Strengthening Health and Retirement Security: A Call To Action
House Budget Committee hearing with the Chief Actuaries of Medicare and Social Security
February 28, 2012
The House Budget Committee held a hearing today on the critical need to save and strengthen Medicare and Social Security. In revealing testimony, Richard Foster, Chief Actuary of the Centers for Medicare and Medicaid Services, and Stephen Goss, Chief Actuary of the Social Security Administration, provided policymakers with a clear warning on the painful consequences of inaction. For Medicare, Foster warned of restricted access to critical care if the President’s health care law is implemented as enacted with its heavy reliance on government-imposed price controls. For Social Security, Goss warned of sharp pain to disabled Americans and current seniors should policymakers fail to shore up the program’s fiscal imbalance.
While their forecast regarding the status quo was grim, both actuaries offered encouraging testimony on the merits of reform – testimony that pointed to a bipartisan path forward on these critical issues. Foster cited analysis and experience that speak to the great potential for reforms based on choice and competition to achieve higher quality and lower costs in Medicare. Similarly, Goss underscored the benefits of policymakers taking action today with gradual changes to shore up Social Security, which would avert painful disruptions for seniors.
Medicare’s Chief Actuary: Choice & Competition Have Successful History
HBC CHAIRMAN RYAN: As you may know, I’ve been working across the aisle with a member of the Oregon delegation from the Senate on a premium support plan that uses competitive bidding to help determine the contribution. Competitive bidding we’ve seen has worked well in Medicare Part D and Medicare Advantage. I’d like to get your thoughts on choice and competition as it relates to these previous successful reform plans. Given what we’ve seen in these aspects of Medicare, do you believe that competitive bidding is a process that can be successfully applied Medicare-wide?
CMS CHIEF ACTUARY FOSTER: Yes, I think it can. Obviously, it would represent a large change from the status quo, but I think it could work. We’ve seen the signs of this – you mentioned the Part D prescription drug program, for example, where the different drug plans compete against each other on the quality of their benefit package and the premium level. And we’ve seen – every year since Part D started – a migration of beneficiaries to more efficient plans with lower premiums. So that can help. We’ve also seen for durable medical equipment that competitive bidding, in this particular area of Fee-For-Service Medicare, reduced prices that we had to pay by 40 percent.
RYAN: By forty percent?
FOSTER: Forty percent, that’s right.
RYAN: Those are the kinds of cost savings we’re going to have to achieve if want to make good on the promise of the Medicare guarantee. This should not be a partisan issue. Competitive bidding is something Alice Rivlin has been a champion of, Ron Wyden has been talking about, the Bipartisan Policy Center, and more. There is a lot of data out there that competitive bidding when applied Medicare-wide can achieve the benefit of keeping these benefits going while attacking the root cause of cost growth.
Social Security Chief Actuary: 23 Percent Cut to Hit Current Seniors
HBC CHAIRMAN RYAN: If we do [nothing], then we have an across-the-board cut of about 23 percent that occurs in benefits. Is that correct?
SSA CHIEF ACTUARY GOSS: Exactly… The Commissioner standing at that time would simply have 77 cents available for every dollar of scheduled benefits, and would not be permitted to spend more than that. We do not have borrowing authority. So a decision would have to be made about who would get the money. We could have an across-the-board 23% cut immediately, or a Commissioner could say, ‘Well we’re not going to pay the March benefits in March. We’ll wait until April – wait until more revenues come in to allow full payment a month late.’ After a few months we would perhaps then have to start paying benefits two months late. So this would be a way that it could be handled. Of course, if people have to pay rent on time, that would be a difficulty. There’s no easy way out on this… We hope and pray that Congress would indeed act well before we ever hit the Trust Fund reserve exhaustion.
RYAN: Given that we have this abrupt 23% cut that occurs in law – current law – is it not wise so start reforming now, sooner, so that the distribution of the change is spread more broadly and evenly across income cohorts? Let me ask it this way: does that abrupt 23% cut hit current senior cohorts? A person who is turning 62, or 65 today – that affects them as well, correct?
GOSS: It certainly would. They would be at an older age at that time but clearly it would affect them. That is assuming that we wait and do absolutely nothing until that point.
RYAN: So if one provides reforms soon, could you not prevent these kinds of effects from hitting those current cohorts? Could you not phase reforms in gradually that prevent that 23% cut from happening so it doesn’t affect people who are currently in or near retirement? Could you structure reforms that prevent that from happening if you act sooner?
GOSS: Absolutely. We have a number of proposals – including yours Chairman Ryan – and many other proposals that would take exactly that approach. Our trustees and everybody who speaks on this has opined extensively about the value of acting sooner rather than later, so that we can have gradual changes phased in and we have more options if we act relatively soon.
Apparently, House Democrat Doesn’t Know Harry Reid or Nancy Pelosi
Congressman Earl Blumenauer (D-OR): “I don’t know anybody in Congress – and there [are] some kooky people around here – but I don’t know anybody that says: You know we’re going to be on automatic pilot, wait 20 or 30 years [before fixing Social Security]…”
The top Democrat in the U.S. Senate on the future of Social Security:
Senate Majority Leader Harry Reid (D-NV): "It's in great shape for many decades. Let's worry about Social Security when it's a problem. Today it is not a problem." (Oct 2011)
The top Democrat in the U.S. House in response to when she would put forward a plan to fix Social Security:
House Minority Leader Nancy Pelosi (D-CA): "Never. Is never good enough for you?" (Aug 2006)
To learn more:
Testimony from Richard Foster, Chief Actuary, Centers for Medicare and Medicaid Services
Testimony from Stephen Goss, Chief Actuary, Social Security Administration