Opening Statement of the Hon. Fortney Pete Stark, M.C, California

Hearing on President's Tax Relief Proposals

February 28, 2001

SAVING MEDICARE

Madame Chair, Colleagues:

I've introduced a bill to modernize and extend the life of Medicare that does not raise premiums for seniors who choose to stay in fee-for-service Medicare because their health conditions require a wide array of providers. It is basically the Clinton Administration proposal of June, 1999, greatly strengthened to achieve major savings and more program improvements. As we consider reforms this year, I hope this proposal, or portions of it, can be discussed and included.

Benefit Improvements

The current Medicare benefit is woefully inadequate. Medicare only covers about half of the average beneficiary's total medical expenses, and includes no outpatient prescription drug coverage. The benefit structure needs to be improved. This bill

--provides a generous drug benefit coupled with strong cost containment that encourages research on breakthrough drugs;

-- improves Medicare's preventive care package, eliminates co-pays and deductibles on preventive services, and does more to prevent blindness;

--coordinates Medicare with an optional, Medicare-run supplemental policy that reduces beneficiary paperwork and, because there are no sales and overhead costs, provides more affordable medigap coverage than the private sector;

--helps low income seniors use Social Security offices and data matches to enroll in the QMBy and SLMBy programs which help pay premiums and (for QMBy) co-pays for those under 135% of poverty (today only about half the eligible seniors are enrolled in these two programs);

-reduces hospital outpatient department co-pays from 40% in 2006 to 20% by 2010 (a process that will otherwise take several decades);

--permits uninsured individuals age 62-65 to buy into Medicare at full cost, but with the help of a refundable tax credit equal to 50% of the cost of the Medicare premium; provides similar help to those 55-62 who lose their health insurance;

-- improves quality of care for beneficiaries by creating an extensive program of case and disease chronic care management (with special emphasis on rural case management), more information on treatment options, more bundled packages of care, and use of a new VA advanced illness coordinated care program, and

--adds adult day care as a service under a home health plan of care.

Saving Medicare for Future Generations

With increasing use of high technology and expensive pharmaceuticals, health expenditures are becoming an increasing part of our economy. As a rich society, there is nothing particularly wrong with that--it is a choice we make. But with so many younger people uninsured and so many other unmet needs, it is imperative that Medicare be run as efficiently as possible, so that Medicare taxes on future generations can be kept as low as possible and so that other societal needs can be met.

The number of people on Medicare will roughly double in the next 30 years. The number of working taxpayers to support the program will decline from today's 3.4 per beneficiary to about 2 per beneficiary in 2030.

There are only 3 ways to save Medicare: shift costs to beneficiaries, cut payments to providers (and that includes so-called program 'efficiencies'), or inject new tax revenues.

I believe it will take all three: beneficiary cuts, provider cuts, and new taxes. Anyone who says differently is not being honest with the American public.

This bill does all three:

Beneficiaries:

-the Part B deductible is indexed for inflation;

 -the value of the Part B subsidy (of which 3/4ths is paid by general taxpayers) is added to the income of beneficiaries and if the beneficiary has enough income to be taxed, that subsidy will be subject to tax at the taxpayer's rate of progressive tax (15%. 28%, etc.); lower income seniors will not be hurt.

Providers:

-Medicare will finally start to obtain savings from Medicare+ Choice, as plans bid to provide the core Medicare benefit and compete by offering to lower the Part B premium. Plans can offer supplemental packages of benefits separately priced. Any amount a plan bids below 96% of Medicare fee-for-service costs in an area will be shared 3/4ths with the beneficiary, 1/4th with Medicare and the taxpayers. This proposal is somewhat similar to Breaux-Frist 2000, and it protects beneficiaries who choose or need to stay in fee-for-service Medicare;

 -extends Medicare's competitive purchasing of durable medical equipment and other services nationwide and gives Medicare more 'inherent reasonableness' authority to cut overpayments;

-saves lives and money by using higher volume hospitals for complicated and expensive surgeries;

-modernizes Medicare's ability to contract with and use intermediaries and carriers;

-gives Medicare numerous "private sector-type" purchasing tools, such as the ability

--(1) to act more like a Preferred Provider Organization (and requires the development of PPOs in the highest cost treatment areas of the nation (after adjustment for severity of illness, etc.)),

--(2) to impose sustainable growth rates on sectors where there is a questionable explosion of services (e.g., CORFs in doctors' offices),

--(3) to receive the most favored price in an area as is appropriate for a volume buyer, and

--(4) to pay for quality, safe care at the lowest rate (HOPD, ASC, or doctor's office), regardless of setting;

-allows Medicare to waive the 3-day hospitalization rule for skilled nursing facility care, if less expensive quality care can be provided by going directly into the SNF rather than the hospital (it is increasingly likely that some DRGs can be treated in quality SNFs);

-develops key long range (ten-year or more) cost reforms, such as

--(1) a single bundled payment system for an illness or injury; and

--(2) a system of profiling patterns of care, educating providers when their pattern of care is abnormal (both for 'excessive' or 'inadequate' care), and eventually reducing payment updates to institutional and individual providers who bill for abnormally expensive care without a quality or severity of illness justification. This proposal is a long-term effort to begin to reduce the huge regional disparities of treatment and health care costs in America which do not appear to provide any particular quality of life difference. As the work of Dr. Wennberg of Dartmouth has repeatedly shown, if we could adopt the style and practice of medicine of certain States where people have high quality health care, the Medicare trust funds would be solvent indefinitely!

-encourages a more rational hospital policy, by using Medicare capital payments and other special payments to discourage over-capacity (the nation's hospitals are roughly half empty, and utilization is expected to continue to decline in the coming decades) and to encourage a trade adjustment assistance-type program to help essential community hospitals "right-size" and achieve long-term financial solvency.

New tax revenue:

With a doubling of the number of seniors and with people living longer, and with new hi-tech devices and medications, we estimate that over the next 30 years we will need about 2.5 times as much money for Medicare as we spend today (in current dollars).

That means new taxes-or at least keeping old taxes.

 In addition to upper-income beneficiaries contributing more (as previously noted), the bill proposes

--to forgo some of this year's proposed tax cuts and save the money for Medicare, by transferring 20% of the projected  on-budget surplus to Medicare ($542 billion over ten years);

-dedicating any revenues received from the Federal government's legal actions against the tobacco companies to Medicare (treating smoking related diseases is estimated to cost Medicare over $20 billion a year); if that court case is not successful or pursued by the new Administration we should increase the tax on cigarettes an equivalent amount;

-Rather than repealing the estate tax, the bill dedicates the amount raised by the estate and gift tax to Medicare. We are about to give this tax revenue away to 2% of decedents. In the year of its proposed total repeal, the revenue loss will be $50 billion per year- enough to provide a drug benefit to what will then be 47 million beneficiaries: the choice should be made clear to the American people--help improve and extend the life of Medicare, or (per the letter from 300 multi-millionaires opposed to estate and gift repeal) help create a plutocracy; and

-dedicate to Medicare a tax on excess profits of certain pharmaceutical sales, in cases where the company's administrative and sales budgets exceed twice their Research and Development budgets; while this provision is not expected to raise any money, it is designed to encourage the drug companies to spend more on R&D and less on political campaigns to defeat adding a drug benefit to Medicare or ads telling us how much they spend on research!

Colleagues, this is a very ambitious bill that would make enormous long-term savings, while also making the Medicare benefit truly adequate. I certainly do not expect it all to pass this Congress, but I hope portions could be included in whatever we are able to accomplish.

It is an attempt to honestly point out the need for more revenues, and for increased efficiencies in our fee-for-service payment systems. It does not include everything we need to do, such as provide

--an error reduction and quality improvement program to stop the 50,000 to 100,000 accidental hospital deaths per year;

--true mental health parity in Medicare, and

--a dependable source of funding for HCFA's administrative costs, or

--'reform' the agency, perhaps by making it a free-standing agency like Social Security

Nevertheless, this bill is a major blueprint for a comprehensive, long-term way to Save Medicare. As this Subcommittee prepares to investigate Medicare reform, it is my hope that this new legislation will be a major part of our discussion.