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REMARKS BY:	DONNA E. SHALALA, SECRETARY OF HEALTH AND HUMAN SERVICES
PLACE:		American Association of Health Plans Conference, Washington, D.C.
DATE:		September 8, 1997

The congressman was so certain that he was writing for the ages that he wrote the word "applause" in the text everywhere he thought he'd get one. [If only it were that easy]. Unfortunately, the young printer couldn't read the congressman's handwriting. So every time he saw the word applause, he wrote: "applesauce."

I like this story because it nicely sums up what many Americans think about political promises. They're about solid as applesauce.

But some promises are too important not to keep -- like our promise of quality health care. In our revolutionized health care system, we know that this promise can only be realized if we work together in true public-private partnerships.

We've done that -- in large part because of the leadership of AAHP. When we joined together, we supported grants for studying how managed care can offer better treatment to patients with chronic diseases. When we joined together, we got our children immunized. When we joined together, we sponsored a national on-line database which will offer guidelines for improving clinical practice.

And today, we have joined together again to release new marketing guidelines for health plans - so beneficiaries will always be able to make informed choices about managed care.

So we've come a long way. And we have much to be proud of. But to paraphrase Robert Frost, `we have more promises to keep, and many more miles to go before we sleep.' And there is no greater promise we can keep -- to those we love and those we'll never meet -- than Medicare's promise of the best health care in the world for our older Americans.

My mother is 85 years old. And, I'm proud to say, her day to day life has not changed very much over the last 30 years. She still practices law. Still plays tennis and water aerobics. And she still gives the Secretary of Health and Human Services good motherly advice.

But my mother's life has changed in one very important respect. A little over 30 years ago, when my mother was about my age, she had good reason to fear that growing old might mean going without health insurance - or having to choose between saving her health and spending all she had saved. Why? In 1965 only 56 percent of older Americans had insurance for hospital care.

When he signed it into law, President Johnson predicted that "Medicare will take its place besides Social Security and together they will form the twin pillars of protection upon which all our people can safely build their lives and their hopes."

He was right. Medicare literally changed what it means to be old in America. To be disabled in America. To be sick in America. And it did so in such a profound way that today we can say without argument: Never has one program done so much, to improve the health of so many, for so long. Today, Medicare protects 97 percent of the elderly, who are now plagued by less disability and poverty and blessed by longer lives.

Whether we are sick or healthy, rich or poor, all of us can rely upon Medicare. And because of that, it has not only made us a healthier country, it made us a better country - more in harmony with our ideals of equality and fairness; and more in keeping with our faith that each new generation should find the American dream easier to reach.

So, even as we carve out a new Medicare for a new century - as we will - the deep rooted promise Medicare made to my mother's generation -- must not be lost for her great grandchildren's generation.

Because, at a time when the number of beneficiaries is rapidly increasing; at a time of great revolutions in our health care delivery system -- especially in the numbers of citizens choosing managed care; at a time when our population is aging and the demand for chronic health care is growing, Medicare must be more than a grand old vision. It must continue to change and adapt -- while never breaking its covenant with the American people.

With this year's budget agreement, we started to address the short term challenges faced by Medicare. We extended the life of the Trust Fund for 10 years; added more benefits and health care options; and formed a new Bipartisan Commission on the Future of Medicare to come up with long term solutions to meet the challenges of the baby boom generation -- and beyond.

It's been said that on Gertrude Stein's death bed, she turned to Alice Toklas and asked, "What is the answer?" When Alice didn't know, Stein asked, "In that case, what is the question?"

When it comes to something as important and complicated as Medicare, no one should pretend they have all the answers. But, we can try to ask the right questions. We can try to reject the ideological and simplistic solutions.

The fact is, the agenda of the new commission -- and the debate of our nation -- must not just focus on the budget and solvency questions -- though we must address them. It must not just focus on questions of eligibility age and income-related premiums -- though we must address them.

I believe that the Commission has a unique opportunity to engage policymakers and citizens in an educated dialogue that could advance our national debate about the future of Medicare.

To seize that opportunity, I believe that the Commission's broad agenda should be grounded in these three fundamental principles.

First, long-term change must come in stages.

All of us like to think we can see into the future. But, the speed and complexity of change in technology, health care, and the economy make long-term inflexible planning impossible. And the further into the future we reach, the more uncertain our predictions become.

Which is why in our 75 year forecasts, the Medicare trustees present a range of alternative forecasts, which produce wide variations in cost estimates.

It also helps to remember that in 1965 when we launched Medicare, we built incentives into the system to try to increase the participation of physicians. Why? We were afraid not enough of them would join -- which is certainly not a problem today.

In 1965, we would not have imagined that more than 80 percent of workers with insurance would get it through some form of managed care. Thirty years from now, new diseases will emerge, new treatments and new technologies will be discovered that will have a tremendous impact on Medicare.

But, it's not just health care. Global markets, new forms of communication and transportation, changes in the work force, and immigration will bring unforeseen changes to our economy - and limit our ability to forecast with precision our future health care needs.

That's why we need to go step-by-step, phasing in new solutions over time - and making corrections along the way as our economy and health care needs change. To accomplish this, we may need to consider an on-going bipartisan process that will help us to identify and proactively make needed changes in Medicare as time goes on.

Second, because Medicare is a large part of a complex health care system - and the overall economy - we cannot plan changes to the program in isolation.

We saw what happened when we changed to a prospective payment system for hospitals. Eventually other insurers started using our rates.

The Commission must look at how any new proposed changes might affect how we pay for and deliver care to all Americans.

I must think about whether changes will shift costs to Medicaid or Social Security or the private sector. It must look at the future of Medicare within the context of our assumptions about labor supply, personal savings, economic growth, and demographics.

Similarly, how will Medicare be affected by other policies -- like Medigap and Medicaid policies? How will Medicare be affected by changes in the consumer's role? Changes in other large purchasers? And changes in the overall insurance market for citizens under 65?

In addition, what about the impact of trends in social security, disability and private pensions? What will happen to patterns of retirement, retirement planning, and retiree health benefits?

All of these policies and questions will affect and be affected by the future of Medicare -- thereby making our predictions even more difficult and complex.

Third, the agenda from which we choose these phased approaches should be as broad as possible.

We must ask ourselves some very fundamental questions.

For example, how will we keep Medicare's historic promise of health care for all who are eligible? Is it a guaranteed specific benefit list? A defined dollar contribution? Or some combination thereof?

This is one of the hottest questions being debated right now. And, there's a reason for that: There will be more than 75 million Americans over 65 in the year 2030. They will need quality health care. If Medicare doesn't pay for it, who will? And, if Medicare covers a smaller fraction of it, who will pay the rest? The fact is, reducing Medicare's contribution has the potential to shift billions of dollars of costs to employers and beneficiaries.

Next, what are the benefits that Medicare should offer?

When Medicare started, it -- and our entire health care system -- was organized primarily around providing care in hospitals. Over the last decade, there's been a shift out of the hospitals and into settings, like doctors' offices and patients' homes. And, even more recently, science and private health plans -- especially managed care plans -- have spotlighted the importance of providing prevention benefits.

In the budget agreement, we took a step forward by expanding the benefit package to cover important services like flu shots and mammography. But, we still have a long way to go.

As the population ages, as retirees change, and as chronic and long-term care become even more critical, the mix of services that Medicare beneficiaries need will change even more. And as they change, we need to think about how the benefits Medicare offers will mesh with those offered by supplemental insurance, Medicaid, and organized care plans.

Another key question is cost. What will the cost of the program be? And how do we control these costs?

Specifically, how is Medicare's per capita cost being influenced by inefficiencies in the program? And by the cost growth of health care overall? How can we better track and predict potential changes in technology, disability rates and other factors that will affect these per capita costs?

And what about the number of beneficiaries we'll need to cover. We need to look beyond the aging of the population to other societal changes. Will people work longer? Will the ranks of uninsured increase? What if Medicare raises the age of eligibility?

That leads me to the next question: Which is, how do we finance these costs?

Here, once again, we need to take a very broad look at our options: For example: Do we have the proper mix of premiums, cost-sharing, payroll, and general revenue? What are the alternatives? Is the split between Parts A and B driving our choices? Should it?

More fundamentally, we need to look at who should shoulder the burden if costs increase: How much should enrollees contribute? How do the future resources of our beneficiaries and our state and federal governments -- square with their future financial responsibilities for Medicare?

How do we strike the right balance so that changes to Medicare won't shift costs from the private sector to Medicare? Or shift costs from Medicare to other parts of our budget or our beneficiaries?

We need to remember that not all seniors are the same. The Commission should pay particular attention to vulnerable subgroups enrolled in Medicare: It should look at how different age groups and income levels are affected -- especially beneficiaries with the lowest incomes.

As we continue to change the way health care delivery is organized, another question the Commission should examine is how Medicare's management responsibilities will need to change.

No longer is Medicare just a payer. It now has oversight over a complex and changing health care delivery system. Medicare has had a radical transformation from a pure indemnity program to one that offers an array of choices. And more and more beneficiaries -- nearly 14 percent are choosing organized care.

So what are Medicare's new responsibilities in this new era of choice? How will we structure and organize the system? How will the Medicare program purchase benefits in the future? How will it deliver care and pay for it? How big a role will traditional fee- for-service continue to play?

And, how can we use our research to continuously find new ways to measure quality? Not process. But real outcomes and real consumer satisfaction across all plans.

Finally, as Medicare takes on these new roles, the Commission must ask if the program should change any of its current roles. For example, we know that we have a national interest in supporting research, medical education and training, and hospitals that serve uninsured patients. But what is the appropriate role for Medicare in this changing world? Should other payers contribute to these costs? And, as chronic health and disability needs continue to skyrocket, do we need to rethink how we finance long-term care as well?

Some of these questions will be controversial. Many will change. All will be important. And, they will best be answered by a Commission whose mandate is clear and whose membership is balanced and experienced. A Commission who educates and engages the policy makers and the public -- not as an afterthought, but as part of its vital mission.

But, the work the commission completes is not the first, last, or only step we must take to keep Medicare's promises. As I said earlier, eventually we may need an on-going bipartisan process to make changes as we go along. But there are some important steps that we can take immediately.

The Commission will not be reporting back to us until 1999. To do nothing in the interim would be abdicating our responsibilities as guardians of the Medicare program and the citizens it serves. Doing nothing would break our promises.

Instead, we must build on the bipartisan goodwill that produced the historic balanced budget agreement and continue to strengthen and modernize Medicare. I see some steps that we can immediately:

First, we need to work even harder to stamp out health care fraud. When the President first got to Washington, we looked at the waste and fraud poisoning our health care system and decided to make fighting it a top priority. Guess what? That fight has paid off. Over the past four years we have increased the number of health care fraud convictions by 240 percent, saving the taxpayers more than $20 billion.

And now we can do even better because the budget gives us new tools. For example, we will be able to ban felons from Medicare and Medicaid. We will require those who do business with Medicare to give us their Social Security and employer identification numbers so we can check to see if they have ever committed health care fraud before. We will require surety bonds of $50,000 for home health agencies and others to keep fly-by-night operations out of Medicare in the first place.

But, there's also a lot more we can do. That's why the President has urged Congress to enact the additional anti-fraud provisions he proposed that were not in the budget. For starters, we need to close the loophole that lets Medicare cheats use the shield of bankruptcy to avoid paying us back when they get caught. And we will not rest until we are given the full powers we need to wring fraud out of the system. The bottom line is, we cannot ask America's senior citizens to carry a heavier load until we've taken every step to stop those who would rob our health care system and our taxpayers.

Over the next two years we also have a chance to work with you to ensure that the new changes in the budget agreement are implemented the right way. I'm referring to changes in the number of health care options available to beneficiaries. Not only will beneficiaries be able to choose from PPOs, PSOs and other forms of organized care, more of them will have access to these plans.

I'm also referring to changes in our payment system that will give HMOs greater incentives to operate in rural areas -- and give their new Medicare customers access to prescription drug, eyeglass and other important benefits.

And, I'm referring to changes that will institute a prospective payment system for home health agencies and skilled nursing facilities. Not just to get a handle on spiraling costs, but also to discourage the kind of fraud and abuse that have plagued these segments of our health care industry.

During these two years, we will also have a chance to build on what works in Medicare. We know that Medicare must be a more prudent purchaser of health care services. We know it must do the same exact thing every business has to do to thrive in the next century: It must be competitive and stay competitive.

That's why the President fought for -- and won -- authority to test the kind of competition that we believe will work. We will put in place a competitive bidding program for the goods and services we buy.

We're going to establish demonstrations around the country to test ideas like competition among health plans and bring common sense efficiencies to the program.

We also want to build on what we've already learned about making Medicare a more prudent purchaser. For example, we know contracting with high-quality facilities to provide specific procedures for enrollees can improve quality and cut costs by up to 12 percent. Now we must expand these centers of excellence all over the nation. In addition, we want to be able to competitively bid all services not provided by hospitals or doctors; to negotiate price discounts in exchange for cutting some red tape; and to pay the absolute lowest price for the things we buy.

Finally, and perhaps most important, the next two years give us a golden opportunity to ensure that high quality care is always our bottom line.

Just like the American auto industry, which made changes in quality to beat the competition. Just like food manufacturers who are competing -- and winning -- by offering low-fat foods that taste good, we must give our citizens what they want in health care: lower costs, higher quality, and real consumer protection. I know that's your mission. And, it's the mission of the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry.

I want to tell you how much the President and I appreciate this organization's help and cooperation with the commission. I know that many of you viewed this commission with some trepidation. I want to assure you, as I have before, that this Commission is not in the business of bashing managed care. If it were, I would not serve as its co-chair. But we are in the business of improving the quality of health care coverage and delivery in this country for ALL models of health care coverage. That includes HMOs, PPOs, indemnity products, and the many emerging models that are now entering the market -- and, yes, that includes Medicare itself.

I'm very encouraged by the progress we've made. I'm looking forward to our fourth meeting, which we're holding tomorrow in Chicago. And, I believe that -- with your continued leadership -- we will produce a product that is balanced, forthright, and destined to help advance the quality of care in this country.

As you know, right now our children are making the journey back to school. No doubt, they're worried about who will be in their classes? What teachers they'll have? Will they have the right clothes? Will they make the grade? But, there's one thing our kids are definitely not worried about: and that's what kind of health care they'll have when they're over 65.

That's our job. Because what we do today will determine whether Medicare's historic promise will be there for every generation of kids tomorrow. It will -- but only if we work together. And only if this organization continues to lead the way.

Thank you.