Testimony for the Record Barbara B. Kennelly, President and CEO National Committee to Preserve Social Security and Medicare

United States House of Representatives Committee on Ways and Means Subcommittee on Health

Hearing on the Medicare Portions of the President’s Fiscal Year 2009 Budget

February 14, 2008

Mr. Chairman and Members of the Committee:

I am Barbara Kennelly, President and Chief Executive Officer of the National Committee to Preserve Social Security and Medicare, and I appreciate the opportunity to submit this statement for the record. With millions of members and supporters across America , the National Committee is a grassroots advocacy and education organization devoted to preserving and promoting the financial security and health of maturing Americans.

Mr. Chairman, last week the President released his Fiscal Year 2009 Budget which proposes severe cuts to Medicare, totaling $178 billion over the next five years, $556 billion over the next 10 years, and more than $10 trillion over the next 75 years.  These massive and seemingly arbitrary cuts increase beneficiary cost-sharing and slash reimbursement rates to providers who serve beneficiaries in traditional Medicare.  We are concerned that cuts of this magnitude will undermine the strength of traditional Medicare and negatively impact the health outcomes of beneficiaries by limiting their access to care.

While the President's budget places traditional Medicare on the chopping block, it continues to fund substantial subsidies to private Medicare Advantage plans.  In fact, today the government pays an average of 13 percent more to cover a beneficiary enrolled in a private Medicare Advantage plan than it would cost to cover that same beneficiary under traditional Medicare.  In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare.

All Medicare beneficiaries, whether they enroll in a private plan or not, subsidize payments to private companies by paying higher Part B premiums.  Today, these premiums are almost $50 per year higher per couple than they would be absent the subsidies to private plans.  This number will continue to grow exponentially in future years.  These increases are in addition to the record-setting increases in Part B premiums beneficiaries have already experienced – and which are expected to continue – as a result of overall increases in the cost of health care. 

In addition to adding costs for individual beneficiaries, subsidies to Medicare Advantage plans result in higher costs to the federal government.  Medicare's actuaries estimate that eliminating these subsidies would add two years of solvency to Medicare's hospital insurance trust fund.  According to the Congressional Budget Office (CBO), paying private plans at the same rate as traditional Medicare would save $54 billion over the next five years and $149 billion over the next ten years. 

For all of these reasons, the National Committee to Preserve Social Security and Medicare supports the Medicare Payment Advisory Commission's (MedPAC) recommendation that payment policy should be built on a foundation of financial neutrality between payments in the traditional fee-for-service program and payments to private plans.  We should be using taxpayer dollars to promote quality in Medicare, instead of bestowing unwarranted subsidies on inefficient private plans that serve a fraction of Medicare beneficiaries.  However, the President's budget continues to dole out excessive and wasteful subsidies to Medicare Advantage.

Some of the dangerous cuts contained in the President's budget are in response to an arbitrary cap on the use of general revenues to finance Medicare.  A provision in the Medicare Modernization Act of 2003 (MMA) requires the Medicare trustees to project the point at which general revenues will finance at least 45 percent of Medicare's outlays. If the trustees project in two consecutive annual reports that the 45 percent cap will be reached in the next six years, Presidential action and Congressional review are triggered.  At that time, the President is required to submit a proposal to Congress that would likely require severe Medicare cuts to reduce general revenue financing.  The 45 percent cap was officially triggered with the release of the Medicare Trustees report last spring.  Consequently, this has triggered a budget proposal by President Bush to reduce general revenue financing.

The President's budget would require automatic payment reductions of 0.4 percent per year to health care providers when the cap is breached. These reductions would increase each year by 0.4 percent until general revenue funding is brought back to 45 percent.  This cap represents an arbitrary measure of the program's health and ignores Medicare financing structure, which was designed to rely on general revenues to finance about 75 percent of Part B and Part D.  This structure allows the revenue raised by income taxes to shoulder a higher portion of responsibility for Medicare's funding, placing the burden on a revenue source which is relatively progressive and taxes all income. If general revenue contributions are limited, the burden would shift to beneficiaries (who are typically on fixed incomes) or increased payroll taxes, which only tax wages and fall disproportionately upon those with lower incomes. Neither of these policy considerations is reflected in the funding limit.  Further, the 45 percent cap limits the consideration of all solutions—including the use of increased revenues—to address problems facing both the Medicare program and the U.S. health care system.  Our members and supporters encourage Congress to repeal this arbitrary funding limit and prevent these Medicare cuts from taking effect.

In addition, we are particularly concerned that the President's FY 2009 budget includes an expansion of means-testing in Medicare.  The means-testing proposals would raise beneficiary premiums by $460 million in FY 2009 and over $5.8 billion in the five-year budget window.  Those with incomes above certain levels are already paying higher Part B premiums because of provisions contained in the Medicare Modernization Act of 2003 (MMA). Currently, the income thresholds rise each year to reflect inflation, but these inflation-adjustments are eliminated in the President's budget. Additionally, the President proposes to apply means-testing to Medicare Part D, using the same income thresholds for the means-tested Part B premium, which like his proposal for Medicare Part B, would not be adjusted for inflation. 

The National Committee supports the complete elimination of means-testing because it undermines the social insurance nature of the Medicare program and raises costs for middle- and lower-income seniors who are dependent on it.  Means-testing also raises premiums for those who have paid the most into the program.  By the time they retire, higher-income seniors have already paid a greater share of Medicare's cost compared to low- and middle-income seniors. For example, higher-income seniors contribute more in Medicare payroll taxes since there is no income cap, as there is in the Social Security program. Higher-income seniors also pay more income tax which helps to finance the majority of Part B and Part D costs. Finally, these seniors are subject to higher income taxes on their Social Security benefits, which are used to strengthen Medicare's Hospital Insurance trust fund.  As submitted, the President's proposals to eliminate the inflation adjustment would lead to more and more middle-income seniors paying higher Medicare premiums.  As this committee is well aware, a similar problem has occurred with the Alternative Minimum Tax (AMT). The AMT was originally designed to prevent high-income taxpayers from using loopholes to avoid paying their fair share of taxes. However, over time more middle-income workers have found themselves unfairly subject to the AMT because the income thresholds were never indexed.

Finally, the budget fails to make necessary Medicare improvements that your Committee tirelessly pursued last year.  The House-passed Children's Health and Medicare Protection Act of 2007 (CHAMP Act) includes improvements to the Medicare Savings Program (MSP) for Parts A and B and the Low-Income Subsidy (LIS) for Part D.  These programs directly help beneficiaries with limited incomes and assets afford their Medicare out-of-pocket costs.  The CHAMP Act also enhances access to preventive care and mental health services. And it contains provisions to protect beneficiaries against the fraudulent and predatory marketing practices of some Medicare Advantage plans and Part D prescription drug plans.  Further, the CHAMP Act repeals the 45 percent limit on general revenue funding of the Medicare program as well as the comparative cost adjustment demonstration project, the so-called “premium support” demonstration, slated to begin in 2010.  As I said earlier, the 45 percent funding limit is an arbitrary benchmark that is inconsistent with Medicare's basic financing structure.  And the premium support demonstration will further weaken traditional Medicare by providing voucher-like payments which may lure healthier seniors to private plans.  The CHAMP Act pays for substantial improvements to Medicare by curtailing excessive subsidies to the insurance industry. 

Mr. Chairman, thank you for holding this hearing today on the President's FY 2009 budget proposals for Medicare.  The President's Medicare priorities could not be more out-of-touch with Medicare beneficiaries.  His budget proposes massive cuts designed to undermine traditional Medicare, while continuing to reward private insurance companies with unwarranted taxpayer and beneficiary-funded subsidies.  I urge you to reject the President's Medicare proposals and to continue the pursuit of Medicare improvements contained in the CHAMP Act.  I look forward to working with you and other members of this committee to improve the program for all beneficiaries and to ensure that traditional Medicare is preserved for generations to come.  

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