[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                         MEDICARE HEALTH PLANS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 21, 2012

                               __________

                          Serial No. 112-HL16

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

WALLY HERGER, California             SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               SHELLEY BERKLEY, Nevada
LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

        Jennifer M. Safavian, Staff Director and General Counsel

                   Janice Mays, Minority Chief Cousel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                   WALLY HERGER, California, Chairman

SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
DAVID G. REICHERT, Washington        EARL BLUMENAUER, Oregon
PETER J. ROSKAM, Illinois            BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of September 21, 2012 announcing the hearing............     2

                               WITNESSES

James Cosgrove, Director, Health Care, U.S. Government 
  Accountability Office, Testimony...............................    18
James Capretta, Fellow, Ethics and Public Policy Center, 
  Testimony......................................................    32
Karen Ignagni, President and Chief Executive Officer, America's 
  Health Insurance Plans, Testimony..............................    39
Tim Schwab, M.D., Chief Medical Officer, SCAN Health Plan, 
  Testimony......................................................    57
John Tallent, Chief Executive Officer, Medical Associates Clinic 
  & Health Plans, Testimony......................................    66
Marsha Gold, Senior Fellow, Mathematica Policy Research, 
  Testimony......................................................    75

                       SUBMISSIONS FOR THE RECORD

Association for Community Affiliated Plans.......................   109


                         MEDICARE HEALTH PLANS

                              ----------                              


                       FRIDAY, SEPTEMBER 21, 2012

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 9:32 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Wally 
Herger [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

       Chairman Herger Announces Hearing on Medicare Health Plans

Friday, September 14, 2012

    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
to examine the current status of the Medicare Advantage (MA) program 
and other health plans. The hearing will take place on Friday, 
September 21, 2012 in 1100 Longworth House Office Building, beginning 
at 9:30 A.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. 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. A list of witnesses 
will follow.
      

BACKGROUND:

      
    Private health plans have served Medicare beneficiaries from the 
early years of the program. With 2003 legislation that increased plan 
payments, beneficiaries were provided with more plan options and 
enhanced benefits, resulting in millions of seniors choosing to join 
private Medicare plans. Recent data from the Centers for Medicare and 
Medicaid Services (CMS) indicates that there are currently over 13.5 
million beneficiaries enrolled in private health plans, representing 
more than one in four Medicare beneficiaries.
      
    According to the Congressional Budget Office (CBO), the Democrats' 
health law will cut $308 billion from the MA program over the next ten 
years. As a result of these cuts, the Medicare Trustees predict 
enrollment in MA will be cut in half by 2017 as compared to prior law. 
CBO estimates that those beneficiaries who remain in MA will lose $816 
worth of extra benefits they would have otherwise received in 2019 
alone.
      
    The statutory authority for one type of Medicare Advantage plan, MA 
Special Needs Plans (SNPs), expires at the end of 2013. SNPs were 
created in the Medicare Modernization Act of 2003 (P.L. 108-173) with 
the goal of better coordinating care for and tailoring benefits to 
higher-cost and vulnerable beneficiaries, including dual-eligibles, 
those with chronic diseases, and the institutionalized. Approximately 
1.5 million beneficiaries are enrolled in SNP plans.
      
    Another type of Medicare health plan, Medicare Cost Plans, are paid 
based on the costs of delivering Medicare-covered services, rather than 
on a capitated and risk-based basis like MA plans. Congress has 
repeatedly delayed enforcing a provision that requires cost plans to 
withdraw from areas that have competition from two or more MA plans. 
This moratorium expires on January 1, 2013, which would affect the 2014 
plan year. There are approximately 400,000 beneficiaries enrolled in 
cost plans.
      
    In announcing the hearing, Chairman Herger stated, ``More than one 
in four Medicare beneficiaries have chosen to receive their Medicare 
benefits through a private Medicare plan. Since 2003, enrollment in the 
Medicare Advantage program has tripled, which is a clear indication 
that many beneficiaries enjoy the additional benefits that are often 
provided by these private health plans. Unfortunately, the Democrats' 
health law slashed payments to the Medicare Advantage program by more 
than $300 billion over the next 10 years to fund ObamaCare. These cuts 
will significantly alter the program and jeopardize seniors' access to 
the health plans they rely on. Understanding the successful structure 
of the current MA program, and the challenges the program will face 
because of the Democrats' health law, is key to ensuring Medicare meets 
the needs of seniors now and into the future.''
      

FOCUS OF THE HEARING:

      
    The hearing will examine the current status of the MA program, 
including SNPs and Medicare Cost Plans.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Friday, October 5, 2012. Finally, please 
note that due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-package deliveries to all House Office 
Buildings. For questions, or if you encounter technical problems, 
please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item 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. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies 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 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    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.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. The subcommittee will come to order. 
Today, we will hear testimony regarding the current role of 
Medicare health plans and, look to the future of how these 
plans can continue to effectively serve Medicare beneficiaries. 
As you know, we will be having votes earlier than expected. In 
the interest of time, and to ensure we hear the witnesses' 
testimony, I ask unanimous consent that my opening statement be 
made part of the record. Without objection, so ordered.
              The Honorable Wally Herger Opening Statement

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               The Honorable Pete Stark Opening Statement

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             The Honorable Jim McDermott Opening Statement

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    Chairman HERGER. I would also ask that if we do get 
interrupted by votes, I ask the members to return so we can 
finish questions. Also, before I recognize Ranking Member Stark 
for the purposes of an opening statement, I ask unanimous 
consent that all members' written statements be included in the 
record. Without objection, so ordered. I now recognize Ranking 
Member Stark for 5 minutes for the purpose of his opening 
statement.
    Mr. STARK. Mr. Chairman, I ask that my opening statement be 
made part of the record, and yield back.
    Chairman HERGER. Without objection, so ordered.
    Chairman HERGER. Today, we are joined by six witnesses: 
James Cosgrove, director of the Health Care Group at the 
Government Accountability Office; Jim Capretta, fellow at the 
Ethics and Public Policy Center; Karen Ignagni, president and 
chief executive officer of America's Health Insurance Plans; 
Dr. Tim Schwab, medical director of SCAN Health Plan; John 
Tallent, chief executive officer of Medical Associates of Iowa; 
and Marcia Gold, senior fellow at Mathematica Policy Research.
    Mr. Cosgrove, you are now recognized for 5 minutes.

   STATEMENT OF JAMES COSGROVE, DIRECTOR, HEALTH CARE, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. COSGROVE. Good morning, Chairman Herger, Ranking Member 
Stark, Members of the Subcommittee. I am pleased to be here 
today as you discuss Medicare Advantage and Medicare cost 
plans, which offer Medicare beneficiaries an alternative to the 
fee-for-service program. For many years, private health plans 
have played an important role in caring for beneficiaries. 
Currently, about 13.6 million Medicare beneficiaries, more than 
one out of every four, receive their health care from such 
plans. Today, I would like to discuss our recent work in three 
areas related to Medicare health plans. And let me start by 
summarizing our work on quality payments for MA plans and CMS's 
demonstration.
    PPACA sought to foster high quality health care by paying 
bonuses to MA plans that achieve the very highest quality 
ratings, four or more stars on CMS's five-star quality scale. 
However, instead of implementing these provisions CMS 
implemented the quality bonus payment demonstration. This 3-
year demonstration makes plans of average quality eligible for 
bonuses, increased bonus amounts, and accelerates the phase-in 
of bonuses. The cost of the demonstration is expected to exceed 
$8.3 billion, an amount that is at least seven times larger 
than that of any other Medicare demonstration conducted since 
1995. The bonuses are expected to offset about 70 percent of 
PPACA payment reductions for MA plans this year, and about a 
third of the reductions next year. Due to the design of the 
demonstration, most of the bonuses are paid to plans of average 
quality. CMS's intention is to test whether the demonstration's 
approach would encourage plans to more rapidly adopt larger 
quality improvements. However, we believe that serious 
shortcomings in the demonstration's design cast doubt on its 
ability to produce meaningful results.
    In March of this year, we recommended that HHS cancel the 
demonstration and allow PPACA's quality bonus payment system to 
take effect. HHS did not agree with our recommendation. Our 
findings also gave rise to concerns about the Agency's 
authority to conduct the demonstration under the Social 
Security Amendments of 1967. The statute does provide broad 
authority. However, in a July 2012 letter to the Secretary of 
HHS, we found that the Agency had not established that the 
demonstration meets the criteria set forth in the statute.
    Next, I would like to discuss our most recent report, which 
examined MA plans designed for beneficiaries dually eligible 
for Medicare and Medicaid. These plans, known as D-SNPs, were 
originally envisioned as an option to help dually eligible 
beneficiaries navigate the two very different health care 
programs and obtain care appropriate to their needs. It does 
appear that D-SNPs provide a benefit package that may be more 
tailored to the needs of duals, and that duals enrolled in D-
SNPs have somewhat different characteristics relative to duals 
enrolled in other MA plans. However, CMS has not required D-
SNPs to report information that could better hold plans 
accountable and help CMS determine whether D-SNPs are realizing 
their full potential. We found little available information on 
the amount and appropriateness of the care that these plans 
actually provide. Furthermore, we found that the plans did not 
use standardized performance measures when reporting 
information on outcomes to CMS, making it difficult to compare 
D-SNPs and hold them accountable for results.
    We concluded that there was insufficient information on how 
well these plans are meeting the unique needs of dual-eligible 
beneficiaries. We made several recommendations to CMS intended 
to increase D-SNP accountability and ensure that CMS has the 
information it needs to systematically evaluate D-SNP 
performance. HHS concurred with these recommendations.
    Finally, I would like to share some of our findings related 
to Medicare cost plans. These plans differ from MA plans in 
that they are paid based on their reasonable cost for 
delivering Medicare-covered services. Cost plans have been a 
part of the Medicare program since the 1970s. When we examined 
these plans in 2009, we found that they tended to have higher 
quality scores than MA plans operating in the same areas. 
Enrollment in cost plans has been fairly low, and is 
concentrated in a relatively small number of States. As of 
March, Medicare had 20 contracts with cost plans, and 
enrollment was just under 400,000. However, this represents a 
36 percent enrollment increase since 2009.
    While cost plan enrollment is small when compared to MA 
enrollment, industry representatives told us that cost plans 
provide a managed care option in areas traditionally that have 
had few or no MA plans. Over the last 3 years, the number of MA 
options available to beneficiaries enrolled in cost plans has 
declined. Nonetheless, we found that as of March, 99 percent of 
beneficiaries enrolled in cost plans had at least one MA option 
available, and that 80 percent had at least five MA options 
available. And this concludes my prepared remarks. I would be 
happy to respond to any questions.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Cosgrove follows:]

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    Chairman HERGER. Mr. Capretta, you are recognized for 5 
minutes.

 STATEMENT OF JAMES CAPRETTA, FELLOW, ETHICS AND PUBLIC POLICY 
                             CENTER

    Mr. CAPRETTA. Thank you. Mr. Chairman, Ranking Member 
Stark, Members of the Subcommittee, I really appreciate the 
opportunity to be here at this important hearing. I want to 
make just a couple of points today. First, contrary to what is 
often stated, Medicare Advantage plans are not less efficient 
than the traditional Medicare fee-for-service program. Data 
from the Medicare Payment Advisory Commission confirms this 
fact. Comparing apples to apples, MA plans, and especially MA 
HMOs, can provide the Medicare benefit package to seniors at a 
cost well below that of fee-for-service. In 2012, based on bids 
for the plans, MedPAC reports that the average MA plan provides 
Medicare benefits at 98 percent of fee-for-services costs, and 
the MA HMO plans did so at just 95 percent of fee-for-service 
costs. It is clear from this data that MA HMOs, which have by 
far the largest enrollment numbers--11.4 million as of February 
2012--have built the capacity over many years to deliver care 
more efficiently than fee-for-service. This should not be 
surprising, however. Medicare fee-for-service is an extremely 
inefficient model. It breeds fragmentation and undermines 
coordination, leading to low quality care for too many seniors. 
The emphasis from the Center for Medicare and Medicaid Services 
on quality in the MA program is admirable, but it would be even 
more effective if fee-for-service were rated on the same 
metrics. There is ample evidence that the United States 
continues to experience much waste in the health care delivery 
system. Recent Institute of Medicine studies left little doubt 
about this fact. But what is often not stated is Medicare fee-
for-service's role in the problem. Medicare fee-for-service is 
the dominant payer in many markets, and its rate setting 
regulations become the default option for other payers too.
    The sheer size of Medicare fee-for-service ensures that the 
entire delivery system is organized around its incentives. For 
those looking for the reasons that we have too much 
fragmentation, lack of coordination, and low quality care in 
too many settings, they should look no further than the 
incentives that are embedded in Medicare fee-for-service.
    My second point is that the reductions in MA payments 
contained in the 2012 health care law will raise costs for 
seniors and force many of them out of their MA plans. The cuts 
are very deep. According to the Congressional Budget Office, 
the total 10-year cut in MA payments now estimated at $308; 
$156 billion in direct MA payment cuts; and $152 billion in 
indirect MA reductions from the interactions fee-for-service 
cuts contained in the law. That these cuts will directly impact 
the beneficiaries is indisputable. According to the most recent 
trustees' report, enrollment in MA will peak in 2013 at 13.7 
million people, and then fall to 9.7 million in 2017.
    Further, by law, MA plans must provide some percentage of 
the difference between their bids and the benchmark to the 
beneficiaries in the form of expanded benefits. Thus, reducing 
MA payments will, by definition, reduce benefits provided 
through MA plans to current enrollees. In a study I co-authored 
with Robert Book for the Heritage Foundation, we estimated that 
this would be about $3,700 per MA enrollee by 2017.
    Why, if these cuts are so deep, has MA enrollment grown in 
2012 and 2013? The answer is relatively simple. For starters, 
the cuts are back-loaded. Through 2013, less than 10 percent of 
the scheduled Medicare reductions will have gone into effect, 
and costs have risen modestly in recent years because of the 
slow economy. More importantly, CMS has sent an unprecedented, 
and perhaps unlawful, $8.3 billion to MA plans, filling in over 
70 percent of the cuts in 2012 alone, quite plainly because the 
agency wants to mitigate the impacts of the cuts required by 
the 2010 law. There is no real other explanation for what they 
are doing in this particular demonstration program. Certainly 
there is no public policy rationale that would justify it, as 
the testimony from various government agencies have indicated.
    Once the artificial and temporary bump up in payments is 
terminated, as it inevitably will be, MA plans will be forced 
to pare back benefits, and enrollment in the plans will drop.
    My third point is that MA plans are particularly important 
for lower income seniors, and cuts in MA payments will hit this 
population the hardest. Lower income seniors are 
disproportionately represented in MA plans because they find 
the reduced cost sharing in these plans attractive, especially 
at premiums that are usually well below the cost of Medigap 
coverage.
    In the 2010 study I co-authored, which I previously 
mentioned, we used earlier findings from an AHIP study to 
estimate that beneficiaries with incomes between $10,800 and 
$21,600 were 19 percent more likely than the average 
beneficiary to enroll in an MA plan. The MA program has 
important features for the future of the Medicare program. MA 
can provide innovations in ways that Medicare fee-for-service 
cannot. Moreover, the presence of the MA program ensures some 
level of choice for the beneficiaries, which is important for 
program accountability. If we want delivery system reform, and 
I think we do, the MA program is something to be built upon, 
not discarded. Thank you.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Capretta follows:]

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    Chairman HERGER. Ms. Ignagni is recognized for 5 minutes.

   STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, AMERICA'S HEALTH INSURANCE PLANS

    Ms. IGNAGNI. Thank you Mr. Chairman, Ranking Member Stark. 
We appreciate the opportunity to testify today on behalf of a 
program that serves 27 percent of Medicare beneficiaries. Our 
testimony focuses on three things: First, the specific programs 
our members have implemented to improve the effectiveness of 
care; second, the value Medicare Advantage plans bring to 
beneficiaries; and third, the impact of future cuts to the 
program, and a new premium tax that begins in 2014.
    Health plans in Medicare Advantage, as well as those 
serving employers and individual purchasers of coverage, are 
partnering with doctors and hospitals to change the way care is 
paid, by paying for the effectiveness of care provided rather 
than the volume of services delivered. We are working to change 
what is purchased by rewarding successful outcomes and 
employing other strategies to ensure that patients receive the 
right care in the right setting. For example, health plans 
offer customized programs and support services that are 
integral to avoiding hospital readmissions and reducing 
emergency room visits, while also addressing health care 
disparities, providing nurse hotlines, and offering personal 
health records. These programs and tools have been validated in 
peer-reviewed journals. Health plans also help patients receive 
the appropriate level of services post-discharge. These include 
follow-up calls from nurses to ensure that patients understand 
their drug therapy, their rehabilitation needs, and when they 
need to follow up with their physician.
    This follow-up also includes home health visits and 
instructions on how to use any medical equipment necessary at 
home. Health plans also are coordinating care to help patients 
with multiple chronic conditions navigate an increasingly 
complicated delivery system, as well as partnering with 
clinicians by supporting their ability to do complicated case 
management and improve quality of care by providing data about 
variations in care, best practices, and efficiency and 
effectiveness of treatment.
    Health plans also provide value to beneficiaries by 
providing strong consumer protections which are identified in 
our testimony, by protecting beneficiaries against 
unpredictable out-of-pocket costs, and by establishing care 
plans for beneficiaries which encourage them to get the 
preventive care they need, and providing a more organized 
support system for those with chronic illness.
    CMS is partnering with our plans in a variety of 
initiatives to expand these tools into the traditional program, 
and we believe these partnerships hold great promise.
    Two days ago, the Centers for Medicare and Medicaid 
Services announced information about the high quality 
affordable health plan choices that will be available in 2013 
in the Medicare Advantage program. This announcement is good 
news, and clearly demonstrates that Medicare Advantage plans 
have been successful in delivering value to beneficiaries. 
Looking forward, however, we are concerned about the impact of 
ACA's future cuts to the Medicare Advantage program.
    Our written testimony presented data from the Congressional 
Budget Office. Mr. Capretta just referred to those data, I 
won't repeat it. But given the scale and scope of these 
reductions over the next few years, and since the majority of 
the reductions haven't taken effect, we are seriously concerned 
about their potential impact.
    In addition, another element to this and to scaling the 
impact of potential reductions is it is going to be compounded 
by a new premium tax scheduled to begin in 2014 which will 
amount to $220 per beneficiary in 2014. For Medicare Part D 
plans, the tax will increase premiums by an estimated $9. Given 
the size of the Medicare Advantage funding cuts and the new 
premium tax, if across-the-board sequestration cuts are 
triggered under the Budget Control Act of 2011, it could have 
serious impact on Medicare beneficiaries, and, place a 
financial burden on clinicians participating in the program.
    As the payment cuts take effect, Medicare health plans will 
continue to do everything they can to preserve benefits and 
keep coverage as affordable as possible for the millions of 
seniors and people with disabilities they serve. However, given 
the size of these cuts, along with the impact of the premium 
tax, we are concerned in the coming years about the potential 
for Medicare Advantage beneficiaries to face higher costs and 
coverage disruptions.
    We look forward to working with the committee to address 
these concerns and preserve Medicare Advantage as a choice for 
current and future generations of beneficiaries. Thank you very 
much.
    Chairman HERGER. Thank you.
    [The prepared statement of Ms. Ignagni follows:]

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    Chairman HERGER. Dr. Schwab is recognized for 5 minutes.

  STATEMENT OF TIM SCHWAB, M.D., CHIEF MEDICAL OFFICER, SCAN 
                          HEALTH PLAN

    Mr. SCHWAB. Thank you, Chairman Herger, Ranking Member 
Stark, and members of the Health Subcommittee. My name is Tim 
Schwab. I am chief medical officer of SCAN Health Plan in Long 
Beach, California. I am board certified in internal medicine, 
and have been working at SCAN for nearly 25 years. I appreciate 
the opportunity to appear before you today to discuss the 
innovative programs that SCAN has put in place to meet the 
needs of our most vulnerable and frail members.
    My testimony will focus on SCAN's Special Needs Plans, or 
SNPs. SNPs serve Medicare beneficiaries with highly complex 
health needs. There are three types of SNPs. First, 
institutional SNPs, or I-SNPs, serve individuals who reside in 
institutional settings or who live in the community but require 
an institutional level of care. SCAN is the Nation's largest 
community-based I-SNP.
    Second, chronic or C-SNPs, which serve individuals living 
with multiple chronic conditions. SCAN has a C-SNP that focuses 
on end-stage renal disease.
    And third, dual eligible SNPs, or D-SNPs, which serve dual 
eligible beneficiaries. SCAN runs California's only fully 
integrated dual eligible SNP.
    All in all, SCAN serves 16,000 individuals in Special Needs 
Plans. In addition, SCAN Health Plan is the Nation's third 
largest not-for-profit Medicare Advantage plan. We were founded 
in 1977 by senior citizens in Long Beach who worried about the 
prospect of declining health and loss of autonomy. These 
citizen activists helped design a program of extra services and 
supports to keep them living in their own homes and not in a 
nursing home. Since then, SCAN has helped nearly 100,000 
individuals avoid or postpone a nursing home stay. When Special 
Needs Plans came along in 2006, they reflected SCAN's mission 
to help seniors maintain their health and independence through 
specialized care and attention. Ideally, the SNP model was the 
same as SCAN's, placing the beneficiary at the center of care. 
It was a natural transition to move our beneficiaries to SNPs 
and continue with their personal care plans, care transitions 
assistance, disease management, and medication therapy 
management.
    Well done, this model can significantly improve health 
outcomes and bring down the cost of care. Let me give you an 
example. An April 2012 study by Avalere Health found that 
SCAN's dual eligible members had a hospital readmission rate 
that was 25 percent lower than dual eligibles in Medicare fee-
for-service with identical risk profiles. The study also found 
that SCAN performed 14 percent better than fee-for-service on 
Prevention Quality Indicator, or PQI's, overall composite, 
keeping people out of the hospital to begin with. Keeping 
people out of the hospital saves money. Based on results of a 
matched cohort analysis, if California fee-for-service duals 
had the same hospitalizations and readmission rates as SCAN's 
duals, this would result in at least $50 million in annual 
savings to Medicare fee-for-service in California. Studies are 
useful, but let me give you a real example. Mr. A, a native 
Spanish speaker, recently enrolled in a SCAN D-SNP. Like all 
SCAN enrollees, he filled out an initial health assessment. In 
it, he revealed that over the last few weeks he felt down, 
depressed, or hopeless more than half the days. A SCAN case 
manager was able to reach Mr. A and perform an assessment.
    The manager identified three concerns: Depression and 
suicidal ideation, poor relationship with his primary care 
physician, and inadequate access to needed psychiatric care. 
The assessments were shared with the PCP, and a behavioral 
health specialist recommended partial hospitalization. The team 
partnered with the medical group to coordinate services and 
address language-related barriers.
    And they connected him with a Spanish-speaking psychiatrist 
and new PCP. Today, Mr. A has that new PCP, and is visiting his 
psychiatrist regularly, and is no longer having the suicidal 
ideations. The SNP model of providing patient-centered 
coordinated care to vulnerable populations has been a success. 
Unfortunately, the authorization is set to expire at the end of 
2013. Congress should act as soon as possible to extend SNPs 
for a period of at least 5 years. Moving quickly is imperative. 
Plans must file their notices to offer these plans for 2014 by 
November of this year. A multi-year extension would provide 
stability to beneficiaries, States, and health plans to ensure 
beneficiaries do not experience a dangerous lapse in their 
care. In addition, my written testimony includes a number of 
other recommendations to strengthen SNPs to give beneficiaries 
better care. People who are frail, disabled, and chronically 
ill----
    Chairman HERGER. Dr. Schwab, if you could conclude.
    Mr. SCHWAB [continuing]. Are poorly served by fragmented 
models. They deserve the specialized treatments. SNPs are 
working, and we ask that you let them continue to work. Thank 
you.
    Chairman HERGER. Thank you very much.
    [The prepared statement of Mr. Schwab follows:]

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    Chairman HERGER. Mr. Tallent is recognized for 5 minutes.

  STATEMENT OF JOHN TALLENT, CHIEF EXECUTIVE OFFICER, MEDICAL 
                ASSOCIATES CLINIC & HEALTH PLANS

    Mr. TALLENT. Chairman Herger, Ranking Member Stark, and 
distinguished Members of the Subcommittee, my name is John 
Tallent. I am the chief executive officer of Medical Associates 
Health Plans in Dubuque, Iowa. I am here today testifying on 
behalf of the Medicare Cost Contractors Alliance, a coalition 
of 15 Medicare cost plans that currently serve over 400,000 
Medicare beneficiaries enrolled in plans in 14 States and the 
District of Columbia. Since 1972, they have proven to be a 
stable, quality alternative to Medicare fee-for-service, 
particularly for beneficiaries living in rural areas and areas 
in which risk-based plans have encountered challenges. We 
firmly believe that Medicare cost plans should remain available 
as a coverage option, and are grateful for the bipartisan 
support that the program has enjoyed. We want to thank 
Representative Paulsen and Representative Kind for introducing 
legislation to preserve this important program.
    There are 19 Medicare cost plans across the U.S., located 
principally in rural areas, or areas with comparatively low 
Medicare Advantage rates. Ninety percent of cost plans are 
nonprofit organizations. A large portion of Medicare cost plans 
are either owned by or affiliated with well regarded medical 
groups. The average Medicare cost plan has been providing high 
quality, cost-effective services to Medicare beneficiaries for 
over 20 years. For nearly three decades, Medical Associates 
Health Plans has been serving Medicare beneficiaries under a 
cost-based contract in five counties in Iowa, four counties in 
Wisconsin, and one county in Illinois. Like most cost plans, 
our members are elderly. Their average age is almost 76. And 
one third of our members are 80 years of age or older. In fact, 
many of our members have been with us for 20 years or more. Our 
members like our plan, and we have a less than 1 percent 
voluntary disenrollment rate. Medical Associates Health Plans 
is owned by Medical Associates Clinic, which is the oldest 
multi-specialty group practice clinic in Iowa.
    Medical Associates Health Plans is proud of the quality of 
services it offers to its cost plan members. In 2012, Medical 
Associates Health Plan was one of 12 CMS contracts out of 569 
that received a 5-star rating. Our Wisconsin plan received a 
4.5-star rating. If current law is not changed, over 230,000 
beneficiaries will lose their cost plan coverage in 10 States 
on January 1, 2014. Medical Associates would be forced to 
withdraw from four of the five counties in its Iowa service 
area. This is despite the fact that Medical Associates is 
overwhelmingly the most popular Medicare health plan in our 
service area, and has the highest quality rating as well. In 
States like Texas and South Dakota, cost plans will have to 
withdraw from rural areas despite very low Medicare Advantage 
penetration. Cost plan members throughout Minnesota and 
portions of Colorado, Wisconsin, and Ohio will also lose their 
plans.
    Because of the cost plan withdrawals, these vulnerable 
beneficiaries will face higher costs. They could also face 
disruptions in long-standing provider relationships, since many 
of them have been Medicare cost members for many years. As you 
know, Medicare Advantage rates are scheduled to decline under 
current law. History shows that when payments to Medicare risk-
based plans have decreased, plans have withdrawn from the 
program or reduced their service areas, resulting in many 
beneficiaries losing their Medicare health plan choices, 
particularly in rural areas.
    In order to prevent 230,000 Medicare beneficiaries from 
losing their Medicare cost plan choice in 2014, and to ensure 
that beneficiaries have an ongoing choice of quality Medicare 
managed care plans, it is imperative that Congress pass 
legislation this year. We very much appreciate the opportunity 
to testify before the subcommittee, and look forward to 
continuing to work with members of this committee. Thank you.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Tallent follows:]

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    Chairman HERGER. Ms. Gold, you are recognized for 5 
minutes.

  STATEMENT OF MARSHA GOLD, SENIOR FELLOW, MATHEMATICA POLICY 
                            RESEARCH

    Ms. GOLD. Thank you. Chairman Herger, Ranking Member Stark, 
and Members of the Subcommittee, I am a senior fellow at 
Mathematica Policy Research, an independent, nonpartisan public 
policy organization. I want to make seven points today that I 
elaborate on in my written remarks.
    First, the MA program today is strong, with rising 
enrollment that is expected to continue into 2013. While the 
ACA sought to scale back payments to MA plans to achieve closer 
alignment between payments made for beneficiaries in MA versus 
the traditional program, it was acting in line with the origins 
of the program, and consistent with the recommendations of 
Congress's nonpartisan adviser MedPAC. The ACA changes also 
served to extend the life of the Medicare Trust Fund and to 
slow increases in Part B premiums for all beneficiaries. 
Second, MA plans are still paid considerably more for a similar 
beneficiary in the traditional program.
    In considering future policy change, it is difficult to see 
rationale on a national basis for paying private plans more 
than Medicare currently spends on the traditional program, 
particularly when there is so much concern with the Federal 
deficit and debt. Third, although some suggest otherwise, I 
have studied these plans in depth for more than 20 years, and 
there was no strong and consistent evidence that private plans 
in general are better at cost control than traditional Medicare 
is, or that health plan competition will produce enough savings 
to address current fiscal concerns.
    Fourth, polls show traditional Medicare remains popular 
with beneficiaries. That means that paying more for private 
plans is effectively a tax on their choice. The Part B premiums 
will increase, with no gain in benefits to them. Clearly, 
payment reductions at some point can discourage plans from 
participating in MA, but we are not there now. Even if we were, 
the question is how much payment is warranted to preserve 
choice, especially if it costs rather than saves money.
    Overpayments also involve a substantial transfer of funds 
from government to private firms, a few of whom dominate the 
market. Fifth, as the Congressional Budget Office has 
concluded, Medicare premium support programs that reduce 
government contributions to Medicare will shift costs to 
beneficiaries and limit the health and financial protection the 
program provides vulnerable beneficiaries. MA has a role for 
private plans in Medicare, but it is not a voucher or premium 
support program. The defined benefit Medicare provides differs 
fundamentally from a fixed contribution plan.
    Although premium support proposals vary, most would 
fundamentally change the traditional way the Medicare program 
operates, and some would eliminate traditional Medicare 
altogether.
    Sixth, traditional Medicare, with its defined and 
nationally uniform benefits across the country, has served as a 
valuable protection to beneficiaries. It provides defined and 
nationally uniform benefits to all Medicare beneficiaries. Some 
proposals say that they maintain the traditional Medicare plan 
option, but they do not appear to finance it. This arguably 
presents a false assurance about the future availability of 
traditional Medicare as we know it now. The program would be 
different, and beneficiaries would pay more. Our health care 
system is very inefficient. Both traditional Medicare and 
private plans alike face challenges in containing costs. 
Fundamental reform of the system to reduce costs ultimately 
cannot be achieved without someone paying the price, whether 
that is the beneficiary, the plan, the provider, Medicare, or 
some combination.
    One person's waste is another's income. It also is not that 
easy to define medically necessary care, especially at an 
individual level. The 1990s managed care backlash showed that 
policymakers should not expect the private sector or 
beneficiaries to engage in battles from which they themselves 
want distance. Medicare beneficiaries already pay a 
considerable amount out-of-pocket for health care, as my 
written testimony indicates.
    Seven, other programs show that strong oversight and risk 
adjustment are important to prevent unfair marketing practices, 
enrollment abuse, and protecting vulnerable Medicare 
beneficiaries. When they are absent, scandals occur and people 
are hurt. Appropriate risk adjustment is critical, and all of 
these will be more important if dual eligibles enter the 
program.
    In closing, although decisions about the future of Medicare 
will inevitably reflect the values considered socially 
acceptable by a variety of stakeholders, the evidence suggests 
there are no easy answers to the fiscal dilemmas facing our 
Nation. Thank you.
    Chairman HERGER. Thank you.
    [The prepared statement of Ms. Gold follows:]

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    Chairman HERGER. Mr. Cosgrove, I read in your report that 
the CMS MA quality bonus payment demonstration would cover up 
nearly one third of the ObamaCare cuts to MA plans over the 
life of the demonstration. Is this correct?
    Mr. COSGROVE. The demonstration would offset about one 
third of the cuts, yes.
    Chairman HERGER. Can you please break down your estimate of 
how much of the cuts will be offset each year?
    Mr. COSGROVE. This year, in 2012, just over 70 percent. 
Next year, in 2013, about a third. And then the final year 
about 16 percent, I believe.
    Chairman HERGER. It seems to me the administration is 
trying their hardest, and using any means necessary to hide 
these cuts until after this election.
    Ms. Ignagni, as you well know, ObamaCare's cuts to Medicare 
Advantage are real, especially to the beneficiaries that are 
enrolled in these plans. In fact, not too long ago, cuts to the 
Medicare health plans which were far less than those in 
ObamaCare resulted in millions of seniors losing access to 
their health plans. In fact, in some counties in the Northern 
California district I represent, seniors lost all choice of 
private health plans after the 1997 cuts.
    Even the Medicare actuaries highlight this fact in this 
year's report which stated that ``As a direct consequence of 
the plan terminations, the percentage of Medicare beneficiaries 
who enrolled in private health plans declined each year from 
2000 through 2004.''
    Won't the cuts to Medicare Advantage in ObamaCare have a 
real and lasting impact on seniors' access to the MA plan they 
have and like?
    Ms. IGNAGNI. Two comments, sir. One, with respect to the 
past, which I remember very vividly, I think the lesson there 
was that Congress responded by putting additional resources and 
targeted towards specific counties, Northern California as an 
example, in the upper northwest, in the middle part of the 
country, Michigan, Ohio, Illinois, Upstate New York, et cetera. 
And that had a very positive effect. It was a bipartisan 
action.
    With respect to what is going to happen as a result of the 
cuts that we see in the ACA, and also the premium tax, which 
hasn't been much focused on but I think needs to be because it 
begins in 2014 and compounds this, I can't tell you exactly 
what would happen, but I think the CBO estimates provide a 
window into that. And we provided that in our testimony.
    Chairman HERGER. Thank you. Dr. Schwab, I understand that 
SCAN Health has had a fully integrated health plan for 
beneficiaries, many of them dual eligible for over the last 20 
years. Can you describe how the plan integrates benefits 
between Medicare and Medicaid? What are the benefits to this 
type of integration?
    Mr. SCHWAB. Yes. SCAN has had a program that for some of 
our members, we had a contract with the State of California to 
provide all Medicaid or Medi-Cal services. So from a member 
standpoint, all benefits are arranged through the health plan, 
whether it is a Medicare benefit, a Medi-Cal benefit. And 
included in the Medi-Cal benefits are the home and community-
based services and nursing home care as per the Medi-Cal 
program. The way we integrate that primarily is through our 
case management program, a one-on-one relationship with the 
member, working in conjunction with the primary care physician 
and the medical group we contract with.
    Chairman HERGER. Thank you. Mr. Stark is recognized for 5 
minutes.
    Mr. STARK. Thank you, Mr. Chairman. I thank the panel for 
their testimony. Ms. Gold, my Republican colleagues would like 
us to believe that the sky is falling in terms of enrollment, 
benefits, premiums. But these projections have turned out to be 
incorrect. And since the passage of the ACA, Medicare Advantage 
enrollment has increased, and the premiums have decreased. Is 
that not correct?
    Ms. GOLD. That is correct.
    Mr. STARK. And I am sure that this happened last year, so 
that it isn't just a one-time event, this is a trend. Could you 
just discuss for a moment the distinctions between Medicare 
Advantage and the Romney-Ryan voucher, or premium support 
program that the Republicans would have us--how do they differ?
    Ms. GOLD. Well, there are so many plans floating around 
that I will answer generally. But basically, under Medicare 
Advantage, beneficiaries always have the option to return to 
Medicare, traditional Medicare. They get the same benefits in 
Medicare Advantage whether--you know, whether they are in 
Medicare Advantage or traditional Medicare. And plans are 
required to pay those. They have a national Medicare program 
and strong oversight. Under a premium support program, most of 
them--and again, they all differ--but they don't guarantee a 
certain amount of money. There is more wiggle room in the 
benefits. And a lot of them would seem to dismantle the 
traditional Medicare program into a bunch of littler programs 
or changes that make its bargaining power nationally much more 
limited with providers, and might hurt it from controlling 
health care costs.
    Mr. STARK. Also, there are some that would like you to 
believe that the only reason that plans are still in MA is 
because of the quality bonus program. And I think most of our 
estimates show that the Affordable Care Act has reduced 
Medicare Advantage overpayments by, I think, $156 billion, 
which is listed in the Ryan budget, over 10 years. And the 
quality bonus payment demonstration is a total of what, $8.5 
billion over 10 years. So isn't it also true that the 
underlying quality program will continue in perpetuity under 
the law?
    Ms. GOLD. Yes, it is in the law.
    Mr. STARK. So, it is possible that the demo is being 
targeted at the mid-level plans to help them improve before 
this bonus plan takes over.
    Ms. GOLD. Yes.
    Mr. STARK. Thank you very much.
    Chairman HERGER. Thank you. Mr. Buchanan is recognized for 
5 minutes.
    Mr. BUCHANAN. Thank you, Chairman, for holding this 
important hearing today. And I would like to thank all our 
witnesses for taking the time to do this. I represent in my 
district in Florida about 200,000 seniors who rely, obviously, 
heavily on Medicare. About 40,000 of those seniors are on 
Medicare Advantage. And I want to make sure they have quality 
health care. Millions of Americans are struggling, especially 
those living on fixed incomes. I read a new study in terms of 
the cuts they are talking about, the $716 billion in cuts in 
the new health care law, that $2.2 billion will be in the two 
counties I represent in my congressional district. The question 
I have for the panel, really, how big of an impact in terms of 
our congressional area?
    Mr. Tallent, can you maybe express your concerns on this or 
your thoughts on it?
    Mr. TALLENT. I apologize, but I don't understand the 
particulars of Florida and your situation.
    Mr. BUCHANAN. Well, just look at the $716 billion in cuts. 
Of that, it will be applicable in a lot of different 
congressional districts around the country. But I have 200,000 
seniors 65 and older; $2.2 billion of those cuts are going to 
be in my immediate area, the area I represent. And I was just 
wondering do you have a thought on the impact of those cuts?
    Mr. TALLENT. Specifically, I am focusing this morning, I 
have been asked to focus on the effect of----
    Mr. BUCHANAN. Medicare Advantage?
    Mr. TALLENT. Well, of the cost contracts and the situation 
that we are in.
    Mr. BUCHANAN. Dr. Schwab, do you have any comments on that 
in terms of the cuts?
    Mr. SCHWAB. Well, the cuts are going to force all plans to 
operate more efficiently and effectively. I think some of the 
things that the plans are looking at are how do you use 
technology to more efficiently care for people. Ultimately, 
cuts will potentially reduce the amount of benefits if the cuts 
are deep enough. But the other thing that helps is as we have 
moved more towards a risk adjustment system so that you pay 
appropriately for the appropriate needs of that individual, 
that can help offset some of the impact of the cuts.
    Mr. BUCHANAN. Ms. Ignagni, do you have any comments on 
that?
    Ms. IGNAGNI. There is no way to know with precision exactly 
what will happen in any particular area. But I do think that 
looking at what happened in the past post the Balanced Budget 
Act of 1997, there is reason for caution and deliberation. In 
particular, I think that as we see the cuts have not--they are 
back loaded. So we haven't seen the impact yet. But number one. 
Number two, the premium tax is going to be hitting in 2014 as 
these cuts ramp up. And I think that is a place to start for 
real deliberation in terms of the impact of all of these 
things.
    So without a doubt, I think that our plans, what I can tell 
you, our plans are going to do everything they can to maintain 
benefits and service seniors who are depending upon them. But 
the scale and scope of the cuts that have yet to come is 
something that we are concerned about.
    Mr. BUCHANAN. Thank you. And I yield back.
    Chairman HERGER. Thank you. Mr. Kind is recognized for 5 
minutes.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank our 
panelists for the testimony today. And this is yet another 
hearing that we are having on what is happening within health 
care reform, which I think is totally necessary, totally 
appropriate that we have these conversations, we find out what 
is working and what isn't working. And then hopefully have the 
ability as a Congress to continue to make adjustments as we 
learn more. I don't think anyone going into health care reform, 
certainly those of us who supported the Affordable Care Act, 
thought it was going to be easy or that it was going to happen 
overnight. It is going to require a lot of hard work. It is 
quite frankly going to take the effort of a Nation, not just 
one party, to try to reform a health care system that is in 
desperate need of reform. I have been one of the leading voices 
of trying to do what we can to reform the way health care is 
delivered in our country so it is more integrated, coordinated, 
patient-centered. But especially we have to change the way we 
pay for health care so it is value- or outcome-based, and no 
longer volume-based payments.
    And Ms. Ignagni, I know you and the plans that you 
represent and that have been at the forefront when it comes to 
a lot of these changes and a lot of these reforms. I think we 
need to be doing it on a parallel path between Medicare and the 
private plans that are out there. I don't think doing it in 
isolation is going to work. Could you give us a quick update on 
what you are seeing happening, especially in the private sector 
right now, with these type of delivery and payment reforms that 
are happening?
    Ms. IGNAGNI. I really appreciate the opportunity to do 
that. A couple of points. One, there are very significant 
changes going on all across the country that are very exciting. 
And the story is about collaboration, health plans and 
clinicians collaborating in patient-centered medical homes to 
bring more value and case management to those with chronic 
illnesses. And baking those strategies into the Medicare 
Advantage, Medicaid plans, SNPs, and so on and so forth, I 
think that shows real promise.
    Two, bundling, which you have talked about a quite lot, 
really changing, moving to a prospective payment as opposed to 
retrospective and more of a piece rate. And we are beginning to 
see real traction as a result of that all over the country. And 
I think that holds real promise. The third point, I had 
mentioned in my oral remarks that we are partnering with CMS on 
a number of these initiatives. And I think that too holds 
promise in terms of getting more traction and getting more 
pickup across the country in a synergistic way.
    And I think you will be hearing more about that. But 
without a doubt, what is very significant now, as a result of 
these strategies, health plans are showing in peer-reviewed 
journal data that they are working with respect to 
readmissions, emergency room.
    So we are not finished by any means. I don't want to leave 
you with that impression. But we have taken a major step. And 
it clearly has to be the future, more coordinated care, more 
prospective payment and partnerships between plans and 
clinicians and hospitals.
    Mr. KIND. Mr. Cosgrove, let's back up here a little bit. 
You testified about how the bonus payment plans are going to be 
phasing out over the next few years as far as the bonus 
payments are concerned and that. But what I don't understand is 
there are two different competing visions of where health care 
reform needs to go. Under the Romney-Ryan plan, the changes 
they are advocating under Medicare won't happen until 10 years 
from now, the year 11, 12. I am sorry, but that is just not 
good enough. We can't sit around and wait 10 years to start 
making important changes within the health care system, 
especially in a program as important and as vital as Medicare.
    Now, there is some criticism up here from the dais today 
about how these bonus payment incentives for quality plans are 
going to be reduced, and the impact it is going to have on 
Medicare Advantage plans. But weren't the MA plans created to 
begin with back in 2003 and actually passed in 2004 as part of 
the Medicare Modernization Act and also the new prescription 
drug plan? Is that right? Is that where the MA plans came from?
    Mr. COSGROVE. Yes. But there was a predecessor program, 
commonly referred to as the risk program, that went back to the 
1980s. But the MA program built upon that, yes.
    Mr. KIND. And do you recall, sitting here today, whether or 
not that legislation that passed, that also called for higher 
reimbursement levels for MA plans, whether any of that was paid 
for in the 2004 bill?
    Mr. COSGROVE. I do not.
    Mr. KIND. Well, the answer, and I think everyone up here on 
the dais understands, that it wasn't. That was a major piece of 
legislation, the largest expansion of entitlement spending 
since Medicare was first created in 1965, and not a nickel of 
it was paid for. Many of us at the time who voted against it 
didn't think it was fiscally responsible to be offering these 
higher reimbursement payments to the MA plans without any 
ability to pay for it to begin with. And now we are hearing 
some criticism when we are trying to reform that to find some 
cost savings. Cost savings, by the way, that was completely 
adopted in the Ryan budget that virtually every one of my 
colleagues on the other side supported and voted for. And now 
they are trying to have it both ways up here, which is 
inexplicable to me.
    And Ms. Gold, I think you testified about the differences 
that there is between their plan that would privatize, in 
essence, through a voucher or premium support, whatever you 
want to call it, with the existing Medicare program. Is there 
an important distinction to be made there?
    Ms. GOLD. Extremely important decision. Right now Medicare 
is a national----
    Chairman HERGER. The gentleman's time has expired. Maybe 
you could respond in writing, please.
    Ms. GOLD. Yes, it is in my testimony. Thank you.
    Mr. KIND. Thank you.
    Chairman HERGER. Mr. Roskam is recognized for 5 minutes.
    Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Cosgrove, in your 
testimony before the Government Reform Committee in July, and 
again before us today, you note that CMS enacted a 
demonstration that was seven times larger than any since 1995. 
It was greater than the combined budgetary effects of the 
demonstration, has no control group or way to judge the 
outcomes of the demonstration program, and went so far as to 
suggest that the demonstration should be canceled. Is that 
right?
    Mr. COSGROVE. We did recommend that the Secretary cancel 
the demonstration, yes.
    Mr. ROSKAM. Ms. Ignagni, you know, President Obama during 
the large discussions around the passage of the new health care 
law made much of the argument that if you like your plan you 
are going to be able to keep it. Can you reflect on sort of how 
the reality is of what your members are dealing with and their 
ability to offer products that existed before the enactment of 
the health care law and what they are dealing with now?
    Ms. IGNAGNI. Well, first of all, in the Medicare Advantage 
arena as well as the commercial arena, we are doing everything 
we can to bring costs down and to improve quality. That is what 
beneficiaries want, and that is what purchasers want. As we 
look at the cuts with respect to ACA in Medicare, we are very 
concerned about the future impacts. We are going to continue to 
do everything we can to bring costs down and improve quality. 
But if you look at the scale and the size of these, plus the 
premium tax, that compounds the impact. We are very concerned. 
The data that we provided in our testimony from CBO, that gives 
you a window, I think into the potential effect. And so the 
honest answer is we don't know what the future will hold. And 
we are going to work very, very hard to do our part. But as we 
see the size of all of this that will come into effect, we are 
very concerned.
    Mr. ROSKAM. So I think you said concerned either two or 
three times. And so let me focus on Mr. Capretta. If you are 
advising Ms. Ignagni on the nature of her concern, if you are 
her consigliere and you are there looking out over a 
spreadsheet and making some predictions, what are the things 
that she needs to be concerned about if the stated goal of the 
President of the United States is to be able to offer a 
program--to continue to offer a program that somebody currently 
enjoyed? What would you advise about the nature of the concern 
going forward?
    Mr. CAPRETTA. Well, she needs no advice from me, first of 
all. But----
    Mr. ROSKAM. Well played. Well done.
    Mr. CAPRETTA. It is quite clear from the trustees' 
projections that the program is going to shrink. The question 
is degree and magnitude. If you make these reductions, the law 
requires that any payments above a bid but below the benchmark 
are returned, essentially, to the beneficiary in the form of 
higher benefits. So when you reduce the MA payments, by 
definition, they are going to be scaling back what they can 
offer to the beneficiaries to enroll in the program.
    Mr. ROSKAM. That is a truism, right? That is not a 
revelation.
    Mr. CAPRETTA. No.
    Mr. ROSKAM. That is not a subject of dispute. That is a 
truism.
    Mr. CAPRETTA. Absolutely.
    Mr. ROSKAM. All right. Go on.
    Mr. CAPRETTA. The trustees project that about one third of 
the program is going to disenroll one way or the other. Either 
the plan plans are going to close down some of the counties 
they are operating in, or some of the beneficiaries will 
disenroll voluntarily because the benefits will be less 
attractive. So in about 6 years' time, 5 years' time, the 
trustees, based on the actuary's projections, assume the 
program will be basically one third smaller than it is today.
    So for the Congressman from Florida, he has 200,000 
beneficiaries, 40,000 of them in Medicare Advantage, you know, 
10,000, 12,000, 15,000 beneficiaries probably will lose the 
plan they have today and move back into the traditional 
program. I don't view that as a very positive development. Fee-
for-service has its advantages; it is an important program. But 
one has to recognize it is not coordinated care. It is very 
fragmented care. It doesn't necessarily deliver higher quality 
care. There is no metric to prove that.
    Mr. ROSKAM. So your testimony today is that the trustees, 
the people that are calling balls and strikes on this, are 
saying that in a period of 6 years, a third of the 
beneficiaries are going to be out of the system. And it is your 
conclusion that that one third leaves because of the downward 
pressure on reimbursements. Either they take themselves out, 
the beneficiaries do, or the carriers no longer are 
participating in the program. Is that right?
    Mr. CAPRETTA. That is correct. It is slightly less than one 
third, but it is just below that end, yes. And those are the 
reasons why.
    Mr. ROSKAM. I yield back.
    Chairman HERGER. The gentleman yields back. Mr. Reichert is 
recognized for 5 minutes.
    Mr. REICHERT. Thank you, Mr. Chairman.
    I am going to continue the line of questioning that Mr. 
Roskam was pursuing with Mr. Capretta. Just to clarify, when 
the bill was first drafted and passed, we were looking at a 
$523 billion cut to Medicare. About $200 billion of that was 
Medicare Advantage. Today, CBO has upped that figure to $700 
billion and $308 billion in Medicare Advantage; is that 
correct?
    Mr. CAPRETTA. That is correct.
    Mr. REICHERT. I am really confused as to what we are 
supposed to believe, because the other question is, and Mr. 
Roskam touched on it, the President of the United States has 
said if you like your health care plan, you can keep it. But I 
was at an event where the President actually came back and 
said, when he was asked that question, well, there may have 
been some language inserted in that bill that runs contrary to 
that premise. That is a paraphrase of his comment.
    What are we supposed to believe is still my question. So to 
follow up, your testimony suggests that the cuts to Medicare 
Advantage may force seniors out of the plan that they like and 
that they currently have; is that true?
    Mr. CAPRETTA. Yes, that is true.
    Mr. REICHERT. And they are forced into less preferred 
options like fee-for-services or less generous Medicare 
Advantage plans; is that correct?
    Mr. CAPRETTA. That is true, yes.
    Mr. REICHERT. So let's talk about those seniors who lose 
their plan. Isn't it true that Medicare trustees expect million 
of seniors to lose access to Medicare Advantage altogether?
    Mr. CAPRETTA. I haven't seen them specify exactly how it is 
likely to fall out, but one can surmise. There are about 4 
million beneficiaries, fewer beneficiaries, enrolled in 
Medicare Advantage in 2017 than there will be in 2013. Of those 
4 million, one might surmise that some of them are in counties 
where the plans have pulled out. Some are in counties where the 
plans are still there operating, but perhaps offering less 
generous benefits, so they don't find it as attractive and they 
move back into fee-for-service. So the reasons for the 
disenrollment and the shrinkage is not all that clear yet.
    Mr. REICHERT. But there will be disenrollment?
    Mr. CAPRETTA. Yes, there will be.
    Mr. REICHERT. And so they won't be able to keep their 
health care if they like it, obviously?
    Mr. CAPRETTA. That's correct.
    Mr. REICHERT. And seniors who stay in that program are 
going to lose benefits, as you just mentioned?
    Mr. CAPRETTA. Yes, they will.
    Mr. REICHERT. So really these seniors will be forced back 
in the traditional fee-for-service Medicare, which is not 
coordinated, does not have the additional benefits that seniors 
are used to, and lacks any type of out-of-pocket maximum; is 
that correct?
    Mr. CAPRETTA. That is correct. Many of them may end up 
trying to buy Medigap insurance, which the average premium is 
$150 or $200 a month, something like that.
    Mr. REICHERT. So that was my next question. As you know, 
Chairman Herger and I have been doing a little bit of 
investigation into AARP and its relationship to, its 
involvement in helping to negotiate this Obama health care 
plan. I find it interesting that the promises made--you can 
keep your health care if you like it--AARP benefits from this. 
As seniors leave Medicare Advantage and they are forced into 
Medigap, what happens is, for AARP, they end up with a $1 
billion windfall over 10 years. They increase their revenue by 
$1 billion in 10 years as a result of that change because AARP 
gets a flat rate fee for seniors who are on Medicare Advantage, 
and they get a percentage of every senior enrolled in Medigap.
    I also find it curious that in this bill what we are going 
to do is we are going to tax people who don't buy insurance. We 
are going to tax medical devices. We are going to tax 
businesses who don't provide enough insurance with a penalty. 
We are also going to add a $3,000 tax penalty if you provide 
too much insurance. And then we are going to tax 40 percent on 
Cadillac health. We are going to tax American citizens over and 
over and over and again. But AARP, with a $1 billion increase 
in revenue in 10 years, is a tax-free organization that will 
not be taxed one cent on that $1 billion. And I don't expect 
you to respond to that. I appreciate the time, and I yield, Mr. 
Chairman.
    Chairman HERGER. Thank you.
    Mrs. Black is recognized for 5 minutes.
    Mrs. BLACK. Thank you, Mr. Chairman.
    I appreciate the panel being here today and helping us to 
look at what the future of these programs might be for 
especially the very frail population. And given my health care 
background and having worked in long term care, I am certainly 
acutely aware of what their needs are. One of the things that I 
know as I worked with patients over the years is that they 
still want choice. They still want to make some of those 
decisions and not feel like they will be told about everything 
that is going to be done for them.
    So I want to turn to you, Dr. Schwab, because I believe 
this is an area that we really need to take a look at. You have 
both the clinical background and also the background on the 
economics side of SCAN which has been the special needs 
programs for many years. And so in your testimony on page 6, 
you talk about the special needs model providing patient-
centered, coordinated care to vulnerable populations having 
been a success. You say: Unfortunately, as we all know, the 
current special needs program authorization is set to expire in 
2013, which is great concern to me.
    If you could just briefly talk about what you see, if you 
were going to sell this program to the policymakers who are 
going to make that decision, tell me what you see as being the 
benefits, and then also, I want to know from you what do you 
see as a possibility of working within the environment, the 
cost, but yet the patient-centered care and the quality, what 
kind of things could you do to make the program better and make 
it more effective?
    Mr. SCHWAB. Well, to start with, what can you do to make it 
better, and there are three different types of SNPs and so the 
answers depends on which SNPs you are talking about. The dual 
SNPs, one of the things that could be improved is better 
coordinating and reducing overlap of regulatory issues between 
the State and the Federal Government. Not that one is wrong or 
one is right, it is just that there is confliction and there is 
duplicative work.
    What you can do for the overall programs I think is 
recognize that all SNPs are people that are very different. 
Whether it is the duals or whether it is the chronic or whether 
it is institutional, and measuring quality specifically for 
that population would be a big help. The five-star system is a 
great step forward in measuring quality in plans. But, 
unfortunately, it doesn't always apply to some of the unique 
populations within there. What is good for a person on dialysis 
may not be same quality metric you want to measure for a person 
who is dual eligible and not on dialysis.
    The other thing is we have shown that providing home and 
community-based services is very valuable in keeping people in 
their home, which is where they want to stay, and out of a 
nursing home. Allowing plans, other plans other than just the 
D-SNPs to provide the supplemental benefits would go a long way 
to, especially in the I-SNPs, preventing people who are low 
income but not yet on Medicaid, to prevent their spend down and 
going into a nursing home and then ending up on the Medicaid 
program.
    Mrs. BLACK. Thank you.
    Mr. Cosgrove, I want to turn to you because I know the GAO 
examined the requirements from the Medicare improvements for 
Patients and Providers Act of 2008, which established the 
contracting requirements for the dual Special Needs Program. 
Can you discuss some of the challenges identified by the States 
in implementing these contracts?
    Mr. COSGROVE. Yes. We met with, I think, five States to 
talk about some of the challenges that they face. And part of 
it they just explained to us, one of the terms they used was 
bandwidth. It is just the number of organizations that they 
would have to contract with, and it is the State having the 
resources to be able to do it. They could see that it is more 
valuable for plans that are larger. Some of the SNPs are fairly 
small and--but still, it takes the contracting effort.
    And they also brought up some other issues as well in terms 
of the State's fiscal year may not coincide with the 
contracting year for the SNP which causes difficulty for them 
entering into contracts as well.
    Mrs. BLACK. Dr. Schwab, you have experience in this 
particular issue. Do you have any comments regarding this 
report?
    Chairman HERGER. The gentlelady's time has expired. If you 
can answer that in writing.
    Mrs. BLACK. Thank you, Mr. Chairman, that went quickly.
    Chairman HERGER. Mr. McDermott is recognized for 5 minutes.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    As I sit here and listen to this, I think about the fact 
that dust is the best political defense you have--make people 
confused. And I think there are a lot of people watching this 
who don't understand that everyone who is speaking on the other 
side talking about these awful cuts, voted for them. Every 
single one of them voted twice for them. So they are trying to 
have it both ways because isn't it true that the ACA actually 
eliminated costs and gave new benefits to people that are in 
place now? Is that true, Ms. Gold?
    Ms. GOLD. Yes.
    Mr. MCDERMOTT. So what is the difference between this 
voucher plan that the Ryan budget wants, and this medical plan? 
What does it mean to patients? Because I sit up here as a 
doctor and I think about patients rather than product and 
numbers and trends and graphs. I think what it does to 
patients. So tell me what is going to be the difference for a 
patient if they are forced into a voucher plan by Ryan or 
remain in the regular Medicare program?
    Ms. GOLD. Well, I think it is going to be a lot more 
confusing and probably a lot more expensive, depending upon how 
much money Congress puts in.
    Right now, beneficiaries know there is Medicare. Medicare 
is very popular. 70 percent of beneficiaries remain in the 
traditional program, and like it.
    If this goes forward, beneficiaries probably will not 
necessarily have the same benefits across the country. Some may 
have less. We will get into more fights about what areas have 
more money or less money. They will have to figure out whether 
they pay more money, how these benefits compare to one another, 
and it is likely to be relatively confusing. Also, I think 
underappreciated is that your plan may affect what doctor you 
can go to, and if every year these plans switch, and especially 
if there are different bids and different plans come in and 
out, it means that beneficiary's care may not be stable over 
time and that they may find that even if they stay in the same 
plan, they don't have the same doctor or they could lose their 
doctor.
    Mr. MCDERMOTT. When we talk about cuts, everybody here 
thinks they know what we are talking about, but I have no idea 
what the average American thinks when we say we are making cuts 
in Medicare. Does that mean that they won't take my blood 
pressure anymore? Or does that mean they won't take my blood 
sugar? Or does that mean I won't get physical therapy with my 
aching bones? What are these cuts?
    Ms. GOLD. Do you mean under the current program?
    Mr. MCDERMOTT. Well, they are making all of these cuts to 
Medicare.
    Ms. GOLD. Every day Congress decides how much money it is 
going to spend. It pays providers. It decides how much to 
update this provider's rate and that provider's rate. As I 
understand the cuts in the ACA, most of the general cuts 
involve those kind of decisions as to what an equitable payment 
for a hospital was, or another provider. So they are changes in 
provider payments. There was no change made except improvements 
in benefits for cost sharing for beneficiaries.
    So presumably, and there always is a problem. If you cut 
providers too far, you could have a problem getting access to 
them. But I think most of these cuts are probably invisible to 
beneficiaries right now.
    Mr. MCDERMOTT. When somebody said, I forgot which one of 
the witness, that this pressure on Medicare with the cuts is 
going to make them more efficient, does that mean you won't get 
good medical care, if it is efficient?
    Ms. GOLD. You know, what is efficiency?
    Mr. MCDERMOTT. Let me ask Dr. Schwab or Dr. Tallent, what 
do you intend to cut because of these changes in Medicare that 
will make people get out of your program or leave? Or is it 
just that the rural areas are too far away so we are not going 
to give that coverage? We are going to drop that county? What 
does it mean?
    Mr. SCHWAB. Well, because I was the one that used the term 
``efficiency,'' I think the first focus is on how do you become 
more efficient and not reduce quality. The quality comes first 
in all plans. And efficiency means you are going to be cutting 
administrative overhead that you can find better ways to do 
things more efficiently and more effectively. That can only go 
so far, but that is clearly the first area that we are looking 
at of cutting, how do we work more efficiently without 
impacting beneficiary experience.
    Chairman HERGER. The gentleman's time has expired. If there 
is any further response, if you could respond in writing, 
please. Thank you.
    Mr. Paulsen is recognized for 5 minutes.
    Mr. PAULSEN. Thank you, Mr. Chairman, and also for holding 
this very important hearing. Like many of my colleagues, I am 
concerned about the pending cuts to the Medicare Advantage 
program and the likelihood that millions of seniors will be 
pushed out of their health care plans in the coming years, even 
though they may like those health care plans.
    Mr. Tallent, in your testimony, you pointed out that about 
250,000 Medicare beneficiaries could lose access to their cost 
contract plan unless Congress takes some action or steps this 
year to extend the program or make modifications to the so-
called two-plan test. A substantial number of those affected 
beneficiaries, about 200,000 of them, are in my home State of 
Minnesota. And when cuts have been made in the past to the 
Medicare risk program, plans have been forced to either scale 
back offerings or even withdraw from certain areas of the 
country altogether. So Mr. Tallent, from your experience, do 
you agree that it is even more important now to extend cost 
contract, that program, the cost contract program given the 
cuts to the MA program that are slated to take effect now over 
the next few years?
    Mr. TALLENT. Well, yes. We think it is very important 
because we are entering another period, it would appear, of 
instability, of unknown rates, for the MA plans. And over 
history, which has been mentioned a number of times by the 
panel, we have observed these plans, MA plans, making decisions 
to pull out of certain markets. And that is what we are 
experiencing.
    In my testimony, I discussed specifically in Iowa that we 
are concerned that we will be displaced next year and there 
could be a very high probability that in the near future, that 
the plans that are displacing us will also leave and the result 
will be many beneficiaries without appropriate high-quality 
options for plans.
    Mr. PAULSEN. Okay. I think you also mentioned that many 
cost plans enrollees at Medical Associates, health plans and at 
other cost contract plans are older than the average of 
Medicare beneficiaries in general, and they have been members 
for a decade or longer, for a long period of time. So to me, 
this seems like a potentially vulnerable group to disrupt care 
for. I imagine you would agree with that. What would it mean to 
these beneficiaries if they could no longer choose to enroll in 
the plan that they had come to rely upon? You talked about the 
high probability of disruption, and losing out to--if other 
competitors pull out down the road as well?
    Mr. TALLENT. Well, certainly for many of our members, I 
think it would be very disruptive. In my testimony, I mentioned 
that 30 percent of our membership is over the age of 80. And 
also that many of these members have been with us for very 
lengthy periods of time, have been with the same doctor or sets 
of doctors, many of them have multiple issues, for lengthy 
periods of time. If we were to have to be displaced, this 
vulnerable population would definitely be affected.
    Mr. PAULSEN. Thank you, Mr. Chairman. I yield back the 
time, and I appreciate the testimony.
    Chairman HERGER. Thank you. I want to thank each of our 
witnesses for your expert testimony today.
    Today we heard a detailed discussion of the future of 
health plans and Medicare. Clearly, significant changes are 
coming to the Medicare Advantage program, and seniors are right 
to be concerned about what will happen to the health plan they 
have and like.
    As I conclude this hearing, likely my final one as a member 
of this committee, I would like to highlight that this 
committee has some of the most challenging issues before it. I 
want to thank my colleagues for their thoughtful and often 
spirited discussion of those issues. We have debated these 
issues honestly and thoroughly, and I have laid down the 
groundwork to address the issues important to the millions of 
current Medicare beneficiaries, and those joining the program 
in the future.
    I want to say, it has been an honor and a privilege to work 
with all of my colleagues, and a blessing to represent my 
northern California constituents. The work that we do is 
critical to maintaining a vibrant and thriving Nation, and I 
have been proud to be a part of it.
    As a reminder, any member wishing to submit a question for 
the record will have 14 days to do so. If any questions are 
submitted, I ask that the witnesses respond in a timely manner.
    Mr. MCDERMOTT. Mr. Chairman.
    Chairman HERGER. Yes.
    Mr. MCDERMOTT. May I have a point of personal privilege?
    Chairman HERGER. You may. Mr. McDermott is recognized.
    Mr. MCDERMOTT. It is typical of you that you would put this 
announcement of your leaving at the end when there is nobody 
here except me. We are going to miss you. You have done a good 
job for your people in California and for the committee. I 
think that it should be acknowledged publicly. Good Members 
retire sometimes before they are thrown out, and it is good to 
see you going to retirement. I hope you enjoy it. You have done 
a great service to our country. Thank you.
    Chairman HERGER. I thank my good friend for those comments.
    With that, this subcommittee stands adjourned.
    [Whereupon, at 10:48 a.m., the subcommittee was adjourned.]
    [Submissions for the Record follow:]

                                 
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