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

         FULFILLING A LEGAL DUTY: TRIGGERING A MEDICARE PLAN FROM THE
                                 ADMINISTRATION

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

                                    HEARING

                                   before the

                    SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF
                   COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

                                     of the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 12, 2011

                                   __________

                               Serial No. 112-81

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     DARRELL E. ISSA, California, Chairman
    DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland,
    JOHN L. MICA, Florida                    Ranking Minority Member
    TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
    MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
    PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of
    JIM JORDAN, Ohio                         Columbia
    JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
    CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
    TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
    JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
    JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
    ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
    PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
    RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
    PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
    SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
    JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
    TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
    DENNIS A. ROSS, Florida              JACKIE SPEIER, California
    FRANK C. GUINTA, New Hampshire
    BLAKE FARENTHOLD, Texas
    MIKE KELLY, Pennsylvania

                       Lawrence J. Brady, Staff Director
                    John D. Cuaderes, Deputy Staff Director
                         Robert Borden, General Counsel
                           Linda A. Good, Chief Clerk
                     David Rapallo, Minority Staff Director

       Subcommittee on Health Care, District of Columbia, Census and the
                               National Archives

                      TREY GOWDY, South Carolina, Chairman
    PAUL A. GOSAR, Arizona, Vice         DANNY K. DAVIS, Illinois, Ranking
        Chairman                             Minority Member
    DAN BURTON, Indiana                  ELEANOR HOLMES NORTON, District of
    JOHN L. MICA, Florida                    Columbia
    PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
    SCOTT DesJARLAIS, Tennessee          CHRISTOPHER S. MURPHY, Connecticut
    JOE WALSH, Illinois

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on July 12, 2011....................................     1
    Statement of:
        Blahous, Charles P., III, public trustee of Social Security
          and Medicare; Joseph Antos, Wilson H. Taylor scholar in
          health care and retirement policy, American Enterprise
          Institute; James C. Capretta, fellow, Ethics and Public
          Policy Center; and Paul N. Van de Water, senior fellow,
          Center on Budget and Policy Priorities.....................    33
            Antos, Joseph............................................    42
            Blahous, Charles P., III.................................    33
            Capretta, James C........................................    49
            Van de Water, Paul N.....................................    60
        Blum, Jonathan, Deputy Administrator and Director, Centers
          for Medicare and Medicaid Services.........................     7
    Letters, statements, etc., submitted for the record by:
        Antos, Joseph, Wilson H. Taylor scholar in health care and
          retirement policy, American Enterprise Institute, prepared
          statement of...............................................    44
        Blahous, Charles P., III, public trustee of Social Security
          and Medicare, prepared statement of........................    36
        Blum, Jonathan, Deputy Administrator and Director, Centers
          for Medicare and Medicaid Services, prepared statement of..     9
        Capretta, James C., fellow, Ethics and Public Policy Center,
          prepared statement of......................................    51
        Cummings, Hon. Elijah E., a Representative in Congress from
          the State of Maryland, prepared statement of...............     5
        Van de Water, Paul N., senior fellow, Center on Budget and
          Policy Priorities, prepared statement of...................    62

         FULFILLING A LEGAL DUTY: TRIGGERING A MEDICARE PLAN FROM THE
                                 ADMINISTRATION

                                  ----------

                             TUESDAY, JULY 12, 2011

                      House of Representatives,
    Subcommittee on Health Care, District of Columbia,
                      Census and the National Archives,
                  Committee on Oversight and Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 1:05 p.m., in
    room 2154, Rayburn House Office Building, Hon. Trey Gowdy
    (chairman of the subcommittee) presiding.
        Present: Representatives Gowdy, Gosar, DesJarlais, Davis,
    Norton, Clay, Murphy and Cummings (ex officio).
        Staff present: Ali Ahmad, deputy press secretary; Brian
    Blase, professional staff member; Robert Borden, general
    counsel; Drew Colliatie, staff assistant; Gwen D'Luzansky,
    assistant clerk; Linda Good, chief clerk; Christopher Hixon,
    deputy chief counsel, oversight; Sery E. Kim, counsel; Justin
    LoFranco and Cheyenne Steel, press assistants; Mark D. Marin,
    senior professional staff member; Ronald Allen, minority staff
    assistant; Jaron Bourke, minority director of administration;
    Yvette Cravins, minority counsel; Carla Hultberg, minority
    chief clerk; and Christopher Staszak, minority senior
    investigative counsel.
        Mr. Gowdy. Welcome. This is a hearing entitled ``Fulfilling
    a Legal Duty: Triggering a Medicare Plan from the
    Administration.''
        I would ask the first witness in a panel by himself to come
    forward.
        Thank you, Mr. Blum.
        Let me read the mission statement from the Oversight
    Committee. We exist to secure two fundamental principles.
    First, Americans have a right to know the money that Washington
    takes from them is well spent; and second, Americans deserve an
    efficient and effective government that works for them. Our
    duty on the Oversight and Government Reform Committee is to
    protect these rights. Our solemn responsibility is to hold
    government accountable to taxpayers, because the taxpayers have
    a right to know what they get from their government. We will
    work tirelessly in partnership with citizen watchdogs to
    deliver the facts to the American people and bring genuine
    reform to the Federal bureaucracy. This is the mission of the
    Oversight and Government Reform Committee.
        I will recognize myself for an opening statement and then
    recognize the distinguished gentleman from Illinois Mr. Davis.
        First I want to thank not just the first panel of
    witnesses, but all the witnesses for their time and willingness
    to share their insights, as well as thank all the guests in the
    audience. As part of the Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003, Congress enacted a
    trigger provision, a statutory requirement to propose Medicare
    reform should certain conditions be met. Each year the Medicare
    trustees are required to include a Medicare funding warning in
    their annual report should general revenue funding exceed 45
    percent of total Medicare revenue for the current year or is
    projected to exceed 45 percent for the subsequent 6 years.
    Should that warning be issued in consecutive years, the trigger
    mechanism would take effect requiring the President to submit
    legislation to Congress that would decrease the percentage of
    general revenue financing Medicare. Since 2006, every single
    annual report has included this warning.
        The previous administration complied with this law. The
    current administration has not, and that is troubling on at
    least two fronts. Firstly and fundamentally, we are a Nation of
    laws. We don't have the luxury of picking and choosing which
    laws we like and which laws we do not like. The law is no
    respecter of title or station, it applies to all. So it is
    troubling the President, who is the Chief Executive of the
    branch charged with enforcing the laws, has not complied. And
    this failure to comply is troubling because we are witnessing
    firsthand right now the need for decisive leadership on the
    tough spending issues facing our country.
        Making speeches isn't hard. Saying you have a plan when you
    don't have a plan isn't hard. What is hard is leading. What is
    hard is making tough decisions. That is what is statutorily,
    and indeed morally, required of leaders.
        Without substantive reform Medicare will be insolvent in a
    decade. Costs are skyrocketing, and benefits are threatened by
    the unsustainable status quo. Something has to be done, and
    simply talking about the problems will no longer suffice.
    Abdicating this duty might be a good political strategy; it is
    not a good strategy for this country. We can hope for the
    leadership to resolve this difficult issue. That we can hope
    for. What we should never be forced to hope for is compliance
    with the law. Hence this hearing.
        I now recognize the gentleman from Illinois, ranking member
    of the subcommittee, Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman. And I want to
    thank you, first of all, for holding this very important
    hearing. As a matter of fact, this is an issue that I care
    deeply about, and for many different reasons.
        For more than 45 years, Medicare has successfully provided
    access to health services for the elderly ages 65 and over and
    nonelderly people with disabilities. It currently covers 47
    million Americans. Just think about it, 47 million Americans.
    Since July 30, 1965, when Lyndon Johnson signed the bill
    creating this fundamental health initiative, this program has
    evolved to reliably meet the demands of aging and medically
    vulnerable Americans who may not have had access to medical
    attention otherwise. Simply put, Medicare is the lifeline.
        Given the political realities, I realize that certain well-
    thought-out improvements need to be made for Medicare to
    continue its course. However, make no mistake, I, along with my
    Democratic colleagues, am committed to ensuring the viability
    and sustainability of Medicare without deep ideological-driven
    cuts with harmful consequences.
        It is this same commitment that ensured that Congress
    worked actively for comprehensive health reform. The passage of
    the Affordable Care Act further improved upon the fiscal
    efficiencies necessary to ensure Medicare's continued
    existence.
        On a personal note, I have been involved in health advocacy
    for over 35 years. I believe it fundamentally reveals the
    character of a Nation when it cares for its most vulnerable
    citizens, the elderly and the infirm. In my district I can
    attest that Medicare serves as an indispensable safety net for
    many of my constituents.
        This discussion is a valid one, but it must be approached
    in a serious, thoughtful manner mindful of the sacrifices made
    by those who came before us. Seniors should not bear the burden
    of cost shifting disguised as reform.
        I look forward to the testimony of all the witnesses. And I
    will just end, Mr. Chairman, by suggesting that if it was not
    for Medicare, many of the senior citizens that I personally
    know probably would not still be around, because oftentimes
    Medicare is the only stopgap between them and the grave. So if
    we talk about safety nets, there is nothing that can provide
    more safety than the opportunity for individuals who have
    reached an age where they cannot necessarily care for
    themselves to know that at the end of the day, they can get the
    medical services that they need.
        I look forward to the hearing and yield back the balance of
    my time.
        Mr. Gowdy. I thank the gentleman from Illinois.
        I now recognize the gentleman from Maryland, the ranking
    member of the full committee, Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman. I want to
    thank you for calling this hearing today. And I want to pick up
    where the ranking member of this subcommittee left off.
        As the son of a mother who is 85 years old, I just watch
    her struggle through the difficulty of seeing her doctor retire
    and trying to help her find a new doctor. She found a new
    doctor, but even that was very taxing on her at 85 years old.
        To pick up where Mr. Davis left off, and when I meet with
    people in my district, the seniors, and I ask them, you know,
    who has savings and who has pensions and whatever, most of
    them, all they have is Social Security and Medicare, that's it,
    period. So to put it more bluntly, without Medicare they would
    be--many of them would be dead, period.
        There are 45 million people nationwide who depend on
    Medicare for their health care. For them and for millions of
    seniors who will come after them, it is vital that Congress
    ensure Medicare's long-term solvency. The Patient Protection
    and Affordable Care Act extended the Medicare Trust Fund
    solvency by 8 years, which is one of the many reasons I'm proud
    that I voted to enact this law, and I will go to my grave
    defending it.
        By providing free, preventative screenings and reducing the
    cost of brand-name prescription drugs, the Affordable Care Act
    has already made a tremendous impact on seniors' health care
    and their pocketbooks. The Affordable Care Act also addresses
    the escalating cost of health care by reforming Medicare's
    payment and delivery system to incentivize high-quality,
    better-coordinated care without inefficiencies and to fight
    fraud and abuse.
        In contrast, the recent plan passed by my House Republican
    friends would eliminate Medicare as we know it. In a radical
    transformation they would wipe out Medicare's guaranteed
    benefits for seniors. They would also shift massive costs onto
    seniors, while doing nothing to address the real reasons behind
    the high cost of health care.
        Under the Republican plan seniors aged 65 and 66 would be
    abandoned to find health care on their own or go without it.
    Seniors 67 and older would get a voucher from the government to
    pay a smaller and smaller share of their health care costs. But
    one of the questions that I posed to so many, and I've never
    received a satisfactory answer, Mr. Chairman, is that if I have
    a senior at 65 years old with diabetes and its companion heart
    disease, who is going ensure them? I don't care how much money
    you've got, who is going to ensure them?
        The nonpartisan Congressional Budget Office estimated that
    the Republican plan would more than double out-of-pocket costs
    for seniors. Right now seniors pay about 25 to 30 percent.
    Under the Republican plan they would pay 68 percent with no
    money, by the way. The Center for Economic Policy Research
    calculates that the Republican plan would shift costs of up to
    $4.9 trillion onto seniors. For the individual senior citizen,
    that would amount to an average of $13,368 per year.
        Mr. Chairman, the Republican plan is cruel, and it is sadly
    a cruel betrayal of our Nation's seniors. It would have a
    profoundly negative impact on the health of those elderly, it
    would be detrimental to the Nation's economy, and it would
    impair the living standards of seniors and their children, who
    will be called upon to take over when the government abandons
    them. This radical--and again, I go back to if they can get
    insurance.
        This radical plan is not inevitable, and Democrats in
    Congress will fight tooth and nail to help protect our Nation's
    seniors from this abomination. At the same time we will seek
    commonsense measures to secure runaway medical inflation rather
    than taking away medical care from people who need it.
        And I agree with the ranking member, there are things that
    have to be done with regard to Medicare. Nobody is saying it's
    either one way or the highway. But we have to do those things
    that are sensible, and we have to do those things--we have to
    treat this as if we are the most skilled heart surgeon
    performing the most delicate operation so that we do the
    treatment and give the reform that will allow Medicare to live
    as opposed to allow the patient to die.
        And so I look forward to the testimony today. I want to
    thank our witnesses. And again, Mr. Chairman, I think this is a
    grand opportunity for us to address this issue. And with that I
    yield back.
        Mr. Gowdy. I thank the gentleman from Maryland.
        [The prepared statement of Hon. Elijah E. Cummings
    follows:]

    [GRAPHIC] [TIFF OMITTED] T1987.001

    [GRAPHIC] [TIFF OMITTED] T1987.002

        Mr. Gowdy. It is now my pleasure to introduce Mr. Jonathan
    Blum, who is the Deputy Administrator and Director, Center for
    Medicare and--Centers for Medicare and Medicaid Services.
        Pursuant to committee policy, I would ask Mr. Blum to
    please rise and let me administer an oath.
        [Witness sworn.]
        Mr. Gowdy. May the record reflect that the witness answered
    in the affirmative.
        Mr. Blum, there are a series of lights hopefully somewhere.
    They mean what they traditionally mean outside of committee
    hearings. So with that we would recognize you for your 5-minute
    statement.

    STATEMENT OF JONATHAN BLUM, DEPUTY ADMINISTRATOR AND DIRECTOR,
               CENTERS FOR MEDICARE AND MEDICAID SERVICES

        Mr. Blum. Great. Thank you, Chairman Gowdy, Ranking Member
    Davis and members of the committee. I am pleased to be here
    today to talk about our efforts to strengthen the Medicare
    program.
        I would like to make three main points during my 5 minutes.
    First, the Affordable Care Act has made substantial
    improvements to Medicare's overall finances. The Affordable
    Care Act will reduce Medicare spending by over $500 billion
    over the next 10 years.
        Many of the savings provisions included in the Affordable
    Care Act came from proposals that were part of the President's
    first budget submission to Congress in 2009. These proposals
    included a payment change to promote accountable care
    organizations to participate within the Medicare program,
    bundled payments to promote greater care coordination and
    greater efficiency to our payments, payment reductions to
    certain health care providers and incentives for hospitals to
    improve quality. Many of these saving provisions have been
    already implemented, so the savings are real, and CMS is on
    track to implement the remaining savings provisions on time.
        This year's Medicare Trustees Report confirmed the
    Affordable Care Act's impacts on the program's overall
    solvency. The Part A trust fund solvency has been extended by 8
    years. The 45 percent trigger threshold will be met by 2013.
    Projected per capita spending will be 2.9 percent over the next
    10 years, significantly lower than the previous 10 years. The
    cost curve, at least in the short run, has been bent downward.
    Not only do these changes reduce taxpayers' burdens, but they
    lower costs for Medicare beneficiaries through lower copayments
    and premiums.
        The second point that I want to make today is that reducing
    Medicare costs is one of CMS's greatest priorities, highest
    priorities. We have made significant new investments in
    reducing waste, fraud and abuse. Through our partnerships with
    law enforcement agencies, billions of dollars have been
    recovered back to the trust funds.
        We have also implemented on January 1st the first round of
    competitive bidding for medical supplies such as power
    wheelchairs. Through this competitive bidding program, Medicare
    will pay an average of 32 percent less than it previously paid
    for power wheelchairs, oxygen tanks and other durable
    equipment. That 32 percent is an average figure. The program
    will save billions of dollars for taxpayers and beneficiaries
    when fully phased in.
        We have also closed loopholes and reformed our payment
    systems to ensure that we pay accurately for providers such as
    skilled nursing facilities, home health agencies and physician
    services. CMS will continue to use its rulemaking authorities
    to ensure we pay as accurately and fairly as possible.
        And the third point I would like to make today is that
    Medicare benefits are stronger due to the Affordable Care Act
    and our work at CMS. The Medicare Part D doughnut hole is being
    phased out by 2020, and this year those that do fall into the
    doughnut hole will save hundreds of dollars on their out-of-
    pocket costs for prescription drugs. This year the program
    began to offer free cost sharing for certain preventive
    benefits to keep seniors healthier for longer periods of time,
    and the Medicare Advantage program continues to grow--not
    shrink, but to grow--while offering average lower premiums.
        Clearly we have more work to do to ensure a sustainable
    program for the long-term future. We look forward to working
    with the Congress to ensure we have the strongest program
    possible. I would be happy to answer your questions.
        Mr. Gowdy. Thank you, Mr. Blum.
        [The prepared statement of Mr. Blum follows:]

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        [GRAPHIC] [TIFF OMITTED] T1987.014

        Mr. Gowdy. I would say on behalf of all of us, votes are
    imminent, and all of us want to be good stewards of your time
    as well as the time for the second panel. I know that people
    have other commitments and other things to do. So we're going
    to ask questions until they call for votes, and then if we get
    back in time and you're still here, great; if not, then we want
    to be respectful of things other people have. So thank you. We
    apologize for that in advance.
        Mr. Blum, what's the purpose of the trigger?
        Mr. Blum. The 45 percent trigger?
        Mr. Gowdy. That's right.
        Mr. Blum. Well, the MMA, the Medicare Modernization Act of
    2003, created a kind of additional solvency measure to assess
    the overall financing of the total Medicare program Parts A and
    Parts B.
        Mr. Gowdy. And it requires the President to submit a plan
    to Congress, correct?
        Mr. Blum. The statute requires that the Medicare trustees
    issue a funding warning when certain conditions have been met.
        Mr. Gowdy. Have those conditions been met?
        Mr. Blum. They were met starting as of 2006 or 2007.
        Mr. Gowdy. Right. So according to Federal law, President
    Obama was supposed to submit a plan to this Congress to flip
    that 45 percent of general revenue funding for Medicare,
    correct?
        Mr. Blum. The 45 percent trigger has been met, will be met
    by 2013. The Affordable Care Act will----
        Mr. Gowdy. That wasn't my question.
        Mr. Blum. The President has consistently submitted a budget
    to propose reductions to overall Medicare's financing. In 2009,
    the President submitted a historic budget framework to reduce--
    --
        Mr. Gowdy. So he doesn't take the position that is
    advisory, he takes the position that it is the law?
        Mr. Blum. I think the position that the administration
    takes is that reducing Medicare costs is one of our highest
    priorities.
        Mr. Gowdy. Mr. Blum, I'm not asking you about priorities,
    I'm asking you about compliance with the law. Does this
    administration take the position that the trigger is advisory
    or mandatory?
        Mr. Blum. We take the position that reducing Medicare costs
    is our highest priority.
        Mr. Gowdy. Mr. Blum, I'm probably not asking my question
    very artfully, so let me try it again. Is the trigger mandatory
    or discretionary, complying with it?
        Mr. Blum. The trigger is one measure of overall Medicare
    solvency. The President has proposed a budget in 2009. Many of
    those savings provisions were included within the Affordable
    Care Act and adopted in the Affordable Care Act.
        Mr. Gowdy. So your position is that the Affordable Care Act
    or ObamaCare meets his requirements under that section for the
    trigger?
        Mr. Blum. My position today is that the President has
    continued to propose ideas and proposals to reduce Medicare
    spending, and as a result by 2013, in 2 years' time, the 45
    percent threshold has been met.
        Mr. Gowdy. Mr. Blum, I quit counting at number seven when I
    heard for the seventh time my colleagues refer to the
    Republican plan. And that's great, they can--that's the
    beautiful part about our Republic is that we can introduce
    ideas and criticize them, and heavens knows Paul Ryan's plan
    has certainly been scrutinized and criticized.
        I wonder if the President's decision not to submit a plan
    to fix Medicare might be because he had the prescience to
    realize that there would be criticism that came, just like Mr.
    Ryan has experienced. Do you think that might explain why we
    haven't gotten a plan submitted to Congress?
        Mr. Blum. I think the President since he took office has
    said that reducing Medicare costs, overall health care costs,
    is one of our greatest challenges in the context of overall
    health care reform. The President submitted a budget in 2009
    that will reduce--that would have reduced Medicare spending by
    $300 billion. Many of those provisions were adopted in the
    Affordable Care Act.
        Mr. Gowdy. What about 2010?
        Mr. Blum. He continues to suggest new ideas, for example,
    to reduce waste, fraud and abuse. This April he proposed in the
    context of the overall debt ceiling reductions for a $400
    billion additional reduction for both Medicare and Medicaid,
    and he continues to suggest new ideas in the context of the
    overall debt ceiling discussions.
        Mr. Gowdy. Mr. Blum, I'm going to ask you again, do you
    take the position that ObamaCare meets the statutory
    requirements of the trigger legislation?
        Mr. Blum. My position is that due to the savings provisions
    that were included in the Affordable Care Act, Medicare
    solvency has been increased by 8 years. The 45 percent trigger
    will be met by 2013, in 2 years' time, through at least 2020.
    What I think is true is that the Affordable Care Act will
    reduce Medicare spending, will improve Medicare solvency. We
    have more work to do, but by 2013 the 45 percent trigger will
    be met.
        Mr. Gowdy. So that's a long way to say you do take the
    position that introducing or passing ObamaCare absolves you
    from having to meet any other trigger requirements?
        Mr. Blum. I think the President has been clear that we have
    much more work to do to ensure Medicare solvency.
        Mr. Gowdy. Well, I'm wondering if part of that work might
    be complying with the law and submitting a plan to Congress as
    is required when you get warnings from the trustees?
        Mr. Blum. I believe that the first year that the warning
    was issued was in 2006, possibly 2006 or 2006-2007. The first
    year the President took office, he submitted a proposal to the
    Congress to reduce Medicare spending by $300 billion. The
    Affordable Care Act took many of those proposals to reduce
    spending by $500 billion. We are working very hard to implement
    those provisions. We have extended--those provisions have
    extended solvency by 8 years to the Part A trust fund by 2013.
    The trigger has been met through at least 2020. So I believe we
    are--we have complied with the intent to the 45 percent
    trigger.
        Mr. Gowdy. Well, I'm way out of time, so I will recognize
    the gentleman from Illinois Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman.
        Mr. Blum, I'm aware that we are searching for alternatives
    to reform Medicare. The Ryan plan is one such scenario, but I'm
    not in favor of merely shifting beneficiaries from one Federal
    plan to another. The Congressional Budget Office said the
    following about the Ryan plan, and I'm actually quoting: As the
    eligibility age for Medicare rose from 65 to 67, some people
    who were 65 or 66 years old or were approaching those ages
    would turn to other programs for health care and income
    support. For example, more people might apply for disability
    benefits under the Disability Insurance Program or under the
    Supplemental Security Income Program. Most people on disability
    insurance receive Medicare benefits after a 24-month waiting
    period, and Supplemental Security Income beneficiaries receive
    Medicaid benefits immediately under current law. Most people
    might also apply for the Supplemental Nutrition Assistance
    Program or other welfare programs.
        Is it reasonable to believe that under the Ryan plan,
    seniors will be forced to rely on other public health programs
    or simply not obtain those services at all?
        Mr. Blum. My reading of the Congressional Budget Office
    analysis of Chairman Ryan's plan is that it would shift
    additional cost onto Medicare beneficiaries; that the way the
    program is structured, to my understanding, is that it sets a
    premium support system that grows over time by an amount less
    than the overall projected trend rate in health care costs,
    and, as a result, that shifts costs onto Medicare beneficiaries
    relative to what they would have paid without the proposal.
        Mr. Davis. And it's also my understanding that the
    nonpartisan Congressional Budget Office found that a typical
    beneficiary would spend more for health care under the proposal
    than under CBO's long-term scenarios for several reasons.
    First, private plans would cost more than traditional Medicare
    because of the net effect of differences in payment rate for
    providers, administrative costs and utilization of health care
    services as described above. Second, the government's
    contribution would grow more slowly than health costs, leaving
    beneficiaries with more to pay. Is that your understanding of
    this scenario?
        Mr. Blum. Correct. I think if you look at the history of
    private plans operating within the Medicare program, they have
    historically not been less expensive than the traditional fee-
    for-service Medicare program. Today we spend about 108 percent
    on average more for private plans for those beneficiaries who
    join a private plan relative to the traditional fee-for-service
    program. Now, those payment differentials are coming down. But
    I think one of the points from the Congressional Budget Office
    is that they estimate that the cost to administer health care
    coverage through private plans relative to the fee-for-service
    program would be more expensive, and that's one of the reasons
    why beneficiaries would be projected to pay more than they
    would without the new program put into place.
        Mr. Davis. In your analysis, would you suggest that the
    Affordable Care Act actually helps to reduce the cost of
    Medicare?
        Mr. Blum. The Affordable Care Act reduces Medicare
    beneficiaries' out-of-pocket costs in a number of ways. One is
    that it constrains cost growth. So to the effect that the
    program pays less, beneficiaries pay less through lower
    copayments and lower premiums.
        The Affordable Care Act also phases out the so-called Part
    D doughnut hole. This year beneficiaries will save hundreds of
    dollars in out-of-pocket costs for brand-name prescription
    drugs. And also that the program provides free cost sharing for
    certain preventive benefits.
        So, yes, the Affordable Care Act will lower out-of-pocket
    costs relative to previous law.
        Mr. Davis. Thank you very much.
        Thank you, Mr. Chairman. I yield back.
        Mr. Gowdy. I thank the gentleman from Illinois.
        The chair will now recognize the gentleman from Tennessee
    Dr. DesJarlais.
        Mr. DesJarlais. Thank you, Mr. Chairman. And thank you, Mr.
    Blum, for appearing today.
        Just in continuation of the conversation we were just
    having, you were talking about lowering health care costs under
    the ObamaCare plan for Medicare recipients. Does the plan take
    into account the fact that there are 10,000 new Medicare
    recipients entering the Medicare pool daily? Does it take into
    account the fact that the average life expectancy now versus
    1965 has grown by about 10 years? I believe the average life
    expectancy in 1965 was 68 for a male, and it's much higher now,
    thankfully.
        The CBO says that it will be insolvent by 2024. With all
    those considerations, is that all covered in the Affordable
    Health Care Act, and is that going to be taken care of in terms
    of still being able to lower costs despite this huge influx and
    the CBO report that Medicare is going to be insolvent?
        Mr. Blum. Well, the trustees report that I cited during my
    opening statement projected that Medicare Trust Fund solvency
    will be increased by 8 years, that the 45 percent trigger will
    be met by 2013, per capita spending will be constrained over
    the next 10 years relative to the previous 10 years. Those
    projections also include the fact that beneficiaries live
    longer, the fact that more beneficiaries due to the baby-boom
    generation will be added to the program. So the figures that I
    cited take into account the demographic changes that are
    projected to happen to the Medicare program.
        Mr. DesJarlais. And as a practicing physician who has taken
    care of many Medicare patients, do you believe that we can
    reduce the cost the way you speak here and maintain quality of
    care?
        Mr. Blum. I think one of the greatest challenges and also
    opportunities that is contained within the Affordable Care Act
    is the opportunities to use payment reform to change how we
    think about paying for care, to shift to paying for value from
    paying for volume. The Affordable Care Act includes many
    provisions to make our health care system safer, more focused
    on outcomes; for example, focusing on hospital readmissions.
        So the spirit of the Affordable Care Act is to constrain
    cost growth in part by lowering payment updates to providers,
    but also to fundamentally change how we think about paying for
    care, to focus on the value, to focus on the outcome rather
    than just the volume of services.
        Mr. DesJarlais. What is it going to do with the SGR,
    because that's a looming issue that concerns both the
    recipients of health care, because seniors are already having
    difficulty finding providers, and providers seem to be exiting
    the Medicare plan because of the cost cuts? Right now we have
    anywhere from a 21 to a 28 percent cut. Does your plan include
    a 30 percent pay cut to providers?
        Mr. Blum. Congressman, you are correct, according to our
    current projections, that if Congress does not extend the so-
    called SGR extensions, that CMS will that have to reduce
    physician payments by 30 percent. We are very concerned about
    this projected payment reduction. And while we don't see any
    disruptions to access the physician services across the country
    right now, we are concerned that physician access could be
    compromised if this cut were to take into effect. The President
    has called for a permanent fix to the SGR, one that's also
    fiscally responsible.
        Mr. DesJarlais. How are we going to pay for that? I mean,
    what are we going to tell our seniors right now, don't worry,
    we're going to cut physicians' pay by another 30 percent, when
    essentially there hasn't been a pay increase for a decade now
    despite rising health care costs, overhead costs, and
    physicians are going to be paid probably 50 percent less than
    they were a decade ago? Do you really think that's going to
    fly? Can you tell our seniors with any confidence that doctors
    are going to be there for them, and what does the Obama
    administration have as a solution for this?
        Mr. Blum. I can't speak for the Congress, but the President
    this year in his 2012 budget submission proposed a 2-year
    extension that was fully paid for through payment reduction,
    through improvements to how we think about waste, fraud and
    abuse within the Medicare program. But the President has also
    called for a permanent solution, but one that's also done in a
    fiscally responsible way.
        Mr. DesJarlais. So we're going to kick the can down the
    road?
        Mr. Blum. I think what the President has said is that we
    need to find a permanent solution working with the Congress.
    His budget submission this year included a 2-year extension,
    but his policy--very strong policy preference is for a
    permanent fix to the SGR.
        Mr. DesJarlais. Okay. So we'll worry about it when I get
    there is basically what I'm hearing.
        Let's talk about IPAB quickly, because we're running out of
    time. That's another area that I think maybe even the
    administration recommend is flawed. We have an Independent
    Payment Advisory Board that is basically tasked with rationing
    health care even though they're saying that they're not allowed
    to ration it, but they are tasked with cutting Medicare. And I
    find it interesting that the Ryan plan has been accused of
    ending Medicare as we know it when in reality ObamaCare within
    the next 2 years is going to start making drastic cuts to
    payments to Medicare recipients and providers, and I see a
    recipe for disaster.
        Mr. Gowdy. Mr. Blum, the gentleman's time is expired, but I
    don't want to prevent you from answering. I would just ask you
    to answer in light of the fact that the gentleman's time has
    expired.
        Mr. Blum. Thank you.
        I think that the overall goal that we have, I think all of
    us have, is to ensure that cost growth remains lower than in
    the past. And I think one of the reasons that Congress did
    include the IPAB provision was to create a check on overall per
    capita growth.
        In my opinion, we need to look at a whole host of different
    solvency measures. The 45 percent trigger looks at the mix of
    financing, but it doesn't necessarily look at the overall cost
    growth. And I think that the Affordable Care Act's goal, CMS's
    goal, is to ensure that we have lower cost growth than the past
    to ensure the program remains affordable both for taxpayers and
    for beneficiaries.
        Mr. Gowdy. I thank the gentleman from Tennessee.
        The chair would now recognize the gentleman from Maryland,
    the ranking member of the full committee Mr. Cummings.
        Mr. Cummings. Mr. Chairman, I see that we are about to
    start voting on the floor, so I will be brief.
        Let me ask you, Mr. Blum, one of the things about the
    Affordable Care Act, and it's something that my seniors
    applaud, is the whole idea of wellness. I cannot tell you the
    number of people that I see in my district who call me and say,
    Cummings, you know, I found out I had prostate cancer, and they
    said it was too late, too late. In other words, they didn't get
    the exam earlier. Or they found out they have some other
    disease that is going to cost a lot, end-of-life care. And I
    was wondering, as you all see it, the Affordable Care Act had
    provisions to try to address some of the costs by keeping
    people well; is that correct?
        Mr. Blum. The Affordable Care Act included several
    provisions, one of which was for the first time to add the
    opportunity for Medicare beneficiaries to have an annual
    wellness visit, a conversation with their physician to ensure
    that they're complying with recommended preventive tests; to
    check medications to ensure that the mix of medications is
    correct. Almost 1 million Medicare beneficiaries to date has
    taken advantage of that new wellness visit.
        The Affordable Care Act also included provisions to lower
    barriers for beneficiaries to take advantage of preventative
    benefits by waiving the cost sharing for certain preventative
    benefits. And I think that in our opinion at CMS is that we
    need to keep our beneficiaries healthier for longer periods of
    time. That's the right thing to do for beneficiaries, but it's
    the right thing to do for overall Medicare costs. We know that
    when beneficiaries come onto the program without coverage, they
    cost more than beneficiaries who have coverage turning age 65.
    So that gives us evidence that when we focus on the health, we
    focus on the well-being, we ensure that beneficiaries receive
    care when they need it, that the overall costs are lower.
        Mr. Cummings. If you will recall, when I did my opening
    statement, I talked about a question that concerns me, and I'm
    sure many others. If you got a senior who is 65 years old with
    no--who has diabetes and who has heart disease, I asked the
    question, who is going to insure them? And I'm sure you all
    have tried to figure this out because you realize that there is
    a Republican plan. And so under that plan have you figured out
    who is going to insure those folks, because I've got a lot of
    folks in similar situations in my district.
        Mr. Blum. Well, the plan as I understand it, Chairman
    Ryan's plan, would take effect in 2022. I think it's hard to
    predict which insurance companies would come into a market in
    more than 10 years' time. But I think the keys are to have very
    strong risk-adjustment mechanisms to ensure that plans have
    very strong incentives to take those that have chronic illness,
    the chronic sick. The history of the private plan system within
    the Medicare program to date has been that when we don't
    account for the high cost that beneficiaries with diabetes or
    other chronic conditions have, that plans figure out ways not
    to care for them.
        Mr. Cummings. You talked about waste, fraud and abuse, and
    that's been certainly a subject that has come before our full
    committee quite a bit and is something that we are tasked with
    addressing. And, you know, do you all see a lot of waste, fraud
    and abuse in the Medicare system, and do you--you know, those
    are words that we hear over and over again, I mean every year.
    I've been hearing it for the last 15 years since I've been
    here, waste, fraud and abuse; waste, fraud and abuse. The
    question is, do we have a plan to truly attack that?
        Mr. Blum. I think in 2009 there was an historic coming
    together of both CMS and the law enforcement agencies,
    Department of Justice, of trying to do more than what was done
    in the past to reduce true fraud in the program. One thing that
    was put into place is Operation HEAT, which targets both law
    enforcement resources and also analytic resources to the
    hotspots of the country for Medicare fraud. We know that fraud
    tends to be in certain parts of the country, then it moves when
    law enforcement moves in. So the key really is to follow the
    hotspots and ensure that the fraudsters don't get ahead of law
    enforcement.
        Second is that we are using data analytics in novel new
    ways to both find waste, fraud and abuse, but also to predict
    where waste, fraud and abuse could be happening.
        And the third area is that we need to make sure that our
    payment policies are correct, they don't overinflate to create
    incentives for fraudsters or bad actors to come into the
    program. One example is that we have reduced prices paid for
    certain durable medical equipment. That's an area that we have
    a lot of fraud in the program by 32 percent. So if we target
    the hotspots, we use data wisely, we also set our payment
    policies right, that we will make a serious dent in waste,
    fraud and abuse.
        Mr. Cummings. Thank you. I yield back.
        Mr. Gowdy. I thank the gentleman from Maryland.
        Mr. Blum, and to my colleagues Mr. Clay, Ms. Holmes Norton,
    Dr. Gosar, we've got about 10 minutes left to vote. It looks
    like it may be a series of some length. What I can promise you
    is we will be back here as quickly as we can get back here.
        Mr. Blum. I'm happy to stay.
        Mr. Gowdy. Well, we all apologize, but we can't control
    when votes are called, and sometimes can't control how long
    they last. But I'll make you the commitment we will get back
    here. I'm not going to tell you we're going to run, but we'll
    walk briskly to get back here.
        Mr. Blum. It's too hot to run.
        Mr. Gowdy. And we'll be in recess until such time as we can
    come back. And again, we apologize for any inconvenience.
        Mr. Blum. Thank you very much.
        [Recess.]
        Mr. Gowdy. Mr. Blum, and to all our guests, again, we
    apologize for any inconvenience for what was an especially long
    vote series.
        The chair will now recognize the vice chairman of the
    subcommittee Dr. Gosar, the gentleman from Arizona.
        Mr. Gosar. Thank you, Chair.
        Mr. Blum, do you agree--or do the current law projections
    include a 30 percent cut in the provider payment rate schedule
    to occur next year?
        Mr. Blum. The trustees reports----
        Mr. Gosar. How about yes or no?
        Mr. Blum. No, it does not. The trustees report projects
    current law, and the current law would have a 30 percent cut in
    2012 absent congressional legislation.
        Mr. Gosar. Okay. The chief actuary at CMS says that many of
    the providers will find it difficult to remain in Medicare if
    provider payments are cut dramatically. I find that in Arizona
    already. So if we are making further cuts, we are not going to
    see a lot of providers or access to care, right?
        Mr. Blum. I think what the chief actuary has said is that
    it is possible that Congress may repeal some of the savings
    provisions that are----
        Mr. Gosar. May repeal?
        Mr. Blum. Correct.
        Mr. Gosar. So that's a maybe, not a definitive?
        Mr. Blum. What the trustees report has projected current
    law, and current law has productivity of payment adjustments
    for hospitals and other health care providers really to incent
    more efficiency. And so the actuaries have projected an
    alternative scenario for future costs if Congress were to
    repeal some of the changes and also that if Congress were to
    provide a permanent fix to the SGR.
        Mr. Gosar. Well, we didn't include the SGR into that fix,
    did we?
        Mr. Blum. Which fix, I'm sorry?
        Mr. Gosar. I mean, the health care bill did not take in the
    SGR fix.
        Mr. Blum. Current law provides that in January 1, 2012,
    that physician payments would be reduced by 30 percent or so.
        Mr. Gosar. And you actually think that's going to go
    through?
        Mr. Blum. The President has called for a permanent fix to
    the SGR when it is done in a fiscally responsible way. The
    administration is hopeful that the Congress will address the
    long-term SGR, but the President has said that it should be
    done in a kind of fiscally responsible way. His 2012 budget
    submission provided a paid-for 2-year extension, but he has
    also said his very strong commitment for a permanent fix to the
    SGR.
        Mr. Gosar. Well, I understand the commitment and trying to
    perform the fix. Have you actually been on the ground, because,
    you know, physicians are chasing their tail, so a cut is
    improbable, just because it just doesn't work that way in a
    physician's office.
        Mr. Blum. I have traveled throughout the country over my
    time at CMS, and what I hear is tremendous frustration from
    physicians about sort of the current uncertainty to what
    physician payments will be in the future. The good news is that
    so far we're not seeing any access issues for beneficiaries
    nationwide, but if the 30 percent cut were to go into effect,
    that we would have to be very worried about access to physician
    services.
        Mr. Gosar. But we're already starting to see that. I'm from
    rural America, from rural Arizona, and we're starting to see it
    already. Because, once again, we're just chasing our tail
    because we're not getting paid, and we're hopefully getting
    down the road so that we get some compensation. And so there's
    no efficiency in that model whatsoever, and there's no
    efficiency in some of the clinics as well when we're talking
    about paying encounter fees just so that we have a single WIC
    mom coming 5 different weeks for 1 visit not even seeing a
    physician. That's not called efficiency in my book.
        Mr. Blum. I think the Affordable Care Act provides CMS new
    tools and new payment authorities. And I think one of our
    challenges, but also our opportunities, is to change how we pay
    for physician services and other services to promote greater
    care coordination, to promote more efficiency in payments, to
    reward outcomes rather than just volume of services.
        So one of the highest priorities that we have at CMS is to
    build the next generation of payment systems to ensure more
    accountability, greater quality outcomes. But I agree with you,
    Congressman, we have to address the 30 percent shortfall that's
    scheduled to take effect.
        Mr. Gosar. I'm going to go back to this. Your testimony
    assumes, at least the numbers you're reporting to us assumes,
    that there's a physician 30 percent cut, right?
        Mr. Blum. The actuary's report this year assumes that the
    30 percent cut will go into effect. That assumes current law.
    What the President has called for is a fiscally responsible
    permanent fix to the SGR. He has proposed a 2-year extension
    that's fully offset by other changes to the Medicare and
    Medicaid programs.
        So we agree that we need to find a permanent solution to
    our current physician shortfall, but at the same time we need
    to make sure that the Medicare program remains strong for
    future generations. Part of that strategy is to ensure that we
    build a next generation of payment systems to ensure the health
    care is more efficient, that it's more accountable, that it
    rewards care coordination, and through payment improvements,
    through delivery improvements, we can save tremendous amounts
    of money.
        Mr. Gosar. Don't you feel--just real quick, Chairman--don't
    you feel that not mentioning this 30 percent cut is misleading?
        Mr. Blum. It depends how the 30 percent cut is implemented,
    and I can't speak to how Congress will change. But it can be
    done in a budget-neutral manner, it can be done in a nonbudget-
    neutral manner.
        What I can speak to is the projections; to the trustees
    report that has projected additional Medicare solvency; the
    Part A trust fund, that doesn't include physician services. No
    matter what the SGR change is, the Part A trust fund will be
    solvent for 8 more years.
        Mr. Gosar. Well, I have to interrupt because that's a
    contingency on having more jobs in this country, and if you
    last looked, that didn't work. And I know that the hospitals
    bought into making--agreed to certain cuts, and now those cuts
    are even greater. All I got to tell you is that the hospitals
    back home in rural America are saying, no way. So I think you
    need to redo your math. Thank you.
        Mr. Gowdy. I thank the gentleman from Arizona.
        The chair would now recognize the gentlelady from the
    District of Columbia Ms. Holmes Norton.
        Ms. Norton. Thank you very much, Mr. Chairman. Actually I
    thank you for this hearing because I think it allows us to get
    some information on the record.
        Many would say that the present majority got here or was
    able to take over the House by the way they characterized what
    I think many would regard as the only savings, substantial
    savings, in Medicare in a long time and with virtual
    demagoguery about the Medicare Advantage program. Now, a
    quarter of our seniors get Medicare Advantage, but the last
    time I heard, all seniors, like all men and women, are created
    equal, except that we spend $14 billion, I believe the figure
    was, more on those who enrolled in this private beneficiary
    plan and then got, shall we call it, premium support from the
    Congress, except that premium was the bulk of what was $14
    billion. Now, if they had stayed in traditional Medicare, of
    course, the cost would have been less, $14 billion less, to be
    exact. So isn't it the case that the Affordable Care Act, by
    correcting this overpayment, in fact, saved Medicare funds for
    the first time that anyone has been able to do so in any large
    amount of funds?
        Mr. Blum. The Affordable Care Act phases down the higher
    payments that are made to Medicare to vanish plans down to a
    level on average that will be closer to the traditional fee-
    for-service program.
        Ms. Norton. So you could still get it?
        Mr. Blum. Correct.
        Ms. Norton. But you couldn't get all those extras that sent
    you way above what other Medicare patients were getting,
    seniors were getting?
        Mr. Blum. Sure. CMS began to phase in those payment
    reductions last year. They will continue over the next several
    years. Contrary to predictions, more Medicare beneficiaries are
    going into the Medicare Advantage program. We expect that it
    will continue to grow over the next several years. So while we
    are phasing down payments, we are also increasing our oversight
    of the plans. We are----
        Ms. Norton. So people continue in their plans, or in that--
    those who prefer private plans continued in it even though they
    didn't get this overpayment?
        Mr. Blum. And more are signing up every day.
        Ms. Norton. Let me ask you about another one of these
    concerns. When Part D was passed, we bemoan the fact it wasn't
    paid for. It is, in fact, the case that the Affordable Care Act
    was paid for; is that not the case?
        Mr. Blum. The Affordable Care Act included $500 billion in
    cuts to the Medicare program. While there were some savings
    provisions that were included within the Medicare Modernization
    Act of 2003, that is correct, that the Part D benefit was not
    paid for.
        Ms. Norton. That was a lot not to be paid for. But as we
    know, the trustees--I'm sorry. Yes, the trustees have to let us
    know when the general funds are being tapped to pay for Part D.
    Now, the figures I have show that 82 percent of the financing
    of Part D comes from general revenues and only 10 percent from
    beneficiary premiums. States make up 7 percent of the
    financing, according to the figures I have. The Medicare
    trigger denoting you've reached that 45 percent was almost
    immediately pulled.
        Do you believe that lowering the Medicare D prescription
    drug spending would reduce the chances of this, of triggering
    the general services, the general revenue obligation?
        Mr. Blum. Sure. The 45 percent trigger is triggered when
    nondedicated revenues are greater than 45 percent. The Part D
    benefit in its current structure is financed. Roughly 75
    percent in beneficiaries pay--beneficiaries who are not----
        Ms. Norton. Could I ask you now, in the Affordable Care Act
    we closed the doughnut hole over time. Now, how do we pay for
    that? We say that was paid for.
        Mr. Blum. The Part D doughnut hole was estimated to be
    about $16 to $20 billion of costs. That could be wrong. I'll
    have to get back to you with an accurate figure. But the
    changes to close the doughnut hole were fully offset by other
    savings provisions within the Affordable Care Act.
        Ms. Norton. Thank you, Mr. Chairman.
        Mr. Gowdy. I thank the gentlelady from the District of
    Columbia.
        The chair would now recognize the gentleman from Vermont
    Mr. Welch.
        I'm sorry. Mr. Murphy. I apologize.
        Mr. Murphy. Thank you very much, Mr. Chairman. Vermont is a
    beautiful place. So is Connecticut.
        Mr. Gowdy. My apologies.
        Mr. Murphy. Mr. Blum, thank you very much for appearing
    today. I want to just maybe extend the conversation that Ms.
    Norton was having with you regarding what has happened to
    Medicare Advantage. She talked about the fact that more, not
    less, people are signing up since the Affordable Care Act has
    been passed. Can you talk a little bit about premiums for
    seniors as it relates to premium increases prior to the
    subsidies being taken away?
        Mr. Blum. Sure. Currently that the average premium for
    those beneficiaries who are in the program are 6 to 7 percent
    lower than they were last year. So we're seeing an average
    decline of premiums for beneficiaries that are still in the
    program. Average benefits have stayed the same, and more
    Medicare beneficiaries are signing up for the program relative
    to overall growth to the program overall. So payments are
    coming down, more beneficiaries are going into the program
    relative to last year, and average premiums are declining.
        Mr. Murphy. Do you have a guess as to why premiums are
    coming down?
        Mr. Blum. Well, I think that when the program--when CMS is
    a tougher negotiator--last year we denied plan bids for the
    first time with new authorities that were provided to the
    Secretary to oversee the program. We are actively managing the
    program. We are being much more stronger stewards of the
    program. And I think the lessons that I've taken is that when
    we have enhanced our oversight, promoted competition,
    simplified beneficiary choices, held plans to the standards
    that are consistent with our goals and values, competition
    increases, premiums are lower, and beneficiaries are more
    satisfied and join plans.
        The Affordable Care Act provides a tremendous new tool to
    our oversight of the program. For the first time starting in
    2012, we'll be able to provide bonus payments to those plans
    that provide the greatest quality outcomes, the greatest
    performance. So I think we have more tools than we have had in
    the past, but CMS has a stronger commitment to oversee the
    program, and when that happens, we get lower costs for
    taxpayers, lower premiums for beneficiaries, and stronger take-
    up in the program.
        Mr. Murphy. Well, I think that's really important
    information to have because--and I sat on the Energy and
    Commerce Committee and listened for a year and a half to
    opponents of health care reform tell us two things, that if we
    were to remove the subsidies, the 13 to 15 percent subsidies
    above what traditional Medicare costs, that plans would close
    up shop. And seniors would no longer be able to have offered to
    them Medicare Advantage plans, and/or costs would skyrocket.
    And exactly the opposite has happened. Since the Affordable
    Care Act has been passed more people are signing up for
    Medicare Advantage, and it is costing people less, which is
    frankly something you don't see almost anywhere else in the
    health care system, people's premiums actually declining.
        And I think that's significant, because as we are sitting
    here trying to assess how best to create benchmarks for our
    health care system for the Medicare program, the benchmark that
    we're looking at today is one regarding the percentage of
    general revenues that go into the program. But an equally
    important benchmark is how much individual beneficiaries are
    paying out of their pocket. And the fact that the Affordable
    Care Act has meant that Medicare Advantage beneficiaries are
    paying less, that Part D beneficiaries are paying less, that
    Medicare beneficiaries who are going to have to pay for
    preventative care are paying less has just as much to do with
    whether or not we're achieving the ultimate goals of the
    program as does a question of how much general revenues are
    being put into the program.
        I think that's incredibly important as we talk about the
    current plan before us by the Republicans to radically change
    the way that Medicare is structured, because what we know is
    this, and CBO tells us, that the average beneficiary is going
    to go from paying about 20 to 30 percent of health care costs
    to somewhere in the neighborhood of 65 to 70 percent; that they
    are going to see their out-of-pocket expenses under the Ryan
    Medicare privatization plan be tripled over a 20-year window;
    65- and 66-year-olds would probably completely lose the ability
    to receive Medicare. Now, that means something to each
    individual beneficiary, but it also means something to the
    Federal Government. It also means that those 65- and 66-year-
    olds leach out somewhere else into the system, and a lot of the
    costs that are borne by the beneficiary end up resulting in
    people not receiving preventative care getting sicker and
    costing us less later on.
        So I would like to see us have benchmarks, but I think one
    of the benchmarks should also be how much money is coming out
    of the pocket of each individual beneficiary. And I think the
    Republican plan before us on this radical rewrite of Medicare
    will make tracking those expenses even more important.
        I thank the chair for the time, and I yield back.
        Mr. Gowdy. I thank the gentleman from Connecticut. And I
    apologize again for moving him without his consent.
        Mr. Blum, on behalf of all of us, thank you for sharing
    with us your perspective and for indulging us as we went to
    vote.
        We will--I'm not even going to leave. I'm going to ask the
    second panel to come up, and if any of my colleagues need a
    break, they're welcome to take it, otherwise we'll go right
    into the second panel.
        We want to welcome our second panel. I will introduce you
    from my left to right, your right to left. Dr. Charles Blahous
    III, is public trustee of Medicare and Social Security. Dr.
    Joseph Antos--and if I mispronounce anyone's name, I apologize
    in advance--is the Wilson H. Taylor scholar in health care and
    retirement policy. Mr. James Capretta is a fellow with the
    Ethics and Public Policy Center. And Dr. Paul Van de Water is a
    senior fellow with the Center on Budget and Policy Priorities.
        Pursuant to committee rules I will ask all four of our
    witnesses if they would please rise so I can administer the
    oath.
        [Witnesses sworn.]
        Mr. Gowdy. May the record reflect all the witnesses
    answered in the affirmative.
        Mr. Blahous, we will recognize you for your 5-minute
    opening, and then we will go from your right to left, my left
    to right.

    STATEMENTS OF CHARLES P. BLAHOUS III, PUBLIC TRUSTEE OF SOCIAL
     SECURITY AND MEDICARE; JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR
       IN HEALTH CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE
    INSTITUTE; JAMES C. CAPRETTA, FELLOW, ETHICS AND PUBLIC POLICY
      CENTER; AND PAUL N. VAN DE WATER, SENIOR FELLOW, CENTER ON
                      BUDGET AND POLICY PRIORITIES

                  STATEMENT OF CHARLES P. BLAHOUS III

        Mr. Blahous. Thank you, Mr. Chairman, Mr. Ranking Member.
    It's an honor to appear before you today to discuss the funding
    warning in the 2011 trustees report. My written testimony
    contains some basic background about Medicare financing, and in
    view of the limited time, I would just like to make a few
    cursory summary comments in my oral remarks.
        First, Medicare has two trust funds. It has a Hospital
    Insurance Trust Fund, which we call Part A, and it has a
    Supplementary Medical Insurance Trust Fund. And that's
    different--that's important to know because financial strains
    on each side of the program are manifested in different ways.
    On the Part A side, in the hospital insurance side, we as
    trustees make projections that are somewhat like the ones we
    make for Social Security. We project forward future program
    income, future program expenditures. We make a determination as
    to whether they're out of balance. We make a determination as
    to whether or not there's a date by which the trust fund will
    be exhausted. And naturally there's great public and press
    interest each year in the trustees' annual projections for a
    date of depletion of the HI Trust Fund.
        On the SMI side things operate somewhat differently. On
    that side general revenues, enrollee premiums are reestablished
    each year to match expected costs. So that side of the program
    doesn't go insolvent. When there are financial strains there,
    they are manifested in rising premiums, rising general revenue
    pressures.
        Now, if you look at Medicare as a whole, it's bringing in
    income from a lot of different sources. Some of these sources
    are dedicated revenue sources like payroll taxes, benefit
    taxes, premiums, State transfers. And some of the revenue
    sources are simply general revenue transfers from the remainder
    of the Federal budget without a dedicated financing source. And
    the distinction between these different revenue sources is
    important for the government's ability to finance Medicare.
        Whenever you increase revenues from a dedicated financing
    source, like payroll taxes or benefit taxes, you not only
    improve the status of the Medicare Trust Funds, but you improve
    the government's general ability to finance Medicare because
    you're also improving the unified budget balance. But if you
    increase general revenues contributions to Medicare, you can
    increase the balance of the Medicare Trust Funds, but that's at
    the expense of the general fund. It doesn't actually improve
    the government's net ability to finance Medicare. So it's
    important to keep an eye on the size of those general revenue
    obligations.
        Now, under our projections, the parts of Medicare that are
    funded predominantly by general revenues are going to grow
    substantially in the years to come. SMI was about 1.9 percent
    of GDP in 2010. We show that rising pretty sharply to about 3.4
    percent of GDP by 2035, continuing to rise afterwards. And this
    is going to mean increased pressures on general revenues. We
    show general revenue requirements of 1.5 percent of GDP this
    year gradually rising to over 3 percent of GDP by 2085.
        Now, as you noted in your opening statement, the 2003 MMA
    directs the trustees to determine whether there is excess
    general revenue Medicare funding, and that means more than 45
    percent of total Medicare outlays funded from general revenues
    in any of the first 7 years of our projection period. And we
    did make such a finding for this fiscal year, 2011. This is the
    sixth consecutive Medicare Trustees Report that has made such a
    finding. Whenever that's done in two consecutive reports, we
    must issue a funding warning, as we did this year. Under our
    latest projections we would be over 45 percent in fiscal years
    2011 and 2012. We would need revenue increases of about $25
    billion, benefit reductions of about $46 billion, or some
    combination thereof, to get that ratio down below 45 percent
    for both 2011 and 2012.
        Now, under current law assumptions, which has been noted
    here assumes that we allow a 29 percent reduction in physician
    payments to go into effect next year, this ratio would drop
    below 45 percent in years 2013 through 2021 and then rise
    afterwards. By 2034, the ratio would hit 54 percent and stay at
    roughly that level through the remainder of the 75-year period.
        In sum, Mr. Chairman, the Medicare funding warning
    eliminates a part rather than the whole of the financing
    challenge facing Medicare. It basically represents a facet of
    the financing challenge that is in a sense complementary to the
    projections that we make for the solvency of the Part A trust
    fund. It looks at other aspects of program financing that the
    HI solvency calculation doesn't deal with.
        This year we found that the gap between Medicare's
    dedicated revenues and expenditures will exceed 45 percent of
    outlays in each of this year and next under current law,
    thereby triggering the Medicare funding warning pursuant to the
    MMA.
        Thank you, Mr. Chairman.
        Mr. Gowdy. Thank you, Doctor.
        [The prepared statement of Mr. Blahous follows:]

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        Mr. Gowdy. Mr. Antos.

                       STATEMENT OF JOSEPH ANTOS

        Mr. Antos. Thank you, Mr. Chairman. Thank you, ranking
    member.
        The trigger mechanism known as the Medicare funding warning
    is designed to reflect the combined financial condition of all
    parts of the Medicare program. It is a complete indicator of
    everything that's going on with Medicare financing, but it is
    an important measure. It was intended to call attention to
    imbalances between Medicare spending and revenue specifically
    dedicated to fund the program.
        The first funding warning was declared by the trustees in
    2007 and has been declared by the trustees every year since
    then. President Bush responded in 2008, his only opportunity to
    respond. President Obama has not.
        I want to emphasize two points. First, for a given level of
    Medicare spending, the trigger directly addresses how much
    workers should pay for benefits for seniors. This is a
    difficult question that we as a society must answer. One can
    disagree about whether 45 percent is the right level, but that
    does not invalidate its use.
        Second, the Medicare trigger doesn't have teeth. As a
    result, the trigger has not directly led to legislation to slow
    the program's cost growth. Nonetheless, the trigger, like the
    trustees report itself, has raised attention to the fiscal
    crisis facing Medicare. And I might add the trustees report has
    been equally unsuccessful in motivating a great deal of policy
    response to a program that is in crisis, and the crisis is
    real.
        Despite White House claims that the new health reform law
    keeps Medicare strong and solvent, the Affordable Care Act only
    modestly improved the program's fiscal outlook. According to
    the trustees, spending from the HI Trust Fund has exceeded
    revenue since 2008, and trust fund assets will be exhausted in
    2024. SMI funding, that's Part B and Part D--spending, rather,
    is projected to moderate somewhat from past trends, but the
    drain on the Treasury remains extremely high. In fact, those
    estimates are optimistic. They incorporate net Medicare savings
    from the Affordable Care Act of $575 billion through 2019 and,
    of course, much more beyond that, primarily through reductions
    and payments to providers. These are reductions that the
    Medicare's chief actuary considers unrealistic. The estimates
    also assume that the Medicare payments to physicians will be
    cut an unprecedented 30 percent in January 2012. Neither
    assumption is plausible. Even the trustees state that, ``the
    actual future costs for Medicare are likely to exceed those
    shown by the current law projections.''
        In fact, the actuary's office put out a supplementary
    report to the trustees report, and that report estimates much
    higher levels of Medicare spending, assuming that Congress
    rescinds the physician payment cut and rescinds partially the
    other Affordable Care Act reductions after 2021. They're not
    assuming that all of those cuts go way, they're assuming that
    some of them are moderated. According to that analysis, total
    Medicare spending will be 8 percent higher than the official
    estimate in 2020, and 14 percent higher in 2030, with spending
    growth continuing to accelerate beyond that point. That
    translates into trillions of dollars of additional general tax
    revenue that will be needed by Medicare over the next 75 years
    unless responsible policies are adopted to reduce program
    costs.
        As we've seen, the President and Congress can ignore a
    Medicare trigger with impunity. That's business as usual in
    Washington. But neither the President nor Congress actually
    need the trigger to advance reasonable policy, and that's the
    point. The President sends a budget to Congress every year.
    That budget should contain provisions that set Medicare on a
    sustainable fiscal path not just for a year or two, but more
    permanently.
        Congress also doesn't have to wait for the President to
    act. The importance of this issue cannot be overstated.
    Decisions about Medicare financing, whether by conscious policy
    or by default, will determine the fate of a program that
    millions of seniors depend on. Those decisions will also shape
    the limits on Federal support for societies of their
    priorities.
        Rapid growth in Medicare spending is a major contributor to
    the Nation's debt crisis. Failure to adopt structural reforms
    to promote greater efficiencies in delivering health care and
    higher values for our Medicare dollar will be disastrous. The
    Medicare trigger could be a tool to encourage policymakers to
    do what they must do, but only if it's taken seriously.
        Mr. Gowdy. Thank you, sir.
        [The prepared statement of Mr. Antos follows:]

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        Mr. Gowdy. Mr. Capretta.

                     STATEMENT OF JAMES C. CAPRETTA

        Mr. Capretta. Mr. Chairman, Mr. Davis, members of the
    subcommittee, thank you for the opportunity to participate in
    this very important hearing. In the short time available, I
    want to focus my comments on the reason the trigger was
    proposed in the first place and adopted by Congress, and why a
    credible reform of Medicare is so important.
        The Medicare program, as we've just heard, is financed in
    ways that are not often well understood. Part of the program,
    as Dr. Blahous said, is financed like Social Security, but a
    big part of the program is not. For Parts D and B of the
    program, the beneficiaries pay premiums for a portion of the
    cost, but a large part is financed directly out of the general
    fund of the Treasury. These general fund payments to Medicare
    are not trivial. As I show in chart 1 in my prepared testimony,
    the present value of these payments, as estimated by the
    Medicare trustees, is expected to exceed $21 trillion over the
    long-range projection period.
        Financing Part B and D in this manner can be deceptive in
    terms of the burden on taxpayers. Officially these parts of
    Medicare are always solvent. The trust fund that pays these
    benefits is never expected to ever be depleted because it by
    definition has always got money from the general fund to cover
    its costs. But just because the trust funds appear to be
    solvent on paper does not mean that there is no cost to this
    open-ended tap on the Treasury. The money must come from
    somewhere. When Part B and D costs rise, the general fund is
    tapped for more funding, it just means the Federal budget goes
    deeper into deficit, thus forcing more borrowing and debt.
        One way to look at the burden of the general fund financing
    of Medicare places on the rest of the budget is to look at the
    amount of financing--of the financing relative to personal and
    corporate income taxes. In my prepared testimony I show in
    chart 2 that as recently as 1990, the general fund contribution
    to Medicare Part B took up only 5.9 percent of total personal
    and corporate income tax collections. By 2020, with Part D now
    part of the program, that figure had risen to 19.2 percent. So
    1 out of every $5 coming into the Treasury in personal and
    corporate income taxes goes as a payment to the Medicare
    program. By 2050, it's getting closer to about 1 out of every
    $4.
        And this is a very optimistic scenario. This is based on
    the official Medicare trustees' projections under current law,
    but that is highly unlikely to occur, as the actuaries
    themselves have stated repeatedly. In the new health care law,
    there is a very broad and deep reduction in the provider
    payment rates, what are called the productivity adjustment.
    This is going to hit hospital and other institutional providers
    of care every year in perpetuity. And the actuaries assume
    essentially that it won't happen because the consequence would
    be that many hospitals would stop seeing Medicare patients
    eventually. It would drive Medicare payments down to those of
    Medicaid and below, and reach at some point in the not-too-
    distant future 50 percent of what private insurers have to pay
    to access hospital coverage.
        So the actuaries have produced an alternative scenario to
    say what is it going to look like if those kind of cuts don't
    go into place and the physician cut of 30 percent doesn't begin
    in next year. The result of that is shown in chart 3 of my
    prepared testimony. And the effect is that over the long run,
    total Medicare spending is essentially unchanged from where it
    was prior to enactment of the health law. In 2080, total
    Medicare spending would exceed 10 percent of GDP by that point
    in time, which is well above the 4 percent it is now, and
    certainly well above the 1 or 2 percent it was when the program
    was first enacted.
        Now, the Medicare trigger was enacted to bring into the
    policy debate a broader view of Medicare's financing beyond the
    misleading picture of permanent solvency for Parts B and D.
    What's needed, though, at this point is, as Joe indicated, the
    will to actually enact a structural reform of the program. And
    here I would just like to conclude by pointing out that there
    seems to be some agreement that Medicare is key to slowing
    costs throughout the entire health system. As Mr. Blum
    testified, their view of the administration is that they need
    to change how Medicare operates with things like the
    accountable care organizations and bundled payments and other
    payment reforms.
        It's my judgment that those proposals will not get very far
    because of the burdens of politics and other things that will
    stand in the way. What I think is more promising is actually
    reform like the Part D program has in Medicare. It is true that
    it has driven up the general fund contribution to the program,
    but it's built around competition and consumer choice. And the
    effect of that has been, since 2006 through 2010, the average
    annual per capita growth in cost has been just 1.2 percent,
    because the consumers have a very strong incentive to go with
    low-cost, high-value plans, and that has worked. It's my
    judgment that we should pursue Medicare reform in a broader way
    along those lines.
        Thank you.
        Mr. Gowdy. Thank you, sir.
        [The prepared statement of Mr. Capretta follows:]

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        Mr. Gowdy. Dr. Van de Water.

                   STATEMENT OF PAUL N. VAN DE WATER

        Mr. Van de Water. Mr. Chairman, Mr. Davis, I appreciate the
    invitation to appear before you today.
        Although Medicare faces significant financing challenges,
    claims by some policymakers that the program is facing
    bankruptcy are highly misleading. The 2011 report of the
    Medicare trustees shows little change from last year's report.
    Because the trustees now foresee a slower recovery, they
    estimate that Medicare's Hospital Insurance Trust Fund will be
    depleted in 2024, 5 years sooner than they estimated last year.
    Even at the point of depletion, however, payroll taxes and
    other revenues will still be sufficient to pay 90 percent of HI
    costs.
        HI will not be completely lagging in resources, nor does it
    face going out of business. And the 2024 date does not apply to
    the Medicare Supplementary Medical Insurance Trust Fund. SMI is
    always adequately financed because beneficiary premiums and
    general revenue contributions are set annually to cover
    expected costs for the coming year. By design, SMI cannot run
    out of money.
        The trustees' near-term projections are broadly in line
    with those they have issued in the past. Since 1990, changes in
    the law, the economy and other factors had moved the projected
    year of HI insolvency as close as 4 years and as far as 28
    years away. Trustees reports, in fact, have been projecting
    insolvency for four decades, but Medicare benefits have always
    been paid because Congress has taken steps to make sure that
    they are. The rapid evolution of the health care system has
    required frequent adjustments to Medicare as it has to private
    health insurance, and that pattern is certain to continue.
        Although the trustees again project that 45 percent or more
    of Medicare's financing will come from general revenues within
    6 years, this finding bears no relation whatever to Medicare
    solvency. The 45 percent figure is an arbitrary benchmark that
    is completely unrelated to the financial health of the program.
    By its very design, Medicare is supposed to be financed in
    large part with general revenues. That at least 45 percent of
    Medicare will be financed with general revenue is no more a
    problem than that 100 percent of defense, education and most
    other Federal programs will also be financed with general
    revenues.
        Last year's health reform legislation significantly
    improved Medicare's long-term cost outlook. If health care were
    repealed, the Medicare actuary estimated that HI's insolvency
    date will be moved up 8 years to 2016. And without health
    reform, HI's long-term shortfall would increase from 0.79
    percent of payroll to 3.89 percent. These projections
    underscore the importance of successfully implementing the
    cost-containment provisions in the Affordable Care Act.
        In contrast, phasing out traditional Medicare and replacing
    it with private health insurance, as the House-passed budget
    resolution would do, would represent a big step in the wrong
    direction. It would increase total health care spending
    attributable to Medicare beneficiaries by upwards of 40
    percent, and it would reduce the Federal Government's
    contribution to cover those costs. As a result, the House plan
    would massively shift costs to elderly and disabled
    beneficiaries. According to CBO, the average 65-year-old
    beneficiary's out-of-pocket spending would more than double
    from about $6,000 a year to over $12,000 in 2022.
        Health reform envisions that Medicare will continue to lead
    the way in efforts to slow health care costs while improving
    the quality of care. By eliminating traditional Medicare, the
    House-passed plan would discard the opportunity to use the
    program to promote cost reduction throughout the health care
    system. Americans should not be driven into adopting such a
    radical proposal by misleading claims that Medicare is on the
    verge of bankruptcy.
        Thank you, Mr. Chairman.
        Mr. Gowdy. Thank you.
        [The prepared statement of Mr. Van de Water follows:]

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        Mr. Gowdy. Dr. Blahous, what in your judgment is the single
    best policy that you could recommend in order to improve
    Medicare solvency?
        Mr. Blahous. I have to be a little bit careful in answering
    that question. Obviously as a trustee, we don't have an
    official view, and I'm not speaking for the other trustees. I
    would just make a couple of comments. One is certainly there is
    a robust debate about how we can get more savings in order to
    achieve actuarial balance in Medicare. We have a shortfall in
    Medicare. There's competing ideas on how to resolve the
    remaining shortfall.
        Mr. Gowdy. Before you finish that, because I may be making
    an assumption that you disagree with, do you agree with Dr. Van
    de Water that all of this is just worrying about nothing, and
    that everything is going to be fine, and we can continue to
    fund it from the general fund, and it's no big deal?
        Mr. Blahous. I don't agree that it's no big deal. I think
    we have a very substantial financing challenge in Medicare, a
    sizable problem remaining to solve, and I'm very concerned
    about it.
        Mr. Gowdy. All right. Go on with your solution.
        Mr. Blahous. Well, I would say that one of the things
    that's difficult is getting savings from a program that people
    are dependent upon. And this one of the things that causes
    people on both sides of the aisle to have disagreements, how
    can we get savings which we need from the Medicare program
    without sacrificing beneficiary access to care.
        What I can say is that it's easier to hold down spending
    growth where people have not yet become dependent on a program.
    If I just give one piece of advice personally, I would say do
    what can be done to slow down or scale back the spending
    increases in last year's health care reform law. Basically, to
    the extent that we show an improvement in Medicare financing
    under that law, it's because of the Medicare provisions alone
    understood in isolation, but that law contained other
    provisions that expended a great deal of that projected savings
    in Medicare, about 63 percent of it according to CBO. To the
    extent that we expend that savings in Medicare on a new
    program, we are undercutting the government's ability to make
    good on those increased funding obligations to Medicare.
        So I think my short answer would be do whatever can be done
    to scale back the projected spending increases outside of
    Medicare from last year's health care law.
        Mr. Gowdy. Well, that leads nicely, I think, to my next
    question for you, Dr. Antos. Do you agree with the
    administration that the trigger mechanism, that's just a
    suggestion or an advisory idea, or do you believe that it is a
    legal requirement that they submit a plan?
        Mr. Antos. It's a law.
        Mr. Gowdy. That's what I thought, too.
        Do you think that ObamaCare complies with that requirement
    of the law?
        Mr. Antos. Well, it certainly does not comply with the
    technical specifications of the law. The law clearly states
    that in response to the funding warning, the President is to
    send to Congress his proposal within 2 weeks of his budget.
        Now, I think it may be a little unclear at least in the
    abstract if the President's budget, in fact, addressed this
    problem, whether that was a sufficient response. However, in my
    opinion, the President's budget at this time did not address
    the problem.
        Mr. Gowdy. Mr. Capretta, I've thought about patenting or
    getting a trademark on Paul Ryan's name so I could be paid
    every time it is mentioned in a committee hearing in
    Washington. I haven't yet.
        A lot of criticism about Representative Ryan's plan. The
    other plan, near as I can tell, is just to continue to raise
    the debt ceiling as often as we can. What are your thoughts on
    his plan, and do you have a better idea.
        Mr. Capretta. I don't have a better idea. I think his plan
    is really very much the direction we need to head.
        I would say a couple of things about some of the criticisms
    that are made about it. First is there's often reference to a
    CBO analysis of what the Ryan plan would do in 2022. A couple
    of things about that. First, it assumes that the payment rate
    reductions that occur in Medicare through ObamaCare are going
    to be in place all the way to 2022. So in a sense it creates--
    it says that we're going to impose very deep price reductions
    in what Medicare pays for services, price reductions that would
    bring Medicare's rates down below Medicaid by the end of the
    decade, and assumes those will be in effect in 2022, and that
    Medicare beneficiaries will still have access to care in 2022
    at the rates they do today. Highly unlikely that that will
    occur.
        So I think one assumption is just false, that you can
    have--you know, you could pay as low as you want in Medicare
    with no consequence whatsoever on quality. I think that's a
    false assumption that's buried in those CBO numbers.
        The second thing that it doesn't do is that it doesn't take
    into account any effect from competition. And Dr. Elmendorf
    testified at the House Budget Committee a week or so ago, 10
    days ago, and said as much to Chairman Ryan, that that's a gap
    in their toolbox, that they don't estimate the effects of
    competition on what it will do to premiums in the future, and
    so they have no--the whole point of the Ryan proposal is to
    bring some discipline to the Medicare program, not to increase
    costs on seniors, but actually increase value so they can get a
    better deal, much like we did in the Part D program.
        So I generally reject the notion that the Ryan plan is
    actually going to be worse for seniors. The whole point of it
    is to actually make it better for seniors without the problems
    that come from price controls.
        Mr. Gowdy. Thank you.
        My time is expired. The gentleman from Illinois Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman.
        The Republican Federal budget proposal for fiscal year
    2012, widely known as the Ryan plan, was passed by a party-line
    vote in the House of Representatives on April 15, 2011. The
    Ryan plan would end Medicare as it exists today, take away all
    Federal health benefits from 65- and 66-year-olds and give 67-
    year-olds and older a voucher that will pay a smaller and
    smaller share of their health care costs.
        According to the Congressional Budget Office's long-term
    analysis of the Ryan plan, this proposal would result in
    substantially higher out-of-pocket costs for seniors. CBO found
    that they would be paying 68 percent of the health care costs,
    more than double what they pay now under traditional Medicare.
    This massive shift in cost from the government onto individuals
    would cause many seniors to forego health care altogether.
    Those that could would sign up for welfare programs.
        Dr. Blahous, Chairman Ryan represents this radical
    transformation he is leading as, and I am quoting, preserving
    and protecting Medicare. But any student of history could know
    that Republicans opposed the creation of Medicare in the 1960's
    and have sought to dismantle it since then.
        Dr. Blahous, are you familiar with this quote from former
    Republican National Committee Chairman Haley Barbour, who
    extolled the 1995 trustees report as manna from Heaven in an
    effort to politicize Medicare and justify then-Speaker
    Gingrich's Contract with America plan to cut Medicare spending
    by 14 percent to provide tax cuts for the rich?
        Mr. Blahous. I was not familiar with that quote, sir, no.
        Mr. Davis. Okay. If you heard such a quote, would you agree
    with it, have any concerns about it, or have a different
    position and a different opinion?
        Mr. Blahous. Well, certainly speaking as someone who I feel
    very honored to have become a trustee last year, it will
    certainly be my hope that the trustees reports be received in a
    spirit so that they inspire changes to make financial
    corrections to preserve the financial soundness of the Medicare
    program. The purpose of the trustees report is to acquaint
    Congress and the public with the finances of Medicare to permit
    the program to be as strong as possible.
        Mr. Davis. Mr. Van de Water, can I ask you, under the Ryan
    proposal, the Congressional Budget Office determined that the
    gradually increasing number of Medicare beneficiaries
    participating in the new premium support program would bear a
    much larger share of the health care costs than they would
    under the traditional program. That greater burden would
    require them to reduce their use of health care services, spend
    less on other goods and services, or save more in advance of
    retirement than they would under current law. At the same time
    the proposal analyzed by CBO would leave in place provisions
    restraining payments to many providers under the traditional
    Medicare program. Under this scenario where our seniors who are
    living on a fixed income are supposed to get additional money
    they need to obtain health care and take care of their basic
    needs like food, shelter and clothing, won't all of this put an
    even bigger burden on seniors themselves and their children who
    might be helping out?
        Mr. Van de Water. Yes, I think that's correct, Mr. Davis.
    As you or another one of the Members, I believe, has already
    cited, that the Congressional Budget Office analysis of the
    budget resolution plan would roughly double the expected out-
    of-pocket costs for a typical 65-year-old in the first year
    from about $6,000 to over $12,000 a year. And given the average
    income of a 65-year-old, that increase would be a significant
    burden.
        Mr. Davis. A big burden.
        Mr. Chairman, I see my time is expired.
        Mr. Gowdy. I thank the gentleman from Illinois.
        The chair would now recognize the gentleman from
    Connecticut Mr. Murphy.
        Mr. Murphy. Thank you very much, Mr. Chairman. And I thank
    the panel for being here with us today.
        Representative Davis, as I will, spent some time talking
    about the Ryan budget, the budget that passed through the House
    of Representatives. And I think it's appropriate, because what
    the subject of today's hearing is really about is who has the
    burden of making proposals to try to reform our Medicare
    program going forward. And that's a really important topic for
    us to be talking about.
        I mean, we have one very clearly articulated plan before
    Congress right now, and that is the Republican budget, which
    dramatically changes the Medicare program, and admittedly
    certainly takes cost out of it, but takes cost out of it by
    shifting the burden onto individuals, tripling the amount of
    out-of-pocket costs for senior citizens, for example.
        But one of the other things it does--and, Dr. Van de Water,
    I will ask you a question about this because I know you've
    spent some time looking at it--what it also does is it removes
    65- and 66-year-olds from eligibility for the program. And
    maybe this doesn't seem like such a big deal. It's sort of
    built in this mythology that people are living longer. It's not
    necessarily that over the last few years people are living
    longer, it's that less infants are dying, and so you still have
    people retiring, leaving work at about the same age and needing
    benefits.
        Medicare was conceived in part because those people who are
    65 and 66 just didn't have a private market, didn't have a
    place to go to that could adequately insure someone that is
    likely going to be more sick. And the reality is that a lot of
    those people who are 65 and 66 and who don't--will not now
    qualify for Medicare are going to receive their care from
    somewhere else, that the cost is going to shift to somewhere
    else in the system.
        And I guess I wanted to ask that question to you, Dr. Van
    de Water. What happens as you move millions of 65- and 66-year-
    olds off of Medicare? There seems to be an idea that the
    government won't bear that cost, but in reality we're likely to
    shift a lot of that health care cost just onto the government
    dime somewhere else. Could you speak a little bit about how the
    cost shifting for individuals who are removed from the Medicare
    rolls occurs?
        Mr. Van de Water. Yes, Mr. Murphy. I might say the proposal
    to increase or the discussion of increasing the Medicare
    eligibility age to 67 is problematic, but at least I think can
    sensibly be discussed if one is assuming that the Affordable
    Care Act goes into effect, because with the Affordable Care
    Act, at the very least 65- and 66-year-olds would have a
    guaranteed alternative source of coverage. Many beneficiaries
    would have to pay considerably more, but they wouldn't be
    completely shut out of the market.
        But as we know, under the current arrangement, without the
    provisions of the Affordable Care Act, many people in their
    60's find that insurance is either unavailable or completely
    unaffordable. And so the result is exactly as you say: If the
    eligibility age were increased, some of the people in the 65-
    to 66-year-old bracket would go without insurance. To some
    extent they would cut back on care if they couldn't afford it.
    To some extent they would pay for it out of pocket, and to some
    extent it would end up being paid for through emergency room
    visits. And some people, of course, would be poor and would end
    up on Medicaid. So it would be shifted in a variety of
    fashions.
        Mr. Murphy. And I think that your point is a good one,
    which is that, though I don't support moving the retirement age
    up to 67, we did hear for a period of time in this Congress a
    mantra of repeal and replace, which was, I think, an effort, at
    least on behalf of those who opposed the health care bill that
    was passed by this Congress, to recognize that we needed
    something else in its place. We don't have that any longer; we
    just have repeal. And those that will be most exposed, as you
    mentioned, are those who are right on the cusp of Medicare
    eligibility. In fact, right now, even with the eligibility at
    65, the people who are most likely to go without insurance if
    they lose their job are people who are in the 55 to 65 age
    bracket.
        And so I do think that it's important to recognize how
    fragile the world is today for people right on the edge of
    Medicare eligibility and how incredibly increasingly fragile it
    becomes if you partner these drastic changes in the Ryan budget
    to Medicare with a full repeal of the Affordable Care Act.
        And I see my time is up. I yield back.
        Mr. Gowdy. I thank the gentleman. And all of us thank our
    four witnesses not only for lending us your perspective, your
    insight, your expertise, but also for accommodating a long vote
    series. I know your time is just as valuable as ours, if not
    more so, so we appreciate your courtesy. And thank you again
    for your presence today.
        The hearing is adjourned.
        [Whereupon, at 4:09 p.m., the subcommittee was adjourned.]