Copyright 2002 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
March 7, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2246 words
COMMITTEE:
SENATE FINANCE
HEADLINE:
ADMINISTRATION MEDICARE PROPOSALS
TESTIMONY-BY: BOB
KERREY, PRESIDENT
AFFILIATION: NEW SCHOOL UNIVERSITY
BODY: Statement by Bob Kerrey, President, New
School University
SENATE FINANCE COMMITTEE
March 7, 2002
You have my sympathy. As elected representatives of the people, you have
been given two irreconcilable and at times unconditional demands: lower taxes
and higher spending. Polls show that Americans believe their taxes and
government spending are too high, but those majorities also want more spending
on almost everything that affects them directly. They don't want their military
base closed, they don't want their highway project un- funded, they want smaller
class sizes for their schools, and they want help paying for the cost of their
prescription drugs. Which is what brings us together this morning. You have
invited me to testify on the question of adding a prescription drug benefit to
Medicare. My simple advice is don't do it. Not unless you are prepared to make
fundamental reforms in the way Americans finance the cost of their health care.
Adding a prescription benefit to Medicare without fundamental reform will
partially solve one problem while increasing the size of several others. It will
partially solve the problem of helping current Medicare beneficiaries pay for
their prescriptions, but it will increase the size of the problem of declining
shares of our federal budget available for spending on such things as education,
child care, transportation, and technology. At best it does nothing to solve and
at worse it increases the problem faced by non-Medicare eligible and uninsured
working Americans. With budget caps gone, income taxes already cut, and
bipartisan enthusiasm to spend considerably more on defense, it is safe to say
that the era of surpluses was like passing through a village in Nebraska: we
passed through it before we realized we were there.
Last year's
Congressional Budget Resolution set aside $300 billion over 10 years for a
Medicare prescription drug benefit. All things seemed possible
at this time last year when both CBO and OMB were projecting a 10-year unified
surplus of $5.6 trillion ($3.1 trillion on-budget and $2.5 trillion off-budget).
This year any such initiative would have to be financed by borrowing from the
public or from the Social Security surplus.
And the assumption there
will be future surpluses even counting Social Security is dubious if the
following is true:
1. That most of last year's tax cut (along with
several other popular tax provisions) will be extended rather than repealed at
the end of 2010;
2. That Congress will reduce the individual Alternative
Minimum Tax as the number of people covered by this provision grows from 2 to 40
million . far more than was ever intended;
3. That defense and
non-defense discretionary spending will grow faster than inflation.
Indeed, the Concord Coalition has prepared an alternative baseline using
CBO numbers showing what would happen if just two of these three occur: all
expiring tax cuts are extended and discretionary spending keeps pace with GDP
growth. This is far from a "Doomsday " scenario. In fact it seems more plausible
than the official baseline. Under these circumstances the entire unified surplus
is virtually eliminated. Payroll taxes in excess of costs for Social Security
and Medicare will be needed to pay for defense and non-defense spending.
The bottom line is that there is no room to add a major entitlement
expansion such as a
Medicare prescription drug benefit. Such an
addition - as worthy as it may seem in isolation - would significantly impair
the financial future of working men and women, the people who pay the bills. And
their financial future has already deteriorated significantly in just one year.
Consider this: Last year Americans were looking at a future in which we
were projected to eliminate the debt held by the public by 2008. Total debt
limits would not be exceeded until 2009. Net interest payments over the period
from 2002 through 2011 were estimated to be $622 billion. Today we no longer
forecast that public debt will be eliminated. The debt limit will be reached
this year . maybe this month . and net interest payments over the next ten year
period will be trillion more than expected last year. That is $10,000 per
American household or $1,000 per household per year.
What makes this
gloomy picture of our financial future worse is that we still have not changed
Federal laws to accommodate for the baby boom generation. From 2006 to 2026 the
number of workers whose taxes support retirement benefits will increase from 160
million to 174 million while the number of Social Security and Medicare
beneficiaries will increase from 49 to 78 million. Instead of being able to tax
three to support one we will be taxing two to support one.
The details
of what will happen were presented to Congress by the General Accounting Office
in February. I regret to inform you that few of us outside Congress were paying
much attention to what GAO said and were still suffering the illusion that
Medicare's future still was bright. We had been focused on the improvement in
the HI Trust fund's shorter-range solvency status and missed that Medicare's
long-term outlook has worsened significantly during the past year. Three
conclusions should alarm anyone concerned about the financial future of our
country:
1. Social Security, Medicare and Medicaid will nearly double as
a percent of GDP by 2030.
2. Social Security outlays will exceed
earmarked tax revenues by a widening margin beginning in 2016. In this year
Treasury will have to redeem the trust fund IOUs with cash that can only be
obtained from cutting spending, raising taxes, or borrowing more money;
3. Even without a prescription benefit these programs along with net
interest payments, would require roughly three-quarters of total federal revenue
in 30 years leaving the Federal government in a position of doing little more
than mailing checks to the elderly and their health care providers.
All
of this said I know there is pressure on you from 35 million elderly Medicare
beneficiaries and 5 million disabled who are telling you they need help to
lessen the burden of paying for their pharmaceuticals. I know you have been
moved by stories of individuals who simply do not know where they are going to
get the money to pay for a life saving prescription ordered by their doctor. I
know that few things affect us more directly than health care.
Still, I
urge caution. Medicare is social insurance with an asterisk. The asterisk
informs us that the program is, for several reasons, not insurance. First of all
it is not fully funded. The current unfunded liability for future beneficiaries
is $10 trillion before a prescription drug benefit is added. Second, it is not
true insurance because the insurer is underwriting a risk that is almost certain
to be used continually. This is especially true with most of the prescription
drug proposals where the usage will be expected and annual.
I also urge
caution because money is money. By that I mean that the distinction between
government money and private sector money is an ideological distinction not a
real one. While it is true that some government spending can grow the private
sector (look at the impact of government spending on rural counties, for
example), the sale of goods and services in the private sector generates the
revenue taxed by the government for its services.
This is not an
academic argument. Too many citizens answer the question where are we going to
get the money for a prescription benefit with: The government will pay for it.
Current beneficiaries need to understand that most of the money for this benefit
will not come from them. Most of the money will come from a tax on the wages and
salaries of Americans who are in the work force. And a growing number of these
workers, who are seeing an increasing share of their income going to insure
someone else, do not have health insurance themselves. These workers are also
the ones who suffer the negative consequences of having too little to spend on
education, childcare, transportation and technology.
Current
beneficiaries also need to understand that there is a limit to Federal spending.
Since the Second World War the Federal government has rarely removed more than
20 percent of the U.S. economy for taxes. Federal spending since the Second
World War has never gotten above the 23.5 percent of GDP it reached in 1983 and
for the most part has hovered around 20 percent. This 20 percent number has
remained relatively constant and was trending downward during the 1990's
economic expansion. What has not remained constant is the mix of Federal
spending within that 20 percent. While spending on health and other entitlements
has risen, spending on defense and non-defense appropriations has taken up a
declining share of the budget and the economy. This trend is forecast to
continue.
When the baby-boom generation begins to retire in 6 years
Medicare spending will increase rapidly as a percentage of our Federal budget.
As a consequence, something has to give. With history as our guide the likely
loser will be spending on the programs that will benefit the working families
who are being taxed more and more to pay for someone else's health care.
The first question that should be asked and answered is not do we need a
prescription drug benefit but can we afford it? Those of us who thought we might
be able to afford it were given a wake-up call to what beneficiaries will
eventually demand when the American Association of Retired Persons submitted a
proposal that would cost $750 billion. This is twice the cost of the previous
high.
Members of the Finance Committee, I do not think that doing
nothing is an option. Americans can afford a prescription drug benefit but I do
not believe we can afford to add it to Medicare as it is currently structured.
More challenging I do not believe we can solve this problem by focusing on
benefit changes or reductions in reimbursements to providers. Instead I believe
we need to focus our attention on fundamental reform of the way Americans become
eligible under Federal law for health insurance.
Though intuition is
often a good guide when making decisions sometimes it fails us. In this case
intuition signals that we should narrow the scope of our Federal health care
entitlement programs in order to save money. However, I believe the counter-
intuitive choice, namely to expand the entitlement, is the least costly choice.
By expand the entitlement I mean we should change the language of
Federal law so that Americans and legal residents become eligible for health
care as a consequence of their having proved they are Americans or legal
residents. Under current law there are six main ways a resident of the United
States can become eligible for insurance:
1. Work forty quarters and
wait until they are 65;
2. Demonstrate they are disabled;
3. Get
blown up in a war;
4. Prove they are poor and promise to remain poor;
5. Join a military service or work for the Federal government;
6. Find a job with an employer who uses the tax code to reduce the cost
of purchasing insurance. Under current law the only people who are not eligible
are 40 million uninsured Americans who aren't old enough, disabled enough, poor
enough or lucky enough to qualify. On the other hand all 40 million are eligible
to have taxes collected from them to pay the subsidies for all the rest of us
who have met a statutory test.
I urge you to consider that for
budgetary, economic and moral reasons we cannot get from where we are now to
where we want to go by adding a new and expensive benefit to an entitlement
program. Nor can we get there by just reforming existing programs. We can only
get there by fundamentally altering the way we become eligible for insurance in
the first place.
Beginning with a universal entitlement does not mean
higher spending or more governmental interference with the choices made by
patients or providers. In truth it could mean a lot less of both. It would mean
that we would start thinking about ourselves as a single group of 280 million
Americans who are all part of the same health system and who all need to face
the challenge of matching our appetite for quality with our capacity to pay.
No doubt this proposal seems a little out of place in a hearing on a
prescription drug benefit. But those of you who know me - and who invited me to
testify anyway - are familiar with my tendency to say things that are out of
place. In this case I do not believe a fundamental change in the way we become
eligible for health insurance is out of place. I strongly believe it is the only
way we can enact a prescription drug benefit we can afford that does not make
matters worse for all those working families who will be paying for it.
Finally, while technology and the trend towards longer life expectancies
have increased the cost of Medicare and Social Security we should not let the
actuaries persuade us that this is bad news. In my case I will need that extra
longevity in order to attend my second son, Henry's, college graduation in 2022.
In many other cases Americans are entering the last phase of their lives with
more optimism and health than ever before in part thanks to Medicare and Social
Security. I trust that you have the wisdom and the desire to make certain both
will be there for many generations to come.
LOAD-DATE: March 13, 2002