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REMARKS BY:   DONNA E. SHALALA, SECRETARY OF HEALTH AND
                  HUMAN SERVICES
PLACE:        The Group Health Association of America
DATE:         February 28, 1995

Thank you Tony for that gracious introduction.

I want to begin by telling you all how lucky you are to have Karen Ignagni. She is a remarkable and gifted leader.

In a town of sharks, she keeps her cool and her integrity. I value her wise counsel. Together, we make a powerful team to move America's health care system into the 21st century.

We share a common commitment to improving the efficiency and the fairness of our health care system.

We have worked hard at HHS to develop the proper atmosphere and the proper relationship between government programs and the managed care industry.

We started by recruiting health leaders who recognize the value of high-quality managed care plans ... And who understand the American people deserve the widest possible range of health care choices.

Since I first joined Tony's HMO 25 years ago -- even before Paul Ellwood came up with the term -- I have had great admiration for your industry's ability to provide high-quality health care at an affordable price.

Your emphasis on prevention and your ability to provide a wide-range of services to hard-working American families have made managed care one of the great success stories of our health care system.

I want to thank you for your help in immunizing our children against life-threatening, preventable diseases.

I also want to express my appreciation to your leaders for the close cooperation we've had on empowering consumers to make informed choices about their health care.

Our work with the National Committee on Quality Assurance on the HEDIS system of quality indicators for Medicare and Medicaid will set the tone for an industry-wide emphasis on quality.

One that will provide consumers with comprehensive and comprehendible information about the plans available to them. We all should be proud of that.

We are, indeed, living in a time of great change in health care. For many Americans, this represents progress.

We have seen signs of moderation in the historic growth of health care costs and health care spending. We have seen greater innovation in the models of health care delivery and health care coverage. And we have seen a greater choice of plans and providers for some American consumers.

There have been some early signs of improvement in health care costs, but we must be cautious before we draw any conclusions.

According to a recent Foster-Higgins survey of employer costs for health insurance, the cost of employer-provided health benefits actually declined by 1.1 Percent in 1994. That's the first drop in those costs in nearly a decade.

For large employers, the reduction in premiums was quite dramatic -- averaging nearly 2 percent.

And, for employees and their families who are enrolled in managed care plans, the drop in premiums was also about 2 percent.

These numbers may be cause for optimism, but we must be careful not to uncork the champagne too quickly.

During the last two years, our country was engaged in a heated debate over health system reform.

It is natural to assume that it had an impact on health care prices and health insurance premiums. In fact, we have observed such a jawboning effect in the past only to see prices and premiums skyrocket again once the debate ends.

I don't believe that this debate over health care reform is over, but time will only tell if the market agrees.

Let's also remember that insurance premiums tend to follow an historic pattern of high growth and low growth. If the current pricing pattern proves to be a genuine change in direction, we can all breathe easier.

But if this slowdown is temporary, the same pressures that drove us all to the table will arise again.

And, finally, we must see if these figures represent a one-time saving that may well have been accomplished by shifting costs to working families.

So, none of us can pause too long to pat ourselves on our backs.

While the news is good for Americans who have employer- paid health insurance, there are growing discrepancies in access to health care for millions of people who get up every day and go to work but don't have the benefits of health care coverage.

Last year, more than three million Americans joined the ranks of the uninsured, bringing that total to more than 40 million. We know that more than 80 percent of people without health insurance are working or the dependents of workers. In fact, 10 million of them are children. And, if current trends continue, the number of uninsured will exceed 50 million by the beginning of the new century.

While the cost of coverage is declining for workers in firms with more than 500 employees, premiums for small employers rose an average of 6.5 Percent. As a result, the cost of insurance for the workers of such firms is increasingly out of reach and many small business owners are opting out of the insurance market, leaving their employees and their families without coverage.

Others are cutting back benefits and increasing cost- sharing leaving millions of Americans with less insurance than they need.

The managed care industry has often been a leader in innovation in quality and pricing. Your work in developing tangible measures of the quality of health care plans and health care providers is moving towards the day when consumers will be empowered with information that helps them make wise decisions about their coverage and their care.

Your work with employers and with coalitions has taught us all that costs can be restrained through cooperation not confrontation.

We have to work together to make sure that all Americans can share in the fruits of your labor. I know that you have had visitors this week who have suggested that the President has somehow abandoned his quest for health care reform.

Even in the Washington world of 10-second soundbites and 30-second attention spans, this charge is ridiculous.

The President and I remain absolutely committed to improving our health care system so that all Americans can enjoy its benefits. We have repeatedly said -- in letters, in speeches, and in testimony -- we are ready to work with the Republican majority in Congress on a bipartisan bill that takes the first steps toward our ultimate goal of a health care system that provides every one of us with security, quality, and choice.

We have to find ways to make coverage available to all of our citizens, starting with those who are in the hard-working middle class.

Then we have to work to make that coverage affordable to those workers who currently enjoy employer-sponsored coverage and those who don't. We also need to take care of the self- employed, and the unemployed.

Finally, we have to eliminate mindless, mean-spirited barriers to coverage for Americans who today are priced out or shut out of the insurance market.

These are not easy things to accomplish, but we can work in a cooperative, bipartisan manner to achieve this kind of security for our people.

Where should we start?

We should start with insurance reforms that limit insurers' ability to exclude people from coverage because of their age, their income, or their preexisting medical conditions.

We should enable small business owners to join together in voluntary alliances that provide them with the kind of market clout that their larger competitors enjoy.

We should find ways to make coverage affordable to working people and their families.

We should begin to address the long term care needs of elderly and disabled Americans who want to remain at home with their families. And we should look for ways to provide health coverage -- especially preventive care -- for our children.

The President believes these are steps that we in the Administration, you in the health care industry, and those who are in the legislative branch can agree upon and act upon before this year is out. We do, however, have a very important concern.

As we discuss these important incremental reforms, we must keep our eye on the future. Any reforms we enact today must put us on the road to a health care system that assures all of our citizens -- particularly working Americans -- coverage that can't be taken away.

And any reforms we enact today must put us on the road to a health care system with predictable and containable costs. We have been working together to assure that Americans have the maximum degree of choice in their health care plans and their health care providers.

I am particularly encouraged by the progress that we have made in the enrollment of Medicare beneficiaries in managed care plans.

Today, three-quarters of Medicare beneficiaries have access to managed care plans and 9 percent have chosen to enroll in such plans. In 1994 alone, we experienced double digit increases both in the number of beneficiaries enrolling in managed care plans and in the number of plans joining the Medicare program.

Plan enrollment increased by 16 percent and 11 U.S. counties now have more than 40 percent of their Medicare beneficiaries enrolled in managed care plans.

In 1994, the number of Medicare managed care plans increased by 20 percent -- with many of the new contracts coming in regions that have not traditionally been strongholds of managed care.

In Philadelphia, for example, the number of contracts increased from six to sixteen. And in Boston, the number of plans more than doubled. We have seen even more impressive results in Medicaid.

Last year, Medicaid had a 63 percent increase in the number of people enrolled in managed care plans, bringing that total from 4.8 million in 1993 to 7.8 million in 1994. As we continue to expand the opportunities for Medicare and Medicaid beneficiaries to enroll in managed care plans, we must be aware of the practical limitations of a rapid expansion of enrollment.

We should not outpace the capacity of your industry to serve large numbers of new enrollees, particularly those with the traditionally expensive and specialized needs of the Medicare population.

That's why HCFA is working with your industry to improve the way Medicare pays managed care plans and with the states to make sure that expansion of Medicaid enrollment in managed care goes smoothly.

We are working with your industry to improve quality measures and to develop a better methodology for Medicare's risk contracting program. We are also in the process of developing new managed care options under Medicare.

The American people appreciate being able to choose among managed care and fee-for-service options and we are committed to preserving and enhancing those choices. So I think we all have reason to be proud of what we have accomplished and look forward to the work ahead.

In that light, I am very concerned by the proposals being developed on Capitol Hill to make draconian spending reductions in the Medicare and Medicaid programs.

Just yesterday, the Chairman of the Senate Finance Committee outlined for you what the Republican health care leaders in Congress have in mind for the Medicare and Medicaid programs.

I know that Senator Packwood is feeling some heat today, but I think we all should praise him for his honesty.

For months now, the Republicans in Congress have been telling the American people that they can cut taxes on upper- income Americans, increase defense spending, and balance the budget without adversely affecting the quality of Americans' lives.

The President has repeatedly asked the Republican leadership to tell the American people just how they would make those numbers add up. And the leadership has refused.

Now Senator Packwood has honestly stepped forward to give us the first clear indication of what is behind the Balanced Budget Amendment.

And I don't think many Americans like what they hear -- a plan to devastate two of our most precious health care programs.

In July of this year, we will celebrate the 30th Anniversary of the enactment of Medicare and Medicaid.

It has become fashionable these days to talk about dismantling programs of the New Deal and the Great Society as if they are houses made of Lincoln Logs.

But Medicare and Medicaid are part of the foundation of American life that has enabled our elderly citizens, our disabled citizens, and our low-income citizens to receive life-enhancing and life-saving medical care.

To begin tearing these programs apart in the name of ideology would be dangerous. To tear them apart to finance a tax cut for well-to-do people would be wrong.

It is clear that both Medicare and Medicaid need to be examined to assure that they are providing our people with the best quality care at the most reasonable price. We in the Clinton Administration have worked hard to accomplish this and we know that our work is not yet done.

Bruce Vladeck and his talented team at HCFA are examining all aspects of Medicare and Medicaid to make them more cost- effective and efficient.

But we must not lose sight of the fact that Medicare and Medicaid are two of the most effective programs the government operates.

Working with the states and with private insurers, we have kept the administrative costs of Medicare and Medicaid at the lowest rate of any health care program -- public or private -- in this country.

We're very proud of that. Medicare has improved the health and the quality of life of our senior citizens and helped to lift millions of our parents and grandparents out of poverty.

Thanks to Medicare, no American has to spend their retired years struggling to pay hospital and physician bills or choosing between going to the grocery store or going to the doctor.

If we go ahead and slash Medicare and Medicaid spending by $400 billion dollars what will we have left?

We will be forced to sharply reduce payments to hospitals, physicians, and managed care plans.

And we will have to ask our senior citizens to pay significantly more for their medical care. Today, 80 percent of Medicare beneficiaries earn less than $25,000 a year. Can we really ask them to pay so much more?

Will we be able to maintain the high-quality, cost- effective programs that provide needed medical care to millions of Americans?

And will we be able to continue to improve the choice of health plans available to young and old Americans alike?

Sadly, the answer to both those questions is a resounding "no."

These cuts not only endanger the future of Medicare and Medicaid, they pose a threat to our entire health care system.

If we significantly underfund the two programs that make up nearly half of our health care system, we will undermine the entire public-private infrastructure, including our managed care industry.

So, as the members of the Senate prepare to vote today on the Republican Balanced Budget Amendment, I ask each of them to think about the kind of future they want for this country. Are we really ready to trade the future of our country for a handful of beans?

Enactment of the kind of Medicare cuts being so loosely bandied about on Capitol Hill would endanger the health of senior citizens and the financial stability of our medical institutions.

Now, some in Congress are offering a deal to the managed care industry. They say: let us cut Medicare spending by $150 billion dollars and we'll create new incentives for beneficiaries to join managed care plans. This is a Faustian bargain and one that you should not make.

Before you accept a Medicheck, you need to give them a reality check.

The reality is that if Medicare spending is reduced by $150 billion dollars over the next five years, there will not be enough money in the system for an effective managed care program to work. The danger here is very real.

For those of you who operate high-quality, cost-effective health plans, an underfunded Medicare program leaves you holding the bag for expensive care that your members will need. For those out there in the market -- or poised to enter the market -- an underfunded capitation system invites the kind of fraud that damages the reputation of your entire industry.

None of us is so new to this debate that we cannot remember the Medicaid mills of Arizona or the Medicare fraud of Florida to blindly go down this road again.

It is time for us to stop and take a look at what's happening in this city. I too hear the thundering hooves of elephants. They are not gentle hooves.

It has become apparent that the consequences of this stampede threaten our extraordinary private and public health care system ... and with it the lives and millions of American families, particularly the elderly, the disabled, and our children.

It will take all of us with clearer heads to stop them. Perhaps Franklin Roosevelt put it best when he said:

"Human kindness has never weakened the stamina or softened the fiber of a free people. "A nation does not have to be cruel in order to be tough." Thank you.