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Remarks by The President In Discussion of the Deficit at Bipartisan Meeting on Health Care Reform

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Location: Washington, DC

Blair House

THE PRESIDENT: All right, Joe, let's talk about cost because -- and now we're not talking about cost to families but we're talking about deficit, how much respective ideas cost. I think this is a good place to talk about Medicare as well because it's been brought up several times. Joe, go ahead.

THE VICE PRESIDENT: Mr. President, I'll try to be brief. There's a lot to talk about. I'd like to focus it though on the deficit, impact on the deficit, which we're all talking about. And I must tell you, maybe I've been around too long, but I am always reluctant, after being here 37 years, to tell people what the American people think. I think it requires a little bit of humility to be able to know what the American people think. But -- and I don't, I can't swear I do. I know what I think, I think I know what they think, but I'm not sure what they think.

And the second point I'd make is, this probably has an echo -- this is slightly off point, but this debate about the philosophic differences echo the debate that probably took place in the mid-'30s on Social Security -- it was mandated. And it was mandated because everybody knew you couldn't get insurance unless everybody was in the pool. And they knew if only some people were in the pool, what would happen is a lot of people when they got old we would take care of them anyway and you'd have to pay for them.

So it's kind of a -- it's not the same thing, I'm not making the exact, but it's the same philosophic debate that took place back in the '30s.

But, look, I think, if I can lay out, Mr. President, what I think we all agree on, and then figure out whether as a way to deal with the deficit end of this -- bending the cost curve, to use a phrase you and many others have used, Mr. President.

First of all, everybody agrees we have the finest docs and the finest hospitals and the finest nurses in the world, and we don't have quite enough of them but we have the finest. Everybody also agrees, I got from this morning but I think we had before, that Senator Coburn is right that we waste a heck of a lot of money and that somewhere around a third of all the dollars we spend on Medicare is -- goes for nothing useful.

The third thing it seems -- I assume we can all agree on is that over the last decade costs have doubled for health care in America -- costs have doubled for government-provided health care, but everybody's health care. And that that meant that right now everybody knows that that wrecks budgets, it wrecks state budget, it wrecks family budgets, it wrecks federal budgets. Every 35 cents of every dollar spent on health care is spent by the federal government or the state governments for Medicare and Medicaid -- 35 cents on the dollar. That doesn't count veterans and other things, just those two. And so -- and what's happened is -- on the dollar, on every health care dollar.

And so we're facing, all of us around this table, Democrat and Republicans, are facing the fact that there's $919 billion now we're spending on Medicare and the federal portion of Medicaid, and that if things -- I don't see any firewall is going to keep costs from doubling again, we're going to be talking about in the year 2019 we're going to be spending $1.7 trillion if we don't do something to bend that curve.

And the fourth point I think we can agree on is that whether you agree how it was arrived at, CBO has gone out and scored the various plans as to whether or not they'd bend the cost curve, and everybody is acting in good faith. John's plan, they've gone out and points out over 20 years it will -- and I don't know if that's the Republican plan or John -- I don't think there's any one plan that is out there, but John's plan cuts those costs by $300 billion over 20 years, according to CBO. The Senate plan cuts it by over a trillion dollars over 20 years; $100 billion over 10.

Again, we can argue on the margins, but the fact is it's not just CBO that said this -- you had the Business Roundtable/Hewitt study that shows that the Senate plan slows growth by 15 to 20 percent and that business costs per employee by the year 2019 would be $3,000 less per employee. Again, it may be wrong -- it may be wrong-exact amount, it may be $3,800, it may be $2,200 -- but it cuts costs. And so it seems to me that there is -- and I might add, that in the process here, it wasn't part of the -- specifically part of a long-term debt debate, but, you know, as has been pointed out here, we're not cutting Medicare benefits in this; we're trying to eliminate the third of the problem that's a waste.

And as Senator Enzi, who I have an inordinate amount of respect for, points out, he said it'd be nice if we put some of these savings back into Medicare. Well, the fact is we do. We closed the prescription drug doughnut hole. We provide for preventative care for seniors because they don't have now without a co-pay. And we also -- it's everyone -- I think most every major study agrees that it's going to extend the life of Medicare trust fund, and it changes -- these changes, the actuarial group pointed out, would save about $200 on a premium per Medicare recipient out there, the people who are paying.

So look -- and the source of how we do this is getting rid of waste, making sure that we don't overpay insurance companies for Medicare Advantage. I want to remind everybody about Medicare Advantage, because some of us around here -- probably all of us around this table were here when it got put in. What was the rationale for Medicare Advantage? The rationale for Medicare Advantage a decade ago was that private insurers could provide insurance -- better insurance -- cheaper than the government can do it. They can do it better.

And we said the reason why we're going to pay them more than what they're going to give at the front end is to incentivize them to get into business of doing it. And so we paid them a $1.15 for every dollar's worth -- what we could have bought for a dollar. We did that -- and it was a rational thing to try -- we did that because we wanted them to get engaged in the business we thought government didn't do as well as the private sector did.

Well, here we are. We're overpaying insurance companies about 15 cents on the buck that we could buy for a dollar, and we call for eliminating that.

And so the other point I'd make, Mr. President, is that we're in a situation here where at the end of the day nobody in this room -- I don't think anybody in this room -- is going to say, you know something, we are really going to be reforming the health care system without affecting the effect on the long-term deficit. Unless we bend that cost curve, we're in trouble.

And Mr. President, we can argue, which we will, about whether or not the way you and I want to go after dealing with the long-term debt, whether commissions make sense, whether or not we're ever going to deal with -- this is a big entitlement, this is a big entitlement. It's a big entitlement. Medicare -- it exists. We've got to figure out how to keep it from bankrupting the country without denying seniors what they're entitled to in a nation like ours: decent health care that provides for their needs.

So I'd like us, Mr. President -- and I'm going to hush -- I'd like us to talk about, if we can, specifically what we all agree on. What do we do about bending the cost curve? What's the best way to do it? And I yield the floor.

REPRESENTATIVE BOEHNER: Mr. President, Mr. Ryan is going to open this conversation on behalf of us.

REPRESENTATIVE RYAN: Look, we agree on the problem here, and the problem is health inflation is driving us off of a fiscal cliff. Mr. President, you said health care reform is budget reform. You're right. We agree with that. Medicare right now has a $38 trillion unfunded liability. That's $38 trillion in empty promises to my parents' generation, our generation, our kids' generation. Medicaid is growing at 21 percent this year. It's suffocating state's budgets. It's adding trillions in obligations that we have no means to pay for it.

Now, you're right to frame the debate on cost and health inflation. And in September when you spoke to us in the well of the House, you basically said -- and I totally agree with this -- "I will not sign a plan that adds one dime to our deficits either now or in the future."

Since the Congressional Budget Office can't score your bill because it doesn't have sufficient detail, but it tracks very similar to the Senate bill, I want to unpack the Senate score a little bit.

And if you take a look at these CBO analysis, analysis from your chief actuary, I think it's very revealing. This bill does not control costs. This bill does not reduce deficits. Instead this bill adds a new health care entitlement at a time when we have no idea how to pay for the entitlements we already have.

And let me go through why I say that. The Majority Leader said the bill scores as reducing the deficit $131 billion over the next 10 years. First, a little bit about CBO. I work with them every single day. Very good people, great professionals, they do their jobs well. But their job is to score what is placed in front of them. And what has been placed in front of them is a bill that is full of gimmicks and smoke and mirrors.

Now, what do I mean when I say that? Well, first off, the bill has 10 years of tax increases, about half a trillion dollars, with 10 years of Medicare cuts, about half a trillion dollars, to pay for six years of spending. Now, what's the true 10-year cost of this bill in 10 years? That's $2.3 trillion.

It does a couple of other things. It takes $52 billion in higher Social Security tax revenues and counts them as offsets, but that's really reserved for Social Security. So either we're double-counting them or we don't intend on paying those Social Security benefits. It takes $72 billion and claims money from the CLASS Act -- that's the long-term care insurance program. It takes the money from premiums that are designed for that benefit and instead counts them as offsets. The Senate Budget Committee chairman said that this is a Ponzi scheme that would make Bernie Madoff proud.

Now, when you take a look at the Medicare cuts, what this bill essentially does is treats Medicare like a piggy bank. It raids a half a trillion dollars out of Medicare not to shore up Medicare's solvency but to spend on this new government program.

Now, when you take a look at what this does, it is -- according to the chief actuary of Medicare, he's saying as much of 20 percent of Medicare's providers will either go out of business or will have to stop seeing Medicare beneficiaries. Millions of seniors who are on -- who have chosen Medicare Advantage will lose the coverage that they now enjoy. You can't say that you're using this money to either extend Medicare solvency and also offset the cost of this new program. That's double-counting.

And so when you take a look at all of this, when you strip out the double-counting and what I would call these gimmicks, the full 10-year cost of this bill has a $460 billion deficit. The second 10-year cost of this bill has a $1.4 trillion deficit.

And I think probably the most cynical gimmick in this bill is something that we all probably agree on. We don't think we should cut doctors 21 percent next year. We've stopped those cuts from occurring every year for the last seven years. We all call this here in Washington the "doc fix." Well, the doc fix, according to your numbers cost $371 billion. It was in the first iteration of all these bills. But because it was a big price tag, and it made the score look bad, made it look like a deficit, that provision was taken out, and it's been going on as stand-alone legislation. But ignoring these costs does not remove them from the backs of taxpayers. Hiding spending does not reduce spending.

And so when you take a look at all of this, it just doesn't add up. And so let's just -- I'll finish with the cost-curve. Are we bending the cost curve down or are we bending the cost curve up? Well, if you look at your own chief actuary at Medicare, we're bending it up. He's claiming that we're going up $222 billion -- adding more to the unsustainable fiscal situation we have.

And so when you take a look at this, it's really deeper than the deficits or the budget gimmicks or the actuarial analysis. There really is a difference between us. And we've been talking about how much we agree on different issues, but there really is a difference between us. And it's basically this: We don't think the government should be in control of all of this. We want people to be in control. And that, at the end of the day, is the big difference.

Now, we've offered lots of ideas all last year, all this year, because we agree the status quo is unsustainable. It's got to get fixed. It's bankrupting families. It's bankrupting our government. It's hurting families with preexisting conditions. We all want to fix this. But we don't think that this is the answer to the solution. And all of the analysis we get proves that point.

Now, I will just simply say this -- and I respectfully disagree with the Vice President about what the American people are or are not saying, or whether we're qualified to speak on their behalf. So we are all representatives of the American people. We all do town hall meetings. We all talk to our constituents. And I've got to tell you, the American people are engaged. And if you think they want a government takeover of health care, I would respectfully submit you're not listening to them.

So what we simply want to do is start over, work on a clean sheet of paper, move through these issues step by step, and fix them and bring down health care costs and not raise them. And that's basically the point.

THE PRESIDENT: I'm going to call on Xavier Becerra, but I just want to follow up on a couple points. There are some strong disagreements on the numbers here, Paul, but I don't want to get too bogged down.

First question I have is whether your side thinks Medicare Advantage is working well, because I think it's important just to point out that -- when we keep on talking about cuts in Medicare, what we're really talking about is what Joe alluded to, which is a decision was made a while back to set up a system in which Medicare costs, let's say, a dollar under the government program that 80 percent of people still use and are perfectly satisfied with and there's no showing that it's not working for them. We said we'd give it to private insurers and we'd give them a bonus of a $1.15 for every dollar in the normal plan. And it turns out that people aren't healthier because of that extra $15 -- or 15 cents. It's estimated that it's costing us about $180 billion over 10 years and, say, $18 billion a year.

And essentially what my proposal would do, and what the House and Senate proposals would do, would say, instead of having the insurance companies get that money, let's take that money -- the savings are between $400 billion and $500 billion a year -- and let's devote some of that money to closing the doughnut hole, which has already been talked about. Seniors who need more prescription drugs than Medicare currently is willing to pay for hit this gap where suddenly they've got to use it out of pocket, and they just stop taking the drugs, or they break them in half, or what have you. Let's fill that. That costs around $30 billion a year, or $300 billion. And let's make some other changes that would result in actually the 80 percent of seniors who aren't in Medicare Advantage getting a better deal.

So we can address some of the broader issues, but I just want to focus on Medicare Advantage because I haven't seen an independent analyst look at this and say seniors are healthier for it or taxpayers are better off for it. That's what we're talking about reforming. We're not talking about cutting benefits under the Medicare program as is required under law. What we're talking about is Medicare Advantage.

And it may be that some people here think that it's working. I know that there are some Republicans who are sitting at this table who don't think it's working. You can argue and say, okay, let's not do Medicare Advantage and let's not close the doughnut hole, for example, or there may be other ways you want to spend that money. But I just want to establish whether we've got some agreement that the Medicare Advantage program, which is what we are proposing to reform, is actually not a good deal for taxpayers or for seniors, and certainly not a good deal for the 80 percent of seniors who aren't in Medicare Advantage, because, by the way, they're paying an extra premium of about 90 bucks a year to subsidize the 20 percent who are in Medicare Advantage.

SENATOR McCONNELL: Mr. President, John McCain also would like to address that issue.

THE PRESIDENT: I'm sorry, so if somebody else wants to address it --

SENATOR McCAIN: I'd just make one comment. Why in the world then would we carve out 800,000 people in Florida that would not have their Medicare Advantage cut? Now, I proposed an amendment on the floor to say everybody will be treated the same. Mr. President, why should we carve out 800,000 people because they live in Florida to keep the Medicare Advantage program and then want to do away with it?

THE PRESIDENT: I think you make a legitimate point.

SENATOR McCAIN: Well, maybe --

THE PRESIDENT: I think you do.

SENATOR McCAIN: Thank you very much. (Laughter.)

THE PRESIDENT: I'm going to Xavier -- in fairness, I asked a question, so I'm going to let one of the Republicans respond, and then I'll go to Xavier.

SENATOR COBURN: You know, the assumption -- I think it's important for the American people to hear we have Medicare Part D, except no senior in this country ever paid a tax dollar for it. And we're talking about filling a doughnut hole on a program that they're already benefiting from that's going to leave $11 trillion in debt for our children. I'm not sure the seniors want us to leave more debt for their children to fill a doughnut hole.

And when we talk about filling the doughnut hole by taking away from people who can't afford to buy a supplemental policy, that's where Medicare Part A helps poor people in Oklahoma, is they get to buy Medicare Part C -- we never call it Part C, but that's what it is -- and they don't have to buy a supplemental policy. So consequently, they get lots of the benefits that other people who have better buying power in Medicare with a supplemental policy. So it's a tradeoff of whether or not we say, where are we going to give the benefits. What we really should be doing is saying, we're broke, Medicare is broke; we're working and struggling together to get there. Let's not add new benefits anywhere, and let's make sure the benefits that we have today get applied more equitably.

THE PRESIDENT: Well, I think that's a legitimate point. I would just point out that 80 percent of seniors are helping to pay in extra premiums for the 20 percent who are in this Medicare Advantage. And it's not means-tested, so it's not as if the people who are in Medicare Advantage are somehow the poor people who can't afford supplementals. It's pretty random. And what we also know is, and I just want to point this out, Tom, $180 billion of it is going to insurance companies. It's not going to seniors. It's going to insurance companies, including big insurance company profits -- without any appreciable improvement in health care benefits. That's not a good way for us to spend money.

I agree with you about the fact that the prescription drug plan added to our deficits, because we didn't pay for it. And I just have to point out that didn't happen under my watch. That happened under the previous Congress. There's some people -- John is an example of somebody who was true to his convictions and didn't vote for it.

SENATOR COBURN: I didn't vote for it.

THE PRESIDENT: But the fact of the matter is, is that that was costly. And we do have to deal with that. On the other hand, that -- the problem I don't think is, is that we gave seniors prescription drug benefits. I think the problem is, is that we didn't pay for it. And we should try to find a way to pay for it. Taking some of that money out of Medicare Advantage and putting it into that doughnut hole does pay for it.

I really breached protocol here, but I thought that was important to just get clear. We are taking about Medicare Advantage in terms of where these cuts come from, not Medicare benefits through the traditional Medicare Plan.

Xavier.

CONGRESSMAN BECERRA: Mr. President, thank you very much for bringing us all together. And I do want to address something that my friend, Paul Ryan said, because I almost think that we can't have this discussion any further without addressing something Paul said. Paul, you called into question the Congressional Budget Office. Now, we can all agree to disagree, we could all have our politics, but if there's no referee on the field, we can never agree how the game should be played.

CONGRESSMAN RYAN: Let me clarify, just to be clear.

CONGRESSMAN BECERRA: No, no. Let me -- let me -- if I could just finish. And so, I think we have to decide do we believe in the Congressional Budget Office or not, because Paul, you and I have sat on the Budget Committee for years together. And you have, on any number of occasions in those years, cited the Congressional Budget Office to make your point, referred to the Congressional Budget Office's projections to make your points. And today, you essentially said you can't trust the Congressional Budget Office.

CONGRESSMAN RYAN: No, that is not what I'm saying.

CONGRESSMAN BECERRA: Okay, well, that was my interpretation.

CONGRESSMAN RYAN: No. Let me be clear.

CONGRESSMAN BECERRA: I apologize. I apologize if I misinterpreted --

CONGRESSMAN RYAN: I am not questioning the quality of the scoring --

CONGRESSMAN BECERRA: Paul -- Paul, if I could just finish my --

CONGRESSMAN RYAN: -- I'm questioning the reality of their scoring.

CONGRESSMAN BECERRA: I take your point on your clarification. But if I --

CONGRESSMAN RYAN: Let me just say it, 10 years of tax increases, 10 years of Medicare cuts to pay for six years of spending --

CONGRESSMAN BECERRA: Paul, if I could just try to make my point.

CONGRESSMAN RYAN: Okay.

CONGRESSMAN BECERRA: So then I'm assuming then that you do believe that the CBO is a legitimate agency to render decisions on spending for the Congress.

CONGRESSMAN RYAN: Xavier, you know I believe that.

CONGRESSMAN BECERRA: Okay, so then let's work with that. Because, quite honestly, if we can't work with CBO numbers, we're lost; we're lost. Because then we really will get into a food fight. And so, I apologize, Paul, if I misinterpreted --

CONGRESSMAN RYAN: Yes, look --

CONGRESSMAN BECERRA: -- what I had heard, I appreciate that we left the referee on the field.

CONGRESSMAN RYAN: I'll just simply say --

CONGRESSMAN BECERRA: And so if the referee is on the field, then we have to at least accept what the referee has said. And the referee said that the bills that are before us reduce the deficit, the federal government's deficit, by over $100 billion in the first 10 years. The Congressional Budget Office, the referee -- not political parties; the referee -- said that these bills reduce the deficit in the succeeding years, after the first 10 years, by over a trillion dollars.

Now, you're right. All the discussion makes it clear it wasn't easy. There are going to be some savings that we extract out of Medicare. What we do do in these bills is try to make the point that as we reduce the deficit, we're not going to put the onus, the burden of those cuts on seniors who receive Medicare. We're asking the providers to stop, as some of my colleagues in the Senate said, over-utilizing or over-spending in services, so that we don't see someone having four different X-rays for chest pain.

And so what we're trying to do is figure out the ways to reduce the costs without impacting benefits. In fact, that's how in these two bills that the Senate and House passed, we were actually able to close the doughnut hole for prescription drug coverage in Medicare and still extract, according to the CBO, over $100 billion in savings.

So, Mr. President, I would just say the thing that I would love for us to get into the details of, in terms of those deficit reductions that are made is the fact that we do it while putting the brakes on Medicare overpayments that went to insurance companies, which were getting reimbursed at greater levels than were doctors and hospitals that relied on a traditional Medicare fee for service, to provide services to our seniors.

We have any number of provisions that deal with the issue of fraud, which (inaudible) says at least a total of $60 billion. And working with some of our Republican colleagues, we are doing exactly that, going after the waste that's in the system, certainly the fraud. And that's how we extract the number of the savings.

And, finally, perhaps one of the unsung secrets of what we learned from listening to doctors and hospitals and all the different providers is that we can actually do a far better job of coordinating care for people.

And if you make sure that someone who walks in the door of any one of the great physicians who are in this room when they were practicing and made sure that we followed them through not just that first visit to the primary care or family doctor, but then into the specialist and then into the hospital and then afterwards to perhaps the nursing home or the home health center, that what you do is if you coordinate the care instead of have each provider do just its share and forget about the patient, if you coordinate the care, you can actually reduce costs dramatically.

And that's how we were able to reduce the costs for Medicare. That's how we were able to extract, according to the referee on the field, the Congressional Budget Office, over $100 billion in deficit reduction and over a trillion dollars in deficit reduction in the second 10 years.

So I believe, Mr. President, what we have is a chance to discuss how we can actually put this country back on a good fiscal track and still do right by our seniors in Medicare and increase the amount of people who get covered by health insurance by about 31 million.

SENATOR GRASSLEY: First of all, to clarify something, if anybody says that Medicare Advantage is a subsidy going to insurance companies, let me say what the statute says. The statute says that 75 -- with a big differential where it goes -- 75 percent goes to beneficiaries and benefits and 25 percent to the federal government.

THE PRESIDENT: I'm sorry, Chuck, I just want to make sure -- I don't think that's -- that doesn't sound right to me because that would mean 100 percent of it is going to either benefits or the federal government, which means the insurance companies aren't making any money there.

SENATOR GRASSLEY: No, 75 percent to beneficiaries and benefits and 25 percent to the federal government.

We consider -- I consider CBO "God" around here because it takes 60 votes in the Senate to overrule them so I'm not questioning CBO, but in regard to what Mr. Ryan said, I want to back it up with a quote from a December 23rd letter from CBO about this double accounting:

"The key point is that the savings to the health insurance trust fund under" the bill "would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation." Then skip a couple sentences and say: "To describe the full amount of the HI Trust Fund savings as both" -- with emphasis upon "both" -- "improving the government's ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government's fiscal position."

Now, you can argue about the exact amount of savings or whether there isn't any savings, but you can't argue that you can't count a dollar twice -- you just can't argue that. Common sense tells you that. You don't even have to have an accountant tell you that.

Now, I think what we want to remember here is that there are consequences to things we do. You change tax policy and there's consequences to tax policy. You decide you're going to save money in certain areas -- there's consequences to that. So we have big tax increases. I think that without a doubt when you put tax on labor it's harmful and it doesn't do anything to create employment. Both bills hit small business with higher tax rates -- the House bill by 33 percent; the Senate bill by 20 percent. The House bill hits small business harder, obviously; the Senate bill hits the middle class harder.

It's a fact that when you do these things, you hurt the economy because small business is the machine that brings employment in America -- 70 percent of new employment. We've got to be careful of how you treat small business. And small business can be -- the health care needs of small business can take -- be taken care of with these association health plans and other things that can be done to make it beneficial. Thirty-five states have high-risk pools. Most of them, 150 percent is the maximum cost.

So you can build on those high-risk pools to take care of people that have needs, particularly those that would be hit by the mandate and might not be able to afford the insurance without the high costs. The high cost of this bill comes from an unconstitutional mandate. It comes from the fact that for the first time in the 225-year history of the country, the federal government is telling you, you got to buy something. That just doesn't make sense to a lot of people at the grassroots of the Midwest. And if you think I don't listen to my people, I've had 32 town meetings so far this year. I think I have a good feeling of what's out there at the grassroots.

Now, we have unrealistic cuts in here -- not unrealistic from the standpoint of the way CBO scored them. Not at all. CBO is God around here. They say -- we give them policies that are going to save X number of dollars, it's going to save X number of dollars. But do you think that we're going sit around in rural America, or even in urban -- downtown urban America, in the poverty parts of the city, that we're going to let hospitals close down? And they raise the concern about access to health care. No, we aren't going to reduce benefits for seniors at all. But when you put our health care institutions and our delivery system in jeopardy, well, people -- you're going to promise people health care they aren't going to get.

If you're going to put 14 -- I don't know whether it was 14 or 18 million people under this bill -- into Medicaid -- Medicaid pays about, in my state, I think about 60-some percent. Medicare pays 80 percent of cost. Doctors don't take Medicaid. So you're going to promise 14 to 18 million people in Medicaid that they're going to be covered. But if you don't have doctors to service them, isn't that a little bit intellectually dishonest, to promise something that you can't deliver on?

And so there are these things in this bill -- Medicare, Medicaid cuts that -- I don't see any future Congress having any more guts than we do to close a rural hospital. So I think that you got to take into consideration -- you've got to take into consideration the consequences of the acts or the unproven promises of cuts that aren't going to materialize. That's just the way I see it.

And working in those 31 meetings, hundreds of hours of meetings with Senator Baucus, I learned a lot about health care. Now, we didn't get a bill out of that bipartisan effort, but I'm sure glad I spent all that time there because I learned a heck of a lot about our health care system that I wouldn't have otherwise known.

THE PRESIDENT: Thank you, Chuck. I'm going to go to Kent next. I just want to make one point. If the notion is, is that we can't make some hard decisions about how entitlements work because it's just not realistic, nobody is going to have the guts to do it, then we're in big trouble, because that means that the federal budget and state budgets and then business budgets and family budgets are all going to be gobbled up by this thing. So I hope that in fact we've got the courage to make some of these changes.

Now, when I say that Medicare Advantage is not a useful way for us to spend tax dollars to provide health care to seniors, at least the way it's currently structured, as I said, that's not a Democratic idea. I mean, there are a whole bunch of Republican commentators and some of the folks who've sat around this table before who suggested that that's probably right.

You can make an argument that whatever savings we get out of Medicare Advantage should not go to filling the doughnut hole, for example. That's a legitimate argument. You can make an argument that it should go just to deficit reduction. Those are all legitimate arguments. But my point is that the savings that are obtained here are from a program in which insurance companies are making a lot of money but seniors who are in these kinds of programs are not better off, and the 80 percent of the people who are [not] in these programs are paying an extra 90 bucks a year to subsidize the folks who are in them. And that just doesn't seem like a good deal for them or for the taxpayer.

Kent Conrad.

SENATOR GRASSLEY: Would you give me 30 seconds, please?

THE PRESIDENT: Sure.

SENATOR GRASSLEY: I think we've already had it laid out here in four or five different ways how a heck of a lot of money could be saved. And I think that those things that we can agree on we ought to proceed on. But I think that it's legitimate to take into consideration that if you're going to have program cuts that CBO says out there in the second decade could be 15 to 20 percent a year -- that you got to have a system left to serve the people that we're promising health insurance to. And that's the point I'm making.

THE PRESIDENT: But what I'm saying is, Chuck -- I think it's a legitimate point. What I'm saying is that on Medicare Advantage, that does not have to do with the concerns that you've got about hospitals or doctors getting properly reimbursed. This is a program that's going to insurance companies.

But I want to make sure that Kent gets in here, because Kent knows something about the budget as the chairman of the Budget Committee.

Kent.

SENATOR CONRAD: Well, thank you, Mr. President. Thank you for allowing us to come and visit about what really is the 800-pound gorilla facing the federal budget, and that is the health care accounts of the United States -- Medicare, Medicaid, and the rest.

What we all know that is true is the biggest unfunded liability of the United States is Medicare. What we all know is true, as the trustees have told us, Medicare is going to go broke in eight years. So the idea that we don't have to do anything about Medicare is utterly disconnected from reality. The idea that we don't have to find savings in Medicare is an admission that we are headed for a fiscal cliff that we're going to go right over. And if we really want to endanger the benefits to people who are getting Medicare, the best way to do that is to do nothing, because if we do nothing, we will guarantee that Medicare goes broke.

So together -- we can either do this together or we can have this imposed on us. I very much hope we do it together.

Senator Coburn, and I'm sorry -- did he leave? -- I'm sorry that he's not here, because he said something that I thought was one of the most important comments made here today, and something that I think has gotten way too little attention, and that's the question of those who are chronically ill.

As we analyzed Medicare, we found a startling statistic: 5 percent of Medicare beneficiaries, 5 percent, use half of all the money. I think Paul knows this well. Five percent used 50 percent of the money. Who are they? They're the chronically ill, people who have multiple, serious conditions.

And I think Dr. Coburn was really referencing that when he talked about the need to better coordinate their care, because we are wasting massive amounts of money and getting worse health care outcomes than we could if we better coordinated their care.

What do we mean by that? A study was done with 20,000 patients. They put a care coordinator on each one of them. These are chronically ill patients. And what they found was by coordinating their care -- and the first thing they did, by the way, is go into their kitchen tables, sit down, get out all their prescription drugs; on average they found they were taking 16. They found that by looking at them they could eliminate eight. The result was hundreds of thousands of dollars of savings per patient, better health care outcomes.

You know, I did this with my own father-in-law in his final illness. Went to his kitchen table -- didn't know it was his final illness -- got out all his prescription drugs. Sure enough he was taking 16. I get on the phone to the doctor, I go down the list. Dr. Coburn, you were out of the room -- I referenced you because you said something that really triggered a thought in my mind that I think is important.

Went down the list of what my father-in-law was taking -- 16 prescription drugs. I get on the line to the doctor. He says, well, Kent -- I get down to about the third one -- he shouldn't be taking that. He shouldn't have been taking that the last five years. I get a little further down the list, two drugs. He says, well, Kent, he shouldn't be taking those two drugs. They work against each other.

I said, doc, how does this happen? He said, Kent, it's very simple. He has got a heart condition, he has got a serious lung condition, he has got orthopedic issues, he's got doctors for each one of those, he's getting prescription drugs mail-order, he's getting them at the hospital pharmacy, he's getting them down at the beach. He's sick and confused, his wife is sick and confused, we've got chaos.

And my conclusion, after all of these hundreds of hours of hearings and meetings with Senator Grassley and Senator Baucus we're part of and Senator Enzi was, indeed we do. We have a system that is characterized, especially for those people, by chaos. We can do better, and we really don't have a choice, because we've got a debt now, a gross debt, 100 percent of our GDP headed for 400 percent that nobody believes is sustainable. So I just pray that we find a way to come together and deal with these things seriously, because if we don't, we will rue the day.

THE PRESIDENT: It's a little bit -- I might -- I want to make sure that we're balancing off time between Democrats and Republicans here. And House and Senate, as well.

John, go ahead.

CONGRESSMAN BOEHNER: Mr. President, I'm going to say thank you for having us here. I think it's been a useful conversation. And as I listened to you open up this meeting, I thought to myself, I don't disagree with anything that you said at the beginning of the meeting, in terms of the premise for why we're here.

The American families are struggling with health care. We all know it. The American people want us to address this in a responsible way. And so I believe -- do say thanks for having us all here. I think our job, on behalf of our constituents and on behalf of the American people, is to listen.

And I spend time in my district, I spend time in a lot of places. I've heard an awful lot. And I can tell you the thing that I've heard more than anything over the last six or seven months is that the American people want us to scrap this bill. They've said it loud, they've said it clear. And let me help understand why.

First thing is we've just talked -- we've heard from the two budget directors about our fiscal condition. We have Medicare that's going broke. We have Social Security that's going broke. We have Medicaid that is bankrupting not only the federal government, but all the states. And yet, here we are having a conversation about creating a new entitlement program that will bankrupt our country. And it will bankrupt our country. It's not that we can't do health insurance reform to help bring down costs, to help save the system. This bill -- this 2,700-page bill will bankrupt our country.

And secondly, Mr. President, I'd point out that I think this is -- this right here is a dangerous experiment. We may have problems in our health care system, but we do have the best health care system in the world, by far. And having a government takeover of health care, and I truly believe that's what this is, is a dangerous experiment with the best health care system in the world that I don't think we should do.

So why did I bring this bill today? I'll tell you why I brought it. We have $500 billion in new taxes here over the next 10 years. At a time when our economy is struggling, the last thing we need to do is to be raising taxes on the American people.

Secondly, we've got $500 billion worth of Medicare cuts here. I agree with Kent Conrad. We need to deal with the problem of Medicare. But if we're going to deal with the problem with Medicare and find savings in Medicare, why don't we use it to extend the life of the Medicare program as opposed to spending that $500 billion, creating a new entitlement program?

But it's not just, Mr. President, the taxes or the Medicare cuts. You've got -- you've got the individual mandate in here, which I think is unwise and I do believe is unconstitutional. You've got an employer mandate in here that says that employers, you've got to provide health insurance to the American people or you're going to pay this tax. It's going to drive up the cost of employment at a time when we have over 10 percent, or near 10 percent, unemployment in America.

And beyond that, a lot of employers are going to look at this and say, well, I'll pay the tax. And they're going to dump their employees into the so-called exchange, because in five years, every American is going to have to go to the exchange to get their health care.

And who is going to design every health care bill offered in the exchange under this bill? The federal government is going to design every single health care bill in America within five years, once this bill were to pass. I could go on and on and on.

Let me just -- let me just make one other point. I'll save you -- I'll save you -- for 30 years, we've had a federal law that says that we're not going to have taxpayer funding of abortions. We've had this debate in the House. It was a very serious debate. But in the House -- the House spoke, and the House upheld the language we have had in law for 30 years that there will be no taxpayer funding of abortions. This bill that we have before us -- and there was no reference to that issue in your outline, Mr. President, begins -- for the first time in 30 years, allows for the taxpayer funding of abortions.

So, Mr. President, what we've been saying for a long time is, let's scrap the bill. Let's start with a clean sheet of paper on those things that we can't agree on. Let's take a step-by-step approach that will bring down the cost of health insurance in America, because if we bring down the cost of health insurance, we can expand access.

Mr. President, I told you the day after -- maybe it was the day you were sworn in as President, that I would never say anything outside of the room that I wouldn't say inside the room. I've been patient. I've listened to the debate that's going on here. But why can't we agree on those insurance reforms that we've talked about? Why can't we come to an agreement on purchasing across state lines? Why can't we do something about the biggest cost driver, which is medical malpractice and the defensive medicine that doctors practice? Let's start with a clean sheet of paper and we can actually get somewhere and we can get it into law here in the next several months.

THE PRESIDENT: John, the challenge I have here -- and this has happened periodically -- is every so often we have a pretty good conversation trying to get on some specifics, and then we go back to the standard talking points the Democrats and Republicans have had for the last year. And that doesn't drive us to an agreement on issues. There are so many things that you just said that people on this side would profoundly disagree with and I would have to say, based on my analysis, just aren't true, that I think the conversation would start bogging down pretty quick.

Now, we were trying to focus on the deficit issue. And the fact of the matter is, as we indicated before, that according to the Congressional Budget Office, this would reduce the deficit. Paul has different ideas about it. Other folks may think that there are better ways of doing it. But right now what we're doing is focusing on the issue of federal entitlements and whether we can make some changes. I will come back to you I think at the end of this session to answer a range of the questions that you just asked.

Right now what I want to do is go to Jim Cooper, who I think everybody knows cares pretty deeply about the federal budget. He's been championing this for a very long time. Jim, do you want to address some of the issues that have been raised in terms of both Medicare and Medicaid?

REPRESENTATIVE COOPER: Thank you, Mr. President. We're all here, we're dressed up, we're on good behavior, but I think folks back home are wondering how we behave when the camera is off. The deficit in my opinion is probably the most single issue we face. Paul Ryan said it well -- health inflation is driving us off a cliff.

And I'm kind of intrigued by the conversation because so far we've heard a lot of folks trying to out-do each other in deficit reduction. I welcome that competition. Especially if it's backed up with votes, because it's easy to talk tough on this; it's harder to deliver. I personally like Senator McCain's suggestion -- let's get rid of all the special deals. That's just a starting point.

Paul Ryan is right again and Tom Coburn is right when they point out that we're probably wasting a third of medical spending. Medicare alone is $37 trillion in the hole. And that means for all the folks who want to talk tough and not vote tough -- that's not good enough. It means that for all the folks who want to do this next year or next decade or leave it to their successor -- that's not good enough.

We've had some examples of how we've behaved recently -- a wonderful bipartisan measure, the Conrad/Gregg bill, completely bipartisan for years and a bipartisan, fiscal responsibility commission. Was brought up for a vote in the Senate; we had the 60 votes, but only 53 people showed up for work. Seven people who had been original co-sponsors of that measure suddenly got different ideas when the moment of truth came.

So, Mr. President, I'm thankful you appointed a presidential fiscal responsibility commission with Alan Simpson and Erskine Bowles, to try to force us as a Congress and force the nation to address these fundamental problems. Because if you love Medicare, you need to act to save it fast. Every day matters.

A report will come out issued by the Treasury Department -- it's come out every year; it will come out in the next few days -- it's the only report that uses real accounting to describe America's fiscal problems, and the news is not pretty. It will reaffirm what's been discussed here about Medicare and Medicaid and other vital American programs being deeply in the hole. And the opportunity of cost for delay is extraordinary.

So we can face these problems, Mr. President, we can solve them with political will, but the talking points won't do it. We've got to acknowledge the real questions. And as every businessperson in America knows, if you can't measure it, you can't manage it. And too many people in the federal government are refusing to measure it, much less take the tough votes that are required.

Because the reason we have a Medicare Advantage program, Mr. President, as you know, is in 2003 when the other party was completely in charge of everything here, we passed a program that as has been pointed out was almost completely unfunded and added $8 trillion in one bill to our children and grandchildren. Now, these benefits, if offered, should be paid for.

So this is a challenge for everybody in both parties because nobody's hands are clean in this. But let's have a new day, a new beginning -- I think we could do this. And this bill is a great place to start, because if you don't think this bill reduces the deficit enough according to CBO, vote for more savings. If you want to reform Medicare some more, vote for it -- don't just talk a good game.

So I hope the American people are watching because -- and they're going to be watching after the cameras are turned off, too. And I'm thankful you called this meeting because this is a moment of truth for our country, and together we can solve this problem.

THE PRESIDENT: I want to see if there are any Republicans who want to speak. I still have Dick Durbin.

SENATOR McCONNELL: Mr. President, I think John McCain.

SENATOR McCAIN: Thank you, Mr. President. I say to my friend from North Dakota, none of us want to do nothing -- but we do want to start over. And we've just had a discussion about the 800,000 carveout and all of the other special deals and special interests that were included in this bill, which is more than offensive. But I want to talk about one specific issue on deficit reduction and that is medical malpractice reform.

Last year, Mr. President, you said when you spoke to the Congress you asked your distinguished Secretary of Health and Human Services to look at ways that we could address the issue and then again this year -- and I pay close attention to all of your speeches.

THE PRESIDENT: Thank you. That's more than Michelle does. (Laughter.)

SENATOR McCAIN: And the point is that we don't have to go very far. There's two examples right now of medical malpractice reform that is working. One is called California and the other is called Texas. I won't talk about California because we Arizonians hate California because they've stolen our water. (Laughter.) But the fact is that Texas has established a $750,000 cap for non-economic damages; caps doctors at $250,000; hospitals at $250,000; and any additional institution, $250,000; and patients harm to a finding of medical malpractice are not subject to any limitations on recoveries for economic losses. And I hope you'll examine it.

But an important aspect of what they've done in Texas is the following. Lawsuit filings are down. Defensive medicine increases annual medical costs by 10 percent. They've saved -- physicians recruitment is up. In the last two years 6,945 new physicians have been licensed -- a 65 percent increase from two years preceding their reforms; 31 percent increase in recruitment of rural emergency medicine physicians. Amarillo lost 26 physicians in the two years preceding the legislation; has gained 37. The largest malpractice insurance company in the state slashed its premiums by 35 percent, saving doctors some $217 million over four years. There are now over 30 companies competing for business.

It's already there. Now all we have to do is enact this into legislation and it's already been proven. So I don't think we have to experiment around. There are two states that have proven that you can enact medical malpractice reform and you can have great savings and provide health care providers with the incentives they need.

And I would just like to finally mention one other thing. There's an issue that's overhanging this entire conversation -- we all know what it is. It's whether the Majority Leader of the Senate will impose the "reconciliation," the 51 votes. Now, having been in the majority and the minority -- I prefer the majority -- I understand the frustration that the majority feels when they can't get their agenda through, and it's real and I understand it and I have some sympathy.

But I remember, and I think you do too, Mr. President, the last time when there was a proposal that we Republicans in the majority would adopt a 51-vote majority on the issue of the confirmation of judges. There was a group of us that got together, said, no, that's not the right way to go because that could deal a fatal blow to the unique aspect of the United States Senate, which is a 60 vote majority. And then we came to an agreement and it was brought to a halt.

If a 51 vote reconciliation is enacted on one-sixth of our gross national product, never before has there been -- there has been reconciliation, but not at the level of an issue of this magnitude and I think it could harm the future of our country and our institution, which I love a great deal, for a long, long time.

THE PRESIDENT: Okay. Let me just address two of the points that you've made and then I'm going to turn to Dick.

This issue of reconciliation has been brought up. Again, I think the American people aren't always all that interested in procedures inside the Senate. I do think that they want a vote on how we're going to move this forward, and I think that most Americans think that a majority vote makes sense. But I also think that this is an issue that could be bridged if we can arrive at some agreement on ways to move forward.

Medicare -- or the issue of malpractice that you brought up, I've already said that I think this is a real issue. I disagree with John Boehner that -- John, when you say that it's the single biggest driver of medical inflation, that's just not the case.

The Congressional Budget Office took a look at the proposal you've got for medical malpractice and estimates that the government system would save about $50 billion over 10 years, which is $5 billion a year -- which is real money but understand that we've got a $2 trillion system. Let's assume that you extrapolate that into the private marketplace. Say it's another $5 billion or another $10 billion. It's still a small portion of our overall health inflation problems.

But having said that, it's still something that I care about and I've said I care about it. Now, not only have I asked Kathleen to initiate some pilot programs at the state level, but there are some examples of legislation that I actually would be interested in pursuing. Tom Coburn, you and Richard Burr have talked about incentivizing and allowing states to experiment much more vigorously with ways to reduce frivolous lawsuits, to pursue settlements, to reduce defensive medicine. That's something I'd like to see if we could potentially get going.

So I might not agree to what John Boehner has proposed, and it's interesting that I think I've heard a lot today about how we shouldn't have Washington impose on the states ideas, except when it comes to the ideas that you guys like, in which case it's fine to override what states are doing. There seems to be a little bit of a contradiction on this, but I think there may be a way of doing it that allows states to tackle this issue in a very serious way.

And I'd be interested in working with you, John, and working with Tom to see if we can potentially make that happen -- if we can arrive at a package that also deals with the other drivers of health care inflation that are so important.

Now, we're running out of time. I've got Dick Durbin, and then what we're going to just do is go into coverage and that will -- I know that Henry and John and Charles have been interested in talking about it, and frankly is something that we haven't spoken a lot about lately and that is a whole bunch of people who just don't have health care. Go ahead, Dick.

SENATOR DURBIN: Mr. President, I've been biding my time throughout this entire meeting. I thank you for inviting us on the issue of medical malpractice. Before I was elected to Congress, I worked in a courtroom. For years I defended doctors and hospitals, and for years I sued them on behalf of people who were victims of medical malpractice. So I've sat at both tables in a courtroom.

At least many years ago, I think I kind of understood this area of the law better than some. But I listen time and again as our friends on the other side, when they're asked what are the most important things you can do when it comes to our health care system in America, the first thing they say is medical malpractice -- it's the first thing they say; today it was the first thing that was said.

The point that's been made by the President is if we do believe the Congressional Budget Office when Orrin Hatch asked them how much will we save if we implement the Republican plan on medical malpractice from the House, they said $54 billion over 10 years. Five-point-four billion a year is a lot of money, except in the context of a $2.5 trillion bill that we pay each year for health care. It represents one-fifth of 1 percent of the amount of money we spend each year on health care. The Congressional Budget Office said something else. They said, and as you lose accountability for what the doctors and hospitals are doing, more people will die -- 4,800 a year, according to the Congressional Budget Office's reference to this study.

Now, the Institute of Medicine tells us 98,000 people a year die in America because of medical malpractice. I think there are things that we have put in this bill to change that. Most of you have heard of this Dr. Gawande. We've read him. I've talked to him on the phone. His checklist manifesto is a very basic approach to reducing medical errors, which is what we should be focused on.

And I want to say, Mr. President, I think what you and the Secretary have done is the right thing -- incentivizing states to find innovative ways to reduce medical errors and reduce those lawsuits that should not be filed. But let me tell you what, limiting the recovery for pain and suffering for someone who is entitled -- entitled, because they are innocent victims to be paid -- isn't eliminating junk lawsuits.

I will tell you that as far as the President is concerned, in his neighborhood there is a great hospital, which I will not name. And at this hospital, a woman went in for a simple removal of a mole from her face, and under general anesthesia, the oxygen caught fire, burning her face. She went through repeated surgeries, scars, and deformity. Her life will never be the same. And you are saying that this innocent woman is only entitled to $250,000 in pain and suffering. I don't think it's fair. Our jury system makes that decision. And the states -- 30 of them -- have made a decision on what to do.

If you were asked a basic question, over the last 20 years, has the number of paid malpractice claims in America doubled or been cut in half? If you listened to most people, you'd say they must have doubled. No. According to the Kaiser Foundation, they've been cut in half. Oh, but how about the money that's being paid for these malpractice claims? Clearly, that's going through the roof. No. Between 2003 and 2008, the total amount paid for malpractice claims in America was cut in half, from $8 billion to $4 billion.

This is an important issue. I don't dispute it. And I think we have treated it as an important issue. But to make it the overriding issue, is to I think really trivialize some of the other things that should be part of this conversation. I have been asked to speak about deficit reduction. I will not, other than to say one general thing. When I hear my friend, John Boehner, say that we have the best health care in the world, I don't dispute it for a moment. If I were sick, this is the country I want to be in -- with these doctors, these hospitals, and these medical professionals.

But step back for a second and look at who we are in this room. As was said many years ago, the law in its majestic equality forbids both the wealthy and the poor from sleeping under bridges. When it comes to the wealthy and health care, per capita we're the wealthiest people in America. The Federal Employees Health Benefit program, administered by the federal government, setting minimum standards for the health insurance that we enjoy as individuals and want for our families is all we're asking for in this bill for families across America.

If you think it's a socialist plot and it's wrong, for goodness sakes, drop out of the Federal Employees Health Benefit program. But if you think it's good enough for your family, shouldn't our health insurance be good enough for the rest of America? That's what it gets down to. Why have this double standard? Tom Harkin is right. Why do we continue to discriminate against people, when we know that each one of us is only one accident or one diagnosis away from being one of those unfortunate few who can't afford or can't find health insurance?

THE PRESIDENT: All right, what I'd like to do is this -- it is now a quarter to four. I said we'd try to get out of here at 4:15 p.m. We have not spoken about coverage and we're going to need to wrap this up. I know that some people may be on a tight schedule. I'm going to ask that people are willing to stay until 4:30 p.m., which gives us 45 minutes.

And what I'd like to do is to round out this conversation by focusing on what I think is probably at the core one of the bigger philosophical disagreements between the parties in how we address health care moving forward.

I think we've identified one already, which is the issue of insurance and minimum standards. And that was a debate surrounding the exchange, that was a debate that we discussed when it came to being able to buy insurance across interstate lines.

I think the second issue, which Eric Cantor alluded to earlier, John Boehner just alluded to, is the issue of coverage, and that is: Can America, the wealthiest nation on Earth, do what every other advanced nation does, which is make sure that every person here can get adequate health care coverage, whether they're young or old, whether they are rich or poor? And I think that the effort in the House and the Senate has been to control costs to reform the insurance industry to deal with some of the structural deficit issues surrounding entitlements, and to do that all in a context in which everybody is getting a fair shake.

And right now frankly there are 30 million people who don't have health insurance at all. There are a whole bunch of people who aren't added to that list who all they have is a catastrophic plan, and again, they never go visit a doctor unless they're really sick.

The way we tried to do it was not a government-run health care plan, Paul. I mean, that was some good poll-tested language that has been used quite a bit, but the fact of the matter is, is that, as Dick just alluded to, the way we've structured it through the exchange would be to allow people to pool, allow everybody to join a big group, and for people who can't afford it, to give them subsidies, including small businesses. And so the question is whether there is a way for us to arrive at an agreement that would reach those people.

John Boehner, I looked at your bill. I think, as I said, there is some overlap on some issues. But when it comes to the coverage issue, the Congressional Budget Office says yours would potentially increase coverage for 3 million people, and the efforts of the House and the Senate would cover 30 million. That's a 27-million-person difference.

We can have an honest disagreement as to whether we should try to give some help to those 27 million people who don't have coverage. And so that's I think the last aspect of this, and this is probably going to be the most contentious because there is no doubt that providing those tax credits to families and small businesses costs money. And we do raise revenues in order to pay for that. And it may be that the other side just feels as if, you know what, it's just not worth us doing that.

But one of the things I hope we don't do is to pretend that somehow for free we're going to be able to get those 30 million people covered. We're not. If we think it's important as a society to not leave people out, then we're going to have to figure out how to pay for it. If we don't, then we should acknowledge that we're not going to do that. But what we shouldn't do is pretend that we're going to do it and that there is some magic wand to do it without paying for it.

So with that what I'm going to do is I will go to whoever you want first, Mitch.


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