THE FUTURE OF MEDICARE: N.J. MONDAY, MARCH 28, 1983 U.S. HOUSE OF REPRESENTATIVES, SELECT COMMITTEE ON AGING, SUBCOMMITTEE ON HUMAN SERVICES, Princeton, N.J. bcommittee met, pursuant to notice, at 9:30 a.m., in the chambers of Princeton Borough Hall on Monument Drive, n, N.J., Hon. Matthew J. Rinaldo (acting chairman of the mittee) presiding. ers present: Representatives Rinaldo of New Jersey and f New Jersey. present: Paul Schlegel, minority staff director, and Richard minority professional staff. NING STATEMENT OF CHAIRMAN MATTHEW J. RINALDO RINALDO. Good morning. This hearing of the House Select ttee on Aging will now come to order. are here this morning to hear testimony on the future of re. In July 1965, Congress added title XVIII to the Social SeAct to provide health insurance for the aged and disabled. reamble of this historic piece of legislation declared that s to quality health care is the right of all Americans regardage or ability to pay.' ay, medicare provides health coverage to 30 million Ameriit is projected to spend about $60 billion in the coming year. t, medicare in 1983 will spend more in any given month than in the entire first year of its operation, 1966. we are approaching a crisis. alth care costs continue to skyrocket. They are the only segof the economy still experiencing double-digit inflation. Over ast 5 years, medicare costs have averaged a staggering 19 perOver the program's history, cost increases have outpaced the mer price index by better than 2 to 1. at inflation is a ticking time bomb for the medicare trust fund. st last month, the Congressional Budget Office released a rt showing that the medicare hospital insurance fund would be eted in just 4 years, by 1987. CBO projections show that the em will have a cumulative deficit of almost $400 billion in 1995. deficit will be $70 billion each year by the middle of the next de. he question we must face, and the question that hopefully we get some answers to this morning, is: How do we protect health efits for the elderly? 2 The Congressional Budget Office predicts that medicare outlays will rise an average of 13.2 percent annually over the next decade. Revenues, on the other hand, are expected to rise only 6.8 percent. That structural funding gap spells disaster for America's elderly. The increase in medicare costs is due almost entirely to inflation in health care-more expensive procedures, new technology, higher prices for physicians and hospitals fees. It is not caused by the aging of America's population. The increase in the number of elderly is not a problem for medicare. While increased costs are expected to average 13.2 percent, CBO points out that only 2.2 percentage points are due to the aging of the population. The problem is inflation and there are no easy answers. The reason we are here today is to listen to experts from the administration, from the public sector, and from State government. We in Congress will need to enact legislation and I strongly feel that any reforms we enact should only be considered after hearings like this, at which interested parties have the opportunity to register their views. I also feel that any legislation to reform medicare must be based on three fundamental principles: One, it should address the real problem-inflation; two, it must protect health benefits for the elderly; and three, it should be bipartisan. There have been a number of proposals already made to deal with the financing shortage in medicare. People have recommended increasing revenues, through use of general revenues, increasing the payroll tax, or providing new, earmarked sources of revenue to the hospital trust fund. Others have suggested we reduce costs through benefit reductions, increased copayments by beneficiaries, and voluntary participation through a voucher system. I think one thing is clear from the CBO report: Any attempt to reduce the shortfall solely through benefit cutbacks is unacceptable. With more than 15 percent of the aged now living in poverty and millions more surviving just above the poverty level, cuts in medicare will spell greater suffering for millions of Americans. I also do not think we can simply increase the payroll tax to close the funding gap. Financing this enormous amount by the payroll tax alone would require an increase in the contributions of both employers and employees from 1.3 percent to 2.5 percent. That would mean additional tax increases for FICA. And right now, with the measure passed by Congress last week, FICA taxes are already scheduled to increase 5 out of the next 7 years. Congress must face the problem head on. We have got to hold down hospital costs. And only by concentrating on the source of health care inflation can we hope to preserve the scope of current medicare coverage. One of the sections of the 1983 Social Security Amendments which I supported was title VI, the prospective payment system for medicare. That system is estimated to save about $12 billion over the next 3 years. In fact, it is based on a system very similar to the diagnostic related group system which we have been using successfully in New Jersey. ted out the three principles I feel should underlie any edicare. I think there is a fourth principle that we p in mind. In reviewing the system, we ought to keep ions open. is possible to fund a portion of medicare through genes. But we certainly cannot expect the U.S. Treasury to k check covering medicare's deficit. The budget could such a shock, and it would provide absolutely no incendown costs. I believe it is an avenue that we, Congress, the adminnd the Advisory Council on Social Security which is now edicare, have simply got to consider. made a pact with our Nation's elderly. I believe we ive up to it. If the financing problem continues to be ought to tell new people coming onto the system that have a different package of benefits, so that they will ahead of time exactly what medicare will do for them retire. ateful to our witnesses for coming here this morning to eir expertise to the committee. I want to assure all of your remarks will be extremely helpful to us as Congress edicare. vant to mention that we are faced with a time problem. official hearing of the House Select Committee on Aging, e we would like very much to have everyone testify, there n numerous individuals who have come here this morning ed for an opportunity to speak. Because of Congressman schedule and my own, and that of the committee staff, at t in time, it will be virtually impossible to put on additionsses. But if time permits, we will be pleased to do it. It does I possible, however, because after the witness list was alublicized, we received many, many requests for additional asking to testify. And since we refused all of those people, to up now would be unfair to them and to everyone else who ed this opportunity. ever, there will be additional hearings in Washington, and even in the State of New Jersey. At that time, if anyone ants to testify writes to us in advance, we will be pleased to ything possible to get you on the agenda. without objection, what I would like to do, is put into the the statements of everyone who came here and had a prestatement. And I will read the list of statements that we will the record. statement of the Senior Citizens of Manville, Inc. statement of the Medical Society of New Jersey. e Health Security Action Council. e New Jersey Federation of Senior Citizens. e Union County Division on Aging. re to Help, Inc. ational American Association of Retired Persons. would also like to make a few additional announcements that I nk are important. Any group or individual who is not on this scheduled list, who come here and does not have a statement, and would like to mit that statement, you are encouraged to do so. And all you ve to do is put your views on medicare in writing and send them the Aging Committee. Without objection, I will leave the official aring record open for 30 days, so that additional statements may submitted and included in the record. hose interested may submit their remarks to the House Select nmittee on Aging, 606 House Annex One, Washington, D.C., 515. have also been asked by the Administrator of Princeton Bor- am also pleased to acknowledge the presence of Mr. Thomas STATEMENT OF REPRESENTATIVE CHRISTOPHER H. SMITH think, as most people in this room know, medicare does provide also think this opportunity to evaluate medicare gives us the ance to perhaps provide some services that I think have long en neglected, like catastrophic health insurance. Perhaps an mination of the spell of illness concept and some other situations ed some reform. I know there are some proposals on the table. here giona New Healt I w medic reforr If I like t Mr. distril do so. Dr. think both prosp cant tive care 1 e some bills in the Congress, the administration apto this. I think this hearing will give us the opportunity ome response from you, the public, as well as some of the and the beneficiaries, so that we can make some incisions. vant to also say that as a new member of the Select Com1 Aging, I have found that this committee provides the with a great deal of information, particularly from its rings, regarding what needs to be done. What the people e field, out in the various townships and cities across the States really want done for their various programs, be it curity or medicare. m proud to join this committee, and also commend the n for holding this hearing. INALDO. Thank you very much, Congressman Smith. e fortunate to have at this hearing, Dr. Carolyne Davis, the strator of the Health Care Financing Administration, the which oversees the medicare program. avis has come up from Washington, and she will now testify esent the administration's proposals for health care reform. vis. EMENT OF CAROLYNE K. DAVIS, PH. D., ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION DAVIS. Thank you, Mr. Chairman. I am very pleased to be oday. With me, on my left, is Mr. Bill Toby, who is the ReAdministrator of Region 2, which as you know encompasses York, New Jersey, Puerto Rico, and the Virgin Islands for the Care Financing Administration. ould like to talk to you about the longterm financing of the are Hospital Insurance Trust Fund and some of our key n proposals. may, Mr. Chairman, I would like to stand up because I would o be able to get nearer to the charts. RINALDO. Sure. I believe copies of your testimony have been buted, so if you want to summarize at any point, feel free to . DAVIS. Well, as you indicated very clearly, the first step I x that has been taken by Congress and I would like to thank of you for participating in that effort was the passage of the pective payment system, which we believe will make a signifidifference in the way hospitals are paid. Under the retrospeccost system of payment, there was no incentive to manage the better. e believe that the payment of hospitals through a prospectively ermined rate is a better method. Clearly, we have learned much n our 7 or 8 years of work here in New Jersey with the New sey State people, the hospital association, and others on that ticular developmental system. Although our system will differ newhat from the New Jersey system, clearly it is based upon the ormation we have learned here. It will be a fixed payment tem. The rates will be established for some 467 different diag ses. |