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THE NATIONAL BIPARTISAN COMMISSION ON THE

FUTURE OF MEDICARE

SENATOR JOHN BREAUX, Statutory Chairman

REPRESENTATIVE BILL THOMAS, Administrative Chairman

STUART H. ALTMAN, Ph.D.
SENATOR J. ROBERT KERREY
REPRESENTATIVE MICHAEL BILIRAKIS
REPRESENTATIVE JIM McDERMOTT
REPRESENTATIVE JOHN D. DINGELL
SENATOR JOHN D. ROCKEFELLER, IV
SENATOR WILLIAM H. FRIST
DEBORAH STEELMAN
REPRESENTATIVE GREG GANSKE
LAURA D=ANDREA TYSON, Ph.D.
ILLENE GORDON
BRUCE VLADECK, Ph.D.
SENATOR PHIL GRAMM
ANTHONY L. WATSON
SAMUEL H. HOWARD
BOBBY JINDAL, Executive Director

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The Commission met at 1:10 p.m., Library of Congress, Adams Building, room LA-220, Senator Breaux presiding.

Present: Senator John Breaux, Representative Bill Thomas, Stuart Altman, Representative Bilirakis, Representative John Dingell, Senator Bill Frist, Representative Greg Ganske, Senator Phil Gramm, Illene Gordon, Sam Howard, Senator Bob Kerrey, Representative James McDermott, Senator John Rockefeller, Debbie Steelman, Laura Tyson, Bruce Vladeck, Anthony Watson, and Bobby Jindal.

Senator BREAUX [presiding]. The Commission will please come to order. Would our guests please take their seats.

We thank everyone for being here at this meeting today, the third meeting. Welcome to all of our Commission members. We are very pleased at their attendance and the work that has been done since the previous meeting.

I would first like to begin by thanking our Commissioners and particularly to thank the members of the Modeling Task Force who have spent a great deal of their time since the last meeting preparing for our presentation today. Since our last meeting in April, the Modeling Task Force has met four separate times to begin developing a framework for the full Commission to begin considering the options to reform Medicare and to preserve it for future generations.

We will begin this afternoon by hearing from two members of that Modeling Task Force, Dr. Laura Tyson and Ms. Deborah Steelman, and any others of the Commission who would like to be heard. Those comments will be most welcome.

As you can tell from today=s agenda, we are going to have a different format for today=s meeting from our previous hearings. Instead of having panels testify before the Commission, I am going to try to give the members of this Commission an opportunity to have indepth discussions about the perspectives each of us is coming from. Nearly every Commissioner, I think it=s fair to say, is an expert on Medicare and has sat through countless hearings and forums or have participated with people who are actually on the Medicare Program. We had the opportunity to listen to constituents and the panelists alike and to talk about Medicare and the problems facing the program.

I am hopeful that these discussion sessions will prompt a candid debate on some of the issues and concerns that each Commissioner has about his or her approach to Medicare=s problems and the potential solutions to those problems. After the Modeling Task Force will make its report to the Commission, the idea is to begin a meaningful dialog about how to make the program better for beneficiaries and what kinds of things we need to look at when we talk about reforms.

We are not going to be taking any formal votes yet or trying to reach a consensus this early in the process. But we think this format will give the Commissioners more time to talk to each other and to the public and exchange ideas. This discussion should also help direct the work of both the Reform and the Restructuring Task Forces. The Reform Task Force is scheduled to have its first meeting tomorrow afternoon at 1:30 p.m., in room H-137.

Before beginning these discussion sessions, we will first hear from the Modeling Task Force as I have indicated. The Modeling Task Force, as I have pointed out, has met four times and they have come to an agreement on several items that they will present to the Commission. I will leave the details about the task force progress to the members of the task force. But let me first preview very generally some of those highlights from their work.

At the first meeting the task force agreed to develop baseline projections through the year 2030 of Medicare spending under current law, with the recognition that these baselines are not predictions and will, like any projection, be inaccurate in one direction or the other. These baselines, however, will be used as benchmarks by which to compare policy alternatives put forward by the Reform and Restructuring Task Force, as well as by the full Commission.

At a meeting on May 20, the Modeling Task Force decided to use two baseline scenarios for Medicare spending to use as starting points for analyzing recommendations made by the other task force. The first is the Trustees= Intermediate Scenario which predicts growth in Medicare spending of about 4 percent a year over the impact of demographic changes. The second spending scenario the task force will talk about and explain is a No-Slowdown option that projects growth in Medicare spending of about 6 percent.

The Trustees= Intermediate Scenario is consistent with the CBO baseline for Medicare spending for the next 10 years, with the 1997 Trustees= intermediate assumptions for Medicare spending after that. The No-Slowdown alternative uses the same CBO baseline for Medicare spending for the first 10 years. It maintains a constant rate of spending growth thereafter.

The Commission will use these two spending scenarios to look at Medicare and the proposed changes to Medicare from several different perspectives, including Medicare spending as a percentage of GDP, payroll, and Federal budget and in current dollars, spates of growth, relative burdens on taxpayers and burdens on the beneficiaries.

I think I can speak for the entire Commission when I say that I look forward to hearing from the Modeling Task Force. We again express our real appreciation for all the work that they have done on this project.

Now, I would like to yield to Chairman Thomas for any comments that he might have.

Bill?

Mr. THOMAS. Mr. Chairman, I would just like to echo your congratulations to the Modeling Task Force that did meet regularly, the attendance both in person and over the phone was remarkable. Frankly if we can achieve this with the other task forces, not only do you get work-product, but interaction among the members that I think can only indicate that the chances of the Commission succeeding are enhanced.

My other comment would be directed to this afternoon=s and tomorrow morning=s discussions. At some point we do need to interact, and I think it is beneficial for those in the room, those who are going to be reporting what=s in the room, and with the television cameras disseminating a discussion about options that we would look at.

You do not need everyone at the table, but you do need everyone=s opinions. We have a broad-based group here who are actively, directly in the private sector dealing with Medicare and who work with Medicare beneficiaries, and obviously Members of Congress underscored by John Dingell who has a background on the whole process unmatched by anyone from a congressional point of view.

To the degree that we are not as open as we need to be in discussing various options and determining whether or not they would be appropriate, we frankly let down all of those who are watching to see us engage in the broadest range of discussion about options. It does not mean that we predetermine what we would choose to do. It does not preclude any options.

But the idea of a broad-based discussion going, as we now say, more frequently outside of the box if necessary to look for solutions, I think can only be a positive undertaking. I look forward to that.

I thank the chairman.

Senator BREAUX. Thank you, Congressman Thomas.

If there are no opening comments, we will start now. I want to recognize Dr. Tyson and Debbie Steelman for your presentation and other members of the Modeling Task Force will be welcome to participate, obviously, as they feel free to.

Ms. STEELMAN. Laura and I split up the responsibilities. So, I will start off and end, and Laura will provide the middle.

The process, as you said, Mr. Chairman, was a series of meetings over the last month where Laura and I were asked to be chairmen by the task force itself. The Modeling Task Force had the participation of Jim McDermott, Bruce Vladeck, Bob Kerrey, Laura Tyson and myself. We were greatly enhanced by Stu Altman who, even though he is on a different task force, devoted his tremendous energy to our work. We really appreciate that.

Our report today is a status report. Our work is ongoing. What we will be talking about today are a series of things that we have reached consensus on inside the Modeling Task Force, as well as a listing of items that we will continue to work on and on which we have not finished our discussion or come to any conclusion.

In terms of the main areas in which we have reached some conclusions, they deal with the fiscal issues associated with Medicare, the baselines as you mentioned. We did, however, as one of our first acts, conclude that one of the problems facing Medicare should not be portrayed exclusively as fiscal problems. The program faces a number of other challenges over the timeframe between now and 2030.

We began using a series of words to try to capture the essence of what those changes might be or what the areas of those problems might be. We came to talk most commonly in terms of efficiency, equity, adequacy, and sustainability or viability. The last one refers to the fiscal challenges that we think are fairly well known and commonly presented in the Trustees= report.

The first three, however, reflect areas that we think are just as important for this Commission to work on and to which we will direct more of our work as we proceed. You will see those a little bit at the end of our presentation this morning.

We also came to believe that to the extent possible, we should portray our findings in a way that deals with the Medicare Program as completely as possible. In many common displays of data, you see parts A and B display distinctly. Obviously that is the way the Trustees= report is written because it has to be. But to the extent possible, we would like to portray data distinctly, parts A and B, but also jointly. Going forward, therefore, we can see the whole program in a snapshot.

At that point to go through some of our fiscal conclusions or consensus items, I will turn it over to Laura.

Ms. TYSON. The bulk of the time of the task force was spent on the issue of trying to come up with some agreement on a range of projections for Medicare spending. We first agreed that there was a lot of uncertainty in any such projections. The uncertainty came from a variety of sources such as structural, technological changes in Medicare that have been made by the 1997 Balanced Budget Agreement.

There are a large number of uncertainties in making projections. That was our first conclusion. That led us to look not at a single projection, but rather a search for a range of projections or a range within which we felt was most likely--not a certainty, but most likely that Medicare spending would evolve between now and 2030.

Incidently, our focus on uncertainty also led us to very quickly say we were not going to try to project anything beyond 2030. Projecting to 2030 is a Herculean task enough. We were fraught with enough uncertainty that to go any further we felt was really not wise.

As I said, we searched for a range of scenarios which would form what we thought of as the most likely boundaries within which Medicare spending is likely to evolve between now and 2030. We looked at the Trustees= report. We looked at the history of the program. We finally came down after much discussion to a suggestion of essentially two scenarios forging the boundaries of the range.

One scenario essentially is the Trustees= Intermediate Scenario. If you go into the Trustees= report, you will see that scenario. That scenario is based on what I think we would describe as moderately favorable economic and demographic assumptions. That scenario also assumes that there will, in fact, be a slowdown in the rate of growth per beneficiary Medicare spending after the year 2010.

Indeed, in the slowdown that the Trustees= intermediate report assumes, by 2030 Medicare spending per capita is growing at approximately the same rate as GDP, around 4 percent or a little more than 4 percent. That is a significant slowdown.

We asked ourselves if that was one boundary, what is another boundary on our range of scenarios? We thought the most sensible thing to inform the Commission=s discussion was to focus on the variable that is the most uncertain, and that is Medicare spending per beneficiary.

We said let=s keep the economic and demographic assumptions unchanged. Let=s keep a reasonably favorable set of economic and demographic assumptions in place. We will use what the Trustees= report assumed. We will make only one adjustment. Let=s assume that history is the best guide to the future and that there is not any slowdown in Medicare spending per beneficiary between now and 2030.

Essentially we=ve come up with two scenarios: A No-Slowdown Scenario which essentially levels out. You can see that in the picture in the handout; it=s Figure 1. It essentially levels out Medicare spending per capita at a growth rate of 6.4 percent every year after 2009. Whereas in the Trustees= report, after 2009 there begins a gradual slowdown where Medicare spending per capita goes from 6.3 in 2009 down to 4.1 in 2030.

Senator BREAUX. Let me just ask for clarification.

Ms. TYSON. Surely.

Senator BREAUX. That is above the demographic change?

Ms. TYSON. Yes, this is all above demographics. Yes, I said Medicare spending per capita. But Medicare spending above the impact of demographic changes is the same thing as Medicare spending per capita.

We suggest that after listening to Rick Foster at HCFA, after listening to Robert Reichauer who came and talked to the Modeling Task Force, after thinking through history and looking at the numbers, we came to accept among ourselves that this was a reasonable range.

Now, it is not a precise forecast. I think we quoted here, >>Future Medicare spending per person is very uncertain. Reasonable people can disagree about the most probable trend.==

We just came to this agreement that we think this is the range. We propose that we then as a Modeling Task Force and as a Commission, when we are looking at policy proposals, look at estimated savings or estimated costs off of these two scenarios. That would give us the range of the possible effect of our proposed reforms and restructuring.

Let me say one other thing, and then I will turn it back over to Debbie. We also spent a considerable amount of time talking about the importance of comparing Medicare spending to what is happening in private health insurance. So, we have some historical data presented here in two forms.

In Summary Table 2, we have provided some indicators of private premiums in recent years from several surveys and large purchasing groups as a point of comparison with Medicare spending per beneficiary. Again what we are talking about here is looking at how Medicare has done relative to big purchasers of private health insurance.

We also have a longer history which is provided in Summary Figure 2, which shows the rate of growth of health-insurance spending per person in the private sector and Medicare spending per beneficiary. Incidentally, Figure 2, if you get a sort of average annual growth rate of Medicare per beneficiary from 1970 to 1997, and you compare it to the rate of growth of private health-insurance spending per enrollee from 1970 to 1997, the average growth rate is just about identical.

This is important from a historical point of view. These two very large components of health spending per person in our society have been growing at roughly the same rate. However, it is important I think to emphasize that at least in the most recent years--and you can see that in Summary Table 2--the private system has been growing at a slower rate.

The reason we think it is very important for the Commission to keep in mind the private spending is just because when we are looking at standards by which to evaluate our reforms and restructuring, presumably an important standard is what we think the overall health care system is capable of delivering.

So, with that let me turn it back to Deborah to go through our remaining tasks.

Senator BREAUX. Bear in mind that I want to ask other Modeling Task Force members to comment following your two presentations, plus other Commissioners.

Ms. STEELMAN. The remaining points in our work in progress for the Modeling Task Force deal with the other three of the four words I said earlier, efficiency, equity and adequacy. I should say that there are ongoing requests from Modeling Task Force members into the Commission so that this will grow. We would invite other requests from other Commission members to do the same work.

We are doing a great deal of research into beneficiaries= relationship with the program, how much they spend out of pocket, other program spending on their behalf whether it is for private sector or public sector. So, we can really get a true picture of Medicare beneficiaries= experience today and how they can access health care. We hope to do this both in current terms and in historical comparisons.

We are also studying a number of different changes that could impact the program from demographic to economic to technological; a number of exterior things that could impact the program. We hope to do an analysis of past and future trends in private health insurance, as Laura mentioned at the end. Those last comments are issues that are still under discussion at the Modeling Task Force. The areas that we did reach tentative agreement on we hope that the Commission will either agree or we assume that we can instruct the staff to model all reform and restructuring proposals along those two baselines with the assumptions that we have come up with. We recognize that is the Commission=s task. So, we will wait for their instruction on that.

Senator BREAUX. I want to thank Debbie and Laura particularly for the amount of work that you have put into this. You both bring an enormous amount of economic background to this task and we thank you for it.

Ms. TYSON. Senator, I also want to say, just in passing, thanks to the staff whom I think we have kept up about 24 hours a day for 4 weeks. They are still standing which is always the good value of having young staff. [Laughter.]

They will be old by the time the process is over.

Senator BREAUX. They=ll be eligible for Medicare. [Laughter.]

I would like to see if any other of the Modeling Task Force members would like to make any comments. Serving on the Modeling Task Force with Ms. Steelman and Dr. Tyson were Senator Kerrey, Congressman McDermott, Bruce Vladeck.

Any comments from any of you other task force members?

Senator KERREY. Yes.

Senator BREAUX. Senator Kerrey?

Senator KERREY. Mr. Chairman, one of the most commonly asked questions of me when I am discussing this with Nebraskans is: what is the problem here and what is this Commission supposed to solve?

I think the importance of that question for our work is that if we are going to make a recommendation to the Congress and get that recommendation enacted into law and signed by the President, it seems to me that the most difficult challenge facing us is not only to identify the problem, but to engage Americans in discussion as to what that problem is.

Thus, what the Modeling Task Force has done is in addition, to put it mildly, to the controversial work of selecting what the baseline is going to be. Baseline is not a word that gets a lot of people very enthusiastic at home, but it will determine what kinds of actions are required in order to save the program.

So, in addition to reaching a decision about what is a realistic baseline, it is also important to put that baseline in the context of the economy. Obviously Medicare cannot exceed the overall GDP in the country. There is a reasonable level, it seems to me, of what those expenditures can be; to put it in the context, as well, of the Federal budget; to put it into context, as well, of other problems which is what the Modeling Task Force attempted to do.

In addition to fiscal problems there are other trend lines here that clearly qualify, at least measured by citizens= evaluation of Medicare, as problems that need to be addressed. I think your decision and Cochairman Thomas= decision to make this a work in progress is an important one. But I also think it is important for members to understand that as we offer up our proposals for new benefits or offer up our proposals for this, that or the other thing, such as changes in the benefit structure, somebody is going to have to tell us what it is going to do to future projections for this program.

There is a limit to what we can do. It seems to me that the Modeling Task Force has laid down a good framework that we can work with. But I hope that members understand that the goal is for us is to produce something that the Congress then can take and convert into a piece of legislation with the majority voting for it and the President signing it.

To that end--I will get back full-circle--one of the most difficult things, at least that I as an elected representative of my State find, is getting people to understand that there is a very serious problem with several elements to it beyond just the fiscal element. We have got to keep our eye on the objective; that ought to be quite obvious. Although they may get modified down the stretch, but I am hopeful that this Commission will be able to accept these recommendations and use these recommendations as a basis of our work.

Senator BREAUX. Thank you, Senator Kerrey.

Let me just open with a question, and then I would like others to feel free to jump in here. I would like to ask the Modeling Task Force if you looked at the recent 1998 Medicare Trustees= Report. They had three projections that they looked at; a low, an intermediate and a high. It=s 2-percent, 4-percent, and 6-percent projected growth.

You all have made the decision to recommend the modeling using 2-percent projection; essentially about a 4-percent and an approximate 6-percent growth rate. I know you could have given us five, you could have given us six, or you could have settled on one.

Could you give us a little discussion as to why you were able to narrow it down to two projections, Dr. Tyson.

Ms. TYSON. Well, I think that we were all very cognizant of the uncertainty here. We emphasized that this was not a precise forecast. We did a kind of probability analysis. We asked ourselves--and we were quite influenced by HCFA in this regard--we asked ourselves if we had to limit the scenarios, where do we think the most probable outcomes are likely to fall?

Based on history and based on the fact that compared to history the Trustees= Intermediate Scenario is, I would say, reasonably optimistic. We felt the probability was greatest between the Trustees= Intermediate Scenario and our No-Slowdown. That means that we did not attach very high probability to the low Trustees= assumption. We just did not think it had a high-enough probability to really be a source of consideration for us.

Now, I can=t say that does not mean with certainty that that low-probability scenario might not prove to be true. But when you are dealing with this kind of uncertainty through 2030, it seems to me to be right.

Ms. STEELMAN. We tried to come up with a baseline that would be suited to the work of this Commission. The Trustees= high changes a number of different underlying assumptions, economics and other things.

Ms. TYSON. Demographics as well.

Ms. STEELMAN. Demographics, right.

So, we wanted to isolate Medicare spending as a variable that this Commission has been asked to deal with. In that I think we were definitely influenced by Rick Foster, HCFA=s very capable actuary, who in his letter to the Trustees= report suggested that the likelihood of a future result more adverse than the Trustees= Intermediate Scenario projection may exceed the likelihood of a more favorable result. I assume that means the low projection.

Similarly, an outcome more adverse than the high-cost projection may be more probable than one that is better than for the low-cost projection. We did in the Modeling Task Force have quite a discussion about whether we should have a higher baseline, higher than historical. Basically what we have in the Trustees= Intermediate Scenario is 2 percent until about 2010, at which point it goes down to less than 1.2 percent or something like that.

In our No-Slowdown Scenario we maintain the historical spending level at 4 percent. We did have a discussion among ourselves whether or not there should be one higher. We essentially rejected that saying that these two represent to the common combined talents of this group of five people a likely place to start to look at two different baselines.

Senator KERREY. Well, the combined talents of four of you at least gives me confidence that you=ve come up with the right conclusion.

Ms. STEELMAN. We you were there via telepathy. We heard from your office. [Laughter.]

Senator KERREY. Mr. Chairman, if may ask something of these two.

Senator BREAUX. Yes, Senator?

Senator KERREY. You have used the word historic as you have talked about the No-Growth proposal or the No-Slowdown Scenario. I think that is a more accurate description of what it is.

Ms. TYSON. Right.

Senator KERREY. Since words carry an awful lot of power, I would hope that we could modify this to add the description of it as being the historic baseline.

Senator BREAUX. For the No-Slowdown Scenario?

Senator KERREY. Yes, sir.

Senator GRAMM. If the No-Slowdown Scenario doesn=t speed up.

Ms. TYSON. Well, [laughter] it would not be correct. That would not be accurate.

Senator BREAUX. Bruce, did you have something to add?

Mr. VLADECK. Let me just remind everyone, because I think it is quite important that the two baselines are the same through the year 2009. Some of us on the committee think that any estimation of anything having to do with health care costs more than 10 years into the future, which is what we are talking about, is an exercise in comparative fantasy. That may well be necessary under the rules by which Congressional Budget Office and the OMB seek to use the Budget Enforcement Act. It may not have very much utility other than that.

To say that--and I think it was also the sense of the group that we could devote an infinite amount of time and energy to arguing what was likely to happen after 2009. But in doing so we would be putting our energy into an area where by definition we would very likely not be able to predict with a high degree of accuracy.

So, I think before we get either too excited about what these implications are or begin to argue about them even further, I think we need to understand that what the group is recommending, as I understand it, is essentially a baseline over the next 10 years and two different scenarios over the 20 years following that which different at the maximum by 2 percent a year as the best guess that we can make.

I would like to call everyone=s attention to the last sentence on the first page of this summary of the work. It says that we are quite understanding of, accepting of and in agreement of the notion that in order to evaluate proposals for changes in the program, you need to have a baseline from which to do it. It is, therefore, necessary for the Commission to have some agreement on a baseline or baselines.

But that is what they are there for. To attach much additional significance to them or to the difference between the two of them may be to put on those frail beads more than they can intellectually bear.

Senator BREAUX. Senator Gramm, then Dr. Altman, and then Mr. McDermott.

Senator GRAMM. Mr. Chairman, I wanted to comment on that same point. First of all I think one of the problems with the Trustees= Intermediate Scenario projection has always been that they assume that Congress is going to do something to bring prices down. That is why we have the decline in here. They never explain how the projection goes down.

Our duty is to recommend to Congress what it needs to do to achieve this result. I think to assume it before we recommend it and before Congress achieves it is probably an error.

Second, if you read the comments of the actuary who put together these projections, it is clear that they gave little or no credibility to the Trustees= intermediate projection. The actuary says, >>Although the assumptions----

Senator BREAUX. Phil, which actuary are you referring to?

Senator GRAMM. This is the chief actuary for HCFA.

Senator BREAUX. OK.

Senator GRAMM. What he is saying about the Trustees= intermediate projection is the following: >>Although the assumptions used are reasonable, much of the available evidence suggests that they may not be optimal.==

Then he explains what that means.

>>In particular, the likelihood of a future result that is more adverse than the intermediate projection may exceed the likelihood of a more favorable result.==

So, I think it is very important that we at least carry this baseline which is being called now the No-Slowdown Scenario. If we are not going to adopt Senator Kerrey=s proposal and call it historic, then we ought to say no-slowdown, no-speedup.

I think Senator Kerrey=s proposal would call it historic or a historic trend is probably the right thing to call it. But if we are going to leave it as No-Slowdown Scenario, it ought to be No-Slowdown, dash, No-Speedup. It could actually go up.

Senator BREAUX. Laura, could you comment on that.

Ms. TYSON. In some sense the reason we are calling it a No-Slowdown Scenario is it is very important to understand exactly what we did. Through 2009 we essentially adopted a common scenario as Bruce said and which is what the CBO Trustees assumed was going to be the case for the next 10 years as a result of the Balanced Budget Amendment of 1997.

There is a lot of uncertainty even about that set of assumptions. We assumed that we know the future for the next 10 years. Thereafter, all we did--and you can see this very clearly in the numbers and that is that Medicare Two which is our No-Slowdown projection--if you will go to that last line here, Other Factors, we essentially leveled the growth rate out at 6.4 percent, No-Slowdown. We did not change the----

Senator GRAMM. And No-Speedup?

Ms. TYSON. No-Speedup; just No-Change. You can call it No-Change after 2008 in the growth rate. With the Medicare One it is the Trustees= intermediate assumption and you can see a gradual slowdown. I just wanted to interrupt so everyone knew what table that was referring to.

Senator BREAUX. Dr. Altman?

Mr. ALTMAN. Let me just follow up on that. I support what Senator Gramm said, but I don=t think historic is the right term. It is not the historic experience. Historically we have as a country sort of let things go for 3 or 4 years. Congress has intervened; pushed it down. It has come back up; Congress has intervened and pushed it down.

So, if you will look over the last 20 years, what you see is a revolving curve around that line. So, it is not historic. It is what Laura just said; no slowdown and it is no speedup. So, no change is probably a better term and more neutral. But historic would not be the correct term.

Senator BREAUX. OK, Mr. McDermott, Congressman McDermott?

Mr. MCDERMOTT. Mr. Chairman, I think that in looking at this, one of the things that was the most difficult for us on the Modeling Task Force to really get into and we really did not resolve and that is what is Medicare spending? Are we talking about just the two trust funds? Or are we talking about all the additional money that senior citizens spend for Medigap and for all those sorts of things?

When we got to that point, we found the data was hard to come by. So, part of our problem in providing a really solid base for looking at the future is really that a lot of the data is hard for the staff to come up with, so that we know what people are actually spending.

The other thing that I think is going to be difficult down the road is how to make seamless transition from private health insurance into Medicare. How do you get the packages reasonably comparable so that people are not going off a cliff when they retire?

When Medicare started in 1965, most senior citizens didn=t have anything. So, there was no cliff. It was all uphill. But now they have something and they have it in their private sector. How do you make this comparable to what is going on in the private sector? How do we model for the future something that has the same kind of growth that you find in the private sector? That is going to be the real difficulty for us.

Senator BREAUX. Good point.

Senator Rockefeller is next. Jay?

Senator ROCKEFELLER. Mr. Chairman, just a few thoughts here and one of these will be one on which people will groan about slightly. I had a series of town meetings over the recess on Medicare in my own State. I hope we do that more broadly, as I know the chairman intends to.

I was struck by a couple of things. What we have now are really daunting. By 2010 it will be $270 billion to $458 billion. I didn=t even bother going on beyond 2010 because it did not even go anywhere. It went 10 feet from my mouth and just stopped. [Laughter.]

But actually it is 2008 now; it is not 2010, because that is when we grow deficient. So, I guess what I want to ask is two questions. No. 1, pertains to the idea of modeling up to the year 2030 which I, through my own mechanisms and not having been on the Modeling Task Force, have come to feel is really dangerous. Was that a unanimous feeling of the Modeling Task Force or was it not?

Senator BREAUX. I know this was probably discussed.

Ms. STEELMAN. Do you remember?

Ms. TYSON. I do not like the idea of having to forecast through 2030 for anything. My recollection was that this was the time we cut it because we thought it gave us enough time to begin to see the serious effects of demographics. We had a sense of the problem.

If you will look at 2010 and look at Summary Table 1, nothing is happening to Medicare spending as a percent of GDP. Nothing is happening to Medicare spending as a percent of payroll. Nothing is happening to Medicare spending as a percent of the Federal budget that is significant. You can see things happening, but we have been charged with the long-term problem.

The choice of 2030 was to go out long enough so we could get a sense of the longrun problems, but not so long as to be impossibly daring in terms of making forecasts. I would emphasize personally though, that I think that these projections are increasingly uncertain after a decade.

Anything we do in this Commission should not be driven by a particular estimate of what is going to be reality in 2030. If we allow ourselves to be driven by an estimate of 2030 in terms of making policy now, I think we will make a mistake.

Senator ROCKEFELLER. Mr. Chairman, I thank Laura Tyson for that.

Mr. DINGELL. Senator, could I add just one point to the 2030, because there is some logic to the date 2030. When you look at the demographic factors laid out by the Trustees, the rest of the so-called Baby-Boomer Factor tends to be not the driving force on the Medicare costs. There is a significant downturn in the outyears. So, our concern about the financial stability of the program is not as critical in the post-2030 years as it is between now and 2030.

Senator ROCKEFELLER. I would understand if I were fully able to believe that the health care cost spending as a percentage of GDP would also continue to go down as the demographics did. I am not convinced of that.

Mr. DINGELL. That is why we are going to slice this a number of different ways to get that picture.

Senator ROCKEFELLER. My second question, Mr. Chairman, is the groaner, but I think it is the important one. There is an enormous fascination already; the Modeling Task Force has met and there was a little bit of this feeling in the other room. There is almost a sense that I would want to protect against all such anticipations. We have a variety of other subjects to discuss even this afternoon.

I would really hope that we will not become so entranced by 2010, 2030 or whatever and fixing on a particular 4 percent, 6 percent, 2 percent or no change that we would decide on any of that until we have heard all of the other evidence that comes in. I think there is a fundamental disconnect--and this is my problem with some of the benefit packages--and that is if you de-link actuality from what is really going on, I think we get into trouble very, very fast.

I would hope that we would not decide on our No-Change course or a Slow-Growth course or whatever course until all of these other factors have been decided and thoroughly digested. We must decide on all of the benefit packages and then determine what the needs of our seniors will be, how we can cut down on costs of Medicare as it is now, and resolving the waste, fraud, abuse and all the rest of it.

Senator BREAUX. Let me ask a followup question. It is my understanding that the purpose of the modeling is to establish a baseline that these factors would be considered on and then find out what the cost would be of an increased-benefits package or an eligibility change or any of the other things. But you have to have something to compare it to. Then you could make the decision after you get the effect of these changes which would be established by a baseline.

Am I missing your concern there?

Senator ROCKEFELLER. I think there has been consistency there because I think you can take two or three or whatever of those and factor in some of these other matters as we go along. But don=t you understand there is allure to get to the financial figure that we really can live with? If you do that, then really everything else we discuss here is going to be more or less academic. That is something that I would find grievous.

Senator BREAUX. OK.

Congressman John Dingell?

Mr. DINGELL. Thank you, Mr. Chairman.

I want to express first a great deal of respect for the Modeling Task Force and for the very important work they have done. I have a number of thoughts I would like to share.

First of all we have a number of estimates and scenarios from CBO and the Trustees and, of course, from the Modeling Task Force. It is going to be a very important question as to why we have chosen the Modeling Task Force recommendations and not the above and why we have chosen two rather than three which is the traditional practice.

We will be asked what the results are of using different scenarios. I think that is a very important question. We will also be asked as to whether, in fact, we chose a set of scenarios that would enable us to preserve an acceptable level of benefits to the beneficiaries of the Medicare system.

I am curious about what will be the precise results. We are starting off here on a very long voyage. The difference in a degree or two in the start of a long voyage can lead you to many hundreds or many thousands of miles from the point at which you intended to arrive. So, I will be looking very carefully at that.

I think that the Commission will have to look very carefully at that and also at the consequences to the beneficiaries. I did not come here to reduce the level of benefits for our beneficiaries beyond what is absolutely necessary. I would like to preserve those for beneficiaries present and future alike.

I note that great emphasis is given to budgetary and financial considerations. I think this is proper. We do need to save the financial underpinnings of the system. But in like fashion, we have to save the benefits of the system because it will do us no great good if we save the financial stability of the fund and leave nothing for the beneficiaries of the future.

I am curious then as to whether consideration has been given to maintaining the current level of benefits. Are we going to manifest concerns as to how the beneficiaries are affected? Are we going to consider, amongst other things, financing methods which will include modest increases in taxes or changes in financing; for example, use of a value-added tax?

I am curious as well about one particular point that I find most interesting to me, and that is why does the Modeling Task Force increase Medicare expenditures, but reflect no increases in expenditures in the private sector? I can see that this could cause some rather interesting distortions to what it is we will ultimately come to. I would hope that the answer will be available to all the questions, because I think it is very important. It will, of course, clearly affect how people will review the results of our labors.

Senator BREAUX. Maybe we should ask the Modeling Task Force members to comment if they can. But I will comment on one of your questions by saying yes to the series of questions you asked, John, about are we going to consider benefits and the expansion of benefits, as well as maintaining them at the same level and improving benefits.

I think in the next session we are, in fact, going to talk about benefits. The following section after that will be on costs and talking about the cost considerations we have as to adding benefits, maintaining benefits, changing the structure as well. Eligibility will be the third topic this afternoon.

I interpret the baseline to be just a baseline. Everything else that we want to do to the program will be factored in and judged according to a baseline which has a range of costs. This is simply that; no more, no less. It doesn=t make decisions on benefits, the costs, eligibility, management of the programs or what type of program we are going to have.

So, from that small point that you have made, I think the answer is that yes, all of these things will, in fact, be considered.

Any comments from Debbie or Bill?

Mr. DINGELL. Mr. Chairman, just one quick point and I don=t think anyone will differ with me. These baselines can dictate the policy decisions which we make.

Senator BREAUX. I agree with that.

Mr. DINGELL. It is my hope that we will not allow them to dictate policy decisions that are unacceptable.

Senator BREAUX. I agree with that.

Congressman Thomas?

Mr. THOMAS. John, to try to create a comfort level in terms of the process that occurred, you heard about the normal three lines that we were looking at from the Trustees. When you start with the statement that the actuary made about the intermediate level, and notwithstanding that the low is obviously lower than the intermediate, as Senator Gramm indicated the actuary=s comment was, >>In particular, the likelihood of a future result that is more adverse than the intermediate projection may exceed the likelihood of a more favorable result.==

If you are going to qualify the intermediate and the chances are that it is going to be worse rather than better, the intermediate then as a type of bottomline projection is then going to drop below. But we did not want to look at the high because as was said, so many variables were adjusted to get the Trustees= high that it would engage us in a series of conversations about economic trends and demographic trends. We would be arguing basic assumptions of trend lines.

So, you started with the intermediate, and since the assumption was that the chances are that it is going to be worse rather than better and since the numbers were identical as Laura showed on the chart down to 2009, the discussion really was about the years after 2009 to 2030. The assumption that was made by the Trustees intermediate growth rate was that the per capita Medicare cost growth would go down.

For example, they would go down in 2030 to a 4.1 growth factor. The more reasonable approach that was agreed to by the Modeling Task Force was to simply take that 2009 number, 6.4, and keep 6.4 through the 2030 period. Now, you are absolutely correct; that does have consequences in terms of dollars.

If you will back up to Summary Table 1, the consequences of deciding may be that the intermediate Trustees= baseline was a bit rosy scenario. So, we changed from the reduction in Medicare increases to a no-slowdown position and hence the name No-Slowdown.

Look at the Medicare spending in trillions of dollars. If you carry that Trustees= Intermediate Scenario out to 2030, it shows $2.2 trillion. That is where the optimistic aspect of the actuary=s concerns were. If you keep the 6.4 current growth or No-Slowdown in growth baseline and look out to 2030, it produces a $2.9 trillion cost.

I don=t think anyone around the table doesn=t think that $760 billion is a significant amount of money. The chances of it occurring somewhere between those two lines are probably greater than it occurring outside the lines. In essence, that is why we talked about the two lines.

But as to the consequences of the two lines, you are absolutely right. Three-quarters of a trillion dollars could be the significance of the impact cumulatively through the year 2030.

One last comment. In the Modeling Task Force=s report on the first page, I think we just have to underscore, and finishing tomorrow I think it will be underscored permanently, that their job was driven primarily by the financial considerations. But the point that was made to the extent that the Modeling Task Force included it in its language was that you obviously have to consider the efficiency of the program, the equity of the program, the adequacy coverage of the program, and the sustainability of all those over time.

Those are just as important and in certain instances, I think you and I would agree from a political point of view, for beneficiaries some of these other points may be more important than that one basic financial one.

So, they looked at the financial one; that was their primary job. But they put it in the context that we clearly have to look at efficiency, equity, adequacy, and sustainability as well. So, I think they have been conscious of those other factors that will clearly have an impact.

Mr. VLADECK. Could I make just a minor technical point to that effect as well. We explicitly chose not to get into the difference in all other assumptions that constitute the difference between the Trustees= intermediate, the Trustees= high, and the Trustees= low. I think it is important to spend a second on the implications of that.

What we have agreed upon is an outlay baseline. We have not said anything about revenues, about the overall health of the economy, about prices. Whether $750 billion is a lot or a little in 2030 depends a whole lot on the CPI assumptions which differ across the three baselines that the actuaries have. We have to just take the Trustees= intermediate and leave that alone.

So, as we talk about what this all means from policy points of view, I think it is important to understand--if I understand it correctly and Laura and Debbie, please correct me if I am wrong--we have focused on the outlay side of these. We said that we thought that, if anything, the Trustees were optimistic on the outlay side and we needed a separate outlay scenario.

But to the extent that the Trustees= report or CBO produces an economic model that looks at percentage of GDP and so forth, we did not get into that. I think that is important.

Senator BREAUX. Dr. Tyson?

Ms. TYSON. The numbers that we assumed are on this table. That is what we described as moderately favorable demographics and economic assumptions. So, you can see what assumptions are being made here. You could quibble with each one of these.

I think the Modeling Task Force felt that we are not going to be predicting our own GDP deflator. We are not going to be predicting our own real GDP growth rate. If we were, we would probably spend the entire lifetime of the Commission. That=s the first point.

The second point I wanted to respond to was a question that you raised, Congressman Dingell. That is about private health projections. One of the things that does stand out in this document is that we have projections for Medicare spending under two scenarios. Right now there are no projections for private health-insurance spending. We have history on private health-insurance spending, but we do not have projections.

We are working on the issue of projections, and I think as a Commission and as a Modeling Task Force we will have to come up with a range. It is very hard to do because we are in a moment of great structural transformation in the private system. You get people debating as to whether managed care is going to hold down the rate of growth of costs or is managed care not going to hold down the rate of growth in costs.

So, you are right to point out that it is not there. It is something that I think should inform our discussions. We are working on it in the Modeling Task Force and I think other task forces should talk about this as well.

Mr. DINGELL. We should note that if we do not address that question, we wind up where it will show Medicare having an enormous share of total expenditures with regard to health.

Ms. TYSON. Yes, I know.

Mr. DINGELL. Whereas that will be a very gross distortion of the overall structure and sharing of expenses and prices between the private and the Medicare system.

Ms. TYSON. I know. I would say historically speaking for people who refer to history, in the period--we have this graph here, Summary Figure 2 showing private and Medicare from 1970 to 1995. In that period of time, as I indicated, they roughly grew at about the same stage. Both of them over time were rising as a share of GDP.

When you look at our future projections, we have Medicare spending rising as a share of GDP. But if history is a guide in the private sector, private spending will also rise as a share of GDP. There is no reason to think that this is just going to happen in Medicare.

I really accept your point and I think we need to do some work on this issue going forward. As Debbie indicated, we are working on this as a task force. It is a very big issue and a very hard problem.

Mr. DINGELL. I want to say that I accept that and I am grateful, and I say this also with great respect. However, if we start off in the wrong direction, we are going to come up with a very curious result. If we make the wrong projections as to expenditures, it is going to dictate all the rest of the judgments that this Commission makes.

Senator BREAUX. I think we can have two or three more comments. Then I want to move on. The next one is on benefits, which is obviously very important.

Senator Kerrey, you had a comment?

Senator KERREY. Yes, Mr. Chairman, just to get back to the point that I made on the historic or no-growth; pick your name. I just want to reiterate that the difficulty, the challenge that this task force and this Commission faces is largest, I think, in persuading the people that there is a problem sufficiently large that necessitates change in the program.

I note that my most reliable laugh-line to an audience is to say I am from Washington, DC, and I am here to help you. [Laughter.]

The reason that that produces a laugh, and it regrettably produced a laugh on this task force, is that many citizens in the United States, or at least that I represent, feel that Congress has not acted.

I appreciate, Stu, your response that if you use historical analysis, what you see is congressional action reducing the outlays. I dare say there is not a majority of my citizens who believe that the Balanced Budget Act of 1997 had any impact on Medicare.

You may say they are wrong and I need to educate them. That may be that they are wrong and I need to educate them, but they are the ones who determine the rules as far as whether or not I can act.

These baseline things are very important and I appreciate very much what John is saying. But it is possible if we wanted to, we could define the problem away. Perhaps that is what this Commission wants to do and we could save ourselves a lot of time and headache. We could pick a baseline at which there is no problem out in the future.

Bruce and I have talked about the uncertainty of 2010 and 2030. As far as I can see, that is the only reason for this Commission=s existence. There is no problem in the next 10 years that necessitates the existence of this Commission that I can see, except perhaps on the benefits side and other sorts of things that we are hearing from beneficiaries.

I think what this Modeling Task Force is attempting to do is to lay down a couple of baselines that we think are realistic, and then second to try to get the problem defined in the context of various pictures such as the budget and the GDP, as well as other non-fiscal issues that beneficiaries face.

As I said, to bring it full circle once more, Mr. Chairman, I think the biggest challenge that we have is to persuade people that there is a problem and that there is a need for Congress to intervene with legislative action.

Senator BREAUX. We can take two more comments and then we will move on to the next subject matter.

Congressman Ganske?

Mr. GANSKE. Thank you, Mr. Chairman. I wasn=t a member of the Modeling Task Force, but I sat in on some of the meetings. I think the decision to use a higher baseline than the Trustees= intermediate projection is correct. I=m reading from the 1998 annual report of the Trustees of the Federal Hospital Insurance Trust Fund.

It says, >>Other assumptions are specific to the HI program. One critical assumption is the rate of increase in the cost of health care services. Under the intermediate assumptions, the rate of increase in the cost per unit in service during a 25-year period is assumed to decline gradually from the current level to the same growth rate that is projected for average hourly earnings and then continue at that.==

I think that it is highly doubtful that that will happen. If you will look at the average percentage growth in benefits per HI beneficiary of 9 percent, while the average-percent growth in hourly earnings in that time period was just 3.8 percent.

Then the report goes on and says, >>In this intermediate projection, increases in the cost per beneficiary during the initial 25-year period are assumed to decline gradually in the last 12 years of that period to the same growth rate as GDP per capita and then continue at the same rate as GDP per capita for the following 50 years.== This assumption may seem at odds with historical experience since the SMI costs per beneficiary have generally increased faster than GDP.

If you will look at the average-percent growth in per-capita SMI benefits from 1990 through 1997, 6.1 annual-percent growth per capita; GDP, 3.9 percent, I think that that intermediate line is because those underlying assumptions underestimate what the costs are going to be so that we should have a higher line. It is a question of how much higher do you actually go.

I quite frankly think that some of the benefits that are in our Balanced Budget Act will not be cost-savers but will end up with higher costs rather than lower. I happen to support them because I think they are a quality issue. So if anything, I think we can easily justify a higher line than the Trustees= intermediate line.

The Modeling Task Force basically said we will keep it the same. Maybe that is the best outcome.

Senator BREAUX. OK. The concluding comment on this subject by Ms. Steelman.

Ms. STEELMAN. I would just like to underscore what Congressman Dingell said and what Laura also underscored on the private-sector spending item. We recognize that as being very important and we don=t intend to be hostage to baselines anymore than anyone else.

We would like the Commission to be able to look at the efficiency, equity, adequacy of the benefit package in the context of the beneficiaries= total experience in health care after 65, as it relates to private-sector spending in total in the general population.

As Mr. McDermott said, this is very hard data to come by in certain places. So, we are going to have to work very hard to either create or extrapolate or find or perhaps identify for future work by other government agencies the need for this kind of data.

I think in the entire Modeling Task Force this conversation occurred at least twice at length. So, I=ll simply say that this is a very real issue among us and we invite your participation to help us work through this.

Senator BREAUX. OK.

Congressman Thomas?

Mr. THOMAS. I don=t want to complicate it or continue the discussion, but I do think it is important to note that when you look back historically at the data even on a combined basis, you are primarily looking at the Part A trust fund payroll tax funding Medicare and that a solution historically had been to increase the payroll tax and eventually to remove the cap on the payroll tax.

The supplemental Medicare, especially with the changes made in the 1997 adjustments placing that fastest growing area of home health care over on the general fund, means that when you project it forward up to 36 or 38 percent of the entire Medicare costs, 75 percent of the 50 percent will be coming from the general fund.

So, when we talk about combining A and B, which I think is absolutely critical that we do, in looking forward I just think the shift from historically a payroll tax to a greater and greater share of the general fund needs to be kept in mind as a historical transition into the future structure of Medicare.

As we begin to talk about benefits, we need to keep in mind the idea that if we are going to combine A and B for comparison purposes, then we need conceptually to be thinking about how you do it in reality, because I think the overall package is what we are concerned about. The difficulty of trying to keep a two-track funding mechanism will only become more difficult as we project it out toward the future.

Senator BREAUX. OK. Now, I want to get on to benefits.

Mr. MCDERMOTT. Not very often do I support Bill, but I will in this instance point out that one of the things that will happen by a change like that is to get to the question of what the growth in GDP is and how it affects this whole thing. We assume in the No-Slowdown Scenario a 1.9-percent increase in GDP. Historically since 1985, it has been 2.5 percent. Since 1965, the average has been about 3.5 percent.

So, we have assumed the slow growth which tends to magnify the problem because of the way it is funded now. I think if you will look at it, you really have to keep that in mind when you are thinking about what is going to happen down the road.

Senator BREAUX. Are you pessimistic?

Ms. TYSON. No, I just want to say one thing about that. The reason that number is as low as it is is an unfortunate reflection of primarily demographics. That is what is going on here. Anybody who makes longrun GDP projections looks at two variables, productivity growth and labor-force growth.

Because of the demographics which are driving the Medicare issue, they are also driving the growth-rate issue of GDP. Therefore, you are getting a slowdown just because the working-age population is not growing as fast as it grew in the last 25 years. That is the demographics.

So, you will see this in most longrun projections of GDP. This is not unique to HCFA. I think you could debate about whether it should be 2 or 2.1, but that is where it comes from.

Senator BREAUX. Good point.

OK, let=s move on to what we want to do on the second session this afternoon, and that is a discussion on the benefits issues. Now, you all have in your papers a suggested 1-page box type of handout which was entitled Benefit Issues. The second line is Theme, Reform Task Force, Restructuring Task Force, Analysis and Data Required.

This is a handout that is intended to try to guide the discussion this afternoon on the question of benefits. As an example, the benefits issue will look at a number of themes. The themes are the ones that we have suggested in the left column. The first theme would be >>providing adequate coverage.==

Then there is a question under the Reform Task Force. If you are going to take this same system, what do you need to look at to improve current beneficiary benefits for those eligible under Medicare?

If you look under the Restructuring Task Force, the question is what kind of benefits would you provide in an entirely different system other than the current Medicare system.

Then Analysis and Data Required are merely suggestions as to help us in the discussions along this subject. Underneath that, the next question would concern >>ensuring appropriate levels of risk-sharing== both under a reformed system and under a restructured system.

The third theme would be >>coordinating resources and care.== Under Reform Task Force it addresses how do we talk about putting Medicare and Medicaid, children=s benefits or what have you under one system or how should we handle it. Under Restructuring it is to look at it from an entirely different clean sheet of paper.

If you look at some of the facts in the current system in terms of the benefits, I would point out that Medicare benefits rank among the bottom 10 percent currently with private plans. A lot of people I talk to in Louisiana think that Medicare is the best thing they=ve ever had until you start telling them what is available for private beneficiaries who are in private plans and the things that it provides in terms of prescription drugs, long-term care, eyeglasses, and all the things that people in the private sector take for granted but that Medicare does not provide.

When we talk about benefits, we need to discuss that. When you talk about preventative services that Medicare does not provide, should we provide them? How do we go about providing them? Is that a cost savings or is just a cost expense by providing more and different services.

If you look at the things that Medicare does not cover in terms of preventative services, you=ll find such things as blood-pressure screening, smoking-cessation programs, counseling about diet, exercise, screening for tuberculosis or high cholesterol. None of these preventative services which are covered in many private sector plans are covered by Medicare.

So, I would like to begin the discussion under the benefits by talking about how do we provide adequate coverage? Does the current system do that? Do we need to do more? Does it provide too much?

Congressman Thomas?

Mr. THOMAS. I would like to put it in a context which I think slightly adjusts the chairman=s statement. We are dealing with a program that was modeled off the 1960=s health care plan. The Congressional Budget Office projects that only 50 percent of the Medicare beneficiaries will be in something other than fee-for-service in 2030.

So, when you begin comparing what the private plans may offer in various packages, I do think it is a bit of an overstatement to say that Medicare does not provide those. It depends on the type of Medicare that someone may choose and it is possible that some, many or all of the items that you mentioned may be provided. But it requires a choice on the part of the beneficiary to move out of the fee-for-service and into the Medicare+Choice structure to a certain extent.

That is not to say that we should not consider a basic-benefits package in terms of all Medicare beneficiaries and adjustments thereto. But to not indicate that what has occurred in the private sector which produces the Table 2 Summary of numbers that have occurred in the private sector on rapid reduction of costs was a change in the delivery structure to a certain extent.

This creates a serious cost problem for us if we are assuming 85 percent today and up to 50 percent by 2030 who are still going to be in fee-for-service, then all we are going to do is add benefits to that basic fee-for-service program. You will really run into cost problems in that regard.

So, it is a bit more difficult matrix in looking at the benefits we are talking about versus where people are and what the delivery system is going to be. Then in my opinion we are simply saying this is what is happening in the private sector and this is what should be occurring in Medicare. Because if you are going to do that on the benefits side, you are going to have to look at it on the delivery side as well.

If we want to figure out ways of speeding up beneficiaries in moving to choices to give them a broader range, but also reduces their choice structure to a certain extent on a voluntary basis, then that needs to be part of the discussion as well. It is not just looking at the private sector and comparing it to Medicare, because the reason we made the BBA-1997 changes was that there was a continuing and growing separation from what was occurring in the private sector and what was occurring in Medicare.

Senator BREAUX. Senator Rockefeller?

Senator ROCKEFELLER. Mr. Chairman, let me just be brutally honest. I tend not to dismiss but to overlook a little bit of Chairman Thomas= comments obfuscating what I thought were correct comments that you made, Chairman Breaux.

Senator BREAUX. Different focus.

Mr. THOMAS. I wasn=t obfuscating.

Senator ROCKEFELLER. I think the basic question I would like to ask is very, very simple. It was implied in the Modeling Task Force, and I am afraid it is going to be implied in all kinds of places. My question is: Are we going to live up to it?

I have to regard health care as more important than a lot of other things. I regard it, I suppose, without thinking too deeply about it as being more important than, for example, the quality of housing that one lives in. It is not that housing is unimportant, but with health care there is an absolute moral imperative.

So, the question I would like to put to the Commission members is this: Is there a commitment on the part of this Commission, as we go forward over the next year and go through our different task forces, of not decimating the health care to meet a line item which has been uproariously agreed to, such as a budget quota which really, therefore, enforces an enormous cutting in health care?

We would have to go out to Medicare seniors and perhaps educate them, as Bob Kerrey said, in ways that not only will be inappropriate, but also unfair to them. This educating of them would be simply unfair. That does not even talk about the things that Medicare recipients don=t have now such as prescription drugs and things of that sort. Does this Commission feel a basic commitment to maintaining a high-quality of health care for seniors in this country in our work?

Senator BREAUX. How important is it in your opinion to spell it out as to what that commitment amounts to? Should we outline it all?

Senator ROCKEFELLER. Let me put it this way. I think a simple phrase would solve it. I felt there was a tremendous commitment, and there is on my part. There has to be on my part, or else I am not morally worthy on this Commission to be looking at the cost aspects. I have been using $207 billion to $448 billion by the year 2010. I am now told that that may be substantially less. But if it is $207 billion to $350 billion, that=s a lot over the next 10 years and that is with no new benefits.

So, there is a tremendous fascination here and a tremendous kind of instinct for fiscal responsibility. I surely understand that. I had to balance my budget for 8 years. But I also happen to work with people who have the highest percentage of seniors of any State, that have the lowest per capita income of seniors of any State, and whose health is probably worse off than those of any other State.

So, you can expect no less a question from me than that. Are we committed to maintaining at the very least what we have now in the way of decent health care? But more importantly, are we committed to living up to what we variously interpret as a decent responsibility to health care for Medicare recipients in the future?

Senator BREAUX. OK.

Mr. Vladeck?

Oh, I=m sorry. Senator Kerrey?

Senator KERREY. Mr. Chairman, I got excited there when you called on Bruce first, because he has sat in the chair and has us all come to him asking for more and more and more at the same time that we are out giving speeches that we ought to give less and less and less. [Laughter.]

I would first of all put an oar in the water for the differences here. I listened to Chairman Thomas talking about moving away from fee-for-service. I put an oar in the water for rural areas where it is likely that over the foreseeable future fee-for-service will be a very important component of the delivery system. At least I have not heard anybody identify some alternative that will come sweeping into rural America anytime soon.

Since this is a public session where we have a chance to get to know one another and bond and all that sort of thing, I would like to talk a bit about my own view of the overall system. Having served with Jack Danforth on the Entitlement Commission, and John was on that as well, one of the problems that I have is that I=ve got this picture that I am obsessed about. All of you who have ever asked me about the 2010 to 2030 problem know of my obsession with this.

I am alert to the terrifying nature of the political choices to solve that particular problem. Now, maybe we will grow our way out of it, or maybe there is some other use-pattern changes that will occur that will reduce the size of that problem. But both because of that fiscal problem and because of the stuff that Jay is talking about, I am troubled about this, unless we get into a discussion about sort of clean-slating this thing and taking a new piece of paper and drawing what kind of a system we envision, given the nature of the U.S. economy over the next 30 or 40 years and given the change in the work force since 1965.

I look at the Federal law right now and it says that if I am poor and promise to stay poor, I have got a claim on people=s income. I can claim somebody else=s income through the Medicaid Program to pay for my health care bills. You can make a judgment as to whether or not you think it is generous or not generous. But the most important condition is that under the law I have got to promise to stay poor.

There is another program from which I benefit. It says that if you get blown up in a war, you are eligible for a program. I am not an advocate for socialized medicine, but I will tell you that it worked for me in Philadelphia, and then later though the VA system. I have a claim on other people=s income. The law gives me that claim.

There is another one that says that if you reach a certain age, we have an age-tested program, Medicare, that gives me a claim on somebody=s income if I can get to that level. Then if you work for the right employer where you have got tax deductibility as an issue, you have a claim at least to the extent that your income tax bracket gives you a subsidy. If you work for the government at any level of Federal, State or local government, you have got a claim because it is tax money paying for your health insurance on somebody else=s income.

As I see it, the trend line is that we are having a larger share of U.S. total health care spending being paid for with those tax dollars. It is 47 cents on the dollar in 1996, and it was 40 cents on the dollar in 1990. Jay and I talked about it when this thing started off and the Restructuring Task Force looked like the most exciting one.

Now, Mr. Chairman, I am happy that you asked me to be on the Modeling Task Force instead, although I was certainly challenged to stay up with the fire power that was on the task force. I am wondering if anybody else is of this view or if I am just completely whacko on this thing.

I would personally favor a system that said under U.S. law, if you meet either test of a citizenship or legal residence, you are eligible. Then let=s talk about the benefits package. Then whatever system you describe, I am in it. It is for me as well; it is not a special program for seniors or a special program for the poor or a special program even for veterans. I have got people in Nebraska who are uninsured and they are working and I have a claim on their income to pay my bills.

It seems like there is something wrong with that. They have no claim on mine. If they have some catastrophe that occurs in their life which can happen through accident or some genetic structure or some other physical accident, they will have to turn to charity in most cases. It is not anecdotal. All of us have run into people that have been in that situation.

For my own 2-cents worth, when we think about benefits in addition to saying that, I think we have to think about the differential that exists between the urban and the rural centers. It is a much more exciting opportunity to talk about benefits if we are all in the same system knowing that if I want a benefit and I can=t pay for it, somebody else is picking up the tab.

One of the most difficult problems that I=ve got with Medicare--I think Stu was laughing one time when he said we would get money from Mars or the Moon or something--well, there are people in America today who believe that=s where we get the money for Medicare as far as I know. I mean, we need, it seems to me, to be in a position to say that if I don=t have the money and I want to ask for a benefit, that at least I am aware that if I can=t pay for it whether you socialize it with private insurance or with taxes, somebody else is picking up the tab. Right now with differentiated eligibility it seems to me or at least I have a difficult time getting that done.

Senator BREAUX. It is all compartmentalized.

Bruce Vladeck?

Mr. VLADECK. I just wanted to--first of all when there is an opportunity for me to agree as fully and as emotionally with what Senator Kerrey said, I want to take it as quickly as I can. [Laughter.]

I have just one minor caveat, which is that one of the major holes in the Medicare benefit package as was referred to earlier is the fact that there=s such limited coverage of long-term care. This is an area in which, in fact, Medicare beneficiaries need a lot more than most other people with health insurance. So, we have to be just a little bit careful.

I quite agree that everybody ought to have the right to the coverage, but it is not clear that everybody needs the same coverage, particularly when you are talking about Medicare beneficiaries and when you are talking about disabled beneficiaries as well as those over the age of 75 or over the age of 80.

I think one of the things we are going to have to think about as we talk about benefits is the extent to which there--again the private-sector comparison may be very misleading for us, because only about 5 percent of privately insured people in the United States have any real insurance for long-term care. For most of them that is not a big deal; that is not a very substantial risk, the absence of insurance mechanisms for long-term care for people in their eighties is a very different kind of situation.

So, I would just really qualify your statement with which I otherwise entirely agree by saying there are special needs in certain parts of the population that you will just have to be sensitive to.

Senator BREAUX. How would you address the subject of prescription drug benefits or eyeglasses? How do you ensure that the extra amount that they pay is reasonable, if you will?

Mr. VLADECK. I think one of the things we have already had some brief discussion about and we need to talk about is that there is some limited but reasonably effective Federal precedent for the regulation of Medicare supplemental insurance, Medigap insurance, just as there are rules about the kinds of supplemental or additional benefits that capitated plans can offer.

When we start talking about reform and restructuring, I think there is a sense on the part of a lot of us that we are not talking about how do you solely alter the benefits that are directly financed with Federal dollars, but how do you alter the market in which other benefits that may be paid for by some mix of public and private dollars or by all private dollars are provided as an insurance market or as a supply market. I think that that comes into being very much what is on the Reform Task Force agenda. At least that is my sense of that.

Senator BREAUX. Congressman McDermott?

Mr. MCDERMOTT. Let me start by saying I agree or that I want to associate myself with the remarks of Senator Kerrey. I think that the ultimate thing that we are going to have to struggle with is how do we get everybody feeling like they have a piece of this action. Right now some people feel they are never going to have a piece of it or they are not in it or in some way everyone else is getting something out of it and they are not.

I think ultimately our base problem is going to be how do we get everybody into the same situation. The President made a proposal which some members on this Commission have already said let=s put it on the side a little bit, and that is that people between 55 and 64 can buy in at cost; pay their own way. I think that is one of those issues that in the benefit question we ought to talk about.

I have a more immediate concern, however, and I really think that this Commission ought to take a position with respect to action of the Congress that we not make further cuts in Medicare and Medicaid. Proposals in the House at this point are for $10 billion cuts in Medicare and $12 billion in Medicaid. We are shooting at a moving target if the Congress is 12 blocks away moving this thing away from us while we are trying to figure out how to put things together.

I think there is a real point at which we ought to say, >>Wait a minute. Let=s hold still a second while we go through this process.==

I don=t know that if in the next 3 months we won=t make decisions on the floor of the House and Senate that will further skew what we are struggling with. I think that at some point in the next day or so we ought to talk about whether we are going to respond to that or just act as though the Congress is over there acting without us being on the face of the Earth. I think that would not be good public policy, and it would waste our time if they are over there making changes all the time.

Senator BREAUX. Let me just comment on that. I was one who early on, when the administration had proposed an early buy-in for Medicare, suggested that that was one of the things that this Commission should look at and we are charged to look at and report to the Congress in March. I said that I thought that Congress would probably hold off until the Commission had had a chance to make that recommendation.

On the spending cuts which I guess are pending in the House and about which I was reading in the news clips where the budget proposes that Medicare spending be reduced by $10 billion over the next 5 years and Medicaid by an additional $12 billion over the next 5 years, I guess I would take the same position.

Our duties are pretty clear and pretty expressed that we are supposed to report March 1 on our recommendations. Any individual member can obviously make their comments on what they think and those of you who are in the House will obviously be actively engaged in that debate. But I would think that formally as a Commission that really is not something that we would be involved in under normal circumstances.

I understand your recommendation and I appreciate it. I think, however, that we probably have enough to do.

Congressman Ganske?

Mr. GANSKE. Let me address Senator Rockefeller=s remarks. I think the primary reason for the Commission is the solvency problem caused by the demographics. I don=t think that it means it is mutually exclusive from and should not prevent us from looking at the quality issues of the kind of program we want to see.

I think we probably as a Commission ought to be looking at two or maybe three or four broad concepts related to costs. The first is we ought to come to some consensus on to what extent seniors should share those costs. Does the presence, for instance, of a Medigap policy which eliminates cost-sharing promote proper use of medical services or does it encourage over-utilization?

I think when we look at benefits, it is no secret that probably all of us think that long-term care and some type of pharmaceutical benefit is important. We absolutely need to look at the costs related to that because historically if you look at adding benefits to a program, it greatly increases the cost of the program. So, that increases the solvency problem that we have to deal with.

Finally I will just throw something additional on the table in terms of the cost problem and that is to what extent should the decisions be made on a national or a local basis? You know, local decisions can add innovation, but you can also allow major policy changes to spread across the country sort of under a national radar screen.

Let me give you one example. The carrier in Florida began to deny payment for removal of actinic keratoses. Many of these, if they have not already turned into a superficial spreading squamous cell carcinoma, are a precursor to that. Despite the unanimous opposition of State medical groups and its own advisory board, the Florida carrier went ahead with the policy which has now migrated to other States including my own.

That was a local decision that is now having national implications. I think we ought to as a Commission look at that issue when we are looking at this issue of benefits.

Senator BREAUX. Mr. Howard?

Mr. HOWARD. I just looked at these questions that you presented with respect to the benefit issues. I believe we are moving toward making benefits open and offering the Medicare choice plan that will provide more opportunities for people to get those prescription drug benefits covered and preventative services covered.

I think it expands the choice by adding in what I see as private service plans which I think is the first time that has been offered in Medicare. I think those are pluses. I think, from what I understand that we=ve got people enrolling in these private, managed-care plans at the rate of about 90,000 a month, which is about a million a year or 1,080,000 a year. Most of those HMO=s or private plans or PPO=s are now offering extended benefits.

So, I think we have a mechanism for at least providing more benefits. But in the restructuring section of this document there is a question: >>How would you protect beneficiaries from costs and ensure access to a seamless continuum of care?==

I would like to hear what some of the Commission members have to say about that. I don=t understand how you can ensure access to a seamless continuum of care in a fee-for-service system. I just want to hear some comments on that. I have been troubled by that ever since I read it a couple of weeks ago.

Senator BREAUX. Good point.

Dr. Altman?

Mr. ALTMAN. First I would like to partially join in with Mr. Thomas in support of what he said that we have put in the Balanced or you have put in the Balanced Budget Amendment, the extent to which you now can get more benefits by joining with other plans. So, I would like to support that.

However, I think you do not want to have a national program where the only way you can get prescription drugs or extended benefits is by joining a plan which A, may not be available in a rural area or B, for some other reason you don=t want to be a part of it.

So, I do think we need to talk about the other side. I don=t think you want to be bribed into going into your plan, Mr. Howard, by the failure of not having it on the other side. However, I do believe that people should make choices and that is the extent to which you are willing to take some restrictions on your choice of doctor in return for your prescription drugs is a fair balance.

So, let=s talk about what the fee-for-service system looks like and why it is increasingly out of balance with any relationship. I want to focus on this seamless area you talked about and that is Medigap. Medigap was originally designed where 100 percent of the Medicare population had access to the same kind of services. Most selected Medigap as a way of sharing those costs.

Today with the somewhat less-sick people going into HMO=s and with a number of less-sick people being insured by their private insurer through retirement, what is happening is you are asking a subset of the population who either cannot or does not want to join an HMO to have to subsidize the sickest elements in our society, the disabled, the renal patients. They are the ones that buy Medigap. And the people who just want to get some decent wraparound coverage around Medicare find themselves having to pay very high rates.

I think we have an opportunity on the other side of the equation to do somewhat of that which we did on the managed care side which I supported, and that is take a hard look at what this program looks like in 1998 versus 1965. You could put together, I think, a combined program which combines the premiums. And by the way, I am not talking here about it all being paid for by the government.

I am talking about a seamless, if you will, insurance policy which combines the coverage that is in Medigap with prescription drugs, with some limited long-term care. I think a more extensive long-term care needs to be outside that package. I am also talking about doing away with the separate deductibles that exist on the HI and the SMI and the separate coinsurance and then putting together an insurance package that begins to look like these similar insurance packages that people see when they are insured privately, which is what Jim McDermott said.

I think we have an opportunity to do that without necessarily adding substantially to the cost of the program. So, we can balance the equation and people can choose managed care when they believe they can get a better benefit, not because they are forced into it because it is the only place that they can get that benefit.

Senator BREAUX. Congressman Thomas?

Mr. THOMAS. I want to react positively and then use your more specific terms to indicate that that was in part my general comment. But I will go beyond that.

It is very difficult when we look at Medicare in a non-real way. We oftentimes don=t look at the total dollars spent by seniors on health care. If we only focus on Medicare, it is that it=s going to be primarily a fee-for-service program. As Senator Kerrey indicated, that is all his folks have.

So, yes, you have to look at what the basic package is going to make available. But as Dr. Ganske indicated, the growth around the government program of Medicare has created a number of conflicting incentives. People are paying more money out of pocket, somewhere in the neighborhood of $12.5 to $13 billion to insulate themselves from some of the structure of Medicare that would be a discipline on over-consumption. That does not make sense.

Maybe we ought to take a step back and look at not just Medicare, but the overall expenses of seniors including the private insurance, the Medigap structure and look at the total out-of-pocket dollars that seniors are paying and see if we can=t come up with a more rational use of all those dollars.

But after you say that, and this is where we are as the Commission on the future of Medicare, long-term care has to be looked at either in a modest way within the package and probably also as a separate, sustainable program in some way. It is especially driven by today=s headlines which indicate that, given what low-income seniors get both in terms of health care and long-term care, the goal of many people who have their own wherewithal is to buy down to become poor to enter into a long-term program.

It just makes no sense to me whatsoever, Senator, not to focus on that larger question, and that is what are we doing on the entire health care package in this country. And if it is outside the scope of this Commission, at least we can perhaps make some recommendations about how we can come up with a rational program even to the extent of Senator Kerrey, that everyone has a basic package regardless.

For other people we can talk about getting benefits based upon other criteria, but we do not want to ignore those who have nothing. We do not have a program that >>incentivizes== people to spend all their money so they can get a better long-term care, because it is not available in another way. From a compassion point of view, the package that this Congress passed included preventative medicine and wellness in such a way that has never been done before.

I think that is a clear indication that if people are looking for a degree of compassion, all of us have compassion. The best way we can show it is to rethink the way in which the Federal Government deals with the American people, not just seniors on the whole question of health care.

Senator BREAUX. I would like to make a quick observation. It seems like for historical purposes we in the Congress have always written the benefits package. Then we will argue with Bruce Vladeck and others who have run the department about whether it wasn=t enough or they were not paying enough for the services or were going to add services and objected when they did not cover certain items.

Now, while we=re writing the benefits package for the rest of America, when it comes to us and the other 9 million Federal employees, there is a great deal more interaction with the private sector who offered more and more benefits and competed for the right to sell those packages to the almost 10 million Federal employees, including all the Members of Congress.

When we looked at all the Medicare beneficiaries, we wrote the benefits package for them. Then we argued about whether it was inadequate or we did not pay enough for those particular services. Now, changing that is what you are talking about with Medicare+Choice and some of the other options we are giving our seniors which is very, very important.

Mr. Watson?

Mr. WATSON. I just noticed in the sense of fairness nobody has taken Senator Rockefeller=s side. So, I am going to chip in a little bit on his side. [Laughter.]

I took what he meant a little differently than is being espoused. America is one of the only two developed countries that has no coordination in health for its citizens, which includes Medicare. I think we have a higher responsibility than to just address rearranging the benefits structures or achieving solvency.

We have a real opportunity to design a program for our citizens well into the 22d century. We ought to take advantage of that opportunity. It really involves looking at the fragmented system that we currently have in place. Yes, solvency is important. But I believe we have enough money in the system if we redesign correctly and look at the kind of care and emphasis on long-term care, home health care, and other items where we can save tremendous amounts of money.

I believe, unless I am wrong and I bow to the elected leaders that sit on this table, but unless we improve Medicare, we are going to be in trouble in this country. This Commission is going to be blamed for that. I hope I am wrong on that, but I think we are going to be in trouble unless we do improve Medicare.

Senator BREAUX. Senator Rockefeller?

Senator ROCKEFELLER. Mr. Chairman, I guess that the answer that I received from Congressman Ganske, or Dr. Ganske, is the one that I feared the most and is the one which is at the bottom of my real concern. Since we are talking about benefits, I think it is important frankly to get this stuff out right now.

Chairman Thomas shook his head affirmatively when Representative Ganske was speaking. And if this is about simply solvency, if this Commission is simply about solvency, then I would like to get that cleared up right now, because I am not sure that I belong on it.

Second, at our last meeting seniors represented that they were willing to share, and there was some talk that was made by some about sharing responsibility for decent health care for Medicare beneficiaries. Quite frankly I have just got to say it; that brings up the question as to whether seniors are willing to share, and seniors in West Virginia have indicated a willingness to share even at their economic condition.

So, does that mean that we are willing to share out of the general revenue fund? And that brings up the question which needs, I think, to be brought up now. The Members of the House that were appointed were purported to have taken a pledge that they would spend not one single new dime of taxpayers= money.

I do not know whether that is true or not. But if that is true, I hope you understand how much that defines the direction of this Commission, maybe not explicitly now, but explicitly later on when it comes to voting things up or down. They may or may not, the ones of the majority party may or may not wish to comment on that.

I do not want to be a part of an exercise in which we just talk about it. I have to agree very much with Bob Kerrey. He and I have talked about the fact that there ought to be a larger construct about, as McDermott said, including everybody in. Everybody has a stake.

I can also see a situation where we have four or five meetings or six meetings left during the course of a full year and they last for 12 days in which we keep talking about long-term care. >>We have got to do something about that; we have got to get that included.== Or relating to, >>We have got to do something about the larger construct. We have got to have somehow arrive at that.==

But we never do. We simply never do because what the representative said is, in fact, the ruling guide of the majority of the Commission, and that is this is about solvency. That means this is about cutting Medicare benefits down to the point where our country will not have to be raising taxes or without raising whatever or without sharing in the way that only a national government can.

I agree with Mr. Watson that health care has a rather special place that we are willing to do that. I think this point is rather at the heart of the Commission.

Senator BREAUX. I would just respond by pointing out that I have never heard anybody suggest that, that the purpose of the Commission was only to look at the solvency.

Senator ROCKEFELLER. It was suggested just now.

Senator BREAUX. I didn=t hear that. I mean, we may have heard different things from the same speaker. While I heard him talk about solvency, I also heard him talk about benefits. He can speak for himself.

I think in the very title of this Commission is about the future of Medicare. We are talking about cost, of course. We are talking about benefits, of course. That is why the first session we are having today is on benefits. Followed by a session on costs. I mean, we have got to talk about all of these things that we are going to make a recommendation that is going to restore the long-term solvency of a program that we can be proud of.

I don=t think anyone is coming in here and suggesting that the only thing we should be talking about is the size of the benefit package. Nor have I heard anybody suggest that the main and only function is how much it costs. All of these things are part of what this Commission, I think, needs to look at.

I guarantee you that we will look at it. Maybe some will be looked at with more enthusiasm than others, but this Commission will look at all of those things, because that is what we are charged to do.

Dr. Ganske?

Mr. GANSKE. Well, in my opening statement at the first meeting, I said we should not be wearing green eyeshades. In my statement a few minutes ago, I said that I do think the primary purpose of this Commission is to look at the solvency issue. But that should not be exclusive of looking at the quality issue as well. They go together.

Look at the way the system is right now. I don=t get any complaints from my senior citizens about the way the system is working. I doubt that you do either. They think that Medicare is a pretty darn good program. So, we would not have this Commission on the basis of the way it currently is working for senior citizens.

The reason we are having the Commission is because we are looking at the fact that in 20 years or so we are going to have only a couple of workers paying for every retiree. We are going to have twice as many retirees. The Medicare Advisory Commission tells us that we are looking at some significant shortfalls unless we are able to come up with some solutions, and that was the extent of that.

I think that we should be looking at quality equally to looking at the solvency issue. I think that quite frankly I am concerned about some of the quality issues as we are looking at potential proposals, because I think the fee-for-service system is working very well right now.

I think that if you look at that in terms of quality, and I think if you look at my past legislative efforts, Congressman Thomas will tell you that I fought pretty hard for some patient protections in the balanced budget bill.

Senator BREAUX. OK.

Ms. Gordon, tell us what your people tell you.

Ms. GORDON. One of the big things that we see as staff workers is disabled people having to wait 30 months for Medicare. Many of these people die within that frame of time. I think that is something that we should look at. When a person who becomes disabled, they have to wait 30 months to be insured by Medicare.

I know that some of the people are insured through COBRA. But there are very few people in my State that can afford COBRA for that period of time. So, they end up with no care at all.

Senator BREAUX. I know you see these types of people almost everyday. Do they ever complain about no prescription drugs or no eyeglasses?

Ms. GORDON. Absolutely, absolutely.

Senator BREAUX. I wonder if they know about the new Medicare+Choice.

Ms. GORDON. Probably not. We don=t have that choice in Mississippi.

Senator BREAUX. Sam?

Mr. HOWARD. It=s not a factor here.

Senator BREAUX. Dr. Tyson?

Ms. TYSON. I want to say something about the uncertainty of the numbers and then to get to Senator Rockefeller.

I said before in the discussion of the task force that I think it would be a mistake if--I certainly would not feel comfortable with 2030 and using that as a guide in making policy. I think that my own view, just to answer your question, is that since the future is so fraught with uncertainty here, the best thing to do is to ask ourselves hard questions such as the one that I think Stuart posed.

How can we take the current system on policy ground and improve it? We can make the incentives better for efficient utilization by doing something with the Medigap Part A, Part B. It is sort of a hybrid system that has grown up over 30 years that doesn=t really make a lot of sense.

We can do something, it seems to me. We have done something on choice already in the 1997 Balanced Budget Agreement. We have not done as much as I think we should do on pharmaceuticals, because we know that=s the way delivery of medical services is going in this country. That is going to become an increasingly important part and it already has, in fact, become an increasingly important part of how the elderly will receive their health care.

I almost think that having put the numbers on the table, we should now put them aside and ask ourselves the question: What do we know right now on policy grounds today that could be done to improve the functioning of this system?

Then we can go back and put the numbers aside and go directly to the policy issues. I think the Medigap issue is a key policy issue. I think that prescription drug coverage is also a key issue.

Senator BREAUX. OK. We are about to wrap this session up.

Mr. HOWARD. Laura, I would like to ask you just one question. If we wanted to add prescription drugs to coverage in the current benefit package, how would you do it? What are you going to give up? I am just wondering where you might be coming from. Prescription drugs in my program is about second to hospitals per member, per month.

Senator BREAUX. In terms of costs?

Mr. HOWARD. Yes. So, I am trying to figure out how I am going to handle it.

Ms. TYSON. All right----

Mr. HOWARD. I just want to know where you are going to get it. Are you going to take it out of hospitals?

Ms. TYSON. I would say that we ought to switch from these kinds of issues. I don=t have a solution for that right now. And it=s tied up with Medigap. It is tied up with all the ways in which people finance.

You say you can=t provide it or you would have trouble providing it. But remember that we have these huge flows of resources going into elderly health care. We have out-of-pocket expenses, we have Medigap, and we have private health insurance. All of these things are going into paying for these pharmaceutical benefits.

Now the question is whether you can rationalize the system in such a way that you get the kind of wraparound packages that Stuart was talking about.

Senator BREAUX. Sam?

Mr. HOWARD. Well, I am just trying to get the money that is coming out of this one pot that=s called--you know, it=s----

Mr. WATSON. Sam, I don=t know what kind of drugs you=re providing, but if it=s second to the cost of the hospital--[laughter].

Mr. HOWARD. Well, this Viagra is killing me. [Laughter.]

Senator BREAUX. I mean, there are ways to do that. The Federal Employee=s Health Benefit Plan covers prescription drugs for 10 million Federal workers and it does it at a low rate of increase.

Let me get to this last one.

Debbie?

Ms. STEELMAN. I would just like to say that the number of ideas from different people that were along the same line to me were very encouraging. I sense a commitment here by an awful lot of folks to improve Medicare from a number of perspectives and certainly no commitment to just look at the numbers. I think that is really exciting.

That is why I was so excited to be on this Commission. Stu Altman puts a really interesting set of ideas on the table in terms of not approaching it just from the Medicare money alone, but from the other resources that are in the system. I think I heard you say that you would not insist that it all be government financed either.

Senator Kerrey=s proposal or idea to perhaps have Medicare as a model for the structure of perhaps a full-eligibility program is really an interesting idea. How would it be structured in such a way that would make that something we could grow over time?

We=ve heard all of the comments about the choice market and the good things and bad things about that and whether it could be grown. I think all of this shows that this Commission, in fact, is appointed at the right time to do something. We are in the middle of a dynamic market where admittedly, publicly they don=t think there is a crisis yet.

No one at this table shares that view. We know that we have a limited amount of time to turn this around and to modernize it, as well as to make it fiscally sound. So, I think that that first discussion was just great in terms of getting somewhere.

Senator BREAUX. Ms. Gordon, you had another point?

Ms. GORDON. Another thing that we need to be reviewing, Mr. Chairman, is cuts in home health care.

Senator BREAUX. Home health care is one we have heard a lot about, I=ll tell you.

Ms. GORDON. There are many problems.

Senator BREAUX. Jim?

Mr. MCDERMOTT. It=s precisely that point that made me raise what the House is proposing, because I have a bipartisan bill here that has got 65 signatures talking about increasing home health expenditures.

At the same time we have people at the other end of the table saying that we have to cut money out of Medicare. That is what makes this thing such a moving target. If you want to get to anything that expands Medicare you have got to figure out how you are going to do it in the most efficient way. That is really what our opportunity is. I don=t think we will succeed if we simply save the HI Trust Fund.

Senator BREAUX. It will be interesting to see if anybody who signed the letter on increasing home health care services is going to vote for the cut.

Mr. THOMAS. The only thing that I think we have to do as we go through these discussions is to kind of go back and ground ourselves in terms of understanding what happens when you do some comparisons. For example, using the Federal Employees Health Benefit Program as a comparison may be not as significant or useful as you might think.

When you begin to compare the Medicare population, that is a defined group; they are primarily above 65 by definition. Federal Employees Health Benefit stretches itself across very young people in their twenties, all the way to seniors who are also receiving Medicare. The insurance policies in the Federal Employees Health Benefit Program are, in essence, community-rated across that broad group so that the seniors= pharmaceutical costs are subsidized by younger folk in the system.

But one of the things I think we could do, even setting aside the dollar argument, is to at least say if Medicare is spending $200 billion on this defined-65 group, we could at least look at the other moneys being spent as well. Medicaid spends $50-plus billion on this group. Veterans Administration spends $7-plus billion. The Department of Defense spends $1.2 billion.

Out of pocket these people are paying $12.5 billion a year for Medigap insurance. It is estimated by AARP and others that there is another $60 billion out of pocket paid for by seniors that is not covered under all of that other programmatic money that is being spent.

I would like to try to bring a couple of points together. If we would sit down and try to rationalize the delivery of health care from all of these various groups and maximize each dollar spent; take a look at the Medigap policies; make sure they don=t >>de-incentivize== but, in fact, they do >>incentivize.== We could create a kind of a program that makes sure that no dollars are wasted, which clearly they are now.

This could provide us with savings out of that unification that would allow us to make a number of changes that we can=t make now. Then we could examine where we are and how far we need to go. I do think we could come up with a significant ability to add benefits if we do nothing more than rationalize the Federal programs and the current out-of-pocket costs of seniors to make sure that each dollar is spent to maximize the health care delivery to that senior.

Senator BREAUX. OK. Well, we thank everyone for their contribution on the question of benefits. We are pretty much on schedule.

We would like to move now to the next discussion area which would be the discussion of cost issues. There were some comments about costs when we talked about benefits and, of course, that is necessary.

Will you please now look at your box that we have as an outline of how we would like to proceed. The theme will be cost-effectiveness. Under the concept of reforming the current system, the question is: Have we done everything that we can to make the program more cost-effective? Is a spending cap necessary? Should Medicare=s costs be compared to private-sector growth rates or growth in the GDP, the Federal budget, et cetera?

Looking at it from a restructuring standpoint, the question could be what processes could we use to control costs and should a new program be instituted or could be instituted? Is a spending cap necessary?

Look under the second theme of innovative cost controls. The question is: How effective are choice and competition among plans at controlling costs? Are there opportunities to improve the fee-for-service program, for instance, by competitive purchasing? What further modifications could be made to provider rates or risk-plan premiums? What else can be done to save money while ensuring quality care?

Under a restructuring concept, would overall costs be reduced via a defined contribution or other system? What would form the basis for a defined contribution or other system? A possible example might be a benefit package driven by payroll and general revenue contributions or some other.

I would point out just as a fact for the purpose of this discussion that according to HCFA=s office of actuary, annual growth in Medicare spending slowed down from 10.6 percent in 1995 to 8.1 percent in 1996. As a result of the Balanced Budget Amendment, the office projects that Medicare=s average annual growth rate will slow down to 5.6 percent between FY 1999 and the year 2003.

Those are some of the things that we will be talking about in terms of costs. I would like to open it up to anyone who might have comments about costs and what we need to be doing about it.

Stuart?

Mr. ALTMAN. Looking at one of the most complicated aspects, let=s separate Medicare into the two parts that you have now separated. One we will call the traditional or fee-for-service Medicare and the other is the choice type. It is true that the choice, particularly the HMO or managed care, has been able to make use of essentially the concept of managing care and making choices about what would be a more efficient way to provide those services.

The fee-for-service type, on the other hand, forces Medicare to pay bills. It limits their ability to do anything in terms of, quote/unquote, managing that bigger system, except for attempts at experiments. So, when HCFA goes in and tries to do an experiment about redesign of how to pay bills, you immediately have the courts go in and such as that.

If we are going to continue to tie HCFA=s hands in terms of their ability to manage the fee-for-service side, the only option they have available really--I mean, they play around the edges as best they can--but the only option they have available is to limit spending by limiting fees, and that can work in the short run. That is, however, not an effective way to work in the long run. So, we need to put on this agenda this discussion of how much flexibility and how much discretion.

And Bruce, you may have a different view of this, having run it. So, maybe you don=t agree with me. How much flexibility and ability should we give future Medicare administrators to manage the fee-for-service Medicare in a way maybe less restrictive than an HMO, but more restrictive than an open-ended, fee-for-service approach? It perhaps should be on the agenda.

I realize there are negative implications. You have the heavy hand of government coming in and restricting by paying this one and not paying that one. But if we are not going to come to grips with that, you will have one side of the system which is sort of open for all of the potential explosions. Then you have to clamp down on it only by fee restraints, which economically is not a good way to do it.

Senator BREAUX. A lot of shifting of costs as well.

Bruce?

Mr. VLADECK. Agreeing entirely with that, but I would suggest behind that there are really two sort of broader conceptual issues that are very much at the heart of the problem of cost-containment strategies for Medicare in the managed care, capitated sector as well as in fee for service. It might be worth being more explicit about what they are. When we get to managed fee-for-service care, they may be even more general than that.

The first issue--and Senator Kerrey sort of hinted at it earlier--is the extent to which the Congress is prepared to let anyone in the executive branch or anywhere else manage the Medicare Program to save money. There are countervailing considerations including the geographical distribution of Medicare expenditures, expenditures by type of providers, the claims of certain professional groups to full reimbursement, and so forth and on and on.

In talking about that in terms of some of the public goods that the Medicare Programs provide whether it is education or support of the hospitals and so on and so forth, some of it is a conscious decision to pay more than would be absolutely necessary if you are only trying to get the best price.

There is a related issue and that is an issue that came up in our discussion of some of these issues during the Balanced Budget Amendment which is the extent to which the Congress is prepared to seek control of that. All together we are talking about a program that distributes $200 billion a year in every congressional district in the United States. This is the sort of thing where Members of Congress are reluctant to overly delegate responsibility for how that money is going to be distributed certainly across congressional districts, let alone within any given district.

Senator BREAUX. Bruce, just on that point it seems to me we get so many complaints from every doctor and every hospital that they are not getting enough money.

Mr. VLADECK. Right, that=s what I am saying.

Senator BREAUX. I would love to get rid of that.

Mr. VLADECK. Yes, but on the other hand, without getting into too many specifics, we could cut 3 or 4 percent off Medicare managed care payments or Medicare hospital payments this moment if we just gave up the recognition of the special needs which various groups have argued for over time that are not necessary to buy health care services. How that works is obviously--there are a lot of pieces to it.

Again, historically the Congress has been unwilling to insulate--I mean, there are mechanisms that we use in other programs. We have base-closing commissions and whatever. If you want to talk about that, that is what you are talking about. If you want to talk about making Medicare a more effective purchaser, you have to change the way the Congress does business relative to the Medicare Program. Now, that may be a very good thing to do. I think, however, conceptually that is the issue.

The other that is even harder, and I want to stress that there is this interplay between Medicare and private purchasers. Stuart and I sort of spent a lot of time in the mid-1980=s on PROPAC getting yelled out by private insurers because of all the so-called cost shifting that was occurring because Medicare was doing a good job of controlling what it paid to hospitals.

Then what happened in the early part of the 1990=s is that Medicare did not adjust the way it was paying hospitals, while the private payers did. All of a sudden Medicare was subsidizing the private payers the other way around. So, I think one of the reasons the private sector has done so well in controlling health care costs over the last 5 years is because Medicare has been overpaying so much.

The publicly traded HMO=s, where we have the data and which have the biggest Medicare business, have actually been losing money on their non-Medicare business and subsidizing their private business with their Medicare profits. This has kept the cost of private plans down. In the markets in which I am working now, the 2-percent annual increase in the Medicare+Choice rates will have an impact on the private purchasers because the plans are no longer going to be able to offer them such a good discount because they are not going to be--their Medicare business is not going to be as profitable as when the rates went up 7 or 8 percent.

For almost every health care service Medicare is the largest player and has the largest market share. If we wanted to let Medicare behave like a 40 percent of the market-share purchaser, we could save a lot of money. But a lot of the result of that would be a lot of other folks paying a lot more money. We have to be somewhat explicit about how that works if we talk about these cost-containment strategies.

Everybody says that is wonderful, that=s great until you actually get close to doing them. Then the other major purchaser in town or when the big employer in town realizes that if Medicare cuts its hospital payments by 20 percent, the hospital may be able to save 5 to 7 percent, but that big employer may have to pick up the rest. Then they don=t want Medicare to be so economical.

So, I just suggest these two issues to you. One is how Congress makes decisions about the program and second what we really believe about the balance between Medicare and the private sector. It used to be always easy for Medicaid. We were always prepared to say that Medicaid is a marginal-cost payer. It is paying providers who would have gotten nothing had it not been for the Medicaid Program.

Medicaid ought to pay less than anyone else and that=s OK. That philosophy has characterized that program for a long time. We have never wanted to take that position with Medicare for a variety of reasons. As it gets to be a larger and larger share of the total market, people get more sensitive to these issues, and we are going to have to think them through as we think about these kinds of strategies.

Senator BREAUX. It is somewhat like Senator Kerrey said in that you get paid according to what program you are in. To me that does not make a lot of sense. You are getting paid for the same procedure a different price because you are in a different program.

Senator Kerrey?

Senator KERREY. Just to use a current example, Bruce, that is what we are dealing with right now in the Congress. I guess most of us in response to town hall meetings and such get right on this issue of fraud and abuse. There is a large number of Americans who believe that if we would just get fraud out of the system, that would be all that we need to do.

So, what do we do? We passed legislation a couple of years ago and today we are getting huge complaints from home that the antifraud methods of HCFA are unreasonable and unfair. There are assertions that there may be fraud in Florida or Iowa or some other State, but there sure as heck is not any fraud in their particular State. It must be somewhere else where that is occurring.

There is a presumption somehow that that money is theirs. Again, to pick up on what Stuart said earlier, I am not necessarily proposing government money. As far as I am concerned, money is money. One of the most important things in cost control is that there is a relationship between the strength of our economy and the power of our economy and the growth in our economy and our capacity to afford anything.

They have got a much poorer health system in Russia than we do in the United States as a consequence of their being a poorer nation. You have, therefore, got to acknowledge in designing our cost controls that we have got to have a healthy economy both collectively and individually to get the job done.

Again, I think it is very difficult to do. One of the most difficult things is cost control, and the assumption is that it is always somebody else=s problem. When you get to be 50 and you notice that gravity has taken its toll, and then you get to 60 and all of a sudden you start to have health care problems. There is a relationship between age and health care problems. It may not be so apparent when you are 30 as when you are 60, but there is no question that there is.

Our system says that under Federal law if you are poor, we will pay the bills, but you have to promise to stay poor. If you get blown up in a war, we have got a program for you as well. We veterans don=t like to think that we are for socialized medicine, but that is what the VA system is.

When you reach a certain age, we have another program that gives you claim to other people=s income. What I find when I am dealing with groups in all cases, when they ask for something more, they don=t think of the money as coming from them. It is coming from somebody else.

Pertaining to health care, my favorite scene in >>The Tin Man== is when Danny DeVito and Richard Dreyfuss are aluminum siding salesmen. Their ideal is to have the latest model Cadillac. When Dreyfuss goes in to buy his Cadillac, he orders everything on the car, all the bells whistles that the latest model has.

When the guy asks him, >>What do you want to pay?== Dreyfuss replies, >>I=ll tell you what I want to pay. Nothing.==

That is one of the problems we have got in our health care system. As long as we have separate systems and methods of eligibility, I can ask for something but I presume that nobody that I know is paying the bills. So, in order to get to a point where there is a relationship between what I ask for and what I get, I keep coming back to the need to change the way under Federal law for a person to become eligible for health care.

Senator BREAUX. OK, Mr. Ganske?

Mr. GANSKE. I hope that in the next 9 months that this Commission is meeting that, if we start looking at managed care as the way to save or to make the system solvent, that we will think about what we have already seen so far.

Bruce alluded earlier to the way the system has been currently working. We may very well have lost money and made the solvency problem more difficult because of the problem of the adverse-risk selection in HMO=s.

I mentioned this before at one of the prior hearings. I think that if we are going to try to fix that problem, the Commission will need to look at how long seniors will need to stay with their choices so as not to skip to back and forth from a fee-for-service system to managed care.

Then I would also just caution us in terms of what we have seen historically with the savings from managed care. I have an article here from the New York Times from just a week or so ago. It says, >>Nationwide benefit consultants for non-Medicare Programs are estimating that HMO premiums will increase 7 percent. That is five times the current consumer rate of 1.4 percent. But in States such as New York, California, Minnesota, New Jersey, Illinois we could see rates of 10 percent or higher in managed care.==

So, if we try to hitch our wagon to just managed care, we may find--at least unless we can figure out ways to make it work better in Medicare than we have before--we may find that we may not be actually making the system more solvent.

Senator BREAUX. Senator Rockefeller?

Senator ROCKEFELLER. Mr. Chairman, just a couple of points. I think that Bob Kerrey made this point that we would do very well not to avoid facing the question of waste, fraud, and abuse. The reason I say that is because we are dealing here in hundreds and hundreds of billions of dollars. We don=t even talk in millions of dollars; we only talk in terms of billions of dollars. Then we when get to 2030, we are talking trillions of dollars.

When you get to a town meeting and you say that Medicare fraud went down from 24 to 20 last year and actually CBO probably would not score it at more than about $1 billion, people look at you as if you are crazy. In other words, a billion is an enormous amount of money. I don=t think we are going to be able to see much of what we are doing on any account if we are not able to really go hard at that question. There is a lot of work that is already around on that.

Second, and I think that Stuart made this point, I worry a lot about fragmentation of the market. I know and I agree on the lack of HMO=s in rural areas. But I worry about it for more than that reason. The obvious thing is that as the social contract is broken down in a very, very significant way--and I am not talking about means testing which is a $3- or $4-billion breakdown--but in a larger way the >>younger-older== and the >>healthier-older== population will go to HMO=s, and then the fee-for-service system will carry the rest. I think this is a very, very bad result.

The third thing I want to say is on cost. It was President Clinton who said that we should take all of the surplus and put it into Social Security. I don=t happen to agree with that. I think if it came out at $39 billion for this coming year, I think we ought to split it between Social Security and Medicare, and there should be no tax cuts of any kind whatsoever. That would pay, for example, for prescription drugs twice over each year and for each and every year.

The main point I want to make is this. If some of us who are trying to come up with a solution that will work do so in a way which comports with honest effort and real values to make things meet in terms of fiscal responsibility and health care for seniors and if we submit those to the staff, will those be costed out for us?

If they do, will they only be costed out on either the two or the three baselines which are being discussed here? If we give other ways, can they and will they also be costed out? That is important to me.

Senator BREAUX. The intent of the Commission at this stage is No. 1, to convey the requests through the Commission to the Modeling Task Force to come up with their projections and then try to coordinate all of the requests that will be made.

The second thing is that they have recommended two analyses of all of those requests. One would be at approximately 4 percent and one would be at 6 percent. That is the current thinking of the Modeling Task Force as to how they would structure it. That was the unanimous recommendation from the Modeling Task Force. Now I don=t know.

So, Laura, do you want to comment on that? I mean, that is how you restructured it so that you would do it under two analyses.

Ms. TYSON. Our proposal was to do it under the two. I think that is a proposal from the Modeling Task Force, but it is the Commission=s decision. Our view was that the range was broad enough that if you cost it against those baselines subject to all the uncertainty that we have suggested will exist, you would get a reasonably high probability that the actual cost estimates are within the range of reality.

If you come up with an alternative which is better, I would say we need to discuss it.

Senator BREAUX. It gives you a wide range as to what we have out there.

Senator ROCKEFELLER. Let me refine my question without yielding my point. If it is within the 4- or 6-percent range and we come up with a proposal, will the staff cost that out? Will that be a staff function?

Senator BREAUX. Yes.

Ms. STEELMAN. Senator Rockefeller?

Senator ROCKEFELLER. Yes.

Ms. STEELMAN. I think I understand what you are getting at. Those baselines are just current policy baselines, period. That is all they are; current law.

Senator ROCKEFELLER. I=m beyond that now, Debbie.

Ms. STEELMAN. But any policies that we come up with as a Commission and as a task force will, of course, be scored by the staff.

Senator ROCKEFELLER. All right. I didn=t know that.

Ms. STEELMAN. Yes, that was the point of creating them. In the task forces on reform or restructuring, you come up with proposals. Our proposal was that you would use these baselines as the current-law baselines upon which those policies would then be scored. You have got the Trustees= and then you have got the one that assumes a more historical level of spending as current law.

But if you have a different baseline or if you have something that you would like to put on the table, we would--as Laura said, it is a Commission decision.

Senator BREAUX. Congressman Dingell?

Mr. ALTMAN. Mr. Chairman, just something on this point, please.

Senator BREAUX. On this point, OK.

Mr. ALTMAN. I think--or the way I am interpreting it, I think that the actuaries baseline moving out assumes that the government does intervene and does restrict the dollar flow in terms of coming up with a type price system. So, if you have prescription drugs under that one, you would do it with a tight restriction on prices.

On the other hand, however, I would do the other one with a looser restriction more in line with existing policy. So, you would have two different policies playing off those baselines. That would allow you--that=s why those baselines are so helpful because they give you a range from which--you know, maybe the truth would be someplace in the middle.

Senator BREAUX. And now, Congressman Dingell?

Mr. DINGELL. I think Jim wants to add something here.

Mr. MCDERMOTT. Let me say just one thing here. I think it is important for Senator Rockefeller to understand that I don=t think it is anticipated that the staff will do these analyses, but they are going to get them from OMB and HCFA and CBO. I think that is where the analyses will be done.

Am I not correct on that, Ms. Steelman?

Ms. STEELMAN. Whatever help we can get, yes.

Senator BREAUX. I think they will do some themselves, but will also be using those sources as well.

Ms. TYSON. Right.

Senator BREAUX. Absolutely.

Mr. MCDERMOTT. So, it is not all going to be staff-driven here, but we are going to reach outside.

Senator ROCKEFELLER. So, we should submit to the staff and not to government agencies?

Senator BREAUX. Yes, to the Commission.

Congressman Dingell?

Mr. DINGELL. Mr. Chairman, I want to just go back to share some thoughts with you. Bill Thomas was kind enough to mention that I had some memories of Medicare as it was originally passed. It is first of all a success, financial and otherwise. It has helped people enormously. It has absolved our senior citizens of the biggest problem they have and that is health care.

It has done so with relatively modest intervention by the Federal Government over the years that we have had it. We have had to make some changes. Given the difficulty of predicting far into the future, this was passed in 1965 and this is now 1998, making it 33 years ago and the system is functioning well.

I think that we do have quite an opportunity before us. That is to address some of the problems mentioned by Bill. I hope that as we do it, we will address them within the framework and within the bounds of some very, very careful modeling and careful choice of assumptions. I happen to be aware of the fact that if you choose the right assumption, you can prove damned near anything, even if it might later be proved to be wrong. [Laughter.]

So, I would urge extraordinary caution on that. I think I have sensed here today that there is some movement toward a consensus which I find good. Medicare can be protected; we can enhance it. We can offer new benefits and we can achieve economies. I would hope that we would consider that.

In considering the economies, however, I would hope that we would take a look at the problem of Medicare fraud. I have investigated that. I have found that there are some pretty outrageous situations going on. A fair part of that is the result of bad crafting of the program. But also a fair part of it is crafting something else, and that is a poor program of supervision in auditing. We found enormous weakness in auditing.

I would hope that as we consider the question of HMO=s, we do not forget that an insurance program is basically a series of assumptions such as judgments about how much you are going to spend, how much you are going to get in, how you are going to spend the money, and how you are going to estimate a way of keeping your judgments within those bounds of good judgment over time.

I do hope that we don=t make a mistake in our process of consideration. For example, if we are going to consider moving toward HMO=s and if we will be moving everybody into HMO=s, I would hope that we would leave them a way to get out. We had a very, very significant problem with people that got moved into HMO=s in Medicare and Medicaid, and then they found out they did not like it at all.

I also hope that everybody was listening to Mr. Ganske, because his comments about HMO=s were very useful. If anybody here so >>As Good as It Gets,== they saw that the biggest applause line in the whole movie was a denunciation, and a fully justified denunciation of HMO=s. [Laughter.]

We are currently moving forward toward looking at HMO=s in a rather vigorous way inside the Congress, we are inquiring about what it is they are doing and what they are giving and how much they are costing. I very much hope that as we consider that particular matter, we would address those concerns. Because after all it is about people that we are having as beneficiaries today and the ones who are going to be paying in the future.

Thank you.

Senator BREAUX. Congressman Thomas?

Mr. THOMAS. John Dingell=s comments, I think, are very appropriate. Although I have not had as extensive an opportunity to work with the program, I would mention that the Balanced Budget Act of 1997 clearly indicated what we were trying to do. And that was to create a better Medicare.

Quite frankly the frustration that I face is basically that I think the private sector, or at least the employers= side of it, and I will generalize to a certain extent, moved into managed care primarily because it gave them a defined cost. It was a capitated program and they knew their exposures.

A secondary benefit for them or for their employees, and one of the primary reasons that I think we might be interested in it for seniors, is the ability to manage that care while stressing wellness and preventative care, but at the same time hopefully at least capping the costs. I don=t have any illusions whatsoever that it will necessarily save money. I don=t know that managed care is a structure that will be permanently there.

My fear is that we will lock in through government edict the inability to allow the program to evolve. The difficulty that I have had in terms of Bruce=s question about whether Congress will give control to HCFA is that because of the old payment system, the easiest way to save money was to simply rachet down the payments to providers and that is how you saved money.

Mr. DINGELL. I don=t think that is acceptable.

Mr. THOMAS. It can=t be acceptable because you can only go so far in that direction. Just like increasing the payroll tax to pay for the increased costs, you can go only so far in that direction as well.

I guess the most frustrating thing for me in trying to look at what we could do for options was that built into the current program are basically surrogates for costs and quality. The idea of how we pay managed care today which is a percentage off of the old way when it is, in essence, a different way, is not a satisfactory way to determine the costs.

I agree with Bruce that we need to do a better job of figuring out what it really is. The theme or the first theme under this cost, is cost-effectiveness. Cost-effectiveness compared to what? Last year=s budget? A baseline that we have agreed to of projecting it out?

That to me is not the best definition of cost-effective. I would love to be able to have the ability to determine the highest and best use of the taxpayers= dollar for a particular program. What we did for years was that quality was simply that you could not have more than 50 percent of enrollees under a program, the Medicare beneficiaries.

Now, that is a real surrogate for quality. You throw a 50/50 rule in there and then hope that the other half will be better than the ones in Medicare because that means the whole wash comes out OK.

What we need is to stress, and what I hope this Commission will put a major focus on getting people to understand that we have to have the ability through the collection of data and through the comparison of results to deal with what quality really means. So, when we do spend whatever dollars that we have agreed will be the dollars spent, it will be to maximize the benefit to the individuals. Right now there is a lot of slop in the system in that regard.

One of the advantages of a fixed-costs system is to turn technology around. It used to be the primary driver of costs. More than half of costs came from technological changes. That is fairly evident in a cost-plus situation. Do more; charge more. But when you do have a capitated cost, I think it does invert the incentives and it asks how we can use technology to save money in the system. Our job is to make sure that we don=t short people on quality while dollars are saved.

Back to that frustrating point: How do you measure quality? How can we compare? The collection of data for the comparison of the products delivered is, I think, critical to our ability to spend money wisely in the future.

Mr. DINGELL. Bill, may I add something here?

Mr. THOMAS. Certainly, certainly.

Mr. DINGELL. Private industry is doing some rather remarkable things in these measurements. I think that is one of the things, Mr. Chairman, that I think the Commission ought to take a look at.

Mr. THOMAS. I will tell the gentleman that given the closeness with which that information is guarded, apparently it is fairly valuable proprietary information.

Mr. DINGELL. It is valuable proprietarily, but they are anxious to share it.

Mr. THOMAS. But we are paying for it and we ought to be able to get the similar information.

Senator BREAUX. We are going to be doing a session on Management and Administration and hopefully we will be able to get into this a bit more.

Let me throw out this question on costs and then get some comment, if I can. We have a few more minutes left. If we are spending between 13 and 14 percent on Medicare now as a percentage of our gross domestic product, what is wrong with someone proposing an idea that says: All right; that is going to be the cap. We are going to spend 13 to 14 percent of my GDP on Medicare?

I am throwing that out for the purpose of discussion. I am not saying that is my proposal; it=s not. I am just saying that I want to hear from some people. [Laughter.]

I figured that might get me some discussion.

Mr. MCDERMOTT. Well, we had a proposal like that in 1993 which was scored by CBO which said that we would save $175 billion per year. It would actually be positive in health care nationally if you did that. It is pretty simple to put together; if you want the old bill, I think I can find it. [Laughter.]

Senator BREAUX. Dr. Tyson?

Ms. TYSON. If it ends up being 13 or 17 percent of payroll, not of GDP--GDP was 6 or 8.

Mr. THOMAS. 6 to 8 percent; correct.

Ms. TYSON. So, it is not quite so bad as that.

Senator BREAUX. Right; I said GDP, but meant the other.

Ms. TYSON. That=s OK.

The issue here, I think, gets very much to waste, fraud, and abuse and also to what I think is a growing dichotomy. We had a system in the United States which was primarily fee for service. In the fee-for-service system the major driver was technology interacting with the incentives in the fee-for-service system. All right?

Medicare first broke off and started controlling costs by controlling price and then controlling utilization. And Medicare made the first move; that=s clear in the numbers. The first adjustment to control costs was Medicare.

Now, we have had in the last 5 years, and it is a very recent revolution really, an effort by the private sector to handle costs by introducing another incentive structure which is capitated, managed care arrangements. It=s not very old. We don=t have a history which allows us to know for sure how this is going to work out.

But it seems to me that we don=t want to--I feel reluctant, and this is where I would agree with Congressman Thomas. Do we want to lock in a command-and-control system on Medicare which essentially capped the whole thing and then capped every single rate within the whole thing and then cap every single utilization within the whole thing as our effort to control costs in a highly uncertain world of technology and health delivery?

Or do we want to figure out some ways to increase competition wherever we can; improve incentives wherever we can? An example of that would be by reforming and getting rid of the Medigap situation. It=s accepted that that undermines our efforts to improve incentives in the Medicare system.

So, I think that how this all relates to waste, fraud and abuse is that--you know, economics may not have many truths to it. But one truth is whenever you try to control price and quantity, you get waste, fraud and abuse. That is just it; we are never going to be able to handle the problem of fraud if we handle it in a totally price-controlled, quantity-controlled system.

Senator BREAUX. Good point.

Sam?

Mr. HOWARD. Over the past several months, I have been hearing a lot about HMO=s. So, I think I better speak up. I will only speak up once about HMO=s.

We operate a program called TennCare. There are 1,200,000 people in that program. I have been in it since the inception. I am going to give you and give to the staff a summary of the studies that have been conducted on that population during the period that we have been operating. I am going to read a few things from it for you.

First is >>Member Satisfaction: A 1996 survey revealed that TennCare enrollees are more satisfied with the quality of care than in Medicaid in 1993.==

Senator KERREY. Medicaid or Medicare?

Mr. HOWARD. Medicaid.

>>Eighty-two percent of households see a doctor under TennCare, whereas 75 percent saw them under Medicaid. Ninety-three percent of children see a doctor every year, compared to 85 percent under Medicaid. If you look at five quality-indicators: Infant mortality, infant case fatality, entry into pre-natal in the first trimester, percent of low-birth-rate babies, percent of pre-term babies. All five are better for TennCare than for the total population as a whole otherwise.==

Senator BREAUX. How about the cost to the State?

Mr. HOWARD. The cost to the State has been going up at 3 percent a year since 1993; that=s it.

My last comment has to do with mammograms: >>55 percent more under TennCare than under Medicaid. Diabetes hospitalization: 40 percent less under TennCare than under Medicaid.==

These are facts. I want to just circulate this complete study because HMO=s have done a fine job in a public program. There are 12 of us that have done a fine job, better than the public programs. The rate of increase is fixed at 3 percent this year. It was 5 percent in 1995 and it has been 5, 4, 3, 3.

Senator BREAUX. What was it under the traditional Medicaid?

Mr. HOWARD. 20 percent a year.

Mr. VLADECK. TennCare has been a very successful program. It has not been typical either in its financial origins or in the way that it has achieved its results. I think TennCare has been a wonderful success, except for mentally ill Medicaid beneficiaries for which it has been an unmitigated disaster. But how generalized are the experiences is a question that the folks in Tennessee, as well as elsewhere, will raise serious questions about.

Senator BREAUX. Senator Rockefeller?

Senator ROCKEFELLER. Mr. Chairman, just in answering your question about capitation, there are two concerns that I would have. One is that it is interesting when you look at the charts and see what happened after 1993 or 1994 when Medicare costs went down like that.

Part of that, I think, was because the Federal Government came close to saying that they were going to do some very severe things. That public said that it was too large a bite and they did not choose to go along with it. There was a lot of cost reduction that went on. There was a general feeling at that time that HMO=s don=t save money for more than a year or two. That may or may not be the case now; I don=t know.

But the thing that worries me most about capitation is the whole concept of quality. You cannot say that because there is capitation, there cannot be quality. That would be unfair. But to say that because there is capitation and because people don=t want to lose out on the range of services they are getting, will there be a diminution in quality in that range? I think that is a fair question to ask.

The other problem that I mentioned before is that whole problem brought up in the defined-contribution package and that is the de-linking of the costs that you are willing to pay from the actual costs of the health service which you are delivering.

Senator BREAUX. Good point.

Dr. Altman?

Mr. THOMAS. I=d like to respond to that very briefly.

Senator BREAUX. Mr. Thomas?

Mr. THOMAS. Jay, one of the real concerns I have is exactly your point. I agree that in a managed care structure, it does not necessarily have to be reduced quality. However, after you have a done a number of relatively easy things, you begin looking at ways that, if you don=t have a good measurement of quality, you may, in fact, slip without your even knowing it while you are trying to do a good job of management. That depends on who the professionals are.

It also depends on the tools that you use to measure quality. Going back to that theme, what you see now in terms of most of the legislation about which people are arguing is for quality that is not really quality. It is mandating certain requirements which will increase the costs and create a greater problem inside the box of managed care in creating a quality service.

I just hope we understand how desperate everyone is to get some reasonable objective measurements for quality. It is related directly to the collection of data for comparative purposes. Without that tool, without the ability to apply an objective measurement of quality, it is going to be a continuous debate. An attempt by Congress to legislate, quote/unquote, quality will result in additional mandates for services which won=t hit the quality area, but will certainly hit the cost and delivery problem areas.

Senator BREAUX. OK, Dr. Altman?

Mr. ALTMAN. If there is one area that I have spent my whole professional career on and am just an abject failure at in every way I could think of is trying to figure out ways to control health care spending. I have thought of them; I=ve tried to do them all. I am ready to surrender. [Laughter.]

I hope we have found the magic bullet, but I fear we have not. I am getting around to your suggestion. [Laughter.]

Bill Thomas said something which I subscribe to and that is that the driver for health care spending in this country has been technology. It has generated a lot of good quality increases. I am a believer in technology, but along with it has come costs. We define costs here as expenditures.

People ask why health care is the only area where costs don=t go down. The truth of the matter is that costs don=t go down in computers either if you measure costs as expenditures as opposed to price per unit. We spend more on computers today, although a chip is only one-tenth of the price that it was 5 years ago. We often measure health care spending in expenditures as opposed to costs per unit. So, I think we should recognize that.

Unfortunately, even though you have expected in a capitated environment that they would do a better job in making better use of technology in limiting it appropriately, the forces against them and maybe rightly so because of quality concerns, legal concerns, and the fact that it is hard to do is that the amount of technological changes that managed care has imposed on our system is thimble-level.

What managed care has done to the extent that we understand anything is that they have become price discounters. They have gone in, and I don=t fault them for it, and have done in their own way what Medicare did with its own club. They went in and they pushed hospitals to discount prices and such as that.

Now, they have tried where they could to change the delivery systems. Unfortunately a lot of the concerns you are hearing around this table are going to prevent them from doing that. What are we going to do when health care costs start rising at 12 to 15 percent? You are absolutely right; they are going to go up by 10 to 12 percent, 15 percent in other cases.

Medicare will turn, go down, and then come back up again. We are going to see in this country zooming cost increases. Hopefully they will not be at that 15-percent level.

That brings me to your off-the-wall yet not-off-wall suggestion which I am not advocating. I will tell you, however, that faced with this tidal wave--and I believe it is a form of a tidal wave--coming at us, some form of restrictions on spending someplace is quite frankly going to have to happen.

I am all for competition and moving it around. But what happens when we hit a combination of that tidal wave of the baby-boomer-plus and that 12- to 15-percent price inflation again? You are going to either have rationing or moving toward some type--I know this is a terrible term--rationing or restriction on expenditures with limits.

You can ration in different ways and I am not advocating it. But if you think we can talk our way around it and say it=s not going to happen, the signs are not good.

Senator BREAUX. Mr. Watson?

Mr. WATSON. I have tried to sit around the table and listen impassionately while several people voiced their opinions about managed care. I can say quite honestly that most of them don=t know what they are talking about.

I think we have forgotten about the fee-for-service system and the disaster that it put upon this Nation. The runaway hospital costs, physicians costs, the nursing homes costs. This country was heading toward bankruptcy due to a failed system. Managed care never said it was the answer; government did, artificially.

We protested it. I sat in meetings with Bill Thomas when they were talking about mandatory Medicaid, mandatory for Medicare, and we protested. You force people into the programs where they are not happy, and then you criticize us and legislate against us because we did not want them in there involuntarily. Your demands have been unreasonable on managed care.

We ought to look at changing Medicare and not become a forum for criticizing the managed care. If you look at the satisfaction rates, the level of quality, and the hospital systems used, it is all superior to the fee-for-service systems. This is documented by studies.

But your continuing the comparisons and putting the responsibility for cost-effective management on managed care when we never asked for that is unfair. You have to stop that. You really have to stop it. Now, we need to address continuing changes in our health care system. Nobody says that managed care is the final answer. It is an answer for the people who want to use it. Now, while we are at it, Congressman Dingell and others, your legislating managed care out of existence is not the answer either.

Senator BREAUX. For perhaps a different perspective, Dr. Ganske? [Laughter.]

Mr. GANSKE. Well, by----

Mr. DINGELL. Can I make a response?

Senator BREAUX. Well, since he mentioned your name, yes.

Mr. DINGELL. I think we may be saving managed care from managed care.

Mr. WATSON. Please don=t save us. [Laughter.]

Mr. DINGELL. There is managed care and there=s managed care. To say that there are no legitimate complaints about the behavior of managed care as regarding the consumers is unfair. To say that everybody is in managed care because they want to be rather than being in fee-for-service systems is a great error. To say that there are no abuses or no failures on the part of managed care is to, I think, cry in the face of reality.

The simple, hard fact of the matter is managed care was set up way back and I remember when it was done. We set up HMO=s. The purpose of HMO=s when we set them up was to allow people to band together to provide health care for themselves in a more comprehensive and a better way than they could get in the traditional mechanisms. It was seized on mostly by business and industry as a device which they could use to control costs. I have got no objection to that.

But I do have strong objections to some of the things I see going on. I would be happy to discuss them if you want, but that is not within the purview of this meeting. I also would observe to you that the health care professionals find outrage that equals that of many of the consumers of managed care. They find it very direct, strong, and what they regard as an improper intervention into the relationship between the health care provider and the recipient of managed care.

So, you can take offense if you want. I was well aware of the fact that you probably would. But I don=t think that=s going to change the attitude of people on managed care even a little bit. You had better just get ready for that.

Senator BREAUX. Dr. Ganske?

Mr. GANSKE. Well, actually, Tony, I was going to commend you and HIP for endorsing the idea of having Federal legislation for a Patient Bill of Rights.

Mr. WATSON. And I continue to support that.

Mr. GANSKE. With an acknowledgement that you have not endorsed the liability provision in that?

The Patient Bill of Rights Act that Congressman Dingell and I and others are working on, except for the liability provisions, probably has incorporated the ideas of a Patient Bill of Rights.

We=re recognizing that there are some HMO=s that have abused the system, probably less so in the non-profit sector than in the for-profit sector. Quite frankly that puts a reputable firm such as yours or Kaiser or some other ones at a competitive disadvantage. It is probably the reason why we need some Federal, national legislation on that.

But I did not really want to address that issue. I wanted to go to Stu=s comments about, you know, how do you control health care inflation. There are examples in the health care system where the medical inflation rate has been zero for the last 10 years. Those happen to be the areas which are not paid for by third parties. There is a very competitive environment for certain aspects of health care. When the market can work and when the person is paying for their services, the market does work and the costs go down. So, when you are talking about the fact that we have a rationing system for Medicare, basically managed care is the same type of thing. There is a rationing system through a utilization review type process and stuff.

What I would worry and wonder about is how do we allow--if we are moving in that direction for the Medicare Program that we are talking about--how do you allow a blow-off valve? That is something that I think I--you know, you have a blow-off valve in England. You can utilize the national public health service or you can purchase your own health plan if you want to.

Do we as a Commission look at that as something in the context of what we are looking at if we are looking at increasing managed care, for instance? Otherwise, we may have these decisions made by either government bureaucrats or insurance programs or others. You will have a tremendous amount of dissatisfaction.

You may have some mistakes made, but do you allow the individual then to go outside of the system if, for instance, they would want to? That is the----

Mr. WATSON. You should not use words like rationing. I know of no managed care program that would ration health care. If they did, I would be the first one to denounce them. Those are terrible terms to use. They create false impressions. It is not rationing when you have the capability to detect over-utilization of lab tests or X-rays or MRI=s. That=s not rationing. That is bringing down the cost of health care. To develop a system to do that is what health care is about.

Mr. GANSKE. Well, when you have a 23-year-old woman who falls off a 40-foot cliff, has a fractured skull, is comatose, has a broken arm and a broken pelvis; she is taken to the hospital, has a $12,000 bill and her HMO refuses to pay it because she did not call for prior authorization----

Mr. WATSON. Should a whole industry be condemned because of that?

Mr. GANSKE. Is that rationing?

Mr. WATSON. When private hospitals all across this country----

Mr. GANSKE. You can call it whatever you want to----

Mr. WATSON. One in Michigan----

[Chairman gavels to restore order.]

Senator BREAUX. Let=s just speak one at a time.

Mr. WATSON. What about that hospital in Michigan where the hospital staff refused to go outside and treat a patient and he died.

Mr. DINGELL. That was in Chicago. [Laughter.]

Mr. GANSKE. That is absolutely medically unethical.

Mr. WATSON. What about that other hospital that----

Mr. GANSKE. Just like it would be for that HMO to refuse payment because she did not phone ahead of time when she fell off the cliff.

Mr. WATSON. But you don=t condemn all hospitals.

Mr. GANSKE. I condemn that.

Senator BREAUX. Mr. McDermott?

Mr. MCDERMOTT. I remember when we were having this debate in 1993-1994, a vice president from one of the major automobile companies who was dealing with personnel benefits came and said, >>You know, one of the interesting things in the American system is that in every other area we look around the world to do it best, except in health care. We never look outside of ourselves.==

One of the issues that you raised when you talk about our spending 15 percent of GDP, which is about 50 percent more than any other system, is an issue I raised in the Modeling Task Force: why don=t we look at how the other societies are dealing with this.

The Japanese have a much bigger problem with aging than we do, and it=s right on top of them. They are all dealing with pharmaceutical costs and technology costs, and yet they are providing health care to everyone with a system that does it for considerably less.

It seems to me that there has to be some learning that has gone on someplace in systems where they have dealt with health insurance for a long time, as the Germans have. Since 1883 the Germans have been doing this and they have covered everyone. It seems to me that we could at least look at that, because I think one of our biggest problems is we are looking at just one part of the system.

We are looking at 40 percent with Medicare and Medicaid. We are trying to fix that 40 percent while the other 60 percent is going on doing whatever it is doing without any real impact from us at all, except sort of secondarily. That is why I think that what Senator Rockefeller and Senator Kerrey bring up are really issues that somehow we have got to talk about. We have to get everybody looking at the same elephant. Right now we have got 10 blind men describing various pieces of it.

Senator BREAUX. OK; final comment and then we will move on.

Mr. THOMAS. It really is frustrating. Again, given the limitations of the future of a Medicare Commission, you wonder how far we can go outside the box in discussing problems that, if they were addressed more fundamentally, would make our job easier.

But, Jim, your point is obviously very well taken. When you have two people employed in a particular job, and one of them by virtue of who their employer is, has 100 percent of their health care costs cast off to the taxpayers through a tax program. The other employee pays first dollar cost for their health care coverage, if they are able to do it, and does not get one dollar of tax code benefit until their health costs reach 72 percent of their adjusted gross income. That is an enormously mal-distributed benefit program.

To the degree that we don=t look at what we are doing at the senior end and at the low-income end and in a kind of hit-and-miss fashion depending upon who you are, where you work, and what region of the country you are in, the health care that you get, you can never fundamentally address the senior problem.

I know that Senator Frist and others are interested in talking about graduate, medical education as a separate topic or subset. Perhaps as a kind of subset we can talk about the problems that we may be having while focusing only on the seniors in the Medicare Program.

First, however, perhaps we should look at the broader implications of a tax code that produces such mal-distribution of health insurance in the system. Were it to be more equitably distributed, perhaps the solution to the seniors problem might be more easily addressed.

Senator BREAUX. OK. We have had a spirited discussion, needless to say, on a very difficult issue and that is cost.

I would like to move on now to the final area that we will be talking about this afternoon, and that is the question of eligibility. If you will look at your outline again, you will see that we are talking about three different themes. One would be raising the age criteria for Medicare eligibility. The second would be lowering the age criteria. The third would be any other eligibility criteria that might be considered and then be discussed.

I would just point out, as we all know, the facts and graphs are all very dramatic. Life expectancy in this country at age 65 in 1960 was 79 years of age. In 1995 it was 82 for women and men collectively. For men in 1960 it was 66 years; in 1995 it moved up to 722. For women in 1960 it was 73; in 1995 it was almost 79 years.

So, the question of eligibility and whether we increase the age, decrease it, or other possibilities that may be considered as subject at this discussion.

Under a reformed concept the question would be what are the risks and benefits of raising the eligibility. Under a restructuring task force, the question might be will a different structure have any impact on access to health care people who are not eligible for Medicare. So, the whole question is eligibility and we would like to begin our discussion of that.

Dr. Altman?

Mr. ALTMAN. I think the key to discussing this is what would be the alternative. My reading of history says that Medicare was passed and you people, or several of you who were involved, were responsible. But my reading of history says that the private system broke down, some would say, temporarily in the latter part of the 1950=s because of a battle between community rating and experience rating.

Once you went to experience rating which was groups that charged based on how much they spent, the elderly, the older workers, and the older non-workers became so expensive they no longer were coverable. Private insurance dropped out of the market, and when it came back, it came back in dribs and drabs; very high cost and very low benefits. So, at that point Medicare was a solution to a real problem.

That problem has not gone away. It is just as Senator Kerrey said, when we get older, we get sicker probabilistically and reality-wise. Age is a factor. An experience-rated system has problems dealing with high-cost people. So, if we are going to talk about age, raising it or lowering it, we need to talk about it in the context of what is going to be available. We need to make sure that, if we raise it--and I can see some real arguments in favor of it--there must be an adequate system there that does not have people drop and fall into a hole.

Now, the President has proposed one; you and others have suggested another, both of which make some sense. A third is a possibility. I believe this is a real, legitimate issue to talk about. So, I would suggest that when talking about it, you do it in the context of making an alternative out there that is real. We do not have to become the only game in town.

Senator BREAUX. Let me stop you a minute to ask Congressman Dingell a question.

John, when you all did this in 1965, you picked 65 as the appropriate age for eligibility. Do you remember in your discussions as to why 65 was selected? Was it Social Security related or what?

Mr. DINGELL. Well, 65 was the Social Security eligibility age at that time. We just simply went with that. The Congress made a lot of arbitrary judgments on Medicare when we met. One was age which was simply tied to the Social Security retirement age. One was very frankly that we did not really know what benefits made a good benefits package for senior citizens. Bill Thomas and others have alluded to this. So, we just made a number of arbitrary judgments as to what was going to be done.

The individual Medicare package included, surprisingly enough only a package of hospitalization. But then Part B was added and that has been modified slightly, but not a lot over time. So, there are some additional benefits to the earlier plan. The insurance package today is, therefore, essentially not just an insurance package. It is really an entitlement package and Part B has become a package in which you do buy coverage. But it is also very heavily subsidized.

So, we have seen a lot of changes in it, and quite honestly it can probably be said that we could have done a better job if we had known what we know today.

Senator BREAUX. Senator Kerrey?

Senator KERREY. Mr. Chairman, I think the issue of cost control and the issue of eligibility for me are just so closely linked as to be one in the same. Again I underscore the point that I think our capacity to afford either as an individual or collectively has to be acknowledged. I mean, we have got a growing economy right now and we have surplus.

Senator Rockefeller earlier suggested a way that we could expand Medicare. That suggestion is possible as a consequence of a growing economy. If we were in recession, we would not be talking about an expansion of benefits. We would be talking about something entirely different.

To that extent, and I wish that Tony had not left, there is also going to be a certain amount of--I=m not sure you would call it rationing. There will at least be a decision about how much one can afford. There is always going to be an individual or a collective decision that is made based on what an individual can afford.

That=s one of the things again that leads me to believe that we as a Commission should consider changing the law and then debating how we are going to organize the financing system. We should say that one does not have to meet a specific test of eligibility of being poor or old enough, or having to prove oneself to be an American or a legal resident. Make it as broad as you would want to. Then let=s describe how we are going to pay for it.

I think one of the problems that you bump into right away is that we all talk about cost controls. But when the rubber meets the road, we are really talking about cost controls for somebody else. I might want to control Phil=s cost, but I don=t want any controls on mine.

Senator GRAMM. Go ahead. [Laughter.]

Senator KERREY. Give me a choice between having Phil pay my bills or having me pay my bills, I might just slip the bills under the door and try to get him to pay for it.

So, it seems to me what we have got right now is a system that basically says whoever can organize the best politically is apt to get the most benefits. That is the way that it is going to work. Look at the differential between the requirements for managed care under Medicaid and the requirements for managed care under Medicare.

We mandated that low-income people have got to go into managed care. Why? Well, it=s a fairly obvious answer; they are not as well organized politically as people over the age of 65. That seems to be an honest, accurate evaluation.

I would rather have a system that said that we are all in the same system. We become eligible as a consequence of being an American. I believe it is going to be an awful lot easier for us to design the system. Personally I think the market does a better job of controlling costs than government agencies do. I think the market is much more likely to allow the kind of innovation both in delivery as well as in the financing of the development of individual products than the government is going to do.

One of the most frustrating things in the current Medicare system, and we have all faced it, is you bump up against the situation that I described earlier. I=d come to Bruce and I=d say that I have got something out here that I think if you pay for it, we could actually save money. But the law doesn=t allow it when you have a top-down system like we currently do.

I believe eligibility is a very important threshold decision for this Commission to make. If we presume that all we are going to be debating is whether we are going to expand eligibility for Medicare or contract eligibility for Medicare, it seems to me that we may come up with a recommendation that will produce some satisfaction in the short term. But I don=t believe in the long term it is going to produce the kind of satisfaction that we are likely to find if we come with a clean slate to this question of eligibility.

Senator BREAUX. Dr. Tyson?

Ms. TYSON. I want to respond to that. I was going to respond to that one way, but then at the end it sounded like you were going another way. So, if I misinterpreted what you said, Senator Kerrey, please correct me.

I was going to start with what Stuart said. I really wanted to associate myself with his view that you need to think about--if we go to our efficiency, adequacy, equity, and financial solvency considerations and think about eligibility from a financial solvency criteria which is what I was getting a little bit from Senator Kerrey, I think we run the risk of choosing the way to go with the financial situation which actually does injustice or harm to our other goals.

We know that we have an increasing number of people that, if we change eligibility, we are going to change a lot of the problems that Senator Kerrey and others have talked about. That is the problem of general coverage of the entire population. So, if we make changes in eligibility, raise the age for eligibility in pursuit of a fiscal solvency goal for Medicare, we have actually created another public policy problem, and we have done harm to a sense of equity and a sense of adequacy of coverage and a sense of efficiency.

I mean, you want people to maintain--efficiency means you want people to move through their lives with efficiency. If we drop them at age 65 and say you will pick them up again at age 67, I think that we have done harm to our other goals. So, I would say that in thinking about eligibility, we clearly have to pay attention not just to the fiscal considerations.

You could get an estimate pretty quickly of the savings if you changed the age eligibility criteria, but the cost to the system and the cost to individuals who are dropped needs to be taken into account.

Finally let me say on the market situation, because I think this is relevant to the proposal to lower the eligibility age, Stuart mentioned that the reason we moved to Medicare is that as the market moved to experienced rating, the actual function of insurance which is to pool individuals into large groups to share risks was being undermined. The market for insurance was undermining the purpose of insurance.

So, we then come in and figure out ways to actually recreate the purpose of insurance. If we start dropping people out, we are undermining the function of insurance. Those people from 65 to 67 are out and, of course, that is an attractive reason for letting people buy in at the actuarially fair price from 55 to 65. You are expanding the pool in an actuarially fair way.

Senator BREAUX. Let me get some comment on this. I would like some comment pertaining to eligibility. A proposal was made that increased the eligibility age from 65 to 67 over a 24-year period, averaging a 1-month increase per year. No one over 58 years old today would have been affected by that proposition. It would have started in the year 2003 and would have concluded in the year 2027. That proposal on eligibility passed the U.S. Senate by a vote of 62 to 38. Any comments on that?

Senator ROCKEFELLER. I was one of the two no=s in the Finance Committee and for a reason which has not a great deal to do with what=s being talked about around here, but it has everything to do, I think, with the future of this Commission. There was means testing, and there was the 65 to 67 change. I voted against both.

Why did I do that? Would I be against means testing? It would be a hard case for me to make, I would think. [Laughter.]

But the reason for my voting against them was that they were put out as kind of symbolic solutions for problems which were so much larger that they were out there in the solar system somewhere. I think it is important to understand that, if you voted yes on means testing and if you voted yes on 65 to 67 which would have, in fact, knocked 500,000 people out of insurance with no way provided in the legislation as to how to take care of them, then you were heroic, strong, brave, tough, forward-looking.

On the other hand, if you voted no, you were clearly a Neanderthal who had absolutely nothing to do with the future. I simply object to that thinking that you can take two pieces--and granted they are not small pieces, but in the overall context they are relatively small, yet highly symbolic pieces--and set them out there as kind of the litmus test for where we stand as a Congress before we have any idea of where we are going on Medicare or anything else. Then I think is a phony test.

Senator BREAUX. Dr. Vladeck?

Mr. VLADECK. I know the Members of the Senate who voted on this are aware of this, but many other people are not and it is very important. If you are over the age of 65 today--in fact, if you=re between 65 and 75 today and still working and your employer provides health insurance, that is your primary health insurance. So, the only people who would be affected by the change in the eligibility age are people who are not eligible for employer-provided health insurance, which means they are in effect in the current market uninsurable.

I think the concern a number of us have had about the change in the eligibility age in that narrow sense was again that by definition it affected not only those people in that narrow age band, but it affected only a portion of them. The portion that it affected were those least able to get health insurance through an employment relationship.

I do think, however, that it points up a very important piece of this entire issue. I don=t know the extent to which the Commission will be able to take it on, but it is clearly quite critical. I was reminded of it when Mr. Dingell was talking about the origins of the program.

One of the things that we have asked the staff to look at in the Modeling Task Force, but they have not been able to do that yet because of the other things they have been doing, is to look at some of our assumptions about retirement age. Whatever the rationality of 65 was when Bismarck=s advisors picked it out in 1883, or whenever, was because no Germans lived that long. So, he could appear to be magnanimous and it would not cost him anything.

The fact of the matter is that with the changes in life expectancy and with the reduction in the birthrates and the number of young people, it is very hard to imagine a growing economy in 2030 or 2035 without very, very significant changes in retirement behavior.

Now, that gets to the question of even if we did nothing, Medicare might end up paying a lot less for 65- to 67-year-old citizens because if we thought about what our social policies were, a lot more of them might be working anyway. In fact, we might want to give incentives for employers to hire them. In fact, we might want even to say to employers that if they hire anyone over the age of 60 or prevent them from retiring past the age of 60, we are going to provide their health insurance for them as a way to provide an incentive in the labor market.

So, I think it is very hard for us to look at this question of the eligibility age for Medicare without thinking generally not only what patterns of retirement have evolved since the program was enacted, but about ways in which we might want to change that as a matter of public policy.

Then obviously you have got to talk about the Social Security cash programs at the same time. It seems to me that the world of 2030 we would probably want to be a world in which most people of 68 or 69 would be working. If that is the case, then we have to think about it in those terms, and then we have to model what those impacts are on Medicare before we change policy because most of them are working with employer-provided health insurance. They are not costing Medicare anything anyway.

So, to me that seems it would be the context in which this eligibility-age issue ought to be addressed. That is why the taking of just this very little piece of it seems to be a very limited approach.

Senator BREAUX. That=s a good point.

Senator Gramm?

Senator GRAMM. Well, Mr. Chairman, I asked to be recognized before you raised the question. So, I would like to make several points.

Senator BREAUX. Surely.

Senator GRAMM. First of all on the whole issue about the fact that we need to look at eligibility not just by paying attention to fiscal matters. The point is, if we are not paying attention to fiscal matters, I would like to give eligibility at 62. I would also like to pay for drugs, I would like to eliminate copayments and deductibles, and I would like to provide long-term care.

I am not, however, proposing any of those things. Why? Well, because we are paying attention to fiscal matters. In terms of the question of doing something without knowing where we are going on Medicare, we know where we are going on Medicare. We are going broke. That is the whole purpose in our being here.

So, it is not that I do not want to do the four things I just outlined. I would love to do every one of them. But the plain truth is we are here because we are going broke, and to look at how we can improve the system. People who are opting for the choices that Bill Thomas gave us under the last bill we wrote are often getting drug benefits. They are often getting benefits that are not available under Medicare, but they are getting them in return for going into a managed care system.

So, it is not as if we can=t ever address these issues. But I think whether we like it or not, most of us were not here when they wrote Medicare and said it was going to cost less than a billion dollars a year and they could start all these benefits and everybody applauded. Our problem is that we are here when the system is going broke. So, our duty is to make tough decisions.

Now, having said all of that, let me get to the retirement issue.

Senator ROCKEFELLER. Would the Senator yield?

Senator GRAMM. Yes.

Senator ROCKEFELLER. The Senator does not mean to suggest that because Medicare by the year 2008 will be in deficit--he does not mean to suggest that between now and then or even during the course of the next year during the deliberations of this Commission that we ignore what it means what to be 65 years old or older and to have the opportunity to maintain reasonably good health care, does he?

Senator GRAMM. What I am suggesting is that whatever we do, the final product on a per capita basis, since we are going to have 22 million retirees and only 5 million new workers, cannot cost more. If we are going to pay for it, it is going to have to cost less.

Now, I don=t believe that necessarily means that we can=t add benefits. I think part of what people get for going into a rational system is more benefits, because they can have those benefits, as is clear under the bill we adopted last year, if they are willing to go into a system where somebody has control over costs and where someone is sensitive to costs.

I do not feel honest acting as if we are having a real debate about expanding benefits when there are all kinds of benefits I would like to have that I know we cannot afford. I think that is the point I was making.

We are here to save money to save the system. In the end we are going to have to do that and, to the degree that we can make the system more efficient so we can have more benefits, then I think that is a plus. It may be one of the things that builds the consensus that by making some hard choices, we can do some things we would like to do that would, in fact, be positive.

I want to conclude, Mr. Chairman, on this whole issue about retirement age. It is true that when Bismarck picked 65, people were living a substantially shorter lifespan. When we picked 65, the average lifespan was 61. Now it is 76 and it is heading up to 85.

What I am concerned about is that the trend in retirement is exactly in the opposite direction. We have got 73 percent of the population that is now retiring at 62. So, people are living longer and they are reaping the benefits longer. Because we are wealthier, people are choosing to retire earlier. So, the trend is not just that people are living longer. It is that they want to retire earlier.

Mr. VLADECK. But given the existence of all of those baby boomers in their forties and fifties, they are also retiring earlier because it has been overwhelmingly to the financial advantage of their employer to give them incentives to retire earlier. I have been an executive in both the public and private sectors. I have presided over major incentives for early retirement for folks because it was so advantageous for the employer from the point of view of the health care benefit costs for the younger workers.

So, as the incentives on employers changed because of the change in the demographics, some of that inducement on the part of employers is going to change anyway. The market will take care of some of that. Employers will no longer be so generous about early-retirement incentives.

Senator GRAMM. Mr. Chairman, let me finish up. The point I am making is, whether the incentives are going to change or not change, the trend is toward people living longer and retiring earlier. That is the indisputable trend.

In 1983 when we were forced to bail Social Security out, one of the changes we made was to raise gradually the retirement age to 67. We probably should have raised the early retirement age to 65. We did not. But in any case I thought the action in the Senate--far from being something that just popped up, I viewed it as a courageous thing to do. I thought it was pretty remarkable that we voted to do means testing to basically conform Medicare and Social Security to a certain extent. I thought it made perfectly good sense.

I would have to say that that clearly has to be one of the things we must look at if we are going to in the end be able to pay for this program. When you look at even the low estimate of costs and when you look at what you have got to do through the payroll tax in order to pay even for that low estimate of costs, clearly unless you are willing to increase the payroll tax fourfold or fivefold in the next 25 years, you are going to have to look at options like this.

I think this is one that we are going to have to look at. It does make sense that if you have already done it for Social Security so that you are asking people to work longer to get the full benefit, I don=t understand why we can=t look at it for Medicare as well, if the objective is to save the program.

Senator ROCKEFELLER. Would the Senator yield once again?

Senator GRAMM. I don=t think I have got the floor.

Senator ROCKEFELLER. With the Chairman=s permission.

Senator BREAUX. Is it on this point?

Senator ROCKEFELLER. On this point, yes.

I would ask again of Senator Gramm, when you go from 65 to 67, I could have easily voted for that if somebody would have considered, which nobody did on the Finance Committee, what would happen to the 500,000 people who lost health insurance who had had health insurance. Now, is that contemplated in your proposal or your idea now? Or is it simply that you raise it from 65 to 67 to save the money and the 500,000 are on their own?

Senator GRAMM. Mr. Chairman, it might help eventually for me to answer this. I think quite frankly what we are going to have to do is to look at the big picture and what we are going to have to do to make the system solvent and then come back and try to figure out how to deal with problems like that.

If 80 percent of the people are going to work to 67 and we can have their employer paying for it, and we are faced with the residual problem of 20 percent, we can deal with that. If, however, we have got to deal with it for everybody, we probably can=t.

So, I think in the end what we are talking about is trying to make the system rational and affordable and then figure out what problems do those changes create and see the extent to which we might be able to at least minimize the negative impact of those things. I don=t think anybody has the objective of hurting people.

Senator BREAUX. Any other minds here?

Ms. Steelman?

Ms. STEELMAN. I would just like to say that in the last 5 minutes I have seen some remarkable things. I have seen Bruce Vladeck suggest that the market handle something beautifully. I would like to note that for the record.

I have seen Senator Gramm as a U.S. Senator talk about an issue and not reference a bill he, himself, introduced on that point. [Laughter.]

Both of these things blow my mind.

Senator GRAMM. I did.

Senator ROCKEFELLER. Or he soon will. [Laughter.]

Ms. STEELMAN. A number of systemic changes to Medicare have been referenced around the table. This question is really to any of you and all of you who have done that. The question is most directed to Senators Kerrey and Gramm because I think you have put the most systemic changes on the table, Senator Kerrey here earlier and Senator Gramm in absentia in the New England Journal of Medicine when you referenced this eligibility change and universal access and Senator Gramm has talked about private investment.

My question is are you talking about these changes as models that should be tried and demonstrated and experienced or are you talking as absolute changes to the whole system. In your case, Senator Kerrey, a universal-access system? In your case, Senator Gramm, a private-investment system? How would you talk about how to get to your vision?

Senator KERREY. First of all I am not talking about universal access. I am talking about changing the way you become eligible under Federal law.

Ms. STEELMAN. But if it is citizenship?

Senator KERREY. Access is a completely different set of questions. Access is very often determined by geography, by income, and by all other kinds of sets of circumstances.

I am talking about eligibility. Senator Gramm was talking about retirement. We were not proposing to move the eligibility age for retirement, but the eligibility age for the program. What was interesting, and I will not violate your perception of the Members of the Senate; I did sponsor that amendment.

What was interesting is one of the strongest opponents were members of the business community. I mean, what Medicare is in many ways is corporate welfare. One of the earlier sections that we had showed the percent of the non-Medicare expenditures that are picked up by various things for Medicare beneficiaries.

I believe 20 percent of it was paid by Medigap and one-third of it is paid for by insurance that the individual had in the work force. That percent is going down. As Bruce said, businesses are bailing out for a variety of reasons, the top one being that it is very, very expensive. Obviously we have people that are in different lines of work that require them to get out earlier because they can=t sustain themselves because of the particularly arduous work.

I believe that the Federal law should define eligibility radically differently from what we are doing right now. I don=t think in terms of modeling. I do think in terms of Federal law. I think that unless and until we are willing to do that, it is going to be very, very difficult.

When we get into the political choices that are required not just to save Medicare, we=ve got to make certain that as a percent of our budget it does not continue to erode everything we have. As we look into those political choices, moving eligibility age, income testing, and the home health copayment, those choices are the easiest ones of all. After that it gets really ugly. After that you have to start looking at an income test on Part A. Medicare is not a particularly generous program compared to private insurance already. We have got legitimate and understandable pressure to make it even more generous.

So, if you are an American and a legal resident, I would just say that you ought not to have to go down to welfare office to prove that you are poor before you are eligible or have your employer say that if you will just quit working and be poor, we will pay the benefits, but please just wait until you are 65.

There is really an incentive right now to making war and not love. I mean, that is the way you get to be eligible. That=s the best; I get great benefits because I got blown up in a war. So, I have got a claim on every American=s income to pay my benefits regardless of my status. That just seems to me an odd way to become eligible.

Second, to respond to your question, one of the undeniable truths about health care--and you really get it when you ask an audience to define what it means when you hear the word affordable. What is affordable to you? Well, affordable to me is Phil pays my bills. I mean, that is an honest answer. I am thinking much more than just modeling.

Senator BREAUX. Senator Gramm, do you have a response?

Senator GRAMM. Yes, I just want to build one sentence on what Bob said. That is that the kind of changes that we are talking about in the Senate probably would not make one-quarter of the savings that we have to have to save Medicare. I mean, if those things are not on your radar screen, we are not talking serious business.

But in terms of the proposal about trying to move from a system based on debt to a system based on where workers would actually build up savings in their lifetime to pay for their retirement health care, you might want to test that system. I would certainly be in favor of it.

I suggested to Bruce once that we test another system where we would expand the benefits, but we raise deductibility. The idea was to try to set up a test somewhere in the country where we would actually provide a lot of these benefits that people want like prescription drug benefits with a higher deductibility so that the same out-of-pocket costs would occur, but we would change incentives to see if it really saved money.

We were not able to do it, but we talked about it. It was interesting. I think that testing some of these things is a good idea. It may be that when we do a recommendation and if we get an agreement on some of the things that we think are promising but we are not ready to implement as policy, we might want to urge the Congress to pass legislation to test it in a State or a region and see if it works.

As you know, Congress has been very hostile to tests. We had one in Denver that got killed and it was competitive bidding. By the way, I was very much for it.

Senator BREAUX. Yes, mine got killed too. [Laughter.]

Congressman Thomas?

Mr. THOMAS. In an attempt to pour some oil on the water, my belief was that the Senate was willing to go out on a limb and vote these various changes because they knew the House would not go along.

Senator BREAUX. No, no. [Laughter.]

Mr. THOMAS. They would not have to worry about reality.

Senator GRAMM. Tell that to our constituents.

Senator BREAUX. Yes, please.

Mr. THOMAS. The other thing I find quite amazing is that we are now entering into a discussion in which I was directly involved as a member of the Social Security Subcommittee of the Ways and Means Committee in 1983 in dealing with raising the eligibility for Social Security. There were a number of discussions about the type of employment; the fact that if you do physical labor, you are ready to retire a lot sooner than people who don=t. If you simply raised the eligibility age, you increase the possibility of people being without a safety net when they need it.

The most frustrating thing for me in the discussion of raising the age of Medicare eligibility goes back to the point I will repeat over and over and over again. It is the same point as reducing the Medicare age of eligibility. One of the key points that the President made about extending Medicare down to 62 was that they don=t have health insurance.

Why don=t they have health insurance? Because the tax code ties health care to employment. If we would go back and re-examine that fundamental flaw, which I believe it is, in the system, you would not have to have the kind of discussion that we have about changing the age from 65 to 67.

A far more relevant discussion would be are there age-related health care needs? If there are, when do the various appropriate programs for age-related health care kick in appropriately. If you created a universal health care structure empowering the individual not only with the wherewithal to operate in the system, but the knowledge and ability to make reasonable choices which the fee-for-service system destroyed, you would not be hung up on what date you pick for these folks.

From a fiscal point of view, what date you pick is really, really significant. That is probably the absolutely wrong reason for picking a date. You ought to be able to create a system that provides a modicum of care not from their employer, but that they have the option to add additional items that they might feel are necessary. Then the debate would be when does the Congress feel it appropriate to begin to provide some of those age-related needs from a societal point of view, and not necessarily from an individual=s ability to provide them.

That to me would be a far more positive debate about the age of retirement than picking a number. Of course, if you don=t go back and break that fatal flaw of tying health insurance to the employer, you don=t get to create a continuum of care that allows you to make those other decisions. So, I am just going to continue to go back to say this to you who are worried about the age of eligibility. I think clearly as people live longer, you have a problem of people retiring earlier. If you continue to tie health care to jobs, you have an increased problem of people having health care after they retire and before the government program arbitrarily kicks in.

If you can break that link, we can make a lot of better decisions in a more timely and cost-effective way than we are doing now. So, I am frustrated because I want to do far more basic changes which will enable us to have a better program for all Americans and a slightly modified program for Americans who are seniors based upon age-related, health care needs.

Senator BREAUX. Mr. McDermott?

Mr. MCDERMOTT. I kind of hope that, Bill, you manage to succeed in taking away the deduction for health insurance so that we can have everybody individually responsible. I figure we will have a single-payer system in about one-half hour after that happens. [Laughter.]

The real problem you do talk about. Bruce also brought this up, and I think I saw the case in point. A major company in my district makes airplanes. The workers there make a very good living.

About 2 years ago there was a major strike. All of the things in the paper were about contracting out and foreign companies and all this stuff. I was driving up from the airport and I stopped at one of those barriers where these guys were out on a rainy Seattle January night. I said, >>Why are you guys out here?==

They said, >>Those people in there had a big program for early-outs. They put a whole bunch of people out, taking their health care benefits which they guaranteed till you get to the age of 65 with them. They were hardly out of that gate over there and they come and sit down at the table and start negotiating with us to take away the retirees= health benefits.

>>We figured out that if they would do that to them, they are going to do it to us. This is where you have got to face this thing, right out on the street.==

There are a lot of people who are looking at Medicare as if I can just get to 65. If you want, you can tie a string to it and pull it down the street like the April Fools joke where they tie a string to a wallet and pull it down the street. You can do that, but the American people are going to get real angry. I don=t think you can just talk about moving the date out there 2 years and say to all those Boeing guys, >>Hey, guys, don=t worry; just figure out how you can make it for another couple of years.==

You are going to create a very unpleasant situation. So, it is not to be lightly put before the people that the age is being moved 2 years further out. There are thousands of people out there in the industrial world who work hard. It is one thing to talk about extending the age for somebody like us who sit around and talk. [Laughter.]

But if you have to run up and down a ladder in a building site carrying sacks of concrete or carrying 4 by 8 pieces of plywood or whatever, that is a different story talking about people like that having to go 2 more years until they finally get to their retirement age. I think that is why this is not a simple, easy way to fix the system by just raising the age. It will not fix it.

Senator BREAUX. I think it should be pointed out that the recommendation was over a 24-year period. It was not like it would happen in one contract negotiation. So, people would have enough time to look at it and consider it from a standpoint of planning.

Mr. MCDERMOTT. I think Senator Rockefeller is saying, yes, the time period makes sense, phasing it in. You always have to have transition rules of some sort. But the question is what is there to solve the problem? Is it going to be on the individual to solve the problem himself or herself? I think that=s the real problem when we put people out into the individual workplace.

Senator BREAUX. Senator Rockefeller?

Senator ROCKEFELLER. Mr. Chairman, I would like for the point of view to at least end up on a more hopeful note. Just out of the last half hour I think there has been more of a sense of willingness to try to come together a little bit. I think what Jim McDermott said really is the great chasm that divides some of us from the others.

I am not sure that it has to be and I am not sure that it permanently will be or it may take forever, but there is this concept that if you take somebody with diabetes and put them out on the street and tell them to go get health insurance, it is going to cost them over $1,000 per month which they don=t have. For some of us that is absolutely unacceptable in every single American sense.

On the other hand, I think what Stuart Altman said about the tsunami, so to speak; this gigantic wave of costs which is going to come over all of us, is true. I think that is even closer to being true as you look more toward the year 2030. I thought what Phil Gramm said was interesting when he talked about demonstrating. I have always felt that was a classic way the Congress could do some actually very useful things. You don=t do it for the whole country, but you do it for eight groups of counties or States or whatever. Then you can see how it comes out.

I think out of this afternoon has come a recognition on the part of all of us that because there may be different views with some of them being more fiscally based and some of them more human based, it does not preclude those two at some point, with a full year to go, from coming together.

Senator BREAUX. On that optimistic note, let me just thank everyone for their attendance. We want to thank our C-SPAN audience for watching and for all the people here in the audience.

We have covered some major areas today with the Modeling Task Force presentation with benefits, costs, eligibility. Tomorrow we will start with Management and Administration issues and then the financing issues which will be extremely important. Then we have a Reform Task meeting tomorrow evening. We will come together again for dinner for the Commission members in the Jefferson Building in the Members of Congress dining room at 7 p.m.

The Commission will stand adjourned.

[Whereupon, at 4:55 p.m., the meeting was adjourned, to reconvene at 8 a.m., the following day, Tuesday, June 2, 1998.]