Medicare under Pressure: The 2009 Medicare Trustees' Report
About This Event

Although Medicare is facing a rapidly approaching financing crisis of its own, the need to resolve the program’s structural defects has largely been overlooked in the national health reform debate. With the economy in decline, Medicare is in worse fiscal shape than last year. Yet the White House is Listen to Audio

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relying on Medicare to help finance expansions of health insurance for people under age sixty-five. Can Medicare meet its obligations to seniors despite rapidly rising health costs and shrinking revenues? Will Medicare Part A run short of funds as early as 2015?

The annual Medicare trustees’ report, to be released May 12, provides the latest assessment of Medicare’s fiscal future. Richard Foster, Medicare’s chief actuary, will present this year’s findings. James C. Capretta, formerly the top budget official for health at the Office of Management and Budget; Mark McClellan, M.D., former director of the Centers for Medicare & Medicaid Services; John Rother, a long-time policy expert with AARP; and AEI’s Bill Thomas, former chairman of the House Committee on Ways and Means, will discuss the policy challenges facing the program. AEI’s Scott Gottlieb, M.D., will moderate.

9:00 a.m. Registration
9:15 Presentation: Richard Foster, Centers for Medicare & Medicaid Services
Panelists: James C. Capretta, Ethics and Public Policy Center
Mark McClellan, M.D., Brookings Institution
John Rother, AARP
Bill Thomas, AEI

Moderator: Scott Gottlieb, M.D., AEI
11:00 Adjournment
Event Summary

WASHINGTON, MAY 14, 2009--The financial status of Medicare has deteriorated over the past year. Richard Foster, chief actuary at the Center for Medicare and Medicaid Services (CMS), highlighted key points of the 2009 Medicare Trustees Report, released on May 12, at an AEI forum the next day. He said that the Hospital Insurance (HI) Trust Fund, which funds hospital care provided to the nation's seniors under Medicare Part A, shrank by $4.7 billion as the program spent more than it took in during 2008. According to the analysis by the CMS Office of the Actuary, the trust fund may be depleted by 2017, at which point the program could no longer pay for all of the benefits promised under current law.

Foster went on to explain that the Medicare Part B trust fund, which covers outpatient care, is not expected to decline rapidly. Rising costs will place pressure on seniors, who pay 25 percent of the cost of the program in the form of premiums, as well as on taxpayers, as funds from general revenue pay for the other 75 percent of the program. But Part B is not facing imminent insolvency. This assessment remains true even when using the more likely assumption that physician fees will not be cut sharply, as mandated by the Sustainable Growth Rate provision under current law. As for Medicare Part D, Medicare's drug benefit, Mr. Foster asserted that the program is not only fiscally sound, it also has cost much less than projected in 2004 Medicare Trustees' Report. He went on to call the Part D market for prescription drugs a "well-functioning competitive system."

The root of Medicare's woes is the fact that the rate of growth of health care spending outpaces the rate of growth of the rest of the economy, according to Mark McClellan, M.D., director of the Engelberg Center for Health Care Reform at the Brookings Institution and a former CMS administrator. He suggested a need to "bend the cost-growth curve" and offered suggestions for accomplishing this goal, such as reducing rehospitalizations, promoting prevention, better coordinating care, eliminating wasteful tests and scans, and promoting the effective use of health information technology. McClellan underscored that the purpose of these delivery system reforms is to get more value without restricting choice. He also acknowledged that a solution will probably involve, in addition to structural changes, increased taxes, reduced benefits, or both.

AEI's Bill Thomas, the former chairman of the House Committee on Ways and Means, suggested taking the general revenue contributions to Medicare off autopilot and subjecting them to annual or biennial congressional budget review. This would keep the general public more informed on just how much money is being taken away from other priorities to fund Medicare and would strengthen political accountability for how much society sacrifices for the program.

James Capretta, a fellow at the Ethics and Public Policy Center and former associate director of the White House Office of Management and Budget, stated bluntly that "the reason the health care system is the way it is today is because of Medicare." He then criticized the fee-for-service model used by Medicare and questioned whether current cost containment proposals--such as the effective use of health information technology, comparative effectiveness research, bundled service payments, and value-based purchasing--were up to the task of saving the program. He argued that Medicare is especially challenged partly because of its status as a government program. The political process virtually requires open networks and equal payment rates to all licensed physicians, whether they provide high-quality care or not. Legislation and regulation protect the market share of incumbents, stifling competition. Since they pay little or nothing at the point of service for their care, Medicare beneficiaries stand to gain little from conservative practice styles that refrain from proliferating the use of services--even when those services provide little or no value in terms of patient outcomes.

Asked how the potential savings from reform proposals might be used, McClellan indicated that some of those savings would go toward expanding coverage and not toward dealing with Medicare's financial troubles. The latter will have to be addressed in some way, however, and soon. Foster pointed out that this is the fourth consecutive year that Medicare's dedicated revenue has fallen significantly short of program outlays over the next seven years (known as the 45 percent trigger). As a result, the president must propose legislation responding to the crisis within fifteen days of the FY 2011 budget release, some time next year. The Senate is required by the 2003 Medicare Modernization Act to review this legislation on an expedited basis. The House has exempted itself from such an expedited review under rules it adopted last January. 



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Speaker biographies

James C. Capretta is a fellow at the Ethics and Public Policy Center; a contributing editor to the center’s journal, The New Atlantis; the author of the health care policy blog Diagnosis; an adjunct fellow at the Hudson Institute and at the Global Aging Initiative of the Center for Strategic and International Studies; and a principal at the public policy consulting firm Civic Enterprises. From January 2001 to May 2004, Mr. Capretta served in the Bush administration as an associate director in the White House Office of Management and Budget, where he had responsibility for health care, Social Security, education, and labor issues. From June 2004 to August 2006, Mr. Capretta was a managing director of Wexler and Walker Public Policy Associates. He was also a visiting lecturer at the Sanford Institute of Public Policy at Duke University in 2006 and a visiting fellow at the Brookings Institution from 2005 to 2006. Prior to joining the White House in 2001, Mr. Capretta served for nearly a decade as a senior policy analyst on the Republican staff for the U.S. Senate Budget Committee under Senator Pete Domenici (R-N.M.) and as a professional staff member of the House Ways and Means Committee Subcommittee on Health.

Richard Foster is chief actuary for the Centers for Medicare & Medicaid Services (CMS). As such, he is responsible for all actuarial and other financial analyses for the Medicare and Medicaid programs. In addition, Mr. Foster and the staff of the Office of the Actuary prepare the widely used national health expenditure account data and projections; produce the hospital input price index, Medicare Economic Index, and other price indexes used to update Medicare payments to providers; and calculate the Medicare Advantage payment benchmarks for private health plans that contract with Medicare. Mr. Foster became chief actuary in February 1995; prior to this, he served as deputy chief actuary for the Social Security Administration for thirteen years. He is a fellow of the Society of Actuaries (1980) and a member of the American Academy of Actuaries, American Statistical Association, American Economic Association, National Academy of Social Insurance, and Senior Executives Association. He has written numerous articles and reports on Medicare and Social Security issues, and he has received a number of awards, including the University of Maryland, Baltimore County, Outstanding Alumnus of the Year in 1997; the Presidential Meritorious Executive Award in 1998 from President Bill Clinton; the CMS Administrator’s Achievement Award in 1999 and 2003; the Presidential Distinguished Executive Award in 2001 from President George W. Bush; the College of Wooster Distinguished Alumni Award in 2006; and the Robert J. Myers Public Service Award from the American Academy of Actuaries in 2006. In 2007, the readers of Modern Healthcare voted Mr. Foster the sixteenth most influential person in health care in the United States.

Scott Gottlieb, M.D., is a practicing physician and a resident fellow at AEI. A leading expert in health care policy, Dr. Gottlieb’s work focuses on providing insights into the economic, regulatory, and technological forces driving the transformation of health care today. From 2005 to 2007, Dr. Gottlieb served as Food and Drug Administration (FDA) deputy commissioner and, from 2003 to 2004, as a senior adviser to then-FDA commissioner Mark McClellan and as the FDA’s director of medical policy development. A recipient of numerous medical association awards, Dr. Gottlieb is the author of more than three hundred articles that have appeared in leading medical journals, as well as the Wall Street Journal, the New York Times, USA Today, and Forbes. Dr. Gottlieb has held editorial positions on the British Medical Journal and the Journal of the American Medical Association and appears regularly as a guest commentator on CNBC. Previously, Dr. Gottlieb worked as a health care analyst for the investment bank Alex Brown & Sons and authored the Forbes-Gottlieb Medical Technology Letter and the Gilder Biotech Report. Dr. Gottlieb has testified as an expert witness on health and regulatory matters before the U.S. Senate and House of Representatives and members of the Japanese Diet.

Mark McClellan, M.D., is a senior fellow, the director of the Engelberg Center for Health Care Reform, and the Leonard D. Schaeffer Chair in Health Policy Studies at the Brookings Institution. He is a former administrator for the Centers for Medicare & Medicaid Services (CMS) and former commissioner of the Food and Drug Administration (FDA). A doctor and economist by training, he is developing and implementing ideas to drive improvements in high-quality, innovative, affordable health care. While at the FDA and CMS, Dr. McClellan developed and implemented major reforms in health policy, including the Medicare prescription drug benefit, FDA’s Critical Path Initiative, and public-private initiatives to develop better information on the quality and cost of care. Dr. McClellan’s professional experience also includes serving as a research associate at the National Bureau of Economic Research, 1995–2001, 2006–present; a member of the Institute of Medicine, 2003–present; an associate professor of economics and of medicine at Stanford University, 1995–present; a member of the President’s Council of Economic Advisers and senior director for health care at the White House, 2001–2002; a national fellow at the Hoover Institution at Stanford University, 2000–2001; director of the Program on Health Outcomes Research at the Center for Health Policy and Center for Primary Care and Outcomes Research at Stanford University, 1999–2001; associate editor of the Journal of Health Economics, 1998–2001; and deputy assistant secretary for economic policy at the U.S. Department of the Treasury, 1998–99.

John Rother is the executive vice president for policy and strategy at AARP. He is responsible for the federal and state public policies of the association and for formulating AARP’s overall strategic direction. He is an authority on Medicare, managed care, long-term care, Social Security, pensions, and the challenges facing the boomer generation. Previously, Mr. Rother served for eight years as special counsel for labor and health to former Senator Jacob Javits (R-N.Y.) and as staff director and chief counsel for the Special Committee on Aging under Senator John Heinz (R-Penn.). He serves on several boards and commissions, including as the chair of Generations United and vice chair of the National Quality Forum. Mr. Rother also serves on the boards of the Pension Rights Center and the Alliance for Healthcare Reform and on the advisory boards of Kaiser Permanente, Google, and several congressional fellowships.

Bill Thomas, former chairman of the U.S. House Ways and Means Committee, is a visiting fellow at AEI. He served in the U.S. House of Representatives from 1978 to 2007, most recently representing California’s Twenty-second Congressional District, which covered most of Kern and San Luis Obispo Counties and part of Los Angeles County. Mr. Thomas was elected chairman of the House Ways and Means Committee in January 2001 and served until January 2007. During his chairmanship, he guided the enactment of $2 trillion in tax relief, including the Economic Growth and Tax Reconciliation Act of 2001, which reduced all ordinary income tax rates; the Jobs and Growth Tax Reconciliation Act of 2003, which reduced the tax rate on dividends and capital gains; and the Job Creation Act of 2004, which provided significant reforms for corporate tax policy. Prior to his election as chairman of the Ways and Means Committee, Mr. Thomas served as chairman of the Ways and Means Health Subcommittee. He was also chairman of the House Administration Committee from 1995 to 2001. Before entering Congress, he was a faculty member at Bakersfield Community College and a member of the California State Assembly.

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