[Congressional Record Volume 146, Number 100 (Thursday, July 27, 2000)]
[Senate]
[Pages S7890-S7891]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN:
  S. 2975. A bill to limit the administrative expenses and profits of 
managed care entities to not more than 15 percent of premium revenues; 
to the Committee on Finance.


           managed care health benefits integrity act of 2000

  Mrs. FEINSTEIN. Mr. President, today, I am introducing the Health 
Benefits Integrity Act to make sure that most health care dollars that 
people and employers pay into a managed care health insurance plan get 
spent on health care and not on overhead.
  Under my bill, managed care plans would be limited to spending 15 
percent of their premium revenues on administration. This means that if 
they spend 15 percent on administration, they would spend 85 percent of 
premium revenues on health care benefits or services.
  This bill was prompted by study by the Inspector General (IG) for the 
U.S. Department of Health and Human Services reported under a USA Today 
headline in February, ``Medicare HMOs Hit for Lavish Spending.'' The IG 
reviewed 232 managed care plans that contract with Medicare and found 
that in 1999 the average amount allocated for administration ranged 
from a high of 32 percent to a low of three percent. The IG recommended 
that the Department establish a ceiling on the amount of administrative 
expenditures of plans, noting that if a 15 percent ceiling had been 
placed in 1998, an additional $1 billion could have been passed on to 
Medicare beneficiaries in the form of additional benefits or reduce 
deductibles and copayments.
  The report said, ``This review, similar OIG reviews, and other 
studies have shown that MCOs' [managed care organizations'] exorbitant 
administrative costs have been problematic and can be the source for 
abusive behavior.'' Here are some examples cited by the Inspector 
General on page 7 of the January 18 report: $249,283 for food, gifts 
and alcoholic beverages for meetings by one plan; $190,417 for a sales 
award meeting in Puerto Rico for one plan; $157,688 for a party by one 
plan; $25,057 for a luxury box at a sports arena by one plan; $106,490 
for sporting events and/or theater tickets at four plans; $69,700 for 
holiday parties at three plans; and $37,303 for wine gift baskets, 
flowers, gifts and gift certificates at one plan.
  It is no wonder that people today are angry at HMOs. When our hard-
earned premium dollars are frittered away on purchases like these, we 
have to ask whether HMOs are really providing the best care possible. 
Furthermore, in the case of Medicare, we are also talking about wasted 
taxpayer dollars since Part B of Medicare is funded in part by the 
general treasury. One dollar wasted in Medicare is one dollar too much. 
Medicare needs all the funds it can muster to stay solvent and to be 
there for beneficiaries when they need it.
  I feel strongly that if HMOs are to be credible, they must be more 
prudent in how they spend enrollees' dollars. Administrative expenses 
must be limited to reasonable expenses.
  An October 1999 report by Interstudy found that for private HMO 
plans, administrative expenses range from 11 percent to 21 percent and 
that for-profit HMOs spend proportionately more on administrative cost 
than not-for-profit HMOs. This study found the lowest rate to be 3.6 
percent and the highest 38 percent in California! In some states the 
maximums were even higher.
  The shift from fee-for-service to managed care as a form of health 
insurance has been rapid in recent years. Nationally, 86 percent of 
people who have employment-based health insurance (81.3 million 
Americans) are in some form of managed care. Around 16 percent of 
Medicare beneficiaries are in managed care nationally (40 percent in 
California), a figure that doubled between 1994 and 1997. By 2010, the 
Congressional Budget Office predicts that 31 percent of Medicare 
beneficiaries will be in managed care. Between 1987 and 1999, the 
number of health plans contracting with Medicare went from 161 to 299. 
As for Medicaid, in 1993, 4.8 million people (14 percent of Medicaid 
beneficiaries) were in managed care. Today, 16.6 million (54 percent) 
are in managed care.
  In California, the State which pioneered managed care for the nation, 
an estimated 88 percent of the insured are in some form of managed 
care. Of the 3.7 million Californians who are in Medicare, 40 percent 
(1.4 million) are in

[[Page S7891]]

managed care, the highest rate in the U.S. As for Medicaid in 
California, 2.5 million people (50 percent) of beneficiaries are in 
managed care. And so managed care is growing and most people think it 
is here to stay.
  I am pleased to say that in California we already have a regulation 
along the lines of the bill I am proposing. We have in place a 
regulatory limit of 15 percent on commercial HMO plans' administrative 
expenses. This was established in my State for commercial plans because 
of questionable expenses like those the HHS IG found in Medicare HMO 
plans and because prior to the regulation, some plans had 
administrative expense as high as 30 percent of premium revenues.
  This bill would never begin to address all the problems patients 
experience with managed care in this country. That is why we also need 
a strong Patients Bill of Rights bill. I hope, however, this bill will 
discourage abuses like those the HHS Inspector General found and will 
help assure people that their health care dollars are spent on health 
care and are not wasted on outings, parties, and other activities 
totally unrelated to providing health care services.
  I call on my colleagues to join me in enacting this bill.
                                 ______