now, they also knew that if they just simply said repeal 
that the American people wanted a little more than that. So 
they said oK, repeal and replace. They haven't gotten to the 
replace part yet but I don't want to be unfair because I think 
there is a proposal out there and that is by Congressman Paul 
Ryan, my colleague, chairman of the House Budget Committee, and 
he has a thing called the roadmap. Now, I am not sure if the 
Republican leadership or the conference has adopted the 
roadmap. It may still be in the Republicans' glove box, I 
believe. They haven't pulled it out and actually started to 
follow it. But one of the proposals was to basically transform 
Medicare into a voucher program. My understanding that it is by 
its very design, and I believe, Mr. Elmendorf, you have some 
knowledge of Mr. Ryan's roadmap and his plans for Medicare. My 
question to you is, would the roadmap and turning Medicare into 
a voucher program place the burden on the individual and by its 
very design not keep up with the cost of what an insurance 
product would be made available to that recipient or 
beneficiary? Do you have an opinion on that roadmap and 
basically its consequences?
    Mr. Elmendorf. Congressman, as you know, we prepared an 
extensive analysis of the specifications in the roadmap 
proposal a little over a year ago. It is the case, and we said 
this again last fall in analyzing a related proposal that 
Chairman Ryan put to the fiscal commission which involved 
providing vouchers to participants in Medicare, and we noted 
that voucher recipients would probably have to purchase less 
extensive coverage or pay higher premiums than they would under 
current law for two reasons. First, because the savings to 
Medicare come from increasing the amount of those vouchers at a 
slower pace than we estimate Medicare spending would grow by 
under current law, and secondly, because future beneficiaries 
would have to go into the private market to buy insurance and 
they are likely to pay more in the private market for the same 
package of benefits than it costs to provide that through 
Medicare today.
    Mr. Gonzalez. Thank you.
    Mr. Foster, are you familiar with the subject matter that I 
just posed the question to Mr. Elmendorf and do you have an 
opinion as to what would be the consequences of such a 
transformation, major transformation in changing of Medicare 
into a voucher program?
    Mr. Foster. The basic idea behind the voucher program 
includes all that you have said, and there is the hope that by 
allocating less money over time for Medicare and Medicaid that 
this would have an impact on the development of research for 
new medical technology. A lot of the technology we get is very 
expensive, as you know. Some of it has wonderful effects, very 
dramatic, useful, and some of it is not so useful. If there was 
a way to turn the research and development community focus into 
developing cost saving technology rather than cost increasing, 
that could help slow the cost growth and then the voucher 
payment increases might be enough. Now, there is an ``if'' in 
there and it is a big ``if.'' It does pose risks of the type 
that you mentioned, that the voucher payments could become 
inadequate.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Michigan, Mr. Rogers, for 5 
minutes for questions.
    Mr. Rogers. Thank you, Mr. Chairman. I do find it 
interesting that my colleagues are seeking to talk about 
everything other than the bill that has been passed into law, 
and I find it interesting today for the first time we have had 
an opportunity to talk about some of the flaws, especially in 
their claim that this is a budget reducer when they have used a 
10-year window, 6 years of services, 10 years of taxes, 
disingenuous at best to the American people but we have 
established today that in fact cuts half a trillion dollars 
from Medicare. Oops, they didn't want to tell you about that, 
did they? And what is the impact today to the real person out 
there who is trying to keep their job or find a job is that 
health care premiums have gone up and people are losing their 
coverage today because of this bill. I wouldn't want to talk 
about this bill either if I were you. As a matter of fact, the 
Administration now has had to give--they haven't updated it. It 
is 1,040 waivers that impacts about 3 million Americans and 
said you don't have to follow the law because it will either, 
A, increase your premiums, or B, you will lose the health care 
that you want to keep. So they had to say, guess what, you 3 
million Americans, the rest of America, you are stuck with this 
thing, you 3 million Americans, don't worry about it, don't 
follow the law. You are right. I wouldn't want to talk about 
what this bill is doing to real working Americans today either. 
Pretty frustrating. I hope we will get more changes to talk 
about the details of this bill. I do have a couple of quick 
questions, if I can.
    Mr. Foster, when you did the calculation, you calculated 
that 20 percent of small business employers would no longer 
offer health insurance, so by the way, that is one out of five 
small businesses will no longer offer health insurance to their 
employees, something else I wouldn't want to talk about. But I 
am curious about how you got there. The average cost in a State 
like Michigan, about $15,000 per employee, and the penalty for 
not offering insurance under Obamacare is $2,000 per employee, 
and I don't know you have been around many small businesses 
outside of the Beltway here but they are absolutely under 
assault from cost increases, fuel cost increases, mandates that 
are increasing the cost of their products. Pretty difficulty 
decisions have to be made, which is one of the reasons a place 
like my State is still suffering one of the highest 
unemployment percentages in the country. So if you are a small 
business owner and you are facing $15,000 per employee to try 
to do the right thing or $2,000 that you just send off to the 
Federal Government, get to throw them off your plan, you have 
got to help me understand how you get to only 20 percent of 
small employers are going to throw their folks off their health 
insurance that they enjoy today. Can you help me understand 
that?
    Mr. Foster. Sure. I will give it a try. As part of this, 
you have to estimate the behavioral response of providers, 
individuals, businesses, any number of groups, and employers 
are one of the most important groups. Now, for some employers, 
of course, if you are a small enough business, then you are not 
affected and you get some subsidies to help out, but for 
businesses that tend to have relatively low-income workers, it 
can turn out to be sort of a win-win for them to drop their 
formal health insurance coverage and assist their employees in 
getting coverage through the exchange.
    Mr. Rogers. So I understand it, you think it is beneficial 
for them to drop their coverage and send people to the federal 
exchange. Did I understand that correctly?
    Mr. Foster. For certain categories, primarily businesses 
with relatively low-income workers.
    Mr. Rogers. That is interesting. I am going to add that to 
my list today, that the bill encourages small businesses to 
drop their coverage and send people on the federal exchange. 
Brilliant, absolutely brilliant.
    Here is the other problem with your 20 percent. Maybe you 
can help me out. And there is going to be a great second panel 
here. One of the restaurant owners did the calculation. He only 
has 33 full-time employees and roughly 26 full-time equivalents 
working part-time hours totaling 59 full-time employees, and 
then he has seasonal and full-time employees for certain parts 
of the year and not parts of the year. The restaurant business 
is a pretty tough business, as you know. Margins are very 
small. Sometimes the business is up, sometimes it is down. In a 
State like Michigan, it tends to be more seasonal, given the 
tourist season. If he follows the law as it is, right, and 
under your equation he would be one of those that would want to 
do that, but it is a 282 percent cost increase and it is done 
because of the way you calculate part-time employees as a full-
time employee. So he is one of those folks who is going to get 
caught right in the middle of this thing that should be getting 
the subsidies but because the way you calculate or the law 
calculates, I don't know if you have made that calculation in 
that 20 percent number. Did you?
    Mr. Foster. The 20 percent is an assumption. We won't know 
until down the road when we see what happens.
    Mr. Rogers. And it is an assumption, as you said today, Mr. 
Chairman, based on behavior, and if you have been in a small 
business with these kind of cost increases, you are going to 
throw people off your insurance. That is why we all ought to be 
angry about what this bill is doing to the working men and 
women of the United States.
    Mr. Pitts. The gentleman's time is expired. The chair now 
recognizes the ranking chairman emeritus, the member from 
Michigan, Mr. Dingell, for 5 minutes for questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
    Mr. Foster, these questions will be yes or no. Medicare 
growth per beneficiary is projected to be extremely low over 
the next 10 to 20 years. CBO's baseline has an average per 
capita growth of 2 percent over the next two decades compared 
with a historical growth of about 4 percent. Is that correct?
    Mr. Foster. Yes, sir.
    Mr. Dingell. Mr. Foster, in fact, the growth is so low that 
it doesn't even surpass projected GDP growth per capita over 
the next 10 years, which is projected to be 3.7 percent in 
CBO's baseline. That is 2 percent versus 3.7 percent. Is that a 
fact?
    Mr. Foster. In some years, not all years, yes, sir.
    Mr. Dingell. Thank you. The IPAB target, I would remind 
everybody, calls for Medicare spending target of GDP plus one 
starting after 2019 and an even higher target for 2015 to 2019 
period. The Affordable Care Act seems to have brought projected 
Medicare spending down. Is that correct? Yes or no.
    Mr. Foster. Yes.
    Mr. Dingell. Now, it seems that Medicare spending is 
projected to grow so slowly over the next 10 years it would be 
difficult to reduce that spending without cutting benefits or 
kicking people out of the program. Is that true?
    Mr. Foster. I would have to think about that one, sir.
    Mr. Dingell. Now, do you believe that it would be possible 
to pay for the entire cost of fixing SGR, which would be about 
$300 million out of savings in Medicare? Yes or no.
    Mr. Foster. That would be tough. I would have to call that 
one more like a no.
    Mr. Dingell. All right. But we could make some progress in 
that direction, could we not?
    Mr. Foster. The Affordable Care Act has some pretty steep 
savings provisions in it. It cuts a lot of money out of the 
program. Does it cut all of it? Is there something left? Of 
course. But you couldn't lower the payment rates much more than 
they are already lowered.
    Mr. Dingell. Now, what about proposals that would reduce 
Medicare spending even further like the Ryan-Ribble proposal to 
voucherize Medicare. CBO says that the proposal would reduce 
Medicare and Medicaid spending by 20 percent relative to the 
post-Affordable Care Act baseline. Would you have concerns 
about the magnitude of that cut? Yes or no.
    Mr. Foster. I don't have a good answer for you, sir. I 
could study it for you, but we have not looked at it recently.
    Mr. Dingell. Now, there was a statement that was made 
publicly which went like this: we are concerned by recent press 
reports that HHS may have had prior access to information that 
Mr. Foster used in his April report prior to Congressional 
consideration but did not share the information with the public 
or the Congress. Mr. Burgess filed a Resolution of Inquiry 
demanding documentation of the communications between the 
Secretary's office and the Actuary's office in pursuit of these 
claims. At that time the committee did not approve Mr. 
Burgess's resolution because we observed that there was no fire 
to all this smoke. Mr. Foster, you yourself disavowed these 
claims in a letter to Mr. Burgess. Is that true?
    Mr. Foster. I disavowed them. I don't remember that the 
letter was addressed exactly to you. I think it was addressed 
to the Administrator.
    Mr. Dingell. So----
    Mr. Foster. But there is no truth to that.
    Mr. Dingell. Now, this question then. Did Secretary 
Sebelius or any Executive Branch official attempt to interfere 
with your work on the Affordable Care Act or to ask you to 
delay or change the release of your estimates? Yes or no.
    Mr. Foster. No, sir.
    Mr. Dingell. Now, I would note that a little more recently 
during the debate over the Medicare Prescription Drug 
Improvement and Modernization Act of 2003, MMA, Bush 
Administration officials repeatedly stressed that the 
legislation would cost $400 billion. However, the 
Administration had in its possession estimates from you, Mr. 
Foster, suggesting the cost would be in total somewhere between 
$500 and $600 billion. Is that correct?
    Mr. Foster. That is correct.
    Mr. Dingell. Now, Mr. Foster, you testified before the Ways 
and Means Committee that you were instructed by the Bush 
Administration to withhold information from the public. Is that 
true?
    Mr. Foster. I was ordered to give the information to the 
Administrator of the agency and he would then pass it on as he 
saw fit to the requester.
    Mr. Dingell. So you were not to convey to the public then 
the information, you were to have it carefully filtered through 
the Administrator. Is that right?
    Mr. Foster. Information requested by Congress, certain 
information. That is correct.
    Mr. Dingell. Very good. Thank you, Mr. Chairman. I 
appreciate your courtesy.
    Mr. Burgess [presiding]. The chair recognizes the 
gentlelady from North Carolina, the vice chair of the full 
committee, Ms. Myrick.
    Mrs. Myrick. Thank you, and thank you all for being here. 
It is interesting, as has been commented on before, that we 
really aren't talking about the bill today and the specifics of 
the bill.
    But I wanted to ask Mr. Foster, can you explain how the 
Medicare payment policies featured in PPACA put providers out 
of business? We have talked about that many times but nothing 
has been discussed here today about providers and Medicare 
payments.
    Mr. Foster. The concern that I and others have is, imagine 
a provider whether it is a hospital or a home health agency or 
a lab or whatever, and in order to provide the services, they 
have to pay for certain inputs. They have to pay salaries for 
their staffs and themselves. They have to pay for energy costs 
and for rent or whatever arrangement they have, mortgages for 
their property. They have to buy supplies. So they have these 
input costs.
    Mrs. Myrick. Right.
    Mr. Foster. Now, these input costs go up over time by wages 
or by general prices, and in the past Medicare payment updates 
for these providers have been based on the average price 
increase in this market basket of inputs. Under the Affordable 
Care Act, this update will be reduced by about 1.1 percent per 
year. Now, if you have to pay your own staff some amount and 
you pay them 1 percent per year less than what somebody else is 
paying everybody year to year, then your staff is going to 
become somebody else's staff.
    Mrs. Myrick. Right.
    Mr. Foster. Now, a provider perhaps can become more 
efficient but if they can't become efficient enough, then our 
reimbursement increases will not keep pace with their growth 
and cost, and then they have a choice. If it gets to the point 
they just can't afford to do this, they will have to stop. They 
might keep trying with lower quality, which is not good. They 
might keep trying and go out of business. More likely, you all 
would have to step in and say we are having problems with 
beneficiaries finding access to services, and you would have to 
ease those adjustments.
    Mrs. Myrick. It is already happening in our area because 
there is a large number of doctors and a growing number of 
doctors who right now today are refusing to take Medicare 
patients, and they just won't do it because they say they are 
in the hole. They start out in the hole and it is getting 
worse. And so, I mean, that is something that for the future is 
very frightening from the standpoint of who is going to provide 
the care.
    Mr. Foster. We have seen with physicians and Medicaid that 
there are some difficulties with Medicaid enrollees having 
access to physicians, especially specialists, and under current 
law, we expect that Medicare prices for physicians because of 
the sustainable growth rate formula would very quickly become 
less than Medicaid prices where there is already an access 
problem.
    Mrs. Myrick. I have another question. The health reform law 
imposes a 2.3 percent excise tax on categories of medical 
devices including devices like pacemakers, which are very 
common. Do you anticipate that these fees and the excise tax 
would generally be passed through to health consumers in the 
form of higher prices and higher insurance premiums?
    Mr. Foster. Yes, higher prices in the form of for the 
devices or the insurance plans. We think they would be passed 
through, yes.
    Mrs. Myrick. Which again is not going to help the consumer. 
I mean, this bill is supposed to help the consumer and then we 
end up doing things within the bill that are going to make it 
more difficult for the consumer, cost them more money in the 
long run, and I think that is one of the things all of us share 
is the actual cost of what this is going to be in the future, 
which we really don't know.
    I yield back, Mr. Chairman.
    Mr. Burgess. Will the gentlelady yield to me for a further 
question on physician reimbursement?
    Mrs. Myrick. Yes.
    Mr. Burgess. Mr. Elmendorf, if I could just stay on the 
subject of physician reimbursement, in the Medicaid arena, 
states are under some budget shortfall constraints. One of the 
low-pressure circuits where this gets pushed out is physician 
reimbursement, one of the only areas that that they can 
control. Now, the Supreme Court recently agreed to hear 
arguments in the Independent Living Center of Southern 
California versus Maxwell Jolly. If the Court rules against the 
states and says the states arbitrarily set reimbursement rates 
too low so that people didn't have access to a provider, the 
states and the Federal Government could be on the book for 
those increases in provider rates. Have you looked at the 
budgetary impact of a Court decision if the Court rules against 
the States?
    Mr. Elmendorf. No, Congressman, we have not studied that, 
to my knowledge.
    Mr. Burgess. But it has been a topic of concern amongst 
providers for years, and to our knowledge, I mean, you just 
have to wonder, was this considered during the health care 
debates as they happened? Did the Congressional Budget Office 
ever estimate the potential budgetary impacts of allowing the 
Centers for Medicare and Medicaid Services to set provider 
rates, and if so, what was the budgetary impact of such a 
standard?
    Mr. Elmendorf. So Congressman, I think the only piece of 
the legislation that directly affects provider rates in 
Medicaid was an increase in payments to certain sorts of 
primary care physicians.
    Mr. Burgess. But did you ever consider----
    Mr. Elmendorf. Those costs are included in our estimate of 
the costs of the legislation.
    Mr. Burgess. Did you ever consider the cost of allowing CMS 
to set those rates?
    Mr. Elmendorf. In Medicaid, no, Congressman, I don't think 
that we did.
    Mr. Burgess. I will yield back myself. I yield to Ms. Capps 
for 5 minutes, recognized for questions.
    Mrs. Capps. Thank you, Mr. Chairman, and thank you both for 
testifying today.
    All the talk of repeal, defund, dismantle, it is easy 
enough to do here in a hearing room hundreds of miles from 
home, but this past week I heard again from constituent after 
constituent who has gained new protections, new peace of mind, 
new hope from the Affordable Care Act, and they don't want 
their benefits taken away. They don't want to wait again while 
their kids are sick and uninsured or while they need to choose 
between paying for their medicine or their electric bill. But 
it isn't all about the benefits to families and small 
businesses. It is also about taking steps to address the 
overall cost of health care in this country.
    Mr. Elmendorf, you stated in your testimony that CBO's most 
recent comprehensive estimate of the repeal of the Affordable 
Care Act would increase the deficit by $210 billion over the 
2012-2021 period. Is that correct?
    Mr. Elmendorf. Yes, Congresswoman.
    Mrs. Capps. Thank you. And Mr. Elmendorf, your written 
testimony also states that the Affordable Care Act will cover 
32 million of the uninsured by 2016. Is that correct?
    Mr. Elmendorf. Yes, Congresswoman.
    Mrs. Capps. Thank you. Despite claims to the contrary, it 
is not tricky math. If we make smart investments, we can cover 
more people while reducing the deficit overall. But all of this 
goes away with repeal. And what is the replacement bill 
Republican leadership supports? Mr. Chairman, I would point my 
colleagues to an article published this week by the Bloomberg 
Business Week and it is entitled ``The Republican Response to 
Obamacare.'' This article is clear--despite the claims I hear 
from detractors of the law, according to a new Bloomberg 
analysis, GOP alternatives would save less than $5 billion a 
year, perhaps six-tenths of a percent of what health care costs 
in 2009, and this is compared to the $210 billion saved by the 
ACA over the next decade. Furthermore, the Republican 
alternative to the health reform bill would actually increase 
the number of uninsured people from 50 million in 2010 to 52 
million in 2019, according to CBO's estimation. And when 
looking at any of the represented Republican alternatives, not 
a single person would have guaranteed access to health coverage 
at an affordable price. So when we talk about saving money, let 
us be clear: the Affordable Care Act is the largest deficit-
reducing bill enacted by Congress in the last decade and there 
have been no alternatives from the Republican leadership to 
even come close to helping so many while saving so much.
    Another area, and this is for you, Mr. Foster. Another area 
where I think we should set the record straight is on how the 
Affordable Care Act strengthens the health care workforce and 
creates jobs. Critics have said that there will be a shortage 
of medical professionals, particularly primary care doctors and 
providers in rural parts of the country, and they use this 
claim to advocate repeal, trying to pit those who already have 
insurance against those who will gain it through the law. But 
they ignore the fact that the Affordable Care Act has taken 
numerous steps to address these shortages. For example, it 
strengthens and expands the National Health Service Corps and 
community health centers providing primary care to communities 
most in need across our Nation. It creates a new program to 
train primary care physicians in the community called the 
teaching health centers, which will provide new doctors and 
give them the expertise they need to work in a community 
setting and give communities access to needed care. Americans 
will have better access to preventive and primary care. In 
short, we are training more providers, paying them more and 
providing more access points for primary care. Now, the 
Administration estimates that these policies will combine to 
create 16,000 new providers in the workforce over the next 5 
years, and proposals in the President's 2012 budget will add 
yet another 4,000 providers to that number.
    Mr. Foster, I want to ask you, I have about a minute left, 
do you agree that funding for the policies I mentioned from the 
Affordable Care Act could help expand the number of providers 
in the primary care field?
    Mr. Foster. Oh, I think it will.
    Mrs. Capps. I think that is very critical to understand. I 
wanted to have this on the record. I am concerned that some of 
the assumptions in your estimates are based on what you call a 
relatively fixed workforce supply, but the Affordable Care Act 
and other provisions are trying to change that. I also think it 
is worth pointing out that tomorrow we will mark up a bill to 
eliminate one of these workforce programs. Yes, actually, 
cutting workforce and jobs programs in the economy. So at a 
very time when it is being demonstrated that we can actually 
create more jobs and actually save more money, we are doing the 
reverse. We are trying to eliminate programs that will work to 
this effect.
    And with that being said, I yield back the balance of my 
time.
    Mr. Pitts. The gentlelady's time is expired. The chair 
recognizes the gentleman from Pennsylvania, Dr. Murphy, for 5 
minutes for questions.
    Mr. Murphy. Thank you. I appreciate the opportunity to 
finally have a chance to talk to both of you now that the bill 
is passed and it is the law.
    A few questions here. How much money did this bill borrow 
from Social Security?
    Mr. Foster. None that I can think of.
    Mr. Elmendorf. I am not sure what you mean by borrow from 
Social Security.
    Mr. Murphy. Well, some of the money I understand came from 
Social Security for this bill. Is that true?
    Mr. Elmendorf. Well, the bill does have some effects on the 
flow of money into the Social Security trust fund.
    Mr. Murphy. How much is that?
    Mr. Elmendorf. I believe there is a net increase in the 
flow of money to the Social Security trust fund.
    Mr. Murphy. More goes into Social Security with this bill 
or----
    Mr. Elmendorf. It goes into Social Security by our estimate 
because there is a shift in the distribution of compensation 
from non-taxable----
    Mr. Murphy. How much?
    Mr. Elmendorf [continuing]. Health insurance----
    Mr. Murphy. How much? How much?
    Mr. Elmendorf. I think it is perhaps around $10 billion 
over 10 years.
    Mr. Murphy. But more goes into Social Security or more 
comes out of Social Security?
    Mr. Elmendorf. So more money goes into the Social Security 
trust fund. There may be ways in which somewhat more----
    Mr. Murphy. OK. I need to move on. And how much money is 
coming out of Medicare to go into helping to pay for the health 
care bill?
    Mr. Elmendorf. I am not sure what you mean by coming out of 
Medicare. There are savings because of the cutbacks in payments 
to Medicare providers and because of the extra tax revenue 
going into the Hospital Insurance trust fund, the HI trust fund 
that deals with Part A of Medicare ends up with stronger cash 
flow over this next period than it would otherwise.
    Mr. Murphy. The cuts to what?
    Mr. Elmendorf. Cuts to payments to Medicare providers and 
other changes in the Medicare program.
    Mr. Murphy. Wait, wait. So by paying less to providers, 
meaning hospitals and doctors, we already have a long-term of 
doctors who are not accepting Medicare and Medicaid, and 
unfortunately, the only solution here that Congress sees is 
well, let us just pay them less, instead of reform, let us pay 
them less. And yet, Mr. Foster, you said a couple minutes ago 
that you thought this would bring more providers but we are 
going to pay them less. This doesn't make sense to me. How are 
you going to pay people less that they don't even want to cover 
it now and we are going to somehow entice them into doing this? 
If I gave you a 25 percent cut in your salary, will you say 
hey, sign me up?
    Mr. Elmendorf. To be clear, Congressman, the cuts in 
payments to physicians in Medicare under the sustainable growth 
rate mechanism of prior law----
    Mr. Murphy. All right. Let me move on. We did have, 
however, Secretary Sebelius here in front of this committee 
saying it was double accounting to have money come from 
Medicare and also saying it was going into paying for this 
health care bill. Was she lying to us?
    Mr. Elmendorf. Congressman, I am not aware of exactly what 
the Secretary----
    Mr. Murphy. All right. Also, we had another secretary talk 
about the CLASS Act, and she said to me that it did appear from 
the estimates from CBO that because the money was accounted for 
to provide this long-term insurance fund but also it was said 
if we didn't do this there would be a $86 billion loss to the 
health care fund, that that was double booking instead. Was she 
not telling us the truth?
    Mr. Elmendorf. I don't know what the Secretary said to you. 
I can talk about our analysis of the CLASS.
    Mr. Murphy. Mr. Foster, are you aware of that?
    Mr. Foster. Well, I think I would bet you a Coke that she 
did not say there is double counting. I would be happy to 
explain.
    Mr. Murphy. That would be great. Could you get back to me 
on that because I would like that.
    Mr. Foster. Sure.
    Mr. Murphy. Now, there is also increased tax on medical 
devices, and you said this would be passed on to consumers. Do 
we know how much this is going to cost families and how much it 
is going to increase insurance costs? Do you have a number on 
that?
    Mr. Foster. No, I don't.
    Mr. Murphy. Could you get back to us with that?
    Mr. Foster. Sure.
    Mr. Elmendorf. So Congressman, I can say in our analysis of 
premiums----
    Mr. Murphy. I just need a number. And do we have a number?
    Mr. Elmendorf. I don't have a number for that piece 
offhand.
    Mr. Murphy. Thank you. School-based health centers, what is 
that going to cost? Does someone know?
    Mr. Elmendorf. I am sorry.
    Mr. Murphy. Would you be willing to get us that 
information?
    Mr. Elmendorf. Yes, of course, Congressman.
    Mr. Murphy. Thank you.
    Mr. Elmendorf. Well, it is all public. I just----
    Mr. Murphy. The number of people who will lose their 
private insurance, I think originally the bill thought 9 
million. We are seeing some estimates of some accounting firms 
saying that number may be 50 or 60 or 80 million. Do we have a 
readjusted number of how many you think will lose their private 
plan, given that 1,000 people have also asked for waivers? Do 
we have another update on how many people will lose their 
private plan?
    Mr. Elmendorf. So Congressman, as part of our March 
baseline projections and what it is included in my written 
testimony, we have slightly different estimates on the effects 
on private insurance coverage. We do not expect anything like 
the sort of dropping of employer-sponsored insurance that you--
--
    Mr. Murphy. But 1,000 have asked for waivers. If you could 
provide us some economic analysis of what that also means for 
us too, also what it would mean, if you could provide us 
information on the number of people who may lose their jobs, 
because we are hearing from small employers saying I am not 
going to hire more, I am going to try and keep it under 50. Do 
we have an analysis of that number of jobs and the loss of 
federal revenue from that? Does anybody have that?
    Mr. Elmendorf. Again, Congressman, in reports we issued 
before and in my written testimony for today, we talk about the 
effects we think will take place in the labor market.
    Mr. Murphy. Similarly, in terms of the pharmaceutical 
issues too, and all these issues that we are looking at here, 
it is a matter of having updates on all these, but what we are 
all hearing from employers is the loss of jobs, increased costs 
of private health insurance, costs of medical devices, 
increased costs of prescription drugs, and I know we are 
talking on some levels of what this means for federal revenue. 
I am not sure we are doing analysis of what this means for the 
average family in America and the average employer, so I hope 
we can have that information too, and if you would be willing 
to provide that for us, I would be grateful.
    With that, I yield back. Thank you.
    Mr. Pitts. The gentleman's time is expired.
    Mrs. Capps. Mr. Chairman, I apologize. I had intended to 
make a unanimous consent request to insert an article from the 
Bloomberg Business Week entitled ``The Republican Response to 
Obamacare'' at the end of my 5 minutes, and I neglected to do 
so. May I do so now, please?
    Mr. Pitts. Can we see the article?
    Mrs. Capps. Of course.
    Mr. Pitts. The chair recognizes the gentlelady from 
Wisconsin, Ms. Baldwin, for 5 minutes for questions.
    Ms. Baldwin. Thank you, Mr. Chairman.
    I agree with my colleagues that we must reduce the deficit 
and work towards a balanced federal budget. However, we have to 
be smart about the priorities and the choices that we make and 
we need to be smart if we are going to cut spending without 
compromising job creation and our economic recovery and frankly 
our future. The Republican spending bill, H.R. 1, clearly 
illustrates the new Majority's choices and priorities. This 
measure threatens jobs and our fragile economic recovery and 
slashes vital services to the American people. Republicans have 
prioritized cutting health care services to our most vulnerable 
populations without considering the consequences of such 
actions, and once again Republicans have targeted critical 
safety-net programs like Medicaid and Medicare.
    Meanwhile, the measure, H.R. 1, does little to rein in 
excess military spending like weapons system that the Pentagon 
doesn't even want or eliminate government handouts to Big Oil 
or even eliminate tax breaks for multimillionaires. Today we 
spend millions of dollars each day in Afghanistan and Iraq, 
spending that is certainly protected in H.R. 1. And 
tangentially, I just read yesterday that the Pentagon reported 
that war funding in Libya has already surpassed the half-
billion-dollar mark, $550 million specifically was reported 
yesterday.
    Today we are here at this hearing to discuss the costs of 
the health care reform law passed a year ago, a law that my 
colleagues on the other side of the aisle seek to repeal, 
repeal it outright. Let me remind my colleagues that repealing 
the health care reform law would add $210 billion to our 
federal deficit over the next 10-year time horizon. That number 
comes from the Congressional Budget Office.
    Mr. Elmendorf, I am really perplexed at how Republicans can 
claim that a bill your agency scored as reducing the deficit is 
actually contributing somehow to our alleged spending problems, 
and I would like us to reflect upon and consider what really 
contributes to our Nation's deficit. How much, Dr. Elmendorf, 
does the CBO anticipate will be spent on the wars in Iraq and 
Afghanistan over the next 10 years according to your January 
baseline?
    Mr. Elmendorf. So I don't remember the number, 
Congresswoman. As you understand, our baseline for 
discretionary spending takes the current levels of spending and 
simply extrapolates those out.
    Ms. Baldwin. There are a lot of assumptions that are in 
there. Does $1.7 trillion sound familiar to you?
    Mr. Elmendorf. I am sorry, Congresswoman. I really don't 
know the answer to that.
    Ms. Baldwin. Well, how about the Bush tax cuts and the 
extension of the Bush tax cuts, tax cuts that provide income 
and estate tax cuts to the very wealthy? How much does the 
January CBO baseline indicate that that will cost to extend 
over the next 10 years?
    Mr. Elmendorf. So we reported in January that extending the 
income tax and estate and gift tax provisions now scheduled to 
expire at the end of next year would cost about $2.5 trillion 
over the coming decade and then would also result in about a 
half a trillion dollars of additional interest payments.
    Ms. Baldwin. Because we are borrowing the money for these 
tax cuts. OK. So I know you don't have the figure at your 
fingertips on the wars and that includes some estimates, but 
from my reading of the CBO January baseline, between the wars 
and the tax cuts, we are looking at nearly $5 trillion, all of 
it borrowed money, all of it completely unpaid for, and yet the 
Republican solution to the deficit is to repeal a law adding an 
additional $210 billion to the deficit and leaving vulnerable 
Americans without access to health care.
    Mr. Chairman, again, this is about making smart choices, 
and I am disappointed with the choices that the Majority is 
making right now. I yield back the balance of my time.
    Mr. Pallone. Mr. Chairman?
    Mr. Pitts. The chair thanks the gentlelady.
    Mr. Pallone. Mr. Chairman, could I ask if----
    Ms. Baldwin. I would yield to the gentleman my remaining 
time.
    Mr. Pallone. No, I just wanted to ask about a unanimous 
consent request. Ms. Capps had made a unanimous consent 
request, which I think that Dr. Burgess has seen now, so I just 
wanted to see if that----
    Mr. Pitts. Without objection, it will be entered into the 
record.
    Mr. Pallone. Thank you.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentleman from New Jersey for 5 minutes, Mr. Lance.
    Mr. Lance. Thank you very much, Mr. Chairman. Good morning 
to you both.
    Mr. Elmendorf, it is my understanding that under PPACA 
there is an inconsistent rule regarding part-time employees. As 
I understand it, on one hand it does not require a group health 
plan to provide employees who work fewer than 30 hours per 
week, the minimum essential coverage under the pay-to-play 
rules that take effect in 2014. However, any group health plan 
that does cover part-time employees must comply with the act's 
coverage mandates that go into effect in 2011. From my 
perspective, I think that this might have the net effect to 
incentivize those businesses to drop all health care coverage 
for part-time employees, and with the State-based exchanges not 
coming into effect until 2014, wouldn't this be adding to the 
current pool of uninsured? Dr. Elmendorf, did CBO examine that 
situation, sir?
    Mr. Elmendorf. So Congressman, your description of the law 
sounds right to my expert team behind me. What we have written 
before and in the testimony today is that actually there are 
some reasons that firms might end up hiring more part-time and 
seasonal employees because of the way in which some of the 
penalties that face firms only if they have part-time employees 
who are seeking subsidies through the exchanges and not part-
time employees. So there are some cross currents in the 
legislation. Of course, the effects of these provisions will 
only be in place a number of years from now, which even our 
forecast of a relatively slow economic recovery suggests that 
we will be moving our way back toward more traditional levels 
of unemployment in this country, so I am not diminishing the 
concern about effects on employment but I think one of the 
starting points should not be today's unemployment rate but 
that which would be in place in the future.
    Mr. Lance. Well, I agree with that. I have had constituents 
in my office who are greatly concerned about this, constituents 
who do cover their part-time employees, and this concerned 
supermarkets in the area and they do what I think is the right 
thing in covering their part-time employees, or they certainly 
are looking to do that but they believe that there might be a 
disincentive. Thank you for that.
    Mr. Foster, and I think Dr. Murphy referenced this as well, 
the 2.3 percent excise tax on medical devices, do you 
anticipate that these fees and excise taxes would generally be 
passed through to health consumers in the form of higher prices 
and higher insurance premiums? And as I understand it, they 
would be placed on devises like pacemakers.
    Mr. Foster. Yes, sir, we think that would be the typical 
reaction would be to raise the prices of the products to cover 
the higher costs associated with the fees or the taxes.
    Mr. Lance. And from my perspective as a matter of public 
policy, I do not think that that is a good idea because I think 
that these devices are expensive enough already.
    Mr. Elmendorf, I believe the CBO estimates between that 
between 6 and 7 million Americans who would have to have 
offered employee-based coverage before the health care law was 
passed would not be offered coverage under current law. Is it 
true that Americans would likely be employees of small 
businesses or low-wage employees?
    Mr. Elmendorf. Yes, that is right, Congressman, and that 
flow, that reduction in employment in some places is part of 
the overall story that we modeled.
    Mr. Lance. Yes. Thank you very much.
    Mr. Chairman, I would be willing to give my remaining time 
to whoever would like it, Dr. Burgess or Dr. Cassidy.
    Mr. Cassidy. Mr. Foster, just to follow up a question that 
was asked of Dr. Elmendorf, and I am not sure, this is not 
confrontative, just to explore, the effect of excluding the 
Social Security from the Medicaid income eligibility criteria, 
I think someone said could increase the number of enrollees by 
some significant number, maybe 5 million, and Mr. Foster, I am 
not clear, when you all say 17 to 20 million people will be 
enrolled in Medicaid, does that take into account the fact that 
the effective income threshold will now be 138 percent for 
those Social Security recipients?
    Mr. Foster. Well, in our original estimates for the 
Medicaid expansion, we estimated 20 million people would become 
newly covered. That took into account the 138 percent because 
of the income disregard but at that time we assumed that the 
policy would continue, that Social Security benefits would 
continue to count as earnings in meeting this test. With the 
strict definition of modified adjusted gross income then for 
most such people Social Security benefits would not count or 
not very much of them would count. That would potentially 
increase the number of Medicaid-eligible people under the 
expansion by 5 million or more.
    Mr. Cassidy. So we are really talking 25 million will now 
be on Medicaid if we have income disregard for Social Security 
benefits?
    Mr. Foster. Not every one of them would end up there. They 
would be eligible but many would have already have employer 
retiree coverage.
    Mr. Cassidy. So ballpark figure, though, just so we can 
know, how many will be on Medicaid if you have income disregard 
for Social Security?
    Mr. Foster. So 24.7 million.
    Mr. Pitts. Dr. Elmendorf, did you want to respond?
    Mr. Elmendorf. That factor was taken into account in our 
estimate, Congressman.
    Mr. Cassidy. And so your final number is what?
    Mr. Elmendorf. So we expect that the increase in Medicaid 
and CHIP enrollment under the legislation will be 17 million by 
2021.
    Mr. Cassidy. So there is a discrepancy there. OK. Thank 
you.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from New York, Mr. Engel, for 5 
minutes.
    Mr. Engel. Thank you very much, Mr. Chairman, and let me 
first say, you know, here we go again, just one week after the 
one-year anniversary of this Affordable Care Act the 
subcommittee is holding yet another hearing attempting to 
undermine it and what the true costs that we should be talking 
today are what would have happened if we had not taken action. 
The Affordable Care Act makes health care affordable for the 
middle class and has halted a steady rise in health costs that 
led us to much of our budgetary woes over the years. For all 
the talk of the sky falling, my Majority colleagues have 
repeatedly failed to provide any alternative ideas that would 
come remotely close to accomplishing what the Affordable Care 
Act does. They had 6 years of control of the House, Senate and 
White House and provided no leadership on this issue. All we 
have are alarmist sound bites and false platitudes and even 
more frightening are the true costs that will come if the new 
Majority places spending caps or block grants Medicaid, as they 
propose to do. These actions will not save money, it will 
simply abdicate responsibility and shift costs to State 
providers and beneficiaries.
    Now, let me say that Secretary Sebelius and Assistant 
Secretary Greenlee disagree with some of my Republican 
colleagues who have been saying that there is double counting 
in letters they have sent to Ranking Members Waxman and 
Pallone. This is Secretary Sebelius and Assistant Secretary 
Greenlee have sent letters to Mr. Waxman and Mr. Pallone saying 
that there is not double counting, and the Secretary gives this 
example, and I quote from her: ``In the same way when a 
baseball player hits a homer, it both adds one run to this 
team's score and also improves his batting average. Neither 
situation involves double counting.'' So I would like to submit 
these letters for the record.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Engel. Thank you, Mr. Chairman.
    Now, it is interesting that my colleagues on the other side 
of the aisle talk about how much the Affordable Care Act is 
going to cost. I would like to remind them that when 
Republicans passed the Medicare Modernization Act in 2003, they 
did not offset its costs. CBO estimated the bill would add $394 
billion to the deficit over 10 years, and CBO is our official 
scorekeeper.
    So let me ask Mr. Elmendorf, how much will the prescription 
drug benefit draw from general revenues over 75 years, which is 
the traditional long-term horizon used for actuarial 
projections in the Medicare trustee's report?
    Mr. Elmendorf. I am sorry, Congressman. I don't have the 
answer to that question offhand. Maybe Rick does, based on 
their own estimates of the Office of the Actuary.
    Mr. Engel. Mr. Foster?
    Mr. Foster. The present value of the general revenues for 
Part D over that 75-year period are estimated to be about $7.2 
trillion.
    Mr. Engel. Thank you. Seven point two trillion dollars. 
Based, as you said, on the most recent trustee's report, the 
unfunded obligation is $7.2 trillion. Did the Medicare 
Modernization Act include other provisions increasing revenues 
or cutting spending that might come close to generating the 
resources to meet the $7.2 trillion obligation from general 
revenues?
    Mr. Foster. No, it was clearly a new expenditure for a new 
program.
    Mr. Engel. Yes, so the answer is no. I agree with that. 
CBO's net score for the Medicare Modernization Act was $394 
billion, which included nearly $410 billion in new spending for 
the prescription drug benefit and only about $16 billion in 
offsetting savings over 10 years. This means the vast majority 
of the prescription drug benefit costs, $394 billion over the 
first 10 years, was added to the deficit. So my Republican 
friends seem to be saying do as I say, not as I do, and I think 
one of my colleagues before had mentioned how the tax breaks 
for the rich and the estate tax breaks and everything else just 
keeps adding trillions and trillions and trillions of dollars 
to the deficit, and when my friends on the other side of the 
aisle were in control for 6 years passing Medicare Part D, they 
didn't seem to care about the deficit then but I guess, you 
know, whenever you have the newfound religion, it is great, but 
I think we also need to be consistent.
    Thank you, Mr. Chairman. I yield back.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Georgia, Dr. Gingrey, for 5 
minutes.
    Mr. Gingrey. Mr. Chairman, I thank you, and I think I will 
use a little baseball analogy. Like my friend from New York, I 
think he said that in this double-counting issue when a player 
hits a home run, it is one run and he also adds to his batting 
average. I would like to say that also when Casey strikes out, 
he loses and the team loses and there is no joy in Mudville, 
and I would say in this particular case of the Obamacare bill, 
Obama being Casey and the team being the American people, Casey 
struck a big out and the American people are suffering as a 
result.
    Mr. Foster, in the opening page of your testimony, you 
state that it is the role of the CMS Actuary, your role, to 
provide economic actuarial and other technical assistance to 
policymakers and the Administration and Congress on an 
independent, objective and nonpartisan basis. Is that correct?
    Mr. Foster. Yes, sir.
    Mr. Gingrey. Two weeks ago, Assistant Secretary Greenlee 
was here stating before this committee and the department that 
she said the Department of Aging, which she chairs, promised to 
work with you before moving forward on implementing the CLASS 
program. Secretary Sebelius in her own words gave her pledge to 
work with this committee to ensure that the CLASS program is 
truly sustainable before the Administration proceeds with 
program operations. Mr. Foster, will you make a similar 
commitment to me today that you will work with this committee 
to conduct in our role as Chief Actuarial a full and objective 
assessment of the Administration's plan for CLASS to ensure the 
program is truly sustainable including weighing the impact that 
any proposed premium increases will have on consumer 
participation in this program? Will you make that pledge to me?
    Mr. Foster. Yes, sir. Let me add to that just briefly. The 
responsibility for administering the CLASS program is in Ms. 
Greenlee's part of the agency. They have hired a Chief Actuary 
to help determine the CLASS premiums, help do the actuarial 
aspects, a fellow named Robert Yee, who is very good. He has 
contacted me to want to run by us some of their thoughts, some 
of their efforts to make this workable.
    Mr. Gingrey. Well, let me quickly ask you, I need to move 
on to another question, is it truly necessary to have another 
actuary doing that work for the CLASS program? Can you not in 
your capacity as Chief Actuary for CMS continue to do that same 
kind of work for the CLASS Act? Could you not?
    Mr. Foster. We could.
    Mr. Gingrey. Absolutely. Well, look, let me first of all 
commend you in regard to your analysis of the Medicare cuts, 
which are critical elements of Obamacare. As you know, these 
cuts were doubly counted, and Secretary Sebelius said as much. 
They pay for the major part of the entitlement expansion as 
well as so-called extending the life of Part A trust fund.
    Now, look, let me walk you through a couple of charts 
because you talked about this earlier, and these are taken from 
simulations that your staff have performed and then maybe we 
can get you to comment on that. This first chart basically 
shows that because of Obamacare cuts, Medicare rates will be 
lower than Medicaid rates by 2019. That is right here as it 
drops below Medicare rates, and that by the 75-year period 
Medicare payments would only be one-third, only one-third of 
the relative current private pay rates and one-half of Medicaid 
by the 75-year mark. Now, we have another chart I want my 
colleagues to look at, and if you will pay attention to this 
one, the second one shows a comparison of relative rates for 
inpatient hospital services only, and the key point here is 
that both the Medicare and Medicaid rates collapse together 
because Medicaid under current law cannot pay more than 
Medicare upper limit requirements for hospital service. At the 
end of the scoring window, hospitals would be paid 37 percent 
of private pay rates for both Medicare and Medicaid.
    So let me make two quick statements. First, these Medicare 
cuts are the major pay for for this $2 trillion entitlement 
expansion which begins in 2014 and goes through the 10-year 
period of 2023. Second, there is no chance that these Medicare 
cuts will remain on the books in future years based on your 
analysis. Putting the two statements together means that in the 
next decade, Obamacare will add dramatically to the budget 
deficit because it will not be paid for. Mr. Foster, can you 
comment on that?
    Mr. Foster. Well, if you leave out some of the adjectives, 
I would probably agree with most of what you just said. The 
concern is that these payment reductions or the slower growth 
in payment rates won't be sustainable in the long term, and if 
that happens, then the savings that are generated by those 
won't occur because you all will have to override them to 
prevent problems with access. To the extent that those savings 
are used to help pay for the cost of the coverage expansions 
under the Affordable Care Act, then that ability to pay for----
    Mr. Gingrey. And providers will have no choice but to shift 
that cost to the private market, thus raising the cost of 
private health insurance.
    Mr. Foster. That is one way they might react. It is not 
clear----
    Mr. Gingrey. And I thank you for your testimony. Thank you 
for your patience, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from New York, Mr. Weiner, for 5 
minutes for questions.
    Mr. Weiner. Thank you, Mr. Chairman.
    I don't have the fancy charts my colleagues have but I just 
want to do the double counting thing. If you save money with a 
policy change in the bill by having good ideas in the bill, 
could you not only save money but extend Medicare from 2017 to 
2029? Is that the effect of the bill?
    Mr. Foster. That was our estimate.
    Mr. Weiner. So in other words, you can save money and you 
extend the life expectancy as you see in my charts. Is that 
true?
    Mr. Foster. Both of these happen.
    Mr. Weiner. Yes, those things both happen. Now, does that 
mean that there is anything nefarious about them? Are we 
defying the laws of economic gravity? Are cats going to start 
sleeping with dogs? Or does this sometime happen in laws that 
you make changes that both save money and extend the life of a 
program that some of us support and some of us oppose? Is that 
true?
    Mr. Foster. The issue is that a given dollar of savings, 
your first chart with a dollar.
    Mr. Weiner. Right. This one here. Hold on. Let me get it 
for the viewers.
    Mr. Foster. I like that one best. Your first chart with a 
dollar, that dollar can be used to spend in real life to help 
pay for the coverage expansions or it can be used to help pay 
for Medicare.
    Mr. Weiner. Right.
    Mr. Foster. The same dollar can't be used twice for each 
purpose. That takes $2. Now, because of the accounting 
mechanisms, both of them will happen, but if I may, let me 
explain why briefly. The savings for hospital insurance under 
the Affordable Care Act are quite large. The actual cash that 
we no longer have to spend because of lower expenditures----
    Mr. Weiner. Adds to the----
    Mr. Foster [continuing]. Taxes we get. That actual cash 
goes into the general fund that is used for whatever purpose--
--
    Mr. Weiner. Right.
    Mr. Foster [continuing]. Treasury needs to use it for.
    Mr. Weiner. I appreciate that. I just wanted to make it 
clear that this is another one of these non-issues, and it is 
fascinating, I should say, that the same people that are 
objecting to all of these things are people who frankly 
apparently want there to be deeper cuts in Medicare, or they 
are actually schizophrenic on Medicare. Some of them deride 
single-payer health care plans but seem to love this one. 
Suddenly they are the defenders of Medicare, and they were the 
ones that apparently opposed single-payer health care plans, 
which is what Medicare is.
    Let me just ask you this question. I heard some of Mr. 
Rogers' questions and I just want to make sure we understand 
it. This bill has a 35 percent tax credit for small businesses 
that offer health insurance for their workers. Is that true?
    Mr. Foster. Yes, sir.
    Mr. Weiner. Before this bill was passed, did small 
businesses get a 35 percent tax credit for offering health 
insurance to their workers, before it was passed? I will help 
you with this one. The answer is one. It goes to 50 percent 
after the exchanges are set up. Small businesses under this law 
get a 50 percent tax credit for offering health insurance to 
their workers. Democrats support a tax credit for people 
offering health insurance and the Republicans are against it 
because if you repeal this bill, it would disappear. So let me 
say that again. Democrats who supported this bill now can 
proudly say small businesses get a 35 percent tax credit for 
every single dollar they spend for health care and in 2017 it 
goes up to a full 50 percent. Republicans want to eliminate 
that small business tax credit. That is the bottom line here. 
We have a bill that takes the idea of using tax reductions for 
small businesses and helps them provide insurance for more 
workers.
    Can I ask you gentlemen this question? We have heard what 
the Republicans are against as far as health care is concerned. 
We know in this country that before health reform was passed, 
real incomes in this country were flat despite the fact that 
corporate profits, we went through a pretty boom period in this 
country. Is it not the case that one of the reasons that that 
happened, that businesses were doing pretty well, the market 
was doing pretty well, there was a lot of cash in the system 
before we had the big Bush collapse, but is it not true that 
one of the reasons that income stayed flat is because employers 
because of the explosion in costs for health care had to put 
every spare dollar they had into health insurance rather than 
giving wages? Doesn't it--maybe Mr. Elmendorf is the best 
person to answer this. Doesn't the explosion of health care 
costs put downward pressure on other elements of employment 
costs like wages?
    Mr. Elmendorf. Yes, it does, Congressman.
    Mr. Weiner. So if you reduce the amount of health care 
costs or move that burden to a program that provides 
competition like an exchange, that lower burden on health care 
costs will mean that at least in theory employers will have the 
ability now to take some of that money into wages? Is that not 
true, Mr. Elmendorf?
    Mr. Elmendorf. If you reduce private health spending.
    Mr. Foster. Right. Which of course is the goal that we all 
have, and Mr. Elmendorf, I don't know if you have this at your 
fingertips. Do you happen to know whether the health care 
offered by Medicare is more efficient, meaning having less 
overhead and profits, than private insurance?
    Mr. Elmendorf. Medicare has lower administrative costs than 
certainly the small group and non-group markets.
    Mr. Weiner. And no profits obviously. They take no money 
for profits?
    Mr. Elmendorf. That is right.
    Mr. Weiner. Thank you very much.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Louisiana, Dr. Cassidy, for 5 
minutes.
    Mr. Cassidy. Just a quick comment. Medicare also has 
potentially 10 to 20 percent of its receipts going out in 
fraud, so maybe there is something to be said for overhead.
    Mr. Foster, you mentioned how there may be different ways, 
oK, so Dr. Gingrey showed how if we hit this cliff, Medicare 
and Medicaid payments to physicians and hospitals will decrease 
dramatically relative to private insurance, and you mentioned 
that there are different ways that they can compensate for 
that. Now, I have an article here from Milliman from 2008 which 
speaks about the hydraulic effect and how in the Milliman 
article, this is 2008, they estimate that significant discounts 
in Medicaid cause a hydraulic effect, driving up the cost of 
private insurance, and that it is possible that there would be 
15 percent lower health insurance cost were it not for Medicaid 
paying below the providers' actual cost of doing business. Now, 
it seems as if, knowing that there is a lot of things possible, 
but it seems most likely that this hydraulic effect will be 
exacerbated by this kind of cliff that we see with Medicaid and 
Medicare. Will you accept that?
    Mr. Foster. Yes, that is one reaction we would probably 
anticipate.
    Mr. Cassidy. So it is a probable. It is not just kind of 
maybe out there but it a probable. I think history would say 
that is true.
    Mr. Elmendorf. Congressman, can I just add, there are some 
conflicting forces, though, in this law, so there are 
reductions in Medicare payment rates. There are also some 
people who today otherwise would the law would be uninsured 
would then be having health insurance----
    Mr. Cassidy. I will say that, reclaiming my time, Dr. 
Elmendorf, only because I have limited time, I think the 
experience in Massachusetts says that broadening access does 
not control cost. I think that argument has been effectively 
diminished. But if I can go back to Mr. Foster, not to be rude, 
but I just have limited time.
    Mr. Foster, the next thing to say is, we know that in times 
past, and you may have even written this to the effect, that 
when there is a cliff in SGR, Congress will almost always, in 
fact, has always increased that back up. Now, I guess my 
question for you is, I think you do behavioral modifications. 
You look at a piece of legislation and you can see wow, sure, 
this is the parameters given to us but the contortions given to 
us do not reflect reality. There should be a codicil, if you 
will. There should be some addendum that says, you know, using 
behavioral health, we would discount the effective savings. It 
seems like you should have used that same methodology as 
regards this cliff that is going to affect Medicare and the 
resulting hydraulic effect upon private insurance rates driving 
them up 15, maybe 25 percent. Any comments upon that?
    Mr. Foster. Well, it is actually an excellent point in 
terms of anticipating what kinds of reactions might happen. We 
do this where we have a good basis for it and where it affects, 
for example, the financial status of Medicare or estimating 
Medicare or Medicaid costs. We don't do it in every case. For 
example, if there is cost shifting by hospitals or other 
providers because the Medicare or Medicaid payments are 
inadequate, they cost shift to private insurance.
    Mr. Cassidy. Driving up the cost for the privately insured. 
What we are really saying is cost shifting is driving up the 
cost. This bill through its cost-shifting mechanism drives up 
the cost for the privately insured. OK. Continue.
    Mr. Foster. Yes, and there is some disagreement about to 
what extent that happens. It is hard to measure.
    Mr. Cassidy. But going back to my point, wouldn't it have 
been wise for you to discount the savings given that the 
behavioral aspect of Congress is to hold providers harmless for 
the SGR, as one example?
    Mr. Foster. Well, it depends on what you are measuring, 
sir. If you are measuring federal expenditures and Medicare 
saves money but private health insurance gets more expensive, 
that may not affect federal expenditures.
    Mr. Cassidy. Then that is a good point, because really, you 
are only looking at federal spending. In a sense, by law you 
are required not to consider the fact that we are driving up 
costs for privately insured.
    Mr. Foster. Well, we also look at total national health 
expenditures.
    Mr. Cassidy. I saw that, and that rises. So even though the 
federal supposedly saves, the fact that there is national 
health expenditures that rise means that somebody is eating it, 
and it is probably the States and the privately insured.
    I think I am getting from you that you could have done 
behavioral intervention but for whatever reason, your 
methodology, you chose not to do so.
    Mr. Foster. Not in this particular instance.
    Mr. Cassidy. Let me go to the next point. Everybody is 
talking about--clearly, press reports say that the reason that 
this was offloaded upon the states is that it saved the Federal 
Government money but clearly it is going to cost the States a 
heck of a lot of money, and so I have here a Lewin report, the 
impact of expenditures. Mr. Waxman, whom I have great respect 
for, spoke about an adult conversation. According to this Lewin 
report, under this Obamacare bill, his State is going to have 
increased Medicaid expenditures of $4.8 billion over a 5-year 
period. Louisiana is going to be $1.5 billion. Texas is over $4 
billion as well. So is it well to concede that although federal 
expenditures are going down, in the case of California it will 
be $4.8 billion higher, Texas $4 billion, Louisiana $1.5 
billion higher? We just cost shifted from the feds to the 
States?
    Mr. Foster. Most of what is in the bill goes the other way 
around. There are many provisions that reduce the States' share 
of cost and increase the federal share. Overall, the State cost 
is not great. I have specific estimates that we can provide for 
the record.
    Mr. Cassidy. So you would dispute the Lewin report?
    Mr. Foster. If I understood what they were saying 
correctly. I would want to look at it carefully.
    Mr. Cassidy. I will submit that to the record once I get 
ahold of it.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Ohio, Mr. Latta, for 5 minutes 
for questions.
    Mr. Latta. Well, thank you, Mr. Chairman, and gentlemen, 
thanks very much for your indulgence this morning. I really 
appreciate you being here. And Mr. Elmendorf, it is good to see 
you again from my time on the Budget Committee. As always, I am 
glad to see you come before the committee and hear your input.
    I think everybody has been talking to Mr. Foster so maybe I 
can talk to you for a couple of minutes here. You know, even 
when I was on the Budget Committee, I always enjoyed reading 
your statements when you came before the committee, and also, 
you know, one of the things that we have been talking about 
this morning about physician services, etc., talking on page 9 
under the heading ``uncertainty surrounding the estimates,'' 
and again, from my days on the Budget Committee, I understand 
that you are given a snapshot. We are looking at a snapshot at 
that time of the information that you are given to make an 
estimate on. But I find it interesting in your statement just a 
few things if you could comment on.
    In the one paragraph, you say, ``In fact, CBO's cost 
estimate for the legislation noted it will put into effect a 
number of policies that might be difficult to sustain over a 
long period of time,'' and then you go on to state that, ``It 
is unclear whether such a reduction can be achieved through 
greater efficiencies in the delivery of health care or will 
instead reduce access to care or the quality of care relative 
to the situation under prior law.'' And we heard Mr. Foster 
talking a little bit earlier in regards to the economizing the 
efficiencies that have to be done. It is kind of interesting 
because you are both kind of going the same way. First, under 
what we call the doc fix, how much was the doc fix before the 
law went into effect? Do you remember what that number was for 
the 10-year period?
    Mr. Elmendorf. How much would it cost over the 10-year 
period?
    Mr. Latta. Right.
    Mr. Elmendorf. I think the estimate was about $250 billion 
as of a year or so ago. I am not exactly sure.
    Mr. Latta. OK. And did the health care law look at the doc 
fix at all?
    Mr. Elmendorf. The health care law did not adjust payments 
to physicians in Medicare.
    Mr. Latta. Thank you. And my next question is, because also 
following up, we have some doctors that are on the committee, 
but when we are talking about, what worries me is when we are 
talking about achieve through greater efficiencies or, and I 
would like to ask this, reduce access to care or the quality of 
care. Could you define those two, reducing the access to care 
or the quality of care that you would be looking at when you 
made that statement?
    Mr. Elmendorf. So access to care, the first issue we 
discussed here about in Medicare, which pays significantly less 
to physicians than Medicare does today and it varies across 
States but on average, it is harder for Medicaid patients to 
find physicians who will treat them than it is for patients in 
Medicare or patients with private insurance, and so one of the 
measures of access is whether people can find doctors to treat 
them. Quality is a harder thing to measure in medical care, and 
part of the legislation that we are discussing in fact is an 
effort to increase the dissemination of quality measures and to 
develop new quality measures. That is a harder thing to look 
up. I think those are the sorts of concerns that we have spoken 
about and the Office of the Actuary has spoken about as well.
    Mr. Latta. And again, going back, again, knowing, 
understanding that you are looking at a snapshot of what is 
being given you, the information that is given to you at that 
very moment in time to make your analysis on, was anything ever 
talked about during that time about reducing that care or that 
quality of care and what that would do the system at that time 
or to the people that would have to try to get the care?
    Mr. Elmendorf. So a sentence much like this one has 
appeared in a succession of our cost estimates beginning at the 
point where this feature was a prominent part of the 
legislation that we were providing analysis of. I don't know 
what consideration these issues were given. I want to just 
emphasize one point, Congressman. You said several times we 
were given certain things. I want to be clear, what we were 
given is a piece of legislation. What we bring to that is our 
experience and evidence that analysts have developed.
    Mr. Latta. Right, and that is what I mean. We are looking 
at a snapshot of what is given to you, that you are not going 
out and getting that information, that you are told what you 
are supposed to look at.
    Let me ask this real quick because time is running out 
here. In the second to the last sentence it says, ``So that the 
shares of income that enrollees have to pay will increase more 
rapidly at this point.'' How much is that increase, do you 
think? Any idea on that?
    Mr. Elmendorf. It depends on how the economy unfolds. The 
word in the sentence of likely that exchange subsidies will 
grow more slowly is because we don't know what the economic 
outcome will be, but I can't quantify the exact change offhand 
in our baseline estimates, but we can look those up for you, 
Congressman.
    Mr. Latta. Well, thank you very much. I appreciate your 
testimony, and I yield back, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Kentucky, Mr. Guthrie, for 5 
minutes.
    Mr. Guthrie. Thank you, Mr. Chairman. First, I want to 
comment on the small business tax credits. My understanding, 
they are only for 2 years and it is only for employees of 25 or 
less, so if you are a small business with 25 or less, you can 
be subsidized with a tax credit for 2 years and that tax credit 
goes away. Therefore, you are going to choose either to 
continue expensive health insurance, which is going to driven 
higher by this bill, or drop it. Second of all, if you are a 
small business, which I consider a small business with 51 
employees, I have a lot of them in my district, you have no tax 
credit and mandated to provide health insurance or you choose 
to put people into the exchange and make that other part, and I 
don't know if you all look at that type of behavior when you do 
that, but I want to go with a question.
    Mr. Elmendorf, you sent Mr. Lewis, our former ranking 
member, a letter saying about the appropriations process, the 
appropriations part of it, saying that there was a list of new 
activities for which PPACA includes only a broad authorization 
for appropriations of such sums as necessary and for those 
activities the lack of guidance made it difficult for you to 
come up with a score or necessary amounts. You can bring that 
forward.
    The second point, though, is there was one that in section 
1311(a)(1) where the Secretary--and I will just read it--``it 
is the amount necessary to enable the Secretary to make awards 
for State-based exchanges. These awards can be used to 
facilitate enrollment in the exchange,'' and you estimate that 
at $2 billion. I believe that is the number.
    Mr. Elmendorf. Yes.
    Mr. Guthrie. And then the Kaiser Health News reported that 
a member of the Administration, Donald Berwick, the 
Administrator of Centers for Medicare and Medicaid Services, 
was talking with the States talking about the pressure for 
Medicaid, and he said to them, it was reported in Kaiser Health 
News, he was sensitive to that situation but his solutions, 
however, were to point States to funding that he said is 
already available to them such as subsidies to establish 
insurance exchanges. And I would have to guess that if what the 
Administration think should happen to help States through the 
budget crises with Medicaid, that is going to be far more than 
$2 billion. So my question is, what assumptions did you make? 
And the Secretary said this in a meeting on March 3rd, I think 
it was, that she has complete--there are no limits on how much 
she can spend in this provision. There is no limit. She said 
that. And she has no need for additional Congress authority to 
spend it. Obviously a member of the Administration says you can 
spend it to help States plug their Medicaid budget hole. So 
what assumptions did you use to get the $2 billion?
    Mr. Elmendorf. So we estimate that outlays for grants under 
the section would be $2.1 billion over the 2011-2015 period, at 
which point the program ceases. Those estimates are based on 
the costs of implementing other programs in the government that 
we believe are similar in their structure, not in the precise 
substantive purpose, of course. And that is the way we do 
estimates in general of the cost of implementing various 
programs is to try to look for analogies and other things the 
government has been doing, and so far CMS has announced awards 
of $49 million for planning grants. We think that there will 
be, as I said, about $2 billion spent over the 5 years in 
total.
    Mr. Guthrie. But if the Administrator of Medicaid Services 
is correct and it is available, he said he points to solutions 
to point to States to funding that he said is already available 
to them such as subsidies to help establish health insurance 
exchanges so those subsidies are used in a way that helps the 
States. Because you could facilitate enrollment by granting 
more money for Medicaid to get more people enrolled in the 
health care exchange, because that would follow under the law. 
I know you can't model that behavior.
    Mr. Elmendorf. So under this section, this I believe, 
limits grants to activities related to establishing insurance 
exchanges, and so I don't think the changes in enrollment or 
activities related to establishing an exchange. It is certainly 
the case that this $2.1 billion number might be too low. It 
might also be too high in our judgment. We tried to put it in 
the middle of the distribution of possible outcomes.
    Mr. Guthrie. I understand what you had to do. You had to 
take a similar model. I understand your modeling requirements. 
But my point that I am making, the people in the Administration 
are taking a far broader term than that. I think facilitate 
enrollment in the exchanges is a broad term, and obviously 
people in the Administration seem to think that way. At least 
somebody that should require Senate confirmation made that 
comment.
    But I would like to yield the last 30 seconds to my friend 
from Louisiana.
    Mr. Cassidy. Mr. Foster, I think that issue is, is that in 
the aggregate there is less spending in states but because New 
York is such a high-cost state, all the savings frankly come 
from New York and a few other states like that--Massachusetts--
but if you take the people who are not eligible at less than 
138 percent of federal poverty and you move them up, that is 
why California, which has a lot of poverty, even though it has 
a high main per capita income, it is going to be $4.8 billion 
from 2014 to 2019 in increased Medicaid expenditures. Again, 
does that seem reasonable to you that maybe New York is 
offsetting everybody else?
    Mr. Foster. I am sure there are significant state-by-state 
variations in the net impact. We have only estimated the 
overall national, not the individual States.
    Mr. Guthrie. Thank you.
    Mr. Pitts. I thank the gentleman and recognize the vice 
chairman for one follow-up.
    Mr. Burgess. Thank you, Mr. Chairman. I appreciate the 
courtesy.
    Mr. Foster, in your prepared testimony you say you are here 
today in your role as an independent technical advisor to 
Congress. Perhaps offline you can expound for us what triggers 
that role as different from the Chief Actuary to the Centers 
for Medicare and Medicaid Services. And the reason I feel this 
is important and the reason I asked for the Resolution of 
Inquiry last year is, what triggers that role. Now, we were in 
sort of a rush to pass a year ago the Patient Protection and 
Affordable Care Act and I cannot escape the feeling that we 
were asked to vote on that bill before we had all of the data. 
So really my question to you is very simple: do you feel we had 
the full picture March 23, 2010, or March 21, 2010, when this 
vote was called on the floor of the House in your role as an 
independent technical advisor to Congress, not as the Chief 
Actuary for Centers for Medicare and Medicaid Services?
    Mr. Foster. In either role I do the same thing, which is 
give you an honest answer to an honest question. What happened 
was, the legislation was complicated. It took our team working 
on this some period of time from the time we got the 
legislation until we could produce an estimate we were 
comfortable with.
    Mr. Burgess. Were you able to convey to the Speaker of the 
House that information, that you did not have a figure that you 
were comfortable with prior to Congress taking a vote on 
something of this magnitude?
    Mr. Foster. The Speaker of the House did not ask us. 
Various members of the House and Senate did ask us from time to 
time could we have something, could we have it prior to the 
vote that was scheduled. I think in all instances, we were not 
able to produce our estimates, to complete them before the vote 
actually occurred. Now, our goal was to do that but it was too 
hard within the time available.
    Mr. Burgess. But it not like the train was going to run off 
the railroad bridge if the vote didn't happen on March 21st. We 
could have voted on April 21st, could we have not, and had time 
for your independent technical advice?
    Mr. Foster. If the vote were delayed, clearly, yes----
    Mr. Burgess. In retrospect, do you think Congress would 
have benefited from having your opinion on the cost of this 
legislation?
    Mr. Foster. On a good day, I think our advice is useful.
    Mr. Pitts. All right. The ranking member has a follow-up 
question. Mr. Waxman.
    Mr. Waxman. Mr. Foster, no one delayed you from getting 
your estimate, you just weren't able to get the estimate in the 
time you had hoped. Is that correct?
    Mr. Foster. Well, that is correct. I mean, for CBO and 
Doug, you got the legislation early on because nobody wanted to 
finalize it without knowing the effects. We never got the 
legislation until it was announced publicly. We could only 
start at that point to do our work, so we were constantly 
behind you.
    Mr. Waxman. And did you ever give a final estimate of the 
actual bill that has passed the Congress?
    Mr. Foster. Yes, sir, on April 22nd.
    Mr. Waxman. Were you prevented from giving the Congress all 
the information it should have had when the Medicare 
prescription drug bill was voted on in the House?
    Mr. Foster. There were two or three instances where we gave 
the information to the head of the agency, who did not pass it 
on. That was investigated by OIG and GAO. The legal opinions 
that came out of that indicated in my opinion that we in fact 
have the right to serve independently on your behalf, and ever 
since those legal opinions came out, we have delivered 
responses to your requests directly and----
    Mr. Waxman. But at the time we were voting on the 
prescription drug bill, you didn't have that opinion that would 
allow you to communicate with us directly and therefore you did 
not communicate with us directly in the Congress?
    Mr. Foster. Not in every case. We tried our best but it was 
a difficult circumstance.
    Mr. Waxman. Well, the distinction I would make for the 
benefit of my colleague is that in that instance, the 
Republican Administration stopped the information or tried to 
prevent the information from coming to Congress. No one in the 
Congress or the Administration tried to stop you from 
communicating your best judgments on the estimates for this 
health care bill. Is that a correct statement?
    Mr. Foster. That is correct.
    Mr. Waxman. Thank you. I yield back.
    Mr. Pitts. All right. The chair thanks the gentleman and 
that concludes the round of questioning for the first panel. 
Members who have other questions will submit them in writing. 
We ask the witnesses to respond promptly to those. The chair 
thanks the first panel and now----
    Mr. Waxman. Mr. Chairman, before we go to the second panel, 
may I ask a parliamentary inquiry?
    Mr. Pitts. Yes. The gentleman will state his parliamentary 
inquiry.
    Mr. Waxman. I am not objecting to this witness testifying 
but we have Mr. Holtz-Eakin testifying. He is associated with 
American Action Forum. We don't know where they get their 
funding. That is not disclosed. We don't know if they get any 
government grants because their funding has not been disclosed. 
There is a rule that says we will have truth in testimony, and 
when a witness testifies they have to disclose some information 
about funding. Mr. Holtz-Eakin has maintained that he is 
testifying as an individual and not representing his group, so 
my inquiry to you is, what is the standard that we have? When 
can we have a witness come before us and be able to just say 
they are going to testify as an individual and not have to make 
the disclosure that they would otherwise be required to make? 
What standard should have to consider for the future?
    Mr. Pitts. If the gentleman will suspend?
    Mr. Waxman. If the chair would want to get further inquiry 
and put on the record, that would be helpful to us. I am not 
asking for an immediate answer, but it seems to me we need to 
have a standard that we all understand because some witnesses 
are required to give disclosures and evidently Mr. Holtz-Eakin 
is not required to give a disclosure because he is testifying 
as an individual. When do we let people testify as an 
individual and therefore not make disclosures and what 
circumstances do we require those disclosures? I just want us 
to know the policy. You don't have to do it off the top of your 
head but I think we ought to make it clear.
    Mr. Pitts. The chair will be happy to respond after talking 
to counsel and make it a part of the record.
    Mr. Waxman. Thank you very much.
    Mr. Pitts. The chair thanks the gentleman. I will ask the 
second panel to please take their seats and I will introduce 
them at this time. We will now hear from the second panel with 
their opening statements. We will hear first from Douglas 
Holtz-Eakin. Mr. Holtz-Eakin is an economist by training. He 
has studied the effects of numerous health care policy 
proposals in the past and is a former director of the 
Congressional Budget Office. Next we will hear from Mr. David 
Cutler, the Otto Eckstein Professor of Applied Economics at 
Harvard University. We will then hear from a trio of business 
owners and hear their thoughts on the impact of the new law. 
First will be Philip Kennedy, who is the President of Comanche 
Lumber Company, a small business located in Oklahoma. Next we 
will hear from Rick Poore, the President of Design Wear/
Velocitee, a tee shirt design company located in Nebraska. 
Finally, we will hear from Larry Schuler, the President of 
Schu's Hospitality Group, which runs several restaurants in the 
State of Michigan.
    We will make your written testimony a part of the record 
and we ask that you please summarize your opening statements in 
5 minutes, and I will now recognize Mr. Holtz-Eakin for 5 
minutes for his opening statement.

 STATEMENTS OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
    FORUM; DAVID CUTLER, OTTO ECKSTEIN PROFESSOR OF APPLIED 
 ECONOMICS, HARVARD UNIVERSITY; PHILIP K. KENNEDY, PRESIDENT, 
  COMANCHE LUMBER COMPANY; RICK POORE, PRESIDENT, DESIGN WEAR/
  VELOCITEE; AND LARRY SCHULER, PRESIDENT, SCHU'S HOSPITALITY 
                             GROUP

                STATEMENT OF DOUGLAS HOLTZ-EAKIN

    Mr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Pallone, Vice Chairman Burgess. In light of the gentleman's 
comments prior to the panel, I do want to clarify first that I 
signed and submitted a truth in testimony form prior to 
testifying today and was executed truthfully, so I am not sure 
what that question was about, and that the American Action 
Forum itself is in compliance with all the best practice 
guidelines of the Independent Sectors Principles for Good 
Governance and Ethics, and certainly the legal requirements of 
the IRS as approved by this Congress. So I want to get that on 
the record.
    And lastly, when I say I testify and these views are my 
own, the forum has associate with it a vast number of experts 
with areas of expertise ranging from energy policy to education 
policy to any number of things, and I would not pretend to 
speak on their behalf and so these are my views as a researcher 
in both economic and health policy, and I want to emphasize 
that.
    I appreciate the chance to be here today. This is obviously 
a sweeping and important piece of legislation that arrives at a 
crucial moment in America's history, and that moment is one in 
which the top threat to our Nation, both its economic 
prosperity and its national security, is the projected future 
deficits and rising debt that we see under any reasonable 
projection over the next 10 years. My reading of the evidence 
and what I lay out in my testimony is that if one wishes to 
produce simultaneously rapid economic growth, which I believe 
is an imperative, given the large number of Americans who are 
out of work and the resources we will need to meet all our 
private and public demands and bring the fiscal situation under 
control, one needs to follow the successes around the globe and 
those successes are characterized by keeping taxes low and 
cutting government spending, in particular government payrolls 
and transfer programs, the kinds of spending that need to be 
cut, and from that perspective the Affordable Care Act goes in 
exactly the wrong direction. It raises $700 billion in new 
taxes over the next 10 years and adds $1 trillion in new 
transfer spending and continued past that.
    And indeed, the more general point is that those deficits 
and debt represent a huge impediment to economic growth. They 
are a promise of higher future taxes or higher future interest 
rates or both or in worst-case scenarios a financial crisis 
reminiscent of 2008, and I believe it is a mistake at this 
point in time to enact something like the Affordable Care Act, 
which in my view will make our fiscal situation worse, not 
better. It is past common sense to believe that you can set up 
two new entitlement spending programs that grow at 8 percent a 
year as far as the eye can see. That is the CBO growth rates. 
Tax revenues won't grow that fast. The economy won't grow that 
fast. And increasing new entitlement spending as a result will 
make our budget problems worse, not better. We missed an 
opportunity to fix our real problems in Medicare and Medicaid, 
and that is a huge part of my reservation about this last.
    Past that, I will make a couple of points about the 
structure. As I laid out in some detail, the structure of the 
mandates, the employer mandate in particular, are an impediment 
to growth, particularly for small businesses where we see the 
mandate kick in at 51 employees, and because of the nature of 
the phase-outs, if you hire a higher quality labor force, you 
get subject to greater costs. The insurance market reforms 
themselves covering more benefits will make premiums more 
expensive. The variety of insurer fees, taxes on medical 
devices and other things will raise premiums, not lower them. 
That will compete with other resources that could be used for 
hiring or increasing wages and will hurt labor market 
performance. And many of the new taxes, in particular the 3.8 
percent surtax on net investment income, are of exactly the 
same character we have seen in recent debates over broader tax 
policy. They will affect small businesses, taxes passed through 
entities, through the individual income tax, and as a result 
something like a trillion dollars of business income which is 
reported on individual taxes will be subject to higher tax 
rates and hurt economic performance.
    And so as I tried to lay out fairly carefully in my written 
submission, the Affordable Care Act has costs that at this 
point in time I view as unwise for this country. It expands 
deficits. It imposes new impediments to firm-level growth and 
more broadly represents bad economic policy at a time when we 
need to put a premium on growing faster as a Nation.
    I thank you, and I look forward to your questions.
    [The prepared statement of Mr. Holtz-Eakin follows:]


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    Mr. Pitts. The chair thanks the gentleman and recognizes 
Mr. Cutler for 5 minutes.

                   STATEMENT OF DAVID CUTLER

    Mr. Cutler. Mr. Chairman, Mr. Pallone and members of the 
committee, I appreciate the invitation to appear before you 
today.
    The high level and rapid growth of medical spending in the 
United States is an enormous policy challenge and understanding 
the Affordable Care Act will affect that is extremely 
important. As we consider that, there are two principles that I 
think ought to guide that discussion.
    First, we need to eliminate wasteful spending, not valuable 
spending, so we need to be careful about how we cut. Second, we 
need to reduce the overall level of spending, not simply shift 
costs from one payer to another. Many proposals would shift 
costs around without reducing the overall level of spending. 
The key question is finding areas where we can accomplish both 
of those goals, where we can both reduce wasteful spending and 
not just shift costs. The health policy literature suggests 
there are three areas where that is possible. One is by 
improving the management of acute and postacute care for 
patients who are very sick and who receive more care than 
almost all physicians believe is necessary. Second is greater 
attention to prevention, where we spend a good deal of 
additional money by not having prevented disease, and third is 
reducing excessive administrative spending, which takes 
anywhere from 10 to 15 percent of medical care costs without 
bringing any commensurate benefits.
    To give you a sense of the total, most experts estimate 
that about $750 billion to $1 trillion a year is spent on 
medical care that has relatively low value to patients or no 
value to patients. The Affordable Care Act is designed to 
address those sources of inefficiency and it does so in a 
number of different ways. The philosophy behind the Affordable 
Care Act is straightforward. First, get the right information 
to people so that we know what works and what doesn't. As one 
friend of mine told me once, name a business that ever got 
better without knowing what it was doing. It is important to 
note that the HITECH provisions of the American Recovery and 
Reinvestment Act of 2009 are centrally linked to those of the 
Affordable Care Act because they create the foundation for 
learning that information.
    Second, you need to reward doing the right thing, not doing 
too much, not doing too little but doing the right amount. 
Physicians are frustrated, not because cannot treat individual 
patients, which they can, but because they know the system 
sends them off in directions that are counterproductive, that 
the only way to earn enough to keep their practice in business 
is to do more, to do things that are uncoordinated because 
coordination has expenses but no revenues and to not focus on 
prevention. The Affordable Care Act affects these incentives in 
a number of ways including direct payment innovation such as 
higher reimbursement for preventive care services, bundled 
payments for acute and postacute medical services, shared 
savings or capitation payments for accountable provider groups 
that assume responsibility for continuum of patents' care, pay-
for-performance incentives for Medicare providers, increased 
funding for comparative effectiveness research, the Independent 
Payment Advisory Board and an Innovation Center in the Centers 
for Medicare and Medicaid Services to test and disseminate new 
care models, an excise tax on high-cost insurance plans to 
provide incentives to reduce wasteful spending there, increased 
emphasis on wellness and prevention. This set of policy 
reforms, I should note, is neither a Democratic list nor a 
Republican list. It draws on both sides of the spectrum. Former 
CMS or HCFA administrators from both Democratic and Republican 
Administrations stress these are the single most important 
steps we can take to reduce the amount of inefficient medical 
spending in the United States.
    In addition, in very little noticed provisions, the 
Affordable Care Act takes a major step to reduce burdens to 
administrative practices. Particularly sections 1104 and 10909 
lay the foundation for reducing administrative burden, which I 
believe could be reduced by half and save the American people 
approximately 10 percent of medical spending simply by getting 
of administrative costs, not services that are no longer 
needed.
    The effect of these changes on medical spending, on federal 
and State budgets and on job growth are profound. I estimate 
that when you are able to do this, the Affordable Care Act will 
reduce national medical spending by over $500 billion in the 
next decade. It will reduce the federal budget deficit by over 
$400 billion and lead to the creation of 250,000 to 400,000 
jobs annually.
    The urgent need is for this Congress and the Administration 
to work together on these ideas that are neither Democratic nor 
Republican ideas but they are ideas that come from across the 
spectrum of thinkers and people in the health care sector to 
work together to ensure that the Affordable Care Act is as 
successful as it can be.
    Thank you again for the opportunity to be here and I look 
forward to answering any questions you might have.
    [The prepared statement of Mr. Cutler follows:]


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    Mr. Pitts. The gentleman's time is expired. The chair 
thanks the gentleman and recognizes Mr. Kennedy for 5 minutes.

                 STATEMENT OF PHILIP K. KENNEDY

    Mr. Kennedy. Chairman Pitts, Ranking Member Pallone, and 
distinguished members of the subcommittee, thank you for 
inviting me to testify before you today on the effects that 
this complex and erroneous reform will have on my business. My 
name is Phil Kennedy and I own Comanche Lumber Company, 
Incorporated, located in Lawton, Oklahoma. I am here to speak 
to you on behalf of the U.S. Chamber of Commerce today.
    My family began operating Comanche Lumber Company in 1967. 
As Lawton grew, so did Comanche Lumber Company, eventually 
adding flooring and decorating products. What began as a simple 
lumberyard almost 44 years ago has become one of southwest 
Oklahoma's leading building material retailers. Today we remain 
independently owned and operated and a strong member and 
supporter of the Lawton community. However, the past few years 
have been difficult. As I waded through the new health care 
law, I began to grasp the mandates and their bearing on my 
business. I am deeply concerned about the future of my family's 
business.
    We have roughly 50 full-time employees, sometimes more, 
sometimes less, depending on the time of the year, because the 
bulk of our business occurs in the spring and summer months. 
Comanche currently offers a generous health plan to our 
employees. Over half of us take advantage of this coverage, 
including me. Comanche pays approximately 50 percent of the 
premiums for our employees and offers two different high-
deductible plan options, one with a $1,500 deductible and 
another more comprehensive plan with a lower $1,000 deductible. 
Fortunately, we have been able to get good rates because 
Oklahoma has good free market laws that encourage competition 
among insurance companies for my business. However, premiums 
have been climbing. In order to prevent large increases, we 
have had to make tough choices which have included increasing 
our plans' deductibles and implementing a more tiered 
prescription drug plan.
    I understand the new law includes a number of new insurance 
rules billed as patient protections which require free 
preventive services and place restrictions on annual and 
lifetime limits, among other things. While new services may 
sound nice, we must realize they are not free. Instead, these 
new mandates will hamper the flexibility to modify plans' 
designs and restrict premium growth. Even with the flexibility 
we had over the past two years, our premiums have increased 
roughly 30 percent.
    There are many other aspects of the law that will increase 
Comanche's premiums including numerous taxes on health 
industries including taxes on medical devices, prescription 
drugs and small business health insurance that will be passed 
on to me and my employees in the form of higher premiums. While 
these new insurance rules and taxes are problematic, their 
impact pales in comparison to what will happen when the new 
mandates kick in. Beginning in January 2014, businesses with 50 
or more employees will be punished with fines if they don't 
offer a certain level of coverage. Even more troubling is the 
fact that businesses that over qualified plans might still be 
fined just as much. It is ironic that the fine for businesses 
that don't offer coverage is $2,000 per employee while the fine 
for a business that does offer coverage is $3,000 per employee 
plus the cost of paying for coverage. Considering that 
Comanche's profits are about 1 percent, I am sure you can see 
how these fines would dramatically impact our business.
    It appears that to avoid these fines, I can either reduce 
my staff to less than 50 full-time employees or consider 
alternative staffing like employing part-time workers or 
outsourcing. I can't imagine why a law would incent these 
actions at a time when our economy is struggling to recover 
from such a terrible recession, but as a business owner my job 
is to protect the business, keep the doors open and sell 
building materials. I hope I will not have to seriously 
consider these choices but the health care law may force my 
hand as well as that as many other small business people.
    Small business owners were hopeful that health care reform 
would rein in health care costs and bend the so-called cost 
curve down. However, looking through the bill I don't see any 
real medical liability reform other than the vague 
acknowledgement that says States should be encouraged to 
develop and test alternatives. It seems to me that if really 
want to address rising costs, medical liability reform should 
be tackled head on. We need to fix the existing civil 
litigation system instead of merely saying it needs to be 
fixed. Real health reform would include ideas like this. 
Instead, the law just taxes, subsidizes and dramatically 
increases my paperwork burdens by provisions such as the 1099 
reporting.
    In conclusion, I understand that given the existing 
political realities in Washington, a total repeal of the health 
care law is an unlikely proposition for now. However, I am 
hopeful that this subcommittee and your colleagues in the House 
and Senate will start on repairing and eliminating the most 
erroneous mandates and provisions starting with the repeal of 
the employer mandate. Your decisions can either help or hinder 
us. The law you create can either foster an environment to give 
small business owners greater confidence and certainty to grow 
and generate new jobs or one that does just the opposite. 
Regrettably, the new health care law is already doing the 
latter. Congress needs to take action to rectify this problem.
    Thank you for the opportunity to testify and I look forward 
to your questions.
    [The prepared statement of Mr. Kennedy follows:]


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    Mr. Pitts. The chair thanks the gentleman. The gentleman's 
time is expired. The chair recognizes the gentleman, Mr. Poore, 
for 5 minutes for an opening statement.

                    STATEMENT OF RICK POORE

    Mr. Poore. Chairman Pitts, Ranking Member Pallone and 
members of the subcommittee, it is nice to see so many of you 
here. Thanks for having me to testify today. My name is Rick 
Poore and I own DesignWear, a screen printing and embroidery 
business in Lincoln, Nebraska. I am also a member of the Main 
Street Alliance, a network of small businesses, as well as the 
Lincoln Independent Business Association.
    I have been a small business owner for 17 years and I 
started with three employees and now we have 29. I offer 
insurance to my employees and pay for part of it. I would 
rather have my employees worried about the product we are 
producing rather than whether Timmy can get his medicine and 
put food on the table at the same time. But every year our 
premiums go up, sometimes over 30 percent over the last 10 
years. At the same time, in an effort to keep things 
affordable, our benefits were whittled away until we had 
nothing left but the insurance equivalent of a fig leaf. Only 
in the last 2 years have I been able to keep premiums under 
control without giving up benefits and in fact adding benefits.
    The country counts on small businesses to create jobs. You 
hear it all the time. If you want to talk about job killing, 
you look no further than the runaway health care costs that I 
have experienced. Small businesses' ability to create jobs has 
been seriously undermined by insurance costs more than doubling 
in 10 years. We saw a lot of years of steep increases with no 
tools to do anything about it. Without a lot of choice and 
bargaining power, I stood a better chance at a carnie game at 
the midway than I did against my insurance company.
    The Affordable Care Act is finally changing that in my 
favor. The argument that the health care law will cost our 
economy jobs ignores the lessons of the last decade where it 
was the lack of action by Congress to curb skyrocketing costs 
leaving small businesses in the lurch. The real threat to job 
creation is the threat of repealing this law and going back to 
a system that stacks the deck against me, diverting money away 
from investment and growth.
    Concerning the employer responsibility requirement, we have 
got to remember two facts. First, over 95 percent of our 
Nation's businesses have less than 50 workers and won't be 
impacted. Second, 96 percent of businesses with more than 50 
workers already offer coverage. If some larger businesses 
complain that paying for health coverage will harm their 
ability to create jobs, remember that when they don't pay, the 
rest of us pay their way for them and that hurts my ability to 
create jobs. Imagine if my competition decided they didn't want 
to pay wages anymore but I was held responsible for their 
payroll. That is effectively what we are doing with cost 
shifting in health care.
    Recent data from insurers in Nebraska and Kansas City, 
national companies like United Health Group and Coventry, show 
encouraging increases in small business coverage. The tax 
credits are already helping small businesses offer coverage, 
save money and plow those savings back into businesses. We will 
get even more help when the exchanges open. I need that kind of 
broad risk pooling and bargaining power and a Nebraska exchange 
to lower costs.
    I know insurance lobbyists are trying to blame recent rate 
increases on the new law but insurers find an excuse to raise 
rates every year. If they are raising them again, then it is in 
spite of the law, not because of it. Even insurance executives 
admit this. One in Massachusetts said recently that only one 
point of his company's increases this year were due to the new 
law.
    Small business people, in conclusion, above all are problem 
solvers. We wake up every day looking for a better way to do 
our business. We take whatever pitch is thrown at us and we do 
what we can with it. My best employees become problem solvers 
for me. Problem solving is what Americans send you guys to 
Washington to do, and there is a funny thing about solutions I 
have found is that most solutions aren't perfect right out of 
the box. You don't scrap them; you make a start in the right 
direction and then you change course and correct the course as 
you need. One thing for sure, our country and our economy can't 
afford to go back to a health system that doesn't work for 
small business. I already know that it won't work. We have got 
to move forward.
    When I was first approached about this, I had to think 
about what year I started the business, and I was talking to my 
wife, and as a habit I don't think a lot of businesspeople look 
back that much. I think they look forward as much as they can. 
There is just not a lot of time for looking back. So that is 
what I am asking you guys to do. You can call it Obamacare if 
you like but I kind of call it Rick Care. By moving forward, 
you can level the playing field for small businesses allowing 
us to focus on creating jobs and building our local economies.
    Thanks again for having me, and it is something I am not 
really used to doing, so thanks.
    [The prepared statement of Mr. Poore follows:]


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    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentleman, Mr. Schuler, for 5 minutes.

                   STATEMENT OF LARRY SCHULER

    Mr. Schuler. Thank you for this opportunity to testify on 
the new health care law on behalf of the National Restaurant 
Association. My name is Larry Schuler and I am an independent 
restaurateur operating a fourth-generation family business.
    Small businesses dominate the industry with more than seven 
out of ten eating and drinking establishments being single-unit 
operators. We also employ a high proportion of part-time, 
seasonal and temporary workers. Our workforce is typically 
young with nearly half under the age of 25. Growth and success 
in the restaurant industry means opening more restaurants and 
locations, which in turn means jobs in our communities.
    When I closely examined the impact of this new health care 
law on my businesses, I began to reexamine my expansion plans 
and may now not take an additional growth on. My written 
testimony submitted for the record outlines some specific fixes 
the industry is calling for but I would like to use my time to 
outline for you how the new health care law affects my business 
specifically.
    My businesses are typical of many restaurants in our 
industry. We have a large group of seasonal employees that 
include a number of college students, some who work seasonally 
for us multiple times per year. We are very close to the 50 
full-time equivalent worker threshold. How many hours our part-
time employees work will determine if we are a large applicable 
employer or not.
    What this means for my restaurants and our employees that, 
depending on the time of year and the number of hours worked by 
our team, we could be considered a large applicable employer 
and subject to the most stringent employer mandates in the law 
some months but not in others. In addition, our employees could 
be full-time employees one month and part-time employees the 
next. Using our 2010 employment numbers, the calculations for 
our largest location would put us over the 50 full-time-
equivalent threshold. In 2010, on the average, we employed 33 
full-time employees and 26 full-time equivalents working part 
time hours for a total of 59 full-time equivalents that place 
us over the threshold and subject us to the coverage and 
penalty requirements of the law. We employ 24 seasonal part-
time employees and five seasonal full-time employees as well, 
for a total of 38 full-time employees to whom we would be 
required to offer coverage under the new law as a large 
employer. Should all 38 employees opt in to the coverage, we 
would see a 282 percent cost increase to the business over 
current premiums from $2,067 monthly or $24,808 annually today 
to $7,892 a month or $94,669 annually. If we chose not to offer 
coverage at all, we would pay an average of $1,375 monthly or 
$16,500 annually in penalties. The penalties would be less than 
what we are paying for health care now.
    Faced with these very large increases in coverage cost 
which do not take into consideration the likely premium 
increases, it will be extremely difficult for us to absorb 
these costs and continue offering coverage. We cannot raise 
many prices high enough to cover these costs and to do so would 
drive away customers who are just beginning to return to our 
tables. Our only option would be to closely manage our 
workforce hours to be able to eliminate ten full-time 
equivalents from our staff and remain below the 50 full-time-
equivalent large employer threshold.
    The industry will begin to closely manage employees' hours 
to 29 or less. In practice, it will mean a larger employer base 
working less hours, no more than 25 hours to avoid bumping into 
the cap, and an increase in labor and training costs. For 
employees, it will mean the need to get a second and third job 
to make up the lost hours and thus income.
    Another issue that impacts my situation is the lack of 
consistency in compliance timelines. The new law allows for a 
maximum waiting period of 90 days before coverage must be 
offered or an employer is considered as not offering coverage. 
However, a seasonal employee is defined as working 120 days or 
less. The new law requires that a large applicable employer 
offer seasonal employees who work full time coverage. One of my 
businesses is strictly seasonal, open 107 days a year from the 
week before Memorial Day weekend until the week after Labor Day 
weekend. In 2014, I will be required to offer my seasonal full-
time employees coverage from day 91 through day 107 or pay the 
penalty for that month on each of them for not offering 
coverage.
    Mr. Pitts. Could you wrap up?
    Mr. Schuler. Without legislation change, I would probably 
shorten the number of days.
    I thank you again for the opportunity to testify today on 
the true costs of the new health care law and its negative 
impact on the jobs of the restaurant industry and my business 
in particular. I look forward to addressing your questions.
    [The prepared statement of Mr. Schuler follows:]


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    Mr. Pitts. The chair thanks the gentleman. I thank the 
panel for your opening statements. I will now begin the 
questioning and recognize myself for 5 minutes, and I will 
start with you, Mr. Schuler.
    You mentioned you are considering closing your seasonal 
operation for a couple of weeks in order to avoid some of 
PPACA's requirements. You may continue to elaborate further on 
that.
    Mr. Schuler. Thank you. To avoid the complexity costs of 
being open those additional 17 days, it will be easier for me 
to manage the business to that shortened time period so I will 
not be required to do that.
    Mr. Pitts. Mr. Kennedy, in your testimony you mentioned 
that PPACA provides the wrong incentives for job creation at a 
time when we are still struggling to recover from a recession. 
Specifically, you state that PPACA incentivizes you to get 
below the employer mandate threshold of 50 workers. Would you 
elaborate further on that, please?
    Mr. Kennedy. We definitely would be considering that 
because of the new regulations and what that entails as far 
health insurance, and are currently even looking at that as we 
go about making sure that what levels we have as far as 
employees and that has become a decision factor in our 
progressing forward in growth whereas used to we would want to 
grow as much as possible. Now as we grow above 50 we have 
another item we have to consider and how that would impact us 
as far as cost and whether those actual costs can be offset by 
profits that we make.
    Mr. Pitts. Thank you.
    Mr. Holtz-Eakin, I would like to go through a few points 
regarding the score of PPACA to give us some broader context of 
what these numbers mean, and I would also like to explore what 
burdens have been imposed on taxpayers and States that by their 
nature wouldn't be reflected in CBO's score. CBO estimates that 
$86 billion in premiums from the new long-term care program 
known as the CLASS program are used to offset the cost of the 
new entitlement in Medicaid expansion in PPACA. Can those funds 
be used to pay for both PPACA and future CLASS program 
benefits?
    Mr. Holtz-Eakin. No, they cannot. They will be gone in the 
first 10 years and additional funds will have to be found after 
that.
    Mr. Pitts. All right. CBO estimates that $53 billion in 
Social Security payroll taxes are used to offset the cost of 
the new entitlement and Medicaid expansion in PPACA. Can those 
funds be used to pay for both PPACA and future Social Security 
benefits?
    Mr. Holtz-Eakin. Same story is true. Those will be gone in 
the first 10 years and additional funds will be needed to be 
found to make good on Social Security promises.
    Mr. Pitts. Now, some proponents of the law have claimed 
that Medicare cuts included in PPACA can both pay for new 
entitlement spending and finance future benefits. Is this an 
accurate statement? Would you elaborate on that?
    Mr. Holtz-Eakin. It is not accurate. Federal accounting 
notwithstanding, the money will be spent only once and cannot 
both extend the Medicare program and pay for the insurance 
subsidies.
    Mr. Pitts. Proponents of the bill argue that PPACA costs 
under $1 trillion over 10 years during its passage. However, 
the CBO score of the bill was artificially low because the 
other side of the aisle delayed the bill's major spending until 
2014. Now, we recently found out that with just 2 more years of 
spending, PPACA's spending estimates shot up to $1.44 trillion. 
However, this number still doesn't account for the full 10 
years of implementation. If we extrapolate CBO's estimates to 
the full 10 years, what would you estimate the real cost of the 
bill to be?
    Mr. Holtz-Eakin. I think over a full 10 years, fully 
implemented, this bill is easily going to exceed $1.6, $1.8 
trillion.
    Mr. Pitts. All right. The original House health care bill 
included the doc fix but the provision was taken out towards 
the end of the process. This is despite the fact that PPACA 
uses Medicare cuts to fund a new entitlement program rather 
than fix the SGR that we all agree is a real problem. How much 
did the removal of the SGR artificially lower the cost of the 
health care law?
    Mr. Holtz-Eakin. As I recall, it reduced it by about $250 
billion over the first 10 years.
    Mr. Pitts. How much?
    Mr. Holtz-Eakin. By about $250 billion in the first 10 
years.
    Mr. Pitts. And the score for the health care law also did 
not include nearly $115 billion in the discretionary program 
cost to run Obamacare. Is that not correct?
    Mr. Holtz-Eakin. That is my understanding, yes.
    Mr. Pitts. The chair thanks the panel and will recognize 
now the ranking member, Mr. Pallone, for 5 minutes for 
questions.
    Mr. Pallone. Thank you, Mr. Chairman. I am going to try to 
get one question in for Mr. Cutler and one for Mr. Poore, so 
bear with me if we can try to split the time between you.
    Let me start with Mr. Cutler. Opponents of the Affordable 
Care Act claim that the law will kill jobs. They argue that 
requiring employers to offer health insurance and to improve 
their benefits will increase the costs of labor. Now, I don't 
think that is true. I think that in fact the Affordable Care 
Act helps to create thousands of jobs in the public and private 
health care sectors. In June 2010, funds were allocated to 
train more than 16,000 new primary care providers including 
physicians, physician assistants and nurses. It seems logical 
that the newly insured 30 million people will need doctors, 
nurses and other health care personnel to meet their medical 
needs. Now, the Republican critics say they fear the country 
might not have enough doctors and hospitals to serve those 
people but my answer is a growing workforce, more jobs and 
improved efficiencies. Specifically, less spending on health 
care premiums will free up money for business to invest in a 
new workforce. Now, the CBO said today that to the extent that 
changes in the health insurance system lead to improved health 
status among workers and the nation's economic productivity 
would be enhanced.
    Mr. Cutler, you have done work on what effects the bill 
will have on the job market. Your study predicts that the 
health reform will strengthen the economy and the job market by 
creating 250,000 to 400,000 jobs a year for the next decade. I 
just want you to elaborate on your study and explain to us how 
the health care reform is a job creator, not a job killer, and 
talk about some of the other factors that I mentioned.
    Mr. Cutler. Thank you, Mr. Pallone. Health insurance costs 
are an absolutely critical indicator for hiring. Industries in 
which more businesses are providing health insurance to their 
workers have grown less rapidly than industries where fewer 
employers provide health insurance, and that is particularly 
true in the United States in comparison to other countries. And 
so the central, the fundamental issue about any health care 
reform is what will it do over time to the cost that businesses 
face for health insurance. As I discussed in the testimony and 
in the opening statement, the Affordable Care Act contains 
essentially all of the tools that economists and policy 
analysts have put forward for reducing the costs of medical 
care over time. It is my belief that what those provisions will 
do is to reduce premiums by the end of this decade by about 
$2,000 per person relative to what they would have been. That 
will free up money for firms that are now providing insurance, 
that are thinking about providing insurance but are on the 
margin, and allow them to take that money and use that to grow 
businesses, to pay higher wages, to do anything of the things 
that businesses would like to do that they have been stifled 
from doing.
    In addition, by creating a universal coverage system, we 
will no longer have people locked into jobs because they are 
worried about getting insurance or not starting new businesses 
because a member of their family is ill and won't be able to 
afford it and all the rigidities that come from people being 
scared about health care, which is very common, will disappear 
and that will create more entrepreneurship in the economy as 
well.
    Mr. Pallone. All right. Thank you. And thank you for also 
limiting your answer so I can get to Mr. Poore.
    Mr. Poore, Rand estimates that small businesses will 
increasingly offer health coverage--now we are talking about 
the Affordable Care Act. Rand estimates that small businesses 
will increasingly offer health coverage because they will have 
the same purchasing power as large employers as well as access 
to more choices. Rand also reports that the Affordable Care Act 
will increase the number of small employers, those under 50, 
who offer health insurance up from, say, 57 percent to 85 
percent. So basically they are talking about all the different 
advantages that the Affordable Care Act would provide.
    A lot of this comes from the State exchanges once those 
State exchanges are up, so I just wanted you to describe how 
you think these State exchanges will affect your business and 
other small businesses in the country.
    Mr. Poore. Well, first of all, I think that we are already 
starting to see more small businesses getting coverage. 
Statistics are showing that from Coventry and several others. 
But for me alone, every year my insurance guy would come in and 
say listen, your rates are going up 16 percent or 23 percent, 
and I would say, you know, Troy, why is that. And he was like, 
well, you are just a little group. And so I said Troy, if I had 
10,000 people in my risk pool, would my rates go down; well, 
absolutely. So that is where the exchanges come in for me. You 
know, if I can shop and get--once again, just going back for a 
minute, Troy would also come in and he would give me two 
companies, three plans from each, and that was my choice, but a 
big company or like a service employees, not service employees 
but like public employees, the State offers this broad--they 
almost already have exchanges running that I don't have access 
to so I am kind of hamstrung that way right now.
    In the last 2 years, I have been able to keep my rates from 
going up. I have actually added some benefits. My rates have 
gone up over 2 years 16 percent. That is the lowest increase in 
rates that I have ever seen in 11 or 12 years of offering 
insurance, and the only reason they went up is because I was 
putting--I was lowering my deductible and I was lowering my 
out-of-pocket, so if I would have left it the same, I might 
actually be level, which, believe me, if there is anybody that 
has ever--I have never had a situation where my rates didn't go 
up. It a pretty phenomenal statement to be able to make.
    Mr. Pallone. Thank you.
    Mr. Burgess [presiding]. The gentleman's time is expired. I 
recognize myself for 5 minutes for the purpose of questions.
    Mr. Holtz-Eakin and Mr. Cutler, you have both been at this 
a long time. You both remember the summer of 2009, specifically 
August of 2009. My little sleepy town hall meetings that I 
would hold typically attracted one or two dozen people, 
attracted 1,000 or 2,000 people. They were concerned about what 
they saw the Congress of the United States doing but what I 
heard over and over again was, number one, if you are going to 
do anything, please don't mess up what is already working for 
arguably 65 percent of the country; if you have to fix some 
things for some people, do so without being disruptive, and 
number two, if you are going to do anything at all, could you 
please help us with cost. So I would ask you both to be brief 
as you can but how did we do on those two requests? Mr. Cutler, 
if you will go first and then we will go to Mr. Holtz-Eakin. 
Did we mess it up for people and did we hold down costs?
    Mr. Cutler. I believe we did very well on both counts.
    Mr. Burgess. All right. Let me ask Mr. Holtz-Eakin. How did 
we do on both counts?
    Mr. Holtz-Eakin. I think you are 0-for-3 actually.
    Mr. Burgess. Well, Mr. Cutler, let me just ask you, how is 
it indicative that we didn't alter the system for people who 
thought it was working, thought it was working oK, although 
they are concerned about cost but now we have got, what is it, 
1,040 waivers. We have got whole States asking for waivers. We 
have got Anthony Weiner of New York asking for a waiver, for 
crying out loud. Is this indicative of a system that is well 
functioning and has matured to the point where you think it is 
in good shape?
    Mr. Cutler. What we are seeing is the difficulties of the 
current system as they are being mapped out. Remember, this 
legislation takes effect over a number of years.
    Mr. Burgess. Correct.
    Mr. Cutler. Mr. Poore said the creation of the exchanges 
will be a very big----
    Mr. Burgess. Let me ask you another question.
    Mr. Cutler [continuing]. Factor for small businesses but 
those come in a few years.
    Mr. Burgess. Well, Dr. Holtz-Eakin, do you have an opinion 
as to is the system working well?
    Mr. Holtz-Eakin. No. I mean, in the end the fundamental 
issue was the size of the Nation's health care bill. Insurance 
was just a layer on top of that. And so you could have the 
world's finest insurance exchanges but we haven't solved the 
fundamental problem. As a result, insurance will continue to 
get more expensive and that is what the American people are 
upset about.
    Mr. Burgess. One of the things I never understood, we had 
these hearings when Mr. Pallone was chairman and people would 
come in and talk to us about expanding Medicaid and the various 
federal programs and public options. We never asked Mitch 
Daniels to come in here and talk to us about how he was able to 
hold down costs for his State employees with the Healthy 
Indiana plan by 11 percent over 2 years. Those same 2 years, 
standard PPO insurance was going up 7 or 8 percent. Medicare 
and Medicaid, as it turned out retrospectively, were going up 
10 and 12 percent. You just have to ask yourself why you 
wouldn't look to the States as laboratories and found out what 
is working and see if perhaps there is some applicability to 
the greater world at large and perhaps we wouldn't be so 
disruptive to Mr. Kennedy and Mr. Schuler. Mr. Poore is 
apparently doing oK with the system as it is written today.
    Now, Mr. Cutler, you were a fan of the Independent Payment 
Advisory Board but you know virtually everyone on the House 
side was not, and in my opinion, the Independent Payment 
Advisory Board really is indicative of one of the problems with 
the Patient Protection and Affordable Care Act in that the 
House bill, as bad it was, never got a fair hearing in a 
conference committee. The Senate passed a bill before Christmas 
Eve. They lost a critical Senate vote in Massachusetts 2 weeks 
later, and it was, you just have to pass this thing in the 
House, and as I alluded to earlier, the Senate bill did have a 
House number and it previously passed the House as a housing 
bill so that actually structurally was able to work and also 
conveniently, since there was a lot of tax increase in the 
bill, it started in the House of Representatives technically, 
although it actually did not, but what do you make of the 
Independent Payment Advisory Board now? You said it would be 
apolitical and yet you have groups that are opting or 
politicking to be left out of it. Is it working?
    Mr. Cutler. One of the issues with Medicare has been that 
it has been very difficult to make the program modernized when 
every single change has to go through the Congress at a glacial 
pace, and I think that has been a complaint from both sides of 
the aisle.
    Mr. Burgess. But in expediting, by saying if Congress can't 
agree what those cuts are going to be, they reject the current 
cuts that are presented, they can't come up with their own 
cuts, and on the following April 15th the Secretary just 
implements what the board put forward. I don't know. That is 
giving up a lot of constitutional authority that I think many 
of us, at least on the Republican side, have problems with, and 
I rather suspect our friends on the Democratic side of the dais 
had difficulty as well.
    Cost shifting, yes, the uninsured, Dr. Holtz-Eakin, caused 
some cost shifting but what about the cost shifting from 
Medicare and Medicaid and what did we do with the vast 
expansion of Medicaid into the Affordable Care Act? Are those 
people going to have a doctor or are they still going to show 
up at the same emergency room they have always gone to?
    Mr. Holtz-Eakin. I think CMS Actuary Foster evinced some 
concern about the future of Medicare, about access to 
providers, given the cost shifting that goes on there, 77 cents 
on the dollar relative to private payers. I am deeply 
pessimistic about the future of Medicaid where outside of the 
near term federal pickup of the tab at 50 cents on the dollar, 
we are simply not going to see access, particularly to primary 
cares physicians, and we know they show up in ERs at far too 
high a rate. So to use that as the mechanism for coverage 
expansion I think was one of the unwise choices of the act.
    Mr. Burgess. Yes, why wouldn't they show up to the ER? It 
is the same place they used to go when they were uninsured. 
They see the same doctor. They get the same hospital room. In 
fact, many will not even sign up for Medicaid because why go to 
the bother, what I have always done is go to the emergency room 
and get the care.
    My time is expired. I will recognize the gentleman from 
Louisiana, Dr. Cassidy, for 5 minutes.
    Mr. Cassidy. We in Louisiana have great affection for Bo 
Pelini. I wish you all the best in the Big Ten.
    Mr. Poore. It has been great.
    Mr. Cassidy. As long as you don't play LSU, we are rooting 
for you, buddy.
    Mr. Poore. It has been great. He is a great guy.
    Mr. Cassidy. Listen, how many employees do you have?
    Mr. Poore. Twenty-nine.
    Mr. Cassidy. OK. As I read this bill, if you have 25 
employees or less, average income of $25,000, you get a 50 
percent tax credit.
    Mr. Poore. I should fire four of them.
    Mr. Cassidy. And if you lose four of them by whatever 
reason, would you go back up to 29 and lose this tax credit?
    Mr. Poor. Absolutely. I can't do the business I have got 
right now.
    Mr. Cassidy. That is good. Others tell me differently, but 
thank you for your response.
    Mr. Cutler, earlier when I was speaking with Mr. Foster, he 
accepted the premise of that 2008, I think, Milliman article 
that there is a hydraulic effect, particularly as we see the 
Gingrey chart where there is this cliff and there is going to 
be this inevitable increase. In fact, I am struck in Nebraska, 
they are estimating that in 2014 to 2019 there will be 189 
million increased dollars spent on Medicaid on Nebraska, so 
undoubtedly an increased tax burden. You just disregard that. I 
am not quite sure why.
    Mr. Cutler. Thank you for the question. What we have seen 
in the past few years in both Medicare and Medicaid and private 
insurance is that the number of services people receive goes up 
and as a result governments and private insurers lower the 
rates that they pay. What will work in the health care system 
is to run that in reverse, to figure out which services are not 
worth----
    Mr. Cassidy. So you are postulating that we are going to 
have more efficient delivery of care, and even though we are 
taking out according to that cliff, we are going to pay 
physicians 31 percent less than they currently receive, somehow 
we are going to be held harmless.
    Mr. Cutler. Our best guess of most experts is that at least 
one-third of medical spending is completely wasteful and the--
--
    Mr. Cassidy. Now, I am struck--just because we are short of 
time, I don't mean to be rude, obviously if we could pick out 
that one-third, wouldn't it be great. It is just so hard to 
pick one that one-third. I am a practicing physician. I still 
see patients. It is that one-third that is critical, eye of the 
beholder, if you will. Do you see accountable care 
organizations as being one of the mechanisms by which we 
squeeze out this waste?
    Mr. Cutler. I do believe that is one of the mechanisms.
    Mr. Cassidy. Now, I am struck that there is an article 
published frankly last week in the New England Journal of 
Medicine in which these people look at the accountable care 
organization and says that basically looking at the CMS 
demonstration project, which was structured frankly to find a 
positive result, and indeed they found that over 3 years they 
all lost money. Eight of the ten in physician groups and the 
demonstration did not receive any shared savings in the first 
year. In the second year, six of ten did not. In the third, 
half of the participants were still not eligible, and they 
point out that these were structured, these were already 
existing groups that had gamed the system to have a positive 
result. They all lose money over the first 3 years. I don't see 
these ACOs as this huge, efficiency-generating cost savings. 
This article suggests not. Why do you hold that position?
    Mr. Cutler. What we know is that some organizations are 
able to do extremely well including if you look at, say, the 
Mayo Clinic or the Cleveland Clinic or Geisinger Health Care.
    Mr. Cassidy. Which I think were included here, certainly 
Geisinger was.
    Mr. Cutler. Now, those tend not to be in those 
organizations. Most of the demonstrations were not there. So 
those organizations have figured out how to improve the quality 
of care and save money. Other organizations are still learning 
how. The failures are generally because they don't have the 
right information systems in place because they still work off 
of fee-for-service payment basis and so the doctors still know 
that doing more is the way you earn more or because they 
haven't figured out how to efficiently manage the practices 
that are involved.
    Mr. Cassidy. Excuse me. I am not seeing the list of people 
here but I actually think it has groups that were well 
established but I do think I am taking from you that what you 
are arguing is the theoretical benefit, nothing that has been 
actually demonstrated. If you will, it is a hope by and by but 
it is not the experience currently.
    Mr. Cutler. Actually it is the experience of a number of 
organizations across the country.
    Mr. Cassidy. I haven't seen that data, and this is a review 
of those CMS demonstration projects. If you can refute this 
article, I would appreciate that.
    Mr. Cutler. The Institute of Medicine just published a 
lengthy volume in which they went through a number of the 
successful examples and they estimated----
    Mr. Cassidy. I have not seen a single ACO article that 
suggests that, but please forward that.
    Mr. Cutler. I will indeed.
    Mr. Cassidy. Secondly, regarding preventive services, 
again, I am a physician, preventive services have never been 
shown to save money unless it is immunizations or maybe the 
management of obesity by increasing premiums for those who 
don't lose weight. This article actually eviscerates that 
ability. And so when you postulate that preventive services 
will save money, there is no empiric data for that.
    Mr. Cutler. There are different kinds of preventive 
services. The ones which clearly save money are, for example, 
tertiary prevention, that is someone is in the hospital with 
congestive heart failure or COPD. We know that if a nurse 
visits them within a couple of days after the hospital, they 
are less likely to be readmitted in the hospital. You can take 
the readmission rate----
    Mr. Cassidy. Your testimony mentions colonoscopies, 
cholesterol checks, but that hasn't really been shown. You are 
speaking about reducing readmissions?
    Mr. Cutler. Some of those, if you look at the studies, 
actually do save money. Some just extend life but don't save 
money.
    Mr. Cassidy. Which of those would save money? Because 
colonoscopy does not. I am a gastroenterologist and so----
    Mr. Cutler. Obesity reduction saves money.
    Mr. Cassidy. Now, the obesity reduction actually saves 
money, according to people like Safeway by increasing premiums 
for those who do not enter into a weight-loss reduction program 
but I am struck that the PPACA basically does away with that. 
And so it seems like you are endorsing something that PPACA 
does away with.
    Mr. Cutler. I am not sure I agree with that. The Affordable 
Care Act has the discount for wellness management, 30 percent 
which can increase to 50 percent.
    Mr. Cassidy. So I will look at that and if I am wrong I 
will stand corrected, but it is my understanding we no longer 
decrease premiums for those who do not participate in stop 
smoking or obesity reduction. Thank you very much.
    Mr. Pitts. The gentleman's time is expired. The chair 
recognizes the gentleman from Georgia, Dr. Gingrey, for 5 
minutes.
    Mr. Gingrey. Mr. Chairman, thank you.
    I am going to address my first question to Mr. Cutler. Is 
it Mr. Cutler or Dr. Cutler?
    Mr. Cutler. I am officially a Dr. Cutler but I am happy 
either way.
    Mr. Gingrey. Well, the brain power sitting at the witness 
table, I feel a little sheepish calling any of you Mister 
unless you are Brits, but in any regard, I will address my 
first question then to Mr. Cutler.
    In the March 2010 Wall Street Journal op-ed, you wrote that 
there have been several broad ideas offered to bend the cost 
curve over the last decade including medical malpractice 
reform. As you might know, I have a very keen interest in that 
as a practicing physician and Member of Congress. Do you 
believe that this Congress, unlike the last, should finally 
address medical malpractice reform, and what is its potential 
impact on health care cost?
    Mr. Cutler. There are a number of areas in which I think 
the legislation could be strengthened, and that is one where I 
personally would strengthen the legislation some. Most of the 
estimates of the impact of malpractice reform on medical 
spending suggest that the direct spending impact and the 
reduction in defensive medicine would be relatively small, on 
the order of 4 percent or so. What I think it is important for 
is in sending a signal to physicians and the physician 
community that we are serious about freeing them to practice 
care in the right way, not in the way that just earns you 
money.
    Mr. Gingrey. Well, let's move on to that same question 
then, Mr. Cutler. I will move to Mr. Holtz-Eakin, our former 
CBO director, and ask really the same question. What Mr. Cutler 
said doesn't really jibe with what I think my fund of knowledge 
tells me in regard to defensive medicine and the actual cost. I 
mean, even the CBO, Mr. Elmendorf, said $54 billion over 10 
years. That is a lot of bread. But I think it is a lot more 
than that. I think it could very easily be $150 billion 
annually because some of the doctors on the Energy and Commerce 
Committee could tell you in their practices how much ordering 
of very expensive imaging procedures in particular and drawing 
a lot of blood. I could go on and on and on. But I would like 
for you to comment on that same question.
    Mr. Holtz-Eakin. This issue has been around for a long 
time. I think there is no question that malpractice reform 
should be on the table. How much would come out of the Nation's 
health care bill really revolves around the degree to which 
practice patterns have been dictated implicitly by some 
defensive medicine driven by lawsuits or if it is really just 
the way groups practice and so new doctors come in and they are 
told this is the way we practice. Is that really just a matter 
of caution or is it deeply imbedded in a reaction to the legal 
environment. We don't know how big that will be and that has 
been the conundrum for a long, long time.
    Mr. Gingrey. Well, the President of course has promised and 
we hope that there would be something in the Affordable Care 
Act that was not. We heard earlier testimony that this would 
save a tremendous amount of money. I don't know what the true 
value is but I think it is time for us to get that done.
    Mr. Holtz-Eakin, I am going to stay with you. Proponents of 
this law argue that the bill will help reduce the deficit in 
the second and third decades of implementation, not just this 
first 10-year period. Doesn't this claim rest on the assumption 
that the dramatic reductions in Medicare and massive tax 
increases on employer-sponsored health coverage of working-
class America stays in effect? Can you explain how ever-
increasing taxes are used to offset the massive increases in 
spending that are contained in the Affordable Care Act?
    Mr. Holtz-Eakin. At the heart of it is the notion that the 
spending will go up as we have seen these long-term projections 
for Medicare and Medicaid go up for a long, long time. CBO has 
put these out and Medicare and Medicaid go up from 4 percent of 
GDP to 12 or 20 percent over the next several decades, and for 
a long time the presumption has been by any reasonable analyst, 
you cannot tax your way out of that problem. You have to take 
on the spending. What the Affordable Care Act does is 
essentially recreate that spending and promise to tax its way 
out of it, and I don't view that as a plausible economic 
proposition. We are not going to raise the Cadillac tax so high 
to make this balance over the long term. You have got to 
control the growth of spending, and no analyst outside of David 
has come in and believed that this controls the spending 
growth.
    Mr. Gingrey. Mr. Cutler, you are shaking your head. I have 
got 20 seconds left if you would like to weigh in on that. I 
will cut you off if I decide to, but go ahead.
    Mr. Cutler. If you look at what the Business Roundtable has 
said, they said that this way of making reforms would lead to 
big changes in cost savings. If you look at what the American 
Medical Association has said, what the American Hospital 
Association has said, what the Association of America's Health 
Insurance Plans have said, all of them have said that this is 
the way to go and that they believe that this is the potential 
for saving enormous amounts of money.
    Mr. Gingrey. Well, that might be true with a policy like 
this you end up forcing all of the doctors who practice 
privately to sell their subspecialty practices to charitable 
hospitals who bill under Part A rather than Part B and 
eventually then the Federal Government will have control over 
the whole ball of wax and then we will have national health 
insurance. I yield back, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the ranking member, Mr. Waxman, for 5 minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Poore, I want to ask you a question. As we heard today, 
the U.S. Chamber of Commerce prides itself on being the world's 
largest business federation, representing the needs of 
businesses large and small alike, but it seems to me that when 
the chamber accepted $86 million from the health insurance 
industry, companies such as Cigna and United Health Group, to 
lobby against health reform, it gave up any credibility it had 
to represent small businesses. The Small Business Majority 
released a study to demonstrate what would happen to small 
businesses without health reform. The findings show that 
178,000 small business jobs, $834 billion in small business 
wages and $52 billion in small business profits would be lost 
due to high health care premiums, and over 1.5 million small 
business employees would continue to fall victim to job lock. 
If the chamber claims to represent small businesses, then why 
does it oppose health reform provisions that would prevent 
small businesses from facing these challenges? Do you feel that 
the U.S. Chamber of Commerce represents you as a small business 
owner?
    Mr. Poore. To be honest, no, for mainly the reason you 
gave. I have never had a national commerce guy call me but I 
don't have $86 million in the bank, either. So to be frank, I 
really don't believe that--I mean, they lost their credibility 
when they did that, when they accepted money from the insurance 
lobby.
    Mr. Waxman. Then they are no longer representing 
businesses, they are representing----
    Mr. Poore. In a lot of ways I don't think----
    Mr. Waxman. But I want to use my time to ask another 
question in my limited time, but I thank you very much for your 
contribution to this hearing.
    We are once again, after we talked about the Affordable 
Care Act, which is a bill that reduces the deficit in 
responsible ways, extends coverage to over 30 million people 
while freeing people from job lock and fighting insurance 
company abuses. We are now hearing from the Republicans whose 
next step is to undermine health reform by destroying its 
foundation, the Medicaid program. The Republicans are about to 
unveil a budget that by all media accounts and statements from 
Republican Budget Committee members will block grant Medicaid 
to create hundreds of billions of dollars in savings, some 
reporting as high as $850 billion. At the same time, we could 
expect the budget to extend the Bush tax cuts permanently. The 
exorbitant price tag for extending those cuts just for the 
wealthiest Americans is striking $950 billion. The current 
Republican Majority is not serious about deficit reduction. 
They are about ideological stances that help the rich get 
richer while the middle class and poor are attacked from every 
side.
    Who is it they are targeting in the Medicaid program? 
Thirty million children, 14 million seniors and persons with 
disabilities, 1 million nursing home residents, 3 million home 
and community-based care residents, all who are relying on 
Medicaid, and Medicaid is an efficient program. Medicaid cost 
per enrollee growth was 4.6 percent between 2000 and 2009. That 
is slower than premiums in employer-sponsored insurance and 
national health expenditures. Current Medicaid spending 
increases criticized by the right are merely because the 
program works as intended, to help people who have lost their 
jobs and health insurance during the recession, not because of 
excessive cost growth on a per-enrollee basis. Hundreds of 
billions of dollars in cuts to Medicaid is a blind ax that will 
merely shift costs to the States, to providers and mostly to 
beneficiaries who will go without care.
    Mr. Cutler, can you talk about what such large cuts in 
Medicaid would mean for States' economies, for families and for 
providers?
    Mr. Cutler. I think cuts of that magnitude would be 
catastrophically bad. If you run through this past recession, 
the Great Recession, without the ability to expand Medicaid by 
having the Federal Government be able to do that, you would 
have produced millions more uninsured people, people suffering 
lack of care, substantially worse health outcomes, hospitals 
and physicians that go under because they are overwhelmed by 
the number of uninsured people, and at the same time you would 
not have achieved any real reductions because the block grant 
itself does nothing to actually figure out how to run the 
system better. What we need to do is save money in Medicaid and 
throughout the health care system by running systems better, 
not by just shifting costs and making bad times be even worse.
    Mr. Waxman. And in order to pay for this program, which has 
been a successful program, and it is a lifeline. It is a 
safety-net program. In order to pay for this, we are refusing 
to ask the people at the very top 1 percent to pay their fair 
share of taxes so the people at the very bottom will just be 
thrown to the bottom of society without access to the care they 
desperately need.
    Mr. Cutler. A very large share of economists agree that 
over time we need to reduce medical spending and to raise 
revenue, particularly from higher-income people whose incomes 
have gone up a lot. Those two facts are not in much dispute.
    Mr. Waxman. Thank you very much. Thank you, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired.
    In conclusion, I would like to thank all of the witnesses 
and the members that have participated in today's hearing. This 
was an excellent panel. I want to remind members that they have 
10 business days to submit questions for the record, and I ask 
that the witnesses all agree to respond promptly to those 
questions.
    Thank you. This subcommittee hearing is now adjourned.
    Mr. Waxman. Mr. Chairman, we will hold the record open for 
your comment on the policy for the committee for the future 
on----
    Mr. Pitts. We will give you that in writing. I understood 
that the staff had talked to your staff about hat.
    Mr. Waxman. Without objection, can we just put it into the 
record and we will look forward to getting that.
    Mr. Pitts. Without objection, so ordered.
    [Whereupon, at 1:35 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]


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