IV. OTHER ALTERNATIVES TO ALLEVIATE THE PRESSURE FOR CUTS IN MEDICARE AND THAT ADDRESS THE UNDERLYING CAUSES OF HEALTH CARE INFLATION AARP believes that changes in the Medicare program must look beyond immediate budget savings and address the serious long term health cost issues in this country. The federal government, as a major purchaser of health care services, cannot shrink from its responsibility to abate explosive inflation in the health care sector. Since approximately 75 percent of all Medicare expenditures are for hospital costs, the federal government has the market power and the financial interest to abate hospital cost inflation. Time and The Association has long urged the Congress to place federal limits on increases in hospital revenues per admission. Such an across-the-board approach would not single out Medicare or Medicaid beneficiaries for special restrictions. again, experience has demonstrated that Medicare-Medicaid specific approaches to hospital cost containment merely leads to cost shifting to private paying patients and other 3rd party payers and thus, no reduction in the rate of increase in total hospital costs. AARP appreciates Senator Kennedy's leadership in health care cost containment and supports the approach to cost containment embodied in his legislation Cost Containment Act of 1983. the Health Care Unfortunately, Congress has rejected the imposition of uniform, across-the-board limitations on increasing hospital costs. Alternatively, the Association recommends that Congress actively encourage the states to adopt mandatory hospital rate review programs. Such programs, in the six states that have them, show great promise as they reduce both public and private sector outlays for hospital care. We urge Congress to provide financial incentives for states to initiate effective hospital rate review programs which can produce substantial savings to both government and private purchasers of hospital care services. Had all states held their increases in hospital costs to that experienced by the six states with mandatory rate review, hospital expenditures nationwide would have been $12 billion less in 1981. Changing the Tax Treatment of Employer-paid Health Benefits AARP is concerned about the Administration's plan to limit the health insurance premium tax expenditure. While the Association recognizes that there are good reasons for addressing this tax expenditure, the Administration's proposal does not address the complexity of the incentives in the health sector; it simply reduces substantially the health care fringe benefit that is the cornerstone of health care protection in this country. The Administration's approach fails to provide explicit incentives for emplovers to offer a variety of plans, ignoring the interrelationship of the incentives operating in the health care sector. Moreover, failure to index the cap when health insurance premiums have been increasing at over 15 percent per year so erodes the health premium fringe benefit that comprehensive health insurance coverage would soon disappear. AARP supports retargeting the incentives inherent in this tax expenditure but not the total erosion of the health insurance benefit. Other Budget Proposals that will Influence Medicare Outlays The Association believes that this Committee should be aware of other budget proposals that, while not in the Medicare program directly, nevertheless if approved by the Congress will clearly escalate Medicare outlays. First, the proposed phase-out of federal support for local health planning, portends substantial increases in health care costs. We question the wisdom of dismantling the only proven, community-based cost-containment program in place. The Association views health planning and the certificate of need process as a viable state and local decision-making process with demonstrated success. It remains one of the few tools government and health care consumers have in the battle against rising health care costs. Given the current reimbursement system, hospitals in particular have been interested in renovating and expanding their facilities more frequently in recent years. The tendency now is to update or replace plant after approximately fifteen years compared to 20-25 years in earlier periods. These pressures are likely to accelerate in the absence of community. wide planning and certificate-of-need reviews. Moreover, the proposed new prospective reimbursement system would allow capital pass-through, which in the absence of health planning would lead to greater Medicare costs. An American Health Planning Association (AHPA) survey of hospital bed expansion projects (1980), projects a minimum the cost to the Medicare program, the U.S. Treasury, and the The Association urges the Congress to maintain a viable local health planning presence and capability that will help reduce Medicare outlays in FY 1984 and beyond. V. CONCLUSION For the most part, the Administration's proposals to cut federal health care programs only further serve to exacerbate the elderly's out-of-pocket costs for health care, without controlling spiralling health care inflation in the future. The Administration; s proposals to substantially cut Medicare benefits through increased cost-sharing requirements are not justified particularly in light of prior year cuts and social security reductions slated for this year. We urge the Congress to look beyond Medicare and/or Medicaid specific approaches, but rather to across-the-board remedies. We urge the Congress to resist the temptation to simply continue the year by year hacking away at Medicare and Medicaid and instead focus on measures to restrain the inflation in the health sector. The poor and the elderly should not be placed at a competitive disadvantage in accessing and paying for health care services. |