TheFutureofHealthInsurance
forOlderAmericans
Editedby
KennethS.Apfel
and
BettySueFlowers
CenterforHealthandSocialPolicy
Ly...
Big Choices:
The Future of Health Insurance
for Older Americans
Proceedings of a Conference Held on April 22-23, 2004
Edit...
Library of Congress Control No.: 2006925030
ISBN–10: 0-89940-121-X
ISBN–13: 978-0-89940-121-8
©2006 by The University of T...
Contents
Tables v
Figures vii
Preface ix
Acknowledgments xi
Part I. Medicare and Future Challenges 1
Chapter 1. Introducin...
— iv —
Big Choices: The Future of Health Insurance for Older Americans
Chapter 9. How Beneficiaries Fare under the New Medi...
Tables
Table 1.1 Older Americans: Yesterday, Today, and Tomorrow 10
Table 3.1 Medicare Complexity: The Standard Benefit Des...
Figures
Figure 1.1 Past Approaches to Rising Costs of Medicare 5
Figure 1.2 Number of Medicare Beneficiaries 7
Figure 1.3 M...
Preface
This book offers proposals for approaching one of the most significant choices now
facing Americans—how to meet the ...
— x —
Big Choices: The Future of Health Insurance for Older Americans
Kenneth S. Apfel
Sid Richardson Chair in Public Affai...
Acknowledgments
A number of people dedicated a great part of their lives to ensure the success of this
endeavor. First and...
Part I
Medicare and
Future Challenges
Chapter 1
Introducing the Issues
Presentation by Kenneth Apfel
Kenneth Apfel: This is the second in our series of conferen...
— 4 —
Big Choices: The Future of Health Insurance for Older Americans
Now I’ll provide a brief picture of Medicare for tho...
— 5 —
Introducing the Issues
So how have we tried to deal with these cost increases since 1965? As Figure 1.1 illus-
trate...
— 6 —
Big Choices: The Future of Health Insurance for Older Americans
20th-century American domestic policy because they r...
— 7 —
Introducing the Issues
costs. The prescription drug benefit alone may cost a couple of percentage points of
GDP in 30...
— 8 —
Big Choices: The Future of Health Insurance for Older Americans
Source: 2004 Trustees Report, Hospital Insurance and...
— 9 —
Introducing the Issues
If we take a snapshot of older Americans in 1960 and 2000 and then look ahead
to 2030, we see...
— 10 —
Big Choices: The Future of Health Insurance for Older Americans
Table 1.1
Older Americans: Yesterday, Today, and To...
— 11 —
Introducing the Issues
Should we encourage the private sector to take over more of Medicare’s responsibili-
ties an...
Part II
The Medicare Debate
Chapter 2
Medicare Reform
Panelists: Marilyn Moon and Stuart Butler
Kenneth S. Apfel: One of the best things about the yea...
— 16 —
Big Choices: The Future of Health Insurance for Older Americans
his personal weaknesses and failures of resolve in ...
— 17 —
Medicare Reform
frail, or who are poorer than the average, and so on. The rest of us have an obliga-
tion to provid...
— 18 —
Big Choices: The Future of Health Insurance for Older Americans
would think of as the best package of benefits, but ...
— 19 —
Medicare Reform
With this approach, people could make a lot more decisions than they do today about
the specific ben...
— 20 —
Big Choices: The Future of Health Insurance for Older Americans
solve: that there should be public health insurance...
— 21 —
Medicare Reform
it steers us in the wrong path. It recognizes the inadequacy of Medicare benefits by
adding prescrip...
— 22 —
Big Choices: The Future of Health Insurance for Older Americans
the sick people back to traditional Medicare where ...
— 23 —
Medicare Reform
of us in the cold when they say no, we don’t want to pay the taxes for all the rest of
those scummy...
— 24 —
Big Choices: The Future of Health Insurance for Older Americans
the cost will indeed go up. For example, this means...
— 25 —
Medicare Reform
want to become a health care policy analyst, it’s full employment for you for the rest
of your life...
— 26 —
Big Choices: The Future of Health Insurance for Older Americans
forward. More and more, we ought to be letting indi...
— 27 —
Medicare Reform
the most part, Congress does not get into that. It’s actually quite a transparent process
where exp...
— 28 —
Big Choices: The Future of Health Insurance for Older Americans
through a market-based defined contribution approach...
— 29 —
Medicare Reform
sense for Aetna Insurance Company to spend billions of dollars studying which are
effective or ineffe...
— 30 —
Big Choices: The Future of Health Insurance for Older Americans
Marilyn Moon: Yes, dealing with health care costs i...
— 31 —
Medicare Reform
Stuart Butler: I guess I wouldn’t agree with that premise. Certainly Marilyn and I
are both searchi...
— 32 —
Big Choices: The Future of Health Insurance for Older Americans
Stuart Butler: Well, you underscore part of the poi...
— 33 —
Medicare Reform
very anti-American if we say we are opposed to people making it on their own. But
I’m glad to see y...
— 34 —
Big Choices: The Future of Health Insurance for Older Americans
Audience Member: I just wanted to reflect a little b...
— 35 —
Medicare Reform
Audience Member: I know we’re out of time, so I’ll make this very short, and I
won’t expect an answ...
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Big choices2006

  1. 1. TheFutureofHealthInsurance forOlderAmericans Editedby KennethS.Apfel and BettySueFlowers CenterforHealthandSocialPolicy LyndonB.JohnsonSchoolofPublicAffairs TheUniversityofTexasatAustin LyndonBainesJohnsonLibrary
  2. 2. Big Choices: The Future of Health Insurance for Older Americans Proceedings of a Conference Held on April 22-23, 2004 Edited by Kenneth S. Apfel and Betty Sue Flowers Second in a Series Big Choices in American Social Policy Center for Health and Social Policy Big Choices Series No. 2 Lyndon B. Johnson School of Public Affairs The University of Texas at Austin Published in cooperation with the Lyndon Baines Johnson Library 2006
  3. 3. Library of Congress Control No.: 2006925030 ISBN–10: 0-89940-121-X ISBN–13: 978-0-89940-121-8 ©2006 by The University of Texas at Austin All rights reserved. No part of this publication or any corresponding electronic text and/or images may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without permission in writing from the publisher. Printed in the U.S.A. All rights reserved Cover design by Doug Marshall LBJ School Office of Communications Contact information: Office of Communications, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin, Box Y, Austin, TX 78713-8925. www.utexas.edu/lbj/pubs/ Supported by The Commonwealth Fund, a New York City-based private, independent foundation. The views presented here are those of the authors and not necessarily those of The Commonwealth Fund, its directors, officers, or staff.
  4. 4. Contents Tables v Figures vii Preface ix Acknowledgments xi Part I. Medicare and Future Challenges 1 Chapter 1. Introducing the Issues 3 Presentation by Kenneth Apfel Part II. The Medicare Debate 13 Chapter 2. Medicare Reform 15 Panelists: Marilyn Moon and Stuart Butler Chapter 3. Medicare Prescription Drug Benefit Reform 37 Panelists: David Certner, Jeff Lemieux, and Priscilla Chatman Part III. Approaches to Medicare Reform 63 Chapter 4. Framing Policy Approaches for Medicare Reform 65 Presentation by Pamela Herd Part IV. Civic Dialogue and Deliberation: What the Public Has to Say 75 Chapter 5. Big Choices: The Practice and Potential for Public Deliberation 77 By Taylor L. Willingham and Vanessa L. Davis Chapter 6. Framing the Issues for Public Discussion—Three Options 81 Chapter 7. Medicare: A Deliberative Dialogue 87 Part V. Policy Alternatives: Additional Resources 99 Chapter 8. Health Insurance for Older Americans: Assessing Medicare’s Past, Present, and Future 101 by Shea McClanahan, Kenneth Apfel, and Parisa Fatehi
  5. 5. — iv — Big Choices: The Future of Health Insurance for Older Americans Chapter 9. How Beneficiaries Fare under the New Medicare Drug Bill 133 by Marilyn Moon Chapter 10. Social Values and Medicare Reform 155 by Stuart M. Butler Chapter 11. Medicare Changes That Could Affect You 171 by AARP Chapter 12. Issue Summary: Medicare Modernization Act of 2003 183 by Jeff Lemieux Chapter 13. The New Medicare Law 199 by the National Committee to Preserve Social Security and Medicare Chapter 14. Understanding the Options: Big Choices and Medicare Reform 203 by Pamela Herd Contributors 223
  6. 6. Tables Table 1.1 Older Americans: Yesterday, Today, and Tomorrow 10 Table 3.1 Medicare Complexity: The Standard Benefit Design 39 Table 3.2 Low-Income Medicare Beneficiaries Helped: 13.4 Million 43 Table 3.3 Conference Agreement on Drug Proposal 48 Additional tables appear in the reprinted articles in Chapters 9 and 11.
  7. 7. Figures Figure 1.1 Past Approaches to Rising Costs of Medicare 5 Figure 1.2 Number of Medicare Beneficiaries 7 Figure 1.3 Medicare Costs in the Future 8 Figure 1.4 Medicare’s Financial Outlook 9 Figure 3.1 Medicare Standard Benefit Design 39 Figure 3.2 Impact of New Medicare Law in 2006 44 Figure 3.3 Four Big Entitlements 46 Figure 4.1 Health Care Costs As a Percent of the Economy 67 Figure 8.1 Number of Medicare Beneficiaries 115 Figure 8.2 Population Pyramids, 1950 to 2030 118 Figure 8.3 Medicare Expenditures As Percentage of Gross Domestic Product 120 Figure 8.4 Medicare Prescription Expenditures (Part D) As Percentage of Gross Domestic Product 121 Figure 8.5 Medicare Monthly Premiums Paid by Beneficiaries 122 Figure 8.6 Medicare Sources of Non-Interest Income and Expenditures As a Percentage of the Gross Domestic Product 124 Additional figures appear in the reprinted articles in Chapters 9 and 11.
  8. 8. Preface This book offers proposals for approaching one of the most significant choices now facing Americans—how to meet the challenges to Medicare. Our objective in spon- soring this book and the symposium on which it is based (held at the LBJ School on April 22-23, 2004) is to create a clear picture of the policy choices on all sides of the Medicare debate in order to help Americans create informed opinions about issues that deeply affect their lives. To accomplish this objective, we’ve organized the book in a way that we hope will offer the reader as much—or as little—as he or she might want to know about a particular approach. We also offer practical suggestions on citizen discussions about the issue, including a template for framing the issue for public discussion in the fairest possible way. We begin with an overview (Part I, Medicare and Future Challenges) that offers a broad summary of the key choices that we face in relation to this important social program. This overview is followed by Part II containing brief presentations that analyze the challenges from a number of different vantage points. Part III summarizes the three major policy approaches for Medicare reform. Part IV focuses on civic dialogue and deliberation, first explaining what we mean by those terms; then offering a template that compares the three approaches to the Medicare Challenge in a form that can be used for citizen dialogues; and, finally, reporting on a citizens dialogue using this template. The organization of this book is intended to be helpful to those who want to un- derstand the issue in greater depth than is possible through simply listening to news reports. We also hope that by offering a non-partisan template for discussion, we can encourage classroom and citizen deliberation as an alternative to debate and partisan argument. This hope reflects our conviction that the best public policy is created when grassroots engagement meets informed expertise. For this meeting to be pos- sible, a common language must be available so that an informed public can express its opinion in a nation-wide “conversation.” Such expressions can offer a counterweight to the capture of public policy decisions by private interests. The LBJ School is committed to fostering the professional expertise necessary toprofessional expertise necessary toprofessional create effective public policy. The LBJ Library is committed to fostering the necessary level of public expertise—by sponsoring symposia, lectures, public issues forums, andpublic expertise—by sponsoring symposia, lectures, public issues forums, andpublic books like this one—to help ensure that public policy is not only effective but also in the public interest. We hope that this partnership between a public policy school and a presidential library will illuminate the “Big Choices” that Americans face. Betty Sue Flowers Director LBJ Library and Museum
  9. 9. — x — Big Choices: The Future of Health Insurance for Older Americans Kenneth S. Apfel Sid Richardson Chair in Public Affairs Director of the Center for Health and Social Policy LBJ School of Public Affairs
  10. 10. Acknowledgments A number of people dedicated a great part of their lives to ensure the success of this endeavor. First and foremost, we want to thank Kristine Niemeyer, Senior Program Coordinator for the Center for Health and Social Policy at the LBJ School of Public Affairs, for her patience, perseverance, and professionalism, which helped to move this project to fruition. We also want to thank two LBJ School graduate students who worked as research assistants for this project. Shea McClanahan and Parisa Fatehi both helped to write, research, and provide logistics for the conference as well as this book. We also want to thank Lauren Jahnke for her editorial support as well as Cath- erine Robb, Chairman of the Future Forum, and Taylor Willingham for organizing the Medicare dialogue that provided citizen feedback. We also want to thank Sharon Tutchings at the LBJ School and Marge Morton, Judy Allen, and Tina Houston at the LBJ Library for coordinating the logistics of the conference and ensuring that all participants and attendees had a worthwhile experience. Lastly, we want to thank the Foundation for Insurance Regulatory Studies in Texas, the Commonwealth Fund, the Sid Richardson Chair at the LBJ School, and the LBJ Library and Museum. Without all of their support, we could not have been successful. Kenneth S. Apfel Sid Richardson Chair in Public Affairs Director of the Center for Health and Social Policy LBJ School of Public Affairs Betty Sue Flowers Director LBJ Library and Museum
  11. 11. Part I Medicare and Future Challenges
  12. 12. Chapter 1 Introducing the Issues Presentation by Kenneth Apfel Kenneth Apfel: This is the second in our series of conferences on “Big Choices” fac- ing the country. Last year, our conference was on “The Future of Health Insurance for America’s Families.” This year, the topic is “The Future of Health Insurance for Older Americans,” with a specific look at Medicare, a very critical issue for all of us. First, before starting, I want to thank the LBJ Library and the LBJ Foundation for their support. I also want to thank the Foundation for Insurance Regulatory Studies of Texas as well as the Commonwealth Fund. Support for this activity has been criti- cal to Betty Sue Flowers and me, and we hope to continue these symposia into the fu- ture in order to keep a dialogue going about these very big issues facing the country. We’re here to talk about the future of health insurance for older Americans. But to put the future in context, we need to start off not only with a discussion about the present, but also a little discussion about the past. About a half-dozen times in the 20th century, the United States has tried to take a big action on providing health insurance for Americans. But while this issue has been debated many times in the past century, only once have we produced something really big—and that happened through the leadership of a person whose office was just down the corridor from here after he left the presidency. The creation of Medicare and Medicaid in 1965, under President Johnson, was an enormously big step for this country. Let’s start by going back to pre-Medicare times. In 1960, poverty rates for older Americans were about 35 percent. That’s over one in three older Americans in 1960 were living in poverty. At least 44 percent of older Americans were uninsured. A large number of older Americans were working still, and one of the reasons they were working was to keep their health insurance. Over half of older Americans no longer in the work force had no health insurance. And the proportion of our older population back then was relatively low, about 9 percent. When we look back to the Johnson era, the significant benefit increases to Social Security had a major impact on poverty rates in the 1960s. The establishment of Medicare in 1965 provided health insurance for almost all older Americans. These are major accomplishments.
  13. 13. — 4 — Big Choices: The Future of Health Insurance for Older Americans Now I’ll provide a brief picture of Medicare for those of you who need to get a snapshot of how the program works so we can frame the debate for the rest of today and tomorrow. When Medicare was started, it was funded primarily by a payroll tax paid by work- ers to finance the Medicare benefits for those who had already retired. The tax was about a third of a percentage of payroll. So somebody making $300 a week would be paying about a dollar a week for the Medicare part of the payroll tax, and employers matched that payment. In addition, an optional Medicare Part B program, which paid primarily for physician services and which almost all older Americans signed up for, is paid for by premiums as well as by general tax revenues. So there are three big sources of funding—payroll taxes (the direct intergenerational part), premiums paid by older Americans, and general tax revenues paid by all of us. While the Medicare program is incredibly important, we all need to recognize that from the beginning, it had sizable coverage gaps. Long-term care has never been covered under Medicare, for example. Prescription drugs have not been covered by Medicare—although, frankly, in 1960, prescription drugs were not that big a part of our health care budget, and even many private health care plans did not have a pre- scription drug benefit. Also, catastrophic coverage was not part of Medicare, nor was most preventive care. So, the benefit package for Medicare, while important, is really a relatively modest level of acute care coverage, compared to most private-sector in- surance plans. Because of that, about 85 percent of older Americans have some form of supplemental coverage in the form of Medigap policies, or employer-provided health insurance, or sometimes Medicaid to supplement the Medicare package. So in 1965, an important program was created, but it had significant gaps and modest coverage. What’s happened since then? As the health care system has evolved over time, Medicare tried to catch up with its coverage. For example, as more health care expenses took place out of the hospital, such as in ambulatory surgical centers, Medicare would reimburse for those activities as well. Hospice benefits, which didn’t exist back in the 1960s, have been added, as well as expanded home health care and more hospitalization. During that same time, premiums have increased. The pre- mium in 1970 was $4 a month, and in 2000 was $45 a month. Other revenues have increased, but so have the number of beneficiaries and the cost of health care. When you have the number of beneficiaries increasing and you also have health care costs increasing per person, you’re going to end up with some very sizeable cost increases, which we’ve seen in Medicare. Medicare spending has gone up—it is now one of the largest federal budget items. It’s about 2.5 percent of our entire economy, and about 13 percent of the federal budget. It is now the third-largest government program behind Social Security and defense. An important program? Absolutely! Costly? Absolutely, and in my opinion, worth every penny. But to understand Medicare, you have to understand the cost issues as well as the important benefit issues that are out there. And costs have gone up quite substantially.
  14. 14. — 5 — Introducing the Issues So how have we tried to deal with these cost increases since 1965? As Figure 1.1 illus- trates, there have really been two ways—increasing revenues and containing costs. A number of steps have been taken to increase revenues so as to provide an ad- equate financing base for the Medicare system. For example, payroll taxes, which used to be one-third of a percent of payroll, is now about 1.5 percent of payroll—so that’s a substantial increase in the share of payroll taxes that workers have to pay for the Medicare program (matched by their employers). Secondly, in 1993, the wage cap was taken off the Medicare program so that pay- roll taxes are paid not only on that first $80,000 or $90,000 of income, but on all of it. So the Bill Gateses and the Michael Dells pay 1.5 percent of payroll for their entire wages—not their stock options, but their entire wages. Third, monthly premiums have increased from about $4 in 1970 to about $67 now. Fourth, Social Security benefits were taxed, first in 1983 for monies to be put into the Social Security system, then again in 1993 for those added revenues to be put into the Medicare program. Lastly, since part of Medicare financing comes from general tax revenues, this has increased very substantially over time as Medicare’s overall costs have increased. On the cost containment side, there has been a two-pronged effort. On the regula- tory side, beginning in 1983, Medicare started paying hospitals a fixed amount based on a particular diagnosis to try to help hospitals control their costs, and as an incen- tive to change their behavior. Similar changes were made for physician reimburse- ments as well as for home health care and skilled nursing facilities. A second approach was an attempt to encourage market-based initiatives. HMOs have been part of Medicare for many years, although just a very small part. But start- ing in 1997, Medicare Plus Choice was enacted to try to create better incentives for individuals to choose private plans. The idea here was for beneficiaries to choose pri- vate plans to get better benefits, like prescription drug coverage or other things, and that competition from these plans would create incentives for cost control. So where has all this taken us from 1960 to the year 2000? First, poverty rates for older Americans are down dramatically from 35 percent to 10 percent. The propor- tion of the uninsured since 1960 is down even more dramatically from 44 percent to 2 percent. I think these two changes form the greatest success story for the elderly in Figure 1.1 Past Approaches to Rising Costs of Medicare Raise Revenues 1. Increase payroll tax 2. Remove wage cap on taxable income 3. Raise premiums 4. Tax Social Security benefits 5. More general revenues Contain Costs 1. Increased regulatory cost controls 2. Encourage market-based initiatives (HMOs, Medicare+Choice)
  15. 15. — 6 — Big Choices: The Future of Health Insurance for Older Americans 20th-century American domestic policy because they resulted in a dramatic reduc- tion in poverty and near-universal health coverage. I also want to point out that 10 percent of older Americans are still living in pov- erty, including about 20 percent of elderly widows, African Americans and Hispan- ics. And though virtually all older Americans have health insurance, health care is still a major expense for the elderly. There are still real needs out there, but overall this is a profoundly important success story. Health expenses, which consumed about 20 percent of total income back in 1960, still consumed about 20 percent of income in 2000. Seniors’ incomes grew considerably during that period of time. So what can we conclude about Medicare? I think we can conclude that it’s one of the most successful programs of the 20th century. It’s clearly helped older Americans to gain access to basic health care services. We can also conclude that there are still some continuing gaps in coverage, and they are very real—prescription drugs, in particular. We will focus on prescription drug coverage during this conference. At the end of the Reagan administration, there was an effort to provide prescription drug coverage as part of the Catastrophic Care Act. It was enacted in the last year of the Reagan administration and repealed in the first year of the Bush One administration. While it provided a prescription drug benefit, but it also greatly increased premiums, engen- dering quite a bit of negative response, so it was repealed. So the notion of creating a prescription drug benefit is not a new issue. While about three-quarters of older Americans have some kind of prescription drug coverage, only about half have comprehensive prescription drug coverage. About a third of older Americans have prescription drug costs that are only about $500 or less. But another third have costs that are $2,000 to $5,000. So there are a lot of older Americans with very high prescription drug costs, and this is a large unmet need. It’s one of the reasons there has been such an effort to try to provide a prescription drug coverage benefit to fill one of the important holes in the Medicare program. It is clear that the Medicare program has come a long way since 1965. Where are we headed in the future? More specifically, where are we headed on the number of beneficiaries, on costs, on premiums? And what’s the outlook for the financing pic- ture of the Medicare program in the years to come? As Figure 1.2 shows, the number of Medicare beneficiaries is scheduled to double in the next 30 years. It doubled from 1970 to the year 2000, from about 20 million to about 40 million. And it’s scheduled to double again by about 2030. But because we won’t have the same kind of labor force growth in the next 30 years that we did the last 30 years, we’re going to have a growing problem, with real fiscal pressures as my generation moves toward retirement. The projections for what Medicare will cost in terms of the overall economy are also scheduled to go up quite considerably in the future—from around 2.5 percent of GDP now to up around 7 percent by 2030. That’s 7 percent of our entire economy, with increases due to a combination of more older Americans and higher health care
  16. 16. — 7 — Introducing the Issues costs. The prescription drug benefit alone may cost a couple of percentage points of GDP in 30 years. (See Figure 1.3.) So what can we conclude? First, the number of older Americans will increase. The baby boomers are heading toward retirement. Second, health care costs will likely continue to increase. Health care costs were 5 percent of the economy in 1960 and were 15 percent of the economy in 2004. And they are projected by 2012 or so to be up around 18 percent of the economy. So health care costs continue to rise, and the number of older Americans continues to rise. Third, the health costs for older Americans will also likely continue to rise. Back when Medicare was first created, older Americans were paying about 20 percent of their total income for health care. Now it’s back up around 20 percent again, and that trend is not heading down—if anything, it’s going up. Fourth, Medicare premiums are likely to continue going up. It’s a tough proposi- tion older Americans face. Looking at premiums as a percent of our economy, they’ve gone up from about one-tenth of a percent back in 1970 to about half of a percent of our economy, and are projected to go up to about a full percent of our economy Figure 1.2 Number of Medicare Beneficiaries Elderly Disabled & ESRD 3.03.0 3.3 5.4 7.3 8.7 8.6 20.4 20.4 25.5 28.4 31.0 34.3 34.1 39.6 38.6 45.9 52.2 61.0 68.2 76.880 70 60 50 40 30 20 10 0 1970 1980 1990 2000 2010 2020 2030 Calendar YearYearY MedicareEnrollment(millions) Source: Centers for Medicaid and Medicare Services, CMS Chart Series, Medicare Program Information, Profile of Medicare Beneficiaries, 2002. Online. Available: http://www.cms. hhs.gov/charts/series/sec3-b1-9.pdf. Accessed: June 1, 2004. Note: ESRD means End-Stage Renal Disease; numbers may not sum due to rounding.
  17. 17. — 8 — Big Choices: The Future of Health Insurance for Older Americans Source: 2004 Trustees Report, Hospital Insurance and Supplementary Medical Insurance Board of Trustees. Figure 1.3 Medicare Costs in the Future 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2001 2006 2010 2015 2020 2025 2030 Calendar YearYearY MedicareExpendituresasPercentageofGDP within the next 30 years. So premiums are rising, and out-of-pocket costs are rising for the elderly. All of these trends will increase pressure over time on Medicare. Each year, the Social Security Board of Trustees issues a report on the long-term outlook for Social Security and Medicare. The projection from the new trustees report indicates that Medicare will probably be the largest government program within 20 years, larger than Social Security. And within 15 years, the trust fund that finances the Medicare Part A program, the hospitalization costs, may be insolvent. (The trustees make pro- jections over the next 75 years.) Under these projections, over the next 75 years revenues grow considerably, but not anywhere near the increase in expenses. So if these projections are accurate, we’ll be spending as much in 2076 on the Medicare program as we do now for our entire health care system for all Americans. Clearly, if this chart is any indication, we’re go- ing to be putting a lot of money into health care in this country in the years ahead (see Figure 1.4). Maybe we should all become health care workers! But remember, these projections for the future are just that—projections. There is a great deal of uncertainty about projections made this long into the future, and unforeseen events as well as future policy changes will certainly change these possible outcomes.
  18. 18. — 9 — Introducing the Issues If we take a snapshot of older Americans in 1960 and 2000 and then look ahead to 2030, we see that most projections show the poverty rate for older Americans con- tinuing to decline modestly in the future (see Table 1.1). The percentage of uninsured likely stays very, very low due to Medicare. The percentage of the older population likely grows from 13 percent to 20 percent of our population. And health expenses as a proportion of overall income for the elderly—this is an extrapolation that I’ve made based on earlier work by Marilyn Moon—grows somewhere to around 25 percent of income. It is clear from this chart that the conditions that Lyndon Johnson faced in 1960 were very different from the conditions that we face in the future. The steps that we took during the Johnson presidency were incredibly important steps to enable the poverty rate and the “uninsurance” rate to go down as it has. If Social Security were gone tomorrow, half of all seniors would be back to living in poverty. And if Medi- care disappeared tomorrow, the proportion of uninsured older Americans would be enormous. These critically important programs have filled significant gaps over the last 40 years. But now we face new and tough challenges—a larger and growing aging popula- tion, as my generation ages, and health care costs that are clearly still rapidly rising. Fifteen percent of the economy is spent for health care now in this country, from Source: 2004 Trustees Report, Hospital Insurance and Supplementary Medical Insurance Board of Trustees. Figure 1.4 Medicare’s Financial Outlook 16% 14% 12% 10% 8% 6% 4% 2% 0% 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076 Calendar YearYearY MedicareSourcesofNon-InterestIncomeand ExpendituresasaPercentageoftheGDP Total Expenditures HI Deficit Revenues
  19. 19. — 10 — Big Choices: The Future of Health Insurance for Older Americans Table 1.1 Older Americans: Yesterday, Today, and Tomorrow 1960 2000 2030 Poverty Rate 35% 10% 5%? Percent Uninsured 44% 2% 2%? Percent of Population 9% 13% 20%? Health Expenses 20% (in 1965) 20% 25%? (as a percentage of elderly income) Source: Author’s calculations. 5 percent in 1960. Where will we be in 20 and 30 and 40 years? It’s hard to know. But we do know that we face some very big choices, and we also face some very big uncertainties. These are large uncertainties. Are these projections that show health costs going through the roof accurate? It’s hard to know for sure, but past is prologue. Health care costs as a proportion of our economy continue to grow. So it’s likely that significant increases will occur if further steps are not taken. How much will health care infla- tion grow over the next 30, 40, 50 years? Predicting the health insurance system in America in the year 2078 is hard—a lot harder than trying to predict in 1935 what our Social Security system was going to look like in 2000. The projections themselves based on current policies are one area of uncertainty. Another has to do with the uncertainty surrounding what will happen if we do take action—will policy changes made in the future have the expected impact? For ex- ample, in Social Security, if you cut the COLA (cost of living adjustment), you know what the impact will be—Social Security benefits go down. Dollars are saved, but people are made financially worse off. The impact of the policy change is clear. But if you make a change to the Medicare program—to hospital reimbursement rates, for example—will you reduce costs? And will that change positively or negatively affect the elderly? What actually happens? In the health arena, the impact of a policy change is often unclear. There are great uncertainties, but we as a nation must still prepare as best we can for the future. It is our task as a people to come together and determine what we want for the future—for this program and for health care in general. Several major options have been debated to strengthen Medicare in the 21st cen- tury. What we’ll do in this symposium is to focus on three key choices. Two of them are on the cost side. Should the government be a much stronger, broader, and tougher regulator of costs and utilization of health care? Can that reduce costs? That’s option number one. Option number two: should market-based mechanisms in the private sector be used in a much broader, tougher, and stronger way to try to control costs?
  20. 20. — 11 — Introducing the Issues Should we encourage the private sector to take over more of Medicare’s responsibili- ties and use competitive forces so that beneficiaries are in a position to make choices about the kind of coverage they want? Will that reduce costs? The third option, to the extent that either of the other two don’t work, is do we want to raise revenues even further than are projected in the illustrations I’ve offered here? We could do that by raising premiums for older Americans, or raising payroll taxes on workers, or raising other taxes and the general revenues of the federal gov- ernment. Or we could increase solvency by changing the eligibility age for the baby boomers so that Medicare doesn’t start at 65—it might start at 66 or 67. These are all potential ways to try to change the system. Every one of them, of course, involves trade-offs. But that’s what we have to talk about. The main issue to me is how are we going to make sure that we have a strong and a vibrant system of health insurance coverage under Medicare for the next 30 years, the next 50 years, and even beyond? The stakes are high. But I want to point out that the stakes were high back in 1965 and we as a people rose to the challenge and created a strong and vital Medicare system for older Americans. As we debate the future of Medicare, we will grapple with budget issues and with the technicalities of health insurance and adequacy is- sues. How we answer these questions goes beyond budget issues and technical issues, and goes beyond adequacy issues. Our answers will say a lot about how we define ourselves as a people in the 21st century. Where do we draw that line between indi- vidual and collective responsibility? Should we rely more upon the market and the private sector or on government and a regulatory approach? Where do we as a people determine where our collective responsibilities start and stop? These are very important issues. And the people who should talk about these is- sues are not only people like former Commissioners of Social Security, or politicians, or health care experts, but the American people. And that’s our desire for the next two days—to hear not only from the experts who can help to frame the questions, but also from the public, who will live with the consequences of the choices that are made. The stakes are high because the choices we make about the future of Medicare will say a lot about how we define ourselves as a people. Let’s choose wisely, for our sake and the nation’s sake.
  21. 21. Part II The Medicare Debate
  22. 22. Chapter 2 Medicare Reform Panelists: Marilyn Moon and Stuart Butler Kenneth S. Apfel: One of the best things about the years that I spent in Washington was working with some remarkable people who have distinguished reputations and who have been part of the public debate for years and years, contributing in so many ways. We have with us today two of these remarkable people. The first is Marilyn Moon, the Vice President and Director of Health Programs for the American Institutes for Research. She’s a long-standing player in Washington and one of the great health care experts in the country. Marilyn spent a number of years with the Urban Institute as well as the Congressional Budget Office, serving as one of the public Trustees of the Social Security and Medicare programs. Her task was to make sure the numbers in those programs weren’t being cooked. One of the most thoughtful people I know on health care issues in this country, she was also a professor of economics at the University of Wisconsin, and received her Ph.D. at Wisconsin Madison. Also joining us is Stuart Butler. He’s a player in Washington who has made his name and his organization’s name prominent in the last 20 years, including the field of health care. Stu is the Vice President for Domestic and Economic Policy Studies for the Heritage Foundation. He put Heritage on the map when it comes to such issues as health care, Social Security, and welfare policies. Stu has also served as a pro- fessor at Georgetown University, and he is a Fellow at the Kennedy School Institute of Politics. Stu was born in Shrewsbury, England, and lived in England for 28 years. He received his Ph.D. in American economic history from St. Andrew’s University in Scotland and became an American citizen a number of years ago. From that day forward, he has been an important voice in the future of health care in this country. Stuart Butler: Thank you very much indeed, Ken. It’s a great honor for me to be here. I am particularly honored to be here at the LBJ Library. As a historian, I have to tell you that despite the fact that I disagree with a lot of Lyndon Johnson’s specific poli- cies, I’ve always had enormous admiration for President Johnson because in spite of
  23. 23. — 16 — Big Choices: The Future of Health Insurance for Older Americans his personal weaknesses and failures of resolve in some areas, he focused his attention on these fundamental issues of domestic policy and triumphed as a matter of will, persuasion, and dedication to these objectives. So I’m very pleased to be here in the LBJ Library. Let me begin by restating some of the things Ken said about why we are here talk- ing about reforming Medicare. Ken emphasized two main reasons. The first is a grow- ing concern about the future cost of this program, even without any improvements in it. But the future cost, and therefore the burden on the children, and particularly the grandchildren, of many of you in this room, will be huge. This explosion of costs in the future is happening in large part because the baby boom generation, of which I’m a member, is reaching retirement, and there are a lot of us. And when we hit the program, costs are going to go up enormously. There are going to be a far higher proportion of elderly people relative to the entire population in the future than there are today. About 8.5 percent of our nation’s GDP goes for Medicaid, Medicare, and Social Security. By the time somebody graduating from the University of Texas this year retires, that proportion will probably have grown to about 17.5 to 18 percent. At that time, the unfunded portion of the Medicare/Medicaid budget—that is, the portion of costs not funded by the payroll tax—will consume about 50 percent of our fed- eral income tax. So we’re talking about a situation where expenditures will consume an enormous portion of the income taxes. And that, of course, does not take into account other demands on that revenue of that period. So we’re talking about an enormous burden. In addition to the problem of increasing costs, a second problem is that Medi- care is an imperfect program. Nobody in this room—and certainly nobody who’s on Medicare—would say that this is the perfect program, that it covers everything we need, and that it does so with the best quality care and so on. Because of the way we design and try to manage Medicare, it’s constantly out of date. We’re constantly look- ing at it and saying that it should have these additional specific benefits and so forth. Every so often, members of Congress will pass some legislation on Medicare, as they did just a few months ago, and then celebrate their great success in making Medicare much more up-to-date. When they talk about success in this way, I am always re- minded of Winston Churchill’s definition of success, which is the ability to go from one failure to the next without any loss of enthusiasm. Congress appears to fit this. As we think about how we look at Medicare, we’ve got to start by identifying the obligations that are in play—what responsibilities do we have for the health care of people reaching retirement? I think there are three ways of thinking about this responsibility. One is that there is and should be an intergenerational responsibility. People like myself, and people younger than me, have an obligation to contribute to the costs of our parents and grandparents. I think that is an absolutely fundamental obligation that we have. Secondly, there is an obligation as a community to people who need help, who are
  24. 24. — 17 — Medicare Reform frail, or who are poorer than the average, and so on. The rest of us have an obliga- tion to provide assistance to those in need. There is also, of course, an individual responsibility. As we go through our working years and think about retiring, we have responsibilities for making provision, in some regard, for the costs of retirement. I think that is an important obligation. We shouldn’t just pass the tab for whatever we need, assuming that somebody else should somehow find that money. Certain responsibilities are important to bear in mind when we start thinking about our choices for the future. With Medicare, as Ken pointed out, we have cre- ated a kind of hybrid program that encapsulates a number of these kinds of obliga- tions within it. We have a social insurance program that people pay into during their working years and draw on as they retire—the intergenerational aspect. We have a program that has direct support from people from the wider community, in terms of general revenue, although public funding doesn’t cover everything—individuals must pay for part of their health care when they reach retirement (and there are questions about how much that should be). Medicare is also a program whose benefits are designed by Congress. The Medicare program is not like retirement or Social Security, where you can choose how to spend what you receive. Medicare is designed by Congress to offer very specific benefits, which are the results of decisions made by that legislature. This structure leads to some very important problems that help us think about the reforms. First, as Ken mentioned, when we think about the costs of Medicare’s fu- ture, we are creating a projection. We aren’t thinking of a budget, in the sense that we decide specifically how much we want to spend in the future on Medicare. We basically say we will make a commitment and try to guess how much that money will be, and we hope that somehow there is money available to cover it. It is an unlimited obligation based on the fact that we are talking about what we loosely call a “defined benefit,” a specific benefit by Congress. In many respects, Medicare is very inequitable in terms of the future. When Bill Gates retires, he will get an enormous subsidy against his health care costs. He doesn’t really need that. Meanwhile, many Americans will not get enough help when they reach retirement. So there is a lot of concern about the inequities—is it fair to give pretty much the same to everybody rather than focusing the money on those in need? A second, related concern, is that Medicare is a defined benefit program, as I mentioned, where Congress makes specific decisions. That has a lot of implications. It means, for example, that all kinds of organizations, particularly organizations that provide benefits, lobby Congress vigorously to try to make sure that their benefit is included, whether or not it makes the best sense in terms of use of money. Represen- tative Pete Stark, who is a Democratic member on the one of the health committees in Congress, says that as he went around the country talking about health care, he discovered all kinds of organs in his body that he didn’t even know existed. And then he came to Washington and discovered that each one had a lobbyist. In other words, the design of Medicare is based not so much on what a reasonable person
  25. 25. — 18 — Big Choices: The Future of Health Insurance for Older Americans would think of as the best package of benefits, but on whoever’s got the most power in Washington. So the defined benefits that people get in Medicare are entangled with all the other political pressures in Washington. This situation leads to the third characteristic of the system’s operation, which is that there is constant micro-management of these benefits in order to get them to fit into the current budget, given all the other things competing with them. So when you look at the way we actually design benefits and the way the program works in Washington and the grubby process that causes par- ticular outcomes to occur, it’s not a big surprise that the benefits that you might have are not the ones that you and your doctor think would be wise in Medicare. The seemingly arbitrary changes that occur in those benefits or in the rules for the benefits are a direct result of the way in which Congress is intimately involved in designing the benefits themselves. So what should we do? Well, we could go into all the numbing details of reform, but let me try to boil them down to a few broad strategies for thinking about the future of Medicare. The first strategy would be to have a debate about the relative contributions of generations toward this program in the future—to have a real debate about what is the appropriate burden on your children and grandchildren and about the relative burden and responsibilities that the elderly generation should bear. We should have an open de- bate rather than continuing the current situation of promising benefits and just hoping somehow in the future somebody will be able to pay for them. There are ways in which that debate can be encouraged and sharpened. One of them would be to require within the budget that Congress looks at every year a statement containing a real measure of what the future liabilities are of the federal government. And we should require that figure to be reported in today’s dollars and to project not just the next five or ten years of actual spending but the future obliga- tions of the program. If we were to do that, we would have a much more realistic debate about what is appropriate, and what is fair and equitable in the system. When you apply for a home mortgage, for example, you get some idea of the total obliga- tion, translated into a monthly payment. Can you afford this obligation? It depends on your income. That kind of projection concentrates the mind wonderfully. If you bought houses with a credit card and just said, ”I hope somehow I can pay for this, but I don’t have to pay anything today,” you’d get a very different set of situations with regard to houses. So it is very important in the budget process that we translate current and proposed new obligations in such a way that we can make some real decisions. Once we have made a decision about the amount we will commit ourselves to over the next decades, the second step should be to translate that figure into specified benefits for seniors and the disabled. This is not to say that the benefits will necessar- ily be less than they are today. It’s just to decide on those benefits in a very clear way so we really do determine what the contribution is going to be. This is sometimes called a “defined contribution” or “premium support” approach.
  26. 26. — 19 — Medicare Reform With this approach, people could make a lot more decisions than they do today about the specific benefits to be included in their Medicare package. Congress could set very broad guidelines instead of micro-managing all the details that it does today. This is essentially how Congress’s own health care program operates. Members of Congress and about 10 million people in America who are either federal employees, dependants of federal employees, or retired federal employees, are all in a program that is not debated every single year in terms of specific benefits. Congress sets broad guidelines for that federal employee program. It allows people to make choices. They see costs, and they get a contribution toward the cost of their premiums. I think if we move Medicare in that direction, we’ll get out of this constant bickering and argu- ments between interest groups in Washington and allow ordinary Americans to make many more decisions and better decisions about what would actually benefit them. The way we should think about reform is to think about moving away from un- limited obligations to future generations and the Congressional micro-management of specific benefits toward a world where we make clearer decisions about what are the relative obligations in a future budget. In this world, seniors could have far greater choices about what kind of benefits they would receive and from whom. These new choices would then lead to a debate about whether private plans or other kinds of options should be available and encouraged. I think they should. Let me end by telling you about a cartoon that really struck me during the debate over the drug benefit last fall. Although the cartoon was specifically about the drug benefit, I think it really applies to all of Medicare. The cartoon had two pictures, side by side. The first was an elderly person and her grandchild going to a pharmacy to get a prescription filled. The pharmacist said, “How do you want to pay for this?” The second picture in the cartoon was the elderly person holding up her grandchild and handing him over to the pharmacist. I think that is a symbol for the concern that we should have about the whole program. It would be nice to ignore the tough choices that Ken and I have laid out. But as the numbers show, we can’t go on this way. And we’re not the only ones—other countries are also facing this crisis. And some of them are well ahead of us in thinking through how to get a more reasonable balance of obligations between generations. It is up to us to respond to the challenge to do it in this country. We cannot keep going on as we do today by simply adding—by just looking at what is not in the program and getting Congress to add things in and simply pass the tab to our grandchildren. I don’t think that is a wise choice. I don’t think it’s a fair choice. And I don’t think it is just. Thank you. Marilyn Moon: There are a number of things that I agree with Stuart on, but I have some different perspectives. In thinking about what to say today and the history of this issue, I decided to let you know a little bit about myself so you’ll understand where I come from. In 1964 and 1965, when Medicare was being debated, I was living in Augusta, Kansas. I was a debater in high school, and we were debating “Re-
  27. 27. — 20 — Big Choices: The Future of Health Insurance for Older Americans solve: that there should be public health insurance for seniors in the United States,” a federal program of health care for older Americans. In Kansas at least, you always wanted to be on the negative because you would always win. Fortunately, from my perspective, the negative position didn’t win the day, and we got the Medicare pro- gram, which I think has been of enormous importance to Americans on a whole range of issues that we could talk about. I also want to say, in terms of where I’m coming from, that while I totally agree with Stuart that there are a lot of problems in the Medicare program, before we condemn it, let’s look at ourselves and our own health care programs. I have been in one of the worst health care programs, I believe, in the United States, CareFirst of Maryland, which was so bad that it eventually didn’t even get merged and become a for-profit organization, partly because of the government. For ex- ample, when I tried to be a good consumer and ask questions, the answer I would get was “That’s none of your business, that’s proprietary information.” In the case of that particular program, when I would go out-of-network to use my very good physician in downtown Washington, D.C., who charges me only $75 for a visit and takes only Medicare and Medicaid coverage and no private insurance any longer, Medicare would pay $58.47 for that visit. But my private insurance plan in its wisdom would pay 80 percent of $32.10 for my visit, meaning that I was paying a cost-share of approximately 65 percent. That is the private market, and that is one of the successful health care plans in the state of Maryland. And it’s not that it was forced upon me. I was under my husband’s coverage at that time, which gave us a choice of 14 plans, and that plan seemed the best one for us at that point. We’re now in a brand-new plan and waiting to see what it will cover for out-of-network services because once again they won’t tell me when I ask, but we will find out pretty soon. So one of the things that I would say is be careful what you wish for in health care. Adding a lot of competition is not going to solve a lot of the problems of the sticky, arbitrary process of getting health care cover- age. Health care is expensive in the United States, and nobody has totally found the solution to that. The other thing that I wanted to do as a theme today is talk a little bit about the Medicare reform bill, not to steal the thunder of the next panel, but to use it as an example of what I was originally going to call the “good enough for now” health care bill and how it causes problems. I’m hoping instead we can put it to rest eventually by calling it the “last unrealistic” Medicare reform bill. One of the ways that I fully agree with Stuart is that we have to have a real debate about the issues facing Americans and the challenges of rising health care costs for an increasing share of the population that will be over 65 or disabled in the future. We can’t get by through simply assuming that something will magically come along and solve the problem, as this legislation does, or that we will eventually come to a day of reckoning later on by putting some poison pills, if you will, in that legislation. There are three points that I want to make about that legislation in terms of how
  28. 28. — 21 — Medicare Reform it steers us in the wrong path. It recognizes the inadequacy of Medicare benefits by adding prescription drugs, but it does so by adding a benefit whose design is driven solely by budget constraints and not good policy. This is why you get that doughnut hole where you have benefits for people who spend only a little at the bottom and benefits for people who spend at the top, but you run out of money in the middle at the place where the two sides meet. It’s not because, as you might like to imagine, that policy-makers in Washington are stupid. It’s because they have a lot of goals and not enough money, and as a consequence, this was the compromise they were left with. Secondly, we are still in the world of looking for a magic bullet. It used to be that HMOs were the magic bullet, but we don’t talk about HMOs anymore because at least in Medicare, we learned that they don’t save any money, they have been arbi- trary, and they haven’t been innovative the way that people hoped they would be. I’m not trying to condemn all HMOs with one broad brush because there are good ones. But many of the ones that came into the Medicare market hoped to make quick money by getting big discounts from doctors and hospitals and did not recognize that Medicare is the Big Kahuna of price discounts. You can’t really compete very well with Medicare on prices. So instead they turned in many cases to fairly arbitrary restrictions, causing them problems and backlash not just in Medicare, but also in managed care in general in the United States. We have much less in the way of man- aged care than we did just a few years ago. So the golden age of HMOs came and went very quickly in the late 1990s, and we also found that we had been overpaying those HMOs in Medicare. In 1997, legislation clamped down on these inflated prices, and many HMOS re- sponded by leaving Medicare, cutting benefits, raising premiums, and raising prices. In 2003, we passed legislation that assumed that competition would solve the prob- lem by creating new private plans called preferred provider organizations (PPOs) that would somehow do better than Medicare. As with HMOs, I expect that we’ll overpay PPOs for the first few years and then, when we’re struck by the rising health care costs, we’ll cut back on how much we pay them—we’ll just repeat 1997 all over again. I’m not sure anybody should want to be president in 2006 or 2007 when this little train wreck is going to take place. Moreover, we’re relying on competition as a magic bullet. Again, we’re not setting the system up very well, and it bears the stamp of a lot of interference. Even if you establish private plans, there will be a lot of interference. In some ways, there should be more interference than in other ways. I have enormous confi- dence in the profit-making ability not only of private prescription manufacturers but also of good preferred provider organizations. If you’re a good profit-making orga- nization, you don’t make money by managing care well. That’s too hard, and people grumble too much. So as a consequence, they will seek ways to do just what HMOs have traditionally done—cherry-pick the population to get the healthier folks in. What that means is that a PPO can provide extra benefits, make these well people incredibly happy, and make them lobby on your behalf, while you are sending all
  29. 29. — 22 — Big Choices: The Future of Health Insurance for Older Americans the sick people back to traditional Medicare where the costs are rising and you’re not solving the problems. I am skeptical that even well-working programs to enhance competition will be the magic bullet. And I do think we have to be very careful. Unlike Stuart, I don’t want to make available to seniors what others have because the Blue Cross Blue Shields, CareFirsts, and other HMOs are not necessarily doing a terrific job. I’d rather see us find some solutions that don’t rely on making sure that nobody is any better off than the rest of us. That doesn’t seem to me the best way to do health care policy in the United States. Finally, in terms of this legislation, there are worries about the inability of the magic bullet to do its job, so the legislators at the very last minute tucked a little thing in there about financing and a way to presumably bring some rationality to financing. Instead, it will bring a financial crisis artificially to the Medicare program, probably between 2006 and 2008. We can have a humdinger of a presi- dential campaign in 2008 potentially over a massive crisis in the Medicare pro- gram. This legislation argues, essentially, that general revenues are undesirable, and that we don’t want to have them fund this program. Consequently, a new measure seeks to artificially restrict it, which will force changes through reduc- tions in either benefits or coverage, or through increases in either premiums to beneficiaries or payroll taxes. Whenever there has been a crisis in financing in Medicare, as a very good book by Jonathan Oberlander points out, we have a tendency to go in and whack away at the program. We have done the easy whacking away, and now in 2007 and 2008, with the baby boomers knocking on the door just three years later, it will be very hard to be unrealistic about the solutions. The hopeful spin on what that crisis may bring is that society may finally actually realistically talk about what needs to be done. But I’m not sure that things will actually work out that way because I suspect many politi- cians will continue to sloganeer. What we should do is come back and ask three essential questions. First, how should Medicare be organized to save money? Is there a magic bullet out there that says just the way you organize the program somehow saves money? My guess is no. The problem of health care costs and spending and new technology and our desire to live forever is still going to be there. And, I would disagree with Stuart that keep- ing Medicare universal is a problem. I don’t see the problem that Bill Gates has not paid enough into the system and gets big subsidies. First of all, if Bill Gates makes $20 million a year or more, he’s effectively paying about 3 percent of his salary to Medicare, so he has actually been paying a lot of money into the Medicare program. It would be nice if we could just exclude him and his family and everybody else like that, but there aren’t enough of those folks out there really to solve the problem. Plus, these rich people might then do something very bad like getting together to pass the “High-income Older Americans Act” and essentially stick it to all the rest of us in various ways, such as by getting a lot of flexibility in health care and leaving the rest
  30. 30. — 23 — Medicare Reform of us in the cold when they say no, we don’t want to pay the taxes for all the rest of those scummy people who make less than $300,000 a year. We’re going to have to decide whether we want to make these decisions individu- ally or on a communitarian basis. We have to decide whether as a county, we want to make joint decisions or let individuals go at it on their own. That’s when my husband always says you’ve got to remind people that either Mom’s going to live with you or you will have to live with her, and none of us really want to do that. But the point is that we do have to decide whether we’re going to make these individual responsibili- ties or shared responsibilities. That’s a big question that needs to be addressed. Secondly, we have to decide who should pay, and we should do so on the basis of really understanding the ability of different groups to pay. An older woman in her eighties who is widowed is not going to be in a position to pay if there is a sudden jump in the cost of health care, for example, that has occurred long after she has retired, even if she has been very wise and saved all her life. And I don’t think we want to hold her accountable and say, “You’ve run out of money, too bad for you.” We should make those decisions on the basis of who can pay and in terms of who has flexibility to adjust. Health care will be more expensive over time, and as a society, we’re going to have to decide whether or not we want more Humvees or more health care. That is a decision we should be making on a communitarian basis as well. My facetious solution to Medicare’s problem is to say we should raise gasoline taxes. I don’t say that on the East Coast anymore because gasoline is now over $2.00 a gallon. But down here, I noticed it was only about $1.70, so we should raise gasoline taxes by 50 or 60 cents a gallon. We’d take in lots of money and dedicate it to the Medicare trust fund. Don’t put it in treasury bills, buy drug stocks. Drugs are going to do just fine, thank you very much. We’ll own the drug companies, and then when we own the drug companies, we can turn around and make them be more rational pricers. And we’ll use the profits to help fund Medicare. Now, I think that could work, but I think it would take a lot of willingness to do exactly what I’m going to suggest and that is that as a society—either through gasoline taxes or payroll taxes or general revenue income taxes—we’re going to have to step up to the plate and say somebody has to put a crowbar in their wallet, and the question is, who is best able to do that. The good news is that while taxes would have to rise to fund Medicare, over a period of time, such funding is affordable. The situation will not require seniors and their children and grandchildren to go to the poorhouse—rather, society as a whole will be better off. The numbers from a couple of years ago, which aren’t much differ- ent from the new numbers, suggest that even with relatively modest rates of growth, future generations of taxpayers will have a command of resources in excess of 50 percent greater than today, even after controlling for inflation. That’s the good news for all of you young workers out there. The bad news is that Medicare would take some of that away. Because Medicare will grow faster and there will be fewer taxpayers, on a taxpayer or per-worker basis,
  31. 31. — 24 — Big Choices: The Future of Health Insurance for Older Americans the cost will indeed go up. For example, this means that instead of average income rising 58 percent, individuals would be just 54 percent better than today. That is certainly doable. It is not a question of a lack of wallet, it’s a question of whether or not as a society we want to ask people who are going to be substantially better off to pay something more. Historically, as our society has become wealthier, we have contributed a greater share of that wealth through Medicare and Social Security to older Americans. Now that older Americans will be a greater share of the population, we will need some change in contributions, particularly because Medicare in many ways has been un- der-funded for a long period of time. Finally, we have to decide how to deal with health care costs. I would suggest to you that this is not a case of giving people money, having them make good decisions and expecting that all will be well. If I give an individual $6,000 to go out and buy insurance, and they go out and buy good insurance, they are still going to have the problem that when they get sick, they are going to want to have care. And the ques- tion is, will the insurance actually pay at that point. They will also have to make good decisions if they decide to buy a private policy—for example, one of the private Medicare plans is a fee-for-service plan with low copayments on physician services. This is appealing for younger folks because that’s about all they use—but if it involves very high copayments for people who use home health care in order to keep physician costs low, it will not be good for sicker people. So let me think, who’s going to sign up for that private plan? It’s going to be the younger, healthier folks who are going to have those low payments on physician ser- vices, and they’re going to hope that they can join another plan when they are 75 and need home health care. They may or may not be able to. But this is a question again that as a society we’re going have to solve. It’s not a problem that begins at age 65. In fact, speaking to all you young immortals, I’ll make you a little bit sober by telling you that it’s a problem that starts at about age 50. If you look at health care spending in the United States, it just kind of trucks along there nicely, pretty low, and then at about age 50, something happens. Those of us who are beyond that know what I’m talking about. The old muscles don’t work so well, and your knees creak and crackle a little, so you’re more likely to take a Celebrex or Vioxx. Your doctor says your choles- terol is way out of whack, and you’d better be taking Lipitor or Pravachol. You have that acid reflux and can’t eat those tacos like you used to, so pretty soon you’re taking the purple pill and overall spending $6,000 a year on prescription drugs alone. It’s going to happen to all of us, and all of us as a society are going to have to find ways to be tough about health care, to ask the tough questions in terms of coverage. I’d much rather do it as a society, spending a little bit of investment from the public sector to decide what works and what doesn’t than let my employer and the insurance plan they pick decide what decisions are going to be made—because they are not going to do it very rationally, at least if past history is an indication. This is not easy stuff to talk about or do for those of you who are younger or may be students. If you
  32. 32. — 25 — Medicare Reform want to become a health care policy analyst, it’s full employment for you for the rest of your life. Go right out there and get that education because I guarantee you we’re not going to solve this problem in the next five years or the next ten years. It’s going to be out there indefinitely unless something happens that none of us can predict now. I will close on a perversion of Herb Stein’s old adage. Herb Stein was a crusty economist who was very wise in many ways, and he used to say, if it can’t happen, chances are it won’t over time, and that turns out to be pretty true. Medicare can’t reach the level of GDP that people are worried about it being in 2070. Actually, what that translates into if you do simple projections, is that at that point we would be spending a third or more of our national income on health care. Probably we don’t want spend a third of our income on that, so something will happen, and we won’t do it. But I would also introduce the old adage that if something has to hap- pen—that is, if we have to find a way to deal with an aging population in a wealthy society—chances are it will, and we will find the way. I am very much of a short-term pessimist because I look at bad policy. But I’m a long-term optimist. We need something to trigger more rational debate so that we really look at these issues realistically and come to some solutions. Thank you. Ken Apfel: Thank you both. What I’d like to do first is to ask each of you to comment on each other’s remarks, and then I’m going to ask one question, and then we’ll open it up to the floor. Stuart Butler: I want to comment on Marilyn’s presentation, because you probably detected there’s agreement and disagreement woven in together, which is not unusual with this particular issue. I do feel very strongly, as I think she does, that looking at the future of what the burdens are going to be of different choices we make now is ab- solutely critical. We should look at these issues now in order to make decision about taxes, about benefits, and so on in the future, rather than leaving them until we get an absolute crisis and have to make draconian decisions one way or the other. I think that is something we actually both agree on. But I think, as she said and I tried to emphasize, if you look at the numbers, and you look at the way in which the propor- tion of projected taxes today would have to go to this program and other retirement programs, it’s a staggering number. Therefore to say, well, let’s just find more money, let’s just raise taxes—how far? Is this likely to happen in the future politically? The second thing I’d say is that there is a sharp distinction between us in terms of how we think about how Medicare should be organized. Marilyn talked about doing it as a community. In one sense, I don’t disagree with that, but if we’re talking about designing the specific programs at the community level, what we really mean is doing it within the United States Congress. That’s actually what it means. And for the rea- son I mentioned, I believe that is not a wise way to think about the design of benefits in the future. I think the weakness is with expecting members of Congress to basically play doctor in areas they have no real knowledge about. That is not a wise way to go
  33. 33. — 26 — Big Choices: The Future of Health Insurance for Older Americans forward. More and more, we ought to be letting individual Americans make more choices about the kinds of benefits they have and where they get them. I’d be curious to know if anybody in this room would think that given the way Congress has operated in the time that you have known it, whether you have more confidence in Congress making sensible decisions about your benefits rather than yourself. I think that is something for you to think about in terms of your confidence level in members of Congress. That’s why I think individuals making choices is so critically important. There are various kinds of plans and competition and so on that exist. I am not in favor of overpaying anybody to provide shoddy benefits. But on the other hand, I don’t believe in monopolies where you are told this is what you have, and take it or leave it, and you have no choices. So I think that’s an issue. And the final area which I think I would strongly agree with Marilyn is that we do have to think about who should pay and how much. It is wrong that lower-income Americans today and in the future will have to pay an impossible amount from their meager earnings to pay for their health. I think we ought to be helping lower-income people more in the future. But I think that Bill Gates and even people earning a little less than Bill Gates will need to shoulder more of those costs because it is the only way in which we can be fair to those who need help most. Bill Gates certainly does pay into the system today, but he’s really paying through payroll taxes only for the hospital costs of Medicare. He can choose whether or not he wants to go into Part B, and Part B is subsidized out of general revenue. So he’s getting a subsidy anyway. I don’t think he should get anything. I think people who earn less, but are still well off, ought to be getting much less of a subsidy. I don’t see any other way unless we’re going to bankrupt our children and grandchildren in the future. Marilyn Moon: I’m only going to talk about one area because we will undoubtedly get back to the finances in a little bit. I’m going to talk about the issue of government and the benefits because I think it’s been a little bit overstated here. My congressman doesn’t really have very much to do with the way in which benefits are provided in the Medicare program. People misuse the term “choice” in some ways. First of all, the law essentially establishes that Medicare covers hospital benefits and outpatient benefits. Essentially over time, for example, as the delivery of care in the United States has changed, there has been a very smooth transition of people moving out of the hospital where they used to get benefits to getting them in an outpatient setting. As long as the general benefit is covered, there really has not been a problem. Stuart is right in terms of adding the additional benefit, but that is not necessar- ily easy or hard in anything except in the size of the dollars that are being discussed. That’s really what has kept the prescription drug benefit from being made available. Employers got smart and added prescription drugs when they were very cheap, but now they are going back and cutting back on them. Where coverage decisions are affected is when a new procedure is being considered for inclusion in Medicare. For
  34. 34. — 27 — Medicare Reform the most part, Congress does not get into that. It’s actually quite a transparent process where expert panels are pulled together to make those decisions. Ironically, a lot of private insurance plans piggyback on what Medicare decides in terms of what’s covered and not covered. There have really only been a few areas, but they’ve been some pretty bad ones, that the members of Congress have gotten deeply involved in. For example, they set the price of oxygen. Senator Phil Gramm came in one day complaining about how high the price of oxygen was in Medicare, only to have one of his colleagues tug on his shirtsleeve and say, “Excuse me, Senator, we did that.” Medicare is one of those programs where the benefits are broadly defined, and you have the choice of almost all doctors and hospitals in the United States. To say that we’re going to have choice and let people have different options means there are going to be different plans, and you go out there and you’ll get different things. Now, that sounds pretty good until you hear what a lot of Americans say. And then you’ll hear in the case of younger people, a gentlemen in his thirties say, “I don’t want to be in a plan that is paying for maternity benefits because I’m not married and don’t intend to have any children.” And younger senior citizens might say, “I don’t want to pay for home health benefits because I don’t intend to use them.” And another person may say, “Well, I’m pretty healthy, I don’t see why I should pay for that other person who has genetic defects.” We want to be really careful how far down the line we go in terms of that kind of choice. That’s where I think you need to have regulations or else you end up with a very fragmented, very unhealthy private market. I have not seen any state or the federal government willing to regulate the private insurance industry to achieve the kind of well-working market that you need to have, for example, for individuals when they go out and buy in the private sector. Yes, you’ll be able to get insurance, but it may be very expensive or in the case of examples that I’ve seen, if you’re a 26-year-old woman and you take Claritin for two months out of the year, the insurance company will be happy to insure you except they will es- sentially say they will never cover any problem with your respiratory system for the rest of your life. That kind of overkill is what you get in an unregulated market that is not working well. The good guys get penalized because if they try to be good guys, all the sick people will flock to them. So we have to be very careful about getting what we wish for in terms of talking about getting Congress and the government out of this program. Ken Apfel: Before we open the discussion up to the audience, I want to ask one ques- tion to both of our participants here. It has to do with ways to control costs, either through the market or through a tough regulatory approach, a defined benefit ap- proach. On the one hand, does the government have the stomach to be able to really get savings through a regulatory approach? And, on the other side, do the markets have the ability to truly get savings from a market-based approach? In other words, will we really see lower costs through either a tougher defined benefit approach or
  35. 35. — 28 — Big Choices: The Future of Health Insurance for Older Americans through a market-based defined contribution approach? If the answer is yes to some extent, what are the implications? Let’s go out a step or two. What happens? Stuart Butler: Well, first of all, I am not somebody who argues that there shouldn’t be regulation at all. Marilyn raises legitimate issues and legitimate concerns about realis- tic fair competition. It’s very important for any kind of competition in the Medicare system to be negotiated with the government looking at the rules, looking at the ben- efits that are offered, and so on. So I think regulation has a significant role in ensuring that people get good value for the money, given the choices that they are allowed to make. On the other hand, or at least in addition to this, it’s important to recognize that if you try to clamp down on total costs, which you have to do if you’re going to provide health care through a purely government-sponsored approach, you end up with what we might call “hollowing out” benefits for people. You say, in theory, you can get this health care service, but in practice, that isn’t going to happen. As you mentioned, I was brought up in England, and my parents both lived in Britain all their lives. And I saw that process happen. In theory, benefits were available to everybody, but in practice, because of governments ratcheting down budgets, ben- efits were largely unavailable to people. On the other hand, if you say to the elderly, “We will provide you with a degree of financial assistance as far as we can so you can make some decisions in terms of how that’s going to be used,” people are more likely to be able to have the kinds of choices that fit their needs and their desires than if the government does provide health services in a direct way as they do in Britain. This is a fundamental difference of opinion and of vision about how we think about the fu- ture. So I feel that putting some notion of limits on budgets is essential if we’re going to be able to afford Medicare in the future. But I would give much more control over how that money is going to be used to individuals rather than the government. Marilyn Moon: Whatever system you use, there is no magic bullet. There are really three things that drive health care costs in the United States on a per-person basis. One is the price of the health care. Another is the use of health care services. And the third, related to use, is simply the adoption and addition of new and different kinds of services. There is no easy way for anybody to deal with that. Both the private sector insurance companies and the government deal with prices in a fairly non-negotiated way. You don’t see insurance companies ask, “What will it take?” Sometimes, what they do is simply to say to the beneficiary, “I’ll give you $75. Hopefully, your doc- tor will take that as payment in full. If not, it’s your responsibility. Good luck!” The government uses a little more heavy-handed way than that in Medicare. Over time, that probably causes some doctors to opt out of the system. Both the private sector and government have problems. In terms of use, the question is how do you control the use of services and whom do you trust to do that? That’s a really hard area. The one area in which the govern- ment has a big advantage is in studying the effectiveness of treatments. It makes no
  36. 36. — 29 — Medicare Reform sense for Aetna Insurance Company to spend billions of dollars studying which are effective or ineffective treatments because they are serving a limited share of the pop- ulation. And even if they did do it, they wouldn’t want to tell anybody else because they’d want to keep their extra advantage. That’s something that makes enormous sense for the government to pay for someone to do, hopefully a quasi-independent group of folks. And I would love to see both better information and dissemination of that information that could be used in a private sector or government approach to making those decisions. We’re going to have to make tough decisions over time, and I’d like to see them being made on the basis of what’s effective. For example, about three weeks ago, there was a very nice article in the New York Times suggesting something that’s pretty scary to a lot of cardiac surgeons and theirTimes suggesting something that’s pretty scary to a lot of cardiac surgeons and theirTimes patients. The article said that heart bypass surgery does not appear to extend life by very much, if at all. What it does is alleviate current discomfort and pain, and it makes people think that they have solved the problem of having a heart attack in the future. But very few heart attacks actually begin in a spot where your blood has clotted and created a problem in the arteries around your heart. That is stunning information. And that is not what your cardiologist is going to tell you. Well, your cardiologist may tell you, but not your cardiac surgeon. This finding opens up a realm of possibilities for a lot more patient choice and decision-making. I hope that both the public sector and the private sector can find a way of taking more responsibility for consumers so that we’re not talking just about economic incentives but also about better information. But “consumer-empowered health care” usually does mean just economic incentives. When you hear that term, run for the exits because it means high copays usually—but it ought to mean also better information. I’m dancing around this issue because I don’t have the magic bullet. I don’t think either of these approaches does. I think Stuart is right when he says that if you allow a lot of plans out there with a lot of discretion, you will get offerings of different things that may be better or worse in meeting your needs. And I’m going to add that in this trade-off, the people who are very sick will fall through the cracks. So, I’m willing to give up a little choice for coverage for everyone. These are important trade-offs. What I would like to see, however, is a more realistic discussion, rather than pretending that one plan is ideal and the other is not—because both of these approaches have difficulties. Ken Apfel: Questions? Audience Member: I was disappointed that the discussion seemed to be based in a vacuum. What is happening right now in the public sector is that the population is getting older—but there are younger ones, too. We’ll probably have a tremendous variety of ideas of what is acceptable by the time any new plan goes into effect.
  37. 37. — 30 — Big Choices: The Future of Health Insurance for Older Americans Marilyn Moon: Yes, dealing with health care costs is an issue we have to face across all of society. Certainly one of the ways in which health care plans and employers have responded, after first embracing and then getting smacked around pretty hard with putting people into managed care organizations, has been to pass off the cost to individuals, hoping that would solve the problem, which it largely has not. Another issue is if we have a large number of uninsured who eventually become eligible for the Medicare program, that also raises the cost of Medicare for people who have deferred getting coverage and care, for example, before they become eligible. Stuart Butler: I think that’s correct. Certainly, it’s interesting that members of Con- gress and federal employees have a separate system for themselves even when they re- tire, keeping at least a part of their coverage when they retire. And there is a different system for the rest of us. I guess my general rule of thumb is that Congress, generally speaking, will produce the best available for itself. If it’s that good, why can’t the rest of us join it? Despite all of the things Marilyn said in terms of the vagaries of com- petition and choices, this system seems to be very attractive to those who make laws for us. Many of us would like to see a change in the Medicare program that would be much more like the federal employees benefit program. Marilyn Moon: There are two big differences between Medicare and the federal em- ployees’ health benefits program. One is structure, with the choice of a number of different plans that people have. That is what people are talking about giving you. The second is the number of dollars per person that go into those plans—if it were adjusted by age, Medicare would have to be enormously increased in size. I don’t think people are as focused on structure as they are on the quality of the benefit. Just to give you an example: a prescription drug benefit of the size of that available to peo- ple under FEHBP (Federal Employees’ Health Benefits Plan) that Congress is under, would have cost around $950 billion to a trillion dollars rather than the $400 billion that people were talking about. So the question is, are we talking about the structure or are we talking about the dollars? And many people are talking about giving the structure, but not following up with the dollars. If they don’t follow up with the dol- lars, you’ve got a lot of other problems that still remain. That’s a real difficulty. Audience Member: Dr. Stuart, I read with interest and enthusiasm the op-ed piece that you and Henry Aaron from the Brookings Institute wrote in which both the lib- eral and the conservative side supported universal health care as a process and talked about a communitarian approach to it. You actually advocated the idea that part of the process would be to transfer decisions about costs and who should pay and how from the federal government to state governments. Considering the idea that the bigger the pool in insurance, the more equitable and the lower the cost is, why is no solution being discussed as part of a universal health care approach instead of just a Medicare for seniors approach?
  38. 38. — 31 — Medicare Reform Stuart Butler: I guess I wouldn’t agree with that premise. Certainly Marilyn and I are both searching for an approach that would provide universal coverage in a way that has similarities to the way in which you are now covered. Senator Breaux from Louisiana often comments about all the different boxes that people are in. If you are a veteran, you get one kind of health care. If you are very poor, you get Medicaid. If you are a working person, there are all kinds of different rules and forms. I do agree that moving toward some kind of similar system so people are not in different pro- grams is part of the solution. What that should look like is of course is open to a lot of debate. When Henry Aaron and I did this piece, we were talking about a process for en- couraging innovation and experimentation at the state level to find out what is the best kind of approach toward universal coverage. And I think that is what we’ve got to do. Anybody on this or any other panel would be really hard pressed to say, “Well, I’ve figured it all out, and I know exactly what the answer here is.” I think we know at least the directions to go in, but I think having a process of continuous examina- tion and experimentation is very important. And this is, quite frankly, why I feel that consumer choice—individuals making decisions—and competition, are so critical because, notwithstanding the legitimate concerns around race, that’s how you filter out things that are showing promise from those that are not. That’s true in all the rest of American society and economy, and I’d like to see that much more strongly in Medicare and health care generally. Audience Member: I think when you talk about medical health care that this idea of the Adam Smith consumer kind of thing doesn’t really work, even if you are an educated consumer who wants to make a decision. For example, I was going to have a cauterization of blood vessels in my nose, so I told my doctor, why can’t we just do it in your office because I hoped that my bill would be a lot cheaper even though my insurance wouldn’t pay for it. He said no, you have to go in the hospital, full anesthesia, the whole thing. So a consumer does not tell a doctor what he wants, a doctor tells a consumer. You can’t tell a doctor, “Well, I think I’ll skip the heart by- pass because I don’t believe in it.” Stuart Butler: You can. Audience Member: So when you’re talking about “I won’t take this drug that you recommend” or whatever, this whole idea that the individual is the one who is mak- ing choices is false. It is not Congress being doctor, it is some insurance company playing doctor who is in it for profit. In the state of Texas, these insurance companies buy themselves a legislature and throw tens of thousands of kids off the Medicaid program. So the whole idea that the magic bullet is going to be free enterprise and competition in the medical area does not work.
  39. 39. — 32 — Big Choices: The Future of Health Insurance for Older Americans Stuart Butler: Well, you underscore part of the point that I was trying to make. If the Texas Legislature is owned and operated, some might argue, by the health care industry, then the decisions it makes are not necessarily any more in your interest than what you would get through your ability to choose. If you have to make choices in areas you don’t have a lot of knowledge about, at least you can go to some person or organization that you trust to help you make that decision. If you can act on that decision that an expert—it may be your doctor or may be an organization—advises you on, that to me is what the critical empowerment of individuals is. Not that ev- erybody should be all-knowledgeable about all these things—but you should be able to turn to somebody for advice and then act on that decision. You can’t do that if Congress says this is what you’re going to have, this is how we’re going to provide it. It’s either take it or leave it. Ken Apfel: We’re going to have four more questions, and then we’ll have to wrap it up. Audience Member: Yes, this is really very generalized. We’re talking about problems that affect everyone. But no one has talked about what has happened to the economy in the United States. Ten percent of the people have access to 70 percent of the wealth. And the bottom 50 percent of us have 2.8 percent of the wealth. This is as bad as it was before the Great Depression. And we keep moving walnut shells around. It’s hard to see when the wealth is so maldistributed in this country. And the people from United for a Fair Economy—Bill Gates, Sr., is one of them—are saying that what’s happening now is very bad for everybody in this country. So I just feel like this colors the revenues that we’re talking about. Stuart Butler: Well, we could have a whole seminar and discussion about what’s actu- ally going on in the economy. But just to answer your question specifically, I tried to argue that we need to have an approach to Medicare that says who can shoulder the burden and who cannot. And for people who can easily afford medical care in the future, they should not be getting the subsidies that are insufficient for those at the bottom end. So we can argue about what the numbers are, but I disagree with the no- tion that we should have a system which provides equal benefits to everybody—Bill Gates gets subsidized, a janitor gets subsidized. We ought to be looking much more at focusing the assistance where it is needed, and that means big changes in terms of what people can expect, if they are middle-class, upper-income people, and working people today. Marilyn Moon: I think the problem is that you can never equalize the unequal distri- bution of income in the United States by taking a few people off the Medicare rolls. This is an issue that affects taxes and a whole range of other things. I agree it is really important and doesn’t get discussed enough in the United States because it sounds
  40. 40. — 33 — Medicare Reform very anti-American if we say we are opposed to people making it on their own. But I’m glad to see you raise it, and I think it ought to be raised in these kinds of conversa- tions. But, unfortunately, I don’t think we can solve the problem that way unless we charge Bill Gates a pretty high premium over time. Audience Member: I hope that as we go farther into the program, we will open this issue up further. We are considering a very narrow set of options, it seems to me. Un- less we do talk about health care for everyone in this country, then it seems to me it is futile to talk about it for one little patch on a blanket—a very tattered blanket at that. Also, I must say that I am extremely cynical when I hear the word “choice” these days. How about a 90-year-old woman who was turned down for insurance—what do you expect her to do, surf the Net? What I really wanted to say is the federal em- ployees’ program—it ain’t utopia. I have been in the foreign service and what I have, the choices that I have, are probably better than a lot of people’s. But they are private insurers, and they are very similar in what they offer. There are not as many choices as you might think. And our premiums will have gone up, by the end of this year, 50 percent in the past four years. Now, I assume they’ve also gone up for Congress, but Congress may not be feeling it because they have allowed themselves to have pay raises of $3,000 or $4,000 a year. So, please don’t be too ecstatic about the federal program. It’s not bad, but it’s not great. Stuart Butler: I didn’t suggest that it was utopia. I think over time, incidentally, while not many 80-year olds are surfing the Net today, all the signs are that a bigger and bigger proportion of the elderly actually will be doing that, as people get older who have been brought up on this. It’s also important to understand about choice that no- body requires anybody who’s got choices available to change their decisions or change their choices. If you want to stay with what you have, nobody is forcing anybody to change. If you don’t think you can make choices, or that it’s good for you, don’t do so. That’s not to say that people who really feel that they should be able to make other choices should be denied that right. I think that’s the critical issue. Marilyn Moon: I wasn’t going to say anything because I thought the lady did a good job of defending herself. But one of the real difficulties about not making choices is that if you look at people who don’t make choices in that kind of system, they can end up being chumps. For example, some of the research on the system for Califor- nia University employees suggests that retirees who were reluctant to make changes and who didn’t want to change plans every year ended up stuck in plans that simply became more and more expensive every year. They were very poorly treated that way because the healthier people deserted the plans they were in, so when they stuck to those plans, they didn’t benefit at all from choice. To a certain extent, when you go into that kind of system, you can really be hurt if you don’t participate in it.
  41. 41. — 34 — Big Choices: The Future of Health Insurance for Older Americans Audience Member: I just wanted to reflect a little bit on what is influencing those of us who are members of the public, the consumers of Medicare—because I didn’t see a lot of that reflected in what was said. Nobody makes decisions in a vacuum. When I see the statistics that 10 percent of the people who are consumers of Medicare are living in poverty, I view that with a great deal of skepticism. And I also say that you have to look beyond that very simple statistic because Medicare and Social Security are tied to one another in terms of the ability of the older individual to meet their expenses, including health care expenses. All the inequities of society get reflected and inherited by those systems, Social Security and Medicare. I’m speaking as a woman who raised two children as a single parent. We all know that women make less in their working lives than men, and that is reflected in how much Social Security income they receive. We also know that women suffer disproportionately from the increasing rate of divorce and the fact that they are more likely to end up, as I did, as a single parent raising children. When it got to the point where my children needed to go to college, my ex-hus- band wouldn’t help contribute to their college expenses. When I applied for financial aid, I was expected to dip into what meager income I had been able to set aside for my future retirement to help pay for their college expenses. Mr. Butler, you talk about how we all need to be responsible for planning for our own future and caring for ourselves in our old age. Well, when I started out as a young person, I did what I could. I got two master’s degrees and felt that I was going to be well prepared to support myself. But it didn’t turn out to be that way because of being a single parent and having to make choices. I was a teacher. We all know that teachers don’t get Social Security for the most part. And they are lucky if they get anything in the way of sufficient retirement benefits. Everything I’m saying could be said also for the inequities that apply to racial and ethnic minorities. These are all reflected in that supposedly lovely statistic of 10 percent in poverty rate. There are large segments of us in this population that you want to help in making decisions that we have to think of in a very different environment. The other thing that I wanted to mention is that politically this debate comes at a very bad time in terms of the ability to approach this open mindedly, and that’s be- cause at this point I can’t even possibly begin to consider handing over my health care benefits to private enterprise and privatization at a time in our history when business is getting more and more rapacious, selfish, and profit-driven. I won’t go into it—we all know what’s happening on the horizon. Business ethics has gone out the window. So we have no reason to trust that those decisions are going to benefit us. Ken Apfel: A reduction in poverty from 35 percent to 10 percent shows us how far we’ve come, but it also points out how far we still have to go in terms of alleviating poverty in the elderly population of this country, particularly for elderly women. But your point is a good one—there are millions more seniors with incomes just over the poverty level, and we need to be concerned about their well-beings as well.
  42. 42. — 35 — Medicare Reform Audience Member: I know we’re out of time, so I’ll make this very short, and I won’t expect an answer now. All three people up there on the platform agree on one thing—that we need a debate, a national debate about what kind of country we’re going to have in the future. And we need to debate the whole question of medical services for older people. I haven’t heard any one of the three people indicating where that debate is going to take place and who is going to be responsible for it and who is going to participate in it. Ken Apfel: If this issue is really going to get consideration, it’s going to happen when groups of Americans come together and struggle with these choices. Health care is an incredibly complicated issue, and the detail can numb you. But the only way that we’ve seen significant change take place—and some significant change has to take place—is with the involvement of the American public. That’s our desire. One of our modest goals in this symposium series is to get people involved in these big choices. Without the involvement of the American people, we’re not going to be getting any- where. So that is part of what this is all about, this forum. Marilyn Moon: That’s why I’m here.

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