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Congressional Testimony
July 31, 2001, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 5878 words
COMMITTEE:
SENATE AGRICULTURE,NUTRITION & FORESTRY
HEADLINE: 2002 FARM BILL
TESTIMONY-BY: DAVID M. WALKER, COMPTROLLER GENERAL OF
THE UNITED STATES
BODY: July 25, 2001
Statement of David M. Walker
Comptroller General of the United
States
United States General Accounting Office
Before the
Committee on the Budget, House of Representatives
Mr. Chairman and
Members of the Committee:
I am pleased to be here today as you discuss
the long-term financial condition of the Medicare program. In previous
congressional testimony over the past several years, I have consistently
stressed that without meaningful reform, demographic and cost trends will drive
Medicare spending to unsustainable levels. These trends highlight the need to
act now rather than later when needed changes will be increasingly more painful
and disruptive. Although the short-term outlook of Medicare's Hospital Insurance
trust fund improved somewhat in the last year, the long-term projections are
much worse due to a change in expectations about future health care costs.
Specifically, the Medicare Trustees' latest projections released in March
incorporate more realistic-- i.e., higher--assumptions about long-term health
care spending. As a result, the long-term outlook for Medicare's financial
future-- both Hospital Insurance (HI) and Supplementary Medical Insurance
(SMI)--is considerably worse than previously estimated. The Congressional Budget
Office (CBO) also increased its long- term estimates of Medicare spending. The
slowdown in Medicare spending growth that we have seen in recent years appears
to have come to an end. In the first 8 months of fiscal year 2001, Medicare
spending was 7.5 percent higher than the previous year. The fiscal discipline
imposed through the Balanced Budget Act of 1997 (BBA) continues to be
challenged, while interest in modernizing the Medicare benefits package to
include prescription drug coverage has increased. Taken together, these
developments mean higher, not lower health care cost growth.
They
reinforce the need to begin taking steps to address the challenges of meaningful
Medicare reform. In pursuing such reform, it is important to focus on the
long-term sustainability of the combined Medicare program, rather than the
solvency of the HI trust fund alone.
Ultimately, any comprehensive
Medicare reform must confront several fundamental challenges. In summary:
Medicare spending is likely to grow faster than previously estimated.
The Medicare Trustees are now projecting that, in the long- term, Medicare costs
will eventually grow at 1 percentage point above per-capita gross domestic
product (GDP) each year-- about 1 percentage point faster per year than the
previous assumption. Accordingly, as estimated by the Office of the Actuary at
the Centers for Medicare and Medicaid Services (CMS)-- formerly known as the
Health Care Financing Administration (HCFA), the estimated net present value of
future additional resources needed to fund Part A HI benefits over the next 75
years increased from $2.6 trillion last year to $4.6 trillion this year--an
increase of more than 75 percent.
Our long-term budget simulations show
that demographics and health care spending will drive us back into periods of
escalating deficits and debt absent meaningful entitlement reforms or other
significant tax or spending actions. Our March 2001 long-term simulations show
that even if the often-stated goal of saving all Social Security surpluses is
realized, large and persistent deficits will return in less than 20 years.
Medicare's sustainability can no longer be measured merely using the
traditional measure of HI trust fund solvency. The financial status of this
trust fund does not reflect the whole picture. In fact, focusing on solvency can
be misleading and give a false sense of security regarding the overall condition
of the Medicare program. Both Part A expenditures financed through payroll taxes
and Part B SMI expenditures financed through general revenues and beneficiary
premiums must be taken into consideration. When viewed from this comprehensive
perspective, total Medicare spending is projected to double as a share of GDP by
2035. Importantly, this estimate does not include the cost of any prescription
drug benefit.
Since the cost of a drug benefit would boost these
spending projections even further, adding prescription drug coverage will
require difficult policy choices that will likely have significant effects on
beneficiaries, taxpayers, and the program. Recognition of who bears the cost of
Medicare is critical. Currently, there may not be full awareness that
beneficiaries' payroll tax contributions and premiums generally finance
considerably less than their lifetime benefits.
Properly structured
reforms to promote competition among health plans can help make beneficiaries
more cost conscious. However, improvements to traditional fee-for-service (FFS)
Medicare are also critical, as it will likely remain dominant for some time to
come.
Fiscal discipline is difficult, but the continued importance of
traditional Medicare underscores the need to base adjustments to provider
payments on hard evidence rather than anecdotal information and to carefully
target relief where it is both needed and deserved.
Similarly, reform of
Medicare's management, which is on the table as discussions of Medicare program
reforms proceed, will require carefully targeted efforts to ensure that adequate
resources are appropriately coupled with improved performance and increased
accountability.
Ultimately, we will need to look at broader health care
reforms to balance health care spending with other societal priorities. In doing
this, it is important to look at the entire range of federal policy tools--tax
policy, spending, and regulation. It is also important to note the fundamental
differences between health care wants, which are virtually unlimited, from
needs, which should be defined and addressed, and overall affordability, of
which there is a limit. In the end, we will need to take a range of steps to
increase the transparency of health care costs and quality, target assistance to
those in need, re-examine incentives, and assure accountability for desired
outcomes.
The consensus that Medicare is likely to cost more than
previously estimated serves to reinforce the need to act soon. Realistically,
reforms to address the Medicare program's huge long-range financial imbalance
will need to proceed incrementally. In addition, efforts to update the program's
benefits package will need careful and cautious deliberation. As the Congress
considers Medicare reform, it will be important to adopt effective cost
containment reforms alongside potential benefit expansions. Any benefit
expansion efforts will need to be coupled with adequate program reforms if
Medicare's long-range financial condition is not to be worsened. This is
especially important in connection with a potential prescription drug benefit,
as this coverage represents the fastest-growing expenditure for many public and
private health plans. Therefore, the time to begin these difficult, but
necessary, incremental steps is now.
MEDICARE'S LONG-TERM FINANCIAL
FUTURE LOOKS WORSE
As I have stated in other testimony, Medicare as
currently structured is fiscally unsustainable. While many people have focused
on the improvement in the HI trust fund's shorter-range solvency status, the
real news is that we now have a more realistic view of Medicare's long-term
financial condition and the outlook is much bleaker. A consensus has emerged
that previous program spending projections have been based on overly optimistic
assumptions and that actual spending will grow faster than has been assumed.
Traditional HI Trust Fund Solvency Measure Is a Poor Indicator of
Medicare's Fiscal Health
First, let me talk about how we measure
Medicare's fiscal health. In the past, Medicare's financial status has generally
been gauged by the projected solvency of the HI trust fund, which covers
primarily inpatient hospital care and is financed by payroll taxes. Looked at
this way, Medicare--more precisely, Medicare's Hospital Insurance trust fund--is
described as solvent through 2029.
However, even from the perspective of
HI trust fund solvency, the estimated exhaustion date of 2029 does not mean that
we can or should wait until then to take action. In fact, delay in addressing
the HI trust fund imbalance means that the actions needed will be larger and
more disruptive. Taking action today to restore solvency to the HI trust fund
for the next 75 years would require benefit cuts of 37 percent or tax increases
of 60 percent, or some combination of the two. While these actions would not be
easy or painless, postponing action until 2029 would require more than doubling
of the payroll tax or cutting benefits by more than half to maintain solvency.
(See fig. 1.) Given that in the long-term, Medicare cost growth is now projected
to grow at 1 percentage point faster than GDP, HI's financial condition is
expected to continue to worsen after the 75-year period. By 2075, HI's annual
financing shortfall--the difference between program income and benefit
costs--will reach 7.35 percent of taxable payroll. This means that if no action
is taken this year, shifting the 75-year horizon out one year to 2076--a large
deficit year--and dropping 2001--a surplus year--would yield a higher actuarial
deficit, all other things being equal.
Moreover, HI trust fund solvency
does not mean the program is financially healthy. Under the Trustees' 2001
intermediate estimates, HI outlays are projected to exceed HI tax revenues
beginning in 2016, the same year in which Social Security outlays are expected
to exceed tax revenues. (See fig. 2.) As the baby boom generation retires and
the Medicare-eligible population swells, the imbalance between outlays and
revenues will increase dramatically. Thus, in 15 years the HI trust fund will
begin to experience a growing annual cash deficit. At that point, the HI program
must redeem Treasury securities acquired during years of cash surplus. Treasury,
in turn, must obtain cash for those redeemed securities either through increased
taxes, spending cuts, increased borrowing, retiring less debt, or some
combination thereof.
Finally, HI trust fund solvency does not measure
the growing cost of the Part B SMI component of Medicare, which covers
outpatient services and is financed through general revenues and beneficiary
premiums.2 Part B accounts for somewhat more than 40 percent of Medicare
spending and is expected to account for a growing share of total program
dollars. As the Trustees noted in this year's report, a rapidly growing share of
general revenues and substantial increases in beneficiary premiums will be
required to cover part B expenditures.
Clearly, it is total program
spending--both Part A and Part B-- relative to the entire federal budget and
national economy that matters. This total spending approach is a much more
realistic way of looking at the combined Medicare program's sustainability. In
contrast, the historical measure of HI trust fund solvency cannot tell us
whether the program is sustainable over the long haul. Worse, it can serve to
distort perceptions about the timing, scope, and magnitude of our Medicare
challenge.
New Estimates Increase Urgency of Reform Efforts
These figures reflect a worsening of the long-term outlook. Last year a
technical panel advising the Medicare Trustees recommended assuming that future
per-beneficiary costs for both HI and SMI eventually will grow at a rate 1
percentage point above GDP growth--about 1 percentage point higher than had
previously been assumed.3 That recommendation--which was consistent with a
similar change CBO had made to its Medicare and Medicaid long- term cost growth
assumptions 4 --was adopted by the Trustees. In their new estimates published on
March 19, 2001, the Trustees adopted the technical panel's long-term cost growth
recommendation.5 The Trustees note in their report that this new assumption
substantially raises the long-term cost estimates for both HI and SMI. In their
view, incorporating the technical panel's recommendation yields program spending
estimates that represent a more realistic assessment of likely long-term program
cost growth.
Under the old assumption (the Trustees' 2000 best estimate
intermediate assumptions), total Medicare spending consumed 5 percent of GDP by
2063. Under the new assumption (the Trustees' 2001 best estimate intermediate
assumptions), this occurs almost 30 years sooner in 2035--and by 2075 Medicare
consumes over 8 percent of GDP, compared with 5.3 percent under the old
assumption. The difference clearly demonstrates the dramatic implications of a
1- percentage point increase in annual Medicare spending over time.
Note: Data are gross outlays as projected under the Trustees'
intermediate assumptions. Source: GAO analysis of data from the 2000 and 2001 HI
and SMI Trustees Reports. In part the progressive absorption of a greater share
of the nation's resources for health care, as with Social Security, is a
reflection of the rising share of the population that is elderly. Both programs
face demographic conditions that require action now to avoid burdening future
generations with the program's rising costs. Like Social Security, Medicare's
financial condition is directly affected by the relative size of the populations
of covered workers and beneficiaries. Historically, this relationship has been
favorable. In the near future, however, the covered worker-to-retiree ratio will
change in ways that threaten the financial solvency and sustainability of this
important national program. In 1970 there were 4.6 workers per HI beneficiary.
Today there are about 4, and in 2030, this ratio will decline to only 2.3
workers per HI beneficiary.
Unlike Social Security, however, Medicare
growth rates reflect not only a burgeoning beneficiary population, but also the
escalation of health care costs at rates well exceeding general rates of
inflation. Increases in the number and quality of health care services have been
fueled by the explosive growth of medical technology.7 Moreover, the actual
costs of health care consumption are not transparent. Third-party payers
generally insulate consumers from the cost of health care decisions. All of
these factors contribute to making Medicare a much greater and more complex
fiscal challenge than even Social Security.
When viewed from the
perspective of the federal budget and the economy, the growth in health care
spending will become increasingly unsustainable over the longer term.8 Figure 5
shows the sum of the future expected HI cash deficit and the expected general
fund contribution to SMI as a share of federal income taxes under the Trustees
2001 intermediate estimates. SMI has received contributions from the general
fund since the inception of the program. This general revenue contribution is
projected to grow from about 5 percent of federal personal and corporate income
taxes in 2000 to 13 percent by 2030. Beginning in 2016, use of general fund
revenues will be required to pay benefits as the HI trust fund redeems its
Treasury securities. Assuming general fund revenues are used to pay benefits
after the trust fund is exhausted, by 2030 the HI program alone would consume
more than 6 percent of income tax revenue. On a combined basis, Medicare's draw
on general revenues would grow from 5.4 percent of income taxes today to nearly
20 percent in 2030 and 45 percent by 2070.
To get a more complete
picture of the future federal health care entitlement burden, Medicaid is added.
Medicare and the federal portion of Medicaid together will grow to 14.5 percent
of GDP from today's 3.5 percent. Taken together, the two major government health
programs-- Medicare and Medicaid--represent an unsustainable burden on future
generations. In addition, this figure does not reflect the taxpayer burden of
state and local Medicaid expenditures. A recent statement by the National
Governors Association argues that increased Medicaid spending has already made
it difficult for states to increase funding for other priorities.
Figure
6: Medicare and Medicaid Spending as a Share of GDP Notes:
1. Medicare
data are gross outlays as projected under the Trustees' 2001 intermediate
assumptions.
2. Federal Medicaid data based on CBO's October 2000
long-term budget outlook. Source: GAO analysis of data from the Congressional
Budget Office and the March 2001 HI and SMI Trustees Reports.
Our
long-term simulations show that to move into the future with no changes in
federal health and retirement programs is to envision a very different role for
the federal government. Assuming, for example, that Congress and the President
adhere to the often-stated goal of saving the Social Security surpluses, our
long-term simulations show a world by 2030 in which Social Security, Medicare,
and Medicaid absorb most of the available revenues within the federal budget.
Under this scenario, these programs would require more than three-quarters of
total federal revenue even without adding a
Medicare prescription
drug benefit. Composition of Federal Spending as a Share of GDP Under
the "Save the Social Security Surpluses--Simulation Notes:
1. Revenue as
a share of GDP declines from its 2000 level of 20.6 percent due to unspecified
permanent policy actions. In this display, policy changes are allocated equally
between revenue reductions and spending increases.
2. The "Save the
Social Security Surpluses-- simulation can only be run through 2056 due to the
elimination of the capital stock. Source: GAO's March 2001 analysis.
This scenario contemplates saving surpluses for 20 years--an
unprecedented period of surpluses in our history--and retiring publicly held
debt. Alone, however, even saving all Social Security surpluses would not be
enough to avoid encumbering the budget with unsustainable costs from these
entitlement programs. Little room would be left for other federal spending
priorities such as national defense, education, and law enforcement. Absent
changes in the structure of Medicare and Social Security, sometime during the
2040s government would do nothing but mail checks to the elderly and their
health care providers. Accordingly, substantive reform of the Medicare and
Social Security programs remains critical to recapturing our future fiscal
flexibility.
Demographics argue for early action to address Medicare's
fiscal imbalances. Ample time is required to phase in the reforms needed to put
this program on a more sustainable footing before the baby boomers retire. In
addition, timely action to bring costs down pays large fiscal dividends for the
program and the budget. The high projected growth of Medicare in the coming
years means that the earlier reform begins, the greater the savings will be as a
result of the effects of compounding.
Beyond reforming the Medicare
program itself, maintaining an overall sustainable fiscal policy and strong
economy is vital to enhancing our nation's future capacity to afford paying
benefits in the face of an aging society. Today's decisions can have wide-
ranging effects on our ability to afford tomorrow's commitments. As I have
testified before, you can think of the budget choices you face as a portfolio of
fiscal options balancing today's unmet needs with tomorrow's fiscal challenges.
At the one end--with the lowest risk to the long-range fiscal position--is
reducing publicly held debt. At the other end--offering the greatest risk- -is
increasing entitlement spending without fundamental program reform.
Reducing publicly held debt helps lift future fiscal burdens by freeing
up budgetary resources encumbered for interest payments, which currently
represent about 12 cents of every federal dollar spent, and by enhancing the
pool of economic resources available for private investment and long-term
economic growth. This is particularly crucial in view of the known fiscal
pressures that will begin bearing down on future budgets in about 10 years as
the baby boomers start to retire. However, as noted above, debt reduction is not
enough. Our long-term simulations illustrate that, absent entitlement reform,
large and persistent deficits will return.
MEDICARE'S BLEAK FINANCIAL
OUTLOOK DRIVES NEED FOR MEANINGFUL PROGRAM AND MANAGEMENT REFORM
Despite
common agreement that, without reform, future program costs will consume growing
shares of the federal budget, there is also a mounting consensus that Medicare's
benefit package should be expanded to cover prescription drugs, which will add
billions to the program's cost. This places added pressure on policymakers to
consider proposals that could fundamentally reform Medicare. Our previous work
provides, I believe, some considerations that are relevant to deliberations
regarding the potential addition of a prescription drug benefit and Medicare
reform options that would inject competitive mechanisms to help control costs.
In addition, our reviews of HCFA offer lessons for improving Medicare's
management. Implementing necessary reforms that address Medicare's financial
imbalance and meet the needs of beneficiaries will not be easy. We must have a
Medicare agency that is ready and able to meet these 21 st century challenges.
Adding a Fiscally Responsible Prescription Drug Benefit Will Entail
Multiple Trade-Offs
Among the major policy challenges facing the
Congress today is how to reconcile Medicare's unsustainable long-range financial
condition with the growing demand for an expensive new benefit-- namely,
coverage for prescription drugs. It is a given that prescription drugs play a
far greater role in health care now than when Medicare was created. Today,
Medicare beneficiaries tend to need and use more drugs than other Americans.
However, because adding a benefit of such potential magnitude could further
erode the program's already unsustainable financial condition, you face
difficult choices about design and implementation options that will have a
significant impact on beneficiaries, the program, and the marketplace.
Let's examine the current status regarding Medicare beneficiaries and
drug coverage. About a third of Medicare beneficiaries have no coverage for
prescription drugs. Some beneficiaries with the lowest incomes receive coverage
through Medicaid. Some beneficiaries receive drug coverage through former
employers, some can join Medicare+Choice plans that offer drug benefits, and
some have supplemental Medigap coverage that pays for drugs. However,
significant gaps remain. For example, Medicare+Choice plans offering drug
benefits are not available everywhere and generally do not provide catastrophic
coverage. Medigap plans are expensive and have caps that significantly constrain
the protection they offer. Thus, beneficiaries with modest incomes and high drug
expenditures are most vulnerable to these coverage gaps.
Overall, the
nation's spending on prescription drugs has been increasing about twice as fast
as spending on other health care services, and it is expected to keep growing.
Recent estimates show that national per-person spending for prescription drugs
will increase at an average annual rate exceeding 10 percent until at least
2010. As the cost of drug coverage has been increasing, employers and
Medicare+Choice plans have been cutting back on prescription drug benefits by
raising enrollees' cost- sharing, charging higher copayments for more expensive
drugs, or eliminating the benefit altogether.
It is not news that adding
a prescription drug benefit to Medicare will be costly. However, the cost
consequences of a Medicare drug benefit will depend on choices made about its
design-- including the benefit's scope and financing mechanism. For instance, a
Medicare prescription drug benefit could be designed to provide
coverage for all beneficiaries, coverage only for beneficiaries with
extraordinary drug expenses, coverage only for low-income beneficiaries.
Policymakers would need to determine how costs would be shared between taxpayers
and beneficiaries through premiums, deductibles, and copayments and whether
subsidies would be available to low-income, non-Medicaid eligible individuals.
Design decisions would also affect the extent to which a new pharmaceutical
benefit might shift to Medicare portions of the out-of-pocket costs now borne by
beneficiaries as well as those costs now paid by Medicaid, Medigap, or employer
plans covering prescription drugs for retirees. Clearly, the details of a
prescription drug benefit's implementation would have a significant impact on
both beneficiaries and program spending. Experience suggests that some
combination of enhanced access to discounted prices, targeted subsidies, and
measures to make beneficiaries more aware of costs may be needed. Any option
would need to balance concerns about Medicare sustainability with the need to
address what will likely be a growing hardship for some beneficiaries in
obtaining prescription drugs.
Reform Options Based on Competition Offer
Advantages but Contain Limitations
The financial prognosis for Medicare
clearly calls for meaningful spending reforms to help ensure that the program is
sustainable over the long haul. The importance of such reforms will be
heightened if financial pressures on Medicare are increased by the addition of
new benefits, such as coverage for prescription drugs. Some leading reform
proposals envision that Medicare could achieve savings by adapting some of the
competitive elements embodied in the Federal Employees Health Benefits Program.
Specifically, these proposals would move Medicare towards a model in which
health plans compete on the basis of benefits offered and costs to the
government and beneficiaries, making the price of health care more transparent.
Currently, Medicare follows a complex formula to set payment rates for
Medicare+Choice plans, and plans compete primarily on the richness of their
benefit packages. Medicare permits plans to earn a reasonable profit, equal to
the amount they can earn from a commercial contract. Efficient plans that keep
costs below the fixed payment amount can use the "savings" to enhance their
benefit packages, thus attracting additional members and gaining market share.
Under this arrangement, competition among Medicare plans may produce advantages
for beneficiaries, but the government reaps no savings.
In contrast, a
competitive premium approach offers certain advantages. Instead of having the
government administratively set a payment amount and letting plans
decide--subject to some minimum requirements--the benefits they will offer,
plans would set their own premiums and offer at least a required minimum
Medicare benefit package. Under these proposals, Medicare costs would be more
transparent: beneficiaries could better see what they and the government were
paying for in connection with health care expenditures. Beneficiaries would
generally pay a portion of the premium and Medicare would pay the rest. Plans
operating at lower cost could reduce premiums, attract beneficiaries, and
increase market share. Beneficiaries who joined these plans would enjoy lower
out-of-pocket expenses. Unlike today's Medicare+Choice program, the competitive
premium approach provides the potential for taxpayers to benefit from the
competitive forces. As beneficiaries migrated to lower-cost plans, the average
government payment would fall.
Experience with the Medicare+Choice
program reminds us that competition in Medicare has its limits. First, not all
geographic areas are able to support multiple health plans. Medicare health
plans historically have had difficulty operating efficiently in rural areas
because of a sparseness of both beneficiaries and providers. In 2000, 21 percent
of rural beneficiaries had access to a Medicare+Choice plan, compared to 97
percent of urban beneficiaries. Second, separating winners from losers is a
basic function of competition. Thus, under a competitive premium approach, not
all plans would thrive, requiring that provisions be made to protect
beneficiaries enrolled in less successful plans.
Effective Program
Management Key to Successful Reform Efforts
The extraordinary challenge
of developing and implementing Medicare reforms should not be underestimated.
Our look at health care spending projections shows that, with respect to
Medicare reform, small implementation problems can have huge consequences. To be
effective, a good program design will need to be coupled with competent program
management.
Consistent with that view, questions are being raised about
the ability of CMS to administer the Medicare program effectively.
Our
reviews of Medicare program activities confirm the legitimacy of these concerns.
In our companion statement today, we discuss not only the Medicare agency's
performance record but also areas where constraints have limited the agency's
achievements. We also identify challenges the agency faces in seeking to meet
expectations for the future. As the Congress and the Administration focus on
current Medicare management issues, our review of HCFA suggests several lessons:
Managing for results is fundamental to an agency's ability to set
meaningful goals for performance, measure performance against those goals, and
hold managers accountable for their results. Our work shows that HCFA has
faltered in adopting a results-based approach to agency management, leaving the
agency in a weakened position for assuming upcoming responsibilities. In some
instances, the agency may not have the tools it needs because it has not been
given explicit statutory authority. For example, the agency has sought explicit
statutory authority to use full and open competition to select claims
administration contractors. The agency believes that without such statutory
authority it is at a disadvantage in selecting the best performers to carry out
Medicare claims administration and customer service functions. To be effective,
any agency must be equipped with the full complement of management tools it
needs to get the job done. A high-performance organization demands a workforce
with, among other things, up-to-date skills to enhance the agency's value to its
customers and ensure that it is equipped to achieve its mission. HCFA began
workforce planning efforts that continue today in an effort to identify areas in
which staff skills are not well matched to the agency's evolving mission. In
addition, CMS recently reorganized its structure to be more responsive to its
customers. It is important that CMS continue to reevaluate its skill needs and
organizational structure as new demands are placed on the agency.
Data-driven information is essential to assess the budgetary impact of
policy changes and distinguish between desirable and undesirable consequences.
Ideally, the agency that runs Medicare should have the ability to monitor the
effects of Medicare reforms, if enacted-- such as adding a drug benefit or
reshaping the program's design. However, HCFA was unable to make timely
assessments, largely because its information systems were not up to the task.
The status of these systems remains the same, leaving CMS unprepared to
determine, within reasonable time frames, the appropriateness of services
provided and program expenditures. The need for timely, accurate, and useful
information is particularly important in a program where small rate changes
developed from faulty estimates can mean billions of dollars in overpayments or
underpayments.
An agency's capacity should be commensurate with its
responsibilities. As the Congress continues to modify Medicare, CMS'
responsibilities will grow substantially. HCFA's tasks increased enormously with
the enactment of landmark Medicare legislation in 1997 and the modifications to
that legislation in 1999 and 2000. In addition to the growth in Medicare
responsibilities, the agency that administers this program is also responsible
for other large health insurance programs and activities. As the agency's
mission has grown, however, its administrative dollars have been stretched
thinner. Adequate resources are vital to support the kind of oversight and
stewardship activities that Americans have come to count on-- inspection of
nursing homes and laboratories, certification of Medicare providers, collection
and analysis of critical health care data, to name a few. Shortchanging this
agency's administrative budget will put the agency's ability to handle upcoming
reforms at serious risk.
In short, because Medicare's future will play
such a significant role in the future of the American economy, we cannot afford
to settle for anything less than a world-class organization to run the program.
However, achieving such a goal will require a clear recognition of the
fundamental importance of efficient and effective day-to-day operations.
CONCLUSIONS
In determining how to reform the Medicare program,
much is at stake--not only the future of Medicare itself but also assuring the
nation's future fiscal flexibility to pursue other important national goals and
programs. I feel that the greatest risk lies in doing nothing to improve the
Medicare program's long-term sustainability. It is my hope that we will think
about the unprecedented challenge facing future generations in our aging
society. Engaging in a comprehensive effort to reform the Medicare program and
put it on a sustainable path for the future would help fulfill this generation's
stewardship responsibility to succeeding generations. It would also help to
preserve some capacity for future generations to make their own choices for what
role they want the federal government to play.
Updating Medicare's
benefit package may be a necessary part of any realistic reform program. Such
changes, however, need to be considered in the context of Medicare's long-term
fiscal outlook and the need to make changes in ways that will promote the
program's longer-term sustainability. We must remember that benefit expansions
are often permanent, while the more belt- tightening payment reforms--vulnerable
to erosion--could be discarded altogether. The BBA experience reminds us about
the difficulty of undertaking reform.
Most importantly, any substantial
benefit reform should be coupled with other meaningful program reforms that will
help to ensure the long-term sustainability of the program. In the end, the
Congress should consider adopting a Hippocratic oath for Medicare reform
proposals-- namely, "Don't make the long-term outlook worse."Ultimately, we will
need to engage in a much more fundamental health care reform debate to
differentiate wants, which are virtually unlimited, from needs, which should be
defined and addressed, and overall affordability, of which there is a limit.
We at GAO look forward to continuing to work with this Committee and the
Congress in addressing this and other important issues facing our nation. In
doing so, we will be true to our core values of accountability, integrity, and
reliability.
Chairman Nussle, this concludes my prepared statement. I
will be happy to answer any questions you or other Members of the Committee may
have.
LOAD-DATE: August 2, 2001