[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM AS A MODEL FOR MEDICARE
REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 22, 1999
__________
Serial No. 106-50
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
60-972 CC WASHINGTON : 2000
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Civil Service
JOE SCARBOROUGH, Florida, Chairman
ASA HUTCHINSON, Arkansas ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, Washington,
JOHN L. MICA, Florida DC
DAN MILLER, Florida THOMAS H. ALLEN, Maine
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
George Nesterczuk, Staff Director
Ned Lynch, Senior Research Director
John Cardarelli, Clerk
C O N T E N T S
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Page
Hearing held on May 22, 1999..................................... 1
Statement of:
Duranti, Peter, agent emeritus, Prudential Insurance Co. of
America.................................................... 107
Lemieux, Jeffrey, staff economist, bipartisan Commission on
the Future of Medicare; Grace-Marie Arnett, president, the
Galen Institute; and Becky Cherney, president, Central
Florida Health Care Coalition.............................. 4
Letters, statements, etc., submitted for the record by:
Arnett, Grace-Marie, president, the Galen Institute:
Heritage Foundation statement............................ 83
Prepared statement of.................................... 58
Lemieux, Jeffrey, staff economist, bipartisan Commission on
the Future of Medicare:
Prepared statement of.................................... 8
Prepared statement of Walton Francis..................... 25
THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM AS A MODEL FOR MEDICARE
REFORM
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SATURDAY, MAY 22, 1999
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform,
Sanford, FL.
The subcommittee met, pursuant to notice, at 9:20 a.m., at
Sanford City Hall, 300 North Park Avenue, Sanford, FL, Hon. Joe
Scarborough (chairman of the subcommittee) presiding.
Present: Representatives Scarborough and Mica.
Staff present: John Cardarelli, clerk; and Ned Lynch,
senior research director.
Mr. Scarborough. We call this committee meeting to order.
Good morning, and welcome to this field hearing of the
Committee on Government Reform's Civil Service Subcommittee.
Today, the subcommittee is going to hear from people concerned
about the ways in which Americans will pay for the future costs
of health care. Since it was established in 1965, Medicare has
provided the primary means of insuring proper medical treatment
for Americans over 65 years old. Like many Federal programs--
Social Security, Medicaid, and Federal retirement benefits
among them--Medicare has operated on a ``pay-as-you-go'' basis
from the start. And, like each of those programs, the costs of
past commitments are now coming home to roost.
Medicare's problems result from many of our genuine
achievements in the medical treatment and improved lifestyles
of our people. For multiple reasons, including important
advances in medicine, people live longer. When Medicare was
established in 1965, the lifespan of the average American was
barely over 70 years old. Today, people who reach 65 can often
look forward to an additional 20 years of life. We have not,
however, been especially effective in planning for both the
private and the public challenges facing us if we are to
provide for our needs in those additional years.
The money coming into Medicare will no longer pay the full
cost of health care that Medicare provides, while medical care
costs continue to outpace inflation. In fiscal year 2000,
President Clinton's budget forecasts that Medicare payroll
taxes and premiums will fall $92 billion short of the expenses
that they are intended to cover. By 2010, Medicare's receipts
are projected to be $261 billion less than our anticipated
expenses. Without effective corrective actions, the program
will be insolvent.
In response to Medicare's deteriorating finances, Congress
created a Bipartisan Commission on the Future of Medicare in
the Balanced Budget Agreement of 1997. The Bipartisan
Commission was charged with assessing the problems that we face
and recommending solutions to extend the solvency of Medicare
for the coming years. It was co-chaired by Senator John Breaux,
a Louisiana Democrat, and Representative Bill Thomas, a
Republican from California. After reviewing the Medicare
program's financial and operational challenges, the Commission
looked to the Federal Employees Health Benefits Program as a
model of reform.
The Bipartisan Commission did not issue formal
recommendations; 10 of the 17 commissioners agreed on an
approach modeled after the Federal Employees Health Benefits
Program, but the Commission's rules required 11 votes to issue
recommendations. The Commission's majority reported its
findings, however, and those findings will be the basis of both
congressional and public discussion as we develop the laws and
policies necessary to provide more secure health care for
senior citizens. The Bipartisan Commission recognized that the
current course of increasing deficits is unsustainable, and the
majority identified sound principles that should guide Congress
in shaping Medicare's future.
The majority concluded that the Federal Employees Health
Benefits Program provided the most attractive model of reform
available, and it was the most attractive because it relies
heavily on market forces to develop responses to needs for
health care services. Federal employees have an open enrollment
season each year that enables them to choose from a variety of
options to meet their health care needs. People seeking more
extensive and expensive treatment options pay higher premiums,
but all Federal employees' health insurance premiums are
supported by a Federal payment. As a result of the Bipartisan
Commission's report, some form of ``premium support'' is the
emerging foundation of Medicare's future.
This approach is a marked departure from the Government's
previous efforts to administer Medicare. So far, Medicare has
established a history of command and control medicine. One
witness today is going to report that this system has produced
111,000 pages of regulations while angering and threatening
doctors and jeopardizing important health care services. As a
result, Medicare has become a morass for both patients and
providers. This welter of complex and confusing regulations has
saddled doctors and hospitals with bureaucratic burdens that
impede, rather than improve, health care for seniors. They have
also added to the nightmares of our oldest and frailest
citizens as they seek essential medical treatment.
The reforms outlined by the Commission majority seem to
offer a promising alternative to the bureaucratic burden. We
are going to learn more about those reforms today and the
Commissioners' thinking on the issues. We invite you to join us
in carefully examining different approaches to addressing
Medicare's financial problems and providing a brighter future
for Americans seeking health care in their senior years.
And now, I'd like to ask Congressman John Mica, who was the
chairman of this committee last year, if he would, to please
give us an opening statement.
Mr. Mica. First of all, Mr. Chairman, I want to welcome you
to the 7th Congressional District of Florida. You're here in
the heart of my district, and I appreciate your holding this
hearing today, conducting it, and also giving an opportunity
for our community and local hospitals, health care individuals,
Federal retiree groups and Federal employee groups to hear a
little bit more about proposals from the National Bipartisan
Commission on the Future of Medicare and also how the Federal
Employees Health Benefits Program can serve as a model for
future reform measures that are being considered.
I have always been impressed with the Federal Employees
Health Benefits Program. When I chaired Civil Service I was
incredibly impressed with the fact that we have less than 200
employees administering a program that serves 9 million
people--over 4.2 million Federal employees and retirees and
nearly 5 million dependents--and doing so in a very cost-
effective manner.
The heart of the Federal Employees Health Benefits Program,
however, is based on competition and the ability to fairly
compete, the ability to have a certain set of benefits
prescribed and then allowing many vendors and health care
providers to compete in an open and fair system, a very basic
principle that has served us well for nearly four decades in
providing health care benefits to our Federal employees and
Federal retirees and their dependents. I think it's great to
look at that as a model. I think that we do need to also be
concerned about some of the problems that we've had,
particularly of late, with the program, and that is that we
have experienced some substantial increase in costs. But our
previous hearings have revealed, in fact, that many of the
costs are brought about by additional Federal mandates,
additional Federal requirements, and additional Federal
regulations where the Federal Government and the Congress,
sometimes very well intended, has imposed additional
requirements of the providers.
Not to say that we do not have problems that need to be
addressed. For example, one of the greatest areas of costs,
increased costs, not only to FEHBP but to health care, is
prescription drugs. We've also had the experience of having
imposed patients' bill of rights on the program by Executive
order and have seen also that it has increased costs without
providing any specific medical benefit.
So I think we need to use this as a model to look at the
successes, the failures, and the problems of the system and
adopt the good parts as we look for an alternative to Medicare,
which is so important. I say that and repeat that as we
continue to provide Medicare and many folks may want to
participate in Medicare, but look at alternatives that can take
pressure off of the system and provide an alternative, here's
an alternative that's based on competition, based on
experience, and based on a record of success.
So I salute you and the subcommittee in reviewing our good
model and our good points and also the problem areas of FEHBP
as we search for a model to provide good access and quality
care to those who've worked so hard for this country to make it
a success, our retirees and others who are taken into account
by our Medicare program. I'm pleased that we are doing this
hearing and, again, in my district.
So I thank you.
And one final note, Mr. Chairman, possibly later depending
on your time and ability to hear requests, we have a statement
from our National Association of Retired Federal Employees.
Some of our NARFE folks I introduced you to are here today and
I'd like to ask unanimous consent that their statement be made
a part of the record.
Mr. Scarborough. Well, I'm not going to object. Without
objection it'll be entered into the record. Certainly that and
all this important testimony will be part of our record.
I thank you, Mr. Chairman, for your statements today.
I'd like to ask our witnesses if they would to please stand
up and take the oath. If you could raise your right hands.
[Witnesses sworn.]
Mr. Scarborough. Please have a seat.
Today we're very pleased to have as witnesses Mr. Jeffrey
Lemieux, who is staff economist for the Bipartisan Commission.
He had previously worked in the Congressional Budget Office as
health care policy analyst. He's going to be providing a
discussion of the Bipartisan Commission's findings and discuss
their majority position.
We also have with us today Ms. Grace-Marie Arnett, of the
Galen Institute in Alexandria, VA. It's a research
organization. Ms. Arnett has followed the health care issue as
a journalist and as a policy analyst and she's written about
the Bipartisan Commission's recommendations for several
newspapers.
Our third panelist this morning is Ms. Becky Cherney,
president of the Central Florida Health Care Coalition. She was
recently recognized as central Florida's business woman of the
year by the Orlando Business Journal and has been a tireless
advocate of consumers in the health care industry.
I thank all three of you for showing up today to testify.
If you would like to start, Mr. Lemieux.
STATEMENTS OF JEFFREY LEMIEUX, STAFF ECONOMIST, BIPARTISAN
COMMISSION ON THE FUTURE OF MEDICARE; GRACE-MARIE ARNETT,
PRESIDENT, THE GALEN INSTITUTE; AND BECKY CHERNEY, PRESIDENT,
CENTRAL FLORIDA HEALTH CARE COALITION
Mr. Lemieux. Thank you. Thank you, Mr. Chairman, can you
hear me OK with this mic?
Mr. Scarborough. Sure can.
Mr. Lemieux. I very much appreciate the opportunity to come
down and meet you and talk to you about this issue. We on the
Medicare Commission worked very hard and furiously to get an
agreement and came very close. I think even though the formal
report was not issued by the Commission, the plans that
resulted are very powerful and very helpful. I want to spend a
few seconds talking about the basics of the Medicare Commission
plan. Then my statement goes into a fair amount of detail which
I don't intend to talk about, but you can use as a reference if
you wish. Instead of going through those details I'd like to
talk about how the Commission evolved its position over the
last 4 or 5 months. And I'll be happy to answer any questions
you have.
The goal of the Breaux/Thomas Commission was to create a
new Medicare that was new and modern and flexible. This program
has been in place now for 30 years and it still, in some
respects, seems 30 years old and in need of updating.
The Breaux/Thomas plan for beneficiaries has the impact of
offering more reasonably priced drug coverage. It has the
possibility of reducing the need for supplemental coverage. And
it holds out the promise for lower premiums for the government
and, of course, by extension, the taxpayer. It would aid the
budget, we think. And it would gradually reduce the need, we
think, for Federal micro-management of Medicare.
For health plans this system is designed to create more
stability and less business risk in their operation so that
they can cover Medicare beneficiaries with more of a sense of
assurance that they'll be operating in a stable, fair, and
competitive system. It might make a tougher competition for
some of them, but we think it'll be fairer and more attractive.
And finally, for hospitals and health providers the hope is
that this approach would lead to a less heavy-handed system of
cost control than has been used in the past, lurching between
cost control measures that can be quite difficult for providers
to face.
The proposal would minimize the disruption to current
beneficiaries. It's designed to remake Medicare, under new
incentives, to be more competitive and more market-oriented,
but at the same time, not to disrupt the current program. Now,
what that means is that beneficiaries who are currently in the
Medicare fee-for-service program or who are currently in a
Medicare HMO, when this new system is implemented they
shouldn't notice much of a difference. What that also means is
that this proposal doesn't try to go through and rectify every
Medicare problem or answer every question in Medicare all at
once. This is a broad conceptual proposal that's intending to
get Medicare right, not for the next year or the next 2 years
or the next 5 years, but for the next decade or the next two
decades or the next three decades. And as a result there will
still be a great need for congressional oversight, for public
input, and for continuing evolution of the program.
The Medicare Commission decided to take Medicare and move
to a new entity to control the operations of all health plans.
They call that the Medicare board, for lack of a better term.
The Medicare board would control the competition between the
fee-for-service plan, which would still be run by the
Government, and all the private plans. They had many objectives
with this Medicare board. They wanted it to create a fair
competition. They wanted to reduce conflicts of interest. And
they wanted to create stability. I'm going to tell you how we
got there.
When we started in the Commission we broke up into two
groups, one to study incremental reforms of Medicare, mainly by
changes to the payment rates and changes to the compensation we
give to health plans, and another task force to study more
radical restructuring proposals.
We quickly decided that the first task force on incremental
reforms didn't have much momentum or support. Nobody wanted to
just say, well, let's reduce hospital payments, fees, a little
bit. They wanted something that was more long-term and more
lasting. Few commissioners supported the incremental approach.
On the other hand, few commissioners supported a more
radical restructuring, like a voucher plan or a defined
contribution plan. ``Defined contribution'' is the term in
Medicare for the Government deciding how much it's going to
make available for Medicare and growing that by some index like
CPI or GDP or something. And that was quickly rejected also as
being probably too far-reaching and too risky.
They settled on a premium support proposal like FEHBP as an
alternative between incremental tinkering with payments and of
broader radical restructuring. The premium support proposal
allows us to continue on Medicare in its current setup but also
changes the incentives quite a bit. And here's how that works.
Under Medicare now, everybody has to pay a Part B premium,
it's about $500 a year now. It's expected to go up to about
$700 over the next several years. Nobody has a choice about
that. I take that back. Most people don't have a choice about
that. Almost everybody pays the Part B premium.
We took a look at the FEHBP formula, which instead says, if
you choose an expensive plan you pay more than average and if
you choose an inexpensive plan you pay less, and thought that
that was a good start. Further looking at FEHBP, the
commissioners and the majority decided that a powerful Medicare
board would be a good thing to regulate the operations of the
competition to make sure it was fair, to make sure that there
wasn't risk segmentation, to make sure that there wasn't unfair
competition or benefit packages that were designed not to help
people with their medical needs, but rather, to attract the
healthiest beneficiaries. And with a powerful Medicare board
the commissioners decided that they could update the FEHBP
premium formula to be more generous to beneficiaries.
So what they said was for a premium that's about average
the beneficiary premium would be about what it is now under
Part B. If it's for a premium higher than average they would
have to pay the full difference. For a premium lower than
average based on a schedule their entire premium could be
phased out all the way down to zero.
Now, most people don't see their Part B premium now. It's
in their Social Security check. They might not be too aware of
it. But $500 to $700 a year is a significant amount of money,
and the economists and others who studied this felt as though
that would provide an incentive for people to be quite careful
about the plans they select each year. And it would also
provide an incentive for the government-run fee-for-service
plan to be very careful with its costs, because beneficiaries
would be more aware of how uncontrolled cost growth would be
costing them and preventing them an opportunity.
After we settled on the competitive aspects, which are
pretty widely agreed among commissioners, including beyond the
10 who voted for the plan, the next tough question was
prescription drugs. There were several intentions there. The
first thing was we wanted to get prescription drug coverage for
low income beneficiaries just as soon as possible. And the plan
includes a full subsidy for prescription drug coverage for
beneficiaries under 135 percent of poverty, which is a
threshold that's used for some other reasons in Medicare.
The second way we wanted to get prescription drug coverage
to beneficiaries is by requiring all plans to have a high
option including prescription drugs. And that includes the
government-run plan, the fee-for-service plan.
The third thing that was very important to the
commissioners was limiting the expense and not creating a new
very expensive entitlement and not substituting too much for
the drug spending that people currently undertake privately.
And I think that they intended to create a start on a drug
benefit here, they intended to fund it for the poor and at
least make it a fair deal for everyone else and make it
available for everyone else.
In the final days of the Commission, when we were
negotiating with the administration, there were some other
items that aren't in the plan itself. We considered a high
income premium; high income beneficiaries would have to pay an
extra premium, and the intention of that was to provide
additional financing for subsidies for high option plans to
make high option plans a little bit cheaper. So in addition to
just being fairly priced, to try and make them better than
fairly priced with government subsidy. We couldn't get an
agreement on that, and that was dropped out of the final plan.
Let me just say that as economists and policy analysts we
are very pleased by the progress here and we're also pleased by
the focus. I mean, we always focus on Medicare's financial
crises. That's helpful, I guess, politically, to force Members
of Congress and the public to address the issue. But what's
more important is trying to create a better Medicare taxpayers,
future beneficiaries and current beneficiaries. This program
could use that second look, and we think that the Breaux/Thomas
plan provides a good starting point.
I'll be happy to answer your questions.
[The prepared statement of Mr. Lemieux follows:]
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Mr. Scarborough. Thank you for your testimony.
Ms. Arnett.
Ms. Arnett. Thank you very much. How's this? Can you hear
this OK? Hold it closer? Good.
Thank you, Mr. Chairman, Mr. Mica, for inviting me to
testify before your committee today.
My name is Grace-Marie Arnett; as you've said, I am
president of the Galen Institute. We focus on promoting a more
informed public debate over individual freedom, consumer
choice, competition, and diversity in the health sector.
The Galen Institute also facilitates the work of the
Consensus Group, which is composed of about 20 other health
policy analysts, who have been meeting together since 1993 to
promote public education about free-market health reform ideas.
We have a couple of principles that we have developed on
Medicare reform as part of a longer statement, but basically we
believe that the reform of the Medicare system should expand
private sector options for beneficiaries. They should be able
to either elect to participate in current Medicare or to
purchase health coverage or medical services of their choice in
the private competitive health sector.
We also believe that Medicare benefits should be defined in
terms of a dollar amount, rather than in terms of an open
entitlement to covered services.
We hope that these principles also might be useful in
guiding the congressional debate as well.
This morning I would like today to do two things: First, to
do a brief overview of why Medicare needs to be reformed, not
only because of the future insolvency of the program, but also
because of restrictions being placed on today's beneficiaries.
And then I would also like to talk about FEHBP as a model for
Medicare reform.
In 1998, as you all know very well, Medicare spent $214
billion to provide health services for 39 million
beneficiaries. The bi-partisan Medicare Commission was created
because virtually everybody in the policy community, economists
and anyone who studies Medicare, realizes that the current
system is unsustainable as 77 million baby-boomers start to hit
eligibility for Medicare.
The tax burden on today's college students, if nothing is
done to change Medicare, would triple from the current 5
percent of gross domestic product to 14 percent by the time
they would retire.
As you mentioned in your statement, Mr. Chairman, Dr.
Robert Waller, who is the former head of the Mayo Clinic
Foundation, which runs the Mayo Clinics, had his staff count
the number of pages of rules, government rules, that his
facilities must comply with in order to treat Medicare
patients. They counted 111,000 pages of Medicare rules and
regulations. That's three times more pages than in the Federal
tax system. It's impossible for any physician or even an
organization like the Mayo Clinic to know what is in those
regulations. It's certainly impossible for any physician to try
to treat a Medicare patient and not fear they're running afoul
of Medicare rules.
I'd like to offer a few examples of why Medicare is a bad
deal for today's beneficiaries. Two years ago there was an
article in the Washington Post which reveals where a
centralized, government-run health care program can lead. The
lead of the news article--this is not a commentary, it's a news
article--said,
People in hospice programs are not dying fast enough to
satisfy Federal Government auditors. Washington is conducting
special reviews of hospice records and calling for repayment of
money spent under Medicare for people who live beyond the
expected 6 months that they had enrolled for hospice care. This
get-tough policy is part of the government's Operation Restore
Trust, a special program designed to combat waste, fraud, and
abuse in Medicare.
Apparently Federal auditors believe that Medicare patients who
are living too long represent waste, fraud, and abuse.
The waste, fraud, and abuse regulations, however, are
having a serious impact on today's beneficiaries. Let me tell
you a little bit about a couple of doctors in Idaho trying to
comply with these 111,000 pages of rules.
Dr. Kenneth Krell found himself targeted by Federal
auditors who came in and looked at 15 of his Medicare patient's
records. And they found that Dr. Krell had overcharged Medicare
by $2,355. This was primarily a dispute over whether or not
what he had done either was medically necessary, according to
the Government, or whether or not he had coded it properly. The
Federal agents then multiplied that number by the number of
Medicare patients that Dr. Krell had seen in the whole year and
charged him with a bill of $81,390 as a fine.
He protested loudly, and apparently the Federal Government
did back down.
Three other doctors in nearby Idaho Falls were also the
subject of an audit, and they were told that the next time if
they did not do a better job of complying with Medicare rules,
which they're trying very hard to comply with, that they would
then be subject to $10,000 fines for each one of their
miscodings. They dropped Medicare patients altogether. Now
patients in Idaho Falls have to drive 45 minutes to Pocatello
to see a doctor.
Other doctors in Idaho--and I think Idaho is particularly
worrisome because there are not a lot of options, it's a rural
State--other doctors are really considering dropping Medicare
patients altogether.
Section 4507 has also been of great interest to a lot of
patients because this provision prohibits individuals from
privately contracting from doctors if they're on Medicare to
receive medical services. That's been a big dispute. It's
really an example of what happens in government-run systems.
And finally, privacy intrusions. The Health Care Financing
Administration, as you know, is currently considering a rule
that would force 9,000 home health agencies to begin collecting
very sensitive data on their patients to make sure they are, in
fact, qualified for home health care. Everything from their
daily habits to their feelings of a sense of failure, thoughts
of suicide, whether they use excessive profanity. The home
health agents are to write these questions and answers down
without necessarily consulting with the patients. Then these
answers become part of the patients' permanent records, which
are accessible to other government agencies. These are the
kinds of things, as you well know, that result when doctors and
hospitals and patients are subject to the Medicare regulatory
system.
This is the reason, I believe, that anyone who's studied
this program in-depth winds up saying we've got to change this.
This is not sustainable. We've got to wind up with a better
system. And the system that Chairman Breaux and Congressman
Thomas of California, in consultation with the expertise of
Jeff Lemieux, the Consensus Group, John Hoff, and others, have
come up with.
The plan that they developed is a solution that would put
more control in the hands of beneficiaries and less in the
hands of bureaucrats. Traditional Medicare patients receiving
financial assistance that they could use to purchase their own
health coverage in the private market is a much better
solution. The premium support model would move away from the
current crushing system of price controls, regulatory
bottlenecks, and restrictions on coverage, to give seniors much
more choice in making their own health care arrangements.
And the Federal Employees Health Benefits model really is a
proven model, and your committee deserves a lot of credit for
continuing to operate a hands-off approach to really let
competition work in this sector. I will not go into the details
again of the plan, certainly Jeff Lemieux can present it much
better than I, and my testimony does describe this in detail.
I would like to enter into the record a statement that I
read, actually after I'd produced my testimony, by Walt
Francis, who used to run the Federal Employees Health Benefits
Program, who talks a lot about the details on how you could
transform Medicare into a Federal Employees Health Benefits
model. He said, I think interestingly, in his statement that if
Medicare as it's currently constructed were offered as one of
the options in the FEHBP today, to nearly 10 million
beneficiaries, it would have no clients, because there are so
many gaps in coverage, it's so expensive, and it puts people
through so many unnecessary hoops. If it were competing with
other private sector plan's customers, it would wind up not
having any.
Mr. Scarborough. Without objection we will put that
statement in the record.
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Ms. Arnett. Thank you very much.
And finally, Mr. Chairman, I'd like to commend your
committee for the work that you're doing on long-term care
insurance for current Federal employees. I think that your
committee can serve as a model for the right way to do this in
providing people with maximum flexibility, maximum choice in
the long-term care insurance market, thinking ahead about how
important that is to Medicare in the future but today just
setting up a very competitive model like FEHBP and the long-
term care insurance model. So I commend you on that.
In conclusion, I would hope that serious consideration
would be given to using the FEHBP model for Medicare reform to
give seniors much more choice and freedom in attaining health
care and to save taxpayers $500 to $700 billion a year, by the
year 2030 under a modernized Medicare. Instead of appeasing
regulators and health police, patients would be free to make
their own choices of doctors and care arrangements.
Thank you, Mr. Chairman and Mr. Mica, for inviting me here,
and I look forward to your questions.
[The prepared statement of Ms. Arnett follows:]
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Mr. Scarborough. Thanks for that testimony.
Ms. Cherney.
Ms. Cherney. Thank you, Mr. Chairman and Congressman Mica.
My name is Beckey Cherney, and I'm president of the Central
Florida Health Care Coalition, a non-profit coalition of large
public and private employers in central Florida. The Coalition
is 15 years old, and its main focus is on improving the quality
of health care. I am also a consumer representative on the
Florida Board of Medicine.
I speak with you today as a health care ``utilizer,'' not a
consumer. When we achieve the convergence of information
technology and evidence-based medicine, I will become a health
care consumer. But at the present time, the financing, clinical
care delivery system, and health plan designs are so complex,
no ordinary citizen has the information required to be a true
health care consumer.
All doctors are not created equal.
The greatest predictor of the health care you receive is
the year your doctor graduated from medical school.
The problem in health care is that it is the most
inefficient major industry we have in our country. That is the
disease that must be treated. Our ongoing efforts to focus on
the symptoms of financing and managed care are a placebo that
will never have a measurable impact until we treat the disease.
While I applaud your efforts to look at the Federal
Employees Health Benefits Program as yet another ``financial
fix,'' I think the inevitable damage from attaching Medicare to
that program is unfair to the people covered by that program
and the people responsible for administering it. In our
considerable experience with this, the almost inevitable
implosion of the Medicare coverage has a terrible impact on the
non-Medicare enrollees as well. Unreimbursed Medicare expenses
will be shifted to the non-Medicare enrollees.
Central Florida has the demographics that will exist
nationally by 2010--the ethnic diversity, percentage of senior
citizens, and so on. We are a microcosm of what is happening
across the Nation. California's managed care market is more
mature than ours; New York's is less.
Let me quickly tell you the sad tale of Medicare in our
market. Under the Balanced Budget Act, our two major hospital
systems will each lose over $100 million on Medicare from now
until the act expires in 2003. Some of these losses will
necessarily be shifted to employers, because the hospital
cannot make widgets to replace that lost revenue. Our hospitals
have acted responsibly and with restraint as they waited for
the chaos created by Medicare to resolve.
As a result of that, I want to be certain I do not say
anything that might shock any of you. You see, I would not want
you to have a heart attack here in central Florida. We no
longer have any extra capacity in our emergency rooms. Our
hospital margins have been slashed so drastically by Medicare's
failure to reimburse appropriately, the hospitals have not been
able to expand to meet the growing demand.
One of our hospitals took on a Medicare demonstration
project. Before they could extricate themselves from the
project, they suffered financial losses that will hamper their
operation for the next decade. As a faith-based, not-for-
profit-hospital, they entered into the project simply to serve
their community. Thousands of Medicare enrollees had to find
new plans, and many of them even had to change doctors. That is
patently unfair and unsafe. The physician-patient relationship
and the continuity of care are critical, and Medicare
beneficiaries should never be denied that.
I'm responsible for purchasing my mother's Medicare. I have
had to change her twice in the last 18 months; with the pending
PRU Care-Aetna merger, it's highly likely that I will have to
change her again in the next couple of months. If my broker
tried to churn my investments the way my mother's health care
is being churned, the Securities and Exchange Commission would
respond. But we don't have that protection for our Medicare
recipients.
Remember again that with our demographics, we look like the
rest of the Nation will look in 2010. The managed care plans in
our market are the same as those in the Federal Employees
Health Benefits Program. We have the Prudentials, Aetnas,
Cignas, and so on. When Medicare+Choice arrived, they all
quickly participated. Right now, to the best of my knowledge,
every single one of them has either stopped enrollments or has
immediate plans to do so. They're losing too much money.
Tinkering with the financial mechanism will not solve this
problem. And that is being said by someone who admits that she
thought she could save the world with second surgical opinions
15 years ago. Plan designs will not solve it. We must address
the efficiency or more correctly, the inefficiency of the
health care delivery system to correct it. And that is very
doable. Working in partnership with our doctors and hospitals,
we have made great strides in central Florida by linking
information technology and evidence-based medicine. The
greatest impediment to our advancement of that is Medicare. For
the most part, we do not think doctors are overpaid; we think
basketball players are overpaid. But I will tell you that
Medicare is every bit as out of kilter financially as the
National Basketball Association.
The health care train is rambling rapidly down the track
toward a large wall. The reason Congress does not see the wall
is because they are always glancing to the side at some new,
but not really new, financial mechanism like we are discussing
today. I would like to suggest that you do not put another
Band-Aid on this wound. It is going to bleed our health care
industry to death unless we force those responsible to look at
the real disease of inefficiency and stop treating only the
symptoms. Creating the inevitable chaos in the Federal
Employees Health Benefits Program will simply be another
problem, not a solution.
Mr. Scarborough. I thank you for your testimony. Mr. Mica
is going to need to be leaving in the next 15 to 20 minutes for
another important meeting across the district, but I wanted to
ask each of you a question briefly, then I'll turn it over to
Mr. Mica, and then I'll be asking some more questions.
I'm just curious, Ms. Cherney, if I want to get the best
doctor I can, you said the best predictor of health care
coverage depended on what year my physician graduated from
medical school. I'm just curious: Do I look for a young doctor,
an older, more experienced doctor, or somebody in between?
Ms. Cherney. Well, it depends on what your condition is.
But, for the most part, the younger doctors have had the recent
education and they're aware of the technology and the new
things that are available to them. It's not the fault of the
older doctors that they're not, and when you're practicing
medicine there isn't a place for them to go to stay up to date.
But if we had a central repository, if we had systems like I
have here where I can profile the physician and I can show them
how well they practice in the hospital by diagnosis, and I can
show them how well they practice in their office by diagnosis,
they can see where their deficiencies are.
And so, if you were treating upper respiratory infection in
central Florida, and your cost per episode is more than $100
and you graduated from medical school 10 years ago, so you're
giving Cephalosporin and colds and cough medicine, you will
quickly see by outcomes that you should be using Ampicillin and
you will have better outcomes and it will be a much lower cost
to the community. But the outcome is the issue, not the cost.
Mr. Scarborough. OK. Great. So a younger doctor--I've been
trying to convince Mr. Mica the same holds true with Members of
Congress.
Mr. Lemieux, I'm just curious, if you could give us some
background, people of the audience, because I think it would be
very instructive about the board, the Bipartisan Commission.
I'm interested in the makeup of that Commission. You said there
were 17 people. Could you just instruct everybody and myself
also, exactly what that makeup was, who appointed those
members, how many from the administration, how many from
Congress, et cetera.
Mr. Lemieux. I'll try to get this right. I can name the
members and I'll have to think about exactly who they were
appointed by. It was chaired by Senator Breaux as the statutory
chairman, Representative Thomas was the administrative
chairman. That was sort of a power sharing arrangement that was
predetermined.
Mr. Scarborough. Right.
Mr. Lemieux. There were four appointees from the President.
The rest of the appointees were from the leaders of Congress,
from both sides of the aisle. The Members were--the
congressional appointees were Congressman McDermott from
Washington; Congressman Dingell from Michigan. There was
Congressman Ganske from Iowa, who then left the Commission and
was replaced by Colleen Conway-Welch, a nurse practitioner from
Tennessee. Sam Howard was appointed by Speaker Gingrich at the
time. He's an HMO executive in the midwest.
In the Senate side, Senator Frist was on the Commission,
Senator Rockefeller, Senator Gramm of Texas, Senator Kerrey of
Nebraska. They were all appointees of the leadership. Debbie
Steellman, a Republican policy analyst, was an appointee of
Senator Lott.
The Presidential appointees were an HMO executive from New
York, Tony Watson; Bruce Vladeck, former HCFA Director----
Mr. Scarborough. Mr. Bilirakis also?
Mr. Lemieux. That's right, I missed Mr. Bilirakis, who is a
congressional appointee. Mr. Altman, a health economist, and
Laura Tyson, who is an economist, were also Presidential
appointees.
Mr. Scarborough. OK. I'm just curious what was the
breakdown of the people that supported Senator Breaux's
recommendations and the board's?
Mr. Lemieux. They were all congressional appointees. Of the
congressional appointees who were opposed it was
Representatives McDermott, Dingell, and Rockefeller. All the
other congressional appointees were in favor. None of the
Presidential appointees were in favor.
Mr. Scarborough. So you had the administration actually
going against the recommendation of Senator Breaux?
Mr. Lemieux. Whether it was going against or not
supporting, yes.
Mr. Scarborough. Did you have legal training in the past
also? I'm just curious.
All right. Ms. Arnett, I wanted to ask you, you touched on
an issue that I've got to tell you I've heard more complaints
about and I think the first time most Americans were made aware
of it was after a Wall Street Journal editorial talking about
how senior citizens could not go to whichever doctor they
wanted to go to. If they went and actually paid for the medical
service that was provided for them then that physician would be
kicked out of Medicare for 2 years and face financial ruin. I
wanted some clarification on that.
The Wall Street Journal says that came about as a result of
the Balanced Budget Act of 1997. I have talked to every
chairman on every committee that has jurisdiction over this and
every one of them says that was the case before the 1997
Balanced Budget Act and as I find in Washington, DC, you know,
it's sometimes hard to nail down exactly the bottom line. Can
you clarify, for the record, right now, what your understanding
is on when that ban came about?
Ms. Arnett. Well, you're absolutely right, Mr. Chairman,
there has been a big controversy over whether or not seniors
could, in fact, pay privately for health care on their own
outside of Medicare. HCFA, the Health Care Financing
Administration, had said they could. Doctors were afraid they
couldn't. The lawyers were all over the map.
And so this was actually Senator Kyl's, of Arizona, way of
trying to put something in there that said seniors could. And
the administration apparently got very upset about this and in
one of these, you know, 11 o'clock at night controversies said,
OK, we will let seniors contract privately with a physician for
health care if that doctor agrees to get out of Medicare for 2
years and not see any Medicare patients at all for 2 years just
for treating that one patient. And somehow or another it wound
up being part of the bill, starting out as a fix and winding up
making it much worse.
And we were told that this was a big issue with the White
House and that they were ready to go to the mat to make sure
that they didn't open the door to more freedom and privacy in
the health care system.
Mr. Scarborough. It's just remarkable to me in 1999 in the
United States of America that the people out here--my mom, my
dad, your parents--can't go to the doctor of their choice. That
is about as repugnant to me and to what I thought America stood
for as anything. I'm just absolutely dumbfounded as to why that
got shoved in the Balanced Budget Act of 1997 and why somebody
on the congressional side didn't put a red flag up before the
Wall Street Journal.
Ms. Arnett. Well, if more members had known that that was
in there, you would absolutely not have voted for this. But it
was in there. Not knowing it was there, that was the problem.
Mr. Scarborough. I voted against it anyway because I
thought it spent too much money.
Mr. Mica.
Mr. Mica. Thank you, Mr. Chairman. A couple of questions,
Mr. Lemieux. Do you think it's better that we totally replace
Medicare or provide an alternative for a phase? One of the
problems you have is many of the seniors become very concerned
when there's something sort of new on the block, and unknown,
untested, and I hear a great deal of apprehension about
completely replacing the system. Had you given consideration to
that, and how do you think it should be approached?
Mr. Lemieux. The Commission gave very little consideration
to completely replacing Medicare. They wanted to remake
Medicare with better incentives. But they didn't want to
jettison the current HMOs that we have, they didn't want to
jettison the fee-for-service plan. They wanted all those plans
to compete in a better way and in a fairer way and with
possibly better benefits. But there was very little
consideration in the committee, and I would have known because
I did the cost estimate, for something that would have been a
complete change of Medicare.
Mr. Mica. One of the other areas, and I think I mentioned
it in my opening statement, that we've seen dramatically
increased costs is the prescription drugs, and I think you
talked a little bit about that. Maybe you could elaborate some
more. One of the questions that always comes up is always the
copays, how that operates. Could you tell us what your
recommendation might be to deal with the cost of rising
prescription drug costs?
Mr. Lemieux. The commissioners were very concerned about
the costs. They were also very concerned that prescription
drugs are very important in medical practice now and that it's
especially important to make sure that lower income people were
taken care of.
The idea of a high option drug benefit is that all plans
have to have drug coverage. Now the level of that coverage was
left undetermined. The idea was that the Medicare board would
set up standards or examples for what would be acceptable drug
coverage but that that would be left flexible so that the board
and plans could evolve how things were. They were very
concerned that it not all be predetermined, the copayments and
which drugs were covered and which weren't.
So one of their concerns with Medicare is that it hasn't
been flexible to evolve over time, and they wanted to back away
from prescribing exactly how it should be done. So that was
left fairly open, exactly how good drug coverage had to be in
these high option plans.
Mr. Mica. The other item would be just premium cost and
developing some scale possibly based on income or resources.
What would be the fairest way? With the Federal Government
employees health care plan we basically have the Federal pay
and the employee copay. You have a little bit different
situation with Medicare because you have people of varying
means, and that would be the first part of my question. The
other part would be: Was there any consideration to even
expanding this to Medicaid? Because at some point if you paid
100 percent of the premium on a competitive basis you might be
able to provide Medicaid assistance on a competitive basis at a
lower cost. Could you answer those questions?
Mr. Lemieux. When the commissioners set out to ensure drug
coverage for persons under 135 percent of poverty they wanted
to implement that even before the premium support and the
FEHBP-style system would be ready for Medicare. We all think it
would take at least 4 or 5 years to get an FEHBP-style system
up and running. But they wanted the subsidies for the low
income persons to start right away, and so they presumed that
that would happen via State Medicaid programs, although they
also wanted the States not to be required to pay more. So they
added 100 percent Federal funding for that.
After premium support is up and running, I think that their
idea was to create a special schedule of premiums for low
income persons so that they could get a high option plan at no
cost to them. And they wanted the competitive aspect to still
work for people under that percentage of poverty but they
wanted also to ensure that they would be able to afford a good
high option plan at no premium cost to them.
Mr. Mica. Ms. Arnett, you described a big government system
or big government program that was on the verge of collapse,
and you cited the demographics that we're looking at as far as
the coming recipient, potential recipient. What are our dates
of concern and how quickly do we see this new mass of eligible
recipients coming on board?
Ms. Arnett. Originally Medicare had been projected to start
spending more than it took in within the next year or two. But
as you know, that has been moved forward by putting in more
taxpayer funds into the system. So the date of bankruptcy keeps
moving forward because the amount of taxpayer dollars continue
to go into the system.
But when the first baby boomers start to become eligible in
2012, a relatively short time, especially in just observation
that even if changes were made today, it would take some number
of years to begin implementation so that seniors have choices.
And, again, Medicare as it currently is constructed should be
one of the options, but let's put some more options out there.
It's going to take awhile to get that machinery in place, and
there's just not a lot of time. We have maybe a decade to get
everything up and running.
Mr. Mica. You also cited some interesting figures, the
111,000 pages of regulations which I think your testimony also
outlined very graphically how it's almost impossible to comply.
One of the things we tried to do in Congress since there was so
much fraud, waste, and abuse, is put additional regulations on,
and monitor. And some of that--you also described scenarios of
how that's backfired, and I hear the same thing from
physicians. I guess FEHBP, a plan adopted in that pattern,
would pretty much scrap all of those and we'd have defined
benefits and then I guess a series of add-ons. Could that
eliminate most of these 111,000 pages?
Ms. Arnett. I believe so. I understand the legislation
enabling FEHBP is one paragraph long, and that's a huge
difference from 111,000 pages, and it's because beneficiaries
would then be in charge of making those decisions. Not either
the legislation or the regulation. Yes, I believe so.
Mr. Mica. The other thing you mentioned, which is something
we tried to initiate and, OPM is a little slower than molasses
in January, but that's on the question of providing long-term
care and model FEHBP competitive system to provide--to find
those vendors and health care providers that would provide
plans and competition. One of the problems we ran into is that
OPM says that there's just not enough folks willing to compete
and also that the premiums are very high. I tend to think that
if you had this open and available we'd have more people
interested, participating and create a larger resource. Is that
something you think would help get more competition in this
area, and how should we approach long-term care, at least from
a Federal employee standpoint?
Ms. Arnett. Ned Lynch called a meeting with some of my
colleagues from the Health Policy Consensus Group and other
policy experts, and we're working closely with your committee
in trying to do that.
But, again, I think you're absolutely right. The FEHBP is
the model to really take a hands-off approach and to allow the
marketplace to provide options, to provide the resources, some
basic funding level, that the consumers can use to purchase
their coverage, and over time the insurance will become better
and cheaper, as it has in FEHBP on a relative scale for health
care.
Mr. Mica. I noticed that you raised your eyebrow, Ms.
Cherney; did you want to comment on any of the questions I've
posed to the other panelists?
Ms. Cherney. Well, the FEHB Program went up 9.7 percent
last year. The numbers are due out in a few weeks. But it's
going to be at least that much. Is that sustainable in our
marketplace? Having seen the competitors, the Cignas, the PRU
Cares, and the other people trying to do this in a marketplace
that represents the demographics of 2010, it has not worked.
Those plans are not competitive. They did come out with
programs that were too rich. I mean, I don't know why they
chose to come up with $1,200 in pharmacy benefits to start
with. They should have started lower and tried to scale them
up, depending upon what they could afford. But, at least in
this marketplace, it hasn't worked: It hasn't created
competition. It has created chaos both for the non-Medicare and
the Medicare beneficiaries. It just simply hasn't worked.
Mr. Mica. Ms. Arnett.
Ms. Arnett. Can I just say one last thing? There have been
a lot of regulations imposed on FEHBP over the last couple of
years which are, in fact, forcing premiums to go up, just as
State regulation is forcing up the costs on individual and
group health insurance. So the model for FEHBP in how things
should be done is actually being distorted by a lot of
administrative direction.
Mr. Mica. I think that's something that I pointed out in my
opening statement and I've observed the more mandates, the more
regulations, the more constraints that are put on it--and we've
also lost a number of carriers. When you lose carriers you lose
competition. And we've seen price increases. So the more
tinkering and the more requirements we impose, again, the
higher costs that we see, and it just seems to be a simple
pattern. Maybe that's a simple explanation, but that's what
I've seen in the past 4 years.
Mr. Chairman, I thank you for allowing me to participate
today. I apologize. I'm going to have to leave at this point.
But a very interesting panel, and hopefully we can provide
FEHBP at least the way it was intended and started out as a
model for some Medicare reform, and I appreciate you coming to
our district today.
Mr. Scarborough. Thank you, Mr. Mica. I appreciate you
taking time out of your schedule to come on by, too.
I wanted to get back to this--this is a number that I think
I'm going to be using an awful lot for the next couple of
years, 111,000 pages, that's absolutely remarkable regarding
the regulations. It really helps to explain why you have
physicians and medical providers in Idaho Falls, that are just
saying the heck with it, we're not going to work under this
system any more. I suspect as this continues it's going to get
worse and worse and it's not going to be just Idaho Falls, ID.
It's going to be Sanford, FL down the road.
Obviously from Ms. Cherney's testimony it appears that none
of these regulations have anything to do with making sure the
doctors get paid on time or making sure that health care
providers get paid in time. Is this an oversight of the
regulations, what about one or two pages that we add on making
sure that physicians are paid on time and the health care
providers are paid on time?
I say that because we've got to keep as many health care
providers in this system as possible to help us get through
rocky times. Unfortunately if they're not getting paid for
months or even years then they're going to do what the doctors
in Idaho Falls did and just leave the program.
What do you all recommend? I know it's going to be very
hard for you all to recommend adding new regulations to 111,000
pages. But what can be done to make sure that Medicare is a bit
more responsive to medical providers?
Ms. Arnett. Well, one of the provisions could be to at
least allow doctors that have been subject to audits and that
are being slapped with these $81,000 and higher fines at least
due process in challenging these. And they're not--they're
currently really guilty until proven innocent. The way the IRS
has treated taxpayers is how doctors are now being treated
under these Medicare audits. So just allowing them some due
process would help so that they don't feel so threatened. I
spoke with one of the women who administers HCFA, and she said
doctors are ``hysterical'' over this. And what's going to
happen is they are going to start leaving the profession, and
they've got to have some legal protections and they don't now.
Mr. Lemieux. Mr. Chairman, a little bit larger picture on
that. What we're trying to do with a more competitive Medicare
is also make the government-run fee-for-service plan, which is
the source of these regulations and the difficulties with
providers, more responsive, more businesslike. As opposed to
being a government bureaucracy that's used to running its
program by dictate, instead run it more by partnership. And
that sort of cultural change will take years. But we think the
competitive environment will aid that and it'll reward
managers, government people in HCFA who take the initiative to
be very responsive and to closely work with the providers for
beneficiaries' benefit.
Mr. Scarborough. OK. In talking about this partnership, I
want to ask you all to followup on this. I'm sure you have a
response, but I just wanted to followup on something you said.
I've been arguing and I'm sure that Mr. Mica and many others
have been arguing that really the hope of Medicare in the
future is providing partnerships between the patient and the
physician and the hospital and doing this through provider
service organizations--some call them PSOs, some call them
PPOs. But I want to ask Ms. Cherney if you looked into provider
service organizations as one type of partnership that could
help the system.
Ms. Cherney.
Ms. Cherney. On the kinds of things you could do, in our
community, our physician community is forced to provide short
term financing for Medicare for 90 to 100 days. That's how long
it takes them to get reimbursed. So in effect they're providing
the short term financing for Medicare and it's breaking their
back.
But the other part of that is, if you were to take a sixth
of the budget surplus, as the administration was proposing for
some things, and used a piece of that to create a place where
best practices could be identified and communicated to
physicians, that could change things. When we sat down for the
first time with our data base with cardiologists and showed
them which cardiologists had the best outcome down to the one
who had the lowest outcome and then showed them what the
national average was so you could see who really was providing
inferior medicine, that helped the hospital to know who they
needed to mentor and get up.
But also just looking through on anticoagulants that you
use, there was a big issue there because the outcome was the
same except some of them cost up to $2,000 per case more. That
was new, and so that resolved itself.
But arterial blood gases. A surgeon who had finished school
5 years previously had been taught to do arterial blood gases
before the surgery, one after, two a day until the patient went
home. The same with x rays. The doctors who had been out for 2
years had been taught that if there wasn't a change after
surgery in the first arterial blood gas, don't do any more.
It's a very expensive procedure. It's a very painful procedure.
There are a lot of side effects from it. In that 2-hour meeting
they eliminated those. We cut the cost of open heart surgery
here $4,000 for every open heart surgery that's been done since
then. We have that forum of communication here. But we don't
have any way for the rest of the world to know that. And the
President's own Commission concluded last year that anywhere
from 30 to 40 percent of the medical care that's given is
unnecessary. But it's because it's outdated, not because
doctors are bad. They are competitive and they are bright. And
if you give them good information they will make good
decisions. But there is no platform for the information, and I
believe that the government is probably the only one large
enough to be able to create that platform and communicate it
effectively.
Mr. Lemieux. Mr. Chairman, before I answer your question
I'd like to make two points. And that is that almost all
economists, actuaries, and clinical practitioners support the
sorts of things that we're talking about here as far as
outcomes, research, and best practice. We feel as though it was
the surge of competitive searching for value among employers
over the last 7, 8, or 9 years that has helped spur some of
this, and the idea in Medicare is that a more competitive
system might help. Certainly these sorts of things are a key,
and I think that there's broad consensus that that sort of
information-gathering about how to do things right in health
care is the right way to go.
The second thing is when we were talking about the trends
in FEHBP costs I think it's more than just the mandates that
have driven up costs in recent years. There's historically
always been a fairly volatile cycle of premiums in health care
and in FEHBP in particular, and some of the rate increases that
we're seeing now probably reflect the fact that rates were cut
too much 5 and 6 years ago when we had a negative 3 percent
increase.
The thing that's been heartening to economists is that the
payments for benefits have been growing more moderately now
than they did 10, 15 years ago. So we're cycling around a
little bit lower point, which we think will be nice.
And the other thing is in FEHBP, a lot of the plans are
having trouble with their prescription drug costs, so without
having to be told they're working very hard to manage those
costs better by adjusting their co-insurances, working harder
with the manufacturers to create a formula that will be a
better value and so on. And that can be confusing, and
tumultuous; that's always the case. But the price of innovation
is that things do change, and that there's hope that this is a
self-correcting sort of situation.
Ms. Arnett. Just one more quick fact, a paper that will
soon be coming out from the Heritage Foundation reports that
the Health Care Financing Administration reported that almost
one-fourth of all physician and supplier claims are being
either denied or challenged. So that means even when doctors
are doing what they need to do to treat a patient they then
have to fight a major battle with the bureaucracy. And if a
Medicare beneficiary wants to challenge whether or not they
felt that they were getting proper treatment, the typical
administrative appeal takes 500 to 700 days to challenge. It's
a little late to get prompt treatment.
May I ask also if you'd like me to include this statement
in the record as well?
Mr. Scarborough. That would be great if you could do that,
without objection.
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Mr. Scarborough. Let me ask you all, again following up on
the regulations that really have totally strapped not only
patients but also doctors in the system: What would you all say
to a defender of the system regarding the elimination of
111,000 pages of regulations, when they came to you and said,
well, if we do that, obviously, you're going to see excessive
costs going up and you're going to see the quality of care
plummeting? What do you say in defense of such an argument?
Ms. Arnett. The only thing they could do is add more pages,
and we see how price controls have not worked for 4,000 years.
Regulation winds up meaning that physicians have to cater to
the regulators, not to the patients. So I think that's why, as
just said, the Medicare Commission when it really looked at
this said, we can't fix this system with more regulation. We
have to provide an alternative system with a lot more choice, a
lot less rules. Let this one stay there if people want to stay
under that system, that's fine. But there has to be a choice of
a different system, and that's this competition, freedom of
choice, where individuals and not regulators are in charge.
Mr. Scarborough. Would both of you agree with that, that
you are not proposing a radical departure from this current
program but also suggesting, as Ms. Arnett said, that if people
want to stay in the program as is they can, but instead provide
them other viable alternatives? Would that be a fair statement
on what the Commission concluded?
Mr. Lemieux. Yes, and I think there's some reason for
optimism that even the government-run plan could do a much
better and more cleanly managed job. I don't think there's
reason to presume that more competition would necessarily do
away with the government-run fee-for-service plan. I think
there's room for optimism. Maybe I'm too much of an optimist.
Certainly these things would take time. But I think there's
plenty of room for the fee-for-service plan, and it has
potential to do much better.
Mr. Scarborough. OK. I don't want to keep you all much
longer and I know we have a statement that's going to be read
for the record. I could keep asking you questions all day--I've
got a captive audience here--but they won't be captive here
much longer.
Let's talk very quickly about the costs of the program.
Obviously, with regulators and bureaucrats and a lot of
politicians' ideas in Washington, any time you have a problem
just increase taxes. We're now even seeing people suggesting
the taxes for Medicare be doubled in the coming years and yet
you all know that even if we double taxes, the system still
goes belly up. We cannot tax our way out of this mess. So what
do we do? What hope do we have to provide our constituents that
this system can be saved or that health care systems can remain
solvent in the coming years?
Mr. Lemieux. Well, the Commission assumed, and I estimated,
that new incentives under the Breaux/Thomas plan would save
some money. Not gigantic amounts of money and not really soon.
But that over time it could slow down the growth rate of
Medicare spending. Even a small reduction in the growth of
Medicare spending can compound to a significant amount when you
starting looking out 10, 20, 30 years.
There were other provisions of the plan that really weren't
related to the new competitive system. They were just there to
save a little money. And those, of course, were very
controversial.
The Commission wanted to create a new trust fund system to
help the public and Congress monitor how Medicare was doing.
They decided to create a combined trust fund instead of having
a part A fund, which is the one we always talk about, and part
B, which is virtually meaningless. They wanted to create a
combined fund where people's premiums would come into that
fund, payroll taxes would come into that fund and general
revenue contributions would come into that fund, but it would
be structured so that we'd have to keep a very close eye on
those general revenue contributions and if they had to be
increased it would force a congressional vote above a certain
growth rate.
That seems to make some sense as a compromise to help us
keep a close eye on Medicare spending. Is this going to be the
last time we ever have to think about Medicare spending, even
if we did this? Very hard to say. Very uncertain. Probably not.
But it's meant to be a step in a plausible direction that has
the potential to save us money as well as to help
beneficiaries. It's unclear whether it really would, but it has
the potential.
Ms. Cherney. I don't propose that throwing more money at it
will fix it. But I go back to saying that we need some help on
the efficiency side of it. No physician can do that. I think we
have a unique window in the next 10 years because we're going
to have a surplus of physicians; that will be somewhat helpful.
But failure to deal with some of that inefficiency will also
create an opportunity for the surplus of physicians. They will
find a way to make money, and that might be bad.
But there are just the smallest things that don't cost
money. For example, I cannot understand why HCFA has to have an
EOB, why a Medicare recipient has to get a form that says
``Explanation of Benefits.'' It might as well be Spanish for
most of them. It would say, Mr. Scarborough, you had an
appendectomy. The hospital charge was this. Medicare paid this.
You owe nothing. Your physician charged this, it's what's on
the EOB but it's in a format people don't understand. No one is
looking. All of those things cost money. That's the
inefficiency. It's not just the clinical delivery, but it's the
whole thing of people doing it their way and not looking at
what works for that customer. That's why we don't have a
consumer, because no one has thought about that customer. It
isn't that at all. They are a beneficiary, not a customer.
We've got to change that.
Ms. Arnett. I think that's really right. One of the
wonderful things that a competitive marketplace does is focus
on how can I get this consumer to take their money and buy what
I'm selling. And, therefore, they have to provide information
that resonates with that consumer and right now the information
they provide has to cater to the bureaucrats. It's written so a
bureaucrat can understand it. That's why the consumer focus is
so important, and the only way to get that is to get money in
the hands of individuals.
One of my mottos is: whoever controls the money controls
the choices. Right now it's bureaucrats in Washington. They are
controlling the choices because they control the money. If
individuals controll the money they're not only going to
control the choices but they're going to demand more efficiency
and better information on what they're getting.
Ms. Cherney. We call that the golden rule. We implemented
the golden rule here 15 years ago in health care, and that is
that he who has the gold makes the rules. It's our right and
our responsibility.
Mr. Scarborough. While you all are still here, let me
recognize Cliff Rustia of NARFE. He has a statement that he's
going to read for us, and I'd like to ask him to do that now.
Mr. Rustia. Thank you, Congressman Scarborough, for this
opportunity. Before I read the statement from NARFE, I'd like
to make a brief personal statement, since I'm the first person
with enough gray hair to qualify as a consumer of both Medicare
and the Federal Employees Health Benefits Program. I've learned
a lot of interesting information from the witnesses here, and I
thank you for it.
By the way, as an IRS auditor, we don't hold you guilty. We
did civil audits and you had to prove your deductions. Guilt
reply was the criminal people, and I only had three of them in
20 years.
But getting back to Medicare and the availability of
private physicians. When I was up north and still working, my
cardiologist told me that when I qualified for Medicare, if I
should live that long, and thankfully I did, he does not accept
Medicare, and at that time he was allowed to charge 120 percent
I think of the Medicare amount, and that was being reduced to
110 percent. He said when that happened he wouldn't take
Medicare people at all. Of course, this was up north. We had a
relatively small proportion of Medicare recipients. I'm down
here in central Florida since 1992 and if you go into the
doctors' offices there's nothing but gray hair and if they
refuse Medicare patients they wouldn't have any patients. None
of them are open at nights or Saturdays for working people. I
don't know how working people get to see a doctor. But they're
pretty busy with us old gray heads.
Now, if I may read the statement from NARFE.
Mr. Chairman, I am here today to express the National
Association of Retired Federal Employees' views on the use of
the Federal Employees Health Benefits Program [FEHBP] as a
model for Medicare reform.
I wish Medicare would pay for glasses, I might have better
ones.
Before Congress and the President created Medicare in 1965,
nearly half of all older Americans were uninsured and a third
lived in poverty. Today, only 1 percent of the Nation's senior
citizens are uninsured and the number living in poverty has
been reduced by almost two-thirds. As a result, far fewer older
persons have to choose between buying food and going to the
doctor. Our quality of life has significantly improved, and we
are living longer.
There is no question that the large numbers of retiring
baby boomers will begin to place demands on Medicare starting
in 2010.
Hal, maybe you could read this better than I.
Mr. Kelton. May I, Congressman? I'm from NARFE, too.
Mr. Scarborough. You may.
Mr. Rustia. If you'll excuse me, I think--I'm having
difficulty with these glasses.
Mr. Scarborough. That's fine.
Mr. Rustia. This is Mr. Kelton, president of the New Smyrna
Beach chapter, up north.
Mr. Scarborough. Great.
Mr. Kelton. Thank you, Congressman.
There is no question that the large numbers of retiring
baby boomers will begin to place demands on Medicare starting
in 2010.
Public policymakers would be irresponsible if they failed
to review the program before this development. But at the same
time, Congress and the administration must ensure that Medicare
continues to guarantee basic health security for older
Americans at affordable and predictable prices.
In response to this challenge, some have proposed to
replace Medicare with something similar to FEHBP. We can
appreciate interest in emulating our program. For 39 years,
FEHBP has minimized costs, encouraged insurance carrier
competition, and provided a wide choice of comprehensive health
insurance plans to Federal employees, retirees, and their
families. Although the FEHBP performs well as an employer-
sponsored health plan, its use as a substitute to a public
insurance system that guarantees health security to the
Nation's elderly raises many questions.
The FEHBP-inspired ``premium support'' proposal made by
Senator John Breaux and Representative Bill Thomas would
provide beneficiaries with vouchers--or a government
contribution--that they would use to purchase private health
insurance. The dollar amount paid by the government would be
determined by a calculation similar to the ``fair share''
formula used to set the employer contribution for FEHBP plans.
Indeed, the premium support model would use a program-wide
weighted average of each Medicare plan to set the maximum
government contribution.
However, the premium support model differs from FEHBP since
it does not limit the government contribution to 75 percent.
Under FEHBP, enrollees always have to pay at least 25 percent
of their health plan premiums. Absent this cap in the Breaux/
Thomas proposal, the beneficiary share of Medicare premiums
could be zero if enrollees select the lowest cost plans. As a
result, the proposed formula would act as a powerful incentive
for beneficiaries to enroll in the lowest cost and most basic
managed care plans. Since the government contribution formula
is weighted to the number of enrollees, a low cost plan that
attracts a large share of beneficiaries would reduce the
overall dollar amount of the maximum government contribution
under the premium support model. Consequently, such costs would
be shifted to beneficiaries.
It is also important to ask which beneficiaries would
choose the most basic managed care plans. Healthy beneficiaries
have the least to fear from such a choice since they are low
utilizers of health care. They trade quality of care and
physician choice for lower premiums since they are less
dependent on doctors and hospitals. Because these plans are
designed to enlist healthier seniors, sicker beneficiaries
would tend to remain in traditional Medicare. Adverse selection
will occur as a result, and taxpayer and beneficiary costs
would increase.
Although current managed care plans have not created
significant risk segmentation in Medicare, the incentives for
healthier enrollees to join them under the proposed voucher
system are far greater. That is because current Medicare
managed care enrollees pay 25 percent of the Part B premiums
just like participants in the traditional fee-for-service
program. However, under the proposed voucher system,
beneficiaries might not have to pay anything for a basic
managed care plan designed to draw in healthy enrollees.
Premium support proponents suggest that the incentives to
cherry pick beneficiaries could be countered if Medicare pays
plans less for healthier patients and more for sicker ones.
Unfortunately, no one seems to have overcome the complexities
of creating such a risk adjustment system. What's more, nothing
will stop participating plans from running to Congress any time
a risk adjustment formula decreases their payments from
Medicare.
As a single insurance pool, the present Medicare fee-for-
service program avoids risk segmentation because it spreads
individual beneficiary health costs across the full population.
NARFE believes that the proposed financing scheme of the
premium support model could compromise this fundamental
principle of group health insurance.
In addition, NARFE is concerned that the creation of a
Medicare voucher system could open the program to a cost-
shifting proposal that has been repeatedly suggested for FEHBP.
Despite the enactment of the fair share formula in the
Balanced Budget Act of 1997, the House Budget Committee sought
to replace it by including a proposal in the fiscal year 1999
budget resolution to limit the annual growth of the government
share of FEHBP premiums to the consumer price index [CPI]. At
the request of Representatives Tom Davis, Frank Wolf and Connie
Morella, Budget Committee Chairman John Kasich said on the
House floor June 5, 1998 that he would not support inclusion of
this proposal in the conference agreement on the budget
resolution. Fortunately, the cost-shifting plan failed to
receive further consideration in the 105th Congress.
According to the Congressional Budget Office's [CBO]
``Options Book'' published this April, the Federal Government
would cost-shift $600 in added annual cost to Federal
annuitants and employees in 2004 and more in later years if
this artificial limitation became law. Indeed, Federal
employees and annuitants would pay an ever-increasing
percentage of premium costs each year FEHBP rate hikes exceeded
general inflation as measured by the CPI. CBO estimates that
the average FEHBP enrollee share would grow from 29 percent to
40 percent by 2004.
Given this experience, NARFE would oppose any scheme that
limits the government's portion or reduces its proportional
share of Medicare premiums through a formula that does not
accurately reflect the updated costs of providing health care
to eligible beneficiaries. Shifting costs from the government
to beneficiaries would be particularly hard on older Americans
who have insufficient income to further supplement their health
care costs.
While we realize that the Breaux/Thomas approach would not
limit the government's contribution to a predetermined rate,
NARFE believes that budgetary pressures could tempt Congress to
accept such a cost-shifting plan.
Mr. Chairman, we have several other concerns that I will
not go into today, including the coordination of coverage
between Medicare managed care plans and employer-sponsored
plans, the ability to select the physician of your choice,
prescription drug coverage, means testing, increasing the
eligibility age, and copayments for home health care. As you
know, the Senate Finance Committee is presently considering the
totality of Medicare reform issues, and we have expressed these
concerns to members of that panel.
In closing, I would like to say that the guarantee of
health security provided by Medicare has dramatically improved
the quality of life for older Americans. While the demographic
realities of the baby boomers will place new demands on this
program, most Americans agree that Congress and the President
must honor the commitment made in 1965 to ensure the health
security of senior citizens. NARFE strongly believes that the
present benefits, protections, financing responsibilities and
principles of insurance must be preserved if this promise is to
be kept.
Thank you.
Mr. Scarborough. Thank you very much. I appreciate it.
Let me ask the panel if you all have any response to the
statement from NARFE's national office.
Ms. Arnett. I'm sure, Jeff, that you especially do. If I
may just make one quick comment. The statement that you have
graciously allowed me to enter into the record by Walt Francis,
who is really the preeminent expert on FEHBP, addresses many of
these issues. Obviously, too many to go into here. But in
particular and just to read one quick passage about risk
segmentation, he says:
In fact, in FEHBP there is a large and continuing premium
disparity among fee-for-service plans with similar benefits
that have continued for many years without debt spirals. There
are several large and distinct risk groups within the programs,
such as the large cohort of elderly retirees without any
Medicare coverage.
The FEHBP tolerates this. They have 300 different plans
competing that spreads risk and that really does not wind up
causing the kinds of risk segmentation that many fear.
Competition and the free market has a marvelous ability to
tolerate and to even out many of these risks.
And I'm sure, Jeff, you have many other----
Mr. Lemieux. We were concerned in the Medicare Commission
that risk adjustment be done. That it would be more necessary
in Medicare than in FEHBP. FEHBP doesn't have it and FEHBP gets
along OK without it. But we thought it would be very important
in Medicare. So we think your point is well taken. And I'm not
so pessimistic as the statement that it can't be done
acceptably well in the next 5 or 10 years. We're getting
closer. And we do have to look forward to the future of
Medicare and what we can do 5 and 10 and 15 years from now when
we're making our plans to get started now.
And so I appreciated your statement. I think that was very
helpful.
My only other thing is that you compared the premium
support to the fair share formula. And we usually don't call
the fair share formula in FEHBP a voucher. That tends to
confuse people. It makes them think they're going to be left
all out on their own with a sheet of paper or a coupon, and
that's really not the intention. I think there needs to be a
better word than that for how the FEHBP and how the Breaux plan
would work.
Mr. Kelton. I will certainly point that out to the writer
of this. I didn't write this. This comes from the national
office of NARFE, one of the legislative assistants up there. We
didn't get notice of this hearing. I didn't hear about it. I
was at a convention in Ft. Myers until Thursday afternoon and
at the convention, somebody said people from Sanford should be
aware that there's a hearing taking place at Sanford and some
of you who are near there should try to get there and hear what
goes on.
Cliff and I really appreciate the chance to speak at this
hearing.
And then when I got home from the convention I did have a
letter from Mr. Mica that arrived while I was gone. So I did a
little bit of homework last night. And one of the things that I
would like to point out--I think it's covered in this but I
would like to say it in plainer language--one of the big
differences between the Medicare risk pool and the FEHBP risk
pool is that the FEHBP risk pool represents a very healthy kind
of cross-section of the population. It includes both employees,
20 and 25-year-old people, and it includes people like me, I'm
going to be 73. Now, when I was in the Federal employment I
didn't call in my health benefits for decades. I literally did
not go to a doctor for decades. Now, I'm going to five doctors
a year. Last week I had a cancer cutoff my leg. So we're really
concerned about health care and the premiums involved in it.
Medicare, the risk pool is all elderly people. There are no
young people in Medicare, and that's something that ought to be
taken into consideration. One of the concerns that we have in
FEHBP is that many of us also have Medicare. See, my wife
worked all of her life and she's been able to make us eligible
for Medicare. And we need it. If these premium support models
don't work with Medicare and it becomes necessary for Medicare
to start finding a way to save money through deductibles--or
increasing deductibles and changing the premiums and the
benefits my supplemental, Blue Cross and Blue Shield, has
already indicated they're not going to participate in it. You
see, it's a complicated situation.
So thank you very much for considering these things. It's
not simple.
Mr. Scarborough. No. It's certainly not. I appreciate the
statement you read. And as I said to them, it did come from the
national office. But I think what we do see, though, through
that statement, through the testimony today, is that we're
going to be on a high wire and we're going to have to balance
the commitment made in 1965 and make sure that commitment is
made and kept into the 21st century but at the same time
recognizing that there are just absolutely incredible strains
that are going to be placed on the system over the next 10 to
15 years with the baby boomers moving toward retirement.
Ms. Cherney, I believe, you had a statement?
Ms. Cherney. I just wanted to make a comment with regard to
the opening remarks that the gentleman made, before he began to
read the statement where he mentioned that his cardiologist,
when Medicare reimbursement got to 110, said that he would no
longer treat him. In our market, and we're not different than
other places, most of these managed care programs you were
talking about that you want to participate are reimbursing at
83 percent of Medicare. Remember, they've got to have marketing
money and they've got to have profit, and so if physicians
didn't want to provide the care at 110 percent, you can believe
there's a whole bunch of them going to get out when it's at 83
percent. They're getting out now.
Mr. Scarborough. Let me say it's 5 until 11 and we're
coming up on 2 hours. I'd say that they will be turning the
microphones off in 5 minutes, at 11 o'clock, but I don't think
they've really turned them on. But if somebody wants to get up
here, we've got about 5 minutes for any statements--I've seen a
couple hands go up--and ask our panel any questions. Come on
up, sir, if you'd like.
Mr. Duranti. Good morning.
Mr. Scarborough. And if you could, state your name, for the
record?
STATEMENT OF PETER DURANTI, AGENT EMERITUS, PRUDENTIAL
INSURANCE CO. OF AMERICA
Mr. Duranti. Yes. Good morning, my name is Peter Duranti
and I'm agent emeritus with the Prudential Insurance Co. of
America and I am on Medicare. And I believe that we need to
address fee-for-service, because competition lowers rates. And
competition is what America is built on. Not on government
bureaucracy. I pay $44 a month for Medicare. Now, the average
cost of a health plan is about $150 to $200 a month. So we are
running behind on the whole plan of Medicare. And Social
Security was never designed to pick up Medicare. It was for
retirement.
Now, I would say this, I would recommend this in a sincere
way that we could calculate what the average cost of Medicare
for a recipient was over the past 5 years, then issue an annual
benefit statement to that person, to the Medicare recipients,
for what that amount would be. And have it available in a
Medicare recipient fund under their Social Security number and
they could go to any doctor they wanted to.
Now, we could measure what the cost of a recipient was in
the past 5 years, let's say it was $30,000, let's say it was
$100,000, whatever it was, we could then as I say, issue a
statement to the new people in the future of what is available
to them. They could go to any doctor they want to at that time.
Then we could also say if people are well off they don't have
to go on Medicare. They could choose their own plans. Why
should we have to pick Medicare? If I'm a wealthy man, which
I'm not, but if I were a millionaire I would say, I don't want
Medicare. I don't want to pay $44 a month. I'll pick my own
plan.
We've got to get back to basic economy, fee-for-service.
Thank you very much.
Mr. Scarborough. I appreciate your statement, and I would
guess that Ms. Arnett's group actually wrote that for you.
You'll find no opposition, I'm sure, from her organization.
Any quick statements as we conclude this hearing?
Ms. Arnett. One of the things that really upsets me about
Washington is that they think they're smarter than you are. I
think you're smarter. And I think that this $6,000 a year that
Medicare pays for the average beneficiary, that if you had
control of that $6,000 you'd make much better decisions and you
would not tolerate some physician having to jump through
111,000 pages worth of regulations to give you medical care.
You want health dollars.
Mr. Duranti. I'd like to go to the doctor that I wish, you
know, and I'd like to pay for it. Thank you.
Mr. Scarborough. Thank you very much.
This hearing is adjourned.
[Whereupon, at 11 a.m., the subcommittee was adjourned.]
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