THE FISCAL CONSEQUENCES OF THE HEALTH CARE LAW

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by  Committee on the Budget

THE FISCAL CONSEQUENCES OF
THE HEALTH CARE LAW
HEARING
BEFORETHE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
HEARING HELD IN WASHINGTON, DC, JANUARY 26, 2011
Serial No. 112–1
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COMMITTEE ON THE BUDGET
PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho Ranking Minority Member
JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri LLOYD DOGGETT, Texas
TOM COLE, Oklahoma EARL BLUMENAUER, Oregon
TOM PRICE, Georgia BETTY MCCOLLUM, Minnesota
TOM MCCLINTOCK, California JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah BILL PASCRELL, JR., New Jersey
MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma TIM RYAN, Ohio
DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin
BILL FLORES, Texas KATHY CASTOR, Florida
MICK MULVANEY, South Carolina HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas PAUL TONKO, New York
TODD C. YOUNG, Indiana KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
[Vacant]
PROFESSIONAL STAFF
AUSTIN SMYTHE, Staff Director
THOMAS S. KAHN, Minority Staff Director
(II)
C O N T E N T S
Page
Hearing held in Washington, DC, January 26, 2011 ............................................ 1
Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1
Prepared statement of ............................................................................... 3
Hon. Chris Van Hollen, ranking minority member, Committee on the
Budget ............................................................................................................ 4
Hon. Earl Blumenauer, a Representative in Congress from the State
of Oregon, submission for the record:
Letter, dated January 26, 2011, from supporters of the Patient Pro-
tection and Affordable Care Act of 2010 .............................................. 36
Richard S. Foster, F.S.A., Chief Actuary, Centers for Medicare & Med-
icaid Services ................................................................................................. 7
Prepared statement of ............................................................................... 10
Dennis G. Smith, secretary, Wisconsin Department of Health Services ..... 64
Prepared statement of ............................................................................... 66
James C. Capretta, fellow, Ethics and Public Policy Center ........................ 69
Prepared statement of ............................................................................... 71
Response to Ms. Kaptur’s question .......................................................... 87
Paul N. Van de Water, senior fellow, Center on Budget and Policy Prior-
ities ................................................................................................................. 75
Prepared statement of ............................................................................... 76
(III)

THE FISCAL CONSEQUENCES OF
THE HEALTH CARE LAW
WEDNESDAY, JANUARY 26, 2011
HOUSE OF REPRESENTATIVES,
COMMITTEE ON THE BUDGET,
Washington, DC.
The committee met, pursuant to call, at 9:40 a.m. in room 210,
Cannon House Office Building, Hon. Paul Ryan [chairman of the
committee] presiding.
Present: Representatives Ryan of Wisconsin, Garrett, Simpson,
Campbell, Calvert, Akin, Cole, Price, McClintock, Chaffetz,
Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, Huelskamp,
Young, Amash, Rokita, Guinta, Van Hollen, Schwartz, Kaptur, Blu-
menauer, McCollum, Yarmuth, Pascrell, Honda, Ryan of Ohio,
Wasserman Schultz, Moore, Castor, Tonko, and Bass.
Chairman RYAN. The hearing will come to order.
I welcome all to the first House Budget hearing of the 112th Con-
gress.
Before we get started, I want to thank ranking minority member
Chris Van Hollen for his cooperation in getting the committee rules
adopted and with this hearing and for starting a little early so we
can get a head start on the day.
Why is this the Budget Committee’s first hearing and why is it
focused on health care? Well, let’s just put it very simply. Our fis-
cal problem is a health care problem. Health care spending is driv-
ing the explosive growth in our spending and our debt.
The new health care law was sold under the guise of fiscal re-
sponsibility. The claim was that the government would spend tril-
lions of dollars, add millions to a new government-controlled health
care program, and create two new open-ended health care entitle-
ments, all in order to lighten our budgetary burden. Most Ameri-
cans understand that something is just not adding up here. Today’s
hearing is intended to peel back the layers of the law and its maze
of mandates, dictates, controls, tax hikes, and subsidies.
Many try to distort our criticism of the health care law and say
that we are criticizing the CBO. Actually, quite the opposite is
true. I think CBO does a very good job. We ask them to do a lot
under short notice, and they perform very admirably. The analysis
performed by the CBO, Mr. Foster, and others enable us to unpack
the law’s budgetary smoke and mirrors and reveal its true fiscal
impact.
We face a choice of two futures, and nowhere is this choice more
clearly defined as it is in health care. Down one path lies the man-
aged decline of a government-run system on the verge of bank-
(1)
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ruptcy. There is an alternative path, and it is a path that leads to
true choice and competition in health care. It is modeled after the
health care system that we ourselves in Congress enjoy; and it puts
patients first, with providers competing for our business.
But before we can get there, we must reject the notion that a
centrally planned, bureaucratically run health care system can
produce more favorable outcomes than the one managed by doctors
and patients.
Do we want a system that is command and controlled, price con-
trolled, formulaically controlled by government, or do we want a
system where the patient is the center, where the patient is sov-
ereign, where they get to decide, where providers—doctors, hos-
pitals, insurers—compete against each other for our business or do
we want them competing for favoritism from a shrinking pool of
government resources?
While I am opposed to the President’s health care law, I want
to find solutions to these problems. That is why I have worked with
Democrats to come up with other proposals to try and find answers
to these.
Alice Rivlin and I most recently teamed up on a proposal in the
Fiscal Commission. She and I don’t see eye to eye on everything,
but we tried to come together with a compromise to try to find a
way to fix some of these problems to address our health care prob-
lems and our fiscal problems. I hope we can continue to build bi-
partisan support for policies that create incentives in our health
care system to enhance quality, reduce costs, and promote patient
satisfaction.
It is an honor to welcome our first witness, Rick Foster, Chief Ac-
tuary for the Centers of Medicare and Medicaid Services. Time and
again, Rick’s unbiased actuarial reports have proved difficult to
square with the claims made by the law’s proponents, specifically
with respect to the direction of health care spending as a result of
this law.
After Rick’s testimony, we will hear from a panel of three wit-
nesses. Dennis Smith, the newly confirmed Secretary of Health
Services in my home State of Wisconsin. Dennis has tremendous
experience in this area, having served as Medicaid Director at HHS
under the previous administration. He will give us a sense of what
the impact of the law is on the States.
Next, Jim Capretta, former associate and director at the Office
of Management and Budget. Few in my mind have made as com-
pelling a case as Jim on both the costly consequences of this law
and the path forward to advance real reform.
And we will hear from Paul Van de Water from the Center for
Budget and Policy Priorities. Paul has an impressive background,
and I welcome his thoughts to advance an informed debate on this
critical issue.
I look forward to today’s discussion. I thank our witnesses for
joining us and starting a little early.
With that, I would like to yield to Ranking Member Van Hollen
for an opening statement.
[The statement of Mr. Ryan follows:]
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PREPAREDSTATEMENTOFHON. PAULRYAN, CHAIRMAN, COMMITTEEONTHEBUDGET
Welcome all, to the first House Budget Committee hearing of the 112th Congress.
This is an immensely consequential time for the Congress, and our Federal Govern-
ment in general. It is a time in which this committee will play an exceptionally im-
portant role. I welcome the opportunity to tackle the challenges we face: the stakes
are very high—but so are the potential rewards.
I also offer my congratulations to Chris Van Hollen on being selected as Ranking
Member on this committee. Chris is an eloquent spokesman for his party’s views
and principles, and I look forward to many vigorous, and I hope enlightening, de-
bates on issues that are so critically important to our country right now.
One of those, of course, is health care—and specifically the health care legislation
enacted last year. It remains a highly contested subject, and the more Americans
learn about the legislation, the more questions and doubts they have.
We in America enjoy a strong and innovative health care system. But its costs,
including those of the Federal Government, are out of control. The average cost of
a health insurance policy for a family of four doubled between 2000 and 2007, and
is projected to double again in the next seven years. And because the federal govern-
ment has made a large and open-ended commitment to the health security of most
Americans, health care costs have a huge impact on our federal budget. The Con-
gressional Budget Office says Federal spending on health care, as a percentage of
the economy, will double over the next 25 years—crowding out spending for any-
thing other than health care and Social Security.
To put it simply, our fiscal problem—in which government debt is approaching the
size of the entire economy—is a health care problem.
The Democrats’ health care legislation was sold as a way of addressing both—but
whether that’s true is seriously in doubt. Our first witness today has said that any
health care savings resulting from the law will be more than offset by higher ex-
penditures for coverage expansions. The Director of the Congressional Budget Office
has said the legislation will not substantially reduce the upward pressure on health
care spending.
In short, this Washington-centered health care overhaul—with its maze of man-
dates, dictates, controls, tax hikes, and subsidies—will very likely accelerate the rise
in health care costs. Many of these costs will be foisted onto the states, as the bill’s
Medicaid expansions will strain their budgets even further.
Today’s hearing is intended to peel back the layers of this complex law, to sweep
aside the budgetary smoke and mirrors, and to examine its effects on health care
costs and, consequently, on our nation’s finances.
Our witnesses today will help clarify these issues.
First is Rick Foster, Chief Actuary for at the Centers for Medicare and Medicaid
Services. Due to his role, Rick can offer a clear and thoroughly unbiased of the fiscal
effects of the health care law.
We’ll hear from Dennis Smith, Secretary of Health Services in my own state of
Wisconsin, Dennis can speak today about the new Medicaid obligations this law will
force on states such as Wisconsin.
And we’ll also hear from Jim Capretta, a former associate director at the Office
of Management and Budget and currently a fellow working on health care issues
at the Ethics and Public Policy Center.
No one has done a better job than Jim of exposing gimmicks in the health care
law that hide its true costs.
We are at a fiscal crossroads, with two very different futures waiting for us at
the end of two very different paths. One path leads to the managed decline of a gov-
ernment-run system on the verge of bankruptcy. Harsh austerity, severe benefit
cuts and massive tax increases wait for us at the end of this path.
The other path leads to true choice and competition as reflected in the health care
reform proposals that I and some of my colleagues, such as Tom Price, have put
forward in Congress.
Putting patients first—contributing a defined amount to their health security and
making doctors and hospitals compete for their business—would put the focus in
health care on quality, cost, efficiency and patient satisfaction, just as it is in almost
every other business.
I am proud to have worked with former Clinton administration budget director
Alice M. Rivlin to advance some of these reforms. It is possible to build bipartisan
support for policies that allow consumers and patients to make choices for them-
selves, even as the government provides sensible oversight of the marketplace.
We all understand that, for too many Americans, the health care system isn’t
working. Nobody is talking about going back to the status quo. But we cannot forge
a bipartisan way forward until we remove this partisan roadblock.
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With that, I will yield to Ranking Member Van Hollen for an opening statement.
Mr. VAN HOLLEN. Thank you, Mr. Chairman.
I want to join the chairman in welcoming Mr. Foster and the
other witnesses here today. I have to say at the outset that many
of us are disappointed that the first hearing of the Budget Com-
mittee, rather than focusing on jobs and the economy, is focused on
looking backwards and repealing the health care reform bill.
As the President indicated last night in the State of the Union
address, there are going to be issues, of course, that arise with the
health care reform bill and we should work together to address
those issues as they come up. But relitigating the whole health
care reform bill we think is a mistake and doesn’t focus our re-
sources, energy, and attention on the really pressing problems for
the American people, getting more people back to work, getting the
economy in full gear going forward. That being said, we do believe
that today’s hearing and other hearings on the health care reform
bill will help eliminate many of the myths and misunderstandings
that came up in connection with the health reform legislation.
We on the Democratic aisle a few weeks ago before the vote had
a hearing where we invited our constituents from around the coun-
try to testify on that bill. It was an unofficial hearing, because the
majority decided to press forward with repeal without having any
hearing in this Congress, listening to the benefits that have al-
ready begun to kick in for millions of Americans.
We heard testimony from moms and dads, sisters and brothers,
who talked about the fact that they like the fact that no longer will
their kids be kicked off of a health insurance policy or denied cov-
erage to begin because they have a preexisting condition like asth-
ma or diabetes.
We heard from parents that really like the assurance that their
children could stay on their health insurance policy until they were
age 26.
We heard from small businesses that are taking advantage of the
tax credits to provide more affordable coverage for their employees.
A recent Forbes article indicated that that tax credit benefit has
exceeded beyond expectations.
We heard from senior citizens who as of January 1 get a little
bit more help in covering the costs of their medicines when they
fall into the donut hole.
So millions of Americans in the last 10 months have begun to
recognize important benefits of that legislation.
Now, I know our colleagues on the other side of the aisle will say,
well, we are going to get rid of all of this and put back in some
of that stuff. The reality is between the years 2000 and 2006 health
insurance premiums in this country doubled. They went up 100
percent. Congress and the former President did nothing during
that period of time.
Under the health care reform bill, if you look at the CBO Janu-
ary letter, you will find that, over a period of time, premiums will
begin to come down in the employer insurance market and that
people’s out-of-pocket costs in the individual market will go down
over a period of time.
So we believe we should be focused on trying to fix those areas
like the 1099 small business burden that I think there is common
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agreement should be changed, rather than relitigating this whole
issue.
Now, just a word on the deficit reduction benefits of the health
care reform bill. Because, obviously, the Congressional Budget Of-
fice most recently in its January letter indicated that over the first
10 years we would save, we would reduce the deficit by $230 billion
under the health care reform law as passed; and over the 20-year
period, it would be $1.4 trillion in deficit reduction benefits. The
CBO, as we all know, is an independent, nonpartisan entity; and
I think we would all agree that we will have budget and fiscal
chaos if we decide at our own whim and initiative to throw out
CBO numbers.
Now today we are going to focus on, as the Chairman said, what
CBO was given to score; and I actually think this will help illus-
trate the fact that the CBO numbers are real. Now I know we
would like—I hope we will have the CBO come at some point and
testify on their own deficit reduction package, rather than sort of
take an indirect approach to those numbers. But I think what we
are going to find—and I am looking forward to the testimony of Mr.
Foster—is that indeed the CBO numbers are something that, while
he cannot independently verify because that is not his total area
of expertise, that they are built on what we believe are important
assumptions.
Just two quick slides I want to look at the outset, and then I will
conclude my remarks.
This first one is based on the analysis that Mr. Foster did in
April of 2010. It takes a chart of total national health care expendi-
tures in the year 2019 if the health care reform bill is implemented
as enacted. Those are the columns to the left. The columns to the
right are the number of people who will now receive health insur-
ance and be able to get preventative care, just like Members of
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Congress can get through their insurance, get the health care they
need when they need it through their insurance.
The estimates are between 32 and 34 million Americans—CBO
says 32 million, Mr. Foster says 34 million Americans—will get
that additional coverage. That is on the right. You can see directly
the benefits.
We have heard a lot of talk about how this is going to be a huge
expenditure. And if you look at national health care expenditures,
in—let’s go back—in the year 2019, that is just 9 years from now—
and this is taking Mr. Foster’s slide with the bill as enacted—you
are talking about a 1 percent difference with the health care re-
form bill, 1 percent difference in the health care reform bill and
getting 32 to 34 million more Americans covered.
I think if you look at the remainder, we will be hearing from Mr.
Foster, as you go into the outyears and begin to bend the cost curve
if you implement this bill as enacted, you actually get to a point
where national health expenditures as a result of passage and im-
plementation of the new law actually will be less than if we had
done nothing.
So we look forward to the testimony of Mr. Foster and others as
we go forward this morning.
I conclude with this slide, which are the CBO numbers, which
show the savings for the first 10 years and then the savings from
a deficit perspective for the second 10.
Thank you very much, Mr. Chairman.
Chairman RYAN. Let me just say we have a difference of opinion
on some of these things. I appreciate the gentleman’s remarks.
I know they don’t want us to get into relitigating the health care
law, but I think everybody would agree the debt problem is a
health care problem, and we are going to have to relitigate that to
get to a real solution, because we haven’t fixed the debt problem
yet.