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If you dissect this example you can see where Medicare simply does not provide for a satisfactory method of health care for Mr. B's needs.

1) It could not provide home care which would certainly
have decreased the number of days he spent in the hospital
and the number of emergency visits required. Union County
Visiting Nurse and Health Services has provided an eight
year demonstration program of health education and monitoring
in senior citizen housing. There has been a definite
reduction in hospital recidivism and institutionalization
as a result of this program. Health funding should be
included in considerations for health maintenance and
health monitoring programs so that people are encouraged
to take responsibility for their own health.

2) Because of the DRG (Diagnostic Related Group) the hospital is rewarded on a cost basis for emptying the bed as soon as possible - in this case before the patient was well enough to function on his own thus the hospital bed is freed for another patient. New Jersey instituted the DRG only two years ago. Many of us feel that the system has not been proven and that it is too soon to use this as a model for a nationwide system of health care.

3) Because of the medical cost involved Mr. B didn't want
to see a Doctor in the first place, nor was he willing to go
into the hospital; therefore he, like many older people
delayed treatment until he was very ill. Perhaps some
method could be devised where physicians had to except
assigned medicare payment who fell in an low income bracket.
This is now being done by New Jersey Blue Shield/Blue Cross.

This testimony provided by:

Jocelyn B. Helm, Director

Princeton Senior Resource Center

And:

President of the New Jersey
Gerontological Society*

*These statements do not necessarily reflect the position of all the members of the society.

PREPARED STATEMENT OF THE AMERICAN MEDICAL ASSOCIATION

The American Medical Association takes this opportunity to comment on the financing problems of the Social Security System.

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The short term financing problems of the Old-Age and Survivors (OASI) and Disability Insurance (DI) Trust Funds and their long-range solvency problems represent a major problem for this country today. These problems are not new, representing the second time in less than six years that the Social Security system finds itself on the verge of bankruptcy. Included within the Social Security system are the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund which finance Parts A and B, respectively, of the Medicare program. The Medicare program is a primary source of medical benefits for the vast majority of our population over the age of 65. These citizens, often the heaviest users of medical care, are heavily dependent on Medicare for their medical coverage. Therefore it is imperative that the fiscal solvency of the Medicare program be maintained in order to assure access to high quality care for the nation's elderly. While the Medicare trust funds do not face the immediate difficulties of the OASI fund, pressures are projected to begin near the end of the century. The solvency of the OAS fund is of great concern to the American Medical Association; however, in this statement we limit our comments to concerns relating to the soundness of Medicare trust funds.

Medicare is an "entitlement" program that promises benefits to all who meet Social Security eligibility requirements; it extends its benefits to all who have worked and contributed to the hospital insurance fund. Medicare also provides benefits to disabled persons under age 65 and persons who have end stage renal disease and require transplantation or dialysis.

Medicare benefits and administrative costs are paid from two trust funds created under Title XVIII of the Social Security Act, passed in 1965. Unlike other Federal health programs, Medicare is not financed solely by general revenues. The Hospital Insurance Trust Fund, covering hospital and other institutional benefits (Part A), is financed mainly

through payroll taxes on employers and employees. The payroll tax rate for 1982 was 1.3 percent of wages up to $32,400 per employee. The contribution rate for the employer is the same. The tax rate increases to 1.35% in 1985 and 1.45 percent in 1986. The wage base is increased each year by a formula reflecting general wage growth. The Supplementary Medical Insurance Trust Fund, which pays for physicians' and other outpatient services (Part B), is financed through Federal general revenues and through monthly premiums paid by Part B participants. general revenue share of Part B funding has grown from 50 percent in 1971 to 68 percent in 1981.

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The Medicare program is intended to provide older Americans with financial assistance in covering the costs of physicians' services, and certain other health services. It was the intent of Congress to assure mainstream medical care for the elderly and not have the aged of the nation shunted into a second-class system of care. In this regard, Medicare has been a success. However, budget problems, the problems of a sluggish economy, and short-term borrowing to bail-out the OASI trust fund raise the specter of a failure of the Health Insurance trust fund to cover its obligations.

Because of the critical nature of the benefits that are promised present and future Medicare beneficiaries, it is important that the Medicare funds be soundly financed. Determining the financial soundness of the trust funds is a difficult task, dependent on the assumptions used and the definition of actuarial soundness that is adopted. According to the Report of the National Commission on Social Security Reform issued in January 1983 the Hospital Insurance Trust Fund is estimated to be depleted by the early part of the 1990's and possibly even by the end of this decade. The Supplementary Medical Insurance program, which is financed on a year-by-year basis, faces no projected difficulties

present.

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During an earlier crisis facing the OASI fund, Congress enacted Public Law 97-123 on December 29, 1981, which allows interfund borrowing among the three social security trust funds. The authority originally

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1983.

to expire last December but extended was to July 1, Recommendation #13 of the National Commission on Social Security Reform issued last month calls for the authority for interfund borrowing by the OASI Trust Fund from the Hospital Insurance Trust Fund to be extended until 1987.

Reportedly more than $12.4 billion has been borrowed from the Hospital Insurance Trust Fund already, and further large borrowing is expected. In considering reforms affecting the OASI Trust Fund, Congress must also address the issue of the Hospital Insurance Trust Fund and provide assurances that the hospital fund will be restored to full strength as soon as possible to avoid a Medicare funding crisis created solely as a result of interfund borrowing. We do not believe that Medicare beneficiaries should be penalized, possibly by benefit cutbacks, due to a Medicare bail-out of Social Security.

We recognize the difficulty of the issue facing the Congress with respect to Social Security and appreciate the efforts of the National Commission on Social Security Reform. The AMA truly hopes that Congress will act to provide both a short-term and a long-term solution to the problems of financing Social Security. We urge Congress to avoid the fate of the last major modifications in the Social Security program which were intended to carry Social Security "through the end of the century" yet proved to be little more than a "band-aid" solution that lasted only a few years before severe problems resurfaced.

There is a need to do what is necessary, i.e., to "bite the bullet"; in that regard, the AMA supported the provision in TEFRA to subject federal employees to Medicare contribution requirements; likewise, the AMA supports the recommendation of the Commission on Social Security that new federal employees be asked to contribute to Social Security. The Congress should explore the desirability of including all federal employees within the system. In addition, the AMA offers the suggestion that Congress may wish to consider increasing the HI portion of the

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Social Security FICA tax on employees and employers.

rates, as indicated earlier, are only a little over

The contribution

1% of wages and

haven't experienced a significant increase in many years. An increase in this contribution will help to assure the continued viability of the Trust . Fund and thus avoid solvency

Medicare Hospital Insurance
difficulties in the future.

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