Hearing of the House Ways and Means Committee: Board of Trustees 2004 Annual Reports

HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE

SUBJECT: BOARD OF TRUSTEES 2004 ANNUAL REPORTS

CHAIRED BY: REPRESENTATIVE WILLIAM M. THOMAS (R-CA)

WITNESSES: PANEL I:

JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE TREASURY;

PANEL II:

RICK FOSTER, CHIEF ACTUARY, CENTERS FOR MEDICARE AND MEDICAID SERVICES;

STEPHEN C. GOSS, CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION; DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, CONGRESSIONAL BUDGET OFFICE

March 24, 2004 Wednesday

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REP. DAVE CAMP (R-MI): Thank you, Mr. Chairman.

As my colleague mentioned, the Congressional Budget Office was formed under the 1974 Budget Act to give Congress an independent agency to evaluate the cost of legislation. And, Mr. Holtz-Eakin, I wonder if you could tell me the estimate for the Medicare modernization bill was provided to Congress in November of last year. Is that correct?

MR. HOLTZ-EAKIN: The final cost estimate on the bill was delivered shortly after passage.

REP. CAMP: Shortly after passage? And that was at $395 billion, from 2004 to 2013. Is that correct?

MR. HOLTZ-EAKIN: That's correct.

REP. CAMP: And since the time of that estimate, in the intervening release, the CMS data, has this caused you to change your estimate-or not you personally, but has this caused CBO to change the estimate?

MR. HOLTZ-EAKIN: No, it has not.

REP. CAMP: Have any of the assumptions underlying the estimate changed since that time?

MR. HOLTZ-EAKIN: We've had-in the course of preparing our baseline estimates of the outlays in the Medicare program, we've revisited each aspect of the bill and we have a modest adjustment in the participation in the Medicare advantage plans, with no budgetary consequence.

REP. CAMP: So the budget estimate is the same as it was in November of last year?

MR. HOLTZ-EAKIN: Yes, it is.

REP. CAMP: I understand that CBO projects that spending on Medicare and Medicaid combined will total $6.9 trillion from 2005 through 2014. Is that correct?

MR. HOLTZ-EAKIN: I don't know off the rough top off my head, but it sounds like --

REP. CAMP: Okay. And obviously your estimate of $395 billion for the Medicare modernization bill affects both Medicare and Medicaid represents less than 6 percent of this amount. The administration's estimate at $534 billion represents less than 8 percent of this amount. Is it fair to say whether the final estimate of the bill is $395 billion or $534 billion if the total amount of spending is really only a small portion of the overall spending on Medicare and Medicaid over the next decade?

MR. HOLTZ-EAKIN: I think that's a fair assessment of the overall contribution and I certainly want to take this opportunity to say that while we believe that we have made a good faith effort to estimate the cost of the bill, we certainly recognize that the final cost could be higher, could also be lower. So our attempt to place it in the middle of the plausible range.

REP. CAMP: Well, and on that point, CBO scored the 10-year cost of the initial preventative measures in this bill, the physical, the cardiovascular screening tests, the diabetes screening tests, the lower co-payments for diagnostic mammograms in the hospital outpatient setting. That estimate was at $2.2 billion, that that would actually cost money, these preventative programs. And CMS was very close to that scoring of those same provisions at about $2.3 billion over 10 years.

So both organizations estimated that these costs would increase Medicare costs over time. Yet there are benefits from early detection and treatment of disease, and the provision of the bill was designed to detect diseases before they reached later stages, which are more expensive to treat. With that assumption, did any assumption of savings to Medicare over time due to earlier detection and treatment of diseases occur in your estimate?

MR. HOLTZ-EAKIN: I can go back and consult with my staff on the details of that piece of the legislation. I do know that we've had a great deal of effort placed internally on surveying the research on the degree to which one can find cost savings in the future from outlays in the present in this area. One of the difficulties is that many of these savings don't show up in the score of the bill because the activities are already occurring in the baseline. And what shows up as a new additional benefit of activity, which will produce new additional savings is what gets scored if there's a preventable-if there's activities on prevention going on in the baseline, they simply get transferred to the federal budget. And we can get back to you on the details and continue to refine our estimate.

REP. CAMP: I would appreciate that. Thank you very much.

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REP. CAMP: I would appreciate that. Thank you very much.
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