______________________________________________________

HEARING ON MEDPAC MARCH 2011 REPORT TO CONGRESS

The subcommittee met, pursuant to call, at 9:35 a.m., in Room 1100, Longworth House Office Building, Honorable Wally Herger [chairman of the subcommittee] presiding.

[The advisory of the hearing follows:]

______________________________________________________

Chairman Herger.  We are meeting today to hear from the two public members of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 

It is important to understand the financial health of the Medicare program if we are to ensure that the program is solvent and available to future generations of Americans.  The 2011 trustees’ report makes it clear that Medicare’s financial outlook is bleak.  The Medicare trustees estimate that the Medicare Hospital Insurance Trust Fund will be bankrupt in 2024, 5 years earlier than estimated in last year’s report.  Even though the report paints a very troubling financial picture, the reality is likely much worse. 

The independent actuaries at the Centers for Medicare and Medicaid Services felt the need to publish an alternative scenario because of the high likelihood that the trustees report, which is based on current law, understates future Medicare spending.  The Medicare actuaries’ alternative scenario assumes that Congress will prevent scheduled cuts in provider payments such that Medicare spending as a percentage of gross domestic product will be nearly twice as high as the spending called for under current law. 

The trustees report and the alternative scenario reinforce the need for prompt attention to Medicare’s severe financial problems. 

Republicans recognize the seriousness of this situation, and have demonstrated their commitment to addressing Medicare’s financial demise.  We put forth a plan to save Medicare.  Congressional Democrats and President Obama have not.  My hope is that this hearing will help the Nation come to grips with the extent of the financial problems facing Medicare.  We cannot wish it away or ignore it, as some have chosen to do, or demagogue it away.  Medicare is fast going broke, and no amount of speechmaking or positioning for political gain is going to change that fact.  Some may not like the plan we have offered, but the critics have the responsibility of proposing solutions. 

I also call on the President to step forward and play a leading role.  While the 2011 trustees report issued a funding warning that the general revenue contribution to Medicare’s financing is excessive, the President has failed to recommend improvements in response to this trigger. 

There will always be a next election and a temptation to put politics above responsibility and problem solving, but as Medicare trustees warn, the time to act is short and growing shorter.  Ensuring the financial viability of Medicare is one of Congress’ most important responsibilities.  Today’s witnesses will inform us of the extent of Medicare’s financial difficulties as we execute this responsibility.

Chairman Herger.  Before I recognize Ranking Member Stark for the purposes of an opening statement, I ask unanimous consent that all Members’ written statements be included in the record.  Without objection, so ordered.

Chairman Herger.  I now recognize Ranking Member Stark for 5 minutes for the purpose of his opening statement. 

Mr. Stark.  Well, thank you, Chairman Herger, for holding this hearing today.  Monitoring Medicare’s solvency is an important responsibility for our committee, and we welcome the opportunity to discuss this with our public trustees today. 

The trustees report shows a Medicare program which has been significantly improved by the enactment of the Affordable Care Act.  Beneficiaries are also enjoying new benefits as a result of the law.  And without the health reform law, insolvency would be projected at only 5 years, a full 8 years less than the 2024 date reported by the trustees. 

It is important to look at the trustees report in historical context.  Since we have been projecting Medicare’s solvency, those projections have varied widely.  In 1970 and 1971, just before I got here, the program was expected to only last 2 years.  At the end of the Clinton administration, it had a robust 25 years of solvency.  In the past 45 years, whether solvency projections have been 2 years or 25, we have never allowed Medicare to become insolvent.  And why?  Because Congress has always acted to make changes to the program to avoid that outcome.  That is our job, and I think we have done it pretty well. 

I would also note that no private health insurance company, and we know our colleagues on the other side of the aisle would prefer that Medicare be handed over to them, none of those companies are measured with regard to their projected solvency over the next 75 years, or even 1 year.  They move quarter by quarter with the market. 

My Republican colleagues will focus on the solvency date having slipped 5 years from last year’s projection of 2029.  We know that this slip is primarily due to the economic recovery being so slow, which directly affects Medicare’s financial standing.  I am not sure why the Republicans are focused on the issue of Medicare solvency at all.  They have already voted to end Medicare several times.  The Republican position is clear:  Republicans don’t believe it is the role of the Federal Government to guarantee health benefits to senior citizens and people with disabilities.  Republicans would prefer to repeal the health reform law and end the delivery system reforms, reforms that the trustees’ report highlight as showing real promise for controlling Medicare’s spending growth even more in the future.  Republicans instead want to provide Medicare beneficiaries with a voucher to purchase more expensive private insurance that may or may not be affordable or cover the benefits they need.  There is no doubt that an underfunded voucher would save the government money.  Medicare becomes a lot cheaper when you destroy the program. 

The message to take from this year’s trustees report is that the Affordable Care Act significantly improved Medicare’s financial standing.  There is always more to be done, and we must work together to protect and improve Medicare, not end its guaranteed benefits for senior citizens today and tomorrow. 

With that, I yield back to my friend from California and look forward to the testimony and discussion to come. 

Chairman Herger.  Thank you.

Chairman Herger.  Today, we are joined by two witnesses, both of whom serve as public trustees for the Medicare program.  The witnesses will both report on the dire financial status of the Medicare program as outlined in the most recent trustees’ report. 

In addition to serving as public trustees, both of our witnesses are nationally recognized experts in the fields of Federal fiscal policy and the Federal budget. 

Our witnesses are Charles Blahous, a research fellow at the Hoover Institution and former Deputy Director of the National Economic Council; and Robert Reischauer, president of the Urban Institute and former Director of the Congressional Budget Office. 

Mr. Blahous, you are now recognized for 5 minutes.


STATEMENT OF CHARLES P. BLAHOUS, PH.D., SOCIAL SECURITY AND MEDICARE BOARDS OF TRUSTEES, WASHINGTON, D.C.

Mr. Blahous.  Thank you, Chairman Herger, Ranking Member Stark, and members of the subcommittee.  It is a great honor to appear before you today to discuss the findings of the 2011 Medicare trustees’ report. 

By mutual agreement with my fellow public trustee Dr. Reischauer, I will present the primary findings of the report with respect to projected Medicare finances, and leave other important issues, such as the reasons for change in the projections and the degree of uncertainty in the projections, for him to discuss. 

Medicare has two trust funds.  There is a Hospital Insurance Trust Fund, colloquially known as Part A; and a Supplementary Medical Insurance Trust Fund, which includes Part B, which is basically physician services, outpatient hospital, home health services; and Part D, the prescription drug program.  Every year there is a great amount of interest in the trustees’ projections for the solvency of the Part A fund and its projected date of trust fund depletion.  That attention is appropriate. 

It is important to remember, however, this is just one component of overall Medicare financing.  On the SMI side, basically general revenue contributions, premiums, these factors are reestablished each year so as to match expected costs on that side of the program.  So when there are financial strains on the SMI side, which there definitely are, they are manifested in a different way.  We don’t show a projected date of trust fund depletion; instead, we show rising general revenue pressures and rising enrollee premiums.  

Let me first review the HI projections.  Currently we project that every year going forward annual hospital expenditures under HI will exceed program income in all future years.  And the consequences of that would be a continuing diminution of the assets in the HI Trust Fund to the point where it is exhausted in 2024.  As has been noted here, that 2024 date is 5 years earlier than was projected in the previous trustees’ report. 

At that point of depletion, projected revenues would be roughly sufficient to fund about 90 percent of expenditures, and that percentage would gradually decline from that point forward till by midcentury it would be about three‑quarters of expected expenditures.  That would be a low point.  Afterwards, it would begin to drift up a little bit. 

Over 75 years, the so‑called long‑range valuation period over which HI actuarial balance is measured, that is traditionally done as a percentage of the program’s tax base, taxable payroll, and we show a projected deficit of 0.79 percent of taxable payroll over 75 years.  Last year’s report showed 0.66 percent. 

Now, as I have noted, this is just one component of Medicare financing.  On the SMI side, we see the financial strains arising in the form of rising costs.  SMI costs were roughly 1.9 percent of GDP in 2010.  We show them rising fairly rapidly and going to 3.4 percent of GDP in 2035.  And, indeed, Medicare costs as a whole are projected to rise fairly rapidly to reach about 5.6 percent of GDP in 2035 and to increase gradually thereafter to more than 6 percent of GDP. 

Now, I have a couple of caveats about those numbers, but before I get to those, just one additional point.  This year’s report also issues a Medicare funding warning.  There is a provision of law that requires us to state when we project that at any time over the next 7 years there will be a year where the gap between program outlays and dedicated revenues is more than 45 percent of program outlays, and that is the case for fiscal year 2011, and that funding warning has been issued in this report for the sixth consecutive year. 

Now, the caveat about the numbers.  There are a number of places in the trustees’ report where it is stated pretty explicitly that actual costs in practice are likely to be substantially higher than what we show, and the reasons for this are various.  The most obvious of them is the fact that under current law there would be roughly a 29 percent reduction in physician payments in early 2012.  Historically, Congress and the administration have worked together to override those reductions that have been called for by the sustainable growth rate formula over the years.  Obviously if that continued to be the case, then actual costs in practice would be higher than we show.  

As members of this subcommittee know better than anyone, there is a vigorous ongoing debate as to whether or not the cost‑savings provisions of the Affordable Care Act will be sustainably implemented other the long term.  We as trustees are obviously not in a position to arbitrate on that and to predict the political economy of the Affordable Care Act over the long term.  All we can do is show literal current law as it is written. 

Now, what the Medicare actuary does is he publishes an illustrative alternative scenario in which it is shown that the consequences of physician payment reductions being overridden and the productivity adjustments from the Affordable Care Act being gradually phased out over time.  Under that scenario total costs are substantially higher than in the main report, 10.7 percent of GDP in 2085 rather than 6.2 percent. 

I know I am out of time, so I will wrap up.  Just one final point.  That all speaks to political uncertainty, but it is important for the subcommittee to know that Medicare projections are highly uncertain even if the politics are certain.  There is a tremendous amount of variation in the projections over the long term according to different assumptions for health care cost inflation.  It is a very difficult variable to predict over the long term.  

The bottom line is that the Medicare programs faces real and substantial financial challenges.  We will best serve the interests of the public if these financial corrections are made at the earliest possible time. 

Thank you, Mr. Chairman.

Chairman Herger.  Thank you.

[The statement of Mr. Blahous follows:]

Chairman Herger.  Now Mr. Reischauer is recognized for 5 minutes. 

STATEMENT OF ROBERT REISCHAUER, PH.D., PUBLIC TRUSTEE, SOCIAL SECURITY AND MEDICARE BOARDS OF TRUSTEES, WASHINGTON, D.C.

Mr. Reischauer.  Thank you, Chairman Herger, Ranking Member Stark, and members of the subcommittee.  I appreciate the opportunity to appear before you to discuss the 2011 Medicare trustees’ report. 

I will focus my comments on changes that have occurred between the 2010 and 2011 reports and on the inherent uncertainty that surrounds projections of health care costs, both in the public and the private sectors. 

As you all know, the trustees’ projections of the financial health of the Medicare program change each year for a variety of reasons.  There might be legislation that affects them.  There is almost always a failure of the base year actual amounts to equal what was projected the previous year for that year.  There are changes in economic and demographic assumptions, and there are continual refinements and improvements in the methodologies used by the actuaries to make the projections. 

The media and the public, as my colleague pointed out, look largely at the date at which the HI trust fund becomes exhausted to make a judgment about whether the changes have been significant or not from one year to the next.  As has been mentioned, the 2011 trustees’ report projects that the Medicare HI Trust Fund will be depleted in 2024, which is 5 years earlier than projected in 2010.  But it is worth noting that that is still 7 years later than was projected in the 2009 report, which was the last one issued before the Affordable Care Act was enacted, and 8 years longer than the actuaries’ latest estimates for the date of depletion were the Affordable Care Act not the law of the land. 

The 5‑year deterioration in the date of the trust fund exhaustion might suggest that some major changes have occurred in policy or in assumptions.  That is not the case.  Instead, rather small deviations of actual from projected performance in 2010, and a few small changes in assumptions about the future, were enough to move the estimated date of exhaustion 5 years earlier. 

The second figure in my prepared statement shows that Medicare expenditures have exceeded income since 2008.  Last year’s trustees’ reports projected that as the economy recovered, this would turn around, and we would experience small surpluses in that trust fund in the period between 2014 and 2022.  But under the new projections, Medicare spending is expected to exceed income for the indefinite future. 

A more comprehensive measure of the HI Trust Fund’s fiscal situation is the actuarial balance, which is the difference between the program’s annual income and costs rates averaged over a 75‑year period and expressed as a fraction of taxable payroll.  The actuarial balance has deteriorated from minus 0.69 to minus 0.79 between the 2010 and 2011 report.  The primary factor responsible for this decline is that expenditures were higher and payroll taxes were lower in the base year 2010 than was anticipated in the previous year. 

Let me just say a few words about the inherent uncertainty of projecting Medicare’s expenditures.  We all realize that there is a lot of change going on in health care, both in the public and the private sectors, and how that will play out over the next several decades is quite uncertain.  As the chairman has mentioned, the trustees’ report projects expenditures and income based on current law, and because current law assumes the implementation of a 29.4 percent reduction in the physician fee schedule payments in 2012, some have viewed this as a relatively optimistic scenario. 

The actuaries have provided an alternative estimate, which, as my colleague explained, assumes that the physician fee schedule is increased each year by the Medicare Economic Index, and also that the productivity-related reduction in payment for other providers is phased out.  Some have suggested that this is the right or appropriate alternative projection.  I think one can argue that, in fact, just as the trustees’ report might be a little optimistic, this is a little pessimistic, because over the last 9 years, the update in the physician fee schedule has not kept pace with the Medicare Economic Index, and at times we have seen a reduction from full updates for other providers. 

I think the message that we leave you with is that further legislative changes have to be considered by the Congress.  The sooner those are enacted, the less disruption there will be for taxpayers, for beneficiaries, and for providers.  And so it is essential that this is on the front burner of the Congress. 

Thank you. 

Chairman Herger.  Thank you very much. 

[The statement of Mr. Reischauer follows:]

Chairman Herger.  I thank our witnesses for their testimonies. 

Before I get to my questions, I would like to welcome the newest member of the Health Subcommittee, Vern Buchanan.  As Mr. Buchanan has many Medicare beneficiaries in his district, we especially look forward to his insights. 

Mr. Blahous, I would like to get a few things on the record.  When do the Medicare trustees expect the Medicare Hospital Insurance Trust Fund to go bankrupt? 

Mr. Blahous.  We project depletion of the trust fund in 2024.

Chairman Herger.  What was the bankruptcy date in last year’s trustee report? 

Mr. Blahous.  It was 2029.

Chairman Herger.  So in the course of 1 year, the Medicare HI Trust Fund lost 5 years in solvency?  Is this something Congress should be concerned about? 

Mr. Blahous.  Well, I would state we should definitely be concerned about the hastening insolvency of the trust fund.  As I note in my testimony, because trust fund balances are so low for several years going forward, changes of several years in the insolvency date are quite possible even without qualitative changes in the annual operations of Medicare. 

Chairman Herger.  Mr. Blahous, I can tell you that it is certainly alarming to me that during the course of just 1 year, the Medicare Hospital Insurance Trust Fund lost 5 years of solvency and is now expected to go bankrupt, as you stated, in 2024.  You state in your testimony that “it does not take a great deal of creativity to imagine a 2012 Medicare trustees’ report in which the Hospital Insurance Trust Fund and solvency date moves again by several years in either direction.” 

Are you suggesting that it is possible that we could see a Medicare bankruptcy date within the next 10 years? 

Mr. Blahous.  Well, it is certainly very possible.  The trust fund ratio, that is basically the measure of the relationship of assets in the trust fund to annual expenditures, that is projected to drop below 50 in 2015.  So less than half a year’s worth of benefit payments could be accounted for by assets in the trust fund.  Once you are down at that level, you run the risk of trust fund depletion.  That is certainly very possible.  It is also quite possible it could move the other way. 

Chairman Herger.  The trustees’ report estimates that the Medicare Hospital Insurance Trust Fund is projected to spend more money paying claims this year than it will collect via the payroll tax; is that correct? 

Mr. Blahous.  Yes. 

Chairman Herger.  How long has that been the case? 

Mr. Blahous.  2008 was the first year. 

Chairman Herger.  Do you expect this trend of the Medicare Hospital Insurance Trust Fund spending more than it is collecting to continue? 

Mr. Blahous.  Yes, we do. 

Chairman Herger.  Are you aware of any program that will be financially sustainable if it spends more money than it has, or is this a recipe for bankruptcy? 

Mr. Blahous.  Well, certainly our current projections would exhaust the trust fund because of these annual operating deficits, yes. 

Chairman Herger.  I thank you. 

Mr. Stark is recognized for 5 minutes. 

Mr. Stark.  Thank you, Mr. Chairman. 

Mr. Reischauer, if you would just help me for a minute with a personal matter.  I have a 9‑year‑old who hates math and science, but he wants to be the batboy for the Democrats’ ball team.  I have to go home and explain to him how somebody with a Ph.D., like yourself, in computational quantum chemistry gets published in the Baseball Research Journal.  Can you help me a little bit?  That is a personal matter, and if you want to take time later, I would certainly appreciate the help at home to get this little bugger to study his math and science, and let him know that he could have something to do with baseball.  It would be deeply appreciated. 

The shortened solvency date, Dr. Reischauer, I believe has been caused by sluggish economic recovery, and it is due to a drop in revenues and an increase in spending, both factors caused by the general state of our economy; am I close? 

Mr. Reischauer.  You are right on the money.  This is a program that is sensitive to the strength of the economy, both in direct and quite indirect ways.  When economic growth picks up, wages of providers goes up, expenditures go up as a result of that.  When the economy weakens, we see both induced enrollment of those who lose their jobs but were working when they were over 65, and a fall‑off in payroll tax revenues. 

Mr. Stark.  Some have suggested that we could save a good bit of money by allowing Medicare private contracting.  The Republicans seem to think that this would allow Medicare to continue paying doctors, but then allow doctors to charge whatever they want on top of the Medicare payment.  Do you have any concerns about the effects of private contracting on, say, access to care and quality of care? 

Mr. Reischauer.  As a public trustee, I don’t.  As an analyst, it is an area that concerns me in that if private contracting were permitted and were not regulated, we could see access by individuals who are in tight markets, tight provider markets, begin to create some problems. 

Mr. Stark.  The Affordable Care Act is going to expire in 2016, and the report issued today shows that the reforms in the Affordable Care Act would add 8 years to the solvency.  Before I ask if you think that is about right, I do notice that since I have been here, and perhaps since Mr. Rangel has been here, we have been going to go broke just about every year, and the reason, of course, we don’t is that Congress acts in one way or another to protect Medicare.  But going back, the question of the shortened solvency date caused by the economy in general, is there any one area that you suggest to us that we might move to extend the solvency of Medicare? 

Mr. Reischauer.  You know, there are a tremendous variety of measures that could strengthen the Medicare program’s financial position, and some basic decisions have to be made by the Congress on the extent to which we should look to beneficiaries, taxpayers, or providers to contribute to that effort.  Some of them involve changes in the current structure.  Others involve incentives that might lead to a reformed delivery system, and we could talk for several weeks, probably, on the pros and cons of the various alternatives. 

Mr. Stark.  Thank you. 

I thank you, Mr. Chairman. 

Chairman Herger.  The gentleman from Texas Mr. Johnson is recognized for 5 minutes. 

Mr. Johnson.  Thank you, Mr. Chairman. 

Good morning.  You know, 5 years.  Last Congress, the Democratically controlled Congress, passed a health care overhaul and a stimulus bill that were supposed to control health care costs and extend the life of the trust fund.  From your report I would say these bills failed.  Do you think those efforts are enough to solve this crisis? 

Mr. Pascrell.  Would the gentleman yield, Mr. Johnson? 

Mr. Johnson.  Why? 

Mr. Pascrell.  I wanted to ask you a question. 

Mr. Johnson.  Ask me a question?  I don’t yield. 

I want to know if you think that those efforts are enough to solve the Medicare problem, or did we not get into it deep enough? 

Mr. Blahous.  Clearly under our projections, we have a deficit in Medicare, even if we assume the current law is sustainably implemented.  And as I indicated, actual costs are probably likely to be somewhat higher than what we show.  So we clearly have a remaining problem left to solve. 

Mr. Reischauer.  Notwithstanding that, the best estimates, our estimates and CBO’s estimates of the Affordable Care Act are that they extended the life of the trust fund, and were the Affordable Care Act to be repealed, the date at which the trust fund would become depleted would move from 2024 to 2016. 

Mr. Johnson.  I recognize you all are Ph.Ds,  do you consult with medical doctors when you look at this kind of thing?  Do you have them in front of you talking to you and telling you what their problems are; yes or no? 

Mr. Reischauer.  You mean when we do the iterations for the trustees’ report?

Mr. Johnson.  Yes.

Mr. Reischauer.  No.

Mr. Blahous.  No. 

Mr. Johnson.  So you are not consulting the medical community at all.  And, you know, docs, I think, play the system.  They are going to ask for more than it really costs them because they know it isn’t going to get paid.  You are probably aware of that.  That is why I ask you if you ever consult with the doctors themselves.  The paperwork is atrocious.  I don’t know if you are aware of that or not.  But it seems to me that the doc costs are part of our problem.  I don’t know that you all have really considered it. 

Clearly we need to do more to save Medicare for future generations.  I would just ask both of you:  Do you have solutions for this problem?  You know, you talk about the problem.  What are the solutions? 

Mr. Blahous.  Again, I would be very careful to say as trustees, we have to be very careful about not having a view.  Personally, I think there are only so many levers you can pull.  The things that drive the problem are the growth of the beneficiary population, so you have to look at eligibility criteria and eligibility ages.  You have to look at the growth of the per capita benefits paid by the Federal Government.  That is always dicey, and you get attacked for, quote, “cutting benefits” when you do that.  But no matter how you do that, whether you are talking about the Affordable Care Act or alternative visions for Medicare, we are all in the game of having to cap the growth of the per capita benefits the Federal Government is paying and controlling that rate of growth in some way.  That has to be a component of the solution.  In fact, we need additional cost constraint beyond what is in current law if Medicare is going to be maintained in terms of its solvency. 

Mr. Johnson.  Do you have a comment on that, Dr. Reischauer? 

Mr. Reischauer.  Well, I would agree with my colleague that there are a handful of areas that you can look to.  Changing the number of folks who are eligible for this program, the definition of covered benefits, the payment to providers, the contribution from beneficiaries ‑‑ in other words, premiums ‑‑ and the contribution from the taxpayer, those are easy ones to estimate the savings that might result from them.  A much harder one is to figure out what a change, a significant change, in the structure of the delivery system might do to lower the growth of costs over the long run. 

Mr. Johnson.  Thank you both for your comments.  I appreciate it. 

Thank you, Mr. Chairman. 

Chairman Herger.  Thank you. 

The gentleman from Wisconsin Mr. Ryan, the chairman of the Budget Committee. 

Mr. Ryan.  Thank you gentlemen for coming here.  Five minutes isn’t enough time to get into all of this. 

A couple of things.  It has been said that we want it to go away, or something like that.  We all represent around 700,000 people.  Our relatives are on Medicare.  It is probably one of the most important programs the Federal Government has or has ever have.  We want it to work; we want to save it. 

Here is our problem.  We have 10,000 baby boomers retiring every day with fewer workers coming into the workforce to pay for it.  We have health care costs going up a lot faster than inflation.  You are telling us that the HI Trust Fund is going bankrupt in 2024; CBO is telling us faster than that.  So something has got to be done. 

I want to ask you a couple of premise questions.  A, do you both agree that you cannot say the savings in Medicare is going to pay for the Affordable Care Act and extend the solvency of Medicare?  Do you agree that that is counting a dollar twice?  Just a quick yes or no. 

Mr. Blahous.  I agree with that. 

Mr. Ryan.  Bob, I assume you do? 

Mr. Reischauer.  From a unified budget standpoint, the answer is yes. 

Mr. Ryan.  Right.  So we had the trustees giving us these alternative scenarios for 2 years now, which I find pretty amazing.  So under more realistic assumptions, we find that you can’t fund one other government program on the one hand and then extend the solvency on the other hand.  That is double counting.  We are not suggesting that CBO is doing the double counting, we are saying Congress is doing the double counting. 

Point number two, Mr. Stark is right, we have faced insolvency before.  Congress has always done something to deal with it; but the problem is the cliff is getting that much steeper.  If we keep kicking the can down the road and waiting until insolvency is on the doorstep, then the solutions will be that much more dire, that much more bitter, and people will be that much more affected. 

How many providers do you think are going to stay providing Medicare benefits if they are getting 66 cents on the dollar for every Medicare patient they have coming in the door?  If you are telling us, as you do in your trustees’ report, that they are going to pay 66 cents on the dollar down to 33 cents on the dollar, we might have a Medicare program, but it is not going to work for people on Medicare if nobody takes Medicare as a provider. 

So we have got to be realistic about what is necessary to save Medicare.  I would just simply say that the lessons we learned from the previous Medicare fixes are lessons we should take into the future.  1997 was an important budget agreement.  It was bipartisan.  It was a Republican Congress and a Democrat President doing a budget agreement to extend Medicare solvency and get the economy growing, produce budget surpluses. 

But here is the lesson we got out of that exercise:  Price controls and Medicare don’t work.  What happened, Congress did two successive bills, BIPA and BBRA, giving back the money to prevent Medicare providers from just dropping Medicare.  What I think our friends on the other side of the aisle got out of that, as evidenced by the Affordable Care Act, is not that price controls don’t work, it is that price controls are not politically sustainable, because Congress, seeing and knowing that access is being denied to Medicare beneficiaries, that providers are leaving providing the benefit, that we should just take it out of the hands of politicians.  We should just take it out of the hands of Congress.  Let US form an IPAB, an independent payment advisory board, of 15 political appointees and have them do the price controlling that go right into law, circumventing Congress. 

To us, what this simply means is we are going to do hard‑core price controlling, which leads to rationing, which will lead to Medicare providers dropping Medicare, and that means future seniors will not have access. 

We want to get rid of that.  If we are going to save money to extend solvency, it should go to Medicare, not to pay for some other program.  We shouldn’t be raiding one government program to pay for another one.  How many times have we heard that about Social Security? 

Second, price controls, or rationing, or whatever you want to call it, it just doesn’t work.  So we believe at the end of the day, there is going to have to be a bipartisan solution.  This is why we proposed premium support.  The sooner you do it, you don’t have to affect benefits for anyone above the age of 55.  So the way we look at this, people who already retired on this program, don’t change their benefits, because they have been made promises that government should keep to them.  And if we do this soon, we can keep the promise also to the people who are within 10 years away from retirement. 

So it is very negotiable.  It is very reasonable to debate the contours of how to fix it with the new system, growth rates and design features.  That is what this committee is trying to do. 

But I simply want to ask you:  Do you think providers of Medicare are going to keep taking Medicare if they are going to get paid 66 to 33 cents on the dollar? 

Mr. Blahous.  I think you have highlighted a fundamental problem that we also highlight in the report, which is under our current assumptions, reimbursement rates under Medicare will lag very far behind what they are in the private sector, and we say that this could lead to substantial withdrawals of access to care under Medicare.  So the answer is yes, I agree that is a fundamental problem. 

Mr. Reischauer.  I think you put your finger on a very important point, which is that the same providers offer services to the elderly and disabled through Medicare, the low‑income population through Medicaid, and the working population and their dependents through employer‑sponsored insurance or individually purchased insurance.  And I for one think that efforts to restrain Medicare or Medicaid significantly are doomed to failure unless we provide incentives for dampening the growth of health care costs in the private sector as well.  You can’t have these huge differentials in reimbursements. 

On the other hand, I would argue that the fixation we have with comparing Medicare’s reimbursement rates to those in the private sector are a comparison of average payments or average costs, and most economists would argue that service is provided, a good is produced, as long as the provider can meet marginal costs.  And so we can have some differentials here without destroying the market.  They obviously can’t get too large, and that is what you are concerned about, rightly. 

Chairman Herger.  The time of the gentleman has expired. 

The gentleman from California Mr. Thompson is recognized for 5 minutes. 

Mr. Thompson.  Thank you, Mr. Chairman. 

Mr. Reischauer, isn’t it true that whenever a new law results in a savings to Medicare Part A, that those savings improve the Hospital Insurance Trust Fund finances regardless of whether the savings are used elsewhere in the budget? 

Mr. Reischauer.  Yes, that is true. 

Mr. Thompson.  I just wanted to bring that up.  My friend from Wisconsin raised that issue in questioning the double counting, but that is how the accounting system works.

Mr. Reischauer.  And how it has been treated in many omnibus budget bills in the past, and other corrections by the Congress. 

Mr. Thompson.  My friend also used the Balanced Budget Act of 1997, which was passed under the Republican‑controlled House, as an example.  That included $994 billion in Medicare savings, and $292 billion of that was used for a tax cut.  So it is the same practice; it is just depending on who is trying to do what.  I guess the other guys are the critics. 

Also, I have a sheet here.  It was prepared by our side’s staff, but you are the trustees’ report starting in 1970, running through 2011, and years of solvency of the program, and I think ‑‑ I would like to get you to look at it and let us know if this is accurate, but based on this, it has always been projected to reach insolvency at some point.  And as Mr. Stark had mentioned earlier, Congress has always addressed this issue by making changes.  As a matter of fact, of the 40 years on this chart, 18 of those years, the solvency date is less than it is today in 2011.  As you recognize, it is a problem because of the downturn in the economy.  So I would like to have someone give you this and get your analysis of it. 

And then also, the Affordable Care Act that was mentioned was an attempt to put in place provisions that would, in fact, improve the quality and reduce the cost of health care.  Everything from bundling around a hospital admission to reducing hospital readmissions to expanding fraud‑fighting efforts, and your trustees’ report recognized that.  Can you tell us your assessment of the delivery system reforms in the ACA? 

Mr. Reischauer.  Once again, I am going to have to take off my trustee’s hat for this. 

Mr. Thompson.  Did you take these policies into consideration when you did this?  

Mr. Reischauer.  Yes.  These follow the estimates by the actuary of the impact of those reforms on cost.  There are many that both the CMS actuary and the Congressional Budget Office didn’t provide savings for, or provided quite modest savings; that if all the planets come into alignment, and things work out well, and some of the initiatives that I discussed in my prepared statement come to pass, we could see, you know, significantly more in the way of savings. 

On the other hand, some of them may prove to be ones that Congress reconsiders or ones that don’t work out as well as the CBO and CMS have estimated.  So we are in a period of huge uncertainty, I think, right now.  But those base numbers are in our projections. 

Mr. Thompson.  I think the language on page 2 of the report says that “major program of research and development for alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and reduce the cost of Medicare.”  And this improves the cost and quality of health care outside of Medicare as well.  I think that is important to note. 

CMS did a press release on your report, and in it they say:  Without the reforms in the Affordable Care Act, the Medicare HI Trust Fund would expire in just 5 years, in 2016.  The report issued today shows these reforms added 8 years of solvency. 

I would like to ask unanimous consent to submit this to the record. 

Chairman Herger.  Without objection. 

Mr. Thompson.  Thank you. 

Chairman Herger.  The gentleman from California Mr. Nunes is recognized for 5 minutes. 

Mr. Nunes.  Thank you, Mr. Chairman. 

I would like to ask the two witnesses this question of insolvency.  I apologize, I don’t know how long you have been trustees, but when we look back throughout time, 10 years, 15, 20 years ago, we always knew we had an insolvency issue.  I don’t think anyone disagrees with that, and there has always been a need to save Medicare and save Social Security. 

When you analyze the problem today, and you know here in this body we are locked into this budget debt limit increase and budget fight where it doesn’t appear like there is any fix in sight, and basically one of the major holdups is are we going to deal with these entitlement programs to solve the insolvency problem.  I don’t believe we have ever defaulted on our debt.  We are getting very close to that if we don’t have an agreement soon.  So my question to you is:  Is the situation more serious and more urgent today than what it was when you looked back to 10 years ago and 20 years ago? 

Mr. Reischauer.  I think the answer to that is yes, both because the Medicare problem is embedded in a larger fiscal problem; and because, as opposed to 5, 10, 20 years ago, the baby boomers are retiring.  They are beginning to apply for Medicare benefits.  And so the acceleration of the burden that we talked about as a future problem 10 years, 15 years ago is now upon us.  And this makes some solutions more difficult because the numbers of individuals who are receiving benefits is rising rapidly. 

Mr. Nunes.  Mr. Blahous. 

Mr. Blahous.  I have a two‑part answer, and Dr. Reischauer anticipated both parts.  One, we have a much more serious overall fiscal situation.  Deficits, unified deficits, are much larger than they previously were. 

Secondly, we have an urgency that arises from demographics.  Each year that passes, we have more baby boomers going onto the benefit rolls, and there is a great reluctance, a bipartisan reluctance, to withdraw benefits from people who are already dependent upon them.  So the costs of dealing with these problems grows enormously with every passing year. 

Mr. Reischauer.  I would just like to add a third issue, to differentiate myself from my colleague here, and that is we have enacted major changes already in the Medicare program.  So in some sense the cupboard is fairly bare.  We can’t go to that cupboard and open it up and say, well, let us cut provider payments even more.  We are worried about can we sustain the ones we have already adopted. 

Mr. Nunes.  There is no question that every day in my office, people are coming in.  Health care providers are coming in, either to my district office or here in Washington, and complaining about the status of the health care system as it relates to the Affordable Care Act, Medicare and Medicaid.  There are problems throughout all of these programs. 

Would it be good policy if somehow this Congress could move legislation that would take anyone that is 55 years of age and older and keep them on traditional Medicare; would that be a good goal for this Congress to partake in? 

Mr. Blahous.  Are we basically saying anyone over 55, keep them in traditional Medicare and sort of hold them harmless for any future changes at all? 

Mr. Nunes.  If we could accomplish that? 

Mr. Blahous.  I mean, I think it is good policy to try to hold people who are near retirement or in retirement, hold harmless as much as possible from any future changes.  Having said that, with every passing year, it gets harder and harder to hold harmless people older than even 55.  In 5 or 10 years from now, if you asked me the same question, I might look at you and say, I don’t think you are going to be able to do that. 

Mr. Nunes.  Mr. Reischauer? 

Mr. Reischauer.  I guess I am a believer that even old dogs can learn new tricks.  And, you know, when we make a statement as you have made and Congressman Ryan also made about we will let people 55 and older stay in the system that they are in now, it implies that you want to keep that system unchanged. 

Quite frankly, I don’t think that is appropriate policy.  I think Medicare should evolve in a gradual way.  We have in the Affordable Care Act an innovation center.  We have some changes in payment mechanisms and things like that that would gradually change Medicare.  I think pushing those forward as fast as we possibly ‑‑

Mr. Nunes.  I think we agree that there should be gradual change, and that is why in Mr. Ryan’s plan he has put forward 55 and older, because that gives people time for retirement planning and such to deal with the changes.  However, I think where we disagree is where this problem just seems to be bigger than what ‑‑ as you both said earlier, this problem appears to be bigger than what it was 10, 20 years ago, and so I think we have to act quickly in order to save Medicare for everyone.

Chairman Herger.  The time of the gentleman has expired. 

The gentleman from Oregon Mr. Blumenauer is recognized for 5 minutes. 

Mr. Blumenauer.  Thank you very much, Mr. Chairman. 

I would just pose questions to our panelists not to answer now, because I have some others I want to get to, but if you would reflect, because I appreciated, Mr. Blahous, you talking about whether or not this is sustainable over time, that we are going to take, what is it, 79 million Americans and freeze them in Medicare as it is now, although my friend from Wisconsin takes the reviled savings from the Affordable Care Act and counts them, assumes them, in trying to make his plan pensile.  But we will be having a situation where there is a huge population that will grow smaller over time, but still millions of people 30 years from now, an ever‑sicker, smaller population that my friend, when he asked it to be scored, just assumed that the general fund would pick up the gap.  I really would appreciate it if you two experts might reflect and maybe share with the committee what that impact is going to be over time. 

Mr. Ryan.  Would the gentleman yield just briefly? 

Mr. Blumenauer.  If I have time at the end, Paul, I am happy to do it. 

I would like to be able to lock in what this means, because we haven’t been able to get a good figure.  It wasn’t scored in terms of what that extra cost would be for an older, sicker population.  Although declining, it would still be millions of people. 

And I would take modest exception to my friend’s characterization that IPAB takes the control out of Congress and puts it inevitably towards rationing and price control.  As I think he knows that the recommendations from IPAB are just that, and they will come to Congress and have to be voted up or down.  I think that is really good that we have a mechanism because we have seen political failure on both sides of the aisle on things like base closing and repeated failure with Medicare. 

We are already seeing some people trying to walk back IPAB’S ability.  And I have heard my Republican friends decry the fact that providers right now aren’t getting enough money, and yet we can’t afford what we are giving them, and they don’t want a control mechanism. 

I am wondering, is there any reason why, with the help of IPAB to maybe stiffen the spine of Congress, that we couldn’t mimic the best practices that are going on right now with Medicare in my community, my colleague Mr. Kind’s, Mr. Ryan’s State of Wisconsin, where costs are dramatically lower than other parts of the country, and performance is better?  Is there any inherent reason that we can’t mimic that behavior, Mr. Reischauer? 

Mr. Reischauer.  It is certainly a goal that we should strive to achieve.  But it is very difficult to figure out how to get from here to there, how to get from Miami to Wisconsin. 

Mr. Blumenauer.  But some people have figured it out, haven’t they?  Some people have figured it out.  We are not all Miami; we are not all McAllen, Texas.

Mr. Reischauer.  And we don’t really know how to convince Miami to mimic the behaviors of Wisconsin, Minnesota, some of the more parsimonious practice pattern States. 

Mr. Blumenauer.  That are more effective? 

Mr. Reischauer.  In many cases, that are more effective.

Mr. Blumenauer.  Well, I am troubled a little bit with this, because I think we do know what works.  I think there is bipartisan agreement, at least there has been until recent years, of some of the experiments in the Affordable Care Act, the ACOs, of dealing with unnecessary hospital readmissions, being able to have more attention to primary care, dealing with freight with waste, fraud and abuse. 

I mean, there is a litany of bipartisan actions that can be taken to squeeze far more out of the existing Medicare system.  But people haven’t been incented to do it.  And Congress in both parties has wobbled, at least until we are starting to move back with the Affordable Care Act. 

And I just, I think we are setting our sights too low.  I think we ought to be accelerating the reforms that were talked about.  And yes, there is a little discipline.  There are some price signals.  I don’t think that is control.  But we are not just going to open the spigot and then pay people for procedure after procedure after procedure, which is why doctors are getting more money, even though the reimbursement rates are more parsimonious. 

And I think we ought to be more optimistic about this.  And I think there is a bipartisan consensus about how it could be done once we get out of this whirl we are in right now.  Thank you. 

Chairman Herger.  The gentleman’s time has expired. 

The gentleman from Washington, Mr. Reichert, is recognized for 5 minutes. 

Mr. Reichert.  Thank you, Mr. Chairman. 

And thank you, gentlemen, for appearing this morning. 

I agree with Mr. Blumenauer, we must find a bipartisan solution to this, and I think we need to be more optimistic that there is one.  I think many of the members have expressed that this morning. 

However, there have been some comments that have been made that sort of puzzle me just a little bit.  Like the question was asked earlier, why are we even paying attention to this issue?  Well, I think it is obvious from your testimony there are some major themes that you are expressing this morning to all of us, to all Americans, as some may be watching C‑Span and don’t have a life.  Medicare is going bankrupt.  You both agree with that, and it is accelerating, true, yes? 

Mr. Blahous.  Yes.

Mr. Reichert.  Medicare’s dire financial status is actually drastically understated, would you agree with that, yes? 

Mr. Blahous.  I would say it is very likely to be significantly understated.

Mr. Reichert.  Sir? 

Mr. Reischauer.  I am unsure of that.  I think if we don’t take full advantage of the initiatives in the Affordable Care Act, if we don’t encourage all of the innovation that is going on in the private sector and in the nonprofit sector, that is true.

Mr. Reichert.  Sir, wasn’t it understated just a year ago? 

Mr. Reischauer.  Excuse me? 

Mr. Reichert.  Wasn’t it understated just a year ago in a report and here we are today, we are accelerating the ‑‑

Mr. Reischauer.  You know, I think the ‑‑

Mr. Reichert.  Is that a yes? 

Mr. Reischauer.  No.  I am not sure what your question is.  Were you referring to the 2010 report? 

Mr. Reichert.  Yes.

Mr. Reischauer.  And this report also has warnings which say ‑‑

Mr. Reichert.  But it has been accelerated, is that not true? 

Mr. Reischauer.  Yes, it has.

Mr. Reichert.  By 5 years?

Mr. Reischauer.  There are changes largely in the economic ‑‑

Mr. Reichert.  And you would not expect that to continue? 

Mr. Reischauer.  I hope the economy is going to rebound.

Mr. Reichert.  You are not sure, okay.  Massive tax increases, do you see that on the horizon, or benefit cuts?  If we don’t do something now, isn’t that sort of the scenario, if we don’t act now?  I mean, we must do something now; would you both agree with that? 

Mr. Blahous.  I would say that the, on the HI side, the implication of trust fund exhaustion would be a benefit reduction in the absence of legislation.  On the SMI side, the implication would be greater general revenue requirements, which implicitly would lead to higher tax burdens.

Mr. Reischauer.  Yes.

Mr. Reichert.  Okay.  Thank you.  The thing that I guess is really confusing to a lot of Americans, they see this health care bill out there that has been passed, and it has been implemented by some degree or another and still more laws to take effect.  But there is a $600 billion tax pay in this bill, $600 billion worth of taxes applied to small businesses and people to pay for this.  How can we get the economy going if we continue to tax small businesses?  $523 billion in cuts to Medicare.  So no wonder people are expecting higher premiums and fewer benefits in Medicare.

I wanted to ask a specific question though regarding the alternative scenario.  It states that overall Medicare spending is expected to grow to 10.36 percent of GDP, a 3.6 percent increase over the trustees report.  Growth of this magnitude would substantially increase the strain on the Nation’s workers, the economy, Medicare beneficiaries and the Federal budget.  Could you elaborate on what the strain may look like related to these important areas in other national priorities, like education and medical research. 

Mr. Blahous.  Well, I would just say, first of all, I agree with Dr. Reischauer that the main projected trustees’ report is probably the best‑case scenario, and then this would be sort of the pessimistic scenario.  The reality is probably somewhere in the middle.  But if we take that worst‑case scenario, I mean, that is an unprecedented level of strain, fiscal strain, for the Federal Government.  I mean, if you consider over 10 percent of GDP is for one Federal program alone, that is roughly twice as much as any Federal program to this point has ever absorbed.  That would be over half, relative to GDP, over half of the size of the entire Federal Government relative to the economy as recently as 2008.  So to have over half of our historic norms in terms of the Federal size of government devoted to one program would be an unprecedented strain.

Mr. Reischauer.  My comment on this is long before those numbers would come to be realized, this nation is going have to address its deficit and debt problem.  And in my view, Medicare will be one contributor to a solution.  And so those numbers are horrific.  But long before we face them, we are going to have to make some much more fundamental changes in our revenues and expenditures across the board.

Chairman Herger.  The gentleman’s time has expired. 

The gentleman from New Jersey Mr. Pascrell is recognized for 5 minutes. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

How are you today?  What is logical, we learn in logic 101, may not be true.  It is our premises that determine those things.  I want to enter into the record, Mr. Chairman, the S&P indices concerning the health care costs, and to bring to your attention, Mr. Chairman, that in 2010, Medicare claim costs associated with hospital and professional services for patients covered under Medicare increased at a more modest 3.2 percent rate, much lower than the private sector, much lower than the private sector.  And I would like to ask to begin with and very briefly your response, I would appreciate that, what do you think attributed to the slowdown to the more moderate pace of increase in Medicare, as well as the private sector going down, too, but not to the degree of Medicare?  Why do you think that happened?  Both of you, either of you.

Mr. Reischauer.  My response to that would be that one factor is certainly the turndown in the economy, which has left some seniors and others with less income to pay their co‑insurance and their co‑payments and so on. It is conceivable that some even had to drop their Medigap policies. 

But I think of more importance here is the attention that CMS and the providers have begun to pay to overuse of services.  And many practitioners are looking anew at their practice patterns.

Mr. Pascrell.  Which is a major target of the health care act, right? 

Mr. Reischauer.  Yes.  And it is a major change in attitude and behavior, and I think that is going on throughout the society, and it is a good development.

Mr. Pascrell.  Mr. Blahous.  Thank you.

Mr. Blahous.  I generally would agree with that.  I think certainly the overall state of the economy played a role, and the factors Dr. Reischauer just spoke of also played a role. 

But I would be candid and add a heavy dose of “I don’t know” to the answer.  Short‑term fluctuations in these cost levels are very difficult not only to predict but also to explain after the fact, so my level of uncertainty as to what to attribute that to is very high.

Mr. Pascrell.  I would contend that even before it is only 20 percent in effect that the health care act has had an effect on the very costs that we are trying to reduce because we are never going to have a Medicare program that is able to keep up with inflation and the rising costs of health care until we control in some manner, shape, or form under a capitalistic system the rise of health care costs.  We need to do something about that, and we are trying to do something about that. 

One‑third of the entire health care act dealt with Medicare and Medicaid and how we should save money in the process.  Much of it was not scored in the final analysis. 

Now, we had a major change.  In the report of 1997, the report of the trustees in 1997, brought about some very interesting things.  The beginning of Medicare Advantage, the beginning of the process to start to privatize the system.  Now, we pay 12 percent more to these private plans, and seniors are going to pay much more if we move, obviously, to privatize the whole process under the guise of trying to straighten out Medicare.  Look, all of these reports from 1970, as the gentleman from California pointed out before to now, talk about the dire position in which Medicare is in.  Every one of those reports, that the world is coming to an end as far as Medicare is concerned.  That did not happen. 

As for my friend from Wisconsin that talks about double accounting, this is what a bank account is all about.  You take money out of the account as you need it; you don’t take it all out.  It is, I believe, very analogous to those funds that are in a bank account.  When moneys are deposited, the dollars are used for other purposes until they are withdrawn.  What is so different about what we do in terms of how we are calculating savings in the future? 

So we need to take a look, Mr. Chairman, at not only the logic of what we say, but if there is any resemblance to the truth.  This is not reality TV.  Thank you.

Chairman Herger.  The gentleman’s time has expired. 

The gentleman from Georgia, Dr. Price, is recognized for 5 minutes. 

Mr. Price.  I thank the chair and I thank our witnesses for coming to help us understand what are the financial operations of Medicare.  We are talking about the financial operations.  That is the role of the trustees, right?  Look at the financial, not the clinical side of health care.  So, as a physician, we are talking about money today; we are not talking about quality of health care, those kinds of things, that are so important to patients across this country. 

Our friends on the other side of the aisle have a penchant for mischaracterizing our positive solution, I think.  And I want to touch on a couple of the things that Mr. Stark mentioned.  He said that our proposal, our positive solution, was a voucher plan for Medicare.  Well, it isn’t a voucher plan; you know that.  Both of you know that, correct? 

Mr. Reischauer, you understand that our program is not a voucher program; it is a premium support program. 

Mr. Reischauer.  The difference between premium support and vouchers has been explained by some as the payment not relating to the cost of the underlying enterprise.  That is a distinction that I am not ‑‑

Mr. Price.  Well, you supported a premium support program in the mid to late 1990s.

Mr. Reischauer.  I did.  I still support it.

Mr. Price.  You wouldn’t have called it a voucher program, would you?  In fact, you didn’t call it a voucher program at that time, did you? 

Mr. Reischauer.  No, we didn’t call it ‑‑

Mr. Price.  No, you called it a premium support program, and that is important to know. 

Mr. Stark also said that our positive solution ends guaranteed benefits for seniors.  Well, that is not true.  You know that.  In fact, we save Medicare for future generations.  In fact, in our proposal, it actually stipulates that the program must be guaranteed.  Isn’t that true, Mr. Reischauer, when you read our program. 

Mr. Reischauer.  To the extent that I know the details of the program, yes.

Mr. Price.  It is a guaranteed program; that is correct.  Mr. Stark also mentioned the issue of private contracting and said that if private contracting were allowed in the Medicare program, which many of us believe is the kind of pressure valve that needs to be put in place to relieve the incredible access pressure that currently exists in Medicare, in response to his question, wouldn’t that cause access problems? 

Mr. Reischauer, you said, “if not regulated,” is your quote, “if not regulated” it might cause ‑‑ have access problems.  Are you aware of any proposal that would put in place private contracting without regulation? 

Mr. Reischauer.  Well, I think this is a matter of degree as well as existence.

Mr. Price.  Are you aware of any, though, that don’t?  

Mr. Reischauer.  No, I am not.

Mr. Price.  And in fact, isn’t it possible that an appropriately regulated and structured private contracting program would in fact increase access for Medicare for seniors in this country, isn’t that possible? 

Mr. Reischauer.  It is possible, but not probable, I would say.

Mr. Price.  Well, I would beg to differ with you on that.  And there are certainly individuals who understand the huge challenges with access right now that seniors have.  And that one of the ways to solve it, as you have identified in your list of solutions, is something that allows for increasing access. 

I want to touch on the Medicare trigger, for this is now the sixth year in a row that the trustees have said that the board of trustees are required to issue determination projected excess general revenue for Medicare funding, this is the sixth consecutive such funding.  When that trigger occurs, then, it is the obligation of the President, is it not, to then propose to Congress a solution to fix that problem.  Is that correct? 

Mr. Reischauer.  Yes.

Mr. Price.  And have you seen any solution that this administration has offered for having had this trigger be punched through for the past 3 years under his watch? 

Mr. Blahous.  No.

Mr. Price.  Have you, Mr. Reischauer, have you seen that solution? 

Mr. Reischauer.  No.  I think the Congress has waived the requirement.

Mr. Price.  Under the Democrat control in the past, yes, they said, oh, no, don’t worry about that.  Isn’t that what they did, said don’t worry about the money? 

Mr. Reischauer.  Yes.

Mr. Price.  I want to touch on this whole issue of Medicare changing.  In fact, Mr. Reischauer, you said that there are significant changes to Medicare through the PPACA, which is the reform bill that they put through.  So, in fact, what has already been adopted ends Medicare as we know it.  Would you agree with that statement? 

Mr. Reischauer.  It transforms the program as all legislation in the past ‑‑

Mr. Price.  So Medicare as we know it right now in this colloquial term that is used out there in the marketplace, Medicare as we know doesn’t exist under the Democrat’s plan already, is that correct? 

Mr. Reischauer.  Well, the question is, what are we referring to as Medicare?  If we are saying ‑‑

Mr. Price.  Medicare as we know it is basically is what we have right now.

Mr. Reischauer.  ‑‑ a fee‑for‑service unmanaged care program, you know, it exists after the Affordable Care Act as it did before the Affordable Care Act.

Mr. Price.  But Medicare as we know it, the program that exists right now, has been changed significantly under PPACA, would you agree with that statement? 

Mr. Reischauer.  There have been significant changes.

Mr. Price.  But Medicare as we know it is already gone and done so by the reform bill that was put in place before. 

Mr. Chairman, my time has expired, but I look forward to submitting further questions for the panel.

Chairman Herger.  I thank the chairman. 

The gentleman from New York, Mr. Rangel, is recognized for 5 minutes. 

Mr. Rangel.  Thank you, Mr. Chairman, for calling this meeting. 

And I think it is helpful just to clear the air to have experts that are objective that will have their reputations to protect long after the election is over. 

I think you have to agree that whatever decisions that we make that is going to cause any dissatisfaction with our constituents, it is much easier when the parties are talking together.  They may not be happy with Democrats Or Republicans, but at least they would not be nearly as angry if the parties themselves have taken different positions. 

The fact that so many Republicans got elected attacking so‑called ObamaCare forced Democrats to get reelected in attacking the RyanCare.  And now the facts are not nearly as important, it appears to me, as the parties getting reelected. 

So, unlike Mr. Blumenauer, I just can’t believe that a nation that owes so much to our aging population can spend trillions of dollars rebuilding the economy of Afghanistan and Iraq and able to say that we can’t provide decent care.  And that means that we are going to have to have reform, and that means it is going to be painful to a lot, but it also means that as long as we fight each other, then the parties don’t want, the beneficiaries don’t want to make decisions. 

Let me ask this:  As relates to Medicare and solvency, do you believe that the Affordable Care Act goes in the direction of dealing with the question of solvency? 

Mr. Blahous.  Certainly the Affordable Care Act extended the duration of Medicare HI solvency.

Mr. Rangel.  And does it constantly request that we review what changes have to be made from the Congress and the administration in order to protect that solvency?  I mean, do you believe that we are not dealing with the problem at all and that we need a dramatically different approach?  I don’t have a problem changing the approach if it is bipartisan and we agree that this is best.  I believe that an old dog can use new tricks.  I believe that if the Republicans come in and they say ObamaCare is moving in the right direction, not fast enough, and we think these changes have to be made that is not going to happen until, if it happens at all, until after the election. 

So my question to you as being objective professionals, are you satisfied that the affordable act bill allows itself to deal with solvency if certain changes are made?  I mean, do you believe that we just are hanging it out there and ignoring the problem?  We know that this great country has the ability working together to deal with that problem. 

Mr. Blahous.  I would say there are three things that come to mind in response to your question.  One is the primary engine under the Affordable Care Act for extending solvency of the HI trust fund is these annual adjustments in the reimbursement rates for growth and economy‑wide multifactor productivity.  And in the last trustees’ report, that engine was powerful enough to account for basically the overall contours of the cost projections over the long term. 

Now, this year’s trustees’ report relies a little bit more on the payment advisory board.  But basically, in order to hit the savings targets in the Affordable Care Act, the productivity adjustments themselves won’t be completely sufficient.

Mr. Rangel.  Really ‑‑ I am going get the answer, but my time is so restricted.  Really what I want to do is understand the premium support position more clearly.  And whether you call it a voucher or premium support, one, does anyone contradict that the insurance companies’ ‑‑ the health insurance companies’ major obligation is to make a profit?  No.  That is their job.  Two, if you are trying to make a profit, does anyone challenge the fact that the selection of people to be insured are based on the risk involved?  Answer, no.  If, indeed, a person is more vulnerable when they are older, are they less inclined to get a fair strike, less inclined to get benefits without higher costs?  Answer, no. 

So the premium support idea guarantees that you get something, but you can only get what you are able to afford to get, is that true?  That is true.  And so I don’t care what you call it; the fact is that we are making major adjustments and putting the entire ability of people to get health care in the hands of those people that really don’t want you as a client, and I got a ‑‑ not a voucher, I got support.  But you are not guaranteeing that I have enough support to get the health care that I have for my kids that I get, right. 

Chairman Herger.  The gentleman’s time has expired. 

And our witness can respond in written letter to the committee on the question. 

The gentleman from Florida, our new member to the subcommittee, Mr. Buchanan, is recognized for 5 minutes. 

Mr. Buchanan.  Thank you, Mr. Chairman, for holding such an important hearing. 

I also look forward to working with you as chairman and the rest of the members on the subcommittee. 

I also would like to thank our witnesses for being here today. 

It got touched on a little bit.  I want to go over a couple of points.  Medicare trustee, which you projected, we touched on this a little earlier, would become insolvent in 2024 instead of 2010.  In my district, I have 170,000 seniors, and we are in Florida, so, obviously, it is a big issue now all over the country, but percentage wise much bigger in Florida.  When we are looking at projecting to 2024, one thing I don’t believe that was taken into account is the reduction or the doc fix or the SGR that was taken into effect in terms of looking at insolvency. 

When we project this out and look at it down the road talking with doctors in our community, I am very concerned a lot of them will have to go out of businesses, a lot of the big practices.  We have got another 30 percent cut that we are looking at, but doesn’t take any impact in terms of the viability of Medicare long term.  So I guess, wouldn’t you agree that these cuts if they go into a place would drive the insolvency date, because we are looking at a $300 billion problem a lot quicker?  And I would like to have both gentlemen respond.

Mr. Reischauer.  The solvency issue relates to the HI or hospital insurance fund.  And the doc fix is part B, part of SMI, and that is not affected by solvency issues. Because of the way the part B trust fund is constructed, it can never be exhausted.  General revenues are automatically given to the trust fund to make up the difference between projected costs and premium payments and State transfers, so it doesn’t affect the date of exhaustion of the HI trust fund.

Mr. Buchanan.  My point is I have been here a little over 4 years, and we have had a doc fix once or twice a year.  I don’t know how anybody runs a business or any business, especially a lot of these medical practices, and have to look at a 15 or 30 percent cut every year.  But I don’t know how this isn’t considered as a part of the overall Medicare, the viability of the medical community. 

The other gentleman ‑‑

Mr. Blahous.  I would say I think the principal effect of the anticipated doc fix overrides would be in the overall cost of part B.  And under our projections, where we assume those huge cuts happen, we show part B costs of a little over 2 and a quarter percent of GDP by the 2030s.  But if you assume we override them, we are up over 3 percent of GDP.  So there is a substantial increased cost on the SMI side if you assume the payment reductions are overridden.

Mr. Buchanan.  Mr. Blahous, let me ask you another question.  Last year a Harvard study found that malpractice costs in terms of our health care system at about ‑‑ we could save as much as $55 billion a year.  Do you think that we should have medical malpractice reform, especially as we are looking to try to drive down costs? 

Mr. Blahous.  Well, certainly speaking as a trustee, everything we can do to hold down the growth of cost is going to make our overall financial projections better for Medicare.  So, yes, if we can produce that level of savings for Medicare through malpractice reform, obviously, that would improve the financial outlook that we would show.

Mr. Buchanan.  Is that something that you personally have looked at as a trustee of med mal costs in terms of Medicare?  Because, obviously, I can just tell you doctors about defensive medicine, running a lot more tests than they feel that they need to just to make sure they are covered in case 1 in 1,000 or 10,000 cases of someone has a tumor and it doesn’t end of being something more substantial.  Is this something you have looked at in terms of tort legal reform? 

Mr. Blahous.  Not so much, because the trustees’ process generally focuses on scoring current law.  It is somewhat different from say the Congressional Budget Office where they produce these menus of policy alternatives.  Generally, in the trustees’ process, we don’t tend to evaluate alternative policies to current law.  But obviously, it would certainly draw heavily from the input of everyone from CBO to the Medicare technical panels to others in scoring such a provision if it were enacted into law.

Mr. Buchanan.  Mr. Reischauer, do you have any thought on legal tort reform, the impact that would have either as a trustee or your own personal opinion in terms of driving down costs, because I mean, obviously this is something ‑‑ and again, I meet with a lot of doctors.  I have a neurosurgeon who says his medical malpractice is $200,000 a year; he has got to see $1,000 worth of revenues to pay the $200,000 in insurance, and they are practicing a lot of defensive medicine, and I think it is a big area we can make a big change in, but what are your thoughts? 

Mr. Reischauer.  My thought is that there are a number of studies trying to estimate the impact of malpractice reform on overall health care costs.  By and large they come out saying that this isn’t a huge contributor to the rapid growth of costs, of health care costs, but reform certainly would be a significant contributor to lowering the growth by reducing the level, really a one‑time level shift.  So I would align myself with Dr. Blahous’ comments that I think some change would be a good thing.

Chairman Herger.  The gentleman’s time has expired.

Mr. Buchanan.  I yield back.

Chairman Herger.  The gentleman from Wisconsin, Mr. Kind, is recognized for 5 minutes. 

Mr. Kind.  Thank you, Mr. Chairman.  I want to thank our witnesses for your update today.  What strikes me ‑‑ and Mr. Reischauer, maybe I can start with you ‑‑ I am looking at this charge here showing the trustee reports dating back to 1970 in regards to years of solvency.  And what jumps out is how much this really does track economic performance, whether we are in a growth state or a declining state, and how that influences the ultimate solvency of this trust fund.  Is that something that is consistent with what the trustees are finding, too, what the strength of our economy is and the payroll revenue that is being generated and also the number of entrants entering Medicare? 

Mr. Reischauer.  Certainly that is a very important contributor, as is legislation.  And at various times in this list, the Congress has enacted significant legislative changes that have prolonged the life of the HI trust fund.

Mr. Kind.  I am looking particularly at the late 1990s, 2000 or so, when we had period of robust economic growth, and there the trustee were showing 25, 28 years of solvency.  Unlike the great recession that we are coming through right now, we have had a drop off of the number of years of solvency.  So I think one of the best things we can do as a nation to increase the solvency of the trust fund is to get this economy back on track creating good‑paying jobs, would you agree with that?

Mr. Reischauer.  I would agree.

Mr. Kind.  And in regards to my friend’s comment regarding med mal reform and the impact that is going to have, you know, and I think the President is there as well, that if we are going to be asking doctors through the Affordable Care Act to practice more best‑evidence medicine or protocols of care, knowing what works and what doesn’t work, there should be greater safe havens of protection for that type of practice system.  But this is where you lose me on that; 37 States have already enacted med mal reform, including the State of Wisconsin.  So, unless those 13 States that haven’t taken action yet on med mal reform are driving all this additional cost in the health care system, I don’t see it. 

In fact, studies show that the utilization practice of doctors in States that have med mal reform in it is very little different than in States that don’t have med mal reform.  Is that what you found in your analysis? 

Mr. Reischauer.  I haven’t done any independent analysis, but I am aware of studies that have come to that conclusion.

Mr. Kind.  Well, this is what I think will also help, and a lot of this is already built in, baked into the Affordable Care Act; is we need to continue to move forward on delivery system reform, expecting better outcomes and better value at a better price.  And there are models of care in various regions of the country that do work and work well.  They are highly integrated, coordinated, patient‑focused, that are producing some of the best results and for a better bang for the buck.  And a lot of what is incented in the Affordable Care Act is driving that type of delivery system reform to a more efficient and better outcome‑based system but at a better price.  And the fact that studies have shown over and over again that a large part of the health care dollars is going to tests and procedures and things that aren’t working, they are not improving patient care.  In fact, some estimates range as high as $800 billion a year in a $2.4 trillion system are going to various procedures and tests that we are not getting a good bang for the buck.  And therefore, I think the ultimate verdict in how successful we are in driving costs down is changing the way we pay for health care, to reward outcome in value as opposed to the volume‑based payments that occur in Medicare.  Would you agree with that analysis? 

Mr. Reischauer.  I would.

Mr. Kind.  And there are things that are on track right now to lead us to that hopefully promised land of payment reform, whether it is the IPAP commission ‑‑ I know that was brought up for criticism today ‑‑ or the work that the Institute of Medicine is doing right now in changing the fee‑for‑service system to a fee‑for‑value‑reimbursement system.  And we also know that what happens in Medicare is going to also drive the private health insurance market in how they reimburse with health care expenses. 

So the concern I have with the Ryan plan, the Republican plan that was just passed ‑‑ that was just passed is that they would do away with all these reforms and instead create a voucher plan that virtually ends Medicare but without addressing the really systemic problem we have in the health care system, which is the rising costs and what we can do to bend that cost curve.  And if we are moving forward on the reforms in the Affordable Care Act, especially in the payment area, so we are rewarding good quality outcomes, is an important thing that we need to do to shore up the trust fund and ultimately the long‑term sustainability of the Medicare program, would you agree with that? 

Mr. Reischauer.  You know, I am not sure with my trustee hat on, I should be opining on these issues, but I think the Affordable Care Act incorporates ‑‑

Mr. Kind.  Well, I think even in the trustees’ report, they do acknowledge some of the reforms that are contained in the Affordable Care Act that can lead to ‑‑

Mr. Reischauer.  That have the potential to move in the direction of providing better care at a reduced cost, yes.

Mr. Kind.  And as a former head of CBO yourself, you realize that it is awfully tough to get a score from CBO on health care savings.  You all seem to come from Missouri, and that is the show‑me state; you got to show us the reforms and how it is actually resulting in its cost savings before it gets scored.  So a lot of this we need to move forward on, but we are not going to be certain what type of cost savings until they occur, is that right? 

Mr. Reischauer.  That is right.  And I was criticized in this very room many times for that fact.

Mr. Kind.  I know you were, as others have been and probably will be.  But thank you for your testimony.

Chairman Herger.  The gentleman’s time has expired. 

The gentleman from Illinois, Mr. Roskam is recognized for 5 minutes. 

Mr. Roskam.  Thank you, Mr. Chairman. 

Your report shows that Medicare will now be bankrupt in 2024.  Americans would then be forced to either endure a massive tax hike or an immediate 17 percent reduction in expenditures.  In other words, an immediate 17 percent Medicare cut.  Can you explain what you mean by “immediate”? 

Mr. Blahous.  Well, the way that the trust funds work, both on the Social Security side and on the Medicare HI side, is that the amount of expenditures the program can put out there is limited by what is in the trust funds.  Now, on the SMI side, it is not really an issue because we just give the trust fund each year whatever is required to keep pace with costs.  But once that trust fund runs out, the program lacks the authority to make benefit payments. 

Now, there have been a lot of legal analyses that have been done of what happens when the trust fund runs out, and they don’t all agree.  But a fairly common one is that payments would simply have to be suspended or delayed until the requisite financing came into the trust fund, which would have the effect of reducing payments simply by virtue of delay.

Mr. Roskam.  And that immediate is the common understanding of immediate?  In other words, this present moment in time, in other words, when insolvency happens, then you immediately are prohibited based on the law and based on your understanding as a trustee from paying anything further out.  And your estimation is that it would be a 17 percent cut in a benefit, is that correct? 

Mr. Blahous.  Well, it is 17 percent on average over 75 years.  Now, it varies according to year.  I think in 2024, specifically, it is about 10 percent, but then that increases, and then it becomes about 25 percent by the mid‑2040s.

Mr. Roskam.  So it is averaged ‑‑ go ahead.

Mr. Reischauer.  What I think my colleague was describing is when the trust fund became insolvent, money would still be flowing in from tax receipts and Medicare would delay paying bills.  And so a hospital would send its bill in and, rather than being paid in 24 days, might have to wait 5 months.  And the CMS, the intermediaries and other payors would be writing out the checks, transferring the resources to the hospital, to the hospice, whatever, on a much delayed basis.

Mr. Roskam.  So that cut, just so I am clear, is not a hypothetical cut.  It is not a hypothetical delay.  It is an actual delay in payment to the point of reaching the 17 percent number based on your own projection, is that right? 

Mr. Blahous.  That is right.  I mean, the Social Security Act which deals with these trust fund issues is very explicit that payments can only be made from the trust funds.

Mr. Roskam.  So there is no other flexibility?  If the revenues aren’t there, if an insolvency is declared, you have no other remedy but to move forward and make those cuts, is that right? 

Mr. Blahous.  Right.  The programs don’t have the authority to borrow in excess of the resources provided by the trust funds.

Mr. Roskam.  And absent some change in the program, your prediction is that that is where our Nation will be in 2024, that is right? 

Mr. Blahous.  That is right.

Mr. Reischauer.  With respect to the hospital insurance system.

Mr. Roskam.  I understand.  So when the gentleman from Wisconsin said that there is a proposal that is out there by the majority on this committee that ends Medicare, in fact, Medicare as we know it will end in 2024 absent some change in policy or some change in moving forward, that is right, isn’t it? 

Mr. Blahous.  Yes.

Mr. Roskam.  I yield back.

Chairman Herger.  The gentleman yields back. 

The gentleman from Washington is recognized, Mr. McDermott, for 5 minutes. 

Mr. McDermott.  Thank you, Mr. Chairman. 

And I appreciate your allowing me to ask questions. 

I have a report from the CMS actuary who says that ‑‑ we were talking just now about a 17 percent reduction in expenditures if nothing is done.  They suggest that if the Affordable Care Act were repealed, as the majority is trying to do, it would require a 53 percent reduction in benefits or 134 percent increase in the payroll tax to cover the deficit.  So what we have seen here proposed by Mr. Ryan it seems to me is something that would make things much worse, at least according to the ‑‑ if you believe in actuary. 

Now, I want to ask you a question that I have sat here thinking about this whole time listening to.  I came into medicine in 1963.  I graduated from medical school just before Medicare started, so I have seen the whole history.  I heard it was going to be socialism and the end of medicine as it was going to exist in this country, and I have watched it.  And it is clear to me that the decision to give doctors the right to set their own fees was a crucial error made in 1964.  When they wrote that they could have their usual and customary fees, they really set in motion an awful lot of what we are looking at today. 

And you know about the RUC, the update committee, most people don’t know what that is, but you know about it, and they set the rates.  Now, why is there no discussion in your report about reform of the RUC committee or the rate setting that is done?  We don’t have a fee schedule set by the government.  We have the RUC committee recommending to us what we should pay and that is what we pay.  Now.

, how can we have control of costs if we don’t have the medical profession in some kind of direct negotiation with the government about what is going to be paid?  This SGR was a simplistic idea that never was going to be ‑‑ never worked because it only controlled one thing and it left all the ability to raise rates or raise amounts of money by doing more of the same procedure. 

I see in the Washington Post this week, many hospitals overuse double CT scans.  There are a thousand examples of overuse of procedures in the medical care, but the RUC says, you get this amount a month for doing that, and boy, they do them and do them and do them, and the SGR has had no control whatsoever on it.  How do we get there if we don’t get the doctors at the table someplace to negotiate about their part in this game?  It is not just between the government and the Medicare beneficiaries.  There is a third‑party here that we are ignoring, and that is the physicians and the health care system.

Mr. Reischauer.  Are you looking at me? 

Mr. McDermott.  Yes, sir.  I have looked at you many times.

Mr. Reischauer.  I believe that the RUC is an advisory committee that gives its recommendations to CMS, and CMS is the ultimate decider.

Mr. McDermott.  And they accept 85 to 90 percent ‑‑

Mr. Reischauer.  What the RUC does is it looks at the relative values and decides which procedures, interventions, might be overpaid in a relative sense and which might be underpaid.  And needless to say, there are few volunteers for being overpaid, and many claimants for being underpaid. 

When they balance out what would happen if these changes were made? If on the whole, it saves resources, then those resources are thrown back into the overall pool, and the whole pool is raised.  So it is designed to be, in a sense budget‑neutral, which I don’t think personally is an appropriate thing.  And I believe the administration has made a suggestion that the overpayment amounts for procedures that we believe are overpaid should be used to reduce overall costs. 

And I think we need a more robust review procedure like the RUC, one that reviews these amounts more frequently than is now the case and aggressively looks at what is happening in the balance of the market, the private sector, with respect to fees for these various procedures, and we could improve the accuracy of payments much more and probably save some money.

Chairman Herger.  The gentleman’s time has expired.

Mr. McDermott.  Thank you.  I hope you put that in the report next year.

Mr. Reischauer.  Well, the Medicare Payment Advisory Commission on which I served for 9 years has made recommendations and analyzed this issue quite frequently in its reports.

Chairman Herger.  The gentleman’s time ha s expired. 

The gentleman from Louisiana, Dr. Boustany, is recognized for 5 minutes. 

Mr. Boustany.  Thank you, Mr. Chairman. 

As a heart surgeon, I had the tremendous privilege of operating on thousands of Medicare beneficiaries, and I can tell you patient by patient perhaps better than anybody in this room, I understand the value of the Medicare program and the importance it plays in the lives of seniors, especially seniors back home in Louisiana, many of whom have very limited means and depend on this truly for their life. 

And I could go on and on about the quality and what we need to do to establish and maintain and strengthen a good patient‑doctor relationship based on high quality medicine while managing costs, but that is not the purpose of the hearing.  We are here to talk about the financial solvency of this program and some of the things that we need to do. 

You know, the Medicare actuary has been quoted as saying that the improved hospital trust fund financing cannot be simultaneously used to finance other Federal outlays, such as coverage expansions, and to the extent the trust fund, despite the appearance of this result from the respective accounting conventions, meaning we can’t double count; this is a real problem.  And I will tell you as a physician who worked with many, many Medicare patients, this is a huge disservice to Medicare beneficiaries across this country. 

We have an obligation to fix this program and to get it right.  And when I see this double counting and the fact that we are playing games with the SGR and the reimbursement structure, this is literally legislative malpractice.  And then if you go on with the IPAB, this is another example of where you are going to try to keep the lid on a boiling pot of liquid.  It is not really going to be in the best interest of maintaining high quality patient care between a doctor and a patient. 

My question is this:  We know with current law, we are headed toward 2024 with the insolvency of the hospital trust fund, which means Medicare as we know it, at least that part, the hospital care, ends; is that correct? 

Mr. Blahous.  Certainly it does not have the resources sufficient to discharge its obligations.

Mr. Boustany.  So if we don’t correct this problem, then there will not be a payment mechanism for hospital care for our seniors? 

Mr. Blahous.  Well, I would say there will still be a payment mechanism, but it would not be able to ‑‑

Mr. Boustany.  To pay.

Mr. Blahous.  To pay, and get it on a delayed basis, reduced basis.

Mr. Boustany.  And before we get to that point, clearly it is not a just simple situation where we get to the point and then it stops.  Would you suggest that there will probably be other forms of rationing for our seniors before we get to that point under current law with regard to hospital care? 

Mr. Reischauer.  In fact, it is a situation where you get to that point and fall off the cliff.  You know, participants will be, even after the date of insolvency, entitled to the benefits that are laid out in the program.  Providers may choose not to provide as much care because they will have to wait a long time or a longer time to get paid for it.  But it is a situation that up to that point, everything seems fine.

Mr. Boustany.  And that gets us to the access problem because that is the other side of this equation, whereby the further we go, and it seems year after year we are seeing more and more problems with access for our seniors, so in effect, if you don’t have access or limited access, delayed access, is that rationing? 

Mr. Blahous.  Well, I would say, I mean, there are two elements of this issue.  One is the sudden withdrawal of benefits that would occur in 2024.  But then there is the other question of as we constrain our reimbursement rates under current law and prior to 2024, does that have the effect of causing providers to withdraw from Medicare or go out of business?  And this is obviously something we are wrestling with as trustees and the actuaries are wrestling with analytically.

Mr. Boustany.  I think the answer is clearly yes based on my experience in visiting with many, many physicians across this country.  And we are seeing worsening access problems.  I saw them back in the 1990s in my own practice where as a heart surgeon, treating a patient who came into the emergency room needing emergency open‑heart surgery, between the cardiologist and I, we were unable to find primary care providers to help these patients with their other medical problems, and that has only gotten worse. 

And so we have an obligation to deal with this.  And the problem I have is on the other side of the aisle, we see these characterizations that Republicans want to end Medicare.  Well, the point is Medicare is ending under current law which they put in place, and we need to take our heads out of the sand, and I ask our colleagues on the other side of the aisle to take their heads out of the sand, as well as the President, who has deliberately ignored this trigger.  We have to be honest with the American people, and we have to be honest with seniors who depend on this very valuable Medicare program and get this right.  It is critically important. 

I see my time has expired, Mr. Chairman.  Thank you.

Chairman Herger.  I thank the gentleman. 

The gentlelady from Tennessee, Ms. Black is recognized for 5 minutes. 

Ms. Black.  Thank you, Mr. Chairman. 

And first, I would like to begin by thanking you for allowing me to sit on this subcommittee hearing even though I am not an assigned member, I appreciate that. 

Mr. Blahous, I would like to discuss the graph that you have on page 5 of your written testimony, and it is up on the screen, showing Medicare costs and non‑interest income by source as a percentage of GDP.  Medicare SMI trust fund spending is expected to make up a rapidly increasing percent of GDP, as you did talk about in your testimony, over the upcoming decade.  And the trustees’ report states that it will rise from 1.9 percent of GDP in 2010 to 3.4 percent in 2035.  The trustees’ report projects that $21.3 trillion in general revenue funding will be needed to pay the benefits financed by the Medicare SMI trust fund in the next 75 years.  Can the country afford to fund the SMI trust fund at this level? 

Mr. Blahous.  Well, I would say two things:  One is that would be, under current law, it would be an enormous expansion of fiscal pressure on the Federal budget, far beyond any burdens we have carried in the past to finance Medicare SMI, the vast majority of which is funded from general government revenues.  But even this probably understates the case, because as I indicated before, this is the best‑case scenario, in which, for instance, the physician payment rates are suddenly reduced by 29 percent next year.  So, in practice, we are likely to be significantly higher than this.

Ms. Black.  And given that information, and you are referencing that that money would have to come from the general fund because obviously it is not coming in, we don’t get enough money in on the beneficiary side, would you agree that this is also going to impact some of the other national priorities, maybe such as education or roads or some of those areas? 

Mr. Blahous.  Absolutely.  I would say the growth of Medicare spending and the growth of our health care spending generally is probably the single greatest threat to discretionary spending throughout the Federal budget.

Ms. Black.  And given that, even if the Medicare SMI trust fund is not technically going bankrupt, like the hospital insurance fund, is it fair to say that it is bankrupting our Federal budget or could bankrupt our federal budget if not changed? 

Mr. Blahous.  The way I would put it is there is no single cause of our overall fiscal problems, but under an untenable current law scenario that CBO and everyone else projects over the long term, this is about as big a contributor to it as anything.

Ms. Black.  Well, obviously, when it starts taking up that great percentage of our GDP, then we are going to have to in some way make some decisions about what it is that we are going to fund or not fund. 

Let me also ask you this:  Do you think that if Congress enacted policies that reduce Medicare spending by $15 billion over the next 10 years, would that be sufficient to address Medicare’s financial crisis? 

Mr. Blahous.  No.

Ms. Black.  No.  Okay. I agree with you.  And unfortunately, there is a growing chorus from our Congressional Democrats to simply do nothing and wait for the so‑called delivery reforms from their health care overhaul to take effect.  But CBO estimates those policies save just $14.7 billion over the next 10 years.  So, given that, it seems to me that we have got to find other fixes other than what they recommend in the affordability act.  Would you agree with that? 

Mr. Blahous.  I agree with that.

Ms. Black.  Okay.  Thank you.  I yield back my time.

Chairman Herger.  The gentlelady yields back. 

With that, I would like to thank our witnesses for your testimony and insight.  From the trustees report and the expert testimony that we heard today, it has become abundantly clear that Medicare faces real and substantial challenges.  We can and must meet these challenges in order to preserve Medicare for future generations. 

It is also evident that Congress must act sooner, not later, to tackle this growing problem, as delay only makes the difficult choices we must make even harder and further threatens Medicare’s bankruptcy. 

I am confident that we can meet the challenge that lies before us.  While it may seem like an insurmountable challenge, America’s current and future seniors rightly expect us to work together to find a solution to preserve the Medicare program for generations to come. 

As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask the witnesses to respond in writing in a timely manner.  With that, the subcommittee is adjourned.

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

SUBMISSIONS FOR THE RECORD
The Center for Fiscal Equity
American Academy of Actuaries
American Federation of State, County and Municipal Employees