Joint Economic Committee Holds Hearing on Long-Term Financial Viability of Medicare

FDCH TRANSCRIPTS
Congressional Hearings
Apr. 10, 2003
Joint Economic Committee Holds Hearing on Long-Term Financial Viability of Medicare

REED:

Thank you very much, Mr. Chairman.

You're talking now, doctor, about the 10-year projections you're doing. I understand you also do simulations that go out much further that underscores these models.

HOLTZ-EAKIN:

Yes.

REED:

The context of simulation there's basically two ways that we can address this crisis. One, you raise revenues or you cut benefits, is that—conceptually, is that fair? Raising revenues, we used to have a surplus, so, we had, up until recently, a possibility of using surplus funds. That would be a permissible way to provide some relief to the Medicare is that true?

HOLTZ-EAKIN:

If it were possible to carry those surpluses forward in a meaningful way.

REED:

Well, if we have and we keep them, we can carry them forward. So, I guess that is possible. But, now we're left with really two options to raise revenue, that is increase taxes—I'm asking you, increase taxes or borrowing. Is that your estimate?

HOLTZ-EAKIN:

The math, again, is overwhelming, if you're going to spend money you either raise taxes or borrow.

REED:

Have you, in your analysis, assuming, do you assume different levels of borrowing and taxation in analysis? Which leads me to the question, which I don't want to hide, have you done any sort of analysis at the rate of borrowing that begins to influence interest rates in the country?

HOLTZ-EAKIN:

For this analysis, our projections are—come in two parts, number one, our long-term projection of economic growth, which I described in my answer to the congresswoman, and then in my—in our projections of Medicare spending we have a combination of demographic components, as well as cost increases. Those are outlay streams that represents the burden of that program on the economy, how it is financed is not addressed.

REED:

But, does it consider the, like most things the economy's a certain circularity here. If we choose, for example, to finance this deficit with borrowing, I presume that has impact in interest rates, which is an impact on economic growth, which goes back to your point, the best way to preserve or get, you know, grow the, or save this (inaudible) problem is economic growth. Have you done any analysis with respect to that interaction?

HOLTZ-EAKIN:

We have not done specifically an analysis that tries to debt finance this sort of an outlay stream. I would argue that that's not a pattern of public deficit that's sustainable to raise the debt—the annual deficit to 9 percent of GDP is something we have not done.

REED:

Well, no, but the possibility exists from your crisis scenario that if we don't raise taxes dramatically or we don't curtail benefits dramatically the final option is to borrow the money, which would have a significant impact on interest rates and economic growth, is that fair?

HOLTZ-EAKIN:

Yes.

REED:

I think the other question I want to raise is that many people have proposed different sort of structural approaches to this problem, medical savings accounts, HMO's, Medicare HMO's et cetera. Do you see those structural approaches as relieving us from the stark choice between, you know, raising revenue or cutting benefits?

HOLTZ-EAKIN:

I see these as variations on a theme in which you attempt to provide the incentive and the opportunity for both providers and for beneficiaries to undertake cost controls that they see as in their interests and to, even if they do not lower total spending, give great quality per dollar, make people happier with those federal dollars. It may be the case that we continue to spend more as a nation, as I mentioned in my opening remarks, but the degree to which those dollars are used wisely and satisfy, you know, the needs of the ultimate beneficiary I think is the question. And the degree to which alternative institutional arrangements allow that to happen is really, I think, the core question.

REED:

There are some that would suggest these alternative institutional arrangements don't provide higher quality, in fact, provide higher frustration level and so people who claim that they need the service, they do to their insurer or their healthcare provider, find that they can't have it unless they go through 15 different appeals and 16 different—and, in fact, adds sort of dead weight cost to the whole system. Is that a reality that you've thought about, or it would be nice if we could design a system that is absolutely efficient, that everyone gets what they need exactly when they need it. But, some of these systems are designed, in some respects, perhaps, simply to deny maybe legitimate costs because that provides benefits to the organization that's controlling the process.

HOLTZ-EAKIN:

Well, in the narrow role of CBO's job in the scoring, we are focused entirely on costs. Your question is about what's the value per cost. As an economist, I can tell you that the broad lesson of the Amish has been that the more choices individuals have to reveal what they value, the greater the opportunity for them to be satisfied by their experience.

REED:

But, I think—my time's expired, but most, in the reality that I see in healthcare, you don't have that many choices. If your employer gives you Blue Cross that's great. But, if he doesn't give you Blue Cross then a lot of times your choices are next to nil. But, in the Medicare context at least people do have a guaranteed level of service.

Thank you very much, gentlemen. And, I'm sorry I didn't get a chance to—and I also have to recognize my colleagues friend (inaudible), who went to the Kennedy School with me along with her husband and is a great act. That's why you all sound very bright today because she prepared you all.