[Senate Hearing 118-148]
[From the U.S. Government Publishing Office]


                                                          S. Hrg. 118-148

                  MEDICARE FOREVER: PROTECTING SENIORS BY 
                  MAKING THE WEALTHY PAY THEIR FAIR SHARE

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                                HEARING

                               BEFORE THE
                               
                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           September 27, 2023

                               __________

           Printed for the use of the Committee on the Budget
           
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                        COMMITTEE ON THE BUDGET

               SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington             CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont             RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia             MITT ROMNEY, Utah
JEFF MERKLEY, Oregon                 ROGER MARSHALL, Kansas
TIM KAINE, Virginia                  MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland           JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico            RICK SCOTT, Florida
ALEX PADILLA, California             MIKE LEE, Utah

                   Dan Dudis, Majority Staff Director
        Kolan Davis, Republican Staff Director and Chief Counsel
                   Mallory B. Nersesian, Chief Clerk
                  Alexander C. Scioscia, Hearing Clerk
                           
                           
                           C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 27, 2023
                OPENING STATEMENTS BY COMMITTEE MEMBERS

                                                                   Page
Senator Sheldon Whitehouse, Chairman.............................     1
    Prepared Statement...........................................    33
Senator Charles E. Grassley, Ranking Member......................     3
    Prepared Statement...........................................    35

                    STATEMENTS BY COMMITTEE MEMBERS

Senator Alex Padilla.............................................    15
Senator Ron Johnson..............................................    16
Senator Ron Wyden................................................    18
Senator Rick Scott...............................................    20
Senator Van Hollen...............................................    23
Senator Mike Braun...............................................    25
Senator Tim Kaine................................................    29

                               WITNESSES

The Honorable Marilyn Moon, Visiting Scholar Center for Medicare 
  Advocacy, and Former Public Trustee of the Medicare and Social 
  Security Trust Funds...........................................     7
    Prepared Statement...........................................    41
Ms. Chye-Ching Huang, Executive Director, Tax Law Center, New 
  York University School of Law..................................     8
    Prepared Statement...........................................    50
Mr. James C. Capretta, Senior Fellow and Milton Friedman Chair, 
  American Enterprise Institute..................................    10
    Prepared Statement...........................................    67

                                APPENDIX

Responses to post-hearing questions for the Record
    Mr. Capretta.................................................    77
Documents submitted for the Record by Chairman Sheldon Whitehouse    80
Document submitted for the Record by Senator Charles E. Grassley.   102
Document submitted for the Record by Senator Tim Kaine...........   103

 
 MEDICARE FOREVER: PROTECTING SENIORS BY MAKING THE WEALTHY PAY THEIR 
                               FAIR SHARE

                              ----------                              


                     WEDNESDAY, SEPTEMBER 27, 2023

                                           Committee on the Budget,
                                                       U.S. Senate,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:02 
a.m., in the Dirksen Senate Office Building, Hon. Sheldon 
Whitehouse, Chairman of the Committee, presiding.
    Present: Senators Whitehouse, Wyden, Kaine, Van Hollen, 
Padilla, Grassley, Johnson, Braun, and R. Scott.
    Also present: Democratic staff: Dan Dudis, Majority Staff 
Director; Dan RuBoss, Senior Tax and Economic Advisor and 
Member Outreach Director; Sion Bell, Tax Policy Advisor; 
Anirudh Srirangam, Healthcare Policy Advisor.
    Republican staff: Chris Conlin, Deputy Staff Director; 
Krisann Pearce, General Counsel; Nic Pottebaum, Professional 
Staff Member; Nick Wyatt, Professional Staff Member.
    Witnesses:
    The Honorable Marilyn Moon, Visiting Scholar Center for 
Medicare Advocacy, and Former Public Trustee of the Medicare 
and Social Security Trust Funds
    Ms. Chye-Ching Huang, Executive Director, Tax Law Center, 
New York University School of Law
    Mr. James C. Capretta, Senior Fellow and Milton Friedman 
Chair, American Enterprise Institute

          OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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    \1\ Prepared statement of Chairman Whitehouse appears on page 33.
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    Chairman Whitehouse. Good morning. The hearing of the 
Budget Committee will come to order. I welcome our witnesses. I 
thank our ranking member. I welcome the members in attendance. 
Ranking Member Grassley and members of the committee, today's 
hearing is about guaranteeing Medicare's solvency, a good thing 
to do, by balancing the tax system so that it is less rigged 
and more fair. Another good thing to do.
    So two good things. In July, the Budget Committee held a 
hearing on protecting social security by taking away tax tricks 
that let those at the top pay lower tax rates than teachers and 
firefighters. Today we turn to Medicare, our other pillar of 
American retirement security, whose insolvency is predicted to 
arrive sooner than social securities.
    Right now, a government shutdown looms because house 
Republicans are once again trying to make the tax system even 
less fair to give more freebies to big business and 
billionaires. Republicans over there want to maintain the 
massive exemption for inheritances to wealthy heirs.
    They want to keep tax breaks from multinational 
corporations that send their profits and jobs offshore, and 
they want to hamstring the Internal Revenue Service (IRS) from 
catching wealthy tax sheets. Nobody likes these policies, so 
they have to hold our government operations hostage.
    It will cost billions and add to the deficit if they 
succeed at shutting the government down. At the end of the day 
their point is taking care of the billionaires in big 
corporations, the rest is smoke and mirrors. Any serious 
conversation about Federal spending and deficits must also 
include Medicare.
    According to Congressional Budget Office (CBO), Medicare, 
along with Social Security, will make up more than half of 
spending growth over the next decade as America's population 
ages. And without new revenue, Medicare will cover less than 
90% of scheduled benefits beginning as soon as 2031, only 8 
years away.
    Since its inception, Medicare has ensured that our nation's 
seniors do not become impoverished due to illness. As a result, 
older Americans live longer, live better quality lives, and get 
better care in the healthcare system. Today, nearly 80% of 
Americans either receive direct support from Medicare or have a 
family member or close friend enrolled in the program.
    Almost every senior in this country will receive Medicare 
benefits which they have earned throughout their working lives 
and which let them retire in health and dignity. Rhode Island 
seniors understand the importance of Medicare on their quality 
of life. Joyce from Pawtucket said, ``Medicare is a lifeline 
for me.
    Reducing benefits would cause me to neglect medical 
problems, and I would actually end up in the hospital.'' Lisa 
from West Warwick said, ``Without Medicare, I would exhaust my 
finances and go without care and medicines.'' And Anna from 
Providence said, ``Medicare helps me in countless ways.
    It helps pay for my wheelchair, shower chair, lift to get 
in and out of bed, doctor's visits and medicine among other 
things. All of these are essential and enable me to continue 
living my life.'' But for decades, some Republicans worked 
publicly to undermine Medicare. To have Medicare as former 
speaker of the House, Newt Gingrich put it; wither on the vine.
    They proposed raising the Medicare eligibility age, turning 
Medicare to a private voucher program, and even sun setting 
Medicare altogether, then came the State of the Union address 
earlier this year when Republicans and Democrats together gave 
President Biden a standing ovation when he declared that cuts 
to social security and Medicare would be off the table.
    That bipartisan consensus if it was real and not more smoke 
and mirrors leaves only one option, raise revenue. And we can 
raise revenue by unrigging our tax code. We can close loopholes 
that allow the super wealthy to avoid taxes. It would be good 
to level the playing field so the wealthiest in this country 
can't play by a special set of rules and avoid paying a fair 
share.
    We can and must protect Medicare. We can and must do so 
without cutting benefits. And we can do that by making our tax 
code fairer. Win, win, win. According to the Centers for 
Medicare and Medicaid Services (CMS) chief actuary, the 
authority on Medicare solvency, my Medicare and Social Security 
Fair Share Act would ensure Medicare remains solvent 
effectively forever.
    And we heard at our social security hearing that my 
legislation would also extend Social Security solvency 
indefinitely. As I told my Republican colleagues at our social 
security hearing, I'm more than happy to welcome serious 
proposals to protect Social security and Medicare without 
cutting benefits.
    I've spent enough time in the Senate to know the difference 
between freewheeling chat and actual proposals. Actual 
proposals are what lead to actual agreements. So feel free to 
join in with an actual proposal. My proposal ensures Medicare 
solvency forever. It does so by unrigging a rigged tax system 
so those who can most afford to pay don't play by a different 
set of rules.
    It is available for everyone to see and debate. We face 
simple arithmetic, raise revenue, or cut benefits. Those are 
the options if we are to preserve Medicare. If we abide by what 
seemed like a bipartisan commitment not to cut benefits, we 
must safeguard Medicare by raising revenue. It is literally 
life and death for millions of older Americans. Senator 
Grassley.

           OPENING STATEMENT OF SENATOR GRASSLEY \2\
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    \2\ Prepared statement of Senator Grassley appears in the appendix 
on page 35.
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    Senator Grassley. Thank you for holding this very important 
hearing because we all recognize that Medicare as well as 
social security are very much a part of the social fabric of 
America. And they may be government programs, but they also 
interact with the private sector retirement and health benefits 
as well.
    So it is not something that just government does, but 
private sector, retirement and healthcare programs plan on 
interacting with it. Republicans want to preserve and 
strengthen this program for future generations. For decades 
Medicare has provided seniors and those with disabilities 
access to routine and life-saving care at their local hospital, 
doctor's office, and pharmacy.
    As then chairman of the Finance Committee, I'm proud to 
have led the effort in 2003 to modernize Medicare by 
establishing a prescription drug benefit. That effort required 
bipartisan cooperation from both chambers and presidential 
leadership.
    In the first decade of Medicare Part D, the Federal 
government spent 36% less than CBO projected, while still 
improving access to prescription drugs for millions of seniors. 
That law also requires the Medicare trustees to review 
Medicare's finances annually.
    For the past seven years, Medicare trustees have issued a 
funding warning because Medicare's outlays are expected to 
exceed its dedicated revenue by 45%. Medicare's hospital 
insurance trust fund is also in poor shape. Both CBO and the 
Medicare trustees expect it to be insolvent in about 10 years.
    Upon insolvency and absent congressional action, Medicare 
Part A providers will see an 11% cut in reimbursements. We 
should be moving our healthcare system from volume to value, 
but we need to accurately account for what's working and not 
working.
    As I stated at our Social Security hearing, the only way to 
make these critical programs sustainable is to follow the 
Ronald Reagan, Tip O'Neal model of 1983. And just as an aside, 
remembering some of the things you said in your opening 
statement, that would include more than just tax increases, 
that would include more than people putting proposals on the 
table as you're asking us to do, because I think they sat down 
at a table with nothing on it because they wanted everything to 
be negotiable.
    And it ended up tax increases, it ended up changes in 
formula, it ended up changes in retirement age. And I suppose 
they thought they were going to save Social Security for 20 
years, but as we see now, they saved it for 50 years.
    And it is that bipartisanship that come between a Democrat 
speaker and a Republican president that we just can't let 
Social security fail, that led to their success. But everything 
being on the table, it wasn't a Republicans putting something 
out, Democrats putting something out because that gives people 
opportunity to shoot at things. So we've got to work in a 
bipartisan fashion and keep a range of options on the table. 
Unfortunately, anytime Republicans mention Medicare being in 
trouble, Democrats accuse us of trying to blow up the program. 
And blowing up the program is a pretty rich statement.
    Considering Democrats have proposed and enacted major cuts 
to Medicare, often using the program as a piggy bank to pay for 
unrelated spending. Obamacare cut Medicare, including an annual 
1% reduction in provider payments. I don't know whether we 
Republicans accuse you of cutting Medicare or not, but we could 
have, like we get accused of proposals we put forward.
    Democrats have proposed cuts to Medicare advantage, which 
ignores the choice and competition these plans often offer 
consumers. On top of these Medicare cuts, the so-called 
Inflation Reduction Act passed only by Democrats and President 
Biden stole budget savings from Medicare to subsidize green 
energy tax credits.
    Most of these democrat tax benefits will go to wealthier 
taxpayers. And let's not forget proposals like Medicare for all 
that would cost $30 to $40 trillion in the first 10 years, more 
than twice what Medicare costs today. Under this plan, 
hospitals would see a 16% reduction in revenue resulting in 
closures and reduced access to care.
    Then there is President Biden's latest budget, which kicks 
the can down the road on Medicare, it for goes real solutions 
in favor of accounting gimmicks, massive tax hikes and price 
controls that will reduce access to lifesaving drugs and 
treatments.
    The proposal currently touted by the Chairman would push 
the top marginal tax rates above 50%, impose a 37.4 percent top 
rate on capital gains. We don't talk much about the 
consequences of those policy decisions, but the CMS actuary 
concluded the proposal would address Medicare's long-term 
solvency, but with the caveat that he couldn't, ``Independently 
assess the reasonability of the revenue estimates for the 
stated provisions.'' Based on an analysis of the proposal by 
Tax Foundation, which I ask unanimous consent to put in the 
record.\3\
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    \3\ Statement submitted by Senator Grassley appears in the appendix 
on page 102.
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    Chairman Whitehouse. Without objection.
    Senator Grassley. The chairmans proposed capital gains tax 
hike is a revenue loser. Moreover, the tax hikes as a whole 
will cost about 700,000 jobs. These tax hikes won't just hit 
high incomes Americans. While proponents claim only the top 2% 
will be affected, the proposed income thresholds not being 
indexed for inflation has a much broader effect than just the 
top 2%. As a result, the Social Security chief actuary 
estimates that up to 25% of the households will be captured by 
the end of the projection period. The truth is, taxes on the 
rich alone won't save Medicare for Children and grandchildren.
    If Democrats believe otherwise, then request CBO and joint 
Committee on Taxation, analyze the proposals. So I think we'd 
like to have a more widespread investigation of these facts. 
Before you saw that, I was through with my remarks, but I 
wanted to just point out something that I gave a couple weeks 
ago on a speech on the floor of the Senate, and this won't take 
me maybe just a couple minutes. It is obvious that our 
healthcare system in the United States needs reform and 
accountability.
    However, we shouldn't ruin it by turning it into a 
government run healthcare system. Whether you want to call it 
Medicare for all, single payer, or socialized medicine. I 
referred in my speech then to a Wall Street Journal article 
highlighting the failures of some government run programs. They 
wrote this about Great Britain.
    ``Now the state funded service is falling apart. People who 
suffer heart attacks or strokes wait more than one and a half 
hours on average for an ambulance. Hospitals are so full, 
they're turning patients away.
    A record seven and one-tenth million people in England, 
more than one in 10, are stuck on waiting lists for non-
emergency hospital treatment like hip treatment.''
    The article went on to say, ``Delays in treating people are 
causing premature deaths of 300 to 500 people a week. And 1 in 
5 British people were waiting for medical appointment or 
treatment at the National Health Service in December.'' If you 
could find--if you didn't find that alarming, I said, on the 
floor of the Senate, in May, British Columbia announced that 
they were sending cancer patients to Bellingham, Washington in 
the United States for treatment.
    A Canadian news outlet wrote that health minister Adrian 
Dix announced, ``That eligible breasts and prostate cancer 
patients will be sent to one of the two clinics in Bellingham 
for radiation treatment. The unprecedented move to send 
thousands of British Columbia patients to the United States 
(US) over the next 2 years is an attempt to address the backlog 
that the British Columbia has in one of the longest waits for 
radiation treatment in Canada.''
    Canada is taking this action because it's cancer patients 
face unacceptable waiting lines. When I read about Bellingham, 
it reminded me this, in the years that I've been fighting 
doctor owned hospitals, not having special treatment and not 
having, conflicts of interest and all that.
    I used as one of my examples that there was a text in the 
hospital that said, if you have an emergency, call 911, that 
was posted in that hospital. So here we have British Columbia 
posting it in hospitals. If you need emergency action, go to 
Bellingham. And I think it is a crime that we would be thinking 
of things like that in America. Thank you for listening to me.
    Chairman Whitehouse. I'm always glad to listen to you. And 
I would simply say that I don't think we have to look as far as 
either British Columbia or across the Atlantic for models of 
how to do healthcare reform. I think the accountable care 
organizations from the Obamacare bill, I think the Center for 
Medicare and Medicaid Innovation (CMMI) work that is going on, 
we have really exemplary Accountable Care Organization (ACO) 
operating in Rhode Island.
    I suspect you have some very good ones in Iowa as well. And 
I think they can lead a transition to patient-centered care and 
away from the fee for service treadmill that we have seen, 
improve the quality of care and lower the cost per patient. So 
I think there are good bipartisan ways to proceed and I look 
forward to working with my ranking member.
    With that, our first witness is Dr. Marilyn Moon, a 
visiting scholar at the Center for Medicare Advocacy. She is an 
expert on healthcare financing and delivery with a particular 
emphasis on Medicare. She previously served as chair of the 
Maryland Healthcare Commission at the Congressional Budget 
Office and as a public trustee for the Social Security and 
Medicare Trust funds.
    She is a member of the National Academy of Medicine and is 
on the board of the Medicare right center. After she has made 
her statement, we will hear from Ms. Chye-Ching Huang, who is 
executive director of the Tax Law Center at the New York 
University School of Law.
    Before starting the Tax Law Center, Ms. Huang was senior 
director of economic policy for the Center on Budget and Policy 
Priorities, where she worked on the analysis and design of a 
wide range of Federal tax, fiscal, and economic policy 
proposals in collaboration with tax, academics, practitioners, 
analysts and advocates.
    We're also joined by Mr. James Capretta, a senior fellow 
and Milton Friedman chair at the American Enterprise Institute. 
He has also served as a senior advisor to the Bipartisan Policy 
Center and previously served as an associate director at the 
Office of Management Budget and senior analyst for the Senate 
Budget Committee and House Ways and Means Committee.
    I welcome you all. Your full testimony will be made a 
matter of record. So if you could confine yourself to the five 
minutes for your opening statements, I'd be grateful. And then 
we'll have a chance for the members to ask questions. Ms. Moon, 
you may proceed.

   STATEMENT OF THE HONORABLE MARILYN MOON, VISITING SCHOLAR 
CENTER FOR MEDICARE ADVOCACY, AND FORMER PUBLIC TRUSTEE OF THE 
          MEDICARE AND SOCIAL SECURITY TRUST FUND \4\
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    \4\ Prepared statement of Hon. Moon appears in the appendix on page 
41.
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    Dr. Moon. Thank you. Medicare represents one of our most 
successful Federal programs, helping seniors and persons with 
disabilities afford mainstream medical care. Sustaining it over 
time deserves careful attention to protect the valuable 
services it provides. Since Medicare's inception, life 
expectancy at age 65 has risen by over 19 years as people have 
achieved access to life-saving care.
    And Medicare has substantially held down the cost of what 
people would otherwise pay for this care. Medicare spending per 
capita was over $15,700 in 2022, an amount that totals 53% of 
the median income of persons 65 and older. Low and moderate 
income persons would never be able to afford the type of 
mainstream care that they enjoy today, if not for Medicare.
    While the increase in cost of the program is often cited 
with alarm, in many ways, these costs signal Medicare's 
substantial success. Americans are living longer and receiving 
better care. Seeking ways to make the program function better 
and adopting new approaches to provide good care at lower cost 
certainly needs to be part of any discussion of Medicare's 
future. However, while substantial cost cutting over the last 
30 years has meant that Medicare has grown at a slower pace 
than private health insurance, this cost cutting also means 
that Medicare has lagged behind coverage to many working 
Americans.
    Medicare is not an overly generous program, and the 
substantial costs of healthcare not covered by Medicare remain 
daunting for many. Further limitations on coverage or 
reductions in provider payments could leave even more 
beneficiaries at risk. And policy debates should keep this in 
mind.
    Indeed, there are strong arguments to be made for 
increasing benefits. Proposals to further cut benefits via 
increased premiums or cost sharing would exacerbate the 
inadequacy of the program. And premium support proposals and 
raising the age of eligibility are efforts at cost cutting that 
sometimes seem more benign, but can result in substantial 
increases in burdens on beneficiaries and increases in 
inequality and problems with access to care.
    Thus, rather than focusing on further belt tightening as 
the means for keeping Medicare financially strong, it is 
important to consider additional sources of financing. Premiums 
and cost sharing, and the impact of taxes that finance Medicare 
mean that many older and disabled Americans are already paying 
substantial shares of their incomes for the cost of their care.
    First, consider how much individuals pay out of pocket. A 
new study has found that it is over $6,500--substantially 
higher than what non-Medicare beneficiaries pay and a 
substantial share of the resources of moderate income 
beneficiaries.
    In addition, the common view of Medicare is that younger 
taxpayers fund most of the program resulting in 
intergenerational burdens, but in fact, beneficiaries also 
contribute substantially to the taxes that fund the program. 
And these contributions have been growing over time.
    After many years of Americans retiring early, more people 
now work past the age of 65 and contribute more to both income 
and payroll taxes. And the share of these taxes paid by persons 
over age 65 have increased. Seniors now pay about one-third of 
the income and tax revenues that go into financing Medicare.
    And if premiums and copays are included, seniors are 
responsible for 41% of the costs of the Medicare program. To 
ensure stable future financing for Medicare, payroll taxes and 
personal income taxes likely need to be increased. For example, 
some approaches would include expanding personal income tax 
revenues to funding for part A.
    Among these options, explicitly targeting those with higher 
incomes for revenue increases would better protect modest 
Medicare beneficiaries. For example, the Biden administration 
has proposed raising the rate that higher income persons now 
must pay under current law to 5% on those with incomes above 
$400,000.
    Expanded contributions from those with higher incomes can 
be justified on a number of grounds, although the cap on wages 
subject to tax was eliminated a number of years ago, burdens on 
higher income individuals are still substantially smaller than 
on middle income taxpayers because higher income people receive 
a much greater share of their incomes from sources other than 
wages and salaries.
    A commitment to maintaining Medicare over time deserves 
nothing less than taking a serious look at financing issues. 
Thank you.
    Chairman Whitehouse. Thank you very much, Dr. Moon. Ms. 
Huang, please proceed.

  STATEMENT OF CHYE-CHING HUANG, EXECUTIVE DIRECTOR, TAX LAW 
         CENTER, NEW YORK UNIVERSITY SCHOOL OF LAW \5\
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    \5\ Prepared statement of Ms. Huang appears in the appendix on page 
50.
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    Ms. Huang. Chairman Whitehouse, Ranking Member Grassley, 
and distinguished members of the committee, I'm honored to join 
you today. The tax base is the foundation for the Federal 
budget and it supports the nation's priorities like social 
security, defense, education, and healthcare, including 
Medicare.
    But our Federal tax base isn't broad enough to ensure the 
most solid financial footing for Medicare and other national 
priorities for generations to come. Some income from vast 
fortunes is completely carved out of the Federal income tax 
base and goes untaxed over decades, lifetimes, or generations.
    Large multinationals can still report profits offshore so 
that they're subject to little or no US tax. And a raft of 
other loopholes and preferences shrink the tax base and attract 
tax avoidance and evasion instead of productive investment 
innovation and work.
    An example that directly hurts Medicare and the other trust 
funds is that gaps in the Medicare taxes mean that some high 
income business owners don't have to pay into the system in the 
same way that workers and other business owners do, but they 
can instead avoid hundreds of billions in taxes.
    The tax base is also weakened by a stark Federal tax gap. 
More than half a trillion dollars of taxes owed under the law 
just aren't paid each year. So don't contribute to important 
national programs. And some $100 billion of that amount should 
have been paid directly into the Medicare social security and 
Unemployment Insurance (UI) trust funds, but wasn't.
    So while I just mentioned that some business owners take 
advantages of loopholes in the law to avoid owing any Medicare 
taxes, other filers are just not paying the taxes that the law 
says that they do owe.
    Sometimes that can be because filers try to undertake 
aggressive but lawful tax avoidance and in doing so, step over 
the boundary into unlawful tax evasion. So for example, the IRS 
has been taking a really close look at certain hedge fund 
owners and private equity managers and other wealthy business 
owners that they say have been unlawfully underpaying hundreds 
of millions of dollars in self-employment contributions each.
    So where do we start to broaden the Federal tax base and 
shrink the tax gap? Here are three ways. The first is by 
rejecting proposals that are on the table right now, but would 
increase tax cheating and shrink the tax base. That means 
maintaining IRS discretionary and mandatory funding. Cutting 
the IRS budget even more deeply than agreed to in the debt 
ceiling deal would hurt deficits, hurt honest filers, and 
benefit tax cheats. It also means rejecting proposals to weaken 
new information reporting tools that help the IRS find and 
focus on tax evasion. And it means building on rather than 
reversing the corporate base broadening that was enacted in 
2017.
    For example, the stronger limit on interest deductions 
claimed by large businesses should be retained. It helps reduce 
the tax systems tilt towards debt financing. But if law makers 
do choose to weaken some of the 2017 laws based broadens, the 
cost should be offset with tax increases on corporations. 
Second, lawmakers can address the three big areas of the tax 
base that need attention.
    Income from large fortunes that never gets taxed, tax 
subsidies on multinationals foreign profits, and the complex 
and patchy taxation of pass through entities. A really good 
example of a priority in that pass through entity area is 
closing those loopholes in the Medicare taxes and sending the 
revenues directly to the trust funds. Third, lawmakers can 
choose from a broad menu of other options, large and small to 
broaden the tax base.
    One would be further strengthening the Bipartisan Corporate 
Transparency Act that I know many members on this committee 
helped to lead and secure. Stopping cryptocurrency traders from 
gaming the timing of their tax losses, and reducing tax 
compliance--tax non-compliance in the market for expensive art.
    The Tax Law Center has proposed or analyzed several dozen 
options to broaden the tax base. And they are linked too in my 
testimony. Law makers of both parties, including members of 
this committee, have often looked to base broadening as an 
economically sound way to raise revenues and improve the 
fairness and integrity of the tax system. And there continue to 
be really good options in this space. Lawmakers can choose the 
revenues to use the revenues to protect Medicare and other 
Federal priorities from cuts that would cause families 
hardship, to reduce long-term deficits and to make new 
investments that would raise health and living standards and 
help build an economy that is dynamic, inclusive, and 
resilient. I would be so happy to take your questions.
    Chairman Whitehouse. Thank you very much Ms. Huang. And now 
Mr. Capretta the floor is yours.

   STATEMENT OF JAMES C. CAPRETTA, SENIOR FELLOW AND MILTON 
       FRIEDMAN CHAIR, AMERICAN ENTERPRISE INSTITUTE \6\
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    \6\ Prepared statement of Mr. Capretta appears in the appendix on 
page 67.
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    Mr. Capretta. Thank you, Mr. Chairman. Thank you Ranking 
Member Grassley and other members of the Committee. I'm very 
pleased to be here to have this conversation with you today. 
The headline focus of today's session is the impending 
depletion in the Medicare Hospital Insurance Trust Fund. Given 
the potential harm that exhaustion might cause, that is of 
course, a very important matter for Congress to take up as soon 
as possible.
    But the imbalance between Hospital Insurance (HI) spending 
and outgo is actually a manifestation of a larger problem, 
which is the widening gap between Medicare's total costs for 
both HI and supplementary medical insurance to pay for both 
trust funds expenses.
    As I show in my testimony in figure 1, data for all of 
Medicare's costs and receipts from the 2023 trustees reports 
shown as a percentage of gross domestic product show that there 
is a rapid growth in spending across the years. In 1990, total 
program spending equaled 1.9% of Gross Domestic Product (GDP), 
three decades later it had reached 4% of GDP.
    And the Medicare trustees expect it will reach 4.9% of GDP 
in 2030 and 6% in 2050. Related to this is the very large 
increase in general fund transfers to Medicare over time. These 
are the amounts that come out of the general fund of the 
Treasury uncapped, and really unregulated in any way that go 
into the SMI trust fund to cover any expenses not covered by 
premiums.
    This is not a well-known part of the program, but it is 
very important. Over the next 10 years alone, $6.6 trillion 
will come from the General Fund of the Treasury into Medicare. 
By 2050. The annual transfer will equal 2.8% of GDP up from 
0.5% in 1990. So that shows you how much growth there has been 
in this part.
    For Medicare, the trend is what is most alarming. Going 
forward as population ages the unfunded liabilities of Medicare 
measured--in this context measured as any spending above and 
beyond the taxes and premiums collected. The Treasury 
Department does a calculation of this every year. It's now at 
about $52 trillion over the infinite horizon.
    Okay. It is a big number. But I think the thing to focus on 
is it is gone up a lot even in the last 7 years. It is when--
2016 it was $20 trillion less. So this number of sort of trying 
to assess where we're going with Medicare keeps worsening and 
worsening and worsening over time. And it is related to, 
obviously a lot of it has to do with population aging.
    So there is a big challenge ahead. Just real one last point 
on the big picture here. This is all wrapped up in a fiscal 
challenge that continues to worsen very rapidly and really does 
deserve the attention of the Congress in the near term. Right 
now the deficit is scheduled to be close to $2 trillion this 
year.
    By 2050, just to put this in context, in 1980, let me go 
back in time. Spending on Social Security and Medicare were 
5.5% of GDP in total. In 2050 they're scheduled to be 13.1% of 
GDP. So there is just been a fundamental transformation of our 
fiscal situation associated largely with this. And of course, 
CBO projects that by 2050 mostly related to this question, 
Federal debt is on track to go to 170% of GDP.
    So, you know, there is some big things ahead if some 
corrections aren't put in place. Now--what--what I recommend, I 
have seven, I'm going to go through them real quick in my last 
minute. First, I would very much recommend that this be both a 
revenue and a spending side of the equation discussion.
    And that it be bipartisan that that will bring more 
stability to the program over the long term if there is wide 
agreement about how to finance the program and try to make it 
as efficient as possible. Second, I would try to move toward a 
single insurance benefit instead of the fragmented benefit we 
have today. Today we have A, B, and D.
    It'd be better if you designed a single insurance benefit 
going forward, much like people experience in the non-Medicare 
market. I'd improve this choice structure for the beneficiary. 
So it is much clearer what they're picking when they sign up 
for their various coverage options. Today, it is a very 
confused and fragmented choice structure that is been set up 
for them. They often have to rely on brokers. I promote premium 
competition between the private side of Medicare and Managed 
Medical Assistance (MMA) plans and the traditional program, and 
also competition amongst the providers in terms of the prices 
they're charging.
    Last two quickly, Mr. Chairman, I would reform the trust 
funds so that they are reflective of the combined program. 
Instead of having an A and B side that can add to confusion 
about the financing.
    And finally, I'd build in some automatic adjustments so 
that once you make a deal that deal sticks over time through 
other adjustments that might be necessary to keep it always 
permanently stable. Thank you.
    Chairman Whitehouse. Thanks Mr. Capretta. Ms. Huang, you 
mentioned in your testimony that for instance, private equity 
managers can avoid paying into Medicare by structuring their 
income. How do they do that? What is the trick?
    Ms. Huang. Yeah. So I mean, I think it is really important 
that the vast majority of Americans do in fact contribute to 
Medicare by taxes, either on in--on income from their work or 
from their businesses. And the problem is that some of these 
wealthy filers can avoid those taxes just by using a loophole 
that exempts income made from various types of pass through 
entities used to own businesses.
    And those are entities of the sort that certain hedge fund 
and private equity managers use that invites hundreds of 
billions of dollars of wasteful tax avoidance. And as I 
mentioned, some of that tax avoidance gets so aggressive that 
it arguably becomes tax evasion, because people are just not 
paying what they're lawfully supposed to.
    Chairman Whitehouse. It is a fairly expensive proposition 
to set up all those pass through entities to enable that. So 
presumably we're talking about very high income people who 
embark on this strategy?
    Ms. Huang. Indeed. And--and I--I think the estimates are 
that closing this loophole would raise more than $300 billion 
and some 85% of that would come from people with incomes above 
a million dollars a year.
    Chairman Whitehouse. Mr. Capretta, you mentioned, the need 
to revisit the taxes used to pay for Medicare and the need for 
new revenue. On the revenue side, what would you recommend? 
Your mic.
    Mr. Capretta. I have a little bit of a historical 
perspective on this, which is that when Medicare was created, 
it was in a sense an addendum to social security with a payroll 
tax. And the--the idea was that this was going to be, in a 
sense, contributions from workers at least partially paying for 
Medicare through their payroll tax contributions. I think 
breaking from that entirely and having a very different revenue 
stream into Medicare is possible. I'm not ruling it out.
    Chairman Whitehouse. What--what would you recommend, 
though? My time is short, so I'm trying to get----
    Mr. Capretta. I'd recommend------
    Chairman Whitehouse [continuing]. If you've got a 
recommendation.
    Mr. Capretta. I'd recommend a straight increase in the 
payroll tax, which would generate a fair--a fair amount of 
revenue.
    Chairman Whitehouse. And how about the people who are 
dodging the payroll tax through mechanisms like Ms. Huang just 
described. Should we reach out to them?
    Mr. Capretta. I'm not against--I'm not against closing----
    Chairman Whitehouse. You're not here to defend that 
behavior?
    Mr. Capretta [continuing]. Loopholes. I'm not against 
changing. I think some of that to address income inequality 
might be best addressed outside of Medicare, but I'm not 
against any reasonable way to look at making sure the tax base 
is fair.
    Chairman Whitehouse. So you also have nice things to say 
about ACOs, accountable care organizations. Indeed, you 
recommend them as a new coverage option. I'm a big fan of ACOs 
because I've seen them succeed spectacularly in Rhode Island, 
reducing costs, sending millions of dollars back to Medicare 
and causing somewhere between relief and joy through the 
patient population because of the new services that are enabled 
when doctors are freed from the fee for service treadmill. But 
what are your reasons?
    Mr. Capretta. Very similar to yours. I would say that 
Medicare would benefit greatly from a provider run managed care 
plan option.
    Chairman Whitehouse. Yeah.
    Mr. Capretta. That there is sort of a distrust sometimes 
with insurance led managed care and a provider led managed care 
option that was robust and people could opt into and not just 
be placed in, I think would be a benefit to the program.
    Chairman Whitehouse. Yeah. And our experience for what it 
is worth in Rhode Island has been that what's really worked has 
been when a primary care provider group does this on its own. 
The more different influences you add, the more it slows down 
and bogs down. But some of our best primary care providers 
chose early on to go this route, and they really have made--
made us very proud.
    Let me put it that way. Dr. Moon, let's just say we don't 
get this squared away. We don't do something bipartisan. We 
don't do something that lowers costs and raises revenues, and 
we hit the 11% hit to the system from the predicted cash 
crunch. What does that look like to a senior?
    Dr. Moon. I think it looks like pretty much like disaster 
to a senior. A large number of moderate income seniors whose 
incomes are between, say, 200% and 400% of poverty simply would 
do without a lot of care because they could not afford 
additional costs that they would have to incur.
    The other problem is who would be providing the services if 
there were big cuts in payments to providers? More people might 
opt out of the system who are providers of care. One of the 
benefits of Medicare over time has been that almost all doctors 
and hospitals participate in the program making it assured that 
people will get mainstream care when they need it. And that is 
something I think we do not want to even contemplate putting at 
risk.
    Chairman Whitehouse. Thanks very much. Senator Grassley.
    Senator Grassley. Thank you.
    Chairman Whitehouse. And then just for everybody's 
awareness, the order after Senator Grassley is Senator Padilla, 
Senator Johnson, Chairman Wyden, and Senator Scott.
    Senator Grassley. Mr. Capretta I mentioned in my opening 
comments, and I think the Chairman agrees that this has to be 
done in a bipartisan fashion. And with a whole range of options 
on the table. Too often Democrats claim that Republicans want 
to cut Medicare every time we mention the troubles facing the 
program.
    So Mr. Capretta Democrats have a record of proposing and 
enacting Medicare cuts. I've already mentioned some in my 
statement. I'd like to have you elaborate if you agree with my 
statement.
    Mr. Capretta. Well, both parties, I would say, have 
sometimes put Medicare changes on the table. They have reduced 
spending. You can call them cuts of course. And, you know, in 
the Affordable Care Act (ACA) there--there was a very 
substantial change in particularly for inpatient hospital 
services, something called a productivity adjustment factor.
    Which is still in place and permanent and has a very large 
cumulative effect on spending. So I think many people view it 
as a good thing because it is brought down hospital spending 
quite a bit. The question is, is it sustainable over the long 
run?
    We're relying very heavily on it to keep the numbers down, 
but it may--the actuaries are always warning that it might be 
overdone.
    Senator Grassley. Under Medicare for all Mr. Capretta, what 
happens to provider reimbursement rates and how would that 
affect care, particularly in rural America?
    Mr. Capretta. Well, Medicare for all, I think needs to be 
viewed for through a political economy lens. How does it get 
managed over time? You know, and it is very easy to, when 
you're facing a budget crunch, just to pay people less. And of 
course, when you pay providers less, eventually there is supply 
changes.
    That means fewer providers actually provide the services at 
the lower rates. That is how you end up with queuing problems. 
So I do think that our multi-payer system, much as we dislike 
many aspects of it, keeps open revenue streams that makes it so 
that providers are not dependent on any one player to make sure 
they can serve patients. And so I think we--we shouldn't move 
away from that.
    Senator Grassley. We always hear this business about 
raising taxes on the rich. During President Obama's tenure, 
rich was arbitrarily defined at $200,000. So as part of 
Obamacare, Democrats enacted three and eight-tenths percent net 
investment tax on--at these thresholds, but didn't index them. 
Knowing it would eventually hit middle income taxpayers.
    Since its enactment, the number of taxpayers hit by this 
money grab have more than doubled from 3 million to 7 million. 
Now they're proposing to quadruple the tax and claim it'll only 
apply to 2% of the taxpayers. So you can understand why I'm 
skeptical about that statement. Mr. Capretta, much like three 
and eight-tens percent tax enacted on Obamacare, wouldn't the 
number of taxpayers affected by this supercharged tax increase 
over time capturing more than 2% of the taxpayers?
    Mr. Capretta. If you don't index the income threshold upon 
which a tax is applied of co--over time, the nominal value--the 
real value of those thresholds, of course erode due to 
inflation. So we've had bracket creep the--in the past in our 
tax system, and it is sometimes it is sustainable and sometimes 
not, depending on what is going on. There usually is eventually 
some pushback on it.
    Senator Grassley. Yeah. President Biden's Medicare proposal 
and President Obama's Affordable Care Act both double counted 
Medicare revenue. So Mr. Capretta, these are obviously 
underhanded gimmicks in the budget. How does this impact 
Federal deficits and debt?
    Mr. Capretta. Well, I--I do think this is an under-reported 
phenomenon, which is when you include on the Pay As You Go 
(PAYGO) scorecard, Medicare savings and HI in particular, you 
can end up double counting it. It can make the solvency of 
Medicare improve, which allows higher payments for Medicare 
down the road.
    And it also could be used to finance another bill, you 
know, through the PAYGO scorecard. So I think there--what we 
should try to avoid when we're working on Medicare solvency is 
taking credit for it on both sides of the budget. Especially, 
you know, a lot of times it is not big enough to make a real 
big difference, but Medicare's big. And so when you put a lot 
more money into Medicare and then also claim you can spend it 
under PAYGO for something else, that is when you end up with a 
problem.
    Senator Grassley. Thank you, Mr. Chairman.
    Chairman Whitehouse. Thank you. Senator Grassley. Senator 
Padilla, followed by Senator Johnson.

                  STATEMENT OF SENATOR PADILLA

    Senator Padilla. Thank you, Mr. Chair. Just want to remind 
us that during last week's hearing, several of our colleagues 
discussed the impact of the American Rescue Plans expanded 
child tax credit. It was nothing short of striking that the 
national child poverty rate hit a record low of 5.2% in 2021.
    And that included a decline in the rate of Hispanic 
children from 14.7% in 2020 to 8.4% in 2021. That is something 
I think we're all proud of, both sides of the aisle. Recent 
census data shows however, that many of these families stood 
back into poverty upon the expiration of the expanded child tax 
credit.
    Now I can't help but notice that a lot of the Republican 
proposals for spending suggest delaying or reducing benefits 
that have been earned and are meant to be retirement security 
for older Americans. The poverty rate amongst US seniors 65 and 
older is already nearly doubled that of the Organisation for 
Economic Co-operation and Development (OECD) average in just 
three countries have worse income inequality among this age 
group.
    Question for Dr. Moon. What are the expected impacts of 
these proposals to cut Medicare on senior poverty rates and 
inequality?
    Dr. Moon. Thank you. I think that the important thing to 
keep in mind here is that older and disabled Americans are like 
all the rest of the population. That is, there are some who 
have very modest incomes and some who have much more 
substantial incomes.
    But the number of seniors who rely upon Medicare and Social 
Security to a massive degree, is much higher than many people 
appreciate. And for those with moderate incomes not very far 
above the poverty level, because our low income protections for 
seniors are not that generous, this is a real potential burden.
    They're already paying a substantial amount, often more 
than a quarter of their incomes for their healthcare costs, for 
example. And further cuts in the Medicare program or further 
requirements for them to pay more would have a substantial 
impact.
    It doesn't always show up in terms of the formal poverty 
rates because we base that on--on income and not on Medicare. 
But people who look at the in-kind contributions that are made 
in alternative measures would often note with alarm what would 
happen, if you were to, for example reduce spending on 
Medicare.
    Senator Padilla. Thank you. Now, unsurprisingly, a lot of 
our Republican colleagues are focusing on cuts, cuts, cuts 
across the board. And the budget in Medicare is no different. 
Focusing on cuts to benefits, cut--cuts to coverage and cuts to 
access. When I believe what we should be discussing is ways to 
preserve and build on Medicare's many successes.
    Now, efforts to strengthen Medicare and save on costs don't 
have to be mutually exclusive. For example, the Collaborative 
Care models is an evidence based and cost-effective strategy 
for treating common behavioral health problems in primary care 
that remains underutilized. About 1 in 4 Medicare beneficiaries 
live with mental illness.
    I mean, that is the population at large. But only 40% to 
50% receive treatment. It is also more pervasive in 
beneficiaries from American Indian, Alaska, Native, and 
Hispanic communities. Now, the President's fiscal year 24 
budget laid out a plan to extend the life of the Medicare Trust 
Fund, while also lowering costs for mental health services.
    And specifically, it eliminated cost sharing for some 
mental and behavioral health visits and required parody between 
physical health and mental health coverage under Medicare. We 
knew mental health was a crisis before the pandemic.
    It is only been exacerbated and spotlighted by the 
pandemic. And since Dr. Moon, how have these cost cutting 
debates influenced the scope of Medicare coverage, including 
for mental health services?
    Dr. Moon. I think that mental health is a good example, 
like a number of other benefits that have often been 
underappreciated. Home health was one of them for a long time. 
Hospice care is another example. And often in a zeal to cut 
costs, the notion is if we expand the services that are offered 
there will suddenly be abuse and costs will go up.
    Rather than thinking about what the appropriate way to 
provide care is. I think that reforms that are aimed at 
improving the quality of care by making it the right care at 
the right time always makes sense and should always be an 
effort.
    And I think mental health would be one of those things. 
What you want to be very careful about is not doing--assuming 
that there are cost cutting that is less careful in terms of 
protecting the things that need to be protected.
    Senator Padilla. Yeah. Thank you. And if I heard you let me 
sort of rephrase for the folks back home, just as with physical 
health treating mental health in emergency room settings is not 
the most cost effective approach.
    Dr. Moon. I totally agree with that.
    Senator Padilla. Thank you, Mr. Chair.
    Chairman Whitehouse. Thank you Senator Padilla. Senator 
Johnson.

                  STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Hey, Mr. Chairman. Had I not read my 
schedule, I would've thought maybe this hearing would've been 
titled Our Broken Tax System. Which by the way, anytime we have 
the Chairman of the Finance Committee, anytime you two want to 
sit down and work to simplify and rationalize our horribly 
complex and broken tax system, I'm--I'm all in.
    But this is hearing on Medicare and unfortunately, you 
know, I think Mr.--the--the Chairman and so many Democrats are 
pretty much one trick ponies. Whether the social security, 
whether it is Medicare, the only solution is increasing taxes. 
Which again, I don't think we ever generate the revenue by 
increasing taxes because it harms economic growth.
    From my standpoint, if you're looking at how to fix 
Medicare, you've got to look at the root cause of problem. And 
I would argue the root cause of problem is the cost of 
healthcare. You know, why is it so grossly expensive? You know, 
and out of whack with other nations?
    There are many reasons, but I would argue we have largely 
removed the benefit of free market competition out of 
healthcare across the board. And again, I come from the private 
sector. I--I didn't like competition. I would love to have been 
a monopolist because--but because I had to compete, my prices 
were a lot lower, my quality was a lot higher, as well as my 
level of customer service was a lot higher.
    That is what a functioning free market system does. 
Unfortunately, in healthcare, only about 10 cents of every 
dollar is paid by the patient and 90 cents is paid by somebody 
else. And so we have no idea what anything costs. There is--
there is really no consumerism involved. There is not cons--
consumers making wise choices and, you know, calculating what--
what something costs versus what the benefit is.
    So, Mr. Capretta, you did in your testimony mention three 
forms of competition. You said choice, you talked about premium 
competition, you talked about provider competition. I mean, 
would you basically agree with my--my assessment there that the 
root cause of this is we need to interject the benefits of a 
competitive marketplace into healthcare. And that is what we 
ought to be talking about here.
    Mr. Capretta. The answer is yes. But it is complicated as 
you know, which is why it hasn't been done. The--in healthcare, 
I think it is important to understand there has to be some 
structure. There are some market failures in healthcare.
    I wrote a book recently maybe I'll make a plug for it. US 
Health Policy in Market Reforms and Introduction. Kind of 
covers the, you know, as an introductory matter, sort of 
different things that need to be done to bring more discipline 
from the marketplace into the health system. It can't be done 
though just by deregulation on its own.
    It has to be structured so that the person who is making a 
choice can see very clearly a price difference based on the 
same insurance plan or the same medical service. So that means 
in the, you know, in the insurance context, standardization of 
the benefits so that the premium difference is very clear.
    Senator Johnson. Let me quickly interject. I think also you 
need to separate healthcare costs in terms of the catastrophic 
costs that need insurance and the non-catastrophic that people 
could pay for out of their pocket. I think, you know, if we 
could separate that in some way, shape, or form as opposed to 
paying for everything. I have limited time.
    I also want to talk about figure 1. You talked about the 
fiscal challenge. I would call it a fiscal crisis. You know, it 
is a slow moving train running right at us and it is, you know, 
Washington DC is not addressing it. We're, as you said, about a 
$2 trillion deficit this year.
    We're spending $1.9 trillion more this year than we did 
just four years ago. And your figure 1 is pretty stark showing 
that about half of Medicare costs are going--going to be 
provided by the general revenue fund. That we're going to have 
the same problem with Social security. The trust fund runs out.
    If we're going to plus up those benefits, we're going to 
need revenue out of the general fund. And I--the question I 
have is will we have the financial wherewithal to plus up those 
benefits. To, you know, meet the requirements of what Medicare 
is going to need in terms of financing? And that start--starts 
to speak to prioritization of spending.
    We used this committee for climate change and the budget. 
You know, talking about--by the way, in testimony over $5 
trillion has been spent globally combating climate change. I 
would argue it--it obviously, hasn't made a dent because we 
still have climate change alarmists. $5 trillion!
    In the Inflation Reduction Act, another $1.2 trillion 
according to Goldman Sachs study, is what is going to be spent 
because of that piece of legislation. You know, we need to 
start prioritizing what limited resources we have to the 
priorities of government. And again, I would say Social 
Security, Medicare, those promises we made to seniors would be 
top priorities.
    And maybe these green energy boondoggles that are not going 
to fix climate change would probably be a lower priority for 
spending. Would you like to comment on that?
    Mr. Capretta. No, I don't think so. I don't--I'm not an 
expert on the climate----
    Senator Johnson. Okay. Set aside climate change. Just in 
terms of we need to get our arms around these massive deficits, 
this massive debt, or we're not going to have the financial 
wherewith. We'll have a debt crisis and then--then this all 
comes crashing down; correct?
    Mr. Capretta. I do think we are headed towards some major 
dislocation if we don't get fiscal discipline into our budget 
process. So I would very much recommend on a bipartisan basis 
that both sides get together and start working through some of 
the challenges of getting the debt down, deficits down.
    So we don't pile up as much as we're projected to in the 
coming decade. And certainly over the coming 30 years. It is 
really a very big problem, and it is going to require both 
taxes and spending.
    Senator Johnson. But also prioritization of spending. Okay. 
Thank you Mr. Capretta. Thank you Mr. Chairman.
    Chairman Whitehouse. Thank you, Senator Johnson. Now we 
turn to the distinguished Chairman of the Finance Committee who 
has spent more time fighting for seniors, and I think hardly, 
almost anybody in Congress going back to his early Gray Panther 
days in Oregon.

                   STATEMENT OF SENATOR WYDEN

    Senator Wyden. When I had a full head of hair and rugged 
good looks. Thank you Mr. Chairman, and good to be working with 
my colleagues. See a number of members from the finance 
committee. Colleagues, the fact is the ultra-wealthy can fire 
off a text to their accountant and say, make sure I don't pay 
income or payroll taxes this year.
    And they go on and say, what kind of tax workarounds can 
you get me so I don't have to pay those taxes? And the fact 
that these schemes are legal, underline, legal, highlights the 
fact that if the ultra-wealthy paid their fair share of taxes, 
there wouldn't be such a serious Medicare shortfall.
    And you contrast what I just described, which can happen 
every day, be illegal to older Americans who worked hard all 
their lives, paid their fair share of taxes year in and year 
out, didn't have accountants who get them this special deal, 
and those older Americans are now staring down the barrel of a 
serious Medicare shortfall uncertainty.
    And I'm all in colleagues on transformational Medicare 
reform. Before he retired, Chairman Orrin Hatch of our 
committee and I joined in a landmark kind of reform that I'm 
going to ask you about in a minute, Ms. Moon. But I want to 
start with a question on the revenue side. A proposed 
colleagues as chairman of the finance committee, a menu of 
ideas for colleagues to choose from.
    A menu. Not I'm going to require you do this and this. The 
menu includes; wealthy partnerships paying their fair share. 
Back when I was coming up, partnership were a couple people who 
ran a sporting goods operation. That is not these big 
partnerships now.
    The billionaires paying their fair--close--fair share, 
closing the self-employment, you know, loophole and more. This 
seems fair to me and it sure will strike the millions of 
working Americans who pay taxes day in and day out. Those taxes 
are collected on them and they don't have all these breaks.
    Ms. Huang, what do you think? What are your thoughts with 
respect to something that is fair? And by the way, gives 
everybody in America the chance to be successful. We want 
people to be successful, we just want everybody to do it. Your 
thoughts?
    Ms. Huang. Completely agree that there is a--a wide menu of 
really economically sound ways to broaden the tax base. And,--
and we have our own, you--you have yours. There is a lot to 
choose from there.
    But let's start with the one where if I were to get the 
text message from my multi-billionaire client about how I can, 
you know, spend all I want this year without paying any taxes, 
well the first thing I would do is look at that billionaire's 
$100 billion worth of stock and say, well, why don't you just 
take out a credit line against that stock?
    You can--you can borrow $10 billion, put that stock up as 
collateral, spend it on whatever you want, and you won't be 
facing any capital gains tax or income tax on that. So that is 
income that doesn't ever see the tax system or the tax returns 
in the year that it is made or in the year that it is spent. 
And that is one of the biggest holes in one of the first places 
I would be looking to make the tax system fairer.
    Senator Wyden. Okay. A--as you know, our theory is give 
everybody in America a chance to get ahead. And that is what 
the menu's all about. Now, let's go to transformational change 
Ms. Moon, and thanks for all your good work. Before he retired, 
the late Orrin Hatch and I said, Medicare today is not the 
Medicare we had when we were coming up.
    It is mostly about chronic illness, cancer, diabetes, heart 
disease, strokes, and not just acute care. And a very large 
percentage of seniors has two or more of these conditions. So 
Chairman Hatch and I wrote what I think is a transformational 
update of the Medicare guarantee. It is not a voucher, it is a 
guarantee, that we'll use reforms like telemedicine.
    We'll use simple preventive steps. Colleagues, you want to 
help seniors, let's get grab bars in showers, costs a few 
dollars, seniors save untold injuries and costs. Those are the 
kinds of reforms that make sense, that update the Medicare 
guarantee.
    So we've talked about revenue, Ms. Moon, you've been one of 
our leading authorities. Chronic illness is what Medicare today 
is all about, wasn't--it was acute care when I was coming up. 
Your thoughts?
    Dr. Moon. I think you're absolutely right.
    The Medicare program has not changed with the times in that 
way. It is changed in a number of ways that have improved. But 
I think part of the problem has been that when new ideas come 
along, the fear is you're just going to add that on and it is 
going to be another add-on to the cost.
    And so there is a reluctance to do it. On the other hand, 
one way that people often talk about is, well then let's turn 
it over to the private sector and just give them an amount of 
money and let them decide. That solution hasn't worked very 
well either because we have not had the kinds of oversight and 
controls.
    There are very good Medicare Advantage plans out there, for 
example, that serve the needs of the people that they function 
for. But there are others that are in it just for making money 
as in--as good insurers. And I can tell them exactly how to do 
it and they know how to do it very well and they--they're very 
successful at it. But it hasn't necessarily improved our 
healthcare system.
    Senator Wyden. I'm--I'm--I'm glad you made that--that point 
because not all Medicare advantage plans are created equal. And 
I think, you know, the Senate Finance Committee, and we've had 
a number of colleagues here, has been leading the fight to 
crack down on those abuses. I know my time is expired, but 
thank you for the kind words about the new focus on chronic 
illness because I think dollar for dollar was some very small 
investments in prevention. We can get big savings. Thank you. 
Thank you, Mr. Chairman.
    Chairman Whitehouse. Thank you. Next is Senator Scott, but 
before his clock starts, I just wanted to add 30 seconds of 
chairman time to point out that things like grab bars in 
showers are the very kind of things that doctors in ACOs are 
able to arrange for their patients because it makes sense and 
creates savings when they install those kind of things.
    We have had our doctors in Rhode Island who do this. Do 
things as simple as make sure rugs are non-slip in people's 
houses in order to save money for the system, keep people 
healthier, and do their work better. So with that observation, 
let me turn it over to Senator Scott.

                   STATEMENT OF SENATOR SCOTT

    Senator Scott. Thank you, Chairman. You know, when the--it 
is interesting that Senator Wyden brought up the idea that 
there is rich that take advantage of the system. Joe Biden and 
his wife actually did that.
    They--they took money from income that should--that they 
should have paid Medicare tax on, they put into a S Corporation 
so they could take money that they--from paid speeches and 
books put in there so they didn't pay the 3.8% Medicare tax 
under the Affordable Care Act.
    And that is something that it clearly ought to be fixed. 
Because that is--it is--it is clearly unfair that--that people 
are doing that. I have a--I think it is very important to every 
state, but clearly my state that we don't see a reduction in 
benefits for Social security and Medicare.
    So I have a bill that would stop that. Unfortunately, I 
haven't had the opportunity to get Chuck Schumer to--Senator 
Schumer to put on the floor, but it would be--it--I think none 
of us should be supporting it. And there is lots of ways to 
reduce the cost of delivery of healthcare. But one thing we 
shouldn't be doing is ever talking about doing anything to 
reduce the benefits of Medicare and Social Security.
    And I know Senator Johnson brought this up, if we don't get 
this budget under control, how is interest expense going to 
come down? So, Mr. Capretta what do you think? Do you think if 
we continue to run $2 trillion a year deficits the interest--
interest costs for not just us--not just for the Federal debt, 
but for buying a house.
    Mortgages are now up to a eight--almost 8% for a 30 year 
mortgage. Car interest rates are up to a 23 year high. I think 
credit card might be the highest ever. So if we don't get the 
budget in control, is our interest expenses going to come down?
    Mr. Capretta. No. According to CBOs, current projections, 
by 2050, the net interest payment on the accumulated debt would 
be 9.4% of GDP, which essentially means, you know--you know, 
every dollar that comes in, you know, half of what we're 
raising in revenue would basically be going toward net interest 
payments under current projections.
    So that is too much, obviously. And so well before 2050, 
we're--we're going to need some action by Congress, I think to 
kind of do both the revenue side and the spending side.
    Senator Scott. And is--is Medicare dependent--Medicare--
paying for Medicare depending on what, you know, how much money 
we have in revenues? So if we're going to spend it on interest 
expense or we're going to have less money to--to put it into 
Medicare?
    Mr. Capretta. Well, actually it doesn't quite work that 
way. I mean, the way the Medicare Trust fund, HI trust fund 
works is, at least in theory, if it ran through its reserves, 
the spending is going to be cut across the board probably. So 
that is one reason why this is such a big issue. And exhaustion 
of the trust fund is a concern. Now a lot of people think, 
well, that would never happen. Congress would step in and say, 
well, we're going to pay the benefits anyway and borrow the 
money. So in some sense, what CBO is projecting is we're just 
going to end up paying the Medicare benefits one way or another 
and have to borrow it from somewhere.
    And I think that is the cycle that we're in that needs to 
be thought through about how to get out of it.
    Senator Scott. So there is been a lot of proposals by 
Democrats to raise taxes to pay for Social security and--and 
Medicare. Medicare in particular. So right now, under part--
parts B and D, do the rich get subsidies? Are there--are 
there--are their payments subsidized? So like--like right now, 
if you make say, $500,000 a year, do you pay the full cost for 
part--part B and Part D?
    Mr. Capretta. Not yet. They do pay--they are starting to 
pay income related premiums, but they don't cover the full cost 
of the program yet. So no, they still get some subsidy. And 
that is in part because they, the--the people who wrote--wrote 
that provision wanted to make sure there is still large 
participation, even amongst--it is supposed to be a universal 
program, at least in theory.
    That everybody participates in, higher income and lower 
income. And so that is the theory behind giving at least some 
subsidy for B and D to the high income.
    Senator Scott. But--but just put it in perspective, they 
are subsidized?
    Mr. Capretta. Yes.
    Senator Scott. Okay. Do you know how many taxpayers make 
more than $500,000 a year? Like if we--if you're going to--if 
you're going to tax the wealthy, I assume that'd be over 
$500,000 a year. I don't know. Maybe it is $200,000. How many 
taxpayers are there?
    Mr. Capretta. Well, you might want to direct that to our 
tax expert here. I'm not sure I have that number at the top of 
my head, but it is going to be a small number relative to the--
--
    Senator Scott. How many--how many taxpayers make more than 
half a million dollars a year?
    Ms. Huang. Well, less than 2%.
    Senator Scott. Say--say again.
    Ms. Huang. Sorry. Did you--well, less than 2%.
    Senator Scott. So what is the number? So that make--how 
many--how many make less? Be less than 2 million, right?
    Ms. Huang. Somebody's got a calculator on them?
    Senator Scott. Yeah. It is less--it is less--less than 2 
million. How----
    Ms. Huang. 300 million--2.5 people per household.
    Senator Scott. Okay.
    Ms. Huang. 2% of that.
    Senator Scott. Okay. It is--it is less than 2 million. How 
much should their taxes go up? And what are they--what are they 
paying now? If they make--if--what's the average person that 
makes $500,000 a year or more pays? What are they paying now in 
taxes and what--what should it go up to--to make sure that, you 
know, there is never a cut in any program?
    Ms. Huang. Yeah, so I mean, like, if you want to look at an 
even smaller slice. The top 1% say, they--they--they hold--they 
get about 21% of all of the income in the nation, and they pay 
about 24% of all the taxes. That is Federal, state, and local, 
and all types of Federal taxes. The one thing that is a little 
bit somewhat misleading about that--that statistic is that 
included in their income is not all of the gains on the--the 
very large growth of their assets. So when you take into 
account that kind of income, and if you look at an even smaller 
slice of people, they only pay about 8% of their incomes in 
tax.
    Senator Scott. But when they sell it, they pay taxes.
    Ms. Huang. Yes. But the--the problem is that they don't 
have to sell it and they can hold it over their lifetimes or 
even generations.
    Senator Scott. What would you take it up to? What rate 
would you take it up to?
    Ms. Huang. I think that there is a long way to go from 
something like 8% to either the--the marginal or even the 
average rates that, you know, most ordinary filers face. So if 
you look at the middle of the income distribution, they pay 
about----
    Senator Scott. What would it take--what would it take to 
make sure we don't have a deficit?
    Ms. Huang. To make sure----
    Chairman Whitehouse. We're getting well into Senator Van 
Hollen's time. If you could wrap it up.
    Senator Scott. I just want to ask her what what number 
would have to go--go up to?
    Ms. Huang. Well, if we would assess, just say, reverse 
the--the--the total deficit impact of the Trump and Bush tax 
cuts, that would be----
    Senator Scott. And that would be--we'd have a have a 
balanced budget?
    Ms. Huang. About 3% of GDP, that would be enough to 
completely wipe out the increase in the debt to GDP ratio over 
the long term.
    Senator Scott. We--we would have a balance----
    Chairman Whitehouse. Senator Van Hollen.

                STATEMENT OF SENATOR VAN HOLLEN

    Senator Van Hollen. Thank you Mr. Chairman, thank all of 
you for your testimony. Mr. Capretta, I think in your testimony 
you acknowledged that in order to address the Medicare 
shortfall, there needs to be a revenue component.
    And I heard you say that you would support closing some of 
the tax loopholes. Would that include closing what is known as 
the Gingrich Edwards loophole?
    Mr. Capretta. I don't know what that is, so I'm--I can't 
comment.
    Senator Van Hollen. That is--that is the loophole where 
people manipulate the amount of their income that comes in 
wages versus in business income.
    Mr. Capretta. Yeah.
    Senator Van Hollen. To lower their--their Medicare tax.
    Mr. Capretta. Yes. I'm not against that in theory. I think 
that might be best handled and put into our income tax side. 
Medicare, going back to the history of it, we added a new me 
payroll tax for Medicare in 1965 in a sense being a 
contribution from working wages that paid for their hospital 
coverage in retirement. I'm not adverse to changing that kind 
of original deal.
    Senator Van Hollen. Yeah.
    Mr. Capretta. But I think we should be cognizant that we 
are going to change it if we start introducing very different 
tax bases.
    Senator Van Hollen. If I--if I may, because--just because 
my time is short. We're--we're talking about closing a loophole 
that allows people to manipulate what part of their income is 
wage income and--and therefore the Medicare tax applies. But 
no--no, I do appreciate the fact that you recognize and support 
that we need a revenue component that we need to close 
loopholes.
    I wish that was a bipartisan conclusion right here in the 
Senate. I would welcome any of my Senate Republican colleagues 
joining me today to introduce a bill to begin to close these 
loopholes to help address the Medicare Trust Fund issue. And I 
do want to applaud the Chairman of this committee Senator 
Whitehouse for the bill that he introduced.
    I'm proud to co-sponsor that bill. But at least it puts a 
plan on the table. You know, our colleagues can agree or 
disagree with it. They disagree with it, apparently, but I've 
just been looking at what the House Budget Committee passed 
this last week with respect to Medicare. And here's what they 
said.
    We're going to get $400 billion in savings over the next 10 
years through, ``bipartisan solutions.'' In other words, they 
just totally kicked the can down the road. They refuse to put a 
plan on the table as Senator Whitehouse, myself, and others 
have put a plan on the table.
    And so there is a big difference between you know, 
complaining about the democratic plan and actually putting a 
Republican plan to deal with the Medicare solvency issue on the 
table. Now, I--I do applaud the Republican Study Group for at 
least putting a plan on the table. Dr. Moon that plan is going 
back to the idea of voucherizing Medicare.
    You know, I recall when Paul Ryan was the Chairman of the 
Budget Committee, he put forward a plan. I disagreed with it, 
but I credit him and his colleagues with at least putting 
forward an idea. There's no idea right now apparently on, in 
terms of the Republican Budget Committee, and I haven't seen a 
plan from my colleague. Could you talk about what voucherizing 
Medicare would mean to seniors?
    Dr. Moon. I think if you're using it as a means for holding 
down spending, it is pretty clear that what you're doing is 
kicking the can down to the providers or insurers who are going 
to get those funds and have to make them stretch to provide the 
Medicare benefits.
    That is a difficult thing because we have not seen 
incredible creativity on the part of such individuals, 
particularly insurance companies, of finding ways to hold down 
costs, aside from doing things like denying care and raising 
premiums.
    There are ways in which you can improve efficiencies and 
you can be creative, but those are much harder to do and much 
less likely to be put in place by somebody who simply wants a 
quick buck from the payment that they're going to get. That is 
what has tended to happen in some of the poorly operating 
Medicare Advantage plans.
    I think that is an indication for what would happen under 
the voucherizing of the program. I think ultimately Medicare 
has to be a responsibility between providers of services and 
the government to try to figure out how to find ways to be more 
creative and efficient in the healthcare system. Just giving it 
over to someone and saying, it is your problem now. I don't 
think we'll solve the problem.
    Senator Van Hollen. I appreciate it. And Ms. Huang, if I 
could just get a very short answer to you on a--a question, 
because I--I think you've mentioned this, but I just want to 
make sure I understand. Many of us are trying to make sure the 
IRS has the resources it needs to crack down on very wealthy 
taxpayers who are not paying current taxes that are due and 
owing.
    And I think you've indicated that about $100 billion each 
year that would go into the Medicare Trust fund as well as to 
Social security and an unemployment trust fund, $100 billion a 
year in what's due is not being collected because the IRS does 
not have the expertise at this point in time to do that.
    Ms. Huang. That is exactly--that is exactly right. And you 
know, if you have a service that has lost 40% of its expert 
auditors and it can't get staplers and--and pens for some of 
its sites, that--that is going to happen. And that is why 
cutting IRS appropriations and mandatory funding will hurt 
deficits, will hurt the funds, and will also hurt filers that 
want the IRS to pick up the phone.
    Senator Van Hollen. Right. So, Mr. Chairman, just in 
closing, I would point out that while the--the--the House 
Republican budget doesn't put forward any plan on Medicare, the 
fact that they want to turn back the resources for the IRS 
would actually make the situation worse. Thank you.
    Chairman Whitehouse. Senator Braun.

                   STATEMENT OF SENATOR BRAUN

    Senator Braun. Thank you, Mr. Chairman. I'd like to point 
out, because the comment was made earlier about the Trump tax 
cuts, whether you calculate that at $2 trillion or $1.5 
trillion, that is either $150 billion over each year for 10 
years. I, when I point that out, or $200 billion.
    And I'd also like to point out that our deficit is now $2 
trillion a year. So complaining about that is such a small part 
of the total deficit that we're living with that is now 
amounting to a trillion dollars every six months. Medicare 
social security are the drivers of it. So we need to do 
something if we're going to save them.
    We never talk about on social security, that is fairly 
easy. You get three or four variables. Do we have the political 
will to do it if we want to save the system for those that are 
going to be retiring down the road. I don't think anybody's 
worried about the fact that we'll borrow enough money to 
backfill to get folks nearing retirement or in it.
    Never hear about the underlying cause of healthcare costs 
because of the industry itself. In my own business, I created 
consumer involvement and transparency for them to work with, 
and we were able to put a big dent in it. Of course, that is 
skin in the game. Nobody wants skin in the game anymore.
    They either want the employer to pay for their healthcare 
costs or the government. And that was not that big a deal 30, 
40 years ago when it was under 10% of our GDP. Now it is 
approaching 20% of our GDP. I'd like each one of you to comment 
on anything we do with taxation. That is a political endeavor 
that no one wants to take on. Even when the other side of the 
aisle, I've had the argument with Senator Van Hollen, we've 
never been able to generate much more than 18% of our GDP in 
tax revenue. Raise the rates, you get a little more into the 
treasury, your economic growth goes down.
    So it is doable if we take on the healthcare industry to 
make them transparent, competitive, that is big hospitals 
insurance, try to get it to where it does what most other 
industries do. Is that even something that anybody thinks 
about? You could get probably 10 Republicans interested with 
maybe all Democrats. If it was based on competition and 
transparency. It would make the cost for government as the 
payer to come down.
    And I know it works because it is worked on things like 
Laser-assisted in situ keratomileusis (LASIK) surgery, it is 
worked on enterprising private health insurance plans that keep 
their employees safe from catastrophic risk through injury or 
illness. Did it in my own company 15 years ago. We haven't had 
a premium increase in 15 years.
    Just using the user or demand side of the equation. Like 
each of you with a minute, minute and-a-half, just tell me, is 
that doable? Do you ever think about it? And why wouldn't that 
be part of the solution that would help all healthcare, whether 
it is Medicare, Medicaid, or through private insurance? Start 
here.
    Mr. Capretta. I'll be very quick. The answer is yes. I 
think a lot can be done in this area. As I said to Senator 
Johnson earlier, we need to put some structure around the 
choices, some standardization, and make it absolutely clear to 
the consumer when they can save some money and when they would 
benefit.
    So you got to standardize what their pricing in the medical 
services market, not insurance. And you got to standardize 
insurance too, so they can see clearly the premium difference. 
Right now, it is very obscured and complex. And you got to take 
a lot of the risk out for the patient. It is all got to be win-
win for them, pick a less expensive option, they save money.
    Senator Braun. Sounds like an excellent plan. The remaining 
two witnesses, the other side of the aisle generally looks for 
more revenue. I have not found an easy way in my nearly five 
years here to get any new revenue that is going to meet the--
the agreement of 60 senators. Or you'd have to do it through 
reconciliation. What about reforming the industry? Is that 
something you'd be interested in?
    Ms. Huang. Well, I--I think I'm a little I'm still an 
optimist and I actually saw a little bit of cross partisan 
agreement around closing a big loophole that affects the 
Medicare taxes today. And that would save around $300 billion 
over 10 years. And I--I also----
    Senator Braun. Think that is only 30 million a year.
    Ms. Huang. And I think that there is a----
    Senator Braun. And that is a band aid. Your big issue is 
your 20% of the GDP currently. So, go ahead.
    Ms. Huang. Well, I think that base broadening is one of the 
areas where members of both parties have looked to over time, 
in part because a lot of that you can think of as spending that 
goes through the tax code. And some of it is very inefficient 
and in effective at what it does. And there are very many 
responsible ways of raising revenues through that approach.
    Dr. Moon. I think that we should always be looking for ways 
to make the program more efficient, to work better to meet the 
needs of patients. And I think some of what Dr. Capretta had to 
say makes a lot of sense. But I would add the caveat and 
caution that people, when they're faced with very high medical 
expenses, which is where most of the costs of healthcare come 
from, aren't good at making choices.
    They're in a crisis. They're trying to figure out what 
they're going to get. And we have a very complicated healthcare 
system that does not work well to provide either information to 
people or to help them make choices.
    Senator Braun. I think you've just made my case right 
there. So we're running out of time. I like what you're saying 
because that is true. I would offer that if we're going to do 
anything in the near term, it--it is going to be difficult to 
raise revenues.
    We've already done some stuff in our help committee to 
where taking on reforming the healthcare industry. Remember the 
providers are going to still be there. The government either 
pays for it or employers do. You make them more competitive, 
you get rid of the barriers to entry, you harness 
entrepreneurialism.
    That is the only way you take it from being 20% of our GDP 
down closer to what most other countries get it at, which is 
12% to 13%. There's room, I think for bipartisan maneuvering 
there.
    Chairman Whitehouse. And I think Senator Braun, you have a 
track record of accomplishing just that. So I do look forward 
to working with you. Senator Kaine is walking in as his time 
comes. Would you like a moment to get yourself----
    Senator Kaine. Mr. Chair, if anyone else hasn't asked 
questions, I rather if they go before me or--or has anyone 
else?
    Chairman Whitehouse. Well, Senator Johnson has already had 
his round.
    Senator Kaine. Okay.
    Chairman Whitehouse. But he's been waiting patiently for a 
second round, so I'd be more than happy to give him five 
minutes and then turn to you.
    Senator Kaine. That would be great. Let's do that.
    Senator Johnson. Well really just to----
    Chairman Whitehouse. Your next around, Senator Johnson.
    Senator Johnson. I appreciate that. So just to make the 
point. Senator Braun was talking about year revenue percentages 
and--and spending percentages. Year 2000 spending--total 
spending was 17.7% of GDP according to Mr. Capretta's table 2. 
Revenue was 20%.
    So we had a surplus. This year, 2022 revenue was 19.6%. 
Those are pretty historic highs. The Senator Braun, you know, 
generally we're somewhere between 17-18%. So we're, you know, 
historically high. By the way, in that 17%, 18% is regardless 
of what the maximum tax rate is. And we, we've had tax rates in 
excess to 70% and you're still raising about 17, 18%. Because 
again, we have such a broken and complex tax system, all kinds 
of loopholes. The government can only collect X percent. And 
kind of 20% is sort of the top level right there. But the 
difference this year is spending is 25.1%.
    So again, when we had a surplus, seven--spending was 17.7%. 
Now that we have massive deficits spending's up to 25.1%, which 
brought me to the conclusion that we better start prioritizing 
spending. We--we just can't continue to spend a quarter of our 
GDP through the Federal government because we'll never be able 
to raise the revenue.
    No matter what you do, you just can't get 25%. You can't 
squeeze that out of the--the American taxpayer. So we better 
recognize that reality. And again, I would point out that the 
solutions, what Senator Braun was talking about is, how do you 
reform the healthcare system?
    And as I was talking about, to reintroduce consumerism. 
And--and I'll say, separate out the two different types of 
spending. And I wouldn't mind Mr. Capretta talking a little bit 
more about that, you know, medical services.
    I mean the--the routine care that we all go in that, for 
example, Medicare, you know, we got a waiver during--during 
COVID for telehealth that then expires. And you know, all the 
medical providers in Wisconsin are saying, can you extend that 
exemption? Because telehealth worked really well.
    Why would they even need an exemption? Because it's 
government run, it is bureaucratic and makes no sense. So when 
you have government regulation, government bureaucracy, it just 
prevents providers from--from, you know, being imaginative. You 
know, showing some real progress in terms of how to deliver 
things more efficiently.
    Again, what this free market does. Best possible price, 
best quality, best level customer service. Again, that is what 
the free market does. Why don't we introduce more of that? Ms. 
Capretta, just real quick, would you like to respond to that?
    Mr. Capretta. Yeah. I think we're--we're--we're on the cusp 
of maybe doing some of that with the price transparency 
requirements that have been put in place. Some of it might be 
statutory if--if the Congress moves ahead. But there needs to 
be more standardization of packaged benefits.
    And by the way, I would agree with the comment that not all 
of healthcare is going to be subject to consumer discretion. 
There are a lot of studies of this, and it is going to be 
probably about 40%. So there is some big ticket items where you 
can't shop.
    Senator Johnson. Okay. So real quick.
    Mr. Capretta. But there are some things where you can----
    Senator Johnson. You're saying about 40% would be kind of 
what you earlier referred to as medical services?
    Mr. Capretta. Yes.
    Senator Johnson. And then the--then 60% would be, again, 
the catastrophic care, the things you need insurance for?
    Mr. Capretta. Yes.
    Senator Johnson. Correct?
    Mr. Capretta. Correct. It'd be big things where you're--
it--it is not really a packaged discernible item. It is going 
to be some ongoing event with unknown outcomes. And so you're 
going to spend a lot of money and you can't really shop for it.
    Senator Johnson. Well, you--you mentioned transparency. I 
know there is a lot of talk about that. Again, you introduce 
free market competition, you automatically get transparency 
because consumers are asking, what does it cost?
    My concern about government regulated transparency, it'll 
be fudged. I mean, it is just--it is just not going to work as 
efficiently as a free market system that just demands price 
transparency. And that is--nobody knows what anything costs in 
healthcare.
    Mr. Capretta. Yeah.
    Senator Johnson. I mean, nobody knows.
    Mr. Capretta. The only point I would make there, senator on 
the other side is that when a consumer wants to buy a--a 
surgery, for instance, they need to have the surgeon in, the 
anesthesiologist, the radiologist, the diagnostics.
    Senator Johnson. Yeah. But that--that is----
    Mr. Capretta. They need a package benefit that they can 
figure out and price.
    Senator Johnson. That is--that is the insurance market.
    Mr. Capretta. That is going to require regulation.
    Senator Johnson. That is the insurance side. You know, the 
example I use is eye care. You know, people do pay for that out 
of pocket. So, you know, LASIK surgery has dramatically come 
down in price because consumers know what it costs. They 
understand the benefit.
    If we get more of healthcare in that model and then look at 
the insurance model, and again, pre-package it, have it very 
standardized. When I was in--in business, it drove me nuts 
buying insurance because you always had to look at, well, what 
does this plan exempt? It made no sense.
    I mean, they're just exempted certain conditions to save 
money. So there wasn't transparency in that insurance. And that 
is where I would definitely go toward specific models. This, 
you know, coverage A covers all these things. Coverage B covers 
this and have that standardized. That you would require 
government regulation.
    Mr. Capretta. I--I'm very much for that. Yes.
    Senator Johnson. Okay, good. Well, yeah----
    Chairman Whitehouse. With that we turn----
    Senator Johnson [continuing]. We got some solutions here, 
Mr. Chairman.
    Chairman Whitehouse. With that, we turn to the patient 
Senator Kaine.

                   STATEMENT OF SENATOR KAINE

    Senator Kaine. Not patient. I needed to adjust my brain 
into the right committee. So thank you, Senator Johnson and Mr. 
Chair. A recent New York Times article caught my attention. The 
article was entitled, A huge threat to the US Budget has 
receded and no one is sure why. I'd like to introduce that New 
York Times article for the record, Mr. Chair.\7\
---------------------------------------------------------------------------
    \7\ Statement submitted by Senator Kaine appears in the appendix on 
page 103.
---------------------------------------------------------------------------
    Chairman Whitehouse. Without objection.
    Senator Kaine. The article outlines that since 2010 
Medicare spending has been significantly lower than expected. 
According to the CBO, between 2010 and 2020, that cost was 
about 9% lower than what they had expected. And the most 
interesting part is that nobody's a hundred percent sure why.
    Is it a combination of legislative changes, new laws, 
economic changes, technical changes? Which CBO estimated led to 
some passed overestimation of spending per beneficiary. And the 
majority of the decrease has come in this category, less 
spending per beneficiary. I'd like to understand a little bit 
more about this.
    I wonder whether the passage of the Affordable Care Act and 
the extension of health insurance to working Americans in the 
millions who had never had insurance before, might have led 
them to live healthier and thus need less healthcare 
immediately upon obtaining Medicare eligibility age.
    But Dr. Moon, might you speak to that trend and offer any 
thoughts that you have about why Medicare spending over the 
last decade was lower than expected?
    Dr. Moon. I agree that we don't know exactly and it is very 
hard to parse it out. But we do know, for example, from studies 
that have been done of people who come onto the Medicare 
program when they did not have insurance before they came on, 
they spent much more in the first few years, and it lasted for 
a number of years than other beneficiaries who had insurance.
    So undoubtedly the Affordable Care Act will have had a very 
large impact. I think there'll be eventually studies that show 
that.
    The other thing that people don't focus on so much is that 
this is a period of time when the baby boom generation was 
first becoming eligible for Medicare. And 65 year olds are much 
cheaper to provide care for than 85 year olds. And when we baby 
boomers get a little older, we'll be adding to the cost. So 
some of that may not stick.
    I think we're also finding some ways in which people are a 
little more skeptical and concerned about their care and asking 
better questions. Some of that comes from competition, some of 
that may help. But I'm also skeptic that we have a system that 
is very receptive to people making good choices. This is really 
important stuff to people. They don't want to mess around.
    They're not going to go out and shop 14 different Magnetic 
Resonance Imaging (MRIs) before they choose which one they're 
going to get, et cetera. We're going to have a real difficulty 
wrestling this to the ground. And I think this is going to have 
to make a concerted effort to provide more consumer 
information, better investment in providing that information to 
people so they can make good choices, but also better 
government controls and insight into how we manage this very 
cumbersome but important system.
    Senator Kaine. Well, there is--there is an overlap in--in 
your comment and what Senator Johnson was saying, a market 
where people don't know what the costs are or shopping for the 
price of 14 different MRIs to decide which one to take is not 
the way people will approach their healthcare choices.
    We've got to figure out a way more information, more 
transparency, I think all can agree on that. Ms. Huang, I want 
to ask you a question. Your testimony describes how wealth--the 
wealthy can often structure their affairs to choose their tax 
rates and when even if ever their income is taxed.
    I'm a co-sponsor of a bill by Senator Baldwin, it is called 
the Carried Interest Fairness Act. And that would address this 
issue, at least with respect to closing the carried interest 
loophole. Could you--could you describe how reforms in this 
space could help address the two-tier tax system that you 
described?
    Ms. Huang. Thank you, Senator. It is a really great example 
of how preferences in the tax system sort of attract avoidance 
and--and sometimes even evasion and in complex ways. So the 
carried interest loophole, as you know, is--is how some hedge 
fund managers can choose capital gains treatment on 
compensation that should really be taxed as salaries.
    In other words, they can just elect to have a lot of their 
income tax at a lower rate. So closing this loophole would just 
mean that the labor of fund managers would be taxed similarly 
to workers who are employed and, you know, at the same 
companies that these hedge fund managers are investing in.
    And, you know, the 2017 tax law did take a small step 
towards addressing this issue, but bills like yours and others 
would more comprehensively close the loophole.
    Senator Kaine. I--I'm very much a believer that we ought to 
move to a system where income is income. I--I would want it to 
be progressive with rates that would be higher as income goes 
up, but a system that would not advantage structuring your 
income as, you know, capital gains rather than salary, or 
carried interest rather than salary, or interest rather than 
dividends.
    You know, we--we just give people who have the ability to 
hire sharp accountants and lawyers the ability to, you know, 
essentially choose their own tax rate. Most people don't get 
that deal. And we should move to a system and that would be 
more fair.
    And it would be one way we could also address some issues 
like the solvency and--and funding solvency of programs like 
Medicare. Really important. As I yield back, I am really 
intrigued with this Medicare cost issue. As you said, Dr. Moon, 
even though this particular question about ACA expansion and 
connection of Medicare costs, there may not be enough data yet.
    There has been significant studies about the Medicare 
spending per beneficiary of people at health insurance before 
they reach Medicare age and those who didn't. And just the 
healthier you can keep yourself during in life, the healthier 
you're going to be when you reach Medicare age.
    And if you don't have access to good healthcare or health 
insurance, you're going to have a lot of deferred maintenance 
on the body when you get to Medicare. And that will drive costs 
up. And so I think the--if the--if the past studies hold, I 
think we would likely see that the expansion of affordable 
health insurance, both through Medicaid expansion, but also 
just providing subsidies so that people can buy insurance on 
the exchange at a lower cost rate.
    That expansion is going to be a significant factor in the 
reducing--the reduction over what we might've expected Medicare 
per beneficiary costs. So I look forward to more discussion on 
that. And with that, Mr. Chair, I yield back.
    Chairman Whitehouse. Thanks, Senator Kaine. Let me thank 
the witnesses for appearing before the committee today and for 
the many colleagues who participated. Let me also thank the 
advocates and the District of Columbia seniors who joined us 
here in the hearing today. Appreciate very much your presence.
    I would say that perhaps some faint outlines of progress 
began to emerge in this hearing. I think we had folks on both 
sides talk about the need to raise revenues. I would favor 
doing that by unrigging loopholes that benefit very wealthy 
people. But certainly the prospect and the need for additional 
revenue seems to have emerged on both sides of the hearing.
    The opportunity to save costs in Medicare seems to be also 
a mutually agreed prospect. I would recommend using the 
Accountable Care Organization payment reform escape from fee 
for service treadmill strategies. But I do think that there are 
cost savings that we--proven cost savings that we can pursue.
    I would think that we could take advantage of the 
bipartisan standing ovation at President Biden's State of the 
Union to lock in an iron clad guarantee as we reform this, that 
there will not be benefit cuts. And that no benefit cuts 
becomes a core guiding principle of our conversations.
    And then finally, that the purpose of the exercise should 
be to extend Medicare solvency. And I would recommend that we 
plan to extend Medicare solvency essentially forever the way my 
piece of legislation does. Without objection, I'll submit 
letters for the record from AARP, the American Federation of 
State County Municipal Employees, the National Committee to 
Preserve Social Security and Medicare, the Alliance for Retired 
Americans, the Medicare right center, the Rhode Island Alliance 
for Retired Americans, the Senior Agenda Coalition of Rhode 
Island, and the Rhode Island Geriatric Education Center at the 
University of Rhode Island.
    Questions for the record are due by 12 noon tomorrow, and 
we will ask witnesses to respond to any questions that we may 
forward to you within seven days of receipt. With no further 
business before the committee, the hearing is adjourned. Thank 
you all.
    (Whereupon, at 11:42 a.m., Wednesday, September 27, 2023 
the hearing was adjourned.)

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