[Congressional Record Volume 150, Number 21 (Wednesday, February 25, 2004)]
[Senate]
[Pages S1589-S1591]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BINGAMAN:
  S. 2114. A bill to amend part C of title XVIII of the Social Security 
Act to prohibit the comparative cost adjustment (CCA) program from 
operating in the State of New Mexico; to the Committee on Finance.
  Mr. BINGAMAN. Mr. President, I rise today to introduce legislation 
that would prohibit the comparative cost adjustment (CCA) or premium 
support demonstration that was included in the Medicare prescription 
drug bill last year from operating in the State of New Mexico.
  There are many problems with the demonstration that I will describe 
which will have the result of fundamentally undermining the traditional 
Medicare program and directly conflicts with the President's commitment 
in his State of the Union address in 2003 when he said, ``Seniors happy 
with the current Medicare system should be able to keep their coverage 
just the way it is.'' That would not be the case in what is being 
referred to as the comparative cost adjustment program.
  What is the comparative cost adjustment program? Starting in 2010, 
the Medicare prescription drug bill provided for a six-year 
demonstration in selected demonstration sites where private health 
plans and traditional Medicare would supposedly compete on the basis of 
price. The demonstration will be conducted in up to six metropolitan 
areas in which at least 25 percent of eligible beneficiaries are 
enrolled in some type of managed care plan.
  Albuquerque, NM, already has an enrollment in private plans that 
exceeds 25 percent and so would obviously be a targeted community for 
the demonstration. Santa Fe, NM, could also be on the demonstration 
list by 2010 as its current reported managed care enrollment is at 17 
percent and that is why Congressman Tom Udall is joining us here today 
in introducing the companion bill in the House of Representatives.
  Congressman Udall and I oppose our Medicare beneficiaries being 
subjected to a grand experiment, just as similarly proposed premium 
support demonstrations have been blocked in recent years in Baltimore, 
Denver, Phoenix, and Kansas City, Missouri.
  Just as members of Congress blocked those proposed demonstrations, 
the legislation I am introducing today would protect the entire State 
of New Mexico from being subjected to such an experiment. I understand 
that other Senators and Congressmen are introducing similar legislation 
today to protect the citizens of their respective states as well.
  I am opposed to the comparative cost adjustment or premium support 
demonstration being imposed upon the Medicare beneficiaries in New 
Mexico because the demonstration: 1. fails to truly provide for a level 
playing field of competition between traditional Medicare and private 
health plans; 2. leads to much higher volatility and uncertainty in the 
Medicare program as beneficiaries would have their premiums vary 
dramatically according to the plan chosen during the demonstration from 
year to year and from region to region; 3. directly contradicts 
President Bush's guarantee and the promise of the current multi-million 
advertising campaign by the Centers for Medicare and Medicaid Services 
that people can keep their traditional Medicare as is; and, 4. pushes 
traditional Medicare in such regions into what health economists refer 
to as a ``death spiral.''
  Proponents of the premium support demonstration argue that the intent 
of the experiment is, according to the conference report, ``to test 
whether competition between private plans and the original Medicare FFS 
program will enhance competition in Medicare, improve health care 
delivery for all Medicare beneficiaries, and provide for greater 
beneficiary savings and reduction in government costs. . . . ''
  The conference report adds that the demonstration ``will level the 
playing field between all options available to Medicare 
beneficiaries.''
  Unfortunately, the demonstration will not focus competition or choice 
on either price or quality precisely because it fails to provide for a 
level playing field. Under the guise of making Medicare more efficient, 
the legislation dramatically overpays private health plans in 
comparison to traditional Medicare.
  In fact, during testimony before the Senate Finance Committee a few 
weeks ago, Health and Human Services Secretary Tommy Thompson 
acknowledged that both the Congressional budget Office and the Office 
of Management and Budget believe the prescription drug bill creates a 
situation whereby every percentage increase of enrollment by Medicare 
beneficiaries will cost the Medicare program and American taxpayers 
billions of dollars. How is this possible?
  The bill creates this situation by intentionally paying private 
health plans, on average, an estimated 107 percent of the cost of 
traditional Medicare. Health plans are receiving disproportionate share 
hospital payments, graduate medical education funding, and other 
complicated formula adjustments that ensure payments well in excess of 
the Medicare fee-for-service program.

[[Page S1590]]

  In addition, health plans, by enrolling healthier patients than 
traditional Medicare, receive an additional estimated benefit of about 
eight percent over fee-for-service Medicare. Numerous studies, 
including those by the General Accounting Office, find that high-cost 
beneficiaries--including the functionally disabled, the mentally 
impaired, and the chronically ill--were less likely to join a Medicare 
HMO.

  When you combine all the factors, health plans will be paid at least 
115 percent of the cost of traditional Medicare.
  This makes absolutely no sense, particularly when you consider that 
the bill provides for this despite the fact that studies by Marilyn 
Moon, Karen Davis, and other respected health care analysts have 
consistently shown that traditional Medicare provides Medicare 
beneficiaries a less expensive product with greater patient 
satisfaction and greater access to providers than private health plans.
  Although the demonstration would strip out graduate medical education 
payments to HMOs, it fails to fully eliminate excessive payments to 
health plans caused by risk selection and includes disproportionate 
share hospital payments in the FFS benchmark--inevitably raising FFS 
premiums in comparison to private health plans.
  Furthermore, there is no level playing field if HMOs enroll healthier 
and lower cost patients than traditional Medicare and do not have to 
make the billions of dollars in disproportionate share hospital 
payments that traditional Medicare must make.
  Second, a hallmark of the Medicare program has been its beneficiary 
satisfaction ratings despite the lack of prescription drugs or 
preventive health benefits. Medicare beneficiaries strongly prefer the 
guarantee and predictability of coverage and the greater level of 
access to providers than is provided by private health plans.
  The demonstration undermines this because it would lead to 
differential premiums among Medicare beneficiaries in different regions 
of the country based on rapidly changing health plans options offered 
and chosen annually.
  In fact, premiums will fluctuate under the demonstration on an annual 
basis because the government contribution will be based on the bids of 
all plans during a particular year. As a result, even if a plan's costs 
does not increase from one year to the next, the amount paid by a 
beneficiary can change due to changes in other health plans in the 
region and changes in the region's benchmark.
  This makes absolutely no sense and is the second reason why I oppose 
the premium support demonstration.
  Third, as noted before, in the President's 2003 State of the Union 
address, he committed that Medicare beneficiaries would be able to keep 
their Medicare coverage as is. Moreover, the Centers for Medicare and 
Medicaid Services, or CMS, is currently spending millions of dollars in 
an advertising campaign with the assertion that ``you can always keep 
your same Medicare coverage.''
  The comparative cost adjustment program or premium support 
demonstration completely undermines traditional Medicare and should, as 
a result, be repealed. Neither the President nor the Federal Government 
should be telling our Nation's Medicare beneficiaries one thing when 
the reality is clearly something different, particularly under the 
demonstration program.
  This occurs due to the ``death spiral'' that health care economists 
note will likely occur under the demonstration. If, as numerous studies 
indicate, private health plans continue to enroll healthier and less 
costly Medicare beneficiaries than fee-for-service Medicare, then fee-
for-service Medicare would be more likely to have higher premiums. Over 
time, if sicker individuals stay with traditional Medicare and 
healthier ones move away as premiums rise, traditional Medicare is 
likely to enter in what is known as a ``death spiral.'' Despite the 
President's guarantee that ``[s]eniors happy with the current Medicare 
system should be able to keep their coverage just the way it is . . 
.,'' that would clearly not be the case in these comparative cost 
adjustment program demonstrations.
  If the administration and Congress wants real competition, private 
plans should be required to compete with traditional Medicare in a 
manner where both traditional Medicare and private plans are paid the 
same amount on a risk adjusted basis for the same services. If that 
were the case, Medicare beneficiaries could select whether they would 
like to enroll in traditional Medicare or in a competing private health 
plan based on factors such as quality, access, and cost.
  Unfortunately, the administration and proponents of premium support 
know that private plans cannot successfully compete with traditional 
Medicare. Ironically, in the name of reforming Medicare through 
competition, they have purposely tilted the playing field toward 
private health plans. Taxpayers should not have to bear the billions of 
dollars in additional Medicare spending that overpayment to private 
plans will cost them over the next 10 years and Medicare beneficiaries 
should not be subjected to a grand premium support experiment in 2010 
where the winner has already been pre-determined.
  Mr. President, I ask unanimous consent that the text of the bill and 
a document from Families USA be printed in the Record.
  There being no objection, the materials were ordered to be printed in 
the Record, as follows:

                                S. 2114

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. PROHIBITION ON OPERATION OF MEDICARE COMPARATIVE 
                   COST ADJUSTMENT (CCA) PROGRAM IN NEW MEXICO.

       (a) In General.--Section 1860C-1(b) of the Social Security 
     Act, as added by section 241 of the Medicare Prescription 
     Drug, Improvement, and Modernization Act of 2003, is amended 
     by adding at the end the following:
       ``(3) No cca areas within new mexico.--A CCA area shall not 
     include an MSA any portion of which is within the State of 
     New Mexico.''
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the enactment of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003.
                                  ____


                [Report from FamiliesUSA, June 24, 2003]

   What Happens When Traditional Medicare Has To Bid Against Private 
                                 Plans?


       an example of how the house bill would privatize medicare

       The U.S. House of Representatives is considering 
     legislation that would force the traditional Medicare program 
     to bid competitively against private insurance plans, 
     beginning in 2010. This proposal, embedded in the House 
     Medicare prescription drug bill, may sound reasonable, but 
     let's look at how it would really work.
       We start with five Medicare beneficiaries, with the 
     following yearly medical expenses: Bill--$1,000; Jane--
     $4,000; Joan--$5,000; James--$6,000; and Sam--$10,000. 
     Amongst them, they have total medical expenses of $26,000, or 
     an average of $5,200 each.
       Now imagine that Congress has enacted the House Medicare 
     drug bill, which requires the traditional Medicare fee-for-
     service program to enter into competitive bidding with 
     private insurance plans.
       So traditional Medicare would bid $5,200 per person for 
     Bill, Jane, Joan, James, and Sam, since that's been the 
     average cost of caring for these five folks.
       But a private plan, DollarCare, knowing roughly what the 
     traditional Medicare bid is, bids $5,000 per member. Since 
     they are clever about their marketing (they advertise at 
     athletic clubs and recreational facilities), DollarCare 
     enrolls healthy beneficiaries (like Bill) who only cost 
     $1,000 each. This ensures that they have a high profit 
     ($5,000 bid -$1,000 expenses = $4,000 profit per enrollee). 
     The existing Medicare law requires DollarCare to give Bill 
     some extra benefits; these extra benefits make the plan more 
     attractive to other people when they hear about the 
     ``extras.'' (Jane, Joan, James, and Sam decide to stick with 
     traditional Medicare so they can keep their long-time family 
     doctors.)
       And there's another wrinkle. The new House bill rewards 
     beneficiaries who choose ``cheaper'' plans. Here's how it 
     works: Each year, the government will compute a new 
     ``benchmark'' by calculating the average payment for each 
     Medicare beneficiary. In the beginning, the benchmark is 
     $5,200 (that's what Medicare has been paying, on average, for 
     the five people). Because the DollarCare bid of $5,000 is 
     $200 under the ``benchmark'' of $5,200, Bill and the 
     government get to split the difference: Bill gets to pocket 
     75 percent of the savings ($150), and the government/Medicare 
     saves the other 25 percent ($50).
       So a year passes, and it's time for a second round of 
     competitive bids. What happens to the bids in the second 
     year? The four people left (Jane, Joan, James, and Sam) had 
     combined expenses of $25,000, so traditional Medicare submits 
     a bid of $6,250 per person, the average cost for caring for 
     these four people. DollarCare has a good thing going, so they 
     bid $5,000 again.

[[Page S1591]]

       Then the benchmark is adjusted to reflect the average per-
     person cost of everyone in Medicare--those in traditional 
     Medicare and those in private plans. The new benchmark is 
     $6,000 (Bill in DollarCare at $5,000 and the four others 
     still in traditional Medicare at $6,250).
       Now all the people in traditional Medicare have to pay an 
     extra $250 in premiums because their ``plan'' (that is, the 
     traditional Medicare program) has submitted a bid $250 higher 
     than the benchmark plan ($6,000). Meanwhile, lucky Bill gets 
     75 percent of the $1,000 ``savings,'' the difference between 
     DollarCare's $5,000 bid and the $6,000 benchmark.
       DollarCare keeps advertising at gyms and other recreational 
     facilities and attracts fairly healthy Jane.
       Obviously, traditional Medicare's premiums will spiral 
     upward as this process repeats itself each year. Traditional 
     Medicare will become a plan of the very sick, very frail, 
     very elderly--those who need lots of services, want to keep 
     their long-time doctors, etc.
       This is the beginning of an insurance death spiral that 
     will ultimately destroy the traditional Medicare fee-for-
     service program. The older, chronically ill people who need 
     the types of services offered by traditional Medicare will 
     face ever-spiraling costs. As the premiums for traditional 
     Medicare rise, the price tag will drive them into private 
     plans like DollarCare, even though studies have shown that 
     private plans are not good for the very old, chronically ill.
                                 ______