[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE REFORM: MODERNIZING MEDICARE AND MERGING PARTS A AND B
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 14, 2001
__________
Serial No. 107-40
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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73-734 WASHINGTON : 2001
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Means, Kathy, Senior Health Policy Advisor, Patton Boggs..... 41
Moon, Marilyn, Senior Fellow, the Urban Institute............ 35
Scanlon, William, Director, Health Care Issues, U.S. General
Accounting Office.......................................... 15
Schulder, Dan, Legislative Director, Alliance for Retired
Americans.................................................. 31
Young, Donald, Chief Operating Officer and Medical Director,
Health Insurance Association of America.................... 27
Material submitted for the record by:
Scanlon, William, Director, Health Care Issues, U.S. General
Accounting Office, letter dated August 7, 2001, enclosing
response for the record.................................... 64
(iii)
MEDICARE REFORM: MODERNIZING MEDICARE AND MERGING PARTS A AND B
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THURSDAY, JUNE 14, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Greenwood,
Deal, Ganske, Wilson, Bryant, Ehrlich, Pitts, Tauzin (ex
officio), Brown, Waxman, Strickland, Barrett, Capps, Pallone,
Eshoo, Stupak, Wynn, and Green.
Staff present: Patrick Morrisey, majority counsel; Erin
Kuhls, majority counsel; Kristi Gillis, legislative clerk;
Bridgett Taylor, minority professional staff, Amy Droskoski,
minority professional staff; and Karen Folk, minority
professional staff.
Mr. Bilirakis. Good morning. I call this meeting to order.
Our hearings this year have focused on ways to modernize the
Medicare program and to provide an updated benefits package,
including a prescription drug benefit. Today this subcommittee
will examine Medicare's structure and organization with the
goal of improving the financial health of the program and
securing the efficient management and delivery of high quality
services to its beneficiaries. Structural reform of Medicare is
central to the broader goal of protecting and strengthening the
Medicare program for the future.
Many experts agree that if Medicare were being designed
today, the two-part system that drives its payment policies
would not be adopted. At the same time proposals to combine A
and B have significant policy implications, particularly for
beneficiaries, and we must proceed with caution in considering
alternative approaches. Private health insurance formerly
organized with separate policies for hospital and physicians
services has also moved to a more comprehensive structure. As
services once provided only in hospitals are provided routinely
on an outpatient basis in physicians' offices and
beneficiaries' homes, a reexamination of Medicare's design is
warranted. Today we will assess the implications of redesigning
Medicare and merging parts A and B of the program.
I am pleased to welcome our panel of expert witnesses.
Thank you all for joining us here today. Our first witness is
Dr. Bill Scanlon with the General Accounting Office. Recognized
for his Medicare expertise, Dr. Scanlon will report on the
benefits and technical challenges of merging parts A and B of
the program. I would also like to welcome Dr. Don Young,
interim president of the Health Insurance Association of
America. Mr. Young's testimony about the structure and
organization of health insurance in the private sector will be
a valuable contribution to our discussion today.
Our third witness, Mr. Dan Schulder, the legislative
director for the alliance of retired Americans, will be able to
best explain how structural reform of the Medicare program will
affect those the program serves--its beneficiaries.
And finally, Ms. Marilyn Moon, Senior Fellow from the Urban
Institute, and Ms. Kathy Means, Senior Public Policy Advisor
for Patton Boggs and former Senior Health Advisor to Senator
Roth and the Senate Finance Committee round out our panel of
respected experts.
Having enjoyed the opportunity to work closely with you in
your previous capacity, Kathy, I am delighted to welcome you
before the subcommittee today. I am committed to protecting the
long-term solvency of the Medicare program and look forward to
a productive hearing today which can shed light on some of the
fundamental issues in this debate. The financial viability of
this critical program, the cost-sharing liability of Medicare
beneficiaries and the management and delivery of high quality
services for beneficiaries are three of key issues that we will
have a chance to explore.
This subcommittee has a strong record of working on a
bipartisan basis. We must continue to work together to find
bipartisan solutions. This hearing is designed to bring us
closer to accomplishing that goal as we evaluate the
challenging issues inherent in any Medicare reform proposal.
And in closing, I want to again thank our witnesses for
their time and effort and joining us to share their views on
the important issue of Medicare reform.
And now I am pleased to recognize the ranking member, Mr.
Brown.
Mr. Brown. Thank you, Mr. Chairman. I commend and fully
support your decision to hold this hearing. The Commerce
Committee as a whole, and our subcommittee in particular, has a
strong history of successfully addressing important, albeit
politically volatile issues and doing so on a bipartisan basis.
We do not always agree on the merits of different proposals. In
fact, we often express very strong and polar opposite opinions
on the merits of different proposals, but we are unified in our
desire to give all credible Medicare options a fair hearing.
I want to thank Marilyn Moon and Dr. Young and the other
witnesses for joining us this morning. We were fortunate to
have a distinguished panel to help us look at the implications
of merging Medicares part A and B. It is a particularly complex
issue. Not only does this proposal raise many issues, it raises
many kinds of issues, policy issues, political issues, even
jurisdictional issues. And overwhelming all of these issues is
this one, we have not yet addressed the No. 1 issue in Medicare
that is the Medicare benefits package lacks coverage of
prescription drugs. How can we possibly justify diverting our
attention toward changing the financing structure toward
Medicare when we have not addressed the most pressing concern
that we hear every day from our Medicare constituents?
Merging A and B would not, in and of itself, take us closer
to prescription drug coverage, but it would certainly require
time and resources that could otherwise be devoted to
establishing Medicare prescription drug coverage. Again, it is
important to look at the full range of proposals that are
currently under consideration by this Congress and the
administration, but when it comes to taking action, we should
put our priorities in order and tackle prescription drugs
first.
But this hearing is about merging A and B. And I want to
get back to those issues. The impact of Medicare beneficiaries
does not depend explicitly on whether we merge parts A and B.
It depends on the objectives we are trying to fulfill by
merging the two programs. If the objective is to create
efficiencies in the administration of Medicare, that is a
pretty tall order. Medicare fee for service spends less than 2
percent of its budget on administration.
Medicare+Choice spends as much as 30 percent of its budget
on administration. If the objective is to rationalize Medicare
cost sharing, that is a laudable goal, but tricky one to
accomplish. Simply merging the two deductibles could reduce
hospital costs for a few beneficiaries while increasing
physician and other costs for virtually every beneficiary. A
net increase in beneficiary liability probably translates in a
net increase in Medigap premiums.
It is also important to recognize we don't need to merge
parts A and B to modify the cost-sharing requirements
associated with Medicare. If the objective is to control
Medicare spending by capping the general revenues going into
the program, hiding behind a mechanical change and finance of
accomplishing that goal does not make the goal more palatable.
Unless the plan is to increase payroll taxes, is to compensate
for general revenues capping general revenues means one of two
things: either shifting more costs onto beneficiaries or
starving the Medicare program. Neither option, at least to me,
is acceptable.
As I mentioned previously you must consider the cost of
implementing this change and given the scarce budget dollars
available, in large part because of the tax cut that Congress
passed, we must consider how merging parts A and B stacks up
against other proposed Medicare modernization priorities like
adding prescription drug coverage, like bolstering preventive
benefits like giving Medicare the tools and resources it needs
to improve internal and contractor performance.
Finally, we should consider the political implications. I
don't mean the potential fallout with Medicare beneficiaries or
providers, because the only political fallout that should be of
concern to this subcommittee is that which reflects harm to the
beneficiary or unfair treatment of providers or the misuse of
taxpayers dollars.
What I mean by political implications is this: The current
administration has made absolutely no secret of the fact that
it favors restructuring Medicare into an insurance voucher
program, meaning the Federal Government would help pay for
private health insurance rather than helping to pay for private
health care. Many Democrats believe that privatization is
basically a cop-out. It would give Congress and the
administration cover to shirk their responsibility for access
and for quality. It would give Congress and the administration
a mechanism by which to shift more and more the financial
burden for Medicare onto the shoulders of retirees and
retirees' families. And ultimately, it would give Congress and
the administration an out.
It is far easier to abandon a program when it is firmly
ensconced in the private insurance market than when it is still
a federally administered program. If making Medicare fee for
service financing system looked more like Medicare+Choice
financing system would somehow help the administration or
Chairman Thomas or any other proponent of privatization
convinced Congress to make the traditional Medicare Program Act
more like the Medicare+Choice program, we must be sure to make
that possibility transparent to every beneficiary, and we must
also carefully evaluate whether we are willing to be coaxed
down the path of privatization.
Mr. Chairman, if it is not clear from my comments, I admit
to a bias in regards to merging A and B . That is due in part
on the President's budget proposal which merged parts A and B
for purposes that I consider to be detrimental, in its part due
to the fact that I was around for the BBA debate in 1995 and
participated then in the fight against merging parts A and B.
At that time, merging the two programs, what that meant was
clearly an attempt to starve the Medicare program and end the
Medicare entitlement, thinking back to the comments of Speaker
Gingrich and then-Senator Dole about privatizing Medicare.
That said, I don't doubt the chairman's goal is to
determining whether merged financing can be accomplished in a
way that actually does improve the Medicare program. I share
the chairman's goals in that way and will consider the
testimony of our witnesses from that perspective. Thank you,
Mr. Chairman.
Mr. Bilirakis. I thank the gentleman and I would suggest
that the gentleman that I have always considered hearings to be
informational. This is why we hold hearings so we can learn. If
we have already predecided our position on a particular issue,
I don't see the sense in holding a congressional hearing. This
is the reason why we are having a hearing because I too want to
learn about this particular subject. The chairman would yield
to the chairman of the full committee, Mr. Tauzin, who honors
us with his presence.
Chairman Tauzin. Thank you, Mr. Chairman. I am honored to
be here. I thank you for having this hearing particularly
because it focuses on a question that the committee often
faces, and that is whether structures that were designed in a
different day and age in our Nation's history still make good
sense for today's economy and environment and the method by
which we deal with social issues. We often come to this point.
We come to it in telecommunications. We are coming to it in
energy, and we are certainly coming to it in health care.
It is important, I think in an informational hearing, to
look at the history of how we got where we are and whether or
not it has relevance in today's world. And we should note that
it was 36 years ago, a very historic moment that President
Johnson signed the Medicare legislation into law. If we go back
and look at those debates, we find there was significant
controversy going on into that decisionmaking process. There
are those who argue that Medicare should be limited to covering
only hospital inpatient stays. In those days, that was the most
significant and costly form of coverage. Others were trying to
make sure that other physicians and other outpatient services
would be covered in the package.
Some argued that health care covered in the package should
be paid for strictly through a dedicated payroll tax, and
others wanted, obviously, a combination of general revenues and
payroll taxes. Some wanted the system to be automatically an
entitlement, and others wanted it to be made voluntarily. You
know the cuts that were made, a lot of compromises. And in
1965, the compromises that were made basically reflected the
structure of hospital care and coverage of that age. In that
day and age, private insurance very often separated hospital
insurance and physician insurance. And that concept was adopted
into the compromises and hospital insurance called part A and
physician insurance called part B were separated in method of
funding to reflect, again, the differences of opinion, whether
it would be payroll taxes or voluntary contributions that
structured each program.
But as we sit here today, Mr. Chairman, and I think Mr.
Brown has articulated it well in his closing comments, we ought
to consider whether those decisions make sense today. Whether
having a part A and a part B make sense in today's health care
coverage. For example, private insurance today usually does not
separate inpatient hospital coverage from physician services.
Beneficiaries today usually do not have a separate deductible
for the purpose of hospital inpatient and physician services in
the private sector but we have them in Medicare A and B. And
significantly, prescription drug coverage is no longer
considered a luxury. I mean, it is an integral part today of a
patient's treatment regimen. All of us know that.
All of us, most of us, are on some form of medication.
Medicare was still operating, in essence, in a 1960's model,
and the question is does it work for the 21st century? Well,
there are a number of oddities in the A-B structure that we
ought to focus on. One is that part A deductible is $792, and
this deductible increases every year. And by contrast, part B
is $100 that has not been indexed for inflation for 10 years.
Private insurance companies have a unified deductible. Should
Medicare have a unified deductible, and what should it be?
Tough question.
The part A trust fund is expected to go insolvent in the
year 2029. Part B does not go insolvent because an ever
increasing amount of general revenues flows into the program.
Is there anything more prudent to measure the long-term
viability of Medicare part A and B together particularly when
part B is growing as it is. Because of the distinctions between
part A and B, it is extremely difficult for the program to
implement comprehensive disease and case management strategies
that focus on total services provided to a beneficiary.
Shouldn't we have a system, for example, that effectively
tracks when a patient leaves an inpatient hospital setting and
moves to an outpatient setting? You think you would if you
wanted to manage long-term treatment.
Claims processing has to be performed by fiscal
intermediaries for part A and it is performed by carriers for
part B. Shouldn't A and B processing functions be combined and
performed by a single contractor? By eliminating the
distinction between fiscal intermediaries and characters, we
probably could be able to reduce the number of contractors from
the 50 or so today to 10. And that might be a good reform.
Partially because of the separate program parts and the widely
disparate cost-sharing structures, Medicare currently does not
place a cap on beneficiary liability. And the question we
should ask, Mr. Brown and all of us should ask who love our
seniors and love those of our family who are covered by
Medicare, shouldn't we have a system reform that Medicare
beneficiaries are better protected from liability for the
prolonged illnesses that unfortunately plague us now? These are
some of the questions. Here is the most important one we should
ask ourselves. If we were building Medicare today from scratch
instead of having to deal with the decisions made in 1965,
would we build this system the way it is currently constructed?
You know that. And not a person in this room, I think, would
build it the way it is currently constructed.
I think we make better decisions based upon the way in
which we provide health care services and coverage for seniors
today. If that is true, then this committee owes it to every
single beneficiary and patient care provider under this system
to reform it. And this is a hearing that is going to lead us
hopefully to some of those answers, and I thank you for having
it, Mr. Chairman.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Chairman for holding this important hearing. Our
Committee has spent a great deal of time examining Medicare structural
reform in recent months, so I am pleased that we are focusing attention
on this critical issue of whether we should merge Parts A and B of the
Medicare Program.
Thirty six years ago--in a historic moment--President Johnson
signed Medicare legislation into law. For the first time in our
nation's history, we guaranteed seniors' access to basic health
insurance.
During the years leading up to the passage of Medicare, many ideas
were debated about how this new Program should be designed. Some argued
that Medicare be limited to covering hospital inpatient stays, since
that was the most costly type of coverage. Others insisted that
physician and other outpatient services be included in Medicare's basic
benefit package. Some argued that all of the health services covered
under Medicare be paid for through a dedicated payroll tax; still
others, demanded that the system be funded through a combination of
general revenues and beneficiary premiums. Some demanded that the
Program be an automatic entitlement to seniors; others insisted that
the Program remain voluntary.
These were just a few of the issues in dispute when the Program was
created back in 1965. Ultimately, however, these issues were resolved,
and the basic structure of Medicare--that remains today--was created.
As part of the legislative compromise in 1965, it was decided that
Medicare should essentially reflect the private insurance model of that
time. Consequently, since private insurance was often separated into
hospital insurance and physician insurance, that concept was included
in the legislation. Hospital insurance was called Part A and physician
insurance, Part B. At the time, that idea, along with many others
included in the Medicare law, made sense because they were reflective
of how people believed health care services should be managed back in
the 1960's.
Today, our health care system is considerably different from that
of 1965. So we need to ask ourselves: is there a better way to design
this program so that it reflects a 21st Century model of managing
health care services. How can we best change this design model--an
essentially static one for 35 years' and modernize it for today's
seniors?
I don't have all of the answers to these questions.
But one thing we can say with certainty: many of the assumptions
that were used to design the Medicare Program in 1965 are no longer
valid. For example, private insurance no longer separates inpatient
hospital coverage from physician services; beneficiaries don't have
separate deductibles for hospital inpatient and physician services in
the private sector; and significantly, prescription drug coverage is no
longer considered a luxury, it's an integral part of a patient's
treatment regimen. Medicare may still be operating under a 1960's
model, but we are now in the 21st Century.
Today, we must begin to discard some of the relics of the 1960's,
including many of the current distinctions between Medicare Parts A and
B. This division no longer reflects the needs of Medicare
beneficiaries, both in terms of financing and cost-sharing structures.
Here are just a few oddities of the existing A/B structure:
Medicare's Part A deductible is $792 per admission, and increases
every year. By contrast, the Part B deductible is $100 and has not been
indexed for inflation in ten years. Private insurance employs a unified
deductible. Why shouldn't Medicare?
The Medicare Part A Trust Fund is expected to go insolvent in 2029.
Part B, on the other hand, will never go insolvent because an ever
increasing amount of general revenue dollars will flow into the
Program. Isn't it more prudent to measure the long term financial
viability of the Program by looking at Parts A and B together?
Because of the distinctions between Medicare Parts A and B, it is
extremely difficult for the Program to implement comprehensive disease
and case management strategies that focus on the total services
provided to a beneficiary. Shouldn't we have a system that can
effectively track when patients leave the inpatient hospital setting
and move to an outpatient setting?
Claims processing is currently performed by fiscal intermediaries
for Part A services and carriers for Part B services. Why shouldn't A
and B claims processing functions be combined and performed by one
contractor? By eliminating the distinction between fiscal
intermediaries and carriers, we will be better able to reduce the
number of contractors from fifty to ten.
Partially because of the separate program parts and the widely
disparate cost-sharing structures, Medicare currently does not place a
cap on beneficiary liability. Shouldn't the system be reformed so that
Medicare beneficiaries are better protected from liability for
prolonged illnesses?
These are just some of the issues that our Committee has been
thinking about on the important question of whether to merge Parts A
and B. We may hear today from some opponents of structural change that
many of these suggested reforms can be accomplished without merging the
Program. In some cases, that may in fact be true.
But ultimately, we at this Committee, should ask ourselves a more
fundamental question. If we had the opportunity to design a new, more
modern Medicare Program, would we maintain the existing distinctions
between Parts A and B? Wouldn't we all want to create a more unified
program reflective of how health care is managed in the 21st Century?
I think most of us in this room know the answers to these
questions.
Mr. Chairman, thank you very much for bringing this important issue
to our attention and focusing on some of the deficiencies in the
existing system. I look forward to hearing from our distinguished
witnesses today and yield back the balance of my time.
Mr. Bilirakis. And I thank the gentleman. Mr. Pallone, to
make an opening statement.
Mr. Pallone. Thank you, Mr. Chairman and Mr. Brown for
holding this hearing. I want to express my concern over the
issue that we are discussing today, and that is merging part A
and part B of the Medicare program into one benefit package. I
understand that we will be hearing arguments in favor of
merging the two trusts funds, the hospital insurance trust
funds and the supplemental insurance trust funds, much like the
arguments we hear when discussing the Breaux-Frist Medicare
reform proposal.
When we talk about Breaux-Frist, the argument is made that
redefining solvency by measuring the combined status of trust
funds will make Medicare's financial status more clear. The
President's budget has already endorsed this policy because it
would help lawmakers reduce the amount of general revenues
allocated to the Medicare program. But I am opposed to these
arguments in favor of Breaux-Frist, and I oppose merging the HI
and SMI trust funds for several reasons. At a time when
millions of our seniors and Medicare are financially strapped
due to the rising cost of prescription drugs, any rise in the
cost of the Medicare program would be financially detrimental
to seniors nationwide.
If both parts, A and B of Medicare are combined, it seems
clear that seniors would face a higher deductible. This is only
because of 15 percent of seniors utilize part A services and an
overwhelming 85 percent of seniors use part B services in a
given year. Combining these two parts will surely present
beneficiaries with a higher deductible, placing an additional
unnecessary burden on seniors who are already paying an average
of about $3,000 out-of-pocket cost for health services. This
would only be exacerbated further by the fact that most seniors
would see a rise in premiums for their supplemental insurance
policies. Many of these policies pay for part A and part B co-
insurance and deductibles, and if these costs increase for
merging the two parts, it is likely that employers and
beneficiaries will both have to makeup the difference in cost.
Mr. Chairman, I just want to express my concern over asking
beneficiaries to pay more out-of-pocket than they already do.
We hear every day from our constituents about how they cannot
pay for their prescription drug and we are working hard in this
Congress to come up with a solution to this problem. The last
thing we need at this point is to merge the HI and SMI trust
fund, thereby increasing the cost of Medicare before we even
add a prescription drug benefit. There are a lot of important
questions we need to ask in this discussion of merging the two
trust funds and how a combined program would be financed, but I
just want to stress the cost to seniors and the solvency of the
Medicare program should be the top priority. Thank you.
Mr. Bilirakis. I thank the gentleman. Dr. Ganske for an
opening statement.
Mr. Ganske. Thank you, Mr. Chairman, I will be brief. I
would like to read a section from the staff memo on this
hearing. If parts A and B were combined, there may be increased
pressure to use general revenues to cover shortfalls,
particularly as the number of working contributors declines and
the number of baby boomers begins to retire. Therefore, most
proposals to merge parts A and B of the Medicare program
include an overall limit on general revenue expenditures. Such
a cap would be controversial. I would say, Mr. Chairman, that
would be an understatement.
It goes on to say opponents to merging parts A and B
suggest that a cap on general revenues would restrict available
services and increase beneficiary cost-sharing liability. And I
think that very well may be the case. I think, Mr. Chairman, we
need to face up to the fact that when the baby boomers were
starting to go to school, the Nation decided to build more
schools to cover the cost of their education. Baby boomers are
retiring, and we are more and more going to be entering into
the needs for health care. And to set some type of arbitrary
number on the amount of expenditures for health care based on,
say, a percent of GDP, I think, would be very problematic for
this Congress, and we need to face up to the fact that because
of demographics, we are going to be facing increased health
costs in the not-too-distant future. In fact, in the year 2012,
baby boomers will start to retire and we will see one new
retiree every 8 seconds.
I think it is important to look at how the Health Care
Financing Administration is functioning to make sure it
functions as efficiently as possible. I think we also need to
be very careful when we are talking about some very, very
significant changes in the structure of the Medicare program.
With that I yield back.
Mr. Bilirakis. I thank the gentleman and certainly concur
in his statement. Ms. Capps for an opening statement.
Mrs. Capps. I will yield my time to Mr. Waxman.
Mr. Bilirakis. We will yield to Mr. Waxman.
Mr. Waxman. I want to thank you for holding this hearing
Mr. Chairman. I want to thank my two colleagues for being so
courteous as to let me go ahead, because I have to go to
another subcommittee of another committee, and others have to
do it as well, but they have been very nice to defer to my
seniority and age.
As we approach this hearing today, there is a fundamental
question that is bothering me. What is our goal here? What
precisely are we trying to achieve? I make this point because
the topic, combining parts A and B of Medicare, gives us little
clue to what precisely is proposed, and indeed, depending on
how that question is answered, what is the impact on the
structure of the program, it's fiscal health and--most
importantly--the millions of Medicare beneficiaries.
I have puzzled over what precisely people mean when they
talk about this merger. Yes, we could make Medicare follow the
structure of more traditional insurance models. Clearly today,
unlike when Medicare was established, private insurance would
no longer be split into two separate products, one for hospital
coverage, one for physicians and other outpatient services. But
simply saying that has no bearing, really, on whether there are
reasons to change Medicare. We have a program that currently
has two separate financing structures--payroll deductions
placed in the Medicare hospital insurance trust fund for part A
and premiums and general revenues for part B. If we combine the
parts of the program, would we use up the trust fund revenues
and further destablize Medicare's financing? Is the goal to
limit the general revenue contribution and shift more of the
cost to the beneficiary?
In the current program, we have automatic coverage for
hospital services without additional payments for part A, but
voluntary enrollment in part B does require the payment of a
premium. Would we take away the automatic eligibility for
hospital coverage if the premium wasn't paid? Would you require
mandatory participation in part B, whether or not you have
other coverage or whether or not you could afford the premiums?
In the current program, we have separate deductibles in
parts A and B. What would it mean if we combine the two
programs? Would there be a single deductible? Is that the
intention? Are we going to combine them and inevitably increase
the out-of-pocket expenditures for the average Medicare
beneficiary?
In the current program, we have intermediaries who have
developed great expertise in dealing with hospitals and
carriers who traditionally deal with doctors and other
outpatient service. Would combining them affect the services
provided?
Right now Medigap coverage is built around the system as it
is. Do we have any idea what this change would mean for the
cost and availability of Medigap?
And finally, is there anything in the change that would
address the major deficiency in Medicare, the lack of
prescription drug coverage?
To me, this looks like, this hearing, this idea of merging
these two parts of the program, looks like a solution in search
of a problem. So I hope as we approach this hearing, we will be
keenly aware that what looks like a simple change on paper in
the design of law would have many complex effects in the real
world. To make these changes without certainty that the
beneficiaries of this program would be better off seems to me
to be the ultimate in folly. Thank you very much.
Mr. Bilirakis. Mr. Pitts for an opening statement.
Mr. Pitts. No opening statement.
Mr. Bilirakis. Mr. Deal for an opening statement.
Mr. Deal. Thank you, Mr. Chairman. Mr. Chairman, I share
some of the concerns that have been expressed by colleagues on
both sides of the aisle. But my primary concern relates to the
overall programs and our ability to pay for them. One of the
advantages we have had in having the part A and part B
separated is at least into part A, we have had the fiscal
discipline of a dedicated revenue stream of a portion of the
FICA tax, because that is a dedicated revenue stream and is
therefore finite, based on the number of people working and
paying into the system and the potential bankruptcy of that
revenue stream that led to such reforms as we found in the 1997
Balanced Budget Act in order to keep the program solvent for a
longer period of time. My concern is that if we lose an
attachment to a paying source such as FICA tax and become more
and more dependent on the general revenue of this country, it
leads us in a very dangerous direction.
For one thing, I think it lends itself to the argument that
after all, total health care cost is the responsibility of the
anonymous government, without realizing that the government is,
in fact, us. It is very easy in this day and time of demanding
more and better health care, that that is more and more
expensive, that we expect someone else to pay for it. I am
concerned that a merger might lead us further and further in
the direction of saying that we need no link whatsoever to a
dedicated revenue stream, and therefore look totally to the
general revenues of this country to pay for it.
That may sound good in many people's ears, but I think it
is a direction that the originators of Medicare did not want us
to go, because it more and more will place Medicare in the
posture of a welfare program rather than a program that is
dependent on a dedicated known quantity of a revenue stream.
And if that revenue stream is not sufficient, then
obviously the way to do a that is to raise the FICA tax to
create a revenue stream. But quite honestly, I think all of us
know that neither side of the aisle has advocated that as a
solution to the problem. Nor do I expect that to be the
advocated solution in the near future.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Green.
Mr. Green. Thank you, Mr. Chairman. And I want to thank you
for holding our second hearing this week of the subcommittee.
It is good to be on an active subcommittee. This hearing to
discuss the feasibility of merging Medicare parts A and B. It
is probably fair to say that no one on this panel, or maybe in
this room, unless you are in Medicare, has one insurance policy
for hospital stays and another insurance policy for doctors'
visits. We probably all have one policy with one deductible.
Our Medicare system, however, was formed in just this manner,
two different plans for different types of health care. And
under our staff memo, it was formed because of the opposition
of physician groups in 1965. And I remember those notices in my
doctor's office, even when I was 14, 15 years old, saying we
are going to have socialized medicine under Medicare. But now,
that physician really believes in Medicare. We wouldn't
recreate this model 35 years later any more than we would
create a Medicare system today that would not have a
prescriptions drug benefit.
However, merging the programs is harder and is not so
simple. Issues surrounding financing, participation, cost
sharing, and payment method all needs to be resolved before we
can consider the merger of the two. And in this context, we
must ask ourselves what are the goals for the Medicare program
and would merging parts A and B achieve those goals?
At a minimum, I believe the goals for the program should be
to improve access to the program, and ensure that costs are
controlled. So what would merging the two programs do to
achieve these goals? We have held several hearings about the
agency shortcoming with regard to making coverage decisions,
its ability to educate providers about coding and payment
procedure and its customer service operations.
Merging the program would eliminate some of the confusion
surrounding these issues and can make it easier for
beneficiaries and providers to use the system. Merging payment
and delivery services would also improve disease management
services, coordination of care and other important qualities
issues. However, merging these programs would create a whole
new set of access questions for beneficiaries. For example, the
current deductible for Medicare part A is $792 dollars. The
current deductible for part B is $100. While most beneficiaries
meet their part B deductible, only 15 percent meet their part A
deductible.
By combining these programs, we would raise the part B
deductible, increase out-of-pocket costs for most
beneficiaries, but not increase their benefits. As seniors who
are already spending more than $3,000 in out-of-pocket costs,
we should think carefully about increasing the burden. Also we
must consider whether the merger of part A and B would improve
the long-term health of the Medicare program or include some of
the costs associated with the program. With only 2 percent of
the program funds currently to be used for administration, it
is unlikely that merging A and B would achieve any real
significant administration savings.
Most of our witnesses agree that merging the program would
not significantly extend the program's solvency. Before we
start making substantial changes in the Medicare system, it is
imperative that we answer the questions. We should not change
the program just for the sake of change, just like we shouldn't
change a name without structural reform.
Mr. Chairman, I don't have the answers to these issues, but
I have lots of questions and I yield back my time and I look
forward to the witnesses, thank you.
Mr. Bilirakis. Thank you, Mr. Green.
Let us see, Mr. Bryant to make an opening statement.
Mr. Bryant. Mr. Chairman I took look forward to hearing
from this panel of witnesses, and to that end I would yield
back the balance of my time.
Mr. Bilirakis. I thank the gentleman. Ms. Capps .
Mrs. Capps. Thank you, Mr. Chairman. I am pleased that we
are carefully examining the possibility of merging part A and
part B of Medicare. This idea has been floating around out
there for some time, but it is very complex and should not be
easily accepted. If we do not adequately review it and its
consequences before trying it out, we may do more harm than
good. We want to keep in mind that Medicare is a sacred program
to today's seniors. They count on it and we want to make sure
they can count on it in the future. It is the most successful
government health program in history. It has assured the
availability of health care for millions of older Americans who
previously had no options. We as a society have made a pledge
to them that they will have health care so we need to follow
through on this pledge.
So it is absolutely essential that we not damage the
program as we look to improve it. Any form of Medicare must
meet certain requirements. It cannot cut benefits that seniors
count on. It cannot increase the cost to our seniors,
especially when they are still paying for their own
prescription drugs. And it cannot jeopardize the existence of
the program itself. Proponents of merging the two parts often
see it as a miracle cure for the challenges Medicare faces, but
there are too many variables for it to be any kind of miracle.
For example, many supporters claim that merging the trust funds
would give us a more accurate view of Medicare solvency. But
they fail to mention that the two parts were designed to have
different definitions of solvency. Part A was meant to be a
program that remained solvent financing itself mostly with
dedicated payroll taxes. But part B is a more traditional
government program without a specific source of funding beyond
the U.S. Treasury and premiums collected from beneficiaries. It
was meant to be dependent on an annually fluctuating level of
general revenues.
So merging the trust funds would change the underlying
assumptions about financing Medicare and could allow Medicare's
opponents to handicap the program by capping or cutting off
general revenue funds.
Another questionable element of the merger is its effect on
cost-sharing mechanisms. Right now, part A has a much larger
deductible than part B, and part B requires 20 percent co-
insurance and has an annual premium. Merging them would
probably lead to a deductible between the two and possibly more
costs sharing for part A services, because in a given year most
beneficiaries pay the part B deductible, but probably do not
need to pay the part A deductible, this merger would mean a
high cost for most of them.
These are some of the many difficult policy implications
that we need to really understand before we try to implement
this proposal. Mr. Chairman, I hope that if this proposal is
being seriously considered, that this will be the first of many
hearings so that we can be assured that we understand all of
the ramifications. So I look forward to working with you on
this issue and am eager to hear what the panelist have to say.
I yield back.
Mr. Bilirakis. Thank you. Mr. Stupak for an opening
statement.
Mr. Stupak. Thank you, Mr. Chairman and thanks for holding
this hearing on the implications of merging parts A and B of
Medicare. I believe it is the duty of this subcommittee to
monitor and take necessary action to improve our Nation's
health care system of which Medicare plays a very large role.
The most contentious issue is the combining of part A trust
fund with part B trust fund and how this combination would
affect the solvency of the program.
Currently, Medicare solvency is measured by the status of
the H-I, or part A trust fund. As of March, the Medicare
trustees estimate that the H-I trust fund will be solvent until
2029, the longest period of solvency in Medicare history. So
the question must be asked, do we want to jeopardize the
solvency that we in Congress have worked so hard to achieve?
Combining the two trust funds would force the Medicare program
into insolvency more quickly, although some have argued it
would provide a more complete picture of Medicare's financial
status.
Another factor that must be considered in merging is the
administrative angle. Is this merger designed to save money on
administrative costs? HCFA's administrative budget has been
slashed to keep their administrative costs running at below 2
percent. What resources are left to implement these changes?
Wouldn't this money be better spent improving the existing
system and not in tearing it down and rebuilding it all over
again? Who would this restructuring help? Certainly not the
beneficiaries who Medicare was specifically set up to assist.
Merging A and B would most certainly result in a higher
deductible, and this for seniors who already spend an average
of over $3,000 a year in out-of-pocket health care
expenditures, including prescriptions drugs, make this proposal
unaffordable.
There are also so many policy questions tied up in
restructuring that I simply do not see the point. For example,
would there be a new combined deductible? This would be unfair
to those seniors who do not participate or who do not use the
part A inpatient hospital portion. And would enrollment in a
new improved Medicare combined program be mandatory as part A
participation is now? How would a premium be set? How would the
part B cost sharing requirements be applied to the part A
services?
I am in favor of Medicare reform, Mr. Chairman, but let us
make it meaningful reform and not a Band-Aid approach designed
to make ourselves feel good that we have done something. If we
are going to spend money on overhauling Medicare, let us
concentrate our efforts on such things as catastrophic coverage
or prescription drug coverage. These are real reforms, and real
reforms actually touch people's lives and improve the quality
of living. Let us improve the existing program but not create
an entirely new monster.
Thank you, Mr. Chairman I yield back my time I look forward
to the testimony today.
Mr. Bilirakis. Let the record show the gentlelady from New
Mexico was here and has left for a vote. I believe that takes
care of the opening--I am going to cutoff the opening statement
at this point then. And without objection the opening
statements of all the members of the subcommittee will be made
a part of record.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress
from the State of new York
Mr. Chairman, I want to thank you for having this hearing and
continuing to examine different ways to improve Medicare for seniors.
Today's hearing focuses on combining parts A and B of Medicare and the
implications that it will have on the program's services, costs, and
trust funds. However, we must consider this issue in a broader light of
providing a prescription drug benefit under Medicare and possibly
modifying the administrative process at the Health Care Financing
Administration. These are all issues that this Committee has focused on
earlier in the year. All of these considerations must be examined if
there is to be a true Medicare reform bill. To do less would be an
injustice to the millions of seniors who rely on Medicare.
Medicare was created to provide seniors with affordable access to
high quality health care. It was enacted to prevent seniors from losing
their life savings when they become sick late in life. As President
Johnson signed the Medicare legislation into law, he said ``No longer
will illness crush and destroy the savings (seniors) have so carefully
put away over a lifetime so they might enjoy dignity in their later
life . . . No longer will this nation refuse the hand of justice to
those who have given a lifetime of service and wisdom and labor to the
progress of this progressive society.'' The 89th Congress had the
pleasure of designing the Medicare program which has endured many
changes over the years. However, this Congress may be faced with the
most significant challenge since Medicare's inception. Not only do we
intend to provide a prescription drug benefit but are also undertaking
the enormous challenge of reforming and modernizing the Health Care
Financing Administration and the Medicare program as a whole.
As this and other Committees study different reform models that
combine Parts A and B with new cost sharing and benefit structures,
streamline the administrative process, and alter the current financing
structure of the Trust Funds, we must keep in mind that this is a
program designed for our elderly. It must remain affordable, it must
maintain a high level of care, and it must allow seniors to live with
dignity.
I understand the complex changes that the delivery of health care
has endured over the last 35 years and realize that we need to take a
good hard look at the Medicare program. Seniors deserve high quality
care and if changes are needed we need to make them. I look forward to
today's testimony. I want to thank the witnesses for their time and
effort in coming to this hearing. And I want to assure you Mr. Chairman
that this is an issue of great importance to me. I have had personal
experience with the complexities in dealing with Medicare. However,
Medicare is essential to the health of our elderly population. I am
pleased we are examining this issue and hope that we can use the
information gathered today in a constructive manner.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Chairman Bilirakis, I am pleased that the Health Subcommittee is
conducting this hearing on Medicare reform. The Subcommittee will
examine many important and complex questions today, such as how to
reduce the coinsurance that seniors with lengthy hospital stays must
pay and how to improve the administration of the Medicare program. I
would caution my colleagues, however, not to jump to the conclusion
that merging Parts A and B of the Medicare program is the only way to
achieve these goals.
We can improve Medicares coverage of catastrophic expenses without
necessarily combining Parts A and B. We can give the Health Care
Financing Administration (HCFA) the flexibility to contract with one
entity that can process both Part A and Part B claims. We can reduce
the complexity of the program for seniors by increasing the funding in
beneficiary education programs. In fact, even if we were to merge Parts
A and B of Medicare, it would do nothing to accomplish these objectives
without a corresponding commitment from Congress to increase the
resources that HCFA has to administer the Medicare program.
When discussing whether to merge Medicare Parts A and B, the most
important question is how will it affect the millions of Americans who
depend on this program for their health care, most of whom are living
on fixed incomes and are already spending a significant portion of
their income on health care costs.
For that reason, we should acknowledge that the most important
thing we can do today to improve the Medicare program is to add a
meaningful prescription drug benefit that is available and affordable
for every beneficiary. Before we embark on a long and contentious
debate about Medicare reform, Congress should show seniors that we hear
their most immediate concerns, and respond by creating a universal
prescription drug benefit in Medicare.
I look forward to hearing today's witnesses, but I also eagerly
await the opportunity to move forward on the reform that we all agree
is most urgently needed: Medicare prescription drugs.
Mr. Bilirakis. I ask the panelists to come forward and we
will break because we have two votes on the floor. We have a
vote on the previous question and a vote on the rule. So it
should take us approximately a half an hour, I am guessing.
Thank you very much.
[Brief recess.]
Mr. Bilirakis. Well, the hearing will come to order. Thank
you for your indulgence. The witness list consists of Dr.
William J. Scanlon, director of health care issues with GAO.
Dr. Scanlon you have been here many times and we appreciate it,
sir. Dr. Donald Young is chief operating officer and medical
director of health insurance association of America. Doctor,
welcome back. Mr. Don Schulder is an executive legislative
director of the alliance for retired Americans. Ms. Marilyn
Moon is the senior fellow with the Urban Institute, and Ms.
Kathy Means, as I mentioned earlier, is senior health policy
advisor to Patton Boggs located here in Washington, DC.
I suppose all of you have submitted written statements. I
have not had a chance to look at them all. But your written
statement is a part of the record and we would hope that you
would complement or supplement it, if you would. I am trying to
decide here. We will set the clock at 5 minutes, but certainly
not cut you off if you are going to go over a minute or two or
whatever the case may be there. I know it is the only panel and
we do want you to have an opportunity to present whatever
statement it is you want us to hear. So we will just set it for
the purposes of having something but not adhere to it too
strictly.
Dr. Scanlon please proceed, sir.
STATEMENTS OF WILLIAM J. SCANLON, DIRECTOR, HEALTH CARE ISSUES,
U.S. GENERAL ACCOUNTING OFFICE; DONALD A. YOUNG, CHIEF
OPERATING OFFICER AND MEDICAL DIRECTOR, HEALTH INSURANCE
ASSOCIATION OF AMERICA; DANIEL J. SCHULDER, LEGISLATIVE
DIRECTOR, ALLIANCE FOR RETIRED AMERICANS; MARILYN MOON, SENIOR
FELLOW, THE URBAN INSTITUTE; AND KATHLEEN E. MEANS, SENIOR
HEALTH POLICY ADVISOR, PATTON BOGGS
Mr. Scanlon. Thank you very much, Mr. Chairman, Mr.
Chairman, Mr. Brown and members of the subcommittee. I am very
pleased to be here today as you continue to consider how the
Medicare program might be modified to better serve
beneficiaries, providers and taxpayers. Medicare reform
discussions have focused on how to modernize the program, as
you have heard, that has been patterned after 1960's era
private insurance. Back then, different policies for different
services were the norm, and insurers were passive bill payers
that did not try to influence how care was delivered. While
private insurers have moved on, Medicare still has two distinct
parts, parts A and B, and the traditional fee-for-service
program remains primarily a passive bill payer.
Viewing Medicare in its entirety could promote the use of a
more comprehensive and accurate measure the programs fiscal
health. The program's fiscal well-being has generally been
gauged by the projected solvency of trust funds that are
expected to grow as a share of total spending. A variety of
alternative measures could provide a more complete picture. For
example, the Medicare trustees already report total program
spending as a share of gross domestic product. Having a more
complete measure is a first step. Establishing a threshold to
trigger action to rebalance revenues and spending when needed
is an equally important consideration.
The comptroller general has urged the adoption of
comprehensive measures and associated triggers, but the need
for them would be more acute if the trust funds were unified
because a merger would remove the powerful signal that
impending part A insolvency has provided. Unification of the
trust funds would raise issues regarding the sources of
financing and beneficiary eligibility, as you have heard. What
mix of payroll taxes, general revenues and benefit premiums to
use to pay for the program would have to be determined. A new
formula for computing beneficiary premiums would need to be
specified.
And finally, whether eligible persons could only
participate in the entire program by paying premiums or whether
the entitlement to some services by virtue of having paid the
payroll tax would be maintained would also need to be resolved.
A more comprehensive view of the program could also facilitate
development of better cost sharing requirements. Health
insurers today commonly design deductibles, co-insurance and
co-payments, to make beneficiaries aware of costs and to
encourage prudent service use. Medicare's current cost sharing
structure does not do that. For example, Medicare imposes a
relatively high deductible for hospital admissions which are
rarely optional but no cost sharing for home health services,
which may be more discretionary. And unlike most private
insurers, Medicare does not protect beneficiaries from high
out-of-pocket costs, ignoring the effects of Medicare not
covering an important service like prescription drugs.
Today many Medicare beneficiaries face substantial out-of-
pocket costs on services Medicare does cover, 3.4 million spend
more than $2,000, and 750,000 beneficiaries spent more than
$5,000 on Medicare-covered services in 1997, the latest year
for which such data are available. Trading less first-dollar
coverage for better catastrophic protection has been suggested
as a way to make Medicare provide more real insurance. While
such a tradeoff might be generally acceptable, it would be
important to consider appropriate protections for low income
beneficiaries so that costs do not become a barrier to needed
services or an undue burden. Restructuring a relationship
between parts A and B will not solve problems HCFA faces in
managing the traditional fee-for-service program more
effectively by moving away from being a passive bill payer.
HCFA needs the capacity to merge part B and part A data to
support timely pertinent analyses of the program, whether or
not the parts are actually combined. HCFA lacks that capacity
today, not because of the separate parts, but because of its
outdated and inadequate information systems. Private insurers
are using data better today to try and promote more targeted
use of services and better health. Their efforts include
targeted beneficiary education, preferred provider networks,
and coordination of services.
Adopting some of these approaches could potentially improve
Medicare, however consideration must be given to how to modify
them for such a large public program, and they need to be
tested adequately to understand their benefits and costs. HCFA
has been taking some steps in this regard to better manage
services beneficiaries receive. For example, it has been able
to implement broad-based education efforts to try and increase
the use of important preventative services, but private
insurers go one step further and target education to individual
beneficiaries, such as those who have not yet obtained a
particular service.
If HCFA did something like that, beneficiaries and others
might have serious concerns about large government using
personal medical information in such a way. HCFA has also
tested a type of preferred provider arrangement making single
global payments to hospitals for all services, both part A
hospital and part B physician services related to bypass
surgery. The results were lower cost, lower mortality and more
satisfied beneficiaries. However, broad application of such
preferred provider techniques could evoke concerns about
selection of providers and beneficiary choice. Essentially,
initiatives like these to better manage services may not
require a formal unification of parts A and B, but they raise
important questions for you about some of the basic principals
originally incorporated into the program. Namely, beneficiary
freedom of choice, any willing provider participation, and
minimal influence over service use.
The evolution of health care since 1965 makes it seem
reasonable to ask whether changes at the margin in some of
these areas would benefit beneficiaries and the program.
Mr. Chairman, this concludes my statement. I would be happy
to answer any questions you or the members of the subcommittee
may have.
Mr. Bilirakis. Thank you, Dr. Scanlon. We didn't hustle you
along there, did we? I intended you to present whatever
information you had.
Mr. Scanlon. No, that is fine.
[The prepared statement of William J. Scanlon follows:]
Prepared Statement of William J. Scanlon, Director, Health Care Issues,
United States General Accounting Office
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you continue to consider how the Medicare program might
be modified to better serve beneficiaries, providers, and taxpayers.
Discussions about how to reform and modernize Medicare have, in part,
focused on whether the structure that was adopted in 1965 remains
optimal today. In that context, questions have been raised about the
desirability of maintaining Medicare's division into two distinct
parts, part A for hospital and other institutional care and part B for
physician, outpatient, and other noninstitutional services. This
bifurcated structure is no longer common among private insurance, as it
was in the 1960s when insurers marketed separate policies for different
services.
Problems with financing beneficiary cost-sharing, and program
management have been linked with the fragmented structure of the
program. Yet merging parts A and B may not be the only way to make
progress in addressing these problems. To assist the Subcommittee as it
considers restructuring Medicare, my remarks today focus on how reforms
based on a more unified view of the program might affect (1) program
financing and assessment of the program's financial health, (2) cost
sharing requirements, and (3) program management, including
administration and promotion of quality care. These observations are
based on previous and ongoing GAO work on Medicare and private sector
insurance, as well as other published research.
In summary, rethinking the relationship between parts A and B may
encourage use of a more comprehensive measure of Medicare's financial
health. The commonly used measure, part A trust fund solvency, does not
include the growing share of program spending on part B services. While
a more complete picture of Medicare's financial health can be obtained
in a number of ways, the desire for a better picture of the program's
financial prognosis is one argument for a single trust fund.
Establishing a single trust fund would require agreement on how funds
from payroll taxes, general revenues, and beneficiary premiums would
flow to the program. It would require consensus on what measure would
be used to track program finances and spur action to increase revenue
or curb spending when needed. It also would require assessment of
whether different beneficiary eligibility standards, similar to those
currently specified for parts A and B, would be maintained.
Rethinking the relationship between parts A and B also could
facilitate development of better cost-sharing requirements. The current
cost-sharing structure fails to promote prudent use of services and
protect beneficiaries from high out-of-pocket costs. These concerns
could be addressed under the current part A and B structure or a more
unified structure. Unifying the program completely would require some
beneficiaries who now have other coverage and are enrolled in only one
part of the program to pay additional premiums for coverage they
already have. It also would increase costs to the government for care
that is now covered privately. Alternatively, partial benefits could be
extended to those who chose not to fully participate in a unified
program.
Rethinking the relationship between parts A and B would not
fundamentally address challenges the Health Care Financing
Administration (HCFA) faces in, efficiently managing the disparate
services Medicare covers. HCFA's outdated information technology (IT)
systems have hindered its ability to develop data to improve payment
methods and the quality of care beneficiaries receive. Further, as a
large public program, Medicare is limited in its ability to incorporate
innovations that private insurers have used to influence care delivery.
These include targeted beneficiary education, preferred provider
networks, and coordination of services. The National Academy of Social
Insurance (NASI) has reviewed these private sector practices and
concluded that they could potentially improve Medicare. However, they
would need to be tested to determine their impacts and evaluated to
ascertain how well they might be adapted to reflect the uniqueness of
Medicare as both a public program and the largest single purchaser of
health care. Full implementation of many of these innovations would
require statutory changes to the program.
BACKGROUND
At its inception, Medicare's design mimicked the structure of
existing private insurance, which commonly included different policies
for different sets of services. It also was designed, like private
insurance at the time, as a passive bill payer that did not try to
influence how care was delivered. In fact, because of concerns about
the potential influence of such a large government program, the
original Medicare statute requires that Medicare not influence
providers' practice of medicine and gives beneficiaries access to all
participating providers.
Medicare is administered by the HCFA, and pays for some $200
billion in health care benefits each year for about 40 million elderly
and disabled Americans. Individuals who are eligible for Medicare
automatically receive Hospital Insurance (HI), known as part A, which
covers inpatient hospital, skilled nursing facilities (SNF), certain
home health, and hospice care. Beneficiaries generally pay no premium
for this coverage, having previously contributed payroll taxes from
covered employment, but they are liable for required deductibles,
coinsurance, and copayment amounts. (See tables 1 and 2.)
Medicare-eligible beneficiaries may elect to purchase Supplementary
Medical Insurance (SMI), known as part B, which covers physician,
outpatient hospital, laboratory, and other services. Beneficiaries must
pay a premium for part B coverage, currently $50 per month, and are
also responsible for part B deductibles, coinsurance, and copayments.
Most of Medicare's 40 million beneficiaries are enrolled in both
parts A and B. However, approximately 2 million are enrolled only in
part A. Another 400,000 are enrolled only in part B. Those enrolled in
only one part of the program often have private insurance from an
employer or other source to make up the difference.
Approximately 14 percent of Medicare beneficiaries enroll in
Medicare+Choice plans. These plans include health maintenance
organizations and other private insurers who are paid a set amount each
month to provide all Medicare-covered services. Beneficiaries must be
enrolled in both parts A and B to join these plans, which typically
offer lower cost-sharing requirements and additional benefits compared
to Medicare's traditional fee-for-service program, in exchange for a
restricted choice of providers.
Table 1: Medicare Part A and Part B Coverage, Eligibility, and Funding
------------------------------------------------------------------------
Part A Part B
------------------------------------------------------------------------
Coverage........................ --Inpatient --Physician
hospital. services
--Skilled nursing --Laboratory
facility (SNF). services
--Home health.\1\. --Outpatient
--Hospice......... hospital
--Home health.\1\
--Durable medical
equipment
Eligibility..................... --Individuals and --Individuals
their spouses over age 65,
over 65 who paid disabled, or with
the Medicare end-stage renal
payroll tax for disease who pay a
10 years (40 monthly premium
quarters). ($50 in 2001)
--Individuals over
65 who paid the
Medicare payroll
tax for 30 to 39
quarters and who
pay a $165
monthly premium.
--Individuals over
65 who paid the
payroll tax for
less than 30
quarters and who
pay a $300
monthly premium.
--Individuals
eligible for
Social Security
disability
benefits.
--Individuals with
end-stage renal
disease.
Funding......................... Medicare payroll Premiums cover 25
taxes. percent and
general tax
revenue covers 75
percent
------------------------------------------------------------------------
\1\ Part A covers up to 100 home health visits following an inpatient
hospital or SNF stay. Part B covers other home health visits.
Source: Medicare & You 2001, HCFA.
Table 2: Medicare Beneficiary Cost-Sharing for 2001
------------------------------------------------------------------------
Copayments, coinsurance, and
deductibles:
------------------------------------------------------------------------
Part A services:
Inpatient hospital........................ $792 deductible per
admission \1\
$198 copayment per day for
days 61 through 90
$396 copayment per day for
days 91 through 150 \2\
All costs beyond 150 days
Skilled nursing facility (SNF)............ No cost-sharing for first 20
days
$99 per day copayment for
days 21 through 100
All costs beyond 100 days
Home health............................... No cost-sharing
20 percent coinsurance for
durable medical equipment
Hospice................................... $5 copayment for outpatient
drugs
5 percent coinsurance for
inpatient respite care
Part B services:\2\
Physician and medical..................... $100 deductible each year
20 percent coinsurance for
most services
50 percent coinsurance for
mental health services
Clinical laboratory....................... No cost-sharing
Home health............................... No cost-sharing
20 percent coinsurance for
durable medical equipment
Outpatient hospital....................... Coinsurance varies by
service and may exceed 50
percent
------------------------------------------------------------------------
\1\ No deductible is charged for second and subsequent hospital
admissions if they occur within 60 days of the beneficiary's most
recent covered inpatient stay.
\2\ After the first 90 days of inpatient care, Medicare may help pay for
an additional 60 days of inpatient care (days 91 through 150). Each
beneficiary is entitled to a lifetime reserve of 60 days of inpatient
coverage. Each reserve day may be used only once in a beneficiary's
lifetime.
\3\ No cost-sharing is required for certain preventive services-
including specific screening tests for colon, cervical, and prostate
cancer and flu and pneumonia vaccines.
Source: Medicare & You 2001, HCFA.
Medicare pays for services out of two separate trust funds. Part A
services are paid for out of the HI Trust Fund. It is primarily
financed through the Medicare payroll tax that is exclusively dedicated
to this trust fund. Part B services are paid for out of the SMI Trust
Fund. This trust fund is financed in part through the part B premium,
which is adjusted each year to equal 25 percent of expected part B
spending. The remaining 75 percent is paid for out of general tax
revenues.
RESTRUCTURING RAISES FINANCING AND BENEFICIARY PARTICIPATION ISSUES
Medicare's two parts have distinct financing and participation
arrangements. Modifying these arrangements could promote the use of a
more comprehensive measure of Medicare's financial health and help
policymakers anticipate future fiscal imbalances. In addition to
selecting such a measure or measures, Congress could also decide to
establish thresholds that would trigger corrective actions designed to
rebalance Medicare revenues and spending. Unification of the now
separate HI and SMI trust funds would require consideration of these
issues, but even without such a merger, comprehensive financial
measures and associated triggers would be useful. Unification would
also require Congress to determine how the current mix of payroll
taxes, beneficiary premiums, and general revenues might be modified to
fund the program, as well as whether beneficiaries would be obligated
to participate in the full program or could obtain coverage for subsets
of services.
Focus on HI Trust Fund Provides Misleading View of Medicare's Financial
Health
In the past, Medicare's financial status has been generally gauged
by the projected solvency of the HI trust fund. Looked at this way--and
based on the latest annual report from the Medicare Trustees--Medicare
is viewed as solvent through 2029. Solvency is a popular measure, in
part because the consequences of insolvency are clear. If there is no
money in the HI trust fund, the government cannot pay hospitals or
other providers of part A services. Thus, the threat of insolvency can
be a powerful driver for action. In 1997, the Medicare Trustees
estimated that the HI trust fund would become insolvent in 2001. The HI
trust fund had not been so close to a crisis since 1972. Following the
Trustees' 1997 report, Congress enacted the Balanced Budget Act of
1997, which contained substantial payment and other reforms designed to
slow Medicare's cost growth. These reforms, coupled with a strong
economy, helped to increase the life expectancy of the HI trust fund.
However, HI trust fund solvency is an incomplete measure of
Medicare's fiscal health. It does not reflect the cost of the part B
component of Medicare, which covers outpatient services and is financed
through general revenues and beneficiary premiums. Part B accounts for
more than 40 percent of current Medicare spending and is expected to
account for a growing share of future total program dollars. The
concept of solvency does not apply to the trust fund for part B, SMI,
because increases in expenditures are automatically matched with
increases in general revenues and beneficiary premiums.
In addition, HI trust fund solvency does not mean that Medicare's
part A component is financially healthy. Although the trust fund is
expected to remain solvent until 2029, HI outlays are projected to
exceed HI revenues beginning in 2016. As the baby boom generation
retires and the Medicare-eligible population swells, the imbalance
between outlays and revenues will increase dramatically. Thus, in 15
years the HI trust fund will begin to experience a growing annual cash
deficit. At that point, the HI program must redeem Treasury securities
acquired during years of cash surplus. The government will then need to
increase taxes, increase borrowing (or retire less debt), impose
spending cuts, or implement some combination of these actions.
When part A expenditures outstrip payroll tax revenues, it may be
tempting to reallocate some expenditures from part A to part B. This
would extend the solvency of the HI trust fund, but would do little to
improve Medicare's overall financial health. For example, BBA
reallocated a portion of home health spending from part A to part B.
Although that action--phased in over time--reduces HI expenditures and
extends that trust fund's solvency, it also increases SMI expenditures.
Consequently, the home health reallocation increases the proportion of
Medicare funded by general revenues and beneficiary premiums.
Comprehensive Measures Could Better Indicate Program Sustainability
Clearly, it is total program spending--both part A and part B--
which determines whether Medicare is sustainable over the long haul.
Whether the program remains in its current configuration, or the
relationship between parts A and B are restructured, a more
comprehensive measure of Medicare's financial health could help
Congress anticipate future fiscal imbalances. A variety of such
measures exist now. For example, the Medicare Trustees report total
Medicare spending as a share of gross domestic product (GDP). This
measure clearly shows that total Medicare expenditures will likely
consume an increasingly larger share of the national economy.
Currently, combined HI and SMI expenditures account for 2.3 percent of
GDP. This percentage is expected to rise to 4.5 percent in 2030 and 8.5
percent in 2075. Another comprehensive indicator measures Medicare
spending relative to the entire federal budget. We estimate that
Medicare's share of the federal budget will increase from 10 percent in
2000 to over 23 percent in 2030 if the program's spending growth
continues unchecked.\1\
---------------------------------------------------------------------------
\1\ Medicare: Higher Expected Spending and Call for New Benefit
Underscore Need for Meaningful Reform (GAO-01-539T, Mar. 22, 2001).
---------------------------------------------------------------------------
Fiscal Measures Could Trigger Congressional Action
The adoption of new financial health indicators for Medicare would
be one step; the next would be to decide what should trigger
congressional action. Congress could agree that it would take action to
rebalance Medicare spending and revenues whenever a comprehensive
measure reached a predetermined level. Possible actions could include
increasing general revenue contributions, payroll taxes, or beneficiary
premiums; reducing benefits; cutting provider payments; or introducing
efficiencies to moderate spending. The 1999 Breaux-Frist Medicare
reform proposal provides one example of a potential trigger. Under that
proposal, the two trust funds would be unified and congressional action
would be required in any year when general revenue contributions
exceeded 40 percent of total Medicare expenditures.
The need for measures of program sustainability and thresholds that
would trigger congressional action would be most acute if the trust
funds are unified. Such a reconfiguration could remove the powerful
signal of the HI trust fund insolvency and reduce the apparent urgency
of corrective actions. If the trust funds remain separate,
comprehensive measures of Medicare's financial health and associated
triggers could avoid the shortcomings that arise from a focus on the HI
trust fund's solvency.
Improved measures of Medicare sustainability and agreed-upon
thresholds will not, however, alter the difficult decisions facing this
and future Congresses. A growing Medicare population and advances in
expensive medical technology will increase future demands for health
care spending. Policymakers will need to find ways either to control
Medicare's spending growth or obtain additional revenues to pay for it.
Any solution to address the financial imbalance will affect
beneficiaries, taxpayers, providers, or some combination of the three
groups. Better measures of Medicare's financial health may help
identify the need for action, but will not lessen the difficulty of
implementing a solution.
Unification of Trust Funds Raises Questions About Financing, Premiums,
and Participation
Creating a unified trust fund for Medicare parts A and B would
raise several new issues Congress would need to address. One is program
financing--Congress would have to specify Medicare's revenue sources
and the share that each source would contribute. Under the current
arrangement, revenues come from the Medicare payroll tax, general
revenues, and beneficiary premiums. Broadly speaking, the amount
financed from each revenue source depends upon the amount spent on
Medicare services and the classification of services into parts A and
B. The payroll tax supports part A services. The amount of general
revenues devoted to Medicare is set equal to 75 percent of part B
expenditures. Beneficiary premiums are collected to pay for the
remaining 25 percent of part B spending. If the trust funds were
unified, Congress would have to specify the funding mechanism. It
could, for example, determine the share that general tax revenues,
payroll tax revenues, and beneficiary premiums would each contribute to
total Medicare spending. Alternatively, it could adopt an allocation
formula similar to the present one by designating some services to be
supported by the payroll tax and others to be supported by general
revenues and beneficiary premiums.
Beneficiary participation issues would also arise under a
restructured program with a unified trust fund. Currently, about 2
million individuals (5 percent of beneficiaries) are eligible for
Medicare part B but do not participate in the voluntary program. A
smaller number of individuals do not qualify for coverage under part A,
although provisions allow certain individuals to buy into the program
by paying a monthly premium. Under a restructured program, Congress
would need to determine beneficiary participation and premium options.
For example, should participation in the full program and payment of
any associated premium be mandatory? If full participation is mandated,
program costs could increase and some beneficiaries would receive
Medicare coverage for services covered by existing private policies. If
full participation is voluntary, what coverage should be provided to
those individuals who choose less than full participation? Would
individuals who had made payroll tax contributions but decline to pay
the premium not receive coverage? Or would reduced benefits--for
example, coverage only for current part A services--be available for
such individuals?
BENEFICIARY COST-SHARING COULD BE IMPROVED
Rethinking the relationship between parts A and B could facilitate
rationalization of cost-sharing requirements and help make Medicare
more like private sector and Medicare+Choice plans. Medicare's benefit
design has changed little since its inception 35 years ago, and in many
ways has not kept pace with changing health care needs and private
sector insurance practices. Medicare's current costsharing requirements
in particular are not well structured to promote prudent use of
discretionary services. At the same time, they can create financial
barriers to care and leave beneficiaries with extensive health care
needs liable for high out-of-pocket costs.\2\
---------------------------------------------------------------------------
\2\ Medicare: Cost Sharing Policies Problematic for Beneficiaries
and Program (GAO-01-713T, May 9, 2001.
---------------------------------------------------------------------------
Cost-Sharing Requirements Are Not Well Structured
Health insurers today commonly design cost-sharing requirements--in
the form of deductibles, coinsurance, and copayments--to ensure that
beneficiaries are aware there is a cost associated with the provision
of services and to encourage them to use services prudently. Ideally,
cost-sharing should encourage beneficiaries to evaluate the need for
discretionary care but not discourage necessary care. Optimally, cost-
sharing would generally require coinsurance or copayrnents for services
that may be discretionary and could potentially be overused, and would
also aim to steer patients to lower cost or better treatment options.
Care must be taken, however, to avoid setting cost-sharing amounts so
high as to create financial barriers to necessary care.
The benefit packages of most Medicare+Choice plans illustrate cost-
sharing arrangements that have been designed to reinforce cost
containment and treatment goals. Most Medicare+Choice plans charge a
small copayment for physician visits ($10 or less) and emergency room
services (less than $50). Relatively few Medi-care+Choice plans charge
copayments for hospital admissions. Plans that offer prescription drug
benefits typically design cost-sharing provisions that encourage
beneficiaries to use cheaper generic drugs or brand name drugs for
which the plan has negotiated a discount.
Medicare fee-for-service cost-sharing rules diverge from these
common insurance industry practices in important ways. For example, as
indicated in table 2, Medicare imposes a relatively high deductible of
$792 for hospital admissions, which are rarely optional. In contrast,
Medicare requires no cost-sharing for home health care services, even
though historically high utilization growth and wide geographic
disparities in the use of such services have raised concerns about the
potentially discretionary nature of some services.\3\ Medicare also has
not increased the part B deductible since 1991. For the last 10 years
the deductible has remained constant at $100 and has thus steadily
decreased as a proportion of beneficiaries' real income.
---------------------------------------------------------------------------
\3\ See Medicare Home Health Care: Prospective Payment System Will
Need Refinement as Data Become Available (GAO/HEHS-00-9, Apr. 7, 2000).
---------------------------------------------------------------------------
Beneficiary Liability Is Unlimited
Also unlike most employer-sponsored health plans for active
workers, Medicare does not limit beneficiaries' cost-sharing liability.
Employer-sponsored plans typically limit maximum annual out-of-pocket
costs for covered services to less than $2,000 per year for single
coverage.\4\ In Medicare, however, current estimates suggest that the
combination of cost-sharing requirements on covered services and the
cost of services not covered by Medicare leaves beneficiaries liable
for about 45 percent of their health care costs. The average
beneficiary is estimated to have incurred about $3, 100 in out-of-
pocket expenses for health care in 2000--an amount equal to about 22
percent of the average beneficiary's income.\5\ Some beneficiaries face
much greater financial burdens. For example, low-income single women
over age 85 in poor health and not covered by Medicaid are estimated to
have spent more than half (about 52 percent) of their incomes on health
care services.\6\
---------------------------------------------------------------------------
\4\ The Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits: 2000 Annual Survey.
\5\ Stephanie Maxwell, Marilyn Moon, and Mesha Segal, Growth in
Medicare and Out-Of-Pocket Spending: Impact on Vulnerable Beneficiaries
(Urban Institute, Dec. 2000).
\6\ Maxwell, Moon, and Segal.
---------------------------------------------------------------------------
The average beneficiary who obtained services had a total liability
for Medicare-covered services of $1,451, consisting of $925 in Medicare
copayments and deductibles in addition to the $526 in annual part B
premiums in 1997, the most recent year for which data are available on
the distribution of these costs. The burden of Medicare cost-sharing
can, again, be much higher for beneficiaries with extensive health care
needs. In 1997 slightly more than 3.4 million beneficiaries (11.4
percent of beneficiaries who obtained services) were liable for more
than $2,000. Approximately 750,000 of these beneficiaries (2.5 percent)
were liable for more than $5,000, and about 173,000 beneficiaries (0.6
percent) were liable for more than $10,000.
Options for Addressing Cost-Sharing Concerns
Different approaches could be taken to address concerns about
current costsharing requirements. Cost-sharing for less discretionary
services could be reduced or eliminated. Catastrophic protection could
be added to the benefits package. In addition, the part B deductible
could be raised, or the part A and B deductibles could be combined.
Reducing or eliminating cost-sharing for less discretionary
services, such as inpatient hospital care, could be done within the
current program structure. Congress has already taken similar action by
reducing and eliminating costsharing requirements for various cancer
screening tests and vaccinations in order to ensure that affordability
is not a barrier to these important services.
Adding catastrophic protection by capping how much beneficiaries
are required to pay out-of-pocket also could be done under current
program structure. There would need to be agreement on how to allocate
between parts A and B the added cost to the program and recognition of
the time and resources needed to incorporate such a change into HCFA's
information systems.
Raising the part B deductible or creating a combined deductible for
part A and part B services has been suggested to offset some of the
additional cost of providing catastrophic protection. It would also
offset some of the real-dollar decline in the part B deductible, which
has not been adjusted for inflation or raised in any way since 1990.
These changes could be done under current program structure as well,
again with recognition of the time and resources needed to incorporate
the change into HCFA's information systems. Most beneficiaries who
incurred cost-sharing would likely meet a combined deductible through
their use of what are now part B services. If the combined deductible
is set higher than the current part B deductible, providing protection
for low-income beneficiaries so that costs do not become a barrier to
needed services or an undue burden would be an important consideration.
Combining the deductible or providing catastrophic protection would
again raise the issue of whether to maintain individuals' ability to
participate independently in A or B or to require full participation by
all beneficiaries in the entire program. Requiring full participation
for beneficiaries who now participate in only one part of the program
could result in additional costs for beneficiaries who have alternative
coverage as well as additional program costs. It also raises the issue
of the entitlement for persons who have paid the required payroll tax,
but choose not to pay the premium.
Partial benefits could be extended to those who do not fully
participate in the program. Alternatively, some of the effects of
mandatory participation could be muted by phasing in a unified program
so that new beneficiaries would participate in the full program while
those who now participate in only part of the program could continue to
do so.
CHALLENGES FOR MANAGEMENT AND PROMOTING CARE QUALITY REMAIN REGARDLESS
OF RESTRUCTURING
As noted earlier, the original Medicare statute reflected 1960s
private health insurance practices that often included separate
policies for different services as well as a passive bill paying
approach. In contrast to Medicare, which has not changed much since its
inception, private insurance has evolved over the last 40 years and now
offers comprehensive policies and employs management techniques
designed to improve the quality and efficiency of services purchased.
Private insurers are able to undertake these efforts because many have
detailed data on service use across enrollees and providers, as well as
wide latitude in how they run their businesses. Regardless of whether
the relationship between parts A and B is restructured, HCFA faces
challenges in seeking to more efficiently manage Medicare services due
to its outdated and inadequate IT systems, statutory constraints, and
the fundamental need for public accountability that accompanies a large
public program. These limitations have hampered the agency's ability to
administer the program and incorporate new innovations. Private
insurers have taken steps to influence utilization and patterns of
service delivery through efforts such as beneficiary education,
preferred provider networks, and coordination of services. NASI has
reviewed many of these private sector activities and concluded that
they could have potential value for Medicare. However, they would need
to be tested to determine their effects as well as how they might be
adapted to reflect the uniqueness of Medicare as both a public program
and the largest single purchaser of health care. In addition, HCFA
would likely need new statutory authority to broadly implement many of
these innovations.
Effective Program Management Depends on Comprehensive and Timely
Information
To effectively oversee claims administration and assess the effects
of innovative policies that private sector insurers have adopted, HCFA
needs timely and comprehensive information on services and payments in
the aggregate and for individual beneficiaries. HCFA lacks that
capacity today, not because it has separate contractors for parts A and
B, but because of deficiencies in its information systems. Some of the
agency's vital information systems are decades old, with some operating
software rarely used today by any entity other than HCFA, and lack the
capacity and flexibility that newer technology can offer. Consequently,
HCFA has had difficulty assembling timely and comprehensive information
about provider billing patterns and beneficiary service use.
Currently, data from parts A and B do flow to some common points--
both during claims processing and after. During claims processing, both
part A and part B claims are checked through a prepayment validation
and authorization system operated by HCFA--the Common Working File
(CWF). Claims approved for payment are ultimately complied in the
National Claims History (NCH) Me, which can be analyzed to look at
broader payment trends within the program. The problem is that this
compilation of information occurs long after services have been
delivered and claims paid.
These system limitations are unfortunate because changes in
Medicare payment policy for one type of service can have reverberations
in other areas. To understand these effects requires analysis across a
range of services beneficiaries may be receiving. A clear example of
this occurred after the implementation of a prospective payment system
(PPS) for hospitals, which pays hospitals fixed, predetermined amounts
for each hospital stay that vary according to patients' diagnoses.
Prior to this innovation, hospitals were paid on the basis of their
costs, with little incentive to limit patient stays or provide care
efficiently. Paying a fixed amount for an episode of hospital care
creates incentives for hospitals to reduce lengths of stay and to shift
services that had been provided in the hospital to other settings.
Understanding these modifications in care delivery led to payment
changes to prevent Medicare from paying twice for the same service.
More recent payment changes for home health and SNF services, and the
soon to be implemented PPS for inpatient rehabilitation services, will
likely cause similar kinds of care shifts. It is essential that HCFA
has the ability to monitor changes in care delivery in a timely and
objective manner to determine how these payment policies may need to be
adjusted in the future.
Recent experience has also demonstrated HCFA's difficulties in
developing information to measure the effects of changing Medicare
policies on beneficiaries and providers in a comprehensive and timely
manner. The Balanced Budget Act of 1997 (BBA) payment reforms
represented bold steps to control Medicare spending by changing the
financial incentives for delivering care efficiently. Reforms affected
hospitals, home health agencies, SNFS, and providers of other services.
Affected providers presented anecdotal evidence asserting that the
BBA's payment reforms caused them financial difficulties and would
impair beneficiary access, urging Congress to undo some of the act's
provisions. HCFA analysts were ill-equipped to assess the validity of
these charges because the necessary program data were not readily
available.
Better and more timely information is a prerequisite to more
effective program management. It is essential to the development and
refinement of payment methods for different service providers. It can
also help policymakers understand the desirable and undesirable
consequences of changes on beneficiaries, providers, and the trust
funds. Generating these data is not dependent on unifying part A and
part B, but rather on merging part A and part B data in a modern
information system capable of supporting timely, pertinent analyses.
Quality Promotion Efforts Could Reap Benefits But Face Many Obstacles
An expert panel convened by NASI has suggested that Medicare may
benefit from moving away from its passive bill paying approach by
adopting some private insurers' practices designed to improve the
quality and efficiency of care.\7\ The panel focused on provider and
beneficiary education, preferred provider networks, and coordination of
services as potential improvements in Medicare. Educating beneficiaries
or providers could improve the use of important preventive and other
services currently being under-used and minimize questionable use of
services. Developing a system of preferred providers selected on the
basis of quality as well as cost could improve care and help achieve
savings. More actively coordinating care across provider settings for
beneficiaries with chronic diseases like diabetes or who have recently
experienced heart attacks might also help improve quality and
efficiency. HCFA has begun to implement some innovations and experiment
with others. Broadly implementing the experimental innovations that
prove successful may require new statutory authority. Other private
sector innovations, however, may be difficult to incorporate, given
Medicare's size and the need for transparency in a public program.
---------------------------------------------------------------------------
\7\ From a Generation Behind to a Generation Ahead: Transforming
Traditional Medicare, Final Report of the Study Panel on Fee-for-
Service Medicare, National Academy of Social Insurance, Washington,
D.C.: January 1998.
---------------------------------------------------------------------------
HCFA has been able to implement broad-based education efforts but
has been stymied in implementing approaches targeted to individual
beneficiaries most likely to need the help. For example, it has an
extensive effort underway to encourage colon cancer screening that
includes dissemination of more than 23,000 innovative posters. The
posters include tear-off sheets that beneficiaries can hand to
physicians to facilitate discussions that otherwise might be avoided
because of the unfamiliar words, sensitive issues, and unpleasant
options that can be involved. HCFA is also involved in a multifaceted
effort to increase flu vaccinations and mammography use among
beneficiaries. However, HCFA may be less able to undertake more
targeted education efforts that some private insurers are using, such
as sending out reminders to identified enrollees about the need to
obtain a certain service. Because of Medicare's size and status as a
federal program, beneficiaries and others might have concerns about
HCFA using personal medical information from claims data to target
educational efforts. Providers might also object to a government
insurance program advocating certain medical services for their
patients.
HCFA is providing more information to physicians about service use
and typical practice patterns in an effort to educate them about how
their practice patterns compare to the norm. For example, the Medicare
peer review organizations encourage those who have unusual practice
patterns to reconsider their service provision. However, private
insurers can go one step further and terminate providers who continue
to have aberrant practice patterns. HCFA's ability to terminate
providers is much more limited because of statutory requirements
intended to protect beneficiaries' choice of providers.
HCFA's ability to encourage use of preferred providers is also
limited. The Medicare statute generally allows any qualified provider
to participate in the program. HCFA has experimented with bundling
payments for certain expensive procedures performed by designated
providers. For example, it tested the impact of making single
``global'' payments to hospitals for all services--both hospital and
physician--related to coronary artery bypass graft surgery. The
hospitals chosen for the experiment were among those with the best
outcomes for these surgeries.\8\ The experiment cut program costs by 10
percent for the 10,000 coronary artery bypass surgeries performed, and
saved money for beneficiaries through reduced part B coinsurance
payments. More important, compared to a group of beneficiaries not
receiving this bundled care, beneficiaries who were treated in one of
the selected hospitals had lower mortality rates, were more satisfied
with the quality of the nursing care, and appreciated the simplicity of
a single coinsurance amount. HCFA has begun a similar experiment at
selected acute care hospitals, which involves bundling payments for
hospital, physician, and other health care professionals' services
provided during a beneficiary's hospital stay for selected
cardiovascular and orthopedic procedures.
---------------------------------------------------------------------------
\8\ A number of studies prior to this experiment have found that
hospitals with the greatest volume of these types of surgeries
generally had better outcomes, in regard to mortality and
complications.
---------------------------------------------------------------------------
However, more wide scale Medicare implementation of such hospital
and physician partnership arrangements may be difficult. Providers have
raised concerns about a government program designating some providers
as delivering higher quality care than others. In addition, bundling
services for hospitals and doctors added administrative burdens to the
hospitals and took control of payments away from doctors. In the end,
it is not the separation of parts A and B that would impede efforts to
promote such preferred provider arrangements. Rather, it may be more
deep-seated concerns about government promotion of certain providers at
the expense of others that serve as a barrier to this and other types
of preferred provider arrangements.
HCFA has also been conducting demonstrations to test how to better
coordinate care for certain patients since the 1980s. In addition, BBA
\9\ mandates that HCFA find budget neutral ways to test methods of
coordinating a range of services for chronically ill beneficiaries in
at least nine urban and rural sites. The law authorizes the Secretary
of Health and Human Services to incorporate any components proven to be
cost-effective into Medicare through regulations and to expand the
number of demonstration sites.
---------------------------------------------------------------------------
\9\ Section 4016.
---------------------------------------------------------------------------
While there is increasing interest in efforts to coordinate care,
it is not clear that they are always cost-effective. Some experience in
both the private and public sectors suggests that such efforts can
improve quality and achieve savings. For example, the Group Health
Cooperative of Puget Sound and PacifiCare teamed with a senior citizens
center to offer supervised health promotion and chronic illness self-
management interventions to chronically ill seniors. The intervention
included meetings with geriatric nurse practitioners to develop
individually tailored health promotion plans, medication reviews,
classes, support groups, and volunteer mentors. Preliminary findings
suggested that the case-managed group had fewer health problems and
lower costs compared to a group that did not receive the services.
However, other experiments, including those conducted by HCFA, have
failed to demonstrate either quality improvements or cost savings.
Furthermore, there would need to be statutory changes to implement
different coordination approaches in Medicare if they involved coverage
of new services, such as care coordinators, or involved control over
the use of particular services or providers.
CONCLUDING OBSERVATIONS
The Medicare program faces many challenges. Clearly, the
overarching issue is how to ensure that Medicare remains sustainable
for future generations of beneficiaries. Meeting that challenge will
involve difficult decisions that will likely affect beneficiaries,
providers, and taxpayers. However, the financing issue should not
obscure other important Medicare challenges. Medicare's current cost-
sharing arrangements are not well designed to encourage the efficient
use of services without discouraging necessary care. Moreover, the lack
of catastrophic coverage can leave some beneficiaries liable for
substantial Medicare expenses. Finally, some aspects of Medicare's
program management are inefficient and lag behind modern private sector
practices. Changes in Medicare's program management could improve both
the delivery of health care to beneficiaries and the program's ability
to pay providers appropriately.
Some view restructuring of the relationship between parts A and B
as an important element of overall Medicare reform. Fundamentally,
assessing the program as a whole is an important first step in
addressing Medicare's challenges. Solutions to many of these challenges
could be crafted without restructuring. However, restructuring may
provide opportunities to implement desired reforms--with or without
unifying the HI and SMI trust funds-while undoubtedly raising issues
that will have to be considered.
Mr. Chairman, this concludes my statement. I would be happy to
answer any questions that you or members of the Subcommittee may have.
Mr. Bilirakis. Dr. Young, you obviously have quite a
background in this subject, so we are eagerly awaiting to hear
what you have to say.
STATEMENT OF DONALD A. YOUNG
Mr. Young. Thank you, sir. Chairman Bilirakis, Mr. Brown,
distinguished members of the committee, I am Dr. Donald Young,
interim president of the Health Insurance Association of
America. I am very pleased to be with you here today to discuss
Medicare reform. I was previously executive director of the
Federal Prospective Payment Assessment Commission, ProPAC, the
predecessor to MEDPAC, and before that, deputy director of the
policy bureau of the Health Care financing administration.
Given this background, I am familiar with the world of private
insurance as well as the Medicare program. Medicare is
obviously a very popular program, something HIAA's own research
has confirmed. However, I believe that lessons from the private
insurance industry's long history may be useful as you consider
how to make the program even stronger.
When Medicare was enacted in the 1960's, it was patterned
after existing private insurance programs. But while the
private sector plans have changed to offer a variety of
programs that improve the coordination and delivery of care,
the Medicare fee-for-service program has remained in its
original form. For example, today, many surgical procedures can
be performed safely and effectively, both as part A inpatient
hospital services, and as part B, ambulatory services, the same
procedure. Medicare beneficiaries, however, face very different
out-of-pocket costs, depending upon where the service is
furnished. The resulting financial incentives may result in the
beneficiary not receiving care in the appropriate setting,
thereby adversely affecting quality of care.
In contrast, private health insurance policies usually
cover a comprehensive array of health services, both in and out
of a hospital, subject to a single annual deductible. This
arrangement is easier for insured people to understand and more
efficient to administer. Under this private sector approach,
claims for services flow to a single responsible organization
and inquiries by insured individuals and their caregivers
likewise could be made to one party.
Among other things, this arrangement also facilitates
disease management program. Disease management programs take a
systematic approach to medicine that encourages patients to
follow health promoting behaviors and promotes a strong
patient-doctor relationship. These program not only enhance the
quality of care, but they help reduce the need for
hospitalization, emergency room department visits, and other
services. While beneficiaries in the Medicare+Choice program
have access to these programs, fee for service beneficiaries do
not and Medicare's current structure would create major
challenges in designing such programs. A single program with
centralized records allows plans to efficiently update and
maintain beneficiary coverage and claims files and to
coordinate care.
These efficiencies result in reductions in the cost for
providing health care and help in treatment options and health
outcomes. This can only be carried out through the links
between various claims the beneficiary may have.
Combining information about different types of service is
also extremely important for fraud detection programs. For
example, a claim for a physician's hospital inpatient visit can
be compared to the dates on which a patient was hospitalized or
a claim for laboratory work can be linked to the office visit
at which the patient was seen and sent for tests.
Recognizing the constraints of its current structure,
Medicare has, through the years, attempted to break down the
barriers between its separate parts. HCFA has conducted various
pilot projects under its general demonstration authority or
based on specific congressional mandates. Such programs have
been very successful, demonstrating the flexibility and the
design of care management and payment programs that is
characteristic of private insurance programs. They have also
been cost efficient for the Medicare program and its
beneficiaries. But putting such programs in place now requires
special legislative or regulatory authority, in part because of
Medicare's outmoded design.
The Medicare program is in need of substantial reform.
Obviously, combining Medicare Parts A and B into a single
program would not, by itself, improve care coordination,
disease management, program administration or oversight. But
many of these reforms to work effectively, a necessary first
step is to eliminate the separation of the program into two
parts as private insurers did many years ago.
Thank you for providing me this opportunity to talk about
Medicare reform from the perspective of the private health
insurance sector. I would be happy to respond any questions you
might have.
[The prepared statement of Donald A. Young follows:]
Prepared Statement of Donald A. Young, Interim President, Health
Insurance Association of America
INTRODUCTION
Chairman Bilirakis, distinguished members of the Committee, I am
Dr. Donald A. Young, Interim President of the Health Insurance
Association of America (HIAA). I am very pleased to be here today to
discuss the issue of Medicare reform, especially as it relates to the
program's current division into two separate parts, Part A, Hospital
Insurance, and Part B, Supplementary Medical Insurance. My past work
history includes stints as executive director of the federal
Prospective Payment Assessment Commission and deputy director of the
policy bureau at the Health Care Financing Administration. Given this
varied background, I am not only familiar with the world of private
insurance, but also with the Medicare program, and I hope that my
contribution today will be of value to the committee.
Medicare is obviously a very popular federal program, something
that HIAA's own recent national survey confirmed. However, I believe
that lessons from the private insurance industry's long history may be
useful as you consider how to make the Medicare program even stronger.
When the Medicare benefits package was originally developed in the
1960s, it was patterned after existing private sector insurance
programs. But, while private sector plans have changed to offer a
variety of programs that are more efficient and consumer oriented, the
Medicare program has remained in its original form. I will describe
some of the improvements in chronic disease management that private
insurers have put in place to improve quality. I will also describe
increased efficiencies and cost savings that result from more effective
use of patient care data and improved oversight for fraud and abuse.
The introduction of similar improvements in the Medicare program is
unnecessarily hampered by its current structure.
Medicare Part A, the Hospital Insurance Program, helps pay for
inpatient hospital, skilled nursing facility, and hospice care
services. Medicare Part B, Supplementary Medical Insurance, pays for
physician, outpatient hospital, and a range of other services,
including ambulatory surgical services, physical, occupational and
speech therapy services, and durable medical equipment. Home health
services are covered under both parts. Medicare Parts A and B each have
separate deductibles, separate coinsurance and cost sharing policies,
separate claims processing entities and separate appeals processes.
Frequently there are also different payment amounts for the same
service furnished by Part A and Part B providers. There is certainly
the potential for uncoordinated policy making and perverse incentives
that can diminish quality of care and increase program costs and
beneficiary spending.
Claims for inpatient hospital services go to contractors known as
fiscal intermediaries, while claims for outpatient hospital services
and physicians' services, including those provided during an inpatient
hospital stay, go to a separate contractor, known as a carrier. Thus,
Medicare beneficiaries with questions about the handling of their
claims must often contact two separate entities. Relatively poor
communication between fiscal intermediaries and carriers undoubtedly
allows many lost opportunities to coordinate patient care; make the
Medicare program user-friendly for patients, providers and
practitioners; and identify and address waste, fraud and abuse.
THE PRIVATE SECTOR MODEL
In several important respects, Medicare's current structure has
made it difficult for the program to keep pace with innovations
implemented by private insurers--particularly those intended to improve
the coordination and delivery of care. To put this in context, let me
briefly trace the evolution of the private health insurance market.
Private policies covering hospital and medical expenses date back
to the 1930s. The earliest policies only provided daily benefits for
hospitalization. Later, separate policies provided fixed reimbursement
amounts for various kinds of surgeries. In those days, innovation meant
developing stand-alone benefits for a widening array of different kinds
of medical care. There was no coordination, many incidental expenses
fell ``between the cracks,'' and there was no overall protection
against catastrophic medical costs.
Consumers soon realized that these ``basic'' policies were
inadequate for prolonged illnesses or expensive procedures. In 1949,
the first ``major medical'' policy was offered as a supplement to the
existing basic policies. Supplemental major medical policies provided
protection against catastrophic medical expenses, picking up where
basic policies left off. Typically there was a modest deductible, often
some level of coinsurance, and a relatively high maximum benefit limit.
During the 1960s and 1970s, the industry moved towards offering
``comprehensive'' major medical policies, which covered most serious
medical expenses, without any underlying ``basic'' plan. This provided
for consistent, more easily understood benefits that did not make
artificial distinctions between types of medical services or providers.
Since that time, innovations have focused on efforts to improve the
quality, coordination and cost-effectiveness of care, rather than on
the fundamental structure of the coverage--a single, coordinated policy
that handles a wide array of medical expenses on a consistent basis.
In many ways, Medicare reflects the times in which it was
developed, resembling an old ``basic'' hospital/medical plan. Hospital
and medical coverage are provided through separate programs, and
benefit levels are closely tied to the type of service, type of
provider and location of care. While this was not unusual when Medicare
was first enacted, private insurers have found that there are a number
of advantages to more coordinated programs.
For example, today many surgical procedures can be safely and
effectively provided to Medicare beneficiaries as a Part A inpatient
hospital procedure or as a part B ambulatory service. Medicare
beneficiaries, however, face very different out-of-pocket costs
depending on where the service is furnished. The resulting financial
incentives may result in the beneficiary not receiving care in the
appropriate setting, thereby adversely affecting quality of care. In
contrast, private health insurance policies usually cover a
comprehensive array of health care services, both in and out of a
hospital, subject to a single, annual deductible.
This arrangement is easier for insured people to understand and
more efficient to administer. Under this private sector approach,
claims for services flow to a single responsible organization, and
inquiries by insured individuals and their caregivers likewise can be
made to one party. Among other things, this arrangement also
facilitates disease management programs, through which insurers seek to
apply the best practices to treatment of certain chronic diseases
(e.g., asthma and diabetes mellitus), in order to control their
progression.
DISEASE MANAGEMENT PROGRAMS
Disease management programs involve a wide variety of interventions
to address patient needs in a timely and cost-effective way and support
treatment by health care providers. These programs include patient
education, patient monitoring, and the provision of specialized
services. They are currently experiencing a period of tremendous
growth. The goal of these programs is to improve the quality of care
and reduce costs by identifying patients with high risk conditions and
contacting them and/or their physicians regarding compliance with best
practice guidelines, patient non-compliance related to prescribed
medications, tests ordered, and physician visits (e.g., physician use
of beta blockers after a heart attack and patient taking medicine as
prescribed). This concept aligns physicians and patients at the center
of programs designed to reach all members of a disease population, not
just the acutely ill. Some of the programs that have been developed
include care management programs for asthma, heart disease, low-back
pain and diabetes.
Disease management programs take a systematic approach to medicine
that encourages patients to follow health-promoting behaviors, support
a strong patient-doctor relationship and include all members of a
chronic disease population. Such programs are designed by doctors and
nurses, and focus on proven standards of care. They rely on practice
guidelines developed by the medical professional societies and from
other leading organizations such as the National Heart, Lung, and Blood
Institute; the Agency for Healthcare Research and Quality; and
recommendations of disease-based associations such as American Diabetes
Association and the American Cancer Society. The programs provide
education and supportive services for patients and respond to consumer
demand for more personalized care. They provide physicians with
information about practice patterns, identifying potential
opportunities for improvements. Employers who have been supportive of
these programs have seen improvement in employees' health status that
can lead to higher productivity. Clinical and financial outcomes
indicate improved quality of care, high levels of participant
satisfaction, and reduced overall health care costs. In short, these
programs not only enhance the quality of care and patients' quality of
life, but they also help reduce the need for hospitalization, emergency
department visits, and other costly services.
IMPROVING PROGRAM ADMINISTRATION
Some of the efficiencies achieved by the private sector are
directly dependent on the consolidation of coverage under a single
program--access to centralized records allows plans to more efficiently
update and maintain beneficiary coverage and claims files and
coordinate care. These efficiencies result in reductions in the costs
of providing health care through such activities as utilization review
(UR) and utilization management (UM) of health care claims. Both UR, to
determine covered services, appropriate care, and establish fraud
detection programs, and UM, to enhance efficiency and to improve and
maintain quality of care, help link treatment options and health
outcomes. This can only be carried out through links between all the
various claims a beneficiary may have, which may be for a brief episode
of care or for longer chronic disease states. This is particularly
important for disease management programs mentioned above.
Sharing information about different types of services is extremely
important for fraud detection programs. Both public and private health
care systems have achieved substantial savings through their fraud
detection activities. However, many health plans have established
centralized anti-fraud detection units to accommodate different benefit
plans and services. Centralized units can more efficiently service
different benefits with specialized personnel and programs. Even more
important than centralized units is access to centralized information
made possible through information links between various data files for
providers, claims, and covered persons and services. For example, links
between services performed by different providers, such as hospitals
and physicians, can be compared for appropriate diagnoses and dates of
service. In this way a claim for a physician's hospital in-patient
visit can be compared to the dates on which a patient was hospitalized,
or a claim for laboratory work can be linked to the office visit at
which the patient was seen and sent for tests.
A recent audit report by the Office of the Inspector General
provides a good example of the hazards involved in having separate
claims processing entities for Medicare Parts A and B. This report
points out that Medicare has been paying twice for the same services--
once to a skilled nursing facility (SNF) under the Medicare Part A
prospective payment system and again to an outside supplier under
Medicare Part B. Under current law, a SNF is reimbursed a prospective
payment for covered services rendered to its Medicare beneficiaries in
a Part A stay, and consolidated billing is required for all covered
services. Outside providers and suppliers must bill the SNF (not
Medicare Part B) for most services and supplies provided. The potential
improper payments to Part B providers and suppliers totaled $47.6
million in 1999, and occurred because edits had not been established to
detect and prevent supplier claims noncompliant with the consolidated
billing provision.
SIDESTEPPING MEDICARE'S STRUCTURAL PROBLEMS
Recognizing the constraints of its current structure, Medicare has,
through the years, attempted to break down the barriers between its
separate parts. HCFA has conducted various pilot projects under its
general demonstration authority or based on specific Congressional
mandates. For example, under one demonstration project, a single
combined payment was made for both inpatient hospital services and
certain physicians' services provided to Medicare patients undergoing a
coronary artery bypass graft (CABG) in selected hospitals participating
in the demonstration. An independent evaluation of this experiment
found that it was quite successful, and that the combined payment
provided the incentive for hospital personnel and physicians to work
together to identify the most effective and efficient means to care for
the affected patients. In other words, rather than have hospitals and
physicians responding to the different and often conflicting incentives
of separate hospital and physician payment systems, this demonstration
provided a single payment to an integrated system of care.
Another example of Medicare experimentation is the On Lok/Program
of All-Inclusive Care for the Elderly (PACE), under which monthly
capitation payments from Medicare and Medicaid cover a comprehensive
range of acute and long-term services provided to a very frail elderly
population, all of whom are certified as needing nursing home level of
care. In the PACE program, services are provided by a multi-
disciplinary care management team, which includes all caregivers having
contact with the patients, such as physicians, nurses, social workers,
nutritionists, and physical and occupational therapists.
Both of these programs have been very successful, demonstrating the
flexibility in the design of care management and payment programs that
is characteristic of private insurance programs. But putting such
programs in place requires special legislative or regulatory authority,
in part because of Medicare's outmoded design.
THE PROMISE OF A COMBINED MEDICARE PROGRAM
The Medicare program is in need of substantial reform. Obviously,
combining Medicare Parts A and B into a single program would not, by
itself improve care coordination, disease management, and program
administration and oversight. But, for many of these more substantial
reforms to work effectively, a necessary first step is to eliminate the
artificial and antiquated separation of the program into two parts as
private insurers did many years ago. Thank you for providing me this
opportunity to talk about Medicare reform from the perspective of the
private health insurance sector. I would be happy to respond to any
questions you might have.
Mr. Bilirakis. Thank you very much, Doctor.
Mr. Schulder, as soon as you get to the mike.
STATEMENT OF DANIEL J. SCHULDER
Mr. Schulder. Thank you very much. My name is Dan Schulder.
I am the Legislative Director of the Alliance for Retired
Americans, and on behalf of the Alliance, I thank you and all
members of this committee for this opportunity to speak on
Medicare changes and Medicare issues.
The Alliance, which was established on January 1 of this
year, now has 2.6 million members across the Nation, retirees
from affiliates of the AFL-CIO, community-based organizations
and individual seniors have joined the Alliance to fight for
social and economic justice and civil rights for all citizens.
As you know, Mr. Chairman, Medicare is one of society's
great accomplishments. It has opened access to quality health
services to both older persons and persons with disabilities
from every income level.
Its pioneering role in restraining health care costs is one
of its many unheralded successes. It has demonstrated that
overhead costs can be kept low despite enormous volume and
growing perplexity; and because of prudent management, the
spending restraints of the Balanced Budget Act and revenues
buoyed by the economy over the last decade, there is no
financial crisis facing the system for years to come.
At the same time, the Alliance and its members recognize
systemic shortcomings in this system, including a lack of
dental and vision care and routine preventive services such as
checkups, limited nursing and home health care and mounting
out-of-pocket costs. Seniors now spend $1 in $5 of their income
for health care, and the older and poorer you get, the higher
that proportion does go.
Medigap policies with drug coverage are becoming
unaffordable and employer-based retiree health benefits are
declining rapidly. Over the past decade, Medicare coverage,
compared to what most workers receive under company plans, has
declined. And in the coming decades, millions of baby boomers
will line up for their entitlement to quality health care; and
the Alliance is dedicated to making sure that that health care
will be there for them.
In light of these needs and strengths, the Alliance stands
for those who want to assure that Medicare will be modernized,
expanded, receive adequate revenues and resources and will have
the management capability to continue to deliver quality care
to our citizens. There is no more important claim on the
Nation's resources and energies over the coming years.
For the Alliance, our prime legislative objective this year
is the enactment of a universal and comprehensive Medicare
prescription drug benefit, standing alone or as part of other
changes to the Medicare program. That is the first on the list
of our members in the surveys that we have given to them.
You have asked us, in particular, to discuss the
implications of merging Parts A and B in Medicare. There is no
specific description in legislative proposals of exactly what
such a merger might entail. A long history of separate trust
funds, revenue streams, deductibles, cost-sharing differences,
billings and contracting practices and solvency definitions all
suggest there are no easy definitions of the desirability of
such a merger. However, from the standpoint of beneficiaries,
there are a number of questions that should be addressed.
Will such restructuring enhance or retard work on enacting
a universal, comprehensive and defined pharmaceutical benefit?
What are the goals of restructuring?
If there are savings to restructuring, who benefits and who
may lose?
Will restructuring help to establish an overall cap on out-
of-pocket costs to beneficiaries?
Will the process enhance services to rural communities?
Will the States be inspired to enroll more QMB and SLMB
eligibles?
Will preventive services be provided without deductibles
and copayments?
The Alliance believes that the central goal of
modernization and restructuring activities must be the
enhancement and expansion of quality services to beneficiaries
and the overall strengthening of the Medicare system working in
their behalf. If the goals, however, include covert attempts to
cap annual expenditures, end the entitlement status of
Medicare, create voucher systems and construct a multitiered
system of health services, the Alliance will oppose them. It
all depends, after all, on mechanics and motives.
It is also a question of priorities, Mr. Chairman. The need
for a prescription drug benefit presents a crisis for millions
of Americans today. The escalating costs of drugs has created
Medigap policies with premiums reaching $9,000 in annual costs
for 75-year-old women in some States.
Mr. Chairman, more than a million beneficiaries have lost
HMO coverage and there are more to come. Medicare pays for a
declining portion of health care costs and there is no limit on
liability.
The Alliance does believe that there are certain aspects of
Medicare administration that should be addressed. The first
issue is the adequacy of HCFA administrative resources. HCFA
should examine better ways of contracting for services, create
bundled payments for some services and use competition to
select intermediaries and carriers. It should assess the
benefits of creating a primary care case management system to
better guide treatment in fee-for-service programs and look
again at offering disease management services to enrollees,
which could improve care while reducing costs.
We also would call for an increase in SHIP programs, State
health insurance programs. For a small investment, lots of
people could get more information for more efficient use of the
system. We would like to see less paperwork and more consumer
education. We support these kinds of modernization directions
because they are both good for the beneficiaries and the
system.
There is no question, Mr. Chairman, that the Medicare
program will need greater resources even if every acceptable
efficiency and cost-saving change is incorporated. A drug
benefit will be expensive, as would an overall stop-loss cap.
Millions of new persons will become eligible in a few years.
That is why the Alliance supports the use of on-budget surplus
funds to strengthen Medicare and extend solvency. We hope that
the 2001 tax changes will not prevent such an allocation, and
if so, we would expect the Congress to revisit its actions on
taxes and reassess national priorities. We also foresee a
review of the adequacy of current payroll taxes to support
expanded benefits and increased numbers of beneficiaries.
The Alliance does support your efforts, Mr. Chairman, to
explore ways to assure a more efficient and effective Medicare
program, and we trust that you agree with us and with millions
of seniors, their families and the health care workers treating
them that the focus of Medicare improvements in the short and
the long term must be the guarantee of first-class care for all
Medicare beneficiaries. And on that basis, you can count on us
and our members to work with you and then with this committee.
Thank you.
[The prepared statement of Daniel J. Schulder follows:]
Prepared Statement of Daniel J. Schulder, Assistant Director,
Department of Government Affairs, Alliance for Retired Americans
On behalf of the Alliance for Retired Americans, its officers and
members, I thank you Mr. Chairman for the opportunity to present
testimony today on Medicare reform and modernization issues including
the merging of Medicare Parts A and B.
The Alliance, which was established on January 1 of this year, now
has 2.6 million members across the nation. Retirees from affiliates of
the AFL-CIO, community-based organizations and individual seniors have
joined the Alliance to fight for social and economic justice and civil
rights for all Americans. We believe that all older and retired persons
have responsibility to strive to create a society which incorporates
these goals and rights.
As you know, Mr. Chairman, Medicare is one of this society's great
accomplishments. It has opened access to quality health services to
both older persons and persons with severe disabilities from every
income level. Its pioneering role in restraining health care costs is
one of its many unheralded successes. It has demonstrated that overhead
costs can be kept low despite enormous volume and growing complexity.
And, because of prudent management, the spending restraints of the
Balanced Budget Act and revenues buoyed by the economy of the last
decade, there is no financial crisis facing the system for years to
come.
At the same time, the Alliance and its members recognize systemic
shortcomings including a lack of dental and vision care, routine
preventive care such as check-ups, limited nursing and home-health care
and mounting out-of-pocket costs. Seniors now spend one in five dollars
of their income for health care and the older and the poorer you get,
the higher that proportion grows. Medigap policies with drug coverage
are becoming unaffordable and employer-provided retiree health benefits
are declining rapidly. Over the past decades, Medicare coverage
compared to what most workers have under company plans--has declined.
And, in the coming decades, the millions of baby boomers will line up
for their entitlement to quality health care. The Alliance is dedicated
to making sure that Medicare will be there for them and for all of our
children and grandchildren.
In the light of these needs and strengths, the Alliance stands with
those who want to assure that Medicare will be modernized, expanded,
receive adequate revenues and resources and will have the management
capacity to continue to deliver quality care to our citizens. There is
no more important claim on the nation's resources and energies over the
coming years.
The Alliance's prime legislative objective this year is the
enactment of a universal and comprehensive Medicare prescription drug
benefit standing alone or as part of any changes to the Medicare
program. Of all improvements to Medicare, this benefit is first on the
list of Medicare improvements in surveys of our members.
You have asked us, in particular, to discuss the implications of
merging Parts A and B of Medicare. There is no specific description in
legislative proposals of exactly what such a merger might entail. What
we understand is that the long history of separate trust funds, revenue
streams, deductibles, cost-sharing differences, billing and contracting
practices and solvency definitions all suggest no easy definitions of
the desirability of such a merger. However, from the standpoint of
beneficiaries, a number of questions should be addressed:
Will such restructuring enhance or retard work on enacting a
universal, comprehensive and defined pharmaceutical benefit?
What are the goals of restructuring?
If there are savings to restructuring, who benefits, who
loses?
Will such restructuring help to establish a overall cap on
out-of-pocket costs to beneficiaries?
Will the process enhance services to rural communities; will
the states be inspired to enroll more QMB and SLMB eligibles;
will preventive services be provided without deductibles and
copayments?
The Alliance believes that the central goal of all modernization
and restructuring activities must be the enhancement and expansion of
quality services to beneficiaries and the overall strengthening of the
Medicare system working in their behalf. If the goals, however, include
covert attempts to cap annual expenditures, end the entitlement status
of Medicare, create voucher systems and construct a multi-tiered system
of health services, the Alliance will oppose them. It all depends on
both mechanics and motives.
It is also a question of priorities, Mr. Chairman. The need for a
prescription drug benefit presents a crisis for millions of Americans.
The escalating price of drugs has created Medigap policies with
premiums reaching $9,000 in annual costs for 75-year-old women in some
states. Mr. Chairman, more than a million beneficiaries have lost
Medicare HMO coverage and there are more to come. Medicare pays for a
declining portion of health care costs and there is no limit on
liability.
The Alliance does believe that there are aspects of Medicare
administration that should be addressed. HCFA should examine better
ways of contracting for services, create bundled payments for some
services and use competition to select intermediaries and carriers. It
should assess the benefits of creating a primary care case management
system to better guide treatment in fee-for-service programs and look
again at offering disease management services to enrollees which could
improve care while reducing costs. We support such modernization
directions because they can be good for both beneficiaries and the
system.
Mr. Chairman, there is no question that the Medicare program will
need greater resources even if every acceptable efficiency and cost
saving change is incorporated. A drug benefit will be expensive as
would an overall stop-loss cap. Millions of persons will become
eligible in a few years. That is why the Alliance supports the use of
on-budget surplus funds to strengthen Medicare and extend solvency. We
hope that the 2001 tax changes will not prevent such an allocation and
if so, we would expect the Congress to revisit its action on taxes and
reassess national priorities. We also foresee a review of the adequacy
of current payroll taxes to support expanded benefits and increased
numbers of beneficiaries.
The Alliance does support your efforts, Mr. Chairman, to explore
ways to assure a more efficient and effective Medicare program. And we
trust that you agree with us and with millions of seniors, their
families, and the health care workers treating them, that the focus of
Medicare improvements, in the short and long term, must be the
guarantee of first-class care for all Medicare beneficiaries. On that
basis, you can count on us and our members to work with you and with
this Committee.
Thank you.
Mr. Bilirakis. Thank you very much Mr. Schulder.
You know, on the point of contractors, we are told by HCFA
that the way the legislation now occurs, they really don't have
the flexibility to be able to choose the proper contractor; or
even if a contractor doesn't function as they well as they
should, to be able to make changes and that sort of thing. It
is something that we are looking at when we are talking in
general in connection with the prescription drugs portion of
modernization, as we call it, of HCFA. We, of course, think in
terms of that as well as some of these other things. I just
wanted you to know that.
Mr. Schulder. Just giving me the authority to use the best
contractors. Thank you.
Mr. Bilirakis. Ms. Moon, please proceed.
STATEMENT OF MARILYN MOON
Ms. Moon. Thank you for the opportunity to be here, Mr.
Chairman, Mr. Brown and other members of the committee.
My perspective on Medicare comes from more than 20 years
researching this program, serving from 1995 through 2000 as a
member of the public trustees of the Board of Medicare Trust
Funds, and a long interest in beneficiary concerns in which now
I have been working to considerable degree with the Medicare
Rights Center in New York which counsels beneficiaries and
discusses with them a number of their concerns.
I believe, overall, that combining Parts A and B of
Medicare would at best make only minor contributions to
improvements needed in the program. In fact, it is possible
that too much attention on such a combination will deflect
attention from other important issues that need to be
discussed. Consider the four goals that are mentioned in this
today, about combining A and B, and I think that those are
goals in general that are laudable goals to achieve, but go
well beyond the A and B Trust Fund issue.
No. 1, simplifying the program: Medicare beneficiaries are
often confused about the Medicare program and Parts A and B,
and HI and SMI sound confusing; but the needs go beyond
understanding the two parts. The need is really for
beneficiaries to have a single point of entry into the system
where they can call and get information--get help, that is--
from people who are well informed about the program, who answer
the phone and who provide the kinds of information and support
that such beneficiaries need. This requires resources and a
commitment to a single point of entry, and it doesn't really
matter how many different complicated parts there are in the
system as long as the individual sees that nice single point of
entry.
Improving cost-sharing: This is an area that people have
talked about a lot and is of particular interest to me. The
combination of deductibles and coinsurance for Medicare
certainly does represent an ad hoc selection of things that
were done for strange historical reason s, and it would be very
nice to improve the cost-sharing structure of this program for
a number of purposes. But combining A and B offers relatively
few advantages for addressing these issues. It would make it
easier, for example, to create a combined deductible, but that
is hardly the problem with the benefit structure that we
currently have.
Moreover, many private insurance plans continue to have
multiple deductibles. My own plan has two deductibles, and one
that is different whether I am in or out of the preferred
providers, as well as a hospital deductible; and when I look at
the FEHBP, I see that some of have them have six deductibles,
and they also have a deductible for prescription drugs,
depending on whether you are in or out of the PPO.
The problems with the cost-sharing structure, though, deal
much more with, for example, issues of the high coinsurance
that beneficiaries who have been in the hospital for a long
period of time have to pay, disadvantaging sicker
beneficiaries, and as Bill Scanlon pointed out, deductibles and
coinsurance that do little to affect use because use is not
discretionary for those individuals. So balancing that, the two
different deductibles, might make good sense. But more
important would be to make sure that the cost sharing does not
put sicker beneficiaries at an enormous disadvantage.
One of the concerns I have, for example, with home health
copays is when we subject them to--for individuals who largely
are very sick for other reasons, they place an enormous burden
on the sickest of beneficiaries. Putting the home health under
Part B of the program, for example, was a good compromise that
effectively raised the premium on Part B and was asking people
that get home health to pay something more.
As other people have mentioned, catastrophic coverage would
also be particularly helpful.
The third goal I think of achieving greater efficiency in
program management and coordination has also been discussed to
some point. Again, providers probably deserve a single point of
entry into the system and careful coordination. An A-B merger
probably makes some sense in terms of doing the kinds of
coordination of care that Dr. Young spoke about, but again the
most important thing is to have the data and have one agency in
charge of both parts of the program, which means that you need,
again, additional resources to make data more timely, to try to
do the kinds of care coordination that I think many people
believe is important.
Again, it is more a matter of resources than combinations.
And finally, Medicare and financing issues are another area
of particular attention for people who talk about an A-B
contribution. As others have expressed on this panel, I am
concerned about making financing decisions on the basis of a
technical adjustment. The financing decisions are going to be
tough ones. I think there are going to need to be new revenues
put into this program, but that deserves a careful discussion
of what is the right balance of payroll tax burdens on
individuals who are in the program and general revenues, rather
than setting up any kind of formula establishment.
Part A and Part B actually do grow together, even though
Part B has grown faster than A over time; and that is largely
because of the shifting out of services from Part A in hospital
care to outpatient services. That is a success of the program
that it has actually been flexible enough to handle that
change. It has not been flexible enough to handle the change of
the greater reliance on prescription drugs because those have
never been covered by the program. But--the Part B part of the
program I don't believe is as troubled, but it certainly needs
to be part of the financing discussion.
As Bill Scanlon also mentioned, Parts A and B are listed in
the Trustee's reports every year as a share of GDP. That is a
good place to start. Perhaps some more attention to that, in
understanding the implications, would help; but I think, again,
that can be done without necessarily combining the two parts of
the program.
Thank you.
[The prepared statement of Marilyn Moon follows:]
Prepared Statement of Marilyn Moon, The Urban Institute
Mr. Chairman and members of the Committee: I appreciate the
opportunity to be here today to testify on issues of combining Parts A
and B of Medicare. As you are well aware, there are many different
reasons why people have advocated such a combination over the years. In
my testimony, I examine a number of the goals that people have
expressed, consider whether it is necessary to combine Parts A and B to
achieve those goals, and suggest other remedies that are also important
to consider for modernizing Medicare. I conclude with several cautions
about problems that such a combination could create.
A BRIEF LOOK AT THE MEDICARE PROGRAM
It is instructive to look briefly at the history of Medicare and
consider why there are two parts of the program. Until very late in the
legislative process, only Medicare Part A was under consideration. In
the private sector, many people who had health insurance had it only
for hospitalization. As the most expensive part of health care, it was
considered the highest priority for an initial insurance program for
the elderly. Thus, the separation occurred in part because of the last
minute inclusion of Part B. In addition, by making this a voluntary
program and requiring beneficiary premiums, it was thought to be more
acceptable to physicians leery of participating in a government
program. It appeared to be more like insurance and indeed was
established with rules for a ``hands off'' approach to the practice of
medicine.
Ironically, in the beginning, the Part A deductible of $40 was less
than the $50 deductible for Part B. But Part A was indexed to the
growth in hospital spending while Part B has only been subject to two
discreet increases. Today at $792, the Part A deductible is much higher
than the $100 Part B deductible, even though many advocates of cost
sharing would likely propose that the Part B deductible be the higher
one. While many observers of Medicare have appropriately suggested that
the benefit package is outmoded and inadequate, those criticisms are
directed more at the lack of upper bound protections and prescription
drug coverage in the basic package of benefits that Medicare covers.
Medicare has always relied upon private entities to process claims
and perform other insurance functions. Intermediaries serve Part A of
Medicare, while Part B uses Carriers. But even beyond the titles, there
are many aspects of Medicare contracting that can and should be
considered in reform. But it is not just the A/B distinction that
matters; restrictive rules on who can have these contracts,
prohibitions against profits, and limitations on the Health Care
Financing Administration's ability to seek improvements in performance
are also major issues.
Although Part B of Medicare is voluntary, nearly all those eligible
pay the premium and participate in the program. The subsidy makes this
coverage a good deal for the elderly and disabled. Four groups make up
most of those who choose not to participate: those with very low
incomes who cannot afford the Premium (and who do not get help from
Medicaid or related programs), those just coming on to Medicare who
have not yet enrolled, federal retirees who enroll in an HMO under
FEHBP, and those whose current employer (or spouse's employer) provide
health insurance that is primary to Medicare. This latter group almost
always fares better by relying on that private insurance for Part B-
type services. And because their enrollment in the private sector saves
money for the program, these individuals are not required to pay a
penalty to enroll in Part B when they give up that private insurance.
THE GOALS
Combining Parts A and B of the program has often been suggested as
part of other reforms, at least implicitly suggesting that much of the
confusion and complexity is due to this particular split. Further, even
larger goals--such as financing of Medicare--have also been linked to
the importance of making such a change.
Four of the important goals mentioned are:
Simplifying the program;
Improving cost sharing and making it more rationale for
beneficiaries;
Achieving greater efficiency in the management of the program;
Treating the Medicare program as a whole in considering
financing issues.
These are laudable goals and need to be part of reforms that seek
to make Medicare work better for beneficiaries, providers and
taxpayers. But in many ways they go well beyond what can be achieved
with combining A and B. Indeed, there is a danger in seeing that change
as a major contribution and ignoring other key issues necessary to meet
these goals.
Simplifying the program. Medicare beneficiaries are often confused
about the Medicare program. They do not focus on the split between A
and B; indeed, the terminology is confusing. But since most of them are
in both parts of the program, this is not particularly a problem in and
of itself. Further, the new Medicare+Choice option added a confusing
Part C to Medicare.
Confusion arising about contacting intermediaries or carriers might
be reduced with a A/B merger. However, problems for beneficiaries in
getting help for the Medicare program goes well beyond confusion over
who to contact. A modern, consumer-friendly program needs substantial
resources and a commitment to simplifying customer service from the
perspective of the consumer. Even a very complicated program can
establish a single point of contact with well-informed workers helping
Medicare beneficiaries with problems. If that is the real goal, the A/B
issue essentially becomes irrelevant. Instead, it is the resources and
commitment to improvement that need to go into the development of such
a framework that matter.
Improving Cost Sharing. The purpose of cost sharing is presumably
to make the user of health services more aware of costs and to
discourage unnecessary use. For persons with employer-provided
insurance this usually means an initial, modest deductible (or
sometimes two) and then limited copays, usually for specific services.
For example, some plans have high coinsurance for non-emergency use of
hospital emergency rooms. Almost all have an upper bound on what their
enrollees must pay out of pocket (called a ``stop loss''). These cost
sharing conventions have changed and evolved over time, but Medicare
has retained essentially the same structure since 1965.
The combination of deductibles and coinsurance for Medicare
represents an ad hoc collection of payments with little defensible
justification as points of control for the use of health care services.
As mentioned above, cost sharing under Medicare is essentially a
historical artifact. And since its inception, little careful attention
has been devoted to updating it to reflect cost sharing structures
found in other health plans. It is not the fact that there are two
deductibles that makes Medicare unusual, but rather that the Part A
deductible is so much larger than that for Part B. Elsewhere, insurers
often recognize that physician services tend to be more subject to
discretion than hospital care and hence establish a higher deductible
for physician services.
Another way in which cost sharing is unusual in Medicare is the
linkage of the hospital deductible and coinsurance to a ``spell of
illness'' and imposition of the coinsurance only after 60 days. This
sets cost sharing highest for those who are sickest. The same problem
arises with skilled nursing facility coinsurance. In addition, totally
missing from Medicare is any upper bound limit on cost-sharing
liabilities. Most private plans offer such ``stop loss'' protection so
that once patients have spent a certain amount out of pocket, they no
longer have to continue paying cost sharing. But Medicare has no such
provision. Beneficiaries with complicated illnesses (and no Medigap
protection) can end up owing tens of thousands of dollars towards the
costs of Medicare covered services. This is particularly the case under
Part B of the program where the 20 percent coinsurance can become quite
large for those with extensive medical bills. Part B cost sharing
constitutes about two-thirds of all Medicare cost sharing liabilities.
But combining A and B offers relatively few advantages for
addressing these issues. It would make it easier, for example, to
create a combined deductible. But that is not the main problem and in
fact, many private insurance plans also have two deductibles. Moreover,
that approach is problematic: To get a combined deductible that raises
the same amount of contribution from beneficiaries would require a
deductible of about $400. For those who are hospitalized in a given
year, this would lower their cost sharing liability. But for the nearly
80 percent who do not go into the hospital, they would only see a rise
in the deductible from $100 to $400. Such a large increase could be
very unpopular with beneficiaries.
A better approach would be to lower the Part A deductible and
eliminate both the spell of illness concept and the coinsurance for
hospital stays. A relatively modest increase in the Part B deductible
could offset much of those costs. Another important need is for a
general upper bound on cost sharing, allowing at least some
beneficiaries to forego purchasing private supplemental insurance.
Finally, one impact of a combined A/B Medicare program might reduce
costs to beneficiaries. That is, if the Part B premium were to become a
combined premium and linked as the Part B premium is now to the growth
in costs of the benefits, the new premium would grow more slowly than
under current law. This is because Part B is expected to grow more
rapidly than Part A over time. For example, the Part B premium is
expected to rise over time to about 11 percent of total Medicare
spending, up from about 9 percent at present.
Making Medicare's cost sharing structure more rational and
protecting those with the highest costs are important goals for
Medicare reform. But it makes most sense to do this in the context of a
broad range of changes rather than focusing just on a combined
deductible.
Achieving Greater Efficiency in Program Management and
Coordination. One need not look very far to find critics of the Health
Care Financing Administration and its management of Medicare. But the
greatest problem here is lack of resources. Medicare's administrative
costs of less than 2 percent are so low that any entity seeking to
manage the program would be severely constrained. Even efficient
private sector plans require a budget of three times that level--or
more--in order to effectively oversee the complicated world of
insurance. Only when there are sufficient resources will management
improvements be possible. A considerable amount of flexibility and
authority needs to be given to the management team to allow them to
improve service both for beneficiaries and for providers of care.
Contractor reform is an essential piece of the changes that need to
be made in Medicare. Medicare needs to contract with companies that are
most skilled at claims processing, medical review and data collection
and management. This may require a number of different contractors;
consolidation is less important than competence and accountability.
Again, a well managed organization can tolerate having a number of
different entities as long as the lines of responsibility are clear and
those contracted to do the job are skilled. The current system is a
long way from there, but not because of carriers versus intermediaries.
Rather the problem is that the government allows Blue Cross to nominate
the intermediaries, restricts what HCFA can do in controlling these
intermediaries, limits what types of organizations can contract to
provide services both as carriers and intermediaries, and disallows
contracts allowing for profits (hence excluding a number of potential
participants). Efforts to achieve greater efficiency need to focus on
these issues first, and the A/B split is only a small part of that
issue.
Another important need for a well-functioning Medicare program is
good coordination across different types of care for those who are
still in traditional Medicare. Fee-for-service arrangements are
inherently weak in providing incentives for coordination, but the track
record of many HMOs where such coordination is supposed to be central
leaves much to be desired as well. Consequently, the oversight of
Medicare needs to focus on developing creative ways to bring
coordination into the traditional program. This might be through
disease management or case management models, for example. In those
cases, a combined A/B structure makes sense, although this could be
achieved via a de facto approach as well. That is, good data combining
patient level information so that high cost cases can be identified and
tracked can be done without a formal merger of the two parts of
Medicare. HCFA already produces such data files, although more needs to
be done in a timely way.
Medicare and Financing Issues. Critics of the current organization
of Medicare often point out that much of the focus of attention is on
Part A of the program. Its trust fund provides insights into the
balance between the dedicated revenues from payroll taxes and elsewhere
and spending on Part A services. That trust fund thus serves as an
early warning signal of problems ahead and as a reminder that taxpayers
have contributed over time more than enough to meet the needs of Part
A. In the future, when Part A needs to draw on the trust fund balance
to pay benefits, it will essentially be calling on the resources made
available earlier. Any combination of A and B should keep these
advantages.
The biggest danger with a combined approach is that a technical
adjustment may be used as a back door means for dramatically changing
the financing of the program. Both Parts A and B of Medicare need to be
part of any consideration of financing issues. But formally combining A
and B raises a number of complicated issues about how to view the
financing of the program and how to think meaningfully about a trust
fund structure. Financing issues are much broader than an A/B
combination discussion; that discussion is essential to Medicare's
future but ought to look broadly at where the resources should come
from to support this important program.
The Bush Administration's efforts in this regard offer a troubling
example of casually combining A and B. That is, the initial budget
blueprint document submitted by the Administration treated Part B as if
it were in deficit because it relies on general revenue financing. That
is, it examined both A and B spending, but only part of the financing
of the program when looking at Medicare's financial status. General
revenues have been a major funding source for Medicare since its
passage in 1965 and that obligation is spelled out in statute. It makes
no sense to treat Part B as in ``deficit'' and thereby imply that
payroll taxes should support both Parts A and B. This is implicitly
scaling back the funding for Medicare below its current level. Such an
argument makes no more sense than assuming that spending on Medicaid,
Veteran's benefits or even defense should be covered by the Part A
Trust Fund. All of these other sources of spending have no more legal
claim on general revenues than does Part B.
Part of the case made in the Bush document for combining A and B in
examining Medicare was a criticism of the shift of some home health
benefits from Part A to Part B in the Balanced Budget Act of 1997. This
change, which returned home health closer to how it was treated in
1966, did make Part A look better and to that extent it could also be
misinterpreted as improving financing. But it is incorrect to argue
that it ``had no economic consequences.'' By shifting a majority of
home health care to Part B, beneficiaries costs rise since their Part B
premium is 25 percent of the costs of Part B services. Thus, this was
an indirect, but intended, increase in beneficiary contributions. In
fact, beneficiaries' share of combined A and B spending will rise from
about 9 percent prior to the BBA to nearly 11 percent when the phase in
of home health is completed in 2004. Over the ten year period, that
translates into a per capita premium increase of nearly $1200. Most
beneficiaries would not consider this a meaningless change; indeed they
would likely welcome having home health returned to Part A.
Another claim that is often made about Medicare is that the growth
in Part B, which has historically been higher than that for Part A,
reflects problems with health care spending in Medicare. The growth
over time between the two parts, however, represents a natural shift
that has been occurring in health care for everyone. Surgery is more
often done on an outpatient than an inpatient basis today, for example.
More procedures are undertaken in physicians' offices. The improvements
in health care delivery that have allowed such changes reflect
improvements that speed recovery and enhance the quality of life of
beneficiaries. Without such a shift, Part A spending would have had to
be much higher than it is today. Part B growth, thus, does not
represent a failure in health care.
Both parts of Medicare should be considered with regard both to
their spending and sources of income. In the Trustees' report each
year, information on the combined share of GDP that Parts A and B are
projected to need over time are provided. This is a reasonable starting
place to examine the combined impact, although it understates
Medicare's possible financing by showing costs on a pay-as-you-go
basis. This allows no ability to build a reserve to smooth the impacts
of the Baby Boomers' retirement or other demands, for example, as is
the intent of the trust fund for Part A.
Should there be limits or constraints on general revenue
contributions to Medicare? Even those who have implicitly argued for
such a limit usually do not propose reducing general revenue
contributions to zero. In a recent article, colleagues and I created an
artificial trust fund for Parts A and B in which we examined the
effects of one potential limit for general revenues. We assumed that
the GDP share of general revenue going to Part B would remain constant.
That provides one way to look at both A and B in a combined framework,
again with no formal combination of the two. Interestingly, that
approach indicated that, using the 2000 Trustees' report numbers, the
date of exhaustion of the trust fund moves earlier by five years, but
still well into the future. But even this analysis can miss the point:
Medicare will need additional resources over the future to handle a
doubling of the population served and a near doubling of the share of
the U.S. population served by this program. Efficiency improvements and
other changes in Medicare can help, but will not be sufficient to pay
for another 36 million participants.
Both Parts A and B will need support. More willingness to raise
revenues is needed to assure Medicare's future. And a direct discussion
of how the shares should be broken out among payroll taxes, general
revenues and beneficiary premiums needs to get underway. For example,
it may be reasonable to obtain a disproportionate share of additional
dollars from general revenues, which require people of all ages to pay
and in a progressive manner.
PROBLEMS WITH COMBINING A AND B
One of the chief concerns with combining Parts A and B of the
program is how to treat those who enroll only in Part A and not B. When
beneficiaries do so because they prefer their HMOs (in the case of
FEHBP enrollees) or because they are still working, the federal
government saves money by their choice to decline or defer the Part B
subsidy. Special attention would need to be placed on how to treat
these beneficiaries. As the number of older workers increase over time,
this may become even more of an issue.
The other major problem has already been mentioned and that is the
potential for effectively decreasing the funding for Medicare if proper
attention to a stable base of support for Part B is not addressed in
such a combination. Financing decision should not implicitly be made
via technical adjustments.
In sum, Medicare's concerns go well beyond the issue of a program
with multiple parts; the real concern needs to be ensuring that those
parts are well coordinated, however organized, that resources are
devoted to improving the way the program interacts with both
beneficiaries and providers of care, and that the program is
sufficiently financed to cover the care essential to this beneficiary
population.
Mr. Bilirakis. Thank you, Ms. Moon.
Ms. Means, please proceed.
STATEMENT OF KATHLEEN E. MEANS
Ms. Means. Thank you, Mr. Chairman and Mr. Brown and other
members of the subcommittee, for inviting me to testify today.
I did want to mention to the members that I have worked in
Medicare for 32 years now. I started working in 1969 in The
Bureau of Health Insurance, just a few years after Medicare was
enacted; and so I have seen enormous changes in the design and
evolution of the program. I also bring to this discussion some
private sector experience, having worked as Director of Health
Benefits in Chicago for the national Blue Cross and Blue Shield
Association.
One of the first things I would like to say to you as a
subcommittee is that I think using the terminology merging of
Part A and Part B is quite misleading. I am not here to talk
about merging Part A and Part B. I am here to talk about good
benefit design for both A and B benefits. And the kind of ideas
that I would like to offer up to you do not require joining the
financing or changing the underlying structure, the financing
structure of the program.
I think it is important in the context of adding an
outpatient prescription drug benefit, of which I am a strong
proponent, that it is equally important to modernize the Part A
and Part B benefits together with doing the drug benefit.
I think it is important to consider improving protection
against catastrophic cost, especially on the hospital side.
I think it is important to improve efficiencies for
incentives in economy overall in the program, and that
includes, particularly, attention to Part B.
I also think it is important to minimize dislocation for
beneficiaries entering the program and coming off of private
health insurance policies, as they age into the program or as
they enter through disability. There are very significant
differences between what has become typical in the private
insurance market, particularly through employer group health
plans and the Medicare benefit design we have today.
Although this is outside of the scope of this testimony, I
do support improving the business model for the Medicare+Choice
program and I think one building block toward doing that is to
establish a better benefit foundation for the Medicare+Choice
program. And you can do that both by adding a drug benefit and
by making some modernization to Part A and Part B.
And I would like to put a practical reason on the table for
members as to why it might be useful to do some of these Part A
and Part B changes. That is that it actually contributes--
potentially contributes financing that you could capture to
offset the cost of adding the drug benefit. The resulting
package, A-B reforms plus a drug benefit, would be much richer
in actuarial value than the current law package, and the
changes I would like to speak to you about on the cost-sharing
side would be much less so than the increased value of the
benefits.
I am not going to spend the time identifying the
deficiencies because I think the other witnesses have done that
very well with respect to Part A and Part B. So I would like to
immediately draw your attention, if I could, to a chart that I
included in the written testimony--it is on page 8--and to
share with you the details of a proposal that was put forward
last year in the Senate Finance Committee that generated a
great deal of bipartisan interest. That's not to say that every
member of the Finance Committee supported it; that is certainly
not the case. I would have considered it a miracle had it been
the case. But I would like you to see some of the ideas that
were considered on the Senate side and that are being actively
considered by some in this session as well. And I recognize
now, listening to some of this discussion, some of our own
language might be a little bit misleading, but I will just hit
some of the highlights.
What you will see is the proposal exactly as it was
considered last year in the committee. So it is describing key
Medicare benefits in the year 2000. To the right are some of
the proposals that we put in front of the members of the
committee.
Basically, it recommended combining the deductible for Part
A and Part B. That does not mean you are literally combining
with the deductible, but if you come up with a common
deductible--we propose $500--you are in effect reducing the
Part A hospital deductible, you are raising Part B. This does
not have to happen all at once. These kinds of changes could
occur over, say, a 3-to-5-year phase-in period to meet in the
middle.
There are a lot of good reasons for doing that. I have
elaborated on them in the written testimony.
One of the things that we proposed, that a lot of the
members supported, was going back and restoring some of the
changes that members had supported in 1988 as part of the
Medicare Catastrophic Act. That was primarily to enhance the
hospital benefits, no separate inpatient deductible, eliminate
the spell-of-illness concept.
I don't recall whether any of the members, witnesses here
have mentioned that. Under the spell-of-illness concept, some
small numbers of beneficiaries can be hospitalized multiple
times during the year, depending on where their admissions
occur. They can experience multiple inpatient deductibles; if
you had three, you could experience basically $2,400 in
outpatient cost for that reason alone.
In addition, we also recommend just going to straight 365
days of covered inpatient care. This is, in fact, typical of
private insurance and it affects a very small number of people,
but it's very valuable insurance protection to people who are
catastrophically sick.
We also proposed modified cost sharing on certain Part B
benefits that have no cost sharing today. That basically was to
reflect the principle that there is no benefit in the package
that ought to be entirely a free good to beneficiaries, and--
however, we were sensitive to some of the issues that I think
Dr. Moon just referred to.
For instance, on the home health, we did not propose going
to a straight Part B 20 percent coinsurance rate. Instead, we
proposed a modest $5-per-visit cap at $100 per year.
So there are various options that you could consider to
structure modest levels of cost sharing for beneficiaries that
I think most people would find reasonable in today's setting.
As I understand current law, any selected--any preventive
benefits would not be subject to these deductibles; and in the
Finance Committee proposal, we recognize that some of the ideas
changed cost-sharing relationships and slightly increased
obligations for all beneficiaries, on average. That meant that
we also restructured the low-income subsidies to make sure that
low-income beneficiaries maintained their protection and access
to benefits.
I just wanted to emphasize that these kinds of changes do
not require merging of the underlying health insurance and
supplementary medical insurance trust funds or any change in
the sources of revenues to those trust funds.
I would like to address the question of how this could
benefit you in the larger prescription drug debate. In the
Senate Finance Committee draft proposal that we examined last
year, these changes were paired with a fairly comprehensive
prescription drug benefit.
For reasons that I will be pleased to explain, these kinds
of changes offer potentially offsetting savings, depending on
how you structure the changes and recognizing that the baseline
has changed and that some of CBO's scoring procedures have
changed and certain assumptions about things have changed this
year.
I think there is still an opportunity to explore some of
the practical legislative scoring benefits of doing these
things together; and just to give you an example, last year we
did a comprehensive drug benefit with a $250 deductible,
declining cost sharing with a full continuum of drug coverage--
no hole, so to speak, or donut in the coverage. We tested the
premium of an additional drug premium of $40 per month. We
paired that with these Part A and Part B changes. That drug
benefit scored at $240 billion over 10 years.
The kinds of Part A and Part B changes that you see
detailed on the chart resulted in about $70 billion in net
savings, reducing the cost of the drug benefit to $170 billion.
So as you are looking for ways to finance the benefit and also
achieve other important program goals, you might want to
consider these kinds of modifications to the overall package.
And finally, Mr. Chairman, I would like to close by
introducing one more concept. It goes a little bit beyond the
discussion of just modifying Part A and Part B benefits, but it
is an idea that I have not heard openly discussed on the House
side, but which is being discussed by some on the Senate side.
And that is--it is the concept of a replacement plan strategy
for accomplishing all of the reforms that members would like to
accomplish in Medicare over the next decade.
This concept is well understood in private health
insurance. It is basically a technique that employers follow in
large group health plans when they want to introduce a new
benefit package to employees and they already have a long-
existing plan that employees are enrolled in. What they
basically do is offer a second comprehensive benefit package to
their employees in the expectation that over time the new
package will gradually replace the old package.
This has one major advantage. It does not require any
beneficiary to change or lose the coverage that they currently
have in the current law package, if it is working for them.
This replacement plan concept allows you to--allows people to
enroll and accept the new benefits and the new changes in a
different framework and allows the other program to be phased
out for as long a period of time as members would like to do
politically. It could literally be phased out over a 30-year
period if that was your preference.
Adapted to Medicare, this replacement plan strategy would
bundle all of the reforms that you would propose to accomplish
into the new plan. One other major advantage of doing this is
that it minimizes disruption to the Medigap market. I heard
several of the members in their opening statements express
concern about what changes to A-B benefits might mean for the
supplemental market.
If you pursue the replacement plan approach, you could
leave the Medigap market essentially intact for those
beneficiaries that remain in the current law package. For those
beneficiaries who choose to enroll in the new package, you
would create new Medigap offerings designed around that
particular benefit plan. And I think that is a significant
advantage for members to think about.
The analogy that we used in discussing this on the Finance
Committee last year was the very program that a lot of Federal
employees are familiar with, but it was the introduction of the
FERS pension plan compared to the Civil Service Retirement
System. For those of us who were working in the Civil Service
Retirement System in 1983, we remember well when our pension
plan was going to be changed.
If you think Medicare beneficiaries care about their health
insurance, I can tell you Federal employees care equally
strongly about their pension benefits. And so it is a very
major change to introduce to people with long-term
ramifications for their economic security. It was done in a
very methodical way with a very intensive education campaign,
and people were given the choice of which system to stay in for
the future.
I would just mention from former Chairman Bill Roth's
standpoint on the Finance Committee, he had worked on
Government Affairs, he had seen a very successful transition of
FERS in lieu of the Civil Service Retirement System and felt
that was a very interesting model for members to consider with
respect to Medicare.
I want to thank you, Mr. Chairman, for this opportunity to
testify. I will be happy to answer any questions. Thank you.
[The prepared statement of Kathleen E. Means follows:]
Prepared Statement of Kathleen E. Means, Senior Public Policy Advisor,
Patton Boggs, LLP
INTRODUCTION
Mr. Chairman, thank you for the opportunity to appear before the
Committee today to discuss my views on the modernization of the
Medicare program, with special attention to the current law benefits
under Part A and Part B of Medicare. In the context of the larger
public debate over Medicare reform, including the addition of an
outpatient prescription drug benefit, fresh attention has been focused
on the current law package, independently of expanding coverage for
drugs. In my view, the current law package needs to be modernized for
reasons I will describe below.
By way of background, immediately prior to joining Patton Boggs, I
directed the healthcare staff for the Chairman of the Senate Finance
Committee in the 105th and 106th sessions of the Congress. I have also
served on the majority staff for the Health Subcommittee on Ways and
Means and in the Senior Executive Service in the Health Care Financing
Administration (HCFA). My private sector experience includes working
for the Healthcare Leadership Council, as a Director of Health Benefits
in the Blue Cross and Blue Shield system, and in private consulting.
The testimony is organized to discuss the following matters:
1. Broader reform context for Medicare benefits modernization
2. Identification of major Parts A and B benefit design problems
3. Review of a comprehensive set of draft policies proposed last year
by the former Chairman of the Senate Finance Committee
4. Major fiscal and other implications of modernizing Medicare benefits
Section I. Broader Reform Context for Medicare Benefits Modernization
Social Security and Medicare hold a highly valued position in our
society due to the enormous contributions both programs have made to
income security for millions of elderly and disabled Americans. Over
time, Medicare has played a growing role in protecting retired and
disabled individuals from the high costs of health care, in part
because health care costs continue to grow at rates considerably in
excess of general inflation and in excess of the value of pension and
cash benefits.
This widespread public support argues for the Congress to move in a
thoughtful fashion to reform the Medicare program, taking the time and
steps necessary to achieve significant reforms while also informing and
educating the American public.
However, this Committee has received compelling testimony from the
Congressional Budget Office and other experts about the demographic and
fiscal challenges facing Medicare over the next decade and beyond. I
will not repeat those projections and concerns. I will state that to be
sustainable over the next fifteen to twenty-five years, the hard work
to modernize Medicare must begin now. The Congress, in consultation and
partnership with the Administration, should begin this year.
It is highly likely that significant federal investments in
Medicare will need to be made as part of the modernization process. In
this context, I recommend that the Congress not incur major new benefit
expansion costs without also putting into place a framework for broader
program reforms that promises to maintain the longer-term financial
viability of the Medicare program. The areas I most recommend action in
include:
Establish a Consumer-Choice Model--Create a viable consumer-
choice health plan model for Medicare that could be fully in
effect by the period 2007-2010. Such a model must address the
financial access needs of lower-income beneficiaries and the
program service requirements of beneficiaries incapacitated by
severe mental or physical impairments.
Modernize Current Law Benefits--Modernize the entire range of
Part A and Part B benefits, including reconfiguration of
beneficiary premium and cost-sharing liabilities, paired with
selected benefit improvements, such as improved hospitalization
and added drug coverage. In so doing, improve long-term fiscal
stability of the Medicare program by building-in design
features that promise to improve incentives for efficiency and
economy in the utilization of health benefits, without impeding
access to medically necessary services.
Add Outpatient Drug Benefits--Add outpatient prescription drug
coverage in both the fee-for-service plan and in the
Medicare+Choice program.
Improve Federal Management of Medicare--Take steps to ensure
that the structures and processes of the Health Care Financing
Administration (HCFA) and other entities within the Department
of Health and Human Services support effective oversight and
management of Medicare. Also ensure that HCFA, in particular,
receives the financial resources it needs to properly carry out
the responsibilities it has been given.
Section II. Identification of Major Design Shortcomings in Medicare's
Current Law Benefits
Modernizing the current law Part A and Part B standard benefit
package to address arcane benefit and cost sharing relationships is
essential to creating a strong platform for launching new premium and
health plan competition concepts over the next decade. Current Medicare
benefits are outdated and poorly structured relative to what is typical
of health insurance benefits available to most Americans prior to
becoming eligible for Medicare. Indeed, certain features are relatively
unchanged since they first went into effect in the 1965--1966 period.
Summary of Major Deficiencies in Current Part A and Part B Benefits
The Medicare benefit package has not kept pace with changes and
improvements that have occurred in health insurance benefit design in
the private sector. Not only does it omit significant benefits, such as
outpatient prescription drug coverage, but the premium, deductible and
other cost-sharing aspects of the benefit could be designed to better
promote appropriate utilization of services, and to bring the Medicare
benefit package more closely into alignment with what is customary in
other major insurance programs in government and in the private sector.
Some payment obligations, such as the inpatient hospital deductible,
are viewed as very high relative to what is customary in private health
plans, where annual deductibles of $500 or less applicable to all
services are more customary. Alternatively, the Part B deductible has
risen to only $100 from its initial level of $40 in 1966, although Part
B spending has increased many, many times over during the same period.
Medicare has an arcane spell-of-illness concept for inpatient
hospital services that can lead to payment of the inpatient hospital
deductible multiple times in a given year depending on the timing of
repeat hospitalizations. Further, Medicare does not cover catastrophic
hospital stays, compared to most private health insurance that covers
365 days of inpatient care, where medically necessary. Coinsurance and
copayment amounts for a variety of other current benefits have not been
reassessed and recalibrated in accordance with the latest information
on levels and use of services for many years. Also, private health
plans typically contain annual limits on total out-of-pocket spending
to protect enrollees from excessive costs due to a catastrophic
illness. Medicare's current package does not contain such protections.
In addition, private insurance carriers marketing supplemental
(i.e., Medigap) policies are permitted to sell policies that permit
existing deductibles and cost sharing obligations to be insured against
for a premium cost to the beneficiary. While it is widely held that
individuals should be free to purchase insurance against risks of any
cost they prefer not to incur, this is a practice that the
Congressional Budget Office estimates significantly increases costs in
the underlying Medicare program and in some instances, may not be cost-
effective for beneficiaries.
Major Benefit Improvement Options
To summarize, the following options merit the most consideration:
Hospital benefits--Elimination of inpatient hospital spell-of-
illness concept and addition of catastrophic coverage of 365
days of inpatient care.
Single deductible--Creation of a single, shared deductible
applicable to spending under both Part A and Part B--this
effectively requires a reduction of the inpatient hospital
deductible and an increase of the Part B deductible.
Cost-sharing--Reassessment of cost-sharing to require at least
a modest level of beneficiary cost-sharing for all benefits,
with the possible exception of preventative benefits such as
mammograms or colorectal screenings.
Out-of-pocket maximum limit--Creation of a limit on maximum
out-of-pocket liabilities for beneficiaries to provide
protection against the costs of catastrophic illnesses.
Low-income subsidies--Restructuring of low-income subsidies
around reconfigured deductible and cost-sharing obligations to
ensure continued financial protection and access to services
Medigap adjustment--Elimination of Medigap coverage of the
unified deductible.
Addition of outpatient drug coverage--Please refer to section
IV discussion of implications of modernizing the current law
package.
Section III. Consideration of an Illustrative Package of Medicare
Benefit Changes
In July of last year, the former Chairman of the Senate Finance
Committee, Senator Bill Roth, proposed consideration of the following
changes to bring Medicare's benefit package more into line with
mainstream health insurance coverage (see chart below). Under those
recommendations, significant benefit enhancements were paired with
increased beneficiary cost sharing in selected areas. The resulting
package improved areas where beneficiaries face the highest risk of
catastrophic expenses, while expecting beneficiaries to contribute
modestly more towards lower-end, more routine expenses. Subsidies for
lower-income beneficiaries were restructured to ensure access to all
benefits.
To summarize, Parts A and B of Medicare were treated as a unified,
comprehensive benefit package without regard to either the underlying
sources of revenue or the current voluntary enrollment characteristic
of Part B. In the following illustration, the separate Part A inpatient
hospital and Part B deductibles were unified in favor of a single
deductible that applies to all benefits. A deductible of $500.00 per
year was proposed as generally consistent with private sector health
benefits. To minimize out-of-pocket liability adjustments for those
beneficiaries that in the short-term are primarily users of Part B
services, it might be desirable to phase-up the current Part B
deductible, coupled with a phase-down of the inpatient hospital
deductible over about a three-year period.
Further, the inpatient hospital spell-of-illness concept, daily
hospital coinsurance and lifetime reserve days were all eliminated and
replaced by 365 days of inpatient coverage. Note that other
combinations of policies are equally possible. However, this is
consistent with private sector policies and comports with the earlier
policies adopted by the Congress in the 1988 Medicare Catastrophic
Benefits Act, which was subsequently repealed. Beneficiary cost sharing
on all existing benefits was reevaluated. The lessons from the RAND
Health Insurance Experiment of the 1980's taught us that, in general,
it is sound benefit design to consider modest cost-sharing on virtually
all medical services to promote appropriate utilization and better
control program costs, while not impairing medical outcomes. Again, one
possible exception is preventative benefits.
Finally, this draft proposal did not include an overall aggregate
stop-loss coverage on total beneficiary cost-sharing liabilities on
either an annual or lifetime basis. While highly desirable from an
insurance protection standpoint, it is potentially very costly to the
program, and was foregone in this proposal, in part, because this
proposal was paired with a drug benefit that was felt to be a higher
overall priority for beneficiaries.
Illustrative A/B Benefits Proposal: Senate Finance Committee; July 2000
------------------------------------------------------------------------
Medicare Plan in
Major Benefit Areas 2000 Proposed Plan
------------------------------------------------------------------------
Plan Deductible................. $776 Part A $500 deductible
deductible (per for all Part A
hospital and Part B
admission). services
$100 Part B (separate rules
deductible (for for a drug
most Part B benefit)
services).
Maximum Out-of-Pocket........... None.............. None
Inpatient Hospitalization....... After deductible, 365 days with no
$194 copayment coinsurance,
for days 61 to after deductible
90; $388 is met
copayment for
days 91 to 150.
No coverage for
days beyond 150
for regular
inpatient
hospitalization,
and the 60
reserve days may
be used only once.
Skilled Nursing................. 0-20 days = 0 cost- 0 - 10 days = 10%
(100 day limit on coverage) sharing. of national
21-100 days = $97 average per diem
per day for 2000 Medicare payment
(1/8 the hospital ($25 for 2000)
inpatient 11-30 days = 20%
deductible). ($50)
31-100 days = $97
for 2000
Home Health Services............ 0% for home health $5 copayment per
and 20% for visit, with
durable medical annual maximum of
equipment (DME). $100 per
beneficiary. 20%
for durable
medical
equipment.
Outpatient Hospitalization and 20% after $100 20% coinsurance of
Doctor Visits. deductible. allowed charge,
after deductible
is met
Outpatient Mental Health........ 50% coinsurance 50% coinsurance,
after $100 after deductible
deductible. is met
Imaging/Clinical Laboratory 0% for clinical 20% coinsurance of
Services. lab services claims costing
(also not subject $50 or more,
to Part B after deductible
deductible). is met
Imaging and x-ray--
20% after $100
deductible.
Prescription Drugs.............. Not covered with See section IV.
limited
exceptions.
------------------------------------------------------------------------
Section IV. Considerations in modernizing Medicare Benefits and in the
Context of Adding a Drug benefit
Following are some of the key questions and considerations for
Members to evaluate:
1) Does treating the Medicare Part A and Part B package as if it were a
unified package require changes to the underlying financing
structure of the Part A Health Insurance (HI) and Part B
Supplementary Health Insurance (SMI) Trust Funds?
The simple answer is not necessarily, unless members choose to
undertake larger underlying financing reforms. The benefit
reconfigurations can be adopted in each part without changing the
underlying sources of revenues (e.g. payroll taxes, premiums and
general revenues) that currently apply. What would require legislative
and administrative attention is the accounting for Part A and Part B
expenses so that they are properly captured and credited to the unified
deductible. Similar processes would be needed if the Congress adopted a
maximum out-of-pocket limit, whether applied on an annual or lifetime
basis. Additionally, and especially if these or similar changes are
paired with the offering of a costly new drug benefit, any savings
should be captured and channeled into offsetting the cost of the new
benefit.
2) What are the major concerns of ``stakeholders'' likely to be?
The reconfiguration of Part A and Part B benefits potentially
affects a variety of stakeholders, including beneficiaries, providers,
State Medicaid programs and private insurers offering Medigap coverage.
Beneficiaries would face tradeoffs between selected new cost sharing on
benefits that have no or minimal cost sharing now, coupled with
significant new protections in high-cost areas, such as lengthy or
repeated hospitalizations. Selected providers would face new
requirements and administrative costs to collect beneficiary cost
sharing, with some possible exposure to bad debt. Medigap carriers
could be faced with the logistics of offering restructured Medigap plan
offerings tailored to the reconfigured Medicare package. In fact, the
Congress would need to consider obtaining independent assistance on
this latter issue of redesigning Medigap packages, as it has done in
the past, from entities such as the National Association of Insurance
Commissioners. Finally, States will have a strong interest in the
structure of low-income subsidies and their interactions with the
Medicaid dually-eligible and other programs designed to assist low-
income beneficiaries today.
3) Is there an option for minimizing the effects of changes that
Parts A and B benefit modernization would require in the approved
Medigap plans, or with respect to other ``stakeholders'', including
beneficiaries and selected providers? In particular, how might one
address some beneficiaries' reluctance to accept changes in Medicare,
perhaps even positive changes?
One option to address this question was offered last year in the
draft Chairman's mark in the Senate Finance Committee, and I would draw
the Committee's attention to it. Simply, the proposal was to bundle all
of the benefit modernization reforms, including a drug benefit, into
one comprehensive and new benefit offering to Medicare beneficiaries.
Last year, this was referred to as the ``Expanded Option Plan (EOP).''
A key element was that the current law package would remain completely
unchanged and continue for the foreseeable future to be available to
beneficiaries.
Under that approach, all of the major benefit design reforms (e.g.,
single A/B deductible, revised coinsurance, new catastrophic
hospitalization expansion and outpatient drug coverage) would be
``bundled'' into the EOP. The EOP would be offered to currently
eligible Medicare beneficiaries and to individuals within five years of
Medicare eligibility, on a one-time enrollment choice basis. After the
5-year look-back window, all new enrollees into Medicare would be
enrolled into the EOP, which over an indefinite number of years would
gradually replace the current law package.
Replacement Plan Concept: This approach is analogous to the phase-
in model followed by the federal government when it introduced major
pension plan reforms to federal employees in the early 1980's, as steps
were initiated to gradually replace the Civil Service Retirement System
(CSRS) with the Federal Employees Retirement System (FERS). In that
model, CSRS-participating employees were given a time-limited
opportunity to choose whether to remain in CSRS or to switch to FERS.
These were binding elections upon the employee. After a specified
effective date, all new federal employees were permitted to only enroll
in FERS. Such an approach, adapted to Medicare, has the major advantage
of reassuring Medicare beneficiaries that ``their Medicare'' will
remain for them if they choose to retain it.
Such an approach is also conceptually similar to what private
employers do in their employee health benefit plans when they offer
their employees a ``replacement'' plan that they intend over time to
replace current coverage or benefit designs. Generally, employers are
motivated to minimize disruption in their employees existing coverage
by offering a new option that better meets the employer's long-term
objectives in benefit offerings, and that permits employees to choose
between existing coverage and new coverage for some period of time. The
rate at which the older plan is phased out and the circumstances for
doing so are important political and administrative decisions.
Key Characteristics of the Expanded Option Plan
Combined (single) deductible for Parts A and B services
Enhanced inpatient hospital benefits (No separate inpatient
deductible; eliminate spell-of-illness concept that can require
beneficiaries to pay more than one inpatient deductible if they
have more than one hospital admission in a given year; provide
365 days of covered care)
Modified cost sharing on certain Part B benefits that have
minimal or no cost sharing today
As under current law, selected preventive benefits not subject
to the Part B deductible would also be exempt of the combined
deductible under the Expanded Option Plan.
Addition of outpatient prescription drug benefit (see below)
Separate drug deductible
Continuous coverage above the drug deductible with increasing
federal payments as beneficiaries' prescription drug costs
increase.
The Secretary of the Department of Health and Human Services
would be required to conduct a major beneficiary education
program and open enrollment season in the year prior to
implementation of the Expanded Option Plan to assist
beneficiaries in making an informed enrollment selection.
Medigap would remain unchanged for beneficiaries who elected
the current law package. Beneficiaries enrolling in the
expanded option plan would not have available to them Medigap
coverage for the combined A/B deductible or the drug
deductible. Medigap would be permitted to fill-in all other
beneficiary cost-sharing obligations.
Low-income subsidies would be substantially improved.
In closing, it is important to restate that any benefit changes can
be adopted directly into the current law structure without pursuing the
replacement plan approach. However, there is a growing appreciation
that the replacement plan approach may help Members solve certain
political and policy issues in a constructive way.
4) Can an outpatient drug benefit be offered as a stand-alone option
(such as through a new Medicare Part D option), or could it be
fully integrated (now or in the future) into a modernized A/B
benefit package?
Medicare spends approximately $4 billion a year currently on drugs
provided to Medicare beneficiaries under very circumscribed
circumstances spelled out in the law. However, the most glaring
omission in the Medicare benefit package is the lack of an outpatient
prescription drug benefit. Medical and health insurance experts have
indicated consistently that if the Medicare program were designed
today, drug coverage would no more be excluded from the standard
benefit package than would any other major component of medical care,
such as coverage for hospitalization or physician services.
Under the Parts A and B modernizations discussed above, including
the EOP option, a new outpatient drug benefit can be offered either as
a stand-alone benefit or integrated into the overall plan. The full
integration approach implies a single premium around the entire plan
and other changes that could require a significant revamping of the
underlying financing structure of Medicare. This may be desirable in
the long-term, but it may not be desirable or necessary for Members to
address now. As a stand-alone benefit, the drug benefit could have
separate premiums, deductibles and cost-sharing obligations tailored
specifically to that benefit.
5) Are there any fiscal advantages to pairing the offering of a drug
benefit with Parts A and B benefit modernizations?
There is one major consideration, aside from the intrinsic merits
of improving current law benefit design. That is, even with
significant, catastrophic hospital benefit improvements, which add new
costs, the net effect of all the other changes taken together could
generate significant long-term savings that could be captured to help
underwrite the costs of adding the drug benefit. These savings occur
due to a variety of factors.
Under last year's Senate Finance Committee proposal, the EOP
options shown in the chart above were paired with a comprehensive
outpatient drug benefit. Preliminary Congressional Budget Office scores
indicated savings in the range of $65 billion over ten years could have
accrued from the Parts A and B changes, offsetting the cost of a drug
benefit that had a gross score of about $240 billion over 10 years and
a net score of about $170 billion due to those offsetting savings. I
must emphasize that all scores are subject to significant re-estimation
issues under the latest baselines and models, but the underlying
concept and potential interactions are worth your consideration.
CONCLUSION
Medicare at thirty+years is at a major crossroads. The Congress and
the Administration have an historic opportunity to simultaneously begin
redirecting the future shape of the program, while also firmly
maintaining commitment to the Medicare program's central role in the
fabric of the Social Security system. The issues have been widely
vetted and consensus is growing around specific directions for change.
Any major change to a social program that is as embedded in our society
as is Medicare requires significant bipartisan support. In that spirit,
I thank you Mr. Chairman for this opportunity to testify, and I stand
ready to help you and other Members in any way to advance your work in
this important undertaking.
Mr. Bilirakis. Thank you very much, Ms. Means.
I know this is a very complicated subject, but you referred
to approximately $70 billion worth of savings over 10 years by
combining Parts A and B.
How much of that would result from the change in the
deductible, the flat $500 deductible; or would most of that
result from other changes made as a result of combining the two
efficiencies?
Ms. Means. It actually comes, Mr. Chairman, from three
broad concepts. One is partly the change in the deductible. It
does generate savings on the Part B side. We would have gone
immediately to the $500 deductible. If you do a phase-in, you
will reduce some of the savings from that particular change.
Mr. Bilirakis. So if we are talking about a savings in that
regard, we are talking about money coming out of the
beneficiaries' pockets, additional money coming out of their
pockets for a period of time?
Ms. Means. That is correct.
On the other hand, we were also offering that with an
expanded hospital benefit and a reduced inpatient hospital
deductible.
It is absolutely correct, what I heard a couple of members
say earlier, that in any given year more beneficiaries touch
the Part B program than touch the Part A program or have an
inpatient hospital admission. However, an insurance concept,
you don't want to look at just 1 year in isolation; you really
want to look over multiple periods of years for providing
insurance; and the reduction on the inpatient hospital side is
very--the deductible is a very important insurance benefit to
beneficiaries.
So it is a tradeoff. You are paying more for more routine,
discretionary cost and less for catastrophic illness.
Mr. Bilirakis. But over a period of 5 years or 10 years,
you are saying that it probably would even out because of the
smaller deductible for Part A, or for hospitalization?
Ms. Means. Yes.
Mr. Bilirakis. However, in marketing the plan to
beneficiaries out there I don't know that they would think: ``I
may go into the hospital 3 years from now or 5 years from now
and I would save money, it would cost me less money out of my
pocket in that particular year; but in the meantime, it is
going to be costing me more.''
Ms. Means. You had also asked, Mr. Chairman--some of the
other sources were, CBO assumed some improvement in utilization
ratings across services where we added cost sharing. So it was
actually a change in the underlying utilization assumptions.
In addition, we would not have permitted Medigap to fill in
the deductible as is the case under current law. That
generates--you probably heard separate testimony, I believe
from Mr. Crippen, that allowing Medigap to fill in that basic
deductible generates fairly significant underlying costs in the
underlying benefit package over time.
Mr. Bilirakis. Well, thank you.
I don't have that much time left. Depending on how many
people we have here, we might be able to do a short second
round.
Dr. Scanlon, in your written testimony you express a
certain hesitancy, I think, in adopting policies and practices
implemented by the private health insurance industry. Now,
recognizing Medicare's special status--and we must do that--one
of the questions is, how can these private sector practices be
adapted for Medicare?
This is actually a bottom-line question for me: How can
Medicare use its special status as the largest single purchaser
of health care to improve the services it provides to
beneficiaries, to enhance the operation of the program and to
include prescription drug coverage?
Now, that is going to take some time, so let's just say
that I will use an additional 5 minutes and give everybody 10
minutes to inquire.
All right, go ahead, sir.
Mr. Scanlon. Yes, Mr. Chairman. You did perceive our
hesitancy in our written statement in this regard, and it is
because Medicare is such a large program. While it provides
some advantages in some dimensions, it creates responsibilities
in others.
Medicare is the single largest payer of all services;
therefore, it is critical to the well-being of individual
providers. It is also critical to the system. Medicare is
deciding how it is going to cover services; which services it
is going to cover, and what it is going to pay for them. This
influences the services that are available not just for
Medicare beneficiaries, but for other individuals as well.
In that regard, I think what we need to focus on is for
Medicare to, in some respects, operate with restraint, to
consider some of the processes and procedures that are being
employed in the private sector to better manage care, to
encourage better use of services, but not necessarily apply
them as strongly, because it cannot apply them with the same
kind of discretion that is used in the private sector.
In a private sector arrangement, there will often be
individual negotiations going on between plans and providers
that can lead to sounder relationships that benefit the
beneficiaries. Medicare's a national program. It can not engage
in those kinds of individual negotiations. It is going to have
to establish a set of rules and we are going to have to live
with those rules. We have to make those rules ones that are
protective of both beneficiaries and providers, and it will
mean that we, I think, hold back, so to speak, in terms of some
of these provisions.
An example in the testimony that we provided was the global
fee that was being used for bypass surgery where a single fee
was being paid to hospitals and physicians. This is a form of
preferred provider arrangement; it is a rather mild form of a
preferred provider arrangement since beneficiaries are free to
go to other providers and receive their traditional Medicare
benefits. So that's one aspect.
The other thing I think that is important is, though in
some ways--I don't know how we accomplish this--we have to
overcome our fear of Medicare; and this would relate to the
idea of allowing Medicare to inform beneficiaries about the
value of services and to remind them about services on an
individual basis may actually have some very positive benefits.
You have added in the recent past important services to the
Medicare program in the form of screening for cancers. Yet
Medicare beneficiaries have made very limited use of those
benefits. If there was a more aggressive effort to encourage
the use of those benefits, there would be value accruing to
both the beneficiaries and to the program.
Right now, those efforts are relatively timid. They may be
timid in part because the administrative resources that HCFA
has constrains their activities, but they are also timid in
part because Medicare identifying individuals and telling them
specifically: you have not gotten a mammogram; you have not
taken advantage of any of the colon cancer screening services
that we cover; that is something that we are not ready for at
this point in time.
Mr. Bilirakis. You say we are not ready for it?
Mr. Scanlon. We are not ready for it in the sense of being
comfortable with the idea of getting a letter from Medicare
saying that we have looked at your records and we know that you
haven't used certain services and we encourage you to use them;
there could be some very significant concerns raised about
that. It is my sense of the possible response by individuals,
being ``what is the government doing looking at my health
care?''
Mr. Bilirakis. My question went to prescription drugs also.
You have become quite an expert. I know you have appeared
before this committee many, many times. Can we afford to
include prescription drugs within the scope of Medicare,
basically the way Medicare functions now?
Mr. Scanlon. In terms of the administration of Medicare,
looking at the affordability question, I think is a question of
the resources that you feel can be devoted to the program. I
think earlier, in one of the opening statements--several of the
opening statements--the issue was characterized in terms of
priorities; and I think that is the critical issue in terms of
prescription drug coverage.
Administration of a prescription drug benefit is not a
trivial task. We estimated last year that there could be as
many as a billion claims a year for prescription drugs, which
is more than the total number of fee-for-service claims that
are coming in now. Therefore, we really need to focus on
building the capacity to be able to process those kinds of
claims. It is going to be purchased capacity, just as we
purchase the capacity to process claims today through the
fiscal intermediaries and the carriers. At issue, I think, is,
do we give HCFA resources to purchase that capacity, as well as
to see oversee it, effectively? One of the key things we have
reported on over the years is the ineffective oversight of
contractors and the fact that this puts the program at risk for
inappropriate payments, which far outweigh the shortsighted
savings we may have gotten on the administrative side. So we
need to give HCFA the resources to be able to do oversight
effectively.
The second issue for you is the issue of, under what terms
are we going to buy that administrative capacity; and options
have been discussed of buying simply a third-party
administrator to pay these claims versus putting the entity
doing this, such as the pharmacy benefit manager at some risk,
so that they do the job even better and apply the techniques
that they have for more effective management to the program's
benefit.
Mr. Bilirakis. Well, thank you, Doctor. I know it is a
subject you could probably spend an entire day on. In lieu of a
second round, I will allow every member to use 10 minutes for
inquiring; and the Chair now yields to Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. My guess is I won't go
the full 10 minutes.
Ms. Moon, I want to ask you about Breaux-Frist 1, as you
recall, suggested combining of A and B, and adding a new
solvency test to the Medicare program. My understanding is that
if in any given year general fund contributions exceeded 40
percent, or were projected to exceed 40 percent outlays,
Medicare would be determined to be ``programmatically
insolvent,'' I believe. The bill actually prohibits general
revenue transfers to exceed that 40 percent of Medicare,
Medicare outlays.
Explain to me this solvency test and what, in fact, it
would mean for Medicare.
Ms. Moon. I believe--let me start and say, I believe that
trust funds were established, particularly the Part A Trust
Fund, as with Social Security, to be a protection for
beneficiaries; to say, here's a dedicated source of revenue to
make sure that there is enough, far enough ahead, that there is
not a problem.
From that perspective, then putting--establishing a Trust
Fund in which you then put specific limits on the contribution
from general revenues, I think is contrary to that notion to a
certain degree. It also says that you--the limit will be based
upon what is happening to the economy as well as what is
happening to health care spending. So it's adding a whole range
of additional concerns in terms of thinking about what that
trust fund means.
I am sympathetic to the notion that one wants to be prudent
in terms of the dollars that are devoted to a program of this
sort, but the whole goal of having an entitlement type of
program is to allow it to grow as necessary over time, and only
then be controlled by the rules that manage the program.
So I find it hard to conceive of exactly what that 40
percent means, because it is going to vary for reasons that
don't have anything to do with whether the program is serving
its beneficiaries well or meeting other national goals in terms
of the Medicare program.
Mr. Brown. What would have happened if it exceeded 40
percent and Congress had either failed to act or chose not to
act? What would happen there?
Ms. Moon. That is an interesting question, and like the
statute for Medicare, I think it is a little unclear.
Technically speaking, my understanding is that if there is
not enough money in the trust fund to pay benefits, you delay
payment for a while. You can only do that for a while; and then
it is rather unclear what happens, because you have, really,
two conflicting things. You have something that says you can't
pay benefits and you have another part of the law that says
people are entitled to these benefits. So it really puts kind
of Catch-22 on the system in terms of requiring some change or
to be a violation of part of the statute.
Mr. Brown. Okay.
Dr. Scanlon, Dr. Young in his testimony mentioned that
combining A and B would allow HCFA to keep track of both
inpatient and outpatient services that seniors receive, and he
went on to say that, among other benefits, HCFA would be better
able to fight fraud under a merged Medicare program because the
Office of Inspector General had said, in some cases, Medicare
pays twice for the same set of services, once to a Part B
provider, once to a Part A provider.
Is that the problem? My understanding is, the real problem
is HCFA's information technology systems. Could we deal with
the fraud issue equally as well without the merger of A and B?
Mr. Scanlon. Certainly without the merger of the trust
funds. In some ways, you can deal with the problem by what I
might characterize as a virtual merger of the program through
the information systems. The key here is that HCFA needs the
capacity to be able to look at services being used by a
beneficiary in toto. It actually has some of that capacity
already. In the fact that claims do flow through a common
point, coming from both Part A and Part B.
The reality, though, is that the information systems they
flow to are not capable of doing the kind of sophisticated
screening that would need to be done to make sure that we
minimize inappropriate payments.
From our perspective, the administrative side of this issue
is that many things can be done keeping a separate Part A and a
separate Part B Trust Fund by looking at the program as a
whole. And that is critical. HCFA has been doing that to some
extent; it needs to be able to do it more.
Mr. Brown. HCFA's information technology system is, it is a
question of funding in large part?
Mr. Scanlon. It is, in part, a question of funding. They
have had difficulty in modernizing that system, as you probably
are aware. There was a bad experience in the mid-90's with the
Medicare transaction system, and then having to turn, when that
failed, immediately to the problem of dealing with Y2K and
trying to correct all of these old systems.
The final thing that I think has been a significant barrier
to modernizing the systems, frankly, has been the BBA and the
refinements since the BBA. HCFA has really, in many respects,
done an admirable job in terms of implementing the system
changes required to implement all of those provisions of the
law. But in doing that they have had to modify a set of systems
that they know someday are going to be scrapped, but today it
is critical they be modified. So payments are made in accord
with the new policies that have been enacted in the last 5
years.
Mr. Brown. Well--and HCFA, as we have discussed here, has
over the last--well, when we had the four administrators here,
the four previous administrators, and the new one was at the
back of the room. And just the budget for HCFA has stayed
pretty constant, even somewhat fewer dollars; and I am
concerned that while all of them said that the increase for
HCFA's budget should be--as HCFA's administrative costs are
much less than Medicare+Choice or any other insurance program
we know of, that--they all called for at least a 15 percent
increase. Some called for 50 percent over a couple of years.
But I am concerned that with this Congress and the
President passing a tax cut where benefits went--tax cut
dollars went overwhelmingly to the richest people in the
country that we are not going to be able to do the things that
we need to do to make HCFA run better. To give it the kind of
resources that we need and to deal with the fraud issue that
Dr. Young talked about and that you talked about, it is clearly
going to need some more resource s. And while the HCFA
administrators have called for more money, I don't know if this
Congress will get its act together to be able to do it in light
of scarcity of resources again.
So I yield back the balance of my time. Thank you, Mr.
Chairman.
Mr. Deal. Thank you, Mr. Ehrlich.
Mr. Ehrlich. One specific question and one general
question.
Dr. Scanlon, I was interested in your comment with regard
to the failure to communicate, I guess, with regard to the
reforms that have passed the Congress over the term or, two,
regarding new benefits, new services, new therapies and the
like. I share your concern with regard to your example that if
one of my constituents would receive such a letter, I would
certainly hear about it.
What to do? Is a general communications plan better than
specificity with regard to individual beneficiaries? How to
make people healthier, make the system run better, create a
more knowledgeable health care consumer in light of reforms
that have passed in recent years?
Mr. Scanlon. Certainly, general education is the first
step, and HCFA has engaged in some activities in that regard.
Whether they are going to have a payoff in terms of improving
over time the use of these services is still not clear. But it
is likely to be an insufficient step, and the dilemma is, how
do you move from something that's general education to
something as specific as I have characterized.
If we could find some trusted intermediary in the context
of some agent that could be the source of the specific
education, we would be able to potentially bridge the gap
between the trust for government and the need for this service.
Mr. Ehrlich. Would physician providers fit the bill?
Mr. Scanlon. Physician providers may fit the bill, but at
this point in time, because of freedom of choice and the fact
that there isn't a primary physician concept within Medicare,
we have no ability to identify which physician we might want to
involve in the process of informing beneficiaries about the
need for services.
In terms of people, a model that might be expanded but
would require a significant amount of thinking to determine how
to expand it would be what we try to do on occasion with
individuals with chronic illnesses; in other words, to provide
them some assistance in the form of someone to do coordination,
to inform them about need for services, to inform them about
how to access services.
These can be positive in terms of encouraging the right use
of services, but we don't have a framework, we don't have a
mechanism for that at this point in time.
Mr. Ehrlich. As a cost saving and better health care
delivery issue, it is certainly intriguing here.
General question, anybody and everybody; we are just about
to complete here, so I only have a few minutes.
I was not here, but I am familiar with the comments the
chairman of the full committee, Mr. Tauzin, made with regard
to, if he had a magic wand and we were 36 years ago and we were
able to begin a new system, literally anew--let me ask the
specific question:
If you all had the opportunity to create a new Medicare
program, would you combine A and B? Why and why not, which is,
I guess, the bottom line question in today's hearing.
So, Doctor, I will start with you.
Mr. Scanlon. There are an incredible number of elements to
that question, which are not my province to respond to, that
are really your choices. They do involve issues of priority.
There were points that came up in some of the discussion
earlier about what should be the financing sources for this
program? What would be the relative importance of each of those
financing sources? How would we determine what beneficiaries
should pay? What would we do in terms of moving from--if we are
starting in 1965, we wouldn't have this issue, but we have it
today. What would we do in terms of people that have paid their
payroll tax their entire working lives and be saying to them,
we now have a unified program, but in order to get it, you have
to pay a premium.
These are all choices that you would have to make.
From my perspective, I think it is critical that we would
look at this program from a unified perspective in terms of the
management kinds of issues they have raised, and this comes
back to a choice for you.
We would also want to look at this program from the
perspective of, how good is the insurance that it provides? On
the Part A side, you have the high deductible and you have very
high risk for very sick people at the upper end in terms of
hospital stays; and also on the Part B side that if you are
very, very sick and you have a very large amount of physicians'
bills, there's no limit.
With that, one would say, this is not good insurance and we
want to do something better. So we want to take into account
what beneficiaries' total liability might be and we want to
provide protection against that.
Mr. Ehrlich. Does anyone else want to comment, particularly
with regard not just to, clearly, No. 1, policy being quality
of delivery of health care services, but also complexity?
Mr. Young. I think, without a doubt, we wouldn't even
consider the issue of separate A and B unless the issue of
financing was raised, and there is a possibility that one can
draw a line between the financing.
But in terms of care delivery coordination, disease
management, with what we know today--deductibles, out-of-pocket
spending, program administration, fraud and abuse, one single
program is a state-of-the-art, not two programs. The private
insurance sector 20 years ago, 30 years ago, and even going
back to the mid-1900's, as I briefly summarized in my
testimony, did have different pieces; and they got rid of that
for very good reasons.
But I also agree, you have got some problems you are going
to have to deal with on the financing side in how you want to
structure and deal with the financing side.
Ms. Moon. I would just like to add that there is a big
difference between if we started with the combined program and
today, because today what you need to do is spend time on
getting all of that, the complexities, right that people have
talked about here; and I would rather see the time and effort
go into getting some other things right, improving consumer
education and information and coordination of data.
You can use, for example, I do in my research use combined
A and B data; you have to go through some hoops to do that, but
you certainly can link those data. That is not a difficult
thing to do; it just takes the resources and the will to do
that. And as I mentioned in my testimony, the complexity of the
cost sharing certainly needs to be reassessed, but the A-B
deductible is not the big part of that. It is the spell-of-
illness issue. It is the very high cost on the Part A side, for
example, and the lack of stop loss.
Mr. Schulder. Hindsight is wonderful, but I was beginning
to be active near the Congress on getting the Medicare program
passed in 1965, 1962--1961, 1962, 1963, 1964, and you just have
to again recognize that we had Wilbur Mills in this building--
well, not this building, but next door. We had an enormous
amount of politics going into the passage of Medicare and often
large amounts of interest being explored, both the physicians'
side and the hospital side. So there could have been no way, it
seems to me, to project, outside of using a Blue Cross-Blue
Shield model that this could work and sharing the costs from
premiums and payroll taxes, that came up with something that
worked and has worked reasonably well over the last, you know,
whatever it is, 40 years; and the framers of the Constitution
had to come back and look at it and make changes over the
years, over the centuries.
So there is no way to really speculate what you would have
done differently in 1965, if you had a chance to redo it,
except to say that we have to keep saying again, the purpose is
to make sure that good health services, using the best
technology, the best findings of pharmacology, of the health
profession, the medical profession, gets to the users in an
efficient and affordable way quickly; and I can't quite
describe what that would look like, but that is the goal.
Mr. Ehrlich. Thank you.
Mr. Deal. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I apologize for being
in and out, but we have an E-911 hearing upstairs and that is
also part of the importance of what is going on here in
Congress. But I appreciate that our panel--and as I didn't
listen to your testimony, but as I read the testimony, I notice
that each of you has different goals for the Medicare program.
For example, Ms. Moon, your goals for the Medicare program
were simply simplifying the program, improving cost sharing and
making it more rational for beneficiaries, achieving greater
efficiency in the management of the program and treating the
Medicare program as a whole in considering the financial
issues.
Mr. Schulder, you state that we should enhance expanded
quality of the service to beneficiaries and strengthen the
overall program.
Ms. Means, your statement reflects vastly different goals
which are to establish a consumer choice model, modernize
current benefits, add outpatient drug benefits and improve
Federal management of Medicare.
And, Dr. Young, your statement reflects the desire to make
the program more reflective of the private sector model and to
include disease management programs, improve program
administration, eliminate the program's structural problems and
other substantial reforms.
These are all--some of the common goals in your testimony,
that for example, we need greater disease management,
coordination of the care and improved customer service. Are
there ways to achieve the more immediate success in these areas
on which we agree without introducing some of the more
complicated factors such as changes in deductibles, program
financing or benefits, and still achieve what all of you seem
to have in common?
Ms. Moon. I think one first step you could take, if you
don't want to talk about additional resources is--or only
modest additional resources is devoting the time to providing a
better set of goals and some modest increase in resources to
improve the kinds of coordination of care and beneficiary
education that we are talking about. Those are very important
to having the program work well.
They don't achieve some of the desires to expand or improve
benefits, which I think are also there, but at the very least
it seems to me that the dollars that would be necessary to
improve this program substantially and keep it at a reasonable
level of expenditures, while being cognizant of fraud and by
finding ways to better coordinate and sometimes achieve
savings, would be certainly worth some initial investment.
Mr. Green. We can again do that without fighting the battle
of the changing deductibles or how we finance it in the
benefits. Can we do some of the commonality that would benefit
the providers, but also the beneficiaries?
Dr. Young.
Mr. Young. There are a lot of things that can be done that
are unrelated to the A/B division and split, of course. I
would, though, encourage you to seriously consider adding to
that list the deductible issue, because is it does have a lot
of very perverse incentives as I talked about in terms of
quality of care and site of care. And I think Mr. Scanlon
referred to it as the virtual A/B merger. As I said earlier,
you might want to separate the issue of financing, but there is
an awful lot in the system that could benefit by a virtual or
real combination and elimination of some of the incentives that
can be very perverse to high-quality care.
Ms. Means. Congressman, I would echo that. I think even
without adding resources in a budget-neutral fashion. You can
restructure some of the A/B benefits in a way that would result
in an overall better package for beneficiaries from an
insurance protection standpoint and also gain some savings and
use it to offset some of the improvements that you would make
even within the A/B benefit structure. And I would just
emphasize what I said earlier in my testimony, that these kinds
of changes are possible without in any way entering into
changing the underlying financing structure of the trust funds
today.
Mr. Green. Mr. Schulder.
Mr. Schulder. On the questions of combined deductible, I
just want to make it clear to this committee that to increase
the deductibles for Part B services to $500, $400 is to put a
dollar bar to access the services for average and lower-income
seniors, and we will oppose that. The $100 deductible is
doable, it is rational, but to increase that to a substantial
level such as 4- or $500 we think is going to prevent services.
People don't for the most part shoot their way into the
doctor's office or into hospital beds. They are there because
they need the service.
Mr. Green. Obviously I agree, and because I have seniors
who say, I have to come up with $792 before I can go to the
hospital, even if they need it.
Mr. Schulder, some people believe that Congress should not
add a universal prescription drug benefit before substantially
reforming the entire Medicare program. It seems there is a lot
of disagreement about reforming Medicare, but a near universal
agreement on finding some type of drug benefit. What is your
view and Alliance's view on that matter?
Mr. Schulder. I don't think beneficiaries or the Nation as
a whole can wait until we solve all the structural problems. We
need this benefit now. We need it as a part of the Medicare
system, a defined benefit, a universal benefit, a voluntary
benefit, and a benefit that is going to use the pharmacological
findings rapidly so that people can find relief for their ills
and their needs. We need it now, and we don't need it as part
of an overall Medicare so-called reform program. We need it
first and foremost, and we would hope to see this Congress this
session do it.
Mr. Green. I don't think I could say it better. I yield
back my time, Mr. Chairman.
Mr. Deal. Thank you.
I want to follow up on a question Mr. Ehrlich asked you
perhaps to make it a little easier, without perhaps going into
great discourse about it. Putting aside the decisions that were
made in 1965, putting an aside the issue of trust fund and the
financing mechanisms that differentiate between the two
programs, A and B, and assuming that you are a panel assembled
by Congress as advisors for Congress's consideration of a
Medicare program, as a matter of first impression, would any of
you advise that we bifurcate into the two sections A and B if
we were for the first time adopting such a program?
Mr. Young. No.
Ms. Means. No.
Mr. Deal. Anyone?
I believe I see universal agreement that you would not
endorse such a concept. That being the case, then, let's, in
the nature of reform which we are considering today, consider
those things that happened some 35 years ago or so and see why
they should be an impediment to us reaching this decision now.
The first one, I suppose, is a philosophical question, and I
think it is one that we haven't maybe as a Nation come to grips
with. So I would put it to each of you.
Philosophically is it the primary responsibility to pay for
health care--should that responsibility rest on the individual
or their generation, or should that be a primary responsibility
of the generation that follows them?
I don't see any takers.
Mr. Schulder. Yes, it is the responsibility of society. If
this society decides that the provision of health care services
is a primary citizenship right and a responsibility of the
government for the good of the whole community, it is a
responsibility carried from generation to generation, from
generation to generation--the microphone is gone--and now it is
back.
Mr. Deal. You have to give the right answer for it to work.
Mr. Schulder. It is pay as you go. You are suggesting maybe
this generation pays for it or the next generation. My parents
use Medicare, my children will use Medicare, I will be using
Medicare as soon as I leave employment. It is a societal
responsibility, it seems to me. It is not a simple generations
thing.
Mr. Deal. So it is a shared responsibility.
Mr. Schulder. It is shared. It depends on how we want to
use our resources. Do we want to include health care as one of
basic citizenship rights and responsibilities of government? At
least that is the way I look at it. You can cut it any way you
want. Once you create the system in terms of private market
involvement or all the rest, but it is the decision of this
society do we want to make health care services for older
people, disabled persons or everyone a basic part of
citizenship rights.
Mr. Deal. Dissecting the question a little bit further, and
you may elaborate on this, which of the funding mechanisms that
we currently have A or B in your opinion most appropriately
represents where that responsibility for paying for health care
costs should be placed? Is it under the A formula, or is it
under the B formula?
Ms. Moon. I believe that the combination that we have of
payroll taxes, of individuals' premium contributions, and of
general revenues is a reasonable combination. The question is
what is exactly the right balance, and that is much more
difficult to answer.
But general revenues have the advantage that they ask
people of all ages to pay on the basis of ability to pay so
that high-income seniors, for example, contribute to the
Medicare program.
Payroll taxes are desirable from the standpoint of many
beneficiaries and individuals because they have relatively
painless tax that comes out of your payroll. Americans like it
much better than economists like myself do. But they see it as
a fair system to have a basic small amount come out of their
payroll to provide for the future, and I believe that having
beneficiaries pay a contribution is also important to make them
understand and appreciate the program.
So I believe that whether it is by accident or design, the
notion of having all three of these sources of revenues has
been a very good idea. The question to go forward into the
future is what is the fairest way to do the combination that is
going to be necessary to fund this program?
Mr. Deal. So, in other words, if we are going to reform,
then we do not necessarily need to look at a different approach
to funding. It is the very question of where the additional
cost--and I think everybody agrees there are going to be
additional costs, especially if we add a pharmaceutical
benefit. The question is from which of those sources, those
combination of sources, do we ask this extra burden to come
from. Would everybody generally agree with that proposition?
All right. Mr. Schulder and Ms. Moon, at least in your
written testimony both of you allude to the fact that we may
need to revisit the payroll tax portion of the funding formula.
Have either of your organizations taken a firm position on that
issue?
Mr. Schulder. Speaking for the Alliance, no, we do not have
a firm position on that. We are a new organization, and we were
building a catalog of policy positions. We haven't looked at
that quite yet. But it would seem to us and to me that all of
us face increased out-of-pocket costs to pay for our health
care. Employees are paying higher premiums.
It is not unreasonable to think that the payroll tax can be
looked at any point in time to see whether or not it is
providing a fair share, if that is the right word, to the
overall costs of the program. The trustees tell us we are about
1.97 percent of payroll that we need to add to the system so it
is in balance for 75 years. That is about $300 a year and 1
percent for the workers' side. One percent for $30,000-a-year
worker would amount to approximate $300 a year in additional
taxes, as well as for the employer the same amount. That would
bring the program into solvency for the full 75 years.
I am the not sure that 75 years means anything to any of us
given the nature of life and changes in medicine, but some
small increase in the payroll tax, it seems to me, should be
considered. Nobody likes to talk about it, but it is part of
the basic financing, and American workers with their
productivity can afford to have people take a look at that and
consider an increase in the payroll tax.
Ms. Moon. I don't represent an organization. The Urban
Institute doesn't take positions on these things, so I
represent me. I am a baby boomer, and I am very cognizant of
the fact that baby boomers are going to be a drain on the
system. I think, then, that considering changes in financing
that ask me as a baby boomer to contribute over time are a good
idea. The only way we now have to try to establish a way to
have me pay for some of my benefits in the future is through a
higher payroll tax contribution that would go into the trust
fund. General revenues can be asked of me when I get to be 65
and 66 and I am on the program and to help contribute as well.
So I think both of those have a role, but I think the
payroll tax because it is a dedicated tax, goes into a trust
fund, and it is supposed to be there to smooth out some of
these things, and it should be looked at that way.
Mr. Deal. That is consistent with your testimony that you
believe that combining the programs may pose some jeopardy to
the trust fund portion of the surplus that has accumulated in
that trust fund over a period of years.
Let me shift to another issue, Ms. Means, and I will ask
you the question, so if you want to respond to that one, you
may do so at the same time. One of concerns raised by Ms. Moon
is the issue of combining the programs having an undue burden
by raising the deductible issue. Would you address that,
please, and also the other previous question if you would like?
Ms. Means. When we were looking at this issue last year on
the Senate Finance Committee, the issue of raising the
deductible on the Part B side, clearly that is something that
members have a great deal of concern about, addressing their
constituents' issues about that.
I think, first of all, the Part B deductible has stayed
way, way out of whack relative to the increase in spending. I
think most of the members understand very clearly the extent to
which it has not kept pace with its original design and
purpose, which was to rise over time in a way much more in step
with the increase in spending, as the inpatient hospital
deductible has done on the Part A side. So there is a huge
disparity in relative responsibility for those deductibles
toward affecting the total cost of the program.
When we were looking at this issue last year, we thought it
was very important to deal with the concerns of low-income
beneficiaries. So in the context of proposing to raise the Part
B deductible, we also proposed considerably more generous
subsidies than exist today under current law for low-income
beneficiaries. We raised the subsidies up to 150 percent of
poverty, and they were fully federally financed up to a certain
level. So we did not put that burden on States. Even with that
increased cost, you can still gain some overall savings because
effectively more middle- and upper-income beneficiaries are
contributing more to the Part B benefit through the deductible.
Mr. Deal. So you can achieve a favorable result.
Ms. Means. Yes. And as I mentioned earlier, you are getting
improved insurance on the changes in Part A, and that should be
looked at not just in 1-year pieces, but over the life of the
benefit.
Mr. Deal. Thank you, Mr. Schulder.
Mr. Schulder. There are some people who would suggest that
the payroll taxes are relatively regressive, and there is some
truth to that.
Mr. Deal. I believe the average individual pays more in
payroll tax than they do in income tax. So to raise it, as you
had previously indicated might be a suggestion, would be very
politically difficult.
Mr. Schulder. I realize that, but overall we want
progressive financing for this program. I would think that a
significantly high deductible for all services of, say, 500 is
a very, very regressive sickness tax, if you will, and we will
oppose that. We do not think that, again, raising the financial
bar to seeking services is the way to assure a healthy
population of any age.
Mr. Deal. Dr. Young, I am going to get you to comment maybe
on this sort of as a part of an answer, but you have alluded to
the fact that the merger of the two programs would be
consistent with the evolution that has occurred in the private
insurance industry, and you have made reference to that, and
one of the things you have said is that it would allow service
to be rendered at the most appropriate point of service. Would
you expand on that a little bit, and also this issue of the
deductible as to whether or not that could be accommodated to
solve the problems that Mr. Schulder and Ms. Moon have alluded
to?
Mr. Young. From the time the Medicare program was enacted
in 1965 to the present, where care is furnished has changed
dramatically. Today care can be furnished in multiple sites,
some of which are Part A and Part B. I mentioned a surgical
procedure that could be a Part A hospital or an ambulatory Part
B service. Some acute care can be in a nursing home. It can be
in a hospital.
The kind of services, where they are provided, and who
provides them has changed. So the Medicare structure and
particularly the out-of-pocket costs can penalize somebody from
the appropriate side of care or the side of care that happens
to be local to where they live based on their structuring. In
the private sector having the single deductible allows you to
deal with that, and having the contracting flexibility to
negotiate fee schedules for different packages of services that
the Medicare program does not have except under waiver or
special authority gives you a lot of flexibility to put
together the bundle of care that an individual really needs, by
the provider they need, without being constrained by Medicare's
payment policies based on the type of facility or out-of-pocket
spending or deductible policies.
Mr. Deal. Well, I want to thank all of you. I believe we
have exhausted the members, if not their questions. We, too,
thank all of you. This has been a very good panel. We
appreciate your time in coming and being with us today, and we
invite you to come back again. Thank you very much.
[Whereupon, at 12:47 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
United States General Accounting Office
Washington, DC 20548
August 7, 2001
The Honorable Michael Bilirakis
Chairman, Subcommittee on Health
Committee on Energy and Commerce
House of Representatives
Subject: Medicare Reform: Post-Hearing Questions Related to Modernizing
Medicare and Merging Parts A and B
Dear Mr. Chairman: On June 14, 2001, I testified before the
Subcommittee on issues related to modernizing the Medicare program.\1\
Specifically, I discussed how reforms based on a more unified view of
the program might affect (1) program financing and assessments of the
program's financial health, (2) cost-sharing requirements, and (3)
program management, including administration and promotion of quality
care.
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\1\ Medicare Reform: Modernization Requires Comprehensive Program
View (GAO-01-862T, June 14, 2001).
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This letter responds to your July 17, 2001, request that GAO
provide answers to questions related to the June 14 testimony. Your
questions, along with our responses, follow.
Question 1. How would you design a protection for low-income
beneficiaries so that the cost of a combined deductible set higher than
the current Part B deductible does not become a barrier to needed
services?
Some have suggested establishing a single deductible to replace
Medicare's current $792 deductible for part A hospitalizations and the
annual $100 deductible for part B services. A combined deductible,
lower than the current part A deductible but higher than the current
part B deductible, could reduce financial barriers for beneficiaries
who need to be hospitalized. However, many beneficiaries who use
Medicare services are not hospitalized and would thus be responsible
for higher out-of-pocket costs.
Whether a combined deductible would prevent some beneficiaries from
obtaining necessary care would depend upon the details of the proposed
deductible change as well as other beneficiary cost-sharing reforms
that might be adopted. Discussions about specific actions designed to
protect beneficiaries and avoid the creation of financial barriers
should consider this larger context.
One way to help beneficiaries overcome financial barriers to care
may be to better promote existing programs, such as Medicaid, that
assist qualified beneficiaries with health care costs. Many eligible
individuals do not participate in these programs, in part because some
are unaware that these programs exist and the requirements for
demonstrating eligibility are complex.\2\ The Congress could also
consider whether to adjust the current eligibility thresholds for
Qualified Medicare Beneficiaries for whom Medicaid pays Medicare cost-
sharing obligation. Alternatively, the Congress could consider other
targeted options, such as establishing an income-related sliding scale
for the deductible, if existing programs did not adequately address any
negative implications resulting from a combined deductible.
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\2\ See Low-Income Medicare Beneficiaries: Further Outreach and
Administrative Simplification Could Increase Enrollment (GAO/HEHS-99-
61, April 9, 1999).
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Question 2. In your testimony, you state that Medicare's current
cost-sharing requirements are not well-structured to promote prudent
use of discretionary services. How can a merger of Parts A and B
improve Medicare's cost-sharing requirements and serve as a tool to
curb excessive utilization of services?
Private insurers generally establish cost-sharing arrangements that
require coinsurance or copayments for services that may be
discretionary and could potentially be overused, to encourage
beneficiaries to consider their need for services and steer patients to
lower cost or better treatment options. Medicare's current cost-sharing
structure fails to promote prudent use of services and to protect
beneficiaries from high out-of-pocket costs. Consequently, proposals
have been introduced to reform Medicare's cost-sharing requirements.
Rethinking the relationship between parts A and B could facilitate
the development of better cost-sharing requirements. It may be easier
to revise Medicare's cost-sharing requirements if these changes are
made in conjunction with other revisions to the part A and B structure.
However, cost sharing could be revised under Medicare's current
structure without merging parts A and B. For example, the Congress
recently eliminated cost-sharing requirements for various cancer
screening tests and vaccinations to help ensure that affordability is
not a barrier to these important services.
Question 3. You mentioned in your written testimony that
incorporating cost-sharing changes into Medicare's information systems
would take time and resources. Do you have an estimate as to the time
and resources needed to make these system changes?
The adoption of cost-sharing reforms, such as implementing a single
deductible or an out-of-pocket spending cap, would require significant
improvements in the Centers' for Medicare and Medicaid Services (CMS)
ability to track service use by beneficiary. CMS is limited in that
capacity today, not because Medicare is split into parts A and B, but
because of deficiencies in the agency's information systems. Currently,
Medicare's systems focus on processing and paying claims submitted by
providers. As one step in that processing, both part A and part B
claims are sent to a single program, the Common Working File, where
spending by an individual beneficiary can be tracked. However, this
software program, like some other software CMS uses, does not always
perform adequately and is difficult to modify or improve because it is
so antiquated. Many changes have been made to CMS' systems in recent
years because of the Balanced Budget Act and subsequent legislated
revisions. Similar shorter-term fixes might be made to track
beneficiary cost sharing. We do not have an estimate of the resources
or time that would be needed. However, it would be critical that enough
resources and time be devoted to ensure the changes perform correctly
from the outset to avoid confusing and troubling significant numbers of
beneficiaries.
Question 4. In your written testimony, you mentioned a phase-in to
a unified program. How would you design such a phase-in? How would it
soften some of the impact of a merged program?
Approximately 2 million individuals (5 percent of beneficiaries)
are eligible for Medicare but do not participate in the voluntary part
B program and pay its separate monthly premium ($50 for 2001). A much
smaller number, 400,000, are enrolled only in part B but not part A.
Those enrolled in only one part of the program often have private
insurance from a previous employer or other source to make up the
difference. If Medicare parts A and B are combined and beneficiaries
are required to participate fully in the unified program, beneficiaries
who are now enrolled in only one part of the program would have to pay
additional premiums for coverage they may already have from another
source. Requiring full participation in a unified program would also
increase costs to the government for care that is now covered
privately.
If Medicare is unified, providing for a phase-in period is one
approach that might reduce any unintended negative effects resulting
from the reform. The Congress could, for example, require new
beneficiaries to participate in the unified program while allowing
existing beneficiaries the option of remaining in the current program
with its separate part A and part B structure. Other approaches could
also be explored. For example, reform provisions might include all
beneficiaries in a unified Medicare program but allow those individuals
who choose not to participate fully to receive partial benefits.
Question 5. In your written testimony, you discussed various pilot
projects that CMS has conducted to break down the barriers between
Medicare's Part A and Part B. What lessons can be learned from these
demonstration projects that can be applied to improve the care provided
to all Medicare beneficiaries?
Private insurers employ management techniques designed to improve
the quality and efficiency of services purchased, such as targeted
beneficiary education, preferred provider networks, and coordination of
services. The National Academy of Social Insurance (NASI) reviewed such
private sector practices. NASI concluded that private sector practices
could potentially improve Medicare but would need to be tested to
determine how well they could be adapted to reflect the uniqueness of
Medicare both as a public program and as the single largest purchaser
of health care.
Medicare has experimented with innovations that bridge part A and
part B services. For example, it tested the impact of making single
``global'' payments to selected hospitals for all services both
hospital and physician related to coronary artery bypass surgery. Based
on the results of this and other experiments, such innovative
approaches may have the potential to cut program costs, save money for
beneficiaries, improve health outcomes, and increase beneficiary
satisfaction with the quality of care.
However, wide-scale implementation of some innovations may be
difficult in a large, public program such as Medicare. Private insurers
typically have wide latitude in how they run their business. The
adoption of some private sector approaches may require new statutory
authority for CMS. For example, CMS' ability to encourage the use of
preferred providers is limited, in part because the Medicare statute
generally allows any qualified provider to participate in the program.
However, it is important that CMS continue to test private sector
innovations to determine their effects and whether they can be adapted
to Medicare. The Congress can then decide, based on the test results,
whether Medicare should permanently adopt the innovations.
Question 6. One of the key shortcomings of the Medicare program is
its lack of an overall cap on out-of-pocket costs for beneficiaries. If
such a cap were put in place, how could the additional costs to the
program be balanced? How would a merged program help facilitate
Medicare's adoption of a catastrophic cap?
The average beneficiary who obtained services in 1997 had a total
liability for Medicare-covered services of $1,451, consisting of $925
in Medicare copayments and deductibles in addition to the $526 in
annual part B premiums. Total Medicare cost sharing can be much higher
for beneficiaries with extensive health care needs. For example, in
1997 approximately 750,000 beneficiaries (2.5 percent) were liable for
more than $5,000.
Some have suggested imposing a cap on beneficiary out-of-pocket
costs to protect those who require extensive health care services. The
additional cost of providing this catastrophic coverage could be offset
by raising the part B deductible or creating a combined deductible for
part A and part B services. This would increase out-of-pocket costs for
a share of beneficiaries. However, in return, they would receive
additional insurance in the form of protection from catastrophic costs.
If such an approach were adopted, it would be important consider how
the entire package of cost-sharing reforms might affect beneficiaries'
out-of-pocket expenses.
Capping beneficiaries' out-of-pocket expenses may be more easily
accomplished in conjunction with other program reforms that could
include the creation of a more unified program. However, such
protection could be added within the current program structure. In
either case, the Congress would need to decide on how to allocate the
cost of such coverage among beneficiaries and taxpayers.
Question 7. It has been argued that many of the benefits to be
achieved through consolidating Parts A and B of the Medicare program
could be achieved through administrative action. It's obvious that
administrative action hasn't been taken in many years. Why is that the
case? Is there something inherently difficult in implementing such
changes by administrative fiat? How would you suggest that we
facilitate the timely implementation of these improvements?
Rethinking the relationship between parts A and B has many
potential benefits. Some of the changes discussed to modernize
Medicare, such as restructuring cost sharing, instituting a single
deductible, and adding a cap on beneficiaries' out-of-pocket costs do
require statutory changes. However, adopting a more global perspective
regarding parts A and B in administering and assessing the program can
have benefits. Currently, the financial health of Medicare is largely
judged by the solvency of the part A trust fund. A more comprehensive
view of the program can lead to a better understanding of the financial
challenges Medicare faces. It is not essential that policymakers
combine the trust funds or take legislative action to obtain this
perspective. In fact, the Medicare Trustees currently report one
comprehensive indicator of the program's financial status: estimated
total Medicare spending as a percentage of the Gross Domestic Product.
What is important is that both the public and policy makers recognize
that more comprehensive measures can better inform the debate over
necessary Medicare reforms.
Accomplishing more administratively is handicapped by not being
able to view the entire program's impact on beneficiaries and providers
on a more timely basis. Our previous work shows that the Health Care
Financing Administration (HCFA) operated Medicare with outdated
information technology systems unsuited to meet requests for basic
management information within reasonable time periods. For example, the
agency could not readily track payment and service-use data at the
beneficiary level. It will be important for the Congress to ensure that
CMS has the capacity to carry out its mission in the 21stcentury. Such
capacity is critical to implement desired reforms, make administrative
changes, or inform Congressional debate when course corrections seem
necessary.
If you or your staff have any questions regarding this letter,
please contact me or Laura Dummit at (202) 512-7114.
Sincerely yours,
William J. Scanlon
Director, Health Care Issues