as projected the medicare rate would be about only a little over 25% of private health insurance and would be less than half of the medicaid rate, the current level of medicaid rates. obviously that would have severe consequences and less providers can adapt to all this in some ways. we will take a quick look at the projected income and expenditures over the next ten years for part b of medicare. you can see on the cost incurred for the outgrowth kerf the drop in the total expenditures in 2012 that is because of the position reduction affecting the entire program and then you can see the growth rate which is in fact a good bit lower than what we have seen his slickly for part b. almost all of the part to be providers outside of physicians -- almost all of the part b providers are also affected by the productivity adjustments to the payment rate updates. now over the last five years, part b costs have grown by an average of just under seven per cent per year and the projection over the next five years is about four and a half percent. that is because of the sgr, predicted the adjustments and affordable care racked savings. now, with the sgr by itself, if congress were to provide payment updates for physicians equal to the medicare economic index in diffusing the sgr formula, then at the end of the ten years part b costs would be about 20% higher than shown here just because of the sgr. this is the short-range outlook for part moody and the least interesting graf in my whole presentation. that might be saying a lot actually. [laughter] you can see the the annual cost is almost exactly met each year by the annual revenues. that's because given the amount of premiums from beneficiaries we have a given amount of special state payments would call back payments and and we get whatever else we need from the general revenue. so this program, much like part b should always be in very close balance financially from year to year under the current law. it is interesting to note that the projected cost growth for the part d expenditure is high year than for a or b. in fact we project 9.7% per year on average the next ten years. the reflects further growth in enrollment, it reflects faster drug costs growth. in the last few years we have seen just a huge acceleration in the use of generic drugs. and right now for part of the, the generic use percentages about 75%. now at some point, people keep telling me it can go higher than that and i believe it can but i figured when it's a problem hundred 10% or 115% it's got to slow down. [laughter] and that contributes to the faster growth. also, of course we are phasing out the coverage of the doughnut hole for part d, said that contributes a little but also to the faster growth rate. finally, remember how part d is financed, it's financed the plan submitted bids coming and we pay them based on the bench marks. so, there's nothing equivalent to a payment rate update for part d, there is the adjustment because it is a competitive bidding assessment to the custom d are not by the way the productivity adjustments. in long run this chart shows the total expenditures for part b and d of medicare as well as how much of those are financed by premiums in the enrollees. notice on the part b curve in the middle, is supposed to be dotted but it is the middle one part b expenditures just like we saw for the party in the long range. this is as a percentage of gdp. and they level off again because the productivity adjustments. the part d portion continues to grow indefinitely over time. so, again, the part d cost projection depends critically on the viability of the long-range viability of the product of the adjustments. on the final charge, i've shown the total projected cost for medicare as a percentage of gdp, and the bolack curve of the bottom is under current law, and you can see that right now the total cost of medicare is about 3.6% of gdp. and this would go over time in the long run to about 6.2% under the current law. that is a significant degree of growth. but if the product of the adjustments and other provisions are viable in the long run, i would argue that is manageable, not usually manageable but you could deal with it. and it's certainly a huge improvement if you look at the 2009 projection on the red curved before the affordable care act, they are the projections over a 11% of gdp in the long run. so, 6.2% is far more manageable than 0311%. it's a huge improvement. now, we also show the blue curved under the illustrative alternative i mentioned before. this assumes the physicians kit updates equal to the economic index growth and it assumes the product of the adjustments are phased out gradually after 2019. in this instance the cost of the program would approach 11% of gdp in the very long run. and again, it illustrates the critical dependence on this particular feature of the affordable care act. now, the productivity adjustments are not likely to be valuable in the context of today's health care world. if today's world continues without major change i don't see how they can work. they might be valuable. it's possible that they will work if we have innovative new approaches to the delivery of health care and how it is paid for. it would still be very difficult to achieve but would be possible. there are scenarios at work. overall, the projections show that we still have a continuing need to address remaining financial challenges. the hospital insurance financial imbalance under the current law as well as the growth rate for medicare and it's faster than gdp. it also shows the projections of developing new innovative approaches to the treatment of health care problems. the support in the portable cared for the innovation center, for all the research and development and testing of innovative new ideas i can't overstate how important it is i can't overstate how important it is. [laughter] it's really important. this is a gold-plated opportunity for us to find out what might help the health care that we want high-quality effective health care for all of us and loved ones to make it affordable in the future. new technology, new techniques and so forth so this is a really good opportunity. now, people ask me and i say i am pretty optimistic about this, pretty optimistic all this will work out a very well and then they ask me why i'm from and i tell them i'm not sure my optimism is justified. [applause] >> thank you very much. we have three discussions today and let me start now with my colleague joe antos is a richard tayler scholar in health care here at a ely and he has had a long career as the congressional budget office and is even currently a hospital regulator here in the state of maryland. >> you did have to bring that up. [laughter] thank you any way, and thank you, rick for your usual upbeat message. the reason for my title, a call to action there may be in an action is pretty clear. this is not the first time that we have heard a similar message from the trustees. we have heard it for probably the last 40 years or so. but now maybe it's getting serious. let's see if i can make this work. the ground is rushing up to lead us, and eventually the free-fall will stop. we will reach fiscal stability one way or the other. let's not be hasty that really is the political message. it's obviously the case of this year, the presidential campaign has already started and so we have various candidates are potential candidates positioning themselves away from taking actually any real action on medicare. so i'm afraid -- let's not be hasty is probably the rule of the day. as rick said, that least two of these words are a direct quote and the rest of it can't be held against him -- the health reform bill creates -- and this is the quote -- incredible improvement in medicare, medicare's financial situation, and indeed i think the emphasis is on the word incredible. [laughter] the bad news is, or one of the pieces of bad news is these are the good years. we just have gone through a period of time where overall health spending has been relatively stable, except during certain periods that seem to coincide with economic downturns. but the population thinking about the population growth. medicare really has been in kind of the golden era, the baby bust generation, the generation that was born in the 40's and 40's are the main medicare clients so far, and so it's really been a relatively good period of time, in spite of all the bad news we've had over the years. so, so, with the baby boomers coming on board, well, we can only expect more fiscal pressure. so, just i'm going to repeat some of the things that rick put in but i am going to give you numbers rather than graphs, and i am not going to read the numbers to you. you can -- you can read them at your leisure. i think an interesting comparison between last year's report and this year's report, which i don't think, rick, you emphasized, is that -- will get the green figures. medicare as a percentage -- medicare spending as a percentage of gdp in 2020 printable little bit compared from this year, from last year's report to this year's report. however, in 2020 it went down a little bit. it seems like it's good news. and even under the alternative scenario, which is i think a bit more realistic about spending you see that between last year and this year's report, 2020 looks a little bit worse, and 20 he looks a little bit better. but of course that's not really good news. that's just an artifact of the assumption that many of the cuts would actually be taken. and as rick said, productivity enhancement will occur. by the way, the definition in the case of medicare for productivity enhancement is we will take the money whether to become more productive or not. so, and that's a questionable assumption, because as we have seen with a physician payment, while that sustainable growth rate isn't necessarily tied to productivity per say, nonetheless, we have seen that congress has been generally unwilling to take those kind of cuts and almost certainly would be unwilling to knock 30% off of the payment next year. there is a report that came out last week, i think it came out on wednesday, and then i would just like everybody's attention. it cannot from the cms website. i'm not sure who actually wrote it. but according to this report, on the affordable care act it's going to save nearly $120 billion for medicare over the next five years, and with all sorts of policies concluding the physician payment policy that i think is assumed in here, and in particular it claims that this will be -- this is a quote, to sustain the promise of medicare to the future generation of seniors. well, maybe but what sustain the medicare in a future generation of taxpayers? i think that's one of the questions i have in mind. fortunately, being a representative of the baby boomer generation, and one of the older representatives, i want to assure the younger people in the audience that we are going to make sure that we get a full value for your dollars. [laughter] okay, let's see. the question is can we really trust the trust fund numbers? this is from a part of the trust fund reports that people usually don't look at, but occasionally on this continuing series of conferences over the years, occasionally people bring this out and i thought this was my turn to bring this out. what it basically shows is the difference between budget accounting and trust fund accounting. budget accounting reflects the flow of funds during the year and isn't confused by whether or not there is an accounting device called a trust fund if money goes out it's an outlay, if money comes in it's a revenue. that's the budget. with a trust fund, there is a confusion about what happens to that money if they're happens to be some year. the answer is, in budget terms, that if you are running an overall federal budget deficit than that surplus in the medicare trust fund is just routed to pay for other things. so that's what this shows. so clearly the sign of where we are is vastly different depending on whether you do the use of budget approach or trust fund approach at least for part b. under the budget approach it in packs for part b of the programs for the social security and medicare is - whereas under the trust fund in pact h and i. is - but s and i social security is positive. if you look at the long term, we are talking about an order of magnitude greater, but the picture is very similar that using a trust fund calculation tends to confuse the picture substantially. we need -- i would argue that we need to pay close attention to the budget. it's helpful to have the trust fund report because it gives a somewhat different perspective. but in the end, what really matters is the flow of funds and the expectation of the flow of funds over the next few years. again, without this artifice of a separate trust fund that doesn't really help finance and. so here we are, this is all in the context of the fiscal crisis that the country is going through. ryckman schenker interest on the bonds and that made me think well the bond market right now is probably in unsettled states. i don't know whether we are going to reach the limit in terms of the debt limit. the latest prediction is that sometime in early august according to the treasury department we will have gotten to the point where we can't issue more debt. that has nothing to do with the trust fund. this is, again, something that is closer to the real fiscal policy. but, a tyson to the medicare program. it ties into the entitlement in general. the reason -- one of the reasons we are in this situation is certainly the bad economy, the bad economic conditions we have had in the last two years and the failure of the economy to revive the itself the way that we all hope it would. but another big factor which has been a constant is the rapid rise in health care costs especially in the medicare program. so, you know, that leads to some discussion about what we should do about it. we have seen all sorts of plans come out and so why borrowed some of the analysis from the committee for the responsible federal budget just to show you how easy it is a to come up with different interpretations of numbers depending how you do it and this as much as i think the trust fund view is not useful. this illustrates the budget review isn't that useful unless everybody uses consistent assumptions and similar time period. i'm not going to go through this in detail because i will run out of time to do so but when it does is show you clearly that depending on which you assume about underlining, the underlying economy what you assume about the likely response to policy of of the health sector and other economic factors depending what you assume about the time period that's relevant for analysis can get widely different estimates of how good or how bad your proposals are in reducing the federal deficit. so you need to look at all these things with a skeptical view but what it clearly says is that two things it seems to me, what it says is there's a lot of talk this year and a lot of numbers are being thrown around, some of them if you dig hard enough you can actually sort of believe. this again seems like a political campaign rather than serious policy-making. perhaps the debate between the representative paul ryan and the president on medicare best illustrates the nature of this political approach to the health policy. even though republicans have backed away from the house budget resolution that they voted for just a few weeks ago. former house speaker new gingrich refers to the plan as social engineering and he's against social engineering. i would argue medicare is social engineering. it is one of the biggest social engineering projects of the 20th century and its social engineering isn't going to make it through the 21st century. how is it social engineering? if you look at the traditional medicare it's a fee-for-service program is an uncapped entitlement, well, some people say to the services but i like to think of it as an and capped entitlement to the head of the health sector and so when you have those kind of economic incentives you get the kind of system we have. we have essentially trained ourselves to have patients ask for more services and have providers offer them. the economic incentives push you in that direction. the result is a program and a health sector that arguably is inefficient and doesn't produce a good value for the dollar's big and as i say for younger people don't worry, the baby boomers will take care of that for you. so the fundamental difference between the two is the difference between kind of a top-down approach, the traditional approach would argue that has been taken in medicare to use price limits and other kind of mechanisms that operate centrally to try to control health care spending in medicare as opposed to the approach to our left and not blame it on ryan, let me blame it on possibly this goes back me to adam smith and the idea putting medicare on the budget but putting medicare on a budget such that individuals received premium support payment subsidies for their insurance and let them find a plan that they like the best. we could argue about that. there's not enough time to argue about all of those things but one thing is completely clear and that is the assumed savings because the productivity improvements under the president's approach and the assumed savings let's leave aside the exact dollar amounts under the premium support approach are savings that somehow we have to achieve. so i guess that isn't exactly the good news. so how do you do that? there are all sorts of ways you can do that. there are three ways. you can either reduce the outlays and fears of a bunch of ways to reduce the outlays. you can increase revenues and there's a bunch of ways to increase revenues. nobody likes those two choices you can tell, just read the paper. everybody says those are terrible. so the other choice which everybody increases is faster economic growth that's going to do it. the other problem is that a program of this size pulling in as many resources as it does and other productive uses in the economy is itself a break br 80 ebe economic growth so we have a real problem. the question about whether in fact rican achieve reductions in outlays willing to increase revenues of the program i think is a debatable one. it's not just a debate at -- is at the details. how we don't really know whether i'm not going to call the new ideas because i don't think there are new ideas but the idea is listed in the affordable care act of the direct the innovation center to develop new approaches to payment and delivery. it's not clear they're going to work. the poster child is the accountable care organization. we've seen that the major health plans everybody points to as the models, don sinner, mayo clinic, cleveland clinic etc., they have written a letter in the past week basically saying they are not interested in becoming the accountable care organizations. what it boils down to is the government has specified conditions that make it a bad business deal. and so it is not just about whether you can deliver health care efficiently. it's whether you can actually make a business out of it and we shouldn't forget that that is an issue something i think is often overlooked when washington people talk about health policy. you want us again this is the sixth consecutive year of excess general revenue funding. i have written down what that means. it's easy to understand. you might take a few minutes to study it. it's just intuitive with that term means. and then of course if you have two consecutive years of excess general revenue funding i have to look at my notes to make sure i get the words right, then the medicare funding warning and what does that mean? that means