[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

                              ----------                              
                                                                   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

                              ----------                              


                         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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