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Testimony

Statement by
Leslie V. Norwalk
Acting Administrator
Centers for Medicare & Medicaid Services

on
The President's FY 2008 Budget: Medicare and Medicaid 

before
Committtee on Ways and Means
Subcommittee on Health
U.S. House of Representatives


Tuesday February 13, 2007

Good afternoon Chairman Stark, Representative Camp, and distinguished members of the Subcommittee. I am pleased to be here today to discuss proposals in the President’s fiscal year (FY) 2008 Budget related to programs administered by the Centers for Medicare & Medicaid Services (CMS): Medicare, Medicaid and the State Children’s Health Insurance Program (SCHIP). I also would like to highlight the President’s proposed Affordable Choices initiative and health care tax proposal aimed at making insurance coverage more accessible and affordable for all Americans.

For the past six years, this Administration has worked to manage Medicare, Medicaid and SCHIP efficiently and effectively. Together with Congress, we have made great strides in modernizing and improving health care benefits, with millions of Americans now living healthier, fuller lives. Perhaps the best example of such improvements is the Medicare prescription drug benefit (Part D) enacted by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Available to beneficiaries for the first time in January 2006, the program has been a resounding success. At last count, more than 90 percent of people with Medicare now have coverage for prescription drugs from Part D or another source, including almost 10 million low-income beneficiaries receiving comprehensive coverage with low or zero premiums and nominal cost-sharing. Beneficiary satisfaction with Part D is consistently at 75 percent or more, reaching above 90 percent for low-income beneficiaries receiving extra help.

Strong enrollment and beneficiary satisfaction are just two aspects of the Part D success story, however. Equally important, Part D premiums and estimated program costs have been declining steadily thanks in part to competition among plans, smart choices by beneficiaries, and lower-than-expected growth in prescription drug spending. Since last year’s mid-session review, projected payments to Part D plans for the ten-year period 2007-2016 have dropped by $113 billion, of which $96 billion is directly attributable to competition and lower plan bids. The average beneficiary premium for basic benefits is now estimated to be around $22 per month, down from $23 in 2006 and 42 percent lower than the original projection.

We also are seeing exciting trends in the Medicare Advantage program. Through Medicare Advantage, beneficiaries have access to integrated health and prescription drug benefits, often with lower premiums and cost-sharing than under fee-for-service Medicare. Medicare Advantage is a particularly important program for lower-income Medicare beneficiaries, who might otherwise struggle with Medicare’s cost-sharing or supplemental insurance premiums that can be costly. Fifty-seven percent of beneficiaries enrolled in Medicare Advantage report income between $10,000 and 30,000 compared to 46 percent of fee-for-service beneficiaries. Racial and ethnic minorities also benefit from the Medicare Advantage program; minorities represent 27 percent of total Medicare Advantage enrollment, compared with 20 percent in fee-for-service. Enrollment in Medicare health plans has now reached an all-time high of 8.3 million beneficiaries, up from 5.3 million in 2003.

SCHIP also has been a great success since its enactment. SCHIP generally targets Medicaid-ineligible uninsured children who are under 19 years old from families with incomes at or below 200 percent of the federal poverty level. States have a high degree of flexibility in designing their programs. Every state, the District of Columbia, and all five territories have had approved SCHIP plans since September 1999.

In FY 1998, the first year of SCHIP, 980,000 children were enrolled for at least part of the year. According to the latest data available from the states, by FY 2006 SCHIP enrollment of children had increased substantially, with 6.6 million children covered for at least part of the year. When combined with Medicaid, a total of 36.1 million low-income children received coverage for at least part of 2006. We look forward to working with Congress to reauthorize SCHIP this year.

FY 2008 Budget Proposals
The President’s FY 2008 budget offers a plan for building on past successes to further modernize the Medicare and Medicaid programs and secure their long-term future. Growth in net Medicare spending is approaching 7 percent per year over the next five years and is even higher over ten. Working closely with beneficiaries and providers, we believe we can improve the quality, efficiency and ultimate viability of the Medicare program.

The Budget also proposes important steps to preserve and expand access to health insurance coverage for low-income children and other vulnerable Americans. SCHIP reauthorization, the President’s proposal to equalize the tax treatment of health insurance received through an employer or purchased in the non-group market, the President’s Affordable Choices initiative and other proposed insurance market reforms would make health insurance more affordable and accessible for millions of Americans, enabling them to live healthier, more productive lives.

Medicare Initiatives
Over the past six years, the Administration has made significant strides to promote greater quality and value in the Medicare program. The President’s FY 2008 Budget would build upon these efforts, helping to transform Medicare into a quality-based payment program and improving its financial sustainability.

Federal Reserve Chairman Ben Bernanke, the Medicare Trustees, and the Medicare Payment Advisory Commission (MedPAC) all have underscored the importance of taking action now to address Medicare’s long-term financial challenges. Testifying before the Senate Budget Committee on January 18, 2007, Chairman Bernanke stated “if early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost.” Similarly, after discussing “serious concerns” with Medicare’s financial outlook, the Medicare Trustees cautioned in 2006: “We believe that prompt, effective, and decisive action is necessary to address both the exhaustion of the HI [Hospital Insurance] trust fund and anticipated rapid growth in [Medicare] expenditures.” Finally, in its March 2006 Report to Congress on Medicare Payment Policy, MedPAC suggested a number of strategies to address Medicare’s long-term sustainability: constraining payment rates for health care providers, rationalizing benefits, increasing the program’s financing, and encouraging greater efficiency from health care providers. Concluding that increasing efficiency is most desirable, MedPAC cautioned: “[e]ven if policymakers succeed at moving providers toward greater efficiency, they may still need to make other policy changes to help ensure that the program’s financing is sustainable into the future."

Recognizing the gravity of these warnings, the President’s Budget strives to induce providers toward greater efficiency with payment policies that increase the role of competition and create a strong financial incentive for providers to slow cost growth through greater productivity and other improvements in efficiency. In addition to encouraging appropriate, high-quality care for people with Medicare, the proposals would reduce the growth in premiums for most beneficiaries. Under current law, and based on the Budget economic assumptions, the assets of the HI trust fund would start to decline in 2015; the Budget proposals would reverse that decline and increase the value of the HI Trust Fund throughout the ten-year window.

When combined with Medicare administrative proposals, the FY 2008 Medicare legislative proposals, including those described below, would save $5.3 billion in FY 2008 and $75.9 billion over five years. The net effect is a reduction of less than one percent in the rate of growth for Medicare over the five-year budget window. Medicare’s current average annual growth rate over the next five years is projected at 6.5 percent per year. Under the President’s Budget, that rate of growth would slow to 5.6 percent per year. Specifically, the Budget would:

  • Foster Productivity and Efficiency: Responds to inefficient health care delivery and rapid spending growth with provider payment adjustments that would account for expected productivity gains and induce providers to achieve efficiencies that restrain costs;

  • Rationalize Medicare Payment and Subsidies: Ties payment to reporting of medical errors and expands value-based purchasing for hospitals; encourages appropriate payment for five common post-acute care conditions; addresses excessive Medicare payment and beneficiary coinsurance for power wheelchairs and oxygen equipment;

  • Improve Program Integrity: Facilitates proper coordination of benefits through improved data sharing; creates incentives for providers to recoup their debts; strengthens the integrity of the administrative appeals process by limiting Mandamus jurisdiction as a basis for obtaining judicial review;

  • Increase High-Income Beneficiary Responsibility for Health Care: Eliminates annual indexing of income thresholds for reduced Part B premium subsidies, and extends the income-related Part B premium adjustment to Part D premiums; and

  • Improve Long-Term Sustainability: As a fall-back response if there is no Congressional action, applies a -0.4 percent sequester to the Medicare payment amount for all providers in the first year that general revenue funding for the Medicare program exceeds 45 percent. The sequester reduction would grow by an additional 0.4 percent in each successive year that the general revenue funding remained above 45 percent.

A table of all Medicare legislative and administrative proposals included in the Budget along with budget impacts is included as Attachment A. The entire HHS Budget in Brief is available online http://www.hhs.gov/budget/08budget/2008BudgetInBrief.pdf

Medicaid Initiatives
Many of the most vulnerable Medicare beneficiaries also rely on Medicaid for help with Medicare premiums and other cost-sharing, and additional benefits. In 2006, 4.9 million Medicaid enrollees were aged 65 and over; an additional 8.3 million were blind and disabled. Collectively, these groups accounted for more than 25 percent of total Medicaid enrollment in 2006. The President’s Budget makes a number of proposals to preserve and strengthen the Medicaid program, building on past efforts to create service efficiencies and to assure its fiscal integrity. Even with these changes, the Medicaid baseline continues to grow at an average annual rate of more than seven percent, exceeding the increase in Federal and State budget revenues.

In FY 2008, we are proposing a series of legislative changes that will result in gross changes of $12 billion over the next five years, which will keep Medicaid up-to-date and sustainable for years to come. The President’s FY 2008 Medicaid reform proposals would slow the average annual growth rate in Medicaid over the next five years from 7.3 percent per year to 7.1 percent per year.

Access Initiatives
In addition to taking steps towards securing the future of Medicare and Medicaid, the President’s Budget demonstrates commitment to preserving and expanding health insurance coverage for all Americans. When it comes to health care, the tax code is biased in favor of individuals who receive insurance from their employers. To remove this inequality, the President proposes replacing the existing – and unlimited – exclusion for employer-sponsored insurance with a flat deduction for those with at least catastrophic health insurance. As long as a family has at least a catastrophic health insurance policy, they will be able to deduct the first $15,000 from their income ($7,500 for an individual), regardless of whether they receive their health insurance policy from their employer or purchase it in the non-group market. This will foster a true marketplace for health care, encourage competition, improve the efficiency of the system, and reduce the ranks of the uninsured.

The Federal Government’s current system of paying for health care results in billions of dollars being spent inefficiently through a patchwork of subsidies and payments to providers. In addition to directly funding the care provided to people enrolled in programs like Medicare and Medicaid, health care entitlement programs finance payments to institutions that either indirectly pay for uncompensated care or subsidize their operating expenses.

The health care system could operate more efficiently if some portion of institutional payments instead were redirected to help people with poor health or limited income afford health insurance. The uninsured often use emergency rooms as a source of primary care, which leads to suboptimal care and spending outcomes. If this public spending were focused on helping the uninsured purchase private insurance, people would receive the care they need in the most appropriate setting. The health care system needs to be transformed in a way that avoids costly and unnecessary medical visits and emphasizes upfront, affordable private health insurance options.

This transformation could happen by subsidizing the purchase of private insurance for low-income individuals. However, any such health care reforms would need to be State-based and budget neutral, not create a new entitlement and not affect savings contained in the President’s Budget that are necessary to address the unsustainable growth of Federal entitlement programs. The Federal Government would also maintain its commitment to the neediest and most vulnerable populations, while acknowledging that States are best situated to craft innovative solutions to move people into affordable insurance. The Secretary of HHS will be working with Congress and the States in the upcoming year to achieve health care marketplace reforms, called “Affordable Choices.”

The Administration also is committed to working with Congress to reauthorize the SCHIP program this year. SCHIP has provided $40 billion over the last ten years to states to provide health care coverage to low-income, uninsured children who are not eligible for Medicaid. Specifically, the Budget proposes to:

  • Reauthorize SCHIP for five years;
  • Increase funding by approximately $5 billion ($4.8) over the next five years;
  • Redirect approximately $4 billion in unexpended funds – taken together with the increase in funding, nearly $9 billion will be made available for the program, enough to meet projected demand for targeted enrollment in fiscal year 2008; and
  • Refocus the program on low-income, uninsured children and pregnant women in families with incomes at or below 200 percent of the federal poverty level, as Congress originally intended.

Conclusion
Experience with Medicare Part D to date demonstrates the great potential of market reforms to save Medicare dollars, while also promoting beneficiary choice and satisfaction. Moreover, greater flexibility for states under the Medicaid program has allowed reductions in cost growth, without significant benefit compromises. Through continued innovation and modernizations such as these, we can make the Medicare and Medicaid programs even stronger. Continuing on this path is critical.

The President’s FY 2008 Budget demonstrates a real commitment to improving America’s health care system by further modernizing and improving Medicare and Medicaid; strengthening health care coverage for low-income and vulnerable populations; and taking steps to make health care more affordable and accessible for all. This is a critical time in the life of Medicare and Medicaid. Steps taken now – or not taken – to adopt rational, responsible, and sustainable policies will directly impact our ability to preserve the promise of health care coverage for America’s seniors, people with disabilities, and low-income, vulnerable populations. We look forward to working with Congress in the coming year to reauthorize SCHIP, strengthen our existing programs, and improve access to affordable health insurance for all Americans.

Last revised: June 18, 2013