National Committee to Preserve Social Security and Medicare 1 Alison Bonebrake Legislative Representative National Committee to Preserve Social Security and Medicare / The Privatization of Medicare 2008 Conference of the National Council on Aging & the American Society on Aging March 27, 2008

National Committee to Preserve Social Security and Medicare 2 THE MMA…PLANTING THE ROOTS OF PRIVATIZATION

National Committee to Preserve Social Security and Medicare 3 MEDICARE MODERNIZATION ACT On December 8, 2003 President Bush signed into law, “Medicare Prescription Drug, Improvement, and Modernization Act of 2003” (P.L ). The MMA contained key provisions designed to undermine and privatize Medicare.

National Committee to Preserve Social Security and Medicare 4 PROHIBITED MEDICARE FROM OFFERING PRESCRIPTION DRUG PLAN MMA allowed only private companies to offer drug benefit. MMA expressly prohibited Medicare from directly insuring seniors and providing a government-administered prescription drug plan. MMA contained “noninterference” provision prohibiting the Secretary of HHS from directly negotiating drug prices with drug manufacturers.

National Committee to Preserve Social Security and Medicare 5 PROBLEMS WITH PRIVATIZED DRUG BENEFIT  Privatization of prescription drug benefit resulted in an administratively inefficient, unnecessarily expensive, and overly complex program which fails to meet the needs of many seniors.  1,824 stand-alone PDPs offered in 2008 (17 national plans)  1,932 MA-PDs offered in 2008  Benefit structure varies by plan (premiums, co- pays, deductibles, coverage gap, & formulary)

National Committee to Preserve Social Security and Medicare 6 OFFERED EXCESSIVE SUBSIDIES TO INSURANCE PRIVATE PLANS Private plans first allowed to participate in Medicare because some believed they could provide better services at a lower cost; they were paid 5% less Over time subsidies grew & MMA increased subsidies even further Today, private plans are an average of 13% than it would cost to cover that same beneficiary under traditional Medicare

National Committee to Preserve Social Security and Medicare 7 PROBLEMS WITH SUBSIDIES TO PRIVATE PLANS Medicare pays $1,000 more per year to cover a beneficiary in a private plan. All Medicare beneficiaries, whether they enroll in a private plan or not, subsidize payments to private plans by paying higher Part B premiums. Subsidies expedite insolvency of HI trust fund by 2 years. Equalizing payments would save $50 billion over the next 5 years and $157 billion over the next 10 years.

National Committee to Preserve Social Security and Medicare 8 MEANS-TESTED PART B PREMIUMS Beginning in 2007, those with higher incomes pay larger a monthly Part B premium. In 2008, individuals making more than $82,000 & couples making more than $164,000 pay higher premiums Monthly means-tested Part B premiums range from $ to $238.40

National Committee to Preserve Social Security and Medicare 9 PROBLEMS WITH MEANS-TESTING Undermines social insurance nature of Medicare. Erodes public support for Medicare by those with higher incomes. Creates administrative complexities and confusion among beneficiaries. Could apply to more seniors over time. Could lead to means-testing of all social insurance programs.

National Committee to Preserve Social Security and Medicare 10 CREATED PRIVATIZATION DEMONSTRATION PROJECT MMA created “comparative cost adjustment demonstration project” beginning in 2010 Demo requires Medicare to compete with subsidized plans in up to 6 metropolitan areas The federal government will provide a fixed dollar amount per beneficiary, based on the average cost of government and private plans in region If beneficiaries enroll in a less expensive plan, they can pocket a portion of the savings. If beneficiaries enroll in a more expensive plan, they will pay out-of-pocket for any costs beyond their allocation.

National Committee to Preserve Social Security and Medicare 11 PROBLEMS WITH PRIVATIZATION DEMONSTRATION PROJECT Demo induces more beneficiaries to enroll in private plans. –Beneficiaries in traditional Medicare will have to pay higher premiums since it insures the sicker and higher cost beneficiaries. –Healthier beneficiaries will have a strong incentive to enroll in private Medicare Advantage plans. Demo produces sharp increases in Medicare premiums & beneficiaries will lose premium consistency.

National Committee to Preserve Social Security and Medicare 12 CREATED MEDICARE FUNDING CAP MMA created a trigger designed to limit the federal contribution to Medicare Action is triggered when the Medicare Trustees project in two consecutive annual reports that general revenues will finance at least 45% of Medicare's outlays over a 7-year window. The Trustees’ warning triggers Presidential action and expedited Congressional review Warning was first triggered with release of 2007 Trustees report & again in the 2008 report.

National Committee to Preserve Social Security and Medicare 13 PROBLEMS WITH MEDICARE FUNDING CAP Arbitrary measure of Medicare’s health Ignores Medicare’s financing structure; designed to rely on general revenues to finance about 75 percent of Parts B & D Limits the consideration of all solutions (increased revenues) to address problems facing Medicare

National Committee to Preserve Social Security and Medicare 14 MEDICARE LEGISLATION IN 110 TH CONGRESS

National Committee to Preserve Social Security and Medicare 15 CHAMP ACT (HR 3162) In July 2007, Chairman Dingell & Chairman Rangel introduced the Children’s Health and Medicare Protection Act (CHAMP Act) The CHAMP Act contains the following Medicare provisions: –Halts physician payment cuts for the next two years; –Eliminates excessive subsidies to Medicare Advantage plans; –Repeals the 2010 demonstration project designed to privatize Medicare;

National Committee to Preserve Social Security and Medicare 16 CHAMP ACT (HR 3162) CHAMP Act provisions, cont: –Repeals the arbitrary limit on general revenue funding of Medicare; –Improves benefits for low-income seniors; –Provides mental health parity in Medicare; –Offers new preventive benefits to Medicare beneficiaries; and –Prohibits seniors from being locked into their Part D drug plan

National Committee to Preserve Social Security and Medicare 17 STATUS OF THE CHAMP ACT The House passed the CHAMP Act on August 1, The Senate was making progress on CHAMP Act provisions last year until the White House veto threat over MA subsidies. Facing veto, Congress could only pass bare- bones bill (S.2499) which blocked physician payment cuts until 6/30/08. Negotiations continue for more comprehensive legislation.

National Committee to Preserve Social Security and Medicare 18 BUSH BUDGET PROPOSALS FOR MEDICARE

National Committee to Preserve Social Security and Medicare 19 BUSH FY 2009 BUDGET PROPOSALS FOR MEDICARE Proposes severe cuts to Medicare: –$178 billion over the next 5 years, –$556 billion over the next 10 years, –more than $10 trillion over the next 75 years. Proposes expansion of Medicare means- testing: –Removes the annual inflation adjustments to means-tested income thresholds, and –Proposes to means-test Part D premiums. Continues to dole out excessive and wasteful subsidies to Medicare Advantage plans.

National Committee to Preserve Social Security and Medicare 20 BUSH PROPOSALS ON MEDICARE FUNDING CAP Budget proposal: –Proposes automatic payment reductions of 0.4% per year to health care providers when the cap is breached. Legislative proposal: –Medicare Funding Warning Response Act of 2008 (S / H.R. 5480) –Proposes an expansion of means-testing in Medicare

National Committee to Preserve Social Security and Medicare 21 BUDGET RESOLUTIONS

National Committee to Preserve Social Security and Medicare 22 HOUSE BUDGET RESOLUTION: MEDICARE PROVISIONS Rejects Administration’s Medicare cuts. Contains reserve fund for Medicare improvements, such as: –increasing the physician reimbursement rate, while holding beneficiaries harmless; –providing greater access to preventive benefits; –enhancing assistance for low-income beneficiaries; and –promoting efficiencies in the Part D program. Includes a reconciliation instruction for the Committee on Ways and Means to produce a bill that would reduce mandatory spending (except Social Security) by $750 million over 6 years.

National Committee to Preserve Social Security and Medicare 23 SENATE BUDGET RESOLUTION: MEDICARE PROVISIONS Rejects Administration’s Medicare cuts. Contains reserve fund for Medicare improvements, similar to House resolution. Provides $1.325 billion in Medicare savings in 2013, allowing for legislation to delay the Medicare trigger. During floor debate, Sen. Ensign offered an amendment to means-test Part D premiums. It failed by a vote of

National Committee to Preserve Social Security and Medicare 24 TRUSTEES REPORT

National Committee to Preserve Social Security and Medicare 25 SOCIAL SECURITY TRUSTEES’ REPORT Social Security’s actuarial balance improved since last year. The OASDI trust fund now has a projected 75-year actuarial deficit equal to 1.7 percent of payroll compared with last year’s estimate of 1.95 percent. The Social Security trust fund will be solvent for another 33 years. Both the 2007 and 2008 reports project that the OASDI trust fund will be exhausted in At that time, payroll taxes are estimated to be sufficient to cover 78% percent of HI costs.

National Committee to Preserve Social Security and Medicare 26 SOCIAL SECURITY TRUSTEES’ REPORT The long-term financial shortfall for Social Security represents a small percent of the total U.S. economy. The trustees estimate that the OASDI trust fund has a shortfall over the next 75 years of $4.3 trillion ($0.4 trillion less than last year) against a total GDP of $797 trillion. (Social Security’s shortfall represents only 0.6 percent of GDP.)

National Committee to Preserve Social Security and Medicare 27 MEDICARE TRUSTEES’ REPORT Medicare’s actuarial balance remained about the same. The HI trust fund now has a projected 75-year actuarial deficit equal to 3.54 percent of payroll compared with last year’s estimate of 3.55 percent. The Medicare HI trust fund will be solvent for another 11 years. Both the 2007 and 2008 reports project that the HI trust fund will be exhausted in At that time, payroll taxes are estimated to be sufficient to cover 78% percent of HI costs.

National Committee to Preserve Social Security and Medicare 28 MEDICARE TRUSTEES’ REPORT The long-term financial shortfall for Medicare represents a small percent of the total U.S. economy. The trustees estimate that the HI trust fund has a shortfall over the next 75 years of $12.4 trillion, against a total GDP of $797 trillion. (Medicare’s shortfall represents only 1.6 percent of GDP.)

National Committee to Preserve Social Security and Medicare 29 ENTITLEMENT COMMISSIONS

National Committee to Preserve Social Security and Medicare 30 ENTITLEMENT COMMISSION LEGISLATION Identical legislation has been introduced in House & Senate (S & H.R. 3655) by Sens. Conrad & Gregg and Reps. Cooper & Wolf. Establishes a task force to review and make legislative recommendations regarding the long-term fiscal balance of the federal government, including Social Security and Medicare. The Task Force would be comprised of 16 members, evenly divided by the parties. The Task Force report would have to be approved by 12 of the 16 members by December 8, The legislation would be considered in a time-limited process with no amendments allowed.

National Committee to Preserve Social Security and Medicare 31 PROBLEMS WITH ENTITLEMENT COMMISSION LEGISLAITON The Task Force puts Social Security privatization back on the table The Task Force leaves the American people out of the discussion The Task Force would usurp jurisdiction over Social Security, Medicare, Medicaid and federal taxes The Task Force would cut Social Security, Medicare and Medicaid for budgetary purposes Social Security and Medicare are distinct programs and need to be addressed separately.

National Committee to Preserve Social Security and Medicare 32 THANK YOU!