[Congressional Record Volume 143, Number 119 (Wednesday, September 10, 1997)]
[Extensions of Remarks]
[Page E1720]
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, September 10, 1997

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, August 13, 1997, into the Congressional Record:

                         Reforming Medicare \1\

       Medicare has been a very successful government program in 
     providing for the health of older persons and the disabled. 
     It has substantially improved access to health care. Because 
     of Medicare, the percentage of older Americans with health 
     coverage has increased from less than 50% in the 1960s to 99% 
     today. And since it was initiated three decades ago, life 
     expectancy at age 65 has increased by more than it did in the 
     six decades before Medicare. All of this has made Medicare 
     one of our most popular social programs.
       But Medicare has some major cost-related problems. First, 
     its sharply increasing costs have been a major contributor to 
     the large budget deficits of recent years. In just three 
     decades its costs have grown to about 2\1/2\% of the nation's 
     gross domestic product (GDP). And if no action is taken it 
     will claim nearly 4% GDP ten years from now and 8% of GDP by 
     the middle of the next century. It is simply not possible to 
     balance the budget and keep it balanced unless large Medicare 
     savings are achieved. Second, the numbers driving the future 
     projections are simply relentless. Today we have 24 million 
     retirees, but when the baby boom generation is fully retired 
     the figure will be 48 million. Yet the number of working-age 
     citizens whose payroll taxes finance most of the Medicare 
     benefits will increase only 20% in that period and Medicare 
     spending per beneficiary continues to rise. Third, excess 
     care is often provided, as beneficiaries simply do not have 
     to decide if medical services are worth their cost. And 
     providers do not have sufficient incentive to reduce the cost 
     of medical services because their payments are based on the 
     number and type of services they provide. Finally, the amount 
     of fraud and waste in the Medicare program, is huge. The 
     government spends about $200 billion a year on Medicare, yet 
     recent estimates are that \1/7\ of that consists of 
     overpayment. We now have only about one agent to investigate 
     every $10 billion of Medicare spending.
       Program Changes: Given the rapid projected growth in 
     Medicare, it is not politically realistic to expect tax 
     increases to restore solvency to the program, especially in 
     the current anti-tax mood in the country. Thus Congress is 
     focusing on cutting back costs and restructuring the Medicare 
     program. There are three main approaches: cutting back 
     payments to providers (doctors and hospitals), requiring 
     Medicare beneficiaries to pay more, and restricting Medicare 
     to provide for market-based incentives. These approaches are 
     not mutually exclusive, and reform is proceeding along all 
     three lines.
       Cutting back payments to providers: Medicare's prospective 
     payment system for hospitals has helped curb payments to 
     providers. This system creates roughly 470 diagnosis-related 
     groups (DRGs) into which hospitals admissions have to be 
     placed. It is a complex system, but it has created incentives 
     for hospitals to be more efficient. Yet the prospective 
     payment system is no panacea. The payments apply only to 
     certain Medicare-covered services, and when payments to 
     providers are cut back they often respond by performing more 
     services to offset some of their income loss. The recently 
     passed budget reconciliation agreement achieved most of its 
     savings by curbing and reforming payments to providers, but 
     it is generally agreed now that cutting back fees is not a 
     long-range solution to the Medicare problem.
       Making patients pay more: Another approach is to make the 
     beneficiaries--the patients--pay more. More of the burden 
     could be shifted to beneficiaries by increasing their costs 
     or increasing the age of Medicare eligibility. In general, 
     most of the experts think that it makes some sense to impose 
     at least part of the burden on Medicare beneficiaries since 
     they are the ones who receive the benefits. This year 
     Congress considered proposals to strengthen Medicare's 
     financial condition by charging extra premiums to wealthier 
     retirees, raising the eligibility age, and imposing a co-
     payment of $5 per visit for home health care services. None 
     of those proposals survived in the final bill, but there is 
     broad agreement that it would be a mistake to consider them 
     dead.
       Restructuring program: The third approach is to redesign 
     the Medicare system in a way that can improve its efficiency. 
     Today Medicare guarantees people a particular insurance plan. 
     An alternative, ``choice-based'', system would guarantee 
     people a fixed amount of money with which to purchase health 
     insurance, but it would not specify which policy they are to 
     receive. The shopping for insurance plans would encourage the 
     plans to be more efficient and would create more competition. 
     A choice-based system probably holds the most promise for 
     restraining costs, but it will not be easy to implement. The 
     choices offered, the price, the eligibility for the plans, 
     and how to protect poorer beneficiaries all would have to be 
     worked out.
       Congressional Action. Congress must soon begin a 
     fundamental reexamination of this immensely popular but 
     hugely expensive program. I believe Americans understand the 
     need for change. They recognize the amount of fraud and waste 
     in the Medicare system and also realize that the projections 
     about its future growth mean the program in its present form 
     is unsustainable. But Medicare reform is as difficult as it 
     is essential. The temptation for the politician is to deal 
     only with the problems of the next few years but not much 
     beyond. But Medicare will need more than that. It is 
     certainly going to be a major test of the nation's political 
     system to see if it has the capacity to resolve the problems 
     for the longer term rather than to lurch from one crisis to 
     another.
       The sooner we begin restructuring Medicare the more options 
     we will have and the less wrenching the changes will be. 
     Whatever changes are made, caution and prudence will be 
     virtues in dealing with a program as vital to millions of 
     vulnerable Americans as Medicare. The reform process should 
     proceed at a deliberate pace. It does not have to be 
     accomplished all in a matter of two or three years. It will 
     be complicated, divisive, and time-consuming. I doubt very 
     much if we get it correct the first time. Mid-course 
     corrections and adjustments will be necessary throughout the 
     process, but it is very clear to me that we should get on 
     with the job.

     \1\ Material taken from Setting National Priorities: Budget 
     Choices for the Next Century, Robert D. Reischauer, Editor, 
     The Brookings Institution Press, Washington, DC, 1997.

     

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