Statement of Maya MacGuineas, National Board Member,
Third Millennium, New York, New York

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Medicare Reform: Laying the Groundwork for a Prescription Drug Benefit

March 27, 2001

Good afternoon, Madam Chairwoman, and members of the Subcommittee. My name is Maya MacGuineas and I am a board member of Third Millennium, a national non-partisan organization founded by young adults offering solutions to long-term problems facing the United States. Professionally, I am a fellow at the New America Foundation, a non-partisan think thank here in Washington, where I study fiscal policy issues, in particular those related to taxes, the budget and entitlement programs.

Thank you for including us in the discussion today about whether to include a prescription drug benefit in Medicare. We are honored to be here and appreciate that you have chosen to include young adults in this discussion.

Madam Chairwoman, members of my generation think that a prescription drug benefit should be included in Medicare, but believe that if one is created, the benefit should be targeted toward poor and lower income seniors. Furthermore, among various new spending options Congress might consider, a drug benefit is a much lower priority than improving education, providing health insurance for the uninsured, and fixing the Social Security system. Given the choice, my peers, young Democrats, Republicans and Independents alike, would not rush to subsidize prescription drugs.

As the Trustees reiterated on March 19th, Medicare faces tremendous funding pressures that will materialize before anyone in my generation reaches retirement age. The recent news paints a startling picture. We are now talking about an astounding difference between benefits and payroll taxes and premiums of $333 trillion over the next 75 years. That's one-third of a quadrillion dollars!

Throughout its history, Medicare has grown more rapidly than the economy and its growth is expected to accelerate with the retirement of the Baby Boom generation and increasing health care costs, leading to mounting expenses and an-ever expanding share of our nation's resources needed to fund the program. On its current course, by 2075, Medicare will consume more than 8% of GDP. That number may not seem relevant to some of us here today, but to our children and grandchildren, it certainly will be.

The momentum to add a prescription drug program to Medicare has accelerated rapidly and there are indeed good reasons to consider this new benefit, not the least of which is the many seniors who need but cannot afford necessary medications. Nonetheless, we believe that the certainty that "something should be done" must not replace thoughtful contemplation of how to do it right.

First, we believe the issue should not be looked at in a vacuum, but rather in the context of the entire Medicare program. To expand the program without regard to the costs - both today's and tomorrow's - and without addressing the current funding and structural problems plaguing Medicare will only exacerbate the looming financing crisis. And the costs we are talking about are not insignificant. A new prescription drug benefit could easily eat up all of Medicare's surpluses over the next decade and more. This is not a responsible way to prepare for the tremendous costs we know are just around the corner.

This is nothing the subcommittee doesn't already know. But what you may not know are the specifics about how younger generations feel about creating a new prescription drug benefit. I would like to share with you today the results of a just-released national survey Third Millennium commissioned from the bipartisan polling team of Democrat Jefrey Pollock and Republican Frank Luntz. I have submitted the results in their entirety with my written testimony. After randomly interviewing 500 young adults between the ages of 18 and 34, our poll found the following:

My peers clearly support a prescription drug benefit for seniors, but that level of support drops dramatically as the would-be recipient's income increases. For example, more than four out of five of my peers would support a prescription drug benefit in Medicare for seniors with household incomes of $20,000 or less. Three out of five would support a prescription drug benefit in Medicare for seniors with household incomes of $40,000.

Above that $40,000 level, though, support drops off considerably. Only one-third would give this benefit to seniors with household incomes of $60,000, and a mere one out of five would support it for those with incomes of $100,000.

Let me put it another way: While most of my generation is more than willing to help a low-income elderly widow in Connecticut's 6th District or California's 13th, 83% of my contemporaries say it is unfair to give a prescription drug benefit to Hugh Hefner, Ross Perot, or Larry King.

The subject of recipient income arises again when younger adults are asked whether wealthy seniors should have their prescription bills subsidized if their out-of-pocket expenses are more than $6,000 annually. While 35% would support such a subsidy, 61% would not. However, when the exact same question is asked about seniors with low to moderate incomes, supporters overwhelm opponents by an 87% to 12% margin.

My generation's message to Congress is clear: If you want our political support, you need to means-test a new prescription drug benefit. We cannot afford to provide a massive new entitlement for those who don't need it.

We know there are millions of middle-to-high income seniors who would like a new prescription drug benefit. Indeed, there are members of both parties who want to provide one. And my question is this: Is it fair to ask low wage workers in each of your districts, who themselves can barely afford prescription drugs and some of whom have no health insurance at all, to subsidize the drug benefits of those who want a handout but don't need one? Beyond that, is it wise? Two-thirds of retirees currently have prescription drug benefits. If the government introduces a universal program, many current corporate retirement programs are likely to drop that component of their coverage. Couldn't one argue that Uncle Sam's assuming this responsibility would be a form of corporate welfare?

It is worth noting that many seniors are in fact far wealthier than their incomes imply. Retirees are one of the best-off segments of the population, wealthier, in fact, than any previous generation. This in large part is due to the high home ownership rates of older Americans; as many of you know, one's home is the most valuable asset for most families.

The Census Bureau found Americans over 65 have an 80% home ownership rate, twice that of adults under 35. More to the point, according to AARP, 80% of these older homeowners own their homes outright, carrying no mortgage, while only 24% of those under 65 are in that enviable position. Looking more broadly at total assets, the Census Bureau found elderly families between ages 65 and 74 have median assets of $147,000, the highest of any age group. For all age groups, median assets are $72,000; for those under 35, they are just $9,000.

Furthermore, Medicare has been and remains a very generous program. Current retirees are expected to receive two to four times as much as they paid in, according to economist Eugene Steuerle of the Urban Institute. Because of the intergenerational nature of the program, each new expansion provides a windfall for recipients who gain access to new benefits they didn't support during their working years. Now this is not entirely surprising; as time marches on, so too do medical innovations. We are grateful for the many new life-saving and enhancing medicines that have been brought to market over the past decades.

But Third Millennium believes that the costs of these advances cannot be borne entirely by younger generations, who already face a tremendous financing burden. As the GAO recently reported, we are currently on a budgetary path where Social Security, Medicare, and Medicaid will consume more than three-quarters of total federal revenues by 2030. Somewhere in the 2040s, there will be nothing left for any other government spending. The Medicare Trustees contend that just to bring Medicare Part A back into line, program income will have to be increased by 60%.

Oftentimes this discussion is painted as a battle between young and old. That blurs the point. This should be a discussion about who among us - of all ages - receives the benefits, and who among us - of all ages - pays for them.

Therefore, we must target a new benefit only to those who have no other options and who cannot afford prescription drugs on their own. And we must spread those cost among those who can afford them - of all ages. Additionally, we think there is a good argument for providing some type of catastrophic benefit coverage for those who have inordinately high drug costs. But again, we think this should only be done with need and costs in mind.

Madam Chairwoman, what I would most like to stress today is this: Adding a prescription drug benefit to the Medicare program must be part of more comprehensive reforms to strengthen the Medicare program. Since we know that Medicare will face a significant funding shortfall, to ignore this reality while expanding the obligations of the program is not a responsible approach to mending what ails the system. Rather, I fear it will add to the cynicism many young people feel about government and whether the programs they pay for today will be available to them tomorrow.

Indeed, our survey found that nearly half (43%) of people 18-34 think that the TV soap opera "General Hospital" will outlast the Medicare system!

When a program is facing a long-term financing shortfall, expanding benefits is not reform. There are many options - raising the eligibility age, means-testing premiums, relying more on managed care for seniors, and boosting national savings - that will help keep Medicare in balance. We should also rely on increased premiums, deductibles and co-payments rather than just higher payroll taxes or general revenue transfers.

We must acknowledge that adding a prescription drug benefit may be a desirable thing to do, but at the same time it will affect the cost of other reforms. Therefore, the issue of prescription drugs and Medicare reform are inseparable and we hope, will be treated accordingly.

Once again, I thank you for inviting Third Millennium to appear before you today to discuss this very important topic. I hope I have helped to shed some light on where many in our generation hope the discussion will go. I look forward to your questions.

Medicare/Prescription Drugs Phone Survey
of 500 Americans Ages 18-34
March 2001

Hello. This is ______ of ______, a national research firm. We are calling people across the nation to get their views on important national issues. Your views will help shape the issues being debated in Congress. This will only take about eight minutes. (DO NOT PAUSE)

1) First, I need to find someone in your household that is between 18 and 34 years old. What is your age, please? (IF NOT QUALIFIED, ASK FOR SOMEONE ELSE IN THE HOUSEHOLD WHO IS. OTHERWISE, TERMINATE)

26% 18-24
29% 25-29
45% 30-34
-- OVER 34 (TERMINATE)
-- UNDER 18 (TERMINATE)
-- DON'T KNOW / REFUSED (TERMINATE) (DON'T READ)

The following set of questions deal with Medicare, the Federal government program that provides health insurance for Americans age 65 and older, regardless of their income. As you may or may not know, Medicare covers hospital costs, and seniors pay a small premium to help cover doctor costs, but Medicare does not cover most prescription drugs. About two-thirds of all seniors, however, have prescription drug insurance through other sources, such as retiree benefits or private insurance.

2) Congress is currently debating whether to add a prescription drug benefit to Medicare…

Some Members of Congress want to provide prescription drug coverage TO ALL seniors regardless of income, at an estimated cost of roughly 98 billion dollars over four years….

Other Members of Congress want to provide prescription drug coverage to ONLY lower income seniors at an estimated cost of roughly 48 billion dollars over four years….

Which type of prescription drug plan do you think Congress should create? (READ ALL ANSWERS--ROTATE)

38% A 98 BILLION DOLLAR DRUG BENEFIT FOR ALL SENIORS - REGARDLESS OF INCOME; or
48% A 48 BILLION DOLLAR DRUG BENEFIT ONLY FOR SENIORS WITH LOWER INCOMES; or
4% THE COUNTRY CANNOT AFFORD TO OFFER SENIORS A DRUG BENEFIT OF ANY TYPE; or
10% DON'T KNOW/REFUSED (DON'T READ)

Would you strongly support, somewhat support, somewhat oppose or strongly oppose allocating tax dollars to pay for prescription drugs for seniors with household incomes of

3. $16,000 per year?
48% STRONGLY SUPPORT
38% SOMEWHAT SUPPORT
4% SOMEWHAT OPPOSE
6% STRONGLY OPPOSE
3% DON'T KNOW/REFUSED (DON'T READ)

(ROTATE TOP TO BOTTOM OR BOTTOM TO TOP QUESTIONS #4-#7)

4. And what is your response if they had an annual income of $20,000 per year?
47% STRONGLY SUPPORT
37% SOMEWHAT SUPPORT
7% SOMEWHAT OPPOSE
5% STRONGLY OPPOSE
5% DON'T KNOW/REFUSED (DON'T READ)

5. And what if they had an annual income of $40,000 per year?
20% STRONGLY SUPPORT
41% SOMEWHAT SUPPORT
21% SOMEWHAT OPPOSE
14% STRONGLY OPPOSE
4% DON'T KNOW/REFUSED (DON'T READ)

6. And what if they had an annual income of $60,000 a year?
9% STRONGLY SUPPORT
26% SOMEWHAT SUPPORT
28% SOMEWHAT OPPOSE
34% STRONGLY OPPOSE
4% DON'T KNOW/REFUSED (DON'T READ)

7. And what if they had an annual income of $100,000 a year?
6% STRONGLY SUPPORT
14% SOMEWHAT SUPPORT
18% SOMEWHAT OPPOSE
61% STRONGLY OPPOSE
2% DON'T KNOW/REFUSED (DON'T READ)

8a) (SPLIT SAMPLE) And would you [READ RESPONSES] providing tax dollars to WEALTHY SENIORS whose out-of-pocket prescription drug bills are more than $6,000 per year?

11% STRONGLY SUPPORT
4% SOMEWHAT SUPPORT
29% SOMEWHAT OPPOSE
32% STRONGLY OPPOSE
5% DON'T KNOW/REFUSED (DON'T READ)

8b) (SPLIT SAMPLE) And would you [READ RESPONSES] providing tax dollars to SENIORS WITH LOW TO MODERATE INCOMES whose out-of-pocket prescription drug bills are more than $6,000 per year?

55% STRONGLY SUPPORT
32% SOMEWHAT SUPPORT
6% SOMEWHAT OPPOSE
5% STRONGLY OPPOSE
1% DON'T KNOW/REFUSED (DON'T READ)

Now, according to official government projections, the Medicare system will begin paying out more in benefits than it will receive in taxes well before most of the Baby Boom generation is retired. Knowing this, I'd like to ask whether you support or oppose the following proposals for reforming Medicare.

9) Currently, Medicare pays doctors and hospitals directly for covered benefits received by seniors. One reform proposal would instead provide each beneficiary with a fixed amount of money each year to buy coverage from the private insurance plan of his or her choice. Seniors could stay in the existing Medicare system if they preferred. Is this something you would ... ?

23% STRONGLY SUPPORT
52% SOMEWHAT SUPPORT
12% SOMEWHAT OPPOSE
8% STRONGLY OPPOSE
2% NO OPINION (DON'T READ)
2% DON'T KNOW/REFUSED (DON'T READ)

10a) (SPLIT SAMPLE) Currently, individuals become eligible for Medicare at age 65. [One proposal is to gradually raise the Medicare eligibility age to 70 over the next 20 years. Is this something you would ... ? ]

10% STRONGLY SUPPORT
13% SOMEWHAT SUPPORT
24% SOMEWHAT OPPOSE
52% STRONGLY OPPOSE
1% NO OPINION (DON'T READ)
-- DON'T KNOW/REFUSED (DON'T READ)

10b) (SPLIT SAMPLE) Currently, individuals become eligible for Medicare at age 65. [One proposal would gradually raise the Medicare eligibility age to 67 to mirror the Social Security eligibility age increases that are already required by law. Is this something you would ... ?]

14% STRONGLY SUPPORT
26% SOMEWHAT SUPPORT
27% SOMEWHAT OPPOSE
28% STRONGLY OPPOSE
2% NO OPINION (DON'T READ)
2% DON'T KNOW/REFUSED (DON'T READ)

11) Currently, all seniors pay the same amount of money for Medicare coverage, regardless of their income. One proposal would tie the amount of money seniors pay for Medicare to their household income, so wealthier retirees would pay more and lower income seniors would pay less. Is this something you…

49% STRONGLY SUPPORT
29% SOMEWHAT SUPPORT
9% SOMEWHAT OPPOSE
11% STRONGLY OPPOSE
1% NO OPINION (DON'T READ)
1% DON'T KNOW/REFUSED (DON'T READ)

12) Today, workers and their employers pay a combined 2.9 percent of their wages for a Medicare payroll tax. In the future, it is projected that this tax will no longer generate enough money to cover the cost of Medicare benefits for everyone who will need them. One proposal is to increase this payroll tax rate on workers to fund Medicare for the future. Is this something you would ... ?

15% STRONGLY SUPPORT
40% SOMEWHAT SUPPORT
19% SOMEWHAT OPPOSE
23% STRONGLY OPPOSE
1% NO OPINION (DON'T READ)
2% DON'T KNOW/REFUSED (DON'T READ)

13) Currently, only a small percentage of senior citizens get their health care through managed care plans, such as HMOs. Would you [READ RESPONSES] offering seniors financial incentives to enroll in managed care plans in order to slow the growth of Medicare, as long as they could choose another plan later if they were dissatisfied in any way?

31% STRONGLY SUPPORT
48% SOMEWHAT SUPPORT
9% SOMEWHAT OPPOSE
8% STRONGLY OPPOSE
3% NO OPINION (DON'T READ)
2% DON'T KNOW/REFUSED (DON'T READ)

14a) (SPLIT SAMPLE) Currently, 36% of all federal spending goes to programs for the elderly, mainly for Social Security and Medicare. Do you think spending just over one-third of the federal budget on the elderly is: (READ & ROTATE TOP TO BOTTOM OR BOTTOM TO TOP)

16% TOO HIGH
55% JUST RIGHT
21% NOT HIGH ENOUGH
7% DON'T KNOW/REFUSED (DON'T READ)

14b) (SPLIT SAMPLE) Currently, 36% of all federal spending goes to programs for the elderly, mainly for Social Security and Medicare. [Thinking about all of the programs the Federal government needs to spend money on,] do you think spending just over one-third of the federal budget on the elderly is: (READ & ROTATE TOP TO BOTTOM OR BOTTOM TO TOP)

20% TOO HIGH
48% JUST RIGHT
21% NOT HIGH ENOUGH
11% DON'T KNOW/REFUSED (DON'T READ)

15) And what do you believe should be the proper ratio of government spending in the federal budget on seniors as compared to children? (READ & ROTATE TOP TO BOTTOM OR BOTTOM TO TOP)

3% $8 SPENT for seniors, for every $1 SPENT for children
9% $4 SPENT for seniors, for every $1 SPENT for children
38% $1 SPENT for seniors, for every $1 SPENT for children
31% $1 SPENT for seniors for every $4 SPENT for children
9% $1 SPENT for seniors for every $8 SPENT for children
9% DON'T KNOW / REFUSED (DON'T READ)

16a) (SPLIT SAMPLE) By most estimates, [adding a prescription drug benefit to Medicare for all seniors would cost roughly 98 billion dollars over the next four years]. With that in mind, which of the following should be the most important funding priority? (ROTATE)

9% Paying down the national debt
19% STRENGTHENING Social Security
34% Increasing spending on education
11% Adding a Prescription Drug Benefit to Medicare
22% PROVIDING HEALTH CARE FOR THE uninsured
5% DON'T KNOW / REFUSED (DON'T READ)

16b) (SPLIT SAMPLE) By most estimates, [adding a prescription drug benefit to Medicare for low or modest income seniors would cost roughly 48 billion dollars over the next four years]. With that in mind, which of the following should be the most important funding priority? (ROTATE)

12% Paying down the national debt
13% STRENGTHENING Social Security
34% Increasing spending on education
8% Adding a Prescription Drug Benefit to Medicare
25% PROVIDING HEALTH CARE FOR THE uninsured
8% DON'T KNOW / REFUSED (DON'T READ)

Now, please take the next two questions seriously:

17) Considering that they both started in the mid-1960s, which do you think will last longer, the Medicare system or the TV soap opera "General Hospital"? (ROTATE ANSWERS)

43% GENERAL HOSPITAL
52% MEDICARE
5% DON'T KNOW/REFUSED (DON'T READ)

18) In general, do you think it would be fair or unfair for taxpayers to pay for part of the cost of prescription drugs for very wealthy elderly people who might use them, such as Hugh Hefner, Larry King or Ross Perot?

14% FAIR
83% UNFAIR
3% DON'T KNOW/REFUSED (DON'T READ)

Now a few final questions for demographic purposes only…

19) In terms of family status, are you:

6% SINGLE WITH CHILDREN
30% SINGLE WITHOUT CHILDREN
2% DIVORCED WITH CHILDREN
1% DIVORCED WITHOUT CHILDREN
42% MARRIED WITH CHILDREN
16% MARRIED WITHOUT CHILDREN
2% OTHER (DON'T READ)

20) Do you have health insurance of any kind?

90% YES
9% NO
1% DON'T KNOW/REFUSED (DON'T READ)

21) In the 2000 Presidential election, did you vote for George Bush, Al Gore, someone else, or did you not vote? If you were not registered to vote, just say so.

35% BUSH
29% GORE
6% SOMEONE ELSE
20% DID NOT VOTE
7% NOT REGISTERED
4% DON'T KNOW/REFUSED (DON'T READ)

22) Do you generally consider yourself to be a Republican, a Democrat or an Independent?

29% DEMOCRAT
31% REPUBLICAN
34% INDEPENDENT
6% DON"T KNOW/REFUSED (DON'T READ)

23) And what is the final level of formal education you completed?

4% LESS THAN HIGH SCHOOL
21% HIGH SCHOOL GRADUATE
28% SOME COLLEGE OR TECHNICAL SCHOOL
34% FOUR-YEAR COLLEGE GRADUATE
12% A POST-GRADUATE DEGREE OF SOME KIND
1% DON'T KNOW/REFUSED (DON'T READ)

24) Region (FROM SAMPLE)

24% NORTHEAST
22% SOUTH
31% INDUSTRIAL MIDWEST
16% MIDWEST/WEST
6% PACIFIC

25) Gender (BY VOICE; DO NOT ASK)

48% MALE
52% FEMALE

Methodology: Using the traditional random digit dial technique, a nationwide sample of 500 adults aged 18 to 34 was surveyed by telephone from March 6-7, 2001 by the Republican polling firm The Luntz Research Companies and the Democratic polling firm Global Strategy Group. The margin of error for telephone surveys of this type is +/- 4.5%.