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You did excellent work. For that, we are proud to have worked with you, and we are gateful. With the volumes of this report, we lay tbe foundation for a better understanding of the next century. Tbis work prepares us for the challenges the future will bring our Nation as we become an increasingly older society. This work has the potential to change the way people think about the future. This is a great gift to future retirees, workers, families, and children; indeed, all Americans will benefit now and in the future from the education provided within these pages. And as the Chair, I would like to extend my personal thanks to my fellow members of the Council. Your time, energy, spirit, and wisdom are evidenced in the many pages of our reports. It was indeed an honor to serve as the Chair, and I will always be grateful for all they taught me. I would also like to thank the Commissioner of Social Security, Gwendolyn King, for her steadfast support. Throughout the decade in which I have been fortunate enough to enjoy her friendship, she has been a constant source of guidance and inspiration. Finally, and most importantly, I would like to thank my husband, Gregg• Ward, and all of the spouses of the Council staff. Their constant support through weeks and months of 7-day-a week, 15-hour-a-day work made our work possible. Deborah Steelman Chair x TIMN 0023088

TABLE OF CONTENTS EXECU'fiVE SUMMARY ............................... 1 Social Security and Income Security .................... 3 Health Care ...................................... 4 Social Security Recommendations ..................... 21 THE WORK OF THE 1991 ADVISORY COUNCIL ON SOClAL SECURITY ...................................... 23 Technical and Expert Panel Reports .................... 25 Public Input Reports ............................... 27 Issue Analysis Reports ............................. 28 STRENGTHS AND WEAKNESSES OF THE INCOME SECURITY AND HEALTH CARE SYSTEMS ...................... 35 Strengths in Income Security ......................... 36 Strengths in Health Care ..... : ...................... 41 Weaknesses of the Income Security and Health Care Systems ............................... 44 FACTORS AFFECTING THE HEALTH CARE FfNANCING AND DEUVERY SYSTEMS .............................. 55 External Factors .................................. 57 Findings: Barriers to Care ........................... 84 TIMN 0023089

BARRIERS AND INCENTIVES FOR CHANGE .............. 93 Incentives ....................................... 93 Barriers ........................................ 100 RECOMMENDATIONS OF THE ADVISORY COUNCIL ON SOCIAL SECURITY .............................. 109 Social Security Recommendations .................... 109 Health Care Recommendations ...................... 111 Prototype Comprehensive Reforms .................... 132 Prototype Medicaid Reforms ........................ 140 Prototype Medicare Reforms ........................ 141 Revenue Options ................................. 148 Conclusion .............. .................... 150 ADDtT1ONAL VIEWS ................................ 1 53 APPENDIX A: HISTORICAL BACKGROUND APPENDIX B: RECOMMENDATION SPECIFlCATIONS APPENDIX C: COST ESTIMATES APPENDIX D: PROTOTYPE COMPREHENSIVE PLANS APPENDIX E: SUMMARIES OF REPORTS xu TIMr1 0023090

EXECUTIVE SUMMARY The challenge before this country-and every counpy-is how best to manage its resources for the benefit of its people. As residents of this country, it is our collective responsibility to use our resources wisely in the present and in such a way as to benefit future generations of Americans-our children and grandchildren. If we are sincere in trying to fulfill this responsibility, we must investigate the future without bias and approach the decisionmaking pracess unselfishly. We must balance the needs of today with the needs of tomonvw. Where resources are limited, we must thoughtfully develop and explore alternatives. While we cannot ignore the needs of today, it is crucial to prepare for the needs of the future. The image that comes easily to mind when we talk of resources is our natural resources. But this is about different resources: our economic and financial resources, our public and private nesources, and, of course, our human resources-the American people. This is about the urgency required to manage our resources to forestall the potential effects of a health care system which may soon dominate our national economy and our personal resources. This is about investing in our country to assure productive growth in a competitive world market. Continuing on our present course will only exacerbate today's problems for the future. Now is the time that we must make a commitment to change. Now is the time to lay a foundation for reform. This Report represents the deliberations of the 1991 Advisory Council on Social Security. At the request of the Secretary, this Council has taken on a task more broad and challenging than any preceding Council. By expanding its role beyond the important and traditional one of considering issues related 1 . TIMN 0023091

its role beyond the important and traditional one of considering issues related to Social Security to also considering our Nation's health care system, the Advisory Council examined issues that touch families and individuals from every walk of lifa--the elderiy, the chiid and the woridng-age adult, the business executive and the employee, the affiuent, the middle class and the poor, the sick and the healthy. The Council's Final Report is deliberately weighted toward the issues of health care. This reflects the Council's concem about the inequities in our cunEnt health care financing and delivery system and about the unacceptable rate of growth in health care costs. The Council by no means overiooks the issues of Social Security and its importance to income security. In fact, our systems of health cars and income security are inextricably related and fundamental in assuring the financial security of all Americans, a basic Council interest. Ironically, it is the very system of health cam, so essential to this fundamental interest, that threatens our ability to sustain 5nancial security for Americans in the future. ~ The Council's review of the significant weaknesses and unsustainable growth in expenditures of the health care system, combined with long-range economic forecasts, led the Councii to conclude that our ability to sustain the financial security of American families rests in substantial degree upon the extent to which we are able to reform our entire approach to using, delivering, and financing our Nation's health care. We can only stmagthen our foundation for the future by immediate and parallel commitments to change our health caie system and to make the investments necessary to increase our economy's productive capacity. 2 TIMN 0023092

Findings which informed the debate that brought ttle Council to this conclusion are contained in this and 12 other reports issued by the CounciL Representative findings azt interwoven throughout this summary. Social Security and Income Security Americans depend on our democratic political process to represent us in the developmeut and shaping of our social systems and to guide the management of our economic and financial resources for our benefit We can be rightly proud of our accomplishments for the elderly. Tbe Social Security and Medicare programs have contributed remarkably to raising the standard of living among the elderly. Over the past 30 years we have decreased the rate of poverty for the elderly by nearly two-thirds. Government programs are by no means solely responsible for this achievement. Employers expanded the private availability of pensions so that, now, over 40 percent of the elderly benefit from private pensions. The number of elderly eligible for private pensions in the future is expected to grow. In fact, projections into the future suggest that the elderly will continue to experience real gains in income, in large part because ttieir incomes from Social Security and pensions are projected to reflect real growth in earnings and because more elderly aie projected to receive pension benefits in addition to Social Security.l Despite this positive overall outlook for the elderly, analysis indicates that variances in elderly income will be significant and that some elderly, particularly the very old and single elderly women, will be particularly vulnerable to poverty. ' FAwe F'nancaf Resaxces of the Eiderly A 1rww of Peruions, Savuqs, Soaaf Seaxi'ry md Ez7WW n Ihe 21st Centuy. 3 TIMN 0023093

Americans can be confident about the futuie of Social Security. A Tcchnical Panel on Social Security= appointed by the Council reported that the Social Security Trust Funds are actuarially sound 50 yeass into the futuit. A survey' about Social Security conducted for the Council found that over three-quarters of those individuals surveyed do not mind paying taxes to support the program. The Council is pleased by its findings, which indicate both the fiscal solvency and public acceptance of the Social Security program. Tbe Council's specific recommendations on Social Security are at the end of this Summary. Health Care Our Present Condition . The image of the Nation's health cam system is not as comforting as that of its income security system. MedicarE, which has contributed to the improved financial status of the elderly, pays just 45 percent of the elderly's average total health care expenditures. A Technical Panel on Medicare' reported to the Couzxal that the Medicam Trust Funds are not sound into the futuie. Alarmingly, most = Sodal Secvriy Testrtical Panel reported 3s fax%p to the Cowxa1 in a report dated August 1990. ' A Message /ram tha Amariran Pubk A RepoA o/ A Nationaf &nrey on HeaM and Soda/ Seaady by tbe IIdvE=y Counal on Social Seartr ' Aepat on Medw= Pmjeetioru by tha Nesth Taclnicai Panei, March 1991. 4 TIMN 0023094

recent projecxionss indicate that tbe Medicare Hospital Insurance Trusc Funds may be exhausted by 2005. Medicaid, the joint Federal and State program for the most vulnerable of our country's citizens--both young and old-is now the fastest growing item in many State budgets. State health care expenditures for Medicaid recipients average 20 percent of a State's budget. Medicaid consumes up to 40 percent of some States' budgets.b State responsibilities for education, corrections, and other essential services are uncomfortably squeezed, and many Starrs am tightening eligibility requirements and limiting benefits for other programs. Long-term cam poses a special problem. A 65-year-old today has about a 20-percent chance of spending a year or more in a nursing home at an annual cost of roughly $30,0©0.' Most people pay long-term care costs on an out- of-pocket basis. As a result of extremely limited public and private coverage for long tenn care, many elderly and their families ace impoverished by the cost of their long-term care. Many then become eligible for Medicaid. Long-term care now consumes about 43 percent of a State's Medicaid budget. With our rapidly aging population, Iong-term care will present a financial challenge to our States. It also presents a challenge to families to plan for this expense and a challenge to our Nation to create incentives and programs to ensure effective catz for the elderly who need these services. ' 1991 AruxW Report of ft 8aard of Trusieas ddw Federal HcsOW ln%ranao Trust FunQ May 17, 1991. ` StO Govanmerqs and Medcae CcpirV with Arogram EWwan ir a Psriod of Fista/ Sress, ACSS,1991. '{n 1990 doUare, as reparted in The Froxig aed Defvery oJ Lcrg-Term Gaia SorNOPS, ACSS. 1991. 5 TIMN 0023095

Americans are expected to spend $738 billion this year for health care services and the system that provides them: yet the Council heard regularly of frustrations and difficulties that individuals must face when interacting with the system. Hearings` held across the country by the Advisory Council emphasized this as well as individuals' struggles to mainsain their insurance and to manage their resources to afford health care. The following highlights from testimony illustrate these issues: • A Florida businessman has experienced regular increases in premiums over the last 10 years averaging 25 percent per year for six employees, two of whom had dependents. Last year's increase jumped 100 percent-and dropped coverage for the dependents. Finally, the businessman's coverage was not renewed; • A small-business woman in New Hampshire cannot afford a recent premium increase to $500 per month per family for her 10 employees. . She desperately wished to maintain health insurance coverage for her employees and devoted extensive time to seeking competitive rates. 'Ibe best she can do is a slightly reduced premium, guaranteed for only 6 months. • In New Mexico, an elderly woman has high medical expenses not covered by Medicare and avoids having to siga up for Medicaid by scrimping on food. • The husband of an Indiana woman with Alzheimer's disease describes his extensive efforts to cate for his wife at home until he feels it is no ' A MsSage 6ae tha Americw Pu6& A tioriW ard Sda Yu+is Rsport of the AdviScxy Caexyi on Soaal Seaa#, 1991. 6 TIMN 0023096

longer humanly possibly. To pay for the nursing home cam she needs would be a nearly unbearable financial burden. • A woman in New Mexico tells of trying to schedule an appointment with a gynecologist; the fiist available appointment is 4 months away. A national survey9 conducted for the Council emphasizes the value individuals place on health insurance. The survey reported that nearly one-third of those who received employer-provided health insurance continued to work for their employers because they did not want to lose their health benefits. The survey also rmaffiimed for the Council that the large majority of those who feel that they have adequate health coverage do not want their health delivery or their benefits plan altered. The Council also heard testimony from a wide variety of professional and trade associations, Federal, State, and local agencies, consumer advocacy groups, and health system experts. Each reported thorough and thoughtful investigations into issues of what the health care system's problems are and how to improve it. Not unexpectedly, they all agreed on the problems. Seldom did they agree on the solutions. Two issues dominate any discussion on health care: the continuing escalation of costs despite public and private sector initiatives to slow the rate of growth and the concern over the number of people who face barriers to obtaining appropriate and needed services. The issues of cost and access are inextricably related: As costs increase, more people are unable to afford health cane insurance or the cost of care. Any substantial expansion of ' Nabonat HeaIm Cam sw,rey, Sixnmary of FndrIs, November 1991. 7 TIMN 0023097