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THE NATIONAL BIPARTISAN COMMISSION ON

THE

FUTURE OF MEDICARE

 

TRANSCRIPT OF

COMMISSION MEETING

Washington, DC

Wednesday, December 2, 1998

MEMBERS OF COMMISSION

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
COLLEEN CONWAY-WELCH, Ph.D.
SENATOR JOHN D. ROCKEFELLER, IV
REPRESENTATIVE JOHN D. DINGELL
DEBORAH STEELMAN
SENATOR WILLIAM H. FRIST
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

THE NATIONAL BIPARTISAN

COMMISSION ON THE

FUTURE OF MEDICARE

Transcript of

Wednesday, December 2, 1998

Commission Meeting

The Commission met at 1:45 p.m., Senate Dirksen Building, room 106, Senator Breaux presiding.

Present: Senator John Breaux, Representative Bill Thomas, Stuart Altman, Representative Michael Bilirakis, Colleen Conway-Welch, Representative John Dingell, Senator Bill Frist, Illene Gordon, Senator Phil Gramm, Sam Howard, Senator Bob Kerrey, Representative James McDermott, Senator John Rockefeller, Debbie Steelman, Laura D’Andrea Tyson, Bruce Vladeck, Anthony Watson, and Bobby Jindal.

Senator BREAUX [presiding]. The Commission will please come to order. Can I ask all of the members of the Medicare Commission to please find their assigned seating, and we will begin what will be a very busy afternoon.

I want to welcome all of our members back. Some we have seen and visited here in the Congress; others have come from around the country. We welcome them back as well.

We have a very full afternoon before us. I would like, however, to take this opportunity to give a brief overview of where the Commission has been and where the Commission is headed.

This meeting this afternoon represents approximately 35 meetings that we now have held with the various task forces that we have, with the Commission meetings, with the meetings that we have had in various parts around the country in order to gather information.

We laid out when we began in March of this year, a very ambitious schedule which began with the gathering of information and hearing from the various witnesses and groups to gather information about the Medicare Program and what needs to be done.

Most of the Commission’s early work, of course, was carried out by the three task forces that we had set up: The Modeling Task Force has developed two baselines against which the Commission’s recommendations will be measured and scored.

In addition to looking at the fiscal impact of reforms to the Medicare Program, we are also weighing the issues of adequacy, efficiency, and equity.

The second task force is the Reform Task Force, which has held several hearings to discuss improvements to the current Medicare Program, which include Medigap reform, administrative improvements, and the health care delivery needs of the chronically ill.

Several of the scores and analyses we will discuss today reflect issues that have been raised at the Reform Task Force meetings.

The third task force was the Restructuring Task Force which heard from a wide range of experts on ways to fundamentally restructure the Medicare Program, including prepaid savings accounts, a single payer approach, a premium support proposal modeled in on the Federal Employees Health Benefits Program.

Last, Senator Bill Frist has coordinated several meetings of a Graduate Medical Education Study Group to discuss the issues of Medicare’s role in graduate medical education.

The Commission’s work to date has also included significant public outreach to try to ensure that everyone who has an interest in the outcome of our work has had some input into the process.

In addition to the field hearings in Minneapolis last July, the Commission held a public call for solutions in September. We’ve also had Commissioners have meetings in Michigan with Congressman Dingell, and also meetings in Tennessee, as well as meetings in New York, to invite public testimony.

But in all candor, I would say to our Commission members that gathering all this information and listening to the witnesses and other experts from outside has been the easy part.

Now begins the very difficult and hard part of our Commission.

There is a reason why the Congress and the administration created this bipartisan Commission. It wasn’t because the White House and the Congress didn’t have the time or the will to devote to this issue; it’s because Medicare is a politically sensitive and incredibly complex issue, and one where it has been very difficult to find common ground on any long-term solutions.

Medicare not only has a history in terms of health care delivery to seniors, but also has a history of being a political football of sorts.

I think that we would do a disservice to this nation if we as Commission members politicized this issue.

The fiscal and non-fiscal challenges facing this program pale in comparison to the challenge facing policymakers who will eventually have to turn our recommendations into public law and policy.

Medicare is a very popular program, we all can agree on that. Every opinion poll underscores the support the program enjoys across all age groups in our country.

These same opinion polls suggest that while people may support fixing Medicare in the abstract, they are also afraid of how changes needed to preserve the program for future beneficiaries will affect them.

The lack of public awareness of the seriousness of this problem is only compounded by the political ill will that has surrounded this issue for too many years.

Our Commission, which I will say has some of the finest experts as members of this Commission in the entire country serving, has a small window of opportunity to make recommendations that can actually become public policy.

This year’s elections are behind us, and to the extent possible, I would like to get away from the Medicare politics and have conversations and discussions about Medicare policy.

I know members of the Commission have deeply held and serious differences of opinion about what the appropriate solutions are. We also have a commitment, and, I think, a real desire, to improve this program and to make it solvent for older people in our country.

It is the job of our Commission to make recommendations to the Congress and to the President that will preserve Medicare for future generations by restoring the long-term solvency, and to conform the benefit design to modern notions of comprehensive health care coverage.

Under the charter we have received from the Congress, it requires 11 members to agree on any particular proposal. I would hope that we would be able to have a recommendation that has more than just the minimum amount of support from the Commission to make a recommendation to the Congress and to the President.

I think that it is going to take that type of broad bipartisan support to come up with a credible and realistic recommendation that has a chance of becoming public policy.

Having said that, I would only underscore that we have a historic opportunity as members of this very important Commission to do what is right, and to make recommendations that can save and preserve and improve a health care program for 40 million Americans.

That is our challenge and I’m optimistic that we can meet it. I ask if Congressman Thomas has any comments he’d like to make before I present the program.

Mr. THOMAS. Thank you, Mr. Chairman.

First of all, I want to concur in the remarks that you made, and say that I also believe that the meeting today will go a long way toward determining where we’re going in the near future.

But I just wanted to spend a minute mentioning a subject matter that you touched on briefly. I have been alerted, as have some other Members of the House and the Senate, that they’re going to be made part of a congressional group to meet with the President on the question of Social Security reform.

Let me say that I was a member of the Ways and Means Committee in 1983, and a member of the Social Security Subcommittee at the time that the last major reforms to Social Security were made.

We are all aware of the date differential between Social Security and Medicare, 2030 for Social Security, roughly 2008 for Medicare.

It is true that both of these essential programs are threatened by population profiles, both in terms of the age group becoming eligible for these senior programs, the so-called baby boomers, and the fact that the fastest growing age group are 75 and above.

And when you put those two together, that’s one of the reasons we have to really focus on both of these concerns.

But what I really want to stress is that currently, the Social Security Pension Program and the Medicare Health Care Program actually have more in common in certain areas than I think most people appreciate, especially when we look at those areas that this Commission has not yet addressed, but which are going to be critical over the next several decades.

That is the question of chronic or long-term care. To say that we should address something that is now needed as almost an automatic planning tool for seniors under the rubric of health care, I think really denies us an opportunity that we should avail ourselves of.

The President is fond of golf, and I know that when you look at how to solve Social Security from a pension point of view in dealing with the actuarial numbers, that it’s more akin to a 2-foot putt for par.

And when you take a look at what we’ve got to do, as you alluded to in Medicare, it’s a little bit more like chipping out of a sand trap 40 yards from the hole to make par. It is more difficult.

But in the area of chronic or long-term care, I believe that some of the suggestions that are going to be discussed surrounding the ways in which we can better ensure the solvency of Social Security are also very useful in discussing ways in which we can solve the long-term or chronic care concerns.

That is, the time-value of money applied to financial instruments.

I’m going to urge, and I hope that other members urge that if we are going to move early on Social Security, that we don’t forget that there is, I believe, fertile, common ground for looking at areas that are now under health care, but probably better address themselves under a longer term financial focus as is going to occur with Social Security.

When you look at home health care, and realize that even today, 48 percent of it is addressed toward activities of daily living costs, rather than a more narrow acute health care. That if we could feel comfortable on this Commission that in changing the health care structure for seniors--Medicare--we could focus on the acute care concerns of seniors, and that we would have the ability, along with changes in Social Security, to think about dealing with the longer term chronic, long-term care concerns. It, one, would make it easier for us to come to resolution, but, two, provide sensible societal solutions for a fundamental problem for all of us sooner or later.

And that is the long-term or the chronic care for all of us, especially seniors.

Senator BREAUX. OK, let’s get to work. Thank you, Bill.

What I want to do is call on Bobby Jindal to make a presentation of the documents and analyses that they have done. I want to emphasize at the outset of this presentation that the documents that we’re going to walk through today do not represent an endorsement of the policies that are being presented and looked at, an endorsement by me or any other members of the Commission.

They are simply a starting point for discussion as we begin to examine the various policy design options.

There are other proposals that have been made by Commission members that have yet to be analyzed, so today’s discussion is certainly not an exhaustive one in terms of options that are going to be considered.

The decision to present these options is something that I decided as a good starting point, along with Congressman Thomas, to present to get us started and talking about some of the options.

I recognize that there are proposals that are not reflected in the grids we’re going to look at this afternoon that members would like to see. And we’ll have the opportunity to do that.

One such proposal, for instance, is the type of provider cuts that we would get from extending the Balanced Budget Amendment of last year for a timeout into the future. It is one that is not part of the grids that are going to be looked at this afternoon.

While this proposal was one of the first ones looked at and analyzed and scored by the Commission staff early this year, it is not reflected in the grids today.

The reason for that is that I thought it made more sense to discuss policy options before we discussed financing sources. You will note that we have not included tax increases or raising premiums or the Balanced Budget Amendment extensions in either of the three grids that are being presented this afternoon.

It may be interesting to note that in all three grids, none of them get us to solvency by the year 2030, as well, without looking at some other things that need to be done.

So, having said that, I will call on Bobby. I want him to explain very carefully how we’re going to go through this so people will understand where we are. Bobby?

Mr. JINDAL. Thank you, Mr. Chairman. In the last several weeks, staff has done a lot of work on three separate topics.

Senator GRAMM. Bobby, move that mike way up. We want everybody to hear every word you say.

Mr. JINDAL. Thank you, Senator.

During the last several weeks, staff has provided a lot of information in response to different member requests and different testimony at previous meetings on three different topics: Changes to the current fee-for-service program and the Medigap world; second, various proposals around graduate medical education; and third, a lot of discussion has been happening in the Commission around something called premium support.

Rather than go through each of those detailed analyses, since there were several different variations on each of those three topics, we provided a summary document, and this is the document located at tab 7 in your books.

This is the document that’s organized around three different grids.

What I would like to do today is walk you through those three grids. Behind me, if you don’t have it in your book, behind me is grid No. 1.

What I would like to do, before we even look at the details or look at the numbers, is talk a little bit about how the grids are structured, and talk about what each of the different changes up there represents.

If you look at the grid, which, once again, is in a document in your books, if you look at that grid, moving from left to right, what we’ve done in each column of the grid is that we’ve listed different types of changes to the program.

Now, these changes, like the Senator, like the chairman has said, represent different ideas that have been discussed either within task forces or elsewhere by the Commission.

The point is not to have an exhaustive list. There are certainly many other ideas that are not up here, but the intent was to try to show the different interactions of some of these ideas and these changes on the Medicare Program.

So if you go left to right, each column represents a different change to the program.

For example, in column A, we have modernizing the cost sharing and stop loss. In column B, we have reforming Medigap. In column C, we have raising the eligibility age, and so forth.

Stop loss is catastrophic coverage, in other words, putting a cap on the out-of-pocket expenses faced by beneficiaries in the program.

As you go across the page, you start off in the first column in row 1, No. 1 just does what it says in column A. Row 2 builds on that; it says A plus B.

Row 3 then does A, plus B, plus C, so as you go left to right, these are incrementally additive changes, and at the end you see the impact.

Before I even get to the last two columns that talk about numbers, what I’d like to do is walk through each of these columns and briefly describe some of these changes. Obviously I’m not going to go into every detail that we provide, and there are many more details about these changes.

But I’d like to go through each of these columns and provide a little bit of information about what they mean. What does it mean to modernize cost sharing and stop loss?

So I’m going to start in column A and work my way across. This is one of three grids.

This grid is really starting with changes to the current program, changes to the current fee-for-service program and changes to the Medigap Program.

There are two other grids that we’ll get to after we finish the first one.

We turn to this first grid and the first column, in terms of modernizing cost sharing. Really, modernizing cost sharing has four different elements.

And we’ll talk about those in detail. The first is having a combined part A and part B deductible.

The second is eliminating the limits on the days of hospitalization coverage.

Third is adding a hospital coinsurance to balance the incentives between the inpatient and outpatient care.

Fourth is adding stop loss or catastrophic coverage.

Before I proceed, has every member found the document? I want to make sure before I go forward that every member has found the document in their briefing books. [Pause.]

All right.

If we look at the first part of this cost sharing in terms of combining the deductible, currently, there is a separate part A deductible of $764 for each episode. So every time a beneficiary goes to the hospital, they face a separate $764 deductible.

There is in addition to that, a part B deductible of $100 that applies to all outpatient, non-hospital services. Now, this higher deductible on hospitalization which is usually not discretionary, does not generally affect utilization; it doesn’t really provide an incentive against utilization.

Something that we have heard through the Commission is that it would be nice to look at what would it mean to combine those deductibles? How would you do that in a budget-neutral way?

Now, we’ve certainly given you several options of combining it in a non-budget-neutral way, if you want to set it higher or if you wanted to even set it lower by indexing it to inflation and not to Medicare Program growth.

For the example of this illustration, what we’ve done is we’ve combined the deductible in a budget-neutral way, and then allowed it to grow with program growth.

So instead of having a separate $764 deductible for hospitalization and a $100 deductible for physician and outpatient services, you have one unified deductible that’s roughly $400, depending on where you start. It could be $380-$400, depending on where you start, and it grows with program growth.

This is more like what generally happens in private health plans. You’re more likely to have a single deductible in private sector, and this tries to move closer to that model.

Once again, this deductible is budget-neutral. It does not save you money, it doesn’t cost any money.

Once you’ve combined the deductible, the second thing that we’ve heard a lot of comment on is that maybe we need to look at providing full coverage of hospitalization.

Currently in the Medicare Program, beneficiaries are not covered up to the 90th day of a hospital stay, except for 60 lifetime reserve days.

Senator BREAUX. You’re still on the first column, No. 2.

Mr. JINDAL. I’m still in column A. I’m just defining what column A is, just the different parts of column A.

The first part of column A was combining the deductible. The second part of column A is expanding the hospitalization coverage.

Currently beneficiaries are not covered after the 90th day beyond their lifetime reserve days. In addition, they pay a significant copayment for the 61st to the 90th day.

They pay a $191 copayment, and they also pay a $382 copayment for their lifetime reserve days. The thinking is that this kind of copayment for extended hospital days does not change behavior, and it has a heavy impact on those beneficiaries that are extremely ill and not very sensitive to increased costs.

So the thinking was that when we changed the cost sharing, maybe there would be a way to provide 365 days of hospitalization and remove these limits, remove these copayments.

It’s also true that because of the prospective payment system, there are already limits on utilization, and there are already ways to make sure that this does not result in overutilization.

Currently, for your information, for example, all Medigap plans remove this limit; all standardized plans do provide for 365 days of hospitalization.

Now, the third thing that we try to do, once again still in this first column, is provide catastrophic coverage, in other words, try to put some kind of limit on the out-of-pocket expenses faced by a beneficiary, the thinking being, that once again, most private plans do have stop loss coverage, and so this was an attractive benefit if there was a way to limit the financial liability for out-of-pocket spending for beneficiaries.

Now, there are many ways to offer this. Stop loss can be offered through supplemental insurance carriers. We could do it through Medigap, we could do it through the fee-for-service package. We could do it in the Medicare risk plans.

Right here we’ve chosen to see what would happen if we actually put it in a Medicare fee-for-service benefits package.

The thinking is that we’ve set a threshold of $4,000, and Medigap plans could lower that threshold. That threshold is higher than what is commonly found in private plans.

Currently, for your information, almost 89 percent of beneficiaries have some form of catastrophic coverage, whether it be through their Medigap plans, whether it be through their HMO’s, whether it be Medicaid, nearly 90 percent of beneficiaries do have some kind of stop loss coverage today.

If you did those three changes, there would obviously be a huge cost to the program. If you combine the deductible, which is roughly budget-neutral, you remove the limit on hospitalization coverage, which costs some, but is not a large cost, and you added stop loss coverage, that would be an extremely expensive change to the program.

For that reason, we were looking for ways to make this entire package budget-neutral. The rationale being that if we could make this entire package, changes to the fee-for-service package budget-neutral, not costing, not saving, we would need ways to offset primarily the cost of the stop loss.

To do that, one way to do that, would be to do a hospitalization coinsurance. That also has the benefit, if you do a hospitalization coinsurance, you no longer have disparate cost sharing between part A and part B.

Currently, beneficiaries face a 20 percent cost sharing on part B services, no cost sharing on part A services. Instead, they have faced a higher deductible, previously, on part A services that served as somewhat of a counterbalance.

So what we’ve done in this variation, this example, is we’ve actually modeled the hospitalization coinsurance. Now, to fully pay for these other changes, you have to do approximately a 20 percent hospitalization coinsurance.

It’s certainly not necessary to do a 20 percent hospitalization coinsurance to balance those incentives, so it is possible to combine hospitalization coinsurance with other types of changes, for example, home health cost sharing, or other changes.

Once again, we’ve listed many different variables in other documents, but here, for illustration purposes, we’ve shown a 20 percent hospitalization coinsurance.

Mr. VLADECK. Do you want to take the single worst idea for clarity of presentation purposes?

Mr. JINDAL. No, honestly, we were just trying to find a way to balance the costs. And there are many other combinations that would do that.

We know that this is one example that would make the entire package budget-neutral.

If you look at the bottom line, if you do all of this, you do have a combined lower deductible, you do have no limits on hospitalization, you do have stop loss coverage which was not in the benefit package before. However, to pay for that, you do have higher hospitalization coinsurance that does pay for that.

So that, in summary, are all of the changes that are made in column A, which, once again, has been designed to be budget-neutral. [Pause.]

If you look at column B, column B addresses Medigap coverage. Now, we have heard through this Commission from MedPAC and others, that supplemental coverage can increase Medicare’s costs by covering much of beneficiaries’ cost sharing.

Back in August, what we heard was that those beneficiaries with Medigap coverage had costs close to 30 percent higher than beneficiaries without supplemental coverage, and those with employer-sponsored coverage had costs of nearly 11 percent higher than beneficiaries without that coverage.

What that means is that somebody with Medigap coverage has approximately $1,400 more in Medicare spending on their behalf than somebody without supplemental coverage.

We heard a lot of concern that there was some discussion about whether there would be ways to decrease that utilization. Not only does it save the program money, but also to decrease what might be overutilization.

In essence, these beneficiaries are not facing any cost sharing or any of the cost sharing incentives originally designed in Medicare to control utilization.

This policy, this variable, therefore prevents Medigap from covering the combined $400 deductible.

Senator KERREY. How did you establish that one was underutilizing and the other was overutilizing? How did you reach that conclusion?

How do you reach the conclusion that people who are using Medigap are overutilizing and those that aren’t are utilizing it correctly? Is that what----

Mr. JINDAL. No. There’s certainly not a study that says what is appropriate utilization. But if you look at employer-sponsored coverage----

Senator KERREY. People without Medigap underutilize.

Mr. JINDAL. If you look at what portion of that 30 percent is due to overutilization by those with Medigap versus how much of that is due to underutilization by people without Medigap, one way to get at least a rough order of magnitude--there’s not a precise number--but if you look at people with employer-sponsored coverage, we’re only spending 11 percent more.

These people tend to face lower deductibles, but still pay some cost sharing. And, therefore, if you look at what’s typical in private coverage, for example, you do have that lower deductible, you do have nominal copayments, you don’t face the same kind of cost sharing that you either have in Medicare fee-for-service or people with Medigap. That’s one way to say that, yes, at least some portion of that 30 percent is probably due to overutilization caused by the fact that people have first-dollar coverage.

But you’re right, there is a segment of that that’s caused by people that truly are utilizing the appropriate services.

So what we’ve done in this variable is we’ve not tried to remove all of Medigap coverage. We’re not trying to say all that utilization is overutilization.

We’ve said that if we just stop Medigap from covering the deductible, what would that impact be in terms of cost? You’re right that certainly if we were to say you couldn’t have any cost sharing coverage, certainly you would see a much bigger decrease in utilization and be a much bigger chance of that being actually necessary care.

Senator GRAMM. Could I make one point here, Mr. Chairman?

I think one of the things that you are going to get out of the first proposal, if you do it right, is you are going to dramatically reduce the number of people who find it necessary to buy Medigap.

The reason that a lot of people buy Medigap policies is because the current Medicare system is irrational. You have all of the copayments after you are already so sick you don’t have any options.

You face the potential, at least theoretically, of being thrown out in the street or out of the hospital if you are very ill.

And so the system really drives people to buy Medigap insurance, and pay a lot of money for it.

If we do things to make the system more rational, we are going to reduce the need for people to buy Medigap, in my opinion. And that is going to be an added benefit in addition to whatever reforms you might do to Medigap.

I think you should make the system completely rational, and spend the same amount of money beneficiaries spend now. You know, the annual out-of-pocket cost is about $2,500 by the time the beneficiaries pay the deductibles, the copayments, and Medigap premiums.

If you simply took that $2,500 cost and built it into deductibles and copayments and had stop losses, I think you could create a system where unless somebody is just totally risk-averse, it will induce a lot of people over time to drop Medigap, and in the process reduce costs by eliminating the perverse incentives of the current system.

Senator BREAUX. I appreciate the Senator’s comments. What I would like to do is let Bobby get it all out. I don’t want to argue what’s good and what’s bad at this point.

I want to try and get it out and then questions about how did you get there or what does that mean, but not get into the arguments of the merits at this time.

Let’s get it all out on the table. Go ahead.

Mr. JINDAL. I have two last points about Medigap. In partial response to the Senator’s questions, in terms of reforming Medigap, it should be noted that just doing this reform, saying they can’t cover the deductible, would lower monthly Medigap premiums by approximately $33 a month.

So if you’re doing the combined deductible in combination with just saying they can’t cover the deductible, if you do the quick math, certainly the amount of money that you’re putting back into those beneficiaries’ pockets by savings off their premiums is fairly close to the deductible they’re now being asked to pay.

So it is a swap, and it is saying your premiums are lower and in exchange, you’re facing a higher deductible.

Finally, there are other examples of Medigap reforms that could be considered that are not listed here. You could set a different threshold that you don’t allow Medigap to cover below; you could allow Medigap to cover a certain percentage of cost sharing; you could require Medigap plans to cover prescription drugs or stop loss coverage or other benefits.

There are other ways, in other words, to do these different types of reforms. This is merely one example.

If you move then to the third column--I do want to emphasize that certainly none of these are recommendations are presented as the best combinations. We’ve given you other information, and there may be additional ones that we will do after we discuss these.

The third variable, variable C, raises the eligibility age in accordance with Social Security’s normal retirement age. This is essentially the policy that was passed by the Senate.

The rationale behind this was that since Medicare was established, men’s life expectancy has increased from 67 to 73 years, and women’s life expectancy has increased from 73 to 79.

However, one of the concerns is certainly when you do this, there will be some portion of the previously eligible beneficiaries that will have trouble accessing and buying insurance. One of the thoughts we’ve heard is to combine this with some kind of protection for those individuals.

This policy, however, is strictly modeled after what was passed in the Senate. What it would do is, over the 2003 to 2027 period, it would gradually increase the eligibility age.

I have written down here that it’s at 1 month for every year. I have been informed that it’s not, strictly speaking, 1 month for every year. But the net effect is that over that 24-year period, you do increase that eligibility age by 2 years.

Just to give you an idea of what that means, for those that are currently 62 or over, there’s no impact. For those that are 38 and under, they would then be eligible at 67, and everybody in between would face--we put in front of you a short table of what that means.

Everybody in between would face a slightly different age.

The fourth variable on the grid, variable D, includes a set of changes to the funding of graduate medical education and disproportionate share hospital program.

Now, the GME Study Group, the Graduate Medical Education Study Group, has had many meetings. They’ve heard many different ideas. They certainly have not come up with a consensus, they’ve not come up with a recommendation.

This is not meant to be symbolic of their recommendation or even what they’re leaning toward. We’ve given you in other documentation, a huge menu of different ideas, different combinations.

We’ve picked one for illustrative purposes to show what it would be in combination with these other variables.

For that illustration, what we’ve done is, we’ve carved out of the Medicare Program payments for indigent care, meaning the disproportionate share hospital payments, as well as direct medical education payments, not the entire GME, but just the portion of GME that goes to direct medical education.

In your paper, there was a discussion that some say because direct medical education is more related to education than patient care, there has been some discussion of whether that should be funded in Medicare as opposed to outside of Medicare.

Carving out these two programs certainly results in savings to the program, certainly results in extending solvency of part A. It does also, however, put pressure on other parts of the Federal budget if these programs were to be replaced there.

These analyses don’t analyze the impact outside of the Medicare Program. So this is not necessarily a net savings to the Federal budget, but this does represent the impact on the Medicare Program.

Mr. VLADECK. It just assumes we take it out of Medicare and it gets funded out of Federal funds somewhere else.

Senator GRAMM. Where it should be.

Mr. THOMAS. Why don’t we just take all physician costs and move them over to the general budget.

Senator GRAMM. Because physician costs have to do with the cost of providing medicine.

Mr. JINDAL. The third aspect of the GME and the DSH changes involves indirect medical education. The Balanced Budget Act already reduced the IME payments, and by the end of its implementation will reduce it to 5.5 percent add on.

However, both GAO and MedPAC have written before that this should be reduced even further based on the cost data. So in this example, we’ve reduced it from 5.5 percent to 4.4 percent.

One of the concerns out of this variable is that certainly we heard from many teaching hospitals that they rely on these subsidies to cross subsidize their other missions, and certainly they are very wary of the unpredictability of the appropriations process if GME and DSH were taken out of the Medicare Program and funded elsewhere in the budget.

Overall, the package of these changes therefore involves carving out DSH and DME, and reducing IME from a 5.5 to 4.4 percent add on.

You go to the fifth variable, the fifth column; column E is prescription drug coverage. Until now, column A was budget-neutral, and B-D were certainly intended to try to achieve some savings in the program.

After we did all the savings, we then got to the benefit we’ve heard about the most, that many members have expressed an interest in, prescription drug coverage.

Now, there were many different types of coverage we could have modeled. Once again, in the analysis, you’ve got different estimates of different prescription drug coverage.

Here we’ve assumed a drug benefit with an actuarial value in 1997 of roughly $550. To give you one example of how that could be structured, and this is certainly not the only example, that could be structured in a private policy with a $500 deductible, a $2,000 catastrophic protection for the beneficiary or stop loss, and 20-percent coinsurance.

That’s only one example. There are certainly many other ways you could structure that benefit; that’s only an illustration.

You could certainly add a more expensive or a less expensive drug benefit, varying the actuarial value.

This was considered a moderately priced drug benefit. Your typical employer spends in excess of $700 for their retiree drug benefit coverage.

Once again, we’ve provided you with details. Drugs are certainly an important and increasingly important part of the beneficiaries’ health care package. We’ve got data showing that it’s an increasing portion of their out-of-pocket expenses.

It’s also growing faster than the rest of health care spending. Not only is it important to beneficiaries, it’s also potentially very expensive to the program.

It should be noted that a little over half, between 50-58 percent of beneficiaries, already have at least some drug coverage already. They can have this through Medigap plans, they may have this through private risk plans, they may have this through employer-sponsored coverage.

One key point to point out, whenever we talk about adding benefits to the core benefit package in the fee-for-service program, one of the issues we have to confront is how do you do that without causing people to first either pay additional premiums for coverage they’re already receiving, or, second, how do you do that without completely displacing private spending with government spending?

In other words, what’s the best way, when you are adding benefits that people may already have like stop loss coverage or prescription drugs, what’s the best way to integrate that?

I raise that now as a concern and that’s something that we can certainly talk about additionally as we get to some of the future variables.

Finally, this variable certainly does increase program costs and part B premiums, assuming that this is a part B benefit. Part B premiums would increase because beneficiaries would be paying for 25 percent of the benefit.

That would be roughly a $11.50 increase per month in monthly premiums.

Those are the five variables on this first grid. There are variables on the second grid, and we’ll get to that.

What we did at the end, after you’ve done these five variables--and once again, as you move across, first we did A, then we did A plus B, then A plus B plus C. We kept on building on the previous columns.

In the last two columns of this grid, we try to provide at least a sense of order of magnitude of the financial impact of what these different combinations did.

Let me describe a little bit about, first of all, what we measured these savings against.

We asked what would be a definition of solvency or viability in the program? Let me be very careful.

It’s not solvency in terms of the part A trust fund. That’s not what’s meant when we use solvency, and maybe we should use the word, viability to make that clear.

What we did was, we looked at the overall spending of the program and said, what if you limited spending in the program so that per-beneficiary spending could grow at the same rate as per-capital economic growth?

In other words, per-beneficiary spending would grow at per-capital GDP growth. What that means is that if you were to assume that that’s one definition of viability, what that would mean for the program is that the program would still grow as an overall percentage of the GDP.

It would grow from approximately 3 to about 4.3 percent. It would still grow as a share of the Federal Budget from 12 to 19 percent.

However, all of that growth would be a reflection of the demographic changes in the program. In other words, it would grow to the extent that there were additional people in the program.

It would not grow in terms of health care inflation running in excess of GDP growth.

Now, certainly there are many other definitions of viability. This is not meant to be a Commission definition. This was for illustrative purposes to show what one definition would be, and how far these changes would get toward that definition.

I know that some have talked about pegging Medicare growth more closely to GDP; others have talked about pegging it more closely to private sector growth. This is one definition in between.

If you assume current CBO projections in terms of revenue and economic conditions, this is a definition that would allow you to pay for the Medicare Program without additional savings, without additional revenue increases. But it is only one definition.

According to that definition, in 2030, if you look at current law, we are now going to be under our trustees’ intermediate baseline, $625 billion away from that definition in that year. That’s if you just do no change in the current law.

It’s not a cumulative total; it’s in that year, how far apart we are. Under our no-slowdown scenario, we are close to $1.3 trillion away.

Once again, those are in dollars expressed in 2030 dollars; those have not been controlled for inflation. It just says in 2030, how far are you away in that year from that definition.

Mr. THOMAS. Can you give an explanation of what the trustees’ intermediate and what the no-slowdown is?

Mr. JINDAL. Sure, if you remember back to our Modeling Task Force report, there were two baselines that were discussed and adopted by the Commission. The trustees’ intermediate was based on the trustees’ intermediate assumptions used by the trustees, extended out to 2030.

It assumes a slowdown in growth in the outyears. No-slowdown does not assume that slowdown; it merely projects forward, the growth rates that are projected after the end of the BBA. It just projects those growth rates forward through 2030.

So those are the two baselines discussed and adopted by the task force and by the Commission back in June.

Mr. MCDERMOTT. Can you tell us what portion of that $625 billion is part A?

Mr. JINDAL. Not right now, but if you--I can answer that question slightly differently. I can certainly tell you what the different impacts of these variables would be on part A solvency, and that’s a close approximation.

But--and in the meantime, we’ll certainly see if we can answer that question before the afternoon is over.

Mr. VLADECK. Since the first proposal does away with any meaningful notion of part A solvency, you really can’t do that.

Mr. JINDAL. And one of the reasons--I mean, one of the reasons we’ve expressed this as total spending is, once you’ve done the combined deductible----

Mr. VLADECK. Talking about part A solvency doesn’t make any sense if you do option 1.

Mr. JINDAL. If you look at the impact of the first variable, once again, it’s designed to be roughly budget-neutral, and that’s why the numbers haven’t changed, really. You’ve gone from $625 to $619.

It’s $6 billion in 2030, but in reality, implementing option A was meant and designed to be budget-neutral.

If you then go to the third--I’m sorry, the second row, which is option A plus option B, you can see that the Medigap reforms resulted in some moderate, some small savings. You’ve gone from $619 to $605, you’ve gone from $1,285 to the gap being $1,265.

Part of the reason, again, for that gap closing just a little is that once again we’ve restricted the plans from covering the deductible, however, they’re still free to cover the cost sharing above the deductible.

In the third row, we’ve done the first two things, plus we’ve raised the eligibility age. If you look across there, you’ve gone from a shortfall of $605 to $537, and you’ve gone from a shortfall of $1,265 to a shortfall of $1,174.

So there, once again, raising the eligibility age, you’ve got slightly larger savings that you got even from the Medigap reform.

The fourth column, if you do all those three things plus the GME and the DSH changes that were discussed, once again, you get moderate, maybe even slightly significant savings, and you go from $537 to $490, and you go from $1,174 to $1,113.

Rows 1-4 represent doing all the different cost saving items discussed here in the current fee-for-service package.

Finally, in the last row, if you do all those things and then you add the prescription drug coverage, you see that you increase the gap from $490 back to $757, you increase the gap from $1,113 back to $1,461, you’re actually up higher than before you added the prescription drug coverage, which actually costs more than the sum total of the first four changes.

Once again, these are not presented as policy recommendations; these are not presented as an exhaustive list. These were some of the changes that could be made to the fee-for-service and their impact on the program.

Mr. VLADECK. One other technical qualification other than the trustees’ baseline, all of these estimates are Commission staff estimates. These are not necessarily the estimates that either the trustees or CBO would make of any of these policies.

Mr. JINDAL. That’s right. What we did was, we requested a CBO scoring in the short term, and then that’s exactly right, then Commission staff extended them beyond the 9-year window to make it applicable to 2030.

That is right, we do get scores in a short-term window.

Senator FRIST. Bobby, could you also comment on solvency, the further question about trust fund solvency? I think it’s important that everybody understand what we mean by solvency in this year 2030.

What is the definition?

Mr. JINDAL. Sure. Once again, the definition of solvency is not a trust fund definition. It’s saying that for overall program spending, that the growth in per-beneficiary spending rose at the same rate as the economy grows on a per-person basis as well.

So that in other words, it basically says that the program as a whole will still grow significantly because you have many more people in the program with the baby boomers’ retirement, but what it does is, it removes inflation growth above economic growth.

That’s certainly only one definition. There are many other definitions. For example, we’ve heard about tying program growth to pure economic growth, just looking at overall GDP.

We’ve also heard tying it to private sector growth.

What this definition does, though, is if you assume CBO projections about revenues and other spending projections, it means you could pay for the program without increasing taxes or making cuts in other parts of the budget.

Senator BREAUX. Now, bearing in mind that like we said in the beginning, that none of the things on grid 1 is taken into account, extension of the Balanced Budget Amendment, the provider cuts that we did the last time, or a premium increase, and/or a tax increase.

These are options within the system that do not reflect if we factor in revenue increases.

Mr. ALTMAN. Can I just ask a question?

Going to the first one, as I understand the four pieces of that, you said that basically there was not much cost associated with going to 365 days; that there was not much--if you changed the deductible, there was not much of a cost associated with that?

Mr. JINDAL. That’s right, those were small cuts.

Mr. ALTMAN. When you really get right down to it, you’re trading off the stop loss from the current coinsurance, not the new coinsurance?

Now, if I think about the coinsurance in the existing program, it’s after the 60th day and then after the 90th day, it’s hard for me--you know, I don’t have the numbers in front of me, but it’s hard for me to see why adding an eighth of a day from 60 to 90 versus--plus, I don’t know how many people are in that category--plus the quarter of a day after 90 to 150, that would add up to putting a 20-percent coinsurance on everybody that goes into the hospital for every day.

So I just would like to see these numbers. I mean, in and of itself, I don’t want to say they’re wrong; I just find it a little difficult.

And it seems to me that the reason why it costs so much is because you do it after you’ve imposed the 20 percent, and then you add up the 4,000 and then the stop loss cost you a lot.

So, I don’t want to be too critical, it’s just hits me in a very strange way. [Pause.]

Ms. TYSON. I just want to make one point about the solvency issue just to emphasize that because the definition that you chose for illustrative purposes is a kind of economic definition, and as an economist, I want to indicate that there is nothing that--there is no law of economics which would suggest this as a measure of solvency.

Spending on medical care is a positive good, meaning people tend to spend more on it as their income rises. So you’d expect medical spending as a share of GDP to be rising over time in an affluent society; that’s the first point.

The second point is that the real problem for Medicare and for all health care is that it’s rising faster than GDP. So you assume away the problem in the definition of solvency, so I don’t think it is an acceptable definition.

Senator BREAUX. Senator Kerrey?

Senator KERREY. I have no problem with people spending their own money; the problem is that they’re spending somebody else’s money. That is the dilemma that we’ve got.

The Medicare Program, one of the concerns that I’ve got throughout all of this is that unless we really establish the outyear implications--and Bruce’s question sort of led to perhaps some suspicions that the 30-year projections aren’t going to be trusted by Congress, and that’s eventually where we’ve got to get the votes for our recommendations----

And maybe we’re better off at putting a 10-year mark, and the 10-year marks are going to be bad enough.

We’ve got to make changes in the program in order to reduce the outyear liability, not just for economic reasons, but because Medicare is taking a growing share of the overall budget.

Ms. TYSON. That’s a political judgment, not an economic judgment.

I was making a statement about the solvency definition on its economic merits. You may say that for political merit, you like that definition; on its economic merit, I don’t like it.

Senator KERREY. I mean, that’s a different direction and we could argue this. All I’m saying is that it will take it in a different direction to say that there’s certainly an economic argument that we ought to limit the amount of money that we take out of the overall economy to use for Federal spending.

Ms. TYSON. That’s an issue of how the government spends its money.

Senator KERREY. Do you think it would be good economically if the Federal Government withdrew 100 percent of the economy for spending?

Ms. TYSON. Of course, I don’t.

Senator KERREY. Nor do I.

Ms. TYSON. Do you think there’s any evidence that the government spends 20 or 22 percent, the U.S. economy would be fundamentally different? No, there’s no evidence.

Senator KERREY. I would not object if that’s where we’re heading. If there is a stop out there of 22 percent--I think there is a political ceiling at about 20 percent. It’s about the only thing in this town that’s stayed constant over the last 60 years.

But even if you were to say that it’s going to go up, the problem is, this program is not going to stop at 22 percent. This program is going to go way beyond that.

Mr. Chairman, the concern that I’ve got is that I think we’ve got to really nail this savings revenue needed for solvency issue.

If we don’t, all we’re going to do is, we're going to find ourselves objecting to any changes that we make in the program.

As all of us know that have held town hall meetings on this where the rubber does meet the road, everybody wants to solve the problem, except nobody wants to give up anything. Nobody wants to change anything other than waste, fraud, and abuse.

That’s all they want to do, so I think we really have got to nail this savings revenue needed issue in some fashion; otherwise, we're going to be--I think we're going to find it very, very difficult to come up with 11 votes for anything.

You can see how far we're away, and it's likely that we don't have 11 votes for the things that are on there now.

Senator BREAUX. Congressman Thomas, and then Senator Gramm.

Mr. THOMAS. I’d defer to the Senator.

Senator GRAMM. I want to comment on this issue. This is not my choice of the way we should define solvency, but I want to remind people that this is defining solvency as reaching a constant state where Medicare grows at the same per capita rate as GDP.

But since the number of people going into the system in the future is going to grow very, very rapidly, even if you achieve this solvency, you are going to fall very short of paying for the program, because of the large number of people who are coming into it.

So I am saying that if we want to argue about how tough doing this is, realize that this is simply achieving a steady state, and you would have to cut benefits substantially or raise taxes substantially to simply pay for the program.

All you are doing is bringing the per-capita expenditure under control, but obviously we are going to have a lot more people coming into the system.

So, it is easy to criticize this concept, but still even this proposal leaves us a lot of work to do.

Senator BREAUX. Bill Thomas?

Mr. THOMAS. I do want to underscore, although Bruce quite correctly indicated that these were not the CBO-certified numbers--what we’ve tried to do is emulate as best we’re able--and I think we’re pretty close--modeling using CBO techniques.

It’s possible that CBO may fine-tune, but I don’t think they would quarrel with the basic or the general approach. Of course, that’s subject to examination.

The basic assumptions have been something that we have discussed from the very beginning, and I’m sure they will be one of the last items that we discuss, as indicated by trying to figure out what the world is going to look like in 2030.

I’m not wild about the term ‘‘solvency’’ because it’s historically tied to the part A trust fund. Bruce, again, is quite correct that what we’ve tried to create is a unified look at what the costs are.

Of course, we could solve the old fashioned definition of solvency like we did to extend it to 2008, which is to simply shift programs from part A to part B, but that really doesn’t solve the real problem.

Looking at the total picture, I think, is a better way of trying to deal with the issue.

If you will look up at the chart, the last box before you add drugs still leaves us half a trillion short. And whether you call it solvency or something else, it’s still half a trillion dollars short.

Senator BREAUX. Another question, too, is whether we’re going to try to make a recommendation on solvency, or whatever it is, all the way out to 2030, or whether it’s going to be a shorter date.

Debbie?

Ms. STEELMAN. I would like to agree with Dr. Tyson and with Senator Kerrey.

Senator BREAUX. How do you do that? [Laughter.]

Please tell me.

Ms. STEELMAN. Because I agree, it is not an economically viable definition of solvency; it is simply meant, again, for an illustration to show that even if you assume half the problem away, you’re still one-half trillion dollars short.

It is also important for this Commission to recognize that the program has a solvency problem, because it has a number of viability problems.

Solvency is sort of an economic, mathematics equation; do your assets equal your liabilities? Does your output equal this?

Whereas I think the program has a political viability problem on a number of scores. And I think the job of this Commission is to try to, with all due respect, get beyond the 10-year window and really look at the political equation outgoing.

Can we make the political equation in this program work so that people can count on it?

Today, if we left this program just like it is, people can’t count on this thing. So if we can solve some of the political equations, then that, to me, is a much better definition of solvency, and that’s why I constantly use the word, viability.

In that definition, I don’t think you’re saying something that different; you’re saying we can’t do all this on the backs of payroll taxes. I would even go broader than that.

We have to figure out how to make an equation between workers and beneficiaries and regulators that’s more equally balanced.

The way I look at what Bobby’s just laid out is: OK, you’ve tried some rationale things; I don’t agree with them; somebody may consider me irrational.

Does it do anything--since I agree that 30-year numbers are sort of crazy? It’s a nice illustration, but I’m not going to invest in the stock market on these sorts of numbers.

But what would we do to make it rational? Is it going to be easier to make the political choices in the future?

I think this is an interesting way of going about thinking about that.

Senator BREAUX. OK, I’ve got Jay Rockefeller and then I have Bruce, Stuart, and Laura, and then we’ll go to chart 3.

Senator ROCKEFELLER. I think one of the--I’m willing to wait till you finish the presentation.

Mr. MCDERMOTT. Why don’t you segue to the next one? We now need a solution.

Senator BREAUX. Any other questions about what was presented, in general terms? We could go to the next grid.

Mr. VLADECK. For a minute there I thought we were going to solve the solvency problem by throwing out the chart.

But since we’re not doing that, just a historical note in this context; that to keep the growth in Medicare expenditures per capita to GDP growth would be to outperform both the public and the private sector in 90 percent of the years historically on which we have data.

That would be an accomplishment in terms of reduction of the rate of growth in health care costs of a sort that we’ve only seen for very brief periods of time since we began in this country keeping data on that.

Senator FRIST. Mr. Chairman, I just want to ask the solvency question. Based on what I’ve heard, this isn’t our goal of this Commission necessarily. That’s why I asked the question.

But it does give us a standard way to look at a number of options which over the last 3 months everybody is asking for.

So I understand that this isn’t necessarily our goal, but it is a way to quantify, incrementally, with some interaction, so I’m certainly impressed with it.

But I did want to ask the question about solvency to make it clear that that isn’t necessarily our goal, using this definition, which is what I’ve heard.

Senator BREAUX. Stuart?

Mr. ALTMAN. Now, I just want to put on the record, something, and that is that you have chosen here to put one provider cut which is GME/DSH, and there are a lot of provider cuts that one can talk about.

Now, Senator Gramm makes a good point, which is that the reason why you put that on is, well, that’s not paying for medical care. While, I’m here to tell you that what little I know about Medicare, Medicare is rife full of all kinds of cross subsidies.

I think only fairness would dictate that if you’re going to include subsidies in this, you have to include probably hundreds of them.

You did one little analysis which I really appreciate the staff doing, and I want it very clear that I am not antirural. But we went through the rural subsidies, and there are at least, what, 10 or 11 of them.

I suspect that as we go through the program--so I don’t have any problem with it, but I think particularly with DSH, I think fairness would dictate either you take it off and put it on the side and deal with it with all provider cuts, or we put all the cross subsidies in and we talk about taking them all out, and then paying for them in a different way.

Senator BREAUX. Like we said in the beginning, we didn’t have any BBA extenders in here with provider cuts. We don’t have any direct tax increases, we don’t have any premium increases.

Mr. ALTMAN. But you did include the teaching adjustment, you did reduce the IME to 4.4.

Now, in and of itself, I’m not necessarily opposed. I’m willing to talk about them.

But I think it sort of highlights those that there’s something special about them, and there is something special. Some of them are cross subsidies, public goods.

But I’m saying that even in that category, there are hundreds of them.

Senator BREAUX. Do you want to comment on that?

Mr. THOMAS. This is not a defense. But to put it in its proper context, you repeatedly called it a provider cut, as compared to others that could have been added. If you’ll go back--and I know you know what we did--in looking at that part of the teaching hospital support coming from Medicare, although there was an adjustment on the indirect medical costs, which are probably the best surrogate for provider costs of that structure, we took what was then a ProPAC recommendation to adjust below the current 7.7 to 5.5 to 4.2.

That is an area of discussion. But I think a number of people--especially as we listen to testimony in the task force, and we’ve done it in other subcommittees of Congress on the direct costs of medical education--are wondering why it isn’t part of education rather than the narrow question of a provider cut, and that it is a transfer of funding for basic educational aspects, albeit of a medical nature.

The disproportionate share hospital funding, as you well know, goes to who’s in the bed, and it has become a way to get money to low-income providers. It isn’t just providers; it is a specific category of providers.

And it probably could also be looked at in a general subsidy, welfare support structure analysis away from the narrow medical provider structure.

So although I won’t quarrel with your arguing that these are provider adjustments, I think they are the most benign, the most modest provider, ‘‘relationship aspects.’’ That’s why they----

Mr. ALTMAN. Let me just make it clear what I was saying. I don’t--I understand exactly what you’re saying, and I think that there is an argument to be made for them.

The biggest argument to be made is that they are a form of a cross subsidy to a segment that you can take out, put someplace else.

What I am saying is that there are hundreds of them, and I would make exactly the same arguments you made about DSH for the amount of money that we are pouring into rural hospitals, rural referral centers, rural clinics.

I happen to support them. I think it’s very important for segments of our system. Don’t get me--I come from the rural Bronx. [Laughter.]

I support them, but I just want to make the point that that is the only one that’s out there, and if we’re going to deal with cross subsidies, and want to take them all out, I think we need somebody to fine-tooth-comb the Medicare Program.

You know what? I think we’re going to find a lot of money.

Mr. THOMAS. I agree, but I think you’ll find that it’s trading millions for billions.

Senator BREAUX. OK, final comment from Dr. Tyson, and then we’ll get the second chart up here.

Ms. TYSON. I don’t want to go back to the solvency issue again, but I do want to bring it back to one issue that I have brought up over and over. It will come up again, so I will bring it up now.

I remember when Chairman Greenspan, who was the first official witness before the Commission. What he testified clearly was that in judging how Medicare is doing, the most appropriate standard is going to be comparability with the private sector.

This assumption of solvency has, as Bruce suggested, assumed that Medicare will outperform the private sector substantially by 2030. I think that’s a standard that is unrealistic to impose on Medicare.

Now, that’s a different issue from whether--that’s a different issue from Senator Kerrey’s issue.

So in a sense I can say that Deborah is right, Senator Kerrey and I can agree. He’s choosing a measure which is a political measure, and I’m choosing a measure which is just a measure of saying I believe health care spending, because of technology, is on a trajectory which is going to mean that this kind of political criterion imposed upon Medicare is not a realistic solvency criteria.

Senator BREAUX. That’s a good segue to grid 2. But, Senator Rockefeller and Congressman Dingell.

Senator ROCKEFELLER. I just wanted to comment a little on what Laura said.

I guess what’s worrying me at this point--and it’s very early in our discussion, but it’s late in the year, and we have time left, but not a great deal. But the discussion--all of the discussion so far, again has been how do we define solvency, the recent discussion.

And it’s what percent of GDP? Is it going to be above or below private plans? It’s the year 2030 versus the year 2015.

And nowhere has there been yet any discussion about effect on, let’s say--I’ll come back to my average income in West Virginia of $10,673.

And solvency affects not just the Federal budget, solvency affects what it is that people are able to handle.

I am personally curious as to why, among the variety of things, including the rural matters that Stuart referred to, that no revenue increase was put out as a possibility.

I mean, it’s incomprehensible to me, except if there was a predisposition not to do that, that one can discuss the issue of solvency in the year 2015, much less the 2030 without at least having that out there before us.

Senator BREAUX. One of the reasons is that it shows you how difficult it is to get there from here without some consideration of those things. I mean, every one of these, you add them all up and we’re still in the hole significantly.

There will be an opportunity to talk about whether it’s a tax increase, a premium increase, or other forms of revenues, if that’s necessary. There will be a point to do that.

Senator ROCKEFELLER. And that’s the revenue part. The other part is what is the effect on the individual, what is the effect on the low-income senior? What is the effect on the person that has less than $11,000 to spend on everything in a year?

I don’t mean to be maudlin in saying that, it just happens to be what everything is all about from the part of the country that I come from.

Senator BREAUX. We will definitely get there.

Congressman Dingell?

Mr. DINGELL. Thank you, Mr. Chairman. I note here that we have an interesting discussion.

Referring to the question of the subsidies of other kinds of medical care and other kinds of financing.

I would note that we here, I think, are looking at the possibility of Medicare also subsidizing extensively, Medicaid, or perhaps the reverse of that.

I would accord with the idea that we ought to have the statement from the staff with regard to what these are.

But I would also like to know whether or not Medicare is not feeding Medicaid’s cat. I’d like to know a little bit about that.

I have withheld, I would note, Mr. Chairman, also the question of any discussion of premium support, because I like to hear a rather more lengthy discussion of that before I get into it. I have some great concerns about whether or not we’re buying ourselves a pig in a poke on that particular matter.

Senator BREAUX. That’s the perfect segue into the next grid.

I’d thank everybody for their participation, and ask Bobby to now--Colleen, I’m sorry.

Ms. CONWAY-WELCH. Just a last comment as we’re talking about the number 2020 or 2030. I would really make a plea that we keep 2030 in our sights.

This is going to be a political issue as well as a financial issue, and there are a lot of people who are not seniors now.

How many in the audience are under 40, but who are going to be very concerned about making sure there is something there when they get there.

I realize that 2030 is an arbitrary and somewhat of a squishy number, but because the baby boomers do flatten out at that point, I’d like to make a plea for keeping them in our sights.

Senator BREAUX. Thank you.

Bobby?

OK, here is grid 2.

Mr. JINDAL. With the first grid, we start off with the fee-for-service changes, and they made a series of five changes to the program. The second grid makes the same five changes, but starts with the premium support program.

So I start with the last change to the program, which we are calling variable F. I won’t try to describe premium support in every detail; there will be an opportunity to ask questions about this program.

But the Commission heard a lot of testimony through its Restructuring Task Force and other avenues about the concept of a premium support model.

Now, it took a lot of different shapes and forms. The basic idea behind this was that the government would contribute some sort of premium contribution to beneficiaries to purchase a plan to cover their health care benefits.

And there were many different ways to structure this. We’ve modeled one way up here.

The way we’ve modeled up here resembles most closely the Federal Employees Health Benefits Program. Now, that’s not the only program, and there are certainly many other ways to do this.

But the way that program sets its operations--and then I will briefly talk about how this is a little different--is that it offers beneficiaries, it offers government employees a government contribution toward the purchase of one of a menu of private plans wherever they live, by geography.

Now, the Federal Employees Health Benefits formula is such that it contributes up to a certain portion--I think it’s 72 percent of the cost of the national weighted average of plans. So, in other words, in any given year, it looks at the national weighted average of the cost of providing care in all of its plans, and provides a contribution of 72 percent of that total.

It never, however, contributes more than 75 percent of any particular plan’s expenses, the thinking being that every beneficiary, every government employee, no matter what plan they pick, will have some contribution to make.

Obviously if they choose a lower cost plan, they’ll have a smaller contribution; if they choose a higher cost plan, they’ll have a larger contribution. So the government contribution varies, in addition to beneficiary contributions.

By designing this formula, one of the things that results out of that formula is that in any given year, if total costs increase in a given year, both the government contribution increases, as well as the government employees’ premium. They both increase because the government maintains a constant share of total spending that it covers.

Now, once again, there will be an opportunity, I think, to go through the many more details and implications of this, but members have heard a lot of testimony about some of the attractions that this model might offer to Medicare beneficiaries, whether it was a greater choice of plans, whether it was an easier way to integrate current spending on their health care, whether it was more competition to slow down spending in the program.

What I would like to do, rather than going through each one of those, is talk a little bit about the assumptions behind which this variable was built.

Mr. MCDERMOTT. Can I ask one question? When you make that assumption of using the Federal Employees Health Benefits Plan, are you assuming that seniors would buy in at the same rate that I buy in?

Mr. JINDAL. No.

Mr. MCDERMOTT. So they would be actuarially increased so my 93-year-old father would be paying some amount, so the figures we look at here in the grid are related to what inflation for seniors?

Mr. JINDAL. They’re based on starting off at a 90/10 split, so the government----

Mr. VLADECK. The figures are based on total fantasy, that’s what these figures are based on.

Senator BREAUX. This is not the opinion time, Bruce, this is the factual time.

Mr. VLADECK. I just said, as a factual thing----

Mr. MCDERMOTT. I wanted to know what the assumption was, though.

Mr. DINGELL. I want to hear that 90/10?

Senator BREAUX. As I understand it in simplistic terms, and Bobby can explain it in much more detail, the Federal plan is about a 75/25 split for Federal employees.

We’re modeling a premium support plan keeping the same ratio as Medicare, 90 percent Federal, 10 percent for the individual. That’s a significantly better plan for a beneficiary than the Federal Employees Health Benefits which is 75/25.

This is based on a 90/10 split, beneficiary share.

Mr. VLADECK. It’s a better sharing rate, but it’s for a much--it’s 75 percent of a much more generous package of coverage. So that actuarially, Federal employees are treated better than Medicare beneficiaries under current law.

Mr. JINDAL. And to use that as a transition, the 90/10, what the government contribution is set at is 90 percent for a beneficiary choosing a low-cost plan. He/she would get 90 percent of their premium paid for by the government.

For a beneficiary choosing an average cost plan under this scenario, they would pay roughly a 12-percent premium and get an 88-percent contribution by the government.

Now, that was calibrated such that after BBA has taken its effect, the home health transfer has taken its effect, if you look at the 25 percent part B premium, that’s roughly equivalent to a beneficiary paying a 12-percent premium of the total program costs.

So that’s how that was calibrated, so that in the beginning it would be that the government is paying 90 percent; the beneficiary is paying 10 percent for the low-cost plan, for the average plan it’s 88/12, and obviously the schedule goes up from there.

If you look then at how the variable has been modeled, that was the beneficiary contribution and how the government contribution is set.

In terms of the benefits, there is a requirement that all plans offer at least the actuarial equivalent of the current benefits package in Medicare fee-for-service. Now, they can certainly add additional benefits.

They could restructure those benefits similar to the way that Medicare risk plans are allowed to do so today in the Medicare+Choice.

But the point would be that they would have to offer at least that minimum. It has to be at least actuarially equal to what’s offered today in the Medicare fee-for-service.

Mr. DINGELL. But is actuarially equivalent?

Mr. ALTMAN. Equivalent squared. [Laughter.]

Mr. DINGELL. When I get new words, I’m easily frightened. I become concerned.

Mr. O’GRADY. In terms of thinking of the way this was modeled, it’s the same level of generosity, without specifying exactly what that would mean if you wanted to have some sort of flexibility in terms of cost-sharing provisions.

We see things in FEHBP like the use of mail order drug programs in order to keep the benefit generosity high, to be able to afford these benefits. You’re still offering full prescription drug coverage, but you’re able to offer it in more cost-conscious ways.

In that particular program, and that’s just for illustration here, OPM allows them a certain amount of flexibility. They have to cover prescription drugs. How they want to do that is based on a negotiation between two sets of actuaries working out if this is still as generous a benefit package?

If the plan comes up with a way of doing it more efficiently and it’s still as generous, it’s OK to go forward with it.

Mr. DINGELL. I want to pursue this later.

Mr. JINDAL. After the contribution--as we described, instead of this 75 percent with a flat line after that--this model has actually been modeled around three bend points to encourage beneficiaries not only to be able to choose plans that are above the minimum, but also to have some flexibility in choosing plans that offer additional benefits or cost additional dollars.

The three bend points are such--and it’s described in greater detail--but at 90 percent, for those plans that are less than 90 percent of the national weighted average, the government’s contribution would be 90 percent; for premiums between 90 percent and 110 percent, the government’s share would increase $2 for every dollar that the beneficiary paid; for 110 to 130 percent of the national average, the government’s share increases by $1 for every $2 required of the beneficiary.

After 130 percent, then the government’s contribution is capped. So there is flexibility within that range for the beneficiaries to get differing amounts of government subsidies.

Mr. DINGELL. What this means is that the guy that can afford a more lush plan is going to get a more generous contribution from the Federal Government; is that right?

Mr. JINDAL. Well, what will happen is----

Mr. DINGELL. And the guy who can’t afford that is going to get less.

Mr. JINDAL. Certainly the more money the beneficiaries are able to pay out of pocket will allow them to buy richer or more expanded benefits.

Ms. STEELMAN. That’s just the assumption.

Mr. DINGELL. The government is going to subsidize then, the more well-to-do acquirers of these plans because it’s going to subsidize more extensively, in larger percentage, the amount that’s going to be paid for the plan, than it would do for the guy who cannot afford that kind of good plan; is that right?

Ms. STEELMAN. These are design assumptions.

Mr. DINGELL. Pardon?

Ms. STEELMAN. These are design assumptions. I don’t agree with many of them, but I think it gets to the kind of conversation that as a Commission we definitely need to consider. Some of this I agree with, some of it, I do not.

I think that’s obviously a fundamental point that you’ve just raised.

Mr. O’GRADY. Any time that we have a series of different premiums that we’re being offered and you want to tie a contribution to a percentage, you’re absolutely right that if you say you’re going to pay 75 percent or you’re going to pay 90 percent, if someone chooses something higher, that is going to be a larger dollar amount.

There is a flexibility here in terms of where you want to choose how this flattens out. What the Feds do in terms of the Federal Employees Health Benefits is they do pay a percentage up to the 72 percent of the average for their program.

After that, the contribution absolutely flattens out. That is a design parameter. That has a very strong effect in giving an incentive to plans to not offer, to be careful to not offer too expensive a plan because all the extra money for that plan would have to come out of the beneficiary’s pocket and therefore it wouldn’t be very marketable.

So it gives very strong incentives for plans to be careful about not getting too far out, being more expensive than their competing plans.

This is an attempt----

Mr. DINGELL. But the well-to-do are going to do much better than the less well-to-do under this system?

Mr. O’GRADY. Some will get a larger contribution, quite true.

Mr. DINGELL. Particularly those in the upper brackets?

Mr. O’GRADY. They will get a lower percentage.

Mr. DINGELL. And a higher dollar amount?

Mr. O’GRADY. And some can get a higher dollar amount.

Now, you certainly have the options to flatten out at any point you want, so that you’re sure that it’s a lower percentage and a flat dollar amount. That certainly is--at this point, it flattens at 130 on this particular illustration.

For the Feds, under OPM’s FEHBP, it flattens at 72 percent.

Mr. JINDAL. Before I move on to the next point, I do think it’s important to point out that there is a tradeoff there. As Mike said, you can design a formula--and this is one example--you can design a formula with just a straight, flat percentage that wouldn’t do that, but what that would do, however, is that it would limit the options for beneficiaries to get these expanded or more generous plans.

What happens in FEHBP right now is that you have a clustering of plans and beneficiaries right around that break point. So what this does is, it does offer more opportunities for seniors to get something beyond just the national average.

But certainly that is a discussion point for the Commission.

Mr. VLADECK. We have this already. This puts a government subsidy behind that for the first time.

Mr. JINDAL. As a percentage, a decreasing government subsidy.

Mr. VLADECK. But for the first time, under this proposal, in the history of the Medicare Program, beneficiaries who were are in the position to spend more on supplemental benefits, would receive a government subsidy for doing so, as opposed to having to spend 100 percent of their own money as is now the case.

Mr. JINDAL. I think there is also evidence, though, that people who can afford supplemental coverage now will also cost the program more. One can make the argument that Medicare currently spends more on those people today, because they are costing more because they’re the ones who are more likely to be able to afford first-dollar coverage.

So I’m not sure that it would be the first time that were to happen.

But, once again, that is a tradeoff. I mean, you could design it without this feature.

Mr. VLADECK. This time it would happen on purpose. [Laughter.]

Mr. DINGELL. We are, however, in the awkward position of subsidizing more, the guy who needs the subsidy less, and subsidizing less, the guy who needs the subsidy more.

Mr. THOMAS. Let me comment on that, because what we haven’t talked about are the low-income seniors, the so-called QMB’s [Qualified Medicare Beneficiary] and SLMB’s [Specified Low-Income Medicare Beneficiary].

Although it has been assumed--it hasn’t been stated--one of the things that we have done for years is, in essence, subsidized very wealthy people under the Medicare Program. It just hasn’t been an on-the-surface subsidy like this.

I’d be more than willing to discuss flattening the curve, modifying it in significant ways. What I do think we haven’t talked about and we need to talk about, and we will, is that I would much prefer taking subsidies from taxpayers and covering low-income people with the entire cost of the package.

In fact, I’ve often talked about federalizing the QMB’s and the SLMB’s so that they get the full structure, and use our resources to subsidize those in need, rather than to subsidize those who are well off.

The current system, frankly, subsidizes those who are well off to the tune of 75 cents of every dollar on the part B, which is now moving toward 50 percent of the total cost and will go up if we continue the behavior we have in the past.

And so, yes, it’s for the first time consciously subsidizing, but I also want to for the first time focus on consciously subsidizing at the Federal level, seniors in need. We haven’t really stressed that, but I think we need to talk about it.

Senator BREAUX. I used the example back home which is very simplistic. I’ve got a $25,000 truck driver in Louisiana paying a Medicare payroll tax that’s subsidizing Bob Kerrey’s good friend Warren Buffett’s part B Medicare. Does that make any sense?

That’s an example that I’ve tried to use. I think what Bill is talking about is trying to see if we’re going to subsidize this, make sure we subsidize the people who need the help as opposed to people who perhaps don’t need it.

Mr. VLADECK. Mr. Chairman, the material that was provided to us by staff suggests that, in general, post-Balanced Budget Act, that notion of the truck driver subsidizing Warren Buffett is no longer true; that, in fact, the expected, the discounted present value of the contributions to the Medicare Program for people in the upper quarter of the income distribution now exceeds the present value of their expected benefit.

And that’s in the material that staff mailed to us. I think that’s very important to note, and since it’s relatively new information----

Senator BREAUX. That we’re not subsidizing the Warren Buffetts from the $25,000 truck driver?

Mr. VLADECK. We took the cap off the HI and because we reduced the outlay and the benefits.

Mr. DINGELL. Is that----

Senator BREAUX. Let’s move along.

Mr. JINDAL. I do want to point out that--I’ll leave the--the final point--once again, we’ve got additional--I think it may be helpful to finish this and then open up the discussion about premium support.

The final thing is that in addition to allowing the flexibility in the plan to offer different benefits, offering beneficiaries more of an opportunity to integrate their current spending, the potential behind premium support is to try to harness the savings that FEHBP and others have been able to experience by slowing the rate of Medicare growth closer to what the private sector growth rates are expected out into the future.

If we turn now to the grid--and like I said, I’m sure there will be many other questions and details we could talk about premium support--if you turn to the grid, we do the exact same thing we did in the first grid where we take the first variable, and we show that impact, the second column then builds on the first, the third builds on the first two, and so on and so forth.

If you start with the first variable, you see that if you do the premium support before you do the other changes, you see the change in numbers on the far right. You go from 625 to 318 on trustees’ intermediate, and you go from 1292 to 777 on no-slowdown.

Mr. VLADECK. The fact of the matter is that the estimate on the savings for this proposal which was done by staff is based on a series of assumptions which are unsupported by any empirical evidence and are contrary to the best judgment of everybody else I’ve talked to who understands health economics, including Bob Reischauer, who is sort of the most active proponent of a premium support proposal.

It is just those numbers are total fantasies. I don’t know if we want to talk about them in this session and use the Commission’s time on this or not.

But to say it’s going to save that kind of money is just inconsistent with the views of all but two people.

Senator BREAUX. Thank you for that comment. We will discuss it all, Bruce, and I’ll make sure they support what they have to.

Mr. THOMAS. Let’s move on.

Senator BREAUX. Let’s finish.

VOICE. Who are the two people?

Mr. VLADECK. The two people are the two staff members that created that estimate. They’re the only people in the world we could get to come up with that number.

[Discussion off the record.]

Mr. JINDAL. What we do is we go from premium support and we add the different variables, the different changes we did on grid 1, the fee-for-service program, to show the cumulative effect after you’ve done the premium support.

For example, if you add the modernizing the cost sharing and adding the catastrophic protection--once again, this was designed to be budget-neutral, so you only go from 318 to 315. I’m looking at the second row.

You go from 777 to 773, because, once again, it’s been designed to be roughly budget-neutral. You do the third column, in other words, if you reform Medigap in addition to the first two changes, you go from 315 to 307 on trustees’ intermediate, and from 773 to 763 on no-slowdown.

If you do the fourth column, if you raise the eligibility age--once again, these are all exactly the same as specified in the first grid--you go from 307 to 250, and from 763 to 690.

If you go to the fifth column, the graduate medical education and the disproportionate share changes discussed earlier, you go from 250 to 208, and from 690 to 634.

Those are the sum of all of the costs savings that are done on this grid. In other words, if you do all those things, you’re still $200 billion above this notion of viability on trustees’ intermediate, and you’re still $634 billion above on no-slowdown.

If you then add drug coverage, once again doing the same thing, drug coverage with an actuarial value without specifying the benefits to all beneficiaries, you increase the distance you’ve got to cover from 208 to 553 and you increase the distance from 634 to 1,120.

Part of the reason the increase here is larger than the increase up top, part of the reason--there are others--part of the reason is, here the beneficiaries are paying a smaller premium. They’re paying a premium that in the first year was 88/12 for the average cost plan, 90/10 for the lower cost plans, whereas up above in grid 1, when we added drugs, beneficiaries were paying 25 percent of the part B premiums.

That is one of the differences, but anyway, as you see, you don’t get to solvency, even after doing the first five columns, and after you add the drug coverage, you’re certainly a reasonable distance away.

Senator BREAUX. And there is a difference, obviously, from the first chart with grid 1 on the line 5 at the bottom with $757 billion short, and with a premium support plus all of this, you’re still $553 billion short. Jim?

Mr. MCDERMOTT. Could you tell us what percentage of the people that are going into FEHBP in this assumption are going into managed care? I mean, FEHBP has some people that are in managed care and some that aren’t.

When you made these assumptions, what did you assume?

Senator BREAUX. Go ahead.

Mr. O’GRADY. This proposal was structured so that plans would be able to bid either locally, regionally, or nationally. The idea was to encourage a wide variety of plans.

So it kind of depends on your definition of managed care. Most HMO’s would probably bid locally.

Some large PPO’s or fee-for-service plans might bid nationally or regionally. Do you consider that managed care?

Mr. THOMAS. That’s not responsive to his question. Take current law and it was the assumption of Medicare+Choice versus fee for service and that’s roughly 50 percent by 2025. What would the assumption be of managed care within this model, whether it be fee-for-service or within the premium model?

Mr. MCDERMOTT. Right now you have 15 percent in managed care, and they assume it’s going to 50. I want to know, does this assume 50 are going into managed care by 2025?

Mr. LEMIEUX. Yes, or more.

Mr. MCDERMOTT. If you haven’t been able to get them there with the carrot of added benefits, what kind of stick are you going to use to drive that many senior citizens into managed care by 2025, except high premiums or enormous deductibles and copays?

Is that what is assumed?

Mr. THOMAS. It’s the same assumption as current law.

Ms. STEELMAN. My reading of Jeff’s assumptions, which are available in the book, says that all he did was take the current enrollment trends as specified by CBO in the current choice markets.

In a premium support market which is in Jeff’s assumptions, some of which I agree with, some of which I don’t, some of which are perfect questions we ought to be debating, he simply adopts that enrollment rate.

There is no way you can segregate that into what kinds of plans are going to be bidding what kinds of dollars under the design that is assumed here.

Like Jeff said, maybe the national plans are going to be managed care, and maybe they won’t. There isn’t even an national plan in the Medicare+Choice market.

So, my reading of your assumption is that you simply took CBO enrollment trends and applied them in this model.

Mr. DINGELL. That’s a very good explanation, but you have here a mix now apparently of Medicare, which is nationwide in character, you have the mixture as you so wisely refer to, of the same mix being the same as we have now, but that’s going to change, you’ve indicated, because some of these plans are going to be national and some of these plans are going to be local.

I’m trying to understand, what is the reliability of this number in view of that?

Mr. VLADECK. It’s a lot stronger than a lot of the other assumptions in the model, so I wouldn’t worry too much about it.

Senator BREAUX. Jay Rockefeller?

Senator ROCKEFELLER. This is an extraordinary discussion, and I love my two chairmen, and I want them to field the work as close to the ground as we can get. I think we have to ask practical questions about this.

We’ve talked about, you know, actuarial equivalence, and now I’m trying to relate that to what does that mean to me? I’m a Medicare beneficiary. I come from a rural area, maybe cross subsidized many times. [Laughter.]

But I don’t know that, you see, because I don’t even know what a cross subsidization is.

Mr. THOMAS. I’d rather they do it to you than me. [Laughter.]

Senator ROCKEFELLER. So I’m dealing with my $10,673, and I’m being told about an actuarial equivalent.

Then, you know, I say, that’s a strange thing because in the part of the world I come from--and I’m not referring just to West Virginia; I’m referring to all kinds of rural areas all over the United States, and poor areas and other areas, too.

An actuarial equivalent doesn’t sound to me like something I can take to the hospital or send to HCFA or send to Medicare or Blue Cross/Blue Shield.

What I do understand is something called a benefit. I understand a benefit.

Now, my question is, I guess, to you, Bobby, is--we don’t have where I come from, choices. We have almost no HMO penetration.

By the year 2030, we’re not going to have 50-percent plus penetration; we’ll be at around 7.

So, what becomes important to me is what benefits do I get out of this? And if we’re not talking at some point--I don’t care when it is, now or at dinner or whatever, but if we’re not discussing a certain set of minimum benefits, then I don’t think we’re talking about anything at all.

Because actuarial equivalent is meaningless to me as a Medicare beneficiary.

Mr. JINDAL. Three things: First of all, any beneficiary in the premium support model would still be able to choose the traditional Medicare fee-for-service plan.

Second, in terms of one of the hopes for this plan is that in the same way that FEHBP has been able to foster 10 national plans, the hope is by allowing the plans to bid nationally, by doing this kind of market-based premium contribution----

Senator ROCKEFELLER. Can I just interrupt you? Your first statement, that anybody can go back, we’ve said that now about eight or nine times in our meeting, that we can always go back to fee-for-service.

But going back to fee-for-service depends on what’s left for fee-for-service. The more people that make choices are the people who are leaving fee-for-service.

My people all stay in fee-for-service, so when you say we can go back to fee-for-service, it’s going to be a smaller and smaller fee-for-service with less and less to offer, with older and sicker and poorer people in it; will it then not be?

Mr. DINGELL. And with adverse selection.

Mr. JINDAL. Not necessarily. There are two things: If you believe that Medicare fee-for-service will probably have proportionately higher enrollment in rural areas--if we accept the assumption that in rural areas you’re not going to have as many private plans, those are actually lower cost areas than some of your urban areas.

So, depending on the geographic adjuster that’s chosen, for them, the Medicare fee-for-service plan may actually be cheaper than it is now, because, yes, you may have fewer beneficiaries, but you’d have more rural beneficiaries.

And in terms of the question of risk adjustment, certainly there is an opportunity, if the plan had a disproportionate share of the elderly or disabled, once again, depending on the risk adjusters, there are ways to make sure that the plan is compensated, at least partially, if not entirely, for that adverse risk selection.

If I go back to the three points, one was certainly that anybody in this premium support model--the way this has been described, could still choose a Medicare fee-for-service plan; second, one of the hopes is that--in the same way that FEHBP has been able foster 10 national plans that are available across the country to all Federal works, the hope would be that also by allowing plans to bid regionally and bid nationally, and also by setting a premium contribution that’s not based on administered pricing, you would also encourage more entrants into the private Medicare market.

Senator ROCKEFELLER. And you understand that in the whole history of deregulation, when people had a chance to compete for market share in areas like probably two-thirds of Americans come from, that they tended to go elsewhere, where all the people are? They don’t compete, they don’t give you competitive bids unless you have large volume.

I have to face that, Bobby.

Senator BREAUX. Debbie?

Ms. STEELMAN. I think there’s just entirely too much eating of broccoli in this conversation. We really do have a chance to improve this program, to make it work for people in West Virginia and in Dent County, MO, where I come from where there is no major industry either.

We have that chance. That’s what we’re supposed to be doing here.

One of the things that’s interesting to me about the Federal model, using the model of, I assume, your insurance--it’s not my insurance because I’m not a Federal employee--is that there are 10 national plans. They are required by law.

Every problem that we have today is one that is supported by law. So if a Federal Employee Health Benefits Plan has a law that says you have 10 national plans and people cross subsidize, we need to look and see is it possible that that could actually solve some of the problems that, for example, in the Medicare+Choice market, are not solved?

I mean, West Virginia is not solved by the Medicare+Choice market.

By looking at this model, could we maybe solve that problem?

Mr. VLADECK. What problem?

Ms. STEELMAN. That there’s no choice in West Virginia.

Mr. VLADECK. And how much effective choice did the 10 national plans offer Federal employees in West Virginia? How much difference is there between plans?

Senator BREAUX. Bill Thomas?

Mr. THOMAS. Let me answer that because it may be somewhat useful to know that under the current Federal Employees Health Benefits Program in West Virginia, they have 24 different plans from which to choose.

So under the current FEHBP model there are 24, two dozen plans in West Virginia. And to argue that somehow we have a national standard now under Medicare, but we wouldn’t under this program, is to ignore the fact that the Health Care Financing Administration has said that 50 percent of beneficiaries will be in a managed care program.

And to underscore Debbie’s point of view of where we’re starting from, remember, one of our most difficult problems has been the formula that we use to pay managed care, especially with that built-in medical utilization factor which produces $900 per beneficiary in Dade County, and now $376 because we legislatively created a floor in other areas. We have fundamental, enormous distortions in the current system that would at least be adjusted by market forces rather than by arbitrary votes of Congress with the rural caucus trying to lever us to a number that may or may not have any reference whatsoever to medical usage or utilization in a given area.

Senator BREAUX. Colleen and then Stuart.

Ms. CONWAY-WELCH. Tennessee also has 18 or 19 counties where there’s no women’s health care at all, no obstetricians, PA’s, or physicians, but in Tennessee, in rural Tennessee, there’s at least seven FEHBP national plans.

My concern is that the conversation that we’re having assumes that we’re going to be delivering care in the same way in 10 years or 12 years or 20 years as we’re delivering it today, and we simply aren’t.

We’re going to have telehealth, we’re going to have computerization, we’re going to have diagnostics in a whole variety of ways.

I would like to think that there is going to be a number of providers who are not physicians, who will be able to be more on the front line in these areas, and that physicians will be providing the backup and the extra expertise via telehealth.

So we must not assume that the providers of care today are the providers of care tomorrow, and that the sites of care today are the sites of care for tomorrow.

You’re going to be getting care through your television set, and hopefully it’s going to be of higher quality.

Senator ROCKEFELLER. But the benefits to the Federal employees and to the number of people we’re talking about compared to the impact on the health system compared to Medicare is trivial.

I think for most of you, the numbers are much larger. The use of the health care system----

Senator BREAUX. 10 million versus 40 million.

Mr. ALTMAN. Not only that, the expenditures for 40 million, so we’re talking about a very large--I am very nervous about a non-regional payment system and what it would do to the delivery system of our major areas in this country.

I’ve been playing out those numbers. You know what, I’ll take Boston. I’m very comfortable with our health care in Boston.

If you are talking about a massive redistribution of dollars away from your major metropolitan areas, the higher cost areas, your higher teaching areas, your higher use areas--now, I’m not defending all the use there, and there are places in this country where we have documented evidence which just churn health care----

Ms. STEELMAN. Let me make sure I understand your concern, Stuart.

Mr. ALTMAN. You know, a lot of you will come to Boston when you get sick. [Laughter.]

So, you just need to look at the numbers. I like the premiums. I have a lot of support for it. I like the bending of the line.

I want to talk about that, but when you start talking about using national rates----

Ms. STEELMAN. Nobody is talking----

Mr. ALTMAN. I’m sorry?

Ms. STEELMAN. A plan, though, would pay a hospital differently in Boston than in Missouri.

Mr. ALTMAN. If I understand this--and I am prepared, if you tell me I’m wrong, I will back away--when you go to national rates, and you’re sitting there in a very high cost area, you will not get proportionally the same amount of dollars, which means that plan is either going to have to push--I won’t go on if I’ve got it wrong.

Mr. VLADECK. For the local plans, they’re only adjusting half the difference.

Mr. ALTMAN. There is some adjustment.

Mr. VLADECK. The market is determined by the local payment level, which reflects only half as much variation.

Mr. ALTMAN. That’s what I understand the staff paper says.

Ms. STEELMAN. But these are design questions.

Mr. ALTMAN. I just need to put on the table that this design question is not----

Mr. VLADECK. Mr. Jindal suggested that we’ll get away from all these political rate-setting, but we’re just changing the formula. I dislike for very opposite reasons, but let’s admit, this is not a technical solution; this is just taking the well-established political deal which is made, and requiring us to come up with new ones; that’s all it’s doing.

Senator BREAUX. Senator Kerrey?

Senator KERREY. I vote aye. [Laughter.]

As staff explained, you see this tremendous difference, the tremendous savings from $625 down to $318 billion, and it has a lot of appeal, just on that basis, and again, I get back to I don’t know whether it’s an economic or political or whatever reason that we have a tremendous increase in outyear costs in this program.

I think it’s unsustainable. I don’t think Congress is going to be willing or shouldn’t be willing to allocate that kind of percent of the overall budget to pay just for Medicare.

I mean, if that’s 38 percent, fine. We all know that it won’t be exactly that in 2029, but that’s been the trend; it’s been doubling up and it’s been a growing share of the budget.

Anyway, we know we’ve got a problem, a financial problem of some kind, that we’ve got to reduce the outyear costs of this program.

So I look at $300 billion and I say, God, that looks pretty appealing, but I know the difficulty of raising the eligibility age. And that gets, what, $60 billion?

So, it isn’t just done with a magic wand here or something. Somebody is getting less, right?

Mr. VLADECK. This scoring is not on the basis of magic wands, Bob.

Senator KERREY. Well fine, but let me get the two guys in America who believe these numbers here.

Mr. JINDAL. The staff is larger than two. I think there may be three or four.

But a couple of things: First of all, I do want to talk about the numbers, but let me touch very briefly on the geographic adjustments that were used.

The geographic adjustments that we’re assuming in this variable basically said there would be geographic adjusters for things like non-health care differences in the cost of doing business across different areas.

But it did not allow for differences such as utilization-driven differences. So that’s the reason for the reduction in the geographic variation.

Mr. VLADECK. That’s what I’m talking about.

Mr. JINDAL. Plans in the high cost areas still get a higher contribution than the low-cost areas, but only to reflect the higher cost of wages, the higher cost of rent, et cetera, in other words, non-medical differences.

Mr. VLADECK. We started out with the DRG system to do that. Then we started adding in the adjusters, whether it was teaching adjusters, disproportionate share, to sort of get it closer.

And I understood that. I didn’t--and there was some value in leveling the playing field a little bit.

But I’m saying if you level it as much as you’re talking about, I think you need to look hard on the implications on the delivery system.

It’s sort of easy to flail your hands around and say we need to do that. You’re talking about a massive redistribution of money.

I’m talking about probably hundreds of billions of dollars over a 20- or 30-year period of time.

And I don’t know the implications of it, and I would suggest we all think about that.

Senator BREAUX. Senator Kerrey, Jim McDermott, and then Bruce.

Mr. JINDAL. I think Ms. Steelman brought up an important point in that certainly we have specified certain design variables, whether they’re geographic adjusters, risk adjusters, none of which were intrinsic to the operation of a premium support plan.

I mean, the Commission may make different assumptions. We put a statement out that certainly these variables can and should be discussed and many of them can and may be changed.

The point is that we will then go back and look at the analysis of those impacts.

This is merely a starting point. This isn’t to suggest that if you do premium support, you have to smooth out the geographic differences.

Mr. VLADECK. I understand that.

Mr. JINDAL. Or if you do premium support, you have to do any--there are certainly different ways.

Senator KERREY. But tell me who is going to get $300 billion less.

Mr. JINDAL. All right, the savings that result--certainly these adjustments would help West Virginia and Nebraska.

Senator KERREY. How are we going to get $300 billion less?

Mr. JINDAL. In terms of the savings, the savings largely accrue----

Senator KERREY. But can you define savings? Savings means that somebody is going to get $300 billion less?

Mr. JINDAL. No, it’s not a zero-sum game. The savings accrue----

Mr. VLADECK. Providers in high cost communities are going to get $300 billion less. You can call it efficiency, but it’s less.

Senator BREAUX. Bruce, let him answer. I’m going to call you right after I do Jim. Calm down.

Mr. JINDAL. But the geographic adjustments are designed to be budget-neutral. It’s not that you’re saving money from Boston to save the $300 billion.

The $300 billion on savings come from the modeling that the private plans’ growth rate will be slower, the beneficiaries in the private plans will experience slower growth in their per-year costs than they would if they had stayed in traditional Medicare for a variety of reasons.

You can say it’s because of competition, you can say it’s because of integration, you can say it’s because we’ve given beneficiaries incentives now because they now have a choice of plans, and they do get some returns by choosing lower cost plans.

There are a lot of different behavioral reasons that you would expect that as beneficiaries do move into these private plans, it will slow down the overall growth rate for the program’s spending.

Senator BREAUX. Congressman McDermott, and then Bruce.

Mr. MCDERMOTT. I have a little trouble understanding how the Federal Employees Health Benefits-type Programs would work when I look at what the actual experience is with Medicare+Choice.

I was lucky enough to be a representative from one of the states, the five states that got the booklets sent out. This is the booklet they sent to my state.

In this booklet, it’s filled with all the choices under Medicare+Choice. There isn’t 1 out of 10 in this book that you could actually buy, because everything changed between the time they put the book together and the time people had the material for their actual rates and what their bids were.

They put a letter in the front of it which essentially says you don’t have to worry, you can still stay in the old Medicare, because none of the stuff in this book is really accurate. It’s just kind of ‘‘for example.’’ [Laughter.]

Mr. DINGELL. But, Jim, there isn’t anybody who can understand that booklet.

Mr. MCDERMOTT. Well, I’m not going read my title there. It says Crazy HCFA Document. [Laughter.]

Mr. THOMAS. That is an example of what HCFA does and we’ve got to move away from that.

Mr. MCDERMOTT. Let me speak for a second here.

The problem with this whole business is, when you don’t take into account the regional differences and everything else. The Pacific Northwest is the lowest paid area of the country.

And if you don’t bring us up--I’ll take Bilirakis’ HMO payment rate, or I’ll take Kern County, CA. I’ll take any one of those, because they’d bring us up to something we could live with.

But I see in the newspaper now that Members of Congress are going to HCFA and saying they’ve pulled out of 12 of our counties, but if you let them take out one ZIP Code, ZIP Code 78850 in Medina County, TX, we’ll go back into two of those counties.

Now, how in the world are you going to have this kind of choice going all over the country when you’ve already got the chaos created by Medicare+Choice, and then you’re going to say, open it up and let everybody bid.

I don’t know if you’ve ever dealt with old people or not. But my father is 93 years old. He’s laying up in a hospital right now.

And if you put a $400 deductible, plus a 20-percent copay on his hospital insurance, you’d take away 15 percent of his income, because he lives on Social Security.

And I don’t see where the reality of this kind of stuff was. A stop loss for him at $4,000 doesn’t help him one darn bit, if he’s living on $12,000 on Social Security.

And you’ve got 9 million widows in this country living on $8,000.

So when you start putting this kind of stuff together, and then throwing all this confusion at them, you are creating a real mess, which I think in the minds of some people must think will lead us to get rid of Medicare.

But I think this issue has got to be put on the table. How much chaos can the system take?

You can blame Nancy-Ann DeParle or Bruce Vladeck or anybody else you want but you can’t have that much chaos in this system, and have two Members of Congress get one ZIP Code taken out with this program making any sense.

That’s why I have a lot of trouble when I ask how many are you expecting to go into managed care? If you think 50 percent of people are going to go into managed care, then you ought to look at what happened in the experience in Washington State where they pulled out.

We lost 250,000 slots, bingo. And I think that these assumptions in this particular plan have got to be looked at very carefully.

Senator BREAUX. Would you like to make a comment on that?

Mr. JINDAL. Yes.

There were three separate points. One was about the geographic adjusters. As much as Dr. Altman didn’t like what was happening in Boston, I think Representative McDermott would like what the assumption would do for Washington State.

Certainly, once again, that’s not intrinsic to a premium support plan, but in this variable, what was assumed in terms of geographic adjusters, would actually benefit low-cost areas today that aren’t getting that kind of adjustment.

And to the second point, in terms of the deductibles and the copayments and the stop loss and what that does to a particular beneficiary, certainly that’s not the only way to change the benefits package.

But the thinking there was right now you’ve got a small percentage of percentage of beneficiaries, a very small percentage that have very high expenses, that don’t have catastrophic coverage. This was one attempt to try to spread that risk out.

It was one attempt to try to say the purpose of insurance is to spread that risk out over a greater number of people. Certainly it’s not the only way.

There may be particular beneficiaries that wouldn’t benefit from the spreading of risk. Overall, on average, it was budget-neutral, so it wasn’t shifting to beneficiaries as a group, higher expenditures.

Certainly certain beneficiaries would do better, those that used to have very high expenses would benefit from stop loss; certain beneficiaries would not do as well, those that did have stop loss coverage independent of Medicare, for example, or those that maybe would face a higher deductible on outpatient physician services in part B.

Finally, the third question was in terms of the amount of change in the program. Certainly, there needs to be a discussion about how much and the timing of change of the program.

One of the rationales behind the premium support system, though, by making the premium contribution based on local market rates as opposed to administrative pricing was one of the hopes and one of the potentials is to reduce the amount of volatility in terms of plans leaving and entering.

Instead of just leaving based on what the rates are set as plans may have done with Medicare+Choice, they would then have an opportunity to at least try to charge a higher premium. The market may not bear it.

Maybe beneficiaries won’t choose those plans, maybe they will switch to other plans, but there is a potential you’d actually have less volatility in a market-based priced system as opposed to an administrative-based price system.

Mr. MCDERMOTT. I would just say one thing about that, though. If people want to move, and they want to get back into Medigap, you’re going to have to look at Medigap, because people are being told a lot of different things by Medigap insurers.

In Washington State, when they call, it’s not clear they can get back in at the same level or at the same premium or in the same program they were in before.

They’re allowed back in, but they don’t want them into the high cost ones where they get their pharmaceuticals again. They won’t let them in those programs.

Senator BREAUX. I’ll have Bruce next, and then I had Bill, then I have Colleen, and Congressman Dingell and Bill Frist, and Laura.

Bruce?

Mr. VLADECK. Let me just try to make three points very quickly, and apologize for continuing to object, which I won’t do anymore.

The first is that the entire savings in this model are based on a differential in growth rates between Medicare costs per enrollee in these plans, in private plans, and Medicare costs in fee-for-service, which is based on a very selective choice of the only periods in time and the only set of numbers that produce a differential sufficient to produce this data.

The fact of the matter is that over the history of the Medicare Program, to the extent there has been a difference in per capita cost growth between fee-for-service Medicare and private health insurance, it’s been to Medicare’s advantage, not to the private sector side.

And if you pick 3 years or 4 years in the early nineties as the basis for a 30-year project, it runs counter to all the other empirical evidence that we have available about the long-term patterns of costs.

But what makes it worse is that our experience with 20 years of the Medicare risk program suggests, in effect, that when you squeeze the rate of cost growth in Medicare payments to a level below that of Medicare fee-for-service cost growth in a voluntary election system, either beneficiaries stop going into the plans, or the plans stop doing business with Medicare, which is just what we now have seen.

The only way over the last 20 years that we have been able to increase Medicare enrollment in managed care plans is by overpaying them, by paying them, in effect, on a risk-adjusted basis, more than the same beneficiaries would cost in fee-for-service.

If you pay them less, then either the plans cut back the benefits to the point at which the beneficiaries don’t enroll, or as has just happened all over the country, the plans leave the program.

So there is no behavioral assumption of any sort of that kind in this model. There is also no behavioral assumption in this model having to do with the very powerful incentives in this particular design for people to pick richer benefit packages, even if it’s only half of the population which are going to increase government costs for those programs.

So we have had, and we’ve talked about this a long time--I know Mr. Thomas and I--and we have had this fundamental dilemma in trying to save money in the Medicare Program through the use of managed care, which is that if you set the rates higher than what you would pay in fee-for-service, you can do wonders in terms of encouraging managed care enrollment. You just don’t save the program any money.

If you set the rates to save money relative to fee-for-service, either the plans can’t compete on benefits and would leave the market, or their premiums are such that beneficiaries don’t enroll in them. And this is not a fantasy like premium support; this is 20 years of empirical experience.

Senator BREAUX. OK, Bill Thomas, and then Colleen.

Mr. THOMAS. I have a couple of responses to you, Bruce.

You’re arguing now the savings argument, and I understand your point behind it. But I think one of the things that most of or I think all of us are concerned about is not just the savings.

And we can quarrel about how much savings are made, but the understanding that at the end of the day, our option is basically all of the above and then more.

What we’re also trying to do is create a program that makes adjustments that keeps beneficiaries on the cutting edge of medical delivery and services without bankrupting the system, and that the current model just doesn’t do it.

Your analogy to the problem of what we now call Medicare+Choice is, I think, a good example. Both you and Jim indicated that the current system is just chaos.

Well, part of it is associated with a government-administered program. These plans were required to present their rates prior to the government issuing the rules under which they would be paid.

Guess what? Some missed the target. And when you have a government-managed and administered-managed care program, that’s what happens.

Mr. VLADECK. With all due respect----

Mr. THOMAS. I didn’t interrupt you.

What you do with the FEHBP is get the marketplace into the adjustment mechanisms. Some of the concern is that that means plans would change periodically as market conditions changed.

Some people see that as a negative. Some others see it as a positive because it means you have viable programs that last over time because they’re realistic, not the unrealistic programs that managed programs offer.

Two other points: You’re arguing about people trying to get ZIP Codes out of it. That’s what works for them.

Others argue, don’t count military reservations in our AAPCC because that distorts it. Some people like ZIP Codes, some folks like pulling military bases out of the formula.

Your point is well taken; neither one should be done, unless there is a real reason for doing so.

But, again, this is a government-administered and adjusted program, and that’s what happens when you have a government-adjusted and administered program.

The other argument that HCFA makes and they made in front of the subcommittee repeatedly is that they can’t do anything because of the Y2K problem.

Now, fortunately, this occurs once a century, and we’re talking about getting beyond 2000, and we’re dealing with years and decades into and beyond the Y2K problem.

So, I do think it’s a bit unfair to take a premium support model, extrapolate it 30 years into the future, and use today’s current adjustment problems of a bureaucracy that doesn’t know how to deal with consumer education, but rather is a price control mechanism and has Y2K problems and puts out regulations after it requires plans to submit their rates.

I agree with you, that’s not a good model to utilize. I also don’t think it’s fair to use that as a criticism of a premium support model patterned after the FEHBP which, although we have problems of scaling up because it has a smaller profile, it nevertheless affords some opportunities to get some of that self-correcting mechanism which is so lacking in current Medicare into the structure in a way that not only doesn’t bankrupt the structure, but, in fact, might provide some savings.

Senator BREAUX. Colleen?

Ms. CONWAY-WELCH. I want to take some issue with the term, managed care. In fact, we’re managing costs.

And the opportunity for disease management, for working on health promotion and health maintenance, and for making these plans attractive, not only from a financial perspective but from the care that they get and the care that’s managed, is what the managed care organizations are seeking.

But they haven’t been able to do that yet. There’s more of a focus on cost.

If you’re looking at the site of care, of if you’re looking at how care is given in 10 years, 15 years, 20 years, then management of disease, and, better yet, management of demand by keeping people healthy by virtue of managing care, is a future that seems very realistic.

I think that there will be reasons why people would want to go into managed care after it takes on the sophistication that people like Tony would like it to have.

Senator BREAUX. Congressman Dingell and then Dr. Tyson.

Mr. DINGELL. Thank you, Mr. Chairman.

I have a couple of observations first: I represent both an urban and a rural area. My rural area has virtually no service for the people, except in the one urban center that exists in that place, in Monroe.

For the rest, the people who have either Medicare or Medicaid have to go somewhere else with the exception of two clinics. And they have to go to usually Detroit or to Toledo or sometimes to Monroe.

And those are high cost places, especially Detroit, but also Toledo.

So I find some curiosity with regard to the judgments made with regard to how money is going to be saved or how it’s going to be flowing inside the rural areas.

My other concern is, we’ve just gone through a very bad experience. A bunch of HMO’s have pulled out of the business of providing service under Medicare+Choice.

The consequence is that we have now a vast difficulty for people now trying to figure out how they’re going to get into another HMO, how they’re going to get back into some kind of Medigap policy that will cover their overages, and we’ve got a huge problem there.

But I want to ask Bobby a question. Bobby, does this include, in your assumptions, the idea that there’s going to be a significant expansion of HMO’s or not?

And if it does, does it address the question of HMO’s not going into certain areas. For example, if they’re going to have the choice of going in, I can think of a dozen places in my district or in the State of Michigan, or, indeed, in the United States, without any difficulty, wherein they will refuse to go into an area to provide services.

What are the assumptions there?

Mr. JINDAL. Three things: First of all, the variable as it’s presented here assumes current enrollment trends in the beginning. It doesn’t assume that more people or fewer people will enroll in the early years. It does assume the current CBO projections about the number that would be switching to private plans.

Second, I think it is important to note that we’re not just talking about managed care plans. This is envisioning a broad range of plans, everything from private fee-for-service, to the HMO’s and everything in between, and other variations that I probably couldn’t even describe to you today.

Finally, third, it’s important to note that in all areas where there are no private plans, even under this new model--let’s say that for some reason we don’t get the same number of national plans that FEHBP current sees, there would always still remain the option of enrolling in Medicare fee-for-service. That’s still an option for all beneficiaries.

So the answer to your question is, this does not initially assume a greater enrollment in private plans than is currently the case.

Mr. DINGELL. Doesn’t this give you some distortions then in your appraisal and in your estimates?

Mr. JINDAL. No. I think the estimates were based on--I mean, they were actually based on local regions. I think there was--in the modeling of those estimates, there was an attempt to look at which regions have high penetration and low penetration of managed care today and to project that forward.

When we looked at the cost, we did look at what was currently going on and try to project that going forward.

Mr. DINGELL. Managed care prospers in Detroit or in Boston. It doesn’t prosper in Monroe County or Highland County, VA, or rural areas or in Wyoming. It just doesn’t prosper there.

Mr. JINDAL. And we didn’t change those assumptions in terms of this.

Mr. DINGELL. But then again you have the awkward problem. How does a fellow who lives there and is retired or a widow who wants to go there, get the protection of being able to move into managed care if he or she wants to move into it?

Mr. JINDAL. Well, it would be the same. I don’t think that person would be any worse off than they are with Medicare+Choice. They are potentially better off if you do believe you’d have additional national plans willing to bid because of the premium structure.

But they certainly wouldn’t be any worse off.

Mr. DINGELL. I think my friend Tony over there can tell you that national plans are going to wind up being the insurer of last resort, and they’re going to wind up picking up people that nobody else wants.

The smart guy who goes into these--who sets up one of these plans, is going to set it up in an area where he can make money, not in an area where he can provide service to the people who really have need.

Mr. JINDAL. One thing we haven’t talked about is the administration. We envisioned there being a board similar to what you’ve got with OPM, that actually negotiates with the plans.

One of the things that could be required is that that board would make sure that plans don’t try to game their geographic systems; that they do have to bid either by a certain region, so they cannot come in and pick out those ZIP Codes, as the Congressman was talking about.

Mr. DINGELL. If you look, you will find that they’re not doing that, but they’re playing some neat games. They’re advertising in the physical fitness magazines so that amongst the seniors that they get, they’re getting the healthy ones.

They’ll advertise in places in with the sports car buffs or with hunters or the fishermen, because they think here’s where we get the healthy ones.

I’m just worried that we’re buying ourselves a situation where folks are going to outgame the system.

Mr. JINDAL. And certainly risk adjustment would counter some of that adverse or positive risks selection, and certainly this new board, this purchasing board would have a responsibility to counter the kinds of fraud and abuse and gaming of the systems that you could see today.

The hope is that by having an agency that’s solely focused on being a purchasing agency instead of also being a providing agency, it would be more able and have more resources and tools to do that, to pursue those kinds of fraud, abuse, and gaming of the system.

Senator BREAUX. This is a general comment, and next is Dr. Tyson.

What we have out here, again, is not a proposal. This is just something we have for discussion. We’re getting some great discussion.

We’re getting people to say why it’s got holes in it, why it’s not good. And that doesn’t necessarily mean that you just reject everything. You can adjust these things, you can take some care of some rural areas.

You can take care of certain groups by making adjustments in all of these proposals. These are just a concept for discussion purposes.

Dr. Tyson?

Ms. TYSON. I can actually build on that to say that I have as an economist, a lot of sympathy for the premium support approach. This sympathy has to do with believing that as medicine gets ever more complicated and complex, that the administrative, regulatory price control structure that we have lived with for the lifetime of Medicare, is no longer appropriate; it’s just too difficult.

We have to make a change. Having said that, I also think that there’s a huge amount of uncertainty about how much money that will actually save.

It is not just that we have witnessed the HMO’s pulling out of certain regions of the country, a lot of things have happened in the lifetime of the Medicare Commission itself.

We have FEHBP now paying the largest percentage increase in premiums that it has paid since 1989. There is clear evidence that at least in this year and next year, that private plan premiums are going to rise rather substantially.

So who knows, are the last 4 years right or the next 2 years or the last 10 years? I don’t know.

Second, we have a very strong growing support for the notion of some controls over HMO’s. I’m not involved in this debate, I’m not going to be involved in this debate, but let’s face it, this is a major issue of interest in the country, and it’s going to be a major issue before the Congress.

An HMO bill of rights of some sort will, I suspect, raise the costs of HMO’s. So if that’s what society wants, that’s fine, but the point is, we better not build a choice for premium support on the grounds that we’re going to get HMO-type savings that we’ve seen in the last 3 years.

I think that’s a ludicrous assumption. Now, having said that, I would still support the notion of trying to get a reasonable premium support proposal, but let me say now why I would do that:

No. 1, because I think it does engender greater efficiency over time; No. 2, because I think you could use a premium support approach to get better benefits.

But here I have to diverge very much from the model that we started with, because I would say that I am much more sympathetic to the notion of having a well-defined and adequate benefits package in the premium support model.

After all, what we heard from Reischauer and Aaron was that you should essentially have prescription drugs, you should essentially have a well-defined, not actuarially equivalent, a well-defined generous standard benefits package which eliminates the need for Medigap altogether, which essentially leaves the system with a choice for greater efficiency.

You take away the inefficiencies of Medigap, you take away the inefficiencies of people having to choose non-drug therapy when drug therapy is available because you put drug therapy into the benefits package.

So a lot of the efficiency gains from premium support are going to have to come from an improvement in the Medicare benefits package, and this model wouldn’t get you any of them.

Finally, I think that the other argument that they offer--we take efficiency, adequacy, and then there’s the issue of equity.

I think equity, as the conversation we had around the table here really gets at the notion that the particular model you guys chose to deal with left unaddressed, a lot of these concerns about regional differences.

In fact, again, what Reischauer proposed in his own variation of this was regional; that you didn’t have national plans, you essentially had regional plans, because you can’t really get at inequities across.

Senator BREAUX. You have national standards.

Ms. TYSON. But you have national regulatory standards and national definitions of the benefits package; that’s what you have nationally. But you certainly don’t try to get a premium based on half of the regional variation and not the other half; you don’t do that.

Senator BREAUX. That’s a very constructive comment.

Dr. Frist, Senator Rockefeller, and Mr. Watson.

Senator FRIST. Mr. Chairman, I want to go back just to graduate medical education, really just to make it clear to the study group, because a number of people have participated, and I talked to some a few days ago before this proposal--not this proposal, this placeholder was put into place.

But I do want to make it clear that I personally--again, not having talked to any other members--don’t agree with the assumptions of GME/DSH here. It’s fine to have it as a placeholder. I think it’s very important to show how tough it is to deal with any of these issues, which is really what I think we’re going to end the day with as we go forward.

The assumption that was made for GME, graduate medical education, the education of post-medical school care is as follows, as I understand it:

There’s DME, direct medical education, and IME, indirect medical education. The assumption here is that you took direct medical education out and put it over into discretionary spending.

That can be debated. It’s one of the six options that were put in the paper that the staff presented to us, and we can go through that at some point later, and that can be debated.

Again, it doesn’t say spend any less. In fact, I think the consensus is, if I went around the study group, people would say, no, don’t spend less. When you’re saying don’t spend less, you’re saying it’s not going to be paid for by Medicare, it’s going to be paid for by somebody else.

Well, being on the Budget Committee of the U.S. Senate, that’s a big issue, but it’s one that we can talk about.

The part that I do disagree with, though, that I want to express, and we can talk in another forum about that, is the assumption of a 20-percent additional reduction to indirect or IME, indirect medical payments.

The assumption here is that on top of the 29-percent reduction on IME, which we as a Congress just passed last year for the next 5 years--we’ve already said cut it down 29 percent, the assumption here is to cut it another 20 percent on top of that.

The substantiation that staff used in making that placeholder, not recommendation, but placeholder, goes back to some 1985 recommendations, and then also a recommendation of ProPAC in 1997 where some numbers are mentioned.

But in going back and looking at some data that they presented to us, there are a lot of cautionary flags. They sort of predicted, OK, you can do this for 1998, 1998, but, and I quote, ‘‘any further changes in the level of the adjustment should be made gradually and monitored closely to ensure that access to the services these facilities provide is not adversely affected.’’

Again, it comes down to what Senator Rockefeller and others have mentioned, and Dean Welch had mentioned, that ultimately, we’re talking about the care of patients. We’re talking about parents, spouses, future generations, and it comes down to how we can best give them the security, the simplicity, as they face difficult times in their life later.

I think the important point I want to make is that this is not a study group recommendation. In fact, I personally disagree with the degree of that.

I think that that is a statement that needs to be made, and we’ll look forward and want to encourage other Commission members to look closely at the staff paper, which I think is very good in laying out the options as we go forward over the next several weeks.

Senator BREAUX. Bill, just as a point of clarification, in layman’s terms, the recommendation, however, is to essentially take it out of Medicare and then put it into an appropriations process by the Congress?

Senator FRIST. What this placeholder does--and that’s one of them, take all the graduate medical education out of mandatory Medicare, and put it elsewhere, that’s one of six.

This one is a little bit of a hybrid where you take part of that, just the DME part out, and put it over into this discretionary spending, and leave everything else in IME.

Senator BREAUX. Where would indirect medical expenses go?

Senator FRIST. It stays right where it is.

Senator BREAUX. It would stay in Medicare?

Senator FRIST. It would stay right where it is today.

Senator BREAUX. OK.

Senator FRIST. That’s based on the placeholder here.

My problem is with not so much that, as these cuts, 20 percent on top of the 29 percent we haven’t even seen yet.

Senator BREAUX. OK.

Senator Rockefeller?

Senator ROCKEFELLER. And just to add on to what Senator Frist said, it occurs a number of times in the description, the staff description of GME, that academic health centers have shown an extraordinary ability to project themselves well as something of that sort before the Finance Committees, Appropriations Committees, et cetera.

The implication is, therefore, that they’ll do fine.

I think that is probably what Bill Frist and I would be worried about; making a statement like that, just simply isn’t responsible.

The question I wanted to ask, Mr. Chairman, but first I’ll make an observation.

Dean Welch made a very good point earlier when she said we’re not going to know what any of this is going to be like in the year 2030.

Now, then she proceeded to say that we should go to the year 2030 as opposed to the year 2015, but that’s not my point.

She said the technology is going to be different. I think the whole prescription drug thing, I think generics are going to come just storming forward, for example, and it raises the question--one of two questions in my mind, and this is just a general one that doesn’t have to do with premium support in general.

That the prescription drug, whether it was $100 billion or $60 billion or $40 billion, or whatever it is, I can remember a time when we were talking about $10 billion.

I’m not sure how it got so expensive. Was it the pharmaceuticals we didn’t want to offend or whatever? I happen to agree with you. I mean, I think the world’s going to be so different by the year 2015, much less the year 2030, and I think generics are going to be a huge part.

I mean, they’re going to go way up in their contribution to the health care system.

But I asked a question before about core benefits.

Senator BREAUX. Can we get Bobby to maybe comment on that?

Senator ROCKEFELLER. Let me just finish my final thing.

On core benefits, I didn’t really get an answer on that, which I didn’t expect to, but I wanted to raise the question, because I think the core benefits is extremely important.

When you talk also about actuarial value and core benefits, and with the understanding that, you know, a lot of--we’re a lot less well off than a lot of private systems in this country.

My question is, who is going to make the determination about what those benefits will be? Now, you talk about an administrative board of some sort, and I’d like to get a sense of who makes that determination, and when they do make that determination, are we--do we plan to write in that there’s going to be like--I hate to mention the word, but one of the few things that I imagine that Senator Frist liked about the Clinton health care plan was the fact that there was a quality review benefits board.

The word, quality, is very important, and so this whole question of benefits and what they do, and how do you--and can you measure them in different plans as being performed adequately, is that contemplated?

Senator BREAUX. Senator Rockefeller has two questions.

Mr. JINDAL. I think I heard the two questions, but if I didn’t, you can correct me.

The first question is about drug growth. We actually assumed a fairly conservative drug growth rate. If you look at recent experience, we’ve seen a 9-percent annual growth rate, to give you some kind of a benchmark.

Prescription drug expenses actually grew at 16.6 percent in 1998. Now, that was obviously a high growth year, but others have projected it to be closer to 10 percent for the next 10 years.

We’ve looked at the recent historical experience and future expenditures, and actually assumed a fairly conservative 9-percent growth rate.

So that’s where those numbers come from.

In terms of the second question on core benefits and actuarial equivalency, what we’ve described in this variable is that there would be a board similar to the way that OPM functions, a FEHBP-style purchasing board, if you will.

They would be responsible for verifying plans, yes, your benefits package meets our minimal requirements, or, no, it does not.

And it would be done on an actuarial equivalency basis. One way to think about that----

Senator ROCKEFELLER. And if it does not, you couldn’t participate?

Mr. JINDAL. That’s right. There would be minimal standards, that would have to be at least as generous as the current fee-for-service package.

One way to think about that is to think that currently, at least, Medicare+Choice plans also have a certain degree of flexibility in being able to tradeoff benefits. It’s not exactly the same, but they do have a certain amount of flexibility, but there are minimal standards they’ve got to meet that HCFA currently decides.

So there are a couple of precedents, either whether it’s HCFA doing it in Medicare+Choice, or OPM doing it in FEHBP, there are some precedents in a national purchasing board saying yes or no, this meets our minimal standards or not.

Senator BREAUX. Mr. Watson?

Mr. WATSON. As we get down the home stretch, life sure is getting interesting around the table.

I just want to caution that you shouldn’t shoot all your ammunition too early.

I don’t think we’ve ever had a time period in American history than we’re facing. We’re asked to continue and find a solution to Medicare while at the same time, we’re undergoing a health care revolution.

I probably, as well as anyone, know all the national experts, people like Stu. I know them well.

And in this health care revolution, they don’t know what’s going to happen. They don’t have any idea.

They’ll go around charging people for it to hear them talk about it. [Laughter.]

But, look, you have the hospitals undergoing fundamental changes. They’re trying to merge, shift departments.

You have medical schools, understanding that we have too many specialists, subspecialties, more primary care, and it takes time to change that around.

Then we have the explosion of technology. We removed all the Certificate of Need laws in the country so every machine that’s going to promise a drastic improvement, we have to pay for.

Then we have the drug companies that are coming forward with explosions of cures and treatments. Unfortunately, I’m trying every new arthritic drug they put out.

And then we try to understand what happened to this miracle of managed care? If you really looked at the world this year, all of them are losing money, big money, in the hundreds of millions.

And the ones that you thought were so big and so rich all over this country, whether it’s in Boston or New York or California, what happened?

We better look at this health care revolution a little bit before we start making financial projections and financial decisions.

There is something that’s going wrong. Managed care never said it was the answer. Government said it was the answer for cost reasons.

Have you really looked at why they pulled out of these areas?

Mr. DINGELL. They’re losing money.

Mr. WATSON. You talk about the marketplace. Who can lose millions to do good, if you go bankrupt?

You give us these charts that we look at, and we also want to put in the factor of the public hearings. I don’t know about the rest of you, but I’ve listened to them very clearly.

We were in New York, we were in Minneapolis. I read the testimony from West Virginia, from Tennessee.

You better not mess with Medicare, you better not try to cut it out and make it unaffordable for people, the vast majority of them who can’t afford to pay for much health care.

So, I just kind of wanted to bring us back to a little perspective. We do have a very difficult job and we do have to look at a program on how to enhance it.

At the end of our report to the Congress, we had better have a section that they’d better immediately start looking at long-term care.

If you don’t have a place to put people, then the hospitals have to take care of them. The medical side has to take care of them, which will also increase your costs.

We have a long-term care crisis that’s going to come on us that’s going to make this Medicare crisis look very small.

So I still think we have a lot of work to do.

Senator BREAUX. Thank you. Let me just make a comment on the fact that public hearings that you’re absolutely correct. I mean, a great deal of the comments that we heard from the public are reflective of the same comments that Senator Rockefeller and I have heard before the Senate Finance Committee time and again when people come to the Congress and say, fix it, but don’t change it.

Fix it, but don’t increase my premiums, fix it but don’t cut my benefits. Fix it, but don’t increase the eligibility age. Fix it, but don’t increase my taxes, but, Senator, fix it.

So the challenge that we all have, and the reason you all have been selected around this table, is to hopefully bring the best minds in the country together to try and find out how to fix it in a way that’s acceptable and that works.

Let me tell you, it isn’t easy. The discussion this afternoon for the last 2� hours indicates that no matter what we’re talking about, they’ve got problems with it.

Neither one of the two grids, and I want to get to the third grid, neither one of the two grids back here solved the problem as far as solvency is concerned. Both of them are hundreds of billions of dollars in the red, in the hole, insolvent, in the year 2030, whether it’s the premium support system we have back there, whether it’s a fee-for-service system like we have now, with some changes.

So, I mean, you’re exactly right; fix it but don’t change it, but in the year 2008, we have a serious problem of a magnitude that’s indescribable.

I mean, we met with the President this morning, and they talked about Social Security and what an important problem that is for us to address. Social Security is easy, Social Security is easy to fix in comparison to fixing Medicare, it’s a monumental difference in difficulty. OK.

Mr. MCDERMOTT. Around Thanksgiving, the Inspector General released a report requested by Congress about the purchase of drugs by Medicare.

Your pharmaceutical benefit assumes a 9-percent reduction off costs, off the nominal cost. But the VA is getting 50 percent.

I wonder why that was not modeled, or why you did not model that, why you assumed that Medicare couldn’t buy as efficiently as the VA does?

Mr. JINDAL. There are two things: First of all, we were very careful to try to give actuarial values of different examples of the benefits package.

Certainly if one wanted to assume a large discount, you could assume other things about the benefits package. But a second and important point is when you look at Medicare’s purchasing size and purchasing--I’m sorry.

What we did was, rather than trying to specify a benefits package for the drug package, we specified an actuarial value. We gave one example of what that amount of money would buy, and that one example said, if you assume a 9-percent discount, you get these deductibles, these cost sharings, this amount of protection.

Certainly, if one wanted to say, well, I think we can get a bigger discount, or a different deductible. You could play around with those different variables.

But the second point is--so that’s the first plan, that we--the specific example, the scoring is based on the actuarial value, not the actual specification of the drug benefit.

For the second, there’s a bigger point there that’s certainly beyond the staff’s scoring. But there is a second and bigger point about what would it mean to use Medicare’s purchasing power and have those kinds of mandatory discounts or statutorily required discounts off of drug prices.

Certainly, like I said, that’s not something that is a scoring issue. I think that’s a bigger issue for the Commission to talk about in terms of what does it mean to use Medicare’s relatively large purchasing power in combination.

Mr. MCDERMOTT. Isn’t that the point, though, if we buy in bulk? I mean, there’s 10 million veterans. We buy and we get 50 percent more than we get if we’re Medicare buying for 40 million. It seems to me there’s enormous savings there, if we would use the same practices.

What is it about the veterans practices that would not be applicable to Medicare, or is it that you want to make individuals go down to pharmacies and buy individually, rather than buying in bulk?

Mr. HOWARD. How are you going to do that with 30 million people all over the country? How are you going to do that? Just explain to me how you’re going to do it.

I mean, you can’t.

Mr. MCDERMOTT. The same way ours does it, by mail.

Senator BREAUX. Then Bill Thomas, and then I’d like to get grid 3 out in front of us. You’ve loved grid 2, and you’ll really love grid 3. [Laughter.]

Mr. THOMAS. I have a couple of quick responses. This may be useful for discussion later. If you take the VA model and say that it affects about 15 percent of the market and then add Medicare, it affects about 45 percent of the market.

It’s possible for the structure to carry folks paying 75 cents on the dollar. If you had a bus, you could give one person a ride.

But if you’re going to give 50 percent of the people a ride, you can no longer maintain the structure.

Senator, I wish the problem were generic drugs. My concern is exactly the opposite, that as we extend the patented period, and that as there are more and more very specific targeted drugs becoming available, that it will be the specific, not the generic drugs that will drive costs, at least over the next decade or 15 to 20 years.

When those kick into the generic category, then you’re going to get an enormous benefit of a cheaper price, but you’ll have other drugs coming along if the pharmaceutical industry can continue to spend the enormous amount of up-front dollars to get the products that they’ve got to pay for the research and development.

That is something that concerns me. We are literally----

Senator BREAUX. That’s exactly what Bruce Vladeck just told me, too.

Mr. THOMAS. Well, we agree on a lot of things.

But we really are the last best hope for drug research because everyone else is currently riding on our coattails about how we fund for the newer products.

So to adopt a system that subjects 45 percent of the market to get 75 percent of the cost is to basically destroy the industry, and that’s one of the responses.

My concern about a more specific benefit package is that I would not want to get so specific that it would require, Dr. Tyson, Congress to make the adjustments because the whole purpose, I thought, of the premium plan was to get more of the market into it.

I totally agree with Tony, we’re trying to correct a system that is operating within a more fundamental system that has fundamental flaws.

But if, in fact, we’re able over the next few years to address some of the fundamental flaws in that larger health care system, it is a premium system that has the best chance of getting those changes into the Medicare community faster than waiting for Congress to legislate the specific benefit changes.

And then, finally, as I said in the introductory statement, in terms of long-term care, you’re absolutely right, but as we discuss Social Security, the time value of money on something we know we’re going to need like long-term care or chronic care, is best addressed more closely in a pension-like adjustment system than it is in a medical system.

And we have to get across to the President that as we talk about Social Security, we’ve got to talk about long-term and chronic care where we can put the time value of money to work to pay for something that we know is coming and that we ought not to try to deal with it off of a short-term funding, more of an acute care model.

Senator BREAUX. Stuart, and then we’ll get to grid 3.

Mr. ALTMAN. Well, it really has to do with grid 3, and it’s anticipating a lot. I mean, the biggest concern that many of us had that looked at the savings--and I think Laura said it and Bruce said it--is the artificiality and the very difficult-to-believe--you want to hold that--about the substantial savings from the fee-for-service, and therefore, when you go from two to three, which essentially doesn’t do anything other than assume that everybody is in these artificial plans, I mean, I don’t want to be overly dramatic here.

But these savings aren’t real. They are manufactured by the estimating procedure, and therefore, the more you carry it out, the more absurd the end comes.

What’s troubling to me is that you’ve got a lot of people out there that are going to write these numbers down and go away thinking, my God, if we just--that is the magic bullet.

I happen to like a lot of the aspects of the premium support. I’m where Laura is. I think it makes for a lot of appeal.

But the savings aren’t real because what you’re talking about is a fee-for-service Medicare Program that has no adjustments, just keeps going along.

And then you’ve got the--when you go to these private plans, they are going to make savings. Now, how are they going to make those savings? They’re going to make savings by pressing down on provider payments, by doing things more--all the wonderful things of the market.

I don’t have any problem with thinking about that. But so is Medicare going to do it.

So if you were to--if we would have gotten a fairer--and, I’m sorry, Bobby, this is a very unfair comparison.

And I’m with Bruce. If you took 10 analysts that aren’t sitting around this room, and put those two plans together, I don’t think anyone would come up with those dropoffs. That’s the concern we have.

What you assumed was I’m not going to touch the cutbacks on provider payments on fee-for-service, but I’m going to assume all the savings that the FEHBP or the private plan has gotten over the last 20 years.

As Laura said, the best assumptions any of us are able to come up with is over long periods of time, they operate about the same.

If we had done that, and we looked at it fairly between the two plans, you would get very different numbers.

And therefore to go to the third grid, which essentially takes what many of us think is the rather strange set of assumptions of two, and just manifest them to three, is very troubling to me, not because I don’t like the FEHBP, but it just pushes us so far.

Senator BREAUX. Let me ask Bobby to comment. I mean, if the estimates are incorrect estimates, I mean, then this has no value behind it.

And if they just took the figures out of the air, it is valueless. But I don’t think that’s where it has come from.

Can you give us some comment to address this?

I want to ask about the numbers.

Mr. JINDAL. I think I have heard two different types of concerns about the numbers. First, Dr. Altman talked about the fact that we have not applied, as the chairman mentioned in the beginning, we have not applied provider or BBA-type cuts to either.

I think if I heard your first concern, it was that----

Mr. ALTMAN. But you did apply, excuse me, to the FEHBP because you used the growth rates. They already apply their own set of cost containment in there.

So you allow those to stay in, but you don’t allow it on the fee-for-service side; that’s my concern.

Mr. JINDAL. Right, so if I can capture the first concerns, that we’ve not allowed provider cuts in the fee-for-service side, which would be applied to both grids 1 and 2, because in grid 2, you still have a significant portion of the population that still is in fee-for-service Medicare, they’ve not gotten the slower growth rate.

So you are absolutely right that if you applied BBA-type cuts to both the grid 1 and grid 2, both numbers would drop.

Mr. ALTMAN. Yes, and so the gap would be much smaller, is all I’m trying to say.

Mr. JINDAL. The gap between that and solvency.

Mr. ALTMAN. The gap between the current law and 12 and 13 and 14. In other words, you wouldn’t see it fall off the end of the Earth from 625 to 310.

The 625 would come down, so the gap would be smaller, and what people--the take-away--maybe you didn’t intend it--but the take-away is, if I go to the FEHBP plan, look at all I save. I go from 625 to 310. That’s not right.

Senator BREAUX. I see what you’re saying there. But I said when we started this that we’re not intentionally adding either premium increases or taxes or extended the BBA. If we did that to both grids, obviously both grids would come down as far as the short run.

Mr. ALTMAN. Mr. Chairman, when we compare--you did it on the FEHBP. You take the FEHBP savings, which is their own version of constraining costs.

Now, Medicare has its armada, you know, and the FEHBP and the private sector has theirs. And if you take the guns away from the Medicare side and you leave them on the FEHBP, that’s my concern.

Mr. THOMAS. Mr. Chairman, just one comment on that.

If you’re going to use that analogy, the question is who pulls the trigger. And I think very few people would quarrel with the argument that the private sector constantly pulls the trigger to make adjustments, because they’re dealing with the marketplace.

The idea that the current Medicare structure would make similar reductions would require Congress to pull the trigger in a relatively frequent way to reflect the marketplace. Go back and reflect the discussion of moving the marketplace slightly into Medicare, which is the Medicare+Choice, which deals with only 15 percent of the population, and I will tell you that your model will lag behind any other model that allows the marketplace to make the adjustments versus Congress voting the adjustments.

So there’s still a timelag aspect, I would argue.

Senator BREAUX. Mr. Howard.

Mr. HOWARD. Let me address Stuart Altman’s question with respect to the savings.

Stuart, I’m the only person in this room that participated in a program where all the plans, all the public sector programs were put in the plans, were put in HMO’s and PPO’s. I will tell everybody in the room that there was only one plan that existed prior to the inauguration of TennCare, one. There were 12 that participated.

I will tell you that the average cost of taking care of a Medicaid beneficiary was $116 per member, but the premium was $104. I will tell you that there were 800,000 people that were covered under Medicaid. It’s now 1,249,000 people that are covered, and the premiums have gone up about 4 percent a year, 3 percent a year, 3 percent over a period of 4 years.

I think that you are totally off-base if you tell me that the private sector cannot cover more people for less money. I mean, your numbers--the problem is, I’m telling you that the program has worked in a state right now with the richest benefit package in the world. I mean, you can get unlimited drugs, unlimited hospital days, and transportation. You can get it all, and we’re covering 50 percent more people than before.

The problem is that you have this program that is run as a public health program as opposed to a benefit program. And if you were to make the change to a premium-support-type of a system, you’re going to get more people covered, more benefits and better benefits. And you cannot tell me--I’m telling you, I’m living with it right now. We have it right now. You don’t have it anywhere else.

Mr. ALTMAN. Sam, I don’t want to argue with you on that, although I would just say a couple of things.

First of all, Medicaid is not Medicare. You force the poor people in. You can do anything you want. You put limits on the government payment, but you did a lot of wonderful things.

I wasn’t trying to argue against the market. I just wanted a fair comparison, and I would stand to get 5, 8, 10 experts of your choice to go look at these numbers. To me, it’s a very unfair relationship even before you get to your issue.

Senator BREAUX. We’ve got to get to 3, because we’re going to end at 5 o’clock.

Bruce, you had a comment.

Mr. VLADECK. I just want to respond to what Sam is saying.

I know about TennCare, Sam, and I will say that Tennessee under TennCare did not substantially outperform the fee-for-service Medicare plan in comparable states. That’s one.

Two, I will say there was no increment in the benefit package, pre- and post-TennCare, in the Medicaid benefit package. And in fact, there was a significant reduction in the quality of the mental health benefits being provided under the program.

And three, I will tell you that the expansion of coverage under TennCare, which was very dramatic and very effective, was financed largely by the reapplication of DSH funds, not by savings in the cost of taking care of enrolled patients.

Mr. HOWARD. How many more people were covered?

Mr. VLADECK. 400,000.

Mr. HOWARD. Second, did the birthrate go down under TennCare over a 4-year period? Did the mammograms go up?

Everything positive you’ve been trying to do with public sector programs for 30 years were accomplished in 4 years under TennCare. Mental health is another situation, but mental health was not done like TennCare originally planned it. Mental health was designed--well, I won’t comment.

Mental health was not done in the marketplace like you think.

Senator BREAUX. OK, let’s get to three, and we’ll continue. There’ll be a lot of time for continuation. Bobby, explain grid 3, then we can go close at 5 o’clock.

Mr. JINDAL. Grid 3--the one difference grid 3 makes over grid 2, it basically starts with premium support and adds the same variables.

The one difference grid 3 makes, instead of assuming premium support with current enrolling trends, it assumes premium support with 100 percent of the population enrolling in private plans. This is a hypothetical assumption. There was not a policy that was spec’ed out to go along with this. If one was to spec out a policy, you could come up with different assumptions that might affect the scoring.

What this basically assumed was that you get 100-percent enrollment in the private plans. In other words, there was not a traditional government-run fee-for-service program. From day 1, everybody would be in a private plan.

If you start off with the first row, you’re still at current law, still 625 and 1,292. You go to the next line, it goes to 120 and 490. And then each of the subsequent variables--for example, raising the eligibility age lowers it to 60 and 420. The GME and the DSH changes are from 60 to 30, 420 to 380.

And finally, those are all the things you do to reduce the cost. And if you go back and add prescription drug coverage, you go from 30 to 310, and from 380 to 770.

So once again, this is assuming that there’s not a traditional government-run fee-for-service program, but that everybody is enrolled in the private plan.

Senator BREAUX. Again, it’s noted at the bottom that this is purely hypothetical.

Debbie?

Ms. STEELMAN. First of all, I would like to say--who on Earth asked for this thing? Well, I asked for this. And I asked for it purely, Stuart, to get at your question.

We know what things look like with an all fee-for-service model. We know what things look like, sort of, with current enrollment trends, even though I would suggest current enrollment trends under Medicare+Choice are completely off the point to anything we’re thinking about in premium support, because they’re all design-related. But we know that.

So I said, what if everyone would be in a system that would do what Laura indicated: an integrated system, get the efficiencies, give people choice, the same benefit package--all that sort of stuff.

There are assumptions in the premium support model here that I completely disagree with. I would never want to see a public plan like that. But I think these are questions that reasonable people can differ on, and I think the staff made a very reasonable effort to construct a plan that had some basis in the literature and respected opinion.

So I just wanted to see if that happened, what would it look like? To me, the numbers and specificity are not at all important. The numbers are important in terms of magnitude and trend.

Again, I think these are areas where reasonable people can differ, and I would hate to see the arguments get hung up where we have been for the last 30 minutes. Because the most important thing, the real reason that I’m interested in premium support as opposed to current-law Medicare+Choice or current-law Medicare--the reason I’m interested in pushing this envelope, because it does give us some opportunity to go somewhere we haven’t been before, so when we get at the political viability of this program as opposed to just the mathematical equations.

What I mean by that--can we create a system in which the influences of the provider community, of the beneficiary community, of the taxpayer, of the legislators, of the regulators are in some kind of symbiosis or in some kind of balance that I think does not exist in the current program? And it’s one of the reasons we have so much difficulty with the current program.

The current program I think was designed very well, and for 30 years it has tried to adapt. It has done some things that were faster than the private sector, like the DRG system, which would not exist if it weren’t for Medicare. It has done some great things.

The question is, can we in some alternative design make it even more adaptable to the kind of things that Colleen has put on the table in terms of the change in medical care; to the things that Tony’s put on the table, the changes we may or may not be able to predict.

It’s those questions in premium support that I think are the most important. And this focus on numbers--whether or not these documents got us off track or not I would actually contest, because this is by far the most interesting conversation we’ve had yet in these meetings.

But I would like to get beyond who’s right about what numbers. Is there a possibility, and what are the design questions that we ought to focus our energies on? You had a design question. Senator Rockefeller had a design question. Several other people have.

Can we capture those and maybe work through them? Maybe I’d agree with you on some things, maybe I wouldn’t. But I would rather know that than try to determine any 35-year number is more valid than any other 35-year number.

Mr. ALTMAN. Debbie, just--would you take the numbers off?

What’s scary to me is sitting out there implying that you can go and essentially eliminate the whole problem. That’s what bothers me.

Ms. STEELMAN. That’s fine with me.

Mr. ALTMAN. We take the numbers off, and we’ve talked about the design and stuff, I wouldn’t have any problem.

Those numbers are so scary because they imply there is magic here. And I would like to see where the magic came from.

Ms. STEELMAN. I would like to see if there is an assumption that we could have a slower rate of growth. So let’s just say that and we can get rid of the numbers.

Mr. VLADECK. I understand this issue of design systems. To me, they’re a bit of an argument, and this will get John Dingell’s attention.

It’s like saying that the average internal combustion engine only runs at 60 percent of theoretical efficiency, so we should abolish internal combustion engines and only permit electric cars. I mean, I have spent the last 6 years having to contrast a real operating health care system with a bunch of theories.

And you can talk all you want about design decisions. But the fact is, the Medicare Program has been around for more than 30 years, and we have more and more data on the private sector. And we have empirical evidence on some of these things, and we have actual experiences.

Now, we started out in what became Medicare+Choice with a set of proposals that looked to some of us eerily like the package we got this week. And then we went through a series of political compromises, some of them my differences with Mr. Thomas, some of them that neither Mr. Thomas nor I supported, having to do with how money was moved from one region to another and so on and so forth; because this is a program that operates in the real world, largely outside this beltway, not in an entirely designed world.

And the fact of the matter is that we are contrasting a reality that is actually out there with a set of theoretical arguments. And I don’t know how we’re ever going to get--the fact is, the health care markets don’t work like real markets. Health care markets have their own peculiarities, and health care markets in New York work very differently from health care markets in Boston, not to mention in West Virginia or in Seattle or in southern Missouri.

Ms. STEELMAN. They would have to work differently for a Medicare beneficiary than they do for me. They have to.

Mr. VLADECK. Well, Medicare beneficiaries are very different from you. That’s why we have a Medicare Program.

My problem with this argument is that every time somebody talks about what is going on, either as Tony did, actually occurring in the health care system, where what’s happening with private premiums is that they have been kept low for the last 3 or 4 years largely, I would argue, because of the underwriting cycle. And as a result, all the private insurers are losing a lot of money.

And we just slide right back to that and we say, we have a design problem.

Ms. STEELMAN. There is a design problem. If you price regulated people out of the market, they’re out of the market. That is a design problem.

Mr. VLADECK. But we don’t price regulated people out of the market in the private sector. They’re out of the market because they’re losing money in the private sector.

So the fact of the matter is, we are arguing economic theory on the one hand versus the realities of the Medicare Program on the other hand. And unless we figure out a way to talk about these things in the same language, we’re going to go around in these circles for a long time.

I think that the modeling that was done for these assumptions, which is as good as most such modeling is, once you get past--and we’ve talked about this in the past--once you get past 2010, we all acknowledge it’s likely to be slightly better than making up numbers at random. But we’re talking about 38 million real people. We’re talking about a million and a half real providers, and we’re talking about changes in the health care system that are going on that I think all of us paid experts would say, we don’t know where they’re going.

But we do know that a track record of more than 3 years of the application of anybody’s theory to reducing the rate of cost growth substantially below GDP per capita has not occurred in this country. That we know as an empirical fact, to which we counterpose theoretical arguments.

Senator BREAUX. Senator Gramm.

Senator GRAMM. Mr. Chairman, first of all, if we followed Bruce’s line of thought, we would just fold our tent. Because the reality that he is talking about is a system that we know is going broke. Nobody debates that.

We can debate about these numbers, but nobody debates the fact that the current system is absolutely unsustainable. And in reality, even though it is very difficult to talk about what is going to happen over an extended period of time, based on everything we know, this presentation is probably a conservative estimate of the reality.

Now, in terms of groups making real estimates--and obviously when you are talking about the future and you are talking about change, you are talking about estimates--nobody can know for certain what various changes are going to do until you make them. But the point is, we know what will happen if we do not reform the system.

I would like to point out that in the book Long-Term Budgetary Pressures and Policy Options, which is put out by the Congressional Budget Office, on page 60 and on the surrounding pages they go into great detail about the savings that are available through a defined Federal contribution system. So to say that no other organization has ever made these estimates is just simply not true.

I would just like to repeat something that I used to say when I was a Member of the House of Representatives and when we would have a budget debate. They would go hours and hours and hours debating what the current situation was. And my response to that was always, let us not get into a debate about the current situation. We all know the Government is running a deficit. We all know we would like to do something about it. Why don’t we debate things we can change, rather than debating whether these numbers are right or whether they are wrong?

The point is, the problem is real. We know it exists. I don’t think anybody thinks that this Commission is going to make a recommendation that is going to achieve, by these numbers or any other numbers, a balance in this program in the year 2030. I just don’t think it is going to happen.

And my view is, rather than getting into battles about all these numbers, I think our focus of attention ought to be on how can we save the system, in the sense of preserving benefits. I am not so interested in preserving the system as it exists now. When I talk to my mother, she does not care about the law as we have written it now. What she cares about is health care.

I don’t think we ought to get into a big debate about whether we are going to change the law or not. Obviously, we are going to have to do that if we are going to save the benefits. Our debate ought to be, what benefits can we provide that we can actually pay for; and can we do it more efficiently?

And the fact that we have got great uncertainty by the year 2030--my concern is, if we start talking about just 3 years or 10 years out, we play this game, which you all know we did on the Balanced Budget Act of 1977 where we claimed that we had made Medicare solvent for 10 years.

It was totally fraudulent. We should have all been embarrassed about it. Medicare was made solvent by taking home health care expenses and transferring them out of part A. And in the process, Bruce, we let your old department add $100 billion of new spending by reducing copayments, and then we did not count it because it was way off in the future.

Again, I think our focus ought to be to look at 2030 as best we can see it--which is not very clearly--and then say, what can we do to improve that general picture without getting into a debate about, whether that estimate is really what the program is going to look like in the year 2030.

But I think if we are not looking that far in the future, it is easy to define away the problem by making our scope shorter and shorter and shorter, and claiming we are fixing the program when we are not.

Senator BREAUX. Bill Thomas, then Jay Rockefeller.

Mr. THOMAS. Just briefly, because I can respond in part to you, Bruce, by referring to other members of the Commission.

I think all of us understand that we’re not going to get anywhere if we play the seniors card on the basis of fear or politics. I think it’s going to require a significant amount of leadership on everyone’s part.

I hope over the last few months that more of us understand that what we’re trying to do is save a system, and there’s legitimate disagreement about how you do that, but that there has to be some fundamental rethinking. And I’ll just refer to the economist, because she understands markets better than I do, and her comments about the pluses of the premium system--not in terms of any particulars, but the values brought by a premium system.

And I know Stu indicated he had a lot of concerns with some of the particulars. But from a conceptual point of view, I think it gives us a place to begin to coalesce around so that we can talk about changes. That may be a way for us to get to 11 votes.

Saving money is important. But I think far more important than saving money, and the point that we have to make, is that we have in large part a dysfunctional system that will get more so if we’re going to rely on 50,000 administered prices from a bureaucracy that doesn’t fully appreciate consumer education and the need to involve the individual to a certain extent, at least as much as they possibly can within the system; that makes sure they’re taken care of.

We may not be able to achieve that. But I’ve got to believe that we can come a lot closer than the one we have now. There are a lot of oxes that are trying to be protected, and frankly we’re going to have to gore a lot of oxes that are out there.

The idea that you want to attack this particular grid is perfectly legitimate. I think it’s more, as has been expressed, an exercise in an attempt to show what some folks would believe to be an appropriate position. I think the other ones are far more realistic, and that what we need to do is begin to do everything we can to set aside our differences, stress those areas that we believe we can provide some agreement, and that provides a marked positive opportunity for reaching an approach that gets us closer to 2030 solvent than the current system.

Senator BREAUX. Senator Rockefeller and Congressman McDermott.

Senator ROCKEFELLER. I think the heroine of the afternoon thus far is Debbie Steelman, because she’s really tried to get us to do what we ought to be doing, which is to get past various problems that we might have and to look at solutions. You’re really trying, and you need some health care yourself. [Laughter.]

You do, so you need a lot of encouragement.

The point I want to get at, Mr. Chairman, and this is where we really get down to it--Bill Thomas, I think quite fairly and properly, just used the words ‘‘playing the senior card,’’ and then the implication of politics. I mean, you just go back to the old thing of 50 percent of seniors have no health insurance. Medicare is just a savior program like--you cannot imagine what it’s meant to states like I represent; just incalculable.

When I talk about the $10,673, of course, I’m not, because they’re spending over $2,000 of that on Medigap, so it’s actually $8,000 for everything in their lives. What never comes up in these discussions, and Phil was talking about--you know, looking out to the year 2030, and don’t stop where you are now, but make bold decisions.

There’s a part of me, and I’m just trying to be very honest here--a part of me that fears people looking almost for a grand and great solution, a one-time overall solution almost for the sake of it, so that we can get it done and hang it up on the wall and hope like hell it works. And there’s some of us who represent, not just people from our state, but represent a point of view and a philosophy, who say we never talk about people around here.

That’s not a cliche. It’s always numbers, and does it drop off from this to that or whatever when we wipe it clean.

Well, I represent people around the country who are living on the margin for the most part. Jim McDermott made this same point. Bruce Vladeck has made this point, too--that it’s not that I don’t want to be bold. I mean, I’ve done all kinds of things which are potentially pretty stupid in 13 or 14 years here, and happily so, because sometimes you just have to do that.

But when you get to Medicare, and you get to the fragility of older people who cannot, and do not at this point--and we may, along with medical technology, come up to a way that senior citizens can come to make good choices and read between the lines and listen to things that they don’t hear as well or easily now--but there’s a tendency on the part of some of us to hold our powder dry toward great and grand solutions, magnificent achievements, because we have to protect people who have absolutely no margin for error.

Senator BREAUX. Well said. I can’t disagree with anything.

But the bottom line is ultimately, we have to make some recommendations. Otherwise the program won’t be there for anybody if we don’t have enough money to pay for the benefits. Who’s hurt by that? Every single one of the 40 million people who are going to find themselves without any health insurance at all. How we do it is a challenge.

I have Jim McDermott and then Debbie.

Mr. MCDERMOTT. Mr. Chairman, I think that we all struggle with this. We know there’s no simple solution to this. It’s like a spider web. You can’t touch one piece of it without affecting three, four, five other pieces.

So one of the issues that I can see up there--the most, it seems to me, unsticky strand of the spider web--is raising the age to 67.

Now, I think we could start just with that one, and maybe we could take that off all those charts, or put it on forever, by figuring out if there are sufficient votes in here to put out a plan ultimately that raises the age to 67. Because it is a major policy decision.

We have totally ignored the President’s proposal of reducing from 65 to 62, which was supposed to be actuarially neutral. That doesn’t appear anywhere. I’ve asked repeatedly since February for the data. That’s never been presented to the Commission.

But if we just want to take the issue of raising it to 67, does everybody think that the effect of that on the health care system will be a positive one?

Senator BREAUX. Is that a McDermott proposal?

Mr. MCDERMOTT. No, it’s not at all. I use the callus test. The more calluses you have on your hands, the less likely you are--is that your proposal?

Senator GRAMM. You stole that.

Mr. MCDERMOTT. I stole that straight from Senator Gramm. It’s a great one.

The more calluses you have, the less likely you are to want to raise it to 67. And I think we have to look at what that does to the health care system if we take guaranteed health care out for another 2 years for a lot of people.

I think we could start with that one. I mean, maybe that would be an issue where we could actually come to a conclusion on it. I don’t know.

Senator BREAUX. I thought you were proposing it for a moment.

Debbie Steelman.

Ms. STEELMAN. I’d just like to thank Senator Rockefeller for your kind comment. It’s not often I get called a hero.

Senator ROCKEFELLER. A heroine.

Ms. STEELMAN. Or that, either.

I’d like to ask you a question. I don’t think that anybody here is trying to ignore the fact that Medicare has made a phenomenal, overwhelming contribution, both to people and the health care system itself. I agree there is no higher good than health care. It’s a superior good. It’s what a wealthy society does for itself. And there’s nobody here that I’ve heard talk about wanting to make life harder for low-income people whether they’re seniors or not, or wanting to make life more confusing for seniors.

So my question really is, there are so many seniors, particularly in West Virginia--$10,000, $2,000 of which is Medigap. Why isn’t it logical to try to figure out a way they don’t have to pay $2,000 for Medigap?

There are 10 plans. Seniors have to figure out the differences between the Medigap plans, too. I don’t think the brain turns off when you turn 65, or 93 for that matter. I do think we owe seniors a rational environment in which to apply their own taxes, which they’ve paid during their work years, coupled with their own savings that they still have, with the hopes of finding an integrated benefits package that isn’t as complicated as the one we have. I think that’s the objective.

Senator ROCKEFELLER. Let me answer that, because that was directed to me.

One is I think we can. But I think before we do that, we have to drop the whole pretense about the year 2030 and go to the year 2015, and then I think you’ll see some people beginning to discuss hard and calculable numbers and real solutions.

And second, I think there’s been a fear on the part--Debbie, there’s no fear at all about solving something like Medicare, which is so important for people that don’t have a margin. I think the fear comes more from doing it unrealistically or doing it in--it’s like when you paint a very large canvas. You don’t see the small things in it.

And I think there’s a fear that there are some people here that just have an agenda, a particular kind of an agenda. And there are some of us who kind of hold back because, you know, those people may predominate.

And so we have to come back to the position of defending the most vulnerable. But if we will come back to the year 2015, then I think we can start dealing with real numbers and real solutions. I think that’s the way to solve our problem.

Senator BREAUX. I have an agenda, and that’s to make Medicare solvent and make it better than it is, and make it work and make it affordable.

Phil Gramm.

Senator GRAMM. I would just like to make a couple of points in response to a few of the comments that have been made.

First of all, I think we have all got to guard against thinking that we are protecting people by doing nothing. I think the cold reality is that it is a certainty that if we do not do something now, we are going to end up forcing Congress ultimately to do two things: One, raise taxes on young working people who have less income than the average retiree and have one-third the amount of wealth they have. And so the first thing Congress will do is force young people to give up their health insurance for their family to pay more taxes.

And then second, Congress will end up cutting benefits in Medicare if it does not find a way to fix the system.

So I just want to urge people--and I am urging myself at the same time--to not get caught in this trap, that the way you protect people is to oppose changing the system. I do not think the current system can be sustained.

The second point I would like to make is that the whole purpose of looking out to 2030 is to get everybody sobered up. The whole purpose of looking at what the problem is going to be like at the midpoint of the baby boom retirement is to force us to realize that this is a huge crisis, and that we are not going to be able to address it with marginal thinking.

Nobody takes the numbers seriously when talking about $1.2 trillion a year as a shortfall. The whole purpose of that is to whack you upside the face three or four times, to say, this is a terrible crisis and we have got to do something. That is the whole purpose of this exercise.

And the reason I am opposed to looking only at the point where the baby boom is beginning to retire is that we can convince ourselves that we have done something when in reality we have not. The first baby boomer is going to retire in 2012, and until we get to that period, the system does not look bad. The problem is that Medicare starts to fall off the end of the Earth at that point.

So when we are talking about this number, we are not talking about it because we really expect to come up with $1.2 trillion a year in savings. The purpose, however, is to get us to look at how bad the problem is so that we will deal with it, because we know that we are going to hurt real people if we don’t.

And that is why I am not in favor of just looking to 2010 or 2015. When you do that you have just assumed away the problem.

And not that I take the numbers that seriously because I am sure it is worse. But by looking at that number, at least we can say, hey, this is terrible and we have to get outside this conventional deal where, when Bruce talks about his ideas, he gets about 5 seconds into it and I switch him off. And Debbie talks about her ideas, and she gets about 5 seconds into it and Bruce switches her off.

I think the whole purpose of looking out to 2030 is that this is a terrible problem, and maybe we ought to be listening to each others’ ideas. Because in the end we are going to need all of them combined. There is probably not enough to get the job done.

Senator BREAUX. Let’s start wrapping this up.

Bill Thomas’ comments.

Mr. THOMAS. Just very briefly, it is very difficult to try to solve the problems in Medicare when we have fundamental problems in the health care structure, in the way in which government relates to the health care structure in the population at large.

One easy example to point that out is Jim McDermott’s comment about retirement moving from 65 to 67. One of the concerns is that people have occupations which, as they get older, health care is more important to them because of their lifestyle.

But probably more fundamental, and one of the things I heard from the President driving this approach to, ‘‘the near-senior solution,’’ was that primarily seniors can’t get health care because they don’t have jobs, and that health care is tied to jobs more in this system than it should be.

That is a fault of the Tax Code. And what we ought to be doing is looking at potential solutions in the larger context. And my hope is that at some point in the Commission--and I know we’re running out of time--is for us to say that there are people who are perhaps looking to the Medicare Commission to solve problems in Medicare that really need addressing in the more fundamental society-wide health care system.

If you want to deal with near-seniors, I think it’s far more useful to talk about fundamentally changing the Tax Code so that individuals, if they have the wherewithal, have the ability to get credit in terms of a basic package. But if they don’t have the wherewithal, there is a subsidy available for them regardless of their age prior to being seniors, and regardless of whatever that age that they become senior is--that they get health care in the system.

And we’ve got to look at more of a broad-based--universal, if you will--comprehensive, basic humanitarian package that isn’t tied to place of work primarily. Currently, if you go someplace other than place of work, you’re in a very expensive, personalized health care insurance market. That is unfair in terms of the costs that people have to pay.

So those young people who are paying payroll taxes are going to be able to have health care, even though they’re asked to carry a fair-share burden. That would resolve those folks, near-seniors, whether we define them now as 62 or define them as 66 later.

That is a far better solution than to simply sit here and vote, should people be seniors and covered by Medicare at 65 to 67? People should have some kind of health care, affordable and available to them at whatever age, including those who might be 63, 64, or 65.

That needs to be addressed in fundamental changes in the broader societal health care relationship between individuals, the private market and government support, credits or subsidies.

Mr. VLADECK. Let me just put on the record that I agree entirely. [Laughter.]

Mr. THOMAS. Wait a minute, wait a minute. [Laughter.]

Senator BREAUX. Let’s check what he said.

Let me just conclude with this comment. Obviously, today has been really the first day, I would say to all of our guests in the audience as well, that we’ve actually had some discussion on some ideas. You hear the Commission members actually talking about some of the problems with the various proposals, some of the good features about the various proposals. It gives everybody a clear idea why this problem is such an immense problem that it is, because it’s not easy to fix. If it had been easy to fix, it would have been fixed a long time ago.

But I absolutely believe that the best chance of fixing it lies with this Commission. I think Phil Gramm talked about listening to each other and not shutting each other off, and trying to have a dialog. This is what this is all about.

We are closing in on the time we have to make a report, March 1. We have another meeting scheduled in January. The meeting in January has not yet been picked, a date, because we’re trying to coordinate with everybody’s schedule. I know some people have some problems with early January, but we’re trying to get a date when people can all be here with the least amount of inconvenience and the maximum attendance, and we’re trying to work on the date in January.

It is obvious that a lot of work has to be done between now and January, with your staffs--with the Commission staff--trying to look at some of these numbers, Stuart, and getting some accurate scoring from the people who look at this, in addition to those who have already been helpful to the Commission staff, to come up with the best and most accurate information that we can get as to what these proposals will mean.

I think that today has been very, very helpful in trying to lay out on the table a direction and a proposal. We’re going to continue to talk with each one of you as to how you’d like to proceed from here.

The concept that you have a chairman’s mark--if I lay something out on the table, is that an idea to start working on later on? We need to have these discussions.

I certainly have not decided the best way to approach it. I will not do it without talking to each of you about that proposal.

A final note in answer to Jim’s question is that we will have a meeting in January. We have a tentative date of January 5, I think, that we’ve talked about. But I want to try and maximize the number of people who can come at that date to see what we can do for that meeting.

Jim.

Mr. MCDERMOTT. Mr. Chairman, there are many questions that we haven’t had a chance to ask, and I’d like permission to enter in the record questions that I did not have--plus a letter from the University of Washington about the GME question, so that at least that’s in the record.

I did not take the time to raise that, but I’d like it in the record.

[The questions referred to were unavailable at the time of printing.]

Senator BREAUX. Sometimes we forget the poor man sitting in the back who has been doing the recording of every word that we’ve said. That’s been a real task, and we appreciate that, because we’ve been at it for 3� hours.

Any other questions or comments? [No response.]

If not, this meeting will stand adjourned.

[Whereupon, at 5 p.m., the meeting was adjourned.]

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