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It might be appropriate to transfer Medicare costs to general funds for kidney dialysis patients under 65 and for disability beneficiaries under 65.

I believe more extensive use of home health services of high quality would be a substantial saving. If a patient felt assured of this type of care they would feel more confident in returning home. A less stringent definition of skilled nursing care is needed for Medicare patients.

Being cared for safely and properly

at home would also help the patients avoid or postpone institutionalization. I do appreciate this opportunity to enter these remarks.

Respectfully submitted,

Peter M. Shields

Director

Union County Division on Aging

PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF RETIRED PERSONS

INTRODUCTION

I.

The American Association of Retired Persons (AARP) appreciates this opportunity to present our views on the Administration's proposals to further cut the Medicare program

in FY 1984. Our Association continues to support responsible efforts to reduce the federal budget deficits.

We are

deeply concerned, however, about the efficacy as
well as the fairness of the Administration's proposals to
reduce the deficit, bring down interest rates, and promote
steady economic growth. Indeed, despite the "bipartisan"
wrapping paper, the basic contents of the Administration! s
proposed budget is little different from previous years:
massive revenue losses;

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Like the past two years, the burden of the Administration's proposals fall most heavily on our nation's needy, dependent and vulnerable populations. For older Americans

particularly the poorest among them

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the Administra

tion's FY 84 proposals are as bad if not worse than prior

years' budgets. They propose:

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a six-month freeze on cost-of-living adjustments

for social security, SSI, food stamps and veterans' pensions.

is to

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a doubling of out-of-pocket costs for hospitalization
under Medicare.

further significant increases in out-of-pocket costs

for physician care under Medicare, Part B.

other reductions in food stamps, low income energy

assistance, housing assistance and legal aid.

All in all, the effect of the Administration's proposals

reduce the income of older Americans while

significantly increasing their out-of-pocket costs.

Our testimony today will focus primarily on the budget cuts in the Medicare and Medicaid programs, the reasons for our concern, and the consequences of the proposed cuts on this nation's

elderly.

In addition, we will propose alternative recommendations for reducing federal spending in the health care sector.

II.

ASSESSING THE ADMINISTRATION'S MAJOR PROPOSALS TO
CUT MEDICARE IN FY 84

The Administration proposes further Medicare cuts in

FY 84 of $1.7 billion. Of the $1.7 billion almost 1 billion ($990M) will come directly from beneficiaries in the form of increased copays and deductibles. In addition the proposed

physician freeze totals $700 million and will likely also

increase beneficiary out-of-pocket costs. The proposed savings comes

on top of FY 84 savings of $6.2 billion and another $7.0 billion

in FY 85 already on the books (due to reconciliation in 1981

and 1982).

in FY 84-88.

The budget proposes total new savings of $25.26 billion

Most of their proposals either directly or indirectly shift costs now being borne by the federal government to program recipients, though Medicare providers take some

cuts too.

While the Administration appears to have made its proposals on the basis of program savings alone, our Association believes that additional criteria are equally necessary for evaluating proposals to change the Medicare

program.

First, any proposal to change Medicare must contribute to restraint in the escalating rise in health care costs. Hospital costs, which make up approximately 75 percent of Medicare expenditures, increased 19 percent in 1981 and over 13 percent in 1982, more than triple the rate of inflation. A recent CBO study on Medicare pointed

out that

of the projected 13.2% rise in hospital costs, only 2.2% is due to increased aged beneficiaries, while the balance of 10.8% stems from rising hospital costs. Unless such costs can be restrained, Medicare beneficiaries will face continuing efforts to slash the program, particularly in the face of pending insolvency of the HI trust fund.

Despite two years of budget cuts in Medicare, the HI trust fund (Part A) is projected to be insolvent sometime in the 1980's. The timing is subject to the extension of continued interfund borrowing among the trust funds. If interfund borrowing is extended as proposed by the National Commission on Social Security Reform, the HI trust fund could be drained by mid-1984 or early 1985. If interfund is not extended indefinitely, the HI trust may be able to

make it to 1988 or 1989, though a recent CBO study indicates that the fund could be depleted as early as 1987.

A second important criteria for evaluating proposals to change Medicare is the avoidance of cost shifting to Medicare beneficiaries. The economic status of most of America's elderly is precarious at best:

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Elderly households are overwhelmingly concentrated
in the lower-income brackets, particularly compared
to the non-elderly in 1981, 21% of elderly house-
holds had incomes below $5,000 compared with 8% of
non-elderly households and over 50% of elderly house-
holds had incomes below $10,000 compared with 19%

of the non-elderly (see table below).

The median income level of elderly-headed households is less than half (45%) that of the non-elderly.

Older persons experience one of the highest poverty rates (15.3%) of any adult age group and one of the highest near-poverty rates (25.2%), with older women predominating in these poverty categories.

The following table illustrates the economic situation of older persons.

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