JUNE 5, 1996
How to stabilize the Medicare system is not simply a political debate. Health care economists have dramatically different views of what is wrong with the program and what it will take to fix it. NewsHour correspondent Paul Solman explores the economic arguments with two experts.
Elizabeth Farnsworth's background report on the Medicare system
Laura Tyson and Rep. Bill Thomas discuss competing proposals that would kept Medicare in the black.
PAUL SOLMAN: Well, I'm joined her in Boston by Brandeis Professor Stuart Altman, a former adviser to the Clinton administration, who also chaired a commission advising Congress on Medicare, and in Washington, by Gail Wilensky, who also advises Congress on Medicare and oversaw the program for the Bush administration. She's now a senior fellow at Project Hope, an international health foundation. Thanks to both of you for coming by.
STUART ALTMAN, Health Economist: (Boston) Thank you.
PAUL SOLMAN: Now, we heard Donna Shalala in the News Summary say why Part A of Medicare was going broke. Did she get it right?
MR. ALTMAN: Yes, she did. She had it right, of course. She knows what she's doing.
PAUL SOLMAN: Would you repeat briefly for us what it is that she said that means she got it right?
MR. ALTMAN: Well, three things are happening, and they're happening quite quickly. First, we have more aged coming onto the program every year, around 2 percent a year, and while that was anticipated, what was not anticipated is that use in the hospital is going up faster and so that the hospital spending has shot up much faster than they expected.
PAUL SOLMAN: And this is the hospital trust fund, Part A, right?
MR. ALTMAN: Well, it's mostly hospitals. It also pays for home health care and what we'll called skilled nursing care, which is post hospital care. And those two programs are also going up quite rapidly partly to compensate for reductions in hospital but they're also an added new benefit that many seniors need quite badly. And then third she mentioned the fact that funds into the trust fund itself from our wages aren't going up as fast as they expected, so the combination of slower growth in income and faster growth in outlay is leading to the problem.
PAUL SOLMAN: All right. Simple enough. Ms. Wilensky, is that right, and if so, what's the significance of today's announcement, why all the hullabaloo, given the fact that we've heard about this for years, as Sec. Rubin said?
GAIL WILENSKY, Health Economist: Well, it's right in the sense of why we went from 2002 to 2001 in terms of bankruptcy, but it misses an important point, and that is the basic problem with Medicare right now in the short-term is that the spending is really unsustainable. We're spending at a growth rate of almost 9 percent per person covered. Yes, it's true, there are a few more elderly each year. It accounts for about 1 1/2 percent of the 10.3 percent that we spend. But it's not really the problem of the aging of the population. As you know we're going to get to that at the end of the next decade. What we're facing now, fundamentally, is a Medicare program that's just growing at an unsustainable rate. We have to be careful not to lose sight of that as the major cause of the problem. Now, the question about what to do with it, of course, is causing a lot of dispute.
PAUL SOLMAN: Well, let's, let's leave what to do with it for a minute, and let's stay with this. Is that right? Is it just as she says a question of look, we've got a program, the costs go up, they're unsustainable, and that's the problem, it's not really more people being added to the rolls? I got you right there, Ms. Wilensky?
MS. WILENSKY: That is the fundamental problem in the short-term that we're facing with Medicare. Again--
MR. ALTMAN: There's no question that a 10 percent rate of growth per year is not a sustainable rate of growth. I don't think anybody argues with that. The question is what to do about it.
PAUL SOLMAN: But are you disputing, Ms. Wilensky, what he said and what Donna Shalala said is for the reasons--
MS. WILENSKY: Well, I think--
PAUL SOLMAN: --I mean, that we've got new programs coming on, we've got more people coming in, and the rate of revenues just isn't keeping up?
MS. WILENSKY: I think what's important is to say why we went to 2001, and that was an issue because last year people were saying, you know, we've been wrong before, maybe it's not really a crisis, maybe it'll take care of itself. What this report indicates is not only isn't it going to go away by itself, it was slightly worse than we thought, and the reason is because there is a little bit of an uptick in terms of hospital admissions, and we do have every year a few more elderly, and they get a little older. But the fundamental problem in the short-term with Medicare is per person covered, it's growing at an unsustainable rate, and more money goes out of the trust fund than is coming in. That, of course, will lead you into a problem that you can't sustain this kind of growth, and to my mind just shifting one of the rapid growing parts into the general treasury, into the general revenue is hardly dealing with the issue.
PAUL SOLMAN: Well, we'll get to that as well. Are you--you're nodding here. Yes, you agree--
MR. ALTMAN: We're comfortable. I think the big issues that we need to get on it is how one deals with it, and I think one could deal with it in a reasonable way without destroying the program, or one can deal--use it as an excuse to really gut the Medicare program. And I think that's what the real issue is all about.
PAUL SOLMAN: So, all right, let's, let's move to that then. What do you do to deal with it?
MR. ALTMAN: Well, I think you need to do a lot of things, and I, I support a lot of what the Republicans have done in terms of increasing choice and bringing about more discipline with respect to managed care. I think we can learn a lot from the private sector in doing that. I think we also need to recognize that seniors may need to pay a little more in the form of, particularly our high income seniors should be paying a little more for the Medicare program. They shouldn't be getting quite the amount of funds that they are. But most importantly, one needs to develop a plan which will slow the rate of growth in spending but still keep the vital parts of the Medicare program going. One thing--
PAUL SOLMAN: Well, that sounds great. I mean, everybody presumably--that's motherhood and apple pie, right?
MR. ALTMAN: But there are parts of the, particularly the Republican plan which I don't like, which really run at differentiating and breaking into small groups some wealthy and, and seniors that aren't very sick, and once they start going into different choices, what will happen is you're going to have a population which is increasingly sicker, that is going to have to insure itself, and if you un--you begin to start that spiral, you could sort of send this program into real bankruptcy.
PAUL SOLMAN: Well, Ms. Wilensky, what exactly are Republicans or at least you talking about with respect to how you control these unsustainable costs?
MS. WILENSKY: Let me first make a correction on something we heard from both Republicans and Democrats in terms of their fixes for the next 10 years. People need to understand that the $123 billion it'll take to make sure we don't go into deficit before 2002 has to be followed with a growth rate of no more than 4.3 percent per year until 2006. The reason that's important is it's roughly half the growth rate in spending that we have now in the trust fund. People need to understand getting to no worse than zero deficit for the next decade is not a slam-dunk, so just put that out--now--
PAUL SOLMAN: So how do you do it?
MS. WILENSKY: --what do we do?
PAUL SOLMAN: Right.
MS. WILENSKY: Well, to me, the federal employees benefit plan is a really good model, and let me explain what that model is all about.
PAUL SOLMAN: Just to explain, it's the plan that federal employees currently have, right?
MS. WILENSKY: Correct. The basis for it is that you give individuals choice, you give them information about what they're buying. The federal government has a very active role in making sure the plans deliver and they don't discriminate, but the contribution made by the federal government is constant. It's the same, and for people who take the more expensive variety, they have to pay a higher amount. In addition--
PAUL SOLMAN: Let me stop you for a second. You say plans. I just want people to be clear about this and you to be clear to us.
MS. WILENSKY: Yes.
PAUL SOLMAN: Plans, you mean--
MS. WILENSKY: Insurance plans--
PAUL SOLMAN: --you subscribe--insurance plans.
MS. WILENSKY: Insurance plans.
PAUL SOLMAN: You subscribe to--
MS. WILENSKY: Fee for service plans, they may be preferred provider organizations; they may mean networks. They may be the old-fashioned HMO's. They may be some of the new varieties of HMO's. People should be able to choose what fits them best. What you want government to do is to make a payment that varies according to the age and the sex of the individual as Medicare payments now do but not according to whether it's a more expensive plan or a less expensive plan. That would begin to change in a very fundamental way the incentives that the elderly face as well as the incentives that the people providing services--
PAUL SOLMAN: Okay. Let me get in here for Mr. Altman. What's wrong with that? That's people having a choice, choosing the plan, the government pays the same amount for everybody. If you want a fancier plan, you pay more for it.
MR. ALTMAN: Let me tell you what's wrong with it. It sounds wonderful and in its concept, I don't disagree with it. The problem could develop very quickly if you sort of freeze the amount of money you're going to pay. It could be very simple for the government to say well, we only have $400 per month, and that's all you get. The plans' cost start going up to $500, $600, $700. It's one thing to talk to a worker who's getting a paycheck every month, which is also growing, and say, well, you have to pay a little more each month. But when you're dealing with our seniors, many of them over the age of eighty, eighty-five years old on fixed income, and you say, oh, by the way, you have to pay more, so in concept, I don't--I'm not opposed to it. The problem has become, is when the so-called vouchers begin to become fixed and not related to the cost of the product that you begin to see what sounded like a good idea become a program which no longer protects seniors.
PAUL SOLMAN: Well, we'll never get through all of this if we continue on this particular point. The administration's proposal, you talked about it before, Ms. Wilensky, of taking the home health care component out of Part A, that is the hospital trust fund, and putting it in Part B, which is paid for by general revenues, that will definitely lengthen the time before Part A, the hospital trust fund, goes broke, right?
MS. WILENSKY: Well, of course. It's also--it's taking--I mean, presumably you could take the other part, skilled nursing facilities, you could take the whole hospitalization--to the extent that you think that you're trying to reduce a spending growth, that, of course, not only doesn't do anything to reduce what are very rapidly growing components. It exacerbates the problem that the budget and the deficit face because the way the administration put it together. It doesn't even come under the 25 percent limit in terms of how much the seniors have to pay in terms of their premiums which, by the way, expires in a couple of years anyway. So it puts directly onto the general revenues of the Treasury one of the fastest growing components of Medicare. It will extend the trust fund; it doesn't exactly address the problem.
PAUL SOLMAN: All right. So what's wrong with that?
MR. ALTMAN: First of all, let's understand, the administration's plan calls for the first hundred days of home care staying in Part A. That was what Part A was set up to do. It was set up to deal with institutional care the first hundred days as an alternative.
PAUL SOLMAN: The first hundred days that you get home care.
MR. ALTMAN: That's right. The second hundred days--
PAUL SOLMAN: --hospital--
MR. ALTMAN: --is really an extended benefit, and it looks much closer to the kind of service that is usually covered under Part B, physician services, outpatient services, and the like. People call it a gimmick. I don't think it's a gimmick. I think it's--you--let's understand something. Part B--those home services used to be in Part B. We sort of moved it to Part A, so recognizing that the trust fund is under financial assault, it's not unreasonable to take some of these expenses and put them in Part B. Personally I'd like to see the premium go up along with it, but I don't think it's a gimmick.
PAUL SOLMAN: One final short question here. Have Democrats been scaring people by saying Medicare is going to go away when it really isn't?
MR. ALTMAN: Well, I think both parties sort of have equal burden on this. I don't think the Medicare program is going broke, and we ought to stop scaring people.
PAUL SOLMAN: And Ms. Wilensky, are Republicans promising more than they can deliver?
MS. WILENSKY: I don't think so. I'm afraid they may not be promising enough in terms of the kind of re-design that needs to be considered.
PAUL SOLMAN: Okay. Thank you both very much. I appreciate it.