[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:]

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[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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    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.]

                                 
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