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SELECT COMMITTEE ON AGING

EDWARD R. ROYBAL, California, Chairman CLAUDE PEPPER, Florida

MATTHEW J. RINALDO, New Jersey, MARIO BIAGGI, New York

Ranking Minority Member IKE ANDREWS, North Carolina

JOHN PAUL HAMMERSCHMIDT, Arkansas DON BONKER, Washington

RALPH REGULA, Ohio THOMAS J. DOWNEY, New York

NORMAN D. SHUMWAY, California JAMES J. FLORIO, New Jersey

OLYMPIA J. SNOWE, Maine HAROLD E. FORD, Tennessee

JAMES M. JEFFORDS, Vermont WILLIAM J. HUGHES, New Jersey

THOMAS J. TAUKE, Iowa MARILYN LLOYD, Tennessee

JUDD GREGG, New Hampshire STAN LUNDINE, New York

GEORGE C. WORTLEY, New York MARY ROSE OAKAR, Ohio

HAL DAUB, Nebraska THOMAS A. LUKEN, Ohio

LARRY E. CRAIG, Idaho
GERALDINE A. FERRARO, New York PAT ROBERTS, Kansas
BEVERLY B. BYRON, Maryland

COOPER EVANS, Iowa
WILLIAM R. RATCHFORD, Connecticut JAMES A. COURTER, New Jersey
DAN MICA, Florida

LYLE WILLIAMS, Ohio
HENRY A. WAXMAN, California

CLAUDINE SCHNEIDER, Rhode Island MIKE SYNAR, Oklahoma

THOMAS J. RIDGE, Pennsylvania BUTLER DERRICK, South Carolina

JOHN MCCAIN, Arizona BRUCE F. VENTO, Minnesota

MICHAEL BILIRAKIS, Florida BARNEY FRANK, Massachusetts

GEORGE W. GEKAS, Pennsylvania TOM LANTOS, California

MARK D. SILJANDER, Michigan RON WYDEN, Oregon

CHRISTOPHER H. SMITH, New Jersey
DONALD JOSEPH ALBOSTA, Michigan
GEO. W. CROCKETT, JR., Michigan
WILLIAM HILL BONER, Tennessee
IKE SKELTON, Missouri
DENNIS M. HERTEL, Michigan
ROBERT A. BORSKI, Pennsylvania
FREDERICK C. (RICK) BOUCHER, Virginia
BEN ERDREICH, Alabama
BUDDY MACKAY, Florida
HARRY M. REID, Nevada
NORMAN SISISKY, Virginia
TOM VANDERGRIFF, Texas
ROBERT E. WISE, West Virginia
BILL RICHARDSON, New Mexico

JORGE J. LAMBRINOS, Staff Director
PAUL SCHLEGEL, Minority Staff Director

SUBCOMMITTEE ON HUMAN SERVICES

MARIO BIAGGI, New York, Chairman WILLIAM J. HUGHES, New Jersey

OLYMPIA J. SNOWE, Maine, DONALD JOSEPH ALBOSTA, Michigan Ranking Minority Member TOM LANTOS, California

MATTHEW J. RINALDO, New Jersey BEN ERDREICH, Alabama

CLAUDINE SCHNEIDER, Rhode Island BUDDY MACKAY, Florida

MICHAEL BILIRAKIS, Florida BILL RICHARDSON, New Mexico

CHRISTOPHER H. SMITH, New Jersey
THOMAS J. DOWNEY, New York
JAMES J. FLORIO, New Jersey

ROBERT B. BLANCATO, Staff Director
JOHN E. VIHSTADT, Minority Staff Director

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64

166

THE FUTURE OF MEDICARE: N.J.

MONDAY, MARCH 28, 1983

U.S. HOUSE OF REPRESENTATIVES,

SELECT COMMITTEE ON AGING,
SUBCOMMITTEE ON HUMAN SERVICES,

Princeton, N.J. The subcommittee met, pursuant to notice, at 9:30 a.m., in the council chambers of Princeton Borough Hall on Monument Drive, Princeton, N.J., Hon. Matthew J. Rinaldo (acting chairman of the subcommittee) presiding.

Members present: Representatives Rinaldo of New Jersey and Smith of New Jersey.

Staff present: Paul Schlegel, minority staff director, and Richard Bagger, minority professional staff.

OPENING STATEMENT OF CHAIRMAN MATTHEW J. RINALDO Mr. RINALDO. Good morning. This hearing of the House Select Committee on Aging will now come to order.

We are here this morning to hear testimony on the future of medicare. In July 1965, Congress added title XVIII to the Social Security Act to provide health insurance for the aged and disabled. The preamble of this historic piece of legislation declared that "access to quality health care is the right of all Americans regardless of age or ability to pay.'

Today, medicare provides health coverage to 30 million Americans. It is projected to spend about $60 billion in the coming year. In fact, medicare in 1983 will spend more in any given month than it did in the entire first year of its operation, 1966.

But we are approaching a crisis.

Health care costs continue to skyrocket. They are the only segment of the economy still experiencing double-digit inflation. Over the past 5 years, medicare costs have averaged a staggering 19 percent. Over the program's history, cost increases have outpaced the consumer price index by better than 2 to 1.

That inflation is a ticking time bomb for the medicare trust fund.

Just last month, the Congressional Budget Office released a report showing that the medicare hospital insurance fund would be depleted in just 4 years, by 1987. CBO projections show that the system will have a cumulative deficit of almost $400 billion in 1995. The deficit will be $70 billion each year by the middle of the next decade.

The question we must face, and the question that hopefully we can get some answers to this morning, is: How do we protect health benefits for the elderly?

(1)

The Congressional Budget Office predicts that medicare outlays will rise an average of 13.2 percent annually over the next decade. Revenues, on the other hand, are expected to rise only 6.8 percent.

That structural funding gap spells disaster for America's elderly.

The increase in medicare costs is due almost entirely to inflation in health care-more expensive procedures, new technology, higher prices for physicians and hospitals fees. It is not caused by the aging of America's population.

The increase in the number of elderly is not a problem for medicare. While increased costs are expected to average 13.2 percent, CBO points out that only 2.2 percentage points are due to the aging of the population.

The problem is inflation and there are no easy answers.

The reason we are here today is to listen to experts from the administration, from the public sector, and from State government. We in Congress will need to enact legislation and I strongly feel that any reforms we enact should only be considered after hearings like this, at which interested parties have the opportunity to register their views.

I also feel that any legislation to reform medicare must be based on three fundamental principles: One, it should address the real problem-inflation; two, it must protect health benefits for the elderly; and three, it should be bipartisan.

There have been a number of proposals already made to deal with the financing shortage in medicare. People have recommended increasing revenues, through use of general revenues, increasing the payroll tax, or providing new, earmarked sources of revenue to the hospital trust fund.

Others have suggested we reduce costs through benefit reductions, increased copayments by beneficiaries, and voluntary participation through a voucher system.

I think one thing is clear from the CBO report: Any attempt to reduce the shortfall solely through benefit cutbacks is unacceptable.

With more than 15 percent of the aged now living in poverty and millions more surviving just above the poverty level, cuts in medicare will spell greater suffering for millions of Americans.

I also do not think we can simply increase the payroll tax to close the funding gap. Financing this enormous amount by the payroll tax alone would require an increase in the contributions of both employers and employees from 1.3 percent to 2.5 percent.

That would mean additional tax increases for FICA. And right now, with the measure passed by Congress last week, FICA taxes are already scheduled to increase 5 out of the next 7 years.

Congress must face the problem head on. We have got to hold down hospital costs. And only by concentrating on the source of health care inflation can we hope to preserve the scope of current medicare coverage.

One of the sections of the 1983 Social Security Amendments which I supported was title VI, the prospective payment system for medicare. That system is estimated to save about $12 billion over the next 3 years. In fact, it is based on a system very similar to the diagnostic related group system which we have been using successfully in New Jersey.

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