[Senate Hearing 112-254]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-254
 
 A TIME FOR SOLUTIONS: FINDING CONSENSUS IN THE MEDICARE REFORM DEBATE

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS


                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                            OCTOBER 12, 2011

                               __________

                            Serial No. 112-9

         Printed for the use of the Special Committee on Aging


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



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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman

RON WYDEN, Oregon                    BOB CORKER, Tennessee
BILL NELSON, Florida                 SUSAN COLLINS, Maine
BOB CASEY, Pennsylvania              ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri           MARK KIRK III, Illnois
SHELDON WHITEHOUSE, Rhode Island     DEAN HELLER, Nevada
MARK UDALL, Colorado                 JERRY MORAN, Kansas
MICHAEL BENNET, Colorado             RONALD H. JOHNSON, Wisconsin
KRISTEN GILLIBRAND, New York         RICHARD SHELBY, Alabama
JOE MANCHIN III, West Virginia       LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      SAXBY CHAMBLISS, Georgia
                              ----------                              
                 Debra Whitman, Majority Staff Director
             Michael Bassett, Ranking Member Staff Director


                                CONTENTS

                              ----------                              

                                                                   Page

Opening Statement of Senator Herb Kohl...........................     1
Statement of Senator Bob Corker..................................     2
Statement of Senator Ronald H. Johnson...........................     3
Statement of Senator Dean Heller.................................     4

                           PANEL OF WITNESSES

Statement of Maya MacGuineas, President, Committee for a 
  Responsible Federal Budget and Director, Fiscal Policy Program, 
  New America Foundation, Washington, DC.........................     6
Statement of Joseph Antos, Wilson H. Taylor Scholar in Health 
  Care and Retirement Policy, American Enterprise Institute, 
  Washington, DC.................................................     8
Statement of John F. Holahan, Director, Health Policy Research 
  Center, Urban Institute, Washington, DC........................    10
Statement of Douglas Holtz-Eakin, President, American Action 
  Forum, Washington, DC..........................................    12

                                APPENDIX
             Senators and Witness Statements for the Record

Senator Susan Collins (R-ME).....................................    38
Maya MacGuineas, President, Committee for a Responsible Federal 
  Budget and Director, Fiscal Policy Program, New America 
  Foundation, Washington, DC.....................................    39
Joseph Antos, Wilson H. Taylor Scholar in Health Care and 
  Retirement Policy, American Enterprise Institute, Washington, 
  DC.............................................................    51
John Holahan, Director, Health Policy Research Center, Urban 
  Institute, Washington, DC......................................    63
Douglas Holtz-Eakin, President, American Action Forum, 
  Washington, DC.................................................    71

             Additional Statement Submitted for the Record

AARP.............................................................    88
Access to Medical Imaging Coalition, Washington, DC..............    93


                     A TIME FOR SOLUTIONS: FINDING
                CONSENSUS IN THE MEDICARE REFORM DEBATE

                              ----------                              


                      WEDNESDAY, OCTOBER 12, 2011

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:01 p.m. in Room 
SD-562, Dirksen Senate Office Building, Hon. Herb Kohl, 
chairman of the committee, presiding.
    Present: Senators Kohl [presiding], McCaskill, Bennet, 
Corker, Collins, Kirk, Heller, Moran, Johnson, and Chambliss.

        OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN

    The Chairman. Good afternoon to everybody, and we thank you 
very much for being here today.
    This year the debate in Washington has focused on our 
fiscal situation, and no one questions the need to do more to 
get our Federal budget under control. In addition to driving up 
the deficit, rising health care costs continue to drag down 
wages as potential increases are instead being spent on the 
increasing costs of health insurance and care.
    While last year's health care reform was a start, it has 
not done enough to address costs. We need to do more and look 
at every opportunity to get health care costs under control.
    Today I will be sending specific policy recommendations to 
the Joint Select Committee on Deficit Reduction aimed at 
reducing the cost of health care without pushing those costs 
onto consumers or limiting access to care. Several proposals to 
reduce drug costs were considered by this committee during a 
hearing in July. One proposal would allow negotiation of drug 
prices in Medicare Part D. In Wisconsin, we have already seen 
the tremendous savings that can be achieved through negotiation 
with the prescription drug program called Senior Care. This 
program has been incredibly effective and popular.
    Other policies such as eliminating back-door payments for 
keeping generic drugs off the market have been considered by 
Congress for several years. These options could lead to 
significant reductions in government and consumer spending on 
health care.
    We are also recommending to the Super Committee that drug 
manufacturers be required to provide Medicare Part B with the 
same rebates that Medicaid receives. The Department of Health 
and Human Services Office of Inspector General estimates that 
this policy would have saved Medicare at least $2 billion last 
year and could reduce spending overall by as well as $24 
billion over the next decade. I hope that the so-called Super 
Committee will consider these ideas carefully and incorporate 
them into their consensus deficit reduction plan.
    So, once again, we are very happy that you're here today. 
In the longstanding tradition of operating as a bipartisan 
committee, today we will hold a hearing developed by the 
minority looking at opportunities to reduce health costs. I 
will not be able to stay for the entire hearing, so I will be 
leaving the gavel in the very capable hands of Senator Bob 
Corker, who is the ranking member of this committee. I know 
Senator Corker very well. I have come to develop a high regard 
and respect for him as not only a smart senator but as a 
senator who very much likes and wants to do things in a 
bipartisan way, working together not only with Republicans but 
also with Democrats, and so I respect the man. I know this is 
going to be a good hearing, but even more so, I respect him for 
who he is and what he stands for, what he's accomplished, and 
for what I'm sure he's going to do in the future.
    Senator Corker.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. Mr. Chairman, thank you for those kind 
comments, and thank you so much for allowing us to have this 
hearing, and thank you for the way that you've led this 
committee. I know we'll have some more meetings before your 
departure, but I really do appreciate the way you conduct 
yourself and the way you conduct this committee.
    With that, I rarely give opening comments, but I am today. 
I want to thank you all for being here. We want to discuss 
Medicare reform options, and I know that you all know that the 
Aging Committee has a responsibility to study Medicare and to 
make sure that serving our seniors well--that we're serving our 
seniors well and in a sustainable manner for future 
generations.
    We're here to consider alternatives for controlling the 
long-term growth of Medicare spending, which was $572 billion 
in 2011, and it's projected to be over $1 trillion in 2021, a 
56 percent increase in just 10 years according to the CBO 
Office of Baseline Expectations.
    Financing this rate of spending growth by the Federal 
Government that is already borrowing 40 cents of every dollar 
it spends we all know is not sustainable. Future Medicare 
spending is projected to keep growing faster than GDP, and the 
Medicare trustees have said that the trust fund will be 
insolvent by the year 2024.
    When you consider that an American family--and this is 
something that I don't think many people have been able to 
digest, but when you consider that an American family with 
parents both making $43,500 a year, which is the average per-
person income in our country, over their lifetime they will pay 
$119,000 into the program when you include the employer 
contribution. So everybody knows that the employer pays one 
half, the employee pays the other half. This is in 2011 
dollars.
    They will receive, that same family will receive--remember 
they will pay in $119,000, including the employer contribution, 
and the benefits that they receive from Medicare are $357,000. 
I don't think most Americans understand that is the math that 
we're dealing within Medicare. Obviously, that doesn't work, 
and this arrangement cannot continue and support the 20 million 
more Americans that are going to be on the program over the 
next 10 years, particularly when we're going to have the lowest 
number of people working per retiree that we've ever had in the 
history of our country.
    If we keep putting off dealing with Medicare's $38 trillion 
in unfunded liabilities, there will be severe consequences for 
the country. So we must start now and seize the opportunity 
before us with this Joint Select Committee on Deficit 
Reduction, and we see this hearing as an asset to that 
committee's work.
    I have joined 42 senators, 21 Republicans and 20 Democrats 
and 1 Independent, in asking the Select Committee to go big, 
and I know that Maya MacGuineas with the Committee for a 
Responsible Budget has been a leader in all of that, to propose 
at least $4 trillion in savings while also dealing with 
Medicare and entitlement reform, and tax reform simultaneously. 
If we start making significant changes now actuarially, they 
will multiply into huge savings down the road.
    Ultimately, fixing Medicare and controlling the overall 
health costs will require transforming our health system so 
that we move away from the current fee-for-service program. It 
will be highly complex and could take decades to fully evolve, 
but this approach will actually slow the rate of health care 
spending, including Medicare, and lead to better outcomes for 
patients.
    Medicare reform is a complex topic with diverse views, and 
I'm sure many people on this panel have very diverse views. I 
look forward to hearing the panel's recommendations, especially 
regarding options where members of both parties might find some 
agreement. Even if agreement can only be reached on smaller 
solutions, it would be a good first step in the right 
direction. Making progress on reducing Medicare spending--or 
the growth of it--will demonstrate that we are beginning to put 
our country back on a sustainable path. Medicare is America's 
largest fiscal and health care challenge, and getting more 
difficult to solve every day we don't address it. Now is the 
time to develop consensus around solutions to preserve the 
program for the 48 million seniors who rely upon it today, and 
the generations behind them who will in the future.
    I look forward to an intelligent discussion, and I thank 
each of you for being here, and again, the Chairman for 
allowing this to happen. And I don't know, I think one of you 
may have an opening comment, both of you have an opening 
comment. Thank you.

             STATEMENT OF SENATOR RONALD H. JOHNSON

    Senator Johnson. Thank you, Senator Corker, and I'd like to 
thank my senior senator from Wisconsin, Senator Kohl, for 
having this hearing.
    I'll keep my comments brief, but there are just a couple of 
points I want to make. Past estimates of what things are going 
to cost have not been particularly well done in the government, 
particularly in Medicare. When they first started this program 
back in 1965, they projected out 25 years and said that by 1990 
Medicare would cost $12 billion. In fact, it ended up costing 
$109 billion, basically nine times the original estimate.
    Senator Corker, you said that by 2021 it should cost close 
to a trillion dollars. I mean, let's hope that's all it costs. 
So I think it's always important to keep in mind exactly what 
these projections really are versus what they end up being, two 
separate things.
    The other comment I want to make is I don't fear addressing 
this issue. Certainly, as I traveled around the State of 
Wisconsin, when I ask younger people what do you expect to get 
out of Social Security and Medicare, younger people--
unfortunately for me, that's people probably 50 and under--
without exception, the answer is nothing.
    Now, first of all, that's incredibly unfair. But the second 
point is to me that shows that there's a pretty receptive 
audience for structural reform because when you have no 
expectations of getting a benefit, you probably welcome the 
fact that if we reform these programs, make them sustainable, 
you'll get something.
    So I think we should keep that in mind if we can just get 
past the demagoguery, because, quite honestly, nobody on our 
side of the aisle, I believe, is really talking about ending 
these programs. We're talking about making them structurally 
sound in the future.
    So I agree with Senator Corker. What we need to do is look 
toward areas that we agree on and move the football forward in 
those areas first, and that's certainly what I hope to hear out 
of this hearing today. So, thank you.

                STATEMENT OF SENATOR DEAN HELLER

    Senator Heller. Thank you, Mr. Chairman and Senator Corker, 
for this opportunity. Actually, I don't often give opening 
remarks either, but since this is my first time in this 
committee for a hearing, I would hope that you'd bear with me 
for a few minutes, and I'll keep it short.
    I have to tell you, when I came over here to the Senate, I 
was pretty excited to serve on this committee and the impact 
that it has on seniors in my state that are facing some pretty 
difficult times. So thank you very much for the opportunity to 
serve on this committee.
    Nevadans who depend upon Social Security and other Federal 
retirement programs are struggling following the lack of COLA 
increases in both 2010 and 2011. As a result, I hear almost 
every day from older Nevadans who are unable to keep up with 
the skyrocketing costs of essential goods and services.
    In the next few days we'll hear about whether the COLA will 
be increased in 2012. An announcement concerning Medicare Part 
B for next year is also due out in the next coming week, couple 
of coming weeks.
    Meanwhile, Americans who depend on Medicare are 
understandably concerned by all the talk coming out of 
Washington concerning these programs. Political posturing, 
baseless accusations have replaced constructive dialogue 
concerning the very real problems, that problem being the 
impending bankruptcy of Medicare.
    I believe every senator in this room, every witness that 
we'll hear from today recognize that Medicare is on an 
unsustainable path. That doesn't mean we should scrap the 
program and start over, and no one is suggesting that approach. 
Rather, we must build on Medicare's strengths, eliminating 
wasteful spending, fraud and abuse from the program and make 
sure its fiscal sustainability will outlast our children and 
grandchildren.
    The message Congress must send to seniors and near-retirees 
is simply this: Medicare is a promise to American citizens that 
must be kept. Congress must do everything within its power to 
strengthen and protect this program, and I commend the ranking 
member for calling this hearing so this committee can take the 
lead on this important matter.
    For my part, I'm a strong supporter of Medicare and have 
voted to prevent more than a half-a-trillion dollars in 
Medicare cuts during my time in Congress. I have voted against 
changes to Medicare that would impact current and near-
retirees, including budgets proposed by members of both 
political parties.
    Medicare is a program worth protecting, and that's why 
we're having this hearing today. Many solutions for the 
challenges facing Medicare have been proposed both within the 
Federal Government and from outside stakeholders, and I look 
forward to the witnesses' analysis of which plan provides a 
stronger future for Medicare.
    Again, I'm grateful for the chance to discuss solutions to 
the challenges facing the Medicare program today. I thank the 
witnesses for taking time to share their expertise with us 
today and look forward to their testimony.
    And with that, I yield back. Thank you.
    Senator Corker. Well, thank you very much. And again, Mr. 
Chairman, thank you for this.
    I'll briefly introduce the witnesses, and we look forward 
to your testimony.
    Maya MacGuineas is the President of the Committee for 
Responsible Federal Budget and Director of the Fiscal Policy 
Program at New American Foundation. She also advises the 
administration and regularly works with members of Congress on 
health, economic, tax and budget policy. I think many people 
have seen her on major broadcasts here recently as she's been 
very active.
    Dr. Joseph Antos is the Wilson H. Taylor Scholar in Health 
Care and Retirement Policy for the American Enterprise 
Institute. He's also Commissioner of the Maryland Health 
Services Cost Review Commission and a health advisor to the 
Congressional Budget Office. Before joining AEI, he was 
Assistant Director for the Health and Human Resources at 
Congressional Budget Office.
    We welcome you.
    Dr. John Holahan is the Director of the Health Policy 
Center for Urban Institute. He has done extensive work on state 
health policy, Medicaid, and issues of federalism and health. 
He has also helped develop the Massachusetts health care reform 
law.
    Thank you for being here.
    Douglas Holtz-Eakin, which is also seen often, is President 
of the American Action Forum and a commissioner of the 
congressionally-chartered Financial Crisis Inquiry Commission. 
He was formerly Director of the Congressional Budget Office and 
assisted Congress as they addressed numerous policies, such as 
the 2003 tax cuts and Medicare prescription drug bill and 
Social Security reform.
    We look forward to your testimony. Again, thank you for 
being here.

   STATEMENT OF MAYA MACGUINEAS, PRESIDENT, COMMITTEE FOR A 
RESPONSIBLE FEDERAL BUDGET AND DIRECTOR, FISCAL POLICY PROGRAM, 
             NEW AMERICA FOUNDATION, WASHINGTON, DC

    Ms. MacGuineas. Well, thank you so much for holding this 
hearing today. The fiscal challenges that we as a nation face 
are immense, and the long-term problems, of course, are driven 
primarily by growing health care costs. So this is perhaps the 
most important topic we could be discussing.
    What was once a long-term problem has become far more 
immediate as debt levels have grown to near historic levels, 
and what I think is particularly troubling is that they are 
expected to grow indefinitely. The debt is already presumably 
at a level where it's harming economic growth in this country. 
So as we struggle to figure out how to grow the economy, 
bringing our debt levels down will be a key to all of that.
    So I'd like to make four main points today as we go over 
the different options for controlling health care costs, and 
Medicare in particular. There are many areas of overlap between 
a variety of fiscal plans on ways to save money in health care, 
and as many of them as possible should be implemented as 
quickly as possible, particularly because they will all phase 
in rather gradually, and you want time for the savings to grow.
    No matter how large a package that we manage to put in 
place, it is in all likelihood will not be sufficient to bring 
down health care costs. And unlike something like Social 
Security, which we know how to fix, it's just a question of 
choosing which levers to pull, health care reform is going to 
be an ongoing process. So again, we want to get as much done as 
possible, analyze the results, and then go for the next round 
as soon as we're able to.
    We should put in place policies that are likely to generate 
savings even if they don't score, ``score well,'' or they don't 
generate large savings immediately, because they will compound. 
We should end the open-ended nature of spending on health care 
reform, through health care reform, and consider including it 
in a budget as we do all other national priorities. And then 
finally, just on the point, Senator Corker, that you brought 
up, on the notion of going big, we know that we have a major 
fiscal problem to face, to fix in this country, and we know 
that in order to do that, everything is going to have to be on 
the table. And to get everything on the table, structural 
health care reforms really have to be the centerpiece of that 
because that's the largest problem that we face. So the sooner 
we start considering those, the sooner we get to the point of 
acknowledging that all parts of the budget are going to have to 
be part of a fiscal fix.
    So I'll touch on a variety of reform options, and I broke 
them into things that I called savers, benders, and 
architectural reforms. Most of these reforms enjoy support of a 
number of different proposals, and I've included an appendix in 
the back of my testimony which hopefully will be helpful which 
compares the major plans and all the health care reforms that 
they have in it.
    We also have a broader comparison table of all the 
different areas, so health care and also the other areas of the 
budget that I can submit to anybody who is interested.
    So first looking at savers, savers would bring down the 
levels of health care spending, and though growth might be the 
same, it would be off of a lower base. These would include 
things like raising the Medicare eligibility age, something 
that's now possible in a way that wasn't before because of the 
introduction of the exchanges and something I think should be 
considered strongly; reducing and reforming payment rates for 
home health care providers, skilled nursing facilities, rural 
hospitals, hospital payments for bad debts, and graduate 
medical education; reforming pharmaceutical drug payments, 
which was talked about in the beginning of the opening 
statements; and further means testing premiums for Medicare 
Part B premiums or raising the basic Part B premium across the 
board.
    The next category is benders, and those would bend the 
health care cost curve by bringing down the growth of health 
care costs, as well as the level. These might include things 
like greater cost-sharing requirements in the form of 
deductibles and copayments. Also, limiting Medigap or other 
supplemental insurance would provide better incentives for 
those participating in these programs to become more cost 
conscious.
    Finally, we could overhaul the entire cost-sharing system 
by, for example, replacing all of the cost-sharing rules in 
Medicare Part A and Part B with a single deductible and co-
insurance up to a cap. I have to say, I think some of these are 
the most promising changes and that they get into structural 
reforms without changing the overall system at this point in 
the national health reform discussion.
    We could speed up adoption of successful cost control 
pilots which were included in the Affordable Care Act as we're 
able to assess them and see which ones lead to proven results. 
We could cap non-economic and punitive damages in medical 
malpractice. And finally, coordinating care of dual eligibles 
or those who are eligible for both Medicare and Medicaid can 
lead to cost savings.
    So then, finally, the architectural reforms, and these are 
the changes that would change the basic structure of the 
Medicare system by ending the basic design of open-endedness on 
health care spending.
    So there are a variety of ways to do this. They could 
include expanding IPAB to include cost-sharing rules, provider 
payment reforms and benefits, or even overall spending, so 
expanding the kinds of things that IPAB is allowed to discuss 
and make recommendations on.
    Premium support or competitive bidding. Under premium 
support, the Federal Government would provide subsidies to 
individuals to help them purchase health insurance in private 
markets, and a variation of pure premium support would be to 
introduce premium support alongside a traditional Medicare 
system as was recommended in the Domenici-Rivlin Commission, 
which is also something I think is an idea really worth looking 
closely at.
    Competitive bidding would allow private plans to compete 
alongside Medicare in the new health care exchanges in which 
traditional fee-for-service Medicare would offer health plans 
in tandem with private bids, thus providing more price 
competition.
    And then finally, a budget for Medicare. The bottom line, I 
think, is that restructuring health care spending, we will 
sooner or later realize we cannot keep this open-ended 
commitment to health care, and we need to figure out the most 
efficient, effective and fair way to cap or limit spending 
while protecting people who depend on these programs.
    So while Medicare can and must play a critical role in 
controlling health care costs, going forward Medicaid, TRICARE, 
Federal Employees Health Care Benefits, and ACA and the health 
care exclusion in the tax code are also all other areas that we 
should consider for savings.
    So I'll close here. I again really appreciate your holding 
this hearing and the bipartisan nature of it, and I look 
forward to the discussion. Thank you.
    [The prepared statement of Maya MacGuineas appears in the 
Appendix on page 39.]
    Senator Corker. Thank you.
    Mr. Antos.

 STATEMENT OF JOSEPH ANTOS, WILSON H. TAYLOR SCHOLAR IN HEALTH 
  CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE INSTITUTE, 
                         WASHINGTON, DC

    Mr. Antos. Thank you. Medicare reform is an essential part 
of any plan to rein in the Federal budget deficit and stabilize 
the national debt. Medicare spending will double over the next 
decade. Indeed, that trillion dollar estimate is optimistic. It 
assumes that substantial price cuts on providers in Medicare 
will actually be taken over the next 10 years.
    The first of the baby boom generation turned 65 this year 
and enrolled in Medicare. Over the next two decades some 70 
million people will move out of the workforce, into retirement, 
and into Medicare. That will place an increasing burden on the 
budget and on younger generations whose taxes support the 
program.
    The Budget Control Act creates an opportunity for Congress 
to act. The Joint Select Committee on Deficit Reduction is 
charged with developing a plan that could reduce the Federal 
deficit by at least $1.2 to $1.5 trillion over the next decade. 
The committee shouldn't stop there. Higher levels of deficit 
reduction that are maintained over the long term are necessary 
for fiscal stability.
    A realistic Medicare reform package that could be 
considered by the Joint Select Committee must yield substantial 
program savings within the 10-year budget window as scored by 
CBO. That favors provisions that could be implemented fairly 
rapidly and whose capacity to reduce program spending is 
reasonably clear. At the same time, however, at least some 
provisions must be forward-looking and ultimately risky. 
Business as usual with a few tweaks will not be effective in 
preserving Medicare for the long term.
    I also have three categories. Probably everybody has three 
categories of options. I look at the near-term options, the 
options that you could implement fairly quickly that CBO will 
likely score favorably. There are two categories there, supply 
oriented options, demand oriented options, and then the longer-
term investments in real reform that get at the heart of 
Medicare spending challenge.
    On the question of supply oriented options, most of the 
proposals that you see coming from the White House and coming 
from various commissions have a raft of price reductions and 
other kinds of fee-for-service hits on providers. That's 
inevitable. CBO will give you a score on that. However, to 
argue that Medicare cuts of that nature on providers are 
painless is incorrect. The fact is that no cut is painless. 
Somebody endures some pain, and ultimately it is the 
beneficiary that we have to be concerned about.
    So if we have repeated massive cuts in provider payments, 
we will see negative impacts on beneficiaries in terms of 
access to care and in terms of medical technology and 
innovations that are necessary to produce cures that we all 
hope exist in the future.
    On the demand side cuts, the sorts of things that Maya just 
mentioned are all I think highly relevant. Those sorts of 
things--reforming Medicare's cost sharing, for example--makes a 
lot of sense. Going after Medigap and requiring that every 
Medicare beneficiary have to pay some amount for at least the 
basic services is a sound economic principle and encourages 
people to pay attention to the services that they get.
    A more promising avenue is looking at where the money is 
really spent in Medicare. Ten percent of Medicare beneficiaries 
account for 60 percent of the spending, and we can do a better 
job. This is a harder thing than just adjusting the rules as 
they are now.
    We can do a better job of bringing in chronic care 
management and focusing it on the people who are the big 
spenders. If you apply that to people more generally, you're 
just not going to get a cost-effective result. So we need to 
focus on the big spenders in Medicare, not just the big 
spenders on the supply side but the big spenders in terms of 
Medicare beneficiaries.
    We need essentially to create a coordinated care system 
that's virtual, since the traditional Medicare program can't 
actually produce it. Actually, we can still do a good job 
there.
    And then finally, longer term reform. Medicare's uncapped 
entitlement and fee-for-service incentives have driven a steady 
but unsustainable rise in program spending. Both patients and 
providers benefit from increasing the use of more effective and 
more expensive treatments, and workers are stuck with the bill. 
Neither patients nor providers have much incentive to hold down 
costs to provide services in the most efficient way, and the 
reason for that is the basic structure of the entitlement. 
Essentially, providers know that if they provide more services, 
they will get more pay. Patients know that essentially 
everything is covered. So in that case, why would anybody turn 
anything down?
    What we need to do is we need to set up a reimbursement 
system so that everyone has an incentive to make prudent, 
efficient choices. If you try to work only on the supply side, 
you're working with one hand tied behind your back. You need to 
enlist the aid of patients as smart shoppers. You need to get 
providers to recognize that they face a budget constraint and 
they need to find better, more efficient ways to provide 
services rather than to just provide more services.
    Thank you.
    [The prepared statement of Joseph Antos appears in the 
Appendix on page 51.]
    Senator Corker [presiding]. Mr. Holahan.

STATEMENT OF JOHN F. HOLAHAN, DIRECTOR, HEALTH POLICY RESEARCH 
            CENTER, URBAN INSTITUTE, WASHINGTON, DC

    Mr. Holahan. Thank you. Thanks for the opportunity to 
testify before the committee. I appreciate that you're having 
this hearing.
    In this testimony I'd like to make three points. Three 
seems to be the magic number here today. First, Medicare 
spending is projected to grow at about 6.5 percent per year 
over the next decade. This is faster than the growth in GDP, 
which is 4.7 percent per year. Much of this is due to the 
projected increases in enrollment, which is about 3 percent per 
year, which is going to occur because of the retirement of the 
baby boom generation.
    On a per capita basis, spending is projected to grow at 3.5 
percent. It goes up to 4.2 percent with the physician fee fix, 
but this is close to the increase in GDP per capita, sort of 
more or less the target that people have been after.
    Spending growth in Medicare is really projected to be 
relatively low by historical standards. This is happening 
because of the retirement of the baby boomers bringing a low-
cost population into the Medicare program, essentially changing 
the composition of enrollees towards the lower-cost one, and 
because of provisions in the Affordable Care Act that have 
reduced Medicare spending increases. But clearly, still more 
needs to be done.
    The second point is that proposals to privatize Medicare, 
such as Congressman Ryan's and others, we don't think will work 
as intended. The idea is to have Medicare provide subsidies 
towards the purchase of private plans, people being responsible 
then for the additional cost above the Medicare payments. The 
idea is that beneficiaries would respond by choosing plans with 
higher deductibles and cost sharing and use less services.
    The CBO has estimated that Federal spending will actually 
decline because of the way the payments are indexed, but 
beneficiary costs will increase greatly, and the total cost to 
the nation of providing Medicare benefits would also increase. 
CBO has estimated that average spending will be 28 percent 
higher under private plans than under Medicare in 2022. CBO 
finds that private plans are more costly than traditional 
Medicare because of higher administrative costs and higher 
provider payment rates. Simply because of the way the health 
care market works, you need a strong buyer with leverage over 
providers, and payment rates in Medicare has it to a greater 
degree than private insurers.
    The second issue is that privatization approaches ignore 
the fact that 20 percent of Medicare beneficiaries account for 
77 percent of spending. Most of these will have spending among 
any plausible out-of-pocket caps you're likely to see in 
private plans. That's most of the high spenders will face 
virtually no out-of-pocket costs for most of their spending, 
which will limit the impact.
    But there are many other policies that could be pursued 
that are short of a major restructuring that will provide a 
considerable amount of savings and put Medicare on a lower 
expenditure path. The demonstration programs that are testing 
things like medical homes and accountable care organizations 
should be pursued aggressively and moved and expanded as fast 
as possible to the extent that they prove to be successful.
    CBO and MedPAC have made a number of other recommendations. 
These include reducing home health and skilled nursing facility 
payments, which could yield savings of about $40 billion over 
10 years. CBO has proposed an increase in cost-sharing for home 
health services, with estimated savings of about $50 billion 
over a decade. The Bowles-Simpson Commission has recommended 
extending Medicaid drug rebates to Medicare dual eligibles. 
Others here have, too. Savings are estimated at $49 billion 
over 10 years.
    Next, the Medicare premium structure could be altered to 
lower premiums for low-income beneficiaries and increase them 
for those above 300 percent of poverty. The current structure 
makes no sense. Our idea would be to create a premium schedule 
much like that in the Affordable Care Act that increases 
premiums as incomes increase.
    In a somewhat similar proposal, CBO has estimated savings 
of $241 billion over 10 years by increasing the Part B premium 
from 25 to 35 percent of program cost. This is similar but 
doesn't have the low-income protections that we think are 
necessary. So if you put that in, savings would be lower.
    We also think Medicare cost sharing could be restructured 
with a single deductible, and most importantly an out-of-pocket 
cap on all spending; and further, that prohibiting Medigap 
policies from covering the first $500 of cost sharing and 
limiting coverage to 50 percent of the next $5,000 we think are 
good ideas. This will make Medigap coverage less attractive, 
less necessary, and save about $110 billion over 10 years.
    Another option we think should be looked at is increasing 
the age of eligibility to age 67. This option is feasible once 
the ACA is fully implemented. The ACA provides for age rating 
and income-related premiums and cost sharing. Low-income people 
65 and 66 would actually pay less under the ACA than they would 
under Medicare today. There would be shifts, however, to those 
with higher incomes, to employers, to states. Subsidies and 
exchanges would be higher. Even after accounting for these 
shifts, CBO has estimated that such a policy would reduce 
Federal outlays by $125 billion over a decade.
    Finally, Medicare should take greater responsibility for 
the acute care services provided to dual eligibles. Most of the 
acute care services used by dual eligibles are paid for by 
Medicare, and most successful demonstration programs have 
reduced utilization of Medicare services, not Medicaid. Thus, 
Medicare, not Medicaid, should take the lead role in developing 
policies to manage these acute care services of dual eligibles. 
Spending we estimate for 2010 is $305 billion, over a decade is 
over $4 trillion. So even small reductions in spending would 
yield savings of over $200 billion over 10 years.
    So all of these things taken together would reduce Medicare 
spending substantially and I think achieve what you want. Thank 
you.
    [The prepared statement of John F. Holahan appears in the 
Appendix on page 63.]
    Senator Corker. Thank you for your testimony.
    Doug.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                     FORUM, WASHINGTON, DC

    Mr. Holtz-Eakin. Ranking Member Corker, and members of the 
Committee, thank you for the chance to be here today. And for 
the record, I wanted to thank the Chairman for his service and 
congratulate him on his tenure in the Senate. I've had the 
privilege of being at this committee under his chairmanship 
before.
    I wanted to add my voice to those that stress the absolute 
imperative that Medicare be reformed. At the moment, the gap 
between payroll taxes and premiums paid in and outlays headed 
out is $280 billion a year, and it will rise to $600 billion 
over the next decade. It's an extraordinary fiscal cancer, and 
under current law there are threats above and beyond the 
dollars at stake.
    If you take, for example, the Independent Advisory Board, 
it will by its very nature be given targets for cutting 
Medicare spending that must be reached within a year. It will 
inevitably be driven to reducing reimbursements for particular 
services or devices or drugs. My fear is that it will, in the 
process, target the most expensive, newest, most innovative 
treatments and will act as essentially a random tax on 
innovation. In the process, the program will become undesirable 
to the very beneficiaries it's meant to serve.
    And so we need to change the fiscal stance of this program, 
but we need to do it in a way that makes it durable and serves 
the beneficiaries well and not disguise short-term budgetary 
success with actual progress toward the long run, and I think 
that's the great challenge that we face at the moment.
    I, in the spirit of the day, have in my written testimony, 
which is submitted for the record, many of the same savers and 
benders that Maya categorized, the cost sharing and things like 
that. I won't belabor them. I look forward to having a 
discussion about what might actually work.
    But I also included some things that from a budgetary point 
go the wrong way but we need to fix. Certainly, the SGR is a 
broken mechanism and is among the things that is wrong with 
Medicare at the moment, needs to be fixed. It is budgetarily 
expensive, but I don't think we can pretend it's not there. 
Those are monies that are quite likely going to be spent. We're 
just pretending they're not, and we need to acknowledge that.
    And we also need to fix the CLASS Act. The CLASS Act is 
simply unsustainable. It is a dangerous fiscal innovation for 
the United States. It should be repealed immediately. It would 
be scored as widening the deficit, but I think it would be an 
improvement in policy and ought to be on the radar screen of 
the Joint Select Committee.
    Finally, I want to again stress the imperative of having 
the near-term changes be steps toward a long-run sustainable 
future, and in my testimony I embrace the idea of moving toward 
a system of premium support. I do that for a number of reasons. 
The first and most one is it is, in fact, a budget constraint 
on Medicare. It caps the taxpayers' exposure to this program 
and eliminates the incentives that I think Joe Antos described 
quite eloquently, which is one in which beneficiaries and 
providers jointly have absolutely no regard for how much money 
they spend and have good incentives to behave that way. And we 
need to stop that, provide incentives for efficiencies and 
high-quality outcomes.
    I believe that a well structured premium support can do 
that. It will have a competitive nature that is missing. It 
would look closer to the Part D program, which is the best of 
our entitlement programs at the moment and I think would be a 
step toward the right direction. It would also place the 
responsibility and the opportunity for real innovation and 
quality improvements in Medicare in the private sector where I 
believe elsewhere in the economy we have seen a better track 
record of success.
    And so while there are many ways to put Medicare on a 
budget constraint over the long run, I think that's one that 
the committee ought to look at very carefully.
    We've seen pilot proposals and full-fledged proposals. My 
take on those is they are less exposed to the dangers that Mr. 
Holahan mentioned in terms of out-of-pocket costs for 
beneficiaries. Work that is underway at my think tank suggests 
that the CBO extrapolation is just that, an extrapolation. It 
misses some important market forces, and I would look forward 
to working with the committee in thinking about that kind of a 
proposal.
    So thank you for the opportunity to be here today, and I 
look forward to your questions.
    [The prepared statement of Douglas Holtz-Eakin appears in 
the Appendix on page 71.]
    Senator Corker. Well, thank you all for your testimony. 
It's outstanding. We have, along with great witnesses, a lot 
more full participation than we normally have. And so I'm going 
to let actually all of you ask questions first, and I'll do 
that at the end.
    Senator Bennet, and then go to Senator Collins.
    Senator Bennet. Thank you, Senator Corker, and thank you 
very much for holding this hearing and inviting us all to be a 
part of it, and to the panel for your excellent testimony, and 
I mean that. I don't always say that. I appreciate it.
    I wanted to get your thoughts on sort of a broad question, 
which is that there are isolated examples of excellent quality 
at lower prices that are throughout the delivery system in this 
country, but it seems that they occur sort of in spite of the 
way the Medicare incentive structure works rather than because 
of the way the Medicare incentive structure works. These are 
places in my own state like Denver Health. They are places like 
St. Mary's Hospital in Grand Junction. Both of them are 
managing to deliver high-quality care at a lower cost. Neither 
of them have a hammer and sickle hanging outside of them. 
They're just doing what quality organizations do, electronic 
medical records, the doctors are salaried, accountable care 
work, transitions and so forth.
    What is it about the Medicare incentive structure that has 
made delivery system reform so difficult? What can we change to 
accelerate the innovation that we need to see in our health 
care system? Because otherwise I don't think most of the 
proposals that I've seen on Medicare are actually going to 
solve the budget problem that we face, because fundamentally 
what we've got is a cost problem in the delivery system itself, 
and until we are actually able to address that, I don't think 
we're going to make meaningful progress on this question.
    Mr. Holtz-Eakin.
    Mr. Holtz-Eakin. I think at the broadest level there are 
two very big contradictions inherent in the Medicare system. 
The top level one, the one that Joe Antos mentioned, is we 
essentially say to beneficiaries you may have all of the finest 
medical science that America can produce at low or no cost, and 
that turns out to be really expensive. So then we go to 
providers and we say stop that, either literally or by cutting 
their reimbursements to the point where they do, which violates 
our pledge to beneficiaries they can get all they want. And 
that inherent contradiction will never go away until we put the 
system on a budget and say you providers and you beneficiaries, 
these are the resources you have; let's provide some efficient 
quality care. That's contradiction number one.
    Contradiction number two is we pay hospitals based on DRGs, 
and we say here's some money, go treat people, and with some 
exceptions they're basically given the incentive to do as 
little as possible to treat people, and that has dangers on the 
quality front. At the same time, we have doctors being paid on 
volume. Fee-for-service medicine rewards that. Our doctors 
practice in hospitals, and only a few of them are the doctors 
and the administrators not at war, and it's not a surprise. We 
pay them, and it's fundamentally contradictory. And so we need 
to get them on the same page with reimbursement systems that 
bundle their incentives.
    Mr. Holahan. I would respond in a couple of ways. One, as I 
said in my testimony, one of the big things we're facing now in 
Medicare spending growth is the growth of enrollment, the baby 
boom generation. We knew this has been coming. It's a big roll. 
You don't lose sight of that.
    Secondly, it's not just Medicare. The private insurance 
system is the same, has all the same problems. Its payment 
rates to providers are higher. It has the same issues with high 
utilization.
    The high quality, lower cost, I think by and large those 
are unique places that are great, but they're not--whether you 
can replicate them over and over again, I don't know. I think 
the biggest problem we have in health care is that more 
spending probably does lead to higher quality and better care a 
good percentage of the time, and there's work that Jack Hadley 
and other colleagues of mine at the Urban Institute did that 
was published recently that has shown that. But the problem is 
that there's a limit to how much of this higher quality you can 
afford, that we as a nation can afford, and the problem is that 
if you lower spending, you could be cutting out some good 
things, and I think that's pretty much what we have to face. 
It's not a free lunch.
    Senator Bennet. Well, actually, just on that point, Mr. 
Holahan, and I'd be interested on others' thoughts on this too, 
there's been some discussion around the Super Committee about 
whether or not they should approach Medicare with maybe an 
across-the-board cut of 2 percent. Should they do reform of 
some kind? Do people here--and I take it from what you just 
said that you think the 2 percent across-the-board cut would 
not be the best or most responsible idea.
    Mr. Holahan. I think a lot of the ideas that we all have 
mentioned and seem to agree on would get a big, big chunk of 
money, a long way towards that $1.2 trillion.
    Senator Corker. $1.5 trillion.
    Mr. Holahan. Sorry.
    Mr. Holtz-Eakin. $4.0 trillion.
    [Laughter.]
    Senator Bennet. Whatever.
    Senator Corker. I agree, I agree. I couldn't agree more.
    Senator Bennet. Sign me up for that.
    Mr. Antos. A 2 percent cut in Medicare is nothing. That's 
what the sequester would do, and you can do that very easily 
with policies that don't make any difference whatsoever. You 
can lower the spending level a little bit.
    By the way, relative to the baseline, is that really 
cutting spending? It's just slowing it down a little bit, but 
only one time. Most of the policies that MedPAC has proposed, 
that the President has proposed, those are just one-time 
reductions. They don't fundamentally change anything about the 
way the program operates, in particular the way the health 
sector operates. So your point I think is very well taken.
    Senator Bennet. Thank you, Mr. Chairman, Senator Corker, 
for your time.
    Senator Corker. Very good.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. Doesn't that 
sound good, that ``Mr. Chairman'' part?
    Senator Corker. I don't think it sounds too good to Bennet.
    [Laughter.]
    Senator Bennet. You might be surprised.
    [Laughter.]
    Senator Collins. In all seriousness, thank you for 
assembling such a terrific panel of witnesses as we try to 
tackle this issue.
    Before I start my questions, I just have to express 
complete agreement with Mr. Holtz-Eakin's comments on the CLASS 
Act. It is a Ponzi scheme that would make Madoff proud, and it 
should be repealed in its entirety. We shouldn't even be in the 
business of creating a new entitlement program that is funded 
in a way that it will be collecting premiums in the early years 
and thus appears to help the budget numbers, but then will 
explode in costs in the out years.
    I want to follow up on the issue of reimbursements. My 
concern is that what will happen in an attempt to save Medicare 
is there will be harmful cuts in reimbursements to providers 
that will be either a tax on innovation or will curtail access 
to the extent that more and more physicians will decide not to 
accept Medicare patients
    I'm fascinated by statistics that two of you used which 
demonstrate that a small percentage of Medicare patients are 
responsible for the vast majority of Medicare costs. And if you 
look at that population, by and large they have one of three 
chronic conditions, of which diabetes is one. In fact, if 
memory serves me correctly, one out of four Medicare dollars is 
spent treating people who suffer from diabetes.
    Rather than just make across-the-board arbitrary cuts in 
reimbursements, we need to rethink the entire reimbursement 
system, and diabetes care is a perfect example of that. Right 
now, if a patient has diabetes and it is poorly controlled, and 
that patient ends up losing his leg, we pay for everything. But 
we don't pay for a physician or a physician assistant or a 
nurse practitioner to call that man every week to check on his 
blood sugars and monitor his care in order to avoid the more 
expensive treatment. And that, to me, is what is wrong with our 
reimbursement system. It is not focused toward helping people 
who are consuming the most resources because of these four 
chronic diseases, helping them manage their care better and 
thus consume fewer resources.
    So my question--and I apologize for the long intro--to each 
of you, and I'll start with you, Doug, is how could we 
restructure the reimbursement system toward that goal, and is 
that the approach we should be looking at rather than 
arbitrarily cutting all primary care physicians by a certain 
amount, or all specialists, or all hospitals?
    Mr. Holtz-Eakin. Well, I certainly agree that a strategy 
that involves just either flat across-the-board cuts or just 
cuts in reimbursement rates to providers is ultimately going to 
fail. That's been the history of the program. Going forward, we 
have to change its fundamental structure in order for it to 
serve the beneficiaries and survive financially. So reform is 
more important than savings at this point. You'll get the 
savings in the out years. We need to change the trajectory.
    And then the second is there is a lot of evidence that, 
particularly with populations like the dual eligibles, that if 
their care is managed, we can have enormous savings. There are 
some Medicare demos that have actually shown this quite 
dramatically. The question is how to turn that from a research 
finding into an operational program for the Medicare 
population.
    But I think if we made it a priority to comprehensively 
manage the care and pay capitated amounts for those patients, 
we would solve the budgetary exposure and we'd get the 
providers coordinating to get the care, because with a fixed 
amount of money they'd have to do it to get the savings to meet 
the budget constraint, and that we should do as fast as 
possible.
    [The prepared statement of Senator Susan M. Collins appears 
in the Appendix on page 38.]
    Senator Collins. Thank you.
    Mr. Holahan.
    Mr. Holahan. Yes, I would--I'm only going to comment on the 
one thing, the high-cost beneficiaries. I really think that 
should be an extremely high priority. There's been a lot of 
work and talk about taking on care management for dual 
eligibles, but delegating that to states to run through 
Medicaid programs, most of the acute care dollars that dual 
eligibles use and other chronically ill people use are Medicare 
dollars, not Medicaid. So I don't think it's right to ask 
Medicaid programs to really manage the care of Medicare 
patients, and obviously that spending affects the Federal 
budget.
    This really should be a Medicare responsibility, and I 
think that would be a major step forward, to make this a very, 
very high priority for Medicare instead of delegating it to 
states; not that some states won't do a great job, but it will 
only be some states, and in other places it won't be much of 
anything.
    Senator Collins. Thank you.
    Mr. Antos.
    Mr. Antos. Well, I think we're aiming too low if we're just 
aiming at dual eligibles. Of course, that's an important 
population, but there are other Medicare beneficiaries who are 
working their way towards there who haven't spent to the point 
where they're eligible for Medicaid. So we really need to focus 
on the Medicare problem, the high-cost Medicare problem. It 
includes the dual eligibles, but it includes more people. And 
if we make payments to make it attractive for organized health 
systems--you notice I didn't say fee-for-service Medicare--for 
organized health systems to take on these kinds of patients and 
to use real management techniques to coordinate the services of 
half-a-dozen doctors and numerous other kinds of institutional 
providers, we'll make a dent in this problem.
    Senator Collins. Thank you. I know my time has expired. So 
is it okay? Okay. Thank you.
    Ms. MacGuineas.
    Ms. MacGuineas. Sure. Just quickly, then. You know, I'm 
actually struck by how we are kind of stuck in the same problem 
with health care that we are with the overall fiscal 
environment. Because we waited for too long to reform a lot of 
these systems, the pressure of limited resources is what's 
driving the discussion now, and in some ways we've lost the 
opportunity to really think about where to innovate, where to 
reform, where to spend more and where to spend less. And 
there's a good part of that, which is nothing like tighter 
resources focuses the mind, you know? We're going to have real 
spending caps in this area. But we also don't want to be short-
sighted as we think about how to reform the system.
    And I completely agree with your comments that the blunt 
tools of cutting reimbursement rates is not the thoughtful and 
right way to look at this. You really want to look at the 
delivery system in so many areas. One thing to keep in mind is 
that some of the most successful systems are those that 
maintain longer relationships with their patients, and the fact 
that Medicare, you have people once they're seniors and not 
before, so you have a kind of a truncated time period where the 
investments in their health care doesn't pay off to the same 
people who made them, leaves it in a very different system in 
terms of what the incentives are.
    We do need to collect a lot more information on the 
performance of various changes and incentives to the system, 
but we need to also make sure that they're integrated in how we 
deliver systems and we pay more for what works. You can also 
look at cost sharing and have greater cost sharing in services 
and procedures that are not shown to work as well.
    So we need to be a little bit more nuanced in how you work 
the financial incentives, I think, into rewarding in health 
care.
    Senator Collins. Thank you.
    Thank you, Mr. Chairman.
    Senator Corker. Thank you, Senator Collins.
    Senator McCaskill.
    Senator McCaskill. Thank you. Thank you, Senator Corker, 
and I wish there were more people down here, but I'm glad to be 
here with all of you, and I think it's important, since we do 
have this time constraint that you referred to, that we try to 
focus. I know Senator Corker has tried to make this hearing 
about where we can find consensus, and I think there's a lot of 
places we can find consensus. And if we can just work hard in 
those places we can find consensus, then I think it might be 
surprising what we can get done. If we all stay over here, you 
know, that it's not about this or it's not about that and try 
to take political advantage of this fight, then I don't think 
we're going to move the ball, and that, candidly, is what 
usually happens. Everyone is busy taking political advantage of 
a situation, and guess what happens to the can? It gets kicked 
and kicked and kicked.
    So I'm proud that--Senator Corker doesn't surprise me he 
does this, and my friend Senator Collins does it all the time, 
we try to figure out if there are ways that we can find 
consensus.
    Let's talk about over-utilization. I had a group of docs 
that I was talking to during the health care debate, and they 
wanted to talk to me about the problems with--I don't remember 
if it was tort reform or what it was, and I said, well, let's 
just go around the table and tell me how often you use your 
machines. And there was a lot of shuffling and looking down, 
and we went around the table, and the least any of them were 
utilizing their machines was 92 percent. And, of course, the 
Medicare reimbursement is dependent on an assumption that 
they're only using them about 50 percent of the time. So it was 
pretty obvious to me that their business model depended on 
over-utilization, that, in fact, the profit they were making 
was over-utilization.
    And I don't think we've really tackled that, and it seems 
to me that could be an area of consensus. Rather than dinging 
them on reimbursement, which is not the right way to go--I 
certainly agree with that--I am trying to get to this notion 
that my mother, who has three chronics and is 83, can have 
sometimes as many as 10 different blood works in 30 days, from 
four different specialists, all paid for by taxpayers, because 
it's all out-patient and it's all general revenue. It's not in 
a hospital.
    So what are your ideas on how we get to this delivery 
system that has built a profit model on the altar of over-
utilization?
    Ms. MacGuineas. I think I'll return to something I'll 
probably return to a number of times, but back to cost sharing. 
So I think that all consumers need to have greater price 
sensitivity than they currently do in Medicare. And I would 
also add that there's a level of transparency that doesn't 
exist in the entire health care system. We need to really work 
at improving the transparency of the effectiveness, costs of 
the same things in different areas, and so that consumers have 
better access to the information of how well something works, 
how much it costs, and how much they would be involved in 
shouldering part of the burden.
    And just a quick comment on the politicizing of Medicare. I 
just couldn't agree with you more, and I think we've seen this 
way too often across both parties sort of talking about the 
other wanting to change Medicare and demagoging on it, and if 
there's one thing that I hope comes out in this coming 
election, it's that we know we need to make major, major 
changes to Medicare, and everybody should be looking for those 
that we can get most agreement on. So I agree with you.
    Mr. Antos. You're absolutely right. Because of the fee-for-
service payment system, the machines are profit centers. So the 
more you use it, the better. And if you raise the utilization 
assumption that Medicare uses to set the fees to, let's say, 92 
percent, well, you've got 8 percent to go, you know? There may 
be eight hours in a day, but not for a machine. You can find 
ways to squeeze more money out of that.
    Now, that said, a lot of those machines do some pretty 
wonderful things. So we want to be very careful----
    Senator McCaskill. Right.
    Mr. Antos [continuing]. Not to squeeze off the medical 
benefits. We just want to reduce the unnecessary use of 
services.
    One of the things that the Medicare Payment Advisory 
Commission recommends which isn't going to work is for high 
utilizing radiologists, I forget exactly which imaging 
procedure, but whatever it is, it might be MRIs or something, 
that they would review these particular physicians, review each 
case and refuse to pay if they didn't see sufficient evidence 
that the patient really needed the fifth MRI.
    Well, you know, you could do that, but how many services 
could be subject to that problem? The answer is all of them.
    Mr. Holahan. I guess I would answer it this way. I think 
the problematic incentives in fee-for-service medicine are 
obvious. Everybody knows that. In your case, in the case that 
you cited, I don't know whether that's over-utilization because 
I don't know what the information gain is from that 92 percent 
utilization rate.
    I think what we really have, especially with the advanced 
imaging technologies that we have, is that we haven't brought 
down prices, the amount that we pay per test or per image, as 
these things have gotten cheaper and cheaper to do, and if 
they're used efficiently, the prices should have fallen, and 
they really haven't fallen----
    Senator McCaskill. What do you attribute that to?
    Mr. Holahan. I just think we're dropping the ball. I don't 
know whether it's a MedPAC issue or what, but I think that 
public or private----
    Senator McCaskill. Because you're right. It makes no sense.
    Mr. Holahan. I mean, my own experience with MRIs is that 
they ought to be used a lot because the information gained is 
so great, but they shouldn't cost anywhere near as much as they 
do. They just should be run around the clock, just as long as 
you're paying something closer to marginal cost. But, you know, 
I would stop there.
    Mr. Holtz-Eakin. I'd want to echo the remarks of Joe Antos 
in particular. I agree completely. I mean, remember, if we were 
paying an organized health group to manage someone's care, they 
wouldn't undertake an unnecessary test because it would be an 
additional cost they wouldn't want to bear. They'd keep track 
of the records so that they didn't have to replicate that in 
order to do due diligence on the quality of the care the person 
received, and they would negotiate for a marginal cost pricing 
and not pay full boat. Fee-for-service medicine lets them get 
away with all those mistakes.
    Senator McCaskill. And more. Thank you.
    Senator Corker. Thank you, and thanks for being here.
    Senator.
    Senator Johnson. Thank you, Mr. Chairman.
    Does anybody on the panel have any idea how much profit 
dollars in a $2.6 trillion industry are really realized by 
pharmaceutical companies, insurance companies, providers? 
Anybody done a study? Mr. Eakin?
    Mr. Holtz-Eakin. I don't remember the number, but this came 
up in my past, and at one point if you confiscated all the 
profits of the pharmaceutical industry and the insurance 
industry, you would take care of less than two years of 
spending growth per person in the health care sector in the 
United States. So it is, relative to the $2.6 trillion, not a 
big number.
    Senator Johnson. I've been trying to get that number, and 
it may be under $100 billion in a $2,600 billion a year 
industry. So it isn't the profitability that drives cost.
    I'm a manufacturer. I'm always looking for the root cause 
of the problem, and to me there are a number of root causes in 
terms of driving up costs in health care. The initial one I 
think goes back to 1945 under wage and price controls where we 
started separating the consumer of the product from the payment 
of the product. Until we reconnect that, until we re-induce the 
free market system which, by the way, guarantees, what, the 
lowest possible price and cost, the highest possible level of 
quality, the highest possible level of customer service, we're 
just not going to fix this problem. That's one root cause.
    Another root cause is, as has been alluded to, 10 percent 
of individuals account for 60 percent, 20 percent represent 
about 77 percent of total costs. That's chronic care. It's also 
end-of-life issues.
    We also have a technology problem. But as we also pointed 
out, technology has a real upside. If it weren't for cures, if 
it weren't for innovation, if we hadn't cured polio, what would 
our costs be?
    So again, I just want people to address that, really what 
are the root causes. I mean, am I accurate in that? Is there 
another root cause in this equation?
    Mr. Antos. I have a lot of sympathy for that viewpoint, as 
I hope my testimony made clear. I do want to say one thing as a 
word of caution to the committee, from my experience at CBO. 
Markets are phenomenal at driving prices down to cost, but they 
rarely drive them below. Price fixing by government health 
programs makes it possible for prices to be below cost. So 
sometimes when you move from a price-fixed program to a market 
program, it will cost the Federal budget money, which is going 
to be frustrating for those on the other side of this witness 
table, and you should remember that because it has come up in 
the past.
    Senator Johnson. Okay. You led me exactly where I want to 
go. Currently, about the only reason that we're able to reduce 
cost to providers is because we have a huge amount of cost 
sharing, from the 50 percent that the government pays for to 
the 50 percent of the private sector, which is driving up 
private health care costs.
    We've done work together in terms of the total under-
estimation of what Obamacare is estimated to cost, because they 
only estimated 3.6 million people who would lose employer-
provided care. When that number is driven to 50 percent, maybe 
90 million people, possibly 180 million people, all those folks 
get dumped in the exchanges and government is paying for 100 
percent, there will be nobody to share those costs with. What 
effect is that going to have in terms of our ability as a 
government to pay for this Medicare and Obamacare?
    Mr. Holtz-Eakin. Well, as you well know, you're leading the 
witness. I mean, I think it would be an unmanageable Federal 
budget cost if the estimates that I have done come to fruition. 
I mean, it will be two and three times the estimated budget 
costs every year for the insurance subsidies.
    I'd also point out something else. Senator Corker mentioned 
the importance of doing tax reform and entitlement reform. It's 
all true. The order in which you do that matters. If you repeal 
the exclusion of employer-sponsored insurance from tax, then 
with certainty everybody ends up in the exchanges and you will 
have created an enormous budget cost. So this is not something 
you can do without thinking about how they interact, and this 
is a central part of a budgetary exposure. One subsidy is 
through the tax system, one is through the insurance exchanges, 
and this is really one subsidy competing with another, and if 
you toggle one, you'll get a response from the other.
    Senator Johnson. The numbers we came up with, rather than 
an annual cost for Obamacare of $93 billion, it's closer to 
almost a trillion dollars a year when everybody loses their 
health care and get dumped in the exchanges.
    We talked a little bit about the SGR concern about what 
that's really going to cost. Anybody have an estimate of what 
that would really cost to fix?
    Mr. Holahan. I think CBO has estimated it to be about $300 
billion.
    Senator Johnson. Per year?
    Mr. Holtz-Eakin. No. That's over 10 years.
    Senator Johnson. Over 10 years? Okay.
    Mr. Holtz-Eakin. Remember that there's a year 11. There's a 
table of estimates in my written testimony, if you want to 
peruse dismal numbers.
    Senator Johnson. Okay. Yes, I love scary numbers.
    That's really about all I have. Thanks.
    Senator Corker. Thank you.
    Senator Chambliss.
    Senator Chambliss. Maya, you talk in your testimony about 
three reform measures that have the potential to drive down 
costs, benders, savers, structural changes I believe is the way 
you put it. What I'm interested in is how we get Medicare 
beneficiaries to get more skin in the game. How do we get that 
individual who goes to the emergency room to think, ``Gee, if I 
go next time, it's going to cost me $25'' or whatever it may 
be? I couldn't decide whether that might be low-hanging fruit 
in savers or whether that would be in your structural. But if 
you will, talk about that for a minute and tell us your 
thoughts on how we get that more skin in the game attitude out 
there.
    Ms. MacGuineas. So I would put that squarely in the benders 
category, which is where I think we should be focusing as much 
of our energy as possible right now in that it can save 
significant money in a 10-year window, but more importantly it 
would have compounding savings over time. And so I think the 
real key here, and we've all discussed it to some extent, is 
that if you have more price sensitivity than you have with the 
system right now where you pay for my health care and I pay for 
your health care and we all think we should have as much as 
possible, but if you have more price sensitivity and you have 
more information in a way that you can evaluate what is good 
for your own health and what is excessive cost, that skin in 
the game is critical to bending the curve over the long term.
    I think we want to be careful. You want to make sure that 
while you're changing the way that the financing, the 
incentives and the financing of Medicare, that you do protect 
people against excessive cost. We know that one of the highest 
reasons for bankruptcy is health care costs, and you want to 
make sure that people are protected from catastrophic costs, 
and you want to make sure that people are protected from paying 
a greater share of their income than they can.
    So it's some combination of means testing, but not to the 
extent where the system unravels for the parts that are 
voluntary, and greater cost sharing. But nobody should feel 
that going to the doctor is just sort of a pastime. It needs to 
be something that you evaluate like you do with all other 
purchases, whether it's worth it, and I think that's the most 
important reform we could be looking at right now.
    Senator Chambliss. Would you agree that that is the mindset 
right now on folks who have been used to the government taking 
care of their health care, whether it's through Medicaid and 
graduating into Medicare, that there is that feeling, 
consciously or subconsciously, that I'm entitled to this, the 
government is going to take care of me, and until we change 
that curve, we're not going to bend that curve, the Medicare 
cost curve down?
    Ms. MacGuineas. I think certainly there are three things 
that contribute to it: one, that you've paid into Medicare, 
though as we heard in the beginning, you haven't paid nearly 
enough into Medicare to cover all that you'll be receiving out 
of your lifetime, but you feel that you've paid into it; 
second, that you don't see anything close to the real cost when 
you go to the doctor; and third, that it's health care, and so 
everybody can work themselves up into a tizzy that this has got 
to be vastly important, I have to go to this doctor just in 
case this is a serious thing, and you lose the ability to 
evaluate whether it's worth the cost.
    But those three factors all contribute to our over-
utilization of health care, and I think price sensitivity and 
better information are the keys to helping bring that back down 
to closer to realistic levels for demand.
    Senator Chambliss. Let me address this to the whole panel. 
My thought on SGR is that if we don't fix this thing for at 
least 10 years, we're kidding ourselves. We know we're going to 
come back and we're going to stick that band-aid on it every 
year. There's no policymaker that could go home and look his 
docs in the eye without doing that. But if we do that, it's 
going to be more expensive on us over that 10-year period than 
if we go ahead and bite the bullet and do it for 10 years.
    And the second part of that, I am extremely concerned that 
if we don't come up with a long-term solution to SGR, that 
we're going to lose docs like we've never seen before. Now 
rarely does a doc who is under 40 years of age--excuse me--
yeah, under 40 years of age come into my office and he accepts 
Medicare patients. They're pretty smart about going into a 
field where they don't have to take them, or into a region 
where they don't have to take them to make a good living.
    So what I want you to address is what do we need to do 
about SGR? We've got to pay for it somehow. But am I wrong in 
thinking that if we don't fix it for at least a 10-year period, 
that we are missing an opportunity and that in the long run 
this is going to cost huge bucks?
    Mr. Antos. I certainly agree with that. Of course, 10 years 
is forever. As long as you've replaced it with something. You 
have to find some method of limiting unnecessary growth in 
health spending in Medicare generally. Now, if you want a 
short-term fix, MedPAC has plenty of ideas. You spread the pain 
around. Instead of taking a 30 percent cut in January for all 
physicians, you take a much smaller cut in specialists. You 
freeze specialists and primary care. That's not an unreasonable 
thing to do. The rest of the health sector has to kick in as 
well.
    However, that doesn't fundamentally solve the problem. You 
still have a fee-for-service Medicare program where the reason 
why patients go from doctor to doctor is they don't have a 
sensible place to go otherwise. We've got to fix that problem, 
too.
    Mr. Holahan. I would say certainly you have to fix it. It's 
ridiculous sort of to do this every year, and a long-term fix 
that would be a freeze or a small rate of increase in fees just 
makes a lot of sense.
    One thing I would say is even though we come back and we 
don't let fees fall, and so prices aren't going up, it is 
important to remember that spending on physician services is 
going up much faster, 7 or 8 percent a year, because the volume 
of services are going up. So that means that the incomes that 
physicians are receiving really are not falling. I mean, that's 
just not right. But nonetheless, and it's not just because of 
the reaction to the low fees but because of a lot of other 
factors, new technologies, new procedures that come along.
    So I would fix it, but it's not because docs are really 
hurting because of the current policy.
    Mr. Holtz-Eakin. If I could, in my testimony we put in some 
of the survey evidence that showed the response of physicians 
the last time Congress didn't pass a patch in a timely fashion, 
and there's a whole array of things from contemplating not 
seeing new Medicare patients to actually never seeing them ever 
again, and I think that's a tribute to the concern you should 
have about not fixing it. You have to fix it or beneficiaries 
are going to suffer, and it is an artifact of the current law 
baseline fiction to pretend that this is costing you something.
    You're going to spend the money because you're not going to 
let beneficiaries not have access to doctors. As a Congress, 
you can't have that happen. You never have. You've always spent 
the money. It's always ended up in the actual Federal deficit. 
It will end up in the actual Federal deficit in the future. So 
acknowledge the reality, fix it, and then start realizing that 
this is a 5 percent reduction every year in overall Medicare 
spending, and that's something you're going to need to get to 
begin with.
    So, you know, get this off the books, stop messing around 
with that corner of Medicare, and then fix the program.
    Senator Chambliss. Thank you.
    Senator Corker. Thank you, and thanks for being here.
    Senator Kirk.
    Senator Kirk. Mr. Chairman, Madam Chairwoman, I want to 
honor my promise on Medicare to my mom, to defend the program, 
and I think we need to advance our reforms that can be enacted, 
especially in a carefully balanced Congress, because in the end 
I think we're judged by did you affect the process or not.
    When you look at reforms that we can make, I think we can 
build some consensus behind some, and one thing I want to look 
at, behind me you have the old Medicare card, which is what 
every senior has. Senator Corker and I, especially Senator 
Wyden, we've joined together to upgrade the Medicare card.
    This is a military ID. The United States has issued 10 
million of these at $8 each, and they tell me--actually 20 
million--and they tell me that not a single one yet has been 
counterfeited. But it has a number of upgrades, both front and 
back, that I think would really help seniors out.
    Notice on the Medicare card, you have the Social Security 
number printed straight on the front of the card, which is an 
invitation for ID theft. And so Senator Corker, I and Senator 
Wyden, we put together an effort to have the new card--this is 
what it looks like--where everything is held in a chip and it's 
modeled after the established CAC card, common access card 
technology, that already was pioneered in DOD and now 
throughout the intelligence community, et cetera.
    We estimate that--Medicare is over a $500 billion program. 
The Department of Justice says we have about $60 billion in 
waste, fraud and abuse now in the program, which I think is 
three trips to Mars per year wasted out of the program.
    Here's my question, though. Doug, I love your testimony, 
but I'll blame you personally because of your old employer, 
CBO, something that we need to fix, and I want your advice on 
it. And for John and Maya, thank you because in your testimony 
you said program integrity improvements are key, and here's the 
question. Why can't we move to an upgraded card so that we 
actually know the recipient is receiving service at the point 
of service with a PIN number?
    This is something that now, as 9,000 baby boomers qualify 
for Medicare each year, everybody understands this technology.
    And B, why is it that CBO will not score upgrades in 
program integrity that we know will reduce waste, fraud and 
abuse, totaling more money than most United Nations members' 
gross domestic products in a year?
    Mr. Holtz-Eakin. So on the program integrity improvements, 
let me do it with the IRS as an example, to take it out of the 
subject of the hearing, and then we'll come back to your card. 
The scoring rules are set up so that you cannot simply 
appropriate more money to the IRS and assume that you will get 
back $1.20 in tax revenues for every dollar of appropriated 
funds. That's to remove any pretense that the appropriators 
could create a money pump for themselves and simply spend it. 
So that was a conscious decision made by the House, the Senate 
majority, the majority of budget committees, OMB----
    Senator Kirk. Which is understandable.
    Mr. Holtz-Eakin. So that's a scoring rule to which CBO 
adheres. Now, there are exceptions to that rule, and the 
exceptions are when the money is accompanied with a new tool 
that would genuinely improve the performance of the program.
    And so during my tenure at CBO, an example that came up was 
the IRS was allowed to hire private collection agencies and pay 
them 25 percent of whatever they collected on taxes that were 
outstanding, and I made the determination that this economic 
incentive, getting 25 cents on the dollar, constituted a new 
tool that a conventional IRS agent didn't have and that we 
should reward those outlays with some IRS savings. It was not a 
uniformly popular decision, but you will be in that area, quite 
frankly a budgetary gray area, with the card. To what extent is 
that a new tool which changes the ability to monitor and 
operate the program? That's the issue.
    Senator Kirk. Just before I go to John and Maya, I just 
want to say that we have now a number of Democrats and 
Republicans in the House that have backed this effort, and it 
makes sense. The legislation is to roll it out, 50,000 
providers, 1.5 million recipients in five different areas. And 
I think getting the Social Security number off the card, A; B, 
picture magnetic stripe and chip; and C, PIN number punched in 
at point of delivery so that that person with that card 
received that service at that time.
    But for Maya and John, you mentioned this directly in your 
testimony, program integrity improvements.
    Ms. MacGuineas. Thank you, Senator. I had a chance to look 
at your proposal, and I think it's a very solid idea in that it 
would both help with waste and fraud and also confusion. So it 
would clarify the system for people in a lot of ways.
    And one of the points I tried to make in my testimony is, 
again, I know we're making all these decisions because of 
limited resources, and I worry about responsible budgets, and 
so the bottom line is what matters. But there are also 
important policy changes that we have to make, and even when 
they don't score well, and even though I'm the biggest fan of 
CBO, I think what they do is incredibly useful, you don't have 
to let that be the bible of when you adopt policies or when you 
don't.
    So I know that we're trying to make reforms to save money 
and improve the health care system, but there are plenty of 
ideas that aren't going to score tremendously well which we 
should proceed with, and we would think that this is one of 
them.
    Senator Kirk. John.
    Mr. Holahan. This isn't an area I feel I have a lot of 
expertise in. It sure looks really like a great idea to me, 
just off the top of my head.
    Senator Kirk. Thank you.
    Thank you, Mr. Chairman.
    Senator Corker. Thank you, and thanks for your hard work.
    I might ask some questions now, if that's all right.
    Senator McCaskill. Oh, sure. I forgot you didn't.
    Senator Corker. No, I didn't. I'm so glad so many people 
are here and we have such outstanding witnesses, I wanted to 
wait, but let me ask a question.
    I think all of us believe in markets on both sides of the 
aisle, and I think there's--I mean, I certainly agree that if 
people who use services pay for a portion of those services, 
utilization is going to go down, and I agree that's low-hanging 
fruit from the standpoint of driving savings.
    How do we rectify that or balance that off against the fact 
that there are some people who genetically just end up having 
poorer health for reasons that are beyond their control? So 
even though, yes, in a normal market system people can choose 
services based on high quality, some people are left with the 
fact that they have to have the health care because of their 
own situation. And each of you do not have to respond to all of 
these questions, but those who feel most compelled, if you 
would, how do you respond?
    Mr. Holtz-Eakin. I would respond in two ways. Number one, 
even those who have a chronic condition beyond their control 
still have an interest in having the lowest-cost provider give 
them the health services that they require with sufficient 
quality incentives. So the fact that you are born with that 
doesn't relieve the system of an obligation to deliver services 
at low cost.
    The piece that is different is the insurance piece, because 
that person doesn't fit in a catastrophic acute care insurance 
model where events are unpredictable but they happen only 
occasionally to a person and they're easily smoothed out. They 
are predictably high cost, and that's not insurable by that 
conventional model, and we need to manage their care, and in 
the end, given the nature of the condition, we'll probably have 
to assist them in affording it. I mean, that's a reality that a 
society will face.
    Senator Corker. Anybody else feel compelled to answer?
    Mr. Holahan. I would just--first of all, there is a fair 
amount of cost sharing in Medicare. It's not structured very 
well, and a lot of us here have said that should be reformed, 
particularly with an out-of-pocket cap. Because of the lack of 
an out-of-pocket cap, people then tend to over-insure through 
buying Medigap policies. So the Bowles-Simpson and others have 
recommended that. I think most of the people here have endorsed 
that. That would, I think, go a long way to getting you where 
you want.
    The thing that in a lot of these proposals isn't there is 
whether this ought to be related to--out-of-pocket caps ought 
to be related to income. I think they would. Therefore, your 
low-income, chronically ill people would be protected more than 
they would if it was a straight, say, $5,000 to $7,000 cap.
    Senator Corker. So let's actually move to that. You know, I 
think a lot of people, one of the things I think there is 
consensus on, or at least a degree of consensus, is that people 
like myself and Ron and Claire that have done well in life----
    Senator McCaskill. Or married well.
    Senator Corker [continuing]. Or married well, should have 
to pay a lot more, and maybe we don't even receive Medicare 
benefits at all if we're in certain categories. I know Ron and 
I probably shouldn't even receive them.
    There are groups, though, in our country that would say, 
well, no, that really demeans the integrity of the program. It 
turns Medicare into a welfare program, and these are folks that 
actually are there, you would think, to protect the program.
    I wonder if you might have any response to wealthier folks 
having diminished or no Medicare benefits. I know that doesn't 
solve the problem, by the way. I know that's only, like all 
these other things, a part of the solution. But means testing 
obviously for this to work is going to have to go way down the 
financial spectrum, not just upper income. But respond, if you 
would.
    Mr. Holtz-Eakin. The systems are already progressive by 
their nature in that Social Security, Medicare, Medicaid, we 
attempt to provide more benefits to people who have lower 
incomes, and they don't pay commensurately. So this is simply 
extending the degree to which these systems, which are already 
progressive, become more progressive, and I have no objection 
to doing that because, in the end, if we were to stop providing 
benefits to some high-income individuals and the system as a 
whole was not universal, which is the concern these groups 
often express, I think that perceived infringement of fairness 
in the moment is dominated by really rectifying the unfairness 
to the next generation of not fixing these programs and leaving 
to them both broken social safety nets and a mountain of debt.
    So fairness has lots of dimensions, and the one we are most 
likely to be unfair to is the next generation at the moment, 
and I think this fight over universality pales in comparison to 
that.
    Senator Corker. A differing point of view?
    Mr. Antos. Well, I don't have a different point of view, 
but certainly a sensible thing would be to recognize that we 
already do it. Not only do we do it in the sense that the 
benefits that are received go more towards people who have 
higher cost conditions over their lives, but also obviously we 
have income-related premiums in Part B and Part D. It makes no 
sense to have this subdivision of A, B and D. From a financial 
standpoint, it makes no sense. It's not the kind of insurance 
anybody else has until they turn 65. So why can't we have a 
single, unified premium? Why can't it be highly progressive? 
The Heritage Foundation supports it. People on the left support 
it. It seems like a pretty reasonable principle when we have to 
face fiscal reality.
    Ms. MacGuineas. I'd love to jump in just because I feel so 
strongly that means testing is really the structural reform we 
need to be most broadly be considering as we look at this 
overall budgetary situation, and it goes from unifying all of 
these. But the co-payment, the premium, the caps, I think the 
more that we can link them to income, the better it works for 
price sensitivity and fairness.
    And I have to admit that I've always been dismayed by the 
argument that means testing these programs turns them into 
welfare programs where they then won't have the same broad-
based political support, because what you see right now is that 
these very programs are squeezing out all the programs that are 
focused on a safety net and focused on programs for the poor, 
and you also see that some of the fastest growing programs in 
our budget recently have been the EITC and Medicaid, which are 
directed towards the poor. And so it seems to undermine the 
argument that there won't be political support if something is 
more targeted.
    So it seems to me that in an era of limited resources, not 
only is it unfair to the next generation to spend all this 
money on entitlements, particularly when people don't need it, 
but it's unfair to the rest of the budget. Whether you want to 
cut taxes or raise spending on other things, if it's being 
squeezed out because we're spending money on entitlements for 
people who don't need it, that's clearly not the best use of 
the limited dollars.
    Senator Corker. I'm going to yield to the other senator 
since my time is up, but I would like to ask you to do this. 
You all, each of you meet with differing groups, Republicans, 
Democrats, Independents. If you would do this for me, I'd 
appreciate it, and that is to send me--it doesn't have to be 
sophisticated. It can be bullet form. Send me the things that 
you think people on both sides of the aisle would readily adopt 
based on the multiple conversations that you've had with people 
on both sides of the aisle so that those could be compiled 
without attribution to you, unless I guess they would be with 
attribution to you since they'd be in the public record. But if 
you could send those to us so we could forward those on to the 
committee as things that we know have general support on both 
sides of the aisle so we can actually move this ball forward.
    And with that, I'll turn it over to Senator McCaskill.
    Senator McCaskill. Thank you. Is it Ms. MacGuineas? Is that 
how you say it? MacGuineas. Ms. MacGuineas, I don't think you 
need to worry about the Senate seeing a CBO director as the 
bible. We have a great deal of trouble----
    [Laughter.]
    Senator McCaskill [continuing]. Paying much attention to 
the CBO around here. In fact, we only like the CBO when it 
agrees with us. And if it doesn't agree with our position, then 
the CBO doesn't work anymore. If it agrees with the other 
side's position, then they are dumb, and if they agree with us, 
they're brilliant. So poor CBO is one of the very favorite 
games of ping-pong around this place.
    You know, when we talk about free market, I think all of us 
are agreed that we need to get more skin in the game. But if 
you look at a free market, what makes a free market work are 
better incentives, incentives are what makes a free market 
work, an incentive for profit, an incentive for quality, an 
incentive for value, and good information. We know where every 
cup holder is in a car we buy. I had my knee replaced, and I 
was a United States Senator. It took me six months to get 
information as to what it cost, and I got three different 
numbers, one from the doctor, one from the hospital, one from 
the insurance company, and none of them matched. So there is 
not good information.
    The other place the free market analogy falls apart is that 
I can choose whether I buy a new car. If my child is dying, or 
if my mother has had a traumatic injury, I've got no choice but 
to buy health care. And what really handcuffs my ability to 
make good decisions in health care is that I don't have good 
information, whether I'm taking her to the right place or the 
wrong place; the right doctor, or the wrong doctor.
    And so I would like to know, to the extent that government 
should be involved here, and I understand there should be a 
limited role, how should we be forcing more good information on 
the consumer? Because Americans are great consumers if we can 
get the information, but most Americans don't think to ask what 
it's going to cost because they see it as free because it's a 
benefit they've received; and most people that are selling 
health care are certainly not incentivized to tell you what it 
costs because, frankly, it could change between the time they 
did the procedure and the time that they actually get paid for 
it, depending on what the relationship is between the insurance 
company and the provider at the time.
    Ms. MacGuineas. So I think obviously health care is one of 
the most complicated fields there is because it will never be a 
total free market because insurance complicates it so much. And 
so it's finding the right balance between those two, and I 
completely agree with you that more information, better 
information, more transparency is a key to helping this get the 
best of how markets work while also having the protections that 
insurance offers, and I think that means publicizing--I mean, 
it's almost gimmicky, but as much as possible getting to things 
that look like price lists.
    I think we all have those stories of once asking your 
doctor how much something was going to cost and having that 
blank stare that he or she had no idea, and we need to be 
moving in the direction where you actually have a sense of the 
cost, publishing the hospital information, a lot of things that 
people are concerned about because of secrecy and privacy, but 
I don't think that works at all in what we're trying to 
accomplish here.
    And I also know that the Business Roundtable is working on 
coming up with a lot of specific ideas of how to develop 
improved transparency and information in the health care field 
which I think should be taken very seriously.
    Mr. Antos. CMS produces all sorts of quality information on 
providers. Nobody looks at it except people like us. Why is 
that? It's because most people get their information from their 
doctor. So another part of this--I completely agree with Maya. 
But in terms of really getting good advice, we're going to get 
it from our doctor. And so we really have to focus on how 
physicians practice medicine, because they are, in fact, the 
quarterbacks for our health care. You get a bad quarterback, 
you're going to get a bad result, and we're going to spend a 
lot of money.
    Senator McCaskill. Integrity in the program. One of the 
problems we have, and I've encountered this firsthand, is a 
dizzying array of contractors as it relates to integrity. Isn't 
there some value in us bringing some of the functions of 
integrity in-house? Shouldn't we have the core competency of 
integrity within the house of CMS and Medicare, as opposed to 
it's awfully hard to hold anyone accountable for the results as 
it relates to integrity because you can't find who is 
responsible because generally it's a maze of contractors? Any 
input on that subject matter from you all?
    Mr. Holtz-Eakin. I don't think you can draw a firm line on 
that front. I mean, the Federal Government as a whole has gone 
through many different iterations of in-house production versus 
contracting out, and I think the lesson of that is one that 
says that it depends on the quality of the contract that you 
write with the contractor, the ability to enforce the 
deliverables, and in the end, especially for Medicare, the 
biggest problem is the fact that we are operating in a pay and 
then chase framework where we've said we have to pay people, 
and then we'll figure out later if it was fraudulent or 
inappropriate, and then we'll go get the money back. If you 
don't change that incentive, it isn't going to matter where you 
put it. That's the big problem.
    Mr. Antos. If you swear in every private sector employee of 
all those contractors today, does anything change? No, 
unfortunately not. So I don't----
    Senator McCaskill. Well, maybe we'd know how many of them 
there were, because you'd be amazed how many parts of 
government can't even tell us how many contractors they have 
working for them.
    Mr. Antos [continuing]. Well, that's completely true, and 
I'm sure there's a problem in Medicare as well. But my point is 
that you have to have a good focus on what your goal is, and 
it's not at all clear that we know what our goal is in this 
area. We talk about reducing fraud and abuse, but bills get 
recycled, and many of those bills are actually appropriate 
bills, but they get coded wrong. So it's really hard to know 
how to focus in on this when, in fact, if you eliminated fraud 
and abuse altogether, you'd solve part of the problem but you'd 
still be on the same cost curve because it's utilization that 
matters.
    Senator McCaskill. Right, right.
    Thank you, Mr. Chairman.
    Senator Corker. Thank you.
    Senator Johnson.
    Senator Johnson. I'll just turn myself into a witness here. 
I'll answer your question. The free market would----
    Senator McCaskill. Do I get to follow up with more 
questions?
    Senator Johnson. Sure.
    [Laughter.]
    The free market itself would force the information. Again, 
when you reconnect the payment of the product with the 
consumption of the product, individuals, when they're paying 
for something--take a look at the Internet. Take a look at how 
much people research a big-screen TV. Now again, in medicine 
it's more difficult. It would be very difficult to operate as a 
pure free market system. But you're not going to have a top-
down approach where you say you're going to force the 
information on people. You need a bottom-up approach by 
utilizing the free market, reconnecting the payment of the 
product with the consumption of the product, and, trust me, 
consumers will demand the information so they can make wiser 
consumer choices.
    That's all I've got.
    Senator Corker. Thank you.
    Let me--assuming the health care bill continues as is, I 
know there's a lot of dispute, and who knows what happens in 
the future, but let's just say that it ends up being 
implemented as it now is. Exchanges are being created under the 
health care bill that passed. The exchanges themselves, forget 
everything else that goes with it, but could they possibly be 
turned into a useful tool as it relates to delivering Medicare 
itself?
    Mr. Antos. Yeah. I mean, certainly the concept is very 
sound. Economists of all stripes have argued for a long time 
that if you give people choices in the market, give them 
information about what they're buying, let them know what the 
price is, ideally have them pay part of the price, that they're 
liable to make a pretty good decision because they stand to 
gain if they make a good decision, they stand to lose 
otherwise.
    You look at the Federal Employees Health Benefits Program. 
I think that's an example of an exchange that works. It's a 
lightly regulated exchange. I think that's one of the keys. In 
the Medicare program we could be doing that now, but we're not. 
We're got the Medicare Advantage program. It's completely 
separate from traditional Medicare. It does not compete on an 
even basis with traditional Medicare. The changes that were 
made in the Affordable Care Act didn't actually correct that. 
It just adjusted the mistaken payment mechanism.
    So as a general concept, I think it's a very sound concept. 
That said, there are lots of arguments about how you want to 
run this thing. If you're going to have an exchange, then you 
have to decide how you want the subsidies to go. Can you have 
traditional Medicare operate with an uncapped subsidy? It 
depends on the other rules that you put in the system.
    Ms. MacGuineas. Yeah, I would say that the exchanges are 
something that I'm a proponent of. I think that they are a 
great step forward in how they're going to allow us to make 
other needed reforms. The subsidies I have grave concerns 
about, and the costs that go along with those. But the 
exchanges add many values.
    I think one of them is that we can now have a serious 
discussion that we couldn't have before about raising the 
retirement age for Medicare, because before there wasn't an 
alternative for people when they weren't going to be able to 
get health care. Now there is an alternative, and raising that 
is going to shift costs, perhaps more than it's going to save 
costs, but it could be a very large improvement to the Medicare 
system, and it was something that was on the table in the 
bipartisan discussion over the summer.
    Secondly, I think it opens the door for competitive 
bidding, so thinking about how, as Joe was just saying, we can 
run some systems parallel to Medicare, reform Medicare so it's 
on a more even, level playing field, and think about how to use 
those exchanges to bring out the pricing mechanisms and a 
little bit more competition parallel to Medicare.
    Senator Corker. But let me just follow up. You really 
couldn't do that if Medicare is fee-for-service, right? I mean 
you'd have to end up with a premium support-type effort; is 
that correct?
    Ms. MacGuineas. What you'd have to do--that's right--is cap 
the costs that were allowed for Medicare so that it wasn't 
open-ended. And as I said in my opening remarks, I really think 
that's one of the major points of where we're headed. We're 
going to have to pick which architectural reforms we embrace, 
but we're going to have to find ways to set a budget for 
Medicare and Federal spending on health care, and then find 
which of the mechanisms that we decide to pursue are the most 
efficient and effective in staying within that budget. So, yes, 
I don't believe Medicare is going to be able to be open-ended, 
and I don't think it should be.
    Senator Corker. Doug.
    Mr. Holtz-Eakin. I want to agree with all that and I want 
to emphasize an aspect of that, which is that well run 
exchanges could provide for seamless transitions that allow 
provider networks to remain intact. So, for example, not the 
subject of this hearing, but there are going to be a lot of 
people who are in Medicaid who will then bounce up to be 
eligible for insurance subsidies, and then they will bounce 
back down and be back in Medicaid. Those transitions are going 
to happen a lot. If the exchanges are well designed and people 
are appropriately enrolled, we could get them in the same 
provider network instead of saying, well, right now you're in 
Medicaid, you go to that hospital, now you're in the insurance 
subsidy, you go to that hospital. They'll get terrible care if 
that's how it works out. So that's a key design issue.
    In the same way, you could have someone transitioning from 
employer-sponsored insurance to an employer-paid retiree plan, 
which could be commingled with Medicare and they could stay 
with the same docs, they could stay with the same providers, 
and they'd get better care. So how those are done is at the 
centerpiece of a lot of the future of American medicine.
    Ms. MacGuineas. And on that, the continuity of care is also 
going to improve the investments, the incentives for up-front 
savings and the way that you're going to treat patients if they 
can stay in the same care systems for longer.
    Senator Corker. How would you feel about making Medicare 
claims available to the public? You would de-identify who the 
person was. But how would that affect the whole way of looking 
at the integrity of the program and just claims and costs and 
all of that?
    Mr. Holtz-Eakin. I think there are two things. I mean, the 
first is that when I was on MedPAC and we simply went through 
and looked at episodes of care, urology care, whatever it might 
have been, congestive heart failure, if you simply displayed 
the wide variation in cost of an episode of care for the same 
risk-adjusted patient, participants were shocked. And so 
displaying this would actually, I think in many ways, have a 
big impact on the way they practice medicine, because they just 
have no idea that they're so far out of line with norms.
    The second thing is that privacy advocates always get 
nervous about this, but to my mind if the taxpayers are paying 
for it, there's a higher threshold and they have a right to see 
what they're getting for their money. And so I have been much 
more sympathetic to this notion than a lot of people.
    Senator Corker. What type of folks oppose it?
    Mr. Holtz-Eakin. Usually doctors.
    Mr. Holahan. Well, there is already a Medicare beneficiary 
survey that links to claims data, and the advantage of using 
the survey and linking to claims data is you know an awful lot 
more about the people. So we do have access to that kind of 
data for a sample.
    You know, 100 percent of Medicare claims is just an 
enormous undertaking as an analyst and a researcher. So we may 
be pretty close to having what we need. I don't know that 
there's enough money put into analyzing the data that is 
available to us, nowhere near enough.
    Mr. Antos. I would just add that one of the issues is if 
you keep it in-house, then you don't get different opinions 
about what constitutes quality care. I think this is one of the 
big disadvantages that Medicare now provides us. They carefully 
limit who has access to the detailed information that is 
absolutely essential to evaluate provider performance. There is 
a lawsuit now working its way through the courts to try to get 
Medicare to loosen its grip in an appropriate and fair and 
reasonable way. But the fact is that different analysts will 
have different weighting systems and different views about how 
you should evaluate provider performance.
    Senator Corker. I want to ask one last question. I don't 
know if Senator Johnson has any more. I do want to reiterate I 
think it would be a tremendous service if each of you would 
outline what you think generally uptake would be on both sides 
of the aisle on various--or what you think both sides of the 
aisle would actually have a degree of, enough common ground to 
actually maybe make something happen. I think that would be a 
huge, huge contribution to us.
    You've all talked, we've all talked about SGR, and every 
year when SGR, when the allocation that we give physicians that 
year is about to run out, the physicians across our country 
call and are upset, and then we extend it another year, as we 
should. But how do you actually--when we talk about $300 
billion, that's the money side of SGR. I didn't really hear how 
you make SGR work. I mean, it's kind of a Soviet Union 
mentality, and that is you give a bucket of money to 
physicians, and the more that it's utilized, the less they each 
get. It's kind of the opposite of the way things normally have 
worked in our country. So how do you actually reform it so that 
it works?
    Mr. Holtz-Eakin. You don't. I mean, you don't in the end. 
Your observation is correct. I mean, it's a near-term budgetary 
issue, but it is not a future for Medicare, and you need to go 
to something else, and my preference would be something that 
looks like premium support.
    Senator Corker. So that's, in essence, a privatized system, 
just like the health care delivery we have for most individuals 
that are below 65. Is that what you're saying?
    Mr. Holtz-Eakin. It looks a lot like FEHBP, the Federal 
employees plan, and that's been a very successful and sensible 
approach.
    Mr. Antos. The other thing is we've created this wall 
around physician services that makes no sense clinically or 
financially. We've got to integrate it. That's one of the big 
problems with traditional Medicare, nothing is integrated. So 
fixing this would just shore up a system that is doing a 
disservice to patients.
    Ms. MacGuineas. I----
    Mr. Holahan. I don't--I'm sorry.
    Ms. MacGuineas. Please go ahead.
    Mr. Holahan. I was going to say, I don't think you can 
really fix it either, but I'm not sure where I would go with 
that. I mean, I think you need to give modest increases to 
physicians every year, but I think you need to realize that 
Medicare spending, if you look at Part B spending, it is not 
going up at a zero rate, so that is really not the problem. But 
to continually go back and have to talk about 29 percent 
increases in fees in a particular year just gets to be a bit 
crazy.
    In terms of premium support, let me just say I don't think 
it will work. I don't think there's evidence that private plans 
really manage care and pay less and are more efficient than 
traditional Medicare. I think the one thing that we haven't 
focused on here today is what I think is one of the real 
drivers in health care costs, and becoming more and more a big 
one, and that is the concentration on the supply side, the 
consolidation among hospitals, the purchase of physician 
practices by hospitals, and the great difficulty insurers have 
in negotiating rates with them.
    It's driving up costs on the private side. Medicare is a 
bit protected because it sets rates. Most providers accept 
those rates. And I think if we're--I just don't think we can 
expect to turn this over to the private insurance system and 
get a good outcome. I think if you have a Medicare exchange in 
which Medicare is one of the competitors, and if Medicare is 
more expensive than, say, a benchmark plan, people should have 
to pay more for it. I'm fine with that. But I just don't think 
if this played out that you would see Medicare go away as a 
payer, a major payer.
    Mr. Antos. Why don't we give competition a fair test? The 
problem is that when people talk about premium support, they 
usually talk about something that actually couldn't work. They 
are notions rather than policies. And one of the big debates is 
how much should the subsidy rise by. So everybody is consumed 
with should it be GDP plus 1, should it be CPI, should it be 
something else. Well, it should be something else. It shouldn't 
be set that way. It should be--it should come from the Medicare 
program because that's where the costs are coming from.
    So if we had full competition, including traditional 
Medicare except improved traditional Medicare so it can 
actually survive, you have full competition among the plans and 
you set the winning payment amount for the plans at the market 
clearing price, and then you give everybody a fixed subsidy, 
some percentage of the winning bid, then you can be certain 
that people will be able to buy a plan. There will be at least 
one plan in every area where they pay no more than the standard 
Part B premium, and the winning bid will sometimes be 
traditional Medicare. There are plenty of places in this 
country, plenty of markets where, in fact, there is this 
concentration or there simply is only one hospital in the area, 
rural areas. The fact is you can't really have effective 
competition where you don't have--in the insurance market if 
you don't have effective competition among providers.
    So you can split the difference. You don't have to go in an 
extreme way, and you can find out what works.
    Mr. Holahan. I think that's--he said it in a terrific way. 
I think one could debate how many markets are so concentrated 
or so small that it's never going to work, versus finding those 
markets where it would. And if you want to let Medicare go and 
compete with private insurers, sure, let's do it. But it's not 
going to be a major game changer, in my view.
    Ms. MacGuineas. I wanted to make one comment on the SGR 
point that you brought up, but slightly different than how to 
fix it because I think your premise was right, that going back 
to the same top-down model is still going to lead to imperfect 
results.
    But one thing that was really interesting in the Bowles-
Simpson Commission about the SGR, the need to fix it, which 
everybody understands, was there is so much tension around the 
health care issue. We all know that it's very hard to move 
forward on this, and I really think your idea of let's find all 
the pieces that most people can agree with and try to move 
there is the right approach.
    One of the things on the Bowles-Simpson Commission that 
they were able to do is I think some folks came in and said we 
don't even want to talk about health care unless we're going to 
repeal the President's health care reform, and folks on the 
other side of the aisle came and said if you even talk about 
repeal, we're not having this discussion. And the one place 
they were able to find a discussion they could have was, well, 
at least we need to offset the cost of SGR. We know we need to 
fix it, and so there's $300 billion in savings we have to find.
    And I think for this whole ``go big'' model, you need more 
than $300 billion in savings, but I think that's a really good 
start. Let's say we're going to find a way to permanently fix 
that and change that, and use as many of these cost savers to 
offset that.
    I could get dragged into the premium support discussion, 
and I think it's the heart of all this. I don't think we're 
going to get it resolved in the next couple of months, but I 
think again in order to create a system that can stay within a 
budget, we're going to have to have a couple of parallel 
systems, and I think that what Joe has laid out and what the 
Domenici-Rivlin plan put out there is really the key to this, 
which is if we have a couple of parallel tracks to bring more 
competition in it, you keep a reformed Medicare system there, 
you use competitive bidding to make sure that people will have 
access to this. I think that's a real model for looking 
forward, and we shouldn't get caught up on whether the growth 
rate of premium support is too high or too low because that's 
just one of the levers we can move around. It's the structural 
or architectural reform that we should really consider.
    Senator Corker. Senator, do you want to ask any other 
questions?
    Senator Johnson. First of all, I just want to thank all the 
witnesses for your thoughtful testimony. I certainly learned a 
lot. I hope people watching did as well.
    I want to thank you for driving this hearing. It's very 
good.
    I also want to say it's an extremely good idea to look for 
those areas of agreement, so I hope you submit those to Senator 
Corker.
    Without opening up a whole new can of worms, just a real 
quick question. We talked about the 10 percent using up 60 
percent of the cost, and 20 percent using 77 percent.
    What drives end-of-life care? I mean, do you know a dollar 
figure or a percent spent on the last six months of life, last 
three months of life? I've read that in the past. I don't have 
a current number, though. Then I'll close. Thanks.
    Mr. Holtz-Eakin. I don't know the number off the top of my 
head.
    Mr. Antos. I vaguely remember a study by my former 
colleague, Steve Jencks, or Jim Lubitz, and it's not as high as 
you would think. We spend a lot of money getting to that last 
year. I mean, one of the interesting things about health care 
is that if you get old enough, like my mother who is 95, and 
you get sick, the medical system isn't going to touch you. But 
if you're in your 70s, we're going to pull out all the stops.
    Senator Corker. Well, listen, I think all of us in the 
Senate stay generally frustrated about the lack of progress in 
solving problems, but I think each of us wake up each day also 
with a tremendous sense of privilege that we have the 
opportunity to have really intelligent and learned folks like 
you come in and testify, and we thank you for that and we look 
forward to the materials you're going to send forth.
    I hope there are other forums where the four of you are 
doing exactly this for other senators and other committees, but 
thank you for doing this today. Thank you.
    [Whereupon, at 3:53 p.m., the hearing was adjourned.]

                                APPENDIX

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