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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.

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PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF RETIRED PERSONS

I.

INTRODUCTION

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

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Like the past two years, the burden of the Administration's

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proposals fall most heavily on our nation's needy, dependent

and vulnerable populations. For older Americans particularly the poorest among them the Administra

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

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a six-month freeze on cost-of-living adjustments
for social security, SSI, food stamps and veterans'

pensions.

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

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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).

The budget proposes total new savings of $25.26 billion

in FY 84-88.

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 inedicare

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

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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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