Press Briefing by National Economic Council Director Gene Sperling and Deputy Assistant to the President for Health Care Chris Jennings

The James S. Brady Press Briefing Room

4:00 P.M. EST

MR. DORTON: Ladies and gentlemen, we now have Gene Sperling, Director of the National Economic Council and Chris Jennings, Deputy Assistant to the President for Health Policy to give an on-camera, on-the-record briefing on the Social Security and Medicare Trustees Report.

MR. SPERLING: Today, we had good news in the Trustees Report for Medicare and Social Security. It was good news across the board. Social Security insolvency date was extended from 2034 to 2037. The actuarial imbalance went down from 2.07 of payroll to 1.89. This was -- the things that had a positive impact on that were mostly a slight increase in wage growth and various technical changes.

With the current plan that the President of the United States has for saving the Social Security surplus for debt reduction and using those benefits, the interest benefits for Social Security, this would now allow the solvency to be extended to 2054. So, again, the down payment that the President of the United States has spoken of in terms of what we could do to Social Security solvency if we use the surplus to pay down the debt and use the interest savings to extend Social Security solvency, we could now make Social Security sound financially until 2054, 54 years from now.

In terms of Medicare, Medicare had its largest one-year increase in solvency in the history of the program. Medicare, which was projected by last year's report to be insolvent by 2015, is now projected to be solvent until 2023. Again, that is the largest one-year increase in the history of the program.

To give a sense of how far we have come, when the President came into office in 1993, Medicare was projected to be insolvent in the year 1999, last year. And there was projected to be an additional 5.11 percent payroll increase would have been needed at that time to keep Medicare solvent indefinitely.

Now, the projection is 2023, so there has been a 24-year increase in solvency. This is due in large part to not only the strengthening of the economy, but the 1993 deficit reduction plans, savings and reforms and Medicare, the 1997 Bipartisan Balanced Budget Agreement, as well as significant improvements in management affecting particularly fraud and abuse in the program.

Another way of detailing the benefits of this is that Medicare premiums are 25 percent of the program cost. The the premium was projected for this year to be $54.50. Instead, it is $45.50. So the savings and increased efficiency in the program mean that Medicare beneficiaries are today paying 17 percent less, or $9 less per month than they were projected to pay in 1993. So we've been able to improve solvency by 24 years, and have Medicare beneficiaries paying 17 percent less in premiums.

The caution we should all have is that these numbers have clearly moved around. They are long-term projections. And while the increase in Medicare solvency to 2023 is an improvement, one should note that anybody 42 years and under at this time is paying payroll taxes of 1.45 percent, and their employer is paying 1.45 percent, so a total of 2.9 percent in payroll taxes into a program that is projected to be insolvent by the time of their retirement.

So the fact that we still have a system, a program where every American under 42 years old who is working is paying payroll taxes into a program that's projected to be insolvent should show that we should not have any comfort that our work is done. That is why it's extremely important to maintain the first things first perspective of reserving a sizable amount of the on-budget surplus to deal with Medicare solvency. We believe if we do that, we can make Medicare solvent to at least 2030, while still being able to afford an optional prescription drug package for all Medicare beneficiaries.

In the President's budget, we have reserved $35 billion for a catastrophic element to our prescription drug benefit. With these improved numbers, this gives us much greater confidence that that $35-billion reserve can and should be used to strengthen the catastrophic benefits of our prescription drug plan.

With that, let me have Chris Jennings, our top health care policy expert, and myself are happy to answer any questions.

Q: Yesterday, Clinton outlined his top priorities. He did mention prescription drugs. He said nothing about Social Security. Why not?

MR. SPERLING: Well, we have stressed Social Security at each and every step of the way, and it's very clear that the President has offered at each and every step that we could at least do a down payment on Social Security. He has stressed this in each and every communication he has had on the Social Security earnings test.

He has said repeatedly that it was good that we were taking this incremental step, but that the next major step we should take, the next major down payment, was to take what seems to be a bipartisan commitment to pay down the debt and use the interest savings after 2010 to strengthen Social Security to 2050 while also seeking to deal with issues related to the high rate of poverty among single elderly women.

So we have made this message and this offer continually. Obviously, our ultimate goal would be 75-year solvency, but understanding that this has been controversial, understanding this is an election year, the President has put forward a reasonable bipartisan down payment that there's no reason that everyone shouldn't agree to.

If the Republicans are out telling people that they're going to take the Social Security surplus and save it for Social Security, they should have a way of insuring that Social Security is made more solvent. Right now, their plan doesn't extend the solvency of Social Security a single day.

The President pays down the debt with the Social Security surplus, but then generates and dedicates those interest savings to Social Security. Again, that's a fiscally responsible, pro-debt-reduction policy that we should be able to do as a down payment. I think in the President's remarks in the last couple days, what he has tried to do is take a couple of the areas where there seemed to be a little more bipartisan willingness so far and stressed that if those bills come to his desk, he could sign it.

But this President is as serious and enthusiastic about doing Social Security reform as he's ever been.

Q: The President's put great emphasis on the prescription drug benefit in Medicare, and there seems to be some action on the Hill with different plans circulating. To obtain this benefit, is the administration willing to compromise on some of the more contentious issues -- Medicare boards to administer the benefit, for example, or targeting the benefit to certain demographic segments as a down payment prior to making it a comprehensive benefit, for example?

MR. SPERLING: Well, certainly, we are willing to work with members of Congress of both parties and including their ideas into a prescription drug benefit. But we've had some very basic principles. And one of them is that prescription drugs should be available to all Medicare recipients.

There is considerable evidence that Chris can go through that shows that Medicare beneficiaries, well over the 200 percent of poverty line, often face grueling choices at times of their retirement when prescription drug costs go up. So to suggest that while the positive step of covering prescription drugs for those at lower incomes or why covering prescription drugs for those lower incomes is certainly a positive element, it would be extremely misguided to pretend that you would come anywhere near solving the problem by doing that, or that you would even be solving the most extreme forms of hardship.

Two hundred percent of poverty comes in around $16,000 a year. It only takes one or two years of a retirement where somebody has drug costs of $2,000, $3,000, $4,000, for somebody of that income to be in a situation where they are finding themselves making basic tradeoffs between food, shelter and prescription drugs. That makes no sense at all. What kind of dignified retirement is it if you say as long as you're healthy, our Medicare program works well for you, but if you should ever, as many of you will have, have significant prescription drug costs, all of that dignity in your retirement is thrown out the window and you're forced to be cutting back on food or shelter costs for prescription drugs.

It's an insurance policy, and an insurance policy isn't just about helping the people on average. It's about being there to provide people coverage in their worst year when they're in their worst health. That's what any common-sense prescription drug plan would do.

Let me just ask Chris to --

MR. JENNINGS: Very quickly, it's important to note that remember that 50 percent of the Medicare beneficiaries without drug coverage today, 50 percent, have incomes over 150 percent of poverty, and 40 percent have incomes over 200 percent of poverty, $16,000, $700 a year. So if you look at those numbers, it's very difficult to see targeting to only that segment of the population.

It's interesting to note that -- you were mentioning the proposals on Capitol Hill -- it seems that they're moving away from a block grant proposal to the states. There are a number of reasons for that and I could get into that, but it seems that they're now talking about a so-called "Medicare benefit," but that they're not making it affordable for those people over 200 percent of poverty -- in fact, even not affordable for some people, or accessible for lower than that.

I think our fundamental point here would be, we're very open to working with members of both aisles, as Gene mentioned, to have a structurally sound benefit. But it has to be affordable and accessible to all beneficiaries on a voluntary basis, and there are a number of proposals that can do that that aren't the President's approach.

But as currently constructed, some of the most recent policies that have been propounded by the Republicans in the House in particular, even those who are relying solely on a private plan drug-only option would not structurally work, and more importantly, the plans that they think would administer it, the private Medigap industry, are opposing them. So, we want to have a workable Medicare drug benefit that's affordable, optional, and accessible to all beneficiaries. There are different ways to get there; I'm sure we can get there.

Q: So, Chris, what plans could do that that aren't the President's that can achieve your principals that aren't the President's approach?

MR. JENNINGS: Well, as we've said, Senator Graham and Senator Conran's proposal, certainly consistent with the broader principles the President's laid out, we haven't rejected any or endorsed any specific proposals other than the President's; but there are approaches that can work, that are consistent with the broader principles. And as you know, Senator Graham and Senator Conran have not finalized their proposal, so I can't comment or endorse or anything, but they do have a Medicare drug benefit that would be specifically designed to be available and affordable to all beneficiaries.

Q: Chris, you said pretty much, or Gene, it's self-evident that these reports -- essentially, you're being defeated by your own good news, that this is going to make it tougher to get comprehensive reform, specifically on Medicare, and would you be more willing, then, since that may be true, to separate out the prescription drug proposal and just do that, instead of in the context of broader reform, as we've been insisting?

MR. SPERLING: You know, it's curious, because when we put forward our Social Security plans in '98, '99, the focus -- many people said to us, why are you focusing so much on Social Security, shouldn't you be focusing equally on Medicare so that -- because that becomes insolvent earlier. And you still have a situation where we all agree, uniformly, that Social Security is in need of a serious solvency solution. And yet, Social Security becomes insolvent in 2037. So Medicare now will become insolvent in 2023.

As I said, I don't think most people 42 years and under have great security. The fact that they're paying payroll taxes into a program that will be insolvent when they retire -- even somebody who is 50 years old or can look forward to the fact that eight, nine years into their retirement, Medicare would again become insolvent.

So I think that our feeling is that this does not in any way take away the basic common sense of saving a large portion of our surpluses to first close our existing long-term deficits before we go on to other initiatives. To the degree that you don't do that, you are simply kicking the problem down the road and asking the next generation or people to perhaps have to deal with this at a time when the economy is not so strong to gain the resources at this time.

So that being said, our, by far, preferred solution -- and I think the soundest approach is to strengthen and modernize Medicare by the type of efficiency reforms we have, by the type of choice proposal we have, which is an innovative choice proposal that allows for there to be more competition on the choice side, allowing even for people to be able to pay less fees on the managed care side, while also having reforms in the fee-for-service side.

To do that at the same time you're doing prescription drugs is to both strengthen the program, modernize it, make it more efficient, while plugging a major hole in our Medicare coverage, which is the lack of a voluntary prescription drug program. So, I think that most people who are serious about Medicare reform, who have been serious about us dealing with our long-term entitlement problem would feel that is is just as important now as it was yesterday that we deal with this comprehensively, both the reforms and efficiency and a voluntary prescription drug plan.

Q: Does the prescription drug program have to be passed as part of broader Medicare reform or not?

MR. SPERLING: That is our very strong aspiration and policy, and that is what we are fighting for. I am not going to go into every proposed hypothetical down the road. All I can tell you is what our plan is and what we are trying to do.

MR. JENNINGS: Can I just say one -- the one other thing is: remember that the first place this is going to happen, almost inevitably, is the Senate Finance Committee. It is very difficult for me to see the Finance Committee passing out a drug-only benefit in the Medicare program. Virtually every member of that committee has indicated that if they are going to be doing a drug benefit, as I think most of them want to do, it should be in the extent of our reform. So any likely vehicle that we are aware of right now is likely to include broader Medicare reforms and we think that they should.

Q: I guess that this would be directed more toward Chris as well. When the White House unsuccessfully advanced its comprehensive health care package, it more or less left it --

MR. SPERLING: That wasn't all Chris's fault.

MR. JENNINGS: I wasn't -- in 1993. Okay, go ahead.

Q: You're more or less acknowledged that in an incremental approach, it was the most realistic -- now, focusing first on children. Why is that such an unacceptable approach when it comes to prescription drugs? If you can't get them to agree on comprehensive voluntary universal, why can't you focus initially on the poorest?

MR. JENNINGS: Because remember, when we were talking about children, we were talking about an entire benefit package. Right now, we are talking about simply modernizing a benefit package. It is absolutely irrational to have a health care plan that does not cover prescription drugs, and then to say for some it covers some, and for others it doesn't.

There is no one in this room who has private health care who says, "Well, if you get a higher income, you don't get a particular benefit in your health care package, and if you have a lower income, you do." Everyone suggests on Capitol Hill that we should make the Medicare program more like the private sector. If we do, if we want to have it more like FEHBP, if we want to have it more like private health plans, we will have a Medicare prescription drug benefit as part of that package. It is good health care. It is good policy. And it should be done.

And lastly, if you do segment populations away from that benefit, you will be explicitly saying that populations in need -- a $20,000 widow, for example, who has an income of over 200 percent of poverty is somehow less deserving of a needed prescription drug benefit, and we just don't believe that is the case, and actually, we don't believe the public at large does as well.

MR. SPERLING: I would just add that I think if you go ask Democrats and Republicans alike, they will all say, "I think we would agree, with unanimous consent, that anybody creating a Medicare program today, would absolutely include prescription drugs." They would not even think about not including prescription drugs, that prescription drugs have preventive benefits and cost savings as well as the relief that it provides people.

And so I really think, at this period, the burden should be on those who don't want to have uniform prescription drugs. They have to explain why the other initiatives they are putting forward, the tax cuts going to more well-off Americans, why that should come first over prescription drugs. I have absolutely no problem arguing that it is more important for us to be able to have prescription drug benefit available to that $20,000 a year widow or somebody or somebody making $22,000 or $23,000 who may have someone with Alzheimer's or a serious disease. That is a much higher priority both health care-wise, fiscally and morally than putting in significant, excessive tax cuts that would flow mostly to people who are the most fortunate in our society.

Q: Slightly different topic -- on the subject of China, it appears the administration is beginning to work with Democrats on the Hill on separate, parallel legislation that could build support for the PNTR vote. What does the Administration think needs to be in that legislation, and could you accept legislation that would have sanctions against China, or restrictions against the multilateral lending, Ex-In bank lending, that kind of thing?

MR. SPERLING: We clearly believe -- strongly believe that the accession agreement we have with China is a one-way clean win for the United States, and that any vote on China's accession to the WTO cannot be one that makes discriminatory conditions on China, or has any type of linkages that would be clearly violative of the WTO and the GATT. And in fact, if we were to do that, we would likely -- almost certainly lose the benefits of our WTO agreement, because the GATT does not allow -- or the GATT insists on immediate and unconditional national treatment for all countries in. So we will not in any way step over that line.

On the other hand, we certainly are talking to both Democrats and Republicans about whether -- about what their concerns are, and whether any of their concerns can be met in ways that would be acceptable to the broad majority of supporters of China MFN, or China permanent NTR, on both the Democratic and Republican sides. There have certainly been some issues raised about how to keep a focus on human rights, and how to ensure that we have the proper spotlight on those issues that so many of us find offensive.

And to the degree that we have those discussions, and the degree that there are things that could be worked out that would be acceptable to both Democratic and Republican supporters of passing China permanent NTR -- if they were parallel, if they did not require things that were linkage or sanctions or conditions, there's every reason for us to keep those discussions going, and to see, where possible, we can work out people's concerns.

We're not going to do things that would be acceptable to a few people, but would cause many others to feel they couldn't vote for the bill -- and most importantly, nothing that would be inconsistent with our obligations.

So we will obviously continue conversations with both Democrats and Republicans, and perhaps on some areas like human rights there's ways of having reviews that are not offensive or objectionable to any of the current supporters of permanent NTR for China.

Q: Gene, can I just be clear on that? When you're talking about not doing things that are discriminatory or -- linkage and so forth, does that apply to what Gephardt was talking about, about cutting off international lending potentially, strictures like that? Or the provisions on import surges that are in the Levin proposal? Are you essentially taking those things off the table?

MR. SPERLING: First of all, I do not know of a formal proposal by Congressman Gephardt, so I'm not going to try to reply --

Q: Well, he mentioned -- whether it's a formal proposal or not, I mean, that's what he was talking about.

MR. SPERLING: I know, but you know, one of the reasons I think I'm still here after eight years is, I don't respond to what the leader of the Democratic House says based on a news story that I never saw or read or verified.

I think that -- I think that it's safe to say that we do not feel that there should be things that would be in any way conditional. So for example, if somebody -- a proposal that would make China's accession conditional on some other factor, that would be a discriminatory condition on them that does not apply to anyone else, would not be acceptable.

But I think one has to look at each measure and ask whether it is something that does not offend the basically clean accession of China into the WTO, and ask whether it is something that could help broaden support without taking away any of the support of the existing members on both sides of the aisle who currently support permanent NTR.

Q: Gene, what about the deadline? Do you believe that if there's nothing done by June, it's dead? Or is that flexible?

MR. SPERLING: What I would say is that we have heard reports that the House Republican leadership is thinking or planning on having a day for a vote before Memorial Day, and we would consider that very good and very encouraging news.

This is a fight we have always thought would be a tough fight, but it is still one we expect to prevail on. And so to the degree that a vote would be set prior to Memorial Day, we would consider that positive and encouraging news.

Q: But there's a group of -- apparently 19 House Democrats today have signed a letter to the President saying -- they've previously voted for NTR and now they're saying that they will vote against it because of human rights issues. Does that concern you, that it's getting, the number seems to be getting higher of the Democrats that won't vote for it?

MR. SPERLING: No. We think that -- we still feel that as tough a battle as this will be, that we will prevail. And we still are optimistic about that.

There are others who have not supported fast-track or NAFTA in the past who, because of the very strong agriculture agreement here, et cetera, are planning on voting for this for the first time. So there will be some crossovers both ways. But I think that we're still confident that at the end of the day it will be a tough fight, and perhaps down to the wire, but as we see things we still think this is a vote that we will prevail on.

And I will say that the administration, as evidenced by the Secretary of State's powerful speech on human rights, absolutely agrees that the human rights, the labor rights, the religious rights situation in China is very disturbing. It is one that we strongly disapprove of.

But that is not the question. The question is, will voting yes on permanent NTR help or hurt in terms of making things better in China -- in terms of opening the society; in terms of economic freedom; in terms of political reform. I do not understand the argument that suggests that if we close our doors to them, if we undermine the reformers within China who have sought to open their doors more, that we will somehow strengthen the situation of human rights within China.

That is not what, obviously, Martin Lee (phonetic), the democracy leader in Hong Kong, thinks. It is not what I think the overwhelming majority of people concerned with these issues believe. These are honorable differences, but we think the more it's discussed, the more people will see that voting yes on permanent NTR is a step towards improving things in China, whatever -- however negative some of the situations may be.

MR. DORTON: Last question, guys.

Q: Can you tell me, quantify for me, getting away from the politics for a moment, how much of the improvement in Medicare and Social Security's outlook is due to higher than expected payroll taxes, and how much is due to other factors?

MR. SPERLING: Within this report? Within this report, you have basically offsetting -- you have offsetting movement. You have -- the positive movement is that productivity is estimated to be at 1.5 instead of 1.3. And you have real wage growth being estimated at 1.0 instead of 0.9.

On the other hand, people are expected to live longer -- which I think most of us think is overall good news -- so that puts a little bit more strain on the system. And then every year that you don't solve the problem, you essentially include -- these are done on 75-year estimates. So you're essentially bringing in another bad year, every year you bring in -- 2075, now.

So you really have -- you have conflicting factors. Overall, when you added in some of the technical issues, there was an improvement, 0.18, in the Social Security solvency.

Chris, I don't know if you have any -- on Medicare --

MR. JENNINGS: I think we should -- I'll give you a breakout separately. I mean, I think it really is, goes both ways.

Q: Gene, before you go, can I ask you a -- about the supplemental? I haven't followed it, but last I checked it was at something like $13 billion. You've talked a lot about fiscal discipline here. Is this thing getting out of hand?

MR. SPERLING: You know what, I'm going to take a pass on that, because I don't know what Jack Lew has said publicly today. And so I'll let him respond on the supplemental for today.

END 4:35 P.M. EST