the two kennedy men, and then he was led by police back through a ballroom and the hotel. some of the officers had to protect him from the crowd. there were several kennedy supporters, bystanders, who were close to hysteria at this point, and there was concern for the suspect's safety. >> watch "reel america" sunday at 4:00 p.m. eastern on american history tv on c-span3. >> c-span where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies, and today we continue to bring you unfiltered coverage of congress, the white house, the supreme court and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider. today the chief actuary for

the centers for medicare and medicaid services outlined the 2018 trustees' report and why medicare is projected to be insolvent in 2026. following his presentation, health policy experts talked about the report eats findings and recommendations to improve medicare's financial state. the american enterprise institute hosted this hour and 45-minute event. >> good morning. i want to welcome to today's discussion of the 2018 medicare trustees' report. the trustees' report was issued yesterday, and we're honored to have paul spitalnic, the chief actuary for medicare, to cut through the complications and

explain what -- what we all actually already know which is that medicare is in serious financial trouble in the long term and increasing lit long term is getting closer year by year. this year's report in many ways echos most of the reports that i remember reading over the last few decades. the message is -- has always been the same which is that at some point the program is going to face huge financial challenges unless policy-makers take action, and unless the health sector finds ways to deliver appropriate care more efficiently to patients. that, of course, that latter part is important not just for the medicare program, it's important for the healthcare sector so i think the trustees'

report does reflect an awful lot about what's good and what's not so good about what's happening in the health sector in general. interestingly the trustees who are in fact policy-makers say that taking action sooner rather than later will allow for more policy options and will give the system and the public more time to adjust to necessary changes. i'm not sure that's a message that every trustees' report has had, but it's certainly absolutely true, and would i hope that the policy-makers who made that statement would consider that over the next few years. the report and -- i would especially highlight an accompanying analysis of an illustrative scenario and i think illustrative in my mind means somewhat more realistic in terms of the assumptions that

are made. the -- both the report and the accompanying analysis bring into focus the dangers of what i call short-term policy-making. these are policies that congress adopts that produce savings in the near term but may not be sustainable over the longer term. in particular, the illustrative scenario points out that there are or addresses two particular policies that are problematic. in the first case, it has to do with physician payments. a legislation was passed several years ago to replace what was called the sustainable growth rate which threatened potentially 20%, 25% payment reductions, payment rate reductions to physicians through

the medicare program. replace that -- that threat with a new system, and the -- but the new system isn't exactly a bed of financial roses for most physicians. indeed, as the illustrative scenario report says, the kinds of payment updates, think of them as inflationary increases, we're talking about numbers that generally are below 1% a year. it's unreasonable to think that general inflation will be as low has 1% a year in the future, and, of course, we -- we all generally accept that healthcare inflation rises faster than general inflation so we're talking about a -- a policy that was put into place that looked good from a cbo scoring

perspective, but over the longer term it seems highly unlikely from a political circumstance now. this is not something that the trustees or actuaries are saying but from a political standpoint, it seems unlikely to me that politicians will be able to keep that kind of a schedule, even though it's in law. they will change it. they will buckle under the obvious and probably reasonable pressure coming from the physician community that they really can't live with such modest increases given their likely costs of operation rising much more quickly. the second -- the second policy, again, a short-term policy created by the affordable care act is something called productivity adjustments, and basically the idea sounds good only superficially. the idea is that the health sector should find ways to

become more productive. that part is correct. no question about that, but to generate scorable savings for the affordable care act, obviously you have to have some kind of a formula. kind of a formula. and essentially, the formula ties payments to productivity improvements in the general economy. and as is supplementary report points out, economy wide productivity generally has been measured to grow faster, much faster, than health care productivity. health sector productivity. now there's some measurement issue, but the numbers are kind of interesting. this year, economy wide productivity is estimated to increase about 1.1% a year over the long-term. in contrast, hospital productivity has increased

by .4% a year. and i guess the projection is essentially zero. over the long-term. and similarly, other services. at least measured productivity. this is a very difficult issue. but measured productivity. simply isn't rising nearly as rapidly as economy wide productivity. yet payments are going to be reduced because of that factor. now, the issue is less a measurement issue than it is a feasibility issue. is it possible for the health sector to find efficiencies that will satisfy this requirement and then secondarily, will we be able to detect evit even if the do? i have my doubts and the first and second. these are serious problems. not confined to medicare program. and it's something that

policymakers and health sector need to deal with in a serious way quickly. one other point that i found quite interesting numerically is the power of demographics. the trustees point out that in essence, that the baby boom generation has a lot of leverage in the medicare program. now is a baby boomer, well, i don't know how i feel about that. but it's a very large generation. obviously the boomers have been reaching age 65 for a few years now. and this massive demographic wave will enter the program, leave the labor market, enter the medicare program over the next 15 years. to me, an interesting statistic

is that the trustees project that total medicare costs will grow from 3.7% in 2017 to 5.8% of gdp by 2038 then increase gradually there after to about 6.2% of gdp by 2092. there may be other factor, but i see demography in there in a big way. and again, that is a sign of b trouble. that's a sign of oncoming fiscal distress. it is the freight train coming at us. fast enough and faster than policymakers tend to react. and faster than i think we often see in the health sector reacting to real changes in their circumstances. so a really serious problem. any way, with that, very positive note, let me introduce the panel.

and i sort of already introduced paul. chief actuary for the centers for medicare and medicaid services. he has joined us, how many years has it been? >> fifth year. >> fifth year. so, but we're not allowing you to take the fifth. okay, that was, i can't help it. okay. then the next speaker will be bob moffat, a senior fellow at the heritage foundation and long time expert. spent many years working on the medicare program and various aspects. spent a lot of time as hhs in the '80s. next speaker, steve lieberman. steve is a nonresident fellow with the usc brookings schaffer initiative for health policy.

in addition to that, steve runs his own consult sulting firm. before that, he was senior official at various important places. cbo. omb and bunch of other places in between. and then finally, steve zucker man, who is a senior fellow and vice president for health policy at the urban institute and steve promises to mix things up a little bit. so we're counting on good conversation. with that, if you could take it waway. >> thanks, joe. i'm going to walk through some slides this morning to provide an overview of the medicare report that was released yesterday. thyme the chief actuary at cms and it is my privilege to represent the 90 or so professionals at the office of the actuary that support the board of trustees and evaluating

the financial status of the medicare programs. so what i'm going to do is walk through a current snapshot and evolution of the program. going to walk you through the formal evaluation of the status of the programs that were inclooded in the trustee's reports that were released yesterday. we'll take a broader perspective in the changes of expenditure patterns. some of the panel members might expand on in their discussion as joe mentioned earlier, this is my fifth year as chief actuary. the cms in our role here. so being that it's a number devisable by five, i thought it was important to take a step back and reflect that important milestone and take a look to see h how the financial status of the program has changed.

it's a short period of time, but there are significant changes that go through, that are reflected each and every year and so just take a little bit of a step back and see how those, see how the programs have changed and the fairly recent past. i'd like to start with this slide because one of the important responsible theties of the tree's reports is to reflect the financial condition of the programs. that projection looks out 75 years. this slide to me highlights how challenge iing that prospect is. we do our best. the best economic assumptions to doing so. but if you were to stand in 1977 and try to look just how 40 years into the future, the likelihood that you would be able to project that eye certainly how that pie is

distributed, maybe you can get close on the total benefit. prz has evolved over a 40-year period. just to kind of take a step back, you can see that you know, 1977, the program was predominantly an inpatient program. it covered hospitalizations. as health care has evolved, in patient spending has deteriorated and been replaced by many other services. the greatest piece of this pie are payment to managed care organizations and b obviously, managed care organizations cover in patient services and so if you were going to distribute their costs across the different categories, they would like differently. but in terms of where the medicare dollars go, the distributions have changed significantly.

the one thing i'm sure of in the future, it will change xwen again in ways that we are uncertain of today so while these are the best forecasts that we can make sitting here today, and they should be useful for the policymakers to rely on and base their policy development on, one thing i am certain of is that the program, 1040, certainly 75 years from now, will evolve in ways that we can thot imagine today. >> this is what the program is. medicare is comprised of two trust funds. they are financed very differently. they provide different benefits. and they cover somewhat different populations. the hi trust funds, which is the

one that is commonly discussed at going broke at some point in the future. is financed via payroll taxes. it provides coverage for in patient hospital care, for skilled nursing. and some other services. but this is the one where there's the effectively the advanced funding. or the ability to build up trust fund assets. it's financed by 1.45% of taxable payroll, so employees and employers each contribute this 1.45%. in addition, high income earners contribute an additional .9%. in addition, finally, there are additional revenues that are deposited into the trust fund from a taxation of certain oasdi benefits, social security benefits. turning to the s and i of supplementary, that covers part b and part d.

part b provides basically none. the medical services are not provided under hi, so it plo vids physician service, outpatient services. health diagnostic labs and the like. part d provides prescription drug benefits to beneficiaries that choose to participate. the financing of these programs are very different than the hi trust funds. these are financed predominantly through general revenues and beneficiary premiums. these financing rates are set on an annual basis and so being that these rates are set on an annual bases, not the notion of a trust fund and balance. they are effectively annually set to be in financial balance. there's not the same concerns of having adequate reserves.

the smi programs. being they're so different, it's important to evaluate their financial conditions very differently. i'll walk you through that in a moment. we'll start with 2017 experience. so how did the projections of what would actually occur in 2017 compare to what was projected last year? on the income side, you could see there was for hi, there was significantly low er amount of payroll taxes that were collected. this was predominant ly through some of the asunlgss that our colleagues in the office of is chief actuary at social security being these programs are both financed on the taxable payroll. our colleagues in the office of chief actuary are the ones that project the payroll tax. payroll rates.

payroll taxes and the amounts of revenue that come into the various trust funds and as i understand, there are some significant revisions in how bureau of economic analysis evaluated some taxable pay relative to gdp in prior years, so the amount of actual payroll taxes collected in 2017 was significantly lower than what was projected in last year's report. you'll see this coming through in some of the projections. a lot of what the story is in terms of the changes with respect to the hi trust fund from last year to this year is really a revenue story. so i'll get into that more as we move forward. on the expenditure side, if you look at all the expenditures for the hi, smi, part b, part d, you could see the expenditures were

very close to what was projected. 2018. based on what we now estimate would happen in 2017. was within .4%, up to .8% of what was projected. effectively 2017 was a good year to be projection actuary. so that's sets the foundation for how the programs are evaluated moving forward. this is the broader picture of in terms of how the programs are financed. you can see that start iing fro the bottom, the tax on, the payroll taxes is the most stable and predictable. and fairly significant portion of the overall financing, you could see that that tax on social security benefits is a growing portion of the financing as you would move into the long run. and that's because some of the

flesh ho thresholds are not indexed at -- they're looking at the larger pieces up top. so that's the hi funding. together with the premiums. and the general revenue, which was predominantly the smi funding. that is a growing share. the general revenue, the fact that general revenues is a large and grow iing share, a provisio in the law that requires to the extent that general revenues exceeded 45% of total financing. that there is a medicare, there's a finding of excess general revenues. and to consecutive findings means there's a medicare funding warning, which sounds scary. that medicare funding is triggered this year, so there is a medicare funding warning in response to the 2018 report. all that means is that the president in next year's budget submission is to submit to congress within 15 days of that

budget submission proposals that will address that situation. and if you look at the top piece of the funding is this deficit. and deficit is that there is insufficient assets within part a, the hi trust fund and therefore, there's an act of the shortfall that is currently not funded on and not know how that will be funded. we'll talk about that as well. so when we evaluate the status as mentioned earlier, the fact that the programs are financed differently, means there needs to be a different evaluation of the trust funds. for hi are the assets plus projected income adequate to finance and participated income costs. on the smi side, the fact that the part b and part d accounts are financed, the determination of the financing rates are done on an annual bases. they're automatically on in

financial balance. there's no long-term solvency issues, but the fact these are funded through general revenue transfers largely and through beneficiary premium rates means there's a large and growing burdens on both the federal treasury, so where our tax dollars go as well as from the beneficiary perspective, larger andi growing share of retiremen income is devoted to these programs. so this tepnds to be b the slid and information that gets the most attention from these reports. you can see that this is the ratio of the balance of the funds so it looks at the balance that's in the in the trust fund at the beginning of the year as of ratio to the amount of

expenditures for that year. the short range test is that this ratio should be over 100%. as you can see, we've been under that level for a number of years now. as importantly, you can see this ratio goes down to zero. it is expected that the trust fund would be depleted in 2026 this year. and that is three years earlier than last year. as i alieued to earlier, this is predominantly a revenue story. the fact as i mentioned earlier, payroll taxes, the amount of revenue coming into the trust funds were lower in 2017. that also feeds into some future projections in that there are these lower ratios of payroll to gdp in the near future. as a result, there's less income coming into the trust funds and therefore, the depletion date is

shorten eed by about two years. in addition, mentioned that there is the taxation on social security benefits that is another part of the income stream into the trust fund. the tax cuts and jobs act of 2017 decreased individual tax rates and as a result, there is somewhat less income coming into the trust funds over the next roughly seven or so years. making the trust fund depletion a year earlier. op on the expenditure side looking at the next ten years or so when the, in e vavaluating t

depletion date, some factors increase and some decrease expenditures over the next ten years. those roughly off set the some factors relateded to the increase in expenditured are things like higher medicare advantage payments. projected medicare payments. there are the as part of the repeal of the individual mandate, there's expected to be higher uninsured and as a result, there's going to be higher care payments to hospitals. through the hi program. on the other side, there is a slowdown in the expected growth in in patient utilization trends. which does off set most of those increases. oh. i think i walked through that.

so predominantly lower income, i think i hit all that. slightly higher expenditures. got all that. and on the factors leading to, we provide growth with lower a asumtss. there's a price effect there as well. taking a step back, not just look at the depletion date, there's this notion of the 75-year balance. this looks at the present value of future income. and some tracks out. this is all equated and put on to taxable payroll. denominator, so it's the fact that taxable payroll comes down in most years does not have an effect on the income rate. it could certainly have an effect on the cost rate. the fact we're projecting lower revenues in the future means

that both the amount of income coming in is lower as well as the taxable payroll base is lower. so those those two things roughly off set. not much of an effect on the income side. on the cost side, there's an increase there. that's largely a revenue story. so we are getting less income so effectively, that denominator is a little lower. there are in the longer range, there are some more pressures on expenditures and that's attributable to the independent payment advisory board was going to restrain some future cost growth and repeal of that does have some upward pressure on the cost rate. here's a full picture of how the long range picture krachanges,

we had a deficit of .64% last year. it's now .82%. the different pieces presented here. the fact we're taking out 2017 putting in 2092. just means that we are shifting the period with a more high cost year. so just shifting the period has an effect. you can see that the largest effect is this base estimate. the largest is the revenue effect. so the fact payroll taxes are lower in the projection period, that's roughly .13. of this difference. really does explain the vast majority of the changes here. the other base estimate, we had

slightly higher for 2017, so we built that into projuxs that has somewhat higher pressure there. the private, there are some higher medicare advantage payments in this year's projection. that's put in there. slower growth rates, other economic assumptions. this changes the most significant piece here. it's also a factor in this legislative effect.

that's the big picture in walks through how the h.i. balance has changed from last year. this is the picture of the cost rate to the income rate. you can see again so we, the cost rates are the amount that's paid is the same as the cost rate up until 2016 when the trust fund becomes depleted, the amount of revenue coming into the trust fund will still provide for a significant amount of benefits to be able to be paid. when the trust fund goes broke, it doesn't shut down and there's no able toy provide any services at this point. in 2026 t amount of income coming into would be able to pay 91% of the benefits that are projected and you can see that that share of future income, that's coming into the program, changes over time in 2042, drops

down to 78%. in 2092, it's up to 85%. the important part here is the shortfall is not all of medicare. or all of h.i. shuts down. it's that there's this gap between what's coming in and what needs to be b paid out. so you could imagine many different ways that this could be addressed. you can either increase the income rates by that deficit so that the .82% or alternatively, you can actually reduce projected costs by 17% and you would put the program in financial bounds. you could see how these things changed from last year. and a little bit surprising as i mentioned before, when you change the taxable payroll, you have less income coming in, but you're changing the denominator by which we measure this on, so

there's not much of a change on the current income rate and the rate has increased somewhat. again largely because of the payroll tax that the taxable payroll change. but also because some of the expenditures are projected to be higher. as joe alluded to, there's a projection. this is that basically, to demonstrate that long range costs could be higher if certain costs reduction measures prove problematic. the one that's most applicable for h.i. are the productivities joe alluded to. he did a very nice job summarizes that we think in the long range. economy wide productivity would increase that roughly 1.1% where as we think health care productivity historically could improvely .4% annually. that gap of .7% is not very big

in any particular year. but when you look out over 75 years, .7% each and every year add us up to a lot. we'll show that in a minute. on the physician side, i know we haven't talked about physicians yet, but the alternative also addresses the fact that price updates for physician in every year in the future is specified. even if you were to take the higher amount of the .75% per ewe off of those participating in alternative payment models, that's still well below what we think general inflation is. it's much lower than what we think physician cost increase every year. so where as we don't have an sgr problem like we had a few years ago where there would be a one-year 25% cut, these are

again one, 1.5% cuts each and every year. and we look out over several years, those add up fairly quickly. and so the alternative just presents a scenario to demonstrate what the potential understatement is. and so the way it does that, the productivity transfers from instead of economy wide productivity to productivity we assume could be sustain bable within the health sector and the physicians update a transition to the economic index, which is a fair measure of what we think is a fair measure of what office would be. and here you can see that previous slide, if you were to have a trend to put online for what the cost rate would be. you could see the 1.75 adds up

to a lot over a number of years. turning to smi part b, there's not a huge story here. we are very close to the projections. the report is close to what they were in last week's report. slight upward pressure mostly due to the medicare advantage. the issue i mentioned earlier, as well as some legislation. things like caps have somewhat upward pressure on the short range part b costs. and long range. part d, there's more activity here. you can see here, the projections from 2018 are much lower than they were in the short range. for the prescription drug program than what was projected last year. this is largely due to more rebates coming into the program. that basically part d plans

reviewing are negotiating more rebates from manufacturers. as well as a decline, it's not something we usually see in any health program. a decrease in expenditures for a major source of expenditures. a decline in the spending for hepatitis c drugs. that was a significant cost driver. similarly, there's been a slow down in some diabetes drugs that has contributed to this slowdown in the short range. looking at the clang from last year to this year, you can see this year's report very close in the current year's expenditures. you can see these a little bit up. d is a little bit down. in the longer range, b is still

county. largely because of the issues that i mentioned earlier. b is up. and again, that's where we have the ipab effect in there as well as some of the upward pressures i mentioned in short range that does carry forward into the long range. and so looking at the full picture, we are at 3.7% of gdp. this is total medicare expenditures. percentage of gdp. in 2017, we are at 3.7%. looking out at the end of the projection period, it jumps up to 6.2% under current law. and importantly, the alternative. so would grow to 8.9% under current law. excuse me, under the alternative. even if there wasn't the alternative as being problem bmatic, under the current law,

the 6.2% is still growth compare today where we are today. going to walk through these very quickly. this is looking at over the last several years of history and years into the future to see, it's kind of the smaller subset of the changes in the program that i started with. you can see the programs change even over a short period of time. this is the share of different services into the part a program. over time. the share that was attributable to in patient spending has decreased fairly rapidly in a relatively short period of time. 77%, drops down to -- and there has been a number of years of reduced in patient spending.

within the part a program. that's controlled with the in patient setting. it's projected to continue in the future. then on the topside, you can see some of the other programs are just making up more of a share. that's really, this is really more of an in patient story than anything else. looking at part b, you could see that the physicianclining over share of part b. but the story here is that it's more a, a by-product of out patient becoming a more significant portion of the part b benefit and is really a flip side of the in patient story. so the fact that more services that might have been previously been done in in patient and now outpatient is having different effects across the medicare program. the last one looking at the change of the benefit structure,

of the distribution of benefits over time, this one is pretty dramatic. the part d benefit started out for a number of years was a broad-based benefit. that's most of the benefit was going to a direct subsidy, which means that basically, everyone that was part of the program was getting a benefit from. to the extent that the distribution has shifted into where most of the benefit is now catastrophic in nature, a larger share of the part d benefit p t payments are going towards -- the effects of this. in terms of how this program is. this is a bipartisan -- high cost drugs.

shifted away the part d benefit. because again this is my fifth year here, so devise bab bable five. how have the projections changed over time? and starting with the taxable payroll, really, that news is the biggest story this year. you can see that from 2013 through the end of this period, the amount of taxable payroll that's being produced was projected. this is mostly due to the less ambitious recovery than what was anticipated. it's been going strong, but has not shown up as strong as was projected. certainly not as strong in terms of wage growth.

and when you translate that into h.i. income growth, there's a pretty direct relationship between those two. so you can see that the amount of income coming into the h.i. trust fund over the next several years certainly from where it was protected in 2013 is lower than what it was otherwise. at the same time, the amount of spending in the program was also lower than anticipated. it was a number of years of historic low growth in in patients. other expenditures across the program. and so this has led to reductions in expenditure growth. so what's the best way for an actuary to be involved? wrong on the income and expenditures because that gets you to roughly the same place as we started. so five years ago, the depletion date was 2016 and we're still in 2026. there are lots of reasons.

more than just the general shorthand and it's probably unfair to take that shorthand, but i'll take it. looking at the other programs, there's less dramatics happening in the part b and part b, projections are relatively close. the shocking part of this is that it is relatively close. in this time in 2013, we had the sgr program. expecting to have a significant cut for physician payments. replaced that with a different program. but all of the same, the projections have not materially changed in the last five years. on part d, you could see that a the trends, if you look back, if you just stop at say 2016 and say, oh, we seem to be accelerating at a much faster rate. that was really part of the hepatitis c expansion.

and the fact that we have now slowed down some. significantly on the hepatitis c and the fact there's this push towards generic utilization and slow down in some of the lower costs. while we were still seeing high trends and high costs, the fact that of drug uses in the generic space has really controlled the overall drug costs. the last slide i have is i took on fair credit earlier. here is a place where we missed it. we looked at, this was in 2013. a projection of private health plan enrollment. we assumed that the payment reductions to a benchmarks that

were being implemented as part of the affordable care act would significantly temper the acceleration of medicare advantage enrollment. and that has not pulled out. there's a very wide gap between what we were projects just five years ago into what we are currently projecting. there's a fair number of policy approaches that were adopted this that kind of helps push some of that up. and the ability for any plans to we'll say accurately code or cu xh exuberantly code. have atrinlted to plans to not lose as much revenue as we originally anticipated, but just the attractiveness of the program continues to be strong. and i think some of the panel

members might follow up on that conversation. i think that's my slide. come back to you. >> the last slide versus the trustees report, this is not paul's report and so in particular, five years ago the trustees at the time has considerable influence. they don't necessarily think the exception. they have considerable influence over the asenlgss made. >> they're developed in the office of the actuary and we'll see good dialogue around some of those, but those are set by the office of the actuary exclusively.

there might be more pressure, but we are reactive to the pressure. >> very good, i feel much better about that. >> this was a wonderful event. thank you for the presentation. the medicare trustee's report is a treasure-trove of great mag for policymaker, policy analysts and general public. we're going to have a will the of issues to talk about in the time that's left to us, but i would be reif i did not mention two process issues. number one is the timing of this report. by law, the report is supposed to be presented to congress first. each year. this is statutory requirement. this is what's supposed to be

done. it is routinely late. whether republican or democratic administration and that is a problem. the problem is that either the times of the report means that the, the team does not have enough time to do all of the work and the work enormous, to get done or some other reason, but never the less, i think we have to have congress start to look into this. my own suggestion would be that perhaps we have the trustee's report at the end of the fiscal year beginning in october then the president, his team, can start to look at what could be done. and incorporate the -- that's just a suggestion. the second process issue is that this report this year assigned by trump administration officials. this is a problem.

the fact is we do not have two public trustees. when the bipartisan national commissional society on social security reform issued its report, they report that adding two individuals from outside the executive branch would be good public policy and help to instill confidence and the integrity of the trust fund. so we really mean folks outside of the trump administration. it's not good public policy. that means that the president and senate should really get on this. my comment on this is that i

don't think we're seeing here anything that would be a huge surprise. the trustees determined that the trust fund would become insolvent in 2026, three years earlier than last year. and that it doesn't meet the short-term or the long-term standards of financial adequacy. well, in fact the trustees have been saying that for years. and i don't think there's any surprise here. by the way, the congressional budget office said a couple of years ago, 2026 was the year that there would be insolvency in the trust fund. this has been going on from year to year. there's an unfortunate tendency to focus on the h.i. trust fund. without looking at the bigger picture. i think there's been an unwarranted obsession on this in the media. politicians and pundits use the term, scary language.

medicare is going bankrupt or the trust fund is going bru bankrupt. the financial dynamics, not a realistic depiction of the financial dynamics of f the system. the h.i. trust fund hasn't gone bru bruft bankrupt in the last half century and i can't imagine it will go in the mex half century. what this means is that and i think it's an important point, is that medicare has serious challenges. it's better to address them sooner rather than later. this is not something that's going to go away. historically, congress has addressed this. since 1966, we've raised the payroll taxes about ten times. the other option is to resort to payment reductions basically. in medicare, part a.

by concern b about this is that after the scheduled payment reductions that are already baked into current law by the affordable care act, my understanding, it's about 800 billion over the next ten years. how congress can continue to do this. in fact, if you look at the trustee's appendix, the language is pretty stark. paul alluded to it, but it says by quote, by 2040, simulations suggest that approximately half of hospitals roughly two-thirds of skilled nursing facilities and over 80% of f home health agencies would have total negative facility margins, raising the possibility of access and quality of care issue frs medicare beneficiariebenefi. medicare spending is expanding again. so the solvency is one aspect.

joe pointed out it's eating up lar larger and larger chunks of the gross domestic products and medicare will go to 3.9% of the gdp. and so whether you're talking about the alternative snare joe owe or the current law scenario, which the trustees have outlined for us, we're looking at a huge expansion of spending. cbo says that over the next ten year, spending will go from well over 700 billi$700 billion to 1 trillion. it is the biggest, medicare is the biggest driver of health care spending. medicaid, the subsidy, c.h.i.p. and if current law remains, it

will -- spending amounts to about 28% of f all noninterest health spending by 2047, t going to reach 40% of all health spending. we mentioneded the impact on debt. they make the point that with their dollars and federal deficit spending, medicare and other programs are going to have a substantial effect on the debt. that all sounds very rough and you know, suggests congress and the president really have to get serious about this, but there is very good news here. if we are careful and distribute. future debt as the medicare commission tells us is very sensitive to even the slightest changes in medicare and medicaid per capita spending. we can make modest changes and have a big impact in this area

as well as we do that. but the problem is if we don't do that, we are going b to be faced with very serious problems down the road. middle class entitlements are crowding out other budget priorities. that's our biggest challenge. medicare is probably the biggest challenge. this is going to be very, very tough because middle class entitlements wi are the most popular. americans love medicare. if you look at any survey, you'll get more than nine out of ten people say they love it, but the surveys show if you probe deeper, most americans haven't got a clue about how medicare is financeded. what it covers, what it doesn't cover and what the future projeks really are and what it means for them. in the future. that's why we have these trustees reports. the unfunded obligations in the program are getting bigger and bigger. the medicare actuary released

their unfunded obligations over the 75-year period. that's the benefits that are promised that are not paid for and looking at the both scenarios under the current scenario, you're talk about $37.7 trillion. and under the alternative scenario, you're talking about $47.3 trillion. no matter how you cut it, young folks are going to have some very, very big bills to pay. i would just simply say this. the public is really critical. people have to understand what 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 mean. in terms of the impact of the current trends on both taxpayers

and beneficiaries alike. the trustees have given us a great as i say, a great resource here. i know what i would like to do. my preferences would be to simplify the problem, combine medicare parts a and b, add a catastrophic benefit. make wealthier retirees pay more for their benefits and perhaps phase out the taxpayer subsidies for the wealthiest retirees. raise the age of eligibility and change the economic incentives that plague this this program. what i would do is take the success that we've had with medicaid advantage and define contribution and expand it to the entire program. i'm not under any kind of illusion that this is going to be popular, but i think that's

where we've got to go. the need is greater than ever. it should be addressed urgently, not later on, not down the road. urgently by members of congress and the administration working together. that would be a good idea. i'll make a prediction that in 2018, nothing will happen. >> thank you. >> more spirited. >> we can work it out. >> thaupg. i'd like to think the ai for organizing and joe for having me participate.

it's noted for the hard work he and his colleagues do. i know hard that business is and really an invalue bable public service. in my ten minutes, i'm going to make a couple of quick comments about the baseline, which after joe and paul and bob, i h try not to repeat the sage things they've already said then i'll cover four quick topics. tink summary of the situation is no surprise here saying this last year, just worse. modestly. when i first got in the budget business, i asked somebody who had 38 years, what do you think next year's budget looks like. he said same as last year, except worse. seems to be b a recuring theme here. what i'd like to do is is try to

widen the lens for a moment in talking about baselines. and if the good, if the bad new s headline as paul said is that the republicans he explained, insolvency date is three years faster, but not much change in part b and part d. but on the good news they don't go insolvent. we as a country are on the brink of insolvency. just to and as joe and bob and paul have echoed, there are consequences to delay. dedegree degrees of freedom to come up with radical policy distributions and costs. couple of quick facts to just give lime to the lens.

per day, every day of the year. that is staggering. cbo reported that we have trillion dollar deficits. it's hovering under 5 percentage points of gdp, which is close to unprecedented levels, certainly on an ongoing bases and we are in uncharted territory is where debt as a share of gdp will exceed 100%. we are projected to go into debt higher than what we were at the end of world war ii. that has really pretty staggering implications. so if the smi trust fund can't go broke, what it's relying on is a general fund which is in very serious deficit. put two more points of doom and dwloom to keep the theme of the

panel, health care cost growth has been low by historical standards. it could easily accelerate and there are observers who believe it is. that would have as paul said, the sensitivity of this excess growth is enormously important. that's on the optimistic side of the range. that's part of what goes on forever. the other point just to make some fiscal point ss that the threats are we're going to have demands for higher discretionary spending. either of those have deleterious implications for the budget. we're highly sense thetiitive tg interest rates. i guess the rhetorical question is when will the positive business cycle end after nine year of f a positive business

cycle, when we will have are a recession and what does that mean for the fiscal outlook? with that, let me touch on four points. the first, paul has already highlighted on part d. the major compositional change in as paul said and his slide showed, at the start of the program in 2006, 26% of the spending, it's now 73%. 90% of strips approximately, nine out of every ten prescriptions covered by part d are generic, which has been an enormous change. as paul noted t growth of a restricted number of drugs now accounts for the bulk of spending and that trend is i think continuing and maybe

accelerating. and a piece of relation, the affordable care act fill nd the donut hole for brand drugs. it had pharmaceutical companies playing half f the cost, ben fa fish yars paying a quarter. beneficiaries are still responsible for the 10% of the cost, but health plans are picking up 70% and health, sorry, pharma companies are picking up 70%. health plans are down from 25 to 5% and i would just observe that it would surprise me greatly if the amount of rebates they collect on that spending don't exceed their 5% liability. that is an interesting i implications for how program evolves. the other point, i'll do this quickly. the administration recently announced its blueprint on drugs. in the interest of time, i won't bother going through the details. i'll just give you my take away. it's not going to go anything

about the high cost of drugs. the, let me quickly mention a couple of challenges for fees for service. bob mentioned med pack. they report i believe that on the the medicare line of in-patient business, the hospitals are losing -- and there's obviously distribution around this average -- but are losing almost 10%, 9.6% is the negative margin. as steve will get to, that has some interesting implications, if one wanted to expand the number of people covered under medicare. we've heard a lot about the question about the sustainability of the ongoing productivity cuts and the implications for access and quality. those are really important things and i won't spend any time other than to underscore my agreement. some emerging policy issues, or ongoing policy issues are, medicare still has a significant sight of service differential

issue, which has the effects of driving independent physicians into hospitals. and as well as other issues driving consolidation. we've heard about the issues with macra and whether the limited updates or the fee for service, what's called the mips program, whether that's viable. once can seriously question of viability of either of those. and then the big question is, will alternative payment methods or apms actually work and will they work for both providers and medicare, as well as for beneficiaries. if i could just kinda sum vimar the challenges for fee for service medicare, it's, what does the future look like? is it this brave new world, where we have this miraculous emergence of alternative payment methods and bundle payments and value-based payment?

or does it look like the status quo, where what we're doing is very much fee for service, where we're rewarding volume? i want to briefly touch on something i think steve zuckerman will spend time on, he and his colleagues have written an excellent report that i would commend everybody on, that talks about ways to expand medicare. i just want to make two quick points here. one is, it's well known that on average medicaid rates are way below medicare rates for hospitals, and that -- i'll just stay with hospitals, keep this simple, and that commercial rates are well above medicare. so just to illustrate the effects of redistribution and winners and losers, if we expand the number of people who are covered by -- whose payment rates are dictated by medicare, imagine that you have two

hospitals, each of which has 35% of their patients are medicare, but for the remaining 65%, they're mirror image opposites, one is 50% commercial and 15 mercedes medicaid, versus 50% medicaid and 15% commercial. in this case, if we were to simply move everybody to pay medicare and make it very simplified, clearly the hospital that had a heavy commercial presence would lose a lot of top-line revenue, and the hospital that had a very heavy medicaid presence would gain a lot of revenue. the second point i want to make is about political economy in cbo speak. the more people are being paid at medicare rates, the greater the incentives are for special interests to affect those rates. and so the lobbying and so on,

will become even more intense as we expand medicare and i look forward to steve's discussion about these points. last thing i want to do, i want to conclude by talking about medicare advantage, which as paul in a slide showed, we're currently at a little over 21 million medicare enrollees who are in medicare advantage, and that's almost 36% of all beneficiaries in 2018. and the trustees projected that will increase the 29 million in 2027. at the end of ten years, that's almost 39% of beneficiaries. again, showing why it's important to read the footnotes and the report, i'm going to digress for a second. i would recommend that everybody take a look at page 254 of the trustees report, which is paul's elegant statement of actuarial opinion, and the second paragraph is adroitly worded, but very chilling picture about the viability of current law.

it's not quite -- it's very politely saying, there's some fire out there, and you better be prepared. getting back to this, if you look at the footnote, it turns out that we're at 39.2% of those beneficiaries who have full medicare, that is, beneficiaries with part a and part b. 39% of them are currently enrolled, not 36%. so details matter, and i commend the trustee paul for being very clear about this. but we're at almost 2 out of every 5 people who are insured currently. i will stop by saying, we have a paper published may 10th, on health affairs and links to a white paper at brookings, where there's a lot more detail and analysis on ways to reform

medicare advantage and to make the rate-setting process look like part d, and i will not spend much time on that, because otherwise i'll go over time. but we estimate that if we adopted -- two things -- the part d-like bidding structure, and we also standardized plans we propose to have restricted medicare advantage organizations to three offerings, two of which would be absolutely standard in a region. the third of which would permit innovation, or innovative benefits, that we think the behavioral economics literature suggests that that would go far to improving consumer choice and make it easier for people to make smart decisions. our estimate is that on a steady state basis that will save about $10 billion. with that, thank you, and i look forward to your discussion. >> thank you. thank you for inviting me to this session. as joe knows, when joe knew when

he called me up, i'm not necessarily someone that scours the medicare trustees report every year, so this was a unique opportunity for me. and i'm going to direct my comments less towards the report, and towards an idea that my colleagues, blumberg and hannahan and i have put forward, that builds on some of the growth in medicare advantage. so the one thing i am going to start by just saying, i think paul explained something that was a little confusing to me when i read the report, about a lot of the moving -- the moving up of the depletion date of the health insurance trust -- the hospital insurance trust fund, moving up three years, relating to payroll taxes. that seemed a little bit confusing, but it sounds like there's now a greater recognition that the recovery, in fact, has not been as robust

as people thought it would be. and payroll taxes have not gone up. the other thing i've found interesting is that, when you look at the lower taxes on social security benefits, some of the bump may be that has occurred in hospital spending. steve talked about issues about hospitals being able to get facility fees for out-patient services. the potential impact of eliminating the acaa mandate leading to more uninsured individuals and growth in dish payments. and the medicare advantage system and the payment models that are used and the risk adjustments and the quality, it's sort of a little bit of, at the margin, government-inflicted damage to the hospital trust fund. that's something to keep in mind, and at the same time, ipab, which may or may not have worked well, was taken out of the game. so if there was anything that

was going to put brakes on payments, that's not there now. now, the reality is that history tells us that action has always been taken, whether it's higher payroll taxes, reduced provider payments, to keep the hospital insurance trust fund solvent. and i have no doubt that that's going to continue to happen. i think it's important, and i think it's been eluded to when people talk about access issue, to keep in mind that medicare is part of the bradder health care system and generally speaking, medicare has done a better job at controlling spending per beneficiary than private health insurers. so you have to really take a broad look at this and not just stay focused on the medicare program, per se. so i am gonna now say a little bit more about medicare advantage. clearly medicare advantage in

recent years has been thriving. i mean the affordable care act reduced payments to medicare advantage plans, and the expectation was that enrollment in those plans would go down because plans didn't have the opportunity to provide extra benefits. cbo, the actuaryies, everyone was flat-out wrong. since payments were cut in the affordable care act, medicare advantage enrollment has grown dramatically. it's now about a third of the program. so even though congress and the administration may not be taking efforts to really reform the medicare program radically. beneficiaries are doing that. why are they doing that? probably because, in a lot of areas of the country, medicare advantage plans are being overpaid, there's been issues about risk adjustment in medicare advantage, leading to higher payments. there's quality bonuses in the

program that may or may not be tied to research, suggesting that those higher quality plans actually are better for beneficiaries. so i think there's a lot of issues around medicare advantage payment that need some reconsideration. one aspect of medicare advantage that i think is very important to recognize is that private plans can come into the program and successfully compete with traditional medicare, because those private plans are using the prices that traditional medicare sets. so they're using regulated prices. they're not paying commercial payers, you know, they're not paying like commercial payers, 190% of costs to hospitals for care. and that -- those regulated prices for physicians, for hospitals, for other services, that medicare advantage plans can draw on, allows them to compete with the traditional fee for service side of medicare.

so seeing that, my colleagues and i thought, well, there may be something there, and i understand as steve lieberman pointed out, that there's some risk to medicare prices getting used broadly in the health care system and providers saying, wait a minute, we can live with medicare prices, when we can charge commercial plans much higher rates than that, but if more people get medicare prices -- and i think that that's probably one of the reasons that medicare for all, that a lot of people talk about, may be a little bit of a nonstarter, because i think it could be a very big shock to the system. so, as we were thinking about medicare advantage, and the affordable care act, we could see strengths and weaknesses to both programs.

and you could see the success of the affordable care act. clearly since the coverage provisions went in effect in 2014, access do coverage, affordability has really increased. the nongroup market has increased risk-sharing. you're not getting this underwriting. you haven't seen, as some people were concerned about, a crowd-out of employer coverage. no significant decline in employment. jobs have not been lost. and spending growth has been restrained in the overall system. but the affordable care act was not as successful as it could be. one problem with the affordable care act's design is that the supreme court allowed the medicaid expansion, which was the foundation of the affordable care act, to become an option for states. so states, you know, right now, it's a little hard to count, given all the maneuvering around, but about 17 or 18

states have not expanded medicaid. marketplace enrollment has been low 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 carrying through into the trump administration, as to how much support there is for outreach, enrollment assistance, and there may be a time -- and this is kind of where we're coming at with this paper that we wrote -- there may be a time to be thinking about something broader than just fixing the affordable care act. linda blomberg, john hala han and i have presented what we're calling, because we didn't think

of a better brand name, the healthy america program. but we're happy to have this program have another name, you know, if anyone would like. and it's really a comprehensive reform that would get closer to universal coverage. we think it would increase affordability and access to care. increase cost containment, while limiting the disruption of a medicare for all-type approach, and not legion to huge increases in government spending. and we built, as i said, on aspects of the medicare advantage program, and the affordable care act marketplaces. and one of the things that we did, which i think for some people seems a little bit, probably controversial, is that 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'd leave medicare as it is also. sorry, even though i know it needs reforms. the medicare cost-sharing structure could be modified, but we didn't touch that. we're not touching the v.a., tricare, so we're kind of fehbp, the indian health service and our idea is to develop sort of a 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 cap 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 concern about, well, if you're not eligible for tax subsidies, over 400% of the poverty level, you're exposed to these really high premiums. we would just go right up the income distribution, as far as you want. no one would have to pay more than 8.5% of their income towards premiums. we would probably keep the individual mandate, maybe restructure it a little bit. so 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. and you could then, if you came insured, recover that the next year. so i think we -- 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. and we think it's less -- this is an approach that's less aggressive than single payer and maybe a little bit more politically feasible. we would have a very large marketplace. wii 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. 69 million would be form of medicaid, 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 into the marketplace, there would not be a fire wall, and continuing the non-group coverage. we wouldn't get to universal coverage, still have about 18

million people uninsured, 8 million of those would be undocumented immigrants who would not be elvisibigible for program. financing, we would continue state maintenance effort. we think federal costs would increase by about 98 billion. employers would save some money. households would 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, you know, maybe a bright news building off the medicare program. >> that's extremely depressing, steve. [ laughter ] yeah, a little more politically feasible for some administration that is not currently in place.

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

the 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, you know, 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 hit. now, what's the -- the question always is, what's the right price? what should we be paying people for? i don't know what the answer to that is. i think thomas and kleinus couldn't answer that one either. but the fact is, you have to start from where you are. and where we are is a very different world than the world that i think you're suggesting. >> okay, i'd 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 their costs, their expenses, are something that -- something that's immutable. and we know that's not immutable. providers can adapt to different payment rates and, in fact, do. and this is something that -- there was a comment before about some of the productivity incentives, you know, are not really likely to be reflecting the productivity gains that are possible. but i think that these productivity incentives i always see as sort of a nice way of saying, we're putting pressure on providers to change the way they do business. and that's in a sense what the medicare payment cuts are generally. certainly going back, and i have

to admit, i remember when in-patient perspective payment came into place, it was the only perspective payment system, providers changed radically. they moved more care to out-patient services, reduced length of stay. so i think that the idea that the system can't change -- i mean, we know that when people look at comparisons between u.s. health care spending and international -- and spending in other countries, that the high prices in the u.s. system are at the heart of the high spending we're having. we're not willing to take that on. we're not going to solve the spending problem. >> well, would anybody else like to comment? >> well, the only thing that i actually agree with steve on -- >> surprised there was anything. >> no, there is. but it's a very, very rare moment. you know, you mentioned one of

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

with the affordable care act largely because people who lost their jobs, changed 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. and as you know, from the economic literature, if you buy health insurance without tax relief on an individual market basis, you can pay anywhere between 25 and 50% more for the same package of benefits that you would have gotten at the place of work. i believe that sometime, at some place, somewhere -- sounds like "west side story" -- there's a place for us. that we'll actually arrive at some kind of an agreement. i don't see that happening now, and i certainly don't see the trump administration adopting anything even close to what you're 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, joe, your observation about an incomes policy, steve, i don't know what the current estimate is, but my guess is more than 70% of health care spending essentially is incomes, labor. and so, if you're cutting provider revenue, you're cutting people's wages. i'm reminded of what a partner of mine when i was running health care in of all places arizona. started -- a family practice doc who had started, and said, in fee for service revenue centers, in capitation, they're cost centers. that explains a lot of behaviors. i think we all agree that economic incentives matter. joe, your point about how do you get the price right is extremely important. i think steve and his colleagues deserve enormous credit for a very carefully thought out

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 or 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 had a group of family practice docs 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 claim shop and reviewed every single referral of a service that went outside of his group.

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

say going in the direction of premium support in medicare, the issues around risk adjustment that plague medicare advantage, will be even more important in that kind of a situation. because then traditional medicare would end up 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 stays in place for the aca marketplaces. so there's a lot of domino effects here that happen. >> yeah, but, look, we did a lot of price regulation, you know, beginning in the 1980s, you mentioned the perspective payment system, when we adopted that, that was designed, if i recall directly, and joe, you were there in the reagan administration, when we did that in the reagan administration, the idea was to introduce some kind of market discipline into hospital pricing. and all the good intentions were there, to restrain, you know,

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 shift from in-patient to out-patient. so they pressed down the balloon and then we found ourselves with an explosion of out-patient costs, and 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, of course, creating this resource-based relative value scale that looks like it was imported out of east germany. we imposed that on the system in 1989. and now a lot of folks are looking back at that and saying,

you know, really the bloom has faded on that rose. and we're back to -- >> i'm one of those people. >> -- and we're back to this idea of trying to redo physician payment again, and now we have 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 mips proposal, medicare payment commission saying we should get rid of it. so this whole idea that we're going to set the right price seems to me to be the problem. i don't think, frankly, that we can all design the right price for all of these complex procedures, especially 8,000 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 intensive competition and create

a market, also to establish some kind of a level playing field, which we do not have in the current health care system. >> if i could -- >> very quickly. because we have to go to the audience. >> my comment would be, i take a different lesson from the creation of the effective payment system, which was, what motivated it, anything but teffra. people wanted to avoid the cost reports. the only reason i'm mentioning that, out of the crisis, out of the shortfall in h.i. funding and so on, that may become an impetus for action. >> well, let me make a point that's a little less -- requires a little less knowledge of ancient history, which is that the kinds of policies that the generic medicare for all people talk about, and that steve's analysis addresses, rely on kind of the average price level.

they don't worry about the distribution. it's a point that bob is making as well, with regard to physician payment. 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 the abstract, is a good idea. how you do that is the problem. and i don't think that any of these general kinds of proposals have addressed that at all. at the same token, the trustees report also has that same character. it's a very aggregate kind of an explanation. pardon me. so you're not going to find the policy solutions 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. >> hi, i'm dr. peter mcmena men, health economist and recently retired from the american nurses association. when 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 three million people would age into medicare for the rest of the century. and i was challenged on that by henry aaron. so i talked to former colleagues who were with the actuaries office. i got the projected age in numbers, specifically. henry was right. i was wrong. but my numbers were too low, not too high. we already are at three million people aging in per year. and actually, we're 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 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 agings towards 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 that high since 1982. the hospital finances, i suspect, are going to be affected because all of these people will be in their last year of life. they will -- many of them -- be 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 80, but the

increase in deaths will accelerate after 2026. and i think it's going to stir up things, whether, you know, the trust fund is in balance or not. >> right. >> certainly true. i think i detected some investment advice. >> buy 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 -- it's not just because there won't be enough bodies to fill the beds, it's because that isn't going to be a sensible way to deliver health care then. it probably isn't a really sensible way to deliver health care now. >> and wasn't even talking about the fact that may not be dieing in hospitals. they may be dying in nursing homes that medicare doesn't get

involved with. >> let me make another observation on this. i think we all have to worry about the explosion of hospital costs. but as we all know, health care is complicated and a lot of different things can happen. there's 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, for you, what would you prefer? and people say, well, i would like to die at home. i would like to be sure that i'm comfortable, that i'm family's around, and i will have the opportunity to die at home, like our grandparents did routinely. instead, overwhelmingly, people are dying in hospitals, often times in icu units and so on. there is, in medicare, the

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

but we could probably actually reduce costs toward the end of life. >> that's the critical thing. >> it's 25% of the total cost. >> adding a new benefit isn't necessarily the answer to much of anything, unless there's a shift towards a more efficient -- >> yeah, because right now, 25% of the total cost -- >> we've run out of time. i'm sorry. we have to stop now, because of our other viewers outside the room. so please join me in thanking the panel for an interesting discussion. [ applause ] this week marks the 50th anniversary of the assassination of robert f. kennedy. >> these last few weeks, robert francis kennedy was enjoying

himself. he really enjoyed getting out among the people. he enjoyed the physical contact. he refused police protection, because he said that all the people wanted to do was to touch him. not to hurt him. >> this weekend on real america, on american history tv. watch the cbs news special report from june 6th, 1968, the night robert kennedy died from gunshot wounds. >> they quickly decided to transfer him to good samaritan hospital where the facilities were better for delicate brain certainly. mrs. kennedy was with him all of the time, riding in the ambulance, now from one hospital to the other. the suspect, now identified as sirhan sirhan was grabbed by johnson and greer, the two kennedy men. he was led by police back through the ballroom and the hotel. some of the officers had to protect him from the crowd. there were several kennedy supporters, bystanders, who were close to