[Congressional Record Volume 141, Number 167 (Thursday, October 26, 1995)]
[Extensions of Remarks]
[Pages E2036-E2037]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                MEDICARE

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                       Wednesday, October 25, 1995

  Mr. HAMILTON. Mr. Speaker, I am inserting my Washington Report for 
Wednesday, October 18, 1995 into the Congressional Record.

              What's Wrong With The Gingrich Medicare Plan

       Congress will consider soon proposals to reform the 
     Medicare system. Everybody agrees that reducing the growth in 
     Medicare spending is essential to eliminating the federal 
     budget deficit, but there is disagreement over the level of 
     cuts that should be made.
       Is the Medicare system broke? Medicare consists of a Part A 
     program, which pays for hospitalization of older Americans 
     and is financed through a payroll tax of 2.9% of wages, half 
     paid by employers and half by employees; and a voluntary Part 
     B program, which covers doctor bills and outpatient expenses 
     and is financed by general tax revenues and monthly premiums 
     paid by beneficiaries.
       Part B is not in danger of bankruptcy because it is 
     financed from general revenues. The Part A trust fund, 
     however, will not have enough money to fully cover the 
     benefits required by law, according to the program's 
     trustees. The Office of Management and Budget (OMB), which 
     oversees the federal budget, and the Medicare trustees say 
     that $90 billion in cutbacks are needed to ensure the future 
     solvency of Part A over the next 10 years. The Congressional 
     Budget Office (CBO), the non-partisan budget arm of Congress, 
     estimates that around $150 billion in cutbacks are needed for 
     the next 10 years, which is as far as CBO will measure it.
       The trustees have issued similar findings for almost every 
     year since 1970, and Congress and the President have always 
     raised taxes or adjusted benefits in plenty of time to 
     prevent bankruptcy. The real problem for Medicare is long 
     term. Its costs are growing rapidly and soaking up a large 
     share of the federal budget. Significant structural changes 
     are necessary early in the next century. To illustrate, there 
     are almost 4 workers paying taxes for each person covered by 
     Medicare today. The ratio will fall to 2\1/2\ workers per 
     beneficiary in 2025.
       Why are costs increasing? The costs of Medicare are 
     increasing for two basic reasons. First, the population is 
     getting older and living longer--which means more health care 
     problems, greater health care spending and more demands on 
     the Medicare system as the number of beneficiaries climbs 
     (there are presently 37 million Medicare beneficiaries). 
     Second, health care costs are rising, driven largely by 
     inflation and the advance of medical technology.
       What is Speaker Gingrich's plan? Speaker Gingrich would cut 
     $270 billion from projected Medicare spending over 7 years. 
     He would control costs by shifting beneficiaries into private 
     plans and Medical Savings Accounts, holding down payments to 
     doctors and hospitals, and doubling premiums paid by 
     beneficiaries.
       Does the plan cut Medicare benefits or just slow the rate 
     of growth in spending? The answer is both. To provide the 
     benefits required under current law, the amount the 
     government spends for each Medicare beneficiary is projected 
     to rise from the current level of $4,800 to $8,400 in 2002. 
     Gingrich's plan would reduce the projected increase to $6,700 
     per beneficiary. The increase, however, would be inadequate 
     to keep pace with inflation and more expensive medical 
     treatments. Consequently, Medicare will buy fewer services 
     for each beneficiary.
       Will Medical Savings Accounts (MSAs) and managed care 
     networks save money? Gingrich's plan relies on MSAs and 
     managed care to save money. MSAs offer retirees the option to 
     buy with government money a catastrophic policy to cover 
     large medical bills along with a tax-free savings account to 
     pay routine medical bills. The MSA in his plan may include a 
     $10,000 deductible. This option appeals mostly to healthy 
     retirees who expect small medical bills and therefore could 
     expect tax-free buildup of money in the MSA. The sicker 
     patients would remain in Medicare, driving up costs.
       Gingrich's plan also seeks to generate savings by 
     encouraging seniors to enroll in managed care networks, such 
     as health maintenance organizations. The theory behind 
     managed care is that networks can offer more comprehensive 
     coverage than traditional fee-for-service plans because they 
     are better able to hold down costs. Managed care may save 
     money (at least in the near term), but it also entails less 
     physician choice for beneficiaries.
       Does the plan add up? CBO has indicated that Gingrich's 
     plan falls short of the projected savings of $270 billion. 
     Gingrich proposes a ``fail-safe'' to make up for any 
     shortfall by taking additional (but unspecified) budget-
     cutting steps in the future, such as further reducing 
     payments to doctors and hospitals.
       Are there alternative plans? An alternate House plan has 
     been introduced which would make $90 billion in cuts over 
     seven years, the amount recommended by Medicare trustees to 
     ensure Medicare's solvency for 10 years. The plan includes 
     modest reductions in hospital payments, limits on physician 
     reimbursement, tough fraud and abuse prevention, and a 
     commission to address the long-term solvency of Medicare. 
     There would be no increased costs to beneficiaries. A similar 
     plan has been introduced in the Senate.
       What is my view: I believe that Medicare must be cut and 
     reformed, but changes have to be made in such a way to 
     protect the lower income elderly and the disabled who lack 
     the means to buy their own health care. The Gingrich plan 
     extracts two to three times what is necessary in order to 
     help pay for a huge tax cut, and does this too fast. We need 
     to ease up on Medicare and find savings elsewhere.
       Managed care should be an option, but we do not want to 
     shove beneficiaries into it if they prefer to choose their 
     own doctor. The Gingrich plan will likely make physician 
     choice too expensive for beneficiaries, and could push 
     doctors into managed care arrangements. We should also 
     eliminate the ``fail-safe'' devices in the Speaker's plan 
     which will bring about direct price controls.
       Medicare is a vitally important program to the American 
     people and it must be protected. The congressional leadership 
     and the President must work together in a cooperative spirit 
     to ensure the program continues 

[[Page E2037]]
     to be there when people need it. I think this is what Americans want. 
     Time is running out for careful deliberation in 1995. We all 
     want affordable, high quality health care--goals we must be 
     careful not to undermine.

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