[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
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
MARY BONO MACK, California BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon ANNA G. ESHOO, California
LEE TERRY, Nebraska ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan GENE GREEN, Texas
SUE WILKINS MYRICK, North Carolina DIANA DeGETTE, Colorado
Vice Chairman LOIS CAPPS, California
JOHN SULLIVAN, Oklahoma MICHAEL F. DOYLE, Pennsylvania
TIM MURPHY, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas CHARLES A. GONZALEZ, Texas
MARSHA BLACKBURN, Tennessee JAY INSLEE, Washington
BRIAN P. BILBRAY, California TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire MIKE ROSS, Arkansas
PHIL GINGREY, Georgia ANTHONY D. WEINER, New York
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin Islands
BILL CASSIDY, Louisiana
BRETT GUTHRIE, Kentucky
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia
(ii)
Subcommittee on Health
JOSEPH R. PITTS, Pennsylvania
Chairman
MICHAEL C. BURGESS, Texas FRANK PALLONE, Jr., New Jersey
Vice Chairman Ranking Member
ED WHITFIELD, Kentucky JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina LOIS CAPPS, California
TIM MURPHY, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington ANTHONY D. WEINER, New York
LEONARD LANCE, New Jersey HENRY A. WAXMAN, California (ex
BILL CASSIDY, Louisiana officio)
BRETT GUTHRIE, Kentucky
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)
C O N T E N T S
----------
Page
Hon. Joseph R. Pitts, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 1
Prepared statement........................................... 2
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 4
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 6
Prepared statement........................................... 6
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 8
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, prepared statement................................ 10
Witnesses
Douglas Elmendorf, Director, Congressional Budget Office......... 11
Prepared statement........................................... 13
Answers to submitted questions............................... 258
Richard Foster, Chief Actuary, Centers for Medicare and Medicaid
services....................................................... 47
Prepared statement........................................... 49
Answers to submitted questions............................... 268
Douglas Holtz-Eakin, President, American Action Forum............ 99
Prepared statement........................................... 101
Answers to submitted questions............................... 271
David M. Cutler, Otto Eckstein Professor of Applied Economics,
Harvard University............................................. 120
Prepared statement........................................... 122
Philip K. Kennedy, President, Comanche Lumber Company............ 137
Prepared statement........................................... 139
Rick Poore, President, Design Wear/Velocitee..................... 150
Prepared statement........................................... 152
Larry Schuler, President, Schu's Hospitality Group............... 162
Prepared statement........................................... 164
Submitted Material
Article entitled, ``The Republican Response to Obamacare,'' from
Bloomburg Business Week, March 24, 2011, submitted by Ms. Capps 188
Letters of March 30, 2011, from Health and Human Services to Mr.
Waxman, submitted by Mr. Waxman................................ 190
Working paper entitled, ``The Impact of the Medicaid Expansions
and Other Provisions of Health Reform on State Medicaid
Spending,'' by The Lewin Group, December 9, 2010, submitted by
Mr. Cassidy.................................................... 194
Article entitled, ``New Jobs Through Better Health Care,'' by
David Cutler, submitted by Mr. Cassidy......................... 226
Statement of the Small Business Majority, submitted by Mr. Waxman 239
Committee rules on the Truth in Testimony form, submitted by Mr.
Waxman......................................................... 250
.................................................................
THE TRUE COST OF PPACA: EFFECTS ON THE BUDGET AND JOBS
----------
WEDNESDAY, MARCH 30, 2011
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:02 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Joe Pitts
(chairman of the subcommittee) presiding.
Members present: Representatives Pitts, Burgess, Whitfield,
Shimkus, Rogers, Myrick, Murphy, Blackburn, Gingrey, Latta,
McMorris Rodgers, Lance, Cassidy, Guthrie, Upton (ex officio),
Pallone, Dingell, Engel, Capps, Schakowsky, Gonzalez, Baldwin,
Weiner, and Waxman (ex officio).
Staff present: Allison Busbee, Legislative Clerk; Howard
Cohen, Chief Health Counsel; Paul Edattel, Professional Staff
Member, Health; Julie Goon, Health Policy Advisor; Ryan Long,
Chief Counsel, Health; Jeff Mortier, Professional Staff Member;
Monica Popp, Professional Staff Member, Health; Heidi Stirrup,
Health Policy Coordinator; Phil Barnett, Democratic Staff
Director; Alli Corr, Democratic Policy Analyst; Tim Gronniger,
Democratic Senior Professional Staff Member; Purvee Kempf,
Democratic Senior Counsel; Karen Lightfoot, Democratic
Communications Director, and Senior Policy Advisor; and Karen
Nelson, Democratic Deputy Committee Staff Director for Health.
OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Pitts. The subcommittee will come to order.
The chair recognizes himself for 5 minutes for an opening
statement.
We had a very instructive field hearing, our first, in
Harrisburg last week, on the 1-year anniversary of the signing
of PPACA. What we heard about the health reform law's costs on
Pennsylvania alone was chilling. Governor Corbett stated that
after the Medicaid expansion had gone into effect, roughly one
in four Pennsylvanians would be on the program. According to
the Acting Secretary of the Department of Public Welfare, Gary
Alexander, Medicaid currently accounts for 30 percent of the
state budget. That is more than all but two other States:
Illinois and Missouri. And if PPACA is fully implemented, that
percentage will double to 60 percent of their state budget by
fiscal year 2019-20. This is simply not sustainable for my home
state, or any other. And the numbers don't look much better for
the Federal Government, either.
On March 18, 2011, CBO released its preliminary analysis of
the President's fiscal year 2012 budget. CBO's estimate of
total spending on coverage expansions in PPACA grew from $938
billion last March for fiscal years 2010 through 2019 to $1.445
trillion for fiscal years 2012 through 2021. That is a 54
percent increase in federal spending.
As you may remember, President Obama, when he was running,
promised his health care plan would cost $50 billion to $65
billion a year when fully phased in. CBO, however, projects
that the real cost of the coverage expansions will be $229
billion in 2020 and $245 billion in 2021--four times the levels
of spending that President Obama had promised.
And what about the jobs PPACA was supposed to create? Then-
Speaker Pelosi stated in February of last year that the law
would create ``4 million jobs, 400,000 jobs almost
immediately.'' Yet, as Mr. Elmendorf told the House Budget
Committee last month, he expects the law will cost 800,000 jobs
by 2021. That may be because the law contains perverse
incentives for businesses not to grow. Small businesses are
hesitant to go over 50 employees and incur a penalty for each
full-time employee who does not have proper insurance, as
defined by the government.
They are also being buried under thousands of pages of
regulations, with thousands more to come, with which they will
have to comply, and they will bear the cost of compliance on
their own. Or, like Case New Holland, a major manufacturer with
operations in Pennsylvania, testified at the field hearing last
week, they already expect to spend $126 million over the next
decade just to comply with this law, and that is $126 million
that won't go towards expanding their business or creating new
jobs.
We are receiving reports almost weekly that show that the
true cost of Obamacare is worse than what any of us expected--
higher premiums, more federal health spending, fewer jobs, less
access, and people losing the coverage they currently have and
like. Not only does the law not achieve its stated goals, the
true cost of Obamacare is too high for our States, too high for
the Federal Government, and too high for the private sector.
I would like to thank all of our witnesses for being here
today.
[The prepared statement of Mr. Pitts follows:]
Prepared Statement of Hon. Joseph R. Pitts
The subcommittee will come to order.
The chair will recognize himself for an opening statement.
We had a very instructive field hearing in Harrisburg last
week, on the 1-year anniversary of the signing of PPACA.
What we heard about the health reform law's costs on
Pennsylvania alone was chilling.
Governor Corbett stated that after the Medicaid expansion
had gone into effect, roughly 1 in 4 Pennsylvanians would be on
the program.
According to the Acting Secretary of the Department of
Public Welfare, Gary Alexander, Medicaid currently accounts for
30% of the state budget--that is more than all but two other
states (Illinois and Missouri)--and if PPACA is fully
implemented, that percentage will double to 60% by FY19-20.
This is simply not sustainable for my home state, or any
other.
And the numbers don't look much better for the federal
government, either.
On March 18, 2011, CBO released its preliminary analysis of
the President's FY12 budget.
CBO's estimate of total spending on coverage expansions in
PPACA grew from $938 billion last March (for fiscal years 2010-
2019) to $1.445 trillion (for fiscal years 2012-2021)--a 54%
increase in federal spending.
As you may remember, candidate Obama promised his health
care plan would cost ``$50-65 billion a year when fully phased
in.''
CBO, however, projects that the real cost of the coverage
expansions will be $229 billion in 2020 and $245 billion in
2021--four times the levels of spending candidate Obama
promised.
And what about the jobs PPACA was supposed to create? Then
Speaker Pelosi stated in February of last year that the law
would ``create 4 million jobs--400,000 jobs almost
immediately.''
Yet, as Mr. Elmendorf told the House Budget Committee last
month, he expects the law will cost 800,000 jobs by 2021.
That may be because the law contains perverse incentives
for businesses not to grow.
Small businesses are hesitant to go over 50 employees, and
incur a penalty for each full-time employee who does not have
``proper insurance''--as defined by the government.
They are also being buried under thousands of pages of
regulations--with thousands more to come--with which they'll
have to comply. And they'll bear the cost of compliance on
their own.
Or, like Case New Holland--a major manufacturer with
operations in my district -which testified at the field hearing
last week, they already expect to spend $126 million over the
next decade just to comply with the law.
And that's $126 million that won't go towards expanding
their business and creating jobs.
We are receiving reports almost weekly that show that the
true cost of Obamacare is worse than what any of us expected--
higher premiums, more federal health spending, fewer jobs, less
access, and people losing the coverage they currently have and
like.
Not only does the law not achieve its stated goals, the
true cost of Obamacare is too high for our states, too high for
the federal government, and too high for the private sector.
I thank our witnesses for being here today, and I yield the
remainder of my time to Dr. Burgess.
Mr. Pitts. I will yield the remainder of my time to Dr.
Burgess.
Mr. Burgess. I thank the chairman for the recognition.
Today we are faced with the question, is the Affordable
Care Act affordable? We don't know. We didn't know when this
committee passed a health care bill last year called H.R. 3200.
Mercifully, that bill died a natural death in the Speaker's
office and H.R. 3590, as everyone knows, was signed into law a
year and a week ago.
But even today, we don't know about the essential benefits
package. We don't know about the cost of setting up the
exchanges. All of this remains shrouded between a veil of
obscurity.
After the bill became law, our actuary from the Centers for
Medicare and Medicaid Services released his findings to the
Congress and estimated the overall national health expenditures
would be increased by some $311 billion, a significant
difference from the $142 billion in savings that was advertised
merely a month before. So I authored last year a Resolution of
Inquiry requesting the transfer of internal Health and Human
Services communications related to the date of Mr. Foster's
report. The Congressional Budget Office and the Chief Actuary
do model different things, and this has been pointed out to me
by some of our witnesses this morning. But both are essential
components to determining the cost, the true cost of the
Affordable Care Act, and really should have made available to
the Members of Congress before, before, before the vote was
taken last year.
If the intent of reforming the health care system was
indeed to bend the cost curve, then it looks like mission
accomplished. Unfortunately, we bent it in the wrong direction.
Now, I acknowledge that the Congressional Budget Office had
an impossible job, and most Members of Congress do recognize
that, and I guess I would just ask the question, if we rely
solely on the Congressional Budget Office when we know they
have an impossible job, if we rely solely on their numbers, are
we in fact not facing reality. What if their assumptions are
off by just a little bit? The result of maybe 5 percent of
employers dropping coverage and moving employees into the
exchanges. What effect does that have on the cost of the
subsidies in the exchanges when that kicks in a few years'
time? Probably an average of tens of billions of dollars.
Why was Congress negligent in our responsibility to see the
impact that this law would have on the health care system, the
cost of the health care system? The Administration knew that it
would take Mr. Foster time to complete his model, but did the
Administration push us to have that vote before we could have
access to the actual date? And this is the question that needs
to be answered this morning.
Thank you, Mr. Chairman. I will yield back.
Mr. Pitts. The chair thanks the gentleman and recognizes
the ranking member of the subcommittee, Mr. Pallone, for 5
minutes for an opening statement.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman. We are back from
another week off in Congress and it is time for the Republicans
to try to repeal, defund, or criticize the health care reform
again. It is pretty clear that the Republicans believe that if
you just keep saying the same thing over and over again, it
will start to be believed. Just fire up the old talking points,
throw in a little righteous indignation and you are good to go.
And that would be just fine if we were all talk-radio stars,
but we are not. We have a job to do. We are legislators. We are
supposed to be trying to turn the economy around and create
jobs. But here we are to talk again about the Affordable Care
Act, which is just the Republicans' reheated arguments about
repeal and replace, except they forgot to replace it with
anything to speak of.
The Republicans seem to wish that if they just click their
heels three times, we could return to that magical time in the
last decade when they controlled both Houses of Congress and
the White House and, as they would tell it, business prospered
and fiscal responsibility was the name of the game, except that
is not what happened. When President Bush came to office, he
inherited a surplus projected to total $5.6 trillion over 10
years, and he managed to swiftly squander that, leaving
President Obama a nicely wrapped $1.3 trillion deficit in 2009.
Under President Bush's watch, the number of uninsured increased
by 6 million nationwide. Small businesses, which make up the
majority of the uninsured in America, were hurt especially hard
during this time. While 57 percent of small businesses were
able to offer health insurance in 2000, only 46 percent were
able to by the end of the Bush Administration, and it would
have just gotten worse. By the time President Obama took
office, national health expenditures surpassed $2.4 trillion in
2009, more than three times as much as it was in 1990. The
percentage of income families spent on employer-sponsored
health insurance rose from 12 to 22 percent from 1999 to 2009
during the Bush Administration, and those without insurance
were even worse off. For many families who had worked hard,
saved hard and planned for the worst, they couldn't stay in the
black if their kid got sick or denied health insurance for life
due to a preexisting condition or if they themselves got sick
with a tough disease and quickly ran through their insurance
plan's annual limits.
So understanding this, President Obama and the Congress
including this committee didn't just sit around and whine about
the previous 8 years under Bush; they stood up and led. And we
are very proud of the health care reform, the economic
certainty, insurance reform, and coverage expansions will offer
families across the Nation. We are glad that small business
owners like Rick Poore, who will testify later this morning,
are now eligible for tax credits today to cover their
employees, and in the future Rick will be able to leverage the
purchasing power of small business owners across the Nation
through the State exchanges so that more of his money can be
invested in his business and more of his energy can be devoted
to innovation.
I am very proud that the Affordable Care Act will control
health care spending by making important delivery system
changes that reward quality, not quantity of care. We are proud
that Americans will no longer be held hostage to insurance
companies as a result of the reforms in our legislation, and I
will remind you that the Congressional Budget Office has
estimated the Affordable Care Act will reduce the deficit by
$124 billion by 2019 and further cuts the deficit by $1.2
trillion in the second 10 years.
So if the Republicans want to spend another Wednesday
morning discussing the true effects of the Affordable Care Act
today, I am game, but I think we really need to get back to
work and try to create jobs instead of wasting our time trying
to repeal health reform. I mean, it is how many weeks now since
you first repealed the act and of course the Senate rejected
it? We have had nothing but hearings for the most part on
either repealing the bill, repealing part of the bill,
defunding the bill, now, you know, another hearing talking
about the financial aspects of the bill. It just never seems to
end.
So I would now yield the remaining time to my colleague
from California, Representative Capps.
Mrs. Capps. Thank you, Mr. Pallone. To underscore what you
have just said, we have been in session for over 10 weeks now
and the Majority has yet to produce a plan to create jobs or
strengthen the economy. Instead, our Republican colleagues are
here yet again to live in the past and attack the Affordable
Care Act.
Many of the claims we are going to hear today about the so-
called true cost of the Affordable Care Act are likely to be
shocking but that is not because the Affordable Care Act is
dangerous or because it is not working. Instead, it is because
these claims are at best gross exaggerations and at worst
complete fabrications. Let us be clear: the Affordable Care Act
is the largest deficit-reducing bill enacted by Congress in the
last decade. It will reduce the deficit by $210 billion over
the next 10 years, and by $1.2 trillion over the following
decade, and it will do so while continuing to help families and
small businesses.
And as I yield back, the very sections of the bill the
Republicans are trying to defund are the provisions which will
reduce the deficit. I yield back.
Mr. Pitts. The chair thanks the gentlelady and now
recognizes the chairman of the full committee, Mr. Upton, for 5
minutes for an opening statement.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Well, thank you, Mr. Chairman. I too thank you
for holding this hearing. We just did mark the 1-year
anniversary of the health care bill being signed into law last
week yet today will be the committee's first chance to fully
explore the true fiscal impact the law will have on our
Nation's budget and job creation.
Last week the CBO noted that the coverage provisions of
PPACA would cost $1.445 trillion for fiscal year 2012 through
2021. This is up from a 10-year cost estimate of $938 billion
when the bill was signed into law. This is not a change in CBO
scoring. Indeed, the CBO estimates for the overlapping years
are remarkably consistent. The larger figure simply proves that
if you take away some of the gimmicks, mainly paying for only 6
years of benefits in the first decade, that the cost far
exceeds $1 trillion and will likely top $2 trillion over a full
10 years.
We have also heard about how PPACA imposes a paperwork
nightmare on small businesses. The law, as we know, requires a
tax filing for every transaction over $600. The House has voted
to repeal this massive paperwork cost on American employers.
However, our job does not end there. PPACA includes dozens of
new paperwork requirements that force businesses to report to
HHS, the Department of Labor, and the IRS. Job creation is our
top priority, which is why we cannot ignore the fact that PPACA
reduces employment.
In recent testimony before the House Budget Committee, Mr.
Elmendorf stated that 800,000 jobs would be lost because of the
new health care law. We should be creating jobs, not destroying
them, which is why many of us believe that we should repeal
this job-destroying bill. Many of us believe that we must
repeal the uncertainty that it is causing businesses and the
hundreds of billions of dollars in new taxes and mountains of
paperwork.
I would yield the balance of my time to Dr. Gingrey.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
Mr. Chairman, thank you for holding this hearing. We just
marked the one-year anniversary of the health care bill being
signed into law. Yet today will be the committee's first chance
to fully explore the true fiscal impact the law will have on
our country.
Since PPACA was signed into law, most revelations have
fallen into one of the following categories: 1) news that the
law will cost much more than our Democrat colleagues told us--
imposing a massive burden on future generations; 2) news that
job creators are facing higher financial and administrative
costs as a result of PPACA 3) news that health care costs will
rise, and 4) news that PPACA has jeopardized both access to and
the quality of health care for American seniors, job creators,
and families.
First, let's discuss the true monetary cost of PPACA. Last
week, the Congressional Budget Office noted that the coverage
provisions of PPACA would cost $1.445 trillion from FY2012-
2021. This is up from a ten-year cost of $938 billion when the
bill was signed into law last March. This is not a change in
CBO's scoring. Indeed, the CBO estimates for the overlapping
years are remarkably consistent. The larger figure simply
proves that Washington Democrats tried to hide the true ten-
year cost of the bill by delaying its startup. Based on these
new estimates, the real ten-year cost of the law will be $2
trillion if we are lucky and much more if we are not.
Second, let's look at the economic costs. Job creators
around the country have spoken loud and clear. PPACA imposes
massive new burdens on them that stifle growth and job
creation. Many of the country's largest employers reported
hundreds of millions of dollars in losses as a result of this
law--jeopardizing investment and jobs when we need them the
most.
The Majority scheduled a hearing last year to examine the
losses companies were forced to report because of the law,
indicating doubt that the law they championed could force such
immediate harm. However, the hearing was abruptly cancelled
when it became clear that the facts undermine the case for
PPACA. Rather than study these massive new costs, my Democrat
colleagues decided to sweep the matter under the rug.
We have also heard how PPACA imposes a paperwork nightmare
on small businesses. The law requires a tax filing for every
transaction over $600. The House has voted to repeal this
massive paperwork cost on America's employers. However, our job
does not end there. PPACA includes dozens of new paperwork
requirements that force businesses to report to HHS, the
Department of Labor, and the IRS.
Employers who originally supported PPACA are growing
increasingly skeptical. In a recent interview, the CEO of
Starbucks explained that upon further inspection, the new
health care law would impose too great of a burden on job
creators.
We have also heard from the Director of the Congressional
Budget Office, Doug Elmendorf, on how PPACA reduces employment.
In recent testimony before the House Budget Committee, Mr.
Elmendorf stated that 800,000 jobs would be lost because of
PPACA.
Third, we must consider the cost to patient care, in both
access and quality. We already know low-income Americans face
significant access problems in the Medicaid program because of
low reimbursement rates for providers. PPACA extends the same
problems to Medicare by reducing payment rates to unsustainable
levels. As CMS Chief Actuary Rick Foster's analysis shows,
Medicare payments fall sharply below those of private insurers
and even below the Medicaid program.
Finally, the health care law has actually increased the
cost of health care coverage -exactly the opposite of what
proponents claimed would happen. As Mr. Foster has noted, the
health care law increases overall national health expenditures
by $311 billion. CBO has told us that by 2016, individual
premiums will rise by $2,100 as a result of PPACA.
To date, HHS has issued more than 1,000 waivers to exempt
health plans and employers from the expensive new regulations
imposed by health care law. Last week, a member of this
committee and supporter of the law suggested his hometown
should receive a waiver. I think we should go one step further:
we should lift the burden of PPACA from all Americans and
repeal it.
Thank you again for holding this hearing. The American
people deserve to know the true costs of this law. I would like
to thank Larry Schuler from the great state of Michigan for
agreeing to testify and present his perspectives on the new
law. Mr. Chairman, I yield back the balance of my time.
Mr. Gingrey. I thank the chairman for yielding.
Mr. Chairman, it was just interesting to hear the ranking
member of the subcommittee a few minutes ago talk about how the
Democrats came to the rescue after 8 years of Republican
inaction on health care reform, essentially saying just don't
sit there, do something. Well, I think my colleague, Dr.
Burgess, a fellow OB/GYN physician, would remember our OB/GYN
motto, don't just do something, sit there, in managing labor
and delivery. And the point I am making is to rush to judgment
to do something just to get something done oftentimes is a huge
mistake, and I think that is the way our side of the aisle
feels in regard to PPACA, the Affordable Care Act, because it
doesn't accomplish any of the goals that were set out. It is
not good for patients. It is not good for consumers. It is
certainly not good for corporate America and it is not good for
the taxpayer.
So bottom line is, this is a bad bill, not that the idea of
reforming health care is a bad thing to do but certainly the
priority of doing it as a number one or number two thing in the
111th and 110th Congress when we had 16 million people out of
work in this country and probably 25 million underemployed, an
unemployment rate of 10 percent, deficits. He said they
inherited a $1.4 trillion deficit. Well, how about the next
year when it was $1.6 trillion? Who inherited that? And how
about the $5 trillion worth of additional debt that was piled
on to the taxpayer by the Democrat Majority since they took
control in 2007? So I think their priorities are all wrong and
backwards in regard to this, and I am really interested in
hearing from our witnesses, the first panel, of course, CBO,
Mr. Elmendorf, and our CMS Actuary, Mr. Foster, because we need
this information.
So if there is any time remaining, I will just yield that
back. Mr. Upton controls the time I guess.
Mr. Upton. I yield to Ms. Blackburn.
Mrs. Blackburn. I want to welcome our witnesses today, and
to the witnesses and my colleagues, I would just remind you
all, in Tennessee we had an experiment called TennCare.
TennCare eventually consumed 35.3 percent of our State's budget
before Governor Bredesen took action to try to get this under
control. This was public option health care and it was the
experiment for public option health care, and I would like to
hear from our witnesses today if there ever been any, any
project where you gambled on making all these short-term
expenses in order to receive long-term savings. From our
research work, you can't find an example. It is one of the
dangers we have in Obamacare.
I yield back.
Mr. Pitts. The chair thanks the gentlelady and now
recognizes the ranking member, Mr. Waxman.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you very much, Mr. Chairman.
I find this hearing to be sadly ironic. The Republican
members of the House have frequently complained about the
growth in spending in government health programs. We hear on a
daily basis about how Medicare and Medicaid are jeopardizing
the financial health of this country, and about how it is time
that we had an adult conversation about spending. Yes, let's
have an adult conversation. Adult conversations start with
facts.
These are the facts. When President Bush came to office, he
inherited a surplus projected to total $5.6 trillion over 10
years. When President Obama came to office, he inherited a
deficit in 2009 of $1.3 trillion for that one year alone. The
deficit widened, I would remind my colleagues on the other side
of the aisle, because we went into the deepest recession since
the Great Depression, which meant fewer revenues and greater
expenditures, widening the deficit more.
President Bush did not think national debt was a high
priority. Instead, rather than pay it off, he passed a series
of reckless tax increases that enriched the wealthy at the
expense of everyone else. Those tax cuts, like the Medicare
prescription drug bill and two wars launched under President
Bush, were not paid for. They were charged straight to the
national credit card. And that is how you take a $5.6 trillion
surplus and turn it into a massive deficit.
Health care has played a role in this drama. In the future,
increasing numbers of baby boomers and stubborn health care
spending growth will put pressure on our budget, without
question. But the deficit crisis we find ourselves in is a man-
made crisis, in fact, it is a Republican-made crisis.
CBO projects that growth in Medicare under the Affordable
Care Act, will be slowed to historically low rates on a per
capita basis, to just 2 percent per year over the next 2
decades, compared to a 4 percent per capita historically.
Projected spending on Medicare would fall well below even
projected annual growth in GDP per capita, which CBO pegs at
3.7 percent over the next 10 years. Medicaid, too, has
historically had slow growth on a per capita basis relative to
private health plans. Over the last decade, Medicaid costs grew
4.6 percent per person per year, compared to 7.7 percent for
employer-sponsored premiums.
Now, the gentleman on the other side of the aisle said he
didn't know why we went into this reform of health care. Well,
things were not great. Fifty million people couldn't get health
insurance. Health care costs were increasing so rapidly. We
needed to do something. The Republicans evidently said let
things go as they are going and they were going in the wrong
direction.
The Affordable Care Act has been the largest deficit-
reducing bill passed by Congress in the last decade so it is
true to its name, affordable care. So our current deficit
crisis right now is not about health care.
In addition, the Affordable Care Act covers 32 million
Americans. Republicans never offered anything to do that. The
health care bill stops insurance practices that would deny care
to people who have to look to the private market. It would
protect them from being excluded because of previous conditions
and other arbitrary insurance practices, which they had to do
because they didn't have everybody else in the pool.
Well, let us go back to our adult conversation. Republicans
keep telling us that we can't afford the reforms to Medicare
that the ACA proposed. Now they are telling us that once we
repeal the ACA, we need to pass much larger cuts to Medicare
and Medicaid in order to pay for tax cuts for the very richest
Americans. Majority Leader Eric Cantor said in a speech just
last week, talking about Social Security, Medicare, and
Medicaid: ``We are going to have to come to grips with the fact
that these programs cannot exist if we want America to be what
we want America to be.''
How dare he say these programs cannot exist. This is not
the America people want. The Affordable Care Act is entitlement
reform done responsibly. It is time we stopped trying to repeal
it and moved on to real work and real legislation.
Mr. Chairman, I just think that we hear these complaints,
complaints, complaints from the other side of the aisle. What
do they have to offer? If what they have to offer is to cut
back on Medicare and Medicaid and Social Security, they will
create jobs because the elderly and the poor are going to have
to find work but they are not going to find them, they are just
going to have to do without the care and we are going to have
more uninsured.
I yield back my time.
Mr. Pitts. The gentleman's time is expired. The chair
thanks the gentleman.
Mr. Waxman. Mr. Chairman, I was supposed to use less time
and yield it to Mr. Dingell. At some point can we give him a
minute? May I ask unanimous consent that Mr. Dingell be given 1
minute?
Mr. Pitts. Is there any objection? Without objection, the
gentleman is recognized for 1 minute.
Mr. Dingell. Mr. Chairman, I thank my good friend. I have
an excellent statement. It denounces this hearing. It denounces
the purposes of my Republican colleagues. It denounces the
fiction that we are going to be hearing this morning from the
other side of the aisle. I would urge my colleagues to read it.
It will benefit everybody, and I am sure you will enjoy reading
this and I thank you, and I ask unanimous consent to submit my
remarks.
Mr. Pitts. Without objection, so ordered.
[The prepared statement of Mr. Dingell follows:]
Prepared statement of Hon. John D. Dingell
Today, nearly 4 months into the 112th Congress, this
Committee is holding yet another political show for the benefit
of pundits here inside the Beltway.
It is abundantly clear that without major reform to our
health system the status quo is unsustainable. After hard
decisions, hours of debate and deliberation, Congress passed
and the President signed the Affordable Care Act.
Defunding the Affordable Care Act is not legislating. This
is like taking an eraser to an answer on a test, and then
leaving it blank because you don't have a better solution.
If my friends on the other side of the aisle want to defend
the Nation's bottom line, then why did they offer H.R. 2,
repealing the Affordable Care and increasing the federal
deficit by $210 billion?
If my friends on the other side of the aisle want to create
jobs, why repeal the Affordable Care Act, which will add
400,000 jobs a year for the next 10 years?
American families need help now. They need protection from
insurance companies dropping their coverage, they need help in
providing health coverage for their college students, and they
need help to afford their prescriptions under Medicare--these
are all real solutions ACA provides to families today and
solutions my friends on the other side of the aisle would
repeal and replace with nothing.
Thank you.
Mr. Pitts. The chair thanks the gentleman.
We have two panels today. Each of the witnesses has
prepared an opening statement that will be placed in the
record. I will now introduce the first panel of two witnesses.
Our first witness is Doug Elmendorf, who is the Director of
the Congressional Budget Office. Before he came to CBO, Mr.
Elmendorf was a senior fellow in the Economic Studies Program
at the Brookings Institution. Next, we will hear from Rick
Foster, who serves as the Chief Actuary at the Office of the
Actuary at the Centers for Medicare and Medicaid Services.
Mr. Elmendorf, we ask you to please summarize. You are
recognized for 5 minutes for your opening statement at this
time.
STATEMENTS OF DOUGLAS ELMENDORF, DIRECTOR, CONGRESSIONAL BUDGET
OFFICE; AND RICHARD FOSTER, CHIEF ACTUARY, CENTERS FOR MEDICARE
AND MEDICAID SERVICES
STATEMENT OF DOUGLAS ELMENDORF
Mr. Elmendorf. Thank you, Chairman Pitts, Congressman
Pallone and members of the subcommittee. I appreciate the
opportunity to testify today about CBO's analysis of the
Patient Protection and Affordable Care Act and last year's
Reconciliation Act. Together with our colleagues on the staff
of the Joint Committee on Taxation, we provided to the Congress
numerous analyses of this act and the legislation leading up to
it, and my written statement summarizes that work.
In brief, we estimate that the legislation will increase
the number of non-elderly Americans with health insurance by
roughly 34 million in 2021. About 95 percent of legal non-
elderly residents will have insurance coverage in that year
compared with a projected share of 82 percent in the absence of
that legislation and about 83 percent today. The legislation
generates this increase through a combination of a mandate for
nearly all legal residents to obtain health insurance, the
creation of health insurance exchanges operating under certain
rules and through which certain people will receive federal
subsidies and the significant expansion of Medicaid.
According to our latest estimate, the provisions of the law
related to health insurance coverage will have a net cost to
the Treasury from direct spending and revenues of $1.1 trillion
during the 2012-2021 decade. That amount is larger than CBO's
original estimate of the cost of those provisions during the
2010-2019 decade that represented the 10-year budget window
when the legislation was originally estimated. That increase is
due almost entirely to the shift in the budget window. As you
can see in figure 2 in front of you, the revisions in any
single year are quite small.
In addition to the provisions related to insurance
coverage, PPACA and the Reconciliation Act also reduce the
growth of Medicare's payments for most services, impose certain
taxes on people with relatively high income and made various
other changes to the tax code, Medicare, Medicaid and other
programs. As you can see in figure 1, those provisions will on
balance reduce direct spending and increase revenues, providing
an offset to the cost of the coverage provisions. According to
our latest comprehensive estimate of the legislation, the net
effect of all the changes in direct spending and revenues is a
reduction in budget deficits of $210 billion over the 2012-2021
period.
Not surprisingly, observers have raised a number of
challenges to our estimates. Let me comment briefly on the
three most common areas of concern that I have heard. First,
some analysts have asserted that we have misestimated the
effects of the changes in law. Those concerns run in different
directions. Some analysts believe that the subsidies will be
more expensive than we project while others maintain that the
Medicare reforms will save more money than we project.
Certainly, projections of the effects of this legislation are
quite uncertain and no one understands that better than the
analysts at CBO and JCT. Our estimates depend on myriad
projections of economic and technical factors as well as on
assumptions about the behavioral responses of families,
businesses and other levels of government. All of these
projections and assumptions represent our objective and
impartial judgment based on our detailed understanding of
federal programs, careful reading of the research literature
and consultation with outside experts. In addition, our
estimates depend on a line-by-line reading of the specific
legislative language. Our goal is always to develop estimates
that are in the middle of the distribution of possible
outcomes, and we believe we have achieved that goal in this
case.
A second type of critique of our estimates is that budget
conventions hide or misrepresent certain effects of the
legislation. I will mention two of the prominent examples that
I have heard. As one example, the numbers I have just cited
involve changes in direct spending and revenues because that is
what is relevant for pay-as-you-go procedures and because those
changes will occur without any additional legislative action.
However, PPACA and the Reconciliation Act will also affect
discretionary spending that is subject to future
appropriations. We noted many times that we expect the cost to
the Department of Health and Human Services and the Internal
Revenue Service of implementing the legislation will probably
be about $5 billion to $10 billion each over the next decade.
PPACA also includes authorizations for future appropriations.
Those referring to specific amounts total about $100 billion
over the decade with most of that funding applied to activities
that were being carried out under prior law such as programs of
the Indian Health Service.
Another example of concern about budget conventions
involves the Hospital Insurance trust fund, which covers
Medicare part A. The legislation will improve the cash flow in
that trust fund by hundreds of billions of dollars over the
next decade. Higher balances in the fund will give the
government legal authority to pay Medicare benefits for longer
than otherwise but most of the savings will pay for new
programs rather than reduce future budget deficits, and
therefore will not enhance the government's economic ability to
pay Medicare benefits in future years. We wrote about those
issues as the legislation was being considered in the Congress.
A third type of critique is that PPACA and the
Reconciliation Act will be changed in the future in ways that
will make deficits worse. As with all of CBO's cost estimates,
the ones for this legislation reflect an assumption that the
legislation will be implemented in its current form. We do not
intend to predict the intent of future Congresses that might
choose to enact different legislation. At the same time, we
emphasize that the budgetary impact of this legislation could
be quite different if key provisions were changed and we
highlighted certain provisions that we expect might be
difficult to sustain for a long period of time. Thank you.
[The prepared statement of Mr. Elmendorf follows:]
[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:]
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Mr. Pitts. The chair thanks the gentleman and recognizes
Mr. Cutler for 5 minutes.
STATEMENT OF DAVID CUTLER
Mr. Cutler. Mr. Chairman, Mr. Pallone and members of the
committee, I appreciate the invitation to appear before you
today.
The high level and rapid growth of medical spending in the
United States is an enormous policy challenge and understanding
the Affordable Care Act will affect that is extremely
important. As we consider that, there are two principles that I
think ought to guide that discussion.
First, we need to eliminate wasteful spending, not valuable
spending, so we need to be careful about how we cut. Second, we
need to reduce the overall level of spending, not simply shift
costs from one payer to another. Many proposals would shift
costs around without reducing the overall level of spending.
The key question is finding areas where we can accomplish both
of those goals, where we can both reduce wasteful spending and
not just shift costs. The health policy literature suggests
there are three areas where that is possible. One is by
improving the management of acute and postacute care for
patients who are very sick and who receive more care than
almost all physicians believe is necessary. Second is greater
attention to prevention, where we spend a good deal of
additional money by not having prevented disease, and third is
reducing excessive administrative spending, which takes
anywhere from 10 to 15 percent of medical care costs without
bringing any commensurate benefits.
To give you a sense of the total, most experts estimate
that about $750 billion to $1 trillion a year is spent on
medical care that has relatively low value to patients or no
value to patients. The Affordable Care Act is designed to
address those sources of inefficiency and it does so in a
number of different ways. The philosophy behind the Affordable
Care Act is straightforward. First, get the right information
to people so that we know what works and what doesn't. As one
friend of mine told me once, name a business that ever got
better without knowing what it was doing. It is important to
note that the HITECH provisions of the American Recovery and
Reinvestment Act of 2009 are centrally linked to those of the
Affordable Care Act because they create the foundation for
learning that information.
Second, you need to reward doing the right thing, not doing
too much, not doing too little but doing the right amount.
Physicians are frustrated, not because cannot treat individual
patients, which they can, but because they know the system
sends them off in directions that are counterproductive, that
the only way to earn enough to keep their practice in business
is to do more, to do things that are uncoordinated because
coordination has expenses but no revenues and to not focus on
prevention. The Affordable Care Act affects these incentives in
a number of ways including direct payment innovation such as
higher reimbursement for preventive care services, bundled
payments for acute and postacute medical services, shared
savings or capitation payments for accountable provider groups
that assume responsibility for continuum of patents' care, pay-
for-performance incentives for Medicare providers, increased
funding for comparative effectiveness research, the Independent
Payment Advisory Board and an Innovation Center in the Centers
for Medicare and Medicaid Services to test and disseminate new
care models, an excise tax on high-cost insurance plans to
provide incentives to reduce wasteful spending there, increased
emphasis on wellness and prevention. This set of policy
reforms, I should note, is neither a Democratic list nor a
Republican list. It draws on both sides of the spectrum. Former
CMS or HCFA administrators from both Democratic and Republican
Administrations stress these are the single most important
steps we can take to reduce the amount of inefficient medical
spending in the United States.
In addition, in very little noticed provisions, the
Affordable Care Act takes a major step to reduce burdens to
administrative practices. Particularly sections 1104 and 10909
lay the foundation for reducing administrative burden, which I
believe could be reduced by half and save the American people
approximately 10 percent of medical spending simply by getting
of administrative costs, not services that are no longer
needed.
The effect of these changes on medical spending, on federal
and State budgets and on job growth are profound. I estimate
that when you are able to do this, the Affordable Care Act will
reduce national medical spending by over $500 billion in the
next decade. It will reduce the federal budget deficit by over
$400 billion and lead to the creation of 250,000 to 400,000
jobs annually.
The urgent need is for this Congress and the Administration
to work together on these ideas that are neither Democratic nor
Republican ideas but they are ideas that come from across the
spectrum of thinkers and people in the health care sector to
work together to ensure that the Affordable Care Act is as
successful as it can be.
Thank you again for the opportunity to be here and I look
forward to answering any questions you might have.
[The prepared statement of Mr. Cutler follows:]
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Mr. Pitts. The gentleman's time is expired. The chair
thanks the gentleman and recognizes Mr. Kennedy for 5 minutes.
STATEMENT OF PHILIP K. KENNEDY
Mr. Kennedy. Chairman Pitts, Ranking Member Pallone, and
distinguished members of the subcommittee, thank you for
inviting me to testify before you today on the effects that
this complex and erroneous reform will have on my business. My
name is Phil Kennedy and I own Comanche Lumber Company,
Incorporated, located in Lawton, Oklahoma. I am here to speak
to you on behalf of the U.S. Chamber of Commerce today.
My family began operating Comanche Lumber Company in 1967.
As Lawton grew, so did Comanche Lumber Company, eventually
adding flooring and decorating products. What began as a simple
lumberyard almost 44 years ago has become one of southwest
Oklahoma's leading building material retailers. Today we remain
independently owned and operated and a strong member and
supporter of the Lawton community. However, the past few years
have been difficult. As I waded through the new health care
law, I began to grasp the mandates and their bearing on my
business. I am deeply concerned about the future of my family's
business.
We have roughly 50 full-time employees, sometimes more,
sometimes less, depending on the time of the year, because the
bulk of our business occurs in the spring and summer months.
Comanche currently offers a generous health plan to our
employees. Over half of us take advantage of this coverage,
including me. Comanche pays approximately 50 percent of the
premiums for our employees and offers two different high-
deductible plan options, one with a $1,500 deductible and
another more comprehensive plan with a lower $1,000 deductible.
Fortunately, we have been able to get good rates because
Oklahoma has good free market laws that encourage competition
among insurance companies for my business. However, premiums
have been climbing. In order to prevent large increases, we
have had to make tough choices which have included increasing
our plans' deductibles and implementing a more tiered
prescription drug plan.
I understand the new law includes a number of new insurance
rules billed as patient protections which require free
preventive services and place restrictions on annual and
lifetime limits, among other things. While new services may
sound nice, we must realize they are not free. Instead, these
new mandates will hamper the flexibility to modify plans'
designs and restrict premium growth. Even with the flexibility
we had over the past two years, our premiums have increased
roughly 30 percent.
There are many other aspects of the law that will increase
Comanche's premiums including numerous taxes on health
industries including taxes on medical devices, prescription
drugs and small business health insurance that will be passed
on to me and my employees in the form of higher premiums. While
these new insurance rules and taxes are problematic, their
impact pales in comparison to what will happen when the new
mandates kick in. Beginning in January 2014, businesses with 50
or more employees will be punished with fines if they don't
offer a certain level of coverage. Even more troubling is the
fact that businesses that over qualified plans might still be
fined just as much. It is ironic that the fine for businesses
that don't offer coverage is $2,000 per employee while the fine
for a business that does offer coverage is $3,000 per employee
plus the cost of paying for coverage. Considering that
Comanche's profits are about 1 percent, I am sure you can see
how these fines would dramatically impact our business.
It appears that to avoid these fines, I can either reduce
my staff to less than 50 full-time employees or consider
alternative staffing like employing part-time workers or
outsourcing. I can't imagine why a law would incent these
actions at a time when our economy is struggling to recover
from such a terrible recession, but as a business owner my job
is to protect the business, keep the doors open and sell
building materials. I hope I will not have to seriously
consider these choices but the health care law may force my
hand as well as that as many other small business people.
Small business owners were hopeful that health care reform
would rein in health care costs and bend the so-called cost
curve down. However, looking through the bill I don't see any
real medical liability reform other than the vague
acknowledgement that says States should be encouraged to
develop and test alternatives. It seems to me that if really
want to address rising costs, medical liability reform should
be tackled head on. We need to fix the existing civil
litigation system instead of merely saying it needs to be
fixed. Real health reform would include ideas like this.
Instead, the law just taxes, subsidizes and dramatically
increases my paperwork burdens by provisions such as the 1099
reporting.
In conclusion, I understand that given the existing
political realities in Washington, a total repeal of the health
care law is an unlikely proposition for now. However, I am
hopeful that this subcommittee and your colleagues in the House
and Senate will start on repairing and eliminating the most
erroneous mandates and provisions starting with the repeal of
the employer mandate. Your decisions can either help or hinder
us. The law you create can either foster an environment to give
small business owners greater confidence and certainty to grow
and generate new jobs or one that does just the opposite.
Regrettably, the new health care law is already doing the
latter. Congress needs to take action to rectify this problem.
Thank you for the opportunity to testify and I look forward
to your questions.
[The prepared statement of Mr. Kennedy follows:]
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Mr. Pitts. The chair thanks the gentleman. The gentleman's
time is expired. The chair recognizes the gentleman, Mr. Poore,
for 5 minutes for an opening statement.
STATEMENT OF RICK POORE
Mr. Poore. Chairman Pitts, Ranking Member Pallone and
members of the subcommittee, it is nice to see so many of you
here. Thanks for having me to testify today. My name is Rick
Poore and I own DesignWear, a screen printing and embroidery
business in Lincoln, Nebraska. I am also a member of the Main
Street Alliance, a network of small businesses, as well as the
Lincoln Independent Business Association.
I have been a small business owner for 17 years and I
started with three employees and now we have 29. I offer
insurance to my employees and pay for part of it. I would
rather have my employees worried about the product we are
producing rather than whether Timmy can get his medicine and
put food on the table at the same time. But every year our
premiums go up, sometimes over 30 percent over the last 10
years. At the same time, in an effort to keep things
affordable, our benefits were whittled away until we had
nothing left but the insurance equivalent of a fig leaf. Only
in the last 2 years have I been able to keep premiums under
control without giving up benefits and in fact adding benefits.
The country counts on small businesses to create jobs. You
hear it all the time. If you want to talk about job killing,
you look no further than the runaway health care costs that I
have experienced. Small businesses' ability to create jobs has
been seriously undermined by insurance costs more than doubling
in 10 years. We saw a lot of years of steep increases with no
tools to do anything about it. Without a lot of choice and
bargaining power, I stood a better chance at a carnie game at
the midway than I did against my insurance company.
The Affordable Care Act is finally changing that in my
favor. The argument that the health care law will cost our
economy jobs ignores the lessons of the last decade where it
was the lack of action by Congress to curb skyrocketing costs
leaving small businesses in the lurch. The real threat to job
creation is the threat of repealing this law and going back to
a system that stacks the deck against me, diverting money away
from investment and growth.
Concerning the employer responsibility requirement, we have
got to remember two facts. First, over 95 percent of our
Nation's businesses have less than 50 workers and won't be
impacted. Second, 96 percent of businesses with more than 50
workers already offer coverage. If some larger businesses
complain that paying for health coverage will harm their
ability to create jobs, remember that when they don't pay, the
rest of us pay their way for them and that hurts my ability to
create jobs. Imagine if my competition decided they didn't want
to pay wages anymore but I was held responsible for their
payroll. That is effectively what we are doing with cost
shifting in health care.
Recent data from insurers in Nebraska and Kansas City,
national companies like United Health Group and Coventry, show
encouraging increases in small business coverage. The tax
credits are already helping small businesses offer coverage,
save money and plow those savings back into businesses. We will
get even more help when the exchanges open. I need that kind of
broad risk pooling and bargaining power and a Nebraska exchange
to lower costs.
I know insurance lobbyists are trying to blame recent rate
increases on the new law but insurers find an excuse to raise
rates every year. If they are raising them again, then it is in
spite of the law, not because of it. Even insurance executives
admit this. One in Massachusetts said recently that only one
point of his company's increases this year were due to the new
law.
Small business people, in conclusion, above all are problem
solvers. We wake up every day looking for a better way to do
our business. We take whatever pitch is thrown at us and we do
what we can with it. My best employees become problem solvers
for me. Problem solving is what Americans send you guys to
Washington to do, and there is a funny thing about solutions I
have found is that most solutions aren't perfect right out of
the box. You don't scrap them; you make a start in the right
direction and then you change course and correct the course as
you need. One thing for sure, our country and our economy can't
afford to go back to a health system that doesn't work for
small business. I already know that it won't work. We have got
to move forward.
When I was first approached about this, I had to think
about what year I started the business, and I was talking to my
wife, and as a habit I don't think a lot of businesspeople look
back that much. I think they look forward as much as they can.
There is just not a lot of time for looking back. So that is
what I am asking you guys to do. You can call it Obamacare if
you like but I kind of call it Rick Care. By moving forward,
you can level the playing field for small businesses allowing
us to focus on creating jobs and building our local economies.
Thanks again for having me, and it is something I am not
really used to doing, so thanks.
[The prepared statement of Mr. Poore follows:]
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Mr. Pitts. The chair thanks the gentleman and recognizes
the gentleman, Mr. Schuler, for 5 minutes.
STATEMENT OF LARRY SCHULER
Mr. Schuler. Thank you for this opportunity to testify on
the new health care law on behalf of the National Restaurant
Association. My name is Larry Schuler and I am an independent
restaurateur operating a fourth-generation family business.
Small businesses dominate the industry with more than seven
out of ten eating and drinking establishments being single-unit
operators. We also employ a high proportion of part-time,
seasonal and temporary workers. Our workforce is typically
young with nearly half under the age of 25. Growth and success
in the restaurant industry means opening more restaurants and
locations, which in turn means jobs in our communities.
When I closely examined the impact of this new health care
law on my businesses, I began to reexamine my expansion plans
and may now not take an additional growth on. My written
testimony submitted for the record outlines some specific fixes
the industry is calling for but I would like to use my time to
outline for you how the new health care law affects my business
specifically.
My businesses are typical of many restaurants in our
industry. We have a large group of seasonal employees that
include a number of college students, some who work seasonally
for us multiple times per year. We are very close to the 50
full-time equivalent worker threshold. How many hours our part-
time employees work will determine if we are a large applicable
employer or not.
What this means for my restaurants and our employees that,
depending on the time of year and the number of hours worked by
our team, we could be considered a large applicable employer
and subject to the most stringent employer mandates in the law
some months but not in others. In addition, our employees could
be full-time employees one month and part-time employees the
next. Using our 2010 employment numbers, the calculations for
our largest location would put us over the 50 full-time-
equivalent threshold. In 2010, on the average, we employed 33
full-time employees and 26 full-time equivalents working part
time hours for a total of 59 full-time equivalents that place
us over the threshold and subject us to the coverage and
penalty requirements of the law. We employ 24 seasonal part-
time employees and five seasonal full-time employees as well,
for a total of 38 full-time employees to whom we would be
required to offer coverage under the new law as a large
employer. Should all 38 employees opt in to the coverage, we
would see a 282 percent cost increase to the business over
current premiums from $2,067 monthly or $24,808 annually today
to $7,892 a month or $94,669 annually. If we chose not to offer
coverage at all, we would pay an average of $1,375 monthly or
$16,500 annually in penalties. The penalties would be less than
what we are paying for health care now.
Faced with these very large increases in coverage cost
which do not take into consideration the likely premium
increases, it will be extremely difficult for us to absorb
these costs and continue offering coverage. We cannot raise
many prices high enough to cover these costs and to do so would
drive away customers who are just beginning to return to our
tables. Our only option would be to closely manage our
workforce hours to be able to eliminate ten full-time
equivalents from our staff and remain below the 50 full-time-
equivalent large employer threshold.
The industry will begin to closely manage employees' hours
to 29 or less. In practice, it will mean a larger employer base
working less hours, no more than 25 hours to avoid bumping into
the cap, and an increase in labor and training costs. For
employees, it will mean the need to get a second and third job
to make up the lost hours and thus income.
Another issue that impacts my situation is the lack of
consistency in compliance timelines. The new law allows for a
maximum waiting period of 90 days before coverage must be
offered or an employer is considered as not offering coverage.
However, a seasonal employee is defined as working 120 days or
less. The new law requires that a large applicable employer
offer seasonal employees who work full time coverage. One of my
businesses is strictly seasonal, open 107 days a year from the
week before Memorial Day weekend until the week after Labor Day
weekend. In 2014, I will be required to offer my seasonal full-
time employees coverage from day 91 through day 107 or pay the
penalty for that month on each of them for not offering
coverage.
Mr. Pitts. Could you wrap up?
Mr. Schuler. Without legislation change, I would probably
shorten the number of days.
I thank you again for the opportunity to testify today on
the true costs of the new health care law and its negative
impact on the jobs of the restaurant industry and my business
in particular. I look forward to addressing your questions.
[The prepared statement of Mr. Schuler follows:]
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Mr. Pitts. The chair thanks the gentleman. I thank the
panel for your opening statements. I will now begin the
questioning and recognize myself for 5 minutes, and I will
start with you, Mr. Schuler.
You mentioned you are considering closing your seasonal
operation for a couple of weeks in order to avoid some of
PPACA's requirements. You may continue to elaborate further on
that.
Mr. Schuler. Thank you. To avoid the complexity costs of
being open those additional 17 days, it will be easier for me
to manage the business to that shortened time period so I will
not be required to do that.
Mr. Pitts. Mr. Kennedy, in your testimony you mentioned
that PPACA provides the wrong incentives for job creation at a
time when we are still struggling to recover from a recession.
Specifically, you state that PPACA incentivizes you to get
below the employer mandate threshold of 50 workers. Would you
elaborate further on that, please?
Mr. Kennedy. We definitely would be considering that
because of the new regulations and what that entails as far
health insurance, and are currently even looking at that as we
go about making sure that what levels we have as far as
employees and that has become a decision factor in our
progressing forward in growth whereas used to we would want to
grow as much as possible. Now as we grow above 50 we have
another item we have to consider and how that would impact us
as far as cost and whether those actual costs can be offset by
profits that we make.
Mr. Pitts. Thank you.
Mr. Holtz-Eakin, I would like to go through a few points
regarding the score of PPACA to give us some broader context of
what these numbers mean, and I would also like to explore what
burdens have been imposed on taxpayers and States that by their
nature wouldn't be reflected in CBO's score. CBO estimates that
$86 billion in premiums from the new long-term care program
known as the CLASS program are used to offset the cost of the
new entitlement in Medicaid expansion in PPACA. Can those funds
be used to pay for both PPACA and future CLASS program
benefits?
Mr. Holtz-Eakin. No, they cannot. They will be gone in the
first 10 years and additional funds will have to be found after
that.
Mr. Pitts. All right. CBO estimates that $53 billion in
Social Security payroll taxes are used to offset the cost of
the new entitlement and Medicaid expansion in PPACA. Can those
funds be used to pay for both PPACA and future Social Security
benefits?
Mr. Holtz-Eakin. Same story is true. Those will be gone in
the first 10 years and additional funds will be needed to be
found to make good on Social Security promises.
Mr. Pitts. Now, some proponents of the law have claimed
that Medicare cuts included in PPACA can both pay for new
entitlement spending and finance future benefits. Is this an
accurate statement? Would you elaborate on that?
Mr. Holtz-Eakin. It is not accurate. Federal accounting
notwithstanding, the money will be spent only once and cannot
both extend the Medicare program and pay for the insurance
subsidies.
Mr. Pitts. Proponents of the bill argue that PPACA costs
under $1 trillion over 10 years during its passage. However,
the CBO score of the bill was artificially low because the
other side of the aisle delayed the bill's major spending until
2014. Now, we recently found out that with just 2 more years of
spending, PPACA's spending estimates shot up to $1.44 trillion.
However, this number still doesn't account for the full 10
years of implementation. If we extrapolate CBO's estimates to
the full 10 years, what would you estimate the real cost of the
bill to be?
Mr. Holtz-Eakin. I think over a full 10 years, fully
implemented, this bill is easily going to exceed $1.6, $1.8
trillion.
Mr. Pitts. All right. The original House health care bill
included the doc fix but the provision was taken out towards
the end of the process. This is despite the fact that PPACA
uses Medicare cuts to fund a new entitlement program rather
than fix the SGR that we all agree is a real problem. How much
did the removal of the SGR artificially lower the cost of the
health care law?
Mr. Holtz-Eakin. As I recall, it reduced it by about $250
billion over the first 10 years.
Mr. Pitts. How much?
Mr. Holtz-Eakin. By about $250 billion in the first 10
years.
Mr. Pitts. And the score for the health care law also did
not include nearly $115 billion in the discretionary program
cost to run Obamacare. Is that not correct?
Mr. Holtz-Eakin. That is my understanding, yes.
Mr. Pitts. The chair thanks the panel and will recognize
now the ranking member, Mr. Pallone, for 5 minutes for
questions.
Mr. Pallone. Thank you, Mr. Chairman. I am going to try to
get one question in for Mr. Cutler and one for Mr. Poore, so
bear with me if we can try to split the time between you.
Let me start with Mr. Cutler. Opponents of the Affordable
Care Act claim that the law will kill jobs. They argue that
requiring employers to offer health insurance and to improve
their benefits will increase the costs of labor. Now, I don't
think that is true. I think that in fact the Affordable Care
Act helps to create thousands of jobs in the public and private
health care sectors. In June 2010, funds were allocated to
train more than 16,000 new primary care providers including
physicians, physician assistants and nurses. It seems logical
that the newly insured 30 million people will need doctors,
nurses and other health care personnel to meet their medical
needs. Now, the Republican critics say they fear the country
might not have enough doctors and hospitals to serve those
people but my answer is a growing workforce, more jobs and
improved efficiencies. Specifically, less spending on health
care premiums will free up money for business to invest in a
new workforce. Now, the CBO said today that to the extent that
changes in the health insurance system lead to improved health
status among workers and the nation's economic productivity
would be enhanced.
Mr. Cutler, you have done work on what effects the bill
will have on the job market. Your study predicts that the
health reform will strengthen the economy and the job market by
creating 250,000 to 400,000 jobs a year for the next decade. I
just want you to elaborate on your study and explain to us how
the health care reform is a job creator, not a job killer, and
talk about some of the other factors that I mentioned.
Mr. Cutler. Thank you, Mr. Pallone. Health insurance costs
are an absolutely critical indicator for hiring. Industries in
which more businesses are providing health insurance to their
workers have grown less rapidly than industries where fewer
employers provide health insurance, and that is particularly
true in the United States in comparison to other countries. And
so the central, the fundamental issue about any health care
reform is what will it do over time to the cost that businesses
face for health insurance. As I discussed in the testimony and
in the opening statement, the Affordable Care Act contains
essentially all of the tools that economists and policy
analysts have put forward for reducing the costs of medical
care over time. It is my belief that what those provisions will
do is to reduce premiums by the end of this decade by about
$2,000 per person relative to what they would have been. That
will free up money for firms that are now providing insurance,
that are thinking about providing insurance but are on the
margin, and allow them to take that money and use that to grow
businesses, to pay higher wages, to do anything of the things
that businesses would like to do that they have been stifled
from doing.
In addition, by creating a universal coverage system, we
will no longer have people locked into jobs because they are
worried about getting insurance or not starting new businesses
because a member of their family is ill and won't be able to
afford it and all the rigidities that come from people being
scared about health care, which is very common, will disappear
and that will create more entrepreneurship in the economy as
well.
Mr. Pallone. All right. Thank you. And thank you for also
limiting your answer so I can get to Mr. Poore.
Mr. Poore, Rand estimates that small businesses will
increasingly offer health coverage--now we are talking about
the Affordable Care Act. Rand estimates that small businesses
will increasingly offer health coverage because they will have
the same purchasing power as large employers as well as access
to more choices. Rand also reports that the Affordable Care Act
will increase the number of small employers, those under 50,
who offer health insurance up from, say, 57 percent to 85
percent. So basically they are talking about all the different
advantages that the Affordable Care Act would provide.
A lot of this comes from the State exchanges once those
State exchanges are up, so I just wanted you to describe how
you think these State exchanges will affect your business and
other small businesses in the country.
Mr. Poore. Well, first of all, I think that we are already
starting to see more small businesses getting coverage.
Statistics are showing that from Coventry and several others.
But for me alone, every year my insurance guy would come in and
say listen, your rates are going up 16 percent or 23 percent,
and I would say, you know, Troy, why is that. And he was like,
well, you are just a little group. And so I said Troy, if I had
10,000 people in my risk pool, would my rates go down; well,
absolutely. So that is where the exchanges come in for me. You
know, if I can shop and get--once again, just going back for a
minute, Troy would also come in and he would give me two
companies, three plans from each, and that was my choice, but a
big company or like a service employees, not service employees
but like public employees, the State offers this broad--they
almost already have exchanges running that I don't have access
to so I am kind of hamstrung that way right now.
In the last 2 years, I have been able to keep my rates from
going up. I have actually added some benefits. My rates have
gone up over 2 years 16 percent. That is the lowest increase in
rates that I have ever seen in 11 or 12 years of offering
insurance, and the only reason they went up is because I was
putting--I was lowering my deductible and I was lowering my
out-of-pocket, so if I would have left it the same, I might
actually be level, which, believe me, if there is anybody that
has ever--I have never had a situation where my rates didn't go
up. It a pretty phenomenal statement to be able to make.
Mr. Pallone. Thank you.
Mr. Burgess [presiding]. The gentleman's time is expired. I
recognize myself for 5 minutes for the purpose of questions.
Mr. Holtz-Eakin and Mr. Cutler, you have both been at this
a long time. You both remember the summer of 2009, specifically
August of 2009. My little sleepy town hall meetings that I
would hold typically attracted one or two dozen people,
attracted 1,000 or 2,000 people. They were concerned about what
they saw the Congress of the United States doing but what I
heard over and over again was, number one, if you are going to
do anything, please don't mess up what is already working for
arguably 65 percent of the country; if you have to fix some
things for some people, do so without being disruptive, and
number two, if you are going to do anything at all, could you
please help us with cost. So I would ask you both to be brief
as you can but how did we do on those two requests? Mr. Cutler,
if you will go first and then we will go to Mr. Holtz-Eakin.
Did we mess it up for people and did we hold down costs?
Mr. Cutler. I believe we did very well on both counts.
Mr. Burgess. All right. Let me ask Mr. Holtz-Eakin. How did
we do on both counts?
Mr. Holtz-Eakin. I think you are 0-for-3 actually.
Mr. Burgess. Well, Mr. Cutler, let me just ask you, how is
it indicative that we didn't alter the system for people who
thought it was working, thought it was working oK, although
they are concerned about cost but now we have got, what is it,
1,040 waivers. We have got whole States asking for waivers. We
have got Anthony Weiner of New York asking for a waiver, for
crying out loud. Is this indicative of a system that is well
functioning and has matured to the point where you think it is
in good shape?
Mr. Cutler. What we are seeing is the difficulties of the
current system as they are being mapped out. Remember, this
legislation takes effect over a number of years.
Mr. Burgess. Correct.
Mr. Cutler. Mr. Poore said the creation of the exchanges
will be a very big----
Mr. Burgess. Let me ask you another question.
Mr. Cutler [continuing]. Factor for small businesses but
those come in a few years.
Mr. Burgess. Well, Dr. Holtz-Eakin, do you have an opinion
as to is the system working well?
Mr. Holtz-Eakin. No. I mean, in the end the fundamental
issue was the size of the Nation's health care bill. Insurance
was just a layer on top of that. And so you could have the
world's finest insurance exchanges but we haven't solved the
fundamental problem. As a result, insurance will continue to
get more expensive and that is what the American people are
upset about.
Mr. Burgess. One of the things I never understood, we had
these hearings when Mr. Pallone was chairman and people would
come in and talk to us about expanding Medicaid and the various
federal programs and public options. We never asked Mitch
Daniels to come in here and talk to us about how he was able to
hold down costs for his State employees with the Healthy
Indiana plan by 11 percent over 2 years. Those same 2 years,
standard PPO insurance was going up 7 or 8 percent. Medicare
and Medicaid, as it turned out retrospectively, were going up
10 and 12 percent. You just have to ask yourself why you
wouldn't look to the States as laboratories and found out what
is working and see if perhaps there is some applicability to
the greater world at large and perhaps we wouldn't be so
disruptive to Mr. Kennedy and Mr. Schuler. Mr. Poore is
apparently doing oK with the system as it is written today.
Now, Mr. Cutler, you were a fan of the Independent Payment
Advisory Board but you know virtually everyone on the House
side was not, and in my opinion, the Independent Payment
Advisory Board really is indicative of one of the problems with
the Patient Protection and Affordable Care Act in that the
House bill, as bad it was, never got a fair hearing in a
conference committee. The Senate passed a bill before Christmas
Eve. They lost a critical Senate vote in Massachusetts 2 weeks
later, and it was, you just have to pass this thing in the
House, and as I alluded to earlier, the Senate bill did have a
House number and it previously passed the House as a housing
bill so that actually structurally was able to work and also
conveniently, since there was a lot of tax increase in the
bill, it started in the House of Representatives technically,
although it actually did not, but what do you make of the
Independent Payment Advisory Board now? You said it would be
apolitical and yet you have groups that are opting or
politicking to be left out of it. Is it working?
Mr. Cutler. One of the issues with Medicare has been that
it has been very difficult to make the program modernized when
every single change has to go through the Congress at a glacial
pace, and I think that has been a complaint from both sides of
the aisle.
Mr. Burgess. But in expediting, by saying if Congress can't
agree what those cuts are going to be, they reject the current
cuts that are presented, they can't come up with their own
cuts, and on the following April 15th the Secretary just
implements what the board put forward. I don't know. That is
giving up a lot of constitutional authority that I think many
of us, at least on the Republican side, have problems with, and
I rather suspect our friends on the Democratic side of the dais
had difficulty as well.
Cost shifting, yes, the uninsured, Dr. Holtz-Eakin, caused
some cost shifting but what about the cost shifting from
Medicare and Medicaid and what did we do with the vast
expansion of Medicaid into the Affordable Care Act? Are those
people going to have a doctor or are they still going to show
up at the same emergency room they have always gone to?
Mr. Holtz-Eakin. I think CMS Actuary Foster evinced some
concern about the future of Medicare, about access to
providers, given the cost shifting that goes on there, 77 cents
on the dollar relative to private payers. I am deeply
pessimistic about the future of Medicaid where outside of the
near term federal pickup of the tab at 50 cents on the dollar,
we are simply not going to see access, particularly to primary
cares physicians, and we know they show up in ERs at far too
high a rate. So to use that as the mechanism for coverage
expansion I think was one of the unwise choices of the act.
Mr. Burgess. Yes, why wouldn't they show up to the ER? It
is the same place they used to go when they were uninsured.
They see the same doctor. They get the same hospital room. In
fact, many will not even sign up for Medicaid because why go to
the bother, what I have always done is go to the emergency room
and get the care.
My time is expired. I will recognize the gentleman from
Louisiana, Dr. Cassidy, for 5 minutes.
Mr. Cassidy. We in Louisiana have great affection for Bo
Pelini. I wish you all the best in the Big Ten.
Mr. Poore. It has been great.
Mr. Cassidy. As long as you don't play LSU, we are rooting
for you, buddy.
Mr. Poore. It has been great. He is a great guy.
Mr. Cassidy. Listen, how many employees do you have?
Mr. Poore. Twenty-nine.
Mr. Cassidy. OK. As I read this bill, if you have 25
employees or less, average income of $25,000, you get a 50
percent tax credit.
Mr. Poore. I should fire four of them.
Mr. Cassidy. And if you lose four of them by whatever
reason, would you go back up to 29 and lose this tax credit?
Mr. Poor. Absolutely. I can't do the business I have got
right now.
Mr. Cassidy. That is good. Others tell me differently, but
thank you for your response.
Mr. Cutler, earlier when I was speaking with Mr. Foster, he
accepted the premise of that 2008, I think, Milliman article
that there is a hydraulic effect, particularly as we see the
Gingrey chart where there is this cliff and there is going to
be this inevitable increase. In fact, I am struck in Nebraska,
they are estimating that in 2014 to 2019 there will be 189
million increased dollars spent on Medicaid on Nebraska, so
undoubtedly an increased tax burden. You just disregard that. I
am not quite sure why.
Mr. Cutler. Thank you for the question. What we have seen
in the past few years in both Medicare and Medicaid and private
insurance is that the number of services people receive goes up
and as a result governments and private insurers lower the
rates that they pay. What will work in the health care system
is to run that in reverse, to figure out which services are not
worth----
Mr. Cassidy. So you are postulating that we are going to
have more efficient delivery of care, and even though we are
taking out according to that cliff, we are going to pay
physicians 31 percent less than they currently receive, somehow
we are going to be held harmless.
Mr. Cutler. Our best guess of most experts is that at least
one-third of medical spending is completely wasteful and the--
--
Mr. Cassidy. Now, I am struck--just because we are short of
time, I don't mean to be rude, obviously if we could pick out
that one-third, wouldn't it be great. It is just so hard to
pick one that one-third. I am a practicing physician. I still
see patients. It is that one-third that is critical, eye of the
beholder, if you will. Do you see accountable care
organizations as being one of the mechanisms by which we
squeeze out this waste?
Mr. Cutler. I do believe that is one of the mechanisms.
Mr. Cassidy. Now, I am struck that there is an article
published frankly last week in the New England Journal of
Medicine in which these people look at the accountable care
organization and says that basically looking at the CMS
demonstration project, which was structured frankly to find a
positive result, and indeed they found that over 3 years they
all lost money. Eight of the ten in physician groups and the
demonstration did not receive any shared savings in the first
year. In the second year, six of ten did not. In the third,
half of the participants were still not eligible, and they
point out that these were structured, these were already
existing groups that had gamed the system to have a positive
result. They all lose money over the first 3 years. I don't see
these ACOs as this huge, efficiency-generating cost savings.
This article suggests not. Why do you hold that position?
Mr. Cutler. What we know is that some organizations are
able to do extremely well including if you look at, say, the
Mayo Clinic or the Cleveland Clinic or Geisinger Health Care.
Mr. Cassidy. Which I think were included here, certainly
Geisinger was.
Mr. Cutler. Now, those tend not to be in those
organizations. Most of the demonstrations were not there. So
those organizations have figured out how to improve the quality
of care and save money. Other organizations are still learning
how. The failures are generally because they don't have the
right information systems in place because they still work off
of fee-for-service payment basis and so the doctors still know
that doing more is the way you earn more or because they
haven't figured out how to efficiently manage the practices
that are involved.
Mr. Cassidy. Excuse me. I am not seeing the list of people
here but I actually think it has groups that were well
established but I do think I am taking from you that what you
are arguing is the theoretical benefit, nothing that has been
actually demonstrated. If you will, it is a hope by and by but
it is not the experience currently.
Mr. Cutler. Actually it is the experience of a number of
organizations across the country.
Mr. Cassidy. I haven't seen that data, and this is a review
of those CMS demonstration projects. If you can refute this
article, I would appreciate that.
Mr. Cutler. The Institute of Medicine just published a
lengthy volume in which they went through a number of the
successful examples and they estimated----
Mr. Cassidy. I have not seen a single ACO article that
suggests that, but please forward that.
Mr. Cutler. I will indeed.
Mr. Cassidy. Secondly, regarding preventive services,
again, I am a physician, preventive services have never been
shown to save money unless it is immunizations or maybe the
management of obesity by increasing premiums for those who
don't lose weight. This article actually eviscerates that
ability. And so when you postulate that preventive services
will save money, there is no empiric data for that.
Mr. Cutler. There are different kinds of preventive
services. The ones which clearly save money are, for example,
tertiary prevention, that is someone is in the hospital with
congestive heart failure or COPD. We know that if a nurse
visits them within a couple of days after the hospital, they
are less likely to be readmitted in the hospital. You can take
the readmission rate----
Mr. Cassidy. Your testimony mentions colonoscopies,
cholesterol checks, but that hasn't really been shown. You are
speaking about reducing readmissions?
Mr. Cutler. Some of those, if you look at the studies,
actually do save money. Some just extend life but don't save
money.
Mr. Cassidy. Which of those would save money? Because
colonoscopy does not. I am a gastroenterologist and so----
Mr. Cutler. Obesity reduction saves money.
Mr. Cassidy. Now, the obesity reduction actually saves
money, according to people like Safeway by increasing premiums
for those who do not enter into a weight-loss reduction program
but I am struck that the PPACA basically does away with that.
And so it seems like you are endorsing something that PPACA
does away with.
Mr. Cutler. I am not sure I agree with that. The Affordable
Care Act has the discount for wellness management, 30 percent
which can increase to 50 percent.
Mr. Cassidy. So I will look at that and if I am wrong I
will stand corrected, but it is my understanding we no longer
decrease premiums for those who do not participate in stop
smoking or obesity reduction. Thank you very much.
Mr. Pitts. The gentleman's time is expired. The chair
recognizes the gentleman from Georgia, Dr. Gingrey, for 5
minutes.
Mr. Gingrey. Mr. Chairman, thank you.
I am going to address my first question to Mr. Cutler. Is
it Mr. Cutler or Dr. Cutler?
Mr. Cutler. I am officially a Dr. Cutler but I am happy
either way.
Mr. Gingrey. Well, the brain power sitting at the witness
table, I feel a little sheepish calling any of you Mister
unless you are Brits, but in any regard, I will address my
first question then to Mr. Cutler.
In the March 2010 Wall Street Journal op-ed, you wrote that
there have been several broad ideas offered to bend the cost
curve over the last decade including medical malpractice
reform. As you might know, I have a very keen interest in that
as a practicing physician and Member of Congress. Do you
believe that this Congress, unlike the last, should finally
address medical malpractice reform, and what is its potential
impact on health care cost?
Mr. Cutler. There are a number of areas in which I think
the legislation could be strengthened, and that is one where I
personally would strengthen the legislation some. Most of the
estimates of the impact of malpractice reform on medical
spending suggest that the direct spending impact and the
reduction in defensive medicine would be relatively small, on
the order of 4 percent or so. What I think it is important for
is in sending a signal to physicians and the physician
community that we are serious about freeing them to practice
care in the right way, not in the way that just earns you
money.
Mr. Gingrey. Well, let's move on to that same question
then, Mr. Cutler. I will move to Mr. Holtz-Eakin, our former
CBO director, and ask really the same question. What Mr. Cutler
said doesn't really jibe with what I think my fund of knowledge
tells me in regard to defensive medicine and the actual cost. I
mean, even the CBO, Mr. Elmendorf, said $54 billion over 10
years. That is a lot of bread. But I think it is a lot more
than that. I think it could very easily be $150 billion
annually because some of the doctors on the Energy and Commerce
Committee could tell you in their practices how much ordering
of very expensive imaging procedures in particular and drawing
a lot of blood. I could go on and on and on. But I would like
for you to comment on that same question.
Mr. Holtz-Eakin. This issue has been around for a long
time. I think there is no question that malpractice reform
should be on the table. How much would come out of the Nation's
health care bill really revolves around the degree to which
practice patterns have been dictated implicitly by some
defensive medicine driven by lawsuits or if it is really just
the way groups practice and so new doctors come in and they are
told this is the way we practice. Is that really just a matter
of caution or is it deeply imbedded in a reaction to the legal
environment. We don't know how big that will be and that has
been the conundrum for a long, long time.
Mr. Gingrey. Well, the President of course has promised and
we hope that there would be something in the Affordable Care
Act that was not. We heard earlier testimony that this would
save a tremendous amount of money. I don't know what the true
value is but I think it is time for us to get that done.
Mr. Holtz-Eakin, I am going to stay with you. Proponents of
this law argue that the bill will help reduce the deficit in
the second and third decades of implementation, not just this
first 10-year period. Doesn't this claim rest on the assumption
that the dramatic reductions in Medicare and massive tax
increases on employer-sponsored health coverage of working-
class America stays in effect? Can you explain how ever-
increasing taxes are used to offset the massive increases in
spending that are contained in the Affordable Care Act?
Mr. Holtz-Eakin. At the heart of it is the notion that the
spending will go up as we have seen these long-term projections
for Medicare and Medicaid go up for a long, long time. CBO has
put these out and Medicare and Medicaid go up from 4 percent of
GDP to 12 or 20 percent over the next several decades, and for
a long time the presumption has been by any reasonable analyst,
you cannot tax your way out of that problem. You have to take
on the spending. What the Affordable Care Act does is
essentially recreate that spending and promise to tax its way
out of it, and I don't view that as a plausible economic
proposition. We are not going to raise the Cadillac tax so high
to make this balance over the long term. You have got to
control the growth of spending, and no analyst outside of David
has come in and believed that this controls the spending
growth.
Mr. Gingrey. Mr. Cutler, you are shaking your head. I have
got 20 seconds left if you would like to weigh in on that. I
will cut you off if I decide to, but go ahead.
Mr. Cutler. If you look at what the Business Roundtable has
said, they said that this way of making reforms would lead to
big changes in cost savings. If you look at what the American
Medical Association has said, what the American Hospital
Association has said, what the Association of America's Health
Insurance Plans have said, all of them have said that this is
the way to go and that they believe that this is the potential
for saving enormous amounts of money.
Mr. Gingrey. Well, that might be true with a policy like
this you end up forcing all of the doctors who practice
privately to sell their subspecialty practices to charitable
hospitals who bill under Part A rather than Part B and
eventually then the Federal Government will have control over
the whole ball of wax and then we will have national health
insurance. I yield back, Mr. Chairman.
Mr. Pitts. The chair thanks the gentleman and recognizes
the ranking member, Mr. Waxman, for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Poore, I want to ask you a question. As we heard today,
the U.S. Chamber of Commerce prides itself on being the world's
largest business federation, representing the needs of
businesses large and small alike, but it seems to me that when
the chamber accepted $86 million from the health insurance
industry, companies such as Cigna and United Health Group, to
lobby against health reform, it gave up any credibility it had
to represent small businesses. The Small Business Majority
released a study to demonstrate what would happen to small
businesses without health reform. The findings show that
178,000 small business jobs, $834 billion in small business
wages and $52 billion in small business profits would be lost
due to high health care premiums, and over 1.5 million small
business employees would continue to fall victim to job lock.
If the chamber claims to represent small businesses, then why
does it oppose health reform provisions that would prevent
small businesses from facing these challenges? Do you feel that
the U.S. Chamber of Commerce represents you as a small business
owner?
Mr. Poore. To be honest, no, for mainly the reason you
gave. I have never had a national commerce guy call me but I
don't have $86 million in the bank, either. So to be frank, I
really don't believe that--I mean, they lost their credibility
when they did that, when they accepted money from the insurance
lobby.
Mr. Waxman. Then they are no longer representing
businesses, they are representing----
Mr. Poore. In a lot of ways I don't think----
Mr. Waxman. But I want to use my time to ask another
question in my limited time, but I thank you very much for your
contribution to this hearing.
We are once again, after we talked about the Affordable
Care Act, which is a bill that reduces the deficit in
responsible ways, extends coverage to over 30 million people
while freeing people from job lock and fighting insurance
company abuses. We are now hearing from the Republicans whose
next step is to undermine health reform by destroying its
foundation, the Medicaid program. The Republicans are about to
unveil a budget that by all media accounts and statements from
Republican Budget Committee members will block grant Medicaid
to create hundreds of billions of dollars in savings, some
reporting as high as $850 billion. At the same time, we could
expect the budget to extend the Bush tax cuts permanently. The
exorbitant price tag for extending those cuts just for the
wealthiest Americans is striking $950 billion. The current
Republican Majority is not serious about deficit reduction.
They are about ideological stances that help the rich get
richer while the middle class and poor are attacked from every
side.
Who is it they are targeting in the Medicaid program?
Thirty million children, 14 million seniors and persons with
disabilities, 1 million nursing home residents, 3 million home
and community-based care residents, all who are relying on
Medicaid, and Medicaid is an efficient program. Medicaid cost
per enrollee growth was 4.6 percent between 2000 and 2009. That
is slower than premiums in employer-sponsored insurance and
national health expenditures. Current Medicaid spending
increases criticized by the right are merely because the
program works as intended, to help people who have lost their
jobs and health insurance during the recession, not because of
excessive cost growth on a per-enrollee basis. Hundreds of
billions of dollars in cuts to Medicaid is a blind ax that will
merely shift costs to the States, to providers and mostly to
beneficiaries who will go without care.
Mr. Cutler, can you talk about what such large cuts in
Medicaid would mean for States' economies, for families and for
providers?
Mr. Cutler. I think cuts of that magnitude would be
catastrophically bad. If you run through this past recession,
the Great Recession, without the ability to expand Medicaid by
having the Federal Government be able to do that, you would
have produced millions more uninsured people, people suffering
lack of care, substantially worse health outcomes, hospitals
and physicians that go under because they are overwhelmed by
the number of uninsured people, and at the same time you would
not have achieved any real reductions because the block grant
itself does nothing to actually figure out how to run the
system better. What we need to do is save money in Medicaid and
throughout the health care system by running systems better,
not by just shifting costs and making bad times be even worse.
Mr. Waxman. And in order to pay for this program, which has
been a successful program, and it is a lifeline. It is a
safety-net program. In order to pay for this, we are refusing
to ask the people at the very top 1 percent to pay their fair
share of taxes so the people at the very bottom will just be
thrown to the bottom of society without access to the care they
desperately need.
Mr. Cutler. A very large share of economists agree that
over time we need to reduce medical spending and to raise
revenue, particularly from higher-income people whose incomes
have gone up a lot. Those two facts are not in much dispute.
Mr. Waxman. Thank you very much. Thank you, Mr. Chairman.
Mr. Pitts. The gentleman's time is expired.
In conclusion, I would like to thank all of the witnesses
and the members that have participated in today's hearing. This
was an excellent panel. I want to remind members that they have
10 business days to submit questions for the record, and I ask
that the witnesses all agree to respond promptly to those
questions.
Thank you. This subcommittee hearing is now adjourned.
Mr. Waxman. Mr. Chairman, we will hold the record open for
your comment on the policy for the committee for the future
on----
Mr. Pitts. We will give you that in writing. I understood
that the staff had talked to your staff about hat.
Mr. Waxman. Without objection, can we just put it into the
record and we will look forward to getting that.
Mr. Pitts. Without objection, so ordered.
[Whereupon, at 1:35 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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