and i will be introducing the panel in just a second. i did want to highlight a few things that the trustees said in their report. the -- perhaps their biggest concern has to do with the outlook, as they said in their summary. a major concern has to do with the growth of health care innovation, which has its positives and negatives. the positives, of course, is with modern technology and modern techniques we're able to cure or address the serious health conditions of many more people than we could have in the past, but as the trustees say, while most healthcare technological advances to today have tended to increase expenditure this health care he can landscape is shifting no one knows whether future developments will increase or decrease costs. that could be but one might take a more realistic view of that in my opinion. let me also cite a critical point that the trustees made in their report, having to do with productivity, the patient protection and affordable care act or the aca, has a provision in it that the current administration is not taking any actions to remove, which sets payment reductions dooring to the growth and general productivity and payment reductions to healthcare providers, and as the trustees say, healthcare providers will have to realize productivity improvements as a fasterraise than experienced historically for this policy to avoid leading to serious erosion in the access to care and quality of care. very serious issues, and then finally let me cite the -- i like to thong the as the public trustees in exile. former trustees who wrote a paper before they saw the report yesterday but made a very important point, which is that delaying action on medicare fiscal challenges, until a crisis is imminent, which too often has been congress' approach, would not only have adverse impacts on beneficiaries but would severely restrict the remedies available to address the problem. waiting to act could have devastating consequences. so with those upbeat words, let me introduce the panel. our first speaker is the chief actuary for the medicare and medicaid program, paul spitalnic, and then after paul gives his talk the panel will make comments and we'll have general discussion and open it up to the audience. the next speaker is maya macguineas on the commit for a responsible federal budget. then there's gene sterling, an institute fellow at the urban institute. then we have bob moffet, a surgeon fellow -- a senior fellow at heritage foundation, and then finally keith fontanel who is a managing director at hooper, lindsey and buckman but has long experience at the office of management and budget and other related organizations. with that, paul, please give your presentation. >> all right. good morning. i always appreciate the opportunity to come to the americaner into price institute and talk about the financial status of medicare after we released the annual trustees reports. in the interest of bearing the lead but this year's report is not very different than what we have seen in prior years. but that in and of itself is actually a pretty big story. that we have a very different -- the current members of the board of trustees are from -- very different perspective on health care than the prior administration. the members of the board of trustees are -- there's three cabinet officials, the secretary of health and human services, the secretary of the treasury, the secretary of labor, the commissioner of social security, and then theirs also typically two public trustees who play a very important role and that position has been vacant over the last couple of years as well. but the fact remains that in a shifting administration, with very different perspectives towards health care as evidenced from the debate on the -- the current health reform efforts, the fact that the underlying approach, the assumptions, the methods, and ultimately the results of what we're going to see as i walk through the key findings from the report, are not very different. i think that really is a testament to both the current and the prior administrations for the role that theboard of trustees play in overseeing these very important programs. and that they are free of political perspective or bent, that they are truly an independent, objective evaluation of the status of these trust funds and that of itself is a pretty important observation and reality. so with that i'll turn to my presentation. i'll walk through the agenda is going to be walking through the current status on the evolution of the program, walk through the formal evaluation of the financial status of the programs, which is the key objective of the trustee report, the independent payment and advisory board or ipab is something that could have garnered a fair amount of attention this year. again, to not bear the lead, it was not triggered this year so therefore not getting a significant amount of attention. what has got an fair amount of attention has been the part b premium rate. i'll talk about the evolution of where we are today and what the 2018 part b premium, and i'll summarize for those that have seen my presentation before, first i apologize. it's fairly similar to what it's been in years past but i have added what hopefully will continue to eliminate how these programs are evolving and changing over time, and hopefully in a way that you can actually visualize that these are big programs that move relatively slowly, but even when they move relatively slowly there can be some substantial changes over short period of time. like to start my presentings always by putting up this -- these comparisons. this is a comparison of the split between how the program has evolved, basically how spending by medicare has changed over time. each and every year board of trustees put out the report that have a 75 year projection. so what we are trying to do is forecast what this program will look like, what the spending will be, 75 years from now. and if we were to jump back to just 1976 -- just moved back 40 years -- and look at what the program looked like at that point, where this was predominantly an inpatient hospital program, nearly 75% -- more than two-thirds of the spending was for inpatient hospital in 1976. as compared to what looks like today, and this -- there's a lot more pieces to that pie and clearly those -- the program is a lot more than just inpatient hospital. it they should be much bigger over time. you can see growing from just under one percent of gdp in 1976 to more than 3-1/2 percentage of gdp in 2016. we'll talk about continued growth in gdp in a little while but just like to start with this as demonstration for -- although it would have been impossible in 1976 to forecast that construction of that pie 40 years down the road, it still actually very important to measure and estimate and evaluate what the anticipated affects are of current program. obama is the reason why this pie looks different is because las vegas -- the legislation has changed and will evolve and will town to do so. stopping annually and evaluating the current financial status is actually a pretty important process. one of the reasons why we have seen these changes is this very large change in shifts towards private plans. this is really looking at medicare advantage, penetration rates over rough lay 25-year period. you can see that the rate of managed care takeup has been greg very steadily -- growing very steadily and forecast to be even more so. this is a lot of detail on it. this kind of high lights when we're talking about medicare there or two separate and distinct trust funds and separate ask distinct benefits just within the medical portion of the program. the hi hospital insurance program provides mostly inpatient hospital care, and other skilled nursing home, hoss business care -- hospice care, and insurance the part b which has the physician services outpatient, home health, but also has the part b account. one reason why it's important to keep the programs separate or to evaluate them separately is that the financing is extremely different between the two. the source of financing for hi is payroll taxes. there's the amounts are included in a trust fund. and there's no authority to provide benefits to the extent there is insufficient funds available in that trust fund. we'll get most attention each and every year in response to the report is the data depletion of that trust fend. we'll talk about nat in a little bit. that's not very far off into the future in this year's report. it's 2029. as compared to on the supplementary medical insurance side those are financed via general revenue transfers and beneficiary premiums. those financing rates are set on an annual basis so they are effectively always in financial balance, and so when evaluating the status of those programs, it's more important, the fact they're always in financial balance is important to consider the other impacts of such spending, such as share of gdp, share of federal income taxes, proportion of individuals' social security checks and all those things are captured within the report. so, the foundation of the projection always startled with evaluating the new experience and so this is a comparison of the 2017 -- the projects of 2016 medicare experience between the 2017 report and the 2016 report. the income is generally forecast -- projected by our counterparts in the social security administration, and generally subject to less variation than of the expenditures. 2016 was a goodyear to be an actuary -- a good year to be an actuary. it is pretty remarkable to see differents in expenditures as small as these. the fact that expenditures on hi were 1.7 billion lower than expected, still good news, but on part b side, we're almost exactly aligned, 0.3 billion higher than expected. on the part d side the expend it tours were somewhat lower. i'll talk about that but generally there's been some more favorable experience on the part d side after years -- a couple of years of higher costs associated with in particular specialty drugs, those that treat hepatitis c. this looks at the income and expenditures. kind of builds up from the payroll taxes. payroll taxes are set in statute to be 2.9% that are of payroll, of income, and that amount is fixed in law. the 2.9% is split between employees and their employers, self-employed pay both portions. there's also an additional opt of .9% that are paid by high income earners, those over -- with incomes over 200,000 individually or 250,000 joint filers. that has got summon attention recently. there's also a tax on social security benefits that reflect a portion of the income that goes into the hi trust fund, and then building up there's the premiums, which are generally a large portion of both the part b and part d program. there's some state transfers and drug fees that mostly go into part d. the general revenue transfers, that's the federal matching on part b and the contributions on the part d program, and that line up top, the gap between those buildup and the total expected accident did tours, which -- expend did toward which max out at 5.9% of gdp. that -- the gap there is the deficit. and that is the amount of expected expenditures that programs would be making, most notably for hi after -- the deficit reflects the amount -- the gap between the spending from current sources of revenue versus what would be available in trust fund. and so that's the deficit that would need to be made up in order to pay full benefits for all assumptions realized and we'll talk more about that. the formal status of the trust fends has to evaluate both the h and i the sni funds separately. the key questions to answer on the hi are assets plus protected income, assets expected been fit cost and on the smi side, the fact that there are annual -- for part b and part d, no long-term solvency issues but others that are informative. we'll also note that the projects are in the report are mostly on a current law basis, and there are some potential aspects of current lieu that might prove problematic to maintain indefinitely into the future. these are 75-year projections and the two in particular i'll note are, one, the productivity costs with the affordable care act, and that basically at the payment updates for most nonphysician providers will be reduced by economy-wide productivity. the issue ear is that product different that can be achieved in the health sector has historically less than what can be achieved in the economy more broadly to the extent that providers can't keep up with those payment reductions, the expectation is that there might have to be either reductions in access to care or quality or care or some other changes that would account for that gap. again, that's only if the payment -- the providers can't transition to become that higher level of productivity. for physician updates, the -- passed two years ago specified all price updates for physicians in all future years, and so there's the transition period until we get to the point where either physicians are in these apms or -- -- alternative -- >> thank you for at that time -- or in the merit-based incentive payment systems, and once they are there, all of the updates are at -- are specified in law, and these payment rate update so the prices they -- price increases that physicians will receiver set to be .75% in they've in alternative payment methods or in .25% in the program. those rates are specified and they will be constant regardless of whether underlying costs for physician services are increasing at a faster rate. we anticipate that the underlying costs as measured by medical economic index for physicians is closer to 2.2%, and that gap between what we think underlying physician costs are going at, versus what the payment rates will be updated by -- will become a concern over time. so while there might be some main efficiencies that could be wrung out of the system over a period of time, we're concerned that over a long period of time they could be -- could prove to be problematic. in response to those potential concerns the trustees have presented a see anywheror that demonstrate the potential understatement in current law to the extent the provision does not continue indefinitely into the future. so there is the productivity transitions that transition to what would be experienced in health sector, physician updates are helping to transition to the mei, and the independent payment advisory board, i pab provisions are not implemented. those are what presented in this illustrative alternative scenario, which is included in of and reverenced in the report as a potential -- referenced in be report as potential understatement of the current law cost tuesday to the extend they cannot be realized in the future. so turning to the rules of the report-the results of the report you can see the hi trust fund ratio, comparison of assets at the beginning of the year to the percentage of annual expend did tours, the objective is the short range objective goal is to achieve 100% for all years. you can see that we are clearly below that level today and we are projected to actually become depleted in 2029 this year. we have lower 2016 expend did tours and reduced trend rates for inpatient hospital and the very short term. you can summarize the status in terms of an actuarial balance which looks at the present value of income rate so all the dollars going into the program -- less the cost rate -- all the dollars going out for benefits and other expenses -- compared to taxable payroll, the basically which income is generate and you can see the income rate rarely changes from year to year and there was this slight improvement in the cost rate. as a result, the actuarial balance has improved and less of a deficit this year so effectively that'sing a waral deficit of .64% means if the current payroll tacks of 2.9% -- if those were increased immediately today in 2017 to 3 54% the trust fund would be in financial balance for over 75 years. -- -- 3.54%. so, onthis is more interesting when there are bigger changes. you can see that there are not many differences. this is basically just a walk-through of what the differences are between that deficit from 2016 report and the 2017 report, and you can see that the largest contributor here is the hospital assumptions. so the .8%. so looking at the long-range -- here's the annual representation of what is happening on both the human being and the cost rate. a couple of things to note here, that you can see in 2029 that basically they're the line that drops from the cost rate down to the income rate. that represents that -- when assets are depleted the only amounts of funds available are the amounts that are actually coming in, into the fund. so, in 2029 we estimate that income would represent 88% of the needed funds to provide benefits. you can see over time that those ratios change over time, but it's roughly in those mid-to-upper 80s. you also see that the cost rate kind of bounces -- actually gets closer to the income rate over time and then kind of stays level there, and that's partly, again, due to some of those productivity offsets and we'll -- the next slide will throw -- sorry -- this one first -- compares the cost rates from year to year, but this one adds in what the cost rates would look like under the alternative assumption and you can see the productivity offsets, which are roughly 1.1% as compared to what we think could be achievable in the health sector of roughly .4% starts off if you only look through 2027 or 2040, those gaps are not very large but you can see that as you compound out these differences over time, in particular over 75. >> those differences get very different. you can see that the cost rate, while it is currently in roughly the five percent range, would max out over -- in excess of 8%, just for hi, under that illustrative alternative, which highlights the importance of providing those alternative projections. as i mentioned, on part b in particular, smi in general and part b in particular, the rates are financed adequately so you always see that the income is going to be very close to what we project for expenditures. so, in terms of evaluating financial status there's not a lot to show here. you can see that the 2017 is slightly higher than where it was for the 2016 report. a little more to the story here in part d. there was a notable reduction in anticipated spending and actually to spending in 2016 for -- on behalf of -- with respect to hepatitis c relate drugs. these two factors contribute to a significant decrease in the expected expenditure ford the part d program. this is actually a pretty significant change in what we were experiencing in part d. this just summarize both b and d program together, and you can see, again, under current law, we are currently at something a little in excess of 2% of total expend did toward of gdp. that is expected to grow to a little less than 4% of depressed by the end of -- of gdp by the end of the project period. looking at the changes, this is pretty much just another way to look at what we were summarizing previously. not much change on the 2016 as a percent of gdp but in 2090 there was actually some part b is slightly higher and the part d is somewhat lower. again, the comparison from this year's report to last year's report shows that this year's report is slightly higher than b. importantly, this one looks at medicare expenditures in total. again, comparing that current law to the alternative and demonstrates that even though when we are looking at under current law basis a part a program that has an actuarial deficit issue, expected to be depleted in roughly 12 years' time, to the extent that current law provisions are not able to be implemented and not -- part b and part d programs that show a largely increasing share of those programs as a share of gdp and other relative measures, those potential troubling results could actually be a lot worse to the extent that current law provisions are not able to be implemented completely over time, and you seek the magnitude of the differences are quite substantial. under current law projections, medicare and did tire expected to grow to 4.9% at the end of the 7 5 year period but teen illustrative alternative expected to grow to 9%. so the independent payment advisory bonder has a fair amount of attention. in last year's report it is expected to be triggered in the 2017 report. it did not happen this year in part because of some of the favorable experience in the program. but just to kind of take a step back, a determination made each and every year where the medicare rate is going to exceed a target rate specified in law enforcement for each year we have had to do so the target rate has not been exceeded. so the ipab has not been triggered. so basically the comparison is looking at medicare cost growth rates for the two years prior to the evaluation and two years post evaluation forks a totaloff five years. the medicare growing rates are compared to a target which historically was based on cpiu and medical cpi. looking forward it's going to be based on gdp plus one measure. if the medicare growing rates are greater than the tarring -- target rate is must certify what the savings target and is that must go through a process by which an approach process sal to reduce spending would by implemented to do so. in the 2017 report, the current report, that was just released, we are projecting that the ipab will be triggered in 2021. however in that year, if you actually look at the report, that guess to two decimal percentage points. it's identical there you actually have to good out two or three or four decimal opinion sod it's on the razor's edge and there's a very good chance that would not yet be triggered even in 2021. however, this does get evaluated annually. so just here's the summary. changing a little bit. basically we are comparing the medicare growing rate this year, the 0.4%, -- excuse me -- the -- supposed to be a circling around the 2015 through 2019. in doing so if you were to average the two, the 1.1, 0.4 -- they get the 2.14% and compare that to the target of 2.87% and that's why the apag was not triggered this year. you can see in 20221 -- 2021 we have he comparison and the mid care figure slightly higher than the tarring. looking at the part b premium, the social security cost of living adjustment is projected to be 2-point % this year. -- 2.2% this year inch response to that largely in response to that there is the expectation or the forecast that the 2018 premium will by projected to remain at $134. roughly 70% of the beneficiaries have been held harmless in 2017, and in fact, have seen pretty modest increases in their part b premiums since 2013. the premium rate was actually flat for a number of years. at 104.90, and the number of -- in 2016 there was a zero percent cost of living judgment which trent there were a large number of people held harmless. in 2017, there was a 0.3% -- which mence individuals experienced a small increase in their social security checks. this hold harmless provision specifies that individuals cannot see a net reduction in their social security checks due to an increase in the part b premium. with very -- with either low or no increases in social security checks, many beneficiaries, roughly 70%, were affected by that provision. so, on average, we were expecting that these people are paying roughly on average $109 this year. we're expecting that gap between the current amount that these individuals are paying, the $109, and the current premium level of $134 to narrow considerably when there is a substantial -- sore -- more substantial cost of living adjustment that is forecasted for 2018. however, despite receiving a significant cost of living adjustment, many -- actually most will not actually experience a net increase in their social security checks because they have for the fact they benefited from the hold harmless provision for a number of years that gap will be made up largely in 2018 with that cost of living adjustment. i wanted to end with almost where we started. started with comparison of how these programs have changed over pretty long period of time. we often look at individual trends and individual rates of change in individual comparisons to what was projected. this is a comparison -- i apologize if it's difficult to read at the bottom there but basically this is looking at the changing share of part ac for service benefits over time. starts at 2006 and ends at 2025 so 20-year period, the blue bar represents the largest component of fee for service part a spending, which is for inpatient hospital. the orange bars reforget skilled nursing facility yellow, the gray is hospice, and the -- is -- -- the inpatient hospital which is obviously -- is still the largest share of part a spending, fee for service spending, has changed quite substantially over relatively short period of time and it's attributable to both the growth in skilled nurse facilities and hospice. that's not really telling the full story there. i think largely what is driving this phenomenon -- you can see that trying to illustrate here is how do those programs change so dramatically over a long period of time, and the answer is that they change really slowly each and every year. and part of what is happening here is what we have seen over a number of years is that a large number of cases that would have otherwise been inpatient have moved to outpatient and we'll see that on the next slide win we look at part b spending. if what is remaining in part a in true inpatient experience is the more severe cases, those cases that could not be treated in an outpatient setting, what is remaining are the shares of care that would almost -- more likely to result in a sknf stay. so you can see that shift. you have the aging population and some shifts in policy towards increased hospice care over time but largely what we're seeing is the shift from inpatient to outpatient. we turn to part b, a similar comparison here. again, looking de -- the blue bars are physician, orange is outpatient, gray is durable medical equipment, and the yellow is all other. you can see that the largest share ten years ago was physician, that's no longer the case. the largest share of part b fee for service -- no longer the case in the forecast when we get to 2026. there is a large and growing share that is attributable to outpatient so we think that shift is going to continue, and you can actually start to see the effect moves of the payment rate updates on the physician side towards the latter end of this particular protection. so a little more subtle on the dme side, a reduction from 7 force 4% or 3% over time. which shows the effects of some of those competitive bidding programs that have been implemented around durable medical equipment. so, interesting and take your opinion on how interesting this is, is different than mine, how being those might be, if we look at part d -- my last slide -- the differences here are pretty striking. this is comparing the blue bars are direct subsidy, the original bars are reinsurance, federal spending for catastrophic claims and this shows that in 2006, almost three-quarters of the benefit were direct subsidy spending, direct subsidy spending is the -- i'll call it the value that is attributable to the general part d benefit. benefit is split into several different phases. in the ending the catastrophic phase after an individual hit this out of pocket limit, the benefit changes significantly and the funding changes significantly. 80% of catastrophic spending is funded by the medicare directly as compared to the standard benefit is funded 75% through -- the plan -- so, how this benefit has changed so significantly over such a short period of time really demonstrates how the changes landscape of prescription drugs, in particular prescription drug pricing has changed over time. people are get egg similar amounts of drugs they always have. what has happened is that the vast majorout of the most common drugs are now generics and those generic are relatively low priced. so there's been a decrease in that aspect of the benefit. where there's been significant increases is on the higher cost drugs, on the specialty drugs. most notably hepatitis c drugs. what we're seeing is there are relative will you few people generating a large portion of those ultimate spending. what this means in terms of impact and -- potential impact on policy is there's just the broad value that individuals were receiving in the part d program has shifted, where many were getting very good value out of their coverage, to the extent that the value is now centered towards those that are just using the high-cost drugs, is something that policymakers really need to be aware of and take seriously and take into consideration. i know met medpac has some recommendations what should and should be done but this is something interesting way to kind of look at the changing market around prescription drug benefits. >> okay, thank you, paul. on that last slide, one of the other aspects that you didn't mention was the change in policy, though, to close the so-called doughnut hole, which also -- you can see it is not solely pricing, it's also policy that is driving part of that. >> somewhat. there wasn't a huge change in the number of people getting to catastrophic coverage in response to that. if anything that would have dampened the effect there might have been more people getting more coverage, more value through the benefit and the fact we have kind of seen that catastrophic continued to increase as a share, i think the issue remain, but, yes, the close offering the coverage gap certainly provides more coverage to more people earlier in the benefit phase but not sufficient enough to actually offset the effects of those high cost drugs. >> right. okay. so, maya, take ill away. >> thank you, thank you to aei for hosting the event, paul, a really good presentation. so much information in there, and great overview of real realy complex topics. i encourage people to read the trustee's report. it's a team where with policymaking we're losing touch with the numbers and the facts of good starting opinions and things leak the annual report to trustees, documents from the congressional bug office are so informative and i learned about social security and medicare by reading these reports. doesn't sound like a lot of fun but you learn a lot and they're great and impartial and very useful. i'm going to take a step back and talk a little bit about healthcare in the overall fiscal situation we're facing and a little bit about our environment for dealing with these things and i'll be brief because i'm looking forward to having a discussion. what this is a starting point, our overall fiscal picture in this country is an on unsustainable possibility. our big entitlements, our debt picture is on an unsustainable path. our debt relative to the economy is the highest it has been since world war ii. and the difference is that after world war ii, it quickly came down and came back to closer to historical averages. we're on track for a debt relative to economy will be growing indefinitely. faster than the economy. that is unsustainable. that it is undermining of any healthy economy. in many ways reflects a broken political system where we no longer are really willing to confront and tackle these vary difficult challenges that require hard choices, so if we do nothing right now the debt, which i 77% of gdp, is on track to go up to 91% of gdp ten years from now. we'll basically again make nothing policy changes, borrow $11 trillion over the next ten years. and hard to picture what 11 trillion is but that's too much money to have a plan that's whatber going to be borrowing over the next ten years. and so the key is how are we going to get ahold of these problem inside the biggest issue is health care. the healthcare costs are the single biggest challenge because the so are the drivers of the growing of the debt along with the aging of the population and it's complicate. social security is in need of reform as is medicare, we know how to do it. there are five variables to make changes to that are nor that difficult from a policy perspective how to make a fix. i went to graduate school to focus on budget deficits and when i was there they got the deficit under control. and i thought no problem. then you study a little bit more these long-term challenges from social security and medicare are still looming out there. and so i spend two years in public policy school and decide i would become an expert in social security because it was so easy to fix and i was going to leave the hard ones to other people. and you can't be a fiscal policy expert without focusing on health care but this one is the more rick one. we don't know all of the policy solutions. that's why it's ann more important to get started on putting in place reforms to control costs as quickly as possible because as we have been we'll have to continue to try to see what works, figure out what is working best either in the states or pilot programs and then implement more offer those changes. medicare is a huge key to this. the second largest program in the federal budget. about 15% of the budget. and it is one of the fastest growing programs. so over the next ten years, it's going to account for about 30% of the programmatic growth in the bug. over the longer term, healthcare cos account for all of the negotiate all of the noninterest growth in budget. interest is the fastest growing part of the budget but healthcare costs account for all of the long-term growth. medicare is 80% of that. so there's just no question that what we need to be doing is focusing on reforms and every year when the trustees come out their with report, they warn us that you do need to make reforms. the sooner you make them the easier they for make and there's absolutely no reason to be putting the them off other than from a political perspective that it's hard. to talk for a moment about the political environment, i think one of the troubling things is that right now, really the willingness to confront hard choices between and including both parties, seems to be at the worst point it's ever been. i feel like i say that every year but then proceeds to get worse remember it's the worst point every year and then the next year is worse and that's a terrible moment where the partisanship is so deep, so high, and the way that both parties are competing is saying i'm not going to do a single hard thing. and if you look at the overall budgetary situation way he a president who ran on same i'm not going to up to social security and medicare. irthere's anything we know you have to make reforms to them remember it's perfectly legitimate to have very deep differences of opinion about what reforms, what changes to make to fix the programs, but the notion you don't have to make changes to them is just not rooted in any reality, any policy reality and really concern e jeopardizes the program ford the people who depend on them. so, i think that is the real problem. think in the healthcare debate we have been enmeshed in, in the path month, it's been more offer a political debate than a policy debate. starting at first principles of we'll repeal and replace obamacare and i don't have a position on whether we should or shouldn't but in the first question is, walt are we trying to solve? and i feel like many of the policymakers involve in the question couldn't even tell you which problem it is that we're trying to solve. i will tell you one that i believe in our organization believes we should be spending more attention on is how are we going to control overall healthcare costs. and that is different than just saying, you're going to pay less for health care. it's creating a structure for a system that will do more to enincentivize controlling healthcare cost than what we currently have. wen didn't think there was enough of a discussion about that when we created obamacare and definitely not enough of a discussion about that right now and we're talking about openings to replace it. its certainly in there sometimes, pieces of that it could do it but it's not the central piece of what is motivating healthcare reform talks and given the scope of health care in our budget and how that under -- undermines economic growth. it should be front and center. i i think the could i is going bee looking at a couple of factors. the first one is delivery system reforms, doing more for how we deliver health care in terms of creating payments for quality of health care, payments for outcomes rather than what is provided, so bundled payments is a kind of option. accountable health caring he organizations, figuring out what we do more of and what is working. it really is creating different structure in the delivery system. a second piece of this is certainly an incentive. we are style this day very much too removed from the overall costs or prices of health care so there aren't the right insintive is aligned, and insurance is always a complicating factor in that because there's a very critical role for insurance in terms of insuring people against excessively onerous healthcare costs but don't wants to insulates people from the price completely. so there are things like first dollar coverage which can undermine price sensitivity. you probably want to limit supplemental insurance, how hsas can be used in different ways that can be useful depending on what the money is allowed to be used to pay for, transparency in pricing. so long overdue in our health care system, figure ought more transparency in pricing of health care, critical component. tort reform, so we do more so there's not excessive preventive providing of health care to avoid lawsuits and it's more about health. finally the tax treatment of health care. we subsidies health insurance through the tax code, through the healthcare exclusion and in a way that economists on all sides of the aisle agree is inefficient and drives up the overall cost of health care. that would be a great policy to look at to limit the healthcare exclusion which could provide more revenues to shore up the healthcare system to bring down the debt. a whole lot of things, and one of those rare two fers right now in policy writ would be good tax treatment and tax policy and good healthcare policy. a three-fer, good fiscal policy. i'm ware where when people say something is like a win-win which means they're trying to sell you something for free when it comes to budget policy but looking at the healthcare exclusion could be a win-win-win. i'm going to end by just saying this is -- the details are so important. the big picture is also so important, which is we are on an unsustainable path. we have a political system that is utterly unwilling to come to terms with that and putting for any real policy solutions that will grapple with that and the biggest key in all of those policies is going to be healthcare reform and as we're fighting out out -- i think the quality of the discussion around the healthcare debate in the paster months has been terrible. a disservice to anybody who is trying to understand healthcare policy and think about what is true that there are tradeoffs in things and we have to figure out how much we want to subsidize and variety of different things and who should do the subsidize examination what the stuck tower of the -- struck should be. we're not having a constructive discussion and that's at the first step to come up with smart policies to tackling these admittedly rick -- difficult but creditly important challenges. there are so much spreadsheet in here in this trustees reports so thank you for at the presentation and thank you for the panel, joe. >> thank you. very good points. certainly the case that most of the -- we're experiencing have nothing to do with the single biggest program, at least generally speaking, in the united states, or at least the one that has the most leverage on the system which is medicare. certainly true that private insurance, private healthcare delivery, and the medicaid program have had a great influence, the reality is a lot of what medicare does in terms of regulations and procedures shape a lot of what goes on in the whole rest of the health system. so your opinions are highly relevant to this discussion about the mid care trustees report. gene? please. >> well, thank you, joe. and i'm honored to be on this panel. i've known anybody on the panel but paul perhaps the least. i'm glad to get to know you and let me teed maya's comments of the offices. we have certain offerses in the town that are highly nevertive, extremely professional and have a great deal of integrate. they aclu -- clue thing a wears where office and offices like cbo, government accountable offers. it's extraordinarily important that not only we maintain these offices but we strengthen them. the source of information we need to help the public sort out the decisions. so thank you, paul, and thank your colleagues and like to thank aei. i've done a number of these panels before, not one robely because you keep taking my colleague but -- who is also trustee, has been a past public trustee, among other many titles and also what i'm going to present today is something i did for ae i. want to consen trait on the relationship of health to everything else going on. so in some sense it's correlated with what maya presented. i'm reminded a bit of some of the announcements that used to be indiana church and synagogue bulletins. they were appreciate but a slightly different focus. so, for instance, one of them was please put your contribution in the collection basket along with the person you'd like remembered. another one was the bulletin said that margaret sang i would not pass this way again, much to the gee lying of the congregation, and -- delight therefore the congress greening gages and the other one the using will be me base: come early and watch this tragedy unfold. ... >> >> soto did talk about those budget policies as trust funds that did you balance that basically the budget is how you allocate we don't put it somewhere else we don't raise taxes and the same thing happens so to think about what we will do with medicaid or medicare so let me jump prickly so basically to make four points of these lights recently i have been doing a lot of work, a judge of the budget is of health care and national health care spending but the growth of the economy and government spending, where's that going? because that is where we usually make our decisions over and over but it is that growth that we allocate health dominates the growth of federal spending. the second point if you look at social security together a of about $1,000,000,000,000.10 years from now is in excess of all growth of revenue even if we don't have a tax cut. budget originally -- through the generation we give you all what we ask you to pay more for your education we will not support your workers or your children but down the road to worry we will give you more. that is what the system says i not sure that is the bargain they once. so if we even go beyond the of budget and with that start of those measures of income is -- distribution. so the first slide shows you the growth of the government. this is the cbo estimate where the real growth takes place. and it is about $1 trillion. 38 percent goes to medicare so that by itself is close to 40 percent of all growth of spending. and in other health care spending increases and so to have this big debate over hca -- aca with those numbers they cause the growth of 8% of all growth of spending. so maybe one fifth the size and if you take medicaid before aca that has to%. so that gives you a relative standing of just how medicare is dominating the growth. but this shows the second bar is a security and health if you would get the total increase of spending between 2017 through 2020 is double every year and $1 trillion more. and in excess of those additional revenues. if we spend this with of revenue growth we still have a net interest on the debt. that is mainly the discretionary defense spending. that is what the current budget says we will do. and that is the path we are on. the first slide justice and issue having to do with the fact of the birth rate and baby boomers are retiring. the you are promised something you just have to wait until you retire because the average couple today -- that fifth column in the chart says we give $1 million of social security and medicare benefits to the average couple retires today. if this was enough 401(k) to earn a modest interest-rate and though millenials, we will double that. this has nothing to do with the decline of the birth rate but just the growth to finance more and more health we will give you more and more years of benefits. so if your wages are 30% higher so i am not saying those would not be good to do but basically this simple graph on individual basis summarizes all the growth in government spending is going up although it does not have medicaid. and the final graph that i measured talk about excess cost growth is the notion of the growth of health care cost in excess of gdp. so what is the growth with the gdp? and win you can see those blue lines to say maybe it's a little less than 2%. i have ben proposing for some time it is the wrong way to measure and predict or projected. so what i calculated what is the growth of income that grows to health spending per capita? since so for every dollar increase about 32% has gone to health care. so if you take the period 2007 through 2017 with the recession health has 60 percent of all of the income growth. and projections are part of the wrong number we never know what to call the but you still get a number of 50% so the income growth is projected so if you keep spending more in real terms but this measure tells you even complaining about their conversation with their weight it is health care that is a huge part of the story. they don't count that as part of their income growth. so these are all the slides and digest want to return to the discussion and you have to address that one of the of big debates right now is should payments of medicaid to general price inflation when if we keep medical price inflation continuing at the current system at this rate at on those new services that is reflected in the comments it is the unsustainable path. but to think we will solve this by zero medicaid to make the adjustment does not make sense. you have to deal with it in a much broader sense. it is the flagship over medicare. >>. >> the last comment brings to mind a well-known fact between u.s. health system and most european systems we spent more i will not get into the details whether we are getting value so what is the big difference of the spending? so that enhances the point of the chart that price is driving that if it was utilization it would just be spending more money. >> i want to add my positive comments to those of my colleagues concerning the of performance of the office of the actuary of the medicare program for girl i will say publicly what we said privately but in terms of fairness to make sure they don't put their fingers on the scales of justice, they have been very professional and have done a fantastic job and have really shown what it is to be public servants. i would also reaffirm the point of the incredible value of the annual medicare trustees' report. is a rich mine of great intermission and statistical data certainly many of us use that but i do wish that members of congress paid more attention to this. but they do have a couple of process points before getting into the substance of this conversation. this was signed by only administration officials. so those to public trustees that this was true last year so what that really means and means we don't have any assessment of the financial assessment outside of government officials that the president tennyson have to deal with rather quickly in this says nothing of the integrity of the report to build public confidence is a process issue but i cannot ignore it but there is a lot on the books that says the trustees report is to be delivered on april 1st every year and is now july. and this is becoming a problem. this is a lot, nodded suggestion not to just get around to but it is what is not functioning in this respect the frankly given the scope of the work and then is that a better way of doing this when the president's budget that congress will have a chance to deliver it to make decisions based on that excess in general revelers and to make the determination that is the case. said to have that insolvency date that is no big deal but the fact of the matter is the medicare trust fund has been facing insolvency since i was able to read. i don't understand why the press puts the greatest emphasis on this issue. sova trust fund language surrounding this and that we're faced with bankruptcy and social security language but over the last 51 years but it will likely never go into insolvency but it does have to do with your problem but the difficulties of the trust fund that they say in effect a short-term evaluation shows in a family -- in the financial basis. becket's down to political leadership we have a real problem that is the political leadership in this country republicans and democrats alike are not willing to deal responsibly with those policies facing this country but primarily the management of the deficits in spending. president trump promised he would not touch medicare but the president seems hell bent on making his promises as the first budget indicated he would not touch medicare at all. but the paradox we're discussing a report signed by three cabinet secretaries that say exactly the opposite. on page nine that the financial projections in this report indicates a need for substantial steps to address medicare remaining financial challenges. the trusties recommend the executive branch works with urgency to their absolute expenditures to which those exercises with the public medicare trust fund. and there will be a day of reckoning and with the h i trust fund will come due. and we will cut benefits and i would just mention for context we have already scheduled over the next tenures with payment reductions of medicare under the affordable care act. that is a big cut who knows? but the point is that is on the table right now. but in any event to make a vitally important point of what has to do and keep in mind with a culture of environment in which we live is what robert c. nelson called the age of entitlement. the government is becoming a mechanism to transfer money from large glasses of americans that worked to those who don't recant based on various for lazore -- of eligibility. but those entitlements are starting to crowd out other budgetary priorities. and then to come face-to-face with a financial crisis. so looking at the machine this year that is the doomsday machine of health policy. the with the health care spending exceeds gdp plus 5% the independent payment to advisory board and with those types of medicare payment reductions in the environment where we already have scheduled a hundred $2 billion of payment reductions with the alternative scenario of the trustees and then we have to make some very big decisions and give serious. the american news love medicare. they love it but the surveys show most are clueless about exactly how it is financed, how much it cost. it is a pay-as-you-go system. so there is a deeply held beliefs by a large number of senior citizens that their over financing medicare coverage. and with a denial of reality is a common perception. you're not so widespread but the fact that it is is a very serious problem. but on the serious level so now they're not paying for the benefits. medicare premiums are only a small percentage. there is one thing would to bring to their attention on the trustees' report so on page 20 of the report the medicare advantage growth i think bissett is very significant so medicare enrollment was steadily growing with total medicare by 2025. on page 20 of the report the trustees now save medicare enrollment hit 36% of total medicare enrollment. so medicare advantage is growing a lot faster than a lot of other folks have projected. so since 2010 medicare vantage payments have gone up by about 12% the medicare market is very stable. there has been varied little disruption in patient satisfaction is enormous and the characterizes more than anything else is a defined contribution in the system. so looking at medicare advantage for the future of how they can introduce intense competition so based on what is happening already so it is once again out running the of politicians and we will see an evolution of the system. and with more time we have in the past and for those trustees for that report and things for the upright -- fine presentation. >> so do believe in the miracle of compound interest ? so to use day language to make a point to credit with the insight through the depths of the depression that you will try to create a greater sense of ease and a troubled country so then to invent the term trust fund. so there is no trust fund. the money is collected but this is part of the problem this is why they think they have already paid for it. i have an account and i have a number. right? i have a number for social security eating people are less clear of my account number which is the same number for medicare. they think they have paid into it there entire working life. so therefore i surely have paid for it. but as the statistics have shown over the last 50 years that is not really true. >> a little segue. so with those remarks of paul and his team i had the distinct pleasure to work with his predecessor but i cannot tell you how hard these people work with those analytics they're deeply involved it is one of the hardest working offices and with those high quality. but with that bellevue of the institutions like the cbo or the actuary. they are critical and i just cannot tell you how much value i think they had. -- ad. so maybe with one virtue others that biggest piece of news is that the alarms did not trigger think most of the analysts in the private sector for is predicting this would have been. think about for a moment if it would have happened. and with those proposed cuts to medicare remember under the law so if they fail to report so they have to make proposals and to put into place and then still could play out in the next year or the year after that they could give a certain amount of negotiating leverage. expected to open something project -- productive but we did have the opportunity to talk before hand but the most stunning thing to me looking at the per-capita growth rates related to the a pad -- through 2017 if i did the math right that is under 1% per capita. aisle ways to read about doing math with those who have a ph.d. in math. [laughter] that is really remarkable and stunning. it was only 0.4 percent per capita and that is largely due the inpatient costs decline so that is the second point so there is a debate to the affordable cash -- affordable care act is responsible but the fact is those growth rates under 1%, i have grown up over 30 years of this system looking at the solvency every time a turnaround. so something is going on we don't know what but it is a salutary thing so the second point i would make is with respect to the long term care and i agree completely with everybody's comments with the solvency date to be the be all and end all but the trust fund in the government is not the same in a private concept. that is not set aside a reserve in the same way it is all part and parcel but it has functioned extraordinarily well in many ways in the fiscal discipline device within the public context. so in 1983 i started with the office of management and budget was going bankrupt and people had to do something. there was a gun to everybody's head. trying to deal with the short term and long term problem in the small and incremental changes over time. but the trust fund does matter and that is where becomes particularly complicated so while agreed to not obsess about that date it isn't that the trust fund is not important, it is but don't obsess as much about the long-term. i think paul would agree it is more about those trends in the system with potential risks from productivity growth over the long term. if i could segue that none of the bills on the repeal and replace would touch the productivity adjustments of medicare. so they're not doing anything with respect to those types of issues about those productivity adjustments that are scheduled. it is important with my a take away that good news and the short term and sobering news in the long term. so with my colleagues on the soapbox you just cannot think about medicare and isolation. you have to look to whole picture and clearly it is not focused on the pitcher. actually the issue is serious and it is difficult for democracy in from the articles of confederation through that anti-deficiencies statute it is all about how to manage money. this is part of that. i went say that forget about the 80s or 90s through the reconciliation act as they were born of a bipartisan consensus of what is good for the country was shared pain. so i think he is dead on we are going to have a half to care what we're doing for our country for other spending and everything else. so to figure out the right balance so with the aging of our population. "the reader" getting a lerner will continue to get older. so with everything that goes on in this country. so part and parcel is immigration reform. if you will really deal with this problem i think all of that has to be part and parcel. so i'm not the political scientist here but this public education point a man wrote a book in the '80s called coming to public judgment. paul can give us all of the facts and analysis but we have to give back to something where we get people to care about the future of the country and the real issue here so that is holding. so i will close the. >> but with that clarify but that one shining example so why is that? because the retirees understand when social security might be cut. so talking about medicare for what people fully understand by and large the federal government to approach to those problems that mayor may not be revealed. so most make adjustments of payments to providers certainly we would not affect your benefits. so with that wonderful zero example from social security and those around the world is a modest change and with that fundamental structural reform. >> can i respond to that? he is a great friend. so that is much harder to do so with the '80s and the '90s the reason is simply as was pointed out it is a dynamic area so keeping up pressure on all of these things is a good thing to do. >> so offering these two amendments. and basically matching spending and then had to pay for the trust fund. but with social security with those demographic shifts. and that is only a piece of the medicare. so also to pay out 30 percent more and then to get those revenues and that trust fund notion is that just go back into balance slightly. so with that trust fund to be in balance. >> that is true. >> and i agree trying to decide a health care should look like 10 years from now. so there is so much going on but what is the process to deal with that? we know what not to do so talking to my wife about what the kids should do she thinks they should study a savings to play the piano that is a tough decision. the kit is playing in traffic. do we know what to do or not? and the fundamental issue of private sector you cannot set up a system where patients and providers bargain with each other so somebody has to be able to say with price control so with medicare advantage so the insurance companies like kaiser permanente day or that is tough. and that is what you have to do so what is the right mix? but the kids cannot play in the street. so i think the problem we are confronted with people have a clear idea of what it is little like. [inaudible] fiddle like bureaucracy or paperwork or premiums. but if you are trying to be clear what it is they actually want, that is different. it is more difficult. and this applies to the general health care debate we actually don't have a health care debate. so nobody says we will restrict access to health care. and then improve the quality. we're not in a health policy debate or the political science today. it is actually who will make the key decisions in the system. with those to very strongly believe the government should exercise a monopoly over the of single payer system. with free care for all to be financed by taxes. so others believe in the free market. and then it starts to get messy because people have ideas what a free market is in health care. so when doctors we're going door to door with medicare being a the largest single now health-insurance is virtually a public utility. leave taft to calibrate but have not clearly drawn any clear lines and that is more intense that we're in a debate for health care for the rest of our lives. it is a 3.2 trillion sector and immensely complex there is a certain area that they have wrapped primary invaluable in superior role where the public sector does a very poor job. >> i will jump in on both of those. and that has ben day big -- they have created more entitlement feelings which is more technical but to be entitled to the benefits that you paid into the program and that they do such great work to get more out of the program than they paid into that. it is not be effective mechanism. so what you're able to do is save with that demographic cohort. that is an excellent tool but it doesn't work that way at all. that makes sense for how we finance the deficits could be financed. and then now to do this out with my father protesting. by using money into the trust fund and that they pay lower taxes. so when you talk about that many to be owed buy you guys is a double benefit to the older generation and then use that to subsidize the rest of government. so one of the things about trust funds is they do create a warning sign for the action forcing moment. so right now they don't do anything until the very last minute. right now we're using extraordinary measures with the fact we have not lifted the debt ceiling we do last-minute things all the time. we miss the deadline for everything. >> everything. >> everything. those two parties a innersole pitted against each other so maybe the of challenges with those moments in of that budget that we currently have. >> and just want to talk quickly about the overall health care debate so without fundamental core questions so what is the role of insurance? and obviously nobody should go bankrupt because of health care cost. but it also creates subsidies. who subsidizes to? said when negative should help the subsidize the sec? they are not discussed head-on that is what is going on in this debate right now. so what's another role is that it does a lot to have the savings for big moments if you have the baby that is expensive and i know that because my insurance company told the aisle -- she was not covered because i did not have a child and i had to fight if there was a baby. but those are the kind of things that is somewhat predictable. kids will get braces also for saving in advance. we haven't even come to terms of the fundamental role of insurance. the discussion is nowhere to be from an with those things people have to have as part of public policy first principles what are the different structures if the agreement is legitimate and then go to the different approach. >> we have time for about two questions. move quickly and speak quickly. >> i will repeat your question. what is the question?. >> [inaudible] >> so the questions are if we would get congress to do anything?. >> i can tell you that i know there are bills on the hill there was a special mechanism in the of legislation with an intricate status of february this year but it does cost money so i don't believe that is in any of the bills it isn't part of the aca measure. >> next question?. >> does it work?. >> there is a couple of things that jumped out. but a sharp jump of medicare part d growth in 2018 and a sharp jump in 2019 per-capita spending. and i. am1 during what should we read into that with the future trends? and also can you explain why the manufacturing rebates went up? did you just notice new data?. >> there has been to some respect bin in particular there have those been burning in the program that continues to come through. with the share of rebates and they changed dramatically over a short period of time. so in terms of year-to-year changes we move to a more micra model to be more explicitly protecting those terms for those coming on the market. >> thank you for a terrific discussion. [applause] [inaudible conversations] [inaudible conversations] >> dead in the spring of 62 it will turn now to be worse to watch his campaign. . >> that is one reason why we know so much about innocence because they took it all down there is the reason we like a play. we could not hear. pick all of those descriptions come from reconstituting that from the shore and. >> i was a junior in college and it was the first time i ever heard the word charisma. but richard nixon did not have charisma of. -- charisma that jack kennedy had charisma and could that have tipped the balance? . >> if you could tell us how the stage was set?. >> it was a bipartisan process. but you beat -- news and media coverage it was set so many ways we were already treating elections like reality tv shows. we had a media landscape that was more interpersonal drama of rather than "in-depth" coverage of the issues. we already had a democrat using a corporate branding president obama did that cutting edge marketing techniques that behind the claims of that transformation there was not enough change.