FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. It's a pleasure to be here this morning with such a distinguished group of experts to discuss Medicare reform. Let me start by thanking the Urban Institute - and Marilyn Moon in particular - for organizing this event. As we work together to strengthen and modernize Medicare, discussions like this one will make a significant contribution to the fulfillment of that goal.

The remarkable advances in medicine of the last several decades - borne of technological progress, scientific advancements, and investments in research and development - have given us a health care system at the end of this century that is dramatically different from the one that existed in 1965, when Medicare was introduced. Clearly, a health care program that was right for beneficiaries 34 years ago is unlikely to be right for Americans today. But I think we can all agree that having the right Medicare system - one that guarantees America's senior and disabled citizens high-quality, affordable health care - is today more important than ever.

In that context, let me commend both Representative Thomas and Senator Breaux for their leadership on the bipartisan Medicare Commission. That group has significantly advanced the debate over how to improve the health care social safety net for older and disabled Americans. Their efforts, and those of others, including Senate Finance Committee Chairman Roth and Ranking Member Moynihan, have given rise to an atmosphere where meaningful, bipartisan reform seems possible.

Yesterday I gave a speech reflecting on the factors that have been most responsible for the strength of our domestic economy in recent years. Among the themes I highlighted are our commitment to fiscal responsibility and to harnessing market forces to address the economic challenges that we as a country face. At the same time, I noted that public actions to support the market system as it evolves can in some cases help to maximize the results our economy delivers for American families. I believe that it is these same themes that need to be considered as we debate how best to modernize Medicare.

Indeed, the Administration's approach to Medicare reform is aimed at marrying two key objectives:

1. First, that we must protect the elderly and disabled Americans who rely on Medicare for their health coverage;
2. and second, that by enhancing the level of competition within Medicare, we can improve the quality and efficiency of the program without resulting in higher premiums for these beneficiaries.

I would like to focus my remarks this morning on these two points, before briefly discussing the fiscal virtues of our proposal and the importance of adding a Medicare prescription drug benefit.

The Administration firmly believes that adequate protections must be afforded to beneficiaries as we move into a more competitive environment. Traditional Medicare now provides essential care for 84 percent of all beneficiaries, and it should not become less affordable for our most vulnerable citizens even as we are enacting a fundamental change in the program. Perhaps a third or more of the elderly and disabled have serious chronic illnesses and impairments, and their very survival may depend on continuing to have access to specialized care.

That is why we consider it critical that any reform allow beneficiaries to stay in traditional Medicare for the same monthly premium as under current law - now about $45 a month. While this would protect the elderly and disabled against further premium increases, in no way would it exempt traditional Medicare from competition. Let me be clear: it is not necessary to raise the premium in traditional Medicare in order to have real competition.

Regardless of the changes we make to Medicare, beneficiaries will continue to enjoy the protections of the Patient's Bill of Rights - which the President extended to Medicare by Executive Order last year. For the elderly in particular, it is essential to have access to the specialists they need and prohibitions on "gag orders" so that doctors can discuss all treatment options. As Vice President Gore said earlier this week: "Americans have the right to have their medical decisions made by them and their doctors, not by bureaucrats sitting behind a computer screen hundreds of miles away." Indeed, the Administration is committed to passing a similarly meaningful Patients Bill of Rights to cover all Americans.

The collective efforts of the President, the Medicare Commission, and others have given rise to an emerging bipartisan consensus - a consensus:

1. that there is a need to act to strengthen and modernize Medicare,
2. that now is the time to act,
3. and in particular that injecting more competition into Medicare is the right way to act.

At the same time, one of the greatest concerns that the Administration has about the Breaux-Thomas plan and some of the other Medicare reform proposals that have been put forth is that the benefits of competition might be obtained at too high a cost in terms of exposure of beneficiaries to increased risk. Monthly Medicare premiums are already expected to increase substantially over the next decade, simply because growth in health care costs is forecast to continue. Against this backdrop, it is especially important that we prevent an extra premium increase from accompanying a transition to a more competitive system. We believe it is critical to select an approach that encourages robust competition among health care providers in the Medicare system, while preserving the vitality of the social safety net that is so important for some of our most vulnerable citizens.

That is why the Administration believes that the proper approach to Medicare reform would have all plans in the program and traditional Medicare engage in head-to-head competition, while at the same time ensuring that beneficiaries are not burdened with higher monthly premiums. To be sure, some competition takes place in Medicare now, but it is not as effective as it could be. Under the current program, payments to private plans are determined by regulated prices rather than competitive bidding. And since each beneficiary pays the same basic premium, regardless of plan choice, plans compete primarily by offering extra benefits, rather than on price. These additional benefits vary widely in content and perceived value, so it is difficult for seniors to make apples-to-apples comparisons based on plan costs and quality.

Under the President's approach, private health plans participating in Medicare would submit a competitive bid at the price at which they are willing to cover an average senior citizen. These bids would then be compared to the costs in traditional Medicare to determine the price for a beneficiary of enrolling in that plan.

As under current law, a participant choosing a private plan which costs about the same as traditional Medicare will pay the same premium. But under our proposal, someone who opts for a plan that is less expensive would pocket three-quarters of the savings, with the remainder accruing to the Medicare Trust Fund. As a result, all beneficiaries would have strong new incentives to choose efficient plans. And plans would have strong incentives to deliver the most value for the money, because if they let their costs grow excessively or their quality slip, enrollment would fall.

The introduction of competition in this way is expected to result in $9 billion in savings for the government over the next 10 years, and $22 billion in savings to beneficiaries. At the same time, it will enhance the range of options available to participants, leaving them free to select a plan that could reduce - or possibly eliminate - their monthly premium.

In addition, the Administration's proposal includes a $7.5 billion "quality assurance fund" to smooth out provisions in the Balanced Budget Act of 1997 that may be affecting Medicare beneficiaries' access to quality services. The Administration will work with Congress, outside groups, and experts to identify real access problems and an appropriate policy solution.

The President's approach recognizes that - important as they are - structural reforms alone cannot realistically generate enough savings to meet the costs of caring for the Baby Boom generation when it retires. As the members of this audience know all too well, the demographic challenge that we face with the greying of the Baby Boomers makes immediate action to strengthen Medicare imperative. With the elderly population set to double from almost 40 million to 80 million over the next three decades, it is clear that additional financing will be necessary to maintain basic health care services and quality for any length of time.

In order to meet these obligations without burdening future generations, we would dedicate more than $300 billion of the on-budget surpluses over the next 10 years to the Medicare Trust Fund, thereby extending its solvency beyond 2025. Investing the surpluses in this way would also reduce the Federal debt held by the public - helping to eliminate it entirely by 2015 - and lower the government's net interest costs, further reducing its future obligations. At the same time, it would help limit the need for future cuts and restructuring. We may not always have the chance before us today to provide stability to the nation's fiscal picture for several decades to come. We should not squander this opportunity.

If we are going to harness the same competitive forces that make private health care plans operate efficiently, then we should also extend the same type of meaningful prescription drug benefit that is a part of any such plan. As President Clinton has said: "Nobody would devise a Medicare program today, if we were starting all over, without including a prescription drug benefit."

Indeed, adding a drug benefit is not just good health policy, it's good economics. This investment in improved and lengthened lives should yield benefits that easily justify its costs. And the peace of mind that all current and future seniors will have - knowing that they have a reliable source of meaningful insurance - must also be counted as a welfare gain to society.

Drug therapies have become an integral part of modern medicine, providing more effective and lower-cost treatments for many illnesses that used to result in disability, hospitalization, and death. But prescription drugs are only effective when they are utilized, as the case of osteoporosis shows. Of the estimated 20 million women in this country who could benefit from treatment for this disease, only about 3 million are being treated, even though hormone replacement therapies and other drugs that help bones maintain their strength are currently available.

The President's plan makes needed drugs more accessible to the three-fourths of seniors and disabled who do not have dependable and affordable drug coverage today. When fully implemented, the Administration's drug benefit would cover half a beneficiary's drug expenses up to $5,000 a year, at a cost to them that is one-half to one-third as much as a typical Medigap drug plan. The President's plan does so without price controls, instead adopting the best private-sector practices. It also provides new subsidies to encourage employers to provide or retain high-quality coverage for their retirees. And most of the drug benefit's costs to the government would be offset by sensible reforms, including the proposal to create true price competition between traditional Medicare and managed care plans.

In the weeks and months ahead, we have an historic opportunity to reform Medicare in a way that will strengthen our country, our economy, and the security of current and future disabled and elderly Americans. The Administration is looking forward to working with Representative Thomas and other members of Congress to enact Medicare reform that we can all support. I think we can all agree that increasing competition in Medicare can strengthen the program and reduce its costs in the long run, and that competitive reform should be implemented with an adequate safety net so as not to put beneficiaries at risk. Using some of the surpluses to stabilize the Medicare Trust Fund, and putting competitive forces to work to reduce costs has the potential to strengthen this crucial health care program in a way that would not have seemed possible only a few years ago. By seizing this opportunity, we can enact Medicare reform that makes all of us - beneficiaries and taxpayers alike - better off.