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Senator BYRD. Would the Senator yield to me? Senator SMITH. I would be happy to yield, Senator Byrd. Senator BYRD. Since we are talking about how many administrations we have been in

Senator SMITH. You can beat us all, I am sure.

Senator BYRD. I have served with-not under-11 Presidents. Senator SMITH. Well, I have great respect for Senator Byrd. I feel badly, though, if you feel demeaned appearing before this Committee in any personal way, because I just want to say again for the record as I did in my opening statement that you did not need this job, but you are doing a fine job, and I believe you have served in many administrations, and you left a very lucrative position because you wanted to make the world a better place. And I think that needs to be said again. So I———

Senator BYRD. Would the Senator yield?

Senator SMITH. I would be happy to yield to Senator Byrd any time.

Senator BYRD. May I just add a little footnote along that line? Senator SMITH. Of course.

Senator BYRD. I do not need to serve here, either. I believe I could retire and get more money in retirement than I earn as a Senator. I am talking about my retirement from the years I have served in Government.

Senator SMITH. I understand that.

I thank you, Secretary O'Neill, for your service to your country, and I thank Senator Byrd for his service to our country as well.

Mr. Secretary, I also had in my opening statement an ongoing concern about the uninsured in our country, and I note that in the budget, the President is proposing $89 billion for the uninsured. I think that anticipates insuring an additional 6 million Americans. There are many ideas out there for how to do even better. I think this is a good beginning, but I wonder if you have in mind anything additional that we might look at on this Committee as we authorize the going forward of trying to eliminate this moral omission on our country's part. Expansion of Medicaid, SCHIP, as well as incentives to small business, expanding community health centersall of these things-are there some ideas that you have and some direction that you might give us for how to do even better than eliminating 6 millon from the rolls of the uninsured?

Secretary O'NEILL. This is really a very complicated subject. What I would like to do, if Committee members are interested in doing it, is I would like to organize a field trip to take you all to Pittsburgh and show you the future of how we can reduce the cost of medical care by 50 percent and stop hurting people in the practice of medical care and thereby free up the funds so that we do not have this problem of people without health insurance, because we will be able to afford it.

There is a way to do that, and there are a few other places in the country where the work is going on to demonstrate that it is possible, for example, to eliminate people getting staph infections, what are called in the medical profession pneusacomeal infections in the hospital, which affect maybe 7 percent of inpatients in United States hospitals-just something that the hospital did not bring with them that raises the cost of their medical care.

There is a set of ideas that, practiced together, can produce this result. And I think that if you are looking for the single largest potential thing to do that will result in the effect that you are looking for, in effect, providing health care access for every American citizen, that the road by which we are going to get there.

I would say you mentioned Medicare and Medicaid-I think that all the things that have been done here since 1965, when these two programs were enacted, were done with good intentions and the best wishes for the population. It is unfortunate that so many of them have turned out to have had perverse effects, partly because the mindset that is brought to this subject from Washington is one that has in it the idea that if we do not treat medical care providers as though they are trying to rip us off, that in fact they will rip us off-and the consequence of that is indeed perverse, because it has led to reimbursement formulas that put the pressure and incentivize, for example, discharging patients against a statistical profile that says, for example, for bypass patients, it is on average 5.9 days for people to be discharged, and so our formulas provide economic ways to get people out of the hospital after 5.9 days. If you look at the data, what it tells you is that 20 percent of the people who are discharged before the statistically suggested number are readmitted to the hospital the next week, and a fair number of them die.

Now, from the reimbursement formula point of view, we do not care, because manage to incentivize the target of getting patients discharged, and since we do not really pay attention to patientswe pay attention to episodes our system drives us in a direction that is not about human value-and this, for example, Senator Byrd, is the kind of manmade rule that I have in mind when I am out there trying to change the way the world works. We created these rules that are anti-human being with the very best of intentions, and Medicare and Medicaid reimbursements, and they need to be changed by human beings, and they are only going to be changed as we reformulate how we think about the potential and the realization of higher levels of human enjoyment.

Senator SMITH. Mr. Chairman, I would suggest that we take the Secretary up on his idea of a field trip. I think it would be very helpful to have better in mind as human beings on this side of the table how we can cut through some of the red tape to actually help our citizens and close the ranks of the uninsured.

I just think it is an ongoing national shame that we are not finding more creative ways to address this system of health care delivery.

I only have one other questions, Mr. Chairman, for Senator Domenici, who asks: When will we breach the statutory debt limit? Secretary O'NEILL. Before the end of March.

Senator SMITH. Before the end of March.

Thank you, Mr. Chairman.

Chairman CONRAD. Can I just say that on the offer that the Secretary made, your staff director informs me that it would have to be on Treasury's nickel, because we are out of money.

Senator Corzine.

Senator CORZINE. I guess that is appropriate for the Budget Committee. We are being very astute here.

Mr. Secretary, I welcome you. I also, though, want to express sympathy with the context that sometimes I think in this political world that we live in, we use cartoons or label people obstructionists when they are really trying to do what is perceived as their rightful responsibilities and certainly their prerogatives and instructions. I think that sometimes the dialog covers up well-meaning people's intentions on a lot of things. So I know that we may have some differences of view about exactly how we look at this budget, but in the long run, we have to have the good will to understand that we are all looking after the same end product for the American people, and that is why we all are serving.

In that light, I have serious concerns about the structure of our budget. It is troubling to me that even off the numbers we see, we are going to be using about $1.6 trillion from the Social Security surplus numbers, the payroll taxes, if I read these numbers right, running a unified budget deficit-a non-Social Security deficit-of $1.5 trillion over the next 10 years. I have a hard time understanding how we are going to be able to deal with the demographic bubble that is acknowledged by everyone, and I understand the administration and many have proposed the privatization of Social Security. That is not allowed for in this budget, and by any reasonable analyst, that is going to be a trillion-dollar transition costmaybe $800 billion, maybe more.

I am troubled that we are working off of numbers that are not realistic with regard to how we are going to deal with the budgetary requirements and limitations that we have as a society going forward, and particularly, then, when we put it into the context of many things that I could talk about, whether it is with regard to the environment, health care, other issues that I think we need to seriously address, including our national defense and homeland defense.

I am going to talk about one today; it is a small item, but I think it is very important in the context of the debate that exists in America today, that concerns the American people. It deals with the SEC budget. The SEC budget is not up at all this year, if I read these numbers right. It fails to include funding to bring pay and benefits for SEC employees up to levels that are equivalent of other regulatory agencies. And here, we have an incredible debacle, I guess is all you can actually label the Enron situation, but those of us who were in business also know that we have had more restatements of accounting statements of earnings in the last 2 years than we have had in the previous 10 years combined. We know that the SEC, which has responsibility-ultimate responsibilityfor supervising this, does not have the resources. We have 22 accountants-I think that is the number-in the Accounting Division of the SEC and a responsibility to supervise 3,000 public companies.

I do not understand how our priorities, given that we need to be able to have the efficacy of sound reporting and supervision of our securities markets, which are so fundamental to the raising of capital to the saving for pensioners and investors across this country, one of the fundamental dynamics-how we can be so limited in our investment in something that is absolutely essential to a strong economy.

As a matter of fact, I am very fearful that while some of the members are looking good with regard to our economy now, we will see foreign investors and others losing confidence in America because they cannot interpret what it is we report in our corporations when we see changes in behavior of lenders and other investors.

So, while it is a small piece, I think it is a very important piece in the current context of how the American economy is working, and I think it is indicative of this overlay of a program. Fundamentally, I think the tax cuts have a lot do with that, of how we are not prioritizing the kinds of things that will make America strong. And so I would love to hear your comments both about the privatization of Social Security and the transaction costs, which are completely left out of this budget, which we know have to be inputted, if that is the direction we take. I am not sure I would be supporting that. But how can we justify the kind of thing with regard to providing the security for our financial markets that I think is necessary for a sound financial system?

Secretary O'NEILL. Thank you very much.

If I may, let me couple my answer to your questions with Senator Conrad's opening statements because he also talked about Social Security, and I think it is worthwhile, at least it seems worthwhile to me, to talk about the concept of where we are.

You know, as I have appeared now eight and a half hours before three different Committees or four different Committees over the last couple of days, we have had ongoing conversations on every Committee about Social Security, and there are so many times when members say we are taking money out of Social Security. Well, we all know that is not right.

And, again, to the issue that I was raising earlier about rules, and concepts, and the importance of getting them right, we all know that the trust fund is not a trust fund in the way you would understand it as a trust fund for your own children, which has real assets in it, and that is not to say that a piece of paper from the Government in a lock box from West Virginia is not a real asset because it is a real call on the future earning power of the country. So, in that sense, it is a real asset.

But I, frankly, think we do a disservice to the American people when we talk about the shameless action of taking the people's money that they send in here, which they earned with the sweat of their brow, and send in $4,900 or whatever for a couple and leave them with the impression that we took their money and spent it on something else when, in fact, we did not really.

We took it and bought Government securities and put them in a lock box in West Virginia, and then we said the total wants and needs of a country, from a cash-flow point of view, require more money than we have taken in for general revenue, so we are going to have to borrow some more money, and so we borrowed that money. We could, if you wanted to do a hand-washing transaction, we could go through the rigamorole of actually doing that, of buying and selling so that the cash is reflective of what is happening in the broader sense.

Now it does not gain your point about the long-term, unfunded liability that we have for the trust funds, and so I have been saying, because I think this is right, we should have a balance sheet

that is a real balance sheet in the Federal Government, and if we had a real balance sheet, we would find on it $10.5- or $11-trillion worth of unfunded liability, and it would call our attention every day to the obligation that we have created for the American society, which one way or another, we have to take care of.

I think it would be very helpful to the debate and the people's understanding out there if they knew more precisely what this conversation was about, and we all stopped this, I guess it is a political conversation that really scares people out there. I know it scares people because I get letters from citizens saying I heard some Member of Congress say that you are using our Social Security money and maybe we are not going to get our payments. I do not think that is a healthy thing to do to people out there, especially when you see some of the people that are getting their checks, and they are in their upper years, and their hearing is not so good. And when they hear that maybe we are not going to meet our obligation in Social Security, it scares the hell out of them, and I do not think we ought to be doing that because that is not true. I cannot conceive of a United States Congress or an administration that did not fulfill the obligations people believe we have under Social Security. So I think we ought to set that aside, and then we ought to deal with the real problem which is an unfunded liability of very large proportions.

Senator CORZINE. Well, we are making that unfunded liability larger when we do not set aside or pay down the debt, in my view. Secretary O'NEILL. No, we are not. Excuse me. I am sorry, Sen

ator.

Senator CORZINE. It is money, if it were set aside, that actually could be utilized to compound and grow to meet an unfunded liability. Now that is the argument that we have in the political arena, but the reality is we are using Social Security payroll taxes and Medicare to fund all of these other choices that we have today because we use a unified budget in this country. Money is actually, since it is fungible, it actually goes to the other purposes, and we are funding tax cuts, we are funding expenditures on some things. that some of us like with those resources today.

Secretary O'NEILL. I, respectfully, do not agree with you, sir. What we are doing is we are using the Federal Government's debt capacity to pay for things that we want, which we are not collecting enough money, either through income taxes or payroll taxes, to fully pay for, and the other is an accounting illusion.

We are really using our debt capacity, and in this sense, if we were running "surpluses," on a nonunified basis, on a trust fund basis, we would be reducing debt outstanding held by the public, and that would improve the Government's balance sheet, but it does not have anything directly to do with Social Security, except to the degree that the more flexibility we have in the size of our balance sheet, in effect, to borrow money, we are better off than that not; is that not right, Senator Corzine? I mean, you are a financial guy like I am.

Senator CORZINE. We have a difference in view in the sense that if you set up what is called a trust fund and actually set those dollars aside, whether they are invested in Government securities or not, they earn an interest rate or they earn a yield, and they grow.

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