[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
MEDICARE COST-SHARING AND MEDIGAP
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 1, 2003
__________
Serial No. 108-8
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
J.D. HAYWORTH, Arizona KAREN L. THURMAN, Florida
JERRY WELLER, Illinois LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota
SCOTT McINNIS, Colorado MAX SANDLIN, Texas
RON LEWIS, Kentucky STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
NANCY L. JOHNSON, Connecticut, Chairman
JIM McCRERY, Louisiana FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of April 24, 2003, announcing the hearing............... 2
WITNESSES
Medicare Payment Advisory Commission, Glenn M. Hackbarth,
Chairman....................................................... 8
______
Blue Cross and Blue Shield Association, and Anthem Blue Cross and
Blue Shield, Richard White..................................... 18
Rice, Thomas, UCLA School of Public Health and, Neuman, Patricia,
Henry J. Kaiser Family Foundation.............................. 26
United American Insurance Company, Torchmark Corporation, and
Maynard, Cooper & Gale, P.C., Stephen W. Still................. 22
SUBMISSIONS FOR THE RECORD
American Association for Homecare, statement..................... 49
American Medical Association, statement.......................... 50
Coalition to Promote Choice for Seniors, statement............... 51
Health Insurance Association of America, statement and
attachments.................................................... 51
National Association of Health Underwriters, statement and
attachment..................................................... 61
MEDICARE COST-SHARING AND MEDIGAP
----------
THURSDAY, MAY 1, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 12:12 p.m., in
room 1100 Longworth House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
April 24, 2003
No. HL-4
Johnson Announces Hearing on
Medicare Cost-Sharing and Medigap
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on rationalizing Medicare cost-sharing
and supplemental insurance policies. The hearing will take place on
Thursday, May 1, 2003, in the main Committee hearing room, 1100
Longworth House Office Building, beginning at 12:00 noon.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include program experts on beneficiary cost-sharing
under the Medicare and Medigap supplementary insurance coverage.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
The structure of Medicare beneficiary cost-sharing in the
traditional fee-for-service program reflects the insurance practices
prevalent when Medicare began in 1965. Today, Medicare's beneficiaries
are confronted with irrational and confusing cost-sharing which does
not reflect the current delivery of health care.
In 1965, employer-sponsored group plans had two sets of benefits--
one for inpatient hospitalizations and the other for physician
services. Employer plans long ago shed this distinction, and created a
combined plan with a combined deductible. Medicare, in contrast, still
has two different deductibles--an $840 deductible for Part A and a $100
deductible for Part B. This means that when a beneficiary is
hospitalized for an inpatient procedure, and less likely to be
sensitive to pricing issues, the beneficiary is faced with a
significant deductible. In addition, after a beneficiary has been
hospitalized for 60 days, the beneficiary must then pay $210
coinsurance per day for days 61 through 90, and even more when the
hospital stay extends beyond 90 days. Moreover, Medicare pays nothing
if a beneficiary is hospitalized more than 150 days.
In contrast, when a beneficiary receives outpatient care, and is
arguably more sensitive to costs, the beneficiary must pay the separate
$100 Part B deductible, which has not increased since 1991, while
health costs have doubled. Part B has different coinsurance depending
on the service--none for home health or lab tests, 20 percent for
physician services and supplies, and close to 50 percent for hospital
outpatient services.
Unlike 97 percent of private health policies, the Medicare fee-for-
service program still lacks catastrophic insurance protection for those
with serious health conditions. The other glaring omission is a lack of
an outpatient prescription drug benefit.
In total, due to cost-sharing obligations and Medicare's limited
benefit package, more than 40 percent of seniors' health care costs are
not covered by Medicare. As a result, 9 out of 10 beneficiaries have
some type of supplemental coverage. Those with retiree coverage from
their former employers generally receive generous benefits, including
catastrophic protection and good prescription drug coverage. The
poorest beneficiaries receive wrap-around coverage through Medicaid.
Medicare's confusing and irrational cost-sharing has led more than
one-quarter of beneficiaries to purchase Medigap insurance in the
individual, private insurance market. In 1990, Congress created 10
standardized Medigap policies. Nine out of 10 of those policies, which
comprise more than 90 percent of the Medigap market, must cover the
Part A deductible, and the most popular Medigap policy covers both
deductibles. Numerous studies have demonstrated that covering the
deductibles has led to markedly higher Medicare spending because
beneficiaries become insensitive to costs. In addition, only the three
most expensive Medigap plans cover prescription drugs, and that
coverage is limited. Yet, 8 of the 10 plans are required to cover
foreign travel insurance, while most beneficiaries never leave the
country. Medicare coverage has changed since 1990, but Medigap plans
have been frozen in time. Researchers have shown that Medigap
policyholders sometimes pay more than $100 in premium to cover the Part
B $100 deductible, illustrating the poor value of some Medigap plans.
In announcing the hearing, Chairman Johnson stated, ``Seniors face
a confusing hodge-podge of copayments and deductibles in Medicare. The
system is irrational and difficult to navigate. Simplifying and
modernizing cost-sharing will make coverage easier to understand and
will strengthen the Medicare program over the long term. I believe we
can better design both Medicare and Medigap so that seniors and people
with disabilities get the most for the health care dollars they
spend.''
FOCUS OF THE HEARING:
Thursday's hearing will focus on improving Medicare's cost-sharing
structure and reforming Medigap coverage.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Thursday, May 15, 2003. Those
filing written statements that wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Health in room 1136
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
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3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman JOHNSON. Good midday to you.
Today we continue our examination of the Medicare program
and how we can strengthen and improve Medicare for seniors and
the taxpayers financing the program.
Medicare's current beneficiary cost-sharing was enacted
nearly 4 decades ago and has separate deductibles and cost-
sharing rules for Medicare Part A and Part B. When Medicare was
enacted, the Part B outpatient deductible accounted for about
45 percent of beneficiary expenditures. Today, because it has
not been indexed, it accounts for less than 3 percent. In
Medicare, we charge seniors two different deductibles, and make
the deductible for inpatient hospitalization eight times higher
than the outpatient deductible.
Why should the deductible be eight times higher for a
health service that a patient desperately needs and can't
avoid? Why would we impose new cost-sharing on a patient who
has been lying on her back in a hospital bed for 2 months?
While most private health plans provide catastrophic protection
for their enrollees, why does Medicare expose the sickest
patients to unlimited cost-sharing?
Medicare currently covers slightly more than half of all
health-care services seniors consume when you include
prescription drugs and long-term care. As a result, 90 percent,
9 out of 10 beneficiaries, feel compelled to carry supplemental
insurance to fill in the holes that Medicare does not cover.
Many receive retiree coverage through their former employer.
The poor receive assistance through Medicaid. More than one-
quarter of beneficiaries purchase Medigap insurance themselves.
In 1990, Congress created 10 standardized Medigap policies
to assist beneficiaries in choosing plans. After 12 years, it's
time to revisit the adequacy and structure of these plans. All
10 Medigap plans are required to cover the coinsurance that
beneficiaries must pay under Medicare--for example, the 20
percent of the cost of a physician's visit. Nine out of 10 of
these plans are required to cover the Part A inpatient hospital
deductible, which is currently $840.
The most popular Medicare policy covers both the Part A
hospital deductible and the $100 Part B deductible for
physicians' services, and 8 of 10 policies are required to
cover foreign travel insurance, just in case beneficiaries
travel to France, though many never leave their home State.
At the same time, only the three most expensive Medigap
policies cover prescription drugs, though prescription drugs
are seniors' most pressing need. Numerous studies have
demonstrated that Medigap's first dollar coverage of medical
services has resulted in excessive Medicare spending because
items and services appear to be free. Beneficiaries with
Medigap consume $1,400 more in Medicare services than
beneficiaries without supplemental coverage, and $500 more than
beneficiaries with employer-sponsored insurance. This higher
utilization drives up costs for everyone, premiums for Medicare
beneficiaries without Medigap coverage, and cost to taxpayers.
In addition, the prescription drug coverage mandated in
Medigap is wholly inadequate. Yet, Medigap premiums continue to
rise. From 1998 to 2000, average premiums rose 16 percent for
plans without drug coverage, and more than twice as fast, 37
percent, for plans with drug coverage. In addition, premiums
vary dramatically for identical plans in the same location.
Weis Ratings, Inc. analyzed Medigap premiums in 2001. A 65-
year-old man living in Fort Myers, Florida would pay about
$3,600 for Plan J from Physicians Mutual Insurance Company, but
only $2,700 with United Health Insurance Company through
American Association of Retired Persons (AARP). That's nearly a
thousand dollars less for the same policy in the same location.
The same gentleman living in Las Vegas would spend about
$1,500 for Plan C with United American Insurance Company, and
about half that amount, $778, with the USAA Life Insurance
Company for the same policy.
Much has changed in health care and health insurance over
the past 12 years, but Medigap policies have remained the same.
Medigap insurers have been unable to modify their offerings in
response to market changes because the 10 standard Medigap
policies are set in the statute.
I believe we can do better. We can do better for Medicare
fee-for-service benefits and Medigap policies, so that seniors
and people with disabilities can get the best health care and
the most health care for the dollar they spend.
Mr. Stark.
[The opening statement of Chairman Johnson follows:]
Opening Statement of the Honorable Nancy L. Johnson, Chairman, and a
Representative in Congress from the State of Connecticut
Today we continue our examination of the Medicare program and how
we can strengthen and improve Medicare for seniors and the taxpayers
financing the program.
Medicare's current beneficiary cost-sharing is a relic of the
program that was enacted nearly four decades ago with separate
deductibles and cost-sharing rules for Medicare Part A and Medicare
Part B. After examining the Medicare's complex and irrational cost-
sharing structure, I conclude that a fundamental restructuring is
needed.
Why would we charge seniors two different deductibles, and make the
deductible for inpatient hospitalization--when a patient is least price
sensitive--eight times higher than the outpatient deductible, when
health care is arguably more discretionary? And why would we impose new
cost-sharing on a patient who has been lying on her back in a hospital
bed for two months? While most private health plans provide
catastrophic protection for their enrollees, why does Medicare expose
the sickest patients to unlimited cost-sharing?
The answer, of course, is that Congress has not changed the law to
modernize the Medicare program. Consider that when Medicare was enacted
the Part B outpatient deductible accounted for about 45% of beneficiary
expenditures. Today, because it has not been indexed it accounts for
less than three percent.
Notwithstanding, Medicare currently covers slightly more than half
of all health care services seniors consume, when including
prescription drugs and long-term care. As a result, 90 percent--that's
right 9 out of 10 beneficiaries--feel compelled to carry supplemental
insurance to fill in the holes that Medicare does not cover. Many
receive retiree coverage through their former employer. The poor
receive assistance through Medicaid. But more than one-quarter of
beneficiaries purchase Medigap insurance themselves.
In 1990, Congress created 10 standardized Medigap policies to
assist beneficiaries in choosing plans. After 12 years, it's time to
re-visit the adequacy and structure of these plans. All 10 Medigap
plans are required to cover the coinsurance that beneficiaries must pay
under Medicare, for example, the 20 percent of the costs of a physician
visit. Nine out of 10 of these plans are required to cover the Part A
inpatient hospital deductible, which is currently $840. The most
popular Medigap policy covers both the Part A hospital deductible and
the $100 Part B deductible for physician services. And 8 of the 10
policies are required to cover foreign travel insurance, just in case
these beneficiaries travel to France, though many never leave their
home State! At the same time, only the three most expensive Medigap
policies cover prescription drugs, though prescription drugs are
seniors' most pressing need.
Numerous studies have demonstrated that Medigap's first dollar
coverage of medical services has resulted in excessive Medicare
spending because items and services appear free to beneficiaries.
Beneficiaries with Medigap consume $1,400 more in Medicare services
than beneficiaries without supplemental coverage, and $500 more than
beneficiaries with employer-sponsored insurance. This higher
utilization drives up costs for everyone--premiums of Medicare
beneficiaries without Medigap coverage and costs to taxpayers. In
addition, the prescription drug coverage mandated in Medigap is wholly
inadequate.
Yet Medigap premiums continue to rise. From 1998 to 2000, average
premiums rose 16 percent for plans without drug coverage, and more than
twice as fast, 37 percent, for plans with drug coverage. In addition,
premiums vary dramatically for identical plans in the same location.
Weiss Ratings, Inc. analyzed Medigap premiums in 2001. A 65-year-old
man living in Ft. Myers, Florida would pay about $3,600 for Plan J from
Physicians Mutual Insurance Company, but only $2,700 with United
Healthcare Insurance Company through AARP. That's nearly $1,000 less
for the same policy in the same location! The same gentleman living in
Las Vegas would spend about $1,500 for Plan C with United American
Insurance Company, but about half that amount--$778--with the USAA Life
Insurance Company for the same policy.
Much has changed in health care and health insurance over the past
12 years. But Medigap insurers have been unable to modify their
offerings in response to these market changes because the 10 standard
Medigap policies are set by statute. I believe that we can better
design both Medicare fee-for-service benefits and Medigap policies so
that seniors and persons with disabilities get the most for the health
care dollars they spend.
Mr. STARK. Well, thank you, Madam Chair.
This is the third year in a row that we have had this same
hearing, and maybe at some point somebody will introduce some
legislation and we can make the changes. If there's anything
wrong, we only have ourselves to blame. Nobody else is doing
this. So, our inaction is the root cause of any problems that
do exist.
I hope that we can at least have one hearing on the
forthcoming Chairman's mark to reform Medicare before that
legislation. It's my understanding that we're going to be
marking that up and finishing it by Memorial Day, and it would
certainly be of much more benefit to have a hearing on those
issues so that we can understand what will happen to Medicare
in general.
Cost-sharing for Medicare could benefit from a fresh look
and some adjustment. I think there's no question about that. We
have made precious little change to Medicare in the last 9
years, and unlike the insurance companies who will testify
today, they don't just set one policy and then never change
their corporate policies over 10 years or they generally cease
to exist. So, we might take a page from free enterprise and be
a little bit more active in improving Medicare from day to day
as we go along. There is also, of course, a gap due to the lack
of coverage under prescription drugs and other important
issues.
I would like to make sure that we don't blame--when you
talked at length in your opening statement about the first
dollar coverage driving up utilization, I would like to point
out that the beneficiaries have nothing to do with this. The
only choice that a beneficiary in Medicare has is basically
whether or not to go to a primary care physician. They cannot,
for the most part, go to a surgeon directly, because they have
to have a referral. People don't go to take a test just for the
hell of it. If I told you you could go down and have a pap
smear at George Washington this afternoon, would you go down
and have one? I wouldn't go have a colonoscopy just because it
was cheap.
Chairman JOHNSON. Under Medicare, though, I would certainly
have the right to.
Mr. STARK. People don't do that, and most specialists won't
even give you the test unless you're referred. So, what I'm
suggesting is that it is those benefits to which we are
referred by our primary care physician, and we don't make those
decisions as patients. We do what our primary care docs tell
us, and as you're well aware, Medicare doesn't cover much
primary care or preventative care. It only covers procedures to
which we have been referred. So if, in fact, there is a lot of
extra utilization, it is the physicians and/or other providers
who cause this and not our beneficiaries. I hope we can keep
that in mind.
I would like to note that I intend to introduce a
catastrophic bill once again that would, in effect, put a limit
on cost-sharing for the current Medicare beneficiaries. I hope
the Chair would look forward to cosponsoring that with me,
because if we intend to do it, we can improve Medicare. That
would be, of course, for the beneficiaries, a great
improvement, and we would then bring it up to what most
policies that we enjoy as Members of Congress and provide that
same protection for our senior citizens. I know the Chair would
like to join with me in doing that, and I hope to have that in
the hopper soon.
So, with that, I look forward to hearing the suggestions of
our witnesses about how we might adjust the current Medigap
coverage to be of more benefit to the beneficiaries. Thank you
again for holding this hearing, and I hope we can make the
changes before we have the fifth hearing.
[The opening statements of Mr. Stark and Mr. Ramstad
follow:]
Opening Statement of the Honorable Fortney Pete Stark,* a
Representative in Congress from the State of California
* As part of my opening remarks, I would like to submit the following
statement on behalf of our Ways and Means colleague, Congresswoman
Stephanie Tubbs Jones:
Thank you for hosting this very important hearing, and thank you
for welcoming me to participate. I appreciate this opportunity to hear
from our invited guest concerning the irrational and complex issues
surrounding rationalizing Medicare cost-sharing and supplemental
insurance policies.
As all of you are aware, Medicare plays a vital role in the lives
of our Nation's seniors. However, while the program remains popular
among seniors, it has several major limitations such as the lack of
prescription drug coverage, and the lack of catastrophic insurance
protection.
Most individuals cope with these problems by navigating a complex
array of supplemental coverage programs, such as: employer coverage,
Medigap programs and Medicaid. Currently, employer-based programs and
State Medicaid spending are declining rapidly. Moreover, the cost of
cost-sharing payments or of supplemental coverage premiums can be
overwhelming for elderly individuals living on fixed incomes. For
example, according to the Kaiser Family Foundation, an elderly woman
with the median income level of $1,400 per month would spend half of
her monthly income on the Part A deductible alone. It is time for
Medicare to eliminate disparities in supplemental coverage and provide
health care services Americans can understand and depend on.
And, finally, many of my colleagues today have called for higher
deductibles for outpatient expenses, since individuals are more likely
to utilize fewer so-called discretionary services if they bear a higher
percentage of the cost. Yet, as you will hear in testimony today, this
change would raise the cost of preventative and diagnostic services,
making such services prohibitively expensive for low-income
populations, especially those who lack adequate supplemental coverage.
By discouraging utilization of outpatient coverage, higher cost-sharing
on outpatient care will force the most vulnerable Americans to wait
until their health deteriorates further before seeking medical
assistance. Seniors in my district cannot wait that long. Madam
Chairwoman and Members of the Subcommittee, I look forward to working
with all of you to iron out the irrational and complex issues that
leave many seniors and disabled citizens at a disservice.
Opening Statement of the Honorable Jim Ramstad, a Representative in
Congress from the State of Minnesota
Madame Chair, thank you for holding this important hearing today.
Medicare's confusing and counterintuitive cost-sharing system and
the lack of a basic prescription drug benefit are unacceptable and must
be changed. The status quo does not meet the needs of our seniors or
reflect the realities of today's health care delivery.
The Medicare system is difficult to navigate and unfair to Medicare
seniors. There is a high deductible for hospital services that are
usually beyond the patient's control and a relatively low deductible
for services that are more controllable. Many preventive services are
difficult to obtain. Seniors face long delays before getting access to
medical technology that could save or improve their lives. There is no
catastrophic protection for high out-of-pocket costs, nor is there a
basic prescription drug benefit in the traditional program. Employer-
sponsored supplemental insurance is diminishing, States are cutting
Medicaid funding, and Medigap policies are costly and incomplete.
Without a doubt, Medicare faces major challenges. But one thing is
clear--we must keep our promise to our Nation's seniors to improve
Medicare and preserve it for current and future beneficiaries.
Thank you, Madame Chair, for your leadership in examining these
difficult issues and leading the charge on Medicare reform.
Chairman JOHNSON. Thank you, Mr. Stark. As we start this
hearing, I do want to remind Members that David Walker, in his
testimony before the full Committee on April 9th, did remind us
that in just 10 years we will have to find new revenues to
cover the outlays that we will be obliged to make just in the
hospital trust fund. So, we will have to find those revenues
from cutting other programs or increasing taxes. Ten years is
not a long time away. So, we do have to be very conscious in
the legislation we're going to write this year in how we make
Medicare stronger, more financially secure, and of better
service to our seniors.
Mr. Hackbarth, welcome.
STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE
PAYMENT ADVISORY COMMISSION
Mr. HACKBARTH. Thank you, Chairman Johnson, other Members
of the Committee. I appreciate the opportunity. I know time is
short, so I will just make a few brief points.
One, of course, the Medicare program has played a vital
role in providing financial protection and access to care for
millions of Americans. Having said that, if we were to start
over today with a clean piece of paper, the benefit package
that currently exists is probably not the one we would design.
The package does not cover some important services like
prescription drugs. Other services are covered inadequately--
for example, hospital outpatient care--and there is no limit on
cost-sharing, no catastrophic coverage.
We have depended on supplementation of various sorts to fix
these problems, but depending on supplementation is, itself,
problematic. About 10 percent of Medicare beneficiaries have no
supplemental coverage; they're not eligible for Medicaid and
they don't have employer-sponsored retiree coverage. They don't
have Medigap coverage. These beneficiaries tend to be lower
income beneficiaries, beneficiaries eligible by virtue of
disability, rural beneficiaries, and they have somewhat more
health problems than average.
In addition to that, employer-based coverage and coverage
through the Medicare+Choice (M+C) program, and even Medicaid,
are under pressure. Employers, as you well know, are
increasingly stepping back from offering retiree coverage. The
net effect of these developments is that, over time, we will
become increasingly dependent on Medigap coverage as our
primary source, our major source of supplementation.
Medigap coverage, of course, plays a vital role, and it's
critical for many Medicare beneficiaries, but it's not without
its problems. It is often inadequate, particularly in the area
of prescription drug coverage. It can be expensive, in part
because of the high cost associated with individual coverage,
but also in part probably because of the design of the
coverage. It is sold through individual markets primarily,
insurers feel compelled to use underwriting and rating policies
that tend to increase cost and reduce availability for
beneficiaries with health problems. Finally, it can be very
confusing for Medicare beneficiaries.
In our June 2002 report, Medicare Payment Advisory
Commission (MedPAC) analyzed the Medicare benefit package and
some possible improvements. I want to emphasize that in this
instance we did not make any specific recommendations. Our
purpose here was more analytic and educational. There were,
however, some important themes on which there was a consensus
among the Commissioners.
First of all, Medicare needs a better back-end coverage, if
you will; that is, coverage for beneficiaries using the most
services--for example, catastrophic coverage or better coverage
for extended hospital and skilled nursing stays.
Reduced coinsurance for some services is important. As you
know, the coinsurance is quite high currently for hospital
outpatient and mental health services.
Third, it seemed to us that moving away from the separate
Part A and Part B deductibles which, of course, are an artifact
of the history of the program, toward a single combined
deductible would make sense.
Finally, it seemed to us that if, in fact, we have
constrained resources as, of course, we do, that having at
least some cost-sharing on all services might be a reasonable
thing to require.
So, those are my initial comments. I welcome the chance to
discuss them.
[The prepared statement of Mr. Hackbarth follows:]
Statement of Glenn M. Hackbarth, Chairman, Medicare Payment Advisory
Commission
Chairman Johnson, Congressman Stark, distinguished Subcommittee
Members. I am Glenn Hackbarth, Chairman of the Medicare Payment
Advisory Commission (MedPAC). I am pleased to be here this morning to
discuss cost-sharing in the Medicare program and supplemental
insurance.
Thank you for the opportunity to participate in this important
discussion. MedPAC has considered the design of Medicare's benefit
package and beneficiary cost-sharing over the past several years. We
also have examined the different ways that beneficiaries supplement
Medicare benefits, including Medigap; how various forms of
supplementation affect access to care; and the costs of the health care
services beneficiaries use. In my remarks today, I would like to draw
on that work, and highlight several key points:
The limitations of the Medicare benefit package and the
characteristics of its cost-sharing cause beneficiaries to enroll in a
variety of supplemental insurance programs. These include employer-
sponsored retiree insurance, Medigap, and Medicaid.
Beneficiaries' access to different forms of supplemental
coverage vary by their characteristics (such as where they worked,
their financial resources, and their health care preferences) and where
they live.
Supplemental coverage improves beneficiaries' access to
care, their use of necessary services and reduces their cost-sharing on
covered services. It also increases Medicare spending and total
administrative costs.
Medigap in particular may still leave beneficiaries with
a significant degree of liability and its premium represents a major
proportion of beneficiary out-of-pocket expense.
Limitations of the benefit package
As we discussed in our June 2002 Report to the Congress: Assessing
Medicare Benefits, Medicare has provided tens of millions of older and
disabled Americans with access to acute medical care--extending lives,
improving health and functional status, and protecting families from
impoverishment (MedPAC 2002). Changes in medical technology, as well as
demographic changes, however, have drawn attention to the limitations
of the basic Medicare benefit package.
By law, the Medicare benefit package is generally limited to acute
care services needed for the diagnosis or treatment of illness or
injury.\1\ Medicare's covered services have been revised over its
lifetime. These revisions have substantially expanded coverage, adding
new technologies and procedures, more post-acute care, and other
benefits such as selected preventive services and hospice care for
those at the end of life. However, the basic structure of the benefit
design has remained essentially unchanged since Medicare's inception.
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\1\ Section 1862(a)(1)(A) of the Social Security Act prohibits
Medicare payment for items or services that are ``. . . not reasonable
and necessary for the diagnosis or treatment of illness or injury or to
improve the functioning of a malformed body member.''
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Medicare beneficiaries may receive covered services in the
traditional program or they may enroll in a private health insurance
plan under the Medicare+Choice (M+C) program. Traditional Medicare
covers health care services--furnished on a fee-for-service basis--
through its two parts, the Hospital Insurance and Supplementary Medical
Insurance programs, known as Parts A and B, respectively. My discussion
today will focus on the benefit design and cost-sharing structure of
the traditional program.
There are three serious limitations of the Medicare benefit
package:
It does not cover some important health care products and
services. For example, the program does not cover outpatient
prescription drugs (with limited exceptions), many preventive services
(such as annual physical exams), and routine eye and dental care.
It has high cost-sharing on some covered services such as
outpatient care and none on others.
It has no limit on total cost-sharing (catastrophic cap).
Cost-sharing structure. Medicare's cost-sharing structure has
several weaknesses (see Table 1). Insurance theory suggests that
random, non-discretionary events should be covered more fully than
events that are within the insured person's discretion. In Medicare,
however, the Part A hospital inpatient deductible is large ($840 in
2003), while that for physician services or other ambulatory care under
Part B is small ($100) even though inpatient care is generally believed
to be less discretionary and more difficult to predict than ambulatory
care. Further, the low Part B deductible provides little incentive to
use covered services judiciously, while the high hospital inpatient
deductible may contribute to beneficiaries' perceived need for
supplemental insurance.\2\
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\2\ At $100, the Part B deductible is unchanged since it was raised
in 1991 and only about one-half as high as ambulatory care deductibles
commonly required by PPOs for services furnished by favored (in-
network) providers (Gold 2002).
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Medicare's cost-sharing provisions vary considerably among covered
services and these variations may lead to inefficient choices by
beneficiaries and providers. For instance, the coinsurance liability
for hospital outpatient services (20-55 percent) is often substantially
higher than the coinsurance that applies for ambulatory surgery centers
or physicians' offices (20 percent). These discrepancies could
inappropriately affect patients' or providers' decisions about the
setting for care. The high (50 percent) copayment for outpatient mental
health services and high coinsurance for many outpatient hospital
services may create barriers to the use of these services. On the other
hand, no cost-sharing on home health and lab services may increase use
of those services, either because beneficiaries are more likely to
demand them or providers are more likely to order them.
Limited financial protection. Medicare's benefit design and cost-
sharing structure taken together determine how well beneficiaries are
protected from the cost of acute illness. Medicare seeks to ensure
access to clinically appropriate care and to insulate beneficiaries and
their families from the risk of impoverishment associated with serious
illness.
Medicare provides considerable financial protection to its
enrollees; most would be much worse off without its benefits. On
average, beneficiaries consumed $7,500 in health care services in 1999,
of which Medicare covered 58 percent (Table 2). Moreover, Medicare
covered a substantially larger share of the total for beneficiaries
with the highest spending (Figure 1). For instance, on average,
Medicare covered about 73 percent of the total for the 10 percent of
beneficiaries with the highest total spending.
Nevertheless, Medicare's benefit design--with substantial cost-
sharing for many covered services, no catastrophic cap, and no coverage
for some important health care products and services--leaves
beneficiaries at risk for large out-of-pocket expenses. For example,
the 27 percent of total spending that Medicare did not cover for
beneficiaries with the highest total spending in 1999 averaged $11,000
per person. The potential for high out-of-pocket spending is a serious
problem if it reduces beneficiaries' abilities to seek needed care or
comply with care recommendations. It is equally serious if the burden
of out-of-pocket spending forces beneficiaries to forego or cut back on
other necessities.
Supplemental coverage options
About 90 percent of Medicare beneficiaries obtain some type of
additional coverage. Supplements have been available from Medicare's
beginning in 1966, when it looked quite similar to the private sector
insurance packages offered to the general population. Beneficiaries may
obtain supplemental coverage for a variety of reasons. Many--
particularly those with relatively low incomes--may prefer the known
cost of a premium to the unknown costs that may be associated with an
unexpected illness, and even to the predictable costs of routine
medical services. Also, large employers in certain industries
historically have provided retiree coverage that provides supplemental
insurance at low cost to some beneficiaries. Moreover, as noncovered
services, such as prescription drugs, have accounted for a growing
share of beneficiaries' health care, obtaining additional coverage has
become more important as one means of limiting financial risk.
Sources of additional coverage include supplements sponsored by
former or current employers, individually purchased Medigap plans, and
Medicaid coverage provided for low-income individuals. Also, for
purposes of this discussion, additional benefits offered by some M+C or
other Medicare managed care plans are also considered.
About one-third of all Medicare beneficiaries have employer-
sponsored supplemental insurance (Figure 2).\3\ Currently, benefits
provided by employer-sponsored plans tend to be comprehensive. For
example, almost all retiree plans provide some coverage of prescription
drugs, and the average retiree has an out-of-pocket cap of $1,500 per
year for all covered services.
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\3\ The distributional numbers presented here come from MedPAC
analyses of the 2000 Medicare Current Beneficiary Survey (MCBS) Cost
and Use file and include only community-dwelling individuals.
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Medigap--private health insurance specifically designed to wrap
around Medicare's benefit design--is the second most common form of
additional coverage. Twenty-seven percent of beneficiaries held Medigap
policies in 2000. All policies issued since 1992, except those sold in
three waiver States, have been limited to 10 standard benefit packages.
The plans beneficiaries most commonly choose cover Medicare deductibles
and coinsurance, but not prescription drugs.
State Medicaid programs provide additional coverage for certain
low-income, sick, and disabled Medicare beneficiaries--about 12 percent
of community-dwelling beneficiaries in 2000. People with full dual
eligibility receive Medicare benefits, coverage of Medicare cost-
sharing, and full Medicaid benefits, including some health care
products and services--notably prescription drugs and long-term care--
not covered by Medicare. Other Medicaid programs pay for Medicare
premiums and/or cost-sharing, but not for Medicare's noncovered
benefits.
Medicare managed care plans may offer reduced cost-sharing
requirements or other benefits beyond those covered in the traditional
program, such as some coverage for outpatient prescription drugs.
Medicare's managed care options consist primarily of private managed
care plans that participate in the M+C program, but also include plans
paid on a cost basis, and those participating in various demonstration
projects. About 18 percent of Medicare beneficiaries were enrolled in
some form of Medicare managed care in 2000--although this share has
declined to about 15 percent in 2002. Using enrollment data from M+C
managed care plans as a proportion of all beneficiaries (not just
community-dwelling as in Figure 2) enrollment peaked in 2000 at 15.8
percent.
Other sources of additional coverage, held by about 2 percent of
beneficiaries, include benefits obtained through the Department of
Veterans Affairs (VA) or the TRICARE program for military retirees.
Availability of options vary
The options for supplementing Medicare actually available to
beneficiaries vary considerably because of significant differences in
local market circumstances, as well as differences in beneficiaries'
resources and preferences. MedPAC has investigated the factors
accounting for relatively low rates of supplementation in some States.
We find some States have about twice the national average of Medicare
beneficiaries who lack any supplemental coverage, and this was
generally true in both urban and rural areas in the State.
Beneficiaries living in rural areas are more likely to be in the
traditional Medicare FFS program without any supplemental coverage or
to be enrolled in Medigap than those in urban areas.
We also find, however, that coverage patterns can vary among
metropolitan areas--even in the same State. Tampa and Miami, for
example, look very different in regard to each type of coverage. An
explanation for some of the difference lies in the respective
proportion of people on Medicaid, the availability of Medicare managed
care, and the employment structure. Because 21 percent of Miami's
senior population is living under the poverty level and Tampa's rate is
11 percent, more people in Miami may have supplementation through
Medicaid.
In summary, we find that Federal and State oversight of Medicare
products influence the availability and design of Medigap, employer-
sponsored, and M+C options (as well as supplementation available
through Medicaid). For example, some of the variation among States in
Medigap enrollment may be a result of differing State regulation of
those products. Nonetheless, even though State characteristics have an
important influence over health insurance markets, local factors such
as income and employment history are also important. All of these
factors will need to be considered in the design of reforms.
Recent trends suggest that the availability of these sources of
additional coverage may be declining, leaving more people with only the
basic Medicare benefit package:
the number of beneficiaries enrolled in Medicare managed
care has fallen, as have the number of plans participating and, in many
areas, the value of the benefits offered;
employers have scaled back on coverage for future
retirees and increased premium contributions and cost-sharing for
current retirees, and state that they will continue to do so in the
future;
Medigap premiums have continued to increase, raising
questions about the affordability of this form of supplemental
coverage; and
fiscal pressures at the State level may cause reductions
in Medicaid coverage.
Increasing numbers of beneficiaries could face greater financial
risks and may experience access problems if the current sources of
additional coverage are diminished and not replaced.
Effects of supplemental coverage
Access and use. Beneficiaries with additional coverage have
consistently reported better access to health care than those without
(MedPAC 2000). In 2000, beneficiaries with only fee-for-service
Medicare compared to those with employer-sponsored or Medigap insurance
were more than four times as likely to report trouble getting care;
nearly five times as likely to have delayed care due to cost; and about
three times as likely to lack a usual source of care. The type of
additional coverage also leads to differences in access; those with
coverage from public programs (Medicaid, DOD, and the VA) are less
likely to report access problems than those without any supplemental
coverage, but more likely to report problems than those with private
supplemental coverage (MedPAC 2002).
Other research has shown that people with supplemental drug
coverage also have higher use of medically appropriate therapies for
conditions such as hypertension and coronary heart disease. These
studies have focused particularly on use of prescription drugs
(Blustein 2000, Federman 2001, Seddon 2001, Adams 2001). Our research
has shown that beneficiaries without a supplemental source of coverage
use fewer services deemed clinically necessary than those with a
supplement (MedPAC 2002). On the other hand, some increased use may not
be appropriate, as is discussed in a later section.
Out-of-pocket costs. Although the vast majority of beneficiaries
obtain some type of additional insurance, they still face potentially
large out-of-pocket spending (Figure 3). Beneficiaries' out-of-pocket
spending includes their direct spending on services--or the associated
cost-sharing--and their payments for insurance premiums, including
those for Medicare Part B and any amounts for additional insurance.
Per capita out-of-pocket spending varies widely among groups with
different types of supplemental coverage (Figure 4). These spending
differences primarily reflect differences in premium payments for
supplemental coverage and direct payments for noncovered services as
opposed to cost-sharing for covered services. As might be expected, the
roughly 4 million people who qualify for Medicaid benefits have
relatively low out-of-pocket spending and most of what they spend goes
toward services not covered by Medicare or Medicaid. About 10 million
people buy Medigap policies. On average, these beneficiaries annually
spend about $1,400 for noncovered services and cost-sharing, and about
$1,700 for Medigap premiums. Even those who have employer-sponsored
supplemental insurance, which usually provides generous benefits, still
have relatively high spending for noncovered services. Beneficiaries
who report being in fair or poor health spend more out-of-pocket for
health coverage and for health services than those reporting good, very
good, or excellent health, regardless of the type of coverage they have
to supplement Medicare. These findings suggest that supplemental
coverage does not fully address the limitations of Medicare's benefits.
High out-of-pocket spending may push some Medicare beneficiaries
into poverty. Our analysis shows that about 11 percent with total
incomes above poverty have out-of-pocket spending large enough to push
them into poverty. Those with incomes just above the poverty line (100
to 110 percent) clearly have a much greater likelihood of falling into
poverty than those with higher incomes.
Implications of first-dollar coverage. All of the Medigap plans,
Medicaid, and some employer-sponsored plans provide generous coverage
of Medicare's cost-sharing requirements. This so-called first-dollar
coverage often protects beneficiaries from financial liability from the
first dollar of expenditure beyond their premium.
First-dollar coverage may respond to beneficiaries' desire for
convenience and to limit financial risk to the maximum extent possible,
but it may not be the most efficient policy. For the Medicare program,
extensive coverage of deductibles and coinsurance diminishes many of
the incentives embedded in the cost-sharing structures that are meant
to encourage people to be judicious in their use of services.
Therefore, coinsurance or deductibles may not affect use as expected or
desired. First-dollar coverage also raises the premiums for
supplemental coverage. In addition, the costs of predictable
expenditures, such as the Part B deductible, are automatically included
in the premium, along with insurers' administrative markup.
Medicare beneficiaries with supplemental insurance use more
services and thus generate higher program expenditures than those
without such coverage. This in turn increases beneficiaries' Part B
premiums and the burden on tax payers. A MedPAC analysis of the 1998
MCBS found that Medicaid dual-eligible beneficiaries have the highest
Medicare program expenditures, followed by beneficiaries with Medigap
coverage, and then by those with employer-sponsored coverage. Medicare
beneficiaries without any supplemental coverage have the lowest
Medicare program expenditures. Researchers have not successfully
isolated the extent to which the differences in use of care reflect
people with supplemental coverage getting unnecessary care or those
without supplemental coverage going without needed care (Atherly 2001).
Increased administrative costs. Multiple sources of coverage also
increase administrative costs for providers and insurers.
Administrative costs for insurers may include marketing, claims
processing, reserves, and profit. Administrative costs for Medigap
plans average about 20 percent; in comparison, administrative costs are
about 11 percent for M+C plans and about 2 percent for program
management of traditional Medicare--although the administrative costs
for the Medicare program are thought to be both understated and
insufficient. For example, the administrative budget for CMS does not
include the costs of collecting payroll taxes for the Part A trust fund
or of withholding Part B premiums from Social Security checks. The
National Academy of Social Insurance recommended more resources for CMS
to better manage the program (King 2002).
Confusion among beneficiaries. The multiple sources of supplemental
coverage create a maze of options for beneficiaries. Beneficiaries have
a difficult time navigating the choices, in part because they lack a
basic understanding of the Medicare program (of course, understanding
of the health care system by the general population is also limited).
For example, only about half knew that they have health plan choices
available (Stevens 2000). Beneficiaries are frequently unclear about
the differences between traditional Medicare and Medicare managed care,
often not knowing whether they are enrolled in a health maintenance
organization or in traditional Medicare.
Beneficiaries also have difficulty understanding their Medigap
insurance options, not knowing, for example, that if they drop a
Medigap policy they may only be able to purchase another one under
certain conditions. Confusion about Medigap was one of the reasons for
the standardization of Medigap policies. Before standardization, some
beneficiaries bought multiple policies, not understanding that the
coverage was duplicative.
Some research suggests that many Medicare beneficiaries are not
highly motivated to make choices about their insurance coverage. A
recent survey found that most beneficiaries (in both FFS and M+C plans)
did not give serious thought to options for insurance coverage. Only 14
percent thought seriously about options or actually changed plans, and,
of those, more than one-third were either new beneficiaries (who had to
make a choice) or beneficiaries who switched from one M+C plan to
another (Gold 2001).
Conclusion
Uneven cost-sharing, lack of a catastrophic cap, and omission of
certain services--most notably prescription drugs--have called into
question the health security promised by the Medicare program. To fill
the gaps in the benefit package, most beneficiaries obtain supplemental
coverage, but this coverage is often costly and, for Medigap in
particular, only partly effective in addressing the limitation of the
Medicare benefits package. It also may contribute to inefficiency in
providing health care for Medicare beneficiaries because of first-
dollar coverage. The availability and affordability of supplemental
coverage is, moreover, uneven across different markets, and
increasingly unstable.
Although beneficiaries value their Medicare and supplemental
coverage, the problems with the current Medicare benefit package and
the resultant supplemental coverage system leave policymakers with
difficult choices. It might be possible to improve beneficiary
financial protection through adjustments to the supplemental market,
however, it would be more fruitful to first directly address the
limitations in the Medicare benefit package and its cost-sharing
provisions.
1. Section 1862(a)(1)(A) of the Social Security Act prohibits
Medicare payment for items or services that are ``. . . not reasonable
and necessary for the diagnosis or treatment of illness or injury or to
improve the functioning of a malformed body member.''
2. At $100, the Part B deductible is unchanged since it was raised
in 1991 and only about one-half as high as ambulatory care deductibles
commonly required by PPOs for services furnished by favored (in-
network) providers (Gold 2002).
3. The distributional numbers presented here come from MedPAC
analyses of the 2000 Medicare Current Beneficiary Survey (MCBS) Cost
and Use file and include only community-dwelling individuals.
References
Medicare Payment Advisory Commission. Report to the Congress: assessing
Medicare benefits. Washington (DC), MedPAC. June 2002.
Gold M. Trends in medical coverage that active employers receive from
employers: implications for reforming the Medicare benefit package.
Washington (DC), Mathematica Policy Research, Inc. April 2002.
Medicare Payment Advisory Commission. Report to the Congress: Medicare
payment policy. Washington (DC). March 2000.
Blustein J. Drug coverage and drug purchases by Medicare beneficiaries
with hypertension, Health Affairs. March/April 2000, Vol. 9, p.
219-30.
Federman AD, Adams AS, Ross-Degnan D, Soumerai SB, Ayananian JZ.
Supplemental insurance and the use of effective cardiovascular
drugs among elderly medicare beneficiaries with coronary heart
disease, Journal of the American Medical Association, October 10,
2001, Vol. 286, No. 14, p. 1762-1763.
Seddon M, Ayanian JZ, Landrum MB, et al. Quality of ambulatory care
after myocardial infarction among Medicare patients by type of
insurance and region, American Journal of Medicine, 2001. Vol. 111,
p. 24-32.
Adams, AS, Soumerai, SB, Ross-Degnan D. Use of antihypertensive drugs
by Medicare enrollees: does type of drug coverage matter? Health
Affairs. 2001, Vol. 20, No. 1, p. 276-286.
Atherly A. Supplemental insurance: Medicare's accidental stepchild,
Medical Care Research and Review. June 2001, Vol. 58, No. 2, p.
131-161.
King, K, Burke, S and Docteur, E., eds., Final report of the study
panel on Medicare's governance and management--matching problems
with solutions. Washington (DC) National Academy of Social
Insurance, July 2002.
Stevens B, Mittler J. Making Medicare+Choice real: Understanding and
meeting the information needs of beneficiaries at the local level.
Princeton (NJ), Mathematica Policy Research, Inc. November 2000.
Gold M, Justh N. How salient is choice to Medicare beneficiaries?
Monitoring Medicare+Choice: Fast Facts. Washington (DC),
Mathematica Policy Research, Inc. January 2001, No. 5.
Table 1. Medicare benefits and cost-sharing requirements, 2003 *
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Services Beneficiary cost-sharing
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Part A
Inpatient hospital (up to 90 days per benefit $840 for the first stay in a benefit period
period plus 60 lifetime reserve days) ** Days 1-60; fully covered
Days 61-90; $210 per day coinsurance
60 lifetime reserve days: $420 per day
Skilled nursing facility (up to 100 days per Days 1-20; no coinsurance
benefit period) Days 21-100: $105 per day
Hospice care: for terminally ill beneficiaries Nominal coinsurance for drugs and respite
care
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Part B
Premium $58.70 per month
Deductible $100 annually
Physician and other medical amount services 20 percent of Medicare-approved
(including supplies, durable medical equip-
ment, and physical and speech therapy)
Outpatient hospital care 20 percent of 1996 national median charge
updated to 2000
Ambulatory surgical services 20 percent of Medicare-approved amount
Laboratory services None
Outpatient mental health services 50 percent of Medicare-approved amount
Preventive services 20 percent of approved amount (none for Pap
smear, pneumococcal vaccine, flu shot,
prostate specific antigen (PSA) test)
----------------------------------------------------------------------------------------------------------------
Both Part A and Part B
Home health care for homebound None
beneficiaries needing skilled care
----------------------------------------------------------------------------------------------------------------
* These benefits and cost-sharing requirements apply to traditional Medicare. Medicare+Choice plans can deviate
from these requirements, but they must cover the same services, cost-sharing cannot be higher on average, and
CMS must approve each plan's cost-sharing and benefit package.
** A benefit period begins when a patient is admitted to the hospital for inpatient care and ends when the
beneficiary has been out of the hospital or skilled nursing facility for 60 consecutive days.
Source: Centers for Medicare & Medicaid Services.
Table 2. Total spending on health services for Medicare beneficiaries, by source of payment, 1999
----------------------------------------------------------------------------------------------------------------
Source Amount per capita Percent of total
----------------------------------------------------------------------------------------------------------------
Medicare $4,370 58%
Supplemental payers 1,984 26
Beneficiaries' direct spending 1,158 15
Total 7,512 100
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Note: Sample of 9,647 includes community-dwelling beneficiaries who participated in traditional Medicare in
1999. Supplemental payers include all public-sector and private-sector supplemental coverage. Beneficiaries'
direct spending includes their out-of-pocket spending on covered and non-covered acute care services. It
excludes premiums and long-term care services. Percentage do not sum to 100 because of rounding.
Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file, 1999.
Figure 1. Per capita spending on health services, by source of payment,
2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Figure 2. Sources of supplemental coverage among beneficiaries living
in the community, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Figure 3. Composition of out-of-pocket spending, by out-of-pocket
spending level, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Figure 4. Variation and composition of out-of-pocket spending, by type
of supplemental insurance, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman JOHNSON. Thank you very much.
Mr. White.
STATEMENT OF RICHARD WHITE, VICE PRESIDENT, INDIVIDUAL PRODUCT
MANAGEMENT, ANTHEM BLUE CROSS AND BLUE SHIELD, ON BEHALF OF THE
BLUE CROSS AND BLUE SHIELD ASSOCIATION
Mr. WHITE. Madam Chairman and Members of the Subcommittee,
I am Richard White, Vice President of Individual Product
Management for the Southeast Region of Anthem Blue Cross and
Blue Shield. Thank you for the opportunity to testify today on
behalf of the Blue Cross and Blue Shield Association.
All Blue Cross and Blue Shield plans offer Medigap
insurance, and collectively, we are the largest Medigap issuer
in the Nation. Blue Cross and Blue Shield plans support
comprehensive Medicare reform and believe that, with an
increasing reliance on private competitive markets, Medicare
can achieve the value, choice, and innovation that has been
realized in the private sector.
Medicare's deductibles and cost-sharing requirements leave
significant gaps that expose beneficiaries to sizeable
financial risk. These cost-sharing requirements are much higher
than those in most employer-sponsored plans today, and do not
protect beneficiaries from the open-ended financial burdens of
catastrophic illness.
To protect themselves against high, out-of-pocket costs and
fill Medicare's coverage gaps, U.S. General Accounting Office
has estimated that more than one-fourth of Medicare
beneficiaries rely on Medigap; that is, private, individually
purchased supplemental insurance. Blue Cross and Blue Shield
plans believe that the Medigap market is working well. An
overwhelming majority of Medicare beneficiaries express
satisfaction with their Medigap coverage and consider their
policies a good or excellent value. Beneficiaries particularly
value the peace of mind of predictable monthly expenses and
knowing that they do not have to hassle with the medical bills
from their providers.
Plans are widely available and there are many insurers to
choose from.
Finally, Medigap policies are required to meet stringent
consumer protection rules that were put in place as a result of
legislation passed by Congress.
I would like to make three points regarding potential
changes to Medigap. First, we applaud the Administration's
recent effort to encourage States to take advantage of a
provision in existing law that allows for approval of
innovative benefits in addition to the standardized benefits of
Medigap.
Standardization of Medigap policies, in effect since 1992,
has simplified the purchasing decision for beneficiaries and
made it easier for beneficiaries to compare benefits and
premiums. At the same time, standardization means that benefit
packages have been frozen in time and do not reflect many of
the design features typical in today's private market. This has
significantly limited plans' ability to innovate to keep
Medigap premiums affordable.
For example, Medigap carriers offering prescription drug
coverage have not been able to introduce formularies or tiered
copayments, create incentives for use of generic drugs, or use
other incentives and methods that we typically apply in the
private market. Similarly, we cannot provide disease management
programs with our Medicare supplement products.
Until recently, many States have been reluctant to approve
innovative benefits. Examples of innovative benefits proposed
in previous years, but not approved, include generic
prescription drug benefits, vision care benefits, and cost-
sharing changes such as a $5 copayment for physicians'
services. The Administration's initiative is a very promising
development and we believe it will help assure that Medigap
continues to provide valuable benefits to Medicare
beneficiaries.
Second, we believe the legislative changes to Medigap
should be made in the context of comprehensive Medicare reform.
Medigap policies will need to be revised in order to be
consistent with a restructured Medicare program. Multiple
rounds of Medigap redesign would increase costs for insurers
that ultimately are borne by the consumer, and would increase
the potential for confusion among seniors. This could result in
three or four different types of Medigap programs out there.
Third, we believe that beneficiaries should continue to
have the option to purchase varying degrees of financial
protection, including ``first dollar'' coverage, that covers
all of the required Medicare deductibles and cost-sharing. It
is critical to remember that beneficiaries want ``first
dollar'' coverage. Many older Americans live on fixed incomes
and fear that unpredictable medical bills would make it
difficult to meet their monthly expenses. Medigap law already
requires all insurers to offer Plan A, which does not cover the
Part A and B deductibles, in addition to the other policies
they may choose to carry. Yet, it represents only 3 to 4
percent of the plans sold. So, consumers aren't picking that
option.
It would also be inappropriate to eliminate ``first
dollar'' coverage solely for people who choose to purchase
Medigap coverage while others continue to have this option
through their employer-based coverage, including the Federal
Government and military retirees through the new TRICARE For
Life program.
Finally, ``first dollar'' coverage helps assure that
beneficiaries get the medical services they need.
Thank you for the opportunity to submit this testimony on
behalf of the Blue Cross and Blue Shield Association.
[The prepared statement of Mr. White follows:]
Statement of Richard White, Vice President, Individual Project
Management, Anthem Blue Cross and Blue Shield, on behalf of the Blue
Cross and Blue Shield Association
Good afternoon, Madame Chairwoman and Members of the House Ways and
Means Health Subcommittee. I am Richard White, Vice President of
Individual Product Management for the Southeast Region of Anthem Blue
Cross and Blue Shield. I am here today representing the Blue Cross and
Blue Shield Association (BCBSA). BCBSA represents 42 independent Blue
Cross and Blue Shield Plans throughout the nation that together provide
health coverage to 84.9 million--nearly thirty percent--of all
Americans. We appreciate the opportunity to testify before you today on
Medicare cost-sharing and Medigap.
All Blue Cross and Blue Shield (BCBS) Plans offer Medigap
insurance, and collectively we are the largest Medigap issuer in the
nation. BCBS Plans have a unique point of view because we are a major
presence in all aspects of the Medicare program. BCBS Plans process 90
percent of all Medicare Part A claims and about 67 percent of all Part
B claims. Collectively, BCBS Plans are also the largest Medicare+Choice
(M+C) provider in the country, providing comprehensive coverage to
close to 1 million beneficiaries.
We are pleased that the Committee is examining ways to modernize
Medicare and bring Medicare beneficiaries the types of choices and
innovations that working Americans now enjoy. BCBSA supports
comprehensive Medicare reform that will assure that the program remains
financially stable and secure so that it can successfully serve both
current and future beneficiaries. We believe that with an increasing
reliance on private competitive markets, Medicare can achieve the
value, choice and innovation that have been realized in the private
sector.
My testimony focuses on two areas:
I. An overview of today's Medigap marketplace; and
II. BCBSA's Comments Regarding Potential Changes to Medigap
I. Overview
While Medicare provides valuable coverage for the health care needs
of over 40 million elderly and disabled beneficiaries, its deductibles
and cost-sharing requirements leave significant gaps that may expose
beneficiaries to sizeable financial risk. For example, according to
MedPAC, in 1999 Medicare beneficiaries consumed on average $7,500 in
health care services--of which Medicare covered only 58 percent.
Traditional Medicare's cost-sharing requirements are much higher
than those in most employer-sponsored plans today, and do not protect
beneficiaries from the open-ended financial burdens of catastrophic
illness. Features of Medicare cost-sharing include:
Two separate deductibles: a high deductible for Part A
($840 in 2003) for a hospital admission, which can be charged more than
once a year and a separate $100 deductible for Part B;
No cap on beneficiary out-of-pocket spending; and
Little financial protection against the cost of very long
hospital stays (e.g., no coverage after 150 days).
In addition, Medicare does not provide coverage for many services
such as prescription drugs, dental care, vision care, and hearing aids.
To protect themselves against high out-of-pocket costs and fill
Medicare's coverage gaps, roughly 90 percent of Medicare beneficiaries
acquire some form of supplemental coverage, either through employer-
sponsored plans, Medicaid, a Medicare+Choice plan, or Medigap--
individually purchased private policies.
According to the General Accounting Office (GAO), more than one-
fourth of Medicare beneficiaries relied on private Medigap policies in
1999 for supplemental insurance.
The Medigap Market Provides Valuable Benefits
The Medigap market is working well:
Beneficiaries are extremely satisfied: Medicare
beneficiaries express overwhelming satisfaction with their Medigap
coverage. A 2000 survey conducted by American Viewpoint, an opinion
research firm, found that 89 percent of Medigap policy holders are
satisfied with their coverage. A strong majority--76 percent--also said
that, considering the premiums they pay, their policies were a good or
excellent value. American Viewpoint found beneficiaries particularly
value the peace of mind of knowing that they can afford their medical
bills and do not have to hassle with medical bills.
Wide availability of plans: In 2001, GAO found that
Medigap plans are widely available, and beneficiaries have many
insurers to choose from. In fact, on average, 28 insurers in each State
offered Plan F, the most popular Medigap plan.
All seniors are guaranteed the opportunity to choose any
plan, regardless of their health conditions. Current law requires that
seniors are given a 6-month open enrollment period to purchase any
Medigap policy they choose when they first enroll in Medicare Part B.
During this period, Medigap insurers may not deny coverage to
applicants or adjust premiums based on health status. There are also
other open enrollment opportunities for beneficiaries under certain
circumstances (e.g., those who lose employer-sponsored coverage, or
Medicare+Choice).
Medigap Policies Are Required to Meet Stringent Consumer Protection
Rules Today
Medigap policies are required to meet stringent Federal and State
consumer protection requirements. States are responsible for assuring
that Medigap policies comply with these rules. The Department of Health
and Human Services (HHS) has the authority to review State enforcement
policies. Federal and State Medigap laws apply only to individually
sold Medigap policies; employer-sponsored policies are not subject to
these rules.
The major Federal rules that all Medigap policies must meet
include:
Standard Packages: Since 1992, Medigap policies have been
required to conform to 10 standardized sets of benefits, referred to as
A to J. Medigap insurers can offer some or all of these benefit
packages, but are not allowed to vary the benefit configurations
(except in 3 waiver States: Massachusetts, Minnesota, and Wisconsin).
Initial Open Enrollment: As mentioned above, insurers are
required to accept all seniors--regardless of their health status--
during a 6-month open enrollment period when they first enroll in
Medicare Part B. Open enrollment is also available under certain
circumstances to beneficiaries whose plans have left the
Medicare+Choice program or to those who lose employer-based coverage.
Prohibition on Duplication of Coverage: Insurers cannot
sell a Medigap policy to someone who already owns one.
Guaranteed Renewal: Beneficiaries are guaranteed the
right to renew their current policy at their option. If a beneficiary
moves to another State, he or she simply takes the coverage with them--
the policy is totally portable.
Limits on Preexisting Conditions: Waiting periods are
limited to 6 months; however, if a continuously insured Medigap
subscriber switches policies, new preexisting periods may not be
imposed.
II. BCBSA Comments on Potential Changes to Medigap
I would like to make three points regarding potential changes to
Medigap:
1. Medigap Policies Can Provide Even More Valuable Benefits
Standardization of Medigap policies--in effect since 1992--has
simplified the purchasing decision for beneficiaries and made it easier
for beneficiaries to compare benefits and premiums. At the same time,
standardization means that benefit packages have been frozen, and do
not reflect many of the design features typical in today's private
market. This has significantly limited plans' ability to innovate to
keep beneficiary premiums affordable.
For example, Medigap carriers offering prescription drug coverage
have not been able to introduce formularies or tiered co-payments,
create incentives for use of generic drugs, require additional cost-
sharing, or use other management techniques typically applied to drug
coverage for those under 65. Similarly, insurers are not able to
provide disease management programs.
BCBSA applauds the Administration's recent efforts to address this
problem by encouraging State Insurance Commissioners to take advantage
of a provision in existing law that allows for approval of ``innovative
benefits.''
Current law gives States the authority to approve ``new or
innovative benefits'' in addition to the standard Medigap benefits
(Section 1882 (p)(4)(B)). However, until recently, many States have
been reluctant to use this authority because of concern that it would
undermine Federal intent to standardize products. Examples of
innovative benefits proposed, but not approved, in previous years
include:
Generic prescription drug benefit (with pharmacy network)
Vision care benefits
Cost-sharing changes, e.g., a $5 copayment for physician
services
BCBSA believes the Administration's initiative is a very promising
development; while it is too soon to evaluate results, we believe it
will help assure that Medigap provides valuable benefits to Medicare
beneficiaries.
2. Legislative Changes to Medigap Should Be in the Context of
Comprehensive Reform
BCBSA believes that any legislative changes to Medigap should be
made in the context of overall Medicare reform. Medigap policies will
need to be revised in order to be consistent with a restructured
Medicare program. We believe multiple rounds of Medigap redesign would
increase costs and confusion for beneficiaries.
3. Continue to Allow First-Dollar Coverage
BCBSA believes that beneficiaries should continue to have the
option to purchase varying degrees of financial protection, including
policies that cover all of Medicare's required deductibles and cost-
sharing, because:
Beneficiaries want first-dollar coverage. Older
Americans, many of whom live on fixed incomes, are particularly risk
averse. One reason many purchase Medigap coverage is that they want
predictable monthly expenses. Medigap law already requires all insurers
to offer Plan A--which does not cover the Part A and Part B
deductibles--in addition to any other policy they offer. Less than 3
percent of beneficiaries choose to purchase Plan A, according to the
GAO.
It would be inappropriate to eliminate first-dollar
coverage solely for people who choose to purchase Medigap coverage
while others continue to have this option through their employers,
including the Federal Government.
``First-dollar'' coverage helps assure beneficiaries get
needed services.
The available literature is unambiguously clear that beneficiaries
with supplemental coverage report better access to health care
services. For example, in its report in June 2002, MedPAC noted that:
``Beneficiaries without supplemental coverage were nearly six times as
likely to have delayed care due to cost and about four times as likely
to lack a usual source of care, compared to those with employer-
sponsored or Medigap insurance.''
Thank you for the opportunity to submit this testimony on behalf of
the Blue Cross and Blue Shield Association.
Chairman JOHNSON. Thank you very much, Mr. White.
Mr. Still.
STATEMENT OF STEPHEN W. STILL, ESQ., MAYNARD, COOPER & GALE,
P.C., BIRMINGHAM, ALABAMA, ON BEHALF OF TORCHMARK CORPORATION,
BIRMINGHAM, ALABAMA AND UNITED AMERICAN INSURANCE COMPANY,
McKINNEY, TEXAS
Mr. STILL. Madam Chairman and Mr. Stark, Members of the
Committee, thank you for having me here today. I am
representing Torchmark and its subsidiary, United American
Insurance Company.
In your opening remarks you said you believe we could do
better, and we agree with you on that. We hope to have a
suggestion for you to improve that.
We believe that the Medicare program should remain viable
and solvent in order to continue to provide meaningful health
insurance coverage for senior Americans. We have supported
efforts in the past to reform the Medicare program in order to
meet this goal, and we continue to support such efforts.
We have worked with Members of this Committee and other
Members of Congress to help you achieve the outpatient co-
insurance reductions that you have seen in the 1999 and 2000
bills, and we applaud you for your efforts on that. It's been
very meaningful for beneficiaries.
Medicare supplement insurance is specifically designed to
cover the gaps in coverage that the Medicare program does not
cover. For that reason, Medigap is extremely important to the
beneficiaries. Medigap is probably the most regulated
commercial insurance product that I'm aware of. I'm not aware
of any product that is more regulated than this product.
One of the criticisms of Medigap is that the products do
reimburse policyholders for ``first dollar'' health care
expenses that they incur, and that they cause over-utilization.
Under current law, Medigap insurers have absolutely no freedom
to offer products beyond what has been spelled out in Federal
law. So, if there's a problem with overutilization, then the
root of the problem lies with the underlying law itself, and we
believe the law should be changed.
We would support an amendment to the law that would
incorporate reasonable notions of cost-sharing in the Medigap
law. We believe that this can be done in such a way to benefit
the Medicare beneficiaries as well as the Medicare program.
Unlike Rich, we believe it should be done immediately within
the context of Medicare reform or outside of the context of
that Medicare reform.
Our legislative proposal would be as follows--and this can
be done in different ways. There are different ways to address
cost-sharing, and we realize that. We would suggest that the
Medicare law be amended to create a new, optional Medigap plan,
so it would be a new stand-alone plan in addition to the 10
existing plans. You could include the core benefits that are
found in Plan F, and under this plan, a beneficiary would share
50 percent or one-half of the incurred ``first dollar'' Part B
expenses up to a preselected cap. The cap would be selected by
the beneficiary. The caps could be established at a minimum of
$1,000 and then going up to $3,000. They could be in increments
of $250. Again, the beneficiary could select their own cap.
The premium would be set accordingly--using actuarial
principles, the premiums would be set accordingly, and if Rich
selected a cap of $3,000, he would obviously pay a lower
premium than I would pay if I selected a $1,000 cap.
We believe that such a change in the law would be a good
thing for beneficiaries and for the program. We believe that
this would help bring the premiums down for this new product,
and it would be available and affordable for Medicare
beneficiaries. We are very concerned about the affordability of
these products and we think this would help make these
affordable. Similarly, we believe it would be good for the
program because we think it does address the utilization issue,
and it helps to address that issue and control costs for the
Medicare program.
As I said, we think these changes should be made
immediately. We don't think this is radical, invasive surgery.
We think it is simply fine-tuning and a good improvement to the
plans that you described as having been adopted 13 years ago.
We think it offers consumer choice, much like a homeowners or
automobile policy would offer on such cost-sharing.
Thank you very much for your consideration.
[The prepared statement of Mr. Still follows:]
Statement of Stephen W. Still, Esq., Maynard, Cooper & Gale, P.C.,
Birmingham, Alabama, on behalf of Torchmark Corporation, Birmingham,
Alabama, and United American Insurance Company, McKinney, Texas
I am Stephen Still, an attorney with the law firm of Maynard,
Cooper & Gale, P.C. in Birmingham, Alabama. I represent Torchmark Corp.
and its subsidiary, United American Insurance Company. Torchmark is a
publicly held company; it is traded on the New York Stock Exchange, and
headquartered in Birmingham, Alabama. United American, based in
McKinney, Texas, is one of the oldest suppliers of Medigap insurance.
United American started selling Medicare supplement insurance shortly
after the Medicare program was created in 1966. By 1981, the company
was nationally recognized as a preeminent writer of individually sold
Medigap insurance. Today, United American is known to be one of the
most cost-efficient Medicare supplement insurers. Annually, it
processes over 9 million claim transactions that result in over 3
million claim checks being issued to policyholders. United American
does not sell any products such as Medicare+Choice. Furthermore, the
company does not act as a Medicare intermediary as some other
competitors in the industry do. It is strictly a Medicare supplement
insurer.
United American strongly believes that the Medicare program should
remain viable and solvent in order to continue to provide meaningful
health insurance coverage for senior Americans. We have supported
efforts in the past to reform the Medicare program in order to meet
this goal, and we continue to support such efforts. In fact, we have
worked closely with members of this Committee and other Members of
Congress to amend the Medicare law to achieve reductions in the
outpatient coinsurance amounts that beneficiaries are charged under
Part B. We applaud you for the reductions you have achieved thus far.
As you know, beneficiaries continue to be overcharged for these
amounts, and we continue to seek legislative changes to correct this
problem.
Under the current Medicare program, approximately 85% of
beneficiaries receive their health care service through the traditional
fee-for-service Medicare delivery system. With that in mind, we are
especially aware of the fact that the supplemental products that we
offer are invaluable to Medicare beneficiaries. Why? Because the
Medicare program, as valuable and important as it is to seniors, does
not cover 100% of the health care costs that are incurred by
policyholders. As you know, the Medicare program is designed in such a
way that it does not cover items such as the deductibles under Part A
and B, co-payment amounts under Part B, and, importantly, Medicare
coverage is not unlimited. It is subject to specific limited amounts. I
might add that the Part B coinsurance amounts and the Medicare caps on
hospital reimbursement can expose beneficiaries to significant medical
expenditures.
Medicare supplement insurance is specifically designed to cover
these gaps in coverage that the Medicare program does not cover. I
don't need to remind you that most seniors are very risk averse.
Whether dealing with medical expenses or any other financial risks,
most seniors abhor the idea of unknown and unlimited financial
exposure. For this reason, Medicare supplement insurance is extremely
important to Medicare beneficiaries. The primary benefit of Medicare
supplement insurance is that it does provide protection against
unlimited financial exposure. Thus, United American is proud of this
service that it offers and the supplemental products that provides.
Does that mean that everything about the system is perfect? No. As we
all know, as important as these programs are to senior citizens,
neither the Medicare program nor the Medigap products are perfect. In
fact, United American believes that improvements need to be made to the
standardized Medigap plans.
To put my remarks in perspective, please keep in mind that Medicare
supplement is the most regulated commercial insurance product that I am
aware of. It is regulated by Federal and State laws. These laws dictate
specifically what products can be sold, the loss ratio that must be
achieved and the amount of profit that can be earned. It mandates that
these insurance products must be offered without underwriting for
coverage, and insurers must guarantee renewal of coverage to
policyholders. Although most successful Medigap insurers have learned
to operate subject to these restrictions, keep in mind that constraints
such as these are foreign to other commercial insurance products. I am
not aware of any other commercial insurance product that is subject to
legal requirements remotely similar to these.
One of the criticisms of Medicare supplement insurance is that the
products reimburse policyholders for ``first dollar'' health care
expenses that they incur. These would include expenses such as
deductibles and copays. The argument is made that this practice leads
to ``over utilization'' of health care services by beneficiaries,
because there is no disincentive to use these services. I am not the
appropriate party to address the validity of that argument; however, I
can provide the following observation. Medicare supplement insurers
only offer the Medigap products that Federal law requires them to
offer. Under current law, Medigap insurers have absolutely no freedom
to offer anything beyond what you, in Congress, have told them to sell.
If, in fact, there is a problem with ``over utilization'' and ``first
dollar coverage,'' then the root of the problem lies with the
underlying law itself. Does the underlying law need to be changed? Yes.
United American believes that it should be changed.
United American began selling the standardized plans in 1992
pursuant to the Omnibus Budget Reconciliation Act of 1990. The design
of these plans may have made sense a decade ago, but health insurance
and health care delivery have changed dramatically over the past
decade. The standardized Medigap plans offered today are distant
ancestors to other commercial health insurance plans offered today to
the under 65 market. One of the principal differences is that other
commercial health insurance products contain more up-to-date elements
of ``cost-sharing'' by policyholders. Since Medicare supplement
products are required by law to cover deductibles and co-payment
amounts, they avoid cost-sharing and, as previously pointed out, may
contribute to over utilization of services. Accordingly, United
American believes that the Federal law should be changed to incorporate
reasonable notions of cost-sharing. We believe that this can be done in
such a way as to benefit Medicare beneficiaries as well as the Medicare
program. How would this work?
There may actually be more than one way to accomplish this, but
United American would offer the following legislative proposal. United
American would propose amending the Medicare law to create a new
optional Medigap plan. Under this plan, a beneficiary would share one
half of the incurred, first dollar expenses up to a preselected,
optional cap. These caps could be established at $1,000, $1,250, and so
on, in increments of $250, up to a maximum cap of $3,000. This approach
would operate like a homeowner's policy or personal automobile policy
in that the policyholder could select the out-of-pocket amount that he
or she is comfortable with, and the premium for that policy would be
set accordingly. Thus, a policyholder with a $3,000 cap would pay a
lower premium than a policyholder who selects a $1,500 cap. The
Medicare supplement insurers would price their products accordingly
using actuarial principles in order to reflect these cost-sharing
amounts and other risks normally associated with such coverage. As with
other commercial insurance products, different Medigap insurers would
price these products differently. Likewise, beneficiaries could select
premium amounts that they were comfortable with. How would such a
change affect the Medicare program and Medicare beneficiaries?
United American believes that a change in the law along these lines
would be a good thing for beneficiaries and for the Medicare program.
One of the biggest concerns that United American has had in recent
years is the premium rate increases that it and other Medigap insurers
have experienced. These increases are the result of increases in health
care costs, and they are also the result of the regulatory constraints
of the current law. Medigap insurers do not like premium rate
increases. Over time, such increases will cause these valuable
supplemental products to become unaffordable for the very senior
citizens who demand these products. I can assure you that United
American would much rather sell more policies at lower premiums, than
lose policyholders because its products are unaffordable. United
American believes that changing the law along the lines that I have
outlined would cause premiums for such modified Medicare supplement
products to be reduced and, over time, remain more stable.
Similarly, we believe that this change would be good for the
Medicare program. If reasonable cost-sharing concepts, such as those
that I have mentioned, were incorporated into the law, then we believe
that utilization could be decreased and there could be substantial
savings to the Medicare program. Such savings could be used by the
Medicare program to reduce expenses, or even partially provide for a
prescription drug benefit for seniors. Would a change such as this
solve all of the problems for the Medicare program, or could it
completely offset a drug benefit? No. However, I would suggest that
this is a step in the right direction, and it may provide one piece of
the puzzle that you, as policy makers need to have in order to best
serve the Medicare program and beneficiaries.
Chairman JOHNSON. Thank you, Mr. Still.
Dr. Neuman.
STATEMENT OF PATRICIA NEUMAN, SC.D., VICE PRESIDENT AND
DIRECTOR, MEDICARE POLICY PROJECT, THE HENRY J. KAISER FAMILY
FOUNDATION, ON BEHALF OF THOMAS RICE, PH.D., PROFESSOR AND VICE
CHAIR, DEPARTMENT OF HEALTH SERVICES, UCLA SCHOOL OF PUBLIC
HEALTH
Dr. NEUMAN. Thank you, Mrs. Johnson, and Mr. Stark and
Members of the Subcommittee. I am going to summarize my written
remarks, with your permission.
Medicare offers 41 million elderly and disabled Americans
reliable health insurance at a time in their lives when they
are most likely to need medical care. Medicare helps pay for
basic services, but has high cost-sharing requirements and a
limit on catastrophic expenses, and no outpatient drug
coverage. As a result, it is substantially less generous today
than typical employer plans.
Gaps in the benefit package are problematic for many,
particularly those who lack supplemental coverage or who have
modest incomes. Four in 10 people on Medicare today live on
incomes below twice the poverty level, or less than $18,000 for
an individual. The same share has less than $12,000 in
countable assets. Thus, the risk of incurring unaffordable
medical expenses is very real. For an older woman with a median
monthly income of $1,400, the Part A deductible alone would
consume more than half of her monthly income.
To help fill Medicare's gaps, nearly 9 in 10 beneficiaries
have some form of supplemental insurance, but access to
supplemental coverage is on the decline. Our own surveys find
that fewer employers are offering retiree health benefits, and
many are considering eliminating these benefits in the future.
In addition, the number of people with Medigap policies has
declined by one-and-a-half million in the late nineties, and
the number covered by M+C plans has dropped by about the same
amount. Given State budget problems, Medicaid coverage may also
be in jeopardy as a supplement to Medicare.
Modifying Medicare's cost-sharing could be one approach to
reduce the growth in Medicare spending while addressing
concerns related to supplemental insurance. Some have suggested
the beneficiaries should bear more of their health care costs
to deter use of services that are not really needed. The RAND
Health Insurance Experiment, which is the largest and most
prominent study to date on cost-sharing, offers some important
insights on this issue.
It found that, as cost-sharing increases, utilization
decreases, along with total spending. It also found that cost-
sharing lowers the use of both medically necessary services as
well as less essential care. Subsequent studies of people 65
and older indicate that cost-sharing, or the lack of
supplemental coverage, deters people from seeking diagnostic
and preventive care, such as mammograms, as well as routine
care for chronic illnesses.
Lack of supplemental coverage also affects utilization of
treatments that are not covered by Medicare, particularly
prescription drugs. A recent study found that seniors with
conditions such as congestive heart failure and diabetes but no
drug coverage were far more likely than those with drug
coverage to forego their prescriptions or to skip doses to make
their medicines last longer.
Cost-sharing makes consumers more price-sensitive, but
there's a limit to how much influence patients have on the care
they get when they're sick. Cost-sharing tends to affect
whether people decide to seek care in the first place, but has
far less influence on the number and types of medical services
they receive after they initiate care. This is because
physicians generally guide these decisions about follow-up
treatment and care.
In summary, bringing Medicare coverage more into line with
benefits typically offered by large employers would help
achieve multiple goals. It would lower seniors' out-of-pocket
costs, remove financial barriers to care, reduce the need for
supplemental insurance and, in so doing, would produce some
administrative savings. Clearly, these enhancements would come
at a cost and, thus, would compete with other national spending
priorities.
The evidence shows that cost-sharing lowers utilization of
both necessary and potentially nonessential care. Lower
utilization may reduce spending in the short term, but could
ultimately result in poorer health outcomes, hitting those with
limited incomes the hardest, including older women, the oldest
old, racial and ethnic minority beneficiaries, and the under 65
disabled.
If, for example, restructuring results in a lower
deductible for people using hospital services, but is a
significantly higher deductible for those using only physician
care, then beneficiaries with modest incomes could face a
difficult choice: they could pay more out of pocket to get
physician care if they have a health concern, or risk going
without it to save money. If they end up in the ER as a result
of going without needed care, Medicare spending could actually
rise.
Over the course of its nearly 40-year history, Medicare has
done much to improve the lives of people it serves. Despite its
limited benefit package, the program continues to enjoy broad
public support. Efforts to modify cost-sharing should address
the need to contain program spending without creating new
financial barriers to care. Adding drug coverage and limiting
catastrophic expenses are a top priority for seniors. In the
absence of such changes, people on Medicare will continue to
seek supplemental insurance, such as Medigap, and shoulder
these costs themselves.
Thank you, Mrs. Chairman.
[The prepared statement of Dr. Neuman follows:]
Statement of Patricia Neuman, Sc.D., Vice President and Director,
Medicare Policy Project, Kaiser Medicare Policy Project, Henry J.
Kaiser Family Foundation, on behalf of Thomas Rice, Ph.D., Professor
and Vice Chair, Department of Health Services, UCLA School of Public
Health
Thank you, Madam Chairman and Members of the Committee, for the
opportunity to testify on the issue of Medicare's cost-sharing
structure and Medigap supplemental coverage. I am Patricia Neuman, a
Vice President of the Kaiser Family Foundation and Director of the
Foundation's Medicare Policy Project. I am testifying today on behalf
of myself and Thomas Rice, Ph.D., Professor and Vice Chair of the
Department of Health Services at the UCLA School of Public Health. This
testimony reviews the evidence on the effects of cost-sharing on health
care utilization, and the implications for proposals that would modify
Medicare's cost-sharing structure.
Medicare Today
Medicare plays a critical role in the lives of 41 million elderly
and disabled Americans, offering a reliable source of health insurance
at a time in their lives when they are most likely to need medical
care. Medicare pays for much-needed basic medical services, such as
physician and hospital care. However, with high cost-sharing
requirements and no outpatient prescription drug coverage, Medicare is
substantially less generous than plans typically offered by large
employers (Figure 1).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Medicare's Part A deductible, for example, now $840 per benefit
period, is more than three times as high as the deductible typically
imposed by large employer plans. It is also considerably higher than
the FEHBP Blue Cross/Blue Shield Standard Plan, which has a $250
deductible and a $100 inpatient admission fee. Medicare has no limit on
beneficiaries' out-of-pocket expenses, while the typical large employer
plan has a $1,500 limit and the FEHBP Blue Cross/Blue Shield Standard
Plan has a $4,000 limit on out-of-pocket spending.[1] And,
virtually all large employer plans, including FEHBP plans, cover
prescription drugs--typically without a separate drug deductible or cap
on covered drug benefits.
Gaps in Medicare's benefit package are increasingly problematic for
beneficiaries given that many have relatively modest incomes and
limited assets, and face declining access to affordable supplemental
coverage. Four in ten Medicare beneficiaries live on incomes below
twice the Federal poverty level--about $18,000 per person and $24,000
per couple in 2003 (Figure 2), and the same number have less than
$12,000 in countable assets, leaving them with little capacity to pay
for unexpected medical expenses (Figure 3).[2] On average,
Medicare beneficiaries spend more than a fifth of their income on
health expenses, including Part B premiums; Medicare cost-sharing; non-
covered services, such as prescription drugs; and premiums for
supplemental insurance.[3]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
With many living on fixed incomes, the risk of incurring
unaffordable medical expenses is very real. For an elderly woman at the
median income level of $1,400 per month, the Part A deductible alone
would consume more than half of her monthly income. Those with serious
health problems are particularly at risk. A recent study of out-of-
pocket spending among beneficiaries with various medical problems found
that a chronically ill, frail 80-year-old woman could pay more than
$10,000 within a year for her health care, supplies, and prescriptions,
if she had no supplemental insurance.[4]
Gaps in Medicare and Supplemental Coverage
The majority of beneficiaries--9 in 10--rely on supplemental
insurance to help fill the gaps in Medicare's benefit package and to
protect themselves from large, unanticipated health care expenses
(Figure 4). Employer-sponsored retiree coverage is the primary source
of supplemental insurance, assisting one-third of all beneficiaries.
Seniors with health benefits from a former employer typically have
relatively generous benefits, and tend to have higher incomes and more
years of education than do other beneficiaries.[5]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Medigap is the second leading source of supplemental coverage,
providing coverage to a quarter of all beneficiaries. Beneficiaries who
elect to stay in traditional Medicare have a choice of purchasing one
of ten standard Medigap benefit packages (Figure 5). Those who buy
Medigap policies are typically female, white, older, and more educated.
They also tend to have higher-than-average incomes, although more often
lower incomes than retirees with employer-sponsored coverage. They are
also more likely to live in rural areas, where they are less apt to be
offered retiree coverage from a former employer or a Medicare+Choice
plan that offers supplemental benefits.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Finally, Medicaid is a critical source of supplemental coverage for
low-income Medicare beneficiaries. Medicaid helps relieve the financial
burdens facing low-income Medicare beneficiaries in several ways.
First, it pays their monthly Medicare Part B premium, which now amounts
to over $700 per year. Second, Medicaid pays the cost-sharing charged
for many Medicare-covered services. Finally, Medicaid covers a range of
important benefits excluded from Medicare, such as prescription drugs.
Together, these various supplemental insurance options have helped
to shield seniors from the full effects of Medicare's high cost-sharing
requirements and limited benefit package. The evidence now suggests
that access to supplemental coverage is on the decline, however.
Between 1996 and 1999, while the share of beneficiaries with
supplemental coverage remained stable due to the increase in
Medicare+Choice enrollment, the number of beneficiaries with Medigap
policies declined by 1.5 million, bringing the share of all Medicare
beneficiaries with Medigap coverage from 29% to 24% (Figure
6).[6] Since then, enrollment in Medicare+Choice plans has
also dropped by roughly the same number.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In addition, results from several surveys point to an erosion of
employer-sponsored retiree health benefits. Between 1988 and 2002, the
share of large employers offering retiree health benefits dropped from
66 percent to 34 percent.[7] And, according to the recent
Kaiser/Hewitt survey, 22% of large employers say they are likely to
terminate health benefits for future retirees in the next few
years.[8] Finally, the adequacy of Medicaid benefits is
likely to be jeopardized by acute budgetary problems at the State
level.
The erosion of supplemental coverage raises questions about how
best to protect beneficiaries from high out-of-pocket costs in the
future, from improving Medicare's benefit package to changing cost-
sharing structures under Medicare and supplemental sources.
COST-SHARING: IMPLICATIONS FOR BENEFICIARIES
One key consideration in redesigning Medicare's benefit package is
an understanding of the effects of cost-sharing on beneficiaries'
access to care. Some have suggested, for example, that beneficiaries
should bear a greater share of their health care costs to deter use of
non-essential services. A review of the literature, however, identifies
several concerns associated with proposals that would raise cost-
sharing under Medicare: (1) higher cost-sharing requirements are likely
to lower use of medically necessary services and may have a negative
impact on beneficiaries' health status; (2) higher cost-sharing is
inequitable, hitting the most financially vulnerable beneficiaries the
hardest; and (3) many if not most seniors do not appear to have
sufficient information and knowledge to navigate the health care system
and assess their options when faced with high cost-sharing
requirements.
Impact of Cost-Sharing on Use of Services
It is clear that increased cost-sharing reduces service utilization
and total spending. The most notable study on the topic was the RAND
Health Insurance Experiment. Conducted in the 1970s and early 1980s,
the study remains the only large-scale, randomized controlled trial to
compare use of services and total spending across different cost-
sharing arrangements. The study examined the effects of four
coinsurance groups: 0% (free care), 25%, 50%, and 95%. All participants
were protected by an annual limit on out-of-pocket costs. The study
demonstrated that coinsurance had a considerable impact on both use and
spending, finding that people in the highest cost-sharing group, who
had to pay 95% of charges, had total annual expenditures that were 31%
lower than those of the no-coinsurance group. From a policy standpoint,
perhaps more relevant is the finding that those facing a 25%
coinsurance rate had expenditures that were 19% lower than those of the
participants in the free-care group.[9]
One would hope that, as people cut back on utilization as their
cost-sharing increases, they would be selective in doing so--forgoing
services of little value, while continuing to receive the most useful
services. However, the RAND study found that cost-sharing is as likely
to lower use of services judged by medical experts to be medically
effective as it is to lower use of those deemed less effective or
ineffective.[10] The authors of this evaluation concluded
that, ``[C]ost-sharing did not lead to rates of care seeking that were
more `appropriate' from a clinical perspective.'' That is, cost-sharing
did not seem to have a selective effect in prompting people to forgo
only care that would likely be of little or no value.[11]
Although the RAND experiment did not include seniors, subsequent
studies that have show similar results. A recent review of studies that
included people ages 65 and older confirmed these results, with nearly
all studies showing that higher patient cost-sharing resulted in use of
fewer services.[12] Rice and Matsuoka examined 18 studies
that measured the impact of cost-sharing or the possession of
supplemental insurance on clinically appropriate
utilization.[13] Of the 18 studies, 14 found that higher
cost-sharing or lack of supplemental coverage had a negative effect on
appropriate utilization of health services, whereas just 4 found that
it had no effect or a positive effect. For example, one of the studies
found that women on Medicare without supplemental coverage were far
less likely than those with some form of coverage to have a
mammogram.[14] Together, these findings strongly suggest
that those having to pay Medicare's cost-sharing requirements out of
their own resources (i.e., without supplementation) use far fewer
preventive and medically necessary services than recommended.
Surveys of beneficiaries themselves confirm these results.
Beneficiaries who are exposed to Medicare's cost-sharing requirements
because they lack supplemental coverage report greater access problems
than do those with supplemental coverage. Data from the Medicare
Current Beneficiary Survey show that while 21% of those with only
traditional Medicare reported having delayed care due to cost, just 11%
of those with Medicaid and 5% of those with private supplemental
coverage had done so in 1999. In addition, while 14% of those without
supplemental coverage had no usual source of care in 1999, this was the
case for only 6% of those with Medicaid and 4% of those with private
coverage to fill in Medicare's gaps (Figure 7).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Beneficiaries without supplemental coverage--including those with
serious health concerns--are also less likely to receive treatments not
covered by Medicare, particularly where prescription drugs are
concerned. A 2002 study by Safran and others found, for example, that
seniors with chronic conditions, such as congestive heart failure,
diabetes, and hypertension, but no drug coverage, were far likelier
than those with drug coverage to forgo filling their prescriptions due
to costs, or to skip doses to make their medicines last longer. Among
seniors with diabetes, for example, nearly a third of those without
drug coverage skipped doses (30%) or didn't fill a prescription (31%);
among diabetics with drug coverage, the comparable figures were 17% and
14%, respectively (Figure 8).[15]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Along with potential implications for beneficiaries' health, lower
use of prescription drugs stemming from lack of coverage may raise
overall spending due to increased demand for other services, such as
inpatient hospital care (Lichtenberg, 2001).[16]
Impact on Equity
By its nature, increased patient cost-sharing hurts the financially
vulnerable the most. This is because of three interrelated issues:
cost-sharing accounts for a greater proportion of their incomes; those
with lower incomes tend to be sicker; and, because they are sicker,
they generally require more services.
Families with lower incomes who seek medical care will likely spend
a greater proportion of their income on cost-sharing requirements than
will wealthier families, unless they have relatively comprehensive
private supplemental insurance or Medicaid. Higher cost-sharing
requirements disproportionately affect Medicare beneficiaries with
incomes below twice the poverty level (about $18,000 for an
individual), including: women (44%), seniors ages 85 and over (52%),
African American (60%) and Hispanic (59%) beneficiaries, and under-65
beneficiaries with permanent disabilities (59%) (Figure
9).[17] Adding to the obvious challenge of living on modest
incomes, low-income beneficiaries are less likely than those with
higher incomes to have any form of supplemental coverage (Figure 10).
They are also more likely to be in fair or poor health and therefore
have a greater need for medical services.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Increased cost-sharing can therefore be viewed, colloquially
speaking, as a ``triple jeopardy'' for elderly and disabled
beneficiaries with modest incomes:
Those with low incomes are more likely to be without any
form of supplemental insurance that covers Medicare's cost-sharing
requirements;[18]
Since those with low incomes also tend to be in poorer
health and need more medical services, Medicare's cost-sharing
requirements will account for a greater portion of their limited
incomes if they use the necessary additional services; and
If they do not use the additional services they need,
their health is likely to suffer as a result.
Seniors and Health Care Decisions
One of the arguments for maintaining cost-sharing under Medicare is
that it gives consumers an incentive to ``think twice'' before using
services. The idea is that, if beneficiaries are made more price-
sensitive, they will forgo potentially unnecessary services, which in
turn, will help contain health care spending. There are other factors
that drive treatment decisions for patients, including whether they
have control over the medical services they get, and sufficient
information to make such decisions for themselves.
There is a limit to how much decision-making power is vested, or
even should be vested in beneficiaries when it comes to health care
utilization. The RAND experiment suggested that patient cost-sharing
has a considerable impact on whether or not beneficiaries seek care
when they are sick, but far less influence on the intensity of service
use after they initiate care.[19] This is likely because
physicians, not patients, generally guide decisions about follow-up
care and testing.
Even when patients are more actively involved in decisions about
their own care, they need to be able to review information from a
variety of sources to determine whether medical treatment is not only
affordable, but also whether it is clinically necessary. This is
challenging as it requires: (a) knowing what the out-of-pocket costs of
a service will be, and (b) understanding both the health implications
of obtaining the service and the medical (and financial) consequences
of not obtaining the service. This would likely be extremely difficult
for people of all ages.
Summary and Policy Considerations
In summary, there is substantial evidence showing that cost-sharing
leads to lower utilization of health care services--both necessary and
potentially non-essential services. A number of studies show that cost-
sharing (or lack of supplemental coverage) deters people from seeking
diagnostic and preventive services, as well as services that are often
used to treat chronic illness. Lower utilization may reduce health care
spending in the short term, but could ultimately result in poorer
health outcomes for seniors and younger beneficiaries with
disabilities.
This body of evidence has direct bearing on efforts to modify
Medicare's current cost-sharing structure, and has implications for
low-income and otherwise vulnerable beneficiaries. If, for example,
restructuring results in a lower deductible for people using hospital
services, but a higher deductible for those who use only physician
care, then beneficiaries with modest incomes would face a difficult
choice. They could decide to pay the higher deductible out of their
limited incomes to get physician care or they could decide to take a
risk and go without care in order to save money, which could
potentially increase Medicare spending if they end up in the hospital.
As noted earlier, Medicare is substantially less generous than
typical large employer plans. Bringing Medicare coverage more in line
with typical employer benefits would go a long way toward removing
financial barriers to care. Benefit improvements could also reduce the
need for supplemental insurance, and produce some administrative
savings as well. At the same time, these changes would increase
Medicare spending, by shifting costs now incurred by beneficiaries onto
the program.
It is important to note that changes in Medicare's cost-sharing
requirements and benefit package would also impact State budgets, in
that Medicaid fills in Medicare's gaps for low-income beneficiaries
also covered by Medicaid. This can play both ways for States. Benefit
improvements such as a prescription drug benefit or stop-loss
protection could significantly reduce Medicaid spending, while passing
increases in Medicare premiums and deductibles on to Medicaid could
have the opposite effect.
Over the course of its nearly 40-year history, Medicare has done
much to improve the lives of its beneficiaries. Despite a limited
benefit package, Medicare remains a popular program and enjoys broad
public support. Efforts to modify cost-sharing should balance the need
to reduce program spending without creating new and unintended
financial barriers to care. From the perspective of people served by
the program, adding a prescription drug benefit and limiting
catastrophic expenses are especially important. These benefit
enhancements would come at a cost, and compete with other national
spending priorities. In the absence of such changes, beneficiaries will
continue to shoulder these costs.
REFERENCES
[1] Blue Cross Blue Shield Federal Employee Program. Accessed on
April 28, 2003. http://www.fepblue.org/benefits/benefits03/
soaag03.html.
[2] Moon, M., R. Friedland, and L. Shirey. Medicare Beneficiaries
and Their Assets: Implications for Low-Income Programs. Prepared for
The Kaiser Family Foundation, June 2002.
[3] Maxwell, S., M. Moon, and M. Storeygard. Reforming Medicare's
Benefit Package: Impact on Beneficiary Expenditures. Prepared for The
Commonwealth Fund, May 2001.
[4] Snyder, R., T. Rice, and M. Kitchman. Paying for Choice: The
Cost Implications of Health Plan Options for People on Medicare,
January 2003.
[5] Pourat, N., et al. ``Socioeconomic Differences in Medicare
Supplemental Coverage,'' Health Affairs 19(5), September/October 2000:
186-196.
[6] Laschober, M.A., M. Kitchman, P. Neuman, and A.A. Strabic.
``Trends in Medicare Supplemental Insurance and Prescription Drug
Coverage, 1996-1999.'' Health Affairs Web Exclusive, 27 February 2002.
[7] Kaiser/HRET Survey of Employer-Sponsored Health Benefits:
2002; KPMG Survey of Employer-Sponsored Health Benefits: 1988.
[8] Kaiser/Hewitt 2002 Survey on Retiree Health Benefits,
December 2002.
[9] Newhouse, J.P., et al. Free for All? Lessons from the RAND
Health Insurance Experiment. Cambridge, MA: Harvard University Press,
1993.
[10] Lohr, K.N., et al. 1986. ``Effect of Cost-Sharing on Use of
Medically Effective and Less Effective Care.'' Medical Care 24
(Supplement): S31-S38.
[11] Lohr, K.N., et al. 1986. ``Effect of Cost Sharing on Use of
Medically Effective and Less Effective Care.'' Medical Care 24
(Supplement): S31-S38.
[12] Rice, T., and K.Y. Matsuoka. ``The Impact of Cost-Sharing on
Utilization and Health Status: A Review of the Literature on Seniors,''
Submitted for publication. Available as working paper from the
Department of Health Services, UCLA School of Public Health, 2003.
[13] Ibid.
[14] Blustein, J. 1995. Medicare Coverage, Supplemental Insurance,
and the Use of Mammography by Older Women. New England Journal of
Medicine 332(17): 1138-1143.
[15] Safran, D.G., et al. ``Prescription Drug Coverage and
Seniors: How Well Are States Closing the Gap? Findings from a 2001
Survey of Seniors in Eight States,'' Health Affairs Web Exclusive, July
31, 2002.
[16] Lichtenberg, F. ``Are the Benefits of Newer Drugs Worth Their
Cost? Evidence from the 1996 MEPS.'' Health Affairs 20(5), September/
October 2001: 241-251.
[17] The Urban Institute analysis of 2000 Current Population
Survey prepared for The Kaiser Family Foundation.
[18] Pourat, N., et al. ``Socioeconomic Differences in Medicare
Supplemental Coverage,'' Health Affairs 19(5), September/October 2000:
186-196.
[19] Newhouse, J.P., et al. Free for All? Lessons from the RAND
Health Insurance Experiment. Cambridge, MA: Harvard University Press,
1993.
Chairman JOHNSON. I thank the panel for their comments. Mr.
Still, that's an interesting option that you proposed. Have you
done any runs to see what the premiums would be for various
deductibles? I assume that once you reach the deductible, that
you would have catastrophic coverage then?
Mr. STILL. What kind of coverage?
Chairman JOHNSON. Once you met the cap you were describing,
50 percent of the cost up to a cap----
Mr. STILL. Yes.
Chairman JOHNSON. --after the cap, the policy would provide
complete coverage?
Mr. STILL. Yes, that's correct.
Chairman JOHNSON. Do you have any idea what the premium
would be?
Mr. STILL. We've done some rough estimates on that. Of
course, this would have to be priced once the product was
offered and you knew how many policyholders you had, and every
company would have to price it accordingly. We're estimating,
if you assume that Plan F currently costs $2,300 a year--and
that's on the high side----
Chairman JOHNSON. The cap would be?
Mr. STILL. With a $1,000 cap, we think the annual savings
would be $480. That's an estimate. We think there would be a
$480 savings on Plan F, with a $1,000 cap.
Chairman JOHNSON. So, for a $1,000 cap, the premiums would
amount to about $520 a year?
Mr. STILL. No, $1,820 a year. We believe--The other thing
is we believe it would help keep the increases in check in the
future, which is also important. The initial----
Chairman JOHNSON. For a $1,000 cap, the premium would be
$850 a year?
Mr. STILL. It would be $1,820 a year. You have the same
coverage as in Plan F. You would have all the benefits under
Plan F, the core benefits of Plan F, but what you would be
doing is you would have an annual savings of $480.
I just did an example. If you had a $2,000 Part B
expenditure, the policyholder would incur a $100 Part B
deductible, and then 20 percent of that $2,000 is $400, for a
total incurred amount of $500. If the beneficiary pays 50
percent of that, then the beneficiary would pay $250 out of
pocket and would still have saved $230. It still has all the
other coverage that they have under Plan F.
Chairman JOHNSON. That's interesting. All right.
The issue of ``first dollar'' coverage is, of course, a
very important issue. I would like each of you to enlarge on
that a little bit more. It is certainly true that it
discourages buying, buying both needed services and unneeded
services.
Are there structures in the real world that allow a
differentiation between those things, at least at the
preventive level? Are there other comments that you might have
on how to structure a ``first dollar'' responsibility, or do
you think having a ``first dollar'' responsibility is just
something we shouldn't do?
Mr. Hackbarth.
Mr. HACKBARTH. A couple of quick reactions.
One, there is two different sets of reasons for having some
front-end cost-sharing. One is to try to effect the utilization
pattern. The other is just as a matter of allocating resources.
I mentioned in my comments that in our thinking about the
issue there did seem to be a consensus among Commissioners that
we ought to have better coverage at the back end for the
patients using the most services, and in exchange for that,
have some front-end cost-sharing for all services. So, that's a
decision based primarily on how we make the best use of limited
resources. That's a good, general trade consistent with
insurance principles from our perspective.
In terms of the effect of cost-sharing on use of services,
I basically agree with Tricia's summary of the available
evidence, with a couple of additional points. One, with regard
to the RAND Health Insurance Experiment, which, by the way, did
not include seniors--the oldest people included were 62, as I
recall--there was a decline in utilization. As Tricia said, it
was a mixture of both effective and ineffective services that
were foregone as a result of cost-sharing.
The RAND experiment found no effect on the general
population of foregoing the services, no effect on their health
status, with the important exception of some health effects for
low-income people and people with some particular conditions.
So, in general, there was no negative health status effect. It
did only apply to a non-Medicare population.
Whether we could extrapolate that finding to Medicare is
very much in doubt. It's a question because of the differences
in the populations.
With regard to other research that's been done, there have
been a fair number of studies specifically directed at cost-
sharing and its effect on seniors, but none of them have been
experimental like the RAND Health Insurance Experiment. So,
even though they're done by very capable researchers, they are
always plagued by not having an experimental design and there
are questions about whether you're appropriately controlling
for all of the variables, what's the cause, what's the effect
and all that.
In most of them, the vast majority of them focus on
prescription drug cost-sharing as opposed to cost-sharing for
other services.
The last point, as Tricia said, cost-sharing does tend to
work on the decision to enter the system, and it would effect
most powerfully the initial decision to seek services, as
opposed to the services delivered to a patient once they are in
the system. So, it would have the greatest effect on ambulatory
services. This is one reason why many people recommend that
there be reduced or no cost-sharing for preventive services,
for services that you really want to encourage.
Chairman JOHNSON. Thank you. Would anyone else care to
comment?
Mr. White.
Mr. WHITE. Yes. We believe that consumers should have the
ability to choose what they want, and right now it appears that
the consumers are choosing in the Medicare supplement market
``first dollar'' coverage. Sixty-seven percent of the policies
being sold are plans that offer coverage for the Part A and B
deductibles.
Persons that are purchasing Medicare supplements should
also have the same options that are available to other people.
The Federal employees program, if you choose the Blue Cross
option, it covers everything with a complete wrap-around. The
TRICARE For Life was recently introduced. It's a complete wrap-
around. A lot of employer-based plans are complete wrap-
arounds, along with Medicaid, which the reason there is
obvious.
If you look at how much impact does Medicare supplement
``first dollar'' coverage have, it's really only going to be--
If it's 67 percent of the people purchasing those plans, and
then only 25 percent of the people buy Medicare supplements,
we're only talking about a small fraction of Medicare
beneficiaries.
Why do people choose these plans? One, it's financial. It
makes it predictable. The second is the billing. Personally,
I'm dealing with my mother, who recently passed away, and it
makes it much simpler to know that if she is balanced billed, I
don't need to worry. I don't need to talk to Medicare and talk
to the insurance company. I can stay out of it. I'm fortunate
because I know the system. It makes it much simpler for
consumers.
On the effect of cost-sharing, I tend to agree with what
Tricia is saying. I do not see, in the data I look at, that the
cost-sharing would have that much benefit. I offer certain
plans and I compare the cost between plans. I do look for anti-
selection--drug plans have higher medical costs, versus the
non-drug plans. When you look at the plans that have the Part B
deductible and those that don't, there is not a radical
difference in the claims cost once you adjust for the benefits.
So, I'm not saying that utilization is----
Chairman JOHNSON. However, the choices under Medigap really
don't give you any information on that point, because if you
look at the benefits offered by the plans, in addition to
copayments for A and B, foreign travel--How big an issue is
this? Under coinsurance, most people don't realize how exposed
they are, and that's not a big item. In other words, we don't
have any experience in offering a supplemental that has
variable copayments and offers variable opportunities to
participate. So, seniors can't see what the impact would be for
them on their premiums.
We do have seniors paying extraordinary premiums under
Medigap now. That really concerns me, because I sit with
seniors who are very upset about the premium cost and,
honestly, they're never going to use their premium. So, I am
concerned that there's a very narrow range of choice for
seniors.
There are two series of questions the Subcommittee will
have to look at. One is, do we simply outright require
everybody to carry some ``first dollar'' responsibility for the
Medicare program, certainly exempting preventive care services?
Do we make some similar exception for chronic care patients, so
that, in a sense, everybody knows that they are part of the
action?
Then the other issue is, how much can you vary those so
that you can vary premiums? Then, if they want almost 100
percent coverage, they pay a higher premium. If they're willing
to pay 50 percent of their copayments or 100 percent of their
copayments, they pay a lower premium. So, we need for seniors
to have choices that will--We need them to have a choice of
benefits that will more deeply affect the premium. Foreign
travel is not going to affect the premium much, truthfully, and
even at-home recovery is not going to affect the premium much.
I hear what you're saying about the disadvantages of
requiring that everyone carry some ``first dollar'' coverage,
although my jury is still out on whether that isn't good public
policy. I don't think you can make the case that our current
structure of Medigap benefits demonstrates to us that seniors
want to have 100 percent coverage. Yes, they like the
predictability; yes, they like the simplicity. They don't like
the premiums and they have no way of seeing that, if they take
some responsibility, then their premiums might be radically
lower.
Mr. WHITE. I would agree. In fact, the important point is
choice. We don't want this choice to be taken away. The
Torchmark proposal, our only concern would be about timing and
is there a better approach perhaps--could we modify the high
deductible plans F and J, offer different options, just so we
keep the market simple. We would be interested in working with
you on that, if you all decided to----
Chairman JOHNSON. I think we have to be rather more
creative than perhaps your testimony indicated.
I'm not going to allow the other panelists to comment
because this issue will come up, I'm sure, over and over again.
I think I will let Mr. Stark have his chance and other people a
chance to comment before they have to leave.
Mr. STARK. Let me just see if I can review how we got where
we are.
First of all--and I would direct this to Mr. Still and Mr.
White--the insurance industry, in the best tradition of free
enterprise and free markets, basically wrote the various
Medigap plans, did they not? The designed them. When the bill
came into effect, they met with the Secretary of U.S.
Department of Health and Human Services (HHS) and came up, as
an industry, with the various plans, A through J or whatever
they are.
Mr. WHITE. Actually, I believe that was deferred to the
National Association of Insurance Commissioners.
Mr. STARK. Well, in conjunction with these various State
insurance commissioners, yeah. In other words, the industry and
the industry State regulators agreed, maybe compromised, for a
set of benefits.
Mr. WHITE. Consumer representatives, also.
Mr. STARK. We basically had nothing to do with it. Yeah,
that's right, and the consumers protecting them overly
aggressive insurance companies, which is what actually
triggered the legislation in the first place. There was
confusion among the seniors, who were unable really to discern
what very aggressive salespeople might tell them were the
benefits, and there was no way to really compare prices when
you had a variety of benefits, as the Chairman has suggested,
what is the value of a foreign travel benefit, and I suspect
you could oversell that.
To change Medigap offerings today would be done by the same
procedures, as I read the law--I happened to write it, so I
think I recall this--and you would once again meet with the
insurance commissioners and the Secretary of HHS and redesign
the benefits. I'm sure the Chair would join with me in
encouraging you to do that.
I think both of your testimonies have indicated that you
would just as soon wait until Medicare is reformed or not
reformed, as we may decide, so that you don't have to do it a
couple of times, that once there is a new Medicare, or if there
is a new Medicare design, that it might be time then for the
industry, who doesn't have to offer this policy--we're not
directing you to; it's a private, free enterprise issue--would
get together. Is that not correct, Mr. Still, and meet once
again and negotiate with the insurance commissioners in denying
new benefits?
Mr. STILL. That's not our proposal. Our proposal is to----
Mr. STARK. I know that's not your proposal, but that's what
the law is.
Mr. STILL. We would propose for Congress to actually write
the bill.
Mr. STARK. I would suggest to you that that's a formula for
disaster. You all did a pretty good job when you did it early
on. Now times have changed. There wasn't as much demand for
drug benefits when this bill was first written. That has
changed.
I'm perfectly willing--and we did decide and that's why the
insurance industry cooperated with us in the bill in the first
place, to say, look, this is your business, you decide what--
you know the market. Mr. White is an expert in that, in
marketing to seniors, is that not correct? I think you
mentioned that what seniors like most is the predictable
premium. They don't want to worry about whether they're going
to pay 50 percent of this and how much of that because most
live on very fixed incomes, and to know that this set monthly
premium takes care of their problems as they see it, is what
makes them decide. Was that a fair assessment, Mr. White, of
what your research finds?
Mr. WHITE. Yes. Well, for 67 percent of the people perhaps.
Yes, they do--and this is consistent with when we did research
back before standardization when we started offering the
standardized plans and asked them, what were they interested
in.
Mr. STARK. You wanted to sell them a plan.
So, what I'm suggesting is that I think we have a lot of
faith in the free enterprise system here, and I think we would
encourage you to go back with the insurance commissioners, who
do regulate you, and all we look for was a standardized set,
whether it was 10 or 12 or 20, was pretty much up to you, even
leaving some creative loophole in there that said, if a State
found a special policy, if you needed it for ice fishermen who
had hyperthermia a lot, like in Wisconsin, where if they fall
through the ice they could have a special benefit----
Mr. KLECZKA. Or sunstroke like California.
Mr. STARK. Or sunstroke like in California, all right. I
think that this has worked well. I think it served the public.
They've been able to identify the various costs. It may not
today, particularly in the pharmaceutical benefits, have all of
the desired features the public would like, but that's up to
you guys to decide. I have a great deal of faith in your doing
that.
If I could, Madam Chair, for an additional second, just on
another issue. I gather that you, Mr. Still and Mr. White,
would agree with that. That's what the law would call for as
it's currently written.
Mr. STILL. What we would propose under the McCarren-
Ferguson Act, of course, if Congress speaks, then it preempts
the State law. So, there is a way that Congress can define the
plan----
Mr. STARK. We spoke.
Mr. STILL. If Congress were to define a new plan----
Mr. STARK. We speak again? The plan is yours. You guys have
to decide. We can't tell a private industry what they have to
sell or not sell. You guys could back out. I could say to
Torchmark, you've got to offer a policy like this, and you
would say huh-uh, I ain't going to do that. There's nothing we
could do to force you. So, for us to have coverage available to
beneficiaries, you guys have to come up with something that
arguably you can sell and make a profit, and that the seniors
want.
I just want to hear from Mr. Hackbarth and Dr. Neuman. My
sense is that the research, such as it is, would indicate that
there are not great savings available to any insurance system
by increasing a huge copay. As I recall, Kaiser Permanente, not
the Kaiser Foundation, found that after a certain level of
copay--$5 or $10--you didn't get much change in behavior, or
when you dropped it a certain level. In other words, for $5,
you got as much people withholding as you did if you went to
15, and if you got too high, people didn't come at all. If
we're looking for cost savings, I guess my question to Dr.
Neuman and Mr. Hackbarth is, looking at limiting ``first
dollar'' coverage would probably do more harm than it would be
worth for the same savings we would get. Is that a fair
assessment of what the research tells us so far?
Mr. HACKBARTH. On the first piece, on how large is the
effect, again we're handicapped because we don't have Medicare-
specific research. In the case of the RAND Health Insurance
Experiment, for the plan that had 25 percent coinsurance
basically across the board, the effect was large. It was like a
20-percent reduction in utilization of services. So, the effect
can be substantial. That's fairly significant cost-sharing, of
course, but the effect can be substantial.
The real issue is around again, what is the impact on
necessary care and ultimately on health status. Cost-sharing
can make a difference in utilization.
Mr. STARK. Trish?
Dr. NEUMAN. I would agree with that. I think the real
issue, though, is setting the right amount, what level should
the deductible be, what level should the cost-sharing be, if
there's going to be cost-sharing under Medicare or under any of
these policies.
Actually, employer plans, while they're really generous in
wrapping around Medicare, many of them do maintain some
smaller, a $200 deductible, so they don't fully shield seniors
from the $840 deductible, but they partially do. So, I think I
would agree completely with Glenn on his comments about this
level of savings, because they are real, but the concern is
savings at what cost. So, you might want to give greater
thought to how high the cost-sharing responsibility should be,
so that you don't really penalize people with modest incomes
who can't really deal with the calculus of making a decision of
when they're avoiding care that's less essential, versus care
that might be necessary. There's lots of evidence to show that
they do both.
Mr. STARK. Thank you, Madam Chair.
Chairman JOHNSON. Mr. McCrery.
Mr. McCRERY. I'll just address this to anyone on the panel
who can answer it. If we were to decide that we wanted to allow
Medigap plans more flexibility, in terms of their design, would
that have to be done by legislation, or could it be done by
referral to the same group that Mr. Stark referred to?
Mr. STILL. I believe it would have to be done by
legislation. What I proposed to Mr. Stark, would be to have a
new plan and just create that legislatively. That would be the
most efficient and cleanest way to do it, and Congress has the
authority to do that.
Mr. McCRERY. Thank you. Madam Chair, I have no further
questions.
Chairman JOHNSON. Mr. Kleczka.
Mr. KLECZKA. Thank you, Madam Chair. Dr. Neuman, it's good
seeing you again. In your testimony, I thought you indicated--
and correct me if I'm wrong--that currently in the Medicare
program there is some high cost-sharing; however, you went on
to say that we could probably look at cost-sharing for what you
term ``nonessential care.''
Could you give me a feel for what we're talking about when
you talk about ``nonessential care''? What type of procedures
are----
Dr. NEUMAN. Well, first I would like to say that this would
not be my view of what nonessential care is. The RAND Health
Insurance Experiment had a group of clinical advisers that
looked at people with different conditions. They made
determinations of what would be clinically indicated and what
might not be clinically indicated for a person with a specific
health problem under certain circumstances.
Mr. KLECZKA. So, you're not willing to give me a specific
procedure that that bad study called ``nonessential care''?
Dr. NEUMAN. Well----
Mr. KLECZKA. If it's nonessential care, it's probably not
covered by Medicare, or I hope it's not.
Dr. NEUMAN. Glenn, perhaps your work at MedPAC speaks to
this question.
Chairman JOHNSON. Medicare covers you whenever you go to
the doctor, whether you needed to or not.
Mr. KLECZKA. I can give you some examples.
Dr. NEUMAN. The point is, if you have a health problem, if
you don't have symptoms related to a condition like diabetes,
you may not need to have tests that diagnose diabetes. There
are some things that are appropriate and some things that are
not appropriate for people, given their conditions.
Mr. KLECZKA. Bad example. I don't buy that one.
Dr. NEUMAN. Glenn.
Mr. HACKBARTH. I can't speak specifically to what the RAND
Health Insurance Experiment considered unnecessary care, but an
example of where front-end cost-sharing might have a
significant effect is in terms of ambulatory visits to a
physician. Again, there will be arguments about whether this is
a loss or not in terms of beneficiary welfare, but that's an
area where you would probably expect to see a decline in
utilization.
In my experience in talking to physicians, they will talk
about beneficiaries who are non-Medicare patients who require
extra visits, often for reassurance. Sometimes physicians talk
about the ``worried well.'' That's a type of visit that might
decline in the face of cost-sharing.
Again, whether we want that to happen or not is another
question. It's effect on health status of the beneficiary may
be minimal of losing that sort of visit.
Mr. KLECZKA. Is the Medicare program rampant with these
types of office visits you just cited?
Mr. HACKBARTH. I can't answer that. I don't know the answer
to that. I don't know how frequent they are.
Now, by definition, we would be talking about patients that
have some medical problem, because Medicare doesn't cover----
Mr. KLECZKA. Trish, do you have any----
Dr. NEUMAN. I don't think there's any evidence that the
program is rampant with people using services willy nilly that
they don't need.
Mr. KLECZKA. Well, my two colleagues on the right here
indicated that yeah, it does happen in Medicare. From the
discussion here, it's not a real big abusive problem that I'm
aware of. I stay away from the doctor----
Chairman JOHNSON. Would the gentleman yield?
Mr. KLECZKA. Sure.
Chairman JOHNSON. Frankly, we don't know the dimensions of
the problem, nor is anyone suggesting we try to find out. I
don't think the Medicare program is structured, nor do we want
the Federal Government trying to evaluate whether any
particular item of care was necessary or not necessary. I think
the statistics that I gave in my opening comments do give us
some reason to believe that there is overuse. Beneficiaries
with Medigap insurance policies consume $1,400 more in Medicare
services than beneficiaries without supplemental coverage. So,
that's----
Mr. KLECZKA. Maybe those buying supplemental coverage are
sicker. If I'm a healthy senior, I'm not going to buy a
supplemental because I have the basic plan and I'll go bare,
and once I turn 73 and start creaking around----
Chairman JOHNSON. Mr. Kleczka, can I just finish my
sentence?
Mr. KLECZKA. Sure. --and I start creaking around, then I'm
going to start looking for a Medigap policy. That's wise
consumerism.
Chairman JOHNSON. Miss Tubbs Jones.
Ms. TUBBS JONES. Thank you, Madam Chairman, for the
opportunity----
Mr. KLECZKA. I wasn't done yet, but go ahead.
Chairman JOHNSON. Ms. Tubbs Jones.
Ms. TUBBS JONES. Thank you, Madam Chairman, for the
opportunity to inquire. Dr. Neuman, I'm interested, because a
significant number of my constituents are low-income persons,
about, from your perspective, what basic provisions Medicare
covers and what are they missing out of without the ability to
purchase a Medigap policy?
Dr. NEUMAN. Well, Medicare does provide a pretty good range
of basic services. The big gap in Medicare from the perspective
of seniors is prescription drugs. That's the real issue. Some,
but not all, are able to get prescription drugs through other
sources, like the M+C plans, depending on where they live, or
Medigap, if they're able to find a policy and don't have health
problems that would exclude them, or from Medicaid if they're
very low income. That's really the number one concern.
Ms. TUBBS JONES. Now, if they're very low income and they
can get--Let me ask another question.
The way the Federal Government figures out how you are able
to access assistance, there is probably a group of folks--and
I'm not speculating; I'm asking this question of you--that fall
above what Medicaid covers and below what these supplemental
programs, if I were able to afford one, would cover.
Dr. NEUMAN. You're absolutely right. Medicaid does not
cover everybody up to the poverty level, so if you think of
poverty being around $9,000 for a single person, and if you
think you're low income if you're maybe earning less, or have
an income of less than $20,000, you probably have more than a
third of all people on Medicare in that group right there who
would be low income but wouldn't qualify for Medicaid.
Ms. TUBBS JONES. I find this very interesting because
earlier today I was participating in a Subcommittee on Social
Security hearing, where we were talking about the government
pension offset and a husband and a wife both having
participated in Social Security, and when one spouse dies the
other one doesn't get the full income but gets a portion of it,
we were looking at the--The person who testified said to me
that, in order for me to get $1,000 a month income, I would
have had to have made $36,000 annually in order to get $1,000 a
month in Social Security.
When you contemplate that this group we're talking about
probably made no where near $36,000, we have a significant
number of folk out there who are not receiving Medicaid and
can't afford Medigap.
I'm going to ask Mr. White this question as well. We are
paying for these people at some point, at some time, either in
more serious, acute care down the line, or in chronic illnesses
that they have, even without this type of coverage. What would
you suggest as a policy person, each of you, what do we do to
cover that group that can't afford Medigap and make too much
money to be in Medicaid? That's our dilemma, at least from my
perspective.
Dr. NEUMAN. Well, I'll get it started, and I'm sure the
other panelists will have some comments.
Today, Medicaid helps some people, and there is some
discussion about--there had been discussions before the current
fiscal crisis facing States, of either federalizing some of the
benefits that are available to low-income people through
Medicaid, or expanding the role of Medicaid. I think Medicaid
expansions appear a more difficult proposal now, with States
facing large deficits. So, then the real issues involve
expanding Medicare directly, to provide the benefits directly,
or provide more affordable coverage in the supplemental market.
Supplemental coverage is available, but for many people it's
quite expensive.
Maybe the others would have some comments about how to make
it more affordable.
Ms. TUBBS JONES. I'm sorry. I didn't mean to leave you, Mr.
Still. My father is a graduate of Parker High School,
Birmingham, Alabama, or Mr. Hackbarth. Please join in.
Mr. STILL. Trish has some connections to Birmingham, too.
She had grandparents there.
Ms. TUBBS JONES. Okay. Good.
Chairman JOHNSON. We're going to have a vote, so let's
focus on your comments.
Mr. STILL. We are trying to make the products more
affordable. We are trying to do that. Our suggestion would be
to try to make these more affordable. I'm not sure we could
take care of everyone who falls between Medicaid eligible and
someone who can afford a Medicare supplement. We're trying to
reduce the prices of these products to make them more
affordable.
Ms. TUBBS JONES. Mr. White, I apologize. We're about to
have a vote, so I'm going to terminate my questioning--only to
say this. Clearly, if we didn't have the tax cut that's being
proposed, we might be able to pay for some of the health care
benefits that many of the people that are left out of this
process can afford.
Thank you, Madam Chairman, for the opportunity to be heard.
Chairman JOHNSON. I thank my colleague. I think if you
attended the full Committee hearing, you would have heard from
all of the experts, that there is no way, even with the tax
cut, under any other circumstances, that we're going to buy
ourselves out of this problem. We've got a big problem looming,
and the tax cut, eliminating the tax cut, does not solve the
problem. So----
Ms. TUBBS JONES. Madam Chairman, I'm thankful that you
brought out to the attention of the world that I wasn't at the
whole hearing, but there are other issues going on that I'm
required to pay attention to.
Chairman JOHNSON. Thank you. I do want to return to the
issue of overuse, and if Mr. Kleczka would like to comment, he
is welcome to do so.
I think it is significant, or at least I would like to
better understand, why people with Medigap insurance do consume
$1,400 more on average for Medicare patient, when employer-
covered people only consume about $900 more. So, there is a
difference between the structure of the employer plans.
Generally, they have more copayments and ``first dollar''
responsibilities, and people get better coverage with Medicare
and the employer, and yet they're only consuming, on average,
$500 more per patient. So, you would assume that they're not
able to have health care that they need, as Mr. Kleczka clearly
pointed out some people without Medigap, and Ms. Tubbs Jones
clearly was concerned about--and that's a group we've been
concerned about--don't have the resources to get into the
system. Nonetheless, that difference between $1,400 and $500 is
significant and does suggest, in my mind, overuse. Is that a
conclusion that is illogical?
Mr. HACKBARTH. Cost-sharing clearly matters. It affects
utilization of services. I think that's pretty much beyond
dispute, and it may help explain the numbers that you're
talking about.
The issues tend to be about whether the reduced utilization
has an adverse effect on health or not, and there the questions
are more complicated.
Chairman JOHNSON. It's likely, with the employer provided
plans, that it doesn't deny access that is needed. It suggests
to me that the difference between the $500--so you have a
difference between the $1,400 level of usage and the $500 below
that, so one could suggest that you may have about a $500 on
average overuse.
Mr. HACKBARTH. I'm not familiar with all the details of the
studies you're citing, but as I understand what's happening
with employer-provided retiree coverage, there is now a
tendency to move toward means of coordinating the benefits, the
result in people continuing to face some front-end cost-
sharing, as opposed to the employer picking up all of the
Medicare cost-sharing. To the extent that they are facing some
cost-sharing as opposed to Medigap beneficiaries, who have
basically ``first dollar'' coverage, that might help explain
the utilization difference.
Chairman JOHNSON. Dr. Neuman, would you care to comment?
Dr. NEUMAN. I would just concur with that. Our work with
Hewitt Associates has found that employers are maintaining some
level of cost-sharing through deductibles, so many people with
employer coverage don't have ``first dollar'' coverage.
Chairman JOHNSON. Thank you.
Dr. NEUMAN. However, let me just add that they are not
required to pay the full Part A deductible. The amount that's
required is generally in the $200-$300 range.
Chairman JOHNSON. We are looking into that, what exactly is
the general shape of the employer provided coverage.
The gentleman from California, would you care to----
Mr. STARK. Thank you.
I was just going to ask Mr. White and Mr. Still if they
were familiar with the previous Medicare plan that the majority
introduced that had a $250 deducible and a 20 percent cost-
sharing for the next $750, and then a 50-percent cost-sharing
for the next $1,000, and then 100 percent cost-sharing for the
next $2,800 and so forth.
Have you ever come across a similarly structured drug
benefit in your experience in the medical insurance world that
has the ``donut hole,'' as it was called, and is that something
that is used in any other insurance program that you know of?
Mr. WHITE. I think I've heard of one or two very limited
uses of that. It's called a ``corridor'' deductible, which is
the technical term for it.
Mr. STARK. A which?
Mr. WHITE. Corridor deductible is the standard term.
Mr. STARK. Mr. Still.
Mr. STILL. I'm not the best witness on this point.
Mr. STARK. Thank you, Madam Chair.
Chairman JOHNSON. I thank the panel, and appreciate your--
--
Ms. TUBBS JONES. Madam Chairman, just briefly, could I have
unanimous consent to submit an opening statement for the record
on this issue?
Chairman JOHNSON. I would prefer not to set that precedent,
just because you're not a Member of the Subcommittee.
Ms. TUBBS JONES. I'm a Member of the full Committee, ma'am.
Chairman JOHNSON. I appreciate that.
Mr. STARK. Madam Chair, I----
Chairman JOHNSON. There is a Subcommittee structure that I
think is responsible--I have tried to be welcoming and
respectful to----
Mr. STARK. Madam Chair, could I ask permission to submit an
extended opening statement?
Chairman JOHNSON. You certainly may.
Mr. STARK. Thank you.
Chairman JOHNSON. The meeting is adjourned.
[Whereupon, at 1:23 p.m., the hearing adjourned.]
[Submissions for the Record follow:]
Statement of the American Association for Homecare
The American Association for Homecare (AAHomecare) would like to
thank Chairwoman Johnson, Ranking Member Stark and the Ways and Means
Health Subcommittee, for the opportunity to provide testimony on
rationalizing Medicare cost-sharing. We appreciate the Subcommittees
work to strengthen and preserve Medicare and look forward to continuing
to work with the Subcommittee.
AAHomecare is a national association representing a continuum of
home health care including home health agencies, suppliers of durable
medical equipment (DME), orthotics and prosthetics, and suppliers of
re/hab and assistive technology. As a representative of home health
agencies, our members are very concerned about proposals to add a
copayment to the Medicare home health benefit.
BACKGROUND
The typical Medicare home health patient is female, older, poorer,
more likely to live alone, and more likely to have three or more
impairments in activities of daily living (ADLs) than the average
Medicare beneficiary.
As you know, last year the House of Representatives rejected the
inclusion of a home health copayment in the Medicare Modernization and
Prescription Drug Act of 2002 (H.R. 4954). This legislation also
included an elimination of the 15% cut and an extension of the 10%
rural add on for home health services provided to beneficiaries living
in rural areas. Unfortunately, since the bill was not approved by the
Senate, the 15% cut went into effect on October 1, 2002 and the rural
add on expired on April 1 of this year. While the true impact of these
recent reimbursement cuts has yet to be determined, home health
agencies have closed since the enactment of the 15% cut and many of the
remaining providers are finding it extremely difficult to continue
providing medically necessary health care services to beneficiaries in
the home. The home health industry desperately needs a period of
stability to enable providers of home health services to continue to
provide services to the most vulnerable medically complex patients.
CONGRESS SHOULD NOT ENACT COPAYMENTS FOR HOME HEALTH
Copayments Would Have Disproportionate Impact on Frail Elderly
AAHomecare strongly opposes adding a copayment to the home health
benefit for many reasons outlined throughout the testimony. A copayment
would fall heaviest on the sickest Medicare home health patients, those
having multiple episodes of care. Home health patients are typically
older, sicker, poorer, and are the least likely to have disposable
incomes. 70 percent of beneficiaries are over age 75, and 25 percent
are over 85. Most have incomes of less than $15,000 per year, while 43
percent have less than $10,000 per year. They are confined to home,
unlikely to ever return to work, and unable to earn money to offset the
cost of an additional copayment.
Home health beneficiaries are already subject to copayments and
assume responsibility for many of their health care costs, including
the 20% copayment for physicians' services which is an essential part
of covered home health services. In addition, home health beneficiaries
pay for more of their health care costs than beneficiaries in other
treatment settings, as well as their food, shelter, and other costs
necessary to remain at home. Copayments would increase beneficiaries'
costs without improving the Medicare home health benefit.
Copayments Will Undermine The Patient Caregiver Relationship and
Increase Administrative Burdens on Home Health Agencies
AAHomecare also has concerns regarding the change in the
relationship between the beneficiary and the caregiver implementation
of a copay would bring. If home health agencies are required to collect
a copayment the beneficiaries in many cases will refuse care. In
addition, implementing a copayment would add new administrative burdens
to home health agencies when they can least afford it. Agencies would
be forced to set up new billing and collection systems at the very time
they are still trying to master the intricacies of the new prospective
payment system and OASIS, as well as preparing for implementation of
the Outcome Based Quality Improvement system and HIPAA privacy and
transaction standards. These new administrative costs are being imposed
upon home health providers in the wake of reimbursement reductions of
over 50% stemming from the Balanced Budget Act of 1997.
Copayments Not Needed To Reduce Home Health Rate of Growth
One argument in favor of copayments is that they would help contain
the rate of growth in the industry. AAHomecare does not believe that
copayments are necessary in order to control the rate of growth in home
health. Since 1997, approximately 1.2 million Medicare beneficiaries
have been lost from the home health benefit, payments have been cut by
more than 50%, and the number of home health providers has been cut by
36%. MedPAC concluded in its March 2003 report that following the
implementation of home health PPS, there continues to be a decline in
the number of beneficiaries receiving home health services. Simply
stated, there is no reliable evidence to show that the home health
benefit is growing at an inappropriate rate.
One other misunderstanding is that home health is the only benefit
under Medicare that does not currently have a copayment. This is not
true. The Medicare program does not impose a copayment on the first 60
days of inpatient hospital services or on outpatient clinical
laboratory services.
In 1997, when Congress created the prospective payment system for
home health it was done in part as an alternative to copayments. At the
time, Congress supported PPS over copayments because PPS promotes
efficiency and appropriate care, while copayments restrict utilization
by penalizing the sick. If given time to stabilize, the PPS system
currently in place can be refined to address issues with the Medicare
home health benefit.
CONCLUSION
In closing AAHomecare would like to reiterate its recommendation
that the Subcommittee reject the idea of adding a copayment to the home
health benefit. Congress should follow the recommendations of the
Polisher Research Institute by giving the home health benefit a chance
to stabilize.
Statement of the American Medical Association
The American Medical Association (AMA) appreciates the opportunity
to present to the Ways and Means Subcommittee on Health our views on
Medicare cost-sharing and Medigap, and we applaud the efforts of the
Chairman and Members of the Subcommittee for focusing on this important
issue.
For years the AMA has been a strong advocate of basic, essential
reforms of Medigap and the cost-sharing aspects of the Medicare
program, and AMA policy supports the following modifications in this
regard.
Medicare Beneficiary Cost-Sharing
The AMA recommends that the Medicare fee-for-service program
implement a single combined deductible for beneficiaries, instead of
the existing, separate Part A and B deductibles, and, in addition, we
recommend a cap on beneficiaries' total out-of-pocket spending.
Beneficiary cost-sharing in the traditional Medicare fee-for-
service program is a key contributor to the bleak outlook for the
Medicare program's long-term finances. Because patient copayments are
not capped and hospital benefits diminish and eventually expire if
patients have to stay in the hospital for a lengthy period,
beneficiaries annually face potential out-of-pocket costs for covered
Medicare services of as much as $34,000. Beneficiaries also face
additional and exorbitant out-of-pocket costs for non-covered medical
services. These enormous potential costs generate a huge demand for
supplemental insurance, or medigap, policies. Far from being a
solution, however, medigap is part of the problem.
The Medigap Problem
As the General Accounting Office (GAO) recently testified, Medigap
coverage is expensive and its costs are increasing rapidly. Fewer
employers now offer retiree health benefits (34% in 2001, down from 66%
in 1988) and even fewer offer supplemental coverage to their Medicare-
age retirees (23% of firms in 2001, down 10% since 1999). More
beneficiaries must, therefore, buy medigap policies themselves, and
annual premiums averaged $1,300 (but the range could exceed $5,500) in
1999 and rose by up to 34% in 2000.
Medigap policies also encourage inappropriate utilization of
services since they offer first-dollar coverage that completely
insulates patients from the costs of covered services. The current
system is designed so that the beneficiary's rational response is to
obtain supplemental coverage, which the majority of beneficiaries do as
a hedge against economic catastrophe. The risk of paying tens of
thousands of dollars out-of-pocket is not one that most beneficiaries
want to take.
Further, government studies have shown that beneficiaries with
Medigap utilize 28% more medical services than they would otherwise.
While Medigap plans cover about 20% of the cost of this increased
utilization, the Medicare program pays 80%. Besides adding to the
strain on Federal resources, the 80% that Medicare pays increases
Medicare premiums for all beneficiaries, whether or not they have
Medigap.
The AMA would like to work with Congress and the Administration to
design enhancements for both traditional Medicare and new private plan
options, including restructuring Medicare's cost-sharing policies, as
discussed above, to reduce potential beneficiary liability in a manner
that eliminates the need for private Medigap insurance.
As an example of the benefits of a more sensible cost-sharing
structure, PriceWaterhouseCoopers has estimated that a system with a
combined refundable deductible of $500 and no additional cost-sharing
would reduce Medicare spending by about 4.0% for each enrollee who
selected this type of plan.
The Baby Boomers will begin aging into Medicare in just a few
years, and it is imperative that we take steps now to improve and
secure the program for this generation of older and disabled Americans
and the generations to come.
We again thank the Subcommittee for your leadership on these
important matters and for the opportunity to provide our views.
Statement of the Coalition to Promote Choice for Seniors
The Coalition to Promote Choice for Seniors represents the vast
majority of companies who provide supplemental Medicare coverage to
over 10 million Medicare beneficiaries. Numerous public and private
sector studies have demonstrated that Medicare beneficiaries express
overwhelming satisfaction with Medicare supplemental insurance,
including Medigap plans.
When considering issues related to Medicare cost-sharing and
Medigap, we would recommend that the Committee consider the following
principles:
The overwhelming majority of senior Medicare
beneficiaries currently elect to obtain their Medicare health care
services through the traditional fee-for-service delivery system.
Policymakers should take no action that endangers the delivery of
health care service to senior Medicare beneficiaries.
Private, voluntary Medigap coverage can continue to
provide older Americans with a valuable Medicare drug benefit that
might not otherwise be available to them.
To help keep Medigap coverage affordable for older
Americans who choose to purchase private insurance, a one-time open
enrollment option should be retained to avoid adverse selection and
higher costs.
Seniors should continue to have access to existing
Medigap products. Further, insurers should have the flexibility to
continue offering existing products, but must be able to discontinue
failed products if necessary.
In order to provide the most appropriate level of
benefits to seniors, insurers should have the ability to employ tools
used in the commercial market to manage the benefits.
Seniors should be afforded the option of first dollar
insurance coverage that is consistent with many employer-provided
retiree offerings.
The Coalition to Promote Choice for Seniors consists of the
following companies and associations: Blue Cross Blue Shield
Association; Health Insurance Association of America; Highmark Blue
Cross Blue Shield; Monumental Life Insurance Company; Mutual of Omaha;
National Association of Health Underwriters; Torchmark Corp.;
WellPoint.
Statement of the Health Insurance Association of America
Introduction
The Health Insurance Association of America (HIAA) greatly
appreciates the opportunity to submit written testimony for your May 1,
2003 hearing from the standpoint of our member companies (Medigap
policy issuers) and their customers (Medicare beneficiaries). HIAA is
the nation's most prominent trade association representing the private
health care system. Its nearly 300 members provide health, long-term
care, dental, disability, and supplemental coverage to more than 100
million Americans. Many of HIAA's members provide Medicare supplemental
insurance products, including individual Medigap policies.
Need for Medicare Supplemental Benefits
Medicare beneficiaries are at risk of incurring major out-of-pocket
costs for medical care. The Medicare Part A deductible for each episode
of inpatient hospitalization in a year is $840 in 2003. There is a $100
annual deductible for physician and other outpatient benefits covered
by Part B. In addition, once the deductibles have been met,
beneficiaries may incur substantial cost-sharing obligations for
covered services. Medicare places no limit on out-of-pocket
expenditures for these payments. In addition, Medicare beneficiaries
are fully at risk for benefits that Medicare does not cover at all,
such as most outpatient prescription drugs. Attachment A lists the
major health care expenses not covered by Medicare. The Secretary of
the U.S. Department of Health and Human Services, in April 2002
testimony to the House Ways and Means Committee, noted: ``Because of
the major gaps in the benefit package in the fee-for-service [Medicare]
program, supplemental coverage--often called Medigap--is an essential
part of Medicare coverage for millions of our nation's elderly and
disabled.'' \1\
---------------------------------------------------------------------------
\1\ Testimony of Tommy G. Thompson, Secretary, U.S. Department of
Health and Human Services, before the House Committee on Ways and
Means, April 17, 2002.
---------------------------------------------------------------------------
Beneficiaries Value Supplemental Coverage
Because of the cost-sharing requirements on covered services, and
limits on what services are covered, as noted above, Medicare is
estimated to cover only about half of the health care costs incurred by
seniors and other beneficiaries. It is little surprise then that nine
out of ten Medicare beneficiaries obtain additional coverage to
supplement their Medicare benefits and protect themselves from these
substantial costs. In 2000, the major sources of coverage supplementing
Medicare were employer-sponsored coverage (32 percent of beneficiaries)
and individually purchased insurance policies, i.e., Medigap plans (27
percent of beneficiaries). This 27 percent translates to over 10
million Medicare beneficiaries enrolled in a Medigap plan in 2000.\2\
Estimates of the number of Medigap enrollees for a sampling of States
in 2001 include: California, 584,000 Medigap enrollees; Connecticut,
138,000; Florida, 663,000; New York, 382,000; Pennsylvania, 664,000;
and Texas, 500,000.\3\ Attachment C shows Medigap enrollment in 2001
for each State.
---------------------------------------------------------------------------
\2\ Medicare Payment Advisory Commission, Report to the Congress:
Medicare Payment Policy, March 2003, p. 206.
\3\ U.S. Census Bureau, Analysis of 2001 coverage data from the
March 2002 Current Population Survey. Posted at http://
ferret.bls.census.gov/macro/032002/health/h05_000.htm.
---------------------------------------------------------------------------
Medicare beneficiaries overwhelmingly value and express
satisfaction with Medicare supplemental insurance, including Medigap
plans. Annual surveys of Medicare supplemental insurance policyholders
conducted by the U.S. Department of Health and Human Services
consistently show a high level of satisfaction with supplemental
coverage. In a 2001 survey conducted by American Viewpoint, 89 percent
of beneficiaries were satisfied or very satisfied with their Medigap
coverage, while 76 percent said that, considering the premiums they
pay, the policies are a good or excellent value. What they value most
is peace of mind from knowing what their medical costs will be and the
lack of paperwork--they don't have to hassle with medical bills. The
vast majority (81 percent) would recommend Medigap coverage to a friend
or relative when they become Medicare eligible.
Another indication of the value beneficiaries ascribe to their
Medigap coverage is policy renewal and retention rates. While
standardized Medigap plans have been available since 1992, the Medicare
Payment Advisory Commission (MedPAC) recently pointed out that
``[a]bout 25 percent of Medigap enrollees have stayed in their
prestandardized plans that have been closed to new enrollment since
1992.'' \4\ In other words, many Medicare beneficiaries retain Medigap
policies they originally purchased more than 10 years ago. MedPAC went
on to observe that the ``benefits in nonstandardized plans tend to be
similar to those found in the standardized plans.'' MedPAC also noted
recently that there are a large number of beneficiaries in standardized
Medigap plans that have been closed to new members for at least three
years.\5\ Clearly these beneficiaries value their current coverage.
---------------------------------------------------------------------------
\4\ Medicare Payment Advisory Commission, Report to the Congress:
Medicare Payment Policy, March 2003, p. 199.
\5\ Transcript of MedPAC March 20, 2003 meeting on health insurance
markets for Medicare beneficiaries.
---------------------------------------------------------------------------
We would argue that yet another indication of value is the fact
that a number of associations serving senior citizens have chosen to
offer Medigap coverage as a benefit of membership. This includes AARP.
Cheryl Matheis, AARP Director of State Affairs, said the following in
December 3, 2002 testimony to the NAIC Medicare Supplement Working
Group:
``Because Medicare benefits cover only a portion of a typical
Medicare beneficiary's spending on health care, supplemental coverage
can provide financial protection against out-of-pocket costs for many
of the beneficiaries who are enrolled in original fee-for-service
Medicare. Therefore, the availability of adequate, affordable insurance
coverage to help supplement Medicare remains vitally important. To help
make financial protection available to our members, AARP contracts with
United HealthCare to offer Medicare Supplement policies to our
members.''
At the outset, then, we should all be mindful of the fact that
seniors satisfied with their current health care coverage would likely
oppose major changes to a product that already works well for them. We
say this as a representative of dozens of companies whose customers
include millions of Medicare beneficiaries.
In the remainder of this testimony, we will briefly describe
current Medigap coverage options, review several burning Medigap
issues, and provide a few recommendations for your consideration.
Medigap Benefit Design
The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) limits
Medigap policies to ten standard plans labeled A through J. In 1997
Congress added a high-deductible version of plans F and J.\6\ Each
standard plan contains a core benefit package. Plan A consists of the
core benefits alone; Plans B-J contain additional benefits such as
coverage of copayments for care in a skilled nursing facility, benefits
for at-home help, coverage of physician charges in excess of Medicare's
approved amount, and limited coverage for prescription drugs.
Attachment B shows the core benefit package and the additional benefits
covered by each standard plan. All Medigap policies currently issued
must conform to one of the ten standard plans, although beneficiaries
may renew non-standard plans issued before July 1992.\7\
---------------------------------------------------------------------------
\6\ The high deductible plans were added under P.L. 105-033, the
Balanced Budget Act of 1997. For 2003, the high deductible amount is
$1,650.
\7\ Three states (Massachusetts, Minnesota, and Wisconsin) kept the
system of standard plans they developed prior to OBRA 90.
---------------------------------------------------------------------------
Some standard plans are considerably more popular than others.
Figure 1 shows the percentage of Medigap policyholders enrolled in each
standard plan. As explained below, plans H, I, and J, which provide
some coverage for outpatient prescription drugs, have seen low
enrollment because of the effects of adverse selection.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Medicare Payment Advisory Commission, ``Report to Congress:
Assessing Medicare Benefits.'' (June 2002).
Prescription Drug Coverage
Three of the standard Medigap plans (plans H, I, and J) provide
limited coverage for outpatient prescription drugs. Plans H and I
contain a $250 deductible for drug benefits and pay 50 percent of drug
costs up to a maximum payment of $1,250 in a year. Plan J has the same
deductible but pays 50 percent of drug costs up to a maximum annual
payment of $3,000. None of these plans, nor any other standard Medigap
plan, provides catastrophic coverage for prescription drug costs.
Offering affordable Medigap coverage that covers prescription drugs
has proven extremely difficult, especially as drug utilization and
spending have increased at a rapid pace over the last decade. The 2002
average annual expenditure for prescription drugs by a Medicare
beneficiary was estimated to be $1,912.\8\ And during the last decade
prescription drug spending has outpaced increases in other health
expenditures by a wide margin, so that prescription drugs have come to
account for a larger and larger portion of total health care
expenditures.
---------------------------------------------------------------------------
\8\ Marilyn Moon and Matthew Storeygard, ``Stretching Federal
Dollars: Policy Trade-offs in Designing a Medicare Drug Benefit with
Limited Resources,'' The Commonwealth Fund Policy Brief. (August 2002).
---------------------------------------------------------------------------
In addition to the rising cost of prescription drugs, adverse
selection against plans H, I, and J has driven premiums for these plans
to a level where they are a reasonable purchase only for persons who
have extremely high annual drug expenses. The term ``adverse
selection'' refers to the tendency of individuals to purchase health
benefits only when they expect to need them. Prescription drug benefits
are particularly susceptible to adverse selection in the senior market
because drug expenditures for seniors tend to be more predictable (for
example, because of high utilization of maintenance drugs) and are much
higher than they are for younger individuals.
Over time, adverse selection has caused premiums for the Medigap
plans with drug coverage to spiral upwards as the pool of persons with
these plans has come to include, to a greater and greater extent, just
those who have a substantial and ongoing need for prescription drug
benefits. Because of this problem, many insurers no longer offer these
plans.
Non-Standard Medigap Coverage
While a great deal of attention is paid to standardized Medigap
policies, it needs to be remembered that a large number of Medigap
policyholders actually have nonstandardized policies. In its June 2002
report to the Congress, MedPAC noted that in 2000, about 400,000
Medicare beneficiaries with private Medicare Supplement insurance lived
in the three States not subject to the national Medigap benefit
standards (Massachusetts, Minnesota, and Wisconsin). And, more
importantly, another 3.1 million beneficiaries were still enrolled in
pre-standardized plans.\9\ Many of these non-standard Medigap plans
offer some coverage for outpatient prescription drugs.
---------------------------------------------------------------------------
\9\ Medicare Payment Advisory Commission, Report to the Congress:
Assessing Medicare Benefits, June 2002, pp. 76-77.
---------------------------------------------------------------------------
Federal Requirements Relating to Open Enrollment and Premium Rates
In addition to standardizing Medigap policies, OBRA 90 established
a six-month open enrollment period for Medigap coverage beginning when
a beneficiary is age 65 or older and enrolls in Part B. A beneficiary
applying for a Medigap plan during this period may not be denied
coverage and cannot be charged a higher premium because of poor health.
OBRA 90 also requires that all Medigap policies be guaranteed renewable
regardless of when the policy is issued and increased other regulatory
standards.\10\
---------------------------------------------------------------------------
\10\ A guaranteed renewable policy may not be cancelled or have its
benefits changed, although the premium may increase, subject to State
limitations. Other requirements on Medigap plans established by OBRA 90
include requiring State approval of premium rates and reporting of the
proportion of premiums paid as benefits.
---------------------------------------------------------------------------
Recent Federal laws have expanded open enrollment for Medigap plans
to include certain additional circumstances--for example, certain cases
where a beneficiary terminates or loses coverage in a Medicare+Choice
plan or loses coverage under an employer-sponsored plan.\11\ Additional
proposals to expand open enrollment are presented in nearly every
Congressional session. It is important for Congress to evaluate these
proposals carefully. Additional open enrollment opportunities may
prompt Medicare beneficiaries to delay purchasing Medigap coverage or
even game the system. This can disadvantage the majority of Medicare
beneficiaries who obtained supplemental coverage at the first
opportunity, by driving up the costs of coverage.
---------------------------------------------------------------------------
\11\ The Balanced Budget Act of 1997 (BBA), the Medicare, Medicaid
and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), and the
Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of
2000 (BIPA) each expanded Medigap open enrollment opportunities.
---------------------------------------------------------------------------
State Regulation
Although Federal law establishes a wide range of requirements for
Medigap coverage, the States have primary enforcement jurisdiction over
Medigap insurers and policies. State regulatory authority includes
review and approval of premium rates, regulation of rating practices
and rules of enrollment, review and approval of policy forms, and all
other aspects of insurance regulation. States may expand open
enrollment and other guaranteed rights to Medigap coverage beyond the
requirements established by Federal law, and, in fact, many have done
so.
The Issue of First-Dollar Coverage
It is clear from Figure 1 above that the most popular standardized
Medigap plans are Plans C and F--the only two non-drug plans that cover
both Medicare Part A and Part B deductibles as well as Part A copayment
and Part B coinsurance amounts. This benefit design is typically
referred to as first-dollar coverage. Some policymakers have expressed
concern that first-dollar coverage, by lessening beneficiary price
sensitivity, may increase Medicare spending, perhaps inappropriately.
This is not a new issue, and things are not as simple as they might
first appear. To begin with, Medigap plans that do not provide full
first-dollar coverage are available to beneficiaries. However, the
plans that do are far and away the most popular plans among the
nation's seniors. Despite the fact that less expensive plans are
available, over half of Medigap purchasers select plans C or F. This
popularity is likely due to the fact that Medicare beneficiaries are
risk averse and derive a great deal of financial and personal security
from their supplemental insurance policies.
Moreover, as mentioned above, under the Balanced Budget Act of
1997, Congress provided for two new high-deductible Medigap products.
However, few such plans have actually been sold, and there are reports
that the biggest hurdle to the sale of these products is overcoming
beneficiary expectations that a Medigap plan will provide first-dollar
coverage.
Second, if Medicare spending is higher for beneficiaries who
purchase a Medigap plan with first-dollar coverage, it cannot
automatically be assumed that such spending is for medically
inappropriate or unnecessary services. Medicare's existing coverage and
utilization review mechanisms are specifically designed to assure that
Medicare pays only for items and services that are reasonable and
necessary. Medicare supplemental insurers do not make independent
coverage decisions. Thus, attempts to move away from first-dollar
coverage might in fact impose barriers to the receipt of necessary
care. A special study performed a few years ago for HIAA by Gerard
Anderson and his colleagues at Johns Hopkins noted that the burden of
Medicare cost-sharing is distributed unequally across beneficiaries,
increasing as they become older, develop chronic illnesses, or have
catastrophic illnesses.\12\ Supplemental insurance spreads this risk,
thereby reducing the financial burden on older beneficiaries and those
with chronic or catastrophic illnesses.
---------------------------------------------------------------------------
\12\ Anderson, GF; Wiest, A; Shaffer, T; Hussey, P; and Bilenker,
J. Concerns About the Theory of Increased Cost-Sharing for Medicare
Beneficiaries and Its Policy Implications for the Medicare Program.
Washington, DC: Health Insurance Association of America, 1999.
---------------------------------------------------------------------------
Dr. Anderson's study also noted that the available literature
suggested that Medicare beneficiaries' price sensitivity is greatest
for preventive and physician services. According to Dr. Anderson's
study, Medicare beneficiaries without supplemental insurance were much
less likely to have flu shots, mammograms, and pap smears. For this and
other reasons, Dr. Anderson cautioned that comparisons of the Medicare
expenditures incurred by beneficiaries with supplemental coverage and
those who do not overestimate the effect of supplemental insurance on
Medicare spending.
Even the celebrated RAND Health Insurance Experiment, which
investigated the impact of cost-sharing on health care utilization by a
non-elderly population, found that when faced with cost-sharing,
individuals were just as likely to limit the use of ``highly
effective'' care as ``less effective'' care. Thus, as far as we can
determine, the Medicare savings predicted from restrictions on first-
dollar coverage of Medicare deductible and coinsurance amounts would,
at least to some extent, be due to the fact that beneficiaries would be
discouraged from seeking medically appropriate care. In a report last
year, the Congressional Budget Office acknowledged that ``the decrease
in use of services by Medigap policyholders'' produced by restrictions
on first-dollar coverage ``might not be limited to unnecessary care, so
the health of some policyholders might be adversely affected.'' \13\
---------------------------------------------------------------------------
\13\ Congressional Budget Office, Budget Options, February 2001.
---------------------------------------------------------------------------
A more recent study provides actual evidence of continuing
underutilization by Medicare beneficiaries. In a paper published in the
Journal of the American Medical Association early this year, Federal
officials noted that a large number of Medicare beneficiaries enrolled
in Medicare's fee-for-service program failed to receive the amount of
recommended care.\14\ For example, during 2000-2001, 29 percent of
Medicare beneficiaries failed to obtain a yearly flu shot, and 36
percent had never received the recommended pneumococcal vaccine.
Similarly, 23 percent of female Medicare beneficiaries aged 52 to 69
failed to receive recommended mammographic screening. And, in the case
of Medicare beneficiaries with diabetes, large numbers failed to
receive recommended eye exams and lab tests.
---------------------------------------------------------------------------
\14\ S.F. Jencks, E.D. Huff and T. Cuerdon, ``Change in the Quality
of Care Delivered to Medicare Beneficiaries, 1998-1999 and 2000-2001,''
JAMA, January 15, 2003, 289(3): 305-312.
---------------------------------------------------------------------------
The level of underutilization documented by this report was even
more profound in some States. For example, 48 percent of female
Medicare beneficiaries in the District of Columbia, 44 percent of those
in California, and 42 percent of those living in New York did not
receive the recommended level of mammographic screening in 2000-2001.
In the case of annual flu shots, more than a third of the Medicare
beneficiaries in Alabama, Florida, Kentucky, Louisiana, Nevada and the
District of Columbia did not get them. And, during this same period, 35
percent or more of the Medicare beneficiaries with diabetes living in
14 States (Alabama, Alaska, Arizona, Georgia, Indiana, Kentucky,
Louisiana, Missouri, Nevada, New Mexico, Oklahoma, Tennessee, Texas,
and West Virginia) did not get the recommended eye exams. In short,
while some see the higher health care utilization rates of Medicare
beneficiaries with supplemental coverage as a problem, the real problem
may be that many beneficiaries are not getting the care they need. That
may well explain why Medicare expenditures vary for beneficiaries with
and without supplemental coverage.
With respect to first-dollar coverage, we would make only one
additional point. The HIAA member companies that sell Medigap insurance
have made it clear to me that Medicare beneficiaries--their customers--
greatly prefer Medigap plans that provide full protection against
Medicare deductibles and other cost-sharing amounts. They predict that
any Congressional plan to restrict Medigap first-dollar coverage of
such deductibles and cost-sharing obligations will, at best, be
difficult for Medicare beneficiaries to understand, and could even risk
producing a great deal of anger and hostility. HIAA's member companies
vividly recall beneficiary reactions to the Medicare catastrophic
protections passed by Congress in 1988 and repealed soon after. They
wish to avoid a repeat of this kind of public relations disaster.
The Foreign Travel Benefit
Some policymakers have questioned the value of one of the
prescribed benefits for most Medigap policies, foreign travel
insurance, asserting that most beneficiaries never leave their home
country. This benefit covers 80 percent of the medically necessary
emergency care received in a foreign country, after a $250 deductible,
up to a lifetime maximum of $50,000. Based on conversations with our
member companies, we can make several interesting observations about
this benefit.
The first thing to recognize is that consumer groups had an active
role in deciding what benefits would be included in the standardized
plans. During the 2000 National Association of Insurance Commissioners
(NAIC) winter meetings, consumer representative Bonnie Burns spoke
about the foreign travel benefit at a public hearing on Medigap reform.
Ms. Burns said:
``The benefit for foreign travel is often criticized for being
included in most of the packages. Let me explain the genesis of this
benefit. Before OBRA 90, the Blues and AARP, representing over half the
Medigap market, routinely covered foreign travel but few beneficiaries
knew that they had that benefit. When people traveled out of the U.S.
they bought travel policies to cover their medical expenses. Those
policies then as now seldom covered medical care in the way seniors
expected. In fact, they were much more like accidental injury, death or
dismemberment policies.
``During the formation of these standardized packages it
became apparent that the major insurers automatically provided this
benefit and that the cost of doing so was extremely low, and the
benefit was included in most of the packages. Since 1992 this benefit
has been so obviously covered by a Medigap policy there has been no
need for seniors to buy a separate, but woefully insufficient travel
policy when they travel outside the country. And, it isn't just the
wealthy who travel and can potentially take advantage of this benefit,
but many people of modest means who now take cruises or travel to
Mexico or Canada. If the medical benefits in travel policies were
reformed there might be much less need for this benefit in a Medigap
policy. But over the years powerful interests have beaten back efforts
to reform various types of low value policies and that shows no sign of
changing.'' \15\
---------------------------------------------------------------------------
\15\ 2000 Proceedings of the NAIC, 4th Quarter.
One of our member companies sells Medigap policies to seniors in
---------------------------------------------------------------------------
the Southwestern States. They make the following observations:
``Many of our members tell us that the foreign travel benefit
is perceived as a valuable benefit to them and those who have had to
use the benefit have communicated to us how grateful they were that the
benefit existed.
``The number of foreign travel claims paid is small in
relation to other Medigap benefits paid. In 2002, we paid 162 foreign
travel claims on over 72,000 Medicare Supplement policies in force.
However, those 162 policyholders are all glad that this benefit was
part of their Medicare supplement from our company--it paid off when
they found themselves in the position to need it. One of our claims,
that ran up to the lifetime $50,000 maximum, was for an insured who was
in an extreme life-threatening situation.''
While the foreign travel benefit may be used fairly infrequently,
it adds no more than a few dollars per year to the premium. Given that
Medicare covers nothing when seniors travel abroad, the foreign travel
benefit provides considerable peace of mind to seniors who do travel.
We should also keep in mind that, for purposes of this benefit,
``emergency care'' means ``care needed immediately because of an injury
or illness of sudden and unexpected onset.'' \16\ So coverage is not
limited to life-threatening conditions, and immediate treatment abroad
may well provide savings to Medicare if, without it, individuals might
have required treatment for complications or more severe problems when
they returned to the States.
---------------------------------------------------------------------------
\16\ See NAIC Medicare Supplement Model Regulation section 8(c)(8).
---------------------------------------------------------------------------
Ideally, any redesign of Medigap benefits in the context of
Medicare reform would take account of the needs and preferences of
today's seniors. In this regard, it also needs to be remembered that
current law requires that Medigap products be guaranteed renewable.
This means that a Medigap policy may not be cancelled or have its
benefits changed. Thus, any revisions to current Medigap benefits would
raise very important transition issues, which are likely to be complex
and difficult to resolve.
HIAA's Recommendations to the Congress
What we have tried to do in this statement is to provide a context
for the understandable desire to reform not only the basic Medicare
program, but Medigap coverage options as well. We hope it is apparent
that even the most tempting Medigap reforms would need to navigate some
difficult ground. The design of any new or revised Medigap plans would,
of course, be heavily dependent upon the features of a modernized
Medicare program. Thus, it seems to us that the Congress should first
make decisions about the Medicare program itself, and then proceed to
address corresponding Medigap issues.
HIAA also believes that changes to Medigap policies should be done
in conjunction with comprehensive changes in Medicare benefits, and not
before that time. Further, changes affecting Medigap should be made at
one time and not in an incremental or piecemeal fashion. Making Medigap
changes in two or more ``rounds of reform'' would add significantly
more administrative costs to the system than making such changes at one
time, and would likely increase beneficiary confusion.
We would also suggest that Congress provide as much flexibility as
possible for any mandated redesign of Medigap benefits. As you know,
under the Omnibus Budget Reconciliation Act of 1990, the Congress did
not specify the contents of the 10 standardized Medigap plans we have
today, but instead allowed for a process where consumer
representatives, State regulators, and insurers worked together to
design Medigap benefit options. Similarly, we believe that it would be
extremely risky for Congress to mandate by statute the contents of
insurance products intended for voluntary sale and purchase in the
private marketplace.
In the case of the elderly, many of whom suffer from chronic
illnesses, treatment costs for such things as prescription drugs and
regular physician office visits can be more or less predictable. This
relative predictability certainly permits each beneficiary to make a
reasoned economic judgment about the expected near-term value of an
insurance product. In other words, beneficiaries can be expected to do
the math, comparing anticipated benefits with known premium costs. This
raises the potential that healthier Medicare beneficiaries will seek
out lower cost Medigap products or even decide to self-insure, thereby
further driving up the average costs of coverage for those remaining
behind. As insurers know only too well, benefit redesign, if not very
carefully done, can lead to adverse selection and ultimately make the
re-designed insurance product simply unaffordable for the average
citizen.
Finally, to state the obvious, when it comes to Medigap, Medicare
beneficiaries are the customers, and they are free to buy--or not buy--
available products. In the end, whatever we do must be viewed as
beneficial, not harmful, to the interests of the typical Medicare
beneficiary, and result in Medigap products that are affordable.
Conclusion
Given budgetary realities, it seems almost certain that even a
modernized Medicare will leave substantial out-of-pocket expenses for
many Medicare beneficiaries, who will continue to want and need
Medicare supplemental insurance. Thus, any Medicare modernization plan
will need to provide a reasonable roadmap for transitioning from
``old'' to ``new'' Medicare, and from current Medigap and other
supplemental coverage to any new Medicare supplemental insurance
options.
In considering such a transition, it is extremely important to
understand that the States, not the Federal Government, have primary
enforcement jurisdiction over Medigap insurers and policies. As a
result, any Federal legislation affecting Medigap insurance products
will need to be mindful of the interplay between Federal and State
requirements.
We hope that this testimony helps elucidate the many issues that
arise in any consideration of changes to Medigap. HIAA is open to
considering Medigap reforms in the context of broader reform of
Medicare covered benefits. However, without knowing how the core
Medicare benefit package is structured, it is difficult, if not
impossible to properly evaluate the merit of individual Medigap reform
suggestions. In addition, some suggestions may not be well received by
Medicare beneficiaries, could risk subjecting Medigap plans to adverse
selection, or might otherwise endanger the important goal of
maintaining affordable Medigap products. In any case, HIAA and its
member companies look forward to working with this Committee to craft
feasible Medicare and Medigap policies that will meet the needs and
expectations of Medicare beneficiaries.
__________
Attachment A
Costs Not Covered By Medicare Traditional Fee-For-Service Program
------------------------------------------------------------------------
Part A 2003 Beneficiary Costs
------------------------------------------------------------------------
Inpatient
------------------------------------------------------------------------
Deductible for each hospital stay $840
of 1-60 days
------------------------------------------------------------------------
Copayments for days 61-90 $210 per day
------------------------------------------------------------------------
Copayments for lifetime reserve $420 per day
days 91-150
------------------------------------------------------------------------
Beyond 90 days after exhausting All costs
lifetime reserve days
------------------------------------------------------------------------
Skilled Nursing Facility Care
------------------------------------------------------------------------
Days 21-100 Up to $105 per day
------------------------------------------------------------------------
Beyond 100 days All costs
------------------------------------------------------------------------
Home Health Care
------------------------------------------------------------------------
Durable Medical Equipment 20% of approved amount
------------------------------------------------------------------------
Hospice Care
------------------------------------------------------------------------
Outpatient drugs and inpatient Limited costs
respite care
------------------------------------------------------------------------
Blood
------------------------------------------------------------------------
First three pints All costs
------------------------------------------------------------------------
Part B
------------------------------------------------------------------------
Medical expenses $100 annual deductible
------------------------------------------------------------------------
Physician costs 20% of allowable charges
------------------------------------------------------------------------
Physician not accepting 20% of allowable charges plus
assignment
100% of the difference between
allowable charges and an
additional capped amount
------------------------------------------------------------------------
Outpatient hospital services Variable copay amounts
determined by formula*
------------------------------------------------------------------------
Outpatient mental health services 50% of approved charges
------------------------------------------------------------------------
Monthly premium $58.70
------------------------------------------------------------------------
Other Costs Not Covered By Medicare
------------------------------------------------------------------------
Routine exams and podiatric care All costs
------------------------------------------------------------------------
Long-term care All costs
------------------------------------------------------------------------
Care outside United States All costs
------------------------------------------------------------------------
All costs that are not medically All costs
necessary
------------------------------------------------------------------------
Dental, hearing, and vision care All costs
------------------------------------------------------------------------
Outpatient prescription drugs All costs**
------------------------------------------------------------------------
* Under current law, copayments exceeding 20% are being phased down
gradually to 20%.
** Medicare covers a limited number of drugs and antigens that cannot be
self-administered.
Attachment B
Benefits Covered By Standard Medigap Plans
----------------------------------------------------------------------------------------------------------------
Standard Medigap Plans
Covered Benefits ---------------------------------------------------------------------
A B C D E F** G H I J**
----------------------------------------------------------------------------------------------------------------
Core Benefits* 3 3 3 3 3 3 3 3 3 3
----------------------------------------------------------------------------------------------------------------
Part A Deductible 3 3 3 3 3 3 3 3 3
----------------------------------------------------------------------------------------------------------------
SNF Coinsurance 3 3 3 3 3 3 3 3
----------------------------------------------------------------------------------------------------------------
Foreign Travel Emergency 3 3 3 3 3 3 3 3
----------------------------------------------------------------------------------------------------------------
At-Home Recovery 3 3 3
----------------------------------------------------------------------------------------------------------------
Part B Deductible 3 3 3
----------------------------------------------------------------------------------------------------------------
Part B Excess Charges 3 a 3 3
----------------------------------------------------------------------------------------------------------------
Prescription Drugs b b c
----------------------------------------------------------------------------------------------------------------
Preventive Medical Care 3 3
----------------------------------------------------------------------------------------------------------------
* Core benefits include Part A copayment for days 61-90 in the hospital, Part A copayment for each lifetime
reserve day in the hospital, up to 365 additional days of hospital coverage after Medicare coverage is
depleted, the first three pints of blood used under Part A or Part B, and the 20-percent coinsurance for Part
B services after the Part B deductible has been met.
** Plans F and J also have a high deductible option. The high deductible, which is adjusted for inflation, is
$1,620 in 2002.
a. Medigap policy pays 80 percent of balance billing charges.
b. After $250 deductible, policy covers 50 percent of prescription drug costs to a maximum of $1,250.
c. After $250 deductible, policy covers 50 percent of prescription drug costs to a maximum of $3,000.
Attachment C
Number of Beneficiaries in Medigap Plans by State, 2001 *
(000's)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent Percent of
Total Covered by Individually covered by Percent individually
population private Employment purchased private of purchased
65 and health based--65 health health employment health
over insurance--65 and over insurance--65 insurance--65 based--65 insurance--65
and over and over and over and over and over
--------------------------------------------------------------------------------------------------------------------------------------------------------
United States 33,769 20,751 11,645 9,106 62% 35% 27%
Alabama 552 332 194 138 60% 35% 25%
Alaska 37 19 14 5 50% 39% 14%
Arizona 607 336 188 148 55% 31% 24%
Arkansas 394 202 90 112 51% 23% 28%
California 3,243 1,658 1,074 584 51% 33% 18%
Colorado 413 249 120 129 60% 29% 31%
Connecticut 481 326 188 138 68% 39% 29%
Delaware 100 73 51 22 73% 51% 22%
District of 64 35 28 7 55% 44% 11%
Columbia
Florida 2,660 1,447 784 663 54% 30% 25%
Georgia 724 333 211 122 46% 29% 17%
Hawaii 158 99 74 25 63% 47% 16%
Idaho 149 108 55 53 72% 37% 36%
Illinois 1,428 905 453 452 63% 32% 32%
Indiana 831 555 273 282 67% 33% 34%
Iowa 382 313 92 221 82% 24% 58%
Kansas 413 289 119 170 70% 29% 41%
Kentucky 507 339 200 139 67% 40% 27%
Louisiana 522 283 164 119 54% 31% 23%
Maine 211 126 61 65 60% 29% 31%
Maryland 616 387 247 140 63% 40% 23%
Massachusetts 807 455 253 202 56% 31% 25%
Michigan 1,184 852 586 266 72% 50% 22%
Minnesota 460 338 150 188 74% 33% 41%
Mississippi 306 147 75 72 48% 25% 24%
Missouri 664 461 201 260 69% 30% 39%
Montana 132 96 35 61 72% 27% 46%
Nebraska 202 159 46 113 79% 23% 56%
Nevada 230 121 80 41 53% 35% 18%
New Hampshire 179 125 64 61 69% 36% 34%
New Jersey 1,204 780 453 327 65% 38% 27%
New Mexico 246 134 90 44 55% 37% 18%
New York 2,414 1,397 1,015 382 58% 42% 16%
North Carolina 969 567 299 268 59% 31% 28%
North Dakota 84 61 15 46 73% 18% 55%
Ohio 1,465 1,043 724 319 71% 49% 22%
Oklahoma 423 284 151 133 67% 36% 31%
Oregon 359 221 85 136 62% 24% 38%
Pennsylvania 1,639 1,198 1534 664 73% 33% 41%
Rhode Island 163 92 40 52 56% 25% 32%
South Carolina 528 344 188 156 65% 36% 30%
South Dakota 106 75 17 58 71% 16% 55%
Tennessee 610 348 209 139 57% 34% 23%
Texas 2,082 1,163 663 500 56% 32% 24%
Utah 168 108 57 51 65% 34% 30%
Vermont 69 33 22 11 48% 32% 16%
Virginia 834 543 297 246 65% 36% 29%
Washington 701 492 239 253 70% 34% 36%
West Virginia 299 178 117 61 60% 39% 20%
Wisconsin 692 487 246 241 70% 36% 35%
Wyoming 60 37 13 24 61% 22% 40%
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Source: U.S. Census Bureau, Current Population Survey, March 2002, posted at http://ferret.bls.gov/macro/032002/health/h05_000.htm.
Statement of the National Association of Health Underwriters
The National Association of Health Underwriters (NAHU) is an
organization of over 17,000 insurance professionals specializing in the
sale and service of health insurance and related products. Many of our
members who specialize in the senior market regularly counsel and work
with Medicare beneficiaries on Medicare, Medigap, and Medicare+Choice
options as well as other types of products. We are pleased to offer
comments and suggestions regarding the current options and enrollment
procedures for supplemental health insurance coverage for Medicare
beneficiaries.
NAHU believes that there are a number of inherent problems within
the Medicare program that can only be addressed through comprehensive
Medicare reform. The current Medicare programs A and B present an
antiquated approach to the financing of health care reminiscent of
1960, when the greatest fear for most seniors was an extended hospital
stay. Now, with many services provided on an outpatient basis and the
availability of stronger and more effective prescription drugs, many
beneficiaries are able to avoid hospitalization. In addition, Medicare
hasn't kept up with advances in technology and treatments, and the
level of coverage provided under traditional Medicare alone is
inadequate protection for most seniors. A number of solutions have been
offered that would improve the current system, and many proposals
include new options for Medicare beneficiaries that would provide a
choice of comprehensive coverage more like that found in the individual
market. Depending on the ultimate structure of the new comprehensive
coverage, Medicare supplemental coverage as we know it would need
substantial changes to conform to the new comprehensive form of
Medicare.
Most current proposals for reform retain the option for
beneficiaries to continue to participate in traditional Medicare. A
number of improvements could be made to the currently mandated Medicare
supplemental offerings to ensure that consumers have a variety of
choices to allow them to select the type of plan most suitable for
their personal situation. The first step in ensuring these choices will
be to look at the plans that are already in existence and ascertain
that Medicare+Choice plans and Medicare supplement providers have
adequate incentives to participate in health plans for Medicare
beneficiaries. It is essential that the current regulatory requirements
for Medicare+Choice plans be eased and that they be compensated fairly.
The current instability in the Medicare+Choice program obviously has a
significant impact on increasing demand for Medigap coverage on a
guaranteed issue basis. This increased demand may significantly alter
both the availability and the cost of Medigap policies. Action by
Congress to address this urgent situation will only have a positive
impact on beneficiaries purchasing Medigap policies.
Our members report the following regarding market experience and
beneficiary preferences concerning current Medigap policies:
The most popular benefit is coverage of the Part A
deductible. Coverage of the Part B deductible is sometimes purchased,
but often because some other benefit in the plan is desired.
The skilled nursing benefit isn't used often, because of
the difficulty in meeting the requirements for skilled care due to the
mandatory 3-day hospital requirement, and because most care quickly
falls into a custodial category not covered by Medicare.
Coverage of Part B excess charges is becoming more and
more important, especially in rural areas where physicians may not feel
compelled to accept Medicare assignment. In the absence of any stop
loss provision being added to the basic Medicare program, coverage of
these excess charges should remain available.
The most popular plans sold by our members are C, F, H,
and I. Although some employers offer this benefit plan for their
retirees, very few people want to pay the premium associated with plan
J.
The benefits beneficiaries request most often, that are
not currently covered by Medigap, are for coverage of dental care,
vision services, hearing aids, and of course, prescription drugs.
BENEFICIARY REACTION TO MEDICARE
Based on what Medicare beneficiaries tell our members, the most
significant problem facing them today is the cost of health care. Many
Americans approaching retirement age believe that when they become
eligible for Medicare, all of their health care needs should and will
be taken care of. Their first step into the Medicare maze comes when
they discover that they must purchase Part B to cover outpatient and
other physician care. Many of these beneficiaries believe that Part B
is a supplement especially since the Medicare supplements are alpha
labeled, and they don't understand that they will still have
significant financial exposure for the cost of their medical care even
after they purchase Part B. Often beneficiaries first become aware of
the gaps in coverage after they have passed open enrollment for
Medigap. Unfortunately, by that time some have developed health
problems, limiting or eliminating their choices for supplemental
coverage. Having been participants in low co-pay drug cards as
employees for many years, they are amazed to find out how much coverage
for prescription drugs will cost them, if it is available at all, and
many of them seek supplemental coverage for prescription drugs at this
time. They are even more amazed to learn the extent of the other
medical services not covered under the traditional Medicare program.
Many of these same individuals who may have sought supplemental
coverage in order to secure insurance for prescription drugs end up
buying plan C or F (which doesn't cover outpatient prescription drugs)
primarily to cover hospital and physician charges not covered by the
Medicare program. Since the benefit under a Medigap policy that
includes limited coverage for prescription drugs is often equal to or
less than the extra premium charged, many beneficiaries choose not to
purchase prescription drug coverage under Medigap. Many of these
Medicare beneficiaries have low incomes limited to little beyond their
Social Security benefit, but for a variety of reasons, they may not be
eligible for Medicaid or other low-income programs. Additionally, the
Medicare+Choice plans, which they might have been able to afford, may
no longer be available in their area.
RECOMMENDATIONS
So, how could Medigap be structured to make it more meaningful as
well as more affordable? Again, in the absence of basic in depth
changes to the Medicare program, our first recommendation would be that
no Medigap plan subsidize the Part B deductible. This is not about
saving $100 a year, but about changing consumer behavior regarding
consumption of health care. There are numerous statistics that show
that individuals with Medigap coverage utilize medical services at a
significantly higher rate than Medicare beneficiaries without
supplemental coverage. Their utilization rate is also higher than that
of retirees with supplemental coverage through their former employers.
We believe the reason for this is that there is typically some cost-
sharing for beneficiaries covered under employer plans, and that plan
utilization can be safely reduced if there is some financial incentive,
however small, that causes a person to think before they seek medical
care for even the most minor illnesses.
In terms of prescription drug coverage, we are very skeptical of
any sort of mandate on Medicare supplemental plans to provide drug
coverage, and we are pleased to see that most proposals have not
included this requirement. Insurance carriers report that plan
utilization is significantly higher on Medigap plans H, I, and J, the
plans that include coverage for prescription drugs, and based on their
experience, they have consistently maintained that drug only policies
or mandatory drug coverage on all policies is simply not an insurable
risk. Although some pharmacy benefit managers have expressed interest
in being providers in a Medicare prescription drug program, they have
not indicated a desire to take on all of the risk for the program.
On a positive note, some insurance carriers as well as some of our
member agents routinely provide Medicare beneficiaries with a
prescription drug discount card, often at no cost to the beneficiary.
Some Blue Cross organizations have begun to extend the discounts they
have negotiated through the pharmacy benefit managers with whom they
contract for their under-65 insureds, to their Medicare Supplement
policyholders. This allows policyholders to purchase their outpatient
prescription drugs at significantly discounted rates, as much as 15 to
30%, even though outpatient drugs are not specifically covered by their
Medigap policy. This provides no risk for the insurance carrier, but is
an excellent way for beneficiaries to reduce their cost by using their
numbers to negotiate discounts. For this reason, we're extremely
pleased with the Administration's proposal for a prescription drug
discount program for Medicare beneficiaries. We believe the discounts
that could be provided by these programs will be greater than the
Administration's estimates, based on the experience of employer plans
in the under 65 market, and that beneficiaries would greatly value the
assistance the discounts would provide.
NAHU additionally recommends that additional study be given to the
very complicated coordination between COBRA and Medicare, and between
individual health plans and Medicare. It is very difficult for
beneficiaries, agents, and employers to navigate through the landmines
associated with these benefits. Many beneficiaries discover too late
that they should have made different decisions on applying for Part B
after they prematurely trigger Medigap open enrollment rights, or when
they are forced to go without Part B for an extended period of time due
to late enrollment time penalties. Many others retain individual health
insurance policies for years because they believe the policy will serve
as a Medicare supplement only to find that their individual policy will
actually pay little beyond what Medicare pays due to language on
guaranteed renewability found in HIPAA. This is not the fault of the
carriers, agents or employers but rather the complexity of several
overlapping Federal laws that don't coordinate adequately or provide
for adequate notice to insureds of their rights and responsibilities.
Disabled Medicare beneficiaries need better access to Medigap
coverage. Due to cost considerations, we are not suggesting that
disabled beneficiaries have the same purchase rights and plans as those
age 65, since doing so may mean increases to Medicare beneficiaries'
already escalating Medicare supplement premiums. We do believe that
creative options should be explored for extending coverage that won't
increase costs for other beneficiaries, such as offering coverage for
disabled beneficiaries through State high-risk pools. Currently eight
States allow disabled beneficiaries to purchase coverage through high-
risk pools. This allows these less healthy individuals to be pooled
with other individuals in the same category, provides a place to
purchase supplemental coverage, and keeps the costs down in the regular
Medigap pool. We've included a chart for Members of the Committee
illustrating the type of supplemental coverage currently available
through high-risk pools.
Medigap policies are highly valued by Medigap beneficiaries and
provide a great sense of security for millions of Medicare
beneficiaries. Although changes need to be made to Medigap coverage, it
may be difficult to implement broad reform without knowledge of the end
result of reforms in the Medicare program itself, and any changes
undertaken should be done with careful consideration of any impact they
may have on current market availability.
__________
High Risk Pools That Include Medicare Supplements
----------------------------------------------------------------------------------------------------------------
Is Medicare
State Disabled Standardized If No Standardized Plans, Are Prescription
Covered? Plans Offered? What Is Offered? Drugs Covered?
----------------------------------------------------------------------------------------------------------------
Alaska Yes Plans A & I. Yes
Medicare
``carve-out''
offered to
those under age
65.
----------------------------------------------------------------------------------------------------------------
Minnesota Yes No Two plans, Basic Plan and Yes, but only
Extended Basic plan. from Extended
Basic plan.
----------------------------------------------------------------------------------------------------------------
Mississippi Yes No An individual under age 65 Yes, prescription
that becomes eligible for benefits are
Medicare after purchasing covered under the
a high-risk pool plan may high-risk pool.
keep the plan as a
Medicare ``carve-out.''
----------------------------------------------------------------------------------------------------------------
Montana Yes No Medicare ``carve-out'' Yes
offered.
----------------------------------------------------------------------------------------------------------------
North Dakota Yes Plan F No
----------------------------------------------------------------------------------------------------------------
Washington Yes No Medicare ``carve-out'' Yes
offered.
----------------------------------------------------------------------------------------------------------------
Wisconsin Yes No Individuals under age 65 Yes
are offered Medicare
disability plan.
----------------------------------------------------------------------------------------------------------------
Wyoming Yes No High-risk pool is Yes
secondary to Medicare.
----------------------------------------------------------------------------------------------------------------