[Congressional Record Volume 147, Number 37 (Tuesday, March 20, 2001)]
[Senate]
[Pages S2591-S2592]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN:
  S. 577. 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 Health, Education, Labor, and Pensions.
  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 could spend 85 percent of 
premiums revenues on health care benefits or services.
  This bill was prompted by a 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 place 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, 2000 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; $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 was also encouraged to introduce the bill because of annual studies 
prepared by the California Medical Association, CMA, called the ``Knox-
Keene Health Plan Expenditures Summary.'' The March 2001 CMA report 
covering Fiscal Years 1999 to 2000 found a range of administrative 
expenditures from plans in my state from a low of 2.7 percent, Kaiser 
Foundation Health Plan, Southern California, to a high of 22.1 percent, 
OMNI Healthcare, Inc.
  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, 17.8 million (55.6 percent) 
are in managed care, according to the Kaiser Family Foundation. In 
California, 52 percent or 2.6 million out of 5 million Medicaid 
beneficiaries 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 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 will never begin to address all the problems patients 
experience with managed care in this country.

[[Page S2592]]

 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.
                                 ______