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THE FISCAL CONSEQUENCES OF THE HEALTH CARE LAW HEARING BEFORETHE COMMITTEE ON THE BUDGET HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION HEARING HELD IN WASHINGTON, DC, JANUARY 26, 2011 Serial No. 112–1 Printed for the use of the Committee on the Budget ( Available on the Internet: http://www.gpoaccess.gov/congress/house/budget/index.html U.S. GOVERNMENT PRINTING OFFICE 64–725 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON THE BUDGET PAUL RYAN, Wisconsin, Chairman SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland, MICHAEL K. SIMPSON, Idaho Ranking Minority Member JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania KEN CALVERT, California MARCY KAPTUR, Ohio W. TODD AKIN, Missouri LLOYD DOGGETT, Texas TOM COLE, Oklahoma EARL BLUMENAUER, Oregon TOM PRICE, Georgia BETTY MCCOLLUM, Minnesota TOM MCCLINTOCK, California JOHN A. YARMUTH, Kentucky JASON CHAFFETZ, Utah BILL PASCRELL, JR., New Jersey MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California JAMES LANKFORD, Oklahoma TIM RYAN, Ohio DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin BILL FLORES, Texas KATHY CASTOR, Florida MICK MULVANEY, South Carolina HEATH SHULER, North Carolina TIM HUELSKAMP, Kansas PAUL TONKO, New York TODD C. YOUNG, Indiana KAREN BASS, California JUSTIN AMASH, Michigan TODD ROKITA, Indiana FRANK C. GUINTA, New Hampshire [Vacant] PROFESSIONAL STAFF AUSTIN SMYTHE, Staff Director THOMAS S. KAHN, Minority Staff Director (II) C O N T E N T S Page Hearing held in Washington, DC, January 26, 2011 ............................................ 1 Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1 Prepared statement of ............................................................................... 3 Hon. Chris Van Hollen, ranking minority member, Committee on the Budget ............................................................................................................ 4 Hon. Earl Blumenauer, a Representative in Congress from the State of Oregon, submission for the record: Letter, dated January 26, 2011, from supporters of the Patient Pro- tection and Affordable Care Act of 2010 .............................................. 36 Richard S. Foster, F.S.A., Chief Actuary, Centers for Medicare & Med- icaid Services ................................................................................................. 7 Prepared statement of ............................................................................... 10 Dennis G. Smith, secretary, Wisconsin Department of Health Services ..... 64 Prepared statement of ............................................................................... 66 James C. Capretta, fellow, Ethics and Public Policy Center ........................ 69 Prepared statement of ............................................................................... 71 Response to Ms. Kaptur’s question .......................................................... 87 Paul N. Van de Water, senior fellow, Center on Budget and Policy Prior- ities ................................................................................................................. 75 Prepared statement of ............................................................................... 76 (III) THE FISCAL CONSEQUENCES OF THE HEALTH CARE LAW WEDNESDAY, JANUARY 26, 2011 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC. The committee met, pursuant to call, at 9:40 a.m. in room 210, Cannon House Office Building, Hon. Paul Ryan [chairman of the committee] presiding. Present: Representatives Ryan of Wisconsin, Garrett, Simpson, Campbell, Calvert, Akin, Cole, Price, McClintock, Chaffetz, Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, Huelskamp, Young, Amash, Rokita, Guinta, Van Hollen, Schwartz, Kaptur, Blu- menauer, McCollum, Yarmuth, Pascrell, Honda, Ryan of Ohio, Wasserman Schultz, Moore, Castor, Tonko, and Bass. Chairman RYAN. The hearing will come to order. I welcome all to the first House Budget hearing of the 112th Con- gress. Before we get started, I want to thank ranking minority member Chris Van Hollen for his cooperation in getting the committee rules adopted and with this hearing and for starting a little early so we can get a head start on the day. Why is this the Budget Committee’s first hearing and why is it focused on health care? Well, let’s just put it very simply. Our fiscal problem is a health care problem. Health care spending is driv- ing the explosive growth in our spending and our debt. The new health care law was sold under the guise of fiscal re- sponsibility. The claim was that the government would spend tril- lions of dollars, add millions to a new government-controlled health care program, and create two new open-ended health care entitle- ments, all in order to lighten our budgetary burden. Most Ameri- cans understand that something is just not adding up here. Today’s hearing is intended to peel back the layers of the law and its maze of mandates, dictates, controls, tax hikes, and subsidies. Many try to distort our criticism of the health care law and say that we are criticizing the CBO. Actually, quite the opposite is true. I think CBO does a very good job. We ask them to do a lot under short notice, and they perform very admirably. The analysis performed by the CBO, Mr. Foster, and others enable us to unpack the law’s budgetary smoke and mirrors and reveal its true fiscal impact. We face a choice of two futures, and nowhere is this choice more clearly defined as it is in health care. Down one path lies the managed decline of a government-run system on the verge of bank- (1) 2 ruptcy. There is an alternative path, and it is a path that leads to true choice and competition in health care. It is modeled after the health care system that we ourselves in Congress enjoy; and it puts patients first, with providers competing for our business. But before we can get there, we must reject the notion that a centrally planned, bureaucratically run health care system can produce more favorable outcomes than the one managed by doctors and patients. Do we want a system that is command and controlled, price controlled, formulaically controlled by government, or do we want a system where the patient is the center, where the patient is sov- ereign, where they get to decide, where providers—doctors, hospitals, insurers—compete against each other for our business or do we want them competing for favoritism from a shrinking pool of government resources? While I am opposed to the President’s health care law, I want to find solutions to these problems. That is why I have worked with Democrats to come up with other proposals to try and find answers to these. Alice Rivlin and I most recently teamed up on a proposal in the Fiscal Commission. She and I don’t see eye to eye on everything, but we tried to come together with a compromise to try to find a way to fix some of these problems to address our health care problems and our fiscal problems. I hope we can continue to build bipartisan support for policies that create incentives in our health care system to enhance quality, reduce costs, and promote patient satisfaction. It is an honor to welcome our first witness, Rick Foster, Chief Ac- tuary for the Centers of Medicare and Medicaid Services. Time and again, Rick’s unbiased actuarial reports have proved difficult to square with the claims made by the law’s proponents, specifically with respect to the direction of health care spending as a result of this law. After Rick’s testimony, we will hear from a panel of three witnesses. Dennis Smith, the newly confirmed Secretary of Health Services in my home State of Wisconsin. Dennis has tremendous experience in this area, having served as Medicaid Director at HHS under the previous administration. He will give us a sense of what the impact of the law is on the States. Next, Jim Capretta, former associate and director at the Office of Management and Budget. Few in my mind have made as com- pelling a case as Jim on both the costly consequences of this law and the path forward to advance real reform. And we will hear from Paul Van de Water from the Center for Budget and Policy Priorities. Paul has an impressive background, and I welcome his thoughts to advance an informed debate on this critical issue. I look forward to today’s discussion. I thank our witnesses for joining us and starting a little early. With that, I would like to yield to Ranking Member Van Hollen for an opening statement. [The statement of Mr. Ryan follows:] 3 PREPAREDSTATEMENTOFHON. PAULRYAN, CHAIRMAN, COMMITTEEONTHEBUDGET Welcome all, to the first House Budget Committee hearing of the 112th Congress. This is an immensely consequential time for the Congress, and our Federal Govern- ment in general. It is a time in which this committee will play an exceptionally important role. I welcome the opportunity to tackle the challenges we face: the stakes are very high—but so are the potential rewards. I also offer my congratulations to Chris Van Hollen on being selected as Ranking Member on this committee. Chris is an eloquent spokesman for his party’s views and principles, and I look forward to many vigorous, and I hope enlightening, de- bates on issues that are so critically important to our country right now. One of those, of course, is health care—and specifically the health care legislation enacted last year. It remains a highly contested subject, and the more Americans learn about the legislation, the more questions and doubts they have. We in America enjoy a strong and innovative health care system. But its costs, including those of the Federal Government, are out of control. The average cost of a health insurance policy for a family of four doubled between 2000 and 2007, and is projected to double again in the next seven years. And because the federal government has made a large and open-ended commitment to the health security of most Americans, health care costs have a huge impact on our federal budget. The Con- gressional Budget Office says Federal spending on health care, as a percentage of the economy, will double over the next 25 years—crowding out spending for any- thing other than health care and Social Security. To put it simply, our fiscal problem—in which government debt is approaching the size of the entire economy—is a health care problem. The Democrats’ health care legislation was sold as a way of addressing both—but whether that’s true is seriously in doubt. Our first witness today has said that any health care savings resulting from the law will be more than offset by higher expenditures for coverage expansions. The Director of the Congressional Budget Office has said the legislation will not substantially reduce the upward pressure on health care spending. In short, this Washington-centered health care overhaul—with its maze of mandates, dictates, controls, tax hikes, and subsidies—will very likely accelerate the rise in health care costs. Many of these costs will be foisted onto the states, as the bill’s Medicaid expansions will strain their budgets even further. Today’s hearing is intended to peel back the layers of this complex law, to sweep aside the budgetary smoke and mirrors, and to examine its effects on health care costs and, consequently, on our nation’s finances. Our witnesses today will help clarify these issues. First is Rick Foster, Chief Actuary for at the Centers for Medicare and Medicaid Services. Due to his role, Rick can offer a clear and thoroughly unbiased of the fiscal effects of the health care law. We’ll hear from Dennis Smith, Secretary of Health Services in my own state of Wisconsin, Dennis can speak today about the new Medicaid obligations this law will force on states such as Wisconsin. And we’ll also hear from Jim Capretta, a former associate director at the Office of Management and Budget and currently a fellow working on health care issues at the Ethics and Public Policy Center. No one has done a better job than Jim of exposing gimmicks in the health care law that hide its true costs. We are at a fiscal crossroads, with two very different futures waiting for us at the end of two very different paths. One path leads to the managed decline of a government-run system on the verge of bankruptcy. Harsh austerity, severe benefit cuts and massive tax increases wait for us at the end of this path. The other path leads to true choice and competition as reflected in the health care reform proposals that I and some of my colleagues, such as Tom Price, have put forward in Congress. Putting patients first—contributing a defined amount to their health security and making doctors and hospitals compete for their business—would put the focus in health care on quality, cost, efficiency and patient satisfaction, just as it is in almost every other business. I am proud to have worked with former Clinton administration budget director Alice M. Rivlin to advance some of these reforms. It is possible to build bipartisan support for policies that allow consumers and patients to make choices for them- selves, even as the government provides sensible oversight of the marketplace. We all understand that, for too many Americans, the health care system isn’t working. Nobody is talking about going back to the status quo. But we cannot forge a bipartisan way forward until we remove this partisan roadblock. 4 With that, I will yield to Ranking Member Van Hollen for an opening statement. Mr. VAN HOLLEN. Thank you, Mr. Chairman. I want to join the chairman in welcoming Mr. Foster and the other witnesses here today. I have to say at the outset that many of us are disappointed that the first hearing of the Budget Com- mittee, rather than focusing on jobs and the economy, is focused on looking backwards and repealing the health care reform bill. As the President indicated last night in the State of the Union address, there are going to be issues, of course, that arise with the health care reform bill and we should work together to address those issues as they come up. But relitigating the whole health care reform bill we think is a mistake and doesn’t focus our resources, energy, and attention on the really pressing problems for the American people, getting more people back to work, getting the economy in full gear going forward. That being said, we do believe that today’s hearing and other hearings on the health care reform bill will help eliminate many of the myths and misunderstandings that came up in connection with the health reform legislation. We on the Democratic aisle a few weeks ago before the vote had a hearing where we invited our constituents from around the country to testify on that bill. It was an unofficial hearing, because the majority decided to press forward with repeal without having any hearing in this Congress, listening to the benefits that have al- ready begun to kick in for millions of Americans. We heard testimony from moms and dads, sisters and brothers, who talked about the fact that they like the fact that no longer will their kids be kicked off of a health insurance policy or denied coverage to begin because they have a preexisting condition like asth- ma or diabetes. We heard from parents that really like the assurance that their children could stay on their health insurance policy until they were age 26. We heard from small businesses that are taking advantage of the tax credits to provide more affordable coverage for their employees. A recent Forbes article indicated that that tax credit benefit has exceeded beyond expectations. We heard from senior citizens who as of January 1 get a little bit more help in covering the costs of their medicines when they fall into the donut hole. So millions of Americans in the last 10 months have begun to recognize important benefits of that legislation. Now, I know our colleagues on the other side of the aisle will say, well, we are going to get rid of all of this and put back in some of that stuff. The reality is between the years 2000 and 2006 health insurance premiums in this country doubled. They went up 100 percent. Congress and the former President did nothing during that period of time. Under the health care reform bill, if you look at the CBO Janu- ary letter, you will find that, over a period of time, premiums will begin to come down in the employer insurance market and that people’s out-of-pocket costs in the individual market will go down over a period of time. So we believe we should be focused on trying to fix those areas like the 1099 small business burden that I think there is common 5 agreement should be changed, rather than relitigating this whole issue. Now, just a word on the deficit reduction benefits of the health care reform bill. Because, obviously, the Congressional Budget Of- fice most recently in its January letter indicated that over the first 10 years we would save, we would reduce the deficit by $230 billion under the health care reform law as passed; and over the 20-year period, it would be $1.4 trillion in deficit reduction benefits. The CBO, as we all know, is an independent, nonpartisan entity; and I think we would all agree that we will have budget and fiscal chaos if we decide at our own whim and initiative to throw out CBO numbers. Now today we are going to focus on, as the Chairman said, what CBO was given to score; and I actually think this will help illus- trate the fact that the CBO numbers are real. Now I know we would like—I hope we will have the CBO come at some point and testify on their own deficit reduction package, rather than sort of take an indirect approach to those numbers. But I think what we are going to find—and I am looking forward to the testimony of Mr. Foster—is that indeed the CBO numbers are something that, while he cannot independently verify because that is not his total area of expertise, that they are built on what we believe are important assumptions. Just two quick slides I want to look at the outset, and then I will conclude my remarks. This first one is based on the analysis that Mr. Foster did in April of 2010. It takes a chart of total national health care expenditures in the year 2019 if the health care reform bill is implemented as enacted. Those are the columns to the left. The columns to the right are the number of people who will now receive health insurance and be able to get preventative care, just like Members of 6 Congress can get through their insurance, get the health care they need when they need it through their insurance. The estimates are between 32 and 34 million Americans—CBO says 32 million, Mr. Foster says 34 million Americans—will get that additional coverage. That is on the right. You can see directly the benefits. We have heard a lot of talk about how this is going to be a huge expenditure. And if you look at national health care expenditures, in—let’s go back—in the year 2019, that is just 9 years from now— and this is taking Mr. Foster’s slide with the bill as enacted—you are talking about a 1 percent difference with the health care reform bill, 1 percent difference in the health care reform bill and getting 32 to 34 million more Americans covered. I think if you look at the remainder, we will be hearing from Mr. Foster, as you go into the outyears and begin to bend the cost curve if you implement this bill as enacted, you actually get to a point where national health expenditures as a result of passage and im- plementation of the new law actually will be less than if we had done nothing. So we look forward to the testimony of Mr. Foster and others as we go forward this morning. I conclude with this slide, which are the CBO numbers, which show the savings for the first 10 years and then the savings from a deficit perspective for the second 10. Thank you very much, Mr. Chairman. Chairman RYAN. Let me just say we have a difference of opinion on some of these things. I appreciate the gentleman’s remarks. I know they don’t want us to get into relitigating the health care law, but I think everybody would agree the debt problem is a health care problem, and we are going to have to relitigate that to get to a real solution, because we haven’t fixed the debt problem yet.