[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 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Printed for the use of the Committee on Energy and Commerce energycommerce.house.gov _____ U.S. GOVERNMENT PRINTING OFFICE 71-722 WASHINGTON : 2012 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 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:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]