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PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF RETIRED PERSONS
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
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;
large, undisciplined defense increases; and,
deep cuts in domestic entitlement and discretionary
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
tion's FY 84 proposals are as bad if not worse than prior
a six-month freeze on cost-of-living adjustments
for social security, SSI, food stamps and veterans'
a doubling of out-of-pocket costs for hospitalization
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
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
In addition, we will propose alternative recommendations
for reducing federal spending in the health care sector.
ASSESSI THE AD INISTRATION'S MAJOR PROPOSALS TO
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
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
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
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
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.
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.
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.
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
The economic status of most of
America's elderly is precarious at best:
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.
TOTAL 1981 MONEY INCOME OF HOUSEHOLDS BY AGE OF HOUSEHOLDER
Census Bureau, "Money Income and Poverty Status of Families
Proposals that simply shift program costs to beneficiaries
are based on the erroneous notion that the elderly can and should
bear an even greater burden. But, Medicare currently pays only 40% of the elderly's health care bill. The Part A deductible
automatically rises from $304 to $350 in FY 84, over a 15%
(The Part A deductible rose from $204 in 1981
to $260 in 1982, over a 27% increase, due to the 1982 Budget
The Part B premium rises automatically
in FY 84 to $13.60 from $12.20, almost a 10% increase,
Part B deductible, which was $60 in FY 81, is now $75, a
Beneficiary liability for Medicare Part B
physician services alone is approximately 698. of total
physicians' charges due when deductibles, coinsurance and
unassigned claims are included. Moreover, the unwillingness of a large number of physicians to accept assignment (i.e.,