act was the long -- law of land. there -- that is not the case. rather small deviations of actual and projected performance and a few small changes in assumptions about the future were enough to move the estimated date of exhaustion five years earlier. medicare expenditures have exceeded and, since 2008. last year's reports projected that as the economy recovered this would turn around and we would experience small surpluses in the trust fund in the time between 2014 and 2022. under the new projections, medicare spending is expected to exceed income for the indefinite

future. a more comprehensive measure of the hi trust fund's fiscal situation is the actuarial balance, which is the difference between the program's annual and, and cost rates averaged over a 75 year period and expressed as a fraction of taxable payroll. the actuarial balance has deteriorated from -.69 to -.79 between the 2010 and 2011 report. the primary factor responsible for this is the decline -- expenditures were higher and payroll taxes were lower in the base year, 2010, than anticipated in the previous year. let me just say a few words about the inherent uncertainty

about projecting medicare's expenditures. we all realize that there is a lot of change going on in health care, both in the public and private sector, and how that will play a out over the next several decades is uncertain, as the chairman has mentioned. the trustees' report projects expenditures and income based on current law and because current law assumes the implementation of a 29.4% reduction in physician fees schedule payments some have viewed this as a relatively optimistic scenario. the actuaries have provided an alternative, as my colleague

explained. it assumes that the physician fee schedule is increased each year by the medical economic index and, also, that the productivity reduction and payments for other providers is faced out. some have suggested this is the appropriate alternative projection. i think one can argue that, in fact, just as the trustees reports may be a little optimistic, this is a little pessimistic because over the last nine years the update in the physician fee schedule has not kept pace with the medicare economic index. at times we have seen a reduction.

i think the message we leave you with is that further legislative changes have to be considered by the congress. the sooner those are enacted, the less disruption there will be poor taxpayers, for beneficiaries, and for providers. it is essential that this is on the front burner of the congress. thank you. >> thank you very much. i think our witnesses for their testimony. before i get to my questions, i would like to welcome the newest member of the health subcommittee, mr. buchanan. he has many medicare beneficiaries in his district -- we look for to is in sight. i would like to get a few things on the record.

when did the medicare trustees expect the medicare hospital insurance fund to go bankrupt? >> 2024. >> what was the bankruptcy day in last year's report? >> it was 2029. >> in the course of one year, the medicare hi trust fund lost five years in solvency? is this something congress should be concerned about? >> i think it is definitely something that should be concerned about. as i note in my testimony, because trust fund balances or so low for several years going forward, the change in the insolvency date is quite possible. >> i can tell you that is certainly alarming to me that

during the course of just one year, the medicare lost five years of solvency and is expected to go back route, as -- go bankrupt, as you stated, in 2024. it does not take a great deal of creativity to imagine a 2012 medicare trustees' report in which the hospital insurance trust fund insolvency date moves again by several years in either direction. are you suggesting it is possible that we could see a medicare bankruptcy date within the next 10 years? >> it is very possible. the trust fund ratio -- that is basically measure of the relationship of assets in the trust fund to annual expenditures -- that is expected to drop below 60 in 2015.

less than half payments would be accounted for. once you're down to that level, you run the risk of trust fund depletion. that is very possible. it is all "-- also quite possible it could go the other way. >> it is estimated the medicare hospital and trust -- insurance trust fund is expected to pay more money than it will collect viet the payroll tax. is that correct? >> yes. >> how long has this been the case? >> 2008 was the first year. >> if you expect this trend to continue? >> yes, we do. >> are you aware of any program that would be financial sustainable if it spends more money than it has, or is this a recipe for bankruptcy? >> our current projections would exhaust the trust fund because of the annual operating

deficits, yes. >> i thank you. mr. stark is recognized for five minutes. >> thank you, mr. chairman. if you just help me for a minute with a personal matter. i had a nine-year old who was to be the bat boy for the democrats ball team. i have to go home and explain to him as somebody with a ph.d., like yourself, in computational chemistry gets published in the baseball research journal. can you help me a little bit? that is a personal matter if you want to take time later? know f love to have hands n he can have chemistry and

baseball. it would be greatly appreciated. the sluggish economic recovery, a drop in revenues, and an increase in spending? both factors called by the general state of our economy -- am i close? >> you are right on the money. this is a program that is sensitive to the strength of the economy, both in direct and indirect ways. when economic growth picks up, wages of providers go up, expenditures go up as a result of that. when the economy weakens, wheat seed both induced enrollment of

those -- we see it both induce a role but of those who have lost their jobs and a fall off in payroll tax revenues. >> some have suggested that we could save a good bit of money by allowing medicare private contracting. the republicans seem to think this would allow medicare to continue. then doctors charge whatever they want on top of the medicare payment. do you have concerns about effective private contacting on access to care and quality of care? >> as a public trustee, i do not. as an analyst, it is an area that concerns me in that we --

if private contractor and were permitted and were not regulated, we could see access by individuals who are in tight provider markets began to have some problems. -- begin to have some problems. >> the affordable care act is going to expire in 2016. the report issued today shows that the reform in the affordable care act would add eight years to the solvency. before i ask if you think that is about right, since i have

been here, we have been about to go broke just about every year. the reason we do not, is that congress acts in one way or another to protect medicare, but going back, the question of the shortened solvency date caused by the economy in general -- is there any one area that suggest to us that we might move to extend the solvency of medicare? >> there are tremendous varieties of measures that could

strengthen the medicare program 's financial position and some basic decisions have to be made by the congress on the extent to which we should look to beneficiaries, taxpayers, or providers to contribute to that effort. some of them involve changes in the current structure. others involved incentives that might -- involve incentives that might lead to a reformed delivery system. we could talk for several weeks about the pros and cons of the various alternatives. >> thank you. >> thank you. the gentleman from texas, mr. johnson, is recognized for five minutes. >> thank you, mr. chairman. good morning.

the democratically controlled congress passed the health care over all that was supposed to control health care costs and extend -- i would say these bills failed. do you think those efforts are enough -- >> will the gentleman yield? mr. johnson? >> why? i wanted to ask a question. >> go ahead. >> ask me a question? i will not yield. i want to know if those efforts are enough to solve the medicare problem or did we not get it -- or did we not get deep into it enough? >> we have a deficit in medicare, even if we assume the current law is sustainably implemented. i will cost or somewhat likely to be higher than what we share.

we clearly have a remaining problem. >> notwithstanding that, the best estimates of the affordable care act are that they extended the life of the trust fund and where the affordable care act to be repealed, the date at which the trust fund would become 24pleted would move from 20002 to 2016. >> i recognize you are phd. you consult with medical doctors? do they talk to you and tell you what their problems are? yes or no? >> we do the reports? no.

>> so you are not consulting the medical community at all. doctors who played the system will ask for more than it really cost them because they know it is not going to get paid. you are probably aware of that. that is why i asked you if you consult with the doctors themselves. it seems to me that the doctors are part of our problem. i do not know that you have really considered it clearly. we need to do more to save medicare for future generations. i would just ask both of you do you have solutions for this problem? you talk about the problem -- what are the solutions? >> again, i would be very careful to say -- as trustees, we have to be very careful not having a view. personally, i believe there are only so many levers you can

pull. the things that drive problems are the growth of the beneficiary population, you have to look at the growth of per capita benefits that are paid by the federal government. if the get a tax for cutting benefits when you do that, no matter how you do it, whether you're talking about the affordable care at or medicare, we have to cap the per-capita benefits the federal government is state -- is seen. that has to be a component of the solution. we need additional cost restraints beyond what is proposed in current law. >> do you have a comment on that? >> i would agree with my colleagues that there are a handful of areas you can't look to. -- you can look t. o.

changing the number of people available for -- to qualify for the program, the payments to providers, the contribution from beneficiaries, in other words premiums, and the contribution from the taxpayers. those are easy ones to estimate the savings that might result from them. a much harder one is to figure out what a significant change in the structure of the delivery system might do to lower the growth of cost over the long run. >> thank you both for your comments. thank you, mr. chairman. >> the gentleman from wisconsin, mr. ryan. we have a few more members -- [unintelligible]

>> 5 minutes is not enough time to get into all of this. a couple of things -- it was said that we wanted to go away or something like that. we all represent around 700,000 people. our relatives are on medicare. it is probably one of the most important programs the federal government has ever had. we want it to work and we want to save it. here is our problem -- we have 10,000 baby boomers are retiring every day with fewer workers coming into the work force to pay for it. health care costs are going up faster than inflation you are telling us the trust fund is going bankrupt in 2024. the cbo says faster than that. something has to be done. i want to ask you a couple of questions. do you both agree that you cannot say the savings in medicare is going to pay for the affordable care act and extend

the solvency of medicare? you agree with that? a quick yes or no. >> i believe that. >> i assume you do, bob? >> from a unified budget standpoint, the answer is yes. >> we have the trustees and giving us these alternative scenarios for two years, which i find pretty amazing. i wonder if more realistic assumptions -- we find out that you cannot find another government program on one hand. that is double counting. we're not saying the cbo is doing the double counting. congress is doing the governor -- doing the double counting. number two, we faced insolvency before. congress has always done something to do about it. if we keep kicking the can down the road and wait until

insolvency is on the doorstep, the solutions will be that much more dire, that much more bitter, and people will be that much more affected. how many providers the u.k. will provide medicare benefits if they are getting 66 cents on the dollar for every medicare patient they have coming through the door? if you are telling us they are going to pay 66 cents on the dollar and then 33 cents on the dollar, if we may have a medicare program, but it will not work for people on medicare if nobody takes medicare. we have to be realistic about what is it necessary to save medicare. i would just simply say that the lessons we learned from the previous medicare pinches are lessons we should take into the future. 1997 was an important budget agreement. it was a republican congress with a democratic president doing a budget agreement to extend medicare solvency, get the economy growing, produce

budget surpluses, but this is the lesson we got out of that exercise -- price controls in medicare do not work. congress produced two separate bills to prevent medicare providers from dropping medicare. what i think our friends of the other side of the aisle got out of that as evidenced by the affordable care act is not the price controls do not work, it is price controls or not politically sustainable part of it it is seeing and knowing that access is being denied to medicare beneficiaries. we should just take it out of the hands of politicians. we should take it of the hands of congress. less form an independent advisory board and have them do it the price controlling and circumvent congress. what this simply means is we are going to do hardcore price controlling which leads to rationing which will lead to medicare providers dropping

medicare. that means seniors will not have access. we want to get rid of that. if we are going to extend solvency, it should go to medicare, not to other programs. we should not trade one government program to go to another. how many tons of we heard that about social security? sector -- rationing does not work. we believe that at the end of the day there will have to be a bipartisan solution. the sooner you do it, the sooner you do not have to it that benefits for anyone about the age of 55. people who have already retired under this program, do not change their benefits. they were made promises the government should keep. if we do this soon, we can keep our promises to people who were 10 years away from retiring. it is very negotiable. it is very reasonable to debate how to fix it with a new system , birth rates, and design

features. that is what the committee is trying to do do you think providers and medicare will keep -- providers will keep taking medicare if they are getting paid 66 cents to 33 cents on the dollar? >> you have highlighted a fundamental problem that we also highlight in the report. reimbursement rates under medicare are lagging very far behind what they are in the private sector. this could lead to substantial which rolls and access to care under medicare. anddrawals ial which roll access to care under medicare. >> the same providers offer services to the elderly and disabled through medicare, low- income population through medicaid, and the working

population through employer sponsored insurance or individually purchased insurance. i, for one, think that efforts to restrain medicare or medicaid significantly are doomed to failure unless we provide incentives for dampening the growth of health care costs in the private sector as well. you cannot have these huge differentials in reimbursements. on the other hand, i would argue that the fixation we have with comparing medicare's reimbursement rates with those in the private sector are a comparison of average payments, or average cost, and most economists would argue that services provided, a good is

produced as long as the provider can meet marginal cost, so we can have some differentials without destroying the market. they obviously cannot get too large. that is what you're concerned about. >> the gentleman from california, mr. thompson, is recognized. >> is it not true that whenever a new lot results in a savings to medicare part a that those savings improve the possible insurance trust fund finances regardless if the savings are used elsewhere in the budget? >> yes, that is true. >> my friend from wisconsin raised that issue. that is out the accounting system works. that is out it has been treated in many on this budget bills in the past. >> correct.

>> my friend also used the balanced budget act of 1997 which was passed under the republican controlled house as an example. that included $994 billion in medicare savings. to the $92 billion of that was used for a tax cut. -- $292 billion of that was used for a tax cut. i guess the other guys are critics. in the sheet here that was prepared by our side's staff. reporthe trusty's starting in 1970 and running until 2011. i would like to get you to look at it and let us know if this is accurate. based on this, it has always

been projected to reach insolvency at some point. as mr. stark mentioned earlier, congress has always addressed this issue by making changes. as a matter of fact, of the 40 years on this chart, 18 of those years the solvency date is less than it is today in 2011. the it is a problem because of the downturn in the economy. i would like to have someone give you this and get your analysis of its period -- analysis of it. also, the affordable care act was an attempt to put in place provisions that would improve the quality and reduce the cost of health care. everything from hospital admissions to reducing hospital

remissions to expanding fraud- fighting efforts. you're just the report recognizes that. can you tell us your assessment of the delivery system reforms in the affordable care act? >> once again, i will have to take off my chest the hat for this. >> all have to take off my trusty pet for this -- trustee hat for this. >> the cms actuary and the cbo did not provide savings for or provided quite modest savings. if all the planets come into alignment and things work out well and some of the initiatives

i discussed in might prepare statements come to pass, we could see significantly more in the way of savings. on the other hand, some of them may prove to be once the congress reconsiders or ones that do not work out as well as the cbo and cms have estimated. we are dealing with a huge uncertainty right now, but those are basic numbers or in our projections. >> i think the language in the report says that "major programs of research and development for provider payment mechanisms intended to improve the quality of health care and reduce the quality of medicare." this includes the cost and quality of health care outside of medicare as well. that is important to note. cmf did a press release on your

report. they say that without the reforms in the affordable care at, the medicare trust fund would expire in five years in 2016. the report issued today shows these reports added eight years of solvency. i would like to ask unanimous consent to submit this to the record. >> without objection. >> thank you. >> the gentleman from california, mr. nunez, is recognized for five minutes. >> thank you, mr. chairman. i would like to ask the witnesses about the question of insolvency. i do not know how long you had been trusties, but when we look back -- trustee, but when we look back in time, we always knew we had an insolvency issue.

i do not think anyone disagrees with that. there has always been a need to save medicare and say social security. but when you analyze the problem today, and he knows that we are locked into this budget by where it does not appear there is any fix in sight. what the major holdouts is are we going to deal with the and subprograms to solve the insolvency problem? i do not believe we of ever defaulted on our debt. we are getting very close to that if we do not get a agreement -- get an agreement soon. is the situation more serious and more urgent today than what it was when you looked back 10 years ago or 20 years ago? >> i think the answer to that is yes, both because the medicare problems and get is a larger

fiscal problem and because as opposed to 20 years ago, the baby boomers start retiring. they are beginning to apply for medicare benefits. and so the exhilaration of burden that we talked about is a future problem 15 years ago is now upon us. this makes some solutions more difficult because the numbers of individuals who are receiving benefits is rising rapidly. >> i have a two-part answer for you. one, we have a much more serious fiscal situation unify deficits are much larger than they previously were. secondly, we have an urgency that arises from demographics.

each year that happens, we have more baby boomers going on the benefit rolls. there is a great bipartisan reluctance for people who are already dependent on the program. >> i would like to add a third issue to differentiate myself and my colleague. that is, we have enacted major changes already in the medicare program. in some sense, the coverage is barely there. we cannot get to that covered, opening up, and say cut provider payments even more. how can we sustain the ones we've already adopted? >> there is no question -- every day of my life health care providers are coming in either to my district office or here in washington and complaining about the status of the health care

system as it relates to the affordable care at, medicare, medicaid -- there is a problem throughout all these programs. would it be good policy if somehow this congress could move legislation that would take anyone debt is 55-years of age or older and keep them on traditional medicare? with that be a good goal for this congress to protect in? -- part take -- partake in? >> anybody that is over 55, keep them in medicare? >> if we could accomplish that? -- if we could accomplish that. >> i think it is good policy to hold people who are near retirement or near retirement harmless as possible for future changes. having said that, it is getting harder and harder to hold on to

people who are older than 55. five or 10 years from now if you ask us the same question, i would say i do not thing you'll be able to do that. >> i am believe that even older adults can learn new tricks. -- even old dogs can learn new tricks. would you talk about letting people 55 or older stay in the system and keeping the system unchains -- quite frankly, i do not believe that is appropriate policy. i think medicare should evolve in a gradual way. we have the affordable care at innovation center. we have some centers -- we have some changes in payment mechanisms and things like that that will gradually change medicare. i think pushing those four words

-- >> i think we agree that there should be gradual change. that is why mr. ryan put 455 and older in his plan. that allows people to deal with the changes. however, where i think we disagree is where this problem seems to be bigger than but -- then you both said earlier. it appears to be worse than it was 10 or 20 years ago agreed with me to act quickly to save medicare for everyone. >> the gentleman from oregon is recognized for five minutes. >> thank you very much, mr. chairman. i would just pose questions to our panel not to answer now, because i have others i want to get to. if he would reflect -- i appreciate you talking about whether or not this is sustainable over time. we are going to take 79 million

americans and freeze them in medicare as it is now. although, my friend from wisconsin, takes the reviled savings from the affordable care act and tells them -- assumes them in try to make his plan, but we will be having a situation where there is a huge population that will grow smaller over time, but millions of people 30 years from now -- and ever sickert, a smaller population -- when my friend asked it to be scored, assumed the general fund would pick up the gap. i would appreciate it if you two might reflect and may be shared with the committee what the impact will be overtime? >> will the gentleman -- and

>> i would like to be able to lock in what this means. we had not been able to get a good figure in terms of what that extra cost would be for an older, sicker population. although declining, it will still be millions of people. i do take modest exception to my statement that it would be rationing and price control. i think he knows the recommendation are just that and that they will come to congress enacted be voted up or down. i think it is good that we have that mechanism. we have seen political failure on both sides of the aisle on things like base closings and repeated failure with medicare. we are already seeing some people try to walk back the ability. i have heard my republican friends decry the fact that

providers right now are not getting enough money. yet, we cannot afford what we are giving them and they do not want a control mechanism. i am wondering, is there any reason why with the help to stiffen the spine of congress that we could not minute the best practices that are going on right now with medicare -- we could not make the best practices that are going wrong on -- are going on right now with medicare. is there any inherent reason we cannot make that behavior? -- mimic that behavior? >> it is certainly a goal that we strive to achieve, but it is very difficult to figure out how to get from here to there -- how

to get from miami to wisconsin. >> some people have figured it out, had they not? we are not all miami. we are not all texas. >> and we do not really know how to convince miami to mimic the behavior is of wisconsin, minnesota, some of the more parsimonious practice pattern states. >> that are more effective -- >> in many cases or more effective. >> i think we do know what works. i think there is bipartisan agreement, at least there has been until recent years, of some of the experiments in the affordable care act -- dealing with unnecessary hospital remissions, being able to have more attention to primary care,

dealing with waste, fraud, and abuse. there is a litany of bipartisan actions that can be taken to squeeze far more out of the existing medicare system, but people have not been incentive to do it. congress and both parties have all old -- have wobbled. i think we are setting our sights too low. i think we ought to be accelerating the reforms we talked about. yes, there is a little discipline. i do not think that is control, but we are not going to open the spigot and pay people for procedure after procedure after procedure, which is why doctors are getting more money even though the reimbursement rates are more parsimonious. i think we ought to be more optimistic about this. i think there is a bipartisan consensus about how it could be

done once we get out of this world we are in right now. >> the gentleman's time is expired. the gentleman from washington, mr. rogers, is recognized for five minutes. >> thank you, mr. chairman. i agree with mr. blumenauer. we must find a bipartisan solution to this. we need to be more optimistic. there have been some comments that have been made that sort of puzzle me a little bit. the question was asked earlier, why are we even paying attention to this issue? i think it is obvious from your testimony there are some major things you are expressing to all of us this morning. some may be watching c-span and do not have a life. medicare is going bankrupt. you both agree with that. it is exhilarating, true? >> yes. >> medicare's dire financial

status is drastically understated. would you agree with that? >> yes. >> i would say it is very likely to be significantly understated. >> i am a share of that. -- unsure of that. if we do not take full advantage of the initiatives in the affordable care at, if we do not encourage all the innovation that is going on in the private sector and the non-profit sector -- >> it was not understated just a year ago. >> excuse me? >> it was not understated just a year ago. here we are today and we are accelerating the -- is that a yes? >> i am not sure what your

question is. this report has warnings. >> it is a celebrated. is that not true? >> if yes. >> do expect that to continue? you are not short? ok. -- you are not sure? ok. massive tax increases? is that for the scenario? we must do something now. would you both agree with that? >> i would say that on the hi side, the application would be greater general revenue requirements. >> ok. thank you. the thing i guess that is confusing to a lot of americans who see this health care bill

that is out there and has been passed and implemented to some degree or another -- there is a $600 billion tax in this bill. $600 billion worth of taxes for people to pay for this. how can we get the economy going while continuing to attack small businesses? $523 million in cuts to medicare. no wonder people are expecting higher premiums and fewer benefits in medicare. i wanted to ask a specific question regarding the alternative scenario. it states that overall medicare spending is expected to grow to 10.3% of gdp -- that is a 10.3% over the trust the's report. growth of this magnitude of

banks everybody. could you elaborate on what this may look like related to these important areas and other priorities like medical research and education? >> i agree that the main projection is a best case scenario. this would be pessimistic scenario. the reality is probably somewhere in the middle. if you take that with the scenario, and that is an unprecedented fiscal strain for the federal government. to% of gdp for one program alone is twice as much that any program has ever absorber. it would be over half of the size of the entire federal government with respect to gdp. to have over half of our historic norms would be an unprecedented strain.

>> public comment on this is all but for those numbers would be realized, this nation will have to address its deficit and debt problem. in my view, medicare will be one contributor to a solution. those numbers or hurt it. -- are horrific, but long before we face them, we have to make more fundamental changes in our revenues and expenditures across the board. >> the gentleman's time has expired. the gentleman from new jersey is recognized. >> thank you, mr. chairman. what is the logical -- we learned in logic 101 -- it may

not be true. our premises determine those things. i want to enter into the record, mr. chairman, the s&p indices concerning health care, health care costs, and bring to your attention, mr. chairman, that in 2010 medicare claim costs associated with hospital and professional services were patients were covered under medicare increased at a more modest 3.2% rate, much lower than the private sector. i would like to ask to begin with what do you think attributed to the slowdown, to the more moderate pace of

increase in medicare as well as the private sector going down, too, but not to the degree of medicare. why do you think that happens? but the view? either of you? >> my response to that would be that one factor is certainly the turndown in the economy, which has left some seniors and others with less income to pay their co insurance, their co- payments, and so on. it is conceivable that some even had to drop their committee -- drop their medigap policies. cmf and the providers have begun to pay for overuse of services. many practitioners are working

anew at their practice patterns. >> which is a major target of the health care act? >> it is a major change in attitude and behavior. it is going on throughout society. it is a good development. >> i would generally agree with that. certainly the overall state of the economy played a role. i would be candid in saying i do not know the answer. short-term fluctuations in the cost levels are very difficult to predict and to explain after the fact. my level of uncertainty as to what rigidity that is very high. >> it is too early to tell if the health care at has had an

effect on the cost we are trying to reduce. we'll never have a medicare program that is able to keep up with inflation and the rising cost of health care until we control in some way, shape, or form under a capitalistic system the rise of health care costs. we need to do something about that. we are trying to do something about that. one-third of the entire health care at dealt with medicare and medicaid and how we could save money in the process. much of it was not scored in the final analysis. in the report of 1997 brought about some very interesting things -- the beginning of medicare advantage, the beginning of the process to start to privatize the system.

now, we pay 12% more to these private plans. seniors are going to pay much more if we move to privatize the whole process under the guise of trying to straighten out medicare. look, all of these reports from 1970, as the gentleman from california pointed out before, now talk about the dire position in which medicare is in. everyone of those reports said the world is coming to an end as far as medicare is concerned. that did not happen. as for my friend from wisconsin, this is what a bank account is all about. you take the money out of the account as you need it. you do not take it all out.

it is very analogous to the funds in a bank account. when money is deposited, the money is used for other purposes until they are withdrawn. what is so different about what we do in terms of how we are calculating savings in the future? we need to take a look, mr. chairman, that not only the logic of what we say, but if there is any resemblance to the truth. this is not reality. >> the jim demint's time is expired. the gentleman from georgia is recognized for five minutes. >> i think our witnesses for helping us understand what are the financial operations of medicare. not the clinical side. as a physician, we are talking about money, we are not talking about quality of health care where those kinds of things a person of 40 patients across the country. our friends on the other side of the aisle and a penchant for mischaracterizing our positive

solution, i think. i love to touch on a couple of things mr. starts mentioned. he said our proposal was the voucher plan for medicare. you understand that our program is not a voucher program? it is a premium support program? >> the difference between premium support and vouchers has been explained by some as the payment not relating to the cost of the underlying enterprise. that is a distinction that i -- >> you supported the premium support program in the mid-90s. you would not have called it a voucher program, would you? in fact, you did not call it a voucher program at that time. you called a premium support

program. mr. stark's also said are positive solution ends guaranteed benefits for seniors. that is not true. you know that. we save medicare for future generations. in our proposal it stipulates the program must be guaranteed. is that not true? >> to the extent that those details -- >> it is a guarantee program. that is correct. mr. starrs also talked about private project in -- talk about private contract think in the programs. with that not cause access problems? if not regulated, it might have access problems. are you aware of any proposal that would put in place private contracting with that regulation? >> i think this is a matter of degree as where as existence.

i am not. >> would in fact increase access for medicare for seniors in this country? is that not possible? >> it is possible, but not probable, i would say. >> i would beg to differ with you. there are individuals to understand the huge challenges with access right now the seniors have had at one of the ways to solve it you identified in your list of solutions. it is something that allows for increasing access. i want to touch of the medicare trigger. this is the sixth year in a row that trustees have said that the excess general revenue for medicare funding -- when that trigger occurs, is it not the obligation of the president to propose to congress a solution to fix that problem?

is that correct? >> if yes. >> have you seen any solution at this administration has offered? >> no. >> no. i think congress has waived the requirement. >> under the democrat control, they said do not worry about that. is that what they did? >> if yes. >> yes. i want to touch on this whole issue of medicare changing. you said there are significant changes to medicare through the reform bill democrats put through. what has already been adopted in medicare as we know it -- would you agree with that statement? >> it transforms the program as

all legislation -- >> medicare as we know right now does not exist under the democrat's plan already. is that correct? >> the question is what are referring to as medicare. >> medicare as we know it right now. >> it is and unmanaged care program. it exist after the affordable care act as it did before the affordable care act. >> the program right now has been changed significantly. would you agree with that statement? >> there have been significant changes -- >> medicare as we know it has already changed. my time has expired but i look forward to submitting for the questions for the panel. >> the gentleman from new york, mr. randall, is recognized for five minutes. >> thank you mr. chairman for

calling this meeting. i think it is helpful just to clear the air. we have objectives experts to have reputations to protect long after the elections are over whatever decisions we make that are going to cause any dissatisfaction with our constituents is much easier when the parties are talking together. they may not be happy nearly as an increase if the parties themselves have taken a different position. the fact that so many republicans got elected attacking so-called "obamacare " for some democrats to get reelected. -- forced democrats to get

reelected. the facts are not as important as appears to me. so. i just cannot believe that a nation that those so much to our asian population can spend trillions of dollars rebuilding the economy of afghanistan and iraq. this means we have to have reform. it may be painful. as long as we find each other, this is something you do not want to make. someone has this. as relates to medicare insolvency, do you believe that the affordable care act goes in the direction of dillon with this in itself?

>> the affordable care act extended through the direction. >> does it constantly request the preeti view what changes have to be made from the congress and the end of fenestration import it to protect the solvency? do you believe that we are not dealing with the problem at all and that we need a dramatically different approach? i do not have a problem changing it if it is bipartisan. i believe that an old dog can use new tricks. i believe that. if they say this is moving in the right direction, that is not going to happen. if that happens at all, it is after the election.

my question to you is that the affordable act bill allows us to deal with solvency if certain changes are made. do you believe that we just handed and out there? we know that this country has the ability to work together to deal with that problem. >> there are three things that come to mind. the primary engine under the affordable care act is these annual adjustments in the reimbursement rates. in the last one before, the engine was powerful enough to account for basically the

overall current course of cost projection over the long term. this is a little more reliant upon the advisory board. in order to hit the savings target, the productivity adjustments himself -- >> i am going to get the answer. my time is so restricted. i want to understand the premium report system more clearly. let me ask you about it. this anyone contradicted that he has a piece of the health insurance? it is to make a profit. that is their job. if you are trying to make a project, the selection of people to be insured are based on the

risk involved. if a person is more vulnerable when they are older, are they less inclined to get benefits without higher costs? no. this guarantees that you get something. you can only get what you are able to afford to get. is that true? >> that is true. the fact is that we are making major adjustments in putting the entire ability for people to get health care. it is in the hands of people that do not want you as a client. i got a voucher. i got support. you cannot guarantee that i have enough to get it for my children. right? >> the time has expired.

at witness can respond in a letter -- our witness can respond in a letter. the gentleman from florida is recognized for five minutes. >> thank you for holding such an important hearing. really afford to working with you and the rest of the members of the said committee. i also like to thank our witnesses for being here today. wanted go over one point. the medics wear -- the medicare trustee would be insolvent. my district was in florida. it is a big issue all over the country. it is much bigger.

one thing i do not believe is taking into account the reduction. when we project this out and look down the road, a lot of them will have to go out of business. we have another 30% cut that we are looking at. it does not take any impact in terms of the viability long- term. wouldn't you agree that these have been going to replace that would drive the insolvency date? we are looking at a problem a lot bigger. >> the solvency issue relates to the hospital insurance fund. this is part b.

that is not affected by solvency issues. the way this is constructed and is that it can never go exhausted. revenues are automatically given to the trust fund to make of the difference between projected costs and premium payments. >> it did affect the exhaustion of the trust fund. >> i have been here in the toe over four years. we have a 7 1/3 twice a year. i do not know how anyone runs any business to allow these medical practices and have to look at a 30% cut every year. i do not know how this is part to the overall medical

community. >> i think the principle affects of the override would be in the overall cost. under our projection, we see this cost. if you assume the override them, we are at 3% of gdp. it is a substantial cost if you assume the reductions are overwritten. >> they found that malpractice costs -- we could save as much as $55 billion a year. do you think we should have malpractice reform? >> certainly, everything we can do to hold the arm this will

make this better. if we can produce that level of savings, this would improve the financial al look. >> is this something you have personally looked at as a trustee? i can tell you about the sense of medicine. do you feel they need to to make sure they are covered? is this something you have looked at in terms of legal reform? >> not so much because of the jesse process. it deals of the congressional budget office. generally, we do not tend to evaluate alternative policies with currently law. it would certainly draw heavily from the input of every one

protect the panels. >> to you have any thoughts on legal tort reform and the impact it would have and your own personal opinion? >> this is something. i have a neurosurgeon. he said the malpractice is $200,000 a year. they are practicing a lot of defensive medicine. i need an area we can make a big change in. what are your thoughts? >> there are a number of studies tried to estimate the impact of malpractice reform. by and large they come out saying that this is not a huge contributor to the rapid growth

of costs. reform is certainly would be a significant contributor to lowering the gross by reducing the onetime level shift. i would align myself with his comments. >> >> authority think our witnesses for your update. >> what strikes me -- i want to thank our witnesses for your update. what strikes me is the report dating back to 1970. what gems out is how much is really does check economic performance. and how this influences the ultimate insolvency.

is this is something that is consistent? there are also a number of insurance. does it have a direct impact? >> that is an important contributor. congress has enacted significant legislative changes that have prolonged the life of the trust fund. >> i am looking at the late 90's. we had a. of robust economic growth. there is showing -- they had a year of robust economic growth. we have had a drop off of a number of years insolvency.

be greater safety for that type of practice system. this eludes me. the 37 states have already enacted the reform including the state of wisconsin. unless those 13 states that have not taken action is driving all this additional costs, i do not see it. study showed that the utilization practice of doctors in states that have this is a little different. is that what you found it? >> i have not done any independent analysis. i have not come to that conclusion. >> a lot of this is already built into the affordable care act.

we need to continue to move in here. we are expecting better outcomes. these are highly integrated. they are capable of producing some of the base results. a lot of what is in the act is driving that type of delivery system reforms to a more efficient and better outcome based system at a better price. the fact that studies have shown over and over that a large part of the health care dollars is going to customs procedures and things that are not working some range as high as $800 billion a year. they are going to various procedures and tasks. they are not getting a good thing for the buck. the ultimate verdict in how successful we are is changing the way we pay for health care.

it is opposed to the volume base payments that occur in medicare. would you agree with that? >> i would. there are things that are on track right now. i know this was brought up for criticism today. or is the work at the institute of medicine is doing in changing the fee-for-service system into a fee for value system. what happens in medicare will drive the health insurance market and how they reimburse with health care expenses. the concern i have with the plan that was just passed is if they would do away with all these reforms and create a voucher plan that ends medicare budget out addressing the systemic problem have been the health care system, the rising costs and what we can do to been that cost curve. if we are moving forward, we are

recording the quality outcome is. it is important. it will give us the long-term sustainability. would you deal with that? >> i am not sure what they have gone. i should be considering these issues. i think the affordable care at -- >> they do acknowledge some of those. it has the potential to move in the direction of providing better care at a reduced cost. as a former head, you realize that they are going to get a score. you all seem to come from missouri. he had to see how it gets scored. a lot of this means the reform. >> this is right.

i was criticized in this very room. >> thank you for a your testimony. >> the gentleman from illinois is recognized for five minutes. >> your report shows that it will now be bankrupt in 2024. americans will be forced to endure a massive tax hike in expenditures. can you explain what you mean by immediate? >> the way this works, of both on the social security side and on the other side is that the amount of expenditure programs they can put out there is limited by what is on the trust fund.

once the trust fund runs out, the program lacks the authority to make benefit payments. there is a lot of analysis of what has been done. a fairly common one is that payments will have to be delayed. it is by virtue of delay. >> this is the common understanding. this present moment in time, when insolvency happens, you immediately are prohibited based on the law and your understanding of the trustees from pain anything further out. your estimation is that would be a 17th term cut. is that correct? >> it varies according to year. i think specifically is about 70%. then it becomes about 25%.

>> when it became insolvent, it'll be flowing in from tax receipts. medicare would delay paying bills. hospitals would send the bill in. to wait five months. you see this of the intermediaries and other payers would be writing out the checks and transferring resources to the hospice or whatever and much delayed basis. >> that is not a hypothetical cut it is not a hypothetical delayed. it is an actual delay in payment to the point of reaching the number. is that correct? >> this is very explicit.

this can only be made from the trust fund. >> there is no other flexibility. if the revenues are not there, it and insolvency is declared, it will move forward. they do not have the authority to borrow in excess of the resources. >> and absent some change in the program, your prediction is that is where our nation will be in 2024. >> they are out there by the majority. the end of medicare. it will and in 2020 for after some change.

i yield back. >> i have a report from the actuary who says that that there is a reduction in expenditure. it is 53%. there is an increase in the payroll tax. what we have seen here proposed is something that will put things much worse.

i have watched this. it is clear to me that the decision to give doctors the right to set their own fees was a crucial error made in 1964. they wrote that they could have their usual customary fees. it set in motion a lot of what we are looking at today. you know about the other day committee. most people do not know what

there is. why is there no mention of the setting that is done? we do not have a schedule by the government. we have the committee recommending to us what we should pay. that is what we pay. how can we have control costs if we do not have the medical profession in some kind of direct negotiation with the government about what will be paid? this is a simplistic idea that never was going to be worth it. it only controls one thing. it led all the ability to raise rates by doing more of the same procedure. i see in the washington post said this week many hospitals over use double ct scans. there are a thousand examples of

over use of procedures in the medical care. you give this amounts of money for doing this. then there is the dune. they had had no control whatsoever. how do we get there. do not have the doctors at the table. >> i believe there is an advisor committee that gives as recommendations. this is the ultimate decider. what they do is look at the relative value.

this might be overpaid. many claimants are underpaid. what would happen if these changes were made. the hopewell is raised. they made this suggestion.

they believe they were overpaid. there is a robust procedure. they are being more frequently than is now the case. they have a respect to this. they can improve the reaction of payments much more. the probably save some money. >> the advisor commission has

made recommendations and analyzed this issue quite frequently. >> the time has expired. they are recognized for five minutes. >> i understand the value of the program, the importance of place in the lives of seniors. especially seniors back home in louisiana who have limited means. they depended on this for their life. i could go on and on about the quality and what we need to do to establish and strengthen a the patients/daughter relationship based on high quality of medicine. this is not the purpose. we are here to talk about financial solvency.

they have discerned respect of the county commission. we cannot double count. this is a real problem. we worked with many medicare patients. it is a huge disservice to medicare beneficiaries across this country. we have an obligation to fix this program and get it right. when i see this double counting, there is the reimbursement structure. this is legislative malpractice. this is another example of where you are going to try to keep the lid on a boiling pot of liquid. it will not be in the best interest and meaning high-

quality patient care. my question is this. we know we are headed toward 2024. as we know it ends. en if we did not correct it, it cannot be a payment mechanism. >> i would still say there would be a payment mechanism but it would not be able to pay. >> ok. before we get to that, clearly it is not a simple situation where we get to the point and it stops. there will be other points of rationing.

it is a situation. it will be after the date of insolvency. it is tiling the benefits that are laid out. providers may choose not to have as much care. they will have to wait a long time. it is a situation that up until that point, everything seems fine. >> that gives us the access problem. that is the other side of that equation. the further we go, and it seems year after year we are seeing more and more problems with access, the do not have access,

delayed access is our ration. >> there are two elements of this issue. one is the sudden withdrawals of benefits. there is another question of restraining our reimbursement rates under current law. does this have the effect of going out of business? this is sending we are wrestling with. >> the answer is clearly yes. we are seeing worsening access problems. treating a patient who came in the emergency room, we weren't

able to find primary care providers. and only got worse. we have an obligation to do with this. s. see these characterization's medicare is ending under current law. we need to take their heads out of the sand. we as the other ones to take their heads added the stand. we have to be honest with the american people. we had to be very reliable with this program and get it right. it is critically important. >> thank you. the gentle lady from tennessee is recognized for five minutes. >> i thank you for allowing me to sit on this committee.

i appreciate this. i would like to discuss the draft you have on page 5. there is non interest. medicare trust fund spending is expected to make up a rapidly increasing% of gdp. it will rise from 1.9% to 3.4% in 2025. they project that 21.3 trillion in general revenue will be needed to pay the benefits. define it attry to find

this level? >> that would be an enormous expansion of fiscal pressure. it is far beyond any one. even this understates the case. this is the best case scenario in which the payment rates are reduced by 29%. it to be significantly higher than this. >> given that information, if you are recognizing that it would have to come from the general fund. would you agree that this would impact some of the other national priorities such as education or roads or some of those areas? >> absolutely.

i make it generally is probably the single greatest threat in discretionary spending. >> given that, it is not had agreed going bankrupt. is it fair to say that it is bankrupting our federal budget? >> there is nesting go costs of our overall problems. they start taking this great advantage. we are going to have to make some decisions about what it is that you will fund are not funds. do you think that if congress enacted policies that reduce

spending by $15 billion over the next 10 years will be sufficient to address the financial crisis? >> no. i agree with you. there is a growing chorus about doing nothing and waiting for the delivery reforms from their health care to take effect. cbo estimates those policies were $14.7 billion. given that, it seems to me that we have to find more than what they recommend. would you agree with that? >> i agree with that. thank you. i yield back my time. >> with that, i would like to thank our witnesses for your testimony and insight from the report and the export -- expert testimony we heard today. it has become clear that

medicare faces real and substantial challenges. we can and must meet these challenges. they must act sooner not later. they can make further ones. i am confident we can meet the challenge that lies before us. it may seem like an insurmountable challenge. the current seniors rightly expect us to work together to work together to find a solution to preserve the medicare problem fort generations to come. as a reminder, at any member wishing to submit a question for the record will have 14 days to do so.

i as classicist to respond in a timely manner. with that, and the subcommittee is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> coming up next, president obama discusses his plan to cut troop levels in afghanistan. ben bernanke princess for monetary policy. >> at the honor of representing the great people of the state of florida. i am here in the senate. here i speak for the first time on their behalf. >> they have now given their speech. see them on the congressional chronicle. it is with the daily schedules. he can keep up-to-date at c-span congress.g/

>> president obama speak. there 20,000 more troops to leave by next summer. friendly eastern, this is 15 minutes. >> good evening. 10 years ago, america suffered the worst attack on our shores since pearl harbor. this was planned by osama bin laden. it signaled a new threat to our security. it was one in which the tigers were no longer soldiers on the battlefield but innocent men, women, and children going about their daily lives. in the days that followed, our nation was united as the strike at al qaeda and routed the taliban in afghanistan. then our focus shifted. a second war was launched in iraq. we spelled enormous blood and treasure to support a new government. by the time i took office, the

war had entered its seventh year. the leaders had escaped. they were plotting to attack. while the taliban had regrouped and got on the offensive. without a new strategy, they warn that we could face a resurgence. there were taken over large parts of afghanistan. for this reason, one of the most difficult decisions i have made, i ordered an additional 30,000 american troops. when i announced this, we set clear objective is to refocus on al qaeda and to reverse the momentum and trained afghan security forces to defend their own country. i also made it clear that our commitment would not be open ended. we would begin to draw on our forces this july. tonight i can tell you that we are fulfilling that.

thanks to our extraordinary men and women in uniform and our many coalition partners. we will bring home a total of 33,000 troops by next summer. after this initial reduction they will continue coming home at a steady pace. our mission will change from combat to support. by 2014 this process will be complete. we are starting this from a position of strength.

we are starting this drawdown from a position of strength. al qaeda is under more pressure than any time since 9/11. together with the pakastanis, we have taken out half of the al qaeda leadership. we have killed osama bin laden, the only leader that al qaeda had ever known. this was a victory for all who have served since 9/11. one soldier summed it up well. the message he said is, "we do not forget." we will be held accountable no matter how long it takes. the information that we recovered from bin laden's compound shows al qaeda under enormous strain. bin laden expressed that al qaeda had been unable to replace senior terrorists that had been killed. al qaeda has failed in its effort to portray america as a nation at war with islam, draining widespread report. al qaeda remains dangerous and we must remain vigilant, but we have put al qaeda on a path to defeat.

we will not relent until the job is done. in afghanistan, we have inflicted serious losses on the taliban and taken many of their strongholds. our allies also increased their commitments, which helped to stabilize more of the country. afghan security forces have grown by over 100,000 troops. in some provinces, we have already started transferring to the afghan people. afghans are fighting and dying for their country. they are establishing local police forces, opening markets and schools, creating new opportunities for women and girls, and trying to turn the page on decades of war. of course, huge challenges remain. this is the beginning, but not the end of our effort to wind down this war. we will have to do the hard work of keeping the gains that we have made while we draw down our forces and transition the responsibility for security to the afghan government. next may, in chicago, we will host a summit with our nato allies and partners to create the next phase of this transition.

we do know that peace cannot come to a land that has known so much war without a political plan. as we strengthen the afghan government and security forces, america will join initiatives that reconcile the afghan people, including the taliban. our position on these talks are clear. they must be led by the afghan government and those who want to be part of a peaceful afghanistan must break from al qaeda, abandon violence, and abide by the afghan constitution. but, in part because of our military efforts, we have reason to believe that progress can be made. the goal that we seek is achievable and can be expressed simply -- no safe haven from which al qaeda or its affiliates can launch attacks against our homeland or our allies. we will not try to make

afghanistan a perfect place. we will not police its streets or patrol its mountains indefinitely. that is the responsibility of the afghan government, which must step up its ability to protect its people and move from an economy shaped by war to one that can sustain a lasting peace. what we can do and will do is build a partnership with the afghan people that endures, one that ensures we will be able to continue to target terrorists and support a sovereign afghan government. of course, our efforts must also address terrorist safe havens in pakistan. no country is more in danger from the presence of violent extremists. we will press pakistan to secure a more peaceful future for this war-torn region.

we will work with the pakastani government to move out the cancer of violent extremists and we will insist that it keeps its commitments. there should be no doubt that so long as i am president, the united states will never tolerate a safe haven for those who aim to kill us. they cannot escape the justice they deserve. my fellow americans, this has been a difficult decade for our country. we have learned anew the cost of war -- a cost that has been paid by the nearly 4005 americans that have given their lives in iraq and the 1500 that have done so in afghanistan. men and women did not live to enjoy the freedom that they have supported. some have been wounded. some have lost limbs on the battlefield. some still battle the demons that followed them home. but tonight, we take comfort in knowing that the tide of war is receding. fewer of our sons and daughters are serving in harm's way.

we ended our combat mission in iraq with 100,000 american troops already out of that country. even as there will be dark days ahead in afghanistan, the light for a secure peace can be seen in the distance. these long wars will come to a responsible end. as they do, we must learn their lessons. already this decade of war has caused many to question the nature of america's engagement around the world. some would have america retreat from the responsibility as an anchor of global security and embrace the isolationism that ignores the threats that we face. others would have america overextend, confronting every evil that can be found abroad. we must chart a more centered course. like generations before, we must embrace america's singular role, but we must be as pragmatic as we are passionate. when threatened, we must respond with force.

but when that force can be targeted, we need not deploy large armies overseas. when there is a sense of being slaughtered and global security in danger, we do not have to choose between standing idly by or acting on our own. instead, we must rally international action, which we are doing in libya, where we do not have a single soldier on the ground, but are supporting allies in protecting the libyan people and giving them the chance to determine their own destiny. in all that we do, we must remember that what sets america apart is not solely our power -- it is the principles upon which our union was founded. we are a nation that brings our enemies to justice while adhering to the rule of law and respecting the rights of all of our citizens. we protect our own freedom and prosperity by extending it to others. we stand not for empire

building, but for self- determination. that is why we have a stake in the democratic aspirations that are now washing across the arab world. we will support those revolutions with fidelity to our ideals, with the power of our example and with an unwavering belief that all human beings deserve to live with freedom and dignity. above all, we are a nation whose strength abroad has been anchored in opportunity for our citizens here at home. over the last decade, we'll spend $1 trillion on war in a time of rising debt and hard economic times. now we must invest in america's greatest resource -- our people. we must unleash innovation that creates new jobs and industry while living within our means. we must rebuild our infrastructure and find new and cleaner sources of energy. most of all, after a decade of passion and debate, we must recapture the common purpose that we shared at the beginning of this time of war. for our nation draws strength from our differences and when our union is strong, no hill is too steep, no horizon is beyond our reach. america, it is time to focus on nation-building here at home.

in this effort, we draw inspiration from our fellow americans who sacrificed so much on our behalf. to our troops, our veterans, and their families, i speak for all americans when i say we will keep our sacred trust to you and provide you with the care, benefits, and opportunity that you deserve. i met some of these patriotic americans a while back. i spoke to the 101st airborne who turned the tide in afghanistan. i spoke to the team who took out osama bin laden. standing before a model of bin laden's compound, the navy seals paid tribute to those who had been lost -- brothers and sisters in arms whose names are

now written at bases where our troops were overseas and on headstones where their memories will not be forgotten. this officer, like so many others i have met on bases in baghdad, walter reed, and bethesda naval hospital, spoke with humility about how his unit worked together as one, depending on each other, and trusting one another. that is a lesson worth remembering. we are all a part of one american family. we have known disagreements and divisions. we are bound together by the creed that is written in our founding documents and the conviction that the united states of america can achieve whatever it sets out to accomplish. now, let us finish the work at hand.

let us responsibly end these wars and reclaim the american dream that is the center of our story. with confidence in our cause, faith in our fellow citizens, and hope in our hearts, let us go about the work of extending the promise of america to this generation and the next. may god bless our troops and may god bless the united states of america. >> we will learn more about this from hillary clinton. she will be testifying at a senate foreign relations committee. if the clinic begins at 7:00 a.m. eastern. later, intelligence committee interviews general david petraeus. he has been nominated as director of the cia.

ben bernanke held this press conference where he read a heated -- or he repeated his. this is held by federal reserve chairman under a new policy. he plans to take questions from reporters. this is just under an hour. >> midafternoon. welcome. in my opening remarks today, i will review the policy decisions. i will place the decision in the context of our policy strategy. i am glad to take for questions. the route the briefing, michael will to be to reflect the consensus of the candy was taking this. my remarks and interpretations on my own responsibility. as indicated earlier, we decided

to keep the target range for the federal funds rate and zero% to one%. economic conditions and a subdued outlook are likely to warrant are low levels to the federal funds rate for an extended time. the purchases will be completed by the end of this month. they will continue to reinvest principal payments going forward. in conjunction with the meeting, participants said projections for economic growth. these projections are conditional at each assessment of the proper path to monetary policy needed to best promote the objectives. i will focus on the informations shown.

in each figure, the dark area is our current projection. the lighter area did us the full range. the longer production shown represent assessments of the rate to reach -- to which each verbal will repeat. the longer run projections have a tendency of 2.52 -- 2.5% to 2.2%. it is the same as in our april projections. these may be interpreted as indicating current best

factors they often cannot be directly measured. the central tendency of the projections is measured by the price index for personal consumption expenditures. it is 1.7% to 2.0%. these projections can be interpreted as indicated. it is consistent with the federal reserve mandate. this is the economic outlook. it is at a moderate pace. it is slower than some expected. recent indicators have also been weaker than expected. the unemployment rate is 0.3%.

hud is somewhat higher. it partly reflects factors that are likely to be temporary. it is with higher food and energy prices. however some moderation in gasoline prospects is a prospect. consequently, there is a change in real gdp. the pace of economic recovery will pick up over coming quarters. projections for output growth are at 2.7% for this year and 3.37% for next year. faster than we have seen in

2011. committee participants have responded to slowing by marking down the growth projections for 2011 and 2012. looking further ahead, the tendency of the growth projections for 2012 is essentially the same as a pro. a show -- as april, as shown, the unemployment rate is projected to go down over coming months to 8.9% in the fourth quarter and then climb gradually to a level of 7.5% in the fourth quarter 2013. still well above the tendency. we expect the employer rate to

continue to decline. the pace of progress remains low. inflation has moved up in recent months reflecting higher prices for imported goods. prices for mortar vehicles have risen because of supply chain disruptions. the committee anticipates inflation will subside in coming quarters to levels at or below its consistent rate as shown in the figure. the central tendency for projections is to 0.3% for this year but declined to 1.5% in 2012 and 2013. it is similar to that of our projections. the economic outlook provides a policy context. it is intended to foster both aspects of our mandate. it is promoting economic

recoveries of unemployment rate returns to a normal level and that inflation is a levels consistent with our mandate. the current unemployment rate remains elevated and progress toward more blunt -- normal levels is likely to be slow. the inflation rate is expected to subside to levels at or below the rate of 2%. a bit less than was just to be consistent. the ongoing labour market slag is a reason to have low levels. pratt said. i'm glad to take your questions. >> from the wall street journal.

it will maintain short-term interest rates at a low level for extended period. does that guidance apply for the fed security holdings? will they be maintained at a high level for extended. period? >> when we began to allow the portfolio to run off rather than the investing, that would be a first that been a profit -- process of exiting from our accommodative policies. we have not yet chosen to make any commitment about the time frame. we will look at the outlook and tried to assess the appropriate time. >> if i may follow up, why give guidance on one policy tool but not on another policy tool when the fed has talked about those

policy tools working together? >> that is a good question. it is something we have on the table. at this point, we have not taken that step. >> mr. chairman, the committee lowered the central tendency forecast. yet the statement attributes most of the revision forecasted to temporary factors. can you explain what seems to be persisting in terms of holding the recovery back? are there more permanent factors that are producing? >> as you point out, the temporary factors are in part the reason for the slowdown. part of the slowdown is temporary a part of the may be

longer lasting. we believe that growth is going to pick up going into 2012. it will be at a slower pace than we had anticipated in april. we do not have a precise read on why this of growth is persisting. one way to think about it is, maybe some of the headwinds that had been concerning a slight -- us like weakness in the financial sector and problems in the housing sector, and the leveraging issues, some of these may be stronger than we thought. it is inappropriate -- appropriate to attribute the slowdown to some of these temporary factors and the possibility that some slowdown is due to factors which are

lager live. in 2013, we have growth at about the same rate that we anticipated in april. >> could you describe to what extent the situation in greece was discussed at the meeting? what policy conclusions were reached? could you tell us whether or not there was a discussion about further easing? >> with respect to greece, that is important. it is a difficult situation. we've been in close communication with our colleagues in europe. we're being kept well-informed. we had a call over the weekend.

the europeans appreciate the importance of resolving the greek situation. if there were a failure to resolve the situation it would pose threats to the european financial system and to political unity as well. we did discuss that. it is one of several risks we are facing now. but we are following the situation closely and making sure as best we can a that our own institutions are well- positioned relative to sovereign debt and for for countries. with respect to additional purchases, we've not taken any action today. we will be reviewing the outlook

going forward. it will be a committee decision. the point i would make in terms of where we are today verses august of last year when i began to talk about asset purchases, at that time inflation was very low and falling. many indicators suggested that deflationary was a non trivial risk. the security purchases have been successful in eliminating deflationary arrest. -- deflation risk. it could have long-lasting effects on growth. growth in payrolls has picked up. the four months before august, there was an $80,000 per month payroll increase. so far in 2011, the average is

closer to 180,000. there has been improvement in the labour market. it is not as strong as we would like. last august, we were missing in both mandates. inflation was too low and falling. unemployment look like my beginning to rise again. -- looeked like it was beginning to rise again. we are closer to the new objectives than we were at that time. again, the situation is different but we will continue to monitor the economy and act as needed.

>> would budget cuts that may begin at the end of this year help or hinder the economy? this goes back to the question about fiscal policy in 2012. >> the effect of fiscal cuts on the economy depends on the timing. i have advocated that the negotiations about the budget focus on the longer-term. 10 years. or even longer if you take into account, a mentor form. by taking the long run, we can help the economy by reducing the risk that interest rates might rise. we may help increase confidence on the part of households. i think it is desirable we take strong action to lower our budget deficits over the long term. in doing that, it would be best not to have a sudden and sharp

fiscal consolidation in the near term. that does not do much for the budget situation. my answer is that it depends on the timing. i hope muggers shares will take a long-term view as they discuss the issue. >> nightly business report on pbs. there seems to be a growing view that the deficit is the problem with jobs. immediate cuts would grow the economy and create jobs. many economists disagree with that. do you want to go further and talk about that issue, whether you agree with that? >> i do not think that sharp cuts in the deficit would create

more jobs. in the short run, we are seeing a certain amount of fiscal drag coming from state and local governments as well as from the withdrawal of previous federal stimulus. in the short run, a fiscal tightening is neutral at best probably someone-for job creation. what people will understand is that our budgetary problems are long run in nature. the projections made by the cbo talk about where our debt ratio will be in 2020. that does not mean we should wait to act. the sooner we can act to be better. the most efficient and effective way to address our fiscal problems, this is important, is

to take a long run perspective and not to focus the cuts on the near term. by taking a long run perspective than making incredible for reducing future deficits it will lower interest rates and prevent them from rising. we will increase confidence. that could be constructed. if it is focused on the near term, i do not think that is the optimal way to proceed. >> with the washington post, the you believe the -- they have the authority to set inflation targets or would it need to go to congress to get may be -- the target made more explicit? are you considering going to congress?

>> as you know, i have been a long time promote -- proponents of an inflation target. it would help anchor expectation. at the same time, it is not at all consistent with our employment objective. keeping inflation low and stable gives the fed more leeway to respond to short-term shocks to the economy. i think it is something that is worth considering. in terms of authorities, there are multiple models around the world. in the european central bank, it has a mandate for price stability. they set their own definition for that. they use input from economists and others. i do not think there is a real

barrier to setting a target. it is very important that we communicate to the public what we are doing without sufficient explanation many people might think we were abandoning our employment target. we need to make sure that it is understood by the public and by congress that having a target would not mean we are abandoning the mandate. you asked about consulting with congress. it is important to take the pulse of congress. we might have the legal authority but we need some advice from congress to take that step. we continue to discuss this issue. it is part of our ongoing communications discussion. there's nothing imminent.

we will continue to discuss this. we will be consulting about it. >> the new york times, what is your assessment of the impact on the united states if there is a default by one more european nations? what steps has the fed taken to assess the consequences for finance constitutions? have you examined the impact on derivatives outside the financial system? >> to answer your second question first, we have been assiduous in examining the exposures of the financial situations to the peripheral countries. the answer is to the banks that we regulate are not exposed to those countries directly.

indirectly they have that exposure. that statement includes credit defaults wops. the numbers that are published do not fully account for a variety of hedges and other positions. with us the banks to do stress tests and ask them to look at their hedges. what would the effect on their capital be if greece defaulted. the effects are very small. it is also the case that we have been keeping a close eye on that situation. again, the situation is similar in some sense that the money market mutual funds do not have much exposure to the three

peripheral countries which are currently dealing with debt problems. they do have substantial exposure to european banks. germany, france, etc.. to the extent there is an impact on the core european banks, that does pose some concern to money market mutual funds. there is a reason why the fed reserve and other regulators are continuing to look at strengthening money market mutual funds. in terms of the impact problem in increase on the united states, direct exposures are small. we're doing all we can to monitor those exposures. as we saw in a situation last spring, a disorderly deep fault

in one of those countries would no doubt have a big impact on credit spreads and stock prices. i think it affects would be significant. -- the effects would be significant. >> the american banker. to talk about banks, as you no global regulators are meeting this week to finalize a proposal that would mean bank would have a surcharge. some argue regulators are going to far too fast. i am wondering, for regulators, where is the line where you surpass, you go too far and you do hurt credit lending. >> i will be attending that meeting.

i will have a chance to hear from others and contribute to that discussion. it has only been two years since the worst financial crisis since the great depression. possibly in the history of united states. the failure of large institutions was a major contributor to that crisis. since we cannot know exactly what threats will come to the future, the best all-purpose way of strengthening the balance sheets of banks and other institutions is by capital. i am supportive of increased capital and better quality capital to help insure these banks will be stable and able to land in the event of another crisis. i hope we do not see that. in terms of the surcharge, it is appropriate to have additional

capital requirements for the most important institutions. it is because their failure would have deleterious effects on the financial system, we need to take extra steps so they will be unlikely to fail. in addition, it provides a more level playing field. it has higher equity requirements. the largest institutions avoid some of the funding advantages that would otherwise go to firms as being viewed as too big to fail. i think it is important to do that. we will be negotiating with our colleagues internationally as to what the appropriate number of firms is and what the amount of capital should be.

we will certainly be trying to balance the need for extra safety of important firms. against the impact on lending. i would note that important firms are only a part of the banking system. some of that lending might go to other institutions. in terms of going too far, it is difficult to make a broad based assessment of the overall impact of all the rules and regulations. i would like to make clear that by law and our internal practices, we do a cost-benefit analysis of every rule that we right. we publish those. we are looking at the cost benefit for these regulations. we have worked with the federal reserve and the bis to do

analyses on the effects of capital on the probability of the crisis. and on the cost of lending and the effect on growth. those studies have been published. if you look at them you see that we believe that the capital that has been, it would reduce the threat of a financial crisis. would have small effect on growth. we are not on the wrong side of the trade-off. >> robbing harding from the financial times. you now expect that inflation will be close to your objectives in 2012 and 2013. does that mean you think the trade-off between inflation and growth is getting worse?

has the unexpected rise in core inflation changed your understanding? >> to address the second question first, that is a possibility. as you saw from the projections we just put out, every member of the committee sees the long run them unemployment rate somewhere around 5.5%. that was suggested. the committee believes the gap is quite large. with respect to inflation, some of the effects are also temporary. to name a couple of examples, the supply chain disruptions brought about by the japanese disaster have led to an increase in auto prices for new and used

automobiles. as these problems are resolved, and they appear to be on their way, we would assume that the auto prices would come back down and incentives would be restored as competition increases and costs are reduced. that is one example. another is the fact that energy prices have been passed through. things like air fare, which are sensitive to the cost of jet fuel, their part of the core. you imagine that is the price of oil declines, you would see some decline also in the core measures of inflation. given there is a large output

gap, given that expectations remain well anchored, given that some of the temporary factors are likely to receive, i think it is reasonable to think that core inflation will fall back toward mandate consistent levels. i think it is the case if you look at the projections we have , the near-term projections. >> peter barnes, fox business. what is the extended period right now for rates? given recent developments in the economic picture, is it a year? under what conditions would be extended period be extended?

>> the reason we use those terms is not to be opaque. we do not know exactly how long. the thrust of it is we believe we are a few meetings away from taking any further action. i emphasize at least. depending on how the economy evolves and inflation and unemployment, it could be significantly longer. it depends how the economic outlook changes. if we do get improved job creation and inflation close to or above our mandate, that would be a sign we need to consider beginning and exit process. we are not there at this point.

>> what about a negative condition? like the situation in europe becoming a contagion situation. >> if the economy worsens and inflation remains low, we would not begin to exit. we would not change the language. the expected length of keeping rates low would be longer. we would not want to give an explicit, we have not chosen to give an explicit timeframe. it is our intention to continue to monitor the economy, revise our outlet. -- outlook. we do not want to commit ourselves to a fixed timeframe.

>> bloomberg news, cool charts. to get to this world of 2013 when we have above trend growth and unemployment falling, what would your appropriate policy be to get there? a late, steep exit or no exit? >> i do not think it would be constructive for me to give you a tentative projections. as i have indicated, there is simply no alternative but to watch the incoming data and make judgments about when this issue began. at this point, it is going to

rely on incoming data. it will determine how quickly we will tighten. we have estimates in our minds. this is a very far cry from saying this is what is going to happen. we can forecast our own behavior of the way we can forecast the economy. that might change. we might end up doing something different than what we currently think is most likely. >> kevin hall, unlike her predecessor, you are bringing your own forecast to the meeting. among equals, how did you fall in the tendency? were you on the high end or the low end? where would you put yourself on

the range of the forecast among equals? i do not think your predecessor did this, what benefit do you get by bringing your own forecast? your predecessor made headlines saying that we should move back to the clinton era tax levels because of how bad the deficit situation could get. what would be the benefits or costs of moving back to in 1999 3% change in the tax rates? >> i have submitted my own forecast. i would characterize myself as being pretty consistent with most of my colleagues. i am not taking an extreme view in any way.

i do personally believe that the slowdown is at least partially temporary and that we will see greater growth going forward. at the same time, i do think that given that we cannot explain the entire slow down, the best guess would be that growth in the near term could be slower than anticipated. the main point i would like to make, as you know, i am reluctant to get into specifics of tax and spending policy, we do need to seriously and urgently address the overall fiscal situation, in particular by taking a long run perspective. exactly how that is done is the responsibility of congress. there are different trade-offs for different choices. those choices also reflect

fundamental values about what you think that government should do, how much resources the government should command through taxes and so on. i generally do not make recommendations about specifics. in my role that -- of somebody that is interested in financial stability, the long-term deficit problem is very urgent. >> looking at your employment projections, it says that we can expect weak jobs growth going forward and a return to normal in the long run. does this suggest that you do not think that there is a structural issue? can you give this a time frame when we will return to normal? >> we expect growth in the second half of this year and

next year to be faster than it has banned in 2011. we would expect to see healthy your job creation numbers. if our forecast is correct, we will see payroll numbers improving relatively soon. in terms of the unemployment rate, given that growth is not much above the long run potential rate of growth, we have an estimate of 2.5%-2.8%, we have not done much more than that, it takes potential to bring down unemployment. we project unemployment to come down very painfully slowly. at some point, if growth picks up as we anticipate, job numbers will start getting better. we are some years away from full employment as5.5%.

that is frustrating. it means that many people will be out of work for an extended time. that could have significant long-term consequences that concern me very much. >> mr. chairman, given your response just now, is it the fed's believe that inflation is transitory, why would the fed not consider taking more action to stem growth? would communications tactics also be on the table as to how to get the country going again? >> there are a couple of considerations. one that i said before is that the current outlook is significantly different than

what we were facing in august of last year. we no longer have a deflationary risk. inflation at the moment is above target. we are not in any deflationary situation. the labor market has been performing better than it was last year. on top of that, we have an awful lot of uncertainty about how much of this slowdown is temporary and how much is permanent? we need to take some time to see what will happen, that would be useful in making policy decisions. we will act appropriately as the news comes in. as news changes, we have different ways of acting.

none of them are without risks or costs. we could structure these in different ways. we could cut the interest on excess reserves that we lend to banks. several of your earlier questions, your question about giving guidance on the balance sheet or perhaps even giving a fixed date to define an extended period. all of these things are untested. they have their own costs. we will be prepared to take additional action if that is warranted.

>> i am with a japanese newspaper. during the 1990's, you strongly agreed with jack -- japan's policies. you said that the u.s. had its own lost decade. talk about japan's experience and the challenges facing the u.s.? >> i am a little bit more sympathetic to central bankers then i was 10 years ago. it is very important to understand in my comments both in my comments and my published comments a decade ago as well as in my speech in 2000 to about deflation, my main point was

that a determined central bank can always do something about deflation. deflation is a monetary phenomenon and the central bank and always create money. persistent deflationary can be very debilitating factor in growth and unemployment in the economy. we acted on bad advice here in the united states as i just described in august and september of last year. we could infer from inflation index bond prices that investors saw something that there was a one-third chance of deflation going forward.

the securities purchases that we did it were intended, in part, to end at risk of deflation. it is widely agreed that we succeeded in avoiding the deflation risk. we did take action as needed, even as we were at the lower bound of interest rates. we have been consistent with that approach. >> mr. chairman, i am from market news international. do you and your colleagues have a statistical trigger of any sort? a particular level of unemployment or inflation that would begin the exit process? so -- if so, would it make sense to announce it?

>> we currently have 17 independent members of the fomc that currently has his or her view on the monetary policy and the risks to inflation and unemployment. we do not have any such formula. we have staff produced various scenarios that gives some indication given their projections of where they're most likely outcomes and most likely points for the beginning of an exit would be. when asked for my own projections, those are very tentative.

they are certainly subject to change as new information comes in. >> on your point about permanent factors on housing back in february, actually in november you said that a second round of asset purchases would ease mortgage rates and make housing more affordable. you have seen housing become more affordable. you are seeing underlying factors still very weak. many economists have pushed back forecasts for any rebound. what can be done for that sector to stimulate growth? >> the housing sector is very important to the overall

recovery. we pay a lot of attention to that. we did succeed in significantly lowering the mortgage rates. those who can get credit, together with the low prices of houses, are able to buy much more house than they could a few years ago. there are problems including the fact that credit standards for mortgages have tightened considerably. the bottom third of people that might have qualified for a prime mortgage a few years ago cannot qualify today. that is certainly an important problem. evidently, there is a lot of uncertainty about employment and the economic recovery. that is affecting people's willingness to buy a house. there are a number of

fundamental factors which are slowing the housing market down. they do present very difficult challenges. the fed is trying to address this in a number of ways. our monetary policy is intended to promote employment and monetary gains which would raise housing demand. as regulators, we want to try to improve servicing practices. we work with are regulated banks to ask them to do modifications where appropriate and manage their reo-owned real-estate in an economy supportive way. the federal reserve has been very much involved in giving input to other agencies which have responsibilities for

housing. we have provided advice to the treasury on their modification programs. i am the head of the oversight board for the tarp, which mostly consists of the housing program. in that context, i am kept well- informed. the federal reserve is doing what it can. otherwise, i would like to see further efforts to modify loans where appropriate and where not appropriate, to speed the process of foreclosure and the disposition of the foreclosed homes in order to clear the market and get these homes out of the pipeline and allow people to operate in a market where they are more confident

that prices will be more stable than falling. although house prices overall are declining, all of that is concentrated in distressed properties. that is houses that are not being sold on a distressed basis have prices that are much more stable than those that are distressed. if we can reduce the current number of a third of home sales that are on a distressed basis, that would do a lot to stabilize the market and get people confident that they can buy and not be buying into a falling market. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> coming up on c-span, medicare's two public trust these discussed the future of the program. there is discussion on how to improve u.s. manufacturing. and the house discusses the u.s. patent process. >> the supreme court is now available as a standard and enhanced e-book. 11 c-span is interviews with current and retired justices. this includes the new justice kagen. you can watch multimedia clips of all of the justices. "the supreme court" is available where all books are sold.

>> it was said that congress needs to enact further changes to enact long-term solvency. at this committee hearing, republicans and democrats argued about the best way to keep medicare operating. >> we will hear from the two public members of the board of trustees at the federal hospital insurance and the other trust fund. it is important to understand the financial health of the medicare program if we are to ensure that the program is solvent and available to future generations of americans. the 2011 trusties' report makes

it clear that medicare's financial outlook is bleak. the hospital insurance trust fund that will be bankrupt in 200024. five years earlier than estimated in last year's report, even though the report paints a very troubling financial picture, the reality is likely much worse. the independent actuaries at the center for medicare and medicaid services felt the need to publish an alternative scenario because of the high likelihood that the trustees' report, which is based on current law, understates future medicare spending. the medicare actuaries alternative scenario assumes that congress will prevent schedule cuts and provider payments such that medicare spending as a percentage of

gross domestic product will be nearly twice as high as the spending called for under current law. the alternative scenario reinforced the need for a prompt attention to medicare's severe financial problems. republicans recognize the seriousness of this situation and have demonstrated their commitment to addressing medicare's financial demise. we put forth a plan to save medicare. congressional democrats and president obama have not. my hope is that this hearing will help the nation come to grips with the extent of the financial problems facing medicare. we cannot wish it away or ignore it as some have chosen to do. medicare is fast going broke and no amount of speechmaking or positioning for political gain

is going to change that fact. some may not like the plan that we have offered, but the critics have the responsibility of proposing solutions. i also call on the president to step forward and played a leading role. of the 2011 trusties report issued a warning that the general revenue contribution to medicare's financing is excessive, the president has failed to recommend improvements in response to this trigger. there will always be a next election and a temptation to put politics above responsibility and problem-solving. as medicare trustees warn, the time to act in a shortened growing shorter. ensuring the financial viability of medicare is one of congress'

most important responsibilities. today's witnesses will inform us of the extent of medicare's financial difficulties as we execute this responsibility. before i recognize for an opening statement, i ask unanimous consent that all member's written statement be included in the record. without objection, so ordered. i now recognize the ranking member for the purpose of his opening statement. >> thank you for holding this hearing today and monitoring medicare solvency is an important responsibility for our committee. we welcome the opportunity to discuss this with our trusties today. the shows a medicare program that has been significantly improved by the affordable care act. beneficiaries are enjoying new benefits as a result of the law.

without that, the solvency would only be predicted at five years, a full eight years less than what was reported. report,t the trustees the projections vary widely. when i got here, the program was only supposed to last two years. at the end of the clinton administration, it had a robust 25 years of solvency. projections have been two years or 25. we have never allow medicare to become insolvent, why? because congress has always acted to make changes to the program to avoid that outcome. that is our job. we have done it pretty well. no private health insurance company, and we know our colleagues on the other side of

the aisle would prefer that medicare be handed over to them, none of them are measured to the project insolvency over the next couple of years. they move quarter by quarter with the market. my republican colleagues will focus on the solvency data having slipped five years from last year's projection of 2029. we know this is due to the economic recovery being so slow, directly affects medicare's standing. i am not sure why it that republicans are focused on medicare solvency at all. they have voted to end medicare several times. the republican position is clear. the republicans do not believe it is the role of the federal government's to guarantee health care to senior citizens and those with disabilities. they can and the delivery system

reforms, the reforms that the trustees' reforms highlights show reform for medicare spending growth. republicans want to provide medicare beneficiaries with a voucher to purchase more expensive private insurance that may or may not be affordable or cover the benefits that they need. there is no doubt that an underfunded voucher would save the government money. medicare becomes a lot cheaper when you destroy the program. the message to take from this year's trust the report -- trustee report is that we have significantly improve medicare's standing. there is much more to be done. we must work together to improve medicare, cannot and the

benefits for seniors. i look forward to the testimony to come. >> thank you. today, we are joined by two witnesses, both of whom have served as public trustees for the medicare program. the witnesses will both report on the dire financial status of the medicare program as outlined n the most recent trustees' report. both of our witnesses are nationally recognized experts in the area of fiscal policy. our witnesses are charles blahous, a research fellow at the hoover institution and the former deputy director of the economic council. and robert reischauer, president of the urban institute and director of the budget office. mr. blahous, you are recognized

for five minutes. >> it is a great honor to appear before you today to discuss the findings of the 2011 medicare report.' i will present the primary findings of the report. the other important issues such as the reason for changes in the changes will be discussed. medicare has to debby a trust funds. there is the locally known as part a, and then there is a physician services, outpatient hospital, home patient services, part b, and then there is the prescription drugs or part d. there is always interest in the solvency of the fund.

it is important to remember that this is just one component of overall medicare financing. on my side, the general revenue contributions come up premiums, these factors are reestablished to manage costs on that side of the program. when there are financial strains on the smi side, they are managed in a different way. we have rising internal revenue pressures. let me first review the hi projections. we project that every year going for that annual hospital expenditures will exceed program and come in the coming years. the consequence would be a continuing diminution until it is exhausted in 2024. that date is five years earlier than was projected in a previous report. report.