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decade than it has in any 10-year period since its creation. Is that credible? Here we are, the baby boomers start to retire in 6 years, they become eligible for Medicare, and we are saying that the costs of the program that is the biggest program that they are eligible for other than Social Security is going to grow at the lowest rate since the inception of the program?

It is not credible with me, and it is not the CBO's analysis. And I can tell you, I have had outside experts that we have consulted who term this estimate laughable. Laughable. These are outside health experts who have looked at this, looked at the trend lines in terms of the number of people eligible, and they say this is a vast understatement of what the costs will be.

Secretary THOMPSON. Senator Conrad, all I can say is that I have turned to the economists and the chief actuary of CMS, and as I understand it, it is the same actuary system that has been used by this Congress and by previous Administrations and the current Administration, and I looked to him, and I asked him again last night, was this credible, and he nods in the affirmative. And so I have to rely upon my expert, Senator Conrad, and that is what I am relying on.

Chairman CONRAD. Well, I understand. I am just saying I do not think it is credible. I think a common-sense reality test would tell us it is not credible. And you know, I believe this is how we get into trouble, understating what costs are going to be.

Let me go to the prescription drug question.
Secretary THOMPSON. OK.

Chairman CONRAD. Because that has been raised. Let us put up that chart that shows prescription drug costs. The President is calling for $190 billion for prescription drugs. Last year's budget resolution agreed to in the House and the Senate provided $300 billion, so this is a 37 percent cut from what Congress provided last year. And it is an estimate and a provision of a 37 percent reduction from what Congress did last year at a time the costs are skyrocketing. They have told us that providing the same benefit $300 billion would have provided last year would cost $400 billion now. And yet the President provides $190 billion.

Again, the reality test. I went and asked how much it would cost to provide the same prescription drug benefit that all Federal employees are eligible for. The answer was $750 billion. Seven hundred and fifty billion to provide the prescription drug benefit that Federal employees have. That is the column on the right.

Last year's budget, prepared by Congress, provided $300 billion. The President's budget is $190 billion. How are you going to provide any kind of serious prescription drug benefit with about a quarter of the money that it would take to provide the benefit every Federal employee has, that the President has, that you have, that I have, that every member of this panel has?

Secretary THOMPSON. Senator, the President feels and the Administration feels very strongly that we have to start someplace, and $190 billion is, we think, a tremendous effort on the part of this Administration for developing prescription drug coverage and at the same time strengthening Medicare.

If it was only prescription drug coverage, I could understand that your figures would be much more in line, but if you do the nec

essary reforms, the necessary strengthening of Medicare, and add some of the other things and make some of the adjustments, we feel that we can develop a very comprehensive package at $190 billion over 10 years, and that is where we got our figures, once again, the Center for Medicare and Medicaid Services. It went through OMB

Chairman CONRAD. These are the same actuaries?

Secretary THOMPSON. We used the same actuaries, Senator,

and

Chairman CONRAD. I think we had better get some new actuaries over there. Let me go to

Secretary THOMPSON. I have known them for many years, sir, and they have always proven to be correct, and I have a great admiration for their professionalism, Senator.

Chairman CONRAD. Well, I appreciate your confidence in them. I don't share that confidence, and I doubt very much that what we face in the future will match their numbers.

Let me go to the final question I have, and that is, absent from this budget is any funding for provider payment adjustments, despite the Medicare Payment Advisory Commission's recommendations last month for increases in Medicare's provider payment systems.

Chairman Thomas of the House Ways and Means Committee expressed concern about this matter.

Secretary THOMPSON. He did.

Chairman CONRAD. And we have an indication from him, they anticipate it may cost as much as $174 billion over the next 10 years, and there is no provision for it in the budget. Can you explain that?

Secretary THOMPSON. Well, Senator Conrad, the reason being is we had to make some tough choices. And number 2, we complied with the law in making the prospective payments adjustments, evidenced by the law that was passed in 1989, modified in 1997 and 1999, and we complied with that law. When you have an uptick in the economy, the prospective payments show increases. When you have a downturn, which we have had this past year, there has been a reduction in the payments to doctors, which is a reduction of 5.4 percent, which brought this to the forefront.

Chairman CONRAD. But there is no legal requirement that you provide for adjustments that are recommended by your own commission.

Secretary THOMPSON. That is very true. But when we looked at it, we did not have the money available for making any further adjustments. We tried to come in with as close to baseline as we possibly could. We also told Chairman Thomas that we would work with the Ways and Means Committee, and that same promise I give to you, Senator, and to this Committee, that we will work with you. But I think it is important if we are going to look at the prospective payments for doctors, we should look at the prospective payments for all the providers, put them all on the table, work together in a comprehensive manner to see if we cannot solve it. Because the law right now, the way it is written, creates some problems for making the prospective payments. I am not blaming anybody. I am just saying this is the law, and I would like to work

with you to try and improve it and to modernize it wherever we possibly can.

Chairman CONRAD. Let me just say I appreciate your attitude. I just say to you that I just don't see this budget as adding up. I honestly do not, and it starts at a much higher level than you, and that involves most directly the Office of Management and Budget. But I see this as just filled with problems, and it is going to be very difficult to craft a budget when this is the thing that has been sent to us. And I do not think it is a realistic proposal. I think it badly understates the costs of Medicare. I think it is completely inadequate with respect to prescription drugs, and there is no provision for adjustments to providers that are recommended by your own commission, and these are tremendous amounts of

money.

With that, we will go to Senator Frist was going to ask Senator Smith to go next on your side.

Senator SMITH. Thank you, Mr. Chairman. I have an opening statement. I would like to include it in the record, and my questions will incorporate some of it.

Chairman CONRAD. Without objection.

OPENING STATEMENT OF SENATOR GORDON SMITH

Good morning Mr. Secretary and fellow Senators.

Mr. Secretary, I am glad to welcome you before the Senate Budget Committee this morning of all mornings-Valentine's Day-a day when people around the world show how much they care for others a day when we should not be afraid to show that we have a heart.

THE UNINSURED

Last Monday we received President Bush's budget for 2003. I would like to express my appreciation to the Administration for taking a strong leadership role in the proposed fiscal year 2003 budget with regards to the uninsured. I am impressed by your initial size and apparent scope of the Administration's commitment to decreasing the numbers of uninsured Americans. Setting aside $89 billion is a good start in our efforts to provide health care coverage to the most needy.

However, even according to the Administration's own estimates, his proposal will only reach 6 million of the uninsured next year. There are 40 million uninsured people in this country-and the number is growing. Just yesterday, families USA released the finding that 2.2 million Americans lost their health coverage last year because of layoffs. This is the biggest yearly jump in the uninsured population in a decade.

And this is a conservative estimate! it only approximates the loss of health coverage caused by job layoffs. It does not include any effect of increased health care costs, or State medicaid program cutbacks.

Therefore, as a result of the 2001 increase, the number of uninsured people in America now exceeds the cumulative population of 23 States plus the District of Columbia. I want to urge everyone listening to read more about this problem. Go to www.coveringtheuninsured.org.

I have long fought for greater awareness of breast cancer-and there is a horrifying statistic on that website women with breast cancer are 49 percent more likely to die if they are uninsured.

We MUST do something THIS YEAR to address this growing problem. In the past, I have worked with both Republicans and Democrats on this important issue, and this year I intend to seek bipartisan support again for setting aside additional funds to cover the uninsured.

I believe we must commit a greater sum of money if we are to make a realistic effort to cover all 40 million-and growing-uninsured Americans. It is a national disgrace that so many people who live and work among us do not have affordable access to this most basic human need.

While there is no agreement as to exactly how to expand coverage for all Americans, it seems fairly clear that the only feasible way is through some combination of private incentives and public expansions. We must be prepared to work together

to find compromise if we are going to ever do more than simply talk about the uninsured.

Mr. Secretary, I'm very happy we've begun to address the problem of the uninsured, but we are only helping 6 million people this year. . it reminds me of the school children on Valentine's Day who only bring Valentine's for a selected few in their class, leaving the others empty handed. Let's send a Valentine to every childwe need to insure all Americans.

Senator SMITH. Mr. Secretary, thank you for being here. I think your record as the Governor of Wisconsin in health care reform is wonderfully propitious for our country's sake, and I think the job you are doing, both in the reform front and the war front, on the homefront, is very much appreciated by this Senator.

I wrote yesterday, Mr. Secretary, a letter to President Bush about my ongoing concern for the issue of the uninsured, and I do think your budget has made a very good start on closing this gap. I have referred to 40 million uninsured Americans in the past as a moral omission on the part of our country.

I would like to propose to you that if President Bush as a Republican would grab as his own the issue of eliminating the ranks of the uninsured, it would be his version of Nixon going to China, and I would like to suggest that would be good for our country.

As I understand your budget, we are going to cover an additional 6 million Americans. That leaves 34 million Americans still uncovered. I have worked in the past with Senator Wyden, my colleague from Oregon, and other Republicans and Democrats to try and figure out a more comprehensive approach to eliminating this moral omission that would include not only health care credits that you are providing but also deductions for small businesses that don't now offer health care, and an even more significant expansion of community health centers. Perhaps with some combination like this, we could answer the question to the rest of the world that the greatest Nation in the world does provide health care to all of its citizens.

I wonder if you are open to working with us, not in future years but this year, to find a more comprehensive package than has been proposed in the budget of credits, deductions and expanded health care centers. You can help us to figure out how to pay for it and identify some efficiencies that our system does not allow now.

We are spending an awful lot on health care. It does seem to me that with what Wisconsin has done, what Oregon has done, there are ways to get more people insured with the dollars we are already spending.

I wonder if you would work with us, to that end, and if you have any thoughts you could share with me today.

Secretary THOMPSON. Well, thank you very much for the question, Senator Smith, because, you know, this is something that needs to be done. We need to look at the uninsured and find ways in which we can solve this particular problem. And I think we have to do it on a bipartisan basis, and I think there are a lot of individuals on both sides who would like to do something.

I would like to point out that $89 billion in health credits is a giant step forward.

Senator SMITH. It is big.

Secretary THOMPSON. It should cover 6 million Americans, and it also allows you to go in right away and get the credit and then take that credit to your insurance agent and buy health coverage. The second thing I did not mention, which is also going to be very helpful, is allowing small businesses to form pools, and not only within the particular State of Oregon, but go into the State of Washington and Idaho, and so on and so forth, and get an expanded pool so that small businesses would have a better opportunity to do it.

Three, expanding community health centers is something tremendously needed, and you did not mention the $77 billion for immediate help in regard to prescription coverage for those that are on Medicare.

Senator SMITH. Yes.

Secretary THOMPSON. Up to 150 percent of poverty. The Federal Government will pay 90 percent between 100 and 150 percent.

I also would point out for you a program that I started in Wisconsin-and I know Oregon has now got a waiver in front of the Department that we are reviewing, or will be reviewing. We have also expanded that Badger care kind of coverage in Massachusetts and in New York where there are going to be 650,000 more lowincome families covered. It was also approved in California and Arizona and Utah. We have been able to expand that by 1.8 million Americans by allowing waivers to be used under the S-CHIP program to give low-income working parents an opportunity to be covered as the children, with the State assuming a good share of the responsibility. But it extends it, and this is a program that has tremendous potential nationally, and I would like you to take a look at that.

Senator SMITH. I would be happy to look at that with you. Secretary THOMPSON. I do want to work with you, absolutely. Senator SMITH. Well, we want to do this. I met with Tom Scully the other day, and he had many ideas as well.

Secretary THOMPSON. We are not short of ideas over in the Department.

Senator SMITH. We just need to implement them, because I think for all of our great credits as a country, our lack of health care coverage for the working uninsured is not one of those credits. It is certainly a debit in my mind.

Can you describe in more detail what the Administration has in mind in terms of approaches to Medicaid and S-CHIP without seeking waivers? Is that the proposal on the table?

Secretary THOMPSON. There is no expansion of S-CHIP right now. I certainly think we should be looking at that. But there is nothing in this budget to expand the S-CHIP program except for the $3.5 billion that would go back to the Treasury for States that had not used that money. The President has indicated it is a great program, and that money should be left out there for the States to use to cover children, and hopefully we can also cover low-income working families, because I have found from the experience that I have had, both as Governor and now as the Secretary, that more families are willing to take their children to get covered if, in fact, they are ale to sign up for coverage as well.

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