[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



  HAS MEDICARE+CHOICE REDUCED VARIATION IN THE PREMIUMS AND BENEFITS 
OFFERED BY PARTICIPATING HEALTH PLANS? A REVIEW OF MEDICARE+CHOICE PLAN 
                          PAYMENT METHODOLOGY

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 31, 2001

                               __________

                           Serial No. 107-39

                               __________

       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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                    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 Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida               BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio                TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma              DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina         CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
  Vice Chairman                      JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire         (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Berek, Judith, Administrator, Northeast Consortium, Health 
      Care Financing Administration..............................    58
    Blacknell, William...........................................     7
    Dudley, Lois.................................................     6
    Haggett, William F., Senior Vice President, Government 
      Programs, Independence Blue Cross..........................    65
    Harmon-Weiss, Sandra, Head, Government Programs, Aetna U.S. 
      Healthcare.................................................    70
    Harrison, Scott C., Research Director, Medicare+Choice, 
      Medpac.....................................................    78
    Kirsch, Ila M................................................     6
    Kopacz, Lynn, Resident Insurance Manager, Wood River Village.     8
Material submitted for the record by:
    Saxton, Hon. Jim, a Representative in Congress from the State 
      of New Jersey, prepared statement of.......................    94
    Tauzin, Hon. W.J. ``Billy'', Chairman, Committee on Energy 
      and Commerce, prepared statement of........................    94

                                 (iii)

  

 
  HAS MEDICARE+CHOICE REDUCED VARIATION IN THE PREMIUMS AND BENEFITS 
OFFERED BY PARTICIPATING HEALTH PLANS? A REVIEW OF MEDICARE+CHOICE PLAN 
                          PAYMENT METHODOLOGY

                              ----------                              


                         THURSDAY, MAY 31, 2001

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                     Levittown, PA.
    The subcommittee met, pursuant to notice, at 9:23 a.m., in 
Bristol Township Senior Center, Levittown, Pennsylvania, Hon. 
James C. Greenwood (chairman) presiding.
    Members present: Representatives Greenwood and Deutsch.
    Also present: Representative Hoeffel.
    Staff present: Joe Greenman, majority counsel.
    Mr. Greenwood. Good morning, everyone. I am Jim Greenwood, 
and I have the honor of representing the 8th Congressional 
District, which consists of all of Bucks County and some of the 
better parts of Montgomery County in the District. I also have 
the honor of chairing the Oversight and Investigations 
Subcommittee of the U.S. House of Representative's Energy and 
Commerce Committee. And I want to thank you all for attending 
this official field hearing of the Oversight and Investigations 
Subcommittee.
    We are here, as I suspect you know, to learn about a 
problem that affects senior citizens, Medicare beneficiaries, 
and disabled Medicare beneficiaries with regard to the premiums 
that they pay and the benefits that they receive under the 
Medicare+Choice plan, which is, of course, the managed care 
option under Medicare. I will make a few statements about that 
in a moment.
    To begin with, I want to thank the Bristol Township Senior 
Center for hosting us this morning, and I want to thank all of 
the local members of the Senior Citizen Center for joining us, 
as well as seniors from around the region.
    I want to also thank and introduce, as I will in a moment, 
my colleagues who have come here to attend as well. We have to 
my immediate left, Congressman Peter Deutsch. Peter Deutsch is 
the ranking member of this subcommittee. That means that, as a 
Democrat in the minority, he is the most senior member of the 
minority party. He covets this gavel. As soon as he can push us 
into the minority, then he will be the chairman. But he has 
driven up; he left Washington this morning at 6 a.m. to get 
here on time, and we are glad that he is here. To his left is 
Congressman Joe Hoeffel. Congressman Hoeffel represents the 
13th Congressional District of Pennsylvania, which is, I guess, 
best described as the balance of Montgomery County, most of 
Montgomery County. Mr. Hoeffel is not a member of the Energy 
and Commerce Committee, nor of this subcommittee, but Mr. 
Hoeffel represents constituents who have the exact same problem 
that my constituents have, as they do in all of the suburbs of 
Philadelphia, as well as elsewhere in the country. So I asked 
Mr. Hoeffel if he would come and help out with this hearing and 
listen to the testimony this morning.
    The Chair asks unanimous consent that the record remain 
open for 1 week so that additional documents and testimony may 
be entered. And without objection, that is so ordered. The 
Chair recognizes himself for 5 minutes. And it has been 
suggested by my trusty staff that I turn on the microphone. I 
will not start over. I am hoping that everything I said prior 
to this is either heard or not worth repeating.
    The reason that we are here is to look at inequities in the 
Medicare system in our region. Medicare was created in 1965. It 
was one of the most important things that the Congress and the 
Federal Government has ever done. It has put a safety net under 
retirees and disabled Americans in terms of their healthcare 
for 36 years now. It has been a tremendous boon to the health, 
and the longevity, and the wellbeing of our seniors.
    Of course, when the program was created, it did not have a 
prescription drug benefit, and I have been asked by the local 
AARP folks to at this moment put on this little pin here, which 
says, Pennsylvania Needs Affordable Prescription Drugs Now. 
Wear this ribbon to show your support. So I am going to put 
this pin on while Hal Lefcourt takes my photograph. He is the 
AARP maven here. And as I showed Hal when I walked in, as of 1 
week ago, I now carry an AARP card in my wallet. I am 
officially the youngest member of the AARP in the country.
    Medicare began as what we call a fee-for-service system. 
Recipients receive their benefits card, they go to the doctor 
and the hospital of their choice, and their bills are 
reimbursed. Over time, Medicare developed a managed care 
alternative so that seniors had a choice. They could choose a 
plan that would instead of having Medicare, the Federal 
Government, directly pay the bills, insurance companies would 
serve as intermediaries and a flat fee would be paid to those 
insurance companies, who would then pay the bills for the 
recipients within the network.
    Over time, we improved that system. We created--and you 
will hear this from some of our witnesses--Medicare+Choice. And 
that was to improve that system, to ensure the longevity of 
Medicare, managed care, and it was, initially, a tremendous 
opportunity for beneficiaries. I encouraged my mother and 
father, who are still members of the Medicare+Choice Plan to 
join because suddenly, when they did, they no longer had to pay 
Medigap insurance. They were able to get a very good 
prescription drug benefit at no premium. And additionally, had 
better dental care, better eye care, access to hearing aids and 
so forth that was not available to them under the traditional 
Medicare fee-for-service system.
    The problem has been that in the last several years, the 
payments made by the Federal Government to the Medicare plans 
in our region have not been sufficient. That has been partly 
the problem of the Congress, it has been partly the problem of 
the previous President of the United States. We had lots of 
tough negotiations about that, and there is plenty of blame to 
go around. The bottom line is that the plans have had to reduce 
their benefits over time, and virtually, eliminating the 
premium-free prescription drug plans, and they have had to 
increase premiums.
    To make matters worse, and to add insult to the injury, in 
our region what has happened is that beginning in the first of 
this year, the plans have charged a significant premium. I 
think it is at least $59 in some cases, per month, to the 
beneficiaries who happen to reside in the suburbs of 
Philadelphia--in Bucks County, in Montgomery County, in 
Delaware County, in Chester County--as well as across the river 
in New Jersey, while beneficiaries in Philadelphia will not 
have to pay this additional premium. That is not fair, that is 
not right, and that needs to be fixed, and that is why we are 
here this morning.
    If it were fixable with a wave of a wand, we would have 
done that when the first complaints started to come into our 
offices some months ago. It is a complex problem and we are 
going to try to understand that problem better than we do this 
morning by hearing from our expert witnesses. And then we will 
take that information back to Washington and try to fix this. 
As I told one gentleman, we will not fix this any earlier than 
January 1 of next year. That is, virtually, impossible. The 
plans set their premiums and their benefits in the latter part 
of the year. They go into effect in January 1. If we work very 
hard, if we are very successful and somewhat lucky, we may be 
able to improve this system throughout the course of this year 
so that when the new fiscal year begins on October 1, the plans 
will have enough funds to increase the benefits, and reduce 
premiums by next year. No guarantees of that. It is going to 
depend upon a lot of cooperation in the House and Senate and 
with the President.
    That is what we are here for this morning. A question has 
been asked as to whether there will be questions allowed or 
comments from the audience. I should tell you that that is 
normally not possible in a Congressional hearing when those 
hearings operate in Washington. We have a finite amount of time 
and a finite list of experts from whom we can hear and then ask 
questions. We have to be out of here in almost exactly 2 hours 
from now, at 11:30, because lunch is served here then, and we 
will need to do that. If there is time, if we have heard from 
all of our witnesses, if the Members of Congress here at the 
panel have had opportunity to ask all of the questions and have 
them answered, and we have time, I will try to set up a system 
where we can entertain for the balance of our time here this 
morning questions and comments from the audience.
    With that, I will now yield 5 minutes for an opening 
statement to the gentleman from Florida, Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman, and I won't take 5 
minutes. I want to thank you for inviting me to your district. 
I went to school not that far from here. I was an undergraduate 
in Swathmore College in Delaware County. Representing south 
Florida, those of us in south Florida, those who are from 
Florida, I would like to say that there are two types of 
Americans, those that live in Florida and those that want to 
live in Florida. So I am sure some of your constituents will 
become my constituents in the not too distant future.
    This is, obviously, a very important issue. I am looking at 
the numbers. I represent three different counties in south 
Florida and we have the same sorts of disparities, so it is a 
national issue. And I think it is, clearly, something we can 
work together on, and Congress has been working together on it.
    I want to thank the Chairman, and I think this community is 
really very blessed to have, really, two outstanding Members of 
the U.S. Congress who are the epitome of bipartisanship and 
working together to try to solve the problems of America. And 
knowing the constraints on time, I yield back the balance of my 
time.
    Mr. Greenwood. I thank the gentleman and recognize for an 
opening statement, the gentleman from Montgomery County, Mr. 
Hoeffel.
    Mr. Hoeffel. Thank you, Mr. Chairman. I want to start by 
thanking Jim Greenwood for inviting me. This is an unusual 
occasion. I am not a member of this committee, and this is not 
my District, and Jim has reached out in a bipartisan way to 
include me, to ask me to provide a witness, and we will hear 
from Lois Dudley in a minute, from Montgomery County. And I am 
very grateful, and I am impressed, and this is the way Congress 
ought to work, and it does not always work this way.
    So I am glad to be here and glad to be here with Peter 
Deutsch as well. And I was going to say before he did, that 
many of my constituents will end up his constituents. I didn't 
know you were smart enough to have gone to Swathmore, Peter. I 
am very impressed with that.
    Mr. Deutsch. I was a wrestler so----
    Mr. Hoeffel. Oh, he was a wrestler, he says. All right.
    Mr. Deutsch. I didn't get there on my brains.
    Mr. Hoeffel. I am delighted to be here in Bucks County. I 
want to acknowledge someplace in the back, State Representative 
Matthew Wright.
    Mr. Greenwood. Oh, I didn't know Matt was here.
    Mr. Hoeffel. Yes. Wave your hand. I said hello to Matt when 
he came in. I served with his father, Jim Wright, when I was in 
the State Legislature, the same when Jim Greenwood was in the 
State Legislature, and we are in the Jim Gallagher Memorial 
Senior Center here, and I served with Jim as well. So I am 
delighted to be here today.
    My constituents have complained to me just as Jim 
Greenwood's have complained to him, and Peter Deutsch's to him, 
about the different premiums that they are charged by the 
Medicare+Choice providers. I am sure we will hear today of the 
disparity in the amount that Medicare pays the providers for 
each Medicare beneficiary. In this region, effective March of 
2001, Medicare pays providers in Montgomery County $560 per 
month per beneficiary; they pay in Bucks County $623 per month 
per beneficiary; and in Philadelphia County, $762 per month per 
beneficiary, over $200 more than they pay for Montgomery 
County.
    Now, that may be a very legitimate difference in payments 
based upon the cost of providing the service. Philadelphia has 
a larger low income population, more teaching hospitals, 
hospitals that have more poor people going there, and there may 
be legitimate differences that require Medicare to reimburse 
differently, county by county.
    What Jim Greenwood is saying with his leadership today by 
calling this hearing is let us see if we cannot level out the 
premiums that are, in turn, charged to the beneficiaries. It is 
fine for the Government to pay different rates to the providers 
based upon the provider's costs, but it is not so fine in, for 
example, the service area of Independence Blue Cross, or any 
other healthcare insurer, for the beneficiaries, the customers, 
to pay different premiums simply based upon where they live. We 
ought to be able to figure out a way in Washington so that a 
health insurer charges the same premiums every place within 
that insurer's service area, whether it is one county or five 
counties, when they are delivering the same product throughout 
that entire service area. I think that is the focus of our 
concern.
    I, again, compliment Chairman Greenwood for holding this 
hearing and inviting me, and I yield back the balance of my 
time.
    Mr. Greenwood. The Chair thanks the gentleman, and we are 
delighted to have him join us. I was not aware that State 
Representative Matt Wright is here, but I am delighted that he 
is. The rules--I have checked with the counsel. The rules of 
the House do not permit Mr. Wright to ask questions of the 
witnesses, but I have checked; there is no objection to his 
coming up and joining us at the panel. So Matt, if you would 
like to, you are welcome to come on up here and have a seat at 
the front table or you can--or not, as----
    Mr. Wright. I am going to stay back here.
    Mr. Greenwood. You will stay back with the real people? 
Okay.
    Mr. Hoeffel. That means he might heckle.
    Mr. Greenwood. Okay. With that, we welcome our first of two 
panels of witnesses. And they are Ms. Ila M. Kirsch from 
Langhorne; Ms. Lois Dudley of Hatboro; Mr. William Blacknell of 
Ben Salem; and Ms. Lynn Kopacz, who is a Resident Insurance 
Manager of Wood River Village in Ben Salem, as well. We thank 
you all for being with us.
    You have probably been informed that the committee is 
holding an investigative hearing, and when doing so, has had 
the practice of taking testimony under oath. I need to ask you, 
do you any of you have objections to taking testimony under 
oath? So you are all going to be honest with us. That is good. 
The Chair then advises you that under the rules of the House 
and the rules of the committee, you are entitled to be advised 
by counsel. Do you desire to be advised by counsel during your 
testimony today? Usually, we are investigating bad guys; that 
is why we have to ask these questions.
    In that case, if you would please rise and raise your right 
hand, I will swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. Thank you. You are now under oath, and I 
would invite, beginning with Ms. Kirsch, you to take 5 minutes 
to summarize your testimony. Do the witnesses have microphones?
    Ms. Kirsch. Is this okay?
    Mr. Greenwood. This is perfect. Thank you very much for 
being with us this morning. Can you hear back there now? Okay.

TESTIMONY OF ILA M. KIRSCH; LOIS DUDLEY; WILLIAM BLACKNELL; AND 
  LYNN KOPACZ, RESIDENT INSURANCE MANAGER, WOOD RIVER VILLAGE

    Ms. Kirsch. I went with Aetna U.S. Healthcare 7 years ago, 
and my premium was $30. That was fine. I had to get notice from 
another doctor to see another doctor, but they canceled all 
that out. And gradually, it built up to this year, which is 
$50. Now, I can handle that; that is not bad. It is the 
prescriptions that is giving me the problem. The first of the 
year, Healthcare deleted it entirely. I have to pay 100 
percent. It is $111 for 30 pills, and I take two different 
prescriptions. It is quite a dig into my check and I can't see 
any reason for it to be so high. I mean, it is just awful. I 
just hope, you know, that our Government will help us--all the 
seniors, not just me, but all of us--to try to get the drug 
companies to realize, you know, what a problem this is. And 
with your help, maybe it can be done. That is all I have to 
say. It is not 5 minutes, but I am sorry.
    Mr. Greenwood. When we are in Washington, no one has ever 
spoken for less than 5 minutes before so we are delighted and 
we will have some questions for you as we proceed.
    Ms. Kirsch. Okay.
    Mr. Greenwood. Thank you. Ms. Dudley, you are now 
recognized for 5 minutes, or so much time as you choose to use.

                    TESTIMONY OF LOIS DUDLEY

    Ms. Dudley. Thank you. Hopefully, mine will not be that 
long either. As you can see, I have a tape here. When I was 
asked to represent our district, I went back to my records. I 
kind of keep a very detailed budget, and I went back and took 
last year. And as I have written on this, you know, I started 
out with a zero fee, as you had said, and now we are up to $50, 
also, my husband and I. And when I spent over what I was 
allowed--we always had a bank. It was $1,500 the first year, of 
which it would be reduced as I used it. Then it got to $1,000, 
then it got to $500, then it got to nothing. So we are doing 
the total cost also. And I just looked, and I would have been 
spending $675 for the prescriptions that we are using at this 
point. We are now spending $2,973, along with the $1,200 fee 
now for the two of us, and the $1,200 coming out of our 
Medicare. So we have jumped extremely, you know, in our budget. 
We are on a fixed income, and it is really very difficult.
    Let me show you the problem I had. I said, all right. Now, 
I am going to go out and see where I can get the least 
expensive drugs. Well, as I wrote on my thing, the pharmacies 
will not divulge the cost of the various medicines and is 
preventing us from getting the best price. What happened is 
when I would call the different pharmacies, they say, well, I 
have to have your prescription. Well, I described everything 
from the ones I already had. I didn't have a prescription at 
that point to take to them, and to run to every pharmacy with 
this prescription, then they would tell me what the cost was. I 
had no way to prepare. So therefore, I am stuck with whoever I 
am getting my medicine from.
    Also, the experience my husband had was we went to--we do 
not get the company. In other words, we do not have our 
Medicare--I am with U.S. Healthcare, also, Aetna U.S. 
Healthcare. It is not a company backed where some of my friends 
are in it and they do get prescriptions. I do not and neither 
does my husband. And so what happens is, not being able to get 
the best price, we went with one drug company and they, 
literally, told our doctor to change his prescription. Now, you 
have a pharmaceutical company, or a prescription company, 
telling my doctor what to give my husband. They wanted to 
change it. Now, my husband was not able to take that particular 
medicine, but it was one they made. And that is a problem when 
your doctor is being told--to turn down the doctor's note, that 
he could not use theirs, it was accepted, but there is a 
problem. It could be sometime where maybe it wouldn't.
    So I feel that--I hope I am not going over my 5 minutes, 
but I do feel that it is very important that Congress realize 
that where there is so much pharmaceutical power, and lobbying, 
and money going into campaign, and all that sort of thing, and 
they say, well, we need the money for research--let us get a 
lot of money into the research and not into this false 
campaigning, and let us get some prescription help from 
Congress.
    Mr. Greenwood. Thank you very much, Ms. Dudley. Mr. 
Blacknell. Oh, I am sorry. Let me also recognize--I have been 
just notified that State Representative Tony Melio has joined 
us. Tony, where are you? Welcome. Thank you for joining us and 
thank you for your interest. Mr. Blacknell.

                 TESTIMONY OF WILLIAM BLACKNELL

    Mr. Blacknell. Last December, Congress voted $11 billion 
for Medicare HMO's. We saw a rate decrease in our Keystone 65 
premiums of $6. ``Congress was assured that every penny would 
go to increase benefits and reduce premiums,'' says 
Representative Pete Stark of California, a leading Democratic 
spokesman on healthcare. With no formal amendment and just 
before the bill was brought to the final vote, the wording 
changed to allow HMO's another option for spending money. They 
would be able to pay more to networks of hospitals and doctors 
that provide care for their beneficiaries.
    On average, plans can devote 70 percent or more to this 
added option. To add to the mix, Keystone 65 says that 
providing healthcare for Philadelphia compared to the four 
surrounding counties, there is very little difference. 
Philadelphia residents who are enrolled in Keystone 65 pay only 
for the prescription part of the plan, which amounts to $35 for 
generic brands or $65 for brand names. The surrounding counties 
may pay an additional $59 per month on top of the 35/65 fee 
paid by Philadelphia Keystone members. The HCFA, which 
administers the program, has never explained why there is such 
a disparity in funding. For example, HCFA funds $762 for each 
Philadelphia Keystone member as opposed to only $559 for each 
member in the suburbs.
    I have been in contact with Representative Greenwood's 
office over the past few months and have been told that they 
are working on the problem. Why is there a difference in the 
way HCFA funds Philadelphia versus the suburbs? Why after years 
of zero cost to seniors enrolled in Keystone 65 do we now pay 
$89 per month for a generic drug plan and Philadelphia pays 
only $35 for the same plan?
    Show us the formula that justifies the fee difference 
because HCFA's imbalance of funding. This affects myself as 
well as other seniors in the following examples. As of January 
2001, the annual premium for an individual went from zero to 
$1,068. the annual premium for a married couple went from zero 
to $2,136, or as high as $2,556 if the brand name plan is 
necessary. Not to mention, having a co-pay for doctor visits 
and prescriptions.
    I have a seasonal job. I am concerned about how I will 
manage this financial burden if the day comes when I no longer 
am able to work. I would be reduced to a fixed income and 
having also to meet the obligations of paying almost $4,000 in 
local property taxes. As of now, I don't qualify for State 
programs such as PACE, et cetera, unless parameters are changed 
to include seniors in my similar situation.
    Thank you for allowing me to voice my concerns and opinions 
on this very serious matter.
    Mr. Greenwood. Thank you very much, Mr. Blacknell, for your 
testimony. We appreciate it.
    Just to explain the process here, you have asked a lot of 
questions about why things are the way they are. In the next 
panel, we will begin to get those answers as we ask those 
questions of the Health Care Financing Administration and the 
insurance company themselves.
    Ms. Kopacz. And please speak as directly into the 
microphone as you can so everyone in the back can hear.
    Ms. Kopacz. How is this?
    Mr. Greenwood. That is great. Thank you.

                    TESTIMONY OF LYNN KOPACZ

    Ms. Kopacz. Good morning. My name is Lynn Kopacz. I am an 
insurance manager at Wood River Village, a retirement community 
in Ben Salem. What I do is help all the seniors at our facility 
with their health insurance problems, issues with bills, 
premiums, and different plans, which is the best for their 
particular physical needs.
    With U.S. Healthcare, with the difference in the premiums, 
comparisons in premiums, I did find yesterday in Bucks County, 
Aetna U.S. Healthcare cost $50 per month. That includes no 
prescription drugs. In Philadelphia County, the same plan is a 
zero dollar premium. In New Jersey, Mercer County, the same 
plan is $93 a month. I did find out in Philadelphia they offer 
an additional plan for $40 a month that will give you $500 in 
annual prescription costs. However, if you multiply the $40 a 
month times the 12 months, you are, actually, paying $480 for 
them to give you $500 worth of coverage.
    Mr. Greenwood. Less postage.
    Mr. Kopacz. Right. When you add in your co-pays, you are 
actually paying them. So that is part of the problem. I didn't 
get the Keystone premium difference information, unfortunately.
    One of the issues I wanted to talk about was the impact of 
the decreased prescription benefits and the effect on seniors. 
I have one resident that was paying a $30 co-payment for a non-
formulary brand name prescription. When her prescription 
benefit was exhausted in April this year, the cost went up to 
$130.28 for that one prescription, which was just one of maybe 
seven or eight prescriptions she takes. Her total bill did go 
to $827.21 for the month.
    Another issue we have with the HMO's is the communication 
problem. While these seniors here are--I consider them barely 
even seniors. They are very young and capable. The average age 
at our----
    Mr. Greenwood. We are the politicians up here.
    Mr. Kopacz. Sorry. The average age at our facility, I know, 
last year was 88 years old. So what happens with an 88-year old 
person is many other complications. For example, when they need 
referrals or they need to compare prescription drug costs, they 
cannot hop into their car and drive to Target, and CVS, and K-
Mart, and all the different areas to find different cost 
differences. They are, basically, at our facility and have to 
get the different pharmacies that we have that deliver to our 
facility.
    We also have an issue with safety with the many different 
number of prescriptions that some of the seniors take. We use a 
pharmacy that prepackages medications for them, and that way, 
if they need help with their medications, a nurse can come up 
on an a.m. and p.m. basis, give them the proper amount of 
dosage and pills that they are supposed to take, which also is 
an added cost to the seniors, too. And also, it doesn't allow 
them to use mail order pharmacies, which can also be a big 
savings.
    The other issue I wanted to talk about was the 
communication issue. Poor vision and poor hearing create 
confusion when trying to deal with automated telephone systems, 
voice mail, referrals, and pre-authorization requirements. A 
situation I had when I was trying to help a resident was I 
called Keystone 65, and I was told that all their 
representatives were busy, I would have to leave a message, and 
I would receive a call back within 24 hours. Three days later, 
I got the call back. I was unable to take the call at that 
time. They told me this is, basically, your chance, and if you 
don't take it, you miss your opportunity, which, unfortunately, 
I did. I had to go back through. They told me I had to call the 
member services number again and go back through the whole 
situation again, leaving frustration. Many of them are very 
frustrated, as well as myself. I find it is very frustrating to 
have to leave a voice mail message and hope that someone gets 
back to you.
    Also, there is questionable knowledge of the insurance 
company representatives. I have found a situation where I have 
called one of the particular HMO's four times on the same issue 
and received four different answers. Keystone 65, one of the 
problems is they don't have the automated referral system, so 
the members are supposed to go to their doctor's office and 
pick up their referrals, which is another problem.
    And the last thing I wanted to say--I could go on, and on, 
and on, because there are so many problems that the seniors are 
having with this, with the HMO's. One is the ability to 
understand the benefits and make an educated choice based on 
the plan comparisons provided by the insurance company. The 
information mailed out is lengthy, confusing, and overwhelming. 
And I find that I know--I, at one time in my job I did, I used 
to interpret contract language for different insurance plans 
for union and salaried members, and the information in the 
language that they send out in the packets of information does 
not include a lot of the information that you need to know, and 
there is a very big gray area regarding what is covered, what 
is not covered, how to get it, and how to be eligible for the 
benefits that you are guaranteed.
    I know I have an issue with Keystone 65, someone that had a 
hearing aid purchase, and they had to call through to get to 
the phone. You first had to get on the phone to get somebody to 
mail you out the form that had to be completed to send back in 
to get reimbursed. And this took at least three phone calls for 
me to get the form to be sent out.
    And just one other thing I want to mention, too. I had a 
resident who was 90 years old, was informed by her company she 
was covered as a retiree for a company she worked for 30-
something years. She was informed this year that they can no 
longer afford to supply their retirees with health insurance 
benefits, that she would have to find new coverage. She was 
paying $87 a month for coverage with prescription costs. We sat 
down and went through all of the different Keystone plans and 
U.S. Healthcare plans, got a prescription printout from her 
pharmacy listing all of her brand name medications, her generic 
medications, figured out the actual cost, if we had co-pays, if 
they are on the formulary, if they are a preferred brand name 
or a non-preferred brand name, and figured out with each 
particular plan what the cost would be per month. I don't think 
that this 90-year old woman would have been able to do it if I 
had not helped her do it.
    But interestingly enough, what I did find out as the actual 
cost between all of the plans, with U.S. Healthcare included, 
not paying any prescriptions was a difference of maybe $20 over 
the whole month. So that is, you know--thank you.
    Mr. Greenwood. Thank you very much for your testimony.
    The Chair recognizes himself for 5 minutes for inquiry, and 
let me address my question to you, Ms. Kopacz, if I may. A few 
years ago, three or 4 years ago, it seemed to me to be a very--
as I said in my opening statement, a very excellent choice to 
choose a Medicare+Choice plan because you saved the money that 
you might may a Medigap policy. You get the prescription drug 
plan you didn't have access to otherwise, and other health 
benefits as well. As the prescription drug benefit has vanished 
for most intents and purposes, and as the premium has now 
climbed to $50 a month, help me with the math. At what point--
is it still advantageous for most beneficiaries to remain on 
the managed care plan as opposed to going back to fee-for-
service where they would have no--they wouldn't pay the premium 
but, of course, they would either have to go out and buy a 
Medigap policy or take the risk of paying out of their pocket 
for what Medigap covers should they need it? How do you advise 
your residents as to whether they are better off on a fee-for-
service plan or a Medicare+Choice plan?
    Ms. Kopacz. Well, actually, what I found is that each 
individual person differs. And like I said, with this 
particular woman, we had to--and this is what I have done with 
everyone. I get a printout of all of their pharmacy costs for 
the month. You have to compare how many generic they have, how 
many brand name they have, what is the actual cost, are they on 
the formulary, will it cost them $25, $10, $15, is there 
unlimited coverage. Every person really differs based on the 
amount of brand name prescriptions that they actually take. 
Actually, it gets to the point of even how many specialists you 
have to go to, a $20 co-pay versus a $10 co-pay. When you are 
on a fixed income, $3 makes a big difference. And I find that 
people are willing to change their insurance plan based on a $3 
co-pay extra per month.
    What I found with this particular one, like I said, that 
she, even with no prescription coverage, the cost of her--which 
is minimal. She takes a minimal amount of prescriptions. What I 
am finding is the average cost per month with no insurance is 
$500, I would say, average that seniors are paying. This woman, 
in particular, only has seven medications. Her total was 
$190.29 per month. So adding in the premiums, deducting her co-
pays, figuring out if it is generic formula, or nonpreferred, 
or preferred, it came to a difference of $20 between plans. 
However, with people that are on a high cost brand name 
prescription usually exhaust the benefit in the first 2 months 
of the year and end up, they are paying the additional premium 
of $90, $130 in some cases, a month, plus they end up paying 
for the last 10 months of the year the actual cost of the 
plan--I mean, the actual cost of the prescriptions.
    Mr. Greenwood. Thank you very much. And obviously, your 
residents are very fortunate because they have you to, with all 
of your experience and ability, to come and walk them through 
this very complex process. The average senior out there may 
find that an overwhelming process to make all of those 
calculations and decide what is the best choice.
    Let me direct a question to Ms. Kirsch, and I am going to 
ask Ms. Dudley and Mr. Blacknell to answer as well. Can you 
give us a sense of now that you are having to pay these 
additional burdens, both for your premium and prescription, 
what has that done to your budget at home? What are you doing 
without that you might have enjoyed otherwise?
    Ms. Kirsch. Well, what I do is I put it----
    Mr. Greenwood. Before you respond, I am going to ask that 
the microphone be sent down to you, and if you will speak 
directly into it, some of my staff are hard of hearing and I 
want to make sure that they can hear.
    Ms. Kirsch. Okay. What I do is I put it on my credit card, 
because with the two of them, it comes up to $254 a month.
    Mr. Greenwood. What do you put on the credit card, the----
    Ms. Kirsch. My prescriptions.
    Mr. Greenwood. The prescriptions.
    Ms. Kirsch. At the drugstore, I give them my credit card, 
and then when my bill comes in, I pay half of it. And then the 
next month, I pay the other half. That is the only way I can 
see to do it. Then I don't put out all that money at one time.
    Mr. Greenwood. But if I do the math then, what happens is 
your credit card balance is going to grow month by month by 
month.
    Ms. Kirsch. Exactly.
    Mr. Greenwood. So you are, basically, plunging yourself 
into debt just to take the medications.
    Ms. Kirsch. I just started doing that. I don't like to do 
it. I hate it. It worries me. But what else can I do? I can't 
expect my kids--I won't let my kids do this, you know. They 
have their families, and I just won't do it. So I just try to 
go along and do it that way. And also, I went with three 
different mail order companies. And right now with Pace, the 
price has not dropped one cent. It is still up to $101 for one 
prescription. I thought with Pace I would get a break. NO.
    Mr. Greenwood. Well, do you qualify for the Pace program or 
the Pace net program?
    Ms. Kirsch. Yeah, I have the card. I sent in my form. I 
sent in everything that they needed, and I don't understand 
that. Of course, there is no generic for what I take. I take 
cholesterol and high blood pressure, and the doctor said I have 
to take it, but there is no generic so I don't get a break on 
the cost.
    Mr. Greenwood. Okay. Ms. Dudley, can you comment? If you--
it is a fairly personal question, but I am trying to get a 
sense of what this has meant to your lifestyle.
    Ms. Dudley. Yes, it has changed mine, but I have taken it 
out of many other funds and switched it into the medical fund. 
And we don't know--I don't know if I have enough in there. I 
have to wait until the end of the year to see how I am coming 
up. But I agree with what you are saying, if you can't get the 
generic--and I was on Brocardia and there was no generic. It 
has just become generic, and so there is a huge difference in 
the money on that particular--but I did want to answer when you 
said about is it still advantageous to say in the managed care 
versus going to fee. My husband told me that on his visit that 
he has to take twice a year because he has a heart problem, it 
is $250. So now, you take $250 twice, you have $500. He is 
paying $600 into managed. And so that is just for those two 
visits. That is not for anything when he goes to the heart 
doctor. And so you can see, we stay in it just only for that 
reason at this time. We haven't found that it would be--to drop 
out. Otherwise, everything else is gone, the help for all kinds 
of aid. Dental is definitely gone. There is nothing in that 
line. So we do pay quite a high fee for that.
    But that is what I had to do with my budget. I had to 
really take from other things that I have allotted and put it 
into the medical. And with the fuel, it is going to happen with 
utilities also. So it does come out of food, it does come out 
of entertainment, which we do very little of, and you wonder 
where it is going to come from. And I am sorry to hear that you 
have to put that on a credit card, because it is going to 
snowball with the interest.
    Mr. Greenwood. Thank you. Mr. Blacknell--would you pass the 
microphone over--and could you respond to the same inquiry as 
to how this has affected your family budget?
    Mr. Blacknell. Well, as I mentioned, I have a seasonal job, 
approximately, I work 6 months to 6\1/2\ months. What I tried 
to do is I went to the Veterans Administration, and there you 
can get 90 days supply for $6, except that they don't carry all 
drugs. My cholesterol is great, but my good cholesterol is 
low--it is always something. So anyhow, they don't have it, so 
you have to go out and pay for it. And I won't mention the two 
stores, but one was $76 for a month's supply and the other was 
$65. So there is a disparity there, which sort of ties in with 
what they are saying. And that is, basically, it for now. But 
as I mentioned, when I stop working, I will be in a different 
category.
    Mr. Greenwood. That is great to shop around, but I think it 
was one of these ladies--was it Ms. Dudley--said that if they 
won't give you the information over the telephone, it is an 
impossible task to drive to ten different pharmacies to find 
out which one has the best price.
    Mr. Blacknell. Well, as it happened with me, I just went to 
one, and I paid for the prescription, and I just happened to go 
to another one after the usage of that and found out it was 
more advantageous to go to that drugstore.
    Mr. Greenwood. Very well. Mr. Blacknell mentioned the 
Veterans Administration. Of course, the problem is that if you 
go to the, or call the VA in this area to schedule an 
appointment at the Willow Grove Base, for instance, so that you 
can qualify, because you have to get a physical, you are told 
there is almost a year's wait before you can even get it. And I 
want to let you know, let everyone know here, that this is 
something I am very involved in. We have a meeting at 2, I 
think it is this afternoon, or tomorrow afternoon at 2, with 
the VA and with the Captain at the base, and some others, and 
we are going to try to find a location where we can expand the 
facilities at the base so that we can bring more nurses and 
other personnel in there so we can get these physicals done 
more quickly so we can get those who qualify for the VA 
benefits on that prescription plan sooner rather than later.
    Thank you all. And now we will turn to Mr. Deutsch for 5 
minutes for his questions.
    Mr. Deutsch. Thank you, Mr. Chairman. I am trying to get a 
sense in this community, and I guess what I have heard is that 
there are no Medicare+Choice providers that provide any type of 
prescription drug coverage in this period?
    Ms. Dudley. Unless you are with a company.
    Mr. Deutsch. And when, just for whoever can answer, when 
did that change?
    Ms. Kopacz. The first of the year.
    Mr. Greenwood. Don't forget to--I am sorry that we don't 
have four microphones, but if you would just always pass the 
microphone back so that the folks in the back can hear, please.
    Ms. Kopacz. In our particular area, Keystone 65 does offer 
four different plans, and each increase is, you know, premium 
increases with the actual amount of benefit they give you for 
your prescription drugs.
    Mr. Deutsch. So that changed as of January 1, but what are 
the four plans?
    Ms. Kopacz. There are four different plans. The first plan 
has no prescription coverage, is $59 a month. Drug Option 1 is 
$89 per month, covers unlimited generic drugs with a $10 co-
pay, no brand name prescriptions. Unfortunately, most people 
need the brand name prescriptions. Drug Option 2 is $124 per 
month, unlimited generic, $10 co-pay, brand name prescription. 
Here is the catch on this. $750 brand name prescription, $10, 
$15, $25 co-pays with a formulary. It is limited to $375 every 
6 months. Drug Option 3 is $136 per month. They give you 
unlimited generic with a $10 co-pay, $1,000 in brand name 
coverage, $500, broken down into $500 every 6 months, with the 
$10, $15, $25 co-pays with the formulary. Formulary is very 
confusing, it is very hard to understand. I, myself, cannot 
even find half of the medications that the doctor orders on 
there. I don't know if there is different names, or if they are 
generic, or what the situation is with that.
    Mr. Deutsch. So I guess the bottom line, though, is that if 
you live here in this community, and you have high prescription 
drug cost, and you are a middle class senior, you are in 
serious trouble.
    Ms. Kopacz. Yes, that is exactly----
    Mr. Deutsch. I mean, that is the bottom line.
    Ms. Kopacz. Yes.
    Mr. Deutsch. And I mean, prior to January 1, you did have 
an option, but you really don't have that option anymore?
    Ms. Dudley. No.
    Mr. Deutsch. And so I mean, as a practical sort of thing, 
you know, what are you telling your friends, what are you doing 
as choices? I mean, you are making the choice. You talked about 
less entertainment, less food, putting things on credit cards. 
I mean, are those the options that seniors--is practical? And 
let me tell you again, I mean, one of the--in Philadelphia, if 
the people here lived in Philadelphia, what would the choices 
be?
    Mr. Blacknell. It would be $35 for the generic or $65 for 
the brand name.
    Mr. Deutsch. And would that be total coverage for brand 
name drugs, similar to prior to January 1?
    Mr. Blacknell. Well, that is the question.
    Mr. Deutsch. I mean, I don't want to, you know, recommend 
anyone do something improper or illegal, but do you have 
friends who are using addresses in Philadelphia to get 
prescription drug coverage?
    Mr. Blacknell. No, not that I know of.
    Ms. Dudley. We don't like to do that.
    Mr. Deutsch. I wouldn't recommend it to anyone but, you 
know, given the choice of survival--I mean, I think seniors 
start doing things that maybe we don't want them to do.
    Ms. Kirsch. They catch up with you then.
    Mr. Blacknell. Anything is possible.
    Mr. Deutsch. Let me talk about that in a direct sense also, 
because one of the things Congress is, in fact, you know, 
addressing--and our committee, actually, has jurisdiction over 
it--is the idea of having prescription drug coverage as a 
benefit of Medicare, you know. Just to give people some sense 
of that, you know, there are some interesting statistics about 
Medicare. One is that prior to when it was created 36 years 
ago--and there are two interesting statistics that I like to 
mention, occasionally. One interesting statistic is the average 
life expectancy for Americans 36 years ago was 65 years old. 
The good news is 36 years later, it is over 80 years old. So in 
a period of 36 years, we have had a real high class problem, 
people living a lot longer. One of the reasons they are living 
a lot longer is prescription drugs, as a variety of other 
things as well. But one of the things that is clear is if we 
were today creating a Medicare system, it is 100 percent 
certain we would include prescription drug coverage. You 
couldn't conceive of a healthcare system without prescription 
drug coverage today.
    I think the truth of the debate of what is going on is who 
should that prescription drug coverage cover, and there have 
been different proposals. And this is where I think, you know, 
a real debate is going on in Congress because, unfortunately, 
the President has made a proposal that limits that coverage to, 
really, low income seniors. And the threshold level in many 
cases is $15,000 a year as total income. Mr. Blacknell 
mentioned, you pay $4,000 a year in property taxes. And 
whatever else--if you are talking about your premium and other 
things, I don't think--you know, at what level, you know, is it 
appropriate. I mean, you know, what level is appropriate for--
my perception is that it should apply to all Medicare 
beneficiaries, and I think that is really the debate.
    So maybe if you can comment--I mean, if Congress does 
implement the prescription drug plan, do you think there should 
be an income standard for that or, I mean, should it be part of 
Medicare as a whole?
    Ms. Kopacz. I just want to comment that, actually, when 
President Bush was running for president, he was stating that 
they didn't feel that Government wanted--or the people didn't 
want Government involved in their prescription drug plans. I 
went back to Wood River Village and did a spreadsheet on how 
many people, the people that lived at Wood River Village, which 
is a retirement community. You have to have a little bit of 
money to get in there. I did a comparison of how many people 
actually did have prescription drug coverage. What I found was 
that not including the HMO's, because they were at that time 
giving prescription coverage, the people without coverage 
worked out to about 65 percent of the people, of seniors, had 
no coverage; 4 percent actually qualified for Pace; 22 percent 
did have coverage through a private company, and they were all 
government workers. It was the Federal employees, teachers, and 
Bell Atlantic. And besides that, the majority of the people did 
not have any prescription coverage.
    Mr. Deutsch. Does anyone else want to comment? I mean, if 
we are going to implement prescription drug coverage for 
Medicare, do you believe there should be income standards?
    Ms. Dudley. Absolutely. It should be every--and that is my 
opinion. Because what happens when they put this cap on your 
income, it is never in with the middle. It is always for some 
very poor, which I would hope that they would be able to get 
their prescriptions, period, without having to pay if they have 
no money. And I am not asking for a free ride, and I don't 
think many of us are. We don't mind contributing toward 
prescriptions, but it has to be a reasonable, and it needs to 
be to cover all the drugs. And I can understand how people are 
running to Canada. I mean, Ananan printed their address, and 
believe me, I saved it, of where in this country we can join 
this group to go to Canada if it gets that bad. I don't want to 
do that; we shouldn't have to.
    Mr. Deutsch. I could tell you you can come to Florida, 
because the HMO's there still provide a prescription drug 
coverage. That is one more reason to move.
    Let me mention, though, one final thing, and that is, you 
know, this threshold amount of $15,000. I mean, do you consider 
that, you know, a threshold amount that is appropriate in terms 
of, you know, seniors. I mean, it is sort of if you have more 
than $15,000, can you afford to pay for your prescription drugs 
in terms of income? And it is actually--I think it is $17,000 
for a couple. I mean, what does that mean in the real world of 
seniors living in this community?
    Mr. Blacknell. The VA, their threshold is $27,000. So there 
is a $10,000 difference; they are in the real world.
    Mr. Deutsch. Okay. All right. Thank you very much.
    Mr. Greenwood. The Chair thanks the gentleman for his 
questions. If I may insert an editorial opinion, what we are 
likely to do in the Congress, and what the House of 
Representatives did last year and the Senate didn't get to, is 
pass legislation that would provide at the lower tier, 130 
percent of poverty or thereabout, that it would, basically, pay 
for everything. There would be no co-pays, there would be no 
premiums, and the drug benefit would be covered. What we are 
fortunate--and then above that, there would be more of a 
sharing between what the Federal Government pays and what the 
beneficiary pays. We are fortunate here in Pennsylvania because 
we do have this very strong Pace program that right now is 
focused entirely on the lower income folks of Pennsylvania. The 
idea is that if the Medicare Program steps in and covers 
entirely the lowest income residents of Pennsylvania, then the 
Pennsylvania legislature and our Governor will be able to use 
the lottery monies that are now used for the Pace to now pay 
for the middle class to help make up the difference between 
what Medicare pays and what the beneficiaries pay. So because 
we have such a strong program in Pennsylvania, no matter what 
we do in Washington, Pennsylvanians will probably fare better 
than most.
    The Chair recognizes for 5 minutes the gentleman from 
Montgomery County, Mr. Hoeffel.
    Mr. Hoeffel. Thank you, Mr. Chairman. I wanted to ask Ms. 
Kirsch, Ms. Dudley, and Mr. Blacknell to respond to some of the 
comments of Ms. Kopacz, who seemed to strike quite a nerve--I 
saw lots of heads nodding up and down when she was talking--
regarding when you try to compare Medicare+Choice plans, you 
get confusing information, automated messages, it is difficult 
to communicate, bureaucratic hurdles, confusing differences in 
plans. Have the three of you experienced something like that?
    Ms. Dudley. We were in, as I said, Aetna U.S. Healthcare. 
We wanted to make a change because we weren't--we were told we 
weren't going to get the prescription coverage, or we were 
having a reduced prescription coverage. So the man from 
Keystone came out. He had his whole spread. None of my 
husband's medications were on that, none of them. So that ended 
Keystone.
    Mr. Hoeffel. And most of the difficulty is over the 
prescription coverage?
    Ms. Dudley. That is absolutely right.
    Mr. Blacknell. My wife is with Aetna, and on prescriptions, 
she takes Libertore, and she received a letter asking her to 
take the generic two times, and her doctor insists that 
Libertore does the job for her. And the formulary and----
    Mr. Hoeffel. What was the upshot of that? How did you 
resolve that problem?
    Mr. Blacknell. Well, it is still the same. She is taking 
Libertore. They never got back again and said, you know--it is 
a must.
    Ms. Dudley. That wasn't even on Keystone.
    Mr. Blacknell. Well, she is Aetna.
    Mr. Hoeffel. And is that being covered?
    Mr. Blacknell. Pardon?
    Mr. Hoeffel. Is Aetna covering that?
    Mr. Blacknell. Yes, but she had received two letters from 
them stating she should be taking whatever, the generic or 
whatever brand it was.
    Ms. Dudley. Well, are they covering it now with the no 
prescription----
    Mr. Blacknell. Yes, they----
    Ms. Dudley. Oh, then you have something different.
    Mr. Blacknell. They never got back to her and said, you 
know, you must change.
    Mr. Hoeffel. So you felt some pressure from them, but they 
have continued to cover it?
    Mr. Blacknell. Right.
    Mr. Hoeffel. All right. Ms. Kirsch?
    Ms. Kirsch. I just take two pills, Flexeril and high blood 
pressure. They are both over the counter drugs. And my doctor, 
I asked him. I said, can I go generic? He said, I will tell you 
the truth, there is no generic, so I had no choice. That is 
what it has to be.
    Mr. Hoeffel. Have you had problems trying to figure out 
what coverage is best for you?
    Ms. Kirsch. No. I only take the pills, I have no fatal 
disease.
    Mr. Hoeffel. I am glad to hear that.
    Ms. Kirsch. I just went along with what they said.
    Mr. Hoeffel. Let me ask the panel this question regarding 
prescription coverage. There were two basic plans offered in 
Congress last year, one that would have extra dollars given to 
the insurance industry to encourage them to offer drug policies 
that seniors could then evaluate and choose the policy that 
provided them with the best prescription coverage. The other 
plan was to simply put a prescription drug plan into Medicare 
where it would be a universal plan, the same for everybody, 
with significant co-pays. I don't want you to respond to the 
differences in cost here. I am trying to determine what the 
best method is, whether we should be encouraging the private 
insurance industry to be providing drug only policies that you 
could evaluate and choose or would you prefer a Medicare 
prescription coverage that you would take your card to the 
pharmacy and pay your share of that plan based upon the 
economics, but not have to deal with private insurance 
companies? Do the three of you have a view of that choice?
    Ms. Dudley. I definitely have a view on that. Definitely, 
absolutely, no question, it should be through the Congress 
because, first of all, you have the profit making institutions, 
and some how or other, that gets deteriorated. The money gets 
allotted to things that it shouldn't be allotted to and it is 
going to go and it is going to change. If it is mandated in 
Congress for everybody, at least you have a chance.
    Ms. Kirsch. Yes, I heartily agree with that.
    Mr. Blacknell. I have never been in Medicare, so I don't 
know as far as that. But I think if it was administered by the 
Government, it would probably be better.
    Mr. Hoeffel. All right. Thank you. I thank you very much 
and I yield back my time.
    Mr. Greenwood. The Chair thanks the gentleman, and we thank 
the witnesses very much for coming here this morning and for 
your testimony. It is very helpful and we will take it to 
heart. You are excused and we call forward the next panel.
    And they are Ms. Judy Berek, who is the Administrator for 
the Northeast Consortium of the Health Care Financing 
Administration; that is HCFA, Medicare; William F. Haggett, 
Senior Vice President, Government Programs, Independence Blue 
Cross; Dr. Sandra Harmon-Weiss, the Head of Government Programs 
for Aetna U.S. Healthcare; and Dr. Scott Harrison, who is 
Research Director for Medicare+Choice of MedPAC.
    Thank you all for being here. I appreciate your presence 
this morning. Let me, as I did with the first panel, note that 
I am sure that you are aware that the committee is holding an 
investigative hearing, and in doing so, has had the practice of 
taking testimony under oath. Do any of you have objections to 
taking testimony under oath? Hearing none, the Chair then 
advises you that under the rules of the House and the rules of 
the committee, you are entitled to be advised by counsel. Do 
you desire to be advised by counsel during your testimony? The 
answer is no. In that case, would you please rise and raise 
your right hand, and I will swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. So saying, you are now under oath, and you 
will be recognized to give a 5-minute summary of your written 
statement, and we will begin with Ms. Berek from the Health 
Care Financing Agency. Thank you for being with us this 
morning.
    Oh, and let me, before I take your testimony, let me ask 
unanimous consent to enter into the record the letter that I 
sent to the Health Care Financing Agency requesting 
reimbursement data in Bucks and Philadelphia Counties, and 
HCFA's response to me, and the chart that I prepared on 
Medicare+Choice spending to my left. Without objection, those 
documents will be entered into the record.
    [The documents follow:]
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    Mr. Greenwood. You are recognized for your testimony, Ms. 
Berek. Thank you.

      TESTIMONY OF JUDITH BEREK, ADMINISTRATOR, NORTHEAST 
 CONSORTIUM, HEALTH CARE FINANCING ADMINISTRATION; WILLIAM F. 
     HAGGETT, SENIOR VICE PRESIDENT, GOVERNMENT PROGRAMS, 
INDEPENDENCE BLUE CROSS; SANDRA HARMON-WEISS, HEAD, GOVERNMENT 
    PROGRAMS, AETNA U.S. HEALTHCARE; AND SCOTT C. HARRISON, 
           RESEARCH DIRECTOR, MEDICARE+CHOICE, MEDPAC

    Ms. Berek. Thank you, Chairman Greenwood, and Congressmen 
Deutsch and Hoeffel, for holding this hearing. And thank you 
for inviting me to discuss the Medicare managed care program, 
Medicare+Choice.
    Medicare+Choice offers Medicare beneficiaries a range of 
health plan options and allows them to choose the types of 
health plans that bet suit their individual needs. Both 
Secretary Thompson and the new HCFA Administrator, Tom Scully, 
will be placing a high priority on working with you and other 
Members of Congress to revitalize the Medicare+Choice program. 
Just this week, Secretary Thompson gave Medicare+Choice plans 
the extra time they have been asking for to prepare and submit 
benefit proposals and to make their participation decisions for 
next year.
    The Balanced Budget Act of 1997, which is often just called 
BBA, and subsequent amendments to that law, have reduced the 
substantial geographic variation in county payment rates that 
existed under the previous Average Adjustment Per Capita Cost, 
or AAPCC, which is the classic jargon term for how we pay 
managed care plans methodology.
    In the first chart, which my Vanna White has put up there, 
you will see that in 1997, the county with the highest payment 
rate in the country was Richmond County. And for those of you 
who would like that decoded, that is Staten Island. Richmond 
County is Staten Island, New York for those of you who want to 
know where it is. And the lowest payment rate in the country 
was Arthur County in Nebraska. And you will see that in 1997, 
the ratio was 3.47. In other words, the rate was 3.47----
    Mr. Greenwood. That microphone is very directional. You 
might want to hold it in your hand, take it from its stand and 
hold it in your hand, and that should make it----
    Ms. Berek. Is it working now? Okay. Richmond County was 
3.47 times higher than the rate in Author County. Now, in 2002, 
we have reduced that variation so that although it is now $856 
in Richmond, it is $500 in Arthur County. And one of the goals 
of the BBA was to reduce that difference. This chart also 
highlights how reductions within States were reduced, and you 
will notice that in Nebraska, in 2002, the very highest rate in 
Nebraska was $433, and the lowest rate in Nebraska was $221, 
and it has now been narrowed so there is only a $53 difference. 
And if you look at New York, you will see that the lowest 
county, which is Lewis County, where the rate was $303 in 1997, 
is now $500, and so the difference, again, was dramatically 
reduced.
    Although the BBA reduced payment variation in the 
Medicare+Choice payment, the payment between counties still 
varies. The second chart that Paul, AKA Vanna, is putting up, 
shows you the difference between Bucks and Philadelphia 
Counties and the underlying utilization difference between the 
counties. And I hope this hopes to answer some of the questions 
raised.
    And if you look at in 2002, we have two ways of calculating 
the rate. One is based on the demographics, which looks at the 
age rates in the county, and if you look at Bucks and the 
utilization, the cost in that way would be $629, and in 
Philadelphia it would $769, where the difference is 22 percent. 
We are, gradually, modifying the way we pay using a risk rate 
where, if you look at Bucks County, the cost would be $586 if 
it were risk adjusted and in Philly, it would $671, and the 
difference is 14 percent. And those two rates are blended, 
actually, in the payment rate.
    But to look at the underlying reason for some of that 
difference, you need to look at the lower half of the chart, 
which shows you the utilization rate in terms of--and this 
answers the question of why we pay more money in Philadelphia 
County, because the formula requires us to pay based on the 
historic costs, which are driven in this case by utilization. 
And in fact, people in Philadelphia County use hospitals 27 
percent more, they use home health agencies 60 percent more, 
skilled nursing facilities 22 percent more, physicians 4 
percent more, DME, Durable Medical Equipment, 50 percent more, 
and interestingly, hospice services 13 percent less. But in 
everything but hospice services, you will notice that the costs 
are much greater than Philadelphia, and that is the underlying 
reason.
    The difference--we know the differences in payment rate can 
be very frustrating for Medicare beneficiaries, but this is the 
way the law is written. We have to use the data that produces 
this in order to calculate the rates.
    Before I conclude, I would like to briefly highlight some 
of the resources available to help beneficiaries understand 
health plan options. We have a wealth of resources available, 
including a Medicare+Choice handbook, which is sent to all of 
you annually. We have a toll free number, 1-800-MEDICARE. We 
have information on our web site, which is an award winning 
website called www.Medicare.gov, and all of those locations 
will provide information to you. I know that our new 
administrator is very committed to improving the quality of our 
800 number and making it a 24-hour-a-day number, if possible.
    We also have a State Health Insurance Counseling program, 
which is run by grants from HCFA to the State of Pennsylvania, 
and there are individuals available who will counsel people one 
on one. For those of you who are here who have individual 
personal questions, we have two people here from the 
Beneficiary Services Branch in HCFA. They are Pamela Bragg and 
Sue Pellella, and they are here to handle any questions you may 
have, individually, after this hearing is over. We have two 
people here from our managed----
    Mr. Greenwood. Would those individuals identify themselves 
in case there are questions? Okay. These two ladies in the 
front row.
    Ms. Berek. And we have two people here from our Managed 
Care Branch, John Waylan and Sharon Graham, and they will also 
be available to help anyone with any individual problems. And 
to those of you who have some really technical questions that I 
can't answer, Bob Donnelly, who is the Director of our Division 
of Program Policy for Medicare Managed Care is also here with 
me today. So if any of us can help you, we will be happy to.
    [The prepared statement of Judith Berek follows:]
 Prepared Statement of Judy Berek, Regional Consortium Administrator, 
                  Health Care Financing Administration
    Chairman Greenwood, Congressman Deutsch, other distinguished 
members of the Subcommittee, thank you for inviting me to discuss the 
history and current status of the Medicare managed care program, 
Medicare+Choice. Medicare+Choice offers Medicare beneficiaries a range 
of health plan options, including the traditional fee-for-service 
Medicare program, and allows them to choose the types of health plans 
that best suit their individual needs, according to the options offered 
by the plans. It provides valuable alternatives to traditional fee-for-
service Medicare, and we are committed to strengthening this program.
    Our new Administration, both Secretary of Health and Human Services 
Tommy Thompson and Health Care Financing Administration (HCFA) 
Administrator Tom Scully, will be placing a high priority on protecting 
and improving Medicare+Choice. For instance, this week, Secretary 
Thompson gave Medicare+Choice plans the extra time they have been 
asking for to prepare and submit benefit proposals and to make 
participation decisions for next year. Health care costs in recent 
years have been less predictable, as have decisions by providers to 
contract with Medicare+Choice plans. This action will allow plans more 
time to collect information on their costs and determine the viability 
of their provider networks before having to make decisions about their 
benefit offerings and service areas for next year. We are committed to 
working with you and health plans toward our goal of making more health 
plan options available to our beneficiaries in all parts of the 
country, while helping beneficiaries to better understand these 
options.
    Medicare has a long history of offering alternatives to the 
traditional Medicare fee-for-service program to our beneficiaries. In 
the 1970's Congress authorized Medicare risk contracting with managed 
care plans, and in the 1980's Congress modified the program to make it 
more attractive to managed care companies. Under that program, HMOs 
contracted with Medicare to provide the full range of Medicare benefits 
in return for monthly ``per person'' or ``capitated'' payment rates. In 
the Balanced Budget Act of 1997 (BBA), Congress created the 
Medicare+Choice program to correct perceived flaws in the risk 
contracting program, including payment differences. Since then, 
Congress has refined the Medicare+Choice program through the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).
    Today, 64 percent of all Medicare beneficiaries have access to a 
Medicare+Choice option; and about 5.5 million, or about 15 percent of 
all Medicare beneficiaries, have chosen to enroll in a Medicare+Choice 
plan. As was the case with the risk contracting program prior to the 
BBA, payments under the Medicare+Choice program vary by county, and 
plans have the option of varying their additional benefits or premiums 
from county to county. The differences in benefits across the country 
and between adjacent counties was an issue with the risk contracting 
program, and remains an issue with the Medicare+Choice program today.
                               background
    Medicare pays for the health care of almost 40 million 
beneficiaries, involving nearly one billion claims from more than one 
million physicians, hospitals, and other health care providers. As the 
administrator of this program, the Health Care Financing Administration 
(HCFA) oversees Medicare's various health care plan options, including 
the Medicare+Choice program. For beneficiaries in Medicare+
Choice, we ensure access to providers, approve promotional materials, 
and calculate capitated payment rates. Before the BBA became law in 
1997, Medicare calculated capitation rates under a methodology known as 
the Adjusted Average Per Capita Cost, or AAPCC.
    Under the AAPCC methodology, we determined, for each county, the 
average per person cost for fee-for-service Medicare beneficiaries 
living in that county. Health expenditures were not attributed to the 
county where services were provided, but to the county in which the 
beneficiary lived. For example, if a beneficiary living in Bucks County 
received a service in Philadelphia, that expenditure was included in 
the AAPCC for Bucks County. The per capita amounts were then 
``standardized'' to account for differences between the demographic 
characteristics of Medicare beneficiaries in the county and the 
demographic characteristics of Medicare beneficiaries across the 
nation. Additionally, capitation rates were set at 95 percent of the 
AAPCC, with the 5 percent reduction reflecting the assumption that 
managed care plans could achieve savings through discounts and more 
efficient management of health services. The following example 
illustrates how payment was made:

----------------------------------------------------------------------------------------------------------------
                                                  Demographic   Demographic    Monthly county        Monthly
                                                    Factor,       Factor,    capitation  rate *    payment  per
                                                    Part A        Part B           factor             person
----------------------------------------------------------------------------------------------------------------
Male, non-institutionalized, Age 65 to 69               1.15          1.10    Part A: $ 422.05          $651.55
  Medicaid eligible                                                           Part B: $ 229.50
Female, non-institutionalized, Age 80 to 84             1.70          1.25    Part A: $ 623.90          $884.70
  Medicaid eligible                                                           Part B: $ 260.80
----------------------------------------------------------------------------------------------------------------

    Under the AAPCC method, Medicare capitation rates varied widely. 
Since county fee-for-service costs were used to calculate county 
capitation rates, the rates reflected differences among counties in 
fee-for-service health service usage and payment levels. In addition to 
the substantial variation in rates across the country, there were a 
number of other concerns with the AAPCC payment method, including:

 Payment rates changed unpredictably from year to year in each 
        county, based on fee-for-service costs in each particular 
        county;
 Payment rates could vary widely across adjoining counties;
 Generally, rates were lower in rural areas; and
 Hospitals were concerned that HMOs did not compensate them for 
        medical education like fee-for-service Medicare.
                        recent changes to aapcc
    In the BBA, Congress replaced the risk contract program with 
Medicare+Choice. The BBA modified Medicare+Choice payment rate 
calculations to address a number of concerns with the AAPCC 
methodology. It broke the direct link to fee-for-service spending in a 
county, and moved to reduce wide disparities in county capitation rates 
by bringing both high and low payment rates closer to the national 
average payment rate. In addition to adjusting the payment rates based 
on demographic factors, the BBA required payment rates to be adjusted 
for beneficiary health status, sometimes referred to as a ``risk 
adjusted method'' of payment. It also provided direct payments to 
teaching hospitals for Medicare+Choice patients to ensure these 
hospitals were receiving appropriate medical education payments for 
their Medicare managed care patients. The BBA also mandated that the 
1997 AAPCC rates would serve as the basis for the Medicare+Choice 
rates, and the rates for particular counties would be equal to the 
largest one of three amounts:

1. Minimum 2 percent increase over the prior year's rates, which 
        protected high payment areas as the medical education 
        reductions and reductions in geographic disparities took 
        effect.
2. Minimum amount or ``floor'' amount that increases rates in 
        historically lower-rate counties where Medicare managed care 
        plans generally have not been offered. Beginning in 1998, the 
        BBA set the floor rate at $367; this floor has been adjusted 
        annually by the rate of growth of the overall Medicare program.
3. Blended amount, which is calculated by blending county and national 
        rates, thus increasing rates in historically lower-rate 
        counties while reducing rates in historically higher-rate 
        counties. Each year, from 1998-2003, a greater percentage of 
        the payment amount is based on the national rate, until a 50/50 
        blend is reached. The blend percentage for 2001 was 66 percent 
        county and 34 percent national rates. The ``national rate'' for 
        each county is calculated by adjusting the national rate by 
        each county's Medicare hospital wage index and geographic 
        physician practice cost index.
               additional benefits and premium reductions
    As was the case under prior law, the BBA requires plans to compute 
whether their projected Medicare revenues, based on Medicare capitation 
payments, will exceed their projected costs for providing Medicare 
services (excluding Medicare deductibles and coinsurance). If revenues 
exceed costs, the plan must use those funds to provide additional (non-
Medicare) benefits to enrollees at no additional cost to the enrollee. 
In 2001, on the national level, Medicare+Choice plans are using an 
average of about 19 percent of their Medicare revenues to provide these 
additional benefits, such as routine vision care, dental care, and 
prescription drugs, which are not available through fee-for-service 
Medicare.
    As was also the case under prior law, the BBA mandated that plan 
premiums or other charges, such as copayments, for services covered by 
Medicare may not exceed the actuarial value of fee-for-service 
beneficiary cost sharing. For 2001, that amount is $100.66. 
Medicare+Choice plans may also offer supplemental benefits that 
Medicare does not cover, such as prescription drugs, and may charge 
premiums for those benefits. Depending on the supplemental benefits 
that a plan offers, this plan premium may exceed $100 per month.
    Congress revised the BBA changes in 1999, through the BBRA, and 
again in 2000, through BIPA. The BBRA included changes to the 
Medicare+Choice program to make it easier for beneficiaries and plans 
to participate, including giving plans more flexibility in their 
benefits and cost-sharing, and increasing payments. The BBRA also 
included incentives for plans to offer plans in areas without a 
Medicare+Choice plan already in place. Similarly, BIPA increased 
Medicare+Choice payments and expanded the incentive program for managed 
care plans to offer Medicare+Choice in areas without such options. 
Congress increased both the minimum percentage payment rate increase 
for 2001 only (from 2 percent to 3 percent), as well as the payment 
rate floor amount, to $525 in Metropolitan Statistical Areas with a 
population of 250,000 or more, and to $475 in al other areas.
                   reduction in geographic variation
    The BBA and subsequent amendments have reduced the variation in 
payment rates at the national level. In 1997, the county with the 
highest payment rate was Richmond County in New York and the county 
with the lowest payment rate was Arthur County in Nebraska; their rates 
were $767 and $221, respectively (Chart 1). The ratio of the Richmond 
County rate to the Arthur County rate was 3.47, that is, the rate in 
Richmond County was about 250 percent higher than the rate in Arthur 
County. In 2002, the rates in Richmond and Arthur counties will be $856 
and $500, respectively. The ratio of the rates will be 1.71, a dramatic 
reduction from 1997.
    This chart also highlights how variation within states was reduced. 
In 1997, in Nebraska, the ratio of the highest to the lowest county was 
1.96, that is, the rate in Douglas County was about 100 percent higher 
than the rate in Arthur County. In 2002, that ratio will be reduced to 
only 1.11. There will be a similar reduction in New York, from 2.53 to 
1.71 in 2002. Thus, the BBA changes effectively reduced both national 
and state level variation in payment rates.
                     philadelphia and bucks county
    The second chart (Chart 2) looks specifically at Medicare payment 
rates and utilization rates in Bucks and Philadelphia Counties. The 
Medicare law requires payments to Medicare+Choice organizations in 2001 
to be based 90% on the demographic method and 10% on the risk adjusted 
method. The first row in the chart indicates that under the rates used 
in 2001 for the demographic portion of payments, the rate for the 
average beneficiary in Philadelphia County is 22 percent higher than 
the Bucks County rate. The next row on the table shows the percentage 
difference for rates under the risk adjustment method. For the risk 
adjusted portion of payments, the rate in Philadelphia County is 14 
percent higher than the Bucks County rate. The difference between the 
risk method rates in the two counties would indicate that, on average, 
beneficiaries in Bucks County are healthier than beneficiaries in 
Philadelphia.
    Turning to the comparison of the utilization of services in the two 
counties, the table shows that beneficiaries in Philadelphia County 
utilize more services than those in Bucks County. In particular, they 
use more hospital, home health, skilled nursing facilities, and durable 
medical equipment services than beneficiaries in Bucks County. The 
greater use of these relatively costly services would be associated 
with a population that is sicker and therefore has a greater need for 
medical services. This higher use of services corresponds with the 
higher 1997 base rate for Philadelphia County.
    Differences in payment rates as well as in benefits and premiums 
between adjacent counties were an issue prior to the BBA and remain an 
issue today. These premium and benefit differences are influenced not 
only by Medicare payment rates, but also by the ability of the 
Medicare+Choice organization to negotiate favorable payment rates with 
providers and the presence of other Medicare+Choice options in the 
market area.
                               conclusion
    We are working hard to ensure that Medicare beneficiaries receive 
high quality health care, and have a variety of options to choose from 
so their health plans most closely meet their individual needs. The 
Medicare+Choice program is one important way we accomplish this goal. 
As the name suggests, Medicare+Choice offers many beneficiaries a 
guarantee of traditional Medicare fee-for-service benefits, as well as 
a choice of other options, which vary from plan to plan. Congress has 
made several important improvements to Medicare+Choice over the last 
few years, and our new Administrator is strongly committed to working 
with you and health plans to expand and revitalize the Medicare+Choice 
program. Thank you for the opportunity to discuss this with you today, 
and I am happy to answer your questions.
[GRAPHIC] [TIFF OMITTED] T3736.040

[GRAPHIC] [TIFF OMITTED] T3736.041

    Mr. Greenwood. Thank you for your testimony. If you will 
pass that highly directional microphone to Mr. Haggett, he will 
now try to----

                 TESTIMONY OF WILLIAM F. HAGGETT

    Mr. Haggett. Good morning, Mr. Chairman, Congressman 
Deutsch, Congressman Hoeffel. Thank you very much for the 
opportunity to represent Independence Blue Cross at this 
hearing. It is also a pleasure to see many of our members of 
Keystone 65, and Personal Choice 65 are here with us this 
morning as well.
    Just by way of context, I want to just underscore the 
longstanding commitment that our company has to the Government 
business, Medicaid, Medicare, and CHIP. We currently enroll, 
through our various companies, a total of 900,000 Medicaid 
managed care beneficiaries, 250,000 which are located in this 
region, 25,000 CHIP members and, currently, about a little over 
150,000 Medicare+Choice members. It has been a longstanding 
series of programs that our company has offered. It is 
something that we feel very strongly about. It is part of what 
Independence blue Cross stands for. We are concerned, however, 
about our ability to continue, specifically, the 
Medicare+Choice program given the current trends and direction 
in which we are heading.
    One other point I would like to make is that under the 
legislation that created the Medicare+Choice program, Congress 
was looking for the opportunity to present choices to 
beneficiaries. We have, since 1997, offered a PPO product, 
Personal Choice 65, in this marketplace. It was the first PPO 
that was brought in under the Medicare+Choice program. It still 
continues to be a very viable--or popular product, I should 
say. The viability of that product, however, is something that 
we are very concerned about given the current rules and 
direction.
    I do and have submitted written testimony, so I won't focus 
on some of the context and background beyond what I have just 
mentioned, but would like to get to the heart of the matter. 
January 2001, for us, was a very difficult time. We, at that 
point, instituted significant price increases and benefit 
adjustments related to the funding limitations that had been 
put in place over the last several years. What that meant was 
that many of our members no longer had as part of their base 
medical plan prescription drug coverage that was available to 
all of our members. However, it was available at an additional 
cost. Annual limits on the drug program continued over the last 
several years to be decreased, and the co-pay limits that were 
passed onto our members have been increased as well.
    We spent a lot of time last fall talking to our members. We 
posted over 125 meetings in community centers such as this 
throughout the five-county region, reached and talked to about 
7,000 of our members. We serviced over 500,000 phone calls from 
our members during the 4-month transition period. We provided 
members with information about the State PACE program, about 
the VA program, to make them aware of other programs that were 
available, are available, and can assist them in meeting all of 
their needs, not just those that are related to their specific 
healthcare needs. But given the disproportionate and growing 
portion of their budget that has to be allocated to either 
prescription drugs, premium payments, and so forth, we feel an 
obligation to provide as much information to our members as 
possible to assist them in all of the aspects that are 
converging on their tight budget dollars.
    This marketplace has been one of the so-called 2 percent 
markets. Since 1998, our increases in premium have been limited 
to 2 percent during that period of time. Contrast that, though, 
on the cost side of the equation, and specific to our Medicare 
members in this market, the average increase in costs over that 
same period of time was 12 percent each year. So during that, 
and even with the additional bump that we got through the BIPA 
dollars, a total of 9 percent increase in Federal funding, 
contrasted with a 48 percent increase in cost of providing 
services. That gap is what has caused the reduction in benefit 
levels, the increase in co-payments, and most recently, the 
significant increases that we have had to impose with regard to 
monthly premium.
    Additionally, this year we made the decision and struggled 
with the decision to make a differentiation, or create a 
differentiation, between pricing between Philadelphia County 
and the four suburban counties. I think some of the members 
who--beneficiaries, rather--who were up before, pointed to this 
concern and to this issue, and you will hear, certainly, more 
about that. For us, the published AAPCC's for this region are 
Philadelphia to Bucks County, for example, an 18 percent 
differential. For 2002, the specific dollars are $144 less for 
Bucks County residents than they are for Philadelphia County; 
there is an 18 percent differential. For our members in our 
marketplace, the price differential, the cost of providing 
services to our members is 8 percent. So it cost us 8 percent, 
an aggregate 8 percent less for Bucks County residents than it 
does for Philadelphia County. However, the Federal formula says 
that that should be 18 percent; it is not for this marketplace 
for our members. That has and continues to be the driving 
reason for the differentiation in the Philadelphia/Bucks County 
payment issues.
    Another somewhat more technical issue has to do with the 
extraction of the graduate medical education dollars. We are 
fortunate in this region to be the location of a number of 
medical schools, training programs, tertiary care facilities, 
all of which receive additional dollars for the--to help 
support these programs with the Medicare program. Those dollars 
have been gradually extracted from the Medicare+Choice payment 
levels, and the thought, I believe, was that our plans, plans 
such as ours, would go back and work with hospitals to 
renegotiate lower payment rates on a gradual basis, along 
with--to coincide with, rather, the differentiation that was 
being pulled out of the rates.
    I can tell you that for us, that has not happened. In 
talking to plans throughout the country, that has not happened. 
Hospitals have not been willing to adjust their payment levels 
to us based on these additional dollars. So they are able to 
collect it directly from Medicare, it is being extracted from 
our rates, and yet, we are not in a position to be able to 
renegotiate with them to, you know, see a commensurate 
situation. Again, our estimates put that impact for our 
Keystone 65 business about over $30 million now since it is 
fully phased in that is off the table as a result of that.
    Just to give you an order of magnitude, the BIPA dollars 
for us represented about a $7 million increase. The GME is 
almost four times, a little bit over four times, that amount so 
it is a significant issue that is specific to this marketplace 
and many other similarly situated marketplaces throughout the 
country.
    The last point that I would just like to make, and I know 
it is not the particular focus of this hearing, but the 
regulatory burden and oversight imposed by HCFA continues to be 
a burdensome one. And I think there has been, certainly, 
recognition within the agency. There have been many steps 
moving forward, but some of it is in statutes, some of it is in 
regulations, some of it is trying to fit managed care into a 
deeper service environment, and to require some of the same of 
managed care, some of the same things which are in effect in 
the fee-for-service program. The one size fits all approach 
doesn't work in this case.
    Again, we are very committed to this program. We are 
committed to Medicare beneficiaries in this region. We also 
offer Medigap coverage and we are concerned and believe that 
managed care does continue to offer a viable alternative and 
significant value added to our members. However, as we extend 
and we look a year or 2, 3 years, out, it is going to be more 
expensive to be in a managed care program than it will be to be 
in a Medigap program. We are very concerned about that 
eventuality and don't think it serves the best interest of the 
Medicare beneficiaries, especially, in this region, and 
likewise throughout the country. Thank you.
    [The prepared statement of William F. Haggett follows:]
   Prepared Statement of William F. Haggett, Senior Vice President, 
              Government Programs, Independence Blue Cross
    Mr. Chairman and Members of the Sub-committee: I am William 
Haggett, Senior Vice President for Government Programs with 
Independence Blue Cross (IBC). As a participant in the Medicare+Choice 
program since 1993, IBC is pleased to have this opportunity to present 
testimony to the committee on the current state of Medicare+Choice in 
the southeastern Pennsylvania region.
    By way of background, Independence Blue Cross is a Pennsylvania 
non-profit hospital plan corporation licensed to provide financing for 
health care coverage to residents in this region. IBC has a subscriber 
base of 2.8 million members in southeastern Pennsylvania and another 
1.6 million subscribers in other regions. Our company has a long-
standing history as an active participant in government business--
Medicare, Medicaid and CHIP.
    Through our family of affiliated companies, IBC currently provides 
healthcare coverage to 900,000 Medicaid members, 24,000 CHIP members 
and 152,000 Medicare+Choice members. In short, our company has a long-
standing and active commitment to these government programs and the 
members they serve.
    With regard to the Medicare program, IBC offers coverage to 277,000 
beneficiaries--125,000 through Medigap coverage and 152,000 through 
Medicare+Choice products. The first and largest Medicare+Choice product 
is Keystone 65, an HMO program which enrolls 122,000 in southeastern 
Pennsylvania. The second is Personal Choice 65, a preferred provider 
organization product, which has 18,000 members in southeastern 
Pennsylvania. This is the first PPO offered through the Medicare+Choice 
program. The third product is offered in southern New Jersey under the 
name of AmeriHealth 65. Approximately 12,000 are enrolled in that HMO 
product.
    Our membership enrolls voluntarily in our products. The average 
length of enrollment is nearly four years and growing each month. 
Disenrollment by members on a voluntary basis has been well below 
national averages for many years. More than 80% of our members reside 
in households with annual incomes under $25,000.
    Members of our plans repeatedly rank our programs as providing high 
quality and value and producing high satisfaction levels. The results 
of formal surveys such as the Consumer Assessment of Health Plans 
(CHAPS), Health Outcome Studies (HOS), Health Employer Data Information 
Set (HEDIS) and various self-assessments completed as part of national 
accreditation processes, all document this high level of satisfaction 
and quality of care.
    Our members, too, enjoy wide access to a substantial network of 
providers in this region. More than 10,000 physicians and 65 hospitals 
are participating providers. Members with congestive heart failure, 
diabetes, respiratory illness and complex medical conditions have 
access to and participate in successful care management programs. Here 
are some examples of those programs:
--Congestive Heart Failure Care Management Program--Studies have shown 
        that for members enrolled in this program, the numbers of 
        inpatient hospital days decreased and members reported higher 
        daily living indicator scores--Several hundred of our Medicare 
        members received $150 reimbursement for health facility dues as 
        part of their wellness program benefit.
--Pre Surgical Outreach Program--Members whose physicians request 
        authorization for surgery are contacted by our care management 
        nurses. In cooperation with the member's surgeon, a 
        comprehensive readiness review is completed. For example, 
        discharge planning and placement is completed prior to the 
        admission to assure that appropriate care is in place.
--Health Risk Assessments--All new members receive, and more than 75% 
        return, health risk assessment questionnaires. The data from 
        the questionnaires allow us to identify high risk members who 
        are contacted by our care management nurses. Assessments are 
        completed and coordinated care plans are developed in 
        conjunction with the member, their family and their physicians.
    I want to also note that these value-added services are an integral 
part of the managed care approach our company takes. They are not 
available in a fee for service environment.
    Keystone 65 and AmeriHealth 65 are both accredited at the excellent 
level by the National Commission on Quality Assurance (NCQA). 
Additionally, Personal Choice 65 was recently reviewed and granted full 
accreditation as a PPO by NCQA. The significance of these ratings 
cannot be understated--they represent the highest ranking possible from 
the national accreditation agency for our industry.
    In short, our members report high satisfaction levels, our outreach 
efforts and specialized programs are well subscribed and proven 
effective and the national accreditation agency has awarded our 
programs with the highest level of recognition. Strong programs--
satisfied members.
    Our ability to continue these products, however, is at significant 
jeopardy. The challenges we now face are several. The most urgent, 
however, relates to funding levels afforded under the current law and 
regulation governing the Medicare+Choice program.
    January 2001 saw significant increases in monthly premiums paid by 
our members. The increases were unlike any we have had to institute 
since the program inception. Since the enactment of the Balanced Budget 
Act in 1997, we have also been forced to reduce the level of benefits 
offered to our members, most specifically related to prescription drug 
coverage. Annual coverage limits have been decreased, co-payments for 
each prescription have increased, and most recently, prescription drug 
coverage has been dropped from our basic medical plan. These changes 
are the result of the limitations placed on federal funding for the 
Medicare+Choice program.
    Those decisions made about 2001 premium increases were not easy 
ones. We worked very long and hard at fully explaining the reasons for 
these increases to our members both through annual notification 
mailings as well as more than 120 community meetings hosted by IBC last 
Fall. These meetings provided an opportunity for our Medicare staff to 
fully explain and take questions from our members on the changes 
necessitated in 2001. The number one question asked was why the 
significant premium increases and why the difference between 
Philadelphia and the surrounding counties.
    Because of the impact health care premiums are having on their 
tight budget dollars, we found it even more important than in past 
years to provide information to our members regarding other sources of 
support for prescription drugs, assistance in premium payments, and 
other general needs (e.g., utility payments).
    Even with this assistance, several thousand of our members have had 
to cancel their membership with IBC and transfer back to fee for 
service Medicare. They are not able to afford the new 2001 premium 
payments. We are concerned about these members as most report that they 
will have to take their chances with traditional Medicare coverage, not 
sure how the copayment and coinsurance amounts will be paid. With the 
current trends, more and more Medicare beneficiaries will be impacted 
like these vulnerable members.
    With the implementation of the provisions of the Balanced Budget 
Act of 1997, IBC has received 2% increases in funding since 1998. With 
the onetime increase to 3% provided by the Benefits Improvement and 
Protection Act (BIPA) of 2000, that totals 9% over four years. During 
that same period of time, the cost of providing our members with the 
care and services they are entitled to increased an average 12% each 
year. For the same four year period, that represents a 48% increase in 
the cost of providing care. The substantial gap between funding levels 
and costs is having a significant impact. This gap has resulted in 
lower benefit levels and higher member copays and monthly premium 
payments.
    Reimbursement to Medicare+Choice plans is based on county level 
average adjusted per capita cost (AAPCC) figures and, more recently, 
risk adjustment factors. The payment amounts are determined by HCFA 
each year. Prior to the Balanced Budget Act of 1997, the AAPCC 
calculation was the government's estimate of 95% of the projected 
Medicare payments for the fee for service costs in a given county. 
Since the 1997 AAPCCs are the basis of the current payment levels in 
the 2% counties, this reduction is built into the base figures. The 
adjustments made since 1997 have been national percentage adjustments, 
not actual cost adjustments.
    In addition, since plans are paid based on the AAPCCs which were 
established in 1997, this does not take into account marketplace 
conditions--provider consolidations, dramatic changes in patterns and 
sources of care.
    Additionally, the impact of legislation since 1997 has distorted 
even more the relationship between Medicare+Choice and Medicare fee for 
service payments. By way of example, with Congress' action, the floor 
payment levels paid in any county throughout the country was raised 
several times and will be $500 for 2002. When compared to the fee for 
service costs in many of those counties, the new Medicare+Choice 
payment level is 119% of the cost of fee for service members (according 
to the Medicare Payment Advisory Commission). Contrast that with the 
so-called 2% counties (those who have been limited to annual increases 
of 2% since 1998), where the Medicare+Choice payments are less than fee 
for service costs. This means that plans like Keystone 65 are being 
paid less than what it would cost the Medicare program if those members 
received their services through the fee for service program. 
Alternately, Medicare+Choice plans in floor counties would be paid 19% 
more than the fee for service costs.
    An additional complication for this and other similar markets is 
the significant variation in payment levels from county to county. The 
current Medicare+Choice payment methodology uses counties as the unit 
of payment. In this region, there is a significant discrepancy in the 
AAPPCs of Philadelphia County and the four surrounding suburban 
counties. By way of illustration, the 2002 AAPPC for Philadelphia is 
$785. The 2002 AAPPC for Bucks County is $641. The Bucks County rate is 
$144 or 18% lower than that of Philadelphia.
    (Note: These figures are the aged AAPCCs. The AAPCCs for disabled 
members also differ by county, but the difference is 10% rather than 
18%.)
    On the cost side of the equation, the variation between Bucks 
County and Philadelphia County is 8%. That means for our Medicare 
members, the cost of providing care is 8% less for Bucks County members 
than it is for Philadelphia County members. The payment we receive for 
Bucks County members, however, is 18% less.
    The unfortunate result is that our Bucks County members are forced 
to pay higher monthly premiums than their Philadelphia counterparts do. 
That is why in 2001, for identical products, Bucks County residents pay 
$59 per month compared to $0 per month for Philadelphia County members.
    Historically, there has been some level of variation between those 
counties. However, with the changes and adjustments made by Congress to 
the Medicare+Choice program over the past several years, the variations 
have grown.
    These payment issues are urgent to our members and to the future of 
IBC's ability to participate in the Medicare+Choice program. So where 
do we go from here?
    First, attention needs to be paid to the 2% funding limitations in 
place in many parts of the country. Specifically, there are hundreds of 
counties, which have been kept at the 2% funding increase level since 
1998. Our entire marketplace fits into that category. Unless there is 
relief provided, Medicare+Choice will be eliminated from this market 
within the next two years. Companies will be unable to support even the 
most basic Medicare benefits at the funding levels provided. We support 
the establishment of payment levels which are not lower than an 
established percent of a county's fee for service costs (e.g., 
Medicare+Choice payments will not be less than a specified percent of 
fee for service payments).
    Second, the disparity between urban and surrounding suburban 
counties needs to be remedied. The 18% variation I mentioned earlier 
between Philadelphia and Bucks County payment levels is problematic 
when imposed on a health care system that is a regional enterprise. In 
all other lines of business, our pricing and costs are blended across 
the natural healthcare delivery marketplace. The funding approach 
currently in place for Medicare+Choice plans runs counter to 
marketplace conditions and establishes artificial pricing arrangements 
to the detriment of members in suburban counties. We strongly support a 
regional funding approach, which accounts for the cost of providing 
care in the actual marketplaces (e.g., SMSA) in which Medicare+Choice 
plans operate.
    Third, the Philadelphia region enjoys a rich fabric of health care 
facilities, medical schools and training programs. As such, this region 
has been disproportionately impacted by the elimination of graduate 
medical education from the Medicare+Choice rating structure. The 
initial intent in removing this category of expenditure was, we 
believe, to allow providers to recoup the costs of these educational 
programs costs directly from the Medicare program. Plans would then 
recoup, through negotiations with those facilities, the dollars lost in 
their federal reimbursement. This has not happened--neither here in the 
Philadelphia region nor in other parts of the country. This GME ``take 
away'' needs to be corrected.
    Fourth, HCFA's regulatory oversight is unnecessarily burdensome. 
Since last fall, our company alone has undergone four audits, six 
surveys conducted by HCFA contractors, three biennial comprehensive 
site visits and responded to several hundred assorted HCFA inquiries. 
This is in addition to our transitioning our members to the 2001 level 
of benefits and premiums, which resulted in an unprecedented number of 
phone calls, enrollment transactions, and inquiries. We are fully 
appreciative of the oversight role HCFA is required to play, in fact we 
support that oversight function.
    Much of the Medicare+Choice program is inextricably woven to the 
fee for service program. In fact, many of our requirements are based 
upon those in place in the fee for service program. Acknowledgment 
needs to be made that a managed care program is very different than a 
fee for service program. We strongly urge that the national managed 
care industry standards be acknowledged as viable approaches to 
achieving the needed beneficiary protections, quality outcomes, and 
provision of services beneficiaries deserve and should depend on. A 
one-size fits all approach has not and cannot work going forward.
    Our concern is not with the what but rather the how and how much. 
Significant organizational energy is diverted to responding to the 
numerous, often overlapping regulatory requirements and requests. That 
energy would be better spent on educating and servicing our members.
    In summary, I want to reiterate our company's strong commitment to 
and hope that we are able to continue with the Medicare+Choice program. 
We are fully cognizant that Medicare+Choice is not the answer for all 
beneficiaries. However, we strongly believe that a viable 
Medicare+Choice program provides significant value to the beneficiaries 
who have made that choice. It is a choice that needs to be maintained 
and extended to even more Medicare beneficiaries throughout this 
country.

    Mr. Greenwood. Thank you very much, Mr. Haggett. And now 
for her testimony, Dr. Harmon-Weiss, I will remind the 
audience, who is the Head of Government Programs for Aetna U.S. 
Healthcare.

                TESTIMONY OF SANDRA HARMON-WEISS

    Ms. Harmon-Weiss. Thank you, Mr. Chairman and members of 
the committee. I am Dr. Sandra Harmon-Weiss, a family physician 
and geriatrician, working for Aetna as Head of Government 
Programs and Medicare Compliance Officer.
    I am testifying today on behalf of Aetna. Aetna is the 
Nation's largest health benefits company and offers 
Medicare+Choice plans in five States, covering 278,000 Medicare 
beneficiaries. Aetna has offered a Medicare managed care plan 
in Pennsylvania since 1985. Currently, there are more than 
100,000 Aetna Golden Medicare Plan enrollees in Pennsylvania 
and more than 15,500 enrollees in Bucks County, some of whom we 
heard from this morning. I am pleased to have served Medicare 
beneficiaries in Pennsylvania as a geriatrician and family 
physician in private practice, as well as in my role at Aetna 
since 1985, when the Medicare managed care plan began.
    The Medicare+Choice program was created by the Balanced 
Budget Act of 1997, replacing the former Medicare Risk 
contracts. The Medicare+Choice program was adjusted with 
legislation in 1999, the Balanced Budget Refinement Act, BBRA, 
followed by BIPA in 2000, the Benefits Improvement and 
Protection Act. I want to share some of our principal concerns 
with the Medicare+Choice program in its current state.
    Aetna is concerned about the low Medicare+Choice 
Organization payment rate increases, the limits on the annual 
increases in capitation rates to plans, even though approved by 
BIPA, continue to pose a threat to the continued success of 
Medicare+Choice program. Program rules must allow payment rates 
that recognize and adjust for the actual costs of providing 
healthcare and complying with the increased administrative 
burden stemming from BBA. The payment options of the blended 
capitation rate, minimum county rate, or the 2 percent increase 
in the AAPCC rates, despite the additional 1 percent for 10 
months only in 2001 do not meet the current threshold of 
medical expenses in 2001, which are expected to increase 
approximately 10 percent from our viewpoint.
    The practical result, based upon actual Medicare+Choice 
enrollment, is that the organizations serving the majority of 
the Medicare beneficiaries receive rate increases of 2 percent 
per year, with the exception as noted in 2001. Aetna suggests 
that the annual increases in Medicare+Choice payment rates be 
sufficient to cover medical inflation as experienced in local 
markets.
    Aetna has concern about the risk adjuster impact. The risk 
adjuster impact was introduced in 2000. It reduces payments to 
Medicare+Choice Organizations. HCFA has released data on the 
risk adjuster impact on health plan payments with a phase-in of 
a 10 percent risk adjusted rate and 90 percent demographic 
rates. The net impact was a reduction of, approximately 1 
percent in premium for health plans in 2000 and a reduction in 
payment for health plans in 2001 of 1 percent. The risk 
adjuster is based upon inpatient hospital encountered data 
projected on a model based in Medicare fee-for-service 
experience in 1995. This model is not reflective of the current 
managed care experience of providing access to the most 
appropriate care in the most appropriate setting.
    The BBRA clearly noted in the report language in Section 
511 the Congress intent that the risk adjuster be implemented 
in the budget neutral basis for 2000 and beyond. To date, HCFA 
has chosen to ignore the direction of Congress reflected in 
this report language. This takes medical benefits away from 
Medicare+Choice enrollees.
    In my written testimony, I describe concerns about the 
requirements to collecting counter data on all beneficiaries in 
outpatient hospital settings and for physician-related 
services. I applaud the responsiveness of the Government to our 
concerns. On May 29, 2001, we received a letter from HHS 
Secretary Thompson, suspending collection of outpatient 
encounters and physician encounter data until July 2002. 
Secretary Thompson further promised to examine the risk 
adjustment methodology with interested parties to find a better 
system for this purpose. Aetna is extremely pleased with this 
positive move on the part of the Government to work 
collaboratively with the managed care industry.
    The low payment rate increases for Montgomery for 
Medicare+Choice impact Medicare beneficiaries in Bucks County. 
In 1998, Aetna was able to offer a zero premium plan in 
southeastern Pennsylvania, which included a $5 co-pay for 
primary care physicians and for specialist visits. The 
comprehensive benefit package included pharmacy coverage of 
$1,800 in prescriptions with a nominal co-pay of $12 per 
script. Other benefits included eyewear coverage of $70, as 
well as a hearing aid allowance of $500--and those of you know, 
Medicare doesn't cover hearing aids, wellness programs for 
healthy eating, healthy breathing, and fitness.
    Because of cutbacks in reimbursement attributable to BBA, 
including legislated user fees, and added regulatory burden 
over the past 3 years, Aetna has had to move in the opposite 
direction. Member premium has been introduced in Bucks County; 
currently, it is $50 per month. Primary care physician co-pays 
have risen to $10, and specialist co-pay visits have risen to 
$20 per visit. There is no pharmacy program available, except 
for discounts on prescription drugs of up to 40 percent off 
retail. Aetna can no longer offer eyewear reimbursement to 
those who need glasses or lenses.
    The average rate of monthly HCFA capitation payment in 
Bucks County in 2001 is $554, a scant 3 percent greater than in 
2000. This lags far behind the real medical inflation rate of, 
approximately, 10 percent.
    Aetna has additional concerns about Medicare+Choice 
oversight, as you heard from my colleague. The current 
oversight infrastructure for Medicare+Choice plans by HCFA 
includes three separate HCFA centers, which often results in 
fragmented unnecessarily complex policymaking. Consolidating 
Medicare+Choice program administration within one HCFA division 
would go a long way toward improving partnerships between HCFA 
and the plans.
    Aetna, last, strongly encourages repeal of the enrollment 
lock-in. BBA provided that beginning in 2002, beneficiaries are 
allowed to switch Medicare plans outside the annual enrollment 
period only one time per year. Previously, there were no limits 
on switching. Allowing beneficiaries to switch plans when they 
are dissatisfied allows market forces, rather than increased 
layers of regulation, to encourage Medicare+Choice 
Organizations to provide coverage for quality care and quality 
service. It also allows beneficiaries to continue with their 
chosen physician if their physician leaves the plan's network, 
thereby, impacting continuity of care.
    In closing, Aetna believes that the opportunity exists now 
to create a regulatory framework that will assist 
Medicare+Choice in fulfilling its promise of preserving and 
expanding healthcare choices for all Medicare beneficiaries. If 
Congress is to make adjustments to the program, it really has 
to act now; time is wasting.
    Thank you for the opportunity to appear today. I will be 
happy to answer questions.
    [The prepared statement of Sandra Harmon-Weiss follows:]
Prepared Statement of Sandra Harmon-Weiss, Head of Government Programs 
              and Medicare Compliance Officer, Aetna, Inc.
    Mr. Chairman and members of the Committee, I am Dr. Sandra Harmon-
Weiss, a family physician and geriatrician working for Aetna, Inc. as 
Head of Government Programs and Medicare Compliance Officer. I am 
testifying today on behalf of Aetna.
    Aetna is the nation's largest health benefits company and offers 
Medicare+Choice plans in 5 states, serving 278,000 Medicare 
beneficiaries. Aetna has offered a Medicare managed care plan in 
Pennsylvania since 1985. Currently, there are more than 100,000 Aetna 
Golden Medicare Plan enrollees in Pennsylvania and more than 15,500 
enrollees in Bucks County. I am pleased that I have served Medicare 
beneficiaries in Pennsylvania as a geriatrician and family physician in 
private practice as well as in my role at Aetna since 1985 when the 
program of Medicare managed care began.
    In March, 1999, I had the opportunity to testify before the House 
Ways and Means Subcommittee on Health on the implementation of the 
Medicare+Choice program. I am pleased to have this opportunity to 
discuss further the Medicare+Choice program and the developments in 
this program over the past two years. I want to share a few of our 
principle concerns. Aetna believes that the Medicare+Choice program 
represents an essential component of the government's effort to help 
ensure the financial survival of the Medicare program and to meet the 
health care needs of the baby boom generation as we move into the 21st 
century. However, our experience with Medicare+Choice up to the present 
suggests that Congress has additional work to guarantee a viable 
Medicare+Choice program. To ensure the promise of the reform in the 
Balanced Budget Act of 1997 (BBA), the Balanced Budget Refinement Act 
of 1999 (BBRA), and the Benefits Improvement and Protection Act of 2000 
(BIPA), and to facilitate beneficiary choice under the Medicare 
program, additional legislation and policy modification must be made.
concerns about low medicare+choice organization payment rate increases.
1. Limits on Annual Increases in Capitation Rates and Concerns 
        Regarding the New Risk Adjustment Methodology Threaten the 
        Continued Attractiveness of the Medicare+Choice Program to 
        Beneficiaries and Providers.
    a. Most Plans Have Experienced Cost Increases From Medical 
Inflation That Exceed Payment Increases During the Coming Year.--
Perhaps the greatest threat to the success of the Medicare+Choice 
program is the collective impact of changes in Medicare's payment 
methodology enacted by the BBA. In order to achieve a successful 
partnership between the federal government and Medicare+Choice 
organizations, program rules must: (1) allow payment rates that 
recognize and adjust for the actual costs of covering quality health 
care services and complying with the increased administrative burdens 
imposed by the BBA, BBRA and BIPA, and permit necessary investment in 
clinical and operational improvements, and (2) incorporate financial 
incentives to reward those Medicare+Choice organizations that achieve 
the government's economic, quality and operational objectives.
    As set forth in Section 1853(c) of the BBA, Medicare+Choice 
organizations will be paid the greater of:

(a) a blended capitation rate, which is the sum of a percentage of the 
        area-specific capitation rate and a percentage of the national 
        Medicare+Choice capitation rate (the percentage balance will 
        change over time until it reaches a 50/50 blend in 2002); or
(b) a minimum amount, which is $475 per enrollee per month in 2001 
        (from BIPA); or
(c) a minimum percentage increase equal to an increase of 2 percent of 
        the 1997 Adjusted Average Per Capita Cost (AAPCC) rate for the 
        particular county for 1998, with increases of 2 percent in each 
        subsequent year.
    The practical result, based on actual Medicare+Choice enrollment, 
is that Medicare+Choice organizations serving a majority of Medicare 
beneficiaries enrolled in such organizations receive rate increase of 
the minimum 2 percent. For most, if not all, of these organizations, 
this 2 percent increase is not sufficient to cover the increased cost 
of covering basic Medicare and additional services, given projected 
medical inflation.1 This, combined with the fact that many 
Medicare+Choice organizations experienced significant losses in 1998, 
1999 and 2000, forecasts continuing trouble for the program.
---------------------------------------------------------------------------
    \1\ The budget for fiscal year 2000 included funding for original 
fee-for-service Medicare that reflects anticipated increases in medical 
costs over a five year period of 27% and an increase in the Federal 
Employee Health Benefit Program of about 50%. Estimates of the likely 
growth for Medicare+Choice plan payments in high paying counties for 
the same period is less than 10%.
---------------------------------------------------------------------------
    Indeed, inadequate reimbursement rates for 1999, 2000 and for 2001 
largely were responsible for the retrenchment of Medicare+Choice plans 
over the past three years. Congress passed the BIPA legislation in 2000 
which added 1% to the payment rates for 10 months of 2001. Most health 
plans (70%) used this money to ensure or stabilize access to services 
for beneficiaries by paying additional money to contracted providers 
for this purpose.
    Since Medicare+Choice began in 1999, numerous health plans have 
terminated or reduced their contracts. Of 309 Medicare+Choice plans 
serving Medicare beneficiaries at the end of 1999, 99 plans terminated 
their contracts or reduced the number of counties they served in 2000 
and 118 plans terminated or reduced service areas for the 2001 contract 
year. These withdrawals affected approximately 328,000 enrollees in 
2000 and nearly 1 million enrollees in 2001.2 These 
withdrawals can mean higher out-of-pocket costs and be disruptive for 
those beneficiaries who lost access to relatively inexpensive drug 
benefits or must switch health care providers. To put this into 
perspective, HCFA averaged two Medicare risk contract cancellations per 
year from 1993 through 1997.
---------------------------------------------------------------------------
    \2\ Medicare+Choice: Plan Withdrawals Indicate Difficulty of 
Providing Choice While Achieving Savings (GAO/HEHS-00-183), September 
2000.
---------------------------------------------------------------------------
    Aetna strongly believes that additional adjustments beyond BIPA are 
necessary to attract and maintain the number and diversity of 
Medicare+Choice organizations necessary to establish a sound and 
attractive market-based alternative to the traditional Medicare fee-
for-service program.
    Accordingly, Aetna urges Congress to reconsider the artificial and 
arbitrary limits on capitation rate increases set forth in the BBA and 
BIPA. Specifically, Aetna suggests that annual increases in 
Medicare+Choice payment rates be sufficient to fully cover medical 
inflation experienced in the local markets. Because local employer 
health plans and other commercial customers have a tremendous incentive 
to keep costs down, they will positively affect the inflation rate in 
each market. Under the current structure, more Medicare+Choice 
organizations have found it necessary to withdraw from areas served and 
beneficiaries enrolled in the remaining plans will again experience 
premium increases or reduced benefits. Finally, as Medicare+Choice 
plans leave the market, the original Medicare program (with its higher 
per capita costs) will have more beneficiaries and put additional 
strain on both the Part A Trust Fund and the budget.
    b. The New Risk Adjustment Methodology Will Substantially Reduce 
Payments to Medicare+Choice Organizations.--Change in the 
Medicare+Choice payment methodology is all the more necessary because 
the risk adjustment process which HCFA is implementing will 
substantially reduce aggregate payments to Medicare+Choice plans while 
adding additional administrative requirements and expenses. According 
to HCFA estimates, total Medicare+Choice revenues for the year 2000 
were $200 million less than they would have been under the Average 
Adjusted Per Capita Cost (AAPCC) payment method. As a result, most 
plans saw even their minimum two percent increase eroded in 2000 as the 
risk adjustment methodology was phased in. Thus, what began as a well-
intended effort to compensate plans for the health care costs of their 
particular members did, in reality, result in an overall reduction in 
funds to Medicare+Choice organizations.
    This development runs counter to Aetna's understanding of 
Congressional intent, i.e., that the savings resulting from the 
percentage reduction in plan payments for years 1998 through 2002 was 
intended to be in lieu of any net program savings from risk adjustment. 
(Indeed, the Congressional Budget Office did not score any projected 
savings in connection with the risk adjustment program under BBA 97). 
The new methodology, and huge projected revenue reductions, underscores 
Aetna's concerns regarding the inadequacy of plan payments under 
Medicare+Choice. To the extent that the proposed HCFA risk adjustment 
methodology translates into a significant overall decrease in payments 
for the Medicare+Choice program, it is an additional deterrent to 
program participation. Accordingly, Aetna urges Congress to require 
HCFA to modify the risk adjustment methodology so that aggregate 
payments to Medicare+Choice plans for 2000 and beyond are based on 
aggregate BBA adjustments, making the risk adjustment process budget 
neutral.
    c. The User-Fee ``Tax'' on Medicare+Choice Organizations for 
Beneficiary Education is Inequitable and Reduces Even Further Payments 
to Medicare+Choice Organizations. 3--Aetna strongly supports 
educating and informing Medicare beneficiaries about all coverage 
options, including the Medicare+Choice program, and supplying 
beneficiaries with straightforward, unbiased information to help them 
choose appropriate coverage. That said, we are concerned that the BBA, 
to support beneficiary education activities for all 37 million 
beneficiaries, placed a ``user fee tax'' on Medicare+Choice 
organizations only. The educational campaign is a benefit to all 
Medicare beneficiaries. Indeed, initial information suggests that the 
toll-free number HCFA established in 1999 with funds from the $95 
million dollar ``tax'' assessed upon Medicare+Choice organizations 
primarily fielded calls from beneficiaries seeking information about 
the fee-for-service program. Considerations of equity dictate that the 
educational program which informs beneficiaries about basic program 
benefits and requirements be funded from the Medicare Trust Fund, or 
another broad-based source of revenue, as are other such essential 
program functions.
---------------------------------------------------------------------------
    \3\  Medicare+Choice organizations essentially pay a ``head tax'' 
(i.e., an amount based on the number of Medicare+Choice enrollees in 
their plan) to support the public information program.
---------------------------------------------------------------------------
    This ``user fee tax'' equaled .355% of the total monthly payments 
to each Medicare+Choice plan in 1999 and .34% in 2000. While BBRA 
reduced the ``user fee tax'', it remains a factor in the erosion of 
monthly payments to Medicare+Choice organizations.
    d. The Bucks County Experience and the Pennsylvania Experience.--
Aetna examined the type of coverage we provided previously to Medicare 
beneficiaries. As recently as four years ago (1998), Aetna was able to 
offer a ``Zero Premium'' plan in Southeastern Pennsylvania which 
included a $5 copay for Primary Care Physician and Specialist visits. 
The comprehensive benefit package included pharmacy coverage for $1800 
in prescriptions with a nominal copay of $12. Eyewear coverage of $70 
was included as well as a $500 hearing aid allowance (not covered by 
Original fee-for-service Medicare) and Wellness Programs for Healthy 
Eating, Healthy Breathing and Fitness (not covered by Original fee-for-
service Medicare). This was a great plan for more than 14,400 seniors 
and disabled Medicare beneficiaries in Bucks County.
    Because of cutbacks in reimbursement attributable to the Balanced 
Budget Act of 1997 (BBA) and new legislated fees on Medicare+Choice 
organizations and added regulatory burdens over the past three years, 
Aetna has had to move in the opposite direction. Aetna has been forced 
to introduce premium in Bucks County ($50 per month), raise Primary 
Care Physician copays to $10 and Specialist copays to $20. There is no 
pharmacy program available except for discounts on prescription drugs 
of up to 40% off retail. Aetna no longer can offer eyewear 
reimbursement to those who need glasses or lenses. As such, the Aetna 
Golden Medicare Plan TM is less attractive to Medicare 
beneficiaries and the enrollment has dropped by 500 over the past year.
    Aetna has been forced to withdraw from certain areas in 
Pennsylvania. The counties where we withdrew were those where our 
medical expenses, not even counting administrative expenses, exceeded 
the reimbursement provided to us by the Health Care Financing 
Administration (HCFA) and where we determined that we could not offer a 
plan with sufficient benefits at a competitive price. No 
Medicare+Choice organization, or any company in any sector of the 
economy for that matter, can keep doing business as usual when there is 
not enough revenue even to start covering administrative expenses. In 
the areas where we have remained, we had to increase premiums and 
reduce benefits in order to try to cover those basic medical and 
administrative costs. We do not make these changes lightly, nor do we 
make them without the involvement and approval of HCFA.
    It is a useful exercise to examine more closely the monthly HCFA 
premium in Bucks County for 2000 and 2001 for each Medicare beneficiary 
enrolled in Aetna. The chart below outlines the HCFA premium payment 
rates on a per member per month basis. Following the multiple 
adjustments to the rates, the final average rate of monthly payment in 
Bucks County for 2001 is $554, a scant 3% greater than in 2000. This 
lags far behind the real inflation percentage reflecting the true 
medical trend which is approximately 10%. From 2000 to 2001, it was 
necessary for Aetna to raise the member premium in Bucks County from 
$10 to $50, raise co-payments for Primary Care Physician visits (from 
$5 to $10) raise co-payments for Specialist visits (from $10 to $20) 
and eliminate the pharmacy benefit (except for discounts on each 
covered prescription). This benefit package remains more valuable than 
an equivalent Medicare with Medigap coverage package. The Medicare with 
Medigap coverage includes fewer benefits with higher premiums.

             Bucks County--HCFA Premium Per Member Per Month
------------------------------------------------------------------------
                                      2000  Jan-  2001  Jan-     2001
                                          Dec         Feb      March-Dec
------------------------------------------------------------------------
Published HFCA monthly payment rates        611        623         629
Aetna monthly payment rates as a            544        554         560
 result of demographic adjustments
 (age, sex).........................
Aetna monthly payment rates as a            539        548         554
 result of Risk Adjustment..........
Aetna monthly payment rates as a            537        548*        554*
 result of ``user tax.''............
------------------------------------------------------------------------
*Assessment of user fee is less than $1 per month ($0.42) as a result of
  new methodology.

    One of the important changes in HR 3075 (the Balanced Budget 
Refinement Act of 1999 ``BBRA'') was a change that could lead to lower 
premiums and better benefits for seniors. In the report language to 
Section 511, it clearly notes that Congress intends the risk adjuster 
to be implemented in a budget-neutral fashion; that is, that money 
taken away from plans with younger, healthier populations be kept 
within the Medicare+Choice program and be channeled directly to plans 
with older, sicker populations. The language goes on to urge HCFA to 
revise the risk adjuster to implement it on a budget-neutral basis in 
2000 and beyond. HCFA has, to date, chosen to ignore the clear 
direction of Congress reflected in this report language, thereby, 
taking medical benefits away from Medicare+Choice enrollees.
 in many places the regulations are overly rigid and demanding so they 
       become an impediment to all medicare+choice organizations.
1. The Proposed Risk Adjustment Policy is Ill-conceived.
    On March 1, 1999, HCFA reported to Congress on its methodology for 
implementing the risk adjustment mandate set forth in BBA. While Aetna 
believes that improved risk adjustment is an appropriate and essential 
long-term goal for the program, we have serious concerns regarding the 
current HCFA proposal, which calls for the initial use of only 
inpatient hospital data. During the Administration's proposed phase-in 
period, plans would receive capitated payments based on a blend of 
payment amounts under the current demographic system and the interim 
(PIP-DCG) risk adjustment methodology. For the year 2000, for instance, 
the HCFA plan included separate capitated payment rates for each 
enrollee based 90% on the demographic method and 10% on the risk 
adjustment methodology.
    By 2004, payment rates would be 30% based on comprehensive risk 
adjustment using full (i.e., inpatient and other) encounter data and 
70% on the demographic method. By 2007, payment rates would be based 
solely on comprehensive risk adjustment from encounter-based data with 
no demographic adjustments. HCFA estimates a much greater negative 
impact on Medicare+Choice plan revenues, on average, with the switch to 
full encounter data risk adjusters. Aetna's concerns are both practical 
and programmatic.
    First, the practical. The timeframe for implementation outlined by 
HCFA is simply far too short. Given the significant technological 
considerations involved, it is unreasonable for the agency to require 
that all Medicare+Choice organizations be able to provide physician, 
outpatient hospital, skilled nursing facility and home health data 
beginning as early as October 1, 2000. The collection, verification, 
transmission, acceptance and analysis of ``representative'' encounter 
data is a complicated endeavor. Capturing these data in a valid, 
accurate and transferable manner is a major challenge for M+C 
organizations.
    The process by which information is communicated to, and received 
by, HCFA presents significant technological problems as well. Aetna has 
experienced, and continues to experience, problems in ensuring that 
accurate inpatient hospital data is transmitted via Medicare fiscal 
intermediaries to HCFA. Long delays in uploading information into the 
Common Working File, poorly responsive fiscal intermediary contractors, 
technical difficulties because of using a system meant to pay fee-for-
service claims to collect HMO data, all have added enormous expense and 
resource consumption to Medicare+Choice plans.
    Difficulties have occurred as HCFA attempts to manipulate 
significant amounts of data for the PIP-DCG risk adjustment model. The 
methodology developed by HCFA is complicated and requires numerous 
steps. HCFA faces a monumental task in getting the PIP-DCG system to 
work. To date, HCFA is unable to accept all inpatient encounters for 
current Medicare+Choice enrollees.
    As if all this were not reason enough to delay implementation, 
Aetna has significant programmatic concerns regarding the proposed risk 
adjustment model. First, Aetna is concerned that variations resulting 
from excessive payments under the original Medicare fee-for-service 
program have been incorporated into the risk adjustment calculation. 
Additional, unnecessary hospitalizations that have occurred within the 
original Medicare Part A fee-for-service program, despite HCFA's 
attempt to fight this, are still significant. As a result, 
Medicare+Choice organizations will receive lower payments through the 
proposed risk adjustment methodology. HCFA should not penalize the 
managed care portion of Medicare for the program's failure to limit 
certain false or fraudulent claims and medically unnecessary 
hospitalizations. One approach to avoid this would be to limit the use 
of risk adjustment so that the total amount paid to all Medicare+Choice 
plans is not reduced but instead redistributed among Medicare+Choice 
plans only.
    Second, recognizing the fact that most federal agencies rely on 
sampling, HCFA's expectation of reported data on all individuals seems 
excessive. Given that even the more comprehensive risk adjuster will 
not be able to fully reflect all differences, Aetna believes that 
Congress should require HCFA to re-examine the use of plan-based 
sampling to reduce the administrative burden on the plans, reduce the 
potential for errors in the early phases, and increase the privacy of 
each individual's sensitive medical information.
    Third, Aetna strongly believes that is poor public policy to base 
risk adjustment, even temporarily, on inpatient hospital data only. 
Such an approach rewards Medicare+Choice plans that, through inferior 
utilization management or poorer quality, experience excessive hospital 
use, and penalizes plans that have more effectively reduced inpatient 
hospitalizations and focused on providing more care on an outpatient 
basis and improving quality through preventive care. The incentives 
created by a risk adjustment methodology based exclusively on inpatient 
hospital data would inevitably result in increased inappropriate 
hospital use, increased avoidable costs, and a setback in the effort to 
realize greater efficiency and quality in the health care system. 
Beneficiaries enrolled in plans with a relatively high proportion of 
members who receive care for expensive chronic illnesses outside the 
hospital setting would be particularly harmed.
    For all these reasons, Aetna urges HCFA to consider less burdensome 
alternatives that meet the goals of risk adjustment.
2. Improve Partnerships Between HCFA and Medicare+Choice Organizations 
        by Establishing Single Administrative Unit for Medicare+Choice 
        Program Oversight.
    Aetna recognizes that HCFA has many competing demands and 
responsibilities. However, the current oversight infrastructure for 
Medicare+Choice which involves three separate centers has often 
resulted in fragmented and unnecessarily complex policy making which 
has been problematic for Medicare+Choice organizations and 
beneficiaries. We believe that consolidating Medicare+Choice program 
administration within one HCFA division, which has a Director who 
reports directly to the HCFA Administrator, would go a long way toward 
improving the partnerships between HCFA and plans.
3. Create Consistency Between HCFA Central and Regional Offices.
    Medicare+Choice organizations across the country frequently receive 
different instructions and policy interpretations for the ten HCFA 
Regional Offices and the HCFA Central Office. This has a large impact 
on national plans such as Aetna with Medicare+Choice organizations 
overseen by three HCFA Regional Offices. HCFA Regional Office 
Administrators and HCFA Center Directors report directly to the HCFA 
Administrator with no direct authority on the part of the Centers to 
require consistent implementation of Central Office policies in the 
Regions. HCFA should establish communication procedures to help ensure 
that the Agency and its regional offices speak with one voice.
4. Set Priorities for Policy Making Based on the Costs and Benefits of 
        Different Regulatory Options.
    The costs of compliance are opportunity costs borne directly by 
Medicare beneficiaries. For every dollar Medicare+Choice organizations 
spend on regulatory compliance, there is one dollar less to spend on 
enrollee benefits. Adding or changing program regulations should be 
considered in this context. Also, periodic assessments should be made 
to ensure that the benefits of compliance requirements exceed their 
costs.
    The frequency and content of new regulatory and policy changes has 
increased staff time and resources considerably. In 2000, HCFA issued 
15 new Operational Policy Letters (OPLs) two revisions of one OPL, and 
the final Medicare+Choice regulations. Inconsistencies between HCFA 
Regional Offices and Central HCFA add to the strain of regulatory 
interpretation, particularly for national health care organizations 
such as Aetna.
5. Improve the HCFA Review of Marketing Materials.
    The new marketing and member communication requirements, 
particularly the 45-day review period, make it very difficult to get 
materials finalized in a timely manner. This can prove particularly 
problematic for employer group marketing materials. The 45-day period 
has had a particular impact on our ability to communicate product 
changes with our members in a timely manner, often leading to confusion 
for those who hear about changes in media reports, but then fail to 
receive notice until much later. In some markets, we hear from the 
reviewers that they do not plan to comment on the materials until the 
end of the review period. If they ask for changes on day 44, the 45-day 
review period begins all over again. Moreover, the prescriptive nature 
of the review often requires the materials to be very generic, taking 
away our ability to make statements reflecting our unique attributes.
6. Repeal the Enrollment Lock-In.
    Congress should immediately repeal the enrollment lock-in provision 
of the Balanced Budget Act of 1997.
    BBA provided that, beginning in 2002, beneficiaries are allowed to 
switch Medicare plans outside the annual enrollment period only one 
time per year. Previously, there were no limits on switching.
    Allowing beneficiaries to switch plans when they are dissatisfied 
allows market forces, rather than increasing layers of regulation, to 
encourage Medicare+Choice organizations to provide coverage for quality 
care and quality service. It also allows beneficiaries to continue with 
their chosen physician if their physician leaves the plan's network, 
thereby impacting continuity of care.
    Enrollment rules in the Medicare+Choice program are extremely 
complex. HCFA's regulatory guidance exceeds 100 pages! Adding lock-in 
rules to the current rules will significantly increase the confusion of 
beneficiaries, beneficiary advocates and the Medicare+Choice 
organizations. It will, without doubt, result in unhappy beneficiaries, 
pressure for more and more ``special enrollment'' opportunities, an 
even more complex and bizarre set of enrollment rules. In addition, 
implementing the enrollment lock-in will require both Medicare+Choice 
organizations and HCFA to make system changes and adopt costly and 
burdensome new administrative procedures, all for little or no gains in 
enrollee well-being or Medicare+Choice program functioning.
                        summary and conclusions
    If the Medicare program is to be sustained for the next generation 
of beneficiaries and beyond, it is crucial that the federal government 
employ every strategy appropriate to enhance quality health care 
options for beneficiaries and encourage the development of lower cost 
options rather than relying on burdensome regulations which will reduce 
choice and funnel more people into the highest cost option, fee-for-
service Medicare. The Medicare+Choice program already is at a crossroad 
where improvements can allow it to flourish but neglect of necessary 
change will doom it to failure. It would be wiser, in the long run, for 
the government to employ market-oriented strategies to ensure that 
there are Medicare+Choice options available to beneficiaries and to 
create incentives for private health insurers and providers to deliver 
value in the context of the Medicare program. Because it is a critical 
building block in this market-based strategy, Medicare+Choice must be 
successful.
    In summary, Aetna believes that the prospect for success will be 
greatly improved if the following steps are taken with respect tot he 
Medicare+Choice program:

 Adjust the payment structure so that increases cover medical 
        inflation;
 Delay and revise the proposed risk adjustment model to reduce 
        the cost of reporting and system development;
 Modify the role of risk adjustment so that overall revenues to 
        the Medicare+Choice program are not reduced, but simply 
        reallocated among Medicare+Choice plans based on the health 
        status of enrollees;
 Issue revised regulations to reduce costly administrative 
        burdens on all Medicare+Choice plans;
 Streamline the HCFA oversight on Medicare+Choice 
        organizations; and
 Repeal the enrollment lock-in.
    The opportunity exists now to create a new regulatory framework 
that will assist Medicare+Choice in fulfilling its promise of 
preserving and expanding health care choices for all Medicare 
beneficiaries. If Congress is to make adjustments to the program, it 
should act now.

    Mr. Greenwood. Thank you for your testimony. We now turn to 
Dr. Harrison. For those in the audience, let me explain who he 
is, because it may be a little confusing. Several years ago, 3 
or 4 years ago, the Congress created MedPAC, which is the 
Medicare Payment Advisory Commission. It is a group of experts 
that we rely upon to study the cost of Medicare and the 
policies involved and give us, the Congress, some advice as to 
what is the best policy. And we are delighted to have you with 
us, Dr. Harris.

                 TESTIMONY OF SCOTT C. HARRISON

    Mr. Harrison. Thank you, Chairman Greenwood, Congressman 
Deutsch. I am Scott Harrison, Research Director at MedPAC. I am 
pleased to be here this morning to discuss the Medicare+Choice 
program. My testimony draws on the recommendations and analysis 
in MedPAC's march 2001 report to Congress.
    MedPAC is concerned about the sometimes large differences 
in payment to Medicare+Choice plans between adjacent counties 
within healthcare markets. The situation here in the 
Philadelphia Metropolitan area is a good example of local 
county payment rate differences. In Pennsylvania's five-county 
area, the highest county payment rate is about $200 per month 
higher than the lowest rate. Many of the residents of the lower 
rate suburban counties, as you have heard today, are concerned 
about having to pay an extra $700 a year for a plan compared to 
their follow beneficiaries across the county line in 
Philadelphia.
    These payment rate differences arise from differences in 
Medicare per-beneficiary spending under the traditional fee-
for-service Medicare program. In our March report, we 
recommended that the Secretary of Health and Human Services 
study the differences in spending under the traditional 
Medicare program to determine its causes and to make 
recommendations on how and whether the differences should be 
incorporated into Medicare fee-for-service and Medicare+Choice 
payment rates.
    Also in the report, we recommended that the Secretary 
consider using payment areas with more Medicare beneficiaries 
than are typically found in counties in order to raise the 
reliability of the spending data on which the payment rates are 
calculated. However, the Commission did not feel it was ready 
to recommend using metropolitan areas, specifically, because of 
concerns that such areas might be too large to represent 
homogenous healthcare markets. Instead, MedPAC is interested in 
seeing the results of ongoing work dedicated to finding better 
criteria to delineate healthcare market areas.
    Despite all of the recent changes to the Medicare+Choice 
rate-setting formula, the percentage differences in the payment 
rates among Bucks, Chester, Delaware, Montgomery, and 
Philadelphia Counties remain as they were in 1997. All five 
counties have received the annual minimum update since then, 
and thus, the relative payments have not changed.
    While there is a lot that MedPAC does not know about the 
reasons why Philadelphia rates are least 19 percent higher than 
the rates of most of the suburban counties, some factors are 
known. Between $35 and $55 of the difference in rates can be 
traced back to the higher spending for graduate medical 
education related to stays in Philadelphia teaching hospitals. 
Half of these differences will be removed as counties move to 
blended rates, but the removal may yet take several years, as 
none of the counties have received blended rates yet. Another 
factor that partially explains why Philadelphia has higher 
spending is its health risks, according to the risk adjustment 
model that HCFA uses. If that risk adjustment model were fully 
implemented, the payment rate differences between Philadelphia 
and the rest of the area would shrink by $45 to $75 per month.
    And what effect do the higher payments in Philadelphia 
have? Clearly, there are differences in plan availability and 
benefit packages between Philadelphia and the suburban 
counties. There are seven plans available in Philadelphia and 
only three plans available in most of the other counties. In 
Philadelphia, there are several plans that do not charge a 
premium, including some that cover prescription drugs. The 
lowest premium charged by a plan in Bucks County is $50 per 
month, and the only basic plan that offers prescription drug 
coverage there charges a premium of $114 a month.
    However, the differences are not always consistent. Of the 
three plans operating in Bucks County, all have the same 
benefits across the county lines. One plan, actually, does 
charge the same premium in Bucks and Philadelphia, and the 
other two charge, as you have heard, $50 and $59, respectively, 
in Bucks, while not charging anything in Philadelphia.
    MedPAC has recommended that Medicare+Choice payment rates 
be set equal to fee-for-service spending in the local market. 
The best way to define these local markets, however, awaits 
further research. If local interest felt that the local rate 
differences were not appropriate, they could petition their 
State's Governor, who has the power under current Medicare law 
to redefine payment areas. Allowed options include a single 
statewide payment area and a metropolitan based system where 
each metropolitan area would be a separate payment area, and 
all rural counties in the State would be grouped together in 
one payment area.
    Any redefinition, however, must be budget-neutral across 
the State as a whole. Now, if we took, as an example--if the 
five-county area had been designated as a single payment area 
for 2001, the rate would have been about $670 per month. That 
would have meant an increase of about $100 per month for 
Chester and Montgomery Counties, an increase of about $25 to 
$40 for Delaware and Bucks Counties, and about $100 decrease 
for Philadelphia. So you have your work cut out for you.
    Thank you, and I look forward to your questions.
    [The prepared statement of Scott C. Harrison follows:]
 Prepared Statement of Scott C. Harrison, Research Director, Medicare 
                      Payment Advisory Commission
    Chairman Greenwood, members of the Subcommittee. I am Scott 
Harrison, research director for Medicare+Choice issues at the Medicare 
Payment Advisory Commission (MedPAC). I am pleased to be here this 
morning to discuss the Medicare+Choice (M+C) program. My testimony 
draws on the recommendations and analysis in MedPAC's March 2001 report 
to the Congress.
    MedPAC is concerned about the sometimes large differences in 
payments to Medicare+Choice plans between adjacent counties within 
healthcare markets. The situation here in the Philadelphia metropolitan 
area is a good example of local county payment rate differences. In 
Pennsylvania's five-county metropolitan area including Philadelphia, 
the highest county Medicare+Choice payment rate is $200 per month 
higher than the lowest rate. Many of the residents of the lower-rate 
suburban counties are upset at having to pay an extra $700 a year for a 
plan compared with their fellow beneficiaries across the county line in 
Philadelphia.
    These payment rate differences were created by differences in the 
Medicare per-beneficiary spending on behalf of county residents in the 
traditional fee-for-service Medicare program. MedPAC, in our March 2001 
Report to the Congress, recommended that the Secretary of Health and 
Human Services study the variation in spending under the traditional 
Medicare program to determine how much is caused by differences in 
input prices and health risk and how much is caused by differences in 
provider practice patterns, the availability of providers and services, 
and beneficiary preferences. He should report to the congress and make 
recommendations on whether and how the differences in use and 
preferences should be incorporated into Medicare fee-for-service 
payments and Medicare+Choice payment rates.Also in the Report to 
Congress, the Commission recommended that the Secretary consider using 
payment areas that contained larger numbers of Medicare beneficiaries 
than are typically found within counties to raise the reliability of 
the spending data. However, the Commission did not feel it was ready to 
recommend using metropolitan areas specifically because of concerns 
that such areas might be too large to represent homogenous healthcare 
markets. Instead, MedPAC is interested in seeing the results of ongoing 
work dedicated to finding better criteria to delineate healthcare 
market areas.
Setting Medicare+Choice payment rates
    Before the Balanced Budget Act of 1997 (BBA), county payment rates 
(per beneficiary per month) were based on the fee-for-service (FFS) 
costs of Medicare beneficiaries in that county. The BBA established a 
new payment method, under which the county Medicare Choice(M+C) rate is 
the maximum of:

 a floor rate
 a minimum update applied to the previous year's rate
 a blended rate
    The floor rate was set at $367 for 1998 and is increased by an 
update factor based on the projected growth in Medicare expenditures 
per capita each year thereafter. As a result, the floor payment was 
$380 in 1999 and $402 in 2000. The Medicare, Medicaid, and SCHIP 
Benefit Improvement and Protection Act of 2000 (BIPA) raised the floor 
rate to $475 for 2001, and established a new floor rate of $525 for 
counties in Metropolitan Statistical Areas (MSAs) with a population 
greater than 250,000. The minimum update is 2 percent, with BIPA adding 
a one-time increase to 3 percent for 2001. The blended rate combines a 
national rate and the local rate. (The local rate is the 1997 payment 
rate trended forward by a national update factor.) The intent of 
blending was to reduce the variation in payments across the country by 
lowering the highest rates (subject to the minimum update) and 
increasing the lowest rates. Blended rates are being phased in over six 
years. In 1998, the blend was 10 percent national and 90 percent local. 
As of 2003 and thereafter, the blend is 50-50 national and local. The 
actual computation of blended rates is complicated by several factors 
and the application of those rates is limited by a budget-neutrality 
provision. The provision limits total payments in the M+C program to 
what total spending would have been if county payments were based on 
strictly local rates. Because the floor payment rate and the minimum 
update percentage are set in law, total projected payments may 
nonetheless equal or exceed the budget neutrality limit. When this 
happens all counties either receive the new floor rate or last year's 
rate raised by the minimum update and no county receives a blended 
rate. The budget neutrality provision resulted in no blended rates 
being applied in 1998, 1999, and 2001. Other factors that complicate 
the blend calculation are:

 The graduate medical education (GME) adjustment. Local rates 
        are decreased by a percentage of 1997 GME spending beginning 
        with 20 percent in 1998 and increasing by 20 percent a year to 
        100 percent by 2002. (Teaching hospitals will be paid 
        separately for the teaching costs associated with M+C 
        admissions).
 The update factor. Local rates for each year are calculated by 
        multiplying the previous year's local rate and the update 
        factor mentioned above. The BBA decreased the update factor by 
        0.008 in 1998 and by 0.005 from 1999 to 2002. The Balanced 
        Budget Refinement Act (BBRA) changed the reduction to 0.003 for 
        2002.
    The national rate is the average of the local rates weighted by the 
number of Medicare beneficiaries in each county. According to the 
phase-in schedule, that national rate is input-price adjusted and 
blended with the local rates to come up with the blended rate per 
county. If the budget neutrality provision permits, that rate becomes 
the blended rate per county that is then compared with the floor rate 
and minimum update to determine the actual county M+C payment rate.
Differences in payments across the five-county-area
    Despite all of the changes to the Medicare+Choice rate-setting 
formula, the percentage differences in the payment rates among Bucks, 
Chester, Delaware, Montgomery, and Philadelphia counties (as high as 36 
percent) remain as they were before the Balanced Budget Act of 1997 
created the Medicare+Choice program. All five counties have received 
the annual minimum updates of 2 percent (3 percent in 2001), thus 
relative payments have not changed. None of these counties have yet 
received a blended rate update because their local rate components are 
above the national rate components that would be used for the blend.
    While there is a lot that MedPAC does not know about the reasons 
why the Philadelphia rates are at least 19 percent higher than the 
rates of the suburban counties, some factors are known. Between $35 and 
$55 of the difference in rates can be traced back to the higher 
spending for graduate medical education related to stays in 
Philadelphia teaching hospitals. Half of these differences will be 
removed as counties move to blended rates, but the removal may yet take 
several more years. Similarly, some of the difference may reflect 
higher disproportionate share (DSH) payments to Philadelphia hospitals, 
which are more likely than suburban hospitals to get those payments for 
treating low income patients.
    The special teaching and disproportionate share payments to 
hospitals follow the patients who use the hospitals. Because 
beneficiaries are most likely to use hospitals in their counties of 
residence, counties that have these facilities are more likely to have 
higher spending associated with the special hospital payments. For 
example, MedPAC staff found that residents of Philadelphia 
overwhelmingly went to Philadelphia hospitals. Medicare beneficiaries 
who live in Levittown, however, went to Philadelphia hospitals only 
about 10 percent of the time.
    The health risk of the Medicare population is another factor that 
partially explains why Philadelphia has higher per capita spending than 
its suburbs. According to the risk-adjustment model that HCFA uses to 
adjust payments to Medicare+Choice plans, the per capita Medicare 
spending in Philadelphia would be expected to be 10%-13% higher than in 
the suburban counties because the Medicare beneficiaries in 
Philadelphia tend to have greater health risk.
What effect do the higher payments in Philadelphia have?
    Clearly there are differences in plan availability and benefit 
packages between Philadelphia and the suburban counties. There are 
seven M+C HMO plans available in Philadelphia, and only three HMO plans 
available in most of the other counties. In Philadelphia, there are 
several plans that do not charge a premium (in addition to the standard 
Part B Medicare premium), including some that cover prescription drugs. 
The lowest additional premium charged by a plan in Bucks County is $50 
per month, and the only plan that offers prescription drug coverage 
there charges a premium of $114 per month.
    However, the differences are not always consistent. Of the three 
plans operating in Bucks County, two have exactly the same benefits and 
premium that are offered in Philadelphia, even though the plans receive 
$140 less per month in Bucks County. The third plan charges no premium 
in Philadelphia and a $59 premium in Bucks County.
    If the plans did not face different costs in the different counties 
in relation to the payment rates they receive from the Medicare 
program, how could they afford to offer the same benefits for the same 
price? One way is for the plan to set the price higher in Philadelphia 
so that the higher profits there would offset lower profits (or losses) 
in the suburban counties. Another way is for the plan to become more 
efficient in managing the benefit by serving a larger number of 
beneficiaries than it could attract if it were only in Philadelphia. 
Or, the plan may simply view the entire five-county area as one market 
instead of five.
    MedPAC staff briefly examined the Medigap market in the five-county 
area and found that the insurers generally charged the same rates 
across all five counties. This suggests that they viewed the area as 
one market with similar costs. One should remember, however, that 
Medigap insurers are not responsible for the special payments 
associated with teaching and DSH hospitals because they only pay the 
standard hospital deductible, not the DRG payments made by the Medicare 
program.
Options
    MedPAC has recommended that Medicare+Choice payment rates be set 
equal to the expected Medicare fee-for-service per capita spending in 
the local market. The best way to define local markets, however, awaits 
further research. State governors may redefine payment areas in the 
state under a provision of the BBA. Allowed options include a single 
statewide Medicare+Choice payment area, and a metropolitan-based system 
where each Metropolitan Statistical Area is a separate payment area and 
all rural counties are grouped as one payment area. Any redefinition 
must be budget-neutral across the state as a whole. If the five-county 
area had been designated as a single payment area for 2001, the rate 
would have been about $670 per month. That would have meant an increase 
of about $100 per month for Chester and Montgomery counties, an 
increase of about $25-$40 for Delaware and Bucks counties, and about a 
$100 decrease for Philadelphia.

    Mr. Greenwood. Thank you very much for your testimony.
    The Chair recognizes himself for 5 minutes for questions. 
And let me turn my first question to Ms. Berek from the Health 
Care Financing Administration. We have heard from Mr. Haggett 
of Independence Blue Cross that yes, it is more expensive to 
provide healthcare to Philadelphians. They tend to be less 
healthy than the beautifully robust healthy people that we have 
here in Bucks County. They tend to demand more healthcare, and 
that healthcare is more expensive per unit, the doctors charge 
more, the hospitals charge more, the home health services 
providers more. What he tells us, though, is that the 
difference is 8 percent, that it costs on average 8 percent 
more to provide healthcare to someone from Philadelphia than it 
does from Bucks County. Yet, the payments to Philadelphia are 
18 percent more rather than 8 percent more. I am not blaming 
HCFA for that because Congress, essentially, locked that 
formula in, and you haven't had time to adjust it.
    My question is isn't the theory of adjusting these 
payments, having a different payment for different counties 
around the country, supposed to result in, basically, no 
apparent difference to the beneficiaries. Isn't it the case the 
beneficiaries should all, basically, be, in a region like ours, 
ideally, and in theory, should be getting the same benefits, 
the same prescription drug benefits, for instance, paying the 
same premiums. The only difference is that we would--that 
Medicare would pay insurance companies a little bit more to 
make up the difference in providing those benefits. Isn't that 
the way this thing is supposed to work?
    Ms. Berek. That is the theory of the original formula for 
calculating the AAPCC. I mean, that was what it was supposed to 
bring us in terms of information. That, at this point, is a 
1997 number, and we are in the process, and I know June is only 
tomorrow, but we hope early in the month of June to have 
definitive data on what 1998 and 1999 information would be for 
calculating what the actual costs were. Now, again, that is 
still formula driven and it is not going to be perfect, but we 
will have more current numbers.
    Mr. Greenwood. Is that nationwide, you are doing that?
    Ms. Berek. Nationwide, yes. We are about to--one of the 
things that was asked for in BIPA was that we recalculate those 
numbers, and we are a little bit behind schedule.
    Mr. Greenwood. And when do you expect to have those 
calculations completed?
    Ms. Berek. In briefing me for this hearing, I was, 
actually, told that they might be able to tell them to me 
yesterday, and my answer was, if they are not public, don't 
tell them to me. But my guess is they will be public sometime 
next week, or at the latest, the week after. And I think that 
will help us look at the question.
    The other thing which HCFA doesn't calculate and look at is 
the difference in the actual structure of the healthcare system 
in a locality, which is the difference in a managed care plan's 
ability to negotiate rates. And depending on how competitive 
the marketplace is, the managed care plan can or cannot 
negotiate discounts and rates, and depending on their 
penetration in the market. And our formulas don't account for 
that at all, and that is one of the variables which--and I 
can't speak to this region, but I know if the New York 
Metropolitan area, which has similar problems between the urban 
center, Richmond, as was on the chart, and Nassau, Suffolk, and 
Westchester, which are suburban, it has exactly the same rate 
problems. And a lot of that is based on the ability to 
negotiate rates and market penetration in terms of not just 
cost. So I think those are the two factors.
    Mr. Greenwood. Thank you. I want to address another 
question, and I am going to ask our other three witnesses to 
respond to this. There are a couple of ways we can fix this 
problem. One of them is to update the formula, and we just 
heard that we are going to have new calculations on the average 
area per capita cost, and if Congress wanted to, Congress could 
go back to that system and we would probably get the 8 percent 
variation between Bucks and Philadelphia instead of the 18 
percent, and we would have an equalization in benefits and 
premiums throughout the region, which would be good.
    There is another way to go about this. And the reason it 
has been suggested is because what we really want to guarantee 
is we want to guarantee the availability of Medicare+Choice 
managed care Medicare throughout the country, and we want to 
make sure that the payments to the companies are sufficient so 
that the beneficiaries can go back to the good old days of just 
a few years ago where they had really excellent coverage at 
really low premiums, or no premiums, and were very happy there.
    The way that has been suggested, one way has been suggested 
to do that, is instead of using these very complex formulae, 
where you have to gather all this data and hope that it is 
accurate, and then make a different calculation for every 
county, is as was suggested under the Breaux-Frist proposal, 
would basically be say to the companies, you come in and bid on 
these plans. What do you need in terms of premiums in order to 
provide benefits, and we are going to have several companies 
come in and compete against each other, and then Medicare will, 
essentially, decide what is the best deal, and then pay the 
premium based on that competitive bidding as opposed to this 
formula.
    Could each, Mr. Haggett, Dr. Harmon-Weiss, and Dr. 
Harrison, comment on what do you think is the better of those 
two fixes or a third fix if you think it is best yet?
    Mr. Haggett. I believe the whole competitive bidding issue 
is one that we have looked at and are, I guess, conceptually, 
not opposed to. We are concerned about what the details are, as 
you would expect. One of the issues that is in play in this 
marketplace, and I suspect many other marketplaces throughout 
the country, is really the competitive aspect of the 
Medicare+Choice marketplace. When you have a county like 
Philadelphia County, and four suburban counties where there is 
a significant difference in payment rates, you also have 
companies--we have got competitors that operate only in 
Philadelphia. So they are at an advantage to that extent, that 
their service area is different than ours. And I am not sure if 
that would be a concern when you go into a competitive 
situation, you know, would it be a county by county type of 
situation, and would we, in effect, use a different methodology 
to get to the same results, where, you know, unless the 
underpinning fee-for-service, or whatever the base costs are, 
were modified to acknowledge that type of thing.
    I think, also, one of the aspects in terms of updating the 
formula, the data that is currently being used is 1997 data. 
Significant changes have happened, certainly, in this 
marketplace, other marketplaces throughout the country, 
provider consolidations, you know. There are many more separate 
hospitals, many more of the physician practices were 
independent. They are now all wrapped together and our ability 
to negotiate is very different than it was 5 years ago when 
this data, upon which we are paid now, was collected and used.
    So to your point, I think the concept of competitive 
bidding is something, you know, that we are not necessarily 
opposed to. It is something, however, that there are a lot of 
component parts to that that really need to be thought through 
to really get to the result that looks at more natural regions. 
To us, when we look at the--and we rate any of our other 
business, it is on a regional basis. Healthcare in this 
community is a regional enterprise. The pricing structure that 
is in place right now is artificial to the detriment of 
suburban Medicare beneficiaries. I can think of, virtually, no 
other marketplace, no other product line that we operate in, 
that is similar. Medicaid contracts are done on a regional 
service area basis, not on a specific county basis, and I think 
some acknowledgement of what is real in the marketplace being 
factored into whatever approach is taken is an absolute must.
    Mr. Greenwood. Dr. Harmon-Weiss.
    Ms. Harmon-Weiss. Thank you. We, certainly, as both Mr. 
Haggett and I have emphasized, there needs to be a way for the 
Medicare+Choice rates to be raised, reflective of the medical 
cost inflation that we are experiencing. We, certainly, do have 
issues with the rates being so disparate in Philadelphia versus 
Bucks and Montgomery County, and we would like to see some 
resolution on that issue.
    As far as moving to a competitive bidding system, I would 
have similar reservations that Mr. Haggett has expressed, and 
that is as long as it is not based upon some draconian formula 
reflecting arcane data. We feel that this would be of great 
interest because it should be able to be reflective of the true 
cost of providing healthcare in this market. We feel that the 
market based forces are really important in setting health 
insurance rates. So for example, our plan sponsored 
commercially insured members are the bulk of our business. 
There are 10 or 20 times the number of beneficiaries in the 
market that are commercially insured. The plan sponsors have no 
intention of spending more money than they have to. They, 
actually, drive the business and they, actually, drive the 
health plan to get the lowest rates possible with the 
limitations that my colleague has expressed within this market. 
So we really feel that using market based forces is far to the 
benefit of every Medicare beneficiary in this country.
    Mr. Greenwood. Dr. Harrison.
    Mr. Harrison. MedPAC has recommended, basically, going back 
to the old system.
    Mr. Greenwood. The old system being the AAPCC?
    Mr. Harrison. The AAPCC, where we look at the county-based 
rates, although, we are not wedded to stay with the counties, 
and issues do come into play as they would in competitive 
bidding as to what you want to make the market areas, and I 
think we need some more work. I know HCFA, some people at HCFA, 
have been doing some work to try to better define the market 
areas, and I think we need to do that.
    Mr. Greenwood. I have a question for Mr. Haggett and 
another question for Dr. Harmon-Weiss, and I am, obviously, 
exceeding my 5-minute limit. I will do the same for the other 
gentlemen.
    Can you tell us what your profit margin is in this region 
here? And if you could include what were your administrative 
costs and your profit margin on these products in the 
Philadelphia region?
    Mr. Haggett. Yeah. For the--maybe take it by product by 
product. Keystone 65, by far, our largest program, has 
generated a margin between the 2 and 3 percent range over the 
last 5 years. That has, progressively, declined and this year 
is projected to be less than 1 percent.
    Our administrative costs have run over the last 5 years 
between 5.5 and 6 percent of the total revenue dollars, which 
when we look at the State, or even the national standard, is 
extremely competitive. On the commercial side, you would expect 
to see anywhere from 10 to 12 percent, so it is significantly 
lower.
    Personal Choice, the margins have been lower, less than 2 
percent since the beginning of that program, and that continues 
to be the case. Our administrative cost there, likewise, in the 
6 percent range. And our product in New Jersey, and while I 
know we are focusing on Pennsylvania, but we do offer product 
in New Jersey that is very comparable to the Keystone 65 
product. We have never made any money in that market. We have 
been in it for 4 years.
    Ms. Harmon-Weiss. I have been advised by my financial 
colleague who accompanied me today that we are seeing the same 
trends that have been expressed by my colleague.
    Mr. Greenwood. A final question, and then I will ask--let 
us be mannerly here in Bucks County, please.
    An interesting--to me, an interesting phenomena occurred 
here this morning. That is when our first panelists were, the 
beneficiaries, were asked questions that had to do with is it a 
better deal for you to be on a Medicare+Choice plan 
administered by a private insurance company or is it better for 
you, financially, to be on regular fee-for-service Medicare, 
most of the beneficiaries' responses were, oh, we are still 
better off, financially. And Ms. Kopacz said in terms of 
advising her clients, in many cases, you are still better off, 
financially, to be with a private insurer than on the Medicare 
fee-for-service. And yet, when I think Mr. Hoeffel asked a 
question, which was when it comes to prescription drugs, would 
you rather be in a Medicare regular fee-for-service system or 
would you rather see that constructed in the private insurance 
system, I think they all, unanimously, said, oh, we don't want 
to be with the private company, we want to be with regular old 
Medicare. So you have this sort of irony here, and that is, 
when you look at what people are receiving, even though they 
are unhappy with it, they think--they don't believe you when 
you tell them you are making 1 or 2 percent profit. They don't 
really love you very much if you haven't noticed. And yet, they 
are still better off with you than they are in Medicare fee-
for-service, for the most part.
    Why do you think it is that even though, theoretically, you 
can offer better option in many instances than the regular 
Medicare fee-for-service, people don't really trust the 
companies and don't really believe that they are going to get a 
better deal when, for instance, it comes to prescription drugs? 
Why do you think they have this credibility issue?
    Mr. Haggett. In today's environment, over the last couple 
of years, we have been the ones on the front line cutting back 
on the benefits and increasing the premiums. I am the one who 
signs the letters for our Keystone members; it doesn't come 
from Congress, it doesn't come from HCFA. So we are, to a 
certain extent, the face that is put on the adjustments that 
need to be made.
    I would counter that, however, by looking at our company's 
and program's disenrollment rates, which on a voluntary basis, 
annually, run less than 5 percent, which is significantly lower 
than the national average. We look at the satisfaction results 
that come through the standardized surveys and so forth that 
are done. More than 85 percent of our members report high 
levels of satisfaction with the plan. We look at our outcomes, 
clinic outcomes data, we look at the accreditation agencies and 
so forth, and frankly, I am very proud to offer--to continue to 
offer the product.
    Can we get it right all the time? No, we don't. I get 
concerned when I hear any member saying they can't get through, 
they can't get an answer to the question, and believe me, that 
is something that we take very seriously. I, personally, 
monitor phone calls from our members. I, personally, was out 
and did about 30 of these community meetings, as did other 
people within our management team. We try in every way to help 
support and make it as easy and financially affordable, 
however, the game in which we are playing is a tough one right 
now, as we all acknowledge. So that is, hopefully, the response 
to your question.
    Mr. Greenwood. Dr. Harmon-Weiss?
    Ms. Harmon-Weiss. I agree that we are on the front lines 
and we have been in the very painful position of having to 
decrease benefits. And the citizens of Bucks County and 
Montgomery County were very pleased with our benefit package, 
and they complained bitterly, including my own relatives, that 
we are not providing the same benefits. At the same time, we 
do, in fact, provide them the opportunities to switch plans if 
they are unhappy. If they are dissatisfied, they can switch 
plans, they can join another plant. They always have the 
opportunity to go back to fee-for-service Medicare, and we find 
that they don't do that.
    There were 308 individual members who are effective with 
our health plan on November 1, 1985; 47 of them in Bucks County 
remained enrolled to this day. They have been with us through 
the thick and thin, even though we have had to change the 
benefit package and change the premiums. Similarly, in 
Montgomery County, there were 142 members who were enrolled 
with us on 11-1-85, who have been continuously enrolled. We 
have kept them healthy, and they still remain enrolled at this 
time. That is a great deal of loyalty. We have a great deal of 
loyalty out there with our members.
    Also, as my colleague was emphasizing, we provide 
coordinated care to Medicare beneficiaries. We provide services 
and make sure that Medicare beneficiaries have their 
preventative care. We, currently, can show that 80 percent of 
the Medicare enrollees in our plan have received mammography, 
whereas when you look at the fee-for-service data in 
Pennsylvania, for example, only 40 percent of the Medicare 
beneficiaries in Pennsylvania received the service even though 
it has been covered by Medicare for several years. That is just 
one example. There are many, many examples of the benefits that 
we can bring to the beneficiaries under managed care by 
coordinating their care.
    Mr. Greenwood. Thank you all. I now yield 10 minutes to the 
gentleman from Florida, Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. One of the things 
that is interesting, I guess, if you can, when January 1 rolled 
around for the two plans, how many people actually dropped 
coverage? How many people dropped out based upon the change in 
premium?
    Mr. Haggett. For Keystone 65, the total number through the 
first quarter of the year, through the 1st of March, which we 
really view as our transition period, a total of about 7,000 
members dropped coverage from our plan. However, at the same 
time, about 5,000 new members joined. And part of that 7,000 
are people who are not eligible for Medicare any longer, people 
who died, so it is not just the voluntary folks. I mean, that 
is the reality of our business, every month that is there.
    Mr. Deutsch. Okay. Dr. Harmon-Weiss?
    Ms. Harmon-Weiss. I have the information for you in Bucks 
County. With the change in benefits for 2001 and the 
introduction of the higher premium, we have a decrease in our 
enrollment of 500 members in Bucks County. And as I mentioned 
before, that is against a 16,000 member enrollment previously 
in Bucks County.
    Mr. Deutsch. One of the, you know, sort of interesting 
issues, you know, you mention, I guess, you have been providing 
Medicare+Choice since 1985, and Keystone----
    Mr. Haggett. 1993.
    Mr. Deutsch. 1993. I guess at some point, there was the 
sort of glory days, you know, where you were really providing 
the type of service that you felt you really wanted to. You 
know, could you describe--I mean, what was the glory year, I 
mean, when you felt you were really providing the benefits that 
you wanted to provide for your beneficiaries? And then sort of, 
how much more would it cost to get to that level? I assume you 
are not providing hearing aids anymore. Is that accurate for 
both of you?
    Mr. Haggett. We do.
    Ms. Harmon-Weiss. We do.
    Mr. Deutsch. All right. And prescription glasses, are you--
--
    Mr. Haggett. We do.
    Mr. Deutsch. They are not your--are there other benefits 
that you have dropped, or the main dropping was prescription 
drugs?
    Mr. Haggett. Correct.
    Mr. Deutsch. All right. So were there other cutbacks on any 
other benefits you provided? You provided glasses at one point 
and then you chose not to?
    Ms. Harmon-Weiss. In 2001, we have a discount vision 
program, but no benefit coverage dollar limit for glasses.
    Mr. Deutsch. No healthcare memberships?
    Ms. Harmon-Weiss. Pardon me?
    Mr. Deutsch. Healthcare memberships.
    Ms. Harmon-Weiss. Fitness benefit? We had a fitness benefit 
previously that provided healthcare memberships. We had a 
dental benefit, and now we have a discount dental program. 
Dental, as you be aware, is becoming much more of an important 
issue to Medicare beneficiaries. Previously, when that care was 
enacted, Medicare beneficiaries were dentureless, at least 55 
percent of them were, but now they have teeth and care about 
them through the attrition.
    Mr. Deutsch. So I mean, I guess the question sort of is, 
you know, how much more would you need to provide it under the 
existing system? How much more money would you need on a 
monthly basis to get back to the point where you can provide 
coverage and say, hey, to every beneficiary, you are not going 
to have one out-of-pocket dollar for prescription drug 
coverage? Because the reality, that is what seniors want. I 
mean, when seniors joined HMO's, what they wanted was the 
acknowledgement that when they chose to join an HMO, the 
healthcare costs, for all intents and purposes, were over. 
Their decision was to join the HMO or not to join the HMO, and 
their filing issues were over, and it gave them, you know, 
extreme comfort. And I guess what I am really hearing is that 
extreme comfort is gone.
    Ms. Harmon-Weiss. As we mentioned previously, the years 
leading up to BBA included updates to our fees annually. They 
were quite different in different parts of the country, but as 
we heard from our colleague in MedPAC, they were based upon the 
fee-for-service experience on a county by county basis. At that 
time, this would be in the early 1990's, we were able to 
provide prescription drug coverage, we were able to take the 
Medicare money that would have been spent in fee-for-service, 
receive 5 percent less, and still provide coverage for physical 
examinations, which basic Medicare doesn't cover. We were able 
to provide a rather rich benefit package of prescription 
medication, all the wellness, all the preventative care, plus 
hearing aids, which Medicare doesn't cover, and a number of 
other programs and ways in which our benefit package was richer 
than Federal Medicare.
    Mr. Deutsch. Right. And I guess, you know, one of the 
questions, though, is on an average, you know, basis--this is 
one of the other issues. I mean, there is the issue that 
Philadelphia is getting more than Bucks County, but the other 
issue, really, is what is Medicare+Choice getting in 
relationship to fee-for-service. I mean, there has been a real 
debate, and again, the chairman and I sit on the committee that 
has jurisdiction over Medicare and Medicaid, so we go through 
these debates, and there has been a real debate, which all of 
you are aware of for fee-for-service physicians, in particular, 
who are not members of HMO's, who feel that, you know, there 
was too much--you know, the benefit, the incentive for people 
to join HMO's was too good, and they had a real effort to sort 
of, you know, try to cut that back, to increase fee-for-
service. On a percentage basis, you said that 5 percent, which 
was the original concept of Medicare HMO's. What is the 
differential now between a Medicare beneficiary, in terms of 
payment that you get, versus your HMO patient?
    Ms. Harmon-Weiss. I think the graphic here is demonstrating 
the gap that is developing. If I am incorrect, please let me 
know, but I think that graphic is demonstrating the gap that is 
developing between Medicare fee-for-service spending and HMO's 
right there. It is growing extraordinarily wide, as we have 
testified, 9.5 percent in 2001. And actually, I think we 
included that in our testimony, but came at it from our 
company's perspective.
    Mr. Deutsch. So what we are saying now is that we are 
spending 9 percent more on a fee-for-service patient on 
average?
    Ms. Harmon-Weiss. That is what the data says.
    Mr. Deutsch. Ms. Berek, do you want to try to respond to 
that?
    Ms. Berek. What the data there is showing is the rate of 
growth in 1 year. If you average it out over the last few 
years, I don't think the difference is that great, because when 
the fee-for-service spending was going down in 1998 and 1999, 
our payment to managed care plans was going up by the flow, 
which was 2 percent.
    Mr. Deutsch. Can I ask you, just so I understand this 
chart, which is kind of hard to understand----
    Ms. Berek. You got just about my limit on the chart, but we 
can try it.
    Mr. Deutsch. Well, I mean, is this just total amount or is 
this per person? I mean, what does this chart show? I still 
have no idea what this chart is trying to explain.
    Ms. Berek. This shows, if I am correct, the percentage 
annual increase of the total amount.
    Mr. Deutsch. So total amount. That has nothing to do per 
person?
    Ms. Berek. It has nothing to do with per person, right. And 
it is the annual increase of growth, so you don't see the base 
percentage growth. It is not showing you the base, it is 
showing you percentage growth on the base.
    Mr. Deutsch. Right. So I mean----
    Ms. Berek. Excuse me. It is divided on a per person.
    Mr. Deutsch. So it is per person. So is what we are saying 
now that a fee-for-service person is now getting 9.6 percent 
more than a Medicare reimbursement? I mean, what is the bottom 
line?
    Ms. Berek. The growth in spending for a fee-for-service 
beneficiary in the year 2001 was 9.6 percent. The growth in 
spending on a managed care beneficiary, nationally, was 4.4 
percent, and in Bucks County was 3 percent. But if you are 
going back, in 1998, we spent less money on Medicare 
beneficiaries in fee-for-service than we did in 1997.
    Mr. Deutsch. I guess, you know, one of the questions that I 
am trying to understand is, you know, when Medicare initiated 
the pilot projects to do HMO's which my recollection, again, is 
before we were in Congress, but really started in south Florida 
when Claude Pepper was chairman of the Rules Committee in the 
Congress, and started, actually, in my community in south 
Florida. And in fact, you know, it didn't exist. I mean, it was 
a creation of HCFA and Members of Congress did it as a pilot 
project, and the concept really was that it was going to save 
Medicare money, and that was the 95 percent reimbursement that 
you are saying. Are we at the point now where it would still 
save money but we are reimbursing at a higher rate for fee-for-
service?
    In other words, some of the things that you are talking 
about, which I think are really significant, and I am glad that 
you brought them up. I mean, the utilization rate of mammogram. 
I mean, everyone in this audience, if no one gets anything else 
out of this meeting today, you should be aware that through the 
good works of our committee, Mr. Greenwood and myself, that 
since we were both elected to Congress in 1992, we have 
consistently added preventative coverage for Medicare as a 
benefit. Medicare, originally, didn't have any preventative 
coverage at all, so it now provides mammogram coverage, 
colonoscopy screening. As of July 1 of this year, 35,000,000 
Americans will be eligible under Medicare for colonoscopy 
screening, which they weren't previously until July 1. So you 
know, it is Congress at work. But you are absolutely correct. 
The utilization rates for these screenings is incredibly low. I 
mean, you know, just scary. I mean, unfortunately, low. And for 
everyone in this audience, they should be aware that their 
Medicare, whether fee-for-service or HMO, they have benefits 
that they can avail themselves of, which we know, 
statistically, a very high percentage of people just don't do 
that. But the whole theory is that if you avail yourself of 
these preventative things, you are going to be healthier, and 
ultimately, you are going to save money.
    So what I am trying to get a sense of, do we know is it 
working? I mean, are we cutting--in other words, I guess the 
question I am really trying to get to, are we cutting back so 
severely--in other words, it is a balance. It really is a 
balance. I think there shouldn't be an incentive for people to 
join fee-for-service, there shouldn't be an incentive for 
people to join HMO's. It should be a real choice that 
individuals have, but it has to be sort of a level playing 
field choice. And one of the issues about not having 
prescription drug coverage, which I think physicians who were 
not part of traditional, you know, or an HMO, had legitimate 
concerns. Physicians would come to me in my community and say, 
hey, I am losing patients to an HMO because they are getting 
prescription drug coverage. What can I do? Well, openly, the 
only thing you can do is have prescription drug coverage under 
traditional Medicare so that people can make intelligent 
choices.
    But I guess, can anyone--can you try to answer that? Are we 
paying more than we should? I mean, you are doing it from a 
research basis. Go ahead.
    Ms. Berek. I was trying to ask our policy statistical 
person behind me to say can we tell you whether we are saving 
or not. We can tell you on a locality by locality basis what we 
are saving. I don't think we can give you the broader answer, 
and I don't think I can say to you, honestly, that HCFA 
understands right now whether we have the right level of 
incentive. We see the growth in managed care going down, which 
we do not think is good, and we want to see the growth in 
managed care going up.
    And so I can say to you that we are committed to working 
with you and Chairman Greenwood to figure out what are the 
things we need to do, both in terms of policy and finance, to 
change the direction so that we do what Medicare+Choice was 
philosophically intended to do, which was increase the 
participation in managed care, increase the availability of 
choices for our beneficiaries, and whether I can tell you in 
theory it is saving what it should or not doesn't matter. It is 
not working in terms of the need to increase the choices for 
beneficiaries and increase what they need. So we are committed 
to working with you to both look at the numbers, because I know 
when you pass a budget, it is numbers that count--to look at 
the numbers and to look at the rules, and see what are the 
things we have to change, what are the things we have to fix, 
and help you make the decisions to make those changes. But I 
can't--I mean, I can have somebody sit down with you afterwards 
on the detail, but I think we should focus----
    Mr. Greenwood. The time of the----
    Mr. Deutsch. The Chairman mentioned we are out of time. Let 
me just ask one very quick question as a last question.
    Mr. Greenwood. Well, I have got to--here is our problem. We 
promised to be out of here at 11:30 so that they can set up for 
lunch, and Mr. Hoeffel--we have given the gentleman 15 minutes. 
We need to give the gentleman, Mr. Hoeffel, some time.
    Mr. Deutsch. Okay. All right.
    Mr. Greenwood. The gentleman from Montgomery County is 
recognized for 10 minutes.
    Mr. Hoeffel. Thank you, Mr. Chairman, and I will take less 
than that.
    We have talked about three sets of numbers, basically. We 
have talked about the medical cost inflation that the carriers 
face and you want to be reimbursed at a rate that reflects the 
increased cost of medical care so you guys can continue to make 
the profit you need to make and provide the services you need 
to make. We have talked about the county by county 
reimbursement rate you get from Medicare per beneficiary, the 
amount that we pay you to provide a service and to pay the 
doctors and the hospitals. And we have talked about the county 
by county premiums you charge to the beneficiaries, to the 
customers.
    And what really bugs me is the notion that we pay you more 
where there is higher medical costs, such as Philadelphia, but 
the system is so askew that your response in the marketplace is 
to charge no premium to the people that happen to live there 
and higher premium to the people out in the suburbs that have 
no--at a lower cost. And I am not blaming the representatives 
of the companies here. I mean, I think, fundamentally, this is 
Congress' responsibility to figure out how to balance this out. 
But that is what we have got to focus on.
    And I wanted to say to the representative, Dr. Harrison, 
from the Medical Payment Advisory Commission, that in your 
report you said that--in your testimony, you said that the 
Commission is not yet ready to use a metropolitan area for 
payment because it may be too large an area to represent a 
homogenous healthcare market. I don't see why that is a 
problem. Why can't we figure out the service area for Aetna, 
the service area for Blue Cross, and then make sure that they 
are charging one premium for everybody that lives in that 
service area? And one more comment before you respond. You said 
that we need--the best way to define local markets awaits 
further research, which I think is the same problem. Congress 
can't wait much longer. We need to have the necessary research, 
and I don't understand why it is so hard for us to determine 
what a fair and uniform premium would be for these carriers to 
charge in a service area where they provide the same coverage.
    Mr. Harrison. Okay. Two issues. It used to be that you had 
to charge the same premium in a service area, but what happened 
was that the plans would then choose their service area and 
they didn't always go along county lines. And so they would 
sort of customize a service area to go with that premium and 
package. As Mr. Haggett said, depending on how you arrange 
these areas, you could have competitors only playing in parts 
of them and that wouldn't be competitively fair, because if 
they were only in the areas where they would get high payments, 
then they would be able to charge a lower premium than someone 
who is covering the entire market.
    Mr. Hoeffel. Well, maybe then we have to reimburse on a 
regional basis and then have premiums on a regional basis.
    Mr. Harrison. That is one possibility, yes.
    Mr. Hoeffel. Rather than reimburse on counties and have 
premiums based on counties. It just isn't fair the way it works 
now.
    Mr. Harrison. I think you are right, but our commissioners 
were concerned about some of the competitive issues when you 
got into some of the larger metropolitan areas, you know. If 
you look at the Baltimore-Washington Metropolitan area, it goes 
all the way to West Virginia, and you know darn well that there 
are different costs involved in treating people in West 
Virginia than in D.C.
    Mr. Hoeffel. Well, I thank you. I know we are out of time. 
I want to yield back. Thanks to the panel for your testimony.
    Mr. Greenwood. Well, I thank all of our witnesses for being 
here today. I want to thank my colleagues for traveling here 
and participating in this hearing. Thanks to the Bristol Senior 
Center for hosting us. And thank you to all of the public for 
coming.
    I think, as anyone who has sat here for the last couple of 
hours plus can understand, this is at one time a very complex 
issue. You can hear all this jargon and gobbledygook about 
AAPCC, and demographic factors, and geographic variations, and 
blended rates, and utilization rates, and so forth, and I can 
see the eyes glazing over as we get into all of this very 
complex discussion. But what we have to remember at the same 
time is that--and we hearken back to our first panel--this is 
about real people, real men and women who have served their 
country, who have lived their lives, and who have a right to 
expect at this point in their life that we, their elected 
representatives, will figure out how to take care of their 
healthcare needs, to provide them with the kind of healthcare 
that they need, that they have to have, or they don't have any 
choices about the medications that they take, and they have a 
right to the sense of security that they are going to have that 
taken care of for them.
    I am hell-bent to get this done this year. I have two 
priorities in the Congress, and I think my colleagues shared 
this: (1) We have to get a prescription drug benefit into 
Medicare, we have to do it this year; and (2) We have to fix 
Medicare+Choice so that for those seniors who choose that 
benefit and find it best to their advantage, they have a 
program that they can afford, that, hopefully, they don't have 
to pay a premium for it, and they can offer them a prescription 
drug benefit, as well as the eye care, the dental care, and the 
audio care, and all of the rest. That is our responsibility to 
do it. I think I owe it to my mother and father to make that 
the case, I think I owe it to everyone that I represent, and 
that is what we are going to try to do and try to do this year.
    Thank you very much for being here.
    [Whereupon, at 11:33 a.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Chairman Greenwood, I would like to congratulate you for holding 
this field hearing today. This is an important issue that affects your 
constituents and millions of Medicare beneficiaries across the country.
    In 1997, Congress passed the Balanced Budget Act (BBA) of 1997, 
which included the provisions that created the Medicare+Choice program. 
This legislation redesigned the system for setting Medicare payment 
rates for managed health care plans that contract with Medicare. The 
goals in creating Medicare+Choice were to expand health plans to 
markets where access to managed care plans was limited or nonexistent, 
and to offer new types of health plans in all areas. Unfortunately, 
some of these goals have not been realized.
    Medicare managed care enrollment has remained nearly level since 
the implementation of the Medicare+Choice program, increasing from 
about 14% of the Medicare population in 1997 to about 16% of the 
Medicare population by September, 2000. At the same time, more than 100 
plans have either terminated their contracts and fully withdrawn from 
the program or partially withdrawn by reducing the geographic areas 
they served.
    In areas, such as Bucks County, the reimbursement level paid by 
Medicare to Medicare+Choice organizations has been limited to a rate of 
2 percent annual growth since 1998. This has led to the recent local 
developments where health care plans have decreased benefits and 
instituted a monthly premium, for the first time. Most studies and 
analyses of health care costs tell us that in order to provide quality 
health care, we must increase spending on this program at an annual 
rate greater than 2 percent.
    Last year, Congress passed the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA) in response to 
the information that I have just cited. Contained within BIPA is a 
provision that increases payments in counties where Medicare+Choice 
organizations receive the minimum percentage increase from 2 percent to 
3 percent, for this year only. Clearly, this is a temporary fix and 
Congress must act this year to address the reimbursement methodology so 
that payments to Medicare+Choice organizations adequately reflect the 
growth in health care costs in these areas.
    Chairman Greenwood and the Subcommittee staff have spent numerous 
hours reviewing data and information on the structure and management of 
the Medicare+Choice program. I look forward to hearing his findings. I 
am also eager to hear the testimony of the stakeholders who have been 
invited to this hearing. It is of the utmost importance to listen to 
the people who rely on these programs. It is also crucial to have a 
dialogue with those who are tasked with the management and 
implementation of this program. They work with the program every day 
and see its strengths and weaknesses first-hand.
    Chairman Greenwood, I look forward to hearing what your analysis 
has highlighted as the important issues regarding Medicare+Choice 
payment methodology. I believe that an important part of modernizing 
the Medicare program is laying the foundation for more competition and 
future innovation in the Medicare program. Medicare+Choice is a 
fundamental component in the effort for testing competitive models that 
can provide Medicare beneficiaries with better health care. I look 
forward to working with you, and other Members of the Committee, in an 
effort to fashion long term solutions to the problems that have 
inhibited the growth of the Medicare+Choice program.
                                 ______
                                 
  Prepared Statement of Hon. Jim Saxton, a Representative in Congress 
                      from the State of New Jersey
    Mr Chairman, I am pleased to have the opportunity to provide 
testimony on the issue of reimbursement for Medicare+Choice plans. With 
the thousands of seniors in my district who are enrolled in 
Medicare+Choice plans and are deeply affected by the annual increase in 
premiums that have taken place, I believe this issue needs to be 
carefully examined and I commend the Chairman for holding this hearing.
    Beginning in the late fall of 1999, the Medicare beneficiaries in 
my district who were enrolled in Medicare+Choice plans received 
notification that their premiums would be increased substantially for 
2000. In some instances, the premiums were increased by 250 percent. At 
the same time, benefits vital to many seniors--such as coverage of 
prescription drugs--were dropped. Clearly, this troubled many of the 
seniors in my district.
    Unfortunately, this was not a one-time event. Once again, last fall 
Medicare+Choice enrollees in my district were informed by their health 
insurance plans that their premiums would again increase for 2001.
    Many of those affected by these premium increases contacted my 
office. Because so many of them were on fixed budgets, they expressed 
how difficult it was for Medicare+Choice beneficiaries to afford two 
consecutive premium increases, especially when they were at such an 
extreme level. In addition, they were concerned because seniors in 
Philadelphia and New York City were receiving better benefits without 
the substantial increase in premiums.
    After hearing the latter point raised by many of my Medicare+Choice 
constituents, I began to look into this issue and discovered the major 
discrepancies that existed between the reimbursement rates for each 
county--not only when you compare counties in different states, but 
also counties within the same state.
    To say the least, the difference between the reimbursement rates 
for those plans who serve the three counties in my district and the 
reimbursement rates in Philadelphia and New York is staggering. 
Medicare+Choice plans in Ocean County receive $550.07 per enrolled 
beneficiary; those in Burlington County receive $569.18; and plans in 
Camden County receive $611.27 per enrollee. In Philadelphia County, 
Medicare+Choice plans are reimbursed at $769.77, and those plans 
serving New York City receive $838.75 per enrolled beneficiary.
    In Ocean County, plans receive 29 percent less per beneficiary than 
Medicare+Choice plans in Philadelphia and 34 percent less than plans in 
New York City. When you take into consideration that this is a county 
with over 100,000 Medicare beneficiaries--17 percent of which are 
enrolled in Medicare+Choice plans--plans who serve nearly 20,000 
seniors are being paid 29 and 34 percent less to provide health 
benefits than in neighboring cities.
    In Burlington County, the pattern continues. The difference in the 
per-enrollee reimbursement is 26 percent as compared to Philadelphia 
and 32 percent in New York.
    Finally, in Camden County, plans are reimbursed at 21 percent less 
than those in Philadelphia and 27 percent less than those in New York 
City. Important to note, the reimbursement level in Camden County is 
the highest in New Jersey, and yet it is way behind the levels of 
reimbursements in Philadelphia and New York.
    In examining the justification for and the reasoning behind the 
Medicare+Choice premium increase in the last two years, there are also 
many other components of the Medicare+Choice program that should be 
taken into consideration, including increasing medical costs, undue 
regulatory burden within the Medicare+Choice program, and additional 
oversight on how the Medicare+Choice plans are using the reimbursements 
they receive.
    However, when reviewing the reimbursements for the plans who serve 
the Medicare+Choice enrollees in my district versus those in 
Pennsylvania and New York, there is a drastic difference in these 
rates. Clearly, this disparity has and will continue to adversely 
affect the seniors who live in counties where Medicare+Choice plans 
receive a substantial--and seemingly unjustified--lower rate of 
reimbursement.
    When the health care of thousands of seniors is put at risk, it is 
vital that all aspects of this important program be examined. Seniors 
need to be protected from having to face yet another premium increase 
or a notice from their Medicare+Choice plan stating that they are no 
longer serving the area.
    Clearly, the reimbursement methodology of the Medicare+Choice 
program needs to be thoroughly reviewed, in hopes of finding a way to 
bridge the gap between county reimbursement rates. I am pleased that 
Chairman Greenwood has begun to move forward on this issue and I 
commend him for holding this hearing.