[House Report 104-752]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-752
_______________________________________________________________________


 
   WAIVER OF 75/25 MEDICAID ENROLLMENT RULE FOR CERTAIN MANAGED CARE 
                             ORGANIZATIONS

                                _______
                                

 August 2, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                        [To accompany H.R. 3871]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Commerce, to whom was referred the bill 
(H.R. 3871) to waive temporarily the Medicaid enrollment 
composition rule for certain health maintenance organizations, 
having considered the same, report favorably thereon without 
amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Rollcall Votes...................................................     3
Committee Oversight Findings.....................................     4
Committee on Government Reform and Oversight.....................     4
New Budget Authority and Tax Expenditures........................     4
Committee Cost Estimate..........................................     4
Congressional Budget Office Estimate.............................     4
Inflationary Impact Statement....................................     5
Advisory Committee Statement.....................................     5
Section-by-Section Analysis of the Legislation...................     5
Changes in Existing Law Made by the Bill, as Reported............     5

                          Purpose and Summary

    This measure extends three existing waivers to Section 
1903(m)(2)(A)(ii) of the Social Security Act. Section 
1903(m)(2)(A)(ii) requires that Medicaid beneficiaries 
constitute less than 75 percent of the membership of any 
prepaid health maintenance organization. At present, a number 
of plans are operating under Federally-approved waivers of this 
section. Three of these plans--Health Partners of Philadelphia, 
Inc., Fidelis Health Plan of New York, and Managed Healthcare 
Systems of New York, Inc.--are granted extensions of the so-
called ``75-25'' waiver by this measure.

                  Background and Need for Legislation

    State experimentation with health maintenance organizations 
(HMOs) began shortly after the implementation of Medicaid. The 
origin of the 75/25 rule arose out of concerns relating to 
certain managed care companies. These concerns included 
inaccurate information dissemination to enrollees, restricted 
access to non-participating providers, inconsistent provision 
of benefits, and, in certain cases, financial instability of 
the enrolling plan.
    Reports of these irregularities led to Congressional action 
that has spanned the last twenty years. The first Federal 
action addressing Medicaid HMO contracts came with the Health 
Maintenance Organization Amendments of 1976 (P.L. 94-46). This 
measure, the predecessor of the current 75-25 rule, limited the 
percentage of Medicaid and Medicare beneficiaries enrolled in 
risk contracts to 50 percent. An exception applied to 
Federally-funded centers and pre-1970 contractors. New 
contractors had up to three years to meet the requirement if 
they could show that they were making satisfactory progress 
towards compliance. The 1976 measure also limited new State 
prepaid initiatives to established organizations which could 
meet the Federal qualifications.
    The 1976 measure had the unintended effect of sharply 
limiting managed care enrollment by Medicaid beneficiaries. As 
of 1981, scarcely more than 1 percent of the Medicaid 
population (281,926 beneficiaries) were enrolled in HMOs. Of 
that number, fully 85 percent were located in just four States: 
California, Maryland, Michigan, and New York.
    In light of this experience, Congress again addressed 
managed care enrollment by Medicaid beneficiaries in the 
Omnibus Budget Reconciliation Act of 1981. Among the changes 
made by OBRA81 (P.L. 97-35) to Federal Medicaid HMO contracting 
rules were the following. The allowable percentage of Medicaid 
beneficiaries that could be enrolled in HMOs was increased to 
75 percent from 50 percent. This permitted plans to tailor 
their services to Medicaid beneficiaries and the communities in 
which they reside. In addition, Medicaid contracts were no 
longer limited to Federally qualified HMOs, allowing States to 
determine the qualified status of plans if they demonstrated an 
ability to provide covered services and if they could protect 
beneficiaries from financial liability should the organization 
become insolvent.
    Despite these advances, current Medicaid law creates 
significant obstacles for plans that focus on the needs of low-
income communities. Although these plans have achieved notable 
success in enhancing the quality of care received by area 
Medicaid beneficiaries, they have been less successful in 
attracting commercial clients from outlying areas. The 
requirement that one-quarter of their enrolled population 
consist of such customers, therefore, often places them in the 
difficult position of having to choose between devoting 
resources to their Medicaid-funded enrollees or to the expense 
of competing against broader-based firms for commercial 
clients.
    In light of the burdens created by this situation, this 
measure extends the existing waivers of the ``75-25'' 
requirement of Section 1903(m)(2)(A)(ii) for three health 
plans. A description of these plans follows.
    Health Partners of Philadelphia, Inc. is a not-for-profit 
voluntary health maintenance organization comprised of local 
teaching hospitals. It is independently licensed by the 
Commonwealth of Pennsylvania and fully accredited by the 
National Committee for Quality Assurance. It serves 
approximately 87,000 Medicaid recipients and 250 commercially-
enrolled individuals in Philadelphia and the surrounding 
region. While Health Partners' chief focus is on primary care, 
health education, and prevention, it also provides 
transportation services, expanded vision and dental benefits, 
multi-lingual capability, 24-hour access to mental health and 
substance abuse treatment, and home visits for new and 
expectant mothers and fathers.
    Fidelis Health Plan, operated by the Catholic Health 
Services Plan of Brooklyn and Queens, was established by the 
Catholic Medical Center which serves those two boroughs. The 
principal focus of the care provided by Fidelis to its 19,960 
Medicaid recipients is primary and preventive care as well as 
health education. An enrollee selects his or her own primary 
care practitioner who serves as his or her personal provider 
and coordinates the primary and specialty care received through 
the plan.
    Managed Healthcare Systems of New York, Inc., a minority-
controlled managed care company founded in 1994, serves nearly 
39,000 enrollees in Brooklyn and Queens. Managed Healthcare 
Systems' primary and preventive care and health education 
services are conducted through the use of mobile health vans, a 
school-based health center, an after-school Learning Center, 
newly established primary care clinics, and community outreach 
efforts for pregnancy, asthma, diabetes, sickle cell anemia, 
tuberculosis, and HIV/AIDS.

                                Hearings

    The Committee on Commerce has not held hearings on this 
legislation.

                        Committee Consideration

    On July 24, 1996, the Committee on Commerce met in open 
markup session and ordered H.R. 3871 reported to the House, 
without amendment, by a voice vote, a quorum being present.

                             Rollcall Votes

    Clause 2(l)(2)(B) of rule XI of the Rules of the House 
requires the Committee to list the recorded votes on the motion 
to report legislation and amendments thereto. There were no 
recorded votes taken in connection with ordering H.R. 3871 
reported. An amendment by Mr. Upton to provide an additional 
waiver from the Medicare and Medicaid enrollment requirements 
for Comprehensive Health Services, Inc. was offered, and then 
withdrawn by unanimous consent. A motion by Mr. Bliley to order 
H.R. 3871 reported to the House, without amendment, was agreed 
to by a voice vote, a quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee has not held 
oversight or legislative hearings on this legislation.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

               New Budget Authority and Tax Expenditures

    In compliance with clause 2(l)(3)(B) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that H.R. 3871 would result in no new or increased budget 
authority or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 403 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, the following is the cost 
estimate provided by the Congressional Budget Office pursuant 
to section 403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 1, 1996.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce, House of Representatives, Washington, 
        DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 3871, a bill to waive the Medicaid enrollment 
composition rule for certain health maintenance organizations, 
as ordered reported on July 24, 1996. CBO estimates that 
enactment of H.R. 3871 would not significantly increase or 
decrease federal spending. However, because the bill could 
affect direct spending, it would be subject to pay-as-you-go 
procedures under Section 252 of the Balanced Budget Amendment 
and Emergency Deficit Control Act of 1985.
    The enrollment composition rule in Title XIX of the Social 
Security Act requires that no more than 75 percent of the 
enrollees of a Medicaid health maintenance organization (HMO) 
may be Medicaid or Medicare beneficiaries. H.R. 3871 would 
allow the following plans to waive the enrollment rule: 
Catholic Health Services Plan of Brooklyn and Queens, Inc. and 
Managed Healthcare Systems of New York, Inc., through January 
1, 1999; and Health Partners of Philadelphia, Inc. through 
December 31, 1999.
    Without waivers of the enrollment rule, Medicaid 
beneficiaries would be required to enroll in alternate plans. 
We expect the cost of enrolling beneficiaries in such plans 
would not differ significantly from the costs of providing 
their care in the HMOs described above, however, because of 
competitive pressures and because plans in New York City are 
required to bid within a very small range of a state-
promulgated community rate.
    H.R. 3871 contains no intergovernmental or private sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
(P.L. 104-4). Because the States of New York and Pennsylvania 
pay about half of Medicaid costs, they would accrue about half 
of the savings or bear about half of the costs that would 
result from this bill. Any cost or savings would total less 
than $500,000 annually.
    If you wish further details on this estimate, we will be 
pleased to provide them. The Federal cost estimate was prepared 
by Jean Hearne, the State and local cost estimate by John 
Patterson, and the private sector mandate estimate by Linda 
Bilheimer.
            Sincerely,
                                         June E. O'Neill, Director.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that H.R. 3871 
would have no inflationary impact.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

             Section-by-Section Analysis of the Legislation

Section 1. Waiver of 75/25 Medicaid enrollment rule for certain managed 
        care organizations

    This section waives the requirement of Section 
1903(m)(2)(A)(ii) of the Social Security Act with respect to 
Catholic Health Services Plan of Brooklyn and Queens, Inc. 
(doing business as Fidelis Health Plan) and Managed Healthcare 
Systems of New York, Inc., for contract periods through January 
1, 1999, and with respect to Health Partners of Philadelphia, 
Inc., for contract periods through December 31, 1999.

         Changes in Existing Law Made by the Bill, as Reported

    This legislation does not amend any existing Federal 
statute.