Letter to the Super Committee

October 12, 2011

The Honorable Patty Murray

The Honorable Jeb Hensarling

Co-Chairs, Joint Select Committee on Deficit Reduction

Dear Co-Chairs,

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I urge you to fully consider the importance of Medicare to America 's seniors as your Joint Select Committee on Deficit Reduction pursues its mandate. I believe there are certain misconceptions about Medicare's growth and financing that should be clarified before your Committee begins to evaluate Medicare proposals. To summarize, our nation does not have a Medicare spending problem, it has a health care cost growth crisis. Cutting Medicare alone shifts costs to a segment of the population least able to bear it, and will ultimately result in access issues as seniors find health care increasingly unaffordable. Finding additional methods for slowing cost growth system-wide will not only help the economy as workers and their employers need to invest fewer resources to cover rapidly escalating health care costs, but will ultimately slow the growth of Medicare and other federal health programs as well.

The Congressional Budget Office estimates that Medicare spending will increase from $555 billion in 2011 to $903 billion in 2020. The drivers of this growth are the increasing Medicare population and the sustained increases in overall health care costs. The rise in overall health care costs is influenced by increasing volume and use of services, new technologies and increasing prices.

Over the next decade, Medicare spending is projected to represent a growing share of the economy, federal spending and the nation's total health spending. However, Medicare per capita spending is projected to grow at a slower rate than private health insurance spending and a much slower rate than in previous decades. Average per capita spending is projected to grow by 3.5 percent between 2010 and 2019, while private health insurance spending will grow 5.4 percent per capita. This 3.5 percent growth level is on a par with the 3.6 percent growth projected in GDP and compares very favorably to the average of 7.8 percent per year over the previous decade.

Although Medicare faces significant challenges, claims that it is going “bankrupt” are misleading. Medicare's Part A Hospital Insurance (HI) trust fund will be depleted in 2024, but Medicare will still be able to pay 90 percent of HI costs with incoming payroll taxes and other dedicated revenues. The Supplementary Medical Insurance (SMI) trust fund, Part B, which covers physician services and prescription drugs, cannot go “bankrupt” because beneficiary premiums and general revenue contributions are set annually to cover expected costs for the coming year. Clearly, action is needed to address the HI trust fund shortfall, but critics who characterize the program as going “bankrupt” are misleading the American public.

Proposals, such as means testing and increasing the age of eligibility to reduce Medicare costs will undermine the program and fail to address the underlying reasons for the its growth – the increase in health care costs overall nationwide. First, Medicare Part B has been means tested since 2007, with beneficiaries at the $85,000 and above income level for an individual, and $170,000 and above for a couple, paying premiums ranging from $161.50 to $369.10 per month, depending on their level of income, compared with this year's standard premium of $115.40. The number of beneficiaries subject to this means-tested premium is expected to increase from 2.4 million in 2011 to 7.8 million in 2019, an increase from 5 percent to 14 percent of Part B enrollees. Medicare Part D, the prescription drug benefit is also means tested with the same income thresholds. The Part A payroll tax will increase in 2013 by an additional 0.9 percent on covered earnings above $200,000 for an individual and $250,000 for a couple. These same income thresholds will also apply a 3.8 percent surtax on unearned income, such as interest, dividends and capital gains, which will be applied to Medicare.

Additional means-testing would undermine the social insurance nature of Medicare, and ultimately raise costs for middle and lower-income seniors who depend on it. If mean-testing results in Medicare becoming increasingly unfair to higher-income beneficiaries, they may opt out and purchase their own policy on the private market. The departure of these higher-income beneficiaries, who tend to be younger and healthier, would increase overall costs and reduce public support for the program.

Increasing Medicare's eligibility age from 65 to 67 would simply shift the costs saved by the federal government to the 65 and 66 year-olds losing Medicare coverage, their employers, other Medicare beneficiaries, the states and younger people buying health insurance through the new health insurance exchanges. The Kaiser Family Foundation estimates that increased state and private-sector costs would be twice as large as the net federal savings, with 3.3 million 65 and 66 year-olds facing an average of $2,200 more in additional costs each year.

The only way to truly slow the growth of Medicare's costs is to slow the growth of health care costs system-wide. Last year's health reform legislation, the Affordable Care Act, contained a number of provisions to help control costs, as well as research and pilot projects that should yield important lessons. Additional efforts to curtail health care costs system-wide could help improve Medicare's financial outlook, as well as address the long-term fiscal outlook of our nation. Today, one in four Medicare beneficiaries spends 30 percent or more of their income on out-of-pocket health expenses. Curbing health care costs system-wide will reduce these expenses as well.

I know you have a difficult job ahead of you. However, instead of placing additional burdens on seniors, I urge your Committee to seek out more ways to reduce overall health care costs as a means of reducing Medicare's costs and improving our fiscal situation.

Sincerely,

Max Richtman
President & CEO

CC: The Honorable Xavier Becerra

The Honorable James E. Clyburn

The Honorable Chris Van Hollen

The Honorable Dave Camp

The Honorable Fred Upton

The Honorable Max Baucus

The Honorable John Kerry

The Honorable Jon Kyl