[Congressional Record Volume 141, Number 152 (Wednesday, September 27, 1995)]
[Senate]
[Pages S14402-S14404]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      PROGRESSIVE POLICY INSTITUTE

  Mr. KERREY. Mr. President, this morning, myself, Senator Breaux, 
Senator Lieberman and Senator Nunn stood with an organization called 
the Progressive Policy Institute to embrace some recommendations, an 
outline of recommendations they made to reform both the Medicare 
Program--a $170 billion program that is funded with the combination of 
a 2.9-percent payroll tax and a health insurance premium paid for by 37 
million beneficiaries over the age of 65 with $46 or so a month, that 
funds about 30 percent of the part B, the doctor's payment, as well as 
$80 billion program for Medicaid.
  These are the most rapidly growing items in the budget. They are not 
the most, but in terms of total dollars, this $250 billion collective 
program has gotten quite expensive. It has tormented a lot of Members 
who have been trying to figure out what to do to control the growth, in 
particular, of entitlements.
  Last year, Senator Danforth, a former Senator from Missouri, and I 
made some recommendations about what should be done to reform 
entitlements. The purpose of our recommendation was to say to Americans 
that we should agree that no more than a certain percentage of our 
budget would go to entitlements, plus net interest.
  Looking at the future, given the current trend lines particularly 
with the enormous demographic problem, mostly demographic not political 
problem, of 60 million baby boomers starting to retire in 2008, look at 
that problem and the cost of our entitlements not too long after the 
year 2008--all of our budget will be consumed by entitlement spending.
  When I say all, there are not very many things in Washington, DC, 
that have stayed constant over the years. One that has stayed constant, 
except for two periods in this century, World War II and for a period 
during the Vietnam war, the percent that has been withdrawn from the 
economy to fund Federal programs, approximately 19 percent, about how 
much we withdraw from the economy, a fifth of the U.S. economy is used 
to fund Federal programs. That really has not changed except for two 
wartime situations.
  It is likely that indicates that is about what Americans think we 
ought to be withdrawing from the U.S. economy for the Federal 
Government. There may be some that would argue we ought to do more, not 
very many; and maybe some would argue we should do dramatically less. 
Probably it means we will spend about 19 percent.
  If that is the constant, Mr. President, it is very alarming to see 
the growth of entitlements in net interest because as it grows it 
decreases the amount of money available to defend our country, to keep 
our cities safe, educate our children, to build our roads, our sewers, 
our water system, space exploration--all those sorts of things.
  This year's budget, 67 percent of our budget goes to entitlements and 
net interest, and in the year 2002 at the end of the 7-year budget 
resolution that we are operating under, it will be 75 percent--an 8 
point increase in a span of 7 years. That is a lot of money, about $135 
billion or $140 billion increase in entitlements, if you do it in a 
single year.
  As I said, Mr. President, that trend really rapidly accelerates when 
the baby boomers retire some 6 years later. The entitlement commission 
tried to say to Americans, ``Let's make changes in our programs sooner 
rather than later.'' The sooner we do them the bigger the future impact 
and the more time we can give beneficiaries or recipients, in the case 
of Medicaid, with time to plan.
  They can begin to adjust their own thinking about planning. If you 
have to adjust the eligibility age, which we recommended over a period 
of time; or if you have to phase in some change in premium payments, or 
whatever. Give people time to plan. It is more likely they can adjust.
  There are tough recommendations, Mr. President. Contained inside of 
the recommendations was another presumption which is that we are seeing 
the marketplace work. It is a relatively recent change in health care.
  When we debated health care 4 years ago, the facts as presented to 
the American people would cause you to believe that actually the 
Government was doing a better job of controlling costs than the private 
sector. Private sector costs exceeded the public side.
  Today not only is that reversed, but strikingly so. We are seeing in 
some parts of the country where a high percentage of managed care, even 
some declines in overall cost of health care, where the public sector 
continues to grow in double digits.
  That sort of frames a little bit, in a preliminary fashion, why I was 
pleased with the Progressive Policy Institute's proposal. It does 
propose to address the problem of growing entitlements, and it does 
propose to take advantage of the changes that are occurring in the 
marketplace, to restructure Medicare and Medicaid to take advantage of 
the changes that are occurring.
  Let me say, Mr. President, one of the things I do when I am at home 
and talking about the current debate about Medicare and Medicaid is to 
say I am pleased that Republicans are trying to preserve and protect 
the program. Many Republicans were not, as you know. Some Republicans 
were opposed to this over the years. Now what we have appears to be 
almost unanimous--Republicans saying not only do we think Medicare is a 
good idea, we want to preserve Medicare for our children and for our 
grandchildren.
  Mr. President, let me point out that underneath the program is a 
presumption, an assumption that we have to believe before the program 
itself can stand, before we can reach the conclusion that we want to 
preserve and protect it. That assumption is this: No matter what we do 
with the marketplace, no matter what happens with our economy, there is 
apt to be some Americans that will not be able to afford to buy health 
insurance, for whatever the reason. They may be disabled. In this case 
with Medicare it is the elderly. Say they are over 65 and likely 

[[Page S 14403]]
not to be working. Their health costs have gone up. They are in a 
higher-risk population. It costs more. They are not working any longer. 
Thus, design a program to help them purchase insurance.
  I point that out, Mr. President, because it basically means 
Republicans and Democrats have agreed that there is a role for 
Government to help Americans who cannot purchase, who cannot afford to 
purchase health insurance. We have agreed on that.
  In this case a rather expensive Government role--$170 billion for 
Medicare and $80 billion for the Medicaid program.
  The proposal that the Progressive Policy Institute put forward this 
morning, and I am here this afternoon to talk about it at great length, 
does not view Medicare as a source of money to fund deficit reduction 
although I believe we have to look because of the cost of the program 
to Medicare for deficit reduction.
  It says, instead, that we need to transform the Medicare program from 
what is essentially a very maternalistic program into an instrument for 
empowering citizens to solve common problems. A rather simple but very 
important change in the policy.
  Medicare today is run by the Federal Government, does not take much 
advantage of what is going on out in the market, does not take much 
advantage of competitive forces. It is much more of a maternalistic--we 
will figure out what is good for you and tell you how the program is 
operated.
  Their proposal, which I like very, very much, says we should move in 
the direction of empowering Americans to make more of their own 
decisions about this problem of acquiring health care and making health 
care decisions.
  Second, those of us who have spent a great deal of time with 
entitlements and who have long ago reached the conclusion that Medicare 
is a good program that deserves our support, know health care 
entitlements are very archaic. They no longer fit inside the context of 
what we see going on in the private sector. They are governed by 
arbitrary political and budget goals. They are managed by command and 
control regulation. And, very often, they tend to reproduce 
inefficiencies in other sectors of the health care system.
  Third, and very important, if you buy into this idea the Republicans 
and Democrats now agree, since I believe most if not all Republicans 
now say we should preserve and protect Medicare--that is what I am 
hearing, at least, from Speaker Gingrich and others--if that is the 
case, underneath that is a presumption that we have Americans out there 
who cannot afford to buy.
  What we ought to be trying to do is fashion the program so those who 
cannot afford have the means to make the purchase and those who can are 
required to make the purchase on their own. It seems to me Medicare and 
Medicaid, as they are currently constituted, are an obstacle. I 
emphasize this. They have become an obstacle to getting to the point 
where every single American, just because he or she is an American, 
knows with certainty that they are covered and they are going to be 
required to pay according to their capacity to pay. But they do not 
doubt, whether they are 65 or 25 or 55; they ought not doubt.
  We spend $400 billion a year, direct and indirect--either direct with 
tax expenditures or indirectly with tax subsidies--on health care at 
the Federal level every single year. That is plenty to get everybody 
covered.
  The way the current programs are designed, they are a structural 
barrier, a fiscal barrier, and need I say, it ought to be obvious from 
the current debate, a political barrier to getting ourselves to the 
point where all Americans know with certainty they are covered, know 
with certainty they have a responsibility to pay, have the information 
upon which they can make decisions about quality, about price.
  One of the most powerful bumper stickers we had in the health care 
debate is true, which was, ``If you think health care is expensive now, 
wait until health care is free.''
  In short, Americans need to understand that there is a cost attached 
to demands. The current system, I believe, the way we have Medicare 
structured and the way Medicaid is structured and the way the VA is 
structured and the way our income tax system is structured, provides a 
barrier, really, as I said, a political, a structural, as well as a 
fiscal barrier to getting us where I think most of us want to go, which 
is every American knows with certainty they are covered, knows that 
they have responsibilities in the system, knows clearly what those 
responsibilities are, and knows not to ask for more than what is, in 
fact, reasonable.
  There are flaws in the Republican proposal. I will mention them 
briefly. I do not want to dwell too long on them here because I am 
really not trying this afternoon to attack the Republican proposal. 
More, I am trying to see if it is possible to reach some consensus with 
Republicans who indeed want to reform this system; to make sure, when 
we take action that might be politically difficult, that we have an 
exciting and constructive improvement in the system.
  I believe the proposal ignores the baby-boom generation. I have 
mentioned it before. This solution takes us out to 2002, maybe 2005. We 
have not seen anything yet when the demographics of the baby-boom 
generation becomes apparent to us. We are, I think, going to be very 
sorry we did not take action sooner rather than later. It, in many 
ways, continues the status quo. It does provide people with more choice 
in the private sector, but not in the kind of vigorous competitive 
environment that we need if we expect to see the forces of the 
marketplace work the kind of, really, miracles that we have seen in the 
private sector. In other words, it tends to privatize but does not 
provide a competitive environment.
  The proposal we presented this morning, over the next 5 years does 
four things that are very important. It does not get everything done 
over the next 5 years, but it does four things that are terribly 
important.
  No. 1, it privatizes insurance for Medicare beneficiaries. We say the 
Federal Government ought to do a much more limited number of things 
than they are doing today. It ought to make certain we have a market. 
It ought to make certain Medicare can use its tremendous purchasing 
power to get cost savings from the private sector. There are lots of 
things that Medicare can do, but it ought not try to micromanage the 
health care environment.
  So that is Medicare. We ought to privatize it and move it in the 
direction of becoming a privatized insurance for Medicare 
beneficiaries. In the area of Medicare, we need not only to cap the 
individual amount for acute care, but we also need to deregulate the 
States so they can continue to use the market at the State level, to 
continue to use the private sector to produce the kind of cost savings 
that the private sector has produced in the last 2, 3, 4 years.
  So capping the Medicaid entitlement, the individual entitlement is 
critical. But deregulating the States for that acute care is equally 
critical so they can begin to fashion programs.
  I believe it will be a mistake to block grant Medicaid at this point. 
Perhaps 6, 7, 8 years down the road, after we have really seen this 
thing move more aggressively in the private sector. We have a bit of a 
problem because of the Federal-State relationship. I think it would be 
far--not think, I very strongly believe it would be far sounder for us 
to cap the entitlement and deregulate so the States could use the 
market much more as a consequence.
  Long-term care is much more of a problem. As people who have looked 
at it know, the long-term piece, although it is a much smaller number 
of people covered, it is a very large part of the total Medicaid 
spending--the long-term piece. We are also, in my judgment, going to 
have to have some capitation of payment. But we are going to have to 
encourage States to develop private sector solutions. We simply cannot 
provide, through the Government, all the long-term care requirements 
that are out there. We have to basically take the Medicaid Program, as 
we were proposing to do with Medicare, move it as quickly as possible 
toward a private sector solution.
  The third thing that we are saying is, make health care subsidies 
fair. The most important thing we do there is to cap the income tax 
deduction. Some will say, ``You are increasing taxes on my health 
insurance.'' Our proposal caps it at a high enough level inside of the 
market that nobody is going to be 

[[Page S 14404]]
able to say that they are paying taxes on normal health care. They are 
going to be paying taxes on that beyond what the market judges to be in 
the median range.
  It is very uncomfortable for upper-income people to have to consider 
that one of the things that is going on if they are in the 40-percent 
tax bracket, let us say, is that if they are buying a health insurance 
policy of $7,000 or $8,000 a year, they are receiving a $2,800 to 
$3,200 subsidy as a result of receiving that deduction, and very often 
receiving that subsidy from people who do not have health insurance.
  So this says, let us make it fair. Let us keep the deduction in place 
so you can encourage the individuals to purchase and encourage the 
employers to provide it, but let us cap it out so those subsidies end 
up being not only fair but consistent with our desire to make sure that 
we provide subsidies to people who need them but do not provide 
subsidies to people who do not.
  The fourth thing we are attempting to do--there are a whole series of 
things that need to be done, including the creation of a health care 
network and additional information provided to consumers--we are trying 
to create a universal health care marketplace. So the decisions and 
choices that are made by individuals about price and the decisions and 
choices made by individuals about quality will determine the nature of 
our delivery system, the nature of our payment system. Again, for 
emphasis, we want the negotiation for price to occur out there in the 
market.
  We do not want the negotiations for price to occur here in 
Washington, DC. That kind of top-down, paternalistic system I think is 
a recipe for either increased regulation or unsuccessful efforts to 
control costs.
  So the proposal in its early stages is relatively simple. It is not 
easy, but it is based upon a vision of a universal marketplace for all 
Americans where everybody knows they are covered, where everybody knows 
what their responsibilities are, and where everybody knows the costs 
attached to their demand.
  There are seven things I would like to emphasize inside trying to 
create this buyers' market for Medicare and Medicaid. Again, division 
for me is removing from a paternalistic federalized system into a 
system where everybody knows that they are covered but their decisions 
are shaping both the delivery and the payer system for the kinds of 
products that companies offer for sale.
  First, we use market mechanisms to determine proper levels of supply 
and demand. Let the market make that decision. If we try to make that 
decision here in a political environment, it is very difficult for us 
to say no and very difficult for the majority of us, when appeal is 
made, to say no. It is not altogether likely that we are going to be 
honest and say to somebody, if we say yes, ``By the way, here is the 
cost, and we would like to have you pay for it.'' We typically try to 
spread the cost over somebody else's income.
  Second, we should protect the value of the subsidy while avoiding an 
unlimited subsidy. It is a very important thing for us to do. We need 
to protect the value of the subsidy so that it moves with inflation. 
But we cannot continue with a system that says the subsidy is 
unlimited, the sky is the limit, and whatever you need we will pay for 
it regardless of what contributions you have made, regardless of what 
your income is, and regardless of your wealth status.
  Third, we need to maintain the collective purchasing power of 
Medicare and Medicaid. That is extremely important. The Government can 
help drive down the cost if they use that purchasing power in a 
constructive fashion instead of sort of laying back and saying we will 
pay out whatever is submitted to us. The law currently does not allow 
HCFA to do that sort of thing. We are talking about not eliminating 
HCFA but moving HCFA in a direction where it does a different set of 
things than it is currently being asked by our laws to do.
  Fourth, we must enable beneficiaries--250 million to 260 million--to 
become more informed. At the end of the day we are the ones that create 
the demand. We are the ones, as a consequence of our own evaluation of 
health and what we are willing to do, who create the demand. We have to 
become better informed both about cost and about quality.
  Fifth, we have to align Medicare and Medicaid with trends towards 
cost-effective care in the private sector rather than again just 
engaging in a debate about, are we cutting too much, and are we cutting 
too little? We need to take advantage of what is going on in the 
private sector with the objective of getting every single American 
inside the system.
  Next, we have to create a privately run, decentralized system to 
deliver our health insurance as opposed to, again, a centralized system 
that tends to be more paternalistic and not terribly creative, not 
nearly as creative as what the market can do.
  Seventh, we should limit the Government role to the essential.
  This gets me back where I was at the beginning. Mr. President, it is 
terribly important to argue and decide what do we want the Federal 
Government to do. It appears to me that we have achieved consensus that 
there is a legitimate role for Government, at least for 37 million 
Americans who are over the age of 65. It seems to me that we have 
reached consensus. The principle ought to be that the reason we are 
helping people over 65 is they cannot buy. They are having trouble 
buying. Let us limit the role of Government to help those who cannot 
buy purchase it. But let us not subsidize--whether it is me or you, Mr. 
President, or anybody else--people that do not need to be subsidized. 
Let us not have the Federal Government commanding the system to do 
something that is going to cost the taxpayer more and perhaps end up 
delivering lower quality care.
  In closing, one of the most exciting areas of effort that is ongoing 
right now in the area of waste, fraud, and abuse is by Senator Graham 
of Florida and Senator Harkin of Iowa. A long time ago a rather clever 
fellow by the name of Willie Sutton said, ``The reason I rob banks is 
that's where the money is.'' At $250 billion, if Willie were around 
today, he would be apt to be looking at Medicare and Medicaid. People 
are getting ripped off by a substantial amount. They know how to game 
the system. They are well organized. I am not talking typically about 
individuals. I am talking about people who are in it for the money, for 
the dough.
  I think we have an obligation to do everything that we can to use 
competition, not only to get the price down as low as possible, but to 
make sure that we hold to a very high standard of accountability those 
people who find themselves being qualified as providers.
  Mr. President, again, I applaud what I see as essentially a 
Republican conversion that Medicare is a good program, that we ought to 
preserve and save it. I think that is an awfully good piece of news. 
The underlying principle that should enable us to make decisions, not 
just for the short term where in truth not much effort is needed to 
save Medicare in the short term over the next 7 to 10 years--not that 
much change is required--but to take advantage of the marketplace and 
to solve the problem that is created when the baby boomers retire. A 
good deal more than what I have seen thus far in the Republican 
proposal needs to be done.
  So I am hoping that this statement--and others that I will make on 
this issue of Medicare and Medicaid, if not this year in the budget 
deliberations, throughout the next year as we begin to do next year's 
budget deliberations--I am hoping that we can in fact build some 
bipartisan coalition around the need to control the rapidly rising cost 
of entitlements that is squeezing out our ability to make long-term 
investments in our future, and the increasing insecurity that all 
Americans feel as a consequence, I think, of very inefficiently run 
Federal programs.
  Mr. President, I yield the floor. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SPECTER. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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