[Extensions of Remarks]
[Page E1720]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

MEDICARE

______

HON. LEE H. HAMILTON

of indiana

in the house of representatives

Wednesday, September 10, 1997

Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington
Report for Wednesday, August 13, 1997, into the Congressional Record:

Reforming Medicare \1\

Medicare has been a very successful government program in
providing for the health of older persons and the disabled.
It has substantially improved access to health care. Because
of Medicare, the percentage of older Americans with health
coverage has increased from less than 50% in the 1960s to 99%
today. And since it was initiated three decades ago, life
expectancy at age 65 has increased by more than it did in the
six decades before Medicare. All of this has made Medicare
one of our most popular social programs.
But Medicare has some major cost-related problems. First,
its sharply increasing costs have been a major contributor to
the large budget deficits of recent years. In just three
decades its costs have grown to about 2\1/2\% of the nation's
gross domestic product (GDP). And if no action is taken it
will claim nearly 4% GDP ten years from now and 8% of GDP by
the middle of the next century. It is simply not possible to
balance the budget and keep it balanced unless large Medicare
savings are achieved. Second, the numbers driving the future
projections are simply relentless. Today we have 24 million
retirees, but when the baby boom generation is fully retired
the figure will be 48 million. Yet the number of working-age
citizens whose payroll taxes finance most of the Medicare
benefits will increase only 20% in that period and Medicare
spending per beneficiary continues to rise. Third, excess
care is often provided, as beneficiaries simply do not have
to decide if medical services are worth their cost. And
providers do not have sufficient incentive to reduce the cost
of medical services because their payments are based on the
number and type of services they provide. Finally, the amount
of fraud and waste in the Medicare program, is huge. The
government spends about $200 billion a year on Medicare, yet
recent estimates are that \1/7\ of that consists of
overpayment. We now have only about one agent to investigate
every $10 billion of Medicare spending.
Program Changes: Given the rapid projected growth in
Medicare, it is not politically realistic to expect tax
increases to restore solvency to the program, especially in
the current anti-tax mood in the country. Thus Congress is
focusing on cutting back costs and restructuring the Medicare
program. There are three main approaches: cutting back
payments to providers (doctors and hospitals), requiring
Medicare beneficiaries to pay more, and restricting Medicare
to provide for market-based incentives. These approaches are
not mutually exclusive, and reform is proceeding along all
three lines.
Cutting back payments to providers: Medicare's prospective
payment system for hospitals has helped curb payments to
providers. This system creates roughly 470 diagnosis-related
groups (DRGs) into which hospitals admissions have to be
placed. It is a complex system, but it has created incentives
for hospitals to be more efficient. Yet the prospective
payment system is no panacea. The payments apply only to
certain Medicare-covered services, and when payments to
providers are cut back they often respond by performing more
services to offset some of their income loss. The recently
passed budget reconciliation agreement achieved most of its
savings by curbing and reforming payments to providers, but
it is generally agreed now that cutting back fees is not a
long-range solution to the Medicare problem.
Making patients pay more: Another approach is to make the
beneficiaries--the patients--pay more. More of the burden
could be shifted to beneficiaries by increasing their costs
or increasing the age of Medicare eligibility. In general,
most of the experts think that it makes some sense to impose
at least part of the burden on Medicare beneficiaries since
they are the ones who receive the benefits. This year
Congress considered proposals to strengthen Medicare's
financial condition by charging extra premiums to wealthier
retirees, raising the eligibility age, and imposing a co-
payment of $5 per visit for home health care services. None
of those proposals survived in the final bill, but there is
broad agreement that it would be a mistake to consider them
dead.
Restructuring program: The third approach is to redesign
the Medicare system in a way that can improve its efficiency.
Today Medicare guarantees people a particular insurance plan.
An alternative, ``choice-based'', system would guarantee
people a fixed amount of money with which to purchase health
insurance, but it would not specify which policy they are to
receive. The shopping for insurance plans would encourage the
plans to be more efficient and would create more competition.
A choice-based system probably holds the most promise for
restraining costs, but it will not be easy to implement. The
choices offered, the price, the eligibility for the plans,
and how to protect poorer beneficiaries all would have to be
worked out.
Congressional Action. Congress must soon begin a
fundamental reexamination of this immensely popular but
hugely expensive program. I believe Americans understand the
need for change. They recognize the amount of fraud and waste
in the Medicare system and also realize that the projections
about its future growth mean the program in its present form
is unsustainable. But Medicare reform is as difficult as it
is essential. The temptation for the politician is to deal
only with the problems of the next few years but not much
beyond. But Medicare will need more than that. It is
certainly going to be a major test of the nation's political
system to see if it has the capacity to resolve the problems
for the longer term rather than to lurch from one crisis to
another.
The sooner we begin restructuring Medicare the more options
we will have and the less wrenching the changes will be.
Whatever changes are made, caution and prudence will be
virtues in dealing with a program as vital to millions of
vulnerable Americans as Medicare. The reform process should
proceed at a deliberate pace. It does not have to be
accomplished all in a matter of two or three years. It will
be complicated, divisive, and time-consuming. I doubt very
much if we get it correct the first time. Mid-course
corrections and adjustments will be necessary throughout the
process, but it is very clear to me that we should get on
with the job.

\1\ Material taken from Setting National Priorities: Budget
Choices for the Next Century, Robert D. Reischauer, Editor,
The Brookings Institution Press, Washington, DC, 1997.

____________________