[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                  A 21ST CENTURY MEDICARE: BIPARTISAN
                  PROPOSALS TO REDESIGN THE PROGRAM'S
                       OUTDATED BENEFIT STRUCTURE

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 26, 2013

                               __________

                           Serial No. 113-59


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana                  Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas                  PETER WELCH, Vermont
ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)
  


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     5

                               Witnesses

Katherine Baicker, Professor, Health Economics, Department of 
  Health Policy and Management, Harvard School of Public Health..     6
    Prepared statement...........................................     9
    Answers to submitted questions...............................   113
Patricia Neuman, Senior Vice President, The Henry J. Kaiser 
  Family Foundation..............................................    15
    Prepared statement...........................................    17
    Answers to submitted questions...............................   116
Thomas Miller, J.D., Resident Fellow, The American Enterprise 
  Institute......................................................    34
    Prepared statement...........................................    36
    Answers to submitted questions...............................   118

                           Submitted Material

Statement of American Federation of State, County and Municipal 
  Employees, submitted by Mr. Pallone............................    84
Statement of California Health Advocates, Center for Medicare 
  Advocacy, and Medicare Rights Center, submitted by.............    88
Statement of National Association for Home Care & Hospice, 
  submitted by Mr. Pallone.......................................    99
Statement of American Association of Retired Persons, submitted 
  by Mrs. Christensen............................................   110


A 21ST CENTURY MEDICARE: BIPARTISAN PROPOSALS TO REDESIGN THE PROGRAM'S 
                       OUTDATED BENEFIT STRUCTURE

                              ----------                              


                        WEDNESDAY, JUNE 26, 2013

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:59 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Present: Representatives Pitts, Burgess, Shimkus, 
Blackburn, Lance, Cassidy, Guthrie, Bilirakis, Barton, Pallone, 
Dingell, Engel, Green, Barrow, Christensen, Castor, and Waxman 
(ex officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Sean 
Bonyun, Communications Director; Matt Bravo, Professional Staff 
Member; Paul Edattel, Professional Staff Member, Health; Julie 
Goon, Health Policy Advisor; Sydne Harwick, Legislative Clerk; 
Katie Novaria, Professional Staff Member, Health; Monica Popp, 
Professional Staff Member, Health; Andrew Powaleny, Deputy 
Press Secretary; Chris Sarley, Policy Coordinator, Environment 
and Economy; Heidi Stirrup, Health Policy Coordinator; Alli 
Corr, Democratic Policy Analyst; Amy Hall, Democratic Senior 
Professional Staff Member; and Karen Nelson, Democratic Deputy 
Committee Staff Director for Health.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. This subcommittee will come to order. The chair 
recognizes himself for 5 minutes for an opening statement.
    Nearly 50 million seniors rely on the Medicare program for 
their health care, and that number may grow to 63 million 
Americans by 2020 and 81 million by 2030. Medicare's 
traditional benefit design mirrored the private insurance 
products, namely Blue Cross Blue Shield plans, available in the 
mid-1960s. While the private insurance market has undergone 
significant changes in the last 50 years, Medicare's 
traditional benefit structure has remained fundamentally the 
same.
    Unlike most private insurance today, which has a single 
deductible for all medical services, traditional Medicare has 
separate deductibles and copayments for Part A, hospital 
services, and Part B, physician and outpatient services. The 
program also charges separate copayments for Part A and Part B 
services.
    Today, seniors face great uncertainty about what their out-
of-pocket costs will be. Generally, Medicare requires a 20 
percent copayment, but without knowing the total cost of a 
doctor's visit, a hospitalization, or a procedure or test, 
seniors don't know what that 20 percent means in dollars until 
after a service is delivered. With no cap on out-of-pocket 
spending a beneficiary can incur, and confusion about the lack 
of coordination between Parts A and B, nine out of ten Medicare 
beneficiaries purchase supplemental insurance.
    On April 11, 2013, the subcommittee held a hearing titled 
``Strengthening Medicare for Seniors: Understanding the 
Challenges of Traditional Medicare's Benefit Design,'' at which 
MedPAC Chairman Glenn Hackbarth discussed ways to modernize and 
improve Medicare's traditional benefit design. As I said at 
that hearing, everything about our health care system has 
changed dramatically since 1965. Today's standards of care, and 
the tests, treatments, and drugs we have access to were not 
even dreamed of when the program was created.
    Our expectations have changed as well. Fifty years ago, 
insurance protected us from catastrophic hospital costs 
incurred as a result of diseases, which were most likely fatal. 
With the medical breakthroughs we have experienced in the 
ensuing decades, many of those diseases have become chronic 
conditions and we expect our insurance to help us manage them 
accordingly. Seniors deserve an insurance product that reflects 
the current health care system, not that of the last century.
    Today's hearing builds on MedPAC's recommendations, by 
bringing in policy experts to further explore how we can make 
the program work better for our seniors.
    I would like to thank our witnesses for being here today. I 
look forward to their comments on some of the reforms we 
discussed at the previous hearing, such as combining Parts A 
and B under a unified cost-sharing structure, instituting a cap 
on out-of-pocket spending to protect beneficiaries from the 
threat of medical bankruptcy, incentivizing high-value care, 
and others.
    Thank you, and I yield the remainder of my time to 
Representative Burgess.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Subcommittee will come to order.
    The Chair will recognize himself for an opening statement.
    Nearly 50 million seniors rely on the Medicare program for 
their health care, and that number may grow to 63 million 
Americans by 2020 and 81 million by 2030.
    Medicare's traditional benefit design mirrored the private 
insurance products, namely Blue Cross Blue Shield plans, 
available in the mid-1960s. While the private insurance market 
has undergone significant changes in the last fifty years, 
Medicare's traditional benefit structure has remained 
fundamentally the same.
    Unlike most private insurance today, which has a single 
deductible for all medical services, traditional Medicare has 
separate deductibles and copayments for Part A, hospital 
services, and Part B, physician and outpatient services. The 
program also charges separate copayments for Part A and Part B 
services.
    Today, seniors face great uncertainty about what their out-
of-pocket costs will be. Generally, Medicare requires a 20% 
copayment--but without knowing the total cost for a doctor's 
visit, a hospitalization, or a procedure or test, seniors don't 
know what that 20% means in dollars until after a service is 
delivered.
    With no cap on out-of-pocket spending a beneficiary can 
incur, and confusion about the lack of coordination between 
Parts A and B, nine out of ten Medicare beneficiaries purchase 
supplemental insurance.
    On April 11, 2013, the Subcommittee held a hearing entitled 
``Strengthening Medicare for Seniors: Understanding the 
Challenges of Traditional Medicare's Benefit Design,'' at which 
MedPAC Chairman Glenn Hackbarth discussed ways to modernize and 
improve Medicare's traditional benefit design.
    As I said at that hearing, everything about our health care 
system has changed dramatically since 1965. Today's standards 
of care, and the tests, treatments, and drugs we have access to 
were not even dreamed of when the program was created.
    Our expectations have changed, as well. Fifty years ago, 
insurance protected us from catastrophic hospital costs 
incurred as a result of diseases which were most likely fatal. 
With the medical breakthroughs we've experienced in the ensuing 
decades, many of those diseases have become chronic conditions, 
and we expect our insurance to help us manage them accordingly.
    Seniors deserve an insurance product that reflects the 
current health care system, not that of the last century.
    Today's hearing builds on MedPAC's recommendations, by 
bringing in policy experts to further explore how we can make 
the program work better for our seniors.
    I'd like to thank our witnesses for being here today. I 
look forward to their comments on some of the reforms we 
discussed at the previous hearing, such as combining Parts A 
and B under a unified cost-sharing structure, instituting a cap 
on out-of-pocket spending to protect beneficiaries from the 
threat of medical bankruptcy, incentivizing high-value care, 
and others.
    Thank you, and I yield the remainder of my time to Rep. --
--------------------------------.

    Mr. Burgess. I thank the chairman for yielding. I thank you 
for having the hearing, and I thank our witnesses for being 
here today.
    In its current form, Medicare has made some promises that 
may be very difficult to keep in just a few short years. It 
shouldn't be a surprise, since we expect the program designed 
in 1965 to adapt to the needs and usage patterns of 
beneficiaries in the 21st century.
    Enrollment in Medicare could reach well over 60 million 
people by 2020. In 2013, Medicare costs are estimated to be a 
little over 3 \1/2\ percent of GDP. That will be almost 6 
percent in 2035, so certainly a substantial increase. The 
primary reason for the increase is the demographic shift--there 
are more people in the program, baby boomers leave the 
workforce and join the rolls of retirees. We should undertake 
an open-minded review of the current benefit design in Medicare 
and ways to reform it in a way that reflects the needs and 
expectations of today's seniors. We also must adapt to the 
needs of future beneficiaries. So let us have that conversation 
about innovative payment and care programs. Let us empower 
patients and providers by promoting quality measures that are 
meaningful to consumers that they can understand. Let us offer 
incentives in the program to promote better organized, 
coordinated health care delivery and payment systems.
    Many of these are tenets guiding our discussions around 
replacing the Sustainable Growth Rate formula, and that is a 
good thing, but we must move toward a system that allows all 
beneficiaries a choice between improved fee-for-service, 
Medicare Advantage, alternative payment models such as ACOs 
bundling. Just as each provider should be able to flourish, we 
must allow patients a choice, a meaningful choice, in how they 
receive their care.
    I thank the chairman for the recognition and I will yield 
back the time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the ranking member of the subcommittee, Mr. Pallone, 
5 minutes for an opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Pitts, and thank you for 
holding this hearing today.
    Improving and strengthening Medicare so that the program 
can serve as a reliable resource for seniors and the disabled 
for years to come is critically important. We must continue to 
examine ways to keep the program solvent as the number of 
beneficiaries grows from an aging baby boomer population, and 
we have already made important progress in this area with the 
delivery-system reforms in the Affordable Care Act.
    According to the annual Medicare's trustee's report, 
Medicare spending growth is down and is projected to continue 
to have slower growth than the overall economy for the next 
several years, and I am committed to exploring ways to continue 
moving in this direction and modernizing Medicare so that 
beneficiaries today and in the future receive the care they 
need in an efficient and affordable manner.
    Seniors and individuals with disabilities rely on Medicare 
to access needed health services. These individuals are some of 
the country's poorest and sickest. Medicare beneficiaries, half 
of whom have an annual income under $22,500, spend 
disproportionately more on health care than the general 
population. As we consider Medicare benefit redesign, we must 
protect and improve this population's access to quality, 
accordable health care.
    Now, reform should provide greater predictability and 
security for beneficiaries. For years, my colleagues and I have 
explored the idea of establishing out-of-pocket limits to 
protect seniors and individuals with disabilities from 
catastrophic medical expenses. This is also an opportunity to 
improve the Medicare benefit design, making it less 
complicated. The fact that Part A and Part B have such 
divergent cost sharing and deductibles can seem arbitrary and 
confusing to beneficiaries. We should examine ways to move away 
from this model towards one that is more streamlined. Yet we 
must ensure that any changes that we make to restructure 
Medicare do not come at the expense of beneficiaries' health or 
financial security. Any reform, particularly proposals that 
include changes in beneficiary cost sharing, must take into 
consideration how the changes will impact a vulnerable 
beneficiary population. For example, while reducing utilization 
of unnecessary health services that welcome change, Medicare 
beneficiaries are not always able to distinguish between 
unnecessary and necessary care. When faced with higher costs, 
some beneficiaries will simply reduce their use of services 
across the board. Older, sicker seniors in particular are more 
likely to be passive in their care decision-making than the 
general population and rely on their providers to steer them 
toward recommended use. That is why we must continue to support 
comprehensive approaches that help move our health care system 
to a more value-based system including provider payment models 
that support value over volume, and the Affordable Care Act 
laid the groundwork for this, and we must continue down that 
path.
    So I look forward to hearing from our witnesses today about 
their ideas to improve Medicare's benefit structure and look 
forward to working with my colleagues towards a system that 
incentivizes high-quality and high-value care while building in 
protections for low-income and vulnerable populations. Thank 
you, Mr. Chairman.
    Mr. Pitts. The chair----
    Mr. Pallone. Mr. Chairman, I have three statements for the 
record that if I could submit--I ask unanimous consent to enter 
into the record a statement from the American Federation of 
State, County and Municipal Employees, AFSCME, second, a joint 
statement from the California Health Advocate Center for 
Medicare Advocacy and Medicare Rights Center, and lastly, the 
National Association for Home Care and Hospice.
    Mr. Pitts. Without objection, so ordered.
    Mr. Pallone. Thank you.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. We have more than one subcommittee going at the 
same time, so members will be in and out today. I apologize for 
that.
    At this time the chair recognizes the ranking member of the 
ranking member of the full committee, Mr. Waxman, 5 minutes for 
opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman. I appreciate your 
holding this hearing.
    The Medicare program been critical to ensuring the health 
and financial security of seniors and disabled Americans since 
its inception, and while I know we agree that there are a 
number of ways we can improve quality and efficiency in 
Medicare, we should also work on broader health care delivery 
system reform. I hope we also agree that we must preserve the 
strengths of the program and its protections for the vulnerable 
populations that depend on it.
    It is critical, as we explore this topic, that we are 
mindful of who the Medicare beneficiaries are. Two recent 
reports looking at the supplemental poverty measure-one by 
Kaiser Family Foundation and the other by the Economic Policy 
Institute-remind us of the financial vulnerability of seniors 
across the country. Nationally, nearly half of all seniors live 
with incomes below twice the poverty threshold. In my home 
State of California, the number is 56 percent, with 20 percent, 
or one in five seniors, living in poverty. Any proposal to 
redesign Medicare that doesn't protect these vulnerable seniors 
or looks to achieve program savings by shifting costs to 
beneficiaries is not one that I can endorse.
    I am glad to see that a key element of the models proposed 
by both Kaiser and MedPAC is that they are cost-neutral to 
beneficiaries overall. At the same time, I understand that 
there will inevitably be winners and losers within the Medicare 
population.
    I can't emphasize enough the critical importance of 
ensuring that the full impact, both economically and in health 
term, is considered across the population of beneficiaries. In 
our health care system today, among both private and public 
payers, there is a lack of alignment between cost sharing and 
value. As Dr. Baicker has indicated in some of her work, cost 
sharing is a blunt tool that doesn't help beneficiaries 
distinguish between high-value and low-value services. In the 
same way that the Affordable Care Act removed cost sharing for 
age-appropriate preventive services, we know from the private 
market that reducing cost sharing for prescriptions and follow-
up care for people with chronic medical problems improves 
adherence and health outcomes.
    There is a lot of interest in eliminating first-dollar 
coverage as a strategy to reduce unnecessary utilization. Yet 
we know that in poorer, sicker populations, like those in 
Medicare, this kind of cost sharing reduces both necessary and 
unnecessary care. Reducing necessary care and having patients 
defer appropriate outpatient care and end up in emergency 
departments or admitted to the hospital is not the outcome we 
are looking to achieve. More value-based benefit design must be 
tailored to the beneficiaries. For Medicare, that means 
building in incentives for high-value care and ensuring 
protections for low-income and other vulnerable members.
    In closing, I believe there are a number of ways to improve 
the benefit design in Medicare that are accountable to both 
beneficiaries and taxpayers. In the process, we must continue 
to protect our most vulnerable seniors, and we must make sure 
that we are not using program redesign as a pretext for 
achieving program savings by shifting costs onto the 
beneficiaries. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
our opening statements.
    We have one panel today. On our panel we have today Dr. 
Katherine Baicker, Professor of Health Economics, Department of 
Health Policy and Management, Harvard School of Public Health; 
Dr. Patricia Neuman, Senior Vice President of the Henry J. 
Kaiser Family Foundation; and Mr. Thomas Miller, Resident 
Fellow, American Enterprise Institute.
    Thank you all for coming today. Your written testimony will 
be entered into the record. You will be given 5 minutes each to 
summarize your testimony, and at this point we will recognize 
Dr. Baicker for her opening statement.

    STATEMENTS OF DR. KATHERINE BAICKER, PROFESSOR, HEALTH 
ECONOMICS, DEPARTMENT OF HEALTH POLICY AND MANAGEMENT, HARVARD 
   SCHOOL OF PUBLIC HEALTH; DR. PATRICIA NEUMAN, SENIOR VICE 
 PRESIDENT, THE HENRY J. KAISER FAMILY FOUNDATION; AND THOMAS 
    MILLER, J.D., RESIDENT FELLOW, THE AMERICAN ENTERPRISE 
                           INSTITUTE

                 STATEMENT OF KATHERINE BAICKER

    Ms. Baicker. Chairman Pitts, Ranking Member Pallone, 
members of the committee, I am really honored to have the 
opportunity to talk with you today about this crucial topic of 
improving Medicare's benefit design, and this offers the 
opportunity to not only improve the benefit that current 
enrollees receive but ensures fiscal stability for generations 
to come.
    So I wanted to spend a minute talking about balancing two 
competing factors. I am an economist. I have two hands. I 
always use that. That is insurance and incentives. The 
fundamental goal of an insurance product is not only to get 
people access to needed care but to protect them from financial 
ruin. Seniors shouldn't have to spend their live savings if 
they fall ill and their children shouldn't fall into financial 
ruin to care for an elderly, ailing parent. So it is vital that 
Medicare offer that kind of financial protection that any good 
insurance product should.
    But balanced against that are the incentives that any 
insurance product creates. When you subsidize care, people 
consume more of it. We have decades of research that shows that 
even though it is not intuitive that people consume health care 
that way, when the price of health care goes down, people 
consume more and some of that is really valuable care but 
incrementally it gets less and less valuable to the point that 
it might even have negative value. So we need to balance those 
two competing interests in designing a smart insurance product.
    The question is, how does Medicare do on that balance, and 
I fear that the answer is right now, not so well. It does not 
offer vital financial protections. Seniors without supplemental 
plans face potentially unlimited out-of-pocket costs, as you 
mentioned, that is not a good insurance product for them. On 
the other hand, if seniors get supplemental insurance coverage, 
they then go from having too little insurance to potentially 
too much where their care is subsidized on a first-dollar way 
that encourages care of potentially questionable value. We know 
that in any given year, about 15 percent of seniors if they 
don't have supplemental coverage face out-of-pocket expenses of 
more than $2,500 but over 10 years more than half of enrollees 
in Medicare without supplemental coverage would face more than 
$2,500 in expenses. The typical Social Security retiree's 
income is less than $20,000, so that is a huge amount of money 
for someone with Medicare. That is why 90 percent of them, as 
you noted, are likely to purchase that supplemental coverage.
    The challenge is that the extra care that the supplemental 
coverage creates really falls on the shoulders of the Medicare 
program. The supplemental coverage only pays for part of it. If 
an enrollee goes to the hospital one more time than is 
necessary for good care, that is not good for the enrollee who 
does not want to be in the hospital but it is also bad for the 
Medicare program because the program is shouldering most of 
those costs. So an ideal system would provide beneficiaries 
with the kind of protection they needed through the Medicare 
program and then they wouldn't need to purchase the 
supplemental coverage that raises the cost of the Medicare 
program and threatens its financial viability for future 
generations.
    So how do we improve the benefit design? As Representative 
Waxman noted, crude cost sharing can do as much harm as good. 
Nuanced cost sharing, I think, has the potential to improve the 
quality and value of care that seniors get while reducing 
unnecessary or low-value care that burdens the current system, 
and that means that cost sharing for different services should 
be different. It should be value-based cost sharing where care 
that is of high value should come with little or no cost 
sharing at all, and cost sharing should be ratcheted up 
depending on how the value of care diminishes. Care that has 
very little health benefit for seniors should come with a 
substantial copayment. It is important to protect low-income 
seniors from financial risk exposure. Again, it is an insurance 
product. You can't expose people to financial ruin, but that 
cost sharing could be based on income as well.
    The last point I would like to leave you with is that 
looking across silos would very much improve the balance 
between insurance and affordability for the Medicare program, 
and by that I mean, care consumed in one setting--
pharmaceuticals, doctor's office visits--has implications for 
care consumed in other settings--hospitalizations, emergency 
department visits. Patients need to have the right incentives 
to consume care in the setting that produces the best health 
value for them. Providers need to think across silos. 
Physicians should be thinking what are the downstream 
consequences for emergency department visits, and insurance 
products need to look across silos. If subsidizing a 
physician's office visit keeps a patient out of the emergency 
room, the insurer should be working in a system that encourages 
that because that is good for the patient and it is good for 
costs. So improving the program in this way would have far-
ranging implications. It would improve the value for 
beneficiaries, it would improve the fiscal stability of the 
system. It also has the potential to improve the care consumed 
by all patients in the Medicare system and privately insured 
patients. There are spillover effects. If physicians and 
hospitals do a better job for our Medicare beneficiaries, all 
patients will benefit from that higher standard of care.
    Thank you for this opportunity, and I look forward to 
answering your questions.
    [The prepared statement of Ms. Baicker follows:]

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    Mr. Pitts. The chair thanks the gentlelady.
    Dr. Neuman, you are recognized for 5 minutes for an opening 
statement.

                  STATEMENT OF PATRICIA NEUMAN

    Ms. Neuman. Thank you, Chairman Pitts and Ranking Member 
Pallone and distinguished subcommittee members. I appreciate 
the opportunity to be here with you this morning to talk about 
restructuring the Medicare benefit design.
    Medicare provides highly valued health insurance for more 
than 50 million elderly and disabled Americans, many of whom 
have significant medical needs and modest incomes. Four in 10 
have three chronic conditions, one in four has a mental or 
cognitive impairment such as Alzheimer's disease, and half live 
on an income of less than $23,000. Medicare, as we have heard, 
has a very complex benefit design with multiple deductibles, 
variable coinsurance per service, and no limit on out-of-pocket 
spending.
    To ease concerns about unpredictable and unaffordable 
medical bills, most have some form of supplemental insurance. 
Nonetheless, elderly and disabled people in Medicare tend to 
have relatively high out-of-pocket health care expenses. Health 
expenses including premiums consume three times the share of 
Medicare household budgets as it does for non-Medicare 
household budgets, 15 percent versus 5 percent. Half of all 
Medicare beneficiaries with incomes below $20,000 spend at 
least 20 percent of their income on health-related expenses.
    The idea of simplifying Medicare benefits and strengthening 
protections for seniors with catastrophic expenses has been one 
that has been under discussion for years, for decades, and has 
emerged more recently in the context of deficit reduction 
discussions. Modifications to the Medicare benefit structure 
could be designed to achieve any number of goals. Reforms could 
be designed to generate Medicare savings, to streamline 
benefits, to add catastrophic protections, to maintain the 
overall value of the Medicare benefit package while making 
improvements. They could also be designed to add greatly 
predictability for beneficiaries, to make Medicare more 
affordable for people with limited incomes, to reduce the need 
for supplemental coverage, and to nudge beneficiaries toward 
high-value services. But achieving all of these important goals 
at the same time is a very high bar.
    To understand the potential implications of such proposals 
for beneficiaries and program spending, the Kaiser Family 
Foundation with Actuarial Research Corporation examined an 
approach specified by the Congressional Budget Office in 2011 
that included a combined Part A and B deductible at $550, 
uniform coinsurance at 20 percent, and a new $5,500 cost-
sharing limit. This was not a Kaiser Family Foundation 
proposal; it was the CBO budget option that we analyzed. This 
option, if fully implemented in 2013, would be expected to 
reduce out-of-pocket spending for a small share of the Medicare 
population, generally those who are quite sick, but 71 percent 
would be expected to face higher costs than they would under 
the current benefit design in this year. Seniors in relatively 
good health without an inpatient stay would see their 
deductible more than triple from $147 under current law to $550 
if it were the combined deductible. Yet 5 percent of 
beneficiaries would be expected to have lower costs than they 
would. Again, these are sick beneficiaries, people who have 
inpatient stays, post-acute care, the people who would greatly 
benefit from a limit on out-of-pocket spending, and over a 
longer term, a larger share of the Medicare population would 
benefit from a limit on out-of-pocket spending. MedPAC and the 
Kaiser Family Foundation recently released an analysis that 
shows 32 percent of beneficiaries in traditional Medicare would 
have cost-sharing liabilities that reach or exceed $5,000 over 
a 10-year period.
    Benefit redesign proposals can be modified to achieve 
different objectives, resulting in tradeoffs for beneficiaries 
for program spending and for other payers. Lowering the cost-
sharing limit, for example, from, say, $5,500 to $4,000 would 
help a larger share of the Medicare population but also reduce 
the Medicare savings. The reverse would also be true. Raising 
cost sharing for specific services such as home health care 
would increase Medicare savings but also shift costs onto 
seniors and increase the risk that at least some would go 
without necessary care.
    Strengthening financial protections for low-income 
beneficiaries would make the redesign more affordable for 
seniors with modest incomes but could also erode the Medicare 
savings unless costs are offset in some fashion. An example of 
a benefit design that does introduce low-income protections was 
included in the bipartisan Policy Center initiative that was 
released earlier this year.
    Some of the recent benefit design proposals also recommend 
restrictions or penalties for supplemental coverage, Medigap or 
employer-sponsored retiree health plans. Adding restrictions to 
first-dollar Medigap would greatly increase Medicare savings 
according to CBO, possibly because Medigap enrollees would use 
fewer services when confronted with higher cost sharing. A 
premium surcharge would increase savings by raising revenues 
from seniors who choose to pay the fee in their Medigap or 
retiree plans but also by reducing utilization among those who 
respond to the new fee by dropping their coverage, and 
presumably that would be more likely to be people with more 
modest incomes.
    In sum, restructuring Medicare benefit design presents a 
really important opportunity to addressing longstanding 
concerns. However, simultaneously achieving the multiple goals 
of various benefit design proposals is a challenge. Protections 
for middle- and low-income seniors could be incorporated into a 
benefit design proposal but may come at a cost and could be 
compromised if savings are a high priority.
    I thank you, Mr. Chairman, and I look forward to your 
questions.
    [The prepared statement of Ms. Neuman follows:]

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    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman, Mr. Miller, 5 minutes for an opening 
statement.

                   STATEMENT OF THOMAS MILLER

    Mr. Miller. Thank you, Chairman Pitts, Ranking Member 
Pallone and members of the subcommittee for the opportunity to 
speak this morning on redesign of Medicare's outdated benefit 
structure.
    Restructuring the splintered cost-sharing requirements of 
the traditional Medicare fee-for-service program, separate 
silos for Part A and B if not D, provides a potential policy 
reform tool that could achieve the twin goals of saving 
taxpayer dollars while improving the most essential risk 
protection benefits for elderly beneficiaries.
    By increasing Medicare enrollees' cost consciousness 
regarding more disciplinary initial dollar health care choices, 
a coordinated set of changes in traditional Medicare's 
deductible and coinsurance provisions could help reduce current 
and future levels of Medicare spending. Some of those savings 
from increased cost sharing at the front end of Medicare 
coverage then could be used to provide better stop-loss 
protection against larger catastrophic risks as well as to 
substantially limit if not eliminate the need and demand for 
supplemental insurance that imposes excess costs on basic 
Medicare coverage.
    However, these fiscal and risk protection benefits must 
compete with and can complement other policy considerations. 
They include improved integration of health care delivery, 
realigned incentives to improve value-based health care, more 
effective competition between traditional Medicare and private 
Medicare Advantage plans, and continued protection of the most 
vulnerable low-income beneficiaries, and this complex balancing 
act, hard enough in theory, must remain administratively 
feasible in practice.
    A number of cost-sharing reform proposals in recent years 
hit one or more of those target objectives to varying degrees. 
My written testimony suggests some different ways to set clear 
policy priorities, accommodate necessary exceptions, and still 
maneuver through the complexities of implementation and 
administration.
    To summarize, traditional Medicare remains a largely 
unmanaged fee-for-service program that needs to rely on 
increased but more coherent cost sharing as an important tool 
though not the only one to help control its excess costs. 
Hence, overcoming the political cross-pressures that resist any 
such changes must be worth the trouble by producing significant 
net budget savings rather than a budget-neutral rearrangement 
of the chairs on the spending deck.
    The highest priority should be to protect all seniors 
against health-related financial risks that they cannot bear on 
their own. That is not equivalent to hiding from them as many 
health care costs as possible through third-party payments. 
Such stop-loss protection, predominant in private insurance 
plans for decades, is long overdue for traditional Medicare, 
but in this case, it should be income related rather than set 
as the same dollar amount for every beneficiary. This major 
risk approach to Medicare cost sharing should consider the 
alternative of relying more on a higher rate of coinsurance 
across a wider range of initial health spending and less on 
deductibles and lump-sum amounts. This would extend the 
corridor of cost sensitivity and engage more Medicare 
beneficiaries in monitoring the real costs of their subsidized 
care yet temper the full impact of cost sharing in deciding 
whether to seek any care at all. Amounts of coinsurance-based 
cost sharing also reset automatically as health care costs 
rise, and hopefully fall someday.
    The cleaner and less complicated way to deal with the 
distortions of supplemental insurance for traditional Medicare 
enrollees is to improve that program's basic risk protection 
directly and then set regulatory boundaries on what either 
individual Medigap plans or employer-sponsored retiree plans 
can cover. We don't need another new tax on those plans piled 
on top of the existing debris of dead-weight distortions 
throughout the tax code. Let us subsidize non-poor seniors less 
instead of taxing them more.
    Of course, the poorest seniors must continue to receive 
special protection against health care cost burdens. 
Supplemental Medicaid coverage for dual-eligibles would remain 
in place. More attention should be paid to restructuring 
current Medicare savings programs for other low-income seniors 
in a better integrated manger, and in some cases, supplementing 
them, particularly for those facing high cost conditions. 
Evidence-based preventive health benefits also should be 
exempted from expanded cost sharing. Efforts to improve health 
information and navigational assistance for all beneficiaries 
but particularly those with cognitive impairments need much 
more attention and budget support.
    The particular parameters for restructured cost sharing 
suggested in my written testimony are merely suggestive 
starting points but they can help lead us to a reformed 
Medicare program that relies more on income-related cost-
consciousness, enhances true insurance protection against 
catastrophic risks, and reduces the likelihood of rising 
premiums, steeper taxes and hidden benefit cuts.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Miller follows:]

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    Mr. Pitts. The chair thanks the gentleman, and we will now 
begin questioning. I will recognize myself for 5 minutes for 
that purpose.
    The first series of questions are yes or no, and I will ask 
all of you these questions. So Dr. Baicker, I will start with 
you. Is it fair to say that you all agree the traditional 
Medicare fee-for-service benefit design may be outdated and 
overly complex for beneficiaries? Yes or no.
    Ms. Baicker. I agree.
    Mr. Pitts. Dr. Neuman?
    Ms. Neuman. Yes.
    Mr. Pitts. Mr. Miller?
    Mr. Miller. Yes.
    Mr. Pitts. All right. Second question. Is it also fair to 
say that the program is need of reform to ensure catastrophic 
protection for beneficiaries, increased incentives for 
beneficiaries to seek value-based providers and services and 
streamline benefits to reflect a modernized benefit structure? 
Yes or no.
    Ms. Baicker. Yes.
    Mr. Pitts. Dr. Neuman?
    Ms. Neuman. Yes, depending on how it is done.
    Mr. Pitts. Mr. Miller?
    Mr. Miller. Yes, in general.
    Mr. Pitts. All right. Is it also fair to say that reforms 
on such a topic have been discussed for decades by policy 
experts from both sides of the aisle and political spectrum? 
Yes or no.
    Ms. Baicker. Yes.
    Mr. Pitts. Dr. Neuman?
    Ms. Neuman. Yes.
    Mr. Miller. We have problems with political markets 
clearing on them. Yes.
    Mr. Pitts. All right. Finally, is it also fair to say that 
given a Medicare solvency crisis, approaches gradually but 
inevitably pressure to restructure the program's traditional 
benefit design will only increase? Yes or no.
    Ms. Baicker. Yes.
    Mr. Pitts. Dr. Neuman?
    Ms. Neuman. Yes.
    Mr. Pitts. Mr. Miller?
    Mr. Miller. Yes. As the pressures increase, we have to 
think about how we want to respond to them.
    Mr. Pitts. All right. Dr. Baicker, given that today 
approximately 70 percent of Medicare beneficiaries are enrolled 
in the traditional fee-for-service benefit with the remaining 
beneficiaries finding greater value in the Medicare Advantage 
program, wouldn't a modernization of the traditional benefit 
design ultimately help the majority of current Medicare 
beneficiaries navigate a very complex cost-sharing structure 
and effectively avoid the implications of catastrophic illness 
cost?
    Ms. Baicker. Yes. I think modernizing the design would 
allow beneficiaries to consume the care that was right for them 
in the right setting and from the right provider, and that 
added flexibility could drive towards higher-value care for all 
beneficiaries. I think they should have choices about these 
things.
    Mr. Pitts. Mr. Miller, do you want to comment?
    Mr. Miller. Cleaner, clearer signals are important. We may 
in trying to adjust for everything make the system even more 
complex.
    Mr. Pitts. All right. Dr. Baicker, you note in your 
testimony that cost sharing should be modeled on a value-based 
framework whereby cost sharing is lowest for services that are 
most effective at improving health care outcomes. Could you 
please elaborate? Explain from your experience in looking at 
private-market options where cost sharing has worked most 
effectively.
    Ms. Baicker. Let me give an example from the care of 
diabetic enrollees who have really high risk of downstream 
adverse cardiovascular events, and getting them to adhere to 
their medications, getting them to meet with their physician 
regularly can improve their health dramatically and reduce 
downstream costs. There are a lot of innovative ways you can 
try to get diabetics to be more adherent to best practices, and 
in the absence of innovation in different types of 
interventions, we see remarkably low adherence rates to 
lifesaving treatments that patients just have trouble on their 
own enforcing, so innovative cost structures where maybe 
patients even get subsidized to take their medications or where 
they don't meet with a physician all the time, they sometimes 
meet with a community care person who coordinates across 
different patients to provide support for them to take their 
medications. I think we have seen that the crude tools are 
insufficient, even for a population where there is effective 
care available and the downstream consequences are potentially 
catastrophic for their health, and we see that kind of 
innovation in the private sector and it is very hard for the 
current Medicare fee-for-service structure to mimic that kind 
of innovation.
    Mr. Pitts. Dr. Neuman, do you want to comment on that 
question?
    Ms. Neuman. I would agree with everything. I think the 
challenge is, who determines what is high value and what is low 
value, and that is really a major issue in terms of figuring 
out who would make these determinations. An easy example to 
think about in terms of value might be generic versus brand for 
equivalent products, but when you get to the more complex 
questions involving medical care, these decisions are a little 
bit trickier to resolve. So I think that is a particularly good 
example. I know that in the MedPAC recommendation, they talked 
about delegating this authority, I believe to the Secretary, 
because they were not prepared to specify when they made their 
recommendation what exactly is high value and what is not.
    Mr. Pitts. Mr. Miller?
    Mr. Miller. This is a perpetual struggle in trying to get 
the benefits of what we point to in private-sector private 
insurance innovation and trying to do that through a 
comprehensive public program which has a lot of difficulties in 
making those types of fine-tuned adjustments and being 
accountable for it. We have got a one-time shot to get the 
basic shell of a structure for Medicare benefits better, but I 
think we can't legislate every single particular in that 
regard. I would suggest that although most of these proposals 
say well, we will just give the Secretary some discretion, it 
will all work out, there will be some rulemaking, you need to 
have some evidentiary boundaries as to exactly how far that is 
going to go. Most of the examples of value-based insurance 
design tend to be one-sided. We know how to add benefits that 
make everybody happy and feel better. We have a lot more 
problems in taking them away. So you could impose somewhat of a 
budget neutrality constraint saying for everything you need to 
put on, if it is going to pay off, something else has to not 
pay off as well, and that is one way to get it a little more 
even-handed rather than a one-sided approach.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the ranking member, Mr. Pallone, 5 minutes for 
questioning.
    Mr. Pallone. Thank you, Mr. Chairman.
    I wanted to ask Dr. Neuman, many of the proposals for 
redesigning Medicare's benefit package attempt to balance 
program simplification through combined deductibles and more 
predictable out-of-pocket expenses with efforts to improve the 
program value and efficiency. Many of us would agree that there 
is a need to simplify the structure of Medicare benefits in 
ways that make it more understandable and user friendly for 
beneficiaries and provide them with better protections by 
providing out-of-pocket spending caps like private insurance 
plans.
    Your analysis clearly shows that while a small number of 
beneficiaries would benefit from their restructured design, a 
much larger number would see increased out-of-pocket expenses. 
Can you talk about how with any of these plans there will be 
inevitably winners and losers?
    Ms. Neuman. Well, there are 50 million people on Medicare, 
and everybody has a different set of health care experiences 
and health care needs and supplemental insurance, which varies 
across people, and when you change the benefit design, 
depending on what services people use in a given year, their 
out-of-pocket costs are going to differ than what they would 
have been under current law. So in sort of the prototype policy 
that we looked at, the high out-of-pocket expense of course 
protects a small share of people. The high out-of-pocket limit 
protects a very small share of the Medicare population with 
high spending. That costs. When you add a benefit to Medicare, 
that increases Medicare spending, and part of the new costs are 
offset by the higher deductible that so many more people on 
Medicare will pay because 80 percent of people don't go to the 
hospital, so 80 percent of people don't incur an inpatient 
deductible. So for the majority of people who don't go to the 
hospital, they would pay a higher deductible and so they would 
see their deductibles increase if this were to be imposed, for 
example, this year.
    Mr. Pallone. OK. Now, how can we design a plan that is 
mindful of the financial insecurity of the large number of 
Medicare beneficiaries and builds in adequate protections?
    Ms. Neuman. Well, I think it is tricky if the goal is to 
produce savings, so in an environment where the overall 
objective is to produce Medicare savings, it could be quite 
challenging to build in protections and to lower cost-sharing 
risk for people with modest incomes. To protect people with 
modest incomes, one might think about, for example, the 
Bipartisan Policy Center's initiative which federalizes cost-
sharing assistance for people with incomes between 100 and 150 
percent of poverty. This is building on the Part D model for 
low-income subsidies, but adding protections also adds to cost, 
so to do this, one would need to find a way to offset those 
costs in some fashion.
    Mr. Pallone. OK. Dr. Baicker, I know your research has 
looked at a lot at value-based insurance design, and one of the 
points you make is that cost sharing as it currently is used in 
the insurance industry is a blunt tool. It reduces health care 
spending but in a way that doesn't differentiate between high- 
and low-value care. It also doesn't take into account the 
diversity of the beneficiary population who based on their 
financial and health status are likely to respond differently. 
So unfortunately, the notion of creating incentives for 
beneficiaries to make better decisions is often looked at only 
through the narrow lens of increased cost sharing. Can you talk 
about ways other than increased cost sharing that benefits can 
be structured to encourage use of appropriate high-value 
services and discourage the use of unnecessary services and how 
important is it to ensure there are not barriers to high-value 
care?
    Ms. Baicker. I think you raise a really important point, 
that cost sharing on the patient side has some potential for 
harms, especially if it is implemented for all patients in the 
same way, and on the patient side, the ideal cost sharing might 
depend not just on the service or the medication or the setting 
but also on the particular patient. So a cholesterol-lowering 
drug for a diabetic patient is higher value than that 
cholesterol-lowering drug for a different patient, and it is 
very hard to write down a set of rules for specific procedures 
or specific medications and call them high value and others not 
when it really varies patient to patient. So it would have to 
be a much more flexible design on the patient side, which we 
have seen some experimentation with in the private sector but 
we are nowhere near achieving the possibilities.
    On the provider side, I think one could also approach 
promoting higher-value care by making payments look across 
silos, and that means not paying more for care in one setting 
than another setting when the patient might be better off 
individually in the setting that is less well reimbursed. The 
reimbursement should really be neutral about where the patient 
gets the care, so the patient could choose based on what is 
best for that particular set of circumstances. There could also 
be payments on the provider side that bundle care across silos 
and over time. Those bundles have to be big to incorporate, 
from the physician's office to the hospital to the post-acute 
care where there is a huge amount of variation in spending in 
post-acute care, and somebody has to be responsible for that in 
the provider system so that patients get high-value care after 
a hospitalization that not only improves their health but keeps 
them out of the hospital again. So I think we have to approach 
it both from the patient side but, as you note, from outside 
the patient side from the provider side as well.
    Mr. Pallone. All right. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Illinois, Mr. Shimkus, 5 minutes 
for questions.
    Mr. Shimkus. Thank you, Mr. Chairman. It is great to have 
you here--an issue that has befuddled the national government, 
probably since the inception of Medicare in 1965. Those of us 
that have been around for a long time, I can't think of a time 
when I haven't talked about the structural deficiency and our 
promise to pay future generations based upon the formula that 
we have today. And so thanks for this.
    I am kind of going to go to--my question is going to be 
first, if people can shop around for homeowner's insurance and 
automobile insurance, do you think it is too much to ask for 
individuals to shop around for health insurance? Why don't we 
go left to right?
    Ms. Baicker. I think individuals should have choices among 
health insurance plans and I think that that would foster 
innovation in insurance design as well as competition on prices 
but insurers should be experimenting with the best way to 
manage diabetic enrollees, for example, and then they should be 
able to attract more of them by providing higher-value care.
    Mr. Shimkus. And Dr. Neuman?
    Ms. Neuman. I think people on Medicare should have choices, 
and people on Medicare, for example, do have the ability to 
shop within the Medicare Advantage program today. I think as 
people get older and have more impairments and cognitive 
impairments, then the shopping process gets more difficult 
because it is--I think we have all experienced looking at 
health insurance and it is a fairly complex enterprise.
    Mr. Shimkus. It is. I guess the other issue too is if--and 
I can really understand the debate on seniors at a certain age 
but it is still seniors at a certain age that are still buying 
automobile insurance and they are still paying home insurance, 
and there is a training process too. You can't expect seniors 
today, a lot of seniors today who are on fee-for-service to 
automatically move into a competitive-market model and shop 
around. I think that is really in essence way too much to ask. 
But you all get the drift I am going. Mr. Miller?
    Mr. Miller. We can certainly improve the shopping process 
for insurance but we sometimes overinvest in it too much. Kate 
was talking before about getting into broader bundles. What we 
really want to have is measures of outcomes for all of the 
players who are providing our care, and that goes beyond just 
the insurer you select. So we need to think about how seniors 
can shop more effectively for the team of care they are going 
to receive or the various folks they go to first further on 
down the stream, particularly in Medicare fee-for-service where 
you are not buying as much of an orchestrated, integrated 
product. So as much as we want to enhance the shopping 
experience for that front-end idea of what are my benefits, 
what are my cost sharing, we need to know what actually what is 
the value of that total experience.
    Mr. Shimkus. Even in the much maligned or supported 
ObamaCare or Affordable Care Act, the premise is getting people 
into markets, State exchanges, where they can shop around, and 
so this really is a segue to that whole issue. If you can then 
move the public at large either by their employer or the 
individual citizen, in essence forcing them to shop around in 
an individual exchange, why isn't the segue then into future 
generations move these people then into a market-based system 
of health insurance providers for Medicare and Medicaid? And 
that might even also address the payment disparities that you 
see from these two programs, which the majority would much 
rather pay the Medicare rate than they are going to receive on 
a Medicaid reimbursement, which really distorts this whole 
funding scheme. Does anyone disagree with that, or anything to 
add?
    Ms. Baicker. I think making it easy for people is key. 
Competition doesn't work if people aren't able to evaluate the 
options in front of them and aren't able to move, and that is 
about making information transparent, and it is also about sort 
of smoothing pathways. We know that it is hard for people when 
they have so many different choices and the information is 
varied to make wise decisions.
    Mr. Shimkus. Let me just jump in because my time is short, 
but Dr. Neuman, you kind of mentioned it, and you were kind of 
leading up, I was kind of building momentum here for this 
thing, does Medicare Advantage strike this balance to some 
extent of allowing people choices and systems and a way to shop 
around that could be in essence kind of rolled up writ large, I 
think?
    Ms. Neuman. You know, it could. People have the choice of 
traditional Medicare and Medicaid Advantage plans, and then if 
they choose Medicare Advantage plans, they can choose among 
them. We don't really know very much actually about how people 
are choosing plans and whether they are choosing the best plans 
for them. We know in the Part D marketplace that people are 
actually not making choices in terms of which plan would reduce 
their cost the most. So we still are pretty early on in this 
experiment in terms of understanding how seniors behave in the 
marketplace.
    Mr. Shimkus. But Part D, I don't know the recent approval 
ratings or the like but it is still well received.
    Ms. Neuman. Oh, yes.
    Mr. Shimkus. And approval ratings are higher than any 
health care thing we passed ever in this chamber. So it is a 
very successful model.
    I yield back my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the distinguished ranking member of the full 
committee, Mr. Dingell, for 5 minutes for questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy, 
and I thank you for holding this hearing today. It is very 
important.
    As most people know, my dad was the originator of Medicare, 
and I was proud to cosponsor the legislation and to provide 
over the House of Representatives during its passage. The 
program has endured as one of the most significant pieces of 
legislation in our Nation's history and is it of enormous 
importance to our senior citizens and to a lot of other people. 
I recognize that it is time for review on a continuing basis of 
this great program, and I believe that we can do so without 
limiting or decreasing benefits that are available to our 
seniors today as we look to see to it that it is conducted in 
the most efficient way from the standpoint of costs and other 
things.
    Now, the testimony focuses today on a number of proposals 
on how to reform Medicare. I want to focus my questions on the 
impact these programs and reforms would have on seniors. Dr. 
Neuman, these questions are directed to you as spokesman for 
the Kaiser Health Foundation, and I want to thank you and the 
other members of the panel for being here. Your assistance is 
much appreciated.
    Doctor, is it correct that nearly one in four of Medicare 
beneficiaries are only in fair or poor health?
    Ms. Neuman. Yes, sir.
    Mr. Dingell. Doctor, is it also correct that 40 percent of 
Medicare beneficiaries live with three or more chronic 
conditions?
    Ms. Neuman. Yes.
    Mr. Dingell. Doctor, do more than half of Medicare 
beneficiaries live on incomes of less than $22,500 a year?
    Ms. Neuman. Yes.
    Mr. Dingell. Dr. Neuman, does Medicare have a limit on out-
of-pocket expenses for beneficiaries?
    Ms. Neuman. No.
    Mr. Dingell. Dr. Neuman, is it correct that Medicare 
beneficiaries with incomes below $20,000 per year spent 
something like 20 percent of their income on health-related 
expenses?
    Ms. Neuman. Yes.
    Mr. Dingell. Now, Doctor, thank you. It is clear that we 
have many beneficiaries for Medicare who have serious health 
needs and very limited resources to pay for their care. Placing 
cost-sharing requirements on this population is going to have 
to be done very carefully or it will have an appalling negative 
impact on their health and financial security.
    Now, the Kaiser Family Foundation recently commissioned a 
study, which has been discussed this morning, on the impact of 
three reforms that have been proposed by many different groups: 
a unified copayment for Parts A and B, a 20 percent coinsurance 
for Medicare services, and a $5,000 annual limit on out-of-
pocket spending. Dr. Neuman, did this study find that 71 
percent of the beneficiaries would see an increase in out-of-
pocket costs to them if this plan was implemented this year?
    Ms. Neuman. Yes.
    Mr. Dingell. Now, Doctor, did this study also find that 
aggregate spending among Medicare beneficiaries would increase 
over $2 billion?
    Ms. Neuman. Yes, sir.
    Mr. Dingell. And Doctor, I hope you understand, I am doing 
this so we can get an awful lot into the record as opposed to 
putting you in any kind of a difficult place.
    Doctor, do you believe that these proposed reforms would 
also lead to increased costs for beneficiaries if not 
structured properly?
    Ms. Neuman. Yes, I think there is a risk that that could 
happen.
    Mr. Dingell. And I believe you are suggesting that if we do 
this, it should be done with all the facts and with a great 
deal of care.
    Ms. Neuman. That is correct.
    Mr. Dingell. Now, I think we need to take a good, hard look 
at the ways that Medicare can be reformed so that the program 
continues to provide security for our future generations. 
However, we must ensure that such reforms are not simply 
shifting costs from the federal government to senior citizens 
who are incapable of properly meeting those demands. Medicare 
is a promise to our senior citizens, and we need to keep our 
word to them. I am confident that we can improve the program 
while protecting access to care if we work carefully together 
in a bipartisan manner.
    Mr. Chairman, I want to thank you for recognizing me. I 
want to commend and thank our panel, especially you, Dr. 
Neuman, and I hope that as we proceed forward, we will do so 
with exquisite care. We have a program of vital importance to 
our senior citizens, one which must be protected and one which 
with unwise tinkering can cause no end of problems. I also note 
that if properly done, it is a program which could continue to 
persist in its service of our people for a long time into the 
future and that the corrections are not disastrous if properly 
done. Thank you, Mr. Chairman. I yield back 1 second.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, 5 minutes 
for questions.
    Mr. Cassidy. Hello. Thank you all. I enjoyed your testimony 
and your written testimony. Mr. Miller, I think I may end up 
quoting some of yours but I won't quote it here.
    Mr. Miller. It is there for your use.
    Mr. Cassidy. Dr. Baicker, I think it may have been your 
testimony where you hint at, indeed, it may not only be 
expensive to have overutilization of services but also harmful 
to the patient's health. I see both of you nodding your head. I 
agree with that totally. So let us be clear: When we speak 
about using services more widely, it is not only monetary but 
most importantly it is about making sure that patients' health 
is not harmed. Yes?
    Ms. Baicker. I agree that not harming health is clearly 
first and foremost, and then there is also care that is of 
potentially zero benefit or very small benefit that is really 
expensive.
    Mr. Cassidy. OK. Now, one thing that you read about is the 
activated patient, the activated patient whose expenses are 8 
to 21 percent lower than the person--and I gather there may be 
even some empiric evidence that the activated patient is a 
healthier patient. Just for those listening who may not know, 
an activated patient fully participates in their care both 
physically and financially.
    Now, have any of you all--and try to keep your answers 
brief, please--do any of you have specific suggestions or the 
things that you suggested do you feel as if they would create 
the so-called activated patient, the one participating both in 
their health decisions as well as their financial decisions. 
For example, Mr. Miller, you speak of value-based purchasing as 
do maybe all three of you. I don't really think of that as 
creating an activated patient. That is actually just saying we 
are going to pay for this and not pay for that.
    Mr. Miller. The decisions are made before the patient is 
asked about it, and we are steering them in that particular 
direction. Now, we can do that in some areas. Certainly the 
best evidence tends to be in the prescription drug area. That 
is largely accommodated through Part D already in Medicare. So 
I think we can move that mostly off the table.
    Mr. Cassidy. So by incentivizing patients to go to generics 
and allowing them to save money, you create an activated 
patient who is both looking at the cost but also doing so 
improving----
    Mr. Miller. Looking at the cost opens the door to thinking 
about the value. Cost is only the opening consideration, but if 
you haven't gotten someone's attention with the cost, they may 
not think about how that balances out against the qualitative 
tradeoffs.
    Mr. Cassidy. Now, Mr. Miller, I like your kind of 
testimony, if you went to a higher coinsurance but you still 
had the same limit on out-of-pocket, you may achieve both, 
maybe more upfront costs but----
    Mr. Miller. You are trying to expose more patients across a 
wider range of decisions to thinking about the care they 
receive.
    Mr. Cassidy. Now, let me ask you this, and this is 
something I haven't completely worked through, so if I totally 
fumble, please forgive me. As some hospitals are purchasing 
physicians' practices, typically procedurally based, and they 
are beginning to bill under Medicare Part A as opposed to Part 
B, effectively we are having what you are describing in which 
the deductible for that Part A service is often greater than it 
would be for the equivalent Part B. We are seeing a downward 
trend in Medicare spending. I tried to learn if that is 
attributable to this phenomenon. That is more difficult than 
its seems like it should be. I have not yet been able to 
determine that. But it seems to me that we may be seeing 
examples of what you are describing, bringing it into Part A, 
increasing the upfront deductible and coinsurance costs, and 
yet there has been no decrease in health quality and there has 
been a decrease in spending. Any thoughts on that?
    Mr. Miller. Well, I have not looked at that data. I mean, 
we have got a different type of thing going on where hospital 
outpatients, because it is reimbursed more generously than 
other outpatient----
    Mr. Cassidy. But that costs the patient more.
    Mr. Miller. Which is the problem of all these type of 
siloed payments. Other private parties will find ways to 
maneuver around them.
    Mr. Cassidy. Oh, I accept that as a different thing, but 
just my general point, that we have effectively increased the 
amount that is out of pocket for patients and we have actually 
seen a decrease in spending in the Medicare program, in the 
Part B program.
    Mr. Miller. Right.
    Mr. Cassidy. Any thoughts on that, Dr. Baicker or Dr. 
Neuman?
    Ms. Baicker. I think you hit on a key point that innovative 
insurance companies can drive patients to be more engaged in 
their own care, and that innovation could come in the form of 
cost sharing or it could come in other ways that insurers think 
of to get the patients engaged and having them have that 
flexibility would open a wider set of----
    Mr. Cassidy. What are some other examples of how they could 
be engaged besides cost sharing? Because clearly we need 
patient engagement.
    Ms. Baicker. I think there are examples of getting patients 
to interact with a wider set of patients who have conditions 
like them, of getting text messages to remind them of things, 
of getting----
    Mr. Cassidy. I have heard about that. Has that actually 
been shown in some sort of peer-reviewed double-blind way to 
actually work?
    Ms. Baicker. I think text messages do increase adherence to 
medications, that part of not taking your meds is not about the 
copay, because you already have the drugs, but taking them 
regularly, it is a skill, it is a habit, and there has to be 
skill building that if you don't have the right incentives, 
insurers don't engage and providers don't engage in patient----
    Mr. Cassidy. So if you, though, that is not the insurance 
product per se but rather the administration or patient care 
aspect of it, correct?
    Ms. Baicker. But if the insurers and the providers have the 
right incentives, then they can innovate in that dimension that 
benefits patients by getting them more engaged, and you need a 
system that incentivizes upstream for that to happen 
downstream.
    Mr. Cassidy. Thank you all. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from Florida, Ms. Castor, 5 minutes 
for questions.
    Ms. Castor. Well, thank you, Mr. Chairman, and thank you 
all for your expert advice provided to the committee.
    I want to start off by saying thank goodness for Medicare 
when you look back over the past decades what security that has 
brought to our families all across America, our parents and 
grandparents. We don't have to worry about our older neighbors 
falling into poverty because of their health issues as they get 
older.
    And now with the Affordable Care Act, Medicare is even 
stronger. We have already adopted very important reforms moving 
benefit. The benefits for Medicare beneficiaries are better. 
The life of the trust fund has been extended. It is not great, 
though, and I worry because I see this huge population of the 
baby boomers now coming into Medicare as they turn 65, and I 
think this is the right time to look at reforms.
    One recent proposal was called the Medicare Essential 
proposal by Karen Davis and others in the Commonwealth Fund. 
They propose to combine Parts A, B, and D with a single 
deductible, copayments, and a ceiling on out-of-pocket costs. 
In addition, it would build incentives for beneficiaries to 
choose the high-value care we have talked about this morning 
including having them join those primary care practices that 
quality as patient-centered medical homes and using providers 
participating in alternative payments like ACOs. I have seen 
some of these in Florida where they are very intensive. The 
nurses are on the line constantly with their patients talking 
about smoking cessation, taking their medications, but it is 
still very difficult. And the inherent part of that proposal is 
the assurance of equitable access for low-income beneficiaries.
    Dr. Neuman, what is your view of that proposal? Do you have 
any criticisms or do you want to highlight the good parts of 
it?
    Ms. Neuman. Well, I think it is a proposal--you are looking 
at a lot of proposals that are trying to achieve similar goals. 
This proposal is certainly worth looking at, and particularly 
the features that would provide the catastrophic protection and 
to encourage people on Medicare to move toward systems where 
there are incentives to improve the delivery of care, and I 
think there is a lot of interest in giving beneficiaries access 
to the kinds of care coordinators, nurse practitioners, the 
kind of services that you were talking about that you have 
seen, and that would be encouraged under this proposal. It has 
a relatively low limit on out-of-pocket spending. It has a 
fairly low deductible. So I think it recognizes the needs of 
people with modest incomes, so I would encourage you to take a 
look at that.
    Ms. Castor. OK. Doctor, do you want to comment on that?
    Ms. Neuman. Yes, I do think that there are a lot of common 
threads in these proposals where there is a consensus emerging 
that the protections that Medicare affords are vital and have 
to be preserved but that moving patients towards programs that 
foster whole health, that look across silos are really engaged 
with patients to activate them and to ensure that they are 
consuming the care is actually going to produce help for them 
with the highest value. There are a lot of common threads. 
Optimistic? I don't know if that is reasonable that we do it 
that way.
    Ms. Castor. Mr. Miller?
    Mr. Miller. Well, I looked at the Part E proposal, which is 
somewhat of an update of an older one a couple of months ago. I 
appreciate the creative use of the Medicare alphabet but I 
think it is really aiming for Medicare Part U, universal, which 
trying to squeeze out private competition, if you look at the 
actual underpinnings of it, and there are a number of----
    Ms. Castor. Well, that raises another point, because I 
think the Medigap policies, the supplementals, I get your point 
about are they encouraging overutilization, and they seem to be 
ripe for reform and cost savings too. When you look at 
traditional Medicare, the administrative costs are only 2 
percent. You look at those Medigap policies, and administrative 
costs are 20 percent. That is awfully high.
    Dr. Neuman, where should we be headed in reform of those 
supplemental policies?
    Ms. Neuman. Well, the loss ratio requirements haven't been 
looked at for some time, so that might be something you might 
want to look at with Medigap policies. I think the issue with 
Medigap is, it may drive up utilization and spending and 
Medicare services but people really rely on Medigap for the 
security that it provides. People seem to want protection. They 
don't seem to want to have an unpredictable, unaffordable 
medical expense occur throughout the year. There are kind of 
two sets of proposals out there on supplemental insurance. One 
would prohibit first-dollar coverage for Medigap. The other is 
a surcharge approach or a tax approach which would tax both 
Medigap and employer-sponsored plans, and they would have very 
different effects, depending on how they are implemented.
    Ms. Castor. Thank you very much. I have run out of time.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Kentucky, Mr. Guthrie, 5 minutes 
for questions.
    Mr. Guthrie. A perfect trend. My friend from Florida led 
right into my questions. I was going to talk about Medigap.
    A lot of times we talk about transparency in pricing and 
you can't find the pricing in health care, and if you go to the 
Houchins IGA grocery store in Bowling Green, Kentucky, there is 
a price on everything, because if they didn't have a price on 
anything, nobody would buy anything because it is out of their 
pocket. They have got a sign tall enough you can see what their 
gallon of gas costs going down I-65 at 70 miles an hour. So 
that is just a problem. But I will tell you this: if I paid 
$100 a month to Houchins IGA and they allowed me to come in and 
buy anything that I wanted to because I paid $100 a month, not 
only would prices go away, I probably wouldn't make too 
intelligent of at least value based. I would buy the T-bone 
steak every time I went in.
    And so there was a 2009 MedPAC study--I think we just 
started getting into it--about beneficiaries with first-dollar 
coverage and they use the system about a third, or they have a 
third higher medical costs than those with no supplemental, and 
the first-dollar coverage regardless of type of plan results in 
higher Medicare spending. And in the June study, MedPAC made 
some recommendations to address this. I think we talked about 
one is a copay, a fixed-dollar copay, and the excise tax that 
you talked about. I have some concerns with it. One is that if, 
say I pay $100 a month for it and all of a sudden they say you 
are going to have to pay a tax so you have to pay $110, well, 
that $10 will go into the trust fund, I get it, to help offset 
my cost. That doesn't change my behavior at all. So that just 
doesn't seem to--other than putting money in the system, it 
doesn't seem to have any change in me using a third more.
    Ms. Neuman. I think it might have an effect. The effect 
might be different for people with lower incomes. So for people 
who can afford the extra $10 in your example, they pay the $10 
and they keep their coverage and life goes on and they use 
services as they did. For people who can't afford the $10, they 
would probably give up their supplemental coverage or they may 
give up their supplemental coverage and then they would face 
the true costs of whatever services they used and----
    Mr. Guthrie. But that would have a negative impact on the 
poor and the excise tax would have a negative impact on the 
poor recipient. So it could price people out of the market is 
what you are saying?
    Ms. Neuman. That is right.
    Mr. Guthrie. But I guess I would like to talk just--I have 
got 2 \1/2\ minutes--of this whole first-dollar coverage and 
what you think should change that. I think Mr. Miller is about 
to start.
    Mr. Miller. I was just going to add, in the Medigap area we 
already have plenty of evidence that people buy plans that cost 
more than $1 for a $1 in benefits. So we can go through the, 
you know, approach of taxing them a little bit more and making 
it even less of a good deal. I suspect we will still have some 
people buying it. But the 2009 study was very well crafted, 
because there has been a lot of older evidence on the extra 
costs that are thrown off by supplemental coverage. I think it 
dealt with some of the criticism of the earlier work and made 
it quite clear that more so for individual Medigap-purchased 
insurance, less so for employer-sponsored insurance, but all of 
them have a higher cost impact on Medicare, and that is not 
covered by the Medigap premium or the employer costs; it is 
passed onto every other Medicare beneficiary.
    Mr. Guthrie. But it continues to add into that ``I don't 
have to price my health care because it is being covered from 
first-dollar coverage.'' Dr. Baicker?
    Ms. Baicker. And in general, when you tax things, people 
consume less of them, and the goal I think would be to reform 
the basic Medicare benefit so that people have the vital 
financial protections and didn't need the Medigap policies as 
much, and then pricing the Medigap policies would take into 
account the extra cost they impose on Medicare and other 
Medicare beneficiaries and would hopefully induce people to 
move towards plans that didn't have so much first-dollar 
coverage because they were getting their out-of-pocket 
protections from the main Medicare program. They would then 
scale back the consumption of care that is of less value and 
everybody's care would be a little more affordable. There are a 
lot of steps in that chain, and there is a lot of uncertainty 
about how big each of those steps would be but we know that 
Medigap policies today are priced much lower than their true 
cost and so we are subsidizing the kind of care that produces 
very little health, and that doesn't seem like a great way to 
continue.
    Mr. Guthrie. Any further discussion? Dr. Neuman, any other 
points?
    Ms. Neuman. Well, we are subsidizing--some of what we are 
subsidizing probably produces good health but some of it may 
not, so there is a mix there.
    Mr. Guthrie. But there is a desire in this. We have to 
recognize that people want to insure themselves against ``I 
just don't want to have to face this. I would rather pay a 
little bit each month and not have to face it.''
    Ms. Neuman. Many people on Medicare are living on fixed 
incomes so they don't like the idea.
    Mr. Guthrie. Exactly. So it is a good benefit.
    Ms. Neuman. And I think the issue here is in a benefit 
redesign, if the deductible is relatively high and the out-of-
pocket limit is relatively high because of budget constraints, 
then it may not dampen the demand for supplemental coverage if 
people still will feel exposed to a high deductible and they 
can't afford to get to that limit.
    Mr. Guthrie. I think I just ran out of time. I appreciate 
it. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from Virgin Islands, Dr. Christensen, 
for 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman. Welcome to the 
panel this morning.
    Dr. Neuman, I really appreciate your testimony, especially 
your focus on economic circumstances and health status of 
Medicare beneficiaries and they need to be mindful of both the 
intended and unintended consequences of benefit design.
    Broad cost-sharing requirements have a significant impact, 
as we have said, on low-income seniors. I worry that even with 
an attempt to build in low-income subsidies, this could still 
create barriers to necessary health care for vulnerable seniors 
and worsen health disparities that already exist. Could you 
comment on that further?
    Ms. Neuman. You raise a good point. There are enormous 
disparities in income and assets of seniors by race and 
ethnicity. So people of color would be negatively affected by 
an increase in cost sharing unless there were adequate 
protections. That is a real issue.
    Mrs. Christensen. And we have heard a lot this morning of 
course because the focus is on Medicare today, but Medicaid is 
also an important program for millions of seniors and benefit 
design could affect that. Could you talk about the role 
Medicaid plays for these low-income individuals and why it is 
so important?
    Ms. Neuman. Yes, Medicaid plays an enormous role in 
providing financial security for people with very low incomes 
and very modest assets. So today Medicaid fills in the gaps, 
helps with cost sharing, helps with premiums, provides other 
benefits, but not all low-income qualify and are covered by 
Medicaid. So for those who are just above the Medicaid 
eligibility level, they are responsible for their full cost-
sharing obligations and premiums and uncovered services are 
everyone else is and may or may not be able to afford 
supplemental coverage.
    Mrs. Christensen. Right. I will just take off from that. 
Some people have proposed limiting the amount the federal 
government pays for beneficiaries, either through a cap or per-
person payments or cap on total federal spending. How might 
such a proposal affect coverage for access to care for these 
vulnerable populations?
    Ms. Neuman. I think it would shift the risk from the 
federal government or State governments to the Medicare 
population and the poorest on Medicare.
    Mrs. Christensen. I am just curious. As a physician who 
took care of Medicare patients, a lot of comments have been 
made about the increased cost when there is not significant 
cost sharing. In my experience, Medicare did not pay for 
unnecessary care, so is it a guarantee that just having no cost 
sharing increases the cost? Because it might increase visits 
but if Medicare doesn't pay for visits that are unnecessary, 
tests that are unnecessary--and anyone can respond. I am just 
curious, because I have had things denied reimbursement.
    Ms. Baicker. So I think you are highlighting that the 
black-and-white nature, necessary versus unnecessary, is much 
messier in the real world. There is a continuum of value that 
care produces from urgent lifesaving care to care that I do 
think is unnecessary or even potentially harmful. If you look 
at the example of testing for prostate cancer in older men, 
Medicare pays for that, and there is an age beyond which the 
test actually can do more harm than good because it is 
detecting cancers that would not actually kill the person and 
it subjects the patient to downstream procedures and costs that 
may actually do them harm, and Medicare does pay for that. At 
the same time, it makes mistakes in not paying for stuff that 
is valuable. So I think there are both types of mistakes in the 
current program: paying for stuff it shouldn't and not paying 
for stuff it should.
    Mrs. Christensen. Well, I also think on that prostate issue 
that we probably need some more research done and information, 
but providers can make judgments even at an older age with a 
person that has a positive or a high PSA.
    I am going to yield back the balance of my time, Mr. 
Chairman.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Florida, Mr. Bilirakis, 5 minutes 
for questions.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much, and I thank you for your testimony.
    The question is for Mr. Miller. First question, in your 
testimony you talk about various ideas of structuring benefits 
with different cost shares and deductibles. Is it worthwhile to 
have multiple Medicare plans in the marketplace? First 
question. We could establish an actuarial value and allow 
various plans of different premiums, deductibles and cost 
shares. This would allow seniors to choose a plan that fits 
their lifestyle and health status rather than a one-size-fits-
all plan
    Mr. Miller. It is correct that there is more than one way 
to configure insurance benefits, and certainly seniors should 
look forward to that. I think what you are hinting at is a 
better structured version of the current competition we have 
between fee-for-service Medicare and Medicare Advantage plans 
and the premium support model, which could provide that type of 
more vibrant competition. You have to have a starting point, 
though. How is the basic benefit defined legally from which 
then plans can vary in terms of how they meet an actuarial 
equivalent of that or charge a supplemental premium for people 
who want more coverage than what that basic one is how the bids 
are determined. There is a harder question as to whether or not 
we can allow the Medicare fee-for-service program to offer more 
than one version. People are a little resistant to that, but if 
that enhanced Medicare fee-for-service with other benefits is 
not subsidized, where it is actually charging an extra premium 
that people have to pay the cost of it, then that would be the 
type of level playing field competition that we always talk 
about in theory but never deliver in practice.
    Mr. Bilirakis. Thank you. Next question for all. I know we 
have touched on a lot of these issues, but I want to give you 
an opportunity to elaborate a little bit. This one has to do 
with transparency.
    One of the great challenges of health care is the issue of 
price transparency. Health care is perhaps one of the biggest 
sectors of our economy where no one really knows the cost of 
service. I go to the doctor, I pay a copay, I know what the 
cost of that visit is before I go. I go to the doctor, I pay a 
coinsurance, I don't know what the visit will cost me until 
after the visit. When designing a new benefit structure, how 
can we increase the level of transparency in the system so 
beneficiaries can know what their costs will be before they 
even visit the doctor? And that is a question for the entire 
panel.
    Ms. Baicker. So this is something beneficiaries complain 
about rightfully a lot, that they have no idea how much a 
service costs, and physicians aren't really in the business of 
giving them that information either, and so one model is to go 
to copayments where you know $10, $20. It is known ahead of 
time. Another model is to make sure that the prices are easily 
knowable to the patients beforehand so they can make informed 
decisions and so their providers can help them too. If the 
providers don't know how much something costs, how can they 
make recommendations that are in their patient's best 
interests?
    Mr. Bilirakis. How do you suggest we do that?
    Ms. Baicker. Well, there could be a requirement that prices 
are transparent, and that is going to depend on what insurance 
product the patient has and what has been negotiated between 
the insurer and the provider. There could be a move towards 
copayments instead of coinsurance. Either could achieve similar 
ends in terms of transparency but would have different effects, 
I think, on the negotiations between insurers and providers, 
not in the case of fee-for-service Medicare, of course.
    Mr. Bilirakis. OK. Dr. Neuman?
    Ms. Neuman. Well, I would just say it is less of an issue 
with fee-for-service Medicare than it is in the commercial 
market for the rest of us who are out there wondering what the 
price of various services are. I think copayments would be a 
lot easier for people in Medicare to understand. That is what a 
lot of the Medicare Advantage plans are doing now. And I think 
it would just be easier to anticipate well, if I go to the 
emergency room versus go to my doctor, I am going to pay this 
much more so I better--I should try to wait and see my doctor.
    Mr. Miller. If you want beneficiaries to know the real 
costs of the care, copayments are somewhat, you know, sometimes 
well, sometimes arbitrarily assigned and they tend to converge 
in certain clusters. If you go to a coinsurance approach, if 
you know the coinsurance rate and it tends to be uniform, you 
automatically know what the full cost of the covered service 
was. It just a simple matter of multiplication. So you both see 
what you are paying and you know what the all-in cost was that 
other people are picking up.
    Mr. Bilirakis. Very good. Mr. Miller, traditional Medicare 
fee-for-service operates in two different silos, Part A, of 
course, and Part B, without either part talking to each other. 
Medicare Advantage provides a comprehensive benefit with better 
coordination between a hospital and the outpatient settings. Do 
we have data evaluating Medicare Advantage against traditional 
fee-for-service? Does Medicare Advantage provide lower costs 
and better outcomes compared to the traditional fee-for-
service?
    Mr. Miller. We have some studies which if you look at 
certain areas will say they are more effective in what they do. 
I don't think there is a comprehensive evaluation which can do 
an apples-to-apples across-the-board evaluation of that because 
the programs operate so differently. In addition, although we 
have changed some of the rules for the way the bids are set up 
and how they are reimbursed, we have not had them operating on 
the same level playing field entirely. So for a period of time 
we paid more to the Medicare Advantage plans in order to bring 
in more service and more enrollees. Now that is being pulled 
back. We are not exactly at a total equivalence to make an all-
in comparison.
    Mr. Bilirakis. What lessons have we learned from Medicare 
Advantage, the entire panel, if we redesign traditional 
Medicare?
    Ms. Baicker. So I think Medicare Advantage has evidence of 
better coordinated care, although not uniformly lower costs. I 
do think there is the potential that when Medicare Advantage 
promotes best practices and higher-value care, that can have 
system-level consequences because the same hospitals and the 
same providers treat MA patients in traditional Medicare 
patients so if they improve their efficiency for a critical 
mass of patients, that can have system-level ramifications, and 
we see some evidence of those spillovers.
    Mr. Bilirakis. Dr. Neuman?
    Ms. Neuman. In a recent review of the literature, we have 
found that there is sort of mixed evidence, and the evidence is 
pretty early, so there is some evidence of some positive 
outcomes and indicators from Medicare Advantage plans but not 
all Medicare Advantage plans are alike, and so I think it will 
be important to see what constitutes an effective plan and what 
produces positive outcomes, and I think we don't quite know 
yet.
    Mr. Bilirakis. Mr. Miller, what lessons have we learned?
    Mr. Miller. We have learned that it is pretty hard to do 
this, particularly through political means, and I think the 
lesson we should take is perhaps if we can get it out of 
Washington into the hands of doctors and patients, we might 
actually begin to sort this out and find a better balance.
    Mr. Bilirakis. Very good.
    Mr. Pitts. The gentleman's time is expired.
    Mr. Bilirakis. Thank you.
    Mr. Pitts. The chair recognizes the gentleman from 
Maryland, Mr. Sarbanes, for 5 minutes for questions.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    I wanted to shift away--we have been talking about sort of 
in the context of the Medigap policies and so forth--about what 
you do to address over utilization of procedures and services 
that may not be as necessary as others on a continuum. I wanted 
to go to the other side of the spectrum and talk about how 
reimbursement methodology and the benefits structures can 
address underutilization of services, particularly on the 
preventive side, that we would like to see patients take up 
more, and we have seen some reforms have gotten a lot of 
attention in the last year or two. Annual wellness visits now 
are covered without a copayment, so there is no out-of-pocket 
expense for the patient--certain kinds of screenings, 
mammography screening, colonoscopy, and so forth. But I 
wondered if you could just--all the panelists could just speak 
to that end of the spectrum and some of the innovations you see 
that really go to this goal of empowering patients to be full 
partners in their care, which is really talking about how do 
you boost up the preventive ownership that they have, and also 
speak to not just the services that get provided that are 
preventive services, let us say, but some of the new 
technologies that are being made available that patients can 
use to better manage their own care on the prevention side and 
what sort of coverage and benefits do you see coming into the 
picture there.
    Ms. Baicker. That is a big and important topic, and I agree 
with you that sure, payments can influence underutilization. 
Some services are underutilized because they are 
underreimbursed but there is a whole world of other behavioral 
factors beyond payments that affect patient engagement and 
adherence and management of their diseases, and innovation in 
provision of those preventive services can range from--there 
are medicine bottles that now can radio whether the bottle has 
been opened or not so there can be external monitoring and 
promotion of adherence. You know whether the patient has 
actually taken the pill. There are visiting professionals, 
nurses, other health care providers who can help coordinate 
care in the home for patients who have trouble getting out of 
the home or coordinate patient groups, and I think all of those 
mechanisms for investment in wellness have potential long-term 
really big positive implications, and the reason we see 
employers getting involved is that people often have a longer-
term relationship with their employer than they do with their 
insurer and they spend eight-plus hours a day in the workplace, 
and that is a great site to promote that kind of investment.
    Ms. Neuman. I am going to talk about prevention in a 
different sense for an older, frailer population. So there are 
delivery-system reforms being tested now, for example, the 
Independence at Home demonstration, where a physician and teams 
of professionals come into the home with the idea of engaging 
the patient and family members to prevent patients from needing 
to go to the emergency room or having to go to the hospital, 
and they employ technology in the home that can help the 
medical team and the social services support team monitor what 
is going on in the home in order to provide care in the most 
appropriate setting, which in this case is also the lowest cost 
setting and what patients and their families prefer. So through 
technology and through a tested intervention of providing team-
based care in a home setting, Medicare is exploring the idea of 
providing better care to people in the most appropriate setting 
using new technologies and electronic medical records to manage 
patients better.
    Mr. Sarbanes. I have recently run into a number of 
pharmacists and they have sort of raised this issue of how 
reimbursement works for the services that they assert they are 
providing that are not covered at all, and that is an example 
of frontline interaction with patients. It can make a huge 
difference in a lot of patients who are very dependent on the 
pharmacist for giving them some guidance. Can you talk about 
whether there is any look at sort of what the benefit structure 
and reimbursement is in that arena?
    Ms. Baicker. So without speaking specifically to 
pharmacists, I don't know as much about that issue as I would 
like to, I think having bigger teams of caregivers from doctor 
to nurse to pharmacist to home visitation would promote looking 
at sort of the whole patient, that disease management is not 
about any of the silos, and the siloed reimbursement that we do 
that underreimburses some and overreimburses others really 
discourages the team-based approach to being responsible for a 
group of patients' outcomes among a group of providers that we 
give some more flexibility and say, here is who would really 
help this patient, it is this kind of provider. Let us put more 
resources towards that and let us take resources away from this 
type of patient.
    Mr. Sarbanes. Thanks very much. I will yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the chair emeritus of the full committee, Mr. 
Barton, 5 minutes for questions.
    Mr. Barton. Mr. Chairman, I don't have any questions. I 
will be happy to yield my time to anybody who wishes it.
    Mr. Pitts. Mr. Lance?
    Mr. Lance. Thank you, and good morning to you all. It is a 
very interesting panel and a very important issue.
    Some raise concerns about the escalating costs of new 
medical treatments in the context of the Nation's growing 
entitlement program costs, and we are all concerned about that 
obviously. Dr. Baicker, you note in your testimony that 
technological innovation raises the stakes in this debate. 
There are different ideological approaches to controlling 
costs, especially those associated with new treatments. Some 
choose to develop a framework in the health care reform law 
whereby the government would choose value rather than the 
consumer or the patient by implementing the governmentally 
driven model such as IPAB, and of course, IPAB is something 
that I oppose and many oppose on a bipartisan basis, 
particularly here in the House.
    Could you speak to the value of a cost-sharing framework 
where Medicare enrollees would choose services and treatments 
if they were spending their own funds?
    Ms. Baicker. I agree that the rise in costs raises the 
stakes in that there are new treatments all the time that could 
provide really valuable benefits, and there are new ways to 
spend money that might not provide high health value, and if we 
were to cover every possible service that might benefit every 
possible beneficiary even a little bit with public funds, 
because of innovation, that could be more than 100 percent of 
GDP. So there has to be some way to allocate those resources, 
and I would argue that the more flexible that is, the more 
patients have some choices about the bundle of care that is 
right for them. I think we can't afford to be subsidizing the 
use of low-value care for high-income beneficiaries but it is 
very hard to write down a set of rules that says this is the 
type of service that is worth it and this isn't.
    Mr. Lance. Thank you. Would anyone else on the panel like 
to comment? Dr. Neuman?
    Ms. Neuman. Well, I would just say it is so hard for 
patients to make these decisions, particularly when they are 
sick and they are scared. You know, you think of somebody who 
has just been diagnosed with some form of cancer and they go to 
their doctor and their doctor says there are three treatment 
options for you, and I think you should do this one because I 
am the expert, and the doctor rarely says that one is going to 
be the more expensive one and it is a new technology and all 
that other stuff. When you are scared, you go to the expert and 
you are rarely thinking about what is the cost to me, I really 
want to live and survive this disease.
    Mr. Lance. Thank you. Mr. Miller.
    Mr. Miller. What we are struggling about is a decision 
between the locus of decision making and changing the degree to 
which it currently resides. I think the better way to go is an 
approach toward more delegated but informed decision making 
with greater involvement, not maximum involvement, not 
unrealistic at the beneficiary and consumer level. We need to 
remember that seniors are allowed to manage the rest of their 
budgets without Washington telling them what is high value and 
low value. They have other income that they have to spend on 
other things and we don't say here is what your benefit 
structure is for your food, your housing, the other things you 
are going to spend it on. That can be driven to unrealistic 
levels, and that is why we have the protections for low-income 
seniors.
    The other thing to remember is that the default option 
often is not to do the most high-level perfectly calibrated 
value judgments in what we cover. Instead, what we do--and this 
is the Affordable Care Act--we reduce reimbursement across the 
board and pretend that we haven't taken away anyone's benefits 
when we have actually hollowed them out by doing it through the 
pass-through providers-less.
    Mr. Lance. I thank you. Let me say that I hope as we move 
forward, we might review some of the provisions of the 
Affordable Care Act. Obviously, I did not support it, but 
moving forward, I hope that we have the opportunity to review, 
for example, IPAB, and I believe, based on my observation, that 
there is a bipartisan consensus, particularly here in the 
House, that we should revisit that issue.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, for 5 minutes 
for questions.
    Mr. Green. Thank you, Mr. Chairman, for holding the 
hearing, and I thank our witnesses for appearing.
    We hear a lot from my colleagues on the Republican side 
that there needs to be more cost sharing in the Medicare 
program. Cost sharing makes sense, making sure beneficiaries 
have skin in the game and good policy. That is why we already 
do it. Seniors spend a lifetime of working to pay into the 
system. Once beneficiaries are eligible, they rack up thousands 
of dollars in bills due to cost sharing. If we continue to 
decrease the portion paid by the government, more and more 
future retirees will be unable to pay their bills. With the 
system remaining solvent until 2026, we have the time to make 
sure we can do it right. Benefit redesign and more cost 
shifting to beneficiaries become necessary but the devil is in 
the details. For instance, we should look at a value-based 
system and a system where higher-value procedures the 
government should be willing to pay more for lower-value 
procedures but beneficiaries should pay more. At the same time, 
we should focus on strengthening preventive care and improving 
quality outcomes, which save money now and later. Cost sharing 
and benefit redesign cannot happen alone, and it must be done 
carefully, and out-of-pocket expenses must be predictable and 
necessary health care must be high quality and low cost.
    Dr. Neuman, is it necessary to approach cost sharing and 
benefit redesign with nuance, and can you explain in your 
testimony about the incentivizing adoption of high-value care 
and what kind of care would be high value?
    Ms. Neuman. For reasons which you just described, I think 
it is very important to approach this with nuance. I think we 
have all three of us talked about the importance of maintaining 
and improving protections for people with low and modest 
incomes, and trying to make--adding catastrophic protection but 
moving together the pieces in between is complicated without 
shifting costs onto certain people. There seems to be a great 
deal of interest in moving people toward high-value care but 
deciding what is high value remains a challenge. So I think I 
would imagine we would all agree that there are a lot of points 
of agreement including we should move very carefully given the 
importance of this program and the protections it provides.
    Mr. Green. And I do think that even the private sector is 
moving to that. There was an article just recently about 
companies, employers coming together and saying in California 
this is--these are the standard prices and this is what we will 
pay; now, if you want a higher value, you are on your own, it 
is out of network so to speak. So maybe the market is actually 
doing that but it would help the market if we used Medicare 
because that is our national health care to be able to talk 
about it.
    Ms. Baicker. Well, I think it can go both ways. There are 
times when the market follows Medicare, and this could be a 
time where Medicare follows the market and learns from the best 
practices that are already taking place.
    Mr. Miller. We find that private plans and private markets, 
because they have to meet a bottom line, they have to satisfy 
their enrollees, they are in business every day competing with 
other people, they have to find that high value. They are 
motivated to do it. It is a lot harder in our system to do this 
politically. The idea that you are going to be voting every 
year in Congress on, well, what is the latest set of high-value 
calculations is not realistic in the same way delegating it 
to--well, somewhere in HHS and CMS they will figure it out and 
we will all be happy about that. Again, kind of transcends the 
bounds of what we have normally seen in the past.
    Mr. Green. And I agree, and we know when we--a lot of have 
a change in how medicine is practiced is something we have 
already--everybody says oh, that is not the way it should be 
and we are always second-guessing.
    Dr. Neuman, how has the Affordable Care Act added value to 
Medicare?
    Ms. Neuman. Well, in a number of ways. I think one of the 
clearest ways it has helped is to slow the growth in Medicare 
spending so it will keep Medicare around for future 
generations. It will help to sustain the program for longer, 
and that is probably not something that has gotten a whole of 
attention. I think also it is putting in place delivery-system 
reforms to be tested which could have fundamental effect on the 
future of the delivery of care for maybe current generations 
but the future generations of Medicare beneficiaries. There are 
maybe dozens of delivery-system reforms that are being tested. 
Maybe all of them will not work. But to the extent that any of 
them are going to improve care and better coordinate care, that 
will make a fundamental shift.
    Mr. Green. Well, I know I have only 29 seconds, but the 
medical-home issue----
    Ms. Neuman. Medical home is a good example. There are a 
number of them.
    Mr. Green. And also looking at the preventive care, and it 
just makes so much sense that if you are diabetic to have these 
annual Medicare exams to make sure. We know also that the lower 
your income, the less you are likely to go if it costs you 
money.
    Ms. Neuman. Exactly, and of course, there is the infamous 
donut hole which creates enormous problems for people if they 
have those high expenses, which will now be closed as a result 
of the Affordable Care Act.
    Mr. Green. It is closing slower than I would like but it is 
closing. I yield back my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from New York, Mr. Engel, 5 minutes 
for questions.
    Mr. Engel. Thank you very much, Mr. Chairman. Let me first 
say that I would like to see a Medicare benefit structure that 
protects beneficiaries from catastrophic expenses, encourages 
the use of high-value services, and strengthens the financial 
protection for low-income beneficiaries, and having voted 
against the Ryan budget for the last 3 years, I will not 
support proposals that seek to cut Medicare benefits or 
dramatically increase vulnerable beneficiaries' out-of-pocket 
costs for vital health care services. As we try to transform 
the health care system into one that promotes prevention and 
early intervention, I worry, very much worry that proposals 
that include higher deductible and copayments could be a 
hindrance to this effort.
    So Dr. Baicker, I like the example you gave earlier with 
diabetics. I fear both the human and cost implications if 
higher cost sharing for doctor's office visits resulted in, for 
example, a diabetic foregoing regular blood sugar monitoring 
and that eventually resulted in an expensive hospitalization 
and debilitating health care requirements. So let me ask you, 
Dr. Baicker, and also Dr. Neuman, can you elaborate on how 
increased cost sharing might have a negative impact on 
treatment adherence?
    Ms. Baicker. Yes. I think it is important that cost sharing 
be nuanced, as we all have said, and not crude, and just 
increasing cost sharing could drive people to forego care that 
has long-run payoffs, and we want to avoid that. That said, 
there is a lot of care that has really questionable health 
benefit that I think our system can't afford to subsidize. So 
the question is, can we lower the subsidies or increase the 
cost sharing or prices for care that doesn't produce that 
downstream benefit and use those resources to shore up services 
that have really high value, particularly for low-income 
beneficiaries, and I think it is hard to write down a set of 
rules that says this yes, this no, but I very much agree with 
your question that we need to subsidize that kind of care so 
that people don't forego things that would improve their 
health.
    Mr. Engel. Thank you. Dr. Neuman, do you agree?
    Ms. Neuman. Yes, I do agree. I mean, a very good example is 
the home health copay or coinsurance, which people have talked 
about, because Medicare does not apply copayment or coinsurance 
to these services. So who uses home health services? This is 
older, frailer women. Many have been to the hospital and are 
out. So a coinsurance would affect people who have many, many 
visits and it would probably discourage a lot of visits. Some 
of them may or may not be necessary but they are visits that 
have been ordered by a medical professional. So it would 
clearly either shift costs onto the oldest and frailest and/or 
reduce utilization, and some people think that is a good idea, 
but there are risks to doing something like that. The 
alternative approach is to think about ways of creating 
incentives for the providers of care to provide appropriate 
care so that people don't get too much of what they don't need 
but they get what they do.
    Mr. Engel. Thank you. I know that studies have looked at 
the impact of younger populations but I want to ask both of 
you, do either of you know of studies that have specifically 
looked at the impact increased cost sharing might have on rates 
of hospitalization with older and sicker populations like those 
served by Medicare?
    Ms. Baicker. There is one study that comes to mind 
immediately that looked at increasing the cost sharing for 
pharmaceuticals for a Medicare population that had wraparound 
coverage in California, and when you increase their copayments 
for drugs, they took fewer of them, but that was partially then 
offset by increased hospitalizations downstream and that 
increase in hospitalizations was concentrated among people who 
had multiple chronic conditions. It didn't completely offset 
the cost savings for the reduction in pharmaceutical use but 
those benefits accrued to different people because there were 
different insurers involved, so it is a great example of 
spillovers across silos and the importance of unifying 
insurance and care.
    Ms. Engel. Thank you. Dr. Neuman, I agree with your written 
testimony, the statement in your written testimony that 
Medicare's current benefit designs are complicated, and for 
seniors lived on fixed incomes, it can be really difficult for 
them to accurately budget for health care costs given the 
various deductibles, premiums, copayments and coinsurance rates 
in Medicare. In May 2013, just a couple months ago, analysis by 
your organization, the Kaiser Family Foundation, found that 18 
percent of seniors in my home State of New York are living in 
poverty under the supplemental poverty measure and they just 
simply cannot afford to pay more. So as we look at benefit 
redesign, can you elaborate on the benefit you seek to 
replacing coinsurance rates with copayments?
    Ms. Neuman. Sure. The supplemental insurance measures 
higher because it takes into account health expenses, and so 
that is what people are incurring, which produces larger 
estimates of seniors in poverty. Copayments can be structured 
so that they are less onerous, so a great example is back to 
the home health care we just gave. Coinsurance could be an 
insurance on every visit which would build up and up and up 
over time. An alternative would be a copayment on an episode of 
care which would be fixed, more predictable and wouldn't 
penalize those who have extensive need for home health 
services.
    Mr. Engel. And let me ask you a final question, either one. 
MedPAC's 2012 recommendations on benefit redesign included the 
recommendation that the Secretary of Health and Human Services 
have the authority to make value-based changes to Medicare's 
benefit design. So can you describe what this might look like 
with a real-world example, and why this would be of value in 
our rapidly changing health care system?
    Ms. Baicker. Sure. So home health, I think, is an 
interesting example because it is a really important benefit 
for millions of people but it has been subject to some fairly 
well publicized overuse, potentially even abuse, of extreme 
rates of utilization for populations where it might not have 
such a high benefit. If there were more careful delineation of 
the cases in which it actually benefited people and they were 
protected from copayments or had reduced copayments for those 
cases versus patients where there are lots of alternatives that 
might do just as well for them and where the utilization is 
less warranted, you could then ensure that this vital benefit 
for some is protected by cutting back on overuse in other 
circumstances.
    Mr. Engel. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
the questions of the members who are present. I am sure there 
will be more questions from members who are not here, and we 
will ask them to submit those. We will submit those to you in 
writing, and we ask the witnesses to please respond promptly. I 
remind the members that they have 10 business days to submit 
questions for the record, so they should submit their questions 
by the close of business on Friday, July 12. We have a 
unanimous consent request.
    Mrs. Christensen. Thank you, Mr. Chairman. I ask unanimous 
consent to include in the record the AARP testimony that was 
given at Ways and Means on the issue of benefit restructuring.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. Very, very informational. Thank you very much 
for your testimony today. And without objection, the 
subcommittee is adjourned.
    [Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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