Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
34429234
label
Trust Fund [2]
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
34429234
sourceUrl
contentType
document
title
Trust Fund [2]
citationUrl
collections
Records of the First Lady's Office (Clinton Administration)
Jennifer Klein's Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
34429234
levelOfDescription
fileUnit
otherTitles
42-t-7422560-20140536S-050-011-2016
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
67fa1d7d8ce3d730
ocrText
EXECUTIVE OFFICE OF THE PRESIDENT
10-May-1995 02:51pm
TO:
(See Below)
FROM:
Robert J. Pellicci
Office of Mgmt and Budget, LRD
SUBJECT: HI Trust Fund Markup Tonight
According to Karen Pollitz, the House Ways and Means Committee
will markup HR 1590 - - Archer's bill that was introduced
yesterday. The bill requires the Trustees to recommend to
Congress both short-term and long-term solutions to the Medicare
trust fund financial situation. I am receiving from HHS a copy of
the legislation which I will send to you. Under the bill, the
Trustees are required to submit their recommendations no later
than June 30, 1995.
Karen tells me that she will notify Ways and Means that no one
from the Administration will attend the markup.
Distribution:
TO: Nancy-Ann E. Min
TO: Christopher C. Jennings
TO: Jennifer L. Klein
TO: Gene B. Sperling
TO: Kenneth S. Apfel
CC: Barry T. Clendenin
CC: Charles S. Konigsberg
CC: Mark E. Miller
CC: Anne W. Mutti
CC: Keith J. Fontenot
CC: Janet R. Forsgren
CC: James C. Murr
OFFICE OF MANAGEMENT AND BUDGET
Legislative Reference Division
Labor-Welfare-Personnel Branch
Telecopier Transmittel Sheet
FROM: Bob Pellicci
-- 395-4871
DATE:
5/10/95
TIME:
3:10 pm
Pages sent (including transmittal sheet):
5
COMMENTS:
TO:
Nancy-Ann Min
Chris Jennings
Gene Sperling
Jennifer Klein
PLEASE CALL THE PERSON(S) NAMED ABOVE FOR IMMEDIATE PICK-UP.
10'd 70000 ST:E
50.95 MAY
8719-6-:0I
SENT BY:Xerox Telecopier 7021 : 5-10-95 i. 2:38PM... i.
93956148:#
F:\EGG\MEDICARE\TRUSTEE.001
H.L.O.
104TH CONGRESS
IST SESSION
H. R. 1590
IN THE HOUSE OF REPRESENTATIVES
and Mr. Thomas
Mr. ARCHER introduced the following bill; which was referred to the
Committee on
A BILL
To require the Trustees of the medicare trust funds to report
recommendations on resolving projected financial imbal-
ance in medicare trust funds.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. TRUSTEES' CONCLUSIONS REGARDING FINAN.
4
CIAL STATUS or MEDICARE TRUST FUNDS.
s
(a) HI TRUST FUND.-The 1995 annual report of
6 the Board of Trustees of the Federal Hospital Insurance
7 Trust Fund, submitted on April 3, 1995, contains the fol-
8 lowing conclusions respecting the financial status of such
9 Trust Fund:
May 9, 1986
3:15 No.004 P.02
50.65 MAY
8719-6-0:0I
SENT BY:Xerox Telecopier 7021 6 5-10-85 : 2:37PM :
93958148:#_ 3_
B.U.N.
2
1
(1) Under the Trustees' intermediate assump.
2
tions, the present financing schedule for the hospital
3
insurance program is sufficient to ensure the pay-
4
ment of benefits only over the next 7 years...
5
(2) Under present law, hospital insurance pro-
6
gram costs are expected to far exceed revenues over
7
the 75-year long-range period under any reasonable
8
set of assumptions.
9
(8) As a result, the hospital insurance program
10
is severaly out of financial balance and the Trustees
11
believe that the Congress must take timely action to
12
establish long-term financial stability for the pro-
13
gram.
14
(b) SMI TRUST FUND.-The 1995 annual report of
15 the Board of Trustees of the Federal Supplementary Med-
16 ical Insurance Trust Fund, submitted on April 8, 1995,
17 contains the following conclusions respecting the financial
18 status of such Trust Fund:
19
(1) Although the supplementary medical insur-
20
anue program is currently actuarially sound, the
21
Trastees note with great concern the past and pro-
22
jected rapid growth in the cost of the program.
23
(3) Lu spite of the evidence of somewhat slower
24
growth rates in the recent past, overall, the past
25
growth rates have been rapid, and the future krowth
P.00 70000 3:19
$10.55 MAY
ID:202-395-6148
SENT BY:Xerox Teleconier 7021 ; 5-10-95 i. 2:37PM :
93956148:# 4
3
1
rates are projected to increase above those of the re-
2
cent past.
3
(9) Growth rates have been 80 rapid What unt-
4
lays of the program have increased 58 percent in ug-
5
gregate and 60 percent per enrollee in the last 5
6
years.
7
(4) For the same time period, the program
8
grow 19 percent faster than the economy despite re-
9
cent efforts to control the costs of the program.
10 SEC. 2. RECOMMENDATIONS ON RESOLVING PROJECTED
11
FINANCIAL IMBALANCE IN MEDICARE TRUST
12
FUNDS.
13
(a) REPORT.-Not later than June 80, 1995, the
14 Board of Trustees of the Federal Hospital Insurance
15 Trust Fund and the Board of Trustees of the Federal
16 Supplementary Medical Insurance Trust Fund shall mub.
17 mit to the Congress recommendations fur specific program
18 legislation designed solely-
19
(1) to control medicare hospital insurance pro-
20
gram costs and to address the projected financial
21
imbalance in the Federal Hospital Insurance Trust
22
Fund in both the short-range and long-range; and
23
(2) to more effectively control medicare supple-
24
mentary medical insurance costs.
3:16 No.004 P.04
S6.01 MAY
8719-6-:0I
SENT BY:Xerox Telecopier 7021 ; 5-10-95 ; 2:38PM ;
93958148;#_ 5_
4
1
(b) USE OF INTERMEDIATE ASSUMPTIONs.-The
2 Boards of Trustees shall Use the intermediate assumptions
3 described in the 1995 annual reports of such Boards in
4 making recommendations under subsection (a).
SO ' d 70000 2:17
$10.50 AAA
8719-6-0:0I
MEDICARE TRUST FUND SOLVENCY PROBLEM
Unlike the Republicans, This is Not a Problem Democrats Just Discovered. The President, his
Administration and the Democrats have been concerned about Medicare trust fund from the beginning.
OBRA 1993 and economic improvements resulting from this legislation have strengthened the trust fund
and pushed out the insolvency date by three years. Furthermore, in the context of broader reforms, the
Administration's proposal would have extended the life of the trust fund another 5 years. The
Republicans rejected each and every initiative that would have strengthened the Medicare Trust
Fund.
The Medicare Trust Fund is a Long-Term Problem that Needs to be Addressed. Of course with the
aging of our population, there is a long-term solvency problem for the Medicare trust fund. This is
nothing new, but it needs to be addressed. It needs to be addressed thoughtfully, outside the budgetary
process, and independent of partisan politics.
In Contrast to the Democrats, the Republicans Have Just Discovered this Issue. In the last two years,
all the Republicans have done has been to oppose our efforts to improve the Trust Fund. As a matter of
fact, the only proposal they have put forth (their tax cut for the highest income seniors -- the top 13
percent) actually exacerbates the problem.
The Republicans are Using the Trust Fund as a Smoke Screen for Cuts. Let's be clear: Their
proposals have nothing to do with the long-term solvency issue; they do not address the underlying
problems of an aging population. The Republicans want to use the Medicare program as a bank for their
tax cuts for the wealthy and to fulfill their campaign promises.
When they Finally Put Forth a Detailed Budget and Commit to Dealing with Medicare in the
Context of Serious Health Care Reform, the President Stands Ready to Work Toward a Real
Solution: Currently, the issue of Medicare is only being addressed by Republicans as they face a political
crisis to find funds to pay for large tax cuts for the well-off and fulfill their campaign budget promises.
When Republicans finally put forth a budget that is detailed and makes clear they are not slashing
Medicare to pay for tax cuts, the President stands ready to work with Republicans to address the real
problems facing the Trust Fund and the American people in the health care system.
REPUBLICAN MEDICARE CUTS
Republicans are considering proposals that would cut Medicare funding by between
$250 billion and $305 billion between now and 2002. Slashing Medicare at this level
translates into 20% to 25% cuts in 2002 alone for this program serving our most vulnerable
Americans -- the elderly and disabled.
COERCION INSTEAD OF CHOICE: Managed care simply cannot produce anywhere near
the magnitude of Federal savings being suggested by the Republicans without turning
Medicare into a fixed voucher program. That would put Medicare's 36 million beneficiaries,
many of whom have pre-existing conditions, into the private insurance market to shop for
what they can get. With a fixed and limited voucher, beneficiaries would have to pay far
more to stay in the current Medicare program if large savings are to be realized. That's not
choice, that is financial coercion.
ADDING TO ALREADY HIGH COSTS FOR SENIORS: Today, despite their Medicare
benefits, health care consumes major amounts of older Americans' income. According to the
Urban Institute, the typical Medicare beneficiaries already dedicate a staggering 21% (or
$2,500) of their incomes to pay for out-of-pocket health care expenditures.
$3,100-$3,700 Out-of-Pocket Payments: If the Republican cuts ($250 billion to
$305 over seven years) are evenly distributed between health care providers and
beneficiaries, the cuts would add an additional $815 to $980 in out-of-pocket burdens
to Medicare beneficiaries in 2002. Over the seven year period, the typical beneficiary
would pay between $3,100 to $3,700 more.
Reduce Half of Social Security COLA: The Republicans say they aren't cutting
Social Security, but these Medicare cuts are a back-door way of doing just that. By
2002, the typical Medicare beneficiary would see 40 to 50 percent of his or her cost-
of-living adjustment eaten up by the increases in Medicare cost sharing and
premiums. In fact, about 2 million Medicare beneficiaries will have all or more than
all of their COLAs consumed by the Republican beneficiary cost increases.
$40-$50 Billion in Cost-Shifting: Assuming the other half of the Republicans' cuts
go to providers, hospitals, physicians and other providers would be targeted with
between a $125 billion to $150 billion cut over seven years. In 2002 alone, a $33
billion cut in providers would be needed. Even if only one-third of Medicare provider
cuts overall are shifted onto other payers (an assumption consistent with a 1993 CBO
analysis), businesses and families would be forced to pay a hidden tax of $40 billion
to $50 billion in increased premiums and health care costs between now and 2002.
Rural and Inner City Hospitals At Risk: Cuts of this magnitude, combined with the
growing uncompensated care burden (which would be further exacerbated by Medicaid
cuts and increases in the number of uninsured), would place rural and inner-city
providers in jeopardy because they have limited or no ability to shift costs to other
payers. As a result, quality and access to needed health care would be threatened.
THE REALITY OF MEDICARE GROWTH
Despite the current rhetoric, Medicare expenditure growth is comparable to the growth
in private health insurance.
Under Administration estimates, Medicare spending per person is projected to
grow over the next five years at about the same rate as private health insurance
spending. Under CBO estimates, Medicare spending per person is projected to
grow only about one percentage point faster than private health insurance.
So, unless Medicare can control costs substantially better than the private
sector, beneficiaries and providers would be forced to shoulder the burden of
the huge cuts being proposed by Republicans.
MAJOR BURDEN ON RURAL AMERICA
Reducing Medicare payments would disproportionately harm rural hospitals.
Nearly 10 million Medicare beneficiaries (25% of the total) live in rural America where
there is often only a single hospital in their county. These rural hospitals tend to be small
and serve large numbers of Medicare patients.
Significant cuts in Medicare revenues has great potential to cause a good number of these
hospitals, which already are in financial distress, to close or to turn to local taxpayers to
increase what are already substantial local subsidies.
Rural residents are more likely than urban residents to be uninsured, so offsetting the
effects of Medicare cuts by shifting costs to private payers is more difficult for small rural
hospitals.
Rural hospitals are often the largest employer in their communities; closing these hospitals
will result in job loss and physicians leaving these communities.
UNDERMINES URBAN SAFETY NET
Large reductions in Medicare payments would have a devastating impact on a significant number
of urban safety-net hospitals. These hospitals already are bearing a disproportionate share of the
nation's growing burden of uncompensated care. On average, Medicare accounted for a bigger
share of net operating revenues for these hospitals than did private insurance payers.
REPUBLICAN MEDICAID CUTS
Republicans are considering cutting federal Medicaid funding by $160 to more than
$190 billion between 1996 and 2002. The Republicans claim that they are not cutting the
program, but simply reducing the rate of growth. Yet, these technical number disputes avoid
the real question: who will be hurt, who will lose coverage and who will lose benefits if $160
to $190 billion are cut from a program that provides critical health care services. It also
ignores the fact that 3 to 4 percent of program growth is for the increasing number of people
being covered, without which millions more Americans would be uninsured.
HEAVY BURDEN TO FAMILIES FACING LONGTERM CARE: While most
people think that Medicaid helps only low-income mothers and children, about two-
thirds of Medicaid funds are spent on services for elderly and disabled Americans.
Without Medicaid, working families with a parent or spouse who need long-term care
would face nursing home bills that average $38,000 a year.
MANAGED CARE SAVINGS NOT NEARLY SUFFICIENT: Savings from
managed care cannot produce anywhere near the magnitude of cuts proposed by the
Republicans. Two-thirds of Medicaid funds are spent on the elderly and disabled, and
there is little to no evidence that putting them in managed care can produce savings.
And because the baseline projections already assume that a growing number of
mothers and children on Medicaid will be in managed care plans, there are little
additional savings left in the remaining one-third of the program.
FLEXIBILITY CAN'T MASK DEEP CUTS: Republicans defend these cuts by
saying that what they are doing is giving added flexibility to states through block
grants. Issues of flexibility can't mask the inevitable fact that states are being asked to
absorb enormous federal cuts -- forcing them to cut spending for education, law
enforcement or other priorities -- and that's unrealistic.
LIKELY IMPACTS: So let's look at what these cuts really mean. Even accounting for some
managed care savings, they mean deep cuts in eligibility, benefits and payments to doctors,
hospitals, nursing homes and other health care providers. If the Republicans were to cut $160
to $190 billion between 1996 and 2002 and those cuts were divided evenly between
eliminating eligibility for elderly and disabled beneficiaries, eliminating eligibility for
children, cutting services, and cutting provider payments, that would mean -- in the year
2002 alone -- that:
5 TO 7 MILLION KIDS WOULD LOSE COVERAGE; and
800,000 TO 1 MILLION ELDERLY AND DISABLED BENEFICIARIES
WOULD LOSE COVERAGE; and
TENS OF MILLION LOSE BENEFITS: All preventive and diagnostic screening
services for children, home health care and hospice services would be climinated --
as well as dental care if the $190 billion were cut; and
OVER TEN BILLION REDUCED TO HEALTH CARE PROVIDERS: Already
low payments to health care providers would be reduced by $10.7 to $12.8 billion.
MEDICARE/MEDICAID CUTS:
BUSINESS, PROVIDER AND ADVOCACY GROUPS' RESPONSES
The National Association of Manufacturers says:
"Across the board reductions in [Medicare and Medicaid] should be avoided, since they are
likely to exacerbate cost-shifting to the private sector.' (February 11, 1995)
Eastman Kodak says:
"My message to you as you wrestle with the growing costs of the Medicare program is that
greater use of managed care and aggressive purchasing of care on the part of the
government are more appropriate solutions than massive across-the-board cuts in payments
to providers, which result in cost shifting or an invisible tax on companies providing coverage
to employees in the private sector." (March 21, 1995)
American Hospital Association says:
"One of every four hospitals in the United States is in 'serious trouble,' and with deep
reductions in Medicare growth will be forced to cut services or close its doors.' (April 13,
1995)
"The wrong way [to reform Medicare] is to do business as usual, letting short-sighted
political pressures squeeze Medicare spending and weaken a program that needs to remain
strong for our nation's seniors." (February 6, 1995)
"Sixty-four percent of the electorate believes that if you ran for office saying that you would
not cut social security, and if Congress votes this year to cut Medicare then that Member of
Congress has broken their campaign promise." (April 1995 Polling Data Report)
American Association of Retired Persons says:
"Medicare was hardly discussed in the last election; and there was certainly no mandate
from the electorate to change the system." (March 28, 1995)
Medicare cuts "would mean that over the next 5 years older Americans would pay at least
$2000 more out of pocket than they would pay under current law. And over the next seven
years they would pay $3489 more out of pocket." (March 6, 1995)
" "...[T]he total number of Medicaid beneficiaries in need who would lose long-term care
services. could reach 1.75 million in the year 2000." (March 6, 1995)
The National Council of Senior Citizens says:
"The facts do not warrant a panic approach or a fundamental recasting of Medicare. The
trust fund is not about go belly-up; a seven-year window does not merit a panic button."
"The levels of the cuts in Medicare contemplated by the Senate and House Budget Committees
will not just devastate the finances of millions of older citizens, but more importantly, they
will devastate the hopes for a secure and healthy old age for all Americans." (April 1995)
Older Women's League says:
"We receive hundreds of letters from women who are already forced to chose between paying
for food and rent and buying much needed medicine that is not covered by their Medicare.
Substantial cuts in Medicare will literally take food out of the mouths of these older women."
(January 10, 1995)
Children's Defense Fund says:
"States could make these cuts in several ways: by raising taxes substantially; by excluding
groups of children from programs or putting them on waiting lists; by reducing benefits or
the quality of services; or by making low-income families pick up more costs through co-
payments and fees. Regardless of which method is chosen, the overall effect would be large."
(April 19, 1995)
Catholic Health Association says:
"Budget cuts of such magnitude [in Medicare and Medicaid] would attack the very fiber of
these programs and, in fact, decimate them. Consequently, the Catholic Health Association
believes that Congress should put aside consideration of tax cuts for now and refocus the
debate on how best to solve the deficit problem." (March 2, 1995)
THE WHITE HOUSE
WASHINGTON
May 1, 1995
The Honorable Newt Gingrich
Speaker
United States House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
The President has asked me to respond to your letter of April 28, 1995. As the
Administration has shown over the last two and a half years, we are committed to reducing
the deficit and achieving meaningful health care reform. We continue to seek progress on
both of these fronts, while also making our tax system fairer and our system of investing in
education and children even stronger.
When this President took office on January 20, 1993, he inherited an escalating deficit
and a Medicare Trust Fund that was projected to be insolvent in 1999. Twenty-seven days
later, he proposed, and then helped pass, a historic deficit reduction plan that included
several serious policies to strengthen the Trust Fund. Indeed, these proposals pushed out the
insolvency date by three full years.
Last year, the President spoke directly to the nation about the need to reform our
health care system and made clear that further federal health savings needed to take place in
the context of serious health care reform. In December 1994, the President wrote the
Congressional leadership and made clear that he would work with Republicans to control
health care spending in the context of serious health care reform. The President repeated this
offer in his 1995 State of the Union speech.
Despite these repeated calls for significant action on health care reform, the reply
from the Republicans has been silence. Indeed, the only proposal in the Contract with
America that specifically addresses the Medicare Trust Fund would explicitly weaken it by
$27 billion over seven years and undo some of the progress made in 1993.
Moreover, the over $300 billion in Medicare cuts over seven years -- the largest
Medicare cut in history you are reported to be considering would be completely
unnecessary if you did not have to pay for a seven-year $345 billion tax cut that goes
predominantly to well-off Americans. No amount of accounting gimmicks, separate
accounts, dual budget resolutions or reconciliations can hide the reality that you are
essentially calling for the largest Medicare cus in history to pay for tax cuts for the well-off.
The President has long stated that making significant cuts in Medicare and Medicaid
outside the context of health care reform will not work. Such dramatic cuts could lead to
less coverage and lower quality, much higher costs to poor and middle income Medicare
recipients who cannot afford them, a coercive Medicare program, and cost-shifting that could
lead to a hidden tax on the health premiums of average Americans. That is why it is
essential to deal with the Medicare Trust Fund in the context of health care reform that
protects the integrity of the program, expands not reduces coverage, and protects choice as
well as quality and affordability.
The Medicare Trust Fund is an important issue that needs to be addressed in a
bipartisan way in the context of larger health care reform. To do that, you must first meet
the requirements of the bue et law that Congress pass a budget resolution. The April 15
deadline has passed, and the American people are still waiting to see the new Republican
majority fulfill this responsibility. If you really want to work together on the Medicare Trust
Fund, you must first pass a budget plan that fully specifies how you plan to balance the
budget and pay for the proposed tax cuts.
We hope that you will work hard to respond to these issues. The Administration and
the American people continue to await your proposals.
Sincerely
RS Leon E. Panetta
Chief of Staff
01/28/95
15:04
C202 887 1050
LA TIMES DC
002
New Gingrich
Sixth District
(2C2) 225-0600
Georgia
Office of the Speaker
United States House of Representatives
Mashington, BC 20515
April 28, 1995
The Honorable Bill Clinton
8'
The White House
Washington, D.C.
Dear Mr. President:
I write to you out of deep concern for the future of Medicare. The most recent reports of
the Medicare Hospital Insurance and Supplementary Medical Insurance Trustees paint a grim
picture of the future of Medicare and make clear that immediate action is needed to ensure
Medicare's survival.
The Trustees' reports predict dire results from 3 failure to address the growth rate in both
parts of the Medicare program. Four of the Trustees are your own Secretaries of the Treasury,
Labor, and Health and Human Services Departments and the Commissioner of Social Security.
The Trustees indicated, in both their 1994 and 1995 reports that urgent action is necessary.
"
the HI program is severely out of balance and the Trustees believe that Congress must
take timely action to fundamentally reform the HI program and control related program
expenditures."
1994 Board of Trustees Annual Report, Hospital Insurance Trust Fund
Last year, you agreed that program expenditures should be slowed, and you proposed to
reduce the rate of growth by $118 tillion. Congress did not enact these reforms due to their
entanglement in your health reform proposal.
This year. the Trustees warning is even more dire:
"To bring the HI program into actuarial balance even for the first 25 years. either outlays
would have to be reduced by 30 percent or income increased by 44 percent (or some
combination thereof) the HI program is severely out of financial balance and the
Trustees believe that the Congress must take timely action to establish long-term
financial stability for the program
1995 Supplemental Medical Insurance Report from Secretaries Reich, Rubin
and Shalala, Commissioner Chater, Public Trustees Stanford G Ross. and David
04/28/95
13:04
202 837 1050
LA TIMES DC
003
M. Walker, and Bruce C. Vladek, Administrator of HCFA and Secretary to the
Board of Trustees.
growth rates have been so rapid that outlays of the program have increased 53% in
aggregate and 40% per enrollee in the last five years The Trustees believe that prompt,
effective, and decisive action is necessary."
1995 Hospital Insurance Trust Fund Annual Report from Secretaries Reich, Rubin
and Shalala, Commissioner Chater, Public Trustees Stanford G. Ross, and David
M. Walker, and Bruce C. Vladek, Administrator of HCFA and Secretary to the
Board of Trustees.
Part B costs per beneficiary were $2,046.00 ir. 1994. In the year 2002, the year in which
the Trustees predict bankruptcy for the Part A program, costs per beneficiary are estimated to be
$4,430.47. This is obviously an unsustainable rate of gt with yet your most recent budget,
however, contained no new proposals other than minor extensions of current law to limit the
growth of the Part B program.
In the submission of your Health Security Act last year, you noted that Medicare reform
should only be accomplished in the context of comprehensive health care reform legislation. The
public Trustees clearly believe such action unwise, indicating in the 1995 report that Medicare
savings should not be considered for any other purpose:
it is now clear that Medicare reform needs to be addressed as a distinct legislative
initiative The idea that reductions in Medicare expenditures should be available for other
purposes, including even other health care purposes, is mistaken."
Public Trustees David Walker and Stan Ross, 1995 Hospital Insurance Trustees
Report
Given the urgency with which the Trustees have spoken, the Congress intends to address
the Medicare crisis this year. We believe the American people expect us to work together on
issues 25 important as the Medicare program. We ask that you direct Secretaries Reich, Rubin
and Shalala, Commissioner Chater, and Administrator Vladek to make recommiendations to the
Congress no later than May 15, 1995. Specifically, we believe these recommendations should
address these concerns and questions:
Medicare bankruptcy has often been postposed by TEX increase The most recent tax
increase merely postponed bankruptcy by one or two years: the underlying growth rate
remains unaddressed and the program is no closer is long term solvency The Trustees
recommend two 25 year solvency tests for the Hi Trust Fund. Please present proposals
that would make Medicare meet both tests. It is obviously inappropriate that the
recommendations concerning Parts A merely shifts its costs to Part B. particularly given
10
04/28/95
15:05
202 887 1050
LA TIMES DC
\
001
the Trustees concerns about COS! increases in the Supplemental Medical Insurance
program. Does the Administration recommend tax increases?
N
The Public Trustees of the Medicare Hospital Insurance Trust Fund have stated
unambiguously that Congress should undertake Medicare reform independent of any
other health care reform activities Do you believe that the Public Trustees are wrong in
this assessment? Y,,
The Trustees recommend controlling the rate of growth for the Supplemental Medical
Insurance program. Please recommend proposals to reduce the program's costs
The Adminstration's larest guidance on Medicare reform remains their 1994 proposals,
which would result in Medicare savings of about $118 billion. The Administration has
indicated its support for incremental reform. Do you continue to support these proposals?
We will provide a more detailed set of questions in 2 later communication.
We believe there is no excuse to ignore the problem of Medicare, a program that will
spend more than it takes in next year. and will be completely unable to pay benefits in seven
years
Next week you are convening the Fourth White House Conference on Aging, a
nonpartisan event that occurs only once every decade. The final agenda for the Conference
indicates that health is the primary concern of the delegates. Surely, this is the time to begin
building a national consensus on how to make Medicare solvent.
Sincerely,
Newt
Newt Gingrich
US
FORTNEY PETE STARK
COMMITTEES:
THIRTEENTH DISTRICT, CALIFORNIA
WAYS AND MEANS
CONGRESS OF THE UNITED STATES
DISTRICT OF COLUMBIA
HOUSE OF REPRESENTATIVES
WASHINGTON, D.C. 20515
MEDICARE CUTS? LOOK WHAT
REPUBLICANS SAID LAST YEAR!
Dear Democratic Colleague:
The Republicans are about to try to cut Medicare $250 to $310 billion over the
next 7 years.
Last year all 14 Republican Members of the Ways and Means Committee
signed the following minority views to HR 3600, the Health Reform bill:
"The reimbursement levels of medicare have reached potentially
disastrous levels, as ProPAC's current report underscores.
"Anyone who doubts this only has to look at the current Medicare
program for the elderly and the Medicaid program for the poor.
For more than a decade, Congress has cut back on payments to
doctors and hospitals until they no longer cover the cost of care
for Medicare and Medicaid patients--and the additional massive
cuts in reimbursement to providers proposed in this bill will
reduce the quality of care for the nation's elderly."
As you remember, HR 3600 did cut Medicare spending $157 billion over 7
years but returned ALL the money to the health care system by insuring
everyone (no more bad debt and uncompensated care for doctors and
hospitals) and providing seniors with a prescription drug coverage and better
Medicare benefits. The Republican cuts won't go for Medicare improvements
or health care reform--they will just be cuts.
We should all remind the Republicans--often--of what they said last year.
Sincerely,
Pete Stark
Member of Congress
Printed on Recycled Paper.
01/28/95
13:04
202 887 1050
LA TIMES DC
002
New Gingrich
Sixth District
(202) 225-0600
Georgia
Office of the Speaker
United States House of Representatives
Mashington, DC 20515
April 28, 1995
The Honorable Bill Clinton
8
The White House
Washington, D.C.
Dear Mr. President:
I write to you out of deep concern for the future of Medicare. The most recent reports of
the Medicare Hospital Insurance and Supplementary Medical Insurance Trustees paint a grim
picture of the future of Medicare and make clear that immediate action is needed to ensure
Medicare's survival.
The Trustees' reports predict dire results from a failure to address the growth rate in both
parts of the Medicare program. Four of the Trustees are your own Secretaries of the Treasury,
Labor, and Health and Human Services Departments and the Commissioner of Social Security.
The Trustees indicated, in both their 1994 and 1995 reports that urgent action is necessary.
"
the HI program is severely out of balance and the Trustees believe that Congress must
take timely action to fundamentally reform the HI program and control related program
expenditures."
1994 Board of Trustees Annual Report, Hospital Insurance Trust Fund
Last year, you agreed that program expenditures should be slowed, and you proposed to
reduce the rate of growth by $118 billion. Congress did not enact these reforms due to their
entanglement in your health reform proposal.
This year, the Trustees warning is even more dire:
"To bring the HI program into actuarial balance even for the first 25 years either outlays
would have to be reduced by 30 percent or income increased by 44 percent (or some
combination thereof) the HI program is severely out of financial balance and the
Trustees believe that the Congress must take timely action to establish long-term
financial stability for the program."
1995 Supplemental Medical Insurance Report from Secretaries Reich, Rubin
and Shalala, Commissioner Chater, Public Trustees Stanford G Ross, and David
04/28/95
13:04
202 837 1650
LA TIMES DC
003
M. Walker, and Bruce C. Vladek, Administrator of HCFA and Secretary to the
Board of Trustees.
"
growth rates have been 50 rapid that outlays of the program have increased 53% in
aggregate and 40% per enrollee in the last five years The Trustees believe that prompt,
effective, and decisive action is necessary."
1995 Hospital Insurance Trust Fund Annual Report from Secretaries Reich, Rubin
and Shalala, Commissioner Chater, Public Trustees Stanford G. Ross, and David
M. Walker, and Bruce C. Vladek, Administrator of HCFA and Secretary to the
Board of Trustees.
Part B costs per beneficiary were $2,046.00 in 1994. In the year 2002, the year in which
the Trustees predict bankruptcy for the Part A program, costs per beneficiary are estimated to be
$4,430.47. This is obviously an unsustainable rate of growth yet your most recent budget,
however, contained no new proposals other than minor extensions of current law to limit the
growth of the Part B program.
In the submission of your Health Security Act last year, you noted that Medicare reform
should only be accomplished in the context of comprehensive health care reform legislation. The
public Trustees clearly believe such action unwise, indicating in the 1995 report that Medicare
savings should not be considered for any other purpose:
"...it is now clear that Medicare reform needs to be addressed as a distinct legislative
initiative The idea that reductions in Medicare expenditures should be available for other
purposes, including even other health care purposes, is mistaken."
Public Trustees David Walker and Stan Ross, 1995 Hospital Insurance Trustees
Report
Given the urgency with which the Trustees have spoken, the Congress intends to address
the Medicare crisis this year. We believe the American people expect us to work together on
issues as important as the Medicare program. We ask that you direct Secretaries Reich, Rubin
and Shalala, Commissioner Chater, and Administrator Vladek to make recommendations to the
Congress no later than May 15, 1995. Specifically, we believe these recommendations should
address these concerns and questions:
Medicare bankruptcy has often been postponed by tax increase The most recent tax
increase merely postponed bankruptcy by one or two years; the underlying growth rate
remains unaddressed and the program is no closer to long term solvency. The Trustees
recommend two 25 year solvency tests for the HI Trust Fund. Please present proposals
that would make Medicare meet both tests. It is obviously inappropriate that the
recommendations concerning Parts A merely shifts its costs to Part B, particularly given
2
04/28/95 15:05
202 887 1050
LA TIMES DC
A
001
the Trustees concerns about COST increases in the Supplemental Medical Insurance
program. Does the Administration recommend tax increases? Nitw N
the ding
The Public Trustees of the Medicare Hospital Insurance Trust Fund have stated
unambiguously that Congress should undertake Medicare reform independent of any
other health care reform activities. Do you believe that the Public Trustees are wrong in
this assessment? Yes
The Trustees recommend controlling the rate of growth for the Supplemental Medical
Insurance program. Please recommend proposals to reduce the program's costs.
The Adminstration's latest guidance on Medicare reform remains their 1994 proposals,
which would result in Medicare savings of about $118 billion. The Administration has
indicated its support for incremental reform. Do you continue to support these proposals?
N. outside stain
We will provide a more detailed set of questions in a later communication.
We believe there is no excuse to ignore the problem of Medicare, a program that will
spend more than it takes in next year, and will be completely unable to pay benefits in seven
years.
Next week, you are convening the Fourth White House Conference on Aging, a
nonpartisan event that occurs only once every decade. The final agenda for the Conference
indicates that health is the primary concern of the delegates. Surely, this is the time TO begin
building a national consensus on how to make Medicare solvent.
-
Sincerely,
Newt Newt Gingrich
3
7020
5-
1-95
;
16:03
;
The White House-
20222520991# 2
THE WHITE HOUSE
WASHINGTON
May 1, 1995
The Honorable Newt Gingrich
Speaker
United States House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
The President has asked me to respond to your letter of April 28, 1995. As the
Administration has shown over the last two and a half years, we are committed to reducing
the deficit and achieving meaningful health care reform. We continue to seek progress on
both of these fronts, while also making our tax system fairer and our system of investing in
education and children even stronger.
When this President took office on January 20, 1993, be inherited an escalating deficit
and a Medicare Trust Fund that was projected to be insolvent in 1999. Twenty-seven days
later, he proposed, and then helped pass, a historic deficit reduction plan that included
several serious policies to strengthen the Trust Fund. Indeed, these proposals pushed out the
insolvency date by three full years.
Last year, the President spoke directly to the nation about the need to reform our
health care system and made clear that further federal health savings needed to take place in
the context of serious health care reform. In December 1994, the President wrote the
Congressional leadership and made clear that he would work with Republicans to control
health care spending in the context of serious health care reform. The President repeated this
offer in his 1995 State of the Union speech.
Despite these repeated calls for significant action on health care reform, the reply
from the Republicans has been silence. Indeed, the only proposal in the Contract with
America that specifically addresses the Medicare Trust Fund would explicitly weaken it by
$27 billion over seven years and undo some of the progress made in 1993.
Moreover, the over $300 billion in Medicare cuts over seven years - the largest
Medicare cut in history -- you are reported to be considering would be completely
unnecessary if you did not have to pay for a seven-year $345 billion tax cut that goes
predominantly to well-off Americans. No amount of accounting gimmicks, separate
accounts, dual budget resolutions or reconciliations can hide the reality that you are
essentially calling for the largest Medicare cut in history to pay for tax cuts for the well-off.
The President has long stated that making significant cuts in Medicare and Medicaid
outside the context of health care reform will not work. Such dramatic cuts could lead to
SENT BY:Xerox Telecopier 7020 ; 5- 1-95 ; 16:03
;
The White House-
2022252099:# 3
less coverage and lower quality, much higher costs to poor and middle income Medicare
recipients who cannot afford them, a coercive Medicare program, and cost-shifting that could
lead to a hidden tax on the health premiums of average Americans. That is why it is
essential to deal with the Medicare Trust Fund in the context of health care reform that
protects the integrity of the program, expands not reduces coverage, and protects choice as
well as quality and affordability.
The Medicare Trust Fund is an important issue that needs to be addressed in a
bipartisan way in the context of larger health care reform. To do that, you must first meet
the requirements of the budget law that Congress pass a budget resolution. The April 15
deadline has passed, and the American people are still waiting to see the new Republican
majority fulfill this responsibility. If you really want to work together on the Medicare Trust
Fund, you must first pass a budget plan that fully specifies how you plan to balance the
budget and pay for the proposed tax cuts.
We hope that you will work hard to respond to these issues. The Administration and
the American people continue to await your proposals.
Sincerely
B Leon E. Panetta
Chief of Staff
May 2, 1995
MEMORANDUM TO THE SECRETARY OF TREASURY
Through:
Ben Nye
Deft
From:
Gene Sperling
Subject:
Medicare Trust Fund Q&A
I just wrote these up now, so I haven't had a chance to vet them around here, but I
think they are on point and could be helpful for your press briefings today. Let me know
what you think as I may edit these and circulate them later.
1: QUESTION: REGARDLESS OF THE REPUBLICANS FAULTS, ISN'T THE
PRESIDENT ABDICATING RESPONSIBILITY FOR COMING UP WITH A
SOLUTION TO THE MEDICARE TRUST FUNDS ISSUE:
ANSWER:
President's Budget Strengthened Trust Fund: Nothing could be further from the
truth. When the President came into office the Trust Fund was running out of funds in
1999. Through tough actions that the President passed, and every Republican opposed,
the Trust Fund was strengthened by three years.
Sought Greater Progress in Health Care: The President then proposed a highly
detailed health care proposal that would have significantly strengthened the Medicare
Trust Fund, and again was opposed by most Republicans.
Still Reaching Out to Republicans to Strengthen Medicare in the Context of
Health Care Reform: Since the election, the President has made clear that he still
wants to work on cost issues with the Republicans but that it has to be in the context
of health care reform, and not a context in which Medicare is being used as a cover to
pay for tax cuts for the most-well off or in which the budget is being balanced on the
backs of seniors.
Still Haven't Seen their Budget -- Don't Know if Serious Effort to Reform
Health Care, or cover to cut Taxes or slash Medicare for Campaign Promises: We
have still not seen their budget, however, and every indication we have is that they are
trying to slash Medicare outside the context of health care reform, and indeed cut $305
billion in Medicare that would be unnecessary without their huge $345 billion tax cut
over seven years. Our record demonstrates our commitment to work with them on this
issue, but we cannot do that until they at least lay down a detailed budget that makes
clear what their trade-offs are and whether they are really working on Medicare Trust
Fund or just using it as a bank to pay for campaign promises.
1
2. QUESTION: WHAT IS WRONG WITH A BIPARTISAN COMMISSION?
ANSWER: The problem is that we still do not know the basic issues of whether they
want to cut Medicare to pay for tax cuts and whether they want to slash Medicare
outside of the context of health care reform. They need to fulfill their obligation to lay
down a budget that makes clear their trade-offs and gives us the answer to the
fundamental questions we have raised. Until we have seen their budget
and have some of these answers, talk about Commissions is premature and in fact,
seems to be being used to avoid laying out their budget as we have done three years
in a row.
3. QUESTION: DO YOU SUPPORT TAKING MEDICARE OFF BUDGET?
ANSWER:
Accounting Gimmick: This is purely an accounting question that does nothing to
address the fundamental questions of whether these are cuts to pay for tax cuts, and
whether the approach they will take will be slashing Medicare and Medicaid, or
addressing those programs in the context of serious health care reform.
They Are Seeking to Blur Fact they are Cutting Medicare to Pay for Tax Cuts
for the Well-off: Right now, the Republicans have a seven year tax cut of $345
billion and are considering a $305 billion cut in Medicare -- the largest in history.
They clearly want to create the perception of separate accounts or separate budget
processes so as to hide from the American people the fact that their entire Medicare
cut is going to pay for their tax cut -- or put another way, their entire Medicare cut
would be unnecessary if they didn't have to pay for a huge tax cut that
disproportionately benefits the most well-off Americans.
Gingrich Spokesperson Concedes will be Connected to Budget:Indeed,
Gingrich's spokesperson Tony Blankley candidly admitted "At the end of the
process, whatever solutions are reached on Medicare will be part of the
budget's bottom line."
New York Times: "Little Meaning": As the New York Times said, "The
Republicans will adopt new budget rules setting Medicare "off budget" and
asserting that no cuts in Medicare could be used for anything but to shore up
the Trust Fund. As a practical matter, this has little meaning. When the deficit
is calculated, off budget items are counted the same as others The
Republicans will still have to propose large cuts in projected spending for
Medicare if they hope to balance the budget."
2
Q: BUT AREN'T THE REPUBLICANS TRYING TO BE RESPONSIBLE BY
ADDRESSING THE MEDICARE TRUST FUND?
ANSWER: After Opposing all of President's Clinton's effort to strengthen the
Trust Fund for over two years, Republicans only showed interest after a Trustee
Report that showed the Medicare Trust Fund had slightly improved. It is clear
that the crisis they discovered, is the one they created for themselves by
promising a huge tax cut and excessive deficit promise that they could only
achieve with the largest Medicare cut in history.
Let's Be Clear on the Record:
1993: When this President took office on January 20, 1993, he inherited an escalating
deficit and a Medicare Trust Fund that was projected to be insolvent in 1999.
Twenty-seven days later, he proposed, and then helped pass, a historic deficit
reduction plan that included several serious policies to strengthen the Trust Fund.
Indeed, these proposals pushed out the insolvency date by three full years.
Republican Response: Every Republican opposed these efforts and voted
against the President's deficit reduction plan.
1994: Last year, the President spoke directly to the nation
about the need to
reform our health care system and made clear that further federal health savings
needed to take place in the context of serious health care reform. In December 1994,
the President wrote the Congressional leadership and made clear that he would work
with Republicans to control health care spending in the context of serious health care
reform.
Republican Response: Most Republicans fought health care reform and
never seriously raised the Medicare Trust Fund issue as a reason to go
forward on health care reform.
1995: The President repeated his offer to work with Republicans to control costs and
expand coverage in his 1995 State of the Union speech.
Republican Response: Despite these repeated calls for significant
action on health care reform, the reply from the Republicans has been
silence. Indeed, the only proposal in the Contract with America that
specifically addresses the Medicare Trust Fund would explicitly weaken
it by $27 billion over seven years and undo some of the progress made
in 1993.
3
The President still Stands Ready to Work on the Medicare Trust Fund, But it
Must be Clear whether Republicans will do this in the context of Health Care
reform as opposed to using Medicare as a bank to pay for tax cuts: The President,
of course believes more needs to be done on the Medicare Trust Fund, but that it must
be done in the context of health care reform and certainly not as a cover to pay for tax
cuts for well-off Americans. Until, they fulfill their legal obligation to lay out a
detailed budget plan, there is no way for us or the American people to understand the
trade-offs they are making.
4
May 15, 1995
Note to Chris Jennings
Subject: Your HI trust fund information request
1.
President's Baseline compared to CBO and Trustees Baselines
Level of cuts to maintain solvency
1995-2002
1995-2004
CBO
$164 B
President's Budget
$126 B
$213 B
Trustees Report
$147 B
$252 B
Domenici used the CBO baseline and would cut $164 from Part A
to maintain HI solvency until 2002. The level of savings is
equivalent to a cap of 4.8% on the annual growth in Medicare
spending.
The President's budget baseline is lower than both the CBO
baseline and the Trustees' report. The President's budget has
a lower CPI, marketbasket, and real wage growth than the
Trustees report.
2.
100% trust fund ratio and negative cash flow
A trust fund ratio above 100% means that at the start of each
year, there are sufficient funds available in the trust fund
to pay anticipated expenses. Thus, a ratio above 100%
provides a cushion in case payroll tax revenues collected over
the course of the year are not sufficient to pay the bills.
Negative cash flow means that payroll tax revenues collected
in a year are not sufficient to pay the bills and that
interest received on prior payroll tax revenues needs to be
tapped by the Treasury Department in order to pay the bills.
Domenici keeps the trust fund ratio above 100% in each year
over the 1995-2002 period. Even though the ratio is above
100%, he has negative cash flow because payroll tax revenues
collected over the course of the year are not sufficient to
pay ALL the bills incurred during the year.
The
Bruce Vladeck
MAY-04-61 10.22 FROM: OLCA DC
ID. 2024527155
PAGE 3
DRAFT
FOR RELEASE ON DELIVERY
STATEMENT ON
STATUS OF THE
MEDICARE HOSPITAL
INSURANCE TRUST FUND
BY
DR. SHIRLEY S. CHATER
COMMISSIONER OF
SOCIAL SECURITY
SOCIAL
SECURITY
ADMINISTRATION
BEFORE THE
SENATE COMMITTEE ON FINANCE
May 9, 1995
2:24 No.004 P.04
MAY 04'95
10:22
FROM.
OLCA
DC
MAY- 4-95 THU 10:00
ID:
SSA/OLCA
FAGE
FAX NJ. 4108863168
P.UI
(104 PAEAWORD. and/or
- PAT KANSAS
CARNEL PATRIER MOYWHAN. NEW -
WILLIAM w. BOTH a BELAMINE
MAX IMMUE, MONT MM
- M RHODE BLAND
SELL BRABLEY, NEW JUNESY
CHARL se 1. than
DAVID FRYOR, ARKAWAS
CHAIN a HATCH, UPAN
- a ROCKETSLLER M. WEST VIMENIA
ALAM a
- BREAMN, LIMITERIA
LAWY SOUTH DAKOTA
NEW COMAN MENTH GALOTA
M, - NEW YORK
coe CANNAM FLORIDA
United States Senate
Phone M NUMBER MARKA
CAROL HOUSELEY BRAUR, AUROS
- measure. BIRTHDMA
COMMITTEE ON FINANCE
was FAMILY STATE DIRECTOR AND cuse COUNSEL
WASHINGTON, pc 20510-4200
A. STARE
April 25, 1995
The Honorable Shirley S. Chater
Commissioner of Social Security
Social Security Administration
613 Hubert H. Humphrey Building
200 Independence Avenue, S. W.
Baltimore, Maryland 20201
Dear Commissioner Chater:
As you know, I had invited the Trustees of the Medicare
trust funds to appear at & hearing before the Committee on
Finance to discuss the status of the Medicare trust funds on
April 25, 1995. However, because only one of the Trustees was
available on this date. and because of the seriousness of this
issue, I have rescheduled this hearing for May 9, 1995. at 9:30
a.m.
The recent annual reports of the Trustees raise serious
concerns about the future of the Medicare program. The costs of
the Medicare Hospital Insurance (HI) program currently exceed the
income to the Medicare HI Trust Fund from the HI payroll tax.
The Medicare HI Trust Fund is projected to be totally exhausted
by 2002. The Trustees call for "prompt, effective, and decisive
action."
Whatever actions are taken to address this problem will
involve all of the federal Departments and agencies represented
by the Trustees. For this reason, I feel it is imperative that
all of the Trustees attend this hearing and engage in a
discussion with the members of the Committee on Finance who will
be responsible for determining the course of action to be taken.
I would appreciate receiving confirmation of your attendance
at the hearing as soon as possible. Please contact Lindy Paull,
Staff Director and Chief Counsel, Committee on Finance, 202-224
5000.
Sincerely.
Bob
BOB PACKWOOD
24 :2 1:0 2- AWW56
Chairman
THROW
20'd 700'0N 2:20
MAY 04'95
MAY-04-51 10.23 FROM: OLCA DC
ID. 2024827155
PAGE 4
MAY-03-MN 14.18 FROM: WELH
Mr. Chairman and Members of the Committee:
The Social Security Independence and Program Improvements
Act of 1994 (Public Law 103-296, enacted on August 15, 1994), the
law that established Social Security as an independent agency,
also designated the Commissioner of Social Security as a Trustee
of the Social Security and Medicare trust funds. The law became
effective on March 31, 1995. As a Trustee, I was a signatory to
the 1995 Annual Report of the Board of Trustees of the Federal
Hospital Insurance (HI) and Supplemental Medical Insurance (SMI)
Trust Funds which were issued on April 3.
Like my fellow Trustees, I am concerned with the findings
reported for the growth of costs for both the SMI and HI
programs. However, it is the HI fund which requires more
immediate attention. The HI fund will be able to pay benefits
for only about 7 more years, until 2002, and is out of balance
for the long range as well. I agree with my fellow Trustees that
effective and decisive action needs to be taken to address the
financial imbalance in both the short range and the long range.
Trustees' Report Summary
The HI program pays for inpatient hospital care and other
related care for those age 65 and over, and for the long-term
disabled. In calendar year 1994, the HI program covered about 32
million aged enrollees and about 4 million disabled enrollees at
a cost of $104.5 billion. of this, $103.3 billion was for
benefit payments, and $1.3 billion, or 1.2 parcent of total
outgo, was for administrative expenses.
As is the case with the old Age, Survivors, and Disability
Insurance programs, the HI program is financed primarily through
payroll taxes, with the taxes paid by current workers and their
employers used mainly to pay benefits for current beneficiaries.
Income not currently needed to pay benefits and administrative
expenses become assets of the HI trust fund. These assets may
not be used for any other purpose. They are invested in
interest-bearing obligations of the United States Government, and
are backed by the full faith and credit of the Government.
Payroll taxes of 141 million workers and thair employers,
amounting to $95.3 billion (87 percent of total income to the
fund), were collected during 1994. Interest income from
investments by the trust fund amounted to 9.7 percent of total
income. The remaining 3.3 percent of income consisted mostly of
income from the taxation of Social Security benefits, a transfer
from the railroad retirement program, transfers from the general
enrollees. fund of the Treasury, and premiums paid by voluntary HI
2:25 No.004 P.05
MAY
809-6-:I
MAY-04-51 10.23 FROM. OLCA DC
ID. 2024827156
PAGE
2
The HI contribution rates which apply to taxable earnings
are 1.45 percent for employers and employees, each, and 2.9
percent for self-employed workers. The maximum taxable annual
earnings amount was eliminated for 1994 and later years, BO that
the HI contribution rates are applicable to all covered earnings.
The adequacy of the HI program's scheduled financing to
support program costs in the future is examined under three sets
of assumptions: low cost, intermediate cost, and high cost. The
intermediate set of assumptions represents the Trustees' best
estimate of future economic and demographic trends that will
affect the financial status of the program. The low cost
alternative is more optimistic. and the high cost alternative is
more pessimistic. Under the intermediate assumptions, the trust
fund is projected to be exhausted in 2002, and under the high
coat and low cost alternatives, 2001 or 2006, respectively.
These projections clearly indicate that under a range of
plausible economic and demographic assumptions, the HI program is
severely out of balance in the short range. and will become
insolvent within the next 6 to 11 years under any of the three
mate of assumptions.
Under the intermediate assumptions, the present financing
schedule is sufficient to ensure the payment of benefits only
over the next 7 years. The Trustees also project the status of
the trust fund over the next 75 years--the period which is
considered long range for program evaluation purposes. The HI
program is out of what the Trustees call close actuarial balance
for this period. Actuarial balance is essentially the difference
between annual income and costs summarized over a given period.
If the balance is negative, as it is now, the fund has an
actuarial imbalance.
The deficit is generally expressed in terms of a percentage
of taxable payroll. The deficit in this year's report is 3.52,
slightly less than the difference of 4.14 in last year's report.
Currently, about four covered workers support each HI
enrollee. This ratio will begin to decline rapidly early in the
next century. By the middle of that century, only about two
covered workers will support each enrollee. Not only are the
anticipated reserves and financing of the HI program inadequate
to offeet this demographic change. but the trust fund is
projected to be exhausted before major demographic shifts begin
to occur.
The Trustees noted that some steps to reduce the rate of
growth in payments to hospitals have been undertaken, including a
prospective payment system for most hospitals. It appears that
this reimbursement mechanism, together with payment limitation
provisions enacted by Congress, has helped to constrain the
growth in hospital payments and improved the efficiency of the
2:25 No.004 P.06
MAY 04'95
MAY-04-51 10.24 FROM: OLCA DC
IDI 2024827155
FACE
3
industry. The Trustees estimated that extending this payment
system to other HI providers and further legislation to limit
payment increases could postpone the depletion of the HI trust
fund for another 5 to 10 years. However, more substantial steps
would be required to prevent the trust fund from boing exhausted
beyond 2010, when the baby boom generation begins to reach age
65.
Need for Urgent Action
Mr. Chairman, it is important that the basic structure of
health care and delivery of government services be reformed.
Although there is time to take measured and careful action to
resolve Social Security's long-term imbalance, more immediate
action is required to address the HI trust fund imbalance.
Clearly, it will not be easy to solve the problems in the
Medicare program. The Administration will need to work closely
with the Congress on a bipartisan basis, and with experts and
advocates in the health care field, to take additional actions to
control program costs and to address the projected imbalances
through legislation as part of broad-based health care reform.
20'd 700.00 2:26
MAY 04'95
04/18/95
09:24
Jen Klein
5.
002
MEDICARE TRUST FUND TALKING POINTS
The Medicare HI Trust Fund shows modest improvement due to the actions taken in
OBRA 1993 and a stronger-than-expected economy in 1994. Just 2 years ago, Trust
Fund depletion was projected for 1999, now it has been delayed to 2002. Even with
these improvements, however, the Trustees foresec financial problems for the
Medicare HI Trust Fund.
The financial problems faced by the Medicare HI Trust Fund reflect the problems
affecting the entire health care system. The Administration looks forward to working
with the Congress On developing lasting solutions to the Medicare fiscal problems in
the context of broad-based health care reform.
We need to do broad-based health reform because:
--
Severe and arbitrary cuts focused solely on Medicare will create major market
distortions that will produce additional problems for the rest of our health care
delivery system.
--
For example, (in the absence of reform) as the number of uninsured continues
to grow, significant cuts in Medicare would severely strain, if not decimate,
many of our fragile health care delivery systems in rural and inner-city
communities.
In addition, large Medicare cuts are likely to result in cost-shifting to many
small businesses and individuals -- to those Americans who are already paying
the highest health insurance premiums in the nation.
04/18/95
09:24
003
POSSIBLE Q&As
&
Why isn't the President proposing a specific health care reform initiative and/or
when will he submit one?
A:
The President remains committed to national health care reform. What we've learned
is that any broad-based health care reform solution must be done on a bipartisan
basis. The President has invited the Republicans to work with him on developing such
a plan. We stand willing and ready to work with them.
Q:
Congressional Republicans state that they are going to solve the problems of the
Medicare HI Trust Fund through legislative initiatives. Is this believable?
A:
It certainly is ironic that while Congressional Republicans talk about placing the
Medicare HI Trust Fund on sound financial footing, both their "Contract" and tax bill
now on the House floor calls for tax cuts for the wealthy that would further weaken
the Medicare HI Trust Fund.
#
(Avoid going into more detail, but if you must, do so on background):
The Republicans propose to roll back the limited taxation of Social Security benefits
for the 13 percent of beneficiaries with the highest incomes. Since these revenues
from higher income beneficiaries are deposited directly into the HI Trust Fund, this
further undermines the Trust Fund.
2:
Would passage of the Health Security Act have solved the long-term financial
problems of the Medicare HI Trust Fund?
A:
The Health Security Act would have strengthened the Medicare HI Trust Fund (as
would any responsible broad-based health care reform).
04/18/95
09:24
004
BACKGROUND ON MEDICARE TRUSTEES REPORT
On Monday, April 3, 1995, the Trustees reports for the Medicare Trust Funds will be
released. The reports will conclude that the Medicare HI Trust Fund will bc exhausted in
2002. This date represents an improvement over last year's report which predicted that the
Trust Fund would be exhausted in 2001. (The conclusion is based on the Trustees'
intermediate set of assumptions -- not too optimistic nor too pessimistic).
Problematic findings
From 1996 on, the Medicare HI Trust Fund is predicted to pay out more in benefits
each year than it receives in revenues.
The financial problems faced by the Medicare HI Trust Fund are not new. In the
1982-84 period, the Trust Fund would have similarly failed the actuarial short-term
solvency test (ten years solvency). Those problems were addressed with temporary
solutions. The Trust Fund's short-range financial problems re-cmerged in the early
1990s.
While the short term (up to 10 years) solvency of the Trust Fund is the immediate
focus of the Trustees Report, longer term projections (contained in this and previous
years' reports) show the Trust Fund in serious long-term deficit. Right now, about 4
workers support every Medicare beneficiary. By the middle of the next century, this
ratio will drop to about 2 workers for each beneficiary.
Moderating influences
Actions proposed by the Administration and enacted in OBRA 1993 extended the life
of the Medicare HI Trust Fund. These include:
Depositing tax revenues from the increased income taxation of Social Security
benefits into the Mcdicare HI Trust Fund.
-
Repealing the wage cap for the Medicare HI payroll tax.
-
Imposing constraints on the growth of Medicare payments to providers.
Together, these actions postponed the date when the Trust Fund would be exhausted by about
3 years.
Hospital cost inflation in recent years has been lower than expected. This has
improved the financial situation of the Medicare HI Trust Fund. In 1994, stronger-
than-expected economic growth also contributed to the health of the Trust Fund.
The Trustees are proposing that the Quadrennial Advisory Council for the Medicare
Program be re-established in order to recommend effective solutions to the Medicare
problems.
04/18/95
09:25
005
SOCIAL SECURITY TALKING POINTS
The 1995 Report indicates the financial status of the combined Old-Age and Survivors
and Disability Trust Fund (OASDI) is virtually the same reported last year. The fund
continues to be in surplus, collecting more in taxes than needed to pay today's
benefits.
The cash-flow surpluses are projected to continue through 2013, and the trust fund
will be depleted in 2030, one year later than projected last year. Thus, social security
is currently in good financial shape and benefits can bc paid well into the next century
without any changes in the program.
The program is in deficit when looked at over 75 years (estimated to be 2.17 percent
of payroll this year -- virtually the same as last year's estimate of 2.13 percent).
The Quadrennial Social Security Advisory Council is scheduled to report this summer
with specific recommendations to deal with the program's long-term deficit.
MEMORANDUM
TO: Carol and Laura
April 17, 1995
FR: Chris J.
RE: Quadrennial Commission
cc:
Gene, Bill, Jen, Jeremy, Tom
In this year's report, the Social Security Trustees recommended "legislation to reestablish the
Quadrennial Advisory Council for the Medicare Program." (The authorization for the
previous Commission was repealed in the legislation which established the independent Social
Security Administration.) The stated intent of the recommendation was to establish a body
to "provide information that will help lead to effective solutions to the problems of the
program." Obviously, these "problems" relate to the Medicare solvency issues.
In their recommendation, the Trustees made no reference as to when recommendations would
be due, nor as to the membership of the Commission, nor as to who would make the
appointments to the Commission. Having said this, if the legislation authorizing this
Commission is consistent with that of prior quadrennials, the language would read that the
Secretary appoints all the members. While the Secretary would be directed to produce a
non-political, balanced group, past authorizing language has given the Secretary (and
therefore the Administration) fairly wide latitude. Lastly, if history is any guide, these
Commissions' reports are usually due out 12-24 months AFTER appointments are made.
HHS has drafted up some authorizing language for the Commission. The current draft calls
for a Chairperson and 12 other individuals who are to be made up of representatives of
beneficiaries, providers, employers and employees. It directs the Commission to report not
longer than 2 years after appointments are made. No final decision has been made as to
whether and, if so, when such legislation should be sent up.
If you desire, we can make certain that all testimony and talking points prepared for
Administration officials addressing the Medicare Trust Fund incorporate references to the
Trustees' Commission recommendation. An argument can be made that references to the
Quadrennial as a lead on the Medicare issue might sound a bit defensive and places the
argument over Medicare on the Republicans' "Trust Fund" turf. As an alternative, we might
want to suggest that discussions of the Commission should be limited to "pushy" questions
and answers on this issue.
Donna Shalala has also asked that I advise you that she believes that we should turn the Trust
Fund issue onto the Republicans. She thinks we can place Republicans on the defensive with
a call for them to start delivering on their rhetoric with some specifics. She suggests that we
should reference the President's repeated calls for them to take on the health reform issue,
with the only response being either silence or suggestions of deep Medicare and Medicaid
cuts -- outside the context of reform.
Regarding the above two paragraphs, if you have any preferences for what/how our message
should be delivered, please advise. Lastly, do you wish for me to send around information on
the Quadrennial Commission to interested parties inside the White House? Or, do you
believe our revised draft talking points (see attached) will be sufficient?
ID:202-395-6148
APR 28'95
6:34 No. 008 P.01
OFFICE OF MANAGEMENT AND BUDGET
Legislative Reference Division
Labor-Welfare-Personnel Branch
Telecopier Transmittal Sheet
SPECIAL
FROM: Bob Pellicci -- 395-4871
DATE:
4/28
TIME: 6:20 P.M.
8
Pages sent (including transmittal sheet):
COMMENTS: REVISED Treasury statement
for May 9th's Sunate Funance Cle hearing
on HI trust fund. Comments due by
COB Monday, May 1ST.
TO:
Nancy-Ann
Chris Jennings
Jennifer Klin
PLEASE CALL THE PERSON(S) NAMED ABOVE FOR IMMEDIATE PICK-UP.
:202-395-6148
APR 28'95
6:34 No 008 .02
REVISED by Treasury
5:30 P.M
4/28/95
For Release Upon Delivery
Expected at 9:30 am
May 9, 1995
STATEMENT OF ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Committee:
As Managing Trustee and Chairman of the Social Security and Medicare Boards
of Trustees, I am pleased 10 provide this statement to the Finance Committee. As you
know, the Boards, which meet twice a year, now consist of six members with the Social
Security Commissioner added to the Secretaries of Treasury, Health and Human Services
and Labor as government trustees, and two members of the public as public trustees.
The Trustees are required by law to report annually to the Congress on the financial
status of the Social Security and Medicare Trust Funds. The reports are prepared by
actuaries in the Social Security Administration and the Health Care Financing
Administration, using the Trustees' economic and demographic assumptions.
This statement summarizes the financial problems of the Medicare program and
the Trustees' response as reported in the 1995 Annual Reports. Medicare is an integral
part of the nation's network of programs that protect the financial security of older
Americans. It was created because many retirees, unable to purchase health care
insurance, faced the possibility of overwhelming health care costs on themselves or their
children. Medicare has significantly reduced the potential for such outcomes, and with it,
the anxiety of senior citizens and their children. Few issues are of greater concern to
retirees and to working families than the spectre of covering health care costs in old age.
The reports show that the hospital insurance (HI) program will be exhausted by
the year 2002 and that the costs of the supplementary medical insurance (SMI) program
are rising rapidly as a percent of Gross Domestic Product (GDP). The Trustees have
recommended prompt action to deal with the Medicare financing crisis. To facilitate
such action, the Trustees have called for the reinstitution of the Quadrennial Advisory
Council for the Medicare program.
The Administration believes the Medicare financing crisis would be best handled
in the context of overall health care reform. Our judgment is that attempts to solve the
ID:202-395-6148
APR 28'95
6:35 No 008 P.03
Medicare financing crisis in the absence of health care reform takes US several steps
away from a good national health care system. Even if such attempts succeed in
balancing Medicare's revenues and expenses, they will create and intensify other
problems - in public health, in the lack of insurance coverage, and in the cost of other
government programs resulting in no net improvement in overall social well-being and,
could perhaps end up leaving us worse off.
The Clinton Administration supports Medicare, and we support a solvent
Medicare system. This Administration stands ready to work with Congress to solve
current problems with the program.
Nature of Medicare Trust Funds
The Medicare program consists of two scparate programs which pay hospital and
supplemental medical benefits. The HI program pays for inpatient hospital care and
other related care for those age 65 and over, and for the long-term disabled. In 1994, HI
covered about 32 million aged and about 4 million disabled enrollees at a cost of $104.5
billion.
The HI program is financed primarily by payroll taxes, with the taxes paid by
current workers and their employers used mainly to pay benefits for current
beneficiaries. Income not currently needed to pay benefits and related expenses is held
in the HI Trust Fund and is invested in certain interest-bearing obligations of the U.S.
Government
The SMI program is an optional program that pays for physician services,
outpatient hospital services, and other medical expenses for persons aged 65 and over
and for the long-term disabled. It is financed by individual premiums and income
contributed from general revenues by the federal government. The monthly premium for
basic Part B benefits is $46.10 this year, an increase of $5.00 per month from 1994. In
1994, 35 million persons, about 98 percent of all HI beneficiaries, were covered by SMI.
Program disbursements during the year amounted to $60.3 billion.
The SMI program is comparable to yearly renewable term insurance. This means
that the SMI program is financed on an accrual basis with premiums and matching
general revenue income established each year at a level intended to equal the costs for
medical care services incurred in that year. The SMI Trust Fund holds all of the income
not currently needed to pay benefits and related expenses. The assets of the trust fund
should always be sufficient to cover the claims that have been incurred by enrollees but
not yet paid by the program and, also, to provide an appropriate contingency level in
case actual costs excesd projected costs. Trust fund assets may not be used for any other
purpose; however. they may be invested in certain interest-bearing obligations of the
federal government.
2
ID:202-395-6148
APR 28'95
6:36 No 008 P.04
Financial Status of the Medicare Trust Funds
HI Trust Fund
On April 3, 1995, the Medicare Board of Trustees reported that the HI Trust
Fund is expected to be exhausted in 2002, one year later than projected last year. This
slight improvement reflects mainly the effects of OBRA93, the stronger-than-expected
economy in 1994, and less than expected recent cost increases. Nevertheless, the HI
Trust Fund falls the short-term (10- year) test of actuarial balance and the Trustees
again notified the Congress of this fact under Section 709 of the Social Security Act. At
the end of 1994, the trust fund held assets of about $130 billion, roughly 117 percent of
annual outlays.
Over the long term, the 75-year actuarial balance (interpreted as the amount of
payroll tax increase or benefit reduction needed to balance the trust fund over the next
75 years) was reduced substantially from last year's estimate of 4.14 percent of payroll to
3.52 percent of payroll. The 25-year balance was also reduced from last year's estimate
of 1.61 percent of payroll to 1.33 percent of payroll. The reduction in the deficit
measured over the 25- or 75-year horizon is largely the result of lower expected future
increases in Medicare hospital COSIS, based un the recently observed slowdown in
program expenditures.
The 1995 report continues to show the system with rising deficits throughout the
projection period. Programs costs have exceeded payroll tax revenues since 1993 and are
not expected to fall below revenues during the projection period. The projections show
HI program outlays rising substantially in the future - increasing from 1.6 percent of
GDP in 1995 to 4.5 percent in 2069, the end of the projection period. At the end of the
75-year projection period, the gap between expected outlays and expected revenue will
have risen to 6.8 percent of payroll. Thus, the Trust Fund is substantially out of long-run
"close actuarial balance."
SMI Trust Fund
As indicated, the SMI Trust Fund is used to pay for physician fees, outpatient
care, and certain related services. As noted above, it is financed by beneficiary
premiums (recently, approximately 30 percent of costs) and general revenues. The
concept of actuarial soundness used for SMI is closely related to the concept applied to
many private group insurance plans. The actuarial soundness of the program is
traditionally evaluated over the period for which the enrollees premium rate and the
level of general revenue financing have been established. The primary tests of actuarial
soundnces are that: (1) the assets and income for years for which financing has been
established should be sufficient to meet the projected benefits and associated
administrative expenses incurred for that period, and (2) the assets should be sufficient
to cover projected liabilities that will have been incurred by the end of that time but that
will not have been paid yet
3
ID:202-395-6148
APR 28'95
6:36 No 008 P.05
The financing established through December 1995 is sufficient to cover projected
benefits and administrative costs incurred through that time. This financing will maintain
a level of trust fund assets that is adequate to cover a reasonable degree of variation
between actual costs and projected costs in case actual costs exceed projected costs. On
this basis, the SMI program is considered actuarially sound.
The Trustees continue to project rapid growth in SMI program costs well into the
future. Outlays have increased 53 percent in the aggregate and 40 percent per enrollee
just in the last five years. During the same period, the program grew about 19 percent
faster than the overall economy. Although these increases are a little below the
comparable rates reported last year, they are ctill substantial. The cost of the program is
projected to rise from 1 percent of GDP in 1995 to 4.3 percent in 2069.
History of Medicare Costs
HI Program
The Hospital Insurance program has experienced financial difficulty since its
inception in 1966 due to rapidly rising hospital costs, higher-than-expceted utilization,
and program expansion. The actuarial balance of the program deteriorated between 1966
and 1972 leading to a significant increase in payroll taxes in 1972 and temporary control
of hospital prices between 1972 and 1974. After 1974, annual hospital costs again
increased rapidly until 1983 legislation changed the manner in which Medicare pays
hospitals for services (from a reimbursement to a prospective basis). As a consequence,
the growth in hospital costs was modest in the mid-1980s, but by the end of the decade
was again increasing at a rate above 10 percent per year. During the 1990s, increases in
program expenditures were lower than in the previous decade reflecting moderate
increases in overall health care inflation and utilization. Home health care and skilled
nursing facilities are currently the fastest growing components of III expenditures.
The following table illustrates the changing financial status of the I-II trust fund
since 1980. The twenty-five year actuarial deficit has increased significantly over the
period as hospital COSIS and utilization began rising rapidly. The fall in the imbalance
between 1980 and 1985 reflects anticipated favorable effects of the 1983 legislation. The
large increase in the deficit in the 1993 report is the result of incorporating rapidly
increasing costs of home health and skilled nursing facilities into the estimates. The
deficit then declined as a consequence of OBRA93 which included some Medicare
spending cuts, removed the earnings limit for HI contributions, and increased the
taxation of OASDI benefits .. the proceeds of which go to the HI trust fund. The last
two annual reports also reflect the slower growth in medical inflation in the 1990s.
4
ID:202-395-6148
APR 28'95
6:37 No 008 P.06
Changes in the twenty-five year actuarial balances primarily reflect changes in
expected future medical cust increases based on the Health Cure Financing
Administration's (HCFA) actuaries assessment of recent historical trends. As shown in
the table, the estimate of the actuarial balance more than tripled between 1985 and
1993, though it has declined recently. On the other hand, the projected year of trust
fund exhaustion has varied within a comparatively narrow range over the past ten years.
As we move closer to the projected year of exhaustion, more dramatic tax and or benefit
changes will be required to extend the life of the trust fund.
Over the longer 75-year period, demographic changes are far more important. As
the baby-boom generation begins to retire after 2010, the ratio of workers to retirees
falls significantly which, combined with the high health care utilization rates of the
elderly, results in large financial imbalances in the HI program.
Financial Status of Hospital Insurance Trust Fund
Trustees' Report Year
1980
1985
1990
1991
1992
1993
1994
1995
25-Year
Actuarial Balance1
-.99
-.08
-.79
-.96
-1.35
-2.11
-1.61
-133
Year Fund Exhausted
1994
1998
2003
2005
2002
1999
2001
2002
¹As a percent of payroll. 1990 to 1995 numbers are based on present values of income, outgo, and payroll.
SMI Program
Though the SMI trust fund is actuarially sound because of Its accrual-based
financing, expenditures on physician services have grown more rapidly than hospital
expenditures in recent years. This is partly due to institution of Medicare's prospective
payment method for hospital services (established in 1983). In 1992, Medicare began to
phase in a new method for paying physicians based on the estimated cost of resources
needed for various physician services. This is expected to help restrain future growth of
SMI expenditures. However, both SMI and HI facc similar financial pressures because
of medical care price inflation and growing utilization of services. In the long run,
demographic changes (aging of the population) will have serious adverse consequences
for both the SMI and HI programs.
5
ID:202-395-6148
APR 28'95
6:38 No.008 P.07
Trustees' Recommendations
Combined HI and SMI costs are expected to increase from 2.6 percent of ODP in
1995 to 8.8 percent in 2069. Because of rising long-term program costs and the projected
exhaustion of the HI fund in 2002, the Board of Trustees, as it has since 1993, is
recommending prompt, effective, and decisive action on Medicare financing, To
facilitate such action, the Trustees have specifically recommended the reinstitution of the
Quadrennial Advisory Council for the Medicare program, which was climinated when the
Social Security Administration was made an independent agency. This Council would
make recommendations as soon as possible to improve the financial condition of
Medicare. The Board has also urged the Congress to take actions through broad-based
health care reform designed to control Medicare costs and to address the financial
imbalance in both the short range and the long range. If action is taken sooner rather
than later, program changes can be more modest and still achieve saving sufficient to
restore financial balance.
Passage of the Medicare recommendations contained in the Administration's 1996
Budget would be a good beginning. As you know. the Administration has recommended
changes in the determination of Part B premiums, a tightening of Medicare secondary
payer provisions, and the permanent capture of saving from the freeze on home health
payments. All are extensions of elements included in OBRA93. If passed, the life of the
HI Trust Fund would be extended into 2003. Recommendations from the Advisory
Council would likely extend this date much further.
The House-passed tax cut bill (H.R. 1215) which would, among other things,
reduce the taxation of social security benefits by returning to pre-1994 law, will worsen
HI financing. Under current law, additional revenue from the income taxation of social
security benefits goes into the HI Trust Fund where it benefits the same 65 and over
population by helping to finance their Medicare benefits. If the House-passed bill were
to become law, the HI Trust Fund would be depleted about eight to nine months snoner.
Medicare Financing and Health Care Reform
The most important point to bear in mind regarding the Medicare financing crisis
is that Medicare cost containment must be done within the context of health care reform.
The rise in Medicare costs is caused by the rise in overall health care costs that affect all
parts of the health care sector. A dramatic attempt by government to contain cost
growth in Medicare-through large reductions in payments to hospitals. for example-will
cause significant distortions and inefficiencies elsewhere in the system unless such a
reduction is undertaken in the context of health care reform.
Squeezing down government payments to Medicare providers will cause hospitals-
-which must cover their costs-to raise charges to private payers. As these higher costs
are reflected in private insurance premiums, health Insurance becomes more
unaffordable and less available. Insurance company incentives to insure only those who
will stay healthy increase. Private sector costs are more heavily loaded onto those likely
G
:202-395-6148
APR 28'95
6:38 No.008 P.08
to become sick, many of whom will lose insurance coverage.
The net effect of a reduction in Medicare payments by government fist,
unconnected with health care reform, is the further undermining of our private sector
insurance system. Private insurance coverage will fall and quality of service will be
reduced as a result of cost increases imposed to offset the government's reduction in
Medicare payments. With more Americans lacking insurance, the health of the nation
will deteriurate, and costs of other government medical programs will increase. It is
possible that Medicare savings in the absence of health care reform will prove totally
illusory in terms of savings to the overall health care system.
By contrast, much can be done in the context of health care reform. A more
competitive health care market-in which consumers bad real choice among networks of
doctors, hospitals, and insurers--would cause a flow of patients and insurance customers
toward the most efficient, highest-quality health plans. Better information about the
quality of different networks, and standardization of benefits so that consumers could
comparison-shop, would add to the pressures on the health care system to avoid
unnecessary, inappropriate, and expensive care.
Health insurance premiums would more directly reflect the cost of providing care.
The rate of growth in overall health care spending would slow. And slower overall
spending growth would lead to a reduction in Medicare COSIS.
Again, the Administration firmly believes that Medicare financing is best handled
in the context of a health care reform plan. We are ready to work with Congress in a
bipartisan manner to achieve that goal.
7
ID:202-395-6148
APR 30'95 21:43 No. 002 P.01
OFFICE OF MANAGEMENT AND BUDGET
Legislative Reference Division
Lebor-Welfare-Personnel Branch
Telecopier Transmittal Sheet
URGENT
FROM: Bob Pellicci -- 395-4871
DATE:
5/1
TIME: 9:50 a.m.
Pages sent (including transmittal sheet):
6
COMMENTS:
Version as cleared on
Friday night
TO:
Chris Jennings
PLEASE CALL THE PERSON(S) NAMED ABOVE FOR IMMEDIATE PICK-UP.
D:202-395-6148
APR 30'95
21:43 No 002 P.02
File Copy
FILE 765
MR. CHAIRNAN AND NEMBERS OF THE COMMITTEE:
Thank you for the opportunity to testify before you on the
subject of the Hospital Insurance (HI) and supplementary Medical
Insurance (SMI) trust funds.
Like you, I am concerned about the recent report by the
Medicare Trustees which projects that the HI trust fund will be
depleted in 2002. While the HI trust fund financial balance is a
signiticant problem and deserves our serious attention, let me
also remind you that (1) this is not a new problem and
(2) the projected life of the trust fund has been extended for
three years since 1993.
Due to the actions taken in the Omnibue Budget
Reconciliation Act of 1993 (OBRA 93) and a stronger-than-expected
economy in 1994, Trust Fund depletion has been delayed from 1999
to 3002. Even with these improvements, however, the Trustees
continue to foresee financial problems in the future for the HI
Trust Fund.
we have worked with Congress to
As I noted, the Trustee's trends and projections have
occurred before and are not surprising. In the course of the
past 15 years, the Trustoos have predioted near-term financial
problems for the trust funds and recommended that Congress take
action to slow the growth of Medicare spending to assure trust
fund solvency. While Congressional changes have improved the
outlook of the trust fund, broader issues of health care cost and
access limit how much more we can accomplish through Medicare
cuts alone.
we are concerned
A Solutions focused solely on Medicare would severely strain
many of our fragile health care delivery eystems in rural and
inner-city communities and would result in cost shifting to small
businesses and individuals. We must therefore consider this
issue in the context of health reform, as the Trustoos
recommended.
could
The Trustees also urged Congress to enact legislation that
reestablishes the Quadrennial Advisory Council as a vehicle to
examine the Medicare program. Timely legislation in needed to
setablish this Council NO that they can begin to develop a
strategy for securing the fund into the future.
Today, I will focus primarily on the solvency of the HI
trust fund. Although the Trustees Report addresses cost growth
in both the HI and the SMI trust funds, the issues of greatest
concern is the KI trust fund's solvency, I look forward to
Karen cleared NOB a/a
working with Congress to sentrol Medicare expenditures in the
context of broader reforms to assure that Medicare remains stable
to 4/28/95 BPellicer Poll R
now and in the future.
strengthen the
1
program
we believe that this recommenda tion is worthy of serious
issue. to report out well thought out recommen dations to address
by the Congress. However, the Council must be given the necessary this time
:202-395-6148
APR 30'95 21:44 No. 002 P.03
Description and Background Information on the Trust Funds.
Let me begin by describing the HI trust fund and the
services it supports for Medicare beneficiaries. The HI Trust
Fund primarily pays for inpatient hospital care, but it also
covers expenditures for home health services, skilled nursing
care, and hospice care. In 1994, the HI Trust Fund paid for
$104.5 billion in services for 32 million aged and 4 million
disabled beneficiaries.
self- employment income
The HI Trust Fund is financed primarily by payroll taxes.
Employees contribute 1.45 percent of wages, and there is a
matching contribution by employers. Self-employed individuals
contribute 2.9 percent of wages. OBRA 93 removed the ceiling on
the amount of wages that are taxable; consequently, this tax
applies to all wages. The Trust Fund also receives income from
interest earnings on its assets, revenue from taxation of Social
Security benefits, and from miscellaneous sources.
Trust Fund expenditures are projected earnings to rise more rapidly
earnings
than Trust Fund revenues. Anticipated increases in the number
and complexity of medical services provided are expected to
continue to increase expenditure growth rates. Driving the
expected imbalance between expenditures and revenues is the
demographic shift that will occur with the aging of the baby boom
generation. A larger percentage of our population will be
eligible for Medicare, and a correspondingly smaller percentage
will be paying the taxes that support the Truet Fund.
in 2002
What door this moan? The 1995 HI Trustoes Report projects
roughly another 7 years of colvenoy. After 2000, the fund is
exhausted Over the 75 year long-range projection period, the
income as a percent of texable payroll remains relatively level
while the cost rate risco steadily.
These are well-understood trends; there is nothing new in
this most recent Trustees Report. over the past 15 years, the
Trustees have projected the date of insolvency to be anywhere
from 1987 to 2005, and each year they recommend that Congress
take action to protect the fund. AE, I noted earlier, in part
due to provisions in the Omnibus Budget Reconciliation Act of
1993 (OBRA 93), Trust Fund depletion has been delayed to 2002.
OBRA 93 eliminated the maximum earnings cap for the HI
program, 50 that the HI tax now applies to all earnings. It also
achieved $55 billion in savings from the Medicare program, about
$30 billion of which came from providers who are paid through the
HI Trust Fund. In addition, OBRA 93 increased the maximum
proportion of Old-Age, Survivors, and Disability Insurance
2
ID :202-395-6148
APR
30'95 21:45 No 002 P.04
for only those beneficiaries with the highest incomes.
Revenue generated by Unio provision is
(OASDI) benefits subject to Federal income taxes from 50 percent
to 85 percent, with the additional revenue dedicated solely to
the III Trust Fund. Unfortunately, as part of its Contract with
America, the House has voted to repeal the change in the taxation
of OASDI benefits, thus some added revenue for the
fund.
Therefore,
Effective Solutions Require Broader Health Care Reform
1
This administration believes that strong action to avoid
depletion of the Hospital Insurance Trust Fund should not be
undertaken by looking at Medicare alone. / Any significant changes
in the Medicare program, whether in the financing, eligibility,
benefit provisions or payment rates, will affect the entire
health care system.
Significant Y cuts in payments to providers would have significant effects
on providers' overall financial condition. This is especially
true for providers whose patients are predominantly Medicare
beneficiaries or providers who also treat uninsured persons,
whether located in inner cities or rural areas because these
providers have limited ability to shift costs onto other payers.
Large reductions in Medicare payments would have a
devastating effect on a significant number of urban safety-
net hospitals. These hospitals already are bearing a
disproportionste share of the nation's growing burden of
uncompensated care.
-
For large urban public hospitals, which are heavily
used by Medicaid and self-pay patients, Modicare is an
important couroe of adoquate payment. While Medicare
in 1001 was the payer for only 11 percent of discharges
in these institutions, it accounted for almost 20
percent of net operating revenues,
-
For these hospitals on average, in 1991 Medicare
accounted for a bigger share of net operating revenues
than private payers.
Large, reduc hons in
also
a Reducing Medicare payments could endanger rural hospitals.
-
Nearly 10 million Medicare beneficiaires (25 percent of
the total) live in rural America where there is often
only 0 single hospital in their county. These rural
hospitals tend to be small and to primarily serve
Medicare patients.
-
significant reductions in Medicare revenues will cause
many of these hospitals, which already are in financial
distress, to close or to turn to local taxpayers to
of the Meduare trust. fund have advocated provisions that mome
it is ironic that those who are suddenly 3 interested in the plight
the insolvency of the medicane trust fund.
exacer bates
ID:202-395-6148
APR
30'95
21:45 No. 002 P.05
increase what BIO often substantial local subsidies.
-
Rural residents are more likely than urban residents to
be uninsured, so offsetting the effects of Medicare
cuts by shifting costs to private payers is more
difficult for small rural hospitals.
-
Rural hospitals are often the largest employer in their
communities; closing these hospitals will result in job
loss and physicians leaving these communities.
may
Other providers who are able to will shift their costs onto
payers who do not have the market power to negotiate advantageous
rates. This means that ultimately many small businesses and
individuels -- those Americans who are alroady paying the higheet
health insurance premiums in the nation -- will shoulder an even
larger share of health care costs.
Large redue hons in Medicare wimbursements to providers could also hurt beneficiaries.
A Beneficiaries could else be affected. Significantly cutting
payment rates to providers might restrict access for
beneficiaries as providers would be less willing to provide
services to them. Further, low income beneficiaries would be the
hardest hit. over 75 percent of Medicare beneficiaries have
incomes below $25,000. For those with incomes below 100 percent
of poverty, out-of-pocket health costs constitute 34 percent of
income. Medicare reductions could increase the cost sharing of
the nation's most vulnerable elderly -- the low-income. Such
increases become the oquivalent of reducing their Social
burden
security.
Attempts to restore the solvency of the trust fund can not
undermine Medicare's commitment to 000033 to care for elderly
persons. No should take care that any offorto to oxtond the
solvency of the trust fund do not put Medicare boneficiaries at
undue risk, but at the same time protect the program for them in
the future.
Only through focusing on the entire health system will we be
able to address issues within Medicare and preserve access for
Medicare beneficiaries and underserved populations.
A Medicare Advisory Council, replacing the Quadrennial
Advisory Council that previously existed under the Social
Security Act, should address this full set of issues. The new
Medicare Advisory Council would focus specifically on the
Medicare Trust Funds. The Council will I acountend solutions for
slowing eost growth, ensuring Medicare's selvency well into the
next century.
The Administration takes seriously its responsibility to
current and future Medicare beneficiarles to insure the solvency
4
ID:202-395-6148
APR 30'95
21:46 No.002 P.06
of the trust fund. The Health Care Financing Administration
(HCFA) continues to make many program changes to improve the
efficiency of the Medicare system. For example, hospital
prospective payment has contributed to glowing the increase in
Medicare expenditures for hospital services. As a result, on a
per enrollee basis, Medicare grew at a slower rate than the
private sector between 1984 and 1991 -- 7.7 percent compared to
the private sector's 9.8 percent.
As we address these issues, we must remember that Medicare
does not stand alone. It is an integral part of a larger health
care system, and its solvency should be addressed only in the
context of that larger system. Broader health care reform will
occur only if we work on a bipartisan basis. The Administration
looks forward to working with the Congress to develop lasting
solutions to Medicare's fiscal problems.
5