[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]






                   THE 2013 MEDICARE TRUSTEES REPORT

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 20, 2013

                               __________

                          Serial No. 113-HL05

                               __________

         Printed for the use of the Committee on Ways and Means



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
PETER J. ROSKAM, Illinois            EARL BLUMENAUER, Oregon
JIM GERLACH, Pennsylvania            BILL PASCRELL, JR., New Jersey
TOM PRICE, Georgia
VERN BUCHANAN, Florida
ADRIAN SMITH, Nebraska





















                            C O N T E N T S

                               __________

                                                                   Page

Advisory of June 20, 2013 announcing the hearing.................     2

                               WITNESSES

Charles P. Blahous, Ph.D., Public Trustee, Social Security and 
  Medicare Boards of Trustees....................................     7
Robert D. Reischauer, Ph.D., Public Trustee, Social Security and 
  Medicare Boards of Trustees....................................    20

                       SUBMISSIONS FOR THE RECORD

AAA, statement...................................................    39
MRC, statement...................................................    47
National Center for Policy Analysis, statement...................    51
NCPSSM, submission...............................................    54

 
                   THE 2013 MEDICARE TRUSTEES REPORT

                              ----------                              


                        THURSDAY, JUNE 20, 2013

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 9:30 a.m., in 
Room 1100, Longworth House Office Building, Hon. Kevin Brady 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
Thursday, June 13, 2013
No. HL-05

                  Chairman Brady Announces Hearing on

                   the 2013 Medicare Trustees Report

    House Ways and Means Health Subcommittee Chairman Kevin Brady (R-
TX) today announced that the Subcommittee on Health will hold a hearing 
on the recently released 2013 Annual Report of the Boards of Trustees 
of the Federal Hospital Insurance and Federal Supplementary Medical 
Insurance Trust Funds. This hearing will allow the Subcommittee to 
focus specifically on the Medicare program's financial status and 
changes from the trustees previous reports. The Subcommittee will hear 
testimony from Medicare's two Public Trustees. The hearing will take 
place on Thursday, June 20, 2013, in 1100 Longworth House Office 
Building, beginning at 9:30 a.m.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Social Security Act requires the Board of Trustees for the 
Medicare program to report annually to the Congress on the current and 
projected financial condition of the Medicare Hospital Insurance (HI) 
and the Supplementary Medical Insurance (SMI) Trust Funds. The 
trustees, who are designated in statute, are the Secretary of the 
Treasury, the Secretary of Health and Human Services, the Secretary of 
Labor, the Administrator of the Centers for Medicare and Medicaid 
Services (CMS), and the Commissioner of Social Security. Additionally, 
the statute requires that there be two Public Trustees, from different 
political parties, who are appointed 
by the President and confirmed by the Senate for 4-year terms. The CMS 
Office of 
the Actuary is responsible for preparing the report. The 2013 report 
was released 
on May 31, 2013, and can be found at https://www.cms.gov/
ReportsTrustFunds/downloads/tr2013.pdf. The Medicare actuaries 
subsequently released an alternative scenario memorandum, based on what 
actions they expect Congress to take (such as preventing cuts to 
Medicare physician payment rates, overriding productivity adjustments 
to Part A providers, and eliminating the Independent Payment Advisory 
Board) to ``present an alternative scenario to help illustrate and 
quantify the potential magnitude of the cost understatement under 
current law.'' That memo can 
be found at http: // www . cms . gov / ReportsTrustFunds / Downloads / 
2011TRAlternative Scenario.pdf.
      
    Ensuring the financial viability of Social Security and Medicare is 
one of Congress' most important responsibilities. The annual release of 
the trustees' reports provides Congress with a valuable update on the 
programs' fiscal status and important information with respect to 
projections of future expenditures.
      
    The Medicare trustees again issued a ``Medicare funding warning'' 
stating that the more than 45 percent of Medicare outlays in FY2013 
will be comprised of general revenues. Additionally, the trustees 
report the Medicare Hospital Insurance (HI) Trust Fund is expected to 
go bankrupt by 2026, 2 years later than the 2012 estimate. However, 
under the high-cost assumptions, the HI Trust Fund is expected to go 
bankrupt by 2019.
      
    The trustees state that the HI Trust Fund is not adequately 
financed through 2014 as its ``expenditures have exceeded income each 
year since 2008'' and will run a ``deficit amounting to $23.8 billion 
in 2012.'' The trustees project Medicare spending to grow from 3.6 
percent of Gross Domestic Product (GDP) in 2012 to 6.5 percent of GDP 
in 2087.
      
    Under the alternative scenario, the trustees estimate that Medicare 
spending would increase to 9.8 percent of GDP in 2087. The trustees 
state that growth of this magnitude would ``substantially increase the 
strain on Nation's workers, the economy, Medicare beneficiaries, and 
the Federal budget.
      
    In announcing the hearing, Chairman Brady stated, ``The conclusions 
of the Medicare trustees are deeply troubling and should serve as a 
call to action for those who want to save Medicare. While Medicare's 
Hospital Insurance Trust Fund has been given a brief 2 year reprieve 
before going bankrupt, that doesn't mean Congress has two more years to 
act. The simple truth is that Medicare remains in deep financial 
trouble and the time to act is now. It is critical that the American 
people, the President and Congress understand just how dire Medicare's 
finances are.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on Medicare's financial situation as 
detailed by the 2013 Medicare trustees report.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Friday, July 5, 2013. Finally, please note 
that due to the change in House mail policy, the U.S. Capitol Police 
will refuse sealed-package deliveries to all House Office Buildings. 
For questions, or if you encounter technical problems, please call 
(202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BRADY. The Subcommittee will come to order. We are 
meeting today to hear from the public members from the Board of 
Trustees, the Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds on their 2013 
report analysis regarding the current dire status of the 
Medicare program. It is important to understand the financial 
health and viability of the Medicare program if we are to 
ensure that the program is solvent and available to our 
immediate seniors as well as future generations of Americans.
    Author George R.R. Martin wrote, ``most men would rather 
deny a hard truth than face it.'' I worry that when it comes to 
Medicare that is true for too many in Washington today. If 
Medicare is just fine, as some claim, then why the Medicare 
trustees issue and Medicare funding warning for the seventh 
straight year? If there is no problem that needs action now, 
then why have the assets in the Trust Fund shrunk by 15 percent 
from the projections made just 5 years ago? And if sincere 
concerns about Medicare's financial condition are summarily 
dismissed as alarmist rhetoric by some Members of Congress, 
then why can't Medicare pay its medical bills for seniors in 
just 13 short years?
    Today no Member of Congress can honestly look a 52-year-old 
American in the eye and assure them that Medicare will be there 
for them when they retire because the trustees report has just 
confirmed that. That is not just fine. For those who continue 
to stick their head in the sand, where hope is the denial of 
reality and who shirk from their responsibility to act to save 
Medicare now, here is yet another wakeup call. The 2013 
trustees report continues to make it abundantly clear that 
Medicare's financial future is in trouble. Americans all over 
the country and across generations are paying into a program 
that we as a Congress cannot promise they will receive benefits 
for. But if we simply face reality and come together we can act 
now, this year, to take the first real steps to make sure our 
citizens receive the medical care they deserve and have paid 
into when they need it the most.
    If you somehow think a couple of years of reduced 
healthcare spending within a recession solves the problem, do 
the math. The number of people in Medicare doubled over the 
last 35 years and is going to double in size again. And no one 
credible has proven that reduced healthcare spending will last. 
Even the Medicare trustees didn't attempt to make that claim. 
And they are not alone, the independent actuaries at the 
Centers for Medicare and Medicaid Services again published what 
they call an alternative scenario. In their full scenario they 
assume that Congress will prevent, schedule cuts in physician 
providers payments, and repeal the heavy-handed independent 
advisory board causing Medicare spending as a percentage of our 
economy to skyrocket. The trustees report and the alternative 
scenario reinforce the need for prompt attention to Medicare's 
severe financial problem.
    As we will hear from our witnesses today, we should 
continue to push, now is the time to act as the sooner we make 
changes the better the program structure, the less dramatic 
these changes will have to be. My hope is that this hearing 
will help my colleagues on both sides of the aisle continue to 
understand the extent of the financial problem that pushes us 
to work toward a bipartisan commonsense solution. We can't wish 
this problem away. Medicare is going broke too quickly, and no 
amount of positioning for political gain is going to change 
that fact. The Medicare Board of Trustees urged us as Congress 
to take prompt legislative action and recognize the projection 
in this year's report continues to demonstrate the need for 
timely and effective action to address Medicare's remaining 
financial challenges.
    So if the trustees don't view the two added years of 
solvency as a significant reprieve, then why should Congress or 
the White House? Our witnesses here today will further explain 
to us the extent of Medicare's financial difficulties as we 
work to deliver on this promise. Medicare is important, it is 
in trouble, common sense dictates that we act now.
    Before I recognize Ranking Member McDermott for the 
purposes of an opening statement I ask unanimous consent that 
all Members' written statements be included in the record. 
Without objection so ordered. I now recognize Ranking Member 
McDermott for his opening statement.
    Mr. MCDERMOTT. Thank you very much, Mr. Chairman. I want to 
welcome Dr. Reischauer. It seems like you have been a permanent 
fixture around here doing something ever since I came 25 years 
ago. So it is good to see you here today as one of the public 
witnesses. And Dr. Blahous, thank you for your service as being 
willing to sit on a commission like this. I believe it has been 
a couple of years since we have seen you before the Committee, 
and I look forward to hearing your thoughts today about what is 
going on.
    As in the past, as you listened to my colleague Mr. Brady, 
this hearing has usually been a hearing where there has been 
continual harping on Medicare's supposed dire finances and 
scaring the public into believing that Medicare is going 
bankrupt and it won't be there for you when you get to a 
certain age. Every generation has been subjected to that since 
I've been in Congress; it is not going to be here by the year 
X.
    When I looked outside this morning as I got up, I can 
assure you the sky's not falling. The latest trustees report 
projects two initial years of solvency to 2026, and that is 
pretty healthy by historical standards. Additionally the 
Affordable Care Act is improving conditions across the Medicare 
program. Projected Medicare spending is down from where it was 
headed before the passage of ACA. Before ACA we were projecting 
spending would reach 11.4 percent of GDP in 2082. I don't know 
who can believe we know anything about 2082, but people sit 
around and make those kind of projections. This year that 
number is down to 6.5 percent in 2087, so that is almost a 50 
percent cut.
    The long-term 75-year deficit has also improved, dropping 
from 3.88 percent in 2099 to 1.11 percent in 2013, that is a 72 
percent decline. So you are seeing that things in fact in the 
long term seem to be getting better. Now if you believe those 
predictions the guys who want them believe them I guess. I am 
one of those a little dubious about who will know what will 
happen in 75 years. But the ACA is also resulting in 
historically low healthcare spending rates. Per capita Medicare 
spending rate was only .4 percent in 2012, that is less than 
one-half of 1 percent, and national expenditures grew only 3.9 
percent in 2011, the third straight year of slower growth. But 
these rates are expected to remain low through the decade, it 
is not just a one-time occurrence. These are the result of the 
initiatives within the ACA and the initiatives it has catalyzed 
throughout the country. Providers and insurers have gotten the 
message loud and clear they need to transform into high-value, 
efficient providers if they want to compete in the healthcare 
system of tomorrow.
    While all of this good news won't keep my Republican 
colleagues from playing Chicken Little, I would like to remind 
them that repealing the ACA, they tried it 37 times, their 
singular goal for the last 3 years, would actually put the 
program on a worse financial footing. The latest estimates of 
the actuaries say that repeal would shorten solvency by 8 
years. It would also increase beneficiary costs and eliminate 
benefit improvements such as free preventive care and closure 
of the Part D donut hole.
    So rather than using this year's trustees record to invoke 
panic and fear, rather let's use it to justify shifting costs 
or justifying costs on to beneficiaries and undermining the 
program in the name of solvency, I challenge my colleagues to 
think bigger. Let's figure out how to ensure Medicare is an 
efficient program that provides a quality benefit to those who 
rely on it. While I support improvements to the Medicare 
program, no program designed in 1964 could possibly be adequate 
for today. There's just no way you can do that. And I reject 
calls to slash the program to save it, it wasn't made too big 
at the beginning. Let's give the ACA and the civil liberty 
system reforms the chance to work. After all the sky isn't 
going to fall anywhere tomorrow either. And I think that the 
Committee has to look at what you present to us and decide how 
we actually implement the efficiency that is in the ACA because 
it will affect Medicare as it affects everything. The delivery 
of health care and the way we pay for it is going to change 
over the next few years. It is changing in part by the fact 
that we have actually put ACA in motion. That made people start 
to think about it.
    I yield back the balance of my time.
    Chairman BRADY. Today we will hear from two witnesses, 
Charles Blahous and Robert Reischauer, both Public Trustees on 
Social Security Medicare Boards of Trustees. Thank you both for 
being here today. I look forward to your testimony. You both 
will be recognized for 5 minutes for the purposes of providing 
your oral remarks.
    Mr. Blahous, we will begin with you.

STATEMENT OF CHARLES P. BLAHOUS, PH.D., PUBLIC TRUSTEE, SOCIAL 
            SECURITY AND MEDICARE BOARDS OF TRUSTEES

    Mr. BLAHOUS. Thank you, Mr. Chairman, Mr. Ranking Member, 
all the Members of the Subcommittee. It is as always a great 
honor to appear before you today to discuss the findings of the 
Medicare trustees report. By mutual agreement with my fellow 
Public Trustee Dr. Reischauer I am going to present in my oral 
remarks the primary financial projections of the Medicare 
trustees report and leave it to his testimony to discuss some 
of the recent evolution of longer-term outlook.
    The first point I would make in my oral remarks is simply 
that Medicare finances are very complex, the program has two 
Trust Funds and they are financed in different ways. Each year 
there is naturally a high degree of public and press attention 
in our projections for the date of depletion of the Hospital 
Insurance Trust Fund, and that is very important to the data 
and it is appropriate there be such attention, but that is just 
one piece of a larger mosaic of Medicare program finances.
    Medicare also has a Supplementary Medical Insurance Trust 
Fund which actually has larger expenditures, and that is 
constructed so that it can never go insolvent by design. It is 
basically given whatever general revenues it needs out of the 
general fund in order to maintain benefit payments. So when we 
have financing strains on that side of Medicare they are not 
manifested in the data's trust fund depletion but they are 
manifested in the form of rising enrollee premiums and rising 
pressure on the general budget. And in fact we are showing such 
rising pressure. Under our current projections--well, in 2013 
we are expecting about $594 billion in total Medicare 
expenditures. That is about 3.6 percent of our Gross Domestic 
Product. We are projecting going forward that Medicare costs 
will rise substantially faster than our economic output to the 
point where in the 2030s, by mid 2035 we are expecting total 
program costs to be about 5.6 percent of GDP. Thereafter we are 
expecting continued increases relative to our economic output 
but moderating a little bit to hit about 6.5 percent of GDP by 
2087.
    Now the primary driver of this cost growth of course is 
demographics. We have a lot of baby boomers coming onto the 
benefit rolls. Healthcare cost inflation also plays an 
important role and is a relatively more important factor later 
in the evaluation period, although in the near term the 
demographics are the larger one.
    Under our current projections as has been noted we are 
projecting that the Hospital Insurance Trust Fund will be 
depleted in 2026, that is 2 years later than we projected in 
last year's report. My colleague Dr. Reischauer will explain 
some of the reasons for recent changes in the outlook. Here in 
my remarks, I will just note that Medicare finances are really 
very much on a knife's edge over the next several years. We are 
starting this year with less than 1 year's worth of benefit 
payments in the Hospital Insurance Trust Fund and so our 2026 
projection depends to a great degree on whether annual tax 
income and outgoing benefit expenditures will be almost exactly 
balanced over the next several years. If our projections are 
off a little bit and our long-term projections are subject to 
great uncertainty, that 2026 date could move a few years in 
either direction.
    The last point I will make, Mr. Chairman, is simply that 
for various reasons total costs are likely to be higher in 
practice than what we are showing in the report. The most 
obvious of these is simply the sustainable growth rate formula 
for physician payments. We are obliged to project what happens 
under literal current law and under literal current law there 
will be a 25 percent reduction in physician payments at the 
beginning the next year. Historically Congress has tended to 
override these. If we assume that that pattern continues, then 
costs will be higher than we are currently projecting, by our 
estimates a little bit more than 10 percent higher over the 
long term.
    Now there are some who argue that costs will be higher than 
our current projections for other reasons and those are rooted 
in some of the technicals of how we make our projections. I 
will try to explain these without getting too far into the 
weeds. But basically our projections for Medicare cost growth 
are very highly dependent on our projections for healthcare 
costs growth in the broader economy which determines the input 
costs that providers report to Medicare. What we do in our 
long-term projections is we assume a certain level of 
deceleration in national healthcare cost growth. The reason we 
assume that has to do with the historical elasticity of medical 
cost growth as a function of price growth. I think the layman's 
way of understanding it is that as health care takes up a 
larger and larger share of our economy and absorbs more of each 
of our pocketbooks the pressure in the direction of further 
increases is lessened a bit. If that weren't the case then 
ultimately we would get to the point where our economy would 
serve nothing other than health care. So we assume a certain 
level deceleration going forward in national healthcare 
expenditures. So when you overlay on top of that the ambitious 
cost constraints of current law in some areas we actually have 
projections that have per capita expenditures in Medicare more 
rapid than GDP growth in the near term, but actually less than 
GDP growth in the long term. And so there are some people that 
look at our projections and say, we don't think that is 
plausible, we don't think lawmakers would permit expenditures 
in Medicare to be less than a per capita basis and per capita 
GDP growth. We as trustees have to be agnostic about that. We 
can't predict the future actions of lawmakers, but what we do 
say is we show the main projections in the current law and we 
also provide some alternative scenarios in which it is assumed 
that some of these provisions are overridden.
    In conclusion, Mr. Chairman--I know I am out of time--
Medicare is a complex program in which finance strains have 
consequences that include projected depletion of the Trust Fund 
and raising pressure on the general budget. We are showing 
costs raising markedly over the next couple of decades, 
primarily due to demographics, costs are likely to be at least 
as high as we currently project if the historical pattern of 
SGR overrides continues. In our report we say that under our 
current projections legislation will be needed to prevent 
financing shortfall in the Hospital Insurance Trust Fund and to 
address rising budgetary pressures arising from Medicare SMI. 
The sooner such legislation is enacted the more likely you can 
produce substantial long-term savings with less potential 
disruption for beneficiaries.
    Thank you.
    [The prepared statement of Mr. Blahous follows:]
    
    
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    Chairman BRADY. Thank you.
    Mr. Reischauer.

   STATEMENT OF ROBERT D. REISCHAUER, PH.D., PUBLIC TRUSTEE, 
        SOCIAL SECURITY AND MEDICARE BOARDS OF TRUSTEES

    Mr. REISCHAUER. Chairman Brady, Ranking Member McDermott 
and other Members of the Subcommittee, I appreciate the 
opportunity to appear before you today. My colleague Dr. 
Blahous has already covered the trustees' latest projections 
and the basic operations of Medicare. And I am going to stray a 
bit in part in response to the op-ed that was in last week's 
Washington Post about the credibility of Medicare's long-term 
projections.
    What I was going to talk about is the implications of the 
slowdown in overall healthcare spending will have or could have 
on the Medicare program's future financial situation. As you 
know, both Medicare per beneficiary spending and private sector 
per capita spending has slowed considerably over the last few 
years. The latest trustees report projects that the year in 
which the HI Trust Fund will be depleted has been pushed out 2 
years from 2024 to 2026. This is good news, but does it suggest 
that the cost curve has been bent in a sustainable way and we 
can relax? Even though I count myself among those who think 
that much of the spending slowdown is structural in nature, I 
believe that the fundamental financial challenge facing 
Medicare and the need for further costs restraint and reform 
remain largely unchanged from where they were a year or two 
ago.
    The slowdown in per capita in national spending has been 
going on in bits and starts for a better part of a decade. 
Probably the biggest single factor explaining the slowdown is 
the economic weakness of the past 5 years. This weakness has 
reduced the ability of many workers and their families to 
afford health care. What is less recognized is that it has also 
had an effect on Medicare beneficiaries who experienced sharp 
declines in the value of their IRAs and 401(k)s and reduced 
interest income from their CDs and bonds. In addition they went 
2 years without a Social Security COLA.
    The fact that relatively few major new technologies and 
blockbuster drugs have been introduced in the past few years is 
a second factor that has contributed to the slowdown. Policy 
changes, both at the Federal and the State level, also can take 
some credit for the spending slowdown and the final factor is 
the sea change that has taken place in the attitudes and focus 
of leaders in the healthcare sector. In contrast to the past 
there is now widespread appreciation among these leaders that 
health care cannot be provided without concern for its costs 
and the efficiency with which it is delivered. As a result of 
this attitudinal shift hospitals, physician groups, insurers 
and employers have initiated innumerable projects designed to 
moderate cost growth and some have helped to dampen overall 
spending.
    Whether the spending slowdown will continue is an open 
question. While there are reasons to be cautiously optimistic 
there are also reasons for concern. Prime among those reasons 
of course is the possibility that breakthroughs in genomic 
science, nanotechnology, stem cell research and other cutting-
edge technologies could lead to an explosion of new and 
expensive interventions.
    The increased market power that providers may gain when 
they consolidate to provide integrated high-quality care as it 
is envisioned under health reform is also a threat, potential 
threat to the continuation of the spending slow down.
    Some might ask whether the future pace of growth of overall 
healthcare spending has much relevance for Medicare, because 
Medicare has administered, not market-based praises and does 
not negotiate with providers when it sets other cost-related 
program parameters. Notwithstanding these differences, Medicare 
cannot set its own course with respect to future growth 
independent of what is happening in the rest of the healthcare 
marketplace. This has been illustrated clearly by the 
appropriate reluctance lawmakers have shown towards adhering to 
the sustainable growth rate formula. As you know, the 
projections in our report assume that the physician fee 
schedule will be reduced by 24.7 percent at the start of 2014. 
The report notes, however, that it is a virtual certainty that 
this reduction will be overridden. This judgment is based on 
experience since 2003 and an appreciation of the disruptive 
consequences that a sudden sharp reduction would have on 
Medicare payment rates leaving them far below those of other 
payers. In short, what happens in the private marketplace does 
constrain what Medicare can do to slow spending.
    For several years the trustees reports have expressed 
caution with respect to the long run sustainability of the 
major cost reduction measures required by the Affordable Care 
Act. The most important of these are the productivity related 
reductions in annual payment rate updates for Medicare 
providers and the IPAB. While the trustees believe that these 
measures or alternative ones of similar impact can be sustained 
over the long run, they judge that this will occur only if the 
overall healthcare sector transitions to significantly more 
efficient models of care delivery. Such a transition will not 
happen unless private payers as well as Medicare continue to 
pursue cost-saving innovations aggressively and providers 
respond to the incentives to moderate growth. In short 
Medicare's ability to moderate growth over the long run depends 
critically on the private sector's success and its efforts to 
slow spending and vice versa.
    Thank you.
    [The prepared statement of Mr. Reischauer follows:]
    
    
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    Chairman BRADY. Thank you, Mr. Reischauer.
    Mr. Blahous, you and six other trustees predicted in 13 
years Medicare will only be able to pay 87 percent of its 
benefits going forward. How can a cut that severe or a 
shortfall that severe--what impact does it have on Medicare and 
its ability to provide medical assistance to seniors?
    Mr. BLAHOUS. Well, that shortfall is in the Hospital 
Insurance Trust Fund, and if it were allowed to simply play out 
without action the amount of benefits we could pay would be 87 
percent of what is currently scheduled. Under law that side of 
Medicare cannot make payments in excess of the balance of its 
Trust Funds. So basically under most interpretations of the law 
Medicare would simply have to wait until there was incoming 
revenues before it could send out payments. This would mean in 
many instances denial or delay of care but certainly a 
reduction in the aggregate amount of the amount of care seniors 
receive of 13 percent in that year.
    Chairman BRADY. You say in your testimony that you project 
likely higher cost growth rates going forward, so in effect we 
ought not count on the low growth rates of the last 2 years. 
And you make the point that our finances ``are on a knife's 
edge.'' The seven trustees said we need--Congress needs to take 
prompt, timely and legislative action. So is that prompt and 
timely meaning in some time in the next 10 years, sometime in 
the next 5 years? Do we need to act sooner than that to address 
these issues?
    Mr. BLAHOUS. Well, certainly the sooner there is action I 
think the more prudent it would be, for a number of reasons. 
One is the sooner you act the more people you can involve in 
the solution. You can involve more cohorts of taxpayers, you 
can have a gentler impact if there's going to be an impact on 
beneficiaries, you can spread it out over a longer period of 
time. The other point I'd make is that you have to remember the 
main factors driving the cost, one of them is demographics. It 
is hard to just change on a dime with respect to demographics. 
If we are going to change anything about eligibility ages or 
eligibility criteria you are going to want to phase that in.
    Chairman BRADY. A lot more people are coming into the 
program. Are higher costs over the long term continuing to 
drive the financial problems?
    Mr. BLAHOUS. That is right.
    Chairman BRADY. What is your recommendation to us? How soon 
should we act to address this? You have been there, you know 
the issues, and you know the challenges. How much longer do we 
delay taking some meaningful steps?
    Mr. BLAHOUS. And the difficulty of this of course is 
lawmakers always have to make a judgment as to what is the 
right environment or the best time to act from a number of 
perspectives. I can just tell you strictly from numerical 
perspective the earlier you act, the better. The more immediate 
action, the better.
    Chairman BRADY. Now, this session preferably.
    Mr. BLAHOUS. From a purely technical substantive 
perspective, yes.
    Chairman BRADY. Thank you. Mr. Reischauer, your testimony 
sounds like everything is just fine in Medicare. Is your 
thinking don't worry, be happy, it will all work out?
    Mr. REISCHAUER. Well, I mean I think I said early in my 
oral remarks as well as my written remarks that although I am 
optimistic about the spending slowdown, I think that we still 
face a very significant problem. And like my colleague I think 
the sooner we adopt measures to address the long-term 
situation, the better. I am not one who spends sleepless nights 
worrying about 2087, but looking out at the next two decades 
there is cause for concern. And like Dr. Blahous, I believe the 
sooner decisions are made, the more gradually they can be 
implemented, and the more political viability they will have.
    Chairman BRADY. Is your thinking too rather than waiting 5 
years or 10 years, would your recommendation as far as taking 
some meaningful steps to Congress be to do this session, to 
start those solutions or at least the steps of them now rather 
than continuing to delay?
    Mr. REISCHAUER. We have adopted a lot of changes. We are 
going to learn a lot from the demonstration and pilot programs 
and from the implementation of various cost reducing measures 
in the Affordable Care Act. And I think in a few years we will 
be in a much better position to adopt in a sense the next 
generation of changes, informed by what we learn about how well 
some of these demonstrations are doing.
    Chairman BRADY. I didn't--you spent a lot of time in your 
testimony talking about the benefits of the Affordable Care 
Act. I didn't see that. What section of the trustees report was 
that in?
    Mr. REISCHAUER. It wasn't. I said I was going to stray a 
bit from the trustees report because----
    Chairman BRADY. So it is your personal view, just looking 
ahead on these issues?
    Mr. REISCHAUER. Yes. And it comes from the belief that the 
success of the efforts to hold down Medicare costs depends 
critically on what is happening in the rest of our health 
economy that Medicare can't go off----
    Chairman BRADY. Sure. No, no, I heard your testimony loud 
and clear.
    Final point, is it accurate that the Trust Fund--hospital 
Part A Trust Fund this year started out only having enough to 
cover 81 percent of liabilities; is that accurate, in your 
trustees report?
    Mr. REISCHAUER. The Trust Fund's assets amounted to 81 
percent of 2013's expected expenditures. If there were no money 
coming into the Trust Fund that is----
    Chairman BRADY. Is that expected to get better or to 
decline?
    Mr. REISCHAUER. It is expected to decline.
    Chairman BRADY. Get worse.
    Mr. REISCHAUER. Over the next 13 years, yes.
    Chairman BRADY. Mr. McDermott.
    Mr. MCDERMOTT. Since these hearings are basically 
educational for the public let me try and get clear in people's 
minds, when you are talking about a deficit, you are talking 
about a deficit in Part A, that is what you are talking about? 
And Part B, that is doctors and other incidental laboratory and 
so forth, will be paid in full. And Part D will be paid in 
full. So those two programs are not what we are worried about 
here. We are worrying about the hospital is at 87 percent and 
there is going to be 87 percent of the value in whatever it is, 
20, or whatever, out there.
    If we do nothing, you are saying if we do nothing but what 
is here in the law. But in fact we have done, we put in place 
the ACA. So we now are putting in cost control mechanisms in 
the ACA that are affecting this or seem to be affecting it. I 
look at the Medical Advantage program and see that it is 
dropping and that there is really encouraging news that the 
bids are coming in lower on Medicare Advantage, which suggests 
to me that the ACA is already having an effect. Is that a fair 
estimate to either one of you, Dr. Reischauer or Dr. Blahous?
    Mr. REISCHAUER. The trustees report says that the initial 
estimates of the impact of the Affordable Care Act on Medicare 
Advantage plans were probably a bit high--a bit low in terms of 
reductions and that behavior of these plans and the changes in 
the benchmarks that have occurred over the last 3 years have 
led the actuaries to believe that the savings will be larger in 
Medicare Advantage than they thought in 2010, and we have also 
seen an increase in the numbers of folks signing up for 
Medicare Advantage, higher than was predicted at the time the 
Affordable Care Act was enacted.
    Mr. MCDERMOTT. The initial Medicare Advantage introduction 
was a little bit rocky, as I remember it.
    Mr. REISCHAUER. Well, I mean let's start with recalling 
that Medicare Advantage in a sense cost the government more 
money than fee for service.
    Mr. MCDERMOTT. Because----
    Mr. REISCHAUER. Because we were overpaying these plans 
relative to the cost that the individuals who participated in 
the plans would have paid had they been in fee-for-service 
medicine. And so the Affordable Care Act took a number of steps 
to try and reduce that situation and those have been quite 
successful.
    Mr. MCDERMOTT. So to sum that up, what you have just said 
is that the Congress took actions that have reduced costs 
already. And it looks like there is no reason to believe that 
that won't continue out into the future if people, more people 
get into managed care and Medicare Advantage and the bids keep 
coming down we will save money in the future?
    Mr. REISCHAUER. Well, but to take this to the next step, 
the bids really have to come down well below what the costs 
would be in fee for service, which means that these plans have 
to become ever more efficient, which I think they are on the 
way to doing. But to go back to my original testimony, these 
are plans that by and large are run by companies that also run 
managed care plans in the commercial market. And so this is all 
one big ball of wax here and we want to keep pushing on all 
aspects of it.
    Mr. MCDERMOTT. It seems to me that what you are really 
saying is that some of the things that are being put in place 
and have been put in place both in the ACA and in Medicare 
Advantage in the past are you can't expect them to go in and 
instantly have a major change, that it is like trying to take a 
super tanker and turn it on a dime, it takes 20 miles to bend 
it 4 degrees in its direction and that is really what we are 
doing here with a big program. Is that your view, that we are 
getting the benefits from the ACA?
    Mr. REISCHAUER. We are I think. And I think--I hope we 
would get more, and I think you are right on the money when you 
say this is a big, complex sector of our economy and needs time 
to evolve to change, to move in the right direction and that is 
why the Chairman's suggestion that making decisions sooner 
rather than later, giving instructions on what direction to go 
is very timely.
    Mr. MCDERMOTT. I would be glad to help with the cost 
control. Thank you.
    I yield back the balance of my time.
    Chairman BRADY. I am going to recognize Mr. Johnson for 
questioning. We have a vote series of 15, I know Members want 
to take a look at those before we begin and we are going to 
recess until 5 minutes after the vote series concludes. We will 
reconvene at that point. Mr. Johnson.
    Mr. JOHNSON. Mr. Blahous, the trustees report estimates 
that the Medicare Hospital Insurance Trust Fund is projected to 
spend more money paying claims this year than it will collect 
from the payroll tax; is that correct?
    Mr. BLAHOUS. That is correct.
    Mr. JOHNSON. How long has this been the case?
    Mr. BLAHOUS. 2008 was when expenditures began to exceed tax 
income.
    Mr. JOHNSON. Okay. Are you aware of any program that is 
financially sustainable if it spends more money than it has or 
is this a recipe for bankruptcy?
    Mr. BLAHOUS. Obviously we can't continue on that path 
forever. In our current projections over the next decade we are 
projecting almost an exact symmetry between income and outgo, 
and there actually is a brief blip later in this decade when we 
are projecting tax incomes for 1 year exceed expenditures, but 
then after that the lines pull apart and expenditures exceed 
income on a permanent basis and that is what leads to depletion 
of that Trust Fund.
    Mr. JOHNSON. Well, I don't know how you come up with that 
decision.
    Mr. Blahous, in your testimony you say that current 
Medicare cost growth projection shows there will be increased 
pressure on the general Federal budget highlighting the 
increase in general revenues that will be needed to prop up the 
SMI Trust Fund. What does this mean for Federal finances as a 
whole and won't this further pressure the Federal budget never 
to pay down our debt?
    Mr. BLAHOUS. The answer is yes, it does mean much increased 
pressure on the general budget. And there are only three 
outcomes. One is you have to have higher taxes, one is you have 
to have higher indebtedness or you have to have reduced 
expenditures elsewhere in the Federal budget.
    Mr. JOHNSON. Okay. And which of those do you favor?
    Mr. BLAHOUS. Well, I mean this is my personal view. I am 
not excited about the idea of steadily rising taxes or steadily 
rising debt, but I am also not excited about seeing the rest of 
the budget squeezed either. So I think we have to do something 
to get the rising cost of Medicare under control.
    Mr. JOHNSON. Maybe you could pay for the whole cost out of 
your salary, what do you think?
    Mr. BLAHOUS. I would not want to do that.
    Mr. JOHNSON. Mr. Reischauer, in your testimony you say 
policies included in the Affordable Care Act, ObamaCare, will 
reduce costs and create more efficiencies in the system. You 
specifically mention cost conscience insurance products that 
will be offered within the exchanges but many States have also 
released numbers showing that premiums will be increasing 10 
percent, some 20 to 50 percent, and some as much as 150 
percent.
    Your assumption doesn't sound right to me. How does this 
help us control costs in Medicare, which is facing the problems 
right now?
    Mr. REISCHAUER. Well, first of all those numbers that you 
suggested I don't think account for the differences in 
generosity between the plans that are being offered now and the 
plans that will be offered in the exchange because there are 
minimum benefit requirements for plans offered in the exchange. 
But what I really am referring to is the situation that we will 
have once the exchange starts, which is the individual consumer 
having a choice of which plan he or she decides to sign up for. 
And as you know, there will be plans at different levels of 
generosity. And we might find that very significant fractions 
of the American public are quite comfortable with plans that 
are not as generous as those that we see offered in the usual 
employer/employee situation and that will change and start a 
competition that heretofore really hasn't existed both because 
fewer employers offer a range of plans, and those that do 
usually make their contributions to those different flavors of 
plans such that true market responses by their employees are 
not exhibited.
    Mr. JOHNSON. Well, my impression is people don't want to 
spend more money on health care than they already are and that 
is what I am afraid is going to happen. Thank you.
    Mr. REISCHAUER. No, I think you are right, I agree with 
that.
    Mr. JOHNSON. Thank you for your testimony.
    Chairman BRADY. We have a vote series of 15 votes, but each 
of them are 2 minutes long. So we will--this Subcommittee will 
reconvene promptly 5 minutes after the last vote series. So 
grab a cup of coffee but be back here ready to work.
    [Recess.]
    Chairman BRADY. The Subcommittee will reconvene.
    Thank you for being patient during the vote series. We have 
another one coming up, but I would like to recognize Mr. 
Pascrell for 5 minutes.
    Mr. PASCRELL. Thank you, Chairman Brady. Dr. Reischauer, do 
you think that Medicare can hit the spending projections in the 
trustees report under current law? Do you think that we will 
hit those spending projections that you mentioned?
    Mr. REISCHAUER. Well, one aspect of current law is the 
assumption that the SGR will be implemented and that physician 
payment rates will go down by almost 25 percent, and in that 
respect I don't think we will hit the projections, and I think 
the impact that that has on Medicare's overall spending is 
about 2 percent, but abstracting from that, you know, I think 
it is perfectly plausible that over the course of the next 10 
and 20 years that we will hit the projected numbers that are in 
the report. But as I said in my testimony, this presumes that 
there will be a significant transformation of our delivery 
system, not just the delivery system from Medicare's 
perspective, but from the private sector as well, but I think 
that we are on our way to that in large measure because of the 
pressure that the Congress has been exerting on healthcare 
providers.
    Mr. PASCRELL. Well, correct me if I am wrong on this, that 
the alternative scenario projects spending at 9.8 percent of 
GDP compared to a projection of 11.4 percent prior to 
healthcare reform. Is that accurate?
    Mr. REISCHAUER. Yes, that is. I mean, if you look at the--
--
    Mr. PASCRELL. That is pretty important, isn't it?
    Mr. REISCHAUER. If you look at the 2009 report, the 75-year 
projections were considerably more pessimistic than either the 
current law projections in the 2013 report or the alternative 
scenario contained in that report. Some of that is, of course, 
the Affordable Care Act, but that is taken out by the 
alternative scenario, and some of it is the different 
projections of the economy and inflation, and, you know, some 
of it is the slowdown in spending that we have experienced, so 
there are a lot of factors that are going on, but your basic 
observation is correct.
    Mr. PASCRELL. You would agree with that?
    Mr. REISCHAUER. Yes.
    Mr. PASCRELL. Now, we have slowed down the rising cost of 
drugs, yes or no?
    Mr. REISCHAUER. We have----
    Mr. PASCRELL. Prescription drugs.
    Mr. REISCHAUER [continuing]. Slowed down prescription drug 
costs in large measure because there has been a very 
substantial shift from branded drugs to generic drugs, much 
more than experts had predicted a few years ago, in part 
because of the pressures that PBMs have exerted through the 
Medicare Part D program.
    Mr. PASCRELL. Now, the projects that we are into right now 
in terms of Medicare and health care, for that matter, the rest 
of health care are designed to moderate costs.
    Mr. REISCHAUER. Uh-huh.
    Mr. PASCRELL. If we don't touch that, we cannot catch up, 
we cannot raise enough money to do so. If we continue to go on 
the past process, we are out of business. But let me add this: 
I don't want to be morbid about it, but there is really, as I 
see it, and correct me, please, there is no real hope of a real 
reduction of the costs of health care, and indeed Medicare, 
unless folks take control of their health choices and learn to 
read their bills.
    I have looked at the reports from both sides of the aisle. 
Neither of the sides of the aisle are stressing those choices, 
and I would say both sides of our aisle are going in the wrong 
direction and that the major emphasis, if I had a chance to 
finish the question, Mr. Chairman, and maybe just a short 
answer if it is possible?
    Chairman BRADY. If I could--I want to give plenty of time--
--
    Mr. PASCRELL. I mean, we have got 45 minutes.
    Chairman BRADY. Mr. Pascrell, I will probably ask the 
witnesses to respond.
    Mr. PASCRELL. Okay. But the point I was concluding the 
question is this: If we can't raise enough money to do the 
things that we want to do, then we need to deal with the person 
who seeks care, whether he is in control of his health. You 
can't pass a bill to say you are in control of your health, 
this is what you will do, but that is the side that we are not 
discussing. We are not emphasizing this, and I fear, Mr. 
Chairman, with all your good intentions and the great 
intentions of our Ranking Member, that we are not going to deal 
with this cost and deal with the lowering of that cost unless 
we deal with those two things, the bill that you get and taking 
control of your own health. That is not in the books here. I 
don't know why we are not discussing it. Thank you.
    Chairman BRADY. Thank you, Mr. Pascrell.
    Dr. Price.
    Mr. PRICE. Thank you, Mr. Chairman, and I appreciate Mr. 
Pascrell's observation. I would just call his attention to a 
bill H.R. 2300 that we have introduced that actually responds 
to those things, and I will be glad to sit down and chat with 
you about them.
    I want to thank our witnesses and the expertise that you 
bring and the contributions that you have made to trying to 
move us in the right direction. Dr. Blahous, I am struck by 
your testimony and much of the graphics within your testimony. 
We hear some of our friends on the other side sound relatively 
sanguine about the situation, that it is not a big deal, that 
we don't have to worry about it too much, but you cite that the 
demographics are driving the challenge. We have 10,000 folks 
reaching retirement age every single day and will continue to 
do that until we get the 78 million folks of my generation, the 
boomers, through this process, and that is a huge, huge 
economic challenge. My sense is that things aren't as rosy as 
some would like them, like us to believe they are, and in fact 
they may not even be as rosy as the trustees report. Would you 
care to comment on that?
    Mr. BLAHOUS. Sure. I think with respect to the observation 
that costs may be higher than we are currently projecting, I 
would return to Dr. Reischauer's point, we are assuming in our 
projections an almost 25 percent reduction in physician 
payments early next year. Historically there is very little 
basis for assuming that is going to happen, so if you assume 
that those payment reductions continue to be overridden, costs 
would be at least to that extent higher than we are currently 
projecting.
    Beyond that, I think an important part of the message I 
would offer is that we still have work to do to sustain the 
finances of Medicare. There has been an awful lot written and 
said about the recent slowdown in healthcare cost growth, and 
obviously we are very hopeful that that will continue, and we 
are hopeful that it will render the aggressive cost containment 
mechanisms in current law more plausible over the long run, but 
I think it would go too far to assume that things are going to 
turn out significantly better than we are currently projecting.
    Mr. PRICE. And likely not as good?
    Mr. BLAHOUS. And probably not as much, not as good because 
we are basically assuming that is going to work, assuming it is 
going to work.
    Mr. PRICE. Let me turn to the issue of cost control that 
has been stipulated by the ACA for Medicare, which is through 
the Independent Payment Advisory Board. Something that many of 
us oppose vehemently because we believe it removes those 
choices for patients and families and doctors for the kind of 
care that they desire.
    The projections right now are that the Independent Payment 
Advisory Board, IPAB, will come into play when they have to 
make a decision about reducing services or reducing 
compensation, reimbursement to physicians in 4 or 5 years. What 
is the interplay between that and the projection that the 
trustees have made already?
    Mr. BLAHOUS. It is a little tricky. Basically the IPAB 
comes into play whenever total Medicare expenditures exceed a 
target rate of growth, basically GDP plus 1 percent.
    Mr. PRICE. Right.
    Mr. BLAHOUS. Now, that renders it a little difficult to run 
out some of our sort of illustrative alternative scenarios 
because, for example, if you assume that the cost containment 
provisions in the Affordable Care Act are overridden, then 
unless the IPAB is also overridden, IPAB would basically just 
have to come in to fill in the gap. They would have to provide 
the savings that those cost containment mechanisms did not 
provide, so there is a strong interplay between the two. That 
is why in our illustrative alternative scenario we show the 
consequences of those cost containment provisions being 
overridden and the assumption that IPAB's recommendations are 
overridden. It is not because we are making a policy 
recommendation or prediction, it is just that you can't really 
show the effects of one unless you assume the other is turned 
off because the IPAB would basically just come in to fill the 
gap if those cost containment mechanisms were overridden.
    Mr. PRICE. And if the SGR reduction doesn't occur, which 
virtually all of us believe it ought not, and that we, 
Congress, will act, does the IPAB come into play from 
decreasing reimbursement to physicians sooner or later?
    Mr. BLAHOUS. I think the short answer is I am not certain, 
but I will tell you what I think the answer is. I think the 
answer is that the main interplay is with the so-called 
productivity adjustments in the Affordable Care Act, and the 
reason I believe that is that the SGR override that we are 
assuming, basically most of that effect is in early 2014. We 
are assuming 25 percent higher physician payments in 2014, 
whereas the years that we are projecting IPAB coming into play 
based on the targets they have to hit, those are more in the 
outyears, it is subsequent to 2018.
    Mr. PRICE. But they could be much sooner?
    Mr. BLAHOUS. It could be sooner, but I think a bigger 
factor is whether the other cost containment provisions of the 
ACA are overridden, and I am looking to my co-trustee to 
correct me if he thinks I have that wrong, but I think that is 
the case.
    Mr. PRICE. Thank you. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you very much. Mr. Smith, for the 
final questions.
    Mr. SMITH. Thank you, Mr. Chairman, and thank you to our 
witnesses for being here today and sharing your insight and 
expertise. Dr. Reischauer, in your testimony you suggest 
spending on health care may actually decrease in the future in 
part because of the creation of IPAB, and what part of IPAB is 
it that you think can lead to that? I know many folks are 
concerned that it is a form of rationing of care.
    Mr. REISCHAUER. First of all, I don't believe that spending 
will decline. I think the rate of spending will continue at a 
relatively slow rate increase, so I am not here predicting 
nirvana, so to speak.
    Mr. SMITH. Okay.
    Mr. REISCHAUER. You know, the IPAB effect is a relatively 
modest one in our projections. As Dr. Blahous mentioned, the 
significant impact comes from the productivity adjustment in 
the payment updates for most types of providers. You know, the 
IPAB, if it is created and if it is put into effect, as you 
know, will be charged with bringing up suggestions that don't 
necessarily have to be a cut in physician payments or other 
payments, it can be some other things as well, to bring 
spending down below a threshold, and if Congress disagrees with 
those measures, it can enact a substitute way of damping down 
the growth of costs, but some of the materials that we have 
suggest that looking out over the next 20 or 30 years, the IPAB 
is really a relatively minor part of the story of holding down 
cost growth.
    Mr. SMITH. Would you say it is minor but important? The 
reason--a little bit of context.
    Mr. REISCHAUER. I think its importance really comes--I 
mean, if I were making a prediction, its importance would not 
come from its actions so much as its threat of actions. I mean, 
it focuses the minds of policymakers that, hey, we have to do 
some more, you know. We have done a modest amount so far, but 
we have to do some more or else, you know, this is, could be 
viewed in a way as something like sequestration, you know, it 
is nobody's first or tenth, you know, idea of what a good 
solution to the problem is, so let's, as legislators, come up 
with an alternative.
    Mr. SMITH. Okay. So just to follow up, Dr. Blahous, if 
creating the IPAB perhaps is considered by many to be good 
policy--I have my concerns--why is its elimination assumed, 
then, in the supplemental report?
    Mr. BLAHOUS. Basically it pertains to--what we are trying 
to show in the illustrative alternative scenario, we are 
basically trying to acquaint lawmakers with the potential 
expenditures that could arise if certain cost containment 
mechanisms of current law are turned off, and IPAB is very 
important in that demonstration because if you left IPAB to 
continue to operate and if Congress came in and overrode those 
cost containment mechanisms in current law, then under other 
aspects of current law, IPAB would come in and just have more 
savings to facilitate. So in order to show the magnitude of the 
additional expenditures, if you assume certain elements of 
current law are overridden, you also have to assume that IPAB 
is basically overridden as well because otherwise IPAB would 
just come in and fill in the gap for that savings. Is that 
clear?
    Mr. SMITH. Somewhat. But my fear is perhaps that SGR will 
just be replaced by IPAB, you know, under a little different 
acronym. Is that conceivable?
    Mr. BLAHOUS. Well, I would say, I think there are different 
levels of skepticism within the trustees process as to which 
elements of current law are likely to be sustained. I think the 
trustees as a body, based on history, are very, very skeptical 
that anything approaching the SGR is going to happen because 
historically we have overridden that. I think with respect to 
something like IPAB, with respect to other cost containment 
provisions in current law, I think you have a greater diversity 
of views and greater agnosticism. You certainly have some 
players in that process who think it is possible that they 
could be sustained, you have others who are more skeptical. We 
had a technical panel look at this over the last couple of 
years, and they basically came back with a recommendation that 
in our illustrative alternative scenario we assume that these 
cost containment mechanisms operate in full up through 2020, 
and then are partially phased out from 2020 to 2034. Again, it 
is not a prediction, it is not a policy recommendation, but 
basically that reflects an alternative assumption that 
basically these cost containment mechanisms will be overridden 
to the extent that would be necessary under our methodology, 
which people can argue with, but under our methodology to 
prevent a growing wedge between Medicare reimbursement rates 
and private sector ones, but there is a great diversity of 
views on that, especially since we haven't seen whether these 
are going to be effective yet.
    Mr. SMITH. Thank you, Mr. Chairman.
    Chairman BRADY. I want to thank both witnesses for your 
testimony today. Clearly, I hope we heed your warning to act 
sooner rather than later to take the meaningful steps to save 
and extend the life of Medicare.
    As a reminder, any Member may submit questions for 14 days 
for the record. I would ask the witnesses to respond in a 
timely manner, as I know you will. With that, the Subcommittee 
is adjourned.
    [Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]
    [Submissions for the Record follow:]
    
    
    
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