[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE MODERNIZATION: EXAMINING THE FEDERAL EMPLOYEES HEALTH BENEFIT
PROGRAM AS A MODEL FOR SENIORS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MARCH 20, 2002
__________
Serial No. 107-105
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U. S. GOVERNMENT PRINTING OFFICE
78-505 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Butler, Stuart M., Vice President for Domestic and Economic
Policy Studies, Heritage Foundation........................ 32
deMontmollin, Stephen J., Vice President and General Counsel,
AvMed Health Plan.......................................... 40
Jindal, Hon. Bobby P., Assistant Secretary for Planning and
Evaluation, U.S. Department of Health and Human Services... 16
Moon, Marilyn, Senior Fellow, Urban Institute................ 22
Richtman, Max, Executive Vice President, National Committee
to Preserve Social Security and Medicare................... 38
Material submitted for the record by:
Advanced Medical Technology Association, prepared statement
of......................................................... 85
Alliance to Improve Medicare, prepared statement of.......... 86
American Psychiatric Asdsociation, prepared statement of..... 88
Butler, Stuart M., Vice President for Domestic and Economic
Policy Studies, Heritage Foundation, response for the
record..................................................... 92
deMontmollin, Stephen J., Vice President and General Counsel,
AvMed Health Plan, response for the record................. 96
Moon, Marilyn, Senior Fellow, Urban Institute, response for
the record................................................. 99
Richtman, Max, Executive Vice President, National Committee
to Preserve Social Security and Medicare, response for the
record..................................................... 95
(iii)
MEDICARE MODERNIZATION: EXAMINING THE FEDERAL EMPLOYEES HEALTH BENEFIT
PROGRAM AS A MODEL FOR SENIORS
----------
WEDNESDAY, MARCH 20, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Deal, Burr,
Whitfield, Ganske, Norwood, Bryant, Buyer, Brown, Waxman,
Strickland, Barrett, Capps, Pallone, Wynn, and Green.
Staff present: Patrick Morrisey, majority counsel; Steve
Tilton, health policy coordinator; Chuck Clapton, majority
counsel; Eugenia Edwards, legislative clerk; Amy Hall, minority
professional staff; Bridgett Taylor, minority professional
staff; Karen Folk, minority professional staff; and Nicole
Kenner, minority research assistant.
Mr. Bilirakis. The hearing will come to order. The Chair
apologizes to the panelists, as well as to the people in the
audience. Frankly, we could not get on an elevator that had
room for us.
As per usual, and as per the rules, the Chair will
recognize himself and the ranking member for 5 minutes, and all
others for 3 minutes for an opening statement. I would like to
welcome all of our distinguished witnesses.
You all provide such valuable insight as we tackle these
daunting issues, and I anxiously await your testimony, but I
would particularly like to welcome Steve deMontmollin and Bobby
Jindal.
As many of you may know, Bobby, Mr. Jindal, was the former
executive director for the Bipartisan Medicare Commission on
which I served as a member.
Mr. Jindal then took his expertise to Louisiana, and is now
back helping the Nation as the Assistant Secretary for Planning
and Evaluation at the Department of Health and Human Services.
It is a pleasure to see you again and I look forward to
working with you as we continue to tackle this continuing
problem of modernizing Medicare.
Steve serves as the Vice President and General Counsel for
AvMed, the largest not for profit health plan in Florida, and
he is also a fellow Gator as I understand.
I am pleased to say that AvMed has been providing quality
services to many people in my home State of Florida, and many
other States since 1973. It is always a pleasure to welcome
someone from my home State before the subcommittee.
Unfortunately, I understand that AvMed pulled its Medi-
care+Choice plan out of my Congressional district. I am hopeful
that you will be able to speak in your opening statement as to
why AvMed was forced into making that decision.
And I look forward to hearing about what I can do to
encourage AvMed to come back to the district. I know that close
to fifteen hundred Medicare beneficiaries were enrolled with
AvMed, and I am sure that they would love to renew their
service if you are willing return to the area.
This is very important to me. I want to make sure that if
we are going to help beneficiaries maintain access to choices,
then we fix the problems in such a way that at a minimum, it
ensures that plans will stay in Medicare+Choice and hopefully
return to the program.
Since first coming to Congress, I have pledged that I would
not jeopardize the future of Medicare. The hearing today will
afford us the opportunity to hear from experts in how we might
design a proposal to mirror the structure of the Federal
Employees Health Benefits Program, FEHBP.
As many of you know, FEHBP provides many of us with our
health coverage, and works very well as a national employer
offered plan. I believe that there are many lessons that we can
learn from this program that could, and should, be considered
as we move forward with a Medicare modernization package.
Modernizing the Medicare program and its benefit package to
include prescription drugs, in an appropriate fashion, is
certainly most critical. It is no great secret that the
Medicare program is in dire straits. The financial health of
the program is in extreme jeopardy, the benefit package is
woefully inadequate, and the payment structures and systems are
inefficient and inappropriate.
We must work quickly and expeditiously together to develop
legislation that improves the benefit package, but also does
not bankrupt the country and risk the underlying benefits in
the process.
Structural reform of Medicare is central to the broader
debate of protecting and strengthening the program for the
future. Many experts agree that if Medicare was being designed
today, the two-part system that drives this payment policy
would probably not be adopted.
At the same time, it may be difficult for us to
dramatically alter this program in the short term. However, it
is crucial that our legislation be designed to move us closer
to a more modernized Medicare program.
So I would like to think that we are all committed to
protecting the long term solvency of the Medicare program, and
we all look forward to a productive hearing today, which will
shed light on some of the fundamental issues in this debate.
The financial viability of this crucial program and the
cost sharing liability of Medicare beneficiaries are some of
the key issues that we must address as we move forward. This
subcommittee has a strong record of working on a bipartisan
basis, and we must continue to work together to find a
bipartisan solution.
This hearing will help bring us closer to accomplishing
that goal as we evaluate the challenging issues inherent in any
Medicare reform proposal. So again, in closing, I want to thank
our witnesses for their time and effort in joining us, and I
now recognize the ranking member, Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. I just want to thank
Marilyn Moon for joining us and for Max Richtman for joining us
also. I appreciate the chairman's sincerity, and I know from
working with him closely over the years that his personal
interest in the welfare of Medicare beneficiaries.
But I am concerned that our first hearing on Medicare
reform focuses on privatizing this program that has served
Americans well for 36 plus years. Our first responsibility is
to add a prescription drug benefit to Medicare.
It is not right to condition our willingness to complete
the Medicare benefits package on seniors' willingness to give
up reliable, stable health benefits delivered through Medicare.
The administration has made it clear that it feels
differently. Let's face it. The big winner in Medicare
privatization, or the big winners, are Medicare HMOs and not
Medicare beneficiaries.
The President's budget neglects the resource needs of every
Medicare provider, and just listen to people at home, the
resource needs of every Medicare provider except +Choice plans.
The administration says that this is because for some
seniors Medicare+Choice is a means of accessing supplemental
benefits like drug coverage. What about the other 84 percent of
seniors?
Why most seniors accept private coverage to receive
appropriate health benefits. I am interested in hearing what
our five witnesses have to say about privatization of Medicare.
But I won't be a party to the notion that privatization of
prescription drug coverage must be linked, or to the inference
that the financial stability of HMOs is more important than the
stability of 38 million Medicare beneficiaries.
The idea of turning Medicare into a voucher program has
been kicking around Congress for several years. I understand
why proponents of this approach would want to couch the issue
as a choice between Medicare and FEHBP as if the voucher
approach means giving seniors the added benefits available
under that program, namely prescription drug coverage, lower
cost sharing, with no strings attached.
It is far more politically palatable than coming out and
saying the Federal Government is considering whether to
transform Medicare from a defined benefit program into a
defined contribution program, and people know what that means.
President Bush has certainly embraced the FEHBP rhetoric.
He says that he wants to give seniors better options, like
those available in FEHBP. The President has also said that he
wants to help seniors pay for prescription drugs if they agree
to enroll in an HMO and purchase stand alone prescription drug
coverage.
The President for sure has every right to push his
privatization agenda, but not by co-oping on an issue as
emotional and important as prescription drug coverage. The
President should not go unchallenged when he mischaracterizes
Medicare as a failed program so that he can justify his goal of
privatizing it.
Whether it is Medicare privatization or social security
privatization, it is disingenuous of this administration to
portray privatization as in some way better for the people who
depend on these programs.
The retirement safety net was not put in place because
liberals wanted to make the Federal Government bigger. It
should not be dismantled because conservatives want to make the
Federal Government smaller.
The safety net was put in place because the private sector
simply could not make a profit offering health insurance to
seniors, and so they did not do it. And it was put in place
because the Nation believes that Americans who helped build
this Nation's unrivaled prosperity through their working years
should not face financial uncertainty and hardship when they
retire.
Pooling our resources into public programs was and is the
best way to provide consistent, equitable, reliable income and
health care benefits to our seniors. The stock market and the
HMO industry may be good at many things, but alleviating
uncertainty is not one of them.
And now the future of Medicare is on the line, and the
President says that seniors deserve better options than
Medicare, and that's why he favors privatization. A private
plan superior to Medicare, would seniors be better off with a
voucher that helps pay for coverage on an HMO?
Medicare is more reliable than private health plans.
Medicare offers more choice, and offers more choice in spite of
the word choice being thrown around at every opportunity.
Medicare offers more choice than private health plans and
operates more efficiently than private health plans.
It is more popular than private health plans according to a
survey conducted by the nonpartisan Commonwealth Fund and
Medicare far outranks private insurance as a trusted source of
health coverage.
But the administration insists that it wants to give
seniors more choice and better options than Medicare. Is it
better to have your choice of HMOs than to have coverage that
you can count on every day, every week, every month, every
year?
The Medicare program covers medically necessary care and
services and that beneficiaries can see the health care
professional they choose, and go to the health facility they
choose.
Those are the choices that matter in health care. It is a
single plan and it treats all beneficiaries equally and
provides maximum choice and access for patients and doctors.
Contrast that with Medicare vouchers.
Instead of being guaranteed access to needed health care
services, seniors would be guaranteed access to a partial
voucher for private health insurance. Proponents say that this
program creates choice by enabling seniors to choose the health
plan that best meets their needs.
But what exactly would distinguish one plan from another?
Realistically, the key differences would have to relate to the
generosity and restrictiveness of the benefits, and whether you
can see a doctor that you can trust, whichever one is assigned
to you, or whether you can get the medicine your doctor
prescribes, or the cheapest one on the formulary list.
It appears that choice is actually a code for wealth.
Higher income seniors can afford to supplement the voucher and
buy a decent plan. Lower income enrollees would be relegated to
restrictive alternatives. Some choice.
Again, Medicare is a single plan, Mr. Chairman, that treats
all beneficiaries equally, provides maximum choice and access
for patients.
Mr. Bilirakis. Please finish up.
Mr. Brown. I will do that, Mr. Chairman. I apologize. If
the administration truly wanted to give seniors something
better, there would be sufficient dollars, $700 billion or so,
in the budget to add a meaningful prescription drug benefit to
Medicare.
Instead, we get a tax cut with benefits overwhelmingly to
the most privileged in our society, with only a few dollars
left for prescription drugs for our constituents.
Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Deal for an opening statement.
Mr. Deal. Mr. Chairman, I will pass.
Mr. Bilirakis. Mr. Burr for an opening statement.
Mr. Burr. Thank you, Mr. Chairman. I would be happy to
yield to Mr. Norwood if he would like it.
Mr. Norwood. No, go ahead.
Mr. Burr. Mr. Chairman, I will be very brief. I think Mr.
Brown did an excellent job of summarizing where we have been
and how we got there. Let me take this opportunity to welcome
all of our panelists today, and suggest that a lot of time a
lot of bipartisan effort has gone into understanding that there
is a need to change some things in Medicare.
It is time to have a debate on what the scope of coverage
should be, and should that include prescription drugs. Should
we offer different choices to seniors on how they access their
care. Can we offer a more quality way to provide that care.
To take anything off the table is to suggest that they are
satisfied with what they get today. In many cases that is not
the case. We have got a lot of things in health care that are
broken, and the time to modernize Medicare is now.
Every year that we wait and we make it a partisan issue, we
lose options. We lose options that affect the quality of care
and affect the costs to the taxpayers.
Now, my hope this year is that we can pass a prescription
drug bill into law, and not just through the house, and see it
die by Senate leadership, choosing to use it as a political
issue in the November elections, versus as a policy issue for
the seniors that deserve it.
I am not sure that we can accomplish that. But if we can,
we should take every opportunity to put Medicare reforms where
they are appropriate, and where we can find agreement, and
where they save us money, and where they increase the quality
of care for seniors.
We should take that opportunity to do it now, and at the
end of the day, we are responsible to make sure that the
program that is provided under this insurance--and I call it an
insurance-based product because people pay into it.
They pay their entire lives to make sure that this coverage
is provided for them, and the only way we fail is if we don't
structure it in a way that it provides the greatest benefit for
the money that is available. I again want to thank our
witnesses, and I yield back.
Mr. Bilirakis. Mr. Waxman, you are recognized for 5
minutes.
Mr. Waxman. Thank you very much, Mr. Chairman, and I am
pleased to welcome the panelists today to talk to us about this
issue which I gather is titled, ``Looking at the Federal
Employees Health Benefit Plan,'' and seeing whether that is a
good model for Medicare.
Well, I have to tell you that I think that the FEHBP is a
good model in one particular respect, and that is that
prescription drugs are covered under the employee plans that we
have available to us, but prescription drugs are not now
available to Medicare beneficiaries.
If we decide, as I think the overwhelming consensus of the
American people, and of all the politicians that ran for office
in this last election, if we decide to follow that consensus
and cover prescription drugs under Medicare, and make it as
generous as the employee benefit plan, we are looking at an
expenditure of $750 billion over the next 10 years.
I think we ought to commit ourselves to passing a
meaningful prescription drug benefit plan as part of Medicare.
It ought to be a service the way doctor bills, hospital bills,
and other medical services are now covered under Medicare.
And we ought to recognize that it is going to cost money to
do it. As to the rest of the Federal health benefit plans being
a model, well, I don't think the people under Medicare are
unhappy with Medicare.
In fact, most of them like the way that the Medicare
program works. It has been a Godsend to them that they are not
wiped out by high medical bills. I don't think they are looking
for more choices and a wider array of plans that will be very
hard for them to comprehend whether they want to take on more
costs to themselves, and less benefits, and looking at
alternatives that might vary the premium from one part of the
country to another.
As Sherrod Brown indicated, what people on Medicare want is
a choice of doctors, and choice of medical professionals, and
not hopefully to rely on a fixed panel to provide their
benefits to them.
We ought to recognize something else about FEHBP. These
plans frequently limit providers and they don't exceed any more
than Medicare in containing costs. If we are going to reduce
Federal expenditures by shifting costs to the beneficiaries,
this is not a reasonable solution.
And if we are going to cover eventually nearly twice as
many people, it only stands to reason that we are going to need
to make a very significant increase in our commitment of
resources to the Medicare program. We owe our seniors no less,
and I yield back the balance of my time.
[The prepared statement of Hon. Henry A. Waxman follows:]
Prepared Statement of Hon. Henry A. Waxman, a Representative in
Congress from the State of California
Mr. Chairman, once again we find ourselves at a hearing discussing
how to make fundamental changes in the Medicare program. I find a
certain irony in this since Medicare has long been, and remains, one of
the most popular and widely supported of our public programs, ranking
with Social Security.
And this is no accident, for this Mediare has been a crucial
support for seniors and disabled people in this country. It is indeed,
vital to their economic security and their peace of mind, to know that
their health care expenses will be covered.
Of course, Medicare isn't perfect. It has one glaring deficiency
that is at the top of seniors' list of what needs to be ``modernized''
in the program: it needs a good, affordable, comprehensive prescription
drug benefit. It is that change that we owe it to all our Medicare
beneficiaries to immediately pursue.
Today we are looking specifically at the Federal Employees' Health
Benefits Program (FEHBP) as a model for changes in Medicare. Again, as
I look at that program, I see an obvious model for what we need to do
in Medicare: add prescription drug coverage.
And let's be clear: that is not adding coverage on the cheap.
All estimates are that to add to Medicare prescription drug
coverage equivalent to what Federal employees and members of Congress
have, will take a commitment of somewhere in the neighborhood of $750
billion over the next ten years.
I firmly believe this is a commitment we should make, and we should
do it now. Waiting isn't going to make it any easier or any cheaper.
Once we adopt that improvement, we will have responded to the
``reform'' in Medicare that the beneficiaries want.
But there are other things they want, and one of them is that we do
not undermine the current strengths of the program.
Beneficiaries want to maintain their choice of provider, they like
having a defined benefit plan so that they know what benefits are
covered, they like to know that their premium will be the same no
matter where in this nation they live.
The rhetoric that we will hear today about what the FEHBP program
can offer is choice: why shouldn't seniors have the choices that
Federal employees have, we are asked.
Well, the choice people want is not to face a bewildering array of
plans, all with different benefits, participating providers, cost
sharing and coverage. They want to be unrestricted in their choice of
their doctor. They want to be able to go to the hospital their doctor
recommends. And yes, they want the drugs their doctor prescribes.
FEHBP plans frequently limit providers. To go to the doctor of your
choice, you have to pay more out of pocket. I don't believe this is a
choice our Medicare beneficiaries are calling out for.
Finally, of course we all know that we have to deal with the issue
of the baby boomer generation going on Medicare. It means that Medicare
will have to cover many millions more seniors.
But when we deal with that problem, let's remember a few things:
--FEHBP has been no more successful at containing costs than Medicare
has;
--reducing Federal expenditures by shifting costs to the beneficiaries
is not a reasonable solution; and
--if we are going to cover eventually nearly twice as many people, it
only stands to reason that we are going to need to make a very
significant increase in our commitment of resources to the
Medicare program.
We owe no less to our seniors.
Thank you.
Mr. Norwood [presiding]. Thank you, Mr. Waxman, and I now
recognize myself for 15 minutes. Just kidding. This is a very
appropriate hearing for us to be holding today, and I look
forward to the witnesses testimony and thank all of them for
being here.
Hearings are a time in which members can learn and study,
and try to make some decisions, and we are certainly at a time
in the life of Medicare that we need to be learning, and
listening, and thinking out of the box.
I am deeply concerned about the future of Medicare.
I believe we are approaching a point with Medicare where a
senior's access to care, and indeed even the quality of care,
is in jeopardy.
And perhaps it is because of the way that Medicare is
structured, and perhaps there is another better way to
structure it. Certainly the Medicare model makes sense or made
sense when it was created 37 years ago.
It was a fee for service model, and a patient sees a
doctor, and the doctor sends Medicare a bill, and the Medicare
pays the doctor, and that is how the coverage worked 37 years
ago.
But I think we are learning all too well that is a very
expensive model that consistently leads us to difficult
choices.
When we need to balance a budget, we have to either
increase payroll taxes, or increase the premiums paid by
seniors, or reduce the services, or reduce payments to
providers.
Lately, it seems that reducing payment to providers seems
to be our only answer. It is the problem that we face today,
and it is only going to get worse in my opinion in the future.
I am not convinced that Medicare can be sustained if we
don't look at new ways to provide seniors health care coverage
other than the original model, and I think we are obligated to
think about that, and look, and study other ways.
Mr. Chairman, ever since the Medicare Commission report
several years ago, we have been examining FEHBP as a model for
Medicare, and I think it is a very appropriate model for at
least for us to consider, and seniors think that, too, at least
in my district.
Providing seniors with a range of choices and allowing
private coverage to compete can provide improved coverage for
seniors, and I am also very interested in learning more about
what this type of structure could do for Medicare's long term
financial solvency.
It is important for us to consider alternatives as we
examine the future of Medicaid, and not have our mind made up
before we even consider it. As we have seen with physician
payments, it is becoming more and more difficult for us to
sustain Medicare's 37 year model without affecting access or
services.
I hope that se can engage in a serious conversation about
modernizing Medicare. It is not in the interest of seniors for
us to bury our heads in the sand and to act as though
everything is just fine with Medicare. It is not, and it is not
getting any better.
I do again thank the witnesses for joining us today, and
look very forward to hearing their testimony, and I would yield
back the balance of my time.
Mr. Pallone, you are now recognized.
Mr. Pallone. Thank you, Mr. Chairman. I just wanted to--I
am obviously in favor of modernizing Medicare as well, but what
I am concerned about here is that I think what the Republicans
are talking about today when they mentioned the Federal
Employees Health Benefits Program as a model is that they are
trying to squeeze more money if you will out of Medicare.
And the problem is that we have to shore up Medicare. We
can't keep taking away, and we need to shore up and not take
away from Medicare for other health-related health care
expenses.
When we talk about modernization, the biggest issue as has
been mentioned by my Democratic colleagues is to provide a
prescription drug benefit, and in order to do that, we need to
spend more money.
I mean, if we want to have a decent prescription drug
benefit, we will probably need as was mentioned by Sherrod
about $750 billion over a 10 year period. And my main concern
is that what the Republicans want to do in the name of reform
or change in Medicare is to move to a voucher system, and that
this is all budget driven.
The Federal Government would in effect provide a set amount
or voucher toward Medicare, and in effect to save money.
Seniors would then take the voucher and try to find a plan to
cover them, and seniors who want traditional fee for service
Medicare would have to pay more out of pocket.
And the poorer ones would end up choosing a cheaper option,
like an HMO. And the effect I think it to kill traditional
Medicare for most seniors and force them into an HMO that
provides less and less coverage.
And as the budget continues to have budgetary problems
because we are spending money elsewhere, what the Republicans
would do is to freeze the voucher amount to save money, and
seniors would get less benefits and poor quality care, and what
they are doing here again is to kill the traditional Medicare.
There would no longer be any guaranteed benefit package,
and the benefits would vary from region to region, and based on
your ability to pay. And it would undermine the idea of
Medicare being a social insurance program for anyone.
In addition the Republicans are essentially privatizing
Medicare. Their private health plans that have abandoned
hundreds of thousands of seniors, like Medicare+Choice plans,
and in the last 2 years over 100 plans dropped out of
Medicare+Choice altogether.
And an additional greater than a hundred plans reduced
their service areas, and many other plans increased premiums
and reduced benefits. Why should we assume that this
privatization is going to help in any way in trying to make
Medicare better.
Compared to private health insurance plans, Medicare has
done a much better job of controlling per person health care
costs, and therefore there is no reason to turn Medicare over
to the private sector.
That has been shown over the last 30 years that per person
private health insurance costs have increased faster than
Medicare. Therefore, for protecting Medicare solvency, that
should not depend on private health plans.
And, last, Mr. Chairman, the Federal Employees Health
Benefit Program as a model for restructuring Medicare doesn't
work, because the FEHBP system has not moderated costs better
than Medicare.
It serves a much smaller population that is younger,
healthier, wealthier, and more attracted to private insurance.
And most importantly, the number of HMOs offering health
coverage to Federal employees and retirees declined by almost
half between 1996 and now.
I am not trying to be cynical, but I really believe that
the Republican effort here is to save money and to privatize,
and in the long run it is going to mean less access and less
quality care for seniors. Thank you, Mr. Chairman.
Mr. Norwood. Thank you, Mr. Pallone.
Mr. Buyer, you are recognized for 3 minutes.
Mr. Buyer. I want to thank the witnesses for coming. I
suppose if the accusation is that the Republicans want to bring
efficiency to a system, and bring business plans and practices
to government, guilty.
I think that is a good idea, and if I come from a dimension
that the government is best, and if I have a social mind and
think that government can always deliver things for people and
be the big brother, then I suppose that the private sector
really is a bad idea.
I can assure the panel of this. Myself and my comrades
didn't leave freedom in their footsteps so that the liberals in
Congress could turn me into a socialist later days of my life.
That is a very strong comment, but it is a song that I have
heard for 10 years here in Washington, DC, that Republicans are
going to cut Medicare and let it whither on the vine, or jump
into ``Mediscare'' or something else about Social Security.
You can always tell when it is an election year in
Washington, DC, because the same song and rhetoric comes out.
And I can share this with the panel. I have worked in the VA
system for 10 years, and I have worked with the Military Health
Delivery System.
And you know what? It is a good thing when you look for
efficiencies in a system, and to look at the private sector to
see what are you doing that's right, and what are you doing
that's wrong.
Let's do an examination of our own systems here and what we
can do to improve, and when we put together with the Senate the
Tricare for Life--we looked at the FEHBP, and there were some
here in Congress that were saying that is what we should do
with the military over 65 retiree.
I think it was wise and it was prudent for us to examine
other health systems, and Mr. Pallone is correct when he said
that the difficult challenge that we have here is about the
patient.
FEHBP or the military health systems, it is a different
kind of patient load, and we recognize that but we also have to
recognize when Democrats use the word modernization, and
Republicans use the word modernization, it means two completely
different things.
Or if the Republicans use the word incremental improvements
to health care, and Democrats use the word incremental
improvements to health care, it means two completely different
things.
They want incremental improvements to health care to move
us to a universal health system, and we want improvements to
health that improves upon the quasi-private health system that
we have in our country.
And I think it is a good thing that we are going to elicit
from you today, and good us ideas on how we can improve
Medicare. One thing is true about this so-called modernization
of Medicare, is that I am going to agree with the Acting
Chairman here for a moment.
We have a tremendous opportunity, and if we don't make
structural changes to Medicare--and you don't improve Medicare
by just saying that we are going to add an out-patient
prescription drug cost.
If we don't make structural changes to improve Medicare, we
are going to be in deep trouble with regard to the budget. It
is 12 percent of the budget today, and baby boomers only
getting older.
And if we just want to shove this thing off to a later day,
then shame on us and Congress today, because all of us will
have abrogated our responsibility to the American people. I
yield back.
Mr. Norwood. Mr. Buyer, the chairman noted that you agreed
for the moment, and I am grateful for that.
Mrs. Capps, you are now recognized for 3 minutes.
Ms. Capps. Thank you, Mr. Chairman. As was just noted, this
committee is going to be charged with an awesome responsibility
this year of deciding the direction of Medicare for the next 50
years.
We will have many critical choices to make, and as we do, I
want to make sure that the goal of a prescription drug benefit
that seniors can count on is our first priority, in terms of
Medicare, and other agendas of the program are relegated to a
lesser status, and especially if they obscure this goal.
But I hope that we will also find innovative ways to extend
the life and efficacy of Medicare. For 78 million baby boomers
approaching retirement age, long term solvency is also a part
of the issue.
Seniors have been promised that Medicare will be there for
them, and tomorrow's seniors as well, and we cannot make
mistakes now that could jeopardize that. Today's hearing will
allow us to examine how the FEHBP model could strengthen or
weaken the current Medicare system.
Many have proposed moving toward a premium support system
based on this Federal health plan. It is an interesting
proposal and I am glad that we can consider it today. But I am
concerned about its reliance on private insurance plans and the
impact that it could have on seniors' expenses.
Medicare has experimented with private health plans to
improve coverage already, and most recently, and this has been
mentioned already, in the Medicare+Choice Program. We have
contracted with HMOs to provide expanded care to our seniors,
but these experiments have produced mixed results.
Initially, many seniors were given the promised benefits,
especially for prescription drug coverage. But the HMOs have
found it difficult to sustain their businesses. Seniors are a
high risk pool for insured, and the resources that Medicare has
been able to apply have not met the request of the HMOs.
This is happening in my district. They have cut--HMOs have
cut their benefits, and increased their cost sharing, and
actually pulled out of areas entirely. Many of my constituents
simply have no private provider option available to them.
HMOs and insurance companies are businesses. They need to
maintain a profit margin. But insurance for the Medicare
population is not kind to these profit margins. Insurance
businesses often can only sustain themselves by reducing
benefits, or increasing the amount a senior has to pay.
If we share Medicare toward the FEHBP model, we have to be
sure that seniors will not see how premiums, co-payments, and
deductibles for fewer benefits. We have to remember that
seniors are on a fixed income, and cannot the cost sharing that
a Federal employee can.
So I am very interested in listening to our witnesses
today. Thank you for being here, and I look forward to working
with you, Mr. Chairman, to see that our seniors get the best
health care possible. Thank you, and I yield back the balance
of my time.
Mr. Norwood. Thank you very much, Ms. Capps.
Dr. Ganske, you are now recognized.
Mr. Ganske. Thank you, Mr. Chairman. I think the main
reason that Medicare HMOs have enrollees is that they offer a
prescription drug benefit.
I also want to thank the panel for being here today. Mr.
Butler, I know that you have talked a lot about medical savings
accounts, of which I have been a strong proponent.
I would love nothing more than to expand this program and
then add a proviso that you could roll that over tax free into
a long term care plan. I think that would be really important.
I also think we can learn a lot from FEHBP. It has worked
pretty well for Federal employees, and there are some lessons
we will hear about today.
Yet, I represent a large rural State, a State filled with
small towns, and I have a responsibility to represent my State,
as well as the Nation, and I will tell you that we have few if
any Medicare+Choice plans available in Iowa, because we have a
significant problem with what is called the average annual per
capita cost. This is a problem that I have worked on.
We have had some contention on this because there is such a
large gap between certain States with low payment levels, and
those with higher payments in urban areas and the
Medicare+Choice plans offer prescription drug benefits that we
do not have available in Iowa.
Right now, as was pointed out on the front page of the New
York Times this Sunday, and which I warned about recently at a
hearing, they are facing I think an impending crisis on access
to care because of low payments in the fee-for-service area
related to hospital and physician payments in States like Iowa,
where I am told physicians simply cannot take any more new
Medicare patients into their practices.
So we have to fix that, and I think we have to recognize
that we have an increasingly elderly population that will
require health care and there will be associated costs. So, Mr.
Chairman, I am gratified and happy that we are having this
hearing today.
Finally, I would just say this. I do not want to see us end
up with a system where all of our eggs are in one basket. I
think there is some benefit for risk reduction, in terms of
diversification.
Our committee is holding a lot of hearings on Enron. A lot
of people lost most of their life savings or their pensions
because they had all of their investment eggs in one basket.
There is a certain benefit to having some diversity in our
medical health care delivery system, because I think we can
learn from different approaches. So with that, Mr. Chairman, I
will yield back.
Mr. Norwood. Thank you, Dr. Ganske.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Robert L. Ehrlich, Jr., a Representative in
Congress from the State of Maryland
Mr. Chairman, thank you for holding this important hearing on the
Federal Employees Health Benefit Program (FEHBP) and the lessons we may
learn from it to improve Medicare.
As members of Congress and members of this Subcommittee, in
particular, each of us is faced daily with potential improvements to
the Medicare system. There are a myriad of bills before the 107th
Congress to improve Medicare for our nation's 40 million seniors. For
instance, I am a cosponsor of legislation to allow Medicare to cover:
Lab Diagnostic Tests (H.R. 1798), Breast Cancer Procedures (H.R. 536),
Self-injected Biologicals (H.R. 1089), enhanced Breast Cancer Screening
(H.R. 1328), Oral Anticancer Drugs (H.R. 1624), greater coverage for
End-Stage Renal Disease (H.R. 2220), and increased coverage for Mental
Health services (H.R. 599).
Mr. Chairman, these handful of improvements are just a small sample
of the bills currently before Congress designed to keep Medicare
updated with cutting-edge modern medicine to provide high quality care
for our nation's seniors. We all recognize that Medicare needs constant
attention and improvement. Accordingly, we now have an approach in
Congress to try to improve it piece-meal, bill by bill, making a
political battle out of each new health service Medicare could or
should provide to our seniors. Moving to a more competitive, private
model like FEHBP may deliver more services at better costs to the
government and seniors.
I am pleased that we have this opportunity to discuss how the
Federal Employee Health Benefits Program (FEHBP) works. FEHBP is
employer-sponsored health care coverage that offers employees a wide
range of fee-for-service, point of service, and managed care products.
While beneficiaries have a host of plans from which to choose, the
federal government pays up to 75% of a total plan's premium.
Our colleagues in the Senate, Senators John Breaux (D-LA) and
Senator Bill Frist (R-TN) have introduced legislation to encourage more
competition within Medicare to improve services. Legislation commonly
referred to as ``Breaux-Frist I'' would allow the government plan to be
competitive with private plans to contain costs and expand benefits for
seniors. ``Breaux-Frist II'' encourages competition among private plans
only. Seniors would have the ability to choose between private plans or
the government plan.
Mr. Chairman, as we explore these difficult issues to reform
Medicare, I appreciate this forum to learn more about the FEHBP, our
experience with Medicare+Choice, and lessons we have learned from them
both to improve the health care seniors deserve.
Thank you, Mr. Chairman.
______
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Chairman for holding this very important hearing.
Before I begin, however, I want to recognize my good friend from the
State of Louisiana--one of our witnesses here today--Bobby Jindal.
Bobby, as many of you know, is the Assistant Secretary for Planning and
Evaluation at the Department of Health and Human Services under
Secretary Tommy Thompson. Possessing a wealth of experience on Medicare
and Medicaid issues, he has really been a friend to this Committee.
There are few people more qualified to testify about Medicare
Modernization than Bobby Jindal.
Today, we are once again looking at ways that we can improve the
existing Medicare Program and place it on a sound financial footing.
Sad to say, but Medicare is going broke. And unless we come to terms
with this fact quickly, we will not be able to uphold our promise to
the next generation of seniors.
I would like to mention a couple of numbers that may startle you.
And hopefully, convince everyone in this room that they need to join
the fight and get serious about modernizing Medicare. This may be one
of the single most important issues Congress votes on this year.
Currently, Medicare, Medicaid and Social Security comprise about 55
percent of the total federal budget--55 percent. By the year 2012--and
that's not that far away--the total of these entitlement programs will
rise to 69 percent of the federal budget. And if we fast forward to the
year 2030--entitlement spending will grow to over 80 percent of the
federal budget. That's over 80 percent. 30 percent of the budget alone
will be spent on Medicare and that's before you even factor a
prescription drug bill into the mix.
Obviously, we can't sustain this level of spending. With an
estimated 77 million people expected to be enrolled in Medicare by
2030, it's pretty clear we are rapidly moving toward a financial
crisis, unless we take some pretty dramatic steps.
So what are those steps? What type of reforms can we act on to
ensure that Medicare will be around for our children?
One of the reforms that has been suggested by quite a few smart
people, including our friend Bobby Jindal, when he was the Executive
Director of the Bipartisan Medicare Commission, is moving to an FEHBP
model of delivering health care benefits to seniors. This reform, if
implemented properly, has the potential to save a modest amount of
money over time, but also provide beneficiaries with a wide range of
benefit choices, including managed care options, point of service
options and fee-for-service.
Members of Congress have excellent health care benefits and
participate in a system that improves automatically over time. Why
shouldn't our Nation's seniors? Why should our seniors have to wait for
an act of Congress before adding an innovative new benefit to the
Medicare Program? Under an FEHBP model, seniors wouldn't have to.
I'm not going to tell you today that FEHBP is perfect and that we
should replicate every part of that Program. But FEHBP works. And there
are many lessons we can learn from it. For example, FEHBP reimburses a
plan after it submits a bid and negotiates a contract with the Office
of Personnel Management (OPM). Why can't Medicare function the same
way? Shouldn't Medicare plans be required to assume some of the
financial risk of providing health care to seniors? FEHBP plans do.
Under FEHBP, plans compete against each other and have financial
incentives to offer high-quality, low-cost products for enrollees. Why
can't Medicare operate in this manner? Also, isn't it about time that
government plans compete against private plans on a level playing
field? Why should the government plan receive an unfair advantage and
receive higher federal subsidies than a private plan? We have seen the
disastrous results of that policy in today's Medicare+Choice system
where private plans are often receiving 2 percent annual payment
increases compared to fee-for-service increases of 5.5%. Private plans
end up being under reimbursed in such a system and the health care
marketplace becomes distorted. Is it any wonder that private plans will
withdraw from a market if you underpay them vis-a-vis fee-for-service?
Obviously, there are many different ways that we can replicate the
FEHBP system. Senators Frist and Breaux have introduced two different
pieces of legislation with varying levels of competition. We should
look at both of those bills and examine whether the ideas behind
Breaux/Frist I or Breaux/Frist II should be incorporated into the
Medicare legislation we move through this Committee. Senators Breaux
and Frist have done a great deal of work on this issue. It would
behoove our Subcommittee to build upon that work and produce a product
that can help turn the direction of the Medicare Program around.
Lets face it. We can't afford to sit still this session of Congress
and let another year go by without making structural reforms to the
Program. Today, we only focused on one of them. Of course, we also need
to add a prescription drug benefit to the Program, modernize the
existing benefit package, develop a more comprehensive measure of
Medicare's solvency and bring many other needed changes to the Program.
The list of needed reforms is long and certainly not without
controversy.
But our parents, our children, and all Americans are counting on us
to strengthen Medicare this year. We should not let them down.
Mr. Chairman, you are exploring an incredibly important subject
today. This is not a brand new issue, but its significance cannot be
understated. We have high-caliber witnesses appearing before us today.
I hope they can provide us with some guidance regarding how we can make
an FEHBP model work for Medicare.
Thank you.
______
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
Thank you Mr. Chairman for holding this hearing today.
The Medicare program is one of the most important social health
care programs in our country's history.
Before Medicare was created in 1965, nearly half of seniors had no
health insurance, and one third were living in poverty.
Today, 97 percent of all seniors have health insurance, and the
number of seniors living in poverty has been cut by 60 percent.
This program is a guarantee that all seniors--who have worked their
whole lives to make this country great--have the health care they need
in their golden years.
Whatever changes Congress makes to this program, we must make sure
that we do not undermine that basic principal of the Medicare system.
Unfortunately, some proposals--namely the ones modeled after the
FEHBP--would shift health care costs from the federal government to
seniors.
There are several problems with modeling the Medicare system after
the FEHBP.
First of all, comparing Medicare beneficiaries to FEHBP enrollees
is like comparing apples to oranges.
Medicare beneficiaries are considerably older than FEHBP enrollees.
As such, Medicare beneficiaries have medical needs that are vastly
different from individuals in the FEHBP.
The average 75 year-old person has three chronic medical conditions
and regularly uses about five prescription drugs, as well as many over-
the-counter remedies. In many cases, older people are using 12
prescriptions or more at any given time.
More than one in four people at age 75 report at least one
disabling condition. By the age of 80, three out of four people report
a disabling condition.
Age related social and psychological factors, such as retirement,
widowhood, bereavement and isolation can compound the health care
challenges for seniors.
The reality is that our elderly population is expensive to care
for.
This is true for seniors across the country.
But if we moved to an FEHBP model, seniors would have different
benefits and different costs based on where they live.
Average Medicare spending varies greatly from region to region. In
Louisiana, average Medicare spending is over $6200 a year, but in
Oregon it is only $2600 per year. Under some proposals, the differences
in cost would be shouldered by the beneficiary.
There is no guarantee that these plans would have to provide
certain benefits or services.
Coverage that is currently guaranteed under Medicare--such as
diabetes testing supplies and mammograms for breast cancer--would
evaporate under this model.
This could create a situation where low income beneficiaries might
be able to afford lower cost plans that doesn't provide the health care
that they need.
Under this proposal, wealthier beneficiaries, however, would be
able to afford higher-cost, better quality plans.
This creates classes of health care--something I'm sure we all want
to avoid.
Another problem with an FEHBP style model is that it leads to
adverse risk selection.
Within the FEHBP, we have seen that the plans compete to attract
lower-cost, healthy individuals.
As a result, higher cost, sicker individuals wind up in the fee-
for-service plan, which is traditionally more expensive.
This places an increasing financial burden on individuals who are
already sick and vulnerable.
Mr. Chairman, as I mentioned earlier, the reality is that the
elderly are an expensive population to care for.
Converting Medicare to an FEHBP-styled model will do nothing to
change that.
It would simply change who pays.
Thank you, and I yield back the balance of my time.
Mr. Norwood. And now we would like to hear from our
panelists.
We have a very distinguished panel, and Mr. Jindal, if you
would begin, please. Pull the microphone close to you.
STATEMENTS OF HON. BOBBY P. JINDAL, ASSISTANT SECRETARY FOR
PLANNING AND EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES; MARILYN MOON, SENIOR FELLOW, URBAN INSTITUTE; STUART
M. BUTLER, VICE PRESIDENT FOR DOMESTIC AND ECONOMIC POLICY
STUDIES, HERITAGE FOUNDATION; MAX RICHTMAN, EXECUTIVE VICE
PRESIDENT, NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY AND
MEDICARE; AND STEPHEN J. deMONTMOLLIN, VICE PRESIDENT AND
GENERAL COUNSEL, AVMED HEALTH PLAN
Mr. Jindal. Thank you, Mr. Chairman, Representative Brown,
and distinguished subcommittee members, I thank you for the
invitation and the opportunity to appear before the committee
today.
I am delighted to have the opportunity to discuss the
administration's goal of giving Medicare beneficiaries reliable
and attractive health care options, and lessons that can be
drawn from the Federal Employees Health Benefits Program about
how to accomplish that goal.
I also look forward to answering your questions. We believe
that it is critical for seniors to have these options, in
addition to the option of staying in today's fee for service
Medicare plan, or choosing a fee for service plan with an
improved benefit package.
About 5 million seniors, including many with serious health
problems, choose to enroll in a private plan today and for good
reasons. Through these plans, Medicare beneficiaries can obtain
drug coverage, better preventive care, innovative disease
management programs, and other benefits even as they lower
their out-of-pocket costs.
Now, there has been a lot of discussion about the cost and
the benefits of Medicare+Choice plans, but I think it is
important to contrast these plans with fee-for-service, plus
Medigap.
And as we know, over 90 percent of the beneficiaries have
some form of supplemental coverage, and I think it is important
to look at that bigger picture when making these comparisons.
As the members of this committee know all too well,
however, millions of Medicare beneficiaries have only one
health plan available to them, the traditional fee for service
plan.
And most seniors are only given one or two other options.
In recent years, flaws in the payment system for Medicare's
private plans have forced many of these plans to reduce their
benefits or service areas, or withdraw from the program
entirely.
And I think you will hear a little bit more about that as
part of the panel. While the benefits offered by the plans
remaining still provide a better deal for many seniors than
fee-for-service Medicare+Choice, an increasingly costly Medigap
policy, millions of seniors who prefer private plans have been
made worse off as a result of these changes.
And without corrective legislation, this situation will
only get worse, and just at the time when rapid advances in
care will make it even more important for seniors to have these
options.
By contrast, Members of Congress, administration officials,
and all other Federal employees, have long been able to choose
from a wide variety of health plans, including not just HMOs,
but more flexible, preferred provider organizations and point
of service plans as well.
Indeed, the majority of the employees in the Federal
Employees Plan are actually in one of these two latter types of
organizations and not in HMOs.
This system allows each participant to choose the plan that
best meets their health care needs, and has given them access
to innovative benefits, as well as options for reducing their
premiums and health costs.
To quote the President, ``Medicare beneficiaries should
have the same kind of reliable coverage options available to
all Federal employees throughout the country, a system that has
been proven to provide one of the highest levels of
satisfaction of any health care program.''
Of course, Medicare's failure to provide America's seniors
with reliable health care options is just one of the ways in
which the program has lagged behind.
That is why the administration has also developed a
framework for strengthening Medicare to address the many
threats to its ability to give seniors the health service they
need now and into the future.
At the same time, the President's budget recognizes that it
will take several years to implement the comprehensive
improvements that Medicare needs, including a prescription drug
benefit that has been mentioned today, and a more equitable
payment system for private plans.
Therefore, the budget also proposes urgently needed steps
that should be incorporated in the Medicare legislation in
order to stabilize the Medicare+Choice program. These proposals
would modify the Medicare+Choice payment formula to better
reflect actual health care cost increases, allocate additional
resources in 2003 to counties that have only received minimum
updates, and provide incentive payments for new types of plans
to participate in Medicare+Choice, including PPOs.
Together, these augmented payments would address the
problem of persistently low payment updates to most
Medicare+Choice plans, making more plan choices available and
improving benefits for millions of seniors.
Because these proposals would allow many plans to provide
or to at least maintain drug coverage in their benefit package,
they also provide another means of giving seniors prompt help
with their drug costs so that they do not have to wait for the
full implementation of a drug benefit.
I have submitted my statement for the record, and it
provides additional details about these short-term proposals,
and about how the administration sees FEHBP as a useful example
for Medicare for providing reliable access to the kind of
innovative health benefits that so many seniors want and
deserve.
In closing, just let me say that the President remains
fully committed to working with Congress to pass legislation
this year that reflects his framework for strengthening
Medicare.
He also believes that legislation should include several
immediate steps to help seniors, while longer term improvements
are being implemented so that Medicare legislation can provide
help to seniors who need help now, and not just a few years
down the road.
I look forward to answering your questions and working with
you to put into place these important enhancements for Medicare
beneficiaries. Thank you, Mr. Chairman.
[The prepared statement of Hon. Bobby P. Jindal follows:]
Prepared Statement of Hon. Bobby P. Jindal, Assistant Secretary for
Planning and Evaluation, Department of Health and Human Services
Chairman Bilirakis, Representative Brown, distinguished
Subcommittee members, thank you for inviting me to appear before the
Committee today. I am delighted to have the opportunity to discuss the
Administration's goal of giving Medicare beneficiaries reliable and
attractive health plan options--and the lessons that can be drawn from
the Federal Employees Health Benefits Program about how to do so. We
believe it is critical for seniors to have these options, in addition
to the option in staying in today's fee-for-service Medicare plan or
choosing a fee-for-service plan with an improved benefit package. About
5 million seniors, including many with serious health problems, choose
to enroll in a private plan today--and for good reasons. Through these
plans Medicare beneficiaries can obtain drug coverage, better
preventive care, innovative disease management programs and other
benefits even as they lower their out-of-pocket costs.
As the members of this committee know all too well, however,
millions of Medicare beneficiaries have only one health plan available
to them--the traditional fee-for-service plan--and most seniors are
given only one or two other options. And in recent years, flaws in the
payment system for Medicare's private plans have forced many of these
plans to reduce their benefits or service areas or withdraw from the
program entirely. While the benefits offered by the plans that remain
still provide a better deal for many seniors than fee-for-service
Medicare plus an increasingly costly Medigap policy, millions of
seniors who prefer private plans have been made worse off as a result
of these recent changes. And without corrective legislation this
situation will only get worse--just at the time when rapid advances in
care will make it even more important for seniors to have these
options.
By contrast, Members of Congress, Administration officials, and all
other Federal employees have long been able to choose from a wide
variety of health plans, including not just HMOs but more flexible
Preferred Provider Organizations and Point-of-Service plans as well.
This system allows each participant to choose the plan that best meets
their health needs and has given them access to innovative benefits as
well as options for reducing their premiums and health costs. To quote
the President, ``Medicare beneficiaries should have the same kind of
reliable coverage options available to all Federal employees throughout
the country--a system that has been proven to provide one of the
highest levels of satisfaction of any health care program.''' Of
course, Medicare's failure to provide America's seniors with reliable
health care options is just one of the ways in which the program has
lagged behind. That is why the Administration developed a framework for
strengthening Medicare to address the many threats to its ability to
give seniors the health security they need, now and into the future.
At the same time, the President's budget recognizes that it will
take several years to implement the comprehensive improvements that
Medicare needs, including a prescription drug benefit and a more
equitable payment system for private plans. Therefore the Budget also
proposes urgently needed steps that should be incorporated into
Medicare legislation in order to stabilize the Medicare+Choice program.
These proposals would modify the Medicare+Choice payment formula to
better reflect actual healthcare cost increases, allocate additional
resources in 2003 to counties that have received only minimum updates,
and provide incentive payments for new types of plans to participate in
Medicare+Choice, including PPOs. Together these augmented payments
would address the problem of persistently low payment updates to most
Medicare+Choice plans, making more plan choices available and improving
benefits for millions of seniors. Because these proposals would allow
many plans to provide or at least maintain drug coverage in their
benefit package, they also provide another means of giving seniors
prompt help with their drug costs--so that they do not have to wait for
the full implementation of a drug benefit. But before I provide
additional details about these short-term proposals I would like to
explain how the Administration sees FEHBP as a useful example for
Medicare in providing reliable access to the kind of innovative health
benefits that so many seniors want and deserve.
providing reliable health insurance options for seniors
For more than 36 years, Medicare has been immensely successful in
helping America's seniors achieve the promise of secure access to
needed health care. During that time, medical practice has improved
dramatically, but the Medicare benefit package and delivery system have
not kept pace. Medicare's lack of prescription drug coverage is only
one example of the ways in which the program has become outdated.
Medicare has also lagged behind the private sector in providing
reliable health insurance benefit options for beneficiaries that best
meet the beneficiaries' own circumstances and preferences. Like the
Federal government, many state gov- ernments and most large private
employers help their employees get the care that is best suited to
their needs by offering them several health care plans, along with
unbiased and useful information that helps them choose the best one.
But Medicare has failed to provide America's seniors with the same kind
of reliable health care options that every Federal employee has
received for decades. For many bene- ficiaries, particularly those in
rural areas, Medicare offers only one insurance plan-- it is strictly
one-size-fits-all. Previous legislation to address this problem,
including the establishment of the Medicare+Choice program, has not had
the intended effect of providing more reliable health insurance options
for Medicare beneficiaries.
The effects of Medicare's current shortcomings can be seen very
clearly here in our Nation's capital (and in the figure below). Those
of us who are Federal employ- ees living in Washington, DC, have eleven
different health plans to choose from, in- cluding a variety of fee-
for-service plans and health maintenance organizations (HMOs). But our
neighbors with Medicare coverage have only two choices--the tra-
ditional fee-for-service plan and a single HMO. This pattern occurs
throughout the country, in urban and rural areas alike. Park Rangers
living in the most remote na- tional forests, and postal workers in
every neighborhood, have at least seven plan choices. Overall, FEHBP
provides health insurance coverage to 9 million workers and their
families through contracts with almost 180 insurers and health plans.
[GRAPHIC] [TIFF OMITTED] 78505.001
Private plans like those offered to Federal employees have
long been the choice of millions of Medicare beneficiaries
because these plans allow beneficiaries to receive more up-to-
date benefits than those available under traditional Medicare.
Pri- vate plans will be the preferred option for many seniors
for several reasons:
Private plans often have provided innovative new
health benefits--including pre- ventive care, prescription drug
coverage, and dental services--without having to wait for an
act of Congress. Private plans also invented state-of-the-art
coordi- nated care for the many Medicare beneficiaries who have
multiple or chronic health problems.
Private plan options allow seniors to reduce or
eliminate their co-payments and deductibles so that their out-
of-pocket payments are manageable--without hav- ing to purchase
a supplemental insurance policy that provide expensive ``first
dollar'' coverage.
Private plan options give seniors more power. If they
are not happy with the service they are receiving, they can
switch to a different plan. Competition is the best way to make
bureaucracies and health plans responsive--by giving cus-
tomers the freedom to choose. Medicare beneficiaries should
have the same op-
tions as working Americans.
For these reasons the President's framework for
strengthening Medicare includes the principle that Medicare's
coverage should be improved to give beneficiaries the same kind
of reliable health care options and access to innovative
benefits that all Federal employees and many other Americans
enjoy. As in the Federal employees' program and other
successful programs:
Plans should be allowed to bid to provide Medicare's
required benefits at a com- petitive price, and beneficiaries
who elect a less costly option should be able to keep most of
the savings--so that a beneficiary may pay no premium at all.
Medicare's payment system should create a level
playing field for all plans in areas where private plans are
paid less today and should continue to encourage private plans
to participate in areas where Medicare provides few choices.
The improved choice system should give beneficiaries
useful and timely compara- tive information on the quality and
total cost of all of their health care coverage options.
Administrative burdens on private plans should be reduced while
pro- tecting patients' rights to allow good insurance plans to
focus on providing reli- able, high-quality service for
Medicare beneficiaries.
In areas where a significant share of seniors choose
to get their benefits through private plans, the government's
share of Medicare costs should eventually re- flect the average
cost of providing Medicare's required benefits in the private
plans as well as the government plan. Low-income seniors should
continue to receive more comprehensive support for their
premiums and health care costs.
At the same time, many Medicare beneficiaries will prefer
to stay in the govern- ment-run, fee-for-service Medicare plan.
The President's framework preserves the option of staying in
the existing plan, with no changes, for seniors who prefer what
they have now. It also provides an improved government plan
option with better preventive coverage, better protection
against the high costs of serious illnesses, and more
affordable Medigap coverage.
STRENGTHENING MEDICARE+CHOICE NOW
Clearly, a comprehensive set of improvements to Medicare
will take time to imple- ment. Such improvements must include
giving all seniors the option of subsidized prescription drug
coverage. They must include giving all beneficiaries better
options to reduce their costs and obtain better benefits in a
private plan. But because so many beneficiaries value the
benefits they obtain through Medicare+Choice--and because it is
so important to retain these options for the future so that
seniors have access to the valuable and innovative new benefits
that private plans can provide-- we need to take steps now to
encourage private plans to remain in Medicare until the new
payment system is phased in.
Medicare+Choice has enabled us to take advantage of private
sector expertise to give Medicare beneficiaries more services
for their premiums, often with lower cost sharing and more
benefits than are available under traditional Medicare. It is
im- portant to recognize that these plans provide many benefits
that are valuable to seniors with serious and chronic health
conditions. For example:
A Medicare+Choice plan in Boston instituted a
comprehensive disease manage- ment program for its enrollees
with diabetes. The result has been significant increases in the
share of enrollees who received annual retinal eye exams and
are monitored for diabetic nephropathy and substantial
improvements in the management of their Hemoglobin and
cholesterol levels.
A Medicare+Choice plan in Florida instituted a
comprehensive disease manage- ment program to monitor,
facilitate, and coordinate care for enrollees stricken with
cancer. As a result, the number of acute hospital days per
cancer case dropped by about 15% over two years and the share
of inpatient admissions for complications with cancer has
declined by 10 percent.
Research has shown that individuals who receive after-
care following hospital stays for mental illness are more
likely to be compliant with their treatment regimens and less
likely to be readmitted to the hospital. One Medicare+Choice
plan in New York instituted a case management program for those
hospitalized for mental health disorders and nearly doubled the
share of its enrollees who received follow-up care within 7
days of their hospital discharge.
A Medicare+Choice plan in California established a
successful outreach program to increase influenza vaccination
rates among their elderly and chronically ill beneficiaries in
order to reduce mortality and morbidity among these at-risk
populations.
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. In
2002, about 60 percent of all Medicare beneficiaries have
access to a Medicare+Choice option, compared to 74 percent in
1998. This year, more than 500,000 beneficiaries were impacted
by orga- nizations either withdrawing from the program or
reducing their service areas. Plans with both zero premiums and
no significant beneficiary cost sharing have largely
disappeared. In addition, plans are less likely to offer drug
coverage in their basic plan and even when they do that
coverage has become less generous. As a re- sult, the share of
enrollees with drug coverage in their basic plan declined from
84 percent in 1999 to 69 percent in 2001. This is because the
annual increases in Medicare+Choice payments in the counties
where most enrollees live 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 supplemental
benefits or increas- ing beneficiary cost sharing.
In 2001, the Administration took a number of actions to
reduce administrative burden on Medicare+Choice plans so that
they could focus on providing care to their enrollees.
Secretary Thompson and Administrator Scully have testified
about these administrative actions before this committee and
the other committees of jurisdic- tion. The Secretary's
regulatory reform initiative will also address the regulatory
burden on Medicare+Choice plans. As the Secretary asked when
announcing this initiative, ``At the very time when we are
trying to attract more managed care plans to offer their
services to Medicare beneficiaries, do we really need 854 pages
of regu- lations standing in the middle of the front door to
the program?'' Here the contrast with FEHBP--where high levels
of enrollee satisfaction have been achieved by con- tracting
with health plans to provide good options and using regulations
only to the extent necessary--is also striking.
But more must be done and that will require legislation.
Despite our best efforts to slow the number of plan withdrawals
through administrative actions, it is appar- ent that
additional improvements need to be made to the Medicare+Choice
program to encourage more plan participation and greater
beneficiary access to Medicare op- tions. Simply put, the
Medicare+Choice payment system must be more responsive to the
health care marketplace, so that the program can meet
beneficiary needs. We support a fairer payment system for
private plans in Medicare because the current payment system is
causing many seniors to lose access to valuable benefits--and
if left uncorrected this problem will only get worse just as
the need to keep up with rapid advances in medical benefits is
growing.
Congress has acted to increase funding for Medicare+Choice
through legislation in recent years, but much of the increase
was targeted to so-called ``floor'' counties. As a result,
these counties have experienced cumulative average payment
increases of 50 percent over the last five years. Specifically,
the floor payment amount, which is the payment received in many
rural areas, increased from $415 to $475 in 2001 and $500 in
2002.
However, payment increases for private plans have failed to
stay anywhere close to medical cost increases in many parts of
the country--the so-called ``non-floor'' counties that have
accounted for the vast majority of Medicare+Choice enrollment.
Between 1998 and 2002, private plan payments in many of these
areas increased by just 11.5 percent while Medicare fee-for-
service payments (government plan costs) went up by about 17
percent nationwide--about 50 percent faster. This is the reason
many plans cite for having to cut benefits, raise copayments,
and even pull out of the program-creating serious problems for
the beneficiaries who depend on them.
This year, the President's budget focuses on increasing
payments in these ``non- floor'' counties. Under the budget
proposal:
For 2003, M+C payments would be increased by 6.5
percent in counties that re- ceived the minimum update in 2002
and by overall Medicare growth minus 0.5 percent in ``floor''
counties.
For 2004 and 2005, the minimum update and floor rates
would be increased by overall Medicare growth minus 0.5
percent. The payment would be the greater of these rates or a
blended rate.
Reforms to payments for private plans for 2006 and
beyond would be part of the comprehensive improvements in
Medicare envisioned in the President's frame- work.
The budget also proposes to give bonus payments to
coordinated care plans that are the first of their type (i.e.
HMO or PPO) to enter a service area. During their first year in
a new service area, eligible plans would receive a 5 percent
bonus on top of their M+C per member per month payment. The
bonus would phase out 1 percent per year over the plan's first
five years of operation. This proposal would expand the number
of health plan options available to Medicare+Choice enrollees
by broadening the variety of plans that participate in the
Medicare+Choice program to include the types that beneficiaries
want, and are available to Federal employees. For example, this
proposal would give preferred provider organizations (PPOs) an
incentive to enter service areas that already have a
Medicare+Choice HMO.
We believe that the investments proposed in this budget
will encourage new plans to enter Medicare+Choice and will
improve the coverage options available to mil- lions of
beneficiaries. Even with all the problems caused in recent
years by the cur- rent payment system, there are still over 5
million Medicare beneficiaries enrolled in private plans--so
for many seniors, private plans are the best option. Indicators
of care quality and enrollee satisfaction in these plans are
high. And even after the recent cutbacks in benefits, they can
still be a better deal for seniors than enrolling in
traditional Medicare and buying an expensive supplemental
policy to cover the large benefit gaps.
CONCLUSION
The President remains fully committed to working with
Congress to pass legisla- tion this year that reflects his
framework for strengthening Medicare. He also be- lieves that
legislation should include several immediate steps to help
seniors while longer-term improvements are being implemented--
so that Medicare legislation can provide help to seniors who
need help now, not just a few years down the road. I look
forward to answering your questions and to working with you to
put into place these important enhancements for Medicare
beneficiaries.
Mr. Norwood. Ms. Moon, you are now recognized, please,
Madam.
STATEMENT OF MARILYN MOON
Ms. Moon. Thank you. I appreciate the opportunity to be
here to speak to the committee, and in my testimony, I spend a
consid- erable amount of time talking about the value of
competition and choice.
I should indicate that I am a trained economist, and I
believe fairly in competition and choice, but I believe you
also have to be very careful about the market that you are
dealing with.
And in the case of health care, the health care market puts
up a number of problems that make choice not necessarily work
quite as well. Most capitated programs that we see out there
now have not generated the innovative ways to organize care
that many peo- ple anticipated and hoped would happen in a
capitated system.
But instead they have concentrated on doing the things that
are the easiest to do in the case of running a good program,
and that is enrolling healthy beneficiaries, and using
relatively crude con- trols on service use.
In fact, if you enroll healthy beneficiaries, you can look
right to those who enroll, because you are offering them
terrific benefits, and you are offering them good coverage. The
problem is that it is just not very good for society as a whole
nor for the Medicare pro- gram because you are skimming off the
easiest to deal with pa- tients in that setting.
Part of that occurs because we have moved from a capitated
sys- tem, and from a fee for service situation which does have
problems, to one in which we simply give people a fixed payment
and say go out and do good without a lot of oversight and
control.
Competition then can lead to a number of problems for bene-
ficiaries, including instability in the case when plans leave,
when physicians leave the program, when other problems occur,
which is particularly a problem for the vulnerable
beneficiaries and leaves them at risk.
The choice of plans will also not offer many advantages for
bene- ficiaries, particularly since this election is a big
problem out there
and not one that we have dealt with. Mostly people talk about
improving risk selection have problems and adding a risk
adjustor, in terms of the promise of risk adjustment, as
opposed to the practice.
Competition and choice can make it difficult to protect the
social insurance nature of the Medicare program. Now, if you
look at some of the practical issues in moving to an FEHBP type
approach, there are also a number of issues that I think should
be considered very carefully if you want to move in this
direction.
First, I think it is important to emphasize that extra
benefits, including prescription drugs, cannot be provided
without substantial additional Federal resources. Flexibility
in the payment system is simply not going to do it in an
environment in which we already have an inadequate benefit
package.
It is difficult to imagine, for example, what tradeoffs
could be done in a package of benefits that would compensate
plans for providing prescription drug benefits if they have to
then raise cost sharing to a very high level, and other
services in the program.
Rising costs have been a greater problem for FEHBP than
Medicare as someone has already mentioned in recent years,
likely because all of us are facing problems when we look at
the health care system and holding down costs, and managed care
plans are certainly no exception.
Withdrawal of the plans from participation have also
plagued both Medicare and FEHBP. So I think it is hard to
imagine that we can solve some of the problems in the
Medicare+Choice system by simply moving to FEHBP.
And finally the costs of administering an FEHBP type system
could be high under Medicare because of the individual
enrollment nature of the program. You don't have the backup of
the Federal Government with its personnel offices to help in
many cases.
We would need to have greater oversight for vulnerable
beneficiaries, and a challenge of a much larger enrollee base,
and a more complicated enrollee base, both in terms of the
health of the enrollees, and in terms of the geographic
variations, and the rural area problems, versus folks who live
in cities, and trying to deal with that all under one rubric.
So I conclude with a number of next steps for modernizing
Medicare. I strongly believe that we must add a prescription
drug benefit as a first step, and not a last step, in part
because you cannot have good fee for service, good managed
care, or a good much of anything else until you have
prescription drugs in the benefit package.
Much more is needed to be done on risk adjustment and that
is the key if we want to move to more privatization, I believe.
We need to focus on improving fee for service, even if you
offer a number of other plans.
Fee for service will remain very popular for Medicare
beneficiaries for the time to come, and I think there are
innovative ways from the private sector that you could layer on
to the fee for service part of Medicare in terms of
coordination of care, for example.
Don't assume that privatization gives beneficiaries what
they want. They all say they like to have choice, but they mean
choice of physicians and hospitals, and they are often very
confused and frustrated by the complications in the
Medicare+Choice system.
And don't assume that regulation and oversight will be
simpler with competition, because this is a population that
needs a lot of oversight and protections. I would urge the
Congress to expand that with an improved Medicare+Choice,
because I do agree that having a variation is good.
It is healthy for some competition between the public
sector and the private sector, but I think we should move
slowly in this direction. And finally I think it is important
to recognize that Medicare will need more resources in order to
be a viable program for the future. Thank you.
[The prepared statement of Marilyn Moon follows:]
Prepared Statement of Marilyn Moon, The Urban Institute
Supporters of using a Federal Employees Health Benefits Program
(FEHBP) model for reforming Medicare often tout three major advantages:
competition that will bring innovation and take the federal government
out of the business of setting prices, choice for beneficiaries
selecting plans, and savings to the federal government. Who could be
against such a ``mom and apple pie'' proposal that achieves these
outcomes? After all, wouldn't a private sector, capitalist approach be
preferred over a public program such as the current traditional
Medicare fee for service system? For a number of reasons, I argue that
privatization of Medicare can be disadvantageous to beneficiaries of
the program, failing to achieve all or most of these advantages and
creating additional risks. A go-slow approach to revising the role of
private plans in Medicare makes more sense than a rapid move to
privatization.
In my testimony I examine the claims regarding advantages from the
private sector and put them in the broader context of meeting
beneficiaries' needs. In addition to looking at the issues surrounding
the economic incentives that are the heart of the argument for
privatization, it is also useful to consider experience both with the
current Medicare+Choice program and the Federal Employees Health
Benefits Program (FEHBP). I conclude my testimony with a set of
recommendations aimed at protecting the interests of beneficiaries as
Medicare evolves to meet Americans' 21st Century needs.
the elements of an fehbp approach
To resemble FEHBP, Medicare would have to change in a number of
ways. Under FEHBP, all plans compete for enrollees; they each offer
premiums that vary and some differences in deductibles, co-payments and
other benefit characteristics. The federal government pays a portion of
the premiums according to a formula, where the goal is to require that
individuals who choose higher-cost plans pay a greater monthly premium
than those choosing lower-cost plans. The idea is to encourage plans to
compete on the basis of price and to give those enrolling a stake in
choosing less expensive plans. Individuals can change plans once a year
during open season; plans can also change their offerings at that time,
if approved by the Office of Personnel Management.
While the various characteristics of a Medicare version of this
approach could differ, proponents usually cite a number of components
as key. Requiring that individuals choose a plan (even those who wish
to keep the traditional fee-for-service option) and pay more if its
total premiums are higher than an average amount is intended to make
Medicare beneficiaries more sensitive to differences in health care
costs. Offering multiple plans in a geographic area, including managed
care options, is also usually part of such proposals for Medicare. The
key is to use economic incentives to spur competition and choice for
beneficiaries.
competition and choice
Competition and choice are so often cited as desirable, however,
that what they mean in the context of health care is rarely even
discussed. Thus, it is useful to consider if and why they might be
desirable. First, the goal of competition is to raise quality and
reduce costs so as to attract customers. In theory, this indirect
enforcement mechanism should reduce the need for direct oversight and
regulation in a well-functioning market since competitors effectively
police each other. Choice is a related ``good'' because it allows the
market to test for what consumers want and presumably, over time,
products will change to more closely reflect consumer preferences.
Choice also allows for differences in competing products and, hence,
avoids the ``one size fits all'' approach that can result in a single
product that no one likes.
Economic incentives can influence behavior in the healthcare market
place just as they can for other types of goods and services. But, the
health care market does entail unique problems and constraints that
need to be taken into account. Further, some traditional incentives may
not be appropriate in light of other goals such as societal concerns
about access to care and the quality of basic care.
First, consider competition. The real issue facing Medicare's
future is not the theoretical attractiveness of competition, but what
it means in practice for the delivery of care. How does competition
among private plans manifest itself? If we were dealing with a very
standardized product, competition should only affect the quality of the
product and its price. But when there is little standardization and few
norms for quality--as is the case in health care--quality bears little
relationship to competition. Furthermore, in neither Medicare+Choice
nor FEHBP is competition focused exclusively on price. Offering
alternative benefit packages is the major way in which Medicare+Choice
plans compete, and this idea underpins FEHBP's structure as well. It is
hard to lower costs while allowing a number of options to be proffered.
But when price is an issue, good competitors look around and seek
the easiest ways to hold down costs to lower their prices. In insurance
plans, such as found in Medicare+Choice, the easiest path to
profitability is to attract a healthier than average mix of patients
(unless there is a good payment system that provides incentives to
accept sicker patients). This happens not because plans are evil or
cruel, but rather because they must make a profit. By seeking healthier
enrollees, they can offer their clients a rich mix of services, do well
by them and still make a profit. This is good for the company and good
for their clients. It is just not good for sicker beneficiaries, for
the Medicare program, nor for society as a whole because insurance
companies end up getting paid too much for the clients they serve. Can
that be altered? Creating a very strong risk adjustor could reduce, but
probably not eliminate, the incentives to skim the cream from the
market. Further, the existing risk adjustors are weak and progress on
improving them has been very slow.
The second way that plans may be able to hold down costs is by
obtaining discounts from care providers. Further, supporters of
competition often point to the benefits of letting insurers deal with
the many prices that need to be set to have health care operate under
the traditional Medicare program. Relying on private insurers does not
solve that problem, however, but simply moves it to the plan level.
Micromanagement would be eliminated at the federal government level,
but would be alive and active within the insurance company.
One way or another, the health care market has to contend with
administered or negotiated prices. In the case of private plans, health
care providers are now striking back with demands for higher fees. If
plans enter into long, contentious negotiations, the network of doctors
and other care providers participating in a plan may become smaller and
less stable, an outcome that hurts consumers.
A competitive environment may also reduce stability for consumers
and providers in another way. As plans themselves move in and out of
markets, some consumers may lose access to their physicians and other
providers and have to learn a new set of rules if they go to another
plan. These changes hurt the continuity of care.
Developing innovative and effective tools for reducing unnecessary
care is often well down the list of insurers' preferred strategies to
reduce the costs of covering Medicare beneficiaries. In practice, such
cost-controlling activities are hard to implement, especially for plans
that consist of very loose networks of hospitals and doctors. It
requires considerable effort and resources to build an infrastructure
to coordinate care effectively. Some plans have used cruder methods--
making it hard to get appointments or routinely denying certain types
of care--but this approach is a far cry from good management and is one
that has helped fuel the backlash against managed care plans. Thus, one
of the hopes for managed care--that it would use new and innovative
strategies to better curtail unnecessary service--has not been
achieved.
These limitations on competition mean that private plans can hold
down the costs of health care only modestly. Expectations by
competition proponents that the savings achieved would be great enough
to pay for substantial additional benefits at little or no cost to
either the government or beneficiaries has been one of the rationales
for supporting such an approach. But even if competition lowers costs
somewhat from restricting provider choice and limiting care, savings
may be insufficient to pay for expensive benefits like prescription
drugs. Given the barriers to competition in this market, the promise of
substantial savings has been seriously overstated.
What about choice in health insurance? Is this so important to
consumers that it justifies adopting a competitive, private market
approach? Here it is important to note that choice issues tend to be
thought of in two very different ways. For those enrolled in Medicare,
choice is valued when it means the ability to pick one's own doctor or
health care provider. To the health economist, choice usually refers to
inviting competition by letting consumers choose among plans. But, the
first type of choice is often restricted by plans, which offer limited
supplies of providers and no guarantee that providers won't change over
the course of a year. That aspect of choice thus offers a disadvantage
to consumers.
Yet, one potential advantage of choice among plans would be to
allow individuals to seek policies that cover only the care that they
believe they will need--for example, by excluding certain services
(such as home health care) or offering higher deductibles and co-pays.
But this flexibility creates a major problem since healthy people can
choose a plan with high deductibles or no home health care, most likely
putting them into a risk pool that does not attract those in poor
health. And if high and low users of health care are not in the same
risk pools, then sicker beneficiaries will have to choose among very
high premiums costs or limited insurance coverage. And particularly if
the risk adjustor that sets payments to plans on behalf of individuals
of varying health status is weak, it is essential to limit choice in
order to also limit risk selection.
As noted above, another major problem with giving consumers choice
of benefits is that it results in a different type of competition than
price competition. Beneficiaries would not necessarily choose the
lowest cost plan under such a strategy. If true competition were the
goal, benefits would also be standardized to assure greater
comparability and price comparisons.
What does choice mean when benefits are standardized? Presumably
individuals would choose among plans with fixed benefit packages. But
on what basis can they make good choices? Plans are likely to advertise
why they should be chosen, but they may not provide very helpful
information. And the information that people really need, such as what
different plans establish as ``reasonable payment levels'' or define as
``medical necessity,'' is usually considered proprietary. But these
seemingly technical issues determine what services are actually
covered. Even if this information were made available, it is very hard
even for savvy consumers to compare plans. Often, choosing the wrong
plan becomes obvious only when the client becomes sick and needs care.
Neutral advice and information from government can help consumers
choose, but will that be enough to improve health coverage? And will
the government invest in the dissemination of the objective data?
Numerous studies have documented the problems and discomfort that many
beneficiaries experience in trying to make such choices.
For these reasons, I conclude there is little to be gained from
expanding competition and choice for the beneficiary at the present.
Competition does not offer a panacea. People need to look beyond the
buzzwords and weigh the tradeoffs. The risks of dividing Medicare into
the sick and the healthy in the name of competition and choice are
high. And the potential for undermining the basic goals of Medicare as
an entitlement program also argue against relying on private sector
initiatives. Assuring universal access to care for those who are
eligible is an important precept of Medicare. Splitting up the risk
pool and relying on the private sector, which has no stake in social
goals, make it difficult to protect the program.
experience with medicare+choice
High quality plans seeking to serve patients well certainly exist,
but Medicare+Choice is a very troubled program. Medicare has, since the
1980s, formally allowed beneficiaries to choose private plans (paid on
a capitated basis) instead of remaining in the traditional fee-for-
service part of the program. In 1997, the Balanced Budget Act (BBA)
modified the private plan option to allow plans other than health
maintenance organizations (HMOs) to participate. The new option was
called Medicare+Choice.
The BBA also sought to reform the payment system, which costs
Medicare more for each enrollee than if they had remained in the
traditional program. Serving a healthier population and lacking an
adequate structure for establishing payments, Medicare overpaid its
private plans for the cost of Medicare-covered services. But the new
payment system has not solved the problems of overpayment; rather, it
has created new ones.
Medicare's rules require that if a plan is paid more than it costs
to provide Medicare-covered services (and a normal profit), the plan
must either return money to the federal government or offer additional
benefits to plan participants. Almost all offer extra benefits; in
fact, many plans believe that they must do so to attract enrollees.
Thus, even after several years of lower payments from the BBA changes,
the General Accounting Office found in 2000 that Medicare+Choice plans
used 22 percent of their revenues to provide additional benefits beyond
what is required by Medicare. Further, Medicare's benefit package is
recognized as not very comprehensive, making it difficult to manage
care without covering other benefits such as prescription drugs.
Although Medicare's payments have been sufficient to pay for
Medicare-covered services, plans now have fewer dollars to offer extra
benefits than before. Over the past four years, as Medicare's
contributions to plans have become less generous, extra benefits have
been substantially reduced and plans have exited some markets.
Withdrawals have left hundreds of thousands of beneficiaries scrambling
each year to enroll elsewhere or to get Medigap coverage if they return
to traditional Medicare. Further, plans with drug coverage have
declined from 84 percent of all plans in 1999 to 71 percent in 2002.
And when drug coverage has been retained, stringent caps have been
applied or substantial premiums levied on the beneficiary. By 2002,
almost two-thirds of enrollees in M+C plans had either no drug coverage
or coverage limits of $500 or less.
Both plans and beneficiaries had come to expect the extra benefits
that could be offered under the pre-1997 payment levels, and the
decline in benefits has disappointed and disillusioned many
beneficiaries. In that sense, plans are correct that they are not paid
enough to offer an ``attractive'' benefit package. Should extra federal
dollars be used to assure such extra benefits in M+C but not in
traditional Medicare? The 86 percent of beneficiaries in traditional
Medicare are unlikely to favor such a policy change. But without
further federal dollars, enrollment in Medicare+Choice will likely
decline further.
Are the problems noted here with Medicare likely to be present
under any managed competition arrangement, or are they peculiar to
Medicare+Choice? Most likely, many of the issues now facing
Medicare+Choice will be present under any system relying on private
plans. In particular, adverse risk selection can affect any managed
competition arrangement that does not effectively adjust for population
differences. It takes only a small amount of risk selection to
destabilize the Medicare program, if a large number of beneficiaries
have known health problems since their own choices may contribute to
risk selection. The lack of reliable information on choices and the
absence of good coordinated care are also likely to remain problems.
The size and nature of the benefit package is also likely to plague
Medicare in the future unless the basic benefit package is improved.
Since Medicare lacks prescription drug coverage, payments to plans will
not cover this expensive benefit, even thought it is hard to imagine
how managed care (or fee for service) can function without such
coverage.
At the same time, the administered prices used in Medicare+Choice
have create some unique problems, including payments set unnecessarily
high or low in response to geographic differences in health care
spending under fee for service. But no new payment system has come
along that promises to work any better.
Finally, regulatory reform and simplification could help to make a
new Medicare approach more attractive to potential participants. This
overhaul needs to be carried out in the context of recognizing the
special vulnerabilities of some beneficiaries in Medicare, however.
There has not been an impartial assessment of the proper balance
between beneficiary and provider interests.
borrowing from fehbp
The Federal Employees Health Benefits Plan has a number of problems
of its own that would likely carry over if it became the new template
for Medicare. Perhaps most important, the attractiveness of FEHBP in
holding down the costs of care has diminished considerably since the
mid 1990s, when that approach enjoyed greater success than Medicare.
Since then, the rate of growth in spending on FEHBP has been very high.
Although results vary with the period examined, traditional fee-for-
service Medicare has done considerably better than FEHBP (see Figure
1). Further, in the past several years, deductibles and co-payments
required by both managed care and PPO plans have risen substantially.
These trends suggest that an FEHBP model for Medicare cannot be
expected to lead to improved benefits without substantially higher
payments from the federal government.
For this reason, one of the few aspects of FEHBP that Medicare
beneficiaries would find appealing--prescription drug coverage--would
not magically arise without higher federal spending. The estimated cost
of such a benefit (based on the average level of FEHBP coverage) would
be $750 billion over ten years. Proponents of an FEHBP-type system have
argued that it is better not to have fixed benefits, as under Medicare,
but rather to let benefit packages evolve over time. But if the money
is not there, benefits will not be there either. And Medicare's benefit
package is not generous enough to allow much leeway for benefit package
tradeoffs.
The troubling plan withdrawals that have plagued Medicare+Choice
have also occurred at nearly the same rate in the federal employees
program. While FEHBP offers more plans than M+C and plan participation
in Medicare peaked later, the withdrawal patterns look quite similar
(Figure 2). Further, FEHBP has had risk selection problems over the
years. A number of the plans that offered more generous benefits and
fewer restrictions had to raise premiums so much that doing business
became impossible. Those plans pulled out of the market, requiring
enrollees to make new arrangements. Now, as a consequence, even though
plans can offer varying benefits, all the packages tend to look a lot
alike.
Some of the characteristics of FEHBP that would be new features for
Medicare may not be in beneficiaries' interest, even if they work well
for federal employees. Many analysts have concluded that any major
savings that could be achieved if Medicare were revised using an FEHBP
model would come from the differential in the premiums charged,
particularly for those who wish to remain in traditional fee-for-
service Medicare. If premiums for the fee-for-service option rise
dramatically over time and become harder to afford, as some expect,
choice for many beneficiaries would be reduced, not increased. Compared
to federal employees in FEHBP, a much higher proportion of Medicare
beneficiaries are low income. Although special protections for low-
income beneficiaries could be added, this would lead to an even more
complicated Medicare system, and even then, many needing help would not
qualify.
A related factor is the cost of administration. An FEHBP-type model
entailss administrative costs both at the federal and plan level. The
federal government would need to oversee plan participation,
enrollment, payment and quality of care. Insurance offered to
individuals includes substantial administrative costs to pay for
marketing and management. Unlike FEHBP, Medicare has no employer base
to help cover many of these functions. Thus, any savings generated by
competition will be at least partially offset by higher administrative
costs.
And, in another way, an FEHBP model might not always work well with
Medicare and the population it serves. Under the FEHBP payment
approach, plans negotiate with the federal government for the premiums
that they will charge. FEHBP, as an employer-sponsored insurance
program, resembles other insurance plans for workers and gives FEHBP a
benchmark for assessing the reasonableness of the premiums. Since there
is no full market for health insurance for people 65 and older for the
government to use to compare premiums, it will be difficult for
negotiators for Medicare to know what is reasonable in a given
geographic area. Moreover, Medicare covers 40 million people, at least
one-third of whom have substantial health problems. Sheer numbers and
geographic variability make negotiation a major challenge.
Geographic variation for Medicare is also much greater than under
FEHBP. For one thing, large numbers of beneficiaries reside in rural
areas. Accordingly, concerns about how high to set payment levels and
whether viable competition can be fostered in rural areas need
attention.
Private plans would likely favor the less regulated environment of
FEHBP. Any new Medicare private plan option should reduce unnecessary
regulation and control, but it will still be important to keep plans
accountable to both the government and beneficiaries. Medicare
beneficiaries do not have workplace benefit managers to help resolve
disputes with plans and vulnerable beneficiaries could be placed at
considerable risk unless there is adequate oversight.
Considerable attention is needed to improve Medicare for the
future. But switching to an FEHBP model offers neither a magic bullet
nor a quick fix. Indeed, it might create more problems than it solves.
next steps in modernizing medicare
Whatever the structure of reform, a number of modernization issues
need to be addressed:
Add a prescription drug benefit as a first step. Prescription
drugs are essential to the delivery of care, particularly in
efforts to effectively manage care and to prevent higher costs
over time. Fee for service, competition and managed care
approaches cannot work if the benefit package lacks this
crucial ingredient.
Do more work on risk adjustment. Without a good mechanism for
rewarding insurers for taking sick patients, plans will
continue to serve the healthy and won't focus on better ways to
provide care to the most vulnerable beneficiaries.
Improve fee for service. For a very long time to come, fee for
service Medicare will serve most beneficiaries. New and
innovative ways of coordinating this care need to be found. The
demonstrations under way are one positive step, but more needs
to be done on a small scale to compensate physicians and other
current care providers to do basic coordination of care.
Don't assume that privatization gives beneficiaries what they
want. The complexity and confusion that arise from choice of
plans annoys and frustrated many older Americans. They do not
respond well to price competition and they do not want to
rethink their insurance coverage every year. The one-third of
all beneficiaries in poor health especially need uninterrupted
care.
Don't assume that regulation and oversight will be simpler
under an FEHBP approach. The more flexibility and variability
allowed by private plans, the more important it will be to
offer protections for vulnerable beneficiaries. Geographic
variation in availability of plans would likely mean different
systems in place depending upon the level of competition that
emerges. And substantial resources would need to be devoted to
improving education and support for beneficiaries who must make
choices.
Experiment with and improve Medicare+Choice. The payment
system needs to be reformed and adding drugs to the benefit
package would add some resources. But do not assume that
private plans can do everything, particularly until better risk
adjustment is more than a promise.
Recognize that Medicare will need more resources. No reform
can succeed if too much pressure is placed on it to generate
large savings. As an important program serving one in every
seven Americans, Medicare will soon serve one in every five. We
need to be willing as a society to provide for this vital
program's future.
[GRAPHIC] [TIFF OMITTED] 78505.002
[GRAPHIC] [TIFF OMITTED] 78505.003
Mr. Norwood. Mr. Butler, you are now recognized.
STATEMENT OF STUART M. BUTLER
Mr. Butler. Thank you, Mr. Chairman, for the opportunity to
testify on the FEHBP as a model for Medicare reform. As you
know, in recent years, there has been a good deal of interest
in Congress regarding the way in which FEHBP operates, and I
share the view that it provides important design lessons for
reforming Medicare.
In my remarks, I would like to highlight some important
differences between the FEHBP and the Medicare program, and
then suggest aspects of the FEHBP that Congress should consider
as part of the Medicare reform.
The FEHBP and Medicare are of course both run by the
government. FEHBP is not privatized any more than Medicare is
privatized, because it actually pays private doctors, and for
many years it incorporated private plans, many of which of
course provide benefits that are unavailable in the fee-for-
service sector.
But these two programs are run by the government in very
different ways. For one thing, the FEHBP does not require plans
to offer a comprehensive standard benefits package. Instead the
law requires broad classes of benefits to be included.
And only under the Clinton administration did the
government add a significant number of required benefits,
prompting I should point out a number of plans to leave since
1996 which has been mentioned.
And yet over the years the typical plan offered to
enrollees has kept up with a comprehensive plan in the private
corporate sector. There are two reasons for this. The first
reason is that the plans are forced by competitive pressure and
consumer demand in the FEHBP to keep improving their products.
All FEHBP plans contain drug benefits, drug coverage, and
catastrophic protection, for instance. Not because they are
required to, but because customers would not select them if
they did not contain these common benefits.
The second reason for the range of excellent plans,
however, is that the Office of Personnel Management which runs
the FEHBP, negotiates benefits and premiums with the plans, as
well as marketing areas and other features of plans.
This process, which is also shaped by the realities of the
marketplace, leads to a range of prices and plan benefits. What
OPM does not do in contrast to Medicare is to set down a
detailed standardized benefits package and provide a payment
formula.
There are several other differences between the way in
which these two programs are run by the government, affecting
such things as information distribution and payment
arrangements. I discuss these in my written testimony.
But there is one final thing that I want to emphasize about
OPM's role in the FEHBP. Unlike CMS, OPM does not directly
manage one of the competing plans. OPM does keep its focus on
establishing the best possible system of information and plan
choices for beneficiaries.
How could the affected features of the FEHBP be applied to
Medicare. I believe in at least three ways which I would urge
the committee to consider. First, Congress could create a new
Medicare Board as several people have proposed.
This would be within HHS, and it would focus on the broad
operation of Medicare, including such things as customer
information and the broad environment in which the managed care
plans and the fee-for-service program would compete.
But the board would not directly run the fee-for-service
system or any plan. That function would remain within CMS,
which could then focus more intensively on that task, and the
CMS staff would be given greater flexibility to run that part
of the program.
Second, the Medicare board could be given powers to
negotiate the plans over premiums and services as OPM does with
FEHBP plans. This process would give Medicare far greater
flexibility to balance costs and service goals than is
available to CMS today.
With so many plans and doctors pulling out of Medicare, I
believe that Congress urgently needs to introduce more flexible
negotiating powers in this way. Third, Congress could consider
a modified version of the FEHBP's process of fostering gradual
benefit evolution.
I suggest two parallel steps. The first would be for
Members of Congress to try to get out of the business of trying
to be experts on medical procedures. You could do this by
setting broad categories of required medical benefits for each
plan, and perhaps a minimum package of services, rather than
legislating a detailed comprehensive package.
Detailed benefits should be negotiated between a board that
I have proposed and the plans. The second step would be to
create an expert board or council charged with proposing each
year refinements to the basic package required in managed care
plans, as well as the more comprehensive benefits package
offered by the traditional fee-for-service program.
This council or board could be given a budget and general
guidelines by Congress, but its recommended revised package
could only be accepted or rejected by an up and down vote in
Congress with that amendment.
In this way the oversight and broad policy role of Congress
would be retained, but the Members of Congress would be able to
avoid becoming embroiled in the frustrating task of trying to
determine a detailed benefits package.
I have no doubt that the first proposed package from such a
benefits board would include a realistic drug benefit.
Mr. Chairman, the FEHBP is a remarkably successful Federal
health program.
It is successful because of the way that it is designed,
and because of the way that OPM is permitted to run it. I would
strongly urge Congress to look very carefully at the central
features of the program as elements to include in the long term
reform of Medicare. Thank you.
[The prepared statement of Stuart M. Butler follows:]
Prepared Statement of Stuart M. Butler, Vice President, Domestic and
Economic Policy Studies, The Heritage Foundation
My name is Stuart Butler. I am Vice President for Domestic and
Economic Policy Studies at The Heritage Foundation. I must stress,
however, that the views I express are entirely my own, and should not
be construed as representing the position of The Heritage Foundation.
It is wise of the Committee to explore the applicability of the
Federal Employees Health Benefits Program (FEHBP) as a model for reform
of the Medicare program. The FEHBP, which is run by the Office of
Personnel Management (OPM) is an interesting contrast to Medicare. Both
are large health care programs run by the federal government. But there
the similarity ends. The FEHBP is not experiencing the severe financial
problems faced by Medicare, and nor are there complaints that it lacks
important benefits, such as drug coverage. It is run by a very small
bureaucracy, which, unlike Medicare's staff, does not try to set prices
for doctors and hospitals. It offers choices of modern benefits and
private plans to federal retirees (and active workers) that are
unavailable in Medicare. It provides comprehensive information to
enrollees. And it uses a completely different payment system, blending
a formula and negotiations.
It is time for Congress to examine closely the system they are
enrolled in themselves and incorporate key features of the program into
Medicare.
how the fehbp works
Created by Congress in 1959, the FEHBP offers about 200 competing
private plans to active and retired Members of Congress and
congressional staff, as well as active and retired federal and postal
workers and their families--altogether almost 9 million people.
Enrollees in any location have a choice of several plans, including
national plans. The FEHBP population is by no means an ideal insurance
pool. For one thing, the average age of the FEHBP population of active
employees is rising, as is the proportion of higher-cost federal
retirees in the program. In addition, plans may not impose ``waiting
periods'' or limitations or exclusions from coverage for pre-existing
medical conditions, nor can they base premiums on medical risk.
Federal workers and retirees can choose from a variety of health
plans, ranging from traditional fee for service plans to insurance
plans sponsored by employee organizations or unions, to managed care
plans. HMOs in FEHBP have benefits that are especially attractive to
the elderly, including catastrophic coverage and mental health
coverage. Almost all cover care in an ``extended care facility,'' some
with no dollar or day limits. And unlike Medicare, most FEHBP plans
cover prescription drugs and include a wide range of dental services.
Furthermore, the elderly can choose plans with specialized items, such
as diabetic supplies.
How The Elderly Pick Plans. Each year, in preparation for the fall
annual ``Open Season,'' when retirees and regular employees pick plans
for the following year, OPM sends beneficiaries an FEHBP Guide, which
includes a standardized health plan comparison chart. There is also an
excellent website that allows plan comparisons to be made. Health plans
also provide retirees with information on benefits and premiums in a
variety of ways, including advertising. Perhaps the most valued
consumer resource for federal employees and retirees is Checkbook's
Guide to Health Insurance Plans for Federal Employees, published by a
consumer organization. The popular Guide compares plans, gives
employees and retirees general advice on how to pick a plan, outlines
plan features and special benefits, presents detailed cost tables
(including the out-of-pocket limits for catastrophic coverage), and
presents ``customer satisfaction surveys'' on the performance of plans.
The Guide also provides specialized advice for federal retirees,
including retirees with and without Medicare and information on HMO
options and Medicare.The Guide's ``customer satisfaction surveys'' are
quite detailed, rating plan performance in such areas as access to
care, the quality of care, the availability of doctors, the willingness
to provide customer information and advice by phone, the ease of
getting appointments for treatments or check-ups, typical waiting times
in the doctor's office, access to specialty care, and the follow-
through on care. The surveys also review patient experience with such
things as an explanation of care, the degree to which the patient is
involved in decisions relating to care, the degree to which the plans'
doctors take a ``personal interest'' in the patient's case, advice on
prevention, the amount of time available with the doctor, the available
choice of primary care physicians and access to specialists, and the
speed with which the patient can contact the plan's service
representative.
Beyond this valuable information, organizations representing
enrollees also provide information. For example, federal retirees can
receive additional guidance from the National Association of Retired
Federal Employees (NARFE), a private organization representing
approximately 500,000 current and retired federal employees. With a
network of over 1,700 chapters throughout the country, NARFE works
closely with the OPM in answering questions and resolving problems
related to health insurance and retirement matters. In preparation for
``Open Season,'' NARFE publishes its annual Federal Health Benefits and
Open Season Guide. Most important of all, NARFE actually rates plans on
benefit packages that would be most attractive to the elderly.
The Role of the Office of Personnel Management. OPM is given
authority in the FEHBP statute to: contract with health insurance
carriers; prescribe ``reasonable minimal standards'' for plans;
prescribe regulations governing participation by federal employees,
retirees and their dependents, as well as to approve or disapprove plan
participation in the FEHBP; set government contribution rates in
accordance with federal law; make available plan information for
enrollees; and administer the FEHBP trust fund, the special fund
containing contributions from the government and enrollees and from
which all payments to health plans are made.
Unlike Medicare, OPM does not impose price controls or fee
schedules, or issue detailed guidelines to doctors or hospitals or
standardize benefits. By law, private plans within the FEHBP must meet
``reasonable minimal'' standards regarding benefits. But the law
creating FEHBP does not specify a comprehensive set of standardized
benefits. Congress merely defines the ``categories'' or ``types'' of
benefits that are to be provided; the level or duration of medical
treatments or procedures is largely left to negotiation and the choice
of enrollees in a dynamic market.
The Premium Negotiation Process. OPM sends out a ``call letter'' in
the Spring of each year to insurance carriers, inviting them to discuss
rates and benefits for the following calendar year. In these
confidential discussions, OPM outlines its expectations on rates and
benefits to the carriers, and the carriers invariably respond by
offering proposals for packages and premiums. Government managers
negotiate premiums before they are posted for the open season. This is
a largely successful mixture of discussion and jawboning.
For HMO and point of service (POS) plans, OPM typically starts its
negotiations based on the local market for these plans--it does not, as
in the case of Medicare, apply a formula based on the local fee-for
service market. In the case of fee-for-service and preferred provider
organization (PPO) plans, OPM negotiates a fixed profit per subscriber.
Thus the plans make money through negotiated service contracts rather
than traditional profits. While these plans must accept market risk,
they must lodge revenue surpluses in special reserve accounts.
To some extent this negotiation system means the government
exercises ``price maker'' power. But the plans still must design and
price their product shrewdly in strong competition with each other for
enrollees if they are to remain in business. Significantly, OPM devotes
most of its negotiating energy with the large plans that determine the
government's maximum contribution, and largely ignores the pricing of
other plans. It is not clear that the government's jawboning function
in the FEHBP is as important in holding down costs than this
competition for price-sensitive enrollees. But what is clear is that
OPM bargaining with competing plans is far more successful at holding
down costs than CMS issuing edicts to hospitals and physicians.
Other OPM Functions. In setting the government contribution to
retirees health benefits, OPM make its calculations according to a
formula established by law, under which OPM pays a percentage of the
premium chosen by the enrollee up to a maximum dollar amount linked to
the costs of certain comprehensive plans. Whatever the plan chosen, the
government's premium is sent directly to the plan. The enrollee's
premium contribution normally is deducted from the enrollee's paycheck
(for workers) or annuity (for retirees) and also sent by OPM directly
to the chosen plan. OPM also helps retirees and employees settle
disputed claims.
OPM prepares kits outlining rates and benefits for the coming
calendar year, disseminating information on the plans. Beneficiaries
then pick a plan during open season. OPM maintains an ``Open Season
Task Force'' to help in making decisions, and a hot line that retirees
(or regular workers) can call during open season.
applying fehbp's structure to the medicare program
Congress could introduce key features of the successful FEHBP
program into Medicare by taking several important steps.
1) Remove from CMS the function of managing a competitive market of
managed care plans and the traditional fee-for-service program
and instead place this function under a new Medicare Board with
powers to negotiate prices and services with plans.
CMS currently is responsible for operating the traditional fee-for-
service program. But is also responsible for establishing and managing
the market for managed care plans that compete directly with its fee-
for-service program. This mixed role or umpire and competitor conflicts
with a basic principle of economic organization in a market--those
responsible for setting the rules of competition, and providing
consumers with information on rival products, should have neither an
interest in promoting any particular product nor even a close
relationship with one of the competitors. That is why the Securities
and Exchange Commission maintains a wall of separation between itself
and individual companies. It is why Consumers' Reports accepts no
advertising from products it evaluates. Entangling the running of a
market with the management of any of the competing providers is a
recipe for problems. Significantly, OPM does not run a plan itself.
This separation is not only necessary to avoid a conflict of
interest, it is also necessary because the managerial cultures are very
different for staff engaged in these two very different functions.
Managers charged with dispassionately operating a market must display
evenhandedness and pay close attention to the information that
consumers need to make wise decisions. On the other hand, those
managers engaged in marketing a particular plan, including a
government-sponsored plan, must be highly competitive and concerned
with the long-term viability of their particular product and the
continued satisfaction of their customers. The cultural difference is
much like that separating a judge from a trial attorney.
The Breaux-Thomas Medicare Commission recognized this inherent
conflict when a majority of members voted to establish a board to take
over many of the marketing functions, and the management of private
plans, now undertaken by CMS. To establish such a Board, Congress
should create within the Medicare program a body that is the functional
equivalent of the Office of Personal Management within the FEHBP. The
function of this body, and the focus of the staff within it, should be
to structure and operate a market of competing plans, including the
traditional fee-for-service plan, and to provide Medicare beneficiaries
with the information they need to make the wisest choice possible.
The new Board should answer directly to the Secretary of the HHS,
and would have similar functions to those of OPM within the FEHBP. It
would take over many of the Medicare functions currently assigned to
CMS, leaving CMS's Medicare staff to focus on the administration of the
fee-for-service Medicare program. Among the Board's functions:
Setting standards for all plans being offered to Medicare
beneficiaries, and certifying that all plans meet those
standards. The Board should be responsible for setting the
``ground rules'' for inclusion in Medicare, including solvency
requirements and information requirements. The standard setting
should apply to the traditional fee-for-service program as well
as the new choice programs created by Congress.
Negotiating with competing plans regarding benefits and
prices. Just as OPM negotiates with individual plans before
they are offered to federal employees during open season, so
the Board should be given latitude by Congress to negotiate
premiums with managed care plans. This would be a marked
improvement on the current formulas established by Congress,
which lead to payment levels that are out of line with local
markets. Under a system of premium/payment negotiation the
Board would be able to balance the government's cost and the
availability of plans in an area, something it is hampered from
doing today.
Organizing payments to chosen plans. The Medicare Board would
be responsible for the payments to plans.
Providing data and information to consumers. The Board would
take on the function of providing consumer and benefits
information to seniors and guidance on how to make wise
choices. This function would include examining techniques to
measure quality and incorporating prudent techniques into the
information made available to beneficiaries.
In order to carry out its mission effectively, the Board itself
should contain certain elements. One of these should be an Advisory
Council, mainly representing consumers but also organizations with a
general interest in creating a market for high quality health care.
However, the Board, and the Advisory Council, should receive policy and
technical advice on issues affecting the market for Medicare plans from
an outside advisory body with experience of other health care markets.
I would suggest the Medicare Payment Advisory Commission (MedPAC), with
an expanded staff, could play this role.
In addition, the Board would need a full staff to undertake its
broad functions. Some of these staff could be recruited from current
CMS personnel. But it would be wise to recruit some staff from outside
HHS in order to introduce new skills and experience. Some individuals
might be recruited from OPM, and others from the private sector.
2) To enable the basic benefits package to be revised and improved
steadily over time, the current politicized process for
changing benefits should be replaced with a Benefits Board and
other steps.
The current discussion about the need to add an outpatient drug
benefit to Medicare simply underscores two related failings in the
design of the program. The first is that ever since its inception, the
Medicare benefits package has slipped further and further behind what
would be acceptable in typical plans for the working population. The
second is that the program will be constantly out of date as long as it
takes an act of Congress to accomplish benefits changes in Medicare
that in the private sector would be made in a few routine management
meetings.
The main reason that the benefits package is out-of-date despite
general acceptance it needs to include such items as a drug benefit is
that all major changes in benefits require an act of Congress.
Consequently, discussions about changing benefits are necessarily
entangled in the political process. Providers included fight hard and
usually effectively to block hard attempts to scale back outdated
coverage for their specialty. Meanwhile, talk of upgrading the Medicare
benefits package unleashes an intense lobbying battle among other
specialties seeking to be included in Medicare benefits. Invariably,
the final result depends more on shrewd lobbying and political polling
than on good medical practice.
A long-term reform of Medicare must end the structurally
inefficient and politicized system of changing or modifying benefits
over time. The best way to do this involves three steps:
Set only broad benefit categories in Congress. Rather than set
detailed benefits in legislation, Congress should confine
itself to describing the broad categories of benefits that
private plans competing in Medicare should provide (such as
emergency care, drug benefits, etc.). This is the approach
Congress has taken with the FEHBP program. In addition,
Congress could establish the minimum ``bare bones'' benefits
each plan must have--leaving the Medicare Board to negotiate
additional benefits plan-by-plan.
Create a Medicare Benefits Board. Instead of Congress or the
Administration specifying detailed benefits for the fee-for-
service program (or the minimum benefits for managed care
plans), Congress should create a Benefits Board to propose
specific incremental changes in these core benefits. Such an
independent board would have members selected for specific
terms by the Administration and Congress. The package
recommended by the Benefits Board would then be subject to an
up or down vote by Congress. This would reduce political
pressures on benefit decisions and take lawmakers out of the
process of making detailed medical decisions, and yet it would
give Congress the final say in any benefits changes.
Essentially the practical logic for establishing a board to
function in this way is the same as the logic for creating the
Base Closing Commission in the 1980s.
The first task for the proposed Benefits Board should be to
determine the best way to introduce a drug benefit into the
traditional fee-for-service segment of Medicare. With a Board
in place, Congress could instruct it to develop a modified
benefits package, including drug coverage, within a specified
budget. To work within the budget constraints, the Board might
develop a plan to make small changes in a number of features of
the benefits package to achieve a well-balanced package that
achieved Congress' objectives. The plan would be sent to
Congress for an up-or-down vote without amendment. Should it
fail to win approval, the Board would develop a modified
version until agreement could be reached.
3. Empower the traditional fee-for-service program to compete.
Because of the statutory basis of the fee-for-service benefits
package, and the many requirements Congress places on CMS, it is
currently very difficult for the agency to make sensible improvements
in the fee-for-service program to more it competitive and modern.
The Breaux-Thomas Medicare Commission discussed giving CMS more
flexibility to enable the fee-for-service program to compete more
effectively. This makes sense--though, for the reasons discuses
earlier, only if the agency is relieved of the power to set the rules
for competition.
Congress should address this inflexibility by giving CMS the same
ability to compete as states and local governments routinely give ``in-
house'' public agencies when they are subject to competitive bids from
the private sector. There is no reason why public enterprises cannot be
competitive and entrepreneurial. In virtually every state of the union
we see such innovation, from the delivery of municipal services to
public education.
More specifically, Congress should give CMS greater flexibility to
run the traditional fee-for-service program in ways that would make it
an aggressive competitor to managed care plans and other emerging
private sector health care options in the next century. Whenever a
competitive market is introduced, the government-provided service must
be given every opportunity to redesign itself to compete effectively.
This should be so in Medicare. Thus CMS should be granted greater
discretion to introduce innovations into the management of traditional
fee-for-service Medicare. It should be allowed, for instance, to make
extensive use preferred provider organizations of those physicians and
hospitals giving the best value for money. It should also be allowed to
further contract out the management of the traditional program in areas
where that might improve Medicare.
4) Amend the plan payment system to make it more like that used in the
FEHBP.
A form of ``premium support'' financing much like that in the FEHBP
is the best way to achieve the goals of a high-quality Medicare system
that is affordable to taxpayers as well as seniors. Under an FEHBP-
style payment system, Medicare beneficiaries would receive a percentage
contribution to the cost of their chosen plan, up to a maximum dollar
amount. But this mechanism can be adjusted so that the elderly and
disabled are not at risk for long term changes in the cost of their
health coverage. In fact, a premium support arrangement can be modified
in several ways to address variety of policy goals and to protect
enrollees. For example:
The maximum contribution could be adjusted each year--or
indexed--to cover the market price of major plans providing
comprehensive benefits. In that way the elderly would continue
to have an entitlement and know that the costs of comprehensive
coverage would be assured, but the premium support approach
means they would also have a strong incentive to choose a cost
effective plan.
A minimum amount of premium support could be established and
this could be adjusted by income, so the low-income senior
would have a larger amount of financial assistance for any
given plan.
The minimum and maximum amount could be adjusted (i.e.
indexed) to account for the higher costs of certain medical
conditions warranting more elaborate coverage.
Mr. Norwood. Thank you, Mr. Butler.
Mr. Richtman, you are now recognized.
STATEMENT OF MAX RICHTMAN
Mr. Richtman. Good morning, Mr. Chairman, and ranking
member Brown, and members of the subcommittee. Thank you for
holding this important hearing on the issue of Medicare
modernization and for inviting me to speak this morning.
I am the Executive Vice President of the National Committee
to Preserve Social Security and Medicare, a seniors, grass-
roots, education and advocacy organization, with millions of
members and supporters around the country.
We are extremely concerned that any Medicare modernization
ensures seniors continued access to a defined benefits package,
reasonable premiums, and out-of-pocket-expenses, and access to
the physician of their choice.
Cost to the beneficiary is one of our main concerns. While
Medicare has made significant advances over the past 35 years
in improving the health and lives of seniors, seniors still pay
a significant portion of their health costs out-of-pocket, in
part because they use more services as a result of their health
care needs and in part because Medicare does not cover many
important preventive benefits, including prescription drugs.
Seniors have been asking policymakers to determine ways to
reduce their burdensome out-of-pocket expenses. We must ensure
that the costs to beneficiaries does not escalate as a result
of any Medicare modernization plan.
The most important and critical improvement needed in the
Medicare program is to provide a prescription drug benefit. The
typical senior fills 18 prescriptions a year, and at an average
cost of $1,650.
Yet, one-third of beneficiaries have no prescription drug
coverage at all. With regard to choice, and this has been
mentioned a number of times this morning, seniors do want
options and choice, but they want a choice of physicians and
not of plans.
Seniors need a defined benefit package they can count on.
It is not clear that in the FEHBP and in premium support models
that there will be a defined benefit.
Seniors need predictable benefits that don't decrease over
time and costs that don't drastically increase for basically
the same benefits, nor vary from region to region.
Benefits should remain portable so that the senior moving
from one State to another State will have the same benefits. We
have serious concerns about applying the FEHBP model to
Medicare, because the age of the current population is so
different.
The average Federal employee is 45 years old. Most on
Medicare are at least 65. Naturally the health care costs for
seniors will be much higher. On the issue of cost, premiums in
FEHBP have increased steadily over the last 5 years.
How can this be a model for cost savings for Medicare,
particular because we know that seniors' medical costs are much
higher as I just mentioned.
Medicare must continue to be we feel a social insurance
program with a traditional fee for service plan that is
available to everyone who needs it. Seniors often fear private
insurance companies because they have seen how Medicare+Choice
Plans have treated them.
Many seniors have been adversely affected when the plans
they have enrolled in elect to withdraw from their communities,
decrease benefits, or increase premiums and co-pays.
Seniors need and deserve stability, dependability, and
affordability. Mr. Chairman, and members of the subcommittee,
we ask that you consider the cost to seniors as you deliberate
Medicare modernization.
On behalf of millions of our national committee members and
supporters around the country, and seniors across the Nation,
we request that you ensure all current and future Medicare
beneficiaries that have access to a reliable, predictable,
affordable, defined benefit, fee-for-service program. Thank you
very much.
[The prepared statement of Max Richtman follows:]
Prepared Statement of Max Richtman, Executive Vice President of the
National Committee to Preserve Social Security and Medicare
Good Morning Chairman Bilirakis, Ranking member Brown and members
of the committee. Thank you for holding this important hearing on the
issue of Medicare Modernization and for inviting me to speak. I am
executive vice president of the National Committee to Preserve Social
Security and Medicare, a senior's grass root's education and advocacy
organization with millions of members and supporters.
We are extremely concerned that any Medicare modernization ensures
seniors continued access to a defined benefit package, reasonable
premiums and out of pocket expenses, and access to the physician of
their choice. Cost to the beneficiary is one of our main concerns.
While Medicare has made significant advances over the past 35 years in
improving the health and lives of seniors, seniors still pay a
significant portion of their health costs out of pocket, in part
because they use more services as a result of their health care needs
and in part because Medicare does not cover many important preventive
treatments including prescription drugs. Seniors have been asking
policymakers to determine ways to reduce their burdensome out-of-pocket
expenses. Therefore, we must ensure that the cost to beneficiaries do
not escalate as a result of any Medicare modernization plan.
The most important and critical improvement needed in the Medicare
program is to provide a prescription drug benefit. The typical senior
fills 18 prescriptions per year at an average cost of $1,650. Yet, one
third of beneficiaries have no prescription drug coverage.
With regard to health care providers, seniors do want options and
choice. However, they report wanting a choice of physicians, not a
choice of plans. Seniors need a defined benefit package they can count
on. It is not clear than in FEHBP and in premium support models there
will be a defined benefit. Seniors need predictable benefits that don't
decrease over time and costs that don't drastically increase for the
same benefits, nor vary from region to region. Benefits should remain
portable so that the senior moving from state to state will have the
same benefits.
We have serious concerns about applying the FEHBP model to Medicare
because the age of the covered population is so different. The average
federal employee is 45; most on Medicare are at least 65. Naturally,
the health care costs for seniors will be much much higher.
On the issue of cost, premiums in FEHBP have increased steadily
over the last 5 years. How can this be a model for cost savings for
Medicare? Particularly, because we know seniors' medical costs are much
higher.
Medicare must continue to be a social insurance program with a
traditional fee for service plan that is available to everyone who
needs it. Seniors often fear private insurance companies because they
see how Medicare Plus Choice plans have treated seniors. Unfortunately,
many seniors have been adversely affected when the plans they have
enrolled in elect to withdraw from their communities, decrease benefits
and/or increase premiums and copays. Seniors need stability,
dependability and affordability.
In FEHBP, all plans are on an equal playing field; this is not a
good model for Medicare. Fee for service cannot be on an equal playing
field with private insurance plans. The oldest, sickest, poorest, most
costly seniors will have to remain in fee for service. This will drive
up the cost of the fee for service program. However, the oldest,
sickest, poorest seniors should not pay more in cost sharing. This is
the principle of social insurance. Fee for service must be protected
and guaranteed.
Mr. Chairman and members of the committee we ask that you consider
the cost to seniors as you deliberate on any Medicare modernizations.
On behalf of our millions of National Committee members and seniors
across the nation, we request that you ensure all current and future
Medicare beneficiaries have access to a reliable, predictable and
affordable defined benefit traditional fee for service program.
Thank you.
Mr. Norwood. Is it deMontmollin?
Mr. deMontmollin. Yes, sir.
Mr. Norwood. Mr. deMontmollin, you are now recognized.
STATEMENT OF STEPHEN J. deMONTMOLLIN
Mr. deMontmollin. Mr. Chairman, Ranking Member Brown, and
members of the subcommittee, my name is Steve deMontmollin, and
I am the Senior Vice President and General Counsel of AvMed
Health Plan, Florida's oldest and largest not-for-profit HMO,
representing nearly 30,000 Medicare beneficiaries, 20,000
Medicaid, and 15,000 Federal employees, and tens of thousands
of well satisfied Medicaid, FEHBP, State employees, and other
commercial members, who have benefited by the leadership of
Chairman Bilirakis, I can assure you, in the areas of southwest
Florida.
I am also testifying on behalf of the American Association
of Health Plans, which represents more than 1,000 health plans
serving 170 million Americans, and its membership includes most
Medicare+Choice organizations.
I appreciate the opportunity to testify regarding Medicare
reform and the urgent need to act on short term measures to
stabilize the Medicare+Choice program as longer term reform
strategies are developed and implemented.
Mr. Chairman, unless immediate action is taken to address
the funding crisis confronting Medicare+Choice, we will lose
the foundation of private plans needed to help fulfill long
term goals related to providing seniors more choices in a
reformed Medicare program.
AAHP members will support Medicare reform proposals based
on the following principles. First, Medicare reform must expand
choices for beneficiaries. Second, Congress should include all
aspects of Medicare in any reform proposal.
It is particularly important that Congress create a level
playing field between Medicare+Choice and fee-for-service
Medicare. Next, reform should permit flexibility and benefit
design, while requiring all plans to offer a core set of
benefits.
Government payment must be sufficient to allow individuals
to have a reasonable level of choice among plans, and to ensure
that choices remain available over time. Finally, a fair
balance must be found between the need for regulatory oversight
and the promotion of quality health care for all Medicare
beneficiaries.
If Congress examines options for reforming Medicare, it is
important to consider competitive models similarly to that used
by the Federal Employees Health Benefits Program. For example,
FEHBP establishes a level playing field for all coverage
options.
Both managed care plans and fee-for-service plans are
governed by the same regulatory structure, and are paid under
the same payment structure. This approach contrasts sharply
with the competitive bidding demonstration projects that were
pursued unsuccessfully under the previous administration.
Health plans also believe that an affordable prescription
drug benefit should be a part of a reform Medicare program.
This benefit should be flexible and financially sustainable.
As you know, many Medicare+Choice plans have been providing
prescription drug coverage, serving as a critical source of
prescription drugs for low income beneficiaries.
Plans are well positioned to help Congress make drug
coverage available to beneficiaries while containing rising
drug costs. While we are pleased that health plans are featured
prominently in visions of Medicare reform, absent funding
relief, however, business realities will force more plans to
leave the program, and by the time that longer term reforms are
enacted, policymakers may find that the infrastructure that
they were counting on no longer exists.
But for the wisdom of Chairman Bilirakis and this
subcommittee in establishing the minimum floor rate, the
current infrastructure may not be in place as it is today.
In addition to its importance for reform, Medicare+Choice
is a valuable option for beneficiaries. Medicare+Choice plans
provide high quality, affordable health care coverage,
emphasizing coordinated care and preventive services.
Studies show that Medicare+Choice plans do a better job of
delivering services to the chronically ill and serve as a
crucial safety net for many low income beneficiaries. In the
context of the Medicare+Choice Program, I have a few basic
points that I would like to raise.
First, Medicare+Choice payments are not keeping up with
rising health care costs. Compounding that problem, health
plans are not receiving funds that Congress targeted to the
Medicare+Choice program.
Most of the flow through funds that the Congressional
budget office expected to reach Medicare+Choice through the BBA
adjustment packages did not materialize because of the blend
component of the Medicare+Choice payment methodology was not
implemented.
Over the next 3 months, health plans must decide whether
they will participate in the Medicare+Choice program in 2003.
If Congress does not act soon, those decisions will be based on
current program realities.
And in that event, members should expect that additional
beneficiaries will lose the health plan choices they value. No
one wants that to happen. To that end, AAHP and its members
stand ready to assist in addressing the serious problems in the
Medicare+Choice program.
Thank you for this opportunity to testify and I look
forward to answering your questions.
[The prepared statement of Stephen J. deMontmollin
follows:]
Prepared Statement of Stephen J. deMontmollin, Vice President and
General Counsel, AvMed Health Plan on Behalf of American Association of
Health Plans
i. introduction
Chairman Bilirakis and members of the subcommittee, my name is
Stephen J. deMontmollin. I am Vice President and General Counsel of
AvMed Health Plan. Based in Gainesville, Florida, AvMed is Florida's
oldest and largest not-for-profit HMO, serving some 300,000 members,
including approximately 30,000 Medicare members and 10,000 federal
employees and their dependents. AvMed contracts with close to 7,000
physicians and 126 hospitals, is federally qualified and is accredited
by both the National Committee for Quality Assurance (NCQA) and the
Joint Commission on Accreditation of Healthcare Organizations (JCAHO).
AvMed appreciates the opportunity to testify regarding Medicare
reform and the urgent need to act on short-term measures to stabilize
the Medicare+Choice program as longer-term reform strategies are
developed and implemented. Our company is committed to making high
quality health insurance coverage available to the people of Florida.
It is our hope that your Committee will act early in the year to make
the changes needed to Medicare+Choice to allow us to sustain and expand
our commitment to Florida's Medicare beneficiaries.
I am also testifying today on behalf of the American Association of
Health Plans, of which AvMed is a member. AAHP and its member plans
have a longstanding commitment to Medicare and to the mission of
providing high quality, affordable, patient-centered health coverage to
beneficiaries. AAHP represents more than 1,000 HMOs, PPOs, and similar
network health plans, and its membership includes most Medicare+Choice
organizations. Together, AAHP member plans provide coverage for more
than 170 million Americans nationwide.
My testimony addresses three components of the Medicare reform
debate. First, I will set forth basic framing principles for
consideration in any debate over comprehensive reform of the underlying
Medicare program. Next, I will talk about some of the policy issues
that should be considered in the context of adding a new outpatient
prescription drug benefit to Medicare. Finally, I will identify the
immediate changes that must be made to stabilize Medicare+Choice in
order to ensure that it will continue to exist by the time
comprehensive reform and a new drug benefit are implemented. I cannot
emphasize strongly enough that unless immediate action is taken to
address the funding crisis confronting Medicare+Choice, the foundation
of private plans needed to help fulfill long term goals related to
providing seniors more choices in a reformed Medicare program will not
exist, and Medicare beneficiaries' access to quality health care
choices will be denied.
ii. comprehensive medicare reform
I commend the Committee for its continuing work to protect and
preserve the Medicare program for future generations. AAHP and its
members look forward to working with the Committee to develop
competitive approaches to Medicare reform, based on a level playing
field for all Medicare options, to ensure that the program remains a
reliable source of high quality health care in the years to come. We
are committed to participating constructively to advance Medicare
reform proposals based on the following principles:
Expand Choices for Beneficiaries: Ensuring a strong Medicare
program requires offering beneficiaries an expanded range of
options. Consumers in the private sector have benefited from
the widespread availability of health plan options, which has
promoted access to affordable, comprehensive coverage. Congress
endorsed the principle of expanded choice in creating the
Medicare+Choice program in the Balanced Budget Act of 1997
(BBA). Medicare+Choice was designed to include not only health
maintenance organizations and point-of-service plans that
participated under the Medicare risk program, but also
provider-sponsored organizations, preferred provider networks,
and private fee-for-service plans.
Expanded choice will be rendered meaningless, however, unless
these choices are available in the market and affordable to
beneficiaries. Any Medicare reform proposal, including
proposals based on competitive bidding models, should seek to
ensure that the coverage options from which beneficiaries can
choose include some options that cost beneficiaries no more
than options available under the current Medicare program.
Include All Aspects of Medicare in Reform Proposal: Although
millions of beneficiaries have chosen to enroll in a
Medicare+Choice plan, the overwhelming majority of Medicare
beneficiaries remain in the fee-for-service program. No serious
reform proposal can proceed without tackling the problems
confronting fee-for-service as well as Medicare+Choice, and as
fundamental Medicare reforms are enacted, it is particularly
important that Congress create equivalent rules for all
Medicare options. This will allow beneficiaries broad choice
within a consistent set of performance standards.
Promote Greater Choice For Beneficiaries By Permitting
Flexibility in Benefit Design: All options should offer a core
set of benefits. Generally health plans offer beneficiaries a
choice of additional benefits, such as prescription drugs and
lower cost sharing in exchange for a selective provider panel.
Any Medicare reform proposal should recognize that granting
plans benefit flexibility enables them to design additional
benefits and to structure cost-sharing requirements in a manner
that maximizes beneficiaries' coverage choices and that allows
plans to provide benefits that coincide with the level of
government payment. Adequate payment for the core set of
benefits is fundamental, without which health plans cannot
offer the supplemental benefits valued by enrollees.
Provide a Government Contribution that Adequately Funds
Choice: Determining the amount of the government contribution
will be a critical decision in the design of any Medicare
reform proposal. This amount should be sufficient to allow
individuals to have a reasonable level of choice among plans
within an area and to ensure that choices remain available and
stable over time. Additionally, the contribution amount should
preserve choices available in currently successful markets and
support expansion of choices in the rest of the country.
Develop an Improved Regulatory Framework: Health plans and
other options participating in a reformed Medicare program
should be administered under a new framework designed to
achieve a fair and sound balance between the need for
regulatory oversight and the promotion of quality health care
for all Medicare beneficiaries. The new framework should seek
to minimize the potentially conflicting objectives evident
under the Centers for Medicare and Medicaid Service's (CMS)
current roles as a purchaser, regulator, and competitor.
FEHBP Model Offers Useful Lessons
As Congress examines options for reforming Medicare, it is
important to consider competitive models similar to that used by the
Federal Employees Health Benefits Program (FEHBP).
A competitive system modeled after FEHBP would have characteristics
that offer considerable potential for expanding beneficiary choices and
encouraging private health plan participation in the Medicare program.
While the FEHBP model would have to be modified in a number of areas
before it could be applied to the Medicare program, this approach has
many worthwhile features. For example, FEHBP establishes a level
playing field for all coverage options--both managed care plans and
fee-for-service plans are governed by the same regulatory structure and
paid under the same payment structure. This approach contrasts sharply
with the competitive bidding demonstration projects that were pursued
unsuccessfully under the previous Administration.
If adequately funded and sensibly regulated, a Medicare program
based on competition could prove to be an effective approach to meeting
the health care needs of Medicare beneficiaries. Still, it is important
for Congress to recognize that the beneficiary populations served by
Medicare and FEHBP are very different and that it would not be
appropriate to simply impose the FEHBP model on the Medicare program
without modifications to fit the senior and disabled population.
iii. prescription drug coverage
As the Energy and Commerce Committee continues to tackle the range
of difficult issues associated with Medicare reform, health plans
continue to believe that creating an affordable prescription drug
benefit under Medicare should be a primary goal. In establishing the
Medicare program thirty-six years ago, our nation made a commitment not
only to the elderly and disabled who directly benefit from the program,
but also to their families whom otherwise would bear the overwhelming
costs of their health care. As more prescription drugs have become
available and have taken a more critical role in medical treatment,
especially to the chronically ill, the absence of an outpatient
prescription drug benefit in the Medicare program has become
problematic for many Medicare beneficiaries and their families.
AAHP and its member plans strongly support making a well-designed,
flexible and financially sustainable drug benefit available to Medicare
beneficiaries.
Many Medicare+Choice plans have been providing prescription
drug coverage. Health plans have been a primary source of
coverage for vulnerable beneficiaries. For several years now,
Medicare+Choice plans and their predecessors, Medicare risk
plans, have been a critical source of prescription drug
coverage for many seniors and the disabled. A majority of
Medicare beneficiaries without drug coverage paid for by
Medicaid or by a former employer choose our plans as their
source of prescription drug coverage. Furthermore,
Medicare+Choice enrollees have expressed consistently high
levels of satisfaction with their plans 1. AAHP
members stand ready to offer their knowledge and experience as
Congress considers ways to provide a prescription drug benefit
for senior citizens. Because Medicare+Choice plans completely
integrate outpatient pharmaceutical coverage into the Medicare
coverage they offer, Medicare+Choice plans are--and continue to
be--well positioned to offer beneficiaries an effective
coverage option.
---------------------------------------------------------------------------
\1\ Medicare risk and Medicare+Choice enrollees have consistently
expressed overall satisfaction with their quality of care at percentage
rates in the mid-to-high nineties. See MedPAC Reports to Congress dated
March 2000 (p. 34) and June 1998 (p. 133).
---------------------------------------------------------------------------
Medicare+Choice is a Critical Source of Prescription Drugs for
Low-Income Beneficiaries without Subsidized Supplemental
Coverage. While Medicaid provides coverage for the lowest
income beneficiaries and other beneficiaries may have
supplemental insurance subsidized by a former employer,
supplementing Medicare for drugs and other treatments can be
prohibitively expensive, particularly for those on fixed
incomes. An AAHP analysis of HCFA data from 1997 demonstrated
that Medicare plans serve many financially vulnerable
beneficiaries, principally those without subsidized
supplemental coverage and those with limited or modest incomes
who are not eligible for Medicaid.2 A recent Health
Affairs study confirms this.3
---------------------------------------------------------------------------
\2\ AAHP, ``Financially Vulnerable Medicare Beneficiaries Rely on
HMOs for Prescription Drug Coverage,'' May 2000.
\3\ Laschober, MA et al. Trends in Medicare Supplemental Insurance
and Prescription Drug Coverage, 1996-1999. Health Affairs Web
Exclusive, February 27, 2002.
---------------------------------------------------------------------------
Medicare+Choice organizations can help Congress make drug
coverage available to beneficiaries while helping control
rising drug costs. Members of Congress face two competing
policy objectives: making a comprehensive prescription drug
benefit available to Medicare beneficiaries while
simultaneously controlling the program's escalating costs.
Health plans are well positioned to help Congress achieve its
policy goals.
Medicare+Choice organizations use advanced pharmacy management
techniques integrated with medical and surgical benefits. It is
important to recognize, however, that even with the use of
state-of-the-art pharmacy management tools pioneered by private
health plans, prescription drug expenditures are escalating
rapidly. To function properly in this environment, any
prescription drug benefit must be backed by adequate funding
that is sustained over time. Moreover, any new prescription
drug program should be designed to allow for the continued
evolution of pharmacy management strategies that promote
affordability and accessibility of prescription drugs. A new
drug benefit should permit formulary management, generic
substitution, and integrated retail and mail service for drug
delivery. Lastly, any new regulatory framework that accompanies
a prescription drug benefit should pave the way for the
successful implementation of the program and its evolution as
the program matures.
iv. stabilizing medicare+choice
Health plans feature prominently in the longer-term visions of
comprehensive Medicare reform and a new outpatient prescription drug
benefit articulated by this and previous Administrations and by Members
of Congress. However, steps must be taken immediately to ensure that
private plans are able to continue to participate in the Medicare
program. If the current cycle of underpayment is not halted, health
plans will continue to wrestle each year with the difficult decision of
whether it is possible to continue to remain in the Medicare+Choice
program. Although the historical pattern of administrative
inflexibility in Medicare+Choice is improving, additional changes are
needed. Absent funding relief, business realities will force more and
more plans to leave the program, and by the time longer-term reforms
are ready to be enacted, policymakers may find that the infrastructure
they were counting on no longer exists.
Health plans applaud President Bush for recommending a 6.5% payment
increase for health plans that have been receiving the minimum payment
update as a good first step. We call upon Congress to act quickly this
year to build on the President's proposal to ensure that Medicare
beneficiaries continue to be able to access the choices they value.
In the context of the Medicare+Choice program, I have six basic
points I would like to raise.
Prior to 1997, Health Plan Choices for Medicare Beneficiaries
Were Expanding. Under the Medicare risk contract program that
preceded Medicare+Choice, beneficiaries responded favorably to
the high quality, affordable, and comprehensive health coverage
offered by Medicare HMOs. Between 1993 and 1997, enrollment in
Medicare HMOs increased at an average annual rate of 30
percent, reaching a level of 5.2 million by 1997.
The Balanced Budget Act Has Had Unintended Consequences. While
the Balanced Budget Act of 1997 (BBA) clearly achieved its
objective of limiting spending throughout the entire Medicare
program, this accomplishment has been achieved at the expense
of another important objective--expanding health care choices
for Medicare beneficiaries. In many areas where large numbers
of beneficiaries have chosen Medicare+Choice options, health
plans are absorbing cost increases of 10 to 13 percent annually
and, at the same time, receiving payments that are increasing
by only two percent annually (and three percent in 2001). The
unintended consequences of the BBA have diminished health care
choices for Medicare beneficiaries, as many health plans have
been forced to withdraw from the program due to inadequate
funding and excessive regulatory burdens.
Medicare+Choice Is a Valuable Option for Beneficiaries.
Medicare+Choice plans provide high quality, comprehensive,
affordable health coverage--with a strong emphasis on
coordinated care and preventive health care services--that is
not available in the Medicare fee-for-service program. Research
studies show that Medicare+Choice plans do a better job of
delivering services to the chronically ill and serve as a
crucial safety net for many low-income beneficiaries.
Medicare+Choice Funding is Inadequate. Most of the ``flow-
through'' or ``indirect'' funds that the Congressional Budget
Office (CBO) attributed to the Balanced Budget Refinement Act
of 1999 (BBRA) and the Benefits Improvement and Protection Act
of 2000 (BIPA) did not reach the Medicare+Choice program in
either 2001 or 2002. This is because the ``blend'' component of
the Medicare+Choice payment methodology was not implemented in
these years. As a result, Medicare+Choice plans will receive
only $2.3 billion in reimbursement from BBRA and BIPA in the
three-year period of 2000-2002, rather than the $5.8 billion
that was scored by CBO. This amount represents only 12 percent
of the $19.2 billion in estimated cuts from Medicare+Choice due
to the BBA in this same three-year period.
The Medicare+Choice Program Has Been Hampered Since Its Early
Years by Administrative Burdens. CMS often has failed to
consider whether the costs of regulatory requirements outweigh
their benefits and, at the same time, forced health plans to
spend scarce resources on compliance activities of sometimes
questionable value--leaving plans with fewer resources to spend
on patient care. Instead of setting priorities for ensuring
beneficiary rights and plan accountability, the agency has
created an inflexible regulatory environment that places
equal--but arbitrary--emphasis on every requirement. Plans
applaud recent CMS efforts to control the growth of the
regulatory burden, but the volume of regulation is nevertheless
overwhelming.
Action Is Urgently Needed to Protect Health Care Choices for
Medicare Beneficiaries. Efforts to stabilize the
Medicare+Choice program should focus on: (1) providing adequate
funding; (2) correcting flaws in the program's risk adjustment
process; (3) repealing the Medicare+Choice enrollment ``lock-
in'' requirement; and (4) continuing improvement in the
regulatory environment.
Medicare Managed Care Was Highly Successful Prior to 1997
In 1982, Congress enacted new rules under which HMOs could serve
Medicare beneficiaries through a Medicare risk contract program. Under
this program, HMOs provided beneficiaries with a growing number of
highly popular health care choices. Much like the Medicare+Choice plans
of today, the Medicare HMOs that emerged in the mid-1980s offered a
different approach to health care than beneficiaries experienced under
the Medicare fee-for-service program. Medicare beneficiaries responded
favorably to the high quality, affordable, and comprehensive health
coverage offered by Medicare HMOs. Enrollment in Medicare HMOs reached
one million by 1987, 1.8 million by 1993, and 5.2 million by 1997.
While the Medicare risk contract program created valuable health
care choices for many beneficiaries, in many areas of the country
beneficiaries did not have access to Medicare HMOs largely because of
variations in the program's payment rates. Under the Medicare risk
contract program, HMOs were paid a set amount for each beneficiary
based on 95 percent of the average per capita costs of providing
covered services in the Medicare fee-for-service program in the
beneficiary's county of residence. Because there are wide geographic
variations in fee-for-service payments, there were also wide geographic
variations in Medicare HMO payments. In addition, the willingness of
health care providers to contract with health plans varied
significantly across geographic areas--just as it does today. As a
result of these factors, Medicare HMOs were plentiful in some areas,
but unavailable in others. Concerns about this issue, combined with
other factors, led to major legislative developments in 1997.
The Balanced Budget Act of 1997 Has Had Unintended Consequences
The Balanced Budget Act of 1997 (BBA) repealed the Medicare risk
contract program and replaced it with a new Medicare+Choice program.
One of the BBA's stated goals was to provide the benefits of the
Medicare risk contract program to beneficiaries in more areas of the
country. In addition, the BBA placed a strong emphasis on strictly
limiting future Medicare spending, for both managed care coverage and
fee-for-service coverage, as part of a broader effort to balance the
federal government's budget.
At the time the BBA was enacted, the Congressional Budget Office
(CBO) estimated that the BBA's Medicare+Choice provisions would achieve
$22.5 billion in budget savings over five years (1998-2002). Moreover,
the Clinton Administration announced in January 1999 that it intended
to cut Medicare+Choice funding by an additional $11.2 billion over five
years (2000-2004) through the approach it had chosen for implementing a
new risk adjuster. The Bush Administration has since signaled that it
will take a different approach to implementing the risk adjuster. Even
if the Bush Administration chooses to implement a budget neutral risk
adjuster, significant savings has already been squeezed from the
Medicare+Choice program during the transition from the Medicare risk
contract program.
While the BBA clearly achieved its objective of limiting spending
throughout the entire Medicare program, this accomplishment has been
achieved at the expense of another important objective--expanding
health care choices for Medicare beneficiaries. The unintended
consequences of the BBA have diminished health care choices for
Medicare beneficiaries as many health plans have been forced to
withdraw from the program due to inadequate funding and excessive
regulatory burdens.
Following the enactment of the BBA, Medicare beneficiaries paid a
heavy price as two major problems--underfunding and over-regulation--
forced many health plans to either withdraw from the Medicare+Choice
program or reduce their service areas. As a result, approximately
407,000 Medicare+Choice enrollees had to change health plans or switch
from Medicare+Choice coverage to Medicare fee-for-service coverage in
January 1999. Although the enactment of BBRA and BIPA helped preserve
Medicare+Choice coverage for some beneficiaries in some geographic
regions, additional beneficiaries were affected by withdrawals and
service area reductions in subsequent years due to continuing
instability in the Medicare+Choice program. Coverage disruptions were
experienced by 327,0000 beneficiaries in January 2000, by 934,000
beneficiaries in January 2001, and by another 536,000 beneficiaries in
January 2002. In total, over 2.2 million enrollees have experienced
coverage disruptions.
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. These
benefit changes are a direct result of the underfunding of the
Medicare+Choice program.
To underscore the inadequacy of government payments to
Medicare+Choice plans, it is useful to compare Medicare+Choice to
broader trends in health care spending. Unless Congress acts, CMS
projects that in 2003 all Medicare+Choice enrollees will be covered by
health plans whose payments will increase by only 2 percent over 2002
payments. In contrast, the Department of Health and Human Services
(HHS) has projected that private sector spending by U.S. consumers on
all health care services will increase by 9.4 percent in 2002 and that
spending increases on prescription drugs are expected to be in the
double digits through 2011.
Medicare+Choice Plans Are an Important Option for Beneficiaries
Despite the problems the Medicare+Choice program has experienced in
recent years, Medicare+Choice plans have demonstrated that they can
provide high quality, comprehensive, affordable health coverage--with a
strong emphasis on coordinated care and preventive health care
services--that is not available in the Medicare fee-for-service
program. This coverage serves as a crucial safety net for many low-
income beneficiaries who cannot afford the high out-of-pocket costs
they would incur under the Medicare fee-for-service program. For all
beneficiaries, regardless of their income, this coverage provides
access to high quality health care. Beneficiary surveys consistently
show that Medicare+Choice enrollees tend to be highly satisfied with
their health coverage
Medicare+Choice plans are continually looking for new and better
ways to improve the delivery of health care services. By adopting
innovative approaches that place a strong emphasis on prevention,
Medicare+Choice plans are helping beneficiaries enhance their quality
of life.
Medicare+Choice enrollees are benefiting from disease management
programs that health plans have designed to improve care for
beneficiaries with chronic conditions. A recent AAHP survey, based on
responses from 131 health plans, found that 97 percent had implemented
disease management or chronic care programs for diabetes, 86 percent
had programs for asthma, and 83 percent had programs for congestive
heart failure. Health plans also are developing disease management
programs for end-stage renal disease, depression, and cancer. Other
plans have improved health care for their Medicare beneficiaries
through innovations focused on nutrition screening, the relationship
between literacy and health, osteoporosis treatment and prevention,
overcoming cultural barriers, and promoting clinical guidelines.
Another reason Medicare+Choice plans are popular among
beneficiaries is that they typically offer additional benefits not
covered by Medicare fee-for-service. According to an analysis by
Mathematica Policy Research, 66 percent of Medicare+Choice plans offer
some prescription drug coverage in 2002. Last year, other additional
benefits available to Medicare+Choice enrollees included physical exams
(99.7 percent), vision benefits (94 percent), hearing benefits (79
percent), podiatry benefits (30 percent), preventive dental benefits
(27 percent), and chiropractic benefits (5 percent). The lack of
adequate funding for the Medicare+Choice program has forced many health
plans to scale back additional benefits in recent years.
Medicare+Choice Funding is Inadequate
In both 1999 and 2000, Congress enacted legislation aimed at
stabilizing the Medicare+Choice program. At the time these laws were
enacted, the Congressional Budget Office (CBO) estimated that the
Balanced Budget Refinement Act of 1999 (BBRA) and the Benefits
Improvement and Protection Act of 2000 (BIPA) would restore a portion
of the funds that previously were cut from the Medicare+Choice program.
To better understand how the additional Medicare+Choice funding
provided by BBRA and BIPA compares to the deep Medicare+Choice cuts
that were made by BBA, it is useful to review the three-year period of
2000-2002. Estimates by CBO indicate that BBRA and BIPA were expected
to restore 30 percent, or $5.8 billion, of the $19.2 billion that was
estimated by CBO to have been cut from the Medicare+Choice program by
the BBA for this period. For several reasons, however, the
Medicare+Choice program has not received all of these funds.
One important reason is that, according to CBO's estimates, more
than half the additional Medicare+Choice funding provided by BBRA and
BIPA was to result from the interaction between Medicare+Choice
payments and Medicare fee-for-service payments. Because the growth
percentage used in calculating Medicare+Choice payments is linked to
growth in Medicare fee-for-service spending--albeit not as directly as
under the county-by-county link that existed in the old Medicare risk
contract program--Medicare+Choice payments are affected by increases or
decreases in Medicare fee-for-service spending. This interaction is
sometimes referred to as the ``flow-through'' effect. Since Medicare
fee-for-service spending was increased by both BBRA and BIPA, this
``flow-through'' effect was estimated to cause an indirect increase in
Medicare+Choice payments.
CBO estimated that the ``flow-through'' effect would increase
Medicare+Choice payments by a total of $3.6 billion for the three-year
period of 2000-2002. According to research by PricewaterhouseCoopers,
approximately $100 million of these funds were received by
Medicare+Choice plans receiving floor payments. However, the remaining
$3.5 billion was not received because the ``blend'' component of the
Medicare+Choice payment methodology was not implemented in 2001 or
2002. Due to the BBA's budget neutrality requirement and the low
Medicare+Choice growth rates of recent years (which are ``corrected''
annually to account for errors in previous estimates), the ``blend''
has been implemented in only one year (2000) since the BBA was enacted,
and it will not be implemented in 2003 under current law.
As a result, Medicare+Choice plans will receive only $2.3 billion
from BBRA and BIPA in the three-year period of 2000-2002, rather than
the $5.8 billion that was scored by CBO. This amount represents only 12
percent of the $19.2 billion estimated to have been cut from
Medicare+Choice by the BBA in this same three-year period.1Other
factors raise questions about whether even these funds are reaching the
Medicare+Choice program. For example, the Medicare+Choice payment
provisions of BBRA and BIPA placed a heavy emphasis on targeting funds
toward rural areas where managed care plans are not well-established
and where health care providers sometimes are reluctant to contract
with health plans. These provisions have had limited success in
increasing the availability of Medicare+Choice options in rural areas.
As a result, the additional Medicare+Choice spending that CBO
anticipated in these areas has not materialized.
Moreover, significant increases in the fees charged by hospitals
and other health care providers have absorbed much of the funding that
Congress intended to add into the Medicare+Choice program. A related
factor is that providers contracting with Medicare+Choice plans face
administrative burdens that are both costly and time-consuming, such as
the collection of encounter data, that they do not have to deal with in
the Medicare fee-for-service program or in the private sector.
The Complexity of the Medicare+Choice Payment Formula Makes It
Difficult to Weigh the Merits of Legislative Options. Congressional
efforts to stabilize the Medicare+Choice program have been frustrated
by the complexity of the Medicare+Choice payment formula. The various
components of this formula--the ``floor,'' the ``blend,'' the minimum
update, the ``carve-out'' of graduate medical education funds, the
budget neutrality requirement, and the risk adjustment process--
interact with each other and, more importantly, with prospective
estimates of Medicare fee-for-service growth rates (and retrospective
corrections of these growth rates). This interaction makes it
impossible to precisely determine how specific payment changes will
affect Medicare+Choice payments on a county-by-county basis in future
years.
In order to be helpful to Members of Congress, AAHP has tried to
provide county rates that would result from specific legislative
proposals, using highly sophisticated techniques and the best data
available. However, our models are unable to account for one critical
factor: Medicare+Choice payments are affected by CMS' estimates of the
national growth rate of Medicare fee-for-service spending for every
year after 1997, and CMS is authorized to revise these estimates on an
annual basis to correct forecast errors from prior years. Because we
currently have no way of knowing how much CMS will revise these
estimates next year, accurately determining the county rates that will
result from specific legislative changes Congress may enact this year
is difficult. This is a serious problem because, although CMS can
retroactively adjust payment increases, Medicare+Choice plans cannot
retroactively adjust costs.
To understand the degree to which this problem is undermining
legislative efforts to provide predictable and stable payments, please
consider the following example. In determining Medicare+Choice payments
for 2003, CMS revised the Medicare fee-for-service growth rate for 2000
by ``1.1 percentage points, by ``1.6 percentage points in 2001, and by
``1.9 percentage points in 2002, thus causing the Medicare+Choice
growth rate for 2003 to be ``2.9 percent. When Congress was considering
Medicare+Choice payment provisions the previous year, lawmakers had no
way of knowing that CMS later would make revisions that would have such
a dramatic impact in limiting Medicare+Choice payments. Congressionally
mandated payment increases are undermined by a CMS ``clawback'' due to
this forecast error ``correction.''
New Funding Is Stabilizing the Medicare+Choice Program in Some
Areas, but Counties with Many Medicare+Choice Enrollees Need More Help.
AAHP estimated that 67 percent of the Medicare+Choice funding provided
by BIPA in 2001 went to counties where plans were receiving the floor
payment for large urban areas. In most cases, Medicare beneficiaries
are better off in these areas because their health care choices and
benefits have been stabilized by BIPA. This clearly demonstrates that
legislative efforts to strengthen the Medicare+Choice program are
worthwhile when plans actually receive the funds Congress intends to
provide.
Although BIPA was good news for beneficiaries in large urban areas
where counties are now receiving the monthly floor payment, a large
majority of Medicare+Choice enrollees have not benefited significantly
from BIPA. Currently, more than 66 percent of Medicare+Choice enrollees
live in counties where plans received payment increases of only two
percent this year. Many of these same plans had received minimum
payment increases in each of the past three years (1998-2000) and,
unless Congress takes action this year, all counties will receive a
payment increase of only two percent in 2003.
Therein lies the problem afflicting the Medicare+Choice program. In
the areas where most Medicare+Choice enrollees live, health plans are
absorbing cost increases of 10 to 13 percent annually and, at the same
time, receiving payments that are increasing by only two percent
annually. No organization can survive on a long-term basis when costs
continue to outpace income year after year. It is precisely for this
reason that many health plans have been forced to withdraw from the
Medicare+Choice program, reduce benefits, or increase premiums.
Any serious attempt to stabilize the Medicare+Choice program must
directly address the fact that many counties across the nation with
large numbers of Medicare+Choice enrollees are in desperate need of
additional funding. By acting on the President's recommendation and
targeting assistance to these areas, Congress can lay the foundation
for broader private sector participation in the Medicare program. If
the program is stabilized in these counties, health plans will then be
in a stronger position to offer coverage in other counties where
choices are not yet widely available.
Claims that Medicare+Choice Plans are Overpaid are Based on Flawed
Methodology. The General Accounting Office (GAO), among others, has
claimed that Medicare+Choice enrollees are significantly healthier than
enrollees in the Medicare fee-for-service program and, therefore, that
Medicare+Choice plans are overpaid. AAHP has long disputed the GAO's
methodology in arriving at these conclusions. This methodology uses
pre-managed care enrollment fee-for-service expenditures (i.e., ``prior
use'') as a proxy for the health status of beneficiaries who are
enrolled in Medicare+Choice plans. AAHP has been concerned about the
GAO's reliance on this methodology because it includes no information
about Medicare+Choice enrollees' use of medical services once enrolled
in a Medicare+Choice plan. As a result, the measure used in this
methodology bears little relationship to health plan enrollees' actual
health status and health care needs.
Specifically, the GAO studies examined inpatient hospital data for
Medicare+Choice enrollees to measure health status. This approach can
be misleading since care patterns in Medicare+Choice plans emphasize
preventive care in order to obviate disruptive and costly inpatient
hospitalizations where appropriate. In addition, the cost-sharing
requirements in the Medicare fee-for-service program, especially for
those beneficiaries without Medicare supplemental insurance, may be
high enough to prohibit some beneficiaries from seeking care until they
join a Medicare+Choice plan. Indeed, MedPAC found in its June 2000
report that, in 1998, 26 percent of first-year Medicare+Choice
enrollees who switched from fee-for-service did not have supplemental
coverage in 1997. By contrast, only 13 percent of beneficiaries who
lived in a county with a Medicare+Choice plan and who remained in fee-
for-service Medicare in 1998 were without supplemental coverage in
1997. Thus, those joining a Medicare+Choice plan may be more likely to
have pent-up demand for medical services when joining a Medicare+Choice
plan, making them appear healthier than they truly are under the GAO's
methodology.
Notwithstanding AAHP's objections to the GAO's methodology,
empirical evidence questions the GAO's finding that Medicare+Choice
beneficiaries remain significantly healthier than fee-for-service
beneficiaries. Research prepared for CMS found that ``the impression
that the Medicare fee-for-service population is, on average, in much
worse health then the Medicare managed care population is not borne
out.'' (Pope, G.S., M. Griggs, and N. McCall, Comparison of the Health
Status of Medicare Fee-for-Service and Managed Care Enrollees Using the
Health Outcomes Survey, prepared for the Health Care Financing
Administration, November 16, 2000.)
Administrative and Regulatory Burdens Are Hampering the Medicare+Choice
Program
Another serious problem contributing to the instability in the
Medicare+Choice program is that CMS often has failed to consider
whether the costs of regulatory requirements outweigh their benefits.
CMS has forced health plans to spend scarce resources on compliance
activities of sometimes questionable value--leaving plans with fewer
resources to spend on patient care. Instead of setting priorities for
ensuring beneficiary rights and plan accountability, the agency has
created an inflexible regulatory environment that places equal--but
arbitrary--emphasis on every requirement.
The Bush Administration has taken important first steps toward
improving administration of the Medicare+Choice program. For example,
by creating a new Center for Beneficiary Choices, the Administration
has consolidated all Medi-care+Choice oversight responsibilities at
CMS' central office into one single office led by a senior official who
reports directly to the administrator of CMS. The CMS regulatory forum
held in Phoenix this week, examining the regulatory burdens confronting
Medicare+Choice, is also a very positive development.
Additional measures are needed to address other regulatory and
administrative issues that are highly problematic for Medicare+Choice
plans and enrollees. Equally important, the agency needs to take
further steps to eliminate remaining layers of micromanagement and
continue to place a strong emphasis on building a reliable business
partnership with health plans.
Efforts to solve the crisis in the Medicare+Choice program should
include provisions to repeal the Medicare+Choice enrollment ``lock-in''
requirement and to permanently delay the adjusted community rate (ACR)
filing deadline. The Energy and Commerce Committee is to be
congratulated for having taken the lead last year in including
provisions to move the ACR deadline and delay implementation of the
lock-in in the regulatory relief bill passed by the House last
December. I hope you will continue your work this year to alleviate
these administrative burdens undermining the potential of the
Medicare+Choice program.
Stabilizing the Medicare+Choice Program Requires Urgent Action By
Congress
I cannot stress strongly enough that Congress should act early in
the session to make the changes needed to stabilize the Medicare+Choice
program. Health plans are encouraged that President Bush recommended
the 6.5% funding increase for minimum update counties in his budget--a
good first step. Plans are also encouraged that you are holding this
hearing and we ask that you move quickly to mark up and pass a
legislative package.
Keep in mind that the regulatory cycle governing the
Medicare+Choice program is not consistent with the cycle of
congressional activity. Health plans have to make decisions in the next
3 months regarding their participation in the Medicare+Choice program
in 2003. If Congress does not act on needed reforms before then, health
plans will have no choice but to make their decisions based on current
program realities. In that event, Members should expect that additional
beneficiaries may lose the health plan choices they value.
No one wants that to happen. To that end, AAHP and its member plans
stand ready to assist you as you work to address the serious problems
in the Medicare+Choice program. Thank you for this opportunity to
appear before you today.
Mr. Bilirakis. Well, we have your written testimony, and I
apologize for not being here to hear it orally. They make
appointments for us, unfortunately, and so we have to go and
see these people.
I will start the questioning. Mr. Jindal, some opponents of
competition suggest that under an FEHBP model that we are
simply herding people into managed care plans. And yet in
reality, FEHBP maintains at least six fee-for-service plans in
all regions of the country.
Are you aware of any proposal, including the most
aggressive, being discussed that would force beneficiaries into
managed care plans?
And an additional question in that regard is do the
President's principles leave that option solely up to the
beneficiary?
Mr. Jindal. Mr. Chairman, thank you for the question. One
of the differences, as I noted in my testimony, is that the
majority of employees in the Federal Employees Plan are
actually not in HMO type plans, but rather are in the types of
plans that aren't even available to the vast majority of
Medicare beneficiaries today.
So what the administration is proposing is to increase the
numbers and types of choices available to Medicare
beneficiaries.
For example, in this year's budget, there is a proposal for
the first types of plans to enter new areas so that
beneficiaries can have access to preferred provider
organizations, point of service plans, and other types of
choices that routinely are available to Americans below the age
of 65.
So there is absolutely no proposal that we are supporting
that would require or force, or even likely result, in the
majority of Medicare beneficiaries being enrolled in HMO type
plans.
So you are absolutely right to note that the greater
diversity of choices in the Federal employees plan and also to
note the administration's support to giving seniors those types
of choices.
Mr. Bilirakis. Any other comments regarding that particular
point?
Mr. Butler. Maybe I could make a comment on that, please.
Mr. Bilirakis. Mr. Butler, please.
Mr. Butler. I think one thing that is often misunderstood
actually about the fee for service plan within Medicare is that
it is in effect a giant managed care plan. The Federal
Government, through CMS, and manages doctors directly, and not
all doctors are in it.
In fact, my father-in-law just lost his doctor, and he is
in his late eighties, and he has many medical problems, because
that doctor withdrew simply because of the paperwork and costs
associated with it.
So in fact it manages, it regulates, and it directly
manages doctors. So it is not true to say that even under the
existing Medicare system that somehow this perfect world of
complete choice of doctor over here, and then these horrible
plans over here.
In fact, there is plenty of bureaucracy within the system
on all parts of the program.
Mr. Bilirakis. A good point. Ms. Moon.
Ms. Moon. I think that there are a number of things that it
is important to remember. One is that we are concerned in the
case of Medicare with the level of the premium that individuals
would have to pay, and the amount of cost sharing.
And a number of the plans that are not managed care plans
in FEHBP now have very large amounts of cost sharing. A number
of those plans that are not managed care plans also are closed
to all but the people who belong.
The Mail Handlers Plan, for example, no one else can join
the plan except for the mail handlers. And finally the out of
network benefits for some that are available are quite
different than under Medicare.
It's true, because under Medicare if a doctor takes you in,
and most doctors do, about 97 percent, then those doctors agree
largely to stick within the amounts that are paid for by
Medicare.
There is a little bit of out of network use, but not very
much, in terms of balanced billing. In the case of a lot of
other plans, my point of service plan, for example, I pay a 60
percent co-pay when I go to my out-of-network physician because
the plan puts such a low level of usual, and reasonable, and
customary amounts on it that less than half of the costs are
paid for.
Mr. Bilirakis. Mr. Butler is shaking his head.
Mr. Butler. No, I would just like a small correction on
what Marilyn said, which is that there certainly are plans,
fee-for-service plans, in the FEHBP that are restricted, but
certainly not the Mail Handlers Plan, which is open to non-
union members.
Indeed, I think there are many members of this current
administration that are in Mail Handlers, and I can assure you
that they are not members of the Mail Handlers Union.
Mr. Bilirakis. Mr. deMontmollin.
Mr. deMontmollin. Mr. Chairman, on behalf of the health
plans, I would concur with Mr. Butler, and Mr. Jindal, and say
that the health plans themselves have no interest whatsoever in
there being a lack of choice.
We think that is a critical component of reform in
Medicare. We know from our commercial product that if an
employer makes us the exclusive provider, we are less likely to
be considered a good plan by the members, than if that employer
offers a number of different opportunities.
I think the subcommittee needs to be aware that from 1993
to 1997 the Medicare+Choice or the HMO risk program was growing
by 30 percent per year. Medicare beneficiaries were very
interested in it.
But at no time did it ever get over 15 percent of the total
Medicare population. That is to say, 85 percent were always in
the fee for service program, and that may be a very good idea.
The concern that we have now is that we are going in the
wrong direction. Not only are there only 13.3 percent in
Medicare+Choice plans currently today, as of February, but we
also know recently from the CBO that those numbers are likely
to go down into the 8 percent range if some changes aren't make
in terms of the payment of adequate amounts in Medicare+Choice.
There is not a member on this subcommittee I respectfully
would suggest that cares any more about the 5 million Medicare
beneficiaries who are in Medicare+Choice plans than those plans
themselves.
Mr. Bilirakis. All right. Now, my time has expired right at
this moment. Depending on how many people we have here, and how
our time goes, and that sort of thing, and we do have another
vote coming probably within another half-an-hour or so, we may
have a second round.
Hopefully we will, because I certainly want to address Mr.
deMontmollin regarding my district. I also had another basic
question regarding the subject we were on. Mr. Brown to
inquire.
Mr. Brown. Thank you, Mr. Chairman. Listening to the five
of you and your testimony, and looking at your written
testimony, it occurs to me that this hearing really isn't
exactly about Medicare versus FEHBP. It is about making a
fundamental change in the program.
It seems that it is about turning Medicare from a defined
benefit program, where every senior across the country, whether
from Maryland, or from New Jersey, or Georgia, or Indiana, or
Florida, or Mr. Strickland's and my State, Ohio, where every
beneficiary knows exactly what he or she can count on in
Medicare, no matter where they live and what their status, and
how much those benefits will cost.
But going from retired benefit into retired contribution,
or rather a defined benefit into a defined contribution plan,
or voucher plan, where the government gives seniors a voucher
and says good luck, Dr. Moon, talk about what such a radical
plan change, and what a proposed change from the defined
benefit, where people really know what they are getting, to a
defined contribution, would mean?
What would a voucher mean for out-of-pocket costs, and what
would it mean in defining an affordable plan? What kind of
radical change into a voucher program mean for beneficiaries?
Ms. Moon. First, the issue I think is what would make it a
voucher plan, and one of the things that is important to think
about is how does something move from defined benefit to
defined contribution.
It can be done either directly or it could be subtly, and
one of my concerns about the FEHBP type approach that it may be
very tempting to move subtly toward a voucher. By, for example,
requiring beneficiaries to pay substantial premiums above some
average amount.
And if that is the case, then it will certainly be a
voucher for people who cannot afford to supplement the plan,
and they will face very restricted plans that they can choose
from.
The other issue I think with the voucher type approach is
whether or not it passes all of the risks on to the
beneficiary. If the Federal Government decides that it wants to
set up a system and allow it to grow at 5 percent a year, for
example, but the cost of health care are growing at 10 percent
a year, the problem is that all of that will go on to the
beneficiary, and it will be leveraged in a way in which the
premiums could very easily double over a short period of time.
Mr. Brown. You mentioned a second ago that people won't be
able to afford a certain plan. The proponents of FEHBP, or the
proponents of vouchers, often argue that it saves the
government money.
It seems to me that it saves the government money by
shifting many of the costs on to seniors, correct?
Ms. Moon. I think most of the analyses that have been done
have indicated that that is the only way it is going to
particularly save money.
There will be some small adjustments for efficiencies, but
we have not seen plans come in substantially lower, for
example, than what was anticipated it would cost the program to
operate.
In fact, that is one of the problems with Medicare+Choice
Plans, is that they have not been able to generate enough
efficiencies to keep the extra benefits that they had promised.
Mr. Brown. Well, certainly the Medicare+Choice advocates
certainly argued years ago as managed care has become a bigger
part, or at least for a while became a bigger part as you
suggested of Medicare, and that a big reason for it was to save
money, and yet they come with their hand out.
And yet the only money in the President's budget that goes
to providers who we read about having a more and more difficult
time is for those 15 percent Medicare+Choice providers for
those beneficiaries.
Let me shift to Mr. Richtman for a moment. You know, I hear
my friends on the other side of the aisle always use the word
choice, and it just puzzles me that seniors--they say that
seniors get more choice from managed care.
They can choose among this whole menu of plans that offer
all kinds of different opportunities and different benefits,
and different physicians, and plugged into different lists of
physicians and hospitals, and other providers.
And I don't quite get it, because there is no more choice
than fee-for-service Medicare. You choose your doctor, and your
choose your health facility. What do seniors want?
I mean, is it the plans that they want to choose from, or
is it the doctors, or the hospitals? Talk about that if you
would.
Mr. Richtman. Well, at the National Committee to Preserve
Social Security and Medicare, we conduct a lot of town
meetings, often with Members of Congress, democrats and
republicans, and I don't think I have ever heard of a senior at
a meeting talk about wanting more choices, in terms of plans.
I have heard them talk often about wanting to make sure
that the choice of doctors is something that is preserved. That
is something that is very important. It is important to all of
us, especially to somebody that is older and used to seeing the
same doctor.
A member of the subcommittee who is not here at the moment
mentioned earlier that seniors are not satisfied with what they
get out of Medicare, and that is true to a point. But they are
not unsatisfied, I think, because they are denied a choice of
plans.
They are unsatisfied because they are still paying a lot
out-of-pocket for one thing. The Medicare beneficiary today
pays more out-of-pocket for health care as a percent of their
income than before we even had Medicare.
It is a pretty amazing figure, and they are not satisfied
because they would like benefits to include more preventive
care, dental, eyeglasses, hearing aids, immunization, and that
is why they are not satisfied.
And, of course, the big issue is prescription drugs, but
for the most part seniors are happy with Medicare.
Mr. Bilirakis. Please finish up if you would, sir.
Mr. Richtman. Yes.
Mr. Bilirakis. Are you finished? I didn't mean to cut you
off. I just wanted you to finish up, because time has expired.
Mr. Richtman. Well, I'm finished, Mr. Chairman.
Mr. Bilirakis. Dr. Norwood to inquire.
Mr. Norwood. Thank you very much, Mr. Chairman. This
hearing really is about us taking a look at some alternatives
to the Medicare program, FEHBP being one of the thoughts, and I
don't want us to get away from that.
Mr. Richtman, I agree with you that at townhall meetings
that senior citizens do say they would like to have a choice of
physicians. They also say we would like to have everything
free.
We would like to have all the health care there possibly is
at no cost to us. They do say that. But I am not sure if you
ask them rightly that it is a correct thing to say that they
wouldn't like to consider choice of plans.
They don't want to be put in a position where they have to
choose plans. They want to be put in a position that if they
want to stay with fee-for-service, fine. Nobody will bother
them.
But they would not mind looking at other plans. So the
talking point today of they want choice of physicians and not
plans is not exactly correct. I have a lot of townhall
meetings, too, and that is a pretty strong statement to make to
simply say that nobody wants to have a choice. I wanted to get
that out.
Mr. Jindal, you said that there are flaws today in the
payment to private plans, and I submit that there are also
flaws in the payment system for fee-for-service. In view of the
fact of whether we like it or not, there is a limited amount of
money out there, and Medicare needs to get some more money in
my opinion.
Wouldn't we be better off to deal if we had a limited
amount of money and putting that into fee-for-service for which
86 percent of the American people use, versus putting it into
private plans, or Medicare+Choice, or HMO, or managed care, or
whatever you want to call it, which services about 14 percent
of the people.
Now, the answer of course is that we want enough money to
put it in both, but I am concerned that we have got a lot of
billions of dollars here that we are talking about putting into
managed care plans that service the least number of people,
simply because frankly managed care was not able to turn up the
efficiencies that they said to the government they would in
1973 when we put them into the marketplace basically.
How do you feel about that? Do you think that if we have
limited dollars had we ought to spend it on fee-for-service,
where most of the people are, or should we put it all into
where the fewest number of people are?
Mr. Jindal. Well, Congressman, certainly the administration
has proposed a comprehensive approach looking at all of the
gaps in Medicare, and not only the prescription drug issue, but
also the lack of a catastrophic benefit in the fee-for-service
benefit.
As well as some of the cost sharing that we believe should
be updated, as well as the addition of preventive benefits
without cost sharing and without deductibles, without applying
the deductibles, in the fee for service programs.
And the administration has proposed a comprehensive
approach, and you are absolutely right that----
Mr. Norwood. But the budget doesn't. The budget says let's
put 4 billion into managed care plans, and none into fee-for-
service.
Mr. Jindal. Well, you are right in noting that seniors do
want their choices of plans. When you look in recent years and
if you look at the non-floor counties and those counties where
plans have gotten the minimum update, you have seen since 1998
that some of those plans have grown about 11 percent.
Whereas, fee-for-service in those same counties has grown
at 17 percent. So the idea behind the short term money was to
simply put a Band-Aid, and not as a permanent fix, but to
stabilize the choices so that as we do the comprehensive
approach, and that includes $190 billion for prescription drugs
and for addressing the gaps in the overall program, there would
still be choices for seniors.
But the President is committed to addressing all those
issues. It is not an either or. He does want to add the
preventive benefits into the new fee-for-service program.
Mr. Norwood. Well, you could literally say that the $1.25
billion that is being taken out of the fee-for-service is the
money that is being put into the managed care plans where the
least number of people are.
I mean, frankly, it just makes no sense to me, but let me
go on to another thing. We have got so many things that we need
to talk about.
Many of you talk about a prescription drug benefit, and the
Lord knows that it makes sense to have one, in terms of just
economic efficiency frankly, and thinking with your brain
rather than your heart.
Now, the problem with this is that somebody also has to be
concerned about what that costs. That is irresponsible to the
greatest degree in my view to simply say let's just put
anything we need to put into the Medicare program to bet a
prescription drug benefit because it sounds good.
And I assure you there is nobody in any townhall meeting
who wouldn't say, yeah, you ought to spend it all. Now,
presently today Medicare takes up 12 percent of the budget. I
view that as a lot.
We do suspect that in the year 2030, without a prescription
drug benefit, Medicare is going to take up 30 percent of the
budget, one-third of the budget. With a prescription drug
benefit, we are guessing at what that might be, but probably 35
percent of the budget.
I would simply like for those of you who said we have got
to a full prescription drug benefit. Tell me how you think we
can sustain that, Ms. Moon, and Mr. Richtman.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Norwood. I will wait for the next round to get that
answer. Just hang on. I'm coming back.
Mr. Bilirakis. You all may be thinking about that. Mr.
Green.
Mr. Green. Thank you, Mr. Chairman. Dr. Moon, do vouchers
mean that some beneficiaries will find that they cannot afford
a plan that benefits and that meets their needs if we actually
do a voucher plan?
What will it mean if the government gives seniors a voucher
and seniors are left to pay the rest of the cost out-of-pocket?
Will all the seniors be able to afford a plan with the benefits
that they need?
Ms. Moon. I think it depends upon the generosity of the
payment that the Federal Government establishes. And the
difficulty of a voucher is that then the temptation is to say
let's hold the line on costs, and be very tough about this so
that we don't over-budget for needs.
It is very difficult in addition to find a way in which the
vulnerable beneficiaries will be able to find good plans,
because without good risk adjustors, then you will have
vulnerable beneficiaries going into plans where they know they
need additional services, and that will become even more
expensive.
So I think the problem of affordability is going to stretch
well beyond low income individuals, and well into people that
are 200 percent or more of the poverty level, as well as people
who have substantial health care problems.
So I think that the issue of worrying about the costs of
Medicare is totally appropriate, but that we should also worry
about the costs of Medicare to the beneficiaries themselves,
and we already know what they are paying about 22 percent of
their incomes, and could pay as much as 30 percent of their
incomes on out-of-pocket costs even if policies do not change
in the future.
Mr. Green. Secretary Jindal, in your testimony, you
mentioned that some of the benefit plans in private plans had
drug coverage, better preventive care, innovative disease
management programs, and other benefits.
Some of us on our panel, especially in the case of
prescription drugs, believe that these should be fundamental
parts of the Medicare system as we know it today, but fee-for-
service and the private plans alike.
If we were to adopt the FEHBP style option, what steps
would the administration take to strengthen the fee for service
to include these type benefits?
Mr. Jindal. Well, the President has come out in support, as
part of his broad comprehensive approach, of addressing the
gaps in Medicare, and he has come out in support of providing
access to a subsidized drug benefit for beneficiaries both in
the new fee-for-service option, as well as those in private
plans.
So we would certainly be open to working with you on the
details. Obviously there are differences as has been noted by
other panelists between the FEHB and Medicare programs, and are
aware of those differences, and want to incorporate relevant
policy solutions.
For example, there are special low income protections in
the Medicaid program that we think need to continue. We also
understand that there is significant private spending on behalf
of prescription drug coverage for Medicare beneficiaries today.
And we would not want to displace, for example, all
employer provided coverage with government spending. We want to
find a way to preserve and to maximize the spending that exists
today on behalf of beneficiaries.
Mr. Green. And I agree that the President has talked about
it, but the difference though is what we see in the budget. And
I guess it is $750 billion for prescription drug benefit, as
compared to less than $200 billion for the whole Medicare
reform effort. So that is a big gap in there to negotiate on.
Dr. Moon, one of the problems associated with our Federal
plan is that frequent withdrawal from the plans from the
program, and not unlike our choice plans that we have now, and
the fact that enrollees must choose plans each year.
For example, one of my staff had three different plans in 4
years that she has been in the system, and how does this
changing of plans affect the health of the enrollees? And isn't
continuity of care particularly important in the Medicare
population?
Ms. Moon. Studies have shown that continuity of care is
important, and actually continuity of care lowers costs. People
that don't change their physicians very often, for example,
don't have to redo tests, and go through a lot of the other
kinds of adjustments that often raise costs in the program.
So I think that is a particular concern, and the stability
of plans and the ability of plans to move in and out of the
market is very important.
One of the aspects of competition that people celebrate is
entrance of plans. We don't usually celebrate withdrawal of
plans. But that is a natural part of competition, and something
that would happen under any well-functioning competitive
system.
Mr. Green. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Buyer to inquire. We have a series of
votes, four votes as I understand it coming up. So after Mr.
Buyer, we will break.
And God only knows how much time, but probably a good hour,
because two of those are motions to adjourn.
Mr. Norwood. Why would we have a motion to adjourn and
waste our time?
Mr. Brown. It's probably because the Rules Committee didn't
give us any amendments.
Mr. Bilirakis. And that helps?
Mr. Norwood. And that is going to fix it, right?
Mr. Bilirakis. It really makes a difference. Yes, that
fixes it. Mr. Buyer, please inquire.
Mr. Buyer. Mr. deMontmollin, I took to heart your comment
about when we did the Balanced Budget Act in 1997 and the goal
to get to 25 percent by 2002, and actually we are going in the
opposite direction. Does your company participate in FEHBP?
Mr. deMontmollin. It does indeed. We have about 15,000
members.
Mr. Buyer. Is there some counsel that you could give us
with regard to some of the structures and services within that
FEHBP model that could be advantageous if replicated with
Medicare?
Mr. deMontmollin. Certainly I think that the--and as Mr.
Jindal has already said, that the idea of having the same
regulations, all of the same programs under the same umbrella
if you will, and under the same rubric of this program, so that
seniors can make informed decisions.
I suggest that the idea of one solution for all is not
going to satisfy the baby boom generation of which I guess I am
in the first year, or the vanguard. We are going to want to
feel good, and we are going to want to look good.
And this Congress is going to have to decide if you are
going to pay for the looking good part, and I am suggesting
that the only way we are going to pay the feel good part, the
medical piece, is to adequately fund the entire Medicare
program, and offer choice in the way of Medicare+Choice
programs.
And not just for prescription benefits, but I may want to
avoid the iatrogenic disease of too many doctors giving me too
many things, and we would want to have someone that is
available to coordinate that care for me.
I may want to have a disease management program that will
keep me out of the hospital with congestive heart failure
because I know that if I go in twice with that diagnosis that I
will be dead within 6 months according to the medical
statistics.
I think that they are clearly different programs. I would
have to say to Mr. Brown, however, that the suggestion that the
FEHBP program is young and healthy is simply wrong. It is a
program where we worked just as assiduously to try to keep them
healthy, because we see them as the elderly or the most
seriously ill persons in 20 years.
At the average age of 45 now, we are trying to intervene at
this level so that we don't have to take care of some of these
chronic illnesses later.
Mr. Buyer. In your testimony, you said that you hoped the
committee will develop competitive approaches to Medicare
reform based on a level playing field for all Medicare options.
If Congress were to move and implement any of the FEHBP
style, should the government plan be competitive with that of
private plans, and should the government plan premium levels be
included as part of a weighted average with private plans?
Mr. deMontmollin. Yes, it should, and it should because as
some have suggested, that 87 percent of Medicare seniors
deserve the same high quality care that the 13.3 percent are
getting in the Medicare+Choice Plans.
So the answer is, yes. I think that the HEDIS scores should
be incumbent upon the fee-for-service plan as well. The disease
management, and the things that Mr. Green suggested, that we
are doing in the managed care arena because we know that they
contribute to improving the health of our seniors.
Mr. Buyer. Give me your 30 second gut check reaction to the
Breaux-Frist proposal. Have you had any chance to review it or
look at it?
Mr. deMontmollin. Well, I have, and I have some opinions
about it, but when I am sitting at a table with Bobby Jindal, I
will tell you that I am embarrassed to even offer any thoughts,
if you would permit me.
Mr. Buyer. Okay. We call that a punt.
Mr. deMontmollin. I punted. I told him this morning that I
am going to find myself saying a lot what Bobby said.
Mr. Buyer. All right. That's quite all right, and I yield
back. Thank you.
Mr. Bilirakis. All right. I think it is probably a good
time to break, and maybe give you all a chance to grab a bite
to eat. I can not imagine that we would be back before one
o'clock, but just as soon as we have cast that last vote,
hopefully Mr. Brown and I, at least will immediately return.
Thank you.
[Whereupon, at 12:10 p.m., the subcommittee recessed, to
reconvene at 1:12 p.m the same day.]
Mr. Bilirakis. Well, I am going to start with Mr. Brown's
permission. Steve, I would like for you to tell us why AvMed
left the Tampa Bay area, and are they interested in coming back
into the Tampa area to serve Medicare beneficiaries.
If so, what steps could Congress take to ensure your
reentrance and expansion in Florida. And if we were able to
help make these adjustments law that you might suggest, could
you commit that AvMed would be willing to come back into the
Tampa area?
Now, before you go into that, I think it is important--and
we don't have Mr. Brown, or any of the minority here, but--that
we hear about vouchers and things of that nature. And maybe
some of these choice ideas, the FEHBP type of a concept.
Frankly an awful lot of senior citizens approach me and say,
hey, give us what you have got basically.
And that's why we talk about the FEHBP type of a model, but
regardless of whether this is the result, I think Medicare was
in trouble long before the majority tax cuts to which Mr. Brown
keeps referring.
And I am sure that he is the first one to admit that. But
is it not wise that we not prejudge, and is it not wise that we
be open-minded to the possibility of new concepts or new ideas?
Would any of us be a party to doing anything regarding
Medicare that would hurt the quality of medical care for our
Medicare beneficiaries? I think not.
So, it is really more the case of trying to be open-minded
and looking at new ideas, and that sort of thing. I don't think
we should have any preconceived positions on these ideas.
I will ask this question again before I go to Mr.
deMontmollin. And maybe, Steve, we can start with you on that.
When we do, with the cooperation of the Minority, and open-
mindedness on the part of the Members of Congress, we will
finally do prescription drugs for Medicare beneficiaries.
Now, is it going to be all that we would rather it be? It
probably won't be, but it will be a darn good start. I am not
talking about the President's discount card sort of thing.
But will it be something that will help an awful lot of
people in the meantime? I would like to think so. We could have
done a lot of good things over the years if we maybe were not
so political and concerned about all or nothing.
We could have had some good approaches on the uninsured a
few years ago, for instance, and we could have had an expansion
of Medicare into prescription drugs, and things of that nature.
I know that is always a concern on the part of my very good
friend, and we are good friends. I know that we all throw those
words around about each other while we attack each other, but
the truth of the matter is that we are good friends, and I am
very proud of that.
But my good friend and others might be concerned that if we
do something that is not quite what they would completely like,
that we would stop at that point and not improve upon it.
Well, we are elected every 2 years by the people, and I
should like to think that we would continue on and try to
improve as the years go on. In the meantime, why deprive many
of the people, particularly the needy, and mainly the poor,
from some sort of a benefit that they could have, and I would
like to think, virtually now?
But I would like to raise a question. If we do--and I keep
saying if, and I don't really mean if, because my intent, and
the intent of all of us and the President's intent, is that we
have prescription drugs this year.
But what would that do to Medicare+Choice? We keep talking
here about Medicare+Choice, and we keep talking about the
different plans, the FEHBP, and the choice in terms of
Medicare+Choice, and of managed care plans.
But what would that do to that? I mean, my opinion, Max,
and when I talk to people, and you know how much time I spend
with the elderly in my district, of which I am one now, is that
their care is about prescription drugs principally, and if we
give them prescription drugs, will they continue in managed
care?
Or would they just shift into fee-for-service? Do you have
any opinions on that? Very quick opinions though, because I do
want to answer the long----
Mr. deMontmollin. I promise, and let me suggest, Mr.
Chairman, that the American Association of Health Plans wants
to be a part, only a part, of an overall bipartisan solution. I
had the privilege of working for 6 years on the Hill for a
member of the minority party, who was Chairman of the House
Committee on Science and Technology.
In 1987, the Democratic Leadership Council, then with
Governor Clinton, and then Senator Gore, and then Senator
Chiles, for whom I also worked in 1990 when he was Governor of
the State of Florida, they came up with a concept called
managed competition.
And they were willing to give that an opportunity to work
in the marketplace. For some reason according to what I have
gleaned from this meeting today, that has been thrown out the
window as a viable political alternative for the minority
party. I will say this. That in 2 weeks before the----
Mr. Bilirakis. Excuse me, Steve, but did you want to
respond before you leave, because you did tell me that you had
another meeting that you had to go to?
Mr. Brown. As does Dr. Moon.
Mr. Bilirakis. Yes, Marilyn has already said that to me. Do
you mind yielding?
Mr. deMontmollin. Please let me defer. No, absolutely.
Mr. Bilirakis. Go ahead, sir.
Mr. Jindal. I apologize to both the committee and the
chairman, but I am going to have to leave. I didn't mean to
interrupt the gentleman from Florida's remarks. I do want to
offer in response to the chairman's comments and questions two
thoughts.
First of all, we certainly do believe that with the
President's overall reforms that it will stabilize the market,
and one of the reasons that we are proposing these changes are
to increase the numbers of choices available to seniors.
And as you had asked before, certainly that is not to
compel seniors to do something, but rather to give them
choices, and we don't believe this is either a voucher program,
or as you asked, we don't believe it is a defined contribution
program.
Our predecessors, there was some allusions to other
proposed concepts, and the last administration also had
proposed a defined benefit competition model. So we do think
there are some important safeguards, and some important
protections for seniors that differentiate what we are talking
about doing with some of the concerns that folks have about
pure voucher programs or pure defined contribution programs.
And I do look forward to coming back and talking to the
committee in greater detail. I do apologize for having to leave
today, but thank you, Mr. Chairman, for the opportunity to
come.
Mr. Bilirakis. The intent always is that we would have the
current benefits at least be a floor so that every plan--it
would be a defined benefit type of a plan, in terms of the
benefits?
Mr. Jindal. That's right. We are not proposing to erode the
value of the current benefits, and certainly we are hopeful,
and I think the experience has been that those plans are more
likely to reduce the cost sharing faced by beneficiaries, and
we think it is important to give some constrained amount of
flexibility, in terms of cost sharing.
But, no, we are not proposing to reduce or dilute the value
of the benefits. The President is talking about adding a
prescription drug benefit, and preventive care benefits, and
reforming cost sharing.
Mr. Bilirakis. Thank you very much for your time.
Mr. Jindal. Thank you, Mr. Chairman, and thank you members
of the committee.
Mr. Bilirakis. Ms. Moon.
Ms. Moon. I would just say that for purposes of fairness
and it makes sense to have a prescription drug benefit offered
across the board, and I think that would lead to higher
payments to managed care plans, which would solve one of their
problems.
And that is that they cannot, they believe, offer such
benefits without additional payments. And they are sort of
caught between a rock and a hard place, where they are being
paid enough for Medicare covered services, but the Medicare
covered services are not enough to do a good managed care
benefit when you leave things like prescription drugs out.
So I think that could help managed care plans be more
competitive and come to a better financial footing if we did
that, but for fairness reasons, I think it has to be done
across the board.
Mr. Bilirakis. Thank you. And again thanks for your
contributions today, and also over the years.
Mr. Norwood. Can I ask a quick question?
Mr. Bilirakis. Well, if she has the time, by all means.
Mr. Norwood. Just very quickly. When I left off and didn't
get answers, my basic question was those of you who stated that
we needed to have a prescription drug plan across the board for
everybody.
Ms. Moon, should we as Members of Congress be concerned at
all that a third of the budget in 2030 will be going to
Medicare if we do that?
Ms. Moon. Yes, I think we should always be concerned about
that. Medicare though has been a program that has always been
on the verge of bankruptcy. It is actually in the best shape it
has been in since almost the beginning of the program, in terms
of how well it is situated.
I believe though that a prescription drug benefit is
essential to having reasonable benefits. I think the
beneficiaries are going to have to pay more, and I think
taxpayers are going to have to pay more.
And I think we are going to have to be very serious about
finding ways to contain costs. Let me give you just one
example. Maine is doing some very creative things with its low
income benefits program for prescription drugs by restricting
access to some of the drugs.
You have to have prior authorization for things like
Celebrex and Vioxx. You have to have a good reason for that.
But then they turn around and cover the over-the-counter drugs
that can be used in their place, like ibuprofen.
I think they are doing some creative things there. I think
if you do it intelligently that you can have very stiff
controls, but on the basis of good medical care, and not just
on the basis of price.
Mr. Norwood. Well, would a creative thing be that you don't
add Ross Perot in the list of recipients of Medicare
prescription drugs?
Ms. Moon. That is a toughie though because Medicare has
been such a powerful program, and so popular because it is
universal.
And if there were lots of Ross Perots out there, I would be
on your side. I am not theoretically opposed to some kind of
income relation to the benefit or asking higher premiums, or
whatever.
But it tends to lead to lots of expense for taking just a
few people off the rolls, unless you go way down. And in the
case of Medicare, $15,000 or $20,000 of income, which are not
poor Medicare beneficiaries, as they are people who are sort of
almost into the middle class the way we talk about them, cannot
afford prescription drugs these days.
Mr. Norwood. So your answer is that it would be all right
with you if a third of the entire budget of the United States
went to Medicare and prescription drugs?
Ms. Moon. I don't think that is the way that it will turn
out because those projections are based on the way that we
define its progress.
Mr. Norwood. What is it did?
Ms. Moon. Well, if it did, it would say that we will have
doubled the number of people who are covered by this program
over that period of time, and so we should increase the
Medicare program to some extent as a share of the budget.
Mr. Norwood. And if we double the number of people that are
covered, what happens to the number of people that are paying
in?
Ms. Moon. They go down, but they also get healthier. The
size of the pie will be larger, and so the slice that we can
use for it will be okay.
Mr. Bilirakis. Mr. Brown, would you like to address
anything of Ms. Moon?
Mr. Brown. Yes, I would like to follow up on that. You put
a chart out that I think we have all seen that compares the
cost increases of Medicare since 1998, and up through the year
2002 with the cost of premiums with FEHBP. And I share Mr.
Norwood's concern of entitlements, social security, Medicare
especially.
And taking money from the next generation if you will, and
particularly the young, and we have done so very well in this
country relatively with the elderly, and not so well with the
young.
And I think that we all share that concern for investment
in the future, but I think that one answer to that is what in
fact we do about it, and we found ways, and sometimes overdone,
to rein in the class of Medicare.
And we have not done so well with FEHBP as it says, and I
think that comes back to what are we as a society going to do.
And I want to enter in the record if I could, Mr. Chairman,
one article that is written by Paul Krugman in the New York
Times about how physicians, commenting on physicians, a 5.4
percent cut with physician payments and all that has happened
with the 15 percent cut for home health care, and all that we
are facing that way.
And how it seems that in Washington we are starving the
public sector with tax cuts and other ways so that we don't
have the kind of resources available to have the right kind of
health care in other systems.
And if I could, Mr. Chairman, ask for unanimous consent to
enter in the record Mr. Dingell's statement also.
Mr. Bilirakis. Without objection.
Mr. Brown. And the testimony of Janice Lachance, former OPM
Director, and the Alliance for Retired Americans statement, and
also there is a chart comparing what beneficiaries get in
FEHBP.
Mr. Bilirakis. Without objection, that will be the case,
and of course per usual, all members have the opportunity to
have their opening statement made a part of the record.
[The material follows:]
[GRAPHIC] [TIFF OMITTED] 78505.004
[GRAPHIC] [TIFF OMITTED] 78505.005
[GRAPHIC] [TIFF OMITTED] 78505.006
[GRAPHIC] [TIFF OMITTED] 78505.007
[GRAPHIC] [TIFF OMITTED] 78505.008
[GRAPHIC] [TIFF OMITTED] 78505.009
[GRAPHIC] [TIFF OMITTED] 78505.010
[GRAPHIC] [TIFF OMITTED] 78505.011
[GRAPHIC] [TIFF OMITTED] 78505.012
[GRAPHIC] [TIFF OMITTED] 78505.013
[GRAPHIC] [TIFF OMITTED] 78505.014
[GRAPHIC] [TIFF OMITTED] 78505.015
Mr. Bilirakis. Ms. Moon, I know that you have to leave.
Thank you again.
Ms. Moon. Thank you.
Mr. Bilirakis. All right. I am just going to continue on
with the previous question that I asked Mr. deMontmollin.
Mr. deMontmollin. In September of the year 2000, a
representative of John Podesta's domestic policy shop in the
White House said at a Medicare and Medicaid conference
sponsored by the American Association of Health Plans, that we
found it necessary to engineer a failure of the Medicare+Choice
program to make it more palatable to have a publicly funded
program for prescription drugs.
We think that is a failed and a bad policy. And to answer
your question directly, however, we believe that there is more
than enough room in the Medicare program to adequately fund and
stabilize the funding for Medicare+Choice plans, which will
also be offering prescription drugs for the very salient reason
that it began probably 7 or 10 years ago.
And that is that we recognize the important role that
pharmaceuticals play in health care today. So we saw this as a
value added. We saw it as something that we needed to do from a
quality standpoint.
Two weeks before the 1998 election, the Florida Insurance
Commissioner and the Florida Attorney General announced an
investigation into the reasons for the withdrawal by several
Medicare plans, including my own, of their products in selected
counties.
Interestingly, the press release issued by the Florida
Attorney General acknowledged that Medicare HMOs provide
Florida's senior citizens, quote, convenient, affordable health
care and any threat to their ability to obtain such care, that
is, managed care, is a threat to their fundamental well-being.
And I would suggest that it was ironic at best that the
managed care companies that had been the whipping boys for more
than 4 years suddenly became or suddenly their availability was
a fundamental right of seniors.
And I think that is the question that Congress is going to
have to answer. We in managed care may very well be the
dinosaurs of the health care system. But I don't think that we
should go away quietly. I think we should make the case on
quality, and make the case on increasing access to health care.
There are 40 million of Americans that I believe that I am
speaking for right now. Make the case on moderating the cost of
health care expenditures in this country. If we don't have a
system of managed care, we are going to go back to a system of
unmanaged care, uncontrolled care, and we think that our
citizens are going to be poorer for it.
Mr. Bilirakis. Of course, Mr. Butler indicated that our
fee-for-service plan is in fact managed care, and so there is
some management there. What is it that the President has
proposed, a 6.5 percent increase, or $4 billion?
Mr. deMontmollin. 6.5 percent increase and $4 billion. Let
me answer it this way, Mr. Bilirakis. We hated to leave all of
the counties that we have had to leave in Florida.
We are Florida's, as I have already said, oldest and
largest not for profit HMO. We see as our mission serving the
Medicaid population, and the Medicare population, and we do a
good job of serving both of those populations when we are given
adequate funds to do that.
In Florida, Chapter 641 of the Florida statutes, require
every health plan to make at least a 2 percent profit and to
have at least 110 percent of assets, as compared to its
liabilities.
AvMed Health Plan has lost $32 million directly associated
to the Medicare+Choice reductions from the Balanced Budget Act,
and I will be happy to demonstrate that to every member of this
subcommittee, and to your staffs.
I have already invited the staff to please come to my
health plan to find out that we offer a heck of a lot more than
just simply a pharmaceutical program, although we are going to
continue to do that, and the best predictor of future behavior
is past behavior.
Mr. Bilirakis. For instance, in terms of the fee-for-
service that would be available to these same beneficiaries,
what do you offer?
Mr. deMontmollin. My mother was 89 years old and in the
South Miami Hospital, and a doctor wrote in her medical chart
iatrogenic disease. Too many doctors. It is the same finding
that the Institute of Medicine found when they said that more
is not necessarily better.
The existence of coordination and arrangement of health
care is just as important as the financing of health care in
our opinion. She was not able to be a part of our congestive
heart failure program, where as soon as we identify a patient,
every one of our patients--and there was a recent study that
was issued with respect to diversity.
And I am saying every single one of our patients is placed
into, or has the opportunity to be placed into the congestive
heart failure program. We buy a scale that allows for
interactive response to a computer at our health plan from all
of these members, and they get up in the morning, and they get
up on the scale.
And we are able to check from their responses whether or
not they are compliant with their medications. If they are not,
we can send a nurse out to administer an injection of the
medication.
But we are following those members on a one-to-one basis.
It is those kinds of programs; the HEDIS measures, and the fact
that we credential all of our physicians.
You don't have to worry about whether or not there is an
external grievance appeal process in place in the health plans
because Mr Norwood and other right-thinking people in this
legislature in our opinion have made sure that those external
and internal appeals processes are available for members in the
Medicare+Choice program, and we take them very seriously.
If you will have a staffer come in and put on the
headphones, and listen to our conversations with some of our
members, and find out if we are trying to probe them, and find
out if there are additional resources or services that we can
provide them that they are simply not aware of.
Mr. Bilirakis. All right. So I guess what I am interpreting
is that in response to my question, if we offer prescription
drugs as part of Medicare, would the seniors continue on in
managed care plans?
Mr. deMontmollin. I am speaking for our almost 30,000
members in Florida when I say that they don't see these
increases--for instance, BBA, and BBRA, and BIPA--as being
monies that go to the health plan.
As I have already said, we have lost $32 million since the
Balanced Budget was passed, and what they see is those funds
being denied to them because they know that they are being
passed on to them.
Mr. Bilirakis. Well, time is a factor here, but we will of
course have a lot of written questions, and give you an
opportunity to really go into details.
Mr. deMontmollin. Thank you.
Mr. Bilirakis. Mr. Strickland.
Mr. Strickland. Thank you, Mr. Chairman, and Mr. Chairman,
I apologize to you and the other members, but this has been one
of those days when I have not been able to be here as much as I
would like to be because of other responsibilities.
I am going to ask a question that I suspect has been
touched on already, but I would like especially to get your
reaction, Mr. Richtman, to this question. Currently
participants in Medicare basically pay the same premium, and
share the same costs, and are entitled to the same benefits
under Medicare, regardless of where they live.
But under a premium support plan, premiums for different
health plans would vary perhaps widely across the country. For
example, a Federal Employee's share of the monthly premium for
Aetna USA Health Care is $56 per month for a Federal worker in
Arizona, and $73 in Virginia, and $100 in Pennsylvania.
So these geographic variations could create serious equity
problems. And I would just like your response, Mr. Richtman, as
to what sorts of problems do you think this kind of disparity
in possible premium costs and even possible benefit levels
could pose to seniors?
Mr. Richtman. Well, seniors, probably more than any other
population, need predictability, and dependability. And they
have that in Medicare as you just pointed out. The benefits
follow them wherever they go, and the premiums follow them
wherever they go.
And that is something that is very important to seniors. We
have seen the upheaval that seniors have been subjected to when
some of the HMOs over the last few years have shoved them out
or raised their rates to the point where they had to leave.
And that is what we really worry about on behalf of our
membership and other seniors; that that degree of
predictability and dependability is maintained in the Medicare
program.
And I wonder if I could respond to Congressman Norwood's
point that he made. I thought it was to both Marilyn Moon and
myself, and I will probably get into trouble having this much
time to think about the answer.
But there are a lot of things that can be looked at in
terms of paying for a benefit, a meaningful prescription drug
benefit. First of all, I don't think it is accurate to say that
seniors want all these things for free.
Most of the people that we have talked to, and in the
surveys that we have done, and we have done a lot of polling on
this issue, when it comes to prescription drugs, I think that
seniors for the most part recognize that they are going to have
to pay something.
Now, can they afford to pay double what their current
Medicare Part B premium is? Probably not, and they probably
would not avail themselves of the benefit. But they recognize
that this is not going to be free to them, and I think that
they accept that.
Mr. Norwood. What would they accept as a co-payment?
Mr. Richtman. Some of the numbers that we have talked to
our members about, and it seems to be a number that they can
accept and they will be able to afford, are $25 and $35 a
month.
Medicare Part B now is $54 and so that is adding on a
considerable amount of money. But that is a number that seems
to be a number that a lot of them do fine acceptable. In
addition, I think you have to look at not just how you pay for
it, but what it costs.
There are proposals out there that do deal with the cost of
prescription drugs, and I am sure that you are all aware of
some of them. We have just signed on to Senator McCain's
proposal in the Senate.
I don't know that there is a bill in the house, but it
would make it harder for the loopholes to be used now by the
pharmaceutical companies in denying generics the ability to put
those on the market. That saves money.
Then there is a whole other issue which I don't think I
want to get into here, but of priorities, and the tax cut that
was passed was a pretty big tax cut. It may be that some feel
that a part of that could be delayed and some of those revenues
could be used to finance a prescription drug benefit.
I think that Congressman Waxman said earlier today that a
lot of candidates, and I know that this is true for Congress in
the last election cycle, talked about prescription drugs.
I think almost all of them did, and there are going to be a
lot of disappointed seniors around the country if nothing
happens I feel.
Mr. deMontmollin. Mr. Strickland, could I response to that
just briefly?
Mr. Bilirakis. Do you have----
Mr. Strickland. I guess, but I have not had a chance to ask
a question.
Mr. Bilirakis. No, you haven't really.
Mr. deMontmollin. I just wanted to respond to the $30 or
$35 per month. It is important to understand that in the
alternative.
Mr. Bilirakis. But that is in addition to what hey
currently pay for Part B?
Mr. deMontmollin. Absolutely. And what I am trying to
suggest is that the current alternative to Medicare+Choice and
the additional supplemental benefits that we provide is a
Medigap policy.
If a senior was to buy currently the J-Medigap policy,
which is the most rich in terms of a Medicare prescription
benefit, it is a $3,000 max. And it is 50 percent coverage.
It would be necessary for a senior to spend $6,250 in order
to get, because of the deductibles and the other things, the
$3,000 in that benefit.
In Texas, that premium costs between $2,100 and $5,700 per
year for that policy, and that would then make them responsible
for cost sharing to the tune of $6,250 to get a $3,000 drug
benefit.
Mr. Strickland. Mr. Chairman, can I just make a statement?
Mr. Bilirakis. Please do.
Mr. Strickland. I don't have much time.
Mr. Bilirakis. Don't worry about the time, but we do have
to finish up some time or another.
Mr. Strickland. Sure. I just want to make a statement,
because Mr. Richtman touched on something that I think is
relevant. When we went to fight the war on terrorism, the
President said to the country and the country embraced the
idea, that we would do whatever it took to protect us from
terrorism.
Now, the polling that I have done in my last several
campaigns quite frankly, have indicated that prescription drug
coverage is if not at the top, near the top of the concern of
the people in this country, and I think that we are talking
about an economic issue here.
And we are also talking about a value issue, and some
people don't want to here this. But I just wonder what we could
have done with $1.3 trillion that we decided to use for a tax
cut.
We could have had a prescription drug benefit, I think, and
it is a matter of how we use our resources here, and that
depends on our values.
Mr. Brown. Will the gentleman yield for 1 second?
Mr. Strickland. I will yield to my friend.
Mr. Brown. I don't think we have ever been in wartime in
this country's history when we have cut taxes on rich people,
and you look at some of that effort and I don't think ever in
our history have we done that.
I think that says something about our values as a country
and what we ought to be doing in prescription drugs, and where
we go.
Mr. Strickland. Mr. Chairman, thank you for you graciously
allowing me to exceed my time limit.
Mr. Bilirakis. Most of your time was exceeded not by you,
but by the rest of us. But let's finish up though.
Mr. Norwood. Okay. I will try. Just to make a point. The
reason that the taxes were cut is that the people who pay taxes
demanded that they be cut, and to define rich is an interesting
thing to do.
Frequently it means anybody with a job. So it was time that
the people who paid the taxes had a little attention. Now, back
to the prescription drug thing, and I have more questions than
I can get out.
Mr. Bilirakis. Well, we have an opportunity to put it in
writing.
Mr. Norwood. We are talking about Part B of 54 bucks today,
and 20 percent per event co-pay. And you say that the people
that you talked to are okay with paying some of it. Now, what
we expect is, and I think that legitimately that $54 is going
up to a hundred or better in the coming years.
We are looking at least at a $35 premium, and that is
probably low for prescription drug benefit. They are okay so
far at your townhall meetings. How much are they willing to pay
per prescription co-pay?
Mr. Richtman. Well, I really can't answer that, and in
isolation, the $35----
Mr. Norwood. But if you know they are willing to pay,
somebody has got to decide what are they willing to pay.
Mr. Richtman. Well, we are working on that, and I don't
have the answer to what the premium should be, the co-pay, the
deductible, I don't have that. If I had the answer, I would
tell you, but I don't.
Mr. Norwood. So you are concerned about this thing that I
keep bringing up of 35 percent of our entire budget going to
Medicare in the year of 2030, and you believe that Members of
Congress ought to be concerned about that?
Mr. Richtman. I do, and I think that some of the costs can
be controlled. That's why I mentioned that there are a lot of
proposals in the House and in the Senate to try to contain the
cost of prescription drugs. Then it would not be that high of a
percent.
Mr. Norwood. I asked you and Ms. Moon this question, that
you made a blanket statement in your opening statement that we
need to have prescription drug coverage. And it is a heck of a
lot more complicated than just saying that we need to have a
prescription drug program.
We all agree, too, that we want to, but unhappily we have
the problem of figuring out how do you get that done. Steve,
real quick, if I could. You have been with your company for how
long?
Mr. deMontmollin. For 10 years.
Mr. Norwood. For 10 years. Have you ever been with other
managed care companies?
Mr. deMontmollin. No, sir.
Mr. Norwood. So most of the statements that you make today
are statements that you perceive for your company?
Mr. deMontmollin. That's true, although the Speaker of the
House in Florida, John Mills, was part of the DLC effort that I
referred to, and I have been following the issue since 1987.
But the answer to your question is yes.
Mr. Norwood. And so what I am after here is that we can't
just take what you saw to mean that is what is happening in
managed care in the United States, and what is happening in
managed care in Tampa?
Mr. deMontmollin. No, sir. I am here speaking on behalf of
the American Association of Health Plans, which represents some
170 million members, and have been very active with them over
these years. And I hopefully have some foundation upon which we
can talk broadly.
Mr. Norwood. Just so you know that I am one of those
people, and I said it earlier, that I think choice is probably
the way to go, and managed care is one of the ways to have
choice.
My problem is that giving people choice and there is no
oversight. That's where I have been all these years, and we
can't leave you to your own devices, because whether you are
doing great in Tampa or not, there are places that aren't.
You made a statement----
Mr. Bilirakis. Well, they aren't doing, period.
Mr. deMontmollin. Mr. Norwood, I wish I could have a plan
in your district, and Mr. Strickland's district, and I think
you would have a slightly different view of what we do in
Medicare+Choice.
Mr. Norwood. You made a statement, and I am challenging it,
too, that you do a better job in delivery of care to
chronically ill.
Mr. deMontmollin. Yes, sir.
Mr. Norwood. I don't question that with your company,
because I don't know. But I question that in general.
Mr. deMontmollin. I know, and we are going to provide you
as soon as you asked that question with a report, or the
studies upon which I base that remark.
Mr. Norwood. I know that I have got a study that says that
you are wrong. You see, that is the problem. You can make a
study say anything that you want it to say. I can make one say
that you are the worst in the world for treating chronically
ill patients.
Mr. deMontmollin. My mama would be awfully embarrassed if I
came up here and told you about a report that maybe somebody
that wasn't credible had done, but you will have to decide that
yourself.
Mr. Norwood. Well, I have. I have been there the last 7
years deciding the way that I felt about that.
Mr. Bilirakis. Again, we have the opportunity in writing.
So we do have to finish up.
Mr. Norwood. Now, you asked or you wanted a level playing
field between HMOs, managed care, and fee-for-service.
Mr. deMontmollin. Yes, sir.
Mr. Norwood. And my understanding is that you want a
hundred percent reimbursement, the same as fee-for-service. My
understanding also is that what got you into this, and what
started managed care, and why the taxpayers funded it through
the earlier years in the seventies to get it off the ground is
that you were supposed to be more efficient.
Why aren't you more efficient and why should we pay you the
exact same thing as we do for fee-for-service? I don't
understand why you aren't so efficient that it can't be less?
Mr. Bilirakis. Last question, and if it can't be answered
briefly, Steve, feel free to answer it in writing, where you
might have the opportunity to explain it in much more detail.
Mr. deMontmollin. Thanks for that offer, Mr. Chairman. We
have a very good explanation. I will be happy to provide it to
Mr. Norwood and the committee.
Mr. Bilirakis. Let's do it that way. Is that all right with
you?
Mr. Norwood. Oh, sure. I have no doubt that they have a
good excuse.
Mr. Bilirakis. All right. Mr. Butler, we have not heard
from you in a while, and I don't know whether you had anything
that you wanted to add very briefly.
Mr. Butler. I would just sort of make two points really.
Mr. Bilirakis. Please do.
Mr. Butler. One is the cost comparisons between FEHBP and
Medicare have to be looked at very carefully. You can very
easily take the last 3 or 4 years of FEHBP and Medicare, during
which time FEHBP by law and by administrative decision by the
Clinton administration, had 44 new benefits added to it.
And at the same time as Congress recognized that it
ratcheted it down too far in the Medicare side. So I think
there is a pretty simple explanation.
If you look at what the Congressional Research Service has
shown, however, is that over the last 14 years, and it looks at
a much longer period, it shows the FEHBP, when adjusted for
age, for all the other kinds of factors, have come in
consistently below the Medicare. I think that is a very
important point.
The second point I will just make in closing is that as I
think as everybody said, nobody argues that there should not be
a drug benefit for seniors, and that the benefits package
should not be modernized. Nobody argues that.
The point is that you have to ask yourself I think why is
it that you are in this situation of saying let's add a simple
benefit, and not even catastrophic, but just a drug benefit to
Medicare.
And why are you year after year having to do this? Maybe it
has got something to do with the way in which Medicare is run
and the relationship between Congress to Medicare. That is one
of the most important lessons to learn from the FEHBP I think.
The FEHBP is not micromanaged by Congress, and that is a
critical difference between the two systems as you all know,
and you have drug benefits, and you have catastrophic, and you
have new benefits every year. If you were in Medicare, you
would be facing a totally different situation.
Mr. Richtman. Mr. Chairman, can I make one sentence, one
statement for the record. When you started the afternoon
session, you talked about your commitment to seniors, and this
is kind of a plug.
But we at the National Committee recognize your commitment
to seniors, which is why we came down to Florida to your
district a few years ago and gave you what I like to call a
Coveted National Committee Friends of Seniors Award, and so we
thank you for everything that you had done.
Mr. Bilirakis. Thank you very much for that, Max. I am glad
that I allowed you to offer one sentence. Look it is a tough
job, and--to not go into thing open-minded is--well, this
doesn't mean that one side is more right than the other or
anything of that nature. I don't mean that.
But to not go into these things open minded, I think is a
real mistake. The easiest thing, Max, would be obviously to
just leave Medicare as it now is, and just add to it, add
prescription drugs to it if you will.
I mean, a lot of us feel strongly about Alzheimer's, for
instance. I think that was probably one of my first causes, a
real big cause when I came to the Congress. I found out in no
time at all that I could not find a Member of Congress who knew
anything at all about Alzheimer's.
There were not a lot of medical providers that knew much
about Alzheimer's back in the early eighties. We grew hard
calling it hardening of the arteries, and that sort of thing.
So we want to do the right thing, but I don't know. I mean,
the easiest thing to do is to do exactly what Mr. Brown and the
others want to do, roll back taxes if you will, and have
Medicare as it now is, and add a couple, but would that be the
right thing to do? I doubt it.
Mr. Brown. Was I that convincing today?
Mr. Bilirakis. You weren't convincing, but I take very
seriously the comments made by people and the witnesses we have
here. Thank you very much. I appreciate it, and again I
appreciate your consideration and understanding because of the
breaks that we have had.
[Whereupon, at 1:51 p.m., the subcommittee was adjourned.]
[Additional materal submitted for the record follows:]
Prepared Statement of Advanced Medical Technology Association
The Advanced Medical Technology Association (AdvaMed) is pleased to
submit this comment for the record, in the important deliberations of
the House Energy & Commerce Committee, Subcommittee on Medicare.
AdvaMed is the world's largest association of medical technology
manufacturers, with over 800 corporate members with operations
worldwide. Our members manufacture technologies that are integral to
nearly every aspect of healthcare, from diagnosis and treatment of
disease, to managing disability and serious long-term illnesses.
Health care in the United States benefits from the most efficient,
scientifically advanced therapies in the world, yet unfortunately these
advances are not always available to the patients who need them most--
America's seniors covered under the Medicare program. The Medicare fee-
for-service program today continues to pose barriers to access for many
of the advanced therapies available to privately insured patients.
While private insurers rapidly incorporate and pay for new therapies as
covered benefits, the basic Medicare program can delay appropriate
payment for new services for up to five years, depending on the
treatment and setting of care.
AdvaMed supports efforts to improve the existing Medicare coverage
and payment processes, but we believe that comprehensive Medicare
reform based on a competitive market-based system is necessary to
ensure adequate and timely patient access to new technologies and
therapies. Under a competitive market based system, innovative new
technologies would be made available to patients based on the clinical
value of the therapy and physician and patient demand.
more choices through competitive health plans
AdvaMed believes that it is essential to restructure Medicare to
ensure that beneficiaries have access to high quality health care that
provides prompt availability of the most innovative technologies
without needless bureaucratic delays. We support the creation of a
system that would provide Medicare beneficiaries with a broader choice
of competing health plans.
The dynamic and creative forces of the marketplace and competition
will lead to innovative alternatives and the individual options and
choices that Medicare beneficiaries need. Private insurers in the U.S.
are able to provide access to new technologies far more rapidly than
Medicare, and are able to derive flexible solutions to address specific
patient needs. Given clear choices, Medicare beneficiaries will chose
the best quality and value offered in a competitive, patient-oriented
health care system. The Centers for Medicare and Medicaid Service's
(CMS's) role in such a system should be to administer Medicare's fee-
for-service system, which should continue to be available to
beneficiaries, managed by the current network of local contractors.
Specific recommendations for long-term reform are as follows:
Use of a framework of competing private sector plans to offer
more competitive choices for Medicare beneficiaries.
Development of a transparent process to determine minimum
covered benefits and accountability for both private plans and
fee-for-service contractors to provide such benefits in a
consistent fashion.
Flexibility for competing private plans to define benefits
beyond a minimum benefit package, including coverage of
experimental therapies. Competing private plans also should be
able to establish market-based pricing for services, rather
than government established fees.
Full disclosure of coverage policies by both competing private
plans and Medicare fee-for-service contractors.
Implementation of competing market-based plans before any
expansion of purchasing authority of the current Medicare fee-
for-service program, so that market based plans are able to
compete during their start-up phase.
Retention and emphasis on local decisionmaking for the vast
majority of coverage determinations in the fee-for-service
program for new therapies and technologies, among a diverse
range of contractors.
In conclusion, while the Medicare program faces the challenge of a
rapidly growing aged population, it is presented with the opportunity
of unprecedented advances in innovation. AdvaMed looks forward to
working with key policymakers to help advance a Medicare agenda that
fosters access to the most modern, efficient care possible, while still
ensuring the highest quality.
______
Prepared 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 who opt to participate
in the Medicare+Choice program. AIM's recommendations call for
strengthening the program by 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.
Building and ensuring a strong Medicare+Choice program requires
that beneficiaries have a range of options similar to those available
to Members of Congress, federal employees and retirees, and million of
working Americans under age 65 years of age who are covered by private
plans. AIM believes the Federal Employee Health Benefit Program can
serve as an example of flexible plan design and benefit structures to
offer senior citizens nationwide a choice of health plans. The success
of the FEHB program, and its continued availability in rural areas,
should serve as model for efforts to strengthen and improve the
Medicare+Choice program.
We applaud the Energy & Commerce Committee, and Health Subcommittee
Chairman Michael Bilirakis, for their leadership on this issue and look
forward to working together to strengthen and improve the Medicare
program.
Expanding Health Care Coverage Choices for Seniors through Improving
Medicare+Choice
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, Medi-care+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
program.
(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
structure.
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
plans.
(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 regulation.
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
guidelines.
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 technologies.
(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.
______
Prepared Statement of the American Psychiatric Association
Chairman Bilirakis, Representative Brown, and members of the
Subcommittee on Health, this testimony for today's hearing on using the
Federal Employees Health Benefit Program (FEHBP) as a possible model
for Medicare reform is presented on behalf of the American Psychiatric
Association (APA).
The American Psychiatric Association (APA) is the medical specialty
association representing more than 38,000 psychiatric physicians
nationwide. Our members are the frontline specialists in medical
treatment of mental illness, and practice in all settings, including
private practice, group practice, hospital-based services, nursing
facilities, and community-based care, along with health programs under
the auspices of the Federal Government such as the Public Health
Service, the Indian Health Service, and the Department of Veterans'
Affairs (VA health system). In addition, psychiatrists serve as
academic faculty and practice in academic medical settings, and are at
the forefront of research into the sources of and new treatments for
mental illness.
Our statement will focus on issues related to mental disorders in
the elderly population, including the scope of such disorders and
particularly ongoing barriers to access to medically necessary
treatment for mental illness in the Medicare program. We urge your
Subcommittee in the strongest possible terms to address the substantial
shortcomings in the Medicare program's coverage of treatment for mental
illness in the elderly. Bluntly, if Congress does not eliminate long-
standing statutory discrimination against Medicare patients seeking
treatment for mental illness, we will face a serious crisis in the
program.
APA therefore commends the Subcommittee for holding a hearing on
the possible use of the FEHBP as a model for Medicare coverage of
mental illness treatment, since, as we will discuss below, federal
employees have since January 2001 enjoyed ``parity'' for mental health
and substance abuse treatment. While some questions remain about the
scope of the parity coverage, the FEHBP program shows that federal
policymakers can and should eliminate current statutory discrimination
against seniors and other Medicare beneficiaries seeking treatment for
mental illness, including substance abuse disorders.
i. scope of mental illness in the elderly:
In 1999, then-U.S. Surgeon General David Satcher, M.D., Ph.D.
released a landmark study on mental illness in this country. The
Surgeon General's report is an extraordinary document that details the
depth and breadth of mental illness in this country. According to Dr.
Satcher, ``mental disorders collectively account for more than 15
percent of the overall burden of disease from all causes and slightly
more than the burden associated with all forms of cancer.'' The burden
of mental illness on patients and their families is considerable. The
World Health Organization reports that mental illness (including
suicide) ranks second only to heart disease in the burden of disease
measured by ``disability adjusted life year.''
Some 35 million Americans are presently age 65 and older. America's
elderly population will increase rapidly as our Baby Boom population--
76 million strong--reach age 65 between 2010 and 2030. By 2030, older
Americans will constitute 20 percent of the population, and our oldest
old (85 and up) will comprise the most rapidly growing segment of all.
The percentage of ethnic minority elderly will increase rapidly as
well.
Mental disorders are highly prevalent in the elderly population.
The Surgeon General's report on mental illness found that 20 percent of
the population age 55 and older experience mental disorders that are
not part of what should be considered as normal aging. Common disorders
include Alzheimer's disease, depression, anxiety, cognitive impairment,
drug misuse and abuse, and alcoholism.
The impact of mental illness on older adults is considerable.
Prevalence in this population of mental disorders of all types is
substantial. 8 to 20 percent of older adults in the community and up to
37 percent in primary care settings experience symptoms of depression,
while as many as one in two new residents of nursing facilities are at
risk of depression.
Older people have the highest rate of suicide in the country, and
the risk of suicide increases with age. Americans age 85 years and up
have a suicide rate of 65 per 100,000, twice the national average.
Older white males, for example, are six times more likely to commit
suicide than the rest of the population. There is a clear correlation
of major depression and suicide: 60 to 75 percent of suicides of
patients 75 and older have diagnosable depression. Put another way,
untreated depression among the elderly substantially increases the risk
of death by suicide.
Mental disorders of the aging are not, of course, limited to major
depression with risk of suicide. The elderly suffer from a wide range
of disorders including declines in cognitive functioning, Alzheimer's
disease (affecting 8 to 15 percent of those over 65) and other
dementias, anxiety disorders (affecting 11.4 percent of adults over
55), schizophrenia, bipolar disorder, and alcohol and substance use
disorders. Some 3 to 9 percent of older adults can be characterized as
heavy drinkers (12 to 21 drinks per week). While illicit drug use among
this population is relatively low, there is substantial increased risk
of improper use of prescription medication and side effects from
polypharmacy.
ii. access to specialty medical care:
Given the demographic factors cited above, including the
substantial increase in the numbers of the elderly between now and 2030
and the prevalence of mental disorders in this population, it is clear
that there is a pressing need to ensure ready access to treatment for
the Medicare population.
Despite the pressing need for delivery of mental health services to
elderly patients, some studies show that as low as one-half of older
adults acknowledging mental health problems actually receive treatment,
and a relatively small percentage of those receive care from a
specialized provider. At least half of all elderly patients receive
their mental health care from primary care practitioners rather than
specialty providers.
The proper assessment and treatment of mental disorders in late
life is complicated by the prevalence of comorbid medical conditions
and related disabilities in the elderly population. Thus, proper care
of the elderly who seek treatment for mental illness requires
specialized knowledge and clinical skills that enable the practitioner
to assess complex interactions between medical illness, psychiatric
disorders, the general processes of aging, together with the cultural,
social, ethnic, and environmental factors that impact the patient.
Thanks to strong support from the National Institute of Mental
Health, the field is increasingly able to rely on a rapidly growing
body of scientific knowledge specific to mental disorders in the
elderly. APA has responded directly to the needs of elderly patients by
proposing and successfully enabling the establishment of geriatric
psychiatry as a subspecialty. Current program requirements for
residency education in geriatric psychiatry are extensive, and
administered by the Accreditation Council for Graduate Medical
Education. The training period is 12 months, and must occur following
satisfactory completion of an ACGME-accredited residency in general
psychiatry.
The educational program must include a wide range of clinical
experience, including Geriatric Psychiatry Consultation (inpatient,
outpatient, and emergency services); Long-Term Care, and Other Medical
Specialty Experience (e.g., neurology, physical medicine and
rehabilitation, geriatric medicine or geriatric family practice). The
specialty content of the ACGME requirements is very extensive,
underscoring the complexity of treating mental disorders in the elderly
population, and emphasize the critical role played by psychiatric
physicians and particularly by geriatric psychiatrists in the proper
diagnosis and treatment of mental illness among the elderly.
iii. medicare barriers to treatment:
As noted, mental disorders are substantial in the Medicare elderly
population but the Federal Government itself creates major barriers to
treatment. These include the following:
Medicare Discriminatory 50 Percent Copayment:
Medicare law now requires patients to pay a 20 percent copayment
for Part B services. However, the 20 percent copayment is not the
standard for outpatient psychotherapy services. For these services,
Section 1833(c) of the Social Security Act requires patients to pay an
effective discriminatory copayment of 50 percent.
This bears repeating: If a Medicare patient has an office visit to
an endocrinologist for treatment for diabetes, or an oncologist for
cancer treatment, or a cardiologist for heart disease, or an internist
for the flu, the copayment is 20 percent. But if a Medicare patient has
an office visit to a psychiatrist or other physician for treatment for
major depression, bipolar disorder, schizophrenia, or any other illness
diagnosed as a mental illness, the copayment for the outpatient visit
for treatment of the mental illness is 50 percent. The same
discriminatory copayment is applied to qualified services by a clinical
psychologist or clinical social worker. This is quite simply
discrimination.
190-Day Lifetime Reserve:
In a similar vein, Medicare law limits to 190 days in a patient's
lifetime the number of covered days to which beneficiaries are entitled
if they seek treatment in a freestanding public or private psychiatric
hospital. The 190-day lifetime reserve does not apply to hospital care
for non-psychiatric illness in general hospitals, nor does it apply to
treatment received for psychiatric illness in psychiatric wards in
general hospitals. Yet if patients seek treatment in hospitals that
specialize in the diagnosis and care of patients with mental illness,
they are covered only for 190 days in their lifetime. Again, this is
statutory discrimination against patients with a specific diagnosis
receiving treatment in a particular facility.
Intermediate Services:
Medicare coverage lags well behind private sector development of a
range of psychiatric services that are less intensive than hospital-
level services but more intensive than outpatient services. These
include, for example, crisis residential programs and mental illness
residential treatment programs, group homes, residential detoxification
programs, residential centers for substance abuse treatment,
psychiatric rehabilitation, intensive case management, day treatment,
ambulatory detoxification, and so on. The currently available
``intermediate'' level of service, partial hospitalization, is
effectively on hold due to shortcomings in the statutory authorization
of the program.
QMB Discriminatory Payment Reduction:
A related problem is the doubly discriminatory treatment of low-
income patients who are eligible for both Medicare and Medicaid. Under
current law, state Medicaid programs are required to make Medicare
cost-sharing assistance to such patients, known as ``QMBs'' (for
qualified Medicare beneficiaries). In brief, states are required to buy
into the Medicare program for QMBs (who are by definition poor
individuals), paying the Part A and Part B premiums, along with
deductibles and copayments. In 1992, the then-HCFA Medicaid Director
issued a directive that states were no longer obligated to pay a
portion of the payment for psychiatric outpatient services subject to
the underlying discriminatory Medicare 50 percent copayment
requirement, since that portion was held not to be an incurred
beneficiary expense. That finding put HCFA in the position of saying
that for Medicare purposes, the 50 percent copayment was an incurred
beneficiary expense, but for Medicaid--and QMB--purposes, a portion of
the copayment was not. The direct result of the finding was that most
states stopped paying for the full amount of the copayment, creating an
enforced substantial ``discount'' for services provided to one group of
Medicare patients, and a significant disincentive to treat such
patients along with the discount.
Mr. Chairman, taken together, the examples cited above spotlight
significant disincentives inherent in federal programs funding delivery
of services to the elderly. The examples also underscore the dramatic
need for sweeping changes to Medicare and other federal programs to
eliminate statutory discrimination against patients seeking treatment
for mental disorders. The underlying discrimination is compounded by
problems such as regulatory hassles and the extraordinarily unwise 5.4
percent reduction in the Medicare update.
Regardless of the specific mental disorder diagnosed, it is
absolutely clear that mental illness in the Medicare population causes
substantial hardships, both economically and in terms of the
consequences of the illness itself. As Dr. Satcher put it in his
landmark report, ``mental illnesses exact a staggering toll on millions
of individuals, as well as on their families and communities and our
Nation as a whole.''
Yet there is abundant good news in our ability to effectively and
accurately diagnose and treat mental illnesses. Mental illness
treatment works. Unfortunately, today, a majority of Medicare patients
who need treatment for mental illness do not seek it or do not get it
from specialty providers. Much of this is due to statutory
discrimination that compels patients seeking treatment for psychiatric
illness to pay more out of their own pockets.
Congress would be outraged and rightly so if federal law forced a
Medicare cancer patient to pay half the cost of his or her outpatient
treatment, or a diabetic 50 cents of every dollar charged by his or her
endocrinologist. So why is it reasonable to tell the 75-year-old that
she must pay half the cost of treatment for major depression? Why
should a schizophrenic patient incur a 20 percent copayment for
visiting his internist, but be forced to pay a 50 percent copayment for
visiting a psychiatrist for the treatment of his schizophrenia? Why
also should patients not have access to the full range of services now
available to treat their disorders?
iv. fehbp and other solutions:
APA has always urged Congress to end these discriminatory
inconsistencies in Medicare coverage as part of any major effort to
overhaul the Medicare program. Certainly, as the House moves forward
this year with a possible Medicare overhaul, repeal of the 50 percent
copayment requirement and other discriminatory features of Medicare's
coverage of mental illness should be addressed.
As noted, the FEHBP offers a possible model for the road to travel
to achieve non-discriminatory coverage of treatment of mental illness
in the Medicare program. Prior to 1999, the Office of Personnel
Management, via the annual FEHBP ``call letter'' process, had
negotiated enhanced mental health coverage in the program. For example,
OPM successfully eliminated lifetime and annual maximums for mental
health care, moved gradually away from contractual day and visit
limits, and covered medical visits and testing to monitor drug
treatments for mental conditions under the same terms as pharmaceutical
disease management.
Following the White House Conference on Mental Health in June 1999,
President Clinton announced that the Federal Government would implement
mental health parity in the FEHBP program. Following the issuance of
several policy guidelines (June 1999, April 2000, and July 2000), the
parity requirements were implemented effective January 1, 2001. In a
memorandum dated July 13, 2000, then-OPM Director Janice LaChance noted
that ``Parity in the FEHBP Program means that coverage for mental
health, substance abuse, medical, surgical, and hospital services will
be identical with regard to traditional medical care deductibles,
coinsurance, copays, and day and visit limitations. Historically,
health plans have applied higher patient cost sharing and shorter day
and visit limitations to mental health and substance abuse services
than they did to services for physical illness or injury. Beginning
January 1, 2001, this practice will stop when patients use network
providers and comply with authorized treatment plans.''
Indications are that, to-date, parity implementation is effective,
has been smooth, and has resulted in little if any dislocations. In
testimony before the Senate Committee on Health, Education, Labor, and
Pensions (July, 2001), William E. Flynn, III, then-Associate Director
for Retirement and Insurance at OPM, reported that ``Early indications
are that parity implementation is going well. In the few cases where
coverage or access problems have arisen, we were able to address them
quickly to ensure that federal enrollees are receiving the benefits to
which they are entitled under their plans.''
In addition to the APA support for the moral imperative of ending
discriminatory coverage of treatment of mental illness, the cost data
on FEHBP parity is also favorable, showing clearly that parity is
achievable for modest costs. According to Mr. Flynn's 2001 testimony,
``parity implementation has resulted in an . . . aggregate (premium)
program increase of 1.3 percent for 2001. In terms of the impact on
individuals, those with a self-only enrollment pay $0.46 for parity
every two weeks, while family enrollees pay $1.02''
APA has long advocated for and supported legislation such as H.R.
599 in the current Congress that would eliminate Medicare's historic
discriminatory 50 percent copayment requirement for outpatient mental
health services. The legislation would simply require Medicare patients
receiving such services to pay the same 20 percent copayment they pay
for all other medical care today. Based on the FEHBP experiment, we
certainly believe that parity is achievable in the Medicare program.
Can anyone suggest the modest costs--25 cents per week by enrollees and
1.3 percent aggregate premium effect--are not worth the elimination of
long-standing discrimination against Medicare patients seeking
treatment for mental illness?
v. conclusion:
Mr. Chairman and members of the Subcommittee, the American
Psychiatric Association joins in saluting you for your foresight in
holding this important hearing on options to overhaul the Medicare
program. The problems are particularly acute for elderly patients
seeking treatment for mental disorders, who must cope not only with the
need to seek care, but also with the unfortunate fact that they are
required to pay more for such care when they are able to seek it.
Whether through consideration of an FEHBP-style benefit option or
adoption of H.R. 599, we urge you to end the discrimination against our
Medicare patients when they seek medically necessary care for mental
illness.
Thank you.
______
Response for the Record of Stuart M. Butler, Vice President for
Domestic and Economic Policy Studies, The Heritage Foundation
Question #1: Does CMS publish a guide to the Medicare plan that is
similar to the FEHBP guide? How would such a guide be helpful for
beneficiaries? Is the information on provider quality and plan
responsiveness helpful for elderly beneficiaries in the FEHBP program?
Some have stated that beneficiaries might not be able to evaluate plan
comparison information. Do you believe that beneficiaries find the
information in these guides confusing and/or overwhelming?
A: Yes. CMS publishes a guide for Medicare beneficiaries entitled
Medicare and You. The CMS also has a web site. The Committee can
examine relevant GAO reports and recent testimony before the House
Subcommittee on Health of the Ways and Means Committee on the CMS
products to get a flavor of the difficulties facing Medicare
beneficiaries. In short, these products are neither user-friendly nor,
in the web version, easy to access or understand for comparative
purposes. In his February 28, 2001 testimony before the House Ways and
Means Subcommittee on Health, health care economist Walton Francis, an
expert on FEHBP and the Medicare program, observed:
``The version (of Medicare and You 2001) for DC, Delaware,
Maryland and Virginia has about 85 numbered pages of
information. Of these, 17 pages provide plan specific
information on Medicare+Choice plans and the remaining pages
other information about Medicare (Telephone numbers take up 7
pages, even more than in 1999). The 17 printed pages of
information, however, provide only 9 specific facts about each
of the 13 covered plans: company name, plan name, telephone
number, service area, premium, whether or not any prescription
drug coverage, percent rating their care highly, percent of
women receiving mammograms, and percent dis-enrollment. All of
this information for all of these plans could have fit on one
typewritten page. In sum, HCFA uses 85 pages to produce one
page of plan comparison information.'' 1
---------------------------------------------------------------------------
\1\ Walton J. Francis, Hearing on Medicare Reform, testimony before
the Subcommittee on Health of the House Committee on Ways and Means,
February 28, 2001, p. 4.
---------------------------------------------------------------------------
For enrollees in the FEHBP program, there is superior clarity in
the presentation of comparative health information from both government
and private sector sources. OPM annually publishes a Guide to FEHBP
plans. This is a simple, detailed and plain English comparison of
plans, rates and benefits. The 2001 edition of the Guide was 55 pages
in length.
Beyond the OPM Guide, prominent private sector organizations
publish comparative information on plans and guides to FEHBP plans for
active employees and retirees. Each year, the National Association of
Retired Federal Employees (NARFE) publishes Federal Health Benefits and
Open Season Guide, which is oriented specifically to federal retirees
and rates plans on benefit packages. The Washington Consumers Checkbook
publishes Checkbook's Guide to Health Insurance Plans for Federal Plans
for Federal Employees. These guides are written in plain English. They
provide excellent comparative information on price, benefits and
service.
In the case of the Checkbook guide, there are detailed plan
comparisons and ratings on the quality of services and are based on
annual surveys of all plan enrollees, including retirees. In the FEHBP,
retirees make up 40 percent of all enrollees in the FEHBP program. The
ratings cover the following topics: the overall quality of the health
care provided by the plan, and access to personal physicians and
specialists; the percentage of complaints; the ability to get needed
care; the ability to get care quickly; how well doctors communicate
with beneficiaries; the courtesy and helpfulness of the doctors' office
staff; the plan's claims processing; the performance in getting
referrals to specialists; the ability to get a personal doctor one is
``happy with''; the ability to deliver the care the beneficiary or the
beneficiary's doctor believed was necessary; the ability to get
approval for care ``promptly; getting advice or help from the doctor's
office when one calls; enrollees impression of the plan's customer
service; getting an appointment as soon as needed for illness or
injury; getting explanations one could understand from one's doctors,
getting enough time with doctors.
This information is clearly helpful to beneficiaries. The Checkbook
ratings, particularly on quality and service (including the
responsiveness of physicians and specialists, or the ease in dealing or
communicating with physicians and specialists) are particularly helpful
to elderly beneficiaries. There is nothing confusing about percentage
rankings of plans' performance on the very relevant topics of patient
care covered in the survey. In 2001, for example, federal retirees
residing in Idaho and interested in the Idaho Group Health Cooperative,
an HMO, would be able to find out that 93 percent had a positive
assessment of how well that plan's doctors communicated with patients.
Beyond the published guides, the Committee should also be aware of
the growth of FEHBP comparative information on the Internet. According
to PlanSmartChoice, a company providing comparative Internet
information to FEHBP, enrollees reported to OPM that users of the web
site registered satisfaction levels of 90 percent or more.2
The report to OPM also included samples of positive responses from
retirees, negative comments, and suggestions for improvement of the web
site.3 Another prominent on line site in the FEHBP is
www.guidetohealthplans.org There is no reason why 21st retirees,
including the first wave of the 77 million Baby Boom generation, should
not be able to take advantage of rapidly advancing information
technology for periodic health plan comparisons.
---------------------------------------------------------------------------
\2\ PlanSmartChoice: Fall 2000 Open Enrollment: A Report to the
Office of Personnel Management, prepared by PlanSmart Choice Inc.,
Research Triangle Park, North Carolina, June 25, 2001, p. 1.
\3\ PlanSmart Choice, op. cit., pp. ii-vi
---------------------------------------------------------------------------
Question #2: Is it possible to have multiple plans in some of the
more rural areas of the country?
A: Yes. In the FEHBP, every enrollee, rural or urban, has a
multiple choice of health plans. Today, there are 11 health plan
options available to all enrollees nationwide. In 2001, FEHBP had 15
health plan options available to all enrollees. Normally, these
national plans are ``fee for service'' or preferred provider
organizations. The FEHBP rules governing the participation of HMOs are
very different. HMOs participate at the state, and the number of
participating HMOs, which today cover roughly 40 percent of all FEHBP
enrollees, varies from year to year. There is no reason, of course, why
a reform of Medicare could not establish a similar structure for plan
options for future Medicare enrollees.
Question #3. Your testimony states that OPM prescribes ``reasonable
minimal standards'' for plans. Can you explain how those standards are
developed? Do you believe that a separate Medicare Board could work in
a similar fashion?
A: Under Section 8902 of Title 5 of the U.S. Code, OPM--may
prescribe reasonable minimum standards' for health benefits plans and
for carriers. As the Congressional Research Service (CRS) has observed
in its comprehensive 1989 analysis of the FEHBP, the legislative
language authorizing the FEHBP gave OPM ``broad powers'' to administer
the FEHBP, and OPM has thus had ``wide latitude to institute changes it
felt were needed . . .'' 4 Under Section 890.201 of The Code
of Federal Regulations,5 OPM has thus set forth rules to
admit and negotiate with health plans that comply with the provisions
of Chapter 89 as amended. Under OPM rules, competing plans have to
accept enrollment of employees and retirees without discriminating
against them on such grounds as age, race, sex or health status;
provide health benefits to enrollees, ``wherever they may be''; provide
for guaranteed renewability of coverage for enrollees; provide
enrollees an identification card; provide a standard rate structure for
individuals and family coverage; maintain statistical records for the
plan covering federal employees separate from other insurance business;
provide for ``a special reserve fund'' for the plans operations and
reinvest any fund income into the fund; provide for continued
enrollment of persons during the contract period; provide for coverage
without reference to pre-existing physical or mental conditions; and
provide for enrollment without a waiting period for a covered persons.
---------------------------------------------------------------------------
\4\ The Federal Employees Health Benefits Program: Possible
Strategies for Reform: A Report prepared by the Congressional research
Service for the Committee on Post Office and Civil Service, US. House
of Representatives, 101st Cong., 1st Sess. (Committee Print 101-5), May
24, 1989, p. 238.
\5\ Code of Federal Regulations, Title 5, Volume 2, Parts 700 to
1199, revised as of January 1, 2001, pp.410-412.
---------------------------------------------------------------------------
Under its statutory authority, OPM is to contract with those plans
that are licensed in the states; that are reinsured with other
companies which elect to participate under an ``equitable formula'';
that offer detailed statements of benefits with definitions of
limitations and exclusions that OPM considers ``necessary or
desirable''; that charge rates that ``reasonably and equitably''
reflect the costs of the benefits; and that agree to provide benefits
or services to persons entitled, as OPM determines, under the terms of
its contract. OPM is also authorized to levy a surcharge on plans of up
to 3 percent of premiums to establish a contingency reserve fund for
the payment of unforeseen claims.
Under Section 8902 of Title 5, the terms of any contract between
OPM and a competing plan pre-empt any state or local law governing
health insurance or health plans.
There is no reason why a Medicare Board, or similar agency, could
not perform the very same functions as OPM in a reformed Medicare
program. The Board could be an independent body within the executive
branch, like OPM, or it could be a special agency within HHS.
Question #4: How does the current Medicare program make it more
difficult for beneficiaries to have reasonable access to cutting edge
treatments?
A: Medicare's current structural obstacles delay patients access to
cutting edge medical services and technologies that are routinely
available to patients in the private sector. There are many particular
examples. In a general study of this question for the Advanced Medical
Technology Association, the Lewin Group, a major Virginia-based
econometrics firm that models health policy changes, found that it
takes anywhere between 15 months to five years for a medical technology
to be available to Medicare patients.6 The reason for this
is the complicated CMS process for making coverage decisions, which can
take anywhere from 1 to 5 years, then procedural coding for the new the
technology, which can last anywhere from 15 to 27 months, and the
process for setting payment, which can take 24 months or
more.7
---------------------------------------------------------------------------
\6\ Advanced Medical Technology Association, ``Medicare Overview:
Improving patient Access to Innovative Technology, presented in 2001-
2002 Medical Technology: An Agenda for Innovation and Patient Access
(Washington DC, 2002).
\7\ Ibid.
---------------------------------------------------------------------------
Beyond the internal CMS process for making coverage, coding and
payment decisions, there is also the manner in which CMS prices medical
technologies or cutting edge treatments. Medicare uses an
administrative pricing system, which may have little or nothing to do
with the actual market price of a treatment or medical technology.
While the technology or treatment may be technically covered by the
Medicare program, a Medicare patient has to find a doctor or provider
willing to offer it at Medicare's often artificially low price. This
also can make it more difficult for Medicare patients to get access.
Congress has tried, with limited success, to improve Medicare
patient access to cutting edge technologies and treatments with the
enactment of the Benefits Improvement and Protection Act of 2000.
Question #5: Can you expand slightly on the FEHBP trust fund?
Specifically, do you believe that it would be important to have a
similar trust fund to monitor the solvency, or financial stability of
any modernized Medicare program?
A: All premium contributions, including the premium payments from
federal employees and federal retirees, as well as federal agency
contributions, are deposited in the Federal Employee Health Benefits
Trust Fund.
For federal retirees, OPM administers their enrollment, provides
for an automatic deduction of their portion of the premium from their
monthly federal retirement checks, adds the applicable government
contribution and deposits that money in the FEHBP Trust Fund. For
active federal employees, their employing agency withholds the
employees' contribution toward the premium from their paychecks, adds
the government contribution, and that amount is credited to the FEHBP
Trust Fund. Congress, of course, each year appropriates the projected
amounts for the FEHBP Trust fund for federal retirees, as part of the
Treasury Postal Appropriations process. For federal employees, the
agency funds for FEHBP payment, like salaries and expenses, are
included in routine federal agency appropriations.
The FEHBP trust fund is administered by OPM, but it is formally a
part of the United States Treasury. The Secretary of the Treasury, in
consultation with OPM, has the legal authority to invest the assets of
the trust fund in federal government securities, and interest income
from these government securities is also credited to the trust fund.
During the contract year, payments to health insurance plans or
carriers are made directly from the U.S. Treasury and those payments
are charged to the FEHBP Trust Fund. OPM's administrative expenses are
also charged to the FEHBP Trust Fund.
In contrast to the Medicare program, with the Hospital Insurance
(HI) and the Supplemental Medical Insurance (SMI) trust funds, financed
on entirely different bases, the FEHBP Trust Fund is comparatively
simple. In the FEHBP, both the government contribution and the
beneficiary premium payments for all medical services are combined, and
there is no open-ended draw on general revenues, as there is today in
the SMI portion of Medicare. The Medicare ``solvency'' debate often
revolves around how one measures the fiscal health of the Medicare
program. In my view, the issue is not confined to the health of the
Hospital Insurance trust fund. Rather, the problem is the growing gap
between the projected benefit costs and the revenues dedicated to the
Medicare program.
Premium Income and disbursements in the FEHBP Trust Fund are easily
tracked. The income for the Fund itself is routinely dependent upon
congressional action. If, for any reason, there is a need for a
supplemental appropriation for the FEHBP trust fund, then Congress can
easily provide for it. In this respect, the FEHBP Trust fund model is
superior as a mechanism for monitoring the solvency and ensuring the
financial stability of a modernized Medicare system.
______
Responses for the Record of Max Richtman, Executive Vice President,
National Committee to Preserve Social Security and Medicare
questions of chairman michael bilirakis
Question 1. Are any of your members involved in Medicare+Choice
plans? I understand that Medicare+Choice is not located in all areas:
however, do you know if beneficiaries that live in areas with
Medicare+Choice have the same level of out-of-pocket costs as those
seniors not enrolled in a Medicare+Choice plan in the same area?
Answer. Yes, some of our members are involved in Medicare+Choice
plans. We do not know if persons in Medicare+Choice plans in an area
have the same level of out of pocket costs as those not in such plans.
We know that House hearing have revealed that indeed in some areas, out
of pocket costs in Medicare+Choice does exceed those in traditional
Medicare.
We also know that beneficiaries in Medicare+Choice often complain
that their out of pocket costs are constantly increasing. ``Extra''
benefits are often decreasing, particularly prescription drug coverage.
Many beneficiaries say they joined the plans because they offered some
prescription drug coverage, but the coverage has been stopped
altogether or greatly decreased.
Question 2. You state that premiums have escalated steadily in
FEHBP over the last five years. Do you have any data to support this
notion? If so, do you know how much the increase has been? Also, are
you aware of any access problems for FEHBP participants in gaining
access to cutting edge medical care?
Answer. The statement that premiums have increased steadily over
the last five years is from the Congressional Research Services Report
for Congress, Health Insurance for Federal Employees and Retirees,
January 2, 2002, by Carolyn L. Merck. She states in the summary that
FEHBP premiums in 2002 will be about 13.3% higher than in 2001. She
goes on to say ``On average, annual premiums increases have exceeded 9%
since 1998 bringing cumulative increases since then to nearly 50%.'' In
only 5 years premiums have doubled.
In 2001, total annual FEHBP premiums for self-only policies
averaged about $3,100. This is not a good model for Medicare. Most
seniors, with annual incomes around $15,000 cannot afford this type of
premium. Seniors pay $600.00 in premiums for Medicare.
That report also stated FEHBP covers only 8.6 million people.
Medicare covers 40 million so the programs may be incomparable based on
size.
No problems of access to technology have been reported to the
NCPSSM.
questions from congressmen dingell and brown
Question. You were asked in the hearing to specifically state what
benefit seniors support in terms of how much of a premium and cost
sharing they would be willing to pay and still find a drug benefit
attractive and affordable. While you mentioned a $25-$35 premium, could
you elaborate on the other considerations in a drug benefit? Do you
believe that either the President's Budget or the House Budget
Resolution provides adequate funding for a Medicare prescription drug
benefit?
Answer: Our members have told us the same information that is
reported in polls, surveys and focus groups: seniors want a
prescription drug benefit that is affordable for them and is
comprehensive. Seniors, and their children, do the ``kitchen table
test.'' They will sit down with paper and pencil and calculate the
premium, deductible, cap, and copay. Based on this they will decide if
the benefit is affordable and therefore, if they will enroll. For these
reasons we too must look at the benefit as a whole to determine what is
affordable. A monthly premium of $20.00 doesn't make a benefit
affordable if the plan has a $650.00 deducible.
The President's budget allocation of $190 billion for Medicare
reform and prescription drugs is not enough to fund a benefit that is
affordable and comprehensive. Even the $350 billion the House included
in their budget is not enough. During the hearing many mentioned the
advantages of the FEHBP program. The main advantage of the FEHBP
program and one that needs to be adopted immediately for seniors is
that it does include prescription drugs. Congress has reported that a
FEHBP type prescription drug benefit for seniors would cost $750
billion over 10 years. Therefore, this is the amount that needs to be
allocated for prescription drugs alone. Seniors expect a benefit equal
to FEHBP, this is what they got during their working lives and this is
what retiree health plans offer. Seniors expect about a 20% copay or
cost sharing.
______
Responses for the Record of Stephen J. deMontmollin, Senior Vice
President and General Counsel, AvMed Health Plan
Question 1. Why was AvMed forced to leave the Tampa area? Are you
interested in coming back into the Tampa area to serve Medicare
beneficiaries? If so, what steps could Congress take to ensure your re-
entrance and expansion in Florida? If I were able to help make these
adjustments law, could you commit that AvMed would be willing to come
back into the Tampa area?
Response 1. AvMed is Florida's oldest and largest not for profit
HMO and its mission includes the desire to serve the Medicare and
Medicaid populations in Florida. AvMed currently serves fewer than
30,000 Medicare members down from more than 75,000 beneficiaries at the
time of the passage of the Balanced Budget Act. AvMed would very much
like to return to the Tampa area as a Medicare+Choice organization and
would do so if adequate and stable funding were made available in the
program. Current law projects an increase of only 2% for the Tampa area
for M+C beneficiaries in 2003 despite broad agreement that the actual
increase in medical costs for the area is approximately 11% and
prescription drug costs are rising at an even higher rate. The Federal
Employees Health Benefit Program is projecting premium increases of at
least 13% and the CALPERS rates were recently renegotiated at an
increase of more than 25%. It is hard for the Medicare beneficiaries
who want a choice in their health plan to understand why they are being
treated in such a disparate fashion. AvMed has sustained losses of some
$60 million since 1997 related directly to the draconian reductions in
M+C funding and is now struggling with meeting the statutory surplus
requirements of the Florida Department of Insurance.
In the Balanced Budget Act of 1997, Congress reduced the projected
rate of growth of revenues to hospitals contracting with HCFA over five
years by more than 20 percent and reduced the projected rate of growth
of payments to Medicare HMO risk contractors by some 17 percent over
the same period. The hospitals which were facing the reductions in
future revenue rate growth, immediately began discussions with HMOs to
renegotiate contracts to make up some of the projected shortfall. In
fact, over 60% of the AvMed hospital network insisted on rate
renegotiations regardless of where the hospitals were in the
contracting cycle. That is, most hospital contracts are terminable with
sixty days notice and 60% of the hospital network threatened to
terminate the agreements unless new rates were put in place. From 1997
to 1999, three hospitals of one system in North Dade county insisted on
rate increases of 57%, 49% and 26% respectively. A Tampa hospital is
currently demanding a 23% increase in its inpatient rates for 2003.
Accordingly, Medicare HMOs experience the ``double whammy'' of
reductions in their own revenue growth projections as well as the
likelihood of higher provider contract rates.
Specifically, AvMed lost $2,415,000 in Hillsborough County in 1998
and $1,948,000 in 1999 before having to institute significant cost
sharing to its members through premiums and benefit reductions to
reduce the loss to $444,000 in 2000. AvMed lost $961,000 in 2001 and
was projected to lose $79.57 per member per month in 2002. Confronted
with the certainty of significant losses in 2002, AvMed had no choice
but to withdraw from the County. Mr. Chairman, we very much want to
serve the seniors in southwest Florida but can no longer continue to
incur such tremendous losses. We are a Florida not for profit
corporation but unless we have an adequate net margin, we can not
achieve our mission.
Despite the tremendous losses generated by the Balanced Budget Act,
AvMed is committed to doing everything in its power to remain in the
Medicare+Choice program and to continue serving seniors in Florida.
AvMed is very hopeful that increased and stable funding will be
achieved and that it will be able to re-enter the Tampa area market.
Certainly, the 200,000 seniors in the Coalition for Medicare Choices
have made it clear that Medicare beneficiaries want choices in
selection of their health care plan.
Question 2. President Bush has proposed a 6.5% payment increase in
2003 for M+C plans that have been limited to the minimum payment update
in recent years. Do you believe that this payment increase will
encourage are hopefully guarantee that plans will remain in the
Medicare+Choice program? Are there other issues that need to be
addressed for plans to increase participation in the program?
Response 2. Yes, President Bush's proposed 6.5% payment increase
would provide an immediate and necessary infusion of funds into health
plans serving counties that have received only minimum payment updates
since 1997. Keep in mind that between 1998 and 2002, payment in these
counties increased only 11.5 percent overall, compared to increases in
fee-for-service spending of over 21 percent over the same time frame
and annual medical inflation of between 9 and 10 percent. The
Administration's 6.5% increase is an extremely important first step for
those counties that have consistently received only the minimum update.
However, since those counties have lagged so far behind actual real-
world increases in medical spending, a multiple-year fix will be needed
to help plans continue to participate in the Medicare+Choice program.
Plans need predictability and sustainability in subsequent years to
ensure continued participation.
Question 3. What role do Medicare+Choice plans play in serving low-
income beneficiaries? Can you address the argument by opponents of
Medicare+Choice that plans pick the healthier beneficiaries and leave
the sicker beneficiaries to fee-for-service?
Response 3. Medicare+Choice plans play an important role in
providing health coverage to beneficiaries who are financially
vulnerable. Many low-income beneficiaries rely heavily on
Medicare+Choice plans to provide comprehensive coverage not available
under the Medicare fee-for-service program. The American Association of
Health Plans (AAHP) has conducted research on this issue, focusing
specifically on beneficiaries who have supplemental coverage (i.e.,
coverage for services not covered by the Medicare fee-for-service
program) that is not subsidized (i.e., not paid for by Medicaid or a
prior employer).
According to AAHP's research, among unsubsidized Medicare
beneficiaries in the urban West who had supplemental coverage and who
had annual incomes below the federal poverty level, 76 percent had
selected Medicare HMOs. This finding shows that Medicare HMOs serve
many beneficiaries who have modest incomes, but do not qualify for
Medicaid assistance. AAHP's research also indicates that, among
beneficiaries in the urban Northeast, 41 percent of beneficiaries who
had unsubsidized supplemental coverage were enrolled in Medicare HMOs
while only 5 percent of beneficiaries who had subsidized supplemental
coverage were enrolled in Medicare HMOs. This finding demonstrates that
Medicare HMOs serve many beneficiaries who do not receive supplemental
health coverage that is paid for by Medicaid or prior employers.
Another key finding of AAHP's research is that among Medicare
beneficiaries who receive unsubsidized supplemental coverage for
prescription drugs, 54 percent obtained such coverage through Medicare
HMOs. This finding highlights the important role Medicare+Choice plans
play in providing prescription drug coverage to beneficiaries who do
not receive such coverage through Medicaid or a prior employer. In
addition, the BlueCross BlueShield Association (BCBSA) recently
released a study showing that low-income Medicare beneficiaries, as
well as African-Americans and Hispanics, are more likely to enroll in
the Medicare+Choice program than other beneficiaries.
This study focuses specifically on the choices made by Medicare
beneficiaries who live in areas where Medicare+Choice plans are
available and who do not receive Medicaid coverage or employer-
sponsored coverage. Noting that 13 million Medicare beneficiaries meet
these criteria, the study identifies these beneficiaries as ``active
choosers.'' The following findings were reported for these
beneficiaries:
in southern California, 78 percent of ``active choosers'' with
incomes between $10,000 and $20,000 are enrolled in
Medicare+Choice plans;
in Philadelphia, 67 percent of ``active choosers'' with
incomes between $10,000 and $20,000 are enrolled in
Medicare+Choice plans;
in southern Florida, 51 percent of ``active choosers'' with
incomes between $10,000 and $20,000 are enrolled in
Medicare+Choice plans;
nationwide, 40 percent of ``active choosers'' with incomes
between $10,000 and $20,000 are enrolled in Medicare+Choice
plans; and
nationwide, 56.1 percent of Hispanic ``active choosers'' and
40.3 percent of African-American ``active choosers'' are
enrolled in Medicare+Choice plans.
This study also concludes that if the Medicare+Choice program was
no longer available, a total of 1.5 million current Medicare+Choice
enrollees would choose to go without supplemental coverage. Indicating
that 42 percent of African-Americans currently enrolled in
Medicare+Choice plans would rely on the Medicare fee-for-service
program only (with no supplemental coverage), the study cautions that
``ending access to Medicare+Choice would have a disproportionate effect
on African-American beneficiaries.''
It is not true, as some claim, that Medicare+Choice plans attract
only healthy beneficiaries. This charged is based largely on a report
the General Accounting Office (GAO) issued in August 2000 claiming that
Medicare+Choice plans attract a disproportionate share of healthier and
less expensive beneficiaries relative to fee-for-service (FFS)
Medicare. In reaching this conclusion, the GAO used a flawed
methodology that examined beneficiaries' costs based on their prior use
of services in the FFS program to estimate beneficiaries' costs once
enrolled in Medicare+Choice plans.
AAHP has long been concerned about this approach, since it includes
no information about beneficiaries' use of services once they are
enrolled in Medicare+Choice plans. As a result, the measure used in
GAO's methodology bears little relationship to health plan enrollees'
actual health status and health care needs. The GAO's methodology
overlooks the reality that beneficiaries in FFS who have no
supplemental coverage face substantial financial barriers to care due
to Medicare's high cost-sharing requirements and, therefore, use
substantially fewer medical services than their counterparts with
supplemental coverage. The GAO's methodology erroneously would classify
these individuals as healthier, when in fact, they likely could not
afford to receive necessary care in the FFS program.
Question 4. I understand that many Medicare+Choice Plans have
implemented disease management programs for congestive heart failure,
diabetes, and other chronic conditions. How do enrollees benefit from
these programs? Were you operating these types of programs in the Tampa
area? If so, do those patients have access to the same quality of
services since you have left?
Response 4. M+C enrollees benefit greatly from disease management
programs offered by their plans. A study by CMS and the National Cancer
Institute (NCI) found that Medicare HMO enrollees were less likely than
fee-for-service patients to have their breast cancer diagnosed at late
stages. Only 7.6 percent of Medicare HMO enrollees had a late-stage
diagnosis compared to 10.8 percent of fee-for-service patients.
(G.Riley, Journal of the American Medical Association, Vol. 281, Feb.
24, 1999) A large-scale study comparing quality of care for elderly
heart attack patients covered by Medicare HMOs and Medicare fee-for-
service coverage found that HMOs offer care equal to or better than
fee-for-service coverage. All indicators of timeliness and quality of
care for elderly patients with acute myocardial infarction were higher
or similar under HMO coverage compared with fee-for-service coverage.
HMO patients were more likely to receive betablocker therapy (73
percent vs. 62 percent). (S. Soumerai, Archives of Internal Medicine,
Vol.159, 1999)
Another study found that Medicare HMO enrollees were more likely to
have had a mammogram in the previous year compared to fee-for-service
beneficiaries (62 percent vs. 39 percent). (L. Nelson, Access to Care
in Medicare Managed Care, Nov. 1996) Research also has shown that
Medicare HMO patients were diagnosed at considerably earlier stages,
and therefore more treatable stages, than fee-for-service patients for
four types of cancer: breast, cervix, melanoma, and colon. Among
patients with cervical cancer, 76 percent of HMO enrollees were
diagnosed at early stages compared to 55 percent of fee-for-service
patients. (G. Riley, American Journal of Public Health, Oct. 1994)
Medicare+Choice plans are continually looking for new and better
ways to improve the delivery of health care services. The following
examples provide a glimpse of the many innovations Medicare+Choice
plans are implementing on behalf of their beneficiaries:
AvMed Health Plan has designed disease management programs to
improve care for beneficiaries with congestive heart failure, diabetes,
end-stage renal disease and other chronic conditions. Group Health
Cooperative offers exercise and fitness programs to improve
beneficiaries' health and, additionally, provides a ``road map'' to
physicians to assist them in delivering appropriate care to patients
with chronic conditions. United Healthcare has established a ``Care
24'' program that gives beneficiaries access--24 hours a day, seven
days a week--to registered nurses, counselors, attorneys, and a health
information library.
Other plans have improved health care for their Medicare
beneficiaries through innovations focused on: nutrition screening; the
relationship between literacy and health; the impact of non-medical
needs on medical outcomes; educational classes on osteoporosis
treatment and prevention; overcoming cultural barriers; promoting
clinical guidelines; and other opportunities for improving
beneficiaries' health.
Another reason Medicare+Choice plans are popular among
beneficiaries is that they typically offer additional benefits not
covered by the Medicare fee-for-service program. According to a recent
analysis by Mathematica Policy Research, 67 percent of Medicare+Choice
enrollees are receiving some form of prescription drug coverage through
their health plans in 2001. Other additional benefits currently
available to Medicare+Choice enrollees include physical exams (99.7
percent), vision benefits (94 percent), hearing benefits (79 percent),
podiatry benefits (30 percent), preventive dental benefits (27
percent), and chiropractic benefits (5 percent). Significantly, the
lack of adequate funding for the Medicare+Choice program has forced
many health plans to scale back additional benefits in recent years.
For example, Mathematica reports that 84 percent of Medicare+Choice
enrollees had prescription drug coverage in 1999--compared to 67
percent in 2001. The availability of most other additional benefits
also has declined in recent years. I am enclosing a copy of Innovations
in Medicare+Choice Managed Care for your information and hope that you
will note the AvMed immunization program described at page 3 of the
report.
______
Responses for the Record of Marilyn Moon, Urban Institute
Question 1. How well have private plans done at controlling cost
increases overtime compared to Medicare? Is there any reason to believe
that private plans are the solution to increasing Medicare costs?
Aren't all payers/purchasers of health care facing the same problems?
Response 1. For several years in the mid 1990s, private insurers'
premiums grew at a slower rate than Medicare per capita spending, but
in the last five years Medicare has substantially outperformed the
private sector in this regard. And viewed over an even longer period,
Medicare has done better than the private sector in holding down the
costs of care since 1970. All payers are having the same problems in
coping with high health care spending. Improvements in technology and
treatments are a prime cause of the growth in health care costs over
time.
Question 2. Would moving Medicare to a system of competing private
plans like that envisioned by Breaux-Frist necessarily mean that yearly
cost increases would be lower than we see today in Medicare? Could the
program find itself hostage to the private plans' premium increases
with little ability to control costs without an act of Congress.
Response 2. I believe that a system of competing private plans
would not hold down the costs of care. Savings to the federal
government from such an approach would likely be achieved only if costs
are shifted off onto beneficiaries in the form of higher premiums or
cost sharing. Consolidation of plans has occurred quite rapidly in the
U.S., often leading to only one or two insurers dominating the market
in various locations. Such dominance would give them a great deal of
leverage since it would be very disruptive to allow them to pull out of
serving Medicare beneficiaries once they cover a majority of people in
a particular area. In those circumstances they face few incentives to
hold down costs.
Question 3. Stuart Butler mentioned in his testimony that the
government should get out of the business of making decisions about
benefits and setting prices and instead act as a referee for private
plans. If the government doesn't develop provider payment mechanisms
and fee-schedules, will the need to do this work go away? What would it
mean for doctors and other providers to faced with a myriad of
different payment systems developed by private plans?
Response 3. The complexity of the current health care system
undoubtedly contributes to costs since in addition to the
administrative expenses facing insurers, doctors, hospitals and other
providers of care must deal with multiple rules and billing
requirements. Costs are also high on beneficiaries to keep track of
these issues. Changing Medicare to rely on private plans would likely
increase these costs (unless one insurer comes to monopolize the
market, a circumstance that creates a number of key problems on its
own). Moreover, if plans are allowed to compete on benefits and other
key characteristics of coverage, this will likely increase adverse
selection and lead to greater confusion among beneficiaries than
currently exists.
Question 4. Medicare spends more than $240 billion per year on
health care for 14% of the population. As a result of the aging of the
baby boomers, Medicare spending and the Medicare population is only
expected to grow. On the other hand, the Federal Employee Health
Benefits Program (FEHBP) spends $21 billion a year for only 9 million
people. Do you think that it is wise for Congress to step aside and let
private plans make all the decisions about coverage, cost-sharing and
other issues for the Medicare population?
Response 4. It would be very unwise for the federal government to
take a hands-off approach to the provision of health care even if it
relied more on private plans. Consumers often need help in dealing with
insurers. FEHBP often uses its muscle to help its enrollees, and
benefit officers in various agencies also intervene. Medicare
beneficiaries would need even more support. Private aid from consumer
groups and others would likely not be able to handle the volume of
issues without strong government oversight.
Question 5. Mr. Butler also suggests there is an inherent conflict
of interest in the way the Centers for Medicare and Medicaid services
operates because it both oversees the M+C program and operates a fee-
for-service (FFS) plan. Could you comment on this? Is there really a
conflict?
Response 5. There is no necessary conflict of interest. Many
private companies, for example, offer an indemnity program that they
self-insure as well as contracting with HMOs to serve their employees.
The goal of traditional Medicare (or a private company's self-insured
plan) should not be to make a profit, but rather to serve the people it
covers.
Question 6. Mr. DeMontmollin mentioned a number of times in the
healing that Medicare fee-for-service and M+C should be forced to
compete on equal footing. FFS should have to submit bids just like
private plans and sink or swim. Could you comment on what this could
mean for the availability of fee-for-service across the country? Could
you comment on what this might mean for beneficiaries? Under such
circumstances would fee-for-service be available and affordable for all
beneficiaries all across the country?
Response 6. If we actually unleashed traditional Medicare to use
its power in the marketplace, private plans could not compete with
Medicare FFS. Moreover, it makes little sense to force Medicare FFS to
reorganize like an insurance company. If it did, what would happen if
the bid was too low? Would traditional Medicare pull out? Would it stop
paying providers of care? Would it freeze enrollment of new
beneficiaries? Would it have to create enormous reserves if 30 million
or more beneficiaries choose to remain in Medicare FFS? Medicare FFS
needs to be the default plan for beneficiaries and, as such, cannot be
treated as just another plan. Thus, there should not be a presumption
that traditional Medicare must compete with private plans.
Question 7. One of the problems with M+C is that plans get
different payments across the country. Members of Congress and
beneficiaries are upset because of the differences they see. If we move
to a voucher system, does that solve the problem of geographic
disparities in the cost of health care or would it leave the same
problems in place or even potentially exacerbate the problems we see
today? Do we have a good way to account for such geographic differences
in the cost of health care today? How will these differences affect the
premiums beneficiaries see in different areas of the country under a
voucher model as well as the availability of fee-for-service versus
private plans?
Response 7. The geographic differences are a problem whatever the
organization of Medicare. A voucher system makes the differences even
more visible, however. In addition, the theory behind having private
plans manage care for beneficiaries was that this would lead to less
variation across the country as a national norm of care would emerge.
The fact that plans want to be paid according to the costs of fee for
service in an area may be a tacit admission that they have not been
very successful in actually managing care.
Question 8. On May 24th, 1089, the Congressional Research Service
(CRS) issued a report to the House Committee on Post Office and Civil
Service on the Federal Employees Health Benefits Program. In this
report beginning on page 9, CRS wrote, ``Choice in FEHBP has led to
`risk segmentation' . . . Plans have an incentive to limit benefits
attractive to older participants, because they are required to raise
premiums . . . Some plans have adopted aggressive marketing tactics
that seem intended to appeal to younger people . . . Plans also have
little incentive to incorporate cost control mechanisms if plan
administrators perceive them to result in participant dissatisfaction
and migrate to another plan.'' Please comment on what this model, with
its risk segmentation, avoiding older beneficiaries by limiting
benefits that are attractive to them and selective marketing, and no
incentives to control costs, would mean for the Medicare system.
Response 8. The most troubling aspect of a managed competition
system is the possibility of permanently fragmenting the risk pool and
leading to a separation of beneficiaries into the sick and the healthy.
The easiest way for companies to hold down their costs is to attract a
healthier than average mix of enrollees. If they do, they can offer
good service and make a profit. But this is not a good system for those
who are left out. Risk adjusters--which could help--remain more a wish
than a reality. Moreover, since older persons have demonstrated that
they do not like to make changes in their health plans each year, they
may stay in an option that becomes inordinately expensive over time. We
would be penalizing the sickest beneficiaries who are reluctant to make
changes when they need care by allowing the market to work in this way.
Question 9. Proponents of a voucher model point to FEHBP as the
ideal because they say it gives people a wide range of health plan
choices. What can you tell me about what has happened to Plan choices
in FEHBP over the past few years and how this compares to M+C? What
does this say about the dependability and stability of a model based on
competition and private plans?
Response 9. Health plans in FEHBP that offered generous benefits in
one year have often had to pull back when they find they are attracting
sicker patients. This occurred with mental health benefits in some of
the plans, for example. Thus, the plans tend to offer very similar
benefit packages with only small variations in cost sharing and other
details. These details also can change from year to year in confusing
ways. Similarly, Medicare+Choice plans have reduced the extra benefits
they have traditionally offered. They have done so in part because of
slower growth in Medicare payments, but more important is the fact that
these plans cut benefits in ways to discourage enrollment by sicker
beneficiaries. That is, they place caps on drug coverage rather than
adding deductibles.
Question 10. Many of those who want fundamental reform of the
Medicare program believe it is necessary because, over the next few
decades, Medicare spending will consume an increasing percentage of
gross domestic product (GDP). Isn't a significant portion of this
increase due to the fact that the number of Medicare beneficiaries is
projected to double from 40 million to 78 million in the coming years?
How will the voucher model deal with the fact that the number of
Medicare beneficiaries will double in the coming years? If Congress was
to use vouchers to limit the government's spending in Medicare,
wouldn't this just shift costs to beneficiaries?
Response 10. Much of the increase in projected costs will be due to
serving both greater numbers of beneficiaries and a larger overall
share of the population. We should expect the share of GDP devoted to
this program to rise and begin to make plans for increasing the
resources to do so. Another source of increase in costs will be higher
health care spending driven by technological improvements. Do we want
to freeze the quality and type of care that beneficiaries receive by
establishing fixed limits on what the government will pay (i.e. through
a voucher)? As a popular and important program, I believe it is crucial
to continue to offer mainstream medical care to our most vulnerable
citizens.