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government has the market power and the financial interest to

abate hospital cost inflation.

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.

Time and

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

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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


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 employers 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 needi 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

of 3,000 additional beds per year and a maximum of 16,000 beds

per year will be added to present hospital capacity if health

planning is eliminated.

In beds alone, this will cost the

federal government $127 million a year (based on an inter

mediate estimate, assuming a 74 percent occupancy rate),


majority of which would come out of the Medicare trust fund.

Total federal costs could go as high as $256 million per year.

Again, this is for additional hospital beds only.

It does

not include estimates for additional renovation, replacements,

equipment, nursing homes and other elements of the certificate

of-need process.

When these additional elements are included,

the cost to the Medicare program, the U.S. Treasury, and the public will obviously be even greater.

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.

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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 spiral

ling 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


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


The poor and the elderly should not be placed at a

competitive disadvantage in accessing and paying for health

care services.

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