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




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                            DECEMBER 4, 2001


                           Serial No. 107-49


         Printed for the use of the Committee on Ways and Means


77-455                     WASHINGTON : 2002
             For sale by the Superintendent of Documents, 
                   U.S. Government Printing Office
    Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         Subcommittee on Health

                NANCY L. JOHNSON, Connecticut, Chairman

JIM McCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

Advisory of November 27, 2001, announcing the hearing............     2


Centers for Medicare & Medicaid Services, Hon. Thomas A. Scully, 
  Administrator..................................................    12
Milwaukee County Department on Aging, Stephanie Sue Stein........    52
UnitedHealth Group, Richard Jones................................    47
Oxford Health Plans, Peter Haytaian..............................    41

                       SUBMISSIONS FOR THE RECORD

Alliance to Improve Medicare, statement and attachment...........    75
Center for Medicare Advocacy, Inc., Vicki Gottlich, statement....    77
Israel, Hon. Steve, a Representative in Congress from the State 
  of New York, statement.........................................    80



                       TUESDAY, DECEMBER 4, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 1100 Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]



                         SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE                          CONTACT: (202) 225-3943 
November 27, 2001
No. HL-11

                      Johnson Announces Hearing on

                 Status of the Medicare+Choice Program

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on recent changes in the 
Medicare+Choice program that have adversely affected seniors and people 
with disabilities. The hearing will take place on Tuesday, December 4, 
2001, in the main Committee hearing room, 1100 Longworth House Office 
Building, beginning at 10:00 a.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include The Honorable Thomas Scully, Administrator of 
the Centers for Medicare and Medicaid Services, an independent program 
expert, a beneficiary representative and representatives of health 
plans. However, any individual or organization not scheduled for an 
oral appearance may submit a written statement for consideration by the 
Subcommittee and for inclusion in the printed record of the hearing.


    The Medicare+Choice program was created through the Balanced Budget 
Act of 1997 (BBA 97) (P.L. 105-33). Medicare+Choice gives beneficiaries 
the option of choosing to enroll in private, integrated health plans 
that often offer coordinated and additional benefits, such as 
prescription drugs. Today, 15 percent of Medicare beneficiaries are 
enrolled in Medicare+Choice.
    Although Medicare+Choice is popular with many beneficiaries, the 
program faces significant challenges. Enrollment in Medicare managed 
care had been increasing steadily until the changes mandated by BBA 97. 
Since that time, enrollment has declined by about 800,000 beneficiaries 
or about 12 percent. Prescription drug coverage has been eliminated or 
cut back dramatically in recent years, while program participants' cost 
sharing and premiums have increased, in some areas significantly. In 
2002, only half of the Medicare population will have access to at least 
one Medicare+Choice plan with drug coverage, down from 65 percent in 
1999. In addition, only one-third of the Medicare population will have 
access to a zero premium plan in 2002, down from 61 percent in 1999. 
Cost sharing for Medicare-covered services will jump 78 percent in 
2002, from $14.88 per enrollee, per month, to $26.60 per enrollee, per 
    Next year more than 500,000 Medicare beneficiaries in 28 states 
will be forced to change their health coverage or move back to Medicare 
fee-for-service largely because reimbursement has not kept pace with 
health care inflation. Ninety-two thousand beneficiaries will no longer 
have a coordinated care option, 38,000 of whom will have to return to 
the Medicare fee-for-service program. These enrollees may supplement 
their lost benefits by purchasing a Medigap policy. The Medicare 
statute requires guaranteed issue for plans A, B, C, or F with any 
company within 63 days if the plan terminates coverage in a 
beneficiary's service area, but not if benefits are reduced or cost 
sharing is increased.
    The Subcommittee is investigating recent reports that certain plans 
will significantly reduce benefits and increase premiums and cost 
sharing next year as a result of inadequate payments.
    ``Clearly, we are at a crossroads for Medicare+Choice. Recent 
benefit changes and cost sharing increases point to a fundamental flaw 
in the underlying payment formula that does not accurately reflect the 
cost of providing health services. Some fundamental changes are 
necessary this year to rationalize the payment and regulatory structure 
so seniors and the disabled who choose a Medicare+Choice plan enjoy the 
full range of supplemental benefits like prescription drugs and disease 
management not available in traditional Medicare,'' stated Chairman 


    Tuesday's hearing will focus on announced reductions in benefits 
and increases in cost sharing and premiums beneficiaries face next year 
as a result of plan decisions. The Subcommittee is interested in 
whether plans are meeting their requirement to provide all Medicare 
covered services and what needs to be done to improve benefits for 


    Please note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
``[email protected],'' along with a fax copy to 
202/225-2610, by the close of business, Tuesday, December 18, 2001. 
Those filing written statements who wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the Subcommittee on Health in room 1136 
Longworth House Office Building, in an open and searchable package 48 
hours before the hearing. The U.S. Capitol Police will refuse messenger 
deliveries to all House Office Buildings.


    Each statement presented for printing to the Committee by a 
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    3. A witness appearing at a public hearing, or submitting a 
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submitted for printing. Statements and exhibits or supplementary 
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and the public during the course of a public hearing may be submitted 
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    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov/.
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
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materials in alternative formats) may be directed to the Committee as 
noted above.


    Chairman Johnson. Hearing will come to order. Welcome, Mr. 
Scully. Nice to have you back before the Committee.
    We are here today because seniors are terribly upset by 
losing access to their Medicare+Choice health care plans and 
facing increasing premiums and changed benefits from those 
benefits offered by these plans in the past. In other words, I 
want to really put clearly on the record that we are here 
because seniors value their Medicare+Choice plans, and they are 
anguished, upset, frustrated and angry by the demise of those 
    Enrollment in Medicare had been increasing steadily until 
changes mandated in the Balanced Budget Act (BBA) 1997. Since 
that time enrollment has declined by 800,000 beneficiaries, or 
about 12 percent. Prescription drug coverage has been 
eliminated or cut back dramatically, and even as benefits 
decline, program participants' cost-sharing in premiums have 
increased in some areas significantly.
    Next year, 500,000 seniors in 28 States will be forced to 
change their health coverage or move back to Medicare fee-for-
service largely because increases in reimbursements have not 
kept pace with health care inflation. In fact, in the counties 
where most Medicare+Choice beneficiaries live, fee-for-service 
reimbursements have risen at twice, that is two times, the rate 
that Medicare+Choice reimbursements have risen.
    And I might also add that even those reimbursements that we 
have offered to Medicare+Choice have not been delivered. Of the 
5.8 billion scored by the Congressional Budget Office (CBO) 
after the Balanced Budget Reconciliation Act (BBRA), only 2.2 
billion was received by the plans because of the budget 
neutrality provisions elsewhere in that legislation.
    Seniors are confused. They are angered by the 
unpredictability of Medicare+Choice plans because these plans 
have provided attractive and welcomed benefits, an alternative 
to traditional fee-for-service Medicare that beneficiaries 
value. Importantly, Medicare managed care plans provide health 
services that are unavailable to their counterparts.
    Consider these statistics. All plans offer annual 
physicals, a benefit sorely lacking in fee-for-service 
Medicare. Virtually all plans have at least one disease 
management program, and the average plan has four disease 
management programs in place for seniors with chronic illness, 
and usually multiple chronic illnesses. This approach is 
extremely productive of good health and a higher quality of 
life. Ninety-five percent of plans have diabetes disease 
management programs. In 2001, 67 percent of Choice plan 
beneficiaries had access to some prescription drug coverage. 
Ninety-four percent of Plus Choice beneficiaries have vision 
care; 78.8 percent have hearing care. These are benefits that 
are not available in traditional Medicare. And seniors are 
making it abundantly clear that they prefer Medicare+Choice to 
fee-for-service Medicare.
    At a minimum, we should reimburse these plans 100 percent 
of the fee-for-service cost or its full blended rate. This 
would provide the stability needed if, in addition, we create a 
more intelligent and less burdensome regulatory environment. 
Indeed, it is truly incredible that the General Accounting 
Office (GAO) could report that there is no one source plans can 
go to find the rules and regulations governing them.
    The Medicare+Choice program is at a crossroads. Years of 
underfunding in many areas of the country and increasingly 
heavy regulations have resulted in reduced benefits, increased 
beneficiary costs and plans leaving the market. While last year 
very modest funding increases helped 2.9 million beneficiaries 
by lowering premiums and maintaining access to plans, next year 
costs will increase, and reimbursements will again rise a mere 
2 percent or less. This is causing premium increases, 
additional restrictions on benefits and more plan withdrawals. 
This, in turn, is causing frustration, confusion and a sense of 
hopelessness for many seniors who have come to count on the 
many benefits of Medicare+Choice plans, and who find sufficient 
Medigap plan choices unavailable or too expensive and fee-for-
service Medicare inadequate.
    I would point out that I think one of the most burdensome 
aspects of the--of our failure to be able to support 
Medicare+Choice appropriately is that the people who are hurt 
the most are low-income seniors, the ones that are not so poor 
that they are helped by Medicaid, but not able to afford 
Medigap. And it is this group that the zero premium choice 
plans or the low-cost choice plans were a real Godsend to, 
because it meant they could go to the doctor and get health 
care without the 20 percent copayments.
    In the past, underfunding Medicare+Choice, at least 
originally, was sort of seen as tolerable because, and I quote, 
as I have heard my colleagues say many times before, well, they 
can always go back to Medicare fee-for-service. What we see 
today is they don't like Medicare fee-for-service. One of the 
big complaints that we are going to hear later on is that 
seniors in Wisconsin are losing coverage for dialysis that is 
very dear to them. In fact, the coverage they are losing throws 
them back into the Medicare fee-for-service copayment 
structure. It is too expensive. They can't afford it.
    But I think the big message here that we have often missed 
in talking about Medicare+Choice is that seniors need that 
option because it provides better benefits and the ability to 
manage chronic illness. Medicare--the Medicare statute requires 
plans to provide actuarial value of the Medicare-covered 
benefits. Mr. Kleczka and many seniors in my district have 
brought to my attention that the variations in some areas in 
benefits raise compliance questions.
    A second issue is the eligibility of seniors for other 
plans. Under current law, seniors are guaranteed access to 
Medigap plans if their Medicare plan withdraws from the market. 
No such guarantee exists if the plan raises premiums or changes 
its benefit package dramatically. What would be the 
consequences of such a guarantee for seniors? What would be the 
consequences for seniors? What would be the consequences of the 
Medigap plans and, therefore, the availability of Medigap to 
all seniors?
    It is clear that we must take on the challenge of fixing 
Medicare and stabilizing it for future years so that seniors 
have the choices that we promised them. It is also a pleasure 
to note that as we go to the floor this evening with the 
regulatory reform bill, we will pass a bill that will waive the 
lock-in by 1 year, and move the adjusted community filing date 
from July to mid-September, and also lengthen the enrollment 
period from 1 month to a month-and-a-half. These small changes 
will help, but they are merely a down payment on the regulatory 
reform efforts that have to be made to stabilize 
Medicare+Choice along with the funding issues which we are all 
now keenly aware of.
    I look forward to working with you, Mr. Scully, and with 
the President and my colleagues on this Committee, and I 
congratulate you for the tremendous efforts that you have made 
administratively to simplify the governance of Medicare+Choice 
and encourage the plans to stay in. But it is this Congress's 
obligation to take this issue head on, because seniors clearly 
are being well served by the Medicare choice plans. They like 
them. They have a right to that choice. And it is abundantly 
clear now, as I think will come out over the course of today's 
hearing, that we have been negligent by even supporting them 
with the same level of reimbursement increases that we have 
supported fee-for-service Medicare.
    [The opening statement of Chairman Johnson follows:]

Opening Statement of the Hon. Nancy L. Johnson, a Representative in 
  Congress from the State of Connecticut, and Chairman, Subcommittee 
  on Health

    Today, the Ways and Means Committee continues its examination of 
the Medicare+Choice program. This is the ninth hearing by the Ways and 
Means Committee or Health Subcommittee on Medicare this year, and the 
second on Medicare+Choice.
    I am pleased to welcome Tom Scully, the Administrator of the 
Centers for Medicare and Medicaid Services, back to the Subcommittee.
    The Medicare+Choice program is at a crossroads. Since enactment of 
the Balanced Budget Act, the viability of this important option has 
faltered, with sagging enrollment, reduced benefits and increased 
beneficiary costs. Despite two Congressional attempts to breathe life 
back into the program, enrollment will once again decline next year. 
While last year's Beneficiary Improvement and Protection Act reduced 
premiums and allowed plans to continue serving 2.9 million 
beneficiaries, next year costs will increase, and additional 
restrictions on benefits will be imposed.
    Enrollment in Medicare managed care had been increasing steadily 
until the changes mandated by BBA 97. Since that time, enrollment has 
declined by about 800,000 beneficiaries or about 12 percent. 
Prescription drug coverage has been eliminated or cut back dramatically 
in recent years, while program participants' cost sharing and premiums 
have increased, in some areas significantly. In 2002, only half of the 
Medicare population will have access to at least one Medicare+Choice 
plan with drug coverage, down from 65 percent in 1999. In addition, 
only one-third of the Medicare population will have access to a zero 
premium plan in 2002, down from 61 percent in 1999. Cost sharing for 
Medicare-covered services will jump 78 percent in 2002, from $14.88 per 
enrollee, per month, to $26.60 per enrollee, per month.
    Next year more than 500,000 Medicare beneficiaries in 28 states 
will be forced to change their health coverage or move back to Medicare 
fee-for-service largely because reimbursement has not kept pace with 
health care inflation. Ninety-two thousand beneficiaries will no longer 
have a coordinated care option, 38,000 of whom will have to return to 
the Medicare fee-for-service program. These enrollees may supplement 
their lost benefits by purchasing a Medigap policy. The Medicare 
statute requires guaranteed issue for plans A, B, C, or F with any 
company within 63 days if the plan terminates coverage in a 
beneficiary's service area, but not if benefits are reduced or cost 
sharing is increased.
    Despite these disappointing facts, Medicare+Choice has provided an 
attractive and welcome alternative to traditional fee-for-service for 
millions of Medicare beneficiaries. Importantly, Medicare managed care 
plans provide health services that are unavailable to their 
    Consider these statistics:

           Virtually all plans have at least one disease 
        management program.
           The average plan has four disease management 
        programs in place.
           95% of plans have a diabetes disease management 
           In 2001, 67.2 percent of Plus Choice beneficiaries 
        have access to prescription drug coverage.
           94.1 percent of Plus Choice beneficiaries have 
        vision care.
           78.8 percent of Plus Choice beneficiaries have 
        hearing care.
           99.7 percent of Plus Choice beneficiaries are 
        provided an annual physical.

    These are benefits that are unavailable in traditional Medicare.
    We have heard testimony in this Committee on a number of occasions 
that Medicare+Choice plans are overpaid. Pairing that testimony to the 
changes occurring in the Medicare managed care market defies logic. 
Plans don't leave profitable areas because they make too much money. 
Nor do they reduce benefits and increase premiums on a whim. In fact, 
the Medicare statute requires plans to provide the actuarial value of 
all Medicare covered benefits, and to offer additional benefits or 
rebates on Part B premiums if federal payments exceed anticipated plan 
    Because of the continued plan exodus and the erosion of value of 
benefits received, it is clear to me we need to immediately stabilize 
the program through a short term infusion of additional dollars that 
will more accurately reflect the costs of providing health services. In 
the mid-term, Congress needs a whole-scale restructuring of the payment 
formulas to ensure the long-term viability of the Medicare+Choice 
    Recent ideas to peg funding to input prices or pay plans based on 
certain quality indicators, making government a value purchaser, are 
intriguing and merit further investigation.
    In addition, Congress must take measured steps to improve the 
regulatory environment for plans. Today, the House will pass 
legislation to delay implementation of the so-called ``lock-in'' by one 
year, move the filing date for adjusted community rate filing from July 
to mid-September and lengthen the open enrollment period from one month 
to a month and a half.
    While the challenge we face is daunting, it is not insurmountable. 
I look forward to working with you, Mr. Scully, with the President, and 
with my colleagues on the Committee, to get the job done.


    Chairman Johnson. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair, for holding this 
hearing. We appreciate your willingness to use our 
Subcommittee's resources to investigate the questionable, if 
not illegal, benefit and cost-sharing changes being proposed by 
some of the Plus Choice plans for next year.
    The impetus of this hearing really came from a proposal by 
UnitedHealthcare for beneficiaries in Milwaukee, Wisconsin, 
represented by Mr. Kleczka and our Committee, and this plan 
contains--or their plan for next year contains excessive cost-
sharing increases that may well violate the statute's 
requirement that these Plus Choice plans cover at least all 
Medicare-covered services. And while United is the most extreme 
example I have seen, I am aware of other benefit packages 
offered in my district and other parts of the country that 
raise similar concerns.
    Beneficiaries join these Plus Choice plans because the 
plans hold out the opportunity supposedly to get all of 
Medicare's benefits in addition to lowered cost-sharing and, 
depending on where you live, additional benefits like 
prescription drugs, vision care, hearing aids, as you pointed 
out. But at a minimum, the plans are required to employ all 
Medicare-covered services. The plans are gaming this, and they 
are gaming it with benefit packages for next year, and it calls 
into serious question whether they are fulfilling their 
obligations under the law.
    If you join a Medicare+Choice plan, you are prohibited by 
law from also owning a Medigap policy. Yet Medicare+Choice 
seniors in Milwaukee next year will face hospital charges that 
will far exceed the $812 deductible in Medicare fee-for-
services. Beneficiaries in my district will pay $50 for each 
dialysis visit. Medicare-covered drugs that are self-injected 
or used for chemotherapy will cost some beneficiaries $250 a 
treatment; that is, out of their own pocket. Under these plans, 
the beneficiaries are paying more in Medicare+Choice than they 
would in fee-for-service Medicare. So if you are a low-income 
senior or person with disability, these Plus Choice plans with 
this kind of cost-sharing are a worse option than fee-for-
service on its own.
    These are Medicare coverage services that they are playing 
with, and the Plus Choice plans are upping the costs of these 
particular benefits for only one reason, and that is to avoid 
covering people that need those benefits. That is why I, along, 
I think, with my colleague from Milwaukee and a number of 
others have joined to introduce the Medicare+Choice Consumer 
Protection Act. This bill would do three things to help 
Medicare+Choice enrollees--not the plans, but the enrollees for 
a change. For beneficiaries who have seen their benefits 
eroded, it provides them with Medigap protections to leave 
Medicare+Choice and join a Medigap plan without medical 
underwriting. It eliminates the upcoming lock-in which would 
prohibit them from them being able to leave a Medicare+Choice 
plan and in general prohibits Medicare+Choice plans from 
charging higher cost-sharing for particular services than is 
charged in the Medicare fee-for-service program.
    The Health Maintenance Organization (HMO) industry has won 
the battle to continually delay risk adjustment, which means we 
continue to overpay for the relatively low-risk population they 
serve. Now they are using benefit and cost-sharing techniques 
to further avoid risk and ensure minimal expenditures on this 
line of business. It is time we blew the whistle. Our bill 
would prohibit these practices and make the playingfield a 
little bit fairer for beneficiaries.
    Now, unbelievably at the same time these plans are reducing 
coverage for Medicare-covered services, the HMOs are up here on 
the Hill trolling for increased payments. I hope everyone has 
an opportunity to review this new GAO report we released today 
entitled Medicare+Choice Recent Payment Increases Had Little 
Effect on Benefits or Plan Availability in 2001. As the title 
indicates, the report makes clear that the billion dollars in 
extra funds that went to Medicare HMOs this year did nothing to 
increase benefits or plan options for people. It is further 
evidence that what we need in Medicare+Choice are consumer 
protections, not additional money.
    I am pleased that Mr. Scully and the representative from 
UnitedHealthcare are here to answer questions about their 
process for approving Medicare+Choice plans and the United 
proposal in particular. In addition, I would like to welcome 
Ms. Stephanie Sue Stein and thank her in advance for 
representing the beneficiary perspective.
    I would say, Madam Chair, that it is perhaps time we 
recognize that less than 15 percent of the seniors have signed 
up for these Plus Choice plans. They have caused more problems 
than all the rest of Medicare put together. The premium support 
plan that the Medicare Commission came up with is a blatant 
attempt to shove people into these Medicare+Choice plans. So 
when you don't have one in eight people who like them, why 
don't we just can them, use the money to support the Medicare 
system, provide perhaps a Federal Medigap policy that would 
cover all of our beneficiaries fairly, and one of these days we 
might even get around to a drug benefit if we stop giving big 
tax breaks to wealthy people.
    [The opening statement of Mr. Stark follows:]
 Opening Statement of the Hon. Fortney Pete Stark, a Representative in 
                 Congress from the State of California
    Thank you, Madame Chair, for holding this hearing at the request of 
the Democrats. We appreciate your willingness to use the subcommittee's 
resources to investigate the questionable--if not illegal--benefit and 
cost-sharing changes being proposed by some Medicare+Choice plans for 
    As you know, the impetus for this hearing comes from concern 
regarding a proposed plan submitted by UnitedHealthCare for 
beneficiaries in Milwaukee, WI which is represented by the Honorable 
Jerry Kleczka on our committee. This plan contains excessive cost-
sharing increases that may well violate the statute's requirement that 
M+C plans cover at least all Medicare-covered services. While United's 
plan is the most extreme example I have seen, I am also aware of other 
proposed benefit packages offered in my district and in other parts of 
the country that raise similar concerns.
    Beneficiaries join Medicare+Choice plans because they hold out the 
opportunity to get all of Medicare's benefits in addition to lowered 
cost-sharing and, depending on where you live, additional benefits like 
prescription drugs, vision care, and hearing aids. At a minimum, the 
plans are required to provide all Medicare-covered services.
    However, the gamesmanship being played with the benefit packages in 
many Medicare+Choice plans for next year calls into serious question 
whether these plans are fulfilling their obligation under the law.
    If you join a Medicare+Choice plan, you are prohibited by law from 
also owning a Medigap policy. Yet, Medicare+Choice seniors in Milwaukee 
will next year face hospital charges that will far exceed the $812 
hospital deductible in Medicare fee-for-service. Beneficiaries in my 
district will pay $50 for each dialysis visit. Medicare-covered drugs 
that are self-injected or used for chemotherapy will cost some members 
$250 a treatment. Under these plans beneficiaries will pay more in 
Medicare+Choice than they would in FFS Medicare. If you are a low-
income senior citizen or a person with a disability, Medicare+Choice 
with this kind of cost-sharing is an even worse option than fee-for-
service Medicare on its own.
    These are Medicare-covered services that they are playing with and 
Medicare+Choice plans are upping the cost of these particular benefits 
for only one reason--to avoid covering people that need those benefits.
    That's why Rep. Kleczka, myself, and a number of other colleagues 
in Congress joined together to introduce the Medicare+Choice Consumer 
Protection Act.
    This bill does three simple things to help Medicare+Choice 
enrollees. For beneficiaries who have seen their benefits eroded, it 
provides them with Medigap protections to leave Medicare+Choice and 
join a Medigap plan without medical underwriting. It eliminates the 
upcoming ``lock-in'' which would prohibit beneficiaries from being able 
to leave a Medicare+Choice plan at their choosing. And, in general, it 
prohibits Medicare+Choice plans from charging higher cost-sharing for 
particular services than is charged in the Medicare fee-for-service 
    The HMO industry has won the battle to continually delay risk 
adjustment which means that we continue to overpay them for the 
relatively low-risk population they serve. Now, they are using benefit 
and cost-sharing techniques to further avoid risk and ensure minimal 
expenditures on this line of business.
    We need to say no. Our bill would prohibit these practices and make 
the playing field a bit fairer for beneficiaries.
    Unbelievably, at the same time that these plans are reducing 
coverage of Medicare-covered services, the HMOs are up on Capitol Hill 
trolling for increased payments. I hope everyone has an opportunity to 
review a new GAO report we've released today entitled, 
``Medicare+Choice: Recent Payment Increases Had Little Effect on 
Benefits or Plan Availability in 2001.'' As the title indicates, the 
report makes clear that the $1 billion in extra funds that went to 
Medicare HMOs this year did almost nothing to increase benefits or plan 
options for people. It is further evidence that what is needed in 
Medicare+Choice are additional consumer protections--not additional 
    I am pleased that CMS Administrator Scully and a representative 
from UnitedHealthCare are here today to answer questions about the 
agency process for approving Medicare+Choice plans and the United 
proposal in particular. In addition, I'd like to welcome Stephanie Sue 
Stein and thank her in advance for representing the beneficiary 


    Mr. Johnson Of Texas. Would the gentleman yield?
    Mr. Stark. I will be glad to yield.
    Mr. Johnson Of Texas. You know, there are people who don't 
like Medicare, too, and why don't we do away with it?
    Mr. Stark. Well, Mr. Scully doesn't like Medicare. We will 
hear from him about that.
    Mr. Johnson Of Texas. Well, that is great. I am glad we got 
somebody on our side. Thank you.
    Chairman Johnson. There are differences of opinion--there 
are differences in opinion in regard to Medicare+Choice plans. 
There are differences that we need to air and evaluate as a 
Committee. I do regret that Mr. Stark today chose to give us a 
copy of a GAO report that he has had only as we sat down. 
Indeed, Pete, I think that violates the spirit in which we have 
been working, and if we are ever going to work out our 
differences of opinion about Medicare+Choice, we are going to 
have to give up such gamesmanship.
    Mr. Stark. Madam Chair, you are quite right. At least I 
invited you to the meeting, which as a courtesy, you don't 
always extend to the Democrats. So at least we gave you the 
information as soon as we got it.
    Chairman Johnson. At the time of the meeting, yes--at the 
    Mr. Kleczka. Madam Chair, I would like to ask unanimous 
consent to enter my statement into the record.
    Chairman Johnson. You certainly may.
    [The opening statement of Mr. Kleczka follows:]
 Opening Statement of the Hon. Gerald D. Kleczka, a Representative in 
                  Congress from the State of Wisconsin
    I would like to thank Chairwoman Johnson for accepting my request 
for a hearing to investigate the reductions in benefits and dramatic 
increases in cost-sharing that beneficiaries face next year as a result 
of private decisions by Medicare+Choice plans.
    I am particularly pleased that the Subcommittee has invited, at my 
request, Ms. Stephanie Sue Stein, Director of the Milwaukee County 
Department on Aging. Ms. Stein is a tireless advocate for senior 
citizens in Milwaukee and throughout the State of Wisconsin. I am 
confident that she will provide the Subcommittee a compelling, first-
hand account of the devastating effects the benefit reductions are 
having on seniors and their families. Last month, UnitedHealthcare of 
WI notified 16,000 seniors in the Milwaukee area that their ``PrimeCare 
Gold'' Medicare+Choice plan would be changing to a new ``Medicare 
Complete'' plan beginning January 1, 2002. Although UnitedHealthcare 
decided to lower beneficiaries' premiums from $65 to $55 per month, the 
insurer significantly increased rates and reduced benefits for numerous 
health services. For instance, last year, under the PrimeCare Gold 
plan, beneficiaries were not subject to a copayment for inpatient 
hospital services. Under the new Medicare Complete plan, beneficiaries 
will have to pay a copayment of $295 per day. Likewise, for the first 
time, beneficiaries in Medicare Complete will have to pay $150 per day 
for skilled nursing facility services, $30 per visit for outpatient 
rehabilitation, and 20 percent per outpatient visit for renal dialysis. 
In addition, Medicare Complete has a $4,800 out-of-pocket limit on 
inpatient and outpatient services. Unlike the new name, this coverage 
is by no means ``complete.''
    The Medicare+Choice program was intended to provide more health 
insurance options and benefits for seniors at less cost. As so many 
Wisconsin seniors know, it has failed to deliver such promises. Since 
UnitedHealthcare is the last remaining Medicare+Choice plan in the 
Milwaukee area, senior citizens will be forced to pay significantly 
higher rates or return to the traditional fee-for-service Medicare 
program. But, if they do so, they are unable to purchase a Medigap 
supplemental policy without penalty.
    To express my opposition to UnitedHealthcare's dramatic price 
increases, I wrote a letter to Mr. Tom Scully, Administrator of the 
Centers for Medicare and Medicaid Services (CMS), and requested his 
immediate intervention to reject these benefit changes and to ensure a 
viable Medicare+Choice option is available to Milwaukee residents. I 
have included a copy of this correspondence for the record. In 
addition, I have spoken personally with both Administrator Scully and 
U.S. Department of Health and Human Services Secretary Tommy Thompson 
to urge them to renegotiate this plan.
    Both Mr. Scully and Secretary Thompson have been attentive to my 
plea on behalf of Wisconsin seniors enrolled in UnitedHealthcare's 
plan. Mr. Scully, in particular, has been responsive and has notified 
me during each step of the CMS approval process. I appreciate his 
personal attention to and concern regarding this critical matter.
    Although some progress was made to lower the hospital inpatient 
copayment, I still believe that $295 per day for hospital inpatient 
services is outrageous and unacceptably high. A senior enrolled in 
Medicare Complete plan could be required to pay up to $4,800 for an 
inpatient hospital stay that would cost $812 under the traditional fee-
for-service Medicare program. This is ludicrous, and I question its 
legality. Certainly, such a plan was not the intent of Congress.
    Regrettably, CMS approved the plan, so I have taken other steps to 
help protect seniors who find themselves trapped in a plan in the 
future that no longer meets their financial or health needs. I have 
cosponsored legislation, entitled the Medicare+Choice Consumer 
Protection Act of 2001 (H.R. 3267), that would extend much-needed 
protections to seniors who would like to exit their Medicare+Choice 
plan due to the high rates and return to the traditional Medicare 
program with a supplemental Medigap plan.
    Under current law, seniors whose Medicare+Choice plan drops their 
coverage have the option to buy Medigap insurance to supplement 
traditional Medicare without penalty. During this time, an insurance 
company that sells Medigap policies cannot: refuse to sell the policy 
to the beneficiary; impose a waiting period, exclude coverage for a 
pre-existing condition, or, charge a higher price for the policy 
because of health status.
    Unfortunately, these protections are not provided to senior 
citizens who choose to disenroll in their Medicare HMO due to reduced 
benefits or increased cost-sharing. This critical legislation would 
ensure that seniors who leave their Medicare HMO for those reasons 
would be able to purchase Medigap supplemental insurance without 
penalty. H.R. 3267 would also prohibit Medicare+Choice plans from 
charging higher cost-sharing for a service than Medicare charges in the 
fee-for-service program, which has been of debate in UnitedHealthcare's 
Medicare Complete plan. It is imperative that the Subcommittee quickly 
considers this or other comparable legislation to ensure seniors have 
the time to carefully review their health care options and be assured 
the best possible care.
    In the meantime, I am pleased that CMS seems to have heeded the 
concerns of senior citizens--at least for this year--by calling for a 
Special Enrollment Period (SEP), in which seniors can leave their 
Medicare HMO and have guarantee issue rights to purchase a Medigap 
policy. I look forward to hearing more details about this SEP from 
Administrator Scully during today's hearing. In particular, I hope to 
learn how CMS intends to notify seniors of this new special right to 
disenroll without penalty.
    Again, I thank Chairwoman Johnson and Ranking Member Stark for 
their willingness to put a spotlight on the current situation in 
Milwaukee, Wisconsin and investigate the drastic reductions of benefits 
and increases in cost-sharing for beneficiaries in Medicare HMOs next 


    Chairman Johnson. Mr. Scully.


    Mr. Scully. Good morning, Chairwoman Johnson and 
Representative Stark and members of the Subcommittee. Thanks 
for having me here today to talk about Medicare+Choice.
    I would like to start off by saying I do, in fact, care a 
lot and do like the Medicare program. I have spent a lot of 
time in the last 20 years with Mr. Stark on things like RBRVS, 
resource based relative value scale, which we worked on 15 
years ago or 20 years ago, and various other things trying to 
improve the Medicare program. And, in fact, contrary to, one of 
my more widely quoted but inaccurate statements, which I never 
said, I was attributed, as recently as this morning, in the 
paper to wanting to expand Medicare+Choice to 30 percent of the 
population. I, in fact, have never said that.
    What I said months ago in a speech was that Congress and 
the CBO projected that Medicare+Choice, in 1997, would expand 
to 30 percent of the population, and that has not happened. In 
fact, the program has shrunk and is now at about 14 percent of 
the population. But it is not, in fact, a goal of the Bush 
administration or of mine to expand it to 30 percent.
    I hope that I show balance in my interest in supporting the 
Medicare+Choice program and the fee-for-service program, which 
I have spent a lot of my time and my career working on. And I 
hope you find that in my 6 months at the Agency, that balance 
has been pretty fair.
    Anyway, Medicare+Choice, I think, is, in fact, a very 
important option for many of our seniors. It has enabled them 
to take advantage of a lot of the benefits, extra benefits and 
services than Medicare beneficiaries in fee for service get. 
These can include in some areas, in some counties, prescription 
drugs, routine vision care and dental care.
    Medicare+Choice can, in fact, make it unnecessary for 
seniors to purchase increasingly expensive Medigap plans. Those 
premiums are often higher than the Medicare premium itself. And 
I believe if you look at the demographics of the 
Medicare+Choice program, it is disproportionately low-income 
people that choose the Medicare+Choice program because it gives 
them the ability to frequently trade off slightly larger 
networks of coverage for drug coverage and lower co-payments. 
And I think it is a very viable and very important option, 
especially for low-income people, to have, and one that is 
unfortunately becoming more expensive and increasingly 
    As you know, the Medicare+Choice program has changed a lot, 
not for the better, in recent years. I have given each member 
of the Committee--I think I have put up for the press--a recent 
set of charts that talk about Medicare+Choice changes in 
access, premiums, and benefits from 2001 to 2002, and I think 
it gives you a very detailed picture of what is going on in the 
program and how the benefits are changing and how access to the 
benefits is changing. Obviously, hundreds of plans have left 
the program in recent years. They have had their service areas 
reduced, and as you can see in the chart in the back of my 
testimony, beneficiary access to the plans has dropped by about 
15 percent over the last few years.
    Medicare+Choice can't get access to extra services to these 
Medicare beneficiaries who want them if there is not a plan to 
sign up for. In 1999, there were about 1,200 adjusted cost 
rations (ACR) filed by managed care plans across the country. 
This year that number dropped to 474. So you can see that 
obviously this is a significant dropoff in plan offerings. Plan 
offerings are also far less generous in their drug benefits. 
Plans that have been offered with zero premiums or no 
significant beneficiary cost-sharing have largely disappeared.
    It is very clear that annual increases in the 
Medicare+Choice program have failed to keep up with the rising 
health care costs and inflation. As a result the plans who stay 
in the program are left with two clear options, either reduce 
their benefits and increase beneficiary cost-sharing, or get 
out of the program. We have taken every administrative action 
we can possibly think of to try to stabilize the program and 
make it easier for plans to stay in, but it is clear that much 
more needs to be done to this program to protect what I think 
is still a viable option for many beneficiaries in many 
counties. I really believe, and the administration believes, 
that if Congress doesn't act to fix many of the problems in the 
program, the program will, in fact, blow away in the wind in 
the next few years.
    Unfortunately, we are seeing a greater share of 
Medicare+Choice health care costs borne by beneficiaries, as we 
are going to talk about in a few minutes, I am sure, in 
Wisconsin. We are very concerned about that, and we have been 
tracking it closely. In our guidance to Medicare+Choice 
organizations this year, we advised them that their 2002 
beneficiary cost-sharing proposals would be examined very 
closely. This year we identified a number of Medicare+Choice 
plan cost-sharing proposals that we thought were unreasonable, 
and we worked with the identified organizations to make the 
changes that we could in those programs. We are very interested 
in protecting beneficiaries and in being good business partners 
with the plans that are trying to provide those services, and 
we worked as closely as we could to make those plans better.
    The staff, after the ACRs were filed this year, identified 
seven plans that they thought had beneficiary cost sharing that 
was not appropriate. We worked with each of those to make 
changes in the plans and did everything we could to make 
adjustments. For example, I worked extensively with Congressman 
Kleczka on some obviously very difficult issues with 
UnitedHealthcare of Wisconsin. And I appreciate all your help 
in working those out, Mr. Kleczka. We did make some changes in 
that plan. I really believe that in United's case--I am sure we 
will talk about this--their choice was to either get out of the 
program or change their benefit structure. We made some modest 
changes to their benefit structure. I also spent a lot of time 
looking at their finances and was convinced that basically they 
were making virtually no money on this plan and had a combined 
loss ratio of virtually 100 percent.
    Mr. Stark, I know you may not be aware of this, but, in 
fact, the plan in your district that had the $50 dialysis 
copayment has, in fact, lowered that dialysis copayment to $25 
after we looked into that very specific issue.
    Additionally, we are working to develop specific guidelines 
for plans that we hope will address the situation we faced this 
year when they submit plans for next year, as again I am sure 
we will discuss.
    Our ability to either let plans in or deny them access to 
the Medicare+Choice program is somewhat limited. I am also 
happy to tell you--and this is something we recently 
discovered, and I think Mr. Kleczka knows because I told him on 
Friday--that we were not even aware legally because we declared 
a special election period for December, in fact, 
Medicare+Choice beneficiaries that want to drop out of their 
Medicare+Choice plan, even if it still exists in their county, 
such as United, do, in fact, have the ability during the month 
of December to drop out of the plan and will have guaranteed 
issue rights to Medigap plans up through March 4, 2002. So I 
believe it is relatively happy news.
    So our concern, which I share with Mr. Kleczka, that people 
in certain districts where they have only one plan left with 
high copayments would be effectively trapped in that plan and 
not have the ability to drop out is, in fact, not the case. For 
this year, if they drop out in December, they can, in fact, get 
guaranteed issue to Medigap plans.
    We are also trying to take important steps to make sure the 
beneficiaries know their health plan options and how to get 
answers to all of their Medicare questions. We, as you know, 
launched the $30 million advertising campaign to get seniors to 
call 1-800-MEDICARE and to use our Web site. We have, in fact, 
peaked at 65,000 calls a day. We are still getting about 30,000 
calls a day. There is significant evidence that seniors are 
starved for information about those plans. We added 1,200 
operators to our call centers. The call centers went from 5 
days a week, 8 hours a day, to 24 hours a day, 7 days a week. 
They provide a whole new level of information that wasn't 
available last year. So if somebody calls up from Milwaukee and 
asks about their Medigap options, their plan options, their 
copayments or any plan offered in Milwaukee, for instance, 
hopefully, and I have tried this many times, an operator will 
be able to walk them through those options and walk them 
through our Web site.
    So I believe that the information that is available for 
beneficiaries is a lot better than last year. It is still a big 
challenge to make sure the beneficiaries know what their 
options are, and we are obviously very anxious to work with you 
to make sure that everybody knows exactly what their options 
are before the end of the open season period.
    Medicare+Choice is still an important option for millions 
of Medicare beneficiaries, and we are committed to working hard 
to make the program work and remain a viable option for the 
seniors that want it.
    Let me just make a couple more points, and then I will wrap 
up. We have, in addition to the Medicare+Choice changes in 
benefits that I provided to the Committee and, I think, to the 
press, we also--and this is the first of a series--put out a 
health care market industry update and provided that for the 
Committee. We sent that out to a wide variety of people in 
Washington last week. I believe, having been involved in the 
managed care and hospital business for a long time, as the 
regulators of this business, it is our responsibility to make 
sure that we track what their profit margins are, how much 
money they are making on Federal programs, what the average 
return is. And this is the first of many market reports we are 
planning to put out.
    This one is on managed care and shows the margins on 
managed care, but what it basically shows is the managed care 
business made a tremendous recovery in their commercial markets 
the last couple of years, but the direct correlation is the 
plans that have stayed in Medicare+Choice are doing terribly. 
They are the ones that are the worst investments, whether you 
are a bondholder or a shareholder. And their shareholders and 
bondholders are pushing them hard to get out of the 
Medicare+Choice program because their margins and their profits 
have recovered enormously in the commercial markets, and they 
are terrible in Medicare+Choice program. And anybody that is in 
the managed care business basically is getting a lot of 
pressure from their bondholders and their shareholders to get 
out of the business.
    Another point I would make, which Mrs. Johnson made, is 
that when we passed the 1997 bill, the 1999 bill and the 2000 
bill, one of the theories out there about new money--and I 
think what Mr. Stark alluded to--one of the points in the GAO 
study which I have looked at--they did give it to us for 
clearance--is that essentially a lot of the money that was put 
back in the program was put back in relatively rural areas on 
the theory that if you build it, they will come. If you put 
money in those areas, managed care plans will come.
    Well, there aren't many managed care plans in those areas, 
and they, in fact, haven't shown up. So I think one of the 
points you can draw from the funding that has been put back in 
the program is that it has been put back in largely rural areas 
where the program is not popular. There aren't managed care 
plans in those areas, and they haven't shown up, and so the 
money has been largely unspent. And what has happened is that 
the urban areas and the suburban areas, where it is popular, 
have largely been starved.
    So I believe if you go back to the 1999 and 2000 bills and 
look at what CBO projected would be spent in those areas, you 
could make a very strong argument that the number is about a 
billion dollars a year that was expected to be spent in the 
Medicare+Choice program that is not being spent. The money has 
been allocated to those counties, and there are no plans for 
beneficiaries to enroll in. So I think you can make a clear 
    And one final point, if you look at the years 1998 to 2002, 
commercial premiums in that timeframe have gone up 49 percent. 
In the Federal Employee Health Benefits Plan (FEHBP) that we 
are all in, premiums have gone up an average 46 percent. 
Medicare fee-for-service has gone up 21 percent, and yet 
Medicare+Choice has gone up 11 percent. So it is pretty clear 
that when you look at the comparison in the health care 
business, what has happened is that costs have gone up, and the 
Medicare+Choice reimbursement has been relatively flat. So it 
is a very basic calculation for the plans. They have to raise 
their co-payments, raise their deductibles, raise their 
premiums or get out of the program. They are just not keeping 
up with their costs.
    I'll just make one last point just to wrap up. I think 
fixing this funding is essential. I don't think there is any 
clear way to do it. Bob Berenson, who worked in the last 
administration, made a number of very constructive suggestions 
in a Health Affairs article that was just published last week. 
There are many ways to fix the program and fund it. The 
administration is very interested in working with all of you to 
do that. I really believe that structural changes to fix 
funding are essential, and we also believe that structural 
changes to make the program more consumer-friendly are 
essential. Basically virtually every plan in the 
Medicare+Choice program is a traditional closed-panel managed 
care plan, and in the under 65 population what people want and 
what seniors want are Preferred Provider Organizations (PPO) 
and point-of-service plans. Those are virtually nonexistent in 
the Medicare program.
    And two things we need to do is fix the funding stream, 
one, and two, give seniors what they want, which is what all 
beneficiaries want, which is greater flexibility in having 
managed care plans that are not traditional closed-panel HMOs, 
but that have point-of-service options, PPO options, and give 
people the flexibility to choose benefits and plans they want. 
Thank you for having me today.
    Chairman Johnson. Thank you very much, Mr. Scully.
    [The prepared statement of Mr. Scully follows:]
  Statement of the Hon. Thomas A. Scully, Administrator, Centers for 
                      Medicare & Medicaid Services
    Chairman Johnson, Representative Stark, distinguished Subcommittee 
members, thank you for inviting me to discuss the Medicare+Choice 
program, and more specifically the level of beneficiary cost sharing 
some Medicare+Choice enrollees will be asked to pay next year to remain 
in the plans. Medicare+Choice is an important option for millions of 
our nation's elderly and disabled, and I appreciate the opportunity to 
discuss it with you today.
    Medicare+Choice has enabled us to take advantage of private sector 
expertise to give Medicare beneficiaries more services for their 
premium, often with lower cost sharing and more benefits than are 
available under traditional Medicare. The private companies that 
provide Medicare+Choice benefits are required to cover all of the 
health care services that a beneficiary could receive in original, fee-
for-service Medicare. Moreover, Medicare+Choice plans are valuable to 
beneficiaries because they traditionally improve on fee-for-service 
Medicare benefits by offering programs and covering services that are 
not covered under original Medicare. These can include prescription 
drugs, routine vision care, dental care, and lower copayments. They 
also make it unnecessary to purchase increasingly costly supplemental 
Medigap plans, with premiums that are often two or three times higher 
than the Medicare premium itself. By making these services and 
additional benefits available, Medicare+Choice provides more options to 
millions of people who are covered by Medicare in how they receive 
their health care; and millions are able to lower their health care 
expenses substantially. In addition, Medicare+Choice plans provide a 
valuable alternative to fee-for-service Medicare and Medigap, whose 
out-of-pocket costs are often much higher for beneficiaries.
    As you know, the Medicare+Choice program has changed significantly 
in the last several years. Hundreds of plans have left the program or 
reduced their service areas affecting hundreds of thousands of 
beneficiaries. Plans with both zero premiums and no significant 
beneficiary cost sharing have largely disappeared. In addition, plans 
are offering less generous drug benefits. This is because annual 
increases in Federal Medicare+Choice funding have failed to reflect 
rising health care costs. Unfortunately, as a result, plans that wish 
to stay in the program are left with two options: reducing benefits or 
increasing beneficiary cost sharing. We have taken many administrative 
actions to stabilize the Medicare+Choice program and reduce burden. 
Congress has acted to increase funding for Medicare+Choice in recent 
years, but much of the increase was targeted to areas with low 
enrollment. For example, between 1998-2002, Medicare+Choice rates 
increased 11.5 percent in counties that received the minimum payment 
update. This compares with a cumulative increase in fee-for-service 
spending of over 21 percent over the same time period. Thus, the rate 
of growth in fee-for-service rates is nearly twice that of 
Medicare+Choice in the counties where 65 percent of Medicare+Choice 
enrollees live. It is clear that much more needs to be done and we are 
committed to working with Congress and the plans to protect this 
valuable option for beneficiaries.
    As mentioned above, following the trends in Medicare generally, we 
are seeing a greater share of Medicare+Choice health care costs borne 
by beneficiaries. This is similar to what is occurring commercially and 
in the fee-for-service Medigap market. I am concerned about this and 
have been tracking it closely. In our guidance to Medicare+Choice 
organizations earlier this year, we advised them that their 2002 
beneficiary cost sharing proposals would be closely examined. This year 
we identified Medicare+Choice plan cost sharing proposals that we 
believed may have been unreasonable, and we worked with the identified 
organizations to make changes to their cost sharing proposals. We also 
required plans to promptly notify beneficiaries of any changes in their 
benefits or cost sharing. Because of our experience this year and our 
desire to protect beneficiaries, as well as to be good business 
partners to the plans, we are looking at reasonable ways that we can 
assist plans in setting cost sharing amounts for different benefits in 
the future. For example, I recently worked extensively with Congressman 
Kleczka on some tough issues in Wisconsin. I also am happy to announce 
that because the process for submitting ACRs was delayed this year, we 
declared a nationwide Special Election Period for all plans during the 
month of December this year. As a result, for this year only, all 
beneficiaries will have the option to request disenrollment from their 
Medicare+Choice plan and return to original Medicare during the month 
of December and to purchase a Medigap policy using their guaranteed 
issue rights, which will last until March 4, 2002. Of course, the 
premiums for these Medigap policies' premiums are also rising rapidly 
because of the gaps in benefits in the traditional fee-for-service 
Medicare program and increasing health costs generally. This is why we 
need to modernize benefits in the traditional fee-for-service program, 
as well as make Medicare+Choice payments fairer.
    We also are continuing to take important steps in helping to ensure 
Medicare beneficiaries are informed of their health plan options and 
are able to get answers to all of their Medicare questions. We are 
conducting a $30 million beneficiary education advertising campaign, we 
expanded our toll free beneficiary telephone help line, and we mailed 
additional materials to advise beneficiaries of health plan changes. 
This sort of education is vital for beneficiaries to understand their 
health care options and make the decisions that are best for them, and 
the education campaign has generated substantial response from 


    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 organizations, and in the 1980's Congress modified the program to 
make it more attractive to managed care companies. In the Balanced 
Budget Act of 1997, Congress created the Medicare+Choice program to 
expand the types of private entities eligible to contract with Medicare 
to address some perceived flaws in the risk-contracting program and 
reduce variation in payment for plans across the country. Since passage 
of the BBA, Congress has refined the Medicare+Choice program through 
the Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA). These 
changes primarily address payments in the ``floor'' counties, not the 
``minimum update'' counties that have the majority of Medicare+Choice 
enrollees and are facing the tightest pressures to control their costs 
even as health costs and costs in the Medicare fee-for-service program 
rise more rapidly.
    This year about 5.6 million, or nearly 15 percent of all Medicare 
beneficiaries, were enrolled in a Medicare+Choice plan. For 2002, about 
60 percent of all Medicare beneficiaries have access to a 
Medicare+Choice option, and about 536,000 beneficiaries will be 
impacted by Medicare+Choice organizations either withdrawing from the 
program or reducing their service areas. Fortunately, most affected 
enrollees have at least one other plan available in their area for next 
year. Of course, these beneficiaries also can choose to enroll in 
traditional Medicare. The number of beneficiaries affected by the 
departing plans' decisions this year is smaller than many in the 
industry predicted and fewer than the number affected last year. 
However, despite our best efforts to slow the number of plan 
withdrawals through administrative actions, it is apparent that 
additional improvements need to be made to the Medicare+Choice program 
to encourage more plan participation and greater beneficiary access to 
Medicare options. Simply put, the Medicare+Choice payment system must 
be more responsive to the health care marketplace, so that the program 
can meet beneficiaries' needs. I look forward to working with Congress 
to achieve the important changes that beneficiaries deserve. We owe it 
to beneficiaries to make these changes soon to ensure that Medicare can 
continue to provide affordable options for beneficiaries.


    One of the most important ways that we can help beneficiaries is by 
working with Medicare+Choice organizations to ensure the program 
remains a valuable option. President Bush, Secretary Thompson, and I 
share the goal of improving the Medicare+Choice program and reversing 
the decline in plan participation. Yet some Medicare+Choice 
organizations are struggling with difficult business decisions. In 
fact, since my confirmation as CMS Administrator, I have personally 
contacted many of these plans and talked with them about how much the 
Medicare program and our beneficiaries need their continued 
participation. Fortunately, many of them have decided to continue to 
participate in the Medicare+Choice program.
    To ensure that Medicare+Choice remains a valuable option for 
beneficiaries, we have taken a number of steps to reduce administrative 
burdens on the Medicare+Choice organizations. Earlier this year we 
announced a number of actions that will reduce administrative burdens 
on Medicare+Choice plans in a number of ways, including:

           Permitting Medicare+Choice organizations to submit 
        revised adjusted community rate (ACR) proposals in the fall. 
        Many Medicare+Choice organizations indicated that they would 
        drop out of Medicare+Choice if forced to decide whether or not 
        they would continue to participate in the program and provide 
        final 2002 ACR information by the July 1 deadline. By giving 
        plans until September 17th to make renewal decisions, and 
        permitting them to file revised ACR proposals, which contain 
        their benefit packages and cost sharing structures, as late as 
        that date, we ensured that plans could better evaluate their 
        participation in Medicare+Choice and their products for 
        beneficiaries. We would like to work with Congress to make this 
        change in law.
           Emphasizing better results for beneficiaries. We 
        will replace calendar-driven audits of Medicare+Choice plans 
        with results-based performance audits, so that we target audits 
        at the plans whose level of performance requires review. This 
        will allow the strong performing plans to spend less time with 
        paper and more time with patients.
           Providing consistency in quality improvement 
        requirements. We are developing quality measures that are 
        sensible, reflect current industry practice, and build on the 
        success of the private sector. To this end, we are working with 
        industry representatives, such as the American Association of 
        Health Plans, Blue Cross Blue Shield Association, Health 
        Insurance Association of America, and American Medical 
        Association, to plan and enhance the national Quality 
        Assessment Performance Improvement projects. Additionally, we 
        recently allowed quality improvement projects created for 
        private plans and Medicaid to be used for Medicare.
           Streamlining marketing review. We are working to 
        make the approval process for Medicare+Choice marketing 
        material more sensible and less burdensome on the 
        Medicare+Choice plans. We are taking steps to fast track our 
        review of plan marketing materials, while at the same time 
        ensuring that beneficiaries have timely and accurate 
           Expediting plan review. We will expedite our review 
        of potential Medicare+Choice plans that would serve markets 
        left without a Medicare+Choice option or other alternatives to 
        traditional fee-for-service Medicare.
           Making policy changes quarterly. It is critical that 
        Medicare+Choice organizations have adequate time to adjust to 
        new rules. Additionally, we strive to ensure that policy 
        guidance is issued before Medicare+Choice plans' rate and 
        benefit filings are due. To that end, and to ensure the 
        Medicare Managed Care Manual meets evolving needs, we will 
        update the existing manual chapters quarterly. Any policy 
        changes contained in the updates that create new burdens will 
        not be effective until that policy change can be reflected in 
        an organization's ACR proposals. We also have committed that no 
        policy changes will become effective until the next contract 
           Re-evaluating the risk adjustment system. We 
        suspended our collection of physician and hospital outpatient 
        department encounter data. Fair risk adjustment is an important 
        priority, but risk adjustment must be done in a way that 
        encourages innovation in health care delivery and not in a way 
        that imposes outdated fee-for-service models. We are exploring 
        a way of adjusting Medicare+Choice rates for risk that will 
        balance the accuracy of data and administrative burden.
           Consolidating private plan functions. 
        Medicare+Choice functions that previously resided within three 
        different components of CMS now are all housed in one place at 
        CMS: the Center for Beneficiary Choices, which will help ensure 
        that we are responsive to the specific needs of Medicare+Choice 
        plans. We are striving to improve coordination between 
        Medicare+Choice and fee-for-service and to be more sensitive to 
        the impact of systems changes on the plans. To this end, our 
        Medicare+Choice staff now participates on the Medicare Change 
        Control Board, which governs carrier and fiscal intermediary 
        systems changes. Their participation helps ensure that the 
        needs of Medicare+Choice plans are considered as the Agency 
        determines future information systems changes.

    Furthermore, we recently gave Medicare+Choice organizations new 
flexibility to work with employer-sponsored health plans so workers can 
seamlessly merge their pre-retirement benefits into Medicare coverage. 
This flexibility will give Medicare beneficiaries the kind of private 
plan choices currently available to many working Americans. 
Medicare+Choice organizations can tailor plans to the specific needs of 
employer group members while supplying all Medicare-covered health 
services, making it easier for them. And we plan to further 
reinvigorate the Medicare+Choice program by encouraging plans to modify 
their designs from ``closed panel'' HMOs to preferred provider 
organization and point-of-service models that have proved popular in 
the private sector.


    Each contract year, Medicare+Choice organizations submit to us 
their ACR proposals for the plans they intend to offer to Medicare 
beneficiaries in the following year. The ACR proposals describe the 
costs and benefits the plans intend to offer for their enrollees for 
the following year. We review the proposals to ensure that beneficiary 
premiums and copayments for basic Medicare+Choice benefits (Parts A and 
B and additional benefits) do not cost more than beneficiaries would 
pay on average for fee-for-service Medicare cost sharing. For 2002, the 
estimated average actuarial value of cost sharing amount is $105.31 per 
month per person. This $105.31 cap is an aggregate cap, not a per-
benefit cap. Under this aggregate cap cost sharing for particular 
benefits can vary as long as the total average cost sharing (for Parts 
A and B and additional benefits) does not exceed the aggregate cap of 
$105.31. This actuarial figure excludes cost sharing for many other 
benefits that are part of modernized health insurance plans, but not 
Medicare including prescription drugs and disease management services. 
While there are not specific cost sharing limits for most Medicare 
benefits, Medicare+Choice plans cannot set cost sharing amounts for 
Medicare covered services at dollar amounts that would discourage 
people who have greater health care needs from enrolling in 
Medicare+Choice plans.
    As a general rule, as long as the premium charged in addition to 
the actuarial value of cost-sharing under the plan is less than the 
actuarial value of fee-for-service Medicare deductibles and cost-
sharing, the Medicare+Choice organization is free to structure its cost 
sharing how it sees fit. However, this year we found that some plans 
proposed charging beneficiaries what we believed were unreasonably high 
copays for particular services. The situation we witnessed this year is 
compounded by the fact that payment increases have not kept pace with 
plan costs nor have they kept pace with the costs of extra benefits 
that plans provide, particularly prescription drugs. Thus, we have a 
new challenge in balancing the need for plans to make decisions about 
their benefit packages and cost sharing amounts with the important 
requirement that plan designs do not discourage enrollment. The concern 
is always that high cost sharing could discourage beneficiaries, who 
have greater health care needs, from enrolling in or remaining a member 
of these particular plans.
    To address this, we worked cooperatively with the plans to ensure 
that their cost sharing arrangements were made more reasonable, while 
at the same time helping to make certain that the plans would continue 
to participate in Medicare+Choice. While the final agreements we 
reached with the plans were not perfect, they were much more reasonable 
than they were at the outset. Moreover, the continued participation of 
the plans in the Medicare+Choice program provides beneficiaries access 
to additional options and extra benefits. Even with the higher cost 
sharing, we expect that many beneficiaries will continue to find 
Medicare+Choice plans as a much more affordable option than the cost 
sharing and rising Medigap premiums under the traditional Medicare 
    We also are developing specific guidelines that we hope will help 
address the situation we faced this year regarding plans' ACR 
submissions. Our guidelines will make it clear that we will not approve 
cost sharing arrangements that could discourage beneficiaries with high 
health costs from enrolling or staying in a plan. In developing these 
guidelines, we will consider a number of factors such as the cost 
sharing in fee-for-service, the cost sharing of other plans in the 
service area, changes in the plan's cost sharing from previous years, 
as well as stop-loss protection and limits on cost sharing expenses. 
Our guidance also will explain how we plan to evaluate plans' benefit 
and cost sharing proposals.


    We know that our outreach efforts to educate beneficiaries about 
their health care options are vital. We also know from our consumer 
research with Medicare beneficiaries that far too many of them have a 
limited understanding of the Medicare program in general, as well as 
their Medicare+Choice, Medigap, and Medicare Select options. So for 
this year we added a vastly expanded advertising campaign to educate 
beneficiaries about the full range of options open to them. And we have 
enhanced our toll-free telephone help line, 1-800-MEDICARE (1-800-633-
4227 or TTY/TDD 1-877-486-2048) with 24-hour service, seven days a 
week. We also have hired 1,200 customer service representatives at our 
call centers. These representatives are available to answer specific 
questions about an individual's health plan options as well as mail 
beneficiaries hard copies of the customized information immediately 
after each call.
    Additionally, we are continuing to improve the resources we have 
available on the Internet for beneficiaries and their families to 
access comparative information and are providing a new decision making 
tool on our award winning website, www.medicare.gov. Our Medicare 
Health Plan Compare gives visitors the ability to compare benefits, 
costs, options, and provider quality information. This expanded 
information is similar to our other online comparative resources like 
the Nursing Home Compare and Dialysis Compare websites. With Medicare 
Health Plan Compare, beneficiaries are able to examine by zip code the 
Medicare+Choice plan options that are available in their area based on 
characteristics that are most important to them, such as out-of-pocket 
costs, whether beneficiaries can go out of network, and extra benefits. 
They also will be able to compare the direct out-of-pocket costs 
between all their health insurance options and get more detailed 
information on the plans that most appropriately fit their needs. In 
addition, we are working to provide similar State-based comparative 
information on Medigap options and costs. These outreach efforts are 
vital to ensuring that Medicare beneficiaries understand the options 
available to them, and that they can make the decisions that best fit 
their personal needs.


    While Medicare+Choice is still an important option for millions of 
Medicare beneficiaries, the program has undergone some substantial 
changes since 1997. The days of plans offering zero premiums and no 
significant beneficiary cost sharing have for the most part passed. 
Health care costs continue to rise, and more and more of the financial 
burden is falling on Medicare beneficiaries. I have followed this 
transformation closely, and am working hard to educate beneficiaries 
about these changes as well as their options, monitoring beneficiary 
cost sharing, and working closely with the plans to ensure that 
beneficiary choices remain available. We have taken a number of 
administrative steps where we were able, but it is incumbent that we 
continue to work with you and Congress to strengthen the 
Medicare+Choice program for the future. Our beneficiaries depend on the 
choice that Medicare+Choice provides. Thank you for the opportunity to 
discuss this with you today, and I am happy to answer your questions.




    Chairman Johnson. I agree with what you say. We certainly 
need to fix Medicare+Choice's problems, but we also need to 
open it up to the kinds of plans that Americans are choosing 
under the FEHBP and under all employer-provided plans.
    Your facts that you just laid out are important, I think, 
for this Committee and for the public to be aware of. Fee-for-
service Medicare increased 21 percent. Medicare+Choice over the 
same period of time, their reimbursements went up 11 percent. 
In the private sector employer plans went up 49 percent. And 
under the Federal Employee Health Benefit Plans, their costs 
went up 46 percent. So it is a dramatic difference. And it is 
no wonder that the Medicare+Choice plans are being forced to 
impose burdens on seniors that are extraordinary and make it 
very hard for them to stay in the Choice plans. On the other 
hand, it is also instructive that many of them cannot afford 
the Medigap alternatives and are dissatisfied and disappointed 
with the benefits under Medicare.
    You say that we need to make structural changes in how we 
finance Medicare+Choice--changes in the payment formulas. Where 
are you in your thinking in regard to what those changes need 
to be?
    Mr. Scully. Well, I know you have the ability to return to 
100 percent of the AAPCC or adjusted average per capita cost, 
and there are other options. And I am not sure I am free, from 
the administration, to commit to a specific mechanism or 
funding level. We certainly would like to work with you.
    I think there are a number of ways to do it. As I 
mentioned, Bob Berenson made some, I thought, constructive 
suggestions in an article he wrote that said that we really 
need to have a market basket. At some point we need to have a 
market basket to update Medicare+Choice costs just like we do 
hospital costs or physician costs or other costs, and that 
whatever the mechanism is, I think with all the best intentions 
in 1997 we basically detached the Medicare+Choice payments from 
the traditional Medicare Program. We made additional changes in 
1999 to 2000, but effectively I think you can argue they 
backfired in a lot of cases. And in many cases you can find 
places where the Medicare+Choice rates are 85, 86 percent of 
the AAPCC, and there are other places where they are 120 
    So there are some counties where Medicare is doing 
extremely well in the funding, and there are some counties 
where it is clearly way below fee-for-service. I don't think 
reattaching it to fee-for-service is the right way to go, but I 
think structurally we kind of lost the balance between the 
incentives county by county, and in some places a great deal, 
and in some places a terrible deal.
    Chairman Johnson. I think one of the things that the GAO 
study of this matter points out is that we don't have a good 
base as to what the costs are--I think Berenson's thoughts 
about improving the base. So I look forward to working with you 
on this. It isn't something that we can decide now, because the 
100 percent fee-for-service is just a punt that varies 
tremendously. One of the problems in Wisconsin is this 
variation in the AAPCC in those areas and how much lower it is 
than Miami.
    So we do need to look at what is that base from which we 
measure managed care costs. I think that is one of the ways to 
straddle some of the concerns that Mr. Stark has and some of 
the interests that I have. So we do need to do a very 
significant analysis of how we reimburse the Choice plans so 
that we have an honest and automatic factor that they can 
anticipate and count on and that will do more to stabilize this 
option for seniors than anything else we can do, in my 
estimation. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair.
    Mr. Scully, thank you. We seem to spend an awful lot of 
effort, as I indicated before, on 15 percent of the Medicare 
population who are in these plans. I begin to suspect that 
maybe that is an indication of their relative popularity as 
opposed to fee-for-service plans or fee-for-service-plus on 
Medigap plan. And I suspect that there is--when you compare our 
Federal Employee Health Benefit Plan, for example, or private 
insurance, most of those plans pay for--I am going to guess--90 
percent, maybe even more, of what we all spend on health care. 
And I would imagine that Medicare fee-for-service probably 
covers 50 percent of what people are out. And the managed care 
plans and Plus Choice plans are based on that 50 percent and 
not on first dollar coverage.
    So there is a reason for those differences in cost 
increases, and if we truly wanted to have--people keep holding 
up our Federal Employee Health Benefit Plan--if we were going 
to make Medicare the equivalent of that, we would really have 
to have a Federal Medigap plan or increase the benefits quite a 
bit, wouldn't we? If we were to match Blue Cross low option 
fee-for-service under the Federal Employee Health Benefit Plan 
with Medicare fee-for-service, there is a big gap, is there 
not, by private Medigap, or we would have to increase the 
    Mr. Scully. There are some Medicare+Choice plans----
    Mr. Stark. If we are going to make the Medicare fee-for-
service plan equivalent to the fee-for-service plans available 
to those of us who are Federal employees, we would have to up 
the benefits considerably by filling those gaps that are now 
often filled by a Medigap policy.
    Mr. Scully. I think one of the points of President Bush's 
proposal this summer was to make it consistent. Certainly the 
FEHBP has much better benefits in some places than Medicare 
    Mr. Stark. We have a much more generous plan as Federal 
employees than the average----
    Mr. Scully. Probably actuarially, I would say that is 
probably true, yes.
    Mr. Stark. And the idea that we can fill this gap--and let 
us say it is 50 percent--by getting people to go into these 
Plus Choice plans or any other managed care plan just doesn't 
add up with numbers. Now, to the extent that--and I know that 
you don't like setting--that I do remember your testimony--you 
don't like setting rates, right? You don't like that part of 
your job.
    Mr. Scully. I try to be as reasonable as I can in setting 
rates, but as a general matter, no.
    Mr. Stark. I guess what I am saying, if you are going to go 
back to the risk contract plans, or if you are going to really 
control Plus Choice, you are going to have to offer some 
Federal standard, and that means you are going to have to set 
some rates for those gaps. I don't see that you are going to 
get any way to on--the plans are losing money. They are costing 
Medicare money, more money than we anticipated. The studies 
indicate that throwing more money in isn't going to get the 
plans to--isn't going to solve their problems the way they want 
them solved. And it may be we are going to have to have a 
Federal managed care plan where we negotiate the whole price 
against which the private plans can compete if they choose to, 
and then we might--that might be a solution to the problem.
    I know you don't like that as well. I mean, I don't see any 
other way out is that--or have the Federal Government write a 
Medigap policy that says bare bones as we can make it, and, 
again, let the private insurers compete against it. It will be 
difficult because ours would be subsidized, but I don't see 
much other way around this if you want to continue to let the 
private managed care plans or encourage them, because they are 
going to move out quickly when they lose money, and that is 
going to leave a lot of our constituents and beneficiaries very 
unhappy, and that is the problem we face.
    I hope that we could perhaps broaden the scope of what we 
do in how we provide managed care and let the government 
participate a little more, because on balance your agency does 
a good job on fee-for-service. I don't know why you couldn't do 
just as good a job in providing managed care. Are you willing 
to try?
    Mr. Scully. A couple of things, just to comment on that. I 
think the President--you know, with all the things that have 
obviously happened this fall, some of our reform discussions 
have been set back a little bit. We proposed significant 
Medigap reforms this summer, and obviously we are determined to 
get a drug benefit. As you remember, we worked on catastrophic 
many years ago, and we were on the same side.
    Mr. Stark. Good benefit.
    Mr. Scully. Not a popular position. It was a good policy. 
Not everyone shares that view, but I thought it was a good idea 
back then.
    But we are determined. We think reforming Medigap on the 
private side is a good idea, and we would like to get a drug 
benefit. That is one of the major reasons I came back to the 
    Mr. Stark. I still got a copy of the old one.
    Mr. Scully. I am not sure. You and I are the only ones that 
share that view. But I personally believe and I think there are 
many places around the country--there are still 5.1 million 
seniors in Medicare+Choice. There is no question that costs 
have gone up, premiums have gone up, but there are a lot of 
places where Medicare+Choice is still extremely popular.
    I spent a lot of time last week with Mr. English, who is 
not here today, last week talking about some of the problems in 
his district. It is a tremendous deal.
    I really believe that the funding formulas have created 
some inequities county by county around the country. Some 
places it is a better deal than others. Some places are a lot 
worse. I do not think the program is irreparably broken. I did 
read the GAO report. I think you can draw a lot of conclusions. 
My conclusion from it is the funding increases have gone to the 
wrong places. I have zero doubt in my opinion that putting more 
money back into some of the counties that I would argue have 
been financially starved a little bit would be a significant 
help in getting people back in.
    I also think it is very difficult to make an apple--and I 
have had this discussion with GAO a number of times to 
compare--it is not an apples-to-apples comparison because the 
cost basis for hospitals, doctors, and everything else is 
totally different in the private plans versus the Medicare 
plans. And comparing them 4 or 5 years ago, the Medicare+Choice 
plans looked brilliant because we were arguably slightly over 
reimbursing Medicare. We reduced Medicare rates, and we control 
45 percent of the rates, and we reduce those rates, and the 
costs could shift back to the private sector.
    So it is very difficult to make an apples-to-apples 
comparison between the private plans and the fee-for-service 
plans. I think they both work well. I really do not believe I 
have shown any bias one way or the other toward either plan. I 
believe Medicare+Choice is a great option for people, and we 
would like to make sure it is still available, but I spend a 
lot more time on Medicare fee-for-service than I do on 
    Chairman Johnson. Mr. Johnson.
    Mr. Johnson Of Texas. Thank you, Madam Chairwoman. I 
appreciate the opportunity to talk with our friend Mr. Scully. 
I am glad you don't like Medicare either, according to Mr. 
    You talk about county by county. You guys over at Health 
Care Financing Administration (HCFA) have been moving the 
numbers around county by county, and I swear I don't understand 
how you can do that, and maybe you can explain that.
    But you also talked about catastrophic, Mr. Stark, and it 
seems to me the medical savings account solved that problem.
    But let me ask you this question, Mr. Scully: In a November 
2000 report on Medicare State Medicaid Agencies (MSA), Medpack 
wrote that, ``the Commission believes that the current 
demonstration has shown the private sector will not offer 
Medicare MSAs because of two basic market characteristics: one, 
little demand from the risk-averse Medicare beneficiary 
population; and, two, the expense and difficulty of marketing a 
complex product such as Medicare MSAs to a fragmented and 
scarce set of customers.''
    Do you agree with this statement? If not, what do you think 
we can do to fix the problem, you specifically, the Congress 
specifically, and tell us in detail what we as a Congress need 
to do, and what you as an agency need to do, in your opinion.
    Mr. Scully. Well, my opinion, which may or may not be the 
administration position--I don't think we have one on this--I 
have the same concerns about MSAs and Medicare that I had about 
MSAs in the commercial market. MSAs in the commercial market 
under Medicare, in theory, should be just high-deductible plans 
where you give people essentially a cafeteria plan to spend 
their own money. I think that concept is a very solid one. I 
think the reason that the plans have not caught on in the 
commercial market and would have trouble in Medicare is that 
basically most people under 65 benefit from significantly lower 
negotiated rates in their Blue Cross plan or whatever, and 
people both 65 and Medicare do as well.
    So most hospitals--and I just recently left the hospital 
business--most physicians charge--they have a charge rate and 
then what they actually get reimbursed. There are a lot of 
reasons why those are not the same, but nobody really pays full 
charges. Unfortunately it happens in those high-deductible 
plans. If you are not part of a network, you may pay double 
what everybody else is paying and burn through your own 
personal savings more quickly. I think basically the concept is 
the same as just having a high-deductible plan.
    In the commercial sector, you are finding increased 
popularity to people having $1,000 or $2,000 deductible plans, 
but they work best when you can pay the negotiated rate from 
your Blue Cross plan up until that high-deductible level. When 
you pay full charges, which could be 40, 50 percent higher for 
a lot of providers--and really nobody pays those rates--you 
find that your pot of money you put aside is a lot less 
effective because you go through it more quickly.
    I think that is a structural problem, and I think a lot of 
the rhetorical debate about this issue gets lost in the label. 
The reality is, in the commercial sector, you find a quick 
growing movement toward high-deductible plans where people 
spend their own money, but for the first $1,000 or $2,000, they 
are doing it at the Blue Cross or CIGNA, whatever their 
negotiated rate is. So they are getting the benefit of the 
lower negotiated rates for physicians, hospitals, clinical 
    So I do think it can work. I think the biggest reason it 
hasn't worked in the past is the pot of money you put aside has 
generally not been spent at a negotiated discounted rate, which 
is what the insurance companies do for you. So I think the 
concept is solid as long as it is part of the negotiated rate 
up until the threshold.
    And I think it could work in Medicare as well. The issue 
there, which is a very complicated one that we spent a lot of 
time on, is when you set up different rate preferences, just 
like in Wisconsin, you draw different populations, and in a 
high-deductible plan you are generally going to draw certain 
populations. So you need to make sure you have a very risk-
sensitive adjustment mechanism to make sure that you don't let 
all the people who aren't sick go into the high deductible.
    Mr. Johnson Of Texas. Before we run out of time, tell me 
specifically in detail what you as an agency can do to fix it 
and what we as a Congress need to do to make that fix happen.
    Mr. Scully. Well, my suggestion would be as a 
demonstration, we certainly could look at Medicare+Choice plans 
that have high deductibles, but that also trade-off on other 
benefits. I mean, high deductibles are obviously on the 
hospital side, but you can certainly give people the option, as 
long as you can risk-adjust it for the population you draw, to 
choose high deductibles and spend their own money with their 
physicians. That is certainly a viable option.
    I think the issue is what is the rate they are going to be 
charged for whatever the pot of money is. If they go into the 
hospital--and, again, I am not trying to be critical--you will 
see a hospital will charge $3,000 for a service, and the local 
Blue Cross plan will pay $1,800 for that service. Well, if you 
are not benefiting from that discount, you lose the benefit of 
your own funding pretty quickly. It is just the way the 
hospitals, out-patient clinics, rehab clinics--virtually 
everybody does that. They have a charge rate that virtually 
nobody pays, and they have a rate that most of their customers 
pay, which is significantly reduced.
    Mr. Johnson Of Texas. But you are still citing some facts 
and not telling me what we need to do specifically as a 
Congress and what you need to do as an agency to make it work.
    Mr. Scully. I think as an agency we can work on some 
demonstration programs to use high-deductible Medigap plans and 
to make sure that we are trying to risk-adjust them 
appropriately so we are putting the right amount of money into 
    Mr. Johnson Of Texas. What does the Congress need to do, in 
your opinion?
    Mr. Scully. Well, the issue there is at what point do you--
there is an existing limit, which we are going talk about in a 
few minutes, which kicked in in Wisconsin that the beneficiary 
cost-sharing can't be more than $105.31 a month. When you get 
into high-deductible plans, obviously as an actual matter you 
probably get above that, depending on how you allocate your 
resources. But clearly, if people wanted to have catastrophic 
coverage, drug coverage, and trade that off for higher 
deductibles on hospitals or physicians, that is an option that 
doesn't exist right now.
    Mr. Johnson Of Texas. Thank you, sir. Thank you, Madam 
    Chairman Johnson. Mr. Kleczka.
    Mr. Kleczka. Thank you, Madam Chair.
    Let me start off by thanking you for calling today's 
hearing. As the Administrator said, there are six other areas 
in the country having a similar problem to Wisconsin and the 
UnitedHealthcare problem. So I think it is important that the 
Subcommittee examine what is going on in the Medicare+Choice 
marketplace and in future meetings try to respond to that.
    I also want to acknowledge my colleague from Wisconsin Mr. 
Ryan, who is with us today, who, although his district has no 
Choice plans left, has interest in naturally the direction of 
the Medicare Program.
    Mr. Scully, I also want to acknowledge you and thank you 
for being accessible over the last weeks. I think you showed 
true concern for the problem in Wisconsin and I am assuming the 
other parts of the country. As you know, we did talk numerous 
times. You did go back to the negotiating table to try to get 
the rate down, and you did to a small degree. I find the ending 
rate still outrageously high, but you tried. In my experience 
here in Congress, I have very few administrators such as 
yourself give me their home number. So if we don't get a better 
correction to this problem, you are going to be the recipient 
of many pizzas, but I do want to thank you.
    You did, on Friday, announce that there will be a special 
enrollment period for those seniors in the UnitedHealth plan 
that chose to leave before the end of the year. Could you 
explain to the Committee if that is an existing authority in 
the Agency, and what is the criteria for you to grant a special 
enrollment period?
    Mr. Scully. It is an existing authority in the Agency that, 
unfortunately, until Friday when I called you, we didn't 
realize we had. I think it was a difference of legal 
interpretations. I was not aware until Friday. I think it is 
good news. The issue is--hopefully we can get it out broadly--
we declared a special election period for December so that 
seniors have an extended enrollment period in December to make 
their choices about changing health plans. By virtue of doing 
that, which I was unaware of until recently, we have the 
ability to give seniors the ability to drop out during the 
month of December and have the opportunity, for I think it is 
63 days up until March 4, to enroll in a Medigap policy.
    Mr. Kleczka. Based on what rationale?
    Mr. Scully. Apparently when we declare a special election 
period, we have the ability to waive the Medigap guaranteed 
issue restriction. It is not just in Wisconsin. So anybody in 
any plan, even if their plan stays in under prior law--just to 
clarify, because you have been more involved in this than 
others, previously if you were in Medicare+Choice plan, and you 
were an enrollee, and your plan stayed in that county, and you 
wanted to get out, there was no guaranteed issue for the 
Medigap plan. By virtue of us declaring an extended enrollment 
plan for December this year, the Secretary has the authority to 
basically give people guaranteed issue rights to get into a 
Medigap plan. So anybody that drops out of Medicare+Choice in 
December 2001, even if their plan remains in that county--
United being an example this year--has the ability to get 
guaranteed issue into Medigap up through March 4, which is a 
significant benefit for people who have found that their 
copayments or premiums have gone up, and Medigap is a better 
deal for them. And one of the real concerns we both had in 
Wisconsin about people that wanted to get out of a plan with 
higher cost sharing and switch over to Medigap, and when we 
first discussed this, I did not believe this option was 
available, and I was very happy, as I dug further, to find that 
it was.
    Mr. Kleczka. Like you, I join in your happiness that we do 
have this option so seniors not only in Wisconsin but in other 
States aren't trapped into a plan because of the legislative 
enactment of Medicare+Choice.
    Now, what begs the question is, how are we going to notify, 
for my situation, the 16,000 seniors who are currently enrolled 
in United and try to get through all the mail that they are 
going to be getting during the holiday period to give them the 
news that should they decide and desire, they can dis-enroll 
with United, go back to fee-for-service, and then have a clear 
shot of getting a supplemental? How is your Agency going to 
inform at least this group of seniors?
    Mr. Scully. It is a broader problem beyond your district, 
but certainly the word--we are trying to figure out the best 
way to do it now. Our concern is that it might be confusing to 
send out a mailing this month with all the other mail that 
comes through and all the information they have gotten from us 
already. So we are looking at a lot of other options as to what 
to do as far as working through our State health insurance 
programs with our partners in educating seniors, as well as 
working through the plans. We are making an aggressive effort 
to make sure that every senior that signed up for this plan 
knows that is an option.
    We haven't quite decided what is the best way to go as of 
yet. We will be happy to work with you in the next week or so 
to figure that out. We have not decided whether an additional 
mailing is an appropriate route or whether we should go through 
the State health insurance department, State health insurance 
programs. We only discovered this on Friday, so we are still 
trying to figure out the best way.
    Mr. Kleczka. We better start acting on it immediately. And 
I will ask UnitedHealth some questions on this very same thing.
    One last question, Madam Chair, if I might. Based on the 
other six plans that had similar problems in Wisconsin, were 
any as high in, let us say, the inpatient hospital deductible? 
Currently, as you know, for the United Choice plan, there is no 
deductible, no copayment. Their initial intention was to raise 
that to $350 a day. Through your efforts it was reduced to 
$295. Any other plans that fit that same criteria relative to 
such a dramatic change?
    Mr. Scully. There were a few others around the country. 
There were seven that my staff came to me with right off the 
bat. We are calling them up and fixing them. And United is a 
little more complicated. I spent a lot of time with them. I 
think they did have some good arguments. They do have $4,800 
stop loss, which is a catastrophic cap that a lot of plans 
don't have. You can debate the merits of that, but the fact is 
that most Medicare+Choice plans do not have the catastrophic 
stop loss.
    The real compelling factor to me when I sat down with them 
is we can't force people. I spent a lot of time this summer, as 
I testified before, trying to call chief executive officers 
(CEO) around the country and say, please, on the margins, stay 
in. I hope, certainly, the Congress will fix the funding 
formula. And I spent a lot of time talking to many plans, 
including a couple of Mrs. Johnson's plans in her State that 
did drop out, trying to encourage them on the margins, to stay 
in one more year, and hopefully the program will be fixed.
    I talked to the CEO of United this summer, Dr. McGuire, and 
asked him to do that, and I think they made an effort in many 
districts to stay in. I told them $350 was not acceptable, and 
they lowered it to $295. I asked them to make a number of 
changes, and I said, ``Look, if you can't make the changes, I 
would like to see your financial statements, and come in and 
show me that your medical loss ratios is how much you spend in 
Medicare, and your administrative loss ratio, your projections 
add up to pretty close to 100 percent.'' And theirs did; from 
what I can tell, close to around a little over 99 percent.
    And my belief is we can't force somebody to lose money in 
this business. They aren't making money in this business. They 
stayed in Wisconsin in the hopes that the funding will be 
fixed. You can debate the merits of how they set up their plan. 
The plan was scored by our actuaries as being under the $105.31 
monthly cost sharing out-of-pocket equivalent. And so I think I 
did the best I could to make the adjustments I could, but I 
couldn't force them to lose money, and I don't think they 
should be expected to do that. I think under the circumstances, 
United reacted responsibly to what my requests were, and I 
think had I seen that they had a total spending of 90 percent, 
I would have felt differently.
    Mr. Kleczka. Thank you for your help in this matter, Mr. 
    Chairman Johnson. I am now going to recognize Mr. Ryan, who 
is a member of the full Committee, not a member of this 
Subcommittee, but is keenly interested in this situation in 
Wisconsin. Mr. Ryan.
    Mr. Ryan. Thank you, Madam Chairman. I was interested in 
what you said earlier, because as my colleague in Wisconsin 
just north of me noted, we lost all the Medicare+Choice in my 
area. Three years ago PrimeCare or UnitedCare pulled out of our 
area then, Racine, Kenosha and Walworth Counties. This year the 
last provider is pulling out. At that time 3 years ago when 
United pulled out of our area, we were able to in that give-
back bill, the Medicare+Choice bill, increase the reimbursement 
rate for counties like southern Wisconsin counties.
    Blue Cross came in and provided basically the same benefit, 
and they just pulled out this year reporting--and I was able to 
take a look at their books because I had the same questions you 
did--they reported $38 million in losses in that area, in 
Medicare+Choice, in our State.
    So what we have seen in Wisconsin and what we saw already 
in southern Wisconsin, like what Mr. Kleczka is seeing in the 
Milwaukee region, is that this program isn't working. This 
formula isn't working. And when we take a look at this formula, 
you know, to put it quickly because it is such a complex issue, 
the formula is so flawed in its base premise that it basically 
rewards States that in the past had inefficient systems, had 
high, high costs, and it penalizes those States like Wisconsin 
that had efficient health care that kept its costs in check, 
and we were penalized with a lower reimbursement rate. And 
since the inception of Medicare+Choice, we have never really 
fully addressed that issue.
    In the past I have always been part of the legislative 
effort to fund the blend, to try and average the AAPCC system 
together to try and get the same kind of benefit in Wisconsin 
that seniors in Florida and other areas got, but we have really 
been unable to accomplish that.
    I just got this GAO report and haven't had a chance to look 
at it, but I was interested in something you just said a minute 
ago, that the money that had been sent from Congress back into 
the Medicare+Choice program was sent to the wrong places.
    Could you give me more comment on that and isn't this a 
case of literally having to redesign the entire formula so that 
it more appropriately and adequately addresses the true cost of 
providing the same benefits for Plus Choice across the country 
and were the last few Medicare+Choice bills written in more or 
less an inaccurate way, so that it actually benefited areas 
that shouldn't have gotten the benefit and left areas short 
that really needed the benefit because, as evidenced by the 
fact that we had this pullout in Milwaukee County, we saw the 
pullout in all the other areas in Wisconsin like other parts of 
the country, it just isn't working.
    So the problem we have is everybody paid the same Medicare 
tax wherever they worked and lived in this country, but they 
are not getting the same benefit where they retire. That is 
especially true in Wisconsin.
    So could you give me an idea of where we missed the boat, 
how our formula is flawed right now today and how we should fix 
it, and why and how we sent money to the wrong areas and how we 
can fix that, hopefully this year in this session?
    Mr. Scully. I wish I could give you all those answers. I 
can give you some opinions. I mean, if you look county by 
county nationwide at the fee-for-service spending, there are 
massive variations, and I don't think the Medicare+Choice 
program can fix that. Everyone does pay the same taxes, but 
they most certainly don't get the same benefit in fee-for-
service either. If you look at the county-by-county difference, 
the managed care plans are still loosely based on fee-for-
service spending, and if you look at Miami or Los Angeles or 
New York City versus Milwaukee or rural Wisconsin, there are 
massive differences in what is spent, 2-to-1 in some cases in 
the Medicare Program, and those are due to practice patterns, 
hospital costs.
    There are a lot more things going on in this program than 
meets the eye right off the bat. Believe it or not, Wisconsin's 
rates have actually gone up a little better than some other 
States in the last few years; they were lower to some degree, 
but the point about CBO is when you make actuarial judgments--
like in the past few BBA bills, CBO makes a judgment about if 
we bring up the floor rates, which are based on the rural 
counties, by X number percent, how many people show up to 
provide those plans, and they assume that money will be spent 
and it is allocated in this way.
    What has happened is nobody has shown up. So you have many 
rural counties across the country in Iowa, Minnesota, 
Wisconsin, and other places where Congress put money in 
assuming that if you put those plans together, they'd come, and 
nobody has come. There are many reasons why they didn't come, 
including the fact there was an assumption 5 or 6 years ago 
when I came out of the hospital business when hospitals were 
reasonably weak, and basically, most managed care plans could 
negotiate significant discounts from them. Hospitals have got 
smarter, tougher, there has been a lot of hospital 
    It used to be managed care plans could get significant 
discounts from Medicare fee-for-service amounts and 
Medicare+Choice, and now they are frequently paying 130 percent 
of what the Medicare Program pays because the hospitals have 
basically said, ``we don't want to negotiate managed care,'' 
and they have gotten a lot tougher and stronger in the 
negotiating position. They have more leverage.
    So in a lot of rural areas, we have one hospital chain, you 
show up with a managed care plan to offer Medicare+Choice and 
they say ``we don't want you.'' So it is almost impossible to 
put together a network. So there are a lot more things going on 
here as to why Medicare+Choice just hasn't shown up, but my 
point was that Congress allocated money that is sitting there 
theoretically for somebody to show up and spend, and no plans 
have shown up.
    So theoretically, the money was arguably misallocated, but 
the way the budget rules work, once it is put there, if nobody 
spends it, it is gone. So--and a lot of what Congress had done 
in past years was try to put money into the rural areas because 
theoretically, we are on cruise control in the urban areas, and 
what has happened in places like Atlanta, Milwaukee and other 
places where the--it was popular and there actually are managed 
care plans and people showing up, and there are multiple 
hospitals competing in the business and it still works 
reasonably well, is they have had 10, 11, 12 percent a year in, 
``inflation increases,'' and 2 percent cap increases in their 
Medicare rates and the math doesn't work.
    Mr. Ryan. Well, I see my time has run out, but the risk 
adjustment you mentioned, I think, needs to be addressed by 
your agency because one of the base assumptions when 
Medicare+Choice was written in 1997 was that the healthy people 
would go. That is not the case. It is more sicker seniors and 
we need to work on that risk adjustment.
    Chairman Johnson. Mr. Lewis.
    Mr. Lewis. Thank you, Madam Chair. Madam Chair, like my 
colleagues, I want to thank you for holding this hearing. I 
think it is very timely. Mr. Administrator, I thank you for 
being here. I have some question regarding your efforts on the 
800 line. You mentioned in your prepared statement that you are 
spending more than $30 million in a massive advertising 
campaign to reach out to people. Are you tracking the 
questions, the concerns of the seniors that are using the 800 
    Mr. Scully. Yes, sir. We have spent--it is not just the 800 
line. We also spent quite a bit of money more than doubling the 
number of operators answering the 800 lines giving a lot more 
detailed information, and we do have--I think we have a million 
dollars-plus contract to evaluate it, and when the campaign is 
finished on December 16, we will have a report to Congress on 
how it went, and I know the appropriators, who were nice enough 
to allow me to reprogram the money for this year, because it is 
the first time I have ever done it, will be as interested as I 
am in figuring out how it works, but we have gotten--we peaked 
at about 65,000 phone calls a day. I think we are still running 
about 30,000 calls per day. And I think it has been very 
popular with seniors, and one of the things that I found out 
when I came into the agency was that seniors love the Medicare 
    They think it is a great program. But they don't understand 
the difference between their Medicare premium of $50 that comes 
out of the Social Security check or Medigap, or where to find 
the nursing home or dialysis clinic. They love the program, but 
they are incredibly underinformed, and my view was that when we 
are spending around $7,000 a person on Medicare, spending 80 
cents per person per year trying to give them better 
information about where to go is a good investment.
    And fortunately the Appropriations Committee, at least for 
this year, agreed, and I hope they will agree to do it in the 
future, but so far I think it has been very successful. I hope 
we will find that out during the more objective evaluation. My 
personal evaluation--I still call the 1-800 number pretty 
regularly--they are probably tired of getting my mom and dad's 
information, but so far I have been pleasantly surprised. The 
operators have been great, the information has been great, and 
I would invite you to call yourself.
    Mr. Lewis. I will try. I will do it. Are you spending 
resources on both printed and electronic media?
    Mr. Scully. Yes. We spent $30 million. You would probably 
be particularly interested, I hope. One of our concerns was 
that obviously minority and particularly the Hispanic--Spanish-
speaking Hispanic population is more unaware of their Medicare 
benefits. I think we spent 20 percent of the finances on the 
Spanish media. We have spent a lot of advertising on Univision, 
Telemundo, and we in fact, have a whole separate ad campaign.
    You may have seen the Leslie Nielson one on TV, but there 
is a separate one running on Spanish language TV. There is a 
large print campaign targeted at minority communities across 
the country, because obviously, they are the folks that tend to 
understand Medicare the least, but I would be happy to share 
our ad budget with you and show you----
    Mr. Lewis. I would be very interested in seeing it, Mr. 
Administrator. I think it is important to reach out to the 
minority community, the Hispanic, African American, and others 
that need to receive this information to get the necessary 
information in help and assistance.
    Mr. Scully. I can assure you that I am very sensitive to 
that, but my deputy, Ruben King-Shaw who is, as you probably 
know, African American, if I ever forgot it, he reminds me 
about 40 times a day. And he spent a lot of time working on the 
ad campaign.
    Mr. Lewis. Thank you very much. I appreciate it. Thank you, 
Madam Chair.
    Chairman Johnson. Mr. Camp.
    Mr. Camp. Thank you, Madam Chairman. Mr. Scully, thank you 
for being here and for your testimony. I know a couple of times 
at least through the discussion, you have mentioned that 
payment increases have not kept pace with costs, and as a 
result, there has been increased cost-sharing and reduced 
premiums have resulted from that. And as you look at the 
reasons that Medicare+Choice plans have pulled out of the 
program, GAO cites in their report that it is for reasons other 
than payment, and I was just wondering what else needs to 
happen to make this program work, particularly what can 
Congress do to help make this program work?
    Mr. Scully. I am actually surprised to hear that I really 
do believe that the biggest issue is really finances. I have 
tried--we have done a lot of things that, I think, make it 
easier. It was not uncontroversial that we moved the filing 
date back with a lot of encouragement from some in Congress to 
September 17. I believe, and some of you may know, I was on the 
board of Oxford Health Plan, for one of the big Medicare+Choice 
plans, for 8 years while I was in between my government stints, 
and I watched a lot of what they went through in 
    It is very difficult in June or July to make a judgment on 
what your revenue's going to be for the next year, what your 
costs are going to be for next year and decide whether you are 
in or out and decide how you are going to accurately set the 
premiums. The longer you can wait, as an actuary, the easier it 
is to way make those judgments. Obviously, there is a tradeoff 
there about how long you can wait to tell the beneficiaries 
what their options are, and we have tried to reach that 
balance. I think that helped. I think we streamlined a lot of 
the options for managed care plans as far as their--you know, 
how quickly we look through their filings. I hope that has 
    I think we have given them options to do more easily wrap-
around seamless plans for employers. There are an awful lot of 
people that have managed care plans in their employer base when 
they hit 65 and they are retirees. They have to drop out and 
rejoin Medicare. We have made a number of changes this summer 
to make it more seamless so that employers could design wrap-
around Medicare plans so that when employees hit 65, they could 
switch to Medicare without really knowing it.
    So I think we have made a lot of changes to make the plans' 
lives a little bit easier. I am sure there is more that we can 
do. I think we have been pretty open to that. We have, as you 
may know, created 11 working groups. One of them is for managed 
care that includes all the beneficiary groups and the unions 
and patient advocates and the plans. We try to work with them 
all to sit down every couple of weeks and figure out what we 
can do to fix it. We are going to keep plugging away.
    But I really do believe in many counties, this is still a 
great plan. In some counties, it is a terrible plan. I think a 
lot of it is funding and a lot of it is the distribution of the 
    Mr. Camp. We have put some funding in in the last two 
pieces of legislation that we have passed; yet there is still a 
lot of instability. You still think that is the primary----
    Mr. Scully. I really believe--I may be wrong--most of that 
funding was put into what are called floor counties, which are 
mainly the rural counties to bring up the base, and if you look 
at it there are still shockingly few--I mean, Senator Grassley, 
who we all worked with a lot, was interested in--a lot of 
people in the Senate from rural States were interested in 
having Medicare+Choice, which had been popular in urban areas, 
to come into their States. If you look at it, there is still 
very little Medicare+Choice, almost none in Iowa. Very little--
I mean, we put in funding into the rural areas, and the fact 
is, managed care plans are not interested in offering the 
benefits there. So we created the magnet and no one came, I 
    Mr. Camp. OK. Thank you very much.
    Chairman Johnson. I would just like to clarify that the 
point is that the big money that went into Medicare+Choice went 
into creating the rural floor. Since there aren't plans, hasn't 
been any big growth of plans in the rural area, that money is 
actually not being spent. So it is not going into the 
Medicare+Choice system.
    In the highly populated areas, because of the budget-
neutral nature of the 2 percent or blend options, the money is 
not going in; so while $5.9 billion was supposed to go into 
that area according to CBO, only $2.2 billion went in. So where 
the recipients are, where the seniors who benefit from the 
programs are, they got no more than 2-percent increase and in 
the rest of the Nation they got huge increases, but there was 
no plan there to serve, and I think when you look at the number 
of years that the budget-neutrality provisions have limited the 
increase to 2 percent in an era when costs were rising much 
more rapidly and we were increasing reimbursements under 
Medicare fee-for-service at twice the rate, you can understand 
why these plans are doing poorly.
    Now, no company puts a big investment in any new product, I 
don't care whether it is machine tools or whether it is health 
care, and not want to stay there, and the fact that plans are 
withdrawing isn't because they are lily livered, it is because 
they can't afford to stay. And if you look at what investors 
are saying about these plans, you can see the tremendous 
pressure from the private sector for them to pull out. That is 
all direct evidence that we are radically underfunding the 
choice options, and what the seniors are telling us is they 
like them and we have an obligation to tend to this issue. Ms. 
    Mrs. Thurman. Thank you, Madam Chairman, and thank you for 
having this hearing, and I would say to Mr. Scully that I agree 
with Mr. Kleczka that we have had an ability to get a hold of 
you, and we do appreciate the fact that you are very accessible 
to us when we have questions.
    Mr. Scully. I love pizza, by the way.
    Mrs. Thurman. You love pizza? I don't have your home phone 
number that I know of. But I am a little concerned about what I 
am hearing today and I would say to Mr. Ryan, I have to tell 
you that I made your very same arguments 2 years ago when we 
had some of these hearings about Medicare and MedicareChoice 
that it was the same tax dollar, that this was, in fact, 
supposed to be a program that we all are supposed to enjoy and 
the benefits should be the same.
    So I agree with you. I think there is a potential 
discrimination against this, but in saying that, one of the 
things that has concerned me, Mr. Scully, and maybe just 
because it wasn't asked for, but in your report that you gave 
us on the Medicare+Choice changes in access benefits and 
premiums, the one thing that we don't compare any of this to is 
fee-for-service. All we talk about is what is happening in the 
Medicare-for-Choice and not really looking at what happens to 
the benefits under Medicare-for-Choice as versus what is 
happening under fee-for-service, and let me just give you an 
    In our Medicare and You 2002 Handbook, under the part where 
it talks about hospital stays, for example, it says for each 
benefit period, you pay a total of $792 for a hospital stay of 
1 to 60 days. Under one of the current plans that we have 
discussed and we are hearing a little bit about, right now the 
copayment in inpatient hospital co-pay is $295 per day. It only 
takes 3 days to get almost to that $792. And then on top of 
that--so I did a little calculation and found out that under 
original fee-for-service, if I stayed in the hospital for 190 
days, my out of pocket under fee-for-service would be about 
$6,554 but under the plan it would be $26,550. And if I am 
wrong, then that is fine. I just need to understand where I 
have made this miscalculation.
    Mr. Scully. You are----
    Mrs. Thurman. But remembering this is under a plan in an 
area of--that we are looking at. The second would be then, I 
guess, under that same calculation under skilled nursing 
facilities, it says it went to $125 per day, but if I go into 
the skilled nursing I get the first 20 days basically free 
under Medicaid fee-for-service; is that correct? OK. But then 
under the plan that I am looking at, it would cost me about 
$12,500 under a particular Medicare+Choice plan, saving me then 
about $4,729. Now, if I am wrong----
    Mr. McCrery. Ms. Thurman.
    Mrs. Thurman. I just want to be corrected.
    Mr. McCrery. What plan are you looking at? Would you share 
    Mrs. Thurman. I would prefer not to say, Mr. McCrery, 
because I don't want to take any shots at anybody at this 
particular time because I would rather have the opportunity to 
work out, but I can assure you this is a plan that is in the 
district that I represent, and we have looked at it very 
    Mr. McCrery. OK. Thank you.
    Mrs. Thurman. I don't want to take shots at anybody.
    Mr. Scully. I think I know the plan. I may be wrong but I 
hope--I believe that plan has a $1,400 catastrophic cap. 
Theoretically, you have to spend about 80 days in the hospital 
before you get to the break-even point, but----
    Mrs. Thurman. But even if I spend 3 days in the hospital 
under the $295, I am still almost to that cap; so if you stay 
to 4, I am still $200 less or paying more under my managed care 
than I would be under my fee-for-service so---
    Mr. Scully. I think the argument on those plans because I 
have had it with them the last 2 weeks is that for a senior--
obviously, if you are a poor senior, you are in trouble in any 
case, but if you are relatively low-income senior who doesn't 
want to buy a Medigap plan and is worried about catastrophic 
coverage, you limit your catastrophic potential to $4,800 a 
year, which is something that Medicare does not cover and a lot 
of Medigap plans don't not cover.
    Mrs. Thurman. But does Medicare+Choice?
    Mr. Scully. Well, hopefully you have an informed choice. 
That is the issue. And that you can drop out and if you want to 
join the Medigap plan. But the Medigap plans are obviously very 
expensive and some of them don't have any catastrophic caps 
    Mrs. Thurman. So I guess what I am trying to get at is that 
I would really like to see you all at some point do the 
comparison for those issues for fee-for-service because, quite 
frankly, the other issue is, and you make mention of it in your 
sheets again, that most of the drug coverage will decline in 
the overall population. Three States already are going to see 
significant declines in access to drug coverage. We already 
know that most of them are losing brand names, going to 
generic. The annual maximums are going down.
    So I am trying to figure out if I have a senior come into 
my office and say, you know, Karen, I really need some help 
here, I am having a hard time understanding. If I have a real 
concern that I am sick or what--and I am looking at all these 
different things that I might have an option to, but the fact 
of the matter is under what currently fee-for-service is, which 
I pay my $50 with no premium other than that $50, I may be 
better off long term than I would if I went under a Medicare-
for-Choice program, and if just you looked at--again, and I 
understand the 100 day part of it, but still $4,729, just under 
the skilled nursing, that is a drug benefit for me as a person. 
I mean, I might be able to----
    Mr. Scully. I think that plan has a $4,800 catastrophic 
cap, but again, you have to get of a lot of service before you 
get there. I think the issue is the Medigap plans are also 
incredibly expensive. And when one of your seniors comes in and 
says, ``am I better off under Medicare+Choice?'' The real 
comparison is Medicare+Choice versus Medicare plus the Medigap 
and the premium, it is not always--it is not a simple 
calculation. I hope our 1-800 number has helped answer some of 
the questions.
    I know the State health insurance programs which get grants 
from us, help that. But it is not an easy calculation. We do, 
in fact, have those comparisons, and you can get them on the 
Web site, but you have to compare--we do have those kind of 
breakouts on the Medicare+Choice plans, and you basically have 
to go back and compare it to the fee-for-service, and they are 
not--you know, you have to be kind of fast on the system to get 
there, but all of that information is on there.
    But you are right, it is not always easy to figure out. It 
is one of the things we are hoping to help explain to seniors, 
but trying to figure out and sit down, because I have done it 
with my parents, and figuring out whether you are better off 
with Medigap plus fee-for-service or Medicare+Choice is a tough 
calculation in many cases.
    Mrs. Thurman. Then the follow-up question I would have to 
you because you made the statement with Mr. Kleczka that, and 
he was thankful that you went into negotiations with some of 
these plans, and in fact we did see the benefit or the premium 
reduced and/or the copayments reduced. When you talked to them, 
I mean, was that a part of the--I mean, I don't--is that a part 
of the conversation with them, I mean that here is what they 
could get under Medicare fee-for-services versus what you are 
giving them to under Medicare-For-Choice as to--as arguments? 
Can you give me some----
    Mr. Scully. Yes. That is exactly the issues in the one case 
which we have talked about, $350 deductible seemed to me to be 
high and seemed to our actuaries. They brought it to me. The 
staff came to me and said we have 474 filings and we have seven 
that we think are the outliers that may, in fact, you know, not 
have the appropriate incentives for beneficiaries. And we 
talked to all seven of them to make changes, and the most 
difficult one was United, and the reason was they felt very 
strongly that the most attractive part of their plan was the 
$4,800 catastrophic cap.
    We were concerned about the incentives provided if somebody 
was going to have a lot of hospitalization. You know, the 
reality is in a lot of cases, what happens is the hospitals eat 
the bad debt, but we were concerned about that. We knocked it 
down. But to be honest with you, the real issue for me was when 
I looked at their finances and found out that they basically--
it wasn't like they had 90-percent loss ratios. They had 99-
percent loss ratios, which is the combined administrative and 
medical costs, and I didn't think they had any more wiggle 
room; so I pushed them to change their benefits as much as I 
possibly could, and legally we have limited authority not to 
have them in there and to be honest with you, a lot of these 
plans stayed in there because I asked them to hang in there for 
one more year until Congress changed the benefits. So we were 
kind of between a rock and a hard place.
    Mrs. Thurman. So that analysis is available then?
    Mr. Scully. Mainly with me, but I would be happy to go 
through it with you. It was largely me talking to them with a 
couple of my staff.
    Chairman Johnson. Congresswoman Dunn.
    Ms. Dunn. Thank you very much, Madam Chairman, and it is 
good to see you again, Mr. Scully. Thank you for being here to 
listen to our questions and our objections and our support and 
everything that goes into trying to beef up this program, so it 
becomes an efficient additional choice for people. I come from 
the State of Washington where health care has been provided in 
a very efficient way for the last 20, 25 years we have used 
HMOs, and people in Washington State, and especially in my 
district, appreciate this choice.
    Obviously because our reimbursement rates are lower, we 
feel like we are being penalized for our effective delivery of 
efficient services and so the funding of the blend is very 
important to us, and budget neutrality has been a problem for 
us. But in the 1 year that we were able to increase our 
payments, we were very appreciative. One of our HMOs, I think 
it was Group Health actually passed the savings through to 
its--to its customers, and we appreciate that very much.
    I want to ask you a question on a bit of a different topic 
today, though, that has to do with the Department of Veterans 
Affairs (VA) and the ability of veterans to be counted among 
Medicare beneficiaries when it comes to the reimbursement rate. 
Two years ago we required HCFA to submit a record, a report 
accounting for the health services furnished by the U.S. 
Department of Defense (DOD) and the VA to Medicare 
beneficiaries in both the Medicare+Choice program and also in 
fee-for-service, but since Medicare+Choice, that formula does 
not account for the services that are provided currently in 
military facilities, the reimbursement rates in Washington 
State and other areas with high military presence are going to 
be lower than they really should be.
    So I am curious, has the Centers for Medicare and Medicaid 
Services (CMS) completed this report and how can CMS address 
this issue so that we can find greater equity among the health 
care plans?
    Mr. Scully. Well, I am not sure I have great news for you. 
When I knew you might ask this question from your staff, I 
looked into it. Apparently this report is done and should be 
sent to you shortly. It is in clearance, probably sitting in my 
inbox, but I will get it to you quickly, but I think what I 
learned last night was one of the conclusions was that we had 
limited ability to get good data from the VA and DOD and so 
there really was not--I think you are going to find one of the 
conclusions of this report is probably not going to be what you 
are looking for. Part of that is from not having good 
information. Now that I am more aware of this, Secretary 
Principi is an old friend of mine, I will try to work with the 
VA to get better information and with DOD and see if we can 
come up with more than I think is in the report that is coming 
to you. It goes through all the problems, but probably doesn't 
give you the results you want.
    Ms. Dunn. We would very much appreciate that, and I think 
other folks who represent military areas, if they haven't 
noticed this inequity, it is important to a lot of us around 
the country. So we would appreciate your working with him to 
get the information, see if you can't get this one squared 
away. It is only fair and right now we are penalizing our 
recipients. Thank you. Thank you, Madam Chairman.
    Chairman Johnson. I would like to recognize Mr. Cardin, who 
is also not a member of the Subcommittee, but has been very 
involved in our work.
    Mr. Cardin. Thank you, Madam Chair, and I very much 
appreciate the courtesy, and I appreciate your holding this 
    Mr. Scully, it is always nice to hear from you. I don't 
think there is much you could do or Congress could do on the 
reimbursement structure that would affect choice in the State 
of Maryland. Maybe you disagree with that, but from my 
conversations with the HMOs that have left the State of 
Maryland, any changes we make here in the reimbursement 
structure will have virtually no impact on their decision to 
stay out of the Maryland Medicare market. We could argue why, 
but I am not sure we are going to have any impact.
    It seems to me that there are two approaches we could 
consider in regard to beneficiaries in Maryland. One is what 
Mr. Stark has talked about, and that is offering or expanding 
choice within the government-run insurance program by offering 
more choices than just straight fee-for-service Medicare. We do 
that, by the way, in Maryland, through the Municipal Health 
Services Program, which still exists in the State of Maryland. 
That program offers government-run HMO coverage to Medicare 
beneficiaries in my State. Second, if Congress does move 
forward in covering prescription medicines within the basic 
reimbursement structure--if it becomes a covered benefit within 
Medicare--a lot of the uncertainty and a lot of the marketing 
changes will end. Reimbursing plans for the cost of 
prescription drugs will give us a better chance to attract 
private insurance companies into the Medicare market.
    So I would appreciate your comments as to my observations. 
Is there anything we can do for the people of Maryland, and 
what is your view of the two suggestions that I have made--
looking at a more innovative approach within Medicare itself, 
and of course, you are already on record on prescription 
    Mr. Scully. Well, among other things, I think you may know 
my dad was--I think he is close to one of your constituents and 
was in the Medicare+Choice in Maryland and lost that a couple 
of years ago. I can tell you from personal experience, his 
options that he had to fill in were significantly less fun and 
more expensive. I think one of the problems, and I watched this 
when Oxford dropped out county by county, when seniors lose the 
option, they get angry, and so once the plans drop out--one of 
the reasons I have tried to get a lot of plans to stay in by a 
thread this year is once they get out, seniors get angry, it is 
hard for them to get back in, and in some cases, they can't get 
back in under the law, but when they raise copayments, they 
raise premiums, they finally make the decision to get out, it 
is a big expense to get back in. It is a big expense to market.
    Frequently they leave irritated seniors and they just 
aren't getting get back in for a while. So getting them back 
in, you have to make it a pretty good deal to get them back in 
once they drop out.
    So I think you are probably right. I think one of the ways 
to get people back in is to change the benefit structure and 
then it is probably more expensive than we are talking about, 
but as I said, Medicare+Choice does not--there is only one PPO 
in the country basically, and that's Independence Blue Cross in 
Philadelphia. There are a couple other quasi point-of-service 
plans, but what most people under 65 want, and most of us are 
in, are hybrid plans that have some of the characteristics of 
managed care, and some of the characteristics of indemnity 
where you basically get to choose, and if you want higher co-
payments or higher deductibles, you can go outside the network 
and go to any doctor you want.
    So if you find out you have colon cancer and you want to go 
to a specialist, you can get any doctor you want. It doesn't 
have to be in the network. You are just going to pay a little 
more, and that is what is exploding in the under-65 market, and 
that is what sick people want, and it doesn't exist in Medicare 
outside of a couple of counties in suburban Philadelphia. I 
think that if we really want to make the private sector models 
an option in Medicare for seniors increasingly in the under-65 
market, traditional HMOs are disappearing and these hybrid 
plans are what are exploding and that is not an option in 
Medicare. You either have traditional fee-for-service or you 
have basically a closed plan, managed care plan and there is 
nothing in between.
    Mr. Cardin. Of course, Congress had hoped that 
Medicare+Choice would encourage more private insurers to come 
up with these different models. We didn't want to just limit 
options to the traditional HMO and government fee-for-service. 
If I understood Mr. Stark's point, why not experiment with 
Medicare itself within the government-run program so that if 
the private sector is not willing to offer coverage we should 
devise different benefit models within the Medicare system at 
the same level of public support. This way, we would not be 
putting the private sector at disadvantage.
    Mr. Scully. Well, there are a lot of things that I think we 
can also experiment with that I am very interested in, like 
disease management capitation--like capitating some of these 
end-stage renal disease, ESRD, payments. There are a lot of 
places in the traditional Medicare Program where you can 
basically set up kind of many disease management programs to 
create the right incentives that are still in the traditional 
fee-for-service program, and we are looking at doing a lot of 
those things.
    Mr. Cardin. I will be talking to your dad to lobby you on 
behalf of new programs for Marylanders. Thank you, Madam Chair.
    Chairman Johnson. Thank you very much, Administrator 
Scully. It is pleasure to have you before the Committee with 
your broad background in the history of Medicare and the 
problems it faces, and also the depth of your insight into the 
opportunities to strengthen it and offer to seniors some of the 
options that they clearly have demonstrated that they want. 
Thank you for being with us. We look forward to working with 
you to solve these problems. Thanks.
    Mr. Scully. Thank you. The administration is very committed 
to helping you try to fix this, and we appreciate your 
invitation today.
    Chairman Johnson. Thank you. May we now have Ms. Stephanie 
Sue Stein, the director of the Milwaukee County Department on 
Aging; Mr. Richard Jones, president, Government Relations, 
UnitedHealth Corp.; Mr. Peter Haytaian, vice president, 
Government Programs, Oxford Health Plans. Each of you will have 
5 minutes. You may submit your statements in whole for the 
record and highlight them in your 5 minutes.
    I will recognize Mr. Kleczka at this time for purposes of 
an introduction.
    Mr. Kleczka. Thank you, Madam Chairman. Madam Chair and 
members of the Committee, it is a great privilege for me to 
introduce a good friend of mine and a very good friend of the 
seniors, Stephanie Sue Stein, who is director of the Milwaukee 
County Department of Aging since 1993, and for the previous 19 
years, was director of the Older Adult Services at Milwaukee's 
Social Development Commission. This outstanding agency that she 
currently is director of serves over 160,000 persons age 60 or 
older who live in Milwaukee County.
    Ms. Stein has been a strong and effective voice for seniors 
in our community and throughout the Nation. She is an 
enormously well-respected and innovative leader and a tireless 
advocate for elder rights. I have had the privilege of working 
with Stephanie on a number of projects over the years and have 
always been impressed with her unfailing dedication to the 
seniors in our community and her impressive expertise on aging 
issues. It is a great pleasure for me to introduce Stephanie 
this morning and we look forward to hearing her comments.
    Chairman Johnson. Thank you. I would also like to make just 
a very brief comment about Mr. Jones and the Oxford Plan. They 
have really been one of the creative actors in Connecticut and 
the northeast in not only Medicare+Choice, but also in managed 
care in general. When they were the first ones to offer to the 
general public a managed care plan that covered acupuncture and 
some of the alternative medicine approaches. So they have been 
a very creative contributor in this era of dynamic health 
benefits. Sorry, not Mr. Jones. Mr. Haytaian. Sorry.
    We will start in alphabetical order, Mr. Haytaian.


    Mr. Haytaian. You want me to go first? Can you hear me? 
Madam Chair, Congressman Stark, Committee members, thank you 
very much for having me here today. My name is Pete Haytaian, 
and I am the vice president of Government Programs at Oxford 
Health Plans. We have--for those of you who aren't familiar 
with the plan, we are a Connecticut-based, New York regional 
plan that has 1.5 million members, 85,000 of which are 
currently Medicare+Choice members. When I joined the plan back 
in 1998 and took on the position of vice president of 
Government Programs, we, in fact, had 160,000 Medicare+Choice 
members and as I said today, we are down to 85,000 members, and 
as of January 2002, unfortunately down to 65,000 members. At 
the core of the problem--without repeating everything that has 
already been discussed, the core of the problem is in most of 
the counties that we were in predominately in places like 
Connecticut, all of Connecticut, all of New Jersey, Long 
Island, the northern counties of New York, the problem is the 
2-percent increases that we received every year versus the 8 to 
10 percent medical cost trends.
    So it is precisely the issue you all have been talking 
about today, and we have unfortunately had to make a very, very 
difficult decision to exit those counties over the last couple 
of years. We are truly committed to the program and love the 
program and think that it offers a lot. I think there is a 
couple of points--a lot of points actually that weren't touched 
upon earlier that I think are fundamental to this program, but 
let me talk about where we are offering products and what we 
are offering, because I think we are offering products to all 
constituencies through the Medicare+Choice program that is 
fundamentally impacting their lives. Most importantly offering 
products to the financially vulnerable population, folks that 
have annual incomes of less than $18,000 a year.
    We offer basically 3 products. Our lower tier product is 
called the Essential Plan, and in this plan we have an almost 
no-cost sharing. There is no premium. There is almost no cost 
sharing. There is a zero PCP, primary care physician, co-pay. 
There is a $10 specialist co-pay. We offer an unlimited generic 
benefit and the folks that we are targeting for this product 
are generally folks that are eligible for Medicaid and/or are 
eligible for State pharmacy assistance programs that I know you 
are all familiar with, in New York, for example, the EPIC or 
Electronic Privacy Information Center program, where folks 
generally can get probably the most comprehensive Medicare 
benefit package, I would argue, in the country today with all 
the aspects of everything we talked about today, including 
unlimited generic, and then being able to pick up brands 
through programs like Medicaid and/or State Pharmacy Assistance 
    We also have a mid tier product where most of our members 
reside and that--the fundamental distinction between that and 
the essential plan I just described is there is more cost 
sharing, but it also includes a $750 brand drug benefit, and 
then we offer another product to meet a different constituency, 
a point-of-servce product which Administrator Scully just 
talked about. But for folks that find premiums in the Medigap 
program to be exorbitant and want an added network option, we 
offer a point-of-service product for those folks. But again, 
our products focus in on the financially vulnerable population, 
folks that really don't have a choice. We talked about Medigap. 
The true numbers are that if people want to get comparable 
benefits that we are offering through Medigap, they are paying 
in excess of $3,000 a year in premiums in some instances, 
versus in our case, in the two products I described, zero 
premiums and unlimited cost sharing, or in the case of the 
Essential Plan, no cost sharing almost.
    One other fundamental point that I want to make that no one 
has really talked about that I think fundamentally 
distinguishes the Medicare+Choice program from the fee-for-
service program is within all our products, we offer not only 
disease management programs, but intensive health promotion 
programs. We built a program called the Falls Prevention 
Program, which is one of only--I think we are the only ones in 
the country that built a similar type program, where we built 
this with Yale.
    We identify folks that are at risk for falls, we have OTs, 
or occupational therapists, and PTs, or physical therapists, 
that actually physically go into people's homes, meet with them 
on whether or not they have mats in their homes that are 
slipping or they have the appropriate durable medical equipment 
(DME) in their homes. We actually purchase these products for 
them so that they can prevent unwanted falls. You all hear 
about disease management programs all the time, but I don't 
know if you really understand how intensive they can be and how 
fundamentally they can impact people's lives.
    We have a program for folks with COPD, which is chronic 
obstructive pulmonary disease, diabetes where folks for 7 weeks 
every week meet with professionals, both doctors and nurses and 
folks from our plan and learn about their disease in an 
intensive course. They get a book and they sit in the room for 
2 hours and really understand how to live with their chronic 
condition. These are programs that fundamentally impact 
people's lives and are fundamentally different than the fee-
for-service program when we ask what this program can offer.
    So in conclusion, I think this serves a vital need, this 
program. I think that we can offer a very comprehensive set of 
benefits to folks that are in a financially vulnerable 
category. Folks love all the additional programs that we offer 
where we can offer it. I hope that you seriously consider the 
bills before you. I know there are a few bills in the House 
right now that talk about bringing reimbursements in at parody 
with fee-for-service, and I think that will create stability in 
the urban areas like we have talked about and it will also give 
us the opportunity to reenter some counties that we 
unfortunately had to exit. So I thank you for your time and 
welcome any questions.
    [The prepared statement of Mr. Haytaian follows:]
   Statement of Peter Haytaian, Vice President, Government Programs, 
               Oxford Health Plans, Trumbull, Connecticut


    Good morning. Madam Chairwoman, Congressman Stark, and other 
distinguished Committee members, my name is Peter Haytaian and I am the 
Vice President of Government Programs for Oxford Health Plans. I would 
like to begin by thanking you for the opportunity to come before this 
Sub-committee to discuss the status of the Medicare+Choice program.
    As you may know, Oxford Health Plans provides services to about 1.5 
million members in the tri-state region of lower New York, all of New 
Jersey, and Connecticut through traditional health maintenance 
organizations, point-of-service plans, third-party administration of 
employer-funded benefit plans and Medicare+Choice plans.
    When I first joined Oxford back in 1997, Oxford had approximately 
160,000 Medicare members in a service area that encompassed all of New 
Jersey, the greater New York City area, including Long Island, the 
northern counties surrounding and including Westchester County, and 
most of Connecticut.
    Due to the payment inadequacies of the current system, Oxford has 
made the difficult decision to curtail our participation in the 
Medicare+Choice program in 1999, again in 2001 and most recently for 
2002. At the core of the problem is the flawed M+C reimbursement 
methodology in the Balance Budget Act of 1997 that limits the growth of 
reimbursement in urban areas to two percent per year.
    During the same period (1998-2002), most commercial and government 
health insurance programs experienced annual premium increases ranging 
from high single digits in the late 1990s to more recently mid to high 
double-digit increases. Meanwhile medical inflation has been 
approaching ten percent annually.
    Consequently, as of January 2002, Oxford's Medicare Advantage 
program will serve approximately 65,000 members in a service area that 
has shrunk to include only the five boroughs of New York City and one 
county in both New Jersey and Connecticut. (See Attachment A)
    We especially concerned with member displacement since a majority 
of our senior members are financially vulnerable, most with household 
annual incomes of less than $20,000. Without an M+C option many of 
these seniors are forced back to the Medicare fee-for-service program 
and are unable to afford supplemental policies (as high as $300/month) 
to receive a comparable level of benefits.
    In fact, recent research shows that the rate of Medicare 
beneficiary health maintenance organization (HMO) enrollment is 
inversely proportional to income. Medicare beneficiaries had a HMO 
enrollment rate of 28% when their yearly income was less than $15,000. 
This rate decreased as annual income level increased.\1\ In addition, 
in the urban Northeast, among beneficiaries who had Medicare 
supplemental coverage that was not subsidized, 41% were enrolled in 
Medicare HMOs.\2\
    \1\ B. Virnig, et al., ``Medicare HMOs: Who Joins and Who Leaves?'' 
American Journal of Managed Care, April 1998.
    \2\ American Association of Health Plans, 2000.


    In spite of the existing funding issues, the Medicare+Choice 
program has demonstrated that adequately funded plans can provide high-
quality, comprehensive, affordable health coverage for a variety of 
populations that is not available in the Medicare fee-for-service 
program. This is readily evident in the New York metropolitan 
    Through its many years of experience, Oxford has learned to craft 
its plan design to accommodate the needs of a diverse Medicare 
population by creating a portfolio of plan choices. Oxford's business 
decisions are governed in part by our understanding of our members' 
needs and preferences (e.g. zero premium products and prescription drug 
benefits), the local medical services market, etc. Oxford's philosophy 
firmly endorses the concept that one size does not fit all.
Oxford Medicare Advantage Plan Offerings As Compared to Alternative 
        Medicare Products
    Oxford's portfolio includes three plans: The Oxford Medicare 
Advantage Essential Plan, The Oxford Medicare Advantage Plan, and The 
Oxford Medicare Advantage Plus Plan. These three options are 
specifically designed to cater to different populations.
    The Advantage Essential Plan is designed to operate in tandem with 
New York's public assistance pharmacy program (EPIC) and to provide 
access to low-income beneficiaries. Through EPIC, low-income New 
Yorkers are able to get brand pharmacy benefits. Oxford also provides 
additional benefits not provided in fee-for-service program as well as 
relaxed cost-sharing requirements.
    For example, in New York, the majority of members in the 
Medicare+Choice program are served through HMO products, with little or 
no monthly premiums. This population is predominated by low-income 
status beneficiaries that embrace gated delivery system products. For 
these populations, the Oxford Essential Plan's zero premium provides a 
rich benefits package that includes unlimited generic drugs, hearing 
and vision benefits, with no co-payments for in-patient hospital 
services, primary care physician visits or generic drugs, and minimal 
co-payments for specialty physician visits.
    By contrast, less comparable Medicare supplemental policies are 
exorbitantly expensive. Last year, in New York, the average annual 
quote for a Medigap Plan A, which only covers only basic cost sharing 
was $890, while the average annual quote for Medigap Plan F, which 
covers 100% of Part B excess charges, was around $1,571.\3\ In many 
instances, this means that beneficiaries would have to choose to pay 
premiums beyond their means for a Medigap policy to the detriment of 
other life necessities. Alternatively, Oxford's Medicare+Choice 
products provide an economical substitute that limits beneficiaries' 
out-of-pocket costs for catastrophic illnesses without saddling 
beneficiaries with undue financial burden.
    \3\ Weiss Ratings, 2001
    The standard Advantage plan is an example of the traditional 
Medicare+Choice offering that is based on a zero premium product with a 
prescription drug benefit. This plan constitutes Oxford's core product. 
The plan covers physician visits, in-patient and out-patient hospital 
care, and $750 of outpatient prescription brand name drugs and 
unlimited generic drugs with minimal cost-sharing on the part of 
members-less than fee-for-service Medicare but more than our Essential 
    Finally, the Advantage Plus plan is meant to capture the 
beneficiary population that has traditionally shied away from 
Medicare+Choice in favor of ``open access to care'' products with 
additional benefits such as prescription drugs. We have identified this 
population as ``Gap with concern'' beneficiaries. The Advantage Plus 
plan is attractive to these beneficiaries because it combines a ``point 
of service'' product with extensive prescription drugs at a premium of 
$110 per month ($1,320 per year), whereas the national average for the 
richest Medigap policy (Plan J) is approximately $3,065 a year.\4\
    \4\ Weiss Ratings, 2001


Oxford's Medicare+Choice Plans Offer Additional Benefits
    One of the reasons for the popularity of Medicare+Choice plans is 
that they typically offer traditional benefits not covered by the 
Medicare fee-for-service program. All three of Oxford's New York M+C 
plans include pharmacy benefits, physical exams, vision and hearing 
services, preventive dental care, routine podiatry services, nutrition 
services, and a fitness benefit. Oxford also has an education and 
outreach program that works closely with local Departments of Aging, in 
order to access the best resources for our members throughout the 
communities we serve.
    Moreover, our roster of participating physicians include more than 
15,000 doctors, specialists, and complementary and alternative medicine 
providers ensures that our members have plenty of choices in choosing a 
physician. When our Medicare members need healthcare guidance when 
their physician's office is closed they may telephone Oxford On-Call 
(OOC) and immediately speak to a registered nurse. OOC is a 24-hour/
seven-day-a-week healthcare guidance service operated under the 
direction of an Oxford Medical Director.
Oxford's Medicare+Choice Plans Offer Innovative Patient-Care Programs
    Some of the most popular Medicare+Choice programs for our 
beneficiaries are the innovative disease management programs. Oxford's 
current M+C disease management programs include stroke prevention, 
dialysis, asthma, congestive heart failure, and diabetes.
    Oxford's Options for Living With Lung Conditions is a self-
management program is designed to empower the lives of Oxford members 
living with chronic obstructive pulmonary disease (COPD) and asthma. A 
seven week workshop was created to educate members on lung conditions 
in general, and on topics of nutrition, exercise, coping skills, daily 
living skills, understanding medications/complications, and alternative 
wellness. An identical program exists for Oxford members living with 
    In addition to the aforementioned program elements, the programs 
utilize health professionals to develop written materials and 
interactive presentations to teach members how to manage their 
conditions on their own. Comprehensive workbooks (150 pages long) have 
been developed to target various avenues of self-management.
    The benefits of such programs have been validated through a number 
of scientific studies that have found that outcomes of care in HMOs 
were better than or equal to care in non-HMO settings.\5\
    \5\ See J. Seidman, Medical Care, Vo. 36, 1998 (heart disease); and 
Preston and Retchin, Journal of the American Geriatrics Society, July 
1991 (diabetes and hypertension).
    One of Oxford's most unique programs for members is our falls 
prevention program. The Oxford Activity & Safety Program For Fall 
Prevention is a primary prevention program, which uses in-home 
rehabilitation therapy services to reduce falls in a targeted Medicare 
population. To meet this objective, Oxford is the only managed care 
organization that offers the combined approach of occupational and 
physical therapy, and issues durable medical equipment for this 
program. (See Attachment B)


Payment Relief Is Needed Now As A Bridge to Medicare Reform
    A survey of the landscape of the Medicare+Choice program reveals 
that the program is at a critical juncture in its history. The lack of 
payment parity with traditional Medicare fee-for-service has led to 
significant losses that have forced plans to reduce benefits, raise 
premiums and other cost sharing, and in many cases like our own plan 
even withdraw from the program in certain areas. The current payment 
environment is untenable and threatens the viability of existing plans. 
A readjustment of the current payment methodology is essential to 
insure the continuing success of Medicare+Choice.
    As I stated previously, the core of the problem is the flawed M+C 
reimbursement methodology in the Balanced Budget Act of 1997 that 
limits the growth of reimbursement in urban areas to two percent per 
year while medical inflation has been approaching ten percent. The Act 
and its successors (BBRA and BIPA) have elevated M+C reimbursement in 
areas of the country where fewer seniors reside and a select group of 
suburban areas. It is now time to significantly increase the 
reimbursement in the urban areas where most of the beneficiaries live.
    As you know legislation has already been introduced to address this 
urban funding shortfall. HR2836/S1317 creates a fifth payment prong for 
urban counties by primarily reimbursing M+C plans at 100 percent of 
fee-for-service (FFS). One hundred percent of fee-for-service is a 
significant boost in most urban areas. However, in many urban counties 
graduate medical education (GME) accounts for a significant portion of 
fee-for-service costs, as much as 14% but generally about 6%. HR 2980 
also creates a fifth payment prong for urban areas based on 100% of 
fee-for-service but including the GME costs without taking any funds 
from the current GME pool that is directly distributed to the 
    I urge the Committee to act expeditiously on these proposals.


    In the Medicare+Choice market, Oxford has tailored products to meet 
each segment of our market. We have launched new products and services, 
such as the ``point of service'' concept, alternative medicine 
initiatives through a contracted network of alternative medicine 
providers, a host of disease management programs and quality monitoring 
techniques. None of which are available to seniors in the traditional 
Medicare fee-for-service program.
    A properly funded Medicare+Choice program is ripe for further 
benefit and health delivery innovation. Oxford's commitment to the 
Medicare+Choice program is evidenced by our long history of providing 
Medicare beneficiaries with access to high quality, affordable, 
patient-centered health coverage. We believe that Congress should enact 
a minimum payment two-year solution that addresses concerns about 
inadequate funding for the program. This will create a stable 
environment for our company's participation in the Medicare+Choice 
program in anticipation of further Medicare reform. Madam Chairwoman 
and members of the Committee, I again thank you for the opportunity to 
discuss the Medicare+Choice program, and welcome any questions you may 

                              ATTACHMENT A


                              ATTACHMENT B

Options For Living With Diabetes

    Options for Living With Diabetes is a self-management program 
designed to empower the lives of our Oxford Medicare Advantage members 
living with diabetes.
    The seven-week workshop has been created to educate members on 
diabetes as a disease, and on topics of nutrition, exercise, coping 
skills, daily living skills, understanding medications/complications, 
and alternative wellness. It is emphasized to the members that 
increasing knowledge of these areas can positively impact living with 
these conditions and subsequently improve the quality of their lives. 
Meetings are held for 3 hours, once per week for seven weeks. Members 
are encouraged to attend all of the seminars as the material presented 
builds on lectures from the previous weeks.
    Health professionals have developed written materials and 
interactive presentations to teach members how to manage diabetes in 
their own lives. A 150-page, comprehensive workbook has been developed 
that targets various avenues of self-management. We encourage all 
members and their family members to take advantage of this exceptional 
opportunity for comprehensive learning.

Options For Living With Lung Conditions

    Options for Living With Lung Conditions is a self-management 
program designed to empower the lives of our Oxford Medicare Advantage 
members living with lung conditions.
    The seven-week workshop has been created to educate members on lung 
conditions as a disease, and on topics of nutrition, exercise, coping 
skills, daily living skills, understanding medications/complications, 
and alternative wellness. It is emphasized to the members that 
increasing knowledge of these areas can positively impact living with 
these conditions and subsequently improve the quality of their lives. 
Meetings are held for 3 hours, once per week for seven weeks. Members 
are encouraged to attend all of the seminars as the material presented 
builds on lectures from the previous weeks.
    Health professionals have developed written materials and 
interactive presentations to teach members how to manage lung 
conditions in their own lives. A 150-page, comprehensive workbook has 
been developed that targets various avenues of self-management. We 
encourage all members and their family members to take advantage of 
this exceptional opportunity for comprehensive learning.
Activity & Safety Program For Fall Prevention

Description of Innovation

    One of Oxford's most unique programs for members is our falls 
prevention program. The Oxford Activity & Safety Program For Fall 
Prevention is a primary prevention program, which uses in-home 
rehabilitation therapy services to reduce falls in a targeted Medicare 
population. To meet this objective, Oxford is the only managed care 
organization that offers the combined approach of occupational and 
physical therapy, and issues durable medical equipment for this 

Description of Interventions

           Oxford Medicare Advantage members who have been 
        identified as being at risk for a fall receive up to six 
        physical therapy and six occupational therapy visits.
           Assessment and interventions include: balance, gait, 
        medications, musculoskeletal strength, transfers, range of 
        motion, environmental safety, and postural hypertension (blood 
        pressure changes).
           Home visits by nurses are conducted if a member has 
        postural hypotension or is taking medications associated with 
        an increased risk of falling.
           Members are given a program of exercises to continue 
        following the intervention.

Collaborative Arrangements

           Oxford Health Plans has collaborated with Department 
        of Geriatric Medicine at Yale University to develop the Fall 
        Prevention program.
           Community-based healthcare providers, including home 
        care agencies and independent physical and occupational 


    Chairman Johnson. Thank you very much. I think your point 
that they are fundamentally different from fee-for-service is 
extremely important. Mr. Jones.


    Mr. Jones. Thank you, Chairwoman Johnson, Representative 
Stark, and members of the Subcommittee, for the opportunity to 
testify on our experience in Medicare+Choice program. I am 
Richard Jones, president of Government Programs for 
UnitedHealth Group, responsible for our Medicare+Choice 
offerings across the country. As many of you know, UnitedHealth 
Group has a longstanding commitment to Medicare beneficiaries. 
Over the years, we have been proud of the services and benefits 
we have been able to offer to Medicare beneficiaries. We 
believe that the Nation's seniors and persons with disabilities 
who choose our plans have received a quality product that has 
produced positive medical outcomes, but like our health plans--
like other health plans participating in the Medicare+Choice 
program, low reimbursement rates have forced us far too often 
to scale back the scope of benefits we offer enrollees.
    Rather than abandon Medicare altogether as some of our 
health care plan colleagues have done and as many of our own 
investors have advocated, we decided to stay in as many 
Medicare markets as possible. It has been our hope that by 
staying in as many markets as possible for as long as possible, 
we can illustrate our commitment to the program and to the idea 
of providing competitive and innovative choices to our Nation's 
Medicare beneficiaries. Plans like ours bring value beyond the 
traditional Medicare Program by coordinating the fragmented 
diverse elements of the health care system and organizing the 
delivery of care around the patient.
    Our enrollees benefit from many of our value-based 
offerings such as individually assigned customer service 
representatives, access to 24-hour nurse line and Internet-
based health information resources as well as programs that 
track their special health care conditions and remind them to 
get regularly scheduled diagnostic tests.
    They also become part of our care coordination program 
where dedicated nurses follow hospitalizations and make sure 
that the services are understood, accessible, and coordinated 
before, during and after they are hospitalized. These services 
are unavailable to beneficiaries in fee-for-service Medicare. 
Over the past several years, some beneficiaries have 
experienced the deterioration of benefits in Medicare+Choice 
and in some markets, beneficiaries have lost their health care 
plan coverage altogether. We agree with the CMS that with--and 
many members of the Subcommittee that flaws in the current 
payment formula have caused this instability as annual payment 
increases have not kept pace with medical cost growth in many 
    Our experience in Wisconsin is an example of the problems 
faced by Medicare+Choice plans nationwide. We offered a 
Medicare+Choice plan in Wisconsin since 1995. Medical cost 
inflation has exceeded 20 percent over the past couple of years 
and it has caused mounting financial losses. In fact, the other 
health plan in the Milwaukee area will leave the market at the 
end of this year and others have previously left. In order to 
stay in the market, we were forced to increase beneficiary cost 
sharing, including imposing co-pay on inpatient hospital and 
other services. This was a difficult decision for us.
    As a result of our ongoing discussions with CMS, we 
recently altered the benefit package we originally filed to 
lower the inpatient co-pay to $295 per day. We are continuing 
to work with CMS on a demonstration in Wisconsin that would 
improve benefits and share financial risk between UnitedHealth 
Group and CMS. We believe we still provide Wisconsin seniors 
with a choice that many will value. For example, in fee-for-
service Medicare, there is no limit on the out-of-pocket 
expenses a beneficiary may incur each year. Expenses like 
inpatient hospital visits, stays in skilled nursing facilities, 
diagnostic tests, durable medical equipment and supplies, 
outpatient services and emergency room care.
    For seriously ill Medicare beneficiaries, these costs can 
quickly add up to tens of thousands of dollars. Under our 
Wisconsin Medicare+Choice plan, there is a $4,800 cap on the 
amount of out-of-pocket expenses that our members would pay in 
any 1 year. This is not simply a limit on hospital copayments. 
It is a total and complete limit on out-of-pocket costs for 
catastrophic protection for costs such as I outlined above. 
This limit, combined with the clinical and preventative 
services described, is especially attractive to people with 
serious illnesses who have high service utilization during the 
year. Our plan is the only Medicare+Choice product in the 
Nation that offers such a benefit like that.
    Madam Chairwoman, we know that even under the best of 
services, making a decision about health care is not easy for 
many seniors, given the complicated set of options around 
Medicare fee-for-service, Medicare+Choice and Medigap policies, 
and we believe there is particular confusion over these changes 
in Wisconsin. We want our enrollees to be knowledgeable and 
comfortable with the health plan choices they make and we are 
committed to take whatever actions to support these choices, 
and as part of that we are prepared and announce today and we 
share Representative Kleczka's concern that we are preparing 
and will be mailing to every enrollee a simple newsletter 
explaining the changes in the product as well as their Medigap 
    We have been in contact with CMS to expedite that mailing. 
We are extending the hours of our customer service line from 
8:00 a.m. to at least 7:00 p.m. each night. We will be using 
paid advertising, including an ad in the Milwaukee Journal 
Sentinel to publicize the extended customer service hours, and 
we are working with the Wisconsin Board of Aging and Long-Term 
Care to increase beneficiary awareness of their independent 
Medigap hotline.
    In conclusion, we reiterate and appreciate the recent focus 
on these issues. We believe that Medicare+Choice has much to 
offer. We want to work to develop innovative solutions, work 
together to address the items that have been raised today and 
have been raised to date, and I will be happy to take any 
    [The prepared statement of Mr. Jones follows:]
      Statement of Richard Jones, President, Government Programs, 
                UnitedHealthGroup, Minnetonka, Minnesota
    Thank you Chairwoman Johnson, Representative Stark, and members of 
the Subcommittee for the opportunity to testify on our experience in 
the Medicare+Choice program. I am Richard Jones, President of 
Government Programs for UnitedHealth Group, responsible for our 
Medicare+Choice offerings across the country.
    As many of you know, UnitedHealth Group has a longstanding 
commitment to Medicare beneficiaries. Our participation in the Medicare 
program is fundamental to our core mission--to support individuals, 
families, and communities to improve their health and well-being at all 
stages of life. We aim to facilitate broad and direct access to 
affordable, high quality health care through a variety of arrangements, 
including Medicare+Choice.
    UnitedHealth Group is nowthe largest provider of health care 
services to seniors in America. For over 20 years, we have provided 
seniors and disabled individuals a comprehensive alternative to 
traditional Medicare benefits, now known as the Medicare+Choice 
program. Today, over 300,00 Medicare+Choice beneficiaries are enrolled 
on our health plans across the country. And through our Evercare 
program, an innovative Medicare demonstration program, we provide 
coordinated care services to an additional 20,000 frail elderly 
individuals, the majority of whom live in nursing homes.
    Over the years, we have been proud of the services and benefits we 
have been able to offer to Medicare beneficiaries. We believe that the 
nation's seniors and persons with disabilities who choose our plans 
have received a quality product that has produced positive medical 
outcomes. But like other health plans participating in the 
Medicare+Choice program, low reimbursement rates have forced us far too 
often to scale back the scope of benefits we offer enrollees. Rather 
than abandon Medicare altogether, as some of our health plan colleagues 
have done and as many of our own investors have advocated, we decided 
to stay in as many Medicare markets as possible. It has been our hope 
that by staying in as many markets as possible for as long as possible, 
we can illustrate our commitment to the program and to the idea of 
providing competitive and innovative choices to our nation's Medicare 
Medicare+Choice Value
    We bring value beyond the traditional Medicare program by 
coordinating the fragmented, diverse elements of the health care system 
and organizing the delivery of care around the patient. Our enrollees 
benefit from many of our value-based offerings such as individually 
assigned customer service representatives, access to a 24 hour nurse 
line and internet-based health information resources, and programs that 
track their special health conditions and remind them to get regularly 
scheduled diagnostic tests. They also become a part of our Care 
Coordination program where dedicated nurses follow their 
hospitalizations and make sure that services are understood, accessible 
and coordinated before, during and after they are in the hospital. 
These services are unavailable to beneficiaries in fee-for-service 
    Since 1996, we have offered a majority of our beneficiaries a 
health plan that requires no additional premium beyond the monthly Part 
B premium. Beneficiaries have access to a wide range of preventive 
benefits with no cost sharing requirements, including vision, hearing, 
and physical examinations. These are not covered in traditional 
Medicare at the same levels. In addition, we offer stop-loss coverage 
to beneficiaries with very high out-of-pocket costs.
    The following are dexcriptions of some of the benefits that our 
Medicare+Choice enrollees enjoy that are not available to beneficiaries 
in traditional fee-for-service. For example:

           Care Coordination allows enrollees to work directly 
        with their physician to determine the best way to coordinate 
        their own health care needs. Care Coordination is designed to 
        make it easier to get care while identifying and addressing 
        gaps in care. It encompasses hospital admission counseling, 
        health education, prevention and reminder programs, inpatient 
        care advocacy, phone calls to high-risk enrollees post-
        hospitalization, identification and support programs with 
        enrollees with complex and chronic illnesses and long-term 
        assessment and education programs to support enrollees with 
        asthma, cardiovascular disease, and diabetes.
           Personal Service Specialists are individually 
        assigned to each member, providing them one name to call to 
        answer any questions they may have and resolve problems. This 
        program helps to provide a familiar face to the health plan, 
        helping beneficiaries navigate the complexities of the health 
        care system--a service particularly important to seniors.
           Care24 provides enrollees 24 hour a day, 7 day a 
        week, access to registered nurses, masters-level counselors and 
        lawyers to get answers to questions about medical issues, 
        personal and emotional health, legal and financial issues, 
        eldercare and other concerns. It also offers recorded messages 
        from a health information library on over 1,000 health topics. 
        In addition, we offer a range of health and wellness education 
        for individuals.
           UnitedHealth Passport allows members to obtain 
        coverage for routine care when they travel to other 
        UnitedHealthcare Medicare+Choice markets. This is invaluable 
        for ``snow birds'' that spend part of their year in Florida and 
        other parts of the country.

    All of these offerings are underscored by our commitment to 
supporting the physician-patient relationship. Our relationship with 
physicians, hospitals and other health care providers is critical. Our 
medical directors, physicians themselves, work closely with network 
providers to share our data on best practices within their community 
and in other cities as well. We also have undertaken a number of 
initiatives to simplify a doctor's interaction with the health plan so 
that they can focus on their patients instead of paperwork. Our 
Medicare health plans have been most successful in markets where we 
work closely with physician groups who apply the quality and cost data 
we can provide to them.
Challenging Decisions for 2002
    Over the past several years, beneficiaries have experienced a 
deterioration of benefits Medicare+Choice plans are able to offer to 
supplement those covered in fee-for-service, as well as an increase in 
cost-sharing requirements. In addition, in some markets, beneficiaries 
have lost their health plan choices altogether. We agree with the 
Centers for Medicare and Medicaid Services (CMS) and with many members 
of this Subcommittee, that flaws in the current payment formula have 
caused this instability, as annual payment increases have not kept pace 
with medical cost growth in many areas.
    In our view, this situation has been exacerbated by problems 
contracting with physicians, health care professionals, hospitals, and 
other providers. In many markets, hospital systems increasingly prefer 
to participate exclusively in Medicare fee-for-service because it 
offers higher payment and no third party involvement. In some markets, 
hospital systems have terminated their relationship with us mid-year, 
inconveniencing enrollees who often have to find new providers. While 
we have sought to remain in the Medicare+Choice program, this problem 
has been a major factor causing us to exit some areas. As we've made 
these difficult decisions, the quality of care that we can offer our 
customers has been our paramount concern.
    Earlier this year, the Administration called upon health plans to 
remain in the market in 2002 and restated their commitment to work with 
Congress to enact comprehensive Medicare reform. We heeded this call to 
stay in the market, consistent with our long-term commitment to be a 
major partner with the Federal Government in providing quality health 
plan choices to beneficiaries. We stayed in as many markets as we 
could, despite the financial pressures. Ultimately, we reluctantly 
concluded that we had to discontinue service in 11 of 64 counties, 
affecting 57,000, or 16% of our enrollees. As of January 1, we will 
continue to provide coverage to over 300,000 enrollees in 53 counties 
    In order to stay in the market, we had to reduce some benefits and 
increase beneficiary cost sharing in order to remain financially 
viable. In the absence of either short or long-term reforms, we are 
faced with a Hobson's choice--we can either stay in markets by reducing 
benefits, or exit and lose the chance to serve Medicare beneficiaries. 
No one wants to make this choice. We want the Medicare+Choice system to 
work. We believe that it is possible to reform the system to include 
adequate resources combined with quality and accountability measures 
that health plans must meet to reinvigorate and stabilize the program. 
And we hope this hearing will allow all of us to begin discussions 
aimed at injecting more innovation, more choice, and more stability 
into this important program for seniors and people with disabilities.
    Our experience in Wisconsin is an example of the problems faced by 
Medicare+Choice plans nationwide. We have offered a Medicare+Choice 
plan in Wisconsin since 1995. Medical cost inflation has exceeded 20 
percent per year over the last few years, and has caused mounting 
financial losses. In fact, the other health plan in the Milwaukee area 
will leave the market at the end of this year, and two others left 
previously. In order to stay in the market for one more year, we 
increased beneficiary cost sharing, including imposing a copayment on 
inpatient hospital and other services.
    This was a difficult decision for us. These are not the levels of 
benefits we would ideally want to offer, such as the benefits we were 
able to offer in the late 1990's. As a result of our ongoing 
discussions with CMS, we recently altered the benefit package we 
originally filed to lower the inpatient hospital copayment to $295 per 
day. Although the difference between fee-for-service and this set of 
benefits is not as great as in years past, we believe a comparison of 
the overall benefits and costs of traditional Medicare, Medigap, and 
our Medicare+Choice plan shows that we still provide seniors in 
Wisconsin with a choice that many will value.
    For example, in fee-for-service Medicare, there is no limit on the 
out-of-pocket expenses a beneficiary may incur each year--expenses like 
inpatient hospital visits, stays in a skilled nursing facility, 
diagnostic tests, durable medical equipment and supplies, outpatient 
services, and emergency room care. For seriously ill Medicare 
beneficiaries, these costs can quickly add up to tens of thousands of 
    Under our Wisconsin Medicare+Choice plan, there is $4,800 cap on 
the amount of out-of-pocket expenses that our members would pay in any 
one year. This is not simply a limit on hospital co-payments. It is a 
total and complete limit on out-of-pocket costs such as those I 
outlined above: hospital costs, inpatient hospital costs, costs of 
stays in a skilled nursing facility, diagnostic tests, durable medical 
equipment and supplies, outpatient services, emergency and urgent care, 
and more. This limit, combined with the clinical and preventive 
services described earlier, make this plan especially attractive to 
people with serious illnesses who have high service utilization during 
the year. Our plan is the only Medicare+Choice product that offers such 
a benefit, anywhere in the country.
    We are well aware that even with this cap on out-of-pocket costs, 
our Wisconsin plan will be quite different next year than the one we 
currently offer or would like to offer. We are continuing to work with 
CMS on a demonstration in Wisconsin that would improve benefits and 
share financial risk between UnitedHealth Group and CMS. And we know 
that even under the best of circumstances, making decisions about 
healthcare is not easy for many seniors, given the complicated set of 
options around Medicare fee-for-service, Medicare+Choice, and Medigap 
    There has been particular confusion over these changes in 
Wisconsin. We want our enrollees to be knowledgeable and comfortable 
with the health plan choices they make. And we are committed to take 
whatever actions we can to support these choices. For example, we run a 
toll-free number in Wisconsin that allows seniors to ask questions 
about our Medicare+Choice plan. As required by the Centers for Medicare 
and Medicaid Services, we mailed a detailed explanation of our benefit 
changes to all of our enrollees. We will continue to review our benefit 
offerings during the year and want to work with CMS to explore ways to 
continue to improve our offerings in Wisconsin and across the country.
    We appreciate the recent focus of this Subcommittee and the 
Administration on improving the Medicare+Choice program. We believe, as 
you do, that the program must undergo fundamental reform to provide 
beneficiaries broad choices of coverage that best meet their needs and 
the kind of coverage they will be able to enjoy and count on for years 
to come.
    Three points deserve special consideration. As others have 
testified, fundamental reform of the reimbursement system is necessary 
to address the many moving parts of the payment system and ensure long-
term stability and viability of the program. A fair, competitive 
payment approach that is more closely aligned with current medical cost 
trend and factors in cost variability in rural and urban markets is an 
important short-term goal.
    Congress should also explore the increasing difficulties with 
hospital and physician participation in Medicare+Choice, focusing 
particularly on Medicare+Choice plans' limited provider payment 
leverage in some areas.
    Reform must recognize the evolutionary nature of the health care 
system, developing a range of program options that allows for change as 
the system warrants. We encourage Congress and CMS to adopt successful 
contracting arrangements in the employer sector and non-risk-based 
alternatives as the basis for its own contracts with private health 
plans. Other options include disease management, care coordination, and 
specialized plans for frail elderly and dual eligible beneficiaries. We 
are encouraged by CMS's recent effort to encourage demonstrations in 
this area and want to continue to work together to develop innovative 
alternatives to traditional fee-for-service and HMO coverage.
    Medicare+Choice has much to offer. As Congress and the 
Administration begin to discuss adding a prescription drug benefit to 
Medicare and other reforms, we urge you to consider changes to 
Medicare+Choice as part of the discussion. UnitedHealth Group is 
willing to go the extra mile to work with Congress and the 
Administration to help develop innovative solutions. Working together 
to address many of the items raised today, we can help to develop a 
renewed Medicare program that meets the needs of beneficiaries both 
today and in the future. The problems with the program are very real, 
but there is a great opportunity for positive change.
    Thank you for the opportunity to share our thoughts. I would be 
happy to answer any questions you might have.


    Chairman Johnson. Thank you very much, Mr. Jones. Welcome 
Ms. Stein. It is a pleasure to have you.


    Ms. Stein. Thank you, Madam Chairwoman, Representative 
Stark, members of the Committee. It is my honor to appear here 
today to testify about the status of Medicare+Choice and to 
tell you about the urgent need for consumer protections in that 
program. I am the director of the Milwaukee County Department 
on Aging, and one of the things that we do is answer about 
40,000 phone calls a year from seniors about all of their 
questions. We also receive money under the Senior Health 
Insurance Information Program. And we give that money to Legal 
Action of Wisconsin, which has a benefit hotline for people.
    In January 1999, there were five Medicare+Choice plans 
offered in Milwaukee County and other parts of southeastern 
Wisconsin. Three of them had zero premium, they had very 
limited co-pays, and so forth. By 2001, Blue Cross/Blue Shield 
of Wisconsin and Prime Care Gold, the UnitedHealthcare product, 
were the only products left available to seniors. They still 
had a very reasonable monthly payment and very low copayments 
when you saw a physician.
    Earlier this year we learned that Blue Cross/Blue Shield 
would pull out of Milwaukee, leaving 10,000 people without that 
option in Medicare+Choice, but clearly those 10,000 people had 
other options and there was lots of time to inform them. We, 
Legal Action, our Medigap hotline, the State of Wisconsin, were 
able to mail to and talk to those 10,000 Blue Cross people to 
talk to them about what their options were. We had lost three 
other plans. We knew the drill. We knew what to do. We knew how 
to get to people.
    In October, we were not prepared for what happened in 
Milwaukee when 16,000 beneficiaries of the UnitedHealthcare 
product received a letter that talked to them about what that 
product would look like in 2002. It began very nicely saying 
that their monthly premium would go down from $65 to $55 a 
month, and it said it would change its name to Medicare 
Complete, and then it said please read the following pages to 
see the list of benefit changes, and as has been pointed out 
today, those benefit changes included going from zero dollars a 
day to $350 a day deductible for inpatient hospital services, 
$150 up from zero for rehab in a nursing home, and a 20 percent 
copayment for every time you went to dialysis.
    A friend of mine brought this letter to show to me one 
night after work, and his mother is on dialysis and he and she 
could not believe that a product like this had anything to do 
with Medicare. After the 16,000 people received this letter, 
our phones, the Medigap hotline, Senior Action of Wisconsin and 
the State of Wisconsin Health Insurance Program have done 
nothing else but talk to people about what their choices are in 
this product. The calls on all of those hotlines have exploded. 
We are not able to counsel people about any other benefits or 
to talk to them about any other programs because this has 
dominated what has gone on, and we are not just talking to 
people individually. We have held joint informational sessions 
with people.
    On November 13, a very cold and rainy day in Milwaukee, and 
we have only had a few those this fall, 1,800 people showed up 
at two sessions because they knew that this plan no longer had 
benefit for them, and they wanted to know what to do. We have 
also petitioned our congressional delegation, my congressman, 
Jerry Kleczka, has been extraordinarily involved in trying to 
do something about this. We have written to UnitedHealthcare. 
We have asked Administrator Scully to do something about this 
plan and we found out on Friday that this plan now only has a 
$295 deductible still with the $4,800 cap, and that people do 
now have guaranteed issue and we are very glad that they are 
going to know about that, because once more they are going to 
be very confused, once more they are going to be getting very 
different information.
    Some people have already made decisions and they made 
decisions based on the old information. This is not just 
happening in Wisconsin as has been pointed out here, this is 
happening in Connecticut. This is happening in California. 
People are being severely affected by this. I really urge you 
to support the bill put forth before you that Representative 
Kleczka, Stark, and Thurman are supporting that would eliminate 
the lock-in for next year when there is so much confusion how 
can we lock people into these plans, that would extend the 
Medicare protections for guaranteed issue to people whose plans 
changed drastically, and would prohibit Medicare+Choice from 
charging larger premiums than traditional Medicare does.
    There are thousands and thousands of stories from Milwaukee 
of people who don't know what to do, who are going to be 
severely limited from using the health care system because of 
what has happened in this plan and what has happened in 
Medicare+Choice after all.
    My plea to you would be to offer Medicare recipients 
protections. My plea to you would be to return to what I think 
are the crowning values of Medicare, fairness and 
dependability, and this new principle of choice that has never 
been realized very well in Wisconsin is really not there for 
hundreds of thousands of people now. Thank you very much.
    [The prepared statement of Ms. Stein follows:]
Statement of Stephanie Sue Stein, Director, Milwaukee County Department 
     on Aging, Area Agency on Aging for Milwaukee County, Wisconsin
    Thank you for the opportunity to appear today to testify about the 
necessity and urgency of Medicare+Choice consumer protections. I speak 
today as the Director of the Milwaukee County Department on Aging, the 
Area Agency on Aging for Milwaukee County, Wisconsin. Our agency has 
two functions which give us direct contact with Medicare+Choice 
participants in Milwaukee County. First, we operate an Information and 
Assistance line for older people, which handles approximately 40,000 
phone calls per year. Second, we are the grantee of the Senior Health 
Insurance Information Program (SHIIP) funds for Milwaukee County. These 
funds are subcontracted to Legal Action of Wisconsin, which provides 
in-person and phone consultation for Medicare recipients in need of 
insurance counseling.
    I will begin today by telling you about the fate of 16,000 
Medicare+Choice consumers in Milwaukee County who are in dire need of 
protection. These seniors are not alone, however, and counselors from 
other parts of the country would like me to remind you of the gravity 
and universality of this situation. Finally, I will ask you to enact 
much-needed protections on behalf of seniors in Milwaukee County who 
are desperate for your help.
Milwaukee County
    In January of 1999, there were five Medicare+Choice plans--three 
with zero premiums--being offered in Milwaukee County. Unlike plans in 
other parts of the country, none of these plans ever offered a 
prescription drug benefit, eyeglasses, or other added benefits. (I am 
sure that the insurance industry will, and has, told you how the 
disparity in the AAPCC rates leads to the difference in plans 
nationwide.) These plans had either $0 or $10 deductibles for physician 
office visits and $40 deductibles for emergency room visits. In 1999, 
then-Medicare recipients could shop for a +Choice plan that used their 
physicians and hospitals and was very affordable.
    By 2001, Milwaukee County was left with only two Medicare+Choice 
plans--Medicare Blue, operated by Blue Cross/Blue Shield of Wisconsin, 
and PrimeCare Gold, sold by UnitedHealthcare of Wisconsin, located in 
Minnetonka, Minnesota. Although the monthly premiums and co-payments on 
these plans had risen ($65 to $70 per month and $20 co-payments), they 
were still affordable options for senior citizens.
    In July of 2001, we learned that Blue Cross/Blue Shield of 
Wisconsin would withdraw its Medicare+Choice plan offering for 2002. 
The State of Wisconsin Board on Aging and Long Term Care, which runs 
our Medigap hotline, the Bureau on Aging and Long Term Care Resources, 
which oversees the State SHIIP program, and we, planned our educational 
and informational strategies to deal with this withdrawal. The 10,000 
holders of this plan were informed, first by Blue Cross/Blue Shield, 
and then by us, that they had options. They could return to basic 
Medicare. They could purchase a Medigap Supplemental plan with 
``guarantee issue,'' or they could join the remaining Medicare+Choice 
Plan, PrimeCare Gold.
    As this was the fourth plan to withdraw, we knew the drill. Ten 
thousand people would be affected, but we would help them with their 
protected options. We were prepared. But we did not know what was 
    During the week of October 15th, the 16,000 members of PrimeCare 
Gold received a letter from UnitedHealthcare. This letter was hand-
delivered to me by a friend after work on Friday, October 19th. It 
begins well--``Dear Customer.'' Beginning January 1, 2002, your monthly 
premium will decrease from $65 to $55. In addition, the name of the 
plan will be changed to Medicare Complete. Also enclosed is a list of 
benefit--BENEFIT--changes. If you have questions, you can call customer 
service, which we later learned was located in Birmingham, Alabama. The 
letter was signed by Glenn J. Reinhardt, Chief Operating Officer of 
UnitedHealthcare of Wisconsin.
    The benefit changes attached to the letter were, at first, 
unbelievable--and then horrifying. For instance:

                                    PrimeCare Gold     Medicare Complete
            (Service)                    2001                2002
Inpatient Hospital Services.....  You pay $0 per day  You pay $350 per
Inpatient Psychiatric Services..  You pay $0 per day  You pay $150 per
Skilled Nursing Facility........  You pay $0 per day  You pay $150 per
Renal Dialysis..................  You pay zero......  You pay 20% per
                                                       outpatient visit.
Diabetes Self-Monitoring          You pay zero......  You pay 20%.
 Training and Supplies.                                Syringes and
                                                       alcohol swabs are
                                                       not covered.

    There is a $4,800 out-of-pocket limit on inpatient and most 
outpatient services.
    Since my friend's mother receives dialysis three times a week, he 
and his family were stunned by this letter. They were sure there was a 
mistake. They were sure that ``Medicare'' would not allow this to 
happen. They were sure that, if this were the real plan being offered, 
that someone--I, the State, or the Congress--would be able to do 
something about it.
    On Monday, October 22nd, our phones began ringing and they have not 
stopped. All of our local and State benefit systems learned of this 
situation and began to try and deal with it. The Medigap Hotline, our 
toll free insurance counseling number operated by the Board on Aging 
and Long Term Care, reports an average of 350 to 400 calls per day, up 
from the usual 150. George Potaracke, the Board's Director, reports 
that more callers are trying to get through, but that the system can 
only accommodate so many calls and that the Board's voice mail system 
completely backs up and shuts down every day. Callers are now waiting 
six to seven business days for a counseling session, up from a normal 
one to two day wait. The Board on Aging is mailing 1,200 to 1,500 
pieces of printed material a week to recipients and their families, up 
from 400. Any callers, other than those facing Medicare+Choice issues, 
are being deferred.
    Our Benefit Specialists at SeniorLaw of Wisconsin report 50 to 200 
calls per day. They have had to set aside all non-emergency work and to 
pull all staff from every other project to deal with what they call the 
``Blue/Gold'' issue.
    In order to reach people in a more efficient manner, our 
Department, Legal Action, and the State of Wisconsin held joint 
information sessions on November 13th in Milwaukee and Waukesha 
Counties. On that rainy, cold, and nasty day, 1,800 seniors showed up--
1,200 in the morning at Serb Hall on Milwaukee's South Side and 600 in 
the afternoon at Luther Manor on Milwaukee's Northwest Side. No one 
knows how many people tried to get into the sessions as people were 
parking a mile and more away. Three more sessions are planned.
    But we have a dilemma. What are we to tell the holders of the 
UnitedHealthcare policy? What choice do they have? They have no 
guaranteed issue of a Medigap Policy. They have no other +Choice 
option. In many cases, traditional Medicare will leave them with 
unaffordable out-of-pocket expenses. What are we to counsel them to do? 
Where are their options and protections?
    We, the Milwaukee County Department on Aging, legal services, the 
State of Wisconsin Bureau on Aging and Long Term Care Resources, and 
the Coalition of Wisconsin Aging Groups have agreed that this plan does 
not offer benefit to seniors and, if possible, they should get out.
    But seniors expect more from us than individual counseling. They 
expect that we will advocate on their behalf to find solutions to their 
    Senior advocacy groups in Wisconsin have petitioned our 
Congressional delegation to intervene with CMS, asking that they use 
their regulatory powers to assure that this plan is drastically revised 
or rejected as any choice for Medicare beneficiaries. I am honored that 
my Representative, Congressman Jerry Kleczka, immediately understood 
the plight of his constituents and tried to halt the approval of this 
    We, together with State officials, wrote directly to Secretary 
Thompson and to Administrator Scully to urge them to re-examine and re-
negotiate this plan. We also asked them not to approve it.
    We wrote to UnitedHealthcare of Wisconsin and its parent company, 
the United Health Group, and asked that they withdraw their plan so 
that our seniors would have guaranteed issue.
    Both Richard Jones, President of Medicare services for United 
Health Group and William McGuire, Chairman and Chief Executive Officer 
of United Health Group, wrote to inform me that they were working with 
the Federal Government and the Congress to enact changes that will 
offer better benefits. In other words, they want more money. It is 
unfortunate that 16,000 older people find themselves in the middle of 
these negotiations.
    We understand that the UnitedHealthcare plan is now approved by CMS 
with the only change being a $295 per day hospital co-payment rather 
than $350. Beneficiaries will still be expected to pay up to $4,800 
out-of-pocket in addition to the $55 monthly premium for United's 
coverage and the $54 monthly premium for Medicare Part B. The excessive 
cost-sharing proposed by United raises questions about the value of 
this so-called insurance. It is now clear that many of the 16,000 
seniors who have previously relied on UnitedHealthcare to provide 
access to affordable health care can no longer do so. It looks to us as 
though the benefit changes for 2002 are designed to discourage 
enrollment of beneficiaries who have health needs.
    We, in Wisconsin and Milwaukee County, are furious at this outcome. 
We have spent thousands of dollars and thousands of hours trying to 
help people for whom there is today no consumer protection.
    We have met with and asked Wisconsin's Commissioner of Insurance to 
intervene, using emergency powers to order guarantee issue, but we have 
been told she has no legal standing to do so.
    My friend's mother has threatened to stop her dialysis. How many 
other people--alone and poor--will have no choice but to do so?
    How will our hospitals collect the $295 daily deductibles, and will 
they then re-admit people with outstanding bills?
    There is no way for seniors to budget for this lack of benefit--any 
flare-up of a chronic illness, any sudden onset of disease, or need for 
rehabilitation will mean the need for large sums of cash. Isn't 
insurance supposed to protect people from exactly that? Isn't insurance 
supposed to provide peace of mind when dealing with illness? 
UnitedHealthcare and Medicare Complete have wreaked havoc in the lives 
of 16,000 people and their families.
    We in Wisconsin are not alone. The Medicare+Choice promise--more 
health insurance options and benefits, better-controlled health care 
costs--has never been fulfilled in Wisconsin. But what about elsewhere? 
According to Weiss ratings, 536,000 seniors will be dropped from HMOs 
this year, on top of the 1.6 million who have been dropped since 1998. 
Those plans that drop coverage entirely leave seniors confused and 
betrayed, but those seniors are able to re-enter the Medigap market 
with the protection of guaranteed issue.
    This is not the case with beneficiaries in plans that are 
drastically altered. In Connecticut, four companies terminated their 
coverage in 2000, dropping 52,000 beneficiaries. This year, two more 
plans, ConnectiCare and MedSpan, will terminate, affecting 39,000 
beneficiaries. Only two managed care plans will remain, and they will 
cover only three counties.
    Health Net, formerly known as Physician Health Services, will 
remain. Their plan will drop the use of the three main hospitals in the 
area. Inpatient hospital co-payments will rise from $0 to $500 per 
admission. Co-payments will be added for outpatient and inpatient 
surgery, radiology, diabetic, and dialysis benefits. And the co-payment 
for prescription drugs will increase $3 per prescription.
    The California Health Advocates report that seven HMOs will drop 
their Medicare+Choice plans. In addition, there will be twelve service 
area reductions in parts of eleven counties. And, in the plans that 
will remain, premiums and co-payments are increasing and prescription 
drug coverage is decreasing.
    One hundred thousand Medicare recipients in California will be 
affected by plans dropping coverage areas, raising premiums and co-
payments and reducing drug benefits. The premium charged by Kaiser in 
Santa Clara County is going from $30 to $80 per month. PacifiCare's 
Secure Horizons is reducing the amount and type of prescription drugs 
covered and will only cover generic drugs. In other PacifiCare plans, 
patients will be charged $400 for each hospital admission and a $50 co-
payment for dialysis. Health Net will have a hospital deductible of 
$750 and has dropped all prescription drug coverage.
    Claire Smith of California Health Advocates related to me many 
stories. One involves a Medicare cancer patient enrolled in Secure 
Horizons. She has been on chemotherapy since 1998. She is on her fifty-
first treatment, but is alive, active, and a vital member of her 
community. Secure Horizons informed her that her chemo treatments, now 
free, will cost $250 per visit in 2002. In addition, they will charge 
$250 per radiation visit. She does not have the money to continue these 
treatments and cannot buy a Medigap policy. Another participant in 
Secure Horizons HMO of Pacific Health Care reports that his new 2002, 
$8,000 co-payment for dialysis, as opposed to a zero payment in 2001, 
is a ``slow death sentence'' for dialysis patients on fixed incomes.
A Plea for Consumer Protection
    Medicare beneficiaries in Wisconsin, Connecticut, California, and 
many other states are asking the same questions. How can this new 
benefit package charge me more deductibles and co-payments than 
traditional Medicare? Why do I have such a short time to make a new 
choice, and why must I live with that choice for a year if it turns out 
to be wrong, or I didn't understand it? Why can't I be guaranteed the 
sale of a Medigap policy that I can afford and that will cover my 
health care needs when my plan changes so drastically?
    These Medicare+Choice policies are not the same ones people bought 
when they took advantage of what they perceived to be the value-added 
benefits sold to them as Medicare+Choice. In fact, they are left with 
Medicare minus protection, Medicare minus the ability to buy a Medigap 
policy, Medicare minus the ability to choose different insurance.
    I am pleased that Representatives Kleczka, Stark, Cardin, and 
Thurman on the Subcommittee and others have immediately recognized 
these real problems facing beneficiaries and introduced a simple, small 
bill--the Medicare+Choice Consumer Protection Act of 2001 (H.R. 3267)--
that would cost the government nothing but provide real protections for 
Medicare beneficiaries stuck in positions like seniors in Milwaukee.
    This legislation would: (1) Eliminate the Medicare ``lock-in'' 
provision that forbids seniors to enroll and disenroll from 
Medicare+Choice plans on their own timetable in 2002; (2) Extend the 
existing Medigap guarantee issue protections that apply to people whose 
Medicare+Choice plan withdraws from the program to anyone whose 
Medicare+Choice plan changes benefits, increases cost-sharing, or whose 
doctor or hospital leaves the plan; and, (3) Prohibit Medicare+Choice 
plans from charging higher cost-sharing for a service than Medicare 
charges in the fee-for-service program.
    I hope that this Committee will seek to enact H.R. 3267--or 
something similar to it--quickly so beneficiaries would have some 
protections when caught in these traps.
    These plans now call themselves new things--complete and secure and 
healthy--but they are not complete or secure or healthy. They are 
radically different, reminiscent of illegal bait and switch products 
offered in retail sales. The hundreds of thousands of Medicare 
recipients affected by these changes need guaranteed issue protections 
so that they can get out and buy an affordable Medigap plan. And, the 
new lock-in rules are a real recipe for disaster. We, in Wisconsin, 
cannot possibly counsel and find help for the 16,000 UnitedHealthcare 
enrollees and also warn other seniors of the lock-in provisions.
    It is still not possible to get accurate and complete information 
on the CMS website about all of the plan choices. We have heard only 
through the press that UnitedHealthcare will change its hospital co-pay 
from $350 to $295, but beneficiaries have yet to be notified.
    In a recent study conducted by the Medicare Rights Center (MRC), 80 
percent of Medicare HMOs contacted (16 out of 20) gave incorrect 
information about the rights of people with Medicare to enroll and 
disenroll from a Medicare HMO in 2002. How will we in Wisconsin 
possibly provide counseling and help?
    How can we expect older people to be wise consumers when the 
product they are buying can change dramatically every twelve months? 
How can we expect older people living on fixed incomes to meet the co-
payments imposed by these plans? How can we lock them in with 
inaccurate and incomplete information?
Wisconsin Seniors
    The people from Wisconsin would like answers to these questions, 
and remedy from you in the form of consumer protections. Our Medigap 
Hotline, benefit specialists, and Information and Assistance operators 
share stories daily about our seniors who need help.

           Stories of persons with severe health conditions 
        such as cancer or end-stage renal disease who cannot afford 
        Medicare Complete and cannot buy a supplemental policy.
           People who feel betrayed and taken advantage of for 
        joining a policy on what they believe was false information.
           People who have been able to find a Medigap policy, 
        but cannot afford it.
           People who will stay with Medicare Complete but who 
        have resolved not to use it--not to seek health care.

    My mother's friend, Dolly, thought she had an answer because she 
knew me. Of course, I would have a solution for her. Dolly is 75 but 
appears to be 55. A hairdresser all her life, she lives on a Social 
Security income of $700 per month. She lives in subsidized housing, 
gets energy assistance and some help with Medicare Part B. Of course, 
the wise health care decision for her was PrimeCare Gold--a $0 premium 
plus $10 deductibles for physicians' visits when she enrolled. Dolly 
has severe and crippling arthritis. She has had two strokes. She spends 
$150 per month on prescription drugs. With the new co-payments of 
UnitedHealthcare's Medicare Complete, she cannot afford to get sick--
ever again. Without guaranteed issue it is doubtful we can find her an 
affordable Medigap policy.
    What is she to do? I am supposed to have answers for people like 
Dolly. I am here today because there are no answers. I am here today to 
ask for your support for consumer protections for Medicare+Choice. It 
cannot be possible that the promise of Medicare will be reduced to the 
horror of health care uncertainty every year when the new plans are 
announced. It cannot be possible that we will abandon our seniors when 
they ask for help. It cannot be possible that we will leave our 
Medicare+Choice seniors without protection. They deserve better than 
    Thank you for the opportunity to speak on behalf of seniors of this 


    Chairman Johnson. I thank the panel for their input and 
certainly, Ms. Stein, I do want to see fairness and 
dependability restored to the choice plans, dependability 
particularly. Seniors need to know, and the plans need to know 
what are going to be the terms this year, next year, and the 
year after, and that was our intent in establishing the Choice 
plans. For a lot of reasons a little vignette of all this is 
after the plans were established, the preceding administration 
about 6 months later put out 700 pages of regulations. This is 
hardly dependability and predictability, and that has been the 
history of this plan, regulatory change constant, 
reorganization of the Department so regulation was split up, 
the fact that there is today not one place a plan can go to 
find out what the integrated rules and regulations are that 
cover them, and we are changing a lot of that.
    But unfortunately, the statutory treatment of the Choice 
plans has lead to this mess. Even the reimbursement that we 
would say we are going to give you 2 percent or the national 
blend, but not if it is over a certain amount of money. So I 
think you picked up today that we have treated Medicare fee-
for-service far better in term of reimbursements than we have 
treated the Choice plans, and we have to deal with those 
problems. So my goal is dependability and reliability and 
choice and improvement of fee-for-service in its ability to 
deliver also some of the disease management options.
    I read your testimony in detail. It was very eloquent. It 
is awful what is happening out there, but I would have to say--
I was very pleased with the administrator's comments that they 
can now get into Medigap. That is a problem that we have to 
deal with that seamless issue of choice, and we will, today on 
the floor, eliminate lock-in for 1 year, and then if we can get 
the Senate to agree, we will eliminate that. We will also give 
the plans better data before they say whether they are going to 
be in or out. They should allow more to stay. So if we address 
the regulatory issues and the funding issues and allow plans to 
make that decision at a rational time, we should be able to 
restore predictability and steadiness to this plan.
    What is remarkable and I think we are not paying enough 
attention to, is that these plans are beloved because they are 
better than Medicare. They offer more services. And I think 
when we have not been able to offer annual physicals and we 
have tried for years, it took us 5 years to do mammograms, one 
of the advantages of these plans is that they are not limited 
by our benefit package, although they have to cover it all.
    So I have really just two questions I wanted to mention, 
and I will just say what they both are as we go forward so that 
you can both comment on them, but I am very impressed with the 
various--and I appreciate the rundown, Mr. Haytaian. Am I 
saying that right?
    Mr. Haytaian. It is Haytaian.
    Chairman Johnson. Haytaian. Armenian?
    Mr. Haytaian. Yeah.
    Chairman Johnson. Your rundown of the history of your plans 
and that the Medigap comparable benefits would be $3,000. Now, 
when you look at that and you look at what United is trying to 
do, which is to say we will limit everything, not just hospital 
costs. Hospital costs, inpatient hospital costs--sorry--nursing 
stays, diagnostic tests, durable medical equipment and 
supplies, outpatient services, emergency and urgent care and 
more to $4,800 when a Medigap plan will cost somebody $600 plus 
they will have costs, when Medicare has no cap on costs. The 
heartbreaking example you give of the dialysis, the renal 
dialysis benefit, what they are being thrown back on is 
Medicare's benefit. Medicare's benefit is that same 20 percent.
    So that shows you why people don't want to go back into 
Medicare anymore. They can't afford it. So at least United is 
saying yes, you will be back into the Medicare-type benefit for 
renal dialysis, but at least we will cap it. So I don't think 
we have a right to eliminate options that exchange a higher 
exposure for individual incidents for a cap because that is 
just one of the things, the options, that we are going to have 
to make sure is out there.
    We want lots more options out there but given the funding 
irregularities, I do think that United has made a contribution 
by looking at how, even under the limited funding constraints 
they face, they have found a way to preserve a lot of their 
benefits and trade off the risk. After all, many won't be in 
the hospital at all. They won't end up being exposed to that, 
but they will have in the back of their minds this catastrophic 
limit, and I just wonder how you see that catastrophic limit as 
part of the structure of security that is of value to a senior.
    Ms. Stein. Madam Chairwoman, it is not so much how I see 
it, and I don't see it as a very good benefit, but it is really 
how older people see it. Older people see it as if I get sick, 
$4,800 is going to come out of my pocket, not over a year that 
I can budget for, not something that I can save for. I will 
need $4,800 to pay for my health care costs.
    I don't see how that is a benefit. It is frightening to 
older people. And let us not forget that the plan that they 
have now in 2001 has a zero copayment for dialysis, a zero 
copayment for hospital stays, a zero copayment for rehab in a 
skilled nursing facility. To go from zero with all of those 
copayments to a $4,800 cap is a $4,800 increase in medical 
payments that those people will have to pay.
    For lots of people returning to fee-for-service Medicare 
without a Medigap policy is not a good option because of the 
copayments under fee-for-service without Medigap. But now that 
we have the ability to do guaranteed issue, we can work with 
the 80 licensed insurance companies in Wisconsin who are going 
to be just as surprised that they are now going to have to 
offer guaranteed issue as we were to find some reasonable plans 
that will at least meet these deductibles and copayments. And 
we, too, will be working with the Medigap hotline in the State 
of Wisconsin and our benefit specialists to try and help people 
now make these choices.
    Chairman Johnson. I think it will be helpful for all of us. 
And I think the education should be very evenhanded, because I 
don't think either you or I are in a position to judge. And it 
will vary tremendously from senior to senior as to whether a 
$4,800 cap is an advantage or disadvantage. I am coupled with 
very high health care costs because they both have so many 
chronic problems for whom that would be a tremendous benefit. 
So it depends a lot on the configuration of your health care 
needs as to whether the catastrophic benefit is more important 
than premiums that also carry with them a varied bundle of 
    If either of you would like to comment on this issue, the 
plan design and choices for seniors, I would be happy to have 
you do so.
    Mr. Jones. We believe that we were faced with the choice of 
creating a benefit option or exiting the market.
    Chairman Johnson. Or exiting the market?
    Mr. Jones. In Wisconsin, as we talked specifically about 
Wisconsin. I would--we would never want to be a limiting factor 
to choice, and that would not be our intent. We would always 
want to be an added choice for senior beneficiaries. And we, 
too, are glad that the mandatory--no underwriting mandatory 
issue has been instituted. As we look at that, a number of the 
competitors across the country have a number of days co-pay, 
and they limit it for inpatient only. And we see that as we 
looked at that, there were too many situations that came up, 
therapy and other modalities of care, where there was no limit. 
Representative Thurman just pointed out that on the fee-for-
service, the limit is over $6,000 if they were hospitalized for 
an extended stay. Under the pure calculation of the benefits 
that we issue, they would be very high, but it stops at $4,800. 
At that point there are no additional co-pays for any service 
at that point. So it is a change in benefits. It is a program 
that we hope is a choice for many seniors and adds to choice, 
not reduces choice.
    Chairman Johnson. And what are the rest of your benefits, 
for instance, physician co-pay and--under this new plan, what 
is your physician co-pay?
    Mr. Jones. The physician co-pay is $20 per visit.
    Chairman Johnson. Are there any other benefits you should 
point out, as we have been focusing primarily on 
hospitalization and psychiatric, nursing home and dialysis?
    Mr. Jones. I would indicate as in Medicare+Choice plans, 
that preventive care is covered. There is, as I outline--and I 
went through that very quickly--there are a number of programs, 
Care Coordination, the nurse line, that also help to organize 
the program for the seniors once they fragmented the health 
care delivery system.
    Chairman Johnson. How about annual physicals?
    Mr. Jones. It is covered.
    Chairman Johnson. And do you have any information about the 
cost of cancer treatments under Medicare versus under your 
$4,800 threshold?
    Mr. Jones. The chemotherapy would be subject to a 20 
percent copayment or coinsurance, and under this that would be 
captured in that $4,800. And in many of those procedures, 
according to where they are delivered, there is either a $30 
co-pay, and they are all captured in the $4,800 out-of-pocket 
cap--the catastrophic protection.
    Chairman Johnson. Thank you. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair.
    Ms. Stein, how nice to see you here. Tell me--I just want 
to compare some numbers in Milwaukee. What does a J Medigap 
policy roughly cost in Milwaukee County?
    Ms. Stein. If you are 65, you can probably get one for $70 
a month.
    Mr. Stark. That low? Let me give you some numbers here and 
tell me what I am missing. I am correct in assuming that United 
doesn't offer a drug benefit?
    Ms. Stein. That is correct. It never has.
    Mr. Stark. I don't know why anybody would be dumb enough to 
sign up for it. Look at this. They are going to charge $660 
next year, right?
    Ms. Stein. Right.
    Mr. Stark. And you get the $4,800 out of pocket, and they 
will pick up everything over that. So you are really going to 
be, if you get really sick, $5,400 out of your pocket, and that 
doesn't include drugs, right?
    Ms. Stein. Right.
    Mr. Stark. Stay in fee-for-service, regular Medicare, buy a 
J option, and I am going to say--I mean, you are telling me it 
is only less than $1,000. So for $1,000, then you have $2,400, 
because you have to pay 50 percent of the drug benefit, you are 
still not up to the $4,800 these guys are going to take out of 
your pocket, and you get a pharmaceutical benefit that is worth 
something on top of it, plus you could--if you didn't want to 
go to St. Luke's or if you didn't want to go to Frederick, you 
could go to Minnesota where Mr. Jones probably goes to--what is 
that fancy place--Mayo Clinic. If you got the bus fare, he 
isn't going to let you go to Mayo Clinic under his insurance 
plan, but under Medicare you could.
    So tell me why anybody who could qualify to get into 
Riverside High School could possibly, in a thousand years, want 
to sign up for a cockamamie plan that is going to gouge its 
folks $5,400 when you can go buy Medigap and have fee-for-
service? Do they give you free beer on Fridays?
    Ms. Stein. They are just offering new counseling sessions. 
The last ones they held in hospitals and clinics and kicked our 
counselors out, by the way. They are now holding them in 
restaurants, and you have to have a--all in suburban Milwaukee 
County, and you have to have a reservation before you get 
there. But I don't know why anyone would sign up.
    But, Representative Stark, I have to tell you I misspoke. 
There are no J plans being offered in Wisconsin. No Medigap 
plans, no Plus Choice offer any drug coverage to any people in 
Wisconsin at all.
    Mr. Stark. So we should have a Federal drug benefit then?
    Ms. Stein. Without a doubt.
    Mr. Stark. Let me ask, Mr. Jones, in your third quarter 
earnings statement, Mr. Jones, I can't quite figure this out. 
You talk about your strong financial performance and your Dr. 
Woods--is that the head guy--whoever---
    Mr. Jones. Are you referring to Dr. McGuire?
    Mr. Stark. He wrote this. And he said he attributes part of 
this strong financial performance to an accelerated shift to 
our overall mix of business, to fee-based products and services 
and away from risk-based products. That is not just in 
Medicare, but in all your markets. Now, what do you mean by a 
fee-based product? Why are you switching to that? Don't you 
know how to manage medical care risks?
    Mr. Jones. As a course and choice of the way that insurance 
has been delivered in the traditional managed care environment, 
approximately a year and a half ago, 2 years ago, United 
embraced a program called Care Coordination. In that program, 
the patient-physician relationship is honored. In that program, 
there is not a, if you will--a gatekeeper intervention. If a 
patient and a physician decide on a course of care, and it is--
we do not use the medical appropriateness denials any longer--
    Mr. Stark. That is a fee-based service?
    Mr. Jones. Rather than operating in a risk base where you 
capitate and pass all risks to the physicians, the 
reimbursement now correlates to that care coordination, that 
physicians and patients make a choice and the reimbursement 
follows the care that is delivered, versus a risk-sharing, 
which is much more of the historical approach. I believe I am 
addressing your question.
    Mr. Stark. That is right. So you are suggesting that by 
getting away from putting the physicians at risk and paying 
them on a fee base, you are able to make more profit?
    Mr. Jones. We believe that--first off, that the members are 
better served by not having an interference with the patient.
    Mr. Stark. Wait a minute. This is in your earnings 
statement. You are talking to the shareholders now. Let us 
leave the poor beneficiaries out of this. When you are talking 
to the shareholders, you are telling them that you made more 
profit due to an accelerated shift toward fee-based product and 
services. From what I recall, that tends to fly in the face of 
what Oxford would tell you, that when you are trying to beat 
down the docs, you are much better capitating them than giving 
them unlimited fee-for-service. Wouldn't you agree, Mr. 
    Mr. Haytaian. No. Actually we are not predominantly 
capitating doctors in our business. We pay them on a fee-for-
service basis as well.
    Mr. Stark. Do you save money that way?
    Mr. Haytaian. We don't believe in that way of administering 
care. We have always had a fee-for-service model, and we never 
had a capitating arrangement. With provider groups and 
Medicare, though, we do have some capitating models.
    Mr. Jones. The acceleration, I believe, also has to deal 
with choice, that many more patients, beneficiaries, employers 
like--choose that delivery of care versus the capitated 
gatekeeper type of intervention that had been in the past.
    Mr. Stark. I would think so. I am interested and somewhat 
surprised that you attribute that to being more efficient, if 
you understand, more profitable. And I always thought 
capitating or putting the physicians at risk would save you 
money in a managed care plan as opposed to paying basically 
unlimited fee-for-service, but you say no.
    Mr. Jones. Representative Stark, the cost of putting all 
the administration around that type of program is not 
inexpensive. And also, it was not a favored way to give care to 
interact with the physician and the patient.
    Mr. Stark. So you would advise us then, based on the 
private sector model, that in dealing with fee-for-service 
administration for that part of the Medicare plan, we should be 
more comfortable than worrying about spending a lot of money 
administering whether there is overutilization and just trust 
the normal relationship between the doctor and the patient?
    Mr. Jones. I believe this has to go hand in hand with a 
great deal of information that is shared with physicians in 
terms of the quality outcomes and the feedback that goes with 
    Mr. Stark. I don't mean to intrude on the Chair's 
generosity with time, but I do, because I do question to Mrs. 
Stein why paying $5,400 with your $4,800 cap--so if there is no 
J, I guess the next best thing would be, what, H or one of 
those plans that would pay almost all the co-pays. Why aren't I 
better off--if you care to answer that, if not, the Chair can 
shut me up--why aren't I better off getting a Medigap policy 
and using Medicare fee-for-service than I would be under your 
plan where I have to eat up $4,800 and I would have high co-
pays? How would you advise me if I were a salesman for your 
    Mr. Jones. Well, I don't presume to understand how all 
seniors make decisions, but I would say that there are any 
number of situations where a beneficiary--beneficiaries are not 
all alike. They find themselves in different stages of need for 
health care and different ways that they receive health care. I 
will just use two examples that may not be salient to the 
question, but we could find a Medicare beneficiary who is a 30-
year-old with MS, or Multiple Sclerosis, and is not in need of 
hospital care, but yet the coordination of their DME, the 
coordination of how they interact with the variety of cares 
that they need is very well managed in this program.
    If you found that there was a beneficiary who expected to 
be hospitalized for an extended period of time during the year, 
and they looked at the total cost under Medigap and fee-for-
service, and they were receiving care that was in other 
modalities as well, this would be a good plan for them.
    There has to be enough education for them to evaluate their 
own circumstances and to make informed choices around that.
    Mr. Stark. But try that if I can, and then I will shut up, 
Madam Chair, on just a common garden variety geezer like me, 
who doesn't anticipate any more than a flu shot and whatever 
else. Why would I, in my Medicare--suppose I don't have my 
Federal plan, which is much more generous--moving back to 
Milwaukee, why would I choose to pay the $55 to you and know I 
got to have $4,800 in the sock for extra co-pays and stuff, as 
opposed to laying out $100 and whatever for a thorough or the 
richest Medigap policy I can find, and I could probably still 
go to the same doctors that serve your beneficiaries? That is 
why--help me with that. That is what I don't understand.
    Mr. Jones. The expectation is that either you are in a very 
intense course of care and you want to limit the total cost, 
and you would be able to peg that. You would know what that 
number is.
    Mr. Stark. So that is when I would come to you.
    Mr. Jones. That is one of the alternatives that would 
legitimately be considered in this, that if somebody is in a 
very intense course of care, this is a valid choice. And I 
would actually recommend that they pursue it because of all the 
other services that are rendered in the coordination of care 
with the nurse line, with the 24-hour access to advice.
    Chairman Johnson. Thank you, Mr. Stark. Mr. McCrery.
    Mr. McCrery. Mr. Jones, is United the only Medicare+Choice 
plan in the Milwaukee area?
    Mr. Jones. Yes, sir, it is.
    Mr. McCrery. And I believe we heard testimony earlier that 
there used to be several plans, but that they are all gone 
except for United; is that correct?
    Mr. Jones. The Blue plan is exiting at the end of this 
    Mr. McCrery. So obviously, with the reimbursement level 
what it is in the Milwaukee area, it is difficult for 
Medicare+Choice plan to make it. Wouldn't that be a logical 
    Mr. Jones. That certainly is our experience, yes.
    Mr. McCrery. And I believe you testified that you all--that 
United wanted to stay in Milwaukee so that they would have a 
choice, and that is when you did your pencil work and changed 
your benefit structure and came out with this new plan?
    Mr. Jones. Yes, sir. That is correct.
    Mr. McCrery. And I think that is certainly logical and 
wouldn't quarrel with that; however, I do question how many 
people are going to choose this option. How many people do you 
have enrolled right now in your plan?
    Mr. Jones. Sixteen thousand.
    Mr. McCrery. And when must they make a decision to either 
stay in your plan or go to fee-for-service?
    Mr. Jones. There are a couple of answers to that. Were it 
not for lock-in, each month they could make a choice to leave. 
If they want to have access to a guaranteed issue Medigap, they 
would leave on the exit of a plan. So if a plan leaves, they 
have 60 days--63 days to make a guaranteed issue choice. 
Without lock-in, they could make a choice every month. With 
lock-in, they would have to make that choice in the next 
month--or before March 4, excuse me.
    Mr. McCrery. Before what?
    Mr. Jones. March 4.
    Mr. McCrery. Before March 4 they must make a decision 
whether to stay or exit under the fee-for-service. And you have 
16,000 beneficiaries right now?
    Mr. Jones. Yes, sir.
    Mr. McCrery. Have you calculated how many of those 16,000 
will remain in your plan?
    Mr. Jones. We don't have a calculation of what--I am not 
sure there is a calculation of how many will stay in the plan. 
They will all make choices as they begin to enter the new year.
    Mr. McCrery. How do you make a business plan if you don't 
make some assumption as to how many enrollees you are going to 
have? Don't you have some assumptions?
    Mr. Jones. We don't make assumptions.
    Mr. McCrery. What is your assumption?
    Mr. Jones. I don't have that here, but we do expect that 
there would be fewer participants than there are today.
    Mr. McCrery. Yeah. I mean, just at first blush, that would 
be my expectation, too. I gather you have the same plan in 
Florida--same structure, same benefit structure in your 
Medicare+Choice plan in Florida?
    Mr. Jones. We have a number of the same benefits across our 
entire program, yes, but vary somewhat.
    Mr. McCrery. Is this generally across the Nation, your new 
benefit structure for Medicare+Choice, or do you have different 
plans in different locations?
    Mr. Jones. We have different plans in different locations.
    Mr. McCrery. Dramatically different? Do you have plans that 
look like your old Milwaukee plan?
    Mr. Jones. There are very few locations where we are able 
to sustain a program that looks like the old Milwaukee program. 
We did institute the out-of-pocket max, the catastrophic 
protection in all locations.
    Mr. McCrery. Even with your low-deductible plans?
    Mr. Jones. Right. We fundamentally believe it is a good 
safety net, a good benefit to provide for all beneficiaries 
that work with United.
    Mr. McCrery. Mr. Haytaian, you talked about your essential 
plan, which is the plan you described would be great for low-
income folks who are looking for zero deductible and so forth. 
Do you offer that plan everywhere that you offer 
    Mr. Haytaian. We offer it in the five boroughs in New York. 
We are only in one county in Connecticut, New Haven County. And 
2002, we will only be in one county in New Jersey, Hudson 
County. And we are not able to offer those products in 
Connecticut and New Jersey, but we do in all the boroughs in 
New York City.
    Mr. McCrery. Why are you not able to offer that product in 
    Mr. Haytaian. Because of the core issues we talked about 
today regarding reimbursement, and how fundamentally different 
reimbursements are in Connecticut and New Jersey versus New 
York, and how medical cost trends and actually unit costs are 
very similar to what we are experiencing in New York. We are 
not financially in a position to be able to do it.
    Mr. McCrery. Thank you, Madam Chair. I may want to do some 
more questioning if we have a second round.
    Chairman Johnson. Mr. Kleczka.
    Mr. Kleczka. Madam Chair, you indicated to Ms. Stein that 
part of the problem with the Medicare Program is the 
uncertainty. While I agree with you in part, I think the bigger 
problem is that we are dealing with sick people, and when you 
do that, you are going to find costs. And that begs the 
question whether or not the private insurance market, which 
didn't want these folks 40 years ago, are able to handle them 
and pay for their health care today. And when we get to the 
point where the Medicare Choice is going to be reimbursing at a 
much higher rate than fee-for-service, at that point I think 
the Congress should seriously look at increasing the fee-for-
service program and expanding some of those benefits for annual 
physicals and some of the other things we talked about today, 
because we are going to be paying for it anyway.
    Now, Mr. Jones--first of all, Ms. Stein, I heard reports in 
the market where some of your counselors and other agency 
counselors have been excluded from meetings.
    Ms. Stein. That is correct.
    Mr. Kleczka. What is the situation there?
    Ms. Stein. United Healthcare's first rounds of meetings 
that they announced in the market and to all of their 
beneficiaries were all in public places and hospitals and big, 
large community clinics. And we and Legal Action of Wisconsin 
sent counselors to all of those meetings because we had upset 
people--very upset people, and we wanted them to know that 
maybe they would be eligible for the SLMB, Special Low Income 
Medicare Beneficiary Program. We wanted to try to help them. We 
were asked to leave those meetings. Mr. Jones was gracious 
enough to write me a letter of apology, but unfortunately the 
next day we were asked to leave again.
    Mr. Kleczka. What is the current policy? Is there going to 
be an exclusion of people other than planholders from any 
future meetings, be it a restaurant or a public building?
    Mr. Jones. No. Again, I will restate my apology that---
    Mr. Kleczka. The policy has been changed, so I don't think 
we have to dwell on it, and these people will be permitted. 
Thank you for the change.
    Quick question. You have been in the program since 1995. 
What has been your medical loss ratio from 1996 to 2001?
    Mr. Jones. I cannot go back--I don't have the information 
to go back quite that far.
    Mr. Kleczka. Were you making money on the program in 1996, 
1997, 1998?
    Mr. Jones. I would potentially misquote that, but for the 
last 2 years, our medical loss ratio has been in excess of 90 
    Mr. Kleczka. In excess of 90. That is 9 to 10 percent or---
    Mr. Jones. Pardon?
    Mr. Kleczka. There has been a profit in the program?
    Mr. Jones. We have basically been break even.
    Mr. Kleczka. For how many years?
    Mr. Jones. For the last 2.
    Mr. Kleczka. So at some point you were profitable? You made 
money writing these policies?
    Mr. Jones. In Wisconsin--I would be happy to get you that 
information in a written format. I don't have that with me.
    [The information follows:]
                                                 UnitedHealth Group
                                        Minnetonka, Minnesota 55343
                                                  December 21, 2001
Hon. Jerry Kleczka
2301 Rayburn House Office Building
Washington, DC 20515
Dear Congressman Kleczka:
    There has been considerable conversation about the changes in the 
benefits of the Medicare + Choice plans generally. Specifically, we 
have discussed the benefits in Wisconsin.
    I have included an attachment per your request which summarizes 
United's Wisconsin operating results for Medicare for 1996 through 
    I am available and invite the opportunity to discuss these and 
other issues you may want to discuss.
                                           Richard H. Jones
                                     President, Government Programs
    The table below indicates the statutory operating results of 
UnitedHealthcare's Medicare + Choice product in Wisconsin named Prime 
Gold. These values are from the annual OCI filings. In 1996 and 1997, 
United was basically at breakeven or at a small profit in each of those 
years. However, in 1998, 1999 and 2000, it has incurred losses.

                                                     1996         1997         1998         1999         2000
Revenue........................................  $10,579,489  $36,262,944  $70,657,909  $85,508,419  $79,775,048
Medical........................................   $8,904,572  $32,178,135  $66,135,084  $82,363,790  $75,601,419
Gross Margin...................................   $1,674,917   $4,084,809   $4,522,825   $3,144,629   $4,173,629
BCR............................................        84.2%        88.7%        93.6%        96.3%        94.8%
Administrative.................................                             $8,391,483   $8,431,872   $5,842,295
Pretax Loss....................................                            (3,868,658)  (5,287,243)  (1,668,666)


    Mr. Kleczka. In other States where you write Medicare 
Choice, do you have any that are comparable in the per day co-
pay for hospitalization, inpatient hospital, of $295?
    Mr. Jones. Yes, sir.
    Mr. Kleczka. Do you have any policies in the counties in 
    Mr. Jones. Where it is $295 per day? Yes, sir, we do.
    Mr. Kleczka. We are told that because of the fact we are 
not reimbursing you in States like Wisconsin, that you are in 
this predicament. However, on average in the State of Florida, 
we find that the per capita reimbursement is much, much higher 
than Wisconsin's $554 per person, right? So to make the 
argument that Wisconsin is lax in the reimbursement doesn't 
prove the case when you are talking about the co-pays in a high 
reimbursement State like Florida.
    Mr. Jones. The average that you had referred to for Florida 
is inclusive of Dade County and other high reimbursement 
counties. There are rural counties in Florida where the 
reimbursement is likewise not nearly as high as it is in some 
of those very urban areas.
    Mr. Kleczka. Based on the dramatic increases in the market 
area with your Choice plan, what is the anticipated medical 
loss ratio after these deducts and co-pays are put into place? 
What do you envision the medical loss ratio is for 2002?
    Mr. Jones. Our anticipation is it will remain around 90 
    Mr. Kleczka. And today you are at what?
    Mr. Jones. Ninety-one.
    Mr. Kleczka. So Mr. Scully was in error indicating that 
your exposure for either 2000 or 2001 was 99.
    Mr. Jones. When you add the administrative cost, it is 
higher than that. That is just the medical cost.
    Mr. Kleczka. Even with the high deductibles and co-pays, 
you are still going to remain the same as far as medical loss 
    Mr. Jones. Yes, sir. The medical inflation in that market 
has been over 20 percent for the last 2 years.
    Mr. Kleczka. OK. Quickly, Madam Chair, if I might. You 
indicated that you are going to notify all the current plan 
beneficiaries of the change, especially the Friday notice from 
CMS relative to the special enrollment period?
    Mr. Jones. Yes, sir.
    Mr. Kleczka. You are going to tell your policyholders that 
they can get out?
    Chairman Johnson. Isn't that the point we already made?
    Mr. Kleczka. Well, no, because my question is, you 
indicated that it is your hope that you hope CMS would expedite 
this mailing. I was under the impression you were going to do a 
mailing, and hopefully CMS was also.
    Mr. Jones. Any communication that we are--that we send to a 
beneficiary has to be approved by CMS. We have been in contact 
with them, and they have been very cooperative to expedite that 
review so it can go out very quickly. What I referred to was 
their review of that communication.
    Mr. Kleczka. Is the list of 16,000 beneficiaries, is that 
covered under the Privacy Act? My further question will be, 
would it be possible for the company to either share that list 
with, say, the Marquette County Department on Aging to also get 
the word out, because none of us know specifically who these 
people are. And my fear is that even though CMS might do a 
mailing, you might have the ad in the Marquette Journal. In 
this holiday season with all the mail, with the mail scare, a 
lot of people aren't--even though we are trying our darnedest--
aren't going to be aware of the fact that they have between now 
and the end of the year to go back to fee-for-service and would 
be eligible for a Medigap policy. And to make sure people don't 
fall between the cracks in trying to maximize the 
notification--you know, I could do one from my office.
    Chairman Johnson. I appreciate the importance of your 
question. I think Mr. Jones is referring to the company's 
mailing, not CMS's mailing. And CMS is thinking about doing 
their own mailing. But it was clear from Mr. Scully that this 
issue of how do we make sure people get notified is not yet 
resolved. Mr. Jones is only referring to their own company's 
mailing. As to whether or not any company wants to share the 
list of their participants is a decision that companies will 
    Mr. Kleczka. Would the company be willing to share that 
list, say, with the county aging department?
    Mr. Jones. We would be happy to have participants 
communicate with us to our beneficiaries. We want them to be 
well informed about any decision. I would have to ask our legal 
counsel relative to the policy around that, and I would be 
happy to get back to you in writing on that very quickly.
    [The information follows:]
                                                 UnitedHealth Group
                                        Minnetonka, Minnesota 55343
                                                   January 28, 2002
Mr. Bill Covey
1102 Longworth House Office Building
Washington, DC 20515
Dear Clerk Covey:
    In response to the request for the release of the names and 
addresses of the 16,000 beneficiaries of our Wisconsin Medicare+Choice 
program, we must decline to release this information to the Milwaukee 
County Department of Aging in order to protect the privacy of our 
    It is the company's policy to protect the confidentiality of 
information that identifies individuals. We have provided the requested 
information concerning the profitability of the UnitedHealthcare 
Medicare + Choice product in Wisconsin from 1996 through 2000 to 
Representative Kleczka's office.
    In summary, during 1996 and 1997, United was at breakeven or at a 
small profit in each of those years. However, in 1998, 1999 and 2000, 
it incurred losses. The product's benefit cost ratio ranged from 84.2% 
and 88.7% in 1998 and 1999, to 93.6%, 96.3% and 94.8% in 1998, 1999 and 
2000 respectively.''
                                           Richard H. Jones
                                     President, Government Programs


    Chairman Johnson. I do want to make the point because this 
is a big problem as we talk to each other about these issues. 
It is true that Florida in some counties offers a very much 
higher reimbursement rate than Wisconsin gets, but to conclude 
from that that, therefore, any company shouldn't be offering 
the same kind of incentives to constrain spending or to make 
their policies affordable is not a legitimate conclusion, 
because along with that higher rate ---in fact, the higher rate 
reflects a higher fee-for-service cost by Medicare, which in 
turn reflects a different pattern of practice or may reflect a 
different level of illness. We actually don't know that. So 
those higher levels that are allowed for managed care Plus 
Choice reflect the level of fee-for-service spending in that 
area, which does, now we do know, reflect very different 
patterns of practice.
    So it is a complicated issue, and you just can't jump to 
the conclusion that because they are getting $800 someplace 
else, that means they are making a profit.
    Mr. Kleczka. I could beg to differ with you for a slight 
    Chairman Johnson. Unfortunately, let us have everyone 
discuss, and then we can get back to that discussion. Mr. Ryan, 
would you like to comment?
    Mr. Ryan. I appreciate you including me even though I am 
not a member of the Subcommittee, but on the full Committee. I 
feel like I am experiencing deja vu all over again.
    And, Ms. Stein, you are probably familiar with the problems 
we have had in Racine County. We worked with your counterparts 
down there. Blue is leaving now. We had Primary Care leave 3 
years ago. So this is the exact same thing we had happen. And 
what I find is interesting is the fact that you have in 
Milwaukee County five providers a number of years ago giving a 
fairly comprehensive benefit that seniors really enjoyed. In 
Racine, we had it 3 years ago. It was wonderful. People enjoyed 
it because they didn't have to go out and buy this Medigap 
plan, which was very costly. They are much more costly than 
$100 or $200 in Medigap in Wisconsin. So it at one time 
provided a very comprehensive benefit filling in the gaps that 
Medicare normally doesn't cover and giving especially low-
income and sick seniors protection.
    That protection is leaving. We now see that the costs--that 
the reimbursement rate relative to the cost is not keeping in 
pace, and so we see these huge withdrawals. So now you can 
understand, and I think, Ms. Stein, you put it very well in 
your testimony, how a senior feels. They don't see this as, oh, 
gosh, it is still a better benefit than Medigap. They see this 
as an incredible burden relative to their condition last year 
or a couple years before.
    So now we see what the promise of Medicare+Choice could be 
but isn't today. And so we see our seniors having this 
incredible uncertainty in their lives which is extremely 
disrupting. So if there is anything that we learn from this 
hearing, this Committee has got to learn to make this work and 
put certainty back into their lives.
    We know that Medicare is an outdated program, that it is 
giving basically people 1965 health care, and they have to go 
out and pay for the rest essentially, whether it is Medigap or 
a Plus Choice program where in some States it works and not in 
    But I had a different line of questioning, but Mr. Kleczka 
was going down an issue I would like to follow up on, which is 
the letters you send to constituents. It was our experience in 
dealing with Blue in my neck of the woods that we could 
negotiate the language of your letters to our constituents so 
that they had all the information, meaning you would put the 
800 number in for the County Aging Department, you would put 
our phone numbers, like Mr. Kleczka's phone number, in there.
    In your letter that you negotiate the language with CMS, 
isn't it true you work with the County Department of Aging, the 
Congressmen from that area, to get all of the information that 
we all believe the citizens need so that they can make the most 
informed choice? And, Mr. Jones, would you be willing to work 
with these parties to get that language in your letter to these 
constituents so that we can make sure that everybody gets the 
information they need?
    Mr. Jones. We would be happy to. Barring the meetings that 
we had in common, we have worked--that we had the difficulty 
with, we have worked, I believe, fairly well with the agency 
and certainly would intend to--any information that would be 
helpful to the member to get more information, to get access to 
more information, to independent opinions on what the coverages 
should be, we would be very agreeable to having that included.
    Mr. Ryan. You are planning another mailing, correct?
    Mr. Jones. Yes.
    Mr. Ryan. And you have to send that language to CMS before 
you send it out?
    Mr. Jones. That is right.
    Mr. Ryan. And you now would be willing to work with the 
Department of Aging and the Congressman to put the language 
together so that we all can be assured that 16,000 seniors who 
right now are very, you know, confused get that information and 
get multiple sources of people they can contact to get 
counseling? So you would be willing to work on that?
    Mr. Jones. Yes.
    Mr. Ryan. Because as has been mentioned here, everybody has 
a different situation. And if you are chronically ill and 
definitely on dialysis, maybe this is still a decent deal 
because of the cap. Maybe it isn't. But we at least need to get 
these people some information and access to multiple sources of 
counseling so they can make their own decision.
    I will yield the rest of my time, and I won't go on the 
track that I was planning on going other than to say that we 
have been going back and forth on this issue for years. I am 
new to this Committee, but if it hasn't happened in your State, 
it is going to happen before too long. So we have to fix the 
basic premise--Plus Choice is a good one. You get comprehensive 
benefits that catch up with today's needs of health care.
    So I thank you for agreeing to share that language and 
preapprove to negotiate with CMS. I yield.
    Chairman Johnson. Mr. Lewis.
    Mr. Lewis. Thank you very much, Madam Chair. I would like 
to thank members of the panel for being here.
    Ms. Stein, I would like to thank you for being here. You 
are really on the front line. You are out there trying to do 
what you can in providing health care for our seniors, making 
Medicare work. But as director of the Milwaukee County 
Department on Aging, you have a number of responsibilities. 
Could you tell members of the Committee how long you have been 
the director?
    Ms. Stein. I have been the director since March 1, 1993, so 
9 years.
    Mr. Lewis. You not only get involved with efforts dealing 
with Medicare, Social Security, but you deal with all of the 
aging concerns and issues, retired senior volunteers, foster 
grandparents, senior companions.
    Ms. Stein. Elderly nutrition program. All of the long-term 
care programs in the State.
    Mr. Lewis. So you know a great deal about what seniors like 
and what seniors dislike.
    Ms. Stein. I hear a great deal and try to absorb it.
    Mr. Lewis. And you are very close to the needs and concerns 
of seniors?
    Ms. Stein. I certainly try to be. It is not just my job, 
but it is my mission and my passion, yes.
    Mr. Lewis. You spoke with passion. I read your testimony. I 
listened to everything you said. I don't want to put you on the 
spot, and you may not care to respond to this question, but do 
you think the United plan in Milwaukee is a good option for 
low-income citizens?
    Ms. Stein. For low-income citizens? I think it is 
absolutely not an option at all for low-income individuals. 
They will have to defer any health care--how can you as an 
older person plan for a flare-up of a chronic illness or a 
sudden accident? And if you are low income, and those things 
happen to you, and you have this health plan, you are going to 
have to come up with cash. And I think low-income means I don't 
have access to a lot of cash. I need to budget what I am doing. 
I need to get the best value for my money. So I think that this 
plan offers almost no value at all.
    Mr. Lewis. So, in essence, this plan, this proposal, would 
discriminate against people because of their level or income or 
their ability or capacity to pay? So that is not a sense of 
fairness, is it?
    Ms. Stein. I think it is not fair to low-income Medicare 
beneficiaries. I do not believe it is fair.
    Mr. Lewis. So you wouldn't recommend the Milwaukee plan to 
other urban centers like Atlanta, Chicago, New York or 
    Ms. Stein. No. No, Representative Lewis. I don't believe 
that I would recommend this plan to any other urban areas or 
any other areas in the United States.
    Mr. Lewis. Thank you, Ms. Stein. Thank you for being here.
    Chairman Johnson. Mrs. Thurman.
    Mrs. Thurman. Thank you, Madam Chairman, and thank our 
guests here for being here.
    Mr. Jones, I just need to tell you, since this came up, but 
we went out on the Web site and whatever they are called these 
days, Mr. Scully's group, CMS, first of all, you need to know 
there is nothing in here that talks about the catastrophic part 
of this.
    Mr. Jones. We are aware of that. We have asked CMS to 
address that. We believe---
    Mrs. Thurman. You are saying that is a State-by-State 
benefit that does not change anyplace throughout the country?
    Mr. Jones. Right. There is not a place to put that on the 
Web site.
    Mrs. Thurman. Second, you also need to know when you are 
asking them to make changes--I just called the 1-800 number to 
see if I could get information about the catastrophic part of 
it. It has been disconnected. So they need to change the phone 
number on here.
    Mr. Jones. Eight hundred number for CMS?
    Mrs. Thurman. I don't know. I think it is a United number, 
and it is 1-800-973-6461. And I just called it, and they just 
said it has been disconnected. So that might be some good 
information to make sure that that is also available.
    Mr. Jones. I will follow up on that immediately. Thank you.
    Mrs. Thurman. The other thing that I would like to ask, and 
particularly on the reimbursement issue, because it keeps being 
brought up here, and we have got several documents that show 
the different reimbursements and different States and New 
Jersey versus Florida versus Connecticut. And one of them, I 
think, Madam Chairman, there was about a $23 difference between 
your State and one of my counties.
    Chairman Johnson. In the AAPCC or in the Medicare 
reimbursement rate, Plus Choice rate?
    Mrs. Thurman. Right. And tell me how do you say your name 
    Mr. Haytaian. Haytaian.
    Mrs. Thurman. Last year we gave some money back into 
reimbursement, or what we thought was some reimbursement. I 
want you to talk to me a little bit, though, because what I 
have found over the years, it is not just about reimbursement, 
and yet that seems to be the thing that everybody comes tells 
us because we are the cash cow up here. Aren't there other 
problems going on as well? I mean, for example, networks, 
doctors participating, hospitals participating who have just 
chosen not to do that because of--and quite frankly, because 
what we did under the BBA, they lost money or have suggested 
they lost money, although we did give some give-backs over the 
last couple of years as well. I think it is misleading to the 
public to just say that it is just about reimbursement. Would 
you agree or disagree?
    Mr. Haytaian. I think you are correct, but I will address 
the reimbursement issue first. I think there has to be some 
reasonable relationship between the reimbursement and actual 
medical costs in a specific region. If, for example, you are in 
a region where actual medical costs, fee-for-service costs, are 
15, 20, 25 percent less than what you are receiving from CMS in 
the form of reimbursement, then it has to be a part of the 
discussion because it is almost a virtual impossibility to be 
able to offer any kind of reasonable product there. But there 
are other issues. I can't speak for the rest of the country.
    Mrs. Thurman. Can you give us some other ideas besides the 
networks that might be a problem?
    Mr. Haytaian. I do think there are network issues 
throughout the country. You read about it all the time when--I 
think Administrator Scully talked about it before. There are 
certain places in the country where potentially managed care 
will not work because there is just not enough volume there, 
and there is one hospital system, and the hospital system does 
not want to negotiate with a managed care organization like us. 
They basically tell us to take a hike, like the Administrator 
said. So that is a practical reality.
    But at the end of the day, the large concentration of 
seniors are in urban areas, quite frankly, and this is a viable 
choice for seniors in urban areas and other places in the 
country, not just urban areas. But there are--to your point--
there are areas where it may not be practical to administer a 
program like this.
    Mrs. Thurman. Ms. Stein, you were shaking your head, so let 
me let you have an opportunity to speak on that as well.
    Ms. Stein. Of course, we have seen--if you look at the 
information on all of the plans around the country, you have 
seen cutbacks in the use of physicians, in hospitals, in the 
drug payments, which we never had to begin with, but other 
places did. The cutbacks are very dramatic in Milwaukee, but 
they are taking place throughout the entire Nation. And I can't 
remember which one of you said this, but if you haven't 
experienced it in your State yet, I bet you will.
    So it is--we have a very serious problem, but I think other 
people are beginning to see the erosion of that Plus Choice 
promise in all of the plans.
    Chairman Johnson. Will the gentlelady yield?
    Mrs. Thurman. Sure.
    Chairman Johnson. Would you expound a little bit on the 
variations, just in a small State like Connecticut, of the 
reimbursement rates under Medicare and why you are only in one 
county? You used to be in more counties.
    Mr. Haytaian. We used to be throughout the entire State of 
Connecticut with the exception of one county.
    Chairman Johnson. How many different reimbursement rates 
are there in the small State of Connecticut?
    Mr. Haytaian. For each county, there is a different 
reimbursement rate.
    Chairman Johnson. So I think the problems we face are very 
serious. I really appreciate, Ms. Stein, about how passionate 
your testimony was, but the cause of this is years of under-
reimbursement. They were doing fine before 1997, and then we 
limited them to 2 percent just as health care costs began to 
explode. So in negotiating down hard with their networks in 
order to stay within the 2 percent, they gradually lost network 
    And one of the reasons we are not getting a response in the 
rural counties is that the name of the Choice plans has been 
sullied because we have not given them the same increases as 
fee-for-service. Fee-for-service increases have been twice the 
increases in Choice plans. Now, that is irrational, and 
especially when the Choice plans have been able to use the 
money to provide better benefits.
    Now, I think it is fair to say that anyone listening to how 
United has changed its benefit package would have to agree that 
it will now suit some and not others. It will be only a choice, 
and we will see whether anyone chooses it. Some of us sitting 
here think no one will choose it, but the company has reason to 
believe some will choose it.
    I think some of us tend to underestimate the number of 
seniors there are that actually could be exposed to $5,000 in 
costs and trade off for that any higher exposure knowing that 
they are likely to be hospitalized so they are unlikely to have 
any costs. So that 5,000 rolls over from year to year.
    These are the difficult things about making planned 
choices, but I think seniors need choice, and clearly we would 
not be here if Medicare fee-for-service was an adequate choice. 
It is not. That is why the Medicare Choice plans and Medigap 
plans have been popular. But Medicare--Medigap premiums have 
been skyrocketing as well.
    So rising health care costs are impacting Medicare, and I 
believe it is our responsibility to see that everyone has 
access to a fair level of reimbursement so our seniors have the 
best choices they could possibly have, because our ability to 
modernize Medicare to keep up with the pace of medical 
developments, either diagnostic or treatment, is minimal, and 
the fact that it took us 5 years to provide mammogram coverage, 
and only last year did we cover Pap smears is clear-cut 
evidence that you need out there some plans that have greater 
flexibility as to what benefits they cover and what benefits 
they don't. And going through his detailed answer, Mr. Jones 
didn't actually go over much of those benefits, those little 
benefits that they cover that Medicare doesn't.
    So seniors will look at all of those things. We are faced 
with a very serious problem because we have failed to either 
keep up with honest reimbursement rates or create a reasonable 
regulatory environment, and so we are now seeing choices for 
seniors disintegrate. Seniors need those choices because 
Medicare is inadequate.
    And we are going to have to come back to this subject in 
much greater detail later on. I thank the panel for their 
participation, and the meeting is adjourned.
    [Whereupon, at 12:55 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
             Statement of the Alliance to Improve Medicare
    The Alliance to Improve Medicare (AIM) is the only organization 
focused solely on fundamental, non-partisan modernization of the 
Medicare program to ensure more health care coverage choices, better 
benefits (including prescription drug benefits), and access to the 
latest in innovative medical practices, treatments and technologies 
through the Medicare system. AIM coalition members include 
organizations representing seniors, hospitals, small and large 
employers, insurance plans and providers, doctors, medical researchers 
and innovators, and others.
    AIM recently approved the attached recommendations on expanding 
health care coverage choices for senior citizens through improving the 
Medicare+Choice program. AIM's recommendations call for ensuring 
adequate payment levels for plans and providers, adopting different 
payment structures for different Medicare+Choice plan types, improving 
Medicare's regulatory framework, and increasing availability of 
Medicare beneficiary education materials.
    AIM applauds Subcommittee Chairwoman Nancy Johnson and ranking 
member Pete Stark for their bipartisan efforts in the discussion of 
necessary regulatory reforms to the Medicare program. We hope the 
Subcommittee will consider AIM's recommendations as they continue their 
discussions on this issue.

 Expanding Health Care Coverage Choices for Seniors through Improving 

    AIM is a coalition of organizations representing seniors, doctors, 
hospitals, small and large businesses, medical researchers and 
innovators, insurance plans and providers and others dedicated to 
improving and strengthening Medicare for all Americans. AIM seeks to 
ensure that all senior citizens have more health care coverage choices, 
better benefits (including prescription drug coverage), and access to 
the latest in innovative medical practices and treatments. These 
recommendations address problems specifically confronting Medicare's 
managed care program, Medicare+Choice.
    In the Balanced Budget Act of 1997, Congress took the important 
step of creating the Medicare+Choice program as a health insurance 
benefits option to Medicare beneficiaries. This option was designed to 
offer more choices for beneficiaries, and to provide beneficiaries with 
the ability to obtain additional benefits not covered under traditional 
Medicare, such as prescription drug benefits. Many beneficiaries who 
have selected Medicare+Choice plans are pleased with their ability to 
select these plans, and believe they have benefitted significantly from 
the comprehensive integrated benefits. Indeed, most Americans under age 
65, especially those utilizing employer-provided health care, have 
managed care coverage choices similar to those offered in the 
Medicare+Choice program, and as more baby boomers become Medicare 
eligible, they will expect those same plan choices under Medicare.
    AIM believes the principles of beneficiary choice inherent in the 
Medicare+Choice program can serve as a foundation for strengthening and 
improving the Medicare program. Building and ensuring a strong 
Medicare+Choice program requires that beneficiaries have an expanded 
range of options similar to those available to Members of Congress, 
federal employees and retirees, and millions of working Americans under 
65 years of age who are covered by private plans. The Medicare+Choice 
program was envisioned to include a variety of health maintenance 
organizations, private fee-for-service plans, provider-sponsored 
organizations, and preferred provider networks but has been unable to 
attain that goal. Inadequate payments and excessive regulation of 
private sector plans and providers participating in Medicare+Choice 
have seriously constrained the ability to expand coverage areas and 
have caused numerous plans to withdraw from coverage areas where 
reimbursement was inadequate to cover even the costs of basic care. As 
a result, millions of beneficiaries are at risk of losing their access 
to these plans and the additional benefits they have offered.

(1) Ensure Adequate Payment Levels for Health Plans and Providers

    Currently, Medicare pays one set fee per month for each beneficiary 
enrolled in a Medicare+Choice plan based on a payment formula in the 
Balanced Budget Act of 1997 and regardless of the number of services 
the beneficiary may require. This payment formula has resulted in 
inadequate payment levels for Medicare+Choice plans in many parts of 
the country. For example, payments to health plans in many counties 
have been capped at two percent (three percent in 2001) annual 
increases over the past several years, despite growth rates in local 
health care costs that are as much as 8 to 12 percent. This has 
resulted in significant disparities between Medicare+Choice payments 
and local fee-for-service costs in some areas and contributed to many 
plans withdrawing from the program and reducing service areas. AIM 
supports an immediate increase in funding levels in order to save the 

(2) Adopt Different Payment Structures for Different Plan Types

    The current one-size-fits-all Medicare+Choice program payment 
structure sets many plans up for failure, especially in rural areas, 
and is unworkable if the program is to succeed and provide a variety of 
coverage options for Medicare beneficiaries nationwide. For example, 
building rural health plan and provider networks is difficult given 
less conducive health care market economics. Plans in many rural areas 
have difficulties negotiating payments because of higher-than-average 
Medicare volumes and because the cost of bearing full risk for a 
potentially small population is relatively high when plans cannot 
spread costs over a larger pool of insured individuals.
    The Federal Employee Health Benefit Program (FEHBP) provides an 
example of flexible plan design and benefit structures. The FEHBP 
allows qualifying participants to choose from among a minimum of 10 
plans nationwide, varying in plan type, benefit structure, and cost. 
FEHB program offerings currently include PPOs, HMOs, and indemnity 
plans which do not participate in the Medicare+Choice program because 
of inadequate payment levels caused by the program's inflexible payment 
    AIM supports Medicare+Choice program improvements that will ensure 
a competitive market-based system of health plan options similar to 
that available to private sector Americans and federal employees and 
retirees. Congress and CMS should ensure that beneficiaries have a 
choice of plan types similar to those available to FEHBP participants. 
Allowing flexibility in the Medicare+Choice program payment structure 
to accommodate different plan types would encourage creativity in the 
market and could encourage more participation by a wider variety of 

(3) Improve Medicare's Regulatory Framework

    AIM members believe that excessive regulation present in the 
Medicare+Choice program reduces innovation and consumer choice. AIM 
believes Medicare administrators must reduce excessive program 
complexity and bureaucracy caused by the more than 110,000 pages of 
federal rules, regulations, guidelines and directives. AIM supports the 
elimination of real fraud and abuse in Medicare but our members believe 
this can be achieved without relying on unnecessarily complex and 
heavy-handed regulation. Providers and plans must not be forced to 
divert resources from patient care in order to respond to ever-changing 
    CMS has had a fragmented approach to Medicare+Choice program 
oversight in the past. AIM members are pleased that CMS Administrator 
Scully has recognized this problem and begun to address it with the 
announcement of the new Center for Beneficiary Choices to focus on 
Medicare beneficiaries in private plans. This will allow for greater 
efficiencies and streamline requirements that now may be developed 
within different offices. We recognize and applaud the efforts of the 
Bush administration and Congress to begin to streamline many burdensome 
procedures and we encourage the administration and CMS to consider 
these additional actions:

           Publish Guidelines for Beneficiary Materials: End 
        efforts to standardize written materials for Medicare 
        beneficiaries. The current requirement for CMS approval of all 
        documents and CMS's long term objective for standardizing many 
        more communications is problematic. Health plans need to tailor 
        their communications to their own programs. CMS should provide 
        a checklist for plans of the information required to send to 
        beneficiaries and develop marketing and communications 
           Create a Medicare Office of Technology and 
        Innovation: Important new medical technologies and services 
        must go through three sequential stages of Medicare decision-
        making--initial coverage, procurement code assignment, and 
        payment level determination--before they are available to 
        Medicare patients. This process has suffered from a lack of 
        coordination and created long delays in patient access to new 
(4) Increase Availability of Beneficiary Education Materials
    In a survey of Congressional Medicare caseworkers, AIM found that 
many beneficiaries are unaware of existing opportunities for assistance 
from such organizations as State Health Insurance Assistance Programs 
and other medical hotlines or simply lack access to opportunities such 
as the Internet www.Medicare.gov and the 800 Medicare hotline. 
Additionally, some beneficiaries currently have difficulty comparing 
benefits available through Medicare fee-for-service with benefits 
available through Medicare+Choice plans.
    Medicare beneficiaries should have easy access to good information 
and benefit comparisons on the types of plans available. Beneficiaries 
need adequate, easy to understand information and clearly identified 
customer service representatives and insurance agents who can provide 
assistance by explaining coverage and benefit information and options. 
CMS can assist beneficiaries by recognizing that, because some 
beneficiaries desire more information on available plans, there is a 
need for a range of resources varying in scope and detail. The 
www.medicare.gov web site currently offers differing layers of 
information not elsewhere available to beneficiaries. These materials 
should be available to all beneficiaries, not just those with web 
access. CMS has begun to address this problem by increasing its ability 
to mail comparative information to beneficiaries who contact the 
Medicare hotline but who do not have Internet access.
    Beneficiaries also need additional assistance understanding 
Medicare claims and appeals procedures for denial of payment for 
services. CMS should expand efforts to clearly explain claims and 
appeals procedures should be provided to beneficiaries and providers.


    Statement of Vicki Gottlich, Center for Medicare Advocacy, Inc.
    The Center for Medicare Advocacy, Inc., (the Center) submits these 
written comments to be included in the record of the hearing set for 
December 4, 2001, on the ``Status of the Medicare+Choice Program.'' The 
Center is a non-profit organization which provides education, legal 
advice and representation to elders and people with disabilities who 
are unfairly denied Medicare and other health care coverage. Center 
staff provide legal advice, self help materials, and representation for 
elders and people with disabilities. We also provide training, support, 
and technical assistance to Connecticut CHOICES, the state's health 
insurance counseling program, and to Medicare advocates across the 
nation. We thank the Subcommittee on Health of the Committee on Ways 
and Means and its Chairman, Nancy Johnson, for holding this important 
hearing on how recent changes in the Medicare+Choice (M+C) program have 
adversely affected older people and people with disabilities.


    This is the fourth year in a row that M+C plans have announced 
withdrawals from Connecticut.
    ConnectiCare and MedSpan will withdraw from Medicare as of January 
1, 2002. Only two Medicare HMOs will remain, PHS/HealthNet and Oxford. 
This will leave Medicare HMOs only in Fairfield, Hartford and New Haven 
counties. The Medicare managed care terminations affect approximately 
39,000 Connecticut Medicare beneficiaries. In 2000, 52,000 Connecticut 
Medicare beneficiaries were affected when CIGNA, Aetna US Healthcare, 
and Antehm Blue Cross terminated their coverage. Health Net (then PHS) 
pulled out of two counties.
    But plan withdrawals are only part of the problem. I would like to 
focus on one of the two remaining Connecticut plans, Health Net, 
formerly known as Physician Health Services, or PHS, to demonstrate the 
impact of changes made by existing HMOs on those beneficiaries who are 
enrolled in the plans or who would like to enroll.
A. Enrollment caps

    In announcing that Health Net would remain in Connecticut, the plan 
also announced that the number of new members able to enroll in the 
plan would be limited. Oxford, the other remaining Connecticut plan, 
has already reached its enrollment cap and is not accepting new 
    This year, open enrollment (the annual coordinated enrollment 
period) for M+C plans runs from November 1 through December 31. Older 
people and people with disabilities in Connecticut who did not act 
immediately upon learning that their plans were leaving may have been 
foreclosed from joining another Medicare+Choice plan. One older woman 
explained to a Center staff attorney in mid-November that she reviewed 
the written material describing her M+C choices in Connecticut that the 
Centers for Medicare & Medicaid Services (CMS) sent, but by the time 
she called the remaining plan in her area the plan was only able to put 
people on a waiting list.
B. Changes in provider networks

    The Medicare Health Net plan for 2002 also announced that three 
hospitals previously in its network will NOT be participating in 2002. 
These are Hartford Hospital, Danbury Hospital, and Greenwich Hospital, 
three of the major hospitals in the area. Thus, unless the individual 
needs emergency or urgent care, services provided at any of these 
hospitals will not be covered in 2002. Further, physicians who have 
admitting practices only at these hospitals will not be able to 
participate in Health Net in 2002. Thus Health Net members who use 
these doctors, as a primary care physician or specialist, may have to 
seek new doctors, resulting in a disruption of care. Some enrollees who 
need hospital services will also have to travel longer distances to get 
those services.

C. Changes in benefit structure

    Health Net's Premiums for 2002 will increase by $20 per month, from 
$79/month to $99/month; co-payments for doctor visits will increase by 
$5 per visit, from $15/visit to $20/visit.
    Health Net also is adding co-payments for services for which the 
plan previously did not charge a co-payment. For example, the plan is 
going from a zero co-payment for dialysis services to a 20% co-payment. 
Inpatient hospital care and outpatient surgery were previously covered 
in full. In 2002, this will change dramatically. Enrollees will be 
responsible for a $500 co-payment per admission for inpatient hospital 
care and inpatient mental health care, and a $100 co-payment per 
surgery for outpatient surgery.
    The co-payment for generic prescription drugs will increase $3 per 
prescription, from $7/prescription to $10/prescription. Insulin will no 
longer be covered.

D. Effect on Medicare beneficiaries

    The following inquiry received by a Center staff member 
demonstrates the adverse impact of the new cost-sharing requirements on 
Medicare beneficiaries.
    A woman who is enrolled in PHS/Health Net has been going to the 
hospital every month for a series of immune globulin shots. She has not 
had to pay anything towards the cost of this treatment. PHS has 
informed the woman that the treatments involve inpatient hospital care 
and that, starting January 1, the woman will need to pay the $500 co-
payment each month. The woman was concerned about the accuracy of this 
information and her alternatives for obtaining treatment. She cannot 
afford this new and substantial cost for her health care.
    Assuming for purposes of this statement that the plan's 
characterization of the immune globulin shots as an inpatient hospital 
service is correct,\1\ the plan, under its new co-payment schedule, is 
indeed entitled to charge a $500 co-payment each month, as each month 
is a new hospital admission. The cost for the treatment through the M+C 
plan, therefore, clearly exceeds the cost to a beneficiary in 
traditional Medicare. If the woman disenrolled from the plan and 
returned to traditional Medicare, she would be responsible for a $812 
hospital deductible in January at the start of her new benefit period. 
Because she would be within the same benefit period for each subsequent 
month's hospitalization, and because she would not exceed 60 days of 
hospital care within this benefit period, she would not have to pay 
another co-payment for the treatment.\2\ Furthermore, if the woman were 
in traditional Medicare, she may have a Medicare supplemental (Medigap) 
policy that pays for the part A hospital deductible.\3\ Thus, she would 
be able to receive the treatment she needs without any out-of-pocket 
costs, just as she received the treatment cost-free in 2001 from the 
M+C plan.
    The simple answer seems to be that the woman should disenroll from 
her M+C plan, return to traditional Medicare, and purchase a Medigap 
policy. She is returning to traditional Medicare not because her M+C 
plan terminated its contract with Medicare, but because the change in 
her plan's benefit package makes the plan in appropriate for her health 
care needs.4 This will be possible in Connecticut because 
any insurance company which sells Medigap plans A through G must sell 
them to any Medicare beneficiary over age 65 at any time, regardless of 
age, gender, medical condition or previous health insurance claims 
history. This means that insurance companies are not allowed to 
medically underwrite plans A through G for any Medicare beneficiary 
over the age of 65. This, however, in other states that do not have 
such protective legislation, this would not be possible.


    Older people and people with disabilities who live in Connecticut 
are not the only Medicare beneficiaries to be adversely affected by 
changes in M+C plan benefit structures and plan networks. Similar 
problems are occurring around the country.
    In Boston, a major provider, the Leahy Clinic, pulled out of the 
Tufts Secure Horizons plan, effective November 1, 2001. Affected 
beneficiaries who wanted to remain with their providers associated with 
the Leahy Clinic were able to change plans effective November 1. 
However, they will not have the same opportunity to change plans to 
continue care with their provider next year after the ``lock-in'' takes 
effect. Also in Massachusetts, Blue Cross& Blue Shield of Massachusetts 
will impose a $25 per day co-pay for days 1-20 of a skilled nursing 
facility stay starting January 1. No co-payment for those days is 
charged in traditional Medicare.5
    The Kaiser M+C plan serving Central Maryland, including counties in 
the Washington, D.C.--Baltimore corridor, has also increased its 
premiums by $20-$30, depending on the plan, and increased per-provider 
co-payments. Like the Connecticut Health Net plans, Kaiser will be 
imposing a per hospital stay co-payment--in this case $300 per stay. 
Again, a beneficiary who requires several hospital stays in what would 
be one spell of illness under traditional Medicare will end up paying 
more out-of-pocket than if she were in traditional Medicare.
    The California Council of the Alzheimer's Association reports that 
many M+C plans in that state have sent letters to enrollees saying the 
plans no longer have to provide beneficiaries with brand name 
prescriptions and will only make generic drugs available to them. 
Although some of the plans imply that the change in policy comes from 
CMS, CMS staff have assured the Alzheimer's Association that they have 
no such policy. The decision to limit prescription drug coverage to 
generic drugs is a decision made independently by each plan.
    The shift to coverage of generic drugs only has a pernicious effect 
for people with Alzheimer's disease, certain cardiac conditions, and to 
people who rely on insulin. There are no generic equivalents for the 
name brand medicines they take. As a result, these beneficiaries are 
losing prescription drug coverage, often while paying increased 
premiums to the same plan.


    The Center for Medicare Advocacy, Inc. supports enactment of HR 
3267, the Medicare+Choice Consumer Protection Act. The bill addresses 
problems being encountered by beneficiaries by:
          (1) eliminating the M+C lock-in scheduled to phase in 
        starting in January 2002;
          (2) extending the existing Medigap protections that apply to 
        people whose M+C plan withdraws from the program to anyone 
        whose M+C plan changes benefits or whose doctor or hospital 
        leaves the plan; and
          (3) prohibiting M+C plans from charging higher cost-sharing 
        for a service than Medicare charges in the fee-for-service 

A. Lock-in

    When the lock-in provisions were enacted as part of the Balanced 
Budget Act of 1997, Congress assumed that the M+C market would be more 
stable than it is today. Congress wanted to insure that beneficiaries 
would be able to continue the care they were receiving in a plan, and 
to protect them if a plan wanted to discharge them because the care 
they needed was too much or too costly.
    Instead, plans are choosing to enter and leave M+C markets more 
frequently than anticipated. Doctors and other providers, both 
individually and in networks, also are choosing to join and leave M+C 
plans with unexpected frequency. Medicare beneficiaries therefore need 
to retain the choice they currently have to leave one M+C plan and join 
another, or to leave and return to traditional Medicare, in order to 
continue care under a provider or to seek other care if their current 
plan no longer meets their needs.

B. Extending Medigap protections

    One of the major purposes of the M+C program is to provide a 
beneficiary with the choice of how she wants to receive her Medicare. 
When a provider leaves a network, or a plan changes its benefit 
structure dramatically, the plan no longer meets the needs of the 
beneficiary in the same way as a plan that leaves the Medicare market 
no longer meets the beneficiary's needs. In theory, the beneficiary has 
the choice of returning to traditional Medicare and purchasing a 
Medigap policy. In practice, however, the beneficiary may not be able 
to exercise this choice because she may not be able to find a Medigap 
insurer that will issue her a policy. By extending the Medigap 
protections to beneficiaries who lose their M+C plans in the above 
situation, Congress will make the choice a reality.

C. Prohibiting higher cost-sharing than in traditional Medicare

    Many plans have imposed higher cost-sharing than traditional 
Medicare for services needed by the sickest and neediest 
beneficiaries--inpatient hospital stays, skilled nursing facility 
stays, home health care, and durable medical equipment. The effect of 
these co-payments is to make the plans less desirable for these 
beneficiaries, and to discourage their enrollment in the plans. As a 
result, plans can keep costs down by either not having to provide 
services to people with acute and chronic conditions, or by shifting a 
larger portion of the cost of these services onto the beneficiaries. 
Though M+C plans are prohibited from discriminating against 
beneficiaries on the basis of medical condition, claims experience, 
receipt of health care, or medical history,6 the plans in 
effect have achieved the same result as if they refused up front to 
enrollment beneficiaries who need these expensive services.
    Furthermore, unlike the woman in Connecticut who contacted the 
Center for Medicare Advocacy, most beneficiaries do not know in advance 
that they will need extensive hospital care, skilled nursing care, or 
home health services. They may not review plan benefit packages for 
hospital co-payments, focusing instead on doctor co-payments and 
prescription drug coverage. Thus, if a need for such extensive care 
arises suddenly, they may be unprepared to make the co-payments. 
Further, unlike in traditional Medicare, there is no supplemental 
insurance to cover the large out-of-pocket expenses. Beneficiaries who 
are not wealthy enough to self-insure will be stuck with large bills, 
at a time when they are already in a crisis dealing with an unexpected 
health care problem. And, unfortunately, most beneficiaries do not have 
access to attorneys or other proficient Medicare advocates.
D. Universal prescription drug coverage

    The California example of the shift from inclusive prescription 
drug coverage to generic coverage only underscores the need for a 
universal prescription drug benefit that is part of the Medicare 
    The decision by the private M+C plans to further restrict their 
drug benefit is based on their needs and not on the needs of their 
enrollees. As pointed out, the change has the effect of discriminating 
against people with chronic conditions for which there are no generic 
equivalents. These people are paying for a prescription drug benefit 
that is not available to them.
    Medicare beneficiaries need a uniform, affordable, accessible 
benefit that is part of the Medicare program to assure that their 
health care needs are met.


 Statement of the Hon. Steve Israel, a Representative in Congress from 
                         the State of New York
    Good morning, Madam Chairwoman, Congressman Stark, and my 
distinguished colleagues. I would like to thank you for allowing me to 
speak to you this morning regarding the Medicare+Choice program and the 
bipartisan bill that I have introduced with Congressman Grucci of New 
York to help stabilize the Medicare+Choice program.
    This fall, hundreds of thousands of seniors and other 
Medicare+Choice beneficiaries have been informed that their managed 
care health plans have left their communities because of inadequate 
payments, and that they will have to find new coverage and possibly 
spend more out of their limited incomes for the health care services 
that they need. I would like to bring to light the plight of millions 
of America's seniors and other Medicare+Choice beneficiaries who have 
been forced back into fee-for-service Medicare because of the exit of 
their health plan including thousands in my own district. In large 
part, the problems generated by this underfunding can be seen as 
unintended consequences of the Balanced Budget Act of 1997 (BBA).
    The BBA created a new program called Medicare+Choice. At the time, 
the BBA placed a strong emphasis on controlling future Medicare 
spending, in private health plans as well as in fee-for-service 
Medicare, as part of a broader effort to balance the Federal 
Government's budget. One of the key goals of the BBA was to increase 
Medicare beneficiaries' access to private health plans through 
Medicare+Choice--the idea being that America's seniors deserved the 
choices and expanded benefits that only health plans would deliver. 
While the BBA clearly achieved its objective of limiting spending 
throughout the entire Medicare program, this accomplishment has had the 
unintended consequence of reducing beneficiaries' access to health 
plans because of underfunding. Thus the BBA has diminished health care 
choices for Medicare beneficiaries in certain areas of the country in 
recent years.
    Over the past three years, there has been a building consensus in 
Congress that the unintended consequences of the Balanced Budget Act 
(BBA) of 1997 have put severe pressure on the Medicare market as a 
whole, and Medicare+Choice health plans in particular. Payment levels 
in some parts of the country are so inadequate that health plans cannot 
meet the cost of health care services in those markets, and, they are 
having to drastically alter their benefit packages or leave these 
markets altogether. As you may know, there is bipartisan support for 
stabilizing the Medicare+Choice program and, in each of the past three 
years, there have been numerous bills introduced in Congress to deal 
with the issue of underfunding. The recognition of this larger problem 
led Congress to enact the Balanced Budget Refinement Act of 1999 as 
well as the Benefits Improvement and Protection Act of 2000 in a much-
needed effort to stabilize the Medicare+Choice Program.
    However, the Medicare+Choice program continues to be significantly 
underfunded in those areas of the country with the highest 
concentration of health plan members--these are the markets where 
payments to health plans for next year will increase by only two 
percent. These are also the large urban and suburban areas where the 
cost of medical services and inflation have been rising at up to ten 
percent per year. Close to 70 percent of Medicare+Choice beneficiaries 
are enrolled in these ``two percent'' counties. These are the people 
who need our help immediately so that they may continue to have access 
to the comprehensive benefits packages offered by health plans.
    The instability of the program is especially troubling for 
enrollees who will have to either change their health plan or return to 
the Medicare fee-for service program next year because inadequate 
funding has forced their health plans to withdraw from the program. In 
January 2002, more than 530,000 seniors and other beneficiaries will 
have to change their health coverage as a result of these inadequate 
payments. This is in addition to the more than 1.6 million 
beneficiaries that have been adversely affected since 1998. Many other 
beneficiaries will face higher premiums or less comprehensive benefits 
packages for next year. Although more than 60 percent of beneficiaries 
enrolled in managed care plans receive some level of drug benefit this 
year, that number could also continue to fall because of inadequate 
funding. As a point of comparison, one need only look at 1999, when 84 
percent of Medicare+Choice beneficiaries had access to some type of 
drug benefit. Those beneficiaries who have prescription drug coverage, 
today, are seeing tighter caps on their benefits. The percentage of 
Medicare+Choice enrollees who have an annual cap of $500 or less on 
their prescription drug coverage has increased from 11 percent in 1999 
to 27 percent in 2001. The erosion of this much-needed benefit is one 
of the most glaring results of the underfunding of Medicare+Choice.
    Many of the beneficiaries affected by plan withdrawals have been 
able to enroll in another Medicare+Choice plan in their area. However, 
a significant number have been left with only one option--enrolling in 
the Medicare fee-for-service program, which offers less comprehensive 
coverage and requires higher out-of-pocket costs than the typical 
Medicare+Choice plan. Millions more have experienced a reduction in 
benefits or an increase in out-of-pocket costs, including premiums, 
even though they were able to keep their Medicare+Choice plans.
    Further evidence of the underfunding of Medicare+Choice plans is 
not too hard to find. A simple comparison of the government's payments 
to other parts of Medicare is the clearest reminder of the inadequacy 
of payment--Medicare+Choice plans in counties with almost 70 percent of 
total enrollment received a three percent increase in funding this 
year, a figure that pales in comparison to the increase in the Medicare 
fee-for-service rate nationwide over the same time period. The Centers 
for Medicaid and Medicare Services (CMS) has projected that Medicare 
fee-for-service spending, when measured on a per capita basis, 
increased by 9.6 percent in 2001. As a continuing comparison to other 
sectors within health care--a survey by the Kaiser Family Foundation, 
based on responses from more than 1,900 employers, indicates that 
premiums for employer-sponsored health coverage increased by an average 
of 11 percent from spring 2000 to spring 2001. Any serious effort to 
stabilize the Medicare+Choice program must directly address these 
concerns by committing a significant level of additional funds to 
support the health benefits of Medicare+Choice enrollees.
    New York state has almost 400,000 beneficiaries enrolled in 
Medicare+Choice plans, a majority of whom live in counties where plans 
have been limited to a two percent annual update since the BBA of 1997. 
In September of 1999, 12 HMOs offered seniors health plans in Suffolk 
County. Now only two remain.
    This year, CMS reports that 65 Medicare HMOs did not renew their 
contracts, leaving an additional 160,000 senior citizens in America 
with no Medicare HMO option. Since 1998, more than 46,500 seniors and 
other Medicare+Choice beneficiaries have been affected in Suffolk 
County alone.
    This is intolerable. Most seniors enroll in HMOs for coverage not 
provided by Medicare, but HMOs across the country are unable to renew 
their contracts with the Federal Government, leaving seniors without 
access to a prescription drug plan. In January 2002, 16,000 more 
Medicare+Choice enrollees throughout the state of New York will be 
adversely affected because of these chronic problems of underfunding.
    Moving forward, I urge this Committee and all Members of Congress 
to seriously consider the following remedy to the immediate funding 
inadequacies in Medicare+Choice----
    As you may know, I have introduced a bill that will help to prevent 
further disruptions for Medicare beneficiaries in the coming year. The 
``Medicare+Choice Equity and Access Act'' (H.R. 2836) is a bipartisan 
bill introduced with my co-sponsor, Felix Grucci, Republican of the 
First District of New York. You also may know that a bipartisan bill 
was also introduced in the Senate by Senators Schumer of New York and 
Santorum of Pennsylvania who are also committed to stabilizing the 
Medicare+Choice program. The Israel-Grucci bill will work to bolster 
payments to the Medicare+Choice program, particularly in those areas 
that have not been targeted for relief by the Balanced Budget 
Refinement Act of 1999 (BBRA) and Benefits Improvement and Protection 
Act of 2000 (BIPA).

           H.R. 2836 adds a new element to the Medicare+Choice 
        payment formula to allow plans to receive payments equal to 100 
        percent of local fee-for-service rates. Medicare+Choice plans 
        in many areas have received payment updates of only two or 
        three percent every year since the Balanced Budget Act of 1997 
        (BBA) was enacted. Adding a new payment element--equal to 100 
        percent of local fee-for-service rates--would provide more 
        equitable payments to plans that have received only the minimum 
        annual payment update in recent years when their costs have 
        been increasing at two or three times that rate.
           H.R. 2836 eliminates the BBA's budget neutrality 
        requirement to allow the ``blend'' component of the 
        Medicare+Choice payment formula to be implemented. The BBA 
        established the ``blend'' in an effort to provide for a more 
        equitable distribution of resources in response to concerns 
        that Medicare managed care payments varied unfairly across 
        geographic regions under the old payment system. However, the 
        BBA's budget neutrality requirement has resulted in the 
        Medicare+Choice payment ``blend'' being funded in only one year 
        since the BBA was enacted. Eliminating this requirement would 
        allow Medicare+Choice plans to receive the higher ``blended'' 
        payments that Congress originally intended.

    By targeting assistance to areas that have received little or no 
assistance under BBRA or BIPA, we have managed to develop a solution 
that has the potential to complete the job of stabilizing the 
Medicare+Choice program. An opportunity still exists, if we act 
promptly, to save the Medicare+Choice program and ensure that Medicare 
beneficiaries continue to have access to the wide range of high-
quality, affordable health care choices they deserve. I would like to 
remind my colleagues again that the future of Medicare rests with this 
Congress, and the first step in that future would be to deliver on the 
promises made by this body to America's seniors and disabled 
beneficiaries--we have to maintain a viable Medicare+Choice program to 
ensure that we can build on it when considering future avenues in 
Medicare reform.
    Thank you for your time and the opportunity to testify before this