the amount of actual payroll taxes collected in 2017 was significantly lower than predicted in last year's report. a lot of what the story is in terms of the changes from last year to this year is really a revenue story i will get into a little bit more. you can see the expenditures were actually very close to what was projected in 2018.

it was within .4% up to eight% of what was projected. effectively it was a good year to be an actuary. if that really sets the foundation for how the programs are evaluated moving forward. this is the broader picture in terms of how the programs are financed. starting at the bottom with the payroll taxes the most stable and fairly significant portion of the overall financing. it is a growing portion of the financing as we move into the long run. and that's because some of that is not indexed.

that's really the hawaii funding. you could see that as a growing share. the general revenue in the large and growing share there is a provision in the law that requires that it exceeds 45 percent of total financing. that there is a finding of excess general revenues. that medicare funding as it is triggered this year. all that means is that the president in next year's budget admission is to submit

to congress within 15 days of that. it will address that situation. if you look at the top piece of the funding is at the deficit does look like it's part of the trust fund. we will talk about that a little bit as well. there needs to be a very different evaluation of the trust funds. the fact is that the part b and the accounts are financed in the determination of their financing rates. our done on an annual basis.

there is no long-term solvency issues. the fact that these are funded through general revenue transfers. and means that there is a large and growing burden on both the federal treasury so where our tax dollars go as well as from the beneficiary it is devoted to these programs. this is the ratio the balance of the funds. in the trust fund at the beginning of the year.

to the amount of expenditures for that year. the short range tests is that this should be over 100 percent. we been under that level for a number of years now. you could see this was down from zero. the trust fund would be depleted in 2026 this year. in the and that is three years earlier than last year. as i alluded to earlier. this is a revenue story the fact that i mentioned earlier payroll taxes. they were lower in 2017 that also feeds into some future projections and in that there are these lower ratios of payroll to gdp in the near future as a result there is less income coming into the trust funds.

therefore the completion date is shortened by about two years. there is a taxation on social security benefits. another important part of the income stream into the trust fund. decreased individual tax rates there is somewhat less income coming into the trust funds over the next roughly seven or so years. that has an effect on that revenue stream and that does have an effect on decreasing the time of the trust fund. on the expenditure side is certainly looking at the next ten years or so when you are

evaluating the completion date. there are some factors that increase expenditures over the next ten years. those are roughly offset the factors that lead to the increase in expenditures our things like higher medicare advantage payments as part of the repeal of the individual mandate there is expected to be somewhat additional higher on insureds and as a result of more uninsured individuals on the other side there is a slowdown in expected growth and inpatient utilization trends. it does offset most of those increases.

i think i walked through that. as well as some lower economic assumptions. taking a step back and not just looking the depletion date the slicks at the present value of future incomes. in some tracts of the present value of future costs.

the fact that they are projecting lower revenues in the future mean that the amount of income coming in is lower as well as the taxable pay roll. you can see there's not much of an effect on the income rate side there is an increase their again that is largely a revenue story that denominator is a little bit lower. there is some more upper pressure on expenditures and that's mostly attributable to the repeal of the ipads. it was in a constrained some of the future cost growth. in the repeal of that does have some pressure on the cost rate. this is the full picture about how this long-range picture changes we have a deficit of

.64% last year. it's of .64% last year. the fact that were taking out 2017. it just means that we are shifting of the relatively low cost year. you can see the largest effect is the estimate. and those are two pieces included in that. payroll taxes are lower in the projection. roughly .13 of this difference. that does explain the vast majority of the changes here. the other base estimate so we have slightly higher expenditures and hawaii for

2017. we build a into the projections. the private healthcare assumptions. some higher medicare advantage payments. other providers have slightly slower. the economic assumptions are little bit lower. so not as fast growth. this legislative change. the most significant piece here is the ipad removal.

kind of the big picture in terms of walking through how the balance has changed. this is a picture of the cost rate. the amount that is actually paid in 2026. the amount of revenue coming into the trust fund will still provide for a significant amount of an offense to be able to be paid. in 2026. the amount of income coming into the trust fund would actually be able to pay 91 percent of the benefits that are directed. that share of future income coming into the program

changes somewhat over time i think the important part to take a here is that the shortfall is not all of medicare or all of each eye. you can imagine many different ways that this could be addressed. you could either increase the rates so the .82% or alternatively you could reduce the projected cost by 17% and you would put the programs in financial balance. and a little bit surprising. you also change the

denominator by which they measure this on. and you can see that current law cost rate has increased somewhat like an largely because of the taxable payroll change. this is basically to demonstrate that long rate costs. the most applicable to hawaii are the productivity cuts that we alluded to. and he did a very nice job summarizing that. healthcare productivity historically has that experience.

when you look out over 75 years .7% each and every year as up to a lot. it will show that in a minute. on the physician side. it addresses the fact that the price updates for physician in every year in the future as specified. even if you were to take the higher amount of the .75 percent per year. that is still well below what we think general inflation is. it's much lower than what we think.

these are one and half% half% cuts each and every year. you look out over several years and added fairly quickly. it just presents a scenario and so the way it does that. as is a productivity transfers. we assumed it could be what the health sector. we transition to the medical economic index. the previous slide if you were to actually put that on under the alternative assumption. you could see the effect of .7 percent per year and adds up to a lot when you look at it over a number of years.

turning to smi part b there is not a huge story here. there is slight upward pressure. mostly due to the medicare advantage issue that i mentioned earlier as well as some legislation. they have somewhat upper pressure on the short range part b costs. there is a little more activity here. projection for 2018. more rebates coming into the program.

that's what they are negotiating for more rebates. it's not something we usually see in any health program. that was a significant cost driver for a number of years. that has actually reduced in 2017. there has been slowdown. looking at the change in the program from last year to this year. very close in the current your expenditure. in the longer-range it's still

down. it's largely because of the issues i mentioned earlier. as well as some of the upward pressure that were actually meant joining -- mentioning. and so looking at the full picture we are at 3.7 percent of gdp this is total medicare expenditures. looking out at the end of the projection.

it's still a significant growth relative to where we are today. this is looking at over the last several years of history. and you can see here that programs change. it has decreased it started at 77 percent. and drops down. there has been a number of years of reduced inpatient spending.

within the part a program. looking at part b. the payments had been declining over time. the story here is that it's more of a bright -- byproduct and be a more significant portion.

this one is pretty dramatic. most of the benefit was going to a direct subsidy. everyone that was part of a program was getting the benefit from. the larger share of the benefit. this is a byproduct of some very high cost drugs being used by the relative

beneficiaries. and has been utilized over time. again this is my fifth year here. visible by five. that is the biggest story of this year. it is substantially lower than what was projected just five years ago. this is mostly do to the less ambitious recovery than was originally anticipated. certainly not as strong in terms of wage growth.

when you translate that. there was a pretty direct relationship between those two. the amount of income. over the next several years. is significantly lower than what it was otherwise. other expenditures across the program. what is the best way for an actuary to be run. it was projected to be in 2026.

there are a lot of reasons. more than just the general shorthand that's probably unfair to take that shorthand but i will take it. looking at the other programs there is less dramatics happening in the part d with the projections that are relatively close the shocking part of this is that it is relatively close. in this time in 2013. it was expected to have a significant cut through. but all in the same. they have not material changed in the last five years. on part d you can see the trance here actually look back if you just stop at 2016. we seem to be accelerating to a much faster rate. that was really part of the hepatitis c expansion.

and the fact that we have now slowed down some. and the fact that there is this continued push towards generic utilization. we are still seen some very hot trends the fact that the vast majority and growing. in the generic space. has really controlled at the overall the overall drug cost. were actually much lower than we were many years a go. here is a place where we missed it.

and that has not gotten out. there is a very wide gap. there is a fair number of policy approaches that were adopted that can of helped push some of that up. and the ability to make plans to actually code. their underlying risk has certainly contributed to the ability for plans to not lose as much revenue as we originally anticipated. but the attractiveness of the program.

i think that is my slides. back to you. >> this is the trustees report. in particular five years ago the trustees at the time have considerable influence. at least they have discussion with people that know the numbers. the vast majority of the short reign such assumptions are in the office of the actuary. a good dialogue around those. they are set by the office of actuary almost exclusively. less pressure we are less

receptive to the pressure. very good. thank you very much. thank you for the invitation. i think this is a wonderful event. thank you very much for that presentation. the medicare trustees report is a treasure trove of great information for policymakers and analysts in the general public organ have a lot of issues to talk about in the time that is left to us but i would be remiss if i did not mention to process issues. number one is the timing of this report. by law the medicare trust fund report is supposed to be presented to congress on april 1. each year. this is a statutory requirement.

this is in fact what is supposed to be done. it is routinely late whether it is republican or democratic administration and as a problem. the problem is that either the timing of the report means that the team does not had enough time to do all the work to get done. or some other reason but nevertheless i think we have to have congress start to look into this. perhaps we have the trustee's report at the end of the fiscal year. the president and his team are looking at what could be done and incorporate the findings of the report. is just a suggestion. the second process issue is that this report this year signed only by trump administration officials this

is a problem. we do not had two public trustees. when the bipartisan national commission on social security social security reform issued the 1983 report adding two individuals from outside of the executive branch would be good public policy. and help to install confidence. we really need in the dependent folks outside of the trump administration to contribute to their assessment of the medicare program and the current situation is not good public policy. the president and the senate could really get on this. we cannot let this go for another year. with regard to the 2018 report. my comment on this is that i

don't think we are seeing here anything that would be a huge surprise with the trustees that determine the trust fund would become insolvent. it doesn't meet the short-term or long-term standards of financial adequacy. they been seen saying that for years. i don't think there is any surprise here. the congressional budget office said a couple years ago that 2026 was the year let there would be insolvency. this has been going on in year after year. in the media there is this unfortunate tendency to focus on the hawaii trust fund without looking at the bigger picture. i think there has been an unwarranted obsession.

medicare is going bankrupt. that is not a rational description of what is actually happening. it's not a realistic depiction of the financial dynamics of the system. it hasn't gone bankrupt in the last half century. i can't imagine that it will go bankrupt in the next half-century. what this means and i think it's an important point is that medicare has serious financial challenges. and congress is can have to come to grips with this. it's not something that's gonna go away. we've raised the payroll taxes about ten times. the other option is to resort to payment reductions basically. and medicare part a.

it's already baked into current law by the affordable care act. how congress can actually continue to do this. the language is pretty stark paul alluded to it. but the simulation suggests that approximately half of hospitals and over 80% of home health agencies would have total negative faculty margins raising the possibility of access and quality care issues from medicare and beneficiaries. it is asked accelerating once again.

joe pointed out that the fact that the acceleration of the spending is eating up larger and larger chunks of the growths for the domestic product. medicare will go from 3.7 to 5.9% of the gdp. whether you are talking about the alternative scenario or you are talking about the current law scenario. we are looking at a huge expansion of spending over the next to 1.4 trillion dollars is the biggest driver. it is where the subsidies federal spending led by medicare will grow larger.

federal spending amounts to about 20% of all noninterest health spending it will reach 40%. we mentioned the impact on debt they make a point that with their reliance on general tax dollars medicare and other major health programs organ have a substantial effect on the debt. that all sounds very rough. and suggest that they really had to get serious about this. but there is very good news here. if we are careful and deliberate. future debt is very sensitive to even the slightest changes in medicaid or per capita spending. we can make modest changes that have a and have a big

impact in this area as long as we do that. if we don't do that organ be faced with very serious problems on the road. middle-class entitlements are crowding out other budget priorities that is the biggest challenge. medicare is probably the biggest fiscal and managerial challenge. they love medicare. if you look at any survey you will get more than nine out of ten people that love that. most americans haven't got a real clue about exactly how medicare is financed and what the future projections really are and what actually means for them in the future that's so have the trusty report. the unfunded obligations are getting bigger and bigger. it released their unfunded

obligations over the 75 year time and that as the benefits and the promise that are not paid for and looking at both scenarios under the current scenario you're talking about 37.7 trillion dollars in under the alternative scenario you're talking about $47.3 trillion again folks i can have some very big bills to pay. i don't want to take up too much time but i would simply say this. public education is really critical here. people have to understand where the real trade-offs are as i said a lot of people love the program but they are not absolutely clear in their own minds about what this will actually mean. in terms of the impact of the current trends in both

taxpayers and beneficiaries alike. the trustee have given us a great resource here for further deliberations. i know what i would like to do. my preferences would be to simplify the program combined medicare and make wealthier retirees pay more for their benefits. and phase out the taxpayer subsidies for that while three -- wealthiest retirees. i think that would have a very good effect over the long-term. what i would do is take the success that we head with medicaid advantage and expand it to the entire program. i'm not any under any illusion

that any of this will be popular. i think the need for reform is as great as ever. this should be addressed urgently not later on. i found the road urgently. they are working together. it would be a good idea. they have done their job is time for congress in the white house to do their job and i will make an ironclad position. equally depressing. we can work it out. i would like to thank them for organizing this. i want to thank paul not only

for his presentation but as he noted for the hard work that he and his colleagues do. from my perspective i know how hard that businesses. it's a valuable public service. i'm going to try to make a couple of brief comments about the baseline i will try not to repeat the same things they artie said. i will cover for quick topics. the summary is no surprise here. same as last year just worse. when i first got into the budget business. what i think next year's budget looks like. and he said same as lasher except worse. what i would like to do is try

to widen the lens for a moment in talking about baselines the bad news headline for the hawaii trust fund. not much changes in part a and part d. the bad news is we as a country are on the brink of insolvency. as joe and bob and paul and have all echoed there are really consequences to delaying the freedom to align revenues and cost and get dramatically reduced as time passes. a couple of quick facts. picking up joe's point. i think it's well known that

there retiring 10,000 per day every day of the year. that is staggering. they reported that we have a trillion dollar deficit as far as the eye can see it is hovering around five percentage points of gdp which is close to unprecedented levels certainly on an ongoing basis and were in uncharted territory. we are projected to go into debt higher than what we were at the end of world war ii. that's really pretty staggering implications. what it's for line as a general fund which is in very serious deficit. to put two more points of doom and gloom and has been low by

historical standards. it could easily accelerate. that would have the sensitivity of the excess cost growth that it's enormously important. i think it's fair to say that the trustees report is on the optimistic side of the historic range. what is unsustainable can go on forever. but the question is when does it stop. we are can have demands for higher discretionary spending or for extending tax cuts. we are highly sensitive. to rising interest rates. the rhetorical question is when will the positive is this cycle and after nine years of

a positive business cycle. when will we have a recession and what does that mean. let me try to quickly touch on the four points. they artie highlighted on part d. the major change in the slideshow. at the start of the program in 201626 percent of the spending was projected to be for catastrophic. 90% of the script approximately covered by part d are generic they had been a really enormous change as paul noted the growth of the restricted number of drugs that are typically called high cost and now accounts for the bulk of spending. and that trend is i think continuing and might be accelerating.

the piece of recent legislation with affordable care act. it fell in the donut hole. it have pharmaceutical manufacturers paid half the cost. they are still responsible for 25 percent of the costs but health cost but health plans are picking up 70% health plans are now down to 25. i would just observe it would surprise me greatly if the amount of rebates they collect on that spending don't exceed the 5% liability. the other point i will just do this very quickly. the administration recently announced the blueprint on drugs. i would just give you my take away which is in second to do anything about the high cost of drugs.

let me quickly mention a couple of challenges for future service. reports i believe on the medicare line of invasion business the hospitals are losing theirs obviously distribution around this average. as the people get to that well have some interesting implications. we've already heard a lot about the question about that sustainability. the really important things that i won't spend any time on. some emerging policy issues. they still have the issue.

as well as other issues driving consolidations. we've already heard about the issues of macro and whether the limited updates where the fee for service i think one could seriously question the viability of either of those. would actually work and will they work for both providers. and medicare as well as the beneficiaries. if i can just kind of summarize what are the challenges for fee-for-service medicare what does the future look like. is it a brave new world where we have this miraculous emergence of alternative payments.

or does it look like the status quo where what we're doing is very much fee-for-service where we are rewarding volume. i want to briefly touch on something i think's evil spent a fair amount of time on. they had written an excellent report that i recommend everybody talks about ways to expand medicare i just want to make two quick points here. it's well known and that on that on average medicaid rates are weight below medicare rates. in commercial rates are well above that. just to illustrate the effects of the re- distribution of winners and losers.

imagine that you had two hospitals each of which the has 35 percent of their patients that are medicare. one is 50% commercial and 15% medicaid versus 15% medicaid. in that case if we were simply to move every buddy to pay medicare clearly in the hospital that had a heavy commercial presence with lose a lot of topline revenue it would lose that. the second point i want to make is that we have the political economy. the more people being paid at medicare rates.

it will be even more intense as we expand medicare and the look for deceives discussions about these points. the medicare advantage we are currently a little over 21 million and medicare enrollees. and the trustees projected that that will increase the 29 million at the end of ten years. i will do digress for a second. i would make sure that everybody understands the very elegant statement of actuarial opinion. the second paragraph is very chilling picture about the viability of current law.

there is some fire out there and you better be prepared. if you look at that footnote. where it 39.2 percent. of those beneficiaries with part a and part b. 39 percent of them are currently enrolled. we are almost two out of every five people currently. i would say we have a paper that was published in may. on health affairs and links to the white paper.

it looks like part d and i will not spend much time on it because of that wise it wise i will go over time. if we adopted the part to bidding structure and we also standardize the plans. two of which would be absolutely standard in seen her in the region. with the innovated benefits. we think that behavioral economics would go far to improving the consumer choice and make it easier for people to make smart decisions. thank you for inviting me to

the session. i'm not someone that scours the medicare trustees report every year. i will probably direct my comments less. and as you've heard. it builds on some of the the growth and medicare advantage. i don't want to start by saying that he explains a little bit. a lot of the moving up of the depletion date of the trust fund moving up three years. relating to payroll taxes it seems a little bit confusing.

it has not been as verbose as people thought it would be. when you look at the lower taxes on social security benefits some of the bump may be that they have this. with the mandate. payment models. it is sort of a little bit that is just something to be kept in mind.

if there was anything that would put the brakes on it for payments that is not there now. higher payroll taxes or payments. to keep it solve it. i think it is important and i think it's been alluded to and it talks about access issues to keep in mind and has to really take a broad look at this. i'm going to say a little bit more.

i produced payment. because the plans did not have the opportunity to provide extra benefits. cbo and the actuaries everyone. it was flat-out wrong. since payments were cut in the affordable care act the medicare advantage enrollment is growing. even though congress in the administration may not be taking efforts to really reform the medicare program radically the beneficiaries are doing that. in a lot of areas of the country the medicare advantage plans are being overpaid. there has been issues about risk adjustments leading to higher payments there is quality bonuses in the program

that may or may not be tied to research. suggesting that the higher quality plants are actually better for beneficiaries. one access point. that i think is very important to recognize is that private plans can come into the program and successfully compete with traditional medicare because as plans are using the prices that traditional medicare sets. they're not pain commercial payers hundred 98 percent of cost to hospitals for care those regulated prices for physicians and hospitals and other services that they can draw on. it allows them to compete with the traditional site of

medicare. this is seen that, my colleagues and i thought will, there may be something there and i understand there is some risk to medicare prices getting used broadly in the healthcare system and provider saying wait a minute. we can live with medicare prices . it's probably one of the reason that medicare for all that all people talk about that it may not be much of a nonstarter. it could be a very big shock to the system.

you can see it in both the programs. agency and the success of the affordable care act. the nongroup market is not going to be there. .. .. affordable care act to option for states. states right now it's a little hard to count given all the maneuvering around but about 17

or 18 states have not expand medicaid. marketplace enrollment has been lower in some areas. premiums have been high and rising. so premiums have definitely been an issue in medicare, in the affordable care act marketplaces. and there has been discretion both in the obama administration on how the law was implemented and that discretion is caring through into the trump administration, as to how much support there is for outreach, enrollment assistance. this is kind of where we're coming out with this paper that we wrote, there may be a time to be thinking about something broader than just fixing the affordable care act. so as they say, linda blumberg, john and i have presented what we're calling, because we didn't

think of a better brand name, a healthy america program, but were happy to have this program have another name, you know, if anyone would like, and it's really accompanied some form that would get closer to universal coverage. we think it would increase affordability and access to care, increase cost-containment while really limiting the disruption of a a medicare forl type approach, and not lead to huge increases in government spending. we built on aspects of the medicare advantage program and the affordable care act marketplaces. one of the things we did which i think for some people seems a little bit probably controversial is we would integrate medicaid acute care. so we would bring medicaid acute care and chip into the nongroup market so they would all, so current medicaid beneficiaries and people currently purchasing the nongroup market would all be

choosing from the same set of plans. we would not do anything to the employer market, even though i really understand all the problems with the tax exclusion of employer contributions to premiums, and i'm not a fan of them. we would leave that aside, untouched, and we would lead medicare as it is also. sorry, even though i know it needs reforms. the medicare caution structure could be modified but we didn't touch of that. we're not touching the va, tricare. so we are, the need health service and our idea is to develop sort of medicare advantage style marketplace with a public plan that would be fee-for-service, just like traditional medicare but also have private insurer options as you have in medicare advantage. we would camp medicare provider payment rates within that marketplace at medicare rates.

so both inside and out of networks, that's all that providers could receive. we would improve premium and cost-sharing assistance. so now there's a big concerned about, well, if you're not eligible for tax subsidies, over 400% of the of the poverty level, you were you are exposee really high premiums. we would go right at the income distribution as far as you want. no one would have to pay more than 8.5% of income towards premiums. we would probably keep the individual mandate, maybe restructure it a little bit. instead of having a tax penalty we would probably have it more as some of the expansion of the standard deduction would be at risk if you remained uninsured. you could then, if you became insured, recovered that the next year.

we're sort of not calling it an individual mandate, but i recognize the fact that it's an individual mandate in one form or another. we think it's less aggressive, this is an approach that is less aggressive and single-payer and made a little bit more politically feasible. we would have a very large marketplace. we've done some modeling of this. we would have 117 million people in the marketplace so insurers would see a large group of people and participate in the program. about 69 million would be form of medicaid, about 16 million newly insured. there would be some people coming from esi. we would allow people even if they have what's considered an affordable offer under the affordable care act to move in to the marketplace. it would not be a firewall, and continuing the nongroup coverage. we wouldn't get to universal coverage. we would still have about

18 million people remained uninsured, about 8 million of would be undocumented immigrants who would not be eligible for the program. financing, i'm open to a lot of details so want to leave time for questions but we would continue state maintenance of effort. we think federal costs would increase by about 98 billion. employers would save some money. households with save some money, and yes, the expansion of medicare rates, providers might lose a little bit. relative to the marketplace, the current marketplace rates, but that would be offset by increases in payment rates for all the medicaid people that would be going into the new plans. so i will stop there with, jenna, maybe a bright news building off the medicare program. >> that's extremely depressing, steve. [laughing] yeah, a little more politically feasible for some administration that is not currently in place.

>> it's a proposal. we willing to let it sit on the fine for a couple of years and ripen. >> it's kind of thing politicians do all the time. they sell the sizzle but there is no state. and in particular, i think the trustee's report and especially the alternative scenario illustrates the problem. if you can't make the current system work, the current set of price controls were, then throwing another 100 100 and pe into the system, it's not a little nick. it's a big nick. now, the question really boils down to kind of like wage and price control for physicians. that's what we're really talking about. a lot of the business comes from medicare beneficiaries, not surprisingly. medicare beneficiaries are at that age where they need more

services. and so really this kind of a proposal, which i agree with you to some extent that it's more thought out politically than most of the other medicare for all ideas, but nonetheless, you're talking about a very politically important, economically important, and in terms of health care, extremely important group of providers who basically would have to take a gigantic kit. now, the question always is, what's the right price? what should we be paying people for? i don't know with the entity that is. i think thomas aquinas couldn't answer that one either, but the fact is that you have to start from where you are. and where we are it's a different world than the world that it think you're suggesting.

>> i would just make one comment about provider payment. i think that providers would like to tell you, or like to convince payers, that the way they are structured in terms of the costs, expenses, or something that's immutable. and we know that's not immutable. providers can adapt to different payment rates and invective. this is something, there was a comet before that some of the productivity incentives, you know, not really likely to be reflecting the productivity gains that are possible. but i think of these productivity incentives i always see a sort of a nice way of saying, we putting pressure on providers to change the way they do business. that's in a sense what the medicare payment cuts are generally certainly going back, and have to admit i remember

when inpatient prospective payment came into place, i remember when it didn't have to be called inpatient but it was the only prospective payment system, providers changed radically. they move more care to outpatient services, reduced length of stay. so i think that the idea that the system can change. we know that when people look at comparisons between euros health care spending at international, spent in other countries, that the high prices in your system are at the heart of the high spending we're having. we are not willing to take that on. we're not going to solve a spending problem. >> would anyone else like a comet? >> the only thing that actually going to steve on -- >> surprise there was anything. >> it's a very, very rare moment. you mentioned one of the great

distortions of existing health care system, which is the federal tax treatment of health insurance, the exclusion. i've always felt that if henry aaron and stuart butler and jim cooper at it and all those guys could get together and agree to take that on we would actually be far ahead of where we are now. i remember talking with ryan to make the comet that the heritage proposal to establish a national tax credit system was, in fact, the most progressive agenda ever offered during that period of time, in the early '90s. the thing is that the power of organized opposition to this kind of a change has created an awful lot of problems to the point where we ended up with the

affordable care act, largely because people who lost their jobs, change jobs, did not have health insurance. they had to buy the health insurance with after-tax dollars on an individual market that was, in fact, not functioning. as you know from the economic literature, if you buy health insurance without tax relief on an individual market basis, you can be anywhere between 25-50% more for the same package of benefits that you would've gotten at the place of work. i believe that sometime at someplace somewhere -- sounds like westside story -- there's a place for us. that we will actually arrive at some kind of that agreement. i don't see that happening now and i certainly don't see the trump administration adopting anything even close to what you are imagining. >> we've said to many people, we don't see a congressional vote on the horizon.

>> i think this discussion illustrates in part the complexity of health care. i mean, jill, your observation that in incomes policy. steve, i don't know what the current estimate is but my guess is more than 70% of your spending is income, labor. and answer if you're cutting provider revenue, you're cutting peoples wages. i'm reminded of what a partner of mine when i was running health care, in of all places, arizona, a family practice doctor who started the first hmo in arizona said in fee-for-service, physicians are revenue centers. in capitation cost centers. that explains a lot of behaviors. we all agree economic incentives matter. joe, your point about having get the price right is extremely important. i think steve and his colleagues deserve enormous credit for a

very carefully thought thoughtt proposal, but it requires a whole lot of incremental improvements towards a second-best as an optimistic statement, and just to conclude, i remember running health care in san diego in the mid-'90s, which had the distinction of either the lowest per second lowest capitation rates in california, and the market had changed very dramatically in five years from being predominantly fee-for-service to predominantly capitated. and i do group of family practice doctors that i managed, and they were unhappy with their capitation, and physicians are very practical problem solvers. and most of them want to be at the head of the class. every friday afternoon the head of that group came into my claims shop and reviewed every single referral of a service that when outside of his group.

and i won't say they stinted on care but they scared hell out of my medical director in me. we have to be careful what we wish for, and to think, steve, as you acknowledged, the good news from a budgetary perspective is medicare rates are a lot lower than commercial rates, and also non-medicaid rates. how you get that roughly offsetting, or a savings, is an interesting question. you and your colleagues have done incredible work on that, but this is a very tough issue and he comes back to be careful what you wish for because if you don't have a price right, very clever people figure out how to come as with medicare advantage, game the system to their advantage. >> so many of the changes that could be considered are no doubt, and this is one, we all understand in this room that house. complicated. if you talk about ideas such as

defined contribution lets it go in the direction of premium support in medicare, the issues around risk adjustment that plagued medicare advantage will be even more important in that kind of a situation. but then traditional medicare would into being risk-adjusted. if you talk about raising the age of eligibility for medicare, then you have to think about what is the implications of that, assuming the aca states in place for the aca marketplaces. there's a lot of domino effects here that happen. >> we did a lot of price regulation. beginning in 1980s, you mentioned the prospective payment system. we about that. that was designed, , joe, you we there, in the reagan administration, we did that in the reagan administration. the idea was to introduce some kind of market discipline into hospital pricing. all the good intentions were there, to restrain the growth of

these prices. you'll recall that the carter administration was talking about hospital cost-containment, basically a comprehensive price control system for hospitals throughout the country. didn't go anywhere, but the point is when we did that one of the first big effects of that was a massive cost shift from inpatient outpatients. they pressed down the blue and we found ourselves with an explosion of outpatient costs. it was not surprising that throughout the rest of the 1980s, the actuaries at cms and the reagan administration conservatives were basically sweating blood over the question of what we're going to do about the explosion in part b costs, and we ended up creating this resource-based relative value scale that looks like a was imported out of east germany. we impose that on the system in 1989, and now a lot of folks are

looking back at that and saying, really the bloom has basically faded on that rose and went back to this whole idea of trying to redo physician payment again, and now we get something that looks like it's collapsing, which is the medicare payment program that was enacted by congress in 2015 to the point where the medicare advantage, medicare payment commission saying we should get rid of it. this whole idea that we're going to set the right price seems to me to be the problem. i don't think, frankly, we can all design the right price for all of these complex procedures, especially 8000 procedures for physicians. there is of course the market. we haven't had a market in a long time in health care. we may not get one. from my point of view we ought to do everything we can to intensify competition and create

a market but also establish some kind of a level playing field, which we do not have in the current health care system. >> very quickly because we have to go to the audience. >> my, would be a negative lessons from the gratian of effective payment system, which was what motivated it was anything but tephra. people want to avoid the cost report. billy recent i mentioned that is out of the crisis, a shortfall in the hi financial one, that may become an impetus for action. let me make a point that's a little less requires, , less knowledge of ancient history, which is that the kinds of policies that the generic medicare for all people talk about, and that your analysis addresses, rely on kind of the average price level.

i think no one can disagree that moving unnecessary admissions out of the hospital and having people go to the proper site of service, at the proper level of care, is a good thing. so having a shift from a to b in abstract is a good idea. how you do that is a problem, and i don't think that any of these general kinds of proposal have addressed that at all. at the same token, the trustee's report also has that same character. it's a very aggregate kind of an explanation. you not going to find the policy solutions are there. you're only going to find the scary thing that you already knew 20 years ago, that's not a bad thing, but there's a lot

more work to do in policy. so with that, can we have a question from the audience? peter first. wait for the microphone and please identify yourself. >> doctor peter mcmenamin, health economist and recently retired from the american nurses association. when i i was working for the nurses association and making projections about the effects of the affordable care act, i had an argument that two to 3 million people with age and to medicare for the rest of the century. i was challenged on that bike henry aaron. so i talked to former colleagues who are with the actuaries office. i got the projected age in numbers specifically. and he was right. i was wrong but my numbers were too low, not too high. we already are at 39 people aging in puryear and actually were not at 10,000 a day. that doesn't happen until 2019.

but for the boomer generation, the average is 10,000 a day. what happens, and the reason that there's a a projected slowdown in the rate of growth of the aged population, is that the boomers are going to die, and the deaths will catch up and overtake the a jeans towards the middle of the century. and because of the increase in deaths, the actuaries, i believe, have that figured in. but i don't think anyone has really contemplated what having more than double the number of deaths per year in this country, by 2088, will affect hospital operations, the market for funerals, that sort of thing. in the 2020s, because of the

increase in deaths, and assuming that one-third of deaths occur in hospitals, which is the historical average, the number of people dying in american hospitals per year is going to go back to more than a million per year. hasn't been this high since 1982. the hospital finances, i suspect, are going to be effective because all of these people will be in their last year of life. they will, many of them, in hospitals. my recollection is that it used to be 46% of hospital revenues came from cms. it could go to 60 or more. i suspect that will have an effect on them. so for doom and gloom, the average age of the medicare population, when we get to 2026, is still less than aed, but the

increase in deaths will accelerate after 126 -- less than 80. i think it will strip things whether the trust fund is invalid or not. >> certainly true. i think i detected some investment advice. >> by funeral homes? >> yeah. but more broadly, what you're saying is that the whole nature of the health care system is going to have to change. it's not just because there won't be enough bodies to fill the beds, it's because that isn't going to be essence the way to deliver health care and then. it probably isn't really sensibly to deliver health care now. >> this morning we talked about the fact they may not be dying in hospitals. they may be dying in nursing homes that medicare doesn't get

involved with. >> peter, i think we all have to worry about the explosion of hospital costs. as we all know health care is complicated and a lot of different things can happen. there is a general dissatisfaction in the united states with end-of-life care. if you look at the survey research i have, and you ask people what would you review, what would you prefer? people say i i would like to de at home. i would like to be sure i'm comfortable, that my family is around and i will have the opportunity to die at home, like our grandparents did routinely. instead, overwhelmingly, people are dying in hospitals, oftentimes in icu units and so on. there is, in medicare, the

hospice benefit, and that is a wonderful thing. i forget exactly what the number is, but it's a large number of people to take advantage of that. the good news is that more people are starting to die at home. i think as far as public policy is concerned, one thing we certainly can do in medicare is to encourage perhaps a new benefit, a palliative care benefit, not necessarily hospice but palliative care that would guarantee people an option to take it vantage of the services that are not an medicare part a and part b. the problem is it's very fragmented care. it's very disjointed. but it we created such a benefit would have the opportunity to develop different care delivery for these people who are the massive number of baby boomers who are going to be by the way very disappointed to find out that they, too, are going to

die. we could probably actually reduce costs toward the end of life. >> that's the critical thing. >> 25% of the total cost. >> adding a new benefit is a nest on the adjective much of anything unless there is a shift towards a more efficient -- >> because right now 25% of the total cost -- >> we've run out of time. >> i'm sorry. people have to stop now because of our other viewers outside the room. so please join me in taking the panel for an interesting discussion. [applause] [inaudible conversations]