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Vladeck: It's Not a Medicare Crisis, It's a Revenue Crisis

By John Reichard, CQ HealthBeat Editor

June 23, 2011 -- Bruce Vladeck, who ran the Medicare and Medicaid programs in the Clinton administration, told a Senate Finance Committee hearing that the budget crisis facing the nation stems not from those two entitlements but from inadequate revenue and a flagging economy. Pump up revenues and get the economy growing and the financing challenges involved with the two government health care programs are manageable, he said.

Republicans on the panel and other witnesses at the hearing, which addressed the role of health care spending in the debt, sharply disagreed with Vladeck, who headed the Health Care Financing Administration, the predecessor agency to the Centers for Medicare and Medicaid Services (CMS).

It wasn't clear whether Committee Chairman Max Baucus was buying the Vladeck analysis, either. But the Montana Democrat was clearly on board with the view that more revenue will be needed.

Baucus seemed worried, if not shaken, when he paused the hearing at one point to announce that House Majority Leader Eric Cantor, R-Va., had withdrawn from debt ceiling negotiations with the White House because of his opposition to revenue increases.

"I'm very disappointed over that," Baucus said, calling the deficit a matter of national security. "I think revenue is needed, for a whole host of reasons ... More important, I think leadership is needed. Leadership needed on both sides of the aisle, and at both ends of Pennsylvania Avenue.

"You can't ask folks who receive federal benefits, whether they're retirees or Medicare or Medicaid recipients or farmers, to bear the sacrifice of deficit reduction alone."

Vladeck's testimony was almost startling in how skeptical he was that Medicare is in crisis.

"While the Medicare program has long-term financial problems that must be addressed," Vladeck said, "the current so-called 'crisis' is in fact an artifact of broader problems with the federal budget and budgetary politics and should not be used as an excuse to dismantle one of the most important programs the federal government has ever operated, or to renege on the commitment this government has made to generations of working people as it has collected taxes from them."

Sen. Orrin G. Hatch of Utah, the top Republican on the committee, responded that the Congressional Budget Office (CBO) reported that the debt held by the public will exceed 100 percent of GDP by 2021. "CBO concludes that 'the explosive path of federal debt underscores the need for large and rapid policy changes that put the nation on a sustainable fiscal course,'" Hatch said, He also noted that credit-rating agencies are warning U.S. policy makers about the need for action and that President Clinton has voiced concern that Democrats would do nothing to address Medicare insolvency.

"Now with these facts for context, I'm shocked and frankly bewildered that in your mind that this is not a crisis," Hatch told Vladeck. "Can you tell us what a budget crisis looks like to you?"

"Senator, there's no question in my mind that there is a budget crisis," Vladeck replied. "I don't think it's a Medicare crisis. I think the major source of our budget crisis ... is we're having a revenue crisis. Federal revenues as a proportion of the gross domestic product are at their lowest level since prior to the beginning of the Korean War," Vladeck said. "We had a balanced national budget in 1999 and in 1920 with federal revenues at 19 or 20 percent of the GDP and a growing economy, and now we have a stagnant economy and federal revenues at less than 15 percent of the GDP. No wonder we have a budget crisis." He added that "one can achieve long-term solvency in the Medicare program with decisions must less drastic than are being proposed" in the House budget resolution.

But former Congressional Budget Office Director Douglas Holtz-Eakin said, "I fundamentally disagree."

"In all these projections, revenues go to above historic norms and we still have an exploding debt spiral. That's just not our problem. It's the spending and the growth of the spending fundamentally, and Medicare is part and parcel of that."

The hearing included the usual charges that the health care law (PL 111-148, PL 111-152) will add to the already unaffordable costs of entitlement programs and countercharges that the health law will help slash deficit spending and spawn innovations that eventually tame health care spending growth.

But amid the partisan tussling there were brief glimpses of common ground. Democratic Massachusetts Gov. Deval Patrick and former Kentucky Gov. Ernest Fletcher, a Republican, agreed on the need to carefully scrutinize the relatively small percentage of Americans who account for a disproportionately large percentage of health care spending.

Better coordinated treatment would generate big savings, they suggested. Fletcher also said that serious wellness and prevention programs could sharply reduce coronary artery disease.

Vladeck agreed with senators who suggested that more uniform deductibles and co-payments in Medicare and a switch to more home-based care for chronically ill patients in nursing homes would help control costs.

Another area of agreement was the need to end the current fee-for-service payment system in favor of a payment system that spurs carefully coordinated, team-based care. But all of these changes would take many years to generate big savings, according to hearing testimony.

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