S. HRG. 111-828 PRESIDENT'S FISCAL YEAR 2010 HEALTH CARE PROPOSALS HEARING BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION MARCH 10, 2009 Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 62-708-PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON FINANCE MAX BAUCUS, Montana, Chairman JOHN D. ROCKEFELLER IV, West Virginia CHUCK GRASSLEY, Iowa KENT CONRAD, North Dakota ORRIN G. HATCH, Utah JEFF BINGAMAN, New Mexico OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts JON KYL, Arizona BLANCHE L. LINCOLN, Arkansas JIM BUNNING, Kentucky RON WYDEN, Oregon MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan JOHN ENSIGN, Nevada MARIA CANTWELL, Washington MICHAEL B. ENZI, Wyoming BILL NELSON, Florida JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey THOMAS R. CARPER, Delaware RUSSELL SULLIVAN, Staff Director KoLAN DAVIS, Republican Staff Director and Chief Counsel (II) CONTENTS OPENING STATEMENTS Page Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee on Finance ............................................................ 1 Grassley, Hon. Chuck, a U.S. Senator from Iowa ............................. 2 WITNESS Orszag, Hon. Peter, Director, Office of Management and Budget, Washington, DC ......................... ........................ ............. 5 ALPHABETICAL LISTING AND APPENDIX MATERIAL Baucus, Hon. Max: Opening statement..................................................1 Grassley, Hon. Chuck: Opening statement..................................................2 Orszag, Hon. Peter: Testimony ......................................................... 5 Prepared statement with attachments ................................. 47 Responses to questions from committee members ......... ............... 85 COMMUNICATIONS American Health Care Association and National Center for Assisted Living .... 99 Senior Citizens League .................................... ............ 102 PRESIDENT'S FISCAL YEAR 2010 HEALTH CARE PROPOSALS TUESDAY, MARCH 10, 2009 U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. The hearing was convened, pursuant to notice, at 10:04 a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max Baucus (chairman of the committee) presiding. Present: Senators Rockefeller, Lincoln, Wyden, Schumer, Stabe- now, Cantwell, Nelson, Carper, Grassley, Hatch, Snowe, Kyl, Bunning, Crapo, Roberts, Ensign, and Enzi. Also present: Democratic Staff: Bill Dauster, Deputy Staff Direc- tor and General Counsel; Elizabeth Fowler, Senior Counsel to the Chairman and Chief Health Counsel; Yvette Fontenot, Professional Staff; Shawn Bishop, Professional Staff; and Chris Dawe, Profes- sional Staff. Republican Staff: Rodney Whitlock, Health Policy Ad- visor; Andrew McKechnie, Health Policy Advisor; and Jim Lyons, Tax Counsel. OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE The CHAIRMAN. The committee will come to order. On February 24th, President Obama said, "Nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and the conscience long enough. So let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year." I could not agree more with our President. Our next objective is health care reform. Comprehensive health reform is no longer sim- ply an option, it is an imperative. If we delayed, the problems that we face today would grow even worse. If we delayed, millions more Americans would lose their coverage. If we delayed, premiums would rise even further out of reach. And, if we delayed, Federal health care spending would soak up an even greater share of our Nation's income. Senator Grassley and I have laid out a schedule to do just that. Our schedule calls for the committee to mark up a comprehensive health care reform bill in June. We should put a health care bill on the President's desk this summer. The President's budget makes a historic down payment on health care reform. Over the next 10 years, the President's budget invests $634 billion to reform our health care system. Reforming health care means making coverage affordable over the long run, it means improving the quality of care, and it means expanding health in- surance to cover all Americans. Given our current economic situation, this becomes more impor- tant than ever. According to the Center on Economic Progress, the number of uninsured people grows by 14,000 every day. We need fundamental reform in cost, in quality, and in coverage. We need to address all three objectives at the same time. They are inter- connected. If you do not address them together, you will never real- ly address any of them alone. Costs grow too rapidly because the system pays for volume, not quality. Quality indicators like lifespan and infant mortality re- main low because too many are left out of the system. Families do not get coverage because health costs grow faster than wages. Without coverage, health insurance costs increase because pro- viders shift the cost of uncompensated care to paying customers. It is a vicious cycle; each problem feeds on the others. We need a com- prehensive response. Today it is my pleasure to welcome the Director of the Office of Management and Budget, Peter Orszag, to discuss the health care proposals in the President's budget. Peter and I have met many times to talk about health care reform. He is one of the brightest and hardest-working folks in the administration, and we all appre- ciate him very much. Today we will explore the President's proposals to help offset the cost of health care reform, and today we will also explore any fea- sible proposals that the administration has left out. Our goal is to offset the cost of health care reform, so we need to think creatively about proposals that will both improve quality and reduce the growth of health care costs in a 10-year budget window. As Dr. Orszag has said, the path to fiscal responsibility must run directly through health care. Our country's economic sustainability depends on health care reform. I look forward to working with the administration toward that goal. So let us, at long last, deliver on the dream of reform that Teddy Roosevelt called for nearly a century ago. Let us, at long last, lift the burden of health care costs on our economy and on the con- science of our Nation. Let us, at long last, enact health care reform this year. Senator Grassley? OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM IOWA Senator GRASSLEY. Thank you, Mr. Chairman. The President released his budget last month and made it very clear that health care reform is a top priority. I share his commit- ment, and I am glad that we are taking a closer look at some of the health care reforms that are being proposed in this 2010 budget. Health care reform is important, but it will not fix all the prob- lems with our economy, nor will it solve the entitlement crisis. Fix- ing health care is necessary, but not sufficient. Still, we have a great opportunity before us, and it is an opportunity we are taking. The health care system, if you want to call it a system, is in des- perate need of reforms. We spend twice as much on health care as other developed nations, and even with all that spending our health care outcomes are often half as good. Millions live in fear of losing coverage, and 45 million do not have coverage. Last week, Senator Baucus and I joined other members of Con- gress and various stakeholders at the White House forum. In bring- ing everybody together, it was clear that we agree on a lot of issues, and yet still have a long ways to go on others. But overall, I left the White House knowing that Republicans and Democrats share a commitment to expanding health insurance and improving the way care is paid for and delivered in the country. On the same day as the White House forum, Senator Baucus and I announced an ambitious, but I think achievable, schedule for de- veloping bipartisan health reform proposals. I feel positive about how we are starting this process. Let me also say that we have a long ways to go, and there is a lot of heavy lifting. At this point, I have not heard from any Republican Senators that we should not be working on health care reform this year. We have not had to make any difficult decisions yet, but no one has said to me that we should not be trying to pass health care reform. Right now, Republicans and Democrats are able to agree on a va- riety of broad issues, but the true test of this bipartisan process will be how we handle those details, particularly the few tough de- tails to work out. I do believe that by working together we can face this challenge and get the job done. So that brings me to today's topic, the President's budget. The President's budget contains a number of bold proposals that inter- est me. However, it was also lacking in detail, so I hope to have you, Dr. Orszag, today, shed some light on details of this budget proposal, how the administration will approach health reform. We all see the Nation's fiscal situation getting worse by the day. The current administration inherited a $1-trillion deficit, and they promptly added another $1 trillion to our National debt with the economic stimulus bill. The stock market has fallen another 20 per- cent just since the President took office. Now the Obama administration is proposing a $634-billion health reform reserve fund which they say is merely a "down pay- ment." While fixing our health care system has to be a priority, so is financing it responsibly.